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MarkWest CEO: Keystone Purchase 'Connects Our Dots'

One day after purchasing natural gas processing facilities and associated infrastructure in the Marcellus and Utica shale plays, MarkWest Energy Partners LP said it plans to remain independent and will allocate more toward capital expenditures (capex) in 2012.

In a conference call on May 8 with financial analysts to discuss 1Q2012 earnings, CEO Frank Semple said the company's purchase of Keystone Midstream Services LLC was an integral piece to the future of MarkWest and the shale plays they will serve (see Shale Daily, May 9).

"Think about Marcellus, Utica and the required midstream infrastructure as being somewhat of a triangle," Semple said. "The Keystone acquisition allows us to extend our system to connect the dots over that northern Pennsylvania and northeast Ohio area. It's obviously critical for the continued development of the Marcellus and the Utica, to be able to access the [natural gas liquid] NGL system and then ultimately provide outlets for the NGLs.

"Our goal is to continue to build out the infrastructure, not only for the natural gas gathering and processing, but also for the NGL fractionation and transportation components so that our producers can have ready access to all those facilities."

Keystone is owned by Stonehenge Energy Resources LP and affiliates of Pennsylvania-based Rex Energy Corp. and Japan's Sumitomo Corp. (see Shale Daily, May 9, 2011). Rex had been shopping for a buyer for Keystone to defray some of the costs of its drilling program. Under the sales agreement Rex and Sumitomo also agreed to dedicate an 895 square-mile area of their drilling venture to MarkWest.

"The Keystone acquisition is usually strategic and further expands our footprint in the Northwest Pennsylvania," Semple said. "We're excited about our new partnership with Rex and Sumitomo, and we're very focused on supporting their growth plans in Pennsylvania and Ohio."

Randy Nickerson, senior vice president and chief commercial officer for MarkWest, said geological analyses of the Utica Shale performed by producers, MarkWest and others indicate that northwestern Pennsylvania and Columbiana and Mahoning counties in Ohio could be very productive areas for rich gas.

"It could be a really, really great core area for the Utica," Nickerson said. "One of the need things, obviously, about Keystone is now that we're up to [Beaver, Lawrence and Butler counties, PA] we have great access to all of those northern Pennsylvania, northwestern Pennsylvania counties that could have Marcellus, but they really could have Devonian and [be] particularly rich Utica. It was a key part of the acquisition, and we see that area heating up and being developed pretty actively. We're excited about it."

Semple said MarkWest would have about 1.5 Bcf/d of processing capacity by the end of 2012, a figure that would increase to about 3.4 Bcf/d -- plus fractionation capacity of more than 330,000 b/d -- by mid-2014. Keystone will make up part of that total, as will the 200 MMcf/d Sherwood I plant MarkWest plans to build in West Union, WV, and have online by 3Q2012.

Semple added that MarkWest's capex program for 2012 would increase to a range of $1.1 billion to $1.5 billion because of the Keystone acquisition.

"2012 is shaping up to be another great year with strategic expansions and continued growth," Semple said. "With our diverse set of assets and growing rich gas resource plays, we continue to be very well positioned to develop efficient and effective midstream solutions for our producer customers."

Asked about the likelihood of a major -- such as ExxonMobil Corp. -- purchasing MarkWest as a way to acquire major gathering and processing facilities in the Marcellus and Utica, Semple indicated that such a deal was unlikely.

"MarkWest is in a great position to continue to grow our assets independently in all our areas of operation," Semple said. "We provide the best services for our producer customers and provide the best value for our unit holders by staying independent and to be able to focus on the customers. So that's our long-term goal. It's just to continue to do what we're doing and staying independent and building value for our unit holders and our customers."

Distributable cash flow was a record $109 million during 1Q2012, an increase of more than 40% from the prior-year quarter. Meanwhile adjusted earnings before interest, taxes, depreciation and amortization was a record $133 million and segment operating income totaled $194 million.

Denver-based MarkWest offered 8 million shares of common stock from May 8 to May 14 at $55.28/share, and granted its underwriters a 30-day option to purchase up to 1.2 million additional common shares. The proceeds will be used to fund the Keystone acquisition.

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