Jul 28, 2016
Executives
Lisa Wilson - Director of Investor Relations Gary Heminger - Chairman and Chief Executive Officer Frank Semple - Vice Chairman Donald Templin - President Nancy Buese - Chief Financial Officer
Analysts
Kristina Kazarian - Deutsche Bank Jeremy Tonet - JP Morgan Justin Jenkins - Raymond James John Edwards - Credit Suisse Barrett Blaschke - MUFG Securities TJ Schultz - RBC Capital Markets Timm Schneider - Evercore ISI Helen Ryoo - Barclays Jerren Holder - Goldman Sachs
Operator
Welcome to the Second Quarter 2016 Earnings Call for MPLX. My name is Katy 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 the conference is being recorded. And I will now turn the call to Lisa Wilson, Director of Investor Relations.
Lisa Wilson
Thank you, Katy. Good morning and welcome to the MPLX second quarter 2016 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, our Chairman and CEO, Frank Semple, Vice Chairman, Don Templin, President, Nancy Buese, 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 two. It is 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 Heminger
Thank you, Lisa, and good morning. Beginning on Slide 3, we continue to execute on our 2016 plans and achieve solid financial results for the second quarter.
Adjusted EBITDA was $351 million and distributable cash flow was $285 million. Last week, we announced an increase in our quarterly distribution to $0.51 per common unit, while maintaining a strong coverage ratio of 1.24 times.
We reaffirmed our distribution growth guidance of 12% to 15% for full-year 2016 without need for additional drops from MPC to achieve this growth rate. We also reaffirm and expected to double-digit distribution growth rate in 2017.
With the completion of $1.3 billion of financing earlier this year, we have provided for our forecast of funding needs for remainder of 2016 and into 2017. We are confident in the strength of our balance sheet and leverage is now below our long-term target of 4.0 time.
By fulfilling our funding requirements, we are executing an attractive organic growth program to support a diverse set of producer customers. Due to improving commodity prices, there is also growing optimism from producers about the acceleration of drilling activity.
With the right assets and the right places and over nine million acres dedicated towards across our areas of operation, we are well position for 2017 and beyond. With the wave of cracker projects beginning to come online recovering additional ethane is focus for producers.
We are excited about the opportunity to invest in additional ethane infrastructure as these are part of our synergistic projects that were an important component of the combination with MarkWest. MPLX is one of the largest processors and fractionators in United States and has an expensive crude and refine products logistic system.
With world-class midstream assets located in some of the best resource plays in the country. We are well positioned to capitalize on an exceptional set of opportunities across the entire hydrocarbon value chain.
Before I turn the call over to Don, I would like to announce Frank Semple, our Vice Chairman of MPLX’s general partner will retire from his Executive role at the end of October. Culminating a 38 year career in the energy and telecommunications industry, which follows his distinguished service in the U.S.
Navy. Frank will remain on the MPLX Board of Directors and will also continue to serve on MPC's Board of Directors.
All of us on the MPLX Board of Directors are grateful to Frank for his service as Vice Chairman and his efforts to facilitate the seamless combination of MarkWest and MPLX. Frank assembled an outstanding management team at MarkWest and provided a strong leadership they created tremendous unit holder value.
We are fortunate to continue to benefit from his deep knowledge of the midstream business as well as his keen focus on creating value for our unit holders as we position MPLX to continue delivering sustainable returns over the long-term. Now, let me turn the call over to Don to review our quarterly operational results.
Donald Templin
Thank Gary. Turning to Slide 4, we have provided an update on our logistics and storage segments.
Results include a full quarter of income from the inland marine business acquired from MPC at the end of March. The high quality marine assets further diversify our earnings mix and provide us with another source of stable cash flows through its long-term fee for capacity contract with MPC.
The second quarter also includes a full quarter of results for the expanded Patoka-to-Robinson pipeline, which added 20,000 barrels per day of crude oil supply capacity to MPC's refinery in Robinson, Illinois. Cornerstone pipeline is also progressing as planned, with completion expected in the fourth quarter.
In addition, we have accelerated construction of a pipeline that connects our Hopedale fractionator to Cornerstone pipeline and expect to commence operations in the fourth quarter. With the Hopedale connection, Cornerstone pipeline will provide an industry solution to move condensate and natural gas liquids out of the Marcellus and Utica region into Midwest refining centers and into Canada.
Shifting to our Gathering and Processing segment, Slide 5 provides an overview of our operations in the Southwest, where we have infrastructure in areas of the Anadarko, Haynesville, Arkoma-Woodford, Cana-Woodford, Eagle Ford and Permian. We recently completed the Hidalgo Complex of 200 million cubic feet per day processing plant in the Delaware Basin.
Producer activity in this area of the Permian is growing and volumes have continued to ramp quickly. The new facility is now 80% utilized only three months into operation.
We are very excited to grow our Southwest footprint in this highly economic area of West Texas. In Western Oklahoma, we continue to expand our presence in the exiting STACK area of the Cana-Woodford.
We are currently processing approximately 100 million cubic feet per day of gas and gathering 7,000 barrels per day of crude oil. For the second quarter, we processed over 1 billion cubic feet per day in the Southwest and processing plant utilization was 79%.
For the full-year of 2016, our forecast remains unchanged as we expect processed volumes to increase approximately 15% and gathered volumes to increase approximately 5%. Moving to Slide 6.
We provide an overview of our Gathering & Processing operations in the Marcellus and Utica shale. In response to a number of investor requests, we have included the complex level detail for this area.
Processed gas volumes were resilient averaging 4.1 billion cubic feet per day and utilization was 79%. We continue to expect processed volumes to increase by approximately 15% year-over-year and gathered volumes are now expected to increase by approximately 20% year-over-year.
In addition to our significant gathering and processing position, we are also the leading fractionators in the Marcellus and Utica. On Slide 7, we have provided a summary of our NGL volumes and utilization, where we produced over 290,000 barrels per day of ethane and heavier NGLs during the second quarter.
Our growth forecast is unchanged from last quarter as we continue to expect fractionated volumes to grow by approximately 25% year-over-year. We continue to progress NGL marketing strategies for the region that improve price realizations for producer customers and have begun to regularly load unit trains from the Hopedale Complex to the Midcontinent.
Being able to load unit trains brings efficiency to the marketing of NGLs by lowering rail transportation costs, which improves differentials for producers. We also remain focused on driving the development of longer term NGL solutions that will increase the basins connectivity to both domestic and international markets as well as enhance local demand.
Potential solutions include in NGL rail solution to the East Coast within export terminal reversal and repurposing of the Centennial Pipeline to the Gulf Coast and a butane-to-alkylate project. Each of these will provide producer customers with optionality and flexibility for their future NGL production.
Northeast ethane volumes reached a new record of 116,000 barrels per day an increase of 76% from the second quarter of last year. As shown on Slide 8, we are well position to support producer customers, as we operate the majority of the de-ethanization capacity in the region through are distributed and interconnect ethane system.
A recent announcement to construct a world scale steam cracker near our operations will support new investment opportunities. Based on current utilization of our existing capacity, we can support the production of an additional 70,000 barrels per day of ethane.
We are the origination point for all existing ethane takeaway solutions include Mariner West, Mariner East and ATEX. Our facilities will also supply ethane for the coming Mariner West 2 and Utopia projects.
With incremental ethane takeaway projects and the projected completion of a regional cracker facility, we anticipate reaching full utilization of our existing facilities. In addition, as we outlined in our synergistic capital of the time at the merger.
We have the opportunity to invest $500 million to $1 billion over the next five years to facilitate, the fractionation, transportation and storage of ethane in the Northeast. Now, I’ll turn it over to Nancy to review our financial position and strategy.
Nancy Buese
Thanks, Don. Slide 9, provides a summary of our capital expenditure program for 2016.
We have narrowed our organic growth forecast to a range of $900 million to $1.2 billion, and maintenance capital remains unchanged at approximately $60 million. We continue to focus on increasing utilization of existing facilities and are working closely with our producer customers to complete new projects on a just-in-time basis.
Turning to our financial highlights on Slide 10, we reported adjusted EBITDA of $351 million and distributable cash flow of $285 million for the second quarter 2016. Total segment operating income was $394 million with approximately 70% of the segment operating income provided by the gathering and processing segment.
The bridge on Slide 11 shows the change in adjusted EBITDA from the second quarter of 2015 compared to the second quarter of this year. Since the prior year quarter, we increased adjusted EBTDA by $281 million, the addition of MarkWest operation accounted for nearly all of this increase, while higher tariffs and the addition of the Marine business accounted for the majority of the remaining change.
Slide 12 provides a summary of key financial highlights on select down sheet information. At the end of the second quarter, we had almost $2 billion available on our bank revolver and a full $500 million available on our intercompany facility with MPC.
With the completion of the convertible preferred financing and ATM issuances, we have fulfilled our forecasted funding needs for the remainder of 2016 and into 2017. We will continue to remain opportunistic with regard to future capital markets activity.
We are also committed to maintain a strong balance sheet and investment grade credit profile by targeting a leverage ratio of around four times. Our leverage ratio decreased this quarter to 3.7 times.
On slide 13 we have provided our commodity price and sensitivity forecast, highlighting the annual unhedged impact to DCF by our exposure to NGLs. We forecast fee based net operating margin to be 92% for the remaining commodity exposed portion, we continue to employ an active and disciplined hedging strategy and have hedged almost half of our 2016 exposure.
In addition, we have started to lay on hedges for 2017. Concluding on Slide 14.
We have increased the midpoints for our full-year 2016 financial guidance for adjusted EBITDA and distributable cash flow, which reflect our expectations for producer volumes, commodity prices and our strategy of deploying capital on a just-in-time basis. We are closely managing our expenses and achieving cost synergies as we integrate MarkWest into MPLX in a larger Marathon Petroleum family.
Adjusted EBITDA is now forecasted in a range of $1.3 billion to $1.4 billion and DCF is now forecasted in the range of $1 billion to $1.1 billion. We have a consistent record of growing distribution to unit holders.
Based on our quarterly financial performance, the Board of Directors of our general partner declared a distribution of $0.51 per common unit. The second quarter 2016 distribution represents a 16% increase over the same period of last year and marks the 14th consecutive quarters since our IPO in October 2012 that we have increased the distribution.
We reaffirm our guidance of a 12% to 15% distribution growth rate over the prior year and expect a double-digit growth rate in 2017. Based on our current plans, no future drops from MPC will be needed to achieve our 2016 distribution forecast.
We also target a long-term distribution coverage ratio of 1.1 times and reported a strong coverage ratio of 1.24 times for this quarter. We remain focused on execution and achievement of our financial and operational targets with the right assets in the right places.
As strong sponsor and long-term producer customer relationships we are well positioned to deliver on our 2016 plans and to continue providing sustainable returns well into the future. I'll now turn the call back to Lisa.
Lisa Wilson
Thanks Nancy. As we open the call for your 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 Katy, we will now open the call to questions.
Operator
Thank you [Operator Instructions] And our first question comes from Kristina Kazarian from Deutsche Bank. Please go ahead.
Kristina Kazarian
Good morning or afternoon guys.
Gary Heminger
Good afternoon Kristina.
Kristina Kazarian
So, I know you guys reiterated the 15% increase on processed volume guidance and the 20% number on gathers. But can you guys touch a bit more on some of quarter-over-quarter regional trend you are seeing in the Marcellus and Utica.
Maybe specifically, how I should be thinking about the reminder of the year, because it looks like on a quarter-over-quarter basis. For this one Marcellus gathering and frac were both up.
Does that taste kind of hold, but the Utica was following more declines. So any color here would be great.
Nancy Buese
Sure Kristina, I’ll be happy to take that. This is Nancy.
And the Marcellus, we did see fairly flattish volumes for the quarter and that was really based on a couple of things, we had a little bit of downtime if you will relative to some operational, very modest operational issues and then some other schedule maintenance. So that was what you saw in the Marcellus.
In the Utica, what is really going on there is sort of the macro environments slowing the rate of growth for the producer customers, they are really motivated by the ultimate net backs up there. And we are still seeing very strong upstream economics for them, but the pace for drilling is really for them focused on the downstream pipeline projects like Nexus, like Rover and some of those things.
So we are hearing good optimism from the producers, but some of those downstream projects need to come online to release some of ducts that are going on in that area. And given all of that, we are still anticipating better volumes towards the end of the year based on where prices are going and we are still committed to 15% increase in volumes year-over-year.
Kristina Kazarian
Okay. And then my follow-up will be here Gary I know you framed this up on the MPC, Don touched on a little bit as well.
But how should I be thinking about the specific opportunities you guys have now that the shale cracker is moving forward and more specifically, what have the projects come into that $500 million to $1 billion number to support ethane recovery?
Gary Heminger
Yes. So I guess with respect to the shale cracker specifically.
One of the things that we would observe when company like that announces a very large project like that. They have done in our view an incredible amount of research and evaluation of the availability of ethane to support their project.
And so from our perspective Kristina, one of the things that is good about that project, is it’s validating our strategy around building a world class ethane or de-ethanization facilities in that area, because we think there will be lot of production of ethane and we will have an opportunity to participate and deploy capital to be able to do that. We have capacity right now about 70,000 barrels per day of incremental capacity there to support ethane extraction.
But we think there will be a number of de-ethanization facility investment opportunities and we have been working very closely with the producer customers to be able to manage that as they pick-up their production and ramp is likely to be large ethane production in 2020.
Kristina Kazarian
Perfect. Thanks guys.
Gary Heminger
Thank you.
Operator
And our next question comes from Jeremy Tonet from JP Morgan. Please go ahead.
Jeremy Tonet
Good morning.
Gary Heminger
Good morning Jeremy.
Jeremy Tonet
Just wanted to follow-up a bit more as far as back half of the year, affiliation, volume trend and just wondering, what you guys are seeing as far as producers impacting – pivoting towards dry-gas from wet-gas and how that kind of impacts your thought process there. And what type of opportunities that could also provide on the dry-gas infrastructure side as well?
Gary Heminger
Well, let me start and then may be Nancy can add some incremental color. I guess we are not seeing a wholesale shift to dry-gas production but rather a balance that depends really on the specific acreage that's held by individual producers.
We do have some very good assets in that region right now to - infrastructure to be able to manage that the gathering of that dry-gas. You know that we have a lot of gathering gas system, so we are gathering gas right now for Gulf port and Belmonte and Monroe Counties in Ohio and rise in Belmonte County.
At the end of 2015 we commenced our operations in Jefferson to support ascent in that. So I think we are really, really well positioned around dry-gas, but we haven’t seen sort of a wholesale move that way in fact some of our larger producer customers have been very focused on some of the richer gas areas right now.
Nancy Buese
Yes, I would agree with that and I think the other comment I would mention, is we have really seen an improvement in NGL prices. Since the beginning of this year, prices of the NGL barrel has increased almost 30%.
And so we are starting to see scenarios where producers are going to continue to ramp up their rich gas volumes during the back half of the year.
Jeremy Tonet
Okay, great. Thanks for the color.
And then, just want to follow-up, as far as thinking about future dropdowns and multiples, I know you can say exactly where they are going to be, but the last dropdown multiple was lower than historically. And just wondering if you could just kind of walk through your thought process there a little bit as far as for a modeling how we should think about where those economics or multiples clearly set out on future dropdown?
Gary Heminger
Well Jeremy, clearly the last big drop we had of the marine business was at a very supportive multiple. That was really to bridge MPLX shortly after the merger here to bridge its balance sheet through this market cycle.
I wouldn't expect that we will need to do anything near that type of supportive multiple going forward and Nancy can chime in here. But we have the balance sheet in very good shape now, as we said we don't need to do it more drop are remainder of 2016 and into 2017 and I believe the market will certainly strengthen and depending on where yields are, where the market at the time of the next drop is needed.
But we expect whatever drop it is to be a win-win for both MPLX and MPC.
Nancy Buese
I would agree with that Gary and I think I would comment that we are always looking for the best opportunity to provide the sustainable value to our unit holders and that will be through a combination of organic growth at the partnership. It will be through appropriately price drops that make sense for MPC and MPLX and also M&A activity as appropriate for the partnership.
So we will look at all of those suites of options as tools to continued enhanced value.
Jeremy Tonet
Got you. But you wouldn't expect multiples to go back that kind of the nine to 10 range is that they were in MPLX was first IPO.
Gary Heminger
Well, I think they have to be market multiples first off, but they also have to generate accretion at the MPLX level. So I would expect that there will be transaction that will be market based, but will need to be accretive to both MPLX and good for MPC.
Jeremy Tonet
Great. Thanks for that.
Operator
And our next question comes from Justin Jenkins from Raymond James. Please go ahead.
Justin Jenkins
Great. Thanks and good morning everybody.
So I guess, I’ll start maybe with quick one on marine business. It looks like $34 million of EBITDA this quarter extracting maybe a bit ahead of the $120 million annualize the outline.
Is that just some noise in terms of seasonality or is a business actually tracking maybe a bit better than what expectation for?
Gary Heminger
There wouldn’t really be seasonality in the marine business. I mean that is a fee for capacity essentially contract.
So as the equipment is available that the revenue would accrue to MPLX. There can be from time-to-times and timing around maintenance and other activities like that, but we feel very comfortable about that 120 sort of annual run rate of EBITDA.
Justin Jenkins
Okay. I appreciate that color.
And then I guess my follow-up maybe a more strategic question and I guess thoughts on the GP maybe and Gary you mentioned on the MPC call about simplification maybe being better in the medium-term. And certainly we have seen some well received transactions lately.
But could you outline maybe how you think about the medium term for the GP and improving MLP, thoughts of capital whilst still ensuring it’s fair from MPC and MPLX’s perspective and I'll leave it there. Thanks.
Gary Heminger
Sure. What I missed by that this morning is that, the model that seem to be evolving right now, in midstream space, it to keep a simple message on a simple structure.
Our GP, well we always have that opportunity that flexibility to IPO when we think the market is right. Clearly, this is not the correct market timing to consider that.
But we also have a lot of flexibility on how we look at things down the road. So I really can’t give you a short-term to medium-term, other than we are very aware of all the structures that are available, very aware of what can make sense.
But bottom-line, I still believe that there is tremendous upside in MPLX as we continue to strengthen, as the commodity price strengthen and we start to fill up more of the capacity that is available within the system. That our yield to improve as Nancy just stated, as our yield improves, it’s certainly afford more accretive dropdowns that are a wins-wins for both MPC and MPLX.
So we have many knobs to turn as we go forward, but bottom-line it has to be a win-win for both MPC and MPLX.
Justin Jenkins
I appreciate that answer Gary. Thanks guys.
Operator
And our next question comes from John Edwards from Credit Suisse. Please go ahead.
John Edwards
Yes. Good morning, everybody and congrats on a good quarter.
Just I want to ask about the shale project a little different way. I mean the announcement of that, I mean did that change your thinking at all and if so how and any change to strategy after they announced that and if so what?
Thanks.
Gary Heminger
John I don’t think it changed our strategy, I mean even at the time of the combination, we are talking about ethane and investing to produce ethane is being a very important part of our growth strategy. So I would say what it really did for us and for the market is to validate what an important base Utica and Marcellus is and how important it is going forward and the opportunities that exist there for us to continue to grow our peer leading infrastructure there.
John Edwards
Okay. Thanks for that.
And then just one other question. Gary could you just update us on the synergies with the MarkWest merger how that is tracking relative to your original expectations.
Donald Templin
Yes, this is Don, let me answer that John. I mean I think we've been very focused on synergies so there is a couple of areas where we've been focused.
One is on just the relative size of the company and the buying power. So as we think about how we're approaching expenses and costs that we have, we have a larger entity and we're leveraging that between Legacy MPLX, MarkWest and MPC.
The other area where we spend a lot of time is on I'll call them commercial synergies where we're identifying opportunities, where having a very, very strong midstream and a very, very downstream operation can afford both and be a win for both MPLX and MPC. So a good example would be, we are building the Cornerstone pipeline, we accelerated some capital that was probably going to be spent in 2017 and may be a little bit later to connect Hopedale to Cornerstone and we're doing that, because we've an opportunity to move natural gasoline in the short-term and other NGLs longer term to MPC refineries and other Midwest refineries.
That's good for MPLX because we generate incremental revenue on Cornerstone and it's good for MPC, because they have access to natural gasoline and it's good for a producer customers, because they find an outlet for their production that is allowing them to get a stronger netback and they would have in an alternative situation.
John Edwards
Okay, thank you for that. That's all I had.
Operator
And our next question comes from Barrett Blaschke from MUFG Securities. Please go ahead.
Barrett Blaschke
Hey guys. Just as you continue to sort of build out in Marcellus/Utica and I think continues to ramp and particular with shale now going forward to crack there is this a point where you guys are starting to see a true hub for NGL is developing in the Northeastern market sort of the Northeastern version Belvieu?
Gary Heminger
Yes, absolutely. I think that's always been our vision and I think that this just validates that vision or strategy as real momentum and investing our capital there and being the leader in infrastructure development is a very, very good strategy.
Barrett Blaschke
Okay. And then just a follow-up.
Is there a balance to strike in your opinion at this point with brining on more volume of ethane versus given that we're still in rejection today and given that pricing is - obviously I think you want to [indiscernible] you want to come on at a more measured pace just to be more supportive of price in that market. Can you give us a little color on that?
Gary Heminger
Sure. We have about 70,000 barrels per day of capacity right now that exist and we are very focused on matching our future capital projects with what our producer customers are saying are likely to be their needs.
So, we will continue to monitor that, we will continue to be in daily weekly discussion with our producer customers around that and our expectation is that we will be building out de-ethanization capability and our expectation is that we will be doing just-in-time to need our producer customer needs.
Barrett Blaschke
Okay. Thank you.
Operator
And our next question comes from TJ Schultz from RBC Capital Markets. Please go ahead.
TJ Schultz
Hey, thanks. I missed part of the call, so sorry if you touched on this.
But the larger projects you evaluating butane-to-alkylate, I think you called out the regional exports to the Northeast and the Centennial reversal. Just any update on kind of how those are progressing or when you would expect to provide more definitive scope.
or scale, or timeline around this?
Gary Heminger
Yes. The evaluation in consideration of sort of all three of those projects is continuing.
We have teams focused on each of them, I would say from a timing perspective getting NGLs to the East Coast, particularly propane to the East Coast is the one that is sort of the nearest term. But that’s not a change, that has been always our design is to be able to offer alternative to our producer customers in 2017 to be able to get there NGLs particularly propane to the East Coast and then onto the water, if they need to export it.
With respect to the butane-to-alkylate project. That’s a very large project, we are in engineering right now spending considerable time on that.
And that was a project, that was going to run for several years anyway. So I don’t think there has been any change in our view around that project, it’s continuing to project in terms of the engineering evaluation.
And if we ultimately go forward with it its likely to be in sort of 2020 time period or late 2019, that’s kind of the time period we’re looking at.
TJ Schultz
Okay. And Centennial?
Gary Heminger
Right. We continue to be in active discussions with enterprise around maximizing the value of that pipeline and having NGLs find their way to the Golf Coast through that pipeline is an active discussion.
TJ Schultz
Okay. Thanks.
Operator
And our next question comes from Timm Schneider from Evercore ISI. Please go ahead.
Timm Schneider
Good morning and first of all, thank you for adding back in the project plant level detail that’s extremely helpful for modeling purposes. My question is I would like to get your view on longer term takeaway solutions out of the Northeast whether that would be waterborne through markets or Centennial, I'm sure you saw one of your peers states that’s they got the cargo canceled for them in August.
So the one thing that keep up in my mind then is, what if this happens at some point and market. so you don’t really have the storage or anywhere to divert that product.
Does that really increase the need for an export solution to the Golf Coast or how do you guys think about that longer term? Hello.
Gary Heminger
Are you there?
Timm Schneider
Yes. I’m here.
Gary Heminger
We lost you in mid-way through your question. Can you repeat it?
Timm Schneider
Yes, sure. So I was just saying, I’m sure you guys saw one of your peers just got time cargo canceled, I mean one of the LPG export terminals out of the Gulf Coast.
Just wondering, what if something like that were to occur at market, so you don’t really have the storage and I realize that's not your asset, but you don't really have the storage to divert that propane. So does that really increase the need for an export solution like Centennial to the Gulf Coast or is rail going to be just kind of the place holder for that.
Just interest in your thoughts.
Gary Heminger
Well, I think that's one of the reasons why we're trying to provide multiple options to our producer customers so that you can deal with those situations when they occur. The more options we have the better off our producer customers are and so that's why we are exploring multiple options.
Timm Schneider
Gary, how are those discussions going I mean realized there is a certain element of circularity here right where the E&P doesn't want to sign up for long-term contracts but they are also not getting better net backs until they do. Has there been I guess more progress on that front or they still little bit more reluctant as far as committing to a longer time period.
Gary Heminger
It may not be a matter of reluctance I think it's just a matter of economics right now. It is very hard for producer customer to sign up for a long-term commitment in the situation they currently find themselves.
So, we are working hard to kind of progress these types of projects without having to delay and we understand the economic situation our producer customers are in currently and we are trying to continue to progress these projects so that they have viable solutions when the pricing picks up.
Timm Schneider
Okay, got it. Thanks guys.
Operator
And our next question comes from Helen Ryoo form Barclays. Please go ahead.
Helen Ryoo
Thank you. Good morning and wanted to congratulate Frank for the retirement.
So just a couple of questions, so Gary just going back to your comment on dropdown strategy, is it fair to understand that - you have already guided double-digit growth next year and I think you and please correct me, I think you said you may not need or you don't need dropdown to reach your growth target. If you could clarify that and also as you think about the growth multiple, I guess you will probably adjust that based on your ability to sort of hit the double-digit target is that the fair understanding that it's going to be priced in a way that you make sure that you reach the growth guidance for next year?
Gary Heminger
Right. What we had said Helen was that we do not need any additional drops in 2016 to hit the growth range that we've put out and early into 2017 we don't believe so.
But we will need possibly a drop in 2017. But the market will decide what the valuation is of a drop, certainly it's going to need to be accretive to MPLX and a fair value back to MPC.
But the market will dictate that. And I'll ask Nancy took to comment on the coverage that we have and what she sees as the outlook for our growth next year.
Nancy Buese
Yes I would agree with what Gary said and certainly we will look at drops at option, but we've also got a lot of opportunity for organic growth at the partnership level. So it will all be a combination of how to best generate the EBITDA to deliver those types of double-digit distribution growth and then also maintain a very strong coverage ratio.
We believe all those components are important as we move forward.
Helen Ryoo
Got it and thanks for the clarification. And then just on Centennial and I apologies, if I missed this.
But I think last time Don mentioned, you will need to figure out what happens in basin cracker situation to decide on what kind of types Centennial reversal turns out to be and maybe is that still - now that you have, I’m sorry could you show me well. Hello?
Yes. Sorry, I’ve been hearing myself echo.
Gary Heminger
Yes. There was a technology issue, sorry about that.
Helen Ryoo
Yes, sure. So any way, just a little bit more update on Centennial given that you have in basin cracker situation clarify with shale’s FID.
What it, is it more looking to be firmed up this year, is so is it expected to be like a year and half type of construction period. And then I think the current pipeline is a 200,000 barrels per day line and could it be as biggest that type of project?
Gary Heminger
I think we’ve not made any sort of public comments nor our partners in Centennial around sort of the size and volumes. I mean that’s part of the evaluation that we are currently undertaking.
Our view is that just because of the shale announcement of a cracker in basin, doesn’t alleviate the need to also move ethane to either the Golf Coast or the East Coast. I mean, there is going to be large volumes of ethane that need to find the home and so the announcement of an ethane cracker, I don’t think would suggest that, these solutions are being put on hold or being deferred.
Helen Ryoo
Got it. And then I guess, is it given MarkWest and MPLX now controls so much NGL up there.
Is it fair to assume that you don’t really need a third-party underwriting of the capacity to move this forward as you probably sort of permit up on your own barrel?
Gary Heminger
Yes, I guess, we’re exploring all of the options, I mean we need to make sure that the economics work for the owners of the transportation, but we also need to make sure that whatever gets built and the financial arrangements also work for the producer customer. So I think that is part of what we are evaluating right now, but I feel very confident that if we decide to move forward with these projects, we would have the volumes available to us through dedicated acreage and other that would allow the projects to be successful.
Helen Ryoo
Do you also have commitment on any two and if so have you say how much?
Gary Heminger
We’ve not disclose that.
Helen Ryoo
All right. Thank you very much.
Operator
And our next question comes from Jerren Holder from Goldman Sachs. Please go ahead.
Jerren Holder
Hi, good morning. So I appreciate the color about processing volumes in the Marcellus and Utica still expected to increase about 15% over the prior year.
Can you guys comment a bit about the second quarter volumes being sequentially lower than the first quarter and what were some of the drivers of that?
Nancy Buese
Yes. We talked about that a little bit earlier on the call.
And so from the Marcellus perspective, we had a few small unplanned outages and we have a little bit of maintenance work that contributed to those volumes for the Marcellus over the course for the rest of the year, we do anticipate those volumes to firm up a bit and meet our volume projections. From a Utica perspective, again it's driven primarily by downstream pipeline constraints on the producer customers and so once some additional volumes come online there, we anticipate the Utica will, will also pick up a bit and that will contribute to again meeting our outlined goals for processed and for gathered volumes for that matter.
I think another comment that's just helpful to think about the firming up of the rest of the year as we still have some unused capacity within our system, especially in the Northeast. And as those volumes fill up the utilization of those plans specifically that’s really going to be contribute to additional margin without the need for more CapEx to bring that margin online.
So it's all positive based on the system and the current utilization that we have today.
Jerren Holder
Okay. And then switching over to the Delaware Basin, just given the high utilization you guys are already seeing on the new processing plant, is there a discussions for may be expansion down in that region whether it's with the existing producer or any other third-parties?
Gary Heminger
Absolutely, we've been delighted at sort of the couple of months of operation of our facility there and we were we believe that that's an area where there is considerable upside, there will be considerable drilling and there is a real opportunity. So, we're in active discussions with the producer customers for which we're already processing gas and we're also having discussions with others in order to assess when the right time is to make the incremental capital expenditure to make sure that we are capitalizing and providing the appropriate service to our producer customers to allow them to grow.
Jerren Holder
And as a follow-up to that to a degree that your producer or producers do come to an agreement that they need incremental capacity. What would sort of be the time period where from go you would be able to get a plant or additional plant into service?
Nancy Buese
Typically about a 12 to 18 month process.
Jerren Holder
Okay. Great.
That's it for me.
Gary Heminger
One of the things that we did do at Hidalgo though, I mean at that complex is we anticipated that there would likely be incremental opportunity, so when you look at the plant right now there is pipe rack and all sorts of other infrastructure that was built to allow for the facilitation of incremental train. So that in our mind is something that allows us to proceed reasonably quickly or briskly to conclusion.
Jerren Holder
Okay. Thank you.
Operator
[Operator Instructions] And we have no further questions at this time. With that, I'll turn the call back to Lisa.
Lisa Wilson
Thank you Katy and thank you for joining us today and your interest in MPLX. If you have additional questions or would like clarification on any of the topics discussed today, Kevin Hawkins, Teresa Homan and I will be available to take your call.
Thank you.
Operator
Thank you ladies and gentlemen. This concludes today’s conference.
Thank you for participating. You may now disconnect.