MarkWest Energy Partners LP is building out its services for Appalachian rich-gas producers with the $512 million acquisition of Pennsylvania-based Keystone Midstream Services LLC.

The transaction, set to close before the end of June, gives MarkWest two cryogenic gas processing plants with 90 MMcf/d of capacity, a gas gathering system and associated field compression in Butler County, PA, as well as the opportunity to expand operations into neighboring states.

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 in the heart of the liquids-rich Marcellus Shale and these assets are a great complement to our fully integrated midstream operations in Pennsylvania, West Virginia, Kentucky and Ohio,” said MarkWest CEO Frank Semple.

Rex and Sumitomo became Marcellus joint venture partners in September 2010, and to date they have jointly leased about 68,400 acres in Butler County. Currently they are developing the Marcellus, Upper Devonian and Utica shales in Butler, as well as Beaver County, PA. On the drawing board this year are plans to complete 22 wells in Butler County and eventually increase drilling activity once a new MarkWest natural gas liquids (NGL) gathering line from the Keystone facility is competed.

Gas volumes from Keystone are forecast to more than quadruple to 170 MMcf/d from the current rate of 40 MMcf/d by the end of 2013 and reach an estimated 350 MMcf/d by 2016, according to MarkWest. Additionally, earnings from the Keystone system should estimated to be $18 million over the next four quarters, $28 million for the full-year 2013, and about $130 million by 2016, executives said.

To support Rex’s drilling program growth, MarkWest plans to lift capital expenditures by up to $500 million over the next five years to expand the Keystone system.

“A significant portion of the capital that MarkWest will invest is related to extending its NGL gathering system from its Houston, PA, NGL fractionation and marketing complex north through Beaver, Lawrence and Butler counties to the Keystone assets as well as other third-party facilities,” said the MarkWest team. “The NGL gathering extension will greatly enhance the Keystone operations and support the growth in gas and NGL production by Rex, Sumitomo and other planned processing projects in northwest Pennsylvania.

“The Keystone acquisition will be very strategic for MarkWest because it will provide the critical mass to support the NGL gathering extension, and positions MarkWest very well to serve rich-gas Marcellus and Utica producers in northwest Pennsylvania and northeast Ohio.”

In addition to the Keystone transaction, Rex and MarkWest Utica EMG LLC executed a letter to discuss similar gathering, processing and NGL fractionation for portions of Rex’s Ohio Utica acreage. MarkWest Utica EMG is a joint venture of MarkWest and The Energy and Minerals Group, which is developing Utica infrastructure in eastern Ohio (see Shale Daily, Dec. 15, 2011). Rex now is drilling its first well in Carroll County, OH, and expects to complete two additional wells this year (see Shale Daily, May 3).

The MarkWest agreement follows one last week to launch midstream expansions for gathering facilities in two areas of West Virginia and southwestern Pennsylvania to support gas production for affiliates of Chesapeake Energy Corp. and Antero Resources Corp. (see Shale Daily, May 7).