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
Rose Rock Midstream, L.P. (RRMS) Q4 2012 Earnings Conference Call March 1, 2013 11:00 AM ET
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.
The DJ Basin continues to offer exciting opportunities. Producers are very active and we believe our pipeline is well located to continue to meet the growing needs of producers. We recently approved a de-bottlenecking project for White Cliffs, which will allow us to increase total throughput of the existing system to 76,000 barrels per day. This should be completed by May 2013. As we have in the past, we will add new projects to our list once they have been approved by the company. The combined 2012/2013 growth investment continues at more than $500 million as laid out last year.
Now, Bob will review our financial performance.
Bob Fitzgerald
Thanks, Norm. Beginning on slide eight of our earnings presentation, as noted in our press release yesterday, we reported solid results for the quarter with adjusted EBITDA of $43.7 million, up 33% compared to the third quarter. On a full year basis, adjusted EBITDA for 2012 was $135 million, an increase of 17% over 2011 and at the high end of our guidance range for 2012 due to a stronger than expected fourth quarter.
Key business drivers for our fourth quarter EBITDA included higher White Cliffs volumes due to increasing demand in the DJ Basin. Higher volumes and commodity price realizations at our Mississippi Lime gas processing facilities, higher capital fee recoveries at our SemCAMS plants for Canada, and the receipt of the full cash distributions from NGL Energy Partners on all $9.1 million limited partner units following the expiration of the forbearance period in September of 2012.
Next, I will cover the SemGroup’s segment results on slide nine. Our crude segment reported combined adjusted EBITDA of more than $24 million, a 14% increase over the third quarter due to higher transportation volumes at White Cliffs and our Kansas, Oklahoma system. Our share of White Cliffs cash distributions contributed $14 million of adjusted EBITDA, up over 10% compared to the prior quarter as our throughput volumes from Platteville increased by 8.7 thousand barrels per day or 17% during the period.
SemGas, our U.S. gas processing business unit reported adjusted EBITDA of $3.2 million for the fourth quarter nearly doubling the results of the prior quarter due to a combination of higher volumes and prices. Processing volumes reached a record 90.6 million cubic feet per day, up 6% compared to the prior quarter as volumes increased at our Northern Okalahoma facilities and our Sherman, Texas plant.
Natural gas and NGL prices also rebounded during the quarter. The construction of our new 125 million cubic feet per day plant in Okalahoma remains on track for an April 1st startup. We are in the process of negotiating our contracts with several key producers in the area. Starting in the second quarter of this year, we expect substantially all of our Northern Okalahoma volumes to fall under a new hybrid gas processing agreement. The new agreement terms will affect not only the incremental volumes going into the new plant, but legacy volumes processed at our Hopeton and Nash facilities as well.
One goal in structuring the new processing agreements is to mitigate our commodity price exposure by increasing the amount of revenue earned on a fixed fee basis. The new contracts will be a combination of fixed fee and percent of proceeds revenues based on throughput volumes with approximately one half of the revenue expected to come from the fixed fee portion of the agreement. This new contract structure will reduce earnings volatility for SemGas and is more MLP friendly.
SemCAMS, our Canadian gas processing business reported adjusted EBITDA of $12.4 million, up 41% from the third quarter due primarily to higher maintenance capital fee recovery on K3 plant projects. Net SemLogistics reported adjusted EBITDA of $1.1 million for the quarter, reflecting higher storage and throughput volumes. Capacity utilization increased to 48% during the quarter, up from 36% in the third quarter, but margins were weak as we traded rates for volumes.
We continued to negotiate short-term storage deals as we seek out longer term contracts with both structural customers and traders. SemMaterials Mexico reported a 42% increase in adjusted EBITDA due to surprisingly strong demand for the quarter. Volumes increased 16% as construction activity rebounded from a drop in the third quarter. SemStream adjusted EBITDA increased $2.2 million over the third quarter as we benefited from the expiration of the forbearance period of 3.9 million Limited Partner Units at the end of the third quarter.
Next moving to our capitalization and liquidity position on slide 10, we ended the year with total debt of $206 million, debt to capitalization ratio of 17% and debt to adjusted EBITDA or leverage ratio for the last 12 months of 1.5 times. We ended the year with total liquidity of $281 million. These statistics do not reflect the dropdown transaction that we announced on January 9. Total use of proceeds from the dropdown of the partial interest in White Cliffs to repay debt. We expect to use our available liquidity including our revolver capacity to fund our $400 million in CapEx during the year.
Moving to the results of Rose Rock on slide 12, we reported adjusted EBITDA of $9.9 million, up 4% from the third quarter and an increase of 14% year-over-year. The fourth quarter results were driven by higher transportation volumes and margins, offset by lower marketing margins. Marketing margins decreased overall by 5% primarily due to a decline in North Dakota margins as we experienced a significant shift away from the Clearbrook market as differentials compressed. We are now selling most of our crude volumes at the railhead in North Dakota.
Turning to slide 13, we previously announced our fourth consecutive increase in the distribution per Limited Partner Unit of $0.4025 per unit or $1.61 per unit on an annualized basis. Our 2013 guidance for distribution growth is between 10% and 15% on a year-over-year basis. As outlined in detail in the appendix of our earnings presentation, our distributable cash flow of third quarter was $7.8 million. Our distribution of $8.3 million declared on January 24 represents the coverage ratio of 0.94 times for the quarter and 1.2 times for the full year. Impacting the coverage ratio for the quarter was the inclusion of 3.5 million units issued on January 11th in conjunction with the acquisition of the White Cliffs Pipeline interest. As these new units been excluded from the fourth quarter distribution, we would have had a coverage ratio of 1.14 times for the quarter. We are targeting coverage ratio of 1 to 1.2 times for the full year of 2013.
Moving to Rose Rock guidance on slide 14, as previously announced, we expect to earn $56 million to $60 million in adjusted EBITDA for 2013, which is 47% increase over our 2012 results. Our 2013 adjusted EBITDA includes our proportional share of cash distributions expected from the White Cliffs partnership.
Slide 15 summarizes our 2013 CapEx guidance of $60 million, which includes Rose Rock’s share of the White Cliffs expansion and de-bottlenecking projects. Rose Rock’s capitalization and liquidity position remains largely unchanged from the third quarter. We incurred approximately $5 million of debt on our balance sheet and had total liquidity of $104 million based upon our $150 million revolver in place at year end. On January 11, 2013, we increased the revolving credit facility to $385 million and we borrowed $133.5 million to fund the purchase of our interest in White Cliffs. As of today, we have total liquidity of $187 million and are targeting a debt to adjusted EBITDA leverage ratio of 3.5 to 4.0 times.
I’ll now turn the call back over to Norm for some final comments.
Norman Szydlowski
Thanks Bob. Looking to 2013 then, we are positioning well for another exciting year. Goals are set. Safety and environmental performance are always at the top of our list. We are focused on meeting or exceeding guidance, executing the 2013 capital program, and pursuing disciplined investments that provide attractive returns to our equity holders. Growth investments are on track and positioned to contribute meaningfully to our future earnings and cash flows. And we have more opportunities in development. We continue a disciplined look for appropriate acquisitions. Our balance sheet and liquidity are conservatively positioned so we can grow through both building and acquiring. And we remain focused on our long-term strategy of transitioning SemGroup to a GP Hold Co. Thank you.
And now, I would like to turn the call over for questions. Operator?
Question-and-Answer Session
Operator
Thank you. (Operator Instructions) Our first question is from Ethan Bellamy of R.W. Baird. Your line is open.
Ethan Bellamy - R.W. Baird
Hey, all. Few questions. With respect to White Cliffs and the Niobrara you have Plains doing rail exports and NuStar has proposed the Niobrara Falls line, what do you guys see as the competitive landscape moving forward there and potential for further expansion on White Cliffs if at all? And is the existing and planned capacity there sufficient for the export requirements from the Niobrara?
Peter Schwiering
Yeah, this is Pete. And I’ll take that question. I believe NuStar is not going to pursue that at this time going into the Niobrara, but certainly there is going to be another road/rail facility built up there, which will be competition, but based on projections from our producer and White Cliffs partners, there is going to be more than enough crude to meet our projections with our second line. And also looking to the future, I think there will be a need for additional takeaway capacity in the DJ based on everything we see from the producers up there.
Norman Szydlowski
So, it looks good Ethan. I think we are feeling very strong. We got lots of volume coming into White Cliffs, and should producers keep going and want some more, we stand ready to help them with that too.
Ethan Bellamy - R.W. Baird
Okay, that’s helpful, Norm and Pete. With respect to the White Cliffs volumes, where are they right now and where would you expect to exit ‘13?
Peter Schwiering
Well, right now, Ethan we are near or at capacity on our system. And as Bob mentioned, we have a little de-bottlenecking project in the works right now that we are starting on. And hopefully, we complete by May. It will give us some additional capacity in White Cliffs and we expect to fill that up immediately.
Ethan Bellamy - R.W. Baird
Okay. And what rates do you guys expect to achieve on White Cliffs and Glass Mountain this year in terms of per barrel?
Peter Schwiering
It’s a hybrid between the Healy volumes and the contracted volumes coming in at Platteville. We have reduced the Healy volumes to meet the demand at Platteville. So, that’s why margins are up slightly this year – second half of this year.
Ethan Bellamy - R.W. Baird
And can you give us per barrel rates?
Norman Szydlowski
I don’t have that handy. Bob, do you have that?
Bob Fitzgerald
We are looking at White Cliffs we are going to continue to maintain the existing contract structures until the expansion is complete in the second quarter of 2014. So, going forward, we expect the volumes excuse me, the rates coming into Platteville to be in that regulated rates are published out there, which is 520 for the firm commitments and up to 570 for third-party commitments coming in. And then I think you’ve seen the historical Healy rate. So, you could still use that Ethan going forward to look at what your models should be for now going through the second quarter of ’14.
Ethan Bellamy - R.W. Baird
Okay, helpful, last question, the NGL units, Norm do you think you will hold those into perpetuity or are those a source for you down the road?
Norman Szydlowski
Perpetuity is a longtime Ethan, but I think we are very pleased with the NGL performance in the units and the kind of work that Mike Krimbill and NGL folks are doing. So, we certainly don’t have any immediate plans to change or monetize that we like the investment.
Ethan Bellamy - R.W. Baird
Excellent. Thank you. Good luck.
Bob Fitzgerald
Thanks very much.
Operator
Thank you. Our next question is from Brad Olsen of Tudor Pickering. Your line is open.
Brad Olsen - Tudor Pickering
Hi, good morning everyone.
Norman Szydlowski
Hi, Brad.
Brad Olsen - Tudor Pickering
I was hoping to get maybe a little bit more clarity, I see that you’ve moved $205 million to $305 million of CapEx to the kind of the mixed bag line in your CapEx table and all of that appears that it’s going to occur in 2014. It sounds like a pretty meaningful chunk of spending, maybe you could just help us kind of get a feel for what is – what’s included – what the probability is of all that occurring and if you expect the same types of multiples that we’ve seen historically on that spending?
Norman Szydlowski
Yeah, absolutely, we are still very bullish that the ability to continue spending at these kinds of levels is there for 2014. We think the projects will very much like what we have been doing thus far in ’12 and ’13. And as of course as we try to do too as we get more definitive on those, we will start to release those too and share those with you. But the broad view is really much of the same. And you probably saw too Brad in the capital for 2013, we have actually added a number of new projects we did move out the $63 million for the Wapiti Sweetening Plant, but really we actually added another $73 million of projects in its place. So, I think further testimony that all the activity that’s going on particularly in our areas and its oil and gas, mid-continent is going to be sustained and we will be able to continue on through ’14.
Brad Olsen - Tudor Pickering
Okay, great. And I realized that you have already said that you won’t be providing more disclosure on the size of the dividend and that’s fine. I guess my question is more kind of a philosophical one. Over time, you kind of declare your intention to move towards a GP Holdco, full payout type structure. When you talk about paying out a majority of MLP cash flows when – should we think of that majority as kind of representing all cash flow less cash taxes on those distributions or is there another kind of thought process going into that payout ratio?
Norman Szydlowski
Well, we’ll of course give you more inside on that as we get to the point of declaring this time. But overall the philosophy to your philosophical question is we are indeed understanding of the need to return capital to the investors. And we think this is the right time. This second quarter we have had a lot of discussions with the Board on this. And I feel like we are right on track with the original discussions and what we have mentioned to everyone about doing this.
The other aspect as you talk about, well, how do you come up with the exact dividend or what’s the rate of growth or where do you start. We are still harkening back to you earlier question on the capital. Looking for those opportunities where we can invest, so our balancing is as always we’re trying to deliver their very best return for our shareholders. And if we can do a better job returning to shareholder value through building and the organic projects continue we want to be careful to take that into account as we also then decide what the appropriate dividend rate is. So, that’s a little more philosophical maybe than you’re asking, but at the same time as we get to the next quarter we will be more definitive on just what that dividend rate is going to look like.
Brad Olsen - Tudor Pickering
That’s great. Thanks. One more on – or I guess a couple more on the operating side. It looks like the Northern Okalahoma processing plant had been moved to the right a little bit from kind of first quarter timing to April timing. You guys had previously talked about that infrastructure that plant specifically being kind of desperately needed by the producers in the Mississippian Lime and it sounds like it’s the plant that’s going to start up with a pretty significant utilization. So, I would assume that the reason for the delay is related to something operational or something kind of on the engineering side rather than on the demand side, but I just wanted to make sure?
Bob Fitzgerald
Hey Brad this is Bob, I’ll take that question. The plant itself is relatively on schedule. We have seen a few weeks delay from the delivery and the manufacturing side. But beyond that we had previously guided to a first quarter and I appreciate we didn’t say when in the first quarter. But essentially it’s getting up and running in March here. So, we expect it to be generating volume throughput no later than April 1st. So, I would say that there is a little delay but not significantly delayed from that end. We still see a lot of commercial opportunities out there and growth and demand is coming in from the producers. Recall that a year ago, we upsized that, initially we are starting out with the 60 million a day plant. We upsized it to the 125, because our strategy, particularly, on average – but particularly here in the Mississippi Lime is to be there for the customer when they need us. So, this gives us some ramping up and we’re estimating not to be full at start up, but rather we’ve kind of ramped into that throughout the year and into 2014.
Brad Olsen - Tudor Pickering
Okay great. And I guess it’s been a hard topic recently the nature of the Mississippian Lime play and how it appears that the reserves in the Lime are becoming gas here over time which I guess would be a positive for the Northern Oklahoma plant, but maybe less so for the Glass Mountain JV. I guess, how do you think about the kind of maybe growth on the gassy side and maybe prospects on the oily side of the play? And then going forward you have mentioned that you are going to be curtailing some of the Healy volumes as you bring on more Wattenberg volumes on the White Cliffs, is there an opportunity to service those Healy volumes in the Glass Mountain JV?
Norman Szydlowski
I will ask Pete to talk about the Glass Mountain and the crude side Brad, but on the gas we or I think and I am very glad as Bob mentioned that we upsized that plant at the time we did last year from the 60 to 125 it looks for us of course those are underpinned by volumes there with our producers. And the reality I suppose in the Mississippi Lime of the differing geology and maybe not so homogenous is as I am sure an issue for the production folks and exploration folks. But for us we have our plants in Northern Okalahoma in an area that is we think very solid in terms of the volumes, in terms of producers, in terms of the drilling plants that are servicing and underpinning those plants. Probably at risk maybe for us is as a march into Kansas. I think that still remains a point of some question of how that might build out and if it will be as prolific or when. So, we stand ready for that, but so far our investments are strongly aligned with what’s going on there in Northern Oklahoma and we still feel very comfortable that the volume is there and we will be ready to accommodate it when it comes.
Peter Schwiering
Just adding to that Brad what Norm said that also I’ll remind everyone that we have a throughput commitment on that Glass Mountain Pipeline that accounts for over 30% of the capacity. So, it’s relatively safe investment and also there are two legs to the Glass Mountain Pipeline one going up into the Mississippi in Oklahoma where they – as Norm said they’ve seen better results up in Kansas so far. But also we have leg going out to the Granite Wash and the Cleveland, Tonkawa production. And to be honest with you we have more concerns about having enough capacity on that leg rather than not enough volume. So, we still are very optimistic about Glass Mountain Pipeline.
Bob Fitzgerald
Hey, Brad, this is Bob, just to answer your Healy question. Yeah, this – as it was pointed out in our conversation earlier, we are doing a de-bottlenecking project. So, we are going to be able to take the capacity of the White Cliffs Pipeline of 76,000 barrels a day effective in May. But we expected by mid-year that we will be in the fourth quarter, we were running around 61,000 barrels a day in Platteville and 5.5 or so out of Healy. We expect by mid-year to be at around 59,000 barrels a day out of Platteville and about 7 out of Healy. So, as we grow a capacity opportunity we have there, we will kind of take those volumes up. So, not a significant movement on the Healy side of it, but there is opportunity there with this de-bottlenecking project.
Brad Olsen - Tudor Pickering
Got it and just one final one from me the – you mentioned that you are still actively looking in the M&A market, I guess rather than ask you to comment on things that I know you can comment on. Are there specific basins where you would say that you are interest is predominantly focused and maybe just kind of general basin characteristics that you are interested in or if it’s not a basin, if there are downstream opportunities that you are investigating as well and that’s it from me? Thanks.
Norman Szydlowski
We are a keen to look at other basins that might give us some geographic diversity. So, if we had an opportunities in the Eagle Ford or maybe even the Utica as long as they are in our, I will say a sweet spot for expertise maybe it’s best way to characterize it, things that we know how to do, things that we know how to do well, building pipelines, buildings tanks, operating those kinds of systems, gas plants. So, we are looking at opportunities like that and we haven’t discounted basins that we are not in today because I think that could offer some other advantages for us as well. But we are going to be very careful and we are again we keep using that were disciplined, I don’t know there is a better one, but we are not as we’ve often discussed keen to overpay and these are kind of exciting times in that regard. So, we are going to be very careful. But at the same time, we are looking actively and optimistic that we will find the right place in the right spot and hopefully improve the whole value stream for the shareholders and the scale of the organization.
Operator
Thank you. Our next question is from Jerren Holder of Barclays. Your line is open.
Jerren Holder - Barclays
Out in 2013 guidance, for Rose Rock on our 10% to 15% distribution growth target, the range seems a bit wide. Can you elaborate on the assumptions for the low end and the high end of the range please? Thanks.
Bob Fitzgerald
Well, to the some extent, the range will be guided based upon and how we are performing overall with the volume throughput, we are expecting a modest growth rate in the volumes that we have today and particularly this year the White Cliffs coming through here. And the other factor will be the marketing. Our guidance generally is one we don’t get very aggressive in terms of what we expect to generate from our marketing business. To the extent that the markets allow for us to improve it like it did in the first quarter of last year. We would certainly capture that and that could help drive us to a higher end of our distribution rate.
Jerren Holder - Barclays
Also none of you have done your first drop down, what are your expectations for further drop downs in 2013?
Norman Szydlowski
We haven’t said, Jerren a date for the next one, but here is I would kind of look at that or position that, we did that portion of the White Cliffs Pipeline. So, we will be looking next still I think in the crude area mostly likely. And it could actually be that the Wattenberg Oil Trunkline project or the Glass Mountain Pipeline could be a dropdown ahead of the rest of or the remainder of White Cliffs, because as it turns out those projects are currently as we are on schedule, they will complete prior to the looping of the White Cliffs Pipeline, which would probably be the next logical point to be thinking about a drop down of White Cliffs. So, we’re not having a specific date lined out for the next one, that’s our thinking about which ones will come next.
Jerren Holder - Barclays
Okay, that’s helpful. Thank you.
Operator
Thank you. Our next question is from Curt Launer of Deutsche Bank. Your line is open.
Curt Launer - Deutsche Bank
Good morning everyone and thank you for the opportunity and the call. I wanted to just follow-up with the previous questions about the de-bottlenecking addition to the White Cliffs Pipeline going up to 76,000 in May of 2013. Do those volumes come in at any different cost or rate? Do they go specifically to the priority service shippers?
Bob Fitzgerald
Hi, Curt. This is Bob. I would say that from your assumptions as I was indicating earlier with the throughput at Platteville and Healy, I think it’s safe to assume that the priority shippers are going to be bulk of the increase coming in at Platteville. So, we’ll continue to see those volumes from those shippers. And then the Healy won’t be any different than what you have seen historically.
Curt Launer - Deutsche Bank
Okay, thank you. And the next question, I am a little confused I’ll admit relative to the capital recovery fees at SemCAMS, those came in, I’ll say from our modeling as something of a surprise for the quarter. How does that work? Is that design to be lumpy, I sense it’s more than a one-time item, but it’s not necessarily a consistent item? How should we think about that for the future?
Bob Fitzgerald
Yeah, Curt, again Bob. I would advise that what we have done is in the fourth quarter we were able to implement a change, actually the joint interest owners approved that we pass them through on our K3 plant a maintenance capital recovery fee. So, it’s not a one-time fee, it will be ongoing, but it will follow and track our maintenance spend. So, as we continue to spend maintenance CapEx, we’ll be able to recover that through a maintenance capital recovery fee. And so I think for your modeling purposes, it would be helpful to just assume that will be ongoing, but it will be somewhat variable.
Curt Launer - Deutsche Bank
Okay, thank you very much.
Operator
Thank you. Our next question is from Will Frohnhoefer of BTIG. Your line is open.
Will Frohnhoefer - BTIG
Hey, guys. Thanks for taking the call. I just had a couple of questions. I think the first one is with regard to the CapEx table on slide 7 just for housekeeping purposes, the total CapEx number for the White Cliffs expansion is 102 over 153 from last quarter. Is it simply just for the dropdown and that’s just the adjustment necessary for the dropdown as opposed to any change in the overall CapEx plan?
Bob Fitzgerald
Hey Will, it’s Bob. What I do is point out that you are probably on take a look at the Rose Rock piece of that. So, with the dropdown, we had to bifurcate it. There is two separate lines on there.
Will Frohnhoefer - BTIG
Yeah.
Bob Fitzgerald
There is the 102, and then there is the 49, and there is the Rose Rock. So, if you take those two together, there is no change in the actual cost estimates of the pipeline. It’s still on track and it’s still expected to come in on a gross basis of $300 million. A consolidated or combined basis for Rose Rock and SemGroup together would still be in that 150, 152 range.
Will Frohnhoefer - BTIG
Okay, so it’s right, yeah. I just want to confirm that. And the second part of that is whether or not really what time do we anticipate a FERC rate filing this year or do we pushback further – toward closer to the more or less launch date of the expansion? Go ahead, Bob.
Bob Fitzgerald
It’s going to be closer to launch date. It’s probably going to be somewhere around 60 days to 30 days before we go live with it. So, you wouldn’t see that until next year.
Will Frohnhoefer - BTIG
Okay, fair enough. And then on the kind of with looking at SemGas, the talk about trying to transition the overall fee structure to a more of fixed fee structure from POP. On the fixed fee portion of it, which is roughly half I think is what you are guiding toward or aiming for. Would that be based more on capacity? I mean, I know the volumes are quite high and that you just may having high volumes, but would it be based on volume throughput or would it be based simply on capacity those fixed fees or do you have any guidance on that yet?
Bob Fitzgerald
The fixed fee structure that we are negotiating with our key producers will be based on the throughput volumes. So, we’ll take the volumes coming through at a certain rate per Mcf mmbtu and then we’ll – that we’ll use that as our revenue recovery process.
Will Frohnhoefer - BTIG
Okay, fair enough. And then also we are talking about the dividend, we are talking about it at a high level, but I guess when we are talking about potential tax impact on any dividend, you guys still as I recall have something like $120 million or so of federal NOLs left if I am correct there, and also significant state NOLs as well. Is that still the case? And I think the 10-K kind of updates that I don’t see any real change there?
Bob Fitzgerald
No. Well, you see the 10-K you are right. The 10-K will report our estimate for NOLs at the end of the year was at $118 million, and we would be using those through this year to offset any of the gains that we would have, but ongoing I think you would want to look at a tax effect on future cash flows going beyond ‘13.
Will Frohnhoefer - BTIG
Fair enough. So, I am just trying to figure out my own kind of mathematics here about how the dividend might look. Okay. And then I guess also in terms of the capital recovery fees, you touched on that earlier and that they are going to be recoverable going forward is there going to be more associated with, can we look at more realizations and associated with some kind of time lag due to turnaround, schedules turnarounds or what’s the best way to look at that?
Bob Fitzgerald
No, it will be more associated with our ongoing regular maintenance at our K3 plant. Its only applicable to our K3 plant and the turnaround themselves are largely actually operating expenses that get pass through as incurred. So, that doesn’t have as much of a dramatic effect. It would certainly be lower than the operating costs on the turnaround. And we are scheduling a turnaround for our KA facilities sometime in the second quarter. We are planning on that today in terms of going through all the engineering design work.
Will Frohnhoefer - BTIG
Okay. And then I guess just a last question regarding Bob it looks like you have pushed kind of the timeframe on that back, you continue to do kind of the exploratory work on that plant. I am wondering is there any thing changing in the overall kind of strategic background in the Alberta, British Columbia nat gas fear that has caused you kind of change scheduling or is it making you look at potentially a larger project, just if you can give some color on what you are seeing?
Bob Fitzgerald
Yeah. Well, I think – I don’t think anything has fundamentally changed about the bullishness that we have on those two shale plays. We are fortunate to kind of have our facilities and this Wapiti Pipeline particularly right in the middle of lot of the activity that going on the Duvernay, which is the newer one to the south and the east of the Montney and the Montney as well. So, in fact we have actually in this area this Wapiti Pipeline is I guess if I had a map I could show you it kind of goes off from our plant facilities up to the Northwest quite a ways. And it’s in a good position to take advantage of what’s happening with these two plays. So, for example we brought on I think not too long go about a 60 million cubic feet a day into the Wapiti Pipeline system. And we’re expecting more coming in the second quarter, that’s the reason that we are moving ahead with this FEED study to actually look at looping that line.
But then as this grows we still that there is going to be a need and an opportunity to add an additional sweetening plant up there. So, I think it’s just a matter of trying to gauge well of what’s the timing. People there has been so much change out there a lot of ownership changes, a lot of deals, a lot of companies have changed. And at the same time last year although gas prices are looking pretty good this morning last time, last year gas prices took a dip. And I think that caused everybody take a bit of a pause and how fast they were going to do things. So, it’s more of the timing the fundamentals still look very much the same. And I think this new activity around this Wapiti area just further reinforces the – our point of view that we are going to have these opportunities coming up.
Will Frohnhoefer - BTIG
Okay. Well, thanks for taking all the questions guys.
Norman Szydlowski
You’re welcome, Will. Thanks very much.
Operator
Thank you. I am not showing any further questions in the queue. I would like to the turn the call back over to Norm for any further remarks.
Norman Szydlowski
Thanks operator and just thank you all for participating today and for your interest of course in SemGroup and Rose Rock. We will all look forward to seeing you or many of you at the upcoming conferences. So, thank you all again.
Operator
Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.
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