SEMGROUP CORP, 10-Q filed on 11/7/2016
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2016
Oct. 28, 2016
Common Class A [Member]
Oct. 28, 2016
Class B
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Sep. 30, 2016 
 
 
Document Fiscal Period Focus
Q3 
 
 
Document Fiscal Year Focus
2016 
 
 
Entity Registrant Name
SemGroup Corp 
 
 
Entity Central Index Key
0001489136 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
66,099,343 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 163,748 
$ 58,096 
Restricted cash
32 
Accounts receivable (net of allowance of $2,373 and $3,019, respectively)
335,256 
326,713 
Receivable from affiliates
4,542 
5,914 
Inventories
83,473 
70,239 
Other current assets
25,465 
19,387 
Total current assets
612,484 
480,381 
Property, plant and equipment (net of accumulated depreciation of $377,644 and $319,769, respectively)
1,696,010 
1,566,821 
Equity method investments
438,194 
551,078 
Goodwill
34,475 
48,032 
Other intangible assets (net of accumulated amortization of $36,769 and $29,515, respectively)
153,796 
162,223 
Other noncurrent assets
51,573 
45,374 
Total assets
2,986,532 
2,853,909 
Current liabilities:
 
 
Accounts payable
294,167 
273,666 
Payable to affiliates
5,791 
5,033 
Accrued liabilities
98,347 
85,047 
Other current liabilities
17,462 
13,281 
Total current liabilities
415,767 
377,027 
Long-term debt, net
1,030,140 
1,057,816 
Deferred income taxes
49,361 
200,953 
Other noncurrent liabilities
23,932 
21,757 
Commitments and contingencies (Note 10)
   
   
SemGroup owners’ equity:
 
 
Common stock, $0.01 par value (authorized - 100,000 shares; issued - 67,062 and 44,863 shares, respectively)
659 
439 
Additional paid-in capital
1,588,978 
1,217,255 
Treasury stock, at cost (979 and 931 shares, respectively)
(6,538)
(5,593)
Accumulated deficit
(52,636)
(38,012)
Accumulated other comprehensive loss
(63,131)
(58,562)
Total SemGroup Corporation owners’ equity
1,467,332 
1,115,527 
Noncontrolling interests in consolidated subsidiaries
80,829 
Total owners’ equity
1,467,332 
1,196,356 
Total liabilities and owners’ equity
$ 2,986,532 
$ 2,853,909 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Allowance for doubtful accounts
$ 2,373 
$ 3,019 
Accumulated depreciation
377,644 
319,769 
Accumulated amortization
36,769 
29,515 
Accounts Payable
294,167 
273,666 
Due to Related Parties
5,791 
5,033 
Accrued Liabilities
98,347 
85,047 
Other Liabilities, Current
$ 17,462 
$ 13,281 
Common stock, $0.01 par value
$ 0.01 
$ 0.01 
Common stock shares authorized
100,000 
100,000 
Common stock shares issued
67,062 
44,863 
Treasury stock shares
979 
931 
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Revenues:
 
 
 
 
Product
$ 245,920 
$ 313,351 
$ 692,942 
$ 822,218 
Service
66,074 
64,091 
192,347 
192,572 
Other
15,770 
19,623 
44,703 
57,811 
Total revenues
327,764 
397,065 
929,992 
1,072,601 
Expenses:
 
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
218,503 
274,639 
592,292 
710,869 
Operating
52,636 
53,267 
157,537 
167,157 
General and administrative
20,583 
23,045 
62,419 
78,272 
Depreciation and amortization
24,912 
26,022 
74,007 
74,430 
Loss (gain) on disposal or impairment, net
1,018 
(951)
16,010 
1,479 
Total expenses
317,652 
376,022 
902,265 
1,032,207 
Earnings from equity method investments
15,845 
16,237 
55,994 
60,699 
Gain (loss) on issuance of common units by equity method investee
136 
(41)
6,033 
Operating income
25,957 
37,416 
83,680 
107,126 
Other expenses (income), net:
 
 
 
 
Interest expense
21,032 
19,170 
58,842 
50,583 
Foreign currency transaction loss (gain)
659 
(385)
3,671 
(1,199)
Loss (gain) on sale or impairment of equity method investment
30,644 
(14,517)
Other income, net
(492)
(956)
(1,170)
(1,142)
Total other expenses, net
21,199 
17,829 
91,987 
33,725 
Income (loss) from continuing operations before income taxes
4,758 
19,587 
(8,307)
73,401 
Income tax expense (benefit)
11,898 
10,006 
(4,851)
29,609 
Income (loss) from continuing operations
(7,140)
9,581 
(3,456)
43,792 
Loss from discontinued operations, net of income taxes
(1)
(1)
(3)
Net income (loss)
(7,140)
9,580 
(3,457)
43,789 
Less: net income attributable to noncontrolling interests
225 
4,707 
11,167 
14,153 
Net income (loss) attributable to SemGroup
(7,365)
4,873 
(14,624)
29,636 
Other comprehensive loss, net of income taxes
(7,051)
(20,210)
(4,569)
(23,750)
Comprehensive income (loss)
(14,191)
(10,630)
(8,026)
20,039 
Less: comprehensive income attributable to noncontrolling interests
225 
4,707 
11,167 
14,153 
Comprehensive income (loss) attributable to SemGroup
$ (14,416)
$ (15,337)
$ (19,193)
$ 5,886 
Net income (loss) attributable to SemGroup per common share (Note 12):
 
 
 
 
Basic
$ (0.14)
$ 0.11 
$ (0.31)
$ 0.68 
Diluted
$ (0.14)
$ 0.11 
$ (0.31)
$ 0.67 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Cash flows from operating activities:
 
 
Net income (loss)
$ (3,457)
$ 43,789 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Net unrealized loss (gain) related to derivative instruments
6,096 
(3,316)
Depreciation and amortization
74,007 
74,430 
Loss on disposal or impairment, net
16,010 
1,479 
Earnings from equity method investments
(55,994)
(60,699)
Loss (gain) on issuance of common units by equity method investee
41 
(6,033)
Loss (gain) on sale or impairment of equity method investment
30,644 
(14,517)
Distributions from equity investments
58,674 
69,898 
Amortization and write-off of debt issuance costs
6,189 
3,707 
Deferred tax expense (benefit)
(7,810)
23,469 
Non-cash equity compensation
7,046 
7,760 
Provision for uncollectible accounts receivable, net of recoveries
(551)
(608)
Currency loss (gain)
3,671 
(1,199)
Inventory valuation adjustment
1,235 
Changes in operating assets and liabilities (Note 13)
801 
(2,346)
Net cash provided by operating activities
135,367 
137,049 
Cash flows from investing activities:
 
 
Capital expenditures
(199,039)
(352,816)
Proceeds from sale of long-lived assets
98 
2,537 
Contributions to equity method investments
(3,756)
(34,059)
Proceeds from sale of common units of equity method investee
60,483 
56,318 
Distributions in excess of equity in earnings of affiliates
22,792 
19,564 
Net cash used in investing activities
(119,422)
(308,456)
Cash flows from financing activities:
 
 
Debt issuance costs
(7,459)
(6,289)
Borrowings on credit facilities and issuance of senior secured notes, net of discount
362,500 
802,208 
Principal payments on credit facilities and other obligations
(393,994)
(525,037)
Proceeds from Issuance of Common Stock
223,739 
Rose Rock Midstream, L.P. equity issuance
89,119 
Distributions to noncontrolling interests
(32,133)
(29,780)
Repurchase of common stock for payment of statutory taxes due on equity-based compensation
(945)
(4,259)
Dividends paid
(63,338)
(49,836)
Proceeds from issuance of common stock under employee stock purchase plan
774 
909 
Net cash provided by financing activities
89,144 
277,035 
Effect of exchange rate changes on cash and cash equivalents
563 
(233)
Change in cash and cash equivalents
105,652 
105,395 
Cash and cash equivalents at beginning of period
58,096 
40,598 
Cash and cash equivalents at end of period
$ 163,748 
$ 145,993 
Overview
OVERVIEW
OVERVIEW
SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma. The terms "we," "our," "us," "SemGroup," "the Company" and similar language used in these notes to the unaudited condensed consolidated financial statements refer to SemGroup Corporation and its subsidiaries.
Basis of presentation
The accompanying 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 and the rules and regulations of the Securities and Exchange Commission ("SEC"). These financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company and the results of its operations and its cash flows.
Our condensed consolidated financial statements include the accounts of our controlled subsidiaries. All significant transactions between our consolidated subsidiaries have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("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 nine months ended September 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 accounting principles generally accepted in the United States. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 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 our Annual Report on Form 10-K for the year ended December 31, 2015.
Recent accounting pronouncements
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)", to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update addresses eight different transaction types and clarifies how to classify each in the statement of cash flows, where previously there was unclear or no specific guidance. For public entities, this ASU is effective for annual periods beginning after December 15, 2017, 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 2018. The impact is not expected to be material.
In June 2016, the FASB issued 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. We 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 will 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 November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes", which requires all deferred tax assets and liabilities to be classified as noncurrent in the statement of financial position. For public entities, this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years. The new guidance may be applied prospectively or retrospectively and early adoption is permitted. We have not determined which method we will apply when we adopt the standard. We will adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
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.
In April 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, $16.8 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 continues to be presented as other noncurrent assets.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which adds requirements that limited partnerships must meet to qualify as voting interest entities and modifies the evaluation of whether limited partnerships are variable interest entities or voting interest entities. It also eliminates the presumption that a general partner should consolidate a limited partnership. This guidance is effective for public companies for fiscal years beginning after December 15, 2015. We adopted this guidance in the first quarter of 2016. The impact was not material.
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.
Rose Rock Midstream, L.P.
ROSE ROCK MIDSTREAM, L.P.
ROSE ROCK MIDSTREAM, L.P.
On September 30, 2016, we completed the acquisition of the outstanding common limited partner interest of Rose Rock Midstream, L.P. ("Rose Rock") which we did not already own (the "Merger"). We issued 13.1 million common shares as consideration and recorded a reduction to equity for $5.3 million of fees associated with the issuance. We accounted for the Merger in accordance with FASB Accounting Standards Codification 810, Consolidation — Overall — Changes in a Parent’s Ownership Interest in a Subsidiary. As SemGroup controlled Rose Rock both before and after the Merger, the changes in SemGroup’s ownership interest in Rose Rock were accounted for as an equity transaction and no gain or loss was recognized in SemGroup’s consolidated statements of operations and comprehensive income (loss) as a result of the Merger. Subsequent to the Merger, Rose Rock was a wholly owned subsidiary of SemGroup.
Substantially all of Rose Rock's assets were pledged as collateral under its senior secured revolving credit facility agreement which was terminated following the Merger. Substantially all of Rose Rock's assets are now pledged as collateral under SemGroup's senior secured revolving credit facility. Rose Rock's senior unsecured notes were assumed by SemGroup. See Note 9 for additional information related to changes in long-term debt and Note 15 for changes related to the Guarantor financial information.
Equity Method Investments
EQUITY METHOD INVESTMENTS
EQUITY METHOD INVESTMENTS

Our equity method investments consisted of the following (in thousands):
 
September 30, 2016
 
December 31, 2015
White Cliffs Pipeline, L.L.C.
$
283,798

 
$
297,109

NGL Energy Partners LP
18,939

 
112,787

Glass Mountain Pipeline, LLC
135,457

 
141,182

Total equity method investments
$
438,194

 
$
551,078


    
Our earnings from equity method investments consisted of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
White Cliffs Pipeline, L.L.C.
$
15,555

 
$
16,047

 
$
51,763

 
$
50,682

NGL Energy Partners LP(1)
(38
)
 
(878
)
 
2,194

 
5,037

Glass Mountain Pipeline, LLC
328

 
1,068

 
2,037

 
4,980

Total earnings from equity method investments
$
15,845

 
$
16,237

 
$
55,994

 
$
60,699


(1) Excluding loss on issuance of common units of $41.0 thousand for the nine months ended September 30, 2016 and a gain on the issuance of common units of $0.1 million and $6.0 million for the three and nine months ended September 30, 2015, respectively. Additionally, gains and losses on the disposal or impairment of equity investments are not reported within "earnings from equity method investments" in the condensed consolidated statements of operations and comprehensive income (loss).
Cash distributions received from equity method investments consisted of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
White Cliffs Pipeline, L.L.C.
$
22,733

 
$
20,631

 
$
68,495

 
$
65,336

NGL Energy Partners LP

 
4,752

 
4,873

 
14,235

Glass Mountain Pipeline, LLC
2,164

 
2,971

 
8,096

 
9,891

Total cash distributions received from equity method investments
$
24,897

 
$
28,354

 
$
81,464

 
$
89,462


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 nine months ended September 30, 2016 and 2015 is shown below (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
48,331

 
$
49,027

 
$
161,973

 
$
152,150

Cost of products sold
$
(368
)
 
$
803

 
$
2,685

 
$
1,906

Operating, general and administrative expenses
$
7,529

 
$
7,642

 
$
27,256

 
$
23,938

Depreciation and amortization expense
$
10,367

 
$
8,746

 
$
29,414

 
$
25,871

Net income
$
30,801

 
$
31,835

 
$
102,623

 
$
100,428


The equity in earnings of White Cliffs for the three months and nine months ended September 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 we incur 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 $0.3 million and $0.4 million of such general and administrative expense for the three months ended September 30, 2016 and 2015, respectively. White Cliffs recorded $1.2 million and $1.1 million of such general and administrative expense for the nine months ended September 30, 2016 and 2015, respectively.
The members of White Cliffs are required to contribute capital to White Cliffs to fund various projects. For the nine months ended September 30, 2016, we contributed $2.2 million to complete an expansion project that added approximately 65,000 barrels per day of capacity.
NGL Energy Partners LP
At September 30, 2016, we no longer own common units representing limited partner interests in NGL Energy Partners LP (NYSE: NGL) ("NGL Energy"). On April 27, 2016, we sold all of our NGL Energy limited partner units for $13.00 per unit and recorded a $9.1 million gain on disposal. We continue to hold an 11.78% interest in the general partner of NGL Energy which is being accounted for under the equity method in accordance ASC 323-30-S99-1, as our ownership is in excess of the 3 to 5 percent interest which is generally considered to be more than minor.
The general partner of NGL Energy is not a publicly traded company. The information below pertains to our general partner interest, and previously held limited partner interest, in NGL Energy.
See Note 4 for discussion of the other-than-temporary impairment of our common unit investment in NGL Energy.
Under the equity method, our policy is to record our equity in earnings of NGL Energy on a one-quarter lag, as we do not expect to have information on the earnings of NGL Energy in time to consistently record the earnings in the quarter in which they are generated.
During the nine months ended June 30, 2016, NGL issued common units which diluted our limited partnership interest. As we record activity on a one-quarter lag, we recognized a non-cash loss of $41.0 thousand associated with these issuances for the nine months ended September 30, 2016. During 2015, NGL announced several transactions in which it issued common units publicly and privately which diluted our limited partnership interest. As such, we recognized non-cash gains of $6.0 million associated with these issuances for the nine months ended September 30, 2015.
During the nine months ended September 30, 2015, we sold 1,999,533 of our NGL Energy common units for $56.3 million, net of related costs of $0.5 million. We recorded net gains related to these sales of $14.5 million in "other expense (income)" in our condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2015.
Glass Mountain Pipeline, LLC
We own a 50% interest in Glass Mountain Pipeline, LLC ("Glass Mountain"), which we account for under the equity method. 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 September 30, 2016. Capitalized interest is amortized as a reduction of earnings from equity method investments.
Certain unaudited summarized income statement information of Glass Mountain for the three months and nine months ended September 30, 2016 and 2015 is shown below (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
6,793

 
$
8,348

 
$
22,263

 
$
29,257

Cost of sales
$
(145
)
 
$
253

 
$
300

 
$
2,235

Operating, general and administrative expenses
$
2,184

 
$
1,950

 
$
5,647

 
$
4,861

Depreciation and amortization expense
$
3,992

 
$
3,903

 
$
11,917

 
$
11,879

Net income
$
761

 
$
2,242

 
$
4,393

 
$
10,278


The equity in earnings of Glass Mountain for the three months and nine months ended September 30, 2016 and 2015, reported in our condensed consolidated statements of operations and comprehensive income (loss) 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 nine months ended September 30, 2016, we contributed $0.3 million to Glass Mountain related to capital projects.
Impairments
Asset Impairment Charges [Text Block]
IMPAIRMENTS
SemGas goodwill impairment
In March 2016, our SemGas segment revised the volume forecast for its northern Oklahoma system based on revised volume forecasts provided by certain producers who have chosen to adjust plans for production following release of the Oklahoma Corporation Commission’s Regional Earthquake Response Plan that curtails the amount of volume that can be injected into disposal wells.  
Based on the reduction to our forecast, we tested our SemGas segment's long-lived assets, finite-lived intangible assets and goodwill for impairment at March 31, 2016. No impairment was indicated for SemGas' long-lived assets and finite-lived intangible assets based on an undiscounted cash flow analysis. However, we did record an impairment of SemGas' goodwill for the entire balance of $13.1 million.
To test the goodwill for impairment, we used an income approach, supplemented by a market approach to calculate the fair value of the reporting unit. Under the income approach, we utilized a discounted cash flow model to determine the fair value of our SemGas operations. Significant judgments and assumptions included the discount rate, anticipated revenue and volume growth rates, estimated operating expenses and capital expenditures, which were based on our operating and capital budgets as well as our strategic plans. A significant underlying assumption is that commodity prices will eventually improve, water disposal issues will be resolved and production volumes will begin to increase. If production does not increase in the future or the production takes longer than anticipated to return, this would negatively affect our key assumptions and potentially lead to finite-lived intangible and long-lived asset impairments in the future. We considered the market approach by comparing the revenue and earnings multiples implied by our income approach to those of comparable companies for reasonableness.
Other-than-temporary impairment of equity method investment in NGL Energy
During the fourth quarter of 2015, the market price of NGL Energy common units fell below our carrying value per unit and remained below our carrying value as of March 31, 2016. At December 31, 2015, in accordance with ASC 320-10-S99 “Investments - Debt and Equity Securities”, we assessed whether such decline in value was other-than-temporary. During this initial assessment, the decrease in value was determined not to be other-than-temporary. The evidence management considered in such assessment included the nature and volatility of such decline, as well as the latest public financial guidance, condition, and results of NGL Energy. Subsequently, we continued to monitor events and developments and, based on NGL Energy's April 21, 2016, announcement of a reduction in its quarterly distribution and lowering of financial performance guidance, we concluded that the decline in the value of our investment is other-than-temporary as of March 31, 2016. As such, we recorded an impairment of $39.8 million to our investment in the limited partner units of NGL Energy for the nine months ended September 30, 2016. The value of our limited partner investment in NGL Energy was written-down to the market price of $11.04 on December 31, 2015, the date through which we have recorded our equity in earnings as discussed in Note 3. See Note 3 for discussion of the sale of our NGL Energy limited partner units on April 27, 2016.
Our investment in the general partner of NGL Energy is not considered to be impaired. There is no readily available market price for our general partner investment as these units are not publicly traded. Based on the relatively low book value of our general partner investment, the value of incentive distribution rights and comparable general partner transactions, we do not believe our investment in the general partner of NGL Energy is impaired.
Crude Transportation assets
In the fourth quarter of 2016, we began an evaluation of strategic alternatives related to certain assets in our Crude Transportation segment.  The outcome of such review may result in a material non-cash impairment.
Segments
SEGMENTS
SEGMENTS
Our businesses are organized based on the nature and location of the services they provide. Certain summarized information related to our reportable segments is shown in the tables below. None of the operating segments have been aggregated. 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 Company. 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 Company. 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 equity investment in NGL Energy was previously included within the SemStream segment. However, in the second quarter of 2016, we disposed of our limited partner interest in NGL Energy. Subsequent to this disposal, amounts related to our remaining general partner investment in NGL Energy are not material and are not expected to be material for the foreseeable future. As our investment in NGL Energy is the only asset of SemStream, we have ceased to report SemStream as a segment. Prior period amounts have been recast to include the former SemStream balances as part of Corporate and Other. See Note 3 for additional information.
During the year ended December 31, 2015, management made the decision to disaggregate certain activities and functions within the domestic crude oil business to provide additional granularity, both internally and externally, to our operating results. As such, the prior period results of the former Crude segment have been recast to reflect the resulting reportable segments: Crude Transportation, Crude Facilities and Crude Supply and Logistics. Certain amounts formerly included in the Crude segment have been included in Corporate and Other in the current presentation. No other segments were impacted. Additionally, current year activity includes intersegment revenues generated by our Crude Transportation and Crude Facilities segments for services provided to our Crude Supply and Logistics segment. With the exception of intersegment trucking revenues of our Crude Transportation segment, these intersegment charges did not exist in the prior year.
Our results by segment are presented in the tables below (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
   Crude Transportation
 
 
 
 
 
 
 
External
$
15,947

 
$
20,331

 
$
48,786

 
$
63,083

Intersegment
6,993

 
3,037

 
19,334

 
10,320

   Crude Facilities
 
 
 
 
 
 
 
External
9,939

 
11,642

 
30,372

 
34,449

Intersegment
2,801

 

 
8,073

 

   Crude Supply and Logistics
 
 
 
 
 
 
 
External
165,523

 
209,113

 
485,346

 
501,550

   SemGas
 
 
 
 
 
 
 
External
57,824

 
60,908

 
149,544

 
181,454

Intersegment
2,266

 
4,162

 
7,533

 
16,594

   SemCAMS
 
 
 
 
 
 
 
External
36,111

 
33,152

 
100,792

 
98,791

   SemLogistics
 
 
 
 
 
 
 
External
5,668

 
5,659

 
17,980

 
17,090

   SemMexico
 
 
 
 
 
 
 
External
36,752

 
56,260

 
97,172

 
169,209

   Corporate and Other
 
 
 
 
 
 
 
External

 

 

 
6,975

Intersegment
(12,060
)
 
(7,199
)

(34,940
)

(26,914
)
Total Revenues
$
327,764


$
397,065


$
929,992


$
1,072,601

 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Earnings (loss) from equity method investments:
 
 
 
 
 
 
 
   Crude Transportation
$
15,883

 
$
17,115

 
$
53,800

 
$
55,662

   Corporate and Other(1)
(38
)
 
(742
)
 
2,153

 
11,070

Total earnings from equity method investments
$
15,845

 
$
16,373


$
55,953


$
66,732

(1) Includes historical earnings from equity method investments including gain (loss) on issuance of common units by equity method investee related to our investment in NGL Energy. Gains and losses on the disposal or impairment of equity investments are not reported within "earnings from equity method investments" in the condensed consolidated statements of operations and comprehensive income (loss). See Note 3 for additional information.
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Depreciation and amortization:
 
 
 
 
 
 
 
   Crude Transportation
$
6,307

 
$
9,022

 
$
18,337

 
$
26,678

   Crude Facilities
1,987

 
1,451

 
5,792

 
4,226

   Crude Supply and Logistics
46

 
40

 
126

 
119

   SemGas
9,066

 
8,601

 
27,182

 
23,098

   SemCAMS
4,239

 
3,198

 
12,484

 
9,451

   SemLogistics
1,880

 
2,173

 
5,823

 
6,367

   SemMexico
932

 
993

 
2,822

 
3,083

   Corporate and Other
455

 
544

 
1,441

 
1,408

Total depreciation and amortization
$
24,912


$
26,022


$
74,007


$
74,430

 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Income tax expense (benefit):
 
 
 
 
 
 
 
SemCAMS
$
1,573

 
$
2,361

 
$
2,989

 
$
3,528

SemLogistics
(601
)
 
(170
)
 
(815
)
 
(372
)
SemMexico
349

 
642

 
1,150

 
2,396

Corporate and Other
10,577

 
7,173

 
(8,175
)
 
24,057

Total income tax expense (benefit)
$
11,898


$
10,006


$
(4,851
)

$
29,609

 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Segment profit (1):
 
 
 
 
 
 
 
   Crude Transportation
$
19,511

 
$
21,409

 
$
63,090

 
$
65,916

   Crude Facilities
9,679

 
9,084

 
28,637

 
25,449

   Crude Supply and Logistics
3,151

 
5,829

 
22,313

 
21,988

   SemGas
16,196

 
16,859

 
27,508

 
49,410

   SemCAMS
13,067

 
9,380

 
31,971

 
25,246

   SemLogistics
3,312

 
1,947

 
7,973

 
4,800

   SemMexico
2,517

 
4,251

 
6,859

 
14,430

   Corporate and Other(2)
(10,397
)
 
(9,867
)
 
(24,568
)
 
(28,999
)
Total segment profit
$
57,036


$
58,892


$
163,783


$
178,240

(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.
(2) Corporate and Other includes amounts previously included in the SemStream segment which ceased to be a reportable segment in the second quarter of 2016 concurrent with the disposal of our limited partner interest in NGL Energy.
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Reconciliation of segment profit to net income:
 
 
 
 
 
 
 
   Total segment profit
$
57,036


$
58,892


$
163,783


$
178,240

     Less:
 
 
 
 
 
 
 
Net unrealized loss (gain) related to derivative instruments
6,167

 
(4,546
)
 
6,096

 
(3,316
)
Depreciation and amortization
24,912


26,022


74,007


74,430

Interest expense
21,032

 
19,170

 
58,842

 
50,583

Foreign currency transaction loss (gain)
659

 
(385
)
 
3,671

 
(1,199
)
Loss (gain) on sale or impairment of equity method investment

 

 
30,644

 
(14,517
)
Other income, net
(492
)
 
(956
)
 
(1,170
)
 
(1,142
)
Income tax expense
11,898

 
10,006

 
(4,851
)
 
29,609

Loss from discontinued operations, net of taxes

 
1

 
1

 
3

   Net income
$
(7,140
)

$
9,580


$
(3,457
)

$
43,789

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
2016
 
December 31,
2015
Total assets (excluding intersegment receivables):
 
 
 
 
 
 
 
   Crude Transportation
 
 
 
 
$
978,271

 
$
877,017

   Crude Facilities
 
 
 
 
152,592

 
155,186

   Crude Supply and Logistics
 
 
 
 
375,992

 
328,419

   SemGas
 
 
 
 
688,496

 
719,789

   SemCAMS
 
 
 
 
375,424

 
331,749

   SemLogistics
 
 
 
 
139,831

 
155,794

   SemMexico
 
 
 
 
83,950

 
89,608

   Corporate and Other(1)
 
 
 
 
191,976

 
196,347

Total
 
 
 
 
$
2,986,532


$
2,853,909

(1) Corporate and Other includes amounts previously included in the SemStream segment which ceased to be a reportable segment in the second quarter of 2016 concurrent with the disposal of our limited partner interest in NGL Energy.
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
2016
 
December 31,
2015
Equity investments:
 
 
 
 
 
 
 
   Crude Transportation
 
 
 
 
$
419,255

 
$
438,291

   Corporate and Other(1)
 
 
 
 
18,939

 
112,787

Total equity investments
 
 
 
 
$
438,194


$
551,078

(1) Corporate and Other includes amounts previously included in the SemStream segment which ceased to be a reportable segment in the second quarter of 2016 concurrent with the disposal of our limited partner interest in NGL Energy.
Inventories
Inventories
INVENTORIES
Inventories consist of the following (in thousands):
 
September 30,
2016
 
December 31,
2015
Crude oil
$
76,564

 
$
59,121

Asphalt and other
6,909

 
11,118

Total inventories
$
83,473

 
$
70,239



At September 30, 2015, our Crude Supply and Logistics segment recorded non-cash charges of $1.2 million to write-down crude oil inventory to the lower of cost or market. A lower of cost or market adjustment was not necessary at September 30, 2016.
Financial Instruments
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
Fair value of financial instruments
We record certain financial assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of commodity derivative assets and liabilities at September 30, 2016 and December 31, 2015 (in thousands):

 
September 30, 2016
 
December 31, 2015
Derivatives subject to netting arrangements:
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Commodity derivatives:
 
 
 
 

 
 
 
 
 

Assets
$
2,991

 
$
(2,991
)
 
$

 
$
131

 
$
(131
)
 
$

Liabilities
$
9,426

 
$
(2,991
)
 
$
6,435

 
$
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 over the counter ("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. These include commodity derivatives, such as forwards and swaps for which there is not a highly liquid market and therefore are not included in Level 2 above.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value levels. At September 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 nine months ended September 30, 2016 and 2015. As such, no rollforward of Level 3 activity has been presented.
Commodity derivative contracts
Our consolidated 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 petroleum products to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the petroleum products purchased and delivered or (ii) derivative contracts. Our storage and transportation assets can also 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 swaps, futures contracts and forward contracts of crude oil, natural gas and natural gas liquids. These are defined as follows:
Swaps – OTC transactions where a floating price, basis or index is exchanged for a fixed (or a different floating) price, basis or index at a preset schedule in the future, according to an agreed-upon formula.
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.
Forward contracts – 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.
The following table sets forth the notional quantities for commodity derivative instruments entered into (in thousands of barrels):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Sales
7,508

 
5,735

 
23,818

 
19,187

Purchases
7,448

 
5,775

 
23,701

 
19,188


We have not designated any of our commodity derivative instruments as accounting hedges. We have recorded the fair value of our commodity derivative instruments on our condensed consolidated balance sheets in other current assets and other current liabilities in the following amounts (in thousands):
 
September 30, 2016
 
December 31, 2015
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
6,435

 
$

 
$
339


We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. At September 30, 2016 and December 31, 2015, our margin deposit balances were in a net asset position of $8.9 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 deposits been netted against our net commodity derivative instrument (contract) positions as of September 30, 2016 and December 31, 2015, we would have had net asset positions of $2.5 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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Commodity contracts
$
2,777

 
$
6,036

 
$
(996
)
 
$
3,768


Concentrations of risk
During the three months ended September 30, 2016, one third-party customer of our Crude Supply and Logistics segment accounted for more than 10% of our consolidated revenues at approximately 20%. No suppliers accounted for more than 10% of our costs of products sold.
During the nine months ended September 30, 2016, one third-party customer of our Crude Supply and Logistics segment accounted for more than 10% of our consolidated revenues at approximately 29%. No suppliers accounted for more than 10% of our costs of products sold.
At September 30, 2016, one third-party customer, primarily of our Crude Supply and Logistics segment, accounted for approximately 21% of our consolidated accounts receivable.
Income Taxes
INCOME TAXES
INCOME TAXES
The effective tax rate was 250% and 51% for the three months ended September 30, 2016 and 2015, respectively, and 58% and 40% for the nine months ended September 30, 2016 and 2015, respectively. Significant items that impacted the effective tax rate for each period, as compared to the U.S. federal statutory rate of 35%, include earnings in foreign jurisdictions taxed at lower rates and a non-controlling interest in Rose Rock for which taxes are not provided. Further, the foreign earnings are taxed in foreign jurisdictions as well as in the U.S., since they are disregarded entities for U.S. federal income tax purposes. These combined factors, and the magnitude of the permanent items impacting the tax rate relative to income from continuing operations before income taxes result in rates that are not comparable between the periods.
We have a valuation allowance on a small portion of our state net operating loss carryovers with shorter carryover periods and our foreign tax credit carryover. We have not released the valuation allowance on the foreign tax credits due to the foreign tax credit limitation and the relative subjectivity of forecasts of the relational magnitude of U.S. and foreign taxable income in future periods, as well as the shorter carryover period available for the credits. Deferred tax assets are reduced by a valuation allowance when a determination is made that it is more likely than not that some, or all, of the deferred tax assets will not be realized based on the weight of all available evidence. Evidence which is objectively verifiable carries a higher weight in the analysis. The ultimate realization of deferred tax assets is dependent upon the existence of sufficient taxable income of the appropriate character within the carryback and carryforward period available under the tax law. Sources of taxable income include future reversals of existing taxable temporary differences, future earnings and available tax planning strategies.
We have analyzed filing positions in all of the federal, state and foreign jurisdictions where we are required to file income tax returns and determined that no accruals related to uncertainty in tax positions are required. All income tax years of the Company ending after the emergence from bankruptcy remain open for examination in U.S. jurisdictions under general operation of the statute of limitations, including special provisions with regard to net operating loss carryovers. In foreign jurisdictions, all tax periods prior to the emergence from bankruptcy are closed. The statute of limitations has not been waived with respect to any foreign jurisdictions post emergence and tax periods are open for examination in accordance with the general statutes of each foreign jurisdiction. Currently, there are no examinations in progress for our federal and state jurisdictions. Canada Revenue Agency has initiated an income tax audit of SemCAMS ULC for the tax years 2013 and 2014. No other foreign jurisdictions are currently under audit.
Long-Term Debt
Long-Term Debt
LONG-TERM DEBT
Our long-term debt consisted of the following (in thousands):
 
September 30,
2016
 
December 31,
2015
7.50% senior unsecured notes due 2021
$
300,000

 
$
300,000

Unamortized debt issuance costs on 2021 notes
(3,917
)
 
(4,540
)
7.50% senior unsecured notes due 2021, net
296,083

 
295,460




 


5.625% senior unsecured notes due 2022
400,000

 
400,000

Unamortized debt issuance costs on 2022 notes
(6,175
)
 
(6,975
)
5.625% senior unsecured notes due 2022, net
393,825

 
393,025

 
 
 
 
5.625% senior unsecured notes due 2023
350,000

 
350,000

Unamortized discount on 2023 notes
(5,036
)
 
(5,455
)
Unamortized debt issuance costs on 2023 notes
(4,764
)
 
(5,266
)
5.625% senior unsecured notes due 2023, net
340,200

 
339,279

 
 
 
 
SemGroup corporate revolving credit facility

 
30,000

SemMexico revolving credit facility

 

Capital leases
57

 
83

Total long-term debt, net
1,030,165

 
1,057,847

Less: current portion of long-term debt
25

 
31

Noncurrent portion of long-term debt, net
$
1,030,140

 
$
1,057,816


Senior unsecured notes due 2021
For the three months ended September 30, 2016 and 2015, we incurred $5.8 million and $5.8 million, respectively, of interest expense related to $300 million of 7.50% senior unsecured notes due 2021 (the "2021 Notes") including amortization of debt issuance costs. For the nine months ended September 30, 2016 and 2015, we incurred $17.5 million and $17.5 million, respectively, of interest expense related to the 2021 Notes including amortization of debt issuance costs.
Senior unsecured notes due 2022
At September 30, 2016, we had outstanding $400 million of 5.625% senior unsecured notes due 2022 (the "2022 Notes"). For the three months ended September 30, 2016 and 2015, we incurred $5.9 million and $5.9 million, respectively, of interest expense related to the 2022 Notes including amortization of debt issuance costs. For the nine months ended September 30, 2016 and 2015, we incurred $17.7 million and $17.6 million, respectively, of interest expense related to the 2022 Notes including amortization of debt issuance costs.
Senior unsecured notes due 2023
At September 30, 2016, we had outstanding $350 million of 5.625% senior unsecured notes due 2023 (the “2023 Notes”), which were issued on May 14, 2015. For the three months ended September 30, 2016 and 2015, we incurred $5.2 million and $5.2 million, respectively, of interest expense related to the 2023 Notes including amortization of debt issuance costs and discount. For the nine months ended September 30, 2016 and 2015, we incurred $15.6 million and $7.9 million, respectively, of interest expense related to the 2023 Notes including amortization of debt issuance costs and discount.
Corporate revolving credit facility
On September 30, 2016, we amended and restated our corporate revolving credit facility, such that the borrowing capacity was increased to $1.0 billion and the maturity was extended to March 15, 2021. We capitalized $7.5 million of costs related to the credit facility in "other assets" in our condensed consolidated balance sheet. We may request an increase of borrowing capacity under the agreement up to $300 million.
The credit agreement includes the following financial performance covenants:
SemGroup’s leverage ratio may not exceed 5.50 to 1.00 as of the last day of any fiscal quarter;
SemGroup’s senior secured leverage ratio may not exceed 3.50 to 1.00 as of the last day of any fiscal quarter; and
SemGroup’s interest coverage ratio may not be less than 2.50 to 1.00 as of the last day of any fiscal quarter.
The corporate revolving credit facility is guaranteed by all of SemGroup’s material domestic subsidiaries and secured by a lien on substantially all of the property and assets of SemGroup and the other loan parties, subject to customary exceptions.
At September 30, 2016, we had no outstanding cash borrowings on our $1.0 billion revolving credit facility.
At September 30, 2016, we had outstanding letters of credit under the facility of $37.5 million, for which the rate in effect was 2.0%, and outstanding secured bi-lateral letters of credit of $11.0 million, for which the rate in effect was 1.75%. Secured bi-lateral letters of credit are external to the facility and do not reduce availability for borrowing on the credit facility.
We incurred interest expense related to the corporate revolving credit facility of $0.8 million and $0.8 million for the three months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs. We incurred interest expense related to the corporate revolving credit facility of $3.4 million and $2.8 million for the nine months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs.
Rose Rock revolving credit facility
At September 30, 2016, Rose Rock's revolving credit facility was terminated and $2.0 million of associated unamortized capitalized loan fees were written off to interest expense.
We incurred $3.8 million and $1.4 million of interest expense related to this facility during the three months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs. We incurred $6.9 million and $5.6 million of interest expense related to this facility during the nine months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs.
SemMexico revolving credit facility
At September 30, 2016, SemMexico had a $100 million Mexican pesos (U.S. $5.1 million at the September 30, 2016 exchange rate) revolving credit facility, which matures in May 2018. There were no outstanding borrowings on the facility at September 30, 2016. Borrowings are unsecured and bear interest at the bank prime rate in Mexico plus 1.50%.
At September 30, 2016, SemMexico had an outstanding letter of credit of $292.8 million Mexican pesos (U.S. $15.0 million at the September 30, 2016 exchange rate). The letter of credit was issued for a fee of 0.28%.
Capitalized interest
During the nine months ended September 30, 2016 and 2015, we capitalized interest of $2.0 million and $1.0 million, respectively.
Fair value
We estimate the fair value of the 2021 Notes, the 2022 Notes and the 2023 Notes to be $302 million, $367 million and $319 million, respectively, at September 30, 2016, based on unadjusted, transacted market prices near the measurement date, which are categorized as Level 2 measurements.
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Bankruptcy matters
On July 22, 2008 (the "Petition Date"), SemGroup, L.P. and certain subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Also on July 22, 2008, SemGroup, L.P.'s Canadian subsidiaries filed for creditor protection in Canada. Later during 2008, certain other U.S. subsidiaries filed petitions for reorganization. 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 Corporation emerged from bankruptcy protection on November 30, 2009 (the "Emergence Date").
Claims reconciliation process
A large number of parties made claims against us for obligations alleged to have been incurred prior to our predecessor's bankruptcy filing. We have resolved or settled all of these outstanding claims and have 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. On September 30, 2016, the Litigation Trustee’s appeal to the United States District Court for the District of Delaware was dismissed by mutual agreement of the parties and the matter is now concluded.
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, L.L.C., et al.  Confidential settlement agreements have been entered into with all plaintiffs and were approved by the court.  A motion for summary judgment on pending claims with one defendant/cross-plaintiff was granted. A defendant/counter-plaintiff filed a motion for a new trial which was denied. The judgments previously entered on the confidential settlement agreements will become final in the fourth quarter 2016 or first quarter 2017 if no further appeals are filed. 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.
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 ("the KDHE") initiated discussions during our bankruptcy proceeding regarding six of our sites in Kansas (five owned by Crude Transportation and one owned by SemGas) that KDHE believed, based on their historical use, may have had soil or groundwater contamination in excess of state standards. KDHE sought our agreement to undertake assessments of these sites to determine whether they are contaminated. We reached an agreement with KDHE on this matter and entered into a Consent Agreement and Final Order with KDHE to conduct environmental assessments on the sites and to pay KDHE’s costs associated with their oversight of this matter. We have conducted Phase II investigations at all sites. 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. We do not anticipate any penalties or fines for these historical sites.
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.
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 adverse 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 will be required to incur significant removal and restoration costs when we retire our natural gas gathering and processing facilities in Canada. At September 30, 2016, we have an asset retirement obligation liability of $18.5 million, which is included within other noncurrent liabilities on our condensed consolidated balance sheets. This amount was calculated using the $124.9 million cost we estimate we would incur to retire these facilities, discounted based on our risk-adjusted cost of borrowing and the estimated timing of remediation.
The calculation of the liability for an asset retirement obligation requires the use of significant estimates, including those related to the length of time before the assets will be retired, cost inflation over the assumed life of the assets, actual remediation activities to be required, and the rate at which such obligations should be discounted. Future changes in these estimates could result in material changes in the value of the recorded liability. In addition, future changes in laws or regulations could require us to record additional asset retirement obligations.
Our other segments may also be subject to removal and restoration costs upon retirement of their facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and other 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 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 September 30, 2016, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
2,136

 
$
95,172

Fixed price sales
3,042

 
$
140,294

Floating price purchases
10,795

 
$
507,895

Floating price sales
15,123

 
$
666,430


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).
Our SemGas segment has a take-or-pay contractual obligation related to the fractionation of natural gas liquids through June 2023. The approximate amount of future obligation is as follows (in thousands):
For year ending:
 
December 31, 2016
$
2,975

December 31, 2017
11,938

December 31, 2018
10,060

December 31, 2019
9,121

December 31, 2020
8,451

Thereafter
15,941

Total expected future payments
$
58,486


SemGas also enters into contracts under which we are responsible for marketing the majority of the gas and natural gas liquids produced by the counterparties to the agreements. The majority of SemGas’ revenues were generated from such contracts.
Our Crude Supply and Logistics segment has 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.
Equity
EQUITY
EQUITY
Unaudited condensed consolidated statement of changes in owners’ equity
The following table shows the changes in our consolidated owners’ equity accounts from December 31, 2015 to September 30, 2016 (in thousands):
 
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
Total
Owners’
Equity
Balance at December 31, 2015
$
439

$
1,217,255

$
(5,593
)
$
(38,012
)
$
(58,562
)
$
80,829

$
1,196,356

Net income (loss)



(14,624
)

11,167

(3,457
)
Other comprehensive loss, net of income taxes




(4,569
)

(4,569
)
Issuance of common shares
86

228,460





228,546

Acquisition of Rose Rock's noncontrolling interest
133

199,112




(61,122
)
138,123

Distributions to noncontrolling interests





(32,133
)
(32,133
)
Dividends paid

(63,338
)




(63,338
)
Unvested dividend equivalent rights

626




66

692

Non-cash equity compensation

5,627




1,193

6,820

Issuance of common stock under compensation plans
1

1,236





1,237

Repurchase of common stock


(945
)



(945
)
Balance at September 30, 2016
$
659

$
1,588,978

$
(6,538
)
$
(52,636
)
$
(63,131
)
$

$
1,467,332


Accumulated other comprehensive loss
The following table presents the changes in the components of accumulated other comprehensive loss from December 31, 2015 to September 30, 2016 (in thousands):
 
Currency
Translation
 
Employee
Benefit
Plans
 
Total
Balance at December 31, 2015
$
(57,201
)
 
$
(1,361
)
 
$
(58,562
)
Currency translation adjustment, net of income tax benefit of $2,712
(4,449
)
 

 
(4,449
)
Changes related to benefit plans, net of income tax benefit of $40

 
(120
)
 
(120
)
Balance at September 30, 2016
$
(61,650
)
 
$
(1,481
)
 
$
(63,131
)

There were no significant items reclassified out of accumulated other comprehensive loss to net income for the three months and nine months ended September 30, 2016.
Equity issuances
On June 22, 2016, we issued and sold 8,625,000 shares of our Class A common stock, valued at $27.00 per share, to the public for proceeds of $228.5 million, net of underwriting fees and other offering costs of $4.3 million. Proceeds were used to repay borrowings on our revolving credit facility and will be used for future capital expenditures and general corporate purposes.
On September 30, 2016, we completed the Merger with Rose Rock. We issued 13.1 million common shares in exchange for the outstanding common limited partner units of Rose Rock which we did not already own. In addition, we recorded a reduction to our deferred tax liabilities and offsetting increase to additional paid-in capital of $144.0 million associated with the transaction. This non-cash adjustment represents the deferred tax impact of the difference between the book value of the noncontrolling interest acquired and the tax basis which is stepped-up to the fair market value of the consideration which includes the common shares issued and the assumption of liabilities associated with the noncontrolling interest. See Note 2 for further information on the Merger.
During the nine months ended September 30, 2016, 46,836 shares under the Employee Stock Purchase Plan and 161,518 shares related to our equity based compensation awards vested.
Equity-based compensation
At September 30, 2016, there were 919,069 unvested shares that have been granted under our director and employee compensation programs. The par value of these shares is not reflected in common stock on the condensed consolidated balance sheets, as these shares have not yet vested. For certain of the awards, the number of shares that will vest is contingent upon our achievement of certain specified targets. If we meet the specified maximum targets, approximately 405,000 additional shares could vest.
The holders of certain restricted stock awards are entitled to equivalent dividends (“UDs”) to be received upon vesting of the related restricted stock awards and will be settled in cash. At September 30, 2016, the value of the UDs to be settled in cash related to unvested restricted stock awards was approximately $428 thousand.
During the nine months ended September 30, 2016, we granted 678,773 restricted stock awards with a weighted average grant date fair value of $18.20 per award. Included in the awards granted for the nine months ended September 30, 2016, is 128,585 restricted stock awards granted in exchange for Rose Rock equity based awards which were canceled as part of the Merger. Incremental compensation expense was not significant. Accrued unvested unit distribution rights associated with unvested Rose Rock restricted unit awards carried over the the restricted stock awards issued in the exchange.
Dividends
The following table sets forth the quarterly dividends per share declared and/or paid to shareholders for the periods indicated:
Quarter Ending
 
Dividend Per Share
 
Date of Record
 
Date Paid
March 31, 2015
 
$
0.34

 
March 9, 2015
 
March 20, 2015
June 30, 2015
 
$
0.38

 
May 18, 2015
 
May 29, 2015
September 30, 2015
 
$
0.42

 
August 17, 2015
 
August 25, 2015
December 31, 2015
 
$
0.45

 
November 16, 2015
 
November 24, 2015
March 31, 2016
 
$
0.45

 
March 7, 2016
 
March 17, 2016
June 30, 2016
 
$
0.45

 
May 16, 2016
 
May 26, 2016
September 30, 2016
 
$
0.45

 
August 15, 2016
 
August 25, 2016
December 31, 2016
 
$
0.45

 
November 18, 2016
 
November 28, 2016
Earnings Per Share
EARNINGS PER SHARE
EARNINGS PER SHARE
Earnings per share is calculated based on income from continuing and discontinued operations less any income attributable to noncontrolling interests. Income attributable to noncontrolling interests represents third-party limited partner unitholders' interests in the earnings of our consolidated subsidiary, Rose Rock, prior to completion of the Merger.  Rose Rock allocated net income to its limited partners based on the distributions pertaining to the current period's available cash as defined by Rose Rock's partnership agreement. After adjusting for the appropriate period's distributions, the remaining undistributed earnings or excess distributions over earnings, if any, were allocated to Rose Rock's general partner, limited partners and participating securities in accordance with the contractual terms of Rose Rock's partnership agreement and as further prescribed under the two-class method. Incentive distribution rights did not participate in undistributed earnings. Subsequent to the Merger, there will no longer be a noncontrolling interest.
Basic earnings per share is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share includes the dilutive effect of unvested equity compensation awards.
The following summarizes the calculation of basic earnings per share for the three months and nine months ended September 30, 2016 and 2015 (in thousands, except per share amounts):
 
Three Months Ended September 30, 2016
 
Three Months Ended September 30, 2015
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Income (loss)
$
(7,140
)
 
$

 
$
(7,140
)
 
$
9,581

 
$
(1
)
 
$
9,580

less: Income attributable to noncontrolling interests
225

 

 
225

 
4,707

 

 
4,707

Income (loss) attributable to SemGroup
$
(7,365
)
 
$

 
$
(7,365
)
 
$
4,874

 
$
(1
)
 
$
4,873

Weighted average common stock outstanding
52,642

 
52,642

 
52,642

 
43,808

 
43,808

 
43,808

Basic earnings (loss) per share
$
(0.14
)
 
$

 
$
(0.14
)
 
$
0.11

 
$

 
$
0.11

 
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Income (loss)
$
(3,456
)
 
$
(1
)
 
$
(3,457
)
 
$
43,792

 
$
(3
)
 
$
43,789

less: Income attributable to noncontrolling interests
11,167

 

 
11,167

 
14,153

 

 
14,153

Income (loss) attributable to SemGroup
$
(14,623
)
 
$
(1
)
 
$
(14,624
)
 
$
29,639

 
$
(3
)
 
$
29,636

Weighted average common stock outstanding
47,269

 
47,269

 
47,269

 
43,775

 
43,775

 
43,775

Basic earnings (loss) per share
$
(0.31
)
 
$

 
$
(0.31
)
 
$
0.68

 
$

 
$
0.68


The following summarizes the calculation of diluted earnings per share for the three months and nine months ended September 30, 2016 and 2015 (in thousands, except per share amounts):

 
Three Months Ended September 30, 2016
 
Three Months Ended September 30, 2015
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Income (loss)
$
(7,140
)
 
$

 
$
(7,140
)
 
$
9,581

 
$
(1
)
 
$
9,580

less: Income attributable to noncontrolling interests
225

 

 
225

 
4,707

 

 
4,707

Income (loss) attributable to SemGroup
$
(7,365
)
 
$

 
$
(7,365
)
 
$
4,874

 
$
(1
)
 
$
4,873

Weighted average common stock outstanding
52,642

 
52,642

 
52,642

 
43,808

 
43,808

 
43,808

Effect of dilutive securities

 

 

 
163

 
163

 
163

Diluted weighted average common stock outstanding
52,642

 
52,642

 
52,642

 
43,971

 
43,971

 
43,971

Diluted earnings (loss) per share
$
(0.14
)
 
$

 
$
(0.14
)
 
$
0.11

 
$

 
$
0.11




 
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Income (loss)
$
(3,456
)
 
$
(1
)
 
$
(3,457
)
 
$
43,792

 
$
(3
)
 
$
43,789

less: Income attributable to noncontrolling interests
11,167

 

 
11,167

 
14,153

 

 
14,153

Income (loss) attributable to SemGroup
$
(14,623
)
 
$
(1
)
 
$
(14,624
)
 
$
29,639

 
$
(3
)
 
$
29,636

Weighted average common stock outstanding
47,269

 
47,269

 
47,269

 
43,775

 
43,775

 
43,775

Effect of dilutive securities

 

 

 
194

 
194

 
194

Diluted weighted average common stock outstanding
47,269

 
47,269

 
47,269

 
43,969

 
43,969

 
43,969

Diluted earnings (loss) per share
$
(0.31
)
 
$

 
$
(0.31
)
 
$
0.67

 
$

 
$
0.67


For the three and nine months ended September 30, 2016, we experienced a net loss attributable to SemGroup, as such the unvested equity compensation awards would have been antidilutive and, therefore, were not included in the computation of diluted earnings per share.
Supplemental Cash Flow Information
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes the changes in the components of operating assets and liabilities shown on our condensed consolidated statements of cash flows (in thousands):
 
Nine Months Ended September 30,
 
2016
 
2015
Decrease (increase) in restricted cash
$
32

 
$
6,798

Decrease (increase) in accounts receivable
(4,245
)
 
8,179

Decrease (increase) in receivable from affiliates
1,372

 
8,986

Decrease (increase) in inventories
(14,397
)
 
(23,256
)
Decrease (increase) in derivatives and margin deposits
(6,011
)
 
3,159

Decrease (increase) in other current assets
2,402

 
(1,807
)
Decrease (increase) in other assets
63

 
1,818

Increase (decrease) in accounts payable and accrued liabilities
22,138

 
1,259

Increase (decrease) in payable to affiliates
758

 
(2,310
)
Increase (decrease) in payables to pre-petition creditors

 
(3,836
)
Increase (decrease) in other noncurrent liabilities
(1,311
)
 
(1,336
)
 
$
801

 
$
(2,346
)
  
Other supplemental disclosures
In connection with our acquisition of the noncontrolling interest in Rose Rock, as discussed in Note 2, we recorded a reduction to our deferred tax liabilities and offsetting increase to additional paid-in capital of $144.0 million associated with the transaction. This non-cash adjustment represents the deferred tax impact of the difference between the book value of the noncontrolling interest acquired and the tax basis which is stepped-up to the fair market value of the consideration which included the common shares issued and the assumption of liabilities associated with the noncontrolling interest.
We paid cash interest of $50.1 million and $40.5 million for the nine months ended September 30, 2016 and 2015, respectively.
We received cash refunds for income taxes, net of payments of $0.5 million and paid cash income taxes, net of refunds of $6.3 million for the nine months ended September 30, 2016 and 2015, respectively.
We incurred liabilities for construction work in process that had not been paid of $16.8 million and $7.3 million as of September 30, 2016 and 2015, respectively. Such amounts are not included in capital expenditures on the consolidated statements of cash flows.
We financed prepayments of insurance premiums of $4.0 million and $4.6 million for the nine months ended September 30, 2016 and 2015, respectively.
Related Party Transactions
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
NGL Energy
As described in Note 3, we own a general partner interest in NGL Energy which is accounted for as an equity method investment.
During the three months and nine months ended September 30, 2016 and 2015, we generated the following transactions with NGL Energy and its subsidiaries (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
12,291

 
$
19,540

 
$
29,123

 
$
139,456

Purchases
$
13,849

 
$
15,994

 
$
27,045

 
$
126,255

Reimbursements from NGL Energy for services
$

 
$

 
$

 
$
56


Transactions with NGL Energy and its subsidiaries primarily relate to marketing, leased storage and transportation services of crude oil, including buy/sell transactions. In accordance with ASC 845-10-15, these transactions were reported as revenue on a net basis in our condensed consolidated statements of operations and comprehensive income (loss) because the purchases of inventory and subsequent sales of the inventory were with the same counterparty.
White Cliffs
During the three months ended September 30, 2016 and 2015, we generated storage revenue from White Cliffs of approximately $1.1 million and $1.1 million, respectively. During the nine months ended September 30, 2016 and 2015, we generated storage revenue from White Cliffs of approximately $3.3 million and $3.2 million, respectively. We incurred $2.7 million and $0.8 million of cost for the three months ended September 30, 2016 and 2015, respectively, related to transportation fees for shipments on White Cliffs. We incurred $7.9 million and $2.6 million of cost for the nine months ended September 30, 2016 and 2015, respectively, related to transportation fees for shipments on White Cliffs. We received $0.1 million and $0.1 million in management fees from White Cliffs for the three months ended September 30, 2016 and 2015, respectively. We received $0.3 million and $0.3 million in management fees from White Cliffs for the nine months ended September 30, 2016 and 2015, respectively. During the three months and nine months ended September 30, 2016, we purchased $12.1 million and $15.6 million, respectively, of crude oil from White Cliffs. There were no product purchases from White Cliffs in the prior year. During the three months and nine months ended September 30, 2016, we sold $11.9 million and $11.9 million, respectively, of crude oil to White Cliffs. There were no product sales to White Cliffs in the prior year.
Glass Mountain
We incurred $1.9 million and $0.5 million of cost for the three months ended September 30, 2016 and 2015, respectively, related to transportation fees for shipments on Glass Mountain's pipeline. We incurred $5.6 million and $1.7 million of cost for the nine months ended September 30, 2016 and 2015, respectively, related to transportation fees for shipments on the Glass Mountain Pipeline. We received $0.2 million and $0.2 million in fees from Glass Mountain for the three months ended September 30, 2016 and 2015, respectively, related to support and administrative services associated with pipeline operations. We received $0.6 million and $0.6 million in fees from Glass Mountain for the nine months ended September 30, 2016 and 2015, respectively, related to support and administrative services associated with pipeline operations. We made purchases of crude oil of $0.6 million during the three months ended September 30, 2015. There were no purchases of crude oil from Glass Mountain during the three months ended September 30, 2016. We made purchases of crude oil of $0.4 million and $1.5 million from Glass Mountain during the nine months ended September 30, 2016 and 2015, respectively.
Legal services
The law firm of Conner & Winters, LLP, of which Mark D. Berman is a partner, performs legal services for us. Mr. Berman is the spouse of Candice L. Cheeseman, Vice President and General Counsel. Mr. Berman does not perform any legal services for us. SemGroup paid $0.3 million and