Markwest Energy Partners LP — Markwest Hydrocarbon — Merger or Acquisition (January 2008)
34 slides from Markwest Energy Partners LP's merger presentation, Jan 22, 2008
Slide 1: Andy Schroeder – Vice President Finance and Treasurer, January 22, 2008
Andy Schroeder – Vice President Finance and Treasurer January 22, 2008
Slide 2: Forward-Looking Statements
22 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
Slide 3: Joint Proxy Statement / Prospectus
33 Joint Proxy Statement / Prospectus MarkWest Energy Partners and MarkWest Hydrocarbon filed a definitive 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
Slide 4: Non-GAAP Measures
44 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-c
Slide 5: Agenda
55 ¦ 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
66 Owns 14.3% of MWE MarkWest Overview MarkWest Hydrocarbon, Inc. ¦ Ticker — MWP (AMEX) ¦ 12.0 million shares outstanding ¦ Price (1/17/08) — $63.75 ¦ Market cap (1/17/08) — $765 million . Key assets: • 4.9 million units in MWE • 89.7% of MWE General Partner • Gas and natural gas liquid marketing ¦
Slide 7: Merger Overview
Merger Overview
Slide 8: Overview of Merger Agreement
88 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 subsidiar
Slide 9: Benefits of Merger
99 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 will reduce our
Slide 10: Post-Merger Corporate Structure
10 10 Post-Merger Corporate Structure Ownership Structure – Pro Forma Ownership Structure – Current Public 34.3 MM MWE Common Units MarkWest Energy GP, L.L.C. MarkWest Energy Partners, L.P. 39.4 MM Total Common Units 2.0% G.P. Interest and IDRs MarkWest Hydrocarbon, Inc. 4.9MM MWE Common Units 89.7%
Slide 11: Pro-Forma DCF per Unit Analysis for Merger
11 11 Pro-Forma DCF per Unit Analysis for Merger (in millions of $ and units) DCF 170,000 $ Units GP LP Common 50,819 69.3% Distributed (1) 110,680 $ 30,376 $ 80,304 $ Class A 22,500 30.7% Total Limited 73,319 Undistributed 59,320 $ 29,660 $ 29,660 $ Class A Common 60,036 $ DCF from MWE operations 1
Slide 12: Reduced Cost of Equity
12 12 Reduced Cost of Equity * Post transaction, market data as of January 17, 2008. Cost of equity reduction = 2.38% Source: RBC Capital Markets Pipeline / Midstream MLP Cost of Equity 5.10% 3.26% 0.09% 0.05% 0.15% 0.10% 0.10% 0.10% 0.11% 0.00% 0.12% 0.25% 0.00% 0.70% 0.73% 0.26% 1.11% 1.01% 0.09%
Slide 13: Financial Benefit of Merger
13 13 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 14: Energy Partners Overview
Energy Partners Overview
Slide 15: Geographic Footprint
15 15 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/
Slide 16: Proven Results Since IPO
16 16 (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)
Slide 17: MWE vs. Alerian Index
17 17 MWE vs. Alerian Index -50.0% 0.0% 50.0% 100.0% 150.0% 200.0% 250.0% 300.0% May-02 Sep - 02 Jan-03 Apr-03 Aug-03 Dec -03 Apr-04 Jul- 04 Nov -04 Mar-05 Jul -05 Oct -05 Feb -06 Jun -06 Oct -06 Jan -07 May-07 Sep - 07 Jan-08 MWE 241.2% AMZ 71.7%
Slide 18: Consistent Distribution Growth Since IPO
18 18 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 19: Diversified Operations
19 19 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)
Slide 20: Growth Driven by Customer Satisfaction
20 20 “MarkWest Energy Named #1 in Natural Gas Customer Satisfaction” EnergyPoint Research, Inc. 2006 Customer Satisfaction Survey Growth Driven by Customer Satisfaction
Slide 21: Strategic Investments Drive Increasing Return
21 21 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
Slide 22: 2007 Expansion Capex Summary
22 22 • 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 addi
Slide 23: 2008 Expansion Capex Forecast
23 23 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 24: Financial Overview
Financial Overview
Slide 25: Capital Structure
25 25 Capital Structure Pro-forma $ 41.3 4.5x 3.2x 51.1% $ 184.1 $ 1,154.0 $ 564.4 $ 589.6 272.1 225.0 92.5 $ 53.7 As of September 30, 2007 $ 49.8 3.5x 3.0x 53.8% $ 175.8 $ 979.5 $ 452.6 $ 526.9 271.9 225.0 30.0 $ 34.4 As of December 31, 2006 As of September 30, 2007 ($ in millions) 3.4x LTM Adjuste
Slide 26: Distributable Cash Flow Summary
26 26 Distributable Cash Flow Summary $37MM $44MM $118MM $152MM $160MM – $180MM $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 2004 2005 2006 2007F 2008F
Slide 27: Distribution Coverage
27 27 1.59x $ 74.0 $ 117.9 (2.3) 10.2 (6.2) 46.1 $ 70.1 Year ended December 31, 2006 1.46x $ 78.6 $ 114.9 (3.3) 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 r
Slide 28: Risk Management Program
28 28 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
Slide 29: 2007 and 2008 Guidance and Key Assumptions
29 29 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
Slide 30: Investment Highlights
30 30 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 or
Slide 31: 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 32: Appendix
Appendix
Slide 33: Reconciliation of Distributable Cash Flow to Net Income
33 33 $ 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 23.8 9.4 9.3 (4.7) 40.8 $ 37.2 Nine months ended September 30, 2007 ($ in millions) Maintenance capital expenditures Non-cash derivative activity Depreciation, amortization, accretion and impair
Slide 34: Reconciliation of Adjusted EBITDA to Net Income
34 34 Nine months ended September 30, Year ended December 31, $ 10.0 (3.3) (0.1) (14.5) – (19.2) $ 47.1 2004 (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 co
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