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MPLX LP (NYSE:MPLX)
Q3 2020 Earnings Call
Nov 2, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the MPLX Third Quarter 2020 Earnings Call. My name is Sheila, and I will be your operator for today's call. [Operator Instructions] Later, we will conduct a question-and-answer session. [Operator Instructions]

I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Kristina Kazarian -- Vice President of Investor Relations

Good morning, and welcome to the MPLX third quarter 2020 earnings webcast and conference call. The synchronized slides that accompany this call can be found on mplx.com under the Investor tab. On the call today are Mike Hennigan, President and CEO; Pam Beall, CFO; and other members of the management team.

We invite you to read the Safe Harbor statements and non-GAAP disclaimer on Slide 2. It's a reminder that we will be making forward-looking statements during the call and during the question-and-answer session that follows. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there, as well as in our filings with the SEC.

Now, I will turn the call over to Mike Hennigan for opening remarks.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Thanks, Kristina. Good morning, and thank you for joining our call. Earlier today, we reported adjusted EBITDA for the third quarter of 2020 of $1.3 billion, a slight increase versus our second quarter 2020 EBITDA. Our performance during the third quarter highlights the stability of our underlying business, the quality of our contracts, and execution on our capital and operating expense reductions to help offset what we knew would be a challenging environment. With our EBITDA growing over time and our continued emphasis on strict capital discipline, our leverage can naturally be reduced.

To that end, we have obtained Board authorization for our unit repurchase program for the repurchase and retirement of up to $1 billion of the Company's outstanding publicly traded limited partner common units. By getting Board approval now, this program will allow us to make repurchases of our common units at the appropriate time and provide us with an attractive opportunity to return value to our unitholders.

Turning to Slide 4, a key part of our path to positive cash flow is continued capital spending discipline. We continue to be on track to achieve our 2020 capital reduction of over $700 million, as we continue to focus on opportunities with the most attractive returns.

Turning to Slide 5, I would take a moment to provide some comments on our responsibilities around sustainability and corporate leadership. As a result of our continued refinement of our ESG perspectives, I want to mention two additional and important initiatives the combined enterprise has established incremental to the announcement earlier this year to reduce greenhouse gas emissions intensity to 30% below 2014 levels by 2030.

First, we have established a 2025 goal to reduce methane emissions intensity from our G&P business to 50% below 2016 levels. Second, we are focusing on conserving and managing use of water. Through our efforts in this area, the combined enterprise has reduced fresh water withdrawal intensity by over 10% since 2015, and expect to further reduce it by an additional 10% by 2030.

Shifting to Slide 6. We recently published our 2020 perspectives on climate-related scenarios report. This is the fourth year, the MPC enterprise has published a TCFD compliant report, which highlights the opportunities and strategic planning work the company's engaged in related to climate scenarios. We also published our 2019 Sustainability Report in late July, which expands upon efforts in environmental, social and governance aspects of the business. With the publication of the 2019 Sustainability Report, we also published a Sustainability Accounting Standards Board, or SASB, midstream supplement, highlighting the specific topics and metrics within our 2019 Sustainability Report as it pertains to SASB's industry-specific sustainability accounting standards.

We look forward to continuing our ESG journey and our commitment to stakeholder engagement with our team of employees, business partners, customers and communities. We view sustainability as the fundamental process of shared value creation and how we conduct our business enhances the performance we deliver.

Now, let me turn the call over to Pam to discuss our third quarter 2020 operational and financial results.

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Thanks, Mike. Turning to Slide 7, MPLX delivered third quarter adjusted EBITDA of $1.3 billion and distributable cash flow of $1.1 billion, which provided continued strong distribution coverage of 1.44 times. Our results for the quarter, once again, highlight the resiliency of our underlying business, as well as the execution of our forecasted $200 million of operating cost reductions to help offset a challenging demand environment, allowing us to continue to generate strong cash flow and adjusted EBITDA.

For the quarter, we generated positive cash flow after investments in the business and distributions to unitholders. We used this cash to reduce total debt outstanding from the end of the second quarter to the end of the third quarter and we ended the third quarter with leverage of 4 times. During the quarter, we've refinanced our 2021 debt maturities at very attractive rates along with some of our notes due in 2022 and 2024 that carry coupons of 6.25% or higher.

Slide 8 shows the third quarter logistics and storage business segment highlights. Volumes across our pipeline and terminal systems were lower compared with the third quarter of 2019, primarily driven by lower refinery utilization at MPC's refineries. However, we did see sequential increase in both pipeline and terminal throughputs versus the second quarter of 2020.

During the third quarter, the Wink to Webster Permian crude oil pipeline project achieved mechanical completion on the main segment connecting the Permian Basin to Houston, Texas. The main segment of the pipeline system was commissioned with Permian crude oil from Midland to Houston in October, and service is expected to be available to shippers in the fourth quarter. We have a 15% equity ownership interest of this joint venture. The pipeline system has 100% of its contractable capacity committed with minimum volume commitments. Additional segments offering shippers further service are expected to be placed in service throughout 2021.

The Whistler natural gas pipeline project also continued to progress. The 2 Bcf per day capacity project is more than 90% committed with minimum volume commitments. We continue to expect the start-up of the project in the second half of 2021.

As we noted last quarter, MPLX WhiteWater Midstream and West Texas Gas formed a joint venture to provide NGL takeaway capacity from MPLX and WTG's gas processing plants in the Permian to Sweeny, Texas. This optimized approach will largely use existing infrastructure with limited initial construction. Commercial NGL transportation service to Sweeny, Texas is expected to commence in the second half of 2021.

Slide 9 provides third quarter gathering and processing business segment highlights. For the third quarter of 2020, gathered and processed volumes were lower than the same period last year across most of our footprint with a few exceptions, including West Texas and the Marcellus, where gathered volumes increased 3% and processed volumes increased 8%, respectively.

Processed volumes in the Marcellus reached a record 5.7 billion cubic feet per day. Total fractionated volumes averaged 567,000 barrels per day, representing a 4% increase over the third quarter of 2019. Record fractionated volumes were primarily driven by a 10% increase in the Marcellus, where volumes increased with the Hopedale 5 fractionator, which came online during the third quarter.

Despite the pressure on commodity prices, as global demand remain significantly below historical levels, we remain optimistic in the outlook for both natural gas and NGL demand and price recovery. The recent recovery in futures prices is beneficial for our natural gas and NGL producer customers, as they can take advantage of hedging opportunities and realize a positive impact on operating results as well as their borrowing base redetermination.

We expect producers will continue to apply the benefits of an improving price environment to their balance sheets to address near-term debt maturities and improve their financial flexibility. We're also encouraged by the consolidation that's occurring among our producers, which should result in counterparties with a stronger financial profile.

Moving to our financial highlights on Slide 10. Adjusted EBITDA was $1.3 billion for the third quarter of 2020. The logistics and storage segment adjusted EBITDA was $893 million, while the gathering and processing segment contributed $442 million in adjusted EBITDA. For the quarter, we generated approximately $1.1 billion of distributable cash flow, and we will return for the quarter $750 million to our unitholders. This provided distribution coverage of 1.44 times.

The bridge on Slide 11 shows the change in adjusted EBITDA from the third quarter of 2019 to the third quarter of 2020. The logistics and storage segment increased $44 million year-over-year, primarily driven by lower cost, lower operating expenses, minimum volume commitments and the completion of the Mt. Airy terminal and Utica butane expansion projects, partially offset by decreased pipeline and terminalling volume due to lower utilization at MPC's refineries. The gathering and processing segment increased $18 million, primarily driven by higher volumes due to additional plants coming online, partially offset by production curtailments and shut-ins.

Slide 12 provides a summary of key financial highlights and select balance sheet information. We ended the quarter with a leverage ratio of 4 times and approximately $3.4 billion available on our bank revolver and $1.5 billion available on our intercompany facility with MPC. During and shortly after the quarter, we undertook several financing activities to continue to strengthen our balance sheet by lowering our interest costs and extending maturities. These steps were outlined in the earnings release.

As I mentioned earlier, for the third quarter, we generated positive cash flow after investments and distributions. With progress made in 2020, our continued capital discipline and expected growth in EBITDA, we continue to target our goal of achieving positive free cash flow after capital investments and distributions for 2021. As we reach this inflection point, we believe that we will have the financial flexibility to repurchase units or reduce debt. We will continue to prioritize an investment grade credit profile, and we expect our leverage to improve over time with modest growth in EBITDA.

We will be looking to implement the Board authorized unit repurchase program of up to $1 billion of our outstanding publicly traded common units. The timing, price and actual number of common units repurchased, if any, will depend on several factors, including our expected excess cash available, alternative investment opportunities, and the market and business conditions.

And now, let me turn the call back over to Kristina.

Kristina Kazarian -- Vice President of Investor Relations

Thanks, Pam. As we open the call for questions, we ask that you limit yourself to one question plus a follow-up. We may reprompt for additional question, if time permits. With that, we will now open the call to questions. Operator?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeremy Tonet with JP Morgan. Your line is open.

Jeremy Tonet -- JP Morgan -- Analyst

Hi. Good morning.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Good morning, Jeremy.

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Good morning, Jeremy.

Jeremy Tonet -- JP Morgan -- Analyst

Thanks. Just want to start off on how you're going to evaluate the balance between buybacks versus reducing leverage in 2021? And just thinking, is there a specific leverage bogie we should be thinking about here before you would start buying that buying back units? And just also in the past, you've talked about reducing the number of geographical areas where you operate through divestitures or JVs if you rationalizing, and could that factor into the equation here as well?

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Jeremy, this is Mike. I'll start off by saying, first off, business conditions are going to continue to change and we're going to evaluate. It's going to be a dynamic program as time goes on. What we said in our prepared remarks is, right at the moment, with MPLX trading at a 15%-plus [Phonetic] yield, we see unit buybacks as the preferred option right at this point. Over the long term, with the base plan, if we stayed in that mode, we expect our leverage to naturally decline as EBITDA continues to increase because our base plan has -- earnings continue to increase and if we keep debt flat, then we'll have a natural leverage reduction over time. But it is something that we're going to make quarterly calls or real-time calls as time progresses.

Our main emphasis was -- and we've said this for quite some time now was to get into a position where we would have free cash flow after distributions and after capital. We're achieving that as we come to the end of 2020 here and our expectation was for that to occur in '21, so we're a little earlier than we expected. That's why we went out for the authorization with our Board and then we're just going to continue to evaluate the program as time goes on and continue to be thoughtful as to what's the best way to deploy it.

Jeremy Tonet -- JP Morgan -- Analyst

That's very helpful. Thank you. And want to pivot over to Wink to Webster here and just trying to better understand the ramp there with the first leg online and how we should think about those cash flows, I guess, that are increasing this year and into next year?

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Jeremy, on Wink to Webster, one of the things that all the partners have done is looked at how can we optimize the capital spending. So portions of the project will come on in 2021, but, as we said in our early remarks, the main segment from Midland to Houston completed early, so we're going to start that up early. And then as '21 progresses, as we optimize the capital and we look at where the different segments are throughout '21, we'll give more of an update as to where that's going to play itself out, but it's part of the optimization process. Instead of waiting for the whole time, there is a piece of the project that could start up sooner.

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Jeremy, it's Pam. I thought I would just add on to Mike's comment about the unit repurchase. And you asked whether asset optimization would have a factor, would play a role in that. And I just want to highlight, we're not a distressed seller. And so, we'll be patient and prudent with asset monetization. But clearly to the extent that we are successful and we hope with an improving price environment that we'll be successful in optimizing some of the basins, we would absolutely deploy proceeds first to debt reduction and we certainly don't want to be in a, what we call, a dilutive deleveraging.

So certainly, we would look at using some proceeds to the extent that they're available for unit to repurchase as well. So -- and of course, that's all predicated on where we stand with respect to leverage in our investment-grade credit profile that we want to prioritize, as we evaluate all these opportunities to allocate our capital as we move forward.

Jeremy Tonet -- JP Morgan -- Analyst

That's very helpful. Thanks. If I could just sneak one more in, just wondering if you had any other thoughts you could share with regards to the trajectory of demand recovery across your systems?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah, Jeremy. So as it relates to the largest segment of our business, the logistics and storage segment, MPC each quarter does provide some guidance on what it expects in terms of its refining throughput and certainly the volumes in the logistics and storage side of the business will really move with MPC's guidance. Currently, their guidance for the fourth quarter is slightly lower than it was for the third, so keep that in mind. But that's certainly what we would expect as well.

And then, as it relates to the gathering and processing side of the business, it's been a certainly very challenging for the producer customers really across all of our geographies. We've been pleased to see some of the reports from producers have been coming out, so we'd encourage you to look at some of those -- that guidance as well. But -- an improving price environment and backdrop. We think we will be very supportive for the gathering and processing segment.

We are running at very high volumes in our Marcellus area. So, we have some capacity that we could certainly fill up in the Utica and we have Smithburg 1 ready at the appropriate time to take gas, but that Sherwood complex is running quite full. So, we're optimistic about how our producers will be able to benefit from an overall improving at natural gas and NGL price environment.

Jeremy Tonet -- JP Morgan -- Analyst

Got it. That's very helpful. Thank you. I'll get back in the queue.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

You're welcome.

Operator

Thank you. Our next question will come from Shneur Gershuni with UBS. Your line is open.

Shneur Gershuni -- UBS -- Analyst

Hi. Good morning, everyone. Maybe to start off and just go back to that buyback question a little bit. Just wondering if we can unpack it, given that you're at 4 times leverage already and the balance sheet is where it's at, and then when we look at the fact that you expect to be free cash flow positive after distribution in '21, just wondering if you could give us a sense around the -- does all that excess go toward buybacks, is that kind of the instructions from the Board, is there a percentage of it that goes toward buybacks? And as you execute on it, is it going to be in a pro rata format, public units versus MPC held units? Just wondering if you can give us a little bit more color around that.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Hi, Shneur, it's Mike. So, yeah, like I was saying in my previous comments, we're going to evaluate it as business conditions dictate. What we're trying to disclose to everybody is, right at this particular time, the way we see the market today is because we've been trading 15%-plus [Phonetic] yield, it's our desire to prioritize unit buybacks. There is not a set -- to your question, there is not a set percentage or anything like that. It's us going to be making a determination as we go forward, what's the best use of those proceeds as we generate positive cash.

And the environment that I would say that we see today, I'd -- so I call it the base case today is, we see buybacks as the preferred vehicle. And at the same time, we do see EBITDA growth in our business will naturally reduce our leverage. So as Pam has said many times, we're comfortable at 4 times. Over time, we think that will go down as our earnings grow. But if conditions dictate something different, we will adjust. But right now, we see unit buybacks as the priority based on where the market is trading and the yield that we have on our units.

Shneur Gershuni -- UBS -- Analyst

Okay, great. Maybe as a follow-up question, I was just wondering if we can expand on the cost side a little bit. In terms of your cost efforts, how much of the reduction that's happening at MPC will translate across to MPLX above the original target that you set earlier this year? And has your capex outlook changed for 2021, I think it was $1 billion last time we were updated?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah. Shneur, I'll take that. It's Pam. So as we mentioned earlier, we're on target to achieve the $200 million of operating expense reductions this year. And then, we also announced the reduction in force that was across the enterprise, MPC and MPLX. And so, that portion of the cost reductions associated with the separation of -- part of our workforce will be reflected primarily as we move forward in 2021, so that's incremental to the $200 million that we identified earlier.

And then the other question that you asked about was capex. Capex, we would -- we will provide an update when we report fourth quarter results. But as you know, we've worked hard to reduce our capital spend throughout the year. We're still targeting about $900 million, which is down about $750 million. And then, we would expect for 2021 -- although we're not ready to provide some guidance, we would expect 2021 capex will be lower than 2020, as we've been ramping up some larger projects here. So, it will be lower than this year, but we're just not ready quite yet to give you that guidance, Shneur.

Shneur Gershuni -- UBS -- Analyst

Yeah. Really do appreciate. And if I can sneak one last one like Jeremy, you expect to be free cash flow positive after distributions next year, you've had really strong results this year. Is there any reason to think that it can't happen this year as well too, or is there some seasonality in 4Q that we should be thinking about?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Well, as I mentioned earlier, so there was a question about the outlook and on volumes across the system. And the logistics and storage side will follow MPC's refining volume throughput. So -- and MPC's forecasting slightly lower throughput for the fourth quarter than the third. So, keep that in mind. But to your point, we're turning the corner here on free cash flow. We were negative the first half, positive in the third. We would expect to be positive in the fourth. So, we think we'll be right around a position to maybe modestly positive for the fourth quarter of 2020 -- for the full year.

Shneur Gershuni -- UBS -- Analyst

Perfect.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Hey, Shneur, it's Mike. One of the things that I think we're trying to communicate is, we made a commitment to the market that we were going to drive ourselves toward free cash flow in '21. As you're pointing out, we're getting there a little bit early. I don't want to overplay this though from the standpoint as we got authorization, we expect to continue to execute the plan. As you know, the size of the public float is not a very large number at this point. So, I don't want to overhype the discussion today. But just really reiterate that we're on track to do what we said we were going to do for a long period of time here.

It's been multiple quarters in a row where we said, here's where we're headed, we're getting there, we're trying to show you that. As Pam just said, for the full year, we will be slightly positive. As we go into '21, it will get a little bit more and I think we're just trying to disclose that we made a commitment, we were executing on that, we're getting to a position where we will finally get to a point of that resulting in some buybacks and that's why we got the authorization.

Shneur Gershuni -- UBS -- Analyst

Yeah. Perfect. Really appreciate the color, guys. Take care and have a safe day.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Thanks, Shneur. Appreciate it.

Operator

Thank you. Next, we will hear from John Mackay with Goldman Sachs. Your line is open.

John Mackay -- Goldman Sachs -- Analyst

Hey. Good morning. Thanks for the time. Just wanted to circle up again on capex for 2021. I appreciate the guidance that it should be lower year-over-year, but just wondering if you could talk a little bit about what might be the moving pieces there, how flexible that number, and then really how much does it depend on the pace of the overall recovery?

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

John, I'll start off and Pam can jump in. So, we're not quite through our process internally or with the Board for '21. We're in the middle of that, so we're not ready to give any forward guidance in that area. I think what Pam was reiterating is, one of our tenets of going forward is we're going to maintain very strict capital discipline. As we said, we set a goal that's become -- realized now that we will be free cash flow. We're committed to our distribution as we've said many times. The market keeps asking us about that, but we're committed to that distribution or committed to managing capital in a way that we've raised our hurdle rate in such a way that we will have strong discipline around it. We will generate excess cash. As we generate that excess cash, if the market continues to trade where it's been, then we think the right use of proceeds is to buyback units. That's kind of where we are at this point.

As to your question on recovery, again my personal philosophy is worry about the things we can control and not the ones that we don't control. But just to do scenario planning around that, I mean, I think there's a lot of good indications that the market is going back in a demand recovery mode from where it was earlier. Hopefully, some of this rhetoric that we're all reading about as far as vaccines coming online sooner rather than later is all good, and hopefully, the overall U.S. economy will rebound in '21 the way some people are projecting.

So, we're just going to have to watch as I was saying in the answer to the first question, business conditions will dictate how and which method and the pace at which we deploy things. But I think our main message here is, we're delivering on what we expected, we're reaching that point, we're staying disciplined on capital, we're staying committed to our distribution and we've reached a point where we're starting to have excess funds.

John Mackay -- Goldman Sachs -- Analyst

All right. That's helpful. I appreciate that. As my quick follow up and I'll keep it to two today, just on capex in the quarter, so the year-to-date number looks like it's coming in a little tight on kind of what your full-year 2020 capex guidance has been. So I was just wondering if you kind of frame up really spending for the rest of the year and kind of what's happening there and maybe if you're expecting another return of capital from one of the JVs or something like that? Thank you.

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah, John. So I think one of the things that is a little more difficult for us to forecast is change in accrual for capital expenditures and capitalized interest. And so, some of those items are adding to this number that is a little higher than our targeted of $900 million. But if you back out -- and we give the detail in the press release, so I think it's the last schedule attached to the press release. If you back those things out, you'll see that we're still right on target. We will have considerably lower capital spending in the fourth quarter and that is intentional.

As I mentioned, throughout the earlier part of the year, we were wrapping up some larger projects like the Mt. Airy terminal, the Utica butane expansion and NGL pipeline in Appalachia and we had some other -- some plants that were being ramped up. So we had -- our capital spending was much greater in the first half of the year and also that's part of the reason why we were negative cash flow in the first part of the year. But, yeah, you will see a very significant decline sequentially, as we go into the fourth quarter and close out the year for growth capex.

John Mackay -- Goldman Sachs -- Analyst

Sure. That's helpful. Thank you.

Operator

Thank you. Our next question will come from Christine Cho with Barclays. Your line is open.

Christine Cho -- Barclays -- Analyst

Thank you. If I could actually just maybe take your comments about how we should think about free cash flow generation through the remainder of the year, can you give us an idea of how much of the quarter-over-quarter increase at L&S was due to cost savings? And where you were relative to MVCs? And whether you expect to hit up against any MVC levels next quarter with the volume guidance that you're forecasting at the MPC level?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

So, MVCs can always be a part of the equation. We have a large number of our contracts and systems that are supported by MVCs and even in periods of time when we weren't in the kind of the demand shock that we've been experiencing. We've had some -- the benefit of protection from minimum volume commitments. And so certainly that's always in play, Christine.

In terms of the cost reductions, we probably won't break that out separately for each segment, but certainly, cost reductions did play an important part of third -- second and third quarter, and we still have some cost reductions to deliver here in the fourth quarter as well with respect to that $200 million for 2020, that expectation of operating cost reductions. So that's a significant portion of the benefit that we've been realizing.

We probably have a little more flexibility on the logistics and storage side of the business than what we've had on gathering and processing. The plants that they have installed have a little bit like a mini refinery. They have high fixed operating costs. And so, we have probably experienced more of the cost savings on the logistics and storage side of the business than we did in gathering and processing.

Christine Cho -- Barclays -- Analyst

Okay, got it. And then, I guess just given the changing landscape for refineries in a post-pandemic world, how should we think about the long-term cash flow generation of the existing assets against the contribution from growth projects as we think about the natural deleveraging you mentioned from growing EBITDA? And should we take your preference to buy back stock today as confidence that you either don't see deterioration in the near to medium term on your assets or that any structural changes will be more than offset with lower capex and continued cost savings?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah, and thanks, Christine. That's a good question. And so, it's kind of -- I'll give you kind of a multi-part answer and then maybe ask others if they want to chime in as well. But when we think about some of the significant changes that have taken place at MPC's operations with the idling of the Gallup refinery, the Martinez refinery and the conversion of Dickinson to renewable diesel. When we think about some of those renewable products like renewable diesel, as you know, it's a drop in fuel and we can move that fuel in our existing assets. So, we certainly will look forward to -- as MPC transition some of its fuels and its feedstocks, we'll be equipped to handle those feedstocks and those fuels.

And then as it relates specifically to Gallup and Martinez, we've talked about the fact that we have contracts in place that protect cash flow for a period of time. And then, at Gallup, we would expect to actually there to be --for the enterprise little or no change in the cash flow and EBITDA, because the pipelines that supported moving crude to the refinery. Now that crude is being transported on a longer haul TexNew Mex pipeline to Midland. And so, the earnings we believe will not be impacted by the shutdown of the Gallup refinery.

And then at Martinez, the combination of things there. So, again, we're protected with agreements for the various assets that were dropped down over time by the legacy Andeavor and ANDX systems. We have a minimum volume protection in place and some contracts go out to December of 2026. And as MPC continues to move forward with its project there, we're continuing to evaluate the long-term opportunities for the logistics assets around that operation to be confirmed to support MPC's objectives in that market.

As far as the long-term and energy transition, we believe that our assets will continue to serve an important role well into the future in terms of delivering crude oil, feedstocks and finished products to markets that we believe will continue to require them even as the space does transition. And then when we talk about energy transition, we could talk about some of the opportunities to convert some of our assets to help support new services and operations like moving CO2 or/and sequestering CO2 in caverns and storage facilities, moving hydrogen on pipelines, renewable gas on pipelines and those kinds of things.

So, certainly an opportunity for us. This industry has been very resilient over time. We've adapted to a lot of changes in standards and regulations over time. And we believe our assets will continue to be a vital part of delivering energy to those who need it.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Christine, it's Mike. I'd just add to Pam's comment to your question. At the end of the day, we're going to continue to see an evolving energy landscape. Obviously, it's very well-known that there is different things occurring in different parts of the world. In the short term, one of the priorities that I think was important for us at MPC and MPLX was to spend a lot of time on our cost structure and that effort continues, and we're going to continue to give updates quarter-to-quarter as to how that progresses.

But I don't want to lose sight of the point that Pam was making at the end of the question -- the point that you made at the end of yours is, we do believe in growth as an important part of the story at MPC and MPLX, getting the cost structure in line was a high priority, but then also growing the earnings at both entities over the long-term is also a priority. But in the very short-term, with COVID hitting and the uncertainty around the market at least in the last six months or so, the higher priority has been liquidity and getting ourselves in a position where we think we have a structure long-term and it's more cost competitive.

Christine Cho -- Barclays -- Analyst

Thank you.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

You're welcome.

Operator

Our next question will come from Michael Blum with Wells Fargo. Your line is open.

Michael Blum -- Wells Fargo -- Analyst

Thank you. Good morning, everyone. So in your prepared remarks, you've talked about M&A you're seeing in the upstream space. My question is, really do you see that ultimately moving to the midstream sector? And if so, what are your thoughts in terms of MPLX playing a role there, or do you think it was going to be more internally focused?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah, Michael. I'll start, it's Pam. So, at the moment, we don't really have a currency that I think would be very effective in consolidation. I think consolidation will take place and certainly we'll evaluate opportunities as we move forward. But again, our priority in the near-term is to use our free cash and our balance sheet -- not use our balance sheet and keep our debt in check here, but use our free cash to buy back units. But we're not going to be blind to what's happening in the space and we do think that there will be consolidation. So, we'll certainly be monitoring that. What that might look like, difficult to predict, and I'm not saying that we are actively engaging in M&A at this point in time, but certainly we'll keep an eye on how that unfolds.

Michael Blum -- Wells Fargo -- Analyst

Great. Just a second question, just wanted to ask if you had any updates on the proceedings on the High Plains Pipeline? Thank you.

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah. So on the High Plains Pipeline, there was some recent developments and the case was really remanded back the -- so by December 15th, there will be an update from the court. Let me see, if I'm missing anything here. Yeah. So the Trespass Determination and the damages are vacated, and that's -- so that's good. The matter has been sent back to a Regional Director. We do expect a new decision by December 15th. But really that's all there is. We don't have much to share beyond that. Now, I just want to remind people as we stated before, we have alternatives to generate a similar level of EBITDA as we've generated in the past. If for some reason, we're unable to use that one piece of line that was at issue with the tribes.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Michael, it's Mike. I'd just add, obviously, it's a positive development for us as the Assistant Secretary issued an order vacating the BIA's trespass order. There is still more to come, as Pam mentioned. But as we previously disclosed, we believe that we have alternatives that are just as important in this whole process, and we'll continue to see how it plays out, but that's where we stand at this point.

Michael Blum -- Wells Fargo -- Analyst

Thank you very much.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

You're welcome.

Operator

Thank you. Our next question will come from Spiro Dounis with Credit Suisse. Your line is open.

Spiro Dounis -- Credit Suisse -- Analyst

Hey. Good morning, everyone. First question is just on the midstream assets still up at the MPC level, both Gray Oak and South Texas Gateway are cash flowing now, so I was wondering if you guys could update us on how you're thinking about migrating those assets down to MPLX? And if an asset swap is something that could facilitate a transaction there?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah. It's Pam. So I would say, at the moment, it's kind of a -- it's not on the front burner. For us, across the Company, we really have our priorities focused on those items that Mike has highlighted, optimizing our portfolio, reducing our costs, focusing on the commercial aspects of our business, really getting our house in order and for MPLX in particular getting to that excess free cash flow, that positive cash flow after distributions and after capital investments, so that we can commence the program that was authorized by the Board to begin repurchasing our units.

Spiro Dounis -- Credit Suisse -- Analyst

Understood. Second question just on the ESG side of things. Obviously, you guys continue to make a pretty big push there, encouraging to see that. I'm just wondering, when it comes to governance, at some point does the evaluation of a C-Corp governance vehicle become a way to your factor for you?

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Yeah. Spiro, it's Mike. So one of the things that we continue to look at is the structure that we have here. We certainly understand the argument for C-Corp and the advantages that that would bring from widening the investor base. But as we found in our midstream review, there is a lot of cases where there are pros and cons, I've used that term quite a bit, and there's knowns and unknowns. Obviously, in this particular case, the pro would be to a wider investor base than in -- currently in the partnership structure. But one of the large cons would be the tax impacts that would occur both at MPC and to our long-term holders. So, that's one of the main reasons that we have not moved forward on that.

The second main reason, obviously, is, if you're in a C-Corp mode, then you're going to start paying corporate taxes. And for us, we have looked at that for an entity that we have today, which is about $4 billion of distributable cash flow rough numbers. Even at 21% tax rate, that's a significant corporate tax that we would be paying. And if you believe that the tax rate could be going up in the future, it's just even that much more. So if you're looking at $800 million to $1 billion to $1.2 billion, whatever number you want to pick, we haven't felt that it's been worthwhile to consider that in light of the cons, which would be the upfront tax implications to our holders as well as the ongoing loss of cash flow, that's pretty significant in this regard.

So, with that said, we're always constantly evaluating what's the best way for us to try and create value. Up until now, we keep saying the base case that we've been on is still the right path. We want to get into a -- into '21 and generate more cash flow and continue to emphasize that we think that's the best source of value for us and try and get to a point where we start to buy units back. And if they continue to trade at this kind of level, then we'll continue to prioritize that as the use of that excess cash.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Makes sense. Appreciate the color. Thanks, Pam. Thanks, Mike.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

You're welcome.

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Thank you. Our next question will come from TJ Schultz with RBC Capital. Your line is open.

TJ Schultz -- RBC Capital -- Analyst

Great, thanks. First a question on the MVCs. Do you have any major contract renewable -- renewals on the MVCs in 2021? And what's the average remaining term on the MVCs within L&S?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

So within L&S, we have long-term contracts, most of them were put in place. Those that would be coming up for a renewal would be coming up primarily in 2022. So our first drop down back in 2012 was Marathon Pipeline assets and those are 10-year contracts. So, the majority of those would start coming up for renewal in the logistics and storage segment of the business, beginning in 2022. We do have one contract, our marine contract, does come up for renewal in January of 2021 and that is a little more unique among all of our other contracts. That contract will be extended and renewed.

However, it does have a feature where we will reset the rates to market rates for the equipment that's under contract. So, it's a contract, it's a fee for capacity. So to the extent that we have the equipment in service available and dedicated MPC, we will be paid for that equipment. The rates are set to fluctuate every five years upon contract renewal. So, we would expect that there will be contract renegotiation on the rates, the rates will be reset and the rate reset is really based on what market rates are. So, that's one that will be up in 2021.

TJ Schultz -- RBC Capital -- Analyst

Okay. Thanks. And then just a follow-up on your answer earlier about asset conversions that may be possible when considering energy transition and the theme there. Are any of those considerations, whether it has to do with CO2 or hydrogen or RNG happening right now, or when do you expect those types of conversions to be possible or to be needed? Thanks.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

One of the things that I would tell you, TJ, is as we look at this evolution in the energy space, I think Pam said it well earlier is we're going to continue to look for opportunities where we can participate and make that part of our portfolio going forward. Probably, the toughest thing from your end, it's an area where we probably won't give the most disclosures because of the competitive nature of these calls and not put ourselves in a position where we're hurting our either negotiations or the projects that we have. But we will try our best to give you some color in this area, but it's also an area that's probably going to frustrate you a little bit as we kind of keep some of these projects closer to the vest. But I don't know, Tim, if you want to comment at all? Okay.

Timothy J. Aydt -- Chief Commercial Officer and Executive Vice President of Pipelines, Terminals and Marine

So, this is Tim Aydt. I would just add that, in short, we know we're an energy logistics company and we're going to continue to look at all the opportunities, but I think Mike has summarized it well. It's a pretty competitive environment. Whether we look at conversion of assets we have, we have things that move molecules, so we'll continue to look at what we can put those services to use in, whether its trucks, trains, boats, pipes, it's all on the table.

Operator

Thank you. Our next question will come from Keith Stanley with Wolfe Research. Your line is open.

Keith Stanley -- Wolfe Research -- Analyst

Hi. Good morning. Wanted to follow-up first on the content -- the comments on the marine contract. Can you give a sense of current rate versus market rates? And then, my understanding was that at a pretty small business, I think it was only maybe $100 million or $200 million of EBITDA, if that's in the ballpark. And then related to that, do the pipeline contracts that you referenced for 2022 also reset to market rate renewal or was that something unique to marine?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

No, that's unique to the marine business. And you have -- you're in the right zip code in terms of the size of the business. So, yeah, it's -- and I would say, another thing to keep in mind is the fact that we have put more equipment to work also helps to offset the fact that we would expect the marine rates to come down. I would say, the current market is soft relative to when the contract was first put in place and the prices were first established. So it's clearly -- it is -- but you're in the right zip code for marine.

Keith Stanley -- Wolfe Research -- Analyst

Okay, great. And second topic, on the buybacks. The $1 billion authorizations for the public units, can you just talk about the reasons for buying in the public units and not, I guess, buying in any units held by MPC, obviously it's more impactful for the stock technically? But any other thoughts or considerations, maybe MPC has no interest in selling back MPLX units, just how you came to do the authorization just for the public units? Thanks.

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Well, we think it's important message for investors that MPC does want to hold its ownership interest in MPLX. And as we use positive free cash, again, after we maintain the distribution, which is important to MPC, after we invest in the business, the capital that's available after investing in the business will be used to buyback public units and that will only serve to increase MPC's ownership interest in MPLX. So, we think that's an important message for investors that MPC continues to value MPLX as an important part of its business long-term, not only for the distribution today but for growth opportunities well into the future.

Keith Stanley -- Wolfe Research -- Analyst

Great. Thank you.

Operator

Thank you. Our next question will come from Tristan Richardson from Truist Securities. Your line is open.

Tristan Richardson -- Truist Securities -- Analyst

Hey. Good morning. Thanks for all the communication on capital priorities. You've covered a lot of ground here. Just one more buyback question, if I may. Just curious, Mike, how much does consolidated leverage at the sponsor influence the pace of execution on a buyback versus continuing to just delever the LP?

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

So, they are pretty much independent, Tristan. One of the things that we've said at the sponsor level is, we look at the MPC, ex-MPLX leverage and we want to keep that at around 1 times to 1.5 times. Obviously, we're in a little bit of anomaly situation with what's happening with COVID, but we've continued to communicate that we believe both entities should be -- and I use the word appropriately levered, we're not looking to have the entities underlevered, we're not looking to have them overlevered. We are looking for an appropriate amount of leverage that is right for each entity.

At the MPLX level, we think 4 times is a good spot to be. Over time -- Pam has said, over time, having that drift down a little bit as our earnings grow is good for us in our mind. So midstream space was very consistent, stable earnings. And, hopefully, the market is seeing that as far as the last couple of quarters here. We think that's an appropriate leverage for the midstream space. At the same time, on the refining space, that type of leverage would not be an appropriate level. So that's why we've communicated 1 times to 1.5 times is what we think is right there.

In both entities, it's very important for us to maintain investment-grade credit metrics. We continue to have dialog with the rating agencies. We'll always continue to do that. The ratings that we have at this point we believe are appropriate for our businesses and we think the leverage that we have is important to maintain that investment-grade profile.

So that's the way we think about them. Some people ask that question like you're asking now about consolidated. We kind of look at them as two independent businesses and having them appropriately levered is the way we think about it.

Tristan Richardson -- Truist Securities -- Analyst

Appreciate it. Thank you, guys, very much.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

You're welcome.

Operator

Thank you. Our last question will come from Ujjwal Pradhan with Bank of America. Your line is open.

Ujjwal Pradhan -- Bank of America -- Analyst

Good morning, everyone. Thanks for taking my questions. Just two quick clarification ones for me. You mentioned earlier that the cost reduction from workforce reduction plan is incremental to the $200 million in opex reduction this year. Are you able to quantify the benefit from that going forward? And perhaps high level, how much of the aggregate cost reduction this year will be repeatable next year?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah. Ujjwal, all of the cost reductions that we're achieving in 2020, we expect to be ongoing into the future and we're not providing information yet about the amount that the cost reduction equates to for the workforce reduction. But you'll be able to see it in our results as we move forward and some of the cost reductions that we've been able to successfully execute here in 2020, you should be able to see that in our detailed financial statements as well. So I would say just continue to monitor our progress and you should be able to follow it as we move through 2021.

Ujjwal Pradhan -- Bank of America -- Analyst

Got it. Thanks for that, Pam. And second, a clarification on the capex comments from earlier. I appreciate the color you already shared so far. But given the improving outlook for the Northeast based on your customer conversations, perhaps could you share how we should think about run rate capex for Northeast G&P to maintain current production levels?

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Yeah. Ujjwal, I would say that that's relatively modest relative in -- on comparison to the total capital that we've been spending historically there. Most of the capital that we've spent in 2020 even is related to the NGL pipeline that we completed and were close to completion there. And then bringing on -- or preparing to bring on some additional plants and building out that Smithburg 1 property. So, we definitely have ongoing capital to support the producer customers in the way of well connects and so forth. But my guess is, just within the Marcellus that that would be couple of hundred million [Phonetic] or less.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Ujjwal, it's Mike. I'm just going to add that one of the things that I think we've seen as a result of the activities in this year is, many of the E&P players are looking at their situation and compared to where they were a couple of years ago, looking at a slower growth trajectory, whether it'd be in the Northeast or in the Permian or any other areas. So our expectation is, the growth pattern that we'll see will be at a slower pace consistent with that.

At the same time, I think everybody has seen that one of the things of the recent activities in 2020 is how natural gas has responded as far as price and the expectation going forward and we think it's still going to be an important part of the energy landscape for the long term. We're looking at $3 plus natural gas pricing now compared to where we were six months ago. And I think there is a different outlook going forward that also blends into the evolving energy landscape.

Ujjwal Pradhan -- Bank of America -- Analyst

Got it. Thank you, Pam and Mike, and congratulations on a good quarter.

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Yeah. Thank you.

Operator

Thank you. I will now turn the call back over to Kristina Kazarian for closing remarks.

Kristina Kazarian -- Vice President of Investor Relations

Thank you for joining us today, and thank you for your interest in MPLX. Should you have any additional questions or would you like clarifications on any of the topics discussed this morning, members of our team will be available to take your calls. Hope you have a great day.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Kristina Kazarian -- Vice President of Investor Relations

Michael J. Hennigan -- Chairman, President and Chief Executive Officer

Pamela K.M. Beall -- Executive Vice President and Chief Financial Officer

Timothy J. Aydt -- Chief Commercial Officer and Executive Vice President of Pipelines, Terminals and Marine

Jeremy Tonet -- JP Morgan -- Analyst

Shneur Gershuni -- UBS -- Analyst

John Mackay -- Goldman Sachs -- Analyst

Christine Cho -- Barclays -- Analyst

Michael Blum -- Wells Fargo -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

TJ Schultz -- RBC Capital -- Analyst

Keith Stanley -- Wolfe Research -- Analyst

Tristan Richardson -- Truist Securities -- Analyst

Ujjwal Pradhan -- Bank of America -- Analyst

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