Pipeline operator MarkWest Energy Partners L.P. (MWE) reported weak fourth quarter results, reflecting lower natural gas liquid sales in the Northeast and East Texas.
The partnership incurred loss per unit (excluding marked-to-market derivative loss and compensation expense) of 5 cents, against the Zacks Consensus Estimate of profit of 33 cents. In the year-ago period, the Colorado-based MarkWest earned 75 cents per unit on an adjusted basis.
However, revenue of $356.6 million was up 26.3% from the fourth quarter 2009 level and was also ahead of our projection of $338.0 million.
Quarterly Cash Distribution
Recently, MarkWest raised its fourth quarter 2010 cash distribution to 65 cents per unit ($2.60 per unit annualized), representing an increase of approximately 1.6%, both sequentially and year over year. The partnership’s new distribution was paid on February 14 to unitholders of record as on February 7, 2011.
Distributable Cash Flow
During the quarter, MarkWest generated distributable cash flow (“DCF”) of $69.1 million, up from $63.2 million in the prior-year quarter, providing 1.42x distribution coverage.
Business Units
With regard to business units, the Southwest segment’s operating income increased 21.8% from the year-ago level to $75.9 million, mainly reflecting higher commodity prices, higher volumes in the Stiles Ranch gathering system, and higher contributions from the Arkoma Connector Pipeline. These were partially offset by lower gathering systems throughput volumes from Foss Lake and Appleby facilities.
The partnership continues to increase its gathering presence in southeast Oklahoma (in the Woodford Shale gathering system), where volumes were up approximately 12.6% to 513,600 thousand cubic feet per day (Mcf/d).
MarkWest’s Northeast segment’s operating profit of $30.1 million fell marginally from last year’s income of $31.4 million, dragged down by a 10.3% decrease in total natural gas liquids (“NGL”) product sales. The quarterly results were also negatively impacted by a 7.3% drop in natural gas processed in the Appalachian area.
Operating income from the GulfCoast segment was up 1.4% year over year to $12.7 million, MarkWest’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $15.9 million (up from $3.8 million achieved in the year-earlier period).
Capital Expenditure & Balance Sheet
During the quarter, MarkWest spent approximately $81.5 million on growth capital projects (including equity investments), a decrease of $8.4 million compared to the year-ago period. As of December 31, 2010, the partnership had a total debt of approximately $1.3 billion, representing a debt-to-capitalization ratio of about 45.3%.
Guidance
Looking forward, management guided towards a DCF of approximately $260 – $300 million for 2011, up from the previous guidance of $240 – $280 million.
MarkWest’s capital plan for the year includes approximately $600 – $650 million of capital expenditures for growth projects – which includes the $230 million purchase of a Kentucky-based natural gas processing complex and an associated NGL pipeline from integrated energy firm EQT Corp. (EQT) – plus $10 to $20 million for maintenance capital.
Our Recommendation
Even though MarkWest has a Zacks #2 Rank (short-term Buy rating) in the short run, we are Neutral on the partnership in the longer term.
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