MarkWest Energy Partners L.P.
) has priced a public offering of 6,000,000 common units at $50.72
a piece, with an over-allotment option for an additional 900,000
MARKWEST EGY PT (MWE): Free Stock Analysis
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The gathering and processing master limited partnership (MLP) plans
to use the net proceeds from this offering - expected to be
approximately $294.2 million after the underwriting discount and
estimated offering expenses - to finance capital expenditures
associated with pipeline construction projects and for general
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.
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 infrastructure upgrade that will be required for the
development of the leasehold assets.
We believe MarkWest's recent buy out 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
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
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 220% distribution growth since the IPO in May
2002, we are confident of the partnership's total return potential.
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 impact 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.