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SemGroup Corporation Reports Second Quarter 2016 Results

TULSA, Okla., Aug. 04, 2016 (GLOBE NEWSWIRE) -- SemGroup® Corporation (NYSE:SEMG) today announced its second quarter 2016 financial results.

SemGroup reported second quarter 2016 revenues of $287.4 million with net income attributable to SemGroup of $8.0 million, or $0.18 per diluted share. This compares with first quarter 2016 revenues of $314.9 million with a net loss attributable to SemGroup of $15.3 million, or $0.35 per diluted share. Second quarter 2015 revenues totaled $377.2 million with net income attributable to SemGroup of $23.3 million, or $0.53 per diluted share.

SemGroup's second quarter 2016 Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) was $67.6 million, down approximately 13% from $77.7 million in first quarter 2016 and 16% from $80.0 million in second quarter 2015. Adjusted EBITDA is a non-GAAP measure and is reconciled to net income below.

"SemGroup’s second quarter reflected anticipated volume declines in several of our segments and the loss of distributions from our sale of a non-core investment. Despite the continued weakness in commodity prices, our business model continues to endure as we reposition for future growth," said Carlin Conner, president and chief executive officer of SemGroup. "As part of this growth strategy, we completed a significant equity offering in the second quarter and advanced our pending acquisition of Rose Rock Midstream. Additionally, we now have our key construction permits on our largest investment, the Maurepas Pipeline, a fully contracted project to serve investment-grade refining operations on the Gulf Coast for decades to come."
           
Recent Developments
In July, SemGroup received key permits needed for constructing the Maurepas Pipeline in Louisiana. Construction on the pipeline has begun on all fronts. However, due to delays in receiving these key permits, the project's completion has been extended into early 2017.

In June, SemGroup completed a common stock equity offering consisting of 8.6 million shares of its Class A common stock at an offering price of $27.00 per share. The company expects this raise in equity will further strengthen its balance sheet and provide more capital to pursue strategic growth plans, including organic projects as well as potential strategic acquisitions.

In May, the company announced an agreement to acquire all of the outstanding common units of its MLP, Rose Rock Midstream L.P., in an all stock-for-unit transaction. In connection with the transaction, SemGroup filed a registration statement on Form S-4 with the U.S. Securities and Exchange Commission on July 14. It is expected to close later this year. The transaction is designed to simplify SemGroup's corporate capital structure and deliver several important benefits to shareholders including an enhanced credit profile, dividend coverage and future dividend growth rate beyond 2016.

Second Quarter 2016 Dividend
The SemGroup board of directors declared a quarterly cash dividend to common shareholders of $0.45 per share, resulting in an annualized dividend of $1.80 per share. This represents an increase of approximately 7% over the dividend of $0.42 per share with respect to the second quarter of 2015. The dividend will be paid on August 25, 2016 to all common shareholders of record on August 15, 2016.

2016 Guidance
SemGroup reaffirms 2016 consolidated Adjusted EBITDA guidance of between $270 and $320 million. Due primarily to the company's recent sale of NGL Energy limited partner units, the company expects to come in below the midpoint of its guidance range. SemGroup is also on track to deploy approximately $455 million in capital investments in 2016. The company expects to maintain its current dividend of $0.45 per share until the closing of the previously mentioned Rose Rock Midstream merger transaction.

Earnings Conference Call
SemGroup will host a joint conference call with Rose Rock Midstream®, L.P. (NYSE: RRMS) for investors tomorrow, August 5, 2016, at 11 a.m. ET. The call can be accessed live over the telephone by dialing  1.866.652.5200, or for international callers, 1.412.317.6060. Interested parties may also listen to a simultaneous webcast of the conference call by logging onto SemGroup's Investor Relations website at ir.semgroupcorp.com. A replay of the webcast will also be available for a year following the call at ir.semgroupcorp.com on the Calendar of Events-Past Events page. The second quarter 2016 earnings slide deck will be posted under Presentations.

About SemGroup
Based in Tulsa, OK, SemGroup® Corporation (NYSE: SEMG) is a publicly traded midstream service company providing the energy industry the means to move products from the wellhead to the wholesale marketplace. SemGroup provides diversified services for end-users and consumers of crude oil, natural gas, natural gas liquids, refined products and asphalt. Services include purchasing, selling, processing, transporting, terminalling and storing energy.

SemGroup uses its Investor Relations website and social media outlets as channels of distribution of material company information. Such information is routinely posted and accessible on our Investor Relations website at ir.semgroupcorp.com, our Twitter account and LinkedIn account.

Non-GAAP Financial Measures
SemGroup’s non-GAAP measure, Adjusted EBITDA, is not a GAAP measure and is not intended to be used in lieu of GAAP presentation of net income (loss), which is the most closely associated GAAP measure. Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, adjusted for selected items that SemGroup believes impact the comparability of financial results between reporting periods. Although SemGroup presents selected items that it considers in evaluating its performance, you should also be aware that the items presented do not represent all items that affect comparability between the periods presented. Variations in SemGroup’s operating results are also caused by changes in volumes, prices, exchange rates, mechanical interruptions and numerous other factors. These types of variances are not separately identified in this presentation.

This measure may be used periodically by management when discussing our financial results with investors and analysts and is presented as management believes it provides additional information and metrics relative to the performance of our businesses. This non-GAAP financial measure has important limitations as an analytical tool because it excludes some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider non-GAAP measures in isolation or as substitutes for analysis of our results as reported under GAAP. Management compensates for the limitations of our non-GAAP measures as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the non-GAAP measure and the most comparable GAAP measure and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our operating results. Because all companies do not use identical calculations, our presentations of non-GAAP measures may be different from similarly titled measures of other companies, thereby diminishing their utility.

Forward-Looking Statements
All statements, other than statements of historical fact, included in this Press Release including the prospects of our industry, our anticipated financial performance, our anticipated annual dividend growth rate, management's plans and objectives for future operations, planned capital expenditures, business prospects, outcome of regulatory proceedings, market conditions and other matters, may constitute forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, the closing, expected timing, and benefits of the proposed transaction pursuant to which we will acquire all of the outstanding common units of our subsidiary, Rose Rock Midstream, L.P. (“Rose Rock”), not already owned by us; our ability to generate sufficient cash flow from operations to enable us to pay our debt obligations and our current and expected dividends or to fund our other liquidity needs; the ability of Rose Rock to generate sufficient cash flow from operations to provide the level of cash distributions we expect; any sustained reduction in demand for, or supply of, the petroleum products we gather, transport, process, market and store; the effect of our debt level on our future financial and operating flexibility, including our ability to obtain additional capital on terms that are favorable to us; our ability to access the debt and equity markets, which will depend on general market conditions and the credit ratings for our debt obligations and equity; the loss of, or a material nonpayment or nonperformance by, any of our key customers; the amount of cash distributions, capital requirements and performance of our investments and joint ventures; the amount of collateral required to be posted from time to time in our purchase, sale or derivative transactions; the impact of operational and developmental hazards and unforeseen interruptions; our ability to obtain new sources of supply of petroleum products; competition from other midstream energy companies; our ability to comply with the covenants contained in our credit agreements and the indentures governing our senior notes, including requirements under our credit agreements to maintain certain financial ratios; our ability to renew or replace expiring storage, transportation and related contracts; the overall forward markets for crude oil, natural gas and natural gas liquids; the possibility that the construction or acquisition of new assets may not result in the corresponding anticipated revenue increases; changes in currency exchange rates; weather and other natural phenomena, including climate conditions; a cyber attack involving our information systems and related infrastructure, or that of our business associates; the risks and uncertainties of doing business outside of the U.S., including political and economic instability and changes in local governmental laws, regulations and policies; costs of, or changes in, laws and regulations and our failure to comply with new or existing laws or regulations, particularly with regard to taxes, safety and protection of the environment; the possibility that our hedging activities may result in losses or may have a negative impact on our financial results; general economic, market and business conditions; as well as other risk factors discussed from time to time in each of our documents and reports filed with the SEC.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Press Release, which reflect management's opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements.

WHERE YOU CAN FIND ADDITIONAL INFORMATION
In connection with the proposed merger of SemGroup and Rose Rock, SemGroup filed a registration statement on Form S-4 with the Securities and Exchange Commission (the "Commission") that includes a joint solicitation statement/prospectus and other relevant documents concerning the proposed transaction. YOU ARE URGED TO READ THE JOINT SOLICITATION STATEMENT/PROSPECTUS AND THE OTHER RELEVANT DOCUMENTS FILED WITH THE COMMISSION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT SemGroup, Rose Rock AND THE PROPOSED TRANSACTION. The joint solicitation statement/prospectus and the other documents filed with the Commission may be obtained free of charge at the Commission’s website, www.sec.gov. In addition, you may obtain free copies of the joint solicitation statement/prospectus and the other documents filed by SemGroup and Rose Rock with the Commission by requesting them in writing from SemGroup Corporation, Two Warren Place, 6120 S. Yale Avenue, Suite 700, Tulsa, Oklahoma 74136-4216, Attention: Investor Relations, or by telephone at (918) 524-8100, or from Rose Rock Midstream, L.P., Two Warren Place, 6120 S. Yale Avenue, Suite 700, Tulsa, Oklahoma 74136-4216, Attention: Investor Relations, or by telephone at (918) 524-7700.

SemGroup and Rose Rock and their respective directors and executive officers may be deemed under the rules of the Commission to be participants (as defined in Schedule 14A under the Exchange Act) in respect of the proposed transaction. Information about SemGroup’s directors and executive officers and their ownership of SemGroup common stock is set forth in SemGroup’s proxy statement on Schedule 14A filed on April 13, 2016 with the Commission. Information about the directors and executive officers and their ownership of RRMS common units representing limited partnership interests is set forth in Rose Rock’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 26, 2016 with the Commission. Information regarding the identity of the potential participants, and their direct or indirect interests in the proposed transaction, by security holdings or otherwise, is contained in the joint solicitation statement/prospectus and other materials filed by SemGroup with the Commission, as amended from time to time. Stockholders may obtain additional information about the interests of the directors and executive officers in the proposed transaction by reading the joint solicitation statement/prospectus.

Condensed Consolidated Balance Sheets
(in thousands, unaudited)
     
  June 30, 2016 December 31, 2015
ASSETS    
Current assets $ 765,603   $ 480,381  
Property, plant and equipment, net 1,648,962   1,566,821  
Goodwill and other intangible assets 191,315   210,255  
Equity method investments 446,938   551,078  
Other noncurrent assets, net 44,156   45,374  
Total assets $ 3,096,974   $ 2,853,909  
LIABILITIES AND OWNERS' EQUITY    
Current liabilities:    
Current portion of long-term debt $ 25   $ 31  
Other current liabilities 443,938   376,996  
Total current liabilities 443,963   377,027  
Long-term debt, excluding current portion 1,070,363   1,057,816  
Other noncurrent liabilities 207,320   222,710  
Total liabilities 1,721,646   1,657,553  
Total owners' equity 1,375,328   1,196,356  
Total liabilities and owners' equity $ 3,096,974   $ 2,853,909  
     


Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
 
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2016 2015 2016 2016 2015
Revenues $ 287,377   $ 377,226   $ 314,851   $ 602,228   $ 675,536  
Expenses:          
Costs of products sold, exclusive of depreciation and amortization shown below 176,842   244,158   196,947   373,789   436,230  
Operating 54,707   60,800   50,192   104,899   113,890  
General and administrative 20,775   22,917   21,060   41,835   55,227  
Depreciation and amortization 25,048   24,674   24,047   49,095   48,408  
Loss on disposal or impairment, net 1,685   1,372   13,307   14,992   2,430  
Total expenses 279,057   353,921   305,553   584,610   656,185  
Earnings from equity method investments 17,078   23,903   23,071   40,149   44,462  
Gain (loss) on issuance of common units by equity method investee   5,897   (41 ) (41 ) 5,897  
Operating income 25,398   53,105   32,328   57,726   69,710  
Other expenses, net 10,807   9,809   59,981   70,788   15,896  
Income (loss) from continuing operations before income taxes 14,591   43,296   (27,653 ) (13,062 ) 53,814  
Income tax expense (benefit) 4,658   14,861   (21,407 ) (16,749 ) 19,603  
Income (loss) from continuing operations 9,933   28,435   (6,246 ) 3,687   34,211  
Loss from discontinued operations, net of income taxes (2 ) (2 ) (2 ) (4 ) (2 )
Net income (loss) 9,931   28,433   (6,248 ) 3,683   34,209  
Less: net income attributable to noncontrolling interests 1,922   5,136   9,020   10,942   9,446  
Net income (loss) attributable to SemGroup Corporation $ 8,009   $ 23,297   $ (15,268 ) $ (7,259 ) $ 24,763  
Net income (loss) attributable to SemGroup Corporation $ 8,009   $ 23,297   $ (15,268 ) $ (7,259 ) $ 24,763  
Other comprehensive income (loss), net of income taxes 6,591   5,520   (4,109 ) 2,482   (3,540 )
Comprehensive income (loss) attributable to SemGroup Corporation $ 14,600   $ 28,817   $ (19,377 ) $ (4,777 ) $ 21,223  
Net income (loss) per common share:          
Basic $ 0.18   $ 0.53   $ (0.35 ) $ (0.16 ) $ 0.57  
Diluted $ 0.18   $ 0.53   $ (0.35 ) $ (0.16 ) $ 0.56  
Weighted average shares (thousands):          
Basic 45,236   43,798   43,870   44,553   43,758  
Diluted 45,647   44,013   43,870   44,553   43,975  
                     


Reconciliation of net income to Adjusted EBITDA:
(in thousands, unaudited)
     
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2016 2015 2016 2016 2015
Net income (loss) $ 9,931   $ 28,433   $ (6,248 ) $ 3,683   $ 34,209  
Add: Interest expense 18,875   16,822   18,935   37,810   31,413  
Add: Income tax expense (benefit) 4,658   14,861   (21,407 ) (16,749 ) 19,603  
Add: Depreciation and amortization expense 25,048   24,674   24,047   49,095   48,408  
EBITDA 58,512   84,790   15,327   73,839   133,633  
Selected Non-Cash Items and Other Items Impacting Comparability 9,121   (4,764 ) 62,340   71,461   16,375  
Adjusted EBITDA $ 67,633   $ 80,026   $ 77,667   $ 145,300   $ 150,008  
                               


Selected Non-Cash Items and
Other Items Impacting Comparability
(in thousands, unaudited)
     
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2016 2015 2016 2016 2015
Loss on disposal or impairment, net $ 1,685   $ 1,372   $ 13,307   $ 14,992   $ 2,430  
Loss from discontinued operations, net of income taxes 2   2   2   4   2  
Foreign currency transaction loss (gain) 1,543   (295 ) 1,469   3,012   (814 )
Remove NGL equity earnings including gain on issuance of common units   (12,117 ) (2,191 ) (2,191 ) (11,812 )
Remove loss (gain) on impairment or sale of NGL units (9,120 ) (6,623 ) 39,764   30,644   (14,517 )
NGL cash distribution   4,468   4,873   4,873   9,483  
M&A transaction related costs         10,000  
Inventory valuation adjustments   48       1,235  
Employee severance and relocation expense 836   21   259   1,095   21  
Unrealized loss (gain) on derivative activities 4,477   (1,415 ) (4,548 ) (71 ) 1,230  
Depreciation and amortization included within equity earnings 7,138   6,346   6,539   13,677   12,722  
Bankruptcy related expenses   2       191  
Non-cash equity compensation 2,560   3,427   2,866   5,426   6,204  
Selected Non-Cash Items and Other Items Impacting Comparability $ 9,121   $ (4,764 ) $ 62,340   $ 71,461   $ 16,375  


2016 Adjusted EBITDA Guidance Reconciliation(1)    
     
(in millions, unaudited)    
  Mid-point  
Net income $ 34.0    
Add: Interest expense 83.0    
Add: Income tax expense 10.0    
Add: Depreciation and amortization 126.0    
EBITDA $ 253.0    
Selected Non-Cash and Other Items Impacting Comparability 42.0    
Adjusted EBITDA $ 295.0    
     
     
Selected Non-Cash and Other Items Impacting Comparability    
Depreciation and amortization included within equity earnings $ 28.0    
Non-cash equity compensation 14.0    
Selected Non-Cash and Other Items Impacting Comparability $ 42.0    
     

(1) Adjusted EBITDA guidance is on a cash basis for equity investments in NGL Energy Partners LP and includes fully consolidated Rose Rock Midstream

Contacts:
Investor Relations:
Alisa Perkins
918-524-8081
investor.relations@semgroupcorp.com

Media:
Kiley Roberson
918-524-8594
kroberson@semgroupcorp.com

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