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MPLX LP (MPLX) Q2 2021 Earnings Call Transcript

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MPLX earnings call for the period ending June 30, 2021.

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MPLX LP (MPLX -2.07%)
Q2 2021 Earnings Call
Aug 6, 2021, 9:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the MPLX Second Quarter 2021 Earnings Call. My name is Amber, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

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

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Kristina A. Kazarian -- Vice President, Investor Relations

Thanks, Amber. Good morning and welcome to the MPLX second quarter 2021 earnings conference call. The slides that accompany this call may be found on our website at mplx.com under the Investor tab.

Joining me today on the call are Mike Hennigan, Chairman, and CEO; Pam Beall, CFO; and other members of the executive 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.

With that, I'll turn the call over to Mike.

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

Thanks, Kristina. Good morning, and thank you for joining our call. This morning, we announced that Pam Beall will be retiring after more than 25 years of service. Pam has played a critical role in many of our milestones and has been an excellent CFO as we transition the partnership into generating free cash flow after distributions and capital Her financial guidance, strategic input and solid counsel have been understated, and she will be missed. The Board of Directors, and I wish her well in her much deserved retirement.

I would also like to congratulate John Quaid on his appointment. We look forward to continued strategic growth and value creation under his financial leadership. John will hit the ground running as he's been part of the Marathon team for many years and very deserving of this opportunity.

With that, let me start by saying that earlier today, we reported adjusted EBITDA for the second quarter of 2021 of $1.4 billion. Our operating results this quarter represented 12% increase in EBITDA from the second quarter of last year and a 10% increase in EBITDA from the second quarter of 2019. This performance highlights the resiliency of the business, irrespective of the challenging macroeconomic environment.

Furthermore, the company generated excess cash flow beyond our capital and distribution requirements for the third consecutive quarter, enabling the continued return of capital to our unitholders through unit repurchases.

In our L&S segment, throughput volumes continued to rebound with higher product demand and increased utilization at MPC's refineries. In our G&P segment, we continue to see high processing and fractionation utilization in the Marcellus. We are maintaining strict capital discipline and efficiently executing our growth plans on high-return portfolio of investments. Both the Whistler natural gas pipeline in the Permian and the Smithburg 1 processing plant in the Marcellus began service in July.

Looking forward to the remainder half of the year, we continue to expect completion of the Wink-to-Webster crude pipeline and the NGL takeaway system, which are both part of our integrated crude and natural gas logistics systems from the Permian to the U.S. Gulf Coast. In the G&P segment, the Preakness processing plant in the Delaware Basin remains on track to support anticipated incremental volume from producer customers in 2022.

Our continued focus on identifying and efficiently executing high-return projects will support further growth for MPLX.

As part of our work to advance low carbon opportunities, we are actively engaged in evaluating new opportunities for the business, especially where we see technologies complementary with our expertise and asset footprint. The MPLX footprint spans a large portfolio of assets, creating a robust list of opportunities we continue to evaluate. We also continue to identify opportunities to structurally lower our costs and drive efficiencies in the business.

When we look at our operating expenses, our 2020 controllable costs were more than $200 million lower compared to 2019. We continue to improve on this performance with controllable costs in 2021 expected to be incrementally a $100 million lower than 2020 for a total of $300 million lower compared to 2019.

Our focus on strict capital discipline, combined with growing EBITDA, continues to enable the business to generate excess cash after self-funding our distribution and capital program. We remain committed to prioritizing the return of capital with nearly $900 million returned to unitholders this quarter through distributions and unit repurchases.

As we look into the second half of '21, we expect to continue to generate excess cash after all capital investments and distributions, and as we have stated previously, we plan to execute repurchases based on free cash flow, the current as well as the anticipated needs of the business and the market environment.

Finally, this quarter, we continued to enhance our ESG commitments and disclosures with the recent publication of both our annual sustainability and perspectives on climate-related scenarios reports.

Looking at Slide 4, I want to take a moment to discuss these reports in more detail. Our Sustainability and Climate Report highlights that our approach to sustainability spans the environmental, social and governance aspects of our business. Within this year's sustainability report, we have included a midstream specific supplement, highlighting the specific topics and metrics that are most relevant and impactful to our industry.

In our Climate Report, you will see we adjust our climate scenarios annually to maintain consistency with the latest IEA projections, including the sustainable development scenario and the IEA's new net zero emissions by 2050 case. We continue to make progress on our targets to reduce midstream methane emissions intensity, 50% by 2025 from 2016 levels.

Through 2020, we have achieved 44% of this target, a move that further enhances the low carbon profile of our growing natural gas business. In addition, we have achieved 45% of our target to reduce freshwater withdrawal intensity 20% by 2030 from 2016 levels.

In short, we are challenging ourselves to lead in sustainable energy by meeting the needs of today while investing in an energy diverse future that creates shared value for all of our stakeholders.

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

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

Yes, thanks, Mike. Slide 5 outlines the second quarter operational and financial performance highlights for the Logistics and Storage segment. Our Logistics and Storage segment EBITDA increased $108 million for the second quarter year-over-year despite headwinds from decreases in marine transportation fees and decreases on certain equity method investments, the quarter benefited from increased pipeline and terminal throughputs as well as the team's focus on operating expense reductions and business efficiencies.

Our pipeline volumes returned to pre-pandemic levels and were higher than the second quarter of 2019. We continue to make good progress on our integrated crude oil and natural gas logistics systems from the Permian to the U.S. Gulf Coast. The Wink-to-Webster crude oil pipeline in which MPLX has a 15% ownership interest continues to place segments into service, and we expect this activity to continue throughout the remainder of the year.

Consistent with our focus on projects with lower return risk, the pipeline system has 100% of its contractable capacity committed with long-term minimum volume commitments. On July 1, the Whistler natural gas pipeline was placed into service, providing approximately 2 billion cubic feet per day of incremental natural gas transport capacity to the Texas Gulf Coast markets from the Permian Basin. Similar to the Wink-to-Webster project, the Whistler Pipeline, in which we have a 38% ownership interest, is backed by long-term minimum volume commitments, and we expect volumes and EBITDA contributions to ramp up throughout 2022.

And finally, we continue to work toward an in-service date in the fourth quarter this year for the NGL takeaway solution, which will provide long-haul NGL service from the Permian to Sweeny, Texas.

On Slide 6, moving to our Gathering and Processing business, we provide second quarter operational and financial highlights for the segment. For the second quarter of 2021, Gathering and Processing EBITDA increased $39 million from the second quarter of 2020. Overall, gathered and processed volumes were lower than the same period last year. While in the Marcellus, processed volumes increased 2% and fractionated volumes increased 3% relative to the second quarter of 2020.

The impact of lower volumes was more than offset by higher NGL prices that were $0.41 per gallon higher than the second quarter of 2020. This segment also benefited from continued focus on lowering operating expenses.

With inventories low and global demand driving exports of NGLs, we expect strong NGL prices could continue.

During the second quarter, we completed commissioning of the 200 million cubic feet per day, Smithburg 1 processing plant in the Marcellus, and the facility was placed into service on July 1. We continue to expect the Preakness processing plant in the Delaware Basin to be placed into service next year.

Our outlook for the rest of 2021 remains cautiously optimistic with differing impacts across our footprint. For example, we experienced increased activity in the Bakken in the second quarter, which we expect to continue in the second half of the year. We also expect increased activity with volume growth in the Permian.

In the Marcellus, our assets are highly utilized and producers' drilling plans continue to focus on strengthening their balance sheets and prioritize generating free cash flow over volume growth. This allows us to generate free cash flow to be deployed in other basins and adds to our financial flexibility.

Moving to our second quarter financial highlights on Slide 7. Total adjusted EBITDA was $1.4 billion, and distributable cash flow was $1.3 billion for the quarter. MPLX grew both EBITDA and distributable cash flow compared to the second quarter of 2020. The second quarter of 2021 results include non-cash impairment charges of approximately $42 million within our G&P segment related to minor changes in the portfolio. This is part of our ongoing evaluation and optimization of our assets in non-core basins.

We will continue to evaluate opportunities to sell or joint venture such operations where there's a value creation opportunity. And while macro trends have improved for Gathering and Processing, valuations for assets in non-core basins really have not been compelling.

Our distributable cash flow generated provided strong distribution coverage of 1.73 times for the quarter, and we paid $729 million in distributions to preferred and common unitholders.

During the second quarter, we returned an additional $155 million of capital through the repurchase of common units held by the public. This brings the total to $343 million since the unit repurchase program was launched in the fourth quarter of 2020. We now have $657 million remaining under our current Board authorization for the repurchase of common units.

Last quarter, we estimated an increase in expenses related to project work ramping up through the summer months of up to $75 million in each of the second and third quarters. While there are many factors that influence the timing of project and maintenance spend, we do still anticipate higher project expenses of approximately $75 million in both the third and fourth quarters compared to the first quarter.

We remain committed to our strategic initiatives of lowering our cost structure. As I stated on the last call, we are confident we delivered $200 million of lower costs in 2020 compared to 2019. Those lower costs continue in 2021, and we expect our total controllable operating costs for 2021 will reflect an additional $100 million of reductions from 2020, increasing to approximately $300 million in total structural cost reductions made in the business since 2019.

And lastly, as we look into the second half of the year, we still anticipate a higher run rate for capital spending compared to the first half of the year. The total growth capital spending is now expected to be at least $100 million lower than originally guided at $800 million for 2021. This is dependent on the timing of some of our core business capital spending as well as some renewable and low-carbon investment opportunities we are evaluating.

Slide 8 provides a summary of key financial and balance sheet information. We ended the quarter with a leverage ratio of 3.7 times. Today, we also announced the redemption of the $1 billion callable floating rate senior notes due September 2022. It is our intention to refinance these notes sometime in the future, with timing dependent on market and other conditions.

And with our ongoing focus on lowering our costs, our strict capital discipline, we expect to continue to generate excess free cash flow that will enhance our financial flexibility, including the ability to return incremental capital to our unitholders.

And before I turn the call over to Kristina for Q&A, I want to add a few comments about my retirement from Marathon, which I prefer to call the next chapter of my professional career, because those who know me, know that retirement in the traditional sense does not fit me.

Since 1978, when my career began, I have enjoyed a number of roles across multiple industries. However, my 26 years in energy with Marathon have been the most rewarding. We have all seen amazing results under Mike's leadership as CEO. And as a unitholder of MPLX and a shareholder of MPC, I look forward to seeing the results of Mike's vision for the company unfold. No doubt, the company will remain a leader as the industry embraces an energy diverse future.

I know you will all enjoy working with John Quaid, who will assume the MPLX Chief Financial Officer role, effective September 1. I will continue in an advisory capacity through November 30 this year to assist with the transition.

And with that, I would also like to give my thanks to Kristina and her team for the way they support our investors and our executives. And Kristina, we can begin the Q&A.

Kristina A. Kazarian -- Vice President, Investor Relations

Sounds great. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from John Mackay with Goldman Sachs. Your line is open. Please go ahead.

John Mackay -- Goldman Sachs -- Analyst

Hey, everyone. Good morning. Thanks for the time and congrats to you, Pam, on your next chapter and John, on the new role.

Just wanted to start on the buyback. So it's better than we expected, but actually consumed a kind of lower share of retained cash flow than we'd expected kind of on a relative basis. Just curious if that represents any kind of shift in the capital allocation priorities for you guys? And I don't know whether it was a coincidence that it was the same dollar amount as the first quarter. Thanks.

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

Yes, John, this is Mike. You probably shouldn't read much into it other than what we have said in the past, which is we are happy to be in an excess cash flow situation. Right now, we still believe where we are trading that buybacks make a lot of sense to us. At the same time, to your point about being a little bit lower than the retained cash is, I mentioned this for a couple of quarters. We have had a couple of things out there, some vulnerabilities that we wanted to make sure that we protect. DAPL was one that seems to have played itself out a little bit. Tesoro High Plains Pipeline was another. So keeping some dry powder was part of our goal here.

So again, it's a good position to be in. We have a lot of flexibility. I want to believe that we are going to continue to evaluate it constantly in real time. So I would like to use the word dynamic. I know we ended up with about the same amount, mainly because we kind of put a base plan together, and then we have a little bit of excess dry powder that we'll decide as time goes by.

So we are in a good position. For us, going forward, we think all avenues are open to us. Debt reduction, additional buybacks, distribution, anything along those lines is all open to us. With the main point being, is that we are at a point of financial flexibility, generating dry powder and having the ability to see what's the best value creation for our unitholders.

John Mackay -- Goldman Sachs -- Analyst

All right. That's helpful. Thanks. Maybe I will ask one on the operating side. G&P a little bit weaker than we expected. Can you maybe just talk a little bit more about the potential impact from the Sherwood and Mobley outages? And then also maybe more broadly about the Utica outlook overall, because that was a little weaker as well? Thank you.

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

Yes, John, I will let Greg take that one.

Gregory S. Floerke -- Executive Vice President and Chief Operating Officer

Hi, John. Greg Floerke here. With regard to the Sherwood Mobley outage, I believe that you're referring to the outage that we had on June 30. We did have -- early afternoon on June 30, we detected a minor release of product at our just upstream of our Majorsville, West Virginia plant. And that turned out to be on the 20-inch Y-grade pipeline, which serves our Mobley and Sherwood facilities upstream. We did isolate that release to a leak around a valve on the 20-inch line. It took several days to de-inventory the line and reduce pressure and to make sure we had a safe environment to repair the leak. That repair was made and completed on July 3. So the period from about half of the day on the 30th through July 3 was the impact period, both of those upstream plants were shut down. The Majorsville plant itself was returned to service fairly quickly after we determined the site was safe.

The impact we estimate of the repair and then the opportunity costs was approximately the $6 million range. So probably a little bit more of that split over to falling over into the next quarter for a few days. So that really addresses, I think, the Sherwood Mobley outage. More broadly regarding Utica, we look at Utica and Marcellus as they are interconnected. We have an interconnected purity ethane pipeline as well as our fractionation in our C3+ Y-grade pipelines. And we have one time we were at high utilization in the Utica on our rich gas Gathering and Processing side. That's continued to decline over the past few years as the focus has shifted to more dryer lean gas drilling in the Utica, but also continued focus on accelerated drilling in the Marcellus rich. And as you have seen, we have just had our third straight quarter of 90%, higher than 90% utilization in the Marcellus. A little bit of that is at the expense of probably drilling and focus in the Utica rich. The Utica is a little bit deeper. Wells are a little bit expensive and more complex.

We think long term, there still will be plenty of opportunity. And for drilling in that area and the producers are still -- the economics are there, they are positive, particularly at current NGL prices. It's just really a matter of prioritization, I think, at this point. We also need to look at the fact that the Northeast overall is in really good balance. Not only are we high utilization, but the outgoing residue gas and NGL pipelines are nearly full. And any growth in the Utica would sort of offset growth in the Marcellus. So it really isn't a pretty good balanced situation.

But we think long term, we did see some decline also year-over-year in gathering, particularly in Utica, and part of that's driven by the dry gas area, which is still a strong area. That really is a matter of timing and some of the cash flow preservation and focus related to the COVID demand destruction and pricing last year.

Even one quarter of delay in the drilling program results in one more quarter of decline. And as we know all of these shale wells decline fairly rapidly and need to be replaced with maintenance drilling. So we look at that as a timing issue, which hopefully, and we think will recover.

John Mackay -- Goldman Sachs -- Analyst

That's really helpful. Thanks for the time.

Gregory S. Floerke -- Executive Vice President and Chief Operating Officer

Sure.

Operator

Our next question comes from Jeremy Tonet with JPMorgan. Go ahead, please.

Jeremy Tonet -- JPMorgan -- Analyst

Hi. Good morning.

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

Good morning, Jeremy.

Jeremy Tonet -- JPMorgan -- Analyst

Hi. Just wanted to kind of follow-up, I guess, on the low carbon opportunities that you mentioned in the slides and some of your commentary today. I was just wondering if we might be able to kind of peel back the onion a little bit as far as what specific initiatives there could be more kind of near-term in nature? Just trying to think of what's real now versus later in your mind?

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

Jeremy, I will let Tim give some color on that.

Timothy J. Aydt -- Executive Vice President and Chief Commercial Officer

So good morning, Jeremy, this is Tim. I think in addition to what Mike indicated in the opening there, we certainly aren't actively engaged in many new opportunities. And they may range from CCUS to RNG, CNG, LNG. Obviously, we are looking to support renewable diesel and SAF over the course of time. I think really, when you look at our nationwide footprint, it really spans a large portfolio of assets. And I think this, in turn, does indeed create that robust list of opportunities that Mike mentioned.

We certainly have a lot of flexibility. But at the same time, we believe this is a multi-decade energy evolution that's taking place. And I think it's important for us to take a longer-term strategic view. We understand that many of the energy evolution projects may not yet be economical. But we believe, over time, these projects will be developed that evolve the energy space without sacrificing our returns.

As you know, we are very capital disciplined here, and we are going to remain so. I think when you look at shorter term, certainly, the renewable diesel support of the two refineries that MPC has converted, will provide opportunities. Our assets are well positioned to run these drop in fuels. So I think that's the shorter term.

I think the medium to a longer-term is probably going to revolve around things like carbon capture and sequestration. We are bullish on the fact that there will be a CCS project at some point in the future along the Gulf Coast, given the emitters that exist down there. So I think maybe that addresses some of the longer-term stuff. So I will leave it at that.

Jeremy Tonet -- JPMorgan -- Analyst

Got it. That's very helpful. Thanks. And Whistler's coming online, good to see that entering service here. Just wondering if you could provide your thoughts as far as Permian Basin supply demand takeaway on the natural gas side. I guess, even with Mexico possibly taking a couple of these over the next couple of years, still seems like the possibility of the new gas pipe maybe being needed late '23 into '24 could be there. Just wondering what your thoughts are on the supply demand balance for takeaway there?

Timothy J. Aydt -- Executive Vice President and Chief Commercial Officer

Okay. I will take that as well. Certainly, the return of the energy commodity prices has certainly driven, I would consider an improved outlook for the U.S. shale production. I think that's resulted in the fact that some of the existing capacity is starting to fill within the existing midstream space. But I think at the same time, we witnessed many of our producer customers remaining very focused on capital discipline, especially over the past year, which I think suggests bringing additional production to the market really will require a thoughtful strategy around whether or not they are also willing to support and back additional long-haul pipes.

I think at the end of the day, it's a balancing act for the producers and the mid-streamers. And I think the market will dictate the outcome as it always does. But I think relative to the timing that you have mentioned, I think there's a lot of industry chatter out there that suggest maybe in the '24-'25 timeframe that takeaway capacity will once again be constrained.

Jeremy Tonet -- JPMorgan -- Analyst

Got it. That's helpful. And Pam, best of luck in retirement there. Thanks.

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

Yes. Thank you.

Operator

Next, we will go to Shneur Gershuni with UBS. Your line is open. Go ahead, please.

Shneur Gershuni -- UBS -- Analyst

Hi. Good morning, everyone. First off, Pam, it's been a pleasure working with you all these years, and you will definitely be missed. But excited to hear that you are opening up a new chapter. So please, looking forward to you in joining that and please stay in touch.

Maybe just to pivot to a few questions here. With your refined product system over the last 1.5 years as we have worked through COVID, the MVCs kind of protected you on the downside, but there's also been, I guess, an uneven recovery just in terms of volumes coming back, like not through the MVCs. Are we at the stage now where we are fully through the MVCs across your system and that as we see volumes get added as we have a recovery that we can see 100% of the volume translation into EBITDA from this stage going forward?

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

Yes, Shneur, first of all, thanks for the kind comments. But yes, I would say that we've returned to a pretty robust volumes and they have somewhat correlated with Marathon's refining utilization. Now the one thing that happens on the pipeline systems is that with the minimum volume commitments, there are some provisions that some of those volumes can be recaptured. And so you will see some changes quarter-to-quarter on deferred revenue. As we recognize revenue, if there's a period of time when the minimum volume commitments cannot be reached, then we will recognize it in the quarter.

So there's some lumpy, sometimes lumpiness that you will see, but you will be able to see that kind of work through the system. But yes, overall, I would say that we are pretty much back to the pre-COVID levels, that refined products side has not been quite as robust returning as the crude side. And we have also seen a nice uptick in the terminals.

Shneur Gershuni -- UBS -- Analyst

Okay. Perfect. Definitely appreciate that. And then maybe as we sort of think about '22, realize you're not in a stage of giving guidance, but you have been fairly active on your buyback program, which I think has been much appreciated by investors. Just kind of thinking about how you are thinking about it with respect to '22, sort of toggling between how you're thinking about capex for '22. Are there any projects that you have permitting stage that you haven't quite talked about yet that could FID, that can sort of change that balance? Or as we sit here in August of '21, it's kind of getting late to FID something that may materially impact '22 capex. Just kind of wondering about your thoughts on that and what you are kind of noodling at this stage right now?

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

Shneur, it's Mike. I am going to answer that in a second. Let me make one other comment to what you just asked previously on pipeline volumes. One of the things that we are benefiting from at the moment, that's probably not sustainable long-term is the virus is still a major impact in the system, and it's more outside the U.S. than it is inside the U.S. So export volumes in the Marathon system were down as a result and MPLX benefits from that as pipeline use inside the domestic system gets used more. So that will probably change itself a little bit once we continue to battle through this pandemic. But it's just one comment that I wanted to give you on the pipelines on that.

To your second question is, yes, I mean, Tim said it pretty well to Jeremy's question. We have a bunch of projects that we are watching and looking at. As everybody gets to know my DNA more, is I'm really strict on capital. I want to make sure that we get very, very high returns. So we are going to be, I will say, cautious to deploy capital unless we really feel very comfortable with the projects. We have a bunch that we are watching. Tim mentioned a couple in the alternative energy space. We are going to evolve our portfolio as that evolves. But some of those projects today, they are not reaching a hurdle of return that we would like.

So I think they will get there over time. I think some of these things will play itself out over time. In the meantime, we are going to stay cautious. And that's why as we set out for the year, we figured about $800 million of capital. We have been trending lower than that. And Pam in her prepared remarks, kind of said, "Hey, we're probably at least a 100 under that." And I don't view that as a bad thing because if it delays into next year and the opportunity becomes more mature, we become more comfortable with the returns, then we will deploy the capital. But as a general rule, Shneur, I think the business is largely a return of capital business. We are doing a large return of capital via distribution. We have added to that return of capital via buybacks, so that's an important part. At the same time, though, I am a big believer that you need return on capital as well. I mean that continues to fund the growth. But we just want to do it in a very disciplined way.

So we have stuff that we are thinking about. We haven't disclosed anything, to your point, we haven't FID'ed or disclosed anything because we are going to wait until it's really at a point that we think is a good return. And then that way, we are checking off return on capital as strongly as we are checking off return of capital. Hope that helps.

Shneur Gershuni -- UBS -- Analyst

No, it does. Really very much appreciate it. Thank you again for the opportunity today.

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

You're welcome.

Operator

Our next question comes from Spiro Dounis with Credit Suisse. Your line is open. Go ahead, please.

Spiro Dounis -- Credit Suisse -- Analyst

Hey. Good morning, everybody. First question, maybe over to you, Pam, just on the capex for the remainder of the year. Just curious what's going to make up that capital spending in the back half; as you noted, kind of trending sort of lower than that $800 million. But I think even with that, still struggling to kind of build up to it with a lot of these projects entering service now. So just curious what comprises that buildup?

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

Yes. Well, certainly, on the Gathering and Processing side of the business, we are going to see some -- we would expect a little higher spend in the second half of the year. We have been very constrained across the entire system on our capital spending. And as we entered the first quarter, we were extremely strict.

In the second quarter, we had expect a little bit higher ramp-up and really didn't see that materializing. It's just taking not only the producers, but our own teams are a little bit longer, having put a lot of things on hold through 2020, seeing them start to ramp back up a little bit. But we have some -- a variety of different projects that, as you know, we do have some that are coming into service, there might be a little delay in spending. But the other thing is we have some pipeline projects like some debottlenecking, certainly in the Bakken, in the Permian, we have some growth. Those are some of the core basins that we have talked about. And definitely in the second quarter, Bakken was up nicely in terms of operating activities, the producers there have been putting more drilling to work.

And so pipeline and compression, well connects, certainly in the Bakken and the Permian are going to be part of that spend. And then just some debottlenecking and work that we have ongoing in some of our core assets in the Logistics and Storage side of the business. We also have some tank projects at Patoka.

So it's kind of a -- I can't say that there's one particular project or two that really stand out, they are very substantial. As you noted, we have completed some. And then just as we tried to highlight, given the nature of all the different opportunities that we're evaluating, we could see one or two of these lower carbon projects come to fruition that could require a little bit of capital here in the third or fourth quarter.

Spiro Dounis -- Credit Suisse -- Analyst

Okay. That's helpful. And then sorry, hope this doesn't count as my second question, but does that sort of skew the $100 million back up to $800 million? Or is that contemplated already in that $100 million?

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

No, that's contemplated in the $100 million reduce [Speech Overlap]. Yes.

Spiro Dounis -- Credit Suisse -- Analyst

Okay. That makes sense. Thanks, Pam. Second one, maybe also for you, Pam, you mentioned that asset sales, maybe not the right time here for some of your underutilized or non-core assets valuations. Sound like they are not quite where you want them to be. So I am curious in terms of optimization efforts and joint ventures, which is something you guys are not new to. Curious what's being evaluated on that front to maybe uplift the value to you of those assets? And if incentive rates at some point could make sense to sort of utilize those assets better?

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

Yes. And so we do have a number of different discussions ongoing, but it's premature for us to put some daylight on that. And I don't know, Greg, if you want to discuss that a little bit more. But typically, we don't talk about those kind of activities until we are complete with negotiations and ready to announce.

Spiro Dounis -- Credit Suisse -- Analyst

Well, we will leave it there. Pam and John, congrats again. Take care.

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

Thank you.

Operator

Our next question comes from Keith Stanley with Wolfe Research. Go ahead. Your line is open.

Keith Stanley -- Wolfe Research -- Analyst

Hi. Good morning. I just had some clarification questions on the operating expenses and volumes for the quarter. So Pam, you noted Q3 and Q4, you expect opex to be, I think, $75 million higher than Q1. So was second quarter operating expense then still very low and similar to Q1, and so basically just got pushed out to the second half of the year? Or is that not the case?

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

Yes, Keith, I will say, what's driving this is, when we do projects, a lot of it is capitalized, but there's also projects and related expenses that go along with that capital spend profile. So as I mentioned earlier, we probably thought we were going to spend more in the second half -- second quarter than what we did. And what tends to happen is that third and fourth quarter, just given some of the geography of where our assets are located, sometimes it's more favorable to push that spending to the back half of the year. Certainly, third quarter is typically one of our highest spend capex quarters.

And so it's really more about timing, Keith. We did see a little bit of an increase in that kind of expense from the first quarter to the second quarter, but not as much as we expected. And then we also saw the benefit of lower costs related to some of the headcount reductions that took place in the fourth quarter last year. And so that continues here into the first -- into 2021. So that tended to mute some of the increases that we saw.

Now when you look at the different line items in the cost for the partnership, you are definitely going to see some of the line items increasing related to variable operating costs and then certainly purchased product costs that are related to some of the contracts in Gathering and Processing, where we have percent of proceeds contracts. So you are going to see some operating expenses move around. But when we talk about reducing by $300 million, our operating expenses, we are talking about those expenses over which we have control that don't flex with operating volumes, changes in operating volumes. Is that helpful, Keith?

Keith Stanley -- Wolfe Research -- Analyst

That is. Thank you. And sorry to have sort of detailed questions here. I wanted to circle back as well on the pipeline volumes. So the commentary that you are back to pre-pandemic levels, when I look at Q2 pipeline volumes, they are almost 10% above even second quarter of '19 pipeline volumes from before the pandemic. Is that correct? And is that what you were referring to, Mike, that some of the export dynamics with demand recovering better in the U.S. is actually causing some sort of outsized volumes versus pre-pandemic levels on the MPLX pipeline assets?

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

Yes, Keith, that's exactly what I think is happening right now. So I mean, we are still obviously in transition with the pandemic. And the good news for U.S. is we are in a better position than the rest of the globe. But over time, I think that will even itself out. In the short term, that is benefiting MPLX to some extent as we are getting to run our assets a little harder. MPC is keeping more volumes domestic as opposed to export. So I think that is a little bit of a tailwind for us overall.

Keith Stanley -- Wolfe Research -- Analyst

Thank you.

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

You're welcome.

Operator

Our next question comes from Christine Cho with Barclays. Your line is open. Go ahead.

Christine Cho -- Barclays -- Analyst

Thank you. Pam or someone on the team provided some color on the Utica outlook, but the Marcellus process volumes were down sequentially again. And is this just sort of a timing thing, Pam. I think you were the one who mentioned that there was some -- like some of the teams had held work. But is there anything else driving this decline? Any sort of color on how we should think about the cadence through year-end would be helpful.

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

Yes. I think, Greg Floerke wants to take that one.

Gregory S. Floerke -- Executive Vice President and Chief Operating Officer

Yes, Christine, I would say, no, there's not -- we do have on quarter-to-quarter, there was variation. Again, the wells, the producer volume, if they don't add wells in a certain steady cadence or even in one location or another, you are always having a decline until that gets made up, and then you will get a new pad comes on, and you will get an increase in volume. So overall, I mean, you see our -- if you look at our year-over-year processing volume in Marcellus, we had growth. Depending on the quarters and weather events or other things that happen, we will have variation there. But we don't see any long-term issue. In fact, we are maintaining that 90-plus per se utilization. And over 5 -- around 5.6 BCF a day or so that we are processing.

So this continues to be a strong area, and pricing is clearly favorable, both in terms of gas and NGLs. Marcus Hook differentials, some of our producers are reporting over seeing better than Bellevue pricing there. So well we're on, really good spot in the Marcellus and don't see any issue there.

Christine Cho -- Barclays -- Analyst

But I guess as we think about cadence through year-end, like, should we think it kind of flattens out from here? Or are there going to be additional well pads connected that would bring it higher?

Gregory S. Floerke -- Executive Vice President and Chief Operating Officer

Yes, I think -- again, it will depend quarter-to-quarter. We are at such a high utilization level on gas outflow and NGL pipeline capacity as well as our own utilization, that there isn't a lot of headroom for growth. The good news is that a lot of producers are drilling off of existing pads and using existing infrastructure and reporting out a maintenance-type drilling schedule, maybe some low growth, depending on the producer. But there really is not a lot of headroom there. So yes, we would expect it to see maintenance level with maybe a little bit of moderate growth if prices stay good.

Christine Cho -- Barclays -- Analyst

Okay. Got it. And then moving over to the L&S side. Would it make sense for MPLX to have a role in the Martinez conversion and participate on the Logistics side? And if so, how much capex could that translate to? And then in addition to the logistics, would you guys be willing to put any pre-treatment or processing units in the MLP?

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

Christine, it's Mike. First off, on Martinez, the logistics assets are already in the MLP. So there's not really capital required there, so that will be part of that project. So MPC is obviously doing the processing for RD, but MPLX will enjoy the logistics opportunity, so that's already in the base case.

As far as your second question, yes, we have optionality. That's a nice thing about our structure as we move forward, like you said, whether it's pre-treatment or something else, we will have discussion about what's the best opportunity to create value for both MPC and/or MPLX. Obviously, we like to do both at the same time, that's always been our goal. So as those come up, we will debate that and then obviously come out with what we think is the best solution at the time. But it is definitely on the table to your question.

Christine Cho -- Barclays -- Analyst

Great. Thank you.

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

You're welcome.

Operator

And your last question comes from Michael Blum with Wells Fargo. Your line is open. Go ahead, please.

Michael Blum -- Wells Fargo -- Analyst

Thank you. Pam, I just wanted to add my congratulations and wish you the best of luck in your next chapter.

Just a couple of questions. One, I mean you guys are obviously one of the largest NGL marketers up in the Northeast. And my question is that the Mariner system looks like it's going to get fully up and running by the end of this year. And I am just curious how to think about that as it relates to your business. Is there any puts and takes, either positive or negative that will impact your ability to market your NGLs?

Gregory S. Floerke -- Executive Vice President and Chief Operating Officer

Michael, Greg Floerke here again. We have seen incremental Mariner East capacity come on over the past few years, and whether it's Mariner East 1, Mariner East 2 or Mariner East 2X. There's been incremental growth that we and our producer customers and others have taken advantage of.

I think that in terms of -- it's one piece that dictates how much capacity there is to go -- that goes out. Obviously, NGL is one controlling factor but also residue gas pipelines as well as processing capacity. So we are operating in that high utilization range. And so it's really hard to say whether there's any overall uplift from additional mariner capacity come online.

Clearly, it's a good thing, because anytime you have pipes that are running at high capacity, you're adding additional capacity, takes away potentially one bottleneck, but not sort of a stepwise expectation because of the high utilization on all of the interconnected systems from our perspective.

Michael Blum -- Wells Fargo -- Analyst

Got it. Thanks for that. And then my second question is on the NGL takeaway system, the JV with Whitewater and West Texas gas. I guess the question is, is the $125,000 a day of capacity, is that fully contracted by the JV? And is there any costs associated with this project? So I just want to make sure I understand how to think about this.

Timothy J. Aydt -- Executive Vice President and Chief Commercial Officer

So Michael, this is Tim. I will take that and others can chime in. I think the -- when you look at the capacity, that's the initial Phase I capacity of the system. It's expected to start-up in the fourth quarter of this year. And then, of course, it would ramp over the course of time. And so there are -- we have some commitments on the system, obviously, that back that. But I think the important part is that it is the initial phase. And as you recall, we scaled back the project significantly from its original scope in order to meet just the current demands.

So this approach, I think, really allows the partners to leg into any capital-efficient solutions or expansions as the basin continues to recover. I think it's another example of our strict capital discipline. And so we are happy with our 25% ownership. As far as the capex, it will continue to evolve over the course of time. But we don't give specific guidance on a project-by-project basis on the capital required. So hopefully, that's helpful.

Michael Blum -- Wells Fargo -- Analyst

Great. Thank you so much.

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

Thanks, Michael.

Kristina A. Kazarian -- Vice President, Investor Relations

All right. Well, operator, if we have no further questions, we would like to thank everyone for joining us today, and thank you for your interest in MPLX. Should you have additional questions or would like clarification on any of the topics discussed today, please reach out and members of our team will be available to help. Have a great day.

Duration: 48 minutes

Call participants:

Kristina A. Kazarian -- Vice President, Investor Relations

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

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

Gregory S. Floerke -- Executive Vice President and Chief Operating Officer

Timothy J. Aydt -- Executive Vice President and Chief Commercial Officer

John Mackay -- Goldman Sachs -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

Shneur Gershuni -- UBS -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

Keith Stanley -- Wolfe Research -- Analyst

Christine Cho -- Barclays -- Analyst

Michael Blum -- Wells Fargo -- Analyst

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