MarkWest Energy Partners L.P. (MWE), a master limited partnership (MLP), reported weaker-than-expected third quarter results. Earnings per unit came in at 13 cents, which fell way short of the year-ago result at $3.24 and also missed the Zacks Consensus Estimate of 15 cents. The year-over-year negative comparisons were due to sharply lower commodity prices. Revenue declined approximately 31.5% to $207.9 billion.

Distribution Maintained
MarkWest’s quarterly distribution of 64 cents per unit ($2.56 per unit annualized), remains unchanged from the year-earlier quarter and the previous quarter distribution. The distribution was paid on November 13 to unit-holders of record on November 2, 2009.

Distributable Cash Flow
During the quarter, the partnership generated distributable cash flow (DCF) of $40.3 million, down from $45.4 million in the prior-year quarter, providing 0.95x 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 7.7% from the year-ago level to $51.5 million, reflecting lower gathering systems throughput volumes from Foss Lake and Appleby facilities, partially offset by increased volumes processed at the East Texas facilities, rising natural gas liquids (NGL) product sales from the Arapaho gas processing plant, and contributions from the recently acquired Arkoma Connector Pipeline. The partnership continues to increase its gathering presence in southeast Oklahoma (in the Woodford Shale gathering system), where volumes were up approximately 37.7% to 389,100 thousand cubic feet per day (Mcf/d).

MarkWest’s Northeast segment’s operating profit slumped to $16.2 million, as against $24.9 million in the year-earlier quarter. The third quarter results suffered from a 2.8% drop in natural gas processed in the Appalachia area and a 6.9% decline in fee-based crude oil transportation. Additionally, lower commodity prices realized on NGL sales from the Appalachia region adversely affected the segment profitability.

Operating income from the Gulf Coast segment was down 49.0% year over year to $11.9 million, mainly due to steep decline in NGL prices.

Finally, MarkWest’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $3.7 million.

Capital Expenditure & Balance Sheet
During the quarter, MarkWest spent approximately $66.9 million on growth capital projects (including equity investments), a decrease of $120.4 million, compared to the year-ago period. As of September 30, 2009, the partnership had long-term debt of approximately $1.2 billion, representing a debt-to-capitalization ratio of about 45.4%.

Looking forward, management guided towards DCF of approximately $170 – $180 million for 2009. MarkWest’s capital plan for the year includes approximately $155 million of capital expenditures for growth projects, plus $5 million to $10 million for maintenance capital. For 2010, the partnership is expected to generate DCF in the $170 – $210 million. Growth capital expenditure is likely to be $300 million, while maintenance capital for 2010 is currently forecasted in a range of $10 – $15 million.
Read the full analyst report on “MWE”
Zacks Investment Research