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MPLX only projects modest impact from pending DAPL, High Plains oil pipeline shutdowns

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MPLX only projects modest impact from pending DAPL, High Plains oil pipeline shutdowns

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MPLX appeals High Plains' shutdown at federal agency

MPLX pipeline volumes plunged 15% in Q2

Potential gathering-and-processing asset sales on hold

Houston — Midstream operator MPLX said it doesn't expect major impacts from the pending potential closures of a pair of Bakken Shale systems — the Dakota Access Pipeline and the Tesoro High Plains Pipeline.

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After orders for their closures were issued separately in early July, the Dakota Access Pipeline is keeping oil flowing for now while an emergency stay of a shutdown ruling is considered in federal appeals court, while MPLX is appealing the closure demand for the High Plains Pipeline with the US Interior Board of Indian Appeals.

The two cases come at a pivotal time in the midstream sector when its increasingly harder to build new fossil fuel pipelines amid a bevy of regulatory and legal hurdles, while now even existing pipelines could start being shut for failing to complete sufficient environmental studies or, in the case of High Plains, for violating private property rights after expiration of previous easement agreements.

MPLX owns and operates the smaller High Plains system, but MPLX only holds a roughly 9% ownership stake in the much larger, 570,000 b/d DAPL network. So MPLX CEO Michael Hennigan said during its Aug. 3 earnings call that MPLX's pre-tax earnings would lose less than $100 million/year if both pipelines were shut.

Hennigan confirmed MPLX filed its High Plains appeal last week as expected, and he said he's confident MPLX will either win on appeal or reach some kind of settlement, arguing that "the likelihood is low" the 67-year-old pipeline will be shut.

"We're confident that we can get a resolution that works for ourselves, as well as the counterparties," Hennigan said.

The pipeline, which transports less than 100,000 b/d, treks through much of North Dakota's Bakken Shale and moves into Montana, connecting along the way to Marathon Petroleum's 71,000 b/d Mandan refinery and Enbridge's pipeline system, as well as various storage and rail hubs, such as Crestwood's COLT rail facility.

The Bureau of Indian Affairs granted the original High Plains easement way back in 1953, and it's been renegotiated and renewed every 20 years, most recently in 1993. But talks over further renewals broke down over negotiations for compensation for the Native American landowners where the pipeline stretches. Mediation was expected to continue into August, but the Bureau of Indian Affairs opted to rule in July, essentially determining that the pipeline has trespassed on private land since the last right-of-way expired in 2013. The dispute involves the Mandan, Hidatsa, and Arikara Nation, as well as individual landowners.

Pandemic recovery

In a difficult second quarter consumed with the coronavirus pandemic, MPLX reported its volumes for its crude oil and products pipelines plunged a combined 15% down to 4.3 million b/d.

Likewise, its terminal throughput volumes dropped 26% to 2.4 million b/d.

"Significantly lower levels of demand for crude and refined products decreased the need for our logistics and storage services, while production curtailments in response to lower prices pressured the gathering and processing systems we operate," Hennigan added in the earnings release. "However, the progress we made on the proactive steps we announced last quarter helped offset some of these challenges."

MPLX's net Q2 earnings actually rose a bit from Q2 2019 thanks, in part, to spending reductions and MVCs.

MPLX CFO Pamela Beall said only a minority of its pipeline systems had to lean on minimum-volume commitment payments during the quarter as crude flows plunged. Volumes have continued to rise since the low points in April in May, she said, adding "we expect some volumes will pick up in" Q3.

Similarly, Permian and DJ Basin pipeline operator Noble Midstream said Aug. 3 that, by the end of July, at least two-thirds of curtailed crude volumes had been brought back online after initial shut-ins of some wells. The "vast majority" of all lost volumes are expected back by the end of August, Noble Midstream said. The midstream spinoff released its earnings but canceled a separate call after Chevron agreed to buy parent Noble Energy.

Back to MPLX, the Marathon Petroleum pipeline spinoff said some key new projects remain on track, in spite of the pandemic. The ExxonMobil-led, 1.5 million b/d Wink-to-Webster crude oil pipeline, in which MPLX owns 15%, remains on track to come online in Q2 2021. Likewise, the MPLX-led, 2 Bcf/d Whistler natural gas pipeline from the Permian is expected to be finished by the end of 2021.

The expansion of the Mt. Airy Terminal west of New Orleans will be completed by the end of September, adding a 120,000 b/d loading dock and incremental storage, MPLX said.

M&A activity

Just before the pandemic outbreak, MPLX was interested in selling most of its gathering-and-processing midstream networks. But Hennigan confirmed those considerations remain on the backburner for now.

The timing just isn't good, he said, because asset values are so depressed at a time of low oil prices and weak global demand.

"We're not going to give the assets away," he said.