MarkWest Energy Partners is getting ready for “explosive growth” in the Northeast “in 2013 and beyond,” CEO Frank Semple said Thursday. Next year, natural gas liquids (NGL) processing in the Marcellus and Utica shales combined should increase to 4.8 Bcf/d from 2.7 Bcf/d to serve producer customers.
The Denver-based operator expects to complete 12 processing plants over the next year to support a “significant inventory of fractionation and marketing in the Northeast, leading to ongoing development and expansion opportunities,” he told analysts during an earnings conference call. By the end of 2014, 19 plants are scheduled to be built.
MarkWest’s Marcellus backlog, and increasingly the Utica, provide projects through 2014, said the CEO.
“The best way to think about where we are today and where we will be tomorrow and into 2014 is to break it apart into the Marcellus and Utica and focus in each of those areas on processing.” In the Marcellus Shale, “we’ll be at the end of 2012, with projects announced and completed, at 1.1 Bcf/d of processing capacity. Fast forward to 2014 in Marcellus, and that number is going to double to 2.2 Bcf/d.
“Then, with projects announced, we have a huge amount of interest to stay ahead of producer customers. With the current projects, we will have 3 Bcf/d of processing capacity by the end of 2014…” Processed volumes rose more than 20% year/year.
“Ohio is easier to calculate” because production has only begun, and MarkWest now is processing 60 MMcf/d. “Then in 2013 we’ll layer on to get 830 MMcf/d of processing by the end of the year,” he said. “I realize it’s hard to keep score…but it’s critical to continue to establish a very, very strong footprint that includes all capabilities of gathering, processing, fractionation and marketing for both of these big resource plays.”
In just the last few days MarkWest said it would add 200 MMcf/d of gas processing to its Mobley complex in West Virginia (see Shale Daily, Nov. 8). MarkWest Utica EMG LLC, a joint venture with The Energy and Minerals Group (EMG), also agreed to develop Ohio midstream infrastructure for Antero Resources’ Utica production (see Shale Daily, Nov. 7). Last month it launched the 200 MMcf/d Sherwood I processing facility in Doddridge County, WV through a separate agreement with Antero. In addition, operations ramped up in October at the 150 MMcf/d Langley processing plant expansion for gas development in the Huron/Berea Shale.
“Despite the natural gas liquids [NGL] environment, we’ve signed a significant number of new agreements and facility start-ups in the Marcellus and Utica operating areas. Volumes increased over 20% in the third quarter” from a year ago and “as we move into 2013, we continue to execute on our growth plans.
“2013 will be a transformational year. We expect to increase our Marcellus and Utica processing by almost 2 Bcf/d.” In 2013 alone, MarkWest expects to increase its total processing capacity “by almost 80%, largely supported by long-term, fee-based agreements.” All of the new infrastructure is taking lots of cash, but with committed producer customers and some joint ventures with the likes of EMG, “we remain committed to a strong balance sheet. We are ready for expansion.”
MarkWest also has southwestern operations, which Semple said continued to perform well, including the Carthage gathering facilities in East Texas, which serve Haynesville Shale operators. An expansion there is under way, and in 2013 processed volumes are expected to be up by 35% from this year. Fractionator volumes declined year/year at Carthage, but now “producer customers are focusing their efforts on rich gas acreage rather than dry gas performance.”
Most of the attention and budget is for the Marcellus and emerging Utica operations. Semple said MarkWest today is the “largest processor and fractionator in the Appalachian Basin. By 2013 the Marcellus will be the highest producer in the United States. We now are installing 11 new cryogenic plants and by the end of 2013 we expect to double capacity to 2.2 Bcf/d. By the end of 2014, we expect to have 19 processing plants.”
The partnership’s focus on developing an extensive gathering system in southwestern Pennsylvania “has proved very successful,” said the CEO. Supported by production growth at Range Resources Corp., “we’ve increased our volumes 70% from last year and 7% from the previous quarter…The real value comes from sales of processed volumes…to achieve a full liquids uplift…”
Through MarkWest’s expansions that are now being constructed, producers would have access to a variety of facilities, including Mariner West, the prospective Mariner East and the proposed Appalachia-to-Texas (Atex Express) ethane pipeline, said Semple. And Range Resources is a big part of that growth. The producer is anchoring Atex Express (see Shale Daily, Jan. 27), and it has a 15-year agreement with Sunoco Logistics Partners LP to anchor the Mariner East pipeline project, which would connect to Sunoco’s port at the Marcus Hook facility near Philadelphia for exports overseas (see Shale Daily, Sept. 28). To accommodate all of the output MarkWest is building an ethane pipeline between its Majorsville, WV, and Houston, PA, complexes (see Shale Daily, Jan. 3).
MarkWest began exporting propane to the Marcus Hook facility in July, said Semple. A rail-by-truck operation is scheduled to begin by the end of the year.
The Marcellus has moved more into a “manufacturing mode” and more resources are being poured into the Utica for producer customers that include Gulfport Energy Corp., which has drilled some of the biggest wells to date (see Shale Daily, Oct. 15). “In the next several days we’ll have completed the first large gathering trunk that will allow us to begin delivering gas from Wagner,” a Gulfport well, to Harrison County, OH.
“Over the next several weeks we’ll complete the second trunkline and a third by early next year.” The first two trunk lines would accommodate 500 MMcf/d and the third — as well as a fourth now on the table — all together would “allow more than 1 Bcf/d to be processed.
“In Ohio we’ve worked to provide processing capacity as fast as possible.” Working with state officials, Semple said MarkWest was helping to “develop clear and effective rules for operations…to acquire many miles of pipeline right-of-way. It’s been a very challenging environment,” and MarkWest was impacted by Superstorm Sandy, he said. “We are still experiencing delays. As with all operations in the Northeast, the only way to construct midstream infrastructure is to work with producers at every level…”
Developing the Utica has been a “natural progression from Marcellus.” It has been “hard to move from right-of-way permitting, and completion of construction is more expensive,” but “we’ve factored the costs into projects.” The projects to date are “coming in on budget with returns as expected.”
Semple said it was “important as we grow in the Marcellus and Utica that we maintain full service…from gathering, capture to NGL marketing. As we continue to grow business up there, we will grow our relationships with producer customers. We are looking at all options from right-of-way, from a pipeline standpoint, primarily from gathering-type functions. There’s a lot of pipe in the ground…”
MarkWest’s operating income in 3Q2012 was $145.5 million, a decrease of $2.3 million from the same period a year ago. The decrease primarily was attributed to lower natural gas prices and derivatives, which cost the partnership $8.4 million versus $15.8 million in 3Q2011. Adjusting for the one-time items, earnings were $108.2 million, versus $107 million a year ago. Cash flow was $104.3 million for 3Q2012. Quarterly distribution of $95.3 million (81 cents/unit), is to be paid to unitholders this month. Adjusted earnings were $108.2 million, versus $107 million a year ago.
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