MarkWest Energy Partners LP (MWE) reported better-than-expected second quarter results, aided by its robust fee-based business as well as volume growth in certain operating segments. Earnings per unit, excluding mark-to-market derivative loss and compensation expense, came in at 39 cents, significantly above the Zacks Consensus Estimate of 4 cents. However, on a year-over-year basis, MarkWest’s adjusted earnings per unit plunged more than 71%, hurt by decline in crude oil prices.
Distributable Cash Flow
During the quarter, the partnership generated distributable cash flow (DCF) of $39.9 million, down from $56.3 million in the prior-year quarter, providing 1.04x distribution coverage. The negative comparison reflects the significant decrease in commodity prices since August 2008.
Business Units

With regard to business units, the Southwest segment’s operating income decreased more than 26% from the year-ago level to $45.5 million, reflecting lower gathering systems throughput volumes from Foss Lake and Appleby facilities, partially offset by rising natural gas liquids (NGL) product sales from the Arapaho gas processing plant. The partnership continues to increase its gathering presence in southeast Oklahoma (in the Woodford Shale gathering system), where volumes were up almost 60% to 403,300 thousand cubic feet per day (Mcf/d).
MarkWest’s Northeast segment’s operating profit slumped to $11.7 million, as against $15.9 million in the year-earlier quarter. The second quarter results suffered from a 30% drop in fee-based natural gas processing and a 36% decline in NGL product sales. Additionally, the partnership’s fee-based crude oil transportation was down 10%.
Operating income from the Gulf Coast segment was down 50% year over year to $11.6 million, mainly due to steep decline in NGL prices.
Finally, the partnership’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $2 million.
Capital Expenditure & Balance Sheet
During the quarter, MarkWest spent approximately $150.9 million on growth capital projects (including equity investments), an increase of $42.7 million, compared to the year-ago period. This year-over-year hike can be attributed to a wide range of diverse growth capital projects in the partnership’s core operating areas. As of June 30, 2009, the partnership had long-term debt of approximately $1.3 billion, representing a debt-to-capitalization ratio of about 52.3%.
Looking forward, management guided towards DCF of approximately $160–$190 million for 2009. MarkWest’s capital plan for the year includes approximately $150 million of capital expenditures for growth projects, plus $5 million to $10 million for maintenance capital.

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