Acquisitions | Acquisitions Acquisition of Andeavor Logistics LP As previously disclosed, on May 7, 2019, ANDX, Tesoro Logistics GP, LLC, then the general partner of ANDX (“TLGP”), MPLX, MPLX GP LLC, the general partner of MPLX (“MPLX GP”), and MPLX MAX LLC, a wholly-owned subsidiary of MPLX (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) that provided for, among other things, the merger of Merger Sub with and into ANDX. On July 30, 2019, the Merger was completed, and ANDX survived the Merger as a wholly-owned subsidiary of MPLX. At the effective time of the Merger, each common unit held by ANDX’s public unitholders was converted into the right to receive 1.135 MPLX common units. ANDX common units held by certain affiliates of MPC were converted into the right to receive 1.0328 MPLX common units. The assets of ANDX consist of a network of owned and operated crude oil, refined product and natural gas pipelines; terminals with crude oil and refined products storage capacity; rail loading and offloading facilities; marine terminals including storage; bulk petroleum distribution facilities; a trucking fleet; and natural gas processing and fractionation complexes. The assets are located in the western and inland regions of the United States. MPC accounted for its October 1, 2018 acquisition of Andeavor (including acquiring control of ANDX), using the acquisition method of accounting which required Andeavor assets and liabilities to be recorded by MPC at the acquisition date fair value. As a result of MPC’s relationship with both MPLX and ANDX, the Merger will be treated as a common control transaction, which requires the recognition of assets and liabilities acquired using MPC’s historical basis as of October 1, 2018. The fair value of assets acquired and liabilities assumed shown below have been pushed down from MPC and are considered preliminary as MPC has not yet completed a final determination of the respective fair values related to its acquisition of Andeavor. The preliminary purchase consideration allocation may change based on additional information received. Adjustments to this allocation can be made through the end of MPC’s measurement period, which is not to exceed one year from the Andeavor acquisition date. Values shown below have not been incorporated into the results of MPLX as of June 30, 2019 as the Merger was not closed until July 30, 2019. (In millions) Cash and cash equivalents $ 83 Receivables, net 241 Inventories 21 Other current assets (1) 59 Equity method investments 731 Property, plant and equipment, net 6,709 Intangibles, net 960 Other noncurrent assets (2) 31 Total assets acquired 8,835 Accounts payable 198 Other current liabilities (3) 188 Long-term debt 4,916 Deferred credits and other long-term liabilities (4) 75 Total liabilities assumed 5,377 Net assets acquired excluding goodwill 3,458 Goodwill 7,428 Total purchase price $ 10,886 (1) Includes both related party and third party other current assets. (2) Includes both related party and third party other noncurrent assets as well as right of use assets associated with leases. (3) Includes accrued liabilities, operating lease liabilities, long term debt due within one year, as well as related party and third party other current liabilities. (4) Includes deferred revenue and deferred income taxes, as well as related party and third party other noncurrent liabilities. Details of our valuation methodology and significant inputs for fair value measurements are included by asset class below. The fair value measurements for equity method investments, property, plant and equipment, intangible assets and long-term debt are based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. Goodwill The preliminary purchase consideration allocation resulted in the recognition of $7 billion in goodwill which will be split between the L&S and G&P segments once assigned to the relevant reporting units. Inventory The fair value of inventory was recorded at cost as of October 1, 2018 as these items are related to spare parts, materials and supplies and approximate fair value. Equity Method Investments The fair value of the equity method investments was determined based on applying income and market approaches. The income approach relied on the discounted cash flow method and the market approach relied on a market multiple approach considering historical and projected financial results. Discount rates for the discounted cash flow models were based on capital structures for similar market participants and included various risk premiums that account for risks associated with the specific investments. Property, Plant and Equipment The preliminary fair value of property, plant and equipment is $7 billion , which is based primarily on the cost approach. Key assumptions in the cost approach include determining the replacement cost by evaluating recent purchases of similar assets or published data, and adjusting replacement cost for economic and functional obsolescence, location, normal useful lives, and capacity (if applicable). Acquired Intangible Assets The preliminary fair value of the acquired identifiable intangible assets is $960 million , which represents the value of various customer contracts and relationships and other intangible assets. The preliminary fair value of customer contracts and relationships is $890 million , which was valued by applying the multi-period excess earnings method, which is an income approach. Key assumptions in the income approach include the underlying contract cash flow estimates, remaining contract term, probability of renewal, growth rates and discount rates. The intangible assets are all finite lived and will be amortized over 2 to 10 years. Debt The fair value of the ANDX unsecured notes was measured using a market approach, based upon the average of quotes for the acquired debt from major financial institutions and a third-party valuation service. Additionally, approximately $1.1 billion of borrowings under revolving credit agreements approximate fair value. Acquisition Costs We recognized $4 million in acquisition costs during the period which are reflected in general and administrative expenses. Pro Forma Financial Information The following unaudited pro forma information combines the historical operations of MPLX and ANDX, giving effect to the merger as if it had been consummated on January 1, 2018, the beginning of the earliest period presented. Three Months Ended Six Months Ended (In millions) 2019 2018 2019 2018 Total revenues and other income $ 2,224 $ 2,122 $ 4,461 $ 4,059 Net income attributable to MPLX LP $ 652 $ 600 $ 1,324 $ 1,161 The pro forma information includes adjustments to align accounting policies which include adjustments for capitalization of assets and treatment of turnaround and major maintenance costs. The pro forma information also includes adjustments related to: reversing transactions between MPLX and ANDX which previously would have been recorded as transactions between related parties; basis differences on equity method investments as a result of recognition of MPC’s investments in ANDX’s equity method investments; depreciation and amortization expense to reflect the increased fair value of property, plant and equipment and increased amortization expense related to identifiable intangible assets; as well as adjustments to interest expense for the amortization of fair value adjustments over the remaining term of ANDX’s outstanding debt, reversal of ANDX’s historical amortization of debt issuance costs and debt discounts and to adjust for the difference in the weighted average interest rate between MPLX’s revolving credit facility and the ANDX revolving credit facilities. Mt. Airy Terminal On September 26, 2018, MPLX acquired an eastern U.S. Gulf Coast export terminal (the “Mt. Airy Terminal”) from Pin Oak Holdings, LLC for total consideration of $451 million . At the time of the acquisition, the terminal included tanks with 4 million barrels of third-party leased storage capacity and a dock with 120 mbpd of capacity. The Mt. Airy Terminal is located on the Mississippi River between New Orleans and Baton Rouge, is in close proximity to several Gulf Coast refineries including MPC’s Garyville Refinery and is near numerous rail lines and pipelines. The Mt. Airy Terminal is accounted for within the L&S segment. In the first quarter of 2019, an adjustment to the initial purchase price was made for approximately $5 million related to the final settlement of the acquisition, which was paid in the first six months of 2019 as shown on the statement of cash flow. This reduced the total purchase price to $446 million and resulted in $336 million of property, plant and equipment, $121 million of goodwill and the remainder being attributable to net liabilities assumed. Goodwill represents the significant growth potential of the terminal due to the multiple pipelines and rail lines which cross the property, the terminal’s position as an aggregation point for liquids growth in the region for both ocean-going vessels and inland barges, the proximity of the terminal to MPC’s Garyville refinery and other refineries in the region as well as the opportunity to construct an additional dock at the site. Refining Logistics and Fuels Distribution Acquisition On February 1, 2018 , MPC and MPLX closed on an agreement for the dropdown of refining logistics assets and fuels distribution services to MPLX. MPC contributed these assets and services in exchange for $4.1 billion in cash and a fixed number of MPLX common units and general partner units of 111,611,111 and 2,277,778 , respectively. The fair value of the common and general partner units issued as of the acquisition date was $4.3 billion based on the closing common unit price as of February 1, 2018 , as recorded on the Consolidated Statements of Equity, for a total purchase price of $8.4 billion . The equity issued consisted of: (i) 85,610,278 common units to MPLX GP, (ii) 18,176,666 common units to MPLX Logistics Holdings LLC and (iii) 7,824,167 common units to MPLX Holdings Inc. MPLX also issued 2,277,778 general partner units to MPLX GP in order to maintain its two percent general partner interest (“GP Interest”) in MPLX. MPC agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. As a result of this waiver, MPC did not receive $23.7 million of the distributions that would have otherwise accrued on such common units with respect to the first quarter of 2018. Immediately following this transaction, the GP Interest was converted into a non-economic general partner interest. MPLX recorded this transaction on a historical basis as required for transactions between entities under common control. No effect was given to the prior periods as these entities were not considered businesses prior to the February 1, 2018 dropdown. In connection with the dropdown, approximately $830 million of net property, plant and equipment was recorded in addition to $85 million and $130 million of goodwill allocated to MPLX Refining Logistics LLC (“Refining Logistics”) and MPLX Fuels Distribution LLC (“Fuels Distribution”), respectively. Both the refining logistics assets and the fuels distribution services are accounted for within the L&S segment. As of the transaction date, the Refining Logistics assets included 619 tanks with approximately 56 million barrels of storage capacity (crude, finished products and intermediates), 32 rail and truck racks, 18 docks, and gasoline blenders. These assets generate revenue through storage services agreements with MPC. Refining Logistics provides certain services to MPC related to the receipt, storage, throughput, custody and delivery of petroleum products in and through certain storage and logistical facilities and assets associated with MPC’s refineries. |