MarkWest Absorbs Keystone

Zacks

MarkWest Energy Partners L.P. (MWE) announced that it has completed the purchase of Keystone Midstream Services, LLC. The acquisition, which was announced in early May, was made for a price of $512 million.

MarkWest bought the 100% ownership interest in Keystone from Stonehenge Energy Resources, L.P., and affiliates of Rex Energy Corporation (REXX) and Sumitomo Corporation.

With the acquisition, MarkWest gained access to Keystone’s properties across Butler County, Pennsylvania that includes two cryogenic gas processing plants with a combined capacity of 90 million cubic feet per day (MMcfd), a gas gathering system and related field compression.

This transaction also enriched MarkWest’s asset base in the rich natural gas reserves in the Marcellus Shale to northwest Pennsylvania and eastern Ohio.

MarkWest intends to invest $500 million over the next five years in the development and extension of the gathering and processing facilities of Keystone. MarkWest also targets to achieve gas volume production rate of 170 million cubic feet per day (MMcfd) at the end of 2013 from the current level of 40 MMcfd. This rate is expected to go up to 350 MMcfd by 2016.

Apart from these properties, MarkWest also received an 895 square mile acreage from Rex Energy and Sumitomo. The former will be engaged in gathering and processing of rich gas and natural gas liquids from the area under long-term, fee-based contracts.

MarkWest is a master limited partnership (MLP) engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids, and the gathering and transportation of crude oil.

We are also maintaining a long-term Outperform recommendation on the stock, implying that we see it as an attractive investment option.

We believe that MarkWest owns a high-quality and diverse portfolio of midstream assets that generate stable and recurring revenues in the coming months. Over the last few years, the partnership has consolidated its position in the midstream business, achieved through a combination of organic efforts and accretive acquisitions.

With its proven track record of supporting producers, MarkWest is in a great position to participate in the development of infrastructure that will be required for the leaseholds. Additional positives in the partnership story include accelerating demand for natural gas liquids and steady improvement in its liquidity and cash flow position.

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