ROSE ROCK MIDSTREAM, L.P., 10-Q filed on 5/9/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 30, 2013
Common Units [Member]
Apr. 30, 2013
Subordinated Units [Member]
Apr. 30, 2013
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, 2013†
Amendment Flag
false†
Document Fiscal Year Focus
2013†
Document Fiscal Period Focus
Q1†
Current Fiscal Year End Date
--12-31†
Entity Filer Category
Accelerated Filer†
Entity Common Stock, Shares Outstanding
11,893,581†
8,389,709†
1,250,000†
Condensed Consolidated Balance Sheets†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Current assets:
Cash and cash equivalents
$†2,369†
$†108†
Accounts receivable
231,366†
222,862†
Receivable from affiliates
234†
57†
Inventories
24,202†
24,840†
Other current assets
1,613†
2,750†
Total current assets
259,784†
250,617†
Property, plant and equipment (net of accumulated depreciation of $38,087 at March 31, 2013 and $34,580 at December 31, 2012)
295,384†
291,530†
Equity method investment
54,459†
0†
Other assets, net
3,992†
2,579†
Total assets
613,619†
544,726†
Current liabilities:
Accounts payable
221,704†
220,791†
Payable to affiliates
4,587†
2,649†
Accrued liabilities
4,632†
4,681†
Other current liabilities
3,343†
3,722†
Total current liabilities
234,266†
231,843†
Long-term debt
152,556†
4,562†
Commitments and contingencies (Note 6)
  †
  †
Partners' capital:
General partner
4,599†
6,159†
Total partners' capital
226,797†
308,321†
Total liabilities and partners' capital
613,619†
544,726†
Common Units [Member] |
Public [Member]
Partners' capital:
Limited partners' capital
98,166†
129,134†
Common Units [Member] |
Sem Group [Member]
Partners' capital:
Limited partners' capital
53,835†
37,992†
Class A units [Member] |
Sem Group [Member]
Partners' capital:
Limited partners' capital
18,144†
0†
Subordinated Units [Member] |
Sem Group [Member]
Partners' capital:
Limited partners' capital
$†52,053†
$†135,036†
Condensed Consolidated Balance Sheets (Parenthetical)†(USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Accounts receivable, allowance
$†0†
$†0†
Property, plant and equipment, accumulated depreciation
$†38,087†
$†34,580†
Public [Member]
Common units, issued
9,003,872†
7,000,000†
Common units, outstanding
9,003,872†
7,000,000†
Sem Group [Member]
Common units, issued
2,889,709†
1,389,709†
Common units, outstanding
2,889,709†
1,389,709†
Subordinated units, issued
8,389,709†
8,389,709†
Subordinated units, outstanding
8,389,709†
8,389,709†
Class A units, issued
1,250,000†
0†
Class A units, outstanding
1,250,000†
0†
Condensed Consolidated Statements of Income (Unaudited)†(USD $)
Share data in Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenues, including revenues from affiliates (Note 9):
Product
$†158,728,000†
$†169,386,000†
Service
12,504,000†
10,334,000†
Other
0†
(5,000)
Total revenues
171,232,000†
179,715,000†
Expenses, including expenses from affiliates (Note 9):
Costs of products sold, exclusive of depreciation and amortization
148,451,000†
160,508,000†
Operating
5,418,000†
5,227,000†
General and administrative
3,561,000†
2,703,000†
Depreciation and amortization
3,507,000†
2,967,000†
Total expenses
160,937,000†
171,405,000†
Earnings from equity method investment
3,453,000†
0†
Operating income
13,748,000†
8,310,000†
Other expenses:
Interest expense
1,754,000†
480,000†
Other expense
0†
72,000†
Total other expenses
1,754,000†
552,000†
Net income
11,994,000†
7,758,000†
Earnings Per Unit [Abstract]
Net income allocated to general partner
240,000†1
155,000†1
Net income allocated to limited partners
11,713,000†
7,603,000†
General Partner Interest [Member]
Earnings Per Unit [Abstract]
Net income allocated to general partner
281,000†
155,000†
Common Class A [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
173,000†
0†
Earnings per limited partner unit (Note 8)
$†0.16†
$†0.00†
Common Class A [Member] |
Class A unitholder [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
0†
Class A unitholder [Member] |
Class A unitholder [Member]
Earnings Per Unit [Abstract]
Earnings per limited partner unit (Note 8)
$†0.00†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
1,097†
0†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
1,097†
0†
Common Units [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
6,767,000†
3,801,500†
Earnings per limited partner unit (Note 8)
$†0.59†
$†0.45†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
11,465†
8,390†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
11,491†
8,390†
Subordinated Units [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
4,773,000†
3,801,500†
Earnings per limited partner unit (Note 8)
$†0.57†
$†0.45†
Subordinated Units [Member] |
Subordinated Units [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
$†3,801,500†
Earnings per limited partner unit (Note 8)
$†0.45†
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†
Condensed Consolidated Statements of Cash Flows (Unaudited)†(USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:
Net income
$†11,994†
$†7,758†
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
3,507†
2,967†
Amortization of debt issuance costs
198†
85†
Non-cash equity compensation
143†
61†
Net unrealized (gain) loss related to derivative instruments
(468)
146†
Earnings from equity method investment
3,453†
0†
Distributions from equity investment
2,892†
0†
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
(8,504)
(83,532)
Decrease (increase) in receivable from affiliates
(177)
(3,865)
Decrease (increase) in inventories
182†
4,714†
Decrease (increase) in other current assets
1,137†
401†
Decrease (increase) in other assets
0†
(20)
Increase (decrease) in accounts payable and accrued liabilities
526†
68,834†
Increase (decrease) in payable to affiliates
1,938†
2,211†
Net cash provided by (used in) operating activities
9,915†
(240)
Cash flows from investing activities:
Capital expenditures
(6,479)
(3,044)
Investments in non-consolidated affiliate
(53,898)
0†
Net cash used in investing activities
(60,377)
(3,044)
Cash flows from financing activities:
Debt issuance costs
(1,610)
(41)
Borrowings on credit facility
191,500†
53,000†
Principal payments on credit facility
(43,500)
(53,000)
Principal payments on capital lease obligations
(6)
(6)
Proceeds from issuance of common limited partners units
57,886†
0†
Purchase price in excess of historical cost in common control transaction
(143,216)
0†
Cash distributions to partners
(8,331)
(1,147)
Net cash provided by (used in) financing activities
52,723†
(1,194)
Net increase (decrease) in cash and cash equivalents
2,261†
(4,478)
Cash and cash equivalents at beginning of period
108†
9,709†
Cash and cash equivalents at end of period
$†2,369†
$†5,231†
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. SemGroup Corporation is the successor entity of SemGroup, L.P., which was an Oklahoma limited partnership.
The terms “we,” “our,” “us,” “Rose Rock,” the “Partnership” and similar language used in these notes to the unaudited condensed consolidated financial statements refer to Rose Rock Midstream, L.P, and its subsidiaries. The term “SemGroup” refers to SemGroup Corporation, SemGroup, L.P., and their other controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission ("SEC"). These condensed consolidated financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company and the results of its operations and its cash flows. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated.
These condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2012, is derived from audited financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.
Pursuant to the rules and regulations of the 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, 2012, which are included in our Annual Report on Form 10-K for the year ended December 31, 2012, 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, 2012.
Recent accounting pronouncements
On January 31, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which clarifies the scope of the offsetting disclosure requirements in ASU 2011-11, "Disclosures About Offsetting Assets and Liabilities." Under ASU 2013-01, the disclosure requirements apply to derivative instruments accounted for in accordance with Accounting Standards Codification ("ASC") 815, "Derivatives and Hedging," including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending arrangements that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective application is required for all comparative periods presented. We adopted this guidance in the first quarter of 2013. The impact of adoption was not material.
On February 28, 2013, the FASB issued ASU 2013-04, "Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)." The ASU requires entities to “measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following:
The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors; and
Any additional amount the reporting entity expects to pay on behalf of its co-obligors.”
Required disclosures include a description of the joint and several arrangement and the total outstanding amount of the obligation for all joint parties. The ASU permits entities to aggregate disclosures (as opposed to providing separate disclosures for each joint-and-several obligation). These disclosure requirements are incremental to the existing related-party disclosure requirements in ASC 850, "Related Party Disclosures." The ASU is effective for public entities for all prior periods in fiscal years beginning on or after December 15, 2013 (and interim reporting periods within those years). We will adopt this guidance in the first quarter of 2014. The impact is not expected to be material.
Acquisition
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
ACQUISITION
Contribution Agreement
On January 8, 2013, we entered into a Contribution Agreement (the “Contribution Agreement”) with SemGroup and certain of its subsidiaries. Pursuant to the terms of the Contribution Agreement, on January 11, 2013, we acquired a 33% interest in SemCrude Pipeline, L.L.C. (“SCPL”) from SemGroup in exchange for (i) cash of approximately $189.5 million, (ii) the issuance of 1.5 million common units, (iii) the issuance of 1.25 million Class A units and (iv) an increase of the capital account of our general partner and a related issuance of general partner interest, to allow our general partner to maintain its two percent general partner interest in us. SCPL owns a 51% membership interest in White Cliffs Pipeline, L.L.C. ("White Cliffs"), which owns a 527-mile pipeline system ("the White Cliffs Pipeline") that transports crude oil from Platteville, Colorado in the Denver-Julesburg Basin to Cushing, Oklahoma.
The Class A units are not entitled to receive any distributions of available cash (other than upon liquidation) prior to the first day of the month immediately following the first month for which the average daily throughput volumes on the White Cliffs Pipeline for such month are 125,000 barrels per day or greater. Upon such date, the Class A units will automatically convert into common units.
The cash consideration was funded through a borrowing under our credit facility of approximately $130.3 million and the sale of 2.0 million common units through a private placement, as described below. The 1.5 million common units were valued at $29.63 per unit, or $44.4 million, based on the sales price to third-parties in the private placement. The Class A units were valued at $29.63 per unit discounted for the expected forbearance of distributions, or $30.5 million. The contribution to the general partner's capital account was made in the amount of $2.7 million. Subsequent to the transaction, SemGroup holds the 2% general partner interest and 58.2% of the limited partnership interest in Rose Rock. We incurred $3.5 million of expense, of which $1.4 million of equity issuance costs were offset against proceeds, $1.6 million were related to the borrowing and were deferred, and $0.5 million were expensed.
We own a 33% interest in SCPL, which is effectively a 17% interest in White Cliffs. We account for our membership in SCPL as an equity method investment. We will be required to fund 33% of SCPL's capital contribution requirements for White Cliffs. This amount is expected to be $39 million in 2013 and $10 million in 2014, related to an expansion project to add a 12" line from Platteville, Colorado to Cushing, Oklahoma. 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.
Common Unit Purchase Agreement
On January 8, 2013, we entered into a Common Unit Purchase Agreement with certain purchasers (the “Purchasers”), pursuant to which, on January 11, 2013, 2.0 million common units were issued and sold to the Purchasers in a private placement at a price of $29.63 per common unit for aggregate consideration of approximately $59.3 million (the “Private Placement”). The Partnership used the net proceeds from the Private Placement to fund a portion of the purchase of a 33% interest in SCPL.
Registration Rights Agreement
In connection with the closing of the Private Placement, on January 11, 2013, we entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers. Pursuant to the terms of the Registration Rights Agreement, within 30 days following the closing of the Private Placement, we were required to prepare and file a registration statement (the “Registration Statement”) to permit the public resale of the common units sold to the Purchasers in the Private Placement.
On February 5, 2013, we filed the Registration Statement with the SEC. The Registration Statement was declared effective by the SEC at 9:00 a.m. (Washington, D.C. time) on February 13, 2013. If the Purchasers become prohibited from using the Registration Statement under certain circumstances, or if the Registration Statement ceases to be effective or unusable for certain periods of time, we could be liable to the Purchasers for liquidated damages calculated in accordance with a formula, and subject to the limitations set forth in the Registration Rights Agreement.
Investment in non-consolidated affiliate Investment in non-consolidated affiliate
Equity Method Investments Disclosure [Text Block]
SemCrude Pipeline
We account for our 33% interest in SCPL under the equity method. Under the equity method, we do not report the individual assets and liabilities of SCPL on our condensed consolidated balance sheets. 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, 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. Thus, our 33% interest in SCPL is effectively a 17% interest in White Cliffs.
Certain summarized income statement information of White Cliffs for the three months ended March 31, 2013 is shown below (in thousands):
 
Three Months Ended March 31, 2013
Revenue
$
30,673

Operating, general and administrative expenses
$
5,179

Depreciation and amortization expense
$
4,715

Net income
$
20,779


The equity in earnings of White Cliffs for the three months ended March 31, 2013, recorded by SCPL, is less than 51% of the net income of White Cliffs for the same period, which ultimately reduces our equity in earnings of SCPL such that our share of earnings is less than 17% of the net income of White Cliffs. This is due to certain general and administrative expenses SCPL incurs 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 SCPL's ownership interest. White Cliffs recorded $0.3 million of such general and administrative expense for the three months ended March 31, 2013.
Financial Instruments
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
Commodity derivative contracts
Our results of operations and cash flows are impacted by changes in market prices for petroleum products. This exposure to commodity price risk is managed, in part, by entering into various commodity derivatives.
We seek to manage the price risk associated with our marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of crude oil to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts. Our storage and transportation assets also can be used to mitigate location and time basis risk. All marketing activities are subject to our Comprehensive Risk Management Policy, which establishes limits in order to manage risk and mitigate financial exposure.
Our commodity derivatives 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 contracts to buy or sell a commodity at an agreed upon future date. The buyer and seller agree on specific terms (price, quantity, delivery period and location) and conditions at the inception of the contract.
Futures contracts – Exchange traded contracts to buy or sell a commodity. These contracts are standardized by the exchange in terms of quality, quantity, delivery period and location for each commodity.
We record certain commodity derivative assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of these assets and liabilities at March 31, 2013 and December 31, 2012 (in thousands):
 
March 31, 2013
 
December 31, 2012
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$
96

 
$
(96
)
 
$

 
$
22

 
$
(22
)
 
$

Liabilities
662

 
(96
)
 
566

 
1,056

 
(22
)
 
1,034

Net assets (liabilities) at fair value
$
(566
)
 
$

 
$
(566
)
 
$
(1,034
)
 
$

 
$
(1,034
)
* Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
“Level 1” measurements use as inputs unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include futures contracts that are traded on an exchange.
“Level 2” measurements use as inputs market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter (“OTC”) traded physical fixed price purchases and sales forward contracts.
“Level 3” measurements use as inputs information from a pricing service and internal valuation models incorporating observable and unobservable market data. 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 March 31, 2013, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
There were no financial assets or liabilities classified as Level 2 or Level 3 during the three months ended March 31, 2013 and March 31, 2012, as such no rollforward of activity has been presented.
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,
 
2013
 
2012
Sales
610

 
383

Purchases
675

 
451

We have not designated any of our commodity derivative instruments as accounting hedges. We record the fair value of 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, 2013
 
December 31, 2012
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
566

 
$

 
$
1,034


We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. Margin deposits outstanding for the periods ended March 31, 2013 and December 31, 2012 were $1.1 million and $1.9 million, respectively. These margin deposits have not been offset against our net commodity derivative instrument (contract) positions. Had these margin deposits been netted against our commodity derivative instrument (contract) positions for the periods ended March 31, 2013 and December 31, 2012, we would have had net asset positions of $0.5 million and $0.8 million, respectively.
Realized and unrealized losses from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Commodity contracts
$
(544
)
 
$
(1,125
)
Long Term Debt
LONG TERM DEBT
LONG-TERM DEBT
On January 11, 2013, our credit facility capacity was increased to $385 million and we borrowed $133.5 million in connection with the purchase of a 33% interest in SCPL from SemGroup and to pay transaction related expenses. We have the ability to increase our facility capacity by an additional $165 million. Approximately $1.6 million of related costs have been capitalized and will be amortized over the remaining life of the facility.
At March 31, 2013, we had outstanding borrowings of $152.5 million on this facility, of which $52.5 million incurred interest at the alternate base rate ("ABR") plus an applicable margin, and $100 million incurred interest at the Eurodollar rate plus an applicable margin. The interest rate in effect at March 31, 2013 on $52.5 million of ABR borrowings was 5.0%. The interest rate in effect at March 31, 2013 on $100 million of Eurodollar rate borrowings was 3.04%.
We had $48.9 million in outstanding letters of credit at March 31, 2013 and the rate per annum was 2.75%. In addition, a fronting fee of 0.25% is charged on outstanding letters of credit.
A commitment fee that ranges from 0.375% to 0.50%, depending on a leverage ratio specified in the credit agreement, is charged on any unused capacity of the revolving credit facility.
At March 31, 2013, we had $6.1 million of secured bilateral letters of credit outstanding. The interest rate in effect was 1.75% on $1.1 million and 2.0% on $5.0 million. Secured bilateral letters of credit are external to the facility and do not reduce revolver availability.
At March 31, 2013, we were in compliance with the terms of the credit agreement.
At March 31, 2013, $2.9 million in capitalized loan fees, net of accumulated amortization, was recorded in other noncurrent assets, which is being amortized over the life of the facility.
At March 31, 2013, we had $56 thousand ($81 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, 2013, and is categorized as a Level 3 measurement. It is our belief that neither the market interest rates nor our credit profile have changed significantly enough to have had a material impact on the fair value of our debt outstanding at March 31, 2013.
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Bankruptcy matters
On July 22, 2008 (the “Petition Date”), SemGroup, L.P., SemCrude, 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 our motion to dismiss Luke Oil’s appeal of the confirmation order. On June 18, 2012, Luke Oil filed its Notice of Appeal, notifying the District Court and the parties to the lawsuit that it was appealing the decision of the District Court to the United States Court of Appeals for the Third Circuit. The appeal has been fully briefed. The Court of Appeals heard oral argument on January 22, 2013, and has not yet ruled. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this account could have a material adverse impact on us. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
(b)
Claims reconciliation process
A large number of parties have made claims against SemGroup for obligations alleged to have been incurred prior to the Petition Date. On September 15, 2010, the bankruptcy court entered an order estimating the contingent, unliquidated and disputed claims and authorizing distributions to holders of allowed claims. Pursuant to that order, SemGroup has begun making distributions to the claimants. SemGroup continues to attempt to settle unresolved claims.
 
Pursuant to the Plan of Reorganization, SemGroup committed to settle all pre-petition claims by paying a specified amount of cash, issuing a specified number of warrants, and issuing a specified number of shares of SemGroup Corporation common stock. The resolution of most of the outstanding claims will not impact the total amount of consideration SemGroup will give to the claimants; instead, the resolution of the claims will impact the relative share of the total consideration that each claimant receives.
However, there is a specified group of claims for which SemGroup could be required to pay additional funds to settle. Pursuant to the Plan of Reorganization, SemGroup set aside a specified amount of restricted cash at the Emergence Date, which SemGroup expected to be sufficient to settle this group of claims. Since the Emergence Date, SemGroup has made significant progress in resolving these claims, and continues to believe that the cash set aside at the Emergence Date will be sufficient to pay these claims. However, SemGroup has not yet reached a resolution of all of these claims and, if the total settlement amount of these claims exceeds the specified amount, SemGroup will be required to pay additional funds to these claimants, and we could be required to share in this expense. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
Environmental
We may, from time to time, experience leaks of petroleum products from our facilities and, as a result of which, we may incur remediation obligations or property damage claims. In addition, we are subject to numerous environmental regulations. Failure to comply with these regulations could result in the assessment of fines or penalties by regulatory authorities.
The Kansas Department of Health and Environment (“KDHE”) initiated discussions during SemGroup’s bankruptcy proceeding regarding five of our sites in Kansas that KDHE believed, based on their historical use, may have soil or groundwater contamination in excess of state standards. KDHE sought our agreement to undertake assessments of these sites to determine whether they are contaminated. SemGroup entered into a Consent Agreement and Final Order with KDHE to conduct environmental assessments on the sites and to pay KDHE’s costs associated with their oversight of this matter. SemGroup has conducted Phase II investigations at all sites. Three of the five sites have limited amounts of soil contamination that will be excavated and/or remediated on site. Three of the five sites appear to have ground water contamination that may require further delineation and/or on-going monitoring. Work plans have been submitted to, and approved by, the KDHE. SemGroup does not anticipate any penalties or fines for these historical sites. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
Blueknight claim
Blueknight Energy Partners, L.P. (“Blueknight”), which was formerly a subsidiary of SemGroup, together with other entities related to Blueknight, entered into a Shared Services Agreement on April 7, 2009, with SemCrude and SemManagement, L.L.C. (which are currently subsidiaries of SemGroup). The services provided by SemCrude to Blueknight under this agreement included the coordination of movement of crude oil belonging to Blueknight’s customers and the operation of Blueknight’s Oklahoma pipeline system and its Cushing, Oklahoma terminal. Under the subsequent amendments to the agreements beginning in May 2010, certain of these services were phased out and Blueknight began to manage the movement of its crude oil and the operation of its Cushing terminal.
In a letter dated August 18, 2011, Blueknight claimed that SemCrude owes Blueknight approximately 141,000 barrels of crude oil. SemGroup responded to Blueknight’s letter denying their charges and requesting documentation from Blueknight of its claim. On February 14, 2012, after months of interaction between the parties through which SemGroup requested Blueknight to substantiate its claim, Blueknight filed suit against SemGroup in the District Court of Oklahoma County, Oklahoma. On May 1, 2012, the court approved SemGroup’s motion to transfer this case to Tulsa County, Oklahoma. On July 2, 2012, the Tulsa County District Court appointed a Special Master to conduct a review of whether Blueknight is missing 141,000 barrels of crude oil from operations occurring during the months of April through June, 2010. The Special Master will prepare an advisory report to the Court of her findings and conclusions. SemGroup believes this matter is without merit and will vigorously defend their position; however, they cannot predict the outcome. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement.
Other matters
We are party to various other claims, legal actions and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions and complaints, after consideration of amounts accrued, insurance coverage and other arrangements, will not have a material effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain and estimates of our consolidated liabilities may change materially as circumstances develop.
Asset retirement obligations
We may be subject to removal and restoration costs upon retirement of our facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and related facilities would become completely obsolete and require decommissioning. Accordingly, we have not recorded a liability or corresponding asset, as both the amount and timing of such potential future costs are indeterminable.
Purchase and sale commitments
We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We create a margin for these purchases by entering into various types of physical and financial sales and exchange transactions through which we seek to maintain a position that is substantially balanced between purchases on the one hand and sales and future delivery obligations on the other. We account for derivatives at fair value with the exception of commitments which have been designated as normal purchases and sales for which we do not record assets or liabilities related to these agreements until the product is purchased or sold. At March 31, 2013, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
16

 
$
1,432

Fixed price sales
91

 
$
8,792

Floating price purchases
20,067

 
$
1,941,213

Floating price sales
20,577

 
$
2,017,882


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, 2012 to March 31, 2013 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
Class A Units
 
General
Partner
Interest
 
Total
Partners’
Capital
Balance at December 31, 2012
$
129,134

 
$
37,992

 
$
135,036

 
$

 
$
6,159

 
$
308,321

Net income
5,143

 
1,624

 
4,773

 
173

 
281

 
11,994

Equity issuance
57,886

 
44,445

 

 
30,543

 
2,744

 
135,618

Purchase price in excess of historical cost of interest in SemCrude Pipeline, L.L.C.
(90,516
)
 
(29,063
)
 
(84,379
)
 
(12,572
)
 
(4,418
)
 
(220,948
)
Cash distributions
(3,624
)
 
(1,163
)
 
(3,377
)
 

 
(167
)
 
(8,331
)
Non-cash equity compensation
143

 

 

 

 

 
143

Balance at March 31, 2013
$
98,166

 
$
53,835

 
$
52,053

 
$
18,144

 
$
4,599

 
$
226,797

 
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
%

The following table shows the distributions paid or declared per common limited partner unit for the three months ended March 31, 2013 and 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Distribution Per Unit
 
December 31, 2011
 
February 3, 2012
 
February 13, 2012
 
$0.0670
*
March 31, 2012
 
May 7, 2012
 
May 15, 2012
 
$0.3725
 
December 31, 2012
 
February 4, 2013
 
February 14, 2013
 
$0.4025
 
March 31, 2013
 
May 6, 2013
 
May 15, 2013
 
$0.4300
 
* 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.
Equity incentive plan
On December 8, 2011, the board of directors of our general partner adopted the Rose Rock Midstream Equity Incentive Plan (the “Incentive Plan”). We have reserved 840,000 limited partner common units for issuance to non-management directors and employees under the Incentive Plan. We granted approximately 39,000 restricted unit awards during the three months ended March 31, 2013. At March 31, 2013, there are 79,029 unvested restricted unit awards that have been granted pursuant to the Incentive Plan. Generally, the awards vest three years after the date of grant for employees and one year after the date of grant for non-managerial directors, contingent upon the continued service of the recipients and may be subject to accelerated vesting in the event of involuntary terminations. We had vestings of 3,872 restricted unit awards for the three months ended March 31, 2013.
The holders of these restricted units granted in 2012 are entitled to equivalent distributions (“Unvested Unit Distributions” or “UUDs”) to be received upon vesting of the restricted unit awards. The distributions will be settled in common units based on the market price of our limited partner common units as of the close of business on the vesting date. The UUDs are subject to the same forfeiture and acceleration conditions as the associated restricted units. Of the 3,872 restricted unit awards that vested for the three months ended March 31, 2013, 140 were UUDs that vested. At March 31, 2013, the value of the UUDs related to unvested restricted units was approximately $58 thousand. This is equivalent to 1,468 common units based on the quarter end close of business market price of our common units of $39.65 per unit. Distributions related to the 2013 restricted unit awards will be settled in cash upon vesting.
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, 2013 and 2012 (in thousands, except per unit data):
 
Three Months Ended March 31,
 
2013
 
2012
Net income
$
11,994

 
$
7,758

Less: General partner’s incentive distribution earned (*)
41

 

Less: General partner’s 2.0% ownership (**)
240

 
155

Net income allocated to limited partners
$
11,713

 
$
7,603

Numerator for basic and diluted earnings per limited partner unit (**):
 
 
 
Allocation of net income among limited partner interests:
 
 
 
Net income allocable to common units
$
6,767

 
$
3,801.5

Net income allocable to subordinated units
4,773

 
3,801.5

Net income allocable to Class A units
173

 

Net income allocated to limited partners
$
11,713

 
$
7,603

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
Basic weighted average number of limited partner common units outstanding
11,465

 
8,390

Effect of non-vested restricted units
26

 

Diluted weighted average number of limited partner common units outstanding
11,491

 
8,390

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
1,097

 

Basic & diluted net income per limited partner unit:
 
 
 
Common units
$
0.59

 
$
0.45

Subordinated units
$
0.57

 
$
0.45

Class A units
$
0.16

 
$


(*) Based on the amount of the distribution declared per common and subordinated unit related to earnings for the three months ended March 31, 2012, our general partner was not entitled to receive incentive distributions for that period.
(**) 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.
Related Party Transactions
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
Direct employee expenses
We do not directly employ any persons to manage or operate our business. These functions are performed by employees of SemGroup. SemGroup charged us $2.9 million and $2.9 million during the three months ended March 31, 2013 and 2012, 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 $1.3 million and $1.2 million during the three months ended March 31, 2013 and 2012, respectively, for such allocated costs. These expenses were recorded to general and administrative expenses in our condensed consolidated statements of income.
NGL Energy
SemGroup holds certain ownership interests in NGL Energy Partners LP (“NGL Energy”) and its general partner. During the three months ended March 31, 2012, we made purchases of condensate at market prices from NGL Energy in the amount of $14.4 million. There were no purchases from NGL Energy during the three months ended March 31, 2013.

SemGas
We purchase condensate at market prices from SemGas, L.P. (“SemGas”), which is a wholly-owned subsidiary of SemGroup. Purchases from SemGas were $4.1 million and $2.7 million for the three months ended March 31, 2013 and 2012, respectively.
White Cliffs
SemGroup owns 51% of White Cliffs and exercises significant influence over it, of which we indirectly own 33% through our investment in SCPL subsequent to our January 2013 acquisition. We generated storage revenues from White Cliffs of $0.6 million and $0.6 million for the three months ended March 31, 2013 and 2012, respectively.
Legal services
The law firm of Conner & Winters, LLP, of which Mark D. Berman is a partner, performs legal services for us. Mr. Berman is the spouse of Candice L. Cheeseman, General Counsel and Secretary. Mr. Berman does not perform any legal services for us. We paid $0.1 million and $0.1 million in legal fees and related expenses to this law firm during the three months ended March 31, 2013 and 2012, respectively.
Supplemental Cash Flow Information Supplemental Cash Flow Information
Cash Flow, Supplemental Disclosures [Text Block]
10.
SUPPLEMENTAL CASH FLOW INFORMATION

Acquisition
In connection with the acquisition of a 33% interest in SCPL (Note 2), 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 $0.4 million and $0.1 million for the the three months ended March 31, 2013 and 2012, respectively.
We accrued $0.5 million and $1.9 million for purchases of property, plant and equipment for the the three months ended March 31, 2013 and 2012, respectively.
Overview (Policies)
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission ("SEC"). These condensed consolidated financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company and the results of its operations and its cash flows. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated.
These condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2012, is derived from audited financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.
Pursuant to the rules and regulations of the 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, 2012, which are included in our Annual Report on Form 10-K for the year ended December 31, 2012, 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, 2012.
Recent accounting pronouncements
On January 31, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which clarifies the scope of the offsetting disclosure requirements in ASU 2011-11, "Disclosures About Offsetting Assets and Liabilities." Under ASU 2013-01, the disclosure requirements apply to derivative instruments accounted for in accordance with Accounting Standards Codification ("ASC") 815, "Derivatives and Hedging," including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending arrangements that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective application is required for all comparative periods presented. We adopted this guidance in the first quarter of 2013. The impact of adoption was not material.
On February 28, 2013, the FASB issued ASU 2013-04, "Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)." The ASU requires entities to “measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following:
The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors; and
Any additional amount the reporting entity expects to pay on behalf of its co-obligors.”
Required disclosures include a description of the joint and several arrangement and the total outstanding amount of the obligation for all joint parties. The ASU permits entities to aggregate disclosures (as opposed to providing separate disclosures for each joint-and-several obligation). These disclosure requirements are incremental to the existing related-party disclosure requirements in ASC 850, "Related Party Disclosures." The ASU is effective for public entities for all prior periods in fiscal years beginning on or after December 15, 2013 (and interim reporting periods within those years). We will adopt this guidance in the first quarter of 2014. The impact is not expected to be material.

“Level 1” measurements use as inputs unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include futures contracts that are traded on an exchange.
“Level 2” measurements use as inputs market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter (“OTC”) traded physical fixed price purchases and sales forward contracts.
“Level 3” measurements use as inputs information from a pricing service and internal valuation models incorporating observable and unobservable market data. 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 March 31, 2013, 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 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, 2013 is shown below (in thousands):
 
Three Months Ended March 31, 2013
Revenue
$
30,673

Operating, general and administrative expenses
$
5,179

Depreciation and amortization expense
$
4,715

Net income
$
20,779

Financial Instruments (Tables)
We record certain commodity derivative assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of these assets and liabilities at March 31, 2013 and December 31, 2012 (in thousands):
 
March 31, 2013
 
December 31, 2012
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$
96

 
$
(96
)
 
$

 
$
22

 
$
(22
)
 
$

Liabilities
662

 
(96
)
 
566

 
1,056

 
(22
)
 
1,034

Net assets (liabilities) at fair value
$
(566
)
 
$

 
$
(566
)
 
$
(1,034
)
 
$

 
$
(1,034
)
* Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
There were no financial assets or liabilities classified as Level 2 or Level 3 during the three months ended March 31, 2013 and March 31, 2012, as such no rollforward of activity has been presented.
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,
 
2013
 
2012
Sales
610

 
383

Purchases
675

 
451

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, 2013
 
December 31, 2012
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
566

 
$

 
$
1,034

Realized and unrealized losses from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended March 31,
 
2013
 
2012
Commodity contracts
$
(544
)
 
$
(1,125
)
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, 2013, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
16

 
$
1,432

Fixed price sales
91

 
$
8,792

Floating price purchases
20,067

 
$
1,941,213

Floating price sales
20,577

 
$
2,017,882

Partners' Capital and Distributions (Tables)
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
%
The following table shows the changes in our partners’ capital accounts from December 31, 2012 to March 31, 2013 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
Class A Units
 
General
Partner
Interest
 
Total
Partners’
Capital
Balance at December 31, 2012
$
129,134

 
$
37,992

 
$
135,036

 
$

 
$
6,159

 
$
308,321

Net income
5,143

 
1,624

 
4,773

 
173

 
281

 
11,994

Equity issuance
57,886

 
44,445

 

 
30,543

 
2,744

 
135,618

Purchase price in excess of historical cost of interest in SemCrude Pipeline, L.L.C.
(90,516
)
 
(29,063
)
 
(84,379
)
 
(12,572
)
 
(4,418
)
 
(220,948
)
Cash distributions
(3,624
)
 
(1,163
)
 
(3,377
)
 

 
(167
)
 
(8,331
)
Non-cash equity compensation
143

 

 

 

 

 
143

Balance at March 31, 2013
$
98,166

 
$
53,835

 
$
52,053

 
$
18,144

 
$
4,599

 
$
226,797

The following table shows the distributions paid or declared per common limited partner unit for the three months ended March 31, 2013 and 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Distribution Per Unit
 
December 31, 2011
 
February 3, 2012
 
February 13, 2012
 
$0.0670
*
March 31, 2012
 
May 7, 2012
 
May 15, 2012
 
$0.3725
 
December 31, 2012
 
February 4, 2013
 
February 14, 2013
 
$0.4025
 
March 31, 2013
 
May 6, 2013
 
May 15, 2013
 
$0.4300
 
* 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.
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, 2013 and 2012 (in thousands, except per unit data):
 
Three Months Ended March 31,
 
2013
 
2012
Net income
$
11,994

 
$
7,758

Less: General partner’s incentive distribution earned (*)
41

 

Less: General partner’s 2.0% ownership (**)
240

 
155

Net income allocated to limited partners
$
11,713

 
$
7,603

Numerator for basic and diluted earnings per limited partner unit (**):
 
 
 
Allocation of net income among limited partner interests:
 
 
 
Net income allocable to common units
$
6,767

 
$
3,801.5

Net income allocable to subordinated units
4,773

 
3,801.5

Net income allocable to Class A units
173

 

Net income allocated to limited partners
$
11,713

 
$
7,603

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
Basic weighted average number of limited partner common units outstanding
11,465

 
8,390

Effect of non-vested restricted units
26

 

Diluted weighted average number of limited partner common units outstanding
11,491

 
8,390

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
1,097

 

Basic & diluted net income per limited partner unit:
 
 
 
Common units
$
0.59

 
$
0.45

Subordinated units
$
0.57

 
$
0.45

Class A units
$
0.16

 
$

Acquisition (Details)†(USD $)
Share data in Millions, except Per Share data, unless otherwise specified
3 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended 0 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Jan. 11, 2013
Mar. 31, 2013
White Cliffs Pipeline L L C [Member]
mi
bbl
Jan. 11, 2013
SemCrude Pipeline [Member]
Jan. 11, 2013
Common Class A [Member]
Jan. 11, 2013
Common Units [Member]
Jan. 11, 2013
Revolving Credit Facility [Member]
Mar. 31, 2013
Revolving Credit Facility [Member]
Mar. 31, 2013
Limited Partner [Member]
SemGroup [Member]
Jan. 11, 2013
General Partner [Member]
SemGroup [Member]
Mar. 31, 2013
General Partner [Member]
SemGroup [Member]
Jan. 11, 2013
White Cliffs Pipeline L L C [Member]
Width
Mar. 31, 2013
White Cliffs Pipeline L L C [Member]
Mar. 31, 2013
White Cliffs Pipeline L L C [Member]
SemCrude Pipeline [Member]
Mar. 31, 2013
White Cliffs Pipeline L L C [Member]
SemCrude Pipeline [Member]
Mar. 31, 2013
SemCrude Pipeline [Member]
Jan. 11, 2013
Private Placement [Member]
Common Units [Member]
Jan. 11, 2013
SemCrude Pipeline [Member]
Line of Credit [Member]
Business Acquisition [Line Items]
Business Acquisition, Cost of Acquired Entity, Purchase Price
$†189,500,000†
Partners' Capital Account, Units, Acquisitions
1.25†
1.50†
Unit Price
$†29.63†
Common Units Issued During Period, Value, Acquisitions
30,500,000†
44,400,000†
Proceeds from issuance of common limited partners units
57,886,000†
0†
59,300,000†
Partners' Capital Account, Contributions
2,700,000†
Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest
2.00%†
2.00%†
2.00%†
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest
58.20%†
Transaction related expenses
3,500,000†
Limited Partnership Unit Issuance Costs, Incurred
1,400,000†
Debt Issuance Cost
1,600,000†
Business Combination, Acquisition Related Costs
500,000†
Average daily throughput threshold in barrels for conversion of Class A units
125,000†
Equity Method Investment, Ownership Percentage
51.00%†
51.00%†
33.00%†
Effective ownership interest in equity method investee
17.00%†
Expected Capital Funding Requirement Year One
39,000,000†
Expected Capital Funding Requirement Year Two
10,000,000†
Width of Pipeline
12†
Length Of Pipeline Network
527†
Proceeds from Lines of Credit
$†133,500,000†
$†130,300,000†
Partners' Capital Account, Units, Sale of Units
2.0†
Number of Days Following the Closing of the Private Placement Required to Prepare Registration Statement
30 days†
Investment in non-consolidated affiliate Investment in non-consolidated affiliate (Details) (White Cliffs Pipeline L L C [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
White Cliffs Pipeline L L C [Member]
Equity Method Investment, Summarized Financial Information, Revenue
$†30,673†
Equity Method Investment, Summarized Financial Information, Operating, General and Administrative Expenses
5,179†
Equity Method Investment, Summarized Financial Information, Depreciation and Amortization Expense
4,715†
Equity Method Investment, Summarized Financial Information, Net Income (Loss)
$†20,779†
Investment in non-consolidated affiliate Investment in non-consolidated affiliate (Details Textual)†(USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Earnings from equity method investment
$†3,453†
$†0†
Proceeds from Equity Method Investment, Dividends or Distributions
2,892†
0†
General and Administrative Expense
3,561†
2,703†
SemCrude Pipeline [Member]
Equity Method Investment, Ownership Percentage
33.00%†
Earnings from equity method investment
3,500†
Proceeds from Equity Method Investment, Dividends or Distributions
2,900†
White Cliffs Pipeline L L C [Member]
Effective ownership interest in equity method investee
17.00%†
White Cliffs Pipeline L L C [Member] |
SemCrude Pipeline [Member]
Equity Method Investment, Ownership Percentage
51.00%†
SemCrude Pipeline [Member] |
White Cliffs Pipeline L L C [Member]
Equity Method Investment, Ownership Percentage
51.00%†
White Cliffs Pipeline L L C [Member]
General and Administrative Expense
$†300†
Financial Instruments (Details)†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Summarized balance of assets and liabilities
Assets
$†0†
$†0†
Liabilities
566†
1,034†
Net assets (liabilities) at fair value
(566)
(1,034)
Level 1 [Member]
Summarized balance of assets and liabilities
Assets
96†
22†
Liabilities
662†
1,056†
Net assets (liabilities) at fair value
(566)
(1,034)
Netting [Member]
Summarized balance of assets and liabilities
Assets
(96)
(22)
Liabilities
(96)
(22)
Net assets (liabilities) at fair value
$†0†1
$†0†1
Financial Instruments (Details 2)
3 Months Ended
Mar. 31, 2013
bbl
Mar. 31, 2012
bbl
Notional quantities for commodity derivative instruments
Sales
610,000†
383,000†
Purchases
675,000†
451,000†
Financial Instruments (Details 3)†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Fair value of commodity derivative assets and liabilities
Assets
$†0†
$†0†
Liabilities
566†
1,034†
Commodity Contract [Member] |
Assets [Member]
Fair value of commodity derivative assets and liabilities
Assets
0†
0†
Commodity Contract [Member] |
Liabilities [Member]
Fair value of commodity derivative assets and liabilities
Liabilities
$†566†
$†1,034†
Financial Instruments (Details 4) (Commodity Contract [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Commodity Contract [Member]
Realized and unrealized gains (losses) from commodity derivatives
Commodity contracts
$†(544)
$†(1,125)
Financial Instruments Financial Instruments (Details Textual) (Details)†(USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Derivatives, Fair Value [Line Items]
Margin Deposit Assets
$†1.1†
$†1.9†
Derivative Asset, Fair Value, Net
$†0.5†
$†0.8†
Long Term Debt (Details)†(USD $)
3 Months Ended 0 Months Ended 3 Months Ended 3 Months Ended 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Jan. 11, 2013
Revolving Credit Facility [Member]
Mar. 31, 2013
Revolving Credit Facility [Member]
Mar. 31, 2013
Revolving Credit Facility [Member]
Secured Bilateral [Member]
Mar. 31, 2013
Revolving Credit Facility [Member]
Maximum [Member]
Mar. 31, 2013
Revolving Credit Facility [Member]
Minimum [Member]
Mar. 31, 2013
1.75% Letter of Credit [Member]
Revolving Credit Facility [Member]
Secured Bilateral [Member]
Mar. 31, 2013
2.0% Letter of Credit [Member]
Revolving Credit Facility [Member]
Secured Bilateral [Member]
Mar. 31, 2013
Alternate Base Rate Borrowings [Member]
Revolving Credit Facility [Member]
Mar. 31, 2013
Eurodollar Rate Borrowings [Member]
Revolving Credit Facility [Member]
Mar. 31, 2013
Letter of Credit [Member]
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Incremental Increases
$†165,000,000†
Debt Issuance Cost
1,600,000†
Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest
2.00%†
2.00%†
Outstanding borrowings
152,500,000†
52,500,000†
100,000,000†
Debt Instrument, Interest Rate, Effective Percentage
5.00%†
3.04%†
Credit facility capacity, current
385,000,000†
Proceeds from Lines of Credit
133,500,000†
Outstanding letters of credit
6,100,000†
1,100,000†
5,000,000†
48,900,000†
Rate of outstanding letter of credit
1.75%†
2.00%†
2.75%†
Fronting fee on outstanding letter of credit
0.25%†
Commitment fee on unused capacity
0.50%†
0.375%†
Unamortized capitalized loan costs
2,900,000†
Noncurrent Capital Lease Obligations
56,000†
Capital lease obligations
$†81,000†
Commitments and Contingencies (Details)†(USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
bbl
Purchase and sale commitments
Fixed price purchases volume (in barrels)
16,000†
Fixed price purchases value
$†1,432†
Fixed price sales volume (in barrels)
91,000†
Fixed price sales value
8,792†
Floating price purchases volume (in barrels)
20,067,000†
Floating price purchases value
1,941,213†
Floating price sales volume (in barrels)
20,577,000†
Floating price sales value
$†2,017,882†
Commitments and Contingencies (Details Textual)
3 Months Ended
Mar. 31, 2013
Number_Of_Sites
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†
Minimum [Member]
Loss Contingency By Period [Line Items]
Period of agreement notice
30 days†
Maximum [Member]
Loss Contingency By Period [Line Items]
Period of agreement notice
120 days†
Partners' Capital and Distributions (Details)†(USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Increase (Decrease) in Partners' Capital
Beginning Balance
$†308,321,000†
Net income
11,994,000†
7,758,000†
Proceeds from Issuance of Common Limited Partners Units
135,618,000†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(220,948,000)
Distributions
(8,331,000)
Non-cash equity compensation
143,000†
61,000†
Ending Balance
226,797,000†
Class A units [Member]
Increase (Decrease) in Partners' Capital
Beginning Balance
0†
Net income
173,000†
Proceeds from Issuance of Common Limited Partners Units
30,543,000†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(12,572,000)
Distributions
0†
Partners' Capital Account, Unit-based Compensation
0†
Ending Balance
18,144,000†
Common Units - Public [Member]
Increase (Decrease) in Partners' Capital
Beginning Balance
129,134,000†
Net income
5,143,000†
Proceeds from Issuance of Common Limited Partners Units
57,886,000†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(90,516,000)
Distributions
(3,624,000)
Partners' Capital Account, Unit-based Compensation
143,000†
Ending Balance
98,166,000†
Common Units - SemGroup [Member]
Increase (Decrease) in Partners' Capital
Beginning Balance
37,992,000†
Net income
1,624,000†
Proceeds from Issuance of Common Limited Partners Units
44,445,000†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(29,063,000)
Distributions
(1,163,000)
Partners' Capital Account, Unit-based Compensation
0†
Ending Balance
53,835,000†
Subordinated Units [Member]
Increase (Decrease) in Partners' Capital
Beginning Balance
135,036,000†
Net income
4,773,000†
Proceeds from Issuance of Common Limited Partners Units
0†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(84,379,000)
Distributions
(3,377,000)
Partners' Capital Account, Unit-based Compensation
0†
Ending Balance
52,053,000†
General Partner Interest [Member]
Increase (Decrease) in Partners' Capital
Beginning Balance
6,159,000†
Net income
281,000†
Proceeds from Issuance of Common Limited Partners Units
2,744,000†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(4,418,000)
Distributions
(167,000)
Partners' Capital Account, Unit-based Compensation
0†
Ending Balance
$†4,599,000†
Partners' Capital and Distributions (Details 1)
3 Months Ended
Mar. 31, 2013
Minimum Quarterly Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.3625†
First Target Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.3625†
Maximum [Member] |
First Target Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.416875†
Maximum [Member] |
Second Target Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.453125†
Maximum [Member] |
Third Target Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.543750†
Minimum [Member] |
Minimum Quarterly Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.3625†
Minimum [Member] |
First Target Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.3625†
Minimum [Member] |
Second Target Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.416875†
Minimum [Member] |
Third Target Distribution [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.453125†
Minimum [Member] |
Thereafter [Member]
Incentive distribution level
Total quarterly distribution per unit target amount (in dollars per share)
$†0.543750†
Unitholders [Member] |
Minimum Quarterly Distribution [Member]
Incentive distribution level
Marginal percentage interest in distributions
98.00%†
Unitholders [Member] |
First Target Distribution [Member]
Incentive distribution level
Marginal percentage interest in distributions
98.00%†
Unitholders [Member] |
Second Target Distribution [Member]
Incentive distribution level
Marginal percentage interest in distributions
85.00%†
Unitholders [Member] |
Third Target Distribution [Member]
Incentive distribution level
Marginal percentage interest in distributions
75.00%†
Unitholders [Member] |
Thereafter [Member]
Incentive distribution level
Marginal percentage interest in distributions
50.00%†
General Partner Interest [Member] |
Minimum Quarterly Distribution [Member]
Incentive distribution level
Marginal percentage interest in distributions
2.00%†
General Partner Interest [Member] |
First Target Distribution [Member]
Incentive distribution level