Welcome to the MPLX third quarter earnings call. My name is Elan. I will 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. Press star one on your touch-tone phone to enter the queue. Please note that this conference is being recorded. I will now turn the call over to Lisa Wilson. Lisa, you may begin.
Thank you. Good morning and welcome to the MPLX third quarter 2017 Earnings Webcast and Conference Call. The synchronized slides that accompany this call can be found on mplx.com under the Investors tab. On the call today are Gary Heminger, Chairman and CEO, Mike Hennigan, President, Pam Beall, Chief Financial Officer, and other members of the management team. We invite you to read the safe harbor statements and non-GAAP disclaimer on Slide two. It's a reminder that we will be making forward-looking statements today during the call and during 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.
Thank you, Lisa. Good morning to everyone. I'm pleased to report that MPLX delivered another exceptional quarter, continuing its track record of operational excellence and strong financial results. This outstanding performance was driven by record volumes in our Gathering & Processing operations and solid contributions from our Logistics and Storage assets. We're also pleased with the progress we are making related to the strategic actions announced earlier this year. Consistent with our plans, the partnership acquired joint interest ownership in certain pipeline and storage assets from MPC for a total consideration of $1.05 billion in the third quarter. MPC has also offered the remaining identified drop-down to MPLX. That offer is currently under review by the board's independent conflicts committee. This last drop-down includes refining logistics assets and fuels distribution services, which together are projected to generate $1 billion in annual EBITDA.
We expect this acquisition to close in the first quarter of 2018. Once the terms of the drop-down are finalized, MPC will immediately initiate the offer of its GP economic interest, including its IDR rights, to the partnership in exchange for newly issued LP common units. Both transactions would close in the first quarter. These strategic actions are intended to reduce our cost of capital and support an attractive distribution growth rate over the long term. All of these transactions are subject to requisite approvals, market, and other conditions, including tax and regulatory clearances. As you know, we are in an environment where many of our competitors are having to choose between maintaining their distributions or growing their coverage. MPLX is in a different situation because we don't have to choose.
The drop-downs we have already executed, and the one that we will complete shortly, position us to not only support an attractive distribution growth profile over the long term, but to also maintain strong distribution coverage. With visibility to strong growth opportunities through a robust portfolio of organic projects, strong distribution coverage, and an investment-grade credit profile, the partnership is well-positioned to be a source of significant long-term value for our investors, which will be further enhanced once the IDR obligation is eliminated. With that, let me turn the call over to Mike to review our quarterly financial and operational highlights. Mike?
Thanks, Gary. As Gary mentioned, we reported record financial results with adjusted EBITDA of $538 million and distributable cash flow of $442 million. The partnership ended the quarter with a strong distribution coverage of 1.33 times. Yesterday, we announced our 19th consecutive increase in our quarterly distribution to $0.5875 per common unit. In line with our previous guidance, we expect to deliver distribution growth of approximately 12% on a calendar year basis for 2017, and we continue to target double-digit distribution growth in 2018. Turning to Slide 4, we provide an update on our Logistics and Storage segment. Gary mentioned we completed the acquisition of joint interest ownership in certain pipeline and storage assets from MPC on September 1st. The assets include ownership interest in Explorer Pipeline, Southern Access Extension Pipeline or SAEX, the Louisiana Offshore Oil Port or LOOP, and the LOCAP Pipeline.
These assets are expected to generate approximately $138 million in annual adjusted EBITDA, adding further scale and diversity to the partnership. The third quarter marked the first full quarter of earnings from our indirect interest in the Bakken Pipeline System, which includes the Dakota Access Pipeline. We were also pleased to receive our first cash distribution during the quarter. We continue to make progress on our expansion of the Ozark Pipeline system. In connection with this expansion, we announced the successful binding open season for the expansion of our Wood River to Patoka Pipeline. Both expansion projects are expected to complete in mid-2018. Moving to our Gathering and Processing segment. Slide five provides an overview of our operation in the Marcellus and Utica shales. For the third quarter, gathered volumes averaged over 2.3 billion cubic feet per day, a new record for the partnership.
We experienced significant growth in our gathered volumes, a 25% increase over third quarter 2016, and a 22% increase over second quarter 2017. Higher Utica gathering activity drove this increase, and we expect to sustain these volumes in the fourth quarter. Moving to process volumes, we averaged approximately five billion cubic feet per day in the quarter, also a new record for the partnership. As reported in the second quarter call, we placed the Sherwood A plant in service in July, raising the size of this complex to approximately 1.6 billion cubic feet per day, among the largest gas processing complexes in the U.S. We continue to be encouraged with how quickly the volumes have ramped up at the complex, as we operated near full utilization for the quarter within three months of startup.
In addition to Sherwood, we continue to see growing volumes at our Houston and Majorsville complexes. To support the needs of our producer customers on a just-in-time basis, we have plants under construction at Sherwood, Houston, Harmon Creek, and Majorsville, all scheduled to be in service in 2018. Overall utilization for the Marcellus and Utica shales was strong at 85% for the quarter. We expect to maintain this high utilization rate through the balance of the year in anticipation of the new plants coming online. Slide six provides a summary of our fractionated volumes in the Marcellus and Utica regions. We again produced a record 365,000 barrels a day of ethane and heavier NGLs in the third quarter, representing a 16% increase over the same quarter last year. The third quarter marked the first full quarter of operations at our new 20,000 barrel per day de-ethanization plant at Bluestone.
We are the largest fractionator in the Northeast, this plant adds further scale to this strong position. We are also encouraged by the large-scale takeaway projects under development and growing in-basin and global demand for purity ethane. The partnership is well-positioned to capture this opportunity by leveraging our current and expanding de-ethanization system and remain the service provider of choice in the region. On slide seven, we provide an overview of our Southwest operations. We continue to make progress on new plant construction in the Southwest. We expect the Argo plant in the Delaware Basin to come online in the first quarter of 2018, while the Omega plant in the STACK shale play of Oklahoma is expected to enter service by mid-2018. For the quarter, Southwest volumes were solid at 1.2 billion cubic feet per day with a utilization rate of 78%.
We were fortunate and are pleased to report minimal damage to our system from Hurricane Harvey. While our Javelina plant in Corpus Christi did have some limited downtime, it was related to refinery outages in the area. I want to applaud and commend our employees for their teamwork and dedication during the challenging condition caused by the hurricane. It is a strong testament to the focus and care of our employees exhibit every day. Before we move to the financials, let me summarize where we are strategically. As I mentioned previously, we plan to deliver on our stated 2017 distribution growth guidance and provide investors with 12% year-over-year distribution growth. We plan to remain at a high level of coverage following the drop-down and IDR elimination and forecast double-digit calendar year distribution growth in 2018.
As Gary mentioned, the combination of significant transactions with our sponsor provides a unique opportunity for the partnership to target a high level of distribution coverage while maintaining an attractive and sustainable distribution growth rate for the long term, all done while utilizing appropriate leverage to fund the partnership's growth. Additionally, we expect to continue growing the partnership through organic capital expenditures. For 2018, we forecast approximately $2 billion of organic growth capital and intend to fund this capital with retained cash and debt and not issue any public equity. In summary, for 2018, we plan to position the partnership with a strong coverage, double-digit distribution growth, a competitive cost of capital post the IDR elimination, and not issue public equity to fund our organic capital. We believe MPLX is one of the most attractive offerings in the MLP space and remain committed to driving value for our investors.
I will now turn the call over to Pam to cover some financial highlights. Pam?
Yeah. Thanks, Mike. On slide eight, we provide some financial highlights for the partnership in the third quarter. As Mike indicated, we reported adjusted EBITDA of $538 million and distributable cash flow of $442 million, both of which are quarterly records for the partnership. Total segment operating income was $562 million, with approximately 60% generated by the Gathering and Processing segment. The bridge on slide nine shows the change in adjusted EBITDA from the third quarter of 2016 to the third quarter of 2017. Adjusted EBITDA increased by $163 million from the third quarter of 2016, driven by several items. First, distributions related to our investment in the Dakota Access Pipeline, as well as earnings from our recently acquired Ozark Pipeline, accounted for approximately $21 million of the change in the Logistics and Storage segment EBITDA.
Second, the terminal pipeline and storage assets acquired from MPC in the first quarter generated an additional $64 million of EBITDA this quarter. Next, the joint interest pipelines and storage assets dropped on September 1st, contributed an additional $13 million of EBITDA. Lastly, higher gathered processed and fractionated volumes accounted for the majority of the change in the Gathering and Processing segment, which also experienced the benefit of higher commodity prices versus the third quarter of last year. Slide 10 provides a summary of key financial highlights and select balance sheet information. At the end of the third quarter, we had approximately $1.8 billion available on our bank revolver and $298 million available on our intercompany facility with our sponsor, MPC.
We remain committed to a strong balance sheet. We ended the quarter with a leverage ratio of 3.6 times, which is comfortably within levels appropriate for an investment-grade credit profile. On slide 11, we provide some commentary on our 2017 forecast. With one quarter remaining, we did not update the financial forecast provided during the second quarter earnings call. We've delivered strong earnings and cash flow this year. We've demonstrated a disciplined approach to our capital investments. As a result of this performance, we now expect to finish the year above the high end of the previously provided guidance ranges, with the exception of capital expenditures. For organic growth capital expenditures, we expect to finish the year below the low end of our previously provided range, and we anticipate maintenance capital to come in below the previous guidance as well.
As a result of this performance, we've increased our capacity to fund organic growth with debt and retain cash. Other than the settlement of second-quarter commitments, there were no new ATM issuances during the third quarter. Looking into 2018, as Mike mentioned, our current plan is to fund our approximate $2 billion of organic growth capital with retained cash and debt and no public equity, all while maintaining a strong balance sheet and an investment-grade credit profile. We have a strong record of growing distributions to unit holders, yesterday, the board of directors of our general partner declared a distribution of $0.5875 per common unit. Consistent with our prior guidance, we expect calendar 2017 year distribution growth of approximately 12%, we continue to forecast double-digit distribution growth for the calendar year 2018.
As we near completion of the strategic initiatives with our strong balance sheet and attractive growth opportunities, we remain confident in the long-term value proposition for our investors. Now I'd like to turn the call back to Lisa.
Thanks, Pam. As we open the call for questions, we ask that you limit yourself to one question plus a follow-up. You may be prompted for additional questions as time permits. With that, we will now open the call to questions.
Thank you. We will now begin the question-and-answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press star then two. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. Our first question today is from Shneur Gershuni from UBS.
Hi, good morning, guys. Just starting off, I obviously appreciate your pivot towards self-funding. Just before I ask my questions, I just wanted to confirm a discussion you had on the MPC call earlier today. You sort of talked about the IDRs and the multiples just for illustrative purposes. It's implied. I was just wondering if you can confirm that that's the case. That it's really just a function of a premium on IDR cash flows and whatever the MPLX stock price will imply the value and the multiple. Is that correct?
Yeah, Shneur, this is Mike. What we said on the previous call is very consistent with what we said in the past, that the multiple out there is an illustrative example of where the market was back when it was first brought out. I think Tim pointed out very correctly that the goal here for both the partnership and for MPC is to find a place where both parties are happy. That's what the goal will be for MPC and the goal for the partnership. One of the things that's really important, obviously, is once this transaction is accomplished, MPC will own approximately 65% of the units in the partnership, so they have the most vested interest in the success of the partnership. I think we're really aligned and look forward to getting that transaction completed in the near future.
Right. Just to confirm, you sort of had talked about how the multiple is just an implied number. It's really just what the IDR cash flows are and a premium on that. It's more of a function of where MPLX's stock price is trading at the time?
Yeah, that's correct, Shneur. At the end of the day, you hit it on the head. The sponsor is entitled to a premium to those cash flows. The stock price will be taken into account in the process from both party sides. That will all come into the process. I think everybody knows this. The process itself will be an engagement between the independent directors on the MPLX committee, as well as with the sponsor. All those factors come into play. The goal is to find that spot where everybody feels it's a good transaction.
Shneur, this is Gary. It's not only the unit price at the time. You have to look at the growth profile, the confidence in the growth profile. There are the other factors as well. We're not going to get into the multiples or level that we think it'll be. I think the illustration that we provided earlier gives you a framework.
Perfect. Just a few follow-up questions. Given the Capline discussion, when we look at the flow of hydrocarbons in the U.S., sort of seems to be a trend of refined products moving towards exports. Do you envision that potentially being a refined product pipeline instead of crude?
No, we expect this will be crude. You look at the refined products, there's 3.5 million-4 million barrels a day of refining capacity in the Gulf Coast that certainly have a distinct transportation advantage over refineries that would be coming out of PADD 2. That pipeline, it certainly could go into light product service. Mechanically, technically, there's nothing would keep it from that. It would not make sense to turn that pipeline into refined products at this time, because of the tremendous refining capacity in the Gulf Coast and the Gulf Coast refiners, the refiners that are heavy users of heavy crude, that really are dotted across the entire eastern Gulf, need a stable supply of heavy crude that certainly can be supplied from the Canadian oil sands.
Great. Just one final question. Has the boards of both entities discussed what MPC's final expectation is with its holding of MPLX? Do you sort of envision an IPO of a C corp tracker of MPLX at some point as kind of a next step down the road to sort of unlock value for MPC and create an Up-C for MPLX?
Shneur, as we look at the business right now, we have tremendous growth opportunities, as Mike just outlined. We have very strong coverage. We certainly understand how that could be put in place, but it's not necessary at this time to take that any further. We certainly understand that. With the growth potential that we have, we think we're in a pretty good shape as we stand today.
Perfect. Thank you very much, guys. I'll jump back in queue.
Thank you. Our next question is from Eric Genco from Citi Investment Research.
Hi, good morning. I just wanted to ask, I think it was touched on a little in the MPC call, I want to ask this a little different way. You've talked in the past about your desire to be a consolidator within the midstream space, one concern that's come up amongst investors is the possibility that you might execute a sort of a large third-party transaction at the MPLX level ahead of an IDR exchange. Can I ask, what is the probability that you would do a very large third-party transaction that would require a lot of issuance before the IDRs are handled?
Eric, I would find that, first of all, difficult to do. We're in the process right now. We've already stated that the next drop-down has been given to the conflicts committee, that simultaneous with closing that transaction, we're going to get on with the IDR exchange. That is our goal and our plan right now.
All right. I appreciate that, thank you, because I figured that was the case, but I felt like it was worth asking because I've heard it once or twice before from people. Then, I guess in the spirit of continuing to beat the dead horse, I noticed in the release you committed to 12% growth for 2017 as opposed to sort of the 12%-15%, your coverage is really strong, this decision appears pretty prudent from an MPLX perspective. Once again, for the people who kind of think that perhaps MPC is out to maximize its short-term gain from MPLX, isn't this an illustration? Wouldn't MPC have an incentive to push the distribution as high as it could go ahead of the IDR exchange if you were going to go along those lines?
I know it's not what you're looking to do, but I just feel like am I going too far in saying this is yet more evidence of MPC's sort of long-term perspective on MPLX and sort of making this work for both entities?
Well, Eric, I think you answered the question yourself. We've said many times, this transaction has to work for the long term. MPLX has to trade well the day after the IDR exchange. There has to be balance in this equation, because if it doesn't trade well the day after, with MPC being by far the largest owner of those units, it'd be detrimental to MPC's income stream long term. It has to be a fine balance. Some say you kind of thread the needle as you do this analysis, it's going to be balanced for both sides. As I said, I think you answered your own question, it's a good dialogue to have.
Thank you.
Hey, Eric, it's Mike. I just want to also add that right today, the market is not really rewarding growth as much as it's rewarding coverage and stability. Part of the reason that we targeted the lower end of the previous range was for that very fact. I think we're showing that we've moved the partnership directionally towards what we believe investors are looking for. We finished the quarter at 1.33 coverage.
Which we think is a very strong level. We've also publicly stated that we have no plans to issue any public equity for our organic program for the remainder of this year or into the 2018 program. I think we're positioning the partnership in a place that will provide a very attractive place for investors.
Well, it sounds like you're doing all the right things, and I apologize for the leading questions, but just sometimes I think it helps the investors to hear you say it. Thanks, and keep up the good work.
Thank you.
You're welcome.
Thank you. Our next question is from T.J. Schultz from RBC Capital Markets.
Great, thanks. Obviously, it's set up well for 2018 for distribution growth and to remain out of the equity markets. Just generally, as you think longer term for your business model, how do you want to manage distribution coverage and distribution growth versus any views that you would want to slow growth to a level that allows you to completely internally fund growth CapEx longer term? Said really another way, are you really pivoting to self-funding long term, or is the takeaway here just that you don't need to change your view on growth right now, and you still have the ability to finance from retained cash flow for the next year, at least?
Yeah, T.J., we are pivoting for the long term. We run the partnership for the long term. We're not doing anything for just short-term gain. We believe the sector is looking for that pivot, as you called it. Our view is coverage, stability, solid balance sheet, all those things are being rewarded, whereas growth isn't being rewarded. We do want to do what we said we would do. We had previously guided for double-digit growth in 2018. We're going to honor that commitment. Over the long term, as you stated, distribution growth will probably be coming down in the sector. At the same time, we believe we're going to be at a very strong level of growth.
I think that's real important for us to differentiate ourselves from everybody else, because we do have a very strong level of growth for the future as well.
Yeah. It's Pam Beall. I just would like to add, we're going to generate a substantial amount of cash flow in the partnership. Our size and scale and diversification of earnings and cash flow will be significant. When we talk about self-funding, we will still have a significant capacity to fund our needs with debt as well as retained cash. We're really just focused on not being that serial issuer of public equity.
Okay, got it. I guess let me just ask one on operations in the Utica gathered volumes, if you could just expand there on the large increase, what we may expect into 4Q and 2018 as it relates to producer activity.
This is Greg Floerke. I would say with regard to the Utica, as I had mentioned in prior quarters, a lot of the rig activity has moved into the dry Utica. We are still seeing activity in the rich areas as well. A big driver is Rover coming online, which is connected to our Cadiz facility and to other pipelines that gather into that dry area. I think there will continue to be variation between Marcellus and Utica drilling. We are seeing activity and growth in both areas, though, at this time.
Okay. Thanks, everybody.
Thank you. Our next question is from Tom Abrams from Morgan Stanley.
Thanks, all. G&P operating income, Pam, I think you said that the majority of that was volume. Does that mean roughly $25 million, say, from commodity margins?
No. What we've said on the commodity margins is that rule of thumb that we've given is every $0.05 move is about $18 million after tax. Not that there's a lot of tax in the business. We did see a strong move in commodity prices year-over-year. You can kind of do the math on that.
All right. The changes, the increase in equity earnings and distributions, that was primarily DAPL? The vast majority of that?
Well, I wouldn't say the vast majority. It certainly is a combination. We mentioned both Dakota Access Pipeline, DAPL, and the Ozark Pipeline that we acquired earlier this year. Of course, we had the drops that we have made throughout the year as well.
All right. What's driving the lower maintenance CapEx and the growth CapEx for the year?
Yes, Tom, this is Mike. Two things. One is we're trying to employ capital discipline in this environment, and two is timing. Both of those factors together are impacting our maintenance capital as well as our organic. We stated that we had previously guided to 1.8-2 on the organic side. Same factors, a little bit of timing, little bit of discipline on the capital side, we project we'll come in lower than those numbers for this year.
All right. Lastly, any implications from potential delays at Rover and the Mariner systems?
No, we don't believe so. Obviously, we're supportive of both of those projects, and we'd like to see them get up, but in the short term, we don't see any impact to our system at this point.
Great. All right. Thanks a lot, guys.
You're welcome.
Thank you. Our next question is from Michael Blum from Wells Fargo.
Hi, good morning. Thank you. First question, just what is, in 2018, and I guess long term, your target leverage? Do you have any updated thoughts there? Obviously, I think you've put a range out in the past, but
Given the pivot that's been talked about in the market, do you have any updated thoughts on where you think that could be either in 2018 or long term?
This is Pam. I should have added when I was talking about leverage capacity earlier that everything that we do will be in the context of maintaining an investment-grade credit profile. I think we'll have the capacity to borrow a little bit more than we have in the past, but we're probably focused around the low fours. Four times debt to EBITDA.
Got it. Just one question on Capline that I don't think was asked on the prior call. Just why go out with an open season for 300,000 barrels a day when the capacity of the line is significantly larger?
I did cover that before, Michael. It really comes down to, as I stated earlier, there are three owners of this, and it takes three to tango. We have an agreement. That 300,000 barrels a day and the timing is all around the commercial aspects of the partners to agree to put out this opportunity for an open season. That's how we derived at that. You're absolutely correct. It will flow much more than that. Now, it won't flow 1.2 million barrels a day of heavy crude just because of the viscosity of that product moving through. It certainly will flow much more than 300 down the road. That's a commercial decision on the front end here that was made. I will say that we're getting a lot of interest in this opportunity down the road.
Great. Thank you.
You're welcome.
Thank you. Our next question is from Jeremy Tonet from J.P. Morgan.
Yeah. Hi, this is Charlie in for Jeremy. I think most of the questions have been addressed. I guess just at looking at the Permian growth, any commentary or interest maybe on Argo 2? I mean, just giving consistently high utilization rates there. Then more broadly, looking at current basis there, any interest in build-out projects, takeaway pipes, anything of that nature?
Yeah, obviously, we're excited about getting our next plant up in early 2018. That's a primary focus. Yeah, we continue to put more emphasis on our Southwest operations and the Permian in general. Yeah, I think you hit it on the head. We're going to look for other opportunities. It could be downstream of the plants, and we'll continue to look at those because it's an area that still has quite a bit of growth and we believe we provide an opportunity to participate in that growth.
All right, great. Thank you.
You're welcome.
Thank you. Our next question is from Corey Goldman from Jefferies.
Hey, guys. Just one more on ME2. I understand it doesn't impact your current system, but does that at least help explain the lower 2017 CapEx spend, just given the fact that you guys targeted just-in-time startup?
No, Corey. That doesn't have any impact on our spend at this point. Obviously, we support the project and we'd like to see it up as soon as possible, but it doesn't have a direct impact on our situation.
Okay, great. Then this last follow-up. I think you discussed MPC call. I just wanted to confirm on Capline. Is your interest in the asset included in the next drop-down? Was it ever before the open season?
No, Capline still resides within MPC, and it will for some time.
Okay. Just that being said, is there any other assets there that could be viewed to be a potential drop-down candidate that we don't know about?
Once we complete this big drop-down that we have left, $1 billion, I think we have maybe $50 million or so of EBITDA over some time that we could drop in, but that would include some joint venture shipping and some things that they aren't quite ripe yet to be able to be considered to drop down. The majority of the assets will be done.
Got you. Okay. The $50 million, I'm assuming that's pre-Capline reversal.
That would be correct.
Got you. Okay, thanks, guys.
Thank you. Our next question is from Justin Jenkins from Raymond James.
Great, thanks. Maybe starting with a follow-up to T.J.'s question. Seems like maybe some unknowns on the E&P side heading into next year. Maybe that was exacerbated by some commentary from one of your customers in the Northeast yesterday. I guess I'm just curious, maybe a little more detail on how things are progressing on your discussions with producers into '18.
Yeah. Continues to be very constructive. As you know, we believe that the Marcellus Utica area is the best area for development on the natural gas side. As you're referring to one of our producer customers, a very important customer, we're totally in sync with what their plans are at this point. I should point out, I think you know this, that the high majority of their capital will continue to be spent in the Northeast. We remain an integral part of that development. We have two major plant activities occurring, our expansion of our Houston complex and also the development of our Harmon Creek complex that will come online. The first will come online in early 2018, and the second will come online towards the back end of 2018.
Continue to feel really good about the area, continue to feel really good about the long-term potential in the Marcellus Utica. I think we're still in a very good position.
Perfect. Appreciate that color, Mike. Maybe thinking, taking a stab at the Bakken Pipeline System here. Great to see a cash distribution coming in, can you give us a sense of what level of distribution that might have been in terms of partial versus full?
No, I'll make sure Mike doesn't reveal that information. As you know, we're a minority indirect owner of the pipe, we don't disclose that separately.
Fair enough. Had to try. Thanks, guys.
You're welcome.
Thank you. Our next question is from Brian Zerin from Mizuho.
Good morning.
Morning, Brian.
Just thought it'd be helpful to have a little more color on the equity self-funding plan for next year. How should we think about the drop-down financing mix of debt and equity? Are you going to lean more on equity to keep yourself out of the market next year? Does this mean that MPC won't take any equity for CapEx? How should we think about the unit price assumptions? You've got a significant amount of drop-downs and the buy-in, which are fairly sensitive to where the unit price is and how that impacts your excess coverage.
A couple things there, Brian. First of all, our positioning is predicated on the fact that we believe investors are looking for us to be in a self-funding model, and that's exactly where we are. Gary mentioned it. We're in a unique position. Because of the strategic actions with the sponsor, we're in a very unique position where we're able to have high coverage, solid distribution growth compared to the peers and put ourselves in a position where we're not going to issue public equity, and we're going to plan to spend about $2 billion in organic growth capital. Just a quick summary of that, we're going to put on about 1.5 BCF of processing next year, 40,000 of de-ethanization capacity and 60,000 of C3 frac capacity. To be able to do that, we believe we're in a very unique position.
Feeling very good about that and think that offering to the MLP space is very strong. Your second question was?
The mix of funding.
Yeah.
Brian, on the drops, from the beginning of the discussion about the strategic actions, MPC and MPLX have been aligned that we would strike a balance of roughly 50/50 when you look at all the drops in composite. It's moved around on either side of that 50/50. When we get on the other side of these transactions, you'll see that it still will be roughly 50/50.
Just to confirm on the self-funding for equity, no units are expected to be issued to MPC next year for-
No, not for our growth capital spending. No. We're not trying to be cute saying we're going to issue equity to MPC and then they fund our capital spending program. No, we think that, as has already been said, just the unique opportunity with the drop of this $1 billion into the partnership, and the fields distribution has no maintenance capital, so it's all free cash flow for the partnership. It's a significant slug of capital that we can use to fund the business and maintain a high coverage and still have an attractive distribution growth rate.
Well, that's a good segue to my next question on maintenance CapEx. I appreciate the preliminary outlook for 2018 on expansion CapEx, but can you refine your 2017 maintenance CapEx expectations? What's a reasonable range for 2018 for maintenance CapEx?
Yeah, Brian, on 2017, we haven't given an absolute number, just we're telling the market that we're going to come in below that $150 million due to two things, capital discipline and timing. The team has done a very nice job. John Swearingen's team and Greg Floerke's team has done a nice job looking at our capital program, and we're going to come in reasonably well below that, but we haven't guided to a number. As far as 2018, we haven't gotten through our full process there yet either, so we don't have a number to disclose at this point.
Okay, fair enough. Thanks, Mike.
You're welcome, Brian.
Thank you. Our next question is from Jerren Holder from Goldman Sachs.
Hi, good morning. Just wanted to start maybe on third-party M&A. Obviously, you guys have commented that you believe that midstream needs to be consolidated at some point. Can you just remind us in terms of how active you guys would like to be? Is this more of a post-IDR restructuring event that you would be more aggressive in exploring opportunities?
It's not, Jerren, that I think it will. The midstream is consolidating. We have been active in looking at some opportunities, nothing has come up of any size yet that has really fit us well. As I stated earlier, we've already turned over our drop down to the conflicts committee, and they're assessing that. That simultaneous with that close, we would expect to get the IDR exchange done. That is first and foremost in our mind right now. You're going to see us get that done straight away, then we'll see what opportunities there might be.
Thanks. As a follow-up, obviously we've been seeing higher NGL prices, propane in particular. Any update in terms of how you guys are thinking about hedging? Have you been doing more as far as 2018 is concerned, given where prices are? Also, in terms of your producer customers, have you seen a bit of a shift From their dry acreage to wet acreage as a result of some of this higher NGL prices?
This is Greg Floerke again. We are seeing, as you can see by our growth, rich drilling, particularly in the Marcellus, is robust. We are happy to see propane prices above $0.90. We see propane as a % of crude oil disconnect for the first time since the shale revolution started in the Marcellus. All good signs and really driven by exports and storage. I think, as we look at the forward curve, it's not necessarily reflected in the forward curve yet in terms of pricing. We're not seeing $0.80 or $0.90 pricing there yet. That will have, obviously, an impact on our strategy towards hedging.
Being primarily fee-based, it's really a good sign for our customers who get the most benefit out of the pricing moves and does provide positive economics to move to the rich gas side, we believe, in the near future.
Jerren, it's Mike. The only thing I would add is, we're seeing a lot of constructive signs. As Greg mentioned, robust activity on the wet side. We also mentioned in our prepared remarks that the dry activity in Utica has picked up, which is encouraging to us. To your last point, we're getting support from the commodity price, which is strong for the producers as well. All the factors are looking positive and constructive for the activity that we're seeing.
All right. Thank you.
Yeah, that's a good read. Welcome.
Thank you. Our final question today is from Barrett Blaschke from MUFG.
Hey, guys. A lot of mine have been answered. Just looking out for growth sort of beyond what's already on the list, do you guys see any desire to move more, I guess, vertically through the supply chain for NGLs in particular?
Yeah. I think one of the things that we're going to look to do is diversify our portfolio. We have a terrific G&P business that goes well ahead to the plant, and we're going to look to investigate our opportunities to be downstream of that. We're open to a lot of different things. In general, I would say, the way I think about it is we have a great foundation on both the G&P side and the L&S side, so we're in a unique position with a terrific foundation, and now our opportunity is to take advantage of the assets we have and try and diversify from there.
Okay. Thank you. Is there a preference for kind of what type of product you'd be looking for, maybe like a long-haul system on? Would it be more for the NGLs, or would it be more for the liquid side?
We're closer to the NGL systems at this point from where we are, but we're open to anything, really, to be honest with you. One of the things that we want to do is expand our thought process and be able to be a service provider in some of the other services that are out there that we haven't participated in at this point.
Thank you.
You're welcome.
Thank you for joining us today and for your interest in MPLX. Should you have additional questions or would like clarification on any of the topics discussed this morning, Doug Wendt, Denice Myers, and I will be available to take your calls. Thank you, and this does conclude today's conference. You may disconnect at this time.