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Natural gas processor and distributor, MarkWest Energy Partners LP (MWE - Analyst Report), 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%.

Guidance

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 - Snapshot Report), Magellan Midstream Partners LP (MMP - Analyst Report) and Pioneer Southwest Energy Partners LP 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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