MPLX LP

MPLX reported adjusted EBITDA of $1.775 billion, in line with PitchBook consensus of $1.750 billion. Management reiterated its growth outlook as major projects remain on schedule for the second half of the year.

Why it matters: Most of the capital plan is weighted to 2026 and 2027, resulting in a substantial inflection for the business into 2028. Even so, further growth opportunities are already being contemplated. The Bay Runner Twin was announced. It is a companion to the Bay Runner pipeline entering service later this year and will serve increased gas demand at Rio Grande LNG in 2030. More gas egress from the Permian is being contemplated as capacity is expected to be filled by the early 2030s. For MPLX, gas egress serves the core NGL business by disposing of the associated gas and allowing for further investment. The more organic opportunities presented, the less reliant management will be on mergers and acquisitions to achieve its mid-single-digit EBITDA and distributable cash flow targets.

The bottom line: We are narrowly increasing our fair value estimate to $64 from $63 after refreshing our model and incorporating the newly announced project. Capital expenditure for the year was also raised to $2.9 billion from $500 million, as spending for the 2027 budget was pulled into 2026. We see units as fairly valued, trading in 3-star territory. Our marrow moat, Standard Capital Allocation, and Medium Uncertainty ratings are unchanged.

After refreshing our model and incorporating the most recent results, we are increasing our fair value for MPLX units to $64 from $63. Incorporating the Bay Runner Twin pipeline drove the increase.

We anticipate low to mid-single-digit growth over the next five years. Growth will be driven by projects in the natural gas and NGL segment coming online, as well as inflation-linked escalators pushing fees up in the crude and refined products segment.

The biggest moves in performance will be driven by volumes in the crude and refined products segment. This is the largest and most profitable operation for the firm, generating 65% and 65% of our 2026 and 2027 EBITDA, respectively. While it also should be the steadiest, due to its size and profitability, relatively small changes to volumes and rates charged can move the needle substantially. Minimum volume commitments limit downside, but stronger demand from refineries can drive financial performance higher.

The NGL segment has volume and price exposure, making it the most volatile business. It is also the most competitive for the firm, especially as it increases its exposure to the Permian-to-Gulf Coast value chain. Volatility in performance will be driven by this segment.

MPLX earns a narrow moat due to the efficient scale of its operations. It is a master limited partnership operated by its sponsor and majority unitholder, Marathon Petroleum (MPC). Its crude and refined products segment derives its moat from deep integration with established refineries owned by MPC and terminals. The natural gas and natural gas liquids segment draws 95% of its revenue from non-MPC sources and offers the full value chain of NGL services in both the Permian to Gulf Coast and Appalachia to midcontinent routes.

MPC is the partnership’s largest single source of revenue and profit. Contracts with MPC are fixed-fee with minimum volume commitments, concentrated in the crude oil and refined products segment. This results in no price exposure and limited volume risk. With contracts in the 5-10 year range, and set at a market rate by third parties, investors should have certainty of returns over a narrow moat horizon.

The natural gas and natural gas liquids segment has fixed fee arrangements, but also commodity exposure through percent of proceeds arrangements. Even so, in 2020, returns for the segment only declined to meet the cost of capital. Investors should still be wary of this segment, as while there is mitigated commodity price exposure, the primary risk is from volumes. If NGLs become uneconomic to produce, producers will curtail production, reducing returns. Even so, the segment will remain small enough that poor performance will not drag returns below the cost of capital.

Crude and refined products logistics earn a narrow moat.

Historically, more than 80% of crude oil and 95% of refined products transported by MPLX have been on behalf of MPC. This makes sense as these assets originally served MPC’s refineries, and there is little reason to divert them given MPC’s control of both entities. The focus of the business is to move crude to refineries on its transmission assets, then move refined products and market them at points of sale.

The contracts between the two entities give unitholders great confidence in the arrangement. MPC has given minimum volume commitments and fixed fee arrangements to MPLX, providing substantial downside protection. Depending on the type of service, these contracts last up to 10 years. As these assets are expanded together and controlled by the same entity, there is also little chance in our view that the moaty relationship between the two will be challenged meaningfully.

Further, both crude and refined products are mature services, with few new competitors entering the market. As a result, the segment is expected to receive the least amount of growth capital. Combined with maintained fee increases and incremental volumes, we see returns accelerating toward the end of our forecast. Factors that could impact this result include new acquisitions and MPC dropping down additional assets, should the returns be favorable to doing so. Fees are fixed with no exposure to commodity prices, with contracts also including an escalator linked to various inflation indexes, providing further protection.

Our only hesitancy for awarding a wide moat to the segment is the length of contracts. Contracts last 5-10 years, so while we can have confidence in the current returns, they are by no means guaranteed over a longer period of time.

Natural gas and NGL services earn a narrow moat.

Natural gas and NGL services have historically had narrower returns, but still comfortably above their cost of capital. Instructive is their performance in 2020, which saw returns for the segment dip to the cost of capital before rebounding. Further strong investment in the segment will depress returns over the medium term before increasing as those projects are realized.

The segment has attracted far more investment and likely will for the foreseeable future. Natural gas production growth in oil- and gas-weighted basins will outpace the growth of oil. This is due to older wells producing more gas, but more importantly, as oil drillers expend their Tier 1 acreage, they will have to push into lower-quality locations. These lower-quality locations are characterized by being both lower productivity and higher gas content, which generally nets out to more gas.

The segment’s value chain is far more developed than crude and refined products. Today, the offering takes gas and natural gas liquids from the wellhead to processing and fractionation facilities that it controls, rather than those owned by MPC, and ultimately to end consumers. In 2028, there will also be access to international markets via an export terminal on the Gulf Coast through a joint venture with Oneok. This is important to securing its Permian-to-Gulf value chain, as there are many competitors across the NGL value chain, but fewer with access to international markets.

Crude and refined products pipelines serve Marathon refineries and can continue pushing fees higher via inflation indexation.

Limited direct commodity exposure, with a large fixed-fee component, enables resilient earnings through the cycle.

Building out the full value chain of NGL services in for the Permian should drive value as gas production continues to grow.

By investing in NGL operations, management has made the firm far more volatile relative to a fixed-fee-only business.

Rising interest rates could affect the firm's value as yield-focused investors prioritize other opportunities.

Marathon controls MPLX’s capital decisions, potentially prioritizing its own interests over MPLX.