MarkWest Energy Partners L.P.
) announced the closure of its previously announced public
offering. MarkWest priced the public offering of 9,775,000 common
units at $46.50 a piece, including an over-allotment option for
MARKWEST EGY PT (MWE): Free Stock Analysis
SUNOCO LOGISTIC (SXL): Free Stock Analysis
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The gathering and processing master limited partnership (MLP)
plans to use the net proceeds from this offering - approximately
$437.2 million after the underwriting discount and estimated
offering expenses - to finance capital expenditures associated
with pipeline construction projects and for general partnership
MarkWest currently retains a Zacks #3 Rank (short-term Hold
rating). We are also maintaining our long-term Neutral
recommendation on the unit.
MarkWest owns a high-quality and diverse portfolio of midstream
assets that generate stable and recurring revenues based on
long-term fee-based contracts. Over the last few years, the
partnership has consolidated its position in the midstream
business, achieved through a combination of organic efforts and
With its proven track record of supporting producers in the
development of shale plays, MarkWest is in a great position to
participate in an infrastructure upgrade that will be required
for the development of the leasehold assets.
We believe MarkWest's recent buyout of The Energy & Minerals
Group's 49% interest in the Marcellus shale joint venture project
will be immediately accretive to earnings and cash flows. Both
the firms have also agreed to create a new midstream joint
venture in eastern Ohio's Utica shale in 2012, a play with
considerable potential that is expected to see a ramp-up in oil
and natural gas liquids production.
In 2010, MarkWest teamed up with another MLP,
Sunoco Logistics Partners L.P.
), to build a distribution system to transport ethane produced in
the Marcellus Shale Basin (in Northeastern U.S.) to markets along
the Gulf Coast.
We believe that the initiative, known as the 'Mariner Project,'
offers several benefits. The project has not only helped MarkWest
to profit from the direct opportunity of capturing demand for
ethane takeaway capacity at Marcellus, but it also supports
higher gathering system volumes and ethane production.
Lastly, we appreciate MarkWest's steady improvement in its
liquidity/cash flow position and its impressive payout track
record. With more than 200% distribution growth since the
IPO in May 2002, we are confident of the partnership's total
However, we think the current valuation is fair and adequately
reflects the partnership's growth prospects.
First of all, gathering and processing MLPs, like MarkWest, are
more sensitive to commodity prices compared to other MLP
subgroups. As a result, falling energy prices adversely impact
their cash flow stability.
MarkWest's non-fee-based keep-whole and percentage-of-liquids
basis contracts for its midstream assets - which make up more
than 60% of its net operating margin - also expose the
partnership to commodity price risk. This is expected to further
limit its ability to generate positive earnings surprises.
As a result, our long-term total return expectation for MarkWest
remains rather muted. We do not see any significant price upside
for the units over the next few quarters and expect the
partnership to grow at a somewhat more conservative and