Lisa Wilson - Director, Investor Relations Don Templin - President, Marathon Petroleum Corporation Gary Heminger - Chairman and Chief Executive Officer Pam Beall - Executive Vice President and Chief Financial Officer Mike Hennigan - President Greg Floerke - Executive Vice President MarkWest Operations Tim Griffith - SVP and CFO, Marathon Petroleum Corporation.

Jeremy Tonet - JPMorgan TJ Schultz - RBC Capital Markets Shneur Gershuni - UBS Tom Abrams - Morgan Stanley Michael Blum - Wells Fargo Brian Zarahn - Mizuho Eric Genco - Citi Jerren Holder - Goldman Sachs Justin Jenkins - Raymond James Corey Goldman - Jefferies.

Welcome to the MPLX Second Quarter Earnings Call. My name is Ellan and I will be your operator for today's call. At this all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Lisa Wilson.

Lisa, you may begin..

Thanks Ellan. Good morning, and welcome to the MPLX second quarter 2017 earnings webcast and conference call. The synchronized slides that accompany this call can be found on mplx.com under the Investors tab.

On the call today are Gary Heminger, Chairman and CEO; Mike Hennigan, President; Pam Beall, Chief Financial Officer; 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 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 Gary Heminger for opening remarks.

Gary?.

Thanks, Lisa, and good morning to everyone and thank you for joining us. Before turning to the second quarter's results, I would like to take a moment to highlight recent changes to our [Technical Difficulty] Slide 3.

Don Templin, previously president of MPLX is now president of Marathon Petroleum Corporation and will continue to serve on the MPLX Board of Directors. Don has been an extraordinary asset to our company and shareholders since MPC became an independent publicly traded company in 2011.

We are delighted to welcome Mike Hennigan who has joined MPLX as its President. Mike comes to the role with 35 years of industry experience most recently as President and CEO of Sunoco the Logistics Partners since 2012.

He brings a tremendous depth of experience having led one of the most successful growth-oriented master limited partnerships in the market. Bringing Mike to lead MPLX speaks to our commitment to grow our industry leading midstream platform and create long-term value for our investors.

Moving to our second quarter highlights on Slide 4, we are executing the strategic actions announced earlier this year. We completed the first of several planned dropdowns in the first quarter.

The dropdown of MPC's joint interest ownership in certain pipelines and storage facilities is expected in the third quarter with the proposed transaction currently under evaluation by the MPLX Board and its independent complex committee. These assets are projected to generate approximately $135 million of annual adjusted EBITDA.

Work remains on schedule to prepare the remaining assets for dropdown to MPLX. This is expected to occur no later than the end of the first quarter 2018. Following these acquisitions, the partnership expects to target a higher coverage ratio over time and internally fund a greater portion of our future growth.

In addition, we expect to exchange newly issued common units for MPC's general partner economic interest including incentive distribution rights or IDRs. These strategic actions are intended to reduce the partnership's cost of capital and enhance long-term distribution growth capabilities.

All of these [Technical Difficulty] to requisite approvals market and other conditions including tax and other regulatory clearances. Now, I'll turn the call over to Mike to review our quarterly financial and operational highlights..

Thanks Gary. First off, let me start by saying that I'm very excited to join the MPLX Team. Marathon has a strong foundation of refining and marketing assets and a powerful set of logistics assets. My goal is to build on this strength and open up the potential for additional opportunities that will create value for our investors.

It's too early to be more definitive on specific thoughts, but I will say that in the short time that I've been here based on my previous experience I see similar opportunities as well as some new opportunities that can unlock additional value.

In the short-term, my focus is to assess our current capabilities and direction and prioritize additional opportunities building on the foundation that is already established. With respect to our quarterly results, we delivered record second quarter earnings with adjusted EBITDA of $474 million in distributable cash flow of $387 million.

We also announced our 18th consecutive increase to our quarterly distribution to $0.5625 per common unit. This increases in line with our distribution growth guidance of 12% to 15% on a calendar year basis for 2017 and we continue to forecast double-digit distribution growth in 2018.

Turning to the Logistics and Storage segment on Slide 5, the newly constructed 49-mile pipeline running from Harpster, Ohio to Lima, Ohio became fully operational in July. We also expanded the capacity of our East Sparta to Heath and Heath to Harpster pipelines.

In combination with the Cornerstone Pipeline, these projects create additional fee-based revenue for the partnership and new access for Utica and Marcellus Shale producers by moving condensate and natural gas. We're also currently constructing additional connectivity and expanding existing pipelines to provide more optionality for Midwest refiners.

I'm also pleased to report, we have started to expand capacity of the Ozark Pipeline from 230,000 barrels per day to 345,000 barrels per day. The project is expected to complete by the second quarter of 2018. Moving through our gathering and processing segment, Slide 6 provides an overview of our operations in the Marcellus and Utica Shale.

For the second quarter, processed gas volumes averaged nearly 4.7 billion cubic feet per day, a new record for the partnership. This quarter's volumes are 14% increase over the same quarter last year.

The second quarter marked the fourth consecutive quarter of processed volume growth in the Marcellus Utica region and our utilization rate for the quarter was 83%.

The seventh plant at the Sherwood complex placed in service in March has ramped up quickly and operated at full capacity in the second quarter raising the total complex average to approximately 1.5 billion cubic feet per day.

In July, on the heels of Sherwood VII's strong performance, we began operations of Sherwood VIII, demonstrating our ability to construct plants on a just-in-time basis to meet our producer customers' growth. We expect volumes at Sherwood VIII to also ramp up quickly.

As a result, we have 3 additional processing plants planned at Sherwood, Sherwood IX, X and XI scheduled to complete in 2018 further supporting Antero Resources' extensive Marcellus Shale acreage in the prolific rich gas corridor of West Virginia. Line construction has also continued at several other locations during the quarter.

The 35 million cubic feet per day Houston I processing plant was taken out of service earlier this year in order to make way for a new 200 million cubic feet per day Houston plant expected to become operational in the first quarter of 2018. We also have plant additions at Majorsville and Harmon Creek expected to come online next year.

These plant additions further strengthen our position as the largest processor and fractionator in the Northeast. Overall, we expect a 10% to 15% increase in processed volumes and a 3% to 6% increase in gathered volumes in 2017.

Slide 7 provides a summary of our fractionated volumes for the Marcellus and Utica where we produced a record 351,000 barrels per day of ethane and heavier NGLs during the second quarter representing a 19% increase over the same quarter last year.

Operations of a 20,000 barrel per day de-ethanization unit at our Bluestone complex commenced at the end of June. We also continued construction of a 40,000 barrel a day de-ethanization unit at our Majorsville complex expected to come online in the fourth quarter.

These additions support our growth forecast of 15% to 20% in fractionated volumes versus the prior year. On Slide 8, we provide an overview of our Southwest operations. During the second quarter, we processed over 1.2 billion cubic feet per day representing an 8% increase over the same quarter last year and our plant utilization increased to 82%.

Processed volumes continue to increase at our Hidalgo plant in the Delaware basin of West Texas which operated at full capacity for the quarter. We are making great progress on construction of our new Argo plant and expect that plant to come online in the first quarter of 2018.

We are also pleased to report that we are expanding our footprint in the STACK shale play of Oklahoma. In July, we began construction of an additional gas processing plant to support our producer customer growth in this highly prolific and economic shale play. This plant, which we are calling "Omega," is expected to be in service in mid 2018.

For 2017, we continue to forecast process volumes to increase by 3% to 8% on a year-over-year basis. In summary, we have a robust plan in our G&P segment in 2017 and 2018 to generate additional earnings by commissioning 10 gas processing plants, four de-ethanization facilities and a C3 plus fractionation system.

Before I turn the call over to Pam to cover financial highlights, I'd like to say this is an exciting time for our partnership as we evolve over the next 6 to 9 months.

Once the dropdowns are complete, coupled with the IDR buying which is expected to reduce our cost to capital, MPLX will be among the largest diversified [Technical Difficulty] sector with a strong portfolio of organic projects, positioning us to deliver compelling long-term returns for our investors. Now, I'll turn it over to Pam..

Thanks Mike. Slide 9 provides an overview of our financial highlights for the second quarter. We reported adjusted EBITDA of $474 million and distributable cash flow of $387 million, both of which are records for the partnership.

Total segment operating income was $521 million for the quarter with approximately 60% generated by the Gathering and Processing segment. Turning the bridge on Slide 10, it shows the change in adjusted EBITDA from the second quarter of 2016 compared to the second quarter of 2017.

Since the prior year quarter, we increased adjusted EBITDA by $123 million. The increase in the Logistics and Storage segment adjusted EBITDA was primarily driven by the addition of the terminal pipeline and storage assets acquired from MPC in the first quarter of 2017.

Higher processing and fractionation volumes and increased product margins accounted for the majority of the change in the Gathering and Processing segment. Slide 11 provides a summary of key financial highlights and select balance sheet information.

At the end of the second quarter, we had $293 million of cash on hand, approximately $2 billion available on our bank revolver, and the full $500 million available on our intercompany facility with MPC.

In July, we replaced our existing bank revolver with a new 5-year $2.250 billion bank revolving credit facility and we extended the maturity date by 18 months. We also repaid the $250 million that was outstanding under the term loan facility.

We continued in the second quarter to utilize the ATM program, opportunistically issuing approximately 9 million new common units for net proceeds of approximately $286 million.

We remain committed to maintaining a strong balance sheet and investment grade credit profile and ended the quarter with a leverage ratio of 3.8x, which is well within our target of 4x or less.

With $2.8 billion of liquidity and access to the capital markets, the partnership is well-positioned to finance its 2017 capital investment plan and the remaining dropdown acquisitions. On Slide 12, we provide our 2017 forecast.

We increased the partnership's earnings related guidance by $50 million based on our current estimates for operational volumes and forecasted commodity prices.

Excluding the impact of future dropdowns, adjusted EBITDA is forecasted in the range of $1.75 billion to $1.9 billion and distributable cash flow is forecast in a range of $1.3 billion to $1.45 billion. All other guidance remained the same as previous forecast. We have a strong record of growing distributions to our unitholders.

Based on our quarterly financial performance, yesterday, the Board of Directors of our general partner declared a distribution of $0.5625 per common unit. We reaffirm our guidance of 12% to 15% distribution growth rate over the prior year and a double-digit growth rate in 2018.

I wanted to highlight that while our coverage ratio for the second quarter was 1.26x, we do expect coverage to trend lower during the second half of the year due to the timing of maintenance capital spend. And you may recall, we have previously provided guidance over the -- of 1.1x coverage ratio.

So we do expect it to be lower as we move into the second half. But, once the strategic transactions with MPC are complete, we do expect to target a higher coverage ratio over time and utilize the retained cash flow to internally fund a greater portion of our capital needs.

With the strategic initiatives underway, a robust and growing backlog of organic projects and a strong balance sheet, we remain confident in our long-term value proposition for our investors. And now let me turn the call back to Lisa..

Thanks Pam. As we open the call for questions, we ask that you limit yourself to one question plus a follow-up. You may re-prompt for additional questions as time permits. With that, we will now open the call to questions.

Ellan?.

[Operator Instructions] And our first question is from Jeremy Tonet from JPMorgan..

Good morning..

Good morning, Jeremy..

Mike wanted to say congratulations, excited to have you on Board here.

And I was just wondering as you said it's only been a short period of time you've been in the seat, but just wondering given your prior experience at SXL, what can you leverage from your time there or your industry knowledge that you think you could bring more value to MPLX and I'm kind of thinking about the Mariner East expansion situation and how you see that currently?.

Yes. Thanks Jeremy. First of all, I am really excited, but I've only been here a month, so I'm going to be doing a lot of learning and seeing what opportunities we have, but I will tell you a couple of things.

The first thing is what makes me really excited about this opportunity is MPC has some high quality logistics assets that are an excellent foundation to provide opportunities like you just mentioned. MPLX is focused in the right areas. The Marcellus Utica, the Permian, the STACK are all great areas for growth in the future.

What's most exciting for me though is I see an evolution on the horizon at MPLX is similar to what I saw in my previous position like you mentioned. Good opportunities with the sponsor, good opportunities for third party business.

I can't emphasize enough the importance of commercial and business acumen and we're going to be running a lean and commercially oriented organization into the future here. So pretty excited, see a lot of great opportunities, looking forward to being here a little longer before I give anymore specifics..

Great to hear. And thank you for that. And just as my follow-up, I want to pivot towards the processing volumes in the northeast. It seems like Marcellus came in pretty strong, but it looks like Utica declined a bit there. It's weaker than what we were expecting. Seneca kind of dipped down here.

And I was just wondering if you could provide more color on some of the drivers there?.

Yes, first off on the Marcellus, you hit it on the head, very bullish. Our Sherwood Complex was full in the quarter as we expected. Sherwood VIII is ramping up pretty rapidly. We expect that to be coming on into a full mode pretty soon. So overall, very bullish about what's happening there. But you're right also, we had some declines in the Utica area.

Overall, there's a couple of dynamics occurring there. One is some of the activity is related towards the dry gas area getting ready for Rover's start-up for when that comes online. But overall, there's also been some shifting from dry to wet. And you hit it on the head, Utica's down a little bit, Marcellus up a little bit.

But we're pretty bullish about Marcellus going forward. As I said in the prepared remarks, we have Sherwood IX, X and XI on the docket for Antero support. If you'll look in our prepared materials, we also have Harmon Creek Complex, which we think is going to be really exciting for Range.

Two of our top customers are looking to grow in that area and that'll be good for us long-term..

Great. That's it for me. Thank you very much..

Thanks Jeremy..

Thank you. Our next question is from TJ Schultz from RBC Capital Markets..

Great. Thanks. Good morning. Just first in the STACK. First, what county would Omega be built in.

And then in general, can you just elaborate on how you think about expanding that footprint in the STACK? Is the focus just on expanding the current G&P footprint organically or are there consolidation or acquisition opportunities that you may consider just to get bigger, faster?.

TJ, this is Greg Floerke. I'll answer the question regarding the STACK in the Omega plant. That is in Kingfisher County, Oklahoma, which is in the area to the Northwest of Oklahoma City.

Yes, we're very excited about -- continue to be excited about the opportunity to develop and gather and process gas as well as oil in that area and we continue to look at additional opportunities to grow and feel like we have -- our operations and our existing customer relationships give us a good opportunity whether it be organically or otherwise there..

TJ, this is Mike. I also like to add aside from the Omega plant, the other activity in the Southwest is also pretty exciting. Argo is in construction and we also expect some more opportunities in that Delaware Basin area to compliment our Hidalgo and our Argo assets once they're online.

So we're pretty bullish about that area as well and hopefully we'll be talking about more opportunities there in the future..

Okay, great. Thanks. I guess this is my follow-up on the IDR exchange. You've given that 15x to 20x multiple range.

Just any evolving thoughts on that valuation range as that draws closer?.

Yes, TJ what I would say is, and I'll let Gary comment, is that that's out there is illustrative. Obviously, there's a robust process that has to go through involving the complex committee. So not commenting more than to just give you some illustrative examples of how that would be framed up for that discussion..

I have nothing more to add, you were spot on Mike..

Okay. Thank you..

You are welcome..

Thank you. And our next question is from Shneur Gershuni from UBS..

Hi, good morning guys. And welcome aboard Mike..

Thanks Shneur..

Before I get into my two questions, just to follow-up on TJ's question there.

So you said it's an illustrative process, but has the illustration changed or it's the same $9 billion to $12 billion that you had talked about?.

Shneur, when we put that out, it was illustrative, but we believe it's certainly within the arena that -- on how things should be valued. So I don't want you to take anything positive or negative. We still think it's in that arena, but there's 6 months or so of time before we'll complete the work with the complex committee.

So I'm not going to front-run the complex committee one way or another. But it is illustrative, but it's also we think in the arena of where value should be..

Okay, great. And just turning over to my two questions here. First you've put some language in your prepared remarks about higher retained distributional cash flow going forward.

Is there kind of a target of how much CapEx you'd like to fund via retained DCF? Any thoughts on how we should think about magnitude, are you looking to fund 30% of your CapEx with retained DCF or is it a size 50%? Just trying to understand the magnitude of kind of the commentary that you gave around that..

Yes, Shneur, I don't think there is a targeted number per se. What we're trying to say there is in today's environment what investors are looking for is a little more stability and a little more coverage going forward, we agree with that on a go-forward basis.

So, part of our strategy as we move into 2018 is we'll be looking to enhance that coverage a little bit. Pam mentioned we're running a little over 1.2 at the start of this year. We expect to be 1.1 by the end of the year based on some timing around maintenance capital.

But on a go forward basis following the drops and following the IDR buy-in process, we think going up a little bit higher in coverage makes a lot of sense and we're going to manage that program in such a way that we don't want to be issuing equity all the time.

We want to use cash and debt as our major source and minimize the equity that we have put out in support of our capital growth..

That makes sense and I think investors are going to like that. Just switching over on the MPC call, I think there was a discussion about moving product from PADD II to PADD I.

Is there an option for MPLX to be involved in this logistics type of move, Mike, given your knowledge about ME2 and ME2X? Could you run refined products on ME2X and sort of achieve that goal of moving product from the Midwest into the Eastern markets?.

Yes, Shneur. We have a couple options that we're going to evaluate and look to capitalize on. Obviously some PADD II volume needs to move into PADD I, and that's been doing that on an ongoing basis. But there may be some more opportunities. You hit it on the head, Mariner, once it gets up, provide some opportunities.

The Buckeye assets also provide opportunities. We expect to see some changes occur over time, but we're still evaluating what's the best option for us to achieve that goal..

Great. Prefect. Thank you very much guys. Appreciate the color..

You're welcome Shneur..

Thank you. Our next question is from Tom Abrams from Morgan Stanley..

Hey, good morning and welcome Mike. Couple of questions following up on Shneur's there.

If more product is being pushed into the East Coast, how does that -- are we looking at a period of time when there's a lot of upheaval in pushing out imports or stressing the refineries there? Could it be messy for a while or is it going to be just a pretty clean replace and the midstream guys make their money moving one way or the other, no problem?.

This is a long-term process. The first step that's being considered right now is to reverse the Laurel Pipeline only up to Altoona. And so you would have some bifurcation of that market, still moving east back to Altoona from the PADD I refineries.

But as we see, Pittsburgh is basically all supplied today from PADD II and we think it makes sense to push that product out onto -- out further east. So it's going to take time, Tom, to be able to move a product beyond kind of the midpoint of Laurel Pipeline. So we see that it will come in stages.

The other thing you really need to look at is the imports that come in to PADD I. And then, that will really be a bigger question long-term, does it makes sense for imports to come in while most of those imports come as different components that are then blended into the finished product. Still a sizeable amount of imports are coming into PADD I.

So, I think there's more of a question on will PADD I refining push those imports out and reduce those components that are coming in and that probably is a question in a market and then the market will answer that question sooner than let's look at will moving products from PADD II into PADD I cause a sloppy market PADD I..

Okay. And my main question was really on the G&P profitability, which has been flat for a couple of quarters despite some good overall volumes. And I'm wondering if there's a mixed thing going on in there or the Marcellus -- shipping from the Utica to the Marcellus has an impact.

And I also noticed that you're adding a lot of frac capacity this year and a lot of processing capacity next.

Is there a mismatch somehow or what's going on in the profitability side there? When can that kind of inflect a little bit more?.

This is Pam.

I think that Mike really hit on it and you can see the weakness from the slides that we have from quarter-to-quarter; you could see that weakness in the Utica and that is driven by the producers' desire to shift some of their capital programs and where they're producing volumes and we do remain very bullish on the Marcellus in particular.

So the frac increases that we have planned into next year are really in support of that growth that we see from the Sherwood complex and we see those volumes moving over to some of those fracs.

So, like Mike said, we're very bullish about the Sherwood opportunities and really the weak spot for us is we've seen the Utica and then maybe just a little bit on some of the frac spreads and some of the legacy Appalachia plants..

That's why I was thinking if the Marcellus was really ramping, there'd be a positive mix shift because you'd be doing a lot more processing.

So I was just wondering why is it coming through?.

I think you're going to see that in subsequent quarters. Just to add to Pam's comment a bit, Utica in the short-term is a little underutilized in our system, but I think you're also going to see a shift there.

Once some of these gas takeaway pipes come into service, you're going to have a little bit different dynamic as far as gas pricing up in the Northeast as well. So I would love to see how that plays out once some of these take-away projects come online..

Okay.

And then, lastly on the percentage of internally funding that you want to use going forward, I don't know if you've been asked yet, maybe you don't want to go there, but the whole red bar, blue bar concept that you used at SXL, is there any reflection on that in the cyclicality of some part of MPLX's red bar earnings that you're considering here in the funding issue, funding question?.

I wouldn't necessarily translate it to the red bar that I used to use before Tom. What I would say is keep going forward. I made the comment earlier is we're pretty bullish that we'll have a lot of growth opportunities, at the same time we don't want to be issuing and being a serial equity issuer for long-term for our investors.

So part of what we're thinking is the marketplace today rewards a stability and coverage. We're going to move ourselves up a little bit, once we get through these strategic actions.

At the same time we plan to grow responsibly and do it in such a way that we'll have some retained cash as well as some debt and just profile ourselves a little different so that we get better returns for our holders..

Okay, great. Thanks a lot..

You're welcome, Tom..

Thank you. Our next question is from Michael Blum from Wells Fargo..

Thanks. Good morning, everybody. A question, I guess, on the guidance just so I understand it.

So if I look at full year EBITDA guidance at the midpoint, kind of subtract the first two quarters, it would imply a slightly lower run rate in the second half than what you reported in the second quarter and maybe this piece of the last set of questions, but is there anything going on in the business that would suggest some kind of hiccup in the second half in the business?.

No. This is Pam, I'll take that question. We like to put out a range that we feel very confident that we're going to hit that range. So we're very bullish about the business and feel confident about the guidance that we have provided..

This is Don, I would also say we increased our guidance by $50 million.

So we are very confident we will be probably at that upper end of that range, not right at the midpoint and the fact that we increased that guidance this quarter should give you some view that rather than there being some downward pressure on our opportunities, we think there's actually some upward opportunity..

Okay. Understood.

And then second question, just a general question about your appetite for both M&A, but really JV opportunities and then within the context of obviously you've got a set of transactions coming up through Q1 2018, is that going to basically be the focus for the next 9 months or so or could you also potentially evaluate other opportunities sort of outside of your own internal footprint?.

So Michael, we have a huge appetite to increase unitholder value and we're going to use all the tools that you just mentioned there. We plan to be aggressive in the MA market, we plan to be aggressive both with the sponsor and with some third party opportunity.

So like I said with my opening remarks, part of what makes me so excited is the quality of assets there in the Marathon system is pretty nice to be a part of at this point.

And I think there's going to be some more opportunities that you'll see us presenting over time here and the strategy of lowering the cost of capital to put ourselves in a better position for M&A is a terrific one. So there's a lot of bright spots for us right now and hopefully the future plays out a lot the way we think it's going to..

Thank you. Our next question is from Brian Zarahn from Mizuho..

Good morning. Following up on the GP buying questions, understanding the valuation range was illustrative and there's still time to go. But I believe your assumption was an approximate $39 unit price and the scenario of the unit price stays relatively near current levels.

How could that potentially change the thought process around the buy-in?.

Yes. So Brian, I think Gary said it really well, the most important thing for us right now is not to get ahead of the complex committee and the process that has to play out.

So some of those details will occur in those discussions and as soon as we're able to disclose any information on that we will do that, but it's more important for us right now to let the process play out.

We're excited about MPC announcing the next drop which will occur in the third quarter and then subsequent to that the other parts of the strategic actions will play out, but we don't want to get in front of the process..

Yes, Brian, it's Tim Griffith, I thought I might weigh in, just this seems to be a common question on the minds of folks.

But regardless of the situation we find ourselves in now or how that evolves over the next 6 months, I think unitholders should come to understand that this will be a full process and the focus will be on a pretty balanced approach.

As I think most people appreciate, MPC will be far and away the largest holder of MPLX units pro-forma for the transaction and I think us taking an approach on the MPC side that disadvantages the partnership or puts the partnership in any sort of compromised position is not in anyone's best interest.

So I think you're going to see a process as it plays out that will very clearly look at a very balanced approach, something that makes sense for the partnership that is at a level of affordability for MPLX, that provides for long-term growth to the unit holders well beyond the transaction..

Okay. And I appreciate the additional color.

I guess looking at future dropdowns both the third quarter, and then, the remaining billion dollars of EBITDA by the end of the first quarter of next year, how should we think of maintenance CapEx because it is a little bit different than what the G&P business is?.

So, that will be evolving over time Brian.

Obviously, as you mentioned it is a little bit of different business, we've guided this year for about $150 million of maintenance capital for 2017 to give you some sense of it, but we'll be refining that over time as we look at where we're going to be in the future and we'll give some more disclosure on that at a later date..

I would say though one of the aspects of the drops, the legacy L&S, we had somewhere between sort of 13% to 14% was kind of maintenance capital, I mean, that was how we typically modeled the business, Brian. I mean, the fuels distribution piece of it is really a contractual arrangement, so it will have no maintenance capital.

So that approximate $600 million of EBITDA won't draw any maintenance capital..

Appreciate the color, Don..

Thank you. Our next question is from Eric Genco from Citi..

Hi, good morning.

I just wanted to ask Mike, as you began to look at the business and look across at sort of the L&S segment and the drop-down portfolio, how do you think about sort of the way things have been done to this point in terms of risk profile of those assets? Is it fair to say that the overwhelming majority, maybe a 100% of that EBITDA would be considered blue bar?.

Yes, using the terminology from before, it's a lot of fee-based throughput related volumes. Eric, I don't have enough specifics yet to give you a full answer on each of those different parameters that are in there, but yes, in general it's very fee-based earning, so I would consider it blue use in my former codes if you want to call it that..

Okay. And then as a follow-up, I just wanted to ask, I noticed that and I know we touched on Utica already and overwhelmingly the Marcellus is significantly more important and more impactful, but you did pull Cadiz IV I think out of the charts for 2018.

I just wanted to get some color there and is there something I guess as Seneca utilization dips down, is there some way to sort of maximize efficiency by across those plants? Any color there will be helpful..

Yes. This is Greg Floerke again. We do have a gas header, a common gas header for gathering between our Seneca and Cadiz plants and as we load one plant, we can take advantage of capacity in the other plant and that's where we're balancing Cadiz IV.

It's really around our ability to utilize all of the capacity in the Utica, and so we're managing that as we move on. So we try to build just in time. Those dates do move to the extent that we can delay them by finding other places to process the gas where we have capacity..

Excellent. Thank you..

Thank you. Our next question is from Jerren Holder from Goldman Sachs..

Hi, good morning.

Mike, I think in your prepared comments you mentioned short-term opportunities, I wanted to know if you can give us more in terms of whether that's going to be on the Gathering and Processing side or the crude Logistics and Storage and any particular regions that you're thinking about?.

Yes, sure. I don't have any specifics that I want to say on that at this point other than one of my mantras is to have assets that are highly utilized. So to the question that -- Eric answered previously to that.

We have an entire logistics system that has an opportunity to increase utilization both on the refined products and crude side as well as the G&P side. So short-term, the most important thing is to generate earnings without issuing any capital or needing any capital and that will be one of our primary focuses.

As I mentioned a couple of times, these are quality assets and where there's utilization room, we're going to look to try and take advantage of that right away..

Okay.

And then, maybe switching to the dropdown schedule for the third quarter, how should we think about the financing mix for that?.

Yes, I'll take that one. You may recall the first quarter drop was 75% debt and 25% equity and you should look for probably a mirror image of that here for the third quarter drop, about 75% equity and 25% debt..

And the ATM equity you guys have raised last quarter should be considered as part of the 25% or is that?.

No. Well, the equity that will be issued in all the drops will be taken back by the sponsors. So these are new units that are issued to MPC, and that was the case in the first quarter as well for the 25% equity that was issued in the first quarter for that drop.

For the equity that will be issued in the third quarter for the upcoming drop, that equity likewise will be newly issued units to the sponsor..

Okay, great. Thank you, Pam..

Thank you. Our next question is from Justin Jenkins from Raymond James..

Great. Thanks and good morning once again everybody. I guess, maybe starting with the ongoing Utica build-out and potential and maybe even following up to what you just said, Mike, on improving utilization.

Is there a potential to -- or opportunity, I guess to batch butane as well on Cornerstone, or even the larger Midwest system to get more access to Marcellus and Utica butane into the refining system?.

Yes, I think you hit it on the head there. That project is a great synergy between the GP business and the refining assets that we have as part of the Marathon family. So I think you're going to see an evolution there in butane, gasoline condensates, all those types of things, I think, are upside for that project.

I mean, one of the strengths of that is the evolution over the last couple of years is the Marcellus Utica needed an ethane solution and a propane solution. And then, you hit it on the head, we're moving more towards butane optimization, condensate optimization, natural gasoline.

And like I said, the nice synergy with our sponsor is, we have refineries to take advantage of that natural gasoline as well as going to other facilities in the area. So I think there's a lot of upside. It'll need to ramp up over time as people get familiar with what we've put in place there.

But it's a pretty robust system to take advantage of the heavier part of the molecules..

Perfect. Appreciate that answer. And then, maybe another question from me related to LOOP, and I guess it could be a follow-up to a prior question.

But would MPLX look to participate in new pipelines or new or long-haul projects that could feed into LOOP or maybe even any of the other Gulf Coast refineries that MPC has or you could look to participate more in exports of light crude?.

Well, Justin, first of all, any big projects, if there were any, MPLX would look to be a part of. We don't see right now, the way the schematic of LOOP is that it is mainly an import facility. But in addition, there's a lot of offshore Gulf of Mexico production that has become a storage hub and a distribution hub for offshore production to come in.

Some of that offshore production certainly then would be available to be exported. So the first stage here we see probably not any new pipelines, as I said on the MPC call this morning, relatively low investment to be able to turn this system and make it bidirectional. But what makes the most sense eventually is to reverse Capline.

Our Capline is not a part of MPLX yet, but long-term it makes sense to reverse Capline. There could be some potential to have some other pipelines that would eventually tie into LOOP. But I see that as pretty far off..

Understood. Thanks Gary. Thanks everyone..

Thank you. And we do have time for one final question. Our final question today is from Corey Goldman from Jefferies..

Hey, guys.

How is it going?.

Good..

Great. Just a quick follow-up to Michael's question on guidance. Just quickly looking at Southwest and the affirmation of that processing guidance year-over-year. It implies a pretty interesting range for the second half. I mean, you can go from negative 5% decline to plus 4% increase year-over-year just based on, again, that full year guidance.

Anything there that we should be on the lookout for in the back half, just given that there are no projects expected to be in service and just want to make sure we're not missing anything there?.

I just think it's an area that you're very aware of that people are looking to advance their drilling programs and the whole Permian STACK area has been a focus for many of the producers and we're looking forward to seeing that ramp up as time goes by. You did mention we are bullish in the area in general.

Our Argo plant is expected to come online in early 2018 and part of the reason behind that is we're expecting the need to increase as time goes through..

Sorry. I got disconnected there for a sec. Appreciate the color there. And the last question from me is, Slide 14, the outline for CapEx breakdown by segment. Just wondering if you could provide the percentages by area like you guys used to? We could probably ballpark it just figured we would ask that..

Yes. We haven't provided that kind of break-out. But what we have there is by basin generally. Utica, you see, is low. Our greatest allocation is toward the Marcellus. But, more this year than last year in the Southwest for sure. The Permian and the STACK areas where we see a number of really good growth opportunities..

No way to get those actual percentages?.

Marcellus is going to be about 50% of the capital, then G&P is going to be -- this is Don -- L&S is going to be about 25% of that capital. And then, roughly 20% will be in the Southwest and 5% will be in Utica. So our capital deployment is very consistent to where we see the growth. We see a lot of growth in Marcellus right now.

We see a lot of growth in the Southwest and so roughly 70% of our capital is being allocated there. And the L&S segment we were -- we had several major projects that we were completing [Technical Difficulty] of the allocation..

Perfect. I appreciate the color there Don. Thank you..

Thank you. And I'd now like to turn the call back to Lisa for closing remarks..

Thank you, Ellan. And thank you for joining us today and your interest in MPLX. Should you have additional questions or would like clarification on any of the topics we discussed this morning, Doug Wendt, Denice Myers and I will be available to take your calls. Thank you..

Thank you. And this does conclude today's conference. You may disconnect at this time..