SEMGROUP CORP, 10-Q filed on 5/9/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 30, 2013
Class A
Apr. 30, 2013
Class B
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Mar. 31, 2013 
 
 
Document Fiscal Period Focus
Q1 
 
 
Document Fiscal Year Focus
2013 
 
 
Entity Registrant Name
SemGroup Corp 
 
 
Entity Central Index Key
0001489136 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
42,021,494 
28,235 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 77,352 
$ 80,029 
Restricted cash
34,624 
34,678 
Accounts receivable (net of allowance of $4,184 and $3,687 at March 31, 2013 and December 31, 2012, respectively)
351,361 
346,169 
Receivable from affiliates
5,108 
6,178 
Inventories
37,820 
34,433 
Other current assets
13,392 
18,516 
Total current assets
519,657 
520,003 
Property, plant and equipment (net of accumulated depreciation of $141,123 and $130,886 at March 31, 2013 and December 31, 2012, respectively)
817,141 
814,724 
Equity method investments
423,507 
387,802 
Goodwill
10,227 
9,884 
Other intangible assets (net of accumulated amortization of $7,534 and $6,701 at March 31, 2013 and December 31, 2012, respectively)
7,707 
7,585 
Other noncurrent assets, net
30,969 
8,181 
Total assets
1,809,208 
1,748,179 
Current liabilities:
 
 
Accounts payable
256,385 
253,623 
Accrued liabilities
65,026 
63,831 
Payables to pre-petition creditors
32,917 
32,933 
Deferred revenue
15,731 
18,973 
Other current liabilities
5,656 
4,960 
Current portion of long-term debt
4,567 
24 
Total current liabilities
380,282 
374,344 
Long-term debt
176,056 
206,062 
Deferred income taxes
59,987 
65,620 
Other noncurrent liabilities
106,489 
80,625 
Commitments and contingencies (Note 9)
   
   
SemGroup owners' equity:
 
 
Common stock (Note 10)
421 
420 
Additional paid-in capital
1,097,028 
1,039,189 
Treasury stock, at cost (Note 10)
(613)
(242)
Accumulated deficit
(102,251)
(145,674)
Accumulated other comprehensive loss
(6,357)
(1,299)
Total SemGroup owners' equity
988,228 
892,394 
Noncontrolling interests in consolidated subsidiaries
98,166 
129,134 
Total owners' equity
1,086,394 
1,021,528 
Total liabilities and owners' equity
$ 1,809,208 
$ 1,748,179 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 4,184 
$ 3,687 
Accumulated depreciation
141,123 
130,886 
Accumulated amortization
$ 7,534 
$ 6,701 
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenues:
 
 
Product
$ 235,629 
$ 261,635 
Service
27,657 
27,313 
Other
24,410 
23,083 
Total revenues
287,696 
312,031 
Expenses:
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
212,369 
241,521 
Operating
40,771 
37,991 
General and administrative
17,037 
19,830 
Depreciation and amortization
12,636 
11,725 
Depreciation and amortization
12,636 
11,892 
Gain on disposal of long-lived assets, net
(162)
Total expenses
282,651 
311,067 
Earnings from equity method investments
17,345 
7,498 
Operating income
22,390 
8,462 
Other expenses (income):
 
 
Interest expense
2,396 
3,659 
Foreign currency transaction (gain) loss
(167)
37 
Other expense, net
25,633 
3,920 
Total other expenses, net
27,862 
7,616 
Income (loss) from continuing operations before income taxes
(5,472)
846 
Income tax benefit
(54,006)
(1,012)
Income from continuing operations
48,534 
1,858 
Income from discontinued operations, net of income taxes
32 
252 
Net income
48,566 
2,110 
Less: net income attributable to noncontrolling interests
5,143 
3,483 
Net income (loss) attributable to SemGroup
43,423 
(1,373)
Other comprehensive income (loss), net of income taxes
(5,058)
12,755 
Comprehensive income
43,508 
14,865 
Less: comprehensive income attributable to noncontrolling interests
5,143 
3,483 
Comprehensive income attributable to SemGroup
$ 38,365 
$ 11,382 
Net income per common share (Note 11):
 
 
Basic
$ 1.03 
$ (0.03)
Diluted
$ 1.03 
$ (0.03)
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:
 
 
Net income
$ 48,566 
$ 2,110 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
Net unrealized (gain) loss related to derivative instruments
(468)
146 
Depreciation and amortization
12,636 
11,892 
Gain on disposal of long-lived assets, net
(162)
Earnings from equity method investments
(17,345)
(7,498)
Distributions from equity investments
16,951 
7,498 
Amortization and write down of debt issuance costs
448 
1,444 
Deferred tax benefit
(54,796)
(1,659)
Non-cash equity compensation
1,183 
1,557 
Loss on fair value of warrants
25,796 
3,987 
Provision for uncollectible accounts receivable, net of recoveries
(28)
70 
Currency (gain) loss
(167)
37 
Changes in operating assets and liabilities (Note 12)
(5,311)
(20,926)
Net cash provided by (used in) operating activities
27,303 
(1,342)
Cash flows from investing activities:
 
 
Capital expenditures
(21,906)
(15,758)
Proceeds from sale of long-lived assets
167 
Investments in non-consolidated subsidiaries
(36,425)
(944)
Distributions in excess of equity in earnings of affiliates
1,114 
2,604 
Net cash used in investing activities
(57,050)
(14,098)
Cash flows from financing activities:
 
 
Debt issuance costs
(1,612)
(58)
Borrowings on credit facilities
229,474 
112,000 
Principal payments on credit facilities and other obligations
(255,006)
(98,501)
Proceeds from issuance of Rose Rock Midstream, L.P. common units, net of offering costs
57,886 
Distributions to noncontrolling interests
(3,624)
(470)
Repurchase of stock-based awards for payment of statutory taxes due on stock-based compensation
(371)
(242)
Other
Net cash provided by financing activities
26,747 
12,730 
Effect of exchange rate changes on cash and cash equivalents
323 
(141)
Change in cash and cash equivalents
(2,677)
(2,851)
Change in cash and cash equivalents included in discontinued operations
(1,552)
Change in cash and cash equivalents from continuing operations
(2,677)
(4,403)
Cash and cash equivalents at beginning of period
80,029 
73,613 
Cash and cash equivalents at end of period
$ 77,352 
$ 69,210 
Overview
OVERVIEW
OVERVIEW
SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma. SemGroup Corporation is the successor entity of SemGroup, L.P., which was an Oklahoma limited partnership. The terms “we,” “our,” “us,” “SemGroup,” “the Company” and similar language used in these notes to the unaudited condensed consolidated financial statements refer to SemGroup Corporation, SemGroup, L.P., and their subsidiaries.
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission. These financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company and the results of its operations and its cash flows.
The accompanying condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2012 is derived from audited financial statements.
Our condensed consolidated financial statements include the accounts of our controlled subsidiaries. All significant transactions between our consolidated subsidiaries have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.
Pursuant to the rules and regulations of the Securities and Exchange Commission, the accompanying condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2012, which are included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission.
Certain reclassifications have been made to conform previously reported balances to the current presentation, including the reclassification of prior periods to reflect the SemStream segment's Arizona operations as discontinued operations.
Our significant accounting policies are consistent with those described in our Annual Report on Form 10-K for the year ended December 31, 2012.
Recent accounting pronouncements
On January 31, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which clarifies the scope of the offsetting disclosure requirements in ASU 2011-11, "Disclosures About Offsetting Assets and Liabilities." Under ASU 2013-01, the disclosure requirements apply to derivative instruments accounted for in accordance with Accounting Standards Codification ("ASC") 815, "Derivatives and Hedging," including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending arrangements that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective application is required for all comparative periods presented. We adopted this guidance in the first quarter of 2013. The impact of adoption was not material.
On February 5, 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI"). The ASU is intended to help entities improve the transparency of changes in other comprehensive income ("OCI") and items reclassified out of AOCI in their financial statements. It does not amend any existing requirements for reporting net income or OCI in the financial statements. We adopted this guidance in the first quarter of 2013. The impact of adoption was not material.
On February 28, 2013, the FASB issued ASU 2013-04, "Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)." The ASU requires entities to “measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following:
The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors; and
Any additional amount the reporting entity expects to pay on behalf of its co-obligors.”
Required disclosures include a description of the joint-and-several arrangement and the total outstanding amount of the obligation for all joint parties. The ASU permits entities to aggregate disclosures (as opposed to providing separate disclosures for each joint-and-several obligation). These disclosure requirements are incremental to the existing related-party disclosure requirements in ASC 850, "Related Party Disclosures." The ASU is effective for public entities for all prior periods in fiscal years beginning on or after December 15, 2013, and interim reporting periods within those years. The Company will adopt this guidance in the first quarter of 2014. The impact is not expected to be material.
On March 4, 2013, the FASB issued ASU 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity - a consensus of the FASB Emerging Issues Task Force”, which indicates that the entire amount of a cumulative translation adjustment ("CTA") related to an entity's investment in a foreign entity should be released when there has been a:
Sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity;
Loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated); or
Step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity).
The ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. For public entities, this ASU is effective for fiscal years beginning on or after December 15, 2013, and interim periods within those years. The Company will adopt this guidance in the first quarter of 2014. The impact is not expected to be material.
Rose Rock Midstream, L.P.
ROSE ROCK MIDSTREAM, L.P.
ROSE ROCK MIDSTREAM, L.P.
We control the operations of our consolidated subsidiary, Rose Rock Midstream, L.P. ("Rose Rock") through our ownership of the general partner interest. As of March 31, 2013, we own the 2% general partner interest and 58.2% of the limited partner interest made up of 2.9 million common units, 8.4 million subordinated units and 1.25 million Class A units.
On January 11, 2013, we contributed a 33% interest in SemCrude Pipeline, L.L.C. to Rose Rock in exchange for (i) cash of approximately $189.5 million, (ii) the issuance of 1.5 million common units, (iii) the issuance of 1.25 million Class A units and (iv) an increase of the capital account of the general partner of Rose Rock and a related issuance of general partner interest, to allow the general partner of Rose Rock to maintain its two percent general partner interest. SemCrude Pipeline, L.L.C. owns a 51% membership 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 (the "White Cliffs Pipeline"), giving Rose Rock an indirect 17% interest in White Cliffs.
The Class A units are not entitled to receive any distribution of available cash (other than upon liquidation) prior to the first day of the month immediately following the first month for which the average daily throughput volumes on the White Cliffs Pipeline for such month are 125,000 barrels per day or greater. Upon such date, the Class A units will automatically convert into common units.
As this transaction was between parties under common control, Rose Rock recorded its interest in SemCrude Pipeline, L.L.C. at SemGroup's historical value and as such no gain on the sale was recognized by SemGroup. Proceeds in excess of the historical value were accounted for as an equity transaction between Rose Rock and SemGroup and resulted in a $90.5 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $56.8 million (net of tax impact of $33.7 million). This non-cash entry represents the portion of the proceeds in excess of historical cost which were attributed to Rose Rock's third-party unitholders.
In connection with this transaction, Rose Rock issued and sold 2.0 million common units to third-party purchasers in a private placement for aggregate consideration of $59.3 million. In addition, Rose Rock exercised the accordion feature of its revolving credit facility and increased the total borrowing capacity under the credit facility from $150 million to $385 million and made a borrowing of $133.5 million under the credit facility. The proceeds from the private placement and the borrowing were used by Rose Rock to fund the cash consideration in the transaction with us and to pay certain related transaction costs and expenses. Subsequent to the transaction, SemGroup owns 58.2% of the limited partner interest and the 2% general partner interest in Rose Rock.
SemGroup incurred $1.4 million of expense associated with the transaction including amounts expensed by Rose Rock. Rose Rock incurred $3.5 million of expense, of which $1.4 million of equity issuance costs were offset against proceeds, $1.6 million were related to the borrowing and were deferred, and $0.5 million were expensed.
Outside ownership interests in Rose Rock are reflected in “noncontrolling interests in consolidated subsidiaries” on our condensed consolidated balance sheets at March 31, 2013 and December 31, 2012. The portion of Rose Rock’s net income attributable to outside owners is reflected within “net income attributable to noncontrolling interests” in our condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2013.
We receive distributions from Rose Rock on our common and subordinated units and our 2% general partner interest, which includes our incentive distribution rights. Rose Rock intends to pay a minimum quarterly distribution of $0.3625 per unit, to the extent it has sufficient available cash, as defined in Rose Rock’s partnership agreement. Rose Rock’s partnership agreement requires Rose Rock to distribute all of its available cash each quarter in the following manner:
 
Total Quarterly Distributions
Per Unit Target Amount
 
Marginal Percentage
Interest in Distributions
 
Unitholders
 
General
Partner
 
Incentive
Distribution
Rights
Minimum Quarterly Distributions
 
 
 
 
 
 
$
0.362500

 
98.0
%
 
2.0
%
 

First Target Distribution
above
 
$
0.362500

 
up to
 
$
0.416875

 
98.0
%
 
2.0
%
 

Second Target Distribution
above
 
$
0.416875

 
up to
 
$
0.453125

 
85.0
%
 
2.0
%
 
13.0
%
Third Target Distribution
above
 
$
0.453125

 
up to
 
$
0.543750

 
75.0
%
 
2.0
%
 
23.0
%
Thereafter
 
 
 
 
above
 
$
0.543750

 
50.0
%
 
2.0
%
 
48.0
%
 
The following table shows the distributions paid or declared for the three months ended March 31, 2013 and 2012 (in thousands, except for per unit amounts):
 
 
Record Date
Payment Date
Distribution
Per Unit
 
Distributions Paid/To Be Paid
Quarter Ended
 
SemGroup
Noncontrolling
Interest
Common Units
Total
Distributions
 
General
Partner
Incentive
Distributions
Common
Units
Subordinated
Units
December 31, 2011
*
February 3, 2012
February 13, 2012
$
0.0670

$
23

$

$
93

$
561

$
470

$
1,147

March 31, 2012
 
May 7, 2012
May 15, 2012
$
0.3725

  
$
128

$

$
517

$
3,125

$
2,607

$
6,377

December 31, 2012
 
February 4, 2013
February 14, 2013
$
0.4025

 
$
167

$

$
1,163

$
3,377

$
3,624

$
8,331

March 31, 2013
**
May 6, 2013
May 15, 2013
$
0.4300

**
$
179

$
41

$
1,242

$
3,607

$
3,872

$
8,941

*Minimum quarterly distribution for quarter ended December 31, 2011 was prorated for the period beginning immediately after the closing of Rose Rock’s IPO, December 14, 2011 through December 31, 2011.
**Expected payment date and amounts for distributions related to the quarter ended March 31, 2013.

Certain summarized balance sheet information of Rose Rock is shown below (in thousands):
 
(unaudited)
 
 
 
March 31,
2013
 
December 31,
2012
Cash
$
2,369

 
$
108

Other current assets
257,415

 
250,509

Property, plant and equipment, net
295,384

 
291,530

Equity method investment
54,459

 

Other noncurrent assets, net
3,992

 
2,579

Total assets
$
613,619

 
$
544,726

Current liabilities
$
234,266

 
$
231,843

Long-term debt
152,556

 
4,562

Partners’ capital attributable to SemGroup
128,631

 
179,187

Partners’ capital attributable to noncontrolling interests
98,166

 
129,134

Total liabilities and partners’ capital
$
613,619

 
$
544,726


Certain summarized income statement information of Rose Rock for the three months ended March 31, 2013 and March 31, 2012 is shown below (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Revenue
$
171,232

 
$
179,715

Cost of products sold
$
148,451

 
$
160,508

Operating, general and administrative expenses
$
8,979

 
$
7,930

Depreciation and amortization expense
$
3,507

 
$
2,967

Earnings from equity method investment
$
3,453

 
$

Net income
$
11,994

 
$
7,758

Investments in Non-Consolidated Subsidiaries
INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES
INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES
White Cliffs
We account for our 51% ownership of White Cliffs under the equity method, as the other owners have substantive rights to participate in its management. Under the equity method, we do not report the individual assets and liabilities of White Cliffs on our condensed consolidated balance sheets. Instead, our ownership interest is reflected in one line as a noncurrent asset on our condensed consolidated balance sheets.
In August 2012, the owners of White Cliffs approved an expansion project to construct a 12" pipeline from Platteville, Colorado to Cushing, Oklahoma. The project is expected to cost approximately $300 million which will be funded by capital calls to owners. Our funding requirement will be 51% of the total cost. We have contributed approximately $25.1 million for project funding up through March 31, 2013, including $22.7 million for the three months ended March 31, 2013, and estimate our expected remaining contributions to be $96.6 million and $29.5 million for 2013 and 2014, respectively.
Certain summarized income statement information of White Cliffs for the three months ended March 31, 2013 and March 31, 2012 is shown below (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Revenue
$
30,673

 
$
22,656

Operating, general and administrative expenses
$
5,179

 
$
3,885

Depreciation and amortization expense
$
4,715

 
$
4,983

Net income
$
20,779

 
$
13,788

Distributions paid to SemGroup
$
13,792

 
$
8,940


The equity in earnings of White Cliffs for the three months ended March 31, 2013 and March 31, 2012 reported in our condensed consolidated statement of operations and comprehensive income is less than 51% of the net income of White Cliffs for the same period. This is due to certain general and administrative expenses we incur in managing the operations of White Cliffs that the other owners are not obligated to share. Such expenses are recorded by White Cliffs, and are allocated to our ownership interest. White Cliffs recorded $0.3 million and $0.9 million of such general and administrative expense for the three months ended March 31, 2013 and March 31, 2012, respectively.
NGL Energy
We own 9,133,409 common units representing limited partner interests in NGL Energy Partners LP (NYSE: NGL) (“NGL Energy”), which represents approximately 17.2% of the total 53,121,177 limited partner units of NGL Energy outstanding at December 31, 2012, and a 6.42% interest in the general partner of NGL Energy.
At March 31, 2013, the fair market value of our 9,133,409 common unit investment in NGL Energy was $245.7 million, based on a March 28, 2013 closing price of $26.90 per common unit. This does not reflect our interest in the general partner of NGL Energy. The excess of the recorded amount of our investment over the book value of our share of the underlying net assets primarily represents equity method goodwill. The fair value of our limited partner investment in NGL Energy is categorized as a Level 1 measurement as it is based on quoted market prices.
Our policy is to record our equity in earnings of NGL Energy on a one-quarter lag, as we do not expect information on the earnings of NGL Energy to always be available in time to consistently record the earnings in the quarter in which they are generated. Accordingly, we have recorded equity in earnings of NGL Energy of $6.9 million and $0.9 million in our condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2013 and 2012, respectively, which relate to the earnings of NGL Energy for the three months ended December 31, 2012 and 2011, prorated for the period of time we held our ownership interest in NGL Energy. We received cash distributions of $4.3 million and $1.2 million for the three months ended March 31, 2013 and 2012, respectively, related to these earnings from NGL Energy.
Certain unaudited summarized income statement information of NGL Energy for the three months ended December 31, 2012 and 2011 is shown below (in thousands):
 
Three Months Ended December 31,
 
2012

2011
Revenue
$
1,338,208

 
$
470,649

Cost of products sold
$
1,204,545

 
$
439,790

Operating, general and administrative expenses
$
64,693

 
$
16,816

Depreciation and amortization expense
$
18,747

 
$
5,402

Net income
$
40,477

 
$
6,090

 
Glass Mountain Pipeline LLC
In May 2012, we formed a joint venture, Glass Mountain Pipeline, LLC (“Glass Mountain” or "GMP"), to construct, maintain and operate a 210-mile crude oil pipeline system originating in Alva and Arnett, Oklahoma and terminating at Cushing, Oklahoma. Construction of the pipeline is expected to be completed by the end of 2013. Once the pipeline is in service, it will be operated by a subsidiary of Rose Rock. Our original ownership interest in GMP was 25%. In September 2012, we acquired an additional 25% ownership interest in GMP bringing our total ownership interest to 50% . We account for our investment in GMP using the equity method. As of March 31, 2013, we have invested $87.8 million in GMP including our capital contributions, amounts paid to acquire the additional ownership percentage, and capitalized interest. We invested $13.4 million in GMP for the three months ended March 31, 2013. We expect to make additional contributions of approximately $38.6 million for the remainder of 2013.
Segments
SEGMENTS
4.
SEGMENTS
Our businesses are organized based on the nature and location of the services they provide. Certain summarized information related to our reportable segments is shown in the tables below. None of the operating segments have been aggregated, other than White Cliffs, which has been included within the Crude segment. Our investment in NGL Energy is included within the SemStream segment. Although “Corporate and Other” does not represent an operating segment, it is included in the tables below to reconcile segment information to that of the consolidated Company. Eliminations of transactions between segments are also included within “Corporate and Other” in the tables below.
The accounting policies of each segment are the same as the accounting policies of the consolidated Company. Transactions between segments are generally recorded based on prices negotiated between the segments. Certain general and administrative and interest expenses incurred at the corporate level are allocated to the segments, based on our allocation policies in effect at the time.

 
Three Months Ended March 31, 2013
 
Crude

SemStream

SemCAMS

SemGas

SemLogistics

SemMexico

Corporate
and Other

Consolidated
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External
$
171,232

 
$

 
$
35,781

 
$
34,654

 
$
3,035

 
$
42,994

 
$

 
$
287,696

Intersegment

 

 

 
4,085

 

 

 
(4,085
)
 

Total revenues
171,232

 

 
35,781

 
38,739

 
3,035

 
42,994

 
(4,085
)
 
287,696

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
148,451

 

 
183

 
29,171

 

 
38,649

 
(4,085
)
 
212,369

Operating
5,738

 
1

 
26,884

 
4,144

 
1,839

 
2,165

 

 
40,771

General and administrative
3,850

 
156

 
4,145

 
1,591

 
1,120

 
2,222

 
3,953

 
17,037

Depreciation and amortization
3,507

 

 
2,656

 
2,128

 
2,340

 
1,480

 
525

 
12,636

(Gain) loss on disposal of long-lived assets, net

 
6

 

 
(2
)
 

 
(166
)
 

 
(162
)
Total expenses
161,546

 
163


33,868


37,032


5,299


44,350


393


282,651

Earnings from equity method investments
10,429

 
6,916

 

 

 

 

 

 
17,345

Operating income (loss)
20,115

 
6,753

 
1,913

 
1,707

 
(2,264
)
 
(1,356
)
 
(4,478
)

22,390

Other expenses (income), net
3,171

 
(968
)
 
4,711

 
593

 
756

 
(471
)
 
20,070

 
27,862

Income (loss) from continuing operations before income taxes
$
16,944

 
$
7,721

 
$
(2,798
)
 
$
1,114

 
$
(3,020
)
 
$
(885
)
 
$
(24,548
)

$
(5,472
)
Total assets at March 31, 2013 (excluding intersegment receivables)
$
820,561

 
$
177,043

 
$
301,034

 
$
137,637

 
$
161,933

 
$
100,675

 
$
110,325

 
$
1,809,208


 
Three Months Ended March 31, 2012
 
Crude
 
SemStream
 
SemCAMS
 
SemGas
 
SemLogistics
 
SemMexico
 
Corporate
and Other
 
Consolidated
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External
$
179,715

 
$
6

 
$
35,165

 
$
30,710

 
$
3,784

 
$
62,651

 
$

 
$
312,031

Intersegment

 

 

 
2,730

 

 

 
(2,730
)
 

Total revenues
179,715

 
6

 
35,165

 
33,440

 
3,784

 
62,651

 
(2,730
)
 
312,031

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Costs of products sold, exclusive of depreciation and amortization shown below
160,508

 
34

 
119

 
26,549

 

 
57,041

 
(2,730
)
 
241,521

Operating
5,454

 
(6
)
 
26,236

 
2,853

 
1,454

 
2,000

 

 
37,991

General and administrative
2,718

 
51

 
4,418

 
1,843

 
1,811

 
2,688

 
6,301

 
19,830

Depreciation and amortization
2,967

 

 
2,573

 
1,630

 
2,318

 
1,561

 
676

 
11,725

Total expenses
171,647

 
79

 
33,346

 
32,875

 
5,583

 
63,290

 
4,247

 
311,067

Earnings from equity method investments
6,571

 
927

 

 

 

 

 

 
7,498

Operating income (loss)
14,639

 
854

 
1,819

 
565

 
(1,799
)
 
(639
)
 
(6,977
)
 
8,462

Other expenses (income), net
(237
)
 
38

 
5,203

 
532

 
1,279

 
(110
)
 
911

 
7,616

Income (loss) from continuing operations before income taxes
$
14,876

 
$
816

 
$
(3,384
)
 
$
33

 
$
(3,078
)
 
$
(529
)
 
$
(7,888
)
 
$
846


Segment information for the three months ended March 31, 2012 has been recast to reflect SemStream's Arizona residential business as a discontinued operation. As result, the total revenues, total expenses, operating income and income from continuing operations before income taxes reported above has decreased from amounts previously reported by $5.6 million, $5.4 million, $0.3 million and $0.3 million, respectively.
Inventories
Inventories
INVENTORIES
Inventories consist of the following (in thousands):
 
March 31,
2013
 
December 31,
2012
Crude oil
$
24,202

 
$
24,840

Asphalt and other
13,618

 
9,593

Total Inventories
$
37,820

 
$
34,433

Financial Instruments
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
Fair value of financial instruments
We record certain financial assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of these assets and liabilities at March 31, 2013 and December 31, 2012 (in thousands):

 
March 31, 2013
 
December 31, 2012
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
96

 
$
(96
)
 
$

 
$
22

 
$
(22
)
 
$

Total assets
96

 
(96
)
 

 
22

 
(22
)
 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
662

 
$
(96
)
 
$
566

 
$
1,056

 
$
(22
)
 
$
1,034

Warrants
58,653

 

 
58,653

 
32,858

 

 
32,858

Total liabilities
59,315

 
(96
)
 
59,219

 
33,914

 
(22
)
 
33,892

Net assets (liabilities) at fair value
$
(59,219
)
 
$

 
$
(59,219
)
 
$
(33,892
)
 
$

 
$
(33,892
)
*Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
“Level 1” measurements use as inputs unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange. These also include common stock warrants (Note 10) which are traded on the New York Stock Exchange.
“Level 2” measurements use as inputs market observable and corroborated prices for similar commodity derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter (“OTC”) traded forward contracts and swaps.
“Level 3” measurements use as inputs information from a pricing service and internal valuation models incorporating observable and unobservable market data. These include commodity derivatives, such as forwards and swaps for which there is not a highly liquid market, and therefore are not included in Level 2.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment, and may affect the valuation of assets and liabilities and their placement within the fair value levels. At March 31, 2013, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
There were no financial assets or liabilities classified as Level 2 or Level 3 during the three months ended March 31, 2013 and March 31, 2012, as such no rollforward of activity has been presented.
Commodity derivative contracts
Our consolidated results of operations and cash flows are impacted by changes in market prices for petroleum products. This exposure to commodity price risk is managed, in part, by entering into various commodity derivatives.
We seek to manage the price risk associated with our marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of petroleum products to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the petroleum products purchased and delivered or (ii) derivative contracts. Our storage and transportation assets can also be used to mitigate location and time basis risk. All marketing activities are subject to our Comprehensive Risk Management Policy, which establishes limits in order to manage risk and mitigate financial exposure.
Our commodity derivatives can be comprised of swaps, future contracts and forward contracts of crude oil and natural gas liquids. These are defined as follows:
Swaps – OTC transactions where a floating price, basis or index is exchanged for a fixed (or a different floating) price, basis or index at a preset schedule in the future, according to an agreed-upon formula.
Futures contracts – Exchange traded contracts to buy or sell a commodity. These contracts are standardized by the exchange in terms of quality, quantity, delivery period and location for each commodity.
Forward contracts – OTC contracts to buy or sell a commodity at an agreed upon future date. The buyer and seller agree on specific terms (price, quantity, delivery period and location) and conditions at the inception of the contract.
The following table sets forth the unaudited notional quantities for commodity derivative instruments entered into (in thousands of barrels):
 
Three Months Ended March 31,
 
2013
 
2012
Sales
610

 
383

Purchases
675

 
451


We have not designated any of our commodity derivative instruments as accounting hedges. We record the fair value of our commodity derivative instruments on our condensed consolidated balance sheets in other current assets and other current liabilities in the following amounts (in thousands):
 
March 31, 2013
 
December 31, 2012
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
566

 
$

 
$
1,034


We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. Margin deposits outstanding for the periods ended March 31, 2013 and December 31, 2012 were $1.1 million and $1.9 million, respectively. These margin deposits have not been offset against our net commodity derivative instrument (contract) positions. Had these margin deposits been netted against our net commodity derivative instrument (contract) positions for the periods ended March 31, 2013 and December 31, 2012, we would have had net asset positions of $0.5 million and $0.8 million, respectively.
Realized and unrealized losses from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Commodity contracts
$
(544
)
 
$
(1,125
)

Warrants
As described in Note 10, upon emergence from bankruptcy, we issued certain common stock warrants. These warrants are recorded at fair value in other noncurrent liabilities on the condensed consolidated balance sheets, with changes in the fair value recorded to other expense (income).
Income Taxes
INCOME TAXES
INCOME TAXES
Due to our emergence from bankruptcy and overall restructuring, we recorded a full valuation allowance on all U.S. federal and state deferred tax assets in all prior periods. Deferred tax assets are reduced by a valuation allowance when a determination is made that it is more likely than not that some, or all, of the deferred tax assets will not be realized based on the weight of all available evidence. Evidence which is objectively verifiable carries a higher weight in the analysis. The ultimate realization of deferred tax assets is dependent upon the existence of sufficient taxable income of the appropriate character within the carryback and carryforward period available under the tax law. Sources of taxable income include future reversals of existing taxable temporary differences, future earnings and available tax planning strategies.

For the three months ended March 31, 2013, we have recorded a discrete tax benefit of $50.9 million for the partial release of our valuation allowance. Gain recognition, for tax purposes, on the contribution of a 33% interest in SemCrude Pipeline, L.L.C. to Rose Rock, as disclosed in Note 2, had a material impact to the available positive and objectively verifiable evidence for the current quarter and, combined with other factors, results in the change in our assessment of recoverability of the deferred tax assets. Under ASC 740, "Income Taxes", such evidence was not considered in the valuation allowance at December 31, 2012, due to fundamentals of the transaction which remained subject to market influence until closed. We did not release the valuation allowance attributable to a small portion of our state net operating loss carryovers which have shorter carryover periods. We have not released the valuation allowance on the foreign tax credits due to the foreign tax credit limitation and the relative subjectivity of forecasts of the relational magnitude of U.S. and foreign taxable income in future periods as well as the shorter carryover period available for the credits.

We have determined that no accruals related to uncertainty in tax positions are required. All income tax years of the Company ending after the emergence from bankruptcy remain open for examination in all jurisdictions. In foreign jurisdictions, all tax years within the relevant statute of limitations for periods prior to the emergence from bankruptcy remain open for examination. Currently, there are no examinations in progress for our federal or state jurisdictions. Canada Revenue Agency has initiated an income tax audit of SemCAMS ULC for the tax year 2009, which remains in progress. We do not anticipate the SemCAMS ULC audit will have a significant impact on the results of operations or financial position. No other foreign jurisdictions are currently under audit.

The effective tax rate was 987% for the three months ended March 31, 2013, and (120)% for the three months ended March 31, 2012. Significant items that impacted the effective tax rate for each period, as compared to the U.S. federal statutory rate of 35%, include earnings in foreign jurisdictions taxed at lower rates, a noncontrolling interest in Rose Rock for which taxes are not provided, warrant expense which is not deductible for tax purposes, and the impact of the valuation allowance or release recorded against our deferred tax assets. Further, the foreign earnings are taxed in foreign jurisdictions as well as in the U.S., since they are disregarded entities for U.S. federal income tax purposes. Deferred tax liabilities, with the exception of those related to certain long-lived assets, have been considered as a source of future taxable income in establishing the amount of the valuation allowance. These combined factors, and the magnitude of permanent items impacting the tax rate relative to income from continuing operations before income taxes, result in rates that are not comparable between the periods.
Long-Term Debt
Long-Term Debt
LONG-TERM DEBT
Our long-term debt consisted of the following (in thousands):
 
March 31,
2013
 
December 31,
2012
SemGroup corporate revolving credit facility
$
23,500

 
$
201,500

Rose Rock credit facility
152,500

 
4,500

SemMexico credit facility
4,542

 

Capital leases
81

 
86

Total long-term debt
$
180,623

 
$
206,086

less: current portion of long-term debt
4,567

 
24

Noncurrent portion of long-term debt
$
176,056

 
$
206,062


SemGroup corporate credit agreement
Our revolving credit facility had a capacity of $300 million at March 31, 2013. This capacity may be used either for cash borrowings or letters of credit, although the maximum letter of credit capacity is $250 million. At March 31, 2013, we had outstanding cash borrowings of $23.5 million on this facility and outstanding letters of credit of $5.1 million
At March 31, 2013, $23.5 million of our outstanding cash borrowings incurred interest at the alternate base rate (“ABR”) of 4.75%, calculated as the prime rate of 3.25% plus a margin of 1.5%.
At March 31, 2013, the commitment rate in effect on letters of credit was 2.5%. In addition, a fronting fee of 0.25% is charged on outstanding letters of credit. A commitment fee of 0.5% is charged on any unused capacity on the revolving credit facility.
At March 31, 2013, $3.2 million in capitalized loan fees, net of accumulated amortization, was recorded in other noncurrent assets, which is being amortized over the life of the facility.
We recorded interest expense related to the SemGroup revolving credit facility of $1.2 million and $1.5 million for the three months ended March 31, 2013 and 2012, respectively, including amortization of debt issuance costs.
At March 31, 2013, we were in compliance with the terms of the credit agreement.
On April 22, 2013, the credit agreement was amended to (i) permit the increase of the facility by up to an additional $300 million subject to satisfaction of certain conditions, (ii) remove the restriction limiting unsecured senior or subordinated indebtedness to $200 million, while establishing certain requirements for obtaining unsecured senior or subordinated indebtedness of $200 million or more and (iii) establish less restrictive leverage covenants.
On May 3, 2013, we elected to increase the credit facility capacity by $200 million, for a total capacity of $500 million. The facility can be increased by an additional $100 million. In connection with the increase, we recorded $2.2 million of capitalized loan fees which will be amortized over the remaining life of the facility.
The credit agreement is guaranteed by all of our material domestic subsidiaries (except for SemCrude Pipeline. L.L.C. and Rose Rock Midstream. L.P. and its subsidiaries) and secured by a lien on substantially all of our property and assets, subject to customary exceptions.
Rose Rock credit facility
At March 31, 2013, there were $152.5 million revolving cash borrowings outstanding on this facility, of which $52.5 million incurred interest at the ABR plus an applicable margin, and $100 million incurred interest at the Eurodollar rate plus an applicable margin. The interest rate in effect at March 31, 2013 on $52.5 million of ABR borrowings was 5.0%. The interest rate in effect at March 31, 2013 on $100 million of Eurodollar rate borrowings was 3.04%.
We had $48.9 million in outstanding letters of credit, and the rate in effect was 2.75%. In addition, a fronting fee of 0.25% is charged on outstanding letters of credit. A commitment fee that ranges from 0.375% to 0.50%, depending on a leverage ratio specified in the credit agreement, is charged on any unused capacity of the revolving credit facility.
On January, 11, 2013, the credit facility capacity was increased to $385 million and Rose Rock borrowed $133.5 million in connection with the purchase of a 33% interest in SemCrude Pipeline, L.L.C. from SemGroup and to pay transaction related expenses. The facility can be increased by an additional $165 million. Approximately $1.6 million of related costs have been capitalized and will be amortized over the remaining life of the facility.
We had $6.1 million of Secured Bilateral Letters of Credit outstanding at March 31, 2013. The interest rate in effect was 1.75% on $1.1 million and 2.0% on $5.0 million. Secured Bilateral Letters of Credit are external to the facility and do not reduce revolver availability.
We recorded $2.0 million and $0.5 million of interest expense related to this facility during the three months ended March 31, 2013 and 2012, respectively, including amortization of debt issuance costs.
At March 31, 2013, $2.9 million in capitalized loan fees, net of accumulated amortization, was recorded in other noncurrent assets, which is being amortized over the life of the facility.
At March 31, 2013, we were in compliance with the terms of the credit agreement.
SemMexico facilities
On July 13, 2012, SemMexico entered into a credit agreement that allows SemMexico to borrow up to 56 million Mexican pesos (U.S. $4.5 million at the March 31, 2013 exchange rate) at any time during the term of the facility, which matures in July 2013. Borrowings are unsecured and bear interest at the bank prime rate in Mexico plus 1.7%. At March 31, 2013, there were borrowings of 56 million Mexican pesos (U.S. $4.5 million at the March 31, 2013 exchange rate) outstanding on this facility and the interest rate in effect was 6.03%.
On June 13, 2012, SemMexico entered into a credit agreement that allows SemMexico to borrow up to 44 million Mexican pesos (U.S. $3.6 million at the March 31, 2013 exchange rate) at any time during the term of the facility, which matures in June 2015. Borrowings are unsecured and bear interest at the bank prime rate in Mexico plus 2.0%. At March 31, 2013, there were no outstanding borrowings on this facility.
SemMexico also has outstanding letters of credit of 292.8 million Mexican pesos at March 31, 2013 (U.S. $23.7 million at the March 31, 2013 exchange rate). Fees are generally charged on outstanding letters of credit at a rate of 0.5%.
SemMexico recorded interest expense of $7.0 thousand and $0.1 million during the three months ended March 31, 2013 and 2012, respectively, related to these facilities.
At March 31, 2013, we were in compliance with the terms of these facilities.
Capitalized interest
During the three months ended March 31, 2013 and 2012, we capitalized interest from our credit facilities of $0.9 million and $0.1 million, respectively.
Fair value
We estimate that the fair value of our long-term debt was not materially different than the recorded values at March 31, 2013, and is categorized as a Level 3 measurement. It is our belief that neither the market interest rates nor our credit profile have changed significantly enough to have had a material impact on the fair value of our debt outstanding at March 31, 2013.
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Bankruptcy matters
On July 22, 2008 (the “Petition Date”), SemGroup, L.P., SemCrude, and Eaglwing filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. While in bankruptcy, SemGroup, L.P. filed a plan of reorganization with the court, which was confirmed on October 28, 2009 (the “Plan of Reorganization”). The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, the equity structure of the reorganized company upon emergence, and the financing arrangements upon emergence. SemGroup Corporation, SemCrude, and Eaglwing emerged from bankruptcy protection on November 30, 2009 (the “Emergence Date”).
(a)
Confirmation order appeal
Luke Oil appeal. On October 21, 2009, Luke Oil Company, C&S Oil/Cross Properties, Inc., Wayne Thomas Oil and Gas and William R. Earnhardt Company (collectively, “Luke Oil”) filed an objection to the Plan of Reorganization “to the extent that the Plan of Reorganization may alter, impair, or otherwise adversely affect Luke Oil’s legal rights or other interests.” On October 28, 2009, the bankruptcy court overruled the Luke Oil objection and entered the confirmation order. On November 6, 2009, Luke Oil filed a Notice of Appeal. On December 23, 2009, Luke Oil’s appeal was docketed in the United States District Court for the District of Delaware. We filed a motion to dismiss the appeal as equitably moot. On May 21, 2012, the District Court entered an order granting our motion to dismiss Luke Oil's appeal of the confirmation order. On June 18, 2012, Luke Oil filed its Notice of Appeal, notifying the District Court and the parties to the lawsuit that it was appealing the decision of the District Court to the United States Court of Appeals for the Third Circuit. The appeal has been fully briefed. The Court of Appeals heard oral argument on January 22, 2013, and has not yet ruled. While we believe that this action is without merit and are vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.
(b)
Investigations
Around the time of our predecessor's bankruptcy filings, several governmental agencies launched investigations regarding the circumstances of the filings. The mandate and scope of these investigations were very broad and the investigations are ongoing.
Bankruptcy examiner. On October 14, 2008, the bankruptcy court appointed an examiner to (i) investigate the circumstances surrounding our predecessor's trading strategy prior to bankruptcy filings; (ii) investigate the circumstances surrounding certain insider transactions and the formation of SemGroup Energy Partners L.P. (a former subsidiary); (iii) investigate the circumstances surrounding the potential improper use of borrowed funds and funds generated from operations and the liquidation of assets to satisfy margin calls related to our predecessor's trading strategy and that of certain entities owned or controlled by former officers and directors of the general partner of SemGroup, L.P.; (iv) determine whether any directors, officers or employees of the general partner of SemGroup, L.P. participated in fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of our affairs; and (v) determine whether the SemGroup debtor estates have causes of action against current or former officers, directors, or employees of the general partner of SemGroup, L.P. arising from such participation. The examiner’s report was filed with the bankruptcy court on April 15, 2009.
Certain current and prior employees of the general partner of SemGroup, L.P. are referenced in the examiner’s report and the report’s conclusions may suggest possible civil or criminal liability on their part. To the extent such claims exist, they are property of a litigation trust that was established for the benefit of pre-petition creditors pursuant to the Plan of Reorganization, and are not property of the reorganized SemGroup Corporation. This litigation trust is pursuing claims against certain former officers, at its own expense. We may incur expenses, which are not expected to be material, related to information and document requests of the litigation trust related to such claims. Any indemnification obligations to such officers by SemGroup, L.P. were discharged under the Plan of Reorganization.
CFTC. On June 19, 2008, we received a request for voluntary production from the Commodity Futures Trading Commission (“CFTC”). Subsequent to the bankruptcy filings, the CFTC sent other requests for voluntary production. The CFTC has also served subpoenas upon us requiring us to produce various documents and for the depositions of our representatives. We continue to comply with the CFTC’s requests. We are unaware of any currently pending formal charges against us by the CFTC.
DOJ. On July 15, 2008, we received a subpoena from the Department of Justice (“DOJ”) directing us to produce documents responsive to the subpoena. We contacted the DOJ regarding the subpoena and the DOJ verbally voluntarily stayed compliance with the subpoena. We have not produced any documents to the DOJ and, to our knowledge, the DOJ is not currently pursuing any such production. We are unaware of any currently pending formal charges against us by the DOJ.
(c)
Claims reconciliation process
A large number of parties have made claims against us for obligations alleged to have been incurred prior to our predecessor's bankruptcy filing. On September 15, 2010, the bankruptcy court entered an order estimating the contingent, unliquidated and disputed claims and authorizing distributions to holders of allowed claims. Pursuant to that order we have begun making distributions to the claimants. We continue to attempt to settle unresolved claims.
Pursuant to the Plan of Reorganization, we committed to settle authorized and allowed bankruptcy claims by paying a specified amount of cash, issuing a specified number of warrants, and issuing a specified number of shares of SemGroup Corporation common stock. We do not believe the resolution of the remaining outstanding claims will exceed the total amount of consideration established under the Plan of Reorganization for all claimants; instead, the resolution of the remaining claims in some cases will impact the relative share of the established pool of common stock and warrants that certain claimants receive.
However, under certain circumstances we could be required to pay additional funds to settle the specified group of claims to be settled with cash. Pursuant to the Plan of Reorganization, a specified amount of restricted cash was set aside at the Emergence Date, which we expect to be sufficient to settle this group of claims. Since the Emergence Date, we have made significant progress in resolving these claims, and we continue to believe that the cash set aside at the Emergence Date will be sufficient to settle these claims. However, we have not yet reached a resolution of all of these claims, and if the total settlement amount of all of these claims exceeds the specified amount, we will be required to pay additional funds to satisfy the total settlement amount for this specified group of claims. If this were to become probable of occurring, we would be required to record a liability and a corresponding expense.
Blueknight claim
Blueknight Energy Partners, L.P. (“Blueknight”), which was formerly a subsidiary of SemGroup, together with other entities related to Blueknight, entered into a Shared Services Agreement on April 7, 2009, with SemCrude, L.P. and SemManagement, L.L.C. (which are currently subsidiaries of SemGroup). The services provided by SemCrude to Blueknight under this agreement included the coordination of movement of crude oil belonging to Blueknight’s customers and the operation of Blueknight’s Oklahoma pipeline system and its Cushing, Oklahoma terminal. Under the subsequent amendments to the agreements beginning in May 2010, certain of these services were phased out, and Blueknight began to manage the movement of its crude oil and the operation of its Cushing terminal.
In a letter dated August 18, 2011, Blueknight claimed that SemCrude owes Blueknight approximately 141,000 barrels of crude oil. We responded to Blueknight’s letter denying their charges and requesting documentation from Blueknight of its claim. On February 14, 2012, after months of interaction between the parties through which we requested Blueknight to substantiate its claim, Blueknight filed suit against us in the District Court of Oklahoma County, Oklahoma. On May 1, 2012, the court approved our motion to transfer this case to Tulsa County, Oklahoma. On July 2, 2012, the Tulsa County District Court appointed a Special Master to conduct a review of whether Blueknight is missing 141,000 barrels of crude oil from operations occurring during the months of April through June, 2010. The Special Master will prepare an advisory report to the Court of her findings and conclusions. We believe this matter is without merit and will vigorously defend our position; however, we cannot predict the outcome.
Environmental
We may from time to time experience leaks of petroleum products from our facilities and, as a result of which, we may incur remediation obligations or property damage claims. In addition, we are subject to numerous environmental regulations. Failure to comply with these regulations could result in the assessment of fines or penalties by regulatory authorities.
The Kansas Department of Health and Environment (“the KDHE”) initiated discussions during our bankruptcy proceeding regarding six of our sites in Kansas (five owned by Crude and one owned by SemGas) that KDHE believes, based on their historical use, may have soil or groundwater contamination in excess of state standards. KDHE sought our agreement to undertake assessments of these sites to determine whether they are contaminated. We reached an agreement with KDHE on this matter and entered into a Consent Agreement and Final Order with KDHE to conduct environmental assessments on the sites and to pay KDHE’s costs associated with their oversight of this matter. We have conducted Phase II investigations at all sites and results indicate that four of the sites have limited amounts of soil contamination that will require remediation and ground water contamination that may require further delineation and/or ongoing monitoring. Work plans have been submitted to, and approved by, the KDHE. We do not anticipate any penalties or fines for these historical sites.
A water pipeline break occurred at a SemCAMS facility during August 2010. This resulted in a spill of material that was predominantly salt water containing a small amount of hydrocarbons. The incident was investigated by Environment Canada and Alberta Environment. On February 14, 2012, charges were filed against SemCAMS by the Federal Government of Canada (Department of Fisheries) and the Province of Alberta (Alberta Environment) in connection with this incident. We have reviewed disclosure received from the agencies and engaged our expert to assist us in formulating our response. Our expert's report has been completed and was delivered to the crown in April 2013. Although it is not possible to predict the outcome of these proceedings, we accrued a liability for estimated fines and environmental contributions of $0.4 million in December 2010, which we still carry on our books at March 31, 2013.
Other matters
We are party to various other claims, legal actions, and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions and complaints, after consideration of amounts accrued, insurance coverage and other arrangements, will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our consolidated liabilities may change materially as circumstances develop.
Asset retirement obligations
We will be required to incur significant removal and restoration costs when we retire our natural gas gathering and processing facilities in Canada. We have recorded an asset retirement obligation liability of $40.5 million at March 31, 2013, which is included within other noncurrent liabilities on our condensed consolidated balance sheets. This amount was calculated using the $105.5 million cost we estimate we would incur to retire these facilities, discounted based on our risk-adjusted cost of borrowing and the estimated timing of remediation.
The calculation of the liability for an asset retirement obligation requires the use of significant estimates, including those related to the length of time before the assets will be retired, cost inflation over the assumed life of the assets, actual remediation activities to be required, and the rate at which such obligations should be discounted. Future changes in these estimates could result in material changes in the value of the recorded liability. In addition, future changes in laws or regulations could require us to record additional asset retirement obligations.
Our other segments may also be subject to removal and restoration costs upon retirement of their facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and other facilities would become completely obsolete and require decommissioning. Accordingly, we have not recorded a liability or corresponding asset, as both the amount and timing of such potential future costs are indeterminable.
Purchase and sale commitments
We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We account for derivatives at fair value with the exception of commitments which have been designated as normal purchases and sales for which we do not record assets or liabilities related to these agreements until the product is purchased or sold. At March 31, 2013, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
16

 
$
1,432

Fixed price sales
91

 
$
8,792

Floating price purchases
20,067

 
$
1,941,213

Floating price sales
20,938

 
$
2,026,195


Certain of the commitments shown in the table above relate to agreements to purchase product from a counterparty and to sell a similar amount of product (in a different location) to the same counterparty. Many of the commitments shown in the table above are cancellable by either party, as long as notice is given within the time frame specified in the agreement (generally 30 to 120 days).
Our SemGas segment has a take or pay contractual obligation related to the fractionation of natural gas liquids. This obligation began in July 2011 and continues through June 2015. At March 31, 2013, approximately $26 thousand was due under the contract and the amount of future obligation is approximately $2.5 million. SemGas also enters into contracts under which we are responsible for marketing the majority of the gas and natural gas liquids produced by the counterparties to the agreements. The majority of SemGas’ revenues were generated from such contracts.
During the first quarter 2012, SemGas committed to purchasing equipment related to a 125 mmcf per day processing facility. At March 31, 2013, the future obligation associated with this purchase is $1.7 million.
See Note 3 for commitments related to Glass Mountain Pipeline LLC and the White Cliffs expansion project.
Equity
EQUITY
EQUITY
Unaudited condensed consolidated statement of changes in owners’ equity
The following table shows the changes in our consolidated owners’ equity accounts from December 31, 2012 to March 31, 2013 (in thousands):
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Owners’
Equity
Balance at December 31, 2012
$
420

 
$
1,039,189

 
$
(242
)
 
$
(145,674
)
 
$
(1,299
)
 
$
129,134

 
$
1,021,528

Net income

 

 

 
43,423

 

 
5,143

 
48,566

Other comprehensive income, net of income taxes

 

 

 

 
(5,058
)
 

 
(5,058
)
Distributions to noncontrolling interests

 

 

 

 

 
(3,624
)
 
(3,624
)
Rose Rock Midstream, L.P. equity issuance

 

 

 

 

 
57,886

 
57,886

Transfer of SemCrude Pipeline interest to Rose Rock*

 
56,800

 

 

 

 
(90,516
)
 
(33,716
)
Non-cash equity compensation

 
1,040

 

 

 

 
143

 
1,183

Issuance of common stock under compensation plans
1

 
(1
)
 

 

 

 

 

Repurchase of common stock

 

 
(371
)
 

 

 

 
(371
)
Balance at March 31, 2013
$
421

 
$
1,097,028

 
$
(613
)
 
$
(102,251
)
 
$
(6,357
)
 
$
98,166

 
$
1,086,394

* On January 13, 2013, we contributed a 33% interest in SemCrude Pipeline, L.L.C. to our consolidated subsidiary, Rose Rock. As this transaction was between entities under common control, the interest in SemCrude Pipeline, L.L.C. was recorded by Rose Rock based on SemGroup's book value. This amount represents the purchase price in excess of book value which was attributed to the noncontrolling interest owners of Rose Rock. The entry to additional paid-in capital has been recorded net of tax.
Accumulated other comprehensive loss
The following table presents the changes in the components of accumulated other comprehensive income (loss) from December 31, 2012 to March 31, 2013 (in thousands):
 
Currency
Translation
 
Employee
Benefit
Plans
 
Total
Balance, December 31, 2012
$
1,855

 
$
(3,154
)
 
$
(1,299
)
Currency translation adjustment
(5,104
)
 

 
(5,104
)
Changes related to benefit plans, net of income tax expense of $16

 
46

 
46

Balance, March 31, 2013
$
(3,249
)
 
$
(3,108
)
 
$
(6,357
)


There were no significant items reclassified out of accumulated other comprehensive loss to net income for the three months ended March 31, 2013.
Common stock
Upon emergence from bankruptcy, we issued 40,882,496 shares of common stock. The Plan of Reorganization specified that we were to issue an additional 517,500 shares of common stock in settlement of pre-petition claims. As of March 31, 2013, we have issued 225,393 shares of this stock and will issue the remainder as the process of resolving the claims progresses. The owners’ equity balances on the condensed consolidated balance sheets include the shares that are required to be issued in settlement of pre-petition claims. The shares of common stock reflected on the condensed consolidated balance sheet at March 31, 2013 are summarized below:
Shares issued on Emergence Date
40,882,496

Shares subsequently issued in settlement of pre-petition claims
225,393

Remaining shares required to be issued in settlement of pre-petition claims
292,107

Issuance of shares under employee and director compensation programs(*)
667,930

Shares issued upon exercise of warrants
15,742

Total shares
42,083,668

Par value per share
$
0.01

Common stock on March 31, 2013 balance sheet (in thousands)
$
421

(*) These shares include 84,348 shares which vested during the three months ended March 31, 2013. Of these vested shares, recipients sold back to the Company 8,591 shares to satisfy tax withholding obligations which are being recognized at cost as treasury stock on the condensed consolidated balance sheet.
In addition to the shares in the table above, there are shares of unvested restricted stock outstanding at March 31, 2013. The par value of these shares has not yet been reflected in common stock on the condensed consolidated balance sheet, as these shares have not yet vested. There are also shares of restricted stock that were returned to treasury upon forfeiture. The par value of these shares is not reflected in the condensed consolidated balance sheet, as no accounting recognition is given to forfeited shares.
The common stock includes Class A and Class B stock. Class A stock is eligible to be listed on an exchange, whereas Class B stock is not. Any share of Class B stock may be converted to Class A at the election of the holder. Both classes of stock have full voting rights. Both classes of stock have a par value of $0.01 per share. The total number of shares authorized for issuance is 90,000,000 shares of Class A stock and 10,000,000 shares of Class B stock.
Equity-based compensation
We have reserved common stock for issuance pursuant to director and employee compensation programs. At March 31, 2013, there were approximately 550,000 unvested shares that have been granted under these programs. The par value of these shares is not reflected in common stock on the condensed consolidated balance sheet, as these shares have not yet vested. Shares of restricted stock awards that were forfeited were returned to treasury. The par value of these shares is not reflected in the condensed consolidated balance sheet, as no accounting recognition is given to forfeited shares. For certain of the awards, the number of shares that will vest is contingent upon our achievement of certain specified targets. If we meet the specified maximum targets, approximately 141,000 additional shares could vest.
Warrants
Upon emergence from bankruptcy, we issued 1,634,210 warrants. The Plan of Reorganization specified that we were to issue an additional 544,737 warrants in settlement of the pre-petition claims. As of March 31, 2013, we have issued 237,242 of the warrants and will issue the remainder as the process of resolving the claims progresses. The warrants are traded on the New York Stock Exchange under the ticker symbol SEMGWS. We classify the warrant fair value as a Level 1 measurement. The warrants reflected on the condensed consolidated balance sheet at March 31, 2013 are summarized below:
Warrants issued on Emergence Date
1,634,210

Warrants subsequently issued in settlement of pre-petition claims
237,242

Remaining warrants to be issued in settlement of pre-petition claims
307,495

Warrants exercised (*)
(45,348
)
Total warrants at March 31, 2013
2,133,599

Fair value per warrant at March 31, 2013
$
27.49

Warrant value included within other noncurrent liabilities on March 31, 2013 consolidated balance sheet
$
58,652,637

 
(*) During the three months ended March 31, 2013, certain warrant holders exercised a total of 41 warrants resulting in the issuance of 35 Class A shares.
Each warrant entitles the holder to purchase one share of common stock for $25 at any time before the November 30, 2014 expiration date. Upon exercise, a holder may elect a cashless exercise, whereby the number of shares to be issued to the holder is reduced, in lieu of a cash payment. The closing price of our common stock was $51.72 per share on March 28, 2013. In the event of a change in control of the Company, the holders of the warrants would have the right to sell the warrants to us, and we would have the right to purchase the warrants from the holders. In either case, the price to be paid for the warrants would be calculated using a standard pricing model with inputs specified in the warrant agreement.
Dividend
On May 8, 2013, we declared a dividend of $0.19 per share payable on May 30, 2013 to shareholders of record on May 20, 2013.
Earnings Per Share
EARNINGS PER SHARE
EARNINGS PER SHARE
The following summarizes the calculation of basic earnings per share for the three months ended March 31, 2013 and March 31, 2012 (in thousands, except per share amounts):

 
Three Months Ended March 31, 2013
 
Three Months Ended March 31, 2012
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Income
$
48,534

 
$
32

 
$
48,566

 
$
1,858

 
$
252

 
$
2,110

less: Income attributable to noncontrolling interests
5,143

 

 
5,143

 
3,483

 

 
3,483

Numerator
$
43,391

 
$
32

 
$
43,423

 
$
(1,625
)
 
$
252

 
$
(1,373
)
Common stock issued and to be issued pursuant to Plan of Reorganization
41,400

 
41,400

 
41,400

 
41,400

 
41,400

 
41,400

Weighted average common stock outstanding issued under compensation plans
670

 
670

 
670

 
507

 
507

 
507

Denominator
42,070

 
42,070

 
42,070

 
41,907

 
41,907

 
41,907

Basic earnings (loss) per share
$
1.03

 
$

 
$
1.03

 
$
(0.04
)
 
$
0.01

 
$
(0.03
)

The following summarizes the calculation of diluted earnings per share for the three months ended March 31, 2013 and March 31, 2012 (in thousands, except per share amounts):

 
Three Months Ended March 31, 2013
 
Three Months Ended March 31, 2012
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Income
$
48,534

 
$
32

 
$
48,566

 
$
1,858

 
$
252

 
$
2,110

less: Income attributable to noncontrolling interests
5,143

 

 
5,143

 
3,483

 

 
3,483

Numerator
$
43,391

 
$
32

 
$
43,423

 
$
(1,625
)
 
$
252

 
$
(1,373
)
Common stock issued and to be issued pursuant to Plan of Reorganization
41,400

 
41,400

 
41,400

 
41,400

 
41,400

 
41,400

Weighted average common stock outstanding issued under compensation plans
670

 
670

 
670

 
507

 
507

 
507

Effect of dilutive securities
276

 
276

 
276

 
148

 
148

 
148

Denominator
42,346

 
42,346

 
42,346

 
42,055

 
42,055

 
42,055

Diluted earnings (loss) per share
$
1.02

 
$

 
$
1.03

 
$
(0.04
)
 
$
0.01

 
$
(0.03
)

During the three months ended March 31, 2013 and March 31, 2012, we recorded expenses of $25.8 million and $4.0 million, respectively, related to the change in fair value of the warrants. Because of this, the warrants would have been antidilutive and, therefore, were not included in the computation of diluted earnings per share.
Supplemental Cash Flow Information
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes the changes in the components of operating assets and liabilities shown on our condensed consolidated statements of cash flows (in thousands):

 
Three Months Ended March 31,
 
2013
 
2012
Decrease (increase) in restricted cash
$
25

 
$
3,058

Decrease (increase) in accounts receivable
(5,014
)
 
(87,837
)
Decrease (increase) in receivable from affiliates
1,070

 
1,178

Decrease (increase) in inventories
(3,153
)
 
2,451

Decrease (increase) in derivatives and margin deposits
764

 
316

Decrease (increase) in other current assets
4,333

 
7,664

Decrease (increase) in other assets
14

 
979

Increase (decrease) in accounts payable and accrued liabilities
(2,756
)
 
59,887

Increase (decrease) in payable to affiliates

 
(6,650
)
Increase (decrease) in payables to pre-petition creditors
(16
)
 
(4,112
)
Increase (decrease) in other noncurrent liabilities
(578
)
 
2,140

 
$
(5,311
)
 
$
(20,926
)
  

Other supplemental disclosures
We recorded a $90.5 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $56.8 million (net of tax impact of $33.7 million). This non-cash entry represents the portion of the proceeds in excess of historical cost which were attributed to Rose Rock's third-party unitholders related to Rose Rock's purchase of a 33% interest in SemCrude Pipeline, L.L.C. (Note 2).

We paid cash interest of $0.6 million and $1.7 million for the three months ended March 31, 2013 and 2012, respectively.

We paid cash for income taxes (net of refunds received) of $1.3 million and $5.4 million for the three months ended March 31, 2013 and 2012, respectively.

We incurred liabilities for construction work in process that had not been paid of $5.8 million and $2.9 million as of March 31, 2013 and 2012, respectively. Such amounts are not included in capital expenditures on the consolidated statements of cash flows.
Related Party Transactions
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
NGL Energy
As described in Note 3, we own interests in NGL Energy, which we account for under the equity method.
During the three months ended March 31, 2013 and 2012, we generated the following transactions with NGL Energy (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Revenues
$
15,865

 
$
14,112

Purchases
$

 
$
17,887

Reimbursements from NGL Energy for transition services
$
90

 
$
367


White Cliffs
As described in Note 3, we account for our ownership interest in White Cliffs under the equity method. During the three months ended March 31, 2013 and 2012, we generated storage revenue from White Cliffs of approximately $0.6 million and $0.6 million, respectively.
Glass Mountain
As described in Note 3, in May 2012, we formed a joint venture, Glass Mountain, to construct, maintain and operate a 210-mile crude oil pipeline system originating in Alva and Arnett, Oklahoma and terminating at Cushing, OK. In connection with the pipeline project, Glass Mountain entered into a Pipeline Construction Management Agreement with Glass Mountain Holding, LLC ("GMH"), a wholly-owned subsidiary of SemGroup. The Pipeline Construction Management Agreement appoints GMH as construction manager of the pipeline project for which GMH will receive $0.9 million prorated over the period of construction. For the three months ended March 31, 2013, Glass Mountain paid $0.1 million to GMH pursuant to this agreement, the remaining balance of $0.4 million will be received by GMH over the period of construction.
Legal services
The law firm of Conner & Winters, LLP, of which Mark D. Berman is a partner, performs legal services for us. Mr. Berman is the spouse of Candice L. Cheeseman, General Counsel and Secretary. Mr. Berman does not perform any legal services for us. SemGroup paid $0.5 million and $0.3 million in legal fees and related expenses to this law firm during the three months ended March 31, 2013 and 2012, respectively (of which $36.0 thousand was paid by White Cliffs during the three months ended March 31, 2012).
Subsequent Events Subsequent Events (Notes)
Subsequent Events [Text Block]
14.    SUBSEQUENT EVENTS

On April 30, 2013, we executed a definitive agreement to acquire the equity interest of Mid-America Midstream Gas Services, L.L.C., a wholly owned subsidiary of Chesapeake Energy Corporation (NYSE: CHK)("Chesapeake"), which is the owner of gas gathering and processing assets in the Mississippi Lime play for $300 million in cash. The transaction is expected to close by the third quarter of 2013 and is subject to certain regulatory approvals and closing conditions. The transaction will be funded by the our existing committed credit facilities. Highlights of the acquisition include the following:

200 miles of gathering pipeline;
Rose Valley I plant - A 200 mmcfd (million cubic feet per day) cryogenic processing plant, expected to be in operation in in the first quarter of 2014;
Rose Valley II plant - A 200 mmcfd cryogenic processing plant, expected to be in operation in in the first quarter of 2016;
Approximately 540,000 net acre dedication in the core of the Mississippi Lime play, supported by a recently announced joint venture between Chesapeake and Sinopec International Petroleum Exploration and Production Corporation; and
A 20-year, 100% fee based, gas gathering and processing agreement by Chesapeake.

Rose Valley plants I and II will require approximately $125 million of additional capital expenditures for completion as well as additional capital related to future well connections.
Overview (Policies)
3 Months Ended
Mar. 31, 2013
Overview [Abstract]
 
Basis of presentation
Basis of presentationThe accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission. These financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company and the results of its operations and its cash flows. The accompanying condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2012 is derived from audited financial statements.Our condensed consolidated financial statements include the accounts of our controlled subsidiaries. All significant transactions between our consolidated subsidiaries have been eliminated.The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.Pursuant to the rules and regulations of the Securities and Exchange Commission, the accompanying condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2012, which are included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission.Certain reclassifications have been made to conform previously reported balances to the current presentation, including the reclassification of prior periods to reflect the SemStream segment's Arizona operations as discontinued operations. Our significant accounting policies are consistent with those described in our Annual Report on Form 10-K for the year ended December 31, 2012. 
Recent accounting pronouncements
Recent accounting pronouncements
On January 31, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which clarifies the scope of the offsetting disclosure requirements in ASU 2011-11, "Disclosures About Offsetting Assets and Liabilities." Under ASU 2013-01, the disclosure requirements apply to derivative instruments accounted for in accordance with Accounting Standards Codification ("ASC") 815, "Derivatives and Hedging," including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending arrangements that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective application is required for all comparative periods presented. We adopted this guidance in the first quarter of 2013. The impact of adoption was not material.
On February 5, 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI"). The ASU is intended to help entities improve the transparency of changes in other comprehensive income ("OCI") and items reclassified out of AOCI in their financial statements. It does not amend any existing requirements for reporting net income or OCI in the financial statements. We adopted this guidance in the first quarter of 2013. The impact of adoption was not material.
On February 28, 2013, the FASB issued ASU 2013-04, "Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)." The ASU requires entities to “measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following:
The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors; and
Any additional amount the reporting entity expects to pay on behalf of its co-obligors.”
Required disclosures include a description of the joint-and-several arrangement and the total outstanding amount of the obligation for all joint parties. The ASU permits entities to aggregate disclosures (as opposed to providing separate disclosures for each joint-and-several obligation). These disclosure requirements are incremental to the existing related-party disclosure requirements in ASC 850, "Related Party Disclosures." The ASU is effective for public entities for all prior periods in fiscal years beginning on or after December 15, 2013, and interim reporting periods within those years. The Company will adopt this guidance in the first quarter of 2014. The impact is not expected to be material.
On March 4, 2013, the FASB issued ASU 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity - a consensus of the FASB Emerging Issues Task Force”, which indicates that the entire amount of a cumulative translation adjustment ("CTA") related to an entity's investment in a foreign entity should be released when there has been a:
Sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity;
Loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated); or
Step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity).
The ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. For public entities, this ASU is effective for fiscal years beginning on or after December 15, 2013, and interim periods within those years. The Company will adopt this guidance in the first quarter of 2014. The impact is not expected to be material.
Financial Instruments Financial Instruments (Policies)
Fair Value of Financial Instruments, Policy [Policy Text Block]
“Level 1” measurements use as inputs unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange. These also include common stock warrants (Note 10) which are traded on the New York Stock Exchange.
“Level 2” measurements use as inputs market observable and corroborated prices for similar commodity derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter (“OTC”) traded forward contracts and swaps.
“Level 3” measurements use as inputs information from a pricing service and internal valuation models incorporating observable and unobservable market data. These include commodity derivatives, such as forwards and swaps for which there is not a highly liquid market, and therefore are not included in Level 2.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment, and may affect the valuation of assets and liabilities and their placement within the fair value levels.
Rose Rock Midstream, L.P. (Tables)
Rose Rock intends to pay a minimum quarterly distribution of $0.3625 per unit, to the extent it has sufficient available cash, as defined in Rose Rock’s partnership agreement. Rose Rock’s partnership agreement requires Rose Rock to distribute all of its available cash each quarter in the following manner:
 
Total Quarterly Distributions
Per Unit Target Amount
 
Marginal Percentage
Interest in Distributions
 
Unitholders
 
General
Partner
 
Incentive
Distribution
Rights
Minimum Quarterly Distributions
 
 
 
 
 
 
$
0.362500

 
98.0
%
 
2.0
%
 

First Target Distribution
above
 
$
0.362500

 
up to
 
$
0.416875

 
98.0
%
 
2.0
%
 

Second Target Distribution
above
 
$
0.416875

 
up to
 
$
0.453125

 
85.0
%
 
2.0
%
 
13.0
%
Third Target Distribution
above
 
$
0.453125

 
up to
 
$
0.543750

 
75.0
%
 
2.0
%
 
23.0
%
Thereafter
 
 
 
 
above
 
$
0.543750

 
50.0
%
 
2.0
%
 
48.0
%
 
The following table shows the distributions paid or declared for the three months ended March 31, 2013 and 2012 (in thousands, except for per unit amounts):
 
 
Record Date
Payment Date
Distribution
Per Unit
 
Distributions Paid/To Be Paid
Quarter Ended
 
SemGroup
Noncontrolling
Interest
Common Units
Total
Distributions
 
General
Partner
Incentive
Distributions
Common
Units
Subordinated
Units
December 31, 2011
*
February 3, 2012
February 13, 2012
$
0.0670

$
23

$

$
93

$
561

$
470

$
1,147

March 31, 2012
 
May 7, 2012
May 15, 2012
$
0.3725

  
$
128

$

$
517

$
3,125

$
2,607

$
6,377

December 31, 2012
 
February 4, 2013
February 14, 2013
$
0.4025

 
$
167

$

$
1,163

$
3,377

$
3,624

$
8,331

March 31, 2013
**
May 6, 2013
May 15, 2013
$
0.4300

**
$
179

$
41

$
1,242

$
3,607

$
3,872

$
8,941

*Minimum quarterly distribution for quarter ended December 31, 2011 was prorated for the period beginning immediately after the closing of Rose Rock’s IPO, December 14, 2011 through December 31, 2011.
**Expected payment date and amounts for distributions related to the quarter ended March 31, 2013.
Certain summarized balance sheet information of Rose Rock is shown below (in thousands):
 
(unaudited)
 
 
 
March 31,
2013
 
December 31,
2012
Cash
$
2,369

 
$
108

Other current assets
257,415

 
250,509

Property, plant and equipment, net
295,384

 
291,530

Equity method investment
54,459

 

Other noncurrent assets, net
3,992

 
2,579

Total assets
$
613,619

 
$
544,726

Current liabilities
$
234,266

 
$
231,843

Long-term debt
152,556

 
4,562

Partners’ capital attributable to SemGroup
128,631

 
179,187

Partners’ capital attributable to noncontrolling interests
98,166

 
129,134

Total liabilities and partners’ capital
$
613,619

 
$
544,726

Certain summarized income statement information of Rose Rock for the three months ended March 31, 2013 and March 31, 2012 is shown below (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Revenue
$
171,232

 
$
179,715

Cost of products sold
$
148,451

 
$
160,508

Operating, general and administrative expenses
$
8,979

 
$
7,930

Depreciation and amortization expense
$
3,507

 
$
2,967

Earnings from equity method investment
$
3,453

 
$

Net income
$
11,994

 
$
7,758

Investments In Non-Consolidated Subsidiaries (Tables)
Certain summarized income statement information of White Cliffs for the three months ended March 31, 2013 and March 31, 2012 is shown below (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Revenue
$
30,673

 
$
22,656

Operating, general and administrative expenses
$
5,179

 
$
3,885

Depreciation and amortization expense
$
4,715

 
$
4,983

Net income
$
20,779

 
$
13,788