Five years after spinning off its crude oil gathering, transportation, storage and marketing assets in several North American shale plays into a master limited partnership (MLP), SemGroup Corp. said it plans to buy back Rose Rock Midstream LP in an all-stock transaction valued at $391 million.

Under the agreement, Rose Rock’s unaffiliated unit holders will receive 0.8136 shares of SemGroup for each unit they hold in the MLP. That implied unit price represents a 7.4% and 19.2% premium to its volume-weighted average prices during the 10-trading days and 20-trading days ending May 27, respectively.

In a presentation Tuesday, SemGroup said the purchase of Rose Rock’s publically-held units would cost the Tulsa-based company $391 million; an additional $8 million would be required for fees and expenses tied to the transaction. The deal also envisions pro forma available liquidity of about $1.08 billion.

During a conference call Tuesday to discuss the merger, SemGroup CEO Carlin Connor said ongoing low commodity prices, coupled with competitive market conditions, had significantly raised the cost of capital for Rose Rock and restricted the MLP’s ability to increase further cash distributions.

“Although we are hopeful that the commodity markets will continue to improve as we have seen over the past few weeks, we do not expect the commodity price improvement to be enough to drive Rose Rock’s cost of capital to more sustainable and competitive levels,” Connor said, later adding that “as a combined entity, we will be better positioned in a challenging commodity price environment…

“Simply stated, after the merger is complete, SemGroup with great assets, committed employees, and deep customer relationships will be best positioned to capitalize on attractive opportunities and deliver significant value for our shareholders.”

Although the proposed merger has already been approved by SemGroup’s board of directors and the general partner of Rose Rock, it must still pass the muster of SemGroup’s shareholders and Rose Rock’s unitholders. Assuming both groups vote for approval, the deal — which is also subject to customary closing conditions — could close in 3Q2016. An S-4 registration statement is expected to be filed with the U.S. Securities and Exchange Commission this month.

Like many of its contemporaries at the time, SemGroup spun off some of its crude oil assets into an MLP in 2011 (see Shale Daily, Oct. 25, 2011). It currently holds a 56% stake in Rose Rock.

Rose Rock owns and operates more than 1,900 miles of crude oil pipelines and 10.1 million bbl of crude oil storage. It has assets in several North American shale plays, including the Bakken, Duvernay, Eagle Ford, Niobrara and Utica shales; the Denver-Julesburg (DJ), Granite Wash, Permian, Western Canadian Sedimentary and Williston basins; the Mississippi Lime and Montney formations, and the Wapiti Field. Specifically, Rose Rock owns:

Rose Rock operates all of the aforementioned pipelines. The Glass Mountain Pipeline includes 440,000 bbl of intermediate storage, while the Wattenberg Oil Trunkline includes 200,000 bbl of operational storage and the KS/OK system includes more than 620,000 bbl of associated storage. Rose Rock and SemGroup had proposed expanding White Cliffs to 215,000 b/d by late 2015 (see Shale Daily, Dec. 22, 2014), but that expansion was delayed and should be completed by the end of this summer.

Meanwhile, SemGroup affiliates own and operate natural gas processing facilities in northern Oklahoma, western Canada, north central Texas, and natural gas gathering systems in Canada and south central Kansas.

After several years where producers spun off their midstream assets into MLPs in order to reap tax benefits and attract capital, investors have soured on the MLP model with the downturn in oil and gas prices (see Daily GPI, Jan. 29; Oct. 22, 2015).

Two years ago, Kinder Morgan Inc. abandoned its MLP structure and consolidated its businesses into one corporate entity (see Daily GPI, Aug. 11, 2014). Williams attempted to do likewise last year with its MLP, Williams Partners LP (see Daily GPI, May 13, 2015), but the proposed consolidation was put on the back burner shortly after Energy Transfer Equity made an ill-fated attempt to merge with Williams (see Daily GPI, March 24; Sept. 28, 2015).