MarkWest Energy Partners, L.P. Management Discusses Q2 2012 Results - Earnings Call Transcript

MarkWest Energy Partners, L.P. (MWE)

Q2 2012 Earnings Call

August 03, 2012 12:00 pm ET

Executives

Joshua Hallenbeck

Frank M. Semple - Chairman of MarkWest Energy GP LLC, Chief Executive Officer of MarkWest Energy GP LLC, President of MarkWest Energy GP LLC, Chief Executive Officer of MarkWest Hydrocarbon and President of MarkWest Hydrocarbon

Randy S. Nickerson - Chief Commercial Officer of Markwest Energy Gp L.L.C. and Senior Vice President of Markwest Energy Gp L L C

John C. Mollenkopf - Chief Operations Officer of MarkWest Energy GP LLC and Senior Vice President of Southwest Business Unit of Markwest Energy GP LLC

Nancy K. Buese - Chief Financial Officer of Markwest Energy GP LLC and Senior Vice President of Markwest Energy GP LLC

Analysts

Cathleen King - BofA Merrill Lynch, Research Division

TJ Schultz - RBC Capital Markets, LLC, Research Division

Louis Shamie

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Heejung Ryoo - Barclays Capital, Research Division

John Edwards - Crédit Suisse AG, Research Division

Presentation

Operator

Welcome, and thank you for standing by for our Second Quarterly Conference Call from MarkWest Energy Partners. [Operator Instructions] Today's conference is being recorded. If anyone has any objections, you may disconnect at this time. Now I'd like to go ahead and turn today's call over to Josh Hallenbeck. Sir, you may begin.

Joshua Hallenbeck

Thank you, Julie, and welcome to those that have joined us on the conference 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 we file with the SEC. We encourage you to carefully review and consider the cautionary statements and other disclosures made in those filings, particularly those under the heading, Risk Factors.

With that, I will turn the call over to Frank Semple, Chairman, President and Chief Executive Officer.

Frank M. Semple

Good morning, and thanks to everyone for joining us on the call today. As indicated in our earnings release, we had another solid quarter. We continue to enjoy strong volume growth and performance from our high-quality Midstream assets despite the challenging natural gas liquids pricing environment.

Our total year-over-year processed volumes have increased 18%, driven largely by our Liberty operations. We continue to focus on our announced organic growth projects including the expansion of our Liberty segment and the completion of the first phase of our Utica projects, which we expect to drive future cash flow and distribution growth for years to come. We continue to maintain a strong balance sheet and remain well positioned to execute on our development plans going forward.

Now during the call today, I'll discuss our financial performance, provide a commercial and operational update, including an update on our Marcellus and Utica growth projects. I'll also discuss the recent press release regarding our new agreement with XTO Energy in the Marcellus and our northeast propane exports.

Due to recent NGL market conditions, I'll take a few minutes to also discuss our view of the supply and demand environment for NGLs and their current pricing. And finally, I'll review our balance sheet and discuss our current 2012 DCF forecast and CapEx guidance. As always, we're going to leave time at the end to respond to your questions.

Now beginning with a high-level overview of our financial performance. Distributable cash flow was $91.2 million during the second quarter, an increase of 10% compared to the second quarter of 2011. Adjusted EBITDA was $130.5 million, and segment operating income was $146.3 million. In July, we announced a second quarter distribution of $0.80 per common unit, an increase of over 14% compared to the second quarter of 2011 while maintaining a distribution coverage ratio of 1.03x.

Now moving to the operational update, we continue to focus on expansion projects in rich gas resource plays, and throughout our discussion today, you'll hear how gas volumes continue to grow in our core areas. So let me begin with our Southwest business unit, which includes Texas and Oklahoma, and contributed 50% of our total segment operating income during the second quarter.

In Western Oklahoma, which includes both our Foss Lake and Granite Wash operations, gathered volumes increased 13% and processed volumes increased almost 40% when compared to the prior-year quarter. Primarily, this was driven by strong performance of our producer customers in the Granite Wash. This increase was supported by the recent expansion of our Arapaho plant in Oklahoma, which is operating near capacity.

In Southeast Oklahoma, gathered volumes remain strong at more than 500 million cubic feet per day. And while gathered volumes were generally flat compared to the first quarter, processed volumes were nearly 120 million cubic feet per day, an 18% increase from the first quarter, and a 9% increase from the second quarter of last year. This significant increase is the result of the recent drilling success of our producer customers including PetroQuest Energy. We expect processed volumes in both Western and Southeast Oklahoma to continue to grow as rich gas wells are brought online and offset the decline of dry gas production in those areas.

In our Carthage system at East Texas, processed volumes increased by 11% compared to the first quarter of this year and 17% compared to the second quarter of last year. Our previously announced 120 million cubic feet per day Carthage expansion is moving forward on budget and ahead of schedule, and we now expect it to come online by the end of this year. This expansion is anchored by new rich gas volumes from the Haynesville Shale, and we expect our processed volumes in East Texas to grow by as much as 20% in 2012, with continued growth in 2013 and beyond.

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