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MarkWest’s Operations Will Change MPLX’s Business Mix

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MPLX’s business mix

MPLX LP (MPLX) has only one reportable segment. The MLP is involved into the transportation and storage of crude oil and refined products. It primarily operates in the Midwest and Gulf Coast regions of the United States.

MPLX also owns a butane cavern in West Virginia with NGL (natural gas liquids) storage capacity. Sunoco Logistics Partners (SXL), Genesis Energy (GEL), and Plains All American Pipeline (PAA) are other MLPs involved in crude oil and refined products transportation.

On December 4, 2015, MPLX successfully completed the merger with MarkWest Energy, which became a wholly owned subsidiary of MPLX. The merger expands MPLX’s operations into natural gas gathering, processing, fractionation, and NGL transportation.

MarkWest Energy is the second-largest processor of natural gas in the United States. It has extensive processing and fractionating operations in the Marcellus and Utica shale plays.

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MPLX’s expected segmental mix

The above graph shows MPLX’s quarterly EBITDA (earnings before interest, tax, depreciation, and amortization) over two years. In its merger presentation released in July 2015, MPLX expected its pro forma post-merger 2015 EBITDA to be $1,200 million–$1,300 million. Nearly $275 million of this was expected to be contributed by standalone MPLX, with the remaining coming from MarkWest Energy.

As a result, the merger with the much larger MarkWest Energy will substantially change the EBITDA mix for MPLX. The 4Q15 earnings will be the first post-merger results, with nearly a month’s data of the combined entity.

MarkWest Energy conducts operations through four segments: Marcellus, Utica, Northeast, and Southwest segment. Its Marcellus segment contributes nearly half of the company’s net operating income and accounts for ~36% of the company’s revenues. The Southwest segment contributes nearly one-third to MarkWest’s net operating income.

Expected dropdowns from sponsor Marathon Petroleum Corporation (MPC) is also expected to impact MPLX’s EBITDA mix going forward. According to the company, MPC has a dropdown portfolio of $1.6 billion EBITDA to support MPLX’s distribution growth.

MPLX forms ~2% of the Global X MLP & Energy Infrastructure ETF (MLPX), which invests in MLPs and energy infrastructure companies.

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