ROSE ROCK MIDSTREAM, L.P., 10-Q filed on 11/9/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Nov. 1, 2012
Common Units [Member]
Nov. 1, 2012
Subordinated Units [Member]
Entity Registrant Name
Rose Rock Midstream, L.P. 
 
 
Entity Central Index Key
0001527622 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Sep. 30, 2012 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
Q3 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
8,389,709 
8,389,709 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 13,498 
$ 9,709 
Accounts receivable (net of allowance of $184 at September 30, 2012 and December 31, 2011)
205,315 
131,655 
Receivable from affiliates
117 
2,210 
Inventories
29,181 
21,803 
Other current assets
1,531 
1,205 
Total current assets
249,642 
166,582 
Property, plant and equipment (net of accumulated depreciation of $31,545 at September 30, 2012 and $22,611 at December 31, 2011)
285,244 
276,246 
Other assets, net
2,665 
2,666 
Total assets
537,551 
445,494 
Current liabilities:
 
 
Accounts payable
204,144 
125,681 
Payable to affiliates
10,657 
7,991 
Accrued liabilities
9,642 
4,708 
Other current liabilities
2,688 
2,173 
Total current liabilities
227,131 
140,553 
Long-term debt
69 
87 
Commitments and contingencies (Note 4)
   
   
Partners' capital:
 
 
General partner
6,202 
6,097 
Total Partners' capital
310,351 
304,854 
Total liabilities and partners' capital
537,551 
445,494 
Public [Member]
 
 
Partners' capital:
 
 
Common units
129,910 
127,531 
Sem Group [Member]
 
 
Partners' capital:
 
 
Common units
38,165 
37,739 
Subordinated units – SemGroup (8,389,709 units issued and outstanding at September 30, 2012 and December 31, 2011)
$ 136,074 
$ 133,487 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Accounts receivable, allowance
$ 184 
$ 184 
Property, plant and equipment, accumulated depreciation
$ 31,545 
$ 22,611 
Public [Member]
 
 
Common units, issued
7,000,000 
7,000,000 
Common units, outstanding
7,000,000 
7,000,000 
Sem Group [Member]
 
 
Common units, issued
1,389,709 
1,389,709 
Common units, outstanding
1,389,709 
1,389,709 
Subordinated units, issued
8,389,709 
8,389,709 
Subordinated units, outstanding
8,389,709 
8,389,709 
Condensed Consolidated Statements of Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenues, including revenues from affiliates (Note 7):
 
 
 
 
Product
$ 120,358 
$ 95,430 
$ 435,814 
$ 271,824 
Service
11,196 
9,142 
32,932 
27,077 
Other
44 
(59)
220 
Total revenues
131,554 
104,616 
468,687 
299,121 
Expenses, including expenses from affiliates (Note 7):
 
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
111,790 
90,660 
412,847 
252,804 
Operating
5,698 
4,530 
17,146 
13,695 
General and administrative
4,081 
2,040 
8,830 
6,507 
Depreciation and amortization
3,066 
3,122 
9,032 
8,505 
Total expenses
124,635 
100,352 
447,855 
281,511 
Operating income
6,919 
4,264 
20,832 
17,610 
Other expenses:
 
 
 
 
Interest expense
450 
434 
1,407 
1,405 
Other expense (income)
72 
(202)
Total other expenses
450 
434 
1,479 
1,203 
Net income
6,469 
3,830 
19,353 
16,407 
General Partner Interest [Member]
 
 
 
 
Other expenses:
 
 
 
 
General partner's interest in net income
129 
 
387 
 
Subordinated Units [Member]
 
 
 
 
Basic weighted average number of limited partner units outstanding:
 
 
 
 
Basic weighted average number of limited partner units outstanding
8,390 
 
 
 
Common Units [Member] |
Common Units [Member]
 
 
 
 
Other expenses:
 
 
 
 
General partner's interest in net income
3,170 
 
9,483 
 
Earnings per limited partner unit (Note 6)
 
 
 
 
Limited partner units
$ 0.38 
 
$ 1.13 
 
Common Units [Member] |
Subordinated Units [Member]
 
 
 
 
Basic weighted average number of limited partner units outstanding:
 
 
 
 
Basic weighted average number of limited partner units outstanding
8,390 
 
8,390 
 
Diluted weighted average number of limited partner units outstanding:
 
 
 
 
Diluted weighted average number of limited partner units outstanding
8,409 
 
8,404 
 
Subordinated Units [Member] |
Subordinated Units [Member]
 
 
 
 
Other expenses:
 
 
 
 
General partner's interest in net income
$ 3,170 
 
$ 9,483 
 
Earnings per limited partner unit (Note 6)
 
 
 
 
Limited partner units
$ 0.38 
 
$ 1.13 
 
Basic weighted average number of limited partner units outstanding:
 
 
 
 
Basic weighted average number of limited partner units outstanding
 
 
8,390 
 
Diluted weighted average number of limited partner units outstanding:
 
 
 
 
Diluted weighted average number of limited partner units outstanding
8,390 
 
8,390 
 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities:
 
 
Net income
$ 19,353 
$ 16,407 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
9,032 
8,505 
Loss on disposal of long-lived assets, net
56 
12 
Amortization of debt issuance costs
261 
Recovery of uncollectible accounts receivable
(900)
Non-cash equity compensation
218 
Net unrealized (gain) loss related to derivative instruments
(432)
(334)
Changes in assets and liabilities:
 
 
Decrease (increase) in accounts receivable
(73,660)
(12,296)
Decrease (increase) in receivable from affiliates
2,093 
(202)
Decrease (increase) in inventories
(7,557)
(296)
Decrease (increase) in margin deposits
448 
1,711 
Decrease (increase) in other current assets
(342)
52 
Decrease (increase) in other assets
(21)
37 
Increase (decrease) in accounts payable and accrued liabilities
83,408 
34,938 
Increase (decrease) in payable to affiliates
2,668 
Net cash provided by operating activities
35,525 
47,637 
Cash flows from investing activities:
 
 
Capital expenditures
(17,552)
(25,545)
Proceeds from sale of long-lived assets
145 
Net cash used in investing activities
(17,407)
(25,542)
Cash flows from financing activities:
 
 
Change in book overdrafts
286 
Debt issuance costs
(239)
Borrowings on debt and other obligations
76,500 
Principal payments on debt and other obligations
(76,500)
(8)
Principal payments on capital lease obligations
(16)
Net distributions to partners
(14,074)
(22,676)
Net cash used in financing activities
(14,329)
(22,398)
Net increase (decrease) in cash and cash equivalents
3,789 
(303)
Cash and cash equivalents at beginning of period
9,709 
303 
Cash and cash equivalents at end of period
$ 13,498 
$ 0 
Overview
OVERVIEW
OVERVIEW
Rose Rock Midstream, L.P., a Delaware limited partnership, was formed in August 2011. On November 29, 2011, SemGroup Corporation contributed a wholly-owned subsidiary, Rose Rock Midstream Crude, L.P. (formerly known as SemCrude, L.P.), to Rose Rock Midstream, L.P., in return for limited partner interests, general partner interests and certain incentive distribution rights in Rose Rock Midstream, L.P. On December 14, 2011, Rose Rock Midstream, L.P. completed an initial public offering in which it sold 7,000,000 common units representing limited partner interests.
The general partner of Rose Rock Midstream, L.P. is Rose Rock Midstream GP, LLC, which is a wholly-owned subsidiary of SemGroup Corporation. SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified midstream services to the energy industry. SemGroup Corporation is the successor entity of SemGroup, L.P., which was an Oklahoma limited partnership.
The terms “we,” “our,” “us,” “Rose Rock,” the “Partnership” and similar language used in these notes to the unaudited condensed consolidated financial statements refer to Rose Rock Midstream, L.P, its subsidiaries, and its predecessor. The term “SemGroup” refers to SemGroup Corporation, SemGroup, L.P., and their other controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements of Rose Rock Midstream, L.P. include the activity of its predecessor prior to November 29, 2011. The predecessor included Rose Rock Midstream Crude, L.P. (“Rose Rock Crude”), a wholly-owned subsidiary of SemGroup Corporation (exclusive of Rose Rock Crude’s ownership interest in SemCrude Pipeline, L.L.C., which holds a 51% ownership interest in White Cliffs Pipeline, L.L.C. ("White Cliffs")). Subsequent to November 29, 2011, these condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries, which include Rose Rock Crude.
These 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 SEC. These condensed consolidated 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. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated.
These condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2011, is derived from audited financial statements.
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 and nine months ended September 30, 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 SEC, 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. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited condensed 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 SEC.
Our significant accounting policies are consistent with those described in our Annual Report on Form 10-K for the year ended December 31, 2011.
SemGroup bankruptcy
On July 22, 2008 (the “Petition Date”), SemGroup, L.P., SemCrude, L.P. (“SemCrude”) and Eaglwing, L.P. (“Eaglwing”) filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. While in bankruptcy, SemGroup, L.P. filed a plan of reorganization with the court, which was confirmed on October 28, 2009 (the “Plan of Reorganization”). The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, the equity structure of the reorganized company upon emergence and the financing arrangements upon emergence. SemGroup, SemCrude, and Eaglwing emerged from bankruptcy protection on November 30, 2009 (the “Emergence Date”).
Recent accounting pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-4, “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.
Financial Instruments
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
Commodity derivative contracts
Our 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.
Our commodity derivatives were comprised of crude oil and natural gas liquids forward contracts and futures contracts. These are defined as follows:
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.
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.
We record certain commodity derivative assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of these assets and liabilities at September 30, 2012 and December 31, 2011 (in thousands):
 
September 30, 2012
 
Level 1
 
Netting*
 
Total
Assets
$
609

 
$
(15
)
 
$
594

Liabilities
15

 
(15
)
 

Net assets at fair value
$
594

 
$

 
$
594


 
December 31, 2011
 
Level 1
 
Netting*
 
Total
Assets
$
393

 
$
(231
)
 
$
162

Liabilities
231

 
(231
)
 

Net assets at fair value
$
162

 
$

 
$
162

* Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
“Level 1” measurements use as inputs unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include futures contracts that are traded on an exchange.
“Level 2” measurements use as inputs market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter (“OTC”) traded physical fixed price purchases and sales forward contracts.
“Level 3” measurements use as inputs information from a pricing service and internal valuation models incorporating observable and unobservable market data. For 2011, these included physical fixed price purchases and sales forward contracts with an affiliate for which there was not a highly liquid OTC market and, therefore, were not included in Level 1 or Level 2 above.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment, and may affect the valuation of assets and liabilities and their placement within the fair value levels. At September 30, 2012, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
There were no financial assets or liabilities classified as Level 3 during the three months and nine months ended September 30, 2012. The following tables reconcile changes in the fair value of commodity derivatives classified as Level 3 in the fair value hierarchy (in thousands):
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
 
Beginning balance
$

 
$
481

Total loss (realized and unrealized) included in product revenues

 
(1,032
)
Settlements

 
(291
)
Ending balance
$

 
$
(842
)
Amount of total loss included in earnings for the period attributable to the change in unrealized gain or loss relating to commodity derivative assets and liabilities still held at the reporting date
$

 
$
(842
)

 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
Beginning balance
$

 
$
1,619

Total loss (realized and unrealized) included in product revenues

 
(842
)
Settlements

 
(1,619
)
Ending balance
$

 
$
(842
)
Amount of total loss included in earnings for the period attributable to the change in unrealized gain or loss relating to commodity derivative assets and liabilities still held at the reporting date
$

 
$
(842
)
The following table sets forth the notional quantities for commodity derivative instruments entered into during the periods indicated (in thousands of barrels):
 
 
Three Months Ended September 30, 2012

Three Months Ended September 30, 2011

Nine Months Ended September 30, 2012

Nine Months Ended September 30, 2011
 



Sales
470

 
820

 
1,153

 
5,440

Purchases
380

 
785

 
1,066

 
5,570

We have not designated any of our commodity derivative instruments as accounting hedges. We record the fair value of the derivative instruments on our condensed consolidated balance sheets in other current assets and other current liabilities. The fair value of our commodity derivative assets and liabilities recorded to other current assets and other current liabilities was as follows (in thousands):
 
September 30, 2012
 
December 31, 2011
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$
594

 
$

 
$
162

 
$


Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
 
 
Commodity contracts
$
(631
)
 
$
(106
)
 
$
(342
)
 
$
1,313

Long Term Debt
LONG TERM DEBT
LONG-TERM DEBT
At September 30, 2012, we did not have any outstanding borrowings on our $150 million revolving credit facility. We had $38.2 million in outstanding letters of credit and the rate per annum 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 0.5%, depending on a leverage ratio specified in the credit agreement, is charged on any unused capacity of the revolving credit facility.
In September 2012, we amended the credit agreement such that our borrowing capacity under this credit facility can be increased by $400 million, subject to commitments from new lenders or additional commitments from existing lenders. The previous agreement provided for an increase of up to $200 million.
At September 30, 2012, $1.6 million in capitalized loan fees, net of accumulated amortization, was recorded in other noncurrent assets, which is being amortized over the life of the facility.
At September 30, 2012, we had $69 thousand ($93 thousand including current portion) of capital lease obligations reported as long-term debt on the consolidated balance sheet. At September 30, 2012, we had $8.4 million of secured bilateral letters of credit outstanding and the interest rate on $2.7 million of secured bilateral letters of credit was 1.75%. The interest rate in effect on $5.7 million of secured bilateral letters of credit was 2.00%. Secured bilateral letters of credit are external to the facility and do not reduce revolver availability.
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Bankruptcy matters
(a)
Confirmation order appeal
Luke Oil appeal. On October 21, 2009, Luke Oil Company, C&S Oil/Cross Properties, Inc., Wayne Thomas Oil and Gas and William R. Earnhardt Company (collectively, “Luke Oil”) filed an objection to the Plan of Reorganization “to the extent that the Plan of Reorganization may alter, impair, or otherwise adversely affect Luke Oil’s legal rights or other interests.” On October 28, 2009, the bankruptcy court overruled the Luke Oil objection and entered the confirmation order. On November 6, 2009, Luke Oil filed a notice of appeal. On December 23, 2009, Luke Oil’s appeal was docketed in the United States District Court for the District of Delaware. SemGroup filed a motion to dismiss the appeal as equitably moot. On May 21, 2012, the District Court entered an order granting our motion to dismiss Luke Oil’s appeal of the confirmation order. On June 18, 2012, Luke Oil filed its Notice of Appeal, notifying the District Court and the parties to the lawsuit that it was appealing the decision of the District Court to the United States Court of Appeals for the Third Circuit. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this account could have a material adverse impact on us. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
(b)
Claims reconciliation process
A large number of parties have made claims against SemGroup for obligations alleged to have been incurred prior to the Petition Date. 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 SemGroup has begun making distributions to the claimants. SemGroup continues to attempt to settle unresolved claims.
 
Pursuant to the Plan of Reorganization, SemGroup committed to settle all pre-petition 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. The resolution of most of the outstanding claims will not impact the total amount of consideration SemGroup will give to the claimants; instead, the resolution of the claims will impact the relative share of the total consideration that each claimant receives.
However, there is a specified group of claims for which SemGroup could be required to pay additional funds to settle. Pursuant to the Plan of Reorganization, SemGroup set aside a specified amount of restricted cash at the Emergence Date, which SemGroup expected to be sufficient to settle this group of claims. Since the Emergence Date, SemGroup has made significant progress in resolving these claims, and continues to believe that the cash set aside at the Emergence Date will be sufficient to pay these claims. However, SemGroup has not yet reached a resolution of all of these claims and, if the total settlement amount of these claims exceeds the specified amount, SemGroup will be required to pay additional funds to these claimants, and we could be required to share in this expense. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
Environmental
We may from time to time experience leaks of petroleum products from our facilities and, as a result of which, we may incur remediation obligations or property damage claims. In addition, we are subject to numerous environmental regulations. Failure to comply with these regulations could result in the assessment of fines or penalties by regulatory authorities.
The Kansas Department of Health and Environment (“KDHE”) initiated discussions during SemGroup’s bankruptcy proceeding regarding five of our sites in Kansas that KDHE believed, 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. SemGroup 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. SemGroup has conducted Phase II investigations at all sites. Three of the five sites have limited amounts of soil contamination that will be excavated and/or remediated on site. Three of the five sites appear to have ground water contamination that may require further delineation and/or on-going monitoring. Work plans have been submitted to, and approved by, the KDHE. SemGroup does not anticipate any penalties or fines for these historical sites. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
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 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. SemGroup responded to Blueknight’s letter denying their charges and requesting documentation from Blueknight of its claim. On February 14, 2012, after months of interaction between the parties through which SemGroup requested Blueknight to substantiate its claim, Blueknight filed suit against SemGroup in the District Court of Oklahoma County, Oklahoma. On May 1, 2012, the court approved SemGroup’s motion to transfer this case to Tulsa County, Oklahoma. On July 2, 2012, the Tulsa County District Court appointed a Special Master to conduct a review of whether Blueknight is missing 141,000 barrels of crude oil from operations occurring during the months of April through June, 2010. The Special Master will prepare an advisory report to the Court of her findings and conclusions. SemGroup believes this matter is without merit and will vigorously defend their position; however, they cannot predict the outcome. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
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 effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain and estimates of our consolidated liabilities may change materially as circumstances develop.
Asset retirement obligations
We may be subject to removal and restoration costs upon retirement of our facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and related facilities would become completely obsolete and require decommissioning. Accordingly, we have not recorded a liability or corresponding asset, as both the amount and timing of such potential future costs are indeterminable.
Purchase and sale commitments
We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We create a margin for these purchases by entering into various types of physical and financial sales and exchange transactions through which we seek to maintain a position that is substantially balanced between purchases on the one hand and sales and future delivery obligations on the other. We account for derivatives at fair value with the exception of commitments which have been designated as normal purchases and sales for which we do not record assets or liabilities related to these agreements until the product is purchased or sold. At September 30, 2012, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
77

 
$
6,922

Fixed price sales
88

 
$
8,440

Floating price purchases
25,422

 
$
2,397,146

Floating price sales
25,177

 
$
2,405,088

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.
Partners' Capital and Distributions
PARTNERS' CAPITAL AND DISTRIBUTIONS
PARTNERS’ CAPITAL AND DISTRIBUTIONS
Unaudited condensed consolidated statement of changes in partners’ capital
The following table shows the changes in our consolidated partners’ capital accounts from December 31, 2011 to September 30, 2012 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
General
Partner
Interest
 
Total
Partners’
Capital
Balance at December 31, 2011
$
127,531

 
$
37,739

 
$
133,487

 
$
6,097

 
$
304,854

Net income
7,915

 
1,568

 
9,483

 
387

 
19,353

Distributions
(5,754
)
 
(1,142
)
 
(6,896
)
 
(282
)
 
(14,074
)
Non-cash equity compensation
218

 

 

 

 
218

Balance at September 30, 2012
$
129,910

 
$
38,165

 
$
136,074

 
$
6,202

 
$
310,351

 

Distribution rights
We intend to pay a minimum quarterly distribution of $0.3625 per unit, to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. We refer to this cash as “available cash,” and it is defined in our partnership agreement. Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors.
Our partnership agreement requires that we distribute all of our available cash each quarter in the following manner:
first, 98.0% to the holders of common units and 2.0% to our general partner, until each common unit has received the minimum quarterly distribution of $0.3625, plus any arrearages from prior quarters;
second, 98.0% to the holders of subordinated units and 2.0% to our general partner, until each subordinated unit has received the minimum quarterly distribution of $0.3625; and
third, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unit has received a distribution of $0.416875.
If cash distributions to our unitholders exceed $0.416875 per unit in any quarter, our general partner will receive, in addition to distributions on its 2.0% general partner interest, increasing percentages, up to 48.0%, of the cash we distribute in excess of that amount. We refer to these distributions as “incentive distributions.” The following table summarizes the incentive distribution levels:
 
 
 
 
 
 
 
Marginal Percentage
Interest in Distributions
 
 
Total Quarterly Distribution
Per Unit Target Amount
 
Unitholders
 
General
Partner
Interest
 
Incentive
Distribution
Rights
Minimum Quarterly Distribution
 
 
 
$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 declared in January 2012
On January 23, 2012, we declared a distribution of $0.0670 (calculated as the $0.3625 minimum quarterly distribution, prorated based on the length of time during the three months ended December 31, 2011, that was subsequent to our initial public offering). This distribution was paid on February 13, 2012, to unitholders of record as of February 3, 2012.
Distribution declared in April 2012
On April 24, 2012, we declared a distribution of $0.3725 per unit, or $1.49 per unit on an annualized basis. This was a 2.8% increase over the prior quarter. This distribution was paid on May 15, 2012, to all unitholders of record as of May 7, 2012.
Distribution declared in July 2012
On July 24, 2012, we declared a distribution of $0.3825 per unit, or $1.53 per unit on an annualized basis. This was a 2.7% increase over the prior quarter. This distribution was paid on August 14, 2012, to all unitholders of record as of August 6, 2012.
Distribution declared in October 2012
On October 24, 2012, we declared a distribution of $0.3925 per unit, or $1.57 per unit on an annualized basis. This was a 2.6% increase over the prior quarter. This distribution will be paid on November 14, 2012, to all unitholders of record as of November 5, 2012.
Equity incentive plan
On December 8, 2011, the board of directors of our general partner adopted the Rose Rock Midstream Equity Incentive Plan (the “Incentive Plan”). We have reserved 840,000 limited partner common units for issuance to non-management directors and employees under the Incentive Plan. At September 30, 2012, there are 38,359 unvested restricted unit awards that have been granted pursuant to the Incentive Plan. Generally, the awards vest three years after the date of grant for employees and one year after the date of grant for non-managerial directors, contingent upon the continued service of the recipients and may be subject to accelerated vesting in the event of involuntary terminations.
The holders of these restricted units are entitled to equivalent distributions (“Unvested Unit Distributions” or “UUD’s”) to be received upon vesting of the restricted unit awards. The distributions will be settled in common units based on the market price of our limited partner common units as of the close of business on the vesting date. The UUD’s are subject to the same forfeiture and acceleration conditions as the associated restricted units. At September 30, 2012, the value of the UUD’s was approximately $32 thousand. This is equivalent to approximately 981 common units based on the quarter end close of business market price of our common units of $32.10 per unit.
Earnings Per Limited Partner Unit
EARNINGS PER LIMITED PARTNER UNIT
EARNINGS PER LIMITED PARTNER UNIT
Net income is allocated to the general partner and the limited partners in accordance with their respective partnership percentages, after giving effect to any priority income allocations for incentive distributions that are allocated to the general partner.
Basic and diluted earnings per limited partner unit is determined by dividing net income allocated to the limited partners by the weighted average number of limited partner units for such class outstanding during the period. Diluted earnings per limited partner unit reflects, where applicable, the potential dilution that could occur if securities or other agreements to issue additional units of a limited partner class, such as restricted unit awards, were exercised, settled or converted into such units.
The following table sets forth the computation of basic and diluted earnings per limited partner unit for the three months and nine months ended September 30, 2012 (amounts in thousands, except per unit data):
 
Three Months Ended September 30, 2012
 
Nine Months Ended September 30, 2012
 
 
Net income
$
6,469

 
$
19,353

Less: General partner’s incentive distribution earned (*)

 

Less: General partner’s 2.0% ownership
129

 
387

Net income allocated to limited partners
$
6,340

 
$
18,966

Numerator for basic and diluted earnings per limited partner unit:
 
 
 
Allocation of net income among limited partner interests:
 
 
 
Net income allocable to common units
$
3,170

 
$
9,483

Net income allocable to subordinated units
$
3,170

 
$
9,483

Net income allocated to limited partners
$
6,340

 
$
18,966

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
Basic weighted average number of limited partner common units outstanding
8,390

 
8,390

Effect of dilutive securities
19

 
14

Diluted weighted average number of limited partner common units outstanding
8,409

 
8,404

Basic and diluted weighted average number of subordinated units outstanding
8,390

 
8,390

Basic & diluted net income per limited partner unit:
 
 
 
Common units
$
0.38

 
$
1.13

Subordinated units
$
0.38

 
$
1.13


(*) Based on the amount of the distribution declared per common and subordinated unit related to earnings for the three months and nine months ended September 30, 2012, our general partner was not entitled to receive any incentive distribution for this period.
Related Party Transactions
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
Direct employee expenses
We do not directly employ any persons to manage or operate our business. These functions are performed by employees of SemGroup. SemGroup charged us $2.9 million and $2.6 million during the three months ended September 30, 2012 and 2011, respectively, for direct employee costs. SemGroup charged us $8.9 million and $7.7 million during the nine months ended September 30, 2012 and 2011, respectively, for direct employee costs. These expenses were recorded to operating expenses and general and administrative expenses in our condensed consolidated statements of income.
Allocated expenses
SemGroup incurs expenses to provide certain indirect corporate general and administrative services to its subsidiaries. Such expenses include employee compensation costs, professional fees and rental fees for office space, among other expenses. SemGroup charged us $2.8 million and $1.0 million during the three months ended September 30, 2012 and 2011, respectively, for such allocated costs. SemGroup charged us $4.8 million and $3.4 million during the nine months ended September 30, 2012 and 2011, respectively, for such allocated costs. These expenses were recorded to general and administrative expenses in our condensed consolidated statements of income.
The increase in the allocation, as compared to prior year, is primarily due to the reallocation of SemGroup overhead to its subsidiaries based on a transfer pricing study which was completed during the third quarter. The year to date adjustment was recorded in the third quarter and not allocated to prior periods.
SemGroup credit facilities
SemGroup was a borrower under various credit agreements during the periods included in these financial statements. Prior to our initial public offering, SemCrude, along with other subsidiaries of SemGroup, served as subsidiary guarantors under certain of these agreements. SemGroup did not allocate this debt to its subsidiaries and our condensed consolidated statements of income do not include any allocated interest expense prior to our initial public offering. SemGroup did not charge us interest expense on intercompany payables.
Prior to our initial public offering, we utilized letters of credit under SemGroup’s credit facilities. Our condensed consolidated statements of income include direct charges from SemGroup for letter of credit usage, which is reported within interest expense.
Subsequent to our initial public offering, which was completed on December 14, 2011, our assets no longer serve as collateral under SemGroup’s credit agreement.
Predecessor cash management
Prior to our initial public offering, we participated in SemGroup’s cash management program. Under this program, cash we received from customers was transferred to SemGroup on a regular basis; when we remitted payments to suppliers, SemGroup transferred cash to us to cover the payments. Such cash transfers were recorded to intercompany accounts.
NGL Energy
SemGroup acquired certain ownership interests in NGL Energy Partners LP (“NGL Energy”) and its general partner on November 1, 2011. During the three months and nine months ended September 30, 2012, we made purchases of natural gasoline and condensate at market prices from NGL Energy in the amount of $10.9 million and $36.6 million, respectively.
SemStream
We purchased condensate at market prices from SemStream, L.P. (“SemStream”), which is a wholly-owned subsidiary of SemGroup. Certain of these purchases were fixed price forward purchases, which we recorded at fair value at each balance sheet date, with the unrealized gains (losses) being recorded to revenue. Our transactions with SemStream consisted of the following (in thousands):
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
 
 
Sales
$

 
$
(1,322
)
 
$

 
$
(2,460
)
Purchases
$

 
$
14,725

 
$

 
$
44,248


SemGas
We purchase condensate at market prices from SemGas, L.P. (“SemGas”), which is a wholly-owned subsidiary of SemGroup. Our purchases from SemGas included the following (in thousands):
 
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
 
 
Purchases
$
2,251

 
$
1,245

 
$
7,534

 
$
4,526

White Cliffs Pipeline, L.L.C.
SemGroup owns 51% of White Cliffs and exercises significant influence over it. We generated storage revenues from White Cliffs of $0.6 million and $0.6 million for the three months ended September 30, 2012 and September 30, 2011, respectively. We generated storage revenues from White Cliffs of $1.8 million and $1.6 million for the nine months ended September 30, 2012 and September 30, 2011, respectively.
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. We paid $0.1 million and $0.1 million in legal fees and related expenses to this law firm during the three months ended September 30, 2012 and 2011, respectively. We paid $0.4 million and $0.2 million in legal fees and related expenses to this law firm during the nine months ended September 30, 2012 and 2011, respectively.
Overview (Policies)
Basis of presentation
These condensed consolidated financial statements of Rose Rock Midstream, L.P. include the activity of its predecessor prior to November 29, 2011. The predecessor included Rose Rock Midstream Crude, L.P. (“Rose Rock Crude”), a wholly-owned subsidiary of SemGroup Corporation (exclusive of Rose Rock Crude’s ownership interest in SemCrude Pipeline, L.L.C., which holds a 51% ownership interest in White Cliffs Pipeline, L.L.C. ("White Cliffs")). Subsequent to November 29, 2011, these condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries, which include Rose Rock Crude.
These 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 SEC. These condensed consolidated 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. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated.
These condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2011, is derived from audited financial statements.
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 and nine months ended September 30, 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 SEC, 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. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited condensed 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 SEC.
Our significant accounting policies are consistent with those described in our Annual Report on Form 10-K for the year ended December 31, 2011.
Sem
Recent accounting pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-4, “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.
“Level 1” measurements use as inputs unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include futures contracts that are traded on an exchange.
“Level 2” measurements use as inputs market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter (“OTC”) traded physical fixed price purchases and sales forward contracts.
“Level 3” measurements use as inputs information from a pricing service and internal valuation models incorporating observable and unobservable market data. For 2011, these included physical fixed price purchases and sales forward contracts with an affiliate for which there was not a highly liquid OTC market and, therefore, were not included in Level 1 or Level 2 above.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment, and may affect the valuation of assets and liabilities and their placement within the fair value levels. At September 30, 2012, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
There were no financial assets or liabi
Financial Instruments (Tables)
We record certain commodity derivative assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of these assets and liabilities at September 30, 2012 and December 31, 2011 (in thousands):
 
September 30, 2012
 
Level 1
 
Netting*
 
Total
Assets
$
609

 
$
(15
)
 
$
594

Liabilities
15

 
(15
)
 

Net assets at fair value
$
594

 
$

 
$
594


 
December 31, 2011
 
Level 1
 
Netting*
 
Total
Assets
$
393

 
$
(231
)
 
$
162

Liabilities
231

 
(231
)
 

Net assets at fair value
$
162

 
$

 
$
162

* Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
There were no financial assets or liabilities classified as Level 3 during the three months and nine months ended September 30, 2012. The following tables reconcile changes in the fair value of commodity derivatives classified as Level 3 in the fair value hierarchy (in thousands):
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
 
Beginning balance
$

 
$
481

Total loss (realized and unrealized) included in product revenues

 
(1,032
)
Settlements

 
(291
)
Ending balance
$

 
$
(842
)
Amount of total loss included in earnings for the period attributable to the change in unrealized gain or loss relating to commodity derivative assets and liabilities still held at the reporting date
$

 
$
(842
)

 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
Beginning balance
$

 
$
1,619

Total loss (realized and unrealized) included in product revenues

 
(842
)
Settlements

 
(1,619
)
Ending balance
$

 
$
(842
)
Amount of total loss included in earnings for the period attributable to the change in unrealized gain or loss relating to commodity derivative assets and liabilities still held at the reporting date
$

 
$
(842
)
The following table sets forth the notional quantities for commodity derivative instruments entered into during the periods indicated (in thousands of barrels):
 
 
Three Months Ended September 30, 2012

Three Months Ended September 30, 2011

Nine Months Ended September 30, 2012

Nine Months Ended September 30, 2011
 



Sales
470

 
820

 
1,153

 
5,440

Purchases
380

 
785

 
1,066

 
5,570

We have
The fair value of our commodity derivative assets and liabilities recorded to other current assets and other current liabilities was as follows (in thousands):
 
September 30, 2012
 
December 31, 2011
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$
594

 
$

 
$
162

 
$

Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
 
 
Commodity contracts
$
(631
)
 
$
(106
)
 
$
(342
)
 
$
1,313

Commitments and Contingencies (Tables)
Purchase and sale commitments
s included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
77

 
$
6,922

Fixed price sales
88

 
$
8,440

Floating price purchases
25,422

 
$
2,397,146

Floating price sales
25,177

 
$
2,405,088

Certain of the commi
Partners' Capital and Distributions (Tables)
The following table shows the changes in our consolidated partners’ capital accounts from December 31, 2011 to September 30, 2012 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
General
Partner
Interest
 
Total
Partners’
Capital
Balance at December 31, 2011
$
127,531

 
$
37,739

 
$
133,487

 
$
6,097

 
$
304,854

Net income
7,915

 
1,568

 
9,483

 
387

 
19,353

Distributions
(5,754
)
 
(1,142
)
 
(6,896
)
 
(282
)
 
(14,074
)
Non-cash equity compensation
218

 

 

 

 
218

Balance at September 30, 2012
$
129,910

 
$
38,165

 
$
136,074

 
$
6,202

 
$
310,351

The following table summarizes the incentive distribution levels:
 
 
 
 
 
 
 
Marginal Percentage
Interest in Distributions
 
 
Total Quarterly Distribution
Per Unit Target Amount
 
Unitholders
 
General
Partner
Interest
 
Incentive
Distribution
Rights
Minimum Quarterly Distribution
 
 
 
$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
%
Earnings Per Limited Partner Unit (Tables)
Computation of basic and diluted earnings
The following table sets forth the computation of basic and diluted earnings per limited partner unit for the three months and nine months ended September 30, 2012 (amounts in thousands, except per unit data):
 
Three Months Ended September 30, 2012
 
Nine Months Ended September 30, 2012
 
 
Net income
$
6,469

 
$
19,353

Less: General partner’s incentive distribution earned (*)

 

Less: General partner’s 2.0% ownership
129

 
387

Net income allocated to limited partners
$
6,340

 
$
18,966

Numerator for basic and diluted earnings per limited partner unit:
 
 
 
Allocation of net income among limited partner interests:
 
 
 
Net income allocable to common units
$
3,170

 
$
9,483

Net income allocable to subordinated units
$
3,170

 
$
9,483

Net income allocated to limited partners
$
6,340

 
$
18,966

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
Basic weighted average number of limited partner common units outstanding
8,390

 
8,390

Effect of dilutive securities
19

 
14

Diluted weighted average number of limited partner common units outstanding
8,409

 
8,404

Basic and diluted weighted average number of subordinated units outstanding
8,390

 
8,390

Basic & diluted net income per limited partner unit:
 
 
 
Common units
$
0.38

 
$
1.13

Subordinated units
$
0.38

 
$
1.13

Related Party Transactions (Tables)
The following table sets forth the notional quantities for commodity derivative instruments entered into during the periods indicated (in thousands of barrels):
 
 
Three Months Ended September 30, 2012

Three Months Ended September 30, 2011

Nine Months Ended September 30, 2012

Nine Months Ended September 30, 2011
 



Sales
470

 
820

 
1,153

 
5,440

Purchases
380

 
785

 
1,066

 
5,570

We have
ansactions with SemStream consisted of the following (in thousands):
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
 
 
Sales
$

 
$
(1,322
)
 
$

 
$
(2,460
)
Purchases
$

 
$
14,725

 
$

 
$
44,248


SemG
urchases from SemGas included the following (in thousands):
 
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
 
 
 
Purchases
$
2,251

 
$
1,245

 
$
7,534

 
$
4,526

Whit
Overview (Details)
1 Months Ended
Dec. 31, 2011
Sep. 30, 2012
Overview (Textual) [Abstract]
 
 
Initial Public Offering
7,000,000 
 
Ownership Interest
 
51.00% 
Financial Instruments (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Summarized balance of assets and liabilities
 
 
Assets
$ (594)
$ (162)
Liabilities
Net assets at fair value
(594)
(162)
Level 1 [Member]
 
 
Summarized balance of assets and liabilities
 
 
Assets
(609)
(393)
Liabilities
(15)
(231)
Net assets at fair value
(594)
(162)
Netting [Member]
 
 
Summarized balance of assets and liabilities
 
 
Assets
(15)1
(231)1
Liabilities
(15)1
(231)1
Net assets at fair value
$ 0 1
$ 0 1
Financial Instruments (Details 1) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation
 
 
 
 
Beginning balance
$ 0 
$ 481 
$ 0 
$ 1,619 
Total gain (realized and unrealized) included in product revenues
(1,032)
(842)
Settlements
(291)
(1,619)
Ending balance
(842)
(842)
Amount of total loss included in earnings for the period attributable to the change in unrealized gain or loss relating to commodity derivative assets and liabilities still held at the reporting date
$ 0 
$ (842)
$ 0 
$ (842)
Financial Instruments (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Notional quantities for commodity derivative instruments
 
 
 
 
Sales
$ 470 
$ 820 
$ 1,153 
$ 5,440 
Purchases
$ 380 
$ 785 
$ 1,066 
$ 5,570 
Financial Instruments (Details 3) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Fair value of commodity derivative assets and liabilities
 
 
Assets
$ 594 
$ 162 
Liabilities
Commodity Contract [Member] |
Assets [Member]
 
 
Fair value of commodity derivative assets and liabilities
 
 
Assets
594 
162 
Commodity Contract [Member] |
Liabilities [Member]
 
 
Fair value of commodity derivative assets and liabilities
 
 
Liabilities
$ 0 
$ 0 
Financial Instruments (Details 4) (Commodity Contract [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Commodity Contract [Member]
 
 
 
 
Realized and unrealized gains (losses) from commodity derivatives
 
 
 
 
Commodity contracts
$ (631)
$ (106)
$ (342)
$ 1,313 
Long Term Debt (Details) (USD $)
9 Months Ended
Sep. 30, 2012
Aug. 31, 2012
Long Term Debt (Textual) [Abstract]
 
 
Capitalized loan fees
$ 1,600,000 
 
Revolving Credit Facility [Member]
 
 
Long Term Debt (Textual) [Abstract]
 
 
Outstanding borrowings
 
Agreement value of credit facility
150,000,000 
 
Outstanding letters of credit
38,200,000 
 
Rate of outstanding letter of credit
2.25% 
 
Line of Credit Facility, Maximum Borrowing Capacity
400,000,000 
200,000,000 
Fronting fee on outstanding letter of credit
0.25% 
 
Noncurrent Capital Lease Obligations
69,000 
 
Capital lease obligations
93,000 
 
Revolving Credit Facility [Member] |
Secured Bilateral [Member]
 
 
Long Term Debt (Textual) [Abstract]
 
 
Outstanding letters of credit
8,400,000 
 
Revolving Credit Facility [Member] |
Maximum [Member]
 
 
Long Term Debt (Textual) [Abstract]
 
 
Commitment fee on unused capacity
0.50% 
 
Revolving Credit Facility [Member] |
Minimum [Member]
 
 
Long Term Debt (Textual) [Abstract]
 
 
Commitment fee on unused capacity
0.375% 
 
1.75% Letter of Credit [Member] |
Revolving Credit Facility [Member] |
Secured Bilateral [Member]
 
 
Long Term Debt (Textual) [Abstract]
 
 
Outstanding letters of credit
2,700,000 
 
Rate of outstanding letter of credit
1.75% 
 
2.0% Letter of Credit [Member] |
Revolving Credit Facility [Member] |
Secured Bilateral [Member]
 
 
Long Term Debt (Textual) [Abstract]
 
 
Outstanding letters of credit
$ 5,700,000 
 
Rate of outstanding letter of credit
2.00% 
 
Commitments and Contingencies (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
bbl
Purchase and sale commitments
 
Fixed price purchases volume (in barrels)
77,000 
Fixed price purchases value
$ 6,922 
Fixed price sales volume (in barrels)
88,000 
Fixed price sales value
8,440 
Floating price purchases volume (in barrels)
25,422,000 
Floating price purchases value
2,397,146 
Floating price sales volume (in barrels)
25,177,000 
Floating price sales value
$ 2,405,088 
Commitments and Contingencies (Details Textual)
9 Months Ended
Sep. 30, 2012
Number_Of_Sites
Aug. 18, 2011
bbl
Jun. 30, 2012
Minimum [Member]
Jun. 30, 2012
Maximum [Member]
Loss Contingency By Period [Line Items]
 
 
 
 
Period of agreement notice
 
 
30 days 
120 days 
Commitments and Contingencies (Textual) [Abstract]
 
 
 
 
Legal proceedings number of sites
 
 
 
Number of sites with less soil contamination
 
 
 
Number of sites with ground water contamination
 
 
 
Barrels of crude oil owed
 
141,000 
 
 
Partners' Capital and Distributions (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Increase (Decrease) in Partners' Capital
 
 
 
 
Beginning Balance
 
 
$ 304,854 
 
Net income
(6,469)
(3,830)
(19,353)
(16,407)
Distributions
 
 
(14,074)
 
Non-cash equity compensation
 
 
(218)
Ending Balance
310,351 
 
310,351 
 
Common Units - Public [Member]
 
 
 
 
Increase (Decrease) in Partners' Capital
 
 
 
 
Beginning Balance
 
 
127,531 
 
Net income
 
 
(7,915)
 
Distributions
 
 
(5,754)
 
Non-cash equity compensation
 
 
(218)
 
Ending Balance
129,910 
 
129,910 
 
Common Units - SemGroup [Member]
 
 
 
 
Increase (Decrease) in Partners' Capital
 
 
 
 
Beginning Balance
 
 
37,739 
 
Net income
 
 
(1,568)
 
Distributions
 
 
(1,142)
 
Non-cash equity compensation
 
 
 
Ending Balance
38,165 
 
38,165 
 
Subordinated Units [Member]
 
 
 
 
Increase (Decrease) in Partners' Capital
 
 
 
 
Beginning Balance
 
 
133,487 
 
Net income
 
 
(9,483)
 
Distributions
 
 
(6,896)
 
Non-cash equity compensation
 
 
 
Ending Balance
136,074 
 
136,074 
 
General Partner Interest [Member]
 
 
 
 
Increase (Decrease) in Partners' Capital
 
 
 
 
Beginning Balance
 
 
6,097 
 
Net income
 
 
(387)
 
Distributions
 
 
(282)
 
Non-cash equity compensation
 
 
 
Ending Balance
$ 6,202 
 
$ 6,202 
 
Partners' Capital and Distribution (Details 1)
9 Months Ended
Sep. 30, 2012
Minimum Quarterly Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.3625 
First Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.3625 
Second Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.3625 
Third Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.416875 
Thereafter [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.416875 
Maximum [Member] |
First Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.416875 
Maximum [Member] |
Second Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.453125 
Maximum [Member] |
Third Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.543750 
Minimum [Member] |
Minimum Quarterly Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.3625 
Minimum [Member] |
First Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.3625 
Minimum [Member] |
Second Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.416875 
Minimum [Member] |
Third Target Distribution [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.453125 
Minimum [Member] |
Thereafter [Member]
 
Incentive distribution level
 
Total quarterly distribution per unit target amount (in dollars per share)
$ 0.543750 
Unitholders [Member] |
Minimum Quarterly Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
98.00% 
Unitholders [Member] |
First Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
98.00% 
Unitholders [Member] |
Second Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
85.00% 
Unitholders [Member] |
Third Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
75.00% 
Unitholders [Member] |
Thereafter [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
50.00% 
General Partner Interest [Member] |
Minimum Quarterly Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
2.00% 
General Partner Interest [Member] |
First Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
2.00% 
General Partner Interest [Member] |
Second Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
2.00% 
General Partner Interest [Member] |
Third Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
2.00% 
General Partner Interest [Member] |
Thereafter [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
2.00% 
Incentive Distribution Rights [Member] |
Minimum Quarterly Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
0.00% 
Incentive Distribution Rights [Member] |
First Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
0.00% 
Incentive Distribution Rights [Member] |
Second Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
13.00% 
Incentive Distribution Rights [Member] |
Third Target Distribution [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
23.00% 
Incentive Distribution Rights [Member] |
Thereafter [Member]
 
Incentive distribution level
 
Marginal percentage interest in distributions
48.00% 
Partners' Capital and Distribution (Details Textual) (USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended 0 Months Ended
Jul. 24, 2012
Apr. 30, 2012
Jan. 31, 2012
Dec. 31, 2011
Sep. 30, 2012
UnitAwards
Dec. 8, 2011
Sep. 30, 2012
Employee [Member]
Sep. 30, 2012
Non-managerial directors [Member]
Sep. 30, 2012
Minimum Quarterly Distribution [Member]
Sep. 30, 2012
First Target Distribution [Member]
Sep. 30, 2012
Second Target Distribution [Member]
Sep. 30, 2012
Third Target Distribution [Member]
Sep. 30, 2012
Thereafter [Member]
Sep. 30, 2012
Common unit [Member]
Minimum Quarterly Distribution [Member]
Sep. 30, 2012
Common unit [Member]
First Target Distribution [Member]
Sep. 30, 2012
Common unit [Member]
Second Target Distribution [Member]
Sep. 30, 2012
Common unit [Member]
Third Target Distribution [Member]
Sep. 30, 2012
Common unit [Member]
Thereafter [Member]
Sep. 30, 2012
General Partner Interest [Member]
Minimum Quarterly Distribution [Member]
Sep. 30, 2012
General Partner Interest [Member]
First Target Distribution [Member]
Sep. 30, 2012
General Partner Interest [Member]
Second Target Distribution [Member]
Sep. 30, 2012
General Partner Interest [Member]
Third Target Distribution [Member]
Sep. 30, 2012
General Partner Interest [Member]
Thereafter [Member]
Sep. 30, 2012
Incentive Distribution Rights [Member]
Minimum Quarterly Distribution [Member]
Sep. 30, 2012
Incentive Distribution Rights [Member]
First Target Distribution [Member]
Sep. 30, 2012
Incentive Distribution Rights [Member]
Second Target Distribution [Member]
Sep. 30, 2012
Incentive Distribution Rights [Member]
Third Target Distribution [Member]
Sep. 30, 2012
Incentive Distribution Rights [Member]
Thereafter [Member]
Oct. 24, 2012
Dividend Declared [Member]
Subsequent Event [Member]
Total quarterly distribution per unit target amount (in dollars per share)
 
 
 
 
 
 
 
 
$ 0.3625 
$ 0.3625 
$ 0.3625 
$ 0.416875 
$ 0.416875 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marginal percentage interest in distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
98.00% 
98.00% 
85.00% 
75.00% 
50.00% 
2.00% 
2.00% 
2.00% 
2.00% 
2.00% 
0.00% 
0.00% 
13.00% 
23.00% 
48.00% 
 
Vesting period
 
 
 
 
 
 
3 years 
1 year 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Partners capital and distributions (Textual) [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution declared (in dollars per share)
$ 0.3825 
$ 0.3725 
$ 0.0670 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 0.3925 
Distribution calculated (in dollars per share)
 
 
 
$ 0.3625 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized distribution declared per unit (in dollars per unit)
1.53 
1.49 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.57 
Prior quarter increase on annualized basis
2.70% 
2.80% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.60% 
Common units issued
 
 
 
 
 
840,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unvested restricted unit awards
 
 
 
 
38,359 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unvested unit distributions value
 
 
 
 
$ 32 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unvested unit distributions
 
 
 
 
981 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unvested unit distributions per unit (in dollars per unit)
 
 
 
 
32.10 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings Per Limited Partner Unit (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Earnings Per Share [Abstract]
 
 
 
 
Net income
$ 6,469 
$ 3,830 
$ 19,353 
$ 16,407 
Less: General partner's incentive distribution earned
1
 
1
 
Net income allocated to limited partners
6,340 
 
18,966 
 
Common Units [Member]
 
 
 
 
Denominator for basic and diluted earnings per limited partner unit: