Oct 30, 2014
Executives
Tim Griffith - Vice President, Treasurer Pam Beall - President Don Templin - Chief Financial Officer
Analysts
Brian Zarahn - Barclays Jeremy Tonet - JPMorgan Richard Roberts - Howard Weil Edward Westlake - Credit Suisse Shneur Gershuni - UBS Phil Gresh - JPMorgan
Operator
Welcome to the MPLX Third Quarter 2014 Earnings Call and Webcast. My name is Vivian, and I’ll be your operator for today’s call.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
Please note that this conference is being recorded. I will now turn the call over to Mr.
Tim Griffith. Mr.
Griffith, you may begin.
Tim Griffith
Okay. Thanks Vivian.
Good afternoon. And welcome to MPLX’s third quarter 2014 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 Pam Beall, President of MPLX; and Don Templin, Chief Financial Officer.
We invite you to read the Safe Harbor statement on slide two. It’s a reminder that we will be making forward-looking statements during the presentation and during the question-and-answer session.
Some forward-looking statements may relate to MPLX’s sponsor, Marathon Petroleum Corporation. Actual results may differ materially from what we expect today.
Factors that could cause actual results to differ are included here, as well as in the filings of both MPLX and Marathon Petroleum with the SEC. With that, I’m happy to turn the call over to Pam Beall.
Pam?
Pam Beall
Thank you, Tim. Good afternoon and thank you for joining our call.
MPLX reported solid financial results for the third quarter, with the performance that continued to expand the distributable cash flow to the partnership. Adjusted EBITDA was $40.2 million in the quarter, generating distributable cash flow of $33.4 million.
Our Board of Directors declared a distribution of $0.3575 per unit for the third quarter, which represents a 4.4% increase from the second quarter and a 20.2% increase over the third quarter of 2013. MPLX has provided distribution increases in each of the seven quarters since its initial public offering in October 2012, representing a compound annual growth rate of 19.3% over the minimum quarterly distribution.
And importantly, today we’ve announced plans to substantially increase the pace of growth of the partnership to build size and scale more rapidly. As part of this growth, we expect to provide an average annual distribution growth rate in the mid 20% range over the next five years.
From an earnings perspective, we intent to grow MPLX December 2015 annualized EBITDA to at least $450 million. This represents approximately three times MPLX annualized EBITDA for the third quarter of 2014.
This substantial acceleration of the growth of MPLX is highlighted on slide four. Pursuant to this decision, Marathon Petroleum Corporation’s Board of Directors has authorized the sale to MPLX its remaining 31% interest in MPLX Pipe Line Holdings.
Roughly $80 million of EBITDA represented by the remainder of Pipeline Holdings is an important piece of this growth plan and we would expect those earnings to become part of the MPLX earnings stream in the near-term. The rapid change is occurring in the logistics and midstream business environment in North America make it clear to us that size and scale matter.
Accelerating the growth of MPLX, better enabled the partnership, participate actively in the infrastructure development occurring in the U.S. to support expanding North American production and changing crude patterns.
We also believe a partnership with the larger earnings base and enhanced access to capital expands MPLX capacity to take on projects or investments directly including third-party acquisitions. We also lessen the need to incubate large projects at MPC or rely on the sponsor support to pursue its desired investment program.
While we will always favor investment that can be undertaken at MPLX organically, we are also very fortunate to have the expanding opportunities that available to the partnership to our relationship with MPC. As announced earlier today, the pool of MLP qualifying income at MPC has expanded by approximately $600 million to now approximately $1.7 billion in total.
That increase is attributed to the additional earnings related to the fuel distribution business, including the increase fuels volume from the former Hess retail locations. One facet of our strategy is to pursue organic projects.
A good example of this is the Cornerstone pipeline and related build-out opportunities. During the third quarter, we completed a successful nonbinding open season for the pipeline and a number of investment options.
We were very encouraged by the response we received from a variety of interested parties. These pipeline along with associated build-out projects are designed not only to feed MPC’s condensate splitter at its Ohio refinery, a design to meet the needs of producers, other refiners, as well as processors and marketers of a variety of natural gas liquids.
These investments will allow our sponsor to leverage growing Utica production in Eastern Ohio and position MPLX to participate directly in the development of the needed infrastructure. Based on the strong response during the initial open season, we are evaluating potential build-out projects that would include new investments, as well as leverage existing significant MPC and MPLX logistics assets to provide additional service to Midwest markets beyond Eastern Ohio.
MPLX is also exploring options to deliver natural gas liquids to the Chicago area and to pipelines that supply diluent to Western Canada. We expect to conduct a binding open season for these investments in the first quarter next year.
Given the recent decline in crude and natural gas prices and MLP valuations, I wanted to remind investors that MPLX fee-based portfolio has no direct exposure to commodity risk. Most of the crude and refined product flows underlie its earnings are related to MPC’s crude and refined product movements and are not directly impacted by the lower crude prices that we have seen recently.
Expanding pool of MPC's, MLP qualifying earnings I alluded to, now at $1.7 billion, combined with the cornerstone and other organic projects representing significant source of potential growth for MPLX unitholders over an extended period of time. Our intent is to evolve MPLX into a large-cap diversified logistics company that is well-positioned to participate in the energy infrastructure development taking place in the U.S.
Now I’ll turn the call over to Don Templin to review the financial results for the third quarter.
Don Templin
Thanks Pam. The bridge on slide five shows the change in net income during the third quarter 2014 on a 100% basis compared to the third quarter of 2013 as well as the adjustment for the 31% interest currently retained by MPC.
The primary drivers for the increase in our net income were the recognition of revenue related to volume deficiency credits arising from deficiency payments received in prior periods and higher average tariffs received on the volumes of crude oil and products shipped. These increases were partially offset by lower volumes, as well as higher cost of revenues primarily due to timing of maintenance activity.
As you can see on slide six, distributable cash flow for the third quarter 2014 was $33.4 million compared to $31 million of distributable cash flow for the third quarter of 2013. During the third quarter of 2014, MPC did not ship its minimum committed volume on certain MPLX pipeline systems.
Although the $7.8 million of MPC deficiency payments in the quarter did not immediately enter into the determination of income, they are included in the $33.4 million of distributable cash flow in the period. Conversely the adjusted EBITDA attributable to MPLX included $7.4 million of revenue resulting from recognizing volume deficiency credits that were generated in prior quarter which were not part of distributable cash flow for the third quarter.
Distributions for the third quarter will be $27.9 million. This represents a coverage ratio of 1.2 times compared to our target coverage ratio of 1.1 times.
Our coverage ratio will fluctuate from period to period primarily due to the seasonality in maintenance spending and the timing of dropdowns in acquisitions. With the acceleration of earnings growth, we’ve outlined today our coverage maybe well above this 1.1 times target for more extended period of time.
Slide seven provides adjusted EBITDA and distributable cash flow by quarter for MPLX and continues to highlight the stability and growth of distributable cash flow over time. Slide eight shows that at the end of the quarter, we had $32.2 million of cash and $245 million available on our bank credit facility.
This combination, along with our ability to access the public debt and equity markets should allow MPLX to pursue growth opportunities that expand its growing base of distributable cash flow, including the accelerated pace of earnings growth we've highlighted today. Our consolidated total debt-to-consolidated EBITDA covenant ratio is 1.7 times, well below the maximum allowed of five times and continues to provide great financial flexibility for the partnership.
I would also like to point out that we expect our 2014 capital spending to decrease from the $148 million in our original budget to approximately $110 million. Included in the revised spending is $82 million for expansion capital and $28 million for maintenance capital.
This reduction in spending does not change the projects we are pursuing but rather is due to lower than expected costs and greater procurement efficiencies. In closing, slide nine demonstrates our commitment to grow and distribute cash flow to our unitholders.
The bars illustrate our distribution history since the IPO and highlight our quarterly growth in LP distributions. MPLX’s third quarter 2014 distribution represents a 20.2% increase over the third quarter of 2013 and a 19.3% compound annual growth rate over the minimum quarterly distribution.
As part of the substantial acceleration in earnings growth, MPLX expects to increase the growth rate of the LP distributions with the intent to maintain an average annual growth rate in the mid-20% range over the next five years. With that, I will turn the call back to Tim Griffith.
Tim Griffith
Thanks Don. With that, Vivian, I think we’re prepared to open up the call for questions.
Operator
Thank you. (Operator Instructions) And our first question comes from Brian Zarahn from Barclays.
Brian, please go ahead.
Brian Zarahn - Barclays
Good afternoon.
Pam Beall
Hi Brian.
Brian Zarahn - Barclays
So curious what drove the change in distribution growth policy?
Pam Beall
Well, Brian, some people may have listened to MPC’s call earlier this morning but I can cover some of the elements that led to that decision. But certainly one of the significant contributors to that decision is the substantial growth in the domestic oil and gas production and the tremendous build out that we see for the midstream assets in the U.S.
and the many opportunities where really size and scale become strategically important in midstream growth vehicle like MPLX and its fully our intent to participate in in that development. So when we indicated that we were going to form an MLP, we indicated that it -- that was to participate in the growth and the build-out of the infrastructure and that’s certainly our intent to do that.
Another factor is that we recognized that we have more qualifying income that we can put into an MLP over time. And with the recent completion of the Hess acquisition that has retail system, has also expanded our opportunity set.
So that added about 3 billion gallons of volume that were part of the Hess system historically and adding that to MPC’s total wholesale volumes, that takes us up to about 20 billion gallons. And then just attaching a reasonable margin just to assume $0.03 a gallon on 20 billion gallons, you expand your qualifying income to $600 million of EBITDA.
So we have an expanded opportunity set and I would say the other point that MPC noted this morning in its call is that we are convinced that the market has continued to fail to recognize the value of the entire enterprise and the value and the substantial contributions of MPLX and even Speedway, our retail business to the enterprise value. So by accelerating the growth of these highly valued portions of the business between and MPLX now and Speedway, we believe that will highlight the tremendous value that really exists in the business that’s been missed in MPC’s valuation today.
So by growing the MLP, MPLX, we believe it will be -- position us well to participate in larger opportunities directly. As you know, we've talked about incubating projects at MPC and we will continue to do that where it make sense, especially as MPLX is easing into its higher growth.
But it really expands our opportunity set, which we think is tremendous. So we are excited about this decision to shift in strategy.
We think there are lot of terrific opportunities to grow the company and we are looking forward to doing just that.
Brian Zarahn - Barclays
Appreciate all the color and certainly the growth in fuels distribution. Cash flows certainly is a nice addition to the drop-down inventory.
Just looking at the guidance of, ramping up to $450 million of EBITDA by the end of 2015, obviously that’s driven by dropdowns but is there any assumption of growth in the base business or is it all going to be from dropdowns?
Pam Beall
No, clearly there will be some growth in the business, Brian. We did indicate that when you look at that slide, we show that the third quarter annualizes to about $160 million.
We mentioned the offer for MPLX to purchase the 31% remaining interest in MPLX Pipeline Holdings that’s $80 million. So clearly, there is substantial additional amount that will be dropdown to or it doesn't have to be dropdowns.
There will be some growth from organic projects. There certainly will be tariff increases that will contribute to that.
But as we indicated near-term, most of that growth is going to come from dropdowns from MPC.
Brian Zarahn - Barclays
Okay. And then just shifting to third quarter, can you provide some more color on product pipeline volumes on a drop-down basis?
Pam Beall
Yeah.
Don Templin
Sorry, if you saw, Brian, product volumes were down and one of the primary drivers of that is that our major shipper had opportunities to take advantage of export capabilities and other things like that. So we would say that the market was driving and some of that decrease in the volumes.
However, that was one of the reasons and we knew over a period of time when we established MPLX. One of the reasons that we were doing that was because we wanted to have these minimum volume deficiency commitments that allowed us to generate a consistent earnings stream or a minimum earnings stream over a long period of time.
Operator
And our next question comes from Jeremy Tonet from JPMorgan. Jeremy, please go ahead.
Jeremy Tonet - JPMorgan
Good afternoon and congratulations on the big news. The market seems to like it.
Pam Beall
Thanks, Jeremy.
Jeremy Tonet - JPMorgan
You mentioned the retail ops as part of something that could find its way into MLP over time. And I'm just wondering would these dropdowns be structured in a way to mitigate any volatility in the cash flows of these assets, kind of similar to your existing asset bases as those contracts are structured?
Pam Beall
Yeah. Jeremy, we would expect that to be very stable cash flow basis.
Jeremy Tonet - JPMorgan
Okay. Great.
And then on third-party acquisitions, it seems like this could be a more meaningful part of the story going forward. Would you look to stay within kind of the crude refined products here or would you look to expand into more into your natural gas pipes or natural gas gathering and processing?
And if so, how do you think about the balance of fee-based business versus commodity price exposed business at that point?
Pam Beall
Yeah. Well, Jeremy, I’d say, first of all, our thoughts around acquisitions haven’t really changed.
It’s always been part of the pillars of growth that we've identified really since the beginning of the IPO -- since we IPOed MPLX. But we said that we’d be focused on tariff increases, organic projects and acquisitions, whether those were acquisitions from MPC or whether those were acquisitions from third parties.
So, I wouldn’t say we’ve really changed our thought about growth from those various sources or those opportunities. I would say it's a challenge given the current size of MPLX to look at a whole variety of acquisition opportunities, would certainly limit what MPLX could take on given its current size.
So having a larger entity with greater access to capital markets certainly would provide greater opportunities for MPLX to consider a whole variety of acquisitions. In terms of the type of acquisitions, those that would always rise to the top would be opportunities that would benefit both the sponsor and MPLX, but we would not rule out opportunities that would just benefit MPLX and grow its third party business.
We will continue to be focused on fee-based opportunities that are not directly tied to commodity price risk regardless of what kind of opportunities we’re looking at, whether those are acquisitions or whether they are organic projects. I would say that today we do have within MPLX that we have one butane cavern among those assets that will -- that exist today in the R&M midstream business that will make their way into MPLX over time exists other assets.
We have additional natural gas liquids storage caverns and pipelines. So those kinds of activities of MPC and MPLX are engaged in today.
So I wouldn't rule it out. I wouldn’t necessarily say that it’s a particular target.
Jeremy Tonet - JPMorgan
Okay. And just one quick follow-up.
I mean, if MPLX was looking to become a more diversified MLP, is there any emphasis on maybe getting into other parts of midstream that are more diversified or further away, such as gathering and processing or it really comes back to what makes sense within the framework of the whole Marathon Enterprise?
Pam Beall
Well, again, I wouldn't say that we would necessarily limit ourselves, but certainly those opportunities benefit both the sponsor and MLP would always rise at the top in terms of preference.
Jeremy Tonet - JPMorgan
Okay. Great.
That’s it for me. Thank you.
Pam Beall
Thank you.
Operator
And our next question comes from (indiscernible). Please go ahead.
Unidentified Analyst
Okay. I think you have taken my question.
It’s great to hear the parent company accelerate their MLP dropdowns. I just want to ask, what’s your plan to finance the job including the $80 million EBITDA maybe this quarter and also another maybe $200 million for 2015?
Don Templin
Yes. So our expectation is that we would -- we have a number of ways to finance this and we would likely do it through a combination of debt and equity.
And with respect to debt, our view around debt is that we want to make sure that we position MPLX to be an investment grade credit rating and have a credit profile like that. So longer-term, we would expect that we would target something that would be a debt to EBITDA ratio of four times run rate EBITDA.
Unidentified Analyst
Great. Can I ask also a follow-up?
Yesterday, one of your competitor with similar dropdown story talk about their dropdown story and they said they believe the MLP can add the capacity about 1 billion to 2 billion annual dropdown capacity based on their liquidity of the equities and also debt market. I am just wondering maybe you’re seeing MPLX can do more than that or probably similar scale?
Don Templin
Well, I guess we probably -- we haven’t focused on what the maximum drop could be. What we are really doing is going to target and finance or build our balance sheet around maintaining this investment grade credit profile.
Clearly, there are dropdown opportunities, but as Pam stated, we have the opportunity here as well to grow the business organically or to participate in M&A type activities. And so we want to be of sufficient scale so that we don’t miss out on those opportunities.
Unidentified Analyst
Thank you very much.
Operator
And our next question comes from Richard Roberts from Howard Weil. Please go ahead.
Richard Roberts - Howard Weil
Hey, good afternoon, folks. Just a couple for me.
For one, it sounds like part of the rational behind their strategic shift here to accelerate is just to get to a size and scale where you can pursue more organic opportunity. So I was wondering if you could give us an idea if there are meaningful projects out there that you have identified that you want to try and develop at the MPLX level or maybe just give us an idea of the opportunity set in terms of potential CapEx for the next couple years that you see out there on the organic side?
Pam Beall
Yeah. So just the best example really is this cornerstone pipeline project and the build out opportunities around the Utica and Marcellus natural gas liquids production.
So we went out for open season and did that in the third quarter and we had tremendous response. And so we think that this could be a much bigger opportunity than just the pipeline from Southeastern Ohio to our Canton refinery.
As I mentioned, we have some existing pipes in the ground and right away that we can leverage through MPC's ownership and MPLX pipeline operations that we could build on to take some of these natural gas liquids to other markets in the Midwest beyond just Eastern Ohio. So that in and off itself, we can’t quantify it at this point, we really need to get through the finding open season in the first quarter next year before we will be able to give some certainty around the full scope and size capital investment around all of those opportunities.
But Marathon Petroleum another example has already exercised its option to participate in the equity ownership of Southern Access Extension as an Enbridge pipeline project from Flanagan down to Patoka. Certainly Patoka is a very significant hub for MPC.
It’s a very large crude storage area. There are a lot of projects that are being discussed around expanding that whole area.
And so MPLX of course is making investments to support MPC's commitments to the Southern Access Extension project. And then of course MPC has this larger commitment with Enbridge again up in the Bakken to pursue the Sandpiper and North Dakota System investment.
So really anywhere the MPC has an interest in accessing attractively priced crude oil or condensate those would be high priorities for MPLX. And we’re actively pursuing opportunities around those plays.
The other thing I would mention is that, no -- again, this is primarily related to MPC, but with its recent acquisition of Hess' retail business, there MPC is a significant supplier to the East Coast, the whole mid-Atlantic area. So we're evaluating how to optimize -- from an MPC standpoint optimize supply into those markets.
And there are opportunities we’re evaluating the MPLX to participate in that. And then I would also mention our Marathon Petroleum’s acquisition of Galveston Bay down in the Texas Gulf also creates some opportunities for MPLX to make some direct investments to support how the sponsor wants to optimize its supply of waterborne markets.
So the really are a large number size and variety of opportunities the MPLX is pursuing
Richard Roberts - Howard Weil
Okay. Great, thank you.
Maybe if you could give us a sense. So as you move into let’s say 2016, you will be starting off in the $450 million EBITDA range and presumably growing from there.
What size organic spend do you think you can handled with at that sort of level?
Pam Beall
I think we’ve really tried to put quantification around that at this time. I think it’s just going to depend on the profile of those projects.
Richard Roberts - Howard Weil
Okay. Got it.
And then maybe one more for me, I guess the prior dropdown strategy is sort of being you’re targeting a distribution growth rate and you would drop assets just as needed timing and size wise to meet that growth rate. If I’m hearing Don’s comments correctly on coverage, it sounds like it does not really be.
I guess the distribution growth target won’t be the driver any more, it’s more a function of trying to get more assets into MPLX and MPC faster. Is that correct way thinking about.
Don Templin
Yeah, I think that’s entirely a correct way to look it there. We believe that particularly over the last two year since IPOed.
The MLP landscape has changed dramatically in terms of the pace of growth. The opportunities there are out there.
Some of the M&A actively securing the pace at which organic projects are being pursued. And so we launched MPLX, we launched MPLX to be a tool to allow us to participate in that midstream infrastructure build out and we want to be to sufficient size that we’re not missing out on that opportunity.
Richard Roberts - Howard Weil
Great. Don, thanks a much.
I appreciate it. And congratulation, we can move today.
Don Templin
Yes. I would say the long-term our goals is still to be at 1.1 times coverage ratio.
But if we do a drop, because we think it’s strategic or we do something that gets us to earnings profile or distributable cash profile that is a little bit of maybe front-ended that is really because of strategic as opposed to we’re trying to drive a particular coverage ratio. But long-term, we started out wanting to get to a 1.1times covered ratio and I say long-term that’s still our goal.
Richard Roberts - Howard Weil
Understand. Thanks.
Operator
And our next question comes from Edward Westlake from Credit Suisse. Ed, please go ahead.
Edward Westlake - Credit Suisse
Yes. Thanks for taking my question.
And again congrats on begin a little more searches. There is a quiet few different questions.
On Cornerstone, I guess that means you’re looking at option one potentially the big amount going all the way over to Chicago, when your revenue has that open season close?
Pam Beall
Well, that -- again that’s going to be first quarter of 2015.
Edward Westlake - Credit Suisse
Right. 1Q ’15.
Pam Beall
So, yeah, we are hoping to really have the commitment to move ahead on a variety of these different projects that we discussed in the open season and the initial nonbinding open season.
Edward Westlake - Credit Suisse
Right. And what about, I guess, larger options for you took a gas or NGLs, I mean, obviously, maybe even the Marcellus.
These are sort of in your neck of the words, obviously, are larger NLPs are pursuing some big trunk line projects? I mean that would be a large project maybe little bit out of the wheel house, but any thoughts around that?
Pam Beall
Well, again, I would role anything out in terms of what might be interesting for us to participate in. I would say that especially when we were an integrated operation of a larger oil company when we were integrated with Marathon Oil.
The pipeline operations ran whole variety of activities that were not necessary in today. For example, our natural gas pipelines in Kenai, Alaska, our Marathon Oil was involved in an LNG export operation up there.
So it’s not like these natural gas pipelines would be completely fallen to what we’ve operated today. Again, there are in the MPLX today, but we do have natural gas liquids pipeline that are retained at MPC that someday will make their way into MPLX.
We have also operated offshore pipelines. And today we still do operate -- gathering systems for Marathon Oil up in Wyoming.
So, I would say that, we have a broad array of capabilities, in terms of comfort level, in terms of operations. And so, we really weren’t prepared to get into specifics.
Ed, I would say that we are considering a wide variety of opportunity.
Edward Westlake - Credit Suisse
Understand. So close to home, I guess, there is some type of certain access.
I saw a newspaper article talking about delays on permitting, trying to get across the Minnesota or some review? Is there any delay there or is that just noise?
Pam Beall
Yeah. I mean, Enbridge has acknowledged that they are expecting the Sandpiper project will move out about one year in terms of their expected online timeframe.
And that's really while they study the route of the pipe as it goes into the State of Minnesota in particular. But that’s really their project to comment on.
Edward Westlake - Credit Suisse
Right. Okay.
And then, you mentioned Galveston, obviously, there is some projects going to down to Corpus and other areas you basically then act as sort of export off takes if we go down the export routes or at least barge sort of (indiscernible) to get to other refineries in the Gulf? Is there any opportunities for you to that also sort of be attractive as sort of an end point for that type of a terminal for Permian and Eagle Ford production.
Pam Beall
Well, I would say that, we have some terrific assets on the Texas, Gulf Coast, at Galveston Bay and Texas City and we have a lot of opportunities to optimize all of the logistics around those locations. And then, of course, we constantly look for opportunities to optimize around our Garyville, Louisiana refinery in Louisiana.
And of course, we are 51% owner of the Louisiana Offshore Oil Port, which today is designed to bring crude -- foreign crude into the U.S. but there could be options and opportunities around LOOP.
We operate Capline and Marathon announced today with its owners, other owners of Capline that were undertaking a study about the future long-term best use of that particular asset. So we’ll just ask you to stay tuned for the results of those studies.
Edward Westlake - Credit Suisse
That’s the big projects but I can see VLCC is loading Bakken and heavy oil to world markets already. Okay.
Thank you very much.
Pam Beall
Thanks, Ed.
Operator
And our next question comes from Shneur Gershuni from UBS. Please go ahead.
Shneur Gershuni - UBS
Hi. Good afternoon, guys.
Pam Beall
Hi, Shneur.
Shneur Gershuni - UBS
Most of my questions has been asked and answered, but just a couple of quick follow-ups to some of the earlier questions. First, with the question about financing, you sort of talked about a 4 times net debt EBITDA coverage ratio and so forth?
Would the approach be to try and move the debt up first and then go with the equity, would you sort of piece it out so forth? Is there kind of a way that we should be thinking about it certainly in terms of helping the liquidity of the stock?
Are you thinking about ATM sizes and stuff like that? Just wondering if you can give a little bit more color with respect to how you’re thinking about it?
Don Templin
Well, I guess, this is Don. I mean, we view that debt market is being very attractive currently.
So we would -- we are committed to maintaining an investment grade credit profile. But our view is that we would use our balance sheet and the debt markets to get to that four times debt-to-EBITDA ratio and/or sort of guideline as we’re thinking about financing alternatives.
Shneur Gershuni - UBS
Okay. Great.
And then a second question. As I look through MPC's presentation today, maybe this is more an MPC question.
But clearly it sort of seems that part of it is to recognize the value that they think is missing with respect to both MPLX, as well as the GP value at the MPC level. I mean, is there ultimately a plan for GP IPO of some sort?
I mean, it that sort of the payouts that we’re on and what not to sort of get these valuations recognized across the board and be able to unlock the value? Is that sort of the thought process?
Don Templin
I am not sure. That’s probably something to answer on an MPLX call.
I mean, I think there is -- and Gary alluded to it. Gary Heminger alluded to it on his call that we at MPC believe, there's a lot of value in the ownership interest and the GP interest in MPLX.
And that wasn't pulling through in a way that I think was, we were expecting it would pull through. So, I think highlighting the value of MPLX and really showing how much distributions and how much cash will come back to MPC through its GP ownership interest and those IDRs, I think, was one way to highlight that value that maybe wasn't being highlighted as clearly.
I still believe that one of the reasons or the primary reason for accelerating MPLX and the pace of growth is so, that we don't miss out on the strategic opportunities that we believe exist now and those opportunities are continuing at a pace. And we want to make sure that we have the right tools in place, so that we can participate and not miss out on a opportunity that may have -- some of that may have limited time windows or timeframes or type timeframes, others will have longer timeframes.
Shneur Gershuni - UBS
Okay. And then one final question if I may.
You go through this process over the next, I guess, couple of quarters. You move all the EBITDA down and so forth you’ve achieved a much larger size and whatnot.
When you think about 2016, ’17 and ’18, I realize you’re not prepared to like, lay on a CapEx assumption for those years. But that being said, could we expect the organic growth at that point to shift to be more than 50% happening with inside MPLX itself rather than going through drops?
I mean, is that sort of the way we should be thinking about it going forward?
Don Templin
I'm not sure we've targeted necessarily a percentage. I would say that we would -- we are focused on and a high priority for us is to have organic growth.
And one of the things that we continue to highlight is some of the opportunities that we are identifying just like the cornerstone opportunity. But I think you should -- we will be very focused on building that pipeline of “no pun” intended of organic opportunities and making sure that we’re clearly communicating that portfolio, if you will of organic growth projects to you all.
We are not just a dropdowns driven. I think what really is nice about having a sponsor that has so many assets that are MLP qualifying is that we can give a high level of confidence around our ability to grow at the distribution growth rates that we've communicated while also having a lot of capacity to take on projects on our own.
Shneur Gershuni - UBS
Great. Thank you very much.
Really appreciate the explanation.
Operator
And our next question comes from Jeremy Tonet from JPMorgan. Please go ahead.
Jeremy Tonet - JPMorgan
Actually my follow-up questions have been answered. So thank you again for your time.
How are you?
Don Templin
Sure, Jeremy.
Pam Beall
Thanks, Jeremy.
Operator
And we have time for one last question and it comes from Phil Gresh from JPMorgan. Please go ahead, Phil.
Phil Gresh
Hey there. Good afternoon.
JPMorgan
Hey there. Good afternoon.
Don Templin
Hi, Phil.
Pam Beall
Hi, Phil.
Phil Gresh
Just a couple of quick follow-ups. One was on the discussion on cap line.
In the release this morning there was a mention of potential connection with the Diamond pipeline. And so I know you are evaluating a lot of different options, understood.
Just wondering exactly how that would play into this, there is obviously the ability to potentially reverse the line and go north to south. But what specifically were you thinking around the linkage with Diamond?
JPMorgan
Just a couple of quick follow-ups. One was on the discussion on cap line.
In the release this morning there was a mention of potential connection with the Diamond pipeline. And so I know you are evaluating a lot of different options, understood.
Just wondering exactly how that would play into this, there is obviously the ability to potentially reverse the line and go north to south. But what specifically were you thinking around the linkage with Diamond?
Pam Beall
Yeah. Jeremy, I am going to pass that one over to Craig Pierson who is President of Marathon Pipeline and they operate cap line.
Craig Pierson
Yes. The connection of that study in the cap line is multiple opportunities when you make that connection to look to southern markets and look to the northern markets.
So all those things will be looked at.
Phil Gresh
Okay. So I was just wondering more specifically about how Diamond will see then.
But we could take it offline. Second question was with respect to the call out for the retail side the $600 million droppable, would you be able to tell me how much of that is already in the retail business versus in the refining business because I believed the number of gallons that you talked about is less than the number that’s in the retail segment.
Is there any kind of spurt in that EBITDA?
JPMorgan
Okay. So I was just wondering more specifically about how Diamond will see then.
But we could take it offline. Second question was with respect to the call out for the retail side the $600 million droppable, would you be able to tell me how much of that is already in the retail business versus in the refining business because I believed the number of gallons that you talked about is less than the number that’s in the retail segment.
Is there any kind of spurt in that EBITDA?
Craig Pierson
Yes. So somebody had called it retail earlier.
I guess the way I referred to it is, I think of it is fuels distribution and that is really the volumes that are going from the refinery to rack and that’s $20 billion gallon. So that includes our wholesales sales, our brands sales.
That is not the population, if you will, of those gallons. That’s $20 billion gallons in for purposes of putting a value on it.
We used a $0.03 per gallon value to get to the $600 million. Speedway is their company that does 3.5 billion gallons or so.
And Hess also is a $3 billion gallon kind of entity. So you you're talking about the retail gallons probably closer to $6 billion or little over $6 billion gallons.
Phil Gresh
Got it. So maybe two-thirds of the gallons still are within the refining EBITDA at this point?
JPMorgan
Got it. So maybe two-thirds of the gallons still are within the refining EBITDA at this point?
Craig Pierson
While I mean even when you go to rack, I mean you are going from the refinery to the Iraq. So that’s kind of one piece of it and then you're going from the rack to retail that’s the second piece of it.
So what we’ve really been highlighting the 20 billion gallons is the refinery to the rack.
Phil Gresh
Okay. Got it.
JPMorgan
Okay. Got it.
Craig Pierson
Okay. Thank you.
Operator
(Operator Instructions)
Don Templin
Okay. Well Vivian, it looks like there is no further question.
So at this point, we’ll close the call. We want to thank every one for joining us and for your interest in MPLX.
If there are additional questions, if you’d like clarification on any of the topics discussed this afternoon, [Jerry Ewing and Theresa Holmes] (ph) both will be available to take calls. Thank you for joining us.
Operator
Thank you. Ladies and gentlemen, this concludes today's conference.
Thank you for participating. You may now disconnect.