ROSE ROCK MIDSTREAM, L.P., 10-K filed on 2/26/2016
Annual Report
Document and Entity Information†(USD $)
12 Months Ended
Dec. 31, 2015
Jan. 31, 2016
Jun. 30, 2015
Document Type
10-K†
Amendment Flag
false†
Document Period End Date
Dec. 31, 2015†
Document Fiscal Period Focus
FY†
Document Fiscal Year Focus
2015†
Entity Registrant Name
Rose Rock Midstream, L.P.†
Entity Central Index Key
0001527622†
Current Fiscal Year End Date
--12-31†
Entity Filer Category
Large Accelerated Filer†
Entity Common Stock, Shares Outstanding
36,798,678†
Entity Well-known Seasoned Issuer
No†
Entity Public Float
$†747,324,977†
Entity Current Reporting Status
Yes†
Entity Voluntary Filers
No†
Consolidated Balance Sheets†(USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Current assets:
Cash and cash equivalents
$†9,059†
$†3,625†
Accounts receivable
240,606†
224,881†
Receivable from affiliates
5,944†
15,485†
Inventories
59,121†
26,722†
Other current assets
4,884†
4,056†
Total current assets
319,614†
274,769†
Property, plant and equipment, net
441,596†
396,066†
Equity method investment
438,291†
269,635†
Goodwill
26,628†
36,116†
Other intangible assets (net of accumulated amortization of $1,443 and $370 at December 31, 2015 and 2014, respectively)
15,567†
16,640†
Other noncurrent assets, net
16,135†
13,037†
Total assets
1,257,831†
1,006,263†
Current liabilities:
Accounts payable
243,548†
211,300†
Payable to affiliates
12,995†
27,909†
Accrued liabilities
22,240†
23,282†
Other current liabilities
4,246†
3,191†
Total current liabilities
283,029†
265,682†
Long-term debt
744,597†
432,092†
Commitments and contingencies (Note 9)
  †
  †
Partnersí capital:
General partner
9,906†
67,632†
Total Rose Rock Midstream, L.P. partnersí capital
230,205†
308,489†
Total liabilities and partnersí capital
1,257,831†
1,006,263†
Capital Unit, Class A [Member] |
SemGroup [Member]
Partnersí capital:
Common units
0†
76,321†
Common Units [Member] |
Public [Member]
Partnersí capital:
Common units
80,829†
69,929†
Common Units [Member] |
SemGroup [Member]
Partnersí capital:
Common units
139,470†
155,367†
Subordinated Units [Member] |
SemGroup [Member]
Partnersí capital:
Common units
$†0†
$†(60,760)
Consolidated Balance Sheets (Parenthetical)†(USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Finite-Lived Intangible Assets, Accumulated Amortization
$†1,443†
$†370†
Subordinated Units [Member] |
SemGroup [Member]
Common units, issued
0†
8,389,709†
Common units, outstanding
0†
8,389,709†
Common Class A [Member] |
SemGroup [Member]
Common units, issued
0†
3,750,000†
Common units, outstanding
0†
3,750,000†
Common Units [Member] |
Public [Member]
Common units, issued
16,094,260†
13,765,451†
Common units, outstanding
16,094,260†
13,765,451†
Common Units [Member] |
SemGroup [Member]
Common units, issued
20,704,418†
6,814,709†
Common units, outstanding
20,704,418†
6,814,709†
Consolidated Statements of Income†(USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Revenues, including revenues from affiliates (Note 15):
Product
$†729,993†
$†1,185,456†
$†702,028†
Service
114,718†
112,641†
65,174†
Total revenues
844,711†
1,298,097†
767,202†
Expenses, including expenses from affiliates (Note 15):
Costs of products sold, exclusive of depreciation and amortization
671,769†
1,131,362†
663,759†
Operating
83,134†
80,160†
36,098†
General and administrative
21,085†
19,415†
15,557†
Depreciation and amortization
41,998†
40,035†
23,708†
Loss (gain) on disposal or impairment
10,257†
319†
(31)
Total expenses
828,243†
1,271,291†
739,091†
Earnings from equity method investment
76,355†
57,378†
17,571†
Operating income
92,823†
84,184†
45,682†
Other expenses (income):
Interest expense
43,188†
21,279†
8,181†
Other expense (income), net
(38)
(20)
(14)
Total other expenses (income), net
43,150†
21,259†
8,167†
Net income
49,673†
62,925†
37,515†
Less: net income attributable to noncontrolling interests
0†
7,758†
1,256†
Net income attributable to Rose Rock Midstream, L.P.
49,673†
55,167†
36,259†
Earnings per limited partner unit
Net income allocated to general partner
21,089†
8,142†
728†
Net income (loss) allocated to limited partners
28,584†1
47,025†1
35,531†1
Common Units [Member]
Earnings per limited partner unit
Net income (loss) allocated to limited partners
28,584†
32,914†
22,701†
Earnings per limited partner unit, basic
$†0.79†
$†1.69†
$†1.66†
Earnings per limited partner unit, diluted
$†0.79†
$†1.69†
$†1.66†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding:
36,302†
19,419†
13,672†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding:
36,343†
19,484†
13,708†
Subordinated Units [Member]
Earnings per limited partner unit
Net income (loss) allocated to limited partners
0†
13,912†
13,321†
Subordinated Units [Member]
Earnings per limited partner unit
Net income (loss) allocated to limited partners
0†
13,912†
13,321†
Earnings per limited partner unit, basic and diluted
$†0.00†
$†1.66†
$†1.59†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding:
0†
8,390†
8,390†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding:
0†
8,390†
8,390†
Common Class A [Member]
Earnings per limited partner unit
Net income (loss) allocated to limited partners
$†0†
$†199†
$†(491)
Earnings per limited partner unit, basic and diluted
$†0.00†
$†0.06†
$†(0.39)
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding:
0†
3,154†
1,264†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding:
0†
3,154†
1,264†
[1] (1) We calculate net income allocated to limited partners based on the distributions pertaining to the current periodís available cash as defined by our partnership agreement. After adjusting for the appropriate periodís 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. Prior to the conversion of the Class A units in January 2015, the Class A units did not participate in cash distributions, but were allocated a proportional share of undistributed earnings. Class A units received the declared distribution for the fourth quarter of 2014, as such the fourth quarter distribution is reflected in the earnings attributable to Class A units for the year ended December 31, 2014. As distributions related to the available cash exceeded net income, the Class A units reflect a loss for the year ended December 31, 2013.
Consolidated Statements of Changes in Equity†(USD $)
In Thousands, unless otherwise specified
Total
Common Units Public [Member]
Common Units SemGroup [Member]
Subordinated Units [Member]
Class A unitholder [Member]
General Partner [Member]
Noncontrolling Interest [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest at Dec. 31, 2012
$†320,551†
$†129,134†
$†37,992†
$†135,036†
$†0†
$†18,389†
$†0†
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
37,515†
17,710†
4,991†
13,321†
(491)
728†
1,256†
Consolidation of SemCrude Pipeline
77,301†
0†
0†
0†
0†
0†
77,301†
Cash distributions to Partners
(38,076)
(17,647)
(4,977)
(14,451)
0†
(1,001)
0†
Equity adjustment related to common control transaction
25,398†
0†
25,398†
0†
Non-cash equity compensation
806†
806†
0†
0†
0†
0†
0†
Equity issuance
387,131†
210,226†
98,895†
0†
70,105†
7,905†
0†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(414,308)
(180,216)
(57,683)
(139,281)
(28,842)
(8,286)
0†
Unvested distribution equivalent rights
(52)
(52)
0†
0†
0†
0†
0†
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest at Dec. 31, 2013
396,266†
159,961†
79,218†
(5,375)
40,772†
43,133†
78,557†
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
62,925†
22,817†
10,097†
13,912†
199†
8,142†
7,758†
Cash distributions to Partners
(62,339)
(28,494)
(11,778)
(17,366)
0†
(4,701)
0†
Equity adjustment related to common control transaction
21,547†
0†
21,547†
0†
Non-cash equity compensation
943†
943†
0†
0†
0†
0†
0†
Equity issuance
182,220†
0†
120,013†
0†
58,563†
3,644†
0†
Purchase price in excess of historical cost in common control transaction, including non-cash consideration
(206,633)
(85,173)
(42,183)
(51,931)
(23,213)
(4,133)
0†
Unvested distribution equivalent rights
(125)
(125)
0†
0†
0†
0†
0†
Cash distributions to noncontrolling interest in SemCrude Pipeline, L.L.C.
(10,683)
0†
0†
0†
0†
0†
(10,683)
Contributions from noncontrolling interest in SemCrude Pipeline, L.L.C.
14,367†
0†
0†
0†
0†
0†
14,367†
Purchase of remaining one-third interest in SemCrude Pipeline, L.L.C.
(89,999)
0†
0†
0†
0†
0†
(89,999)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest at Dec. 31, 2014
308,489†
69,929†
155,367†
(60,760)
76,321†
67,632†
0†
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
49,673†
12,492†
16,092†
0†
0†
21,089†
0†
Cash distributions to Partners
(112,931)
(40,410)
(46,824)
(5,202)
0†
(20,495)
0†
Equity adjustment related to common control transaction
(179,116)
(51,452)
(39,246)
(26,838)
0†
(61,580)
0†
Non-cash equity compensation
1,354†
1,354†
0†
0†
0†
0†
0†
Equity issuance
162,939†
89,119†
70,560†
0†
3,260†
0†
Unvested distribution equivalent rights
(203)
(203)
0†
0†
0†
0†
0†
Partners' Capital Account, Exchanges and Conversions
0†
0†
(16,479)
92,800†
(76,321)
0†
0†
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest at Dec. 31, 2015
$†230,205†
$†80,829†
$†139,470†
$†9,906†
$†0†
Consolidated Statements of Cash Flows†(USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
$†49,673†
$†62,925†
$†37,515†
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, Depletion and Amortization, Nonproduction
41,998†
40,035†
23,708†
Loss (gain) on disposal or impairment, net
10,257†
319†
(31)
Earnings from equity method investments
(76,355)
(57,378)
(17,571)
Distributions from equity method investments
76,355†
57,378†
16,999†
Amortization of debt issuance costs
2,866†
1,529†
811†
Provision for Doubtful Accounts
257†
0†
0†
Non-cash equity compensation
1,354†
943†
806†
Net unrealized (gain) loss related to derivative instruments
1,900†
(1,621)
(974)
Inventory Write-down
2,590†
5,667†
0†
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
(15,982)
(7,298)
13,179†
Decrease (increase) in receivable from affiliates
9,541†
40,735†
(56,163)
Decrease (increase) in inventories
(34,989)
(1,610)
(7,465)
Decrease (increase) in other current assets
0†
(461)
832†
Decrease (increase) in other assets
(2,441)
(120)
(7)
Increase (decrease) in accounts payable and accrued liabilities
30,623†
11,623†
(4,963)
Increase (decrease) in payable to affiliates
(14,796)
(41,573)
66,716†
Net cash provided by operating activities
82,851†
111,093†
73,392†
Cash flows from investing activities:
Capital expenditures
(86,346)
(61,282)
(51,560)
Proceeds from sale of long-lived assets
222†
1,063†
38†
Contributions to equity method investments
(46,730)
(54,930)
(31,832)
Acquisitions
(205,100)
(133,993)
(171,258)
Proceeds from Equity Method Investment, Dividends or Distributions, Return of Capital
24,113†
9,390†
0†
Net cash used in investing activities
(313,812)
(239,752)
(254,612)
Cash flows from financing activities:
Debt issuance costs
(5,688)
(8,593)
(4,069)
Borrowings on revolving credit facility and issuance of senior unsecured notes
686,208†
844,415†
558,000†
Principal payments on revolving credit facility
(374,000)
(657,415)
(317,500)
Principal payments on capital lease obligations
(49)
(39)
(27)
Proceeds from common limited partner unit issuance, net of offering costs
89,119†
0†
210,226†
Contributions from general partner
0†
21,547†
28,640†
Cash consideration in excess of historical cost in common control acquisition
(46,264)
(24,413)
(240,645)
Net distributions to partners
(112,931)
(62,339)
(38,076)
Payments of Ordinary Dividends, Noncontrolling Interest
0†
(10,683)
0†
Proceeds from Noncontrolling Interests
0†
14,367†
0†
Net cash used in financing activities
236,395†
116,847†
196,549†
Net increase (decrease) in cash and cash equivalents
5,434†
(11,812)
15,329†
Cash and cash equivalents at beginning of period
3,625†
15,437†
108†
Cash and cash equivalents at end of period
$†9,059†
$†3,625†
$†15,437†
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 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.
At December 31, 2015, our reportable segments include the following:
Transportation operates crude oil pipelines and truck transportation businesses. Transportation's assets include:
a 570-mile crude oil gathering and transportation pipeline system with over 650,000 barrels of associated storage capacity in Kansas and northern Oklahoma that is connected to several third-party pipelines and refineries and our storage terminal in Cushing;
the Wattenberg Oil Trunkline ("WOT"), a 75-mile, 12-inch diameter crude oil gathering pipeline system that transports crude oil from production facilities in the DJ Basin to the pipeline owned by White Cliffs Pipeline, L.L.C. ("White Cliffs"). The WOT has a capacity of approximately 85,000 barrels per day as well as 360,000 barrels of operational storage;
a 16-mile crude oil pipeline that connects our Platteville, Colorado crude oil terminal to the Tampa, Colorado crude oil market;
a crude oil trucking fleet of over 270 transport trucks and 270 trailers;
a 51% interest in White Cliffs, who owns a pipeline system consisting of two 527-mile parallel lines that transport crude oil from Platteville, Colorado in the DJ Basin to Cushing, Oklahoma (the "White Cliffs Pipeline"), which we operate. The White Cliffs Pipeline is currently undergoing an expansion which will increase the capacity from approximately 150,000 barrels per day to approximately 215,000 barrels per day; and
a 50% interest in Glass Mountain Pipeline, LLC ("Glass Mountain"). Glass Mountain owns a 215-mile pipeline that transports crude oil in western and north central Oklahoma (the "Glass Mountain Pipeline"), which we operate. It has capacity of approximately 140,000 barrels per day as well as 440,000 barrels of operational storage.
Facilities operates crude oil storage and terminal businesses. Facilities' assets include:
approximately 7.6 million barrels of crude oil storage capacity in Cushing, Oklahoma, of which 6.5 million barrels are leased to customers and 1.1 million barrels are used for crude oil operations and marketing activities; and
a thirty-lane crude oil truck unloading facility with 330,000 barrels of associated storage capacity in Platteville, Colorado which connects to the origination point of the White Cliffs Pipeline.
Supply and Logistics operates a crude oil marketing business which utilizes our Transportation and Facilities assets for marketing purposes. Additionally, Supply and Logistics includes:
approximately 61,800 barrels of crude oil storage capacity in Trenton and Stanley, North Dakota.
Basis of presentation
These consolidated financial statements include the accounts of Rose Rock and its controlled subsidiaries.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant transactions between Rose Rock and its consolidated subsidiaries have been eliminated. Our ownership interests in White Cliffs and Glass Mountain are accounted for as equity method investments. Our ownership interest in White Cliffs is reflected as an equity method investment as the other owners have substantive rights to participate in the management of White Cliffs.
Ownership
Our partnership interests include the following at December 31, 2015:
36,798,678 common units representing limited partner interests (of which 20,704,418 units are held by SemGroup); and
a 2% general partner interest (which is held by SemGroup).
Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our significant estimates include, but are not limited to: (1) allowances for doubtful accounts receivable; (2) estimated useful lives of assets, which impacts depreciation; (3) estimated fair values of long-lived assets used in impairment tests; (4) fair values of derivative instruments; (5) valuation of goodwill and other intangible assets; and (6) accrual and disclosure of contingent losses. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.
CASH AND CASH EQUIVALENTS Cash includes currency on hand and demand and time deposits with banks or other financial institutions. Cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase. Balances at financial institutions may exceed federally insured limits.
ACCOUNTS RECEIVABLE – Accounts receivable are reported net of the allowance for doubtful accounts. Our assessment of the allowance for doubtful accounts is based on several factors, including the overall creditworthiness of our customers, existing economic conditions, and the amount and age of past due accounts. We enter into netting arrangements with certain counterparties to help mitigate credit risk. Receivables subject to netting are presented as gross receivables (with the related accounts payable also presented gross) until such time as the balances are settled. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. The allowance for doubtful accounts was $0.3 million and $0 at December 31, 2015 and 2014, respectively.
INVENTORIES – Inventories primarily consist of crude oil. Inventories are valued at the lower of cost or market, with cost generally determined using the weighted-average method. The cost of inventory includes applicable transportation costs. During the years ended December 31, 2015 and 2014, we recorded non-cash charges of $2.6 million and $5.7 million, respectively, to write-down inventory to the lower of cost or market.
We enter into exchanges with third parties whereby we acquire products that differ in location, grade, or delivery date from products we have available for sale. These exchanges are valued at cost, and although a transportation, location or product differential may be recorded, generally no gain or loss is recognized.
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value rather than the lower of cost or market. The standard will be effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance shall be applied prospectively and early adoption is permitted. We will adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
PROPERTY, PLANT AND EQUIPMENT – Property, plant and equipment is recorded at cost. We capitalize costs that extend or increase the future economic benefits of property, plant and equipment, and expense maintenance costs that do not. When assets are disposed of, their cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is recorded within operating expenses in the consolidated statements of income.
Depreciation is calculated primarily on the straight-line method over the following estimated useful lives: 
Pipelines and related facilities
20 years
Storage and terminal facilities
10 –25 years
Trucking equipment and other
3 – 7 years

Construction in process is reclassified to the fixed asset categories above and depreciation commences once the asset has been placed in-service.
LINEFILL – Pipelines and storage facilities generally require a minimum volume of product in the system to enable the system to operate. Such product, known as linefill, is generally not available to be withdrawn from the system. Linefill owned by us in facilities operated by us is recorded at historical cost, is included in property, plant and equipment in the consolidated balance sheets, and is not depreciated. We also own linefill in third-party facilities, which is included in inventory on the consolidated balance sheets.
IMPAIRMENT OF LONG-LIVED ASSETS – We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. We test an asset group for impairment by estimating the undiscounted cash flows expected to result from its use and eventual disposition. If the estimated undiscounted cash flows are lower than the net book value of the asset group, we then estimate the fair value of the asset group and record a reduction to the net book value of the assets and a corresponding impairment loss.
GOODWILL — We test goodwill for impairment on an annual basis, or more often if circumstances warrant, by estimating the fair value of the asset group to which the goodwill relates and comparing this fair value to the net book value of the asset group. If fair value is less than net book value, we estimate the implied fair value of goodwill, reduce the book value of the goodwill to the implied fair value, and record a corresponding impairment loss. Our policy is to test goodwill for impairment on October 1st of each year.
INTANGIBLE ASSETS — Intangible assets are stated at cost, net of accumulated amortization, which is recorded on a straight-line basis over the life of the asset. We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value.
EQUITY METHOD INVESTMENTS — We account for an investment under the equity method when we have significant influence over, but not control of, the significant operating decisions of the investee. Under the equity method, we record in the consolidated statements of income our share of the earnings or losses of the investee, with a corresponding adjustment to the investment balance on our consolidated balance sheet. When we receive a distribution from an equity method investee, we record a corresponding reduction to the investment balance.
DEBT ISSUANCE COSTS — Costs incurred in connection with the issuance of long-term debt are reported as other noncurrent assets and are amortized to interest expense using the straight-line method over the term of the related debt. Use of the straight-line method of amortization does not differ materially from the “effective interest” method.
On April 7, 2015, the FASB issued ASU 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which is designed to simplify presentation of debt issuance costs. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard will be effective for U.S. public companies for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The new guidance shall be applied on a retrospective basis for all periods presented. We will adopt this guidance in the first quarter of 2016. The impact is not expected to be material.
COMMODITY DERIVATIVE INSTRUMENTS – We generally record the fair value of derivative instruments on the consolidated balance sheets and the change in fair value as an increase or decrease to product revenue. As shown in Note 6, the fair value of derivatives at December 31, 2015 and 2014 are recorded to other current assets or other current liabilities on the consolidated balance sheets. Related margin deposits are recorded to other current assets or other current liabilities on the consolidated balance sheets. Margin deposits have not generally been netted against derivative assets or liabilities at December 31, 2015 and 2014.
The fair value of a derivative contract is determined based on the nature of the transaction and the market in which the transaction was executed. Quoted market prices, when available, are used to value derivative transactions. In situations where quoted market prices are not readily available, we estimate the fair value using other valuation techniques that reflect the best information available under the circumstances. Fair value measurements of derivative assets include consideration of counterparty credit risk. Fair value measurements of derivative liabilities include consideration of our creditworthiness.
We have elected “normal purchase” and “normal sale” treatment for certain commitments to purchase or sell petroleum products at future dates. This election is only available when a transaction is expected to result in physical delivery of product over a reasonable period in the normal course of business and is not expected to be net settled. Agreements accounted for under this election are not recorded at fair value; instead, the transaction is recorded when the product is delivered.
CONTINGENT LOSSES – We record a liability for a contingent loss when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We record attorneys’ fees incurred in connection with a contingent loss at the time the fees are incurred. We do not record liabilities for attorneys’ fees that are expected to be incurred in the future.
ASSET RETIREMENT OBLIGATIONS – Asset retirement obligations include legal or contractual obligations associated with the retirement of long-lived assets, such as requirements to incur costs to dispose of equipment or to remediate the environmental impacts of the normal operation of the assets. We record liabilities for asset retirement obligations when a known obligation exists under current law or contract and when a reasonable estimate of the value of the liability can be made.
REVENUE RECOGNITION – Product revenues relate primarily to our Supply and Logistics segment area and to certain fixed-margin transactions related to our Transportation segment. The fixed-margin transactions are structured such that we purchase crude oil from a producer or supplier at a designated receipt point at an index price less a transportation fee, and simultaneously sell an identical volume of crude oil at a designated delivery point to the same party at the same index price, thereby locking in a fixed margin that is, in effect, economically equivalent to a transportation fee. Sales of product are recognized at the time title to the product transfers to the purchaser, which typically occurs upon receipt of the product by the purchaser. Any transportation costs we incur to ship product on third-party infrastructure are included in the price of product sold to customers, and are included within product revenues and costs of products sold. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue). As described in Note 6, product revenues include realized and unrealized gains and losses on commodity derivatives.
Under our current operations, fixed-fee service revenues relate primarily to our Facilities segment and our Transportation segment (excluding transactions whereby we take title to the product while it is in our pipeline system, as described above). Service revenues are recognized at the time the service is performed.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the United States ("U.S. GAAP"). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard. We will adopt this guidance in the first quarter of 2018.
COSTS OF PRODUCTS SOLD – Costs of products sold consists of the cost to purchase the product and any third-party cost incurred to transport the product to the point of sale and to store the product until it is sold.
PURCHASES AND SALES OF INVENTORY WITH THE SAME COUNTERPARTY – We routinely enter into transactions to purchase inventory from, and sell inventory to, the same counterparty. Such transactions that are entered into in contemplation of one another are recorded on a net basis.
INCOME TAXES – We are a partnership for income tax purposes and therefore are not subject to federal or state income taxes. The tax on our net income is borne by the individual partners through the allocation of taxable income. Net income for financial statement purposes may differ significantly from taxable income allocated to our partners because of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements of our partnership agreement. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partner’s tax attributes is not available to us.
EARNINGS PER 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, which are declared and paid following the close of each quarter.
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.
On April 30, 2015, the FASB issued ASU 2015-06, "Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions (a Consensus of the FASB Emerging Issues Task Force)," which requires a master limited partnership ("MLP") to allocate earnings (losses) of the transferred business entirely to the general partner when calculating earnings per unit ("EPU") for periods before the dropdown transaction occurred. The EPU that the limited partners previously reported would not change as a result of the dropdown transaction. The ASU also requires an MLP to disclose how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing EPU under the two-class method. The standard will be effective for U.S. public companies for annual reporting periods beginning after December 15, 2015, and early adoption is permitted. The new guidance shall be applied on a retrospective basis for all periods presented. We early adopted this guidance in the first quarter of 2015 and the impact was not material.
COMMON CONTROL TRANSACTIONS – Entities and assets acquired from SemGroup and its affiliates are accounted for as common control transactions whereby the net assets acquired are recorded at their historical amounts. Any consideration in excess of the historical amount is treated as an equity transaction, similar to a dividend, which reduces the partners' equity accounts pro-rata based on their relative ownership percentages. Cash consideration up to the carrying value of net assets acquired is presented as an investing activity in our consolidated statements of cash flows. Cash consideration in excess of the carrying value of net assets acquired is presented as a financing activity.
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS – Net income attributable to noncontrolling interests represents the income allocated to the ownership interest in our consolidated subsidiary, SemCrude Pipeline, L.L.C. ("SCPL"), which was retained by SemGroup prior to our acquisition of the remaining noncontrolling interest in 2014. Income was allocated to noncontrolling interests pro-rata based on relative ownership interests in SemCrude Pipeline.
RECLASSIFICATIONS – Certain reclassifications have been made to conform prior year balances to the current year presentation.
EQUITY-BASED COMPENSATION—We grant certain of our employees and non-managerial directors equity-based compensation awards which vest contingent on continued service of the recipient. We record compensation expense for these outstanding awards over applicable service periods based on their grant date fair value with a corresponding increase to partners' capital. The expense to be recorded over the life of the awards is discounted for expected forfeitures during the vesting period.
COMPREHENSIVE INCOME – Comprehensive income is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Rose Rock has no items of comprehensive income, other than net income, in any period presented. Therefore, net income and comprehensive income are the same.
Acquisitions
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
ACQUISITIONS
During the year ended December 31, 2015, we completed the following acquisition:
Wattenberg Oil Trunkline and Glass Mountain Holding, LLC
On February 13, 2015, our Transportation segment acquired WOT and Glass Mountain Holding, LLC, which owns a 50% interest in Glass Mountain, from SemGroup in exchange for (i) cash of approximately $251.2 million, (ii) the issuance of 1.75 million common units, and (iii) 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.
The cash consideration was funded through a borrowing under our credit facility and the issuance and sale of common units in an underwritten public offering (Note 11). As the transaction was between entities under common control, we recorded the acquired assets and liabilities 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.
The acquisition of WOT created a change in reporting entity, which required our historical results to be recast as if WOT had been part of Rose Rock in prior periods. The historical financial statements have been recast to reflect this change. The impact to prior period earnings was not significant. Prior period earnings of WOT have been allocated to the general partner.
In our consolidated statements of changes in equity, the prior year balances for the general partner interest have been recast to include equity related to WOT prior to its acquisition from SemGroup. "Equity adjustment related to common control acquisition" includes a $59.2 million reduction to general partner interest which reflects the payment made to SemGroup related to the historical value of WOT, which was included in the general partner interest due to the recast. The remaining amounts in "equity adjustment related to common control acquisition" represent the excess of the acquisition price of WOT and a 50% interest in Glass Mountain over SemGroup's historical value of those assets of $205.1 million.
The acquisition of Glass Mountain Holding, LLC, is equivalent to the acquisition of an equity method investment which does not create a change in reporting entity. As such, prior periods have not been recast to include the historical results of Glass Mountain. The Glass Mountain acquisition is reflected in our results as of January 1, 2015, which was the agreed upon date of transfer between SemGroup and Rose Rock. The difference between accounting for the transfer on January 1, 2015 versus the closing date of the transaction, February 13, 2015, is not significant to our financial results.
During the year ended December 31, 2014, we completed the following acquisitions:
SemCrude Pipeline, L.L.C.
On June 23, 2014, our Transportation segment acquired the remaining 33% interest in SCPL from SemGroup in exchange for (i) cash of approximately $114.4 million, (ii) the issuance of 2.425 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. 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.
Class A units were 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 volume on the White Cliffs Pipeline for such month was 125,000 barrels per day or greater. The Class A units converted to common units in January 2015.
The cash consideration was funded through a borrowing under our credit facility. The 2.425 million common units were valued at $49.49 per unit, or $120.0 million, based on the closing price on June 19, 2014, which was the date on which the transaction price was determined. The Class A units were valued at $49.49 per unit discounted for the expected forbearance of distributions, or $58.6 million. The non-cash contribution to the general partner's capital account was made in the amount of $3.6 million.

Crude oil trucking assets
On June 24, 2014, our Transportation segment acquired crude oil trucking assets from a subsidiary of Chesapeake Energy Corporation ("Chesapeake") for $44.0 million in cash. Highlights of the transaction include:
124 trucks, 122 trailers and miscellaneous equipment; and
a long-term transportation agreement with Chesapeake Energy Marketing, Inc.
During the year ended December 31, 2013, we completed the following acquisitions:
SemCrude Pipeline, L.L.C.
On January 11, 2013, our Transportation segment acquired a 33% interest in 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 2% general partner interest in us.
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 (Note 11). 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 on January 11, 2013. 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.
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.
The cash consideration was funded through a borrowing under our credit facility. The 1.5 million common units were valued at $36.30 per unit, or $54.5 million, based on the closing price on December 11, 2013, which was the date on which the transaction price was determined. The Class A units were valued at $36.30 per unit discounted for the expected forbearance of distributions, or $39.6 million. The non-cash contribution to the general partner's capital account was made in the amount of $1.9 million.
In conjunction with the SCPL transactions, we incurred $4.1 million of cost, of which $1.6 million of equity issuance costs were offset against proceeds, $1.6 million was related to the borrowing and was deferred, and $0.9 million was expensed as general and administrative expense in the consolidated statement of income.
As the SCPL transactions were 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.

Barcas Field Services, LLC
On September 1, 2013, our Transportation segment completed the acquisition of the assets of Barcas Field Services, LLC ("Barcas") for $49.0 million in cash. Highlights of the acquisition include the following:
114 trucks, 120 trailers and miscellaneous equipment; and
a long-term take-or-pay customer transportation agreement which expired in late 2014.

Tampa Pipeline
On November 8, 2013, our Transportation segment 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. The pipeline had been recently constructed by Noble Energy, Inc. and was placed into service with the acquisition. The pipeline connects our Platteville, Colorado crude oil terminal to the Tampa, Colorado crude oil market.
Equity Method Investment
Equity Method Investments [Text Block]
EQUITY METHOD INVESTMENT
Our equity method investments consist of the following (in thousands):
 
December 31,
 
2015
 
2014
White Cliffs
$
297,109

 
$
269,635

Glass Mountain
141,182

 

Total equity method investments
$
438,291

 
$
269,635


Our earnings from equity method investments consist of the following (in thousands):
 
Year Ended December 31,
 
2015
 
2014
 
2013
White Cliffs
$
70,238

 
$
57,378

 
$
3,788

Glass Mountain
6,117

 

 

SCPL

 

 
13,783

Total earnings from equity method investments
$
76,355

 
$
57,378

 
$
17,571


Cash distributions received from equity method investments consist of the following (in thousands):
 
Year Ended December 31,
 
2015
 
2014
 
2013
White Cliffs
$
86,845

 
$
66,768

 
$

Glass Mountain
13,623

 

 

SCPL

 

 
16,999

Total cash distributions received from equity method investments
$
100,468

 
$
66,768

 
$
16,999


SCPL
Prior to our December 16, 2013 acquisition of additional ownership interests in SCPL (Note 3), we accounted for our interest in SCPL under the equity method. Subsequent to our acquisition of additional ownership interests on December 16, 2013, we consolidated SCPL and reported a noncontrolling interest, the ownership interest in SCPL which was retained by SemGroup, until our purchase of the noncontrolling interest on June 23, 2014. Our consolidated income statement for the year ended December 31, 2013 includes $13.8 million of equity earnings from SCPL prior to consolidation. For the year ended December 31, 2013, we received cash distributions from SCPL of $17.0 million.
SCPL's only substantial asset is a 51% interest in White Cliffs, which is accounted for under the equity method.
White Cliffs
The equity earnings for the year ended December 31, 2013 represent one month of earnings subsequent to our consolidation of SCPL. No distributions were received from White Cliffs for the year ended December 31, 2013, as distributions are paid on a one-month lag. Our distribution of earnings related to December 2013 was received in January 2014.
Certain summarized balance sheet information of White Cliffs as of December 31, 2015 and 2014 is shown below (in thousands):
 
December 31,
 
2015
 
2014
Current assets
$
54,091

 
$
35,623

Property, plant and equipment, net
509,068

 
471,179

Goodwill
17,000

 
17,000

Other intangible assets, net
11,974

 
16,043

Total assets
$
592,133

 
$
539,845

 
 
 
 
Current liabilities
$
9,491

 
$
11,108

Members’ equity
582,642

 
528,737

Total liabilities and members’ equity
$
592,133

 
$
539,845


Certain summarized income statement information of White Cliffs for the years ended December 31, 2015, 2014 and 2013 is shown below (in thousands):
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue
$
206,395

 
$
160,369

 
$
133,310

Operating, general and administrative expenses
$
33,284

 
$
23,067

 
$
23,825

Depreciation and amortization expense
$
34,105

 
$
23,257

 
$
18,668

Net income
$
139,000

 
$
114,045

 
$
90,817


The equity in earnings of White Cliffs for the three years ended December 31, 2015, 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 members are not obligated to share. Such expenses are recorded by White Cliffs and are allocated to our membership interest. White Cliffs recorded $1.3 million, $1.6 million and $1.8 million of such general and administrative expense for the years ended December 31, 2015, 2014 and 2013, respectively.
The members of White Cliffs are required to contribute capital to White Cliffs to fund various projects. For the year ended December 31, 2015, we contributed $42.8 million to these projects, including $34.5 million of contributions for an expansion project adding approximately 65,000 barrels per day of capacity. Remaining contributions related to the expansion project will be paid in 2016 and are expected to total approximately $2.3 million. The project is expected to be completed during the first half of 2016.
For the years ended December 31, 2014 and 2013, we contributed $53.3 million and $31.8 million, respectively, related to a project which added a 12-inch line from Platteville, Colorado to Cushing, Oklahoma and increased capacity to 150,000 barrels per day. This project was completed in August 2014. Contributions to White Cliffs in 2014 were partially funded by $14.4 million of contributions from the noncontrolling interest in SCPL.
Our membership interest in White Cliffs is significant as defined by Securities and Exchange Commission’s Regulation S-X Rule 1-02(w). Accordingly, as required by Regulation S-X Rule 3-09, we have included the audited financial statements of White Cliffs as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015 as an exhibit to this Form 10-K.
Glass Mountain
As discussed in Note 3, on February 13, 2015, our Transportation segment acquired the Glass Mountain Holding, LLC, which owns a 50% interest in Glass Mountain. The excess of the recorded amount of our investment over the book value of our share of the underlying net assets represents equity method goodwill and capitalized interest of $31.0 million and $4.0 million, respectively, at December 31, 2015. Capitalized interest is amortized as a reduction of earnings from equity method investments.
Certain summarized balance sheet information of Glass Mountain as of December 31, 2015 is shown below (in thousands):
 
December 31, 2015
Current assets
$
7,856

Property, plant and equipment, net
205,920

Total assets
$
213,776

 
 
Current liabilities
$
1,036

Other liabilities
28

Members’ equity
212,712

Total liabilities and members’ equity
$
213,776


Certain summarized unaudited income statement information of Glass Mountain for the year ended December 31, 2015 is shown below (in thousands):
 
Year Ended December 31,
 
2015
Revenues
$
38,526

Cost of sales
$
3,392

Operating, general and administrative expenses
$
6,643

Depreciation and amortization expense
$
15,828

Net income
$
12,657


Our equity in earnings of Glass Mountain for the year ended December 31, 2015 is less than 50% of the net income of Glass Mountain for the same period due to amortization of capitalized interest for the period.
For the year ended December 31, 2015, we contributed $2.7 million to Glass Mountain related to capital projects.
Our ownership interest in Glass Mountain is not significant as defined by Securities and Exchange Commission's Regulation S-X Rule 1-02(w). Accordingly, no audited financial statements of Glass Mountain pursuant to Regulation S-X 3-09 have been included as an exhibit to this Form 10-K.
Property, Plant and Equipment
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands): 
 
December 31,
 
2015
 
2014
Land
$
18,580

 
$
18,479

Pipelines and related facilities
283,316

 
227,586

Storage and terminal facilities
136,688

 
135,466

Linefill
26,383

 
25,507

Trucking equipment and other
50,060

 
40,281

Construction-in-progress
49,963

 
31,393

Property, plant and equipment, gross
564,990

 
478,712

Accumulated depreciation
(123,394
)
 
(82,646
)
Property, plant and equipment, net
$
441,596

 
$
396,066


 
We recorded depreciation expense of $40.9 million, $33.9 million and $22.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.

We include within the cost of property, plant and equipment interest costs incurred while an asset is being constructed. We capitalized $0.5 million, $0.3 million and $0.7 million of interest costs during the years ended December 31, 2015, 2014 and 2013, respectively.
Financial Instruments
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
Commodity derivative contracts
Our results of operations and cash flows are impacted by changes in market prices for petroleum products. This exposure to commodity price risk is managed, in part, by entering into various commodity derivatives.
We seek to manage the price risk associated with our marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of crude oil to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts. Our storage and transportation assets also can be used to mitigate location and time basis risk. All marketing activities are subject to our Comprehensive Risk Management Policy, which establishes limits in order to manage risk and mitigate financial exposure.
Our commodity derivatives can be comprised of crude oil 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 December 31, 2015 and 2014 (in thousands):
 
 
December 31, 2015
 
December 31, 2014
 
Level 1
 
Netting(1)
 
Total
 
Level 1
 
Netting(1)
 
Total
Assets
$
131

 
$
(131
)
 
$

 
$
3,198

 
$
(1,637
)
 
$
1,561

Liabilities
$
470

 
$
(131
)
 
$
339

 
$
1,637

 
$
(1,637
)
 
$


(1)
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 hierarchy. At December 31, 2015, 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 years ended December 31, 2015, 2014 and 2013, and as such, no rollforward of Level 3 activity has been presented.
The following table sets forth the notional quantities for derivative instruments entered into during the periods indicated (in thousands of barrels):
 
Year Ended December 31,
  
2015
 
2014
 
2013
Sales
23,228

 
6,641

 
2,595

Purchases
22,946

 
6,477

 
2,575


We have not designated any of our commodity derivative instruments as accounting hedges. We record the fair value of the derivative instruments on our consolidated balance sheets in other current assets and other current liabilities. The fair value of our commodity derivative assets and liabilities recorded to other current assets and other current liabilities was as follows (in thousands):
December 31, 2015
 
December 31, 2014
Assets
 
Liabilities
 
Assets
 
Liabilities
$

 
$
339

 
$
1,561

 
$


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 $2.9 million and $0.8 million at December 31, 2015 and 2014, 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 December 31, 2015 and 2014, we would have had net asset positions of $2.6 million and $2.4 million, respectively.
Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
 
Year Ended December 31,
 
2015
 
2014
 
2013
Realized and unrealized gain (loss)
$
8,145

 
$
17,531

 
$
(1,593
)

Concentrations of risk
During the year ended December 31, 2015, two third-party customers, primarily of our Supply and Logistics segment, accounted for more than 10% of our consolidated revenue with revenues of $457.3 million and $131.9 million. We purchased approximately $232.6 million of product from two third-party suppliers, which represented approximately 35% of our costs of products sold. At December 31, 2015, one third-party customer accounted for 53% of our consolidated accounts receivable.
As described in Note 15, we also generated revenues and expenses from subsidiaries of SemGroup.
Goodwill and other intangibles
Goodwill and Intangible Assets Disclosure [Text Block]
GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill
Goodwill relates to our Transportation segment. Changes in goodwill are shown below (in thousands):
Balance at December 31, 2012
$

Barcas acquisition (Note 3)
28,322

Balance at December 31, 2013
28,322

Oilfield trucking acquisition (Note 3)
7,892

Barcas purchase price adjustment
(98
)
Balance at December 31, 2014
36,116

Impairment loss
(9,488
)
Balance at December 31, 2015
$
26,628


We assess our goodwill for impairment at least annually as of October 1. No impairments were indicated as of October 1, 2015. However, as a result of the continued decline in oil prices and lower forecast volumes from declining drilling activity, along with lower than expected results during the fourth quarter of 2015, we performed an interim goodwill impairment analysis as of December 31, 2015 which resulted in an impairment charge of $9.5 million related to our crude oil trucking operation which was identified as the reporting unit for purposes of the impairment test.
We used an income approach, supplemented by a market approach to calculate the fair value of the reporting unit. Under the income approach, we utilized a discounted cash flow model to determine the fair value of our crude oil trucking operations. Significant judgments and assumptions included the discount rate, anticipated revenue and volume growth rates, estimated operating expenses and capital expenditures, which were based on our operating and capital budgets as well as our strategic plans. A significant underlying assumption is that crude oil prices will eventually improve and production volumes will begin to increase. If crude oil production does not increase in the future or the production takes longer than anticipated to return, this would negatively affect our key assumptions and potentially lead to additional impairments in the future. We considered the market approach by comparing the revenue and earnings multiples implied by our income approach to those of comparable companies for reasonableness.

Other Intangible Assets
Other intangibles represent customer relationships of our Transportation segment. The gross carrying amount and accumulated amortization of intangible assets are shown below (in thousands):
 
December 31,
 
2015
 
2014
Gross Intangible Assets
$
17,010

 
$
17,010

Accumulated Amortization
(1,443
)
 
(370
)
Net Intangible Assets
$
15,567

 
$
16,640


Changes in other intangible assets are shown below (in thousands):
Balance at December 31, 2012
$

Barcas acquisition
6,930

Amortization
(1,155
)
Balance at December 31, 2013
5,775

Oilfield trucking acquisition
17,010

Barcas purchase price adjustment
(50
)
Amortization
(6,095
)
Balance at December 31, 2014
16,640

Amortization
(1,073
)
Balance at December 31, 2015
$
15,567


We estimate that future amortization of other intangible assets will be as follows (in thousands):
For the twelve months ending:
 
December 31, 2016
$
1,881

December 31, 2017
2,132

December 31, 2018
2,172

December 31, 2019
1,680

December 31, 2020
1,216

Thereafter
6,486

Total estimated amortization expense
$
15,567

Long-Term Debt
LONG TERM DEBT
LONG-TERM DEBT
Our long-term debt consisted of the following (in thousands):
 
December 31,
 
2015
 
2014
5.625% senior unsecured notes due 2022
$
400,000

 
$
400,000

5.625% senior unsecured notes due 2023
344,545

 

Revolving credit facility

 
32,000

Capital leases
83

 
132

Total long-term debt
744,628

 
432,132

less: current portion of long-term debt
31

 
40

Noncurrent portion of long-term debt
$
744,597

 
$
432,092


Senior unsecured notes due 2022 and 2023
At December 31, 2015, we had outstanding $400 million of 5.625% senior unsecured notes due 2022 (the “2022 Notes”) and $350 million of 5.625% senior unsecured notes due 2023 (the "2023 Notes") (collectively, the "Notes"). Rose Rock and its wholly-owned subsidiary, Rose Rock Finance Corporation ("Finance Corp."), are co-issuers of the Notes.
The 2023 Notes were sold at 98.345% of par, a discount of $5.8 million, on May 14, 2015. The discount is reported as a reduction to the face value of the 2023 Notes on our consolidated balance sheets and is being amortized over the life of the 2023 Notes using the interest method. At December 31, 2015, the unamortized discount was $5.5 million.
The net proceeds from the 2023 Notes offering of $337.7 million, after the discount and $6.5 million of underwriters' fees and offering expenses, were used to repay amounts borrowed under our revolving credit facility and for general partnership purposes.
Interest on the 2022 Notes is payable in arrears on January 15th and July 15th to holders of record on January 1st and July 1st each year until maturity. For the years ended December 31, 2015 and 2014, we recorded interest expense of $23.5 million and $11.7 million, respectively, including amortization of debt issuance costs on the 2022 Notes. Interest on the 2023 Notes is payable in arrears on May 15th and November 15th to holders of record on May 1st and November 1st each year until maturity. For the year ended December 31, 2015, we recorded interest expense of $13.2 million, including amortization of debt issuance costs and amortization of discount on the 2023 Notes.
At December 31, 2015, we had $12.2 million of debt issuance costs, net of accumulated amortization, related to the Notes included in other noncurrent assets on our consolidated balance sheet.
Indenture
The Notes are governed by an indenture between the Partnership, its subsidiary guarantors, Finance Corp. and Wilmington Trust, National Association, as trustee (the “Indenture”). The Indenture includes customary covenants, including limitations on our ability to incur additional indebtedness or issue certain preferred shares; pay dividends and make certain distributions, investments and other restricted payments; create certain liens; sell assets; enter into transactions with affiliates; merge, consolidate, sell or otherwise dispose of all or substantially all of our assets; and designate our subsidiaries as unrestricted under the Indenture.
The Indenture includes customary events of default. A default would permit the trustee or holders of at least 25% in aggregate principal amounts of the Notes then outstanding to declare all amounts owing under the Notes to be due and payable.
The Notes are effectively subordinated in right of payment to any of our, and the subsidiary guarantors', existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness.
The Partnership may issue additional Notes under the Indenture from time to time, subject to the terms of the Indenture.
At December 31, 2015, we were in compliance with the terms of the Indenture.
Early redemption premiums
Except as described below, the 2022 and 2023 Notes are not redeemable at the Partnership's option prior to July 15, 2017 and May 15, 2019, respectively. From and after July 15, 2017, in the case of the 2022 Notes, or May 15, 2019, in the case of the 2023 Notes, the Partnership may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if redeemed during the twelve-month period beginning on July 15 for the 2022 Notes or May 15 for the 2023 Notes of each of the years indicated below for the respective Notes:
2022 senior unsecured notes
2017
 
104.219%
2018
 
102.813%
2019
 
101.406%
2020 and thereafter
 
100.000%

2023 senior unsecured notes
2019
 
102.813%
2020
 
101.406%
2021 and thereafter
 
100.000%


Prior to July 15, 2017, in the case of the 2022 Notes, or May 15, 2018, in the case of the 2023 Notes, the Partnership may, at its option, on one or more occasions, redeem up to 35% of the sum of the original aggregate principal amount of the Notes at a redemption price equal to 105.625% of the aggregate principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings of the Partnership, or the parent of the Partnership to the extent such net proceeds are contributed to the Partnership, subject to certain conditions.
Prior to July 15, 2017, in the case of the 2022 Notes, or May 15, 2019, in the case of the 2023 Notes, the Partnership may also redeem all or part of the Notes at a price equal to the principal plus a premium equal to the greater of 1% of the principal or the excess of the present value of the redemption price from the table above plus all required interest payments due through July 15, 2017, with respect to the 2022 Notes, or May 15, 2019, with respect to the 2023 Notes, computed using a discount rate based on a published United States Treasury Rate plus 50 basis points, over the principal value of such Note.
In the event of a change of control, the Partnership is required to offer to repurchase the Notes at an amount equal to 101% of the principal plus accrued and unpaid interest.
Subsidiary Guarantors
The Notes are guaranteed by all of our existing subsidiaries other than Finance Corp. Such guarantees of the Notes are full and unconditional and constitute the joint and several obligations of the subsidiary guarantors. Each of the subsidiary guarantors is 100% owned by the Partnership. The Partnership has no assets or operations independent of its subsidiaries and there are no significant restrictions upon the ability of the Partnership, or any of its subsidiaries, to obtain funds from its respective subsidiaries by dividend or loan. None of the assets of the Partnership's subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act.
Revolving credit facility
At December 31, 2015, our credit agreement, as amended, provides for a revolving credit facility of $585 million and includes a $150 million sub-limit for letters of credit. The credit agreement permits the increase of the facility by not more than $200 million, subject to certain conditions. The credit agreement expires September 20, 2018, when all amounts owed will be due.
At our option, amounts borrowed under the credit agreement will bear interest at either the Eurodollar rate or an alternate base rate (“ABR”), plus, in each case, an applicable margin. The applicable margin will range from 1.75% to 3.00% in the case of a Eurodollar rate loan, and from 0.75% to 2.00% in the case of an ABR loan, in each case, based on a leverage ratio specified in the credit agreement. At December 31, 2015, we had no outstanding borrowings under this credit facility.
Fees are charged on any outstanding letters of credit at a rate that ranges from 1.75% to 3.00%, depending on a leverage ratio specified in the credit agreement. At December 31, 2015, there were $35.3 million in outstanding letters of credit, and the rate in effect was 2.50%. In addition, a fronting fee of 0.25% is charged on outstanding letters of credit.
The credit agreement also allows for the use of secured bilateral letters of credit, which are issued external to the credit facility and do not reduce revolver availability. At December 31, 2015, we had $42.9 million of secured bilateral letters of credit outstanding and the interest rate in effect was 1.75%.
A commitment fee that ranges from 0.375% to 0.50%, depending on a leverage ratio specified in the credit agreement, is charged on any unused capacity of the revolving credit facility. In addition, we are charged an annual administrative fee of $0.1 million.
During the years ended December 31, 2015, 2014 and 2013, we recorded $6.9 million, $9.0 million and $8.7 million, respectively, of interest expense related to the credit facility, including amortization of capitalized loan fees. At December 31, 2015, we had $2.8 million in capitalized loan fees, net of accumulated amortization, related to the credit facility included in other noncurrent assets.
The credit agreement contains representations and warranties and affirmative and negative covenants. The covenants in the agreement include limitations on creation of new indebtedness and liens, entry into sale and lease-back transactions, investments, and fundamental changes including mergers and consolidations, certain cash distributions and other distributions, material changes in our business and modifying certain documents.
 
The credit agreement restricts our ability to make certain types of payments relating to our units, including the declaration or payment of cash distributions, provided that we may make quarterly distributions of available cash so long as no default under the agreement then exists or would result therefrom. The agreement is guaranteed by all of our material subsidiaries and secured by a lien on substantially all of our property and assets, subject to customary exceptions.

At December 31, 2015, we were in compliance with the terms of the credit agreement.
Capital lease obligations
At December 31, 2015, we had $52 thousand ($83 thousand including current portion) of capital lease obligations reported as long-term debt on the consolidated balance sheet.
Scheduled principal payments
The following table summarizes the scheduled principal payments as of December 31, 2015 (in thousands). As described above, our debt agreements require accelerated principal payments under certain circumstances. As a result, principal payments may occur earlier than shown in the table below.
 
Senior Unsecured Notes due 2022
 
Senior Unsecured Notes due 2023
 
Revolving Credit
Facility
 
Capital
Leases
 
Total
For the year ended:
 
 
 
 
 
 
 
 
 
December 31, 2016
$

 
$

 
$

 
$
31

 
$
31

December 31, 2017

 

 

 
26

 
26

December 31, 2018

 

 

 
26

 
26

December 31, 2019

 

 

 

 

December 31, 2020

 

 

 

 

Thereafter
400,000

 
350,000

 

 

 
750,000

Total
$
400,000

 
$
350,000

 
$

 
$
83

 
$
750,083


Fair value
We estimate the fair value of our 2022 Notes and 2023 Notes to be $337 million and $300 million at December 31, 2015, based on unadjusted, transacted market prices near the measurement date, which is categorized as a Level 2 measurement.
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").
Claims reconciliation process
A large number of parties made claims against SemGroup and the other debtors for obligations alleged to have been incurred prior to the bankruptcy filing. SemGroup has resolved or settled all of these outstanding claims and has made all required distributions. The Plan of Reorganization has therefore been fully administered.
On November 7, 2014, SemGroup Corporation and the other reorganized debtors moved for a final decree from the bankruptcy court closing the debtors’ bankruptcy cases. The United States Bankruptcy Court for the District of Delaware granted the request and entered its Order Granting Motion of Remaining Debtors for Entry of Final Decree on December 18, 2014. Accordingly, the bankruptcy cases for SemCrude, L.P., Eaglwing, L.P., SemCanada II, L.P., SemCanada L.P., SemGas, L.P., SemGroup, L.P., SemMaterials, L.P., and SemStream, L.P. have been closed. As part of its decree, the Court retained jurisdiction over certain on-going adversary proceedings, but the debtors have estimated and paid the claims associated with these remaining adversaries, leaving the non-debtor parties to the adversaries to resolve their remaining claims amongst themselves.
On January 2, 2015, Bettina M. Whyte, the duly appointed Trustee of the SemGroup Litigation Trust (the “Litigation Trustee”), filed a notice of appeal of the Bankruptcy Court’s December 18, 2014 order closing the aforementioned bankruptcy cases. However, the Bankruptcy Court’s order of final decree was effective upon entry, and the appeal does not stay the effect of the order. The Litigation Trustee’s appeal to the United States District Court for the District of Delaware is currently pending and will be opposed by SemGroup Corporation and the other remaining reorganized debtors.
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 the KDHE believes, based on their historical use, may have soil or groundwater contamination in excess of state standards. The 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 the KDHE to conduct environmental assessments on the sites and to pay the KDHE’s costs associated with their oversight of this matter. SemGroup has conducted Phase II investigations at all sites. Four of the five sites have limited amounts of soil contamination that will be excavated and/or remediated on site. Three of the five sites appeared to have ground water contamination requiring further delineation and/or on-going monitoring. One site has been closed. 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.
Dimmit County, TX claims
An employee of Rose Rock Midstream Field Services, LLC was involved in a tractor trailer accident on January 15, 2015 in Dimmit County, Texas.  A second accident followed resulting in six fatalities and multiple injuries.  Multiple lawsuits involving claims of wrongful death and personal injury were filed in Zavala County and Dimmit County, Texas.  These lawsuits have been consolidated and the trial will be held in the District Court, 293rd Judicial District, Zavala County, Texas.  The trial for cause number 15-01-13356-ZCV, Maribel Rodriguez and the Estate of David Rodriguez, et al., vs. Rose Rock Midstream Field Services, LLC, SemGroup Corporation, Rose Rock Midstream, L.P. and SemManagement LLC, et al., was set to begin on February 9, 2016, and has been postponed to April 12, 2016.  We will continue to defend our position and believe that any liability that may arise from this incident will be covered by our insurance; however, we cannot predict the outcome.
Other matters
We are party to various other claims, legal actions and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions and complaints, after consideration of amounts accrued, insurance coverage and other arrangements, will not have a material 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.
Operating leases
We have entered into operating lease agreements for office space, office equipment, land and vehicles. Future minimum payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year at December 31, 2015 are as follows (in thousands):
 
For twelve months ending:
 
December 31, 2016
$
1,280

December 31, 2017
1,104

December 31, 2018
496

December 31, 2019
152

December 31, 2020
12

Thereafter
126

Total future minimum lease payments
$
3,170


We recorded lease and rental expenses of $1.8 million, $1.5 million and $1.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.
 
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 December 31, 2015, such commitments included the following (in thousands):
 
Volume
(barrels)
 
Value
Fixed price purchases
1,976

 
$
71,709

Fixed price sales
2,907

 
$
116,329

Floating price purchases
17,361

 
$
652,122

Floating price sales
17,812

 
$
686,030


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 (at 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).
We have a throughput commitment with our equity method investee, White Cliffs, for approximately 5,000 barrels per day of space on White Cliffs' pipeline which became effective in October 2015 and has a term of five years. Annual payments to White Cliffs under the agreement are expected to be $9.4 million.
We have a throughput commitment for 5,000 barrels per day on the Dakota Access Pipeline which becomes effective upon the full service date of the pipeline which is expected in the fourth quarter of 2016. The commitment has a seven year term. Annual payments are expected to be $11.9 million.
Capital contribution requirements
See Note 4 for information related to capital funding requirements related to White Cliffs.
Employee Benefits and Equity-Based Compensation
EMPLOYEE BENEFITS AND EQUITY-BASED COMPENSATION
EMPLOYEE BENEFITS AND EQUITY-BASED COMPENSATION
We do not directly employ any persons to manage or operate our business, as these functions are performed by employees of SemGroup. At December 31, 2015, SemGroup had approximately 400 employees who were dedicated primarily to the management and operation of our business. None of these employees are represented by labor unions, and none are subject to collective bargaining agreements.
Equity incentive plan
On December 8, 2011, the board of directors of our general partner adopted the Rose Rock Midstream Equity Incentive Plan (the “Incentive Plan”). We have reserved 840,000 limited partner common units for issuance to non-management directors and employees under 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. Awards are valued based on the grant date closing price listed on the New York Stock Exchange. Compensation expense is recognized over the vesting period and is discounted for estimated forfeitures. We use authorized but unissued units to satisfy our equity-based payment obligations. Although these awards are to be settled in units, we may elect to give participants the option of surrendering a portion of the awards, to meet statutory minimum tax withholding requirements. The activity related to these awards is summarized below:
 
Unvested Units
 
Average Grant Date Fair Value
 
Aggregate Fair Value of Units (in thousands)
Outstanding at December 31, 2012
43,960

 
$
21.91

 
 
Awards granted
49,104

 
$
34.41

 
 
Awards vested
(9,333
)
 
$
27.25

 
$
254

Awards forfeited
(783
)
 
$
34.40

 
 
Outstanding at December 31, 2013
82,948

 
$
28.59

 
 
Awards granted
46,536

 
$
41.35

 
 
Awards vested
(5,712
)
 
$
35.87

 
$
205

Awards forfeited
(21,432
)
 
$
29.82

 
 
Outstanding at December 31, 2014
102,340

 
$
33.79

 
 
Awards granted
36,527

 
$
39.03

 
 
Awards vested
(38,366
)
 
$
27.54

 
$
1,057

Awards forfeited
(310
)
 
$
42.80

 
 
Outstanding at December 31, 2015
100,191

 
$
38.70

 
 

Of the 38,366 awards vested during the year ended December 31, 2015, 12,892 units were withheld to satisfy minimum tax requirements. No units were withheld to satisfy minimum tax requirements for the years ended December 31, 2014 and 2013.
Compensation cost expensed for the years ended December 31, 2015, 2014 and 2013 was $1.4 million, $0.9 million and $0.8 million, respectively. As of December 31, 2015, there was $1.9 million of total unrecognized compensation cost related to our nonvested awards, which is expected to be recognized over a weighted-average period of 14 months.
The holders of certain of these restricted unit awards are entitled to equivalent distributions (“UUDs”) to be received upon vesting of the restricted unit awards. For awards granted prior to 2013, the UUDs were 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. For the year ended December 31, 2015, 3,335 UUD units were issued upon the vesting of restricted units. No UUD units were issued upon vesting of restricted units for the year ended December 31, 2014. For the year ended December 31, 2013, 406 UUD units were issued upon the vesting of restricted units. As of December 31, 2015, all awards granted prior to 2013 have vested. UUDs related to the restricted unit awards granted subsequent to 2013 will be settled in cash upon vesting. At December 31, 2015, the value of these cash settled UUDs related to unvested restricted units was approximately $381 thousand.
SemGroup stock-based compensation
Certain of SemGroup’s employees who support us participate in SemGroup’s equity-based compensation program. Awards under this program generally represent awards of restricted stock of SemGroup, which are subject to specified vesting periods. SemGroup charged us $1.1 million, $1.1 million and $0.7 million during the years ended December 31, 2015, 2014 and 2013, respectively, related to such equity-based compensation.
 
Defined contribution plan
Most of the employees of SemGroup who support us participate in one of SemGroup’s defined contribution plans. SemGroup charged us $1.2 million, $0.9 million and $0.4 million during the years ended December 31, 2015, 2014 and 2013, respectively, for contributions made by SemGroup to this plan.
Allocated employee compensation expenses
As described in Note 15, SemGroup allocated certain corporate general and administrative expenses to us. These allocated expenses included equity-based compensation and defined contribution plan benefits for corporate employees, and such expenses are in addition to the expenses described above for employees who directly support our operations.
Partners' Capital and Distributions
PARTNERS' CAPITAL AND DISTRIBUTIONS
PARTNERS’ CAPITAL AND DISTRIBUTIONS
General partner
SemGroup owns the 2% general partner interest in us, and, through this general partner interest, has the right to manage and operate us. SemGroup may not be removed as general partner except by a vote of the holders of at least 66 2/3% of the outstanding limited partner units voting together as a single class, including any limited partner units owned by our general partner and its affiliates, including SemGroup.
Limited partner interests—common units
Limited partners have the right to vote on certain matters. For example, a unit majority is required to make certain types of amendments to the partnership agreement, to allow the sale of substantially all of our assets, or to dissolve the Partnership. Limited partners also have certain distribution rights, as summarized below.
Limited partner interests – subordinated units
The holders of subordinated limited partner units had similar voting rights to holders of common limited partner units. However, as described below, the distribution rights for holders of subordinated units were different than those of common units. On February 17, 2015, all subordinated units converted to common units upon the achievement of certain targets specified in our partnership agreement. The conversion did not impact the total number of the Partnership’s outstanding units representing limited partner interests.
Limited partner interests – Class A units
As described in Note 3, Class A units were not eligible to receive cash distributions until certain operational targets were achieved by White Cliffs, at which time they would convert to common units. In December 2014, these operational targets were achieved by White Cliffs and on January 1, 2015 all 3,750,000 Class A units were converted to common units on a one-for-one basis. As the conversion took place before the date of record for our distribution of fourth quarter 2014 earnings, the Class A units participated in those distributions. The conversion did not impact the total number of the Partnership’s outstanding units representing limited partner interests.
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; and
second, 98.0% to common unitholders 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
 
 
 
 
 
 
$
0.362500

 
98.0%
 
2.0%
 
%
First Target Distribution
above
 
$
0.362500

 
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
 
$
0.543750

 
75.0%
 
2.0%
 
23.0
%
Thereafter
 
 
 
 
above
 
$
0.543750

 
50.0%
 
2.0%
 
48.0
%

Distributions paid
The following table shows distributions paid in 2016, 2015, 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
June 30, 2014
 
August 4, 2014
 
August 14, 2014
 
$0.5350
September 30, 2014
 
November 4, 2014
 
November 14, 2014
 
$0.5750
December 31, 2014
 
February 3, 2015
 
February 13, 2015
 
$0.6200
 
 
 
 
 
 
 
March 31, 2015
 
May 5, 2015
 
May 15, 2015
 
$0.6350
June 30, 2015
 
August 4, 2015
 
August 14, 2015
 
$0.6500
September 30, 2015
 
November 3, 2015
 
November 13, 2015
 
$0.6600
December 31, 2015
 
February 2, 2016
 
February 12, 2016
 
$0.6600


Limited Partner Units
Changes in our limited partner units are as follows:
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
Class A units
Balance at December 31, 2012
7,000,000

 
1,389,709

 
8,389,709

 

January private placement
2,000,000

 

 

 

Units issued to SemGroup in SCPL transactions

 
3,000,000

 

 
2,500,000

August common unit offering
4,750,000

 

 

 

Vesting of equity-based compensation awards, including equivalent distributions
9,739

 

 

 

Balance at December 31, 2013
13,759,739

 
4,389,709

 
8,389,709

 
2,500,000

Units issued to SemGroup in SCPL transaction

 
2,425,000

 

 
1,250,000

Vesting of equity-based compensation awards
5,712

 

 

 

Balance at December 31, 2014
13,765,451

 
6,814,709

 
8,389,709

 
3,750,000

Conversion to common units

 
12,139,709

 
(8,389,709
)
 
(3,750,000
)
Units issued to SemGroup in WOT and Glass Mountain transaction

 
1,750,000

 

 

February common unit offering
2,300,000

 

 

 

Vesting of equity-based compensation awards, including equivalent distributions(1)
28,809

 

 

 

Balance at December 31, 2015
16,094,260


20,704,418






(1) Excludes units withheld to satisfy minimum tax requirements.

Equity Issuances
On February 13, 2015, we issued and sold 2,300,000 common limited partner units to the public for net proceeds of $89.1 million. Proceeds were used to acquire the WOT and a 50% interest in Glass Mountain from SemGroup.
On January 8, 2013, we entered into a Common Unit Purchase Agreement with certain purchasers (the “Purchasers”), pursuant to which, on January 11, 2013, 2,000,000 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 the initial 33% interest in SCPL.
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.
See Note 3 for information related to units issued to SemGroup as consideration in the SCPL and WOT and Glass Mountain transactions.
See Note 10 for information related to units issued due to vesting of equity-based compensation awards.
Earnings Per Limited Partner Unit
EARNINGS PER LIMITED PARTNER UNIT
EARNINGS PER LIMITED PARTNER UNIT
The following tables set forth the computation of basic and diluted earnings per limited partner unit for the years ended December 31, 2015, 2014 and 2013 (in thousands, except per unit data): 
 
Year Ended December 31,
 
2015
 
2014
 
2013
Net income attributable to Rose Rock Midstream, L.P.
$
49,673

 
$
55,167

 
$
36,259

Less: General partner’s incentive distribution earned
20,096

 
6,698

 
483

Less: General partner’s 2.0% ownership
993

 
1,444

 
245

Net income allocated to limited partners
$
28,584

 
$
47,025

 
$
35,531

Numerator for basic and diluted earnings per limited partner unit(1) :
 
 
 
 
 
Allocation of net income among limited partner interests:
 
 
 
 
 
Net income allocable to common units
$
28,584

 
$
32,914

 
$
22,701

Net income allocable to subordinated units

 
13,912

 
13,321

Net income (loss) allocable to Class A units

 
199

 
(491
)
Net income allocated to limited partners
$
28,584

 
$
47,025

 
$
35,531

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
 
 
Basic weighted average number of common units outstanding
36,302

 
19,419

 
13,672

Effect of non-vested restricted units
41

 
65

 
36

Diluted weighted average number of common units outstanding
36,343

 
19,484

 
13,708

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

 
3,154

 
1,264

Earnings (loss) per limited partner unit:
 
 
 
 
 
Common units (basic)
$
0.79

 
$
1.69

 
$
1.66

Common units (diluted)
$
0.79

 
$
1.69

 
$
1.66

Subordinated units (basic and diluted)
$

 
$
1.66

 
$
1.59

Class A units (basic and diluted)
$

 
$
0.06

 
$
(0.39
)

(1) 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. Prior to the conversion of the Class A units in January 2015, the Class A units did not participate in cash distributions, but were allocated a proportional share of undistributed earnings. Class A units received the declared distribution for the fourth quarter of 2014, as such the fourth quarter distribution is reflected in the earnings attributable to Class A units for the year ended December 31, 2014. As distributions related to the available cash exceeded net income, the Class A units reflect a loss for the year ended December 31, 2013.
Segments
Segment Reporting Disclosure [Text Block]
SEGMENTS

During the year ended December 31, 2015, management made the decision to disaggregate certain activities and functions within the Partnership to provide additional granularity, both internally and externally, to our operating results. As such, the prior period results have been recast to reflect the resulting reportable segments.
Our segments are organized by our key revenue generating activities. Our Transportation segment includes revenue generated through fees charged for the physical movement of crude oil utilizing our truck and pipeline assets, as well as buy/sell activity where we generate the equivalent of a transportation fee by buying crude oil at one location and selling it back to the same counterparty at a different location for a fixed margin. Our Facilities segment includes revenue generated through crude oil storage fees, truck unloading fees and other ancillary activities related to our facilities. Our Supply and Logistics segment includes revenue generated through the marketing of crude oil and includes related derivative activity. Although Corporate and Other does not represent an operating segment, it is included in the tables below to reconcile segment information to that of the consolidated Partnership. Eliminations of transactions between segments are also included within Corporate and Other in the tables below.
 
Year Ended December 31, 2015
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
 
 
Revenues:
 
External
$
81,991

 
$
45,936

 
$
716,784

 
$

 
$
844,711

Intersegment
15,021

 

 

 
(15,021
)
 

Total revenues
$
97,012

 
$
45,936

 
$
716,784

 
$
(15,021
)
 
$
844,711

Depreciation and amortization
$
35,500

 
$
5,829

 
$
159

 
$
510

 
$
41,998

Earnings from equity method investment
$
76,355

 
$

 
$

 
$

 
$
76,355

Segment profit (1)
$
81,038

 
$
33,757

 
$
30,088

 
$
(8,162
)
 
$
136,721

Additions to long-lived assets (including acquisitions and contributions to equity method investments)
$
304,534

 
$
30,118

 
$
2,564

 
$
179

 
$
337,395

Total assets at December 31, 2015 (excluding intersegment receivables)
$
745,612

 
$
155,186

 
$
328,419

 
$
28,614

 
$
1,257,831

Equity investments at December 31, 2015
$
438,291

 
$

 
$

 
$

 
$
438,291


 
Year Ended December 31, 2014
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
 
 
Revenues:
 
External
$
84,718

 
$
44,007

 
$
1,169,372

 
$

 
$
1,298,097

Intersegment
10,840

 

 

 
(10,840
)
 

Total revenues
$
95,558

 
$
44,007

 
$
1,169,372

 
$
(10,840
)
 
$
1,298,097

Depreciation and amortization
$
33,679

 
$
5,365

 
$
549

 
$
442

 
$
40,035

Earnings from equity method investment
$
57,378

 
$

 
$

 
$

 
$
57,378

Segment profit (1)
$
72,835

 
$
32,286

 
$
24,021

 
$
(6,544
)
 
$
122,598

Additions to long-lived assets (including acquisitions and contributions to equity method investments)
$
230,111

 
$
8,207

 
$
11,662

 
$
234

 
$
250,214

Total assets at December 31, 2014 (excluding intersegment receivables)
$
595,781

 
$
116,784

 
$
271,444

 
$
22,254

 
$
1,006,263

Equity investments at December 31, 2014
$
269,635

 
$

 
$

 
$

 
$
269,635

 
Year Ended December 31, 2013
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
 
 
Revenues:
 
External
$
34,917

 
$
46,697

 
$
685,588

 
$

 
$
767,202

Intersegment
225

 

 

 
(225
)
 

Total revenues
$
35,142

 
$
46,697

 
$
685,588

 
$
(225
)
 
$
767,202

Depreciation and amortization
$
17,814

 
$
4,833

 
$
673

 
$
388

 
$
23,708

Earnings from equity method investment
$
17,571

 
$

 
$

 
$

 
$
17,571

Segment profit (1)
$
22,806

 
$
37,083

 
$
15,010

 
$
(6,483
)
 
$
68,416

Additions to long-lived assets (including acquisitions and contributions to equity method investments)
$
243,805

 
$
11,783

 
$
1,868

 
$
447

 
$
257,903

(1) Segment profit represents revenues excluding unrealized gains (losses) related to derivative instruments plus earnings from equity method investments less cost of sales excluding depreciation and amortization and less operating and general and administrative expenses.
 
 
Year Ended December 31,
Reconciliation of segment profit to net income:
 
2015
 
2014
 
2013
   Total segment profit
 
$
136,721

 
$
122,598

 
$
68,416

     Less:
 
 
 
 
 
 
Net unrealized loss (gain) related to derivative instruments
 
1,900

 
(1,621
)
 
(974
)