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1. 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.
On July 22, 2008 (the "Petition Date"), SemGroup, L.P. and certain subsidiaries filed petitions for reorganization (the "Bankruptcy Petition") under Chapter 11 of the U.S. Bankruptcy Code. Also on July 22, 2008, SemGroup, L.P.'s Canadian subsidiaries filed applications for creditor protection in Canada under the Companies' Creditors Arrangement Act (the "CCAA"). Later during 2008, certain other U.S. subsidiaries filed petitions for reorganization.
During the reorganization process, SemGroup, L.P. filed a Plan of Reorganization with the court, which was confirmed on October 28, 2009. 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 emerged from bankruptcy on November 30, 2009 (the "Emergence Date").
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. Certain reclassifications have been made to conform previously reported balances to the current presentation.
The accompanying condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2011 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, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
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, 2011, which are included in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission.
Recent accounting pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS")," which creates common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. We adopted this guidance on January 1, 2012. The impact of adoption was not material.
During June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income". This ASU is designed to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The amendments require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which deferred certain presentation requirements in ASU No. 2011-05 for items reclassified out of accumulated other comprehensive income. We adopted this guidance on January 1, 2012. The impact of adoption was not material.
During September 2011, the FASB issued ASU No. 2011-08, "Testing Goodwill for Impairment". This ASU is designed to simplify how entities test goodwill for impairment. Under the new standard, an entity may first assess qualitative factors to determine whether it is more likely than not that the fair value of an asset group is less than the carrying amount, for the purpose of determining whether it is necessary to estimate the fair value of the asset group to which the goodwill relates. We adopted this guidance on January 1, 2012 and will test goodwill for impairment on October 1st in accordance with SemGroup Corporation's policy.
|
|||
2. ROSE ROCK MIDSTREAM, L.P.
On December 14, 2011, our subsidiary Rose Rock Midstream, L.P. ("Rose Rock") completed an initial public offering ("IPO") of 7 million common units representing limited partner interests. We control the operations of Rose Rock through our ownership of the general partner interest, and we continue to consolidate Rose Rock. Our ownership interest in Rose Rock as of March 31, 2012 (unaudited), and December 31, 2011 is shown in the table below:
|
General partner interest |
2 | % | ||
|
Limited partner interest (a) |
57 | % | ||
|
Total ownership interest |
59 | % | ||
|
|
|
| (a) | Represents 1.4 million common units and 8.4 million subordinated units |
Outside ownership interests in Rose Rock are reflected in "noncontrolling interests in consolidated subsidiaries" on our condensed consolidated balance sheets at March 31, 2012 and December 31, 2011. 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 statement of operations and comprehensive income for the three months ended March 31, 2012.
We receive distributions from Rose Rock on our common and subordinated units and our 2 percent 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:
| Marginal Percentage Interest in Distributions |
||||||||||||||||||||||||||||
| Total Quarterly Distributions Per Unit Target Amount |
Unitholders | General Partner |
Incentive Distribution Rights |
|||||||||||||||||||||||||
|
Minimum Quarterly Distributions |
$ | 0.3625 | 98.0 | % | 2.0 | % | — | |||||||||||||||||||||
|
First Target Distribution |
above | $ | 0.3625 | 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 | $ | 0.54375 | 75.0 | % | 2.0 | % | 23.0 | % | ||||||||||||||||
|
Thereafter |
above | $ | 0.54375 | 50.0 | % | 2.0 | % | 48.0 | % | |||||||||||||||||||
On February 13, 2012, Rose Rock paid its first distribution to all unitholders of record as of February 3, 2012. The minimum quarterly distribution was prorated for the period beginning immediately after the closing of Rose Rock's initial public offering, December 14, 2011 through December 31, 2011. The following table shows the distributions paid during the three months ended March 31, 2012 (in thousands, except for per unit amounts):
|
Distribution per unit |
$ | 0.0670 | ||
|
General partner distributions |
$ | 23 | ||
|
Incentive distributions |
— | |||
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|
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Distributions to general partner |
23 | |||
|
Limited partner distributions to SemGroup |
||||
|
Common units |
93 | |||
|
Subordinated units |
561 | |||
|
Limited partner distributions to noncontrolling interests |
470 | |||
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Total distributions paid |
$ | 1,147 | ||
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On April 24, 2012, Rose Rock declared a distribution of $0.3725 per unit to be paid on May 15, 2012 to all unitholders of record as of May 7, 2012. The following table shows the distributions declared (in thousands, except for per unit amounts):
|
Distribution per unit |
$ | 0.3725 | ||
|
General partner distributions |
$ | 128 | ||
|
Incentive distributions |
— | |||
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|
|
|||
|
Distributions to general partner |
128 | |||
|
Limited partner distributions to SemGroup |
||||
|
Common units |
518 | |||
|
Subordinated units |
3,124 | |||
|
Limited partner distributions to noncontrolling interests |
2,608 | |||
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|
Total distributions declared |
$ | 6,378 | ||
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|
Certain summarized balance sheet information of Rose Rock is shown below (in thousands):
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
|
Cash |
$ | 5,231 | $ | 9,709 | ||||
|
Other current assets |
238,830 | 156,873 | ||||||
|
Property, plant and equipment |
277,392 | 276,246 | ||||||
|
Other noncurrent assets |
2,642 | 2,666 | ||||||
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|
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Total assets |
$ | 524,095 | $ | 445,494 | ||||
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Current liabilities |
$ | 212,489 | $ | 140,553 | ||||
|
Long-term debt |
80 | 87 | ||||||
|
Partners' capital attributable to SemGroup |
181,231 | 177,323 | ||||||
|
Partners' capital attributable to noncontrolling interests |
130,295 | 127,531 | ||||||
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|
Total liabilties and partners' capital |
$ | 524,095 | $ | 445,494 | ||||
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Certain summarized income statement information of Rose Rock for the three months ended March 31, 2012 and March 31, 2011 is shown below (in thousands):
| Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
|||||||
|
Revenue |
$ | 179,715 | $ | 83,791 | ||||
|
Cost of products sold, operating, general and administrative expenses |
168,438 | 73,021 | ||||||
|
Depreciation and amortization expense |
2,967 | 2,683 | ||||||
|
Net income |
7,758 | 7,604 | ||||||
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|||
3. INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES
White Cliffs
We account for our 51% ownership of White Cliffs Pipeline, L.L.C. ("White Cliffs") under the equity method, as the other owners have substantive rights to participate in its management. Certain summarized balance sheet information of White Cliffs is shown below (in thousands):
| March 31, 2012 |
December 31, 2011 |
|||||||
|
Current assets |
$ | 13,537 | $ | 11,653 | ||||
|
Property, plant and equipment, net |
219,211 | 222,473 | ||||||
|
Goodwill |
17,000 | 17,000 | ||||||
|
Other intangible assets, net |
31,397 | 33,073 | ||||||
|
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|
|
|
|||||
|
Total assets |
$ | 281,145 | $ | 284,199 | ||||
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|
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|
Current liabilities |
$ | 3,005 | $ | 3,259 | ||||
|
Members' equity |
278,140 | 280,940 | ||||||
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|
|
|
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|
Total liabilities and members' equity |
$ | 281,145 | $ | 284,199 | ||||
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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.
Certain summarized income statement information of White Cliffs for the three months ended March 31, 2012 and March 31, 2011 is shown below (in thousands):
| Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
|||||||
|
Revenue |
$ | 22,656 | $ | 13,493 | ||||
|
Operating, general and administrative expenses |
3,885 | 3,211 | ||||||
|
Depreciation and amortization expense |
4,983 | 5,205 | ||||||
|
Net income |
13,788 | 5,077 | ||||||
The equity in earnings of White Cliffs for the three months ended March 31, 2012 and March 31, 2011 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 $0.9 million and $1.1 million of such general and administrative expense for the three months ended March 31, 2012 and March 31, 2011, respectively.
NGL Energy
On November 1, 2011, we acquired 8,932,031 common units representing limited partner interests in NGL Energy Partners L.P. ("NGL Energy"), which represents approximately 32.2% of the total 27,715,599 limited partner units of NGL Energy outstanding at December 31, 2011 (the most recent information publicly available), and a 7.5% interest in the general partner of NGL Energy.
At March 31, 2012, the book value of our 8,932,031 common unit investment in NGL Energy was $184.1 million, based on a March 30, 2012 closing price of $20.61 per common unit. This does not reflect our 7.5% interest in the general partner of NGL Energy and does not include any valuation adjustment related to our agreement to waive our distribution rights on approximately 3.9 million of the common units until the third quarter 2012.
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.
Certain unaudited summarized balance sheet information of NGL Energy is shown below (in thousands):
| December 31, | ||||
| 2011 | ||||
|
Current assets |
$ | 332,144 | ||
|
Property plant and equipment, net |
227,893 | |||
|
Goodwill |
92,930 | |||
|
Intangible and other assets, net |
102,238 | |||
|
|
|
|||
|
Total assets |
$ | 755,205 | ||
|
|
|
|||
|
Current liabilities |
$ | 269,073 | ||
|
Long-term debt |
117,590 | |||
|
Other noncurrent liabilities |
222 | |||
|
Partners' equity |
368,320 | |||
|
|
|
|||
|
Total liabilities and partners' equity |
$ | 755,205 | ||
|
|
|
|||
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 $0.9 million equity in earnings of NGL Energy in our condensed consolidated statement of operations and comprehensive income for the three months ended March 31, 2012, which relates to the earnings of NGL Energy for the three months ended December 31, 2011, prorated for the period of time we held our ownership interest in NGL Energy. Certain unaudited summarized income statement information of NGL Energy for the three months ended December 31, 2011 is shown below (in thousands):
| Three Months | ||||
| Ended | ||||
| December 31, | ||||
| 2011 | ||||
|
Revenue |
$ | 470,649 | ||
|
Operating, general and administrative expenses |
456,606 | |||
|
Depreciation and amortization expense |
5,402 | |||
|
Net income |
6,090 | |||
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|||
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. 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, 2012 | ||||||||||||||||||||||||||||||||
| Crude | SemStream | SemCAMS | SemGas | SemLogistics | SemMexico | Corporate and Other |
Consolidated | |||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
|
Revenues: |
||||||||||||||||||||||||||||||||
|
External |
$ | 179,715 | $ | 5,654 | $ | 35,165 | $ | 30,710 | $ | 3,784 | $ | 62,651 | $ | — | $ | 317,679 | ||||||||||||||||
|
Intersegment |
— | — | — | 2,730 | — | — | $ | (2,730 | ) | — | ||||||||||||||||||||||
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Total revenues |
179,715 | 5,654 | 35,165 | 33,440 | 3,784 | 62,651 | (2,730 | ) | 317,679 | |||||||||||||||||||||||
|
Expenses: |
||||||||||||||||||||||||||||||||
|
Costs of products sold, exclusive of depreciation and amortization shown below |
160,508 | 4,230 | 119 | 26,549 | — | 57,041 | (2,730 | ) | 245,717 | |||||||||||||||||||||||
|
Operating |
5,454 | 538 | 26,236 | 2,853 | 1,454 | 2,000 | — | 38,535 | ||||||||||||||||||||||||
|
General and administrative |
2,718 | 516 | 4,418 | 1,843 | 1,811 | 2,688 | 6,300 | 20,294 | ||||||||||||||||||||||||
|
Depreciation and amortization |
2,967 | 166 | 2,573 | 1,630 | 2,318 | 1,561 | 677 | 11,892 | ||||||||||||||||||||||||
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|
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Total expenses |
171,647 | 5,450 | 33,346 | 32,875 | 5,583 | 63,290 | 4,247 | 316,438 | ||||||||||||||||||||||||
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|
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|
Earnings from equity method investments |
6,571 | 927 | — | — | — | — | — | 7,498 | ||||||||||||||||||||||||
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|
|||||||||||||||||
|
Operating income (loss) |
14,639 | 1,131 | 1,819 | 565 | (1,799 | ) | (639 | ) | (6,977 | ) | 8,739 | |||||||||||||||||||||
|
Other expenses (income), net |
(237 | ) | 48 | 5,203 | 532 | 1,279 | (110 | ) | 911 | 7,626 | ||||||||||||||||||||||
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|
Income (loss) from continuing operations before income taxes |
$ | 14,876 | $ | 1,083 | $ | (3,384 | ) | $ | 33 | $ | (3,078 | ) | $ | (529 | ) | $ | (7,888 | ) | $ | 1,113 | ||||||||||||
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|
Total assets at March 31, 2012 (excluding intersegment receivables) |
$ | 663,109 | $ | 202,943 | $ | 255,868 | $ | 103,075 | $ | 183,940 | $ | 99,099 | $ | 70,273 | $ | 1,578,307 | ||||||||||||||||
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| Three Months Ended March 31, 2011 | ||||||||||||||||||||||||||||||||
| Crude | SemStream | SemCAMS | SemGas | SemLogistics | SemMexico | Corporate and Other |
Consolidated | |||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
|
Revenues: |
||||||||||||||||||||||||||||||||
|
External |
$ | 83,005 | $ | 223,023 | $ | 34,757 | $ | 12,701 | $ | 7,981 | $ | 44,730 | $ | 757 | $ | 406,954 | ||||||||||||||||
|
Intersegment |
786 | 12,917 | — | 8,270 | — | — | (21,973 | ) | — | |||||||||||||||||||||||
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Total revenues |
83,791 | 235,940 | 34,757 | 20,971 | 7,981 | 44,730 | (21,216 | ) | 406,954 | |||||||||||||||||||||||
|
Expenses: |
||||||||||||||||||||||||||||||||
|
Costs of products sold, exclusive of depreciation and amortization shown below |
66,000 | 225,612 | 10 | 14,191 | — | 39,638 | (21,452 | ) | 323,999 | |||||||||||||||||||||||
|
Operating |
4,662 | 2,784 | 22,904 | 1,840 | 1,825 | 2,133 | 53 | 36,201 | ||||||||||||||||||||||||
|
General and administrative |
2,357 | 2,727 | 6,911 | 1,827 | 1,832 | 2,795 | 3,133 | 21,582 | ||||||||||||||||||||||||
|
Depreciation and amortization |
2,683 | 1,688 | 2,556 | 1,429 | 2,280 | 1,632 | 734 | 13,002 | ||||||||||||||||||||||||
|
Loss (gain) on disposal or impairment of long-lived assets, net |
2 | (3 | ) | — | — | — | (63 | ) | — | (64 | ) | |||||||||||||||||||||
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Total expenses |
75,704 | 232,808 | 32,381 | 19,287 | 5,937 | 46,135 | (17,532 | ) | 394,720 | |||||||||||||||||||||||
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|
Earnings from equity method investments |
2,064 | — | — | — | — | — | — | 2,064 | ||||||||||||||||||||||||
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|
Operating income (loss) |
10,151 | 3,132 | 2,376 | 1,684 | 2,044 | (1,405 | ) | (3,684 | ) | 14,298 | ||||||||||||||||||||||
|
Other expenses (income), net |
(31 | ) | 3,244 | 6,237 | 386 | 166 | (292 | ) | 4,889 | 14,599 | ||||||||||||||||||||||
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|
Income (loss) from continuing operations before income taxes |
$ | 10,182 | $ | (112 | ) | $ | (3,861 | ) | $ | 1,298 | $ | 1,878 | $ | (1,113 | ) | $ | (8,573 | ) | $ | (301 | ) | |||||||||||
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5. INVENTORIES
Inventories consist of the following (in thousands):
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
|
Natural gas and natural gas liquids |
$ | 1,699 | $ | 570 | ||||
|
Crude oil |
16,910 | 21,803 | ||||||
|
Asphalt and other |
13,034 | 10,688 | ||||||
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|||||
| $ | 31,643 | $ | 33,061 | |||||
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6. 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, 2012 and December 31, 2011 (in thousands):
| March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting* | Total | Level 1 | Level 2 | Level 3 | Netting* | Total | |||||||||||||||||||||||||||||||
|
Assets: |
||||||||||||||||||||||||||||||||||||||||
|
Commodity derivatives |
$ | 24 | $ | — | $ | — | $ | (8 | ) | $ | 16 | $ | 393 | $ | — | $ | — | $ | (231 | ) | $ | 162 | ||||||||||||||||||
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|||||||||||||||||||||
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Total assets |
24 | — | — | (8 | ) | 16 | 393 | — | — | (231 | ) | 162 | ||||||||||||||||||||||||||||
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Liabilities: |
||||||||||||||||||||||||||||||||||||||||
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Commodity derivatives |
$ | 8 | $ | — | $ | — | $ | (8 | ) | $ | — | $ | 231 | $ | — | $ | — | $ | (231 | ) | $ | — | ||||||||||||||||||
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Warrants |
16,168 | — | — | — | 16,168 | 12,180 | — | — | — | 12,180 | ||||||||||||||||||||||||||||||
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Interest rate swaps |
— | — | — | — | — | — | 358 | — | — | 358 | ||||||||||||||||||||||||||||||
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Total liabilities |
16,176 | — | — | (8 | ) | 16,168 | 12,411 | 358 | — | (231 | ) | 12,538 | ||||||||||||||||||||||||||||
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Net liabilities at fair value |
$ | (16,152 | ) | $ | — | $ | — | $ | — | $ | (16,152 | ) | $ | (12,018 | ) | $ | (358 | ) | $ | — | $ | — | $ | (12,376 | ) | |||||||||||||||
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| * | 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 were obtained using 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), beginning in September 2011, when the warrants began to be 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 were obtained using 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 above. Level 3 measurements also included common stock warrants until September 2011, when the warrants began to be traded on the New York Stock Exchange. Prior to that point, we used a Black-Scholes pricing model to estimate the fair value of the warrants.
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.
There were no financial assets or liabilities classified as Level 3 during the three months ended March 31, 2012. The following table summarizes changes in the fair value of our net financial assets (liabilities) classified as Level 3 in the fair value hierarchy (in thousands):
| Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
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| Commodity Derivatives |
Total | Warrants | Commodity Derivatives |
Total | ||||||||||||||||
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Net liabilities - beginning balance |
$ | — | $ | — | $ | (17,192 | ) | $ | (547 | ) | $ | (17,739 | ) | |||||||
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Transfers out of Level 3(*) |
— | — | — | (178 | ) | (178 | ) | |||||||||||||
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Total gain (loss) (realized and unrealized) included in |
— | — | (1,220 | ) | (694 | ) | (1,914 | ) | ||||||||||||
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Settlements |
— | — | — | (373 | ) | (373 | ) | |||||||||||||
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Net liabilities - ending balance |
$ | — | $ | — | $ | (18,412 | ) | $ | (1,792 | ) | $ | (20,204 | ) | |||||||
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Amount of total gain (loss) included in earnings for the period attributable to the change in unrealized gain or loss relating to assets and liabilities still held at the reporting date |
$ | — | $ | — | $ | (1,220 | ) | $ | (1,067 | ) | $ | (2,287 | ) | |||||||
| (*) |
In these tables, transfers in and transfers out are recognized as of the beginning of the reporting period for commodity derivatives and as of the transfer date for warrants. |
| (**) | Gains and losses related to commodity derivatives are reported in product revenue and gains and losses related to warrants are recorded in other expense (income) in the condensed consolidated statements of operations and comprehensive income. |
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 crude oil to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts. Our storage and transportation assets also can 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.
We contributed the primary operating assets of SemStream to NGL Energy on November 1, 2011, including all of SemStream's commodity derivatives. Prior to November 1, 2011, SemStream managed commodity price risk by limiting its net open positions subject to outright price risk and basis risk resulting from grade, location or time differences. SemStream did so by selling and purchasing similar quantities of natural gas liquids with purchase and sale transactions for current or future delivery, by entering into future delivery and purchase obligations with futures contracts or other commodity derivatives and employing its storage and transportation assets. SemStream at times hedged its natural gas liquids commodity price exposure with derivatives on commodities other than natural gas liquids due to the limited size of the market for natural gas liquids derivatives. In addition, physical transaction sale and purchase strategies were intended to lock in positive margins for SemStream, e.g., the sales price was sufficient to cover purchase costs, any other fixed and variable costs and SemStream's profit. All marketing activities were subject to our risk management policy, which establishes limits to manage risk and mitigate financial exposure.
Our commodity derivatives were comprised of swaps, future contracts, and forward contracts of crude oil and natural gas liquids. These are defined as follows:
Swaps – Over the counter 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 – Over the counter 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 notional quantities for commodity derivative instruments entered into (amounts in thousands of barrels):
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| March 31, 2012 |
March 31, 2011 |
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Sales |
383 | 6,643 | ||||||
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Purchases |
451 | 6,864 | ||||||
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, 2012 | December 31, 2011 | |||||||||||||
| Other Current Assets |
Other Current Liabilities |
Other Current Assets |
Other Current Liabilities |
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| $ | 16 | $ | — | $ | 162 | $ | — | |||||||
Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
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Three Months March 31, 2012 |
Three Months Ended March 31, 2011 |
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| $ (1,125) | $ | (2,020 | ) | |
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). Beginning in September 2011, the warrants began to be traded on the New York Stock Exchange.
Interest rate swaps
During February 2011, we entered into certain interest swaps. The swaps were recorded at fair value in other noncurrent liabilities on the condensed consolidated balance sheet, with changes in the fair value (net of income taxes) recorded to other comprehensive income (loss). During March 2012, these swaps were terminated as the related debt was paid. See Note 8 for additional information.
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7. INCOME TAXES
Due to our emergence from bankruptcy and overall restructuring, we have recorded a full valuation allowance on all U.S. federal and state deferred tax assets. We have determined that no accruals related to uncertainty in tax positions are required. The effective tax rate was (91.0)% for the three months ended March 31, 2012 and 108% for the three months ended March 31, 2011. 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 and the full valuation allowance which was 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. For the three months ended March 31, 2012, the rate is impacted by a noncontrolling interest in Rose Rock for which taxes are not provided. 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.
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8. LONG TERM DEBT
Our long-term debt consisted of the following (in thousands):
| March 31, 2012 |
December 31, 2011 |
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SemGroup corporate revolving credit facility |
$ | 120,000 | $ | 82,000 | ||||
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SemLogistics credit facility |
— | 23,180 | ||||||
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SemMexico credit facility |
3,645 | 4,046 | ||||||
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Capital leases |
103 | 109 | ||||||
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Total long-term debt |
$ | 123,748 | $ | 109,335 | ||||
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less: current portion of long-term debt |
3,147 | 26,058 | ||||||
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Noncurrent portion of long-term debt |
$ | 120,601 | $ | 83,277 | ||||
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SemGroup corporate credit agreement
During June 2011, we entered into a new credit agreement that consisted of a revolving facility, a Term Loan A and a Term Loan B. We used the proceeds from the new credit facilities to retire our previous revolving credit facility and term loan, which we had entered into upon emergence from bankruptcy. Later in 2011, we retired the Term Loan A and Term Loan B on the new credit facility, using proceeds from the contribution of SemStream assets to NGL Energy, proceeds from the Rose Rock IPO and borrowings on the revolving credit facility.
The revolving credit facility has a capacity of $300 million at March 31, 2012. The capacity was reduced from $320 million to $300 million during the first quarter of 2012 following the close of Rose Rock's IPO. 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, 2012, we had outstanding cash borrowings of $120 million on this facility and outstanding letters of credit of $2.3 million. The principal is due on June 20, 2016, and any letters of credit expire on June 13, 2016. Earlier principal payments may be required if we enter into certain transactions to sell assets or obtain new borrowings. We have the right to make additional principal payments without incurring any penalties for early repayment.
Interest on revolving credit cash borrowings is charged at either a Eurodollar rate or an alternate base rate ("ABR"), at our election. The Eurodollar rate is calculated as:
| • |
the London Interbank Offered Rate ("LIBOR") for U.S. dollar deposits adjusted for currency requirements; plus |
| • |
a margin that can range from 2.5% to 4.0%, depending on a leverage ratio specified in the agreement. |
The ABR is calculated as:
| • |
the greater of i) the U.S. Prime Rate, ii) the Federal Funds Effective Rate plus 0.5%, or iii) one-month LIBOR plus 1%; plus |
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a margin that can range from 1.5% to 3.0%, depending on a leverage ratio specified in the agreement. |
At March 31, 2012, there was $120 million of outstanding revolving cash borrowings, $110 million of which incurred interest at the Eurodollar rate and $10 million of which incurred interest at the ABR. The interest rate in effect at March 31, 2012 on $90 million of Eurodollar rate borrowings was 3.089%, calculated as LIBOR of 0.214% plus a margin of 2.875%. The interest rate in effect at March 31, 2012 on the other $20 million of Eurodollar rate borrowings was 3.6149%, calculated as LIBOR of 0.7399% plus a margin of 2.875%. The interest rate in effect at March 31, 2012 on the $10 million of ABR borrowings was 5.13%, calculated as the prime rate of 3.25% plus a margin of 1.875%.
At each interest payment date, we have the option of electing whether interest will be charged at the Eurodollar rate or at the ABR for the following interest period. If we elect the ABR, the following interest payment date will be at the end of the calendar quarter. If we elect the Eurodollar rate, we may elect for the next interest payment date to occur after one, two, three, or six months, or any other period acceptable to the lenders.
Fees are charged on any outstanding letters of credit at a rate that ranges from 2.5% to 4.0%, depending on a leverage ratio specified in the credit agreement. At March 31, 2012, the rate in effect was 2.875%. 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. In addition, we are charged an annual administrative fee of $0.1 million. At March 31, 2012, $3.7 million in capitalized loan fees, net of accumulated amortization, was recorded in other noncurrent assets, which is being amortized over the life of the agreement.
We recorded interest expense related to the new SemGroup revolving credit facility of $1.5 million for the three months ended March 31, 2012, including amortization of debt issuance costs.
The credit agreement includes customary affirmative and negative covenants, including limitations on the creation of new indebtedness, liens, sale and lease-back transactions, new investments, making fundamental changes including mergers and consolidations, making of dividends and other distributions, making material changes in our business, modifying certain documents and maintenance of a consolidated leverage ratio and an interest coverage ratio. In addition, the credit agreement prohibits any commodity transactions that are not permitted by our Comprehensive Risk Management Policy.
The credit agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the credit agreement from time to time, including in respect of letter of credit disbursement obligations, inaccuracy of representations and warranties in any material respect when made or when deemed made, violation of covenants, cross payment-defaults to any material indebtedness, cross acceleration to any material indebtedness, bankruptcy and insolvency events, the occurrence of a change of control, certain unsatisfied judgments, certain ERISA events, certain environmental matters and certain assertions of or actual invalidity of certain loan documents. A default under the credit agreement would permit the participating banks to terminate commitments, require immediate repayment of any outstanding loans with interest and any unpaid accrued fees, and require the cash collateralization of outstanding letter of credit obligations.
The credit agreement restricts our ability to make certain types of payments related to our capital stock, including the declaration or payment of dividends. The credit agreement is guaranteed by all of our material domestic subsidiaries (except for Rose Rock Midstream, L.P. and Rose Rock Midstream GP, LLC) and secured by a lien on substantially all of our domestic property and assets (except for the assets of Rose Rock Midstream, L.P.), subject to customary exceptions. At March 31, 2012, we were in compliance with the terms of the credit agreement.
Rose Rock credit facility
On November 10, 2011, our subsidiary Rose Rock entered into a senior secured revolving credit facility agreement. This credit facility became effective upon completion of the Rose Rock IPO on December 14, 2011. This credit agreement provides for a revolving credit facility of $150 million. The agreement also provides that the revolving credit facility may, under certain conditions, be increased by up to $200 million. The credit facility includes a $75 million sub-limit for the issuance of letters of credit for the account of Rose Rock or its loan parties. All amounts outstanding under the facility will be due and payable on December 14, 2016.
At Rose Rock's option, amounts borrowed under the credit agreement will bear interest at either the Eurodollar rate or an ABR, plus, in each case, an applicable margin. Until the date the financial statements relating to the first quarter after the effective date of the credit agreement have been delivered, the applicable margin relating to any Eurodollar loan will be 2.25% and with respect to any ABR loan will be 1.25%. After such financial statements have been delivered, the applicable margin will range from 2.25% to 3.25% in the case of a Eurodollar rate loan, and from 1.25% to 2.25% in the case of an ABR loan, in each case, based on a leverage ratio. At March 31, 2012, there were no revolving cash borrowings.
Fees are charged on any outstanding letters of credit at a rate that ranges from 2.25% to 3.25%, depending on a leverage ratio specified in the credit agreement. At March 31, 2012, there were $29.8 million in outstanding letters of credit, and the rate in effect was 2.25%. 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. In addition, we are charged an annual administrative fee of $0.1 million. The credit facility also allows for the use of Secured Bilateral Letters of Credit. At March 31, 2012, we had $9 million of Bilateral Letters of Credit outstanding and the interest rate in effect was 1.75%.
We recorded $0.5 million of interest expense during the three months ended March 31, 2012 related to this facility, including amortization of debt issuance costs.
The credit agreement includes customary representations and warranties and affirmative and negative covenants. The covenants in the agreement include limitations on creation of new indebtedness and liens, entry into sale and lease-back transactions, investments, and fundamental changes including mergers and consolidations, dividends and other distributions, material changes in Rose Rock's business and modifying certain documents. The agreement also requires the maintenance of a specified consolidated leverage ratio and an interest coverage ratio. In addition, the agreement prohibits any commodity transactions that are not permitted by Rose Rock's Comprehensive Risk Management Policy.
The credit agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the agreement from time to time, including in respect to letter of credit disbursement obligations, inaccuracy of representations and warranties in any material respect when made or when deemed made, violation of covenants, cross payment-defaults of Rose Rock and its restricted subsidiaries to any material indebtedness, cross acceleration to any material indebtedness, bankruptcy and insolvency events, the occurrence of a change of control, certain unsatisfied judgments, certain ERISA events, certain environmental matters and certain assertions of, or actual invalidity of, certain loan documents. A default under the Rose Rock credit agreement would permit the participating banks to terminate commitments, require immediate repayment of any outstanding loans with interest and any unpaid accrued fees, and require the cash collateralization of outstanding letter of credit obligations.
The credit agreement restricts Rose Rock's ability to make certain types of payments relating to its common units, including the declaration or payment of dividends; provided that Rose Rock may make quarterly distributions of available cash so long as no default under the agreement then exists or would result therefrom. The agreement is:
| • |
guaranteed by all of Rose Rock's material domestic subsidiaries; and |
| • |
secured by a lien on substantially all of the property and assets of Rose Rock and the guarantors, subject to customary exceptions. |
At March 31, 2012, we were in compliance with the terms of the credit agreement.
SemLogistics credit facilities
SemLogistics entered into a credit agreement in December 2010, which included a £15 million term loan and a £15 million revolving credit facility (U.S. $24.0 million each, at the March 31, 2012 exchange rate). The facility was terminated in March 2012.
The revolving credit facility included capacity for cash borrowings or letters of credit.
Interest was charged on both the term loan and the revolving loans (including letters of credit) at a floating rate, which was calculated as LIBOR plus a margin that ranged from 1.75% to 2.5%, depending on whether SemLogistics met certain financial ratios specified in the agreement. At December 31, 2011, unamortized debt issuance costs of $0.8 million were included in other noncurrent assets. This balance was amortized to interest expense during first quarter 2012.
During February 2011, we entered into three interest swap agreements. The intent of the swaps was to offset a portion of the variability in interest payments due under the term loan. The swaps required us to pay a fixed rate of 2.49% on a combined notional amount of £7.5 million (which declined during the final year of the swap until it reached £7.0 million) each quarter through March 31, 2014. The swaps entitled us to receive a floating rate equal to LIBOR on the same notional amount.
These swaps were terminated in March 2012 with a loss on closure of £0.3 million (U.S. $0.5 million at the March 31, 2012 exchange rate), including a reclass of $0.3 million from accumulated other comprehensive income to earnings.
SemMexico facilities
During 2010, SemMexico entered into a credit agreement that allowed SemMexico to borrow up to 80 million Mexican pesos at any time through June 2011. Borrowings on this facility are required to be repaid with monthly payments through May 2013. At March 31, 2012, borrowings of 46.7 million Mexican pesos (U.S. $3.6 million at the March 31, 2012 exchange rate) were outstanding on this facility. Borrowings are unsecured and bear interest at the bank prime rate in Mexico plus 1.5%. At March 31, 2012, the interest rate in effect was 6.29%, calculated as 1.5% plus the bank prime rate of 4.79%.
SemMexico also has outstanding letters of credit of 277 million Mexican pesos at March 31, 2012 (U.S. $21.6 million at the March 31, 2012 exchange rate). Fees are generally charged on outstanding letters of credit at a rate of 1.0% for 14.3 million Mexican pesos (U.S. $1.1 million at the March 31, 2012 exchange rate) in letters of credit and 0.4% for 262.7 million Mexican pesos (U.S. $20.2 million at the March 31, 2012 exchange rate) in letters of credit.
During 2011, SemMexico entered into an additional credit agreement that allows SemMexico to borrow up to 56 million Mexican pesos (U.S. $4.4 million at the March 31, 2012 exchange rate) at any time during the term of the facility, which matures in August 2012. Borrowings would be unsecured and would bear interest at the bank prime rate in Mexico plus 1.7%. On February 27, 2012, this facility was decreased to 19 million Mexican pesos (U.S. $1.5 million at the March 31, 2012 exchange rate).
SemMexico recorded interest expense of $0.1 million during the three months ended March 31, 2012 related to these facilities. At March 31, 2012, we were in compliance with the terms of these facilities.
Fair value
We estimate that the fair value of our long-term debt was not materially different than the recorded values at March 31, 2012, and is categorized as a Level 3 measurement. 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, 2012.
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9. COMMITMENTS AND CONTINGENCIES
Bankruptcy matters
(a) Confirmation order appeals
Manchester Securities appeal. On October 21, 2009, Manchester Securities Corporation, a creditor of SemGroup Holdings, L.P. (one of our subsidiaries), filed an objection to the Plan of Reorganization. In the objection, Manchester argued that the Plan of Reorganization should not be confirmed because it did not provide for an alleged $50 million claim of SemGroup Holdings, L.P. against SemCrude Pipeline, L.L.C. (another of our subsidiaries). On October 28, 2009, the bankruptcy court overruled the objection and entered the confirmation order approving the Plan of Reorganization. On November 4, 2009, Manchester filed a notice of appeal of the confirmation order. On December 4, 2009, Manchester'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 February 18, 2011, the District Court granted our motion to dismiss the appeal. On March 22, 2011, Manchester filed a notice to appeal this order. On January 2, 2012, the United States Court of Appeals affirmed the judgment of the District Court to dismiss the appeal and the deadline for filing any petition for re-hearing or review has passed without further action by Manchester.
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. Briefing on this matter is complete, but the motion to dismiss has not been ruled upon by the District Court.
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 bankruptcy filings, several governmental agencies launched investigations regarding the circumstances of the filings. The mandate and scope of these investigations were very broad and some of the investigations are ongoing.
Bankruptcy examiner. On October 14, 2008, the bankruptcy court appointed an examiner to (i) investigate the circumstances surrounding our 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 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 relating to findings in the examiner's report, 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 former 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 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. We continued to respond to requests for information and to review documentation provided by Blueknight; however, on February 14, 2012, Blueknight filed suit against us, Rose Rock Midstream GP, L.L.C. and Rose Rock Midstream, L.P. in the District Court of Oklahoma County, Oklahoma in connection with this claim. On May 1, 2012, the court approved our motion to transfer this case to Tulsa County, Oklahoma. We believe this matter is without merit and will vigorously defend our position; however, we cannot reliably predict the outcome.
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.
Environmental
We may from time to time experience leaks of petroleum products from our facilities, 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. Work plans have been submitted to, and approved by, the KDHE.
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. SemCAMS is summoned to appear in court in Fox Creek, Province of Alberta, to respond to the charges. We are currently reviewing the charges and will request disclosure from the agencies in order to determine our response. 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 will still carry on our books at March 31, 2012.
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 $37.8 million at March 31, 2012, which is included within other noncurrent liabilities on our condensed consolidated balance sheets. This amount was calculated using the $107.7 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 do not believe the present value of such obligations under current laws and regulations, after taking into account the estimated lives of our facilities, is material to our financial position or results of operations.
Purchase and sale commitments
We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We account for these commitments as normal purchases and sales, and therefore we do not record assets or liabilities related to these agreements until the product is purchased or sold. At March 31, 2012, such commitments included the following (in thousands):
| Volume (barrels) |
Value (U.S. Dollars) |
|||||||
|
Fixed price purchases |
53 | $ | 4,975 | |||||
|
Fixed price sales |
128 | $ | 13,382 | |||||
|
Floating price purchases |
31,550 | $ | 3,238,973 | |||||
|
Floating price sales |
31,846 | $ | 3,330,409 | |||||
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. On March 31, 2012, approximately $23.5 thousand was due under the contract and the amount of future obligation is approximately $4.1 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. In 2012, 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, 2012, the future obligation associated with this purchase is $11.0 million.
|
|||
10. EQUITY
Unaudited condensed consolidated statement of changes in owners' equity
The following table shows the changes in our condensed consolidated owners' equity accounts from December 31, 2011 to March 31, 2012 (in thousands):
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||
| Common | Paid-in | Treasury | Accumulated | Comprehensive | Noncontrolling | Owners' | ||||||||||||||||||||||
| Stock | Capital | Stock | Deficit | Income (Loss) | Interests | Equity | ||||||||||||||||||||||
|
Balance at December 31, 2011 |
$ | 418 | $ | 1,032,365 | $ | — | $ | (167,812 | ) | $ | (13,875 | ) | $ | 127,569 | $ | 978,665 | ||||||||||||
|
Net income |
— | — | — | (1,373 | ) | — | 3,483 | 2,110 | ||||||||||||||||||||
|
Other comprehensive income, net of income taxes |
— | — | — | — | 12,755 | — | 12,755 | |||||||||||||||||||||
|
Distributions to noncontrolling interests |
— | — | — | — | — | (470 | ) | (470 | ) | |||||||||||||||||||
|
Share-based compensation expense |
— | 1,496 | — | — | — | 61 | 1,557 | |||||||||||||||||||||
|
Issuance of common stock under compensation plans |
1 | (1 | ) | — | — | — | — | — | ||||||||||||||||||||
|
Repurchase of common stock |
— | — | (242 | ) | — | — | — | (242 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Balance at March 31, 2012 |
$ | 419 | $ | 1,033,860 | $ | (242 | ) | $ | (169,185 | ) | $ | (1,120 | ) | $ | 130,643 | $ | 994,375 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Accumulated other comprehensive income (loss)
The following table presents the changes in the components of accumulated other comprehensive income (loss) from December 31, 2011 to March 31, 2012 (in thousands):
| Employee | ||||||||||||||||
| Currency | Benefit | Interest | ||||||||||||||
| Translation | Plans | Rate Swaps | Total | |||||||||||||
|
Balance, December 31, 2011 |
$ | (10,780) | $ | (2,811) | $ | (284) | $ | (13,875) | ||||||||
|
Currency translation adjustment |
12,429 | — | — | 12,429 | ||||||||||||
|
Changes related to interest rate swaps |
— | — | 284 | 284 | ||||||||||||
|
Changes related to benefit plans, net of income tax expense of $14 |
— | 42 | — | 42 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance, March 31, 2012 |
$ | 1,649 | $ | (2,769) | $ | — | $ | (1,120) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
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, 2012, we have issued 184,841 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, 2012 are summarized below:
|
Shares issued on Emergence Date |
40,882,496 | |||
|
Shares subsequently issued in settlement of pre-petition claims |
184,841 | |||
|
Remaining shares required to be issued in settlement of pre-petition claims |
332,659 | |||
|
Issuance of shares under employee and director compensation programs(*) |
524,815 | |||
|
Shares issued upon exercise of warrants |
7 | |||
|
|
|
|||
|
Total shares |
41,924,818 | |||
|
|
|
|||
|
Par value per share |
$ | 0.01 | ||
|
|
|
|||
|
Common stock on March 31, 2012 balance sheet |
$ | 419,248 | ||
|
|
|
| (*) |
These shares include 105,409 shares which vested during the three months ended March 31, 2012. Of these vested shares, recipients sold back to the Company 8,994 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, 2012. 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.
On October 28, 2011, we adopted a limited duration Stockholders Rights Plan (the "Rights Plan") and declared a dividend of one right on each outstanding share of our Class A common stock. Under the Rights Plan, the rights generally will become exercisable only if a person or group acquires beneficial ownership of 10% or more of our Class A common stock in a transaction not approved by our Board of Directors. In that situation, each holder of a right (other than the acquiring person, whose rights will become void and will not be exercisable) will be entitled to purchase, at the then-current price, additional shares of Class A common stock having a value of twice the exercise price of the right. In addition, if we are acquired in a merger or other business combination after an unapproved party acquires more than 10% of our Class A common stock, each holder of the right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company's stock having a value of twice the exercise price of the right. We may redeem the rights for $0.001 per right at any time before an event that causes the rights to become exercisable. Under the Rights Plan's terms, the rights will expire one day after the date of our 2012 Annual Meeting of Stockholders.
Equity-based compensation
We have reserved common stock for issuance pursuant to director and employee compensation programs. At March 31, 2012, there were approximately 490,000 unvested shares that have been granted under these programs. The par values of these shares are 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 67,000 additional shares could vest.
Warrants
Upon emergence from bankruptcy protection, 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, 2012, we have issued 194,558 of the warrants and will issue the remainder as the process of resolving the claims progresses. Beginning September 2011, the warrants began trading on the New York Stock Exchange under the ticker symbol, SEMGWS. The warrants reflected on the condensed consolidated balance sheet at March 31, 2012 are summarized below:
|
Warrants issued on Emergence Date |
1,634,210 | |||
|
Warrants subsequently issued in settlement of pre-petition claims |
194,558 | |||
|
Remaining warrants to be issued in settlement of pre-petition claims |
350,179 | |||
|
Warrants exercised |
(7 | ) | ||
|
|
|
|||
|
Total warrants at March 31, 2012 |
2,178,940 | |||
|
|
|
|||
|
Fair value per warrant at March 31, 2012 |
$ | 7.42 | ||
|
|
|
|||
|
Warrant value included within other noncurrent liabilities on March 31, 2012 consolidated balance sheet |
$ | 16,167,735 | ||
|
|
|
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 $29.14 per share on March 30, 2012. 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 warrants agreement.
|
|||
12. 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, 2012 |
Three Months Ended March 31, 2011 |
|||||||
|
Decrease (increase) in restricted cash |
$ | 3,058 | $ | 9,601 | ||||
|
Decrease (increase) in accounts receivable |
(87,837 | ) | 24,972 | |||||
|
Decrease (increase) in receivable from affiliates |
1,178 | (318 | ) | |||||
|
Decrease (increase) in inventories |
2,451 | 55,514 | ||||||
|
Decrease (increase) in derivatives and margin deposits |
316 | 9,063 | ||||||
|
Decrease (increase) in other current assets |
7,664 | (1,207 | ) | |||||
|
Decrease (increase) in other assets |
979 | 49 | ||||||
|
Increase (decrease) in accounts payable and accrued liabilities |
59,887 | (21,557 | ) | |||||
|
Increase (decrease) in payable to affiliates |
(6,650 | ) | 2 | |||||
|
Increase (decrease) in payables to pre-petition creditors |
(4,112 | ) | (14,987 | ) | ||||
|
Increase (decrease) in other noncurrent liabilities |
6,127 | (559 | ) | |||||
|
|
|
|
|
|||||
| $ | (16,939 | ) | $ | 60,573 | ||||
|
|
|
|
|
|||||
|
|||
13. 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, 2012, we generated the following transactions with NGL Energy (in thousands):
|
Revenues |
$ | 14,112 | ||||
|
Purchases |
$ | 17,887 | ||||
|
Reimbursements from NGL Energy for transition services |
$ | 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, 2012 and 2011, we generated approximately $0.6 million and $0.4 million, respectively, of revenue from White Cliffs.
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 $277,285 (of which $35,953 was paid by White Cliffs) in legal fees and related expenses to this law firm during the three months ended March 31, 2012. SemGroup paid $494,555 (of which $24,360 was paid by White Cliffs) in legal fees and related expenses to this law firm during the three months ended March 31, 2011.
|
|||
|
General partner interest |
2 | % | ||
|
Limited partner interest (a) |
57 | % | ||
|
Total ownership interest |
59 | % | ||
|
|
|
| (a) | Represents 1.4 million common units and 8.4 million subordinated units |
| Marginal Percentage Interest in Distributions |
||||||||||||||||||||||||||||
| Total Quarterly Distributions Per Unit Target Amount |
Unitholders | General Partner |
Incentive Distribution Rights |
|||||||||||||||||||||||||
|
Minimum Quarterly Distributions |
$ | 0.3625 | 98.0 | % | 2.0 | % | — | |||||||||||||||||||||
|
First Target Distribution |
above | $ | 0.3625 | 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 | $ | 0.54375 | 75.0 | % | 2.0 | % | 23.0 | % | ||||||||||||||||
|
Thereafter |
above | $ | 0.54375 | 50.0 | % | 2.0 | % | 48.0 | % | |||||||||||||||||||
|
Distribution per unit |
$ | 0.0670 | ||
|
General partner distributions |
$ | 23 | ||
|
Incentive distributions |
— | |||
|
|
|
|||
|
Distributions to general partner |
23 | |||
|
Limited partner distributions to SemGroup |
||||
|
Common units |
93 | |||
|
Subordinated units |
561 | |||
|
Limited partner distributions to noncontrolling interests |
470 | |||
|
|
|
|||
|
Total distributions paid |
$ | 1,147 | ||
|
|
|
|||
|
Distribution per unit |
$ | 0.3725 | ||
|
General partner distributions |
$ | 128 | ||
|
Incentive distributions |
— | |||
|
|
|
|||
|
Distributions to general partner |
128 | |||
|
Limited partner distributions to SemGroup |
||||
|
Common units |
518 | |||
|
Subordinated units |
3,124 | |||
|
Limited partner distributions to noncontrolling interests |
2,608 | |||
|
|
|
|||
|
Total distributions declared |
$ | 6,378 | ||
|
|
|
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
|
Cash |
$ | 5,231 | $ | 9,709 | ||||
|
Other current assets |
238,830 | 156,873 | ||||||
|
Property, plant and equipment |
277,392 | 276,246 | ||||||
|
Other noncurrent assets |
2,642 | 2,666 | ||||||
|
|
|
|
|
|||||
|
Total assets |
$ | 524,095 | $ | 445,494 | ||||
|
|
|
|
|
|||||
|
Current liabilities |
$ | 212,489 | $ | 140,553 | ||||
|
Long-term debt |
80 | 87 | ||||||
|
Partners' capital attributable to SemGroup |
181,231 | 177,323 | ||||||
|
Partners' capital attributable to noncontrolling interests |
130,295 | 127,531 | ||||||
|
|
|
|
|
|||||
|
Total liabilties and partners' capital |
$ | 524,095 | $ | 445,494 | ||||
|
|
|
|
|
|||||
| Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
|||||||
|
Revenue |
$ | 179,715 | $ | 83,791 | ||||
|
Cost of products sold, operating, general and administrative expenses |
168,438 | 73,021 | ||||||
|
Depreciation and amortization expense |
2,967 | 2,683 | ||||||
|
Net income |
7,758 | 7,604 | ||||||
|
|||
| March 31, 2012 |
December 31, 2011 |
|||||||
|
Current assets |
$ | 13,537 | $ | 11,653 | ||||
|
Property, plant and equipment, net |
219,211 | 222,473 | ||||||
|
Goodwill |
17,000 | 17,000 | ||||||
|
Other intangible assets, net |
31,397 | 33,073 | ||||||
|
|
|
|
|
|||||
|
Total assets |
$ | 281,145 | $ | 284,199 | ||||
|
|
|
|
|
|||||
|
Current liabilities |
$ | 3,005 | $ | 3,259 | ||||
|
Members' equity |
278,140 | 280,940 | ||||||
|
|
|
|
|
|||||
|
Total liabilities and members' equity |
$ | 281,145 | $ | 284,199 | ||||
|
|
|
|
|
|||||
| Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
|||||||
|
Revenue |
$ | 22,656 | $ | 13,493 | ||||
|
Operating, general and administrative expenses |
3,885 | 3,211 | ||||||
|
Depreciation and amortization expense |
4,983 | 5,205 | ||||||
|
Net income |
13,788 | 5,077 | ||||||
| December 31, | ||||
| 2011 | ||||
|
Current assets |
$ | 332,144 | ||
|
Property plant and equipment, net |
227,893 | |||
|
Goodwill |
92,930 | |||
|
Intangible and other assets, net |
102,238 | |||
|
|
|
|||
|
Total assets |
$ | 755,205 | ||
|
|
|
|||
|
Current liabilities |
$ | 269,073 | ||
|
Long-term debt |
117,590 | |||
|
Other noncurrent liabilities |
222 | |||
|
Partners' equity |
368,320 | |||
|
|
|
|||
|
Total liabilities and partners' equity |
$ | 755,205 | ||
|
|
|
|||
| Three Months | ||||
| Ended | ||||
| December 31, | ||||
| 2011 | ||||
|
Revenue |
$ | 470,649 | ||
|
Operating, general and administrative expenses |
456,606 | |||
|
Depreciation and amortization expense |
5,402 | |||
|
Net income |
6,090 | |||
|
|||
| Three Months Ended March 31, 2012 | ||||||||||||||||||||||||||||||||
| Crude | SemStream | SemCAMS | SemGas | SemLogistics | SemMexico | Corporate and Other |
Consolidated | |||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
|
Revenues: |
||||||||||||||||||||||||||||||||
|
External |
$ | 179,715 | $ | 5,654 | $ | 35,165 | $ | 30,710 | $ | 3,784 | $ | 62,651 | $ | — | $ | 317,679 | ||||||||||||||||
|
Intersegment |
— | — | — | 2,730 | — | — | $ | (2,730 | ) | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total revenues |
179,715 | 5,654 | 35,165 | 33,440 | 3,784 | 62,651 | (2,730 | ) | 317,679 | |||||||||||||||||||||||
|
Expenses: |
||||||||||||||||||||||||||||||||
|
Costs of products sold, exclusive of depreciation and amortization shown below |
160,508 | 4,230 | 119 | 26,549 | — | 57,041 | (2,730 | ) | 245,717 | |||||||||||||||||||||||
|
Operating |
5,454 | 538 | 26,236 | 2,853 | 1,454 | 2,000 | — | 38,535 | ||||||||||||||||||||||||
|
General and administrative |
2,718 | 516 | 4,418 | 1,843 | 1,811 | 2,688 | 6,300 | 20,294 | ||||||||||||||||||||||||
|
Depreciation and amortization |
2,967 | 166 | 2,573 | 1,630 | 2,318 | 1,561 | 677 | 11,892 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total expenses |
171,647 | 5,450 | 33,346 | 32,875 | 5,583 | 63,290 | 4,247 | 316,438 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Earnings from equity method investments |
6,571 | 927 | — | — | — | — | — | 7,498 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Operating income (loss) |
14,639 | 1,131 | 1,819 | 565 | (1,799 | ) | (639 | ) | (6,977 | ) | 8,739 | |||||||||||||||||||||
|
Other expenses (income), net |
(237 | ) | 48 | 5,203 | 532 | 1,279 | (110 | ) | 911 | 7,626 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Income (loss) from continuing operations before income taxes |
$ | 14,876 | $ | 1,083 | $ | (3,384 | ) | $ | 33 | $ | (3,078 | ) | $ | (529 | ) | $ | (7,888 | ) | $ | 1,113 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total assets at March 31, 2012 (excluding intersegment receivables) |
$ | 663,109 | $ | 202,943 | $ | 255,868 | $ | 103,075 | $ | 183,940 | $ | 99,099 | $ | 70,273 | $ | 1,578,307 | ||||||||||||||||
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| Three Months Ended March 31, 2011 | ||||||||||||||||||||||||||||||||
| Crude | SemStream | SemCAMS | SemGas | SemLogistics | SemMexico | Corporate and Other |
Consolidated | |||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
|
Revenues: |
||||||||||||||||||||||||||||||||
|
External |
$ | 83,005 | $ | 223,023 | $ | 34,757 | $ | 12,701 | $ | 7,981 | $ | 44,730 | $ | 757 | $ | 406,954 | ||||||||||||||||
|
Intersegment |
786 | 12,917 | — | 8,270 | — | — | (21,973 | ) | — | |||||||||||||||||||||||
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|
|
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|
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|
Total revenues |
83,791 | 235,940 | 34,757 | 20,971 | 7,981 | 44,730 | (21,216 | ) | 406,954 | |||||||||||||||||||||||
|
Expenses: |
||||||||||||||||||||||||||||||||
|
Costs of products sold, exclusive of depreciation and amortization shown below |
66,000 | 225,612 | 10 | 14,191 | — | 39,638 | (21,452 | ) | 323,999 | |||||||||||||||||||||||
|
Operating |
4,662 | 2,784 | 22,904 | 1,840 | 1,825 | 2,133 | 53 | 36,201 | ||||||||||||||||||||||||
|
General and administrative |
2,357 | 2,727 | 6,911 | 1,827 | 1,832 | 2,795 | 3,133 | 21,582 | ||||||||||||||||||||||||
|
Depreciation and amortization |
2,683 | 1,688 | 2,556 | 1,429 | 2,280 | 1,632 | 734 | 13,002 | ||||||||||||||||||||||||
|
Loss (gain) on disposal or impairment of long-lived assets, net |
2 | (3 | ) | — | — | — | (63 | ) | — | (64 | ) | |||||||||||||||||||||
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|
|
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|
|
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|
Total expenses |
75,704 | 232,808 | 32,381 | 19,287 | 5,937 | 46,135 | (17,532 | ) | 394,720 | |||||||||||||||||||||||
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|
|||||||||||||||||
|
Earnings from equity method investments |
2,064 | — | — | — | — | — | — | 2,064 | ||||||||||||||||||||||||
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|
|||||||||||||||||
|
Operating income (loss) |
10,151 | 3,132 | 2,376 | 1,684 | 2,044 | (1,405 | ) | (3,684 | ) | 14,298 | ||||||||||||||||||||||
|
Other expenses (income), net |
(31 | ) | 3,244 | 6,237 | 386 | 166 | (292 | ) | 4,889 | 14,599 | ||||||||||||||||||||||
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|
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|
Income (loss) from continuing operations before income taxes |
$ | 10,182 | $ | (112 | ) | $ | (3,861 | ) | $ | 1,298 | $ | 1,878 | $ | (1,113 | ) | $ | (8,573 | ) | $ | (301 | ) | |||||||||||
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|
|||
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
|
Natural gas and natural gas liquids |
$ | 1,699 | $ | 570 | ||||
|
Crude oil |
16,910 | 21,803 | ||||||
|
Asphalt and other |
13,034 | 10,688 | ||||||
|
|
|
|
|
|||||
| $ | 31,643 | $ | 33,061 | |||||
|
|
|
|
|
|||||
|
|||
| March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting* | Total | Level 1 | Level 2 | Level 3 | Netting* | Total | |||||||||||||||||||||||||||||||
|
Assets: |
||||||||||||||||||||||||||||||||||||||||
|
Commodity derivatives |
$ | 24 | $ | — | $ | — | $ | (8 | ) | $ | 16 | $ | 393 | $ | — | $ | — | $ | (231 | ) | $ | 162 | ||||||||||||||||||
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|
|
|
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|
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|
|
|
|
|||||||||||||||||||||
|
Total assets |
24 | — | — | (8 | ) | 16 | 393 | — | — | (231 | ) | 162 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
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|
|
|
|
|||||||||||||||||||||
|
Liabilities: |
||||||||||||||||||||||||||||||||||||||||
|
Commodity derivatives |
$ | 8 | $ | — | $ | — | $ | (8 | ) | $ | — | $ | 231 | $ | — | $ | — | $ | (231 | ) | $ | — | ||||||||||||||||||
|
Warrants |
16,168 | — | — | — | 16,168 | 12,180 | — | — | — | 12,180 | ||||||||||||||||||||||||||||||
|
Interest rate swaps |
— | — | — | — | — | — | 358 | — | — | 358 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total liabilities |
16,176 | — | — | (8 | ) | 16,168 | 12,411 | 358 | — | (231 | ) | 12,538 | ||||||||||||||||||||||||||||
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net liabilities at fair value |
$ | (16,152 | ) | $ | — | $ | — | $ | — | $ | (16,152 | ) | $ | (12,018 | ) | $ | (358 | ) | $ | — | $ | — | $ | (12,376 | ) | |||||||||||||||
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|
|||||||||||||||||||||
| * | Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange. |
| Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
|||||||||||||||||||
| Commodity Derivatives |
Total | Warrants | Commodity Derivatives |
Total | ||||||||||||||||
|
Net liabilities - beginning balance |
$ | — | $ | — | $ | (17,192 | ) | $ | (547 | ) | $ | (17,739 | ) | |||||||
|
Transfers out of Level 3(*) |
— | — | — | (178 | ) | (178 | ) | |||||||||||||
|
Total gain (loss) (realized and unrealized) included in |
— | — | (1,220 | ) | (694 | ) | (1,914 | ) | ||||||||||||
|
Settlements |
— | — | — | (373 | ) | (373 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net liabilities - ending balance |
$ | — | $ | — | $ | (18,412 | ) | $ | (1,792 | ) | $ | (20,204 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Amount of total gain (loss) included in earnings for the period attributable to the change in unrealized gain or loss relating to assets and liabilities still held at the reporting date |
$ | — | $ | — | $ | (1,220 | ) | $ | (1,067 | ) | $ | (2,287 | ) | |||||||
| (*) |
In these tables, transfers in and transfers out are recognized as of the beginning of the reporting period for commodity derivatives and as of the transfer date for warrants. |
| (**) | Gains and losses related to commodity derivatives are reported in product revenue and gains and losses related to warrants are recorded in other expense (income) in the condensed consolidated statements of operations and comprehensive income. |
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| March 31, 2012 |
March 31, 2011 |
|||||||
|
Sales |
383 | 6,643 | ||||||
|
Purchases |
451 | 6,864 | ||||||
| March 31, 2012 | December 31, 2011 | |||||||||||||
| Other Current Assets |
Other Current Liabilities |
Other Current Assets |
Other Current Liabilities |
|||||||||||
| $ | 16 | $ | — | $ | 162 | $ | — | |||||||
|
Three Months March 31, 2012 |
Three Months Ended March 31, 2011 |
|||
| $ (1,125) | $ | (2,020 | ) | |
|
|||
| March 31, 2012 |
December 31, 2011 |
|||||||
|
SemGroup corporate revolving credit facility |
$ | 120,000 | $ | 82,000 | ||||
|
SemLogistics credit facility |
— | 23,180 | ||||||
|
SemMexico credit facility |
3,645 | 4,046 | ||||||
|
Capital leases |
103 | 109 | ||||||
|
|
|
|
|
|||||
|
Total long-term debt |
$ | 123,748 | $ | 109,335 | ||||
|
less: current portion of long-term debt |
3,147 | 26,058 | ||||||
|
|
|
|
|
|||||
|
Noncurrent portion of long-term debt |
$ | 120,601 | $ | 83,277 | ||||
|
|
|
|
|
|||||
|
|||
| Volume (barrels) |
Value (U.S. Dollars) |
|||||||
|
Fixed price purchases |
53 | $ | 4,975 | |||||
|
Fixed price sales |
128 | $ | 13,382 | |||||
|
Floating price purchases |
31,550 | $ | 3,238,973 | |||||
|
Floating price sales |
31,846 | $ | 3,330,409 | |||||
|
|||
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||
| Common | Paid-in | Treasury | Accumulated | Comprehensive | Noncontrolling | Owners' | ||||||||||||||||||||||
| Stock | Capital | Stock | Deficit | Income (Loss) | Interests | Equity | ||||||||||||||||||||||
|
Balance at December 31, 2011 |
$ | 418 | $ | 1,032,365 | $ | — | $ | (167,812 | ) | $ | (13,875 | ) | $ | 127,569 | $ | 978,665 | ||||||||||||
|
Net income |
— | — | — | (1,373 | ) | — | 3,483 | 2,110 | ||||||||||||||||||||
|
Other comprehensive income, net of income taxes |
— | — | — | — | 12,755 | — | 12,755 | |||||||||||||||||||||
|
Distributions to noncontrolling interests |
— | — | — | — | — | (470 | ) | (470 | ) | |||||||||||||||||||
|
Share-based compensation expense |
— | 1,496 | — | — | — | 61 | 1,557 | |||||||||||||||||||||
|
Issuance of common stock under compensation plans |
1 | (1 | ) | — | — | — | — | — | ||||||||||||||||||||
|
Repurchase of common stock |
— | — | (242 | ) | — | — | — | (242 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Balance at March 31, 2012 |
$ | 419 | $ | 1,033,860 | $ | (242 | ) | $ | (169,185 | ) | $ | (1,120 | ) | $ | 130,643 | $ | 994,375 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Employee | ||||||||||||||||
| Currency | Benefit | Interest | ||||||||||||||
| Translation | Plans | Rate Swaps | Total | |||||||||||||
|
Balance, December 31, 2011 |
$ | (10,780) | $ | (2,811) | $ | (284) | $ | (13,875) | ||||||||
|
Currency translation adjustment |
12,429 | — | — | 12,429 | ||||||||||||
|
Changes related to interest rate swaps |
— | — | 284 | 284 | ||||||||||||
|
Changes related to benefit plans, net of income tax expense of $14 |
— | 42 | — | 42 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance, March 31, 2012 |
$ | 1,649 | $ | (2,769) | $ | — | $ | (1,120) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Shares issued on Emergence Date |
40,882,496 | |||
|
Shares subsequently issued in settlement of pre-petition claims |
184,841 | |||
|
Remaining shares required to be issued in settlement of pre-petition claims |
332,659 | |||
|
Issuance of shares under employee and director compensation programs(*) |
524,815 | |||
|
Shares issued upon exercise of warrants |
7 | |||
|
|
|
|||
|
Total shares |
41,924,818 | |||
|
|
|
|||
|
Par value per share |
$ | 0.01 | ||
|
|
|
|||
|
Common stock on March 31, 2012 balance sheet |
$ | 419,248 | ||
|
|
|
| (*) |
These shares include 105,409 shares which vested during the three months ended March 31, 2012. Of these vested shares, recipients sold back to the Company 8,994 shares to satisfy tax withholding obligations which are being recognized at cost as treasury stock on the condensed consolidated balance sheet. |
|
Warrants issued on Emergence Date |
1,634,210 | |||
|
Warrants subsequently issued in settlement of pre-petition claims |
194,558 | |||
|
Remaining warrants to be issued in settlement of pre-petition claims |
350,179 | |||
|
Warrants exercised |
(7 | ) | ||
|
|
|
|||
|
Total warrants at March 31, 2012 |
2,178,940 | |||
|
|
|
|||
|
Fair value per warrant at March 31, 2012 |
$ | 7.42 | ||
|
|
|
|||
|
Warrant value included within other noncurrent liabilities on March 31, 2012 consolidated balance sheet |
$ | 16,167,735 | ||
|
|
|
|
|||
| Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
|||||||
|
Decrease (increase) in restricted cash |
$ | 3,058 | $ | 9,601 | ||||
|
Decrease (increase) in accounts receivable |
(87,837 | ) | 24,972 | |||||
|
Decrease (increase) in receivable from affiliates |
1,178 | (318 | ) | |||||
|
Decrease (increase) in inventories |
2,451 | 55,514 | ||||||
|
Decrease (increase) in derivatives and margin deposits |
316 | 9,063 | ||||||
|
Decrease (increase) in other current assets |
7,664 | (1,207 | ) | |||||
|
Decrease (increase) in other assets |
979 | 49 | ||||||
|
Increase (decrease) in accounts payable and accrued liabilities |
59,887 | (21,557 | ) | |||||
|
Increase (decrease) in payable to affiliates |
(6,650 | ) | 2 | |||||
|
Increase (decrease) in payables to pre-petition creditors |
(4,112 | ) | (14,987 | ) | ||||
|
Increase (decrease) in other noncurrent liabilities |
6,127 | (559 | ) | |||||
|
|
|
|
|
|||||
| $ | (16,939 | ) | $ | 60,573 | ||||
|
|
|
|
|
|||||
|
|||
|
Revenues |
$ | 14,112 | ||||
|
Purchases |
$ | 17,887 | ||||
|
Reimbursements from NGL Energy for transition services |
$ | 367 |
|
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