Rose Rock Midstream, L.P. (RRMS)

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Rose Rock Midstream, L.P. (RRMS)

Q4 2012 Earnings Conference Call

March 1, 2013 11:00 ET

Executives

Alisa Perkins - Investor Relations

Norman Szydlowski - Chief Executive Officer

Bob Fitzgerald - Chief Financial Officer

Peter Schwiering - Chief Operating Officer

Analysts

Ethan Bellamy - R.W. Baird

Brad Olsen - Tudor Pickering

Jerren Holder - Barclays

Curt Launer - Deutsche Bank

Will Frohnhoefer - BTIG

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the SemGroup Corporation and Rose Rock Midstream Fourth Quarter and Full Year 2012 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to Alisa Perkins. Please go ahead.

Alisa Perkins

Thank you for joining us today. The presentation for today’s call is available under the Investor Relations section of our website at semgroupcorp.com or rrmidstream.com.

Before we begin our prepared remarks, I would like to bring your attention to slides 2 and 3 for certain disclaimers and other cautionary statements, as remarks within our presentation may contain forward-looking statements. Also included in the presentation are various non-GAAP financial measures such as adjusted gross margin, EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP financial measure are included in the presentation and can also be found on our website.

With that, let me turn the call over to Norm Szydlowski, our Chief Executive Officer.

Norman Szydlowski

Thanks Alisa. In addition to Alisa, I am joined by Bob Fitzgerald, our Chief Financial Officer and Schwiering, Chief Operating Officer for Rose Rock Midstream. 2012 was a great year for SemGroup and Rose Rock. Both companies continue to benefit from the growing demand for storage and transportation and processing oil and gas from the favorable North American production environment.

SemGroup’s adjusted EBITDA for the fourth quarter was $43.7 million, which is up 33% over the third quarter. Rose Rock reported adjusted EBITDA of $9.9 million, up 4% from the third quarter. For the year, SemGroup’s adjusted EBITDA was up 17% at $135 million. Thanks to a stronger than expected fourth quarter and Bob will provide more details in a moment. Rose Rock was up 14% at $39.5 million. These positive results affirm the strength of our strategic plan in well-placed assets.

Let me review the highlights of 2012 for both companies. Capital spending totaled $195 million for SemGroup, including $29 million for Rose Rock. More than 90% of the expenditures were for growth projects. CapEx for the year was less than the $230 million we had earlier projected due to the timing of the spending on the projects. More tanks were constructed at Cushing and more truck unloading bays added to the Platteville, Colorado terminal.

New projects still in progress include the Wattenberg Oil Trunkline and the Glass Mountain Pipeline, both of which bringing on target to be completed at the end of 2013. The expansion of the White Cliffs Pipeline is on track to be operational in the second quarter of 2014. Rose Rock distributions have increased 11% since the IPO in December of 2011. Total return to equity holders in 2012 for SemGroup was 50% and for Rose Rock 60%. Both companies delivered exceptional performance during 2012. Our goals for growth, financial performance, and safety were met or exceeded. We are expanding our footprint in several key unconventional plays, including our White Cliffs loop and the Wattenberg Oil Trunkline in the DJ Basin, and we continue to grow in the Mississippi Lime Play with the Glass Mountain Pipeline in our new gas processing plant.

We are delivering on the financial targets such as adjusted EBITDA and the LP unit distribution growth through disciplined investment decisions and project execution. We are also working to improve returns on existing assets such as our UK business. While SemLogistics did finished the year slightly positive, we continue to look for opportunities to improve on this result as the market backwardation in Europe remains. We did sell the SemStream Arizona propane business to JP Energy at the end of 2012. We maintained a strong safety record throughout 2012 and we’ll bring that with us into 2013.

We are off to a strong start here in 2013 with the dropdown of 17% of White Cliffs to Rose Rock in January. This transaction is immediately accretive to Rose Rock and reflects our strategic plan to use the MLP as a growth vehicle. And we do announce our plan to begin paying on a quarterly cash dividend. For SemGroup during the second quarter of this year, I won’t be giving you more specifics on the dividend rate until it’s formally declared, other than to repeat that it will be targeted to represent a pass-through of the majority of the distributions received from SemGroup’s interests in Rose Rock and NGL Energy Partners.

The adjusted EBITDA for SemGroup in 2013 is expected to be $165 million to $175 million, representing approximately 25% growth over 2012 driven by increased volumes and margins on White Cliffs and SemGas along with the other assumptions listed on slide number six. Capital expenditures are expected to be $400 million for 2013. Approximately $35 million is carryover from 2012. And as you can see from the table on slide number seven, we continued to identify many new growth projects in the celebrity oil and gas plays.

Let me begin by giving you an update on Wapiti area in Alberta. Due to increasing volume commitments in this area, we have launched a FEED study to loop our existing pipeline into our K3 plant, which lies in the heart of the Montney/Duvernay shale areas. This region continues to see rapid growth and the need for expanding midstream services. So, although we have removed the capital spend of $63 million from 2013 for the Wapiti Sweetening Plant, we have left the placeholder for this project, because we still see a demand for it in the future. We have also included a new Cushing storage expansion project for 2013. The new project consists of 350,000 barrels of storage to be used for operational blending capacity. The new tanks and related blending equipment are expected to be placed in the service by year end cost $7 million. Our new 20-inch receipt and delivery pipeline in Cushing started up last month doubling our receipt and delivery capacity there. And the new 250,000 barrels storage tank in Cushing will begin generating EBITDA in April 2013.

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