Exhibit 99.1

 

 

MarkWest Hydrocarbon, Inc.				Contact:	Frank Semple, President and CEO
1515 Arapahoe Street					Nancy Buese, Senior VP and CFO
Tower 2, Suite 700					Andy Schroeder, VP Finance & Treasurer
Denver, CO 80202				Phone:	(866) 858-0482    Fax: (303) 925-9308
				E-mail:	investorrelations@markwest.com
				Website:	www.markwest.com

 

MarkWest Hydrocarbon Reports Third Quarter 2007 Financial Results

 

DENVER—November 6, 2007—MarkWest Hydrocarbon, Inc. (AMEX: MWP) (the “Company”) today reported a net loss of $7.5 million for the three months ended September 30, 2007, or $0.62 per share, compared to net income of $10.0 million, or $0.83 per diluted share, for the same period in 2006. For the nine months ended September 30, 2007, the Company reported a net loss of $13.8 million compared to net income of $10.7 million for the nine months ended September 30, 2006.

 

Income (loss) from operations for the Standalone segment, as defined below, for the three months ended September 30, 2007 and September 30, 2006, was $(25.5) million and $11.8 million, respectively, and included $24.2 million and $(9.0) million, respectively, of non-cash costs (benefits) associated with the mark-to-market of derivative instruments, the revaluation of the long-term shrink obligation, and non-cash compensation expense. A portion of the mark-to-market of derivative instruments is included in Purchased Product Costs. Excluding these non-cash items, income (loss) from operations for the three months ended September 30, 2007 and September 30, 2006, would have been $(1.3) million and $2.8 million, respectively. Historically, the second and third quarters of each year generate lower income from operations compared to the first and fourth quarters due to the normal seasonality of the Company’s business. While the Company purchases and processes consistent volumes of gas throughout the year, it generates higher revenues in the winter months when it sells higher volumes of NGLs than in the summer months.

 

The Company will receive $9.5 million of distributions from its investment in MarkWest Energy Partners (the “Partnership”) for the third quarter of 2007, which represents a 46 percent increase over the $6.5 million of distributions received for the third quarter of 2006. On October 26, 2007, the Company declared a quarterly cash dividend of $0.36 per share of common stock, for an implied annual rate of $1.44 per share, which is payable November 21, 2007, to shareholders of record as of November 9, 2007. This represents no change from the second quarter of 2007. Pursuant to a covenant contained in the redemption and merger agreement with the Partnership announced on September 5, 2007, the Company is prohibited from declaring any dividend greater than the per share dividend for the second quarter of 2007.

 

“It’s been another exciting and productive quarter for MarkWest Hydrocarbon” said Frank Semple, President and Chief Executive Officer. “Our third quarter financial results reflect continued net income contribution from our equity ownership of the Partnership. This strong income stream was offset by non-cash adjustments for compensation expense and the mark-to-market of our derivative instruments in the Standalone segment. The sales of natural gas liquids in the second and third quarters by the Company are typically lower than in the first and fourth quarter due to lower seasonal demand. The year-to-date operating income and full year forecast for the NGL marketing business

 

 

remains strong and we continue to take advantage of the forward markets to lock in favorable long-term frac spread margins.”

 

“The third quarter was particularly noteworthy because of the announcement of the merger agreement between MarkWest Hydrocarbon and the Partnership. The transaction, if consummated, will streamline our corporate structure, significantly improve our competitive position, and align the interests of MarkWest with one set of equity holders. Our people, assets, and focus on customer service have been the key to our success, and the positive attributes of the planned merger will further enhance the long-term value for our equity stakeholders.”

 

THIRD QUARTER 2007 HIGHLIGHTS

 

On September 5, 2007, the board of directors of the Company and the board of directors of the general partner of the Partnership announced that the Company and the Partnership entered into a definitive redemption and merger agreement. The transaction represents a 22 percent premium to the Company’s share price on the date the transaction was announced, and will allow the Company’s shareholders to elect as consideration for their shares either cash, units in the Partnership, or a combination of both. Additionally, the transaction will result in a substantial increase in the effective dividend rate for shareholders electing to receive units in the Partnership. A principal benefit of the transaction is the elimination of the existing incentive distribution rights (“IDRs”). Elimination of the IDRs reduces the Partnership’s cost of equity capital and strengthens its competitive position. In addition, the transaction will simplify the corporate structure of the Company and the Partnership, simplify corporate governance, and allow management to focus on driving value for one set of public equity owners. The transaction is expected to be accretive in 2008 to the Partnership unitholders as measured by distributable cash flow per common unit, and is anticipated to close in early 2008.

 

The Company reports its operations under two business segments, MarkWest Hydrocarbon Standalone (“Standalone”) and the Partnership. The Standalone business segment consists of the Company’s natural gas liquid (“NGL”) marketing activities for NGL’s extracted primarily at the Partnership’s Siloam facility and the management of keep-whole contracts in Appalachia.

 

For the three months ended September 30, 2007, the Standalone segment reported a loss from operations of $25.5 million, compared to income from operations of $11.8 million for the same period in 2006. The variance was primarily attributable to:

 

•                  The Standalone segment reported a net unrealized loss of $24.2 million for the mark-to-market of derivative instruments and the revaluation of the long-term shrink obligation, both of which are non-cash items. This compares to a net unrealized gain of $12.0 million for the same items in the third quarter of 2006, resulting in a negative quarter over quarter variance of $36.2 million.

 

•                  The realized frac spread, when adjusted for settled derivative losses, was $0.28 per gallon in the third quarter of 2007 compared to $0.49 per gallon in the same period in 2006, resulting in a negative impact on segment income of $5.1 million. Included within the derivate losses that settled in the third quarter of 2007 is $2.3 million, or $0.11 per gallon, attributable to natural gas swaps related to production in the fourth quarter of 2007 and the first quarter of 2008. The frac spread excluding settled derivative losses was $0.56 per gallon in the third quarter of 2007 compared to $0.50 per gallon in the same period in 2006.

 

•                  The above items were offset, in part, by a $4.2 million decrease in selling, general and administrative expense compared to the prior year quarter, of which $3.0 million is attributable to lower non-cash compensation expense.

 

 

The Company will host a conference call and webcast on Wednesday, November 7, 2007, at 5:00 P.M. ET to review its third quarter 2007 financial results. Interested parties can participate in the call by dialing (800) 369-2007, passcode “MarkWest”, approximately ten minutes prior to the scheduled start time. A replay of the call will be available through Wednesday, November 21, 2007, by dialing (866) 463-4179, no passcode required. To access the webcast, please visit the Investor Relations section of our website at www.markwest.com.

 

###

 

MarkWest Hydrocarbon, Inc. (AMEX: MWP) controls and operates MarkWest Energy Partners, L.P. (NYSE: MWE), a publicly traded limited partnership engaged in the gathering, processing and transmission of natural gas; the transportation, fractionation and storage of natural gas liquids; and the gathering and transportation of crude oil. We also market natural gas and NGLs.

 

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that affect our operations, financial performance and other factors as discussed in our filings with the Securities and Exchange Commission. Among the factors that could cause results to differ materially are those risks discussed in our Form 10-K/A for the year ended December 31, 2006, as filed with the SEC. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.”  We do not undertake any duty to update any forward-looking statement.

 

Although we believe that the expectations reflected in the forward-looking statements, specifically those including those referring to future performance, growth, cash flow, operating income, dividends, or other factors, are reasonable, these forward-looking statements are not guarantees of future performance and we can give no assurance that such expectations will prove to be correct and that projected performance or distributions may not be achieved. Among the factors that could cause results to differ materially are those risks discussed in our Form S-1, as amended, our Annual Report on Form 10-K/A for the year ended December 31, 2006, and our Quarterly Reports on Form 10-Q, as amended, each as filed with the SEC. You are also urged to carefully review and consider the cautionary statements and other disclosures, including those under the heading “Risk Factors,” made in those filings, which identify and discuss significant risks, uncertainties and various other factors that could cause actual results to vary significantly from those expressed or implied in the forward-looking statements. We do not undertake any duty to update any forward-looking statement.

 

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 holders are urged to read these documents carefully when they become available because they will contain important information regarding MarkWest Energy Partners, MarkWest Hydrocarbon, and the transaction. A definitive joint proxy statement/prospectus will be sent to security holders of MarkWest Energy Partners and MarkWest Hydrocarbon seeking their approval of the transactions contemplated by the redemption and merger agreement. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus (when it is available) and other documents containing information about MarkWest Energy Partners and MarkWest Hydrocarbon, without charge, at the SEC’s website at www.sec.gov. Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus may also be obtained free of charge by directing a request to the entities’ investor relations department at 866-858-0482, or by accessing their website at www.markwest.com.

 

MarkWest Energy Partners, MarkWest Hydrocarbon, the officers and directors of the general partner of MarkWest Energy Partners, and the officers and directors of MarkWest Hydrocarbon may be deemed to be participants in the solicitation of proxies from their security holders. Information about these persons can be found in the Annual Report on Form 10-K/A for the year ended December 31, 2006, for each of MarkWest Energy Partners and MarkWest Hydrocarbon, as filed with the SEC, and additional information about such persons may be obtained from the joint proxy statement/prospectus when it becomes available.

 

 

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of the Securities Act of 1933, as amended.

 

 

MarkWest Hydrocarbon, Inc.

Statement of Operations

(Unaudited, in thousands, except per share amounts)

 

		Three months ended September 30,						Nine months ended September 30,
		2007			2006			2007			2006
					(as restated)						(as restated)
Revenue:
Revenue		$	199,934		$	197,416		$	590,342		$	648,517
Derivative (loss) gain		(24,386		)	22,721			(52,208		)	8,405
Total revenue		175,548			220,137			538,134			656,922
Operating expenses:
Purchased product costs		122,059			121,936			373,891			443,718
Facility expenses		18,624			14,840			49,101			42,635
Selling, general and administrative expenses		11,393			19,069			50,928			43,506
Depreciation		11,133			8,126			28,632			23,282
Amortization of intangible assets		4,168			4,029			12,504			12,072
Accretion of asset retirement obligations		30			24			85			75
Impairments		356			—			356			—
Total operating expenses		167,763			168,024			515,497			565,288
Income from operations		7,785			52,113			22,637			91,634
Other income (expense):
Earnings from unconsolidated affiliates		1,264			1,067			4,687			3,240
Interest income		403			264			3,923			1,106
Interest expense		(10,202		)	(9,583		)	(28,670		)	(31,425		)
Amortization of deferred financing costs and original issue discount (a component of interest expense)		(771		)	(6,121		)	(2,222		)	(7,805		)
Dividend income		170			112			509			327
Miscellaneous income (expense)		1,149			3,978			(257		)	7,737
(Loss) income before non-controlling interest in net income of consolidated subsidiary and income taxes		(202		)	41,830			607			64,814
Non-controlling interest in net income of consolidated subsidiary		(15,131		)	(26,438		)	(24,653		)	(48,255		)
(Loss) income before taxes		(15,333		)	15,392			(24,046		)	16,559
Provision for income tax benefit (expense)		7,879			(5,388		)	10,277			(5,855		)
Net (loss) income		$	(7,454	)	$	10,004		$	(13,769	)	$	10,704
Net (loss) income per share:
Basic		$	(0.62	)	$	0.84		$	(1.15	)	$	0.90
Diluted		$	(0.62	)	$	0.83		$	(1.15	)	$	0.89
Weighted average number of outstanding shares of common stock:
Basic		12,001			11,956			11,995			11,933
Diluted		12,001			12,015			11,995			12,021

 

 

MarkWest Hydrocarbon, Inc.

Segment Income (Loss)

(Unaudited, in thousands)

 

		MarkWest			MarkWest
		Hydrocarbon			Energy			Consolidating
		Standalone			Partners			Entries			Total
Three months ended September 30, 2007:
Revenue:
Revenue		$	45,745		$	174,918		$	(20,729	)	$	199,934
Derivative loss		(16,531		)	(7,855		)	—			(24,386		)
Total revenue		29,214			167,063			(20,729		)	175,548
Purchased product costs		47,443			89,474			(14,858		)	122,059
Facility expenses		5,199			19,346			(5,921		)	18,624
Selling, general and administrative expenses		1,828			9,565			—			11,393
Depreciation		240			10,893			—			11,133
Amortization of intangible assets		—			4,168			—			4,168
Accretion of asset retirement and lease obligations		—			30			—			30
Impairment		—			356						356
(Loss) income from operations		(25,496		)	33,231			50			7,785
Other income (expense):
Earnings from unconsolidated affiliates		—			1,264			—			1,264
Interest income		253			150			—			403
Interest expense		(130		)	(10,072		)	—			(10,202		)
Amortization of deferred financing costs (a component of interest expense)		(69		)	(702		)	—			(771		)
Dividend income		169			1			—			170
Miscellaneous income		619			593			(63		)	1,149
(Loss) income before non-controlling interest in net income of consolidated subsidiary and income taxes		(24,654		)	24,465			(13		)	(202		)
Non-controlling interest in net income of consolidated subsidiary		—			—			(15,131		)	(15,131		)
Interest in net income of consolidated subsidiary		9,303			—			(9,303		)	—
(Loss) income before taxes		(15,351		)	24,465			(24,447		)	(15,333		)
Provision for income tax benefit (expense)		7,909			(304		)	274			7,879
Net (loss) income		$	(7,442	)	$	24,161		$	(24,173	)	$	(7,454	)

 

		MarkWest			MarkWest
		Hydrocarbon			Energy			Consolidating
		Standalone			Partners			Entries			Total
					(as restated)						(as restated)
Three months ended September 30, 2006:
Revenue:
Revenue		$	53,222		$	163,888		$	(19,694	)	$	197,416
Derivative gain		10,051			12,670			—			22,721
Total revenue		63,273			176,558			(19,694		)	220,137
Purchased product costs		40,149			95,533			(13,746		)	121,936
Facility expenses		5,099			15,689			(5,948		)	14,840
Selling, general and administrative expenses		5,991			13,078			—			19,069
Depreciation		221			7,905			—			8,126
Amortization of intangible assets		—			4,029			—			4,029
Accretion of asset retirement and lease obligations		—			24			—			24
Income from operations		11,813			40,300			—			52,113
Other income (expense):
Earnings from unconsolidated affiliates		—			1,067			—			1,067
Interest income		34			230			—			264
Interest expense		(60		)	(9,523		)	—			(9,583		)
Amortization of deferred financing costs (a component of interest expense)		(55		)	(6,066		)	—			(6,121		)
Dividend income		112			—			—			112
Miscellaneous income		8			3,970			—			3,978
Income before non-controlling interest in net income of consolidated subsidiary and income taxes		11,852			29,978			—			41,830
Non-controlling interest in net income of consolidated subsidiary		—			—			(26,438		)	(26,438		)
Interest in net income of consolidated subsidiary		3,540			—			(3,540		)	—
(Loss) income before taxes		15,392			29,978			(29,978		)	15,392
Provision for income tax expense		(5,388		)	—			—			(5,388		)
Net income		$	10,004		$	29,978		$	(29,978	)	$	10,004

 

 

MarkWest Hydrocarbon, Inc.

Segment Income (Loss)

(Unaudited, in thousands)

 

		MarkWest			MarkWest
		Hydrocarbon			Energy			Consolidating
		Standalone			Partners			Entries			Total
Nine months ended September 30, 2007:
Revenue:
Revenue		$	170,830		$	478,608		$	(59,096	)	$	590,342
Derivative loss		(30,061		)	(22,147		)	—			(52,208		)
Total revenue		140,769			456,461			(59,096		)	538,134
Purchased product costs		148,963			265,810			(40,882		)	373,891
Facility expenses		14,974			52,605			(18,478		)	49,101
Selling, general and administrative expenses		15,046			35,882			—			50,928
Depreciation		826			27,806			—			28,632
Amortization of intangible assets		—			12,504			—			12,504
Accretion of asset retirement and lease obligations		—			85			—			85
Impairment		—			356			—			356
(Loss) income from operations		(39,040		)	61,413			264			22,637
Other income (expense):
Earnings from unconsolidated affiliates		—			4,687			—			4,687
Interest income		1,374			2,549			—			3,923
Interest expense		(252		)	(28,418		)	—			(28,670		)
Amortization of deferred financing costs (a component of interest expense)		(198		)	(2,024		)	—			(2,222		)
Dividend income		427			82			—			509
Miscellaneous income (expense)		474			(668		)	(63		)	(257		)
(Loss) income before non-controlling interest in net income of consolidated subsidiary and income taxes		(37,215		)	37,621			201			607
Non-controlling interest in net income of consolidated subsidiary		—			—			(24,653		)	(24,653		)
Interest in net income of consolidated subsidiary		12,915			—			(12,915		)	—
(Loss) income before taxes		(24,300		)	37,621			(37,367		)	(24,046		)
Provision for income tax benefit (expense)		10,329			(429		)	377			10,277
Net (loss) income		$	(13,971	)	$	37,192		$	(36,990	)	$	(13,769	)

 

		MarkWest			MarkWest
		Hydrocarbon			Energy			Consolidating
		Standalone			Partners			Entries			Total
					(as restated)						(as restated)
Nine months ended September 30, 2006:
Revenue:
Revenue		$	217,504		$	486,301		$	(55,288	)	$	648,517
Derivative gain		2,396			6,009			—			8,405
Total revenue		219,900			492,310			(55,288		)	656,922
Purchased product costs		184,677			296,368			(37,327		)	443,718
Facility expenses		15,678			44,918			(17,961		)	42,635
Selling, general and administrative expenses		13,102			30,404			—			43,506
Depreciation		820			22,462			—			23,282
Amortization of intangible assets		—			12,072			—			12,072
Accretion of asset retirement and lease obligations		—			75			—			75
Income from operations		5,623			86,011			—			91,634
Other income (expense):
Earnings from unconsolidated affiliates		—			3,240			—			3,240
Interest income		397			709			—			1,106
Interest expense		(212		)	(31,213		)	—			(31,425		)
Amortization of deferred financing costs (a component of interest expense)		(105		)	(7,700		)	—			(7,805		)
Dividend income		327			—			—			327
Miscellaneous income		160			7,577			—			7,737
Income before non-controlling interest in net income of consolidated subsidiary and income taxes		6,190			58,624			—			64,814
Non-controlling interest in net income of consolidated subsidiary		—			—			(48,255		)	(48,255		)
Interest in net income of consolidated subsidiary		10,233			—			(10,233		)	—
Income (loss) before taxes		16,423			58,624			(58,488		)	16,559
Provision for income tax (expense) benefit		(5,719		)	(679		)	543			(5,855		)
Net income		$	10,704		$	57,945		$	(57,945	)	$	10,704

 

 

MarkWest Hydrocarbon, Inc.

Segment Balance Sheet

(Unaudited, in thousands)

 

		MarkWest
		Hydrocarbon			MarkWest			Consolidating
September 30, 2007		Standalone			Energy Partners			Entries			Total
ASSETS
Current assets:
Cash and cash equivalents		$	2,751		$	53,683		$	—		$	56,434
Trading securities		3,701			—			—			3,701
Available for sale securities		6,778			—			—			6,778
Receivables		15,917			112,453			(9,620		)	118,750
Inventories		37,959			3,015			—			40,974
Fair value of derivative instruments		6,160			1,249			—			7,409
Other current assets		19,006			8,198			—			27,204
Total current assets		92,272			178,598			(9,620		)	261,250
Property, plant and equipment, net		5,508			758,913			—			764,421
Investment in and advances to other equity investee		—			59,582			—			59,582
Investment in consolidated subsidiaries		88,077			—			(88,077		)	—
Fair value of derivative instruments		2,812			—			—			2,812
Deferred tax asset		—			—			—			—
Other long term assets		2,620			345,773			—			348,393
Total assets		$	191,289		$	1,342,866		$	(97,697	)	$	1,436,458
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	22,979		$	166,395		$	(9,822	)	$	179,552
Fair value of derivative instruments		33,678			8,326			—			42,004
Deferred tax liability		73			—			—			73
Total current liabilities		56,730			174,721			(9,822		)	221,629
Long-term debt		—			589,612			—			589,612
Deferred tax liability		5,651			914			(776		)	5,789
Non-controlling interest in consolidated subsidiary		964			—			477,119			478,083
Fair value of derivative instruments		20,939			11,183			—			32,122
Other long-term liabilities		42,385			2,016			—			44,401
Total liabilities		126,669			778,446			466,521			1,371,636
Total stockholders’ equity		64,620			564,420			(564,218		)	64,822
Total liabilities and stockholders’ equity		$	191,289		$	1,342,866		$	(97,697	)	$	1,436,458

 

 

MarkWest Hydrocarbon, Inc.

Segment Balance Sheet

(Unaudited, in thousands)

 

		MarkWest
		Hydrocarbon			MarkWest			Consolidating
December 31, 2006		Standalone			Energy Partners			Entries			Total
ASSETS
Current assets:
Cash and cash equivalents		$	14,442		$	34,402		$	—		$	48,844
Marketable securities		7,713			—			—			7,713
Receivables		16,940			90,780			(6,604		)	101,116
Inventories		31,668			3,593			—			35,261
Fair value of derivative instruments		5,727			4,211			—			9,938
Other current assets		12,217			3,047			—			15,264
Total current assets		88,707			136,033			(6,604		)	218,136
Property, plant and equipment, net		3,449			550,886			—			554,335
Investment in and advances to other equity investee		—			64,240			—			64,240
Investment in consolidated subsidiaries		12,683			—			(12,683		)	—
Fair value of derivative instruments		35			2,759			—			2,794
Other long term assets		2,874			360,862			—			363,736
Total assets		$	107,748		$	1,114,780		$	(19,287	)	$	1,203,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	19,370		$	131,684		$	(6,604	)	$	144,450
Fair value of derivative instruments		7,385			91			—			7,476
Deferred tax liability		180			—			—			180
Current portion of long term debt		—			—			—			—
Total current liabilities		26,935			131,775			(6,604		)	152,106
Long-term debt		—			526,865			—			526,865
Deferred tax liability and FIN 48 liability		9,425			769			(641		)	9,553
Non-controlling interest in consolidated subsidiary		965			—			440,607			441,572
Fair value of derivative instruments		98			1,362			—			1,460
Other long-term liabilities		28,836			1,360			—			30,196
Total liabilities		66,259			662,131			433,362			1,161,752
Total stockholders’ equity		41,489			452,649			(452,649		)	41,489
Total liabilities and stockholders’ equity		$	107,748		$	1,114,780		$	(19,287	)	$	1,203,241