MarkWest Energy Partners, LP (NYSE:MWE) is a master limited partnership worthy of any income seeking portfolio. The distributions have been growing over the years. The current yield is 5%, but this has been increasing on an annual basis. In this article I'll highlight the rationale to consider MarkWest Energy Partners.
MarkWest Energy Partners, L.P Background
MarkWest Energy Partners, L.P. is a limited partnership that concentrates is business in three aspects. The first is as a partnership engaged in natural gas, from its gathering, processing up to its transportation. The second aspect is as a partnership involved in natural gas liquids, in its transportation, fractionation, including the storage and marketing of the natural gas liquids. The third aspect of the business is with crude oil, its gathering and transportation.
The business activities of MarkWest Energy Partners, L.P. is divided into locational segments - there is the Southwest segment which includes East Texas, Western Oklahoma, Southeast Oklahoma, and a pipeline running across Texas, Louisiana, Mississippi and New Mexico. The Gulf Coast segment concentrates in the Javelina gas processing and fractionation facility. The Northeast segment is made up of areas from the Appalachia and Michigan. The Liberty segment provides natural gas midstream services from the Marcellus Shale. The FERC Pipelines segment is made up of the Arkoma Connector Gas Pipeline, the Hobbs New Mexico Gas Pipeline and the Michigan Crude Pipeline.
Master Limited Partnership Competitor Analysis:
Linn Energy, LLC (LINE)
Linn Energy is an oil and gas energy and production entity. The company has operations in the Mid-Continent, the Permian Basin, Michigan, California, and the Williston Basin. The company had a February 27th $1.2 Billion Acquisition of BP's Hugoton Basin Properties acquisition. The deal is accretive to Linn Energy's free cash flow. The deal could permit the company to announce an increase in quarterly distributions.
Linn Energy has an annual 7.3% distribution level. Oil and natural gas hedges are in place through the end of 2015. I recommend to buy this company and don't look back.
Kinder Morgan Energy Partners, (NYSE:KMP)
Kinder Morgan Energy Partners, L.P. operates as a pipeline transportation and energy storage company. The master limited partnership allows Kinder Morgan (NYSE:KMI) to extract General Partnership Incentive Distribution Rights on the Kinder Morgan Energy Partners, L.P. earnings.
Kinder Morgan Energy Partners, L.P. pipeline unit supports the transport and deliver of gasoline, diesel fuel, jet fuel, and natural gas liquids to end users.
Claims Against Goldman Sachs
I have to be honest with the March 9th Kinder Morgan news. Apparently there there is a tad of controversy. According to the article, titled: Goldman Sachs Raises Conflicts to a High Art: Jonathan Weil, there is a tempest brewing whether a scandal is abreast. The dispute is whether Goldman Sachs had an unfair advantages in the El Paso merger. I daresay, in my opinion, this is an outrageous claim.
I am confident that the Goldman Sachs General Counsel performed only ethical actions. I am saddened the media would report such accusations against one of the premiere financial institutions in the world.
I dare say that Goldman Sachs General Counsel that everything was performed on the up and up. I am saddened the media would report such accusations against one of the premiere financial institutions in the world.
MarkWest Energy Partners, together with M&R MWE Liberty LLC, formed MarkWest Liberty Midstream & Resources, LLC in February 27, 2009. Today, MarkWest Liberty Midstream & Resources operates successfully two years later in the Marcellus Shale area as a vehicle for MarkWest Energy
Partners in the natural gas midstream business. Currently MarkWest Liberty Midstream operates in the gathering and processing services with just one company, the Range Resources Corporation, but is in talks with several other companies to offer the same services.
The joint venture expires on December 31, 2012, whereupon MarkWest Energy Partners will have the first option of buying out M&R MWE Liberty LLC for full possession of MarkWest Liberty Midstream, if M&R MWE Liberty LLC does not equal the investment MarkWest Energy Partners has put into MarkWest Liberty Midstream. As it stands today, M&R MWE Liberty LLC controls 49% of MarkWest Liberty Midstream. And in fact, if M&R MWE Liberty LLC purchases MarkWest Liberty Midstream, it will provide a better environment for MarkWest Energy partners to attain its long term goals in the Marcellus Shale without the strain on its capital resources. So December 31, 2012 is a date to remember with MarkWest Energy Partners LLC.
While the plans of MarkWest Energy Partners is quite clear if M&R MWE Liberty LLC decides to purchase MarkWest Liberty Midstream on or before the cutoff date on December 31, 2012, it is not quite clear if management is ready for the possibility that M&R MWE Liberty LLC will not buy them out. If that is the case, all management has to do is set aside the funds needed to get control of MarkWest Liberty Midstream, even with the drain on its capital resources. As it is, the future suddenly becomes blank should M&R MWE Liberty LLC decide not to continue with the joint venture, or even avoid purchasing MarkWest Liberty Midstream for reasons of their own.
Another interesting forward-looking statement from MarkWest Energy Partners is its interest in ethane. The demand for ethane is expected to increase by 40% within the next six years. The thing is that it is the Marcellus Shale that is expected to supply the bulk of that ethane demand, making MarkWest Liberty Midstream even more crucial when December 31, 2012 comes. While it is understandable that MarkWest Energy Partners is concentrating more on the transportation of natural gas and natural gas liquids, the opportunity of that projected 40% increase in the demand for ethane is too large to ignore, or even worse, leave the decision to another company's hands and be trapped in a reactive position.
MarkWest Liberty Midstream already has the capacity to produce more ethane from its present operations. As of today, MarkWest Liberty Midstream is barely meeting the demand, but the projection is that by 2013, MarkWest Liberty Midstream will not be able to meet the demand. Further investment will even be necessary so that by 2017, the full profits that can be made from supplying ethane can be met. This all the more makes it crucial for MarkWest Energy Partners to be more aggressive with regards to MarkWest Liberty Midstream - should M&R MWE Liberty LLC decide before December 31, 2012 that it needs MarkWest Liberty Midstream and decides to meet the conditions of the joint venture and purchase it, MarkWest Energy Partners will be left out of the ethane supply and processing, and only in the transport of the product from MarkWest Liberty Midstream.
I recommend shareholders purchase MarkWest Energy Partners below $60 per unit. The yield is 5% per unit. This master limited partnership is a best of breed. The growth is in front of the enterprise. I recommend a 2.5% portfolio asset allocation. This can be increased later if the price drops per unit.
Disclosure: I am long MWE, LINE.