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MarkWest Upgraded to Outperform

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We have upgraded pipeline operator MarkWest Energy Partners L.P. to Outperform from Neutral, reflecting our bullish investment theme.

Denver, Colorado-based MarkWest Energy is a master limited partnership (MLP) engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids (NGLs), and the gathering and transportation of crude oil.

MarkWest owns a high-quality and diverse portfolio of midstream assets that generate stable and recurring revenues based on long-term fee-based contracts. 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.

With its proven track record of supporting producers in the development of shale plays, MarkWest is in a great position to participate in infrastructure upgrade that will be required for the development of the leasehold assets.

We believe MarkWest’s recent buy out of The Energy & Minerals Group’s 49% interest in the Marcellus shale joint venture project will be immediately accretive to earnings and cash flows. The two firms have also agreed to create a new midstream joint venture in eastern Ohio’s Utica shale in 2012, a play with considerable potential that is expected to see a ramp-up in oil and natural gas liquids production.

MarkWest’s proposed acquisition of Keystone Midstream Services in the heart of the booming Marcellus shale play will further boost the partnership’s processing capacity in the liquids-rich region.

In 2010, MarkWest teamed up with another MLP, Sunoco Logistics Partners L.P. , to build a distribution system to transport ethane produced in the Marcellus Shale Basin (in Northeastern U.S.) to markets along the Gulf Coast.

We believe that the initiative, known as the ‘Mariner Project,’ offers several benefits. The project has not only helped MarkWest to profit from the direct opportunity of capturing demand for ethane takeaway capacity at Marcellus, but it also supports higher gathering system volumes and ethane production.

Lastly, we appreciate MarkWest’s steady improvement in its liquidity/cash flow position and its impressive payout track record.  With 216% distribution growth since the IPO in May 2002, we are confident of the partnership’s total return potential.

On the whole, we believe MarkWest is favorably positioned to continue accelerating revenue and earnings growth over the next few quarters.

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