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Why Did MPLX Agree to Pay a Large Premium for MarkWest?

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MarkWest Energy’s assets

In the last part of this series, we saw that MPLX LP (MPLX) and Marathon Petroleum’s (MPC) offer to MarkWest Energy Partners (MWE) implied an ~31.60% premium, according to the terms of the deal and the July 10 closing prices. One of the reasons for such a large premium, particularly during a slump in the energy sector, could be diversification benefits resulting from MarkWest Energy’s significant presence in the major shale plays in the US, especially the Marcellus and Utica shale regions.

In this part, we’ll focus on MarkWest Energy’s assets in the Marcellus and Utica shales. We’ll also look at its other assets.

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Marcellus Shale

MarkWest is the largest natural gas processor in the liquids-rich areas of the Marcellus Shale located in Pennsylvania and West Virginia. Apart from natural gas processing, the partnership provides gathering, fractionation, and NGL (natural gas liquid) storage and marketing services in the region. Its assets in the Marcellus Shale include:

  • 1 Bcf/d (billion cubic feet per day) of gathering capacity
  • 3.1 Bcf/d of processing capacity
  • 226 Mbpd (thousand barrels per day) of NGL fractionation capacity excluding “60,000 bpd of C3+ fractionation capacity shared with the Utica”
  • pipeline, truck, and rail facilities for NGL marketing

The above assets exclude 1.8 Bcf/d of cryogenic processing plants and 200 Mbpd of NGL fractionators under construction.

Utica Shale

MarkWest Energy is also the largest natural gas processor in the Utica Shale located in Ohio. Its assets in Utica region include:

  • 700 thousand cubic feet per day of gathering capacity
  • 925 thousand cubic feet per day of processing capacity
  • 160 Mbpd of NGL fractionation capacity
  • pipeline, truck, and rail facility

The above assets exclude 600,000 cubic feet per day of cryogenic processing plants and 60 Mbpd of NGL fractionators under construction.

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Other regions

MarkWest Energy has a significant presence in the Northeast and Southwest regions of the US. The Southwest region includes gathering, processing, and fractionation assets. The Northeast region is comprised of processing and crude oil pipeline assets.

Key ETFs and stocks

EQT Midstream (EQM), Crestwood Midstream (CMLP), and Williams Partners (WPZ) are among the midstream MLPs that have significant midstream assets in the Marcellus and Utica shales. Together, MarkWest Energy, EQT Midstream, Crestwood Midstream, and Williams Partners account for ~20.55% of the Alerian MLP ETF (AMLP).

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