Natural gas processor and distributor, MarkWest Energy Partners LP (MWE), reported better-than-expected second-quarter 2013 earnings reflecting increased processing volumes.
MarkWest’s earnings per unit – excluding mark-to-market derivative activity and compensation expense – came in at 33 cents, beating the Zacks Consensus Estimate of 22 cents per unit. Colo.-based MarkWest reported adjusted loss per unit of 4 cents in the year-ago period.
Revenues of $415.1 million were down 6.3% from the second quarter of 2012 and also lagged the Zacks Consensus Estimate of $424.0 million. Decreased commodity prices affected the result.
Quarterly Cash Distribution
On Jul 24, 2013, MarkWest raised its second-quarter 2013 cash distribution by 1.2% sequentially and 5.0% year over year to 84 cents per unit ($3.36 per unit annualized).
Distributable Cash Flow
During the quarter, MarkWest generated distributable cash flow (“DCF”) – an indicator of cash paid out for distribution to unitholders – of $128.4 million, up from $91.2 million in the prior-year quarter, providing 1.08x distribution coverage.
Business Units Performance
Southwest: With regard to business units, the Southwest segment’s operating income decreased 9.5% from the year-ago level to $74.8 million. The results mainly reflect lower commodity prices along with significant increase in operating expenses, partially offset by increased volumes.
Northeast: MarkWest’s Northeast segment’s operating profit of $23.6 million fell 2.5% from last year’s income of $24.2 million. The segment’s profit was affected by reduced natural gas processing.
Liberty: MarkWest’s Liberty segment (the partnership’s Marcellus Shale joint venture) reported a profit of $80.8 million (up by 112.1% from $38.1 million in the year-earlier period). Improved natural gas volumes, gathering system throughputs and natural gas liquid (NGL) sales added up to deliver an impressive quarter.
Utica: Operating loss from the partnership’s newest segment – Utica – was $1.7 million which has widened from the year-ago loss of $170,000.
Capital Expenditure & Balance Sheet
During the quarter, MarkWest spent approximately $799.8 million on growth capital projects, up from $323.8 million in the year-ago period. As of Jun 30, 2013, the partnership had total outstanding debt of approximately $3.0 billion, representing a debt-to-capitalization ratio of about 46.5%.
Management maintained its previously lowered projected DCF range of $500–$540 million for 2013 and also sustained its growth capital expenditure of $1.5–$1.8 billion.
Stocks to Consider
MarkWest currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one-to-three months.
Meanwhile, one can look at oil and gas production pipeline master limited partnerships (MLP) like Delek Logistics Partners LP (DKL), Magellan Midstream Partners LP (MMP) and Pioneer Southwest Energy Partners LP (PSE) as attractive investments. Delek Logistics and Magellan currently retain a Zacks Rank #1 (Strong Buy), while Pioneer Southwest Energy sports a Zacks Rank #2 (Buy).
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