MarkWest Energy Ahead of Estimates - Analyst Blog

MarkWest Energy Partners L.P. (MWE), a master limited partnership (MLP), reported significantly better-than-expected first quarter results, reflecting a robust performance of its core assets and the growing contribution from the Marcellus expansion projects. Earnings per unit, excluding marked-to-market derivative loss and compensation expense, came in at 47 cents, which were way ahead of the Zacks Consensus Estimate of 25 cents.
 
However, compared with the corresponding quarter of last year, MarkWest’s adjusted earnings per unit were down 28.8% (from 66 cents to 47 cents). The negative comparison reflects lower spending by consumers and businesses on transportation fuels, such as gasoline, aviation fuel and diesel.
 
Revenue of $315.6 million was up 72.1% from the first quarter 2009 level, driven by higher prices.
 
Distribution Maintained
 
MarkWest’s quarterly distribution of 64 cents per unit ($2.56 per unit annualized), remains unchanged from the year-earlier quarter and the previous quarter’s distribution.
 
Distributable Cash Flow
 
During the quarter, the partnership generated record distributable cash flow (DCF) of $64.3 million, up from $48.9 million in the prior-year quarter, providing 1.41x distribution coverage.
 
Business Units
 
With regard to business units, the Southwest segment’s operating income increased 90.3% from the year-ago level to $68.4 million, mainly reflecting higher volumes in the Stiles Ranch gathering system and contributions from the recently acquired Arkoma Connector Pipeline. These were partially offset by lower gathering systems throughput volumes from Foss Lake and Appleby facilities.
 
The partnership continues to increase its gathering presence in southeast Oklahoma (in the Woodford Shale gathering system), where volumes were up approximately 18.6% to 496,600 thousand cubic feet per day (Mcf/d).
 
MarkWest’s Northeast segment’s operating profit of $40.5 million improved significantly from last year’s income of $5.5 million. The quarterly results were buoyed by a marginal rise in fee-based crude oil transportation and a 3.5% increase in total NGL product sales on the back of processing capacity expansions and upgrades, partially offset by a 2.9% drop in natural gas processed in the Appalachian area.
 
Operating income from the Gulf Coast segment was up significantly (by 168.9%) year over year to $14.1 million, mainly due to more gas processed at the partnership’s Javelina facility.
 
Finally, MarkWest’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $5.5 million (up 81.9% from the year-earlier period). This was mainly on account of the ongoing expansion of the Liberty facilities.
 
Capital Expenditure & Balance Sheet
 
During the quarter, MarkWest spent approximately $94.5 million on growth capital projects (including equity investments), a decrease of $77.4 million compared to the year-ago period. As of Mar 31, 2010, the partnership had a total debt of approximately $1.2 billion, representing a debt-to-capitalization ratio of about 45.3%.
 
Guidance
 
Looking forward, management guided towards a DCF of approximately $200 – $230 million for 2010, up from the previous guidance of $180 – $220 million. MarkWest’s capital plan for the year includes approximately $300 – $350 million of capital expenditures for growth projects, plus $10 million to $15 million for maintenance capital.