SEMGROUP CORP, 10-K filed on 2/24/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2016
Jun. 30, 2016
Jan. 31, 2017
Class A [Member]
Jan. 31, 2017
Class B
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Document Fiscal Year Focus
2016 
 
 
 
Entity Registrant Name
SemGroup Corporation 
 
 
 
Entity Central Index Key
0001489136 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
66,099,848 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
Entity Public Float
 
$ 1,710,681,855 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 74,216 
$ 58,096 
Accounts receivable (net of allowance of $2,322 and $3,019, respectively)
418,339 
326,713 
Receivable from affiliates
25,455 
5,914 
Inventories
99,234 
70,239 
Other current assets
18,630 
19,419 
Total current assets
635,874 
480,381 
Property, plant and equipment (net of accumulated depreciation of $393,635 and $319,769, respectively)
1,762,072 
1,566,821 
Equity method investments
434,289 
551,078 
Goodwill
34,230 
48,032 
Other intangible assets (net of accumulated amortization of $39,018 and $29,515, respectively)
150,978 
162,223 
Other noncurrent assets, net
57,529 
45,374 
Total assets
3,074,972 
2,853,909 
Current liabilities:
 
 
Accounts payable
367,307 
273,666 
Payable to affiliates
26,508 
5,033 
Accrued liabilities
81,104 
85,047 
Deferred revenue
10,571 
11,349 
Other current liabilities
2,839 
1,901 
Current portion of long-term debt
26 
31 
Total current liabilities
488,355 
377,027 
Long-term debt
1,050,918 
1,057,816 
Deferred income taxes
64,501 
200,953 
Other noncurrent liabilities
25,233 
21,757 
Commitments and contingencies (Note 16)
   
   
SemGroup Corporation owners’ equity:
 
 
Common stock, $0.01 par value (authorized - 100,000 shares; issued - 67,079 and 44,863 shares, respectively)
659 
439 
Additional paid-in capital
1,561,695 
1,217,255 
Treasury stock, at cost (980 and 931 shares, respectively)
6,558 
5,593 
Accumulated deficit
(35,917)
(38,012)
Accumulated other comprehensive loss
(73,914)
(58,562)
Total SemGroup Corporation owners’ equity
1,445,965 
1,115,527 
Noncontrolling interests in consolidated subsidiaries
80,829 
Total owners’ equity
1,445,965 
1,196,356 
Total liabilities and owners’ equity
$ 3,074,972 
$ 2,853,909 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Allowance for Doubtful Accounts Receivable, Current
$ 2,322 
$ 3,019 
Accumulated depreciation
393,635 
319,769 
Accumulated amortization on other intangible assets
$ 39,018 
$ 29,515 
Par value per share
$ 0.01 
$ 0.01 
Common stock shares authorized
100,000 
100,000 
Common stock shares issued
67,079 
44,863 
Treasury Stock, Common, Shares
980 
931 
Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Income Statement [Abstract]
 
 
 
Product
$ 1,009,409 
$ 1,118,886 
$ 1,780,314 
Product
265,030 
259,542 
233,239 
Other
57,725 
76,666 
109,026 
Revenue, Net
1,332,164 
1,455,094 
2,122,579 
Costs of products sold, exclusive of depreciation and amortization shown below
873,431 
979,549 
1,623,358 
Expenses:
 
 
 
Operating
212,099 
224,443 
246,613 
General and administrative
83,908 
97,366 
87,845 
Depreciation and amortization
98,804 
100,882 
98,397 
Loss on disposal or impairment, net
16,048 
11,472 
32,592 
Total expenses
1,284,290 
1,413,712 
2,088,805 
Earnings from equity method investments
73,757 
81,386 
64,199 
Gain (loss) on issuance of common units by equity method investee
(41)
6,385 
29,020 
Operating income (loss)
121,590 
129,153 
126,993 
Other expenses (income):
 
 
 
Interest expense
62,650 
69,675 
49,044 
Foreign currency transaction loss (gain)
4,759 
(1,067)
(86)
Loss (gain) on sale or impairment of equity method investment
30,644 
(14,517)
(34,211)
Other expense (income), net
(994)
(1,284)
13,675 
Total other expenses, net
97,059 
52,807 
28,422 
Income from continuing operations before income taxes
24,531 
76,346 
98,571 
Income tax expense (benefit)
11,268 
33,530 
46,513 
Income from continuing operations
13,263 
42,816 
52,058 
Income (loss) from discontinued operations, net of income taxes
(1)
(4)
(1)
Net income
13,262 
42,812 
52,057 
Less: net income attributable to noncontrolling interests
11,167 
12,492 
22,817 
Net income (loss) attributable to SemGroup
2,095 
30,320 
29,240 
Other comprehensive income (loss):
 
 
 
Currency translation adjustments
(14,224)
(32,142)
(20,551)
Other, net of income taxes
(1,128)
721 
(3,736)
Total other comprehensive income (loss)
(15,352)
(31,421)
(24,287)
Comprehensive income (loss)
(2,090)
11,391 
27,770 
Less: comprehensive income attributable to noncontrolling interests
11,167 
12,492 
22,817 
Comprehensive income (loss) attributable to SemGroup
$ (13,257)
$ (1,101)
$ 4,953 
Net income attributable to SemGroup per common share (Note 18):
 
 
 
Basic
$ 0.04 
$ 0.69 
$ 0.69 
Diluted
$ 0.04 
$ 0.69 
$ 0.68 
Consolidated Statements of Changes in Owners' Equity (USD $)
In Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Noncontrolling Interest [Member]
Beginning Balance at Dec. 31, 2013
$ 1,213,863 
$ 425 
$ 1,154,516 
$ (613)
$ (97,572)
$ (2,854)
$ 159,961 
Net income (loss)
52,057 
 
 
 
29,240 
 
22,817 
Other comprehensive income (loss), net of income taxes
(24,287)
 
 
 
 
(24,287)
 
Distributions to noncontrolling interests
(28,494)
 
 
 
 
 
(28,494)
Non-cash equity compensation
8,262 
 
7,319 
 
 
 
943 
Issuance of common stock under compensation plans
2,172 
2,170 
 
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(719)
 
 
(719)
 
 
 
Transfer to subsidiary in common control transaction
(31,930)
 
53,200 
 
 
 
(85,200)
Stock Issued During Period, Value, Conversion of Convertible Securities
73,017 
73,008 
 
 
 
 
Dividends paid
(44,206)
 
(44,206)
 
 
 
 
Unvested dividend equivalent rights
(298)
 
(173)
 
 
 
(125)
Ending Balance at Dec. 31, 2014
1,219,437 
436 
1,245,877 
(1,332)
(68,332)
(27,141)
69,929 
Net income (loss)
42,812 
 
 
 
30,320 
 
12,492 
Other comprehensive income (loss), net of income taxes
(31,421)
 
 
 
 
(31,421)
 
Distributions to noncontrolling interests
(40,410)
 
 
 
 
 
(40,410)
Non-cash equity compensation
10,405 
 
9,051 
 
 
 
1,354 
Issuance of common stock under compensation plans
1,515 
1,512 
 
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(4,261)
 
 
(4,261)
 
 
 
Rose Rock equity issuance
89,119 
 
 
 
 
 
89,119 
Transfer to subsidiary in common control transaction
(20,772)
 
30,700 
 
 
 
(51,500)
Dividends paid
(69,514)
 
(69,514)
 
 
 
 
Unvested dividend equivalent rights
(554)
 
(351)
 
 
 
(203)
Ending Balance at Dec. 31, 2015
1,196,356 
439 
1,217,255 
(5,593)
(38,012)
(58,562)
80,829 
Net income (loss)
13,262 
 
 
 
2,095 
 
11,167 
Other comprehensive income (loss), net of income taxes
(15,352)
 
 
 
 
(15,352)
 
Distributions to noncontrolling interests
(32,133)
 
 
 
 
 
(32,133)
Non-cash equity compensation
9,945 
 
8,752 
 
 
 
1,193 
Issuance of common stock under compensation plans
1,237 
1,236 
 
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(965)
 
 
(965)
 
 
 
Dividends paid
(92,910)
 
(92,910)
 
 
 
 
Unvested dividend equivalent rights
587 
 
521 
 
 
 
66 
Issuance of common shares
228,546 
86 
228,460 
 
 
 
 
Acquisition of Rose Rock's noncontrolling interest
137,392 
133 
198,381 
 
 
 
(61,122)
Ending Balance at Dec. 31, 2016
$ 1,445,965 
$ 659 
$ 1,561,695 
$ (6,558)
$ (35,917)
$ (73,914)
$ 0 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$ 13,262 
$ 42,812 
$ 52,057 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Net unrealized (gain) loss related to derivative instruments
989 
2,014 
(1,734)
Depreciation and amortization
98,804 
100,882 
98,397 
Loss on disposal or impairment, net
16,048 
11,472 
32,592 
Equity earnings from investments
(73,757)
(81,386)
(64,199)
Loss (gain) on issuance of common units by equity method investee
41 
(6,385)
(29,020)
Loss (gain) on sale or impairment of equity method investment
30,644 
(14,517)
(34,211)
Distributions from equity investments
76,442 
95,429 
85,261 
Amortization and write down of debt issuance costs
7,561 
5,102 
3,632 
Deferred Income Taxes and Tax Credits
8,447 
29,197 
36,148 
Non-cash compensation expense
10,216 
10,617 
8,386 
Excess tax benefit from equity-based awards
(1,650)
(Gain) loss on fair value of warrants
13,423 
Provision for uncollectible accounts receivable, net of recoveries
(527)
208 
360 
Inventory valuation adjustment
2,590 
5,667 
Foreign currency transaction loss (gain)
4,759 
(1,067)
(86)
Changes in operating assets and liabilities (Note 22)
(22,955)
(15,206)
(23,365)
Net cash provided by operating activities
169,974 
181,762 
181,658 
Cash flows from investing activities:
 
 
 
Capital expenditures
(312,456)
(479,530)
(270,506)
Proceeds from sale of property, plant and equipment
151 
3,688 
4,445 
Investments in non-consolidated subsidiaries
(4,188)
(46,730)
(71,131)
Payments to acquire businesses
44,508 
Proceeds from sale of common units of equity method investee
60,483 
56,318 
79,741 
Distributions from equity method investments in excess of equity in earnings
27,726 
24,113 
11,734 
Net cash provided by (used in) investing activities
(228,284)
(442,141)
(290,225)
Cash flows from financing activities:
 
 
 
Debt issuance costs
(7,728)
(6,289)
(8,686)
Proceeds from Issuance of Long-term Debt
382,500 
867,208 
1,254,244 
Principal payments on debt and other obligations
(396,890)
(560,049)
(1,102,272)
Distributions to noncontrolling interests
(32,133)
(40,410)
(28,494)
Proceeds from warrant exercises
1,451 
Payments Related to Tax Withholding for Share-based Compensation
(965)
(4,261)
(719)
Dividends paid
(92,910)
(69,514)
(44,206)
Proceeds from issuance of common stock under employee stock purchase plan
1,010 
1,223 
340 
Excess tax benefit from equity-based awards
1,650 
Proceeds from Issuance of Common Stock
223,025 
Proceeds from Issuance of Common Limited Partners Units
89,119 
Net cash provided by (used in) financing activities
75,909 
277,027 
73,308 
Effect of exchange rate changes on cash and cash equivalents
(1,479)
850 
(3,494)
Change in cash and cash equivalents
16,120 
17,498 
(38,753)
Cash and cash equivalents at beginning of period
58,096 
40,598 
79,351 
Cash and cash equivalents at end of period
$ 74,216 
$ 58,096 
$ 40,598 
Overview
Overview
OVERVIEW
SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified services for end-users and consumers of crude oil, natural gas, natural gas liquids, refined products and asphalt.
The accompanying consolidated financial statements include the activities of SemGroup Corporation and its subsidiaries. The terms “we,” “our,” “us,” “the Company” and similar language used in these notes to consolidated financial statements refer to SemGroup Corporation and its subsidiaries.
At December 31, 2016, our reportable segments include the following:
Crude Transportation, which operates crude oil pipelines and truck transportation businesses in the United States. Crude Transportation’s assets include:
a crude oil gathering and transportation pipeline system in Kansas and northern Oklahoma that is connected to several third-party pipelines and refineries;
the Wattenberg Oil Trunkline ("WOT"), a crude oil gathering pipeline system that transports crude oil from production facilities in the DJ Basin to the pipeline owned by White Cliffs Pipeline, L.L.C. ("White Cliffs");
a crude oil trucking fleet of over 225 transport trucks and 235 trailers;
Maurepas Pipeline, a project underway to build three pipelines to service refineries in the Gulf Coast region, which is expected to be completed in late second quarter 2017;
a 51% ownership interest in White Cliffs, which owns crude oil pipelines that transport crude oil from Platteville, Colorado to Cushing, Oklahoma (the "White Cliffs Pipeline"); and
a 50% ownership interest in Glass Mountain Pipeline, LLC ("Glass Mountain"), which owns a crude oil pipeline in western and north central Oklahoma (the "Glass Mountain Pipeline").
Crude Facilities, which operates crude oil storage and terminal businesses in Cushing, Oklahoma and a crude oil truck unloading facility in Platteville, Colorado that connects to the origination point of the White Cliffs Pipeline.
Crude Supply and Logistics, which operates a crude oil marketing business utilizing our Crude Transportation and Crude Facilities assets for marketing purposes.
SemGas, which provides natural gas gathering and processing services in the United States. SemGas operates gathering pipelines in Oklahoma and Texas and processing plants in northern Oklahoma and Texas.
SemCAMS, which provides natural gas gathering and processing services in Alberta, Canada. SemCAMS owns working interests in, and operates, a network of natural gas gathering and transportation pipelines and natural gas processing plants.
SemLogistics, which provides refined product and crude oil storage services in the United Kingdom.
SemMexico, which purchases, produces, stores, and distributes liquid asphalt cement products in Mexico.
Additionally, we own an 11.78% interest in the general partner of NGL Energy Partners LP ("NGL Energy") (NYSE: NGL) which is reported within Corporate and Other.
Consolidation And Basis Of Presentation
Consolidation and Basis of Presentation
CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
Consolidated subsidiaries
Our consolidated financial statements include the accounts of our controlled subsidiaries, including Rose Rock Midstream, L.P. ("Rose Rock"). All significant transactions between our consolidated subsidiaries have been eliminated. Outside ownership interests in consolidated subsidiaries are reported as noncontrolling interests in the consolidated financial statements.
As of September 30, 2016, Rose Rock became a wholly-owned subsidiary and we no longer reflect a noncontrolling interest (Note 4).
Proportionally consolidated assets
Our SemCAMS segment owns undivided interests in certain natural gas gathering and processing assets, for which we record only our proportionate share of the assets on the consolidated balance sheets. The net book value of the property, plant and equipment recorded by us associated with these undivided interests is approximately $299.3 million at December 31, 2016. We serve as operator of these facilities and incur the costs of operating the facilities (recorded as operating expenses in the consolidated statements of operations) and charge the other owners for their proportionate share of the costs (recorded as other revenue in the consolidated statements of operations).
Equity method investments
We own a 51% interest in White Cliffs. The other owners have substantive rights to participate in the management of White Cliffs. Because of this, we account for it under the equity method.
We own a 50% interest in Glass Mountain which we account for under the equity method.
We own an 11.78% interest in the general partner of NGL Energy which we account for under the equity method.
Summary of Significant Accounting Policies
Summary of Signifcant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our significant estimates include, but are not limited to: (1) allowances for doubtful accounts receivable; (2) estimated useful lives of assets, which impact depreciation; (3) estimated fair values used in impairment tests; (4) fair values of derivative instruments; (5) valuation allowances for deferred tax assets; and (6) accrual and disclosure of contingent losses. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.
CASH AND CASH EQUIVALENTS—Cash includes currency on hand and demand and time deposits with banks or other financial institutions. Cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase. Balances at financial institutions may exceed federally insured limits.
ACCOUNTS RECEIVABLE—Accounts receivable are reported net of the allowance for doubtful accounts. Our assessment of the allowance for doubtful accounts is based on several factors, including the overall creditworthiness of our customers, existing economic conditions, and the amount and age of past due accounts. We enter into netting arrangements with certain counterparties to help mitigate credit risk. Receivables subject to netting are presented as gross receivables (with the related accounts payable also presented gross) until such time as the balances are settled. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are written off against the allowance for doubtful accounts only after all collection attempts have been exhausted.
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.
INVENTORIES—Inventories primarily consist of crude oil and asphalt. Inventories are valued at the lower of cost or market, with cost generally determined using the weighted-average method. The cost of inventory includes applicable transportation costs.
We enter into exchanges with third parties whereby we acquire products that differ in location, grade, or delivery date from products we have available for sale. These exchanges are valued at cost, and although a transportation, location or product differential may be recorded, generally no gain or loss is recognized.
In July 2015, the 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. The Company will adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
PROPERTY, PLANT AND EQUIPMENT—Property, plant and equipment is recorded at cost. We capitalize costs that extend or increase the future economic benefits of property, plant and equipment, and expense maintenance costs that do not. When assets are disposed of, their cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is recorded as a gain or loss on disposal or impairment in the consolidated statements of operations and comprehensive income (loss).
Our SemCAMS segment operates plants which periodically undergo planned major maintenance activities, typically occurring every four to five years.  Planned major maintenance projects that do not increase the overall life or capacity of the related assets are recorded in operating expense as incurred, whereas major maintenance activity costs that materially increase the life or capacity of the underlying assets are capitalized. When maintenance expenses are recoverable from the producers who use the plants, they are recorded as revenue, and typically include a 10% overhead fee. 
Depreciation is calculated primarily using the straight-line method over the following estimated useful lives:
Pipelines and related facilities
10 – 31 years
Storage and terminal facilities
10 – 25 years
Natural gas gathering and processing facilities
10 – 31 years
Trucking equipment and other
3 – 7 years
Office property and equipment
3 – 31 years


Construction in process is reclassified to the fixed asset categories above and depreciation commences once the asset has been placed in-service.
LINEFILL—Pipelines and storage facilities generally require a minimum volume of product in the system to enable the system to operate. Such product, known as linefill, is generally not available to be withdrawn from the system. Linefill owned by us in facilities operated by us is recorded at historical cost, is included in property, plant and equipment in the consolidated balance sheets, and is not depreciated. We also own linefill in third-party facilities, which is included in inventory on the consolidated balance sheets.
IMPAIRMENT OF LONG-LIVED ASSETS—We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. We test an asset group for impairment by estimating the undiscounted cash flows expected to result from its use and eventual disposition. If the estimated undiscounted cash flows are lower than the net book value of the asset group, we then estimate the fair value of the asset group and record a reduction to the net book value of the assets and a corresponding impairment loss.
GOODWILL—We test goodwill for impairment on an annual basis, or more often if circumstances warrant, by estimating the fair value of the reporting unit to which the goodwill relates and comparing this fair value to the net book value of the reporting unit. If fair value is less than net book value, we estimate the implied fair value of goodwill, reduce the book value of the goodwill to the implied fair value, and record a corresponding impairment loss. Our policy is to test goodwill for impairment on October 1 of each year.
INTANGIBLE ASSETS—Intangible assets are stated at cost, net of accumulated amortization, which is recorded on a straight-line or accelerated basis over the life of the asset. We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value.
EQUITY METHOD INVESTMENTS—We account for an investment under the equity method when we have significant influence over, but not control of, the significant operating decisions of the investee. Under the equity method, we record in the consolidated statements of operations our share of the earnings or losses of the investee, with a corresponding adjustment to the investment balance on our consolidated balance sheet. When we receive a distribution from an equity method investee, we record a corresponding reduction to the investment balance. When an equity method investee issues additional ownership interests which dilute our ownership interest, we recognize a gain or loss in our consolidated statements of operations.
We assess our equity method investments for impairment when circumstances indicate that the carrying value may not be recoverable and record an impairment when a decline in value is considered to be other than temporary.
For equity method investments for which we do not expect financial information to be consistently available on a timely basis to apply the equity method currently, our policy is to apply the equity method consistently on a one-quarter lag.
DEBT ISSUANCE COSTS—Costs incurred in connection with the issuance of long-term debt are reported as a reduction to the carrying value of the associated debt instrument and are amortized to interest expense using the straight-line method over the term of the related debt. Use of the straight-line method of amortization does not differ materially from the “effective interest” method.
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 continue to be presented as other noncurrent assets.
COMMODITY DERIVATIVE INSTRUMENTS—We generally record the fair value of commodity derivative instruments on the consolidated balance sheets and the change in fair value as an increase or decrease to product revenue.
As shown in Note 13, the fair value of commodity derivatives at December 31, 2016 and 2015 are recorded to other current assets or other current liabilities on the consolidated balance sheets. Related margin deposits are recorded to other current assets or other current liabilities on the consolidated balance sheets. Margin deposits are not generally netted against derivative assets or liabilities.
The fair value of a derivative contract is determined based on the nature of the transaction and the market in which the transaction was executed. Quoted market prices, when available, are used to value derivative transactions. In situations where quoted market prices are not readily available, we estimate the fair value using other valuation techniques that reflect the best information available under the circumstances. Fair value measurements of derivative assets include consideration of counterparty credit risk. Fair value measurements of derivative liabilities include consideration of our creditworthiness.
We have elected “normal purchase” and “normal sale” treatment for certain commitments to purchase or sell petroleum products at future dates. This election is only available when a transaction that would ordinarily meet the definition of a derivative but instead is expected to result in physical delivery of product over a reasonable period in the normal course of business and is not expected to be net settled. Agreements accounted for under this election are not recorded at fair value; instead, the transaction is recorded when the product is delivered.
CONTINGENT LOSSES—We record a liability for a contingent loss when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We record attorneys’ fees incurred in connection with a contingent loss at the time the fees are incurred. We do not record liabilities for attorneys’ fees that are expected to be incurred in the future.
ASSET RETIREMENT OBLIGATIONS—Asset retirement obligations include legal or contractual obligations associated with the retirement of long-lived assets, such as requirements to incur costs to dispose of equipment or to remediate the environmental impacts of the normal operation of the assets. We record liabilities for asset retirement obligations when a known obligation exists under current law or contract and when a reasonable estimate of the value of the liability can be made.
REVENUE RECOGNITION—Sales of product, as well as gathering and marketing revenues, are recognized at the time title to the product transfers to the purchaser, which typically occurs upon receipt of the product by the purchaser. Terminal and storage revenues are recognized at the time the service is performed. Revenue for the transportation of product is recognized upon delivery of the product to its destination. Certain revenue transactions are reported on a net basis, including certain buy/sell transactions (see “Purchases and Sales of Inventory with the Same Counterparty”). Other revenue primarily represents operating cost recovery from working interest owners in certain processing plants and is recorded when earned in accordance with the terms of related agreements. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue).
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers", as amended, 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). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements. We have completed the first phase of our implementation process which included a review of contracts and transaction types from each significant revenue stream across all of our business segments. In addition, we are currently evaluating the methods of adoption and analyzing the impact of the standard on our internal controls, accounting policies and financial statements and disclosures.
Based on the initial phase of our implementation process, we have identified certain potential areas of impact, such as non-cash consideration and "take-or-pay" arrangements.
We have certain contractual arrangements where we retain commodities as consideration for processing of customer product. These arrangements could be impacted by the non-cash consideration guidance under ASU 2014-09. Currently revenue related to non-cash consideration is recognized when we sell the commodity. Under ASU 2014-09, we could recognize revenue when the commodity is received, rather than when it is sold.
In addition, certain contractual arrangements include "take-or-pay" provisions. The fixed fees to which we have an unconditional right under these contracts could be subject to certain recognition changes and additional disclosure under ASU 2014-09.
As we are in the process of evaluating the impact of the standard, we have not yet quantified the impact of adoption or determined the method of adoption. During 2017, we will perform the remainder of our implementation process, which will include quantification of impact, selection of adoption method and development of policies. We will adopt this guidance in the first quarter of 2018.
COSTS OF PRODUCTS SOLD—Costs of products sold consists of the cost to purchase the product, the cost to transport the product to the point of sale, and the cost to store the product until it is sold.
PURCHASES AND SALES OF INVENTORY WITH THE SAME COUNTERPARTY—We routinely enter into transactions to purchase inventory from, and sell inventory to, the same counterparty. Such transactions that are entered into in contemplation of one another are recorded on a net basis.
CURRENCY TRANSLATION—The consolidated financial statements are presented in U.S. dollars. Our segments operate in four countries, and each segment has identified a “functional currency,” which is the primary currency in the environment in which the segment operates. The functional currencies include the U.S. dollar, the Canadian dollar, the British pound sterling, and the Mexican peso.
At the end of each reporting period, the assets and liabilities of each segment are translated from its functional currency to U.S. dollars using the exchange rate at the end of the month. The monthly results of operations of each segment are generally translated from its functional currency to U.S. dollars using the average exchange rate during the month. Changes in exchange rates result in currency translation gains and losses, which are recorded within other comprehensive income (loss).
Certain segments also enter into transactions in currencies other than their functional currencies. At the end of each reporting period, each segment re-measures the related receivables, payables, and cash to its functional currency using the exchange rate at the end of the period. Changes in exchange rates between the time the transactions were entered into and the end of the reporting period result in currency transaction gains or losses, which are recorded in the consolidated statements of operations.
INCOME TAXES—Deferred income taxes are accounted for under the liability method, which takes into account the differences between the basis of the assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. We record valuation allowances on deferred tax assets when, in the opinion of management, it is more likely than not that the asset will not be recovered.
We monitor uncertain tax positions and we recognize tax benefits only when management believes the relevant tax positions would more likely than not be sustained upon examination. We record any interest and any penalties related to income taxes within income tax expense in the consolidated statements of operations.
In November 2015, the FASB issues 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. The Company has not determined which method we will apply when we adopt the standard. The Company intends to adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
RECLASSIFICATIONS—Certain reclassifications have been made to conform prior year balances to the current year presentation.
PENSION BENEFITS—Pension cost and obligations are actuarially determined and are affected by assumptions including expected return on plan assets, discount rates, compensation increases, and employee turnover rates. We evaluate our assumptions periodically and make adjustments to these assumptions and the recorded liability as necessary. Actuarial gains or losses are amortized on a straight-line basis over the expected remaining service life of employees in the pension plan.
EQUITY-BASED COMPENSATION—We grant certain of our employees and non-managerial directors equity-based compensation awards which vest contingent on continued service of the recipient and, in some cases, on their achievement of specific performance targets or market conditions. We record compensation expense for these outstanding awards over applicable service or performance periods based on their grant date fair value with a corresponding increase to additional paid-in capital. The expense to be recorded over the life of the awards is discounted for expected forfeitures during the vesting period.
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.
NONCONTROLLING INTERESTS IN CONSOLIDATED SUBSIDIARIES—Noncontrolling interests represents third-party limited partner unitholders' interests in our consolidated subsidiary, Rose Rock, prior to our purchase of the noncontrolling interests on September 30, 2016. Rose Rock allocated net income to its limited partners based on the distributions pertaining to the 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.
COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)—Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Our comprehensive income (loss) includes currency translation adjustments and changes in the funded status of pension benefit plans.
OTHER RECENT ACCOUNTING PRONOUNCEMENTS—In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory", which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. 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 August 2016, the FASB issued 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 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, but are not yet able to quantify the impact. We continue to monitor FASB activity related to this ASU and have engaged with various peer groups to assess certain interpretive issues related to this ASU. We will adopt this guidance in the first quarter of 2019.
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.
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 interests of 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. In addition, we recorded a reduction to our deferred tax liabilities and offsetting increase to additional paid-in capital of $143.3 million associated with the transaction. This non-cash adjustment represents the deferred tax impact of the difference between the book value of the noncontrolling interests 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 interests.
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 15 for additional information related to changes in long-term debt and Note 25 for changes related to the Guarantor financial information.
The following table shows the distributions paid related to the earnings for each of the following periods (in thousands, except for per unit amounts):
 
Distribution
Per Unit
 
Distributions Paid
Quarter Ended
SemGroup
Noncontrolling
Interest
Common Units
Total
Distributions
General
Partner
Incentive
Distributions
Common
Units
Subordinated
Units
December 31, 2013
$
0.4650

 
$
257

$
244

$
2,041

$
3,901

$
6,398

$
12,841

 
 
 
 
 
 
 
 
 
March 31, 2014
$
0.4950

 
$
278

$
488

$
2,173

$
4,153

$
6,811

$
13,903

June 30, 2014
$
0.5350

 
$
334

$
888

$
3,646

$
4,488

$
7,362

$
16,718

September 30, 2014
$
0.5750

 
$
377

$
1,835

$
3,918

$
4,824

$
7,912

$
18,866

December 31, 2014
$
0.6200

 
$
485

$
3,487

$
6,551

$
5,202

$
8,544

$
24,269

 
 
 
 
 
 
 
 
 
March 31, 2015
$
0.6350

 
$
568

$
4,450

$
13,148

$

$
10,213

$
28,379

June 30, 2015
$
0.6500

 
$
590

$
4,979

$
13,458

$

$
10,456

$
29,483

September 30, 2015
$
0.6600

 
$
604

$
5,333

$
13,665

$

$
10,619

$
30,221

December 31, 2015
$
0.6600

 
$
604

$
5,333

$
13,665

$

$
10,622

$
30,224

 
 
 
 
 
 
 
 
 
March 31, 2016
$
0.6600

 
$
605

$
5,338

$
13,665

$

$
10,643

$
30,251

June 30, 2016
$
0.6600

 
$
605

$
5,339

$
13,665

$

$
10,648

$
30,257


Drop-down Transactions with Rose Rock
2015 drop-down transaction
On February 13, 2015, we contributed WOT and Glass Mountain Holding, LLC, which holds our 50% interest in Glass Mountain, to Rose Rock 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 the general partner of Rose Rock and a related issuance of general partner interest, to allow the general partner of Rose Rock to maintain its 2% general partner interest. The cash consideration was funded through a borrowing under Rose Rock's credit facility and the issuance and sale of 2.3 million common units in an underwritten public offering for net proceeds of $89.1 million. SemGroup used the proceeds from these transactions to pay amounts owed under its revolving credit facility.
As the acquisition was between parties under common control, Rose Rock recorded its interest in acquired assets and liabilities at SemGroup's historical value and SemGroup did not recognize a gain on the transaction. Proceeds in excess of the historical value were accounted for as a dividend from Rose Rock to SemGroup and resulted in a $51.5 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $30.7 million (net of tax impact of $20.8 million). This non-cash entry represents the portion of the proceeds in excess of historical cost which were attributed to Rose Rock's third-party unitholders.
2014 drop-down transaction
On June 23, 2014, we contributed the remaining 33% interest in SemCrude Pipeline, L.L.C. ("SCPL") to Rose Rock in exchange for (i) cash of approximately $114.4 million, (ii) the issuance of 2.425 million common units, (iii) the issuance of 1.25 million Class A units, and (iv) an increase of the capital account of the general partner and a related issuance of general partner interest, to allow the general partner to maintain its 2% general partner interest. Subsequent to this transaction, Rose Rock owned 100% of SCPL, which owns a 51% membership interest in White Cliffs. SemGroup used the proceeds from these transactions to pay amounts owed under its revolving credit facility.
As this transaction was between parties under common control, Rose Rock recorded its interest in SCPL at SemGroup's historical value and as such no gain on the sale was recognized by SemGroup. Proceeds in excess of the historical value were accounted for as a dividend from Rose Rock to SemGroup and resulted in an $85.2 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $53.2 million (net of tax impact of $31.9 million). This non-cash entry represents the portion of the proceeds in excess of historical cost which were attributed to Rose Rock's third-party unitholders.
SemGroup incurred approximately $0.9 million of expense associated with this transaction, including $0.4 million of costs incurred by Rose Rock.
Equity Method Investments
Equity Method Investments
EQUITY METHOD INVESTMENTS
Our equity method investments consist of the following (in thousands):
 
December 31,
 
2016
 
2015
White Cliffs
$
281,734

 
$
297,109

NGL Energy
18,933

 
112,787

Glass Mountain
133,622

 
141,182

Total equity method investments
$
434,289

 
$
551,078


Our earnings from equity method investments consist of the following (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
White Cliffs
$
69,007

 
$
70,238

 
$
57,378

NGL Energy(1)
2,188

 
5,031

 
2,343

Glass Mountain
2,562

 
6,117

 
4,478

Total earnings from equity method investments
$
73,757

 
$
81,386

 
$
64,199

(1) Excluding loss on issuance of common units of $41.0 thousand for the year ended December 31, 2016, and gains on the issuance of common units of $6.4 million and $29.0 million for the years ended December 31, 2015 and 2014, respectively.
Cash distributions received from equity method investments consist of the following (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
White Cliffs
$
88,839

 
$
86,845

 
$
66,768

NGL Energy
4,873

 
19,074

 
23,404

Glass Mountain
10,456

 
13,623

 
6,823

Total cash distributions received from equity method investments
$
104,168

 
$
119,542

 
$
96,995


White Cliffs
Certain summarized balance sheet information of White Cliffs is shown below (in thousands):
 
December 31,
 
2016
 
2015
Current assets
$
34,721

 
$
54,091

Property, plant and equipment, net
508,043

 
509,068

Goodwill
17,000

 
17,000

Other intangible assets, net
8,509

 
11,974

Total assets
$
568,273

 
$
592,133

 
 
 
 
Current liabilities
$
15,812

 
$
9,491

Members’ equity
552,461

 
582,642

Total liabilities and members’ equity
$
568,273

 
$
592,133


Certain summarized income statement information of White Cliffs for the years ended December 31, 2016, 2015 and 2014 is shown below (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue
$
212,359

 
$
206,395

 
$
160,369

Cost of products sold
$
3,223

 
$
2,914

 
$
3,635

Operating, general and administrative expenses
$
35,672

 
$
30,370

 
$
19,431

Depreciation and amortization expense
$
35,439

 
$
34,105

 
$
23,257

Net income
$
138,032

 
$
139,000

 
$
114,045


The equity in earnings of White Cliffs for the years ended December 31, 2016, 2015 and 2014 reported in our consolidated statements of operations and comprehensive income (loss) is less than 51% of the net income of White Cliffs for the same period. This is primarily due to certain general and administrative expenses we incur in managing the operations of White Cliffs that the other members are not obligated to share. Such expenses are recorded by White Cliffs, and are allocated to our membership interests. White Cliffs recorded $1.6 million, $1.3 million and $1.6 million of such general and administrative expense for the years ended December 31, 2016, 2015 and 2014, respectively. In addition, our equity in earnings is also impacted by the elimination of revenue on the sale of inventory to White Cliffs. Revenue related to inventory transactions with White Cliffs is deferred until a sale of the inventory has been made with a third party.
The members of White Cliffs are required to contribute capital to White Cliffs to fund various projects. For the years ended December 31, 2016, 2015 and 2014, we contributed $2.2 million, $42.8 million and $53.3 million to White Cliffs capital projects.
Our membership interest in White Cliffs is significant as defined by Securities and Exchange Commission’s Regulation S-X Rule 1-02(w). Accordingly, as required by Regulation S-X Rule 3-09, we have included the audited financial statements of White Cliffs as of December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016 as an exhibit to this Form 10-K.
NGL Energy
At December 31, 2016, we no longer own common units representing limited partner interests in NGL Energy. 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 with 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.
Our policy is to record our equity in earnings of NGL Energy on a one-quarter lag, as we do not expect information on the earnings of NGL Energy to always be available in time to consistently record the earnings in the quarter in which they are generated. Accordingly, the equity in earnings from NGL Energy, which is reflected in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014 relates to the earnings of NGL Energy for the twelve months ended September 30, 2016, 2015 and 2014, respectively. NGL Energy's 10-K for its fiscal year ended March 31, 2016, restated prior periods to correct an error in those prior periods. The impact of NGL Energy's restatement was not material to SemGroup. The summarized financial statement information of NGL Energy below has been updated to reflect the impact of the restatement on their prior period financial information.
Certain unaudited summarized balance sheet information of NGL Energy is shown below (in thousands):
 
(Unaudited)
 September 30,
 
2016
 
2015
Current assets
$
1,250,299

 
$
1,276,919

Property plant and equipment, net
1,755,416

 
1,845,112

Goodwill
1,467,955

 
1,658,237

Intangible and other assets, net
1,600,248

 
1,820,788

Total assets
$
6,073,918

 
$
6,601,056

 
 
 
 
Current liabilities
$
798,853

 
$
857,639

Long-term debt
3,063,008

 
3,077,604

Other noncurrent liabilities
256,743

 
127,639

Equity
1,955,314

 
2,538,174

Total liabilities and equity
$
6,073,918

 
$
6,601,056


Certain unaudited summarized income statement information of NGL Energy for the twelve months ended September 30, 2016, 2015 and 2014 is shown below (in thousands):
 
(Unaudited)
Twelve Months Ended September 30,
 
2016
 
2015
 
2014
Revenue
$
10,777,954

 
$
14,504,581

 
$
15,748,520

Costs of products sold
$
10,005,830

 
$
13,573,066

 
$
15,054,291

Operating, general and administrative expenses
$
523,902

 
$
576,805

 
$
436,959

Depreciation and amortization expense
$
211,841

 
$
221,067

 
$
162,443

Net income (loss)
$
(39,895
)
 
$
71,225

 
$
15,059


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 was 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 year ended December 31, 2016. The value of our limited partner investment in NGL Energy was written-down to the market price of $11.04 per share on December 31, 2015, the date through which we had recorded our equity in earnings. These units were subsequently sold in the second quarter of 2016, as detailed below.
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.
NGL Energy unit issuances and sales of NGL Energy units
During the years ended December 31, 2015, 2014 and 2013, our limited partnership interest was diluted in connection with NGL Energy common unit issuances. Accordingly, we recorded a non-cash loss of $41.0 thousand for the year ended December 31, 2016, and non-cash gains of $6.4 million and $29.0 million for the years ended December 31, 2015 and 2014, respectively, related to these transactions, which are included in "gain (loss) on issuance of common units by equity method investee" in our consolidated statements of operations and comprehensive income (loss).
During the year ended December 31, 2016, we sold our remaining 4,652,568 NGL Energy limited partner units for $13.00 per unit, or $60.5 million, and recorded a $9.1 million gain on disposal. During the year ended December 31, 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 a net gain of $14.5 million. During the year ended December 31, 2014, we sold 2,481,308 of our NGL Energy common units for $88.8 million, net of related costs of $3.1 million. We recorded a net gain of $34.2 million. Gains on disposal of NGL Energy limited partner units are included in "loss (gain) on sale or impairment of equity method investment" in our consolidated statement of operations and comprehensive income (loss).
Subsequent to the sale of our limited partner interest, our ownership interest in NGL Energy is not significant as defined by Securities and Exchange Commission’s Regulation S-X Rule 1-02(w). Accordingly, no audited financial statements of NGL Energy pursuant to Regulation S-X 3-09 will be included as an exhibit to this Form 10-K.
Glass Mountain
We hold a 50% interest in 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 of $31.0 million and $3.6 million, respectively, at December 31, 2016. Capitalized interest is amortized as a reduction of earnings from equity method investments.
The equity in earnings of Glass Mountain for the years ended December 31, 2016, 2015 and 2014 reported in our consolidated statement 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.
Certain summarized balance sheet information of Glass Mountain is shown below (in thousands):
 
December 31,
 
2016
 
2015
Current assets
$
6,136

 
$
7,856

Property, plant and equipment, net
193,179

 
205,920

Total assets
$
199,315

 
$
213,776

 
 
 
 
Current liabilities
$
1,286

 
$
1,036

Other liabilities
13

 
28

Members’ equity
198,016

 
212,712

Total liabilities and members’ equity
$
199,315

 
$
213,776


Certain summarized income statement information of Glass Mountain for the year ended December 31, 2016, 2015 and 2014 is shown below (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue
$
29,502

 
$
38,526

 
$
30,398

Cost of Sales
$
463

 
$
3,392

 
$
757

Operating, general and administrative expenses
$
7,570

 
$
6,643

 
$
6,419

Depreciation and amortization expense
$
15,914

 
$
15,828

 
$
13,872

Net income
$
5,548

 
$
12,657

 
$
9,344


We invested $0.3 million, $2.7 million and $16.2 million in Glass Mountain for the years ended December 31, 2016, 2015 and 2014, respectively.
Our ownership interest in Glass Mountain is not significant as defined by Securities and Exchange Commission's Regulation S-X Rule 1-02(w). Accordingly, no audited financial statements of Glass Mountain pursuant to Regulation S-X 3-09 have been included as an exhibit to this Form 10-K.
Acquisitions
Business Combination Disclosure [Text Block]
ACQUISITIONS
During the year ended December 31, 2014, we completed the following acquisition:
Crude oil trucking assets
On June 24, 2014, our Crude Transportation segment acquired crude oil trucking assets from a subsidiary of Chesapeake Energy Corporation ("Chesapeake") (NYSE: CHK) for $44.0 million in cash. Highlights of the transaction include:
124 trucks, 122 trailers and miscellaneous equipment; and
a long-term transportation agreement with Chesapeake Energy Marketing, Inc.
Disposals of Long-Lived Assets
Disposals of Long-Lived Assets
DISPOSALS OR IMPAIRMENTS OF LONG-LIVED ASSETS
Year ended December 31, 2016
There were no significant disposals or impairments of long-lived assets during the year ended December 31, 2016. See Note 12 for discussion of SemGas' goodwill impairment.
Year ended December 31, 2015
During the year ended December 31, 2015, our SemGas segment sold certain non-core Kansas based gas gathering and compression assets for approximately $1.0 million, resulting in a pre-tax loss of approximately $1.7 million which is reported in "loss on disposal or impairment, net" in the consolidated statement of operations and comprehensive income (loss). See Note 12 for discussion of the goodwill impairment recorded by our Crude Transportation segment.
Year ended December 31, 2014
On June 1, 2014, our SemGas segment sold certain natural gas gathering assets in Eastern Oklahoma resulting in a $20.1 million pre-tax loss on a cash sales price of $2.4 million. The assets sold were made up of property, plant and equipment with a net book value of $22.5 million. The loss on the sale was reported in "loss on disposal or impairment, net" in the consolidated statement of operations and comprehensive income (loss). The operations of the gas gathering assets were not material to SemGroup.
During the year ended December 31, 2014, we recorded an impairment charge of $11.9 million related to leaseholds of unproved oil and gas properties located in Kansas. These assets were written off when, due to the downturn in crude oil prices and the remaining life of the leaseholds, it became apparent that these properties would not be developed. These assets were held by a subsidiary included in Corporate and Other in our segment disclosures (Note 8).

Segments
Segments
SEGMENTS
As described in Note 1, 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.
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):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenues:
 
 
 
 
 
   Crude Transportation
 
 
 
 
 
External
$
64,853

 
$
81,991

 
$
84,718

Intersegment
26,878

 
15,021

 
10,840

   Crude Facilities
 
 
 
 
 
External
45,956

 
45,936

 
44,007

Intersegment
10,674

 

 

   Crude Supply and Logistics
 
 
 
 
 
External
716,570

 
716,784

 
1,169,372

   SemGas
 
 
 
 
 
External
208,042

 
231,569

 
342,286

Intersegment
10,928

 
20,605

 
37,897

   SemCAMS
 
 
 
 
 
External
133,216

 
136,197

 
176,724

   SemLogistics
 
 
 
 
 
External
24,725

 
24,351

 
12,650

   SemMexico
 
 
 
 
 
External
138,802

 
211,291

 
290,869

   Corporate and Other
 
 
 
 
 
External

 
6,975

 
1,953

Intersegment
(48,480
)
 
(35,626
)
 
(48,737
)
Total Revenues
$
1,332,164


$
1,455,094

 
$
2,122,579

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Earnings from equity method investments:
 
 
 
 
 
   Crude Transportation
$
71,569

 
$
76,355

 
$
61,856

   Corporate and Other (1)
2,147

 
11,416

 
31,363

Total earnings from equity method investments
$
73,716


$
87,771

 
$
93,219

(1) Including gain (loss) on issuance of common units by equity method investee.
 
 
 
 
 
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Depreciation and amortization:
 
 
 
 
 
   Crude Transportation
$
24,483

 
$
35,500

 
$
33,679

   Crude Facilities
7,781

 
5,829

 
5,365

   Crude Supply and Logistics
185

 
159

 
549

   SemGas
36,170

 
31,803

 
26,353

   SemCAMS
16,867

 
12,940

 
14,295

   SemLogistics
7,676

 
8,543

 
10,005

   SemMexico
3,752

 
4,076

 
6,031

   Corporate and Other
1,890

 
2,032

 
2,120

Total depreciation and amortization
$
98,804

 
$
100,882

 
$
98,397

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Income tax expense (benefit):
 
 
 
 
 
SemCAMS
$
3,667

 
$
4,847

 
$
3,135

SemLogistics
(724
)
 
(2,195
)
 
(2,231
)
SemMexico
1,684

 
2,611

 
4,053

Corporate and other
6,641

 
28,267

 
41,556

Total income tax expense
$
11,268

 
$
33,530

 
$
46,513

 
 
 
 
 
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Segment profit (1):
 
 
 
 
 
   Crude Transportation
$
83,942

 
$
81,028

 
$
76,705

   Crude Facilities
42,517

 
33,757

 
32,286

   Crude Supply and Logistics
20,420

 
30,088

 
24,021

   SemGas
44,142

 
61,669

 
41,715

   SemCAMS
38,901

 
36,013

 
45,326

   SemLogistics
11,175

 
7,249

 
25

   SemMexico
10,072

 
15,614

 
16,139

   Corporate and Other
(29,786
)
 
(33,369
)
 
(12,561
)
Total segment profit
$
221,383


$
232,049

 
$
223,656

(1) Segment profit represents revenues excluding unrealized gains (losses) related to derivative instruments plus earnings from equity method investments less cost of sales excluding depreciation and amortization and less operating and general and administrative expenses.
 
 
 
 
 
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Reconciliation of segment profit to net income:
 
 
 
 
 
   Total segment profit
$
221,383


$
232,049

 
$
223,656

     Less:
 
 
 
 
 
Net unrealized loss (gain) related to derivative instruments
989

 
2,014

 
(1,734
)
Depreciation and amortization
98,804

 
100,882

 
98,397

Interest expense
62,650

 
69,675

 
49,044

Foreign currency transaction loss (gain)
4,759

 
(1,067
)
 
(86
)
Loss (gain) on sale or impairment of equity method investment
30,644

 
(14,517
)
 
(34,212
)
Other expense (income), net
(994
)
 
(1,284
)
 
13,676

Income tax expense
11,268

 
33,530

 
46,513

Loss from discontinued operations
1

 
4

 
1

   Net income
$
13,262


$
42,812

 
$
52,057

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Additions to long-lived assets, including acquisitions and contributions to equity method investments:
 
 
 
 
 
   Crude Transportation
$
230,139

 
$
219,227

 
$
160,471

   Crude Facilities
6,439

 
30,118

 
8,207

   Crude Supply and Logistics
3,664

 
2,564

 
11,662

   SemGas
21,913

 
110,908

 
153,088

   SemCAMS
34,506

 
142,368

 
35,286

   SemLogistics
16,402

 
12,289

 
2,974

   SemMexico
8,690

 
7,051

 
9,690

   Corporate and Other
2,928

 
1,919

 
1,906

Total additions to long-lived assets
$
324,681


$
526,444

 
$
383,284

 
 
 
 
 
 
 
 
 
December 31,
 
 
 
2016
 
2015
Total assets (excluding intersegment receivables):
 
 
 
 
 
   Crude Transportation
 
 
$
1,042,327

 
$
877,017

   Crude Facilities
 
 
156,907

 
155,186

   Crude Supply and Logistics
 
 
484,475

 
328,419

   SemGas
 
 
683,952

 
719,789

   SemCAMS
 
 
379,785

 
331,749

   SemLogistics
 
 
135,387

 
155,794

   SemMexico
 
 
75,440

 
89,608

   Corporate and Other
 
 
116,699

 
196,347

Total
 
 
$
3,074,972

 
$
2,853,909

 
 
 
 
 
 
 
 
 
December 31,
 
 
 
2016
 
2015
Equity investments:
 
 
 
 
 
   Crude Transportation
 
 
$
415,356

 
$
438,291

   Corporate and Other
 
 
18,933

 
112,787

Total equity investments
 
 
$
434,289


$
551,078

Inventories
Inventories
INVENTORIES
Inventories consist of the following (in thousands):
 
December 31,
 
2016
 
2015
Crude oil
$
89,683

 
$
59,121

Asphalt and other
9,551

 
11,118

Total inventories
$
99,234

 
$
70,239



During the year ended December 31, 2015, our Crude Supply and Logistics segment recorded non-cash charges of $2.6 million to write-down crude oil inventory to the lower of cost or market. There were no inventory write-downs during the year ended December 31, 2016.
Other Assets
Other Assets
OTHER ASSETS
Other current assets consist of the following (in thousands):
 
December 31,
 
2016
 
2015
Prepaid expenses
$
6,801


$
6,252

Deferred tax asset
2,244

 
2,321

Other
9,585


10,846

Total other current assets
$
18,630


$
19,419



Other noncurrent assets consist of the following (in thousands):
 
December 31,
 
2016
 
2015
Capitalized loan fees
$
10,242

 
$
6,947

Deferred tax asset
43,431

 
34,848

Other
3,856

 
3,579

Total other noncurrent assets, net
$
57,529

  
$
45,374

Property, Plant and Equipment
Property, Plant and Equipment
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
 
December 31,
 
2016
 
2015
Land
$
90,337

 
$
89,815

Pipelines and related facilities
398,053

 
338,789

Storage and terminal facilities
279,506

 
283,608

Natural gas gathering and processing facilities
874,704

 
810,358

Linefill
25,804

 
26,900

Trucking equipment and other
45,417

 
43,157

Office property and equipment
61,146

 
45,818

Construction-in-progress
380,740

 
248,145

Property, plant and equipment, gross
2,155,707

 
1,886,590

Accumulated depreciation
(393,635
)
 
(319,769
)
Property, plant and equipment, net
$
1,762,072

 
$
1,566,821



We recorded depreciation expense of $87.9 million, $90.5 million and $82.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.
We include within the cost of property, plant and equipment interest costs incurred while an asset is being constructed. We capitalized $17.0 million, $1.0 million and $1.5 million of interest costs during the years ended December 31, 2016, 2015 and 2014, respectively.
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill relates to the following segments (in thousands):
 
December 31,
 
2016
 
2015
Crude Transportation
$
26,628

 
$
26,628

SemGas

 
13,052

SemMexico
7,602

 
8,352

Total Goodwill
$
34,230

 
$
48,032


In addition to the amounts in the table above, approximately $31.0 million of our investment in Glass Mountain represents equity method goodwill. Equity method goodwill is not amortized and is tested for impairment with the equity method investment in accordance with ASC 323.
Changes in goodwill balances during the period from December 31, 2013 to December 31, 2016 are shown below (in thousands):
Balance, December 31, 2013
$
62,021

Crude oil trucking asset acquisition (Note 6)
7,892

Mid-America Midstream Gas Services ("MMGS") purchase price allocation adjustment
(10,787
)
Barcas purchase price allocation adjustment
(98
)
Currency translation adjustments
(702
)
Balance, December 31, 2014
58,326

Crude oil trucking impairment loss
(9,488
)
Currency translation adjustments
(806
)
Balance, December 31, 2015
48,032

SemGas impairment loss
(13,052
)
Currency translation adjustments
(750
)
Balance, December 31, 2016
$
34,230


For U.S. federal income tax purposes, goodwill is amortized on a straight-line basis over 15 years.
We assess our goodwill for impairment at least annually as of October 1. No impairments were indicated as of October 1, 2016.
SemGas goodwill impairment - 2016
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.
Crude oil trucking goodwill impairment - 2015
As a result of the continued decline in oil prices and lower forecast volumes from declining drilling activity, along with lower than expected results during the fourth quarter of 2015, we performed an interim goodwill impairment analysis as of December 31, 2015 which resulted in an impairment charge of $9.5 million related to our crude oil trucking operation which was identified as the reporting unit for purposes of the impairment test.
We used an income approach, supplemented by a market approach to calculate the fair value of the reporting unit. Under the income approach, we utilized a discounted cash flow model to determine the fair value of our crude oil trucking operations. Significant judgments and assumptions included the discount rate, anticipated revenue and volume growth rates, estimated operating expenses and capital expenditures, which were based on our operating and capital budgets as well as our strategic plans. A significant underlying assumption is that crude oil prices will eventually improve and production volumes will begin to increase. If crude oil production does not increase in the future or the production takes longer than anticipated to return, this would negatively affect our key assumptions and potentially lead to additional impairments in the future. We considered the market approach by comparing the revenue and earnings multiples implied by our income approach to those of comparable companies for reasonableness.
Other intangible assets
The gross carrying amount and accumulated amortization of intangible assets are shown below (in thousands):
 
December 31, 2016
 
December 31, 2015
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Customer Relationships
$
187,114

 
$
(36,601
)
 
$
150,513

 
$
188,304

 
$
(26,975
)
 
$
161,329

Trade Names
421

 
(366
)
 
55

 
493

 
(378
)
 
115

Unpatented Technology
2,461

 
(2,051
)
 
410

 
2,941

 
(2,162
)
 
779

Total other intangible assets
$
189,996

 
$
(39,018
)
 
$
150,978

 
$
191,738

 
$
(29,515
)
 
$
162,223


Changes in other intangible asset balances during the period from December 31, 2013 to December 31, 2016 are shown below (in thousands):
Balance, December 31, 2013
$
174,838

Amortization
(15,875
)
Crude oil trucking asset acquisition (Note 6)
17,010

MMGS purchase price allocation adjustment
(2,313
)
Barcas purchase price allocation adjustment
(50
)
Currency translation adjustments
(545
)
Balance, December 31, 2014
173,065

Amortization
(10,334
)
Currency translation adjustments
(508
)
Balance, December 31, 2015
162,223

Amortization
(10,928
)
Currency translation adjustments
(317
)
Balance, December 31, 2016
$
150,978


Our other intangible assets consist primarily of customer relationships at our Crude Transportation, SemGas and SemMexico segments. These assets may be subject to impairments in the future if we are unable to maintain the relationships with the customers to which the assets relate.
We estimate that future amortization of other intangible assets will be as follows (in thousands):
For the year ending:
 
December 31, 2017
$
11,011

December 31, 2018
10,918

December 31, 2019
10,316

December 31, 2020
9,649

December 31, 2021
9,483

Thereafter
99,601

Total estimated amortization expense
$
150,978

Financial Instruments and Concentrations of Risk
Financial Instruments and Concentrations of Risk
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
Fair value of financial instruments
We record certain financial assets and liabilities at fair value at each balance sheet date. The table below summarizes the balances of commodity derivative assets and liabilities at December 31, 2016 and 2015 (in thousands):
 
December 31, 2016
 
December 31, 2015
Derivatives subject to netting arrangements:
Level 1
 
Netting(1)
 
Total
 
Level 1
 
Netting(1)
 
Total
Commodity derivatives:
 
 
 
 
 
 
 
 
 
 
 
Assets
$
68

 
$
(68
)
 
$

 
$
131

 
$
(131
)
 
$

Liabilities
$
1,396

 
$
(68
)
 
$
1,328

 
$
470

 
$
(131
)
 
$
339

(1)
Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.

“Level 1” measurements are based on inputs consisting of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange. The valuation of our common stock warrants which were traded on the New York Stock Exchange was also classified as Level 1.
“Level 2” measurements are based on inputs consisting of market observable and corroborated prices for similar commodity derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter ("OTC") traded forwards contracts and swaps.
“Level 3” measurements are obtained using information from a pricing service and 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.
There were no financial assets or liabilities classified as Level 2 or Level 3 during the years ended December 31, 2016, 2015 and 2014, as such no rollforward of Level 3 activity has been presented. 
See Note 15 for fair value of debt instruments and Note 20 for fair value of benefit plan assets. The approximate fair value of cash and cash equivalents, accounts receivable and accounts payable is equal to book value due to the short-term nature of these items.
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 location and time basis risk. All marketing activities are subject to our Comprehensive Risk Management Policy, a Delegation of Authority policy and their supporting policies and procedures (collectively, the "Risk Governance Policies"), which establish 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 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 derivative instruments entered into (in thousands of barrels):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Sales
33,694

 
23,228

 
6,773

Purchases
33,819

 
22,946

 
6,477


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 consolidated balance sheets in "other current assets" and "other current liabilities" in the following amounts (in thousands):
December 31, 2016
 
December 31, 2015
Other Current Assets
 
Other Current Liabilities
 
Other Current Assets
 
Other Current Liabilities
$

 
$
1,328

 
$

 
$
339

 
We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. Our margin deposit balances were $3.6 million and $2.9 million at December 31, 2016 and 2015, respectively. These margin account balances have not been offset against our net commodity derivative instrument (contract) positions. Had these margin account balances been netted against our net commodity derivative instrument (contract) positions as of December 31, 2016 and 2015, we would have had net asset positions of $2.3 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):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Realized and unrealized gain (loss)
$
(4,485
)
 
$
8,146

 
$
19,305


Warrants
For the year ended December 31, 2014, we recorded expense related to the change in fair value of warrants of $13.4 million to "other expense (income), net" in our consolidated statements operations and comprehensive income (loss). The warrants expired on November 30, 2014. See Note 17 for additional information.
Concentrations of risk
During the year ended December 31, 2016, one customer primarily of our Crude Supply and Logistics segment accounted for more than 10% of our consolidated revenue with revenues of $313.8 million. No suppliers accounted for more than 10% of our costs of products sold. At December 31, 2016, one customer, primarily of our Crude Supply and Logistics segment, accounted for approximately 20% of our consolidated accounts receivable.
Our SemGas segment has a significant concentration of producers which account for a large portion of our SemGas segment's volumes. During the year ended December 31, 2016, three producers accounted for approximately 92% of our total processed volumes. During the year ended December 31, 2016, three producers accounted for 95% of our total gathered volumes. Additionally, all of the processing and gathering volumes from these customers are produced in the Northern Oklahoma region.
Our SemCAMS processing plants require a minimum rate of sulfur tonnage to operate, and to comply with the regulatory requirements for air emissions.  We have several large producers that provide significant sour gas to our plants.  If these producers shut in their sour gas production due to low commodity prices, it could result in regulatory non-compliance, as well as operating and financial impacts to SemCAMS.

Assets and liabilities of subsidiaries outside the United States
The following table summarizes the assets and liabilities (excluding affiliate balances) at December 31, 2016 of our subsidiaries outside the United States (in thousands):
 
Canada
 
United
Kingdom
 
Mexico
 
Total
Cash and cash equivalents
$
44,180

 
$
5,234

 
$
9,858

 
$
59,272

Other current assets
42,390

 
2,055

 
26,214

 
70,659

Noncurrent assets
300,399

 
128,098

 
39,368

 
467,865

Total assets
$
386,969

 
$
135,387

 
$
75,440

 
$
597,796

 
 
 
 
 
 
 
 
Current liabilities
$
33,228

 
$
4,630

 
$
16,088

 
$
53,946

Noncurrent liabilities
57,907

 
12,368