SEMGROUP CORP, 10-Q filed on 5/8/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 30, 2019
Trading Symbol SEMG  
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
Entity Registrant Name SEMGROUP CORPORATION  
Entity Central Index Key 0001489136  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Common Class A [Member]    
Entity Common Stock, Shares Outstanding   79,545,511
Class B    
Entity Common Stock, Shares Outstanding   0
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 343,560 $ 86,655
Accounts receivable (net of allowance of $2,292 and $2,244, respectively) 780,956 562,214
Receivable from affiliates 534 295
Inventories 77,120 49,397
Other current assets 18,711 17,264
Total current assets 1,220,881 715,825
Property, plant and equipment (net of accumulated depreciation of $648,434 and $607,903, respectively) 3,845,508 3,457,326
Equity method investments 276,893 274,009
Goodwill 334,893 257,302
Other intangible assets (net of accumulated amortization of $101,914 and $90,014, respectively) 466,934 365,038
Other noncurrent assets 134,847 140,807
Right-of-Use Asset, Operating and Finance Leases 94,082 0
Total assets 6,374,038 5,210,307
Current liabilities:    
Accounts payable 750,635 494,792
Payable to affiliates 1,042 3,715
Accrued liabilities 100,941 115,095
Deferred revenue 3,104 11,060
Other current liabilities 18,921 6,495
Long-term debt 6,000 6,000
Total current liabilities 880,643 637,157
Long-term debt 2,461,583 2,278,834
Deferred income taxes 142,461 55,789
Other noncurrent liabilities 142,538 38,548
Commitments and contingencies (Note 8)
Redeemable preferred stock, $0.01 par value, $373,790 liquidation preference (authorized - 4,000 shares; issued - 350 shares) 366,087 359,658
Subsidiary Preferred Stock, Value Outstanding 250,239 0
SemGroup owners’ equity:    
Common stock, $0.01 par value (authorized - 190,000 shares; issued - 79,705 and 79,270 shares, respectively) 790 786
Additional paid-in capital 1,496,633 1,615,969
Treasury stock, at cost (173 and 126 shares, respectively) (1,385) (705)
Accumulated deficit (69,764) (73,971)
Accumulated other comprehensive loss (71,060) (51,247)
Total SemGroup Corporation owners’ equity 1,355,214 1,490,832
Stockholders' Equity Attributable to Noncontrolling Interest 775,273 349,489
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest 2,130,487 1,840,321
Total liabilities, preferred stock and owners’ equity $ 6,374,038 $ 5,210,307
v3.19.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
shares in Thousands, $ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Allowance for Doubtful Accounts Receivable, Current $ 2,292 $ 2,244
Accumulated depreciation 648,434 607,903
Accumulated amortization $ 101,914 $ 90,014
Preferred Stock, Par or Stated Value Per Share $ 0.01 $ 0.01
Preferred Stock, Liquidation Preference, Value $ 373,790 $ 367,360
Preferred Stock, Shares Authorized 4,000 4,000
Preferred Stock, Shares Issued 350 350
Common stock, $0.01 par value $ 0.01 $ 0.01
Common stock shares authorized 190,000 190,000
Common stock shares issued 79,705 79,270
Treasury Stock, Common, Shares 173 126
v3.19.1
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenues:    
Direct Financing Lease, Revenue $ 3,882 $ 4,329
Total Revenues 567,232 661,609
Expenses:    
Cost of Goods and Services Sold 403,372 496,132
Operating 63,207 69,791
General and administrative 29,547 26,477
Depreciation and amortization 59,036 50,536
Gain (Loss) on Disposition of Assets 1,444 3,566
Total expenses 553,718 639,370
Earnings from equity method investments 13,951 12,614
Operating income 27,465 34,853
Other expenses (income), net:    
Interest expense 36,652 42,461
Foreign currency transaction loss (gain) (288) 3,294
Other income, net (979) (950)
Total other expenses, net 35,385 44,805
Loss before income taxes (7,920) (9,952)
Income tax expense (benefit) (4,606) 23,083
Net loss (3,314) (33,035)
Net Income (Loss) Attributable to Noncontrolling Interest 3,525 0
Net Income (Loss) Attributable to Parent (6,839) (33,035)
Less: cumulative preferred stock dividends 6,541 4,832
Subsidiary Preferred Stock Dividends, Income Statement Impact 1,857 0
Accretion of Subsidiary Preferred Stock to redemption Value 13,749 0
Net loss attributable to common shareholders (28,986) (37,867)
Other comprehensive income (loss), net of income taxes (14,233) 18,171
Comprehensive loss (17,547) (14,864)
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest 5,580 0
Comprehensive Income (Loss), Net of Tax, Attributable to Parent $ (26,652) $ (14,864)
Net loss per common share (Note 15):    
Basic $ (0.37) $ (0.48)
Diluted $ (0.37) $ (0.48)
Product [Member]    
Revenues:    
Revenue from Contract with Customer, Excluding Assessed Tax $ 420,233 $ 510,768
Service [Member]    
Revenues:    
Revenue from Contract with Customer, Excluding Assessed Tax 87,373 92,244
Storage Revenue [Member]    
Revenues:    
Revenue from Contract with Customer, Excluding Assessed Tax 42,308 39,651
Other revenue [Member]    
Revenues:    
Revenue from Contract with Customer, Excluding Assessed Tax $ 13,436 $ 14,617
v3.19.1
Condensed Consolidated Statements of Changes in Owners' Equity Statement - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Noncontrolling Interest [Member]
Beginning balance at Dec. 31, 2017 $ 1,658,365 $ 786 $ 1,770,117 $ (8,031) $ (50,706) $ (53,801)  
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | Accounting Standards Update 2014-09 [Member] 11,513       11,513    
Net income (loss) (33,035)       (33,035)    
Other Comprehensive Income (Loss), Net of Tax 18,171 0 0 0 0 18,171  
Dividends (37,230)   (37,230)        
Dividends, Share-based Compensation, Cash 53   53        
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition 2,149   2,149        
Stock Issued During Period, Value, Share-based Compensation, Net of Forfeitures 558 1 557        
Treasury Stock, Retired, Cost Method, Amount   (2)   8,031 (8,029)    
Treasury Stock, Value, Acquired, Cost Method (381)     (381)      
Ending balance at Mar. 31, 2018 1,620,163 785 1,735,646 (381) (80,257) (35,630)  
Beginning balance at Dec. 31, 2018 1,840,321 786 1,615,969 (705) (73,971) (51,247) $ 349,489
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | Accounting Standards Update 2018-02 [Member]         10,884 (10,884)  
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | Accounting Standards Update 2016-02 [Member] 162       162    
Net income (loss) (3,314)       (6,839)   3,525
Other Comprehensive Income (Loss), Net of Tax (14,233)            
Other Comprehensive Income (Loss), before Reclassifications, Net of Tax (3,349) 0 0 0 0 (8,929) 5,580
Dividends (44,824)   (44,824)        
Dividends, Share-based Compensation, Cash 844   844        
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition 2,632   2,632        
Stock Issued During Period, Value, Share-based Compensation, Net of Forfeitures 290 4 286       0
Noncontrolling Interest, Increase from Subsidiary Equity Issuance 372,944   (64,525)       437,469
Preferred Stock, Accretion of Redemption Discount (26,959)   (13,749)       (13,210)
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders (7,580)           (7,580)
Treasury Stock, Value, Acquired, Cost Method (680)     (680)      
Ending balance at Mar. 31, 2019 $ 2,130,487 $ 790 $ 1,496,633 $ (1,385) $ (69,764) $ (71,060) $ 775,273
v3.19.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (3,314) $ (33,035)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 59,036 50,536
Gain (Loss) on Disposition of Assets 1,444 3,566
Earnings from equity method investments (13,951) (12,614)
Distributions from equity method investments 13,937 12,605
Amortization of debt issuance costs and discount 2,098 1,796
Deferred tax expense (benefit) (11,525) 10,044
Non-cash equity compensation 2,632 2,196
Provision for uncollectible accounts receivable, net of recoveries (287) (173)
Foreign currency transaction loss (gain) (288) 3,294
Changes in operating assets and liabilities (Note 16) 5,945 52,497
Net cash provided by operating activities 52,839 83,580
Capital expenditures (96,261) (131,784)
Proceeds from sale of long-lived assets 2,115 16
Contributions to equity method investments (9,409) (309)
Payments to Acquire Businesses, Net of Cash Acquired (488,297) 0
Proceeds from business divestitures 0 63,830
Distributions in excess of equity in earnings of affiliates 6,538 6,545
Net cash used in investing activities (585,314) (61,702)
Debt issuance costs (8,341) (459)
Borrowings on credit facilities and issuance of senior notes, net of discount 421,006 0
Principal payments on credit facilities and other obligations (233,876) (134,246)
Proceeds from Issuance of Common Stock 437,469 0
Proceeds from subsidiary preferred stock issuance, net of offering costs 223,280 342,354
Payments to Noncontrolling Interests (7,580) 0
Repurchase of common stock for payment of statutory taxes due on equity-based compensation (680) (381)
Payments of Dividends (44,824) (37,230)
Proceeds from issuance of common stock under employee stock purchase plan 137 24
Net cash provided by financing activities 786,591 170,062
Effect of exchange rate changes on cash and cash equivalents 2,789 (141)
Change in cash and cash equivalents 256,905 191,799
Cash and cash equivalents at beginning of period 86,655 93,699
Cash and cash equivalents at end of period $ 343,560 $ 285,498
v3.19.1
Overview
3 Months Ended
Mar. 31, 2019
Overview [Abstract]  
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, 2018, which is derived from audited financial statements, and the unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the 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. Outside ownership interests in consolidated subsidiaries are reported as noncontrolling interests in the condensed consolidated financial statements.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2019, are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.
Pursuant to the rules and regulations of the SEC, the accompanying condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with U.S. GAAP. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018, which are included in our Annual Report on Form 10-K for the year ended December 31, 2018, 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, 2018.
Recently adopted accounting pronouncements
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. For public entities, this ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We adopted the standard at January 1, 2019, and recorded a $10.9 million adjustment from AOCI to retained earnings upon adoption.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, as amended (“ASC 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, as amended, 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. We have elected the package of practical expedients such that we will not reassess whether any expired or existing contracts contain leases, we will not reassess the lease classification for any expired or existing leases and we will not reassess initial direct costs for any leases. Additionally, we have elected the practical expedient not to reassess certain land easements. As such, certain storage tanks, pipeline leases and land easements, which are not currently treated as leases, may become leases as these agreements are renewed or modified depending on the terms of the renewal or modification. Additionally, the classification for existing leases may change as agreements are renewed or modified. We adopted the standard at January 1, 2019, and recorded approximately $100 million of right of use assets and lease liabilities. We recognized a
cumulative-effect adjustment to the opening balance of retained earnings of approximately $0.2 million as allowed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”.
Recent accounting pronouncements not yet adopted
On August 27, 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements in Topic 820 by removing, adding or modifying certain fair value measurement disclosures. For public entities, this ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. We will adopt this guidance in the first quarter of 2020. 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.
v3.19.1
Disposal of long-lived assets
3 Months Ended
Mar. 31, 2019
Disposal of long-lived assets [Line Items]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block] DISPOSALS OR IMPAIRMENTS OF LONG-LIVED ASSETS
Three months ended March 31, 2019
On February 25, 2019, we contributed 100% of the issued and outstanding equity interests in our wholly owned subsidiary, SemCAMS ULC, an Alberta unlimited liability company, in exchange for 51% of the common shares of SemCAMS Midstream ULC, cash, a potential payment contingent on positive final investment decision of a specific project by SemCAMS Midstream, and earnout consideration in the form of a special share in SemCAMS Midstream entitled to dividend payments if either or both of two specific projects proceed and EBITDA thresholds pertaining to those projects are achieved. No gain or loss was recorded on the contribution as we retained control of the contributed subsidiary. Certain deferred tax impacts of the transaction were recorded as an adjustment to Additional Paid-In Capital. Refer to Note 3 for further information.
Three months ended March 31, 2018
On March 15, 2018, we completed the sale of our Mexican asphalt business for $70.7 million. We recorded a pre-tax gain on disposal of $1.6 million for the three months ended March 31, 2018. The Mexican asphalt business contributed $2.3 million of pre-tax income for the three months ended March 31, 2018, excluding the gain on disposal.
v3.19.1
Acquisitions (Notes)
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block] 3.
ACQUISITIONS

SemCAMS Midstream
On January 9, 2019, a wholly owned subsidiary of SemGroup Corporation, SemCanada II, L.P., an Oklahoma limited partnership (“SemGroup”), and an affiliate of Kohlberg Kravis Roberts & Co. L.P. and wholly owned subsidiary of KKR Global Infrastructure Investors III L.P., KKR Alberta Midstream Inc., an Alberta corporation (“KKR”), entered into definitive documents to create a new joint venture company that will own and operate midstream oil and gas infrastructure in Western Canada, SemCAMS Midstream ULC, an Alberta unlimited liability corporation (“SemCAMS Midstream”). SemGroup owns 51%, and KKR owns 49%, of SemCAMS Midstream, subsequent to close of the transactions described below.

Share Purchase Agreement
In connection with the formation of SemCAMS Midstream, on January 9, 2019, SemCAMS Midstream entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Meritage Midstream Services III, LP (“Meritage”) to acquire 100% of the issued and outstanding equity interests in Meritage Midstream ULC, an Alberta unlimited liability corporation (“Meritage ULC” and such acquisition, the “Meritage Acquisition”). On February 25, 2019, SemCAMS Midstream completed the Meritage Acquisition pursuant to the Share Purchase Agreement for a debt-free, cash purchase price of C$645.6 million (US$490.8 million at the February 25, 2019 exchange rate), subject to customary post-closing
adjustments. The purchase price included C$152.3 million (US$115.8 million at the February 25, 2019 exchange rate) in reimbursements for estimated capital expenditures incurred from September 1, 2018 to the closing of the Meritage Acquisition (the “Meritage Closing”).

Pursuant to the Share Purchase Agreement, SemCAMS Midstream has obtained a representation and warranty insurance policy to cover losses arising from breaches of representations and warranties by Meritage. Each party has agreed to indemnify the other for breaches of covenants and certain other matters, subject to certain exceptions and limitations.

Investment and Contribution Agreement
Concurrently with the execution of the Share Purchase Agreement, SemGroup, KKR and SemCAMS Midstream entered into an Investment and Contribution Agreement (the “Contribution Agreement”). On February 25, 2019, the Contribution (as defined below) closed immediately prior to the Meritage Closing (the “Contribution Closing”). Pursuant to the terms of the Contribution Agreement, each of SemGroup and KKR made the following contributions to SemCAMS Midstream: (i) SemGroup contributed 100% of the issued and outstanding equity interests in its wholly owned subsidiary, SemCAMS ULC, an Alberta unlimited liability company, (the “SemGroup Contribution”) in exchange for (A) 51% of the common shares of SemCAMS Midstream, (B) a cash amount of C$645.6 million (US$490.8 million at the February 25, 2019 exchange rate), capital contributions to SemCAMS ULC by SemGroup, and other customary adjustments, (C) a potential payment of C$14.7 million (US$11.2 million at the February 25, 2019 exchange rate) contingent on positive final investment decision of a specific project by SemCAMS Midstream, and (D) earnout consideration in the form of a special share in SemCAMS Midstream entitled to dividend payments up to a maximum (pre-tax) aggregate amount of C$50.0 million (US$38.0 million at the February 25, 2019 exchange rate) if either or both of two specific projects proceed and EBITDA thresholds pertaining to those projects are achieved; and (ii) KKR contributed cash in the amount of C$785.6 million (US$597.2 million at the February 25, 2019 exchange rate), capital contributions to SemCAMS ULC by SemGroup and a payment of C$14.7 million (US$11.2 million at the February 25, 2019 exchange rate) contingent on the pursuit of a specific project (unrelated to the two projects referred to above) by SemCAMS Midstream, and other customary adjustments (the “KKR Contribution” and, together with the SemGroup Contribution, the “Contribution”) in exchange for (A) 49% of the common shares of SemCAMS Midstream and (B) 300,000 preferred shares in SemCAMS Midstream (representing C$300 million (US$228.1 million at the February 25, 2019 exchange rate) of KKR cash contribution) which will pay annual dividends of $87.50 paid on a quarterly basis. SemCAMS Midstream may elect, for any of the first ten quarters following issuance of the preferred shares, to pay the dividends in-kind in the form of additional preferred shares. SemCAMS Midstream will have the right to convert the preferred shares into common shares in the event of an initial public offering of its common shares, at a conversion price equal to 92.5% of the IPO offering price. In connection with the issuance of the preferred shares, KKR received a C$6.0 million (US$4.6 million at the February 25, 2019 exchange rate) transaction fee from SemCAMS Midstream.
Included within the C$645.6 million (US$490.8 million at the February 25, 2019 exchange rate) cash received by SemGroup are reimbursements of C$30.6 million (US$23.2 million at the February 25, 2109 exchange rate) for a 51% share of the deposit made pursuant to the Share Purchase Agreement. KKR’s cash contribution of C$785.6 million (US$597.2 million at the February 25, 2019 exchange rate) does not include C$29.4 million (US$22.3 million), the 49% share of the deposit made pursuant to the Share Purchase Agreement, which was not reimbursed to KKR and forms part of the KKR Contribution.
KKR and SemGroup have agreed to indemnify each other for breaches of covenants and certain other matters, subject to certain exceptions and limitations.
Upon the Contribution Closing, KKR and SemGroup entered into a unanimous shareholder agreement (the “Shareholder Agreement”) to cover corporate governance, transfer restrictions, funding obligations and other similar matters related to SemCAMS Midstream. The Shareholder Agreement includes customary restrictions on the activities of SemGroup and KKR that relate to the business of SemCAMS Midstream within a defined area of mutual interest surrounding the location in which SemCAMS Midstream will operate. In addition, the Shareholder Agreement includes certain liquidity rights that allow each of KKR and SemGroup to cause SemCAMS Midstream to pursue an initial public offering of its respective common shares after the third anniversary of the parties’ entry into the Shareholder Agreement.

Purchase price allocation
We are in the process of finalizing the determination of the fair value of consideration exchanged and assets and liabilities acquired at the acquisition date to record the business combination. Further, the acquired business was not yet
required to comply with ASU 2016-02 “Leases (Topic 842)”. The determination of the estimated fair values of the assets acquired, including intangible assets and goodwill, and liabilities assumed is not yet complete and adjustments to preliminary amounts could be material.
As of March 31, 2019, we have recorded the preliminary purchase price allocation as follows in USD at the February 25, 2019, exchange rate (in thousands):
Assets acquired
 
Cash
$
2,756

Accounts receivable
29,330

Other current assets
60

Property, plant and equipment
330,681

Intangible assets subject to amortization
115,524

Goodwill
78,768

Total assets acquired
$
557,119

 
 
Consideration
 
Cash
$
491,487

Liabilities assumed
 
Accounts payable and accrued liabilities
32,169

Other noncurrent liabilities
33,463

Total liabilities assumed
65,632

Total consideration
$
557,119


Finite-lived intangibles are amortized over their estimated useful lives. Customer contracts are being amortized over 20 years on a straight-line basis. Goodwill primarily relates to the location of the business and potential for future growth. SemGroup will be able to deduct 51% of the goodwill from the transaction for U.S. income tax purposes. Acquired property, plant and equipment has been assigned useful lives consistent with our accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
v3.19.1
Equity Method Investments
3 Months Ended
Mar. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
EQUITY METHOD INVESTMENTS EQUITY METHOD INVESTMENTS

Our equity method investments consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
White Cliffs Pipeline, L.L.C.
$
257,914

 
$
255,043

NGL Energy Partners LP
18,979

 
18,966

Total equity method investments
$
276,893

 
$
274,009



Our earnings from equity method investments consisted of the following (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
White Cliffs Pipeline, L.L.C.
$
13,937

 
$
12,605

NGL Energy Partners LP
14

 
9

Total earnings from equity method investments
$
13,951

 
$
12,614


White Cliffs Pipeline, L.L.C.
We own a 51% interest in White Cliffs Pipeline, L.L.C. (“White Cliffs”), which we account for under the equity method. Certain unaudited summarized income statement information of White Cliffs for the three months ended March 31, 2019 and 2018, is shown below (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Revenue
$
45,624

 
$
40,391

Cost of products sold, exclusive of depreciation and amortization
$
221

 
$
384

Operating, general and administrative expenses
$
8,812

 
$
5,402

Depreciation and amortization expense
$
9,263

 
$
9,592

Net income
$
27,328

 
$
25,014


Our equity in earnings of White Cliffs for the three months ended March 31, 2019 and 2018, 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.
We received cash distributions from White Cliffs of $20.5 million and $19.2 million for the three months ended March 31, 2019 and 2018, respectively.
The members of White Cliffs are required to contribute capital to White Cliffs to fund various projects. For the three months ended March 31, 2019, we contributed $9.4 million to fund White Cliffs capital projects. There were no capital contributions made during the three months ended March 31, 2018. In 2018, we announced that we will convert one of the White Cliffs 12-inch carrier pipelines from crude service to natural gas liquids service. Remaining contributions related to the conversion project will be paid in 2019 and are expected to total $17.8 million. The project is expected to be completed during the fourth quarter of 2019.
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 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.
v3.19.1
Long-Term Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Long-Term Debt LONG-TERM DEBT
Our long-term debt consisted of the following (dollars in thousands):
 
Interest rate at March 31, 2019
 
March 31,
2019
 
December 31,
2018
Senior unsecured notes due 2022
5.6250%
 
$
400,000

 
$
400,000

Senior unsecured notes due 2023
5.6250%
 
350,000

 
350,000

Senior unsecured notes due 2025
6.3750%
 
325,000

 
325,000

Senior unsecured notes due 2026
7.2500%
 
300,000

 
300,000

SemGroup $1.0 billion corporate revolving credit facility (1)
 
 


 


Alternate base rate borrowings
 

 
24,500

Eurodollar borrowings
 

 
95,000

HFOTCO term loan B (2)
5.2500%
 
595,500

 
597,000

HFOTCO tax exempt notes payable due 2050
3.5178%
 
225,000

 
225,000

HFOTCO $75 million revolving credit facility
 

 

SemCAMS Midstream term loan A(3)
 
 
 
 
 
Alternate base rate borrowings
4.5501%
 
262,096

 

Prime rate borrowings
5.4500%
 
4

 

SemCAMS Midstream C$450 million revolving credit facility (3)
 
 
 
 
 
Alternate base rate borrowings
4.5198%
 
18,722

 

Prime rate borrowings
5.4500%
 
26,210

 

Unamortized premium (discount) and debt issuance costs, net
 
 
(34,949
)
 
(31,666
)
Total long-term debt, net
 
 
2,467,583

 
2,284,834

Less: current portion of long-term debt
 
 
6,000

 
6,000

Noncurrent portion of long-term debt, net
 
 
$
2,461,583

 
$
2,278,834


(1)
SemGroup $1.0 billion corporate revolving credit facility matures on March 15, 2021.
(2)
HFOTCO term loan B is due in quarterly installments of $1.5 million with a final payment due on June 26, 2025.
(3)
SemCAMS Midstream term note A and C$450 million revolving credit facility mature on February 25, 2024.
SemCAMS Midstream Credit Agreement
On February 25, 2019, SemCAMS Midstream entered into a Credit Agreement (the “Credit Agreement”), together with The Toronto-Dominion Bank, as administrative agent, providing for a C$350 million senior secured term loan facility and a C$450 million senior secured revolving credit facility. Both facilities under the Credit Agreement mature on February 25, 2024. SemCAMS Midstream may incur additional term loans and revolving commitments in an aggregate amount not to exceed C$250 million, subject to receiving commitments for such additional term loans or revolving commitments from either new lenders or increased commitments from existing lenders.
Pledges and guarantees
Our senior unsecured notes are guaranteed by certain subsidiaries. See Note 18 for additional information.
Our $1.0 billion corporate revolving credit facility is guaranteed by all of SemGroup’s material wholly-owned domestic subsidiaries, with the exception of Maurepas Pipeline LLC and HFOTCO, and secured by a lien on substantially all of the property and assets of SemGroup Corporation and the other loan parties, subject to customary exceptions.
The HFOTCO term loan B and HFOTCO tax exempt notes payable are secured by substantially all of the assets of HFOTCO and its immediate parent, Buffalo Gulf Coast Terminals LLC. The HFOTCO tax exempt notes payable have a priority position over the HFOTCO term loan B.
The SemCAMS Midstream Credit Agreement is guaranteed on a non-recourse basis by each of SemGroup and KKR, limited to each respective entity’s equity interests in SemCAMS Midstream, and fully guaranteed by any future material subsidiary of SemCAMS Midstream. The obligations under the Credit Agreement and related lender hedge instruments and cash management instruments are secured by a lien on substantially all of the property and assets of SemCAMS Midstream and the other loan parties, subject to customary exceptions.
Letters of credit
We had the following outstanding letters of credit at March 31, 2019 (dollars in thousands):
SemGroup $1.0 billion revolving credit facility
2.50%
$
27,335

Secured bi-lateral (1)
1.75%
$
18,875

(1) Secured bi-lateral letters of credit are external to the SemGroup $1.0 billion revolving credit facility and do not reduce availability for borrowing on the credit facility.
Capitalized interest
During the three months ended March 31, 2019 and 2018, we capitalized interest of $1.7 million and $3.1 million, respectively.
Fair value
We estimate the fair value of our senior unsecured notes based on unadjusted, transacted market prices near the measurement date. Our other long-term debts are estimated to be carried at fair value as a result of the recent timing of borrowings or rate resets. We estimate the fair value of our consolidated long-term debt, including current maturities, to be approximately $2.5 billion at March 31, 2019, which is categorized as a Level 2 measurement.
v3.19.1
Financial Instruments
3 Months Ended
Mar. 31, 2019
Financial Instruments And Fair Value Disclosures [Abstract]  
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 derivative assets and liabilities at March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Netting (1)
 
Total - Net
Assets:
 
 
 
 
 
 
 
 
 
Commodity derivatives (2)
$
3,140

 
$

 
$

 
$
(3,140
)
 
$

Total assets
3,140

 

 

 
(3,140
)
 

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity derivatives
4,273

 

 

 
(3,140
)
 
1,133

Foreign currency forwards

 
1,053

 

 

 
1,053

Interest rate swaps

 

 
2,175

 

 
2,175

Total liabilities
4,273

 
1,053

 
2,175

 
(3,140
)
 
4,361

Net assets (liabilities) at fair value
$
(1,133
)
 
$
(1,053
)
 
$
(2,175
)
 
$

 
$
(4,361
)
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Netting (1)
 
Total - Net
Assets:
 
 
 
 
 
 
 
 
 
Commodity derivatives (2)
$
4,658

 
$

 
$

 
$
(973
)
 
$
3,685

Total assets
4,658

 

 

 
(973
)
 
3,685

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity derivatives
973

 

 

 
(973
)
 

Foreign currency forwards

 
2,985

 

 

 
2,985

Interest rate swaps

 

 
1,482

 

 
1,482

Total liabilities
973

 
2,985

 
1,482

 
(973
)
 
4,467

Net assets (liabilities) at fair value
$
3,685

 
$
(2,985
)
 
$
(1,482
)
 
$

 
$
(782
)
(1) Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.
(2) Commodity derivatives are subject to netting arrangements.
“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 could 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 and interest rate swaps for which certain unobservable inputs are used in the valuation.
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, 2019 and December 31, 2018, all of our physical fixed price forward purchases and sales commodity contracts were being accounted for as normal purchases and normal sales.
The following table summarizes changes in the fair value of our net financial liabilities classified as Level 3 in the fair value hierarchy (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Net assets (liabilities) at beginning of the period
$
(1,482
)
 
$
(1,228
)
Transfers out of Level 3

 

Realized/Unrealized gain (loss) included in earnings*
(693
)
 
1,074

Settlements

 
284

Net assets (liabilities) at end of period
$
(2,175
)
 
$
130

*Gains and losses related to interest rate swaps are recorded in interest expense in the condensed consolidated statements of operations and comprehensive income (loss).
See Note 7 for fair value of debt instruments. 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 time and location basis risks, respectively. All marketing activities are subject to our Comprehensive Risk Management Policy, 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 derivative instruments entered into (in thousands of barrels):
 
Three Months Ended March 31,
 
2019
 
2018
Sales
4,734

 
4,139

Purchases
4,901

 
3,375


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, 2019
 
December 31, 2018
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity contracts
$

 
$
1,133

 
$
3,685

 
$


We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. At March 31, 2019 and December 31, 2018, our margin deposit balances were $3.1 million and $0.1 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, 2019 and December 31, 2018, we would have had asset positions of $2.0 million and $3.8 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,
 
2019
 
2018
Commodity contracts
$
(10,585
)
 
$
(3,136
)

Interest rate swaps
We have interest rate swaps which allow us to limit exposure to interest rate fluctuations. The swaps only apply to a portion of our outstanding debt and provide only partial mitigation of interest rate fluctuations. We have not designated
the swaps as hedges, as such, changes in the fair value of the swaps are recorded through current period earnings as a component of interest expense. At March 31, 2019 and December 31, 2018, we had interest rate swaps with notional values of $522.8 million and $524.3 million, respectively. At March 31, 2019, the fair value of our interest rate swaps was $2.2 million which was reported within “other noncurrent liabilities” in our condensed consolidated balance sheet. At December 31, 2018, the fair value of our interest rate swaps was $1.5 million which was reported within “other current liabilities” in our condensed consolidated balance sheet. For the three months ended March 31, 2019 and 2018, we recognized realized and unrealized losses of $0.7 million and realized and unrealized gains of $1.1 million related to interest rate swaps, respectively.
Foreign currency forwards
We have foreign currency forwards primarily to purchase Canadian dollars to limit exposure to foreign currency rate fluctuations for capital contributions to our Canada segment primarily to fund capital projects. We have not designated the forwards as hedges; therefore, changes in the fair value of the forwards are recorded through current period earnings as a component of foreign currency transaction gains and losses. At March 31, 2019 and December 31, 2018, we had foreign currency forwards with notional values of $25.8 million and $56.1 million, respectively. At March 31, 2019 and December 31, 2018, the fair value of our foreign currency forwards was $1.1 million and $3.0 million, respectively, which is reported within "other current liabilities" in our condensed consolidated balance sheet. For the three months ended March 31, 2019 and 2018, we recognized realized and unrealized losses of $0.3 million and $4.4 million related to foreign currency forwards, respectively.
Concentrations of risk
During the three months ended March 31, 2019, one customer, primarily of our U.S. Liquids segment, accounted for more than 10% of our consolidated revenue with revenues of $132.9 million. One third-party supplier, primarily of our U.S. Liquids segment, accounted for more than 10% of our consolidated costs of products sold with purchases of $50.9 million.
At March 31, 2019, two third-party customers, primarily of our U.S. Liquids segment, accounted for approximately 30% of our consolidated accounts receivable.
v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The effective tax rate was 58% and (232)% for the three months ended March 31, 2019 and 2018, respectively. The rate for the three months ended March 31, 2019, is impacted by $1.1 million Canadian withholding tax paid on remittances to the U.S. and non-controlling interests in Maurepas Pipeline, LLC and SemCAMS Midstream ULC for which taxes are not provided. The rate for the three months ended March 31, 2018, is impacted by a discrete tax expense related to the vesting of restricted stock in the amount of $1.4 million and a discrete tax expense of $10.9 million in Mexico on the sale of the 100% equity interest in our Mexican asphalt business. Significant items that impacted the effective tax rate for each period, as compared to the U.S. federal statutory rate of 21%, include earnings in foreign jurisdictions taxed at different rates, 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, and the U.S. deduction for foreign taxes. 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 a foreign tax credit carryover generated in tax years prior to 2014. 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, state or foreign jurisdictions.
v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
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 U.S. Liquids and one owned by U.S. Gas) 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.
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, 2019, we have an asset retirement obligation liability of $25.0 million, which is included within “other noncurrent liabilities” on our condensed consolidated balance sheets. This amount was calculated using the $138.9 million cost we estimate we would incur to retire these facilities, discounted based on our risk-adjusted cost of borrowing and the estimated timing of remediation.
The calculation of the liability for an asset retirement obligation requires the use of significant estimates, including those related to the length of time before the assets will be retired, cost inflation over the assumed life of the assets, actual remediation activities to be required, and the rate at which such obligations should be discounted. Future changes in these estimates could result in material changes in the value of the recorded liability. In addition, future changes in laws or regulations could require us to record additional asset retirement obligations.
Our other segments may also be subject to removal and restoration costs upon retirement of their facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and other facilities would become completely obsolete and require decommissioning. Accordingly, we have not recorded a liability or corresponding asset, as both the amount and timing of such potential future costs are indeterminable.
Purchase and sale commitments
We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We account for derivatives at fair value with the exception of commitments that 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, 2019, such commitments included the following (in thousands):
 
Volume
(Barrels)
 
Value
Fixed price purchases
3,858

 
$
227,200

Fixed price sales
4,296

 
$
253,986

Floating price purchases
17,811

 
$
1,125,554

Floating price sales
20,621

 
$
1,180,447


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 U.S. Gas 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, 2019
$
7,371

December 31, 2020
9,063

December 31, 2021
7,337

December 31, 2022
6,905

December 31, 2023
2,854

Thereafter

Total expected future payments
$
33,530


Our U.S. Gas segment 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 U.S. Gas’s revenues were generated from such contracts.
Our U.S. Liquids segment has minimum volume commitments for pipeline transportation of crude oil. The approximate amount of future obligations is as follows (in thousands):
For year ending:
 
December 31, 2019
$
16,473

December 31, 2020
19,751

December 31, 2021
12,976

December 31, 2022
13,231

December 31, 2023
13,496

Thereafter
6,817

Total expected future payments
$
82,744

v3.19.1
Equity
3 Months Ended
Mar. 31, 2019
Stockholders' Equity Note [Abstract]  
EQUITY EQUITY
Equity issuances
During the three months ended March 31, 2019, 32,468 shares under the Employee Stock Purchase Plan were issued and 298,142 shares related to our equity-based compensation awards vested.
Equity-based compensation
At March 31, 2019, there were 1,639,668 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 542,000 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, 2019, the value of the UDs to be settled in cash related to unvested restricted stock awards was approximately $1.9 million.
During the three months ended March 31, 2019, we granted 681,948 restricted stock awards with a weighted average grant date fair value of $15.22 per award.
Noncontrolling interests
A 49% interest in our consolidated subsidiary, SemCAMS Midstream, in the form of common shares, is reported as a noncontrolling interest in our condensed consolidated financial statements.
A 49% interest in our consolidated subsidiary, Maurepas Pipeline, LLC, in the form of Class B shares of Maurepas Pipeline, LLC is reported as a noncontrolling interest in our condensed consolidated financial statements. The Class B shares provide for a monthly preference on Maurepas Pipeline, LLC distributions for the owners.
Common stock dividends
The following table sets forth the quarterly common stock 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, 2018
 
$
0.4725

 
March 9, 2018
 
March 19, 2018
June 30, 2018
 
$
0.4725

 
May 16, 2018
 
May 25, 2018
September 30, 2018
 
$
0.4725

 
August 20, 2018
 
August 29, 2018
December 31, 2018
 
$
0.4725

 
November 16, 2018
 
November 26, 2018
 
 
 
 
 
 
 
March 31, 2019
 
$
0.4725

 
March 4, 2019
 
March 14, 2019
June 30, 2019
 
$
0.4725

 
May 10, 2019
 
May 20, 2019
v3.19.1
Preferred Stock
3 Months Ended
Mar. 31, 2019
Preferred Stock [Abstract]  
Preferred Stock [Text Block] REDEEMABLE PREFERRED STOCK
    
SemGroup redeemable preferred stock
The following table sets forth the preferred stock dividends declared or paid-in-kind for the periods indicated (in thousands):
Quarter Ended
 
Dividend Paid-In-Kind
 
Date Paid
March 31, 2018*
 
$
4,832

 
May 25, 2018
June 30, 2018
 
$
6,211

 
August 29, 2018
September 30, 2018
 
$
6,317

 
November 26
December 31, 2018
 
$
6,430

 
March 1, 2019
 
 
 
 
 
March 31, 2019
 
$
6,541

 
May 24, 2019
*Prorated from January 19, 2018 to March 31,2018
These dividends paid-in-kind increased the liquidation preference such that as of March 31, 2019, the preferred stock was convertible into 11,326,954 shares.
Subsidiary redeemable preferred stock
In conjunction with the formation of our SemCAMS Midstream joint venture, SemCAMS Midstream issued 300,000 shares of cumulative preferred stock with a C$1,000 (US$749 at the March 31, 2019 exchange rate) notional value which pay annual dividends of C$87.50 per share. The preferred stock is redeemable at SemCAMS Midstream’s option subsequent to the third anniversary of issuance at a redemption price of C$1,100 (US$824 at the March 31, 2019 exchange rate) per share. The preferred stock is redeemable by the holder contingent upon a change of control or liquidation of SemCAMS Midstream. The preferred stock is convertible to SemCAMS Midstream common shares in the event of an initial public offering by SemCAMS Midstream.
The preferred stock was issued for proceeds of C$293.7 million (US$223.8 million at the historical rate) which is net of C$6.3 million (US$4.8 million at the historical rate) of costs. As the preferred stock is redeemable after three years, we have made a policy election to record the preferred stock at the redemption amount of C$330 million (US$250.2 million at the historical rate). The accretion to redemption amount is treated as a reduction to SemCAMS common equity held by SemGroup and the noncontrolling interest holders.
Dividends on the preferred stock are payable in-kind for the first ten quarters subsequent to issuance. SemCAMS elected to pay in-kind dividends for the first quarter of 2019 in the amount of C$2.5 million (US$1.9 million at the March 31, 2019 exchange rate), which is prorated for the period subsequent to the transaction.
v3.19.1
Accumulated Other Comprehensive Income(Notes)
3 Months Ended
Mar. 31, 2019
Accumulated Other Comprehensive Income [Abstract]  
Comprehensive Income (Loss) Note [Text Block] ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the changes in the components of accumulated other comprehensive loss for the periods shown (in thousands):
 
Three Months Ended March 31, 2019
 
Currency
Translation
 
Employee
Benefit
Plans
 
Total
 
Attributable to Noncontrolling Interest
 
Attributable to SemGroup
December 31, 2018
$
(45,816
)
 
$
(5,431
)
 
$
(51,247
)
 
$

 
$
(51,247
)
Currency translation adjustment, net of income tax benefit of $1,170
(3,735
)
 

 
(3,735
)
 
5,612

 
(9,347
)
Reclassification of certain tax effects from adoption of ASU 2018-02
(10,884
)
 

 
(10,884
)
 

 
(10,884
)
Changes related to benefit plans, net of income tax expense of $143

 
386

 
386

 
(32
)
 
418

March 31, 2019
$
(60,435
)
 
$
(5,045
)
 
$
(65,480
)

$
5,580


$
(71,060
)

 
Three Months Ended March 31, 2018
 
Currency
Translation
 
Employee
Benefit
Plans
 
Total
December 31, 2017
$
(51,014
)
 
$
(2,787
)
 
$
(53,801
)
Currency translation adjustment, net of income tax benefit of $2,950
(9,137
)
 

 
(9,137
)
Currency translation adjustment reclassified to gain on disposal, net of income tax expense of $8,818
27,305

 

 
27,305

Changes related to benefit plans, net of income tax expense of $1

 
3

 
3

March 31, 2018
$
(32,846
)
 
$
(2,784
)
 
$
(35,630
)
v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer [Text Block] REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated revenue

Our revenue is disaggregated by segment and by activity below (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
U.S. Liquids
 
 
 
Product sales
$
385,030

 
$
443,397

Pipeline transportation
21,121

 
20,339

Truck transportation
3,942

 
5,728

Storage fees
41,744

 
38,121

Facility service fees
17,749

 
11,031

Lease revenue
3,882

 
4,329

 
 
 
 
U.S. Gas
 
 
 
Product sales
39,492

 
39,709

Service fees
13,667

 
16,187

Other revenue
67

 


 
 
 
 
Canada

 

Service fees
31,476

 
30,542

Other revenue
13,351

 
14,603

 
 
 
 
Corporate and Other
 
 
 
Product sales

 
31,319

Storage fees

 
7,103

Service fees

 
2,841

Intersegment eliminations
(4,289
)
 
(3,640
)
 

 

Total revenue
$
567,232

 
$
661,609



Remaining performance obligations

Most of our service contracts are such that we have the right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. Therefore, we utilized the practical expedient in ASC 606-10-55-18 under which we recognize revenue in the amount to which we have the right to invoice. Applying this practical expedient, we are not required to disclose the transaction price allocated to remaining performance obligations under these agreements. However, certain of our agreements, such as "take-or-pay" agreements, do not qualify for the practical expedient. The amount and timing of revenue recognition for such contracts is presented below (in thousands):
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Expected timing of revenue recognized for remaining performance obligations
$
235,920

 
$
261,390

 
$
222,523

 
$
210,652

 
$
192,783

 
$
1,409,836



For our product sales contracts, we have elected the practical expedient set out in ASC 606-10-50-14A that states that we are not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these agreements, each unit of product represents a separate performance obligation and therefore future volumes are wholly unsatisfied and disclosure of transaction price allocated to remaining performance obligations is not required. Under product sales contracts, the variability arises as both volume and pricing (typically index based) are not known until the product is delivered.

Receivables from contracts with customers

Accounts receivable, net on the condensed consolidated balance sheets represents current receivables from contracts with customers. Certain noncurrent receivables from contracts with customers are included in “other noncurrent assets” on the condensed consolidated balance sheets. These amounts are accruals to recognize revenue for performance to date related to customer deficiencies on minimum volume commitments with make-up rights for which the use of the make-up rights are not probable due to capacity constraints or other factors. Therefore, we have accrued the amount for which no future performance by SemGroup will be required, but for which we do not have a present right to bill the customer until the end of the contract. The balance of noncurrent receivables from customer contracts was (in thousands):
 
March 31,
2019
 
December 31,
2018
Noncurrent receivables
$
12,729

 
$
11,496



Deferred revenue

We record deferred revenue when we have received a payment in advance of delivering a product or performing a service. For the three months ended March 31, 2019 and 2018, we recognized $0.3 million and $3.2 million, respectively, of revenue which was included in deferred revenue at the beginning of the period.

Costs to obtain or fulfill a contract

Unless material, we expense costs to obtain or fulfill a contract in the period incurred. At March 31, 2019 and December 31, 2018, we had contract assets of $9.3 million and $9.4 million, respectively, related to costs incurred to obtain contracts which had been expensed as incurred under previous guidance. These costs are reported within “other noncurrent assets” on the condensed consolidated balance sheets and are being amortized straight-line over 25 years, the life of the related contracts. We recognized $0.1 million and $0.1 million of amortization of these assets for the three months ended March 31, 2019 and 2018, respectively.
v3.19.1
Leases Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Lessee, Finance Leases [Text Block] 13.
LEASES
SemGroup is a lessee of buildings, land, compressors, vehicles, office equipment and other small equipment under operating leases of varying durations. These leases have fixed and variable payments with variable payments generally being based on usage or the pass through of ownership costs from the lessors. Generally, these leases contain the right to extend the lease for a limited term or on a month to month basis subsequent to expiration of the initial term. Lease renewal periods have been accounted for where we have the right to extend the term and the renewal is reasonably assured at lease inception.
SemGroup is a lessor of certain land, storage tanks and a barge dock located on the Gulf Coast. Based on the terms of the agreement, these assets are accounted for as a direct financing lease. This lease has fixed and variable payments with variable payments generally being based on usage. The agreement has a 10 year initial term and the customer has the right to renew for two successive five year periods. Subsequent to those periods, either party may cancel the agreement, otherwise it will continue to renew for five year periods. Risks related to unguaranteed residual values are mitigated through insurance and regular maintenance.
We have elected the practical expedients offered by ASC 842 which do not require a reassessment of whether the contract contains a lease, the lease classification or initial direct costs. Additionally, we have elected the practical expedient not to reassess certain land easements. As such, certain storage tank, pipeline leases and land easements, which are not currently treated as leases, may become leases if these agreements are renewed or modified depending on the terms of the renewal or modification. Additionally, the classification for existing leases may change as agreements are renewed or modified.
Lessee
We have elected the practical expedient to not separate lease and non-lease components for agreements where we lease land, buildings, storage tanks, compressors, and small machinery and equipment.
At March 31, 2019, we have recorded the following right-of-use assets and lease liabilities (in thousands):
 
March 31, 2019
Right of use assets
 
    Financing
$
3,071

    Operating
$
91,011

Lease liabilities
 
    Financing
$
3,090

    Operating
$
93,110


During the three months ended March 31, 2019, we have recorded the following (in thousands):
 
Three Months Ended March 31, 2019
Finance lease cost:
 
   Amortization of right-of-use assets
$
162

   Interest expense on lease liabilities
$
40

Operating lease costs
$
2,237

Variable lease costs
$
590

Cash paid for amounts included in the measurement of lease liabilities:
 
   Financing
$
95

   Operating
$
633

Noncash information on lease liabilities arising from obtaining right-of-use assets:
 
   Financing
$
3,232

Weighted average remaining lease term (in years):
 
   Financing
4.75 years

   Operating
40.5 years

Weighted average discount rate:
 
   Financing
5.16
%
   Operating
5.16
%

Undiscounted cash flows for the remainder of the year and on an annual basis for the following years are as follows (in thousands):
 
Financing
Operating
2019
$
549

$
4,868

2020
732

6,677

2021
732

7,033

2022
732

6,437

2023
732

5,891

Thereafter

206,300

Total undiscounted cash flows
$
3,477

$
237,206

Short-term lease liabilities
$
600

$
4,428

Long-term lease liabilities
2,490

88,682

Total lease liabilities
$
3,090

$
93,110

Difference
$
387

$
144,096


Lessor
At March 31, 2019, the components of our net investment in direct financing leases are as follows (in thousands):
 
March 31, 2019
Carrying amount of receivable
$
79,893

Unguaranteed residual value
69,222

Deferred selling profit on direct financing leases
(79,893
)
Net investment in sales-type and direct financing leases
$
69,222



For the three months ended March 31, 2019, we have recognized the following amounts of income from our direct financing leases as follows (in thousands):
 
Three Months Ended March 31, 2019
Interest Income
$
3,432

Income related to variable lease payments not included in the lease receivable
449

Total direct financing lease revenue
$
3,881



Undiscounted cash flows on an annual basis are as follows (in thousands):
 
Direct financing leases
2019
$
10,299

2020
13,031

2021
12,800

2022
12,804

2023
12,808

Thereafter
18,151

Total undiscounted cash flows
$
79,893

Leases of Lessor Disclosure [Text Block] 13.
LEASES
SemGroup is a lessee of buildings, land, compressors, vehicles, office equipment and other small equipment under operating leases of varying durations. These leases have fixed and variable payments with variable payments generally being based on usage or the pass through of ownership costs from the lessors. Generally, these leases contain the right to extend the lease for a limited term or on a month to month basis subsequent to expiration of the initial term. Lease renewal periods have been accounted for where we have the right to extend the term and the renewal is reasonably assured at lease inception.
SemGroup is a lessor of certain land, storage tanks and a barge dock located on the Gulf Coast. Based on the terms of the agreement, these assets are accounted for as a direct financing lease. This lease has fixed and variable payments with variable payments generally being based on usage. The agreement has a 10 year initial term and the customer has the right to renew for two successive five year periods. Subsequent to those periods, either party may cancel the agreement, otherwise it will continue to renew for five year periods. Risks related to unguaranteed residual values are mitigated through insurance and regular maintenance.
We have elected the practical expedients offered by ASC 842 which do not require a reassessment of whether the contract contains a lease, the lease classification or initial direct costs. Additionally, we have elected the practical expedient not to reassess certain land easements. As such, certain storage tank, pipeline leases and land easements, which are not currently treated as leases, may become leases if these agreements are renewed or modified depending on the terms of the renewal or modification. Additionally, the classification for existing leases may change as agreements are renewed or modified.
Lessee
We have elected the practical expedient to not separate lease and non-lease components for agreements where we lease land, buildings, storage tanks, compressors, and small machinery and equipment.
At March 31, 2019, we have recorded the following right-of-use assets and lease liabilities (in thousands):
 
March 31, 2019
Right of use assets
 
    Financing
$
3,071

    Operating
$
91,011

Lease liabilities
 
    Financing
$
3,090

    Operating
$
93,110


During the three months ended March 31, 2019, we have recorded the following (in thousands):
 
Three Months Ended March 31, 2019
Finance lease cost:
 
   Amortization of right-of-use assets
$
162

   Interest expense on lease liabilities
$
40

Operating lease costs
$
2,237

Variable lease costs
$
590

Cash paid for amounts included in the measurement of lease liabilities:
 
   Financing
$
95

   Operating
$
633

Noncash information on lease liabilities arising from obtaining right-of-use assets:
 
   Financing
$
3,232

Weighted average remaining lease term (in years):
 
   Financing
4.75 years

   Operating
40.5 years

Weighted average discount rate:
 
   Financing
5.16
%
   Operating
5.16
%

Undiscounted cash flows for the remainder of the year and on an annual basis for the following years are as follows (in thousands):
 
Financing
Operating
2019
$
549

$
4,868

2020
732

6,677

2021
732

7,033

2022
732

6,437

2023
732

5,891

Thereafter

206,300

Total undiscounted cash flows
$
3,477

$
237,206

Short-term lease liabilities
$
600

$
4,428

Long-term lease liabilities
2,490

88,682

Total lease liabilities
$
3,090

$
93,110

Difference
$
387

$
144,096


Lessor
At March 31, 2019, the components of our net investment in direct financing leases are as follows (in thousands):
 
March 31, 2019
Carrying amount of receivable
$
79,893

Unguaranteed residual value
69,222

Deferred selling profit on direct financing leases
(79,893
)
Net investment in sales-type and direct financing leases
$
69,222



For the three months ended March 31, 2019, we have recognized the following amounts of income from our direct financing leases as follows (in thousands):
 
Three Months Ended March 31, 2019
Interest Income
$
3,432

Income related to variable lease payments not included in the lease receivable
449

Total direct financing lease revenue
$
3,881



Undiscounted cash flows on an annual basis are as follows (in thousands):
 
Direct financing leases
2019
$
10,299

2020
13,031

2021
12,800

2022
12,804

2023
12,808

Thereafter
18,151

Total undiscounted cash flows
$
79,893

v3.19.1
Segments
3 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
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.
In the fourth quarter of 2018, due to recent changes in our asset portfolio, the company elected to reorganize its business structure and reporting relationships to enhance execution and capture operating efficiencies. In conjunction with the reorganization, our reportable segments have changed. Prior period segment disclosures have been recast to reflect the new segments. U.S. Liquids includes the results of our U.S. crude oil operations, including the results of our historical HFOTCO segment. U.S. Gas contains the results of our historical SemGas segment. Canada includes the operations of our historical SemCAMS segment. Our prior SemMexico and SemLogistics segments are included within Corporate and Other, as these businesses were disposed of in 2018. 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.
Segment Profit is defined as revenue, less cost of products sold (exclusive of depreciation and amortization) and operating expenses, plus equity earnings and is adjusted to remove unrealized gains and losses on commodity derivatives and to reflect equity earnings on an EBITDA basis. Reflecting equity earnings on an EBITDA basis is achieved by adjusting equity earnings to exclude our percentage of interest, taxes, depreciation and amortization from equity earnings for operated equity method investees. For our investment in NGL Energy, we exclude equity earnings and include cash distributions received.
Our results by segment are presented in the tables below (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Revenues:
 
 
 
U.S. Liquids
 
 
 
External
$
473,468

 
$
522,945

U.S. Gas

 

External
48,937

 
52,256

Intersegment
4,289

 
3,640

Canada

 

External
44,827

 
45,145

Corporate and Other

 

External

 
41,263

Intersegment
(4,289
)
 
(3,640
)
Total Revenues
$
567,232


$
661,609

 
Three Months Ended March 31,
 
2019
 
2018
Earnings from equity method investments:
 
 
 
   U.S. Liquids
$
13,937

 
$
12,605

   Corporate and Other
14

 
9

Total earnings from equity method investments
$
13,951

 
$
12,614

 
Three Months Ended March 31,
 
2019
 
2018
Depreciation and amortization:
 
 
 
U.S. Liquids
$
39,487

 
$
34,107

U.S. Gas
11,095

 
10,449

Canada
7,783

 
5,238

Corporate and Other
671

 
742

Total depreciation and amortization
$
59,036


$
50,536

 
Three Months Ended March 31,
 
2019
 
2018
Income tax expense (benefit):
 
 
 
U.S. Liquids
$
147

 
$
209

Canada
207

 
2,970

Corporate and Other
(4,960
)
 
19,904

Total income tax expense (benefit)
$
(4,606
)

$
23,083

 
Three Months Ended March 31,
 
2019
 
2018
Segment profit:
 
 
 
U.S. Liquids
$
89,511

 
$
68,056

U.S. Gas
12,165

 
14,277

Canada
22,693

 
22,113

Corporate and Other
(237
)
 
10,963

Total segment profit
$
124,132


$
115,409


 
Three Months Ended March 31,
 
2019
 
2018
Reconciliation of segment profit to net income (loss):
 
 
 
   Total segment profit
$
124,132

 
$
115,409

     Less:

 

Adjustment to reflect equity earnings on an EBITDA basis
4,710

 
4,883

Net unrealized loss (gain) related to commodity derivative instruments
4,818

 
2,226

General and administrative expense
29,547

 
26,477

Depreciation and amortization
59,036

 
50,536

Gain on disposal of long-lived assets, net
(1,444
)
 
(3,566
)
Interest expense
36,652

 
42,461

Foreign currency transaction loss (gain)
(288
)
 
3,294

Other income, net
(979
)
 
(950
)
Income tax expense (benefit)
(4,606
)
 
23,083

   Net income (loss)
$
(3,314
)

$
(33,035
)
 
March 31,
2019
 
December 31,
2018
Total assets (excluding intersegment receivables):
 
 
 
U.S. Liquids
$
4,005,344

 
$
3,689,384

U.S. Gas
703,069

 
716,837

Canada
1,304,837