MarkWest Sees Volumes Boom, Acquisitions Bloom in Second-Quarter 2012, Readies for Growth in Big Shales

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Researched by Industrial Info Resources (Sugar Land, Texas)--Natural gas and natural gas liquids (NGL) producer and transmission provider MarkWest Energy Partners LP (NYSE:MWE) (Denver, Colorado) reported strong gains in revenue and earnings for the second quarter of 2012, despite a decline in processing margins and NGL prices. Processed volumes saw solid gains, especially in the company's Southwest and Liberty segments, while projects that advanced during the quarter, particularly the acquisition of Keystone Midstream Services LLC (Broomfield, Colorado), are expected to reap benefits in coming years. Net income for the quarter was reported to be $186.91 million, compared with only $78.5 million in second-quarter 2011.

Total revenues stood at $446.05 million, an 11.39% increase from the same period last year. This includes $136.07 million in derivative gains, more than triple what was seen in second-quarter 2011. Income from the company's segments was slightly lower, largely due to weakened commodity prices. However, a continued growth through projects at key North American resource plays, such as the Marcellus and Utica shale formations, led to an 18% increase in volumes from the second quarter of last year. Among the growth projects announced this quarter was a 400 million-cubic-feet-per-day expansion of MarkWest's Majorsville processing complex in West Virginia, which is supported by long-term agreements with Chesapeake Energy Corporation (NYSE:CHK) (Oklahoma City, Oklahoma) and will include two 200 million-cubic-feet-per-day processing plants that are expected to be completed in late 2013 and mid-2014.

Also in the second quarter, MarkWest fully acquired Keystone from Stonehenge Energy Resources LP (Westminster, Colorado), Rex Energy Corporation (NASDAQ:REXX) (State College, Pennsylvania) and Sumitomo Corporation (TYO:8053) (Tokyo, Japan). Keystone has two cryogenic gas-processing facilities with a total capacity of 90 million cubic feet per day, as well as a gas-gathering system and field compression services, on more than 68,400 acres in Butler County, Pennsylvania. Under long-term, fee-based agreements, MarkWest will process the rich gas and fractionate the NGLs. The acquisition was estimated to be worth $509.6 million.

MarkWest's capital expenditures for the quarter were reported to be $327.9 million, which does not include anything from the Keystone acquisition.

MarkWest executives announced earlier this week that the company has signed a long-term, fee-based agreement with XTO Energy Incorporated, a subsidiary of ExxonMobil Corporation (NYSE:XOM) (Irving, Texas) to extend MarkWest's gathering pipeline for NGLs in northwestern Pennsylvania to a processing plant owned by XTO in Butler County. The 125 million-cubic-feet-per-day XTO plant is expected to commence operations later this year. The extension, which will connect the Keystone processing facilities to the XTO facility, will give XTO access to all of the Marcellus ethane projects and is expected to be completed by the end of 2013.

MarkWest also is constructing four more processing complexes--two in Ohio and two in northern West Virginia. When these are added to the existing processing complexes in Pennsylvania and northern West Virginia, MarkWest will be able to support rich-gas production from the Marcellus and Utica shale formations with about 270,000 barrels per day of fractionation capacity and 3 billion cubic feet per day of gas-processing capacity.

Industrial Info is tracking more than $1.18 billion in active projects involving MarkWest, including the $120 million construction of the Sherwood Natural Gas Processing Plant in West Union, West Virginia, and the $65 million construction of the Mobley Natural Gas Processing Plant in Mannington, West Virginia. The Sherwood project involves building a cryogenic natural gas processing facility to handle up to 200 million standard cubic feet per day of natural gas from the Marcellus Shale. The Mobley project involves building another such plant to process 120 million standard cubic feet per day of liquids-rich gas from Marcellus, along with an NGL production capacity of about 8,600 barrels per day. The projects are expected to be completed in September and November this year, respectively.

"In Pennsylvania, our primary focus continues to be the expansion of our gathering system in Washington County, to support Range Resources' (NYSE:RRC) highly successful development program in the rich-gas area, the Marcellus Shale," said Frank Semple, the chairman, president and chief executive officer of MarkWest, in a conference call. "As a result, gas volumes will grow significantly as new wells are brought online during the second half of this year. And by year end, we expect out total Marcellus volumes to increase to nearly 1 billion cubic feet per day, with a connection of new wells in southwest Pennsylvania and the startup of our Mobley and Sherwood plants in northern West Virginia."

Only one of MarkWest's major geographic segments saw an increase in operating income and revenue for the quarter. However, three segments reported solid increases in NGL volumes:

• The Southwest segment reported $189.16 million in revenues for the quarter, a 19.7% decrease from second-quarter 2011, and $72.75 million in operating income, a 13.79% decrease. Total NGL sales stood at 171 million gallons, a 34.96% increase.
• The Northeast segment reported $42.05 million in revenues for the quarter, a 21.66% decrease from the same period last year, and $24.2 million in operating income, a 22.06% decrease. NGL sales stood at 60.5 million gallons, an 11.62% increase.
• The Liberty segment reported $59.48 million in revenues for the quarter, a 23.05% increase from second-quarter 2011, and $37.93 million in operating income, compared with $16 million. NGL sales stood at 75.9 million gallons, a 49.7% increase.
• The Gulf Coast segment reported $21 million in revenues for the quarter, an 11.35% decrease from second-quarter 2011, and $11.39 million in operating income, a 28.26% decrease. NGL sales stood at 83 million gallons, a 0.72% decrease.

Growth capital expenditures for full-year 2012 are expected to be between $1.1 billion and $1.5 billion, not including the Keystone acquisition costs. About $20 million of that total is expected to go toward maintenance.

"Industry analysts are now predicting that the Marcellus Shale will be the largest producing gas field in North America within the next two years, and MarkWest is constructing a significant majority of the processing, fractionation and NGL facilities in this enormously prospective field," Semple said in the conference call.

For more information, visit Industrial Info's North American Oil & Gas Production Project Database and North American Oil & Gas Transmission Project Database.

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