MarkWest to Buy Stake in JV

MarkWest Energy Partners L.P. (MWE - Analyst Report) announced plans to buy a 49% interest in a joint venture from private-equity group The Energy & Minerals Group (“EMG”). For the purchase, MarkWest will shell out about $1.8 billion in cash and units.

Per the deal, MarkWest will advance $1 billion in cash and issue 19.95 million unregistered Class B shares, worth $750 billion to $850 million, to EMG. With this transaction, EMC will have a limited voting power of 5% and face restrictions on distributing the common shares.

MarkWest will finance the deal through a public offering of 8 million units. The company will also provide the underwriters an option to buy up to 1.2 million of additional units.

The joint venture, named MarkWest Liberty Midstream & Resources LLC, was formed three years ago and operates in the Marcellus shale formation. The venture provides natural gas midstream services to support producers in western Pennsylvania and West Virginia.

The deal, expected to be closed by the year end, will likely hike MarkWest’s distributable cash flow in 2012 and increases it by up to 6% in the coming years.

Denver, Colorado-based MarkWest raised its 2012 distributable cash flow outlook to $480–$540 million (from the previous guidance of $380–$440 million) and targets to spend $900–$1.3 billion on capital programs. The company also expects to increase its fee-based net operating margin by up to 6% every year.

Both MarkWest and EMG are in talks to form a new collaboration for the Utica shale field of eastern Ohio in 2012.

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

MarkWest competes with other industry players such as Sunoco Logistics Partners L.P. (SXL - Analyst Report) and ONEOK Partners, L.P. (OKS - Analyst Report). We are maintaining a long-term Neutral rating on the stock.

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