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MarkWest Energy Partners Reports Third Quarter Financial Results; Places Into Service Three Major Facilities; Announces Additional Midstream Infrastructure Project In The Marcellus Shale

Stocks in this article: MWE

For 2013, the Partnership forecasts DCF in a range of $475 million to $485 million based on its current forecast of operational volumes, expected impact of short-term operational constraints and prices for crude oil, natural gas, natural gas liquids and derivative instruments currently outstanding.

The Partnership’s portion of growth capital expenditures for 2013 has increased to a range of $2.0 billion to $2.3 billion primarily due to the addition of announced expansion projects and an acceleration of spending on other projects in the Marcellus and Utica segments. These expenditures do not include the Granite Wash Acquisition or the divestiture of the high-pressure gathering system in the Marcellus Shale during the second quarter 2013. Maintenance capital is forecasted at approximately $20 million.

2014 DCF AND GROWTH CAPITAL EXPENDITURE FORECAST

For 2014, the Partnership forecasts DCF in a range of $600 million to $690 million based on its current forecast of operational volumes and prices for crude oil, natural gas, natural gas liquids and derivative instruments currently outstanding. A commodity price sensitivity analysis for forecasted 2014 DCF is provided within the tables of this press release.

The Partnership’s portion of growth capital expenditures for 2014 is forecasted in a range of $1.8 billion to $2.3 billion. Maintenance capital is forecasted at approximately $25 million.

CONFERENCE CALL

The Partnership will host a conference call and webcast on Wednesday, November 13, 2013, at 12:00 p.m. Eastern Time to review its third quarter 2013 financial results. Interested parties can participate in the call by dialing (800) 475-0218 (passcode “MarkWest”) approximately ten minutes prior to the scheduled start time. To access the webcast, please visit the Investor Relations section of the Partnership’s website at www.markwest.com. A replay of the conference call will be available on the MarkWest website or by dialing (800) 926-7934 (no passcode required).

MarkWest Energy Partners, L.P. is a master limited partnership engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of natural gas liquids; and the gathering and transportation of crude oil. MarkWest has a leading presence in many unconventional gas plays including the Marcellus Shale, Utica Shale, Huron/Berea Shale, Haynesville Shale, Woodford Shale and Granite Wash formation.

This press release includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. Although MarkWest believes that the expectations reflected in the forward-looking statements are reasonable, MarkWest can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission (SEC). Among the factors that could cause results to differ materially are those risks discussed in the periodic reports filed with the SEC, including MarkWest’s Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” MarkWest does not undertake any duty to update any forward-looking statement except as required by law.

       
MarkWest Energy Partners, L.P.
Financial Statistics
(unaudited, in thousands, except per unit data)
 
Three months ended September 30, Nine months ended September 30,
Statement of Operations Data 2013 2012 2013 2012
Revenue:
Revenue $ 450,834 $ 316,976 $ 1,219,713 $ 1,019,709
Derivative (loss) gain   (30,318 )   (36,400 )   (10,804 )   50,952  
Total revenue   420,516     280,576     1,208,909     1,070,661  
 
Operating expenses:
Purchased product costs 191,672 119,369 499,588 386,655
Derivative loss (gain) related to purchased product costs 20,234 11,643 (10,902 ) (21,136 )
Facility expenses 77,542 52,883 199,849 149,438
Derivative loss related to facility expenses 2,332 4,028 2,800 1,136
Selling, general and administrative expenses 26,647 21,723 77,388 68,471
Depreciation 76,323 46,554 215,902 127,472
Amortization of intangible assets 16,003 14,988 47,925 38,280
Loss (gain) on sale or disposal of property, plant and equipment 1,840 655 (35,758 ) 2,983
Accretion of asset retirement obligations   160     140     669     536  
Total operating expenses   412,753     271,983     997,461     753,835  
 
Income from operations 7,763 8,593 211,448 316,826
 
Other income (expense):
Equity in earnings from unconsolidated affiliates 896 706 1,561 2,254
Interest income 27 64 238 295
Interest expense (38,889 ) (30,621 ) (114,180 ) (86,855 )
Amortization of deferred financing costs and discount (a component of interest expense) (1,584 ) (1,428 ) (5,198 ) (3,943 )
Loss on redemption of debt - - (38,455 ) -
Miscellaneous income, net   1,504     1     1,510     63  
(Loss) income before provision for income tax (30,283 ) (22,685 ) 56,924 228,640
 
Provision for income tax (benefit) expense:
Current (2,344 ) (17,948 ) (10,503 ) 2,202
Deferred   (7,912 )   10,528     23,087     39,396  
Total provision for income tax   (10,256 )   (7,420 )   12,584     41,598  
 
Net (loss) income (20,027 ) (15,265 ) 44,340 187,042
 
Net (loss) income attributable to non-controlling interest (3,577 ) 925 297 1,546
       
Net (loss) income attributable to the Partnership's unitholders $ (23,604 ) $ (14,340 ) $ 44,637   $ 188,588  
 
Net (loss) income attributable to the Partnership's common unitholders per common unit:
Basic $ (0.17 ) $ (0.13 ) $ 0.32   $ 1.77  
Diluted $ (0.17 ) $ (0.13 ) $ 0.29   $ 1.49  
 
Weighted average number of outstanding common units:
Basic   142,352     113,994     134,115     105,916  
Diluted   142,352     113,994     153,455     126,595  
 
Cash Flow Data
Net cash flow provided by (used in):
Operating activities $ 153,063 $ 132,163 $ 330,659 $ 385,784
Investing activities $ (751,286 ) $ (658,635 ) $ (2,186,307 ) $ (1,745,749 )
Financing activities $ 571,822 $ 816,452 $ 1,838,045 $ 1,657,986
 
Other Financial Data
Distributable cash flow $ 117,897 $ 104,289 $ 356,113 $ 304,950
Adjusted EBITDA $ 153,936 $ 115,531 $ 450,477 $ 390,515
 
 
Balance Sheet Data September 30, 2013 December 31, 2012
Working capital $ (263,896 ) $ (84,512 )
Total assets 8,917,716 6,728,362
Total debt 3,022,887 2,523,051
Total equity 4,150,443 3,111,398
 
       
MarkWest Energy Partners, L.P.
Operating Statistics
 
Three months ended September 30, Nine months ended September 30,
2013 2012

2013

2012
Marcellus
Gathering system throughput (Mcf/d) (1) 563,200 444,700 617,200 373,700
Natural gas processed (Mcf/d) 1,137,400 479,400 1,000,900 424,300
NGLs fractionated (Bbl/d) 48,200 22,300 44,500 20,700
NGL sales (gallons, in thousands) (2) 229,900 90,800 536,100 264,200
 
Utica (3)
Gathering system throughput (Mcf/d) 85,100 N/A 47,100 N/A
Natural gas processed (Mcf/d) 131,100 N/A 62,200 N/A
 
Northeast
Natural gas processed (Mcf/d) 297,800 318,500 298,900 322,800
NGLs fractionated (Bbl/d) 21,500 16,500 18,900 16,800
 
Keep-whole sales (gallons, in thousands) 28,200 23,200 92,600 96,500
Percent-of-proceeds sales (gallons, in thousands) 34,700 33,700 101,800 103,500
Total NGL sales (gallons, in thousands) (4) 62,900 56,900 194,400 200,000
 
Crude oil transported for a fee (Bbl/d) 9,400 8,700 9,800 9,100
 
Southwest
East Texas gathering systems throughput (Mcf/d) 494,300 471,200 505,000 440,700
East Texas natural gas processed (Mcf/d) 345,400 270,200 354,200 260,400
East Texas NGL sales (gallons, in thousands) (5) 78,500 67,800 249,300 199,300
 
Western Oklahoma gathering system throughput (Mcf/d) (6) 262,000 227,900 228,400 247,300
Western Oklahoma natural gas processed (Mcf/d) 218,500 209,600 198,400 210,800
Western Oklahoma NGL sales (gallons, in thousands) 64,400 50,900 162,200 169,900
 
Southeast Oklahoma gathering system throughput (Mcf/d) 444,200 484,400 459,500 496,200
Southeast Oklahoma natural gas processed (Mcf/d) (7) 156,700 128,600 156,100 116,700
Southeast Oklahoma NGL sales (gallons, in thousands) 44,000 46,700 137,300 121,000
 
Other Southwest gathering system throughput (Mcf/d) (8) 33,000 23,600 31,200 25,000
 
Gulf Coast refinery off-gas processed (Mcf/d) 117,100 123,800 110,100 120,000
Gulf Coast liquids fractionated (Bbl/d) 21,400 23,800 20,300 23,000
Gulf Coast NGL sales (gallons excluding hydrogen, in thousands) 82,800 92,100 232,500 264,400
 
(1)     Gathered volumes reflect the first full quarter following the sale of the Sherwood gathering assets in the 2nd quarter of 2013.
(2) Includes sale of all purity products fractionated at the Marcellus facilities and the sale of all unfractionated NGLs.
(3) Utica operations began in August 2012.
(4) Represents sales at the Siloam fractionator. The total sales exclude approximately 21,000,000 gallons, 595,000 gallons, 27,900,000 gallons, and 975,000 gallons sold by the Northeast on behalf of Marcellus for the three months and nine months ended September 30, 2013 and 2012, respectively. These volumes are included as part of NGLs sold at Marcellus.
(5) Includes approximately 1,390,000 gallons and 13,700,000 gallons processed in conjunction with take in kind contracts for the three and nine months ended September 30, 2013, respectively.
(6) Includes natural gas gathered in Western Oklahoma and from the Granite Wash formation in the Texas Panhandle as management considers this one integrated area of operations.
(7) The natural gas processing in Southeast Oklahoma is outsourced to Centrahoma or other third-party processors.
(8) Excludes lateral pipelines where revenue is not based on throughput.
 
         
MarkWest Energy Partners, L.P.
Reconciliation of GAAP Financial Measure to Non-GAAP Financial Measure
Operating Income before Items not Allocated to Segments
(unaudited, in thousands)
 
Three months ended September 30, 2013 Marcellus Utica Northeast Southwest Total
Segment revenue $ 147,290 $ 8,373 $ 48,829 $ 247,885 $ 452,377
 
Operating expenses:
Purchased product costs 36,995 - 15,330 139,347 191,672
Facility expenses   29,621     9,858     7,359     32,559     79,397  
Total operating expenses before items not allocated to segments 66,616 9,858 22,689 171,906 271,069
 
Portion of operating (loss) income attributable to non-controlling interests   -     (599 )   -     40     (559 )
Operating income (loss) before items not allocated to segments $ 80,674   $ (886 ) $ 26,140   $ 75,939   $ 181,867  
 
 
Three months ended September 30, 2012 Marcellus Utica Northeast Southwest Total
Segment revenue $ 78,707 $ 145 $ 39,987 $ 199,394 $ 318,233
 
Operating expenses:
Purchased product costs 16,203 - 11,054 92,112 119,369
Facility expenses   18,933     1,308     6,267     28,870     55,378  
Total operating expenses before items not allocated to segments 35,136 1,308 17,321 120,982 174,747
 
Portion of operating (loss) income attributable to non-controlling interests   -     (627 )   -     67     (560 )
Operating income (loss) before items not allocated to segments $ 43,571   $ (536 ) $ 22,666   $ 78,345   $ 144,046  
 
 
Three months ended September 30,
2013 2012
 
Operating income before items not allocated to segments $ 181,867 $ 144,046
Portion of operating loss attributable to non-controlling interests (559 ) (560 )
Derivative loss not allocated to segments (52,884 ) (52,071 )
Revenue deferral adjustment and other (1,543 ) (1,257 )
Compensation expense included in facility expenses not allocated to segments (833 ) (193 )
Facility expenses adjustments 2,688 2,688
Selling, general and administrative expenses (26,647 ) (21,723 )
Depreciation (76,323 ) (46,554 )
Amortization of intangible assets (16,003 ) (14,988 )
Loss on disposal of property, plant and equipment (1,840 ) (655 )
Accretion of asset retirement obligations   (160 )   (140 )
Income from operations 7,763 8,593
Other income (expense):
Earnings from unconsolidated affiliates 896 706
Interest income 27 64
Interest expense (38,889 ) (30,621 )
Amortization of deferred financing costs and discount (a component of interest expense) (1,584 ) (1,428 )
Miscellaneous income, net   1,504     1  
Income before provision for income tax $ (30,283 ) $ (22,685 )
 

 

 

 
MarkWest Energy Partners, L.P.
Reconciliation of GAAP Financial Measure to Non-GAAP Financial Measure
Operating Income before Items not Allocated to Segments
(unaudited, in thousands)
 
Nine months ended September 30, 2013 Marcellus Utica Northeast Southwest Total
Segment revenue $ 375,844 $ 12,590 $ 151,530 $ 684,093 $ 1,224,057
 
Operating expenses:
Purchased product costs 72,781 - 50,118 376,689 499,588
Facility expenses   74,529     20,232     20,538     91,027     206,326  
Total operating expenses before items not allocated to segments 147,310 20,232 70,656 467,716 705,914
 
Portion of operating (loss) income attributable to non-controlling interests   -     (3,081 )   -     157     (2,924 )
Operating income (loss) before items not allocated to segments $ 228,534   $ (4,561 ) $ 80,874   $ 216,220   $ 521,067  
 
 
Nine months ended September 30, 2012 Marcellus Utica Northeast Southwest Total
Segment revenue $ 213,761 $ 145 $ 168,956 $ 641,321 $ 1,024,183
 
Operating expenses:
Purchased product costs 48,856 - 49,662 288,137 386,655
Facility expenses   44,544     1,591     17,577     92,964     156,676  
Total operating expenses before items not allocated to segments 93,400 1,591 67,239 381,101 543,331
 
Portion of operating (loss) income attributable to non-controlling interests   -     (740 )   -     98     (642 )
Operating income (loss) before items not allocated to segments $ 120,361   $ (706 ) $ 101,717   $ 260,122   $ 481,494  
 
 

Nine months ended September 30,

2013 2012
 
Operating income before items not allocated to segments $ 521,067 $ 481,494
Portion of operating loss attributable to non-controlling interests (2,924 ) (642 )
Derivative (loss) gain not allocated to segments (2,702 ) 70,952
Revenue deferral adjustment and other (4,344 ) (4,474 )
Compensation expense included in facility expenses not allocated to segments (1,587 ) (826 )
Facility expenses adjustments 8,064 8,064
Selling, general and administrative expenses (77,388 ) (68,471 )
Depreciation (215,902 ) (127,472 )
Amortization of intangible assets (47,925 ) (38,280 )
Gain (loss) on disposal of property, plant and equipment 35,758 (2,983 )
Accretion of asset retirement obligations   (669 )   (536 )
Income from operations 211,448

 

316,826
Other income (expense):
Earnings from unconsolidated affiliates 1,561 2,254
Interest income 238 295
Interest expense (114,180 ) (86,855 )
Amortization of deferred financing costs and discount (a component of interest expense) (5,198 ) (3,943 )
Loss on redemption of debt (38,455 ) -
Miscellaneous income, net   1,510     63  
Income before provision for income tax $ 56,924   $ 228,640  
 

 

       
Reconciliation of GAAP Financial Measure to Non-GAAP Financial Measure
Distributable Cash Flow
(unaudited, in thousands)
 
Three months ended September 30, Nine months ended September 30,
2013 2012

2013

2012

 

 

 

 

Net income $ (20,027 ) $ (15,265 ) $ 44,340 $ 187,042
Depreciation, amortization and other non-cash operating expenses 92,564 61,761 264,730 166,522
Loss (gain) on sale and or disposal of assets, net of tax 1,840 655 (32,711 ) 2,983
Loss on redemption of debt, net of tax benefit - - 36,178 -
Amortization of deferred financing costs and discount 1,584 1,428 5,198 3,943
Non-cash earnings from unconsolidated affiliates (896 ) (706 ) (1,561 ) (2,254 )
Distributions from unconsolidated affiliates 2,224 2,058 4,952 6,624
Non-cash compensation expense 1,924 981 5,464 6,271
Non-cash derivative activity 47,542 43,712 1,222 (101,815 )
Provision for income tax - deferred (7,912 ) 10,528 23,087 39,396
Cash adjustment for non-controlling interest of consolidated subsidiaries 1,183 787 4,672 1,391
Revenue deferral adjustment 1,754 1,635 5,164 5,604
Other 2,887 549 7,753 3,067
Maintenance capital expenditures, net of joint venture partner contributions   (6,770 )   (3,834 )   (12,375 )   (13,824 )
Distributable cash flow $ 117,897   $ 104,289   $ 356,113   $ 304,950  
 
Maintenance capital expenditures $ 6,770 $ 3,834 $ 12,375 $ 13,824
Growth capital expenditures   734,865     654,891     2,164,344     1,225,881  
Total capital expenditures 741,635 658,725 2,176,719 1,239,705
Acquisitions, net of cash acquired   -     -     225,210     506,797  
Total capital expenditures and acquisitions 741,635 658,725 2,401,929 1,746,502
Joint venture partner contributions   (91,163 )   (55,000 )   (716,982 )   (55,000 )
Total capital expenditures and acquisitions, net $ 650,472   $ 603,725   $ 1,684,947   $ 1,691,502  
 
Distributable cash flow $ 117,897 $ 104,289 $ 356,113 $ 304,950
Maintenance capital expenditures, net of joint venture partner contributions 6,770 3,834 12,375 13,824
Changes in receivables and other assets (6,969 ) (85,658 ) (74,470 ) 26,296
Changes in accounts payable, accrued liabilities and other long-term liabilities 38,504 110,658 48,557 45,468
Cash adjustment for non-controlling interest of consolidated subsidiaries (1,183 ) (787 ) (4,672 ) (1,391 )
Other   (1,956 )   (173 )   (7,244 )   (3,363 )
Net cash provided by operating activities $ 153,063   $ 132,163   $ 330,659   $ 385,784  
 
       
MarkWest Energy Partners, L.P.
Reconciliation of GAAP Financial Measure to Non-GAAP Financial Measure
Adjusted EBITDA
(unaudited, in thousands)
 
Three months ended September 30, Nine months ended September 30,
2013 2012 2013 2012
 
Net income $ (20,027 ) $ (15,265 ) $ 44,340 $ 187,042
Non-cash compensation expense 1,924 981 5,464 6,271
Non-cash derivative activity 47,542 43,712 1,222 (101,815 )
Interest expense (1) 38,356 29,882 112,988 84,260
Depreciation, amortization and other non-cash operating expenses 92,564 61,761 264,730 166,522
Loss (gain) on sale and or disposal of assets 1,840 655 (35,758 ) 2,983
Loss on redemption of debt - - 38,455 -
Provision for income tax (10,256 ) (7,420 ) 12,584 41,598
Adjustment for cash flow from unconsolidated affiliate 1,328 1,352 3,391 4,370
Other   665     (127 )   3,061     (716 )
Adjusted EBITDA $ 153,936   $ 115,531   $ 450,477   $ 390,515  
 
(1)     Includes amortization of deferred financing costs and discount, and excludes interest expense related to the Steam Methane Reformer.
 

MarkWest Energy Partners, L.P. Distributable Cash Flow Sensitivity Analysis( unaudited, in millions)

MarkWest periodically estimates the effect on DCF resulting from its commodity risk management program, changes in crude oil and natural gas prices, and the ratio of NGL prices to crude oil. The table below reflects MarkWest’s estimate of the range of DCF for 2014 and forecasted crude oil and natural gas prices for 2014. The analysis assumes various combinations of crude oil and natural gas prices as well as three NGL-to-crude oil ratio scenarios, including:

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