On Feb 26, 2014, natural gas processor and distributor, MarkWest Energy Partners LP (MWE), reported weak fourth-quarter 2013 earnings, after the closing bell. Significant hike in operating expenses hampered the results. The soft results were also reflected in the 3.2% fall in the per unit price of the partnership on the next trading day.
MarkWest Energy’s earnings – excluding mark-to-market derivative activity, compensation expense and asset sale adjustments – came in at approximately 10 cents per unit, missing the Zacks Consensus Estimate of 22 cents per unit. Earnings were also lower than the year-ago adjusted earnings per unit of 24 cents.
Revenues of $453.5 million were up approximately 22.9% from the fourth quarter of 2012. The top line also surpassed the Zacks Consensus Estimate of $452.0 million. Considerably higher natural gas processing volume owing to strong results from the Marcellus segment favored the results.
For the year ended Dec 31, 2013, MarkWest Energy reported income (excluding non-operating items) of 44 cents per unit down from year-ago adjusted profit of $1.01. Revenues were recorded at $1.7 billion against the year-ago number of $1.4 billion.
Distributable Cash Flow
During the reported quarter, MarkWest Energy generated distributable cash flow (DCF) – an indicator of cash paid out for distribution to unitholders – of $127.2 million, 13.8% higher than the prior-year quarter level of $111.8 million, providing 0.94x distribution coverage.
Business Units Performance
Southwest: With regard to business units, the Southwest segment’s operating income decreased 7.9% from the year-ago level to $66.4 million. The results mainly reflect a significant increase in operating expenses, partially offset by volume expansion.
Northeast: The segment’s operating profit of $29.8 million was down 5.6% from last year’s income of $31.6 million. Lower processing volume of natural gas during the quarter affected the results.
Marcellus: This segment (the partnership’s Marcellus Shale joint venture) reported a profit of $89.5 million, up 49.9% from $59.7 million in the year-earlier quarter. Significant improvement in natural gas processing volume aided the results.
Utica: Operating loss from MarkWest Energy’s newest segment – Utica – was $0.6 million, narrower than the year-ago loss of $1.3 million.
Operating Cost
The partnership report operating expenses of roughly $419.0 million, reflecting a significant increase of 36.2% from $307.7 million reported in the year-ago quarter.
Capital Expenditure & Balance Sheet
During the fourth quarter, MarkWest Energy spent approximately $864.6 million on growth capital projects, up from $709.1 million a year ago. MarkWest Energy added that in wholly owned subsidiaries, the partnership had roughly $80.0 million of cash and cash equivalents. Total outstanding debt came at approximately $3.0 billion, representing a debt-to-capitalization ratio of about 38.7%.
Guidance
Management reaffirms its projected DCF of $600.0–$690.0 million for 2014, taking into consideration the forecasted volume and commodity prices. MarkWest Energy maintains its projected 2014 growth capital spending in the band of $1.8–$2.3 billion and maintenance capital expenditure at $25.0 million.
Zacks Rank
The partnership currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at better-ranked players in the oil and production pipeline sectors like Magellan Midstream Partners LP (MMP), NuStar Energy LP (NS) and Crestwood Equity Partners LP (CEQP). All the partnerships sport a Zacks Rank #2 (Buy).
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