Rose Rock Midstream, L.P. (RRMS)

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Rose Rock Midstream, L.P. (RRMS)

Q1 2014 Earnings Conference Call

May 9, 2014 11:00 ET


Alisa Perkins - Investor Relations

Carlin Conner - Chief Executive Officer

Bob Fitzgerald - Chief Financial Officer

Pete Schwiering - Vice President, Rose Rock Midstream


Brad Olsen - TPH

Shneur Gershuni - UBS

Brian Zarahn - Barclays

Michael Gaiden - Robert Baird

Craig Shere - Tuohy Brothers

Will Frohnhoefer - BTIG



Good morning, ladies and gentlemen and welcome to the SemGroup Corporation and Rose Rock Midstream First Quarter 2014 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 follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

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

Alisa Perkins - Investor Relations

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 to your attention 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 be found on our website.

Hosting the call today is Carlin Conner, our CEO and Bob Fitzgerald, our CFO. In addition, Pete Schwiering, Vice President of Rose Rock Midstream is available for questions and answers.

With that, let me turn the call over to Carlin.

Carlin Conner - Chief Executive Officer

Thanks, Alisa. Before we review our first quarter results, I would like to spend a few minutes recognizing Norm Szydlowski. I first met Norm when I was interviewing for this job and it became clear very early in our conversation that I would be replacing a CEO that was diligent, thoughtful, smart and extremely hardworking. The rebuilding of SemGroup and the launch of Rose Rock has been methodical, structured and executed with an overwriting attention to health, safety, security and environmental compliance. As Norm prepares for his next chapter, I on behalf of all of our stakeholders want to publicly thank him for his dedicated service. He has left the company in a great position for us to execute our growth strategy.

As the new Chief Executive, I would be remised if I did not remind all of our stakeholders of the absolute commitment we have to do all that we do safely in full compliance with all internal and external standards, while creating significant value through smart, diligent and effective execution. As I settle into the new role, I am reviewing the current strategy and look forward to our annual strategic planning session this summer. In the meantime, the existing strategy is endorsed with some shaping to ensure that we are efficient in our execution. I can say that we are committed to the midstream space and currently we do not have any interest to significantly move up or downstream of our current position. We have a bias towards fee-based business models, but also appreciate value creation around asset holdings. We believe utilizing our assets in innovative ways is essential to seize unique opportunities for our company and our customers. This value creation allows for companies like ours to earn down the multiples that exist in today’s market.

To recap our current strategy, we will strive to generate consistent cash flows, grow through strategic and efficient M&A continue to pursue the right mix of fee versus marketing based cash flows, mitigate commodity price exposure, prudently manage our balance sheet, and optimize the existing businesses to further increase our organic growth rate. With respect to M&A, we believe that the diligent and deliberate rebuilding of SemGroup and the IPO of Rose Rock have positioned us to participate in transformative transactions that are supportive of our mission. I believe you can look at my track record and gain some comfort that I will not pursue M&A just for the sake of chasing a deal.

In all of our businesses, organic growth will continue as we build out our existing systems and enter into new production environments. The steady march to become one of the premiere pure midstream companies will require smart and organic growth as well as the efficient M&A successes. Speaking of success, we will gauge our success by the following scorecard, ensuring efficient capital management, executing with operational and commercial excellence, keeping all stakeholders safe and becoming a community leader in our markets.

Now, moving on to the quarter results, Bob will provide more color on the business a bit later, but I would like to highlight several items. Both SemGroup and Rose Rock had an exceptional first quarter. We are currently maintaining adjusted EBITDA guidance of $245 million to $265 million at SemGroup and $92 million to $97 million at Rose Rock. As we recently completed several strategic growth initiatives, including the Glass Mountain Pipeline and the Rose Valley 1 plant, our plan is to revisit our EBITDA and CapEx guidance with our second quarter results. We have increased dividends for the fifth straight quarter at SemGroup to $0.24 per share, a 9% quarter-over-quarter increase and a 26% increase over our initial dividend issued one year ago.

We continue to grow quarterly distributions at Rose Rock with the announced distribution of $0.495 per unit, a 6.5% increase quarter-over-quarter and a 15% increase over last year’s first quarter. For 2014, our anticipated CapEx spend is $415 million. We are spending 85% of our capital on high return, organic growth projects in key asset place, such as the White Cliffs expansion, which is expected to be completed in third quarter 2014. At this point in time, the majority of the pipe is in the ground. We are on track to be online still in July and we expect to be fully operational in August. We are excited about the interest we have received from additional shippers seeking firm capacity on the pipeline.

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