MarkWest to Buy Keystone Biz

MarkWest Energy Partners, L.P. ( MWE - Analyst Report ) has agreed to purchase 100% ownership interest in Keystone Midstream Services, LLC. The deal, which is slated to be closed in the second quarter of 2012, has been settled at a purchase price of $512 million.

Owned by Stonehenge Energy Resources, LP, and partners of Rex Energy Corporation ( REXX - Snapshot Report ) and Sumitomo Corporation, Keystone possesses properties in Butler County, Pennsylvania. The company’s assets comprise two cryogenic gas processing plants with a capacity of 90 million cubic feet per day (MMcfd), a gas gathering system and related field compression.

This acquisition will provide MarkWest access to the rich natural gas reserves in the Marcellus Shale that will highly complement the company’s midstream activities.

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 this acquisition, Rex Energy and MarkWest Utica EMG, LLC – a joint venture between MarkWest and The Energy and Minerals Group – are in talks for setting up midstream infrastructure in the Utica Shale, eastern Ohio.

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

For first quarter 2012, MarkWest reported mixed results, reflecting strong contributions from regional segments, partially offset by steeper operating costs. The partnership’s profit per unit – excluding mark-to-market derivative loss and compensation expense – came in at 57 cents, in line with the Zacks Consensus Estimate.

Revenue (excluding hedging impact) of $350.5 million was up 33.2% from the first quarter 2011 level. However, the result failed to meet our projection of $423.0 million.

MarkWest shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining a Neutral recommendation on the stock.