August 17, 2011 [Platts] - SemGroup plans to take public a new midstream company focusing on assets located around the key market hub of Cushing, Oklahoma, according to a securities filing.
The new company, called Rose Rock Midstream LP, filed for a $181.1 million IPO last Friday. The filing touts Rose Rock’s ability to serve both high-growth shale areas and customers looking to move crude into and out of the Cushing storage hub, which is also the pricing point for the New York Mercantile Exchange’s crude contract.
“We believe that our connectivity in Cushing and our numerous interconnections with third-party pipelines, refineries and storage terminals provide our customers with the flexibility to access multiple points for the receipt and delivery of crude oil,” said Rose Rock in its filing.
The company also spotlights its crude gathering, transportation, storage and marketing businesses in Colorado, Kansas, Montana, North Dakota, Oklahoma and Texas.
“We serve areas that are experiencing strong production growth and drilling activity through our exposure to the Bakken Shale in North Dakota and Montana, the Denver-Julesburg (DJ) Basin and the Niobrara Shale in the Rocky Mountain region, and the Granite Wash and the Mississippian oil trend in the Mid-Continent region,” said Rose Rock.
In Cushing, the company said it owns and operates more than 5 million barrels of crude storage and is building another 1.95 million barrels of storage that should be ready before the end of 2012.
“Our storage terminal has interconnections with all of the other major storage terminals in Cushing and has a combined throughput capacity to receive or deliver 240,000 barrels of crude oil per day,” Rose Rock said, adding that its storage contracts have a weighted average remaining life of 4.5 years as of June 30 and none of its third-party contracts expire before 2015.
BAKKEN ASSETS
Rose Rock’s other assets include Kansas and Oklahoma pipelines and storage, Bakken shale operations and a crude oil truck-unloading facility in Platteville, Colorado.
The company owns and operates a 640-mile crude gathering and transportation pipeline system and 670,000 barrels of associated storage in Kansas and northern Oklahoma.
In the Bakken, Rose Rock owns and operates a crude oil gathering, storage, transportation and marketing business in western North Dakota and eastern Montana.
“Using our fleet of trucks and capacity on the Enbridge North Dakota System, we purchase crude oil at the wellhead and transport and market it to customers, primarily at the Clearbrook, Minnesota crude oil marketing hub,” the company said.
The Platteville truck facility, which connects to SemGroup’s White Cliffs Pipeline, is used by companies to move crude to Cushing, said Rose Rock. The business also includes 120,000 barrels of crude storage capacity.
Besides the Cushing storage expansion, Rose Rock said it also has plans to expand its Kansas and Oklahoma pipeline system through debottlenecking and that it is evaluating additional markets for its Bakken operations. In Platteville it is constructing 100,000 barrels of storage capacity and has plans to build six more truck unloading lanes and an additional 10,000 barrels of storage.
Rose Rock parent SemGroup went bankrupt in 2008. Since then, the company “has taken numerous steps to restructure its business portfolio and to shift away from trading activities and toward a business heavily weighted in fee-based and fixed-margin activities,” said Rose Rock.
SemGroup said in a statement on its web site that it will own the 2% general partner interest and incentive distribution rights of Rose Rock and expects to retain a majority of the MLP’s limited partner units, including all of its subordinated units. Rose Rock intends to use the net proceeds from the IPO to make a cash distribution to SemGroup.
The creation of Rose Rock is a bet on new takeaway capacity from Cushing.
In the filing the company warns that long-term weak Cushing crude prices, now under pressure due to the bottleneck there, would hurt business.
“A prolonged decline in the WTI Index price relative to other index prices may cause reduced demand for our transportation to, and storage in, Cushing, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders,” said Rose Rock.
