SEMGROUP CORP, 10-K filed on 2/26/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Jun. 30, 2017
Jan. 31, 2018
Class A [Member]
Jan. 31, 2018
Class B
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Document Fiscal Year Focus
2017 
 
 
 
Entity Registrant Name
SemGroup Corporation 
 
 
 
Entity Central Index Key
0001489136 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
78,672,995 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
Entity Public Float
 
$ 1,774,066,887 
 
 
Entity Current Reporting Status
No 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 93,699 
$ 74,216 
Accounts receivable (net of allowance of $2,628 and $2,322, respectively)
653,484 
418,339 
Receivable from affiliates
1,691 
25,455 
Inventories
101,665 
99,234 
Current assets held for sale
38,063 
Other current assets
14,297 
18,630 
Total current assets
902,899 
635,874 
Property, plant and equipment (net of accumulated depreciation of $444,842 and $393,635, respectively)
3,315,131 
1,762,072 
Equity method investments
285,281 
434,289 
Goodwill
257,302 
34,230 
Other intangible assets (net of accumulated amortization of $56,409 and $39,018, respectively)
398,643 
150,978 
Other noncurrent assets, net
132,600 
57,529 
Noncurrent assets held for sale
84,961 
Total assets
5,376,817 
3,074,972 
Current liabilities:
 
 
Accounts payable
587,898 
367,307 
Payable to affiliates
6,971 
26,508 
Accrued liabilities
131,407 
81,104 
Deferred revenue
7,518 
10,571 
Current liabilities held for sale
23,847 
Other current liabilities
3,395 
2,839 
Current portion of long-term debt
5,525 
26 
Total current liabilities
766,561 
488,355 
Long-term debt
2,853,095 
1,050,918 
Deferred income taxes
46,585 
64,501 
Other noncurrent liabilities
38,495 
25,233 
Noncurrent liabilities held for sale
13,716 
Commitments and contingencies (Note 15)
   
   
Preferred stock, $0.01 par value (authorized - 4,000 shares; issued - none)
SemGroup Corporation owners’ equity:
 
 
Common stock, $0.01 par value (authorized - 100,000 shares; issued - 79,708 and 67,079 shares, respectively)
786 
659 
Additional paid-in capital
1,770,117 
1,561,695 
Treasury stock, at cost (1,024 and 980 shares, respectively)
8,031 
6,558 
Accumulated deficit
(50,706)
(35,917)
Accumulated other comprehensive loss
(53,801)
(73,914)
Total SemGroup Corporation owners’ equity
1,658,365 
1,445,965 
Total liabilities and owners’ equity
$ 5,376,817 
$ 3,074,972 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Allowance for Doubtful Accounts Receivable, Current
$ 2,628 
$ 2,322 
Accumulated depreciation
444,842 
393,635 
Accumulated amortization on other intangible assets
$ 56,409 
$ 39,018 
Preferred Stock, Par or Stated Value Per Share
$ 0.01 
   
Preferred Stock, Shares Authorized
4,000,000 
   
Preferred Stock, Shares Issued
   
Common Stock, Par or Stated Value Per Share
$ 0.01 
$ 0.01 
Common stock shares authorized
100,000,000 
100,000,000 
Common stock shares issued
79,708,000 
67,079,000 
Treasury Stock, Common, Shares
1,024,000 
980,000 
Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Product
 
 
 
 
 
 
 
 
$ 1,621,918 
$ 1,009,409 
$ 1,118,886 
Service
 
 
 
 
 
 
 
 
391,266 
265,030 
259,542 
Lease
 
 
 
 
 
 
 
 
5,843 
Other
 
 
 
 
 
 
 
 
62,890 
57,725 
76,666 
Total revenues
606,806 
545,922 
473,089 
456,100 
402,172 
327,764 
287,377 
314,851 
2,081,917 
1,332,164 
1,455,094 
Costs of products sold, exclusive of depreciation and amortization shown below
 
 
 
 
 
 
 
 
1,514,891 
873,431 
979,549 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating
 
 
 
 
 
 
 
 
254,764 
212,099 
224,443 
General and administrative
 
 
 
 
 
 
 
 
110,373 
83,908 
97,366 
Depreciation and amortization
 
 
 
 
 
 
 
 
158,421 
98,804 
100,882 
Loss on disposal or impairment, net (Note 4)
(30,468)
41,625 
(234)
2,410 
38 
1,018 
1,685 
13,307 
13,333 
16,048 
11,472 
Total expenses
548,587 
587,888 
465,573 
449,734 
382,007 
317,662 
279,064 
305,557 
2,051,782 
1,284,290 
1,413,712 
Earnings from equity method investments
15,120 
17,367 
17,753 
17,091 
17,763 
15,845 
17,078 
23,071 
67,331 
73,757 
81,386 
Gain (loss) on issuance of common units by equity method investee
 
 
 
 
(41)
(41)
6,385 
Operating income (loss)
73,339 
(24,599)
25,269 
23,457 
37,928 
25,947 
25,391 
32,324 
97,466 
121,590 
129,153 
Other expenses (income):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
 
103,009 
62,650 
69,675 
Loss on early extinguishment of debt
 
 
 
 
 
 
 
 
19,900 
Foreign currency transaction loss (gain)
 
 
 
 
 
 
 
 
(4,709)
4,759 
(1,067)
Loss (gain) on sale or impairment of non-operated equity method investment
 
 
 
 
 
 
 
 
30,644 
(14,517)
Other expense (income), net
 
 
 
 
 
 
 
 
(1,226)
(994)
(1,284)
Total other expenses, net
39,579 
31,753 
12,033 
33,639 
9,809 
18,684 
9,944 
58,622 
117,004 
97,059 
52,807 
Income (loss) from continuing operations before income taxes
33,760 
(56,352)
13,236 
(10,182)
28,119 
7,263 
15,447 
(26,298)
(19,538)
24,531 
76,346 
Income tax expense (benefit)
31,141 
(37,249)
3,625 
95 
16,119 
11,898 
4,658 
(21,407)
(2,388)
11,268 
33,530 
Income (loss) from continuing operations
 
 
 
 
12,000 
(4,635)
10,789 
(4,891)
(17,150)
13,263 
42,816 
Income (loss) from discontinued operations, net of income taxes
 
 
 
 
(2)
(2)
(1)
(4)
Net income (loss)
2,619 
(19,103)
9,611 
(10,277)
12,000 
(4,632)
10,787 
(4,893)
(17,150)
13,262 
42,812 
Less: net income attributable to noncontrolling interests
 
 
 
 
225 
1,922 
9,020 
11,167 
12,492 
Net income (loss) attributable to SemGroup
 
 
 
 
12,000 
(4,857)
8,865 
(13,913)
(17,150)
2,095 
30,320 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
 
 
 
 
 
 
 
20,411 
(14,224)
(32,142)
Other, net of income taxes
 
 
 
 
 
 
 
 
(298)
(1,128)
721 
Total other comprehensive income (loss)
 
 
 
 
 
 
 
 
20,113 
(15,352)
(31,421)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
2,963 
(2,090)
11,391 
Less: comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
11,167 
12,492 
Comprehensive income (loss) attributable to SemGroup
 
 
 
 
 
 
 
 
$ 2,963 
$ (13,257)
$ (1,101)
Net income (loss) attributable to SemGroup per common share (Note 17):
 
 
 
 
 
 
 
 
 
 
 
Basic
$ 0.03 
$ (0.25)
$ 0.15 
$ (0.16)
$ 0.18 
$ (0.09)
$ 0.20 
$ (0.32)
$ (0.24)
$ 0.04 
$ 0.69 
Diluted
$ 0.03 
$ (0.25)
$ 0.15 
$ (0.16)
$ 0.18 
$ (0.09)
$ 0.19 
$ (0.32)
$ (0.24)
$ 0.04 
$ 0.69 
Consolidated Statements of Changes in Owners' Equity (USD $)
In Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Noncontrolling Interest [Member]
Beginning Balance at Dec. 31, 2014
$ 1,219,437 
$ 436 
$ 1,245,877 
$ (1,332)
$ (68,332)
$ (27,141)
$ 69,929 
Net income (loss)
42,812 
 
 
 
30,320 
 
12,492 
Other comprehensive income (loss), net of income taxes
(31,421)
 
 
 
 
(31,421)
 
Distributions to noncontrolling interests
(40,410)
 
 
 
 
 
(40,410)
Non-cash equity compensation
10,405 
 
9,051 
 
 
 
1,354 
Issuance of common stock under compensation plans
1,515 
1,512 
 
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(4,261)
 
 
(4,261)
 
 
 
Rose Rock equity issuance
89,119 
 
 
 
 
 
89,119 
Transfer to subsidiary in common control transaction
(20,772)
 
30,700 
 
 
 
(51,500)
Dividends paid
(69,514)
 
(69,514)
 
 
 
 
Unvested dividend equivalent rights
(554)
 
(351)
 
 
 
(203)
Ending Balance at Dec. 31, 2015
1,196,356 
439 
1,217,255 
(5,593)
(38,012)
(58,562)
80,829 
Net income (loss)
13,262 
 
 
 
2,095 
 
11,167 
Other comprehensive income (loss), net of income taxes
(15,352)
 
 
 
 
(15,352)
 
Distributions to noncontrolling interests
(32,133)
 
 
 
 
 
(32,133)
Non-cash equity compensation
9,945 
 
8,752 
 
 
 
1,193 
Issuance of common stock under compensation plans
1,237 
1,236 
 
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(965)
 
 
(965)
 
 
 
Dividends paid
(92,910)
 
(92,910)
 
 
 
 
Unvested dividend equivalent rights
587 
 
521 
 
 
 
66 
Issuance of common stock
228,546 
86 
228,460 
 
 
 
 
Acquisition of Rose Rock's noncontrolling interest
137,392 
133 
198,381 
 
 
 
(61,122)
Ending Balance at Dec. 31, 2016
1,445,965 
659 
1,561,695 
(6,558)
(35,917)
(73,914)
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification
288 
(2,073)
2,361 
Net income (loss)
(17,150)
 
 
 
(17,150)
 
Other comprehensive income (loss), net of income taxes
20,113 
 
 
 
 
 
 
Non-cash equity compensation
10,066 
 
10,066 
 
 
 
 
Stock Issued During Period, Value, Acquisitions
330,341 
124 
330,217 
 
 
 
 
Issuance of common stock under compensation plans
1,173 
1,170 
 
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(1,473)
 
 
(1,473)
 
 
 
Dividends paid
(129,925)
 
(129,925)
 
 
 
 
Unvested dividend equivalent rights
(1,033)
 
(1,033)
 
 
 
 
Ending Balance at Dec. 31, 2017
$ 1,658,365 
$ 786 
$ 1,770,117 
$ (8,031)
$ (50,706)
$ (53,801)
$ 0 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$ (17,150)
$ 13,262 
$ 42,812 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
158,421 
98,804 
100,882 
Loss on disposal or impairment, net
13,333 
16,048 
11,472 
Equity earnings from investments
(67,331)
(73,757)
(81,386)
Loss (gain) on issuance of common units by equity method investee
41 
(6,385)
Loss (gain) on sale or impairment of non-operated equity method investment
30,644 
(14,517)
Distributions from equity investments
66,748 
76,442 
95,429 
Amortization and write down of debt issuance costs
6,221 
7,561 
5,102 
Loss on early extinguishment of debt
19,900 
Deferred tax expense (benefit)
(9,829)
8,447 
29,197 
Non-cash compensation expense
10,253 
10,216 
10,617 
Provision for uncollectible accounts receivable, net of recoveries
165 
(527)
208 
Gain on pension curtailment
(3,008)
Inventory valuation adjustment
455 
2,590 
Foreign currency transaction loss (gain)
(4,709)
4,759 
(1,067)
Changes in operating assets and liabilities (Note 21)
(33,023)
(21,966)
(13,192)
Net cash provided by operating activities
140,476 
169,974 
181,762 
Cash flows from investing activities:
 
 
 
Capital expenditures
(462,713)
(312,456)
(479,530)
Proceeds from sale of equity method investment and other long-lived assets
314,821 
151 
3,688 
Investments in non-consolidated subsidiaries
(26,444)
(4,188)
(46,730)
Payments to acquire business, net of cash acquired
294,239 
Proceeds from sale of common units of equity method investee
60,483 
56,318 
Distributions from equity method investments in excess of equity in earnings
28,774 
27,726 
24,113 
Net cash provided by (used in) investing activities
(439,801)
(228,284)
(442,141)
Cash flows from financing activities:
 
 
 
Debt issuance costs
(11,116)
(7,728)
(6,289)
Borrowings on credit facilities and issuance of senior unsecured notes
1,525,377 
382,500 
867,208 
Principal payments on debt and other obligations
(1,052,428)
(396,890)
(560,049)
Debt extinguishment costs
(16,293)
Distributions to noncontrolling interests
(32,133)
(40,410)
Repurchase of common stock for payment of statutory taxes due on equity-based compensation
(1,473)
(965)
(4,261)
Dividends paid
(129,925)
(92,910)
(69,514)
Proceeds from issuance of common stock under employee stock purchase plan
1,114 
1,010 
1,223 
Proceeds from issuance of common shares, net of offering costs
223,025 
Rose Rock equity issuance
89,119 
Net cash provided by (used in) financing activities
315,256 
75,909 
277,027 
Effect of exchange rate changes on cash and cash equivalents
3,552 
(1,479)
850 
Change in cash and cash equivalents
19,483 
16,120 
17,498 
Cash and cash equivalents at beginning of period
74,216 
58,096 
40,598 
Cash and cash equivalents at end of period
$ 93,699 
$ 74,216 
$ 58,096 
Overview
Overview
OVERVIEW
SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified services for end-users and consumers of crude oil, natural gas, natural gas liquids, refined products and asphalt.
The accompanying consolidated financial statements include the activities of SemGroup Corporation and its subsidiaries. The terms “we,” “our,” “us,” “the Company” and similar language used in these notes to consolidated financial statements refer to SemGroup Corporation and its subsidiaries.
At December 31, 2017, our reportable segments include the following:
Crude Transportation, which operates crude oil pipelines and truck transportation businesses in the United States. Crude Transportation’s assets include:
a crude oil gathering and transportation pipeline system in Kansas and northern Oklahoma that is connected to several third-party pipelines and refineries;
the Wattenberg Oil Trunkline ("WOT"), a crude oil gathering pipeline system that transports crude oil from production facilities in the DJ Basin to the pipeline owned by White Cliffs Pipeline, L.L.C. ("White Cliffs");
a crude oil trucking fleet of over 215 transport trucks and 210 trailers;
Maurepas Pipeline, consisting of three pipelines, with an approximate total of 106 miles, that service refineries in the Gulf Coast region (the “Maurepas Pipeline”); and
a 51% ownership interest in White Cliffs, which owns crude oil pipelines that transport crude oil from Platteville, Colorado to Cushing, Oklahoma (the "White Cliffs Pipeline").
Crude Facilities, which operates crude oil storage and terminal businesses in Cushing, Oklahoma and a crude oil truck unloading facility in Platteville, Colorado that connects to the origination point of the White Cliffs Pipeline.
Crude Supply and Logistics, which operates a crude oil marketing business utilizing our Crude Transportation and Crude Facilities assets for marketing purposes.
HFOTCO, acquired in July 2017, which operates a large terminal facility located on the U.S. Gulf Coast. HFOTCO’s assets include:
approximately 16.8 million barrels of product storage with crude pipeline connectivity to the local refining complex, deep water marine access and inbound crude receipt pipeline connectivity, as well as rail and truck loading and unloading capabilities; and
330 acres on the Houston Ship Channel.
SemGas, which provides natural gas gathering and processing services in the United States. SemGas operates gathering pipelines in Oklahoma and Texas and processing plants in northern Oklahoma and Texas.
SemCAMS, which provides natural gas gathering and processing services in Alberta, Canada. SemCAMS owns working interests in, and operates, a network of natural gas gathering and transportation pipelines and natural gas processing plants.
Additionally, we own an 11.78% interest in the general partner of NGL Energy Partners LP ("NGL Energy") (NYSE: NGL), certain refined products and crude oil storage assets in the United Kingdom ("U.K.") and certain liquid asphalt terminalling and modification facilities in Mexico, all of which are reported within Corporate and Other. See Note 6 for discussion of the disposal of Glass Mountain Pipeline ("Glass Mountain") on December 22, 2017. See Note 4 for discussion of held for sale status of the U.K. business and Mexican asphalt business.
Consolidation And Basis Of Presentation
Consolidation and Basis of Presentation
CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
Consolidated subsidiaries
Our consolidated financial statements include the accounts of our controlled subsidiaries. All significant transactions between our consolidated subsidiaries have been eliminated.
Proportionally consolidated assets
Our SemCAMS segment owns undivided interests in certain natural gas gathering and processing assets, for which we record only our proportionate share of the assets on the consolidated balance sheets. The net book value of the property, plant and equipment recorded by us associated with these undivided interests is approximately $416.1 million at December 31, 2017. We serve as operator of these facilities and incur the costs of operating the facilities (recorded as operating expenses in the consolidated statements of operations) and charge the other owners, which are also customers, for their proportionate share of the costs (recorded as other revenue in the consolidated statements of operations).
Equity method investments
We own a 51% interest in White Cliffs, which we account for under the equity method as the other owners have substantive rights to participate in its management.
We own an 11.78% interest in the general partner of NGL Energy which we account for under the equity method.
Summary of Significant Accounting Policies
Summary of Signifcant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our significant estimates include, but are not limited to: (1) allowances for doubtful accounts receivable; (2) estimated useful lives of assets, which impact depreciation and amortization; (3) estimated fair values used in impairment tests; (4) fair values of derivative instruments; (5) valuation allowances for deferred tax assets; and (6) accrual and disclosure of contingent losses. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.
CASH AND CASH EQUIVALENTS—Cash includes currency on hand and demand and time deposits with banks or other financial institutions. Cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase. Balances at financial institutions may exceed federally insured limits.
ACCOUNTS RECEIVABLE—Accounts receivable are reported net of the allowance for doubtful accounts. Our assessment of the allowance for doubtful accounts is based on several factors, including the overall creditworthiness of our customers, existing economic conditions, and the amount and age of past due accounts. We enter into netting arrangements with certain counterparties to help mitigate credit risk. Receivables subject to netting are presented as gross receivables (with the related accounts payable also presented gross) until such time as the balances are settled. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are written off against the allowance for doubtful accounts only after all collection attempts have been exhausted.
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. For public entities, this ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2020. The impact is not expected to be material.
INVENTORIES—Inventories primarily consist of crude oil and asphalt. Inventories are valued at the lower of cost or net realizable value, with cost generally determined using the weighted-average method. The cost of inventory includes applicable transportation costs.
We enter into exchanges with third parties whereby we acquire products that differ in location, grade, or delivery date from products we have available for sale. These exchanges are valued at cost, and although a transportation, location or product differential may be recorded, generally no gain or loss is recognized.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value rather than the lower of cost or market. We adopted this guidance in the first quarter of 2017. The impact was not material.
PROPERTY, PLANT AND EQUIPMENT—Property, plant and equipment is recorded at cost. We capitalize costs that extend or increase the future economic benefits of property, plant and equipment, and expense maintenance costs that do not. When assets are disposed of, their cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is recorded as a gain or loss on disposal or impairment in the consolidated statements of operations and comprehensive income (loss).
Our SemCAMS segment operates plants which periodically undergo planned major maintenance activities, typically occurring every four to five years.  Planned major maintenance projects that do not increase the overall life or capacity of the related assets are recorded in operating expense as incurred, whereas major maintenance activity costs that materially increase the life or capacity of the underlying assets are capitalized. When maintenance expenses are recoverable from the producers who use the plants, they are recorded as revenue, and typically include a 10% overhead fee. 
Depreciation is calculated primarily using the straight-line method over the following estimated useful lives:
Pipelines and related facilities
10 – 31 years
Storage and terminal facilities
10 – 25 years
Natural gas gathering and processing facilities
10 – 31 years
Trucking equipment and other
3 – 7 years
Office property and equipment
3 – 31 years


Construction in process is reclassified to the fixed asset categories above and depreciation commences once the asset has been placed in-service.
LINEFILL—Pipelines and storage facilities generally require a minimum volume of product in the system to enable the system to operate. Such product, known as linefill, is generally not available to be withdrawn from the system. Linefill owned by us in facilities operated by us is recorded at historical cost, is included in property, plant and equipment in the consolidated balance sheets, and is not depreciated. We also own linefill in third-party facilities, which is included in inventory on the consolidated balance sheets.
IMPAIRMENT OF LONG-LIVED ASSETS—We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. We test an asset group for impairment by estimating the undiscounted cash flows expected to result from its use and eventual disposition. If the estimated undiscounted cash flows are lower than the net book value of the asset group, we then estimate the fair value of the asset group and record a reduction to the net book value of the assets and a corresponding impairment loss.
GOODWILL—We test goodwill for impairment on an annual basis, or more often if circumstances warrant, by estimating the fair value of the reporting unit to which the goodwill relates and comparing this fair value to the net book value of the reporting unit. If fair value is less than net book value, we reduce the book value accordingly and record a corresponding impairment loss. Our policy is to test goodwill for impairment on October 1 of each year.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which removes Step 2 from the goodwill impairment test. Under the amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit
with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. We adopted this guidance in the third quarter of 2017 in conjunction with the impairment test of our Field Services business unit. See Note 11 for information related to the impairment of Field Services goodwill and intangible assets.
FINITE-LIVED INTANGIBLE ASSETS—Finite-lived intangible assets are stated at cost, net of accumulated amortization, which is recorded on a straight-line or accelerated basis over the life of the asset. We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value.
EQUITY METHOD INVESTMENTS—We account for an investment under the equity method when we have significant influence over, but not control of, the significant operating decisions of the investee. Under the equity method, we record in the consolidated statements of operations our share of the earnings or losses of the investee, with a corresponding adjustment to the investment balance on our consolidated balance sheet. When we receive a distribution from an equity method investee, we record a corresponding reduction to the investment balance. When an equity method investee issues additional ownership interests which dilute our ownership interest, we recognize a gain or loss in our consolidated statements of operations.
We assess our equity method investments for impairment when circumstances indicate that the carrying value may not be recoverable and record an impairment when a decline in value is considered to be other than temporary.
For equity method investments for which we do not expect financial information to be consistently available on a timely basis to apply the equity method currently, our policy is to apply the equity method consistently on a one-quarter lag.
DEBT ISSUANCE COSTS—Costs incurred in connection with the issuance of long-term debt are reported as a reduction to the carrying value of the associated debt instrument and are amortized to interest expense using the straight-line method over the term of the related debt. Use of the straight-line method of amortization does not differ materially from the “effective interest” method.
Capitalized loan fees related to our revolving credit facility are presented as other noncurrent assets.
COMMODITY DERIVATIVE INSTRUMENTS—We generally record the fair value of commodity derivative instruments on the consolidated balance sheets and the change in fair value as an increase or decrease to product revenue.
As shown in Note 12, the fair value of commodity derivatives at December 31, 2017 and 2016 are recorded to other current assets or other current liabilities on the consolidated balance sheets. Related margin deposits are recorded to other current assets or other current liabilities on the consolidated balance sheets. Margin deposits are not generally netted against derivative assets or liabilities.
The fair value of a derivative contract is determined based on the nature of the transaction and the market in which the transaction was executed. Quoted market prices, when available, are used to value derivative transactions. In situations where quoted market prices are not readily available, we estimate the fair value using other valuation techniques that reflect the best information available under the circumstances. Fair value measurements of derivative assets include consideration of counterparty credit risk. Fair value measurements of derivative liabilities include consideration of our creditworthiness.
We have elected “normal purchase” and “normal sale” treatment for certain commitments to purchase or sell petroleum products at future dates. This election is only available when a transaction that would ordinarily meet the definition of a derivative but instead is expected to result in physical delivery of product over a reasonable period in the normal course of business and is not expected to be net settled. Agreements accounted for under this election are not recorded at fair value; instead, the transaction is recorded when the product is delivered.
CONTINGENT LOSSES—We record a liability for a contingent loss when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We record attorneys’ fees incurred in connection with a contingent loss at the time the fees are incurred. We do not record liabilities for attorneys’ fees that are expected to be incurred in the future.
ASSET RETIREMENT OBLIGATIONS—Asset retirement obligations include legal or contractual obligations associated with the retirement of long-lived assets, such as requirements to incur costs to dispose of equipment or to remediate the environmental impacts of the normal operation of the assets. We record liabilities for asset retirement obligations when a known obligation exists under current law or contract and when a reasonable estimate of the value of the liability can be made.
REVENUE RECOGNITION—Sales of product, as well as gathering and marketing revenues, are recognized at the time title to the product transfers to the purchaser, which typically occurs upon receipt of the product by the purchaser. Terminal and storage revenues are recognized at the time the service is performed. Revenue for the transportation of product is recognized upon delivery of the product to its destination. Certain revenue transactions are reported on a net basis, including certain buy/sell transactions (see “Purchases and Sales of Inventory with the Same Counterparty”). Other revenue primarily represents operating cost recovery from working interest owners, who are also customers, in certain processing plants and is recorded when earned in accordance with the terms of related agreements. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue).
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, as amended, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We will use a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption, January 1, 2018.
We have identified certain areas of impact including:
We have certain natural gas gathering and processing agreements for which we provide gathering and processing services to the producer and market the gas to third-parties. Historically, we have accounted for these transactions as purchases at the wellhead and recorded the service fees as a reduction of cost of sales. Under ASU 2014-09, we expect some of these agreements to be treated as purchases at the wellhead and some to be treated as services with a purchase at the processing plant tailgate, depending on when we obtain control of the product. This change will not impact gross margin but will lead to higher revenue and cost of sales for transactions where control is deemed to pass at the plant tailgate.
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. Under our current policies, revenues related to certain “take-or-pay” deficiency payments received from customers are deferred until the contractual right to make up volumetric deficiencies has expired. Under ASU 2014-09, these revenues will be recognized when make up of the volumetric deficiencies is no longer considered probable. Deferred revenues related to these agreements at December 31, 2017, which will then be recognized through retained earnings at adoption, is not material.
Approximately $10.0 million of incremental costs of obtaining contracts, which was expensed in prior periods, will be capitalized through an adjustment to retained earnings. These costs will be amortized over approximately 20 years to match the tenor of the underlying agreements.
COSTS OF PRODUCTS SOLD—Costs of products sold consists of the cost to purchase the product, the cost to transport the product to the point of sale, and the cost to store the product until it is sold.
PURCHASES AND SALES OF INVENTORY WITH THE SAME COUNTERPARTY—We routinely enter into transactions to purchase inventory from, and sell inventory to, the same counterparty. Such transactions that are entered into in contemplation of one another are recorded on a net basis.
CURRENCY TRANSLATION—The consolidated financial statements are presented in U.S. dollars. Our segments operate in four countries, and each segment has identified a “functional currency,” which is the primary currency in the environment in which the segment operates. The functional currencies include the U.S. dollar, the Canadian dollar, the British pound sterling, and the Mexican peso.
At the end of each reporting period, the assets and liabilities of each segment are translated from its functional currency to U.S. dollars using the exchange rate at the end of the month. The monthly results of operations of each segment are generally translated from its functional currency to U.S. dollars using the average exchange rate during the month. Changes in exchange rates result in currency translation gains and losses, which are recorded within other comprehensive income (loss).
Certain segments also enter into transactions in currencies other than their functional currencies. At the end of each reporting period, each segment re-measures the related receivables, payables, and cash to its functional currency using the exchange rate at the end of the period. Changes in exchange rates between the time the transactions were entered into and the end of the reporting period result in currency transaction gains or losses, which are recorded in the consolidated statements of operations.
INCOME TAXES—Deferred income taxes are accounted for under the liability method, which takes into account the differences between the basis of the assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. We record valuation allowances on deferred tax assets when, in the opinion of management, it is more likely than not that the asset will not be recovered.
We monitor uncertain tax positions and we recognize tax benefits only when management believes the relevant tax positions would more likely than not be sustained upon examination. We record any interest and any penalties related to income taxes within income tax expense in the consolidated statements of operations.
In November 2015, the FASB 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 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 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 will adopt this guidance in the first quarter of 2019. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The impact is not expected to be material.
RECLASSIFICATIONS—Certain reclassifications have been made to conform prior year balances to the current year presentation.
PENSION BENEFITS—Pension cost and obligations are actuarially determined and are affected by assumptions including expected return on plan assets, discount rates, compensation increases, and employee turnover rates. We evaluate our assumptions periodically and make adjustments to these assumptions and the recorded liability as necessary. Actuarial gains or losses are amortized on a straight-line basis over the expected remaining service life of employees in the pension plan.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement 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.
EQUITY-BASED COMPENSATION—We grant certain of our employees and non-managerial directors equity-based compensation awards which vest contingent on continued service of the recipient and, in some cases, on their achievement of specific performance targets or market conditions. We record compensation expense for these outstanding awards over applicable service or performance periods based on their grant date fair value with a corresponding increase to additional paid-in capital. The expense to be recorded over the life of the awards is discounted for expected forfeitures during the vesting period.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting’’, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years and early adoption is permitted. We 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 May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting”, to provide clarity and reduce diversity in practice in determining which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting under Accounting Standards Codification Topic 718. 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.
COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)—Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Our comprehensive income (loss) includes currency translation adjustments and changes in the funded status of pension benefit plans.
OTHER RECENT ACCOUNTING PRONOUNCEMENTS—In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)”, to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update addresses eight different transaction types and clarifies how to classify each in the statement of cash flows, where previously there was unclear or no specific guidance. For public entities, this ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2018. The impact is not expected to be material.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which amends the existing lease guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by operating and finance leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. For public entities, this ASU will be effective for annual periods beginning after December 15, 2018, and interim periods within those years. The new guidance will be applied using a modified retrospective approach and early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements, but are not yet able to quantify the impact. We continue to monitor FASB activity related to this ASU and have engaged with various peer groups to assess certain interpretive issues related to this ASU. We will adopt this guidance in the first quarter of 2019.
Disposals of Long-Lived Assets
Disposals of Long-Lived Assets
DISPOSALS OR IMPAIRMENTS OF LONG-LIVED ASSETS
Year ended December 31, 2017
The following amounts are included in "loss on disposal or impairment, net" on our consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2017 (in thousands):
 
Segment
Loss/(Gain)
Write-down of Mexican asphalt business to net realizable value
Corporate and Other
$
13,511

Write-down U.K. operations to net realizable value
Corporate and Other
76,661

Sherman natural gas gathering and processing asset impairment
SemGas
30,985

Crude oil trucking goodwill impairment (Note 11)
Crude Transportation
26,628

Crude oil trucking intangible asset impairment (Note 11)
Crude Transportation
12,087

Gain on sale of Glass Mountain (Note 6)
Crude Transportation
(150,266
)
Other
 
3,727

Loss on disposal or impairment, net
 
$
13,333



On January 5, 2018, we entered into a definitive agreement to sell our Mexican asphalt business for $55 million in cash plus or minus non-cash working capital as of closing (subject to customary adjustments for capital expenditures). At December 31, 2017, the assets and liabilities of the Mexican asphalt business are reflected on the consolidated balance sheet as held for sale and have been written down to net realizable value by recording an impairment of $13.5 million, including the impact of a deferred foreign currency translation loss of $30.9 million. We expect the sale to close in the second quarter of 2018. The proceeds from the disposal will be used to repay debt. The Mexican asphalt business contributed a pre-tax loss of $8.2 million for the year-ended December 31, 2017, including the write-down to net realizable value. At December 31, 2017, the Mexican assets and liabilities held for sale included $29.4 million of property, plant and equipment, $34.9 million of current assets and $19.4 million of current liabilities.
On February 23, 2018, we entered into an agreement to sell our U.K. operations, SemLogistics, for an estimated $71.5 million. In addition to the sale price, the agreement provides for potential earnout payments to be made to SemGroup if certain revenue targets are met in the four years following close of the transaction. SemGroup intends to use proceeds from the sale toward its capital raise plan and to pre-fund capital growth projects. The sale is expected to close by the end of the third quarter of 2018.
At December 31, 2017, the assets and liabilities of our storage and terminalling business in the U.K. are reflected on the consolidated balance sheet as held for sale and have been written down to net realizable value by recording an impairment of $76.7 million, including the impact of a deferred foreign currency translation loss of $22.8 million. Net realizable value was estimated at $71.5 million less working capital adjustments and costs to sell. The U.K. business contributed a pre-tax loss of $73.0 million for the year-ended December 31, 2017, including the write-down to net realizable value. At December 31, 2017, the U.K. assets and liabilities held for sale included $136.8 million of property, plant and equipment, $3.1 million of current assets and $4.4 million of current liabilities.

At December 31, 2017, we recorded a $31.0 million impairment of our Sherman, Texas natural gas gathering and processing assets of our SemGas segment. Evaluation of capital raising alternatives indicated that the carrying value of our Sherman, Texas assets might be in excess of fair value. We compared the forecasted undiscounted cash flows for the assets to the carrying value of the assets, which indicated that the carrying value of assets was impaired. We used an income approach based on a discounted cash flow model to estimate the fair value of the assets and recorded a non-cash impairment.
Impairments are based on unobservable inputs and considered to be Level 3 measurements. See Note 6 for discussion of the sale of our equity method investment in Glass Mountain. See Note 11 for discussion of impairment of goodwill and finite-lived intangible assets recorded by our Crude Transportation segment.
Year ended December 31, 2016
There were no significant disposals or impairments of long-lived assets during the year ended December 31, 2016. See Note 6 for discussion of our sale of NGL Energy limited partner units accounted for under the equity method. See Note 11 for discussion of goodwill impairment related to our SemGas segment.
Year ended December 31, 2015
During the year ended December 31, 2015, our SemGas segment sold certain non-core Kansas based gas gathering and compression assets for approximately $1.0 million, resulting in a pre-tax loss of approximately $1.7 million which is reported in "loss on disposal or impairment, net" in the consolidated statement of operations and comprehensive income (loss). See Note 6 for discussion of our sale of NGL Energy limited partner units accounted for under the equity method. See Note 11 for discussion of the goodwill impairment recorded by our Crude Transportation segment.

Acquisitions
Business Combination Disclosure [Text Block]
ACQUISITIONS
Year ended December 31, 2017
On July 17, 2017, we acquired Houston Fuel Oil Terminal Company (“HFOTCO”), one of the largest oil terminals in the U.S., for a purchase price paid, or to be paid, in two payments. This acquisition establishes our position in the premier energy market, the Houston Ship Channel, and provides a strategic platform to refinery-facing growth. The first payment consisted of $297.8 million in cash funded from our revolving credit facility, the issuance of approximately 12.4 million shares of our Class A common stock and the assumption of existing HFOTCO debt of approximately $766 million. The second payment requires us to pay the sellers $600 million in cash, if paid on December 31, 2018 (the “Second Payment”). If paid prior to December 31, 2018, the amount payable will be discounted by 5% per annum. If not paid by December 31, 2018, the amount payable increases to $680 million and is due by December 31, 2019, or earlier if requested by the sellers. The Second Payment is reflected on the balance sheet as the present value of cash flows based on a weighted average of the expected timing of payment under various scenarios and using an 8% discount rate. The acquisition date fair value of the common shares issued is approximately $330 million, based on $26.68 per common share market price at issuance.
We have recorded the purchase price allocation as follows (in thousands):
Assets acquired
 
Cash
$
3,583

Accounts receivable
11,101

Other current assets
5,277

Property, plant and equipment
1,327,168

Intangible assets subject to amortization
 
   Customer contracts
1,000

   Customer relationships
260,000

   Non-compete agreement
30,000

Goodwill
257,302

Other noncurrent assets
72,392

Total assets acquired
$
1,967,823


Consideration
 
Cash
$
297,822

Common shares
330,341

Second Payment
549,900

Liabilities assumed
 
Accounts payable and accrued liabilities
9,876

Current portion of long-term debt
5,500

Long-term debt
760,500

Other noncurrent liabilities
13,884

Total liabilities assumed
789,760

Total consideration
$
1,967,823


Finite-lived intangibles are amortized over their estimated useful lives. The non-compete agreement is effective for two years from the acquisition date and will be amortized straight-line over the two-year period. Customer relationships are being amortized over 28.5 years on an accelerated basis which matches the incremental cash flow models used to value the intangible assets and in consideration of a historical customer attrition rate of 5%. Customer contracts are being amortized over three years on an accelerated basis. Goodwill primarily relates to the location of the business and potential for future growth. Goodwill is amortizable over 15 years for income tax purposes.
From the acquisition date through December 31, 2017, HFOTCO contributed $76.9 million of revenue and $2.4 million of net loss to our consolidated financial results. Our results for the year ended December 31, 2017, include $19.2 million of acquisition related expenses which are included in "general and administrative expenses" in our consolidated statement of operations and comprehensive income (loss). Included in the results of HFOTCO for the post acquisition period is a gain of $3.0 million related to the curtailment of HFOTCO’s defined benefit pension plan. Subsequent to the acquisition, SemGroup closed the plan to new members and stopped the accrual of future benefits under the plan to better align HFOTCO with SemGroup’s compensation strategy. Accordingly, the pension liability assumed at acquisition of $10.0 million was reduced to $7.0 million as of December 31, 2017.
Unaudited pro forma financial information for the periods disclosed below has been prepared as if the transaction occurred on January 1, 2016 (in thousands):
 
Pro forma (unaudited)
 
Year Ended December 31,
 
2017
 
2016
Revenue
$
2,168,747

 
$
1,491,142

Net loss
$
(22,649
)
 
$
(23,011
)
Basic and diluted loss per share attributable to SemGroup
$
(0.29
)
 
$
(0.54
)

These pro forma amounts have been calculated after applying our accounting policies and adjusting the results of HFOTCO to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and intangible assets had been applied from January 1, 2016. Additionally, incremental interest expense has been added related to the Second Payment assuming an 8% interest rate and cash consideration paid assuming a 5.5% interest rate. The income tax impact of these adjustments has been included in pro forma net loss using our historical blended statutory rates of 37.8% and 37.7% for the years ended December 31, 2017 and 2016, respectively. This unaudited pro forma consolidated financial information is provided for illustrative purposes only and does not purport to represent what our actual results would have been if the acquisition had occurred on the date assumed, nor is it necessarily indicative of our future operating results. However, the pro forma adjustments reflected in this unaudited pro forma consolidated financial information are based on estimates and assumptions that we believe to be reasonable.
The assets and credit of the acquired entities and their holding companies, all of which are included in the HFOTCO segment, are not available to satisfy the debts and obligations of other SemGroup entities. HFOTCO is not a subsidiary guarantor of SemGroup’s senior unsecured notes or revolving credit facility.
Year ended December 31, 2016
On September 30, 2016, we completed the acquisition of the outstanding common limited partner interests of Rose Rock Midstream, L.P. ("Rose Rock") which we did not already own (the "Merger"). We issued 13.1 million common shares as consideration and recorded a reduction to equity for $5.3 million of fees associated with the issuance. In addition, we recorded a reduction to our deferred tax liabilities and offsetting increase to additional paid-in capital of $143.3 million associated with the transaction. This non-cash adjustment represents the deferred tax impact of the difference between the book value of the noncontrolling interests acquired and the tax basis which is stepped-up to the fair market value of the consideration which includes the common shares issued and the assumption of liabilities associated with the noncontrolling interests.
We accounted for the Merger in accordance with FASB Accounting Standards Codification 810, Consolidation — Overall — Changes in a Parent’s Ownership Interest in a Subsidiary. As SemGroup controlled Rose Rock both before and after the Merger, the changes in SemGroup’s ownership interest in Rose Rock were accounted for as an equity transaction and no gain or loss was recognized in SemGroup’s consolidated statements of operations and comprehensive income (loss) as a result of the Merger. Subsequent to the Merger, Rose Rock was a wholly owned subsidiary of SemGroup.
Substantially all of Rose Rock's assets were pledged as collateral under its senior secured revolving credit facility agreement which was terminated following the Merger. Substantially all of Rose Rock's assets are now pledged as collateral under SemGroup's senior secured revolving credit facility. Rose Rock's senior unsecured notes were assumed by SemGroup.
Equity Method Investments
Equity Method Investments
EQUITY METHOD INVESTMENTS
Our equity method investments consist of the following (in thousands):
 
December 31,
 
2017
 
2016
White Cliffs
$
266,362

 
$
281,734

Glass Mountain

 
133,622

NGL Energy
18,919

 
18,933

Total equity method investments
$
285,281

 
$
434,289


Our earnings from equity method investments consist of the following (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
White Cliffs
$
59,851

 
$
69,007

 
$
70,238

Glass Mountain
7,494

 
2,562

 
6,117

NGL Energy(1)
(14
)
 
2,188

 
5,031

Total earnings from equity method investments
$
67,331

 
$
73,757

 
$
81,386

(1) Excluding a loss on issuance of common units of $41.0 thousand for the year ended December 31, 2016, and a gain on the issuance of common units of $6.4 million for the year ended December 31, 2015.
Cash distributions received from equity method investments consist of the following (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
White Cliffs
$
77,511

 
$
88,839

 
$
86,845

Glass Mountain
18,011

 
10,456

 
13,623

NGL Energy

 
4,873

 
19,074

Total cash distributions received from equity method investments
$
95,522

 
$
104,168

 
$
119,542


White Cliffs
We own a 51% interest in White Cliffs, which we account for under the equity method. The equity in earnings of White Cliffs for the years ended December 31, 2017, 2016 and 2015 reported in our consolidated statements of operations and comprehensive income (loss) is less than 51% of the net income of White Cliffs for the same period. This is primarily due to certain general and administrative expenses we incur in managing the operations of White Cliffs that the other members are not obligated to share. In addition, our equity in earnings is also impacted by the elimination of revenue on the sale of inventory to White Cliffs. Revenue related to inventory transactions with White Cliffs is deferred until a sale of the inventory has been made with a third party.
The members of White Cliffs are required to contribute capital to White Cliffs to fund various projects. For the years ended December 31, 2017, 2016 and 2015, we contributed $1.4 million, $2.2 million and $42.8 million, respectively, to White Cliffs capital projects.
Our membership interest in White Cliffs is significant as defined by Securities and Exchange Commission’s Regulation S-X Rule 1-02(w). Accordingly, as required by Regulation S-X Rule 3-09, we have included the audited financial statements of White Cliffs as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 as an exhibit to this Form 10-K.
Glass Mountain
On December 22, 2017, we completed the sale of our equity method investment in Glass Mountain for $300 million, subject to working capital and other adjustments. We recorded a pre-tax gain on disposal of $150.3 million, which was reported in "loss on disposal or impairment, net" in our consolidated statement of operations and comprehensive income (loss). Proceeds from the sale were used to repay borrowings on SemGroup's revolving credit facility.
NGL Energy
At December 31, 2017, we held an 11.78% interest in the general partner of NGL Energy which is being accounted for under the equity method in accordance with ASC 323-30-S99-1, as our ownership is in excess of the 3 to 5 percent interest which is generally considered to be more than minor.
The general partner of NGL Energy is not a publicly traded company. The information below pertains to our general partner interest, and previously held limited partner interest, in NGL Energy.
NGL Energy unit issuances and sales of NGL Energy units
During the year ended December 31, 2016, we sold our remaining 4,652,568 NGL Energy limited partner units for $13.00 per unit, or $60.5 million, and recorded a $9.1 million gain on disposal. During the year ended December 31, 2015, we sold 1,999,533 of our NGL Energy common units for $56.3 million, net of related costs of $0.5 million. We recorded a net gain of $14.5 million. Subsequent to these disposals, we no longer hold a limited partner interest in NGL Energy. Gains on disposal of NGL Energy limited partner units are included in "loss (gain) on sale or impairment of non-operated equity method investment" in our consolidated statements of operations and comprehensive income (loss).
During the years ended December 31, 2016 and 2015, our limited partnership interest was diluted in connection with NGL Energy common unit issuances. Accordingly, we recorded a non-cash loss of $41.0 thousand for the year ended December 31, 2016 and a non-cash gain of $6.4 million for the year ended December 31, 2015 related to these transactions, which are included in "gain (loss) on issuance of common units by equity method investee" in our consolidated statements of operations and comprehensive income (loss).
Other-than-temporary impairment of equity method investment in NGL Energy
During the year ended 2016, we recorded an impairment of $39.8 million to our investment in the limited partner units of NGL Energy subsequent to NGL Energy's April 21, 2016 announcement of a reduction in its quarterly distribution and lowering of financial performance guidance. These units were subsequently sold in the second quarter of 2016. The impairment was included in "loss (gain) on sale or impairment of non-operated equity method investment" in our consolidated statements of operations and comprehensive income (loss).
Segments
Segments
SEGMENTS
As described in Note 1, our businesses are organized based on the nature and location of the services they provide. Certain summarized information related to our reportable segments is shown in the tables below. None of the operating segments have been aggregated. The results of HFOTCO, subsequent to the acquisition date, are shown as a separate segment below. 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. Prior period segment disclosures have been recast to include the SemMexico and SemLogistics segments within Corporate and Other, as these businesses are no longer significant and are not expected to be significant in the future. Eliminations of transactions between segments are also included within Corporate and Other in the tables below.
During the fourth quarter of 2017, we changed our definition of segment profit to focus on the results of each segment exclusive of general and administrative costs and related overhead allocations. 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. Prior period segment profit has been recast to be consistent with the revised definition.
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.
Our results by segment are presented in the tables below (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Revenues:
 
 
 
 
 
   Crude Transportation
 
 
 
 
 
External
$
74,993

 
$
64,853

 
$
81,991

Intersegment
31,939

 
26,878

 
15,021

   Crude Facilities
 
 
 
 
 
External
42,327

 
45,956

 
45,936

Intersegment
10,594

 
10,674

 

   Crude Supply and Logistics
 
 
 
 
 
External
1,299,343

 
716,570

 
716,784

HFOTCO
 
 
 
 
 
External
76,885

 

 

SemGas
 
 
 
 
 
External
222,048

 
208,042

 
231,569

Intersegment
11,170

 
10,928

 
20,605

  SemCAMS
 
 
 
 
 
External
183,232

 
133,216

 
136,197

   Corporate and Other
 
 
 
 
 
External
183,089

 
163,527

 
242,617

Intersegment
(53,703
)
 
(48,480
)
 
(35,626
)
Total Revenues
$
2,081,917


$
1,332,164


$
1,455,094

 
 
 
 
 
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
Earnings from equity method investments:
 
 
 
 
 
   Crude Transportation
$
67,345

 
$
71,569

 
$
76,355

   Corporate and Other (1)
(14
)
 
2,147

 
11,416

Total earnings from equity method investments
$
67,331


$
73,716

 
$
87,771

(1) Including gain (loss) on issuance of common units by equity method investee.
 
 
 
 
 
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
Depreciation and amortization:
 
 
 
 
 
Crude Transportation
$
35,953

 
$
24,483

 
$
35,500

Crude Facilities
8,113

 
7,781

 
5,829

Crude Supply and Logistics
400

 
185

 
159

HFOTCO
44,272

 

 

SemGas
37,059

 
36,170

 
31,803

SemCAMS
18,530

 
16,867

 
12,940

   Corporate and Other
14,094

 
13,318

 
14,651

Total depreciation and amortization
$
158,421

 
$
98,804

 
$
100,882

 
 
 
 
 
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
Income tax expense (benefit):
 
 
 
 
 
HFOTCO
$
362

 
$

 
$

SemCAMS
8,863

 
3,667

 
4,847

Corporate and other
(11,613
)
 
7,601

 
28,683

Total income tax expense (benefit)
$
(2,388
)
 
$
11,268

 
$
33,530

 
 
 
 
 
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
Segment profit:
 
 
 
 
 
Crude Transportation
$
133,505

 
$
119,726

 
$
125,120

Crude Facilities
41,967

 
47,039

 
37,351

Crude Supply and Logistics
(7,801
)
 
24,003

 
30,899

HFOTCO
61,536

 

 

SemGas
67,805

 
66,530

 
73,422

SemCAMS
76,274

 
53,264

 
50,238

 Corporate and Other
33,237

 
39,534

 
56,822

Total segment profit
$
406,523


$
350,096

 
$
373,852

 
 
 
 
 
 
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
Reconciliation of segment profit to net income (loss):
 
 
 
 
 
   Total segment profit
$
406,523


$
350,096

 
$
373,852

     Less:
 
 
 
 
 
Adjustment to reflect equity earnings on an EBITDA basis
26,890

 
28,757

 
32,965

Net unrealized loss (gain) related to derivative instruments
40

 
989

 
2,014

General and administrative expense
110,373

 
83,908

 
97,366

Depreciation and amortization
158,421

 
98,804

 
100,882

Loss on disposal or impairment, net
13,333

 
16,048

 
11,472

Interest expense
103,009

 
62,650

 
69,675

Loss on early extinguishment of debt
19,930

 

 

Foreign currency transaction loss (gain)
(4,709
)
 
4,759

 
(1,067
)
Loss (gain) on sale or impairment of non-operated equity method investment

 
30,644

 
(14,517
)
Other expense (income), net
(1,226
)
 
(994
)
 
(1,284
)
Income tax expense (benefit)
(2,388
)
 
11,268

 
33,530

Loss from discontinued operations

 
1

 
4

   Net income (loss)
$
(17,150
)

$
13,262

 
$
42,812

 
 
 
 
 
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
Additions to long-lived assets, including acquisitions and contributions to equity method investments:
 
 
 
 
 
Crude Transportation
$
262,728

 
$
230,139

 
$
219,227

Crude Facilities
4,775

 
6,439

 
30,118

Crude Supply and Logistics
2,233

 
3,664

 
2,564

HFOTCO
2,019,482

 

 

SemGas
100,537

 
21,913

 
110,908

SemCAMS
113,263

 
34,506

 
142,368

  Corporate and Other
18,062

 
28,020

 
21,259

Total additions to long-lived assets
$
2,521,080


$
324,681

 
$
526,444

 
 
 
 
 
 
 
 
 
December 31,
 
 
 
2017
 
2016
Total assets (excluding intersegment receivables):
 
 
 
 
 
Crude Transportation
 
 
$
1,039,399

 
$
1,042,327

Crude Facilities
 
 
153,953

 
156,907

Crude Supply and Logistics
 
 
674,684

 
484,475

HFOTCO
 
 
2,003,298

 

SemGas
 
 
714,777

 
683,952

SemCAMS
 
 
518,900

 
379,785

  Corporate and Other
 
 
271,806

 
327,526

Total
 
 
$
5,376,817

 
$
3,074,972

 
 
 
 
 
 
 
 
 
December 31,
 
 
 
2017
 
2016
Equity investments:
 
 
 
 
 
Crude Transportation
 
 
$
266,362

 
$
415,356

Corporate and Other
 
 
18,919

 
18,933

Total equity investments
 
 
$
285,281


$
434,289

Inventories
Inventories
INVENTORIES
Inventories consist of the following (in thousands):
 
December 31,
 
2017
 
2016
Crude oil
$
101,665

 
$
89,683

Asphalt and other

 
9,551

Total inventories
$
101,665

 
$
99,234



During the year ended December 31, 2017, our Crude Supply and Logistics segment recorded non-cash charges of $0.5 million to write-down crude oil inventory to the lower of cost or net realizable value. There were no inventory write-downs during the year ended December 31, 2016. Asphalt inventory of $15.6 million was classified as held for sale at December 31, 2017.
Other Assets
Other Assets
OTHER ASSETS
Other current assets consist of the following (in thousands):
 
December 31,
 
2017
 
2016
Prepaid expenses
$
8,746


$
6,801

Deferred tax asset

 
2,244

Other
5,551


9,585

Total other current assets
$
14,297


$
18,630



Other noncurrent assets consist of the following (in thousands):
 
December 31,
 
2017
 
2016
Capitalized loan fees
$
8,774

 
$
10,242

Net investment in direct financing lease
67,825

 

Deferred tax asset
33,792

 
43,431

Other
22,209

 
3,856

Total other noncurrent assets, net
$
132,600

  
$
57,529



Net investment in direct financing lease, included in the table above, relates to our HFOTCO segment's lease of certain land, tanks and a barge dock which are accounted for as a direct financing lease. The assets are leased through 2025. At December 31, 2017, minimum lease payments to be received for each of the five succeeding fiscal years and thereafter are as follows (in thousands):
For the year ending:
 
December 31, 2018
$
12,833

December 31, 2019
12,837

December 31, 2020
12,841

December 31, 2021
12,845

December 31, 2022
12,849

Thereafter
31,068

Total minimum lease payments
$
95,273

Property, Plant and Equipment
Property, Plant and Equipment
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
 
December 31,
 
2017
 
2016
Land
$
273,168

 
$
90,337

Pipelines and related facilities
926,799

 
398,053

Storage and terminal facilities
1,111,001

 
279,506

Natural gas gathering and processing facilities
940,130

 
874,704

Linefill
25,747

 
25,804

Trucking equipment and other
45,162

 
45,417

Office property and equipment
63,052

 
61,146

Construction-in-progress
374,914

 
380,740

Property, plant and equipment, gross
3,759,973

 
2,155,707

Accumulated depreciation
(444,842
)
 
(393,635
)
Property, plant and equipment, net
$
3,315,131

 
$
1,762,072



Land in the table above includes $106.2 million and $76.8 million of rights-of-way at December 31, 2017 and 2016, respectively. The weighted average remaining useful life of rights-of-way at December 31, 2017 was approximately 20 years.

We recorded depreciation expense of $126.3 million, $87.9 million and $90.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
We include within the cost of property, plant and equipment interest costs incurred while an asset is being constructed. We capitalized $18.4 million, $17.0 million and $1.0 million of interest costs during the years ended December 31, 2017, 2016 and 2015, respectively.
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill relates to the following segments (in thousands):
 
December 31,
 
2017
 
2016
Crude Transportation
$

 
$
26,628

HFOTCO
257,302

 

Corporate and Other

 
7,602

Total goodwill
$
257,302

 
$
34,230


Changes in goodwill balances during the period from December 31, 2014 to December 31, 2017 are shown below (in thousands):
Balance, December 31, 2014
$
58,326

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

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

Crude oil trucking impairment loss
(26,628
)
Reclassification of SemMexico goodwill as held for sale (Note 4)
(7,808
)
HFOTCO acquisition (Note 5)
257,302

Currency translation adjustments
206

Balance, December 31, 2017
$
257,302


For U.S. federal income tax purposes, goodwill is amortized on a straight-line basis over 15 years.
We assess our goodwill for impairment at least annually as of October 1. No impairments were indicated as of October 1, 2017.
Crude oil trucking goodwill impairment - 2017
Based on market conditions, in the third-quarter of 2017, management lowered the long range forecast for our crude oil trucking business unit, which provides truck transportation services as part of our Crude Transportation segment. The decrease in the long range forecast for crude oil trucking is primarily due to the on-going challenging business environment. We viewed the decrease in the forecast as a triggering event that indicated a potential impairment and performed an interim impairment analysis on the business unit’s assets including goodwill and intangible assets.
We performed a recoverability test of our definite lived assets under ASC 360 whereby we compared the undiscounted cash flows of the asset group, which was determined to be the entire crude oil trucking reporting unit and included goodwill, to the carrying value of the assets at September 30, 2017. This test indicated that the assets were not fully recoverable. Therefore, we estimated the fair value of the definite lived assets using an income approach, supplemented by a market approach to measure impairment. We also performed an interim impairment test of our goodwill associated with the crude oil trucking reporting unit and determined the estimated fair value was less than the adjusted carrying value of the reporting unit resulting in impairment of goodwill. The cash flow models used to determine recoverability of our assets and to measure impairment expense involved using significant judgments and assumptions, which included the discount rate, anticipated revenue and volume growth rates, estimated operating expenses and capital expenditures, which were based on our operating and capital budgets as well as our strategic plans. We considered the market approach by comparing the revenue and earnings multiples implied by our income approach to those of comparable companies for reasonableness and for estimating the fair value of certain assets of our reporting unit.
We recorded a $26.6 million impairment of goodwill and a $12.1 million impairment of intangible assets, which are reflected in “loss on disposal or impairment, net” in our consolidated statements of operations and comprehensive income (loss).
SemGas goodwill impairment - 2016
In March 2016, our SemGas segment revised the volume forecast for its northern Oklahoma system based on revised volume forecasts provided by certain producers who have chosen to adjust plans for production following release of the Oklahoma Corporation Commission’s Regional Earthquake Response Plan that curtails the amount of volume that can be injected into disposal wells.  
Based on the reduction to our forecast, we tested our SemGas segment's long-lived assets, finite-lived intangible assets and goodwill for impairment at March 31, 2016. No impairment was indicated for SemGas' long-lived assets and finite-lived intangible assets based on an undiscounted cash flow analysis. However, we did record an impairment of SemGas' goodwill for the entire balance of $13.1 million.
To test the goodwill for impairment, we used an income approach, supplemented by a market approach to calculate the fair value of the reporting unit. Under the income approach, we utilized a discounted cash flow model to determine the fair value of our SemGas operations. Significant judgments and assumptions included the discount rate, anticipated revenue and volume growth rates, estimated operating expenses and capital expenditures, which were based on our operating and capital budgets as well as our strategic plans. A significant underlying assumption is that commodity prices will eventually improve, water disposal issues will be resolved and production volumes will begin to increase. If production does not increase in the future or the production takes longer than anticipated to return, this would negatively affect our key assumptions and potentially lead to finite-lived intangible and long-lived asset impairments in the future. We considered the market approach by comparing the revenue and earnings multiples implied by our income approach to those of comparable companies for reasonableness. See Note 4 for 2017 impairment of long-lived assets.
Crude oil trucking goodwill impairment - 2015
As a result of the continued decline in oil prices and lower forecast volumes from declining drilling activity, along with lower than expected results during the fourth quarter of 2015, we performed an interim goodwill impairment analysis as of December 31, 2015, which resulted in an impairment charge of $9.5 million related to our crude oil trucking operation which was identified as the reporting unit for purposes of the impairment test.
We used an income approach, supplemented by a market approach to calculate the fair value of the reporting unit. Under the income approach, we utilized a discounted cash flow model to determine the fair value of our crude oil trucking operations. Significant judgments and assumptions included the discount rate, anticipated revenue and volume growth rates, estimated operating expenses and capital expenditures, which were based on our operating and capital budgets as well as our strategic plans. A significant underlying assumption is that crude oil prices will eventually improve and production volumes will begin to increase. We considered the market approach by comparing the revenue and earnings multiples implied by our income approach to those of comparable companies for reasonableness.
Other intangible assets
The gross carrying amount and accumulated amortization of intangible assets are shown below (in thousands):
 
December 31, 2017
 
December 31, 2016
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Customer relationships
$
424,000

 
$
(49,717
)
 
$
374,283

 
$
187,114

 
$
(36,601
)
 
$
150,513

Non - compete agreement
30,000

 
(6,250
)
 
23,750

 

 

 

Trade names
52

 
(42
)
 
10

 
421

 
(366
)
 
55

Customer contract
1,000

 
(400
)
 
600

 

 

 

Unpatented technology

 

 

 
2,461

 
(2,051
)
 
410

Total other intangible assets
$
455,052

 
$
(56,409
)
 
$
398,643

 
$
189,996

 
$
(39,018
)
 
$
150,978


Changes in other intangible asset balances during the period from December 31, 2014 to December 31, 2017 are shown below (in thousands):
Balance, December 31, 2014
$
173,065

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

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

HFOTCO acquisition (Note 5)
291,000

Crude oil trucking impairment
(12,087
)
Reclassification of Mexican asphalt assets as held for sale (Note 4)
(715
)
Amortization
(30,628
)
Currency translation adjustments
95

Balance, December 31, 2017
$
398,643


Our other intangible assets consist primarily of customer relationships at our HFOTCO and SemGas segments and a non-compete agreement at our HFOTCO segment. These assets may be subject to impairments in the future if we are unable to maintain the relationships with the customers to which the assets relate.
We estimate that future amortization of other intangible assets will be as follows (in thousands):
For the year ending:
 
December 31, 2018
$
33,605

December 31, 2019
39,455

December 31, 2020
30,000

December 31, 2021
30,200

December 31, 2022
28,600

Thereafter
236,783

Total estimated amortization expense
$
398,643

Financial Instruments and Concentrations of Risk
Financial Instruments and Concentrations of Risk
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
Fair value of financial instruments
We record certain financial assets and liabilities at fair value at each balance sheet date. The table below summarizes the balances of commodity derivative assets and liabilities at December 31, 2017 and 2016 (in thousands):

 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Netting(1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Commodity derivatives (2)
$
602

 
$

 
$

 
$
(602
)
 
$

Foreign currency forwards

 
2,564

 

 

 
2,564

Total assets
602

 
2,564

 

 
(602
)
 
2,564

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity derivatives
1,970

 

 

 
(602
)
 
1,368

Interest rate swaps

 

 
1,228

 

 
1,228

Total liabilities
1,970

 

 
1,228

 
(602
)
 
2,596

Net assets (liabilities) at fair value
$
(1,368
)
 
$
2,564

 
$
(1,228
)
 
$

 
$
(32
)
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Netting(1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Commodity derivatives (2)
$
68

 
$

 
$

 
$
(68
)
 
$

Foreign currency forwards

 

 

 

 

Total assets
68

 

 

 
(68
)
 

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity derivatives
1,396

 

 

 
(68
)
 
1,328

Interest rate swaps

 

 

 

 

Total liabilities
1,396

 

 

 
(68
)
 
1,328

Net assets (liabilities) at fair value
$
(1,328
)
 
$

 
$

 
$

 
$
(1,328
)
(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 December 31, 2017, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
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. 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):
 
Year Ended December 31, 2017
Net liabilities - beginning balance
$

Interest rate swaps acquired through acquisition (Note 5)
3,275

Transfers out of Level 3

Realized/Unrealized (gain) loss included in earnings*
(1,124
)
Settlements
(923
)
Net liabilities - ending balance
$
1,228

*Gains and losses related to interest rate swaps are recorded in interest expense in the condensed consolidated statements of operations and comprehensive income (loss).
There were no financial assets or liabilities classified as Level 3 during the years ended December 31, 2016, and 2015.
See Note 14 for fair value of debt instruments and Note 19 for fair value of benefit plan assets. The approximate fair value of cash and cash equivalents, accounts receivable and accounts payable is equal to book value due to the short-term nature of these items.
Commodity derivative contracts
Our consolidated results of operations and cash flows are impacted by changes in market prices for petroleum products. This exposure to commodity price risk is managed, in part, by entering into various commodity derivatives.
We seek to manage the price risk associated with our marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of petroleum products to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the petroleum products purchased and delivered or (ii) derivative contracts. Our storage and transportation assets can also be used to mitigate 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 derivative instruments entered into (in thousands of barrels):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Sales
12,979

 
33,694

 
23,228

Purchases
13,430

 
33,819

 
22,946


We have not designated any of our commodity derivative instruments as accounting hedges. We have recorded the fair value of our commodity derivative instruments on our consolidated balance sheets in "other current assets" and "other current liabilities" in the following amounts (in thousands):
December 31, 2017
 
December 31, 2016
Other Current Assets
 
Other Current Liabilities
 
Other Current Assets
 
Other Current Liabilities
$

 
$
1,368

 
$

 
$
1,328

 
We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. Our margin deposit balances were $1.9 million and $3.6 million at December 31, 2017 and 2016, respectively. These margin account balances have not been offset against our net commodity derivative instrument (contract) positions. Had these margin account balances been netted against our net commodity derivative instrument (contract) positions as of December 31, 2017 and 2016, we would have had net asset positions of $0.5 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):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Realized and unrealized gain (loss)
$
(2,193
)
 
$
(4,485
)
 
$
8,146


Interest rate swaps
In conjunction with the HFOTCO acquisition (Note 5), we acquired HFOTCO’s interest rate swaps. The swaps 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 December 31, 2017, we had interest rate swaps with notional values of $491.1 million. At December 31, 2017, the fair value of our interest rate swaps was $1.2 million, which was reported within "other noncurrent liabilities” in our condensed consolidated balance sheet. For the year ended December 31, 2017, we recognized realized and unrealized gains of $1.1 million related to interest rate swaps.
Foreign currency forwards
In the fourth quarter of 2017, we entered into foreign currency forwards to purchase Canadian dollars to limit exposure to foreign currency rate fluctuations for capital contributions to our Canadian operations. We have not designated the forwards as hedges, as such changes in the fair value of the forwards are recorded through current period earnings as a component of foreign currency translation gain/loss. At December 31, 2017, we had foreign currency forwards with notional values of $197.7 million. At December 31, 2017, the fair value of our foreign currency swaps was $2.6 million which is reported within "other current assets" and "other noncurrent assets, net" in our consolidated balance sheet. For the year ended December 31, 2017, we recognized realized and unrealized gains of $2.8 million related to foreign currency forwards.
Concentrations of risk
During the year ended December 31, 2017, one customer primarily of our Crude Supply and Logistics segment accounted for more than 10% of our consolidated revenue with revenues of $646.1 million. No suppliers accounted for more than 10% of our costs of products sold. At December 31, 2017, one customer, primarily of our Crude Supply and Logistics segment, accounted for approximately 29% of our consolidated accounts receivable.
Our SemGas segment has a significant concentration of producers which account for a large portion of our SemGas segment's volumes. During the year ended December 31, 2017, two producers accounted for approximately 88% of our total processed volumes. During the year ended December 31, 2017, two producers accounted for 91% of our total gathered volumes. Additionally, all of the processing and gathering volumes from these customers are produced in the Northern Oklahoma region.
Our SemCAMS processing plants require a minimum rate of sulfur tonnage to operate, and to comply with the regulatory requirements for air emissions.  We have several large producers that provide significant sour gas to our plants.  If these producers shut in their sour gas production due to low commodity prices, it could result in regulatory non-compliance, as well as operating and financial impacts to SemCAMS.
Assets and liabilities of subsidiaries outside the United States
The following table summarizes the assets and liabilities (excluding affiliate balances) at December 31, 2017 of our subsidiaries outside the United States (in thousands):
 
Canada
 
United
Kingdom
 
Mexico
 
Total
Cash and cash equivalents
$
33,601

 
$
13,185

 
$
9,581

 
$
56,367

Other current assets
62,790

 
3,150

 
35,044

 
100,984

Noncurrent assets
427,259

 
136,800

 
42,272

 
606,331

Total assets
$
523,650

 
$
153,135

 
$
86,897

 
$
763,682

 
 
 
 
 
 
 
 
Current liabilities
$
64,056

 
$
4,410

 
$
19,574

 
$
88,040

Noncurrent liabilities
71,309

 
13,016

 
716

 
85,041

Total liabilities
135,365

 
17,426

 
20,290

 
173,081

Net assets
$
388,285

 
$
135,709

 
$
66,607