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MarkWest Energy Partners, L.P. (NYSE:MWE)

Investor and Analyst Conference

June 01, 2012 9:15 am ET

Executives

Frank M. Semple - Chairman of MarkWest Energy GP LLC, Chief Executive Officer of MarkWest Energy GP LLC, President of MarkWest Energy GP LLC, Chief Executive Officer of MarkWest Hydrocarbon and President of MarkWest Hydrocarbon

John C. Mollenkopf - Chief Operations Officer of MarkWest Energy GP LLC and Senior Vice President of Southwest Business Unit of Markwest Energy GP LLC

Randy S. Nickerson - Chief Commercial Officer of Markwest Energy Gp L.L.C. and Senior Vice President of Markwest Energy Gp L L C

Nancy K. Buese - Chief Financial Officer of Markwest Energy GP LLC and Senior Vice President of Markwest Energy GP LLC

Frank M. Semple

Okay, our technical difficulties have been solved, I hope. We still got the bridge out, so we'll just move forward with our discussion. This is a rare opportunity. I've already have a lot of discussions with a number of our investors and analysts this morning. It's a great opportunity with all of the turmoil in the market to reinforce the value of our business, and answer your questions, that's why we're here today. So we look at it -- you never like to enter one of these annual meetings, as Nancy was telling me yesterday, with your units trading so poorly and the overall industry getting pretty well hammered. But as you see in the packets of information we've given you and we'll discuss today, we have a little solid foundation of growth and execution and financial strength that will allow us to kind of weather this storm that's going on out there in the industry caused by a lot of different factors. So I look at this is a great opportunity to, like I said, reinforce our value proposition to the MarkWest Energy unitholders.

We've got a lot of material we got a cover today, so keep in mind that there will be forward-looking statements, particularly with Randy, he's really good with forward-looking statements. And we'll be using some of the non-GAAP measures and terms, it wouldn't be any fun if we didn't. I've got a lot of help today. In fact, Randy and John and Nancy will be carrying most of the load, but I want to start with a little bit of an overview.

I'm not going to spend a lot of time on this slide because the fact is that the rest of the executive team will be diving into the details around what we'd like to call all our key investment considerations, but this slide does provide a little bit of an outline, if you will, for our discussions today. It'll start with John, covering our assets, our operations and our execution. And then it'll segue with Randy, building on that theme of execution around our business development, our commercial development and a lot of key projects that drives our capital program and our future growth. And then Randy will hand off to Nancy, and Nancy will cover a whole range of issues, but really building the information around the strength of our balance sheet, including our current guidance and the details around our capital program and our hedging program. So it's really a progressive discussion today and, again, we look forward to getting through the discussion. It'll take about, I think, if we can kind of keep on track, about 60 minutes or so and we're going to move through the presentation because they're webcast, we're going to move to the complete presentation before we answer any questions.

Now having said that, if there is just some burning question, so just raise your hand, we'll be glad to answer, nobody here is shy here, but the goal is to kind of get through the information, you've got the presentations in front of you, kind of follow with the discussion and we will hope that we'll have plenty of time for questions and answers, and I think we have a lunch and afterwards, where we can kind of break out into smaller groups, just like what we've done over the last several years. So again, we look forward to covering all aspects of our business today.

I want to just provide a little bit of a reminder. This slide -- and it consists -- many of you have seen this type of information that has been developed, in this case, by Citi, EIA has a similar slide that basically provides a projection of natural gas supply through 2020, growing about 17% for 2020. But the point here is that -- and unless you see the whole lot of argument here is that the lion's share of that increase will be coming from the shale plays. And so I call this my opportunity slide because in order to support that kind of development over the course of the next 8 years, it will require hundreds of billions of dollars of investment. And much of this development, because of the economics, and Randy will be covering this later, will be in the rich areas of the unconditional resource plays. And we are fortunate to be right in the heart of many of the best U.S. resource plays. So huge opportunities for midstream providers like ourselves to have the capability to execute.

Those opportunities are driving our operations, they're driving the organic growth programs and they're driving our strategic acquisitions that we'll be discussing today, so we're in the right places with the right team, with the right capabilities to capture that opportunity that I just mentioned. A lot of the details around our footprint and around our assets and our operations, John will touch on after I finish.

And we have a pretty solid track record for continuing to grow our distribution. This is a performance slide that, I think, I always like to reinforce. I mean, we've had a lot of ups and downs in this industry over the years, but since 2002, our initial public offering, we have grown our distributions by 216%. The real key question is can you, as I've been asked already several times today, can you continue that type of growth. And the whole purpose of the meeting today is to give you a good understanding about how we're going to continue to drive -- how we're going to be able to continue to drive those distributions and total unitholder return up and to the right, that's the objective. So with that brief overview, I'm going to turn it over to John to continue the discussion. John?

John C. Mollenkopf

Thank you, Frank. All right, today I'm going to walk us through the operations and assets in MarkWest and we're providing midstream services for about 2.5 Bcf a day of gas, that's up from last year about 0.5 Bcf a day. We've got assets, as Frank mentioned, that are serving some of the major resource plays in the country. We have a diverse contractual mix, a lot of fee-based contracts, some with commodity risk, but we'll talk about that a little bit. Our philosophy that serves us very well at MarkWest is number one, providing exceptional customer service. We're very focused on growth at MarkWest and controlling our cost and building efficient systems, maintaining an excellent safety environmental record.

And I love this slide, likely, this survey that we've used many times has been put up by EnergyPoint since 2006 and in that time this is -- all of our producer customers, which we've tried to reflect on the slide, they do a survey and they rank us in many different categories and I'm proud to say that since 2006, we've either been first or second. And the latest survey in '11, we were first again and in many categories and pretty much, in every major basin that we operate.

We have been through a period that seems -- it started a long time ago, but it's really accelerated here recently on the capital growth side and this graph -- the top graph shows the investments that the company has made. And what I've tried to give a perspective on from the operations and execution side is it takes a lot of people to do this, to do a capital program like this. And so down on the bottom, there's a graph of the growth of the company in terms of personnel. And to achieve that best customer service rating, we've had to hire a lot of really good people. We had some great people when we started, but we continue to hire more and more highly skilled folks to execute on our program and as you can see, we're coming up on 800 people or so. We were 150 in 2004 and probably less than 100 before that when the IPO-ed.

We have a pretty consistent construction contracting strategy. We get fixed prices for our gas plants, we bid everything and we hold the local operations and engineering staff accountable for the projects that we build. We use tried and true plant process designs. We don't -- we're not going out doing a bunch of research. We're using the processes that work in the industry and have since the plant design that we use all the time for our cryogenic plants was -- first came out in the 70s, but it works every time, so that's what we use. And on the gathering systems, we put common suction in for reliability and we always have a lot of marketing outlets for the products.

From a regulatory standpoint, this is becoming more and more critical and particularly, since the last election. But you have to be very good at regulatory compliance and permitting to be successful in the midstream industry, and so we take that very seriously. And we use best available control technology and we're very involved in the regulatory process. So what does all that mean? Well, this is a graph of the volume growth that we've had at MarkWest over the years and it is up into the right, which is hopefully, with all these graphs will show here in a minute. But when you combine the great customer service with great resource plays and then you execute, you get this kind of growth. Here we go, this is the segment operating income for MarkWest and as you can see that's got a similar path and hopefully, we can continue this as well.

So what I want to talk about here for a few minutes is where the money comes from. Where does the distributable cash flow come from at MarkWest. So in 2011, if you look at this bar chart, about 64% from this area down here, the Southwest area of the company. So really, there's really 2 geographic reasons, there's Southwest and there's Northeast. And you can see the Northeast was about 35%. Now in 2012, you can see where all this -- what's happening to the company as we make all these investments in the Northeast. Basically, we're about 50/50 in 2012 on the contributions toward segment operating income and that's certainly what we expect and we're growing so quickly in the Northeast that it will soon be the majority of the cash flow.

So talking about the Southwest a little bit, you look at the basins, the major shales and really, the lion's share of the income comes from our operations in the Haynesville, Woodford and Granite Wash shales and unconventional reservoirs. These are assets that we acquired and then build out in the 2000s. We've got the largest gathering system in the Woodford Shale, East Texas system. What's really unique for MarkWest compared to other folks that are in the East Texas region is our system overlays the rich gas part of the Haynesville shale. Most of the Haynesville Shale is dry, but we were very fortunate to be where we're at. We're under construction right now on an expansion in East Texas, building another cryogenic gas play. You don't hear much about East Texas, but there's still a lot of activity going on down there.

In the Gulf Coast, we've got our Javelina plant that serves 6 refineries. It processes the off-gas and basically, the off-gas would be burned, but because of our facility, our customers are able to realize some very good returns from these valuable products that come off of the refineries. It's a great asset, a very steady cash flow performer generating about 6% of the cash flow in the company. In the Northeast, this is refer to the Northeast rivers, the older part of the Northeast where MarkWest began in 1988, but we have our -- in the Appalachian Basin, we're rated #1 in Appalachia as well. We've been there for about 25 years, very established. Randy is going to talk to you more about this area, but it generates about 23% of our segment operating income. And then finally, Liberty, which I'm going to spend a lot more time on, is the Marcellus Shale, and then we're going talk about the Utica Shale as well, development here in the coming slides, but this has obviously been the focus of our investments over the last, couple of years.

So I'm going to go right into that Liberty segment. By the end of 2011, and these slides have a lot of information on them, they're a lot easier to read in your packets than they're going to be up here on the screen, especially from the back. But if we just kind of watch over here on the graphic side, you can see what's happening. What we have today are 5 cryogenic plants, we've got an extensive gathering system and we've got a lot of things under construction. And so in 2012, and by the end of 2012, our system is going to look like this. And basically we've got a couple of complexes being built right now. There's Mobley complex in Wetzel County, West Virginia and the Sherwood complex, those are both going to come on some time here in the third, fourth quarters. We've got a new rail facility which is really an incredible facility that we've been building for a couple of years now, but it's going to finish up here very soon. And then up here, you see the Keystone gas plants that we just acquired are in operation.

So then moving forward to 2013, this is really incredible, the amount of work that's going on. We've got additional gas plants being brought online at our Majorsville facility, at Mobley, at Sherwood, we've got the de-ethanization facilities being put in to handle the ethane in the Marcellus Shale and the Mariner West pipeline. Critical for the producers because they've been operating thus far on waivers from the interstate gas pipelines to let them put that ethane in them in with the methane, but those are going to run out and the ethane needs to get to the market, so we're going to be the first movers to get that built. In 2014, we've got additional expenses at Majorsville, we've got more de-ethanization going in. We've also got this new fractionator, actually right at the end of '13 over here in the Utica, which I'm going to talk about here in a minute, but it serves a lot of the Marcellus gas, the liquids, the liquid fractionation for the Marcellus gas, which are also seen as an expansion up here in the north end to bring in more gas to the system.

So in Utica, while all that's going on, we're back to 2012 again, this year, we've got 2 gas plants coming on in the Utica Shale over in Ohio, they're interim plants, smaller but they -- we're building a gathering system and we've got a couple of these gas plants coming on in the next several months to really kick that into gear. And then by the end of '13, we'll have our Harrison I plant completed, which is a cryogenic gas plant. We'll have this Noble plant as well completed, we've a bunch of pipelines that are going in, connecting NGLs to the facilities. We mentioned this Harrison fractionator that was serving the Marcellus, it's also serving these gas plants in the Utica.

All right, so then 2014, we've got de-ethanization going in, in Ohio, so we'll be able to solve the ethane issues and really, what coincides with this is the completion of Enterprise's ATEX pipeline, which will connect to both our Houston plant and the Harrison plant. And we also kind of put on here, we know this is proposed by Shell to put in an ethane cracker, but it's right on our system. And so we're very well positioned if that plant needs feedstock for it to come from our assets. So this is just a little summary of what's happening in the past year but what's really important on this slide is this quarter down here because we're under construction on 13 cryogenic gas plants right now, we've got 5 de-ethanizer facilities under construction, we're building extensive gas gathering and NGL gathering, ethane gathering pipeline systems that all make up -- when we give you guidance on our capital, this is where all the money is going.

So just as a quick summary, we're in high-quality, high-quality resource plays, great assets in those plays. We've got a diverse customer base, our contractual mix us growing in fee-based contracts, best-in-class operations and the exceptional customer service really brings it all together. So with that, I'm going to turn it over to Randy.

Randy S. Nickerson

John, thank you, I appreciate it. It doesn't feel like a podium morning and feels like a walking around morning. Least, I just want to make sure that you can hear me okay, it sounds like you can hear me fine away from the podiums, I think I'll start here. It's amazing when we think about sort of particularly in the North, John did a great job and it's always exciting for me to sort of hear one of the other management team sort of talk about that. When we were in 2009 for the folks in the room and listening on webcast in 2009 and we are talking about Liberty. And we just finished that $35 million a day plant and we went, "Wow, this is sort of neat." We think we have a lot of growth up here, we just finished the $35 million a day plant, we were working on a $120 million a day plant, we say, "we think this thing has legs in the Northeast, this is exciting." 2010 walks along, John's guys finish that up and we sort of stand and say, "We think this really does have legs." We think we have another complex in here and we were talking about Majorsville, and then last year we were, '10 and '11 we were there and going this really has growth potential for us, and we're talking about our third and our fourth sort of processing complex, 60,000 barrels a day, what's exciting for us today that John talked about. Now we're here talking about 3 Bcf a day of processing is where we'll be in just a couple of years from sort of go past year to 3 Bcf a day in 4 years. Huge changes when we think about that of that 3 Bcf a day, the vast majority of that is fully contracted, very little of that are we building kind of okay, if we build it, they will come, most of that's fully contracted. Most of that is fee-based income. There's some POL for sure, but a lot of that is fee based. Essentially all of it or most of it, for sure has either large acreage dedications attached to it and then a vast majority that's certainly in the Marcellus have some form of volume backstops. So from open past year to 3 Bcf a day. So what is our vision and our strategy that sort of taken us from that place?

Ready, John. What is the strategy and the process that's taken us there? What are the strategy and processes that sort of took us from that first, well, maybe we can get 50,000 barrels a day of fractionation to today talking 250,000-plus barrels a day of fractionation in the Marcellus and the Utica. It's pretty straight forward. We continued for the last 5 years to focus on our core areas, to be the best that we can be and the best of our competitors in those core areas, turn those into franchise positions, work with our customers as our process to be able to be the first mover and to be able to provide them with new and innovative solutions. And that's what we're going to spend a lot of time in the first part talking about, so what about core areas, where are we going to go from here, where do we go from here, we have a great growth the next couple of years, what about after that? How are we going to capture this? And we're going to take a hard right turn for a while and talk about NGL prices. A lot of the analysts in the room, the companies have put out a lot of reports about NGL prices, impacting all of this, and we'd just be sort of crazy to miss this opportunity to share at least our perspective on NGL prices and while certainly we'd love it if propane were $1.50 and going higher as opposed to staying at $1 for propane, we want to talk about how we actually think right now that gives us a great opportunity and how we want to capture that and what that could mean over the long term of the opportunity for us.

So when our slide moves, there you go, I'm going to go and touch it. What we want to do is walk through each of our core areas. We used to stand up here, I did for years, and I love the first part between '06 and 2010 and what we talked about is what everyone else was out doing what we call this crazy acquisition, we were focusing on what we do best, our core areas. We were building those up primarily with organic capital. And then beginning in '11, we did the first Langley acquisition and then, of course, at the end of '11, we did the acquisition of our 49% of Liberty and now Keystone, we've had huge acquisition growth in 2011 and 2012. But if you look at that, all of that growth was right in our core areas. We helped design the Langley facilities that we're able to buy 3 years later. When we bought the 49% of Liberty, we operated it. It's right in our backyard. Keystone was just a great extension, an area through which we are already building an NGL pipeline. So even though '11 and '12 have been areas of tremendous acquisition growth, those came because of our focus on the core areas. We just still stick to our knitting. And because of that, the volume growth in the bottom just continues to grow. John showed it in another form, we just continue to grow our volume even in our other core areas, it's just solid as a rock.

So let's walk through those quickly. Let's start out and just walk through again 3 or 4 of our core areas. And what's going to happen to us over the next 2, 3, 4 years? Granite Wash in Western Oklahoma was a great example of our strategy and our process in play. We did our acquisition in Western Oklahoma 2004, 2005 timeframe and we looked over into the Granite Wash and we said, "Wow, we think that area has a lot of growth potential for us." Newfield came to us, one of our great customers, and said, "Look at, we really need you guys to stretch out over there, we really need you guys over there. We have providers over there, but it's not MarkWest, we need your service." So we spent some time with them and we built out this long extension over into the Granite Wash, and that's where we are today, one of the most profitable plays, great relationships with folks like Newfield, Linn and others, great contracts, for us. We just finished expansion of Arapaho highly integrated, this still has legs to go. This will be a solid area for us for years.

Southeast Oklahoma, similar sort of story. It was the first time we sort of went into an area that was sort of just sort of grass roots and said, "You know what, we need to build an extensive, efficient gathering area right in the middle of a resource play." It's where we started sort of in 2006 and [indiscernable] Newfield, we went to Newfield and said, "Gosh, you guys have a lot of acreage, we need to build this for you." We had just finished a great project for them in Western Oklahoma and they said, "Ah, we think you guys are the guys to do this." It works out well for us, which is shown on this slide is that a lot of the Woodford is sort of dry, but like John mentioned in Haynesville, there's this great oil window that sort of wraps around the Woodford. We don't talk about it too much. We are gathering and processing through a Centrahoma joint venture today, 100 million a day, just sort of quietly picking that up, processing 100 million a day in Southeast Oklahoma. We're the only gatherer, particularly on the northern part of that window, that can provide users with the NGL uplift by processing their gas. Because of that folks like PetroQuest and others are drilling significantly other up in the northern tier in that oil-rich window and we have tremendous opportunities.

John talked about the Haynesville. We're in a great situation in East Texas. We just announced what -- everyone else was talking about laying down rigs, slowing down in the Haynesville. We just announced 120 million a day expansion in East Texas, essentially all of which is fully contracted. We're out building that plant now. In fact, outside of the Northeast, it's very possible, our growth story we'll be talking about next year is going to be in East Texas, tremendous opportunities with great customers in there. We're going to deep dive a little bit in the Northeast and talk about that. We now have 3 operating segments. Our Northeast is what some of us might call sort of Legacy assets, down in Kentucky, and the western part of West Virginia. Of course, we have MarkWest Liberty, which is our Marcellus operations and now the Utica. What is great about this slide, and we talked about it for 3 or 4 years, is what is the Northeast always lacked for production? What the Northeast does not had that the vast majority or the rest of the U.S. has had is the interconnecting NGL infrastructure that connect all the plants together to give the producers have the option, so that we have periods like this where prices are low, supply is growing, optionality is the key gas traders have known that forever. We've never had that in the Northeast and we've talked about that for 3 or 4 years. It didn't matter as much before because there was so much market, prices were high, and no one cared about it. Now that NGL infrastructure that we believed in 2, 3, 4 years ago, everyone needs that. If you don't have that, it's hard to even operate in the Northeast right now if you don't have that infrastructure. That's what we've been building for 2, 3, 4 years. It's been our vision. That is what's going to create enormous growth for us.

Starting with the Northeast. It's actually 15 years ago with the company, this was my area, near and dear to our heart before I turned it over to John. John always takes everything I do, he always takes it from me, my visions become his execution, my business units become John's business units, always, and now he runs it all. This is where sort of we started in the Northeast. This is where we've sourced, first figured out NGL marketing is the differentiator up here. Having options in the Northeast matter. This is where we started, we have an incredible franchise position over 1/2 a B of processing now, 5 gas processing plants up in the Northeast, it will rock along steady, there'll be years that will be higher, there'll be years that will drop a little bit eventually when prices recover, this area has so many productive targets. It's going to be a great area for people to drill for a long, long time.

John talked about his favorite slide and I agree that customer service slide is so critical. If I could show just one slide, I could talk, I shouldn't and frankly, give me the hook, but I could talk for 0.5 hour about just this slide. First about what's on this slide is sort of our depiction of the rich gas fairways for the Marcellus in the Utica. The rich gas there is in the Marcellus and the Utica. Perhaps 2 of the top 3 or maybe 4 rich gas plays in the entire U.S. sort of are on this slide in those 2 fairways. What we're showing in the blue portion sort of -- are those areas that we either have the franchise position or else we have a highly competitive ability to capture the gas in those areas. So as we look at this, we started out around the Houston area, captured that in Washington County, sort of it was the core of the Marcellus, still is the core of Marcellus, we have hundreds of miles of gathering in there. We gather essentially all of the gas and core area of Washington County, we extended that down to the Mobley complex, the Sherwood complex. Imagine that even at Majorsville, 2 years from now, we'll be processing over a Bcf a day out of Majorsville. We now have 4 large complexes. What is also clear on this slide, I think, is why Keystone? How expensive the acquisition, why Keystone, why did that matter? If you look at this, Northern Pennsylvania has tremendous opportunities, not just for the Marcellus but also for the Utica. On this slide, you see the NGL line that we're building up through Houston right through the middle of those assets to another project we had in Butler County. Keystone sits right on top of that NGL infrastructure. We're already building from Houston north into Beaver County, up in the Lawrence, up in the Butler County, we're already building gathering right up in there. What Keystone allows us to do is to connect those dots and give us a strong gateway clear to the northern part of Pennsylvania. Now we can say we are the franchise operator, the largest gatherer and processor in Butler County, Beaver County, soon to be Lawrence County and it opens up everything to the north. That's why Keystone. That's why Keystone was so good. What we're able to do with Keystone was turn an acquisition from originally what was operated as purely, primarily I should say, POP sort of contract, POL, so it had lots of commodity exposure. When we executed the agreement, it was all on a 100% fee-based basis. Keystone's all fees.

Keystone has significant acreage dedication. Keystone has important volume backstops. Keystone's opened up everything to the north. That's why Keystone. Also, over in the Utica, through the partnership with EMG through the LOIs we've announced with Gulfport, through all the other relationships that we have over there, we're now extending that area of operation. We're out there. John's guys are right now building multiple compressor stations, dozens of miles of gathering in Harrison County. Maybe one of the key counties in the rich area of the Utica and we're the folks out there who are building pipeline throughout the entire area, Harrison County, next to us Guernsey, Belmont, Noble, Tuscawaras County, this whole area, MarkWest is sort of the first mover advantage.

As important to that is, on this slide, is the Harrison that's also our fractionation complex. What wasn't a big deal 3 months ago is the fact that this complex in Harrison and this fractionation complex in Houston are completely interconnected with large NGL pipes. No one really cared about that 6 weeks ago. Today, having the ability to move rail and truck markets back and forth between those 2 fractionators, access the pipe through each of those locations, that's critical. That may be the differentiator in the entire basin is to be able to move the marketing from complex to complex. It's the one good thing that's really come out of the NGL is right now, this is a differentiator, this creates enormous opportunity. I don't know what we would do if we had 1 fractionation complex over there with one rail yard, with one truck, maybe one pipeline with no storage, I don't know what we would do. We have over, on the TEPCO pipeline, almost 1 million barrels of storage. That's the differentiator, no one else has that. That's a huge, huge advantage for us. So we'll talk about our process a little bit, we'll talk about our strategy and process. What does that look like? The first thing it looks like, ah, there we go, is sort of our relationships. We love to talk about sort of customer service. We love to talk about that relationships. What we've never really done is talk about how does that matter? Yes it's a great slide and it's a great story, but does it really matter? Back in 2006, our very first sort of grassroots large infrastructure and we talked to Newfield, and Newfield knew they liked us, they had a little bit of stock in Western Oklahoma, we would like you guys but we're not quite sure how this works because here's what you need to do. Here's a couple of large customers of ours in East Texas, go call those guys, and that's what they did. Small industry turns out the folks at Newfield I've worked with, some of our large -- 2 of our large customers in East Texas and they call them up and said, "We're not sure about this MarkWest guys, we're going to give over 1,000 square miles or their dedication will cover almost 1,000 square miles, and we're worried about this." No one else was talking about partnering, today, everyone talk about partnering. Back then, we were sort of the fish swimming upstream. No one was really talking to producers about partnering and giving that up. They called folks in East Texas, 2 of our customers and said what about these MarkWest guys and that really was sort of where this culture of excellence, I think, started actually, was one of our general managers in East Texas, I believe, I ascribed to him sort of the germ of excellence that sort of encompass everything we do. Of course, we had it before, but it really started there, and he said, "If you are going to do something, Newfield, do it with MarkWest. If you got a partner, if you're going to throw everything you have right now into it, those are good guys to do it with." So fast forward 3, 4 years, and Range is up there, 300,000, 400,000 acres in the rich area of the Marcellus and they're going, "Wow, what do we do, we know MarkWest has been there, they're folks that we have worked with Range for 10, 15 years and, what are we going to do, I'm not sure, that's an awful lot to put in one person." Here's what you need to do, your folks on your management team are connected with the Newfield team with us, go call those guys, ask them how it turned out for them, sure enough they did that, sure enough, the Newfield guys said, "You know what, if you're going to go all in with somebody, if you're really going to partner with administering company, we think they MarkWest guys is the guys to do it with. That's what happened, that's what we did and now we're 3 Bcf a day later, because of that, in large part, because of that relationship. But sort of that relationship now is that there's are change in the industry. It was before just midstream with our customer, but now as we know, partnerships are everywhere. We think certainly in the near term anything we do is, in one way or another, probably going to involve a partnership or have a big part of it. All of our growth is going to involve some sort of partnership. So partner relationships, just like producer relationships, are key. NGP Midstream and Resources, as they are known, are big deal for us. A big deal for us when we went into the Marcellus. Similar sort of thing, when we get up there was our partnership with ArcLight. Another private equity, we're able to combine with those guys, we were one of the first. I remember going to conferences where there were some where the MarkWest NGP, the MarkWest ArcLight relationship, sort of was a study case -- or a case study. So how does this work between an industry player and a private equity player. It's worked.

Sunoco Logistics innovative, new, different solutions with another industry player. It's a big part of what we've done, it's part of our process. Work with our producers, work with our partners, be innovative, that's what's driven this growth in the last 5 years. It hasn't changed, this is what we've done. It's what drove us back with now EMG, tremendous partner of ours, worked out, has worked out great with us. We particularly see this sort of when we've just talk about ethane, we're going to talk about it for a minute. But when we look at the ethane solutions, particularly in the Marcellus, those were all partnerships, those were all innovative, those were different, those were going to Sunoco, those are saying would you be willing to change the flows of those pipeline. It's working with those folks. There's also a reason that every ethane project sort of starts at Houston. It's starts with our fractionator, there's a reason for that. That's sort of our strategy. That's our process, that's what's going to continue to drive us, not just as we build up the plants in the next couple of years, that's what's going to drive us for 4 or 5 years.

So what we're going to do now, take that hard right turn I talked about. We're going to go into something completely different, and we want to talk about the NGL markets. So many of the folks in the room, your company is a sort of talked about NGLs, it's affecting us, it changes our life and so we can't not talk about NGLs. Sort of an interesting place to put this slide. This slide sort of look out, of course, all of the various plays, the resource plays, sort of ranks them all, we didn't do this. This is done by Goldman Sachs. We've used a number of versions of this. There's a reason that we stuck this slide here. The first one is so what decides the ranking of the plays? We all know that, first thing is the reservoirs, obviously. How much is the cost to drill those wells? What's the [indiscernible]? It's what rank it. But there's a third thing that has dramatically impacted where these go and that's NGL prices. So not only are NGL prices affect us, but they affect our producer customers. They affect the drilling, so what's the big deal? Being able to maximize NGL prices for our customers is a really big deal because it's what drives these plays to the left. And when they're on the left, our customers drill.

There we go. We all know this. Much of this slide I'll show are ones that we borrowed from EnVantage, Wells Fargo, a number of others, this is an EnVantage slide, huge growth in NGL production. 10 years, 2 million barrels, going to 3 million barrels, a lot of this growth is in ethane and propane. It's amazing by and large, butanes and gasolines sort of up until just very recently, but they've sort of followed crude. It's been a good relationship between those 2. Ethane and propane, as we all know, have completely fallen off of crude. Why is it that? What's our perspective of why that is and how will that impact us? Another EnVantage slide, Peter Fasullo, a great friend of ours, a close contact, we work with Peter closely on a lot of things. We like to use his stuff because we believe in what he does. Let's first talk macro and let's talk ethane. We all know this. Ethane production growing dramatically. Ethane demands growing more slowly but more or less in parity, here's our view and it doesn't really stray too much from the big picture. We know that over the next couple of years as the crackers are coming back online, as people expanding those, we think, just like Peter does, they'll be in parity. Long term, ethane supply in the U.S. is going to struggle to keep up with demand. There's going to be needs for lots of ethane for a long time from all the plays. We think, particularly in the Northeast, this means RDF and [indiscernible] is going to be full for a long, long time. Producers are going to be recovering every bit of their ethane or asking us to recover a bit of their ethane that we possibly can. We think this is great for Mariner West. We think it bodes well for what Enterprise is doing with ATEX. We think this is great for Mariner East. We think this is opportunity.

Similar sort of thing for propane, this is the demand side of the picture. There's been a lot of talk about in this year and how there's been roughly 3x as many as normal maintenance shutdowns of the crackers and how that's affected ethane. That also affected propane significantly. When that comes online, when some of these direct dehydrogenation projects of propane to propylene come along, we think propane is going to continue to grow. The game changer here, and we all know this, and the good news is it comes early, it begins in 2012, is propane exports. The U.S.'s role in world LPG market is going to grow dramatically, we think, over the next 2 years. We believe that the U.S. will be the price setter for worldwide LPG of propane and that's what changes.

Of course, the biggest 2 changes are what happens with Targa and with Enterprise late '12 and '13, so the good news for propane is help is on the way and help comes early. Will it happen in '12, probably not until later part of '12, but it will happen. As propane rises, it also takes sort of the cap off of ethane and allows ethane to continue to grow in prices, so this is not only good for propane, we view that this is critical for ethane, not only is it important for propane, we view this to be critical for propane. Now in a minute, we're going to deep dive sort of in the Northeast and talk about exports in the Northeast, how do they play into this? What happens, this is the macro view and this is good and it affects a lot of what we do particularly in the Southwest, but we're going to deep dive a little bit into the Northeast as we go along.

This is one of the few data points -- this slide is ours, this is our data point, and we've talked a lot about this, it was important that we update this. Everyone's talking about propane in the Northeast. How will propane work in the Northeast? Is propane the new ethane in the Northeast? This is our view. This is our view. The first thing we'll talk about is in the winter. Right now, 80,000, 90,000, 100,000 barrels a day in a normal winter slows up the TEPCO pipeline or TET pipeline into the Northeast. Everyone knows about that, we all know that that's going to back off. As more Northeast production grows, this will back off. What a lot of folks aren't talking about though is a detail, we think, that does in fact impact the Northeast significantly. Just 3 or 4 months ago, Enterprise filed an essentially doubled the rates for producers or for shippers to transport from the Gulf Coast to the Northeast. What we haven't seen yet is what happens in the Northeast now that the rates to get propane supply from down south, up to the Northeast, the cost of that is almost doubled, gone up by $0.12-plus from $0.12 to almost $0.25, how does that affect the Northeast? How can shippers or consumers in the Northeast, how can they afford to even ship up propane from the south up to the north with the dramatic increase in the prices of shipping. It changes the Northeast very much. If you have access to rail, if you have access to truck, if you can move around to different locations and different marketing, we think for our producer customers, this provides an incredible opportunity for us. Summer is going to be tougher, there's going to be more variability in the summer. We think storage is critical. We think storage is critical. 2 or 3 years ago, when we first entered into the agreement with Enterprise to have on-system storage on Enterprise, no one much cared about that. It wasn't a big deal, whatever. Northeast is always going to be short of propane all year round, it doesn't really matter. Not the case today. People get it today, it really, really, really matters. People who don't have stories to talk about, they're struggling to continue operating. We have those marketing assets. We have storage, so the things we put in place 2 or 3 years ago that weren't differentiators, now there's a big differentiator. Great slide, the top slide, I think these are both Wells Fargo slides. I love the top slide because the green in there is frac capacity -- or excuse me, processing capacity, I like it on there just because the green is so much as MarkWest.

Yes, I agree with you, that's good. We'll just stare that the green is MarkWest, green is good, green is good in this slide, green is really good. So the bottom slide is supply and demand. Short term, this summer, incredibly warm winter, production growing faster than anyone predicted, perhaps, maybe except for us. We knew what we are building. But production in the Eagle Ford, production in the other areas of production, the Utica, Marcellus, Bakken, West Texas growing dramatically, so we have rapidly growing production. We have historically warm winter, everyone filled up the shortage, ready to go into winter, prepared for a cold winter and we had historically warm winters. We came out of the winter unprepared for -- as an industry, somewhat unprepared for the volume growths, for the high storage levels and so in the short period of time, it's ugly, right. We all know that. In the short of time, the last 6, 8 weeks, we've had a significant reduction sort of in the price at Belvieu. What we've also done is we've had a significant reduction in the differentials of propane that we normally enjoy up in the Northeast. So while the price of propane has dropped $0.20 or $0.30 in the short term at Belvieu, our differentials have also been impacted. The key to this slide on the bottom is Wells Fargo Supply and Demand, of course, overall for a long period of time, the Northeast is going to be a net importer, over the annual basis, Northeast is going to continue to be a net importer of propane. So what does that mean? It means by definition, supply and demand lay on top of each other, right? Because through the TET pipeline from the Gulf Coast, we have to continue to import into the area propane. This Wells Fargo slide also assumes that we export about 1/2 as much out in the Northeast as we import in. As I mentioned before, what this slide doesn't really speak to and not a lot of people are talking about is the fact that today, as I mentioned, taking product, importing it up the TEPCO pipeline is a very, very, very expensive proposition. That puts folks like us in the Northeast, as I mentioned, in a great situation. We know propane is disconnected. We think help is on the way. We think when the help comes, it's going to doubly help us because not only will the prices recover, but we'll have the ability with our producer customers to have a real live example of the assets that we've installed and the advantage for those producers.

So to finish up the discussion, the little right turn that we made on NGL and then to finish up the overall commercial discussion. We've been doing a lot of things for a number of years to prepare for today, to prepare for this exact environment. Now it came a couple of years sooner than we had expected for sure with the recent drop, but we've been preparing for today for years. The bottom bullet point is what matters to us, particularly in the Northeast. Producers who combine with midstream companies who have the optionality, particularly in the Northeast, are going to do better than producers who don't have those options. That's going to change the differentiation in the Northeast and that puts us into a great position.

So sort of to summarize. We've had great growth. We've gone from open fields to 3 Bcf a day in the Northeast. We've gone from a 50,000-barrel a day fractionator now to 285,000 barrels a day of fractionation. We think there's lots of growth yet to go. Our NGL infrastructure, the Keystone acquisition in Northeast, we are in a great position so that when John's guys get done with these 13 plants, we want them to have to -- I don't know if we'll do 13 more, we want them to have a lot more plants. Our goal is that John will stand up here standing for 2, 3, 4 years to come and we'll be talking about more and more plants that we're building in the Northeast. We have great relationships with our customers. For 5 years, those relationships have led us to be the first mover in opportunities that other midstreamers haven't been able to see. We've been fortunate to capitalize on those opportunities and have tremendous growth. We don't believe that process stops, we think that keeps going. And finally, the current NGL markets provide a challenge for all of us for producers are challenged, for midstreamers a challenge. What we think we've done, as I talked about now several times, we think it shown that we can differentiate ourselves more than the other midstream. So with that, Nancy, I'll talk about your slides.

Nancy K. Buese

All right. Thank you, Randy. Let's step back for second, I'll just kind of circle us back from what you heard so far this morning. Randy's role in MarkWest is really to get out and face the customers on a day-to-day basis and line up the work for us and figure out what needs to be done to make our producers happy. John is the guy who does all the amazing work to meet the deadlines that Randy set and Cory is very good at keeping us all in line, keep us from doing something stupid and Frank keeps us very focused. So it kind of boils down to my roll. I've been keeping the dollars flowing to meet all these needs and all the dollars going out the door to support our capital requirement. And there are sort of couple of ways I think about how we manage the balance sheet and the risk profile at MarkWest. Most importantly, just to remind everybody is, we don't have any distribution -- incentive distribution rate. So when we talk about the cash flow that we bring in from the business perspective, that's the cash flow, that's for the limited unitholders, we don't have a GP, we don't have cash flows going out for any another reason, and that's really important when you think about our cost to capital and how we fund the future. We're also very flexible with our producer contracts, we make the producers happy, Randy does a great job of doing what producers need and in some cases that is a fee-based contract with certain minimum volume requirements, and certain cases that requires us to take some risks from a liquids perspective and handle the marketing and those sorts of things and have skin on the game. We work with all of our customers in various ways for that. And the other piece of the puzzle is really just kind of keeping the dollars flowing, so keeping the customers happy, keeping the dollars flowing out for the organic growth process and the way I think about that is managing the balance sheet in a prudent way to allow us to grow eventually, and hopefully become investment grade, providing the funding on the basis that has the dollars there we need it and actually prefund most of our capital growth and really managing the risk side of our business where we are exposed on the commodities -- on the commodity side and we'll talk about each of those pieces.

This is our guidance slide and really just to give you an overview of the inflows and the outflows of cash. For 2012, we've indicated Bcf in the range of 440 million to 500 million and we'll talk about what drives the numbers in that range and then from an outflow perspective on our CapEx program, we've talked about 1.1 to 1.5, which was recently increased with the announced Keystone acquisition and John's talk that links about what's driving those numbers and as just a reminder, the dollars in the Utica are not included in that number as those are dollars provided by EMG and MarkWest won't contribute capital dollars until into the future that front. So how do we think about the capital markets? It's a good topic with where our units have been trading and how do we think about funding for the future. And just to level set with the Langley acquisition we did in early 2011 with the purchase of the EMG, capital Liberty in December 2011 and with the Keystone acquisition in early 2012, we've had a lot of needs on top of our organic capital growth for a lot of dollars in flowing. And last year, we raised $2.3 billion between 4 notes -- or 3 notes offerings and 4 equity offerings and then so far in 2012 we've been out to the market twice for equity for about $850 million. So the good news is we've got a lot of liquidity even after the closing of Keystone, which we announced earlier this week. We've still got approximately $1 billion of running room in terms of liquidity. We're not drawn on the revolver and this gives us room to continue to fund our capital plan for the balance of 2012. We also have really reduced our cost of capital over the last few years, and I'll show some slides in a minute about how our bonds and our equity have traded. But the good news is we continue to reuse that cost of capital. We've been very prudent with the balance sheet, which has helped our ratings and indeed helped our cost to capital. We'll talk about how we've been sort of trading versus our peer group as well.

From a balance sheet perspective, a couple of things to note, one is with the work we did around the bonds last year, you'll see we don't have any -- we've got a very small tranche of 2018s outstanding, but the next set is that we have outstanding of any size is really the 2020s. So we've got a lot of time before we have to worry about refunding and refinancing on any of our senior notes. You'll also see that our debt to total capital is still kind of in that 50/50 range, which has been an objective of ours, but the thing I'm really proud about is our leverage ratio is under 3x at the end of Q1 and our interest coverage has gone up significantly. So those are credit metrics that we look at while our covenant on leverage is 5.25, being under 3 of the big milestone, and I think it serves as well in continuing to work forward with our credit rating.

So our cost of equity capital and unfortunately, we weren't able to get a greatly updated slide on this, but this does give you the view. We're talking about earlier with no incentive distribution rights and no take for the GP, MarkWest trades very well to the right of the cost of equity capital versus our peers even though the raw numbers have changed our relative position within the peer group has maintained the same, which is over to the right, which is where we want to be. And it helps us really compete for some of the projects. It makes us more effective in our ability to do what we need to do around the producer customer contracts and really perform in the sector.

So let's talk a minute about total return. This is another slide we're really proud of. Again, since 2009 we sort of came back from a really rough period is we've really manage to outperform not only our peer group in the S&P, but the AMZ as well. I think it just tells you a little bit about where we've been and what our story means with the kind of growth that we've had, what this evolves to for unitholders like yourselves. We're really proud of the slide, I think, as Frank has talked about, our job going forward is really how to keep that moving up into the right. The senior notes is another glimpse of something we're pretty proud of and again, we obviously trade in line with the marketing, with treasuries overall, but looking at where MarkWest bonds have traded over time, vis-à-vis some other significant indexes, is really important. I think the other thing I really like to see is that 2020s have traded for a good bit of time, under 5% yield, and that's a very exciting place for us. Breaking through 6% and then through 5% was important to us. It also indicates we're starting to get more of interest of high-grade investors and starting to have more outlets for our paper over time, which is great as we increase the amount of debt longer term for the company.

So from a rating agency perspective, again, we get asked this a lot, we work with -- consistently work very hard on the balance sheet and working with the rating agencies to understand our business and can continue to think about how we're moving forward. We received upgrades from everyone in 2011, we've been working very hard on continuing to meet all these metrics and basically maintaining our growth in a very conservative manner from the balance sheet. In other words, when we do an acquisition, we get out and pre-fund it very quickly so we have the ability to not be exposed to fuel in the market place. And we've worked very hard on the metrics just to make sure that what we have a lot of room in our covenant, we're acting and feeling and looking more like closer to an investment-grade company as that's our ultimate objective.

So just to talk a little bit -- I know this is on top of everybody's mind and Randy did a great job of setting this up for the discussion about NGLs, but talking about our risk management program, so we've said we're about 50% fee based, the other 50% is exposed to commodity prices. So what does that really mean and how do we think about that risk? And we do have a very robust hedge program, our hedge committee is made up of our executive team and a couple of other folks and we meet every week to talk about hedging. We look at what are our physical volumes for a 3-year rolling program and what are going to do about that, how do we manage that for the future and we use the combination of color, cost of color, swaps, we've occasionally used puts and we, as we sit here today, for example, in the middle of 2012, we've already done a significant about of hedging for 2013, a large amount of hedging for '14 and we're starting to get into hedges for 2015. And the way we think about that is kind of a regression analysis model and that helps us figure out, we do use proxy hedges as you can't go out and get a direct product hedge today for 2015. But what that does, it allows us to manage in a rolling and a disciplined manner as those periods become closer to us, we've got more structure and less variability around our -- the way our hedge program will evolve. And what it's doing for you as investors is really protecting that distribution. So as we sit here today, we have a line of sight. What will happen to these distributions in 2 or 3 years from now, having the hedge program in place is what protects our ability to continue to grow today and know that we can sustain it into the future. And we try to give you as much information and as much transparency with our hedge program as possible and we'll talk about that here in a minute. Overall, this is where our contract structure looks is after hedging, we're only commodity exposed on about 16% and that's in a scenario where all of our hedges are completely effective and we'll talk about that in a little bit as well, but as I mentioned, we're basically fully hedged for 2012, nearly fully hedged for 2013 and starting to work harder on some of those out years. And I will mention, as these periods become closer, we do look at the opportunity to swap and to direct product hedges and we've done that. We've done that in the recent past is if the economics indicate that we can get out of a proxy hedge and into direct product hedge and give ourselves the better results or more fixed certainty around our cash flows and distributions, we will do that. So we look at all kinds of options associated with those hedges. And this is a table. We provide this, this the last page of our earnings release every quarter and we also give you great detail on our hedges in our 10-Qs. And what this basically allows you to do is pick your price of crude for the rest of the year, pick what you believe about the oil and crude, the crude-to-gas ratio and then another assumption around the standard deviation around a 3-year mean for regression analysis on how liquids are going to impact our hedges. And so this can kind of tell you where we are today based on what you think about the rest of the year, where our DCF will invest. From that, you can get a lot of information to think about in terms of coverage, growth and distributions, and where we're really going to be for the year. So again, we are exposed on 1/2 of our business today, but we do have between hedging and in this report, we give you a lot of information that helps you understand where we're going to end up eventually. And as the year goes on, you get more and more certainty around that as the table is only telling you what will happen the rest of the year. So it's a great resource, I encourage you to use it and if you have trouble understanding it or modeling around it, definitely let us know, we're happy to help.

So just a recap of what we've done. And I think John and Randy have done a great job of talking a lot about what we're growing, how we're building it and this is really just a picture of how we funded it. We will continue to go to public markets for debt and equity. We're in a good position now, where we're pre-funded enough for the rest of the year. We would like to stay out of the capital markets for a while, we'd like to see our units trade back up, so please do what you can around. Anyway, with that, I will turn it over to -- it's obviously good entry point right now, but I will turn it back over to Frank for closing comments and Q&A.

Frank M. Semple

Thanks, Nancy. We've covered a lot of territory here in the last hour, and let me just kind of recap. We're in a really pretty good position. We've, over the years, demonstrated the ability to continue to drive distribution growth and achieve our goal of providing superior, sustainable returns for our unitholders. But as I said in the beginning, the key and really the purpose of all of our discussion today is to kind reinforce what does the future hold. As indicated on the slide, our ability to continue that up into the right trajectory depends on our ability to continue to execute this growth strategy. This organic growth strategy focused on key resource plays, driven by the relationships and the services that we're providing to our producer customers, pure and simple.

And it's hard, I mean it's hard, I mean we talked a lot about the metrics of this business, growing a number of projects, the growing number of headcount, the CapEx, the balance sheet implications, but again, while it's challenging, we're in a pretty unique position, I believe, in this industry. The math is pretty simple, the MLP math is pretty simple. You can see what we have in front of us in 2012 in terms of CapEx. These are strong rate of return projects, typically low-to mid-teen type de-levered rate of returns. We have no incentive distribution rights, the table that Nancy showed you at the end, the sensitivity to commodity prices allows you to go in for 2012 and kind of determine really what our DCF should be as a function of all of our fee-based services and the commodity sensitivity.

So in a lot of ways, sometimes we provide too much transparency because it allows you to kind of go in and determine where we're going to be in that range. And right now, NGL prices as you've heard several times are under a lot of pressure. But the key is that we are marching to investment grade. We are growing our business, our EBITDA, our fee-based services. And it's kind of a new situation to be able to kind of see with a lot of specificity, the projects that we have currently developed and the process that will allow us to continue to develop and grow these high quality assets in some of the key resource plays in the U.S. So again, we're kind of in a unique position.

So with that, let's just go ahead and open it up to questions. And I've got, like I said, I've got a lot of help today, but I'll try to quarterback this thing, so that we can cover all your issues and recognize that we're also going to have some breakout sessions later on in one of these other rooms. So let's go ahead and start.

Question-and-Answer Session

Unknown Attendee

Just a couple of real quick questions. Just curious [indiscernible] in that and the growth in the Marcellus [indiscernible] do that's already been approved. So no new projects come online though 2012 to 2014. By 2015, what percentage, if you look at pie chart on Page 70, we won't have that 3 years now [indiscernible], what percentage do you think would be fee-based versus commodity sensitive, whether it's hedged or unhedged?

Frank M. Semple

Right. And I'm going to repeat the question just for the webcast, and we'll try to stay ahead of the questions with these microphones. But the question was really around given our capital plan, what does that result in, with no additional projects, so what does that result in, in terms of fee-based operating income or margin out in the 2014 range. And we have an internal model, obviously, that provides that calculation. And if you just -- if you assume kind of a flat commodity price curve, we're going to be kind of in the 55%. So it's not hugely dramatic. The issue becomes -- the big driver in that is obviously, what the frac spreads look like and what the commodity prices look like for our POL contracts. If those are high, then we might be lower in the -- our actual fee-based might be fairly flat. And this is what we're working against is that if your commodity price environment is strong, then the fee-based component will be less. But it goes in -- and this is the issue around investment grade is we need to -- that assumes no other projects, and so every -- there will be more projects. And every project we're doing, we look hard and Randy's team, John's team is working very hard on every new contract being structured around a fee-based contract. And you've seen that up in the Marcellus, the only component of the Marcellus, in Liberty, is that POL that we have with Range, which is a small piece of the overall operating income because we have fee-based services for fractionation and for gathering and compression for them. We have a small POL component. It becomes less and less of an impact. And all of the Utica is fee-based. So the key is that over the next 3, 4 or 5 years that we keep making progress in that area. Obviously, you need to have an effective hedge program. Yes?

Unknown Attendee

Jim White [ph]. Great presentations by an excellent management team. Just a question on any impact that I'm sure you've already measured. Jim White [ph]. Great presentation by an excellent management team. Just a question with respect to the Philadelphia region refineries and what -- any of the outcomes, whether they closed or opened or stay within last year in deliberations and [indiscernible].

Frank M. Semple

I'm going to turn it over to Randy. But let me just kind of preface this by, the disposition of the refineries in Philadelphia and the related discussions that we're having with Sunoco, and ultimately with Energy Transfer is a key -- is kind of a key part of our commercial development activities in the Northeast. Randy alluded to the pipeline projects, Mariner East and Mariner West. Obviously, we're partnered with Sunoco, and a lot of our ability to continue to optimize the value of the NGLs, which requires pipeline capacity, storage and terminaling capability is really -- it drives that value of that Philadelphia complex at [indiscernible] Eagles Point. So go ahead.

Randy S. Nickerson

Overall, each -- overall, the Philadelphia activities, we view them as a net positive. Although it's different for every sort of one of our NGLs that we have. For our propane Philadelphia refineries produced 8,000 to 10,000 barrels a day, we'll call that supply that moves into the market. So just that from that perspective, on a propane perspective, 8,000 to 10,000 barrels a day of supply potentially, if they end up closing all of them, have left the market. That's obviously good for propane. There's a lot of assets up there. Pipeline assets that have been focused around the refinery use. What's exciting now for us really is I think a lot of those assets now can will be redeployed or focused on serving the Marcellus and the Utica for NGLs. That's a big net positive for us. Being able to use the refineries that docks at the refineries of Sunoco, and of course, we can't speak for them or for Energy Transfer. But having those docks open to support Mariner East and the export activities is a big positive for us. So gosh, those are some 3 really big positives. The only downside, I would say, in that is really for butanes. Particularly iso, we have less of ability -- those were refineries -- those are market opportunities for our iso. All of our iso essentially goes to the refineries for alkylation. That's not an opportunity that we have obviously. They won't be consuming iso for alkylation. We think most of the refineries in the Northeast, Mid-Atlantic, even Midwest, or short iso that doesn't concern us. Normal butane, sometimes it's a positive, sometimes it's a negative. They weren't necessarily a producer or a consumer much of normal butane, there's still some blending activities. We still continue, even though the refiners have shut down, we're still moving normal butane over into the East Coast because it's really been turning into more of a terminaling import gasoline and there's still those opportunities. So net-net, it's a big positive. But it does change our business model somewhat. But overall, it ended up being a net positive for MarkWest.

Unknown Attendee

Could you tell us how you think about the [indiscernible] to your producers, to MarkWest [indiscernible]

Frank M. Semple

Okay. John put up a slide earlier, and he just spent a couple of seconds on it. And like a lot of slides, we can't -- we probably don't spend enough time. But the relationships that we have with the state, through our governmental affairs group and the relationships with our producers gives us really good visibility into how they view the issue of frac-ing. And it's certainly a battle in many of the Northeast states. But huge progress has been made. It's an education issue that has an overarching driver of jobs and the economy. And so we have relationships at the state-level, shoulder to shoulder with the producers, at kind of every level of the states. We don't spend a whole lot of time at the federal level because frankly it's really not worth the brain damage. But at the state level, we have a lot of visibility, and there's been a lot of progress made. And the producers view, and again, I can't speak for the producers directly, but from our perspective based on that relationship with the producers is that they see a lot of progress. It's education. And because of the jobs, because of the economy and because of the safety record of the industry, they're overcoming the negative pressure that's out there relative to frac-ing. So all in all, it's really died down quite a bit, to be honest. So they're moving full speed ahead. And really there's -- and the key is -- the key is their execution. There are -- and John could speak for 15 minutes on the details of the implementation at the state level and the commitments by the producers on their design for their wells and the execution of that design consistently across all the states. And they need to continue to do that. Doing that allows them to operate safely, and that's the key. Yes, if you just take -- we got one microphone here and do we have anymore microphone? Okay, there's one more, here's 2 microphones. So let's kind of just stay ahead of the questions and go ahead.

Unknown Attendee

You summarized the Shell cracker that's scheduled to be built in [indiscernible] I think we were counting. If that doesn't happen, would that change your outlook or assuming that's [indiscernible]

Frank M. Semple

Exactly. John said it, I think Randy also alluded to it is that, that is icing on the cake. The development of these projects that have allowed the producers access to the Canadian markets, the international markets through our Mariner East project, and now with ATEX, the Gulf Coast markets for ethane. It really provides all the outlets necessary to support that supply-demand balance that we talked about. But the Shell cracker would add icing on the cake. We're watching that closely. That's the reason we put it on the slides is because the fact that they have an option on land, some would say, who cares? That's a pretty big deal for Shell. It took them a long time to get there. So they're pretty serious about that. But this is 2017 project. They've just enhanced the value of the ethane feedstock in the Northeast. And there's other crackers being proposed in West Virginia as well as the Shell cracker. And we'll keep you -- our goal is to kind of keep everybody abreast of what we know. The neat part about that cracker is that it sits right on, as John says, sits right on our Mariner East ethane, purity ethane line. So it's right there at the crossing. You just throw a rock over there.

Randy S. Nickerson

Can I add some to that?

Frank M. Semple

Oh, yes, sure, Randy.

Randy S. Nickerson

The other good thing about the Shell cracker is much of the ethane for the Shell cracker will be supplied by the Shell acreage, and certainly sort of the plan. And they have a fairly significant amount of acreage to that Northeast section, right above the Keystone acquisition. So in order for them to build that cracker, there's whole lot of other services that they're going to need, whether themselves or us, and we're certainly in a position to supply that. They're going to need fractionation for maybe as much as another Bcf a day of gas. They're going to need gathering. They're going to need processing. They're going to need all those things. So in addition to icing on the cake for ethane for the whole other array of gathering, processing, fractionation, marketing, NGL marketing sort of services, we're in a great place to supply those services to Shell. So icing on the cake for ethane and a whole lot of additional, we think, opportunities.

Frank M. Semple

John?

Unknown Attendee

Frank, just following on the proposed Shell project, there's different views on the likelihood of that. And with a lot of the liquids being taken out of the area with the ATEX pipeline and the Mariner pipelines and so on, but we've seen some recent data points and forecast showing that there's a pretty dramatic increase in the amount of NGLs that could be available in the Northeast. So I just -- your thoughts on the likelihood, I guess, of it being successful at this point. Anything you could share there. And then also, I'll ask my favorite question, I always ask you this, what's your thoughts on your CapEx outlook going forward? And perhaps, how does that vary depending upon what the NGL market does?

Frank M. Semple

Yes, well, on the first issue around -- really, it's hard to handicap, really. Like I said earlier, I won't go there. But I think that the work we've done, and Randy personally has been very involved with a lot of the discussions with Shell, I think would indicate that getting to this point, where they actually have committed to an option, they did a lot of due diligence around that site, which was a big deal and a lot of their decision was driven by exactly what Randy said, and that is supply. The availability of ethane to be able to support that. What's it going to be? About a, what, 50,000-barrel a day -- 55,000 barrel a day cracker or so.

Randy S. Nickerson

Or larger.

Frank M. Semple

Or larger. So all those things being said, I think we've got a pretty good chance of moving forward. Probably the question becomes kind of a macro standpoint is, does the Northeast ethane market, the pricing if you will, support the -- help the economics? Or are they better off -- they can build that cracker in a lot of places, the Gulf Coast being the obvious place. So is there -- do they think there's enough ethane supply out there to really be able to provide a pricing advantage for the ethane. We're encouraged, and we'll keep updating you when it looks -- I think there'll be some decision points to be made over the course, next 12 to 18 months by shell that would actually kind of reinforce that, but again, it's icing on the cake. On the CapEx, we'll give you guidance in November like now, what I've been doing in November on our earnings call. As I've been providing some -- obviously, we'll give you the 2013 guidance for CapEx. And as we move into the year, this year, we'll start giving you some of what I -- what Nancy hates, which is kind of loose guidance around 2013. So you can start with your modeling, because I think that's fair. We really -- obviously, we have a 5-year plan for CapEx, and so we could start providing those numbers, but they change so much that it really is not a very good tool. So we'll keep doing what we're doing. July, we'll start giving you some indications, loose direction, if you will, on 2013 guidance. But when you have $1 billion-plus CapEx in 2012, it's pretty obvious, and you can actually go back to John's slide, you can kind of say, okay. 2012, that's not a commitment of capital. That's the actual expenditures of capital. So all those projects then that are being completed in 2013 and 2014. We've got a lot of smart analysts and investors in this room, you can kind of start doing your own homework in terms of what's carrying forward from 2012. So it's going to be a healthy, it's going to be a healthy CapEx program. So we're continuing to line that spring, if you will, and with a lot of great projects.

Unknown Attendee

Frank, you said something -- Frank, I believe you said before that there's hundreds of billions of dollars worth of investments available coming up in the Marcellus and...

Frank M. Semple

My point was much more macro. If you just kind of look at that increase in gas supply, just to meet a fairly modest growth in demand over the next 8 years, that's basically 17%. And it's pretty -- that's a pretty consistent growth. I'm not going to argue whether it's 15% or 20%, but somewhere in that range. And the lion's share of that, and again that chart that I showed you, that graph was basically about 90% of that growth was going to come from unconventional shale plays, primarily in the rich area. And that's primarily richer is my editorial comment because that's where the economics are as Randy mentioned. So the interest -- most of that infrastructure is coming from new development in these shale plays that we've been discussing, Granite Wash, Woodford, Haynesville, Marcellus, Utica, certainly Bakken, Eagle Ford. And there's not -- to develop these shale plays, it requires a lot of compression, a lot of big pipes. It's not there today. It's being built and obviously as we're doing in the Marcellus. And you hear that comment around the midstream industry [indiscernible] that there's hundreds of -- literally hundreds of billions of dollars of CapEx. And you can kind of see what we're doing. Just what we're doing in the Marcellus...

Unknown Attendee

It's amazing.

Frank M. Semple

And that's why I called that slide kind of an opportunity slide because it basically -- you've got a big gap. How do you meet this requirement. It's pretty amazing, Randy mentioned it, pretty amazing when you think about from the standing start in Marcellus 2009 to 2012 that we were basically -- that we've built out. This is not just plants, but it's mainly the CapEx is on the gathering and the compression side of the equation. But obviously, plants are a big part of it. So obviously, we've ramped up very, very quickly, and we got a lot of competitors that are doing the same thing. So it's really helping the producers get their gas to market and their NGLs to market. So yes, huge opportunities.

Unknown Attendee

Keystone, it appears that they sort of decided to throw in the towel and sort of join you fellows.

Frank M. Semple

Not sure, I'd call it throwing in the towel, but...

Unknown Attendee

Yes. I mean, throwing in the towel is [indiscernible].

John C. Mollenkopf

Yes, I mean, I guess they've decided to stop being a competitor and decided that it's not being good.

Randy S. Nickerson

Well, one of the key things is real simple. One of the key things, it is really sort of heart and soul. What, what was happening at Keystone was because they didn't have the NGL pipeline up there, what they had to do was frankly an incredibly complicated engineering feat. What they had to do was develop the plans they had at Keystone. They'd had to install de-ethanizers and then they had to consume all the ethane as fuel in the processing plants and in their burners in order to allow the allow the residue gas to get in to spec to sell that. When we sort of built-up the NGL pipeline up to that, and we opened that up. And beginning in '13 and then of course in '14, when we're able to take that ethane away. These enormous constraints that the Rex, Sumitomo sort of, particularly the large producers have been living under, those go away. That's one of the reasons why they very strongly wanted to have MarkWest do the deal because these huge -- I don't know if I'd say they threw in the towel. $500-plus million, I'll throw them a lot of towels for $500 million.

Unknown Attendee

[indiscernible]

Randy S. Nickerson

Okay, yes, but it was a big deal. They saw the vision that said MarkWest we've got to have that access to that NGL system that you had. One other point about the question about the Shell cracker I think is important. Of course, the Appalachian Basin is different than a whole lot of -- all the other basins in a lot of respects. One of those is that for -- we stopped recovering ethane in the basin 25 or so years ago. So a lot of the sort of the culture up there is not to recover the ethane. One of the good things about it, I think, if I were in Shell's shoes, we're not, but if we were in Shell's shoes we'd kind of go, what's the good thing about it? There's probably going to be an enormous amount of pent-up ethane available to be recovered that may not be recovered because producers don't have to recover it in order to make the spec. And so there's a lot of producers that haven't taken out capacity on Mariner West around ATEX. That is going to be sitting there with this latent ethane capacity. They kept capacity to produce it. Now the other thing with Shell, if we look at sort of the cost to get ethane, lock-up shippers who didn't sign up for a firm transportation to get that out, it's going to be a -- it's a fairly steep rate. I don't think Enterprise has published a lock-up shipper rate, but certainly if there are discussions in the $0.20-plus. So imagine you're Shell, and you can buy ethane for $0.08, $0.10, whatever, $0.15 less than all of your competitors on the Gulf Coast, you can overcome an awful lot of lack of infrastructure on the Gulf Coast if you have a built-in structural advantage of $0.10 to $0.15 over all your competitors. That's why not just Shell, but a ton of companies have looked in and continue to look in, in addition to Shell at crackers up in the Northeast because it potentially could be this enormous long term structural advantage with supply just waiting for it to show up so it could be -- sorry Frank, I didn't want to go back to that, that was just a...

Frank M. Semple

That's all right. Louis, I guess in the back, Fred's going back there if you want and grab a microphone.

Randy S. Nickerson

Yes, while Louis is getting the microphone, I think kind of the obvious question when you hear all this is really, how do you accommodate for future growth? And again, John could go on for a lot of minutes describing our design principles. But we are -- when we look at all these CapEx, we are designing these facilities to be scalable, as much as possible. Obviously, you can't overspend. But when you think about ethane pipeline, NGL pipelines generally and ethane specifically, we are trying accommodate -- project out with our producers drilling programs to be able to accommodate for the future growth that we've been talking about, and that's really a part of the science that we're using as being able to -- to be able to accommodate those future opportunities. Yes, Louis.

Unknown Attendee

A question for Randy. If you look at the slides that you guys have put out for Liberty, you've done a lot in West Virginia, in Southwestern corner of Pennsylvania. And then if you look at kind of those really rich gas counties in north of your Houston plant, you have the Rex plant there. But the Keystone assets there, but you haven't yet announced anything in kind of some of those surrounding counties. It looks -- it seems to me like that's going to be the next phase of development there. And then maybe from a processing side and then looking at it from a fractionation side and NGL logistics side, if you look at Oklahoma, one of your competitors has basically a franchised position, gathering NGLs in Oklahoma. Do you see you guys as developing that in the Northeast where you become the primary NGL logistics provider and kind of keeping that very valuable position in the Marcellus and Utica?

Frank M. Semple

Yes, I'll take this and then Randy can add to what I'm saying here. But the answer is yes. I think that the -- first of all, it's about our goal is to -- and Randy touched on this. I think If you look at what we've developed, we have developed, and we will continue to develop in the Marcellus and the Utica. It is -- he used the words, Randy used the words, is to continue to develop that franchise position that we have up there in the last -- developed over the last 20, 25 years. But it's -- and NGLs are the key. NGL capabilities, not only the processing fractionation and transportation, it's the marketing, it's the bodies that we have in our marketing group to be able to really support the producer's requirements from an NGL standpoint to again be able to provide as much uplift as we can for those liquids. So it's really critical that we continue to kind of expand and develop that model with a lot of competition. On the Keystone, we talked about this on our earnings call, where we also talked about the Keystone acquisition. You're right, what we showed and discussed was a NGL in conjunction with the Keystone acquisition, which is basically those 2 plants. We are building out the NGL line that Randy talked about in order to be able to support the production that's going to be ramping up. 90,000 by the end of the year and continuing to ramp up, kind of doubling again in 2013 and doubling again in 2014. We need to have that NGL pipeline. But we haven't -- we have not yet put other plants on that map. We haven't announced new plants. We're obviously working with the producer/customers, and there's some great producer/customers in addition to Rex in that Beaver-Butler county area. But what I said on our earnings call and on the Keystone discussion was that hold us accountable. If we're 6 months down the road and we have not been able to kind of develop some of those plant projects, cryogenic processing plant projects, then start asking the question because obviously our goal is to do more than just acquire Keystone and support Rex and Sumitomo in the development. So there's -- and it's a great area, very prospective and our producer/customers, including Range, really they talk about it publicly about how they feel about their acreage up there.

Unknown Attendee

When you originally started talking about Mariner West and Sunoco Logistics, most of that ethane was going to go down to the Gulf Coast. Could you address the issue of whether it will go with the export market now and who will benefit from that? Sunoco Logistics or will you participate in the -- and if you get better prices internationally than at the Gulf Coast?

Frank M. Semple

Right. And you're talking about Mariner East. And again, I would just be a little bit repetitive. But Mariner East was originally designed as a purity ethane project, pipeline project to Philadelphia market to cryogenically cool that ethane, put it on barges for the Gulf Coast, and that's where the reflagging issue came about and everything else in. That as a lot of projects do, it's evolved. And it's all about kind of where do you get the best -- where are the best outlooks, best markets for the NGLs that are being produced. And that's what that continued discussion around Mariner East has evolved at the point right now where we're thinking that the best value for the combined Sunoco-MarkWest pipeline over to Philadelphia would be an EP mix. And there's a lot of reasons for that. But it enhances the economics of the transportation, investments are going to be made because you got more volumes. It mainly allows us to optimize the facilities that Sunoco has over there, ultimately Energy Transfer to be able to store and terminal, whether it's for domestic markets or international markets, both propane and ethane. So it's really, if you think about it, it's kind of the natural evolution if you will given that rapid ramp-up in production out of the Marcellus and ultimately the Utica. Did you want to add to that, Randy?

Randy S. Nickerson

Yes. Just a couple of things. A little sorry, Frank. I flagged you there. That was sort of fun. We'll, I'll add just a couple of things I think are sort of neat about that. The first one is sort of when you think about Mariner East. Mariner East was an example of a project and it created an enormous value for our customers. We still think ethane going over export is a big upgrade for our producer customers. But what it also did was Mariner East was a key project to provide the incentive, the impetus for the pipeline, even ATEX we think down to the Gulf Coast. So that was a big deal. The other thing I'd point. A couple of things is, when we switched to -- from an ethane pipeline to an EP pipeline 8 months ago was long before we see sort of had this current issue relative to propane. So it was us months before it sort of hit the market kind of going, okay, you can see this coming like a freight train. The last thing that makes the Northeast and makes that project very, very different, and it's one of the things that's part of our process. In the Gulf Coast, in the Gulf Coast, where all the other -- essentially, where all the ethane or the propane exports are occurring, all of the value for the upgrade of that goes either to the midstream guys who have the docks or it goes to the international markets or the marketers, right? I mean, you don't see producers delivering propane in the Belvieu and suddenly getting a -- this winter when there was a $0.70, $0.80 uplift for the product going over, particularly over to Europe, how much of that went to the producers? Nothing went to the producers. Nothing went to the owners of the propane. One of the huge differences about what we are trying to accomplish to the Northeast is that after the fees, if you will, to transport it over there and to send it over to the European market, Caribbean market, South American market, Mexican market. All the value of that uplift goes back to the producers in the Marcellus, in our customers in the Utica. So as another example is for our customers, our producer/customers, they can have an enormous advantage over their competitors because they're going to be getting the lion's share of the upgrade by exporting propane out of the Northeast. That's one of the reasons why that's such a big deal for the producers up in the Northeast. Not only is it an answer versus exporting all the way down to the Gulf Coast. But they get all the value for it. And so it's just sort of part of the story, and I think is a really integral part of why that's such a neat project and why we pushed it so hard. And now that there is a lot of supply, suddenly everyone in the world is going, oh gosh, we got to have exports, we got to have exports. Another example of why it's painful right now, what it's done is defer some of the projects that we've been talking about with the producer/customers for 5 or 6 months is a real need again.

Frank M. Semple

Yes, it's just a -- it's déjà vu all over again. Propane is kind of the new ethane. And you think what's happened just over the last 24 months with regard to ethane. I mean, for us, we look at it and go, man, that's pretty incredible when you think about it because 24 months ago we were still beating our heads against the wall trying to not convince the producer/customers because they get it. It was really, are there some sponsors for large diameter pipeline project for ethane, Mariner East and Mariner West were already out there announced. But it was, how do you get to the Gulf Coast? And it's happened fairly quickly with regard to Enterprise developing ATEX. You're going to see other -- I think it's back to Saul's question about infrastructure. It takes infrastructure to be able to accommodate these new markets. So you can see propane terminaling, export terminaling capabilities developing out in the Northeast. I said last week when I was at the MLP Conference I said, somebody's going to do it. We would like to be that company that helps facilitate that terminaling, export terminaling capability in the Northeast.

Unknown Attendee

Question on Utica. In regard to the Utica JV, how fast do you think it's going to or when do you think EMG's visual through their $500 million commitment if you're going to have to start contributing capital? And then should we view this kind of similar to the first Liberty venture in that the project is going to have some maturity before it eventually accrues to you through buying it out, otherwise you've get trapped cash, you've got other things that were very similar in the first joint venture. So as this plays out, are we looking at the crossover point being '13, '14, and we'll call it the buy-end point being '15, '16, not so much for [indiscernible] decimals of win. But conceptually, that kind of play out and how do the rating agencies think about the step up in capital commitment, potentially a big purchase, and how do you prepare yourself from a balance sheet standpoint and think about distributions as you kind of go through all of that?

Frank M. Semple

Right. On the first question about when you blow through the $500 million, and I said this the other day on the earnings call. Randy -- both Randy and John talked about the Utica development plan with our partner EMG. And if you think about the main components of our current or that current development plan, they involve the 2 plants, the Noble and Harrison County plant, and then you have the fractionation facility and then you have the NGL lines that's being built between Majorsville and Harrison County frac. And each one of those pieces have different attributes in terms of MarkWest Energy funding. The NGL line is of 100% MarkWest Energy funding. The fractionation is 60-40, where MarkWest Energy, if you will, MarkWest Liberty, has the 60% and the partnership with EMG has the 40%. And then the plants are basically pari passu with the 60-40 ramping up to 70-30 -- ramping up for the 70%-30% participation. So they all have different pieces. Now I -- the reason I go into that detail is because we're going to keep -- I know it's going to be one of those things, just like it was in Liberty with EMG, where we've got to keep kind of reinforcing those different percentages, and we'll do that for you. So if you take all those percentages and you kind of look at the capital costs associated with that base plan, now Randy talked about other projects that we're layering on top of that and we're working hard on that base plan essentially, that $500 million becomes an issue when we start funding at the latter part of next year, probably third or fourth quarter of next year. It could be a little bit sooner depending on what these other projects come and how they develop, it could be a little bit later depending on what the capital costs are. But we'll provide an update, that's what I've said publicly. That's still the situation. And if you're modeling us, you kind of think about that kind of a starting point for the ramp up. What was the other part of the question?

Unknown Attendee

Well, basically you're going to hand this JV -- you're going to have capital commitments that you're going to then isolate relative to your ability in terms of distribution and [indiscernible] and free up some cash, eventually, you're going to buy it in [indiscernible] to allow that cash to fully [indiscernible].

Frank M. Semple

Okay, well keep in mind this is different. This partnership -- again, part of the education process, this JV is different than Liberty in that we have disproportionate sharing from day 1 on the distribution. So the distribution's are 60-40. Again, us owning the 60% of the distribution even though we're putting no capital in. So -- but and Nancy can jump in here, if you think about it from a rating agency's standpoint, again, the math is pretty clear. Obviously, you've got some variability depending on when these projects come online. But Nancy does a really good job of staying in front of the rating agencies and showing them the 5-year model, not just a 1-year model, but a 5-year model. In fact, not trying to anticipate how we might provide a liquidation event for EMG, but just more or less, hey, if this is what we spend from a CapEx standpoint. This is how our CapEx grows over time, this is how our distributions grows over time, this is what our balance sheet looks like. And without any assumption relative to any exit strategy for EMG. So I think Nancy does a pretty good job, you want to add to that?

Nancy K. Buese

Yes, I think the thing that I would add from a rating agency perspective that you like the Utica JV and for many of the same reasons they like the Liberty JV is a fee-based business. So if we were to, for example, acquire the remaining portion of that, which is smaller than the 49% of Liberty percentage-wise, I think they like the fact that we have the fee-based income coming into the bigger overall picture and the cash flows associated with that. I think the other thing that we would think about, it's very soon. We're just starting the Utica, but if we would do what we always do which is, we know as Frank mentioned we've got our 5-year model which we share with the rating agencies, and we know what our funding requirements are. We're always out ahead of those. And if we found for whatever reason, we couldn't find, we wouldn't -- we don't do those transactions. If we don't think we can raise the money, we don't take that risk. So we're always pre-funding ahead of what we think is coming down the pike. And if you kind of look at the funding from last year in retrospect, what we did was very thoughtful about having enough capital and access to capital so we didn't have to do a much larger deal in December with EMG buyout. We'll think about all of that.

Frank M. Semple

Good. Next question?

Unknown Attendee

Could you talk generally about the recent impact or the impact of recent NGL price trends on future distribution growth? Is there a point where you say it's just not prudent, we're not going to raise our distribution this year given what's going on with NGLs?

Frank M. Semple

Sure. The reason that we provide that table, and I know you guys keep -- probably get tired of me saying that and Nancy saying that is because it allows you to basically do your own calculation, in terms of really how you view the forward markets. And unless you say hypothetically you say, well, I think that the relationship between crude and C3+ NGLs is going to be x, and I think that based on the table that the guidance or the DCF for 2013 -- or 2012 for MWE is going to be whatever number, $440 million, $420 million, $430 million, whatever you want to do, then you can basically do your own calculation on what that coverage would result in based on our financing plan, et cetera. So we have so many discussions, Nancy seeing me personally with analyst and investors about this, and obviously we're not going to get into a situation where we're actually in a meeting like this giving the guidance, we'll wait to the quarterly call. But the goal is, that you can kind of do your own math. Now having said all of that, and I know you want to jump in here, but having said all of that, our decisions on quarterly distribution is obviously a board decision. We do it on a quarterly basis. It is based on number one, where you are for this quarter, what that performance was relative to DCF and coverage. And also looking forward, the board does a great job of this, they're looking forward and basically saying, okay, so you've got all of these other variables. You've got current quarter performance, but you've also got the fee-based, particularly fee-based DCF that's growing because of all these other projects. So really what is the ability to sustain that particular increase in distribution. And last thing I'll say now and let you ask another question is that, that we've got a pretty good track record of being able to maintain and, obviously, grow distributions. It's a top priority for this company. And so you're always going to see us do the things necessary to be able to maintain a strong balance sheet, to maintain a strong root [ph] coverage ratio and also be able to deliver sustainable, superior distribution growth and total returns.

Unknown Attendee

Maybe more generally, is there a coverage ratio you target? And I'm thinking of a scenario maybe where NGL weakness persists, let's say for another 4 or 5 quarters or so, and you're faced with a decision to continue growing the distribution at the current rate, but letting that coverage go to 1x or thereabout with from wherever you are 1.3x or whatever. Would you allow that to happen with the idea that over time you'll grow back into a higher coverage ratio?

Frank M. Semple

Yes, I mean, we have an internal target. I've talked about it publicly. That's kind of in that 1. I say kind of, it's a specific number, but it's one we'd like to stay in that 1.1 to 1.2 type range on coverage for that quarter. But to your point, you're exactly right. I mean, the board looks at our forecast. And that forecast involve -- includes the combination of the NGL price in the assumptions that drive a significant part of our EBITDA or our operating income and EBITDA and DCF, and it also has the fee-based growing because of all the projects we just talked about. So the board has to balance those, and again, we've got a pretty good track record of being able to balance those needs. And if it drifts down below kind of that objective of being between 1.1 and 1.2, then the board's got to -- obviously, management makes the recommendation, but the board needs to make a decision on whether or not it's prudent to be able to continue to grow at $0.03 or $0.02 or $0.01 or whatever. It's just that's the process we go through.

Unknown Attendee

I was just curious what kind of executional risk do you see in terms of achieving the growth that you have laid out in the Northeast area, Liberty as well as Utica? And what kind of cost inflation pressures you are seeing in the region? And lastly, if you could remind us what are your volume expectations exiting 2012 and 2013 in the Liberty segment?

Frank M. Semple

Okay, let me just make sure -- that last piece I understand. So the 2012, 2013 from a Liberty standpoint on what?

Unknown Attendee

Volumes that you process.

Frank M. Semple

Oh, okay, okay, okay. Let me just start with the last part of that question, the volumes for 2013, our volume forecast and the associated guidance from a DCF standpoint will be provided in November. But having said that, if you -- that's the reason we give you a lot of this information is that you can sit down and you can basically -- the large majority of those projects basically allows you to go in and assume some sort of a ramp-up and the utilization of the facilities as they come online. And as Randy said, the majority of these plans, you've got producer volumes waiting on pipe, on our pipe and our plants to be in place. So the ramp up usually is pretty quick. That is the case on our Sherwood facility and our Mobley facility, and our Majorsville facility. So the ramp up is going to be fairly rapid. So we're going to be at a high utilization rate in 2013 on that 1.2 Bcf that we talked about in that Liberty segment. Execution risk -- and we'll provide you a new update on November, so stay tuned on that. But it's pretty dramatic in terms of volumes. And actually the other part of that, I think you said '12 also, '12 is if you look at the dates -- the bottom line is our guidance in 2012 is based on volumes that are associated with -- the large majority of our increase in DCF -- in EBITDA and DCF is due to the plants that are coming online in 2012. So there's no -- there's not a whole lot of risk that those plants will come online at those dates, Sherwood and Mobley in particular, and that we'll hit our volume expectations, got NGL price issues that are weighing down a little bit on the DCF, but volume projection should be very achievable. Execution risk, you've heard it all across the board. We've got -- in John's discussion, it's the ability to ramp up, it's the people issue. It's the people and the culture issue that is very challenging. And if you look at John's numbers, if that CapEx ramps up, it's not like we haven't had that, hadn't met that challenge of increasing the scale and capability in training and achieving that performance-oriented culture before, but it continues. We keep ramping up. So people's a big part of that issue, and that includes I'll say also third-party people issues, contractors and the manufacturers that are delivering a lot of this equipment. So that's -- that was the kind of the theme where John was basically there's a lot of stuff going on here. So we've got to keep hiring people. He's done a great job. Our HR team does a great job. We've improved our processes a lot over the course of the last several years. So you go to Randy's area of discussion, commercial risk. I mean, if you just take every one of these projects, it takes a lot of work. And if you look at the CapEx that we're spending to support these projects, ultimately we've got to deliver an agreement. And Utica is a great example of where we announced the Utica development plan in December, in late December. And we basically said, here's our vision for the Utica. And do we have any contracts? No, we don't have any contracts. But this unique structure that we have, that EMG allows us achieve a first-mover advantage in the Utica. So we're going to do it with our partner, and we're going to do it under this kind of a framework, of financing. But we've got to have commercial agreements in the Utica in order to move forward. Now you ask, that you've got the disproportion of sharing and distributions and CapEx. But at the end of the day, we got to deliver some contracts. And I said back in December and also in January and again in our last earnings call in May that hold us accountable. I mean, we're not there yet. We talked about Gulfport, and that's an exciting project, but it still is a -- technically a letter of agreement -- a letter of agreement that we're operating on. So we need to get -- we need to consummate those agreements. We need to consummate that agreement. So commercially, this is no different than it's been since we started this business. You got to have the commercial agreements to underpin these contracts. It becomes a little bit more of a heightened issue around the Utica because we're -- no matter who's spending the dollars, us or EMG, you are moving ahead again for that first-mover strategic advantage without firm contracts. So those commercial -- and then you go to Beaver-Butler county, the NGL line, the Keystone, a lot of commercial issues and then Nancy's taking care of the balance sheet. We're still BB issuer. Yes, we've made tons of progress, we've got a lot of liquidity. But at the same time, we've got to be able to access the capital markets to finance these deals and this growth. And the bigger we get, the more capable we are. But that's why I was talking to somebody earlier about why did you go to the equity markets. Well, we went to the equity markets because we had projects that we really liked, that need to be financed. So we're not going to sit here and put ourselves in a position of, a, walking away from those opportunities or b, not getting ahead of the financing. So balance sheet, financing, that's a big challenge. We could, if we sit here for another 15 minutes, I can give you about 10 more, but those are kind of the high ones. And we try to kind of emphasize that as we were going through our discussion.

Unknown Attendee

On the Utica project where EMG is putting in the first $500 million. And we assume that if they're going to finish putting the money in somewhere at the end of this year or next year, somewhere along the line. The deal is supposedly 60%-40%, where MarkWest owns 60%, and they own 40%. But I understand that you have the option or you want to get 70-30 percentage.

Frank M. Semple

Correct. Correct.

Unknown Attendee

If you get to 70-30 that means that MarkWest will have to put in -- after they put the $500 million, MarkWest have to put in $1,166,000,000.

Frank M. Semple

Right, you got the math.

Unknown Attendee

So my arithmetic is right?

Frank M. Semple

Yes. And the way this happens though, it's not like it's just 1 big payment, obviously. They're putting the first $500 million. There's actually a little bit of a wrinkle in that for an earlier decision point if we choose to do it, at $350 million. But we won't even talk about that right now, but they are putting the first $500 million. The way to think about it is they put in the first $500 million. We're sharing during that period of time, even though they're making the full investment, we're sharing the distribution 60-40 disproportionately. So when they get to their $500 million, we start investing then, and we invest 100% of the capital. And we go forward until your 60-40 and then you have the ability to also keep investing. If we choose to stop investing and keep it 60-40, then we go to 60-40 investment. If we choose to move forward and overinvest, we have the rights to go to 70-30.

Unknown Attendee

[indiscernible]

Frank M. Semple

That's right. And there's a -- that's the way the math works, and obviously, it depends on the ramp up on when you get to the various decision points. But yes, you got the math right. And our goal is to get to 70-30 because we like the Utica, but it gives us flexibility.

Unknown Attendee

At 70-30, then you have to buy less out when the time comes that you might be interested in buying them out.

Randy S. Nickerson

Get done on those 2.

Unknown Attendee

I just wanted to make sure we're on the same page here.

Frank M. Semple

EMG has been a great partner and it provides the structure of, like I said earlier, the structure in Utica is very different than the structure in the Marcellus that we have previously. Different time, different place, different set of circumstances. So we like our -- basically, we like to promote the aspect of this deal in the Utica. We like the flexibility. And I've said publicly that also even though we haven't given a lot of details, we have a clear line of sight on how that "buyout" would occur vis-a-vis the Liberty joint venture with EMG. Having said that, EMG is a great partner. Yes, it's private equity, but they provide a lot of value in addition to financing, and they help Randy and I quite a bit with regard to vision, commercial development, technical analysis. And it's a real good partnership with them. So they have a long-term view about how long they want to stay in these deals, and just like they said in the Liberty, their horizon's way out 5-plus years. Now if something comes up sooner, then we would like to take advantage of it. But you're right, 30% is better than 40%.

Unknown Attendee

Is anything -- any money coming back that's completed already?

Frank M. Semple

No.

Unknown Attendee

Nothing?

Frank M. Semple

No.

Unknown Attendee

No. Okay. And -- nothing completed...

Frank M. Semple

You saw in John's slides in the Utica. The first -- Randy, why don't you talk about when do you expect the first step of the operating income to occur with regard to the temporary plant or the interim plant?

Randy S. Nickerson

We start operations, first our gathering gas through a temporary processing August, September, October of this year. So you can't ask us for revenues, we haven't even started operating. But in the late third quarter, the fourth quarter, we'll begin operations, begin gathering gas, begin processing gas, fractionating those liquids. Obviously, we start making income in the fourth quarter of this year.

Unknown Attendee

That's also going to have to pay for the 4 million units that you have to start paying distributions on next July.

Randy S. Nickerson

Correct. We've got that math too. We agree with you.

Unknown Attendee

That's also coming in somewhere.

Randy S. Nickerson

Yes, Yes, I'll let you take that then.

Frank M. Semple

Yes, I mean, Saul's question was, it's not just a Utica issue. It's that the EMG acquisition involved -- included the structure -- involved a structure where basically EMG took back non-pay units that start to vest -- it's a 5-year vesting starting next year, 2013. So that starts midyear 2013 on a 20%, 20%, 20% basis. So in November, when we start to give you guidance for 2013, we'll remind everybody how that works. But yes, it's was the financing mechanism. Again, that worked out really well because they were what EMG was looking for in terms of their value out of the Liberty -- the Marcellus investment.

Unknown Attendee

They were -- that was Liberty?

Frank M. Semple

That was Liberty.

Unknown Attendee

Not [indiscernible] Utica after that. That was the Liberty deal?

Frank M. Semple

Yes, it's not. But Utica I think Saul's point is that Utica will start contributing but...

Unknown Attendee

[indiscernible] a lot of money [indiscernible] that's why they made it [indiscernible]

Frank M. Semple

Okay. Go ahead.

Unknown Attendee

Frank, I was wondering if we could go back to the hedging program for a little bit. You've historically used primarily crude oil hedges and at different times that can be more or less effective. And you alluded in your remarks earlier that you've been putting on some product-specific hedges. So wondering a couple of things. One, do you have a goal for how much of your hedging program going forward would be product specific versus crude oil hedges? And then secondly, if you could provide some color on what you're seeing in the forward markets, particularly on propane as we've heard some of these big export facilities are coming online one later this year, one in 2013, hopefully we'll have more of a winter next year. What's the outlook in the forward markets for propane versus what we're seeing right now in the spot market?

Frank M. Semple

Okay. I'll take the second part first, and then the issue -- the question was what's our view if you will for propane markets -- for propane pricing going forward, and I'll include for 2013. Again, Randy gave you pretty good basis of really this, and you read the same reports we do, so what we do is we model our business based on kind of, like a range of potential propane prices. And we actually -- I mean, we obviously have a lot of internal information about volumes to be able to validate what, let's say, Wells Fargo says about their view of propane to use them as an example. And but propane prices throughout the rest of 2012, we expect those to stay fairly, stay fairly flat. So yes, we're having -- we had a real mild winter. And as Randy alluded to, and so we've got depressed prices, and so if you look at our model and actually our table, it allows you to kind of see what the -- it's actually C3+ bundle for correlations. But if you take that model like I said on the earnings call the other day, if you look at a one standard deviation negative assumption for C3+ pricing relative to crude through the end of the year, and use your own assumptions relative to crude and natural gas, you get down the lower end of our range. So propane is assuming to be -- is continuing to be kind of ugly, if you will, until we start the winter season pulls in that fourth quarter, the latter part of the fourth quarter. And we're all hoping for a colder winter. So that will help prices. Ethane, we are assuming that, and you heard this again a little earlier, we're assuming that because of the 270,000 barrels a day of steam cracker capacity that's been out and coming on now over the -- in the middle part of this year, of the middle part of May and June, we expect that, that coupled with the fact that you've got some plants, some fractionation plants that are going to be down in the Gulf Coast, I think it's maybe whatever, 70,000, 70 million cubic feet a day of gas plants and fractionation capacity that's going to kind of firm up ethane prices at the end of the year. That's very consistent with what you've heard, you've seen and read in a lot of the industry analytics. So in ethane, ethane's a big part of the volume streams. So improving prices on ethane, I know these are real generalizations, but that's what's kind of driving our continued discussion around where we're going to be in guidance. So by the call in August, obviously, we will give you some more indications and clarity around how that, what's happened with the crackers, what's happened with the process in fractionation and kind of where we see -- where we are in guidance. So we'll give you another update on guidance at that point in time.

Unknown Attendee

And with respect to the hedging...

Frank M. Semple

Okay. I think Nancy mentioned, every Monday we have a lively discussion and debate around our hedging philosophy. That methodology, if you will, around using primarily crude oil hedges is still a very critical part, a key part, of our philosophy going forward. I mean, it's blame me if you will, but I think statistically we've been in this business a long time, not just 10 years, but going back way back to MarkWest Hydrocarbon, so we've got a lot of data there. And just statistically, we like the fact that we just get a premium result from -- versus direct product hedges over the long term. When it disconnects like it has today, we obviously have a lot more angst about whether or not that's the right philosophy, but we're pretty comfortable with that philosophy. We'll see what happens. But having said that, propane is a -- you heard in Randy's discussion, propane is kind of undergoing a change. And it's not just related to a warm winter. I mean, it's really related to the relationship as a feedstock with ethane. And so we're doing a lot of analysis right now around how to think about that, how do you think about the Brent-WTI issue, and this is not just because of today, it's because of a lot of what we saw even last year. And that's what -- and so those analytics really has driven us to a much more aggressive, I'll call it transition to NGL -- direct NGL hedges. I mean, if you look at our -- Nancy talked about our long positions and our hedged position in 2012, which is basically fully hedged, 2013 is basically fully hedged, 2014. We haven't done much in '15, but we're starting to. But if you look at the -- on a volumetric basis, the amount of NGL hedges, direct NGL hedges in 2013, it's probably 5%. It's very low. 2014, on a volumetric basis, it's 20%. And so to your question about what's our target. Our target right now is to just continue to increase the -- on a volumetric basis, the NGL percentage, as we continue to layer on those hedge. But opportunistically, I mean, we aren't going to go out there tomorrow and basically layer on some '14 hedges that are really full priced for us, because we don't really have to do that. We're not forcing that, but over time because of the size of the company and our balance sheet and our investment-grade objectives, we need to take some of that risk off the table, we get that. But that's just because -- I just think that we're more capable of actually living with a little bit of a discount, well, actually sometimes a lot of discount going direct NGL hedges. But that's okay, we're bigger, we've got more fee based so we can do that. And so you'll see that, you'll see us continue to talk about that transition to have more direct product hedges over time, even though statistically, crude oil hedges I think over time will probably beat your discount that you're going to have to live with on direct product hedges.

Randy S. Nickerson

The other thing, Frank, to mention, it's not always static. A lot of times, we can put on crude oil because it's so liquid out in '14 and those '15 time periods, crude oil is liquid. There's not a high transaction cost associated with that. But it doesn't have to be static. That doesn't mean the same crude oil hedge as we sort of put on, on a macro level for '14 and '15, we can't convert those as we get closer in and there's more liquidity on direct product. We have lots of times converted those from crude oil back to the direct products when we find that period of time where the relationship is exactly right. So one of the things about crude, it gives us that flexibility. We've closed out hedges early, we put out some more, we've moved them, we have lots of flexibility when we have such a liquid -- we have such a liquid product when we're talking 3 years out.

Frank M. Semple

Right. Exactly. And the same thing on the crude side. So hopefully, I have I have said to you, I mean, we know it's a big issue, and we love talking about this and one-on-ones are always lively when it comes to the hedging philosophy. But I think it's the right balance. So you're not going to see us sitting here with our heads in the sand going, okay, I'm just going to live with that risk and over time I think ultimately we need to keep moving forward. Propane is again probably the biggest issue. The butane, C5+, those actually have been very well correlated to crude oil. So the propane obviously and ethane are the biggest issues.

Unknown Attendee

[indiscernible] as we get closer to migrate to crude from crude to direct product, I guess my question is for 2012, we are outside of [indiscernible] the question is, how do we think in terms of how much you've migrated or are you still pretty much fairly hedged for the remaining of 2012.

Frank M. Semple

Yes, yes, that's just a function of when we put those hedges on. So 2012 is pretty much is what it is. Although I will say one thing, when you look at that those 1 standard deviation boxes, those are C3+, so it's a little -- I actually don't know right now where we are relative to one standard, but because of the strong correlation with, like I said, with butane in particular, the correlations aren't that far off of kind one standard deviation below. But it's being obviously impacted most significantly by the propane. And it's -- propane's an anomaly. That's one of the challenges that -- I mean, we've all been there. And you sit there and say, well, propane is really ugly right now. But the biggest reason for that is the warm winter. I mean, it's still 70% of the propane consumed or 60-some odd percent is heating. And storage is full and so you're seeing -- so you can't make a decision -- make a bad decision to say, oh, propane is completely -- it's going to be disconnected for the rest of our lives. Obviously, we need a strong -- we need a cold winter that'd be great. But long term, you'll see us continue to migrate towards more direct product hedges like we've already done in 2014. And we don't talk about that much because it's all kind of baked into the table. Saul?

Unknown Attendee

A little different subject. Any problem on the horizon for MarkWest from the problems of Chesapeake?

Frank M. Semple

Chesapeake is a real important partner for us strategically, like they are with almost every midstreamer out there. But they're actually very little -- they're a very small piece of our overall revenue. I think Nancy was telling me the other day that -- the question was around Chesapeake. Chesapeake revenue is what?

Nancy K. Buese

1.5%.

Frank M. Semple

1.5%. But it's growing 1.5% of our revenue. It really comes from Chesapeake, but it's growing because of all these projects that we're building a lot of it in Majorsville, and in Majorsville in particular is really being dedicated for the continued ramp up in Chesapeake volumes. Now having said that, obviously, I'm not going to make any comments about how we think about that relationship being impacted by all their public announcements. But we are pretty close to Chesapeake. And so we're constantly discussing with them. It's not even as much about the noise around their governance issues, it's really more around just their capital allocations. And as you would expect, most of those discussions really around their priorities. As we said earlier, their priorities remain in the rich areas, where they're getting the best economics for their gas. So we're very close to what -- how they view the issues, it doesn't -- I don't think it's going to impact us much long term. Chesapeake is still a very capable company, a viable company. And we think they're going to manage through this issue.

Unknown Attendee

So isn't that payable disruption?

Frank M. Semple

Around net payable situation with Chesapeake also. So the point is, we're doing the things necessary to kind of risk manage that risk, and we've gone through as any company would do when something like Chesapeake comes up you go back and you kind of review the contracts and everything else. And you kind of just do the what-ifs around the commercial agreements that we have in place and potential outcomes of their situation, but we're very comfortable with our analysis of that situation. That's a good question. Anything else?

Unknown Attendee

How about that interim plant in Harrison? Will that become a permanent plant when others are built? No?

Frank M. Semple

No. Go ahead.

Randy S. Nickerson

Just like in the Marcellus, Houston, the first plant we ever put it in the Marcellus at Houston was an interim plant. Refrigeration plant doesn't have the same recovery, it doesn't fit long term, allows us to move quickly for our producer/customers. The same thing will be true in Harrison and down at Noble as well the 2 complexes we have in the Utica will be short term, interim refrigeration plants at both of those while we're installing the cryogenic plants right behind them. Same thing.

Unknown Attendee

Pick them up and move them somewhere else?

Randy S. Nickerson

Pick them up and move them someplace else, one of those, we're leasing one of those, we will own and so we'll pick them up and move them to other places.

Frank M. Semple

Good deal. Well, great questions, you've worn me out and probably all of us out. The one thing I want to mention is that the reason I like this. I have to be reminded every year about why I even like these meetings, but first of all, your attendance has been great. The questions have been great, we really appreciate your support. But I will tell you, the one reason I like these meetings is because I've got all of the executive team here and the rest of the MarkWest team with me today. And that's a big value. These are the people that are really making all this work, and it's a pleasure for all of you to get to meet all of the team, and I encourage you through lunch to be able to take advantage of that because you're going to get the best answers from -- directly with the MarkWest Energy team.

So thanks for your time, thanks for your questions, thanks for your support. That's all we have.

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