Rose Rock Midstream, L.P.
) continues to pursue a steady inorganic growth strategy to expand
its operations. The partnership has inked an agreement with a unit
Chesapeake Energy Corporation
) to acquire crude oil trucking assets. The transaction is expected
to close in second-quarter 2014, subject to conditions.
Per the agreement, Rose Rock Midstream will acquire several assets
located in Ohio, Oklahoma and Texas, including 124 trucks, 122
trailers and various other equipment. The partnership will also add
around 200 employees. Notably, the terms of the agreement will be
calculated at market rates with Chesapeake Energy's subsidiary
Chesapeake Energy Marketing, Inc.
If approved, the latest acquisition will help Rose Rock Midstream
increase its operating truck count to over 250 and employee base
will stand at around 350. The transaction will also allow the
partnership to enjoy the benefits of Chesapeake Energy's service
Rose Rock Midstream is a wholly-owned subsidiary of
) with assets across several mineral-rich territories such as Eagle
Ford Shale, Bakken Shale and Permian Basin. Upstream firms
Murphy Oil Corporation
) and its peers are actively drilling in these regions. The
exploration and production activities to uncover more reserves are
expected to increase in the future.
We note that Rose Rock Midstream's transportation volume in
first-quarter 2014 increased sequentially as well as year over
year. Considering the current scenario, we view the proposed
acquisition as a positive move for the partnership's future growth.
Subsequently, the transaction will enable Rose Rock Midstream to
meet increasing service demand from the exploration and production
It is evident from past records that Rose Rock Midstream follows a
strategic acquisition program. The partnership generally takes over
assets with similar lines of operations, which prove accretive
immediately. In keeping with this, Rose Rock Midstream's previous
acquisitions have strengthened its core offerings.
In 2013, Rose Rock Midstream completed several inorganic
transactions, including acquisitions of additional interest in
White Cliffs Pipeline from SemGroup and transportation assets from
Barcas Field Services. In first-quarter 2014, the acquisition of
White Cliffs Pipeline provided $13.6 million as cash distributions
to Rose Rock Midstream.
Rose Rock Midstream continues to maintain a strong cash generation
capacity. In the first three months of 2014, the partnership's cash
flow from operating activities increased to $18.4 million from $9.9
million in the year-ago comparable period. As of Mar 31, 2014, the
partnership had total liquidity of $301 million, including cash
balance of around $3 million and revolver availability valued $298
million. A favorable financial position backed by stable cash
generation capacity supports Rose Rock Midstream's disciplined
investment in inorganic growth ventures.
Rose Rock Midstream currently has a Zacks Rank #3 (Hold).
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