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MarkWest Energy Partners LP Q2 2010 Earnings Call Transcript

MarkWest Energy Partners LP Q2 2010 Earnings Call Transcript

MarkWest Energy Partners LP (MWE)

Q2 2010 Earnings Call

August 10, 2010 04:00 am ET

Executives

TST Recommends

Dan Campbell - VP of Finance and Treasurer

Frank Semple - Chairman, President and CEO

Analysts

Michael Blum - Wells Fargo Securities

Xin Luo - JPMorgan

John Edwards - Morgan Keegan

Sean Wells - RBC Capital Markets

Teresa Fox - Stone Harbor Investment Partners

Presentation

Operator

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Previous Statements by MWE
» MarkWest Energy Partners LP Q1 2010 Earnings Call Transcript
» MarkWest Energy Partners LP Q4 2009 Earnings Call Transcript
» MarkWest Energy Partners LP Q3 2009 Earnings Call Transcript

Welcome to the MarkWest Energy Partners second quarter 2010 earnings conference call. (Operator Instructions) I will now like to turn the call over to Dan Campbell.

Dan Campbell

Thank you, (Tammy) and welcome, everyone, 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 that we file with the SEC. And 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'll 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, which was highlighted by the strong performance of our core assets, the continued ramp up of our Marcellus operation and our financing activities which resulted in a significant increase in our liquidity and also an upgrade to our credit ratings.

Our year-over-year gathering volumes increased by approximately 12% which is significant, given the fairly depressed gas price environment during that period, and also the continued flattening of the forward price curve. Thanks to the success of our producer customers, we had a quality set of expansion projects nearing completion that will drive future cash flow and distribution growth.

Our overall performance was a direct result of the strength and diversity of our operations in some of the best resource plays in the U.S. Over the past three-and-a-half years more than 70% of the $1.7 billion we and our partners have invested have been focused on strategic expansions together, and process gas from the Marcellus, the Woodford, the Granite Wash and Haynesville plays.

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 more detailed review of our balance sheet and our guidance. We'll then respond to your questions.

Now, beginning with our financial performance, distributable cash flow during the second quarter was $53 million, adjusted EBITDA was $73 million and segment operating income was $102 million. In July, we announced the second quarter distribution of $0.64 per common unit, which results in a distribution coverage ratio of 1.16 times for the quarter and 1.28 times for the first six months of 2010.

Our second quarter Bcf was $11 million less than the first quarter, due to the normal storage requirements for our northeast propane business and lower NGL prices. Ethane was the product most affected, and there has been a lot of industry discussion regarding ethane supplies and prices.

We agree with most industry experts that ethane prices will likely stay depressed in the near term, with a continued recovery from the global recession. And a significant advantage of U.S. ethylene crackers bodes well for the future prospects of domestic ethane producers. It's also worth noting that over the last month propane and heavier NGL prices are showing signs of recovery.

Even with the impact of lower NGL prices and seasonal propane storage, we were still able to produce solid financial results. And significantly improve our liquidity through financing activities, while maintaining a strong coverage ratio for the quarter.

Now I'll spend a couple of minutes giving a brief overview of each of our operating areas starting in Southeastern Oklahoma. Our Woodford gathering volumes during the second quarter of 2010 increased significantly to an average of 539 million cubic feet per day, an increase of nearly 34% year-over-year and 9% from the first quarter of 2010.

Based on public information and our close working relationships with our producer customers, we expect gathering volumes in the Woodford to remain relatively flat over the remainder of 2010. Similar to the Woodford volumes, The Arkoma Connector Pipeline throughput during the second quarter increased to an average of 388 million cubic feet per day, an increase of more than 8% compared to the first quarter of 2010.

In our western Oklahoma operating area, which includes both our Foss Lake and Granite Wash system, gathering volumes during the second quarter of 2010 averaged 185 million cubic feet a day, a decrease of approximately 5% year-over-year and 8% when compared to the first quarter.

While we are experiencing reduced drilling activity at Foss Lake due to the current price environment, the Granite Wash drilling activity remains very strong, as we feel emphasized in their recent earnings call, the Granite Wash is their highest return gas play, and they plan to run forward for the balance of 2010 with a specific focus on the very rich (Marbetton) formation.

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