SemGroup's (SEMG) CEO Carlin Conner on Q1 2014 Results - Earnings Call Transcript

May. 9.14 | About: SemGroup Corporation (SEMG)

SemGroup Corporation (NYSE:SEMG)

Q1 2014 Earnings Conference Call

May 09, 2014 11:00 AM ET

Executives

Alisa Perkins - Treasurer

Carlin Conner - CEO

Robert Fitzgerald - CFO and SVP

Peter Schwiering - VP, President of Rose Rock Midstream Crude LP, COO of Rose Rock Midstream GP LLC and Director of Rose Rock Midstream GP LLC

Analysts

Brad Olsen - Tudor, Pickering, Holt & Co.

Shneur Gershuni - UBS

Brian Zarahn - Barclays Capital

Michael Gaiden - Robert W. Baird & Co.

Craig Shere - Tuohy Brothers

Will Frohnhoefer - BTIG

Operator

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 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 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 measure 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

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 within 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 led 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 purse 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 score card, 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’re 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 I plan, our plan is to revisit our EBITDA and CapEx guidance with our second quarter results. We have increased dividends for 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’re 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. In summary, the construction is on time and on budget, commercial interest in capacity subscription is increasing as production volumes continue to grow in the DJ basin. And there is potential to realize some upside growth in the asset, once it is brought online.

The Glass Mountain Pipeline was placed into service into February 2014. For the two months the pipeline was operational, we averaged 44,000 barrels per day. In April we are running approximately 62,000 barrels per day.

Our SemGas Rose Valley I plant was placed in to service in March 2014. For the quarter our Northern Oklahoma gas processing complex averaged a 168 million cubic feet per day and we’re currently running 236 million per day, representing about 65% of our existing capacity.

We continue to monitor volume growth as we have the option to accelerate the installation of Rose Valley 2. In Canada, our excitement about the Duvernay play continues as we anticipate completing the SemCAMS gathering pipeline that terminates at our KA plant early in the third quarter.

In the Montney, our gathering system in the North West Wapiti area is full and therefore we are evaluating looping our existing system to create additional capacity to K3.

Finally, I would like to address ongoing predictions about the future of Cushing storage. Our Cushing point of view is as follows. Short to mid-term view is that the inventory build at Cushing will continue to face pressure as takeaway capacity is outstripping inbound capacity. This may result in pressure on storage rates in the short to mid-term.

Long term as inbound pipeline capacity increases, takeaway capacity will become more constrained and crude inventory levels will rebound, driving demand for Cushing tankers. Keep in mind that Cushing has been around for decades, its innovative network of pipeline connect to most U.S. markets, maintaining its importance in assuring that it will remain a major market hub in the future.

With our ability to utilize a portion of our assets, we are able to build a NYMEX plan that is favored by the refiners. This helps us mitigating a rate risk that we may have on our leased Cushing storage business. In this regard you will notice that Rose Rock has negotiated to take back a small portion of our third party lease tankage prior to contract termination day.

We will utilize these assets to capture incremental value associated with Crude quality and location discounts, while delivering the crude [indiscernible] other refining community. As we have done in the past two quarters, we will do this on a back-to-back basis to mitigate commodity price risk.

I will now hand the call over to Bob for a more in-depth look at our financial results.

Robert Fitzgerald

Thanks, Carlin. Beginning on Slide 9 of our earnings presentation, as noted in our press release yesterday, we reported another strong quarter with adjusted EBITDA of $67.3 million, up 16% compared to the fourth quarter of 2013 and nearly doubling the adjusted EBITDA from last year’s first quarter.

Turning to our segment results on Slide 10. You will note that all of our business units contributed to the increase in adjusted EBITDA over the prior quarter. The increase in our crude segment related to several factors including new growth projects, acquisition and lower G&A cost. This was somewhat offset by lower White Cliffs Pipeline volumes from our Platteville terminal during the first two months of the year, due to weather related issues.

Our March volume exceeded 75,000 barrels per day and we expect the pipeline to be operating at full capacity until we complete the construction of the expansion project. SemGas posted a 7% increase in adjusted EBITDA, related to additional processing volumes in our Northern Oklahoma system.

Although we did see some minor whether related impacts early in the quarter, this was more than offset with higher prices and additional processing volumes during March. As Carlin mentioned earlier in March we brought the Rose Valley 1 plant online and started flowing additional volumes through our complex.

Although it’s still early days for this project we are excited about the new capacity and expect our processing volumes to meet or exceed our expectation of 120% increase on a year-over-year basis. We will have more on the impact of the new plant with our second quarter earnings.

Our SemCAMS business in Canada was up $2.1 million due to a combination of higher processing volumes and a few small and non-recurring items. As we mentioned in our last earnings call, we have a plant shutdown of our K3 plant scheduled for late May which will last about four weeks. Although we expected to have a negative impact on our SemCAMS earnings for the second quarter, we anticipate its full year results will be in line with our past year's performance.

SemLogistics reported positive earnings for the quarter reflecting new gas link storage contracts and higher rates. We continue to contract storage on a short term basis and are not anticipating any significant turnaround of the U.K. storage business during 2014.

SemMexico reported a 6% increase over the fourth quarter handed over $5 million it was the best first quarter in the company’s history. Although our total volumes were down more than 10% versus the prior quarter, strong margin and lower G&A cost contributed to the record quarter.

Next, moving to our capitalization and liquidity position on Slide 11, we ended the first quarter with total consolidate debt of $673 million. SemGroup's consolidate debt to capitalization ratio is 36% and net debt to adjusted EBITDA leverage ratio is 2.7 times. We ended the year with total liquidity of $741 million.

Moving next to Rose Rock’s results on Slide 12. We reported first quarter adjusted EBITDA of $27.8 million up 32% from the prior quarter reflecting a full quarter’s contribution from the White Cliffs pipeline drop down in December along with stronger transportation results primarily due to our new trucking business and lower G&A costs.

Our marketing results were relatively flat quarter-over-quarter as we continued to utilize excess storage capacity during the first quarter as discussed in our last earnings call. Based on our success in using this excess storage capacity to capture crude quality and location differentials, we renegotiated one of our Cushing storage leases to take back 600,000 barrels of operational tankage effective May 1st.

As a result of this transaction, Rose Rock now has an additional 600,000 barrels to use for marketing and other operational needs. In addition we’re able to negotiate an extension on a portion of our lease tankage which increased the weighted average remaining life of our third party leases in Cushing by more than 12 months. As of today we have over 85% of our Cushing tankage leased to third parties consistent with our fee based gross margin targets with a weighted average remaining lease term of 3.5 years.

The Cushing contracts scheduled on Slide 19 has been adjusted to reflect these changes. I also want to point out that this transaction did not result in any change to our rate per barrel during 2014 or 2015.

Next, turning to CapEx, Slide 13 provides Rose Rock’s anticipated capital expenditures for 2014 of $75 million, consistent with our guidance provided last quarter. Rose Rock’s capitalization and liquidity position is presented on Slide 14. Rose Rock continues to maintain a very strong balance sheet as we ended the quarter with $245 million in total debt and a total debt to capitalization ratio of 40%. We have a debt to adjusted EBITDA leverage ratio of three times well below our target of four times or better. We exited the quarter with just over $300 million of total liquidity.

As outlined in detail on Slide 43, our distributable cash flow for the quarter was approximately $25 million. Our distribution of about $40 million represents a coverage ratio of 1.8 times for the quarter. The high coverage ratio is due to a combination of higher marketing margins and the timing of maintenance capital spending. We will revisit our guidance of 15% distribution growth rate for 2014 during our next quarterly review.

Thanks for your time this morning, Stephanie can you now open the line-up for any questions?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Brad Olsen with TPH. Your line is open.

Brad Olsen - Tudor, Pickering, Holt & Co.

Hi, good morning everyone and welcome aboard Carlin. I wanted to start with a question about SemGroup's strategy and maybe how it’s poised to evolve over the next few quarters as kind of a new -- the new management team gets settled in.

I think maybe there’s been some confusion about what the payout ratio is going to look like long-term. Right now especially in light of the very strong Q1 that you guys have just printed, the dividend is still a relatively small payout ratio versus the overall free cash flow that SemGroup's generating. Are there plans to potentially accelerate that dividend growth on the back of strong results or accelerate the pace of dropdowns to Rose Rock or both? And if so, when might we hear about a new strategic initiative like that?

Carlin Conner

Well, let me first speak to the strategy question. I guess I am day 45 now, something like that. We are reviewing the current strategy as I mentioned in my opening remarks, we think we have a very good strategy, it needs some shaping to create some efficiency in our execution. Looking very much forward to our summer session where we’re going to really look at the plan and turn it upside down and figure out what are the specifics in our strategy going forward.

I can point to a couple of things that we want to look at, basin diversification or region diversification, segment diversification possibly getting in to more terminals. Those are the current things I am thinking about but we have to work through the process. I am going to hand it over to Bob to answer your question about dividend.

Bob Fitzgerald

There is no change at this point to our dividend policy where we’re going to go ahead and use the distributions received from our MLPs both Rose Rock and NGL Energy Partners, as the funding source for the dividends. So we would continue to expect that those cash flows that we received in distributions will pass through the dividend. With regard to the timing of the dropdowns as we talked on our last earnings call we do expect that the next drop down will occur sometime in the second half. No guidance on the specific timing at this stage but we are targeting second half of this year.

Brad Olsen - Tudor, Pickering, Holt & Co.

Great and that kind of segways into my next question. Rose Rock generated -- similar to SemGroup, generated a great Q1 result and covered all of its distribution and a whole bunch of excess cash flow as well. As you think about the payout strategy at Rose Rock and just the overall strategy for growing Rose Rock as a drop down vehicle, Rose Rock is now trading at 4.5% or so for yield and I would say drop down stories with similar growth prospects are trading maybe 200 basis points tighter than that. And I was wondering if you had any thoughts about again increasing the pace of growth at Rose Rock or potentially doing something to increase the liquidity -- the trading liquidity at Rose Rock over the next few quarters.

Carlin Conner

As we mentioned briefly before that we’re going to continue look at the pace of the dropdowns, that will have the biggest impact on growing the distribution and no change to the strategy right now but we obviously continue to talk to the Board at both SemGroup and Rose Rock on the timing and the opportunity.

Brad Olsen - Tudor, Pickering, Holt & Co.

Great, and just one on the operational side. SemLogistics saw its first new contract in what I think is at least a couple of years. Carlin given your experience with storage assets and particularly with international storage markets, do you see more opportunities on the terminal side and for the UK assets inside SemGroup specifically?

Carlin Conner

We’re very happy with the asset, it’s a very good terminal, the market has been difficult, I think Northwest Europe in general has been very difficult. At this point in time I can’t point to any tangible growth initiative around Europe, but we will continue to look at all of our markets and see where we can possibly use platforms that we have to grow.

Brad Olsen - Tudor, Pickering, Holt & Co.

Okay, great. And just one last one for Bob. The OpEx and G&A savings on SemCrude, do you believe that those are sustainable through the rest of the year or were there some seasonal aspect to those?

Bob Fitzgerald

There was a little bit of timing aspect to the G&A cost reduction, I don’t expect to see ongoing reductions going forward, obviously those assets grow, we’re going to continue to grow our support functions to manage that growth profile.

Brad Olsen - Tudor, Pickering, Holt & Co.

But this quarter it’s fair to say that it’s at least at a fair base line rate based on Q1 and growing with the asset base into the future?

Bob Fitzgerald

That’s right.

Operator

Our next question comes from Shneur Gershuni with UBS. Your line is open.

Shneur Gershuni - UBS

Good morning everyone and welcome aboard. Many of my questions have been asked and answered but I kind of wanted to do a couple of follow ups, I am trying to beat the bush on the drop downs of dividend strategies. But is it fair to conclude that we’re really not going to see any shift in any strategy before sort of that summer planning session is done? And that really anything that changes will likely come in the second half or are there some priorities that might be moved up on a schedule?

Carlin Conner

I think it’s fair to assume that the strategy as it is today is endorsed by me and I feel good about what the team has put together and the execution on that strategy has been very good. Again I will be looking to shape it a bit and possibly trying to create some more efficiency in executing.

Shneur Gershuni - UBS

And then in your prepared remarks you were talking about Cushing storage rates and so forth and kind of how you see and determine, and how things move over time, can you sort of shape for us kind of the bouquets for weights? Looking at a scenario where Houston gets backed up thus Cushing back up inventory for Houston. I was sort of wondering if you can sort of expand on that a little bit.

Carlin Conner

Well you nailed it, there is a lot of oil that’s coming into the system and it’s all flowing to the Gulf Coast and staking up at this point, record inventory levels have been reported. As Cushing I think in the short to mid-term, Cushing will see and we have seen it, inventory levels will drop to possibly historic lows. Right now I think that’s up 25 million barrel level and that’s since 2009 I believe is low it’s ever been. But there is a case that as the oil builds up on the coast that will back up. And you have to remember Cushing provides lot of optionality, if you put barrels in the Cushing you still have a chance to hit a lot of different markets. So we do believe that the value of Cushing tankage will return, but in the short to mid-term we do see some pressure on rates.

Shneur Gershuni - UBS

And then just to follow up on another prepared comments that you had made with respect to the guidance. Is it fair to look at that -- the lack of a change despite the fact that you have had this very solid quarter is more a function of you just have it reviewed the guidance yet and not taken as as you’re kind of expecting a tail off in the back end of the year? Just kind of wanted to get a little bit more color and confirmation around that.

Carlin Conner

It’s more a function about our policy; we look at guidance really twice a year and we will get back to you in the second quarter.

Operator

Our next question comes from Brian Zarahn with Barclays. Your line is open.

Brian Zarahn - Barclays Capital

I guess can you elaborate a bit on your comment about potentially expanding your geographic footprint, any regions that you have some interest in entering?

Carlin Conner

Well, usual suspects, right. We want to be in regions that have a prolific growth, the need for infrastructure and you can fill in the blanks, we haven’t specifically sat down and put flags on the map yet, but our busy team has been in the market for quite some time, you have to remember that the SemGruop execution has been good since the reemergence and it’s not a matter of lack of direction or lack of strategy to grow, it’s just that now is the time I think the businesses are in good shape and the balance sheet is where it needs to be. So now we’re going to really focus on targeting where we want to go, more to come.

Brian Zarahn - Barclays Capital

Okay, we’ll stay tuned. On Cushing storage, can you clarify that you’ve -- I guess two things, one you’ve contracted capacity, did you mention that was at similar rates as the prior contract?

Carlin Conner

Yes, no rate changes for the current terms that we’re showing, as we push out to further years, we actually extend some of those contracts to 2019, we do see some of that rates come down a little bit, we’re still looking at that mid-30 range overall somewhere between low to mid 30s overall in the out years.

Brian Zarahn - Barclays Capital

Okay. And then looks like your marketing -- you said your marketing business is taking some Cushing storage, do you see additional crude bundling opportunities or is this pretty much the opportunities you see for now?

Carlin Conner

It really reflects the opportunities that we’ve been able to capture over the last two quarters, we didn’t have permanent storage and Cushing to do what we’ve done. We are able to use some excess capacity from one of our customers and now going forward we have that capacity -- some of that incremental capacity available to us to continue to maintain those margins.

Brian Zarahn - Barclays Capital

Okay. And then how do you view the Barcas acquisition? Is it continuing to meet your expectations?

Carlin Conner

Definitely, the trucking business bringing more volumes into our system, you saw the increase in our transportation both volumes and our results overall for the quarter. We’re very excited about that. Our field services business is looking very strong for us.

Brian Zarahn - Barclays Capital

That’s all for me. Thank you.

Peter Schwiering

Brian, this is Peter, like I said, I just want to add one note to that, we’ve seen our volumes increase month after month significantly since January and volumes we moved in April were significantly higher than first quarter.

Operator

Our next question comes from Michael Gaiden with Robert Baird. Your line is open.

Michael Gaiden - Robert W. Baird & Co.

Good morning. Thanks for taking my question gentlemen. Bob can I please ask -- can you lend more color on what drove the sequential decrease in operating and G&A expenses at the Rose Rock level?

Bob Fitzgerald

It was -- one of it’s going to be the incentive compensation that’s seasonal that happened in the first quarter that rolled through. Pete might be able to give a little more color on more of the operating side of that.

Peter Schwiering

Yes, on the operating side I think what you see is more timing than anything else, we have controls in place for our cost and we’re actually getting on those but lot of it is just timing we’ll be spending, we have more maintenance capital in the third and fourth quarter than we do in the first quarter.

Michael Gaiden - Robert W. Baird & Co.

Okay, great. So, from those comments is it fair to think about potentially those income statement line items accelerating from the first quarter level?

Peter Schwiering

I think in the -- in operating cost you will see that -- you also see volumes driving that also as volumes come up on the White Cliffs and Glass Mountain and Kansas, Oklahoma, in field service is another place that volumes are increasing which will drive some of the operating cost higher.

Michael Gaiden - Robert W. Baird & Co.

Great. Thank you. And it sounds like maintenance capital will be back half weighted for Rose Rock, is that indeed the case?

Bob Fitzgerald

Yes, that’s right. We saw probably about 7.5% of our 12 million that we expect to spend at Rose Rock, it was incurred in the first quarter. Some of that’s weather related, some of this is just overall timing we’re going to do the project. So we still expect to spend that money. It's just going to be a little bit weighted towards the back end of the year.

Michael Gaiden - Robert W. Baird & Co.

Great. Thanks Bob. And Carlin can I please ask, can you share with us perhaps some of your early thoughts on the SemGroup Rose Rock relationship with NGL after the Gavilon transaction particularly, how do you see that dialog in relationship progressing from here?

Carlin Conner

Well, it’s a good relationship, as you know we own significant amount of the LP, I think over 9 million units and we have a GP interest as well and we show up for our board meetings and we discuss strategy when it’s appropriate and it’s going well. And the performance of NGL has been exceptional as well.

Michael Gaiden - Robert W. Baird & Co.

And do you view that relationship as one of the key drivers of potential growth at SemGroup and Rose Rock? Is there more opportunity for collaboration there?

Carlin Conner

They are a significant customer as far as the potential partner, yes, possibly but so a lot of other NLPs or other companies out there that will make sense for us to work together. We will work together.

Michael Gaiden - Robert W. Baird & Co.

Great. Thanks, Carlin. And can I lastly ask about a potential second half drop down into Rose Rock. Could you refresh us on what assets at the SemGroup level are likely next in queue for that potential drop down?

Bob Fitzgerald

We continue to look at the crude assets that would include the remaining one third interest in SemCrude pipeline, our interest in White Cliffs along with Glass Mountain and Wattenberg Oil Trunkline. We haven't given any specific guidance as to which asset is next but we’re evaluating that.

Operator

Our next question comes from Craig Shere with Tuohy Brothers. Your line is open.

Craig Shere - Tuohy Brothers

Good morning. Most of the big questions have been touched on. I wonder if we can discuss Mexico and prospects for maybe monetizing that and how that might play into some of the plans to diversify domestically.

Carlin Conner

Well, first off the Mexico businesses performed quite well and I am evaluating currently the strategy that SemGroup had I think now the last year or two years ago to look at possibly divesting. There was a lot of interesting things going on in Mexico in the greater energy front not beyond asphalt. So, we want to make sure that we are very diligent and thoughtful going forward either using that as a platform to possibly grow in Mexico and other segments or take a look again at whether or not we should divest. So that’s work in progress.

Craig Shere - Tuohy Brothers

I see. Will this be a part of the second quarter update?

Carlin Conner

Yes, it should be. By the way the second quarter when I talk about the [indiscernible] strategy session I think it’s probably going to be probably after the second earnings call. So it would probably be somewhere after that that we give a public update on our strategy.

Craig Shere - Tuohy Brothers

Okay. And if I could just expand on Mike's questions around the relationship to NGL, do you definitively still have an interest in expanding the GP interest in NGL? And do I understand your prior responses to suggest that there is no special affinity or either way on partnering with NGL versus anybody else on larger transactions?

Carlin Conner

Yes. I guess the answer to the previous question was, we have nothing that's set in stone with NGL as far as partnering going forward. And as far as increasing our interest in NGL, that’s something I think as we move forward, we will consider.

Operator

Our next question comes from Will Frohnhoefer with BTIG. Your line is open.

Will Frohnhoefer - BTIG

Hi, guys. Thanks for taking the call and wanted to congratulate Carlin on the new role. Just a couple of questions, I think most of them have been answered. The first one is regarding SemCAMS. Now you guys are on target, I think as disclosed in the presentation for the third quarter on the expansion with Shell, right? I'm wondering is that going to be an ongoing relationship, potentially expanding relationship. I know that they are already involved in Kitimat and other export projects which will be expanding in BC and BC into Alberta gas. I'm just wondering if this is part or one leg of a larger process here or how would you characterize it? Or how would you contextualize it?

Carlin Conner

Shell Canada is clearly one of the leading E&P companies up in Canada that’s looking at the Duvernay. So this project in the Duvernay connecting to our KA plant, so we’re very excited to continue to work with them. They are obviously very large working with a lot of other midstream companies. So we would like to see that relationship grow and hopefully it will, but we don’t have anything definitive than what we’ve already announced. Operator?

Operator

Okay. It looks like bad line, participant line has disconnected. There are no further questions. I will now turn the call back over to Carlin Conner.

Carlin Conner

Thank you, Stephanie. You can clearly see why I am excited to be to be part of the SemGroup Rose Rock team. We are well positioned to continue to grow our business and I look forward to helping to do just that. Thank you again for joining us and for your interest in both companies.

Operator

Thank you, Ladies and gentlemen that does conclude today’s conference you may all disconnect. And everyone have a great day.

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