Rose Rock Midstream Opens Up 2.5% Post-IPO
By Lynn Cowan

Of DOW JONES NEWSWIRES

Energy partnership Rose Rock Midstream L.P. (RRMS) made modest early stock gains Friday, its first day as a publicly traded company.

The company's stock opened at $20.50 a share on the New York Stock Exchange, up 2.5% from its initial public offering price of $20. It sold 7 million common units at the midpoint of its expected $19 to $21 range, and was changing hands recently at $20.69, up 3.5%.

Headquartered in Oklahoma, Rose Rock was formed by SemGroup Corp. (SEMG) to own, operate, and acquire midstream energy assets such as pipeline and storage terminals.

The company operates in Colorado, Kansas, Montana, North Dakota, Oklahoma and Texas. The majority of its assets are located in or connected to the Cushing, Okla., crude oil marketing hub, a designated point of delivery specified in all NYMEX crude oil futures contracts and one of the largest crude oil marketing hubs in the United States.

In the first nine months of the year, about 73% of its adjusted gross margin was generated from fee-based services or fixed-margin transactions, creating a stable source of cash flow. The company charges a volume-based fee for unloading, transporting and storing crude oil. Its fixed-margin transactions are essentially transportation fees for moving crude oil through its system. It also engages in marketing activities where it purchases crude oil for its own account and sells to traders and refiners, hedging its transactions to keep a lid on risk.

Revenue and net income have been rising at Rose Rock. Revenue in the first nine months of the year more than doubled to $299 million as the company saw an increase in the average volume as it added new contracts and shifted from fee-based transport agreements to fixed-margin transactions, as well as an increase in the average sales price per barrel. Net income rose to $16.4 million from $13.2 million in the same period of 2010.

As a limited partnership, Rose Rock pays out its available cash through quarterly dividends. Its minimum expected annual dividend is estimated at $1.45 a share, a yield of 7.25% at its IPO price.

The company says it expects to benefit from the growth of U.S. crude oil consumption and its location at the Cushing hub as well as its assets at several shale production regions.

Barclays PLC's (BCS) Barclay Capital, Citigroup Inc. (C), and Deutsche Bank AG (DB) managed Rose Rock's offering.

-By Lynn Cowan; 301-270-0323; lynn.cowan@dowjones.com
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