Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________
FORM 10-Q
 _____________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2017

OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-35714
_____________________________________________ 
MPLX LP
(Exact name of registrant as specified in its charter)
 _____________________________________________
Delaware
 
27-0005456
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
200 E. Hardin Street, Findlay, Ohio
 
45840
(Address of principal executive offices)
 
(Zip code)
(419) 421-2414
(Registrant’s telephone number, including area code)
 _____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x     No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  ¨    No  x

MPLX LP had 388,521,088 common units and 7,929,000 general partner units outstanding at July 27, 2017.





MPLX LP
Form 10-Q
Quarter Ended June 30, 2017

INDEX

 
Page
 
 
 
 
 

Unless the context otherwise requires, references in this report to “MPLX LP,” “the Partnership,” “we,” “our,” “us,” or like terms refer to MPLX LP and its subsidiaries, including MPLX Operations LLC (“MPLX Operations”), MPLX Terminal and Storage LLC (“MPLX Terminal and Storage”), MarkWest Energy Partners, L.P. (“MarkWest”), MarkWest Hydrocarbon, L.L.C. (“MarkWest Hydrocarbon”), MPLX Pipe Line Holdings LLC (“Pipe Line Holdings”), Marathon Pipe Line LLC (“MPL”), Ohio River Pipe Line LLC (“ORPL”), Hardin Street Marine LLC (“HSM”), Hardin Street Transportation LLC (“HST”), Woodhaven Cavern LLC (“WHC”) and MPLX Terminals LLC (“MPLXT”). We have partial ownership interests in a number of joint venture legal entities, including MarkWest Pioneer, L.L.C. (“MarkWest Pioneer”), MarkWest Utica EMG, L.L.C. (“MarkWest Utica EMG”) and its subsidiary Ohio Gathering Company, L.L.C. (“Ohio Gathering”), Ohio Condensate Company, L.L.C. (“Ohio Condensate”), Wirth Gathering Partnership (“Wirth”), MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C. (“Jefferson Dry Gas”), Sherwood Midstream LLC (“Sherwood Midstream”), Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), MarEn Bakken Company, LLC (“MarEn Bakken”), Johnston County Terminal, LLC (“Johnston Terminal”) and Guilford County Terminal Company, LLC (“Guilford Terminal”). References to “MPC” refer collectively to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership. Unless otherwise specified, references to “Predecessor” refer collectively to HSM’s, HST’s, WHC’s and MPLXT’s related assets, liabilities and results of operations prior to the dates of their respective acquisitions effective January 1, 2014 for HSM, January 1, 2015 for HST and WHC and April 1, 2016 for MPLXT.

1




Glossary of Terms

The abbreviations, acronyms and industry technology used in this report are defined as follows.
ATM Program
A continuous offering, or at-the-market program, by which the Partnership may offer common units in amounts, at prices and on terms to be determined by market conditions and other factors at the time of any offerings, as defined by the prospectus supplement filed with the SEC on August 4, 2016
Bbl
Barrels
Bcf/d
One billion cubic feet of natural gas per day
Btu
One British thermal unit, an energy measurement
Condensate
A natural gas liquid with a low vapor pressure mainly composed of propane, butane, pentane and heavier hydrocarbon fractions
DCF (a non-GAAP financial measure)
Distributable Cash Flow
Dth/d
Dekatherms per day
EBITDA (a non-GAAP financial measure)
Earnings Before Interest, Taxes, Depreciation and Amortization
EPA
United States Environmental Protection Agency
FASB
Financial Accounting Standards Board
GAAP
Accounting principles generally accepted in the United States of America
Gal
Gallon
Gal/d
Gallons per day
Initial Offering
Initial public offering on October 31, 2012
LIBOR
London Interbank Offered Rate
MarkWest Merger
On December 4, 2015, a wholly-owned subsidiary of the Partnership merged with MarkWest Energy Partners, L.P.
mbpd
Thousand barrels per day
MMBtu
One million British thermal units, an energy measurement
MMcf/d
One million cubic feet of natural gas per day
Net operating margin (a non-GAAP financial measure)
Segment revenue, less segment purchased product costs, less realized derivative gains (losses) related to purchased product costs
NGL
Natural gas liquids, such as ethane, propane, butanes and natural gasoline
OTC
Over-the-Counter
Predecessor
Collectively:
- HSM’s related assets, liabilities and results of operations prior to the date of its acquisition, March 31, 2016, effective January 1, 2015.
- HST’s, WHC’s and MPLXT’s related assets, liabilities and results of operations prior to the date of the acquisition, March 1, 2017, effective January 1, 2015 for HST and WHC and April 1, 2016 for MPLXT.
Realized derivative gain/loss
The gain or loss recognized when a derivative matures or is settled
SEC
U.S. Securities and Exchange Commission
SMR
Steam methane reformer, operated by a third party and located at the Javelina gas processing and fractionation complex in Corpus Christi, Texas
Unrealized derivative gain/loss
The gain or loss recognized on a derivative due to changes in fair value prior to the instrument maturing or settling
VIE
Variable interest entity
WTI
West Texas Intermediate


2




Part I—Financial Information

Item 1. Financial Statements
MPLX LP
Consolidated Statements of Income (Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(In millions, except per unit data)
2017
 
2016(1)
 
2017
 
2016(1)
Revenues and other income:
 
 
 
 
 
 
 
Service revenue
$
286

 
$
233

 
$
546

 
$
462

Service revenue - related parties
270

 
246

 
525

 
423

Rental income
70

 
71

 
139

 
141

Rental income - related parties
70

 
66

 
137

 
104

Product sales
191

 
137

 
394

 
237

Product sales - related parties
2

 
3

 
4

 
6

Gain on sale of assets

 

 
1

 

Income (loss) from equity method investments
1

 
(83
)
 
6

 
(78
)
Other income
1

 
1

 
3

 
3

Other income - related parties
25

 
24

 
47

 
45

Total revenues and other income
916

 
698

 
1,802

 
1,343

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
139

 
113

 
252

 
207

Purchased product costs
140

 
114

 
271

 
193

Rental cost of sales
13

 
15

 
25

 
29

Rental cost of sales - related parties
1

 
1

 
1

 
1

Purchases - related parties
109

 
99

 
216

 
177

Depreciation and amortization
164

 
151

 
351

 
287

Impairment expense

 
1

 

 
130

General and administrative expenses
57

 
63

 
115

 
116

Other taxes
13

 
13

 
26

 
25

Total costs and expenses
636

 
570

 
1,257

 
1,165

Income from operations
280

 
128

 
545

 
178

Related party interest and other financial costs

 

 

 
1

Interest expense (net of amounts capitalized of $11 million, $7 million, $18 million and $14 million, respectively)
74

 
52

 
140

 
107

Other financial costs
13

 
12

 
25

 
24

Income before income taxes
193

 
64

 
380

 
46

Provision (benefit) for income taxes
2

 
(8
)
 
2

 
(12
)
Net income
191

 
72

 
378

 
58

Less: Net income attributable to noncontrolling interests
1

 
1

 
2

 
1

Less: Net income attributable to Predecessor

 
52

 
36

 
98

Net income (loss) attributable to MPLX LP
190

 
19

 
340

 
(41
)
Less: Preferred unit distributions
17

 
9

 
33

 
9

Less: General partner’s interest in net income attributable to MPLX LP
74

 
46

 
136

 
85

Limited partners’ interest in net income (loss) attributable to MPLX LP
$
99

 
$
(36
)
 
$
171

 
$
(135
)
Per Unit Data (See Note 6)
 
 
 
 
 
 
 
Net income (loss) attributable to MPLX LP per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$
0.26

 
$
(0.11
)
 
$
0.46

 
$
(0.43
)
Common - diluted
0.26

 
(0.11
)
 
0.46

 
(0.43
)
Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
Common - basic
377

 
331

 
370

 
316

Common - diluted
382

 
331

 
374

 
316

Cash distributions declared per limited partner common unit
$
0.5625

 
$
0.5100

 
$
1.1025

 
$
1.0150

(1)
Financial information has been retrospectively adjusted for the acquisition of HST, WHC and MPLXT from MPC. See Notes 1 and 3.
The accompanying notes are an integral part of these consolidated financial statements.

3




MPLX LP
Consolidated Balance Sheets (Unaudited)
 
(In millions)
June 30, 2017
 
December 31, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
293

 
$
234

Receivables, net
284

 
299

Receivables - related parties
173

 
247

Inventories
62

 
55

Other current assets
31

 
33

Total current assets
843

 
868

Equity method investments
3,368

 
2,471

Property, plant and equipment, net
11,638

 
11,408

Intangibles, net
473

 
492

Goodwill
2,245

 
2,245

Long-term receivables - related parties
16

 
11

Other noncurrent assets
18

 
14

Total assets
$
18,601

 
$
17,509

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
144

 
$
140

Accrued liabilities
178

 
232

Payables - related parties
93

 
87

Deferred revenue
3

 
2

Deferred revenue - related parties
39

 
38

Accrued property, plant and equipment
171

 
146

Accrued taxes
39

 
38

Accrued interest payable
94

 
53

Other current liabilities
29

 
27

Total current liabilities
790

 
763

Long-term deferred revenue
26

 
12

Long-term deferred revenue - related parties
33

 
19

Long-term debt
6,666

 
4,422

Deferred income taxes
7

 
6

Deferred credits and other liabilities
170

 
177

Total liabilities
7,692

 
5,399

Commitments and contingencies (see Note 17)

 

Redeemable preferred units
1,000

 
1,000

Equity
 
 
 
Common unitholders - public (284 million and 271 million units issued and outstanding)
8,360

 
8,086

Class B unitholders (4 million and 4 million units issued and outstanding)
133

 
133

Common unitholder - MPC (90 million and 86 million units issued and outstanding)
1,161

 
1,069

Common unitholder - GP (9 million and 0 units issued and outstanding)
351

 

General partner - MPC (8 million and 7 million units issued and outstanding)
(242
)
 
1,013

Equity of Predecessor

 
791

Total MPLX LP partners’ capital
9,763

 
11,092

Noncontrolling interests
146

 
18

Total equity
9,909

 
11,110

Total liabilities, preferred units and equity
$
18,601

 
$
17,509


The accompanying notes are an integral part of these consolidated financial statements.

4




MPLX LP
Consolidated Statements of Cash Flows (Unaudited)
 
Six Months Ended 
 June 30,
(In millions)
2017
 
2016(1)
Increase (decrease) in cash and cash equivalents
 
 
 
Operating activities:
 
 
 
Net income
$
378

 
$
58

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred financing costs
25

 
23

Depreciation and amortization
351

 
287

Impairment expense

 
130

Deferred income taxes
1

 
(13
)
Asset retirement expenditures
(1
)
 
(2
)
Gain on disposal of assets
(1
)
 

(Income) loss from equity method investments
(6
)
 
78

Distributions from unconsolidated affiliates
66

 
78

Changes in:
 
 
 
Current receivables
17

 
(20
)
Inventories
(2
)
 
(3
)
Fair value of derivatives
(22
)
 
25

Current accounts payable and accrued liabilities
(16
)
 
19

Receivables from / liabilities to related parties
22

 
(12
)
All other, net
32

 
22

Net cash provided by operating activities
844

 
670

Investing activities:
 
 
 
Additions to property, plant and equipment
(652
)
 
(606
)
Acquisitions, net of cash acquired
(220
)
 

Disposal of assets
3

 

Investments - net related party loans
80

 
37

Investments in unconsolidated affiliates
(640
)
 
(39
)
Distributions from unconsolidated affiliates - return of capital
24

 

All other, net
1

 
5

Net cash used in investing activities
(1,404
)
 
(603
)
Financing activities:
 
 
 
Long-term debt - borrowings
2,241

 
434

  - repayments
(1
)
 
(1,311
)
Related party debt - borrowings
12

 
1,853

- repayments
(12
)
 
(1,861
)
Debt issuance costs
(21
)
 

Net proceeds from equity offerings
443

 
321

Issuance of redeemable preferred units

 
984

Distribution to MPC for acquisition
(1,511
)
 

Distributions to preferred unitholders
(33
)
 

Distributions to unitholders and general partner
(505
)
 
(391
)
Distributions to noncontrolling interests
(2
)
 
(1
)
Contributions from noncontrolling interests
128

 
2

All other, net
(7
)
 
(1
)
Distributions to MPC from Predecessor
(113
)
 
(104
)
Net cash provided by (used in) financing activities
619

 
(75
)
Net increase (decrease) in cash and cash equivalents
59

 
(8
)
Cash and cash equivalents at beginning of period
234

 
43

Cash and cash equivalents at end of period
$
293

 
$
35

(1)
Financial information has been retrospectively adjusted for the acquisition of HST, WHC and MPLXT from MPC. See Notes 1 and 3.
The accompanying notes are an integral part of these consolidated financial statements.

5




MPLX LP
Consolidated Statements of Equity (Unaudited)
 

 
Partnership
 
 
 
 
 
 
(In millions)
Common
Unitholders
Public
 
Class B Unitholders Public
 
Common
Unitholder
MPC
 
Common Unitholder GP
 
General Partner
MPC
 
Non-controlling
Interests
 
Equity of Predecessor(1)
 
Total
Balance at December 31, 2015
$
7,691

 
$
266

 
$
465

 
$

 
$
819

 
$
13

 
$
692

 
$
9,946

Distributions to MPC from Predecessor

 

 

 

 

 

 
(104
)
 
(104
)
Issuance of units under ATM Program
315

 

 

 

 
6

 

 

 
321

Net (loss) income
(107
)
 

 
(28
)
 

 
85

 
1

 
98

 
49

Allocation of MPC's net investment at acquisition

 

 
669

 

 
(337
)
 

 
(332
)
 

Distributions to unitholders and general partner
(248
)
 

 
(57
)
 

 
(86
)
 

 

 
(391
)
Distributions to noncontrolling interests

 

 

 

 

 
(1
)
 

 
(1
)
Contributions from noncontrolling interests

 

 

 

 

 
2

 

 
2

Non-cash contribution from MPC

 

 

 

 

 

 
334

 
334

Equity-based compensation
5

 

 

 

 

 

 

 
5

Deferred income tax impact from changes in equity
2

 

 

 

 
(2
)
 

 

 

Balance at June 30, 2016
$
7,658

 
$
266


$
1,049


$

 
$
485


$
15


$
688

 
$
10,161

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Balance at December 31, 2016
$
8,086

 
$
133

 
$
1,069

 
$

 
$
1,013

 
$
18

 
$
791

 
$
11,110

Distributions to MPC from Predecessor

 

 

 

 

 

 
(113
)
 
(113
)
Issuance of units under ATM Program
434

 

 

 

 
9

 

 

 
443

Net income
127

 

 
41

 
3

 
136

 
2

 
36

 
345

Contribution from MPC

 

 

 

 

 

 
12

 
12

Allocation of MPC's net investment at acquisition

 

 
573

 
350

 
(197
)
 

 
(726
)
 

Distribution to MPC for acquisition

 

 
(430
)
 

 
(1,081
)
 

 

 
(1,511
)
Distributions to unitholders and general partner
(289
)
 

 
(92
)
 
(2
)
 
(122
)
 

 

 
(505
)
Distributions to noncontrolling interests

 

 

 

 

 
(2
)
 

 
(2
)
Contributions from noncontrolling interests

 

 

 

 

 
128

 

 
128

Equity-based compensation
2

 

 

 

 

 

 

 
2

Balance at June 30, 2017
$
8,360


$
133


$
1,161


$
351


$
(242
)

$
146


$

 
$
9,909


(1)
Financial information has been retrospectively adjusted for the acquisition of HST, WHC and MPLXT from MPC. See Notes 1 and 3.

The accompanying notes are an integral part of these consolidated financial statements.

6




Notes to Consolidated Financial Statements (Unaudited)

1. Description of the Business and Basis of Presentation

Description of the Business – MPLX LP is a diversified, growth-oriented master limited partnership formed by Marathon Petroleum Corporation. MPLX LP and its subsidiaries (collectively, the “Partnership”) are engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of NGLs; and the transportation, storage and distribution of crude oil and refined petroleum products principally for our sponsor.

The Partnership’s business consists of two segments based on the nature of services it offers: Logistics and Storage (“L&S”) focused on crude oil and refined petroleum products and Gathering and Processing (“G&P”) focused on natural gas and NGLs. See Note 9 for additional information regarding operations.

Basis of Presentation – The Partnership’s consolidated financial statements include all majority-owned and controlled subsidiaries. For non-wholly-owned consolidated subsidiaries, the interests owned by third parties have been recorded as Noncontrolling interests in the accompanying Consolidated Balance Sheets. Intercompany investments, accounts and transactions have been eliminated. The Partnership’s investments in which the Partnership exercises significant influence but does not control and does not have a controlling financial interest are accounted for using the equity method. The Partnership’s investments in a VIE in which the Partnership exercises significant influence but does not control and is not the primary beneficiary are also accounted for using the equity method.

Effective March 1, 2017, the Partnership acquired pipeline, storage and terminal businesses that are operated through HST, WHC and MPLXT (collectively with HSM, “Predecessor”) from MPC. The acquisition from MPC was considered a transfer between entities under common control. Accordingly, the Partnership recorded the acquisition from MPC on its Consolidated Balance Sheets at MPC’s historical basis instead of fair value. Transfers of businesses between entities under common control require prior periods to be retrospectively adjusted to furnish comparative information since inception of common control. Therefore, the accompanying consolidated financial statements and related notes of MPLX LP have been retrospectively adjusted to include the historical results of the businesses acquired from MPC prior to the effective dates of the acquisition. See Note 3 for additional information regarding the HST, WHC and MPLXT acquisition. The accompanying financial statements and related notes present the combined financial position, results of operations, cash flows and equity of Predecessor at historical cost. The financial statements of Predecessor have been prepared from the separate records maintained by MPC and may not necessarily be indicative of the conditions or the results of operations that would have existed if Predecessor had been operated as an unaffiliated entity.

In preparing the Consolidated Statements of Equity, net income attributable to MPLX LP is allocated to preferred unitholders based on a fixed distribution schedule, as discussed in Note 8, and subsequently allocated to the general partner and limited partner unitholders. Distributions, although earned, are not accrued for until declared. However, when distributions related to the incentive distribution rights are made, earnings equal to the amount of those distributions are first allocated to the general partner before the remaining earnings are allocated to the limited partner unitholders based on their respective ownership percentages. The allocation of net income attributable to MPLX LP for purposes of calculating net income per limited partner unit is described in Note 6.

The accompanying interim consolidated financial statements are unaudited; however, in the opinion of the Partnership’s management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules and regulations of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by GAAP for complete financial statements.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2016, as updated by our Current Report on Form 8-K filed on May 1, 2017. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year.


7




2. Accounting Standards

Recently Adopted

In October 2016, the FASB issued an accounting standard update to amend the consolidation guidance issued in February 2015 to require that a decision maker consider, in the determination of the primary beneficiary, its indirect interest in a VIE held by a related party that is under common control on a proportionate basis only. The change was effective for the financial statements for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Partnership was required to apply the standard retrospectively to January 1, 2016, the date on which the Partnership adopted the consolidation guidance issued in February 2015. The Partnership adopted this accounting standard update in the first quarter of 2017 and it did not have an impact on the consolidated financial statements.

In March 2016, the FASB issued an accounting standard update on the accounting for employee share-based payments. This update requires the recognition of income tax effects of awards through the income statement when awards vest or are settled. It also increases the amount an employer can withhold for tax purposes without triggering liability accounting. Lastly, it allows employers to make a policy election to account for forfeitures as they occur. The changes were effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Under the new guidance, the Partnership will continue estimating forfeiture rates to calculate compensation cost. The Partnership adopted this accounting standard update in the first quarter of 2017 and it did not have a material impact on the consolidated financial statements.

Not Yet Adopted

In May 2017, the FASB issued an accounting standard update to provide guidance about when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless the fair value, vesting conditions and balance sheet classification of the modified award is the same as the original award immediately before the original award is modified. The update is effective for annual periods beginning after December 15, 2017, and interim periods within that annual period. Early adoption is permitted. This update should be applied prospectively to an award modified on or after the adoption date. The Partnership is in the process of determining the impact of the accounting standard update on the consolidated financial statements.

In February 2017, the FASB issued an accounting standard update addressing the derecognition of nonfinancial assets. The guidance defines in-substance nonfinancial assets, and states that the derecognition of business activities should be evaluated under the consolidation guidance, with limited exceptions related to conveyances of oil and gas mineral rights or contracts with customers. The standard eliminates the previous exclusion for businesses that are in-substance real estate, and eliminates some differences based on whether a transferred set is that of assets or a business and whether the transfer is to a joint venture. The standard must be implemented in conjunction with the implementation date of the revenue recognition accounting standard update, which the Partnership will implement January 1, 2018. The Partnership plans to adopt the new standard using the modified retrospective method and is in the process of determining the impact of the accounting standard update on the consolidated financial statements together with its evaluation of the new revenue recognition standard, as described further below.

In January 2017, the FASB issued an accounting standard update which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Partnership is in the process of determining the impact of the accounting standard update on the consolidated financial statements.

In January 2017, the FASB issued an accounting standard update to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is intended to narrow the definition of a business by specifying the minimum inputs and processes and by narrowing the definition of outputs. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance will be applied prospectively and early adoption is permitted for certain transactions. The Partnership is in the process of determining the impact of the accounting standard update on the consolidated financial statements.

8





In November 2016, the FASB issued an accounting standard update requiring that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Retrospective application is required. The application of this accounting standard update will not have a material impact on the Consolidated Statements of Cash Flows.

In August 2016, the FASB issued an accounting standard update related to the classification of certain cash flows. The accounting standard update provides specific guidance on eight cash flow classification issues, including debt prepayment or debt extinguishment costs and distributions received from equity method investees. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Partnership does not expect application of this accounting standard update to have a material impact on the Consolidated Statements of Cash Flows.

In June 2016, the FASB issued an accounting standard update related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses are based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Partnership does not expect application of this accounting standard update to have a material impact on the consolidated financial statements.

In February 2016, the FASB issued an accounting standard update requiring lessees to record virtually all leases on their balance sheets. The accounting standard update also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The change will be effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Partnership is currently evaluating the impact of this standard on the Partnership’s financial statements and disclosures, internal controls, and accounting policies. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path to implementation. The Partnership does not plan to early adopt the standard. The Partnership believes the impact will be material on the consolidated financial statements as all operating leases will generate a right of use asset and lease obligation.

In January 2016, the FASB issued an accounting standard update requiring unconsolidated equity investments, not accounted for under the equity method, to be measured at fair value with changes in fair value recognized in net income. The update also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes and the separate presentation of financial assets and liabilities by measurement category and form on the balance sheet and accompanying notes. The update eliminates the requirement to disclose the methods and assumptions used in estimating the fair value of financial instruments measured at amortized cost. Lastly, the accounting standard update requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when electing to measure the liability at fair value in accordance with the fair value option for financial instruments. The changes are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted only for guidance regarding presentation of the liability’s credit risk. The application of this accounting standard update will not have a material impact on the Partnership’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 which created Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The guidance in the ASC 606 states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The change will be effective on a retrospective or modified retrospective basis for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted no earlier than January 1, 2017.


9




The Partnership is currently evaluating the impact of the revenue recognition standard on its consolidated financial statements and disclosures, internal controls and accounting policies. This evaluation process includes a phased approach, the first phase of which includes reviewing a sample of contracts and transaction types across segments. This phase is substantially complete; however, the Partnership continues to evaluate our accounting for certain items such as principal versus agent treatment in relation to commodity sales.

Based on the results of the first phase assessment to date, the Partnership has reached tentative conclusions for most contract types and does not believe revenue recognition patterns for fee-based or percent-of-proceeds contracts will change materially. The Partnership does expect certain amounts to be grossed up in revenue as a result of implementation, specifically related to third-party reimbursements from customers and commodities received as consideration in service agreements. In the second quarter of 2017, the Partnership reached a tentative conclusion on the valuation of noncash consideration received in the form of a commodity product. The Partnership has started the second phase of implementation, which includes the calculation of the impact of the new standard on results and the development of new policies and procedures related to the application upon adoption. The Partnership will provide updates as qualitative and quantitative conclusions are reached throughout 2017.

The Partnership will adopt the revenue recognition standard during the first quarter of 2018. The Partnership plans to adopt the new standard using the modified retrospective method which will result in a cumulative effect adjustment as of the date of adoption. By selecting this adoption method, the Partnership will disclose the amount by which each financial statement line item is affected by the standard in the current reporting period after adoption as compared with the guidance that was in effect before adoption.

3. Acquisitions

Acquisition of Hardin Street Transportation LLC, Woodhaven Cavern LLC and MPLX Terminals LLC

MPC contributed the assets of HST, WHC and MPLXT to newly created and wholly-owned subsidiaries and entered into commercial agreements related to services provided by these new entities to MPC on January 1, 2015 for HST and WHC and April 1, 2016 for MPLXT. Pursuant to a Membership Interests Contributions Agreement (the “Contributions Agreement”) entered into on March 1, 2017 by the Partnership with MPLX GP LLC (“MPLX GP”), MPLX Logistics Holdings LLC (“MPLX Logistics”), MPLX Holdings Inc. (“MPLX Holdings”) and MPC Investment LLC (“MPC Investment”), each a wholly-owned subsidiary of MPC, MPC Investment agreed to contribute the outstanding membership interests in HST, WHC and MPLXT through a series of intercompany contributions to the Partnership for approximately $1.5 billion in cash and equity consideration valued at approximately $504 million (the “Transaction”). The number of common units representing the equity consideration was determined by dividing the contribution amount by the simple average of the ten day trailing volume weighted average New York Stock Exchange price of a common unit for the ten trading days ending at market close on February 28, 2017. The fair value of the common and general partner units issued was approximately $503 million, as recorded on the Consolidated Statements of Equity, and consisted of (i) 9,197,900 common units representing limited partner interests in the Partnership to MPLX GP, (ii) 2,630,427 common units to MPLX Logistics and (iii) 1,132,049 common units to MPLX Holdings. The Partnership also issued 264,497 general partner units to MPLX GP in order to maintain its two percent general partner interest (“GP Interest”) in the Partnership. MPC agreed to waive two-thirds of the first quarter 2017 distributions on the MPLX LP common units issued in connection with the Transaction. As a result of this waiver, MPC did not receive two-thirds of the general partner distributions or incentive distribution rights that would have otherwise accrued on such MPLX LP common units with respect to the first quarter 2017 distributions. The value of these waived distributions was $6 million.

HST owns and operates various private crude oil and refined product pipeline systems and associated storage tanks. As of the acquisition date, these pipeline systems consisted of 174 miles of crude oil pipelines and 430 miles of refined products pipelines. WHC owns and operates nine butane and propane storage caverns located in Michigan with approximately 1.8 million barrels of natural gas liquids storage capacity. As of the acquisition date, MPLXT owned and operated 59 terminals for the receipt, storage, blending, additization, handling and redelivery of refined petroleum products. Additionally, MPLXT operated one leased terminal and had partial ownership interest in two terminals. Collectively, these 62 terminals have a combined shell capacity of approximately 23.6 million barrels. The terminal facilities are located primarily in the Midwest, Gulf Coast and Southeast regions of the United States. The Partnership accounts for these businesses within its L&S segment.

The Partnership retrospectively adjusted the historical financial results for all periods to give effect to the acquisition of HST and WHC effective January 1, 2015 and the acquisition of MPLXT effective April 1, 2016, as required for transactions between entities under common control. Prior to these dates, these entities were not considered businesses and, therefore, there are no financial results from which to recast.


10



The following tables present the Partnership’s previously reported unaudited Consolidated Statements of Income for the three and six months ended June 30, 2016, retrospectively adjusted for the acquisition of HST, WHC and MPLXT:
 
Three Months Ended June 30, 2016
(In millions, except per unit data)
MPLX LP (Previously Reported)
 
HST/WHC
 
MPLXT
 
Eliminations(1)
 
MPLX LP (Currently Reported)
Revenues and other income:
 
 
 
 
 
 
 
 
 
Service revenue
$
233

 
$

 
$

 
$

 
$
233

Service revenue - related parties
145

 
27

 
74

 

 
246

Rental income
71

 

 

 

 
71

Rental income - related parties
29

 
11

 
26

 

 
66

Product sales
137

 

 

 

 
137

Product sales - related parties
3

 

 

 

 
3

Loss from equity method investments
(83
)
 

 

 

 
(83
)
Other income
1

 

 

 

 
1

Other income - related parties
28

 

 

 
(4
)
 
24

Total revenues and other income
564

 
38

 
100

 
(4
)
 
698

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
84

 
9

 
20

 

 
113

Purchased product costs
114

 

 

 

 
114

Rental cost of sales
14

 
1

 

 

 
15

Rental cost of sales - related parties

 
1

 

 

 
1

Purchases - related parties
78

 
4

 
21

 
(4
)
 
99

Depreciation and amortization
137

 
4

 
10

 

 
151

Impairment expense
1

 

 

 

 
1

General and administrative expenses
49

 
2

 
12

 

 
63

Other taxes
11

 
1

 
1

 

 
13

Total costs and expenses
488

 
22

 
64

 
(4
)
 
570

Income from operations
76

 
16

 
36

 

 
128

Interest expense (net of amounts capitalized)
52

 

 

 

 
52

Other financial costs
12

 

 

 

 
12

Income before income taxes
12

 
16

 
36

 

 
64

Benefit for income taxes
(8
)
 

 

 

 
(8
)
Net income
20

 
16

 
36

 

 
72

Less: Net income attributable to noncontrolling interests
1

 

 

 

 
1

Less: Net income attributable to Predecessor

 
16

 
36

 

 
52

Net income attributable to MPLX LP
19

 

 

 

 
19

Less: Preferred unit distributions
9

 

 

 

 
9

Less: General partner’s interest in net income attributable to MPLX LP
46

 

 

 

 
46

Limited partners’ interest in net loss attributable to MPLX LP
$
(36
)
 
$

 
$

 
$

 
$
(36
)

(1)
Represents intercompany transactions eliminated during the consolidation process, in accordance with GAAP.


11



 
Six Months Ended June 30, 2016
(In millions, except per unit data)
MPLX LP (Previously Reported)
 
HST/WHC
 
MPLXT
 
Eliminations(1)
 
MPLX LP (Currently Reported)
Revenues and other income:
 
 
 
 
 
 
 
 
 
Service revenue
$
462

 
$

 
$

 
$

 
$
462

Service revenue - related parties
295

 
54

 
74

 

 
423

Rental income
141

 

 

 

 
141

Rental income - related parties
55

 
23

 
26

 

 
104

Product sales
237

 

 

 

 
237

Product sales - related parties
6

 

 

 

 
6

Loss from equity method investments
(78
)
 

 

 

 
(78
)
Other income
3

 

 

 

 
3

Other income - related parties
52

 

 

 
(7
)
 
45

Total revenues and other income
1,173

 
77

 
100

 
(7
)
 
1,343

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
173

 
14

 
20

 

 
207

Purchased product costs
193

 

 

 

 
193

Rental cost of sales
28

 
1

 

 

 
29

Rental cost of sales - related parties

 
1

 

 

 
1

Purchases - related parties
154

 
9

 
21

 
(7
)
 
177

Depreciation and amortization
269

 
8

 
10

 

 
287

Impairment expense
130

 

 

 

 
130

General and administrative expenses
101

 
3

 
12

 

 
116

Other taxes
22

 
2

 
1

 

 
25

Total costs and expenses
1,070

 
38

 
64

 
(7
)
 
1,165

Income from operations
103

 
39

 
36

 

 
178

Related party interest and other financial income
1

 

 

 

 
1

Interest expense (net of amounts capitalized)
107

 

 

 

 
107

Other financial costs
24

 

 

 

 
24

(Loss) income before income taxes
(29
)
 
39

 
36

 

 
46

Benefit for income taxes
(12
)
 

 

 

 
(12
)
Net (loss) income
(17
)
 
39

 
36

 

 
58

Less: Net income attributable to noncontrolling interests
1

 

 

 

 
1

Less: Net income attributable to Predecessor
23

 
39

 
36

 

 
98

Net loss attributable to MPLX LP
(41
)
 

 

 

 
(41
)
Less: Preferred unit distributions
9

 

 

 

 
9

Less: General partner’s interest in net income attributable to MPLX LP
85

 

 

 

 
85

Limited partners’ interest in net loss attributable to MPLX LP
$
(135
)

$


$


$


$
(135
)

(1)
Represents intercompany transactions eliminated during the consolidation process, in accordance with GAAP.


12



The following table presents the Partnership’s previously reported unaudited Consolidated Statements of Cash Flows, retrospectively adjusted for the acquisition of HST, WHC and MPLXT:
 
Six Months Ended June 30, 2016
(In millions)
MPLX LP (Previously Reported)
 
HST/WHC
 
MPLXT
 
MPLX LP (Currently Reported)
Increase (decrease) in cash and cash equivalents
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
Net (loss) income
$
(17
)
 
$
39

 
$
36

 
$
58

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 

 
 
Amortization of deferred financing costs
23

 

 

 
23

Depreciation and amortization
269

 
8

 
10

 
287

Impairment expense
130

 

 

 
130

Deferred income taxes
(13
)
 

 

 
(13
)
Asset retirement expenditures
(2
)
 

 

 
(2
)
Loss from equity method investments
78

 

 

 
78

Distributions from unconsolidated affiliates
78

 

 

 
78

Changes in:
 
 
 
 
 
 
 
Current receivables
(20
)
 

 

 
(20
)
Inventories
(3
)
 

 

 
(3
)
Fair value of derivatives
25

 

 

 
25

Current accounts payable and accrued liabilities
18

 
(1
)
 
2

 
19

Receivables from / liabilities to related parties
6

 

 
(18
)
 
(12
)
All other, net
21

 
3

 
(2
)
 
22

Net cash provided by operating activities
593

 
49

 
28

 
670

Investing activities:
 
 
 
 
 
 
 
Additions to property, plant and equipment
(569
)
 
(23
)
 
(14
)
 
(606
)
Investments - net related party loans
77

 
(26
)
 
(14
)
 
37

Investments in unconsolidated affiliates
(39
)
 

 

 
(39
)
All other, net
5

 

 

 
5

Net cash used in investing activities
(526
)
 
(49
)
 
(28
)
 
(603
)
Financing activities:
 
 
 
 
 
 
 
Long-term debt - borrowings
434

 

 

 
434

 - repayments
(1,311
)
 

 

 
(1,311
)
Related party debt - borrowings
1,853

 

 

 
1,853

- repayments
(1,861
)
 

 

 
(1,861
)
Net proceeds from equity offerings
321

 

 

 
321

Issuance of redeemable preferred units
984

 

 

 
984

Distributions to unitholders and general partner
(391
)
 

 

 
(391
)
Distributions to noncontrolling interests
(1
)
 

 

 
(1
)
Contributions from noncontrolling interests
2

 

 

 
2

All other, net
(1
)
 

 

 
(1
)
Distributions to MPC from Predecessor
(104
)
 

 

 
(104
)
Net cash used in financing activities
(75
)
 

 

 
(75
)
Net decrease in cash and cash equivalents
(8
)
 

 

 
(8
)
Cash and cash equivalents at beginning of period
43

 

 

 
43

Cash and cash equivalents at end of period
$
35

 
$

 
$

 
$
35



13



Acquisition of Ozark Pipeline

On March 1, 2017, the Partnership acquired the Ozark pipeline from Enbridge Pipelines (Ozark) LLC for approximately $219 million, including purchase price adjustments made in the second quarter of 2017. Based on the preliminary fair value estimates of assets acquired and liabilities assumed at the acquisition date, the purchase price was primarily allocated to property, plant and equipment. The Ozark pipeline is a 433-mile, 22-inch crude oil pipeline originating in Cushing, Oklahoma, and terminating in Wood River, Illinois, capable of transporting approximately 230 mbpd. The Partnership accounts for the Ozark pipeline within its L&S segment.

The amounts of revenue and income from operations associated with the acquisition included in the Consolidated Statements of Income, since the March 1, 2017 acquisition date, are as follows:
(In millions)
Three Months Ended June 30, 2017
 
Four Months Ended June 30, 2017
Revenues and other income
$
19

 
$
26

Income from operations
9

 
11


Assuming the acquisition of the Ozark pipeline had occurred on January 1, 2016, the consolidated pro forma results would not have been materially different from reported results.

Acquisition of Hardin Street Marine LLC

On March 14, 2016, the Partnership entered into a Membership Interests Contribution Agreement (the “Contribution Agreement”) with MPLX GP, MPLX Logistics and MPC Investment, each a wholly-owned subsidiary of MPC, related to the acquisition of HSM, MPC’s inland marine business, from MPC. Pursuant to the Contribution Agreement, the transaction was valued at $600 million consisting of a fixed number of common units and general partner units of 22,534,002 and 459,878, respectively. The general partner units maintain MPC’s two percent GP Interest in the Partnership. The acquisition closed on March 31, 2016 and the fair value of the common units and general partner units issued was $669 million and $14 million, respectively, as recorded on the Consolidated Statements of Equity. MPC agreed to waive distributions in the first quarter of 2016 on MPLX LP common units issued in connection with this transaction. As a result of this waiver, MPC did not receive general partner distributions or incentive distribution rights that would have otherwise accrued on such MPLX LP common units with respect to the first quarter 2016 distributions. The value of these waived distributions was $15 million.

The inland marine business, comprised of 18 tow boats and 219 owned and leased barges as of the acquisition date, which transport light products, heavy oils, crude oil, renewable fuels, chemicals and feedstocks in the Midwest and U.S. Gulf Coast regions, accounted for nearly 60 percent of the total volumes MPC shipped by inland marine vessels as of March 31, 2016. The Partnership accounts for HSM within its L&S segment.

4. Investments and Noncontrolling Interests

Summarized financial information for the Partnership’s equity method investments for the six months ended June 30, 2017 and 2016 is as follows:
 
Six Months Ended June 30, 2017
(In millions)
MarkWest Utica EMG
 
Other VIEs
 
Non-VIEs
 
Total
Revenues and other income
$
88

 
$
21

 
$
91

 
$
200

Costs and expenses
48

 
17

 
73

 
138

Income from operations
40

 
4

 
18

 
62

Net income
40

 
4

 
17

 
61

Income (loss) from equity method investments(1)
2

 
(1
)
 
5

 
6



14



 
Six Months Ended June 30, 2016
(In millions)
MarkWest Utica EMG
 
Other VIEs(2)
 
Non-VIEs
 
Total
Revenues and other income
$
113

 
$
10

 
$
70

 
$
193

Costs and expenses
45

 
104

 
52

 
201

Income (loss) from operations
68

 
(94
)
 
18

 
(8
)
Net income (loss)
68

 
(94
)
 
18

 
(8
)
Income (loss) from equity method investments(1)
7

 
(88
)
 
3

 
(78
)

(1)
Income (loss) from equity method investments includes the impact of any basis differential amortization or accretion.
(2)
Includes an impairment charge of $89 million for the six months ended June 30, 2016 related to the Partnership’s investment in Ohio Condensate, which does not appear separately in this table.

Summarized balance sheet information for the Partnership’s equity method investments as of June 30, 2017 and December 31, 2016 is as follows:
 
June 30, 2017
(In millions)
MarkWest Utica EMG(1)
 
Other VIEs
 
Non-VIEs
 
Total
Current assets
$
72

 
$
49

 
$
33

 
$
154

Noncurrent assets
2,103

 
881

 
2,421

 
5,405

Current liabilities
26

 
69

 
18

 
113

Noncurrent liabilities
2

 
13

 

 
15


 
December 31, 2016
(In millions)
MarkWest Utica EMG(1)
 
Other VIEs
 
Non-VIEs
 
Total
Current assets
$
45

 
$
2

 
$
40

 
$
87

Noncurrent assets
2,173

 
132

 
390

 
2,695

Current liabilities
30

 
4

 
26

 
60

Noncurrent liabilities
2

 
13

 

 
15


(1)
MarkWest Utica EMG’s noncurrent assets include its investment in its subsidiary Ohio Gathering, which does not appear elsewhere in this table. The investment was $794 million as of June 30, 2017 and December 31, 2016.

As of June 30, 2017 and December 31, 2016, the carrying value of the Partnership’s equity method investments exceeded the underlying net assets of its investees by $1.1 billion. This basis difference is being amortized or accreted into net income over the remaining estimated useful lives of the underlying net assets, except for $459 million of excess related to goodwill.

MarkWest Utica EMG

Effective January 1, 2012, MarkWest Utica Operating Company, LLC (“Utica Operating”), a wholly-owned and consolidated subsidiary of MarkWest, and EMG Utica (together the “Members”) executed agreements to form a joint venture, MarkWest Utica EMG, to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure in eastern Ohio. The related limited liability company agreement has been amended from time to time (the limited liability company agreement currently in effect is referred to as the “Amended LLC Agreement”). The aggregate funding commitment of EMG Utica was $950 million (the “Minimum EMG Investment”). Thereafter, Utica Operating was required to fund, as needed, 100 percent of future capital for MarkWest Utica EMG until the aggregate capital that had been contributed by the Members reached $2.0 billion, which occurred prior to the MarkWest Merger. Until such time as the investment balances of Utica Operating and EMG Utica are in the ratio of 70 percent and 30 percent, respectively (such time being referred to as the “Second Equalization Date”), EMG Utica will have the right, but not the obligation, to fund up to 10 percent of each capital call for MarkWest Utica EMG, and Utica Operating will be required to fund all remaining capital not elected to be funded by EMG Utica. After the Second Equalization Date, Utica Operating and EMG Utica will have the right, but not the obligation, to fund their pro rata portion (based on their respective investment balances) of any additional required capital and may also fund additional capital that the other party elects not to fund. As of June 30, 2017, EMG Utica has

15



contributed approximately $1.2 billion and Utica Operating has contributed approximately $1.5 billion to MarkWest Utica EMG.

Under the Amended LLC Agreement, prior to December 31, 2016, EMG Utica’s investment balance was increased by a quarterly special non-cash allocation of income (“Preference Amount”), calculated based upon the amount of capital contributed by EMG Utica in excess of $500 million. After December 31, 2016, no Preference Amount will accrue to EMG Utica’s investment balance. EMG Utica received a Preference Amount totaling approximately $4 million and $8 million for the three and six months ended June 30, 2016, respectively.

Under the Amended LLC Agreement, after December 31, 2016, cash generated by MarkWest Utica EMG that is available for distribution will be allocated to the Members in proportion to their respective investment balances. As of June 30, 2017, Utica Operating’s investment balance in MarkWest Utica EMG was approximately 56 percent.

MarkWest Utica EMG is deemed to be a VIE. Utica Operating is not deemed to be the primary beneficiary, due to EMG Utica’s voting rights on significant matters. The Partnership’s investment in MarkWest Utica EMG’s, which was $2.2 billion at June 30, 2017 and December 31, 2016, is reported under the caption Equity method investments on the Consolidated Balance Sheets. The Partnership’s maximum exposure to loss as a result of its involvement with MarkWest Utica EMG includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. The Partnership did not provide any financial support to MarkWest Utica EMG that it was not contractually obligated to provide during the three and six months ended June 30, 2017 and 2016, respectively. The Partnership receives management fee revenue for engineering and construction and administrative services for operating MarkWest Utica EMG, and is also reimbursed for personnel services (“Operational Service revenue”). Operational Service revenue is reported as Other income-related parties in the Consolidated Statements of Income. The amount of Operational Service revenue related to MarkWest Utica EMG for the three and six months ended June 30, 2017, totaled approximately $4 million and $8 million, respectively. The amount of Operational Service revenue related to MarkWest Utica EMG for the three and six months ended June 30, 2016, totaled $5 million and $7 million, respectively.

Ohio Gathering

Ohio Gathering is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of June 30, 2017, the Partnership has an approximate 34 percent indirect ownership interest in Ohio Gathering. As Ohio Gathering is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, the Partnership reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG. The Partnership receives Operational Service revenue for operating Ohio Gathering which is reported as Other income-related parties in the Consolidated Statements of Income. The amount of Operational Service revenue related to Ohio Gathering for the three and six months ended June 30, 2017, was approximately $4 million and $8 million, respectively. The amount of Operational Service revenue related to Ohio Gathering for the three and six months ended June 30, 2016, totaled $3 million and $7 million, respectively.

Sherwood Midstream

Effective January 1, 2017, MarkWest Liberty Midstream & Resources, L.L.C. (“MarkWest Liberty Midstream”), a wholly-owned and consolidated subsidiary of MarkWest, and Antero Midstream Partners, LP (“Antero Midstream”) formed a joint venture, Sherwood Midstream, to support Antero Resources Corporation’s development in the Marcellus Shale. MarkWest Liberty Midstream has a 50 percent ownership interest in Sherwood Midstream. Pursuant to the terms of the related limited liability company agreement (the “LLC Agreement”), MarkWest Liberty Midstream contributed assets then under construction with a fair value of approximately $134 million and cash of approximately $20 million. Antero Midstream made an initial capital contribution of approximately $154 million.

Also effective January 1, 2017, MarkWest Liberty Midstream converted all of its ownership interests in MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”), a previously wholly-owned subsidiary, to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream for $126 million in cash. The Class B-3 Interests provide Sherwood Midstream with the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 3 fractionator. Sherwood Midstream accounts for its investment in Ohio Fractionation, which is a VIE, as an equity method investment as Sherwood Midstream does not control Ohio Fractionation. MarkWest Liberty Midstream has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over the decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation. The

16



carrying amounts of assets and liabilities included in the Partnership’s Consolidated Balance Sheets pertaining to Ohio Fractionation at June 30, 2017, were current assets of $13 million, non-current assets of $389 million and current liabilities of $377 million. The creditors of Ohio Fractionation do not have recourse to MPLX LP’s general credit through guarantees or other financial arrangements. The assets of Ohio Fractionation are the property of Ohio Fractionation and cannot be used to satisfy the obligations of MPLX LP. Sherwood Midstream’s interests are reflected in Net income attributable to noncontrolling interests in the Consolidated Statements of Income and Noncontrolling interests in the Consolidated Balance Sheets.

Under the LLC Agreement, cash generated by Sherwood Midstream that is available for distribution (the “Distribution”) will be allocated to the members in proportion to their respective investment balances. For the three and six months ended June 30, 2017, there was no cash available for the Distribution.

Sherwood Midstream is deemed to be a VIE. MarkWest Liberty Midstream is not deemed to be the primary beneficiary, due to Antero Midstream’s voting rights on significant matters. The Partnership’s investment in Sherwood Midstream, which was approximately $192 million at June 30, 2017, is reported under the caption Equity method investments on the Consolidated Balance Sheets. The Partnership’s maximum exposure to loss as a result of its involvement with Sherwood Midstream includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. The Partnership did not provide any financial support to Sherwood Midstream that it was not contractually obligated to provide during the six months ended June 30, 2017. The Partnership receives Operational Service revenue for operating Sherwood Midstream. The amount of Operational Service revenue related to Sherwood Midstream for the three and six months ended June 30, 2017 totaled approximately $3 million and $4 million, respectively, and is reported as Other income-related parties in the Consolidated Statements of Income.

Sherwood Midstream Holdings

Effective January 1, 2017, MarkWest Liberty Midstream and Sherwood Midstream formed a joint venture, Sherwood Midstream Holdings, for the purpose of owning, operating and maintaining all of the shared assets that support the operations of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MarkWest Liberty Midstream. MarkWest Liberty Midstream initially contributed certain real property, equipment and facilities with a fair value of approximately $209 million to Sherwood Midstream Holdings in exchange for a 79 percent initial ownership interest. Sherwood Midstream contributed cash of approximately $44 million to Sherwood Midstream Holdings in exchange for a 21 percent ownership interest. During the three months ended June 30, 2017, true-ups to the initial contributions were made. MarkWest Liberty Midstream contributed certain additional real property, equipment and facilities with a fair value of approximately $10 million to Sherwood Midstream Holdings and Sherwood Midstream contributed cash of approximately $4 million to Sherwood Midstream Holdings. Collectively, the real property, equipment, facilities and cash initially contributed, or that may be subsequently constructed by or contributed, to Sherwood Midstream Holdings are referred to as the “Shared Assets.” The net book value of the contributed assets was approximately $203 million. The contribution was determined to be an in-substance sale of real estate. As such, the Partnership only recognized a gain for the portion attributable to Antero Midstream’s indirect interest of approximately $2 million, included in Gain on sale of assets in the Consolidated Statements of Income. MarkWest Liberty Midstream’s portion of the gain attributable to its direct and indirect interests of approximately $14 million is included in its investment in Sherwood Midstream Holdings and is reported under the caption Equity method investments on the Consolidated Balance Sheets. In connection with the initial contributions, MarkWest Liberty Midstream received a special distribution of approximately $45 million.

MarkWest Liberty Midstream’s and Sherwood Midstream’s ownership interests in Sherwood Midstream Holdings will fluctuate over time. As new Shared Assets are constructed, the members will make additional capital contributions to Sherwood Midstream Holdings. The amount that each member must contribute will be based on the expected utilization of the Shared Asset, as defined in the LLC Agreement. Pursuant to the terms of the LLC Agreement, MarkWest Liberty Midstream will serve as the operator for Sherwood Midstream Holdings.

The Partnership accounts for Sherwood Midstream Holdings, which is a VIE, as an equity method investment as Sherwood Midstream is considered to be the general partner and controls all decisions. The Partnership’s investment in Sherwood Midstream Holdings, which was approximately $165 million at June 30, 2017, is reported under the caption Equity method investments on the Consolidated Balance Sheets. The Partnership’s maximum exposure to loss as a result of its involvement with Sherwood Midstream Holdings includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. The Partnership did not provide any financial support to Sherwood Midstream Holdings that it was not contractually obligated to provide during the six months ended June 30, 2017.


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Sherwood Midstream has been deemed the primary beneficiary of Sherwood Midstream Holdings due to its controlling financial interest through its authority to manage the joint venture. As a result, Sherwood Midstream consolidates Sherwood Midstream Holdings. Therefore, the Partnership also reports its portion of Sherwood Midstream Holdings’ net assets as a component of its investment in Sherwood Midstream. As of June 30, 2017, the Partnership has a 13.9 percent indirect ownership interest in Sherwood Midstream Holdings through Sherwood Midstream.

MarEn Bakken

On February 15, 2017, the Partnership closed on a joint venture, MarEn Bakken, with Enbridge Energy Partners L.P. (“Enbridge Energy Partners”) in which MPLX LP acquired a partial, indirect interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”) projects, collectively referred to as the Bakken Pipeline system, from Energy Transfer Partners, L.P. (“ETP”) and Sunoco Logistics Partners, L.P. (“SXL”). The Partnership contributed $500 million of the $2.0 billion purchase price paid by MarEn Bakken to acquire a 36.75 percent indirect interest in the Bakken Pipeline system. The Partnership holds, through a subsidiary, a 25 percent interest in MarEn Bakken, which equates to a 9.1875 percent indirect interest in the Bakken Pipeline system.

The Partnership accounts for its investment in MarEn Bakken as an equity method investment and bases the equity method accounting for this joint venture in arrears based on the most recent available information. The Partnership’s investment balance at June 30, 2017 is approximately $519 million and reported under the caption Equity method investments on the Consolidated Balance Sheets. In connection with the Partnership’s acquisition of a partial, indirect equity interest in the Bakken Pipeline system, MPC agreed to waive its right to receive incentive distributions of $1.6 million per quarter for twelve consecutive quarters, beginning with distributions declared in the first quarter of 2017 and paid to MPC in the second quarter, which was prorated to $0.8 million from the acquisition date.

5. Related Party Agreements and Transactions

The Partnership’s material related parties include:

MPC, which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, Gulf Coast, East Coast and Southeast regions of the United States.
Centennial Pipeline LLC (“Centennial”), in which MPC has a 50 percent interest as of June 30, 2017. Centennial owns a products pipeline and storage facility.
Muskegon Pipeline LLC (“Muskegon”), in which MPC has a 60 percent interest as of June 30, 2017. Muskegon owns a common carrier products pipeline.
MarkWest Utica EMG, in which MPLX LP has a 56 percent interest as of June 30, 2017. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.
Ohio Gathering, in which MPLX LP has a 34 percent indirect interest as of June 30, 2017. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.
Sherwood Midstream, in which MPLX LP has a 50 percent interest as of June 30, 2017. Sherwood Midstream supports the development of Antero Resources Corporation’s Marcellus Shale acreage in the rich-gas corridor of West Virginia.
Sherwood Midstream Holdings, in which MPLX LP has an 86 percent total direct and indirect interest at June 30, 2017. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MarkWest gas processing plants and deethanization facilities.

Related Party Agreements

The Partnership has various long-term, fee-based commercial agreements with MPC. Under these agreements, the Partnership provides transportation, terminal and storage services to MPC, and MPC has committed to provide the Partnership with minimum quarterly throughput volumes on crude oil and refined products systems and minimum storage volumes of crude oil, refined products and butane.

In addition, the Partnership is party to a loan agreement with MPC Investment, a wholly-owned subsidiary of MPC. Under the terms of the agreement, MPC Investment will make a loan or loans to the Partnership on a revolving basis as requested by the Partnership and as agreed to by MPC Investment, in an amount or amounts that do not result in the aggregate principal amount

18




of all loans outstanding exceeding $500 million at any one time. The entire unpaid principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), shall become due and payable on December 4, 2020. MPC Investment may demand payment of all or any portion of the outstanding principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), at any time prior to December 4, 2020. Borrowings under the loan will bear interest at LIBOR plus 1.50 percent. During the six months ended June 30, 2017, the Partnership borrowed $12 million and repaid $12 million, resulting in no outstanding balance at June 30, 2017. Borrowings were at an average interest rate of 2.270 percent, per annum, for the six months ended June 30, 2017. During the year ended December 31, 2016, the Partnership borrowed $2.5 billion and repaid $2.5 billion, resulting in no outstanding balance at December 31, 2016. Borrowings were at an average interest rate of 1.939 percent, per annum, for the year ended December 31, 2016. For additional information regarding the Partnership’s commercial and other agreements with MPC, see Item 1. Business in the Annual Report on Form 10-K for the year ended December 31, 2016.

The Partnership believes the terms and conditions under its agreements with MPC are generally comparable to those with unrelated parties.

HST, WHC and MPLXT Agreements

As discussed in Note 3, the Partnership acquired HST, WHC and MPLXT on March 1, 2017. HST, WHC and MPLXT have various operating, transportation services, terminal services, storage services and employee services agreements with MPC, which were assumed by the Partnership with the closing of the Transaction.

HST is a party to a transportation services agreement with MPC dated January 1, 2015. Under this agreement, HST provides pipeline transportation of crude oil and refined products, as well as related services, for MPC. MPC pays HST for such services based on contractual rates related to MPC crude oil and refined product deliveries as well as any viscosity surcharges, loading, handling, transfers or other related charges. This agreement is set to expire on December 31, 2026 and automatically renews for two additional renewal terms of four years each unless terminated by either party.

On January 1, 2015, HST entered into various three-year term storage services agreements with MPC. Under the storage services agreements, HST receives a monthly fee from MPC based on a contractual rate per barrel multiplied by the total commitment volume respective to each storage tank. The contractual rate per barrel is subject to an annual review and adjustment for inflation. HST is not obligated to measure volume gains and losses per the terms of these agreements.

On January 1, 2015, WHC entered into a long-term, fee-based storage and services agreement with MPC related to storage at its butane and propane caverns with an initial term of 10 years. Under this storage and services agreement, WHC receives a monthly fee from MPC based on a contractual rate per barrel multiplied by the total commitment volume respective to each storage cavern. The contractual rate per barrel includes utilization of the caverns and related services. The agreement is subject to an annual review and adjustment for inflation.

Under the storage services agreements with both HST and WHC, the Partnership is obligated to make available to MPC, on a firm basis, the available storage capacity at the tank farms and butane and propane caverns and MPC pays the Partnership a per-barrel fee for such storage capacity regardless of whether MPC fully utilizes the available capacity.

MPLXT is a party to a terminal services agreement with MPC, dated March 1, 2017. Under this agreement, MPLXT provides terminal storage for refined petroleum products, as well as related services, for MPC. MPC pays MPLXT monthly for such services based on contractual fees relating to MPC product deliveries as well as any viscosity surcharges, loading, handling, transfers or other related charges. This agreement is set to expire on March 31, 2026 and automatically renews for two additional renewal terms of five years each unless terminated by either party.

The Partnership is party to various employee services agreements with MPC under which the Partnership reimburses MPC for employee benefit expenses, along with the provision of operational and management services, including those in support of HST, WHC and MPLXT.


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Related Party Transactions

Sales to related parties were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Service revenues
 
 
 
 
 
 
 
MPC
$
270

 
$
246

 
$
525

 
$
423

Rental income
 
 
 
 
 
 
 
MPC
$
70

 
$
66

 
$
137

 
$
104

Product sales(1)
 
 
 
 
 
 
 
MPC
$
2

 
$
3

 
$
4

 
$
6


(1)
There were additional product sales to MPC that net to zero within the consolidated financial statements as the transactions are recorded net due to the terms of the agreements under which such product was sold. For the three and six months ended June 30, 2017, these sales totaled $53 million and $110 million, respectively. For the three and six months ended June 30, 2016, these sales totaled $7 million and $12 million, respectively.

Related party sales to MPC consist of crude oil and refined products pipeline transportation services based on regulated tariff rates, storage services based on contracted rates and transportation services provided by HSM. Under the Partnership’s pipeline transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay the Partnership a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. The deficiency amounts are recorded as Deferred revenue-related parties. MPC may then apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline system in excess of its minimum volume commitment during the following four or eight quarters under the terms of the applicable transportation services agreement. The Partnership recognizes revenues for the deficiency payments when credits are used for volumes transported in excess of minimum quarterly volume commitments, when it becomes impossible to physically transport volumes necessary to utilize the credits or upon the expiration of the credits. The use or expiration of the credits is a decrease in Deferred revenue-related parties.

The revenue received from related parties, included in Other income-related parties on the Consolidated Statements of Income, was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
MPC
$
10

 
$
12

 
$
21

 
$
26

MarkWest Utica EMG
4

 
5

 
8

 
7

Ohio Gathering
4

 
3

 
8

 
7

Other
7

 
4

 
10

 
5

Total
$
25

 
$
24

 
$
47

 
$
45


MPC provides executive management services and certain general and administrative services to the Partnership under the terms of an omnibus agreement. Expenses incurred under this agreement are shown in the table below by the income statement line where they were recorded. Charges for services included in Purchases-related parties primarily relate to services that support the Partnership’s operations and maintenance activities, as well as compensation expenses. Charges for services included in General and administrative expenses primarily relate to services that support the Partnership’s executive management, accounting and human resources activities. These charges were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Purchases - related parties
$
18

 
$
11

 
$
33

 
$
18

General and administrative expenses
11

 
12

 
19

 
22

Total
$
29

 
$
23

 
$
52

 
$
40



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Also under terms of the omnibus agreement, some service costs related to engineering services are associated with assets under construction. These costs added to Property, plant and equipment were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
MPC
$
12

 
$
12

 
$
22

 
$
22


MPLX LP obtains employee services from MPC under employee services agreements. Expenses incurred under these agreements are shown in the table below by the income statement line where they were recorded. The costs of personnel directly involved in or supporting operations and maintenance activities are classified as Purchases-related parties. The costs of pers