Pipeline operator MarkWest Energy Partners L.P. (MWE) generated profit per unit (excluding marked-to-market derivative loss and compensation expense) of 46 cents in the second quarter of 2011, breezing past the Zacks Consensus Estimate of 37 cents. The results improved significantly from 3 cents per unit earned on an adjusted basis in the year-earlier quarter.
Quarterly revenue came in at $400.4 million, up 23.6% from second quarter 2010 and ahead of our projection of $373.0 million. The quarter’s performance was buoyed by robust activities in Foss Lake and Northeast regions along with lower operating expenses at Gulf Coast.
The partnership recorded adjusted earnings before income, tax, depreciation and amortization (EBITDA) of $120.0 million, as against $72.7 million in the prior-year quarter.
Quarterly Cash Distribution
Recently, MarkWest raised its second quarter cash distribution to 70 cents per unit ($2.80 per unit annualized), representing an increase of approximately 4.5% sequentially and 9.4% year over year. The partnership’s new distribution will be paid on August 12 to unitholders of record on August 1, 2011.
Distributable Cash Flow
During the quarter, MarkWest generated distributable cash flow (DCF) of $82.9 million, up from $52.9 million in the prior-year quarter, providing 1.50x distribution coverage.
Business Units
With respect to business units, operating income from Southwest increased 34.6% from the year-ago level to $84.4 million, attributable to higher commodity prices, greater throughput in the Stiles Ranch gathering system, and higher product sales at Arapaho. These were partially offset by lower gathering systems volumes from East Texas and reduced throughput from the Arkoma Connector Pipeline.
The operating profit in Northeast was $31.0 million, up from $19.5 million in the prior-year quarter, attributable to a 59.9% jump in natural gas processed in the Appalachian region. However, natural gas liquids (NGL) product sales dropped 11.1% year over year.
The Liberty unit’s (the partnership’s Marcellus Shale joint venture) operating income leaped 116.2% year over year to $16.0 million on the back of increased natural gas processed (up 157.1%) and improved NGL product sales (up 115.9%).
The Gulf Coast unit witnessed a 31.2% year-over-year growth in operating profit to $16.4 million.
Capital Expenditure & Balance Sheet
During the quarter, MarkWest incurred total capital expenditure of approximately $101.6 million. As of June 30, 2011, the partnership had cash and cash equivalents of $71.6 million and total debt of approximately $1.58 billion, representing a debt-to-capitalization ratio of about 50.0%.
Guidance
Management raised its 2011 DCF guidance to the range of $300–$330 million from the previous outlook of $280–$320 million.
MarkWest’s growth capital expenditures for the year comprise approximately $675–$700 million, while maintenance spending will be approximately $15 million.
Our Recommendation
We appreciate MarkWest’s high-quality and diverse portfolio of midstream assets that generate stable and recurring growth through long-term fee-based contracts. The partnership has generous prospects in the Marcellus Shale and is favorably positioned to expand infrastructure facilities.
We also expect the partnership to sustain its proven track record of supporting producers in the development of shale plays and steady improvement in liquidity/cash flow position. MarkWest competes with other industry players such as Sunoco Logistics Partners L.P. (SXL) and ONEOK Partners, L.P. (OKS). As such, we view MarkWest units as an attractive investment and maintain our long-term Outperform rating.
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