A focus on liquids-rich resource plays helped MarkWest Energy Partners LP increase its volumes and earnings despite low natural gas prices in 2010, and the Denver midstream player plans to expand its liquids-based operations considerably in the next few years.

That strategy touches most of MarkWest's portfolio and includes expanding capacity at the Granite Wash tight sands in Oklahoma, creating an interconnected liquids system from the Marcellus Shale to the Huron/Berea Shale and extending Marcellus ethane infrastructure to markets on the Gulf Coast, CEO Frank Semple told financial analysts during an earnings conference call Tuesday.

Semple said MarkWest has raised more than $1 billion in the last year to fund acquisitions and planned expansions and that the company currently has about $550 million in liquidity. The company reported fourth quarter distributable cash flow (DCF) of $69 million in 2010, up from $63 million in 2009, and year-end DCF of $241 million in 2010, up from $192 million in 2009.

In western Oklahoma, MarkWest did better in liquids-rich plays. At the Foss Lake and Grimes gathering systems, fourth quarter volumes fell to 76 MMcf/d in 2010 from 87 MMcf/d, largely due to pricing, while at the Stiles Ranch gathering system in liquids-rich parts of the Granite Wash, fourth quarter volumes rose to 119 MMcf/d in 2010 from 85 MMcf/d in 2009.

MarkWest recently announced plans to expand the gathering system and its Arapaho processing complex to serve that growth. The expansion is expected to come online in the third quarter and would increase processing capacity to 220 MMcf/d.

At the Southeast Oklahoma gathering system in the Woodford Shale, fourth quarter volumes increased to 513 MMcf/d in 2010 from 456 MMcf/d in 2009. Because much of the Woodford contains dry gas, MarkWest expects declines in 2011, but Semple said those declines should be "modest" because producers in the region are focusing on the liquids-rich portions of the play.

At the Carthage gathering system in East Texas, fourth quarter volumes fell to 420 MMcf/d in 2010 from 447 MMcf/d in 2009. Currently, around one-eighth of the volume in that system comes from the Haynesville Shale, and MarkWest expects that trend to continue until gas prices return to the mid-$5 area, high enough to support horizontal drilling at Travis Peak and Cotton Valley.

In Appalachia, Semple called 2010 "a landmark year" for MarkWest Liberty, the company's Marcellus Shale segment.

MarkWest Liberty reported large increases in processing, shipping and sales.

Fourth quarter processing rose to 239 MMcf/d in 2010 from 77 MMcf/d in 2009, throughput rose to 185 MMcf/d in 2010 from 80 MMcf/d in 2009 and sales of natural gas liquids products rose to 42.5 million gallons in 2010 from 15.4 million gallons in 2009.

MarkWest Liberty continues to expand its Marcellus Shale capacity. The company ended 2010 with 209 MMcf/d of cryogenic capacity at its Houston and Majorsville processing complexes. It expects that to increase to 625 MMcf/d by the middle of this year and nearly 750 MMcf/d by mid-2012 with the addition of a new processing complex in Wetzel County, WV.

In recent months MarkWest signed agreements with EQT Corp. and Chesapeake Energy Corp. that expand its Marcellus Shale operations (see Shale Daily, Jan. 21; Jan. 5). A MarkWest Liberty/Energy & Minerals Group joint venture recently announced plans to develop the Wetzel County plant to process rich gas transported by EQT's Equitrans gas pipeline. MarkWest Liberty also signed an agreement to provide midstream services to Chesapeake's rich-gas acreage in northern West Virgina.

MarkWest also continues to pursue its Mariner project to move Marcellus Shale ethane to the Gulf Coast by 2013. Several competitors have similar plans in the works, but Semple said Mariner has several advantages over those other projects, including lower project costs and lower required volume commitments for producers (see Daily GPI, June 3, 2010).

MarkWest wants to eventually connect its Liberty operation in the Marcellus Shale to its Northeast operation in the Huron/Berea Shale in southeast Kentucky. The Northeast processing facilities did not perform as strongly in 2010 as their counterparts farther north, with fourth quarter volumes falling to 172 MMcf/d in 2010 from 185 MMcf/d in 2009. Fourth quarter sales of natural gas liquids fell to 63 million gallons in 2010 from 71 million gallons in 2009 (although annual sales increased 5% year over year).

The two units are already somewhat interconnected.

MarkWest currently fractionates heavier NGLs from its Marcellus Shale operations at its Siloam facility in Kentucky and will continue to do so until its Houston, PA, fractionator comes online in the third quarter of the year. MarkWest bolstered its Huron/Berea operations earlier this year by acquiring the Langley processing complex and associated Ranger pipeline from EQT for about $230 million. MarkWest plans to expand the Ranger pipeline to connect Langley and Siloam by early 2012.

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