Rose Rock Midstream, L.P. (RRMS)

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Rose Rock Midstream (RRMS)

Q2 2013 Earnings Conference Call

August 9, 2013 11:00 AM ET


Alisa Perkins – Investor Relations

Norman J. Szydlowski – President and Chief Executive Officer

Robert N. Fitzgerald – Senior Vice President and Chief Financial Officer


Brian Zarahn – Barclays Capital

Curt Launer – Deutsche Bank

Craig Shere – Tuohy Brothers

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Will Frohnhoefer – BTIG



Good morning, ladies and gentlemen, and welcome to the SemGroup Corporation and Rose Rock Midstream’s Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a 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 or

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 measures are included in the presentation and can also be found on our website.

With that, I’d like to turn the call over to Norm Szydlowski, our Chief Executive Officer.

Norman Szydlowski

Thanks, Alisa. In addition to Alisa, I’m also joined by Bob Fitzgerald, our Chief Financial Officer. Before we review our second quarter earnings, I’d like to take a few minutes to discuss yesterday’s announcement that I will retire as CEO of SemGroup and Rose Rock once the successor came in.

Let me begin by saying, I’m extremely proud how I am of what we’ve accomplished at SemGroup. I greatly enjoyed working closely with the Board, the management team and all of our extremely talented employees together. We put the Company on a solid financial footing following the restructuring of SemGroup LP. We guided SemGroup to its successful listing on the New York Stock Exchange in 2010. We launched the IPO of our MLP Rose Rock Midstream, a year later. And since then, we’ve grown our businesses and strengthen our position in the Midstream industry.

Today, we have a deep into proven business leaders and both companies are well positioned for continued success. As such, I believe now is the right time to identify new leadership who will continue to grow SemGroup and Rose Rock. The Board has initiated a comprehensive search process with a leading executive recruiting firm to identify my successor, considering both internal and external candidates. During this process, I will continue to serve in my current capacities until a successor is in place, so we have an orderly transition.

I look forward to working closely with the Board while the search process is underway to identify the right person to continue the success that the management team has accomplished. We are fortunate to have a dedicated and experienced management team that I know while make this transition all the more seamless. I’m pleased with the Company’s momentum with the Company’s strength and I’m confident that we will continue to build on our track record of growth success and equity holder value creation.

With that, let’s now take a look at some of our recent developments and updates. At SemGroup, we closed our previously announced acquisition of Chesapeake gas gathering and processing assets in the Mississippi Lime play. The newly acquired plans and gathering systems are supported by a joint venture between Chesapeake Energy and Sinopec, which include a 540,000 net acre dedication in the Mississippi Lime Play and a 20 year 100% fee-based gas gathering and processing agreement. This acquisition positions us as one of the largest processors in the Mississippi Lime and we’re very excited about the future growth in this highly attractive celebrity oil and gas play. We used the proceeds from our June bond issuance to fund the acquisition from Chesapeake. Bob will have more comments on the capital structure later.

In Canada, we continue to see increasing demand for gas gathering and processing as producers developed the Montney and Duvernay Shale plays, we’re expanding our ownership in one of our gathering systems that will enable us to capture additional growth in the Wapiti area which reaches out into Northwestern Alberta in to the Montney Shale development region.

We’re also looking to expand our system into Duvernay Shale both of these growth opportunities which total approximately $38 million will be supported by producer commitments. But due to confidentiality restrictions, we’re limited in the details we can provide.

On August 6, we increased our ownership of NGL Energy Partners GP interest from 6.4% to 11.8%. At Rose Rock, we signed a definitive agreement to acquire Barcas Field Services for $47 million. Barcas owns and operates a crude oil trucking fleet at 114 trucks with operations in key production areas, throughout eight states, it provides additional growth areas in which we currently operate such as the Bakken, the DJ Basin and the Mississippi Lime, but it also provides entering into new areas for us, such as the Eagle Ford, (inaudible), Southern Louisiana and New Mexico.

This acquisition is backed by a long-term take-or-pay customer transportation agreement. Well we won’t be providing specifics today this purchase expands our presence in highly attractive areas with strong producer activity giving us more opportunity to bring volume into our existing crude oil systems like this soon to be completed Glass Mountain Pipeline. This transaction is expected to close by the end of the third quarter of this year 2013.

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