Rose Rock Midstream, L.P. (RRMS)

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Rose Rock Midstream LP (RRMS)

Q4 2013 Earnings Conference Call

February 28, 2014 11:00 a.m. ET

Executives

Alisa Perkins – IR

Norman Szydlowski – President and CEO

Robert Fitzgerald – SVP and CFO

Peter Schwiering – COO, Rose Rock Midstream

Analysts

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

Brian Zarahn– Barclays Capital

Craig Shere – Tuohy Brothers

William Frohnhoefer – BTIG

Michael Gaiden – Robert W. Baird

Selman Akyol – Stifel

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the SemGroup Corporation and Rose Rock Midstream Fourth Quarter and Full Year 2013 Earnings Conference Call. (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 two and three 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, let me turn the call over to Norm Szydlowski, our Chief Executive Officer.

Norman Szydlowski

Thanks, Alisa. In addition to Alisa, I’m also joined today by Bob Fitzgerald, our Chief Financial Officer and Pete Schwiering, Chief Operating Officer for Rose Rock Midstream.

Before we review our fourth quarter earnings, let me update everyone on the search for my successor. The board is in the final stages of the search process and expects the new CEO will be announced prior to the end of the first quarter. As I said before, I will continue as CEO to make sure we don’t lose any momentum and to help with a seamless transition. I have been involved in the process and have the highest confidence that we are finding the right person to lead the company.

In the meantime, we are concentrating on execution the strategy we have outlined over the past few years and we will continue to focus on growing our business throughout the coming year in a safe and responsible manner.

Moving to our results. 2013 was an excellent year. SemGroup adjusted EBITDA increased 40% over the previous year and Rose Rock adjusted EBITDA was 73% higher. As you can see on Slide number 4, the companies exceeded initial guidance for both earnings and for capital investment. While we will review the details behind those shortly, but let me highlight a few of the accomplishments.

Many of our existing assets are operating at or near capacity and we continue investing in crude oil and gas infrastructure in support of the growing North American production. It’s important to note that all of our major projects are currently on time and on budget. However there is some expansion carryover related to the timing of the payments.

We completed two drop-down transactions into Rose Rock during the year and increased Rose Rock distributions to unitholders, and initiated a dividend to SemGroup shareholders. Safety is always the focus for us and we maintain our track record of no serious incidents in 2013.

With respect to key projects, the White Cliffs pipeline expansion continues to be on track. Construction is underway. We still expect this project to complete by mid-year 2014. The Wattenberg Oil Trunkline finished on schedule and went into service at the beginning of November. Now we are working on an additional project to extend that pipeline 38 miles northeast connecting the Noble Energy’s East Pony processing facilities. Noble’s entered into a long term agreement to use this asset and while we can’t speak specifically to the EBITDA due to confidentiality agreements, it is similar to other pipeline projects. We anticipate this extension to be operational in the fourth quarter of this year.

The Glass Mountain pipeline ramped up construction and began commercial operation at the beginning of this month. We have increased our capital spending to include more truck and loading base for the pipeline. Our Rose Valley 1 plant in the Mississippi Lime is expected to be in place and in service in March. The Rose Rock – for the Rose Valley 2 plant is built in storage and on-site. It’s currently scheduled to be online in the first quarter of 2016 but those have the option to go online sooner if the volumes warrant.

At Rose Rock, we closed on our Tampa pipeline acquisition in November. This is a 12 mile, 12-inch diameter pipeline that runs from Platteville to the Tampa Colorado rail facility. This acquisition furthers our strategic plan of offering fee based transportation infrastructure while expanding our footprint across an area that’s experiencing rapid growth and strong demand for midstream services. We are already planning another pipeline expansion where we will add a 5 mile segment to the Tampa line to be completed by the end of the second quarter of 2014.

In support of Duvernay opportunity in Canada, we recently announced the construction of a low sour gas gathering line to be named the KA North pipeline. That will connect Duvernay production to our SemCAMS KA plant. The new pipeline is supported with a fee for service gathering and processing agreement with Shell Canada. The 10-inch 10 mile pipeline will be owned 60% by SemCAMs and is expected to be completed later this year.

Read the rest of this transcript for free on seekingalpha.com