Executive Q&A Viewpoint

In late 2013, MarkWest Energy Partners LP began operations at its second cryogenic processing complex in Ohio’s Utica shale play. The Seneca plant will process up to 600 million cubic feet per day (MMcfd) of natural gas by the middle of 2014. The new complex is the company’s seventh, located in the rich gas areas of Ohio, Pennsylvania and West Virginia. Going forward, the company has 22 major processing and fractionation facilities under construction to serve producers in the northeastern and southwestern US.

Gas Processing talks with Randy Nickerson, executive vice president and chief commercial officer for MarkWest, about taking the lead in the massive buildout of gas processing facilities in the US.

GP. MarkWest is on a fast-growth track, with 22 new projects on the drawing board. What is driving this growth?

Nickerson. The Marcellus and Utica shale plays are driving all of these expansions. Those [plays] account for nearly 100% of our organic growth opportunities, due to the current and projected future production volumes of wet gas in those plays.

GP. Regarding these expansions, does MarkWest prefer to build or buy?

Nickerson. We always prefer to build, if we can. Of the 22 projects we are working on, 21 are newbuilds in the northeast. When we build it ourselves, we can better match our producer customers’ requirements and their timing. We can also control the quality and the operability of the facilities so we can provide highly efficient and effective services on behalf of our producers. Almost all of our expansions today are by building and not by buying.

GP. What level of capacity are you targeting?

Nickerson. In the Marcellus and Utica [shales] combined, by the end of 2013, we’ll have over 2.8 billion cubic feet per day (Bcfd) of processing capacity. By the end of 2014, that number for the Marcellus and Utica will grow to over 4 Bcfd of capacity, due to the completion of new processing facilities.

GP. Are you using any specific new technology in the greenfields?

Nickerson. The short answer is yes. Every piece of equipment, every skid that we buy and install, we obtain from the manufacturers that are always improving and increasing their technology. By definition, everything that we are installing will be state-of-the-art. However, I would say that there is no single new type of technology. This is mostly technology that we’ve installed before.

GP. Is there a possibility that the industry’s gas processing capacity could be overbuilt?

Nickerson. By and large, I know from our standpoint that every one of the plants we build is tagged and hitched exactly with a customer’s plans for production in a specific area. The majority of agreements that we hold with them have either volume backstops or acreage dedications, so producers are very careful when they make the commitment—and, when we build the facilities, we are perfectly aligned with their drilling plans.

From our standpoint, we think the chance that the industry is building excess capacity is fairly nominal. In the Marcellus, for example, our processing facilities are highly utilized, despite being in operation for less than two years. My assumption is that the other operators’ processing plants being built in the basin are not really dissimilar, but that remains to be seen. Certainly it’s true that the vast majority of large producers in the rich-gas basin are committed to MarkWest.

GP. You’ve increased your fee-based contracts from 53% to 62% during the past year. Will the market support further increases along this trend?

Nickerson. I think so. Historically, we had many processing agreements that were percentage-of-liquids contracts or keep-whole contracts because of the profitability of processing gas. Most of our producer customers today have asked us for fee-based contracts for processing.

Also, all of our gathering contracts that we are signing, and the gathering systems that we are building, are essentially fee-based contracts. The amount of fee-based income or operating margin will continue to increase. We project that we will be in excess of 70% of fee-based agreements by the end of 2014.

GP. Do you see any new opportunities for gas processors in the Northeast?

Nickerson. Yes. There has been an enormous amount of discussion in the Northeast—which is where we are building a lot of this capacity—about natural gas liquids (NGL) takeaway. We are working on a number of projects that are related to that. We’ve recently announced an NGL takeaway pipeline joint venture with Kinder Morgan, and we’re working on other export opportunities. The liquids side of the equation has certainly created many opportunities for gas processors, particularly in the Northeast.

GP. What are the challenges to this industry in the Northeast?

Nickerson. Doing business in the Northeast is hard work on almost every front. The geography is hard, the regulatory environments can be challenging, and the weather can be difficult. However, we’ve already worked through many of those issues, as we installed a number of facilities up there. We think that, over time, we’ve become much more effective at how to build and operate in the Northeast. Our operations and construction team, from the back office to the field operations, is as good as anyone’s, in any place. But it is not easy, compared to operating in other parts of the country.

GP. In three of its past four surveys, Energy Point Research has named MarkWest as the No. 1 overall midstream company for customer satisfaction. To what do you attribute that?

Nickerson. It’s an overall focus on keeping our customers’ needs first. We work incredibly hard creating business deals; conceptualizing the business deals; contracting for the deals; and then designing, building, operating and marketing. Every facet of that is something we had to focus on, and we are exceptionally proud of that. Our customers’ satisfaction is key to our business and is the driving force behind our future expansions. GP

 

RANDY NICKERSON was appointed chief commercial officer of MarkWest Energy Partners LP in October 2006, after serving as senior vice president of corporate development for MarkWest since January 2003. He has worked with the company in various executive-level roles since joining MarkWest Hydrocarbon in July 1995, after working with Western Gas Resources Inc., Chevron USA and Meridian Oil Inc. Mr. Nickerson holds a bachelor's degree in chemical engineering from Colorado State University.