ROSE ROCK MIDSTREAM, L.P., 10-Q filed on 5/9/2014
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2014
Apr. 30, 2014
Common Units [Member]
Apr. 30, 2014
Subordinated Units [Member]
Apr. 30, 2014
Common Class A [Member]
Entity Registrant Name
Rose Rock Midstream, L.P.†
Entity Central Index Key
0001527622†
Document Type
10-Q†
Document Period End Date
Mar. 31, 2014†
Amendment Flag
false†
Document Fiscal Year Focus
2014†
Document Fiscal Period Focus
Q1†
Current Fiscal Year End Date
--12-31†
Entity Filer Category
Accelerated Filer†
Entity Common Stock, Shares Outstanding
18,149,448†
8,389,709†
2,500,000†
Condensed Consolidated Balance Sheets†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Current assets:
Cash and cash equivalents
$†2,823†
$†15,459†
Accounts receivable
278,429†
217,213†
Receivable from affiliates
40,631†
56,220†
Inventories
25,765†
30,779†
Other current assets
1,992†
1,916†
Total current assets
349,640†
321,587†
Property, plant and equipment (net of accumulated depreciation of $57,996 and $56,533 at March 31, 2014 and December 31, 2013, respectively)
308,270†
311,616†
Equity method investment
234,742†
224,095†
Goodwill
28,224†
28,322†
Other intangible assets (net of accumulated amortization of $2,021 and $1,155 at March 31, 2014 and December 31, 2013, respectively)
4,859†
5,775†
Other noncurrent assets, net
5,654†
5,852†
Total assets
931,389†
897,247†
Current liabilities:
Accounts payable
266,602†
211,298†
Payable to affiliates
46,916†
69,274†
Accrued liabilities
9,111†
8,645†
Other current liabilities
4,206†
3,814†
Total current liabilities
326,835†
293,031†
Long-term debt
244,578†
245,088†
Commitments and contingencies (Note 6)
  †
  †
Partnersí capital:
General partner
6,232†
5,995†
Total Rose Rock Midstream, L.P. partners' capital
280,450†
280,571†
Noncontrolling interests in consolidated subsidiary
79,526†
78,557†
Total equity
359,976†
359,128†
Total liabilities and equity
931,389†
897,247†
Class A units [Member] |
Semgroup [Member]
Partnersí capital:
Limited partners' capital
40,653†
40,772†
Common Units [Member] |
Public [Member]
Partnersí capital:
Limited partners' capital
159,950†
159,961†
Common Units [Member] |
Semgroup [Member]
Partnersí capital:
Limited partners' capital
79,141†
79,218†
Subordinated Units [Member] |
Semgroup [Member]
Partnersí capital:
Limited partners' capital
$†(5,526)
$†(5,375)
Condensed Consolidated Balance Sheets (Parenthetical)†(USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Accounts receivable, allowance
$†0†
$†0†
Property, plant and equipment, accumulated depreciation
57,996†
56,533†
Other intangible assets, accumulated amortization
$†2,021†
$†1,155†
Subordinated Units [Member] |
Semgroup [Member]
Common units, issued
8,389,709†
8,389,709†
Common units, outstanding
8,389,709†
8,389,709†
Common Units [Member] |
Public [Member]
Common units, issued
13,759,739†
13,759,739†
Common units, outstanding
13,759,739†
13,759,739†
Common Units [Member] |
Semgroup [Member]
Common units, issued
4,389,709†
4,389,709†
Common units, outstanding
4,389,709†
4,389,709†
Class A units [Member] |
Semgroup [Member]
Common units, issued
2,500,000†
2,500,000†
Common units, outstanding
2,500,000†
2,500,000†
Condensed Consolidated Statements of Income (Unaudited)†(USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Revenues, including revenues from affiliates (Note 9):
Product
$†266,290†
$†158,728†
Service
24,633†
12,504†
Total revenues
290,923†
171,232†
Expenses, including expenses from affiliates (Note 9):
Costs of products sold, exclusive of depreciation and amortization
254,537†
148,451†
Operating
14,878†
5,418†
General and administrative
3,623†
3,561†
Depreciation and amortization
10,534†
3,507†
Total expenses
283,572†
160,937†
Earnings from equity method investment
11,080†
3,453†
Operating income
18,431†
13,748†
Other expenses:
Interest expense
2,272†
1,754†
Net income
12,483†
11,994†
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
16,159†
11,994†
Net Income (Loss) Attributable to Noncontrolling Interest
3,676†
0†
Earnings Per Unit [Abstract]
Net income allocated to general partner
738†
281†
Net income allocated to limited partners
11,745†1
11,713†1
Common Units [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
8,114†
6,767†
Earnings per limited partner unit, basic (Note 8)
$†0.45†
$†0.59†
Earnings per limited partner unit, diluted (Note 8)
$†0.45†
$†0.59†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
18,149†
11,465†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
18,198†
11,491†
Subordinated Units [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
3,750†
4,773†
Earnings per limited partner unit, basic and diluted (Note 8)
$†0.45†
$†0.57†
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
8,390†
8,390†
Common Class A [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
$†(119)
$†173†
Earnings per limited partner unit, basic and diluted (Note 8)
$†(0.05)
$†0.16†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
2,500†
1,097†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
2,500†
1,097†
Condensed Consolidated Statements of Cash Flows (Unaudited)†(USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Cash flows from operating activities:
Net income
$†16,159†
$†11,994†
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
10,534†
3,507†
Gain on disposal of long-lived assets, net
34†
0†
Amortization of debt issuance costs
260†
198†
Non-cash equity compensation
260†
143†
Net unrealized (gain) loss related to derivative instruments
606†
(468)
Earnings from equity method investment
11,080†
3,453†
Cash distributions from equity method investment
11,080†
2,892†
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
(61,216)
(8,504)
Decrease (increase) in receivable from affiliates
15,589†
(177)
Decrease (increase) in inventories
3,238†
182†
Decrease (increase) in other current assets
(76)
1,137†
Increase (decrease) in accounts payable and accrued liabilities
55,426†
526†
Increase (decrease) in payable to affiliates
(22,358)
1,938†
Net cash provided by operating activities
18,388†
9,915†
Cash flows from investing activities:
Capital expenditures
(4,908)
(6,479)
Proceeds from sale of long-lived assets
650†
0†
Investments in non-consolidated affiliate
(13,152)
(53,898)
Distributions in excess of equity in earnings of affiliates
2,505†
0†
Net cash used in investing activities
(14,905)
(60,377)
Cash flows from financing activities:
Debt issuance costs
(62)
(1,610)
Borrowings on revolving credit facility
46,000†
191,500†
Principal payments on revolving credit facility
(46,500)
(43,500)
Principal payments on capital lease obligations
(9)
(6)
Proceeds from common L.P. unit issuance, net of offering costs
0†
57,886†
Cash consideration in excess of historical cost of interest in SemCrude Pipeline, L.L.C.
0†
(143,216)
Cash distributions to partners
(12,841)
(8,331)
Cash distributions to noncontrolling interests
(4,324)
0†
Contributions from noncontrolling interests
1,617†
0†
Net cash provided by (used in) financing activities
(16,119)
52,723†
Net increase (decrease) in cash and cash equivalents
(12,636)
2,261†
Cash and cash equivalents at beginning of period
15,459†
108†
Cash and cash equivalents at end of period
$†2,823†
$†2,369†
Overview
OVERVIEW
OVERVIEW
Rose Rock Midstream, L.P. is a Delaware limited partnership. 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.
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, and its subsidiaries. The term “SemGroup” refers to SemGroup Corporation and its controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
The condensed consolidated balance sheet at December 31, 2013, which is derived from audited financial statements, and the unaudited condensed consolidated interim 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 Partnership 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.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
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 consolidated financial statements and notes thereto for the year ended December 31, 2013, which are included in our Annual Report on Form 10-K for the year ended December 31, 2013, 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, 2013.
Investment in non-consolidated affiliate
Equity Method Investments Disclosure [Text Block]
INVESTMENT IN NON-CONSOLIDATED AFFILIATE
SemCrude Pipeline, L.L.C.
Prior to our December 16, 2013 acquisition of additional ownership interests in SemCrude Pipeline, L.L.C. ("SCPL") (Note 3), we accounted for our interest in SCPL under the equity method. Under the equity method, we did not report the individual assets and liabilities of SCPL on our consolidated balance sheets. Instead, our membership interest was reflected in one line as a noncurrent asset on our consolidated balance sheets. Subsequent to our acquisition of additional ownership interest, we have consolidated SCPL and report a noncontrolling interest for the ownership interest in SCPL which was retained by SemGroup. Prior to consolidation, for the three months ended March 31, 2013, we recorded equity in earnings of SCPL of $3.5 million and received $2.9 million of cash distributions related to earnings for January and February 2013, as distributions are paid on a one-month lag.
SCPL's only substantial asset is a 51% interest in White Cliffs Pipeline, L.L.C. ("White Cliffs"), which is accounted for under the equity method.
White Cliffs Pipeline, L.L.C.
Under the equity method, we do not report the individual assets and liabilities of White Cliffs. Instead, our membership interest is reflected in one line as a noncurrent asset on our condensed consolidated balance sheets.
For the three months ended March 31, 2014, we recorded equity in earnings of White Cliffs of $11.1 million and received $13.6 million of cash distributions, of which, approximately 33% was distributed to SemGroup related to their noncontrolling interest in SCPL.
Certain summarized income statement information of White Cliffs for the three months ended March 31, 2014 and 2013 is shown below (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Revenues
$
33,274

 
$
30,673

Operating, general and administrative expenses
$
6,768

 
$
5,179

Depreciation and amortization expense
$
4,393

 
$
4,715

Net income
$
22,113

 
$
20,779


The equity in earnings of White Cliffs for the three months ended March 31, 2014 and 2013 is less than 51% of the net income of White Cliffs for the same periods. This is due to certain general and administrative expenses incurred in managing the operations of White Cliffs that the other owners are not obligated to share. Such expenses are recorded by White Cliffs and are allocated to our ownership interest. White Cliffs recorded $0.4 million and $0.3 million of such general and administrative expense for the three months ended March 31, 2014 and 2013, respectively.
The members of SCPL are required to fund SCPL's capital contribution requirements for White Cliffs related to an expansion project adding a 12-inch line from Platteville, Colorado to Cushing, Oklahoma. For the three months ended March 31, 2014, on a consolidated basis, we contributed $12.8 million to White Cliffs. Remaining contributions will be made in 2014 and are expected to total $40.6 million, of which one-third will be funded directly by SemGroup which holds the noncontrolling interest in SCPL.
Acquisitions
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
ACQUISITIONS

During the year ended December 31, 2013, we completed the following acquisitions:

On January 11, 2013, we acquired a 33% interest in SCPL from SemGroup for (i) cash of approximately $189.5 million, (ii) the issuance of 1.5 million common units, (iii) the issuance of 1.25 million Class A units, and (iv) an increase of the capital account of our general partner and a related issuance of general partner interest, to allow our general partner to maintain its 2% general partner interest in us. SCPL owns a 51% membership interest in White Cliffs. Subsequent to the transaction, our condensed consolidated financial statements reflected our ownership in SCPL on an equity method basis. As the transaction was between entities under common control, we recorded our investment in SCPL based on SemGroup's historical cost. The purchase price in excess of historical cost was treated as an equity transaction with SemGroup, which reduced the partners' capital accounts of our general and limited partners on a pro-rata basis.

On September 1, 2013, we completed the acquisition of the assets of Barcas Field Services, L.L.C. for $49.0 million. During the three months ended March 31, 2014, we recorded a non-cash adjustment to the purchase price allocation which decreased goodwill and other intangible assets by $0.1 million with an offsetting increase to property, plant and equipment.

On November 8, 2013, we acquired a 12-mile, 12-inch crude oil pipeline from Noble Energy, Inc. that extends from Platteville, Colorado to Tampa, Colorado for a purchase price of $8.2 million.

On December 16, 2013, we acquired an additional 33% interest in SCPL from SemGroup in exchange for (i) cash of approximately $173.1 million, (ii) the issuance of 1.5 million common units, (iii) the issuance of 1.25 million Class A units, and (iv) an increase of the capital account of our general partner and a related issuance of general partner interest, to allow our general partner to maintain its 2% general partner interest in us. Subsequent to the transaction, we consolidated SCPL and our condensed consolidated financial statements reflect our ownership of White Cliffs under the equity method. As the transaction was between entities under common control, we recorded our investment in White Cliffs based on SemGroup's historical cost. The purchase price in excess of historical cost was treated as an equity transaction with SemGroup, which reduced the partners' capital accounts of our general and limited partners on a pro-rata basis.
Financial Instruments
Financial Instruments Disclosure [Text Block]
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 can be comprised of crude oil and natural gas liquids forward contracts and futures contracts. These are defined as follows:
Forward contracts – Over the counter ("OTC") contracts to buy or sell a commodity at an agreed upon future date. The buyer and seller agree on specific terms (price, quantity, delivery period, and location) and conditions at the inception of the contract.
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 commodity derivative assets and liabilities at fair value at each balance sheet date with the exception of commitments which have been designated as normal purchases and sales. The table below summarizes the balances of these assets and liabilities at March 31, 2014 and December 31, 2013 (in thousands):
 
March 31, 2014
 
December 31, 2013
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$

 
$

 
$

 
$
36

 
$
(36
)
 
$

Liabilities
666

 

 
666

 
96

 
(36
)
 
60

Net assets (liabilities) at fair value
$
(666
)
 
$

 
$
(666
)
 
$
(60
)
 
$

 
$
(60
)
* 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 are based on inputs consisting of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange.
“Level 2” measurements are based on inputs consisting of market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include OTC traded physical fixed priced purchases and sales forward contracts.
“Level 3” measurements are based on inputs from a pricing service and/or internal valuation models incorporating observable and unobservable market data.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value levels. At March 31, 2014, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
There were no financial assets or liabilities classified as Level 2 or Level 3 during the three months ended March 31, 2014 and 2013, as such no rollforward of activity has been presented.
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 March 31,
 
2014
 
2013
Sales
815

 
610

Purchases
810

 
675

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):
 
March 31, 2014
 
December 31, 2013
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
666

 
$

 
$
60


We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. Our margin deposit balances were $1.4 million and $0.8 million as of March 31, 2014 and December 31, 2013, respectively. These margin account balances have not been offset against our net commodity derivative instrument (contract) positions. Had these margin account balances been netted against our net commodity derivative instrument (contract) positions as of March 31, 2014 and December 31, 2013, we would have had net asset positions of $0.7 million and $0.8 million, respectively.
Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Commodity contracts
$
(807
)
 
$
(544
)

Concentrations of risk
During the three months ended March 31, 2014, two third-party customers accounted for approximately 65% of our consolidated revenue. We purchased approximately $130 million of product from two third-party suppliers, which represented approximately 51% of our costs of products sold. At March 31, 2014, four third-party customers and one related party accounted for 78% of our consolidated accounts receivable.
Long Term Debt
Long-term Debt
LONG-TERM DEBT
Revolving credit facility
At March 31, 2014, we had outstanding borrowings of $244.5 million on our $585 million revolving credit facility, of which $19.5 million incurred interest at the alternate base rate ("ABR") plus an applicable margin, and $225 million incurred interest at the Eurodollar rate plus an applicable margin. The interest rate in effect at March 31, 2014, on $19.5 million of ABR borrowings was 4.0%. The interest rate in effect at March 31, 2014, on $225 million of Eurodollar rate borrowings was 1.99%.
We had $42.4 million in outstanding letters of credit at March 31, 2014 and the rate per annum was 1.75%. In addition, a fronting fee of 0.25% is charged on outstanding letters of credit.
A commitment fee that ranges from 0.375% to 0.50%, depending on a leverage ratio specified in the credit agreement, is charged on any unused capacity of the revolving credit facility.
At March 31, 2014, we had $73.6 million of secured bilateral letters of credit outstanding. The interest rate in effect was 1.75%. Secured bilateral letters of credit are external to the facility and do not reduce revolving credit facility availability.
At March 31, 2014, we were in compliance with the terms of the credit agreement.
At March 31, 2014, $4.6 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 March 31, 2014, we had $38 thousand ($116 thousand including current portion) of capital lease obligations reported as long-term debt on the consolidated balance sheet.
We estimate that the fair value of our long-term debt was not materially different than the reported values at March 31, 2014, and is categorized as a Level 3 measurement. It is our belief that neither the market interest rates nor our credit profile have changed significantly enough to have had a material impact on the fair value of our debt outstanding at March 31, 2014.
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Bankruptcy matters
On July 22, 2008 (the “Petition Date”), SemGroup, L.P., SemCrude, L.P. (“SemCrude”), the predecessor of Rose Rock, 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”).
(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 SemGroup's 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. On August 27, 2013, the United States Court of Appeals for the Third Circuit issued an opinion, and on September 18, 2013 issued a judgment, reversing the District Court’s dismissal of the confirmation order and remanding the case to the District Court for consideration on the merits of Luke Oil’s appeal of the confirmation order. On October 1, 2013, at the request of the parties, the District Court entered an order staying the case and referring it to a magistrate judge for mediation. On January 28, 2014, the parties reached agreement to settle all outstanding disputes. A settlement agreement was executed by the parties pursuant to which each party granted the other a release of claims and causes of action and on March 5, 2014 the appeal was dismissed. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement with SemGroup.
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 with SemGroup.
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 with SemGroup.
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 assisting Blueknight with movement of crude oil belonging to Blueknight’s customers and with 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 perform all services necessary for the movement of its crude oil and the operation of its Cushing terminal without SemCrude's assistance.
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 Blueknight was requested to substantiate its claim, Blueknight filed suit against SemGroup and other related companies in the District Court of Oklahoma County, Oklahoma. On May 1, 2012, the case was transferred to Tulsa County, Oklahoma. On July 2, 2012, the Tulsa County District Court appointed a Special Master to review terminal operations accounting records and determine whether 141,000 barrels of crude oil owned by Blueknight is missing after three months of operations in April through June, 2010. On June 11, 2013, the Special Master’s Report was filed with the District Court finding a shortage in Blueknight’s Cushing terminal and Oklahoma pipeline system of 148,000 barrels. However, after a review of all records created during that three month time period, the Special Master was unable to determine how the shortage might have occurred and was unable to determine the ownership of the potential shortage.
We are currently seeking discovery in the District Court of documentation and testimony on the potential cause and the impact, if any, of the shortage found by the Special Master. On February 20, 2014, the District Court issued an order denying all requests for summary judgment and ordering discovery to go forward. SemGroup will continue to defend its position; however, we cannot predict the outcome. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement with SemGroup.
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 March 31, 2014, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
100

 
$
9,027

Fixed price sales
115

 
$
11,525

Floating price purchases
11,593

 
$
1,123,992

Floating price sales
12,006

 
$
1,171,662


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.
See Note 2 for commitments related to the White Cliffs Pipeline expansion.
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 partners’ capital accounts from December 31, 2013 to March 31, 2014 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
Class A Units
 
General
Partner
Interest
 
Non-controlling Interests
 
Total Equity
Balance at December 31, 2013
$
159,961

 
$
79,218

 
$
(5,375
)
 
$
40,772

 
$
5,995

 
$
78,557

 
$
359,128

Net income
6,150

 
1,964

 
3,750

 
(119
)
 
738

 
3,676

 
16,159

Cash distributions to noncontrolling interest in SemCrude Pipeline

 

 

 

 

 
(4,324
)
 
(4,324
)
Contributions from noncontrolling interest in SemCrude Pipeline

 

 

 

 

 
1,617

 
1,617

Unvested distribution equivalent rights
(23
)
 

 

 

 

 

 
(23
)
Cash distributions to partners
(6,398
)
 
(2,041
)
 
(3,901
)
 

 
(501
)
 

 
(12,841
)
Non-cash equity compensation
260

 

 

 

 

 

 
260

Balance at March 31, 2014
$
159,950

 
$
79,141

 
$
(5,526
)
 
$
40,653

 
$
6,232

 
$
79,526

 
$
359,976

 
The following table shows the cash distributions paid or declared per common limited partner unit during 2014 and 2013:
Quarter Ended
 
Record Date
 
Payment Date
 
Distribution Per Unit
December 31, 2012
 
February 4, 2013
 
February 14, 2013
 
$0.4025
March 31, 2013
 
May 6, 2013
 
May 15, 2013
 
$0.4300
June 30, 2013
 
August 5, 2013
 
August 14, 2013
 
$0.4400
September 30, 2013
 
November 5, 2013
 
November 14, 2013
 
$0.4500
December 31, 2013
 
February 4, 2014
 
February 14, 2014
 
$0.4650
March 31, 2014
 
May 5, 2014
 
May 15, 2014
 
$0.4950

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 granted 24,389 restricted unit awards during the three months ended March 31, 2014, with a weighted average grant date fair value of $38.93. At March 31, 2014, there are 107,337 unvested restricted unit awards that have been granted pursuant to the Incentive Plan. There were no vestings of restricted unit awards during the three months ended March 31, 2014.
The holders of restricted units granted in 2012 are entitled to equivalent distributions (“UUDs”) to be received upon vesting of the restricted unit awards. At March 31, 2014, the value of these UUDs related to unvested restricted units was approximately $117 thousand. This is equivalent to 2,830 common units, based on the quarter end close of business market price of our common units of $41.49 per unit. Distributions related to the restricted unit awards granted subsequent to 2012 will be settled in cash upon vesting. At March 31, 2014, the value of these UUDs related to cash settled unvested restricted units was approximately $74 thousand.
On April 1, 2014, we granted 17,647 restricted unit awards. These awards will be ratably vested over five years.
Equity issuance
On August 13, 2013, we issued 4,750,000 common limited partner units to the public for proceeds of $152.5 million, net of underwriting discounts and commissions of $6.4 million. Our general partner contributed $3.2 million to the Partnership to maintain its 2% ownership. Proceeds were used to repay borrowings on our credit facility.
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, such as 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 ended March 31, 2014 and 2013 (in thousands, except per unit data):
 
Three Months Ended March 31,
 
2014
 
2013
Net income
$
12,483

 
$
11,994

Less: General partner's incentive distribution earned
488

 
41

Less: General partner's 2.0% ownership
250

 
240

Net income allocated to limited partners
$
11,745

 
$
11,713

Numerator for basic and diluted earnings per limited partner unit (*):
 
 
 
Allocation of net income among limited partner interests:
 
 
 
Net income allocable to common units
$
8,114

 
$
6,767

Net income allocable to subordinated units
3,750

 
4,773

Net income (loss) allocable to Class A units
(119
)
 
173

Net income allocated to limited partners
$
11,745

 
$
11,713

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
Basic weighted average number of common units outstanding
18,149

 
11,465

Effect of non-vested restricted units
49

 
26

Diluted weighted average number of common units outstanding
18,198

 
11,491

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

 
8,390

Basic and diluted weighted average number of Class A units outstanding
2,500

 
1,097

Net income per limited partner unit:
 
 
 
Common unit (basic)
$
0.45

 
$
0.59

Common unit (diluted)
$
0.45


$
0.59

Subordinated unit (basic and diluted)
$
0.45


$
0.57

Class A unit (basic and diluted)
$
(0.05
)

$
0.16


(*) We calculate net income allocated to limited partners based on the distributions pertaining to the current period’s available cash as defined by our partnership agreement. After adjusting for the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner, limited partners and participating securities in accordance with the contractual terms of the partnership agreement and as further prescribed under the two-class method. Incentive distribution rights do not participate in undistributed earnings. Class A units do not participate in cash distributions, but are allocated a proportional share of undistributed earnings.
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 $6.2 million and $2.9 million during the three months ended March 31, 2014 and 2013, 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 $1.8 million and $1.3 million during the three months ended March 31, 2014 and 2013, respectively, for such allocated costs. These expenses were recorded to general and administrative expenses in our condensed consolidated statements of income.
NGL Energy Partners LP and subsidiaries (Gavilon, LLC and High Sierra Crude Oil and Marketing, LLC)
SemGroup holds limited partner common units and general partner ownership interests in NGL Energy Partners LP (“NGL Energy”). We generated revenues from NGL Energy of $134.1 million and $161.4 million for the three months ended March 31, 2014 and 2013, respectively. We made purchases of condensate at market prices from NGL Energy in the amount of $157.7 million and $139.9 million for the three months ended March 31, 2014 and 2013, respectively. We received reimbursements from NGL Energy for support services in the amount of $42.0 thousand and $42.0 thousand for the three months ended March 31, 2014 and 2013. Transactions with NGL Energy and its subsidiaries primarily relate to marketing, leased storage and transportation services of crude oil, including buy/sell transactions. In accordance with ASC 845-10-15, these transactions were reported as revenue on a net basis in our condensed consolidated statements income because the purchases of inventory and subsequent sales of the inventory were with the same counterparty. For comparability, prior year amounts above have been recast to include transactions with Gavilon, LLC, which was not a related party until December 2013.

SemGas, L.P.
We purchase condensate at market prices from SemGas, L.P. (“SemGas”), which is a wholly-owned subsidiary of SemGroup. Purchases from SemGas were $9.9 million and $4.1 million for the three months ended March 31, 2014 and 2013, respectively.
White Cliffs
We generated storage revenues from our equity investee, White Cliffs, of $0.8 million and $0.6 million for the three months ended March 31, 2014 and 2013, respectively. We incurred $0.9 million of cost for the three months ended March 31, 2014 related to transportation fees for shipments on White Cliffs.
Legal services
The law firm of Conner & Winters, LLP, of which Mark D. Berman is a partner, performs legal services for us. Mr. Berman is the spouse of Candice L. Cheeseman, General Counsel and Secretary. Mr. Berman does not perform any legal services for us. We paid $0.1 million and $0.1 million in legal fees and related expenses to this law firm during the three months ended March 31, 2014 and 2013 (of which $54.0 thousand was paid by White Cliffs during the three months ended March 31, 2014).
Supplemental Cash Flow Information Supplemental Cash Flow Information
Cash Flow, Supplemental Disclosures [Text Block]
SUPPLEMENTAL CASH FLOW INFORMATION

Acquisition
In the first quarter of 2013, in connection with the acquisition of a 33% interest in SCPL (Note 3), we issued 1.5 million common units and 1.25 million Class A units, valued at $44.4 million and $30.5 million, respectively, as non-cash consideration to SemGroup. In addition, a non-cash contribution of $2.7 million was recorded to the general partner's capital account.
As the transaction occurred between parties under common control, the purchase price in excess of SemGroup's historical cost of the 33% interest in SCPL was treated as an equity transaction with SemGroup, which reduced the partners' capital accounts pro-rata based on ownership percentages. Of the $221.0 million of purchase price in excess of historical cost, $143.2 million represented cash consideration in excess of historical cost and the remaining $77.8 million reduction represented the non-cash portion of the transaction related to equity consideration.
Other supplemental disclosures
We paid cash interest of $2.0 million and $0.4 million for the three months ended March 31, 2014 and 2013, respectively.
We accrued $0.3 million and $0.5 million for purchases of property, plant and equipment for the three months ended March 31, 2014 and 2013, respectively.
Overview (Policies)
OVERVIEW
Rose Rock Midstream, L.P. is a Delaware limited partnership. 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.
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, and its subsidiaries. The term “SemGroup” refers to SemGroup Corporation and its controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
The condensed consolidated balance sheet at December 31, 2013, which is derived from audited financial statements, and the unaudited condensed consolidated interim 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 Partnership 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.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
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 consolidated financial statements and notes thereto for the year ended December 31, 2013, which are included in our Annual Report on Form 10-K for the year ended December 31, 2013, 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, 2013.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
The condensed consolidated balance sheet at December 31, 2013, which is derived from audited financial statements, and the unaudited condensed consolidated interim 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 Partnership 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.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
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 consolidated financial statements and notes thereto for the year ended December 31, 2013, which are included in our Annual Report on Form 10-K for the year ended December 31, 2013, 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, 2013.

Financial Instruments Financial Instruments (Policies)
Fair Value Measurement, Policy [Policy Text Block]
“Level 1” measurements are based on inputs consisting of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange.
“Level 2” measurements are based on inputs consisting of market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include OTC traded physical fixed priced purchases and sales forward contracts.
“Level 3” measurements are based on inputs from a pricing service and/or internal valuation models incorporating observable and unobservable market data.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value levels. At March 31, 2014, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
Investment in non-consolidated affiliate (Tables)
Schedule of Income Statement Information on Equity Method Investments [Table Text Block]
Certain summarized income statement information of White Cliffs for the three months ended March 31, 2014 and 2013 is shown below (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Revenues
$
33,274

 
$
30,673

Operating, general and administrative expenses
$
6,768

 
$
5,179

Depreciation and amortization expense
$
4,393

 
$
4,715

Net income
$
22,113

 
$
20,779

Financial Instruments (Tables)
The table below summarizes the balances of these assets and liabilities at March 31, 2014 and December 31, 2013 (in thousands):
 
March 31, 2014
 
December 31, 2013
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$

 
$

 
$

 
$
36

 
$
(36
)
 
$

Liabilities
666

 

 
666

 
96

 
(36
)
 
60

Net assets (liabilities) at fair value
$
(666
)
 
$

 
$
(666
)
 
$
(60
)
 
$

 
$
(60
)
* Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
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 March 31,
 
2014
 
2013
Sales
815

 
610

Purchases
810

 
675

The fair value of our commodity derivative assets and liabilities recorded to other current assets and other current liabilities was as follows (in thousands):
 
March 31, 2014
 
December 31, 2013
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
666

 
$

 
$
60

Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Commodity contracts
$
(807
)
 
$
(544
)
Commitments and Contingencies (Tables)
Purchase and sale commitments
We account for derivatives at fair value with the exception of commitments which have been designated as normal purchases and sales, for which we do not record assets or liabilities related to these agreements until the product is purchased or sold. At March 31, 2014, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
100

 
$
9,027

Fixed price sales
115

 
$
11,525

Floating price purchases
11,593

 
$
1,123,992

Floating price sales
12,006

 
$
1,171,662

Partners' Capital and Distributions (Tables)
The following table shows the changes in our partners’ capital accounts from December 31, 2013 to March 31, 2014 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
Class A Units
 
General
Partner
Interest
 
Non-controlling Interests
 
Total Equity
Balance at December 31, 2013
$
159,961

 
$
79,218

 
$
(5,375
)
 
$
40,772

 
$
5,995

 
$
78,557

 
$
359,128

Net income
6,150

 
1,964

 
3,750

 
(119
)
 
738

 
3,676

 
16,159

Cash distributions to noncontrolling interest in SemCrude Pipeline

 

 

 

 

 
(4,324
)
 
(4,324
)
Contributions from noncontrolling interest in SemCrude Pipeline

 

 

 

 

 
1,617

 
1,617

Unvested distribution equivalent rights
(23
)
 

 

 

 

 

 
(23
)
Cash distributions to partners
(6,398
)
 
(2,041
)
 
(3,901
)
 

 
(501
)
 

 
(12,841
)
Non-cash equity compensation
260

 

 

 

 

 

 
260

Balance at March 31, 2014
$
159,950

 
$
79,141

 
$
(5,526
)
 
$
40,653

 
$
6,232

 
$
79,526

 
$
359,976

The following table shows the cash distributions paid or declared per common limited partner unit during 2014 and 2013:
Quarter Ended
 
Record Date
 
Payment Date
 
Distribution Per Unit
December 31, 2012
 
February 4, 2013
 
February 14, 2013
 
$0.4025
March 31, 2013
 
May 6, 2013
 
May 15, 2013
 
$0.4300
June 30, 2013
 
August 5, 2013
 
August 14, 2013
 
$0.4400
September 30, 2013
 
November 5, 2013
 
November 14, 2013
 
$0.4500
December 31, 2013
 
February 4, 2014
 
February 14, 2014
 
$0.4650
March 31, 2014
 
May 5, 2014
 
May 15, 2014
 
$0.4950

Earnings Per Limited Partner Unit (Tables)
Computation of basic and diluted earnings per unit
The following table sets forth the computation of basic and diluted earnings per limited partner unit for the three months ended March 31, 2014 and 2013 (in thousands, except per unit data):
 
Three Months Ended March 31,
 
2014
 
2013
Net income
$
12,483

 
$
11,994

Less: General partner's incentive distribution earned
488

 
41

Less: General partner's 2.0% ownership
250

 
240

Net income allocated to limited partners
$
11,745

 
$
11,713

Numerator for basic and diluted earnings per limited partner unit (*):
 
 
 
Allocation of net income among limited partner interests:
 
 
 
Net income allocable to common units
$
8,114

 
$
6,767

Net income allocable to subordinated units
3,750

 
4,773

Net income (loss) allocable to Class A units
(119
)
 
173

Net income allocated to limited partners
$
11,745

 
$
11,713

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
Basic weighted average number of common units outstanding
18,149

 
11,465

Effect of non-vested restricted units
49

 
26

Diluted weighted average number of common units outstanding
18,198

 
11,491

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

 
8,390

Basic and diluted weighted average number of Class A units outstanding
2,500

 
1,097

Net income per limited partner unit:
 
 
 
Common unit (basic)
$
0.45

 
$
0.59

Common unit (diluted)
$
0.45


$
0.59

Subordinated unit (basic and diluted)
$
0.45


$
0.57

Class A unit (basic and diluted)
$
(0.05
)

$
0.16

Investment in non-consolidated affiliate - Summarized Financial Information (Details) (White Cliffs Pipeline L L C [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Summarized Financial Information, Revenue
$†33,274†
$†30,673†
Equity Method Investment, Summarized Financial Information, Operating, General and Administrative Expenses
6,768†
5,179†
Equity Method Investment, Summarized Financial Information, Depreciation and Amortization Expense
4,393†
4,715†
Equity Method Investment, Summarized Financial Information, Net Income (Loss)
$†22,113†
$†20,779†
Investment in non-consolidated affiliate (Details Textual)†(USD $)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Schedule of Equity Method Investments [Line Items]
Earnings from equity method investment
$†11,080,000†
$†3,453,000†
Cash distributions from equity method investment
11,080,000†
2,892,000†
General and administrative expense
3,623,000†
3,561,000†
Payments to acquire equity method investments
13,152,000†
53,898,000†
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
General and administrative expense
400,000†
300,000†
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Earnings from equity method investment
11,100,000†
Cash distributions from equity method investment
13,600,000†
White Cliffs Pipeline L L C [Member] |
SemCrude Pipeline [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investment, ownership percentage
51.00%†
SemCrude Pipeline [Member]
Schedule of Equity Method Investments [Line Items]
Earnings from equity method investment
3,500,000†
Cash distributions from equity method investment
2,900,000†
Equity method investment, ownership percentage
33.00%†
SemCrude Pipeline [Member] |
Semgroup [Member] |
Noncontrolling Interest [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investment, ownership percentage
33.00%†
Pipeline expansion [Member] |
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Width of pipeline in inches
12†
Payments to acquire equity method investments
12,800,000†
Estimated project contributions in year one
$†40,600,000†
Acquisitions (Details Textual)†(USD $)
Share data in Millions, unless otherwise specified
3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Sep. 3, 2013
Barcas Field Services, LLC [Member]
Mar. 31, 2014
Barcas Field Services, LLC [Member]
Nov. 8, 2013
Tampa Pipeline [Member]
Mar. 31, 2014
Tampa Pipeline [Member]
mi
in
Jan. 11, 2013
Common Class A [Member]
Initial Acquisition of 33% Interest in SemCrude Pipeline [Member]
Dec. 16, 2013
Common Class A [Member]
Second Acquisition of 33% Interest in SemCrude Pipeline [Member]
Jan. 11, 2013
Common Units [Member]
Initial Acquisition of 33% Interest in SemCrude Pipeline [Member]
Dec. 16, 2013
Common Units [Member]
Second Acquisition of 33% Interest in SemCrude Pipeline [Member]
Mar. 31, 2014
General Partner [Member]
Mar. 31, 2014
White Cliffs Pipeline L L C [Member]
SemCrude Pipeline [Member]
Mar. 31, 2014
SemCrude Pipeline [Member]
Jan. 11, 2013
SemCrude Pipeline [Member]
Initial Acquisition of 33% Interest in SemCrude Pipeline [Member]
Dec. 16, 2013
SemCrude Pipeline [Member]
Second Acquisition of 33% Interest in SemCrude Pipeline [Member]
Business Acquisition [Line Items]
Equity method investment, ownership percentage
51.00%†
33.00%†
33.00%†
33.00%†
Payments to acquire equity method investments
$†13,152,000†
$†53,898,000†
$†189,500,000†
$†173,100,000†
Units issued as consideration in acquisition
1.25†
1.25†
1.50†
1.50†
Percentage of ownership general partner interest
2.00%†
2.00%†
2.00%†
Payments to acquire business
49,000,000†
Goodwill, Purchase Accounting Adjustments
100,000†
Length Of Pipeline Network
12†
Width of pipeline in inches
12†
Payments to acquire pipeline assets
$†4,908,000†
$†6,479,000†
$†8,200,000†
Financial Instruments - Summarized balance of assets and liabilities (Details)†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets
$†0†
$†0†
Liabilities
666†
60†
Derivative Assets (Liabilities), at Fair Value, Net
(666)
(60)
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets
0†
36†
Liabilities
666†
96†
Derivative Assets (Liabilities), at Fair Value, Net
(666)
(60)
Netting [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets
0†1
(36)1
Liabilities
0†1
(36)1
Derivative Assets (Liabilities), at Fair Value, Net
$†0†1
$†0†1
Financial Instruments - Level 2 and 3 (Details)†(USD $)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation
Level 2 and level 3 fair value transactions
$†0†
$†0†
Financial Instruments - Notional amounts (Details)
3 Months Ended
Mar. 31, 2014
bbl
Mar. 31, 2013
bbl
Purchases [Member]
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount, Volume
810,000†
675,000†
Sales [Member]
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount, Volume
815,000†
610,000†
Financial Instruments - Fair value of commodity derivative assets and liabilities (Details)†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Fair value of commodity derivative assets and liabilities
Assets
$†0†
$†0†
Liabilities
666†
60†
Not Designated as Hedging Instrument [Member] |
Commodity Contract [Member] |
Assets [Member]
Fair value of commodity derivative assets and liabilities
Assets
0†
0†
Not Designated as Hedging Instrument [Member] |
Commodity Contract [Member] |
Liabilities [Member]
Fair value of commodity derivative assets and liabilities
Liabilities
$†666†
$†60†
Financial Instruments - Realized and unrealized gains and losses (Details) (Commodity Contract [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Commodity Contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Realized and unrealized gains (losses) on commodity contracts
$†(807)
$†(544)
Financial Instruments Financial Instruments (Details Textual)†(USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Dec. 31, 2013
Mar. 31, 2014
Commodity Contract [Member]
Dec. 31, 2013
Commodity Contract [Member]
Mar. 31, 2014
Sales Revenue, Goods, Net [Member]
Customer Concentration Risk [Member]
Customer
Mar. 31, 2014
Cost of Goods, Total [Member]
Customer Concentration Risk [Member]
Customer
Mar. 31, 2014
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Customer
Mar. 31, 2014
Affiliated Entity [Member]
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Customer
Offsetting Assets [Line Items]
Margin Deposit Assets
$†1.4†
$†0.8†
Derivative Asset, Fair Value, Amount Offset Against Collateral
0.7†
0.8†
Number of Customers
2†
2†
4†
1†
Concentration Risk, Percentage
65.00%†
51.00%†
78.00%†
Purchases of product
$†130†
Long Term Debt (Details Textual)†(USD $)
3 Months Ended
Mar. 31, 2014
Line of Credit Facility [Line Items]
Unamortized capitalized loan costs
$†4,600,000†
Noncurrent capital lease obligation
38,000†
Capital lease obligations
116,000†
Secured Bilateral [Member]
Line of Credit Facility [Line Items]
Outstanding letters of credit
73,600,000†
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Outstanding borrowings
244,500,000†
Credit facility capacity, current
585,000,000†
Revolving Credit Facility [Member] |
Maximum [Member]
Line of Credit Facility [Line Items]
Commitment fee on unused capacity
0.50%†
Revolving Credit Facility [Member] |
Minimum [Member]
Line of Credit Facility [Line Items]
Commitment fee on unused capacity
0.375%†
1.75% Letter of Credit [Member] |
Secured Bilateral [Member]
Line of Credit Facility [Line Items]
Interest rate
1.75%†
Alternate Base Rate Borrowings [Member] |
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Outstanding borrowings
19,500,000†
Eurodollar Rate Borrowings [Member] |
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Outstanding borrowings
225,000,000†
Letter of Credit [Member] |
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Interest rate
1.75%†
Outstanding letters of credit
$†42,400,000†
Fronting fee on outstanding letter of credit
0.25%†
Base Rate [Member] |
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Interest rate
4.00%†
Eurodollar [Member] |
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Interest rate
1.99%†
Commitments and Contingencies - Purchase and sale commitments (Details)†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
bbl
Floating Price Sales [Member]
Purchase and sale commitments
Sales Commitment Amount
$†1,171,662†
Sales Commitment Volume
12,006,000†
Fixed Price Sales [Member]
Purchase and sale commitments
Sales Commitment Amount
11,525†
Sales Commitment Volume
115,000†
Fixed Price Purchases [Member]
Purchase and sale commitments
Purchase Commitment Volume
100,000†
Purchase Commitment Amount
9,027†
Floating Price Purchases [Member]
Purchase and sale commitments
Purchase Commitment Volume
11,593,000†
Purchase Commitment Amount
$†1,123,992†
Commitments and Contingencies (Details Textual)
3 Months Ended
Mar. 31, 2014
Number_Of_Sites
Jun. 11, 2013
bbl
Aug. 18, 2011
bbl
Commitments and Contingencies (Textual) [Abstract]
Legal proceedings number of sites
5†
Number of sites with less soil contamination
3†
Number of sites with ground water contamination
3†
Barrels of crude oil claimed to be owed
141,000†
Barrels of crude oil determined to be missing
148,000†
Minimum [Member]
Supply Commitment [Line Items]
Period of agreement notice
30 days†
Maximum [Member]
Supply Commitment [Line Items]
Period of agreement notice
120 days†
Partners' Capital and Distributions - Equity rollforward (Details)†(USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Increase (Decrease) in Partners' Capital
Balance at December 31, 2013
$†359,128†
Net income
16,159†
11,994†
Cash distributions to noncontrolling interest in SemCrude Pipeline
(4,324)
Contributions from noncontrolling interest in SemCrude Pipeline
1,617†
Unvested distribution equivalent rights
(23)
Cash distributions to partners
(12,841)
Non-cash equity compensation
260†
Balance at March 31, 2014
359,976†
Class A units [Member]
Increase (Decrease) in Partners' Capital
Balance at December 31, 2013
40,772†
Net income
(119)
Cash distributions to noncontrolling interest in SemCrude Pipeline
0†
Contributions from noncontrolling interest in SemCrude Pipeline
0†
Unvested distribution equivalent rights
0†
Cash distributions to partners
0†
Non-cash equity compensation
0†
Balance at March 31, 2014
40,653†
Common Units - Public [Member]
Increase (Decrease) in Partners' Capital
Balance at December 31, 2013
159,961†
Net income
6,150†
Cash distributions to noncontrolling interest in SemCrude Pipeline
0†
Contributions from noncontrolling interest in SemCrude Pipeline
0†
Unvested distribution equivalent rights
(23)
Cash distributions to partners
(6,398)
Non-cash equity compensation
260†
Balance at March 31, 2014
159,950†
Common Units - SemGroup [Member]
Increase (Decrease) in Partners' Capital
Balance at December 31, 2013
79,218†
Net income
1,964†
Cash distributions to noncontrolling interest in SemCrude Pipeline
0†
Contributions from noncontrolling interest in SemCrude Pipeline
0†
Unvested distribution equivalent rights
0†
Cash distributions to partners
(2,041)
Non-cash equity compensation
0†
Balance at March 31, 2014
79,141†
Subordinated Units [Member]
Increase (Decrease) in Partners' Capital
Balance at December 31, 2013
(5,375)
Net income
3,750†
Cash distributions to noncontrolling interest in SemCrude Pipeline
0†
Contributions from noncontrolling interest in SemCrude Pipeline
0†
Unvested distribution equivalent rights
0†
Cash distributions to partners
(3,901)
Non-cash equity compensation
0†
Balance at March 31, 2014
(5,526)
General Partner Interest [Member]
Increase (Decrease) in Partners' Capital
Balance at December 31, 2013
5,995†
Net income
738†
Cash distributions to noncontrolling interest in SemCrude Pipeline
0†
Contributions from noncontrolling interest in SemCrude Pipeline
0†
Unvested distribution equivalent rights
0†
Cash distributions to partners
(501)
Non-cash equity compensation
0†
Balance at March 31, 2014
6,232†
Noncontrolling Interest [Member]
Increase (Decrease) in Partners' Capital
Balance at December 31, 2013
78,557†
Net income
3,676†
Cash distributions to noncontrolling interest in SemCrude Pipeline
(4,324)
Contributions from noncontrolling interest in SemCrude Pipeline
1,617†
Unvested distribution equivalent rights
0†
Cash distributions to partners
0†
Non-cash equity compensation
0†
Balance at March 31, 2014
$†79,526†
Partners' Capital and Distributions Partners' Capital and Distributions - Distributions (Details)†(USD $)
0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended
Feb. 14, 2013
Distribution of Q4 2012 earnings [Member]
Mar. 31, 2014
Distribution of Q4 2012 earnings [Member]
May 15, 2013
Distribution of Q1 2013 earnings [Member]
Mar. 31, 2014
Distribution of Q1 2013 earnings [Member]
Aug. 14, 2013
Distribution of Q2 2013 earnings [Member]
Mar. 31, 2014
Distribution of Q2 2013 earnings [Member]
Nov. 14, 2013
Distribution of Q3 2013 earnings [Member]
Mar. 31, 2014
Distribution of Q3 2013 earnings [Member]
Feb. 14, 2014
Distribution of Q4 2013 earnings [Member]
Mar. 31, 2014
Distribution of Q4 2013 earnings [Member]
May 15, 2014
Subsequent Event [Member]
Distribution of Q1 2014 earnings [Member]
Mar. 31, 2014
Subsequent Event [Member]
Distribution of Q1 2014 earnings [Member]
Distribution Made to Member or Limited Partner [Line Items]
Distribution payment date
Feb. 14, 2013†
May 15, 2013†
Aug. 14, 2013†
Nov. 14, 2013†
Feb. 14, 2014†
May 15, 2014†
Distribution Made to Member or Limited Partner, Distributions Paid, Per Unit
$†0.4025†
$†0.4300†
$†0.4400†
$†0.4500†
$†0.4650†
Distribution Made to Member or Limited Partner, Date of Record
Feb. 04, 2013†
May 06, 2013†
Aug. 05, 2013†
Nov. 05, 2013†
Feb. 04, 2014†
May 05, 2014†
Distribution Made to Limited Partner, Cash Distributions Declared
$†0.4950†
Partners' Capital and Distributions (Details Textual)†(USD $)
0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended
Aug. 14, 2013
Mar. 31, 2014
UnitAwards
Mar. 31, 2013
Aug. 13, 2013
Aug. 14, 2013
Limited Partner [Member]
Aug. 14, 2013
General Partner Interest [Member]
Jan. 11, 2013
General Partner Interest [Member]
Jun. 30, 2014
Subsequent Event [Member]
Mar. 31, 2014
Equity settled UUD [Member]
Mar. 31, 2014
Cash settled UUD [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period
24,389†
17,647†
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value
$†38.93†
Unvested share-based payment awards outstanding
107,337†
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period
0†
Unvested unit distributions value
$†117,000†
$†74,000†
Vesting period
5 years†
Unvested unit distributions, equivalent number of units
2,830†
Unvested unit distributions per unit (in dollars per unit)
$†41.49†
Stock Issued During Period, Shares, New Issues
4,750,000†
Proceeds from common L.P. unit issuance, net of offering costs
152,500,000†
0†
57,886,000†
Offering Costs, Partnership Interests
6,400,000†
Partners' Capital Account, Contributions
$†3,200,000†
$†2,700,000†
Percentage of ownership general partner interest
2.00%†
2.00%†
Earnings Per Limited Partner Unit (Details)†(USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Limited Partners' Capital Account [Line Items]
Net income (loss) allocated to the general partner, excluding incentive distribution rights
$†250†
$†240†
Net income
12,483†
11,994†
Less: General partner's incentive distribution earned
488†
41†
Less: General partner's 2.0% ownership
738†
281†
Net income allocated to limited partners
11,745†1
11,713†1
Common Class A [Member]
Limited Partners' Capital Account [Line Items]
Net income allocated to limited partners
(119)
173†
Basic weighted average number of limited partner units outstanding
2,500†
1,097†
Diluted weighted average number of limited partner units outstanding
2,500†
1,097†
Net income per limited partner unit, basic and diluted
$†(0.05)
$†0.16†
Common Units [Member]
Limited Partners' Capital Account [Line Items]
Net income allocated to limited partners
8,114†
6,767†
Basic weighted average number of limited partner units outstanding
18,149†
11,465†
Effect of non-vested restricted units
49†
26†
Diluted weighted average number of limited partner units outstanding
18,198†
11,491†
Net income per limited partner unit, basic
$†0.45†
$†0.59†
Net income per limited partner unit, diluted
$†0.45†
$†0.59†
Subordinated Units [Member]
Limited Partners' Capital Account [Line Items]
Net income allocated to limited partners
$†3,750†
$†4,773†
Basic weighted average number of limited partner units outstanding
8,390†
8,390†
Diluted weighted average number of limited partner units outstanding
8,390†
8,390†
Net income per limited partner unit, basic and diluted
$†0.45†
$†0.57†
Earnings Per Limited Partner Unit (Details Textual)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Earnings Per Limited Partner Unit (Textual) [Abstract]
Percentage of ownership general partner interest
2.00%†
2.00%†
Related Party Transactions (Details Textual)†(USD $)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
General Partner [Member]
Related Party Transactions (Textual) [Abstract]
Direct employee expenses
$†6,200,000†
$†2,900,000†
Allocated expenses
1,800,000†
1,300,000†
NGL Energy [Member]
Related Party Transactions (Textual) [Abstract]
Revenue from related parties
134,100,000†
161,400,000†
Purchases
157,700,000†
139,900,000†
Related Party Reimbursement of Expense from a Related Party Transaction
42,000†
42,000†
Sem Gas [Member]
Related Party Transactions (Textual) [Abstract]
Purchases
9,900,000†
4,100,000†
White Cliffs Pipeline L L C [Member]
Related Party Transactions (Textual) [Abstract]
Revenue from related parties
800,000†
600,000†
Related Party Transaction, Expenses from Transactions with Related Party
900,000†
Legal Fees
54,000†
Conner & Winters LLP [Member]
Related Party Transactions (Textual) [Abstract]
Legal Fees
$†100,000†
$†100,000†
Supplemental Cash Flow Information Supplemental Cash Flow Information (Details Textual)†(USD $)
In Millions, unless otherwise specified
3 Months Ended 0 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Jan. 11, 2013
Mar. 31, 2014
SemCrude Pipeline [Member]
Jan. 11, 2013
Common Units [Member]
Jan. 11, 2013
Common Class A [Member]
Aug. 14, 2013
General Partner [Member]
Jan. 11, 2013
General Partner [Member]
Jan. 11, 2013
Limited Partner [Member]
Common Units [Member]
Jan. 11, 2013
Limited Partner [Member]
Common Class A [Member]
Other Significant Noncash Transactions [Line Items]
Equity method investment, ownership percentage
33.00%†
Limited partner units issued in acquisition