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Natural gas processor and distributor MarkWest Energy Partners LP (MWE - Analyst Report) reported weak fourth quarter 2012 results, reflecting lower commodity prices.

The partnership’s profit per unit – excluding mark-to-market derivative activity and compensation expense – came in at 22 cents against the Zacks Consensus Estimate of 36 cents. Colorado-based MarkWest’s adjusted earnings per unit also deteriorated from the year-earlier adjusted figure of 47 cents per unit.

Revenue of $371.5 million was up 11.3% from the fourth quarter 2011 level but was below our projection of $402.0 million.

Quarterly Cash Distribution

On Jan 23, 2013, MarkWest raised its fourth quarter 2012 cash distribution by 1.2% sequentially and 7.9% year over year to 82 cents per unit ($3.28 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 $111.8 million, up from $88.4 million in the prior-year quarter, providing 1.06x distribution coverage.

Business Units Performance

Southwest: With regard to business units, the Southwest segment’s operating income decreased 34.6% from the year-ago level to $73.2 million, mainly reflecting lower commodity prices, partially offset by higher volumes.

Northeast: MarkWest’s Northeast segment’s operating profit of $31.6 million fell 21.8% from last year’s income of $40.4 million, affected by lower fractionated volumes.

Liberty: MarkWest’s Liberty segment (the partnership’s Marcellus Shale joint venture), reported a profit of $59.7 million (up by 219.2% from $18.7 million achieved in the year-earlier period). Improved natural gas volumes, gathering system throughputs and natural gas liquids (NGL) sales added up to deliver an impressive quarter.

Utica: Operating loss from the partnership’s newest segment – Utica – was $1.3 million.

Capital Expenditure & Balance Sheet

During the quarter, MarkWest spent approximately $709.8 million on growth capital projects, an increase of $525.9 million compared to the year-ago period. As of Dec 31, 2012, the partnership had total outstanding debt of approximately $2.5 billion, representing a debt-to-capitalization ratio of about 44.0%.


Management maintained its projected DCF range of $500–$575 million for 2013 while its growth capital expenditure was pegged in the vicinity of $1.5–$1.8 billion.

Stocks to Consider

MarkWest Energy currently carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one-to-three months.

Meanwhile, one can look at other energy firms like Total SA (TOT), Breitburn Energy Partners LP (BBEP) and Memorial Production Partners LP (MEMP - Snapshot Report) as attractive investments. All these firms – sporting a Zacks Rank #2 (Buy) – offer value and are worth accumulating at current levels.

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