MarkWest to merge with Marathon-sponsored pipeline company
MarkWest Energy Partners, the dominant processor of natural gas and related liquids in the Marcellus and Utica shales, will become a subsidiary of a Marathon Petroleum Corp.-controlled pipeline company under a deal announced Monday.
The $15 billion stock-and-cash acquisition will form the country's fourth-largest master limited partnership, according to a joint announcement by Denver-based MarkWest and Findlay, Ohio-based MPLX. They expect the deal to close by the end of the year.
“This powerful combination provides MarkWest with an investment grade balance sheet and a significant expansion of growth projects driven by (Marathon Petroleum's) significant pipeline and refinery operations in the upper Midwest and the Gulf Coast,” said MarkWest Chairman Frank Semple.
Master limited partnerships combine the benefits of income tax exemptions with the liquidity of publicly traded shares. They have become a popular investment vehicle among energy companies that establish them to manage assets such as pipeline systems.
MarkWest, which has a corporate office in Cecil, operates 34 facilities in Appalachia that process gas and related liquids pulled from the Marcellus and Utica shales, and is building 18 more. Its facilities handle gas produced by the top shale companies in the region and include high-profile plants in Washington and Butler counties.
MPLX, a master limited partnership that Marathon set up in 2012, operates oil and refined products pipelines, a barge dock and storage facilities stretching from Beaver County west to the Mississippi River in Illinois and south to Kentucky.
Combining the companies makes sense at a time of uncertainty prompted by low gas and oil prices and will prove beneficial to each side, said Anne Keller, regional director for natural gas liquids at energy analyst Wood Mackenzie in Houston.
“MarkWest's philosophy in working with producers is saying, ‘We'll build you access to the market,' ” Keller said, noting the strong position that company put itself in to ship ethane and propane to East Coast ports.
Joining forces opens access to Marathon's refineries and pipelines to Midwest markets.
“The primary appeal was this joint platform that they have,” Keller said.
The companies have worked together on projects and have neighboring operations in the Ohio Valley.
“It became evident our companies have a strong confluence of desires and capabilities,” partnership CEO Gary Heminger said during a conference call with analysts.
The deal shows that interest in mergers continues to be strong for owners of pipelines and processing units despite the collapse in oil and natural gas prices since last year. Pipeline operator Williams Cos. began an auction process to sell itself after rejecting a $48 billion takeover bid last month.
Under the merger agreement, holders of MarkWest stock will get 1.09 MPLX common units and a one- time cash payment of $3.37 a MarkWest unit, or the equivalent of $78.64 a unit, a 32 percent premium to Friday's closing price. Marathon will contribute $675 million to fund the cash payment.
MarkWest shares closed up nearly 14 percent at $68.01. MPLX fell 14.5 percent to $59.03.
David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or dconti@tribweb.com. Bloomberg News contributed to this report.
