SEMGROUP CORP, 10-Q filed on 5/5/2017
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2017
Apr. 30, 2017
Common Class A [Member]
Apr. 30, 2017
Class B
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Mar. 31, 2017 
 
 
Document Fiscal Period Focus
Q1 
 
 
Document Fiscal Year Focus
2017 
 
 
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
 
66,253,391 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 65,856 
$ 74,216 
Accounts receivable (net of allowance of $2,561 and $2,322, respectively)
477,046 
418,339 
Due from Affiliate, Current
12,926 
25,455 
Inventories
102,405 
99,234 
Other current assets
14,537 
18,630 
Total current assets
672,770 
635,874 
Property, plant and equipment (net of accumulated depreciation of $416,406 and $393,635, respectively)
1,834,400 
1,762,072 
Equity method investments
432,389 
434,289 
Goodwill
34,644 
34,230 
Other intangible assets (net of accumulated amortization of $42,606 and $39,018, respectively)
148,350 
150,978 
Other noncurrent assets
54,173 
57,529 
Total assets
3,176,726 
3,074,972 
Current liabilities:
 
 
Accounts payable
417,586 
367,307 
Payable to affiliates
17,086 
26,508 
Accrued liabilities
87,368 
81,104 
Deferred Revenue, Current
10,438 
10,571 
Other current liabilities
3,317 
2,839 
Long-term Debt and Capital Lease Obligations, Current
27 
26 
Total current liabilities
535,822 
488,355 
Long-term debt, net
1,140,637 
1,050,918 
Deferred income taxes
59,921 
64,501 
Other noncurrent liabilities
26,001 
25,233 
Commitments and contingencies (Note 8)
   
   
SemGroup owners’ equity:
 
 
Common stock, $0.01 par value (authorized - 100,000 shares; issued - 67,244 and 67,079 shares, respectively)
660 
659 
Additional paid-in capital
1,533,232 
1,561,695 
Treasury stock, at cost (1,007 and 980 shares, respectively)
(7,605)
(6,558)
Accumulated deficit
(44,061)
(35,917)
Accumulated other comprehensive loss
(67,881)
(73,914)
Total SemGroup Corporation owners’ equity
1,414,345 
1,445,965 
Total liabilities and owners’ equity
$ 3,176,726 
$ 3,074,972 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Allowance for Doubtful Accounts Receivable, Current
$ 2,561 
$ 2,322 
Accumulated depreciation
416,406 
393,635 
Accumulated amortization
42,606 
39,018 
Accounts Payable
417,586 
367,307 
Accrued Liabilities
87,368 
81,104 
Other Liabilities, Current
$ 3,317 
$ 2,839 
Common stock, $0.01 par value
$ 0.01 
$ 0.01 
Common stock shares authorized
100,000 
100,000 
Common stock shares issued
67,244 
67,079 
Treasury Stock, Common, Shares
1,007 
980 
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Revenues:
 
 
Sales Revenue, Goods, Net
$ 373,361 
$ 236,896 
Sales Revenue, Services, Net
68,193 
64,073 
Other
14,546 
13,882 
Revenue, Net
456,100 
314,851 
Expenses:
 
 
Cost of Goods Sold, Excluding Depreciation, Depletion, and Amortization
348,998 
196,947 
Operating
52,083 
50,192 
General and administrative
21,644 
21,060 
Depreciation, Depletion and Amortization
24,599 
24,051 
Loss on disposal or impairment, net
2,410 
13,307 
Total expenses
449,734 
305,557 
Earnings from equity method investments
17,091 
23,071 
Loss on issuance of common units by equity method investee
(41)
Operating income
23,457 
32,324 
Other expenses (income), net:
 
 
Interest expense
13,867 
17,577 
Loss on early extinguishment of debt
19,922 
Foreign currency transaction loss
1,469 
Loss on sale or impairment of equity method investment
39,764 
Other income, net
(150)
(188)
Total other expenses, net
33,639 
58,622 
Loss from continuing operations before income taxes
(10,182)
(26,298)
Income tax expense (benefit)
95 
(21,407)
Loss from continuing operations
(10,277)
(4,891)
Loss from discontinued operations, net of income taxes
(2)
Net loss
(10,277)
(4,893)
Less: net income attributable to noncontrolling interests
9,020 
Net loss attributable to SemGroup
(10,277)
(13,913)
Other comprehensive income (loss), net of income taxes
6,033 
(4,109)
Comprehensive loss
(4,244)
(9,002)
Less: comprehensive income attributable to noncontrolling interests
9,020 
Comprehensive loss attributable to SemGroup
$ (4,244)
$ (18,022)
Net loss attributable to SemGroup per common share (Note 10):
 
 
Basic
$ (0.16)
$ (0.32)
Diluted
$ (0.16)
$ (0.32)
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Cash flows from operating activities:
 
 
Net loss
$ (10,277,000)
$ (4,893,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Depreciation and amortization
24,599,000 
24,051,000 
Loss on disposal or impairment, net
2,410,000 
13,307,000 
Earnings from equity method investments
(17,091,000)
(23,071,000)
Loss on issuance of common units by equity method investee
41,000 
Loss on sale or impairment of equity method investment
39,764,000 
Distributions from equity investments
17,301,000 
25,712,000 
Amortization of debt issuance costs and discount
1,364,000 
1,396,000 
Loss on early extinguishment of debt
19,922,000 
Deferred tax benefit
(634,000)
(22,642,000)
Non-cash equity compensation
2,757,000 
2,874,000 
Provision for uncollectible accounts receivable, net of recoveries
151,000 
11,000 
Currency loss
1,469,000 
Inventory valuation adjustment
455,000 
Changes in operating assets and liabilities (Note 11)
(12,948,000)
(9,120,000)
Net cash provided by operating activities
28,009,000 
48,899,000 
Cash flows from investing activities:
 
 
Capital expenditures
(92,248,000)
(74,879,000)
Proceeds from sale of long-lived assets
15,500,000 
40,000 
Contributions to equity method investments
(2,490,000)
(1,356,000)
Distributions in excess of equity in earnings of affiliates
4,392,000 
6,074,000 
Net cash used in investing activities
(74,846,000)
(70,121,000)
Cash flows from financing activities:
 
 
Debt issuance costs
(4,632,000)
Borrowings on credit facilities and issuance of senior notes, net of discount
437,018,000 
174,000,000 
Principal payments on credit facilities and other obligations
(348,278,000)
(110,011,000)
Debt extinguishment costs
(16,293,000)
Distributions to noncontrolling interests
(10,833,000)
Repurchase of common stock for payment of statutory taxes due on equity-based compensation
(1,047,000)
(807,000)
Dividends paid
(29,770,000)
(19,887,000)
Proceeds from issuance of common stock under employee stock purchase plan
231,000 
269,000 
Net cash provided by financing activities
37,229,000 
32,731,000 
Effect of exchange rate changes on cash and cash equivalents
1,248,000 
2,884,000 
Change in cash and cash equivalents
(8,360,000)
14,393,000 
Cash and cash equivalents at beginning of period
74,216,000 
58,096,000 
Cash and cash equivalents at end of period
$ 65,856,000 
$ 72,489,000 
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, 2016, 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 ended March 31, 2017, are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
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, 2016, which are included in our Annual Report on Form 10-K for the year ended December 31, 2016, 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, 2016.
Prior year amounts have been recast from the amounts originally reported to correct for an immaterial error identified by management in the fourth quarter of 2016 related to an under capitalization of interest on certain capital projects. Previously reported interest expense has been decreased by $1.4 million for the quarter ended March 31, 2016, with a corresponding increase to net income before tax. Earnings per basic share was increased by $0.03 per share for the quarter ended March 31, 2016.
Recent accounting pronouncements
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", which requires that an employer disaggregate the service cost component from other components of net benefit cost. This ASU also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. For public entities, this ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those years. We will adopt this guidance in the first quarter of 2018. The impact is not expected to be material.
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 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 adopted this guidance in the first quarter of 2017. We recorded adjustments of $2.1 million and $1.7 million to "accumulated deficit" and "additional paid-in capital", respectively, upon adoption offset by changes to our income tax liabilities.
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 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 adopted this guidance in the first quarter of 2017. Prior periods were not retrospectively adjusted and the impact was not 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 adopted this guidance in the first quarter of 2017. The impact was not material.
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.
Equity Method Investments
EQUITY METHOD INVESTMENTS
EQUITY METHOD INVESTMENTS

Our equity method investments consisted of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
White Cliffs Pipeline, L.L.C.
$
279,333

 
$
281,734

Glass Mountain Pipeline, LLC
134,120

 
133,622

NGL Energy Partners LP
18,936

 
18,933

Total equity method investments
$
432,389

 
$
434,289


    
Our earnings from equity method investments consisted of the following (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
White Cliffs Pipeline, L.L.C.
$
15,193

 
$
19,780

Glass Mountain Pipeline, LLC
1,895

 
1,059

NGL Energy Partners LP
3

 
2,232

Total earnings from equity method investments
$
17,091

 
$
23,071


Cash distributions received from equity method investments consisted of the following (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
White Cliffs Pipeline, L.L.C.
$
18,190

 
$
24,098

Glass Mountain Pipeline, LLC
3,503

 
2,815

NGL Energy Partners LP

 
4,873

Total cash distributions received from equity method investments
$
21,693

 
$
31,786


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 ended March 31, 2017 and 2016, is shown below (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Revenue
$
50,184

 
$
58,056

Cost of products sold, exclusive of depreciation and amortization shown below
$
4,113

 
$
250

Operating, general and administrative expenses
$
6,240

 
$
9,602

Depreciation and amortization expense
$
9,256

 
$
8,963

Net income
$
30,575

 
$
39,247


The equity in earnings of White Cliffs for the three months ended March 31, 2017 and 2016, 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. In addition, our equity in earnings is also impacted by the elimination of earnings on commodity sales with 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.
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 March 31, 2017. 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 ended March 31, 2017 and 2016, is shown below (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Revenue
$
11,692

 
$
8,572

Cost of products sold, exclusive of depreciation and amortization shown below
$
1,898

 
$
565

Operating, general and administrative expenses
$
1,915

 
$
1,845

Depreciation and amortization expense
$
3,982

 
$
3,936

Net income
$
3,896

 
$
2,225


The equity in earnings of Glass Mountain for the three months ended March 31, 2017 and 2016, 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 three months ended March 31, 2017, we contributed $2.1 million to Glass Mountain related to capital projects.
NGL Energy Partners LP
We own an 11.78% interest in the general partner of NGL Energy Partners LP (NYSE: NGL) ("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.
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 condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2017 and 2016, relates to the earnings of NGL Energy for the three months ended December 31, 2016 and 2015, respectively.
During the three months ended December 31, 2015, 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 three months ended March 31, 2016.
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 2 for additional information.
Our results by segment are presented in the tables below (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Revenues:
 
 
 
   Crude Transportation
 
 
 
External
$
13,979

 
$
17,196

Intersegment
6,554

 
7,213

   Crude Facilities
 
 
 
External
9,635

 
10,133

Intersegment
2,506

 
2,746

   Crude Supply and Logistics
 
 
 
External
297,471

 
176,622

   SemGas
 
 
 
External
57,752

 
43,520

Intersegment
3,911

 
2,746

   SemCAMS
 
 
 
External
36,798

 
30,866

   SemLogistics
 
 
 
External
7,528

 
6,380

   SemMexico
 
 
 
External
32,937

 
30,134

   Corporate and Other
 
 
 
External

 

Intersegment
(12,971
)

(12,705
)
Total Revenues
$
456,100


$
314,851

 
 
 
 
 
Three Months Ended March 31,
 
2017
 
2016
Earnings from equity method investments:
 
 
 
   Crude Transportation
$
17,088

 
$
20,839

   Corporate and Other(1)
3

 
2,191

Total earnings from equity method investments
$
17,091


$
23,030

(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.
 
 
 
 
 
Three Months Ended March 31,
 
2017
 
2016
Depreciation and amortization:
 
 
 
   Crude Transportation
$
5,927

 
$
5,860

   Crude Facilities
1,944

 
1,882

   Crude Supply and Logistics
62

 
40

   SemGas
8,927

 
8,927

   SemCAMS
4,496

 
3,951

   SemLogistics
1,815

 
1,960

   SemMexico
937

 
941

   Corporate and Other
491

 
490

Total depreciation and amortization
$
24,599


$
24,051

 
 
 
 
 
Three Months Ended March 31,
 
2017
 
2016
Income tax expense (benefit):
 
 
 
SemCAMS
$
1,424

 
$
965

SemLogistics
381

 
59

SemMexico
217

 
607

Corporate and Other
(1,927
)
 
(23,038
)
Total income tax expense (benefit)
$
95


$
(21,407
)
 
 
 
 
 
Three Months Ended March 31,
 
2017
 
2016
Segment profit (loss)(1):
 
 
 
   Crude Transportation(2)
$
16,862

 
$
25,418

   Crude Facilities
8,962

 
9,587

   Crude Supply and Logistics
(3,615
)
 
9,093

   SemGas
15,749

 
(992
)
   SemCAMS
11,596

 
9,904

   SemLogistics
3,744

 
2,659

   SemMexico
1,679

 
2,318

   Corporate and Other(3)
(6,894
)
 
(6,160
)
Total segment profit
$
48,083


$
51,827

(1) Segment profit (loss) 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, including gains or losses on disposals or impairments.
(2) The three months ended March 31, 2017, includes a $4.5 million out of period loss on the disposal of right-of-way related to immaterial prior period errors.
(3) 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 March 31,
 
2017
 
2016
Reconciliation of segment profit to net loss:
 
 
 
   Total segment profit
$
48,083


$
51,827

     Less:
 
 
 
Net unrealized loss (gain) related to derivative instruments
27

 
(4,548
)
Depreciation and amortization
24,599


24,051

Loss on debt extinguishment
19,922

 

Interest expense
13,867

 
17,577

Foreign currency transaction loss

 
1,469

Loss on sale or impairment of equity method investment

 
39,764

Other income, net
(150
)
 
(188
)
Income tax expense (benefit)
95

 
(21,407
)
Loss from discontinued operations, net of income taxes

 
2

   Net loss
$
(10,277
)

$
(4,893
)
 
 
 
 
 
March 31,
2017
 
December 31,
2016
Total assets (excluding intersegment receivables):
 
 
 
   Crude Transportation
$
1,102,268

 
$
1,042,327

   Crude Facilities
149,819

 
156,907

   Crude Supply and Logistics
532,620

 
484,475

   SemGas
683,364

 
683,952

   SemCAMS
384,992

 
379,785

   SemLogistics
137,965

 
135,387

   SemMexico
85,013

 
75,440

   Corporate and Other(1)
100,685

 
116,699

Total
$
3,176,726


$
3,074,972

(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.
 
 
 
 
 
March 31,
2017
 
December 31,
2016
Equity investments:
 
 
 
   Crude Transportation
$
413,453

 
$
415,356

   Corporate and Other(1)
18,936

 
18,933

Total equity investments
$
432,389


$
434,289

(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):
 
March 31,
2017
 
December 31,
2016
Crude oil
$
90,756

 
$
89,683

Asphalt and other
11,649

 
9,551

Total inventories
$
102,405

 
$
99,234



At March 31, 2017, our Crude Supply and Logistics segment recorded non-cash charges of $0.5 million to write-down crude oil inventory to lower of cost or market. There were no inventory write-downs during the three months ended March 31, 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 March 31, 2017 and December 31, 2016 (in thousands):

 
March 31, 2017
 
December 31, 2016
Derivatives subject to netting arrangements:
Level 1
 
Netting*
 
Total
 
Level 1
 
Netting*
 
Total
Commodity derivatives:
 
 
 
 

 
 
 
 
 

Assets
$
63

 
$
(63
)
 
$

 
$
68

 
$
(68
)
 
$

Liabilities
$
1,418

 
$
(63
)
 
$
1,355

 
$
1,396

 
$
(68
)
 
$
1,328

*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 March 31, 2017, 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 ended March 31, 2017 and 2016.
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, a Delegation of Authority policy and their supporting policies and procedures, 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, 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 March 31,
 
2017
 
2016
Sales
4,312

 
10,420

Purchases
4,131

 
10,510


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):
 
March 31, 2017
 
December 31, 2016
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
1,355

 
$

 
$
1,328


We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. At March 31, 2017 and December 31, 2016, our margin deposit balances were in net asset positions of $3.9 million and $3.6 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 March 31, 2017 and December 31, 2016, we would have had net asset positions of $2.5 million and $2.3 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 March 31,
 
2017
 
2016
Commodity contracts
$
4,661

 
$
3,354


Concentrations of risk
During the three months ended March 31, 2017, one customer, primarily of our Crude Supply and Logistics segment, accounted for more than 10% of our consolidated revenue with revenues of $123.2 million. No suppliers accounted for more than 10% of our costs of products sold.
At March 31, 2017, two third-party customers of our Crude Supply and Logistics segment accounted for approximately 34% of our consolidated accounts receivable.
Income Taxes
INCOME TAXES
INCOME TAXES
The effective tax rate was (1)% and 81% for the three months ended March 31, 2017 and 2016, respectively. The rate for the three months ended March 31, 2017 is impacted by a discrete tax expense of $1.4 million related to the vesting of restricted stock during the period. The rate for the three months ended March 31, 2016 is impacted by a non-controlling interest in Rose Rock Midstream, L.P. ("Rose Rock") for which taxes are not provided. 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 foreign earnings 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):

 
March 31,
2017
 
December 31,
2016
7.50% senior unsecured notes due 2021
$

 
$
300,000

Unamortized debt issuance costs on 2021 notes

 
(3,708
)
7.50% senior unsecured notes due 2021, net

 
296,292




 


5.625% senior unsecured notes due 2022
400,000

 
400,000

Unamortized debt issuance costs on 2022 notes
(5,642
)
 
(5,909
)
5.625% senior unsecured notes due 2022, net
394,358

 
394,091

 
 
 
 
5.625% senior unsecured notes due 2023
350,000

 
350,000

Unamortized discount on 2023 notes
(4,747
)
 
(4,894
)
Unamortized debt issuance costs on 2023 notes
(4,429
)
 
(4,596
)
5.625% senior unsecured notes due 2023, net
340,824

 
340,510

 
 
 
 
6.375% senior unsecured notes due 2025
325,000

 

Unamortized discount on 2025 notes
(4,963
)
 

Unamortized debt issuance costs on 2025 notes
(4,600
)
 

6.375% senior unsecured notes due 2025, net
315,437

 

 
 
 
 
SemGroup corporate revolving credit facility
90,000

 
20,000

SemMexico revolving credit facility

 

Capital leases
45

 
51

Total long-term debt, net
1,140,664

 
1,050,944

Less: current portion of long-term debt
27

 
26

Noncurrent portion of long-term debt, net
$
1,140,637

 
$
1,050,918


Senior unsecured notes due 2021
On March 15, 2017, we purchased $290 million of our outstanding $300 million 7.50% senior unsecured notes due 2021 (the "2021 Notes") through a tender offer. The purchase price included a premium and interest to the purchase date. On March 17, 2017, a notice of redemption was issued for the remaining $10 million of 2021 Notes which were not purchased through the tender offer pursuant to the redemption and satisfaction and discharge provisions of the indenture governing the 2021 Notes. These remaining 2021 Notes will be redeemed on June 15, 2017, including a redemption premium and accrued unpaid interest to the redemption date. We have transferred sufficient funds to the trustee to redeem the these remaining 2021 Notes including the redemption premium and interest to June 15, 2017, in accordance with the governing indenture. Consequently, we have derecognized the associated liability and written off associated unamortized debt issuance costs. We recorded a loss on early extinguishment of $19.9 million for the above transactions, which included premiums totaling $15.9 million and the write off of $3.6 million of associated unamortized debt issuance costs.
For the three months ended March 31, 2017 and 2016, we incurred $5.0 million and $5.8 million, respectively, of interest expense related to the 2021 Notes including amortization of debt issuance costs.
Senior unsecured notes due 2022
At March 31, 2017, we had outstanding $400 million of 5.625% senior unsecured notes due 2022 (the "2022 Notes"). For the three months ended March 31, 2017 and 2016, we incurred $5.9 million and $5.9 million, respectively, of interest expense related to the 2022 Notes including amortization of debt issuance costs.
Senior unsecured notes due 2023
At March 31, 2017, we had outstanding $350 million of 5.625% senior unsecured notes due 2023 (the “2023 Notes”). For the three months ended March 31, 2017 and 2016, 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.
Senior unsecured notes due 2025
On March 15, 2017, we sold $325 million of 6.375% senior unsecured notes due 2025 (the "2025 Notes"). The 2025 Notes were sold at 98.467% of par, a discount of $5.0 million. The discount is reported as a reduction to the face value of the 2025 Notes on our condensed consolidated balance sheets and is being amortized over the life of the 2025 Notes using the interest method.
The net proceeds from the offering of $315.5 million, after the discount and $4.5 million of initial purchasers' fees and offering expenses, together with cash on hand, were used to purchase and redeem the 2021 Notes.
The 2025 Notes were issued under an indenture (the “Indenture”) entered into on March 15, 2017, by and among the Company, the Guarantors and Wilmington Trust, National Association, as trustee (the “Trustee”). The 2025 Notes are fully and unconditionally guaranteed on a senior unsecured basis by our existing subsidiaries that guarantee our revolving credit facility. Interest on the 2025 Notes accrues at a rate of 6.375% per annum and is payable in cash semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017. The 2025 Notes will mature on March 15, 2025.
Prior to March 15, 2020, we may redeem the 2025 Notes, in whole or in part, at any time at a price equal the principal amount of the 2025 Notes redeemed plus accrued and unpaid interest to, but not including, the redemption date and a “make-whole premium.” Additionally, from time to time before March 15, 2020, we may choose to redeem up to 35% of the original principal amount of the 2025 Notes at a redemption price equal to 106.375% of the face amount thereof plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds that we raise in one or more equity offerings. On or after March 15, 2020, we may redeem the 2025 Notes, in whole or in part, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon to, but not including, the redemption date if redeemed during the twelve month period beginning on March 15 of the years indicated below:
Year
 
Percentage
2020
 
103.188%
2021
 
101.594%
2022 and thereafter
 
100.000%

Upon the occurrence of a change of control triggering event, as defined in the Indenture, each holder of the Notes will have the right to require the Company to repurchase some or all of such holder’s 2025 Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the repurchase date.
The Indenture contains customary covenants restricting our ability and the ability of our restricted subsidiaries to: (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends and make certain distributions, investments and other restricted payments; (iii) create certain liens; (iv) sell assets; (v) enter into transactions with affiliates; (vi) enter into sale and lease-back transactions; (vii) merge, consolidate, sell or otherwise dispose of all or substantially all of our assets; and (viii) designate our subsidiaries as unrestricted subsidiaries under the Indenture. These covenants are subject to a number of important limitations and exceptions, including certain provisions permitting us, subject to the satisfaction of certain conditions, to transfer assets to certain of our unrestricted subsidiaries.
The Indenture also contains customary events of default. Upon an event of default under the Indenture, the Trustee or the holders of at least 25% in aggregate principal amount of the 2025 Notes then outstanding may declare all amounts owing under the 2025 Notes to be due and payable.
For the three months ended March 31, 2017, we incurred $1.0 million of interest expense related to the 2025 Notes, including amortization of debt issuance costs and discount.
Registration rights agreement
In connection with the closing of the offering of the 2025 Notes, on March 15, 2017, the Company and the Guarantors entered into a registration rights agreement (the “Registration Rights Agreement”). Under the Registration Rights Agreement, the Company and the Guarantors have agreed to file a registration statement with the Securities and Exchange Commission so that holders of the 2025 Notes can exchange the 2025 Notes and the related guarantees for registered notes and guarantees that have substantially identical terms as the 2025 Notes and related guarantees within 365 days after the original issuance of the 2025 Notes. In certain circumstances, the Company and the Guarantors may be required to file a shelf registration statement to cover resales of the 2025 Notes. We are required to pay additional interest on the 2025 Notes if we fail to comply with our obligations to register the 2025 Notes and related guarantees within the specified time periods.
Corporate revolving credit facility
At March 31, 2017, we had $90.0 million of outstanding cash borrowings on our $1.0 billion revolving credit facility, of which $20.0 million incurred interest at the Alternate Base Rate ("ABR") and $70.0 million incurred interest at the Eurodollar rate. At March 31, 2017, the ABR rate in effect was 5.25% and the Eurodollar rate in effect was 3.23%. The facility matures on March 15, 2021.
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 March 31, 2017, we had outstanding letters of credit under the facility of $35.4 million, for which the rate in effect was 2.25%, and outstanding secured bi-lateral letters of credit of $54.0 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 $2.3 million and $1.4 million for the three months ended March 31, 2017 and 2016, respectively, including letters of credit and amortization of debt issuance costs.
SemMexico revolving credit facility
At March 31, 2017, SemMexico had a $70 million Mexican pesos (U.S. $3.7 million at the March 31, 2017 exchange rate) revolving credit facility, which matures in May 2018. There were no outstanding borrowings on the facility at March 31, 2017. Borrowings are unsecured and bear interest at the bank prime rate in Mexico plus 1.50%.
At March 31, 2017, SemMexico had an outstanding letter of credit of $292.8 million Mexican pesos (U.S. $15.6 million at the March 31, 2017 exchange rate). The letter of credit was issued for a fee of 0.28%.
Capitalized interest
During the three months ended March 31, 2017 and 2016, we capitalized interest of $5.6 million and $2.2 million, respectively. As described in Note 1, capitalized interest for the prior year has been recast.
Fair value
We estimate the fair value of the 2022 Notes, the 2023 Notes and the 2025 Notes to be $395 million, $344 million and $321 million, respectively, at March 31, 2017, 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
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 displaced with nitrogen and abandoned in March 2016 when we initiated service on our new pipeline segment that transports Kansas crude volumes to our Cushing, Oklahoma terminal. The Notice proposed a penalty of $600,200, which we paid in March 2017, and the matter has been concluded.
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 March 31, 2017, we have an asset retirement obligation liability of $19.3 million, which is included within other noncurrent liabilities on our condensed consolidated balance sheets. This amount was calculated using the $123.1 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 March 31, 2017, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
4,158

 
$
204,181

Fixed price sales
5,073

 
$
253,795

Floating price purchases
13,304

 
$
655,885

Floating price sales
18,365

 
$
855,639


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, 2017
$
8,995

December 31, 2018
10,060

December 31, 2019
9,121

December 31, 2020
8,451

December 31, 2021
6,841

Thereafter
9,099

Total expected future payments
$
52,567


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 five years. Annual payments to White Cliffs under the agreement are expected to be $9.4 million. In addition, we have a throughput commitment for 5,000 barrels per day on a third-party pipeline currently under construction. The agreement will become effective when the pipeline is completed and the agreement will have a seven year term from that date. Annual payments are expected to be $11.9 million.
Capital expenditures
We expect to spend approximately $180 million to complete construction of the Maurepas Pipeline in 2017. We expect to spend approximately $80 million and $155 million in 2017 and 2018, respectively, related to construction of the Wapiti Sour Gas Plant.
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, 2016 to March 31, 2017 (in thousands):
 
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Owners’
Equity
Balance at December 31, 2016
$
659

$
1,561,695

$
(6,558
)
$
(35,917
)
$
(73,914
)
$
1,445,965

Adoption of ASU 2016-09

(1,650
)

2,133


483

Net loss



(10,277
)

(10,277
)
Other comprehensive income, net of income taxes




6,033

6,033

Dividends paid

(29,770
)



(29,770
)
Unvested dividend equivalent rights

(276
)



(276
)
Non-cash equity compensation

2,717




2,717

Issuance of common stock under compensation plans
1

516




517

Repurchase of common stock


(1,047
)


(1,047
)
Balance at March 31, 2017
$
660

$
1,533,232

$
(7,605
)
$
(44,061
)
$
(67,881
)
$
1,414,345


Accumulated other comprehensive loss
The following table presents the changes in the components of accumulated other comprehensive loss from December 31, 2016 to March 31, 2017 (in thousands):
 
Currency
Translation
 
Employee
Benefit
Plans
 
Total
Balance at December 31, 2016
$
(71,425
)
 
$
(2,489
)
 
$
(73,914
)
Currency translation adjustment, net of income tax expense of $3,668
6,018

 

 
6,018

Changes related to benefit plans, net of income tax expense of $6

 
15

 
15

Balance at March 31, 2017
$
(65,407
)
 
$
(2,474
)
 
$
(67,881
)

There were no significant items reclassified out of accumulated other comprehensive loss to net income for the three months ended March 31, 2017.
Equity issuances
During the three months ended March 31, 2017, 16,385 shares under the Employee Stock Purchase Plan were issued and 80,329 shares related to our equity based compensation awards vested.
Equity-based compensation
At March 31, 2017, there were 1,126,338 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 512,000 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 March 31, 2017, the value of the UDs to be settled in cash related to unvested restricted stock awards was approximately $1.2 million.
During the three months ended March 31, 2017, we granted 334,011 restricted stock awards with a weighted average grant date fair value of $38.07 per award.
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, 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
 
 
 
 
 
 
 
March 31, 2017
 
$
0.45

 
March 7, 2017
 
March 17, 2017
June 30, 2017
 
$
0.45

 
May 15, 2017
 
May 26, 2017
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 represented third-party limited partner unitholders' interests in the earnings of our consolidated subsidiary, Rose Rock, prior to completion of our purchase of the noncontrolling interests in the third quarter of 2016 (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 is no longer 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 ended March 31, 2017 and 2016 (in thousands, except per share amounts):
 
Three Months Ended March 31, 2017
 
Three Months Ended March 31, 2016
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Loss
$
(10,277
)
 
$

 
$
(10,277
)
 
$
(4,891
)
 
$
(2
)
 
$
(4,893
)
less: Income attributable to noncontrolling interests

 

 

 
9,020

 

 
9,020

Loss attributable to SemGroup
$
(10,277
)
 
$

 
$
(10,277
)
 
$
(13,911
)
 
$
(2
)
 
$
(13,913
)
Weighted average common stock outstanding
65,692

 
65,692

 
65,692

 
43,870

 
43,870

 
43,870

Basic loss per share
$
(0.16
)
 
$

 
$
(0.16
)
 
$
(0.32
)
 
$

 
$
(0.32
)
 
The following summarizes the calculation of diluted earnings per share for the three months ended March 31, 2017 and 2016 (in thousands, except per share amounts):

 
Three Months Ended March 31, 2017
 
Three Months Ended March 31, 2016
 
Continuing
Operations
 
Discontinued
Operations
 
Net
 
Continuing
Operations
 
Discontinued
Operations
 
Net
Loss
$
(10,277
)
 
$

 
$
(10,277
)
 
$
(4,891
)
 
$
(2
)
 
$
(4,893
)
less: Income attributable to noncontrolling interests

 

 

 
9,020

 

 
9,020

Loss attributable to SemGroup
$
(10,277
)
 
$

 
$
(10,277
)
 
$
(13,911
)
 
$
(2
)
 
$
(13,913
)
Weighted average common stock outstanding
65,692

 
65,692

 
65,692

 
43,870

 
43,870

 
43,870

Effect of dilutive securities

 

 

 

 

 

Diluted weighted average common stock outstanding
65,692

 
65,692

 
65,692

 
43,870

 
43,870

 
43,870

Diluted loss per share
$
(0.16
)
 
$

 
$
(0.16
)
 
$
(0.32
)
 
$

 
$
(0.32
)
 
For the three months ended March 31, 2017 and 2016, we experienced net losses 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):
 
Three Months Ended March 31,
 
2017
 
2016
Decrease (increase) in restricted cash
$
28

 
$
32

Decrease (increase) in accounts receivable
(55,150
)
 
40,535

Decrease (increase) in receivable from affiliates
12,529

 
2,237

Decrease (increase) in inventories
(2,441
)
 
4,834

Decrease (increase) in derivatives and margin deposits
(194
)
 
(634
)
Decrease (increase) in other current assets
1,051

 
1,582

Decrease (increase) in other assets
(875
)
 
12

Increase (decrease) in accounts payable and accrued liabilities
40,485

 
(55,581
)
Increase (decrease) in payable to affiliates
(9,422
)
 
(1,626
)
Increase (decrease) in other noncurrent liabilities
1,041

 
(511
)
 
$
(12,948
)
 
$
(9,120
)
  
Other supplemental disclosures
We paid cash interest of $12.9 million and $13.3 million for the three months ended March 31, 2017 and 2016, respectively.
We paid cash income taxes, net of refunds of $1.2 million and $1.1 million for the three months ended March 31, 2017 and 2016, respectively.
We incurred liabilities for construction work in process that had not been paid of $13.9 million and $7.3 million as of March 31, 2017 and 2016, respectively. Such amounts are not included in capital expenditures on the consolidated statements of cash flows.
Related Party Transactions
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
Transactions with NGL Energy and its subsidiaries primarily relate to marketing, leased storage and transportation services of crude oil, including buy/sell transactions. Transactions with White Cliffs primarily relate to leased storage, purchases and sales of crude oil, transportation fees for shipments on the White Cliffs Pipeline, and management fees. Transactions with Glass Mountain primarily relate to transportation fees for shipments on the Glass Mountain Pipeline, fees for support and administrative services associated with pipeline operations and purchases of crude oil.
In accordance with ASC 845-10-15, the buy/sell transactions with NGL Energy and White Cliffs 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 and entered into in contemplation of one another.
During the three months ended March 31, 2017 and 2016, we generated the following transactions with related parties (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
NGL Energy
 
 
 
   Revenues
$
22,204

 
$
8,529

   Purchases
$
15,584

 
$
6,830

 
 
 
 
White Cliffs
 
 
 
   Crude oil revenues
$
436

 
$

   Storage revenues
$
1,088

 
$
1,088

   Transportation fees
$
2,655

 
$
2,526

   Management fees
$
127

 
$
121

   Crude oil purchases
$
4,003

 
$

 
 
 
 
Glass Mountain
 
 
 
   Transportation fees
$
2,265

 
$
1,922

   Management fees
$
204

 
$
198

   Crude oil purchases
$
3,911

 
$
385


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 $0.1 million and $0.2 million in legal fees and related expenses to this law firm during the three months ended March 31, 2017 and 2016, respectively.
Condensed Consolidating Guarantor Financial Statements (Notes)
Condensed Consolidating Guarantor Financial Statements [Text Block]
CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS

Our senior unsecured notes are guaranteed by certain of our subsidiaries as follows: Rose Rock Finance Corporation, Rose Rock Midstream Operating, LLC, Rose Rock Midstream Energy GP, LLC, Rose Rock Midstream Crude, L.P., Rose Rock Midstream Field Services, LLC, SemGas, L.P., SemMaterials, L.P., SemGroup Europe Holding, L.L.C., SemOperating G.P., L.L.C., SemMexico, L.L.C., SemDevelopment, L.L.C., Mid-America Midstream Gas Services, L.L.C., SemCrude Pipeline, L.L.C., Wattenberg Holding, LLC and Glass Mountain Holding, LLC (collectively, the "Guarantors").
Each of the Guarantors is 100% owned by SemGroup Corporation (the "Parent"). Such guarantees of the Notes are full and unconditional and constitute the joint and several obligations of the Guarantors. There are no significant restrictions upon the ability of the Parent or any of the Guarantors to obtain funds from its respective subsidiaries by dividend or loan. None of the assets of the Guarantors represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act.
Subsequent to the Merger as described in Note 10, SemGroup assumed the obligations of Rose Rock under Rose Rock's senior unsecured notes. Supplemental indentures were entered into with respect to the previously existing SemGroup senior unsecured notes and the senior unsecured notes assumed from Rose Rock to include the Guarantors as listed above to the extent the entity was not already a Guarantor. Prior period comparative information has been recast to reflect the addition of Rose Rock subsidiaries as Guarantors.
Unaudited condensed consolidating financial statements for the Parent, the Guarantors and non-guarantors as of March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017 and 2016, are presented on an equity method basis in the tables below (in thousands).
Intercompany receivable and payable balances, including notes receivable and payable, are capital transactions primarily to facilitate the capital needs of our subsidiaries. As such, subsidiary intercompany balances have been reported as a reduction to equity on the condensed consolidating Guarantor balance sheets. The Parent's net intercompany balance, including note receivable, and investments in subsidiaries have been reported in equity method investments on the condensed consolidating Guarantor balance sheets. Intercompany transactions, such as daily cash management activities, have been reported as financing activities within the condensed consolidating Guarantor statements of cash flows. These balances are eliminated through consolidating adjustments below.

Condensed Consolidating Guarantor Balance Sheets
 
 
March 31, 2017
 
 
Parent
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8,214

 
$

 
$
62,087

 
$
(4,445
)
 
$
65,856

Accounts receivable, net
 
48

 
415,704

 
61,294

 

 
477,046

Receivable from affiliates
 
28

 
12,148

 
750

 

 
12,926

Inventories
 

 
90,564

 
11,841

 

 
102,405

Other current assets
 
5,299

 
5,452

 
3,786

 

 
14,537

Total current assets
 
13,589

 
523,868


139,758


(4,445
)

672,770

Property, plant and equipment, net
 
7,012

 
951,187

 
876,201

 

 
1,834,400

Equity method investments
 
2,518,858

 
1,005,151

 

 
(3,091,620
)
 
432,389

Goodwill
 

 
26,628

 
8,016

 

 
34,644

Other intangible assets, net
 
14

 
147,086

 
1,250

 

 
148,350

Other noncurrent assets
 
49,810

 
1,882

 
2,481

 

 
54,173

Total assets
 
$
2,589,283

 
$
2,655,802


$
1,027,706


$
(3,096,065
)

$
3,176,726

LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
855

 
$
399,406

 
$
17,325

 
$

 
$
417,586

Payable to affiliates
 

 
17,086

 

 

 
17,086

Accrued liabilities
 
20,174

 
24,364

 
42,829

 
1

 
87,368

Other current liabilities
 
1,165

 
6,212

 
6,405

 

 
13,782

Total current liabilities
 
22,194

 
447,068

 
66,559

 
1

 
535,822

Long-term debt, net
 
1,140,619

 
6,210

 
16,500

 
(22,692
)
 
1,140,637

Deferred income taxes
 
9,752

 

 
50,169

 

 
59,921

Other noncurrent liabilities
 
2,373

 

 
23,628

 

 
26,001

Commitments and contingencies
 


 


 


 


 


Total owners’ equity
 
1,414,345

 
2,202,524


870,850


(3,073,374
)

1,414,345

Total liabilities and owners’ equity
 
$
2,589,283


$
2,655,802

 
$
1,027,706

 
$
(3,096,065
)
 
$
3,176,726


 
 
December 31, 2016
 
 
Parent
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
19,002

 
$

 
$
59,796

 
$
(4,582
)
 
$
74,216

Accounts receivable, net
 

 
361,160

 
57,179

 

 
418,339

Receivable from affiliates
 
27

 
25,244

 
184

 

 
25,455

Inventories
 

 
89,638

 
9,596

 

 
99,234

Other current assets
 
8,986

 
5,760

 
3,887

 
(3
)
 
18,630

Total current assets
 
28,015

 
481,802


130,642


(4,585
)

635,874

Property, plant and equipment, net
 
5,621

 
970,079

 
786,372

 

 
1,762,072

Equity method investments
 
2,454,118

 
940,696

 

 
(2,960,525
)
 
434,289

Goodwill
 

 
26,628

 
7,602

 

 
34,230

Other intangible assets, net
 
15

 
149,669

 
1,294

 

 
150,978

Other noncurrent assets
 
54,155

 
2,080

 
1,294

 

 
57,529

Total assets
 
$
2,541,924

 
$
2,570,954


$
927,204


$
(2,965,110
)

$
3,074,972

LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
674

 
$
348,297

 
$
18,336

 
$

 
$
367,307

Payable to affiliates
 

 
26,508

 

 

 
26,508

Accrued liabilities
 
25,078

 
23,423

 
32,603

 

 
81,104

Other current liabilities
 
889

 
5,108

 
7,439

 

 
13,436

Total current liabilities
 
26,641

 
403,336

 
58,378

 

 
488,355

Long-term debt, net
 
1,050,893

 
6,142

 
16,500

 
(22,617
)
 
1,050,918

Deferred income taxes
 
16,119

 

 
48,382

 

 
64,501

Other noncurrent liabilities
 
2,306

 

 
22,927

 

 
25,233

Commitments and contingencies
 


 


 


 


 


Total owners’ equity
 
1,445,965

 
2,161,476


781,017


(2,942,493
)

1,445,965

Total liabilities and owners’ equity
 
$
2,541,924

 
$
2,570,954


$
927,204


$
(2,965,110
)

$
3,074,972








Condensed Consolidating Guarantor Statements of Operations
 
Three Months Ended March 31, 2017
 
Parent
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Product
$

 
$
340,788

 
$
32,573

 
$

 
$
373,361

Service

 
38,050

 
30,143

 

 
68,193

Other

 

 
14,546

 

 
14,546

Total revenues


378,838


77,262




456,100

Expenses:
 
 
 
 
 
 
 
 

Costs of products sold, exclusive of depreciation and amortization shown below

 
321,657

 
27,341

 

 
348,998

Operating

 
28,120

 
23,963

 

 
52,083

General and administrative
5,930

 
6,930

 
8,784

 

 
21,644

Depreciation and amortization
473

 
16,830

 
7,296

 

 
24,599

Loss on disposal or impairment of long-lived assets, net

 
1,982

 
428

 

 
2,410

Total expenses
6,403


375,519


67,812




449,734

Earnings from equity method investments
19,187

 
18,566

 

 
(20,662
)
 
17,091

Operating income
12,784


21,885


9,450


(20,662
)

23,457

Other expenses (income), net:
 
 
 
 
 
 
 
 

Interest expense (income)
5,866

 
8,820

 
(626
)
 
(193
)
 
13,867

Loss on early extinguishment of debt
19,922