The recently created Keystone Midstream Services joint venture offers a model for companies looking for partners in the Marcellus shale gas play, and a panel at the Marcellus Midstream Conference & Exhibition in Pittsburgh offered insights into the origins of the venture. Keystone is being designed move produce, process and transport Marcellus shale gas out of Butler County, Pennsylvania.

The panel, moderated by Peggy Williams, Senior Exploration Editor of Oil and Gas Investor, provided details of the decision-making process and critical factors that drove the deal. Key players in that deal were on hand to discuss the new venture, including Benjamin W. Hulburt, President and CEO of Rex Energy; Mike Brinkmeyer, General Manager-New Ventures, Stonehenge Energy Resources LP; and Peter Augustini, Partner, Energy Spectrum Capital.

Rex Energy Corp. and Stonehenge Energy formed the Keystone venture last December, assisted by capital provider Energy Spectrum Capital. At that time, the venture announced that it would invest $25 million in the development of high-pressure gas gathering and cryogenic gas processing services in Butler County.

Hulburt acknowledged that “there have been both challenges and opportunities” with the new venture. The challenges, he said, stemmed mostly from the “loss of control” that is inherent in a partnership. But in the case of Keystone, the positives outweighed the negatives. Keystone Midstream enables Rex Energy to spend its capital and attention on what it knows best: drilling and production.

Brinkmeyer agreed, and said that Keystone enables each partner to focus on its respective strengths while advancing the common goal of getting Marcellus shale gas to market. He noted that Stonehenge has extensive experience with gas gathering, treating and processing, and is familiar with the cryogenic process needed to get the high-btu, liquids-rich gas found in Butler County ready for market consumption.

Rex Energy owns 40% of the venture and has contributed its existing gathering system in Butler County to Keystone. Stonehenge owns 60% of Keystone Midstream and has contributed the Sarsen facility to the venture, a cryogenic gas plant with 40 million cubic feet per day of processing capacity.

In conjunction with the formation of the joint venture, Rex Energy has entered into a gathering and processing agreement with Keystone Midstream in which Rex has reserved 20 million cubic feet per day of capacity in the plant in 2010, and 40 million cubic feet per day of capacity thereafter. Stonehenge will manage the operations of Keystone Midstream. The Sarsen plant is expected to become operational in the fourth quarter of this year.

Augustini said that Energy Spectrum Capital is a midstream-focused private equity firm which views itself as “pre-MLP capital.” With that mission, Energy Spectrum looks for “experienced and capable management teams,” and the Keystone Midstream venture fit the criteria perfectly. When combined with the promise of the Marcellus play, Augustini said, it became a logical choice for financial support.