Based in Tulsa, OK, Rose Rock Midstream, L.P. (RRMS) scheduled a $140 million IPO with a market capitalization of $336 million at a price range mid-point of $20 for Friday, December 9, 2011. See the full IPO calendar.
SUMMARY & CONCLUSION
RRMS was recently formed by SemGroup (SEMG), whose revenues declined during 2011 except for an uptick in the September quarter.
A major shareholder publicly announced that it wants SEMG to abandon the RRMS IPO and put SEMG up for sale in an auction process.
Therefore, it seems prudent to wait on the sidelines regarding to RRMS IPO, which expects to pay a 7.25% dividend at the price range mid-point of $20. RRMS’s price-to-book is 1.2 , on the low side in the pipeline and storage segment.
RRM’s projected yield of 7.25% is in the upper range of other mid-stream limited partnerships, such as:
- Plains All American (PAA), 6.14%
- Magellan Midstream Partners (MMP), 5.00%
- Enbridge Energy Partners (EEP) 6.88%
- Holly Energy Partners (HEP) 6.28%
- NuStar Energy L.P. (NS), 8..00%
- TransMontaigne Partnes (TLP), 8.06%
PARENT SEMG'S RESULTS ARE UNEVEN
SEMG’s top line revenue declined during 2011 except for an uptick in the September quarter.
RRMS is a limited partnership recently formed by SemGroup to own, operate, develop and acquire a diversified portfolio of midstream energy assets.
RRMS is engaged in the business of crude oil gathering, transportation, storage and marketing in Colorado, Kansas, Montana, North Dakota, Oklahoma and Texas.
The majority of RRMS’s assets are strategically located in or connected to the Cushing, Oklahoma crude oil marketing hub.
MAJOR SHAREHOLDER WANTS PARENT TO ABANDON RRMS IPO
“As a shareholder with a substantial investment in SemGroup Corporation, we are writing to advise you that we do not believe that the Board is acting in the best interests of the shareholders in pursuing its current strategic direction of the company.
“While we fully agree with the Board's rejection of the proposal by Plains All American Pipeline, L.P. to acquire the company for $24 per share, which we think grossly undervalues the company, we believe that the proper course to maximize shareholder value would be to immediately pursue sale of the company in an auction process.
“And to maximize the company's value in a sale, the company should abandon its proposed IPO of Rose Rock Midstream, L.P.” November 22, 2011
ABOUT THE PARENT
RRMS’s parent is SemGroup (SEMG), with a market capitalization of $1.1 billion.
SemCanada Crude purchases, aggregates, blends, and sells crude oil in Western Canada. SemStream purchases, stores and sells natural gas liquids in the United States.
SemGroup Corporation owns a portfolio of businesses in the energy industry. The company operates in seven segments: SemCrude, SemCanada Crude, SemStream, SemCAMS, SemLogistics and SemMexico. SemCrude conducts crude oil transportation, storage, terminalling, gathering, and marketing operations in the United States.
SemCrude assets include 620-mile pipeline network in Kansas and Oklahoma that transports crude oil from producing wells and third-party pipeline connections to refineries and to a storage facility in Cushing, Oklahoma; a crude oil storage facility in Cushing, Oklahoma with a capacity of 4.2 million barrels; and a 51% ownership interest in White Cliffs Pipeline, L.L.C. (White Cliffs), which owns a 527-mile pipeline that transports crude oil from Platteville, Colorado to Cushing, Oklahoma
RRMS MIMIMUM QUARTERLY DISTRIBUTION
Minimum expected quarterly distribution of $0.3625 per unit, $1.45 per unit on an annualized basis which is a 7.25% yield at the price range mid-point of $20.
ESTIMATED CASH EXCESS
For the year ended September 2011 RRMS would have had a cash excess of $5.3 million after making partnership payments.
$29 million in capital expenditures for the 12 months ended September 2011 funded by contributions made by SemGroup. RRMS expect that in the future, our expansion capital expenditures will primarily be funded through borrowings or the sale of debt or equity securities
RRMS has $34 million budgeted for capital expenditures in the year ending December 2012, expected to be funded through borrowings.
USE OF PROCEEDS
Of $127 million is allocated to make a cash distribution to the parent SemGroup, which will use the proceeds to repay debt.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.