MarkWest Energy Partners L.P. (
has priced a public offering of 10,000,000 common units at $54.25
apiece, with an over-allotment option for an additional 1,500,000
The gathering and processing master limited partnership (
) plans to use the net proceeds from this offering - expected to be
approximately $521.1 million after the underwriting discount and
estimated offering expenses - to finance the proposed buy out of
'The Energy & Minerals Group's' (EMG) 49% interest in the
Marcellus shale joint venture project.
(Read our full coverage on the planned acquisition:
MarkWest to Buy Stake in JV
However, in case the transaction fails to materialize, MarkWest
intends to utilize the offering proceeds to provide capital
expenditures and working capital for general partnership
Denver, Colorado-based MarkWest Energy is engaged in the
gathering, processing and transmission of natural gas,
transportation, fractionation and storage of natural gas liquids
(NGLs), and the gathering and transportation of crude oil.
Even though MarkWest has a Zacks #2 Rank (Buy rating) in the
short run, we are Neutral on the units in the longer term.
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 infrastructure upgrade that will be required for the
development of the leasehold assets.
Last year, 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 north eastern U.S.) to markets along
the Gulf Coast. We believe that the initiative, known as the
'Mariner Project,' offers several benefits.
Not only will the project help MarkWest to profit from the
direct opportunity of capturing demand for ethane takeaway capacity
at Marcellus, but it will also support higher gathering system
volumes and higher ethane production.
We also appreciate MarkWest's steady improvement in its
liquidity/cash flow position and its track record of consistent
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, collapsing energy prices adversely affect their cash
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 sustainable pace.
MARKWEST EGY PT (
): Free Stock Analysis Report
SUNOCO LOGISTIC (
): Free Stock Analysis Report