ROSE ROCK MIDSTREAM, L.P., 10-Q filed on 8/5/2016
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2016
Jul. 31, 2016
Entity Registrant Name
Rose Rock Midstream, L.P.†
Entity Central Index Key
0001527622†
Document Type
10-Q†
Document Period End Date
Jun. 30, 2016†
Amendment Flag
false†
Document Fiscal Year Focus
2016†
Document Fiscal Period Focus
Q2†
Current Fiscal Year End Date
--12-31†
Entity Filer Category
Large Accelerated Filer†
Entity Common Stock, Shares Outstanding
36,837,758†
Condensed Consolidated Balance Sheets†(USD $)
In Thousands, unless otherwise specified
Jun. 30, 2016
Dec. 31, 2015
Current assets:
Cash and cash equivalents
$†7,909†
$†9,059†
Accounts receivable (net of allowance of $295 and $257, respectively)
319,893†
240,606†
Receivable from affiliates
9,197†
5,944†
Inventories
76,343†
59,121†
Other current assets
8,192†
4,884†
Total current assets
421,534†
319,614†
Property, plant and equipment (net of accumulated depreciation of $138,498 and $123,394, respectively)
443,327†
441,596†
Equity method investments
427,961†
438,291†
Goodwill
26,628†
26,628†
Other intangible assets (net of accumulated amortization of $2,384 and $1,443, respectively)
14,626†
15,567†
Other noncurrent assets, net
3,352†
3,894†
Total assets
1,337,428†
1,245,590†
Current liabilities:
Accounts payable
310,685†
243,548†
Payable to affiliates
18,924†
12,995†
Accrued liabilities
23,030†
22,240†
Other current liabilities
3,609†
4,246†
Total current liabilities
356,248†
283,029†
Long-term debt, net
774,488†
732,356†
Commitments and contingencies (Note 7)
  †
  †
Partnersí capital:
General partner
9,427†
9,906†
Total partners' capital
206,692†
230,205†
Total liabilities and partners' capital
1,337,428†
1,245,590†
Common Units [Member] |
Public [Member]
Partnersí capital:
Limited partners' capital
71,083†
80,829†
Common Units [Member] |
Semgroup [Member]
Partnersí capital:
Limited partners' capital
$†126,182†
$†139,470†
Condensed Consolidated Balance Sheets (Parenthetical)†(USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2016
Dec. 31, 2015
Accounts receivable, allowance
$†295†
$†257†
Property, plant and equipment, accumulated depreciation
138,498†
123,394†
Other intangible assets, accumulated amortization
$†2,384†
$†1,443†
Common Units [Member] |
Public [Member]
Common units, issued
16,133,340†
16,094,260†
Common units, outstanding
16,133,340†
16,094,260†
Common Units [Member] |
Semgroup [Member]
Common units, issued
20,704,418†
20,704,418†
Common units, outstanding
20,704,418†
20,704,418†
Condensed Consolidated Statements of Income (Unaudited)†(USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Revenues, including revenues from affiliates (Note 10):
Product
$†143,201†
$†193,525†
$†319,823†
$†300,092†
Service
25,943†
29,778†
53,272†
57,904†
Total revenues
169,144†
223,303†
373,095†
357,996†
Expenses, including expenses from affiliates (Note 10):
Costs of products sold, exclusive of depreciation and amortization
128,763†
173,133†
280,154†
269,370†
Operating
19,726†
23,678†
41,133†
44,477†
General and administrative
5,428†
6,329†
10,328†
11,949†
Depreciation and amortization
8,235†
10,608†
16,128†
20,751†
Loss (gain) on disposal of long-lived assets, net
(1,714)
22†
(2,008)
(130)
Total expenses
163,866†
213,726†
349,751†
346,677†
Earnings from equity method investments
17,078†
17,683†
37,917†
38,547†
Operating income
22,356†
27,260†
61,261†
49,866†
Other expenses (income), net:
Interest expense
12,434†
10,197†
24,871†
18,203†
Other income
0†
(5)
0†
(5)
Total other expenses, net
12,434†
10,192†
24,871†
18,198†
Net income
9,922†
17,068†
36,390†
31,668†
Earnings Per Unit [Abstract]
Net income allocated to general partner
5,537†
5,323†
11,405†
10,065†
Net income allocated to limited partners
$†4,385†
$†11,745†
$†24,985†
$†21,603†
Earnings per limited partner unit, basic
$†0.12†
$†0.32†
$†0.68†
$†0.60†
Earnings per limited partner unit, diluted
$†0.12†
$†0.32†
$†0.68†
$†0.60†
Basic weighted average number of limited partner units outstanding:
Basic weighted average number of limited partner units outstanding
36,838†
36,790†
36,823†
35,803†
Diluted weighted average number of limited partner units outstanding:
Diluted weighted average number of limited partner units outstanding
36,915†
36,839†
36,873†
35,849†
Condensed Consolidated Statements of Cash Flows (Unaudited)†(USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Cash flows from operating activities:
Net income
$†36,390†
$†31,668†
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
16,128†
20,751†
Loss on disposal of long-lived assets, net
2,008†
130†
Amortization of debt issuance costs
1,659†
1,210†
Provision for uncollectible accounts receivable
38†
0†
Inventory valuation adjustment
0†
1,235†
Non-cash equity compensation
731†
655†
Net unrealized loss (gain) related to derivative instruments
(71)
1,116†
Earnings from equity method investments
(37,917)
(38,547)
Cash distributions from equity method investments
37,917†
38,547†
Changes in assets and liabilities, net of the effects of acquisitions:
Decrease (increase) in accounts receivable
(79,325)
(26,359)
Decrease (increase) in receivable from affiliates
(3,253)
(2,128)
Decrease (increase) in inventories
(17,222)
(41,844)
Decrease (increase) in other current assets
(3,285)
(1,407)
Increase (decrease) in accounts payable and accrued liabilities
68,883†
31,161†
Increase (decrease) in payable to affiliates
5,929†
3,683†
Net cash provided by operating activities
28,610†
19,871†
Cash flows from investing activities:
Capital expenditures
(20,390)
(36,262)
Proceeds from sale of long-lived assets
15†
126†
Contributions to equity method investments
(3,448)
(23,462)
Acquisitions
0†
(205,071)
Distributions from equity investments in excess of equity in earnings
13,778†
13,077†
Net cash used in investing activities
(10,045)
(251,592)
Cash flows from financing activities:
Payments of Debt Issuance Costs
0†
5,688†
Borrowings on revolving credit facility and issuance of senior secured notes, net of discount
165,500†
676,208†
Principal payments on revolving credit facility
(124,500)
(364,000)
Principal payments on capital lease obligations
(15)
(24)
Proceeds from common L.P. unit issuance, net of offering costs
0†
89,119†
Cash consideration in excess of historical cost of acquisitions from SemGroup
0†
(46,264)
Cash distributions to partners
(60,700)
(53,153)
Net cash provided by (used in) financing activities
(19,715)
296,198†
Net increase (decrease) in cash and cash equivalents
(1,150)
64,477†
Cash and cash equivalents at beginning of period
9,059†
3,625†
Cash and cash equivalents at end of period
$†7,909†
$†68,102†
Overview
OVERVIEW
OVERVIEW
Rose Rock Midstream, L.P. is a Delaware limited partnership. The general partner of Rose Rock Midstream, L.P. is Rose Rock Midstream GP, LLC, which is a wholly-owned subsidiary of SemGroup Corporation. SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified midstream services to the energy industry.
The terms "we," "our," "us," "Rose Rock," the "Partnership" and similar language used in these notes to the unaudited condensed consolidated financial statements refer to Rose Rock Midstream, L.P, and its subsidiaries. The term "SemGroup" refers to SemGroup Corporation and its controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
The condensed consolidated balance sheet at December 31, 2015, 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 ("U.S. GAAP") 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 U.S. GAAP 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, 2016, are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
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 U.S. GAAP. 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, 2015, which are included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC.
Our significant accounting policies are consistent with those described in Note 2 of our Annual Report on Form 10-K for the year ended December 31, 2015.
Pending merger
On May 30, 2016, Rose Rock entered into an Agreement and Plan of Merger (the "Merger Agreement") with SemGroup whereby SemGroup would acquire the outstanding common limited partner units of Rose Rock not already beneficially owned by SemGroup in exchange for shares of SemGroup Class A common stock. Each common limited partner unit of Rose Rock would be acquired in exchange for 0.8136 shares of SemGroup Class A common stock.
Completion of the merger is conditioned upon, among other things: (i) majority approval of Rose Rock common unitholders; (ii) all material required governmental consents and approvals having been received; (iii) the absence of legal injunctions or impediments prohibiting the transactions contemplated by the Merger Agreement; (iv) the effectiveness of a registration statement on Form S-4 with respect to the issuance of SemGroup stock to be issued in exchange for Rose Rock common limited partner units; (v) approval of the listing on the New York Stock Exchange, subject to official notice of issuance, of the SemGroup Class A common stock to be issued; and (vi) majority approval by SemGroup stockholders of the SemGroup Class A common stock issuance.
A subsidiary of SemGroup which beneficially owns a majority of Rose Rock's common units has agreed to deliver a written consent approving the Merger Agreement and the transactions contemplated by such agreement.
The Merger Agreement provides for certain termination rights for Rose Rock. The Merger Agreement provides that upon termination of the Merger Agreement (i) in connection with the failure of the stockholders of SemGroup to approve the SemGroup stock issuance, SemGroup will pay Rose Rock's out-of-pocket expenses in an amount up to $3.8 million and (ii) in connection with a change by SemGroup of its recommendation in favor of approval of the SemGroup stock issuance under certain circumstances, SemGroup will pay to Rose Rock a termination fee in the amount of $15.5 million. Under no circumstance will SemGroup be required to both reimburse Rose Rock's expenses and pay Rose Rock the termination fee.
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. For public entities, this ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2020. The impact is not expected to be material.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting'', which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which amends the existing lease guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by operating and finance leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. For public entities, this ASU will be effective for annual periods beginning after December 15, 2018, and interim periods within those years. The new guidance shall be applied using a modified retrospective approach and early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements. We will adopt this guidance in the first quarter of 2019.
In July 2015, the FASB issued 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 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. In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting”, which amended the SEC paragraphs of ASC Subtopic 835-30 to include the language from the SEC Staff Announcement indicating that the SEC would not object to presenting deferred debt issuance costs related to line-of-credit agreements as assets and subsequently amortizing the deferred debt issuance costs ratably over the term of the agreement. The standards are effective for U.S. public companies for annual reporting periods beginning after December 15, 2015. The new guidance has been applied on a retrospective basis for all periods presented. We adopted this guidance in the first quarter of 2016. The impact was not material. For presentation purposes, $12.2 million of debt issuance costs which had previously been reported as other noncurrent assets were reclassified as a reduction of long-term debt on the December 31, 2015 balance sheet. Capitalized loan fees related to our revolving credit facility continue to be presented as other noncurrent assets.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers", which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08 which amended the principal-versus-agent implementation guidance set forth in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU 2016-10 which amended certain aspects of the guidance related to identifying performance obligations and licensing implementation within ASU 2014-09. In June 2016, the FASB issued ASU 2016-12 which narrows the scope around certain aspects of the criterion used in determining when to recognize revenue. 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 consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
White Cliffs Pipeline, L.L.C.
$
290,668

 
$
297,109

Glass Mountain Pipeline, LLC
137,293

 
141,182

Total equity method investments
$
427,961

 
$
438,291


Our earnings from equity method investments consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
White Cliffs Pipeline, L.L.C.
$
16,428

 
$
15,545

 
$
36,208

 
$
34,635

Glass Mountain Pipeline, LLC
650

 
2,138

 
1,709

 
3,912

Total earnings from equity method investments
$
17,078

 
$
17,683

 
$
37,917

 
$
38,547


Cash distributions received from equity method investments consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
White Cliffs Pipeline, L.L.C.
$
21,664

 
$
20,551

 
$
45,762

 
$
44,705

Glass Mountain Pipeline, LLC
3,118

 
5,009

 
5,933

 
6,920

Total cash distributions received from equity method investments
$
24,782

 
$
25,560

 
$
51,695

 
$
51,625


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, 2016 and 2015 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
55,586

 
$
48,509

 
$
113,642

 
$
103,123

Cost of products sold
$
2,803

 
$
169

 
$
3,053

 
$
1,102

Operating, general and administrative expenses
$
10,125

 
$
8,876

 
$
19,727

 
$
16,296

Depreciation and amortization expense
$
10,084

 
$
8,587

 
$
19,047

 
$
17,125

Net income
$
32,575

 
$
30,870

 
$
71,822

 
$
68,593


Our equity in earnings of White Cliffs for the three months and six months ended June 30, 2016 and 2015 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, 2016 and 2015, respectively. White Cliffs recorded $0.9 million and $0.7 million of such general and administrative expense for the six months ended June 30, 2016 and 2015, 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, 2016, we contributed $2.2 million for an expansion project that added approximately 65,000 barrels per day of capacity.
Glass Mountain Pipeline, LLC
As discussed in Note 3, on February 13, 2015, our Transportation segment acquired Glass Mountain Holding, LLC, which owns a 50% interest in Glass Mountain Pipeline, LLC ("Glass Mountain"). The excess of the recorded amount of our investment over the book value of our share of the underlying net assets represents equity method goodwill and capitalized interest at June 30, 2016. Capitalized interest is amortized as a reduction of earnings from equity method investments.
Certain summarized unaudited income statement information of Glass Mountain for the three months and six months ended June 30, 2016 and 2015 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
6,898

 
$
9,788

 
$
15,470

 
$
20,909

Cost of sales
$
(120
)
 
$
(40
)
 
$
445

 
$
1,974

Operating, general and administrative expenses
$
1,618

 
$
1,513

 
$
3,463

 
$
2,920

Depreciation and amortization expense
$
3,989

 
$
3,932

 
$
7,925

 
$
7,976

Net income
$
1,407

 
$
4,381

 
$
3,632

 
$
8,036

Our equity in earnings of Glass Mountain for the three months and six months ended June 30, 2016 and 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, 2016, we contributed $0.3 million to Glass Mountain related to capital projects.
Acquisitions
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
ACQUISITIONS

On February 13, 2015, we acquired the Wattenberg Oil Trunkline ("WOT") and 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 2.3 million common units in an underwritten public offering. As the transaction was between entities under common control, we recorded the acquired assets and liabilities based on SemGroup's historical cost. The purchase price in excess of historical cost was treated as an equity transaction with SemGroup, which reduced the partners' capital accounts of our general and limited partners on a pro-rata basis.
The acquisition 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.
Segments
Segment Reporting Disclosure [Text Block]
SEGMENTS

During the year ended December 31, 2015, management made the decision to disaggregate certain activities and functions within the Partnership to provide additional granularity, both internally and externally, to our operating results. As such, the prior period results have been recast to reflect the resulting reportable segments.
Our segments are organized by our key revenue generating activities. Our Transportation segment includes revenue generated through fees charged for the physical movement of crude oil utilizing our truck and pipeline assets. Our Facilities segment includes revenue generated through crude oil storage fees, truck unloading fees and other ancillary activities related to our facilities. Our Supply and Logistics segment includes revenue generated through the marketing of crude oil and includes related derivative activity. Although Corporate and Other does not represent an operating segment, it is included in the tables below to reconcile segment information to that of the consolidated Partnership.
Current year activity includes intersegment revenues generated by our Transportation and Facilities segments for services provided to our Supply and Logistics segment. With the exception of intersegment trucking revenues, these intersegment charges did not exist in the prior year. Eliminations of transactions between segments are also included within Corporate and Other in the tables below.
The accounting policies of each segment are the same as the accounting policies of the consolidated Partnership. Transactions between segments are generally recorded based on prices negotiated between the segments. Certain general and administrative expenses incurred at the corporate level were allocated to the segments based on our allocation policies in effect at the time.
Our results by segment are presented in the tables below (in thousands):
 
Three months ended June 30, 2016
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
15,644

 
$
10,299

 
$
143,201

 
$

 
$
169,144

Intersegment
5,127

 
2,527

 

 
(7,654
)
 

Total revenues
$
20,771

 
$
12,826

 
$
143,201

 
$
(7,654
)
 
$
169,144

Depreciation and amortization
$
6,171

 
$
1,921

 
$
40

 
$
103

 
$
8,235

Earnings from equity method investment
$
17,078

 
$

 
$

 
$

 
$
17,078

Segment profit (1)
$
18,421

 
$
9,371

 
$
10,069

 
$
(2,793
)
 
$
35,068


 
Three months ended June 30, 2015
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
22,425

 
$
11,402

 
$
189,476

 
$

 
$
223,303

Intersegment
3,562

 

 

 
(3,562
)
 

Total revenues
$
25,987

 
$
11,402

 
$
189,476

 
$
(3,562
)
 
$
223,303

Depreciation and amortization
$
9,038

 
$
1,406

 
$
40

 
$
124

 
$
10,608

Earnings from equity method investment
$
17,683

 
$

 
$

 
$

 
$
17,683

Segment profit (1)
$
19,984

 
$
7,963

 
$
10,978

 
$
(2,472
)
 
$
36,453



 
Six Months Ended June 30, 2016
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
32,839

 
$
20,433

 
$
319,823

 
$

 
$
373,095

Intersegment
12,341

 
5,272

 

 
(17,613
)
 

Total revenues
$
45,180

 
$
25,705

 
$
319,823

 
$
(17,613
)
 
$
373,095

Depreciation and amortization
$
12,030

 
$
3,805

 
$
80

 
$
213

 
$
16,128

Earnings from equity method investment
$
37,917

 
$

 
$

 
$

 
$
37,917

Segment profit (1)
$
44,013

 
$
18,958

 
$
19,162

 
$
(4,815
)
 
$
77,318

Total assets at June 30, 2016 (excluding intersegment receivables)
$
739,904

 
$
154,359

 
$
430,297

 
$
12,868

 
$
1,337,428

Equity investments at June 30, 2016
$
427,961

 
$

 
$

 
$

 
$
427,961

 
Six Months Ended June 30, 2015
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
42,752

 
$
22,807

 
$
292,437

 
$

 
$
357,996

Intersegment
7,283

 

 

 
(7,283
)
 

Total revenues
$
50,035

 
$
22,807

 
$
292,437

 
$
(7,283
)
 
$
357,996

Depreciation and amortization
$
17,656

 
$
2,775

 
$
79

 
$
241

 
$
20,751

Earnings from equity method investment
$
38,547

 
$

 
$

 
$

 
$
38,547

Segment profit (1)
$
44,508

 
$
16,365

 
$
16,159

 
$
(5,299
)
 
$
71,733

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

 
$
155,186

 
$
328,419

 
$
16,373

 
$
1,245,590

Equity investments at December 31, 2015
$
438,291

 
$

 
$

 
$

 
$
438,291

(1) Segment profit represents revenues excluding unrealized gains (losses) related to derivative instruments plus earnings from equity method investments less cost of sales excluding depreciation and amortization and less operating and general and administrative expenses.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
Reconciliation of segment profit to net income:
2016
 
2015
 
2016
 
2015
   Total segment profit
$
35,068

 
$
36,453

 
$
77,318

 
$
71,733

     Less:
 
 
 
 
 
 
 
Net unrealized loss (gain) related to derivative instruments
4,477

 
(1,415
)
 
(71
)
 
1,116

Depreciation and amortization
8,235

 
10,608

 
16,128

 
20,751

Interest expense
12,434

 
10,197

 
24,871

 
18,203

Other income

 
(5
)
 

 
(5
)
   Net income
$
9,922

 
$
17,068

 
$
36,390

 
$
31,668

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 time and location basis risks, respectively. 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, 2016 and December 31, 2015 (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$
1,160

 
$
(1,160
)
 
$

 
$
131

 
$
(131
)
 
$

Liabilities
$
1,428

 
$
(1,160
)
 
$
268

 
$
470

 
$
(131
)
 
$
339

* 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, 2016, 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, 2016 and 2015. 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,
 
2016
 
2015
 
2016
 
2015
Sales
5,890

 
7,721

 
16,310

 
13,452

Purchases
5,743

 
7,508

 
16,253

 
13,413

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, 2016
 
December 31, 2015
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
268

 
$

 
$
339


We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. At June 30, 2016 and December 31, 2015, our margin deposit balances were in a net asset position of $5.1 million and $2.9 million, 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, 2016 and December 31, 2015, we would have had net asset positions of $4.8 million and $2.6 million, respectively.
Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Commodity contracts
$
(7,127
)
 
$
(2,202
)
 
$
(3,773
)
 
$
(2,846
)

Concentrations of risk
During the three months ended June 30, 2016, two third-party customers, primarily of our Supply and Logistics segment, accounted for more than 10% of our consolidated revenues at approximately 51% and 14%. We purchased approximately $17.1 million of product from one third-party supplier, which represented approximately 13% of our costs of products sold.
During the six months ended June 30, 2016, two third-party customers, primarily of our Supply and Logistics segment, accounted for more than 10% of our consolidated revenues at approximately 53% and 11%. We purchased approximately $39.5 million of product from one third-party supplier, which represented approximately 14% of our costs of products sold.
At June 30, 2016, two third-party customers, primarily of our Supply and Logistics segment, accounted for 51% 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,
2016
 
December 31,
2015
5.625% senior unsecured notes due 2022
$
400,000

 
$
400,000

Unamortized debt issuance costs on 2022 notes
(6,442
)
 
(6,975
)
5.625% senior unsecured notes due 2022, net
393,558

 
393,025

 
 
 
 
5.625% senior unsecured notes due 2023
350,000

 
350,000

Unamortized discount on 2023 notes
(5,178
)
 
(5,455
)
Unamortized debt issuance costs on 2023 notes
(4,931
)
 
(5,266
)
5.625% senior unsecured notes due 2023, net
339,891

 
339,279

 
 
 
 
Revolving credit facility
41,000

 

Capital leases
64

 
83

Total long-term debt, net
774,513

 
732,387

Less: current portion of long-term debt
25

 
31

Noncurrent portion of long-term debt, net
$
774,488

 
$
732,356


Senior unsecured notes due 2022
At June 30, 2016, 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 ended June 30, 2016 and 2015, we incurred $5.9 million and $5.9 million, respectively, of interest expense related to these notes, including amortization of debt issuance costs. For the six months ended June 30, 2016 and 2015, we incurred $11.7 million and $11.7 million, respectively, of interest expense related to these notes, including amortization of debt issuance costs.
Senior unsecured notes due 2023
At June 30, 2016, we had $350 million of 5.625% senior unsecured notes due 2023 (the "2023 Notes"), which were issued on May 14, 2015. Rose Rock and Finance Corp. are co-issuers of the 2023 Notes. For the three months ended June 30, 2016 and 2015, we incurred $5.2 million and $2.7 million, respectively, of interest expense related to these notes, including amortization of debt issuance costs and discount. For the six months ended June 30, 2016 and 2015, we incurred $10.4 million and $2.7 million, respectively, 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, 2016, we had $41.0 million of outstanding borrowings on our $585 million revolving credit facility, which incurred interest at the alternate base rate ("ABR") plus an applicable margin. At June 30, 2016, the interest rate in effect on ABR borrowings was 5.25%.
We had $37.7 million in outstanding letters of credit at June 30, 2016, and the rate per annum was 2.75%.
At June 30, 2016, we had $18.9 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 $1.6 million and $2.0 million of interest expense related to this facility during the three months ended June 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs. We incurred $3.1 million and $4.2 million of interest expense related to this facility during the six months ended June 30, 2016 and 2015, respectively, including amortization of debt issuance costs.
Fair value
We estimate the fair value of our 2022 Notes and 2023 Notes to be $352 million and $305 million, respectively, at June 30, 2016, based on unadjusted, transacted market prices near the measurement date, which are categorized as Level 2 measurements. We estimate that the fair value of our revolving long-term debt was not materially different than the reported values at June 30, 2016, and is categorized as a Level 2 measurement. It is our belief that neither the market interest rates nor our credit profile have changed significantly enough to have had a material impact on the fair value of our revolving debt outstanding at June 30, 2016.
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. All five sites were initially investigated in 2011 and 2012. One site was issued a closure letter by the KDHE in 2012.   The remaining four sites are in various stages of follow up investigation, remediation, monitoring, or closure under KDHE oversight.  The environmental work at these sites is being completed under consent orders between Rose Rock Midstream Crude, L.P. and the KDHE. Two of the remaining sites have limited impacts to shallow soil and groundwater and the groundwater is currently being monitored on a semi-annual basis until such time that closure can be granted by the KDHE.  No active remediation is anticipated for these two sites.  The final two sites have required additional investigation and soil and groundwater remediation may be necessary to achieve KDHE closure. Rose Rock 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.
We received a Notice of Probable Violation and Civil Penalty dated March 29, 2016, from the U.S. Department of Transportation (the "Notice") for alleged violations of pipeline operation and maintenance regulations related to a 2014 crude oil release that occurred on our Blackwell to See pipeline segment located in Oklahoma.  This pipeline segment was idled in March 2016 when we initiated service on our new pipeline segment that transports Kansas crude volumes to our Cushing, Oklahoma terminal.  The Notice proposes a penalty of $600,200. We responded to the Notice in April 2016 with information that we believe warrants reduction of the amount of the proposed penalty. 
Dimmit County, TX claims
An employee of Rose Rock Midstream Field Services, LLC was involved in a tractor trailer accident on January 15, 2015 in Dimmit County, Texas.  A second accident followed resulting in six fatalities and multiple injuries.  Multiple lawsuits involving claims of wrongful death and personal injury were filed in Zavala County and Dimmit County, Texas.  These lawsuits have been consolidated in the District Court, 293rd Judicial District, Zavala County, Texas, as cause number 15-01-13356-ZCV, Maribel Rodriguez and the Estate of David Rodriguez, et al., vs. Rose Rock Midstream Field Services, LLC, SemGroup Corporation, Rose Rock Midstream, L.P. and SemManagement LLC, et al.  Confidential settlement agreements have been entered into with all plaintiffs.  There are pending claims with one defendant/cross-plaintiff for which a Motion for Summary Judgment has been filed, however, the hearing date has not been set.  We believe that any liability that may arise from this action will be within the limits covered by our insurance.  We will continue to defend our position, however we cannot predict the outcome.
Other matters
We are party to various other claims, legal actions and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions and complaints, after consideration of amounts accrued, insurance coverage and other arrangements, will not have a material effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain and estimates of our consolidated liabilities may change materially as circumstances develop.
Asset retirement obligations
We may be subject to removal and restoration costs upon retirement of our facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and related facilities would become completely obsolete and require decommissioning. Accordingly, we have not recorded a liability or corresponding asset, as both the amount and timing of such potential future costs are indeterminable.
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, 2016, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
3,528

 
$
167,030

Fixed price sales
4,563

 
$
218,212

Floating price purchases
12,701

 
$
601,820

Floating price sales
15,613

 
$
760,170


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. The agreement became effective in October 2015 and has a term of 5 years. Annual payments to White Cliffs under the agreement are expected to be $9.4 million.
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, 2015 to June 30, 2016 (in thousands):
 
Common
Units -
Public
 
Common
Units -
SemGroup
 
General
Partner
Interest
 
Total Partners' Capital
Balance at December 31, 2015
$
80,829


$
139,470


$
9,906

 
$
230,205

Net income
10,942

 
14,043

 
11,405

 
36,390

Unvested distribution equivalent rights
66

 

 

 
66

Cash distributions to partners
(21,485
)
 
(27,331
)
 
(11,884
)
 
(60,700
)
Non-cash equity compensation
731

 

 

 
731

Balance at June 30, 2016
$
71,083

 
$
126,182

 
$
9,427

 
$
206,692

 
The following table shows the cash distributions paid or declared per common unit during 2016 and 2015:
Quarter Ended
 
Record Date
 
Payment Date
 
Distribution Per Unit
December 31, 2014
 
February 3, 2015
 
February 13, 2015
 
$0.6200
March 31, 2015
 
May 5, 2015
 
May 15, 2015
 
$0.6350
June 30, 2015
 
August 4, 2015
 
August 14, 2015
 
$0.6500
September 30, 2015
 
November 3, 2015
 
November 13, 2015
 
$0.6600
December 31, 2015
 
February 2, 2016
 
February 12, 2016
 
$0.6600
March 31, 2016
 
May 3, 2016
 
May 13, 2016
 
$0.6600
June 30, 2016
 
August 2, 2016
 
August 12, 2016
 
$0.6600

Equity incentive plan
We granted 117,204 restricted unit awards during the six months ended June 30, 2016, with a weighted average grant date fair value of $9.62. At June 30, 2016, there were 176,306 unvested restricted unit awards that have been granted pursuant to our equity incentive plan. During the six months ended June 30, 2016, 39,344 restricted unit awards vested of which 254 were withheld to satisfy tax withholding obligations. The cost associated with the withheld awards is reflected in the condensed consolidated financial statements as a cash distribution to common public unitholders.
The holders of these restricted unit awards are entitled to equivalent distributions (“UUDs”) to be received upon vesting of the restricted unit awards. The UUDs will be settled in cash upon vesting. At June 30, 2016, the value of these UUDs related to unvested restricted units was approximately $315 thousand.
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. Distributions pertaining to the current period are based on 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.
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, 2016 and 2015 (in thousands, except per unit data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income attributable to Rose Rock Midstream, L.P.
$
9,922

 
$
17,068

 
$
36,390

 
$
31,668

Less: General partner's incentive distribution earned
5,339

 
4,981

 
10,677

 
9,431

Less: General partner's 2.0% ownership
198

 
342

 
728

 
634

Net income allocated to limited partners
$
4,385

 
$
11,745

 
$
24,985

 
$
21,603

 
 
 
 
 
 
 
 
Basic weighted average number of common units outstanding
36,838

 
36,790

 
36,823

 
35,803

Effect of non-vested restricted units
77

 
49

 
50

 
46

Diluted weighted average number of common units outstanding
36,915

 
36,839

 
36,873

 
35,849

Net income per limited partner unit:
 
 
 
 
 
 
 
Common unit (basic)
$
0.12

 
$
0.32

 
$
0.68

 
$
0.60

Common unit (diluted)
$
0.12


$
0.32


$
0.68


$
0.60

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 $12.0 million and $11.8 million during the three months ended June 30, 2016 and 2015, respectively, for direct employee costs. SemGroup charged us $23.4 million and $22.1 million during the six months ended June 30, 2016 and 2015, 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 $2.9 million and $3.7 million during the three months ended June 30, 2016 and 2015, respectively, for such allocated costs. SemGroup charged us $6.3 million and $6.3 million during the six months ended June 30, 2016 and 2015, respectively, for such allocated costs. These expenses were recorded to general and administrative expenses in our condensed consolidated statements of income.
Pending merger
See Footnote 1 for discussion of pending merger with SemGroup.
NGL Energy Partners LP
SemGroup holds a general partner ownership interest in NGL Energy Partners LP ("NGL Energy"). We generated revenues from NGL Energy of $8.3 million and $72.1 million for the three months ended June 30, 2016 and 2015, respectively. We made purchases of condensate at market prices from NGL Energy in the amount of $6.4 million and $75.0 million for the three months ended June 30, 2016 and 2015, respectively. We received reimbursements from NGL Energy for support services in the amount of $14.0 thousand for the three months ended June 30, 2015. We received no reimbursements from NGL Energy for support services for the three months ended June 30, 2016.
We generated revenues from NGL Energy of $16.8 million and $114.5 million for the six months ended June 30, 2016 and 2015, respectively. We made purchases of condensate at market prices from NGL Energy in the amount of $13.2 million and $110.2 million for the six months ended June 30, 2016 and 2015, respectively. We received reimbursements from NGL Energy for support services in the amount of $56.0 thousand for the six months ended June 30, 2015. We received no reimbursements from NGL Energy for support services for the six months ended June 30, 2016.
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 $2.5 million and $6.4 million for the three months ended June 30, 2016 and 2015, respectively. Purchases from SemGas were $5.2 million and $12.4 million for the six months ended June 30, 2016 and 2015, respectively.
White Cliffs
We generated storage revenues from our equity investee, White Cliffs, of $1.1 million and $1.1 million for the three months ended June 30, 2016 and 2015, respectively. We generated storage revenues from White Cliffs of $2.2 million and $2.1 million for the six months ended June 30, 2016 and 2015, respectively. We incurred $2.7 million and $1.1 million of costs for the three months months ended June 30, 2016 and 2015, respectively, related to transportation fees for shipments on the White Cliffs. We incurred $5.2 million and $1.8 million of costs for the six months ended June 30, 2016 and 2015, respectively, related to transportation fees for shipments on the White Cliffs. We received $0.1 million and $0.1 million in management fees from White Cliffs for the three months ended June 30, 2016 and 2015, respectively. We received $0.2 million and $0.2 million in management fees from White Cliffs for the six months ended June 30, 2016 and 2015, respectively. During the three and six months ended June 30, 2016, we purchased $3.5 million of crude oil from White Cliffs. There were no product purchases from White Cliffs in the prior year.
Glass Mountain
We incurred $1.4 million and $0.7 million of costs for the three months ended June 30, 2016 and 2015, respectively, related to transportation fees for shipments on Glass Mountain's pipeline. We incurred $3.3 million and $1.2 million of costs for the six months ended June 30, 2016 and 2015, respectively, related to transportation fees for shipments on Glass Mountain's pipeline. We received $0.2 million and $0.2 million in fees from Glass Mountain for the three months ended June 30, 2016 and 2015, respectively, related to support services associated with Glass Mountain's pipeline operations. We received $0.4 million and $0.4 million in fees from Glass Mountain for the six months ended June 30, 2016 and 2015, respectively, related to support services associated with Glass Mountain's pipeline operations. We made purchases of crude oil of $0.4 million and $1.5 million from Glass Mountain during the six months ended June 30, 2016 and 2015, respectively. There were no purchases of crude oil from Glass Mountain during the three months ended June 30, 2016 and 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, our general partner's Vice President and General Counsel. Mr. Berman does not perform any legal services for us. We paid $127.7 thousand and $4.1 thousand in legal fees and related expenses to this law firm during the three months ended June 30, 2016 and 2015, respectively. We paid $186.7 thousand and $4.1 thousand in legal fees and related expenses to this law firm during the six months ended June 30, 2016 and 2015, respectively. Our equity method investee, White Cliffs, paid legal fees and related expenses to this law firm of $0.1 thousand and $0.1 thousand for the three months ended June 30, 2016 and 2015. White Cliffs paid legal fees and related expenses to this law firm of $1.6 thousand and $3.4 thousand during the six months ended June 30, 2016 and 2015, 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.
Other supplemental disclosures
We paid cash interest of $22.4 million and $15.8 million for the six months ended June 30, 2016 and 2015, respectively.
We accrued $0.9 million and $9.1 million for purchases of property, plant and equipment for the six months ended June 30, 2016 and 2015, respectively.
Overview (Policies)
OVERVIEW
Rose Rock Midstream, L.P. is a Delaware limited partnership. The general partner of Rose Rock Midstream, L.P. is Rose Rock Midstream GP, LLC, which is a wholly-owned subsidiary of SemGroup Corporation. SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified midstream services to the energy industry.
The terms "we," "our," "us," "Rose Rock," the "Partnership" and similar language used in these notes to the unaudited condensed consolidated financial statements refer to Rose Rock Midstream, L.P, and its subsidiaries. The term "SemGroup" refers to SemGroup Corporation and its controlled subsidiaries, including Rose Rock Midstream GP, LLC.
Basis of presentation
These condensed consolidated financial statements include the accounts of Rose Rock Midstream, L.P. and its controlled subsidiaries.
The condensed consolidated balance sheet at December 31, 2015, 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 ("U.S. GAAP") 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 U.S. GAAP 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, 2016, are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
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 U.S. GAAP. 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, 2015, which are included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC.
Our significant accounting policies are consistent with those described in Note 2 of our Annual Report on Form 10-K for the year ended December 31, 2015.
Pending merger
On May 30, 2016, Rose Rock entered into an Agreement and Plan of Merger (the "Merger Agreement") with SemGroup whereby SemGroup would acquire the outstanding common limited partner units of Rose Rock not already beneficially owned by SemGroup in exchange for shares of SemGroup Class A common stock. Each common limited partner unit of Rose Rock would be acquired in exchange for 0.8136 shares of SemGroup Class A common stock.
Completion of the merger is conditioned upon, among other things: (i) majority approval of Rose Rock common unitholders; (ii) all material required governmental consents and approvals having been received; (iii) the absence of legal injunctions or impediments prohibiting the transactions contemplated by the Merger Agreement; (iv) the effectiveness of a registration statement on Form S-4 with respect to the issuance of SemGroup stock to be issued in exchange for Rose Rock common limited partner units; (v) approval of the listing on the New York Stock Exchange, subject to official notice of issuance, of the SemGroup Class A common stock to be issued; and (vi) majority approval by SemGroup stockholders of the SemGroup Class A common stock issuance.
A subsidiary of SemGroup which beneficially owns a majority of Rose Rock's common units has agreed to deliver a written consent approving the Merger Agreement and the transactions contemplated by such agreement.
The Merger Agreement provides for certain termination rights for Rose Rock. The Merger Agreement provides that upon termination of the Merger Agreement (i) in connection with the failure of the stockholders of SemGroup to approve the SemGroup stock issuance, SemGroup will pay Rose Rock's out-of-pocket expenses in an amount up to $3.8 million and (ii) in connection with a change by SemGroup of its recommendation in favor of approval of the SemGroup stock issuance under certain circumstances, SemGroup will pay to Rose Rock a termination fee in the amount of $15.5 million. Under no circumstance will SemGroup be required to both reimburse Rose Rock's expenses and pay Rose Rock the termination fee.
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. For public entities, this ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2020. The impact is not expected to be material.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting'', which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which amends the existing lease guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by operating and finance leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. For public entities, this ASU will be effective for annual periods beginning after December 15, 2018, and interim periods within those years. The new guidance shall be applied using a modified retrospective approach and early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements. We will adopt this guidance in the first quarter of 2019.
In July 2015, the FASB issued 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 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. In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting”, which amended the SEC paragraphs of ASC Subtopic 835-30 to include the language from the SEC Staff Announcement indicating that the SEC would not object to presenting deferred debt issuance costs related to line-of-credit agreements as assets and subsequently amortizing the deferred debt issuance costs ratably over the term of the agreement. The standards are effective for U.S. public companies for annual reporting periods beginning after December 15, 2015. The new guidance has been applied on a retrospective basis for all periods presented. We adopted this guidance in the first quarter of 2016. The impact was not material. For presentation purposes, $12.2 million of debt issuance costs which had previously been reported as other noncurrent assets were reclassified as a reduction of long-term debt on the December 31, 2015 balance sheet. Capitalized loan fees related to our revolving credit facility continue to be presented as other noncurrent assets.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers", which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08 which amended the principal-versus-agent implementation guidance set forth in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU 2016-10 which amended certain aspects of the guidance related to identifying performance obligations and licensing implementation within ASU 2014-09. In June 2016, the FASB issued ASU 2016-12 which narrows the scope around certain aspects of the criterion used in determining when to recognize revenue. 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.
The condensed consolidated balance sheet at December 31, 2015, 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 ("U.S. GAAP") 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 U.S. GAAP 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, 2016, are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
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 U.S. GAAP. 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, 2015, which are included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC.
Our significant accounting policies are consistent with those described in Note 2 of our Annual Report on Form 10-K for the year ended December 31, 2015.
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. For public entities, this ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2020. The impact is not expected to be material.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting'', which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which amends the existing lease guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by operating and finance leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. For public entities, this ASU will be effective for annual periods beginning after December 15, 2018, and interim periods within those years. The new guidance shall be applied using a modified retrospective approach and early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements. We will adopt this guidance in the first quarter of 2019.
In July 2015, the FASB issued 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 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. In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting”, which amended the SEC paragraphs of ASC Subtopic 835-30 to include the language from the SEC Staff Announcement indicating that the SEC would not object to presenting deferred debt issuance costs related to line-of-credit agreements as assets and subsequently amortizing the deferred debt issuance costs ratably over the term of the agreement. The standards are effective for U.S. public companies for annual reporting periods beginning after December 15, 2015. The new guidance has been applied on a retrospective basis for all periods presented. We adopted this guidance in the first quarter of 2016. The impact was not material. For presentation purposes, $12.2 million of debt issuance costs which had previously been reported as other noncurrent assets were reclassified as a reduction of long-term debt on the December 31, 2015 balance sheet. Capitalized loan fees related to our revolving credit facility continue to be presented as other noncurrent assets.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers", which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08 which amended the principal-versus-agent implementation guidance set forth in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU 2016-10 which amended certain aspects of the guidance related to identifying performance obligations and licensing implementation within ASU 2014-09. In June 2016, the FASB issued ASU 2016-12 which narrows the scope around certain aspects of the criterion used in determining when to recognize revenue. 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, 2016, 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 consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
White Cliffs Pipeline, L.L.C.
$
290,668

 
$
297,109

Glass Mountain Pipeline, LLC
137,293

 
141,182

Total equity method investments
$
427,961

 
$
438,291

Our earnings from equity method investments consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
White Cliffs Pipeline, L.L.C.
$
16,428

 
$
15,545

 
$
36,208

 
$
34,635

Glass Mountain Pipeline, LLC
650

 
2,138

 
1,709

 
3,912

Total earnings from equity method investments
$
17,078

 
$
17,683

 
$
37,917

 
$
38,547

Cash distributions received from equity method investments consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
White Cliffs Pipeline, L.L.C.
$
21,664

 
$
20,551

 
$
45,762

 
$
44,705

Glass Mountain Pipeline, LLC
3,118

 
5,009

 
5,933

 
6,920

Total cash distributions received from equity method investments
$
24,782

 
$
25,560

 
$
51,695

 
$
51,625

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, 2016 and 2015 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
55,586

 
$
48,509

 
$
113,642

 
$
103,123

Cost of products sold
$
2,803

 
$
169

 
$
3,053

 
$
1,102

Operating, general and administrative expenses
$
10,125

 
$
8,876

 
$
19,727

 
$
16,296

Depreciation and amortization expense
$
10,084

 
$
8,587

 
$
19,047

 
$
17,125

Net income
$
32,575

 
$
30,870

 
$
71,822

 
$
68,593

Certain summarized unaudited income statement information of Glass Mountain for the three months and six months ended June 30, 2016 and 2015 is shown below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
6,898

 
$
9,788

 
$
15,470

 
$
20,909

Cost of sales
$
(120
)
 
$
(40
)
 
$
445

 
$
1,974

Operating, general and administrative expenses
$
1,618

 
$
1,513

 
$
3,463

 
$
2,920

Depreciation and amortization expense
$
3,989

 
$
3,932

 
$
7,925

 
$
7,976

Net income
$
1,407

 
$
4,381

 
$
3,632

 
$
8,036

Segments (Tables)
Schedule of Segment Reporting Information, by Segment [Table Text Block]
 
Three months ended June 30, 2016
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
15,644

 
$
10,299

 
$
143,201

 
$

 
$
169,144

Intersegment
5,127

 
2,527

 

 
(7,654
)
 

Total revenues
$
20,771

 
$
12,826

 
$
143,201

 
$
(7,654
)
 
$
169,144

Depreciation and amortization
$
6,171

 
$
1,921

 
$
40

 
$
103

 
$
8,235

Earnings from equity method investment
$
17,078

 
$

 
$

 
$

 
$
17,078

Segment profit (1)
$
18,421

 
$
9,371

 
$
10,069

 
$
(2,793
)
 
$
35,068


 
Three months ended June 30, 2015
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
22,425

 
$
11,402

 
$
189,476

 
$

 
$
223,303

Intersegment
3,562

 

 

 
(3,562
)
 

Total revenues
$
25,987

 
$
11,402

 
$
189,476

 
$
(3,562
)
 
$
223,303

Depreciation and amortization
$
9,038

 
$
1,406

 
$
40

 
$
124

 
$
10,608

Earnings from equity method investment
$
17,683

 
$

 
$

 
$

 
$
17,683

Segment profit (1)
$
19,984

 
$
7,963

 
$
10,978

 
$
(2,472
)
 
$
36,453



 
Six Months Ended June 30, 2016
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
32,839

 
$
20,433

 
$
319,823

 
$

 
$
373,095

Intersegment
12,341

 
5,272

 

 
(17,613
)
 

Total revenues
$
45,180

 
$
25,705

 
$
319,823

 
$
(17,613
)
 
$
373,095

Depreciation and amortization
$
12,030

 
$
3,805

 
$
80

 
$
213

 
$
16,128

Earnings from equity method investment
$
37,917

 
$

 
$

 
$

 
$
37,917

Segment profit (1)
$
44,013

 
$
18,958

 
$
19,162

 
$
(4,815
)
 
$
77,318

Total assets at June 30, 2016 (excluding intersegment receivables)
$
739,904

 
$
154,359

 
$
430,297

 
$
12,868

 
$
1,337,428

Equity investments at June 30, 2016
$
427,961

 
$

 
$

 
$

 
$
427,961

 
Six Months Ended June 30, 2015
 
Transportation
 
Facilities
 
Supply and Logistics
 
Corporate and Other
 
Consolidated
Revenues:
 
External
$
42,752

 
$
22,807

 
$
292,437

 
$

 
$
357,996

Intersegment
7,283

 

 

 
(7,283
)
 

Total revenues
$
50,035

 
$
22,807

 
$
292,437

 
$
(7,283
)
 
$
357,996

Depreciation and amortization
$
17,656

 
$
2,775

 
$
79

 
$
241

 
$
20,751

Earnings from equity method investment
$
38,547

 
$

 
$

 
$

 
$
38,547

Segment profit (1)
$
44,508

 
$
16,365

 
$
16,159

 
$
(5,299
)
 
$
71,733

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

 
$
155,186

 
$
328,419

 
$
16,373

 
$
1,245,590

Equity investments at December 31, 2015
$
438,291

 
$

 
$

 
$

 
$
438,291

(1) Segment profit represents revenues excluding unrealized gains (losses) related to derivative instruments plus earnings from equity method investments less cost of sales excluding depreciation and amortization and less operating and general and administrative expenses.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
Reconciliation of segment profit to net income:
2016
 
2015
 
2016
 
2015
   Total segment profit
$
35,068

 
$
36,453

 
$
77,318

 
$
71,733

     Less:
 
 
 
 
 
 
 
Net unrealized loss (gain) related to derivative instruments
4,477

 
(1,415
)
 
(71
)
 
1,116

Depreciation and amortization
8,235

 
10,608

 
16,128

 
20,751

Interest expense
12,434

 
10,197

 
24,871

 
18,203

Other income

 
(5
)
 

 
(5
)
   Net income
$
9,922

 
$
17,068

 
$
36,390

 
$
31,668

Financial Instruments (Tables)
The table below summarizes the balances of these assets and liabilities at June 30, 2016 and December 31, 2015 (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Assets
$
1,160

 
$
(1,160
)
 
$

 
$
131

 
$
(131
)
 
$

Liabilities
$
1,428

 
$
(1,160
)
 
$
268

 
$
470

 
$
(131
)
 
$
339

* 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,
 
2016
 
2015
 
2016
 
2015
Sales
5,890

 
7,721

 
16,310

 
13,452

Purchases
5,743

 
7,508

 
16,253

 
13,413

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, 2016
 
December 31, 2015
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
268

 
$

 
$
339

Realized and unrealized gains (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,
 
2016
 
2015
 
2016
 
2015
Commodity contracts
$
(7,127
)
 
$
(2,202
)
 
$
(3,773
)
 
$
(2,846
)
Long Term Debt Long Term Debt (Tables)
Schedule of Long-term Debt Instruments [Table Text Block]
Our long-term debt consisted of the following (in thousands):
 
June 30,
2016
 
December 31,
2015
5.625% senior unsecured notes due 2022
$
400,000

 
$
400,000

Unamortized debt issuance costs on 2022 notes
(6,442
)
 
(6,975
)
5.625% senior unsecured notes due 2022, net
393,558

 
393,025

 
 
 
 
5.625% senior unsecured notes due 2023
350,000

 
350,000

Unamortized discount on 2023 notes
(5,178
)
 
(5,455
)
Unamortized debt issuance costs on 2023 notes
(4,931
)
 
(5,266
)
5.625% senior unsecured notes due 2023, net
339,891

 
339,279

 
 
 
 
Revolving credit facility
41,000

 

Capital leases
64

 
83

Total long-term debt, net
774,513