What: Shares of MarkWest Energy Partners (UNKNOWN:MWE.DL) saw shares decline close to 13% over the month of June, continuing its declines that started a couple of months ago. While there's not one thing that investors can point to with MarkWest specifically, much of its declines are from the broader market for pipelines and master limited partnerships seeing a rather precipitous decline over this time.
So What: Today, you really have to handicap any master limited partnership's performance over the past couple of months. It's highly likely that it has much more to do with what is going around that particular company than the company itself, and MarkWest is a great example of this. Over the month of June, the Alerican MLP Index dropped close to seven percentage points, and MarkWest's stock performance has been dragged right along with it.
Some of the broader trends that have affected companies in this space are 1) Fear of interest rate hikes from the federal reserve, and 2) continued weakness in oil, gas, and natural gas liquids, or NGL, prices.
MarkWest is especially susceptible to the natural gas liquid market because much of its existing assets and growth plans are related to gas and NGL processing in the Marcellus and Uitca regions, places that have lower prices than the rest of the country thanks to a lack of infrastructure to take gas and NGLs away from the region. Oversupply and prices don't impact the company that much because 90% of its gross margins come from fee based services, but oversupply could disincentivize drillers in the region from growing.
The second fear that some may have related to the broader master limited partnership space is that the federal reserve could increase interest rates, which in theory would increase borrowing costs for these debt heavy companies and send some investors to safer yields on bonds. While it's something that could happen, it's really hard to see a half of a percentage point increase in interest rates really putting a dent into the prospects of MarkWest over the next couple of years.
Now What: These past couple months have been rather tough for unitholders of MarkWest and other master limited partnerships, but much of that decline is rooted in things that could happen rather than material changes in the business. In fact, if MarkWest was already in your portfolio or on your radar as a potential addition, then today might be one of the more opportune times to add that position.
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