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MarkWest's Results Disappoint

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Natural gas processor and distributor MarkWest Energy Partners L.P. reported weak third 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 26 cents, against the Zacks Consensus Estimate of 37 cents. Colorado-based MarkWest’s adjusted earnings per unit also deteriorated from the year-earlier period earnings of 35 cents per unit.

Revenue of $283.7 million was down 44.1% from the third quarter 2011 level and was also way below our projection of $352.0 million.

Quarterly Cash Distribution

In October, MarkWest raised its third quarter 2012 cash distribution by 1.3% sequentially and 11.0% year over year to 81 cents per unit ($3.24 per unit annualized). The partnership’s new distribution is payable on November 14 to unitholders of record as on November 7, 2012.

Distributable Cash Flow

During the quarter, MarkWest generated distributable cash flow (“DCF”) – an indicator of cash paid out for distribution to unitholders – of $104.3 million, up from $85.3 million in the prior-year quarter, providing 1.09x distribution coverage.

Business Units Performance

Southwest: With regard to business units, the Southwest segment’s operating income decreased 14.5% from the year-ago level to $67.3 million, mainly reflecting lower commodity prices, partially offset by higher volumes.

Northeast: MarkWest’s Northeast segment’s operating profit of $22.7 million fell 31.5% from the last year’s income of $22.7 million, affected by lower fractionated volumes.

Gulf Coast: Operating income from the Gulf Coast segment was down 26.5% year over year to $12.5 million. This was mainly on account of lower revenues.

Liberty: MarkWest’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $43.0 million (up from $19.0 million achieved in the year-earlier period). Improved natural gas volumes, gathering system throughputs and natural gas liquids (NGL) sales – all added up to deliver an impressive quarter.

Capital Expenditure & Balance Sheet

During the quarter, MarkWest spent approximately $654.5 million on growth capital projects, an increase of $530.9 million compared to the year-ago period. As of September 30, 2012, the partnership had a total debt of approximately $2.5 billion, representing a debt-to-capitalization ratio of about 49.1%.


Looking forward, management guided toward a DCF of approximately $410–$430 million for 2012. MarkWest’s capital plan for the year includes approximately $1.8 billion of capital expenditures for growth projects.

Next year, the partnership expects DCF to be in the range of $500–$575 million, while growth capital expenditure is likely to be around $1.4–$1.9 billion.

Rating & Recommendation

MarkWest – which has teamed up with another partnership, Sunoco Logistics Partners L.P. , to build a distribution system to transport ethane produced in the Marcellus Shale Basin to markets along the Gulf Coast – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.

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