Rose Rock Midstream to Acquire SemGroup Crude Oil Assets

Rose Rock Midstream, L.P. (RRMS) announced that it has finalized an agreement with SemGroup Corporation (SEMG) to acquire the remaining crude oil assets of the latter for a purchase price of $325 million. The purchase consideration will include cash and 1.75 million of Rose Rock’s common LP units.

The crude oil assets, which will be acquired by Rose Rock Midstream will include the Wattenberg Oil Trunkline System and SemGroup's 50% interest in the Glass Mountain Pipeline. The acquisition is expected to complete in the first quarter of 2015, subject to the necessary closing conditions.

These pipelines have long-term contracts in place for the transportation of oil. The strategic acquisition will be immediately accretive to the partnership’s distributable cash flow. The deal looks attractive as oil production in the U.S. is showing no signs of slowing down in spite of the fall in prices.

The Wattenberg Oil Trunkline System is a 75-mile crude oil pipeline in the DJ Basin, transporting Noble Energy’s (NBL) production to the White Cliffs Pipeline. The 210-mile Glass Mountain Pipeline comprises two lateral pipelines originating in the Granite Wash and Mississippi Lime Plays. Chesapeake Energy (CHK) has a long-term transportation agreement with Glass Mountain Pipeline.

In a separate press release, Rose Rock Midstream announced that it would issue 2 million limited partner units to fund a portion of the above acquisitions.

In Nov 2014, Rose Rock Midstream along with other operators who jointly own White Cliffs Pipeline, L.L.C. decided to expand the capacity of the pipeline. Once fully operational, the pipeline capacity will increase to 215,000 barrels from 150,000 barrels per day.

Thanks to increasing U.S. crude oil and gas production, demand for pipeline services are on the rise. We have seen some of the oil and gas majors developing master limited partnerships to concentrate on the transportation and storage of crude oil and natural gas. We expect to see more pipelines to come up across the country to cater to growing midstream demand.

Rose Rock Midstream, L.P. holds a Zacks Rank #3 (Hold).

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