MarkWest Energy Buys Keystone Midstream Services for $500 Million, Plans Butler County Expansion

Along with Keystone Midstream Services, LLC, Rex Energy Corporation is merging with a subsidiary of MarkWest Energy Partners L.P.

MarkWest has bought Keystone for $512 million, according to a press release from Rex Energy. Rex Energy, which is headquartered in State College, Pa., holds a 28 percent interest in Keystone and expects net proceeds from the sale to be about $120 million.

The deal is expected to close during the second quarter of 2012, according to the statement.

Keystone owns and operates two cryogenic gas processing plants in Evans City as well as a gas gathering system and associated field compression in Butler County. Rex Energy, together with its non-operating partner, Sumitomo, currently holds approximately 68,400 gross acres in its Butler-operated area. 

In connection with the merger, MarkWest and affiliates of Rex Energy and Sumitomo will enter into a new gathering, processing and natural gas liquid fractionation arrangement that will allow MarkWesttol gather and process gas from Rex Energy wells within Butler County and certain surrounding areas.

Expansion of Natural Gas Liquids Pipeline

MarkWest also is proposing to extend its planned natural gas liquids pipeline from its Houston complex south of Pittsburgh into Butler County. The pipeline is expected to be complete in the first half of 2014. 

Once finished, the pipeline will transport natural gas liquids from the Butler processing facilities to the Houston complex, which is expected to reduce the company's natural gas liquids transportation costs.

Ethane Uplift

The MarkWest pipeline also will provide Rex Energy with the means to transport ethane out of the Butler facilities to MarkWest's Houston complex. The expansion of the pipeline will provide access to additional markets through the Houston plant's outlets, enabling the company to commit to one or more new markets for its ethane production, the Rex Energy statement said. 

Based on these plans, Rex Energy anticipates it will begin selling additional ethane during the first half of 2014.

Additional Processing Capacity in Butler County

MarkWest also intends to spend up to $500 million in the next five years to expand Keystone's gathering and processing facilities, the statement said.

"This transaction marks a critical step forward for the continued development of our core assets in Butler County," said Tom Stabley, Rex Energy's Chief Executive Officer and Chief Financial Officer. "Rex Energy is very excited about our new partnership with MarkWest. We believe that MarkWest's dynamic and broad midstream experience will enable Rex Energy to fully unlock the value and potential of our Butler holdings. 

Working together, we will further advance the responsible development of Rex Energy's acreage in our Butler operating area."