MarkWest Energy Partners LP Q1 2010 Earnings Call Transcript

MarkWest Energy Partners LP Q1 2010 Earnings Call Transcript
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MarkWest Energy Partners LP (MWE)

Q1 2010 Earnings Call

May 11, 2010 4:00 p.m. ET


Dan Campbell - VP, Finance and Treasurer

Frank Semple - Chairman, President and CEO



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Good afternoon. Welcome to the MarkWest Energy Partners first 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, everyone, to those who have joined us on the call today. Our comments will include forward-looking statements which involve risk and uncertainties and are not guarantees of future performance. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties.

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 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.

And with that, I will turn the call over to Frank Semple, our Chairman, President and CEO.

Frank Semple

Good afternoon and thanks to everyone for joining us on the call today. As indicated in our earnings release, we had another solid quarter and we continue to demonstrate strong financial and operational performance as we expand our footprint in several of the most economic resource plays in the US.

During the call today I will briefly review our financial performance, provide a commercial and operational update and conclude with a brief review of our increased guidance.

Now, beginning with our financial performance, distributable cash flow was $64 million, adjusted EBITDA was $89 and segment operating income was $129 million. In mid-April we announced a first quarter distribution of $0.64 per common unit, which results in a coverage ratio of 1.4 times.

So we're off to a great start in 2010 driven by a combination of strong margins and a continued ramp up of volumes from our organic growth projects.

Over the past 18 months we continued to pursue our growth strategy despite challenging economic conditions. During a period of time when the industry was cutting capital, we pursued the opportunity to create a first maneuver advantage in the Marcellus shale.

Maintaining this level of growth during a period of volatility required some very tough decisions such as completing capital market transactions, joint ventures and divestitures of non-core assets. However, our continued investment in these high-quality projects has positioned us to generate cash flow that will support our long-term growth objective which is to provide superior and sustainable distribution growth.

Over the past three years, approximately 70% of the $1.4 billion we have invested in growth capital has been focused on midstream infrastructure in the Marcellus, Woodford, Granite Wash and Haynesville resource plays where producer economics are very compelling.

Many of these plays have significant [EGO]- rich production in the areas in which we operate which further improves producer net backs. In addition, our investment during the past few years gives us a competitive advantage because of our established infrastructure, experience and existing customer relationships that we have developed in these growing basins.

In Southeastern Oklahoma, Woodford shale volumes continue to be very strong driven by the completion of new wells that were drilled in 2009. Volumes during the first quarter of 2010 increased to an average of 500 million cubic feet per day, an increase of nearly 20% year-over-year and nearly 10% from the fourth quarter of '09.

More importantly, our producers are reporting that completion costs continue to fall and well productivity continues to increase. [Whitfield] recently announced forecasted average production growth of 20% in 2010 compared to '09 which demonstrates their continued performance improvements in Woodford.

The ARkoma Connector Pipeline volumes during the first quarter increased to an average of 360 million cubic feet per day, an increase of more than 10% compared to the fourth quarter of '09. In our Western Oklahoma operating area we continue to see growth in our Granite Wash system in the Texas panhandle.

In the first quarter of 2010, gas volumes in the Granite Wash increased by nearly 40% compare to the fourth quarter to an average of 116 million cubic feet per day. We connected 19 new wells to our Granite Wash system in 2009 with average initial production rates in excess of 15 million cubic feet per day.

These horizontal wells are being completed in one of several highly productive stacked zones that are prolific throughout Newfield's acreage. Some of these zones are lean while other contain very hydrocarbon rich gas which provides incremental upgrade to economics.

The Granite Wash is providing extremely good results and Newfield has indicated that more than half of their planned wells in this play for the remainder of 2010 will be in the hydrocarbon-rich formations of the field.

In our Carthage system in East Texas, producer continue to carefully manage their capital programs in this challenging gas price environment. Gathering volumes during the first quarter were 430 million cubic feet per day which was a slight decrease from the prior quarter due to a reduction in pipe and drilling.

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