MarkWest Energy CEO Discusses Q3 2010 Results – Earnings Call Transcript

MarkWest Energy Partners L.P. (

MWE

)

Q3 2010 Earnings Call Transcript

November 9, 2010 4:00 pm ET

Executives

Dan Campbell – VP, Finance & Treasurer

Frank Semple – Chairman, President & CEO

Randy Nickerson – SVP & CCO

Analysts

Noah Lerner – Hartz Capital

Michael Blum – Wells Fargo Securities

Selman Akyol – Stifel Nicolaus

Louis Shamie – Zimmer Lucas Partners

Presentation

Operator

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» MarkWest Energy Partners LP Q3 2009 Earnings Call Transcript

Welcome to the MarkWest Energy Partners Third Quarter 2010 Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session of today’s conference. This call is being recorded. If you have any objections, please disconnect at this time.

I will now turn the call over to Dan Campbell. Thank you. Sir, you may begin.

Dan Campbell

Thank you, Sarah, and welcome to everyone who have joined us today on the call. Our comments today will include forward-looking statements, which involve risks and uncertainties and are not guarantees of future performance. Actual results could vary significantly from those expressed or implied in such statements. Although we believe that the expectations expressed today are reasonable, we can give no assurance that the expectations will prove to be correct and we caution you that projected performance or distributions may not be achieved. Factors that could cause actual results to differ materially from their expectations are included in the periodic reports that we file with the SEC. We encourage you to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading Risk Factors.

With that, I’ll turn the call over to Frank Semple, our Chairman, President, and CEO.

Frank Semple

Thanks, Dan. Good afternoon, and thanks to everyone for joining us on the call today. As indicated in our earnings release, we had another solid quarter that was highlighted by the strong performance of our core assets, the continued ramp up of our Marcellus operations, and the execution of financing activities that provided additional long-term liquidity.

Our year-over-year gathering volumes increased by nearly 20% in spite of the continuing low gas prices and flattening forward price curve. In addition, we reached a significant milestone by bringing online our Majorsville, West Virginia processing complex that serve our Marcellus producer customers.

During the call today, I’ll give a quick overview of our financial performance, provide a commercial and operational update and then conclude with a review of our balance sheet and our guidance. We’ll then respond to your questions.

Beginning with our financial performance, distributable cash flow during the third quarter was $55 million, adjusted EBITDA was $84 million and segment operating income was $107 million.

In October, we announced a third quarter distribution of $0.64 per common unit, which results in a distribution coverage ratio of 1.2 times for the quarter and 1.25 times for the first nine months of 2010. The growth capital we have been investing is beginning to generate solid cash flow and we are in a great position to begin sustainable distribution growth in early 2011.

Moving to the operational update; we continue to focus on growing our assets and liquids rich resource plays that provide superior economics for the producers. This strategy continues to provide significant growth opportunities and we are well positioned to capitalize on the strengthening NGL markets.

In our Western Oklahoma operating area, which includes both our Foss Lake and Granite Wash systems gathering volumes during the third quarter of 2010 averaged 184 million cubic feet per day, an increase of approximately 3% year-over-year and flat when compared to the second quarter of 2010.

While we are experiencing the reduced drilling activity at Foss Lake due to the current price environment, the Granite Wash drilling activity remains strong. As Newfield emphasized in the recent earnings call, the Granite Wash generates superior economics and they plan to continue running four rigs with a specific focus on the very rich Marmaton formation.

In Southeastern Oklahoma, our Woodford gathering volume during the third quarter averaged 536 million cubic feet per day, an increase of nearly 40% year-over-year and relatively flat compared to the second quarter of 2010.

Based on public information and the current forward price curve for natural gas, we expect gathering volumes in the Woodford to decrease modestly in the fourth quarter of this year and into 2011. Producers remain committed to this very economic resource play and they continue to drill with the specific priority on the rich gas acreage.

In our Carthage system in East Texas, gathering volumes during the third quarter averaged 433 million cubic feet per day. This is a decrease of approximately 5% year-over-year, and relatively flat compared to the second quarter.

The Haynesville production in our East Texas system exceeds 50 million cubic feet per day, an increase of approximately 60% since the beginning of this year. Looking ahead, Haynesville development continues to be the emphasis for the producers and we expect overall volumes in East Texas to remain relatively flat in 2011.

Our Javelina plant in Corpus Christi continues to perform well and product volumes in the third quarter were slightly higher than those in the second quarter. Javelina is a key part of our operations and provides important diversity and additional stability to our cash flows. It has also served as an important platform for discussions with producers regarding field level gathering and fractionation opportunities in the rich area of the Eagle Ford Shale.

Now, let’s move to the Appalachian region, where we divide our operations into two financial reporting segments. The first is our Northeast business segment, which includes four processing facilities in Kentucky and West Virginia, as well as our Siloam fractionation and marketing complex that we’ve operated for more than 20 years.

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