MarkWest Completes EQT Asset Buy - Analyst Blog

Pipeline operator MarkWest Energy Partners L.P. (MWE) has closed its previously announced purchase of assets – a Kentucky-based natural gas processing complex and an associated natural gas liquids (“NGL”) pipeline – from integrated energy firm EQT Corp. (EQT).

The $230 million transaction comprise of a 100 million cubic feet per day (MMcf/d) cryogenic processing plant, a 75 MMcf/d refrigeration processing plant, approximately 28,000 horsepower of compression, as well as a partly built NGL pipeline that MarkWest will complete.

In conjunction with the acquisition deal, MarkWest has also entered into a long-term agreement with EQT to supply processing services for EQT's Kentucky Huron shale gas and to extend its existing contract with EQT to provide NGL transportation, fractionation, and marketing services.

MarkWest management remains upbeat about the pact, as it will help the firm to expand its wide-ranging midstream service capabilities in the liquid rich plays of Marcellus Shale (in West Virginia) and Huron Shale (in Kentucky).

Denver, Colorado-based MarkWest Energy, a master limited partnership (“MLP”), is engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids, and the gathering and transportation of crude oil. Over the last few years, the partnership has consolidated its position in the midstream business, achieved through a combination of organic efforts and accretive acquisitions.

However, following the stock's recent price strength, our long-term total return expectation remains rather muted. While we continue to like MarkWest for its high-quality and diverse portfolio of midstream assets, as well as its proven track record of supporting producers in the growth of shale plays and the steady improvement in its liquidity/cash flow position, we think that the current valuation is fair and adequately reflects the partnership's future growth prospects.

MarkWest's core business – natural gas processing – is also faced with a higher degree of commodity price exposure than most MLPs. This is expected to further limit its ability to generate positive earnings surprises in the next few quarters. During this period, we expect the partnership to grow at a somewhat more conservative and sustainable pace.

As such, we expect MarkWest Energy's growth potential to be restrained with little room for meaningful upside from current levels. Our long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).

 
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