MarkWest Liberty Midstream & Resources L.L.C. – a majority-owned joint venture of pipeline operator MarkWest Energy Partners L.P. (MWE) – announced the signing of a long-term agreement with a subsidiary of Norway’s StatoilHydro ASA (STO) to provide additional natural gas midstream services in the latter’s gas-rich Marcellus shale acreage of northern West Virginia.
MarkWest Liberty is a partnership between MarkWest Energy Partners and energy infrastructure private equity fund The Energy & Minerals Group. MarkWest has a 60% operated interest in the venture (remaining 40% owned by The Energy & Minerals Group) that has been formed to construct and operate natural gas midstream services to support producers in the emerging Marcellus Shale play in western Pennsylvania and West Virginia.
Per the contract, MarkWest Liberty will provide the midstream services at its Majorsville gas processing plant in West Virginia, which is operating near capacity. The company added that it has almost finished an expansion of its cryogenic processing capacity at Majorsville and is assessing the possibilities for other processing expansions in the region to cater to the increasing production of liquids-rich natural gas in northern West Virginia.
The natural gas liquids recovered at the Majorsville plant are linked through a pipeline to MarkWest Liberty’s Houston, Pennsylvania processing complex.
MarkWest expects the deal with Statoil to strengthen its midstream presence in the liquids-rich areas of the Marcellus, apart from bolstering its relationship with Statoil, which is an existing producer-customer of MarkWest Liberty.
Denver, Colorado-based MarkWest Energy, a master limited partnership (“MLP”), is engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids, and the gathering and transportation of crude oil. Over the last few years, the partnership has consolidated its position in the midstream business, achieved through a combination of organic efforts and accretive acquisitions.
However, following the stock’s recent price strength, our long-term total return expectation remains rather muted. While we continue to like MarkWest for its high-quality and diverse portfolio of midstream assets, as well as its proven track record of supporting producers in the growth of shale plays and the steady improvement in its liquidity/cash flow position, we think that the current valuation is fair and adequately reflects the partnership’s future growth prospects.
MarkWest’s core business — natural gas processing — is also faced with a higher degree of commodity price exposure than most MLPs. This is expected to further limit its ability to generate positive earnings surprises in the next few quarters. During this period, we expect the partnership to grow at a somewhat more conservative and sustainable pace.
As such, we expect MarkWest Energy’s growth potential to be restrained with little room for meaningful upside from current levels. Our long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).
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