Jul 13, 2015 3 min read

MPLX LP, the master limited partnership of Marathon Petroleum Corp., is buying natural gas processor MarkWest Energy Partners LP for $15.63 billion, the two companies said in a news release Monday.

According to MPLX, the total enterprise value for MarkWest of approximately $20 billion, includes the assumption of debt of approximately $4.2 billion, as of the close of trading Friday.

Under the terms of the merger agreement, which was unanimously approved by the boards of directors of the general partners of MPLX and MarkWest, the common unitholders of MarkWest would receive 1.09 MPLX common units and a one-time cash payment of approximately $3.37 per MarkWest common unit, for total consideration of $78.64 per MarkWest common unit, based on fully diluted units currently outstanding and the closing price of MPLX’s units July 10.

MPLX’s sponsor, Marathon Petroleum Corp., would contribute $675 million of cash to MPLX to fund the one-time cash payment.

The proposed transaction combines the nation’s second-largest processor of natural gas and largest processor and fractionator in the Marcellus and Utica shale plays with a rapidly growing crude oil and refined products logistics partnership sponsored by MPC.

The combination would create the fourth-largest master limited partnership based on a market capitalization of $21 billion.

“This transaction creates a tremendous platform for the combined partnership to continue to grow distributable cash flow and creates significant long-term value for the unitholders,” said MPLX Chairman and Chief Executive Officer Gary R. Heminger.

The complementary aspects of MarkWest’s, MPLX’s and MPC’s highly diverse asset base provide significant additional opportunities across multiple segments of the hydrocarbon value chain. The combined entity would further MarkWest’s leading midstream presence in the Marcellus and Utica shales by allowing it to pursue additional dynamic midstream projects.

According to MPLX, these large-scale strategic projects will allow producer customers to achieve the highest value for their growing production in these important shale regions. In addition, the combination provides significant vertical integration opportunities, as MPC is a large consumer of natural gas liquids.

Heminger noted that MarkWest’s $1.5 billion average annual capital investment program for the next five years, coupled with the inventory of MLP-qualifying earnings before interest, taxes, depreciation and amortization of $1.6 billion at MPC, provides a clear path to the growth in distributable cash flows of the combined partnership. Additionally, incremental capital investment opportunities available to the partnership, either directly or through MPC, could double the organic growth currently planned. “MPC’s strong balance sheet and liquidity position will enable MarkWest to accelerate organic growth in some of the nation’s most economic and prolific natural gas resource plays that it may have been limited in pursuing otherwise,” Heminger said.

Frank Semple, MarkWest’s chairman, president and chief executive officer commented, “This powerful combination provides MarkWest with an investment grade balance sheet and a significant expansion of growth projects driven by MPC’s significant pipeline and refinery operations in the upper Midwest and the Gulf Coast. Our best-in-class midstream platform will provide the combined company with an extraordinary portfolio of integrated services and long-term growth opportunities.”

Following the completion of the transaction, MarkWest will become a wholly owned subsidiary of MPLX.