UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20162017
OR
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| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-34736
____________________________________________________________
SEMGROUP CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________________________
|
| |
Delaware | 20-3533152 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
Two Warren Place
6120 S. Yale Avenue, Suite 7001500
Tulsa, OK 74136-421674136-4231
(Address of principal executive offices and zip code)
(918) 524-8100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” “smaller reporting company,” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o(Do not check if a smaller reporting company) |
| Smaller reporting company o |
| Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
|
| | | | | | |
Class | | | Outstanding at October 28, 201631, 2017 |
Class A | Common stock, $0.01 par | | 66,099,34378,684,831 |
| | Shares |
Class B | Common stock, $0.01 par | | — |
| | Shares |
SemGroup Corporation
TABLE OF CONTENTS
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| PART I – FINANCIAL INFORMATION | |
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Item 1 | | |
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Item 2 | | |
Item 3 | | |
Item 4 | | |
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| PART II – OTHER INFORMATION | |
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Item 1 | | |
Item 1A | | |
Item 2 | | |
Item 3 | | |
Item 4 | | |
Item 5 | | |
Item 6 | | |
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Cautionary Note Regarding Forward-Looking Statements
Certain matters contained in this Quarterly Report on Form 10-Q include "forward-looking statements"“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical fact, included in this Form 10-Q regarding the prospects of our industry, our anticipated financial performance, management’s plans and objectives for future operations, planned capital expenditures, business prospects, outcome of regulatory proceedings, market conditions and other matters, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as "may," "will," "expect," "intend," "estimate," "foresee," "project," "anticipate," "believe," "plans," "forecasts," "continue"“may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or "could"“could” or the negative of these terms or variations of them or similar terms. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks, and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, those discussed in Item 1A of our most recent Annual Report on Form 10-K, entitled "Risk“Risk Factors,"” risk factors discussed in other reports and documents that we file with the Securities and Exchange Commission (the "SEC"“SEC”) and the following:
The failure to realize the anticipated benefits of the transaction, consummated on September 30, 2016, pursuant to which we acquired all of the outstanding common units of our subsidiary, Rose Rock Midstream, L.P. (“Rose Rock”), not already owned by us;
Our ability to generate sufficient cash flow from operations to enable us to pay our debt obligations and our current and expected dividends or to fund our other liquidity needs;
Any sustained reduction in demand for, or supply of, the petroleum products we gather, transport, process, market and store;
The effect of our debt level on our future financial and operating flexibility, including our ability to obtain additional capital on terms that are favorable to us;
Our ability to access the debt and equity markets, which will depend on general market conditions and the credit ratings for our debt obligations and equity;
The failure to realize the anticipated benefits of our acquisition of HFOTCO LLC, doing business as Houston Fuel Oil Terminal Company LLC (“HFOTCO”);
Our ability to pay the second payment related to our HFOTCO acquisition and the consequences of our failing to do so;
The loss of, or a material nonpayment or nonperformance by, any of our key customers;
The amount of cash distributions, capital requirements and performance of our investments and joint ventures;
The consequences of any divestitures of non-strategic operating assets or divestitures of interests in some of our operating assets through partnerships and/or joint ventures;
The amount of collateral required to be posted from time to time in our commodity purchase, sale or derivative transactions;
The impact of operational and developmental hazards and unforeseen interruptions;
Our ability to obtain new sources of supply of petroleum products;
Competition from other midstream energy companies;
Our ability to comply with the covenants contained in our credit agreements, continuing covenant agreement and the indentures governing our senior notes, including requirements under our credit agreements and continuing covenant agreement to maintain certain financial ratios;
Our ability to renew or replace expiring storage, transportation and related contracts;
The overall forward markets for crude oil, natural gas and natural gas liquids;
The possibility that the construction or acquisition of new assets may not result in the corresponding anticipated revenue increases;
Any future impairment of goodwill resulting from the loss of customers or business;
Changes in currency exchange rates;
Weather and other natural phenomena includingand climate conditions;
A cyber attack involving our information systems and related infrastructure, or that of our business associates;
The risks and uncertainties of doing business outside of the U.S., including political and economic instability and changes in local governmental laws, regulations and policies;
Costs of, or changes in, laws and regulations and our failure to comply with new or existing laws or regulations, particularly with regard to taxes, safety and protection of the environment;
The possibility that our hedging activities may result in losses or may have a negative impact on our financial results; and
General economic, market and business conditions.
New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for us to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement.
Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Form 10-Q, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements.
Investors and others should note that we announce material company information using our investor relations website (www.semgroupcorp.com), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our businesses and our results of operations. The information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our company to review the information we post on the social media channels listed on our investor relations website.
As used in this Form 10-Q, and unless the context indicates otherwise, the terms "the“the Company," "SemGroup," "we," "us," "our," "ours,"” “SemGroup,” “we,” “us,” “our,” “ours,” and similar terms refer to SemGroup Corporation, its consolidated subsidiaries, and its predecessors. We sometimes refer to crude oil, natural gas, natural gas liquids (natural gas liquids, or "NGLs,"“NGLs,” include ethane, propane, normal butane, iso-butane, and natural gasoline), refined petroleum products, residual fuel oil and liquid asphalt cement, collectively, as "petroleum products"“petroleum products” or "products."“products.”
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEMGROUP CORPORATION
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value)
| | | (Unaudited) | | | | | | | |
| September 30, 2016 | | December 31, 2015 | September 30, 2017 | | December 31, 2016 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 163,748 |
| | $ | 58,096 |
| $ | 68,013 |
| | $ | 74,216 |
|
Restricted cash | — |
| | 32 |
| |
Accounts receivable (net of allowance of $2,373 and $3,019, respectively) | 335,256 |
| | 326,713 |
| |
Accounts receivable (net of allowance of $3,277 and $2,322, respectively) | | 474,795 |
| | 418,339 |
|
Receivable from affiliates | 4,542 |
| | 5,914 |
| 5,531 |
| | 25,455 |
|
Inventories | 83,473 |
| | 70,239 |
| 128,633 |
| | 99,234 |
|
Other current assets | 25,465 |
| | 19,387 |
| 21,922 |
| | 18,630 |
|
Total current assets | 612,484 |
| | 480,381 |
| 698,894 |
| | 635,874 |
|
Property, plant and equipment (net of accumulated depreciation of $377,644 and $319,769, respectively) | 1,696,010 |
| | 1,566,821 |
| |
Property, plant and equipment (net of accumulated depreciation of $486,969 and $393,635, respectively) | | 3,394,035 |
| | 1,762,072 |
|
Equity method investments | 438,194 |
| | 551,078 |
| 433,805 |
| | 434,289 |
|
Goodwill | 34,475 |
| | 48,032 |
| 262,059 |
| | 34,230 |
|
Other intangible assets (net of accumulated amortization of $36,769 and $29,515, respectively) | 153,796 |
| | 162,223 |
| |
Other intangible assets (net of accumulated amortization of $51,469 and $39,018, respectively) | | 413,730 |
| | 150,978 |
|
Other noncurrent assets | 51,573 |
| | 45,374 |
| 162,402 |
| | 57,529 |
|
Total assets | $ | 2,986,532 |
| | $ | 2,853,909 |
| $ | 5,364,925 |
| | $ | 3,074,972 |
|
LIABILITIES AND OWNERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 294,167 |
| | $ | 273,666 |
| $ | 435,592 |
| | $ | 367,307 |
|
Payable to affiliates | 5,791 |
| | 5,033 |
| 4,877 |
| | 26,508 |
|
Accrued liabilities | 98,347 |
| | 85,047 |
| 106,045 |
| | 81,104 |
|
Deferred revenue | | 9,230 |
| | 10,571 |
|
Other current liabilities | 17,462 |
| | 13,281 |
| 4,242 |
| | 2,839 |
|
Current portion of long-term debt | | 5,529 |
| | 26 |
|
Total current liabilities | 415,767 |
| | 377,027 |
| 565,515 |
| | 488,355 |
|
Long-term debt, net | 1,030,140 |
| | 1,057,816 |
| 3,009,429 |
| | 1,050,918 |
|
Deferred income taxes | 49,361 |
| | 200,953 |
| 57,476 |
| | 64,501 |
|
Other noncurrent liabilities | 23,932 |
| | 21,757 |
| 38,614 |
| | 25,233 |
|
Commitments and contingencies (Note 10) |
| |
|
| |
|
SemGroup owners’ equity: | | | | | | |
Common stock, $0.01 par value (authorized - 100,000 shares; issued - 67,062 and 44,863 shares, respectively) | 659 |
| | 439 |
| |
Preferred stock, $0.01 par value (authorized - 4,000 shares; issued - none) | | — |
| | — |
|
Common stock, $0.01 par value (authorized - 100,000 shares; issued - 79,679 and 67,079 shares, respectively) | | 785 |
| | 659 |
|
Additional paid-in capital | 1,588,978 |
| | 1,217,255 |
| 1,804,277 |
| | 1,561,695 |
|
Treasury stock, at cost (979 and 931 shares, respectively) | (6,538 | ) | | (5,593 | ) | |
Treasury stock, at cost (1,018 and 980 shares, respectively) | | (7,919 | ) | | (6,558 | ) |
Accumulated deficit | (52,636 | ) | | (38,012 | ) | (53,553 | ) | | (35,917 | ) |
Accumulated other comprehensive loss | (63,131 | ) | | (58,562 | ) | (49,699 | ) | | (73,914 | ) |
Total SemGroup Corporation owners’ equity | 1,467,332 |
| | 1,115,527 |
| |
Noncontrolling interests in consolidated subsidiaries | — |
| | 80,829 |
| |
Total owners’ equity | 1,467,332 |
| | 1,196,356 |
| 1,693,891 |
| | 1,445,965 |
|
Total liabilities and owners’ equity | $ | 2,986,532 |
| | $ | 2,853,909 |
| $ | 5,364,925 |
| | $ | 3,074,972 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SEMGROUP CORPORATION
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Dollars in thousands, except per share amounts)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | | | | | | | | |
Product | $ | 245,920 |
| | $ | 313,351 |
| | $ | 692,942 |
| | $ | 822,218 |
| $ | 423,531 |
| | $ | 245,920 |
| | $ | 1,164,898 |
| | $ | 692,942 |
|
Service | 66,074 |
| | 64,091 |
| | 192,347 |
| | 192,572 |
| 105,287 |
| | 66,074 |
| | 261,967 |
| | 192,347 |
|
Lease | | 2,646 |
| | — |
| | 2,646 |
| | — |
|
Other | 15,770 |
| | 19,623 |
| | 44,703 |
| | 57,811 |
| 14,458 |
| | 15,770 |
| | 45,600 |
| | 44,703 |
|
Total revenues | 327,764 |
| | 397,065 |
|
| 929,992 |
| | 1,072,601 |
| 545,922 |
| | 327,764 |
|
| 1,475,111 |
| | 929,992 |
|
Expenses: |
| |
| | | |
|
| |
| | | |
|
Costs of products sold, exclusive of depreciation and amortization shown below | 218,503 |
| | 274,639 |
|
| 592,292 |
| | 710,869 |
| 398,252 |
| | 218,503 |
|
| 1,087,357 |
| | 592,292 |
|
Operating | 52,636 |
| | 53,267 |
|
| 157,537 |
| | 167,157 |
| 62,666 |
| | 52,636 |
|
| 188,095 |
| | 157,537 |
|
General and administrative | 20,583 |
| | 23,045 |
|
| 62,419 |
| | 78,272 |
| 35,210 |
| | 20,583 |
|
| 83,606 |
| | 62,419 |
|
Depreciation and amortization | 24,912 |
|
| 26,022 |
|
| 74,007 |
|
| 74,430 |
| 50,135 |
|
| 24,922 |
|
| 100,336 |
|
| 74,028 |
|
Loss (gain) on disposal or impairment, net | 1,018 |
|
| (951 | ) |
| 16,010 |
|
| 1,479 |
| |
Loss on disposal or impairment, net | | 41,625 |
|
| 1,018 |
|
| 43,801 |
|
| 16,010 |
|
Total expenses | 317,652 |
| | 376,022 |
|
| 902,265 |
|
| 1,032,207 |
| 587,888 |
| | 317,662 |
|
| 1,503,195 |
|
| 902,286 |
|
Earnings from equity method investments | 15,845 |
| | 16,237 |
| | 55,994 |
| | 60,699 |
| 17,367 |
| | 15,845 |
| | 52,211 |
| | 55,994 |
|
Gain (loss) on issuance of common units by equity method investee | — |
|
| 136 |
|
| (41 | ) |
| 6,033 |
| |
Operating income | 25,957 |
|
| 37,416 |
|
| 83,680 |
|
| 107,126 |
| |
Loss on issuance of common units by equity method investee | | — |
|
| — |
|
| — |
|
| (41 | ) |
Operating income (loss) | | (24,599 | ) |
| 25,947 |
|
| 24,127 |
|
| 83,659 |
|
Other expenses (income), net: |
| |
| | | |
|
|
|
|
|
|
|
|
Interest expense | 21,032 |
|
| 19,170 |
|
| 58,842 |
|
| 50,583 |
| 32,711 |
|
| 18,517 |
|
| 60,055 |
|
| 54,105 |
|
Loss on early extinguishment of debt | | — |
|
| — |
|
| 19,930 |
|
| — |
|
Foreign currency transaction loss (gain) | 659 |
|
| (385 | ) |
| 3,671 |
|
| (1,199 | ) | (747 | ) |
| 659 |
|
| (1,758 | ) |
| 3,671 |
|
Loss (gain) on sale or impairment of equity method investment | — |
|
| — |
|
| 30,644 |
|
| (14,517 | ) | |
Loss on sale or impairment of equity method investment | | — |
|
| — |
|
| — |
|
| 30,644 |
|
Other income, net | (492 | ) |
| (956 | ) |
| (1,170 | ) |
| (1,142 | ) | (211 | ) |
| (492 | ) |
| (802 | ) |
| (1,170 | ) |
Total other expenses, net | 21,199 |
|
| 17,829 |
|
| 91,987 |
|
| 33,725 |
| 31,753 |
|
| 18,684 |
|
| 77,425 |
|
| 87,250 |
|
Income (loss) from continuing operations before income taxes | 4,758 |
|
| 19,587 |
| | (8,307 | ) |
| 73,401 |
| (56,352 | ) |
| 7,263 |
| | (53,298 | ) |
| (3,591 | ) |
Income tax expense (benefit) | 11,898 |
|
| 10,006 |
|
| (4,851 | ) |
| 29,609 |
| (37,249 | ) |
| 11,898 |
|
| (33,529 | ) |
| (4,851 | ) |
Income (loss) from continuing operations | (7,140 | ) |
| 9,581 |
| | (3,456 | ) |
| 43,792 |
| (19,103 | ) |
| (4,635 | ) | | (19,769 | ) |
| 1,260 |
|
Loss from discontinued operations, net of income taxes | — |
|
| (1 | ) |
| (1 | ) |
| (3 | ) | — |
|
| — |
|
| — |
|
| (1 | ) |
Net income (loss) | (7,140 | ) |
| 9,580 |
| | (3,457 | ) |
| 43,789 |
| (19,103 | ) |
| (4,635 | ) | | (19,769 | ) |
| 1,259 |
|
Less: net income attributable to noncontrolling interests | 225 |
| | 4,707 |
| | 11,167 |
|
| 14,153 |
| — |
| | 225 |
| | — |
|
| 11,167 |
|
Net income (loss) attributable to SemGroup | $ | (7,365 | ) |
| $ | 4,873 |
| | $ | (14,624 | ) |
| $ | 29,636 |
| |
Net loss attributable to SemGroup | | $ | (19,103 | ) |
| $ | (4,860 | ) | | $ | (19,769 | ) |
| $ | (9,908 | ) |
Net income (loss) | $ | (7,140 | ) |
| $ | 9,580 |
|
| $ | (3,457 | ) |
| $ | 43,789 |
| $ | (19,103 | ) |
| $ | (4,635 | ) |
| $ | (19,769 | ) |
| $ | 1,259 |
|
Other comprehensive loss, net of income taxes | (7,051 | ) | | (20,210 | ) | | (4,569 | ) |
| (23,750 | ) | |
Other comprehensive income (loss), net of income taxes | | 9,230 |
| | (7,051 | ) | | 24,215 |
|
| (4,569 | ) |
Comprehensive income (loss) | (14,191 | ) |
| (10,630 | ) | | (8,026 | ) |
| 20,039 |
| (9,873 | ) |
| (11,686 | ) | | 4,446 |
|
| (3,310 | ) |
Less: comprehensive income attributable to noncontrolling interests | 225 |
|
| 4,707 |
|
| 11,167 |
|
| 14,153 |
| — |
|
| 225 |
|
| — |
|
| 11,167 |
|
Comprehensive income (loss) attributable to SemGroup | $ | (14,416 | ) |
| $ | (15,337 | ) |
| $ | (19,193 | ) |
| $ | 5,886 |
| $ | (9,873 | ) |
| $ | (11,911 | ) |
| $ | 4,446 |
|
| $ | (14,477 | ) |
Net income (loss) attributable to SemGroup per common share (Note 12): | | | | | | | | |
Net loss attributable to SemGroup per common share (Note 12): | | | | | | | | |
Basic | $ | (0.14 | ) | | $ | 0.11 |
| | $ | (0.31 | ) | | $ | 0.68 |
| $ | (0.25 | ) | | $ | (0.09 | ) | | $ | (0.29 | ) | | $ | (0.21 | ) |
Diluted | $ | (0.14 | ) | | $ | 0.11 |
| | $ | (0.31 | ) | | $ | 0.67 |
| $ | (0.25 | ) | | $ | (0.09 | ) | | $ | (0.29 | ) | | $ | (0.21 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SEMGROUP CORPORATION
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2016 | | 2015 | 2017 | | 2016 |
Cash flows from operating activities: | | | | | | |
Net income (loss) | $ | (3,457 | ) | | $ | 43,789 |
| $ | (19,769 | ) | | $ | 1,259 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Net unrealized loss (gain) related to derivative instruments | 6,096 |
| | (3,316 | ) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | 74,007 |
| | 74,430 |
| 100,336 |
| | 74,028 |
|
Loss on disposal or impairment, net | 16,010 |
| | 1,479 |
| 43,801 |
| | 16,010 |
|
Earnings from equity method investments | (55,994 | ) | | (60,699 | ) | (52,211 | ) | | (55,994 | ) |
Loss (gain) on issuance of common units by equity method investee | 41 |
| | (6,033 | ) | |
Loss (gain) on sale or impairment of equity method investment | 30,644 |
| | (14,517 | ) | |
Distributions from equity investments | 58,674 |
| | 69,898 |
| |
Amortization and write-off of debt issuance costs | 6,189 |
| | 3,707 |
| |
Deferred tax expense (benefit) | (7,810 | ) | | 23,469 |
| |
Loss on issuance of common units by equity method investee | | — |
| | 41 |
|
Loss on sale or impairment of equity method investment | | — |
| | 30,644 |
|
Distributions from equity method investments | | 51,606 |
| | 58,674 |
|
Amortization of debt issuance costs and discount | | 4,449 |
| | 6,189 |
|
Loss on early extinguishment of debt | | 19,930 |
| | — |
|
Deferred tax benefit | | (37,824 | ) | | (7,810 | ) |
Non-cash equity compensation | 7,046 |
| | 7,760 |
| 8,517 |
| | 7,046 |
|
Provision for uncollectible accounts receivable, net of recoveries | (551 | ) | | (608 | ) | 761 |
| | (551 | ) |
Currency loss (gain) | 3,671 |
| | (1,199 | ) | |
Foreign currency transaction loss (gain) | | (1,758 | ) | | 3,671 |
|
Gain on pension curtailment | | (3,008 | ) | | — |
|
Inventory valuation adjustment | — |
| | 1,235 |
| 455 |
| | — |
|
Changes in operating assets and liabilities (Note 13) | 801 |
| | (2,346 | ) | |
Changes in operating assets and liabilities, net of the effect of acquisitions (Note 13) | | (22,868 | ) | | 6,897 |
|
Net cash provided by operating activities | 135,367 |
| | 137,049 |
| 92,417 |
| | 140,104 |
|
Cash flows from investing activities: | | | | | | |
Capital expenditures | (199,039 | ) | | (352,816 | ) | (346,204 | ) | | (203,776 | ) |
Proceeds from sale of long-lived assets | 98 |
| | 2,537 |
| 16,638 |
| | 98 |
|
Contributions to equity method investments | (3,756 | ) | | (34,059 | ) | (18,808 | ) | | (3,756 | ) |
Payments to acquire business, net of cash acquired | | (293,039 | ) | | — |
|
Proceeds from sale of common units of equity method investee | 60,483 |
| | 56,318 |
| — |
| | 60,483 |
|
Distributions in excess of equity in earnings of affiliates | 22,792 |
| | 19,564 |
| 19,296 |
| | 22,792 |
|
Net cash used in investing activities | (119,422 | ) | | (308,456 | ) | (622,117 | ) | | (124,159 | ) |
Cash flows from financing activities: | | | | | | |
Debt issuance costs | (7,459 | ) | | (6,289 | ) | (10,839 | ) | | (7,459 | ) |
Borrowings on credit facilities and issuance of senior secured notes, net of discount | 362,500 |
| | 802,208 |
| |
Borrowings on credit facilities and issuance of senior notes, net of discount | | 1,353,377 |
| | 362,500 |
|
Principal payments on credit facilities and other obligations | (393,994 | ) | | (525,037 | ) | (711,941 | ) | | (393,994 | ) |
Debt extinguishment costs | | (16,293 | ) | | — |
|
Proceeds from issuance of common shares, net of offering costs | 223,739 |
| | — |
| — |
| | 223,739 |
|
Rose Rock Midstream, L.P. equity issuance | — |
| | 89,119 |
| |
Distributions to noncontrolling interests | (32,133 | ) | | (29,780 | ) | — |
| | (32,133 | ) |
Repurchase of common stock for payment of statutory taxes due on equity-based compensation | (945 | ) | | (4,259 | ) | (1,361 | ) | | (945 | ) |
Dividends paid | (63,338 | ) | | (49,836 | ) | (94,714 | ) | | (63,338 | ) |
Proceeds from issuance of common stock under employee stock purchase plan | 774 |
| | 909 |
| 796 |
| | 774 |
|
Net cash provided by financing activities | 89,144 |
| | 277,035 |
| 519,025 |
| | 89,144 |
|
Effect of exchange rate changes on cash and cash equivalents | 563 |
| | (233 | ) | 4,472 |
| | 563 |
|
Change in cash and cash equivalents | 105,652 |
| | 105,395 |
| (6,203 | ) | | 105,652 |
|
Cash and cash equivalents at beginning of period | 58,096 |
| | 40,598 |
| 74,216 |
| | 58,096 |
|
Cash and cash equivalents at end of period | $ | 163,748 |
| | $ | 145,993 |
| $ | 68,013 |
| | $ | 163,748 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma. The terms "we," "our," "us," "SemGroup," "the Company"“we,” “our,” “us,” “SemGroup,” “the Company” and similar language used in these notes to the unaudited condensed consolidated financial statements refer to SemGroup Corporation and its subsidiaries.
Basis of presentation
The accompanying condensed consolidated balance sheet at December 31, 2015,2016, which is derived from audited financial statements, and the unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission ("SEC"(“SEC”). These financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company and the results of its operations and its cash flows.
Our condensed consolidated financial statements include the accounts of our controlled subsidiaries. All significant transactions between our consolidated subsidiaries have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP")GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months and nine months ended September 30, 20162017, are not necessarily indicative of the results to be expected for the full year ending December 31, 20162017.
Pursuant to the rules and regulations of the SEC, the accompanying condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States.U.S. GAAP. Certain reclassifications have been made to conform previously reported balances to the current presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 20152016, which are included in our Annual Report on Form 10-K for the year ended December 31, 20152016, filed with the SEC.
Our significant accounting policies are consistent with those described in our Annual Report on Form 10-K for the year ended December 31, 20152016.
Prior year amounts have been recast from the amounts originally reported to correct for an immaterial error identified by management in the fourth quarter of 2016 related to an under capitalization of interest on certain capital projects. Previously reported interest expense has been decreased by $1.4 million, $0.9 million and $2.5 million for the quarters ended March 31, June 30 and September 30, 2016, respectively, with a corresponding increase to net income before tax. Earnings per basic share was increased by $0.03, $0.02 and $0.05 per share for the quarters ended March 31, June 30, and September 30, 2016, respectively.
Recent accounting pronouncements
In August 2016,May 2017, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU"(“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.
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.
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
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
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. For public entities, this ASU is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this guidance in the third quarter of 2017 in conjunction with the impairment test of our Field Services business unit. See Note 4 for information related to the impairment of Field Services goodwill and intangible assets.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. For public entities, this ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2018. The impact is not expected to be material.
In August 2016, the FASB issued ASU 2016-15, "Statement“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)"”, to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update addresses eight different transaction types and clarifies how to classify each in the statement of cash flows, where previously there was unclear or no specific guidance. For public entities, this ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2018. The impact is not expected to be material.
In June 2016, the FASB issued ASU 2016-13, "Financial“Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"Instruments”, which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. For public entities, this ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those years and early adoption is permitted in the year prior to the effective date. We will adopt this guidance in the first quarter of 2020. The impact is not expected to be material.
In March 2016, the FASB issued ASU 2016-09, "Compensation“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting''Accounting’’, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years and early adoption is permitted. We will adoptadopted this guidance in the first quarter of 2017. The impact is not expectedWe recorded adjustments of $2.1 million and $1.7 million to be material.
SEMGROUP CORPORATION
Notes“accumulated deficit” and “additional paid-in capital”, respectively, upon adoption offset by changes to Unaudited Condensed Consolidated Financial Statements
our income tax liabilities.
In February 2016, the FASB issued ASU 2016-02, "Leases“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.statements, but are not yet able to quantify the impact. We continue to monitor FASB activity related to this ASU and have engaged with various peer groups to assess certain interpretive issues related to this ASU. We will adopt this guidance in the first quarter of 2019.
In November 2015, the FASB issued ASU 2015-17, "Income“Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes"Taxes”, which requires all deferred tax assets and liabilities to be classified as noncurrent in the statement of financial position. For public entities, this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years. The new guidance may be applied prospectively or retrospectively and early adoption is permitted. We have not determined which method we will apply when we adopt the standard. We will adoptadopted this guidance in the first quarter of 2017. ThePrior periods were not retrospectively adjusted and the impact iswas not expected to be material.
In July 2015, the FASB issued ASU 2015-11, "Inventory“Inventory (Topic 330): Simplifying the Measurement of Inventory"Inventory”, which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value rather than the lower of cost or market. The standard will be effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new guidance shall be
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
applied prospectively and early adoption is permitted. We will adopt this guidance in the first quarter of 2017. The impact is not expected to be material.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”, which is designed to simplify presentation of debt issuance costs. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting,” which amended the SEC paragraphs of ASC Subtopic 835-30 to include the language from the SEC Staff Announcement indicating that the SEC would not object to presenting deferred debt issuance costs related to line-of-credit agreements as assets and subsequently amortizing the deferred debt issuance costs ratably over the term of the agreement. The standards are effective for U.S. public companies for annual reporting periods beginning after December 15, 2015. The new guidance has been applied on a retrospective basis for all periods presented. We adopted this guidance in the first quarter of 2016. The impact was not material. For presentation purposes, $16.8 million of debt issuance costs which had previously been reported as other noncurrent assets were reclassified as a reduction of long-term debt on the December 31, 2015 balance sheet. Capitalized loan fees related to our revolving credit facility continues to be presented as other noncurrent assets.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which adds requirements that limited partnerships must meet to qualify as voting interest entities and modifies the evaluation of whether limited partnerships are variable interest entities or voting interest entities. It also eliminates the presumption that a general partner should consolidate a limited partnership. This guidance is effective for public companies for fiscal years beginning after December 15, 2015. We adopted this guidance in the first quarter of 2016.2017. The impact was not material.
In May 2014, the FASB issued ASU 2014-09, "Revenue“Revenue from Contracts with Customers,"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). In August 2015,We continue to evaluate the FASB issued ASU 2015-14 which deferred the effective dateimpact of our pending adoption of ASU 2014-09 on our consolidated financial statements. We have completed the first phase of our implementation process which included a review of contracts and transaction types from each significant revenue stream across all of our business segments. In addition, we are currently evaluating the methods of adoption and analyzing the impact of the standard on our internal controls, accounting policies and financial statements and disclosures and are nearing completion of the overall project. We expect to use a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption.
Based on the current phase of our implementation process, we have identified certain potential areas of impact, such as non-cash consideration and “take-or-pay” arrangements.
We have certain contractual arrangements where we retain commodities as consideration for processing of customer product. These arrangements could be impacted by one year. In March 2016, the FASB issued ASU 2016-08 which amended the principal-versus-agent implementationnon-cash consideration guidance set forth inunder ASU 2014-09. Among otherCurrently revenue related to non-cash consideration is recognized when we sell the commodity. Under ASU 2014-09, we could recognize revenue when the commodity is received, rather than when it is sold.
In addition, certain contractual arrangements include “take-or-pay” provisions. The fixed fees to which we have an unconditional right under these contracts could be subject to certain recognition changes and additional disclosure under ASU 2014-09. 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 are expected to 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, are not expected to be material.
During the fourth quarter of 2017, we will complete the remainder of our implementation process, which will include quantification of impact and final development of policies. We will adopt this guidance in the first quarter of 2018.
2. ACQUISITION
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 million in cash, (which is net of an estimated $4.2 million preliminary adjustment for working capital, net indebtedness and capital expenditures), funded from our revolving credit facility, 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.
We are in the process of finalizing the determination of the fair value of consideration exchanged and assets and liabilities acquired at the acquisition date to record the business combination. The acquisition date fair value of the
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
1.2. | OVERVIEW, ACQUISITION,Continued
|
things, ASU 2016-08 clarifies that an entity should evaluate whether itcommon shares issued is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU 2016-10 which amended certain aspectsapproximately $330 million, based on $26.68 per common share market price at issuance. The determination of the guidance related to identifying performance obligations and licensing implementation within ASU 2014-09. In June 2016, the FASB issued ASU 2016-12 which narrows the scope around certain aspectsestimated fair values of the criterionSecond Payment, assets acquired and liabilities assumed, including HFOTCO net debt, is not yet complete and adjustments to preliminary amounts could be material. We expect to finalize the amounts in the fourth quarter of 2017.
As of September 30, 2017, we have recorded the preliminary purchase price allocation as follows (in thousands):
|
| | | |
Assets acquired | |
Cash | $ | 3,583 |
|
Accounts receivable | 11,028 |
|
Other current assets | 5,277 |
|
Property, plant and equipment | 1,327,145 |
|
Intangible assets subject to amortization | |
Customer contracts | 1,000 |
|
Customer relationships | 260,000 |
|
Non-compete agreement | 30,000 |
|
Goodwill | 253,935 |
|
Other noncurrent assets | 72,603 |
|
Total assets acquired | $ | 1,964,571 |
|
| |
Consideration |
|
Cash | $ | 296,622 |
|
Common shares | 330,341 |
|
Second Payment | 549,900 |
|
Liabilities assumed | |
Accounts payable and accrued liabilities | 7,824 |
|
Current portion of long-term debt | 5,500 |
|
Long-term debt | 760,500 |
|
Other noncurrent liabilities | 13,884 |
|
Total liabilities assumed | 787,708 |
|
Total consideration | $ | 1,964,571 |
|
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 20 years on an accelerated basis which matches the incremental cash flow models used to value the intangible assets and in determining whenconsideration of a historical customer attrition rate of 5%. Customer contracts are being amortized over three years on an accelerated basis. Goodwill primarily relates to recognize revenue. We are currently evaluating the impactlocation of the business and potential for future growth. Goodwill is amortizable over 15 years for income tax purposes. Acquired property, plant and equipment has been assigned useful lives consistent with our pending adoptionaccounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
From the acquisition date through September 30, 2017, HFOTCO contributed $34.7 million of ASU 2014-09 onrevenue and $0.6 million of net income to our consolidated financial statements and have not yet determinedresults. Our results for the method by which we will adopt the standard. We will adopt this guidancenine months ended September 30, 2017, include $19.1 million of acquisition related expenses. Included in the first quarterresults of 2018.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 September 30, 2017.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
2. | ROSE ROCK MIDSTREAM, L.P.ACQUISITION, Continued |
On
The information necessary to prepare pro forma financial disclosures for the nine months ended September 30, 2016 we completedis not available. Therefore, only pro forma financial information for the nine months ended September 30, 2017 has been disclosed below (in thousands):
|
| | | |
| Pro forma (unaudited) |
| Nine Months Ended September 30, 2017 |
Revenue | $ | 1,561,782 |
|
Net loss | $ | (35,007 | ) |
Basic and diluted loss per share | $ | (0.45 | ) |
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, 2017. 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 income using our historical blended statutory rate of 37.7%. 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 outstanding common limited partner interest of Rose Rock Midstream, L.P. ("Rose Rock") which we did not already own (the "Merger"). We issued 13.1 million common shares as considerationacquired entities and recorded a reduction to equity for $5.3 million of fees associated with the issuance. We accounted for the Merger in accordance with FASB Accounting Standards Codification 810, Consolidation — Overall — Changes in a Parent’s Ownership Interest in a Subsidiary. As SemGroup controlled Rose Rock both before and after the Merger, the changes in SemGroup’s ownership interest in Rose Rock were accounted for as an equity transaction and no gain or loss was recognized in SemGroup’s consolidated statements of operations and comprehensive income (loss) as a result of the Merger. Subsequent to the Merger, Rose Rock was a wholly owned subsidiary of SemGroup.
Substantiallytheir holding companies, all of Rose Rock's assets were pledged as collateral under its senior secured revolving credit facility agreement which was terminated followingare included in the Merger. Substantially allHFOTCO segment, are not available to satisfy the debts and obligations of Rose Rock's assets are now pledged as collateral under SemGroup's senior secured revolving credit facility. Rose Rock'sother SemGroup entities. HFOTCO is not a subsidiary guarantor of SemGroup’s senior unsecured notes were assumed by SemGroup. See Note 9 for additional information related to changes in long-term debt and Note 15 for changes related to the Guarantor financial information.or revolving credit facility.
| |
3. | EQUITY METHOD INVESTMENTS |
Our equity method investments consisted of the following (in thousands): | | | September 30, 2016 | | December 31, 2015 | September 30, 2017 | | December 31, 2016 |
White Cliffs Pipeline, L.L.C. | $ | 283,798 |
| | $ | 297,109 |
| $ | 269,938 |
| | $ | 281,734 |
|
Glass Mountain Pipeline, LLC | | 144,930 |
| | 133,622 |
|
NGL Energy Partners LP | 18,939 |
| | 112,787 |
| 18,937 |
| | 18,933 |
|
Glass Mountain Pipeline, LLC | 135,457 |
| | 141,182 |
| |
Total equity method investments | $ | 438,194 |
| | $ | 551,078 |
| $ | 433,805 |
| | $ | 434,289 |
|
Our earnings from equity method investments consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
White Cliffs Pipeline, L.L.C. | $ | 15,636 |
| | $ | 15,555 |
| | $ | 46,805 |
| | $ | 51,763 |
|
Glass Mountain Pipeline, LLC | 1,736 |
| | 328 |
| | 5,402 |
| | 2,037 |
|
NGL Energy Partners LP(1) | (5 | ) | | (38 | ) | | 4 |
| | 2,194 |
|
Total earnings from equity method investments | $ | 17,367 |
| | $ | 15,845 |
| | $ | 52,211 |
| | $ | 55,994 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
White Cliffs Pipeline, L.L.C. | $ | 15,555 |
| | $ | 16,047 |
| | $ | 51,763 |
| | $ | 50,682 |
|
NGL Energy Partners LP(1) | (38 | ) | | (878 | ) | | 2,194 |
| | 5,037 |
|
Glass Mountain Pipeline, LLC | 328 |
| | 1,068 |
| | 2,037 |
| | 4,980 |
|
Total earnings from equity method investments | $ | 15,845 |
| | $ | 16,237 |
| | $ | 55,994 |
| | $ | 60,699 |
|
(1) Excluding loss on issuance of common units of $41.0 thousand for the nine months ended September 30, 2016 and a gain on the issuance of common units of $0.1 million and $6.0 million for the three and nine months ended September 30, 2015, respectively. Additionally, gains and losses on the disposal or impairment of equity investments are not reported within "earnings from equity method investments" in the condensed consolidated statements of operations and comprehensive income (loss).2016.
Cash distributions received from equity method investments consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
White Cliffs Pipeline, L.L.C. | $ | 19,847 |
| | $ | 22,733 |
| | $ | 60,552 |
| | $ | 68,495 |
|
Glass Mountain Pipeline, LLC | 3,410 |
| | 2,164 |
| | 10,350 |
| | 8,096 |
|
NGL Energy Partners LP | — |
| | — |
| | — |
| | 4,873 |
|
Total cash distributions received from equity method investments | $ | 23,257 |
| | $ | 24,897 |
| | $ | 70,902 |
| | $ | 81,464 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
3. | EQUITY METHOD INVESTMENTS, Continued |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
White Cliffs Pipeline, L.L.C. | $ | 22,733 |
| | $ | 20,631 |
| | $ | 68,495 |
| | $ | 65,336 |
|
NGL Energy Partners LP | — |
| | 4,752 |
| | 4,873 |
| | 14,235 |
|
Glass Mountain Pipeline, LLC | 2,164 |
| | 2,971 |
| | 8,096 |
| | 9,891 |
|
Total cash distributions received from equity method investments | $ | 24,897 |
| | $ | 28,354 |
| | $ | 81,464 |
| | $ | 89,462 |
|
White Cliffs Pipeline, L.L.C.
We own a 51% interest in White Cliffs Pipeline, L.L.C. (“White Cliffs”), which we account for under the equity method. Certain unaudited summarized income statement information of White Cliffs Pipeline, L.L.C. ("White Cliffs") for the three months and nine months ended September 30, 20162017 and 20152016, is shown below (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 48,331 |
| | $ | 49,027 |
| | $ | 161,973 |
| | $ | 152,150 |
| $ | 45,445 |
| | $ | 48,331 |
| | $ | 145,288 |
| | $ | 161,973 |
|
Cost of products sold | $ | (368 | ) | | $ | 803 |
| | $ | 2,685 |
| | $ | 1,906 |
| |
Cost of products sold, exclusive of depreciation and amortization shown below | | $ | (360 | ) | | $ | (368 | ) | | $ | 8,091 |
| | $ | 2,685 |
|
Operating, general and administrative expenses | $ | 7,529 |
| | $ | 7,642 |
| | $ | 27,256 |
| | $ | 23,938 |
| $ | 5,723 |
| | $ | 7,529 |
| | $ | 17,849 |
| | $ | 27,256 |
|
Depreciation and amortization expense | $ | 10,367 |
| | $ | 8,746 |
| | $ | 29,414 |
| | $ | 25,871 |
| $ | 9,154 |
| | $ | 10,367 |
| | $ | 27,619 |
| | $ | 29,414 |
|
Net income | $ | 30,801 |
| | $ | 31,835 |
| | $ | 102,623 |
| | $ | 100,428 |
| $ | 30,928 |
| | $ | 30,801 |
| | $ | 91,688 |
| | $ | 102,623 |
|
TheOur equity in earnings of White Cliffs for the three months and nine months ended September 30, 20162017 and 20152016, is less than 51% of the net income of White Cliffs for the same periods. This is due to certain general and administrative expenses we incur in managing the operations of White Cliffs that the other owners are not obligated to share. Such expenses are recordedIn addition, our equity in earnings is also impacted by the elimination of earnings on commodity sales with White Cliffs. Revenue related to inventory transactions with White Cliffs and are allocated to our ownership interest. White Cliffs recorded $0.3 million and $0.4 millionis deferred until a sale of such general and administrative expense for the three months ended September 30, 2016 and 2015, respectively. White Cliffs recorded $1.2 million and $1.1 million of such general and administrative expense for the nine months ended September 30, 2016 and 2015, respectively.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 nine months ended September 30, 2016,2017, we contributed $2.2$1.4 million to complete an expansion project that added approximately 65,000 barrels per day of capacity.
NGL Energy Partners LP
At September 30, 2016, we no longer own common units representing limited partner interests in NGL Energy Partners LP (NYSE: NGL) ("NGL Energy"). On April 27, 2016, we sold all of our NGL Energy limited partner units for $13.00 per unit and recorded a $9.1 million gain on disposal. We continue to hold an 11.78% interest in the general partner of NGL Energy which is being accounted for under the equity method in accordance ASC 323-30-S99-1, as our ownership is in excess of the 3 to 5 percent interest which is generally considered to be more than minor.
The general partner of NGL Energy is not a publicly traded company. The information below pertains to our general partner interest, and previously held limited partner interest, in NGL Energy.
See Note 4 for discussion of the other-than-temporary impairment of our common unit investment in NGL Energy.
Under the equity method, our policy is to record our equity in earnings of NGL Energy on a one-quarter lag, as we do not expect to have information on the earnings of NGL Energy in time to consistently record the earnings in the quarter in which they are generated.
During the nine months ended June 30, 2016, NGL issued common units which diluted our limited partnership interest. As we record activity on a one-quarter lag, we recognized a non-cash loss of $41.0 thousand associated with these issuances for the nine months ended September 30, 2016. During 2015, NGL announced several transactions in which it issued common units publicly and privately which diluted our limited partnership interest. As such, we recognized non-cash gains of $6.0 million associated with these issuances for the nine months ended September 30, 2015.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
3. | EQUITY METHOD INVESTMENTS, Continued
|
During the nine months ended September 30, 2015, we sold 1,999,533 of our NGL Energy common units for $56.3 million, net of related costs of $0.5 million. We recorded net gainsWhite Cliffs related to these sales of $14.5 million in "other expense (income)" in our condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2015.capital projects.
Glass Mountain Pipeline, LLC
We own a 50% interest in Glass Mountain Pipeline, LLC ("(“Glass Mountain"Mountain”), which we account for under the equity method. The excess of the recorded amount of our investment over the book value of our share of the underlying net assets represents equity method goodwill and capitalized interest at September 30, 2016.2017. Capitalized interest is amortized as a reduction of earnings from equity method investments.
Certain unaudited summarized income statement information of Glass Mountain for the three months and nine months ended September 30, 20162017 and 20152016, is shown below (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 6,793 |
| | $ | 8,348 |
| | $ | 22,263 |
| | $ | 29,257 |
| $ | 10,079 |
| | $ | 6,793 |
| | $ | 31,593 |
| | $ | 22,263 |
|
Cost of sales | $ | (145 | ) | | $ | 253 |
| | $ | 300 |
| | $ | 2,235 |
| |
Cost of products sold, exclusive of depreciation and amortization shown below | | $ | (85 | ) | | $ | (145 | ) | | $ | 1,941 |
| | $ | 300 |
|
Operating, general and administrative expenses | $ | 2,184 |
| | $ | 1,950 |
| | $ | 5,647 |
| | $ | 4,861 |
| $ | 2,576 |
| | $ | 2,184 |
| | $ | 6,533 |
| | $ | 5,647 |
|
Depreciation and amortization expense | $ | 3,992 |
| | $ | 3,903 |
| | $ | 11,917 |
| | $ | 11,879 |
| $ | 4,008 |
| | $ | 3,992 |
| | $ | 11,995 |
| | $ | 11,917 |
|
Net income | $ | 761 |
| | $ | 2,242 |
| | $ | 4,393 |
| | $ | 10,278 |
| $ | 3,579 |
| | $ | 761 |
| | $ | 11,123 |
| | $ | 4,393 |
|
TheOur equity in earnings of Glass Mountain for the three months and nine months ended September 30, 20162017 and 2015, reported in our condensed consolidated statements of operations and comprehensive income (loss)2016, is less than 50% of the net income of Glass Mountain for the same period due to amortization of capitalized interest for the period.
For the nine months ended September 30, 2016,2017, we contributed $0.3$16.3 million to Glass Mountain related to capital projects.
See Note 16 for subsequent event related to the sale of our interest in Glass Mountain.
NGL Energy Partners LP
We own an 11.78% interest in the general partner of NGL Energy Partners LP (NYSE: NGL) (“NGL Energy”) which is being accounted for under the equity method in accordance ASC 323-30-S99-1, as our ownership is in excess of the 3 to
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
3. | EQUITY METHOD INVESTMENTS, Continued |
5 percent interest which is generally considered to be more than minor. The general partner of NGL Energy is not a publicly traded company.
Our policy is to record our equity in earnings of NGL Energy on a one-quarter lag, as we do not expect information on the earnings of NGL Energy to always be available in time to consistently record the earnings in the quarter in which they are generated. Accordingly, the equity in earnings from NGL Energy, which is reflected in our condensed consolidated statements of operations and comprehensive income (loss) for the three months and nine months ended September 30, 2017 and 2016, relates to the earnings of NGL Energy for the three months and nine months ended June 30, 2017 and 2016, respectively.
SemGas goodwill impairment
In March 2016, our SemGas segment revised the volume forecast for its northern Oklahoma system based on revised volume forecasts provided by certain producers who have chosen to adjust plans for production following release of the Oklahoma Corporation Commission’s Regional Earthquake Response Plan that curtails the amount of volume that can be injected into disposal wells.
Based on current market conditions, management has lowered the reductionlong range forecast for our Field Services business unit, which provides truck transportation services as part of our Crude Transportation segment. The decrease in the long range forecast for Field Services 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 forecast,definite lived assets under ASC 360 whereby 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 ancompared the undiscounted cash flow analysis. However, we did record an impairmentflows of SemGas' goodwill forthe asset group, which was determined to be the entire balanceField Services reporting unit and included goodwill, to the carrying value of $13.1 million.
Tothe assets at September 30, 2017. This test indicated that the goodwill for impairment,assets were not fully recoverable. Therefore, we usedestimated the fair value of the definite lived assets using an income approach, supplemented by a market approach to calculatemeasure impairment. We also performed an interim impairment test of our goodwill associated with the Field Services reporting unit and determined the estimated fair value was less than the adjusted carrying value of the reporting unit. Under the income approach, we utilized a discountedunit resulting in impairment of goodwill. The cash flow modelmodels used to determine the fair valuerecoverability of our SemGas operations. Significantassets 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. 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.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
4. IMPAIRMENTS, Continued
Other-than-temporary impairment of equity method investment in NGL Energy
Duringreasonableness and for estimating the fourth quarter of 2015, the market price of NGL Energy common units fell below our carrying value per unit and remained below our carrying value as of March 31, 2016. At December 31, 2015, in accordance with ASC 320-10-S99 “Investments - Debt and Equity Securities”, we assessed whether such decline in value was other-than-temporary. During this initial assessment, the decrease in value was determined not to be other-than-temporary. The evidence management considered in such assessment included the nature and volatility of such decline, as well as the latest public financial guidance, condition, and results of NGL Energy. Subsequently, we continued to monitor events and developments and, based on NGL Energy's April 21, 2016, announcement of a reduction in its quarterly distribution and lowering of financial performance guidance, we concluded that the decline in thefair value of certain assets of our investment is other-than-temporary as of March 31, 2016. As such, we recorded an impairment of $39.8 million to our investment in the limited partner units of NGL Energy for the nine months endedreporting unit.
At September 30, 2016. The value of our limited partner investment in NGL Energy was written-down to the market price of $11.04 on December 31, 2015, the date through which2017, we have recorded our equitya $26.6 million impairment of Field Services’ goodwill and a $12.1 million impairment of intangible assets, which are reflected in earnings as discussed in Note 3. See Note 3 for discussion of the sale of our NGL Energy limited partner units“loss on April 27, 2016.
Our investment in the general partner of NGL Energy is not considered to be impaired. There is no readily available market price for our general partner investment as these units are not publicly traded. Based on the relatively low book value of our general partner investment, the value of incentive distribution rights and comparable general partner transactions, we do not believe our investment in the general partner of NGL Energy is impaired.
Crude Transportation assets
In the fourth quarter of 2016, we began an evaluation of strategic alternatives related to certain assetsdisposal or impairment, net” in our Crude Transportation segment. The outcomecondensed consolidated statements of such review may result in a material non-cash impairment.
operations and comprehensive income (loss).
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. Eliminations of transactions between segments are also included within Corporate and Other in the tables below.
The accounting policies of each segment are the same as the accounting policies of the consolidated Company. Transactions between segments are generally recorded based on prices negotiated between the segments. Certain general and administrative expenses incurred at the corporate level were allocated to the segments based on our allocation policies in effect at the time.
Our equity investment in NGL Energy was previously included within the SemStream segment. However, in the second quarter of 2016, we disposed of our limited partner interest in NGL Energy. Subsequent to this disposal, amounts related to our remaining general partner investment in NGL Energy are not material and are not expected to be material for the foreseeable future. As our investment in NGL Energy is the only asset of SemStream, we have ceased to report SemStream as a segment. Prior period amounts have been recast to include the former SemStream balances as part of Corporate and Other. See Note 3 for additional information.
During the year ended December 31, 2015, management made the decision to disaggregate certain activities and functions within the domestic crude oil business to provide additional granularity, both internally and externally, to our operating results. As such, the prior period results of the former Crude segment have been recast to reflect the resulting reportable segments: Crude Transportation, Crude Facilities and Crude Supply and Logistics. Certain amounts formerly included in the Crude segment have been included in Corporate and Other in the current presentation. No other segments were impacted. Additionally, current year activity includes intersegment revenues generated by our Crude Transportation and Crude Facilities segments for services provided to our Crude Supply and Logistics segment. With the exception of intersegment trucking revenues of our Crude Transportation segment, these intersegment charges did not exist in the prior year.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
Our results by segment are presented in the tables below (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Revenues: | | | | | | | |
Crude Transportation | | | | | | | |
External | $ | 15,947 |
| | $ | 20,331 |
| | $ | 48,786 |
| | $ | 63,083 |
|
Intersegment | 6,993 |
| | 3,037 |
| | 19,334 |
| | 10,320 |
|
Crude Facilities | | | | | | | |
External | 9,939 |
| | 11,642 |
| | 30,372 |
| | 34,449 |
|
Intersegment | 2,801 |
| | — |
| | 8,073 |
| | — |
|
Crude Supply and Logistics | | | | | | | |
External | 165,523 |
| | 209,113 |
| | 485,346 |
| | 501,550 |
|
SemGas | | | | | | | |
External | 57,824 |
| | 60,908 |
| | 149,544 |
| | 181,454 |
|
Intersegment | 2,266 |
| | 4,162 |
| | 7,533 |
| | 16,594 |
|
SemCAMS | | | | | | | |
External | 36,111 |
| | 33,152 |
| | 100,792 |
| | 98,791 |
|
SemLogistics | | | | | | | |
External | 5,668 |
| | 5,659 |
| | 17,980 |
| | 17,090 |
|
SemMexico | | | | | | | |
External | 36,752 |
| | 56,260 |
| | 97,172 |
| | 169,209 |
|
Corporate and Other | | | | | | | |
External | — |
| | — |
| | — |
| | 6,975 |
|
Intersegment | (12,060 | ) | | (7,199 | ) |
| (34,940 | ) |
| (26,914 | ) |
Total Revenues | $ | 327,764 |
|
| $ | 397,065 |
|
| $ | 929,992 |
|
| $ | 1,072,601 |
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Earnings (loss) from equity method investments: | | | | | | | |
Crude Transportation | $ | 15,883 |
| | $ | 17,115 |
| | $ | 53,800 |
| | $ | 55,662 |
|
Corporate and Other(1) | (38 | ) | | (742 | ) | | 2,153 |
| | 11,070 |
|
Total earnings from equity method investments | $ | 15,845 |
| | $ | 16,373 |
|
| $ | 55,953 |
|
| $ | 66,732 |
|
(1) Includes historical earnings from equity method investments including gain (loss) on issuance of common units by equity method investee related to our investment in NGL Energy. Gains and losses on the disposal or impairment of equity investments are not reported within "earnings from equity method investments" in the condensed consolidated statements of operations and comprehensive income (loss). See Note 3 for additional information. |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Depreciation and amortization: | | | | | | | |
Crude Transportation | $ | 6,307 |
| | $ | 9,022 |
| | $ | 18,337 |
| | $ | 26,678 |
|
Crude Facilities | 1,987 |
| | 1,451 |
| | 5,792 |
| | 4,226 |
|
Crude Supply and Logistics | 46 |
| | 40 |
| | 126 |
| | 119 |
|
SemGas | 9,066 |
| | 8,601 |
| | 27,182 |
| | 23,098 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
|
| | | | | | | | | | | | | | | |
SemCAMS | 4,239 |
| | 3,198 |
| | 12,484 |
| | 9,451 |
|
SemLogistics | 1,880 |
| | 2,173 |
| | 5,823 |
| | 6,367 |
|
SemMexico | 932 |
| | 993 |
| | 2,822 |
| | 3,083 |
|
Corporate and Other | 455 |
| | 544 |
| | 1,441 |
| | 1,408 |
|
Total depreciation and amortization | $ | 24,912 |
|
| $ | 26,022 |
|
| $ | 74,007 |
|
| $ | 74,430 |
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Income tax expense (benefit): | | | | | | | |
SemCAMS | $ | 1,573 |
| | $ | 2,361 |
| | $ | 2,989 |
| | $ | 3,528 |
|
SemLogistics | (601 | ) | | (170 | ) | | (815 | ) | | (372 | ) |
SemMexico | 349 |
| | 642 |
| | 1,150 |
| | 2,396 |
|
Corporate and Other | 10,577 |
| | 7,173 |
| | (8,175 | ) | | 24,057 |
|
Total income tax expense (benefit) | $ | 11,898 |
|
| $ | 10,006 |
|
| $ | (4,851 | ) |
| $ | 29,609 |
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Segment profit (1): | | | | | | | |
Crude Transportation | $ | 19,511 |
| | $ | 21,409 |
| | $ | 63,090 |
| | $ | 65,916 |
|
Crude Facilities | 9,679 |
| | 9,084 |
| | 28,637 |
| | 25,449 |
|
Crude Supply and Logistics | 3,151 |
| | 5,829 |
| | 22,313 |
| | 21,988 |
|
SemGas | 16,196 |
| | 16,859 |
| | 27,508 |
| | 49,410 |
|
SemCAMS | 13,067 |
| | 9,380 |
| | 31,971 |
| | 25,246 |
|
SemLogistics | 3,312 |
| | 1,947 |
| | 7,973 |
| | 4,800 |
|
SemMexico | 2,517 |
| | 4,251 |
| | 6,859 |
| | 14,430 |
|
Corporate and Other(2) | (10,397 | ) | | (9,867 | ) | | (24,568 | ) | | (28,999 | ) |
Total segment profit | $ | 57,036 |
|
| $ | 58,892 |
|
| $ | 163,783 |
|
| $ | 178,240 |
|
(1) Segment profit represents revenues excluding unrealized gains (losses) related to derivative instruments plus earnings from equity method investments less cost of sales excluding depreciation and amortization and less operating and general and administrative expenses. |
(2) Corporate and Other includes amounts previously included in the SemStream segment which ceased to be a reportable segment in the second quarter of 2016 concurrent with the disposal of our limited partner interest in NGL Energy. |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Reconciliation of segment profit to net income: | | | | | | | |
Total segment profit | $ | 57,036 |
|
| $ | 58,892 |
|
| $ | 163,783 |
|
| $ | 178,240 |
|
Less: | | | | | | | |
Net unrealized loss (gain) related to derivative instruments | 6,167 |
| | (4,546 | ) | | 6,096 |
| | (3,316 | ) |
Depreciation and amortization | 24,912 |
|
| 26,022 |
|
| 74,007 |
|
| 74,430 |
|
Interest expense | 21,032 |
| | 19,170 |
| | 58,842 |
| | 50,583 |
|
Foreign currency transaction loss (gain) | 659 |
| | (385 | ) | | 3,671 |
| | (1,199 | ) |
Loss (gain) on sale or impairment of equity method investment | — |
| | — |
| | 30,644 |
| | (14,517 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Crude Transportation | | | | | | | |
External | $ | 18,824 |
| | $ | 15,947 |
| | $ | 46,822 |
| | $ | 48,786 |
|
Intersegment | 8,988 |
| | 6,993 |
| | 22,443 |
| | 19,334 |
|
Crude Facilities | | | | | | | |
External | 9,053 |
| | 9,939 |
| | 28,513 |
| | 30,372 |
|
Intersegment | 2,567 |
| | 2,801 |
| | 7,563 |
| | 8,073 |
|
Crude Supply and Logistics | | | | | | | |
External | 339,874 |
| | 165,523 |
| | 928,664 |
| | 485,346 |
|
HFOTCO | | | | | | | |
External | 34,675 |
| | — |
| | 34,675 |
| | — |
|
SemGas | | | | | | | |
External | 54,095 |
| | 57,824 |
| | 167,605 |
| | 149,544 |
|
Intersegment | 2,152 |
| | 2,266 |
| | 8,693 |
| | 7,533 |
|
SemCAMS | | | | | | | |
External | 39,500 |
| | 36,111 |
| | 136,412 |
| | 100,792 |
|
SemLogistics | | | | | | | |
External | 7,009 |
| | 5,668 |
| | 21,505 |
| | 17,980 |
|
SemMexico | | | | | | | |
External | 42,893 |
| | 36,752 |
| | 110,916 |
| | 97,172 |
|
Corporate and Other | | | | | | | |
Intersegment | (13,708 | ) | | (12,060 | ) |
| (38,700 | ) |
| (34,940 | ) |
Total Revenues | $ | 545,922 |
|
| $ | 327,764 |
|
| $ | 1,475,111 |
|
| $ | 929,992 |
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Earnings from equity method investments: | | | | | | | |
Crude Transportation | $ | 17,372 |
| | $ | 15,883 |
| | $ | 52,207 |
| | $ | 53,800 |
|
Corporate and Other(1) | (5 | ) | | (38 | ) | | 4 |
| | 2,153 |
|
Total earnings from equity method investments | $ | 17,367 |
| | $ | 15,845 |
|
| $ | 52,211 |
|
| $ | 55,953 |
|
(1) Includes historical earnings from equity method investments including gain (loss) on issuance of common units by equity method investee related to our investment in NGL Energy. |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Depreciation and amortization: | | | | | | | |
Crude Transportation | $ | 11,170 |
| | $ | 6,309 |
| | $ | 23,595 |
| | $ | 18,343 |
|
Crude Facilities | 2,058 |
| | 1,982 |
| | 6,024 |
| | 5,785 |
|
Crude Supply and Logistics | 103 |
| | 46 |
| | 243 |
| | 126 |
|
HFOTCO | 19,300 |
| | — |
| | 19,300 |
| | — |
|
SemGas | 9,114 |
| | 9,079 |
| | 27,140 |
| | 27,204 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
|
| | | | | | | | | | | | | | | |
Other income, net | (492 | ) | | (956 | ) | | (1,170 | ) | | (1,142 | ) |
Income tax expense | 11,898 |
| | 10,006 |
| | (4,851 | ) | | 29,609 |
|
Loss from discontinued operations, net of taxes | — |
| | 1 |
| | 1 |
| | 3 |
|
Net income | $ | (7,140 | ) |
| $ | 9,580 |
|
| $ | (3,457 | ) |
| $ | 43,789 |
|
| | | | | | | |
| | | | | September 30, 2016 | | December 31, 2015 |
Total assets (excluding intersegment receivables): | | | | | | | |
Crude Transportation | | | | | $ | 978,271 |
| | $ | 877,017 |
|
Crude Facilities | | | | | 152,592 |
| | 155,186 |
|
Crude Supply and Logistics | | | | | 375,992 |
| | 328,419 |
|
SemGas | | | | | 688,496 |
| | 719,789 |
|
SemCAMS | | | | | 375,424 |
| | 331,749 |
|
SemLogistics | | | | | 139,831 |
| | 155,794 |
|
SemMexico | | | | | 83,950 |
| | 89,608 |
|
Corporate and Other(1) | | | | | 191,976 |
| | 196,347 |
|
Total | | | | | $ | 2,986,532 |
|
| $ | 2,853,909 |
|
(1) Corporate and Other includes amounts previously included in the SemStream segment which ceased to be a reportable segment in the second quarter of 2016 concurrent with the disposal of our limited partner interest in NGL Energy. |
| | | | | | | |
| | | | | September 30, 2016 | | December 31, 2015 |
Equity investments: | | | | | | | |
Crude Transportation | | | | | $ | 419,255 |
| | $ | 438,291 |
|
Corporate and Other(1) | | | | | 18,939 |
| | 112,787 |
|
Total equity investments | | | | | $ | 438,194 |
|
| $ | 551,078 |
|
(1) Corporate and Other includes amounts previously included in the SemStream segment which ceased to be a reportable segment in the second quarter of 2016 concurrent with the disposal of our limited partner interest in NGL Energy. |
|
| | | | | | | | | | | | | | | |
SemCAMS | 4,727 |
| | 4,239 |
| | 13,657 |
| | 12,484 |
|
SemLogistics | 1,967 |
| | 1,880 |
| | 5,683 |
| | 5,823 |
|
SemMexico | 1,070 |
| | 932 |
| | 3,029 |
| | 2,822 |
|
Corporate and Other | 626 |
| | 455 |
| | 1,665 |
| | 1,441 |
|
Total depreciation and amortization | $ | 50,135 |
|
| $ | 24,922 |
|
| $ | 100,336 |
|
| $ | 74,028 |
|
| | | | | | | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Income tax expense (benefit): | | | | | | | |
HFOTCO | $ | 166 |
| | $ | — |
| | $ | 166 |
| | $ | — |
|
SemCAMS | 1,270 |
| | 1,573 |
| | 4,961 |
| | 2,989 |
|
SemLogistics | (96 | ) | | (601 | ) | | 657 |
| | (815 | ) |
SemMexico | 360 |
| | 349 |
| | 1,102 |
| | 1,150 |
|
Corporate and Other(1) | (38,949 | ) | | 10,577 |
| | (40,415 | ) | | (8,175 | ) |
Total income tax expense (benefit) | $ | (37,249 | ) |
| $ | 11,898 |
|
| $ | (33,529 | ) |
| $ | (4,851 | ) |
(1) Corporate and Other includes the impact of intra-period tax allocation. |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Segment profit (loss)(1): | | | | | | | |
Crude Transportation(2) | $ | (14,829 | ) | | $ | 19,511 |
| | $ | 20,581 |
| | $ | 63,090 |
|
Crude Facilities | 8,497 |
| | 9,679 |
| | 26,336 |
| | 28,637 |
|
Crude Supply and Logistics | (2,368 | ) | | 3,151 |
| | (9,447 | ) | | 22,313 |
|
HFOTCO | 25,751 |
| | — |
| | 25,751 |
| | — |
|
SemGas | 12,915 |
| | 16,196 |
| | 45,318 |
| | 27,508 |
|
SemCAMS | 11,859 |
| | 13,067 |
| | 38,907 |
| | 31,971 |
|
SemLogistics | 2,569 |
| | 3,312 |
| | 9,273 |
| | 7,973 |
|
SemMexico | 2,075 |
| | 2,517 |
| | 5,462 |
| | 6,859 |
|
Corporate and Other | (19,100 | ) | | (10,397 | ) | | (36,786 | ) | | (24,568 | ) |
Total segment profit | $ | 27,369 |
|
| $ | 57,036 |
|
| $ | 125,395 |
|
| $ | 163,783 |
|
(1) Segment profit (loss) represents revenues excluding unrealized gains (losses) related to commodity derivative instruments plus earnings from equity method investments less cost of sales excluding depreciation and amortization and less operating and general and administrative expenses, including gains or losses on disposals or impairments. |
(2) The nine months ended September 30, 2017, includes a $4.5 million out of period loss on the disposal of right-of-way related to immaterial prior period errors. |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Reconciliation of segment profit to net income (loss): | | | | | | | |
Total segment profit | $ | 27,369 |
|
| $ | 57,036 |
|
| $ | 125,395 |
|
| $ | 163,783 |
|
Less: | | | | | | | |
Net unrealized loss related to commodity derivative instruments | 1,833 |
| | 6,167 |
| | 932 |
| | 6,096 |
|
Depreciation and amortization | 50,135 |
|
| 24,922 |
|
| 100,336 |
|
| 74,028 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
|
| | | | | | | | | | | | | | | |
Loss on debt extinguishment | — |
| | — |
| | 19,930 |
| | — |
|
Interest expense | 32,711 |
| | 18,517 |
| | 60,055 |
| | 54,105 |
|
Foreign currency transaction loss (gain) | (747 | ) | | 659 |
| | (1,758 | ) | | 3,671 |
|
Loss on sale or impairment of equity method investment | — |
| | — |
| | — |
| | 30,644 |
|
Other income, net | (211 | ) | | (492 | ) | | (802 | ) | | (1,170 | ) |
Income tax expense (benefit) | (37,249 | ) | | 11,898 |
| | (33,529 | ) | | (4,851 | ) |
Loss from discontinued operations, net of income taxes | — |
| | — |
| | — |
| | 1 |
|
Net income (loss) | $ | (19,103 | ) |
| $ | (4,635 | ) |
| $ | (19,769 | ) |
| $ | 1,259 |
|
| | | | | | | |
| | | | | September 30, 2017 | | December 31, 2016 |
Total assets (excluding intersegment receivables): | | | | | | | |
Crude Transportation | | | | | $ | 1,181,139 |
| | $ | 1,042,327 |
|
Crude Facilities | | | | | 150,526 |
| | 156,907 |
|
Crude Supply and Logistics | | | | | 506,486 |
| | 484,475 |
|
HFOTCO | | | | | 1,967,294 |
| | — |
|
SemGas | | | | | 722,804 |
| | 683,952 |
|
SemCAMS | | | | | 461,469 |
| | 379,785 |
|
SemLogistics | | | | | 151,083 |
| | 135,387 |
|
SemMexico | | | | | 88,383 |
| | 75,440 |
|
Corporate and Other | | | | | 135,741 |
| | 116,699 |
|
Total | | | | | $ | 5,364,925 |
|
| $ | 3,074,972 |
|
|
| | | | | | | |
| | | | | September 30, 2017 | | December 31, 2016 |
Equity investments: | | | | | | | |
Crude Transportation | | | | | $ | 414,868 |
| | $ | 415,356 |
|
Corporate and Other | | | | | 18,937 |
| | 18,933 |
|
Total equity investments | | | | | $ | 433,805 |
|
| $ | 434,289 |
|
Inventories consist of the following (in thousands):
| | | September 30, 2016 | | December 31, 2015 | September 30, 2017 | | December 31, 2016 |
Crude oil | $ | 76,564 |
| | $ | 59,121 |
| $ | 118,577 |
| | $ | 89,683 |
|
Asphalt and other | 6,909 |
| | 11,118 |
| 10,056 |
| | 9,551 |
|
Total inventories | $ | 83,473 |
| | $ | 70,239 |
| $ | 128,633 |
| | $ | 99,234 |
|
AtDuring the nine months ended September 30, 2015,2017, our Crude Supply and Logistics segment recorded non-cash charges of $1.2$0.5 million to write-down crude oil inventory to the lower of cost or market. A lower of cost or market adjustment was not necessary atThere were no inventory write-downs during the nine months ended September 30, 2016.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
Fair value of financial instruments
We record certain financial assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of commodity derivative assets and liabilities at September 30, 20162017 and December 31, 20152016 (in thousands):
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
7. | FINANCIAL INSTRUMENTS, Continued
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
Derivatives subject to netting arrangements: | Level 1 | | Netting* | | Total | | Level 1 | | Netting* | | Total |
Commodity derivatives: | | | | |
| | | | | |
|
Assets | $ | 2,991 |
| | $ | (2,991 | ) | | $ | — |
| | $ | 131 |
| | $ | (131 | ) | | $ | — |
|
Liabilities | $ | 9,426 |
| | $ | (2,991 | ) | | $ | 6,435 |
| | $ | 470 |
| | $ | (131 | ) | | $ | 339 |
|
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total - Net |
Assets: | | | | | | | | | |
Commodity derivatives (2) | $ | 1,397 |
| | $ | — |
| | $ | — |
| | $ | (1,397 | ) | | $ | — |
|
Total assets | $ | 1,397 |
| | $ | — |
| | $ | — |
| | $ | (1,397 | ) | | $ | — |
|
Liabilities: | | | | | | | | | |
Commodity derivatives | $ | 3,657 |
| | $ | — |
| | $ | — |
| | $ | (1,397 | ) | | $ | 2,260 |
|
Interest rate swaps | — |
| | — |
| | 2,657 |
| | — |
| | 2,657 |
|
Total liabilities | $ | 3,657 |
| | $ | — |
| | $ | 2,657 |
| | $ | (1,397 | ) | | $ | 4,917 |
|
Net assets (liabilities) at fair value | $ | (2,260 | ) | | $ | — |
| | $ | (2,657 | ) | | $ | — |
| | $ | (4,917 | ) |
| | | | | | | | | |
| December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total - Net |
Assets: | | | | | | | | | |
Commodity derivatives (2) | $ | 68 |
| | $ | — |
| | $ | — |
| | $ | (68 | ) | | $ | — |
|
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"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"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"(“OTC”) traded physical fixed priced purchases and sales forward contracts.
"“Level 3"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.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 September 30, 2016,2017, all of our physical fixed price forward purchases and sales contracts were being accounted for as normal purchases and normal sales.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
7. | FINANCIAL INSTRUMENTS, Continued |
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):
|
| | | |
| Three and Nine Months Ended September 30, 2017 |
Net liabilities - beginning balance | $ | — |
|
Interest rate swaps acquired through acquisition (Note 2) | 3,275 |
|
Transfers out of Level 3 | — |
|
Total gain (realized and unrealized) included in earnings* | (618 | ) |
Settlements | — |
|
Net liabilities - ending balance | $ | 2,657 |
|
*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 recorded at fair value which were classified as Level 2 or Level 3 during the three months and nine months ended September 30, 2016 and 2015. As such, no rollforward of Level 3 activity has been presented.
Commodity derivative contracts
Our consolidated results of operations and cash flows are impacted by changes in market prices for petroleum products. This exposure to commodity price risk is managed, in part, by entering into various commodity derivatives.
We seek to manage the price risk associated with our marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of petroleum products to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the petroleum products purchased and delivered or (ii) derivative contracts. Our storage and transportation assets can also be used to mitigate time and location basis risks, respectively. All marketing activities are subject to our Comprehensive Risk Management Policy, a Delegation of Authority policy and their supporting policies and procedures, which establishesestablish limits in order to manage risk and mitigate financial exposure.
Our commodity derivatives can be comprised of swaps, futures contracts and forward contracts of crude oil, natural gas and natural gas liquids. These are defined as follows:
Swaps – OTC transactions where a floating price, basis or index is exchanged for a fixed (or a different floating) price, basis or index at a preset schedule in the future, according to an agreed-upon formula.
Futures contracts – Exchange traded contracts to buy or sell a commodity. These contracts are standardized by the exchange in terms of quality, quantity, delivery period and location for each commodity.
Forward contracts – OTC contracts to buy or sell a commodity at an agreed upon future date. The buyer and seller agree on specific terms (price, quantity, delivery period and location) and conditions at the inception of the contract.
The following table sets forth the notional quantities for commodity derivative instruments entered into (in thousands of barrels):
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Sales | 3,386 |
| | 7,508 |
| | 9,980 |
| | 23,818 |
|
Purchases | 2,820 |
| | 7,448 |
| | 9,772 |
| | 23,701 |
|
We have not designated any of our commodity derivative instruments as accounting hedges. We have recorded the fair value of our commodity derivative instruments on our condensed consolidated balance sheets in “other current assets” and “other current liabilities” in the following amounts (in thousands):
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
7. | FINANCIAL INSTRUMENTS, Continued |
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Sales | 7,508 |
| | 5,735 |
| | 23,818 |
| | 19,187 |
|
Purchases | 7,448 |
| | 5,775 |
| | 23,701 |
| | 19,188 |
|
We have not designated any of our commodity derivative instruments as accounting hedges. We have recorded the fair value of our commodity derivative instruments on our condensed consolidated balance sheets in other current assets and other current liabilities in the following amounts (in thousands):
|
| | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
| Assets | | Liabilities | | Assets | | Liabilities |
Commodity contracts | $ | — |
| | $ | 6,435 |
| | $ | — |
| | $ | 339 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Assets | | Liabilities | | Assets | | Liabilities |
Commodity contracts | $ | — |
| | $ | 2,260 |
| | $ | — |
| | $ | 1,328 |
|
We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. At September 30, 20162017 and December 31, 2015,2016, our margin deposit balances were in a net asset positionpositions of $8.9$4.4 million and $2.9$3.6 million, respectively. These margin account balances have not been offset against our net commodity derivative instrument (contract) positions. Had these margin deposits been netted against our net commodity derivative instrument (contract) positions as of September 30, 20162017 and December 31, 2015,2016, we would have had net asset positions of $2.5$2.2 million and $2.6$2.3 million, respectively.
Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Commodity contracts | $ | 2,777 |
| | $ | 6,036 |
| | $ | (996 | ) | | $ | 3,768 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Commodity contracts | $ | (3,897 | ) | | $ | 2,777 |
| | $ | 4,886 |
| | $ | (996 | ) |
Interest rate swaps
In conjunction with the HFOTCO acquisition (Note 2), 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 September 30, 2017, we had interest rate swaps with notional values of $491.8 million. At September 30, 2017, the fair value of our interest rate swaps was $2.7 million which was reported within “other liabilities” in our condensed consolidated balance sheet. For the three and nine months ended September 30, 2017, we recognized unrealized gains of $0.6 million related to interest rate swaps.
Concentrations of risk
During the three months ended September 30, 2016,2017, one third-party customer, primarily of our Crude Supply and Logistics segment, accounted for more than 10% of our consolidated revenue with revenues at approximately 20%.of $89.9 million. No suppliers accounted for more than 10% of our consolidated costs of products sold.
During the nine months ended September 30, 2016,2017, one third-party customer, primarily of our Crude Supply and Logistics segment, accounted for more than 10% of our consolidated revenue with revenues at approximately 29%.of $345.3 million. No suppliers accounted for more than 10% of our consolidated costs of products sold.
At September 30, 2016,2017, one third-party customer primarily of our Crude Supply and Logistics segment accounted for approximately 21%19% of our consolidated accounts receivable.
The effective tax rate was 250%66% and 51%164% for the three months ended September 30, 2017 and 2016, respectively. The effective tax rate was 63% and 2015, respectively,135% for the nine months ended September 30, 2017 and 58%2016, respectively. The rate for the nine months ended September 30, 2017, is impacted by a discrete tax expense of $1.4 million related to the vesting of restricted stock during the period and 40%a discrete tax benefit of $31.6 million related to a change of position to deduct foreign taxes in lieu of claiming a foreign tax credit for the tax years 2013 through 2016. The foreign tax credit for these years was previously offset by a full valuation allowance and accordingly, there is no net tax expense or balance sheet impact from their reversal. The discrete benefit arises from recognition of the increase in our net operating loss carryforward resulting from the deduction of foreign taxes. The decision to deduct foreign taxes or claim the foreign tax credit is made with respect to each tax period. The rate for the nine months ended September 30, 2016, and 2015, respectively.is impacted by a non-controlling interest in Rose Rock Midstream, L.P. (“Rose Rock”) for which taxes are not provided. Significant items that impacted the effective tax rate for each period, as compared to the U.S. federal statutory rate of 35%, include earnings in foreign jurisdictions taxed at lower rates and a non-controlling interest in Rose Rock for which taxes are not provided. Further, the foreign earnings are taxed in foreign jurisdictions as well as in the
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
8. INCOME TAXES
U.S., since they are disregarded entities for U.S. federal income tax purposes. These combined factors, and the magnitude of the permanent items impacting the tax rate relative to income from continuing operations before income taxes, result in rates that are not comparable between the periods.
We have a valuation allowance on a small portion of our state net operating loss carryovers with shorter carryover periods and our remaining foreign tax credit carryover.carryover generated in tax years prior to 2013. We have not released the valuation allowance on the foreign tax credits due to the foreign tax credit limitation and the relative subjectivity of forecasts of the relational magnitude of U.S. and foreign taxable income in future periods, as well as the shorter carryover period available for the credits. Deferred tax assets are reduced by a valuation allowance when a determination is made that it is more likely than not that some, or all,
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
8. | INCOME TAXES, Continued
|
of the deferred tax assets will not be realized based on the weight of all available evidence. Evidence which is objectively verifiable carries a higher weight in the analysis. The ultimate realization of deferred tax assets is dependent upon the existence of sufficient taxable income of the appropriate character within the carryback and carryforward period available under the tax law. Sources of taxable income include future reversals of existing taxable temporary differences, future earnings and available tax planning strategies.
We have analyzed filing positions in all of the federal, state and foreign jurisdictions where we are required to file income tax returns and determined that no accruals related to uncertainty in tax positions are required. All income tax years of the Company ending after the emergence from bankruptcy remain open for examination in U.S. jurisdictions under general operation of the statute of limitations, including special provisions with regard to net operating loss carryovers. In foreign jurisdictions, all tax periods prior to the emergence from bankruptcy are closed. The statute of limitations has not been waived with respect to any foreign jurisdictions post emergence and tax periods are open for examination in accordance with the general statutes of each foreign jurisdiction. Currently, there are no examinations in progress for our federal and state jurisdictions. Canada Revenue Agency has initiated an income tax audit of SemCAMS ULC for the tax years 2013 and 2014.through 2015. No other foreign jurisdictions are currently under audit.
Our long-term debt consisted of the following (in(dollars in thousands):
|
| | | | | | | |
| September 30, 2016 | | December 31, 2015 |
7.50% senior unsecured notes due 2021 | $ | 300,000 |
| | $ | 300,000 |
|
Unamortized debt issuance costs on 2021 notes | (3,917 | ) | | (4,540 | ) |
7.50% senior unsecured notes due 2021, net | 296,083 |
| | 295,460 |
|
|
|
| |
|
|
5.625% senior unsecured notes due 2022 | 400,000 |
| | 400,000 |
|
Unamortized debt issuance costs on 2022 notes | (6,175 | ) | | (6,975 | ) |
5.625% senior unsecured notes due 2022, net | 393,825 |
| | 393,025 |
|
| | | |
5.625% senior unsecured notes due 2023 | 350,000 |
| | 350,000 |
|
Unamortized discount on 2023 notes | (5,036 | ) | | (5,455 | ) |
Unamortized debt issuance costs on 2023 notes | (4,764 | ) | | (5,266 | ) |
5.625% senior unsecured notes due 2023, net | 340,200 |
| | 339,279 |
|
| | | |
SemGroup corporate revolving credit facility | — |
| | 30,000 |
|
SemMexico revolving credit facility | — |
| | — |
|
Capital leases | 57 |
| | 83 |
|
Total long-term debt, net | 1,030,165 |
| | 1,057,847 |
|
Less: current portion of long-term debt | 25 |
| | 31 |
|
Noncurrent portion of long-term debt, net | $ | 1,030,140 |
| | $ | 1,057,816 |
|
Senior unsecured notes due 2021
For the three months ended September 30, 2016 and 2015, we incurred $5.8 million and $5.8 million, respectively, of interest expense related to $300 million of 7.50% senior unsecured notes due 2021 (the "2021 Notes") including amortization of debt issuance costs. For the nine months ended September 30, 2016 and 2015, we incurred $17.5 million and $17.5 million, respectively, of interest expense related to the 2021 Notes including amortization of debt issuance costs. |
| | | | | | | | | |
| Interest rate at September 30, 2017 | | September 30, 2017 | | December 31, 2016 |
Senior unsecured notes due 2021 | 7.500% | | $ | — |
| | $ | 300,000 |
|
Senior unsecured notes due 2022 | 5.625% | | 400,000 |
| | 400,000 |
|
Senior unsecured notes due 2023 | 5.625% | | 350,000 |
| | 350,000 |
|
Senior unsecured notes due 2025 | 6.375% | | 325,000 |
| | — |
|
Senior unsecured notes due 2026 | 7.250% | | 300,000 |
| | — |
|
SemGroup $1.0 billion corporate revolving credit facility (1) | | |
|
| |
|
|
Alternate base rate borrowings | 5.500% | | 222,000 |
| | 20,000 |
|
Eurodollar borrowings | 3.567% | | 110,000 |
| | — |
|
Second Payment (2) | 8.000% | | 555,644 |
| | — |
|
HFOTCO term loan B (3) | 4.800% | | 533,500 |
| | — |
|
HFOTCO tax exempt notes payable due 2050 | 2.266% | | 225,000 |
| | — |
|
HFOTCO $75 million revolving credit facility (4) | 6.500% | | 25,000 |
| | — |
|
SemMexico revolving credit facility (5) | 8.879% | | — |
| | — |
|
Capital leases | | | 32 |
| | 51 |
|
Unamortized premium (discount) and debt issuance costs, net | | | (31,218 | ) | | (19,107 | ) |
Total long-term debt, net | | | 3,014,958 |
| | 1,050,944 |
|
Less: current portion of long-term debt | | | 5,529 |
| | 26 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
9. | LONG-TERM DEBT, Continued |
Senior unsecured notes due 2022At September 30, 2016, we had outstanding $400 |
| | | | | | | | | |
Noncurrent portion of long-term debt, net | | | $ | 3,009,429 |
| | $ | 1,050,918 |
|
| |
(1) | SemGroup $1.0 billion corporate revolving credit facility matures on May 15, 2021. |
| |
(2) | Second Payment was discounted to $549.9 million fair value at the HFOTCO acquisition date based on expected timing of payments and an 8% discount rate. See Note 2 for additional information. |
| |
(3) | HFOTCO term loan B is due in quarterly installments of $1.4 million with a final payment due on August 19, 2021. |
| |
(4) | HFOTCO $75 million revolving credit facility matures on August 19, 2019. |
| |
(5) | SemMexico revolving credit facility has a borrowing capacity of $70 million pesos ($3.8 million USD at September 30, 2017 exchange rate). |
Early extinguishment of 5.625% senior unsecured notes due 20222021
On March 15, 2017, we purchased $290 million of our outstanding $300 million, 7.50% senior unsecured notes due 2021 (the "2022 Notes"“2021 Notes”). For through a tender offer. The purchase price included a premium and interest to the three months ended September 30, 2016purchase date. On March 17, 2017, a notice of redemption was issued for the remaining $10 million of 2021 Notes which were not purchased through the tender offer pursuant to the redemption and 2015, we incurred $5.9satisfaction and discharge provisions of the indenture governing the 2021 Notes. These remaining 2021 Notes were redeemed on June 15, 2017, including a redemption premium and accrued unpaid interest to the redemption date. We recorded a loss on early extinguishment of $19.9 million for the above transactions, which included premiums totaling $15.9 million and $5.9the write off of $3.6 million respectively, of interest expense related to the 2022 Notes including amortization of debt issuance costs. For the nine months ended September 30, 2016 and 2015, we incurred $17.7 million and $17.6 million, respectively, of interest expense related to the 2022 Notes including amortization ofassociated unamortized debt issuance costs.
Senior unsecured notes due 2023
At September 30, 2016, we had outstanding $350 millionIssuance of 5.625% senior unsecured notes due 20232025 and 2026
On March 15, 2017, we sold $325 million of 6.375% senior unsecured notes due 2025 (the “2023“2025 Notes”), which. The 2025 Notes were issued on May 14, 2015. For the three months ended September 30, 2016 and 2015, we incurred $5.2 million and $5.2 million, respectively,sold at 98.467% of interest expense relatedpar, a discount of $5.0 million. The discount is reported as a reduction to the 2023face value of the 2025 Notes including amortization of debt issuance costs and discount. For the nine months ended September 30, 2016 and 2015, we incurred $15.6 million and $7.9 million, respectively, of interest expense related to the 2023 Notes including amortization of debt issuance costs and discount.
Corporate revolving credit facility
On September 30, 2016, we amended and restated our corporate revolving credit facility, such that the borrowing capacity was increased to $1.0 billion and the maturity was extended to March 15, 2021. We capitalized $7.5 million of costs related to the credit facility in "other assets" inon our condensed consolidated balance sheet. Wesheets and is being amortized over the life of the 2025 Notes using the interest method.
The net proceeds from the offering of $315.2 million, after the discount and $4.9 million of initial purchasers’ fees and offering expenses, together with cash on hand, were used to purchase and redeem the 2021 Notes.
On September 20, 2017, we sold $300 million of 7.25% senior unsecured notes due 2026 (the “2026 Notes”). The 2026 Notes were sold at 98.453% of par, a discount of $4.6 million. The discount is reported as a reduction to the face value of the 2026 Notes on our condensed consolidated balance sheets and is being amortized over the life of the 2026 Notes using the interest method.
The net proceeds from the offering of $290.6 million, after the discount and $4.8 million of initial purchasers’ fees and offering expenses, were used to repay amounts borrowed under our revolving credit facility.
The 2025 Notes and 2026 Notes (collectively, the “Notes”) were each issued under an indenture (the “Indenture”) by and among the Company, the Guarantors and Wilmington Trust, National Association, as trustee (the “Trustee”). The Notes are fully and unconditionally guaranteed on a senior unsecured basis by our existing subsidiaries that guarantee our revolving credit facility. Interest on the 2025 Notes accrues at a rate of 6.375% per annum and is payable in cash semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017. The 2025 Notes will mature on March 15, 2025. Interest on the 2026 Notes accrues at a rate of 7.25% per annum and is payable in cash semi-annually on March 15 and September 15 of each year, commencing on March 15, 2018. The Notes will mature on March 15, 2026.
Prior to March 15, 2020, for the 2025 Notes, or prior to March 15, 2021, for the 2026 Notes, we may request an increaseredeem the Notes, in whole or in part, at any time at a price equal to the principal amount of borrowing capacity under the agreementsuch notes redeemed plus accrued and unpaid interest to, but not including, the redemption date and a “make-whole premium.” Additionally, from time to time before March 15, 2020, for the 2025 Notes, or prior to September 15, 2020, for the 2026 Notes, we may choose to redeem up to $300 million.
The credit agreement includes35% of the original principal amount of such notes at a redemption price equal to 106.375% of the face amount thereof, for the 2025 Notes, or 107.25%, for the 2026 Notes, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds that we raise in one or more equity offerings. On or after March 15, 2020, for the 2025 Notes, or on or after March 15, 2021, for the 2026 Notes, we may redeem such notes, in whole or in part, at the following financial performance covenants:
SemGroup’s leverage ratio mayredemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon to, but not exceed 5.50 to 1.00 asincluding, the redemption date if redeemed during the twelve month period beginning on March 15 of the last day of any fiscal quarter;
SemGroup’s senior secured leverage ratio may not exceed 3.50 to 1.00 as of the last day of any fiscal quarter; and
SemGroup’s interest coverage ratio may not be less than 2.50 to 1.00 as of the last day of any fiscal quarter.
The corporate revolving credit facility is guaranteed by all of SemGroup’s material domestic subsidiaries and secured by a lien on substantially all of the property and assets of SemGroup and the other loan parties, subject to customary exceptions.
At September 30, 2016, we had no outstanding cash borrowings on our $1.0 billion revolving credit facility.
At September 30, 2016, we had outstanding letters of credit under the facility of $37.5 million, for which the rate in effect was 2.0%, and outstanding secured bi-lateral letters of credit of $11.0 million, for which the rate in effect was 1.75%. Secured bi-lateral letters of credit are external to the facility and do not reduce availability for borrowing on the credit facility.
We incurred interest expense related to the corporate revolving credit facility of $0.8 million and $0.8 million for the three months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs. We incurred interest expense related to the corporate revolving credit facility of $3.4 million and $2.8 million for the nine months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs.
Rose Rock revolving credit facility
At September 30, 2016, Rose Rock's revolving credit facility was terminated and $2.0 million of associated unamortized capitalized loan fees were written off to interest expense.
We incurred $3.8 million and $1.4 million of interest expense related to this facility during the three months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs. We incurred $6.9 million and $5.6 million of interest expense related to this facility during the nine months ended September 30, 2016 and 2015, respectively, including letters of credit and amortization of debt issuance costs.years indicated below:
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
9. | LONG-TERM DEBT, Continued |
|
| | |
2025 Notes |
Year | | Percentage |
2020 | | 103.188% |
2021 | | 101.594% |
2022 and thereafter | | 100.000% |
| | |
2026 Notes |
Year | | Percentage |
2021 | | 103.625% |
2022 | | 101.813% |
2023 and thereafter | | 100.000% |
Upon the occurrence of a change of control triggering event, as defined in the Indenture, each holder of the Notes will have the right to require the Company to repurchase some or all of such holder’s Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the repurchase date.
The Indenture contains customary covenants restricting our ability and the ability of our restricted subsidiaries to: (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends and make certain distributions, investments and other restricted payments; (iii) create certain liens; (iv) sell assets; (v) enter into transactions with affiliates; (vi) enter into sale and lease-back transactions; (vii) merge, consolidate, sell or otherwise dispose of all or substantially all of our assets; and (viii) designate our subsidiaries as unrestricted subsidiaries under the Indenture. These covenants are subject to a number of important limitations and exceptions, including certain provisions permitting us, subject to the satisfaction of certain conditions, to transfer assets to certain of our unrestricted subsidiaries.
The Indenture also contains customary events of default. Upon an event of default under the Indenture, the Trustee or the holders of at least 25% in aggregate principal amount of such notes then outstanding may declare all amounts owing under such notes to be due and payable.
Registration rights agreements
In connection with the closing of the offerings of the Notes, the Company and the Guarantors entered into registration rights agreements (the “Registration Rights Agreements”). Under the Registration Rights Agreements, the Company and the Guarantors have agreed to file registration statements with the Securities and Exchange Commission so that holders of the Notes can exchange the Notes and the related guarantees for registered notes and guarantees that have substantially identical terms as the Notes and related guarantees, within 365 days after the original issuance. In certain circumstances, the Company and the Guarantors may be required to file shelf registration statements to cover resales of the Notes. We are required to pay additional interest on the Notes if we fail to comply with our obligations to register the Notes and related guarantees, within the specified time periods.
Pledges and guarantees
Our senior unsecured notes are guaranteed by certain subsidiaries. See Note 15 for additional information.
Our $1.0 billion corporate revolving credit facility is guaranteed by all of SemGroup’s material domestic subsidiaries, with the exception of Maurepas Pipeline LLC and HFOTCO, and secured by a lien on substantially all of the property and assets of SemGroup Corporation and the other loan parties, subject to customary exceptions.
AtThe HFOTCO term loan B, HFOTCO tax exempt notes payable and HFOTCO $75 million revolving credit facility are secured by substantially all of the assets of HFOTCO and its immediate parent, Buffalo Gulf Coast Terminals LLC. The HFOTCO tax exempt notes payable have a priority position over the HFOTCO term loan B and HFOTCO revolving credit facility.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
9. | LONG-TERM DEBT, Continued |
Letters of credit
We had the following outstanding letters of credit at September 30, 2016, SemMexico had a $1002017 (dollars in thousands):
|
| | | | |
SemGroup $1.0 billion revolving credit facility | 2.25% | $ | 39,385 |
|
Secured bi-lateral (1) | 1.75% | $ | 51,142 |
|
SemMexico (2) | 0.28% | $ | 16,000 |
|
(1) Secured bi-lateral letters of credit are external to the SemGroup $1.0 billion revolving credit facility and do not reduce availability for borrowing on the credit facility.
(2) $292.8 million Mexican pesos (U.S. $5.1 million at the September 30, 20162017 exchange rate) revolving credit facility, which matures in May 2018. There were no outstanding borrowings on the facility at September 30, 2016. Borrowings are unsecured and bear interest at the bank prime rate in Mexico plus 1.50%.
At September 30, 2016, SemMexico had an outstanding letter of credit of $292.8 million Mexican pesos (U.S. $15.0 million at the September 30, 2016 exchange rate). The letter of credit was issued for a fee of 0.28%.rate.
Capitalized interest
During the nine months ended September 30, 20162017 and 2015,2016, we capitalized interest of $2.0$15.4 million and $1.0$6.8 million,, respectively. As described in Note 1, capitalized interest for the prior year has been recast.
Fair value
We estimate the fair value of the 2021 Notes, the 2022 Notes and the 2023 Notesour consolidated long-term debt, including current maturities, to be $302 million, $367 million and $319 million, respectively,approximately $3.0 billion at September 30, 2016,2017, based on unadjusted, transacted market prices near the measurement date, which are categorized as Level 2 measurements.
| |
10. | COMMITMENTS AND CONTINGENCIES |
Bankruptcy matters
On July 22, 2008 (the "Petition Date"), SemGroup, L.P. and certain subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Also on July 22, 2008, SemGroup, L.P.'s Canadian subsidiaries filed for creditor protection in Canada. Later during 2008, certain other U.S. subsidiaries filed petitions for reorganization. While in bankruptcy, SemGroup, L.P. filed a plan of reorganization with the court, which was confirmed on October 28, 2009 (the "Plan of Reorganization"). The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, the equity structure of the reorganized company upon emergence and the financing arrangements upon emergence. SemGroup Corporation emerged from bankruptcy protection on November 30, 2009 (the "Emergence Date").
Claims reconciliation process
A large number of parties made claims against us for obligations alleged to have been incurred prior to our predecessor's bankruptcy filing. We have resolved or settled all of these outstanding claims and have made all required distributions. The Plan of Reorganization has therefore been fully administered. On November 7, 2014, SemGroup Corporation and the other reorganized debtors moved for a final decree from the bankruptcy court closing the debtors’ bankruptcy cases. The United States Bankruptcy Court for the District of Delaware granted the request and entered its Order Granting Motion of Remaining Debtors for Entry of Final Decree on December 18, 2014. Accordingly, the bankruptcy cases for SemCrude, L.P., Eaglwing, L.P., SemCanada II, L.P., SemCanada L.P., SemGas, L.P., SemGroup, L.P., SemMaterials, L.P., and SemStream, L.P. have been closed. As part of its decree, the Court retained jurisdiction over certain on-going adversary proceedings, but the debtors have estimated and paid the claims associated with these remaining adversaries, leaving the non-debtor parties to the adversaries to resolve their remaining claims amongst themselves. On January 2, 2015, Bettina M. Whyte, the duly appointed Trustee of the SemGroup Litigation Trust (the “Litigation Trustee”), filed a notice of appeal of the Bankruptcy Court’s December 18, 2014 order closing the aforementioned bankruptcy cases. However, the Bankruptcy Court’s order of final decree was effective upon entry, and the appeal does not stay the effect of the order. On September 30, 2016, the Litigation Trustee’s appeal to the United States District Court for the District of Delaware was dismissed by mutual agreement of the parties and the matter is now concluded.
Dimmit County, TX claims
An employee of Rose Rock Midstream Field Services, LLC was involved in a tractor trailer accident on January 15, 2015, in Dimmit County, Texas. A second accident followed resulting in six fatalities and multiple injuries. Multiple lawsuits involving claims of wrongful death and personal injury were filed in Zavala County and Dimmit County, Texas. These lawsuits have been consolidated in the District Court, 293rd Judicial District, Zavala County, Texas, as cause number 15-01-13356-ZCV, Maribel Rodriguez and the Estate of David Rodriguez, et al., vs. Rose Rock Midstream Field
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
10. | COMMITMENTS AND CONTINGENCIES, Continued
|
Services, LLC, SemGroup Corporation, Rose Rock Midstream, L.P. and SemManagement, L.L.C., et al. Confidential settlement agreements have been entered into with all plaintiffs and were approved by the court. A motion for summary judgment on pending claims with one defendant/cross-plaintiff was granted. A defendant/counter-plaintiff filed a motion for a new trial which was denied. The judgments previously entered on the confidential settlement agreements will become final in the fourth quarter 2016 or first quarter 2017 if no further appeals are filed. We believe that any liability that may arise from this action will be within the limits covered by our insurance. We will continue to defend our position, however we cannot predict the outcome.
Environmental
We may, from time to time, experience leaks of petroleum products from our facilities and, as a result of which, we may incur remediation obligations or property damage claims. In addition, we are subject to numerous environmental regulations. Failure to comply with these regulations could result in the assessment of fines or penalties by regulatory authorities.
The Kansas Department of Health and Environment ("the KDHE"(the “KDHE”) initiated discussions during our bankruptcy proceeding regarding six of our sites in Kansas (five owned by Crude Transportation and one owned by SemGas) that KDHE believed, based on their historical use, may have had soil or groundwater contamination in excess of state standards. KDHE sought our agreement to undertake assessments of these sites to determine whether they are contaminated. We reached an agreement with KDHE on this matter and entered into a Consent Agreement and Final Order with KDHE to conduct environmental assessments on the sites and to pay KDHE’s costs associated with their oversight of this matter. We have conducted Phase II investigations at all sites. Four sites are in various stages of follow up investigation, remediation, monitoring, or closure under KDHE oversight. The environmental work at these sites is being completed under consent orders between Rose Rock Midstream Crude, L.P. and the KDHE. Two of the remaining sites have limited impacts to shallow soil and groundwater and the groundwater is currently being monitored on a semi-annual basis until such time that closure can be granted by the KDHE. No active remediation is anticipated for these two sites. The final two sites have required additional investigation and soil and groundwater remediation may be necessary to achieve KDHE closure. We do not anticipate any penalties or fines for these historical sites.
We received a Notice of Probable Violation and Civil Penalty dated March 29, 2016, from the U.S. Department of Transportation (the “Notice”) for alleged violations of pipeline operation and maintenance regulations related to a 2014 crude oil release that occurred on our Blackwell to See pipeline segment located in Oklahoma. This pipeline segment was idled in March 2016 when we initiated service on our new pipeline segment that transports Kansas crude volumes to our Cushing, Oklahoma terminal. The Notice proposes a penalty of $600,200. We responded to the Notice in April 2016 with information that we believe warrants reduction of the amount of the proposed penalty.
Other matters
We are party to various other claims, legal actions and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions and complaints, after consideration of amounts accrued, insurance coverage and other arrangements, will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our consolidated liabilities may change materially as circumstances develop.
Asset retirement obligations
We will be required to incur significant removal and restoration costs when we retire our natural gas gathering and processing facilities in Canada. At September 30, 2016,2017, we have an asset retirement obligation liability of $18.5$21.8 million, which is included within other noncurrent liabilities on our condensed consolidated balance sheets. This amount was
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
10. | COMMITMENTS AND CONTINGENCIES, Continued |
calculated using the $124.9$131.5 million cost we estimate we would incur to retire these facilities, discounted based on our risk-adjusted cost of borrowing and the estimated timing of remediation.
The calculation of the liability for an asset retirement obligation requires the use of significant estimates, including those related to the length of time before the assets will be retired, cost inflation over the assumed life of the assets, actual remediation activities to be required, and the rate at which such obligations should be discounted. Future changes in these estimates could result in material changes in the value of the recorded liability. In addition, future changes in laws or regulations could require us to record additional asset retirement obligations.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
10. | COMMITMENTS AND CONTINGENCIES, Continued
|
Our other segments may also be subject to removal and restoration costs upon retirement of their facilities. However, we are unable to predict when, or if, our pipelines, storage tanks and other facilities would become completely obsolete and require decommissioning. Accordingly, we have not recorded a liability or corresponding asset, as both the amount and timing of such potential future costs are indeterminable.
Purchase and sale commitments
We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We account for derivatives at fair value with the exception of commitments which have been designated as normal purchases and sales for which we do not record assets or liabilities related to these agreements until the product is purchased or sold. At September 30, 20162017, such commitments included the following (in thousands):
| | | Volume (Barrels) | | Value | Volume (Barrels) | | Value |
Fixed price purchases | 2,136 |
| | $ | 95,172 |
| 4,908 |
| | $ | 239,789 |
|
Fixed price sales | 3,042 |
| | $ | 140,294 |
| 6,312 |
| | $ | 308,997 |
|
Floating price purchases | 10,795 |
| | $ | 507,895 |
| 11,788 |
| | $ | 589,050 |
|
Floating price sales | 15,123 |
| | $ | 666,430 |
| 17,052 |
| | $ | 698,652 |
|
Certain of the commitments shown in the table above relate to agreements to purchase product from a counterparty and to sell a similar amount of product (in a different location) to the same counterparty. Many of the commitments shown in the table above are cancellable by either party, as long as notice is given within the time frame specified in the agreement (generally 30 to 120 days).
Our SemGas segment has a take-or-pay contractual obligation related to the fractionation of natural gas liquids through June 2023. The approximate amount of future obligation is as follows (in thousands):
| | For year ending: | | |
December 31, 2016 | $ | 2,975 |
| |
December 31, 2017 | 11,938 |
| $ | 3,156 |
|
December 31, 2018 | 10,060 |
| 10,552 |
|
December 31, 2019 | 9,121 |
| 9,567 |
|
December 31, 2020 | 8,451 |
| 8,864 |
|
December 31, 2021 | | 7,175 |
|
Thereafter | 15,941 |
| 9,544 |
|
Total expected future payments | $ | 58,486 |
| $ | 48,858 |
|
SemGas also enters into contracts under which we are responsible for marketing the majority of the gas and natural gas liquids produced by the counterparties to the agreements. The majority of SemGas’ revenues were generated from such contracts.
Our Crude Supply and Logistics segment has a take-or-pay obligation with our equity method investee, White Cliffs, for approximately 5,000 barrels per day of space on White Cliffs'Cliffs’ pipeline. The agreement became effective in October 2015 and has a term of 5five years. Annual payments to White Cliffs under the agreement are expected to be $9.4 million. In addition, we have a throughput commitment for 5,000 barrels per day on a third-party pipeline. The agreement, effective June 1, 2017, has a seven year term. The approximate amount of annual payments is as follows (in thousands):
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
10. | COMMITMENTS AND CONTINGENCIES, Continued |
|
| | | |
For year ending: | |
December 31, 2017 | $ | 12,100 |
|
December 31, 2018 | 12,337 |
|
December 31, 2019 | 12,593 |
|
December 31, 2020 | 12,848 |
|
December 31, 2021 | 13,103 |
|
Thereafter | 26,992 |
|
Total expected future payments | $ | 89,973 |
|
Capital expenditures
We expect to spend approximately $80 million and $155 million in 2017 and 2018, respectively, related to construction of the Wapiti Sour Gas Plant.
Unaudited condensed consolidated statement of changes in owners’ equity
The following table shows the changes in our consolidated owners’ equity accounts from December 31, 20152016 to September 30, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Owners’ Equity |
Balance at December 31, 2016 | $ | 659 |
| $ | 1,561,695 |
| $ | (6,558 | ) | $ | (35,917 | ) | $ | (73,914 | ) | $ | 1,445,965 |
|
Adoption of ASU 2016-09 | — |
| (1,650 | ) | — |
| 2,133 |
| — |
| 483 |
|
Net loss | — |
| — |
| — |
| (19,769 | ) | — |
| (19,769 | ) |
Other comprehensive income, net of income taxes | — |
| — |
| — |
| — |
| 24,215 |
| 24,215 |
|
Dividends paid | — |
| (94,714 | ) | — |
| — |
| — |
| (94,714 | ) |
Unvested dividend equivalent rights | — |
| (818 | ) | — |
| — |
| — |
| (818 | ) |
Non-cash equity compensation | — |
| 8,377 |
| — |
| — |
| — |
| 8,377 |
|
Issuance of common stock | 124 |
| 330,217 |
| — |
| — |
| — |
| 330,341 |
|
Issuance of common stock under compensation plans | 2 |
| 1,170 |
| — |
| — |
| — |
| 1,172 |
|
Repurchase of common stock | — |
| — |
| (1,361 | ) | — |
| — |
| (1,361 | ) |
Balance at September 30, 2017 | $ | 785 |
| $ | 1,804,277 |
| $ | (7,919 | ) | $ | (53,553 | ) | $ | (49,699 | ) | $ | 1,693,891 |
|
Accumulated other comprehensive loss
The following table presents the changes in the components of accumulated other comprehensive loss from December 31, 2016 to September 30, 2017 (in thousands):
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | |
| Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Owners’ Equity |
Balance at December 31, 2015 | $ | 439 |
| $ | 1,217,255 |
| $ | (5,593 | ) | $ | (38,012 | ) | $ | (58,562 | ) | $ | 80,829 |
| $ | 1,196,356 |
|
Net income (loss) | — |
| — |
| — |
| (14,624 | ) | — |
| 11,167 |
| (3,457 | ) |
Other comprehensive loss, net of income taxes | — |
| — |
| — |
| — |
| (4,569 | ) | — |
| (4,569 | ) |
Issuance of common shares | 86 |
| 228,460 |
| — |
| — |
| — |
| — |
| 228,546 |
|
Acquisition of Rose Rock's noncontrolling interest | 133 |
| 199,112 |
| — |
| — |
| — |
| (61,122 | ) | 138,123 |
|
Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (32,133 | ) | (32,133 | ) |
Dividends paid | — |
| (63,338 | ) | — |
| — |
| — |
| — |
| (63,338 | ) |
Unvested dividend equivalent rights | — |
| 626 |
| — |
| — |
| — |
| 66 |
| 692 |
|
Non-cash equity compensation | — |
| 5,627 |
| — |
| — |
| — |
| 1,193 |
| 6,820 |
|
Issuance of common stock under compensation plans | 1 |
| 1,236 |
| — |
| — |
| — |
| — |
| 1,237 |
|
Repurchase of common stock | — |
| — |
| (945 | ) | — |
| — |
| — |
| (945 | ) |
Balance at September 30, 2016 | $ | 659 |
| $ | 1,588,978 |
| $ | (6,538 | ) | $ | (52,636 | ) | $ | (63,131 | ) | $ | — |
| $ | 1,467,332 |
|
Accumulated other comprehensive loss
The following table presents the changes in the components of accumulated other comprehensive loss from December 31, 2015 to September 30, 2016 (in thousands):
|
| | | | | | | | | | | |
| Currency Translation | | Employee Benefit Plans | | Total |
Balance at December 31, 2015 | $ | (57,201 | ) | | $ | (1,361 | ) | | $ | (58,562 | ) |
Currency translation adjustment, net of income tax benefit of $2,712 | (4,449 | ) | | — |
| | (4,449 | ) |
Changes related to benefit plans, net of income tax benefit of $40 | — |
| | (120 | ) | | (120 | ) |
Balance at September 30, 2016 | $ | (61,650 | ) | | $ | (1,481 | ) | | $ | (63,131 | ) |
|
| | | | | | | | | | | |
| Currency Translation | | Employee Benefit Plans | | Total |
Balance at December 31, 2016 | $ | (71,425 | ) | | $ | (2,489 | ) | | $ | (73,914 | ) |
Currency translation adjustment, net of income tax expense of $14,735 | 24,170 |
| | — |
| | 24,170 |
|
Changes related to benefit plans, net of income tax expense of $17 | — |
| | 45 |
| | 45 |
|
Balance at September 30, 2017 | $ | (47,255 | ) | | $ | (2,444 | ) | | $ | (49,699 | ) |
There were no significant items reclassified out of accumulated other comprehensive loss to net income for the three months and nine months ended September 30, 20162017.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
Equity issuances
On June 22, 2016, we issued and sold 8,625,000 shares of our Class A common stock, valued at $27.00 per share, to the public for proceeds of $228.5 million, net of underwriting fees and other offering costs of $4.3 million. Proceeds were used to repay borrowings on our revolving credit facility and will be used for future capital expenditures and general corporate purposes.
On September 30, 2016, we completed the Merger with Rose Rock. We issued 13.1 million common shares in exchange for the outstanding common limited partner units of Rose Rock which we did not already own. In addition, we recorded a reduction to our deferred tax liabilities and offsetting increase to additional paid-in capital of $144.0 million associated with the transaction. This non-cash adjustment represents the deferred tax impact of the difference between the book value of the noncontrolling interest acquired and the tax basis which is stepped-up to the fair market value of the consideration which includes the common shares issued and the assumption of liabilities associated with the noncontrolling interest. See Note 2 for further information on the Merger.
During the nine months ended September 30, 2016, 46,8362017, 39,545 shares under the Employee Stock Purchase Plan were issued and 161,518132,031 shares related to our equity based compensation awards vested. See Note 2 for shares issued as consideration to acquire HFOTCO.
Equity-based compensation
At September 30, 20162017, there were 919,0691,117,138 unvested shares that have been granted under our director and employee compensation programs. The par value of these shares is not reflected in common stock on the condensed consolidated balance sheets, as these shares have not yet vested. For certain of the awards, the number of shares that will vest is contingent upon our achievement of certain specified targets. If we meet the specified maximum targets, approximately 405,000521,000 additional shares could vest.
The holders of certain restricted stock awards are entitled to equivalent dividends (“UDs”) to be received upon vesting of the related restricted stock awards and will be settled in cash. At September 30, 2016,2017, the value of the UDs to be settled in cash related to unvested restricted stock awards was approximately $428 thousand.$1.7 million.
During the nine months ended September 30, 2016,2017, we granted 678,773377,766 restricted stock awards with a weighted average grant date fair value of $18.20$35.22 per award. Included in the awards granted for the nine months ended September 30, 2016, is 128,585 restricted stock awards granted in exchange for Rose Rock equity based awards which were canceled as part of the Merger. Incremental compensation expense was not significant. Accrued unvested unit distribution rights associated with unvested Rose Rock restricted unit awards carried over the the restricted stock awards issued in the exchange.
Dividends
The following table sets forth the quarterly dividends per share declared and/or paid to shareholders for the periods indicated:
| | Quarter Ending | | Dividend Per Share | | Date of Record | | Date Paid | | Dividend Per Share | | Date of Record | | Date Paid |
March 31, 2015 | | $ | 0.34 |
| | March 9, 2015 | | March 20, 2015 | |
June 30, 2015 | | $ | 0.38 |
| | May 18, 2015 | | May 29, 2015 | |
September 30, 2015 | | $ | 0.42 |
| | August 17, 2015 | | August 25, 2015 | |
December 31, 2015 | | $ | 0.45 |
| | November 16, 2015 | | November 24, 2015 | |
March 31, 2016 | | $ | 0.45 |
| | March 7, 2016 | | March 17, 2016 | | $ | 0.45 |
| | March 7, 2016 | | March 17, 2016 |
June 30, 2016 | | $ | 0.45 |
| | May 16, 2016 | | May 26, 2016 | | $ | 0.45 |
| | May 16, 2016 | | May 26, 2016 |
September 30, 2016 | | $ | 0.45 |
| | August 15, 2016 | | August 25, 2016 | | $ | 0.45 |
| | August 15, 2016 | | August 25, 2016 |
December 31, 2016 | | $ | 0.45 |
| | November 18, 2016 | | November 28, 2016 | | $ | 0.45 |
| | November 18, 2016 | | November 28, 2016 |
| | | | |
March 31, 2017 | | | $ | 0.45 |
| | March 7, 2017 | | March 17, 2017 |
June 30, 2017 | | | $ | 0.45 |
| | May 15, 2017 | | May 26, 2017 |
September 30, 2017 | | | $ | 0.45 |
| | August 18, 2017 | | August 28, 2017 |
December 31, 2107 | | | $ | 0.45 |
| | November 20, 2017 | | December 1, 2017 |
Earnings per share is calculated based on income from continuing and discontinued operations, less any income attributable to noncontrolling interests. Income attributable to noncontrolling interests representsrepresented third-party limited partner unitholders’ interests in the earnings of our consolidated subsidiary, Rose Rock, prior to completion of our purchase of the noncontrolling interests in the third quarter of 2016 (the “Merger”). Rose Rock allocated net income to
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
12. | EARNINGS PER SHARE, Continued |
partner unitholders' interests in the earnings of our consolidated subsidiary, Rose Rock, prior to completion of the Merger. Rose Rock allocated net income to its limited partners based on the distributions pertaining to the current period'speriod’s available cash as defined by Rose Rock'sRock’s partnership agreement. After adjusting for the appropriate period'speriod’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, were allocated to Rose Rock'sRock’s general partner, limited partners and participating securities in accordance with the contractual terms of Rose Rock'sRock’s partnership agreement and as further prescribed under the two-class method. Incentive distribution rights did not participate in undistributed earnings. Subsequent to the Merger, there willis no longer be a noncontrolling interest.
Basic earnings per share is calculated based on the weighted average shares outstanding during the period. Diluted earnings per share includesinclude the dilutive effect of unvested equity compensation awards.
The following summarizes the calculation of basic earnings per share for the three months and nine months ended September 30, 20162017 and 20152016 (in thousands, except per share amounts):
| | | Three Months Ended September 30, 2016 | | Three Months Ended September 30, 2015 | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net | Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net |
Income (loss) | $ | (7,140 | ) | | $ | — |
| | $ | (7,140 | ) | | $ | 9,581 |
| | $ | (1 | ) | | $ | 9,580 |
| $ | (19,103 | ) | | $ | — |
| | $ | (19,103 | ) | | $ | (4,635 | ) | | $ | — |
| | $ | (4,635 | ) |
less: Income attributable to noncontrolling interests | 225 |
| | — |
| | 225 |
| | 4,707 |
| | — |
| | 4,707 |
| — |
| | — |
| | — |
| | 225 |
| | — |
| | 225 |
|
Income (loss) attributable to SemGroup | $ | (7,365 | ) | | $ | — |
| | $ | (7,365 | ) | | $ | 4,874 |
| | $ | (1 | ) | | $ | 4,873 |
| |
Net loss attributable to SemGroup | | $ | (19,103 | ) | | $ | — |
| | $ | (19,103 | ) | | $ | (4,860 | ) | | $ | — |
| | $ | (4,860 | ) |
Weighted average common stock outstanding | 52,642 |
| | 52,642 |
| | 52,642 |
| | 43,808 |
| | 43,808 |
| | 43,808 |
| 75,974 |
| | 75,974 |
| | 75,974 |
| | 52,642 |
| | 52,642 |
| | 52,642 |
|
Basic earnings (loss) per share | $ | (0.14 | ) | | $ | — |
| | $ | (0.14 | ) | | $ | 0.11 |
| | $ | — |
| | $ | 0.11 |
| |
Basic loss per share | | $ | (0.25 | ) | | $ | — |
| | $ | (0.25 | ) | | $ | (0.09 | ) | | $ | — |
| | $ | (0.09 | ) |
| | | Nine Months Ended September 30, 2016 | | Nine Months Ended September 30, 2015 | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net | Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net |
Income (loss) | $ | (3,456 | ) | | $ | (1 | ) | | $ | (3,457 | ) | | $ | 43,792 |
| | $ | (3 | ) | | $ | 43,789 |
| $ | (19,769 | ) | | $ | — |
| | $ | (19,769 | ) | | $ | 1,260 |
| | $ | (1 | ) | | $ | 1,259 |
|
less: Income attributable to noncontrolling interests | 11,167 |
| | — |
| | 11,167 |
| | 14,153 |
| | — |
| | 14,153 |
| — |
| | — |
| | — |
| | 11,167 |
| | — |
| | 11,167 |
|
Income (loss) attributable to SemGroup | $ | (14,623 | ) | | $ | (1 | ) | | $ | (14,624 | ) | | $ | 29,639 |
| | $ | (3 | ) | | $ | 29,636 |
| |
Net loss attributable to SemGroup | | $ | (19,769 | ) | | $ | — |
| | $ | (19,769 | ) | | $ | (9,907 | ) | | $ | (1 | ) | | $ | (9,908 | ) |
Weighted average common stock outstanding | 47,269 |
| | 47,269 |
| | 47,269 |
| | 43,775 |
| | 43,775 |
| | 43,775 |
| 69,149 |
| | 69,149 |
| | 69,149 |
| | 47,269 |
| | 47,269 |
| | 47,269 |
|
Basic earnings (loss) per share | $ | (0.31 | ) | | $ | — |
| | $ | (0.31 | ) | | $ | 0.68 |
| | $ | — |
| | $ | 0.68 |
| |
Basic loss per share | | $ | (0.29 | ) | | $ | — |
| | $ | (0.29 | ) | | $ | (0.21 | ) | | $ | — |
| | $ | (0.21 | ) |
The following summarizes the calculation of diluted earnings per share for the three months and nine months ended September 30, 20162017 and 20152016 (in thousands, except per share amounts):
| | | Three Months Ended September 30, 2016 | | Three Months Ended September 30, 2015 | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net | Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net |
Income (loss) | $ | (7,140 | ) | | $ | — |
| | $ | (7,140 | ) | | $ | 9,581 |
| | $ | (1 | ) | | $ | 9,580 |
| $ | (19,103 | ) | | $ | — |
| | $ | (19,103 | ) | | $ | (4,635 | ) | | $ | — |
| | $ | (4,635 | ) |
less: Income attributable to noncontrolling interests | 225 |
| | — |
| | 225 |
| | 4,707 |
| | — |
| | 4,707 |
| — |
| | — |
| | — |
| | 225 |
| | — |
| | 225 |
|
Income (loss) attributable to SemGroup | $ | (7,365 | ) | | $ | — |
| | $ | (7,365 | ) | | $ | 4,874 |
| | $ | (1 | ) | | $ | 4,873 |
| |
Net loss attributable to SemGroup | | $ | (19,103 | ) | | $ | — |
| | $ | (19,103 | ) | | $ | (4,860 | ) | | $ | — |
| | $ | (4,860 | ) |
Weighted average common stock outstanding | 52,642 |
| | 52,642 |
| | 52,642 |
| | 43,808 |
| | 43,808 |
| | 43,808 |
| 75,974 |
| | 75,974 |
| | 75,974 |
| | 52,642 |
| | 52,642 |
| | 52,642 |
|
Effect of dilutive securities | — |
| | — |
| | — |
| | 163 |
| | 163 |
| | 163 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Diluted weighted average common stock outstanding | 52,642 |
| | 52,642 |
| | 52,642 |
| | 43,971 |
| | 43,971 |
| | 43,971 |
| 75,974 |
| | 75,974 |
| | 75,974 |
| | 52,642 |
| | 52,642 |
| | 52,642 |
|
Diluted earnings (loss) per share | $ | (0.14 | ) | | $ | — |
| | $ | (0.14 | ) | | $ | 0.11 |
| | $ | — |
| | $ | 0.11 |
| |
Diluted loss per share | | $ | (0.25 | ) | | $ | — |
| | $ | (0.25 | ) | | $ | (0.09 | ) | | $ | — |
| | $ | (0.09 | ) |
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
12. | EARNINGS PER SHARE, Continued |
| | | Nine Months Ended September 30, 2016 | | Nine Months Ended September 30, 2015 | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net | Continuing Operations | | Discontinued Operations | | Net | | Continuing Operations | | Discontinued Operations | | Net |
Income (loss) | $ | (3,456 | ) | | $ | (1 | ) | | $ | (3,457 | ) | | $ | 43,792 |
| | $ | (3 | ) | | $ | 43,789 |
| $ | (19,769 | ) | | $ | — |
| | $ | (19,769 | ) | | $ | 1,260 |
| | $ | (1 | ) | | $ | 1,259 |
|
less: Income attributable to noncontrolling interests | 11,167 |
| | — |
| | 11,167 |
| | 14,153 |
| | — |
| | 14,153 |
| — |
| | — |
| | — |
| | 11,167 |
| | — |
| | 11,167 |
|
Income (loss) attributable to SemGroup | $ | (14,623 | ) | | $ | (1 | ) | | $ | (14,624 | ) | | $ | 29,639 |
| | $ | (3 | ) | | $ | 29,636 |
| |
Net loss attributable to SemGroup | | $ | (19,769 | ) | | $ | — |
| | $ | (19,769 | ) | | $ | (9,907 | ) | | $ | (1 | ) | | $ | (9,908 | ) |
Weighted average common stock outstanding | 47,269 |
| | 47,269 |
| | 47,269 |
| | 43,775 |
| | 43,775 |
| | 43,775 |
| 69,149 |
| | 69,149 |
| | 69,149 |
| | 47,269 |
| | 47,269 |
| | 47,269 |
|
Effect of dilutive securities | — |
| | — |
| | — |
| | 194 |
| | 194 |
| | 194 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Diluted weighted average common stock outstanding | 47,269 |
| | 47,269 |
| | 47,269 |
| | 43,969 |
| | 43,969 |
| | 43,969 |
| 69,149 |
| | 69,149 |
| | 69,149 |
| | 47,269 |
| | 47,269 |
| | 47,269 |
|
Diluted earnings (loss) per share | $ | (0.31 | ) | | $ | — |
| | $ | (0.31 | ) | | $ | 0.67 |
| | $ | — |
| | $ | 0.67 |
| |
Diluted loss per share | | $ | (0.29 | ) | | $ | — |
| | $ | (0.29 | ) | | $ | (0.21 | ) | | $ | — |
| | $ | (0.21 | ) |
For the three and nine months ended September 30, 2017 and 2016, we experienced a net losslosses attributable to SemGroup, as such theSemGroup. The unvested equity compensation awards would have been antidilutive and, therefore, were not included in the computation of diluted earnings per share.
| |
13. | SUPPLEMENTAL CASH FLOW INFORMATION |
The following table summarizes the changes in the components of operating assets and liabilities, net of the effect of acquisitions, shown on our condensed consolidated statements of cash flows (in thousands):
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2016 | | 2015 | 2017 | | 2016 |
Decrease (increase) in restricted cash | $ | 32 |
| | $ | 6,798 |
| $ | 28 |
| | $ | 32 |
|
Decrease (increase) in accounts receivable | (4,245 | ) | | 8,179 |
| (36,203 | ) | | (4,245 | ) |
Decrease (increase) in receivable from affiliates | 1,372 |
| | 8,986 |
| 19,924 |
| | 1,372 |
|
Decrease (increase) in inventories | (14,397 | ) | | (23,256 | ) | (28,297 | ) | | (14,397 | ) |
Decrease (increase) in derivatives and margin deposits | (6,011 | ) | | 3,159 |
| (500 | ) | | 85 |
|
Decrease (increase) in other current assets | 2,402 |
| | (1,807 | ) | (2,909 | ) | | 2,402 |
|
Decrease (increase) in other assets | 63 |
| | 1,818 |
| (17,723 | ) | | 63 |
|
Increase (decrease) in accounts payable and accrued liabilities | 22,138 |
| | 1,259 |
| 57,073 |
| | 22,138 |
|
Increase (decrease) in payable to affiliates | 758 |
| | (2,310 | ) | (21,631 | ) | | 758 |
|
Increase (decrease) in payables to pre-petition creditors | — |
| | (3,836 | ) | |
Increase (decrease) in other noncurrent liabilities | (1,311 | ) | | (1,336 | ) | 7,370 |
| | (1,311 | ) |
| $ | 801 |
| | $ | (2,346 | ) | $ | (22,868 | ) | | $ | 6,897 |
|
Other supplemental disclosures
In connection with our acquisition of the noncontrolling interest in Rose Rock, as discussed in Note 2, we recorded a reduction to our deferred tax liabilities and offsetting increase to additional paid-in capital of $144.0 million associated with the transaction. This non-cash adjustment represents the deferred tax impact of the difference between the book value of the noncontrolling interest acquired and the tax basis which is stepped-up to the fair market value of the consideration which included the common shares issued and the assumption of liabilities associated with the noncontrolling interest.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
13. | SUPPLEMENTAL CASH FLOW INFORMATION, Continued
|
We paid cash interest of $50.1$58.6 million and $40.550.1 million for the nine months ended September 30, 20162017 and 20152016, respectively.
We received cash refunds for income taxes, net of payments of $0.5 million and paid cash income taxes, net of refunds, of $6.3$3.1 million for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, cash refunds for income taxes exceeded payments by and $0.5 million2015, respectively..
We incurred liabilities for construction work in processcapital expenditures that had not been paid of $16.8$25.0 million and $7.316.8 million as of September 30, 20162017 and 20152016, respectively. Such amounts are not included in capital expenditures on the consolidated statements of cash flows.
We financed prepayments of insurance premiums of $4.0$6.1 million and $4.6$4.0 million for the nine months ended September 30, 2017 and 2016, and 2015, respectively.
See Note 2 for information related to non-cash activity related to the HFOTCO acquisition.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
14. | RELATED PARTY TRANSACTIONS |
NGL Energy
As described in Note 3, we own a general partner interest in NGL Energy which is accounted for as an equity method investment.
During the three months and nine months ended September 30, 2016 and 2015, we generated the following transactions with NGL Energy and its subsidiaries (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Revenues | $ | 12,291 |
| | $ | 19,540 |
| | $ | 29,123 |
| | $ | 139,456 |
|
Purchases | $ | 13,849 |
| | $ | 15,994 |
| | $ | 27,045 |
| | $ | 126,255 |
|
Reimbursements from NGL Energy for services | $ | — |
| | $ | — |
| | $ | — |
| | $ | 56 |
|
Transactions with NGL Energy and its subsidiaries primarily relate to crude oil marketing, leased storage and transportation services, of crude oil, including buy/sell transactions. Transactions with White Cliffs primarily relate to leased storage, purchases and sales of crude oil, transportation fees for shipments on the White Cliffs Pipeline, and management fees. Transactions with Glass Mountain primarily relate to transportation fees for shipments on the Glass Mountain Pipeline, fees for support and administrative services associated with pipeline operations and purchases of crude oil.
In accordance with ASC 845-10-15, thesethe buy/sell transactions with NGL Energy and White Cliffs were reported as revenue on a net basis in our condensed consolidated statements of operations and comprehensive income (loss) because the purchases of inventory and subsequent sales of the inventory were with the same counterparty.counterparty and entered into in contemplation of one another.
White Cliffs
During the three months ended September 30, 2016 and 2015, we generated storage revenue from White Cliffs of approximately $1.1 million and $1.1 million, respectively. During the nine months ended September 30, 2016 and 2015, we generated storage revenue from White Cliffs of approximately $3.3 million and $3.2 million, respectively. We incurred $2.7 million and $0.8 million of cost for the three months ended September 30, 2016 and 2015, respectively, related to transportation fees for shipments on White Cliffs. We incurred $7.9 million and $2.6 million of cost for the nine months ended September 30, 2016 and 2015, respectively, related to transportation fees for shipments on White Cliffs. We received $0.1 million and $0.1 million in management fees from White Cliffs for the three months ended September 30, 2016 and 2015, respectively. We received $0.3 million and $0.3 million in management fees from White Cliffs for the nine months ended September 30, 2016 and 2015, respectively. During the three months and nine months ended September 30, 2017 and 2016, we purchased $12.1 million and $15.6 million, respectively, of crude oil from White Cliffs. There were no product purchases from White Cliffs ingenerated the prior year. During the three months and nine months ended September 30, 2016, we sold $11.9 million and $11.9 million, respectively, of crude oil to White Cliffs. There were no product sales to White Cliffs in the prior year.
Glass Mountain
We incurred $1.9 million and $0.5 million of cost for the three months ended September 30, 2016 and 2015, respectively,following transactions with related to transportation fees for shipments on Glass Mountain's pipeline. We incurred $5.6 million and $1.7 million of cost for the nine months ended September 30, 2016 and 2015, respectively, related to transportation fees for shipments on the Glass Mountain Pipeline. We received $0.2 million and $0.2 million in fees from Glass Mountain for the three
parties (in thousands):
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
14. RELATED PARTY TRANSACTIONS, Continued
months ended September 30, 2016 and 2015, respectively, related to support and administrative services associated with pipeline operations. We received $0.6 million and $0.6 million in fees from Glass Mountain for the nine months ended September 30, 2016 and 2015, respectively, related to support and administrative services associated with pipeline operations. We made purchases of crude oil of $0.6 million during the three months ended September 30, 2015. There were no purchases of crude oil from Glass Mountain during the three months ended September 30, 2016. We made purchases of crude oil of $0.4 million and $1.5 million from Glass Mountain during the nine months ended September 30, 2016 and 2015, respectively.
Legal services
The law firm of Conner & Winters, LLP, of which Mark D. Berman is a partner, performs legal services for us. Mr. Berman is the spouse of Candice L. Cheeseman, Vice President and General Counsel. Mr. Berman does not perform any legal services for us. SemGroup paid $0.3 million and $0.3 million in legal fees and related expenses to this law firm during the three months ended September 30, 2016 and 2015, respectively (no fees were paid by White Cliffs during the three months ended September 30, 2016 and 2015). SemGroup paid $0.7 million and $1.1 million in legal fees and related expenses to this law firm during the nine months ended September 30, 2016 and 2015, respectively (of which $1.6 thousand and $3.4 thousand were paid by White Cliffs during the nine months ended September 30, 2016 and 2015, respectively). |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
NGL Energy | | | | | | | |
Revenues | $ | 15,652 |
| | $ | 12,291 |
| | $ | 40,368 |
| | $ | 29,123 |
|
Purchases | $ | 12,414 |
| | $ | 13,849 |
| | $ | 29,562 |
| | $ | 27,045 |
|
| | | | | | | |
White Cliffs | | | | | | | |
Crude oil revenues | $ | — |
| | $ | 220 |
| | $ | 436 |
| | $ | 220 |
|
Storage revenues | $ | 1,087 |
| | $ | 1,088 |
| | $ | 3,263 |
| | $ | 3,264 |
|
Transportation fees | $ | 3,111 |
| | $ | 2,704 |
| | $ | 8,152 |
| | $ | 7,929 |
|
Management fees | $ | 133 |
| | $ | 127 |
| | $ | 387 |
| | $ | 369 |
|
Crude oil purchases | $ | — |
| | $ | 375 |
| | $ | 8,616 |
| | $ | 3,920 |
|
| | | | | | | |
Glass Mountain | | | | | | | |
Transportation fees | $ | 1,765 |
| | $ | 1,886 |
| | $ | 6,251 |
| | $ | 5,625 |
|
Management fees | $ | 204 |
| | $ | 198 |
| | $ | 612 |
| | $ | 594 |
|
Crude oil purchases | $ | — |
| | $ | — |
| | $ | 3,911 |
| | $ | 385 |
|
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS |
Our senior unsecured notes are guaranteed by certain of our subsidiaries as follows: Rose Rock Finance Corporation, Rose Rock Midstream Operating, LLC, Rose Rock Midstream Energy GP, LLC, Rose Rock Midstream Crude, L.P., Rose Rock Midstream Field Services, LLC, SemGas, L.P., SemMaterials, L.P., SemGroup Europe Holding, L.L.C., SemOperating G.P., L.L.C., SemMexico, L.L.C., SemDevelopment, L.L.C., Mid-America Midstream Gas Services, L.L.C., SemCrude Pipeline, L.L.C., Wattenberg Holding, LLC and Glass Mountain Holding, LLC (collectively, the "Guarantors"“Guarantors”).
Each of the Guarantors is 100% owned by SemGroup Corporation (the "Parent"“Parent”). Such guarantees of the SemGroup Notes are full and unconditional and constitute the joint and several obligations of the Guarantors. There are no significant restrictions upon the ability of the Parent or any of the Guarantors to obtain funds from its respective subsidiaries by dividend or loan. Distributions of cash flows from HFOTCO, a non-guarantor, are restricted by the existing indebtedness of HFOTCO. None of the assets of the Guarantors represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act.
Subsequent to the Merger as described in Note 2,12, SemGroup assumed the obligations of Rose Rock under Rose Rock'sRock’s senior unsecured notes. Supplemental indentures were entered into with respect to the previously existing SemGroup senior unsecured notes and the senior unsecured notes assumed from Rose Rock to include the Guarantors as listed
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
above to the extent the entity was not already a Guarantor. Prior period comparative information has been recast to reflect the addition of Rose Rock subsidiaries as Guarantors.
Unaudited condensed consolidating financial statements for the Parent, the Guarantors and non-guarantors as of September 30, 20162017 and December 31, 2015,2016, and for the three months and nine months ended September 30, 20162017 and 2015,2016, are presented on an equity method basis in the tables below (in thousands).
Intercompany receivable and payable balances, including notes receivable and payable, are capital transactions primarily to facilitate the capital needs of our subsidiaries. As such, subsidiary intercompany balances have been reported as a reduction to equity on the condensed consolidating Guarantor balance sheets. The Parent'sParent’s net intercompany balance, including notenotes receivable, and investments in subsidiaries have been reported in equity method investments on the condensed consolidating Guarantor balance sheets. Intercompany transactions, such as daily cash management activities, have been reported as financing activities within the condensed consolidating Guarantor statements of cash flows. The Parent's investing activities with subsidiaries, such as the drop down of Wattenberg Holding, LLC and Glass Mountain to Rose Rock in the first quarter of 2015, have been reflected as cash flows from investing activities. Quarterly cash distributions from Rose Rock representing a return on capital have been included in the Parent's cash flows from operations. These balances are eliminated through consolidating adjustments below.
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued
|
Condensed Consolidating Guarantor Balance Sheets
| | | | September 30, 2016 | | September 30, 2017 |
| | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated | | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 98,435 |
| | $ | — |
| | $ | 67,345 |
| | $ | (2,032 | ) | | $ | 163,748 |
| | $ | 24,597 |
| | $ | — |
| | $ | 47,411 |
| | $ | (3,995 | ) | | $ | 68,013 |
|
Accounts receivable, net | | 691 |
| | 277,944 |
| | 56,621 |
| | — |
| | 335,256 |
| | 4,246 |
| | 367,661 |
| | 102,888 |
| | — |
| | 474,795 |
|
Receivable from affiliates | | 1,947 |
| | 4,361 |
| | 2,968 |
| | (4,734 | ) | | 4,542 |
| | 40 |
| | 5,211 |
| | 280 |
| | — |
| | 5,531 |
|
Inventories | | — |
| | 76,935 |
| | 6,538 |
| | — |
| | 83,473 |
| | — |
| | 118,614 |
| | 10,019 |
| | — |
| | 128,633 |
|
Other current assets | | 8,944 |
| | 13,668 |
| | 2,853 |
| | — |
| | 25,465 |
| | 5,256 |
| | 8,853 |
| | 7,813 |
| | — |
| | 21,922 |
|
Total current assets | | 110,017 |
| | 372,908 |
|
| 136,325 |
|
| (6,766 | ) |
| 612,484 |
| | 34,139 |
| | 500,339 |
|
| 168,411 |
|
| (3,995 | ) |
| 698,894 |
|
Property, plant and equipment, net | | 5,066 |
| | 969,311 |
| | 721,633 |
| | — |
| | 1,696,010 |
| | 8,193 |
| | 998,305 |
| | 2,387,537 |
| | — |
| | 3,394,035 |
|
Equity method investments | | 2,368,606 |
| | 853,042 |
| | — |
| | (2,783,454 | ) | | 438,194 |
| | 3,289,043 |
| | 1,119,061 |
| | — |
| | (3,974,299 | ) | | 433,805 |
|
Goodwill | | — |
| | 26,628 |
| | 7,847 |
| | — |
| | 34,475 |
| | — |
| | — |
| | 262,059 |
| | — |
| | 262,059 |
|
Other intangible assets, net | | 16 |
| | 152,189 |
| | 1,591 |
| | — |
| | 153,796 |
| | 11 |
| | 129,833 |
| | 283,886 |
| | — |
| | 413,730 |
|
Other noncurrent assets | | 48,408 |
| | 1,883 |
| | 1,282 |
| | — |
| | 51,573 |
| | 68,454 |
| | 2,666 |
| | 91,282 |
| | — |
| | 162,402 |
|
Total assets | | $ | 2,532,113 |
| | $ | 2,375,961 |
|
| $ | 868,678 |
|
| $ | (2,790,220 | ) |
| $ | 2,986,532 |
| | $ | 3,399,840 |
| | $ | 2,750,204 |
|
| $ | 3,193,175 |
|
| $ | (3,978,294 | ) |
| $ | 5,364,925 |
|
LIABILITIES AND OWNERS’ EQUITY | | | | | | | | | | | | | |
|
| | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 215 |
| | $ | 270,095 |
| | $ | 23,857 |
| | $ | — |
| | $ | 294,167 |
| | $ | 680 |
| | $ | 388,927 |
| | $ | 45,985 |
| | $ | — |
| | $ | 435,592 |
|
Payable to affiliates | | 199 |
| | 10,326 |
| | — |
| | (4,734 | ) | | 5,791 |
| | — |
| | 4,877 |
| | — |
| | — |
| | 4,877 |
|
Accrued liabilities | | 29,566 |
| | 23,758 |
| | 45,018 |
| | 5 |
| | 98,347 |
| | 26,898 |
| | 30,852 |
| | 48,295 |
| | — |
| | 106,045 |
|
Other current liabilities | | 783 |
| | 9,600 |
| | 7,079 |
| | — |
| | 17,462 |
| | 1,707 |
| | 5,918 |
| | 11,376 |
| | — |
| | 19,001 |
|
Total current liabilities | | 30,763 |
| | 313,779 |
| | 75,954 |
| | (4,729 | ) | | 415,767 |
| | 29,285 |
| | 430,574 |
| | 105,656 |
| | — |
| | 565,515 |
|
Long-term debt, net | | 1,030,108 |
| | 6,463 |
| | 16,500 |
| | (22,931 | ) | | 1,030,140 |
| | 1,674,663 |
| | 6,644 |
| | 1,351,263 |
| | (23,141 | ) | | 3,009,429 |
|
Deferred income taxes | | 1,670 |
| | — |
| | 47,691 |
| | — |
| | 49,361 |
| | — |
| | — |
| | 57,476 |
| | — |
| | 57,476 |
|
Other noncurrent liabilities | | 2,240 |
| | — |
| | 21,692 |
| | — |
| | 23,932 |
| | 2,001 |
| | — |
| | 36,613 |
| | — |
| | 38,614 |
|
Commitments and contingencies | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Owners’ equity excluding noncontrolling interests in consolidated subsidiaries | | 1,467,332 |
| | 2,055,719 |
| | 706,841 |
| | (2,762,560 | ) | | 1,467,332 |
| |
Total owners’ equity | | 1,467,332 |
| | 2,055,719 |
|
| 706,841 |
|
| (2,762,560 | ) |
| 1,467,332 |
| | 1,693,891 |
| | 2,312,986 |
|
| 1,642,167 |
|
| (3,955,153 | ) |
| 1,693,891 |
|
Total liabilities and owners’ equity | | $ | 2,532,113 |
|
| $ | 2,375,961 |
| | $ | 868,678 |
| | $ | (2,790,220 | ) | | $ | 2,986,532 |
| | $ | 3,399,840 |
|
| $ | 2,750,204 |
| | $ | 3,193,175 |
| | $ | (3,978,294 | ) | | $ | 5,364,925 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
| | | | December 31, 2015 | | December 31, 2016 |
| | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated | | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 4,559 |
| | $ | 9,058 |
| | $ | 46,043 |
| | $ | (1,564 | ) | | $ | 58,096 |
| | $ | 19,002 |
| | $ | — |
| | $ | 59,796 |
| | $ | (4,582 | ) | | $ | 74,216 |
|
Restricted cash | | — |
| | — |
| | 32 |
| | — |
| | 32 |
| |
Accounts receivable, net | | 640 |
| | 260,621 |
| | 65,452 |
| | — |
| | 326,713 |
| | — |
| | 361,160 |
| | 57,179 |
| | — |
| | 418,339 |
|
Receivable from affiliates | | 1,616 |
| | 7,063 |
| | 5,430 |
| | (8,195 | ) | | 5,914 |
| | 27 |
| | 25,244 |
| | 184 |
| | — |
| | 25,455 |
|
Inventories | | — |
| | 59,073 |
| | 11,166 |
| | — |
| | 70,239 |
| | — |
| | 89,638 |
| | 9,596 |
| | — |
| | 99,234 |
|
Other current assets | | 8,477 |
| | 5,243 |
| | 5,667 |
| | — |
| | 19,387 |
| | 8,986 |
| | 5,760 |
| | 3,887 |
| | (3 | ) | | 18,630 |
|
Total current assets | | 15,292 |
| | 341,058 |
|
| 133,790 |
|
| (9,759 | ) |
| 480,381 |
| | 28,015 |
| | 481,802 |
|
| 130,642 |
|
| (4,585 | ) |
| 635,874 |
|
Property, plant and equipment, net | | 4,335 |
| | 978,224 |
| | 584,262 |
| | — |
| | 1,566,821 |
| | 5,621 |
| | 970,079 |
| | 786,372 |
| | — |
| | 1,762,072 |
|
Equity method investments | | 1,546,853 |
| | 770,742 |
| | — |
| | (1,766,517 | ) | | 551,078 |
| | 2,454,118 |
| | 940,696 |
| | — |
| | (2,960,525 | ) | | 434,289 |
|
Goodwill | | — |
| | 39,680 |
| | 8,352 |
| | — |
| | 48,032 |
| | — |
| | 26,628 |
| | 7,602 |
| | — |
| | 34,230 |
|
Other intangible assets, net | | 20 |
| | 159,750 |
| | 2,453 |
| | — |
| | 162,223 |
| | 15 |
| | 149,669 |
| | 1,294 |
| | — |
| | 150,978 |
|
Other noncurrent assets | | 39,358 |
| | 4,775 |
| | 1,241 |
| | — |
| | 45,374 |
| | 54,155 |
| | 2,080 |
| | 1,294 |
| | — |
| | 57,529 |
|
Total assets | | $ | 1,605,858 |
| | $ | 2,294,229 |
|
| $ | 730,098 |
|
| $ | (1,776,276 | ) |
| $ | 2,853,909 |
| | $ | 2,541,924 |
| | $ | 2,570,954 |
|
| $ | 927,204 |
|
| $ | (2,965,110 | ) |
| $ | 3,074,972 |
|
LIABILITIES AND OWNERS’ EQUITY | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 734 |
| | $ | 254,785 |
| | $ | 18,147 |
| | $ | — |
| | $ | 273,666 |
| | $ | 674 |
| | $ | 348,297 |
| | $ | 18,336 |
| | $ | — |
| | $ | 367,307 |
|
Payable to affiliates | | 78 |
| | 13,151 |
| | — |
| | (8,196 | ) | | 5,033 |
| | — |
| | 26,508 |
| | — |
| | — |
| | 26,508 |
|
Accrued liabilities | | 5,551 |
| | 33,199 |
| | 46,293 |
| | 4 |
| | 85,047 |
| | 25,078 |
| | 23,423 |
| | 32,603 |
| | — |
| | 81,104 |
|
Other current liabilities | | 569 |
| | 4,246 |
| | 8,466 |
| | — |
| | 13,281 |
| | 889 |
| | 5,108 |
| | 7,439 |
| | — |
| | 13,436 |
|
Total current liabilities | | 6,932 |
| | 305,381 |
| | 72,906 |
| | (8,192 | ) | | 377,027 |
| | 26,641 |
| | 403,336 |
| | 58,378 |
| | — |
| | 488,355 |
|
Long-term debt, net | | 325,460 |
| | 739,696 |
| | 16,500 |
| | (23,840 | ) | | 1,057,816 |
| | 1,050,893 |
| | 6,142 |
| | 16,500 |
| | (22,617 | ) | | 1,050,918 |
|
Deferred income taxes | | 155,411 |
| | — |
| | 45,542 |
| | — |
| | 200,953 |
| | 16,119 |
| | — |
| | 48,382 |
| | — |
| | 64,501 |
|
Other noncurrent liabilities | | 2,528 |
| | — |
| | 19,229 |
| | — |
| | 21,757 |
| | 2,306 |
| | — |
| | 22,927 |
| | — |
| | 25,233 |
|
Commitments and contingencies | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Owners’ equity excluding noncontrolling interests in consolidated subsidiaries | | 1,115,527 |
| | 1,168,323 |
| | 575,921 |
| | (1,744,244 | ) | | 1,115,527 |
| |
Noncontrolling interests in consolidated subsidiaries | | — |
| | 80,829 |
| | — |
| | — |
| | 80,829 |
| |
Total owners’ equity | | 1,115,527 |
| | 1,249,152 |
|
| 575,921 |
|
| (1,744,244 | ) |
| 1,196,356 |
| | 1,445,965 |
| | 2,161,476 |
|
| 781,017 |
|
| (2,942,493 | ) |
| 1,445,965 |
|
Total liabilities and owners’ equity | | $ | 1,605,858 |
| | $ | 2,294,229 |
|
| $ | 730,098 |
|
| $ | (1,776,276 | ) |
| $ | 2,853,909 |
| | $ | 2,541,924 |
| | $ | 2,570,954 |
|
| $ | 927,204 |
|
| $ | (2,965,110 | ) |
| $ | 3,074,972 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
Condensed Consolidating Guarantor Statements of Operations
| | | Three Months Ended September 30, 2016 | Three Months Ended September 30, 2017 |
| Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Revenues: | | | | | | | | | | | | | | | | | | |
Product | $ | — |
| | $ | 209,835 |
| | $ | 36,085 |
| | $ | — |
| | $ | 245,920 |
| $ | — |
| | $ | 381,228 |
| | $ | 42,303 |
| | $ | — |
| | $ | 423,531 |
|
Service | — |
| | 39,398 |
| | 26,676 |
| | — |
| | 66,074 |
| — |
| | 34,812 |
| | 70,475 |
| | — |
| | 105,287 |
|
Lease | | — |
| | — |
| | 2,646 |
| | — |
| | 2,646 |
|
Other | — |
| | — |
| | 15,770 |
| | — |
| | 15,770 |
| — |
| | — |
| | 14,458 |
| | — |
| | 14,458 |
|
Total revenues | — |
|
| 249,233 |
|
| 78,531 |
|
| — |
|
| 327,764 |
| — |
|
| 416,040 |
|
| 129,882 |
|
| — |
|
| 545,922 |
|
Expenses: | | | | | | | | |
| | | | | | | | |
|
Costs of products sold, exclusive of depreciation and amortization shown below | — |
| | 188,329 |
| | 30,174 |
| | — |
| | 218,503 |
| — |
| | 361,675 |
| | 36,577 |
| | — |
| | 398,252 |
|
Operating | — |
| | 29,212 |
| | 23,424 |
| | — |
| | 52,636 |
| — |
| | 28,752 |
| | 33,914 |
| | — |
| | 62,666 |
|
General and administrative | 4,577 |
| | 9,558 |
| | 6,448 |
| | — |
| | 20,583 |
| 18,970 |
| | 5,833 |
| | 10,407 |
| | — |
| | 35,210 |
|
Depreciation and amortization | 439 |
| | 17,375 |
| | 7,098 |
| | — |
| | 24,912 |
| 610 |
| | 17,580 |
| | 31,945 |
| | — |
| | 50,135 |
|
Loss on disposal or impairment of long-lived assets, net | — |
| | 1,018 |
| | — |
| | — |
| | 1,018 |
| |
Loss on disposal or impairment, net | | — |
| | 40,161 |
| | 1,464 |
| | — |
| | 41,625 |
|
Total expenses | 5,016 |
|
| 245,492 |
|
| 67,144 |
|
| — |
|
| 317,652 |
| 19,580 |
|
| 454,001 |
|
| 114,307 |
|
| — |
|
| 587,888 |
|
Earnings from equity method investments | 6,027 |
| | 19,658 |
| | — |
| | (9,840 | ) | | 15,845 |
| |
Operating income | 1,011 |
|
| 23,399 |
|
| 11,387 |
|
| (9,840 | ) |
| 25,957 |
| |
Earnings (loss) from equity method investments | | (26,856 | ) | | 19,380 |
| | — |
| | 24,843 |
| | 17,367 |
|
Operating income (loss) | | (46,436 | ) |
| (18,581 | ) |
| 15,575 |
|
| 24,843 |
|
| (24,599 | ) |
Other expenses (income), net: | | | | | | | | |
| | | | | | | | |
|
Interest expense (income) | (1,231 | ) | | 23,060 |
| | (558 | ) | | (239 | ) | | 21,032 |
| |
Foreign currency transaction loss (gain) | — |
| | (18 | ) | | 677 |
| | — |
| | 659 |
| |
Other expense (income), net | (372 | ) | | 63 |
| | (422 | ) | | 239 |
| | (492 | ) | |
Total other expense (income), net | (1,603 | ) |
| 23,105 |
|
| (303 | ) |
| — |
|
| 21,199 |
| |
Interest expense | | 12,418 |
| | 9,854 |
| | 10,656 |
| | (217 | ) | | 32,711 |
|
Foreign currency transaction gain | | — |
| | — |
| | (747 | ) | | — |
| | (747 | ) |
Other income, net | | (225 | ) | | (8 | ) | | (195 | ) | | 217 |
| | (211 | ) |
Total other expenses, net | | 12,193 |
|
| 9,846 |
|
| 9,714 |
|
| — |
|
| 31,753 |
|
Income (loss) from continuing operations before income taxes | 2,614 |
|
| 294 |
|
| 11,690 |
|
| (9,840 | ) |
| 4,758 |
| (58,629 | ) |
| (28,427 | ) |
| 5,861 |
|
| 24,843 |
|
| (56,352 | ) |
Income tax expense | 9,979 |
| | — |
| | 1,919 |
| | — |
| | 11,898 |
| |
Income tax expense (benefit) | | (39,526 | ) | | — |
| | 2,277 |
| | — |
| | (37,249 | ) |
Net income (loss) | (7,365 | ) |
| 294 |
|
| 9,771 |
|
| (9,840 | ) |
| (7,140 | ) | $ | (19,103 | ) |
| $ | (28,427 | ) |
| $ | 3,584 |
|
| $ | 24,843 |
|
| $ | (19,103 | ) |
Less: net income attributable to noncontrolling interests | — |
| | 225 |
| | — |
| | — |
| | 225 |
| |
Net income (loss) attributable to SemGroup | $ | (7,365 | ) |
| $ | 69 |
|
| $ | 9,771 |
|
| $ | (9,840 | ) |
| $ | (7,365 | ) | |
Net income (loss) | $ | (7,365 | ) | | $ | 294 |
|
| $ | 9,771 |
|
| $ | (9,840 | ) |
| $ | (7,140 | ) | $ | (19,103 | ) | | $ | (28,427 | ) |
| $ | 3,584 |
|
| $ | 24,843 |
|
| $ | (19,103 | ) |
Other comprehensive income (loss), net of income taxes | 3,711 |
| | 208 |
| | (10,970 | ) | | — |
| | (7,051 | ) | (5,346 | ) | | (193 | ) | | 14,769 |
| | — |
| | 9,230 |
|
Comprehensive income (loss) | (3,654 | ) | | 502 |
|
| (1,199 | ) |
| (9,840 | ) |
| (14,191 | ) | $ | (24,449 | ) | | $ | (28,620 | ) |
| $ | 18,353 |
|
| $ | 24,843 |
|
| $ | (9,873 | ) |
Less: comprehensive income attributable to noncontrolling interests | — |
|
| 225 |
|
| — |
|
| — |
| | 225 |
| |
Comprehensive income (loss) attributable to SemGroup | $ | (3,654 | ) | | $ | 277 |
|
| $ | (1,199 | ) |
| $ | (9,840 | ) |
| $ | (14,416 | ) | |
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2015 |
| Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Revenues: | | | | | | | | | |
Product | $ | — |
| | $ | 256,848 |
| | $ | 56,503 |
| | $ | — |
| | $ | 313,351 |
|
Service | — |
| | 47,383 |
| | 16,708 |
| | — |
| | 64,091 |
|
Other | — |
| | — |
| | 19,623 |
| | — |
| | 19,623 |
|
Total revenues | — |
|
| 304,231 |
|
| 92,834 |
|
| — |
|
| 397,065 |
|
Expenses: | | | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | — |
| | 230,464 |
| | 44,175 |
| | — |
| | 274,639 |
|
Operating | — |
| | 27,561 |
| | 25,706 |
| | — |
| | 53,267 |
|
General and administrative | 4,730 |
| | 6,715 |
| | 11,600 |
| | — |
| | 23,045 |
|
Depreciation and amortization | 423 |
| | 19,096 |
| | 6,503 |
| | — |
| | 26,022 |
|
Loss (gain) on disposal or impairment of long-lived assets, net | — |
| | 62 |
| | (1,013 | ) | | — |
| | (951 | ) |
Total expenses | 5,153 |
|
| 283,898 |
|
| 86,971 |
|
| — |
|
| 376,022 |
|
Earnings from equity method investments | 15,416 |
| | 8,603 |
| | — |
| | (7,782 | ) | | 16,237 |
|
Gain on issuance of common units by equity method investee | 136 |
| | — |
| | — |
| | — |
| | 136 |
|
Operating income | 10,399 |
|
| 28,936 |
|
| 5,863 |
|
| (7,782 | ) |
| 37,416 |
|
Other expenses (income), net: | | | | | | | | | |
Interest expense (income) | 185 |
| | 19,706 |
| | (493 | ) | | (228 | ) | | 19,170 |
|
Foreign currency transaction gain | — |
| | — |
| | (385 | ) | | — |
| | (385 | ) |
Other income, net | (246 | ) | | (9 | ) | | (929 | ) | | 228 |
| | (956 | ) |
Total other expense (income), net | (61 | ) |
| 19,697 |
|
| (1,807 | ) |
| — |
|
| 17,829 |
|
Income from continuing operations before income taxes | 10,460 |
| | 9,239 |
|
| 7,670 |
|
| (7,782 | ) |
| 19,587 |
|
Income tax expense | 5,587 |
| | — |
| | 4,419 |
| | — |
| | 10,006 |
|
Income from continuing operations | 4,873 |
|
| 9,239 |
|
| 3,251 |
|
| (7,782 | ) |
| 9,581 |
|
Loss from discontinued operations, net of income taxes | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Net income | 4,873 |
|
| 9,239 |
|
| 3,250 |
|
| (7,782 | ) |
| 9,580 |
|
Less: net income attributable to noncontrolling interests | — |
| | 4,707 |
| | — |
| | — |
| | 4,707 |
|
Net income attributable to SemGroup | $ | 4,873 |
|
| $ | 4,532 |
|
| $ | 3,250 |
|
| $ | (7,782 | ) |
| $ | 4,873 |
|
Net income | $ | 4,873 |
| | $ | 9,239 |
|
| $ | 3,250 |
|
| $ | (7,782 | ) |
| $ | 9,580 |
|
Other comprehensive income (loss), net of income taxes | 7,055 |
| | 251 |
| | (27,516 | ) | | — |
| | (20,210 | ) |
Comprehensive income (loss) | 11,928 |
|
| 9,490 |
|
| (24,266 | ) |
| (7,782 | ) |
| (10,630 | ) |
Less: comprehensive income attributable to noncontrolling interests | — |
|
| 4,707 |
|
| — |
|
| — |
| | 4,707 |
|
Comprehensive income (loss) attributable to SemGroup | $ | 11,928 |
|
| $ | 4,783 |
|
| $ | (24,266 | ) |
| $ | (7,782 | ) |
| $ | (15,337 | ) |
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
| | | Nine Months Ended September 30, 2016 | Three Months Ended September 30, 2016 |
| Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Revenues: | | | | | | | | | | | | | | | | | | |
Product | $ | — |
| | $ | 597,638 |
| | $ | 95,304 |
| | $ | — |
| | $ | 692,942 |
| $ | — |
| | $ | 209,835 |
| | $ | 36,085 |
| | $ | — |
| | $ | 245,920 |
|
Service | — |
| | 116,410 |
| | 75,937 |
| | — |
| | 192,347 |
| — |
| | 39,398 |
| | 26,676 |
| | — |
| | 66,074 |
|
Other | — |
| | — |
| | 44,703 |
| | — |
| | 44,703 |
| — |
| | — |
| | 15,770 |
| | — |
| | 15,770 |
|
Total revenues | — |
| | 714,048 |
|
| 215,944 |
|
| — |
|
| 929,992 |
| — |
|
| 249,233 |
|
| 78,531 |
|
| — |
|
| 327,764 |
|
Expenses: | | | | | | | | |
| | | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | — |
| | 514,996 |
| | 77,296 |
| | — |
| | 592,292 |
| — |
| | 188,329 |
| | 30,174 |
| | — |
| | 218,503 |
|
Operating | — |
| | 87,232 |
| | 70,305 |
| | — |
| | 157,537 |
| — |
| | 29,212 |
| | 23,424 |
| | — |
| | 52,636 |
|
General and administrative | 15,230 |
| | 24,512 |
| | 22,677 |
| | — |
| | 62,419 |
| 4,576 |
| | 9,557 |
| | 6,450 |
| | — |
| | 20,583 |
|
Depreciation and amortization | 1,212 |
| | 51,522 |
| | 21,273 |
| | — |
| | 74,007 |
| 439 |
| | 17,384 |
| | 7,099 |
| | — |
| | 24,922 |
|
Loss (gain) on disposal of long-lived assets, net | — |
| | 16,077 |
| | (67 | ) | | — |
| | 16,010 |
| |
Loss on disposal or impairment, net | | — |
| | 1,018 |
| | — |
| | — |
| | 1,018 |
|
Total expenses | 16,442 |
| | 694,339 |
|
| 191,484 |
|
| — |
|
| 902,265 |
| 5,015 |
|
| 245,500 |
|
| 67,147 |
|
| — |
|
| 317,662 |
|
Earnings from equity method investments | 19,173 |
| | 60,341 |
| | — |
| | (23,520 | ) | | 55,994 |
| 6,090 |
| | 19,657 |
| | — |
| | (9,902 | ) | | 15,845 |
|
Loss on issuance of common units by equity method investee | (41 | ) | | — |
| | — |
| | — |
| | (41 | ) | |
Operating income | 2,690 |
| | 80,050 |
|
| 24,460 |
|
| (23,520 | ) |
| 83,680 |
| 1,075 |
|
| 23,390 |
|
| 11,384 |
|
| (9,902 | ) |
| 25,947 |
|
Other expenses (income), net: | | | | | | | | |
| | | | | | | | | |
Interest expense (income) | (2,744 | ) | | 64,267 |
| | (1,969 | ) | | (712 | ) | | 58,842 |
| (3,672 | ) | | 23,060 |
| | (632 | ) | | (239 | ) | | 18,517 |
|
Foreign currency transaction loss (gain) | — |
| | (18 | ) | | 3,689 |
| | — |
| | 3,671 |
| — |
| | (18 | ) | | 677 |
| | — |
| | 659 |
|
Loss on sale or impairment of equity method investment | 30,644 |
| | — |
| | — |
| | — |
| | 30,644 |
| |
Other expense (income), net | (859 | ) | | 63 |
| | (1,086 | ) | | 712 |
| | (1,170 | ) | (372 | ) | | 63 |
| | (422 | ) | | 239 |
| | (492 | ) |
Total other expenses, net | 27,041 |
| | 64,312 |
|
| 634 |
|
| — |
|
| 91,987 |
| |
Income (loss) from continuing operations before income taxes | (24,351 | ) | | 15,738 |
|
| 23,826 |
|
| (23,520 | ) |
| (8,307 | ) | |
Income tax expense (benefit) | (9,727 | ) | | — |
| | 4,876 |
| | — |
| | (4,851 | ) | |
Income (loss) from continuing operations | (14,624 | ) | | 15,738 |
|
| 18,950 |
|
| (23,520 | ) |
| (3,456 | ) | |
Loss from discontinued operations, net of income taxes | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) | |
Total other expense (income), net | | (4,044 | ) |
| 23,105 |
|
| (377 | ) |
| — |
|
| 18,684 |
|
Income from continuing operations before income taxes | | 5,119 |
| | 285 |
|
| 11,761 |
|
| (9,902 | ) |
| 7,263 |
|
Income tax expense | | 9,979 |
| | — |
| | 1,919 |
| | — |
| | 11,898 |
|
Net income (loss) | (14,624 | ) | | 15,738 |
|
| 18,949 |
|
| (23,520 | ) |
| (3,457 | ) | (4,860 | ) |
| 285 |
|
| 9,842 |
|
| (9,902 | ) |
| (4,635 | ) |
Less: net income attributable to noncontrolling interests | — |
| | 11,167 |
| | — |
| | — |
| | 11,167 |
| — |
| | 225 |
| | — |
| | — |
| | 225 |
|
Net income (loss) attributable to SemGroup | $ | (14,624 | ) | | $ | 4,571 |
|
| $ | 18,949 |
|
| $ | (23,520 | ) |
| $ | (14,624 | ) | $ | (4,860 | ) |
| $ | 60 |
|
| $ | 9,842 |
|
| $ | (9,902 | ) |
| $ | (4,860 | ) |
Net income (loss) | $ | (14,624 | ) | | $ | 15,738 |
|
| $ | 18,949 |
|
| $ | (23,520 | ) |
| $ | (3,457 | ) | $ | (4,860 | ) | | $ | 285 |
|
| $ | 9,842 |
|
| $ | (9,902 | ) |
| $ | (4,635 | ) |
Other comprehensive income (loss), net of income taxes | 1,725 |
| | 909 |
| | (7,203 | ) | | — |
| | (4,569 | ) | 3,711 |
| | 208 |
| | (10,970 | ) | | — |
| | (7,051 | ) |
Comprehensive income (loss) | (12,899 | ) | | 16,647 |
|
| 11,746 |
|
| (23,520 | ) |
| (8,026 | ) | (1,149 | ) |
| 493 |
|
| (1,128 | ) |
| (9,902 | ) |
| (11,686 | ) |
Less: comprehensive income attributable to noncontrolling interests | — |
|
| 11,167 |
|
| — |
|
| — |
| | 11,167 |
| — |
|
| 225 |
|
| — |
|
| — |
| | 225 |
|
Comprehensive income (loss) attributable to SemGroup | $ | (12,899 | ) | | $ | 5,480 |
|
| $ | 11,746 |
|
| $ | (23,520 | ) |
| $ | (19,193 | ) | $ | (1,149 | ) |
| $ | 268 |
|
| $ | (1,128 | ) |
| $ | (9,902 | ) |
| $ | (11,911 | ) |
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
| | | Nine Months September 30, 2015 | Nine Months Ended September 30, 2017 |
| Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Revenues: | | | | | | | | | | | | | | | | | | |
Product | $ | — |
| | $ | 645,869 |
| | $ | 176,349 |
| | $ | — |
| | $ | 822,218 |
| $ | — |
| | $ | 1,055,387 |
| | $ | 109,511 |
| | $ | — |
| | $ | 1,164,898 |
|
Service | — |
| | 142,772 |
| | 49,800 |
| | — |
| | 192,572 |
| — |
| | 110,411 |
| | 151,556 |
| | — |
| | 261,967 |
|
Lease | | — |
| | — |
| | 2,646 |
| | — |
| | 2,646 |
|
Other | — |
| | — |
| | 57,811 |
| | — |
| | 57,811 |
| — |
| | — |
| | 45,600 |
| | — |
| | 45,600 |
|
Total revenues | — |
| | 788,641 |
| | 283,960 |
| | — |
| | 1,072,601 |
| — |
| | 1,165,798 |
|
| 309,313 |
|
| — |
|
| 1,475,111 |
|
Expenses: | | | | | | | | | | | | | | | | | |
|
Costs of products sold, exclusive of depreciation and amortization shown below | — |
| | 571,000 |
| | 139,869 |
| | — |
| | 710,869 |
| — |
| | 993,838 |
| | 93,519 |
| | — |
| | 1,087,357 |
|
Operating | — |
| | 88,974 |
| | 78,183 |
| | — |
| | 167,157 |
| — |
| | 84,886 |
| | 103,209 |
| | — |
| | 188,095 |
|
General and administrative | 26,958 |
| | 23,371 |
| | 27,943 |
| | — |
| | 78,272 |
| 35,513 |
| | 21,206 |
| | 26,887 |
| | — |
| | 83,606 |
|
Depreciation and amortization | 1,046 |
| | 54,135 |
| | 19,249 |
| | — |
| | 74,430 |
| 1,613 |
| | 52,077 |
| | 46,646 |
| | — |
| | 100,336 |
|
Loss on disposal of long-lived assets, net | — |
| | 299 |
| | 1,180 |
| | — |
| | 1,479 |
| — |
| | 42,125 |
| | 1,676 |
| | — |
| | 43,801 |
|
Total expenses | 28,004 |
| | 737,779 |
| | 266,424 |
| | — |
| | 1,032,207 |
| 37,126 |
| | 1,194,132 |
|
| 271,937 |
|
| — |
|
| 1,503,195 |
|
Earnings from equity method investments | 58,804 |
| | 58,592 |
| | — |
| | (56,697 | ) | | 60,699 |
| |
Gain on issuance of common units by equity method investee | 6,033 |
| | — |
| | — |
| | — |
| | 6,033 |
| |
Operating income | 36,833 |
| | 109,454 |
| | 17,536 |
| | (56,697 | ) | | 107,126 |
| |
Earnings (loss) from equity method investments | | 17,435 |
| | 57,015 |
| | — |
| | (22,239 | ) | | 52,211 |
|
Operating income (loss) | | (19,691 | ) | | 28,681 |
|
| 37,376 |
|
| (22,239 | ) |
| 24,127 |
|
Other expenses (income), net: | | | | | | | | | | | | | | | | | |
|
Interest expense | 2,388 |
| | 49,560 |
| | 362 |
| | (1,727 | ) | | 50,583 |
| 23,009 |
| | 28,272 |
| | 9,391 |
| | (617 | ) | | 60,055 |
|
Loss on early extinguishment of debt | | 19,930 |
| | — |
| | — |
| | — |
| | 19,930 |
|
Foreign currency transaction gain | (5 | ) | | — |
| | (1,194 | ) | | — |
| | (1,199 | ) | — |
| | — |
| | (1,758 | ) | | — |
| | (1,758 | ) |
Gain on sale of equity method investment | (14,517 | ) | | — |
| | — |
| | — |
| | (14,517 | ) | |
Other income, net | (1,816 | ) | | (14 | ) | | (1,039 | ) | | 1,727 |
| | (1,142 | ) | (669 | ) | | (13 | ) | | (737 | ) | | 617 |
| | (802 | ) |
Total other expenses (income), net | (13,950 | ) | | 49,546 |
| | (1,871 | ) | | — |
| | 33,725 |
| |
Income from continuing operations before income taxes | 50,783 |
| | 59,908 |
| | 19,407 |
| | (56,697 | ) | | 73,401 |
| |
Income tax expense | 21,147 |
| | — |
| | 8,462 |
| | — |
| | 29,609 |
| |
Income from continuing operations | 29,636 |
| | 59,908 |
| | 10,945 |
| | (56,697 | ) | | 43,792 |
| |
Loss from discontinued operations, net of income taxes | — |
| | (1 | ) | | (2 | ) | | — |
| | (3 | ) | |
Net income | 29,636 |
| | 59,907 |
| | 10,943 |
| | (56,697 | ) | | 43,789 |
| |
Less: net income attributable to noncontrolling interests | — |
| | 14,153 |
| | — |
| | — |
| | 14,153 |
| |
Net income attributable to SemGroup | $ | 29,636 |
| | $ | 45,754 |
| | $ | 10,943 |
| | $ | (56,697 | ) | | $ | 29,636 |
| |
Net income | 29,636 |
| | 59,907 |
| | 10,943 |
| | (56,697 | ) | | 43,789 |
| |
Total other expenses, net | | 42,270 |
| | 28,259 |
|
| 6,896 |
|
| — |
|
| 77,425 |
|
Income (loss) from continuing operations before income taxes | | (61,961 | ) | | 422 |
|
| 30,480 |
|
| (22,239 | ) |
| (53,298 | ) |
Income tax expense (benefit) | | (42,192 | ) | | — |
| | 8,663 |
| | — |
| | (33,529 | ) |
Net income (loss) | | $ | (19,769 | ) | | $ | 422 |
|
| $ | 21,817 |
|
| $ | (22,239 | ) |
| $ | (19,769 | ) |
Net income (loss) | | $ | (19,769 | ) |
| $ | 422 |
|
| $ | 21,817 |
|
| $ | (22,239 | ) |
| $ | (19,769 | ) |
Other comprehensive income (loss), net of income taxes | 13,355 |
| | 251 |
| | (37,356 | ) | | — |
| | (23,750 | ) | (14,296 | ) | | (523 | ) | | 39,034 |
| | — |
| | 24,215 |
|
Comprehensive income (loss) | 42,991 |
| | 60,158 |
| | (26,413 | ) | | (56,697 | ) | | 20,039 |
| $ | (34,065 | ) | | $ | (101 | ) |
| $ | 60,851 |
|
| $ | (22,239 | ) |
| $ | 4,446 |
|
Less: comprehensive income attributable to noncontrolling interests | — |
|
| 14,153 |
|
| — |
|
| — |
| | 14,153 |
| |
Comprehensive income (loss) attributable to SemGroup | $ | 42,991 |
| | $ | 46,005 |
| | $ | (26,413 | ) | | $ | (56,697 | ) | | $ | 5,886 |
| |
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
Condensed Consolidating Guarantor Statements of Cash Flows |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
| | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Net cash provided by operating activities | | $ | 49,621 |
| | $ | 52,620 |
| | $ | 58,883 |
| | $ | (25,757 | ) | | $ | 135,367 |
|
Cash flows from investing activities: | | | | | | | | | |
|
Capital expenditures | | (1,939 | ) | | (40,610 | ) | | (156,490 | ) | | — |
| | (199,039 | ) |
Proceeds from sale of long-lived assets | | — |
| | — |
| | 98 |
| | — |
| | 98 |
|
Contributions to equity method investments | | — |
| | (3,756 | ) | | — |
| | — |
| | (3,756 | ) |
Proceeds from sale of common units of equity method investee | | 60,483 |
| | — |
| | — |
| | — |
| | 60,483 |
|
Distributions in excess of equity in earnings of affiliates | | 33,065 |
| | 22,792 |
| | — |
| | (33,065 | ) | | 22,792 |
|
Net cash provided by (used in) investing activities | | 91,609 |
|
| (21,574 | ) |
| (156,392 | ) |
| (33,065 | ) | | (119,422 | ) |
Cash flows from financing activities: | | | | | | | | | |
|
Debt issuance costs | | (7,459 | ) | | — |
| | — |
| | — |
| | (7,459 | ) |
Borrowings on credit facilities | | 118,000 |
| | 244,500 |
| | — |
| | — |
| | 362,500 |
|
Principal payments on credit facilities and other obligations | | (149,469 | ) | | (244,525 | ) | | — |
| | — |
| | (393,994 | ) |
Proceeds from issuance of common shares, net of offering costs | | 223,739 |
| | — |
| | — |
| | — |
| | 223,739 |
|
Distributions to noncontrolling interests | | — |
| | (32,133 | ) | | — |
| | — |
| | (32,133 | ) |
Repurchase of common stock for payment of statutory taxes due on equity-based compensation | | (945 | ) | | — |
| | — |
| | — |
| | (945 | ) |
Dividends paid | | (63,338 | ) | | — |
| | — |
| | — |
| | (63,338 | ) |
Proceeds from issuance of common stock under employee stock purchase plan | | 774 |
| | — |
| | — |
| | — |
| | 774 |
|
Intercompany borrowings (advances), net | | (168,656 | ) | | (7,964 | ) | | 118,266 |
| | 58,354 |
| | — |
|
Net cash provided by (used in) financing activities | | (47,354 | ) | | (40,122 | ) |
| 118,266 |
|
| 58,354 |
| | 89,144 |
|
Effect of exchange rate changes on cash and cash equivalents | | — |
| | 18 |
| | 545 |
| | — |
| | 563 |
|
Change in cash and cash equivalents | | 93,876 |
| | (9,058 | ) |
| 21,302 |
|
| (468 | ) | | 105,652 |
|
Cash and cash equivalents at beginning of period | | 4,559 |
| | 9,058 |
| | 46,043 |
| | (1,564 | ) | | 58,096 |
|
Cash and cash equivalents at end of period | | $ | 98,435 |
| | $ | — |
|
| $ | 67,345 |
|
| $ | (2,032 | ) | | $ | 163,748 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Revenues: | | | | | | | | | |
Product | $ | — |
| | $ | 597,638 |
| | $ | 95,304 |
| | $ | — |
| | $ | 692,942 |
|
Service | — |
| | 116,410 |
| | 75,937 |
| | — |
| | 192,347 |
|
Other | — |
| | — |
| | 44,703 |
| | — |
| | 44,703 |
|
Total revenues | — |
| | 714,048 |
| | 215,944 |
| | — |
| | 929,992 |
|
Expenses: | | | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | — |
| | 514,996 |
| | 77,296 |
| | — |
| | 592,292 |
|
Operating | — |
| | 87,232 |
| | 70,305 |
| | — |
| | 157,537 |
|
General and administrative | 15,230 |
| | 24,512 |
| | 22,677 |
| | — |
| | 62,419 |
|
Depreciation and amortization | 1,212 |
| | 51,543 |
| | 21,273 |
| | — |
| | 74,028 |
|
Loss (gain) on disposal or impairment, net | — |
| | 16,077 |
| | (67 | ) | | — |
| | 16,010 |
|
Total expenses | 16,442 |
| | 694,360 |
| | 191,484 |
| | — |
| | 902,286 |
|
Earnings from equity method investments | 20,050 |
| | 60,341 |
| | — |
| | (24,397 | ) | | 55,994 |
|
Loss on issuance of common units by equity method investee | (41 | ) | | — |
| | — |
| | — |
| | (41 | ) |
Operating income | 3,567 |
| | 80,029 |
| | 24,460 |
| | (24,397 | ) | | 83,659 |
|
Other expenses (income), net: | | | | | | | | | |
Interest expense (income) | (6,583 | ) | | 64,267 |
| | (2,867 | ) | | (712 | ) | | 54,105 |
|
Foreign currency transaction loss (gain) | — |
| | (18 | ) | | 3,689 |
| | — |
| | 3,671 |
|
Loss on sale of equity method investment | 30,644 |
| | — |
| | — |
| | — |
| | 30,644 |
|
Other expense (income), net | (859 | ) | | 63 |
| | (1,086 | ) | | 712 |
| | (1,170 | ) |
Total other expense (income), net | 23,202 |
| | 64,312 |
| | (264 | ) | | — |
| | 87,250 |
|
Income (loss) from continuing operations before income taxes | (19,635 | ) | | 15,717 |
| | 24,724 |
| | (24,397 | ) | | (3,591 | ) |
Income tax expense (benefit) | (9,727 | ) | | — |
| | 4,876 |
| | — |
| | (4,851 | ) |
Income (loss) from continuing operations | (9,908 | ) | | 15,717 |
| | 19,848 |
| | (24,397 | ) | | 1,260 |
|
Loss from discontinued operations, net of income taxes | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Net income (loss) | (9,908 | ) | | 15,717 |
| | 19,847 |
| | (24,397 | ) | | 1,259 |
|
Less: net income attributable to noncontrolling interests | — |
| | 11,167 |
| | — |
| | — |
| | 11,167 |
|
Net income (loss) attributable to SemGroup | $ | (9,908 | ) | | $ | 4,550 |
| | $ | 19,847 |
| | $ | (24,397 | ) | | $ | (9,908 | ) |
Net income (loss) | (9,908 | ) | | 15,717 |
| | 19,847 |
| | (24,397 | ) | | 1,259 |
|
Other comprehensive income (loss), net of income taxes | 1,725 |
| | 909 |
| | (7,203 | ) | | — |
| | (4,569 | ) |
Comprehensive income (loss) | (8,183 | ) | | 16,626 |
| | 12,644 |
| | (24,397 | ) | | (3,310 | ) |
Less: comprehensive income attributable to noncontrolling interests | — |
|
| 11,167 |
|
| — |
|
| — |
| | 11,167 |
|
Comprehensive income (loss) attributable to SemGroup | $ | (8,183 | ) | | $ | 5,459 |
| | $ | 12,644 |
| | $ | (24,397 | ) | | $ | (14,477 | ) |
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
Condensed Consolidating Guarantor Statements of Cash Flows
| | | | Nine Months Ended September 30, 2015 | | Nine Months Ended September 30, 2017 |
| | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated | | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Net cash provided by operating activities | | $ | 38,781 |
| | $ | 81,479 |
| | $ | 50,732 |
| | $ | (33,943 | ) | | $ | 137,049 |
| |
Net cash provided by (used in) operating activities | | | $ | (43,276 | ) | | $ | 99,519 |
| | $ | 36,174 |
| | $ | — |
| | $ | 92,417 |
|
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | |
|
Capital expenditures | | (1,658 | ) | | (153,333 | ) | | (197,825 | ) | | — |
| | (352,816 | ) | | (4,181 | ) | | (91,890 | ) | | (250,133 | ) | | — |
| | (346,204 | ) |
Proceeds from sale of long-lived assets | | — |
| | 205 |
| | 2,332 |
| | — |
| | 2,537 |
| | — |
| | 15,530 |
| | 1,108 |
| | — |
| | 16,638 |
|
Proceeds from the sale of Wattenberg Holding, LLC and Glass Mountain Holding, LLC to Rose Rock Midstream L.P. | | 251,181 |
| | — |
| | — |
| | (251,181 | ) | | — |
| |
Contributions to equity method investments | | — |
| | (34,059 | ) | | — |
| | — |
| | (34,059 | ) | | — |
| | (18,808 | ) | | — |
| | — |
| | (18,808 | ) |
Proceeds from sale of common units of equity method investee | | 56,318 |
| | — |
| | — |
| | — |
| | 56,318 |
| |
Payments to acquire businesses | | | — |
| | — |
| | (293,039 | ) | | — |
| | (293,039 | ) |
Distributions in excess of equity in earnings of affiliates | | 18,981 |
| | 19,564 |
| | — |
| | (18,981 | ) | | 19,564 |
| | — |
| | 19,296 |
| | — |
| | — |
| | 19,296 |
|
Net cash provided by (used in) investing activities | | 324,822 |
| | (167,623 | ) |
| (195,493 | ) |
| (270,162 | ) | | (308,456 | ) | |
Net cash provided used in investing activities | | | (4,181 | ) |
| (75,872 | ) |
| (542,064 | ) |
| — |
| | (622,117 | ) |
Cash flows from financing activities: | | | | | | | | | |
| | | | | | | | | |
|
Debt issuance costs | | (601 | ) | | (5,688 | ) | | — |
| | — |
| | (6,289 | ) | | (10,839 | ) | | — |
| | — |
| | — |
| | (10,839 | ) |
Borrowings on credit facilities and issuance of senior secured notes, net of discount | | 126,000 |
| | 676,208 |
| | — |
| | — |
| | 802,208 |
| |
Borrowings on credit facilities and issuance of senior notes, net of discount | | | 1,333,377 |
| | — |
| | 20,000 |
| | — |
| | 1,353,377 |
|
Principal payments on credit facilities and other obligations | | (161,000 | ) | | (364,037 | ) | | — |
| | — |
| | (525,037 | ) | | (710,547 | ) | | (19 | ) | | (1,375 | ) | | — |
| | (711,941 | ) |
Proceeds from issuance of Rose Rock Midstream, L.P. common units, net of offering costs | | — |
| | 89,119 |
| | — |
| | — |
| | 89,119 |
| |
Distributions to noncontrolling interests | | — |
| | (29,780 | ) | | — |
| | — |
| | (29,780 | ) | |
Debt extinguishment costs | | | (16,293 | ) | | — |
| | — |
| | — |
| | (16,293 | ) |
Repurchase of common stock for payment of statutory taxes due on equity-based compensation | | (4,259 | ) | | — |
| | — |
| | — |
| | (4,259 | ) | | (1,361 | ) | | — |
| | — |
| | — |
| | (1,361 | ) |
Dividends paid | | (49,836 | ) | | — |
| | — |
| | — |
| | (49,836 | ) | | (94,714 | ) | | — |
| | — |
| | — |
| | (94,714 | ) |
Proceeds from issuance of common stock under employee stock purchase plan | | 909 |
| | — |
| | — |
| | — |
| | 909 |
| | 796 |
| | — |
| | — |
| | — |
| | 796 |
|
Intercompany borrowing (advances), net | | (243,120 | ) | | (239,292 | ) | | 177,791 |
| | 304,621 |
| | — |
| |
Intercompany borrowings (advances), net | | | (447,367 | ) | | (23,628 | ) | | 470,408 |
| | 587 |
| | — |
|
Net cash provided by (used in) financing activities | | (331,907 | ) | | 126,530 |
|
| 177,791 |
|
| 304,621 |
| | 277,035 |
| | 53,052 |
| | (23,647 | ) |
| 489,033 |
|
| 587 |
| | 519,025 |
|
Effect of exchange rate changes on cash and cash equivalents | | — |
| | — |
| | (233 | ) | | — |
| | (233 | ) | | — |
| | — |
| | 4,472 |
| | — |
| | 4,472 |
|
Change in cash and cash equivalents | | 31,696 |
| | 40,386 |
|
| 32,797 |
|
| 516 |
| | 105,395 |
| | 5,595 |
| | — |
|
| (12,385 | ) |
| 587 |
| | (6,203 | ) |
Cash and cash equivalents at beginning of period | | 9,254 |
| | 3,624 |
| | 31,821 |
| | (4,101 | ) | | 40,598 |
| | 19,002 |
| | — |
| | 59,796 |
| | (4,582 | ) | | 74,216 |
|
Cash and cash equivalents at end of period | | $ | 40,950 |
| | $ | 44,010 |
|
| $ | 64,618 |
|
| $ | (3,585 | ) | | $ | 145,993 |
| | $ | 24,597 |
| | $ | — |
|
| $ | 47,411 |
|
| $ | (3,995 | ) | | $ | 68,013 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
| |
15. | CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS, Continued |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
| | Parent | | Guarantors | | Non-guarantors | | Consolidating Adjustments | | Consolidated |
Net cash provided by operating activities | | $ | 53,460 |
| | $ | 52,620 |
| | $ | 59,781 |
| | $ | (25,757 | ) | | $ | 140,104 |
|
Cash flows from investing activities: | | | | | | | | | | |
Capital expenditures | | (1,939 | ) | | (40,043 | ) | | (161,794 | ) | | — |
| | (203,776 | ) |
Proceeds from sale of long-lived assets | | — |
| | — |
| | 98 |
| | — |
| | 98 |
|
Contributions to equity method investments | | — |
| | (3,756 | ) | | — |
| | — |
| | (3,756 | ) |
Proceeds from sale of common units of equity method investee | | 60,483 |
| | — |
| | — |
| | — |
| | 60,483 |
|
Distributions in excess of equity in earnings of affiliates | | 33,065 |
| | 22,792 |
| | — |
| | (33,065 | ) | | 22,792 |
|
Net cash provided by (used in) investing activities | | 91,609 |
| | (21,007 | ) |
| (161,696 | ) |
| (33,065 | ) | | (124,159 | ) |
Cash flows from financing activities: | | | | | | | | | |
|
Debt issuance costs | | (7,459 | ) | | — |
| | — |
| | — |
| | (7,459 | ) |
Borrowings on credit facilities | | 118,000 |
| | 244,500 |
| | — |
| | — |
| | 362,500 |
|
Principal payments on credit facilities and other obligations | | (149,469 | ) | | (244,525 | ) | | — |
| | — |
| | (393,994 | ) |
Proceeds from issuance of common units, net of offering costs | | 223,739 |
| | — |
| | — |
| | — |
| | 223,739 |
|
Distributions to noncontrolling interests | | — |
| | (32,133 | ) | | — |
| | — |
| | (32,133 | ) |
Repurchase of common stock for payment of statutory taxes due on equity-based compensation | | (945 | ) | | — |
| | — |
| | — |
| | (945 | ) |
Dividends paid | | (63,338 | ) | | — |
| | — |
| | — |
| | (63,338 | ) |
Proceeds from issuance of common stock under employee stock purchase plan | | 774 |
| | — |
| | — |
| | — |
| | 774 |
|
Intercompany borrowing (advances), net | | (172,495 | ) | | (8,531 | ) | | 122,672 |
| | 58,354 |
| | — |
|
Net cash provided by (used in) financing activities | | (51,193 | ) | | (40,689 | ) |
| 122,672 |
|
| 58,354 |
| | 89,144 |
|
Effect of exchange rate changes on cash and cash equivalents | | — |
| | 18 |
| | 545 |
| | — |
| | 563 |
|
Change in cash and cash equivalents | | 93,876 |
| | (9,058 | ) |
| 21,302 |
|
| (468 | ) | | 105,652 |
|
Cash and cash equivalents at beginning of period | | 4,559 |
| | 9,058 |
| | 46,043 |
| | (1,564 | ) | | 58,096 |
|
Cash and cash equivalents at end of period | | $ | 98,435 |
| | $ | — |
|
| $ | 67,345 |
|
| $ | (2,032 | ) | | $ | 163,748 |
|
SEMGROUP CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
In the fourth quarter of 2017, we have made considerable progress on our strategic initiatives to finance the deferred payment associated with our HFOTCO acquisition and to enhance our balance sheet. Those initiatives may include, but are not limited to, multiple asset sales. At September 30, 2017, we had not met the accounting criteria for those assets and liabilities to be presented as Held for Sale. If we progress further toward potential divestitures, gains or losses may be recorded to the extent the fair value of the assets divested are more or less than the carrying value of those assets, and those gains or losses may be significant.
On November 8, 2017, we reached an agreement to sell our 50% interest in Glass Mountain for $300 million and expect to record a gain on disposal.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated interim financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and our Annual Report on Form 10-K for the year ended December 31, 20152016, filed with the SEC.
Overview of Business
Our business is to provide gathering, transportation, storage, distribution, marketing and other midstream services primarily to producers, refiners of petroleum products and other market participants located in the Gulf Coast, Midwest and Rocky Mountain regions of the United States of America (the "U.S."“U.S.”) and Canada. We, or our significant equity method investees, have an asset base consisting of pipelines, gathering systems, storage facilities, terminals, processing plants and other distribution assets located between North American production and supply areas, including the Gulf Coast, Midwest, Rocky Mountain and Western Canadian regions. We also maintain and operate storage, terminal and marine facilities at Milford Haven in the United Kingdom (the "U.K."“U.K.”) that enable customers to supply petroleum products to markets in the Atlantic Basin. We also operate a network of liquid asphalt cement terminals throughout Mexico. OurAt September 30, 2017, our operations are conducted directly and indirectly through our primary business segments – Crude Transportation, Crude Facilities, Crude Supply and Logistics, HFOTCO, SemGas®, SemCAMS, SemLogistics and SemMexico.
Our Assets
At September 30, 2016,2017, our segments owned the following:
Crude Transportation operates crude oil pipelines and truck transportation businesses in the U.S. Crude Transportation’s assets include:
a 410-mile450-mile crude oil gathering and transportation pipeline system with over 630,000720,000 barrels of associated storage capacity in Kansas and northern Oklahoma that is connected to several third-party pipelines and refineries;
the Wattenberg Oil Trunkline ("WOT"(“WOT”), a 75-mile, 12-inch diameter 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"Cliffs”). The WOT also has 360,000 barrels of operational storage;
a 16-mile crude oil pipeline that connects our Platteville, Colorado crude oil terminal to the Tampa, Colorado crude oil market;
a crude oil trucking fleet of over 250approximately 245 transport trucks and 250approximately 245 trailers;
Maurepas Pipeline, a project underway to buildconsisting of three pipelines, towith an approximate total of 106 miles, that service refineries in the Gulf Coast region (the "Maurepas Pipeline"“Maurepas Pipeline”), which is expected to be completed in the second quarter of 2017;;
a 51% ownership interest in White Cliffs, which owns a 527-mile pipeline, consisting of two parallel 12-inch common carrier, crude oil pipelines, that transports crude oil from Platteville, Colorado to Cushing, Oklahoma (the "White“White Cliffs Pipeline"Pipeline”); that we operate; and
a 50% ownership interest in Glass Mountain Pipeline, LLC ("(“Glass Mountain"Mountain”), which owns a 215-mile crude oil pipeline in western and north central Oklahoma (the "Glass“Glass Mountain Pipeline"Pipeline”). and 1.5 million barrels of associated storage, that we operate.
Crude Facilities operates crude oil storage and terminal businesses in the U.S. Crude FacilitiesFacilities’ assets include:
approximately 7.6 million barrels of crude oil storage capacity in Cushing, Oklahoma, of which 6.25 million barrels are leased to customers and 1.35 million barrels are used for crude oil operations and marketing activities; and
a 30-lane crude oil truck unloading facility with 350,000 barrels of associated storage capacity in Platteville, Colorado which connects to the origination point of the White Cliffs Pipeline.
Crude Supply and Logistics operates a crude oil marketing business which utilizes our Crude Transportation and Crude Facilities assets for marketing purposes. Additionally, Crude Supply and Logistics'Logistics’ assets include:
include approximately 61,800 barrels of crude oil storage capacity in Trenton and Stanley, North Dakota.
HFOTCO, acquired in July 2017, 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 U.S. SemGas owns and operates gathering systems and four processing plants with 595 million cubic feet per day of capacity.
SemCAMS, which provides natural gas gathering and processing services in Alberta, Canada. SemCAMS owns working interests in, and operates, four natural gas processing plants with a combined operating capacity of 695 million cubic feet per day.
SemLogistics, which provides refined product and crude oil storage services in the U.K. SemLogistics owns a facility in Wales that has multi-product storage capacity of approximately 8.7 million barrels.
SemMexico, which purchases, produces, stores, and distributes liquid asphalt cement products in Mexico. SemMexico operates an in-country network of twelve12 asphalt cement terminals and modification facilities and two marine terminals.terminals with a third under construction.
Additionally, we hold an 11.78% ownership interest in the general partner of NGL Energy Partners LP ("(“NGL Energy"Energy”)(NYSE: (NYSE: NGL) which is reported within Corporate and Other.
Outlook and Recent Developments
We expect commodity prices to remain challenged and costs of capital to remain sharply higher throughout 2016 as compared to 2015. Fee-based and take-or-pay arrangements are a significant component of our portfolio, which serve to somewhat reduce the influence of commodity price fluctuations on our operating results and cash flows. However, producer activities are being impacted by lower energy commodity prices which have reduced our volumes. The credit profiles and financial prospects of certain of our producer customers have been challenged by the current market conditions, which ultimately may result in further reductions of our volumes, or in re-negotiation of certain contractual provisions affecting our revenues. Such reductions as well as further or prolonged declines in energy commodity prices may result in non-cash impairments of our assets.
In that regard, in the fourth quarter we expect to finalize a contract renegotiation with a customer that would provide for a one-time incentive payment to ensure continued production of gas into one of our Canadian facilities. The amended contract is also expected to provide certain claw-back provisions that, depending on production levels in future periods, would allow for the future recoupment of a portion of the incentive payment.
Certain of our producer customers operating in Oklahoma have chosen to adjust plans for production following the release of the Oklahoma Corporation Commission's Regional Earthquake Response Plan (the "OCC Plan") which curtails the amount of volume that can be injected into disposal wells.
On May 1, 2016, Midstates Petroleum Company, Inc. and Midstates Petroleum Company LLC (together, “Midstates”), a customer of our SemGas segment, announced that they filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. While in bankruptcy, Midstates filed a First Amended Joint Chapter 11 Plan of Reorganization (“Plan of Reorganization”), which was confirmed by the bankruptcy court on September 28, 2016, and effective October 21, 2016. In the Plan of Reorganization, Midstates assumed its contracts with SemGas. As a result, we do not currently expect this event to have a material impact on our financial condition or future results of operations.
On June 23, 2016, U.K. voters approved a referendum to leave the European Union ("EU"). It is currently unknown what, if any, impact this will have on our SemLogistics segment. Oil trading and storage is not expected to be significantly impacted as a whole. However, SemLogistics receives and delivers products to the EU and tariffs and taxes related to these transactions could change subsequent to the U.K.'s exit from the EU. Additionally, it is uncertain what changes in legislation will occur subsequent to the exit which could impact our business.
In October, SemCAMS announced an agreement that will include the processing of up to 120 MMcf/d of sour gas at a new 200 MMcf/d gas plant the company will construct in the Wapiti area of the Montney play in Alberta. The agreement is underpinned by 80% take-or-pay terms for a period of 15 years. Construction on the project is expected to begin in the second quarter of 2017, and the estimated total project cost is approximately $300 million to $350 million Canadian dollars.
In the fourth quarter of 2016,2017, we began an evaluation ofhave made considerable progress on our strategic alternatives relatedinitiatives to certainfinance the deferred payment associated with our HFOTCO acquisition and to enhance our balance sheet. Those initiatives may include, but are not limited to, multiple asset sales. At September 30, 2017, we had not met the accounting criteria for those assets in our Crude Transportation segment. The outcome of such reviewand liabilities to be presented as Held for Sale. If we progress further toward potential divestitures, gains or losses may result in a material non-cash impairment.
Non-GAAP Financial Measure
We define Adjusted gross margin as total revenues minus cost of products sold and unrealized gain (loss) on derivatives. Adjusted gross margin is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure provides useful information to investors in assessing our financial condition and results of operations. Operating income is the GAAP measure most directly comparable to Adjusted gross margin. Our non-GAAP financial measure should not be considered as an alternativerecorded to the most directly comparable GAAP financial measure. This non-GAAP financial measure has important limitations as an analytical tool because it excludes some, but not all, items that affectextent the most directly comparable GAAP financial measure. You should not consider Adjusted gross margin as a substitute for
analysisfair value of our results as reported under GAAP. Because Adjusted gross marginthe assets divested are more or less than the carrying value of those assets, and those gains or losses may be defined differently by other companiessignificant.
On November 8, 2017, we reached an agreement to sell our 50% interest in our industry, our definition of this non-GAAP financial measure may not be comparableGlass Mountain for $300 million and expect to similarly titled measures of other companies, thereby diminishing its utility.
Management compensates for the limitation of Adjusted gross margin as an analytical tool by reviewing the comparable GAAP measure, understanding the difference between Adjusted gross marginrecord a gain on the one hand, and operating income on the other hand, and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measure that our management uses in evaluating our operating results.disposal.
Results of Operations
Consolidated Results of Operations
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 327,764 |
| | $ | 397,065 |
| | $ | 929,992 |
| | $ | 1,072,601 |
| $ | 545,922 |
| | $ | 327,764 |
| | $ | 1,475,111 |
| | $ | 929,992 |
|
Expenses: | | | | | | | | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 218,503 |
| | 274,639 |
| | 592,292 |
| | 710,869 |
| 398,252 |
| | 218,503 |
| | 1,087,357 |
| | 592,292 |
|
Operating | 52,636 |
| | 53,267 |
| | 157,537 |
| | 167,157 |
| 62,666 |
| | 52,636 |
| | 188,095 |
| | 157,537 |
|
General and administrative | 20,583 |
| | 23,045 |
| | 62,419 |
| | 78,272 |
| 35,210 |
| | 20,583 |
| | 83,606 |
| | 62,419 |
|
Depreciation and amortization | 24,912 |
| | 26,022 |
| | 74,007 |
| | 74,430 |
| 50,135 |
| | 24,922 |
| | 100,336 |
| | 74,028 |
|
Loss (gain) on disposal or impairment, net | 1,018 |
| | (951 | ) | | 16,010 |
| | 1,479 |
| |
Loss on disposal or impairment, net | | 41,625 |
| | 1,018 |
| | 43,801 |
| | 16,010 |
|
Total expenses | 317,652 |
|
| 376,022 |
|
| 902,265 |
|
| 1,032,207 |
| 587,888 |
|
| 317,662 |
|
| 1,503,195 |
|
| 902,286 |
|
Earnings from equity method investments | 15,845 |
| | 16,237 |
| | 55,994 |
| | 60,699 |
| 17,367 |
| | 15,845 |
| | 52,211 |
| | 55,994 |
|
Gain (loss) on issuance of common units by equity method investee | — |
| | 136 |
| | (41 | ) | | 6,033 |
| |
Operating income | 25,957 |
|
| 37,416 |
|
| 83,680 |
|
| 107,126 |
| |
Loss on issuance of common units by equity method investee | | — |
| | — |
| | — |
| | (41 | ) |
Operating income (loss) | | (24,599 | ) |
| 25,947 |
|
| 24,127 |
|
| 83,659 |
|
Other expenses (income), net: | | | | | | | | | | | | | | |
Interest expense | 21,032 |
| | 19,170 |
| | 58,842 |
| | 50,583 |
| 32,711 |
| | 18,517 |
| | 60,055 |
| | 54,105 |
|
Loss on early extinguishment of debt | | — |
| | — |
| | 19,930 |
| | — |
|
Foreign currency transaction loss (gain) | 659 |
| | (385 | ) | | 3,671 |
| | (1,199 | ) | (747 | ) | | 659 |
| | (1,758 | ) | | 3,671 |
|
Loss (gain) on sale or impairment of equity method investment | — |
| | — |
| | 30,644 |
| | (14,517 | ) | |
Loss on sale or impairment of equity method investment | | — |
| | — |
| | — |
| | 30,644 |
|
Other income, net | (492 | ) | | (956 | ) | | (1,170 | ) | | (1,142 | ) | (211 | ) | | (492 | ) | | (802 | ) | | (1,170 | ) |
Total other expenses, net | 21,199 |
| | 17,829 |
| | 91,987 |
| | 33,725 |
| 31,753 |
| | 18,684 |
| | 77,425 |
| | 87,250 |
|
Income (loss) from continuing operations before income taxes | 4,758 |
|
| 19,587 |
|
| (8,307 | ) |
| 73,401 |
| (56,352 | ) |
| 7,263 |
|
| (53,298 | ) |
| (3,591 | ) |
Income tax expense (benefit) | 11,898 |
| | 10,006 |
| | (4,851 | ) | | 29,609 |
| (37,249 | ) | | 11,898 |
| | (33,529 | ) | | (4,851 | ) |
Income (loss) from continuing operations | (7,140 | ) |
| 9,581 |
|
| (3,456 | ) |
| 43,792 |
| (19,103 | ) |
| (4,635 | ) |
| (19,769 | ) |
| 1,260 |
|
Loss from discontinued operations, net of income taxes | — |
| | (1 | ) | | (1 | ) | | (3 | ) | — |
| | — |
| | — |
| | (1 | ) |
Net income (loss) | $ | (7,140 | ) |
| $ | 9,580 |
|
| $ | (3,457 | ) |
| $ | 43,789 |
| $ | (19,103 | ) |
| $ | (4,635 | ) |
| $ | (19,769 | ) |
| $ | 1,259 |
|
Revenue and Expenses
Revenue and expenses are analyzed by operating segment below.
General and administrative expense
General and administrative expenses of each corporate department are allocated to the segments based on criteria such as actual usage, headcount and estimates of effort or benefit. The method for allocating cost is based on the type of service being provided. For example, internal audit costs are based on an estimate of effort attributable to a segment. In contrast, accounting department costs are allocated based on the number of transactions processed for a given segment compared to the total number processed.
The overall increase in general and administrative expense compared with prior periods is primarily due to HFOTCO acquisition related costs of $13.6 million and $19.1 million for the three and nine months ended September 30, 2017, respectively.
Interest expense
Interest expense increased in the three months ended September 30, 2016,2017, to $21.0$32.7 million from $19.2$18.5 million in the three months ended September 30, 2015.2016. The increase is primarily due to debt issued during the three months ended September 30, 2017, including increased borrowings on the revolving credit facility and debt assumed in the HFOTCO acquisition. Interest expense increased in the nine months ended September 30, 2016,2017, to $58.8$60.1 million from $50.6$54.1 million in the nine months ended September 30, 2015.2016. The increase foris primarily due to debt issued during the three months ended September 30, 2017, as discussed above, partially offset by higher capitalized interest amounts as compared to the prior year, primarily related to the Maurepas Pipeline.
Loss on early extinguishment of debt
During the nine months ended September 30, 2016 is primarily due to the issuance of $3502017, we purchased $290 million of 5.625%our outstanding $300 million senior unsecured notes due 2021 (the “2021 Notes”) through a tender offer. The price included a premium and interest to the purchase date. A notice of redemption was issued for the remaining $10 million of 2021 Notes, which were not redeemed through the tender offer pursuant to the redemption and satisfaction and discharge provisions of the indenture governing the 2021 Notes. The redemption price includes a redemption premium and interest to the redemption date. As a result, we recognized a loss of $19.9 million on May 14, 2015.the early extinguishment of the 2021 Notes, which included premiums of $15.9 million and the write off of $3.6 million of associated unamortized debt issuance costs.
Loss (gain) on sale or impairment of equity method investment
During the nine months ended September 30, 2016, we recognized a $30.6 million net loss on sale or impairment of equity method investment compared to a $14.5 million gain from salesthe sale of limited partner units of NGL Energy for the same period in 2015. During the nine months ended September 30, 2016, we recorded a $39.8 million impairment to our equity method investment in NGL Energy based on a fair value of the common units being lower than the book value and NGL Energy's announced decreases in distributions and guidance, which was partially offset by a $9.1 million gain on the disposal of our remaining NGL Energy limited partner units in April 2016.Energy.
Income tax expense (benefit)
We reported an income tax benefit of $4.9$33.5 million for the nine months ended September 30, 20162017, compared to an expensea benefit of $29.6$4.8 million for the nine months ended September 30, 2015.2016. The effective tax rate was 250%66% and 51%164% for the three months ended September 30, 20162017 and 2015,2016, respectively, and 58%63% and 40%135% for the nine months ended September 30, 2017, and 2016, respectively. The rate for the nine months ended September 30, 2017, is impacted by a discrete tax expense of $1.4 million related to the vesting of restricted stock during the period and a discrete tax benefit of $31.6 million related to a change of position to deduct foreign taxes in lieu of claiming a foreign tax credit for the tax years 2013 through 2016. The foreign tax credit for these years was previously offset by a full valuation allowance and, accordingly, there is no net tax expense or balance sheet impact from their reversal. The discrete benefit arises from recognition of the increase in our net operating loss carryforward resulting from the deduction of foreign taxes. The decision to deduct foreign taxes or claim the foreign tax credit is made with respect to each tax period. The rate for the nine months ended September 30, 2016, and 2015, respectively.is impacted by a non-controlling interest in Rose Rock Midstream, L.P. (“Rose Rock”) for which taxes are not provided. Significant items that impacted the effective tax rate for each period, as compared to the U.S. federal statutory rate of 35%, include earnings in foreign jurisdictions taxed at lower rates and a non-controlling interest in Rose Rock for which taxes are not provided. The foreign earnings are taxed in foreign jurisdictions as well as in the U.S., since they are disregarded entities for U.S. federal income tax purposes. These combined factors, and the magnitude of the permanent items impacting the tax rate relative to income from continuing operations before income taxes, result in rates that are not comparable between the periods.
Results of Operations by Reporting Segment
Crude Transportation
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenue: | | | | | | | |
Pipeline transportation | $ | 6,813 |
| | $ | 7,657 |
| | $ | 21,560 |
| | $ | 23,827 |
|
Truck transportation | 16,127 |
| | 15,711 |
| | 46,560 |
| | 49,576 |
|
Total revenue | 22,940 |
| | 23,368 |
| | 68,120 |
| | 73,403 |
|
Expenses: | | | | | | | |
Operating | 17,106 |
| | 16,989 |
| | 52,588 |
| | 56,444 |
|
General and administrative | 1,188 |
| | 2,058 |
| | 3,443 |
| | 6,545 |
|
Depreciation and amortization | 6,307 |
| | 9,022 |
| | 18,337 |
| | 26,678 |
|
Loss on disposal of long-lived assets, net | 1,018 |
| | 27 |
| | 2,799 |
| | 160 |
|
Total expenses | 25,619 |
| | 28,096 |
| | 77,167 |
| | 89,827 |
|
Earnings from equity method investments | 15,883 |
| | 17,115 |
| | 53,800 |
| | 55,662 |
|
Operating income | $ | 13,204 |
| | $ | 12,387 |
| | $ | 44,753 |
| | $ | 39,238 |
|
Adjusted gross margin
Adjusted gross margin in this segment is generated by providing fee-based services, which are included in service revenue in our unaudited condensed consolidated statements of operations and comprehensive income (loss). As there is no cost of sales or derivative activity associated with our Crude Transportation revenue, Adjusted gross margin is equivalent to revenue for this segment. This segment's prior year revenue included product revenue related to certain commodity purchase and sales activity performed around our pipelines. In the current year, these product revenues are reflected in the Crude Supply and Logistics segment and have been replaced in the Crude Transportation segment with intersegment transportation fees which have been charged to Crude Supply and Logistics and which are reported as service revenue. With the exception of intersegment truck transportation charges, these intersegment charges did not exist in the prior year.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Revenue: | | | | | | | |
Pipeline transportation | $ | 12,497 |
| | $ | 6,813 |
| | $ | 25,124 |
| | $ | 21,560 |
|
Truck transportation | 15,315 |
| | 16,127 |
| | 44,141 |
| | 46,560 |
|
Total revenue | 27,812 |
| | 22,940 |
| | 69,265 |
| | 68,120 |
|
Expenses: | | | | | | | |
Operating | 17,272 |
| | 17,106 |
| | 49,691 |
| | 52,588 |
|
General and administrative | 2,580 |
| | 1,188 |
| | 9,093 |
| | 3,443 |
|
Depreciation and amortization | 11,170 |
| | 6,309 |
| | 23,595 |
| | 18,343 |
|
Loss on disposal or impairment, net | 40,161 |
| | 1,018 |
| | 42,107 |
| | 2,799 |
|
Total expenses | 71,183 |
| | 25,621 |
| | 124,486 |
| | 77,173 |
|
Earnings from equity method investments | 17,372 |
| | 15,883 |
| | 52,207 |
| | 53,800 |
|
Operating income (loss) | $ | (25,999 | ) | | $ | 13,202 |
| | $ | (3,014 | ) | | $ | 44,747 |
|
Three months ended September 30, 20162017 versus three months ended September 30, 20152016
Revenue
Pipeline transportation revenue decreasedincreased to $6.8$12.5 million in the three months ended September 30, 2016,2017, from $7.7 $6.8
million in the three months ended September 30, 2015.2016. The change is dueincrease was primarily the result of $5.8 million related to the start-up of the Maurepas Pipeline and a decrease in fixed margin activity which is now reported with other product revenues$1.0 million increase on the WOT, partially offset by a $0.9 million reduction related to the Tampa pipeline that was sold in the first quarter of 2017 and a $0.2 million reduction to intersegment transportation attributed to our Crude Supply and Logistics segment and was replaced in the Crude Transportation segment with intersegment usage fees. Beginning January 2016, Crude Transportation is charging Crude Supply and Logistics to move barrels through the pipeline system. This decrease was partially offset with a $0.9 million increase on the WOT.segment.
Truck transportation revenue increaseddecreased to $16.1$15.3 million in three months ended September 30, 2016, compared to $15.72017, from $16.1 million for the same period in 20152016 as a result of higher volumes.lower average rates.
Operating expense
Operating expense remained relatively constant atincreased slightly to $17.3 million for the three months ended September 30, 2017, compared to $17.1 million for the three months ended September 30, 2016, compared to $17.0 million for2016. The increase was the three months ended September 30, 2015.result of higher field expenses and outside services, partially offset by decreases in compensation and insurance and taxes.
General and administrative expense
General and administrative expense decreasedincreased to $2.6 million in the three months ended September 30, 2017, from $1.2 million in the three months ended September 30, 2016, from $2.1 million in the three months ended September 30, 2015.2016. The decreaseincrease is primarily a result of a reductionhigher overhead allocations largely due to certain Rose Rock corporate costs being allocated to the former Rose Rock segments subsequent to SemGroup’s acquisition of the outstanding non-controlling interest in overhead allocation.Rose Rock in September of 2016. These costs were included in Corporate and Other in the prior year. Insurance and taxes and other expense also increased as compared to prior period.
Depreciation and amortization expense
Depreciation and amortization expense decreasedincreased to $11.2 million in the three months ended September 30, 2017, from $6.3 million in the three months ended September 30, 2016, from $9.02016. The increase is primarily a result of the Maurepas Pipeline coming on line during the third quarter of 2017.
Loss on disposal or impairment, net
Crude Transportation recorded a loss on impairments of $40.2 million in the three months ended September 30, 2015. The decrease is2017, resulting from a $38.9 million impairment in our trucking division primarily duerelated to approximately $3.5goodwill and intangible customer relationships and a $1.3 million impairment to a 5.3 mile section of prior year expenseour Oklahoma pipeline system. See Note 4 of the accompanying financial statements for additional information related to the reductionimpairment of the useful life of a 163-mile section of the Kansasgoodwill and Oklahoma pipeline system.
Loss on disposal of long-lived assets, net
customer relationship intangible assets. Crude Transportation recorded a loss on disposal of long-lived assets of $1.0 million in the three months ended September 30, 2016, compared to a loss of $27 thousand in the three months ended September 30, 2015. The loss in the three months ended September 30, 2016 is primarily due to a write down of vehicles in our trucking division.
Earnings from equity method investments
Crude Transportation’s earnings from equity method investments decreasedincreased in the three months ended September 30, 2017, to $17.4 million from $15.9 million in the three months ended September 30, 2016, to $15.9 million from $17.1 million in the three months ended September 30, 2015, due to a reductionan increase in volume.
Nine months ended September 30, 20162017 versus nine months ended September 30, 20152016
Revenue
Pipeline transportation revenue decreasedincreased to $25.1 million in the nine months ended September 30, 2017, from $21.6 million in the nine months ended September 30, 2016, from $23.82016. The increase included a $5.8 million increase related to the start-up of the Maurepas Pipeline and a $2.4 million increase on the WOT. These increases were partially offset with a $2.8 million decrease related to the Tampa pipeline that was sold early in the nine months ended September 30, 2017, a $1.7 million reduction in intersegment activity and a $0.2 million reduction to other income.
Truck transportation revenue decreased to $44.1 million in the nine months ended September 30, 2015. The change is due to a decrease in fixed margin activity, which is now reported with other product revenues in the Crude Supply and Logistics segment and was replaced in the Crude Transportation segment with intersegment usage fees. Beginning January 2016, Crude Transportation is charging Crude Supply and Logistics to move barrels through the pipeline system. This decrease was partially offset with a $3.9 million increase on the WOT.
Truck transportation revenue decreased to2017, from $46.6 million in nine months ended September 30, 2016, compared to $49.6 million for the same period in 20152016, as a result of lower revenue per barrel.average rates.
Operating expense
Operating expense decreased to $52.6 million in the nine months ended September 30, 2016, from $56.4$49.7 million for the nine months ended September 30, 2015.2017, from $52.6 million for the nine months ended September 30, 2016. The decrease included reductions to maintenancewas the result of lower compensation, insurance and repair of $3.4 milliontaxes and allocated overhead of $2.9 million. These costs wereother expenses, partially offset by increases in employment costs, insuranceoutside services and taxes.field expense.
General and administrative expense
General and administrative expense decreasedincreased to $9.1 million in the nine months ended September 30, 2017, from $3.4 million in the nine months ended September 30, 2016, from $6.5 million in the nine months ended September 30, 2015.2016. The decreaseincrease is primarily a result of a reductionhigher overhead allocations largely due to certain Rose Rock corporate costs being allocated to the former Rose Rock segments subsequent to SemGroup’s acquisition of the outstanding non-controlling interest in overhead allocationRose Rock in September of $3.4 million, partially offset with slight increases2016. These costs were included in Corporate and Other in the prior year. Increases were also seen in insurance and taxes, legal and outside services.
other expenses.
Depreciation and amortization expense
Depreciation and amortization expense decreasedincreased to $23.6 million in the nine months ended September 30, 2017, from $18.3 million in the nine months ended September 30, 2016, from $26.72016. The increase is primarily a result of the Maurepas Pipeline coming on line during the third quarter of 2017.
Loss on disposal or impairment, net
Crude Transportation recorded a loss on disposal or impairment of $42.1 million in the nine months ended September 30, 2015.2017, resulting primarily from a $38.9 million impairment in our trucking division primarily related to goodwill and intangible customer relationships, a $1.3 million impairment to a 5.3 mile section of our Oklahoma pipeline system and a $4.8 million write down of right-of-ways, partially offset with a gain from the Tampa pipeline sale. The decrease is primarily due to approximately $10.6write down of right-of-ways included $4.5 million of prior year expense related to the reductioncorrection of immaterial prior period errors. See Note 4 of the useful lifeaccompanying financial statements for additional information related to the impairment of a 163-mile section of the Kansasgoodwill and Oklahoma pipeline system.
Loss on disposal of long-lived assets, net
customer relationship intangible assets. Crude Transportation recorded a loss on disposal of long-lived assets of $2.8 million in the nine months ended September 30, 2016, compared to a lossprimarily the result of $0.2 million in the nine months ended September 30, 2015. The loss in the nine months ended September 30, 2016 consisted of a $1.7 millionan abandonment of a 13-mile section of the Kansas and Oklahoma pipeline system and a $0.9 million write down of vehicles in our trucking division.system.
Earnings from equity method investments
Crude Transportation’s earnings from equity method investments decreased in the nine months ended September 30, 2017, to $52.2 million from $53.8 million in the nine months ended September 30, 2016, from $55.7 million in the nine months ended September 30, 2015, due to a reduction in volume.
Crude Facilities
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenue | $ | 12,740 |
| | $ | 11,642 |
| | $ | 38,445 |
| | $ | 34,449 |
|
Expenses: | | | | | | | |
Operating | 2,360 |
| | 1,782 |
| | 6,900 |
| | 6,451 |
|
General and administrative | 701 |
| | 776 |
| | 2,908 |
| | 2,549 |
|
Depreciation and amortization | 1,987 |
| | 1,451 |
| | 5,792 |
| | 4,226 |
|
Total expenses | 5,048 |
| | 4,009 |
| | 15,600 |
| | 13,226 |
|
Operating income | $ | 7,692 |
| | $ | 7,633 |
| | $ | 22,845 |
| | $ | 21,223 |
|
Adjusted gross margin
Adjusted gross margin in this segment is generated by providing fee-based services. Revenues from fee-based services are included in service revenue in our unaudited condensed consolidated statements of operations and comprehensive income (loss). As there is no cost of sales or derivative activity associated with our Crude Facilities revenue, Adjusted gross margin is equivalent to revenue for this segment. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 11,620 |
| | $ | 12,740 |
| | $ | 36,076 |
| | $ | 38,445 |
|
Expenses: | | | | | | | |
Operating | 2,814 |
| | 2,360 |
| | 8,225 |
| | 6,900 |
|
General and administrative | 309 |
| | 701 |
| | 1,515 |
| | 2,908 |
|
Depreciation and amortization | 2,058 |
| | 1,982 |
| | 6,024 |
| | 5,785 |
|
Total expenses | 5,181 |
| | 5,043 |
| | 15,764 |
| | 15,593 |
|
Operating income | $ | 6,439 |
| | $ | 7,697 |
| | $ | 20,312 |
| | $ | 22,852 |
|
Three months ended September 30, 20162017 versus three months ended September 30, 20152016
Revenue
Revenue increaseddecreased to $12.7$11.6 million in the three months ended September 30, 2016,2017, from $11.6$12.7 million for the three months ended September 30, 2015. Effective January 2016, Crude Facilities began charging Crude Supply and Logistics for the use of storage and unloading facilities. As a result, the increase was primarily2016. The decrease is due to intersegment pump-over activity of $1.5 million, the addition of intersegment storage of $1.2 million and intersegment unloading activity of $0.1 million. These increases were partially offset by a reduction in third-party storage revenue of $0.9$0.6 million, primarily resulting from scheduled tank cleanings, as the average capacity used internally for crude oil operations and marketing activities increaseddecreased to 1.3 million barrels from 1.11.4 million barrels and third-party unloadingthe average capacity leased by storage customers decreased to 6.2 million barrels from 6.6 million barrels. The remainder is due to decreases in pump-over revenue of $0.8$0.5 million.
Operating expense
Operating expense increased to $2.4$2.8 million in the three months ended September 30, 2016,2017, from $1.8$2.4 million for the three months ended September 30, 2015,2016, as a result of increased field expenses.
Generalexpense, maintenance and administrative expense
Generalrepair and administrative expense remained relatively constant at $0.7 million for three months ended September 30, 2016, compared to $0.8 million for the three months ended September 30, 2015.
Depreciation and amortization expense
Depreciation and amortization expense increased to $2.0 million in the three months ended September 30, 2016, from $1.5 million in the three months ended September 30, 2015. The increase was primarily due to incremental expense due to project completions between periods.
Nine months ended September 30, 2016 versus nine months ended September 30, 2015
Revenue
Revenue increased to $38.4 million in the nine months ended September 30, 2016, from $34.4 million for the nine months ended September 30, 2015. Effective January 2016, Crude Facilities began charging Crude Supply and Logistics for the use of storage and unloading facilities. As a result, the increase was primarily due to intersegment pump-over activity of $4.2 million, intersegment storage of $3.6 million and intersegment unloading activity of $0.3 million. These increases were partially offset by a reduction in third-party storage revenue of $2.2 million, as the average capacity used internally for crude oil operations and marketing activities increased to 1.3 million from 1.1 million, and third-party unloading revenue of $2.0 million.
Operating expense
Operating expense showed a slight increase in the nine months ended September 30, 2016, at $6.9 million compared to $6.5 million for the nine months ended September 30, 2015, primarily as a result of an increase in fieldother expense.
General and administrative expense
General and administrative expense increaseddecreased to $2.9$0.3 million for three months ended September 30, 2017, from $0.7 million for the three months ended September 30, 2016, as a result of a reduction in overhead allocations.
Nine months ended September 30, 2017 versus nine months ended September 30, 2016
Revenue
Revenue decreased to $36.1 million in the nine months ended September 30, 2016,2017, from $2.5$38.4 million for the nine months ended September 30, 2016. The decrease is due to a reduction in storage revenue of $1.9 million, primarily resulting from scheduled tank cleanings, as the average capacity leased by storage customers decreased to 6.3 million barrels from 6.6 million barrels, with the remaining amount due to reduction of pump-over revenue.
Operating expense
Operating expense increased to $8.2 million in the nine months ended September 30, 2015, largely due to higher overhead expense allocations.
Depreciation and amortization expense
Depreciation and amortization expense increased to $5.82017, from $6.9 million infor the nine months ended September 30, 2016, as a result of increased field expense, compensation, outside services and maintenance and repair expense.
General and administrative expense
General and administrative expense decreased to $1.5 million for nine months ended September 30, 2017, from $4.2$2.9 million infor the nine months ended September 30, 2015. The increase was primarily due to incremental expense due to project completions between periods.2016, as a result of a reduction in overhead allocations.
Crude Supply and Logistics
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenue | $ | 165,523 |
| | $ | 209,113 |
| | $ | 485,346 |
| | $ | 501,550 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 167,305 |
| | 198,281 |
| | 465,072 |
| | 474,934 |
|
Operating | 853 |
| | 281 |
| | 2,380 |
| | 629 |
|
General and administrative | 381 |
| | 176 |
| | 1,450 |
| | 572 |
|
Depreciation and amortization | 46 |
| | 40 |
| | 126 |
| | 119 |
|
Loss (gain) on disposal of long-lived assets, net | — |
| | — |
| | 227 |
| | (3 | ) |
Total expenses | 168,585 |
| | 198,778 |
| | 469,255 |
| | 476,251 |
|
Operating income (loss) | $ | (3,062 | ) | | $ | 10,335 |
| | $ | 16,091 |
| | $ | 25,299 |
|
Adjusted gross margin in this segment is generated from marketing activities. Revenues from marketing activities are included in product revenue in our unaudited condensed consolidated statements of operations and comprehensive income (loss).
The following table shows the Adjusted gross margin generated by this segment’s marketing activities:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenues | $ | 165,523 |
| | $ | 209,113 |
| | $ | 485,346 |
| | $ | 501,550 |
|
Less: Costs of products sold, exclusive of depreciation and amortization | 167,305 |
| | 198,281 |
| | 465,072 |
| | 474,934 |
|
Less: Unrealized gain (loss) on derivatives | (6,167 | ) | | 4,546 |
| | (6,096 | ) | | 3,430 |
|
Adjusted gross margin | $ | 4,385 |
| | $ | 6,286 |
| | $ | 26,370 |
| | $ | 23,186 |
|
The following table presents a reconciliation of operating income to Adjusted gross margin, the most directly comparable GAAP financial measure for each of the periods indicated.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Reconciliation of operating income to Adjusted gross margin: | | | | | | | |
Operating income | $ | (3,062 | ) | | $ | 10,335 |
| | $ | 16,091 |
| | $ | 25,299 |
|
Add: | | | | | | | |
Operating expense | 853 |
| | 281 |
| | 2,380 |
| | 629 |
|
General and administrative expense | 381 |
| | 176 |
| | 1,450 |
| | 572 |
|
Depreciation and amortization expense | 46 |
| | 40 |
| | 126 |
| | 119 |
|
Loss (gain) on disposal of long-lived assets, net | — |
| | — |
| | 227 |
| | (3 | ) |
Less: | | | | | | | |
Unrealized gain (loss) on derivatives | (6,167 | ) | | 4,546 |
| | (6,096 | ) | | 3,430 |
|
Adjusted gross margin | $ | 4,385 |
| | $ | 6,286 |
| | $ | 26,370 |
| | $ | 23,186 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 339,874 |
| | $ | 165,523 |
| | $ | 928,664 |
| | $ | 485,346 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 342,254 |
| | 167,305 |
| | 931,813 |
| | 465,072 |
|
Operating | 1,146 |
| | 853 |
| | 4,077 |
| | 2,380 |
|
General and administrative | 675 |
| | 381 |
| | 3,153 |
| | 1,450 |
|
Depreciation and amortization | 103 |
| | 46 |
| | 243 |
| | 126 |
|
Loss on disposal of long-lived assets, net | — |
| | — |
| | — |
| | 227 |
|
Total expenses | 344,178 |
| | 168,585 |
| | 939,286 |
| | 469,255 |
|
Operating income (loss) | $ | (4,304 | ) | | $ | (3,062 | ) | | $ | (10,622 | ) | | $ | 16,091 |
|
Three months ended September 30, 20162017 versus three months ended September 30, 20152016
Revenue
Revenue decreasedincreased to $339.9 million in the three months ended September 30, 2017, from $165.5 million in the three months ended September 30, 2016, from $209.1 million in the three months ended September 30, 2015.2016. | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
Gross product revenue | $ | 862,237 |
| | $ | 696,275 |
| | $ | 2,256,180 |
| | $ | 2,029,360 |
| $ | 1,050,165 |
| | $ | 862,237 |
|
Nonmonetary transaction adjustment | (690,547 | ) | | (491,708 | ) | | (1,764,738 | ) | | (1,531,240 | ) | (708,458 | ) | | (690,547 | ) |
Unrealized gain (loss) on derivatives, net | (6,167 | ) | | 4,546 |
| | (6,096 | ) | | 3,430 |
| |
Unrealized loss on derivatives, net | | (1,833 | ) | | (6,167 | ) |
Product revenue | $ | 165,523 |
| | $ | 209,113 |
| | $ | 485,346 |
| | $ | 501,550 |
| $ | 339,874 |
| | $ | 165,523 |
|
Gross product revenue increased in the three months ended September 30, 2016,2017, to $862.2 million$1.1 billion from $696.3$862.2 million in the three months ended September 30, 2015.2016. The increase was primarily due to an increase in the volume sold to 22.2 million barrels at an average sales price of $47 per barrel in the three months ended September 30, 2017, compared to volume sold of 19.0 million barrels at an average sales price of $45 per barrel in the three months ended September 30, 2016.
Gross product revenue was reduced by $708.5 million and $690.5 million during the three months ended September 30, 2017 and 2016, comparedrespectively, in accordance with Accounting Standards Codification (“ASC”) 845-10-15, “Nonmonetary Transactions”. ASC 845-10-15 requires that certain transactions -- those where inventory is purchased from a customer then
resold to the same customer -- to be presented in the income statement on a net basis, resulting in a reduction of revenue and costs of products sold by the same amount.
Cost of products sold
Costs of products sold increased in the three months ended September 30, 2017, to $342.3 million (including $11.6 million of intersegment charges) from $167.3 million in the three months ended September 30, 2016 (including $9.8 million of intersegment charges). Costs of products sold reflect reductions of $708.5 million and $690.5 million in the three months ended September 30, 2017 and 2016, respectively, in accordance with ASC 845-10-15. There was an increase in the barrels sold, as described above, combined with an increase in the average cost per barrel of crude oil to $47 in the three months ended September 30, 2017, from $45 in the three months ended September 30, 2016.
Operating expense
Operating expense increased to $1.1 million in the three months ended September 30, 2017, from $0.9 million for the three months ended September 30, 2016. The increase is primarily due to higher outside services and other expenses.
General and administrative expense
General and administrative expense increased to $0.7 million in the three months ended September 30, 2017, from $0.4 million in the three months ended September 30, 2016. This increase is primarily due to additional overhead allocation.
Nine months ended September 30, 2017 versus nine months ended September 30, 2016
Revenue
Revenue increased to $928.7 million in the nine months ended September 30, 2017, from $485.3 million in the nine months ended September 30, 2016. |
| | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 |
Gross product revenue | $ | 3,190,732 |
| | $ | 2,256,180 |
|
Nonmonetary transaction adjustment | (2,261,136 | ) | | (1,764,738 | ) |
Unrealized loss on derivatives, net | (932 | ) | | (6,096 | ) |
Product revenue | $ | 928,664 |
| | $ | 485,346 |
|
Gross product revenue increased in the nine months ended September 30, 2017, to $3.2 billion from $2.3 billion in the nine months ended September 30, 2016. The increase was primarily due to an increase in the volume sold of 14.5to 65.0 million barrels at an average sales price of $48$49 per barrel in the threenine months ended September 30, 2015.2017, compared to volume sold of 56.6 million barrels at an average sales price of $40 per barrel in the nine months ended September 30, 2016. Current year volume includes approximately 5.5 million barrels moved at negligible margins primarily to overcome volume constraints on third-party pipelines.
Gross product revenue was reduced by $690.5 million$2.3 billion and $491.7 million$1.8 billion during the threenine months ended September 30, 20162017 and 2015,2016, respectively, in accordance with Accounting Standards Codification ("ASC"(“ASC”) 845-10-15, "“Nonmonetary Transactions"Transactions”. ASC 845-10-15 requires that certain transactions -- those where inventory is purchased from a customer then resold to the same customer -- to be presented in the income statement on a net basis, resulting in a reduction of revenue and costs of products sold by the same amount.
Cost of products sold
Costs of products sold decreasedincreased in the threenine months ended September 30, 2017, to $931.8 million (including $30.0 million of intersegment charges) from $465.1 million in the nine months ended September 30, 2016 to $167.3 million (including $9.8 million of intersegment charges) from $198.3 million in the three months ended September 30, 2015 (including $3.0$27.4 million of intersegment charges). Costs of products sold reflectsreflect reductions of $690.5 million$2.3 billion and $491.7 million$1.8 billion in the threenine months
ended September 30, 20162017 and 2015,2016, respectively, in accordance with ASC 845-10-15. There was an increase in the barrels sold, as described above, combined with a decreasean increase in the average cost per barrel cost of crude oil to $45$49 in the threenine months ended September 30, 20162017, from $48$39 in the threenine months ended September 30, 2015.2016.
Adjusted gross margin
This segment's Adjusted gross margin decreased in the three months ended September 30, 2016, to $4.4 million from $6.3 million for the same period in 2015. The decrease was primarily due to an increase in barrels sold, as described above, and offset by a lower spread between the acquisition and sale price for volumes of crude oil sold, as the excess of our average sales price per barrel over our average acquisition cost per barrel decreased to approximately $0.23 in the three months ended September 30, 2016, from approximately $0.43 in the same period in 2015. The increase in volume was primarily due to crude oil blending and transactions related to contango market conditions.
Operating expense
Operating expense increased to $0.9$4.1 million in the threenine months ended September 30, 2016,2017, from $0.3$2.4 million for the threenine months ended September 30, 2015.2016. The increase is primarily due to higher employment costs.costs, outside services, maintenance and repair, insurance and taxes and other expenses.
General and administrative expense
General and administrative expense increased to $0.4$3.2 million in the threenine months ended September 30, 2016,2017, from $0.2$1.5 million in the threenine months ended September 30, 2015.2016. This increase is primarily due to additional overhead allocation.
HFOTCO
|
| | | |
| Three and Nine Months Ended September 30, |
(in thousands) | 2017 |
Revenue | $ | 34,675 |
|
Expenses: | |
Operating | 6,171 |
|
General and administrative | 1,267 |
|
Depreciation and amortization | 19,300 |
|
Loss on disposal of long-lived assets, net | 1,486 |
|
Total expenses | 28,224 |
|
Operating income | $ | 6,451 |
|
On July 17, 2017 (the “Closing Date”), we completed our acquisition of Houston Fuel Oil Terminal Company pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) among us, Beachhead I LLC (“Buyer I”), Beachhead II LLC (“Buyer II” and, together with Buyer I, the “Buyers”), which are each an indirect wholly-owned subsidiary of us, Buffalo Investor I, L.P. (“Buffalo I”) and Buffalo Investor II, L.P. (“Buffalo II” and, together with Buffalo I, the “Sellers”). Pursuant to the Purchase Agreement, we acquired 100% of the equity interests in Buffalo Parent Gulf Coast Terminals LLC (“BPGCT”), the parent company of Buffalo Gulf Coast Terminals LLC (“BGCT”) and HFOTCO LLC doing business as Houston Fuel Oil Terminal Company (“HFOTCO”), in exchange for a purchase price paid or to be paid by the Buyers to the Sellers in two payments.
The first payment (the “First Payment”) occurred on the Closing Date and was composed of estimated assumed net indebtedness at HFOTCO of approximately $766 million, issuance of approximately 12.4 million shares of our Class A common stock, and $297 million in cash, which is net of an estimated $4.2 million adjustment for working capital, net indebtedness and capital expenditures. We funded the cash portion of the First Payment and certain other transaction costs with borrowings under our revolving credit facility. We intend to make the second payment on or prior to December 31, 2018. The second payment will consist of $600 million of cash if paid on December 31, 2018, which amount is discounted at a rate of 5% per annum if paid prior to December 31, 2018, and increases to $680 million if not paid by December 31, 2018, but which amount must be paid any time after December 31, 2018, upon the written request of Sellers and, in any event, not later than December 31, 2019 (the “Second Payment”). Neither the Company nor any of its subsidiaries other than BPGCT, the Buyers and Beachhead Holdings LLC, the parent company of the Buyers (“Beachhead Holdings” and, together with BPGCT and the Buyers, the “Guarantors”), will have any obligation to pay the Second Payment to Sellers. Instead, the Second Payment is secured by a guarantee by the Guarantors and a pledge of the equity interests in BPGCT and the Buyers in favor of the Sellers.
This acquisition establishes our position in the premier energy market, the Houston Ship Channel, and provides a strategic platform to refinery-facing growth. This acquisition adds to our existing assets a 16.8 million barrel terminal strategically located on the U.S. Gulf Coast with crude pipeline delivery connectivity to the local refining complex, deep water marine access and inbound crude receipt pipeline connectivity, as well as rail/truck loading and unloading capabilities. The terminal, located on 330 acres on the Houston Ship Channel, stores, blends and transports residual fuel and crude oil as well as asphalt via pipeline, barge, rail, truck and ship for major oil companies, refiners, international trading firms and others. HFOTCO is currently executing on contractually supported growth projects, including a new ship dock, a new pipeline and connections, as well as an additional 1.45 million barrels of crude oil storage, expected to be in service mid-2018.
The results of HFOTCO subsequent to the acquisition are included in the table above. General and administrative expense for the period subsequent to the acquisition includes the benefit of a $3.0 million reduction to the assumed pension
liability due 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 September 30, 2017.
SemGas
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 56,247 |
| | $ | 60,090 |
| | $ | 176,298 |
| | $ | 157,077 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 33,129 |
| | 33,084 |
| | 100,725 |
| | 84,864 |
|
Operating | 7,563 |
| | 8,686 |
| | 22,307 |
| | 24,910 |
|
General and administrative | 2,640 |
| | 2,124 |
| | 7,927 |
| | 6,744 |
|
Depreciation and amortization | 9,114 |
| | 9,079 |
| | 27,140 |
| | 27,204 |
|
Loss on disposal or impairment, net | — |
| | — |
| | 21 |
| | 13,051 |
|
Total expenses | 52,446 |
|
| 52,973 |
| | 158,120 |
| | 156,773 |
|
Operating income | $ | 3,801 |
|
| $ | 7,117 |
| | $ | 18,178 |
| | $ | 304 |
|
Three months ended September 30, 2017 versus three months ended September 30, 2016
Revenue
Revenue decreased in the three months ended September 30, 2017, to $56.2 million from $60.1 million in the three months ended September 30, 2016. The decrease is primarily due to lower volumes (25,120 MMcf in the three months ended September 30, 2017, compared to 28,068 MMcf for the same period in 2016) and decreased fees ($13 million in the three months ended September 30, 2017, versus $14 million for the same period in 2016). Volume decreases are primarily due to reduced drilling coupled with natural well production declines. The decrease was offset by a higher average natural gas NYMEX price of $2.99/MMbtu in the three months ended September 30, 2017, versus $2.81/MMbtu for the same period in 2016, higher average NGL basket price of $0.75/gallon in the three months ended September 30, 2017, versus $0.54/gallon for the same period in 2016.
Costs of products sold
Costs of products sold remained constant in the three months ended September 30, 2017 and 2016, at $33.1 million.
Operating expense
Operating expense decreased to $7.6 million in the three months ended September 30, 2017, from $8.7 million in the three months ended September 30, 2016. This decrease is due to lower equipment leases, maintenance and repair cost and field expense (which includes materials and supplies, lubricants, water disposal, electricity and fuel). All decreases are primarily driven by lower volume in northern Oklahoma. These decreases were offset by an increase in employment expense.
General and administrative expense
General and administrative expense increased slightly to $2.6 million in the three months ended September 30, 2017, from $2.1 million in the three months ended September 30, 2016. This increase is due primarily to an increase in intercompany, employment and insurance costs, offset by a decrease in office expense.
Nine months ended September 30, 20162017 versus nine months ended September 30, 20152016
Revenue
Revenue decreasedincreased in the nine months ended September 30, 2017, to $485.3$176.3 million from $157.1 million in the nine months ended September 30, 2016, from $501.6 million2016. The increase is primarily due to a higher average natural gas NYMEX price of $3.17/MMbtu in the threenine months ended September 30, 2015.2017, versus $2.29/MMbtu for the same period in 2016, a higher average NGL basket price of $0.71/gallon in the nine months ended September 30, 2017, versus $0.51/gallon for the same period in 2016 and
Gross product revenue
increased fees ($41 million in the nine months ended September 30, 2017, versus $37 million for the same period in 2016). The increase was offset, in part, by lower volume (77,773 MMcf in the nine months ended September 30, 2017, compared to 88,470 MMcf for the same period in 2016). Volume decreases are primarily due to reduced drilling coupled with natural well production declines.
Costs of products sold
Costs of products sold increased in the nine months ended September 30, 2016,2017, to $2.3 billion$100.7 million from $2.0 billion in the nine months ended September 30, 2015. The increase was primarily due to an increase in the volume sold to 56.6 million barrels at an average sales price of $40 per barrel in the nine months ended September 30, 2016, compared to volume sold of 39.5 million barrels at an average sales price of $51 per barrel in the nine months ended September 30, 2015.
Gross product revenue was reduced by $1.8 billion and $1.5 billion during the nine months ended September 30, 2016 and 2015, respectively, in accordance with ASC 845-10-15, "Nonmonetary Transactions". ASC 845-10-15 requires that certain transactions -- those where inventory is purchased from a customer then resold to the same customer -- to be presented in the income statement on a net basis, resulting in a reduction of revenue and costs of products sold by the same amount.
Cost of products sold
Costs of products sold decreased in the nine months ended September 30, 2016, to $465.1 million (including $27.4 million of intersegment charges) from $474.9$84.9 million in the nine months ended September 30, 2015 (including $10.3 million of intersegment charges). Costs of products sold reflects reductions of $1.8 billion and $1.5 billion in the nine months ended September 30, 2016 and 2015, respectively, in accordance with ASC 845-10-15. There was an increase in the barrels sold, as described above, combined with a decrease in the average per barrel cost of crude oil to $39 in the nine months ended September 30, 2016 from $51 in the three months ended September 30, 2015.
Adjusted gross margin
This segment's Adjusted gross margin increased in the nine months ended September 30, 2016, to $26.4 million from $23.2 million for the same period in 2015.2016. The increase was primarily dueis attributable to an increasehigher prices offset, in barrels sold, as described above, and offsetpart, by a lower spread between the acquisition and sale price for volumes of crude oil sold, as the excess of our average sales price per barrel over our average acquisition cost per barrel decreased to approximately $0.47volume processed in the nine months ended September 30, 2016, from approximately $0.59 in the same period in 2015. The increase in volume was primarily due to crude oil blending and transactions related to contango market conditions.
northern Oklahoma.
Operating expense
Operating expense increaseddecreased to $2.4$22.3 million in the nine months ended September 30, 2016,2017, from $0.6$24.9 million forin the nine months ended September 30, 2015. The increase2016. This decrease is primarily due to higherlower equipment lease expense, maintenance and repair cost and field expense (which includes materials and supplies, lubricants, water disposal, electricity and fuel). All decreases are primarily driven by lower volume in northern Oklahoma. These decreases were offset by an increase in employment costs.costs and taxes.
General and administrative expense
General and administrative expense increased to $1.5$7.9 million in the nine months ended September 30, 2016,2017, from $0.6 million for the nine months ended September 30, 2015. The increase is due to additional overhead allocations.
Loss (gain) on disposal of long-lived assets, net
Crude Supply and Logistics recognized a net loss on disposal of long-lived assets of $0.2$6.7 million in the nine months ended September 30, 2016,2016. This increase is due primarily to an increase in employment costs, intercompany, outside services and facilities lease expense, offset by a decrease in office and insurance expense.
Loss on disposal or impairment, net
Net loss on disposal or impairment decreased to $21.0 thousand in the nine months ended September 30, 2017, from $13.1 million in the nine months ended September 30, 2016. This decrease is primarily due to a write-down of capitalized line fill taken out of service.$13.1 million goodwill impairment recorded in the nine months ended September 30, 2016.
SemGasSemCAMS
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenue | $ | 60,090 |
| | $ | 65,070 |
| | $ | 157,077 |
| | $ | 198,048 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 33,084 |
| | 36,915 |
| | 84,864 |
| | 114,344 |
|
Operating | 8,686 |
| | 8,475 |
| | 24,910 |
| | 25,320 |
|
General and administrative | 2,124 |
| | 2,376 |
| | 6,744 |
| | 7,080 |
|
Depreciation and amortization | 9,066 |
| | 8,601 |
| | 27,182 |
| | 23,098 |
|
Loss on disposal or impairment, net | — |
| | 445 |
| | 13,051 |
| | 1,894 |
|
Total expenses | 52,960 |
|
| 56,812 |
| | 156,751 |
| | 171,736 |
|
Operating income | $ | 7,130 |
|
| $ | 8,258 |
| | $ | 326 |
| | $ | 26,312 |
|
Adjusted gross margin in this segment is generated from fee-based and percent of proceeds contracts for gathering and processing services. Fee-based revenues are included in service revenue and percent of proceeds revenue is included in product revenue in our unaudited condensed consolidated statements of operations and comprehensive income (loss). |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 39,500 |
| | $ | 36,111 |
| | $ | 136,412 |
| | $ | 100,792 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 3 |
| | 19 |
| | 59 |
| | 95 |
|
Operating | 22,793 |
| | 19,604 |
| | 83,747 |
| | 57,944 |
|
General and administrative | 4,867 |
| | 3,421 |
| | 13,276 |
| | 10,782 |
|
Depreciation and amortization | 4,727 |
| | 4,239 |
| | 13,657 |
| | 12,484 |
|
Loss (gain) on disposal of long-lived assets, net | (22 | ) | | — |
| | 423 |
| | — |
|
Total expenses | 32,368 |
| | 27,283 |
| | 111,162 |
| | 81,305 |
|
Operating income | $ | 7,132 |
| | $ | 8,828 |
| | $ | 25,250 |
| | $ | 19,487 |
|
The following table shows the Adjusted gross margin generated in theThree months ended September 30, 2017 versus three months ended September 30, 2016 and 2015.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenue | $ | 60,090 |
| | $ | 65,070 |
| | $ | 157,077 |
| | $ | 198,048 |
|
Less: Cost of products sold, exclusive of depreciation and amortization | 33,084 |
| | 36,915 |
| | 84,864 |
| | 114,344 |
|
Adjusted gross margin | $ | 27,006 |
| | $ | 28,155 |
| | $ | 72,213 |
| | $ | 83,704 |
|
The following table presents a reconciliation of operating income to Adjusted gross margin, the most directly comparable GAAP financial measure for each of the periods indicated.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Reconciliation of operating income to Adjusted gross margin: | | | | | | | |
Operating income | $ | 7,130 |
| | $ | 8,258 |
| | $ | 326 |
| | $ | 26,312 |
|
Add: | | | | | | | |
Operating expense | 8,686 |
| | 8,475 |
| | 24,910 |
| | 25,320 |
|
General and administrative expense | 2,124 |
| | 2,376 |
| | 6,744 |
| | 7,080 |
|
Depreciation and amortization expense | 9,066 |
| | 8,601 |
| | 27,182 |
| | 23,098 |
|
Loss on disposal or impairment, net | — |
| | 445 |
| | 13,051 |
| | 1,894 |
|
Adjusted gross margin | $ | 27,006 |
| | $ | 28,155 |
| | $ | 72,213 |
| | $ | 83,704 |
|
Three months ended September 30, 2016 versus three months ended September 30, 2015
Revenue
Revenue decreased in the three months ended September 30, 2016,2017, increased to $60.1$39.5 million from $65.1$36.1 million for the three months ended September 30, 2015.2016. This decreaseincrease is the result of lower volume (28,068 MMcf versus 37,663 MMcf), and decreasedprimarily due to changes in foreign currency exchange rates between periods, higher gathering and processing fees ($13.5revenue, higher operating cost recoveries and higher overhead recovery income of $1.5 million, versus $15.1 million). The decrease in$1.4 million, $0.5 million and $0.5 million, respectively. In addition, a 11-day unplanned outage at the KA plant reduced gathering and processing revenue was offset by an increase in the average natural gas NYMEX price of $2.81/mmbtu versus $2.77/mmbtu and the average NGL basket price to $0.66/gallon in the three months ended September 30, 2016, versus $0.57/gallon for the same period in 2015. The decrease in volume is primarily a result of decreased drilling and production in the area served by our gas plants in northern Oklahoma, which is caused by continued reduction in capital expenditures and new production.$0.7 million.
Costs of products sold
Costs of products sold decreased in the three months ended September 30, 2016, to $33.1 million from $36.9 million in the three months ended September 30, 2015. This decrease is primarily related to lower volume as described above.
Operating expense
Operating expense increased in the three months ended September 30, 2016,2017, to $8.7$22.8 million from $8.5$19.6 million for the three months ended September 30, 2015.2016. This increase is primarily due to higher maintenanceturnaround costs related to the K3 plant and repairs, which were partiallychanges in foreign currency exchange rates between periods offset, in part, by decreases in equipment leasing and other field expenses.
General and administrative expenselower contractor costs.
General and administrative remained relatively constantexpense
General and administrative expense increased in the three months ended September 30, 2017, to $4.9 million from $3.4 million in the three months ended September 30, 2016. This increase is primarily due to higher compensation costs, write-off of capital projects, higher office costs and changes in foreign currency exchange rates between periods.
Depreciation and amortization expense
Depreciation and amortization expense increased slightly in the three months ended September 30, 2017, to $4.7 million from $4.2 million for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015.
Depreciation and amortization expense
Depreciation and amortization expense increased in the three months ended September 30, 2016, to $9.1 million from $8.6 million in the three months ended September 30, 2015. The increase is primarily a result of incremental assets placed in-service since the prior year due to expansion in northern Oklahoma.project completions.
Nine months ended September 30, 20162017 versus nine months ended September 30, 20152016
Revenue
Revenue decreased in the nine months ended September 30, 2016,2017, increased to $157.1$136.4 million from $198.0$100.8 million for the nine months ended September 30, 2015.2016. This decreaseincrease is the result of lower prices, lower volume (88,470 MMcf versus 110,487 MMcf) and decreasedprimarily due to higher operating costs recoveries, higher gathering and processing revenue, true-up of take-or-pay minimum volume commitments, higher overhead recovery income, changes in foreign currency exchange rates between periods and higher maintenance capital fees ($37.3of $26.2 million, versus $45.3 million). The decrease in$4.3 million, $3.8 million, $2.7 million, $0.9 million and $0.6 million, respectively. In addition, a 36-day planned outage at the K3 plant and an 11-day unplanned outage at the KA plant reduced gathering and processing revenue was affected by a lower average natural gas NYMEX price of $2.29/mmbtu versus $2.80/mmbtu offset by higher average NGL basket price of $0.61/gallon versus $0.57/gallon for the same period in 2015. The decrease in volume is primarily a result of decreased drilling$1.6 million and production in the area served by our gas plants in northern Oklahoma, which is caused by continued reduction in capital expenditures and new production.$0.7 million, respectively.
Operating expense
Costs of products sold
Costs of products sold decreasedOperating expense increased in the nine months ended September 30, 2016,2017, to $84.9$83.7 million from $114.3$57.9 million for the nine months ended September 30, 2016. This increase is primarily due to turnaround costs related to the K3 plant and higher compensation costs. These increases were offset, in part, by lower contractor costs, repair costs in 2016 related to the K3 plant outage and changes in foreign currency exchange rates between periods.
General and administrative expense
General and administrative expense increased to $13.3 million in the nine months ended September 30, 2015. This decrease is primarily related to lower volume and prices as described above.
Operating expense
Operating expense decreased2017, from $10.8 million in the nine months ended September 30, 2016, to $24.9 million from $25.3 million for the nine months ended September 30, 2015. This decrease is due primarily to lower field expenses, which were partially offset by an increasehigher compensation costs, higher office costs, write-off of capital projects and changes in maintenance and repairs.
General and administrative expense
General and administrative remained relatively constant for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015.foreign currency exchange rates between periods.
Depreciation and amortization expense
Depreciation and amortization expense increased in the nine months ended September 30, 2016,2017, to $27.2$13.7 million from $23.1$12.5 million in the nine months ended September 30, 2015. The increase is primarily a result of incremental assets placed in-service since the prior year due to expansion in northern Oklahoma.
Loss on disposal or impairment, net
Loss on disposal or impairment, net increased to $13.1 million infor the nine months ended September 30, 2016, from $1.9 million in the nine months ended September 30, 2015. This increase is primarily due toas a $13.1 million goodwill impairment recorded at March 31, 2016. The prior year loss is due to the write downresult of certain gas gathering and compression assets in Kansas to their estimated net realizable value.
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 OCC Plan which 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 assets, finite-lived intangible and goodwill for impairment at March 31, 2016. No impairment was indicated for SemGas' long-lived assets and finite-lived intangible 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 injection 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.project completions.
SemCAMS
SemLogistics
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 36,111 |
| | $ | 33,152 |
| | $ | 100,792 |
| | $ | 98,791 |
| $ | 7,009 |
| | $ | 5,668 |
| | $ | 21,505 |
| | $ | 17,980 |
|
Expenses: | | | | | | | | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 19 |
| | 27 |
| | 95 |
| | 235 |
| — |
| | 30 |
| | — |
| | 30 |
|
Operating | 19,604 |
| | 21,062 |
| | 57,944 |
| | 63,058 |
| 2,682 |
| | 1,619 |
| | 6,790 |
| | 5,713 |
|
General and administrative | 3,421 |
| | 3,600 |
| | 10,782 |
| | 11,169 |
| 1,758 |
| | 707 |
| | 5,442 |
| | 4,264 |
|
Depreciation and amortization | 4,239 |
| | 3,198 |
| | 12,484 |
| | 9,451 |
| 1,967 |
| | 1,880 |
| | 5,683 |
| | 5,823 |
|
Loss on disposal or impairment, net | — |
| | (917 | ) | | — |
| | (917 | ) | |
Total expenses | 27,283 |
| | 26,970 |
| | 81,305 |
| | 82,996 |
| 6,407 |
| | 4,236 |
| | 17,915 |
| | 15,830 |
|
Operating income | $ | 8,828 |
| | $ | 6,182 |
| | $ | 19,487 |
| | $ | 15,795 |
| $ | 602 |
| | $ | 1,432 |
| | $ | 3,590 |
| | $ | 2,150 |
|
Three months ended September 30, 20162017 versus three months ended September 30, 20152016
Revenue
Revenue increased to $7.0 million in the three months ended September 30, 2016, increased to $36.12017, from $5.7 million from $33.2 million forin the three months ended September 30, 2015.2016. Throughput revenues increased $0.6 million as a result of a 2.6 million barrel increase in volume. Higher storage fees and an increase of 2.7 million barrels in storage volume over the comparable periods resulted in an increase in storage revenues of $0.5 million and $0.3 million, respectively.
Operating expense
Operating expense increased to $2.7 million in the three months ended September 30, 2017, from $1.6 million in the three months ended September 30, 2016. This increase is primarily due to higher gathering and processing revenue.
Operating expense
Operating expense decreased in the three months ended September 30, 2016, to $19.6 million from $21.1 million for the three months ended September 30, 2015. This decrease is primarily due to lower costs for contract labor and powermaintenance costs.
General and administrative expense
General and administrative expense decreasedincreased to $3.4$1.8 million in the three months ended September 30, 2017, from $0.7 million in the three months ended September 30, 2016. This increase is primarily due to property tax appeal costs.
Nine months ended September 30, 2017 versus nine months ended September 30, 2016
Revenue
Revenue increased to $21.5 million in the nine months ended September 30, 2017, from $18.0 million in the nine months ended September 30, 2016. An increase of 9.4 million in volume (58.2 million barrels in the nine months ended September 30, 2017 compared to 48.8 million barrels in the comparable period) and higher storage fees resulted in an increase of $3.0 million and $1.2 million, respectively. Throughput volume increased 5.7 million barrels over the comparable period resulting in an increase in throughput revenue of $0.9 million. These increases were offset by a decrease of $2.0 million as a result of the change in foreign currency exchange rates between periods.
Operating expense
Operating expense increased to $6.8 million in the nine months ended September 30, 2017, from $5.7 million in the nine months ended September 30, 2016, primarily as a result of higher maintenance costs.
General and administrative expense
General and administrative expense increased to $5.4 million in the nine months ended September 30, 2017, from $4.3 million in the nine months ended September 30, 2016. This increase is primarily due to property tax appeal costs.
SemMexico
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 42,893 |
| | $ | 36,752 |
| | $ | 110,916 |
| | $ | 97,172 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 36,574 |
| | 30,125 |
| | 93,460 |
| | 77,171 |
|
Operating | 2,157 |
| | 1,839 |
| | 5,905 |
| | 5,720 |
|
General and administrative | 2,087 |
| | 2,271 |
| | 6,317 |
| | 7,489 |
|
Depreciation and amortization | 1,070 |
| | 932 |
| | 3,029 |
| | 2,822 |
|
Gain on disposal of long-lived assets, net | — |
| | — |
| | (228 | ) | | (67 | ) |
Total expenses | 41,888 |
| | 35,167 |
| | 108,483 |
| | 93,135 |
|
Operating income | $ | 1,005 |
|
| $ | 1,585 |
| | $ | 2,433 |
| | $ | 4,037 |
|
Three months ended September 30, 2017 versus three months ended September 30, 2016
Revenue
Revenue increased in the three months ended September 30, 2017, to $42.9 million from $36.8 million in the three months ended September 30, 2016. An increase in the average sales price per metric ton between periods accounted for $5.2 million of the increase and lower volumes between periods (95,015 metric tons in the three months ended September 30, 2017, compared to 97,966 metric tons in the three months ended September 30, 2016), resulted in a decrease of $1.1 million. The change in the foreign currency exchange rate between periods resulted in an increase of $2.1 million.
Costs of products sold
Costs of products sold increased in the three months ended September 30, 2017, to $36.6 million from $30.1 million in the three months ended September 30, 2016. These increases were primarily due to a higher average cost of asphalt along with the effect of changes in foreign currency exchange rates, offset by decreases resulting from lower volume between the periods.
Operating expense
Operating expense increased in the three months ended September 30, 2017, to $2.2 million from $1.8 million in the three months ended September 30, 2016, from $3.6 million in three months ended September 30, 2015, due to lower compensation costs.
Depreciation and amortization expense
Depreciation and amortization expense increased in the three months ended September 30, 2016, to $4.2 million from $3.2 million for the three months ended September 30, 2015, as a result of projection completions.
Nine months ended September 30, 2016 versus nine months ended September 30, 2015
Revenue
Revenueincreases in the nine months ended September 30, 2016, increased to $100.8 million from $98.8 million for the nine months ended September 30, 2015. This increase is primarily due to $9.7 million in higher gatheringbad debt expense, maintenance and processing revenue, excludingrepair expense and the decrease of $2.5 million in gathering and processing revenue related to a 30-day unplanned outage at our Kaybob South No. 3 plant during the second quarter of 2016 and fees of $3.7 million on true-up of take-or-pay minimum volume commitments. This increase was offset by a reduction to changes in the foreign currency exchange raterates between periods and lower maintenance capital recovery of $5.0 million and $2.1 million, respectively.
Operating expense
Operating expense decreased in the nine months ended September 30, 2016, to $57.9 million from $63.1 million for the nine months ended September 30, 2015. This decrease is primarily due to lower power costs and a reduction caused by changes in the foreign currency exchange rate between periods.
General and administrative expense
General and administrative expense decreased to $10.8 million for the nine months ended September 30, 2016, compared to $11.2 million for the nine months ended September 30, 2015 due to lower compensation costs.
Depreciation and amortization expense
Depreciation and amortization expense increased in the nine months ended September 30, 2016, to $12.5 million from $9.5 million for the nine months ended September 30, 2015. This increase is primarily related to project completions which resulted in an increased depreciation expense.
SemLogistics
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenue | $ | 5,668 |
| | $ | 5,659 |
| | $ | 17,980 |
| | $ | 17,090 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 30 |
| | — |
| | 30 |
| | — |
|
Operating | 1,619 |
| | 1,955 |
| | 5,713 |
| | 6,610 |
|
General and administrative | 707 |
| | 1,757 |
| | 4,264 |
| | 5,680 |
|
Depreciation and amortization | 1,880 |
| | 2,173 |
| | 5,823 |
| | 6,367 |
|
Total expenses | 4,236 |
| | 5,885 |
| | 15,830 |
| | 18,657 |
|
Operating income (loss) | $ | 1,432 |
| | $ | (226 | ) | | $ | 2,150 |
| | $ | (1,567 | ) |
Three months ended September 30, 2016 versus three months ended September 30, 2015
Revenue
Revenue remained constant at $5.7 million for the three months ended September 30, 2016 and 2015.
Operating expense
Operating expense decreased in the three months ended September 30, 2016, to $1.6 million from $2.0 million for the three months ended September 30, 2015. This decrease is primarily due to a reduction in operational service costs.
General and administrative expense
General and administrative expense decreased in the three months ended September 30, 2016,2017, to $0.7$2.1 million from $1.8$2.3 million forin the three months ended September 30, 2015. This decrease is primarily2016, as a result of decreased outside services, legal and travel expenses and an overall reduction in expenses due to a refundthe implementation of property taxes.
General
In every other category of expense, the amounts for the third quarter of 2016 are roughly equivalent to those of the third quarter of 2015.strict cost control measures.
Nine months ended September 30, 20162017 versus nine months ended September 30, 20152016
Revenue
Revenue increased in the nine months ended September 30, 2016, increased2017, to $18.0$110.9 million from $17.1$97.2 million for the nine months ended September 30, 2015. This increase is primarily due to higher storage revenue of $3.3 million due to additional storage capacity being contracted. This increase was offset, in part, by a decrease in throughput revenues of $0.9 million and a decrease due to the change in foreign exchange rates between periods of $1.8 million.
Operating expense
Operating expense decreased in the nine months ended September 30, 2016, to $5.72016. An increase in the average sales price per metric ton between periods accounted for $15.4 million from $6.6 million forof the increase and higher volumes between periods (257,565 metric tons in the nine months ended September 30, 2015. This decrease is primarily due2017, compared to lower site maintenance costs and254,082 metric tons in the nine months ended September 30, 2016), resulted in an increase of $1.3 million. Changes in the foreign currency exchange rate between periods resulted in a decrease dueof $2.5 million.
Costs of products sold
Costs of products sold increased in the nine months ended September 30, 2017, to $93.5 million from $77.2 million in the nine months ended September 30, 2016. The increase is a result of higher average cost of asphalt and higher volume between the periods, offset by the effect of changes in the foreign currency exchange raterates between periods.
General and administrative expense
General and administrative expense decreased in the nine months ended September 30, 2016,2017, to $4.3$6.3 million from $5.7 million for the nine months ended September 30, 2015. This decrease is primarily due to a refund of property taxes and a decrease due to changes in the foreign exchange rate between periods.
General
In every other category of expense, the amounts for the nine months ended September 30, 2016, are roughly equivalent to those of the nine months ended September 30, 2015.
SemMexico
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Revenue | $ | 36,752 |
| | $ | 56,260 |
| | $ | 97,172 |
| | $ | 169,209 |
|
Expenses: | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | 30,125 |
| | 46,615 |
| | 77,171 |
| | 139,362 |
|
Operating | 1,839 |
| | 2,447 |
| | 5,720 |
| | 7,724 |
|
General and administrative | 2,271 |
| | 2,823 |
| | 7,489 |
| | 7,588 |
|
Depreciation and amortization | 932 |
| | 993 |
| | 2,822 |
| | 3,083 |
|
Loss (gain) on disposal of long-lived assets, net | — |
| | 124 |
| | (67 | ) | | 105 |
|
Total expenses | 35,167 |
| | 53,002 |
| | 93,135 |
| | 157,862 |
|
Operating income | $ | 1,585 |
|
| $ | 3,258 |
| | $ | 4,037 |
| | $ | 11,347 |
|
Three months ended September 30, 2016 versus three months ended September 30, 2015
Revenue
Revenue decreased in the three months ended September 30, 2016, to $36.8 million from $56.3 million in the three months ended September 30, 2015. A decrease in the average sales price per metric ton between periods accounts for $12.4 million of the decrease and lower volumes between periods (97,966 metric tons in the three months ended September 30, 2016, compared to 101,713 metric tons in the three months ended September 30, 2015) resulted in a decrease of $2.1 million. The change in the foreign currency exchange rate between periods resulted in an additional decrease of $5.1 million.
Costs of products sold
Costs of products sold decreased in the three months ended September 30, 2016, to $30.1 million from $46.6 million in the three months ended September 30, 2015. A decrease in the average cost of asphalt and lower volume between the periods accounted for decreases of $10.5 million and $1.7 million, respectively. The change in the foreign currency exchange rate between periods resulted in a decrease of $4.3 million.
Operating expense
Operating expense decreased in the three months ended September 30, 2016, to $1.8 million from $2.4 million in the three months ended September 30, 2015. The decrease is primarily due to the change in the foreign currency exchange rate between periods.
General and administrative expense
General and administrative expense decreased in the three months ended September 30, 2016, to $2.3 million from $2.8 million in the three months ended September 30, 2015. The decrease is primarily due to the change in the foreign currency exchange rate between periods.
General
In every other category of expense, the amounts for the three months ended September 30, 2016, are roughly equivalent to those of the three months ended September 30, 2015.
Nine months ended September 30, 2016 versus nine months ended September 30, 2015
Revenue
Revenue decreased in the nine months ended September 30, 2016, to $97.2 million from $169.2$7.5 million in the nine months ended September 30, 2015. A2016. The decrease is a result of overall reduction in expenses due to the average sales price per metric ton between periods accounts for $40.3 millionimplementation of the decrease and lower volumes between periods (254,082 metric tons in the nine months ended September 30, 2016, compared to 278,097 metric tons in the nine months ended September 30, 2015), resulted in a decrease of $14.4 million. The change in thestrict cost control measures, along with reduced outside services, foreign currency exchange, rate between periods resulted in an additional decrease of $17.1 million.
Costs of products sold
Costs of products sold decreased in the nine months ended September 30, 2016, to $77.2 million from $139.4 million in the nine months ended September 30, 2015. A decrease in the average cost of asphaltlegal and lower volume between the periods accounted for decreases of $36.2 million and $12.0 million, respectively. The change in the foreign currency exchange rate between periods resulted in a decrease of $14.0 million.
Operating expense
Operating expense decreased in the nine months ended September 30, 2016, to $5.7 million from $7.7 million in the nine months ended September 30, 2015. The decrease is due to reduced bad debt expense of $1.0 million and the change in foreign currency exchange rate between periods.
General
In every other category of expense, the amounts for the nine months ended September 30, 2016, are roughly equivalent to those of the nine months ended September 30, 2015.travel expenses.
Corporate and Other
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | (12,060 | ) | | $ | (7,199 | ) | | $ | (34,940 | ) | | $ | (19,939 | ) | $ | (13,708 | ) | | $ | (12,060 | ) | | $ | (38,700 | ) | | $ | (34,940 | ) |
Expenses: | | | | | | | | | | | | | | |
Costs of products sold, exclusive of depreciation and amortization shown below | (12,060 | ) | | (7,199 | ) | | (34,940 | ) | | (18,006 | ) | (13,708 | ) | | (12,060 | ) | | (38,700 | ) | | (34,940 | ) |
Operating | 569 |
| | 276 |
| | 1,382 |
| | 921 |
| 68 |
| | 569 |
| | 1,182 |
| | 1,382 |
|
General and administrative | 9,790 |
| | 9,479 |
| | 25,339 |
| | 37,089 |
| 19,027 |
| | 9,790 |
| | 35,616 |
| | 25,339 |
|
Depreciation and amortization | 455 |
| | 544 |
| | 1,441 |
| | 1,408 |
| 626 |
| | 455 |
| | 1,665 |
| | 1,441 |
|
Loss (gain) on disposal of long-lived assets, net | — |
| | (630 | ) | | — |
| | 240 |
| |
Gain on disposal of long-lived assets, net | | — |
| | — |
| | (8 | ) | | — |
|
Total expenses | (1,246 | ) | | 2,470 |
| | (6,778 | ) | | 21,652 |
| 6,013 |
| | (1,246 | ) | | (245 | ) | | (6,778 | ) |
Earnings from equity method investments | (38 | ) | | (742 | ) | | 2,153 |
| | 11,070 |
| |
Earnings (loss) from equity method investments | | (5 | ) | | (38 | ) | | 4 |
| | 2,153 |
|
Operating loss | $ | (10,852 | ) | | $ | (10,411 | ) | | $ | (26,009 | ) | | $ | (30,521 | ) | $ | (19,726 | ) | | $ | (10,852 | ) | | $ | (38,451 | ) | | $ | (26,009 | ) |
Corporate and Other is not an operating segment. This table is included to permit the reconciliation of segment information to that of the consolidated Company. The amounts reportedincrease in general and administrative expense in the current period is primarily due to HFOTCO acquisition costs of $13.6 million and $19.1 million for the three months and nine months ended September 30, 2016 and 2015 above have been recast to include non-operating entities which were previously included in our SemCrude segment and the historical results of our former SemStream segment. SemStream holds our equity method investment in NGL Energy which is no longer material subsequent to the April 2016 sale of our limited partner interest.2017, respectively. Earnings from equity method investments, and gain (loss)which includes loss on issuance of common units by equity method investee in the table above, relate to our investment in NGL Energy.
Changes in revenue and costs of products sold in the table above are due to the elimination of intercompany purchases and sales which fluctuate based on volume of activity between the segments and related commodity pricing. The decrease in general and administrative expense for the nine months ended September 30, 2016 to $25.3 million from $37.1 million in the nine months ended September 30, 2015 is due primarily to $10.0 million of business development expenses related to the Maurepas Pipeline and legal settlement expense of $2.4 million which were incurred in the first quarter of 2015.
Liquidity and Capital Resources
Sources and Uses of Cash
Our principal sources of short-term liquidity are cash generated from our operations and borrowings under our revolving credit facility.facilities. The consolidated cash balance on September 30, 20162017, was $163.7 million.$68.0 million. Of this amount, $38.2$21.0 million was held in Canada and portions may be subject to tax if transferred to the U.S. Potential sources of long-term liquidity include issuances of debt securities and equity securities and the sale of assets. Our primary cash requirements currently are operating expenses, capital expenditures and our quarterly dividends. In general, we expect to fund:
operating expenses, maintenance capital expenditures and cash dividends through existing cash and cash from operating activities;
expansion capital expenditures and any working capital deficits through cash on hand, borrowings under our credit facility and the issuance of debt securities and equity securities;
acquisitions, including the Second Payment, through cash on hand, borrowings under our credit facility, and the issuance of debt securities and equity securities;securities and proceeds from the divestiture of assets or interests in assets; and
debt principal payments through cash from operating activities and refinancing when the credit facility becomes due.
Our ability to meet our financing requirements and fund our planned capital expenditures will depend on our future operating performance and distributions from our equity investments, which will be affected by prevailing economic conditions in our industry. In addition, we are subject to conditions in the debt and equity markets for any issuances of debt securities and equity securities. There can be no assurance we will be able or willing to access the public or private markets in the future. If we would be unable or unwilling to access those markets, we could be required to restrict future expansion capital expenditures and potential future acquisitions.
We believe our cash from operations, and our remaining borrowing capacity and other capital markets activity allow us to manage our day-to-day cash requirements, distribute our quarterly dividends and meet our capital expenditures commitments for the coming year.
Cash Flows
The following table summarizes our changes in unrestricted cash for the periods presented:
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | 2017 | | 2016 |
Statement of cash flow data: | | | | | | |
Cash flows provided by (used in): | | | | | | |
Operating activities | $ | 135,367 |
| | $ | 137,049 |
| $ | 92,417 |
| | $ | 140,104 |
|
Investing activities | (119,422 | ) | | (308,456 | ) | (622,117 | ) | | (124,159 | ) |
Financing activities | 89,144 |
| | 277,035 |
| 519,025 |
| | 89,144 |
|
Subtotal | 105,089 |
| | 105,628 |
| (10,675 | ) | | 105,089 |
|
Effect of exchange rate on cash and cash equivalents | 563 |
| | (233 | ) | 4,472 |
| | 563 |
|
Change in cash and cash equivalents | 105,652 |
| | 105,395 |
| (6,203 | ) | | 105,652 |
|
Cash and cash equivalents at beginning of period | 58,096 |
| | 40,598 |
| 74,216 |
| | 58,096 |
|
Cash and cash equivalents at end of period | $ | 163,748 |
| | $ | 145,993 |
| $ | 68,013 |
| | $ | 163,748 |
|
Operating Activities
The components of operating cash flows can be summarized as follows:
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | 2017 | | 2016 |
Net income | $ | (3,457 | ) | | 43,789 |
| |
Net income (loss) | | $ | (19,769 | ) | | $ | 1,259 |
|
Non-cash expenses, net | 138,023 |
| | 95,606 |
| 135,054 |
| | 131,948 |
|
Changes in operating assets and liabilities | 801 |
| | (2,346 | ) | (22,868 | ) | | 6,897 |
|
Net cash flows provided by operating activities | $ | 135,367 |
| | $ | 137,049 |
| $ | 92,417 |
| | $ | 140,104 |
|
Adjustments to net income (loss) for non-cash expenses, net increased $42.4$3.1 million to $138.0$135.1 million for the nine months ended September 30, 20162017, from $95.6$131.9 million for the nine months ended September 30, 2015.2016. This change is primarily a result of:
$45.227.8 million increase due to the current year other-than-temporary impairment recorded on our limited partner investment in NGL Energy, partially offset by current year gain on the sale of our common limited partner units of NGL Energy, and prior year gains on the sale of a portion of our common limited partner units of NGL Energy, net of related costs;
$14.5 million increase due to higher net losses on disposal or impairmentimpairments, net, primarily due to the impairment of our SemGas segment's goodwill in the current year;
$9.4 million increase due to net unrealized losses related to our derivative instruments in the current year as compared to prior year net unrealized gains;
$6.1 million increase due to prior year gains on the issuance of common units by NGL Energy, which did not reoccur in the current year;
$4.9 million increase due to current year losses on foreign currency transactions as comparedimpairment of goodwill and intangible assets related to prior year gains;our truck transportation business;
$4.726.3 million increase due to lower equity earnings in the current year as compared to the prior year,depreciation and amortization expense, primarily due to lower equity earnings as a result of the disposalacquisition of our common limited partner unitsHFOTCO and completion of NGL Energy and lowerthe Maurepas Pipeline;
$19.9 million increase related to a loss on early extinguishment of $300 million of senior unsecured notes;
$3.8 million reduction in earnings from Glass Mountain;equity method investments;
$1.5 million increase in non-cash equity compensation; and
$2.51.3 million increase due to amortizationin provision for uncollectible accounts receivable, net of debt issuance costs including the write-off of costs related to the Rose Rock credit facility which was terminated.
recoveries.These increases to the adjustments to net income for non-cash expenses were offset by decreases due to:
$31.330.6 million increasefrom prior year losses on the sale or impairment of equity method investment which did not recur in deferredthe current year;
$30.0 million primarily due to the impact of a discrete tax benefit;benefit of $31.5 million related to a change of position to deduct foreign taxes in lieu of claiming a foreign tax credit for the tax years 2013 through 2016 in the current year;
$11.27.1 million of decreased in distributions from equity investments due to theour prior year disposal of our common limited partner units ofownership in NGL Energy;Energy and
lower distributions from White Cliffs;$1.25.4 million due to inventory valuation adjustments in currency exchange losses in the prior year, as a resultcompared to currency exchange gains in the current year;
$3.0 million gain on pension curtailment related to the HFOTCO pension plan; and
$1.7 million in decreases in amortization of lower commodity prices.debt issuance costs and discounts.
All other adjustments to net income for non-cash expenses, net for the nine months ended September 30, 20162017, remained relatively comparable to the nine months ended September 30, 2015.2016.
Changes in operating assets and liabilities for the nine months ended September 30, 2017, generated a net decrease in operating cash flows of $22.9 million. The decrease to operating cash flow due to the change in operating assets and liabilities was primarily a result of an increase in assets related to accounts receivable, inventories, other assets and other current assets of $36.2 million, $28.3 million, $17.7 million and $2.9 million, respectively, offset by a decrease in receivables from affiliates of $19.9 million. Liabilities increased $57.1 million in accounts payable and accrued liabilities and $7.4 million in other noncurrent liabilities, offset by a decrease in payables to affiliates of $21.6 million. The increase in other noncurrent liabilities is primarily due to the accretion of the Second Payment. Changes in receivables, inventory, payables and accrued liabilities are primarily due to our segments’ operating activities and are subject to the timing of purchases and sales and fluctuations in commodity pricing.
Changes in operating assets and liabilities for the nine months ended September 30, 2016, generated a net increase in operating cash flows of $0.8 million.$6.9 million. The increase to operating cash flow due to the change in operating assets and liabilities was primarily a result of increases in assets of $22.1$14.4 million inand $4.2 million related to inventory and accounts payable and accrued liabilities andreceivable, respectively, offset by decreases of $2.4 million in other current assets and receivables from affiliates of $2.4 million and $1.4 million, in receivables from affiliates. These cash inflows were partiallyrespectively. Accounts payable and accrued liabilities saw an increase of $22.1 million, offset by cash outflows due to increasesa decrease in other noncurrent liabilities of $14.4 million in inventories, $6.0 million in derivatives and margin deposits and $4.2 million in accounts receivable.$1.3 million. Changes in receivables, inventory, payables and accrued liabilities are primarily due to our segments'segments’ operating activities and are subject to the timing of purchases and sales and fluctuations in commodity pricing.
Changes in operating assets and liabilities forInvesting Activities
For the nine months ended September 30, 2015 generated a2017, we had net decrease in operating cash flows of $2.3 million. The decrease to operating cash flow due to the change in operating assets and liabilities was primarily a result of increases of $23.3 million in inventories and $1.8 million in other current assets and decreases of $2.3 million in payables to affiliates, $3.8 million in payables to prepetition creditors and $1.3 million in other noncurrent liabilities. These cash outflows were partially offset by decreases of $6.8$622.1 million in restricted cash, $8.2 million in accounts receivable, $9.0 million in receivables from affiliates, $1.8 million in other assets and $3.2 million in derivatives and margin deposits and an increase of $1.3 million in accounts payable and accrued liabilities. Changes in receivables, inventory, payables and accrued liabilities are primarily due to our segments' operating activities and are subject to the timing of purchases and sales and fluctuations in commodity pricing. Additionally, the increase in inventory is due, in part, to approximately 700 thousand additional barrels in storage compared to the beginning of the nine month period at our Crude Supply and Logistics segment. This was partially due to a strategic build to capture margins due to forward market crude oil prices being higher than spot market prices. Accounts receivable was also impacted by a $9.0 million decrease due to the collection of an accrued receivable at the beginning of the period which related to proceeds from the sale of a portion of our common limited partner units of NGL Energy.
Investing Activities
For the nine months ended September 30, 2016, we had net cash outflows of $119.4 million from investing activities, due primarily to $199.0$346.2 million of capital expenditures, $293.0 million in payments to acquire HFOTCO, net of cash received and $3.8$18.8 million of contributions to equity method investments,investments. These cash outflows were offset by investing cash inflows of $60.5$19.3 million in proceeds from the sale of our common limited partner units of NGL Energy and $22.8 million of distributions in excess of equity in earnings of affiliates.affiliates and $16.6 million in proceeds from the sale of long-lived assets. Capital expenditures primarily related to the Maurepas Pipeline, crude oil pipeline projects, SemGas' Northern Oklahoma expansion projects and SemCAMS' Wapiti expansion.Pipeline. Contributions to equity method investments primarily related to Glass Mountain growth projects. Proceeds from the sale of long-lived assets related to the sale of non-core assets. Distributions in excess of equity in earnings of affiliates represent cash distributions from White Cliffs and Glass Mountain in excess of our cumulative equity in earnings and are accounted for as a return of investment.
For the nine months ended September 30, 2015,2016, we had net cash outflows of $308.5$124.2 million from investing activities, due primarily to $352.8$203.8 million of capital expenditures and $34.1$3.8 million of contributions to equity method investments,investments. These cash outflows were offset by investing cash inflows of $56.3$60.5 million of netin proceeds from the sale of our common limited partner units of NGL Energy and $19.6$22.8 million of distributions in excess of equity in earnings of affiliates. Capital expenditures primarily related to the Maurepas Pipeline, crude oil pipeline projects, SemGas'SemGas’ Northern Oklahoma expansion projects the Maurepas Pipeline and SemCAMS'SemCAMS’ Wapiti expansion. Contributions to equity method investments primarily represent investments to fund the White Cliffs pipeline expansion project.plant. Distributions in excess of equity in earnings of affiliates represent cash distributions from White Cliffs and Glass Mountain in excess of our cumulative equity in earnings and are accounted for as a return of investment.
Financing Activities
For the nine months ended September 30, 2016,2017, we had net cash inflows of $89.1$519.0 million from financing activities, which related to borrowings on credit facilities and the issuance of $362.5senior unsecured notes, net of discount, of $1.4 billion, offset by principal payments on credit facilities and other obligations of $711.9 million,, dividends paid of $94.7 million, debt extinguishment costs of $16.3 million, debt issuance costs of $10.8 million and $1.4 million to repurchase common stock for payment of statutory taxes due on equity-based compensation. Net borrowings were used primarily to extinguish senior unsecured notes, acquire HFOTCO and for capital expenditures. Debt issuance costs related to the issuance of senior unsecured notes.
For the nine months ended September 30, 2016, we had net cash inflows of $89.1 million from financing activities, which related to borrowings on long-term debt of $362.5 million and proceeds from the issuance of common shares, net of offering costs, of $223.7 million, partially offset by principal payments on credit facilitieslong-term debt of $394.0$394.0 million,, dividends paid of $63.3$63.3 million,, distributions to non-controlling interests of $32.1$32.1 million and debt issuance costs of $7.5 million. Net
borrowings were used primarily for capital expenditures. Proceeds from the issuance of common shares were used to repay borrowings on our credit facility and will be used for future capital expenditures and general corporate purposes. Debt issuance costs related to the increase and extension of our revolving credit facility.
For the nine months ended September 30, 2015, we had net cash inflows of $277.0 million from financing activities, which related to borrowings on long-term debt of $802.2 million, partially offset by principal payments of $525.0 million and $89.1 million in proceeds from the issuance of Rose Rock limited partner common units, offset by dividends paid of $49.8 million, distributions to non-controlling interests of $29.8 million, $6.3 million in debt issuance costs and $4.3 million to repurchase common stock for payment of statutory taxes due on equity-based compensation. Net borrowings were used primarily for capital expenditures and contributions to equity method investments.
Long-term Debt
Senior Unsecured Notes
At September 30, 2016,2017, we had outstanding $300 million of 7.5% senior unsecured notes due 2021, $400 million of 5.625% senior unsecured notes due 2022, and $350 million of 5.625% senior unsecured notes due 2023.2023, $325 million of 6.375% senior unsecured notes due 2025 and $300 million of 7.25% senior unsecured notes due 2026.
SemGroup Revolving Credit Facility
At September 30, 2016,2017, we had no$332.0 million of cash borrowings outstanding under our $1.0 billion revolving credit facility. We had $37.5$39.4 million in outstanding letters of credit on that date. The maximum letter of credit capacity under this facility is $250 million. The facility can be increased up to $300 million. The credit agreement expires on March 15, 2021.
At September 30, 2016,2017, we had available borrowing capacity of $962.5$628.6 million under this facility.
On April 4, 2017, we amended the credit agreement to restate the pricing grid. The applicable margin for borrowings under the facility were amended to the following:
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Leverage Ratio | ABR Loans | Eurodollar Loans |
Category 1: Greater than 4.50 to 1.00 | 1.75% | 2.75% |
Category 2: Less than or equal to 4.50 to 1.00 but greater than 4.00 to 1.00 | 1.50% | 2.50% |
Category 3: Less than or equal to 4.00 to 1.00 but greater than 3.50 to 1.00 | 1.25% | 2.25% |
Category 4: Less than or equal to 3.50 to 1.00 but greater than 3.00 to 1.00 | 1.00% | 2.00% |
Category 5: Less than or equal to 3.00 to 1.00 | 0.75% | 1.75% |
SemMexico Credit FacilitiesFacility
At September 30, 2016,2017, SemMexico had no amounts outstanding on its $100$70 million Mexican pesos (U.S. $5.1$3.8 million at the September 30, 20162017 exchange rate) credit facility which matures in May 2018. At September 30, 20162017, SemMexico had an outstanding letterletters of credit of $292.8$292.8 million Mexican pesos (U.S. $15.0$16.0 million at the September 30, 20162017 exchange rate).
HFOTCO Debt Assumption and Revolving Credit Facility
On July 17, 2017, we completed the acquisition of HFOTCO and assumed approximately $766 million of existing net debt at HFOTCO, which has been adjusted to fair value through acquisition accounting. As of the Closing Date, the assumed debt at HFOTCO consisted of $534.9 million of senior secured term loans and $225 million of limited obligation revenue bonds due November 1, 2050 (the “IKE Bonds”). In addition, HFOTCO has a $75 million senior secured revolving credit facility. HFOTCO indebtedness is non-recourse to the Company. At September 30, 2017, HFOTCO’s senior secured revolving credit facility had outstanding borrowings of $25.0 million.
At HFOTCO’s option, outstanding senior secured term loan and outstanding senior secured revolver borrowings bear interest at either the Eurodollar rate or an alternate base rate (“ABR”) plus, in each case, an applicable margin. After the Closing Date, the applicable margin relating to outstanding senior secured term loans is 3.5% per annum for Eurodollar loans or 2.5% per annum for ABR loans and the applicable margin relating to outstanding senior secured revolver borrowings is 3.25% per annum for Eurodollar loans or 2.25% per annum for ABR loans. The rate of interest for the IKE Bonds is determined to August 19, 2019, at 1-month LIBOR plus the applicable spread, which ranges from 1.25% to 1.65% per annum based on reference to a super senior leverage based pricing grid. Senior secured term loans require quarterly payments of 0.25% of the original $550 million loan amount and mature on August 19, 2021. Senior secured revolving borrowings mature on August 19, 2019. HFOTCO may request an increase of up to an additional $25 million of incremental revolving commitments under the revolving credit facility or the incurrence of up to an additional $100 million of incremental term loans. Senior secured term loans, borrowings under the senior secured revolving credit facility and the IKE Bonds are guaranteed by BGCT and secured by a lien on substantially all of the assets of HFOTCO.
The agreement governing HFOTCO senior secured term loans or senior secured revolver borrowings (the “HFOTCO Credit Agreement”) includes customary representations and warranties and affirmative and negative covenants, which were made only for the purposes of the HFOTCO Credit Agreement and as of the specific date (or dates) set forth therein, and may
be subject to certain limitations as agreed upon by the contracting parties, and apply only to BGCT, HFOTCO and any subsidiaries of HFOTCO party to the HFOTCO Credit Agreement. Such limitations include the creation of new liens, indebtedness, making of certain restricted payments and payments on indebtedness, making certain dispositions, making material changes in business activities, making fundamental changes including liquidations, mergers or consolidations, making certain investments, entering into certain transactions with affiliates, making amendments to material agreements, modifying the fiscal year, dealing with hazardous materials in certain ways, entering into certain hedging arrangements, entering into certain restrictive agreements, and funding or engaging in sanctioned activities.
In addition, the HFOTCO Credit Agreement contains a financial performance covenant as follows (the “HFOTCO Financial Covenant”): if the aggregate revolving exposure exceeds 25% of the HFOTCO Revolving Commitments, the total adjusted net leverage ratio of BGCT and its restricted subsidiaries under the HFOTCO Credit Agreement may not exceed 7.50 to 1.00 as of the last day of any fiscal quarter. The financial performance covenant is solely for the benefit of the lenders holding HFOTCO Revolving Commitments or HFOTCO Revolving Loans.
The HFOTCO Credit Agreement includes customary events of default, including events of default relating to inaccuracy of representations and warranties in any material respect when made or when deemed made, non-payment of principal and other amounts owing under the HFOTCO Credit Agreement, including in respect of letter of credit disbursement obligations, violation of covenants, cross acceleration to any material indebtedness of BGCT, HFOTCO and its subsidiaries, bankruptcy and insolvency events, certain unsatisfied judgments, certain ERISA events, certain invalidities of loan documents and the occurrence of a change of control (excluding the change of control occurring on the Closing Date). A default of the HFOTCO Financial Covenant will not constitute an event of default unless lenders holding a majority of the HFOTCO Revolving Commitments and HFOTCO Revolving Loans request that the administrative agent accelerate the maturity of the outstanding HFOTCO Revolving Loans due to a breach of the HFOTCO Financial Covenant. A default under the HFOTCO Credit Agreement would permit the participating banks to terminate commitments, require immediate repayment of any outstanding loans with interest and any unpaid accrued fees, require the cash collateralization of outstanding letter of credit obligations, and subject to intercreditor arrangements with the holders of the IKE Bonds referred to below, exercise other rights and remedies.
The IKE Bond Indentures include customary events of default, including non-payment of principal of or interest on the IKE Bonds, violation of covenants (including under the applicable HCIDC Loan Agreement), bankruptcy and insolvency events, and an event of default under the Continuing Covenant Agreement described below. On August 19, 2019, the IKE Bonds may be converted to bear interest on other terms for a successive term or terms on certain conditions at the option of HFOTCO and, if not converted, will continue to bear interest for successive 5-year terms at 3-month LIBOR plus a spread to be determined by a remarketing agent. If the IKE bonds are not remarketed to investors on August 19, 2019, or the end of any successive interest rate term, at a price equal to their principal amount, they must be purchased by HFOTCO under the HCIDC Loan Agreement for a price equal to their principal amount. The IKE Bonds mature on November 1, 2050.
In connection with the conversion of the interest rate mode of the IKE Bonds from the Weekly Mode to the LIBOR Term Indexed Mode contemporaneously with execution and delivery of the IKE Bond Indentures, certain purchasers purchased the IKE Bonds, and BGCT and HFOTCO, entered into a Continuing Covenant Agreement (the “Existing Continuing Covenant Agreement”), dated as of August 19, 2014, by and among BGCT, as the parent, HFOTCO, as obligor, Bank of America, N.A., as administrative agent and collateral agent, and the bondholders party thereto. In connection with the Closing, the Existing Continuing Covenant Agreement was modified pursuant to that certain Consent and Amendment (the “CCA Amendment”; the Existing Continuing Covenant Agreement, as modified by the CCA Amendment, the “Continuing Covenant Agreement”), dated as of June 5, 2017 and effective as of the Closing Date.
The Continuing Covenant Agreement includes customary representations and warranties and affirmative and negative covenants, which were made only for the purposes of the Continuing Covenant Agreement and as of the specific date (or dates) set forth therein, may be subject to certain limitations as agreed upon by the contracting parties, and apply only to BGCT, HFOTCO and any subsidiaries of HFOTCO party to the Continuing Covenant Agreement. Such covenants include limitations on the creation of new liens, indebtedness, making of certain restricted payments and payments on indebtedness, making certain dispositions, making material changes in business activities, making fundamental changes including liquidations, mergers or consolidations, making certain investments, entering into certain transactions with affiliates, making amendments to certain credit or organizational agreements, modifying the fiscal year, creating or dealing with hazardous materials in certain ways, entering into certain hedging arrangements, entering into certain restrictive agreements, funding or engaging in sanctioned activities, taking actions or causing the trustee to take actions that materially adversely affect the rights, interests, remedies or security of the bondholders, taking actions to remove the trustee, making certain amendments to the bond documents, and taking actions or omitting to take actions that adversely impact the tax-exempt status of the IKE Bonds.
In addition, the Continuing Covenant Agreement contains financial performance covenants as follows:
the super senior leverage ratio of BGCT and its restricted subsidiaries under the Continuing Covenant Agreement may not exceed 3.50 to 1.00 as of the last day of any fiscal quarter; and
the interest coverage ratio of BGCT and its restricted subsidiaries under the Continuing Covenant Agreement may not be less than 2.00 to 1.00 as of the last day of any fiscal quarter.
The Continuing Covenant Agreement includes customary events of default, including events of default relating to the inaccuracy of representations and warranties in any material respect when made or when deemed made, non-payment of principal and other amounts owing under the Continuing Covenant Agreement, violation of covenants, acceleration of or right of holders to accelerate any material indebtedness of BGCT, HFOTCO and its subsidiaries, bankruptcy and insolvency events, certain unsatisfied judgments, certain ERISA events, certain invalidities of bond, guaranty or collateral documents and the occurrence of a change of control (excluding the change of control occurring on the Closing Date). A default under the Continuing Covenant Agreement would permit the bondholders to accelerate outstanding obligations under the Continuing Covenant Agreement (other than the IKE Bonds), direct the trustee to accelerate the IKE Bonds, and subject to intercreditor arrangements with the creditors of the HFOTCO Credit Agreement, exercise other rights and remedies.
HFOTCO Second Payment
In addition to the assumed debt discussed above, we are required to make the Second Payment as part of the consideration for the acquisition of HFOTCO. The Second Payment requires us to pay the Sellers $600 million in cash if paid on December 31, 2018. 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.
Shelf Registration Statement
We have access to a universal shelf registration statement which provides us with the ability to offer and sell an unlimited amount of debt and equity securities, subject to market conditions and our capital needs. This shelf registration statement expires in March 2019. On June 22, 2016,
We have also established an “at the market” offering program under this shelf registration statement, which provides for the offer and sale, from time to time, of common shares having an aggregate offering price of up to $300 million. We are able to make sales over a period of time and from time to time in transactions at prices which are prevailing market prices at the time of sale, prices related to market prices or at negotiated prices. Such sales may be made pursuant to an Equity Distribution Agreement between us and certain agents who may act as sales agents or purchase for their own accounts as principals. To date, there have been no such sales.
Registration Rights Agreements
In connection with the closing of the offerings of the 2025 and 2026 senior unsecured notes (the “Notes”), the Company and the Guarantors entered into registration rights agreements (the “Registration Rights Agreements”). Under the Registration Rights Agreements, the Company and the Guarantors have agreed to file registration statements with the Securities and Exchange Commission so that holders of the Notes can exchange the Notes and the related guarantees for registered notes and guarantees that have substantially identical terms as the Notes and related guarantees, within 365 days after the original issuance. In certain circumstances, the Company and the Guarantors may be required to file shelf registration statements to cover resales of the Notes. We are required to pay additional interest on the Notes if we issuedfail to comply with our obligations to register the Notes and sold 8,625,000 shares of our Class A common stock, valued
at $27.00 per share, torelated guarantees, within the public for proceeds of $228.5 million, net of underwriting fees and other offering costs of $4.3 million. Proceeds were used to repay borrowings on our revolving credit facility and will be used for future capital expenditures and general corporate purposes. specified time periods.
Capital Requirements
The midstream energy business can be capital intensive, requiring significant investment for the maintenance of existing assets or acquisition or development of new systems and facilities. We categorize our capital expenditures as either:
expansion capital expenditures, which are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operating income or operating capacity over the long-term; or
maintenance capital expenditures, which are cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets or for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity.
Projected capital expenditures for 20162017 are estimated at $295$575 million in expansion projects, including capital contributions to affiliates for funding growth projects and acquisitions, and $55$50 million in maintenance projects. These estimates may change as future events unfold. See "Cautionary“Cautionary Note Regarding Forward-Looking Statements."” During the
nine months ended September 30, 2016,2017, we spent $199.0$346.2 million (cash basis) on capital projects and $3.8$18.8 million in capital contributions to equity method investees primarily for funding growth projects.
In addition to our budgeted capital program, we anticipate that we will continue to make significant expansion capital expenditures in the future. Consequently, our ability to develop and maintain sources of funds to meet our capital requirements is critical to our ability to meet our growth objectives. We expect that our future expansion capital expenditures will be funded by cash from operations, borrowings under our credit facility andfacilities, the issuance of debt and equity securities.securities and proceeds from the divestiture of assets or interests in assets.
SemGroup Dividends
The table below shows dividends declared and/or paid by SemGroup during 20152016 and 2016.2017.
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Quarter Ended | | Record Date | | Payment Date | | Dividend Per Share |
March 31, 2015 | | March 9, 2015 | | March 20, 2015 | | $0.34 |
June 30, 2015 | | May 18, 2015 | | May 29, 2015 | | $0.38 |
September 30, 2015 | | August 17, 2015 | | August 25, 2015 | | $0.42 |
December 31, 2015 | | November 16, 2015 | | November 24, 2015 | | $0.45 |
March 31, 2016 | | March 7, 2016 | | March 17, 2016 | | $0.45 |
June 30, 2016 | | May 16, 2016 | | May 26, 2016 | | $0.45 |
September 30, 2016 | | August 15, 2016 | | August 25, 2016 | | $0.45 |
December 31, 2016 | | November 18, 2016 | | November 28, 2016 | | $0.45 |
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March 31, 2017 | | March 7, 2017 | | March 17, 2017 | | $0.45 |
June 30, 2017 | | May 15, 2017 | | May 26, 2017 | | $0.45 |
September 30, 2017 | | August 18, 2017 | | August 28, 2017 | | $0.45 |
December 31, 2017 | | November 20, 2017 | | December 1, 2017 | | $0.45 |
Credit Risk
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We examine the creditworthiness of third-party customers to whom we extend credit and manage our exposure to credit risk through credit analysis, credit approval, credit limits and monitoring procedures, and for certain transactions, we may request letters of credit, prepayments or guarantees.
Customer Concentration
Shell Trading (US) Company, a customer of our Crude Supply and Logistics segment, accounted for more than 10% of our consolidated revenue for the three months ended September 30, 2017, at approximately 16%. Shell Trading (US) Company, a customer of our Crude Supply and Logistics segment, accounted for more than 10% of our consolidated revenue for the nine months ended September 30, 2016,2017, at approximately 20%23%. The contracts from which our revenues are derived from this customer relate to our crude marketing operations and approximately 29%, respectively.are for crude oil purchases and sales at market prices. We are not substantially dependent on such contracts and believe that if we were to lose any or all of these contracts, they could be readily replaced under substantially similar terms. Although we have contracts with customers of varying durations, if one or more of our major customers were to default on their contract, or if we were unable to renew our contract with one or more of these customers on favorable terms, we might not be able to replace any of these customers in a timely fashion, on favorable terms or at all. In any of these situations, our revenues and our ability to pay cash dividends to our stockholders may be adversely affected. We expect our exposure to risk of non-payment or non-performance to continue as long as we remain substantially dependent on a relatively small number of customers for a substantial portion of our Adjusted gross margin.
revenues.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined by Item 303 of Regulation S-K.
Commitments
For information regarding purchase and sales commitments, see the discussion under the caption "Purchase“Purchase and sale commitments"commitments” in Note 10 of our condensed consolidated financial statements of this Form 10-Q, which information is incorporated by reference into this Item 2.
Critical Accounting Policies and Estimates
For disclosure regarding our critical accounting policies and estimates, see the discussion under the caption "Critical“Critical Accounting Policies and Estimates"Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20152016.
Recent Accounting Pronouncements
See Note 1 to our condensed consolidated financial statements.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
This discussion on market risks represents an estimate of possible changes in future earnings that would occur assuming hypothetical future movements in commodity prices, interest rates and currency exchange rates. Our views on market risk are not necessarily indicative of actual results that may occur, and do not represent the maximum possible gains and losses that may occur since actual gains and losses will differ from those estimated based on actual fluctuations in commodity prices, interest rates, currency exchange rates and the timing of transactions.
We are exposed to various market risks, including changes in (i) petroleum prices, particularly crude oil, natural gas and natural gas liquids, (ii) interest rates and (iii) currency exchange rates. We may use from time-to-time various derivative instruments to manage such exposure. Our risk management policies and procedures are designed to monitor physical and financial commodity positions and the resulting outright commodity price risk as well as basis risk resulting from differences in commodity grades, purchase and sales locations and purchase and sale timing. We have a risk management function that has responsibility and authority for our Comprehensive Risk Management Policy,Governance Policies, which governsgovern our enterprise-wide risks, including the market risks discussed in this item. Subject to our Comprehensive Risk Management Policy,Governance Policies, our finance and treasury function has responsibility and authority for managing exposure to interest rates and currency exchange rates. To manage the risks discussed above, we engage in price risk management activities.
Commodity Price Risk
The table below outlines the range of NYMEX prompt month daily settle prices for crude oil and natural gas futures, and the range of daily propane spot prices provided by an independent, third-party broker for the three months and nine months ended September 30, 20162017 and September 30, 20152016, and the year ended December 31, 20152016.
| | | | | Light Sweet Crude Oil Futures (Barrel) | | Mont Belvieu (Non-LDH) Spot Propane (Gallon) | | Henry Hub Natural Gas Futures (MMBtu) |
Three Months Ended September 30, 2017 | | |
High | | | $52.22 | | $0.97 | | $3.15 |
Low | | | $44.23 | | $0.60 | | $2.77 |
High/Low Differential | | | $7.99 | | $0.37 | | $0.38 |
| | Light Sweet Crude Oil Futures (Barrel) | | Mont Belvieu (Non-LDH) Spot Propane (Gallon) | | Henry Hub Natural Gas Futures (MMBtu) | |
Three Months Ended September 30, 2016 | | |
High | | $48.99 | | $0.55 | | $3.06 | | $48.99 | | $0.55 | | $3.06 |
Low | | $39.51 | | $0.41 | | $2.55 | | $39.51 | | $0.41 | | $2.55 |
High/Low Differential | | $9.48 | | $0.14 | | $0.51 | | $9.48 | | $0.14 | | $0.51 |
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Three Months Ended September 30, 2015 | | |
Nine Months Ended September 30, 2017 | | |
High | | $56.96 | | $0.48 | | $2.93 | | $54.45 | | $0.97 | | $3.42 |
Low | | $38.24 | | $0.35 | | $2.52 | | $42.53 | | $0.57 | | $2.56 |
High/Low Differential | | $18.72 | | $0.13 | | $0.41 | | $11.92 | | $0.40 | | $0.86 |
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Nine Months Ended September 30, 2016 | | |
High | | $51.23 | | $0.57 | | $3.06 | | $51.23 | | $0.57 | | $3.06 |
Low | | $26.21 | | $0.29 | | $1.64 | | $26.21 | | $0.29 | | $1.64 |
High/Low Differential | | $25.02 | | $0.28 | | $1.42 | | $25.02 | | $0.28 | | $1.42 |
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Nine Months Ended September 30, 2015 | | |
Year Ended December 31, 2016 | | |
High | | $61.43 | | $0.63 | | $3.23 | | $54.06 | | $0.71 | | $3.93 |
Low | | $38.24 | | $0.31 | | $2.49 | | $26.21 | | $0.29 | | $1.64 |
High/Low Differential | | $23.19 | | $0.32 | | $0.74 | | $27.85 | | $0.42 | | $2.29 |
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Year Ended December 31, 2015 | | |
High | | $61.43 | | $0.63 | | $3.23 | |
Low | | $34.73 | | $0.31 | | $1.75 | |
High/Low Differential | | $26.70 | | $0.32 | | $1.48 | |
Revenue from our asset-based activities is dependent on throughput volume, tariff rates, the level of fees generated from our pipeline systems, capacity leased to third parties, capacity that we use for our own operational or marketing activities and the level of other fees generated at our terminalling and storage facilities. Profit from our marketing activities is dependent on
our ability to sell petroleum products at prices in excess of our aggregate cost. Margins may be affected during transitional periods between a backwardated market (when the prices for future deliveries are lower than the current prices) and a contango market (when the prices for future deliveries are higher than the current prices). Our petroleum product marketing activities within each of our segments are generally not directly affected by the absolute level of petroleum product prices, but are affected by overall levels of supply and demand for petroleum products and relative fluctuations in market-related indices at various locations.
However, the SemGas segment has exposure to commodity price risk because of the nature of certain contracts for which our fee is based on a percentage of proceeds or index related to the prices of natural gas, natural gas liquids and condensate. Given current volumes, liquid recoveries and contract terms, we estimate the following sensitivities over the next twelve months:
A 10% increase in the price of natural gas and natural gas liquids results in approximately a $2.6$2.8 million increase to Adjusted gross margin.
A 10% decrease in those prices would have the opposite effect.
This sensitivityThe above sensitivities may be impacted by changes in contract mix, change in production or other factors which are outside of our control.
Additionally, based on our open derivative contracts at September 30, 20162017, an increase in the applicable market price or prices for each derivative contract would result in a decrease in the contribution from these derivatives to our crude oil sales revenues. ALikewise, a decrease in the applicable market price or prices for each derivative contract would result in an increase in the contribution from these derivatives to our crude oil sales revenues. However, the increases or decreases in crude oil sales revenues we recognize from our open derivative contracts are substantially offset by higher or lower crude oil sales revenues when the physical sale of the product occurs. These contracts may be for the purchase or sale of crude oil or in markets different from the physical markets in which we are attempting to hedge our exposure, or may have timing differences relative to the physical markets. As a result of these factors, our hedges may not eliminate all price risks.
The notional volumes and fair value of our commodity derivatives open positions as well as the change in fair value that would be expected from a 10% market price increase or decrease is shown in the table below (in thousands):
| | | Notional Volume (Barrels) | | Fair Value | | Effect of 10% Price Increase | | Effect of 10% Price Decrease | | Settlement Date | Notional Volume (Barrels) | | Fair Value | | Effect of 10% Price Increase | | Effect of 10% Price Decrease | | Settlement Date |
Crude oil: | | | | | | | | | | | | | | |
Futures | 1,002 short | | $ | (6,435 | ) | | $ | (4,834 | ) | | $ | 4,834 |
| | Various through December 2016 | 954 short | | $ | (2,260 | ) | | $ | (4,930 | ) | | $ | 4,930 |
| | October 2017 |
Margin deposits or other credit support, including letters of credit, are generally required on derivative instruments used to manage our price exposure. As commodity prices increase or decrease, the fair value of our derivative instruments changes, thereby increasing or decreasing our margin deposit or other credit support requirements. Although a component of our risk-management strategy is intended to manage the margin and other credit support requirements on our derivative instruments, volatile spot and forward commodity prices, or an expectation of increased commodity price volatility, could increase the cash needed to manage our commodity price exposure and thereby increase our liquidity requirements. This may limit amounts available to us through borrowing, decrease the volume of petroleum products we purchase and sell or limit our commodity price management activities.
Interest Rate Risk
We use variable rate debt and are exposed to market risk due to the floating interest rates on our credit facilities. Therefore, from time-to-time we may use interest rate derivatives to manage interest obligations on specific debt issuances. Our variable rate debt bears interest at LIBOR or prime, subject to certain floors, plus the applicable margin. At September 30, 20162017, an increase in these base rates of 1%, above the base rate floors, would increase our interest expense by $0.1 million and $0.5$3.1 million for the three months andended September 30, 2017. At September 30, 2017, an increase in these base rates of 1%, above the base rate floors, would increase our interest expense by $3.5 million for the nine months ended September 30, 2016, respectively.2017. Increases in interest expense due to an increase in interest rates as presented above, would have been partially offset by a $1.3 million reduction in interest expense from interest rate swaps, discussed below, in each period.
The average interest rates presented below are based upon rates in effect at September 30, 20162017 and December 31, 20152016. The carrying value of the variable rate instruments in our credit facilities approximate fair value primarily because our rates fluctuate with prevailing market rates.
The following table summarizes our debt obligations:
| | Liabilities | September 30, 2016 | | December 31, 2015 | September 30, 2017 | | December 31, 2016 |
Short-term debt - variable rate | $0.0 million | | $0.0 million | |
Average interest rate | 0.00% | | 0.00% | |
Long-term debt - variable rate | $0.0 million | | $30.0 million | $1.1 billion |
| | $20.0 million |
|
Average interest rate | 4.50% | | 4.50% | 4.36 | % | | 4.75 | % |
Long-term debt - fixed rate | $300.0 million | | $300.0 million | $1.4 billion |
| | $1.1 billion |
|
Fixed interest rate | 7.50% | | 7.50% | 6.16 | % | | 6.16 | % |
Long-term debt - fixed rate | $750.0 million | | $750.0 million | |
Fixed interest rate | 5.625% | | 5.625% | |
Debt obligations above exclude the Second Payment for which interest is being recorded based on an 8% annual rate. See Note 2 of the accompanying financial statements for additional information.
In conjunction with the HFOTCO acquisition, 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 September 30, 2017, we had interest rate swaps with notional values of $491.8 million. At September 30, 2017, the fair value of our interest rate swaps was $2.7 million which was reported within other liabilities in our condensed consolidated balance sheet. For the three and nine months ended September 30, 2017, we recognized unrealized gains of $0.6 million related to interest rate swaps.
Currency Exchange Risk
The cash flows relatingrelated to our U.K., Canada and Mexico operations are based on the U.S. dollar equivalent of such amounts measured in British pounds, Canadian dollars and Mexican pesos. Assets and liabilities of our U.K., Canadian and Mexican subsidiaries are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Revenue, expenses and cash flows are translated using the average exchange rate during the reporting period.
A 10% change in the average exchange rate during the three months andended September 30, 2017, would change operating income by $1.6 million. A 10% change in the average exchange rate during the nine months ended September 30, 20162017, would change operating income by $1.9 million and $4.7 million, respectively.$5.4 million.
| |
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act), are effective as of September 30, 20162017. This conclusion is based on an evaluation conducted under the supervision and participation of our Chief Executive Officer and Chief Financial Officer along with our management. Disclosure controls and procedures are those controls and procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
ThereOn July 17, 2017, we closed on the acquisition of HFOTCO. We are in the process of assessing and, to the extent necessary, making changes to the internal control over financial reporting at HFOTCO to conform such internal control to that used in our other segments. Based on the information presently available to management, we do not believe such changes will adversely impact our internal control over financial reporting. Subject to the foregoing, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2016,2017, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
For information regarding legal proceedings, see the discussion under the captions "Bankruptcy“Environmental” and “Other matters," "Dimmit County, TX claims," "Environmental" and "Other matters,"” in Note 10 of our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated by reference into this Item 1.
Except as set forth below, thereThere have been no material changes to the risk factors involving us from those previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.
We may not realize the benefits we expect from the Rose Rock Merger.
We believe that the Rose Rock Merger will, among other things, be immediately accretive to our stockholders, simplify our corporate capital structure, improve our cost2016, except as previously described in Item 1A of capital and our capital market access and provide increased financial flexibility for executionPart II of our strategic growth plan. However, our assessments and expectations regarding these anticipated benefits ofQuarterly Report on Form 10-Q for the Rose Rock Merger may prove to be incorrect. Accordingly, there can be no assurance we will realize the anticipated benefits of the Rose Rock Merger.quarter ended June 30, 2017.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information about purchases of our common stock by us during the quarter ended September 30, 2016:2017:
|
| | | | | | | | | | | | | |
| | Total Number of Shares Purchased (1) | | Weighted Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs |
July 1, 2016 - July 31, 2016 | | 490 |
| | $ | 33.30 |
| | — |
| | — |
|
August 1, 2016 - August 31, 2016 | | 856 |
| | 29.35 |
| | — |
| | — |
|
September 1, 2016 - September 30, 2016 | | — |
| | — |
| | — |
| | — |
|
Total | | 1,346 |
| | $ | 30.79 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | |
| | Total Number of Shares Purchased (1) | | Weighted Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs |
July 1, 2017 - July 31, 2017 | | — |
| | $ | — |
| | — |
| | — |
|
August 1, 2017 - August 31, 2017 | | 3,995 |
| | 23.85 |
| | — |
| | — |
|
September 1, 2017 - September 30, 2017 | | — |
| | — |
| | — |
| | — |
|
Total | | 3,995 |
| | $ | 23.85 |
| | — |
| | — |
|
|
| | | |
(1 | ) | | Represents shares of common stock withheld from certain of our employees for payment of taxes associated with the vesting of restricted stock awards. |
(2 | ) | | The price paid per common share represents the closing price as posted on the New York Stock Exchange on the day that the shares were purchased. |
| |
Item 3. | Defaults Upon Senior Securities |
None
| |
Item 4. | Mine Safety Disclosures |
Not applicable
NoneOn November 3, 2017, our Board of Directors (the “Board”) amended and restated the Bylaws of the Company (the “Bylaws”). The Bylaws were effective immediately and include, among other things, the following changes:
providing for additional disclosure requirements for notices of director nominations and stockholder proposals;
providing the Board with explicit authority to postpone, reschedule or cancel a stockholder meeting;
clarifying the powers of the chairman of a stockholder meeting; and
clarifying the procedural requirements for stockholders to act by written consent.
The foregoing description of the Bylaws is not complete and is qualified in its entirety by reference to the complete text of the Bylaws, a copy of which is filed as Exhibit 3 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q:
|
| |
Exhibit Number | Description |
3 | |
4.1 | Second SupplementalAmended and Restated Bond Indenture, dated as of September 30, 2016,August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $75 million Series 2010 Marine Terminal Revenue Bonds (filed as Exhibit 4.1 to our current report on Form 8-K dated July 17, 2017, filed July 17, 2017, and incorporated herein by reference). |
4.2 | Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $50 million Series 2011 Marine Terminal Revenue Bonds (filed as Exhibit 4.2 to our current report on Form 8-K dated July 17, 2017, filed July 17, 2017, and incorporated herein by reference). |
4.3 | Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $100 million Series 2012 Marine Terminal Revenue Bonds (filed as Exhibit 4.3 to our current report on Form 8-K dated July 17, 2017, filed July 17, 2017, and incorporated herein by reference). |
4.4 | Continuing Covenant Agreement, dated as of August 19, 2014, between HFOTCO LLC, as obligor, Buffalo Gulf Coast Terminals LLC, as the parent, Bank of America, N.A., as administrative agent and collateral agent, and the bondholders party thereto (filed as Exhibit 4.4 to our current report on Form 8-K dated July 17, 2017, filed July 17, 2017, and incorporated herein by reference). |
4.5 | |
4.6 | |
4.7 | |
4.8 | |
4.9 | |
4.10 | |
4.11 | |
4.12 | Indenture (and form of 7.25% Senior Note due 2026 attached as Exhibit 1 thereto), dated as of September 20, 2017, by and among SemGroup Corporation, named thereincertain of its wholly owned subsidiaries, as “Guarantors”, the subsidiaries of SemGroup Corporation named therein as “Guaranteeing Subsidiaries”guarantors, and Wilmington Trust, National Association, as Trustee.trustee (filed as Exhibit 4.1 to our current report on Form 8-K dated September 20, 2017, filed September 21, 2017, and incorporated herein by reference). |
4.24.13 | Second Supplemental IndentureRegistration Rights Agreement, dated as of September 30, 2016,20, 2017, by and among SemGroup Corporation, certain of its wholly owned subsidiaries and Credit Suisse Securities (USA) LLC, as representative of the subsidiaries of SemGroup Corporation named therein as “Guarantors”, the subsidiaries of SemGroup Corporation named therein as “Guaranteeing Subsidiaries” and Wilmington Trust, National Association, as TrusteeInitial Purchasers (as defined therein) (filed as Exhibit 4.2 to our current report on Form 8-K dated September 30, 2016,20, 2017, filed September 30, 2016,21, 2017, and incorporated herein by reference).
|
|
4.3 | First Supplemental Indenture dated as of September 30, 2016, by and among SemGroup Corporation, the subsidiaries of SemGroup Corporation named therein as “Guarantors”, the subsidiaries of SemGroup Corporation named therein as “Guaranteeing Subsidiaries” and Wilmington Trust, National Association, as Trustee (filed as Exhibit 4.3 to our current report on Form 8-K dated September 30, 2016, filed September 30, 2016, and incorporated herein by reference). |
10.1 | Amended and Restated Credit Agreement, dated as of September 30, 2016, by andAugust 19, 2014, among SemGroup Corporation,Buffalo Gulf Coast Terminals LLC, as the parent, HFOTCO LLC, as the borrower, the guarantors named therein, the lenders named therein, and Wells Fargo Bank, National Association,Morgan Stanley Senior Funding, Inc. as administrative agent, (filedBank of America, N.A., as Exhibit 10.1 to our current report on Form 8-K dated September 30, 2016, filed September 30, 2016,collateral agent, and incorporated herein by reference). |
10.2 | Form of Restricted Stock Award Agreement under the SemGroup Corporation Equity Incentive Plan for executive officers and employees in the United States for awards granted pursuant to that certain Agreement and Plan of Merger, dated May 30, 2016, by and among SemGroup Corporation, PBMS, LLC, Rose Rock Midstream, L.P. and Rose Rock Midstream GP, LLClenders party thereto (filed as Exhibit 10.2 to our current report on Form 8-K dated September 30, 2016,July 17, 2017, filed September 30, 2016,July 17, 2017, and incorporated herein by reference). |
10.310.2 | ConsultingConsent and Amendment No. 1 to Credit Agreement, dated as of June 14, 2017, among Buffalo Gulf Coast Terminals LLC, as the parent, HFOTCO LLC, as the borrower, Morgan Stanley Senior Funding, Inc. as administrative agent, Bank of America, N.A., as collateral agent, and Release dated August 5, 2016, by and between SemGroup Corporation and Peter L. Schwieringthe lenders party thereto (filed as Exhibit 1010.3 to our current report on Form 8-K dated August 5, 2016,July 17, 2017, filed August 5, 2016,July 17, 2017, and incorporated herein by reference). |
10.3 | Guarantee, Pledge and Security Agreement, dated as of July 17, 2017, by and among Buffalo Investor I, L.P., Buffalo Investor II, L.P., Beachhead Holdings LLC, Beachhead I LLC, Beachhead II, LLC and Buffalo Parent Gulf Coast Terminals, LLC. |
10.4 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | XBRL Instance Document. |
101.SCH | XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | |
Date: November 7, 20169, 2017 | SEMGROUP CORPORATION |
| | |
| By: | | /s/ Robert N. Fitzgerald |
| | | Robert N. Fitzgerald |
| | | Senior Vice President and |
| | | Chief Financial Officer |
EXHIBIT INDEX
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q:
|
| |
Exhibit
Number
| Description |
4.1 | Second Supplemental Indenture dated as of September 30, 2016, by and among SemGroup Corporation, the subsidiaries of SemGroup Corporation named therein as “Guarantors”, the subsidiaries of SemGroup Corporation named therein as “Guaranteeing Subsidiaries” and Wilmington Trust, National Association, as Trustee. |
4.2 | Second Supplemental Indenture dated as of September 30, 2016, by and among SemGroup Corporation, the subsidiaries of SemGroup Corporation named therein as “Guarantors”, the subsidiaries of SemGroup Corporation named therein as “Guaranteeing Subsidiaries” and Wilmington Trust, National Association, as Trustee (filed as Exhibit 4.2 to our current report on Form 8-K dated September 30, 2016, filed September 30, 2016, and incorporated herein by reference). |
4.3 | First Supplemental Indenture dated as of September 30, 2016, by and among SemGroup Corporation, the subsidiaries of SemGroup Corporation named therein as “Guarantors”, the subsidiaries of SemGroup Corporation named therein as “Guaranteeing Subsidiaries” and Wilmington Trust, National Association, as Trustee (filed as Exhibit 4.3 to our current report on Form 8-K dated September 30, 2016, filed September 30, 2016, and incorporated herein by reference). |
10.1 | Amended and Restated Credit Agreement dated as of September 30, 2016, by and among SemGroup Corporation, as borrower, the guarantors named therein, the lenders named therein, and Wells Fargo Bank, National Association, as administrative agent (filed as Exhibit 10.1 to our current report on Form 8-K dated September 30, 2016, filed September 30, 2016, and incorporated herein by reference).
|
10.2 | Form of Restricted Stock Award Agreement under the SemGroup Corporation Equity Incentive Plan for executive officers and employees in the United States for awards granted pursuant to that certain Agreement and Plan of Merger, dated May 30, 2016, by and among SemGroup Corporation, PBMS, LLC, Rose Rock Midstream, L.P. and Rose Rock Midstream GP, LLC (filed as Exhibit 10.2 to our current report on Form 8-K dated September 30, 2016, filed September 30, 2016, and incorporated herein by reference). |
10.3 | Consulting Agreement and Release dated August 5, 2016, by and between SemGroup Corporation and Peter L. Schwiering (filed as Exhibit 10 to our current report on Form 8-K dated August 5, 2016, filed August 5, 2016, and incorporated herein by reference). |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Carlin G. Conner, Chief Executive Officer. |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Robert N. Fitzgerald, Chief Financial Officer. |
32.1 | Section 1350 Certification of Carlin G. Conner, Chief Executive Officer. |
32.2 | Section 1350 Certification of Robert N. Fitzgerald, Chief Financial Officer. |
101.INS | XBRL Instance Document. |
101.SCH | XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |