Natural gas processor and distributor MarkWest Energy Partners LP 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 as attractive investments. All these firms – sporting a Zacks Rank #2 (Buy) – offer value and are worth accumulating at current levels.