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Staying relevant in growing and changing industries can be quite a feat. By addressing customer needs, building long-term customer relationships, and growing its footprint, MarkWest Energy Partners (UNKNOWN: MWE.DL ) is proving that its midstream business is laying groundwork to be competitive for the long-haul.
Today's project is tomorrow's pipeline
MarkWest's highly anticipated Liberty Ethane Pipeline is now expected to be fully operational during this quarter. The pipeline project is significant on two fronts.
Practically, it will transport the purity ethane from MarkWest's Majorsville complex to its site in Houston, Pa. -- a historically unmet need. From Houston, Pa., the resources can be transported to the North American and international ethane markets via Mariner West, Mariner East, or APEX -- key ethane pipeline and takeaway systems.Second, the pipeline will likely gain MarkWest new long-term customers.
Long-term relationships and long-term growth
MarkWest's operating model enables energy companies like Antero Resources (NYSE: AR ) , CONSOL Energy (NYSE: CNX ) , and Chesapeake Energy to make volume commitments over a period of time. In return, MarkWest ensures that its customers' resources will be properly processed and distributed, depending on the type of agreement.
Additionally, since companies commit to generating certain amounts of product over long periods of time -- enabling MarkWest to more accurately predict cash flow, capital expenditures, and other business-related decisions -- MarkWest offers a "premium transportation rate."
So, the binding open season for the Liberty Ethane Pipeline (to be closed on Dec. 9) will likely secure existing customers for MarkWest while increasing the opportunity for new partnerships.
Implementing the vision
As described in MarkWest's third-quarter conference call, the company's goal to be the leading midstream-service company in the natural gas industry seems to draw nearer each day.
After partnering with The Energy and Minerals Group, its first cryogenic processing plant at its Seneca complex is now functional. The plant will process 200 MMcf/d and will add increments of processing abilities over time -- reaching 600MMcf/d by the second quarter of 2014.
The Seneca plant is fueled by the long-term, fee-based contracts with some of its customers; therefore, even if MarkWest's customers do not meet or exceed their expectations, MarkWest still benefits -- likely just not to as great an extent.
As the anchor partner for the Seneca site, Antero Resources will play a key role in the complex's daily processing capacity. Thankfully for MarkWest, Antero is growing rapidly -- especially after using cash from its October IPO to pay down debt and grow its operations.
Its third-quarter net daily production of 566 MMcfe/d increased 25% and 128% compared to the second quarters of 2013 and 2012, respectively.
Similarly, CONSOL's rapid growth in the area of natural gas will help fuel MarkWest; CONSOL increased its Marcellus production 72% compared to the second quarter of 2012. And it increased its guidance for 2014.
Additionally, the newly focused company is shifting its Utica exploration programs into developmental opportunities -- which would cater to the location of the Seneca plant.
Both CONSOL and Antero utilize other MarkWest facilities, and as the exploration and drilling companies expand, so will MarkWest. And even if they don't, MarkWest's operating model and other customers may carry the load.
Simple and successful
Succinctly stated, MarkWest Energy Partners plans for tomorrow and operates in today. It recognizes its existing and future obstacles and opportunities and then implements effective solutions. MarkWest is positioning itself for the long haul.
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