10-Q 1 mplx-2017930x10q.htm 10-Q 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 September 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 407,066,320 common units and 8,307,473 general partner units outstanding at October 27, 2017.





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

INDEX


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”), MarkWest Pioneer, L.L.C. (“MarkWest Pioneer”), 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 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”), Guilford County Terminal Company, LLC (“Guilford Terminal”), LOOP LLC (“LOOP”), LOCAP LLC (“LOCAP”), Illinois Extension Pipeline Company, L.L.C. (“Illinois Extension”) and Explorer Pipeline Company (“Explorer”). 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
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
IDR
Incentive distribution right
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 revenues, 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
NYSE
New York Stock Exchange
OTC
Over-the-Counter
Partnership Agreement
Third Amended and Restated Agreement of Limited Partnership of MPLX LP, dated as of October 31, 2016, as amended
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
United States 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 
 September 30,
 
Nine Months Ended 
 September 30,
(In millions, except per unit data)
2017
 
2016(1)
 
2017
 
2016(1)
Revenues and other income:
 
 
 
 
 
 
 
Service revenue
$
299

 
$
250

 
$
845

 
$
712

Service revenue - related parties
276

 
253

 
801

 
676

Rental income
69

 
77

 
208

 
218

Rental income - related parties
70

 
68

 
207

 
172

Product sales
217

 
157

 
611

 
394

Product sales - related parties
2

 
2

 
6

 
8

Gain on sale of assets

 
1

 
1

 
1

Income (loss) from equity method investments
23

 
6

 
29

 
(72
)
Other income
2

 
2

 
5

 
5

Other income - related parties
22

 
22

 
69

 
67

Total revenues and other income
980

 
838

 
2,782

 
2,181

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
129

 
122

 
381

 
329

Purchased product costs
170

 
117

 
441

 
310

Rental cost of sales
19

 
13

 
44

 
42

Rental cost of sales - related parties

 

 
1

 
1

Purchases - related parties
114

 
109

 
330

 
286

Depreciation and amortization
164

 
151

 
515

 
438

Impairment expense

 

 

 
130

General and administrative expenses
59

 
56

 
174

 
172

Other taxes
14

 
12

 
40

 
37

Total costs and expenses
669

 
580

 
1,926

 
1,745

Income from operations
311

 
258

 
856

 
436

Related party interest and other financial costs
1

 

 
1

 
1

Interest expense (net of amounts capitalized of $6 million, $7 million, $24 million and $21 million, respectively)
77

 
51

 
217

 
158

Other financial costs
15

 
13

 
40

 
37

Income before income taxes
218

 
194

 
598

 
240

Provision (benefit) for income taxes
1

 

 
3

 
(12
)
Net income
217

 
194

 
595

 
252

Less: Net income attributable to noncontrolling interests
1

 
2

 
3

 
3

Less: Net income attributable to Predecessor

 
51

 
36

 
149

Net income attributable to MPLX LP
216

 
141

 
556

 
100

Less: Preferred unit distributions
16

 
16

 
49

 
25

Less: General partner’s interest in net income attributable to MPLX LP
86

 
51

 
222

 
136

Limited partners’ interest in net income (loss) attributable to MPLX LP
$
114

 
$
74

 
$
285

 
$
(61
)
Per Unit Data (See Note 6)
 
 
 
 
 
 
 
Net income (loss) attributable to MPLX LP per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$
0.29

 
$
0.22

 
$
0.75

 
$
(0.19
)
Common - diluted
0.29

 
0.21

 
0.75

 
(0.19
)
Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
Common - basic
394

 
341

 
378

 
324

Common - diluted
395

 
346

 
381

 
324

Cash distributions declared per limited partner common unit
$
0.5875

 
$
0.5150

 
$
1.6900

 
$
1.5300


(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)
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3

 
$
234

Receivables, net
320

 
299

Receivables - related parties
152

 
247

Inventories
64

 
55

Other current assets
32

 
33

Total current assets
571

 
868

Equity method investments
3,997

 
2,471

Property, plant and equipment, net
11,922

 
11,408

Intangibles, net
463

 
492

Goodwill
2,245

 
2,245

Long-term receivables - related parties
18

 
11

Other noncurrent assets
22

 
14

Total assets
$
19,238

 
$
17,509

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
152

 
$
140

Accrued liabilities
202

 
232

Payables - related parties
317

 
87

Deferred revenue
3

 
2

Deferred revenue - related parties
42

 
38

Accrued property, plant and equipment
183

 
146

Accrued taxes
44

 
38

Accrued interest payable
64

 
53

Other current liabilities
41

 
27

Total current liabilities
1,048

 
763

Long-term deferred revenue
34

 
12

Long-term deferred revenue - related parties
40

 
19

Long-term debt
6,848

 
4,422

Deferred income taxes
7

 
6

Deferred credits and other liabilities
175

 
177

Total liabilities
8,152

 
5,399

Commitments and contingencies (see Note 17)

 

Redeemable preferred units
1,000

 
1,000

Equity
 
 
 
Common unitholders - public (289 million and 271 million units issued and outstanding)
8,457

 
8,086

Class B unitholders (0 million and 4 million units issued and outstanding)

 
133

Common unitholder - MPC (95 million and 86 million units issued and outstanding)
1,302

 
1,069

Common unitholder - GP (23 million and 0 units issued and outstanding)
822

 

General partner - MPC (8 million and 7 million units issued and outstanding)
(626
)
 
1,013

Equity of Predecessor

 
791

Accumulated other comprehensive loss
(14
)
 

Total MPLX LP partners’ capital
9,941

 
11,092

Noncontrolling interests
145

 
18

Total equity
10,086

 
11,110

Total liabilities, preferred units and equity
$
19,238

 
$
17,509


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

4




MPLX LP
Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended 
 September 30,
(In millions)
2017
 
2016(1)
(Decrease) increase in cash and cash equivalents
 
 
 
Operating activities:
 
 
 
Net income
$
595

 
$
252

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred financing costs
38

 
34

Depreciation and amortization
515

 
438

Impairment expense

 
130

Deferred income taxes
2

 
(16
)
Asset retirement expenditures
(2
)
 
(4
)
Gain on disposal of assets
(1
)
 
(1
)
(Income) loss from equity method investments
(29
)
 
72

Distributions from unconsolidated affiliates
136

 
111

Changes in:
 
 
 
Current receivables
(20
)
 
(43
)
Inventories
(3
)
 
(4
)
Fair value of derivatives
(3
)
 
28

Current accounts payable and accrued liabilities
6

 
64

Receivables from / liabilities to related parties
61

 
(104
)
All other, net
43

 
18

Net cash provided by operating activities
1,338

 
975

Investing activities:
 
 
 
Additions to property, plant and equipment
(1,004
)
 
(943
)
Acquisitions, net of cash acquired
(249
)
 

Disposal of assets
4

 

Investments - net related party loans
80

 
103

Investments in unconsolidated affiliates
(690
)
 
(56
)
Distributions from unconsolidated affiliates - return of capital
24

 

All other, net
(2
)
 
4

Net cash used in investing activities
(1,837
)
 
(892
)
Financing activities:
 
 
 
Long-term debt - borrowings
2,661

 
434

    - repayments
(251
)
 
(1,312
)
Related party debt - borrowings
829

 
2,215

     - repayments
(627
)
 
(2,223
)
Debt issuance costs
(25
)
 

Net proceeds from equity offerings
483

 
510

Issuance of redeemable preferred units

 
984

Distribution to MPC for acquisition
(1,931
)
 

Distributions to preferred unitholders
(49
)
 
(9
)
Distributions to unitholders and general partner
(800
)
 
(612
)
Distributions to noncontrolling interests
(4
)
 
(3
)
Contributions from noncontrolling interests
128

 
4

Consideration payment to Class B unitholders
(25
)
 
(25
)
All other, net
(8
)
 
(2
)
Contribution from MPC

 
225

Distributions to MPC from Predecessor
(113
)
 
(104
)
Net cash provided by financing activities
268

 
82

Net (decrease) increase in cash and cash equivalents
(231
)
 
165

Cash and cash equivalents at beginning of period
234

 
43

Cash and cash equivalents at end of period
$
3

 
$
208


(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
Unit-holders
Public
 
Class B Unit-holders Public
 
Common
Unit-holder
MPC
 
Common Unit-holder
GP
 
General 
Partner
MPC
 
Accumulated Other Comprehensive Loss
 
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
)
Contribution from MPC

 

 
84

 

 
141

 

 

 

 
225

Contribution of MarkWest Hydrocarbon from MPC

 

 

 

 
(188
)
 

 

 

 
(188
)
Distribution of MarkWest Hydrocarbon to MPC

 

 

 

 
565

 

 

 

 
565

Issuance of units under ATM Program
499

 

 

 

 
11

 

 

 

 
510

Net (loss) income
(51
)
 

 
(10
)
 

 
136

 

 
3

 
149

 
227

Allocation of MPC's net investment at acquisition

 

 
669

 

 
(337
)
 

 

 
(332
)
 

Distributions to unitholders and general partner
(378
)
 

 
(98
)
 

 
(136
)
 

 

 

 
(612
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(3
)
 

 
(3
)
Contributions from noncontrolling interests

 

 

 

 

 

 
4

 

 
4

Class B unit conversion
133

 
(133
)
 

 

 

 

 

 

 

Non-cash contribution from MPC

 

 

 

 

 

 

 
334

 
334

Equity-based compensation
6

 

 

 

 

 

 

 

 
6

Deferred income tax impact from changes in equity
(2
)
 

 
(13
)
 

 
(2
)
 

 

 

 
(17
)
Balance at September 30, 2016
$
7,898

 
$
133

 
$
1,097


$

 
$
1,009


$

 
$
17

 
$
739

 
$
10,893

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Balance at December 31, 2016
$
8,086

 
$
133

 
$
1,069

 
$

 
$
1,013

 
$

 
$
18

 
$
791

 
$
11,110

Distributions to MPC from Predecessor

 

 

 

 

 

 

 
(113
)
 
(113
)
Distributions of cash received from Joint-Interest Acquisition entities to MPC

 

 

 

 
(13
)
 

 

 

 
(13
)
Issuance of units under ATM Program
473

 

 

 

 
10

 

 

 

 
483

Net income
212

 

 
68

 
5

 
222

 

 
3

 
36

 
546

Contribution from MPC

 

 

 

 

 
(14
)
 

 
689

 
675

Allocation of MPC's net investment at acquisition

 

 
845

 
824

 
(266
)
 

 

 
(1,403
)
 

Distribution to MPC for acquisitions

 

 
(537
)
 

 
(1,394
)
 

 

 

 
(1,931
)
Distributions to unitholders and general partner
(452
)
 

 
(143
)
 
(7
)
 
(198
)
 

 

 

 
(800
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(4
)
 

 
(4
)
Contributions from noncontrolling interests

 

 

 

 

 

 
128

 

 
128

Class B unit conversion
133

 
(133
)
 

 

 

 

 

 

 

Equity-based compensation
5

 

 

 

 

 

 

 

 
5

Balance at September 30, 2017
$
8,457

 
$

 
$
1,302


$
822

 
$
(626
)
 
$
(14
)
 
$
145

 
$

 
$
10,086


(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. References to “MPC” refer collectively to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership.

The Partnership’s business consists of two segments based on the nature of services it offers: Logistics and Storage (“L&S”) which is focused on crude oil and refined petroleum products and Gathering and Processing (“G&P”) which is 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 Hardin Street Transportation LLC (“HST”), Woodhaven Cavern LLC (“WHC”) and MPLX Terminals LLC (“MPLXT”) (collectively with Hardin Street Marine LLC (“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 on a historical basis. 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 until declared. However, when distributions related to the IDRs 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 nine months ended September 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 standards 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 standards 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 standards 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 standards update in the first quarter of 2017 and it did not have a material impact on the consolidated financial statements.

Not Yet Adopted

In August 2017, the FASB issued an accounting standards update to amend the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. The guidance is effective beginning in 2019 with early adoption permitted. The Partnership is in the process of determining the impact of this guidance, including transition elections and required disclosures, on the consolidated financial statements and the timing of adoption.

In May 2017, the FASB issued an accounting standards 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 Partnership will adopt the new standard on a prospective basis beginning on January 1, 2018. The application of this new accounting standard is not expected to have a material impact on the consolidated financial statements.

In February 2017, the FASB issued an accounting standards 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 of the revenue recognition accounting standards update, which the Partnership will implement January 1, 2018. The Partnership plans to adopt the new standard using the modified retrospective method and does not expect the application of this accounting standards update to have a material impact on the consolidated financial statements.

In January 2017, the FASB issued an accounting standards 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, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; 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 standards update on the consolidated financial statements.

In January 2017, the FASB issued an accounting standards 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

8




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 evaluating this accounting standards update and determining whether it will early adopt.

In November 2016, the FASB issued an accounting standards 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 standards update will not have a material impact on the Consolidated Statements of Cash Flows.

In August 2016, the FASB issued an accounting standards update related to the classification of certain cash flows. The accounting standards update provides specific guidance on eight cash flow classification issues, including debt prepayment or debt extinguishment costs and distributions received from equity method investees, to reduce diversity in practice. 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 Partnership does not expect application of this accounting standards update to have a material impact on the Consolidated Statements of Cash Flows.

In June 2016, the FASB issued an accounting standards 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 standards update to have a material impact on the consolidated financial statements.

In February 2016, the FASB issued an accounting standards update requiring lessees to record virtually all leases on their balance sheets. The accounting standards 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 be recognized as a right of use asset and lease obligation. Based on results of the evaluation process to date, the Partnership also believes the impact on existing processes, controls and information systems may be material.

In January 2016, the FASB issued an accounting standards 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 standards 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 Partnership does not expect application of this accounting standards update to have a material impact on the consolidated financial statements.


9




In May 2014, the FASB issued Accounting Standards Update 2014-09 which created Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The guidance in 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 fiscal years, with early adoption permitted no earlier than January 1, 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.

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 was completed as of September 30, 2017.

Based on the results of the first phase assessment, the Partnership has reached conclusions for all material contract types. Revenue recognition patterns will not change for fee-based or percent-of-proceeds contracts. The Partnership does expect certain amounts to be grossed up in revenue and cost of revenues as a result of implementation, specifically related to third-party reimbursements from customers and commodities received as consideration in service agreements, such as keep-whole arrangements. In the third quarter of 2017, the Partnership finalized a conclusion on the valuation of non-cash consideration received in the form of a commodity product, with the valuation being performed on the date the service performance obligation is completed.

The Partnership is in the process of finalizing the second phase of implementation, which includes the calculation of the impact of the new standard on results and the development of new policies, procedures and disclosures related to the application upon adoption. The Partnership believes third-party reimbursements included in the transaction price would have resulted in a gross up in 2016 and 2017 service revenue and cost of revenues between $300 million and $350 million annually, with no impact to net income. The Partnership will provide a summary of the total ASC 606 impact in the Annual Report on Form 10-K for the year ended December 31, 2017.

10



3. Acquisitions

Joint-Interest Acquisition

On September 1, 2017, the Partnership entered into a Membership Interests and Shares Contributions Agreement (the “September 2017 Contributions Agreement”) 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, whereby the Partnership agreed to acquire certain ownership interests in joint venture entities indirectly held by MPC. Pursuant to the September 2017 Contributions Agreement, MPC Investment agreed to contribute: all of the membership interests of Lincoln Pipeline LLC, which holds a 35 percent interest in Illinois Extension Pipeline Company, L.L.C. (“Illinois Extension”); all of the membership interests of MPL Louisiana Holdings LLC, which holds a 40.7 percent interest in LOOP LLC (“LOOP”); a 58.52 percent interest in LOCAP LLC (“LOCAP”); and a 24.51 percent interest in Explorer Pipeline Company (“Explorer”), through a series of intercompany contributions to the Partnership for an agreed upon purchase price of approximately $420 million in cash and equity consideration valued at approximately $630 million for total consideration of $1.05 billion (collectively, the “Joint-Interest Acquisition”). The number of common units representing the equity consideration was then determined by dividing the contribution amount by the simple average of the ten day trading volume weighted average NYSE price of a common unit for the ten trading days ending at market close on August 31, 2017. The fair value of the common and general partner units issued was approximately $653 million based on the closing common unit price as of September 1, 2017, as recorded on the Consolidated Statements of Equity, for a total purchase price of $1.07 billion. The equity issued consisted of: (i) 13,719,017 common units to MPLX GP, (ii) 3,350,893 common units to MPLX Logistics and (iii) 1,441,224 common units to MPLX Holdings. The Partnership also issued 377,778 general partner units to MPLX GP in order to maintain its two percent general partner interest (“GP Interest”) in the Partnership.

Illinois Extension operates the 168-mile, 24-inch diameter Southern Access Extension (“SAX”) crude oil pipeline from Flanagan, Illinois to Patoka, Illinois, as well as additional tankage and two pump stations. LOOP owns and operates midstream crude oil infrastructure, including a deep water oil port offshore of Louisiana, pipelines and onshore storage facilities. LOOP also manages the operations of LOCAP, an affiliate pipeline system. LOCAP owns and operates a crude oil pipeline and tank facility in St. James, Louisiana, that distributes oil received from LOOP’s storage facilities and other connecting pipelines to nearby refineries and into the mid-continent region of the United States. Explorer owns and operates an approximate 1,830-mile common carrier pipeline that primarily transports gasoline, diesel, diluent and jet fuel from the Gulf Coast refining complex to the Midwest United States. The Partnership accounts for the Joint-Interest Acquisition entities as equity method investments within its L&S segment.

As a transfer between entities under common control, the Partnership recorded the Joint-Interest Acquisition on its Consolidated Balance Sheets at MPC’s historical basis, which included accumulated other comprehensive loss. The Partnership recognizes an accumulated other comprehensive loss on its Consolidated Balance Sheets relating to pension and other post-retirement benefits provided by the LOOP and Explorer joint-interests to their employees. MPLX LP is not a sponsor of these benefit plans. There were no changes to Accumulated other comprehensive loss during the period September 1, 2017 through September 30, 2017.

Distributions of cash received from the entities and interests acquired in the Joint-Interest Acquisition related to periods prior to the acquisition will be prorated on a daily basis with MPLX LP retaining the portion of distributions beginning on the closing date. All amounts distributed to MPLX LP related to periods before the acquisition will be paid to MPC. Additionally, MPLX LP has agreed to pay MPC for any distributions of cash from LOOP related to the sale of LOOP’s excess crude oil inventory. Because the future distributions or payments cannot be reasonably quantified, a liability was not recorded in connection with the acquisition. MPLX LP subsequently received distributions related to the third quarter 2017 and recorded a liability to MPC and a corresponding decrease to the general partner’s equity for $13 million, as shown on the Consolidated Statements of Equity. 

There is no income associated with the Joint-Interest Acquisition included in the Consolidated Statements of Income since the September 1, 2017 acquisition date, as the Partnership accounts for these investments in arrears using the most recently available information. The Partnership’s investment balance at September 30, 2017 related to the acquired interests is approximately $645 million and reported under the caption Equity method investments on the Consolidated Balance Sheets. MPC agreed to waive approximately two-thirds of the third quarter 2017 distributions on the common units issued in connection with the Joint-Interest Acquisition. As a result of this waiver, MPC did not receive approximately two-thirds of the distributions or IDRs that would have otherwise accrued on such common units with respect to the third quarter 2017 distributions. The value of these waived distributions was $10 million.


11



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 entered into on March 1, 2017 by the Partnership with MPLX GP, MPLX Logistics, MPLX Holdings and 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 NYSE 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 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 GP Interest in the Partnership. MPC agreed to waive two-thirds of the first quarter 2017 distributions on the 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 IDRs that would have otherwise accrued on such 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 NGL 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.


12



The following tables present the Partnership’s previously reported unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2016, retrospectively adjusted for the acquisition of HST, WHC and MPLXT:
 
Three Months Ended September 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
$
250

 
$

 
$

 
$

 
$
250

Service revenue - related parties
153

 
28

 
72

 

 
253

Rental income
77

 

 

 

 
77

Rental income - related parties
29

 
13

 
26

 

 
68

Product sales
157

 

 

 

 
157

Product sales - related parties
2

 

 

 

 
2

Income from equity method investments
6

 

 

 

 
6

Gain on sale of assets
1

 

 

 

 
1

Other income
2

 

 

 

 
2

Other income - related parties
26

 

 

 
(4
)
 
22

Total revenues and other income
703

 
41

 
98

 
(4
)
 
838

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
90

 
10

 
22

 

 
122

Purchased product costs
117

 

 

 

 
117

Rental cost of sales
11

 
2

 

 

 
13

Rental cost of sales - related parties

 
1

 

 
(1
)
 

Purchases - related parties
84

 
4

 
24

 
(3
)
 
109

Depreciation and amortization
138

 
4

 
9

 

 
151

General and administrative expenses
46

 
2

 
8

 

 
56

Other taxes
10

 

 
2

 

 
12

Total costs and expenses
496

 
23

 
65

 
(4
)
 
580

Income from operations
207

 
18

 
33

 

 
258

Interest expense (net of amounts capitalized)
51

 

 

 

 
51

Other financial costs
13

 

 

 

 
13

Income before income taxes
143

 
18

 
33

 

 
194

Net income
143

 
18

 
33

 

 
194

Less: Net income attributable to noncontrolling interests
2

 

 

 

 
2

Less: Net income attributable to Predecessor

 
18

 
33

 

 
51

Net income attributable to MPLX LP
141

 

 

 

 
141

Less: Preferred unit distributions
16

 

 

 

 
16

Less: General partner’s interest in net income attributable to MPLX LP
51

 

 

 

 
51

Limited partners’ interest in net income attributable to MPLX LP
$
74

 
$

 
$

 
$

 
$
74


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


13



 
Nine Months Ended September 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
$
712

 
$

 
$

 
$

 
$
712

Service revenue - related parties
448

 
82

 
146

 

 
676

Rental income
218

 

 

 

 
218

Rental income - related parties
84

 
36

 
52

 

 
172

Product sales
394

 

 

 

 
394

Product sales - related parties
8

 

 

 

 
8

Loss from equity method investments
(72
)
 

 

 

 
(72
)
Gain on sale of assets
1

 

 

 

 
1

Other income
5

 

 

 

 
5

Other income - related parties
78

 

 

 
(11
)
 
67

Total revenues and other income
1,876

 
118

 
198

 
(11
)
 
2,181

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
263

 
24

 
42

 

 
329

Purchased product costs
310

 

 

 

 
310

Rental cost of sales
39

 
3

 

 

 
42

Rental cost of sales - related parties

 
2

 

 
(1
)
 
1

Purchases - related parties
238

 
13

 
45

 
(10
)
 
286

Depreciation and amortization
407

 
12

 
19

 

 
438

Impairment expense
130

 

 

 

 
130

General and administrative expenses
147

 
5

 
20

 

 
172

Other taxes
32

 
2

 
3

 

 
37

Total costs and expenses
1,566

 
61

 
129

 
(11
)
 
1,745

Income from operations
310

 
57

 
69

 

 
436

Related party interest and other financial income
1

 

 

 

 
1

Interest expense (net of amounts capitalized)
158

 

 

 

 
158

Other financial costs
37

 

 

 

 
37

Income before income taxes
114

 
57

 
69

 

 
240

Benefit for income taxes
(12
)
 

 

 

 
(12
)
Net income
126

 
57

 
69

 

 
252

Less: Net income attributable to noncontrolling interests
3

 

 

 

 
3

Less: Net income attributable to Predecessor
23

 
57

 
69

 

 
149

Net income attributable to MPLX LP
100

 

 

 

 
100

Less: Preferred unit distributions
25

 

 

 

 
25

Less: General partner’s interest in net income attributable to MPLX LP
136

 

 

 

 
136

Limited partners’ interest in net loss attributable to MPLX LP
$
(61
)

$


$


$


$
(61
)

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


14



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:
 
Nine Months Ended September 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 income
$
126

 
$
57

 
$
69

 
$
252

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

 
 
Amortization of deferred financing costs
34

 

 

 
34

Depreciation and amortization
407

 
12

 
19

 
438

Impairment expense
130

 

 

 
130

Deferred income taxes
(16
)
 

 

 
(16
)
Asset retirement expenditures
(3
)
 
(1
)
 

 
(4
)
Gain on disposal of assets
(1
)
 

 

 
(1
)
Loss from equity method investments
72

 

 

 
72

Distributions from unconsolidated affiliates
111

 

 

 
111

Changes in:
 
 
 
 
 
 
 
Current receivables
(44
)
 
1

 

 
(43
)
Inventories
(4
)
 

 

 
(4
)
Fair value of derivatives
28

 

 

 
28

Current accounts payable and accrued liabilities
59

 
(1
)
 
6

 
64

Receivables from / liabilities to related parties
15

 
3

 
(122
)
 
(104
)
All other, net
18

 
2

 
(2
)
 
18

Net cash provided by (used in) operating activities
932

 
73

 
(30
)
 
975

Investing activities:
 
 
 
 
 
 
 
Additions to property, plant and equipment
(874
)
 
(36
)
 
(33
)
 
(943
)
Investments - net related party loans
77

 
(37
)
 
63

 
103

Investments in unconsolidated affiliates
(56
)
 

 

 
(56
)
All other, net
4

 

 

 
4

Net cash (used in) provided by investing activities
(849
)
 
(73
)
 
30

 
(892
)
Financing activities:
 
 
 
 
 
 
 
Long-term debt - borrowings
434

 

 

 
434

 - repayments
(1,312
)
 

 

 
(1,312
)
Related party debt - borrowings
2,215

 

 

 
2,215

- repayments
(2,223
)
 

 

 
(2,223
)
Net proceeds from equity offerings
510

 

 

 
510

Issuance of redeemable preferred units
984

 

 

 
984

Distributions to preferred unitholders
(9
)
 

 

 
(9
)
Distributions to unitholders and general partner
(612
)
 

 

 
(612
)
Distributions to noncontrolling interests
(3
)
 

 

 
(3
)
Contributions from noncontrolling interests
4

 

 

 
4

Consideration payment to Class B unitholders
(25
)
 

 

 
(25
)
All other, net
(2
)
 

 

 
(2
)
Contribution from MPC
225

 

 

 
225

Distributions to MPC from Predecessor
(104
)
 

 

 
(104
)
Net cash provided by financing activities
82

 

 

 
82

Net increase in cash and cash equivalents
165

 

 

 
165

Cash and cash equivalents at beginning of period
43

 

 

 
43

Cash and cash equivalents at end of period
$
208

 
$

 
$

 
$
208


15



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 final 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 September 30, 2017
 
Seven Months Ended September 30, 2017
Revenues and other income
$
19

 
$
45

Income from operations
6

 
17


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.

MarEn Bakken

On February 15, 2017, the Partnership closed on a joint venture, MarEn Bakken Company, LLC (“MarEn Bakken”), with Enbridge Energy Partners L.P. in which MPLX LP acquired a partial, indirect interest in the Dakota Access Pipeline and Energy Transfer Crude Oil Company Pipeline projects, collectively referred to as the Bakken Pipeline system, from Energy Transfer Partners, L.P. and Sunoco Logistics Partners, L.P. 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 using the most recently available information. The Partnership’s investment balance at September 30, 2017 is approximately $520 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 of 2017, which was prorated to $0.8 million from the acquisition date.

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 common units issued in connection with this transaction. As a result of this waiver, MPC did not receive general partner distributions or IDRs that would have otherwise accrued on such 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 Gulf Coast regions of the United States, 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.


16



4. Investments and Noncontrolling Interests

Summarized financial information for the Partnership’s equity method investments for the nine months ended September 30, 2017 and 2016 is as follows:
 
Nine Months Ended September 30, 2017
(In millions)
MarkWest Utica EMG
 
Other VIEs
 
Non-VIEs
 
Total
Revenues and other income
$
137

 
$
49

 
$
178

 
$
364

Costs and expenses
72

 
29

 
115

 
216

Income from operations
65

 
20

 
63

 
148

Net income
65

 
19

 
28

 
112

Income from equity method investments(1)
6

 
7

 
16

 
29


 
Nine Months Ended September 30, 2016
(In millions)
MarkWest Utica EMG
 
Other VIEs(2)
 
Non-VIEs
 
Total
Revenues and other income
$
165

 
$
13

 
$
108

 
$
286

Costs and expenses
70

 
107

 
80

 
257

Income (loss) from operations
95

 
(94
)
 
28

 
29

Net income (loss)
94

 
(94
)
 
28

 
28

Income (loss) from equity method investments(1)
10

 
(88
)
 
6

 
(72
)

(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 nine months ended September 30, 2016 related to the Partnership’s investment in Ohio Condensate Company, L.L.C., which does not appear separately in this table.

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

 
$
47

 
$
379

 
$
498

Noncurrent assets
2,092

 
878

 
4,614

 
7,584

Current liabilities
37

 
55

 
492

 
584

Noncurrent liabilities
2

 
12

 
562

 
576


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

As of September 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.

17




MarkWest Utica EMG

Effective January 1, 2012, MarkWest Utica Operating Company, LLC (“Utica Operating”), a wholly-owned and consolidated subsidiary of MarkWest Energy Partners, L.P. (“MarkWest”), and EMG Utica, LLC (“EMG Utica” and together with Utica Operating, 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. 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 September 30, 2017, EMG Utica has 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 $12 million for the three and nine months ended September 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 September 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 September 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 nine months ended September 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 nine months ended September 30, 2017, totaled $5 million and $13 million, respectively. The amount of Operational Service revenue related to MarkWest Utica EMG for the three and nine months ended September 30, 2016, totaled approximately $5 million and $12 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 September 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 nine months ended September 30, 2017, totaled $4 million and $12 million, respectively. The amount of Operational Service revenue related to Ohio Gathering for the three and nine months ended September 30, 2016, totaled approximately $5 million and $12 million, respectively.


18



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 LLC (“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 carrying amounts of assets and liabilities included in the Partnership’s Consolidated Balance Sheets pertaining to Ohio Fractionation at September 30, 2017, were current assets of $51 million, non-current assets of $406 million and current liabilities of $26 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 will be allocated to the members in proportion to their respective investment balances.

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 $220 million at September 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 nine months ended September 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 nine months ended September 30, 2017, totaled approximately $2 million and $6 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 LLC (“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 second quarter ended June 30, 2017, true-ups to the initial contributions were finalized. 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

19



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 Assets, 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 $163 million at September 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 nine months ended September 30, 2017.

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 September 30, 2017, the Partnership has a 14.7 percent indirect ownership interest in Sherwood Midstream Holdings through Sherwood Midstream.

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 September 30, 2017. Centennial owns a products pipeline and storage facility.
Muskegon Pipeline LLC (“Muskegon”), in which MPC has a 60 percent interest as of September 30, 2017. Muskegon owns a common carrier products pipeline.
MarkWest Utica EMG, in which MPLX LP has a 56 percent interest as of September 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