It is important to note that MarkWest Energy Partners, L.P. (MWE) was acquired by MPLX LP (MPLX), a subsidiary of Marathon Petroleum Corporation (MPC), in a transaction that closed in December 2015. MarkWest Energy Partners, L.P. is no longer an independent publicly traded entity, and its assets now form a significant part of MPLX's business.
A fundamental analysis of MarkWest's stock (MWE) today must therefore focus on its financial position and strategic value prior to the acquisition and how its assets and operations have impacted the successor entity, MPLX LP.
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| Fundamental Analysis of MarkWest Energy Partners, L.P. (MWE) |
Fundamental Analysis of MarkWest Energy Partners, L.P. (MWE)
MarkWest Energy Partners, L.P. was a leading Master Limited Partnership (MLP) in the midstream energy sector, primarily focused on natural gas gathering, processing, and natural gas liquids (NGL) fractionation and transportation.
1. Business Profile and Assets (Pre-Acquisition)
MarkWest’s fundamental strength was its strategic asset footprint in some of the most prolific natural gas and liquids-rich resource plays in the United States.
Midstream Focus: As a midstream MLP, MarkWest operated the crucial infrastructure (pipelines, processing plants, fractionators) that links natural gas and NGL producers to end-market consumers.
Geographic Dominance: Its competitive advantage stemmed from its leading presence in the Marcellus and Utica Shale regions in the Appalachian Basin, where it was the largest natural gas processor and fractionator. It also had a significant presence in the Midcontinent and Southwest regions (e.g., Haynesville and Woodford shales).
Fee-Based Revenue Model: A key pillar of its fundamental stability was its fee-based contracts with producers. These contracts typically ensure revenue based on the volume of natural gas or NGLs handled, rather than being directly exposed to fluctuating commodity prices. This provided a stable and predictable cash flow profile, which is highly valued in fundamental analysis, especially for MLPs that prioritize consistent distributions.
2. Historical Financial Highlights (Pre-Acquisition Context)
Before the merger, MarkWest was characterized by high growth, primarily driven by the massive development of the Appalachian shales.
High Growth Capital: The company had a robust, multi-billion dollar capital expenditure program for new plant construction and pipeline expansion, which was necessary to keep pace with the rapidly increasing production in its core operating areas. This high spending, however, often resulted in negative free cash flow as capital investment exceeded cash from operations, a common feature for growth-oriented MLPs.
Revenue and EBITDA Growth: Driven by the aggressive capital program, the company demonstrated strong growth in revenue and Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), reflecting the successful deployment of its new assets. Adjusted EBITDA is a key metric for MLPs as it closely relates to Distributable Cash Flow (DCF).
Leverage and Liquidity: The need for constant, large-scale growth capital meant the partnership frequently utilized both debt and equity markets. Analysts closely monitored its debt-to-EBITDA ratio and its access to capital to ensure it could fund its planned growth without undue financial stress.
The Strategic Combination with MPLX LP
The fundamental trajectory of MarkWest was permanently altered by the $20 billion acquisition by MPLX LP in December 2015. This was a "category changing event" for both entities.
Rationale for the Merger
The fundamental analysis of the deal revealed significant strategic benefits for the combined entity:
Creation of an Integrated Midstream Giant: The combination created one of the largest diversified MLPs in the sector. MPLX brought its crude oil and refined products logistics assets (sponsored by Marathon Petroleum), while MarkWest provided its industry-leading natural gas gathering and processing (G&P) capabilities, especially in the Appalachian shales.
Lower Cost of Capital: By partnering with Marathon Petroleum Corporation (MPC), the combined entity, MPLX, gained access to MPC's strong balance sheet and liquidity. This was a crucial advantage for MarkWest, which required billions of dollars in growth capital and had been somewhat constrained by its independent financing capacity, particularly during periods of commodity price weakness.
Enhanced Growth Profile: The combination created a clear path for future distribution growth, supported by MarkWest's substantial organic growth projects and MPC's large inventory of MLP-eligible assets ("drop-downs") that could be sold to MPLX to fuel cash flow growth.
Impact on MarkWest Unitholders
The deal was structured as a unit-for-unit exchange plus a cash payment.
Change in Distribution: A key point of contention in the fundamental analysis of the deal was the subsequent reduction in the annual distribution to former MarkWest unitholders who became MPLX unitholders. This was due, in part, to the introduction of Incentive Distribution Rights (IDRs) paid to Marathon Petroleum (as the general partner of MPLX), a financial structure MarkWest had previously eliminated.
Valuation: The total deal valuation implied a significant premium to MarkWest's pre-announcement trading price, which many analysts viewed favorably, despite the later distribution cut.
Post-Merger Fundamental Analysis (Focus on MPLX LP)
The long-term fundamental value of MarkWest's assets is now reflected in the financial performance and strategic position of MPLX LP (MPLX).
MarkWest's high-growth, fee-based G&P assets in the Marcellus and Utica shales became the foundation of MPLX's Natural Gas and NGL Services segment.
| Fundamental Metric (MPLX Post-Merger) | Significance to MarkWest's Legacy |
| Stable Cash Flow | The legacy fee-based contracts from MarkWest assets provide stable, predictable cash flows that support MPLX's distributions and debt servicing, significantly de-risking the overall business. |
| Distribution Growth | The combination successfully created a large-cap MLP with a strong distribution growth profile, fueled by both MarkWest's organic projects and MPC's drop-downs. |
| Financial Leverage | MPLX has maintained a manageable leverage ratio (often targeting around 4.0x total debt to LTM adjusted EBITDA) and an investment-grade credit profile, a key benefit derived from the financial strength provided by MPC. |
| Capital Allocation | The G&P segment, primarily comprising former MarkWest assets, continues to be a major recipient of MPLX's growth capital spending, underscoring its long-term strategic value and growth potential in key U.S. basins. |
In summary, MarkWest Energy Partners, L.P. was a fundamentally strong, growth-oriented midstream MLP with a premium asset base in the Appalachian shales. The analysis of its stock today is entirely subsumed into the analysis of MPLX LP, which successfully leveraged MarkWest's assets and growth potential, backed by the financial power of Marathon Petroleum, to become one of the top-tier, diversified midstream entities in the sector.