MarkWest Energy Partners LP Earnings Call Nuggets: Processing Capacity Ramp and Chesapeake Acquisition

MarkWest Energy Partners LP (NYSE:MWE) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Processing Capacity Ramp

TJ Schultz – RBC Capital: It seems that the processing capacity ramp is moving ahead of expectations. Do you have any sense that capacity that is still to come online can ramp utilization as quickly as what you saw at Sherwood and Mobley?

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Frank M. Semple – Chairman, President and CEO: TJ, just quickly building out our midstream assets in the Marcellus and Utica has been a challenge, but we’re also proud of our execution. As you mentioned, the ramp up in both capacity and volumes has exceeded what we’ve talked about previously is guidance of 12.8 months to build and – 12 to 18 months to build and 12, 18 months to fill. So that said, yes, we performed better than that over the last 12 months, but I still suggest that you maintain that 12 to 18 month ramp for modeling purposes.

TJ Schultz – RBC Capital: Sorry if I missed this. The Granite Wash assets, do those contribute to 2013 DCF? And is that in the guidance range you have now?

Frank M. Semple – Chairman, President and CEO: The Chesapeake — you didn’t miss anything. The Chesapeake transaction we talked about the contribution in 2014 because there is a lot of work to be done in 2013 to interconnect our two systems and to complete the plant and also the gathering pipelines and the trunklines that I mentioned on the call, we haven’t included any of the EBITDA in our guidance for 2013. But there will be some DCF that’s contributed. Give us a quarter or two, make some progress on those interconnects and we can give you a better understanding about 2013 looks like on the next call, actually at our investor meeting in June. So, it’s going to be – if we had to make a guess right now, it’s probably going to be somewhere in the $3 million to $5 million range for 2013. There is some upside there depending on, again, when these facilities come online.

TJ Schultz – RBC Capital: Just lastly, what’s the potential for additional growth, or CapEx in the Eagle Ford?

Frank M. Semple – Chairman, President and CEO: I think it’s very good. As I said on the call, we’re been working hard in the Eagle Ford and I’ve got John Mollenkopf here and he can explain a little bit about the acquisition and the operation there. We’re very excited about our foothold down there and we think it’s going to create some good opportunities…

John C. Mollenkopf – SVP and COO: Yeah, there is not a lot of infrastructure in Dimmit County which is where our Eagle Ford development is with Newfield. So it’s really exciting to get in with Newfield who has been our customer for a long time and the help them with their aggressive development plans that they have on their acreage and Dimmit County. But there’s also other producers in Dimmit and kind of historically, when we finally get ourselves to beach head, we tend to be very successful at developing new business and we think there’s a lot of upside for condensate and oil gathering in this area, it’s very rich gas in that area, lot of oil production. So, we are very excited about this entrance into the Eagle Ford and what it’s going to lead to.

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Chesapeake Acquisition

John Edwards – Credit Suisse: Frank, if you could clarify what the acquisition with Chesapeake. How much additional capital spending is going to go with getting that installation finished? Then beyond that, what you see as potential associated organic growth opportunities going with that?

Frank M. Semple – Chairman, President and CEO: John on the first part of your question, large majority of the capital will be from the acquisition of the business and that I mentioned the $245 million. But going forward to complete the plant, to complete the pipeline gathering systems and the trunk line that’s going to be somewhere in the $50 million to $75 million over the next 8 to 9 months or so. So we are very focused as I mentioned earlier in getting that all complete. We’ll give you some more clarity on the next call as I mentioned about additional opportunities outside of this core acquisition. But to the second part of your question, we are very pleased with this acquisition. I have consistently described our growth strategy as a combination of organic projects, which is a significant part of our capital program, but also our focus on bolt-on acquisitions, which are complementary to our existing assets and this acquisition has all the above, plus it’s got the added benefit of expanding our relationship with Chesapeake Energy, a great operator and they’ve got a huge commitment to the play. And so this is a quality set of assets in one of the better, the most economic resource plays in the U.S. Today, what I didn’t mention on the call was that there is approximately 150 million cubic feet per day of existing production and Chesapeake is running four rigs basically in the manufacturing mode in this area of mutual interest, this acreage (indiscernible). So, these assets overlay our Western Oklahoma operations. They provide great diversity and scale to our Southwest business unit and there is also a huge opportunities for optimization of our gathering and processing facilities and significant synergies between our existing operations and the new system. As John Mollenkopf mentioned earlier about the Eagle Ford, we tend to give – particularly, given this scale that we have in Western Oklahoma and the great operating team that we have out there, we tend to do a pretty good job of expanding our core position. So, this acquisition fits like a glove for us and we are excited about the transaction and see lots of opportunities to expand beyond the initial set of assets that are included in the acquisition…

John Edwards – Credit Suisse: Then that $50 million to $75 million is that included in your revised 2013 capital spending outlook?

Frank M. Semple – Chairman, President and CEO: Yes, it is. It is included in our – in the range of our capital guidance that we provided.

John Edwards – Credit Suisse: Then, you said that there is a 150 million cubic feet a day of exiting production, so I take it — I gathered from the comments you’re making that you are expecting that to ramp up pretty significantly over time?

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Frank M. Semple – Chairman, President and CEO: We expect it to continue to ramp up. Like I said earlier the economics for this acreage is very strong and Chesapeake is running four rigs now and they’re basically in, like I said the manufacturing mode. So that sort of commitment and operational capacity that Chesapeake has committed to this acreage is going to continue to drive volume growth. We’ve been – as you know John, we’ve been pretty conservative in our economic analysis about volumes, but yeah we see a lot of upside and the Chesapeake’s continued development at this acreage.

John Edwards – Credit Suisse: I missed in your comments, as far as Sherwood IV, when is that supposed to go in service – in your earlier comments?

Frank M. Semple – Chairman, President and CEO: Second quarter of 2014 John.