MarkWest Energy Partners (NYSE:MWE) is planning to spend as much as $1.5 billion in growth capital in 2012, as the company rides the boom in onshore shale development in the United States.
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2012 Growth Capital
MarkWest Energy estimates that capital spending will be in a range between $1.1 billion and $1.5 billion for 2012. The overwhelming majority of this capital will be focused on building midstream infrastructure to support the development of the Marcellus Shale in the northeastern United States.
MarkWest Energy will spend between $980 million to $1.32 billion on growth projects in the company's Liberty Segment, which serves the Marcellus Shale in Pennsylvania and West Virginia.
MarkWest Energy reported natural gas processing capacity of 625 million cubic feet per day in 2011, and estimates that this capacity will double to roughly 1.2 billion cubic feet per day with the completion of the capital program in 2012.
This is only the first phase of a multi-year growth plan; MarkWest Energy estimates that natural gas processing capacity in the Liberty Segment will reach 2.3 billion cubic feet per day in 2013 and 2.5 billion cubic feet per day in 2014. This growth program will also boost fractionation capacity, which will increase to 234,000 barrels per day by 2014, up from 60,000 barrels per day in 2011.
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MarkWest Energy recently formed a joint venture to build midstream and other infrastructure to process future production from the Utica Shale in Ohio. This play is at an early stage of development and the company currently operates a natural gas gathering system with capacity of 85 million cubic feet per day.
MarkWest Energy is planning to aggressively develop this system and estimates that by 2014, natural gas processing capacity will reach 410 million cubic feet per day. The system will also have 100,000 barrels per day of fractionation capacity by that date.
Gulfport Energy (Nasdaq:GPOR) is one of the operators active in the Utica shale and recently signed an agreement with MarkWest Energy to utilize this system. The company recently reached total depth on its third horizontal well into the Utica Shale and plans at least two additional wells in 2012.
MarkWest Energy also signed similar agreements with Chesapeake Energy (NYSE:CHK) and Rex Energy (Nasdaq:REXX) to process production from the Marcellus Shale.
The planned investments by MarkWest Energy during the year will increase operating income for the Liberty Segment to 26% of the company's total in 2012, up from only 11% in 2011.
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The Bottom Line
MarkWest Energy is betting the company's future on the expected surge in development of the Marcellus Shale by the oil and gas industry. This activity will require immense amounts of gathering and processing infrastructure that will generate growth for the company going forward.
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.