MarkWest Energy Partners LP and The Energy & Minerals Group (EMG) late Monday launched a midstream joint venture (JV) to develop natural gas processing and natural gas liquids (NGL) fractionation, transportation and marketing infrastructure in eastern Ohio beginning next year.

EMG, a private equity fund, would fund most of the initial capital expenditures required to develop the midstream infrastructure, which would serve the emerging Utica Shale.

In addition, Denver-based MarkWest is negotiating to acquire EMG’s 49% stake in MarkWest Liberty Midstream & Resources LLC for an estimated $1.8 billion.

“Our Liberty joint venture with EMG has made significant capital investments to develop world-class midstream infrastructure that has been critical to the development of the liquids-rich area of the Marcellus,” said MarkWest CEO Frank Semple. “The creative acquisition structure includes up-front cash and deferred issuance of [MarkWest] common units. This structure provides immediate and future accretion and reflects the strength of our relationship with EMG as well as their confidence in the future value of MWE’s common units.”

MarkWest and EMG, formerly the Midstream & Resources Fund, created the Liberty partnership in 2008 to serve producers operating in the Marcellus Shale (see Daily GPI, Sept. 16, 2009). To buy out EMG’s minority ownership, MarkWest is offering to pay $1 billion in cash and 19.95 million of its unregistered Class B units.

During a conference call late Monday Semple said MarkWest estimates the current value of its units between $750 million and $800 million. Definitive agreements are expected by the end of this month.

Last year MarkWest Liberty reported large increases in processing, shipping and sales (see Daily GPI, March 4). The company ended 2010 with 209 MMcf/d of cryogenic capacity at its West Virginia processing complexes in Houston, PA, and Majorsville, WV. It expected capacity to increase to 625 MMcf/d by the middle of this year and to reach nearly 750 MMcf/d by mid-2012 with the addition of a new processing complex in Wetzel County, WV.

Also in 2010 the Liberty partners joined Sunoco Logistics Partners LP to announce a combined pipeline and marine project to take ethane from the Marcellus Shale (see Daily GPI, June 3, 2010).

The new JV with EMG, Semple said, would “leverage a similar operational and financial platform to develop integrated NGL transportation, fractionation, storage and marketing services in the liquids-rich corridor of the Utica Shale.”

EMG CEO John Raymond said the Liberty JV had “adapted to the success and needs of the producer community — as demonstrated by record drilling activity levels in the basin — via multiple iterations of geographic and functional expansions that has manifested the development of a large scale, world-class integrated midstream system that allows the producers to fully develop and maximize the value of their underlying reserves. This is the direct result of the strong relationship between the teams at EMG and MarkWest.”

To raise money for the transaction MarkWest has launched a public offering of eight million class B units and gave underwriters an option to buy up to 1.2 million additional units. EMG could convert the units by July 2017.

Because of the acquisition, MarkWest increased its 2012 earnings guidance to a range of $480 million to $540 million. It also raised its 2012 capital expenditure guidance to a range of $900 million to $1.3 billion. The acquisition also is expected to increase the partnership’s fee-based net operating margin by up to 6% annually beginning in 2012.

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