After the bell Tuesday, MarkWest Energy (MWE) announced a public offering of 8 million common units, with an underwriters option for another 1.2 million. The funds raised from the offering will be used to pay for the purchase of Keystone Midstream LLC from Rexx Energy (REXX), Sumitomo Group, and Stonehenge Energy Resources, which was announced yesterday. Based on shares changing hands at $55.10 in the after hours, the offering should raise roughly $500 million, assuming the full underwriters option is exercised.
The acquisition of Keystone Midstream and its assets further cements MarkWest's future as a leader in natural gas processing in the Northeastern US. The assets, which include a gathering system, the Sarsen cryogenic plant and Bluestone cryogenic plant, have a combined 90 mcf/d of capacity, and 530,000 gallons of NGL storage, al of which is in Butler County, PA. Additionally, MarkWest will spend $500 million over the next 5 years to support Rexx Energy's drilling program in the area by expanding the gathering and processing assets.
This announcement comes on the back of a signed letter of intent to develop gathering, processing, fractionation and marketing services for Gulfport Energy (GPOR) in the Utica, as well as agreements with Chesapeake Energy (CHK) and Antero Resources. These agreements will see the expansion of the Majorsville processing complex by 400 MMcf/d, and the expansion of gathering systems to serve the Sherrywood complex.
All of these deals continue the red hot growth of MarkWest, who announced in December it was acquiring full control of the Liberty JV it had partnered with the Energy & Minerals Group to build, as well as the formation of a new JV with EMG to build out infrastructure supporting the Marcellus and Utica Shales. The MarkWest Utica JV, as it is called, will see EMG contribute $500 million to fund gathering infrastructure in Ohio, as well as a 200 MMcf/d cryogenic processing complex in Harrison County, 100,000 bbl/d fractionation, storage, and marketing complex in Harrison, and a processing complex in Monroe County.
With all these growth plans underway, MarkWest unitholders should see continued significant distribution increases for the next several years. The partnership is positioning itself to become a major owner of key energy infrastructure in the North America, and has a strong first mover advantage in both the Marcellus and Utica Shale. By the end of 2013 MarkWest could easily increase the distribution 50%, based on management's 2012 guidance of distributable cash flow providing 1.45x coverage of the distribution at the midpoint of the range. This distribution growth will continue to support the unit price, which has pulled back about 10% off the 52 week high.
I believe this is a great opportunity to either establish a new position in MarkWest, or add to existing positions. Rapid distribution growth will follow the torrid growth MarkWest is funding with this unit offering, and investors should jump on the discount this offering will provide.