Natural gas processor and distributor,
MarkWest Energy Partners LP
) reported weaker-than-expected third-quarter 2013 earnings.
Several operational constraints like lower realized fractionation
income due to involvement of third-party facilities, delays in
projects and temporary shut down of a NGL pipeline in West
Virginia, along with weak results from the Utica segment hurt the
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MarkWest's earnings - excluding mark-to-market derivative
activity, compensation expense and asset sale adjustments - came
in at approximately 22 cents per unit, missing the Zacks
Consensus Estimate of 25 cents per unit. Earnings were also lower
than the year-ago adjusted earnings per unit of 26 cents.
Revenues of $420.5 million were up approximately 50% from the
third quarter of 2012 amid higher processing volumes primarily
attributable to strong results from the Marcellus segment.
However, it fell below the Zacks Consensus Estimate of $424.0
Quarterly Cash Distribution
On Oct 23, 2013, MarkWest raised its third-quarter 2013 cash
distribution by 1.2% sequentially and 4.9% year over year to 85
cents per unit ($3.40 per unit annualized).
Distributable Cash Flow
During the reported quarter, MarkWest generated distributable
cash flow (DCF) - an indicator of cash paid out for distribution
to unitholders - of $117.9 million, 13% higher than the
prior-year quarter level of $104.3, providing 0.92x distribution
Business Units Performance
With regard to business units, the Southwest segment's operating
income decreased 3.1% from the year-ago level to $75.9 million.
The results mainly reflect a significant increase in operating
expenses, partially offset by volume expansion.
The segment's operating profit of $26.1 million was up 15.3% from
last year's income of $22.7 million. The segment's profit
reflects effects of higher fractionated natural gas liquids
(NGLs) and an improvement in NGL sales.
This segment (the partnership's Marcellus Shale joint venture)
reported a profit of $80.7 million, up 85.2% from $43.6 million
in the year-earlier quarter. Improved natural gas volumes, higher
gathering system throughput and NGL sales contributed to the
Operating loss from MarkWest's newest segment - Utica - was
$886,000, wider than the year-ago loss of $536,000.
Capital Expenditure & Balance Sheet
During the third quarter, MarkWest spent approximately $734.9
million on growth capital projects, up from $654.9 million a year
ago. As of Sep 30, 2013, the partnership had $326.6 million of
cash and cash equivalents in wholly owned subsidiaries and total
outstanding debt of approximately $3.0 billion, representing a
debt-to-capitalization ratio of about 42.1%.
Management lowered the projected DCF to $475-$485 million from
$500-$540 million. However, the growth capital expenditure was
increased to $2-$2.3 billion from $1.5-$1.8 billion due to
additional expansion projects the partnership plans to undertake.
MarkWest projected maintenance capital of $20 million.
Management projected DCF of $600-$690 million for 2014 keeping in
mind the forecasted volume and commodity prices. MarkWest
projected growth capital expenditure of $1.8-$2.3 billion and
maintenance capital of about $25 million.
Stocks to Consider
MarkWest currently carries a Zacks Rank #3 (Hold), implying that
it is expected to perform in line with the broader U.S. equity
market over the next one-to-three months.
Meanwhile, one can consider other energy sector stocks like
SM Energy Company
Pacific Drilling S.A.
) as attractive investments. All these stocks sport a Zacks Rank
#1 (Strong Buy).