MPLX to Get Rid of Incentive Distribution Rights



Removal of IDRs

On January 3, 2017, Marathon Petroleum (MPC) announced key initiatives related to its MLP MPLX (MPLX). These include an exchange of IDRs (incentive distribution rights) to MPC for MPLX LP (limited partner) units and an accelerated drop-down plan.

In October 2016, Marathon Petroleum announced its intent to look at ways to reduce MPLX’s cost of capital. Yesterday, the company announced that it completed “its initial evaluation of strategic alternatives for its MPLX” GP (general partner) units. MPC expects to exchange its economic interests in the GP for newly issued MPLX common units in conjunction with the completion of planned dropdowns. MPC would continue to retain control of the GP following this exchange.

MPLX will announce the details of the GP/IDR buy-in “following receipt of the requisite approvals and tax clearance for all dropdowns.” Read Do MLPs Benefit from the LP-GP Model? to learn more about IDRs.

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Benefits to MPLX

The GP/IDR buy-in is expected to reduce MPLX’s cost of capital and enhance its distribution growth. Notably, MPLX is operating in the highest distribution tier with a 50% split. The transaction will also simplify MPLX’s structure.

The above graph shows MPLX’s stock performance over the past year. The stock largely remained flat over the last six months.

In the next part, we’ll discuss the accelerated drop-down plan that Marathon Petroleum put in place for MPLX.


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