What Will Drive MPLX’s Growth in the Long Term?
MPLX’s correlation with commodity prices
The correlation between MPLX’s (MPLX) stock price and WTI (West Texas Intermediate) crude oil futures price over the last one year was 0.39. Similarly, the correlation between MPLX and natural gas was 0.14 over the last one year. In comparison, Enterprise Products Partners (EPD) and the Alerian MLP ETF (AMLP) had a correlation of 0.49 and 0.59, respectively, with crude oil over the last one-year period.
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MPLX is currently working on various expansion projects. This includes several gas processing plants and the construction of multiple pipelines and transportation systems for gasoline and liquids transport. It’s evaluating several projects like a butane-to-alkylate facility, a regional NGL (natural gas liquids) export solution in the Northeast, and a long-haul pipeline to the Gulf Coast to support producer customers in the Marcellus and Utica plays.
Outlook for MPLX
MPLX owns high quality and strategically located assets in the midstream business and is one of the largest gas producers in the Marcellus and Utica plays. MPLX anticipates that its Marcellus and Utica shale processing facilities will average 80% capacity utilization in 2016 due to a 15% increase in overall gas volumes processed in the region.
MarkWest Energy’s acquisition should fuel MPLX’s future growth. MPLX maintains that it will meet its distribution growth of 12%–15% for 2016 without the need for any dropdown from sponsor Marathon Petroleum (MPC) during the year. It forecasts adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $1.3 billion to $1.4 billion for 2016.
94% of MPLX’s net operating margin is fee-based with only 6% having commodity exposure in 2016. 45% of the commodity-exposed income for the remaining part of 2016 is hedged.
MPLX’s primarily fee-based earnings, strong coverage, and high expected distribution growth make it an MLP to watch. However, its high leverage remains a key concern.