ROSE ROCK MIDSTREAM, L.P., 10-Q filed on 8/7/2015
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2015
Jul. 31, 2015
Entity Registrant Name
Rose Rock Midstream, L.P.†
Entity Central Index Key
0001527622†
Document Type
10-Q†
Document Period End Date
Jun. 30, 2015†
Amendment Flag
false†
Document Fiscal Year Focus
2015†
Document Fiscal Period Focus
Q2†
Current Fiscal Year End Date
--12-31†
Entity Filer Category
Large Accelerated Filer†
Entity Common Stock, Shares Outstanding
36,790,363†
Condensed Consolidated Balance Sheets†(USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Current assets:
Cash and cash equivalents
$†68,102†
$†3,625†
Accounts receivable
251,240†
224,881†
Receivable from affiliates
17,613†
15,485†
Inventories
67,331†
26,722†
Other current assets
4,234†
4,056†
Total current assets
408,520†
274,769†
Property, plant and equipment (net of accumulated depreciation of $102,823 and $82,646 at June 30, 2015 and December 31, 2014, respectively)
419,458†
396,066†
Equity method investments
426,058†
269,635†
Goodwill
36,116†
36,116†
Other intangible assets (net of accumulated amortization of $907 and $370 at June 30, 2015 and December 31, 2014, respectively)
16,103†
16,640†
Other noncurrent assets, net
17,583†
13,037†
Total assets
1,323,838†
1,006,263†
Current liabilities:
Accounts payable
241,284†
211,300†
Payable to affiliates
31,477†
27,909†
Accrued liabilities
31,230†
23,282†
Other current liabilities
4,125†
3,191†
Total current liabilities
308,116†
265,682†
Long-term debt
744,339†
432,092†
Commitments and contingencies (Note 6)
  †
  †
Partnersí capital:
General partner
10,386†
67,632†
Total partners' capital
271,383†
308,489†
Total liabilities and partners' capital
1,323,838†
1,006,263†
Class A units [Member] |
Semgroup [Member]
Partnersí capital:
Limited partners' capital
0†
76,321†
Common Units [Member] |
Public [Member]
Partnersí capital:
Limited partners' capital
98,338†
69,929†
Common Units [Member] |
Semgroup [Member]
Partnersí capital:
Limited partners' capital
162,659†
155,367†
Subordinated Units [Member] |
Semgroup [Member]
Partnersí capital:
Limited partners' capital
$†0†
$†(60,760)
Condensed Consolidated Balance Sheets (Parenthetical)†(USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Accounts receivable, allowance
$†0†
$†0†
Property, plant and equipment, accumulated depreciation
102,823†
82,646†
Other intangible assets, accumulated amortization
$†907†
$†370†
Subordinated Units [Member] |
Semgroup [Member]
Common units, issued
0†
8,389,709†
Common units, outstanding
0†
8,389,709†
Common Units [Member] |
Public [Member]
Common units, issued
16,085,945†
13,765,451†
Common units, outstanding
16,085,945†
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†
Class A units [Member] |
Semgroup [Member]
Common units, issued
0†
3,750,000†
Common units, outstanding
0†
3,750,000†
Condensed Consolidated Statements of Income (Unaudited)†(USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Revenues, including revenues from affiliates (Note 9):
Product
$†193,525†
$†267,087†
$†300,092†
$†533,377†
Service
29,778†
25,069†
57,904†
51,293†
Total revenues
223,303†
292,156†
357,996†
584,670†
Expenses, including expenses from affiliates (Note 9):
Costs of products sold, exclusive of depreciation and amortization
173,133†
255,745†
269,370†
510,282†
Operating
23,656†
17,438†
44,607†
32,653†
General and administrative
6,329†
6,191†
11,949†
9,938†
Depreciation and amortization
10,608†
7,276†
20,751†
18,758†
Total expenses
213,726†
286,650†
346,677†
571,631†
Earnings from equity method investments
17,683†
12,291†
38,547†
23,371†
Operating income
27,260†
17,797†
49,866†
36,410†
Other expenses, net:
Interest expense
10,197†
2,730†
18,203†
5,117†
Other Nonoperating Income (Expense)
5†
21†
5†
21†
Nonoperating Income (Expense)
(10,192)
(2,709)
(18,198)
(5,096)
Net income
17,068†
15,088†
31,668†
31,314†
Less: net income attributable to noncontrolling interests
0†
4,082†
0†
7,758†
Net income attributable to Rose Rock Midstream, L.P.
17,068†
11,006†
31,668†
23,556†
Earnings Per Unit [Abstract]
Net income allocated to general partner
5,323†
1,067†
10,065†
1,872†
Net income allocated to limited partners
11,745†1
9,939†1
21,603†1
21,684†1
Common Units [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
11,745†
7,513†
21,603†
15,619†
Earnings per limited partner unit, basic (Note 8)
$†0.32†
$†0.41†
$†0.60†
$†0.86†
Earnings per limited partner unit, diluted (Note 8)
$†0.32†
$†0.41†
$†0.60†
$†0.85†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
36,790†
18,336†
35,803†
18,243†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
36,839†
18,397†
35,849†
18,297†
Subordinated Unitholders [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
0†
3,063†
0†
6,860†
Earnings per limited partner unit, basic and diluted (Note 8)
$†0.00†
$†0.37†
$†0.00†
$†0.82†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
0†
8,390†
0†
8,390†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
0†
8,390†
0†
8,390†
Common Class A [Member]
Earnings Per Unit [Abstract]
Net income allocated to limited partners
0†
(637)
0†
(795)
Earnings per limited partner unit, basic and diluted (Note 8)
$†0.00†
$†(0.25)
$†0.00†
$†(0.31)
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
0†
2,596†
0†
2,548†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
0†
2,596†
0†
2,548†
Subordinated Unitholders [Member]
Other expenses, net:
Net income
$†0†
[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. As distributions related to the available cash exceeded net income, the Class A units reflect a loss for the three months and six months ended June 30, 2014.
Condensed Consolidated Statements of Cash Flows (Unaudited)†(USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Cash flows from operating activities:
Net income
$†31,668†
$†31,314†
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
20,751†
18,758†
Loss (gain) on disposal of long-lived assets, net
130†
(61)
Amortization of debt issuance costs
1,210†
520†
Inventory Write-down
1,235†
0†
Non-cash equity compensation
655†
390†
Net unrealized loss (gain) related to derivative instruments
1,116†
(245)
Changes in assets and liabilities, net of the effects of acquisitions:
Decrease (increase) in accounts receivable
(26,359)
(2,185)
Decrease (increase) in receivable from affiliates
(2,128)
29,444†
Decrease (increase) in inventories
(41,844)
(3,526)
Decrease (increase) in other current assets
(1,407)
(1,229)
Increase (decrease) in accounts payable and accrued liabilities
31,161†
(8,584)
Increase (decrease) in payable to affiliates
3,683†
(39,478)
Net cash provided by operating activities
19,871†
25,118†
Cash flows from investing activities:
Capital expenditures
(36,262)
(21,838)
Proceeds from sale of long-lived assets
126†
710†
Contributions to equity method investments
(23,462)
(51,774)
Acquisitions
(205,071)
(133,993)
Distributions from equity investments in excess of equity in earnings
13,077†
4,681†
Net cash used in investing activities
(251,592)
(202,214)
Cash flows from financing activities:
Debt issuance costs
(5,688)
(62)
Borrowings on revolving credit facility and issuance of senior unsecured notes, net of discount
676,208†
296,000†
Principal payments on revolving credit facility
(364,000)
(93,500)
Principal payments on capital lease obligations
(24)
(18)
Proceeds from common L.P. unit issuance, net of offering costs
89,119†
0†
Proceeds from Partnership Contribution
0†
8,327†
Cash consideration in excess of historical cost of acquisitions from SemGroup
(46,264)
(24,413)
Cash distributions to partners
(53,153)
(26,744)
Cash distributions to noncontrolling interests
0†
(9,025)
Contributions from noncontrolling interests
0†
14,367†
Net cash provided by financing activities
296,198†
164,932†
Net increase (decrease) in cash and cash equivalents
64,477†
(12,164)
Cash and cash equivalents at beginning of period
3,625†
15,437†
Cash and cash equivalents at end of period
$†68,102†
$†3,273†
Overview
OVERVIEW
OVERVIEW
Rose Rock Midstream, L.P. is a Delaware limited partnership. The general partner of Rose Rock Midstream, L.P. is Rose Rock Midstream GP, LLC, which is a wholly-owned subsidiary of SemGroup Corporation. SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified midstream services to the energy industry.
The terms "we," "our," "us," "Rose Rock," the "Partnership" and similar language used in these notes to the unaudited condensed consolidated financial statements refer to Rose Rock Midstream, L.P, and its subsidiaries. The term "SemGroup" refers to SemGroup Corporation and its controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
Prior period financial information has been recast to reflect the effects of a common control acquisition completed on February 13, 2015. See Note 3 for additional information.
The condensed consolidated balance sheet at December 31, 2014, which is derived from audited financial statements and the unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the SEC. These condensed consolidated financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Partnership and the results of its operations and its cash flows. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.
Pursuant to the rules and regulations of the SEC, the accompanying condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014, which are included in our Current Report on Form 8-K, filed with the SEC on May 11, 2015.
Our significant accounting policies are consistent with those described in Note 2 of our audited consolidated financial statements for the year ended December 31, 2014, which are included in our Current Report on Form 8-K, filed with the SEC on May 11, 2015.
Recent Accounting Pronouncements
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.
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.
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.
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). On July 9, 0215, the FASB approved a one-year deferral and the standard is now effective for annual periods beginning after December 15, 2017, and interim periods therein. 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.
Equity Method Investment
Equity Method Investments Disclosure [Text Block]
EQUITY METHOD INVESTMENTS
Under the equity method, we do not report the individual assets and liabilities of our investees. Instead, our membership interests are reflected in one line as a noncurrent asset on our condensed consolidated balance sheets.
Our equity method investments consist of the following (in thousands):
 
June 30, 2015
 
December 31, 2014
White Cliffs Pipeline, L.L.C.
$
281,627

 
$
269,635

Glass Mountain Pipeline LLC
144,431

 

Total equity method investments
$
426,058

 
$
269,635


Our earnings from equity method investments consist of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
White Cliffs Pipeline, L.L.C.
$
15,545

 
$
12,291

 
$
34,635

 
$
23,371

Glass Mountain Pipeline LLC
2,138

 

 
3,912

 

Total earnings from equity method investments
$
17,683

 
$
12,291

 
$
38,547

 
$
23,371


Cash distributions received from equity method investments consist of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
White Cliffs Pipeline, L.L.C.
$
20,551

 
$
14,467

 
$
44,705

 
$
28,052

Glass Mountain Pipeline LLC
5,009

 

 
6,920

 

Total cash distributions received from equity method investments
$
25,560

 
$
14,467

 
$
51,625

 
$
28,052


White Cliffs Pipeline, L.L.C.
Certain unaudited summarized income statement information of White Cliffs Pipeline, L.L.C. ("White Cliffs") for the three months and six months ended June 30, 2015 and 2014 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
48,509

 
$
34,533

 
$
103,123

 
$
67,807

Operating, general and administrative expenses
$
9,045

 
$
5,539

 
$
17,398

 
$
12,307

Depreciation and amortization expense
$
8,587

 
$
4,537

 
$
17,125

 
$
8,930

Net income
$
30,870

 
$
24,457

 
$
68,593

 
$
46,570


Our equity in earnings of White Cliffs for the three months and six months ended June 30, 2015 and 2014 is less than 51% of the net income of White Cliffs for the same periods. This is due to certain general and administrative expenses incurred in managing the operations of White Cliffs that the other owners are not obligated to share. Such expenses are recorded by White Cliffs and are allocated to our ownership interest. White Cliffs recorded $0.4 million and $0.4 million of such general and administrative expense for the three months ended June 30, 2015 and 2014, respectively. White Cliffs recorded $0.7 million and $0.8 million of such general and administrative expense for the six months ended June 30, 2015 and 2014, respectively.
The members of White Cliffs are required to contribute capital to White Cliffs to fund various projects. For the six months ended June 30, 2015, we contributed $21.4 million to these projects, including $13.1 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 2015 and 2016 and are expected to total approximately $23.6 million. The project is expected to be completed in late 2015.
Glass Mountain Pipeline LLC
Certain summarized unaudited income statement information of Glass Mountain Pipeline LLC ("Glass Mountain") for the three months and six months ended June 30, 2015 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2015
Revenues
$
9,788

 
$
20,909

Cost of sales
$

 
$
1,982

Operating, general and administrative expenses
$
1,473

 
$
2,911

Depreciation and amortization expense
$
3,932

 
$
7,976

Net income
$
4,381

 
$
8,036

Our equity in earnings of Glass Mountain for the three months and six months ended June 30, 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 six months ended June 30, 2015, we contributed $1.4 million to Glass Mountain related to capital projects.
Acquisitions
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
ACQUISITIONS

During the six months ended June 30, 2015, we completed the following acquisition:
On February 13, 2015, we acquired the Wattenberg Oil Trunkline ("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 WOT is a 75-mile, 12-inch diameter crude oil gathering pipeline system that transports crude oil from production facilities in the DJ Basin to White Cliffs' pipeline. It has a capacity of approximately 85,000 barrels per day. Glass Mountain owns a 215-mile crude oil pipeline in western and north central Oklahoma that is operated by Rose Rock.
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 7). 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 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 periods was not significant. Prior period earnings of WOT have been allocated to the general partner.
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:
On June 23, 2014, we acquired the remaining 33% interest in SemCrude Pipeline, L.L.C. ("SCPL") from SemGroup 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.
On June 24, 2014, we acquired crude oil trucking assets from a subsidiary of Chesapeake Energy Corporation for $44.0 million in cash.
Financial Instruments
Financial Instruments Disclosure [Text Block]
FINANCIAL INSTRUMENTS
Commodity derivative contracts
Our results of operations and cash flows are impacted by changes in market prices for petroleum products. This exposure to commodity price risk is managed, in part, by entering into various commodity derivatives.
We seek to manage the price risk associated with our marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of crude oil to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts. Our storage and transportation assets also can be used to mitigate location and time basis risk. All marketing activities are subject to our Comprehensive Risk Management Policy, which establishes limits in order to manage risk and mitigate financial exposure.
Our commodity derivatives can be comprised of crude oil and natural gas liquids forward contracts and futures contracts. These are defined as follows:
Forward contracts – Over the counter ("OTC") contracts to buy or sell a commodity at an agreed upon future date. The buyer and seller agree on specific terms (price, quantity, delivery period, and location) and conditions at the inception of the contract.
Futures contracts – Exchange traded contracts to buy or sell a commodity. These contracts are standardized by the exchange in terms of quality, quantity, delivery period and location for each commodity.
We record commodity derivative assets and liabilities at fair value at each balance sheet date with the exception of commitments which have been designated as normal purchases and sales. The table below summarizes the balances of these assets and liabilities at June 30, 2015 and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$
762

 
$
(317
)
 
$
445

 
$
3,198

 
$
(1,637
)
 
$
1,561

Liabilities
$
317

 
$
(317
)
 
$

 
$
1,637

 
$
(1,637
)
 
$

* Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
"Level 1" measurements are based on inputs consisting of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange.
"Level 2" measurements are based on inputs consisting of market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include OTC traded physical fixed priced purchases and sales forward contracts.
"Level 3" measurements are based on inputs from a pricing service and/or internal valuation models incorporating observable and unobservable market data.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value levels. At June 30, 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 recorded at fair value which were classified as Level 2 or Level 3 during the three months and six months ended June 30, 2015 and 2014. As such, no rollforward of Level 3 activity has been presented.
The following table sets forth the notional quantities for commodity derivative instruments entered into during the periods indicated (in thousands of barrels): 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Sales
7,721

 
1,135

 
13,452

 
1,950

Purchases
7,508

 
1,005

 
13,413

 
1,815

We have not designated any of our commodity derivative instruments as accounting hedges. We record the fair value of the derivative instruments on our condensed consolidated balance sheets in other current assets and other current liabilities. The fair value of our commodity derivative assets and liabilities recorded to other current assets and other current liabilities was as follows (in thousands):
 
June 30, 2015
 
December 31, 2014
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$
445

 
$

 
$
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 $1.1 million and $0.8 million as of June 30, 2015 and December 31, 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 June 30, 2015 and December 31, 2014, we would have had net asset positions of $1.5 million and $2.4 million, respectively.
Realized and unrealized losses from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Commodity contracts
$
(2,202
)
 
$
(1,942
)
 
$
(2,846
)
 
$
(2,749
)

Concentrations of risk
During the three months ended June 30, 2015, two third-party customers accounted for approximately 59% of our consolidated revenue. We purchased approximately $20.5 million of product from one third-party supplier, which represented approximately 12% of our costs of products sold.
During the six months ended June 30, 2015, two third-party customers accounted for approximately 67% of our consolidated revenue. We purchased approximately $98.5 million of product from two third-party suppliers, which represented approximately 37% of our costs of products sold.
At June 30, 2015, one third-party customer accounted for 53% of our total accounts receivable.
Long Term Debt
Long-term Debt
LONG-TERM DEBT
Our long-term debt consisted of the following (in thousands):
 
June 30,
2015
 
December 31,
2014
Rose Rock 5.625% senior unsecured notes due 2022
$
400,000

 
$
400,000

Rose Rock 5.625% senior unsecured notes due 2023
344,276

 

Rose Rock revolving credit facility

 
32,000

Capital leases
107

 
132

Total long-term debt
$
744,383

 
$
432,132

Less: current portion of long-term debt
44

 
40

Noncurrent portion of long-term debt
$
744,339

 
$
432,092


Senior unsecured notes due 2022
At June 30, 2015, we had $400 million of 5.625% senior unsecured notes due 2022 outstanding ("2022 Notes"). Rose Rock and Rose Rock Finance Corporation ("Finance Corp.") are co-issuers of the 2022 Notes. For the three months and six months ended June 30, 2015, we incurred $5.9 million and $11.7 million, respectively, of interest expense related to these notes, including amortization of debt issuance costs.
Senior unsecured notes due 2023
On May 14, 2015, Rose Rock and its wholly-owned subsidiary, Finance Corp., as co-issuer, sold $350 million of 5.625% senior unsecured notes due 2023 (the “2023 Notes”) to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to non-U.S. persons outside the United States pursuant to Regulation S of the Securities Act.
The 2023 Notes were sold at 98.345% of par, a discount of $5.8 million. The discount is reported as a reduction to the face value of the 2023 Notes on our condensed consolidated balance sheets and is being amortized over the life of the 2023 Notes using the interest method. At June 30, 2015, the unamortized discount was $5.7 million.
The net proceeds from the 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.
The 2023 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 2023 Notes then outstanding to declare all amounts owing under the 2023 Notes to be due and payable.
The 2023 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.
Except as described below, the 2023 Notes are not redeemable at the Partnership's option prior to May 15, 2019. From and after May 15, 2019, the Partnership may redeem the 2023 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 May 15 of each of the years indicated below:
Year
 
Percentage
2019
 
102.813%
2020
 
101.406%
2021 and thereafter
 
100.000%

Prior to May 15, 2018, 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 2023 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 May 15, 2019, the Partnership may also redeem all or part of the 2023 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 May 15, 2019 redemption price from the table above plus all required interest payments due through May 15, 2019, computed using a discount rate based on a published United States Treasury Rate plus 50 basis points, over the principal value of such 2023 Note.
In the event of a change of control, the Partnership is required to offer to repurchase the 2023 Notes at an amount equal to 101% of the principal plus accrued and unpaid interest.
The 2023 Notes are also subject to a Registration Rights Agreement which requires the Partnership to file a registration statement with the SEC and to use commercially reasonable efforts to consummate such exchange offer within one year of the settlement date of the 2023 Notes so that holders of the 2023 Notes can exchange the 2023 Notes and related guarantees for registered notes (the "Exchange Notes") and guarantees that have substantially identical terms as the 2023 Notes and related guarantees. The guarantees of the Exchange Notes will be full and unconditional and will constitute the joint and several obligations of the subsidiary guarantors. Failure to meet the terms of the Registration Rights Agreement will require the Partnership to pay incremental interest of 0.25% per annum, increased by an additional 0.25% per annum for each 90-day period for which registration default continues (up to a maximum of 1.0% per annum).
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 three months and six months ended June 30, 2015, we incurred $2.7 million, of interest expense related to these notes, including amortization of debt issuance costs and discount.
Subsidiary Guarantors
The 2022 Notes and the 2023 Notes are guaranteed by all of our existing subsidiaries other than Finance Corp. Such guarantees of the 2022 Notes and the 2023 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 June 30, 2015, we had no outstanding borrowings on our $585 million revolving credit facility.
We had $24.6 million in outstanding letters of credit at June 30, 2015, and the rate per annum was 2.75%.
At June 30, 2015, we had $36.0 million of secured bilateral letters of credit outstanding. The interest rate in effect was 1.75%. Secured bilateral letters of credit are external to the facility and do not reduce availability for borrowing on our revolving credit facility.
We incurred $2.0 million and $2.6 million of interest expense related to this facility during the three months ended June 30, 2015 and 2014, respectively, including amortization of debt issuance costs. We incurred $4.2 million and $4.8 million of interest expense related to this facility during the six months ended June 30, 2015 and 2014, respectively, including amortization of debt issuance costs.
Fair value
We estimate the fair value of our 2022 Notes and 2023 Notes to be $392 million and $340 million, respectively, at June 30, 2015, based on unadjusted, transacted market prices, which are categorized as Level 1 measurements.
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 was closed and we anticipate closure in 2015 for one of the remaining four sites. 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. At this time, the following lawsuits have been filed in either the District Court of Zavala County, Texas or the District Court of Dimmit County, Texas, Olga D. Rubio and Carlos Rubio, Individually and on Behalf of All Statutory Wrongful Death Beneficiaries of Carlos Rubio, Jr., Deceased vs. Rose Rock Midstream Field Services, LLC and Jesus T. Riojas; David Rodriguez and Maribel Rodriguez vs. Rose Rock Midstream Field Services, LLC and Jesus T. Riojas; David Rodriguez and Maribel Rodrigues, Plaintiffs and Alejandra Abigail Ortega, Individually and as next friend of K.A.P., a minor, and as Representative of the Estate of Eduardo Pena, and Julian Pena and Nelva G. Suifuentes Pena Intervenors vs. Rose Rock Midstream Field Services, LLC, Jesus Riojas, and Roberto Rivera; Derek Muhlenbruch vs. Rose Rock Midstream Field Services, LLC and Jesus T. Riojas; and Agustin Lara, Sr., Individually, and Elsa Zamarripa, Individually and As Representative of the Estate of Justin Lara, Deceased vs. Rose Rock Midstream Field Services, LLC and Jesus T. Riojas; Jorge A Porras vs. Rose Rock Midstream Field Services, LLC; Nancy Garcia vs. Rose Rock Midstream Field Services, LLC; Veronica Veyro vs. Rose Rock Midstream Field Services, LLC; Veronica Veyro a/n/f of Sergio Veyro, Jr. vs. Rose Rock Midstream Field Services, LLC; Veronica Veyro as Rep of Estate of Sergio Veyro Sr., deceased vs. Rose Rock Midstream Field Services, LLC; Veronica Kimberly Veyro vs. Rose Rock Midstream Field Services, LLC; Roberto Rivera-Castilla vs. Rose Rock Midstream Field Services, LLC; Mary Alice Medellin vs. Rose Rock Midstream Field Services, LLC; Mary Medellin as Rep of Estate of Juan Medellin, Jr. vs. Rose Rock Midstream Field Services, LLC; Mary Medellin on behalf of those entitled to recover for the Wrongful Death of Juan Medellin, Jr. vs. Rose Rock Midstream Field Services, LLC; Elizabeth Rolon vs. Rose Rock Midstream Field Services, LLC; Juan Francisco Medellin, III vs. Rose Rock Midstream Field Services, LLC and David Rodriguez and Maribel Rodriguez vs. Rose Rock Midstream Field Services, LLC and Jesus T. Riojas. We are currently working with counsel for the interested parties to investigate the accident, and no determination of liability has been made.  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.
Blueknight claim
Blueknight Energy Partners, L.P. ("Blueknight"), which was formerly a subsidiary of SemGroup, LP, together with other entities related to Blueknight, entered into a Shared Services Agreement on April 7, 2009, with SemCrude and SemManagement, L.L.C. (which are currently subsidiaries of SemGroup Corporation). The services provided by SemCrude to Blueknight under this agreement included from time to time certain operational tasks as requested by Blueknight in order that Blueknight could operate its Oklahoma pipeline system and its Cushing, Oklahoma terminal. Under the subsequent amendments to the agreement, certain of these services were phased out and Blueknight began to perform all services necessary for the operation of its Cushing terminal without SemCrude's assistance.
In a letter dated August 18, 2011, Blueknight claimed that SemCrude owes Blueknight approximately 141,000 barrels of crude oil, and that SemCrude came to possess this oil as a result of a breach of the agreement and other tortious conduct. SemGroup responded to Blueknight’s letter denying their charges and requesting documentation from Blueknight of its claim for missing barrels. On February 14, 2012, after months of interaction between the parties through which Blueknight was requested to substantiate its claim, Blueknight filed suit against SemGroup and other related companies in the District Court of Oklahoma County, Oklahoma. On May 1, 2012, the case was transferred to Tulsa County, Oklahoma. On July 2, 2012, the Tulsa County District Court appointed a Special Master to review terminal operations accounting records and determine whether 141,000 barrels of crude oil owned by Blueknight is missing after three months of operations in April through June, 2010. On June 11, 2013, the Special Master’s Report was filed with the District Court finding a shortage in Blueknight’s Cushing terminal and Oklahoma pipeline system of 148,000 barrels. However, after a review of all records created during that three month time period, the Special Master was unable to determine how the shortage might have occurred and was unable to determine the ownership of the potential shortage.
The parties completed discovery in the District Court, where substantial documentation was exchanged and deposition testimony was taken. All parties are seeking complete or partial summary adjudication on the various pending claims and counterclaims. These requests for summary adjudication are currently being briefed by the parties and have yet to be ruled upon by the Court. SemGroup will continue to defend its position; however, we cannot predict the outcome. We are indemnified by SemGroup against any loss in this matter pursuant to the terms of the omnibus agreement with SemGroup.
Other matters
We are party to various other claims, legal actions and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions and complaints, after consideration of amounts accrued, insurance coverage and other arrangements, will not have a material effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain and estimates of our consolidated liabilities may change materially as circumstances develop.
Asset retirement obligations
We may be subject to removal and restoration costs upon retirement of our facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and related facilities would become completely obsolete and require decommissioning. Accordingly, we have not recorded a liability or corresponding asset, as both the amount and timing of such potential future costs are indeterminable.
Purchase and sale commitments
We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We create a margin for these purchases by entering into various types of physical and financial sales and exchange transactions through which we seek to maintain a position that is substantially balanced between purchases on the one hand and sales and future delivery obligations on the other. We account for derivatives at fair value with the exception of commitments which have been designated as normal purchases and sales, for which we do not record assets or liabilities related to these agreements until the product is purchased or sold. At June 30, 2015, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
1,935

 
$
114,568

Fixed price sales
2,660

 
$
159,148

Floating price purchases
15,960

 
$
930,753

Floating price sales
17,876

 
$
1,063,405


Certain of the commitments shown in the table above relate to agreements to purchase product from a counterparty and to sell a similar amount of product (in a different location) to the same counterparty. Many of the commitments shown in the table above are cancellable by either party, as long as notice is given within the time frame specified in the agreement, generally 30 to 120 days.
We have a take-or-pay obligation with our equity method investee, White Cliffs, for approximately 5,000 barrels per day of space on White Cliffs' pipeline subject to completion of an expansion project related to our Platteville facilities. The agreement is expected to become effective in November 2015 and has a term of 5 years. Annual payments to White Cliffs under the agreement are expected to be $9.4 million.
See Note 2 for capital contribution requirements related to the White Cliffs expansion.
Partners' Capital and Distributions
PARTNERS' CAPITAL AND DISTRIBUTIONS
PARTNERS’ CAPITAL AND DISTRIBUTIONS
Unaudited condensed consolidated statement of changes in partners’ capital
The following table shows the changes in our partners’ capital accounts from December 31, 2014 to June 30, 2015 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
Class A Units
 
General
Partner
Interest
 
Total Partners' Capital
Balance at December 31, 2014
$
69,929

 
$
155,367

 
$
(60,760
)
 
$
76,321

 
$
67,632

 
$
308,489

Net income
9,446

 
12,157

 

 

 
10,065

 
31,668

Equity issuance
89,119

 
70,560

 

 

 
3,259

 
162,938

Equity adjustment related to common control acquisition
(51,452
)
 
(39,246
)
 
(26,838
)
 

 
(61,580
)
 
(179,116
)
Conversion to common units

 
(16,479
)
 
92,800

 
(76,321
)
 

 

Unvested distribution equivalent rights
(98
)
 

 

 

 

 
(98
)
Cash distributions to partners
(19,261
)
 
(19,700
)
 
(5,202
)
 

 
(8,990
)
 
(53,153
)
Non-cash equity compensation
655

 

 

 

 

 
655

Balance at June 30, 2015
$
98,338

 
$
162,659

 
$

 
$

 
$
10,386

 
$
271,383

 
The December 31, 2014 balance for the general partner interest above has been recast to include equity related to WOT prior to its acquisition from SemGroup. The acquisition of WOT, an entity under common control with Rose Rock, created a change in reporting entity which required prior period financial information to be recast to include WOT (Note 3). "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. As Rose Rock recorded the acquisition based on SemGroup's historical value, the purchase price in excess of historical cost is treated as an equity distribution to SemGroup.
The following table shows the cash distributions paid or declared per common unit during 2015 and 2014:
Quarter Ended
 
Record Date
 
Payment Date
 
Distribution Per Unit
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

Equity incentive plan
We granted 25,178 restricted unit awards during the six months ended June 30, 2015, with a weighted average grant date fair value of $47.10. At June 30, 2015, there were 98,243 unvested restricted unit awards that have been granted pursuant to our equity incentive plan. During the six months ended June 30, 2015, 29,275 restricted unit awards vested of which 12,116 were withheld to satisfy tax withholding obligations. The cost associated with the withheld awards of $0.5 million is reflected in the condensed consolidated financial statements as a cash distribution to common public unitholders.
The holders of restricted units granted in 2012 were entitled to equivalent distributions (“UUDs”) to be received upon vesting of the restricted unit awards. The distributions 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. In January 2015, 3,335 units were issued upon the vesting of the 2012 restricted units. Distributions related to the restricted unit awards granted subsequent to 2012 will be settled in cash upon vesting. At June 30, 2015, the value of these UUDs related to cash settled unvested restricted units was approximately $276 thousand.
Equity issuance
On February 13, 2015, we issued and sold 2.3 million 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. See Note 3 for additional information related to the acquisition including units issued to SemGroup as consideration.
Conversion of subordinated and Class A units
On January 1, 2015, based upon the satisfaction of certain operational targets by White Cliffs, all 3,750,000 Class A units were converted to common units on a one-for-one basis. The conversion did not impact the total number of our outstanding units representing limited partner interests.
On February 17, 2015, certain targets specified in our partnership agreement were achieved and all 8,389,709 subordinated units were converted to common units. The conversion did not impact the total number of our outstanding units representing limited partner interests.
Earnings Per Limited Partner Unit
EARNINGS PER LIMITED PARTNER UNIT
EARNINGS PER LIMITED PARTNER UNIT
Net income is allocated to the general partner and the limited partners in accordance with their respective partnership percentages, after giving effect to any priority income allocations, such as incentive distributions that are allocated to the general partner.
Basic and diluted earnings per limited partner unit is determined by dividing net income allocated to the limited partners by the weighted average number of limited partner units for such class outstanding during the period. Diluted earnings per limited partner unit reflects, where applicable, the potential dilution that could occur if securities or other agreements to issue additional units of a limited partner class, such as restricted unit awards, were exercised, settled or converted into such units.
The following table sets forth the computation of basic and diluted earnings per limited partner unit for the three months and six months ended June 30, 2015 and 2014 (in thousands, except per unit data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income attributable to Rose Rock Midstream, L.P.
$
17,068

 
$
11,006

 
$
31,668

 
$
23,556

Less: General partner's incentive distribution earned
4,981

 
888

 
9,431

 
1,376

Less: General partner's 2.0% ownership
342

 
179

 
634

 
496

Net income allocated to limited partners
$
11,745

 
$
9,939

 
$
21,603

 
$
21,684

Numerator for basic and diluted earnings per limited partner unit (*):
 
 
 
 
 
 
 
Allocation of net income among limited partner interests:
 
 
 
 
 
 
 
Net income allocable to common units
$
11,745

 
$
7,513

 
$
21,603

 
$
15,619

Net income allocable to subordinated units

 
3,063

 

 
6,860

Net loss allocable to Class A units

 
(637
)
 

 
(795
)
Net income allocated to limited partners
$
11,745

 
$
9,939

 
$
21,603

 
$
21,684

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
 
 
 
 
Basic weighted average number of common units outstanding
36,790

 
18,336

 
35,803

 
18,243

Effect of non-vested restricted units
49

 
61

 
46

 
54

Diluted weighted average number of common units outstanding
36,839

 
18,397

 
35,849

 
18,297

Basic and diluted weighted average number of subordinated units outstanding

 
8,390

 

 
8,390

Basic and diluted weighted average number of Class A units outstanding

 
2,596

 

 
2,548

Net income (loss) per limited partner unit:
 
 
 
 
 
 
 
Common unit (basic)
$
0.32

 
$
0.41

 
$
0.60

 
$
0.86

Common unit (diluted)
$
0.32


$
0.41


$
0.60


$
0.85

Subordinated unit (basic and diluted)
$


$
0.37


$


$
0.82

Class A unit (basic and diluted)
$


$
(0.25
)

$


$
(0.31
)

(*) 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. As distributions related to the available cash exceeded net income, the Class A units reflect a loss for the three months and six months ended June 30, 2014.
Related Party Transactions
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
Direct employee expenses
We do not directly employ any persons to manage or operate our business. These functions are performed by employees of SemGroup. Allocations are based on the actual costs of employees operating Rose Rock, including employees added through growth and acquisitions. SemGroup charged us $11.8 million and $7.8 million during the three months ended June 30, 2015 and 2014, respectively, for direct employee costs. SemGroup charged us $22.1 million and $14.0 million during the six months ended June 30, 2015 and 2014, respectively, for direct employee costs. These expenses were recorded to operating expenses and general and administrative expenses in our condensed consolidated statements of income.
Allocated expenses
SemGroup incurs expenses to provide certain indirect corporate general and administrative services to its subsidiaries. Such expenses include employee compensation costs, professional fees and rental fees for office space, among other expenses. SemGroup charged us $3.7 million and $3.1 million during the three months ended June 30, 2015 and 2014, respectively, for such allocated costs. SemGroup charged us $6.3 million and $5.0 million during the six months ended June 30, 2015 and 2014, respectively, for such allocated costs. These expenses were recorded to general and administrative expenses in our condensed consolidated statements of income.
NGL Energy Partners LP
SemGroup holds limited partner common units and general partner ownership interests in NGL Energy Partners LP ("NGL Energy"). We generated revenues from NGL Energy of $72.1 million and $99.5 million for the three months ended June 30, 2015 and 2014, respectively. We made purchases of condensate at market prices from NGL Energy in the amount of $75.0 million and $110.1 million for the three months ended June 30, 2015 and 2014, respectively. We received reimbursements from NGL Energy for support services in the amount of $14.0 thousand and $42.0 thousand for the three months ended June 30, 2015 and 2014, respectively.
We generated revenues from NGL Energy of $114.5 million and $233.6 million for the six months ended June 30, 2015 and 2014, respectively. We made purchases of condensate at market prices from NGL Energy in the amount of $110.2 million and $267.8 million for the six months ended June 30, 2015 and 2014, respectively. We received reimbursements from NGL Energy for support services in the amount of $56.0 thousand and $84.0 thousand for the six months ended June 30, 2015 and 2014, respectively.
Transactions with NGL Energy and its subsidiaries primarily relate to marketing, leased storage and transportation services of crude oil, including buy/sell transactions. In accordance with ASC 845-10-15, these transactions were reported as revenue on a net basis in our condensed consolidated statements of income because the purchases of inventory and subsequent sales of the inventory were with the same counterparty.
SemGas, L.P.
We purchase condensate at market prices from SemGas, L.P. ("SemGas"), which is a wholly-owned subsidiary of SemGroup. Purchases from SemGas were $6.4 million and $9.8 million for the three months ended June 30, 2015 and 2014, respectively. Purchases from SemGas were $12.4 million and $19.7 million for the six months ended June 30, 2015 and 2014, respectively.
White Cliffs
We generated storage revenues from our equity investee, White Cliffs, of $1.1 million and $0.7 million for the three months ended June 30, 2015 and 2014, respectively. We generated storage revenues from White Cliffs of $2.1 million and $1.5 million for the six months ended June 30, 2015 and 2014, respectively. We incurred $1.1 million and $0.8 million of costs for the three months months ended June 30, 2015 and 2014, respectively, related to transportation fees for shipments on the White Cliffs Pipeline. We incurred $1.8 million and $1.7 million of costs for the six months ended June 30, 2015 and 2014, respectively, related to transportation fees for shipments on the White Cliffs Pipeline. We received $0.1 million and $0.1 million in management fees from White Cliffs for the three months ended June 30, 2015 and 2014, respectively. We received $0.2 million and $0.2 million in management fees from White Cliffs for the six months ended June 30, 2015 and 2014, respectively.
Glass Mountain Pipeline, LLC
We incurred $0.7 million and $0.1 million of costs for the three months ended June 30, 2015 and 2014, respectively, related to transportation fees for shipments on Glass Mountain's pipeline. We incurred $1.2 million and $0.1 million of costs for the six months ended June 30, 2015 and 2014, respectively, related to transportation fees for shipments on Glass Mountain's pipeline. We received $0.2 million and $0.1 million in fees from Glass Mountain for the three months ended June 30, 2015 and 2014, respectively, related to support services associated with Glass Mountain's pipeline operations. We received $0.4 million and $0.2 million in fees from Glass Mountain for the six months ended June 30, 2015 and 2014, respectively, related to support services associated with Glass Mountain's pipeline operations. We made purchases of crude oil of $1.5 million from Glass Mountain during the six months ended June 30, 2015.
Legal services
The law firm of Conner & Winters, LLP, of which Mark D. Berman is a partner, performs legal services for us. Mr. Berman is the spouse of Candice L. Cheeseman, General Counsel and Secretary. Mr. Berman does not perform any legal services for us. We paid $4.1 thousand and $42.1 thousand in legal fees and related expenses to this law firm during the three months ended June 30, 2015 and 2014, respectively. We paid $4.1 thousand and $0.1 million in legal fees and related expenses to this law firm during the six months ended June 30, 2015 and 2014, respectively. Our equity method investee, White Cliffs, paid legal fees and related expenses to this law firm of $0.1 thousand and $27.0 thousand during the three months ended June 30, 2015 and 2014, respectively. Our equity method investee, White Cliffs, paid legal fees and related expenses to this law firm of $3.4 thousand and $81.0 thousand during the six months ended June 30, 2015 and 2014, respectively.
Supplemental Cash Flow Information Supplemental Cash Flow Information
Cash Flow, Supplemental Disclosures [Text Block]
SUPPLEMENTAL CASH FLOW INFORMATION

Acquisitions
In connection with the first quarter 2015 acquisition of the WOT and a 50% interest in Glass Mountain (Note 3), we issued 1.75 million common units valued at $70.6 million as non-cash consideration to SemGroup. The valuation of the units is based on the offering price for units concurrently sold in a public offering. In addition, a non-cash contribution of $3.3 million was recorded to the general partner's capital account.
As the transaction occurred between parties under common control, the purchase price in excess of SemGroup's historical cost was treated as an equity transaction with SemGroup, which reduced the partners' capital accounts pro-rata based on ownership percentages. The $46.3 million of cash consideration in excess of historical cost is reflected as a distribution to SemGroup in the condensed consolidated cash flow statement. The entire amount of non-cash equity consideration was in excess of the historical cost and was reduced to zero value in the statement of equity.
In connection with the second quarter 2014 acquisition of the remaining 33% interest in SCPL (Note 3), we issued 2.425 million common units and 1.25 million Class A units, valued at $120.0 million and $58.6 million, respectively, as non-cash consideration to SemGroup. In addition, a non-cash contribution of $3.6 million was recorded to the general partner's capital account.
As the transaction occurred between parties under common control, the purchase price in excess of SemGroup's historical cost of the 33% interest in SCPL was treated as an equity transaction with SemGroup, which reduced the partners' capital accounts pro-rata based on ownership percentages. The $24.4 million of cash consideration in excess of historical cost is reflected as a distribution to SemGroup in the condensed consolidated cash flow statement. The entire amount of non-cash equity consideration was in excess of the historical cost and was reduced to zero value in the statement of equity.
In connection with this transaction, at June 30, 2014, we accrued a $1.7 million distribution to the non-controlling interest in SCPL. This amount represents the cash distribution to be paid to SemGroup in July related to the June earnings of SCPL. This amount is not reflected in the cash flow statement for the six months ended June 30, 2014.
Senior unsecured note issuance
On June 27, 2014, we agreed to sell $400 million of 5.625% senior unsecured notes due 2022 (Note 5). The net proceeds from the offering of $391.9 million, after underwriters' fees and offering expenses, were received on July 2, 2014, and were used to pay down the revolving credit facility balance. At June 30, 2014, we recorded a receivable for the proceeds and $8.7 million of debt issuance costs. These non-cash transactions have not been reflected in the cash flow statement for the six months ended June 30, 2014.
Other supplemental disclosures
We paid cash interest of $15.8 million and $5.3 million for the six months ended June 30, 2015 and 2014, respectively.
We accrued $9.1 million for purchases of property, plant and equipment for the six months ended June 30, 2015. No significant amounts were accrued for purchases of property, plant and equipment for the six months ended June 30, 2014.
Overview (Policies)
OVERVIEW
Rose Rock Midstream, L.P. is a Delaware limited partnership. The general partner of Rose Rock Midstream, L.P. is Rose Rock Midstream GP, LLC, which is a wholly-owned subsidiary of SemGroup Corporation. SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified midstream services to the energy industry.
The terms "we," "our," "us," "Rose Rock," the "Partnership" and similar language used in these notes to the unaudited condensed consolidated financial statements refer to Rose Rock Midstream, L.P, and its subsidiaries. The term "SemGroup" refers to SemGroup Corporation and its controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
Prior period financial information has been recast to reflect the effects of a common control acquisition completed on February 13, 2015. See Note 3 for additional information.
The condensed consolidated balance sheet at December 31, 2014, which is derived from audited financial statements and the unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the SEC. These condensed consolidated financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Partnership and the results of its operations and its cash flows. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.
Pursuant to the rules and regulations of the SEC, the accompanying condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014, which are included in our Current Report on Form 8-K, filed with the SEC on May 11, 2015.
Our significant accounting policies are consistent with those described in Note 2 of our audited consolidated financial statements for the year ended December 31, 2014, which are included in our Current Report on Form 8-K, filed with the SEC on May 11, 2015.
Recent Accounting Pronouncements
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.
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.
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.
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). On July 9, 0215, the FASB approved a one-year deferral and the standard is now effective for annual periods beginning after December 15, 2017, and interim periods therein. 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.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
Prior period financial information has been recast to reflect the effects of a common control acquisition completed on February 13, 2015. See Note 3 for additional information.
The condensed consolidated balance sheet at December 31, 2014, which is derived from audited financial statements and the unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the SEC. These condensed consolidated financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Partnership and the results of its operations and its cash flows. All significant transactions between Rose Rock Midstream, L.P. and its consolidated subsidiaries have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.
Pursuant to the rules and regulations of the SEC, the accompanying condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014, which are included in our Current Report on Form 8-K, filed with the SEC on May 11, 2015.
Our significant accounting policies are consistent with those described in
Recent Accounting Pronouncements
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.
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.
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.
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). On July 9, 0215, the FASB approved a one-year deferral and the standard is now effective for annual periods beginning after December 15, 2017, and interim periods therein. 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.
Financial Instruments (Policies)
Fair Value Measurement, Policy [Policy Text Block]
"Level 1" measurements are based on inputs consisting of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange.
"Level 2" measurements are based on inputs consisting of market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include OTC traded physical fixed priced purchases and sales forward contracts.
"Level 3" measurements are based on inputs from a pricing service and/or internal valuation models incorporating observable and unobservable market data.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value levels. At June 30, 2015, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
Equity Method Investment (Tables)
Our equity method investments consist of the following (in thousands):
 
June 30, 2015
 
December 31, 2014
White Cliffs Pipeline, L.L.C.
$
281,627

 
$
269,635

Glass Mountain Pipeline LLC
144,431

 

Total equity method investments
$
426,058

 
$
269,635

Our earnings from equity method investments consist of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
White Cliffs Pipeline, L.L.C.
$
15,545

 
$
12,291

 
$
34,635

 
$
23,371

Glass Mountain Pipeline LLC
2,138

 

 
3,912

 

Total earnings from equity method investments
$
17,683

 
$
12,291

 
$
38,547

 
$
23,371

Cash distributions received from equity method investments consist of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
White Cliffs Pipeline, L.L.C.
$
20,551

 
$
14,467

 
$
44,705

 
$
28,052

Glass Mountain Pipeline LLC
5,009

 

 
6,920

 

Total cash distributions received from equity method investments
$
25,560

 
$
14,467

 
$
51,625

 
$
28,052

Certain unaudited summarized income statement information of White Cliffs Pipeline, L.L.C. ("White Cliffs") for the three months and six months ended June 30, 2015 and 2014 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
48,509

 
$
34,533

 
$
103,123

 
$
67,807

Operating, general and administrative expenses
$
9,045

 
$
5,539

 
$
17,398

 
$
12,307

Depreciation and amortization expense
$
8,587

 
$
4,537

 
$
17,125

 
$
8,930

Net income
$
30,870

 
$
24,457

 
$
68,593

 
$
46,570

Certain summarized unaudited income statement information of Glass Mountain Pipeline LLC ("Glass Mountain") for the three months and six months ended June 30, 2015 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2015
Revenues
$
9,788

 
$
20,909

Cost of sales
$

 
$
1,982

Operating, general and administrative expenses
$
1,473

 
$
2,911

Depreciation and amortization expense
$
3,932

 
$
7,976

Net income
$
4,381

 
$
8,036

Our e
Financial Instruments (Tables)
The table below summarizes the balances of these assets and liabilities at June 30, 2015 and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$
762

 
$
(317
)
 
$
445

 
$
3,198

 
$
(1,637
)
 
$
1,561

Liabilities
$
317

 
$
(317
)
 
$

 
$
1,637

 
$
(1,637
)
 
$

* Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
The following table sets forth the notional quantities for commodity derivative instruments entered into during the periods indicated (in thousands of barrels): 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Sales
7,721

 
1,135

 
13,452

 
1,950

Purchases
7,508

 
1,005

 
13,413

 
1,815

The fair value of our commodity derivative assets and liabilities recorded to other current assets and other current liabilities was as follows (in thousands):
 
June 30, 2015
 
December 31, 2014
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$
445

 
$

 
$
1,561

 
$

Realized and unrealized losses from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Commodity contracts
$
(2,202
)
 
$
(1,942
)
 
$
(2,846
)
 
$
(2,749
)
Long Term Debt Long Term Debt (Tables)
Our long-term debt consisted of the following (in thousands):
 
June 30,
2015
 
December 31,
2014
Rose Rock 5.625% senior unsecured notes due 2022
$
400,000

 
$
400,000

Rose Rock 5.625% senior unsecured notes due 2023
344,276

 

Rose Rock revolving credit facility

 
32,000

Capital leases
107

 
132

Total long-term debt
$
744,383

 
$
432,132

Less: current portion of long-term debt
44

 
40

Noncurrent portion of long-term debt
$
744,339

 
$
432,092

From and after May 15, 2019, the Partnership may redeem the 2023 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 May 15 of each of the years indicated below:
Year
 
Percentage
2019
 
102.813%
2020
 
101.406%
2021 and thereafter
 
100.000%
Commitments and Contingencies (Tables)
Purchase and sale commitments
We account for derivatives at fair value with the exception of commitments which have been designated as normal purchases and sales, for which we do not record assets or liabilities related to these agreements until the product is purchased or sold. At June 30, 2015, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
1,935

 
$
114,568

Fixed price sales
2,660

 
$
159,148

Floating price purchases
15,960

 
$
930,753

Floating price sales
17,876

 
$
1,063,405

Partners' Capital and Distributions (Tables)
The following table shows the changes in our partners’ capital accounts from December 31, 2014 to June 30, 2015 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
Subordinated
Units
 
Class A Units
 
General
Partner
Interest
 
Total Partners' Capital
Balance at December 31, 2014
$
69,929

 
$
155,367

 
$
(60,760
)
 
$
76,321

 
$
67,632

 
$
308,489

Net income
9,446

 
12,157

 

 

 
10,065

 
31,668

Equity issuance
89,119

 
70,560

 

 

 
3,259

 
162,938

Equity adjustment related to common control acquisition
(51,452
)
 
(39,246
)
 
(26,838
)
 

 
(61,580
)
 
(179,116
)
Conversion to common units

 
(16,479
)
 
92,800

 
(76,321
)
 

 

Unvested distribution equivalent rights
(98
)
 

 

 

 

 
(98
)
Cash distributions to partners
(19,261
)
 
(19,700
)
 
(5,202
)
 

 
(8,990
)
 
(53,153
)
Non-cash equity compensation
655

 

 

 

 

 
655

Balance at June 30, 2015
$
98,338

 
$
162,659

 
$

 
$

 
$
10,386

 
$
271,383

The following table shows the cash distributions paid or declared per common unit during 2015 and 2014:
Quarter Ended
 
Record Date
 
Payment Date
 
Distribution Per Unit
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

Earnings Per Limited Partner Unit (Tables)
Computation of basic and diluted earnings per unit
The following table sets forth the computation of basic and diluted earnings per limited partner unit for the three months and six months ended June 30, 2015 and 2014 (in thousands, except per unit data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income attributable to Rose Rock Midstream, L.P.
$
17,068

 
$
11,006

 
$
31,668

 
$
23,556

Less: General partner's incentive distribution earned
4,981

 
888

 
9,431

 
1,376

Less: General partner's 2.0% ownership
342

 
179

 
634

 
496

Net income allocated to limited partners
$
11,745

 
$
9,939

 
$
21,603

 
$
21,684

Numerator for basic and diluted earnings per limited partner unit (*):
 
 
 
 
 
 
 
Allocation of net income among limited partner interests:
 
 
 
 
 
 
 
Net income allocable to common units
$
11,745

 
$
7,513

 
$
21,603

 
$
15,619

Net income allocable to subordinated units

 
3,063

 

 
6,860

Net loss allocable to Class A units

 
(637
)
 

 
(795
)
Net income allocated to limited partners
$
11,745

 
$
9,939

 
$
21,603

 
$
21,684

Denominator for basic and diluted earnings per limited partner unit:
 
 
 
 
 
 
 
Basic weighted average number of common units outstanding
36,790

 
18,336

 
35,803

 
18,243

Effect of non-vested restricted units
49

 
61

 
46

 
54

Diluted weighted average number of common units outstanding
36,839

 
18,397

 
35,849

 
18,297

Basic and diluted weighted average number of subordinated units outstanding

 
8,390

 

 
8,390

Basic and diluted weighted average number of Class A units outstanding

 
2,596

 

 
2,548

Net income (loss) per limited partner unit:
 
 
 
 
 
 
 
Common unit (basic)
$
0.32

 
$
0.41

 
$
0.60

 
$
0.86

Common unit (diluted)
$
0.32


$
0.41


$
0.60


$
0.85

Subordinated unit (basic and diluted)
$


$
0.37


$


$
0.82

Class A unit (basic and diluted)
$


$
(0.25
)

$


$
(0.31
)
Equity Method Investment Equity Method Investment - Balances (Details)†(USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Schedule of Equity Method Investments [Line Items]
Equity method investments
$†426,058†
$†269,635†
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investments
281,627†
269,635†
Glass Mountain Pipeline Llc [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investments
$†144,431†
$†0†
Equity Method Investment Equity Method Investment - Equity Earnings (Details)†(USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Schedule of Equity Method Investments [Line Items]
Income (Loss) from Equity Method Investments
$†17,683†
$†12,291†
$†38,547†
$†23,371†
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Income (Loss) from Equity Method Investments
15,545†
12,291†
34,635†
23,371†
Glass Mountain Pipeline Llc [Member]
Schedule of Equity Method Investments [Line Items]
Income (Loss) from Equity Method Investments
$†2,138†
$†0†
$†3,912†
$†0†
Equity Method Investment Equity Method Investment - Distributions (Details)†(USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Schedule of Equity Method Investments [Line Items]
Proceeds from Equity Method Investment, Dividends or Distributions, Return of and Return on Capital
$†25,560†
$†14,467†
$†51,625†
$†28,052†
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Proceeds from Equity Method Investment, Dividends or Distributions, Return of and Return on Capital
20,551†
14,467†
44,705†
28,052†
Glass Mountain Pipeline Llc [Member]
Schedule of Equity Method Investments [Line Items]
Proceeds from Equity Method Investment, Dividends or Distributions, Return of and Return on Capital
$†5,009†
$†0†
$†6,920†
$†0†
Equity Method Investment - Summarized Financial Information - White Cliffs (Details) (White Cliffs Pipeline L L C [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Summarized Financial Information, Revenue
$†48,509†
$†34,533†
$†103,123†
$†67,807†
Equity Method Investment, Summarized Financial Information, Operating, General and Administrative Expenses
9,045†
5,539†
17,398†
12,307†
Equity Method Investment, Summarized Financial Information, Depreciation and Amortization Expense
8,587†
4,537†
17,125†
8,930†
Equity Method Investment, Summarized Financial Information, Net Income (Loss)
$†30,870†
$†24,457†
$†68,593†
$†46,570†
Equity Method Investment Equity Method Investment - Summarized Financial Information - Glass Mountain (Details) (Glass Mountain Pipeline Llc [Member], USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2015
Glass Mountain Pipeline Llc [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Summarized Financial Information, Revenue
$†9,788†
$†20,909†
Equity Method Investment, Summarized Financial Information, Cost of Sales
0†
1,982†
Equity Method Investment, Summarized Financial Information, Operating, General and Administrative Expenses
1,473†
2,911†
Equity Method Investment, Summarized Financial Information, Depreciation and Amortization Expense
3,932†
7,976†
Equity Method Investment, Summarized Financial Information, Net Income (Loss)
$†4,381†
$†8,036†
Equity Method Investment (Details Textual)†(USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Schedule of Equity Method Investments [Line Items]
Earnings from equity method investments
$†17,683,000†
$†12,291,000†
$†38,547,000†
$†23,371,000†
Proceeds from Equity Method Investment, Dividends or Distributions, Return of and Return on Capital
25,560,000†
14,467,000†
51,625,000†
28,052,000†
General and administrative expense
6,329,000†
6,191,000†
11,949,000†
9,938,000†
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
General and administrative expense
400,000†
400,000†
700,000†
800,000†
Glass Mountain Pipeline Llc [Member]
Schedule of Equity Method Investments [Line Items]
Earnings from equity method investments
2,138,000†
0†
3,912,000†
0†
Proceeds from Equity Method Investment, Dividends or Distributions, Return of and Return on Capital
5,009,000†
0†
6,920,000†
0†
Equity method investment, ownership percentage
50.00%†
50.00%†
Partners' Capital Account, Contributions
1,400,000†
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Earnings from equity method investments
15,545,000†
12,291,000†
34,635,000†
23,371,000†
Proceeds from Equity Method Investment, Dividends or Distributions, Return of and Return on Capital
20,551,000†
14,467,000†
44,705,000†
28,052,000†
Equity method investment, ownership percentage
51.00%†
51.00%†
Partners' Capital Account, Contributions
21,400,000†
Pipeline expansion [Member] |
White Cliffs Pipeline L L C [Member]
Schedule of Equity Method Investments [Line Items]
Partners' Capital Account, Contributions
13,100,000†
Incremental capacity expected to be added
65,000†
Remaining expected capital contributions, year one
$†23,600,000†
Acquisitions (Details Textual)†(USD $)
In Millions, except Share data, unless otherwise specified
6 Months Ended 0 Months Ended 6 Months Ended 0 Months Ended 0 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 24, 2014
Chesapeake crude oil trucking assets [Member]
Jun. 30, 2015
Wattenberg Oil Trunkline [Member]
in
mi
bbl
Jun. 30, 2015
Glass Mountain Pipeline Llc [Member]
mi
Jun. 30, 2015
Glass Mountain Pipeline Llc [Member]
Jun. 30, 2015
White Cliffs Pipeline L L C [Member]
Jun. 23, 2014
SemCrude Pipeline [Member]
Acquisition of remaining 33% interest in SemCrude Pipeline [Member]
Jun. 23, 2014
Noncontrolling Interest [Member]
SemCrude Pipeline [Member]
Semgroup [Member]
Feb. 13, 2015
Common Units [Member]
Wattenberg Oil Trunkline and Glass Mountain Pipeline [Member]
Jun. 23, 2014
Partnership Interest [Member]
Common Units [Member]
Acquisition of remaining 33% interest in SemCrude Pipeline [Member]
Jun. 23, 2014
Partnership Interest [Member]
Common Class A [Member]
Acquisition of remaining 33% interest in SemCrude Pipeline [Member]
Feb. 13, 2015
Semgroup [Member]
Wattenberg Oil Trunkline and Glass Mountain Pipeline [Member]
Business Acquisition [Line Items]
Equity method investment, ownership percentage
50.00%†
51.00%†
33.00%†
Payments to acquire business
$†44.0†
$†114.4†
$†251.2†
Units issued as consideration in acquisition
1,750,000†
2,425,000†
1,250,000†
Percentage of ownership general partner interest
2.00%†
2.00%†
Width of Pipeline