MarkWest Gives a Mixed 2Q

Zacks

Natural gas processor and distributor, MarkWest Energy Partners L.P. (MWE) reported mixed second quarter 2012 earnings, reflecting strong natural gas processed and increased natural gas liquids (NGLs) sales at East Texas and Western Oklahoma, partially offset by lower commodity prices.

The partnership reported loss per unit – excluding mark-to-market derivative loss and compensation expense – of 3 cents, failing to meet the Zacks Consensus Estimate of earnings of 43 cents per share.

Colorado-based MarkWest’s adjusted earnings per unit plunged substantially from the year-earlier figure of 46 cents per share.

Revenue (excluding hedging impact) of $446.1 million was up 11.4% from the second-quarter 2011 level. The result also surpassed our projection of $380.0 million.

Total operating expenses for the quarter decreased 30.0% year over year to $187.2 million.

Quarterly Cash Distribution

Prior to the earnings release, MarkWest raised its second-quarter 2012 cash distribution by 1.3% sequentially and 14.3% year over year to 80 cents per unit ($3.20 per unit annualized). The partnership’s new distribution will be paid on August 14 to the unitholders of record as of August 6, 2012.

Distributable Cash Flow

During the quarter, MarkWest generated distributable cash flow (:DCF) – an indicator of cash paid for distribution to unitholders – of $91.2 million, up from $82.9 million in the prior-year quarter, providing 1.03x distribution coverage.

Business Units Performance

Southwest: With regard to business units, the Southwest segment’s operating income decreased 13.8% from the year-ago level to $72.7 million, hurt by lower throughput at Southeast Oklahoma.

Northeast: MarkWest’s Northeast segment’s operating profit of $24.2 million dropped 22.1% from the last year’s income of $31.1 million. The drop in performance was owing to reduced NGLs fractionated and a dip in crude oil transported.

GulfCoast: Operating income from the Gulf Coast segment was down 30.4% year over year at $11.4 million. This decline was mainly on account of decreased NGL sales volume coupled with higher expenses.

Liberty: MarkWest’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $37.9 million (up from $16.0 million achieved in the year-earlier period). Improved natural gas volumes, gathering system throughputs and NGL sales – all added up to deliver a decent quarter.

Capital Expenditure & Balance Sheet

During the quarter, MarkWest spent approximately $323.9 million on growth capital projects, up $116.6 million from the year-ago period. As of June 30, 2012, the partnership had total debt of approximately $2.0 billion, representing a debt-to-capitalization ratio of about 45.8%.

Acquisition

In late May, MarkWest Energy Partners completed the purchase of 100% ownership interest in Keystone Midstream Services, LLC for $512 million from Stonehenge Energy Resources, L.P., and affiliates of Rex Energy Corporation (REXX) and Sumitomo Corporation.

Guidance

Looking forward, management guided toward a DCF of approximately $440–$500 million for 2012, reflecting the expected volumes and prices of crude oil and natural gas as well as the effects of acquisition of Keystone Midstream Services.

MarkWest’s capital plan for the year includes approximately $1.1 billion to $1.5 billion of capital expenditures for growth projects along with $20 million for maintenance capital.

Recommendation

MarkWest currently holds a Zacks #5 Rank, implying a Strong Sell rating for a period of one to three months.
 

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