ROSE ROCK MIDSTREAM, L.P., 10-K filed on 2/29/2012
Annual Report
Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Jun. 30, 2012
Jan. 31, 2012
Common Units [Member]
Jan. 31, 2012
Subordinated Units [Member]
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Document Fiscal Year Focus
2011 
 
 
 
Entity Registrant Name
Rose Rock Midstream, L.P. 
 
 
 
Entity Central Index Key
0001527622 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
8,428,922 
8,389,709 
Entity Well-known Seasoned Issuer
No 
 
 
 
Entity Public Float
 
$ 0 
 
 
Entity Current Reporting Status
No 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
ASSETS
 
 
Cash and cash equivalents
$ 9,709 
$ 303 
Accounts receivable
131,655 
73,387 
Receivable from affiliates
2,210 
80 
Inventories
21,803 
17,968 
Other current assets
1,205 
4,280 
Total current assets
166,582 
96,018 
Property, plant and equipment (net of accumulated depreciation of $22,611 at December 31, 2011 and $11,243 at December 31, 2010)
276,246 
260,048 
Other assets, net
2,666 
1,065 
Total assets
445,494 
357,131 
LIABILITIES AND PARTNERS' CAPITAL
 
 
Accounts payable
125,681 
51,210 
Payable to affiliates
7,991 
Accrued liabilities
4,708 
10,278 
Other current liabilities
2,173 
5,653 
Total current liabilities
140,553 
67,143 
Long-term debt
87 
 
Commitments and contingencies (Note 7)
   
   
Equity:
 
 
Predecessor partners' capital
 
289,988 
Total Partners' Capital
304,854 
289,988 
Total liabilities and partners' capital
445,494 
357,131 
Public [Member]
 
 
Equity:
 
 
Common units
127,531 
 
SemGroup [Member]
 
 
Equity:
 
 
Common units
37,739 
 
Subordinated units
133,487 
 
General partner units
$ 6,097 
 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Property, plant and equipment accumulated depreciation
$ 22,611 
$ 11,243 
Public [Member]
 
 
Common units, issued
7,000,000 
 
Common units, outstanding
7,000,000 
 
SemGroup [Member]
 
 
Common units, issued
1,389,709 
 
Common units, outstanding
1,389,709 
 
Subordinated units, issued
8,389,709 
 
Subordinated units, outstanding
8,389,709 
 
General partner units, issued
342,437 
 
General partner units, outstanding
342,437 
 
Consolidated Statements Of Income (USD $)
1 Months Ended 11 Months Ended 12 Months Ended
Dec. 31, 2009
Nov. 30, 2009
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Subsequent To Initial Public Offering [Member]
Dec. 31, 2011
General Partner Interest [Member]
Subsequent To Initial Public Offering [Member]
Dec. 31, 2011
Common Units [Member]
Dec. 31, 2011
Common Units [Member]
Subsequent To Initial Public Offering [Member]
Dec. 31, 2011
Subordinated Units [Member]
Dec. 31, 2011
Subordinated Units [Member]
Subsequent To Initial Public Offering [Member]
Revenues, including revenues from affiliates (Note 12):
 
 
 
 
 
 
 
 
 
 
Product
$ 6,724,000 
$ 197,203,000 
$ 395,301,000 
$ 158,308,000 
 
 
 
 
 
 
Service
3,891,000 
40,281,000 
35,801,000 
49,408,000 
 
 
 
 
 
 
Other
 
3,000 
219,000 
365,000 
 
 
 
 
 
 
Total revenues
10,615,000 
237,487,000 
431,321,000 
208,081,000 
 
 
 
 
 
 
Expenses, including expenses from affiliates (Note 12):
 
 
 
 
 
 
 
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
5,969,000 
180,154,000 
366,265,000 
146,614,000 
 
 
 
 
 
 
Operating
1,536,000 
15,614,000 
18,973,000 
20,398,000 
 
 
 
 
 
 
General and administrative
1,270,000 
5,813,000 
9,843,000 
7,660,000 
 
 
 
 
 
 
Depreciation and amortization
818,000 
3,193,000 
11,379,000 
10,435,000 
 
 
 
 
 
 
Total expenses
9,593,000 
204,774,000 
406,460,000 
185,107,000 
 
 
 
 
 
 
Operating income
1,022,000 
32,713,000 
24,861,000 
22,974,000 
 
 
 
 
 
 
Other expenses (income):
 
 
 
 
 
 
 
 
 
 
Interest expense
43,000 
1,699,000 
1,823,000 
482,000 
 
 
 
 
 
 
Other expense (income), net
(306,000)
(1,602,000)
(197,000)
(985,000)
 
 
 
 
 
 
Total other expenses (income), net
(263,000)
97,000 
1,626,000 
(503,000)
 
 
 
 
 
 
Income before reorganization items
1,285,000 
32,616,000 
23,235,000 
23,477,000 
 
 
 
 
 
 
Reorganization items gain, including expenses allocated from affiliates (Note 3), net
 
99,936,000 
 
 
 
 
 
 
 
 
Net income
1,285,000 
132,552,000 
23,235,000 
23,477,000 
970,000 
 
 
 
 
 
Allocation of net income subsequent to initial public offering:
 
 
 
 
 
 
 
 
 
 
Net income allocation
 
 
 
 
 
$ 19,000 
 
$ 475,500 
 
$ 475,500 
Earnings per limited partner unit subsequent to initial public offering:
 
 
 
 
 
 
 
 
 
 
Earnings per limited partner unit
 
 
 
 
 
 
 
$ 0.06 
 
$ 0.06 
Weighted average number of limited partner units outstanding:
 
 
 
 
 
 
 
 
 
 
Weighted average number of limited partner units outstanding
 
 
 
 
 
 
8,390 
 
8,390 
 
Consolidated Statements Of Changes In Partners' Capital (Deficit) (USD $)
In Thousands, except Share data
Public [Member]
Common Units [Member]
Prior To Initial Public Offering [Member]
USD ($)
Public [Member]
Common Units [Member]
USD ($)
Public [Member]
SemGroup [Member]
Common Units [Member]
Prior To Initial Public Offering [Member]
USD ($)
SemGroup [Member]
Common Units [Member]
USD ($)
SemGroup [Member]
Subordinated Units [Member]
Prior To Initial Public Offering [Member]
USD ($)
Subordinated Units [Member]
USD ($)
General Partner Interest [Member]
Prior To Initial Public Offering [Member]
USD ($)
General Partner Interest [Member]
USD ($)
Predecessor Net Parent Equity (Deficit) [Member]
Prior To Emergence [Member]
USD ($)
Predecessor Net Parent Equity (Deficit) [Member]
Subsequent To Emergence [Member]
USD ($)
Predecessor Net Parent Equity (Deficit) [Member]
Prior To Contribution of Assets [Member]
USD ($)
Predecessor Net Parent Equity (Deficit) [Member]
Prior To Initial Public Offering [Member]
USD ($)
Predecessor Net Parent Equity (Deficit) [Member]
USD ($)
Prior To Emergence [Member]
USD ($)
Subsequent To Emergence [Member]
USD ($)
Prior To Contribution of Assets [Member]
USD ($)
Prior To Initial Public Offering [Member]
USD ($)
Total
USD ($)
Balance at Dec. 31, 2008
 
 
 
 
 
 
 
 
 
 
$ (1,136,417)
 
 
 
 
$ (1,136,417)
 
 
 
 
Net loss, prior to implementation of Plan of Reorganization
 
 
 
 
 
 
 
 
 
 
(20,328)
 
 
 
 
(20,328)
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
(17)
 
 
 
 
(17)
 
 
 
 
Implementation of Plan of Reorganization
 
 
 
 
 
 
 
 
 
 
1,437,132 
 
 
 
 
1,437,132 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
132,552 
Balance at Nov. 30, 2009
 
 
 
 
 
 
 
 
 
 
(1,156,762)
280,370 
 
 
 
(1,156,762)
280,370 
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
1,285 
 
 
 
 
1,285 
 
 
1,285 
Net distributions to SemGroup
 
 
 
 
 
 
 
 
 
 
 
(1,441)
 
 
 
 
(1,441)
 
 
 
Balance at Dec. 31, 2009
 
 
 
 
 
 
 
 
 
 
 
280,214 
 
 
 
 
280,214 
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
23,477 
 
 
 
 
23,477 
 
 
23,477 
Net distributions to SemGroup
 
 
 
 
 
 
 
 
 
 
 
(13,703)
 
 
 
 
(13,703)
 
 
 
Balance at Dec. 31, 2010
 
 
 
 
 
 
 
 
 
 
 
289,988 
 
 
 
 
289,988 
 
 
289,988 
Net income
 
 
 
 
 
 
 
 
 
 
 
21,087 
 
 
 
 
21,087 
 
 
 
Net distributions to SemGroup
 
 
 
 
 
 
 
 
 
 
 
20,349 
 
 
 
 
 
 
 
 
Balance at Nov. 29, 2011
 
 
 
 
 
 
 
 
 
 
 
 
290,726 
 
 
 
 
290,726 
 
 
Balance at Dec. 31, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
289,988 
Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22,265 
23,235 
Balance at Dec. 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
304,854 
Balance, shares at Dec. 31, 2011
 
 
7,000,000 
 
 
1,389,709 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at Nov. 29, 2011
 
 
 
 
 
 
 
 
 
 
 
 
290,726 
 
 
 
 
290,726 
 
 
Net income
   
 
 
577 
 
 
577 
 
24 
 
 
 
 
   
 
 
 
 
1,178 
 
Net distributions to SemGroup
   
 
 
   
 
 
   
 
   
 
 
 
 
(130,200)
 
 
 
 
(130,200)
 
Contribution of deferred organizational costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,065 
 
 
 
 
3,065 
Net liabilities of predecessor not contributed to Rose Rock Midstream, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,073 
 
 
 
 
3,073 
Contribution of net assets to Rose Rock Midstream, L.P. in exchange for common units, subordinated units, incentive distribution rights, and a 2% general partner interest
   
 
 
35,843 
 
 
124,945 
 
5,876 
 
 
 
 
(166,664)
 
 
 
 
   
 
Balance at Dec. 14, 2011
 
 
 
36,420 
 
 
125,522 
 
5,900 
 
 
 
 
130,200 
 
 
 
 
298,042 
 
Net income
 
397 
 
 
78 
 
 
476 
 
19 
 
 
 
 
 
 
 
 
 
970 
Issuance of common units to the public, net of underwriters' discount and fees
 
127,134,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
127,134,000 
Transfer liability to SemGroup
 
 
 
 
1,241 
 
 
7,489 
 
178 
 
 
 
 
 
 
 
 
 
8,908 
Balance at Dec. 31, 2011
 
$ 127,531 
 
 
$ 37,739 
 
 
$ 133,487 
 
$ 6,097 
 
 
 
 
 
 
 
 
 
$ 304,854 
Balance, shares at Dec. 31, 2011
 
 
7,000,000 
 
 
1,389,709 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements Of Changes In Partners' Capital (Deficit) (Parenthetical) (General Partner Interest [Member])
12 Months Ended
Dec. 31, 2011
General Partner Interest [Member]
 
Partners' interest
2.00% 
Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
1 Months Ended 11 Months Ended 12 Months Ended
Dec. 31, 2009
Nov. 30, 2009
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:
 
 
 
 
Net income
$ 1,285 
$ 132,552 
$ 23,235 
$ 23,477 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
818 
3,193 
11,379 
10,435 
Loss (gain) on disposal of long-lived assets, net
 
(40)
64 
67 
Non-cash reorganization items
 
(24,682)
 
 
Provision for (recovery of) uncollectible accounts receivable
 
 
(916)
3,340 
Gain on fresh start reporting
 
(152,880)
 
 
Changes in assets and liabilities:
 
 
 
 
Decrease (increase) in restricted cash
(3,022)
(13,659)
 
16,681 
Decrease (increase) in accounts receivable
5,277 
630,706 
(57,352)
(69,904)
Decrease (increase) in receivable from affiliates
 
 
(2,130)
(80)
Decrease (increase) in inventories
(2,161)
12,105 
44 
(3,210)
Decrease (increase) in margin deposits
 
 
1,410 
(2,006)
Decrease (increase) in other current assets
(399)
(2,608)
208 
3,801 
Decrease (increase) in other assets
1,587 
3,231 
(368)
121 
Increase (decrease) in accounts payable and accrued liabilities
(1,015)
(528,733)
66,643 
48,005 
Increase (decrease) in payable to affiliates
 
 
7,989 
Change in net derivative asset / liability
(282)
(254)
(787)
763 
Net cash provided by operating activities
2,088 
58,931 
49,419 
31,492 
Cash flows from investing activities:
 
 
 
 
Capital expenditures
(2,047)
(34,530)
(31,635)
(16,732)
Proceeds from sale of long-lived assets
 
40 
Net cash used in investing activities
(2,047)
(34,490)
(31,631)
(16,723)
Cash flows from financing activities:
 
 
 
 
Net proceeds from initial public offering
 
 
127,134 
 
Change in book overdrafts
425 
(807)
 
(425)
Principal payments on capital lease obligations
(40)
(450)
(13)
(338)
Net distributions to SemGroup
(1,441)
(22,169)
(135,503)
(13,703)
Net cash used in financing activities
(1,056)
(23,426)
(8,382)
(14,466)
Net increase (decrease) in cash and cash equivalents
(1,015)
1,015 
9,406 
303 
Cash and cash equivalents at beginning of period
1,015 
 
303 
 
Cash and cash equivalents at end of period
 
$ 1,015 
$ 9,709 
$ 303 
Overview
Overview
1. OVERVIEW

Rose Rock Midstream, L.P. is a Delaware limited partnership. Its operations include the following:

 

   

a storage terminal in Cushing, Oklahoma with over 5.0 million barrels of crude oil storage capacity;

 

   

an approximate 640-mile crude oil gathering and transportation pipeline system and over 530,000 barrels of associated storage in Kansas and northern Oklahoma, and an additional 130,000 barrels currently under construction;

 

   

a crude oil gathering, storage, transportation and marketing business in the Bakken Shale area in western North Dakota and eastern Montana; and

 

   

a modern, ten-lane crude oil truck unloading facility in Platteville, Colorado, which connects to the origination point of White Cliffs Pipeline.

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.

Rose Rock Midstream, L.P. was formed in August 2011. On November 29, 2011, SemGroup Corporation contributed a wholly-owned subsidiary, 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.

Basis of presentation

These consolidated financial statements of Rose Rock Midstream, L.P. include the activity of its predecessor prior to November 29, 2011. The predecessor included SemCrude, L.P. ("SemCrude"), a wholly-owned subsidiary of SemGroup Corporation (exclusive of SemCrude's ownership interests in SemCrude Pipeline, L.L.C., which holds a 51% ownership interest in the White Cliffs Pipeline), and Eaglwing, L.P. ("Eaglwing"), which is also a wholly-owned subsidiary of SemGroup Corporation. Although Eaglwing is not currently conducting any revenue-generating operations and was not contributed to Rose Rock Midstream, L.P., it was included in the financial statements of the predecessor because it previously conducted operations that were similar to those of SemCrude. Eaglwing did not have a significant impact on these financial statements during the periods from 2009 through 2011, other than a $3.4 million reorganization items loss recorded to the statement of income for the eleven months ended November 30, 2009. Subsequent to November 29, 2011, these consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries, which include SemCrude, L.P.

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated. All significant transactions between SemCrude and Eaglwing have been eliminated.

The terms "we", "our", "us", "Rose Rock", the "Partnership" and similar language used in these notes to the 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.

 

SemGroup bankruptcy

On July 22, 2008 (the "Petition Date"), SemGroup, L.P., SemCrude, and Eaglwing filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. While in bankruptcy, SemGroup, L.P. filed a plan of reorganization with the court, which was confirmed on October 28, 2009 (the "Plan of Reorganization"). The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, the equity structure of the reorganized company upon emergence, and the financing arrangements upon emergence. SemGroup Corporation, SemCrude, and Eaglwing emerged from bankruptcy protection on November 30, 2009 (the "Emergence Date").

These consolidated financial statements of Rose Rock Midstream, L.P. and its predecessor include activity prior to emergence from bankruptcy and activity subsequent to emergence from bankruptcy. As described in Note 3, Rose Rock's predecessor applied fresh-start reporting on the Emergence Date. As a result, the consolidated financial statements subsequent to the Emergence Date are not comparable to the consolidated financial statements prior to the Emergence Date.

Ownership

Our partnership interests include the following at December 31, 2011:

 

   

8,389,709 common units representing limited partner interests (of which 1,389,709 units are held by SemGroup)

 

   

8,389,709 subordinated units representing limited partner interests (all of which are held by SemGroup); and

 

   

a 2% general partner interest (which is held by SemGroup).

On December 14, 2011, we sold 7,000,000 common units in an initial public offering. We received net proceeds of $127.1 million, which we distributed to SemGroup (related to assets contributed at formation of Rose Rock).

 

Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES – 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. Our significant estimates include, but are not limited to: (1) allowances for doubtful accounts receivable; (2) estimated useful lives of assets, which impacts depreciation; (3) estimated fair values of long-lived assets recorded in fresh-start reporting; (4) estimated fair values of long-lived assets used in impairment tests; (5) fair values of derivative instruments; and (6) accrual and disclosure of contingent losses. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.

FRESH-START REPORTING – We adopted fresh-start reporting on the Emergence Date. In connection with fresh-start reporting, we recorded our assets and liabilities at fair value at the Emergence Date.

CASH AND CASH EQUIVALENTS – Cash includes currency on hand and demand and time deposits with banks or other financial institutions. Cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase. Balances at financial institutions may exceed federally insured limits.

 

ACCOUNTS RECEIVABLE – Accounts receivable are reported net of the allowance for doubtful accounts. Our assessment of the allowance for doubtful accounts is based on several factors, including the overall creditworthiness of our customers, existing economic conditions, and the amount and age of past due accounts. We enter into netting arrangements with certain counterparties to help mitigate credit risk. Receivables subject to netting are presented as gross receivables (with the related accounts payable also presented gross) until such time as the balances are settled. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are written off against the allowance for doubtful accounts only after all collection attempts have been exhausted.

The allowance for doubtful accounts is $0.2 million at December 31, 2011 and $3.3 million at December 31, 2010. At December 31, 2010, our predecessor had a receivable from a customer in the amount of $3.3 million, on which a full valuation allowance had been recorded. During 2011, our predecessor collected $1.1 million of this receivable, which was recorded as a reduction to operating expense in the consolidated statement of income. SemGroup did not contribute the receivable to Rose Rock, so we are not entitled to the benefit of any additional collections SemGroup may receive on this receivable.

At the Emergence Date, as part of fresh-start reporting, we recorded accounts receivable at fair value. This was accomplished by reducing the allowance for doubtful accounts to zero and recording a corresponding reduction to accounts receivable. We report any amounts we have collected in excess of the estimated Emergence Date fair value as reductions to operating expenses in the consolidated statements of income.

INVENTORIES – Inventories primarily consist of crude oil. Inventories are valued at the lower of cost or market, with cost generally determined using the weighted-average method. The cost of inventory includes applicable transportation costs.

We enter into exchanges with third parties whereby we acquire products that differ in location, grade, or delivery date from products we have available for sale. These exchanges are valued at cost, and although a transportation, location or product differential may be recorded, generally no gain or loss is recognized.

PROPERTY, PLANT AND EQUIPMENT – Property, plant and equipment is recorded at cost (although, as described above, property, plant and equipment was adjusted to fair value at November 30, 2009 upon adoption of fresh-start reporting). We capitalize costs that extend or increase the future economic benefits of property, plant and equipment, and expense maintenance costs that do not. When assets are disposed of, their cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is recorded within operating expenses in the consolidated statements of income.

Depreciation is calculated primarily on the straight-line method over the following estimated useful lives:

 

Pipelines and related facilities

     20 years   

Storage and terminal facilities

     10 –25 years   

Office and other property and equipment

     3 – 7 years   

LINEFILL – Pipelines and storage facilities generally require a minimum volume of product in the system to enable the system to operate. Such product, known as linefill, is generally not available to be withdrawn from the system. Linefill owned by us in facilities operated by us is recorded at historical cost, is included in property, plant and equipment in the consolidated balance sheets, and is not depreciated. We also own linefill in third party facilities, which is included in inventory on the consolidated balance sheets.

 

IMPAIRMENT OF LONG-LIVED ASSETS – We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. We test an asset group for impairment by estimating the undiscounted cash flows expected to result from its use and eventual disposition. If the estimated undiscounted cash flows are lower than the net book value of the asset group, we then estimate the fair value of the asset group and record a reduction to the net book value of the assets and a corresponding impairment loss.

COMMODITY DERIVATIVE INSTRUMENTS – We generally record the fair value of derivative instruments on the consolidated balance sheets and the change in fair value as an increase or decrease to product revenue. As shown in Note 5, the fair value of derivatives at December 31, 2011 and 2010 are recorded to other current assets or other current liabilities on the consolidated balance sheets. Related margin deposits are recorded to other current assets or other current liabilities on the consolidated balance sheets. Margin deposits have not generally been netted against derivative assets or liabilities at December 31, 2011 and 2010.

The fair value of a derivative contract is determined based on the nature of the transaction and the market in which the transaction was executed. Quoted market prices, when available, are used to value derivative transactions. In situations where quoted market prices are not readily available, we estimate the fair value using other valuation techniques that reflect the best information available under the circumstances. Fair value measurements of derivative assets include consideration of counterparty credit risk. Fair value measurements of derivative liabilities include consideration of our creditworthiness.

We have elected "normal purchase" and "normal sale" treatment for certain commitments to purchase or sell petroleum products at future dates. This election is only available when a transaction is expected to result in physical delivery of product over a reasonable period in the normal course of business and is not expected to be net settled. Agreements accounted for under this election are not recorded at fair value; instead, the transaction is recorded when the product is delivered.

INTERCOMPANY ACCOUNTS – 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. In addition, SemGroup incurred certain expenses on our behalf that are reported within our consolidated statements of income.

Prior to our initial public offering, we recorded transactions with SemGroup and its other controlled subsidiaries to intercompany accounts. When our intercompany accounts were in a net receivable position, we reported the balance as a reduction to partners' capital on our consolidated balance sheet. In our consolidated statements of cash flows, we have reported the net change in the intercompany accounts as a financing cash flow within "net distributions to SemGroup". We have reported the net change in partners' capital associated with these transactions with SemGroup as "net distributions to SemGroup" in our consolidated statements of changes in partners' capital (deficit).

CONTINGENT LOSSES – We record a liability for a contingent loss when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We record attorneys' fees incurred in connection with a contingent loss at the time the fees are incurred. We do not record liabilities for attorneys' fees that are expected to be incurred in the future.

ASSET RETIREMENT OBLIGATIONS – Asset retirement obligations include legal or contractual obligations associated with the retirement of long-lived assets, such as requirements to incur costs to dispose of equipment or to remediate the environmental impacts of the normal operation of the assets. We record liabilities for asset retirement obligations when a known obligation exists under current law or contract and when a reasonable estimate of the value of the liability can be made.

REVENUE RECOGNITION – Under our current operations, product revenues relate primarily to our marketing business in the Bakken Shale area and to certain fixed-margin transactions related to our pipeline system in Kansas and Oklahoma. The fixed-margin transactions are structured such that we purchase crude oil from a producer or supplier at a designated receipt point at an index price less a transportation fee, and simultaneously sell an identical volume of crude oil at a designated delivery point to the same party at the same index price, thereby locking a fixed margin that is, in effect, economically equivalent to a transportation fee. Sales of product are recognized at the time title to the product transfers to the purchaser, which typically occurs upon receipt of the product by the purchaser. Any transportation costs we incur to ship product on third-party infrastructure are included in the price of product sold to customers, and are included within product revenues and costs of goods sold. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue). As described in Note 5, product revenues include realized and unrealized gains and losses on commodity derivatives.

Under our current operations, fixed-fee service revenues relate primarily to our storage terminal in Cushing, our pipeline system in Kansas and Oklahoma (excluding transactions whereby we take title to the product while it is in our pipeline system, as described above), and our crude oil truck unloading facility in Platteville, Colorado. Service revenues are recognized at the time the service is performed.

PURCHASES AND SALES OF INVENTORY WITH THE SAME COUNTERPARTY – We routinely enter into transactions to purchase inventory from, and sell inventory to, the same counterparty. Such transactions that are entered into in contemplation of one another are recorded on a net basis.

PREDECESSOR INTEREST EXPENSE – The interest expense reported in our consolidated statements of income prior to our initial public offering consisted of letter of credit fees. SemGroup has been a borrower on several corporate credit agreements (and our assets previously served as collateral under these agreements), but SemGroup did not allocate this debt to its subsidiaries. SemGroup did not charge us interest on the balances in our intercompany accounts.

INCOME TAXES – We are a partnership for income tax purposes and therefore are not subject to federal or state income taxes. The tax on our net income is borne by the individual partners through the allocation of taxable income. Net income for financial statement purposes may differ significantly from taxable income allocated to our partners because of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements of our partnership agreement. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partner's tax attributes is not available to us.

REORGANIZATION ITEMS – As described in Note 1, SemGroup, SemCrude and Eaglwing operated as debtors-in-possession subject to the jurisdiction of the bankruptcy court during the eleven months ended November 30, 2009. Revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the business are reported as reorganization items in the consolidated statement of income for the eleven months ended November 30, 2009. The effects of the adjustments to the reported amounts of assets resulting from the adoption of fresh-start reporting are also reported within reorganization items in the consolidated statement of income for the eleven months ended November 30, 2009.

OPERATING SEGMENT – Our operations are similar in geography, nature of the services we provide, and type of customers we serve. We are managed by SemGroup as one operating segment.

COMPREHENSIVE INCOME – Comprehensive income is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Rose Rock has no items of comprehensive income in any period presented. Therefore, net income as presented in the consolidated statements of income equals comprehensive income.

Reorganization
Reorganization
3. REORGANIZATION

On July 22, 2008, SemGroup and many of its affiliates (including SemCrude and Eaglwing), filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Certain claims against us in existence prior to the filing of the petitions for relief under the federal bankruptcy laws were stayed while SemGroup continued business operations as a debtor-in-possession. We received approval from the court to pay or otherwise honor certain of our obligations incurred before the Petition Date. The court also approved our use of cash to meet our post Petition Date obligations.

While in bankruptcy, SemGroup 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, SemGroup's equity structure upon emergence, and SemGroup's financing arrangements upon emergence.

Determination of reorganization value

An essential element in negotiating a reorganization plan with the various classes of creditors is the determination of reorganization value by the parties in interest. In the event that the parties in interest cannot agree on the reorganization value, the court may be called upon to determine the reorganization value of the entity before a plan of reorganization can be confirmed.

During the reorganization process, a reorganization value was proposed. This reorganization value was ultimately agreed to by the creditors and confirmed by the court. The proposed reorganization value was determined by applying the following valuation methods:

 

   

a "guideline company" approach, in which valuation multiples observed from industry participants were considered and comparisons were made between SemGroup's expected performance relative to other industry participants to determine appropriate multiples to apply;

 

   

analysis of recent transactions involving companies determined to be similar to SemGroup; and

 

   

a calculation of the present value of SemGroup's estimated future cash flows.

After completing this analysis, the reorganization value of SemGroup was determined to be $1.5 billion. This proposed reorganization value was determined using numerous projections and assumptions. These estimates are subject to significant uncertainties, many of which are beyond SemGroup's control, including, but not limited to, the following:

 

   

changes in the economic environment;

 

   

changes in supply or demand for petroleum products;

 

   

changes in prices of petroleum products;

 

   

the ability to successfully implement expansion projects;

 

   

the ability to improve relationships with customers and suppliers, as these relationships were adversely impacted by the bankruptcy filing;

 

   

the ability to renew certain business operations that were limited during the bankruptcy due to limitations on access to capital; and

 

   

the ability to manage the additional costs associated with being a public company.

The use of different estimates could have resulted in a materially different proposed reorganization value, and there can be no assurance that actual results will be consistent with the estimates that were used to determine the proposed reorganization value. The reorganization value confirmed by the court was utilized in the application of fresh-start reporting.

Valuation of our assets and liabilities

SemGroup determined that $280 million of its reorganization value was attributable to us. We recorded individual assets and liabilities based on their estimated fair values at the Emergence Date.

November 30, 2009 balance sheet

The following table shows the effects of the emergence from bankruptcy on our November 30, 2009 consolidated balance sheet (in thousands):

 

     Prior to
Emergence
    Reorganization
Adjustments
    Fresh Start
Adjustments
    Subsequent to
Emergence
 

ASSETS

        

Current assets:

        

Cash and cash equivalents

   $ 1,015      $ —        $ —        $ 1,015   

Restricted cash

     13,659        —          —          13,659   

Accounts receivable

     12,100        —          —          12,100   

Receivable from affiliates

     13,443        (13,443 )(a)      —          —     

Inventories

     12,718        —          —          12,718   

Other current assets

     4,466        (409 )(b)      —          4,057   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     57,401        (13,852     —          43,549   
  

 

 

   

 

 

   

 

 

   

 

 

 

Property, plant and equipment

     95,347        —          157,130 (h)      252,477   

Goodwill

     2,296        —          (2,296 )(h)      —     

Other intangible assets

     1,954        —          (1,954 )(h)      —     

Other assets, net

     2,773        —          —          2,773   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 159,771      $ (13,852   $ 152,880      $ 298,799   
  

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND NET PARTNERS' CAPITAL (DEFICIT)

        

Current liabilities:

        

Accounts payable

   $ 11,726      $ (665 )(c)    $ —        $ 11,061   

Advances from parent

     34,942        (34,942 )(d)      —          —     

Accrued liabilities

     2,355        —          —          2,355   

Payable to affiliates

     4,587        (4,587 )(e)      —          —     

Other current liabilities

     5,013        —          —          5,013   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     58,623        (40,194     —          18,429   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities subject to compromise

     1,257,910        (1,257,910 )(f)      —          —     

Net partners' capital (deficit):

        

Partners' capital (deficit)—Predecessor

     (1,156,762     1,156,762 (g)      —          —     

Partners' capital—Successor

     —          127,490 (g)      152,880 (i)      280,370   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net partners' capital (deficit)

     (1,156,762     1,284,252        152,880        280,370   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and net parent capital (deficit)

   $ 159,771      $ (13,852   $ 152,880      $ 298,799   
  

 

 

   

 

 

   

 

 

   

 

 

 
  (a) Prior to emergence from bankruptcy, we had a receivable from SemCanada Crude Company ("SemCanada Crude"). SemCanada Crude is a wholly-owned subsidiary of SemGroup that applied for bankruptcy protection in Canada in July 2008 and emerged from bankruptcy on November 30, 2009, concurrent with the emergence of SemGroup and SemCrude. Pursuant to the Plan of Reorganization, SemCanada Crude made payments to creditors of SemGroup's U.S. subsidiaries, and accordingly our receivable from SemCanada Crude was extinguished.
  (b) Reflects the transfer to SemGroup of a commodity derivative contract.
  (c) We elected not to cancel certain contracts that were in effect prior to the Petition Date. For these contracts, we were required to make payments to the counterparties to cure defaults on the contracts. These payments were made by SemGroup upon emergence from bankruptcy.
  (d) Our liabilities to SemGroup and its controlled subsidiaries were extinguished pursuant to the Plan of Reorganization.
  (e) Our liability to Blueknight Energy Partners, L.P. (formerly SemGroup Energy Partners, L.P.), which was formerly a subsidiary of SemGroup, was extinguished in the reorganization process.
  (f) Represents the transfer to SemGroup of liabilities subject to compromise, pursuant to the Plan of Reorganization.
  (g) Reflects the cancellation of predecessor capital and the issuance of successor capital.
  (h) Reflects the adjustments to the recorded values of assets resulting from fresh-start reporting.
  (i) Reflects the reorganization items gain resulting from fresh-start reporting.

Reorganization items

The net reorganization items gain shown in the consolidated statement of income for the eleven months ended November 30, 2009 consists of the following (in thousands):

 

Gain on asset revaluation in fresh-start reporting (a)

   $  152,880   

Professional fees (b)

     (74,705

Adjustment to liabilities subject to compromise (c)

     39,780   

Loss on disposal or impairment of long-lived assets (d)

     (11,677

Uncollectable accounts expense (e)

     (3,329

Employment costs (f)

     (2,921

Other

     (92
  

 

 

 

Total reorganization items gain, net

   $ 99,936   
  

 

 

 

 

  (a) We revalued our assets and liabilities in fresh-start reporting, and recorded a reorganization gain for the increase in fair value of the net assets over the previously recorded values.
  (b) SemGroup incurred a variety of professional fees related to the restructuring of the business, including, among others:

 

   

legal fees related to the reorganization process, including those related to bankruptcy court filings and hearings, negotiation of credit agreements, settlements of disputes with claimants, and other matters;

 

   

general management consulting services related to the disposal of assets, the reconciliation and negotiation of pre-petition claims, preparation for emergence from bankruptcy, and other matters;

 

   

valuation advisory fees for the determination of the reorganization value of the business required for the Plan of Reorganization and the valuation of long-lived assets required by fresh-start reporting;

 

   

accounting fees for assistance with fresh-start reporting and preparation for public company financial reporting obligations; and

 

   

fees paid to the United States Trustee.

SemGroup allocated a portion of these fees to us, based on our reorganization value relative to the total reorganization value of SemGroup's United States subsidiaries that emerged from bankruptcy.

 

  (c) Represents refinements to the estimated amount of valid claims by pre-petition creditors. During 2008, we recorded an estimated loss for the total amount of valid claims subject to compromise, reported within revenues, costs of products sold, and reorganization items in the consolidated statements of income. During 2009, we refined this estimate as we reviewed the claims, and reversed some of the amounts that had been accrued in 2008. This amount also includes the return to us of $10 million of cash that had been seized by a creditor. We recorded a loss during 2008 when the cash was seized, and we recorded a gain in 2009 when it was recovered.
  (d) During the eleven months ended November 30, 2009, we reached an agreement with Blueknight to settle a variety of outstanding matters. As part of this settlement, we surrendered property, plant and equipment and recorded a loss of $11.7 million.
  (e) Represents the write-off of receivables in situations where we believe the customer non-payment was related to our bankruptcy. The amounts include recovery of certain receivables from Blueknight Energy Partners, L.P.
  (f) Employment costs include severance related to the termination of employment relationships and bonuses paid to retain personnel during the reorganization.

 

Property, Plant And Equipment
Property, Plant And Equipment
4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):

 

     Subsequent to Emergence  
     December 31,     December 31,  
     2011     2010  

Land

   $ 15,759      $ 16,786   

Pipelines and related facilities

     156,263        147,213   

Storage and terminal facilities

     77,036        70,170   

Linefill

     12,126        16,004   

Office and other property and equipment

     2,716        2,540   

Construction-in-progress

     34,957        18,578   
  

 

 

   

 

 

 

Property, plant and equipment, gross

     298,857        271,291   

Accumulated depreciation

     (22,611     (11,243
  

 

 

   

 

 

 

Property, plant and equipment, net

   $ 276,246      $ 260,048   
  

 

 

   

 

 

 

 

We recorded depreciation expense of $11.4 million for the year ended December 31, 2011, $10.4 million for the year ended December 31, 2010, $0.8 million for the month ended December 31, 2009, and $2.8 million for the eleven months ended November 30, 2009.

 

Financial Instruments And Concentrations Of Risk
Financial Instruments And Concentrations Of Risk
5. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK

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 table below summarizes the balances of these assets and liabilities at December 31, 2011 and 2010 (in thousands):

 

     December 31, 2011      December 31, 2010  
     Level 1      Netting*     Total      Level 1     Level 2     Level 3      Netting*     Total  

Assets

   $ 393       $ (231   $ 162       $ 97,773      $ 208      $ 1,619       $ (97,981   $ 1,619   

Liabilities

     231         (231     —           99,362        863        —           (97,981     2,244   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net assets (liabilities) at fair value

   $ 162       $ —        $ 162       $ (1,589   $ (655   $ 1,619       $ —        $ (625
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

  * 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 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 priced purchases and sales forward contracts.

 

"Level 3" measurements were obtained using information from a pricing service and internal valuation models incorporating observable and unobservable market data. These include physical fixed price purchases and sales forward contracts with an affiliate for which there is not a highly liquid OTC market, and therefore are 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 December 31, 2011 all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.

The following table reconciles changes in the fair value of commodity derivatives classified as Level 3 in the fair value hierarchy (in thousands):

 

    Subsequent to Emergence     Prior to Emergence  
     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Month Ended
December 31, 2009
    Eleven Months
Ended
November 30, 2009
 

Beginning balance

  $ 1,619      $ 218      $ 408      $ (11

Total gain or loss (realized and unrealized) included in product revenues

    —          919        4        2,013   

Settlements

    (1,619     482        (194     (1,594
 

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ —        $ 1,619      $ 218      $ 408   
 

 

 

   

 

 

   

 

 

   

 

 

 

Amount of total gain or 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

  $ —        $ 1,619      $ 218      $ 408   

The following table sets forth the notional quantities for derivative instruments entered into during the periods indicated (amounts in thousands of barrels):

 

    Subsequent to Emergence     Prior to Emergence  
     Year Ended
December 31,
2011
    Year Ended
December 31,
2010
    Month Ended
December 31,
2009
    Eleven Months
Ended
November 30, 2009
 

Sales

    6,309        6,313        69        2,766   

Purchases

    6,457        6,168        49        2,426   

We have not designated any of our commodity derivative instruments as accounting hedges. We record the fair value of the derivative instruments on our 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):

 

 

December 31, 2011             December 31, 2010  

Assets

     Liabilities             Assets      Liabilities  
$  162       $  —              $ 1,619       $ 2,244   

Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):

 

Subsequent to Emergence

       Prior to Emergence  
Year Ended     

Year

Ended

      

Month

Ended

      

Eleven Months

Ended

 

December 31, 2011

     December 31, 2010        December 31, 2009        November 30, 2009  
$ (386)      $ (1,929      $ 282         $ 351   

Concentrations of risk

During the year ended December 31, 2011, we generated approximately $334 million of revenue from five third party customers, which represented approximately 78% of our consolidated revenue. We purchased approximately $35 million of product from one third party supplier, which represented approximately 10% of our costs of products sold. At December 31, 2011, four third party customers accounted for 62% of our consolidated accounts receivable.

During the year ended December 31, 2010, we generated approximately $88 million of revenue from a third party, which represented approximately 42% of our consolidated revenue. We purchased approximately $18 million of product from one third party supplier, which represented approximately 12% of our costs of products sold. At December 31, 2010, two third party customers accounted for 41% of our consolidated accounts receivable.

During the month ended December 31, 2009, we generated approximately $4 million of revenue from a third party, which represented approximately 38% of our consolidated revenue.

During the eleven months ended November 30, 2009, we generated approximately $193 million in revenue from one customer, which represented approximately 80% of our consolidated revenue. We purchased approximately $125 million of product from one supplier, which represented approximately 69% of our costs of products sold.

As described in Note 12, we also generated significant revenues and expenses during the periods from 2009 through 2011 from other subsidiaries of SemGroup.

 

Long-Term Debt
Long-Term Debt

 

6. LONG-TERM DEBT

On November 10, 2011, we entered into a five-year senior secured revolving credit facility agreement. The credit facility under this agreement became effective upon completion of our initial public offering on December 14, 2011.

The 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 an additional $200 million. The credit facility includes a $75 million sub-limit for the issuance of letters of credit. All amounts outstanding under the agreement will be due and payable on December 14, 2016.

At our option, amounts borrowed under the credit agreement will bear interest at either the Eurodollar rate or an alternate base rate ("ABR"), plus, in each case, an applicable margin. Until the date the financial statements relating to the quarter ending March 31, 2012 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 December 31, 2011, we did not have any outstanding borrowings on this facility.

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 December 31, 2011, there were $22.6 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, which are issued external to the credit facility and do not reduce revolver availability. At December 31, 2011, we had $17.0 million of Bilateral Letters of Credit outstanding and the interest rate in effect was 1.75%.

We paid $1.7 million of fees to lenders and advisors which was recorded in other noncurrent assets and is being amortized over the life of the agreement. We recorded $0.1 million of interest expense during December 2011 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 our 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 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 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 of us and our 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 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 relating to our units, including the declaration or payment of cash distributions; provided that we 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 our material domestic subsidiaries and secured by a lien on substantially all of our property and assets, subject to customary exceptions. At December 31, 2011, we were in compliance with the terms of the credit agreement.

At December 31, 2011, we had $87 thousand of capital lease obligations reported as long-term debt on the consolidated balance sheet.

 

Commitments And Contingencies
Commitments And Contingencies
7. 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. (a subsidiary of SemGroup), 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. 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. SemGroup filed a motion to dismiss the appeal as equitably moot. On February 18, 2011, the District Court granted SemGroup's 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. Manchester has not filed a petition for rehearing or a petition for a writ of certiorari with the United States Supreme Court. The deadline for filing a petition for rehearing has passed. The deadline for filing a petition for a writ of certiorari with the Supreme Court is March 2, 2012. Rose Rock is indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.

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. Briefing on this matter is complete but the motion to dismiss has not been ruled upon by the District Court. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.

 

  (b) Claims reconciliation process

A large number of parties have made claims against us 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. Rose Rock is 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 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 ("KDHE") initiated discussions during our 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. We 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. 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. We are preparing work plans to submit to the State of Kansas for approval. We do not anticipate any penalties or fines for these historical sites. Rose Rock is 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, 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 in the District Court of Oklahoma County, Oklahoma in connection with this claim; however, we cannot reliably predict the outcome. Rose Rock is indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.

Asset retirement obligations

We may be subject to removal and restoration costs upon retirement of our 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.

Leases

We have entered into operating lease agreements for office space, office equipment, land, trucks and tank storage. Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2011 are as follows (in thousands):

 

For twelve months ending:       

December 31, 2012

   $ 711   

December 31, 2013

     538   

December 31, 2014

     191   

December 31, 2015

     35   

December 31, 2016

     6   

Thereafter

     2   
  

 

 

 

Total future minimum lease payments

   $ 1,483   
  

 

 

 

We recorded lease and rental expenses of $1.0 million for the year ended December 31, 2011, $0.7 million for the year ended December 31, 2010, $0.1 million for the month ended December 31, 2009, and $0.7 million for the eleven months ended November 30, 2009.

Purchase and sale commitments

We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We establish 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 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 December 31, 2011, such commitments included the following (in thousands):

 

     Volume         
     (barrels)      Value ($)  

Fixed price purchases

     150       $ 13,442   

Fixed price sales

     150       $ 14,496   

Floating price purchases

     32,244       $ 3,129,544   

Floating price sales

     32,556       $ 3,135,741   

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).

 

Employee Benefits And Equity-Based Compensation
Employee Benefits And Equity-Based Compensation
8. EMPLOYEE BENEFITS AND EQUITY-BASED COMPENSATION

We do not directly employ any persons to manage or operate our business, as these functions are performed by employees of SemGroup. At December 31, 2011, SemGroup had approximately 80 employees who were dedicated primarily to the management and operation of our business. None of these employees are represented by labor unions, and none are subject to collective bargaining agreements.

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"). During first quarter 2012, we granted 39,213 awards of restricted units that will vest on January 19, 2015, contingent upon the continued service of the recipients. The awards may be subject to accelerated vesting in the event of involuntary terminations.

SemGroup stock-based compensation

Certain of SemGroup's employees who support us participate in SemGroup's equity-based compensation program. Awards under this program generally represent awards of restricted stock of SemGroup, which are subject to specified vesting periods. SemGroup charged us $0.5 million during the year ended December 31, 2011 and $0.4 million during the year ended December 31, 2010 related to such equity-based compensation. We estimate that we will record expense of $0.5 million during the year ended December 31, 2012, $0.1 million during the year ended December 31, 2013, and $0.1 million during the year ended December 31, 2014, related to such awards that had been granted as of December 31, 2011.

Certain of SemGroup's employees who support us were granted retention awards by SemGroup. These awards vested in December 2011 and were paid in SemGroup stock. SemGroup charged us $0.4 million during the year ended December 31, 2011 and $0.3 million during the year ended December 31, 2010 related to these awards.

Defined contribution plan

Most of the employees of SemGroup who support us participate in one of SemGroup's defined contribution plans. SemGroup charged us $0.3 million during each of the years ended December 31, 2011 and December 31, 2010 for contributions made by SemGroup to this plan.

Allocated employee compensation expenses

As described in Note 12, SemGroup allocated certain corporate general and administrative expenses to us. These allocated expenses included equity-based compensation, retention awards, and defined contribution plan benefits for corporate employees, and such expenses are in addition to the expenses described above for employees who directly support our operations.

 

Partners' Capital And Distributions
Partners' Capital And Distributions

 

9. PARTNERS' CAPITAL AND DISTRIBUTIONS

General partner

SemGroup owns the 2% general partner interest in us, and, through this general partner interest, has the right to manage and operate us. SemGroup may not be removed as general partner except by a vote of the holders of at least 66 2/3% of the outstanding limited partner units voting together as a single class, including any limited partner units owned by our general partner and its affiliates, including SemGroup.

Limited partner interests—common units

Limited partners have the right to vote on certain matters. For example, a unit majority is required to make certain types of amendments to the partnership agreement, to allow the sale substantially all of our assets, or to dissolve the Partnership. Limited partners also have certain distribution rights, as summarized below.

Limited partner interests – subordinated units

The holders of subordinated limited partner units have similar voting rights to holders of common limited partner units. However, as described below, the distribution rights for holders of subordinated units are different than those of common units. The subordinated units will be converted to common units upon the achievement of certain targets specified in our partnership agreement.

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 per unit (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 on February 3, 2012. For this distribution, $0.6 million was paid to our common unitholders, $0.6 million was paid to our subordinated unitholders, and less than $0.1 million was paid to our general partner.

 

Earnings Per Limited Partner Unit
Earnings Per Limited Partner Unit
10. 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. At December 31, 2011, we have none of these types of awards outstanding.

The following table sets forth the computation of basic and diluted earnings per limited partner unit for the period from December 15, 2011 (the day following the closing of our IPO) through December 31, 2011 (amounts in thousands, except per unit data):

     December 15,  2011
through
December 31, 2011
 

Net income

   $ 970  (2) 

Less: General partner's incentive distribution earned (1)

     —     

Less: General partner's 2.0% ownership

     19   
  

 

 

 

Net income allocated to limited partners

   $ 951   
  

 

 

 

Numerator for basic and diluted earnings per limited partner unit:

  

Allocation of net income among limited partner interests:

  

Net income allocable to common units

   $ 475.5   

Net income allocable to subordinated units

     475.5   
  

 

 

 

Net income allocated to limited partners

   $ 951   
  

 

 

 

Denominator

  

Basic and diluted weighted average number of limited partner units outstanding:

  

Common units

     8,390   
  

 

 

 

Subordinated units

     8,390   
  

 

 

 

Basic and diluted net income per limited partner unit:

  

Common units

   $ 0.06   
  

 

 

 

Subordinated units

   $ 0.06   
  

 

 

 

 

(1) Based on the amount of the distribution declared per common and subordinated unit related to earnings for the period from December 15, 2011 through December 31, 2011, our general partner was not entitled to receive any incentive distribution for this period.
(2) Represents December net income adjusted for the impact of certain accruals and prorated for 17 days.

 

Supplemental Information - Statements Of Cash Flows
Supplemental Information - Statements Of Cash Flows
11. SUPPLEMENTAL INFORMATION —STATEMENTS OF CASH FLOWS

The non-cash reorganization items shown on the consolidated statement of cash flows for the eleven months ended November 30, 2009 includes a $3.3 million allowance for uncollectable accounts, an $11.7 million loss on disposal of property, plant and equipment, and a $39.8 million gain on adjustments to liabilities subject to compromise.

As described in Note 3, we transferred certain assets and liabilities to SemGroup on November 30, 2009, pursuant to SemGroup's Plan of Reorganization. This non-cash activity is not reflected in our consolidated statement of cash flows for the eleven months ended November 30, 2009.

On December 15, 2011, we transferred a liability to SemGroup after receiving an indemnification against any loss pursuant to the terms of an omnibus agreement between Rose Rock and SemGroup. This liability related to revenue which was deferred pending resolution of a dispute which arose in connection to a sale of crude oil in June 2011. The transfer of this liability to SemGroup is a non-cash transaction which is not reflected in our consolidated statement of cash flow for the year ended December 31, 2011.

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 $11.3 million during the year ended December 31, 2011, $8.2 million during the year ended December 31, 2010, $0.8 million during the month ended December 31, 2009, and $7.7 million during the eleven months ended November 30, 2009, for direct employee costs. These expenses were recorded to operating expenses and general and administrative expenses in our 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.

For the eleven months ended November 30, 2009, SemGroup's corporate general and administrative expenses were allocated to its subsidiaries based on percentages established by SemGroup management. At the beginning of each year, management estimated corporate general and administrative costs and assigned the subsidiaries a flat monthly charge of that amount. From time to time, the monthly charges were reviewed and adjusted. In addition to the flat monthly charge, the subsidiaries would also be allocated a portion of the over or under allocation of actual corporate general and administrative expense from the prior month. This monthly "true up" was based on each subsidiary's year to date allocation as a percentage of the total year to date corporate general and administrative expense.

Beginning in December 2009, the general and administrative expenses of each corporate department have been allocated to the subsidiaries based on criteria such as actual usage, headcount, and estimates of effort or benefit. The method for allocating cost is based on the type of service being provided. For example, internal audit costs are based on an estimate of effort attributable to a subsidiary. In contrast, certain accounting department costs are allocated based on the number of transactions processed for a given segment compared to the total number processed.

SemGroup charged us $4.5 million during the year ended December 31, 2011, $4.9 million during the year ended December 31, 2010, $1.0 million during the month ended December 31, 2009, and $4.1 million during the eleven months ended November 30, 2009 for such allocated costs. These expenses were recorded to general and administrative expenses in our consolidated statements of income.

Allocated reorganization expenses

As described in Note 3, the reorganization items in our consolidated statement of income for the eleven months ended November 30, 2009 include $74.7 million of professional fees and $2.9 million of employee expenses allocated from SemGroup.

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 and Eaglwing, 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 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 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. As described Note 2, such cash transfers were recorded to intercompany accounts.

NGL Energy

SemGroup acquired certain ownership interests in NGL Energy Partners, L.P. ("NGL Energy") and its general partner on November 1, 2011. Subsequent to that date, we made purchases of natural gasoline from NGL Energy in the amount of $8.9 million.

SemStream

We purchased condensate from SemStream, L.P. ("SemStream"), which is also 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 being recorded to revenue. Our transactions with SemStream consisted of the following (amounts in thousands):

 

     Subsequent to Emergence      Prior to Emergence  
     Year
Ended
December
31, 2011
     Year
Ended
December
31, 2010
     Month
Ended
December
31, 2009
     Eleven Months
Ended

November
30, 2009
 

Revenues

   $ —         $ 1,401       $ —         $ —     

Purchases

   $ 46,738       $ 36,811       $ 2,952       $ 26,306   

SemGas

We purchase condensate from SemGas, L.P. ("SemGas"), which is also a wholly-owned subsidiary of SemGroup. Our purchases from SemGas included the following (amounts in thousands):

 

     Subsequent to Emergence      Prior to Emergence  
     Year
Ended
December
31, 2011
     Year
Ended
December
31, 2010
     Month
Ended
December
31, 2009
     Eleven Months
Ended

November
30, 2009
 

Purchases

   $ 6,547       $  4,427       $  441       $ 3,239   

White Cliffs

SemGroup owned 99% of White Cliffs and controlled it until September 30, 2010. Subsequent to that date, SemGroup owns 51% of White Cliffs and exercises significant influence over it. We generated revenues from White Cliffs of $2.2 million for the year ended December 31, 2011, $1.9 million for the year ended December 31, 2010, $0.1 million for the month ended December 31, 2009, and $0.8 million for the eleven months ended November 30, 2009.

SemCanada Crude

We conduct a crude oil marketing business in the Northern United States. For most of the time during the years 2009 and 2010, we conducted this business along with SemCanada Crude Company ("SemCanada Crude"), which is also wholly-owned by SemGroup. SemCanada Crude would purchase crude oil and sell it to us; we would transport the product and sell it back to SemCanada Crude, which would sell the crude to third parties. Sales to and purchases from SemCanada Crude were recorded within product revenues and costs of goods sold in our consolidated statements of income. The amounts were as follows (amounts in thousands):

 

     Subsequent to Emergence      Prior to Emergence  
     Year
Ended
December
31, 2011
     Year
Ended
December
31, 2010
     Month
Ended
December
31, 2009
     Eleven Months
Ended

November
30, 2009
 

Sales

   $ —         $ 21,526       $ 1,799       $ 141,651   

Purchases

   $ 45       $  11,587       $ —         $ 136,623   

During 2010, SemGroup began winding down the operations of SemCanada Crude. We have continued this marketing operation without the participation of SemCanada Crude.

Blueknight

Blueknight (formerly SemGroup Energy Partners, L.P.) was a controlled subsidiary of SemGroup until July 2008, when certain creditors exercised their option to take control of the Board of Directors of Blueknight's general partner. These creditors also seized all of SemGroup's ownership interests in Blueknight prior to SemGroup's emergence from bankruptcy.

During the eleven months ended November 30, 2009 we purchased crude oil transportation, terminalling, and storage services from Blueknight. During the eleven months ended November 30, 2009, we received payments from Blueknight for transition services. The amounts were as follows for the eleven months ended November 30, 2009 (in thousands):

 

Revenues

   $ 1,358   

Purchases

   $  3,045   

On April 7, 2009, SemGroup and Blueknight executed definitive documentation related to the settlement of certain matters and entered into a settlement of a shared services agreement. As part of the settlement, we transferred certain property, plant and equipment and inventory to Blueknight, and Blueknight transferred certain property, plant and equipment to us. We recorded a loss of $11.7 million to reorganization items in our consolidated statement of income for the eleven months ended November 30, 2009 related to these transfers.

Quarterly Financial Data
Quarterly Financial Data
13. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized information on the consolidated results of income of Rose Rock Midstream, L.P. for the quarters during the year ended December 31, 2011, is shown below (in thousands):

 

$000.00 $000.00 $000.00 $000.00 $000.00
     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
     Total  

Total revenues

   $ 83,791       $ 110,714       $ 104,616       $ 132,200       $ 431,321   

Total expenses

     75,704         105,455         100,352         124,949         406,460   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     8,087         5,259         4,264         7,251         24,861   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other expenses (income), net

     483         286         434         423         1,626   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 7,604       $ 4,973       $ 3,830       $ 6,828       $ 23,235   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Summarized information on the consolidated results of income of Rose Rock Midstream, L.P. for the quarters during the year ended December 31, 2010, is shown below (in thousands):

 

$000.00 $000.00 $000.00 $000.00 $000.00
     First
Quarter
    Second
Quarter
    Third
Quarter
     Fourth
Quarter
    Total  

Total revenues

   $ 53,182      $ 21,635      $ 58,629       $ 74,635      $ 208,081   

Total expenses

     48,521        21,135        50,435         65,016        185,107   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     4,661        500        8,194         9,619        22,974   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other (income) expenses, net

     (654     742        74         (665     (503
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 5,315      $ (242   $ 8,120       $ 10,284      $ 23,477   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Second quarter 2010 total revenues and total expenses were impacted by fluctuations related to nonmonetary transactions which are reported net in accordance with ASC 845-10-15. While changes in the level of such purchase and sale activity between periods can have an effect on the comparability between those periods, there is not an effect on operating income. Second quarter results were also impacted by reduced transportation activity as a subsidiary of our predecessor's parent company took over responsibility for their own trucking April through July of 2010.