Markwest Hydrocarbon — Q4 2007 Earnings Presentation
32 slides from Markwest Hydrocarbon's earnings presentation, Nov 14, 2007
Slide 1: Fourth Quarter 2007
Frank Semple – President and Chief Executive Officer Nancy Buese – Senior Vice President and Chief Financial Officer Andy Schroeder – Vice President Finance and Treasurer Fourth Quarter 2007
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements and information. These forward-looking statements, which in many instances can be identified by words like “could,” “may,” “will,” “should,” “expects,” “plans,” “project,” “anticipates,” “believes,” “potential,” and oth
Slide 3: Joint Proxy Statement / Prospectus
Joint Proxy Statement / Prospectus MarkWest Energy Partners and MarkWest Hydrocarbon will file a joint proxy statement/prospectus and other documents with the Securities and Exchange Commission (the "SEC") in relation to the merger transaction announced on September 5, 2007. Investors and security h
Slide 4: Non-GAAP Measures
Non-GAAP Measures This presentation utilizes the Non-GAAP financial measures of Adjusted EBITDA and Distributable Cash Flow. We define Adjusted EBITDA as net income or loss before interest, provision for income taxes, depreciation and amortization expense, non-cash compensation expense, and non-cash
Slide 5: Agenda
MarkWest Overview Merger Overview Energy Partners Overview Geographic footprint Proven results Diversified operations Strategic investments drive increasing returns Financial Overview Investment Highlights Agenda
Slide 6: MarkWest Overview
Owns 15.2% of MWE MarkWest Overview MarkWest Hydrocarbon, Inc. Ticker — MWP (AMEX) 12.0 million shares outstanding Price (11/13/07) — $61.27 Market cap (11/13/07) — $735 million Key assets: 4.9 million units in MWE 89.7% of MWE General Partner Gas and natural gas liquid marketing No debt outstanding
Slide 7: Merger Overview
Merger Overview
Slide 8: Overview of Merger Agreement
Overview of Merger Agreement Announced in September 2007, and valued at approximately $734 million Per share “stated consideration” is 1.285 common units of MWE plus $20.00 cash The incentive distribution rights will be extinguished Hydrocarbon will become a direct, wholly owned subsidiary of Energy
Slide 9: Benefits of Merger
Benefits of Merger Eliminate the IDRs and improve our cost of equity capital Energy Partners will exchange a new class of limited partner equity units in exchange for the IDRs, as well as for the GP interest and the existing limited units owned by Hydrocarbon The transaction reduce go-forward cost o
Slide 10: Post-Merger Corporate Structure
Post-Merger Corporate Structure Ownership Structure – Pro Forma Ownership Structure – Current Public 31.4 MM MWE Common Units MarkWest Energy GP, L.L.C. MarkWest Energy Partners, L.P. 36.5 MM Total Common Units 2.0% G.P. Interest and IDRs MarkWest Hydrocarbon, Inc. 4.9MM MWE Common Units 89.7% Offic
Slide 11: Reduced Cost of Equity
Reduced Cost of Equity * Post transaction Cost of equity reduction = 2.57% Pipeline / Midstream MLP Cost of Equity 5.18% 2.94% 3.36% 2.92% 0.19% 2.57% 2.69% 2.62% 1.37% 1.80% 0.86% 0.74% 0.45% 1.11% 1.14% 0.82% 1.47% 0.94% 0.14% 0.08% 0.00% 0.25% 0.17% 0.46% 0.24% 0.65% 0.64% 0.05% 0.10% 0.10% 0.10%
Slide 12: Financial Benefit of Merger
Financial Benefit of Merger Incremental DCF per Common Unit Impact of $300 million in annual capital investments for projects with a 15% IRR $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 $1.80 YR1 YR2 YR3 YR4 YR5 Pro-forma pre merger Pro-forma with merger
Slide 13: Energy Partners Overview
Energy Partners Overview
Slide 14: Geographic Footprint
Geographic Footprint Michigan Crude oil pipeline 250-mile intrastate pipeline 90-mile gas gathering pipeline Gas processing plant Western Oklahoma 150 MMcf/d gathering capacity 100 MMcf/d processing plant Southeast Oklahoma 150 MMcf/d gathering capacity (to grow to 300 MMcf/d by 2010) Starfish (50%
Slide 15: Proven Results Since IPO
(1) Adjusted for the 2:1 unit split effective on February 28, 2007. (2) From year ended December 31, 2002, to LTM as of September 30, 2007. See appendix for reconciliation of Adjusted EBITDA to Net Income. (3) As of September 30, 2007. Proven Results Since IPO $85.9 million $1,342.9 million(3) +1,46
Slide 16: Consistent Distribution Growth Since IPO
Consistent Distribution Growth Since IPO 120% Distribution Growth since IPO in May 2002 (16% CAGR) Common Unit Distribution $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07
Slide 17: Diversified Operations
Diversified Operations (1) As defined in our Quarterly Report on Form 10-Q, Net Operating Margin is calculated as total revenues less purchased product costs. (2) Keep-whole exposure largely offset by long natural gas position derived from POI and natural gas contracts. POI & Natural Gas 0% (2) Net
Slide 18: Growth Driven by Customer Satisfaction
“MarkWest Energy Named #1 in Natural Gas Customer Satisfaction” EnergyPoint Research, Inc. 2006 Customer Satisfaction Survey Growth Driven by Customer Satisfaction
Slide 19: Strategic Investments Drive Increasing Return
Capital Investment $ millions $ millions Adjusted EBITDA* *See appendix for reconciliation of Adjusted EBITDA to Net Income. Acquisitions Expansion capital Strategic Investments Drive Increasing Return Upside expansion capital $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 2003 2004 2005 2006 2
Slide 20: 2007 Expansion Capex Summary
Compressor additions/other expansion $21.6M Centerpoint connection $7.0M 2007 Expansion Capex Summary 2007 expansion capital forecast of $301.4 million ($229.1 million actual expenditures thru 3Q07) Woodford Appalachia Other Southwest Javelina Oklahoma East Texas Oklahoma Compressor additions / othe
Slide 21: 2008 Expansion Capex Forecast
2008 Expansion Capex Forecast $280MM to $320MM Woodford $120MM-$130MM Appalachia $50MM-$55MM Other Southwest $5MM-$10MM Javelina $50MM-$55MM Oklahoma $15MM-$20MM East Texas $40MM-$50MM
Slide 22: Financial Overview
Financial Overview
Slide 23: Capital Structure
Capital Structure Pro-forma $ 41.3 $ 1,154.0 As of September 30, 2007 As of December 31, 2006 As of September 30, 2007 ($ in millions) LTM Adjusted EBITDA(1) / Interest Expense $ 59.0 LTM Interest expense Total Debt / Capitalization Total Debt / LTM Adjusted EBITDA(1) Total Capitalization Total Debt
Slide 24: Distributable Cash Flow Summary
Distributable Cash Flow Summary $37MM $44MM $118MM $152MM $- $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 2004 2005 2006 2007F 2008F $160MM – $180MM
Slide 25: Distribution Coverage
$ 74.0 $ 117.9 (2.3) 10.2 (6.2) 46.1 $ 70.1 Year ended December 31, 2006 $ 78.6 $ 114.9 16.4 23.8 40.8 $ 37.2 Nine months ended September 30, 2007 ($ in millions) Depreciation, amortization, accretion, and impairments Non-cash derivative activity Plus: Distribution coverage ratio Distributions paid
Slide 26: Risk Management Program
Risk Management Program Energy Partners has an ongoing hedge program, designed to manage exposure to commodity price risk, which is primarily due to our long NGL position Hedges are executed on a 36-month time horizon, using a combination of collars and swaps, and direct product and crude proxy hedg
Slide 27: 2007 and 2008 Guidance and Key Assumptions
2007 and 2008 Guidance and Key Assumptions 2007 Financial Guidance Distributable cash flow of approximately $152 million Expansion capital expenditures of approximately $300 million The 2007 forecast would allow for an increase in distributions of approximately 15% to our limited unit holders 2008 F
Slide 28: Investment Highlights
Investment Highlights High-quality, diverse portfolio of midstream assets serving very prolific natural gas basins in the US Ranked #1 in natural gas customer satisfaction (EnergyPoint Research, Inc. 2006 Customer Satisfaction Survey) Successful track record of accretive acquisitions and organic exp
Slide 29: 1515 Arapahoe Street Tower Suite Denver, CO 80202 Phone: 303-925-9200 Investor Relations: 866-858-0482 Email:
1515 Arapahoe Street Tower 2 Suite 700 Denver, CO 80202 Phone: 303-925-9200 Investor Relations: 866-858-0482 Email: investorrelations@markwest.com Website: www.markwest.com
Slide 30: Appendix
Appendix
Slide 31: Reconciliation of Distributable Cash Flow to Net Income
$ 117.9 (2.3) 9.7 (6.2) 15.2 (9.4) (5.3) 46.1 $ 70.1 Year ended December 31, 2006 $ 114.9 (3.3) 2.4 40.8 $ 37.2 Nine months ended September 30, 2007 ($ in millions) Maintenance capital expenditures Non-cash derivative activity Depreciation, amortization, accretion and impairments Non-cash losses fro
Slide 32: Reconciliation of Adjusted EBITDA to Net Income
Nine months ended September 30, Year ended December 31, $ 10.0 (30.4) (49.8) (29.2) Interest expense (0.4) (0.8) Taxes (23.8) 6.2 (0.7) Non-cash derivative activity $ 2.4 (40.8) (46.1) (29.2) Depreciation and amortization (9.4) (15.2) (3.1) Non-cash compensation expense $ 64.6 $ 70.1 2007 ($ in mill