Form S-1

S-1 1 ds1.htm FORM S-1 Form S-1

Index to Financial Statements

As filed with the Securities and Exchange Commission on August 12, 2011

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ROSE ROCK MIDSTREAM, L.P.

(Exact Name of Registrant as Specified in its Charter)

Delaware

4610

45-2934823

(State or Other Jurisdiction

of Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

Two Warren Place

6120 S. Yale Avenue, Suite 700

Tulsa, Oklahoma 74136-4216

(918) 524-8100

(Address, including Zip Code, and Telephone Number, including Area Code, of

Registrant’s Principal Executive Offices)

Candice L. Cheeseman

General Counsel

Two Warren Place

6120 S. Yale Avenue, Suite 700

Tulsa, Oklahoma 74136-4216

(918) 524-8100

(Name, Address, including Zip Code, and Telephone Number, including Area

Code, of Agent for Service)

Copies to:

G. Michael O’Leary

William J. Cooper

Andrews Kurth LLP

600 Travis, Suite 4200

Houston, Texas 77002

(713) 220-4200

Joshua Davidson

Baker Botts L.L.P.

One Shell Plaza

910 Louisiana Street

Houston, Texas 77002

(713) 229-1234

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer ¨				Accelerated filer ¨
Non-accelerated filer x				Smaller reporting company ¨
(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE



Title Of Each Class Of Securities To Be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee
Common units representing limited partner interests	$181,125,000	$21,029

(1)	Includes common units issuable upon exercise of the underwriters’ option to purchase additional common units.

(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Index to Financial Statements

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated August 12, 2011

PROSPECTUS

[LOGO]

Rose Rock Midstream, L.P.

Common Units

Representing Limited Partner Interests

This is the initial public offering of our common units. We are offering common units in this offering. We currently estimate that the initial public offering price will be between $ and $ per common unit. Prior to this offering, there has been no public market for our common units. We intend to apply to list our common units on the New York Stock Exchange under the symbol “RRMS.”

Investing in our common units involves risks. Please read “Risk Factors” beginning on page 21.

These risks include the following:

•

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner, to enable us to pay the minimum quarterly distribution to holders of our common and subordinated units.

•

Because of the natural decline in production from existing wells, our success depends on our ability to obtain new sources of crude oil, which is dependent on certain factors beyond our control. Any decrease in the volumes of crude oil that we gather, transport, store and market could adversely affect our business and operating results.

•

Our profitability depends on the demand for crude oil in the markets we serve.

•

SemGroup Corporation, or SemGroup, owns and controls Rose Rock Midstream GP, LLC, our general partner, which has sole responsibility for conducting our business and managing our operations. SemGroup and our general partner will have conflicts of interest with us and may favor their own interests to your detriment.

•

SemGroup is not limited in its ability to compete with us and is not obligated to offer us the opportunity to acquire additional assets or businesses.

•

Our partnership agreement limits our general partner’s fiduciary duties to holders of our common and subordinated units.

•

Holders of our common units will have limited voting rights and will not be entitled to elect our general partner or its directors.

•

Even if holders of our common units are dissatisfied, they will not initially be able to remove our general partner without its consent.

•

Your share of our income will be taxable to you for U.S. federal income tax purposes even if you do not receive any cash distributions from us.


	Per Common Unit	Total
Price to the public	$	$

Underwriting discount and commissions(1)	$	$

Proceeds, before expenses, to us	$	$

(1)	Excludes an aggregate structuring fee equal to % of the gross proceeds of this offering, or approximately $ , payable by us to Barclays Capital Inc. and LCT Capital, LLC. Please see “Underwriting.”

We have granted the underwriters a 30-day option to purchase up to an additional common units on the same terms and conditions as set forth above if the underwriters sell more than common units in this offering.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Barclays Capital, on behalf of the underwriters, expects to deliver the common units to purchasers on or about , 2011, through the book entry facilities of The Depository Trust Company.

Barclays Capital

Prospectus dated , 2011

Index to Financial Statements

Table of Contents


	Page
Summary		1
Rose Rock Midstream, L.P.		1
Our Relationship with SemGroup		5
Risk Factors		6
Formation Transactions and Partnership Structure		7
Our Management		10
Principal Executive Offices and Internet Address		10
Summary of Conflicts of Interest and Fiduciary Duties		10
The Offering		12
Summary Historical and Pro Forma Financial and Operating Data		16
Risk Factors		21
Risks Related to Our Business		21
Risks Inherent in an Investment in Us		35
Tax Risks to Common Unitholders		45
Use of Proceeds		50
Capitalization		51
Dilution		52
Our Cash Distribution Policy and Restrictions on Distributions		53
General		53
Our Minimum Quarterly Distribution		54
Unaudited Pro Forma Available Cash for the Year Ended December 31, 2010 and the Twelve Months Ended March 31, 2011		56
Estimated Adjusted EBITDA for the Twelve Months Ending September 30, 2012		58
Assumptions and Considerations		61
Provisions of our Partnership Agreement Relating to Cash Distributions		66
Distributions of Available Cash		66
Operating Surplus and Capital Surplus		67
Capital Expenditures		69
Subordination Period		69
Distributions of Available Cash from Operating Surplus During the Subordination Period		71
Distributions of Available Cash from Operating Surplus After the Subordination Period		71
General Partner Interest and Incentive Distribution Rights		72
Percentage Allocations of Available Cash from Operating Surplus		73
General Partner’s Right to Reset Incentive Distribution Levels		73
Distributions from Capital Surplus		76
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels		76
Distributions of Cash Upon Liquidation		77
Selected Historical and Pro Forma Financial and Operating Data		80
Non-GAAP Financial Measures		84
Management’s Discussion and Analysis of Financial Condition and Results of Operations		86
Overview		86
How We Evaluate Our Operations		86
How We Generate Adjusted Gross Margin		88
Items Affecting the Comparability of Our Financial Results		89
General Trends and Outlook		90
Results of Operations		91
Liquidity and Capital Resources		100
Quantitative and Qualitative Disclosures about Market Risk		104

Index to Financial Statements


	Page
Impact of Seasonality		105
Critical Accounting Policies and Estimates		105
Industry Overview		108
General		108
Crude Oil Industry Overview		108
Overview of Cushing		109
Overview of the Williston and Denver-Julesburg (DJ) Basins		111
Overview of the Granite Wash and Mississippian Oil Trend		112
Business		113
Overview		113
How We Generate Adjusted Gross Margin		113
Business Strategies		114
Competitive Strengths		114
Our Relationship with SemGroup		115
Assets and Operations		116
Operational Hazards and Insurance		120
Regulation		121
Title to Properties		124
Office Facilities		124
Employees		125
Legal Proceedings		125
Risk Governance and Comprehensive Risk Management Policy		126
Management		128
Management of Rose Rock Midstream, L.P.		128
Directors and Executive Officers		128
Director Independence		130
Committees of the Board of Directors		130
Compensation of Directors		131
Compensation Discussion and Analysis		131
Security Ownership of Certain Beneficial Owners and Management		142
Certain Relationships And Related Party Transactions		144
Distributions and Payments to our General Partner and its Affiliates		144
Agreements with Affiliates		145
Procedures for Review, Approval and Ratification of Related-Person Transactions		146
Conflicts Of Interest And Fiduciary Duties		148
Conflicts of Interest		148
Fiduciary Duties		153
Description Of The Common Units		155
The Units		155
Transfer Agent and Registrar		155
Transfer of Common Units		155
The Partnership Agreement		157
Organization and Duration		157
Purpose		157
Cash Distributions		157
Capital Contributions		157
Voting Rights		158
Limited Liability		159
Issuance of Additional Securities		160
Amendment of Our Partnership Agreement		160
Merger, Sale or Other Disposition of Assets		162

Index to Financial Statements


	Page
Termination and Dissolution		163
Liquidation and Distribution of Proceeds		163
Withdrawal or Removal of Our General Partner		164
Transfer of General Partner Interest		165
Transfer of Ownership Interests in Our General Partner		165
Transfer of Incentive Distribution Rights		165
Change of Management Provisions		165
Limited Call Right		166
Meetings; Voting		166
Status as Limited Partner		167
Non-Citizen Assignees; Redemption		167
Non-Taxpaying Assignees; Redemption		168
Indemnification		168
Reimbursement of Expenses		168
Books and Reports		169
Right to Inspect Our Books and Records		169
Registration Rights		169
Units Eligible For Future Sale		170
Material Federal Income Tax Consequences		171
Partnership Status		171
Limited Partner Status		173
Tax Consequences of Unit Ownership		173
Tax Treatment of Operations		179
Disposition of Common Units		180
Uniformity of Units		182
Tax-Exempt Organizations and Other Investors		183
Administrative Matters		184
Recent Legislative Developments		186
State, Local, Foreign and Other Tax Considerations		186
Investment In Rose Rock Midstream, L.P. By Employee Benefit Plans		187
Underwriting		189
Commissions and Expenses		189
Option to Purchase Additional Common Units		190
Lock-Up Agreements		190
Offering Price Determination		191
Indemnification		191
Stabilization, Short Positions and Penalty Bids		191
Electronic Distribution		192
New York Stock Exchange		192
Discretionary Sales		192
Stamp Taxes		192
Relationships		192
FINRA		192
Selling Restrictions		193
Validity Of The Common Units		195
Experts		195
Where You Can Find More Information		195
Forward-Looking Statements		196

iii

Index to Financial Statements


	Page
Index to Financial Statements		F-1
Appendix A—Amended and Restated Agreement of Limited Partnership of Rose Rock Midstream, L.P.		A-1
Appendix B—Glossary of Terms		B-1

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information.

We and the underwriters are offering to sell, and seeking offers to buy, our common units only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common units.

We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

Through and including , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Industry and Market Data

The data included in this prospectus regarding the midstream crude oil industry, including descriptions of trends in the market and our position and the position of our competitors within the industry, is based on a variety of sources, including independent industry publications, government publications and other published independent sources, information obtained from customers, distributors, suppliers, trade and business organizations and publicly available information (including the reports and other information our competitors file with the Securities and Exchange Commission, or SEC, which we did not participate in preparing and as to which we make no representation regarding accuracy or adequacy), as well as our good faith estimates, which have been derived from management’s knowledge and experience in the areas in which our business operates.

Index to Financial Statements

SUMMARY

This summary provides a brief overview of information contained elsewhere in this prospectus. Because it is abbreviated, this summary does not contain all of the information that you should consider before investing in our common units. You should read the entire prospectus carefully, including the historical combined financial statements and related notes of our predecessor and our proforma financial statements and related notes. The information presented in this prospectus assumes (1) an initial public offering price of $ per common unit (the mid-point of the price range set forth on the cover page of this prospectus) and (2) unless otherwise indicated, that the underwriters’ option to purchase additional common units is not exercised. You should read “Risk Factors” beginning on page 21 for more information about important risks that you should consider carefully before investing in our common units. We include a glossary of some of the terms used in this prospectus as Appendix B.

Unless the context otherwise requires, references in this prospectus to (i) the “partnership,” “we,” “our,” “us” or like terms, when used in a historical context, refer to our predecessor, and when used in the present tense or prospectively, refer to Rose Rock Midstream, L.P. and its subsidiaries; (ii) “SemGroup” refer to SemGroup Corporation (NYSE: SEMG) and its subsidiaries and affiliates, other than our general partner and us; (iii) “Rose Rock Midstream GP” or our “general partner” refer to Rose Rock Midstream GP, LLC; and (iv) “unitholders” refer to our common and subordinated unitholders, and not our general partner.

Rose Rock Midstream, L.P.

Overview

For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 81% and 74% of our adjusted gross margin, respectively, was generated from fee-based services or fixed-margin transactions. For a definition of adjusted gross margin and a reconciliation of adjusted gross margin to net income (loss), its most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States, or GAAP, please see “—Summary Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

Our Assets and Operations

Cushing Storage. We own and operate a storage terminal in Cushing with over 5.0 million barrels of crude oil storage capacity, approximately 95% of which is committed under long-term fee-based contracts with third parties that are not dependent on actual usage. We are currently constructing an additional 1.95 million barrels of storage capacity that is scheduled to be placed into service before the end of 2012 and is backed by third-party, five-year commitments that will commence on the in-service date of the new storage capacity. Our storage terminal has interconnections with all of the other major storage terminals in Cushing and has a combined

Index to Financial Statements

throughput capacity to receive or deliver 240,000 barrels of crude oil per day. Our existing storage contracts had a weighted average remaining life of 4.5 years as of June 30, 2011, and none of our third-party contracts expire before 2015.

Kansas and Oklahoma Pipelines and Storage. We own and operate an approximately 640-mile crude oil gathering and transportation pipeline system and 670,000 barrels of associated storage in Kansas and northern Oklahoma. This system gathers crude oil from multiple receipt points throughout the region and delivers it to pipelines and refineries and our Cushing terminal, thereby providing our customers with multiple delivery options. During 2010, we transported an average of approximately 31,000 barrels per day, and during the six months ended June 30, 2011, we transported an average of approximately 32,000 barrels per day.

Bakken Shale Operations. We own and operate a crude oil gathering, storage, transportation and marketing business in the Bakken Shale area in western North Dakota and eastern Montana. Using our fleet of trucks and capacity on the Enbridge North Dakota System, we purchase crude oil at the wellhead and transport and market it to customers, primarily at the Clearbrook, Minnesota crude oil marketing hub. During the six months ended June 30, 2011, we handled and marketed an average of approximately 5,800 barrels per day.

Platteville Facility. We own and operate a modern, ten-lane crude oil truck unloading facility in Platteville, Colorado, which connects to the origination point of SemGroup’s White Cliffs Pipeline. This facility is utilized by producers, marketers and refiners to deliver crude oil into the White Cliffs Pipeline for transport to our terminal in Cushing. The facility also includes 120,000 barrels of crude oil storage capacity. We currently have an additional 100,000 barrels of storage capacity under construction and expect to build an additional six truck unloading lanes and 10,000 barrels of additional storage capacity at the facility by the end of 2012. Throughput at the facility averaged 25,800 barrels per day and 31,100 barrels per day for the year ended December 31, 2010 and the six months ended June 30, 2011, respectively.

How We Generate Adjusted Gross Margin

We generate adjusted gross margin by providing fee-based services, by entering into fixed-margin transactions and through marketing activities.

Fee-Based Services. We charge a capacity or volume-based fee for the unloading, transportation and storage of crude oil and related ancillary services. Our fee-based services include substantially all of our operations in Cushing and Platteville and a portion of the transportation services we provide on our Kansas and Oklahoma pipeline system. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 75% and 59% of our adjusted gross margin, respectively, was generated by providing fee-based services to customers.

Fixed-Margin Transactions. We purchase crude oil from a producer or supplier at a designated receipt point at an index price less a transportation fee, and simultaneously sell an identical volume of crude oil at a designated delivery point to the same party at the same index price, thereby locking in a fixed margin that is in effect economically equivalent to a transportation fee. We refer to these arrangements as “fixed-margin” or “buy/sell” transactions. These fixed-margin transactions account for a portion of the adjusted gross margin we generate on our Kansas and Oklahoma pipeline system and through our Bakken Shale operations. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 6% and 15% of our adjusted gross margin, respectively, was generated through fixed margin transactions.

Marketing Activities. We conduct marketing activities by purchasing crude oil for our own account from producers, aggregators and traders and selling crude oil to traders and refiners. We mitigate the commodity price exposure of our crude oil marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of crude oil to create “back-to-back” transactions intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts.

Index to Financial Statements

All of our marketing activities are subject to our comprehensive risk management policy, which establishes limits in order to manage risk and mitigate financial exposure. Our marketing activities account for a portion of the adjusted gross margin we generate on our Kansas and Oklahoma pipeline system and through our Bakken Shale operations. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 19% and 26% of our adjusted gross margin, respectively, was generated through marketing activities.

Industry Trends

According to the Energy Information Administration, or EIA, U.S. annual crude oil consumption is expected to grow by 13.5% between 2009 and 2035, from 17.1 million barrels per day to 19.4 million barrels per day. According to the EIA, since 2004, Cushing shell storage capacity has more than doubled to 57.9 million barrels, with working capacity of 48.0 million barrels. Growing volumes of Canadian crude oil imported into the United States and growing production from domestic unconventional plays, including in the Rocky Mountain and Mid-Continent regions, contributed to record high storage levels at Cushing of over 41.0 million barrels as of March 31, 2011 (86% of working capacity). At any given time, Cushing holds 5% to 10% of the total U.S. crude oil inventory.

Midstream assets like ours provide the vital link between producers and end users of crude oil. In particular, with its multiple inbound and outbound pipeline interconnections, Cushing serves as a significant source of refinery feedstock for Mid-Continent refiners and plays an integral role as a liquidity point in establishing and maintaining markets for many varieties of foreign and domestic crude oil. Recently, Cushing has experienced a shortfall in takeaway pipeline capacity, which has been cited as a principal reason for the decline in price of the WTI Index compared to other crude oil price indices. We believe that if and when any of several planned takeaway pipeline expansion projects are completed, this price differential will narrow and Cushing will remain the predominant benchmarking and transportation hub for crude oil in the United States.

The Bakken Shale, the DJ Basin and the Niobrara Shale have emerged as highly attractive areas targeted by upstream companies utilizing horizontal drilling technologies. According to North Dakota state statistics, Bakken Shale oil production has increased steadily from 28 million barrels in 2008 to 86 million barrels in 2010. The Niobrara Shale is in the early stages of exploration, but a United States Geological Survey, or USGS, study estimated mean undiscovered hydrocarbons from the Niobrara Shale in the DJ Basin at 127 million barrels of oil equivalent. Upstream companies have also been applying horizontal drilling technologies to proven plays that have traditionally been drilled with vertical wells, such as the Granite Wash and Mississippian oil trend. According to industry research, the application of horizontal drilling techniques to these established plays is expected to increase production volumes in the coming years.

Business Strategies

Our principal business objective is to increase the quarterly cash distributions that we pay to our unitholders over time while maintaining the ongoing stability of our business. We expect to achieve this objective through the following strategies:

•

Capitalizing on organic growth opportunities associated with our existing assets. We seek to identify and evaluate economically attractive organic expansion and asset enhancement opportunities that leverage our existing asset footprint and strategic relationships with our customers. We are currently (i) constructing an additional 1.95 million barrels of crude oil storage capacity at Cushing, (ii) expanding capacity on portions of our Kansas and Oklahoma pipeline system through de-bottlenecking projects, (iii) evaluating additional markets for our Bakken Shale operations and (iv) constructing an additional 100,000 barrels of storage capacity, and planning for the construction of six additional truck unloading lanes and an additional 10,000 barrels of storage capacity, at our Platteville facility.

Index to Financial Statements

•

Growing our business through strategic and accretive asset acquisitions from third parties, SemGroup or both. We plan to pursue accretive acquisitions from SemGroup and third parties of midstream energy assets that are complementary to our existing asset base or that provide attractive potential returns in new operating regions or business lines.

•

Maintaining financial flexibility and utilizing leverage prudently. We plan to pursue a disciplined financial policy and seek to maintain a conservative capital structure to allow us to execute on our identified growth projects, as well as pursue additional growth projects and acquisitions, even in challenging market environments. We will have minimal debt at the closing of this offering and expect to have $ million of available capacity under our revolving credit facility.

Competitive Strengths

We believe that the following competitive strengths position us to successfully execute our principal business objective:

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Strategically located assets that provide a strong platform for growth and operational flexibility to our customers. The majority of our assets are located in or connected to Cushing, and our numerous interconnections to other terminals and pipelines provide our customers with multiple options for the receipt and delivery of crude oil. We believe that we are well positioned to take advantage of both the increased throughput at Cushing that is expected to result from the construction of additional transportation capacity to and from the hub and the growing production in the Bakken Shale, DJ Basin, Niobrara Shale, Granite Wash and Mississippian oil trend.

•

Modern crude oil storage and unloading assets. Our Cushing storage tanks and our Platteville facility have all been placed into service since the beginning of 2009. The recent construction of these facilities results in reduced maintenance cost, and we believe that customers prefer the additional reliability and safety that is generally associated with newer assets.

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Stable cash flow. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 81% and 74% of our adjusted gross margin, respectively, was generated from fee-based services and fixed-margin transactions. Our fee-based and fixed-margin activities mitigate our exposure to margin fluctuations caused by commodity price volatility.

•

Affiliation with SemGroup. We believe that our relationship with SemGroup strengthens our ability to make strategic acquisitions and to access other business opportunities. In addition, we believe that SemGroup, as the owner of a substantial interest in us, will be motivated to promote and support the successful execution of our business strategies.

•

Experienced, knowledgeable management team with a proven track record. Our management team has an average of over 27 years of experience in the energy industry, including in building, acquiring, integrating and operating midstream assets. In addition, our management team has established strong relationships throughout the U.S. upstream and midstream industries, which we believe will be beneficial to us in pursuing acquisition and organic expansion opportunities.

Index to Financial Statements

Our Relationship with SemGroup

One of our principal strengths is our relationship with SemGroup. SemGroup provides gathering, transportation, processing, storage, distribution, marketing and other midstream services primarily to independent oil and natural gas producers, refiners of petroleum products and other market participants located in the Mid-Continent and Rocky Mountain regions of the United States and in Canada, Mexico and the United Kingdom. Since 2008, SemGroup has taken numerous steps to restructure its business portfolio and to shift away from trading activities and toward a business heavily weighted in fee-based and fixed-margin activities. At June 30, 2011, excluding the assets being contributed to us in connection with this offering, SemGroup had a midstream asset portfolio that included, among other assets:

•

a 51% interest in the White Cliffs Pipeline, which SemGroup operates;

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more than 1,700 miles of natural gas and natural gas liquid, or NGL, transportation, gathering and distribution pipelines in Arizona, Arkansas, Kansas, Montana, Oklahoma and Texas and Alberta, Canada;

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9.1 million barrels of owned NGL and multiproduct storage capacity located throughout the United States and in the United Kingdom;

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an additional 3.8 million barrels of leased NGL storage;

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twelve owned NGL terminals across the United States;

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thirteen asphalt terminals in Mexico;

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majority interests in four natural gas processing plants located in Alberta, Canada, with a combined operating capacity of 654 million cubic feet per day, or MMcf/d, of capacity;

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three natural gas processing plants located in Oklahoma and Texas, with a combined 73 MMcf/d, of capacity; and

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over 350 owned and leased railcars.

SemGroup’s Class A common stock trades on the New York Stock Exchange, or NYSE, under the symbol “SEMG.”

Following the completion of this offering, SemGroup will continue to own and operate a substantial portfolio of midstream assets and will retain a significant interest in us through its ownership of a % limited partner interest and 2.0% general partner interest in us, as well as all of our incentive distribution rights. Given SemGroup’s significant ownership in us following this offering, we believe that SemGroup will be motivated to promote and support the successful execution of our business strategies, including through the potential contribution of additional midstream assets to us over time and the facilitation of accretive acquisitions, although SemGroup is under no obligation to offer any assets or business opportunities to us or accept any offer for its assets that we may choose to make. SemGroup constantly evaluates acquisitions and dispositions and may elect to acquire or dispose of assets in the future without offering us the opportunity to purchase those assets. SemGroup has retained such flexibility because it believes it is in the best interests of its shareholders to do so. We cannot say with any certainty which, if any, opportunities to acquire assets from SemGroup may be made available to us or if we will choose to pursue any such opportunity. Moreover, the consideration to be paid by us for assets offered to us by SemGroup, if any, as well as the consummation and timing of any acquisition by us of these assets, would depend upon, among other things, the timing of SemGroup’s decision to sell, transfer or otherwise dispose of these assets, our ability to successfully negotiate a purchase price and other terms, and our ability to obtain financing.

Index to Financial Statements

We will enter into an omnibus agreement with SemGroup and our general partner that will govern our relationship with them regarding certain reimbursement and indemnification matters. Please read “Certain Relationships and Related Party Transactions—Agreements with Affiliates—Omnibus Agreement” beginning on page 145. While our relationship with SemGroup provides us with a significant advantage, it is also a source of potential conflicts. For example, SemGroup is not restricted from competing with us, and may acquire, construct or dispose of midstream energy assets without any obligation to offer us the opportunity to acquire or construct such assets. Please read “Conflicts of Interest and Fiduciary Duties” beginning on page 148 and “Risk Factors—Risks Inherent in an Investment in Us—SemGroup owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. SemGroup and our general partner will have conflicts of interest with us and may favor their own interests to your detriment” on page 35.

Risk Factors

An investment in our common units involves risks associated with our business, regulatory and legal matters, our limited partnership structure and the tax characteristics of our common units. The following list of risk factors is not exhaustive. Please read carefully the risks described under the caption “Risk Factors” immediately following this Summary, beginning on page 21, for a more thorough description of the risks associated with an investment in our common units.

Risks Related to our Business

•

The amount of cash we have available for distribution to holders of our common and subordinated units depends primarily on our cash flow rather than on our profitability, which may prevent us from making distributions, even during periods in which we record net income.

•

The assumptions underlying the forecast of adjusted EBITDA and cash available for distribution that we include in “Our Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

•

Our profitability depends on the demand for crude oil in the markets we serve.

•

We face intense competition in our gathering, transportation, storage and marketing activities. Competition from other providers of those services that are able to supply our customers with those services at a lower price or on otherwise better terms could adversely affect our business and operating results.

•

We may not be able to renew or replace expiring storage contracts.

Index to Financial Statements

Risks Inherent in an Investment in Us

•

SemGroup owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. SemGroup and our general partner will have conflicts of interest with us and may favor their own interests to your detriment.

•

SemGroup is not limited in its ability to compete with us and is not obligated to offer us the opportunity to acquire additional assets or businesses, which could limit our ability to grow and could adversely affect our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

•

Our partnership agreement limits our general partner’s fiduciary duties to holders of our common and subordinated units.

•

Our partnership agreement restricts the remedies available to holders of our common and subordinated units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

•

Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.

•

Holders of our common units will have limited voting rights and will not be entitled to elect our general partner or its directors.

•

Even if holders of our common units are dissatisfied, they will not initially be able to remove our general partner without its consent.

•

You will experience immediate and substantial dilution in pro forma net tangible book value of $ per common unit.

Tax Risks to Common Unitholders

•

Our tax treatment depends on our status as a partnership for federal income tax purposes. If the Internal Revenue Service, or IRS, were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.

•

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

•

Your share of our income will be taxable to you for U.S. federal income tax purposes even if you do not receive any cash distributions from us.

Formation Transactions and Partnership Structure

Formation Transactions

We are a growth-oriented Delaware limited partnership recently formed by SemGroup to own, operate, develop and acquire a diversified portfolio of midstream energy assets. Immediately prior to or in connection with the closing of this offering, the following transactions, which we refer to as the formation transactions, will occur:

•

SemCrude, L.P. will distribute to SemGroup its interest in SemCrude Pipeline, L.L.C., which holds a 51% interest in the White Cliffs Pipeline, cash and accounts receivable and certain inactive assets and related liabilities;

Index to Financial Statements

•

SemGroup will contribute to us 100% of the limited and general partner interests in SemCrude, L.P., which owns all of our initial assets;

•

we will issue to Rose Rock Midstream GP, LLC, our general partner and a wholly owned subsidiary of SemGroup, general partner units, representing a 2.0% general partner interest in us, as well as all of our incentive distribution rights;

•

we will issue to SemGroup common units and subordinated units, representing an aggregate % limited partner interest in us;

•

we will issue common units, representing a % limited partner interest in us, to the public;

•

we will apply the net proceeds from the issuance and sale of common units to the public as described in “Use of Proceeds”;

•

we will enter into a new $ million revolving credit facility; and

•

we will enter into an omnibus agreement with SemGroup and our general partner which will address, among other things, the provision of, and the reimbursement for, general and administrative and operating services and indemnification matters.

Index to Financial Statements

Ownership of Rose Rock Midstream, L.P.

The diagram below illustrates our organization and ownership after giving effect to this offering and the related formation transactions and assumes that the underwriters’ option to purchase additional common units is not exercised.


Public Common Units		%
Sponsor Units:
Common Units		%
Subordinated Units		%
General Partner Units	2.0	%

Total	100.0	%

LOGO

Index to Financial Statements

Our Management

We are managed and operated by the board of directors and executive officers of our general partner, Rose Rock Midstream GP, LLC. SemGroup will own all of the ownership interests in our general partner and will be entitled to appoint the entire board of directors of our general partner. Our unitholders will not be entitled to elect our general partner or its directors or otherwise directly participate in our management or operation. All of the officers of our general partner are also officers and/or directors of SemGroup. For information about the executive officers and directors of our general partner, please read “Management” beginning on page 128.

In order to maintain operational flexibility, our operations will be conducted through, and our operating assets will be owned by, Rose Rock Midstream Operating, LLC and its subsidiaries. However, we, Rose Rock Midstream Operating, LLC and its subsidiaries will not have any employees. Although all of the employees that conduct our business will be employed by an affiliate of our general partner, we sometimes refer to these individuals in this prospectus as our employees.

Following the closing of this offering, our general partner and its affiliates will not receive any management fee or other compensation in connection with our general partner’s management of our business, but will be reimbursed for expenses incurred on our behalf. These expenses will include the costs of officer and director and other employee compensation and benefits properly allocable to us, and all other expenses necessary or appropriate for the conduct of our business and allocable to us. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us.

Our general partner will own general partner units representing a 2.0% general partner interest in us, which will entitle it to receive 2.0% of all the distributions we make. Our general partner will also own all of our incentive distribution rights, which will entitle it to increasing percentages, up to a maximum of 48.0%, of the cash we distribute in excess of $ per unit per quarter after the closing of our initial public offering. In addition, SemGroup will own common units and subordinated units. Please read “Certain Relationships and Related Party Transactions” beginning on page 144.

Principal Executive Offices and Internet Address

Our principal executive offices are located at Two Warren Place, 6120 S. Yale Avenue, Suite 700, Tulsa, OK 74136-4216, and our telephone number is (918) 524-7700. Our website is located at , and will be activated immediately following the closing of this offering. We expect to make available our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or the SEC, free of charge through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this prospectus.

Summary of Conflicts of Interest and Fiduciary Duties

General

Our general partner has a legal duty to manage us in a manner beneficial to the holders of our common and subordinated units. This legal duty originates in statutes and judicial decisions and is commonly referred to as a “fiduciary duty.” However, the officers and directors of our general partner also have a fiduciary duty to manage the business of our general partner in a manner beneficial to its owner, SemGroup. All of the officers of our general partner are also officers and/or directors of SemGroup. As a result of these relationships, conflicts of interest may arise in the future between us and holders of our common units, on the one hand, and SemGroup and our general partner, on the other hand. For example, our general partner will be entitled to make determinations that affect the amount of cash distributions we make to the holders of common units, which in turn has an effect on whether our general partner receives incentive cash distributions as discussed above.

Index to Financial Statements

Partnership Agreement Modifications to Fiduciary Duties

Our partnership agreement limits the liability of, and reduces the fiduciary duties owed by, our general partner to holders of our common and subordinated units. Our partnership agreement also restricts the remedies available to holders of our common and subordinated units for actions that might otherwise constitute a breach of our general partner’s fiduciary duties. By purchasing a common unit, the purchaser agrees to be bound by the terms of our partnership agreement and, pursuant to the terms of our partnership agreement, each holder of common units consents to various actions and potential conflicts of interest contemplated in the partnership agreement that might otherwise be considered a breach of fiduciary or other duties under applicable state law.

Index to Financial Statements

The Offering

Common units offered to the public

common units.

common units if the underwriters exercise in full their option to purchase additional common units.

Units outstanding after this offering

common units and subordinated units, each representing a 49.0% limited partner interest in us. Our general partner will own general partner units, representing a 2.0% general partner interest in us.

Use of proceeds

We expect to receive net proceeds of approximately $ million from this offering, based upon the mid-point of the price range set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions, structuring fees and offering expenses. We intend to use the net proceeds from this offering to make a cash distribution to SemGroup.

The cash distribution to SemGroup made with the net proceeds of this offering will be made in consideration of its contribution to us of all of the partnership interests in SemCrude, L.P., which owns all of our initial assets, and to reimburse SemGroup for certain capital expenditures incurred with respect to those assets.

If the underwriters exercise their option to purchase additional common units, we will use the net proceeds from that exercise to redeem from SemGroup a number of common units equal to the number of common units issued upon such exercise, at a price per common unit equal to the price per common unit in this offering before expenses but after deducting underwriting discounts and commissions and structuring fees. Accordingly, the exercise of the underwriters’ option will not affect the total number of units outstanding after the offering or the amount of cash needed to pay the minimum quarterly distribution on all units.

SemGroup has informed us that all of the net proceeds distributed to it will be used to repay, on a pro rata basis, a portion of the indebtedness outstanding under its term loans. Affiliates of certain of the underwriters are lenders under one of the term loans and will, in that respect, receive a portion of the net proceeds of this offering.

Please read “Use of Proceeds” on page 50.

Cash distributions

We intend to pay a minimum quarterly distribution of $ per unit ($ per unit on an annualized basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. We refer to this cash as “available cash,” and

Index to Financial Statements

it is defined in our partnership agreement included in this prospectus as Appendix A. Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption “Our Cash Distribution Policy and Restrictions on Distributions” beginning on page 53. We will adjust the minimum quarterly distribution payable for the period from the closing of this offering through December 31, 2011, based on the length of that period.

Our partnership agreement requires that we distribute all of our available cash each quarter in the following manner:

•

first, 98.0% to the holders of common units and 2.0% to our general partner, until each common unit has received the minimum quarterly distribution of $ , plus any arrearages from prior quarters;

•

second, 98.0% to the holders of subordinated units and 2.0% to our general partner, until each subordinated unit has received the minimum quarterly distribution of $ ; and

•

third, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unit has received a distribution of $ .

If cash distributions to our unitholders exceed $ per unit in any quarter, our general partner will receive, in addition to distributions on its 2.0% general partner interest, increasing percentages, up to 48.0%, of the cash we distribute in excess of that amount. We refer to these distributions as “incentive distributions.” In certain circumstances, our general partner, as the initial holder of our incentive distribution rights, will have the right to reset the target distribution levels described above to higher levels based on our cash distributions at the time of the exercise of this reset election. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions” beginning on page 66.

Pro forma cash available for distribution generated during the year ended December 31, 2010 and the twelve months ended March 31, 2011 was approximately $31.6 million and $31.0 million, respectively. The amount of available cash we will need to pay the minimum quarterly distribution for four quarters on our common units and subordinated units to be outstanding immediately after this offering and the corresponding distributions on our general partner’s 2.0% interest will be approximately $ million (or an average of approximately $ million per quarter). As a result, for each of the year ended December 31, 2010 and the twelve months ended March 31, 2011, we would have generated available cash sufficient to pay the full minimum quarterly distribution of $ per unit per quarter ($ per unit on an annualized basis) on all of our common units and subordinated units for each such period. Please read “Our Cash Distribution Policy and Restrictions on

Index to Financial Statements

Distributions—Unaudited Pro Forma Available Cash for the Year Ended December 31, 2010 and the Twelve Months Ended March 31, 2011,” beginning on page 56.

We believe, based on our financial forecast and the related assumptions included under “Cash Distribution Policy and Restrictions on Distributions—Estimated Adjusted EBITDA for the Twelve Months Ending September 30, 2012,” that we will have sufficient cash available for distribution to pay the minimum quarterly distribution of $ per unit on all our common and subordinated units and the corresponding distributions on our general partner’s 2.0% interest for the four quarters ending September 30, 2012.

Subordinated units

Rose Rock Midstream Holdings, LLC will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages.

Conversion of subordinated units

The subordination period will end on the first business day after we have earned and paid at least (i) $ (the minimum quarterly distribution on an annualized basis) on each outstanding common and subordinated unit and the corresponding distributions on our general partner’s 2.0% interest for each of three consecutive, non-overlapping four-quarter periods ending on or after December 31, 2014 or (ii) $ (150% of the annualized minimum quarterly distribution) on each outstanding common and subordinated unit and the corresponding distributions on our general partner’s 2.0% interest and the incentive distribution rights for any four-quarter period, in each case provided that there are no arrearages on our common units at that time.

In addition, the subordination period will end upon the removal of our general partner other than for cause if the units held by our general partner and its affiliates are not voted in favor of such removal.

When the subordination period ends, all subordinated units will convert into common units on a one-for-one basis, and all common units thereafter will no longer be entitled to arrearages. Please read “Provisions of our Partnership Agreement Relating to Cash Distributions—Subordination Period” beginning on page 69.

Issuance of additional units

Our partnership agreement authorizes us to issue an unlimited number of additional units without the approval of our unitholders. Please read “Units Eligible for Future Sale” beginning on page 170 and “The Partnership Agreement—Issuance of Additional Securities” beginning on page 160.

Index to Financial Statements

Limited voting rights

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect our general partner or its directors on an annual or continuing basis. Our general partner may not be removed except by a vote of the holders of at least 66²/3% of the outstanding limited partner units voting together as a single class, including any limited partner units owned by our general partner and its affiliates, including SemGroup. Upon the closing of this offering, SemGroup will own an aggregate of % of our common and subordinated units. This will give SemGroup the ability to prevent the involuntary removal of our general partner. Please read “The Partnership Agreement—Voting Rights” beginning on page 158.

Limited call right

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner will have the right, but not the obligation, to purchase all of the remaining common units at a price that is not less than the then-current market price of the common units.

Estimated ratio of taxable income to distributions

We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2014, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be % or less of the cash distributed to you with respect to that period. For example, if you receive an annual distribution of $ per unit, we estimate that your average allocable federal taxable income per year will be no more than approximately $ per unit. Please read “Material Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Ratio of Taxable Income to Distributions” beginning on page 174.

Material Federal Income Tax Consequences

For a discussion of other material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read “Material Federal Income Tax Consequences” beginning on page 171.

Exchange listing

We intend to apply to list our common units on the NYSE under the symbol “RRMS.”

Index to Financial Statements

Summary Historical and Pro Forma Financial and Operating Data

The following table shows summary historical combined financial and operating data of our predecessor for accounting purposes, and summary pro forma combined financial and operating data of Rose Rock Midstream, L.P. for the periods and as of the dates indicated. The summary historical combined financial data of our predecessor as of December 31, 2009 and 2010 and for the year ended December 31, 2008, the eleven months ended November 30, 2009, the one month ended December 31, 2009 and the year ended December 31, 2010 are derived from the audited combined financial statements of our predecessor included elsewhere in this prospectus. The summary historical combined balance sheet data of our predecessor as of November 30, 2009 are derived from the audited combined financial statements of our predecessor not included in this prospectus. The summary historical combined balance sheet data of our predecessor as of December 31, 2008 are derived from unaudited combined financial statements of our predecessor not included in this prospectus. The summary historical combined financial data of our predecessor as of March 31, 2010 and 2011 and for the three months ended March 31, 2010 and 2011 are derived from the unaudited combined interim financial statements of our predecessor included elsewhere in this prospectus. The following table should be read together with, and is qualified in its entirety by reference to, the audited and unaudited historical and unaudited pro forma combined financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 86. For ease of reference, we refer to the historical financial data of our predecessor as being “our” historical financial data.

The summary pro forma combined financial data presented in the following table for the year ended December 31, 2010 and as of and for the three months ended March 31, 2011 are derived from the unaudited pro forma combined financial statements of Rose Rock Midstream, L.P. included elsewhere in this prospectus. The pro forma balance sheet data were prepared assuming that the offering and the related transactions occurred as of March 31, 2011, and the pro forma statement of operations data were prepared assuming that the offering and the related transactions occurred as of January 1, 2010. These transactions include, and the pro forma financial data give effect to, the following:

•

the elimination of Eaglwing, L.P., which is included in the historical combined financial statements of our predecessor, but which will not be contributed to us;

•

SemGroup’s contribution to us of 100% of the limited and general partner interests in SemCrude, L.P., which owns all of our initial assets;

•

our issuance to SemGroup of common units, subordinated units and a 2% general partner interest and our issuance to the public of common units;

•

the application of the net proceeds of this offering as described under “Use of Proceeds”;

•

our entry into our new $ million revolving credit facility; and

•

the allocation by Sem Group to us of certain corporate overhead expenses that were not allocated to our predecessor.

The pro forma combined financial data do not give effect to the estimated $2.3 million in incremental annual general and administrative expense that we expect to incur as a result of being a separate publicly traded partnership.

Our predecessor includes SemCrude, L.P., exclusive of its wholly-owned subsidiary SemCrude Pipeline, L.L.C., which holds a 51% interest in the White Cliffs Pipeline. SemCrude, L.P. plans to transfer its ownership interests in SemCrude Pipeline, L.L.C. to an affiliate prior to this offering, and as a result, SemCrude Pipeline, L.L.C. will not be contributed to us. Therefore, SemCrude, L.P.’s ownership of SemCrude Pipeline, L.L.C. is not

Index to Financial Statements

reflected in the financial statements of our predecessor. Our predecessor also includes Eaglwing, L.P., a wholly-owned subsidiary of SemGroup. Eaglwing, L.P. is not currently conducting any revenue-generating operations, and it will not be contributed to us, but it is included in the financial statements of our predecessor because it previously conducted business operations that were similar to those of SemCrude, L.P.

On July 22, 2008, SemGroup and certain subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Later during 2008, certain other U.S. subsidiaries filed petitions for reorganization. During the reorganization process, SemGroup filed a Plan of Reorganization with the court, which was confirmed on October 28, 2009. 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 emerged from bankruptcy on November 30, 2009. As described in the notes to the financial statements included in this prospectus, on November 30, 2009, SemGroup applied fresh-start accounting, whereby its assets, liabilities and new capital structure were adjusted to reflect their estimated fair value as of November 30, 2009. As a result, the financial data of our predecessor prior to November 30, 2009 are not comparable to the financial data of our predecessor on and after November 30, 2009.

The following table presents the non-GAAP financial measures of adjusted gross margin and adjusted EBITDA, which we use in our business and view as important supplemental measures of our performance and, in the case of adjusted EBITDA, our liquidity. Adjusted gross margin and adjusted EBITDA are not calculated or presented in accordance with GAAP. For definitions of adjusted gross margin and adjusted EBITDA and a reconciliation of adjusted gross margin to net income (loss) and of adjusted EBITDA to net income (loss) and net cash provided by (used in) operating activities, their most directly comparable financial measures calculated and presented in accordance with GAAP, please see “—Non-GAAP Financial Measures” on page 19.


	Predecessor Historical (Prior to Emergence)						Predecessor Historical (Subsequent to Emergence)											Rose Rock Midstream, L.P. Pro Forma
	Year Ended December 31, 2008			Eleven Months Ended November 30, 2009			Month Ended December 31, 2009			Year Ended December 31, 2010			Three Months Ended March 31, 2010			Three Months Ended March 31, 2011		Year Ended December 31, 2010			Three Months Ended March 31, 2011
													(Unaudited)					(Unaudited)
	(In thousands, except per unit and operating data)
Statement of operations data:
Revenues(1):
Product	$	3,010,645		$	197,203		$	6,724		$	158,308		$	40,475		$	74,257	$	158,308		$	74,257
Service		19,129			40,281			3,891			49,408			12,707			9,423		49,408			9,423
Other		10			3			—			365			—			111		365			111

Total revenues		3,029,784			237,487			10,615			208,081			53,182			83,791		208,081			83,791
Expenses(1):
Costs of products sold, exclusive of depreciation and amortization shown below		3,685,594			180,154			5,969			146,614			38,414			66,000		146,614			66,000
Operating		298,874			15,614			1,536			20,398			5,157			4,664		20,398			4,664
General and administrative		33,841			5,813			1,270			7,660			2,481			2,357		9,160			2,735
Depreciation and amortization		2,995			3,193			818			10,435			2,469			2,683		10,435			2,683

Total expenses		4,021,304			204,774			9,593			185,107			48,521			75,704		186,607			76,082

Operating income (loss)		(991,520	)		32,713			1,022			22,974			4,661			8,087		21,474			7,709
Other expenses (income):
Interest expense		2,907			1,699			43			482			73			483		1,332			696
Other expense (income), net		(806	)		(1,602	)		(306	)		(985	)		(727	)		—		(951	)		—

Total other expenses (income)		2,101			97			(263	)		(503	)		(654	)		483		381			696

Index to Financial Statements


	Predecessor Historical (Prior to Emergence)						Predecessor Historical (Subsequent to Emergence)												Rose Rock Midstream, L.P. Pro Forma
	Year Ended December 31, 2008			Eleven Months Ended November 30, 2009			Month Ended December 31, 2009			Year Ended December 31, 2010			Three Months Ended March 31, 2010			Three Months Ended March 31, 2011			Year Ended December 31, 2010		Three Months Ended March 31, 2011
													(Unaudited)						(Unaudited)
	(In thousands, except per unit and operating data)
Income (loss) before reorganization items		(993,621	)		32,616			1,285			23,477			5,315			7,604			21,093		7,013
Reorganization items gain (loss)(1)		(94,424	)		99,936			—			—			—			—			—		—

Net income (loss)	$	(1,088,045	)	$	132,552		$	1,285		$	23,477		$	5,315		$	7,604		$	21,093	$	7,013

Net income (loss) per common unit (basic and diluted)																			$		$

Net income (loss) per subordinated unit (basic and diluted)																			$		$

Statement of cash flows data:
Net cash provided by (used in):
Operating activities	$	(56,164	)	$	58,931		$	2,088		$	31,492		$	19,015		$	25,173
Investing activities		58,836			(34,490	)		(2,047	)		(16,723	)		(1,972	)		(1,525	)
Financing activities		(27,931	)		(23,426	)		(1,056	)		(14,466	)		2,625			(23,951	)
Other financial data:
Adjusted gross margin	$	(150,428	)	$	57,079		$	4,364		$	62,230		$	14,852		$	16,202		$	62,230	$	16,202
Adjusted EBITDA		(509,975	)		(40,412	)		1,864			38,564			9,087			8,883			37,030		8,505
Capital expenditures		76,192			34,530			2,047			16,732			1,972			1,528
Balance sheet data (at period end):
Property, plant and equipment, net	$	82,346		$	252,477		$	253,706		$	260,048		$	253,218		$	256,261				$	256,261
Total assets		771,797			298,799			297,949			357,131			316,828			364,472					290,014
Total long-term debt		—			—			—			—			—			—					3,300
Net parent equity (deficit)		(1,136,417	)		280,370			280,214			289,988			288,682			273,352					195,838
Operating data:
Cushing storage capacity (MMBbls as of period end)								3.9			4.7			4.2			4.7
Percent of Cushing capacity contracted (as of period end)								100	%		95	%		98	%		95	%
Transportation volumes (Average Bpd)(2)								24,300			26,600			21,300			34,500
Marketing volumes (Average Bpd)								2,100			15,800			12,200			10,300
Unloading/Platteville volumes (Average Bpd)								21,700			25,800			24,100			29,300

(1)	For a discussion of items impacting our predecessor, please see Note 12 to our audited combined financial statements for the year ended December 31, 2010 and Note 5 to our unaudited interim combined financial statements for the three months ended March 31, 2011.

(2)	Includes fee-based services and fixed-margin transactions.

Index to Financial Statements

Non-GAAP Financial Measures

We define adjusted gross margin as total revenues minus costs of products sold and unrealized gain (loss) on derivatives. We define adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit), depreciation and amortization and any non-cash adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities. Because our predecessor is a pass-through entity for federal and state income tax purposes, no provision for income taxes is reported in our historical statements of operations. Adjusted gross margin and adjusted EBITDA are used as supplemental financial measures by our management and external users of our financial statements, such as investors, lenders and industry analysts, to assess our operating performance as compared to that of other companies in our industry, without regard to financing methods, historical cost basis, capital structure or the impact of fluctuating commodity prices.

In addition, adjusted EBITDA is used as a liquidity measure to assess:

•

the ability of our assets to generate sufficient cash flow to make distributions to our partners;

•

our ability to incur and service debt and fund capital expenditures; and

•

the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of adjusted gross margin and adjusted EBITDA in this prospectus provides information useful to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to adjusted gross margin is net income (loss), and the GAAP measures most directly comparable to adjusted EBITDA are net income (loss) and net cash provided by (used in) operating activities. Adjusted gross margin and adjusted EBITDA should not be considered alternatives to net income (loss), net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted gross margin and adjusted EBITDA have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Because adjusted gross margin and adjusted EBITDA are defined differently by other companies in our industry, our definitions of adjusted gross margin and adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Management compensates for the limitations of adjusted gross margin and adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between adjusted gross margin and adjusted EBITDA, on the one hand, and net income (loss) and net cash provided by (used in) operating activities, 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 measures that our management uses in evaluating our operating results.

Index to Financial Statements

The following table presents a reconciliation of (i) adjusted gross margin to net income (loss) and (ii) adjusted EBITDA to net income (loss) and net cash provided by (used in) operating activities, the most directly comparable GAAP financial measures, on a historical basis and pro forma basis, as applicable, for each of the periods indicated.


	Predecessor Historical (Prior to Emergence)						Predecessor Historical (Subsequent to Emergence)												Rose Rock Midstream, L.P. Pro Forma
	Year Ended December 31, 2008			Eleven Months Ended November 30, 2009			Month Ended December 31, 2009			Year Ended December 31, 2010			Three Months Ended March 31, 2010			Three Months Ended March 31, 2011			Year Ended December 31, 2010			Three Months Ended March 31, 2011
	(Unaudited; in thousands)
Reconciliation of adjusted gross margin to net income (loss):
Net income (loss)	$	(1,088,045	)	$	132,552		$	1,285		$	23,477		$	5,315		$	7,604		$	21,093		$	7,013
Add:
Unrealized (gain) loss on derivatives		505,382			(254	)		(282	)		763			84			(1,589	)		763			(1,589	)
Operating expense		298,874			15,614			1,536			20,398			5,157			4,664			20,398			4,664
General and administrative expense		33,841			5,813			1,270			7,660			2,481			2,357			9,160			2,735
Interest expense		2,907			1,699			43			482			73			483			1,332			696
Depreciation and amortization expense		2,995			3,193			818			10,435			2,469			2,683			10,435			2,683
Other expense (income)		(806	)		(1,602	)		(306	)		(985	)		(727	)		—			(951	)		—
Reorganization items (gain) loss		94,424			(99,936	)		—			—			—			—			—			—

Adjusted gross margin	$	(150,428	)	$	57,079		$	4,364		$	62,230		$	14,852		$	16,202		$	62,230		$	16,202

Reconciliation of adjusted EBITDA to net income (loss):
Net income (loss)	$	(1,088,045	)	$	132,552		$	1,285		$	23,477		$	5,315		$	7,604		$	21,093		$	7,013
Add:
Interest expense		2,907			1,699			43			482			73			483			1,332			696
Income tax expense (benefit)		—			—			—			—			—			—			—			—
Depreciation and amortization		2,995			3,193			818			10,435			2,469			2,683			10,435			2,683
Unrealized (gain) loss on derivatives		505,382			(254	)		(282	)		763			84			(1,589	)		763			(1,589	)
(Gain) loss on impairment or sale of assets		2,901			(40	)		—			67			43			2			67			2
Non-cash reorganization items		63,896			(24,682	)		—			—			—			—			—			—
Provision for uncollectible accounts receivable		(11	)		—			—			3,340			1,103			(300	)		3,340			(300	)
Adjustments for plan effects and fresh start accounting		—			(152,880	)		—			—			—			—			—			—

Adjusted EBITDA	$	(509,975	)	$	(40,412	)	$	1,864		$	38,564		$	9,087		$	8,883		$	37,030		$	8,505

Reconciliation of adjusted EBITDA to net cash provided by (used in) operating activities:
Net cash provided by (used in) operating activities	$	(56,164	)	$	58,931		$	2,088		$	31,492		$	19,015		$	25,173
Less:
Changes in assets and liabilities, net of acquisitions and deconsolidated subsidiaries		456,718			101,042			267			(6,590	)		10,001			16,773
Add:
Interest expense		2,907			1,699			43			482			73			483

Adjusted EBITDA	$	(509,975	)	$	(40,412	)	$	1,864		$	38,564		$	9,087		$	8,883

Index to Financial Statements

RISK FACTORS

Limited partner units are inherently different from capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in similar businesses. We urge you to carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common units.

If any of the following risks were to occur, our business, results of operations, financial condition or ability to make cash distributions to our unitholders could be materially adversely affected. In that case, we might not be able to pay the minimum quarterly distribution on our common units, the trading price of our common units could decline and you could lose all or part of your investment in us.

Risks Related to Our Business

In order to pay the minimum quarterly distribution of $ per unit per quarter, or $ per unit per year, we will require available cash of approximately $ million per quarter, or $ million per year, based on the number of common and subordinated units to be outstanding immediately after completion of this offering. We may not have sufficient available cash from operating surplus each quarter to enable us to pay the minimum quarterly distribution. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

•

the price of crude oil and the level of production of, and demand for, crude oil in the markets we serve;

•

the volume of crude oil that we gather, transport, store and market;

•

the fees with respect to volumes that we handle;

•

the profitability of our marketing operations;

•

damage to pipelines, facilities, related equipment and surrounding properties caused by earthquakes, floods, fires, severe weather, explosions and other natural disasters and acts of terrorism or inadvertent damage to pipelines from construction, farm and utility equipment;

•

leaks or accidental releases of crude oil or other materials into the environment, whether as a result of human error or otherwise;

•

demand charges and volumetric fees associated with our transportation services;

•

the level of competition from other midstream energy companies;

•

the level of our operating, maintenance and general and administrative costs;

•

regulatory action affecting the supply of or demand for crude oil, the rates we can charge, how we contract for services, our existing contracts, our operating costs or our operating flexibility;

•

changes in tax laws; and

•

prevailing economic conditions.

In addition, the actual amount of cash we will have available for distribution will depend on other factors, some of which are beyond our control, including:

•

the level of capital expenditures we make;

•

the cost of acquisitions;

Index to Financial Statements

•

our debt service requirements and other liabilities;

•

fluctuations in our working capital needs;

•

our ability to borrow funds and access capital markets;

•

restrictions contained in debt agreements to which we are a party; and

•

the amount of cash reserves established by our general partner.

For a description of additional restrictions and factors that may affect our ability to make cash distributions, please read “Our Cash Distribution Policy and Restrictions on Distributions.”

The amount of cash we will have available for distribution will depend primarily upon our cash flow and not solely on profitability, which will be affected by non-cash items. As a result, we may make cash distributions during periods when we record losses for financial accounting purposes and may not make cash distributions during periods when we record net earnings for financial accounting purposes.

The forecast of adjusted EBITDA and cash available for distribution set forth in “Our Cash Distribution Policy and Restrictions on Distributions” includes our forecasted results of operations, adjusted EBITDA and cash available for distribution for the twelve months ending September 30, 2012. The financial forecast has been prepared by management, and we have not received an opinion or report on it from our or any other independent auditor. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted. If we do not achieve the forecasted results, we may not be able to pay the full minimum quarterly distribution or any amount on our common or subordinated units, in which event the market price of our common units may decline materially.

Our profitability depends on the demand for crude oil in the markets we serve.

Any sustained reduction in demand for crude oil in markets served by our midstream assets could result in a significant reduction in the volume of crude oil that we handle, thereby adversely affecting our business, results of operations, financial condition and ability to make cash distributions to our unitholders. A reduction in demand could result from a number of factors including:

•

an increase in the price of products derived from crude oil;

•

higher taxes, including federal excise taxes, severance taxes or sales taxes or other governmental or regulatory actions that increase, directly or indirectly, the cost of crude oil based products;

•

adverse economic conditions which result in lower spending by consumers and businesses on products derived from crude oil;

•

the effects of weather, natural phenomena, terrorism, war, or other similar acts;

•

an increase in fuel economy, whether as a result of a shift by consumers to more fuel efficient vehicles, technological advances by manufacturers or federal or state regulations;

Index to Financial Statements

•

decisions by our customers or suppliers to use alternate service providers for a portion of all of their needs, operate in different markets not served by us, reduce operations or cease operations entirely; and

•

an increase in the use of alternative fuel sources, such as ethanol, biodiesel, fuel cells, solar and wind power, or of other fossil fuels, including natural gas.

Most of our operating costs are fixed and do not vary with our throughput. These costs may not decline ratably or at all should we experience a reduction in throughput, which would result in a decline in our margins and profitability.

The volumes that support our business are dependent on the level of production from crude oil wells in our areas of operation, the production of which will naturally decline over time. As a result, in order to maintain or increase the amount of crude oil that we handle, we must obtain new sources of crude oil. The primary factors affecting our ability to obtain new sources of crude oil include the level of successful drilling activity near our systems or operations and our ability to compete for volumes.

We have no control over the level of drilling activity or the amount of reserves in our areas of operation, or the rate at which production in any of our areas of operation will decline. In addition, we have no control over producers or their drilling or production decisions, which are affected by, among other things, the availability and cost of capital, prevailing and projected energy prices, demand for hydrocarbons, levels of reserves, geological considerations, governmental regulations, the availability of drilling rigs and other production and development costs. Fluctuations in energy prices can also greatly affect investments in the development of new crude oil reserves. Because of these factors, even if new crude oil reserves are known to exist in our areas of operation, producers may choose not to develop those reserves. Declines in crude oil prices could have a negative impact on exploration, development and production activity, and if sustained, could lead to a material decrease in such activity. Sustained reductions in exploration or production activity in our areas of operation would lead to reduced utilization of our assets and a reduced need for our marketing operations.

If competition or reductions in drilling activity result in our inability to maintain the current levels of crude oil that we gather, transport, store and market, it could have an adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

A prolonged decline in index prices at Cushing relative to other index prices could reduce the demand for our transportation to, and storage in, Cushing.

Shifts in the overall supply of and demand for crude oil in regional, national and global markets, over which we have no control, can have an adverse impact on crude oil index prices in the markets we serve relative to other index prices. For example, Cushing has experienced a shortfall in takeaway pipeline capacity, which has in turn led to an oversupply of crude oil at Cushing. This has been cited as a principal reason for the decline in the price of the WTI Index used at Cushing relative to other crude oil price indexes, including the Brent Crude index. A prolonged decline in the WTI Index price relative to other index prices may cause reduced demand for our transportation to, and storage in, Cushing, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Index to Financial Statements

We are subject to competition from other crude oil gathering, transportation, storage and marketing operations that may be able to supply our customers with the same or comparable services at a lower price or otherwise on better terms. We compete with national, regional and local gathering, transportation and storage companies of widely varying sizes, financial resources and experience, including the major integrated oil companies. With respect to our gathering and transportation services, these competitors include Enterprise Products Partners L.P., Plains All American Pipeline, L.P., ConocoPhillips Company, Sunoco Logistics Partners L.P. and National Cooperative Refinery Association, among others. With respect to our storage services, these competitors include Magellan Midstream Partners, L.P., Enbridge Energy Partners, L.P. and Plains All American Pipeline, L.P. Several of our competitors conduct portions of their operations through publicly traded partnerships with structures similar to ours, including Plains All American Pipeline, L.P., Enterprise Products Partners L.P., Sunoco Logistics Partners L.P., Enbridge Energy Partners, L.P. and Magellan Midstream Partners, L.P. Our ability to compete could be harmed by numerous factors, including:

•

price competition;

•

the perception that another company can provide better service;

•

a reluctance to contract with us due to SemGroup’s bankruptcy filing; and

•

the availability of alternative supply points, or supply points located closer to the operations of our customers.

Some of our competitors have greater financial, managerial and other resources than we do, and control substantially more storage or transportation capacity than we do. Our competitors may expand their assets or operations, creating additional competition for the services we provide to our customers. In addition, our customers may develop their own gathering, transportation and storage systems or marketing operations in lieu of using ours. Our ability to renew or replace existing contracts with our customers at rates sufficient to maintain current revenues and cash flow could be adversely affected by the activities of our competitors and our customers.

In addition, SemGroup owns midstream assets and is not limited in its ability to compete with us. If we are unable to compete with services offered by other midstream enterprises, including SemGroup, it could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders. See “—Risks Inherent in an Investment in Us—SemGroup is not limited in its ability to compete with us and may not be obligated to offer us the opportunity to acquire additional assets or businesses, which could limit our ability to grow and could adversely affect our results of operations and cash available for distribution to our unitholders.”

Restrictions in our revolving credit facility could adversely affect our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

We expect to enter into a revolving credit facility concurrently with the closing of the offering. This facility is likely to limit our ability to, among other things:

•

incur additional debt;

•

make cash distributions on, or redeem or repurchase, units;

•

make certain investments and acquisitions;

•

incur certain liens or permit them to exist;

•

enter into certain transactions with affiliates;

•

merge or consolidate with another company or otherwise engage in a change of control; and

•

transfer or otherwise dispose of assets.

Index to Financial Statements

Our revolving credit facility also will likely contain covenants requiring us to maintain certain financial ratios.

The provisions of our revolving credit facility may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of this facility could result in a default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and our unitholders could experience a partial or total loss of their investment.

Our future debt may limit our flexibility to obtain financing and pursue business opportunities.

Upon the closing of this offering, we expect to have $ million of borrowing capacity under our revolving credit facility. Our future debt could have important consequences to us, including the following:

•

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

•

our funds available for operations, future business opportunities and distributions to unitholders will be reduced by that portion of our cash flow required to make interest payments on our debt;

•

we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and

•

our flexibility in responding to changing business and economic conditions may be limited.

Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service any future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity capital. We may not be able to effect any of these actions on satisfactory terms or at all.

Our access to credit markets may be limited, which may adversely impact our liquidity.

We may require additional capital from outside sources from time to time. Our ability to arrange financing or renew existing facilities, along with the cost of such capital, is dependent upon a number of variables, including:

•

general economic, financial and business conditions;

•

industry specific conditions;

•

credit availability from banks and other financial institutions;

•

investor confidence in us;

•

our cash flow and adjusted EBITDA levels;

•

competitive, legislative and regulatory matters; and

•

provisions of tax and securities laws that may impact raising capital.

In addition, volatility in the capital markets may adversely affect our ability to access any available borrowing capacity under our new revolving credit facility. Our access to these funds is dependent on the ability of the lenders to meet their funding obligations under this revolving credit facility. Lenders may not be able to meet their funding commitments if they experience shortages of capital and liquidity, resulting in a reduction of our available borrowing capacity.

Index to Financial Statements

The credit profile of SemGroup could adversely affect our credit rating, which could increase our borrowing costs or hinder our ability to raise capital.

The credit profile of SemGroup may be a factor considered in credit evaluations of us. This is because SemGroup, through our general partner, controls our business activities, including our cash distribution policy, acquisition strategy and business risk profile. If we seek a credit rating in the future, our credit rating may be adversely affected by the credit profile of SemGroup and its 2008 bankruptcy filing, because the ratings agencies may consider SemGroup’s ownership interest in and control of us and the strong operational links between SemGroup and us. If SemGroup’s credit profile adversely affects our credit rating, it would increase our cost of borrowing or hinder our ability to access financing in the capital markets, which could impair our ability to grow our business or make cash distributions to our unitholders.

Our general partner is an obligor under, and subject to a pledge related to, SemGroup’s credit agreement. In the event SemGroup is unable to meet its obligations under that agreement, or is declared bankrupt, SemGroup’s lenders may gain control of our general partner or, in the case of bankruptcy, our partnership may be dissolved.

Our general partner is an obligor under, and all of its assets and SemGroup’s ownership interest in it are subject to a lien related to, SemGroup’s credit agreement. In the event SemGroup is unable to satisfy its obligations under the credit agreement and the lenders foreclose on their collateral, the lenders will own our general partner and all of its assets, which include the general partner interest in us and our incentive distribution rights. In such event, the lenders would control our management and operations. Moreover, in the event SemGroup becomes insolvent or is declared bankrupt, our general partner may be deemed insolvent or declared bankrupt as well. Under the terms of our partnership agreement, the bankruptcy or insolvency of our general partner will cause a dissolution of our partnership.

We may not be able to renew or replace expiring storage contracts.

We have significant exposure to market risk at the time our existing storage contracts expire and are subject to renegotiation and renewal. As of June 30, 2011, the weighted average remaining tenor of our existing portfolio of firm storage contracts was approximately 4.5 years. The extension or replacement of existing contracts depends on a number of factors beyond our control, including:

•

the level of existing and new competition to provide storage services to our markets;

•

the macroeconomic factors affecting crude oil storage economics for our current and potential customers;

•

the balance of supply and demand, on a short-term, seasonal and long-term basis, in our markets;

•

the extent to which the customers in our markets are willing to contract on a long-term basis; and

•

the effects of federal, state or local regulations on the contracting practices of our customers.

Any failure to extend or replace a significant portion of our existing contracts, or extend or replace them at comparable rates, could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

We depend on a limited number of customers for a substantial portion of our revenues. The loss of or a material nonpayment or nonperformance by any of these key customers could adversely affect our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

We rely on a limited number of customers for a substantial portion of our revenues. Three of our customers accounted for more than 10% of our total revenue for the year ended December 31, 2010, at approximately 18.4%, 24.0% and 26.7%, respectively. Two of our customers accounted for more than 10% of our total revenue for the three months ended March 31, 2011, at approximately 13.5% and 25.2%, respectively. We may be unable

Index to Financial Statements

to negotiate extensions or replacements of contracts with our key customers on favorable terms. In addition, some of these key customers may experience financial problems that could have a significant effect on their creditworthiness. Severe financial problems encountered by our customers could limit our ability to collect amounts owed to us, or to enforce performance of obligations under contractual arrangements. Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to us. The loss of all or even a portion of the contracted volumes of these key customers, as a result of competition, creditworthiness or otherwise, could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

We are exposed to the creditworthiness and performance of our customers, suppliers and contract counterparties, including our hedge counterparties, and any material nonpayment or nonperformance by one or more of these parties could adversely affect our financial and operating results.

Although we attempt to assess the creditworthiness of our customers, suppliers and contract counterparties, including the counterparties to our hedging arrangements, there can be no assurance that our assessments will be accurate or that there will not be a rapid or unanticipated deterioration in their creditworthiness, which may have an adverse impact on our business, results of operations, financial condition and ability to make cash distributions to our unitholders. In addition, there can be no assurance that our counterparties will perform or adhere to existing or future contractual arrangements.

The procedures and policies we use to manage our exposure to credit risk, such as credit analysis, credit monitoring and, in some cases, requiring credit support, cannot fully eliminate counterparty credit risks. To the extent our procedures and policies prove to be inadequate, our financial and operational results may be negatively impacted.

Some of our counterparties may be highly leveraged or have limited financial resources and will be subject to their own operating and regulatory risks. Even if our credit review and analysis mechanisms work properly, we may experience financial losses in our dealings with such parties. In addition, volatility in commodity prices might have an impact on many of our counterparties, which, in turn, could have a negative impact on their ability to meet their obligations to us and may also increase the magnitude of these obligations.

Any material nonpayment or nonperformance by our counterparties could require us to pursue substitute counterparties for the affected operations, reduce operations or provide alternative services. There can be no assurance that any such efforts would be successful or would provide similar financial and operational results.

Our storage operations are influenced by the overall forward market for crude oil, and certain market conditions may adversely affect our financial and operating results and, in turn, our ability to make cash distributions to our unitholders.

Our storage operations are influenced by the overall forward market for crude oil. A contango market (meaning that the price of crude oil for future delivery is higher than the current price) is associated with greater demand for crude oil storage capacity, because a party can simultaneously purchase crude oil at current prices for storage and sell at higher prices for future delivery. A backwardated market (meaning that the price of crude oil for future delivery is lower than the current price) is associated with lower demand for crude oil storage capacity, because a party can capture a premium for prompt delivery of crude oil rather than storing it for future sale. A prolonged backwardated market or other adverse market conditions could have an adverse impact on our ability to negotiate favorable prices under new or renewing storage contracts, which could have an adverse impact on our storage revenues. Finally, higher absolute levels of crude oil prices increase the costs of financing and insuring crude oil in storage, which negatively affects storage economics. As a result, the overall forward market for crude oil may have an adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Index to Financial Statements

Our risk management policy governing our marketing activities cannot eliminate all risks associated with the marketing of crude oil, and we cannot ensure that employees of our general partner will fully comply with the policy at all times, both of which could impact our financial and operational results and, in turn, our ability to make cash distributions to our unitholders.

We have in place a risk management policy that seeks to establish limits for marketing exposure by requiring that we restrict net open positions (i.e., positions that are not fully hedged as to commodity price risk) to specified levels. Our risk management policy has restrictive terms with respect to acquiring and holding physical inventory, futures contracts and derivative products. These policies and practices, however, cannot eliminate all risks. Derivatives contracts and contracts for the future delivery of crude oil expose us to the risk of non-delivery under product purchase contracts or the failure of gathering and transportation systems to supply us with crude oil. Any event that disrupts our anticipated physical supply of crude oil could create a net open position that would expose us to risk of loss resulting from price changes.

Moreover, we are exposed to price movements on products that are not hedged, including certain of our inventory, such as linefill, which must be maintained to operate our pipelines and gathering system. We are also exposed to certain price risks that cannot be readily hedged, such as price risks for “basis differentials.” Basis differentials can be created to the extent that we hold or sell crude oil of a grade or quality, at a location or at a time that differs from the specific delivery terms with respect to grade or quality, time or location of the applicable offsetting agreement or derivative instrument. If this occurs, we may not be able to use the physical or derivative commodity markets to fully hedge our price risk. Our exposure to price risks could impact our operational and financial results and our ability to make cash distributions to our unitholders.

We are also subject to the risk that employees of our general partner involved in our marketing operations may not comply at all times with our risk management policy. We cannot ensure that all violations of the risk management policy, particularly if deception or other intentional misconduct is involved, will be detected prior to our businesses being materially affected.

Our hedging arrangements could reduce our quarterly or annual profits or increase our cash obligations, which could negatively impact our financial position or our ability to make cash distributions to our unitholders.

We hedge our exposure to price fluctuations for our crude oil marketing activities by utilizing physical purchase and sale agreements, futures contracts traded on the NYMEX, options contracts or over-the-counter transactions. We could experience material fluctuations in our quarterly or annual results of operations as a result of marking our hedging positions to market. In addition, to the extent these hedges are entered into on a public exchange or in the over-the-counter market, we may be required to post margin or provide collateral, which could result in material cash obligations.

Laws regulating derivatives established under the Dodd-Frank Act and the regulations being promulgated thereunder could adversely affect our ability to manage business and financial risks by reducing the availability of, and increasing our cost of using, derivative instruments as hedges against fluctuating commodity prices and interest rates.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, establishes a new regulatory framework for derivative instruments, including a requirement that certain transactions be cleared on a derivatives clearing organization and traded on an exchange or a swap execution facility, and a requirement to post cash collateral (commonly referred to as “margin”) for such transactions. The Dodd-Frank Act requires the Commodity Futures Trading Commission, or CFTC, federal regulators of banks and other financial institutions, or the prudential regulators, and the SEC to promulgate the rules implementing the new law, which must be finally adopted by December 31, 2011. Until these regulations are adopted, effective and implemented in practice, we cannot determine what impact the new regulatory framework will have on our business.

Index to Financial Statements

At present, we are contractually required to post collateral with clearing brokers with respect to substantially all of our commitments and potential obligations under our hedging instruments. Depending on the final regulations adopted by the CFTC, the prudential regulators and the SEC, we may be subject to a margin requirement that will cause us to post collateral in excess of present levels. Such a requirement may increase our costs and decrease our profitability. Moreover, our counterparties may also be required to post margin on our transactions and comply with minimum capital requirements, which could result in additional costs being passed on to us, thereby decreasing our profitability.

The Dodd-Frank Act permits the CFTC to set position limits in derivative instruments. Our counterparties may be subject to these position limits, which may reduce our ability to enter into hedging transactions with these counterparties. In addition, the Dodd-Frank Act may also require the counterparties to our derivative instruments to spin off some of their derivative activities to a separate entity, which may not be as creditworthy as the current counterparty. These changes might not only increase costs, but could also reduce the availability of some derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts and potentially increase our exposure to less creditworthy counterparties. If our use of derivatives is reduced, our results of operations may become more volatile and our cash flows may be less predicable, which could adversely affect our ability to plan for and fund capital expenditures and to make cash distributions to our unitholders. Increased volatility may make us less attractive to certain types of investors.

An increase in interest rates could impact demand for our storage capacity and cause the market price of our common units to decline.

There is a financing cost for a storage capacity user to own crude oil while it is stored. That financing cost is impacted by the cost of capital or interest rate incurred by the storage user in addition to the commodity cost of the crude oil in inventory. Absent other factors, a higher financing cost adversely impacts the economics of storing crude oil for future sale. As a result, a significant increase in interest rates could adversely affect the demand for our storage capacity independent of other market factors.

In addition, as interest rates rise, the ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly traded limited partner interests. Reduced demand for our common units resulting from investors seeking other, more favorable investment opportunities may cause the trading price of our common units to decline.

Our business involves many hazards and operational risks, some of which may not be covered by insurance.

Leaks and other releases of crude oil are possible in our operations. Other possible operating risks include the breakdown or failure of equipment, information systems or processes; the performance of equipment at levels below those originally intended (whether due to misuse, unexpected degradation or design, or construction or manufacturing defects); operator error; labor disputes; disputes with interconnected facilities and carriers; and catastrophic events such as natural disasters, fires, explosions, acts of terrorism and other similar events, many of which are beyond our control.

These risks could result in substantial losses due to personal injury or loss of life, severe damage to, and destruction of, property and equipment and pollution or other environmental damage, and may result in curtailment or suspension of our related operations. We are not fully insured against all risks incident to our business. In addition, as a result of market conditions, premiums for our insurance could increase significantly. In some instances, insurance could become unavailable or available only for reduced amounts of coverage. If a significant accident or event occurs that is not fully insured, it could adversely affect our business, results of operations, financial condition and ability to make cash distributions to our unitholders. Even if a significant accident or event is covered by insurance, we may still have responsibility for applicable deductibles, and in addition, the proceeds of any such insurance may not be paid in a timely manner.

Index to Financial Statements

Adverse developments in our existing areas of operation could adversely impact our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Our operations are focused on gathering, transporting, storing and marketing crude oil and are principally located in the Mid-Continent and Rocky Mountain regions of the United States. As a result, our business, results of operations, financial condition and ability to make cash distributions to our unitholders depend upon the demand for our services in these regions. Due to our current lack of diversification in industry type and geographic location, adverse developments in our current segment of the midstream industry, or our existing areas of operation, could have a significantly greater impact on our business, results of operations, financial condition and ability to make cash distributions to our unitholders than they would if our operations were more diversified.

Our operations could be adversely affected if third-party pipelines or other facilities interconnected to our facilities become partially or fully unavailable.

Our facilities connect to other pipelines or facilities, some of which are owned by third parties. The continuing operation of such third-party pipelines or facilities is not within our control. These pipelines and other facilities may become unavailable, or available only at a reduced capacity. If any of these third-party pipelines or facilities becomes unable to transport the crude oil transported or stored by us, our business, results of operations, financial condition and ability to make cash distributions to our unitholders could be adversely affected.

We intend to grow our business in part by constructing new assets, which may not result in the anticipated revenue increases.

One of the ways we intend to grow our business is through the construction of new assets. The construction of additions or modifications to our existing systems and of new assets involves numerous regulatory, environmental, political and legal uncertainties beyond our control. Any such construction projects, including our planned expansions of our storage terminal in Cushing and our Platteville facility, may not be completed on schedule, at their budgeted cost or at all. Revenues may not increase immediately upon the completion of a particular project, or we may construct facilities to capture anticipated future growth that does not materialize. In addition, the construction of additions to our existing assets may require us to obtain new rights-of-way prior. We may be unable to obtain such rights-of-way to capitalize on other attractive expansion opportunities, or the cost of obtaining new rights-of-way may exceed our expectations.

A key component of our growth strategy is to make acquisitions. We may not be able to make acquisitions on economically acceptable terms, which may limit our ability to grow. In addition, any acquisition that we pursue will involve risks that may adversely affect our business.

Our ability to grow in the future will depend, in part, on our ability to make acquisitions that result in an increase in the cash generated from our operations. We may be unable to make accretive acquisitions, including acquisitions from SemGroup or third parties, because we are unable to identify attractive acquisition candidates, negotiate acceptable purchase terms, or obtain financing for these acquisitions on economically acceptable terms or because we are outbid by competitors. If we are unable to successfully acquire new businesses or assets, our future growth and ability to increase distributions will be limited. Furthermore, even if we do make acquisitions that we believe will be accretive, these acquisitions may nevertheless result in a decrease in the cash generated from operations per unit.

Any acquisition that we pursue will involve potential risks, including

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performance from the acquired businesses or assets that is below the forecasts we used in evaluating the acquisition;

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a significant increase in our indebtedness and working capital requirements;

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the inability to timely and effectively integrate the operations of recently acquired businesses or assets;

Index to Financial Statements

•

the incurrence of substantial unforeseen environmental and other liabilities arising out of the acquired businesses or assets, including liabilities arising from the operation of the acquired businesses or assets prior to our acquisition;

•

risks associated with operating in lines of business that are distinct and separate from our historical operations;

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loss of customers or key employees from the acquired businesses; and

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the diversion of management’s attention from other business concerns.

Any of these factors could adversely affect our ability to achieve anticipated levels of cash flows from our acquisitions, realize other anticipated benefits or meet the debt service requirements of any debt incurred in connection with such acquisitions.

We do not own all the land on which our pipelines and other facilities are located, which could result in disruptions to our operations.

We do not own all of the land on which our pipelines and other facilities have been constructed, and we are, therefore, subject to the possibility of more onerous terms and/or increased costs to retain necessary land use if we do not have valid rights-of-way or if such rights-of-way lapse or terminate. We obtain the rights to construct and operate our pipelines on land owned by third parties and governmental agencies for a specific period of time. Our loss of these rights, through our inability to renew right-of-way contracts or otherwise, could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

We are subject to regulation by multiple governmental agencies, which could adversely impact our business, results of operations and financial condition.

Our business activities are subject to regulation by multiple federal, state and local governmental agencies. Our historical and projected operating costs reflect the recurring costs resulting from compliance with these regulations, and we do not anticipate material expenditures in excess of these amounts in the absence of future acquisitions, or changes in regulation, or discovery of existing but unknown compliance issues. Additional proposals and proceedings that affect the midstream industry are regularly considered by Congress, as well as by state legislatures and federal and state regulatory commissions, agencies and courts. We cannot predict when or whether any such proposals may become effective or the magnitude of the impact changes in laws and regulations may have on our business. However, additions to the regulatory burden on our industry generally increase our cost of doing business and affect our profitability.

We may incur significant costs and liabilities resulting from pipeline integrity programs and related repairs.

Our pipeline facilities are subject to regulation by the U.S. Department of Transportation, or DOT, through the Pipeline and Hazardous Materials Safety Administration, or PHMSA, pursuant to the Hazardous Liquids Pipeline Safety Act of 1979, as amended by the Pipeline Safety Improvement Act of 2002, and reauthorized and amended by the Pipeline Inspection, Protection, Enforcement and Safety Act of 2006. PHMSA has adopted regulations requiring hazardous liquid pipeline operators to develop and implement integrity management programs for pipeline segments that, in the event of a leak or rupture, could affect “high consequence areas,” such as high population areas, areas that are sources of drinking water, ecological resource areas that are unusually sensitive to environmental damage from a pipeline release and commercially navigable waterways, unless the operator effectively demonstrates by risk assessment that the pipeline could not affect the area. The Pipeline Inspection, Protection, Enforcement and Safety Act of 2006 expired on September 30, 2010 but operated under a continuing resolution that expired on March 4, 2011. The reauthorization of the Pipeline Safety Act being considered by Congress could result in new and more costly compliance requirements. Current regulations require operators of covered pipelines to:

•

perform on-going assessments of pipeline integrity on a recurring frequency schedule;

Index to Financial Statements

•

identify and characterize applicable potential threats to pipeline segments that could impact a high consequence area;

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improve data collection, integration and analysis;

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repair and remediate the pipeline as necessary; and

•

implement preventive and mitigating actions.

In addition, states have adopted regulations similar to existing DOT regulations for intrastate hazardous liquid pipelines. We currently estimate that we will incur an aggregate cost of approximately $2.8 million during 2011 and 2012 to implement necessary pipeline integrity management program testing along certain segments of our pipelines required by existing DOT and state regulations. This estimate may not include all costs of any repair, remediation, preventative or mitigating actions that may be determined to be necessary as a result of the testing program, which costs could be substantial. At this time, we cannot predict the ultimate cost of compliance with these regulations, as the cost will vary significantly depending on the number and extent of any repairs found to be necessary as a result of the pipeline integrity testing. Following the initial round of testing and repairs, we will continue our pipeline integrity testing programs on an on-going basis to assess and maintain the integrity of our pipelines. The results of these tests could cause us to incur significant and unanticipated capital and operating expenditures for repairs or upgrades deemed necessary to ensure the continued safe and reliable operations of our pipelines and, consequently, result in a reduction in our revenue and cash flows from shutting down our pipelines during the pendency of such repairs or upgrades.

PHMSA adopted regulations requiring hazardous liquid pipelines that use supervisory control and data acquisition systems and have at least one controller and control room to develop written control room management procedures by August 1, 2011 and implement those procedures no later than February 1, 2013, although PHMSA has proposed to accelerate the deadline by which the procedures must be implemented. Implementing these procedures could cause us to incur unanticipated operating expenditures.

PHMSA has amended its pipeline safety regulations so that the pipeline safety requirements will apply, effective October 1, 2011, to all rural low-stress hazardous liquids pipelines, regardless of diameter, except for certain gathering lines.

We may incur significant costs and liabilities in the future resulting from a failure to comply with new or existing environmental laws or regulations or an accidental release of hazardous substances, crude oil or wastes into the environment.

Our operations are subject to federal, state and local environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws include, for example:

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federal and comparable state laws that impose obligations related to air emissions;

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federal and comparable state laws that impose requirements for the handling, storage, treatment or disposal of solid and hazardous waste from our facilities;

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federal and comparable state laws that regulate the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or at locations to which our hazardous substances have been transported for disposal; and

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federal and comparable state laws that regulate discharges of wastewater from our facilities, require spill protection planning and preparation and set requirements for other actions for protection of waters.

Failure to comply with these laws and regulations, or newly adopted laws or regulations, may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements and the issuance of orders enjoining future operations or

Index to Financial Statements

imposing additional compliance requirements on such operations. Claims pursued under certain environmental laws impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances or petroleum products have been disposed or otherwise released. Provisions also exist that may require remediation or other compensation to pay for damages to natural resources. Moreover, it is not uncommon for individuals to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, crude oil or waste products in the environment.

There is an inherent risk of incurring environmental costs and liabilities in connection with our operations due to our handling of crude oil, air emissions and water discharges related to our operations and historical industry operations and waste disposal practices. For example, an accidental release from one of our facilities could subject us to substantial liabilities for environmental cleanup and restoration costs, claims made by individuals for personal injury, natural resource and property damages and fines or penalties for related violations of environmental laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase our operational or compliance costs and the cost of any remediation that may become necessary. We may not be able to recover all or any of these costs from insurance and fines or penalties paid for compliance violations, whether alleged or proven, will not be covered by insurance.

Climate change legislation and related regulatory initiatives could result in increased operating costs and reduced demand for our services.

In December 2009, the U.S. Environmental Protection Agency, or EPA, published its findings that emissions of carbon dioxide, methane and other “greenhouse gases,” or GHGs, present an endangerment to public health and the environment because emissions of such gases are contributing to warming of the earth’s atmosphere and other climatic changes. These findings by the EPA allow the agency to proceed with the adoption and implementation of regulations that would restrict emissions of GHGs under existing provisions of the federal Clean Air Act. Accordingly, the EPA has adopted regulations that require a reduction in emissions of GHGs from motor vehicles and trigger permit review for GHG emissions from certain large stationary sources. In addition, the EPA issued a final rule, effective in December 2009, requiring the reporting of GHG emissions from specified large GHG emission sources in the U.S., beginning in 2011 for emissions occurring in 2010. Further, in March 2010, the EPA finalized new GHG reporting requirements for upstream petroleum and natural gas systems, which will be added to EPA’s GHG Reporting Rule. Facilities containing petroleum and natural gas systems that emit 25,000 metric tons or more of CO₂ equivalent per year will be required to report annual GHG emissions to EPA, with the first report due on March 31, 2012. The adoption and implementation of any regulations imposing reporting obligations on, or limiting emissions of GHGs from, our equipment and operations could require us to incur additional costs to reduce emissions of GHGs associated with our operations or could adversely affect demand for the crude oil we gather, transport, store or otherwise handle in connection with our services.

The United States Congress has been considering legislation to reduce such emissions and almost one-half of the states, either individually or through multi-state regional initiatives, have already begun implementing legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or GHG cap and trade programs. Depending on the particular program and scope thereof, we could be required to purchase and surrender allowances for GHG emissions resulting from our operations or could face additional taxes and higher cost of doing business. Although we would not be impacted to a greater degree than other similarly situated midstream energy service providers, a stringent GHG control program could have an adverse effect on our cost of doing business and could reduce demand for crude oil.

The potential increase in the costs of our operations resulting from any legislation or regulation to restrict emissions of GHGs could include new or increased costs to operate and maintain our facilities, install new emission controls on our facilities, acquire allowances to authorize our GHG emissions, pay any taxes related to our GHG emissions and administer and manage a GHG emissions program. While we may be able to include

Index to Financial Statements

some or all of such increased costs in the rates charged by our pipelines or other facilities, such recovery of costs is uncertain. Moreover, incentives to conserve energy or use alternative energy sources could reduce demand for crude oil, resulting in a decrease in the demand for our services.

Increased regulation of hydraulic fracturing could result in reductions or delays in crude oil production in our areas of operation, which could adversely impact our business and results of operations.

An increasing percentage of crude oil production is being developed from unconventional sources such as shales. These reservoirs require hydraulic fracturing completion processes to release the crude oil from the rock so it can flow through casing to the surface. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the formation to stimulate gas production. The EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, including on water quality and public health, with results of the study anticipated to be available by late 2012. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process, and legislation has been proposed by some members of Congress to provide for such regulation. For instance, the U.S. Congress is currently considering legislation to amend the federal Safe Drinking Water Act to subject hydraulic fracturing operations to regulation under that act. Sponsors of bills currently pending before the U.S. Senate and House of Representatives have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies. Proposed legislation would require, among other things, the reporting and public disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings against producers and service providers. In addition, these bills, if adopted, could establish an additional level of regulation and permitting of hydraulic fracturing operations at the federal level, which could lead to operational delays, increased operating and compliance costs and additional regulatory burdens that could make it more difficult or commercially impracticable to perform hydraulic fracturing, delaying the development of unconventional resources from shale formations which are not commercial without the use of hydraulic fracturing. The Department of Energy, at the direction of the President, is also studying hydraulic fracturing in order to provide recommendations and identify best practices and other steps to enhance companies’ safety and environmental performance of hydraulic fracturing. In addition, several states have already passed, or are considering, legislation that is intended to regulate hydraulic fracturing. We cannot predict what effect such legislation will have on the production of crude oil in our areas of operation. The imposition of additional regulations and permit requirements could lead to delays or increased operating costs for crude oil producers. A reduction in the production of crude oil in our areas of operation could have an adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

The loss of skilled operational employees could significantly reduce our ability to execute our growth and other strategies.

Much of our future success depends on the continued availability and service of skilled operational personnel. Experienced personnel in the midstream industry are in high demand. There can be no assurance that we will continue to attract and retain key operational personnel. If a significant number of our skilled employees resign and are not adequately replaced, or if we are unable to fill currently vacant positions, our business, results of operations, financial condition and ability to make cash distributions to our unitholders could be materially adversely affected.

Because SemGroup’s and our predecessor’s financial statements reflect fresh-start reporting adjustments made upon SemGroup’s emergence from bankruptcy, and because of the effects of the transactions that became effective pursuant to SemGroup’s plan of reorganization, financial information in our current and future financial statements will not be comparable to financial information from prior periods.

In connection with SemGroup’s bankruptcy reorganization, it adopted fresh-start reporting effective as of the close of business on November 30, 2009, in accordance with the Financial Accounting Standards Board

Index to Financial Statements

Accounting Standards Codification (ASC) 852, “Reorganizations.” Its adoption of fresh-start reporting resulted in it becoming a new entity for financial reporting purposes. As required by fresh-start reporting, SemGroup’s assets and liabilities, including those contributed to us, were adjusted to reflect fair value at November 30, 2009. In addition to fresh-start reporting, SemGroup’s and our predecessor’s financial statements reflect the effects of all of the transactions implemented through SemGroup’s plan of reorganization. Accordingly, our predecessor’s financial statements for periods ending on or prior to November 30, 2009 are not comparable with our predecessor’s financial statements for periods ending subsequent to November 30, 2009. Furthermore, the estimates and assumptions used to implement fresh-start reporting are inherently subject to significant uncertainties and contingencies beyond our control. Accordingly, we cannot provide assurance that the estimates, assumptions, and values reflected in our valuations will be realized, and our actual results could vary materially.

Risks Inherent in an Investment in Us

Following this offering, SemGroup will own and control our general partner, as well as appoint all of the officers and directors of our general partner, some of whom will also be officers and/or directors of SemGroup. Although our general partner has a fiduciary duty to manage us in a manner that is beneficial to us and our unitholders, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner that is beneficial to its owner, SemGroup. Therefore, conflicts of interest may arise between SemGroup and our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of SemGroup over our interests and the interests of our unitholders. These conflicts include the following situations, among others:

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Neither our partnership agreement nor any other agreement requires SemGroup to pursue a business strategy that favors us.

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SemGroup is not limited in its ability to compete with us and may offer business opportunities or sell midstream assets to parties other than us.

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Our general partner is allowed to take into account the interests of parties other than us, such as SemGroup, in resolving conflicts of interest.

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All of the officers of our general partner are also officers and/or directors of SemGroup and will owe fiduciary duties to SemGroup. The officers of our general partner will also devote significant time to the business of SemGroup and will be compensated by SemGroup accordingly.

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The limited partner interests that SemGroup will initially own will permit it to effectively control any vote of our limited partners. SemGroup will be entitled to vote its units in accordance with its own interests, which may be contrary to your interests.

•

Our partnership agreement limits the liability of, and reduces the fiduciary duties owed by, our general partner, and also restricts the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty.

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Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.

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Our general partner determines the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership securities and the creation, reduction or increase of reserves, each of which can affect the amount of cash that is distributed to our unitholders.

•

Index to Financial Statements

the amount of cash that is distributed to our unitholders and to our general partner and the ability of the subordinated units to convert to common units.

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Our general partner determines which costs incurred by it are reimbursable by us.

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Our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period.

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Our partnership agreement permits us to classify up to $ million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or to our general partner in respect of the general partner interest or the incentive distribution rights.

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Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf.

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Our general partner intends to limit its liability regarding our contractual and other obligations.

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Our general partner may exercise its right to call and purchase all of the common units not owned by it and its affiliates if they own more than 80% of the common units.

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Our general partner controls the enforcement of the obligations that it and its affiliates owe to us.

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Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

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Our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the Conflicts Committee of the board of directors of our general partner or our unitholders. This election may result in lower distributions to our common unitholders in certain situations.

Please read “Conflicts of Interest and Fiduciary Duties.”

SemGroup is not prohibited from owning assets or engaging in businesses that compete directly or indirectly with us. In addition, in the future, SemGroup may acquire, construct or dispose of additional midstream or other assets and may be presented with new business opportunities, without any obligation to offer us the opportunity to purchase or construct such assets or to engage in such business opportunities. Moreover, while SemGroup may offer us the opportunity to buy additional assets from it, it will be under no contractual obligation to do so and we are unable to predict whether or when such acquisitions might be completed.

Our partnership agreement limits our general partner’s fiduciary duties to holders of our common and subordinated units.

Our partnership agreement contains provisions that modify and reduce the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, or otherwise free of fiduciary duties to us and our unitholders. This entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:

•

how to allocate corporate opportunities among us and its affiliates;

Index to Financial Statements

•

whether to exercise its limited call right;

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how to exercise its voting rights with respect to the units it owns;

•

whether to exercise its registration rights;

•

whether to elect to reset target distribution levels; and

•

whether to consent to any merger or consolidation of the partnership or amendment to the partnership agreement.

By purchasing a common unit, a common unitholder agrees to become bound by the provisions in the partnership agreement, including the provisions discussed above. Please read “Conflicts of Interest and Fiduciary Duties—Fiduciary Duties.”

Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement:

•

provides that whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is required to make such determination, or take or decline to take such other action, in good faith, meaning that it believed that the decision was in the best interest of our partnership, and will not be subject to any other or different standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;

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provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as such decisions are made in good faith;

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provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or their assignees resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and

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provides that our general partner will not be in breach of its obligations under the partnership agreement or its fiduciary duties to us or our unitholders if a transaction with an affiliate or the resolution of a conflict of interest is:

(a)

approved by the Conflicts Committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval;

(b)

approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates;

(c)

on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

(d)

fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.

In connection with a situation involving a transaction with an affiliate or a conflict of interest, any determination by our general partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the Conflicts Committee and the board of

Index to Financial Statements

directors of our general partner determines that the resolution or course of action taken with respect to the affiliate transaction or conflict of interest satisfies either of the standards set forth in subclauses (c) and (d) above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.

Cost reimbursements due to SemGroup and our general partner for services provided to us or on our behalf will be substantial and will reduce our cash available for distribution to you. The amount and timing of such reimbursements will be determined by our general partner.

We intend to use all of the proceeds from this offering to make a cash distribution to SemGroup. Furthermore, prior to making distributions on our common units going forward, we will reimburse our general partner and its affiliates for all expenses they incur on our behalf. These expenses will include all costs incurred by SemGroup and our general partner in managing and operating us. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. The reimbursements to SemGroup and our general partner will reduce the amount of cash otherwise available for distribution to our unitholders.

If you are not an Eligible Holder, you may not receive distributions or allocations of income or loss on your common units and your common units may be subject to redemption.

We have adopted certain requirements regarding those investors who may own our common and subordinated units. Eligible Holders are (1) individuals or entities subject to U.S. federal income taxation on the income generated by us or (2) entities not subject to U.S. federal income taxation on the income generated by us, so long as all of the entity’s owners are individuals or entities subject to U.S. taxation. If you are not an Eligible Holder, in certain circumstances as set forth in our partnership agreement, our general partner may elect not to make distributions to you or allocate income or loss on your units, and you will run the risk of having your units redeemed by us at the lower of your purchase price or the then-current market price. The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner. Please read “The Partnership Agreement—Non-Citizen Assignees; Redemption” and “The Partnership Agreement—Non-Taxpaying Assignees; Redemption.”

Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.

We expect that we will distribute all of our available cash to our unitholders and will rely primarily upon external financing sources, including borrowings under our revolving credit facility and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. Furthermore, we anticipate using substantially all of the net proceeds of this offering to make a distribution to SemGroup, and therefore, the net proceeds of this offering will not be directly used to grow our business.

In addition, because we distribute all of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement or in our new revolving credit facility on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional bank borrowings (under our revolving credit facility or otherwise) or other debt to finance our growth strategy will result in increased interest expense, which, in turn, may impact the available cash that we have to distribute to our unitholders.

Index to Financial Statements

Holders of our common units will have limited voting rights and will not be entitled to elect our general partner or its directors.

Unlike the holders of common stock in a corporation, unitholders will have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will have no right on an annual or ongoing basis to elect our general partner or its board of directors. The board of directors of our general partner, including the independent directors, will be chosen by SemGroup. Furthermore, if our unitholders become dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

Even if holders of our common units are dissatisfied, they will not initially be able to remove our general partner without its consent.

The unitholders will initially be unable to remove our general partner without its consent because our general partner and its affiliates will own sufficient units upon completion of this offering to be able to prevent its removal. The vote of the holders of at least 66²/3% of all outstanding limited partner units voting together as a single class is required to remove our general partner. Following the closing of this offering, SemGroup will own % of our outstanding common and subordinated units. Also, if our general partner is removed without cause during the subordination period and units held by our general partner and its affiliates are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units and any existing arrearages on our common units will be extinguished. A removal of our general partner under these circumstances would adversely affect our common units by prematurely eliminating their distribution and liquidation preference over our subordinated units, which would otherwise have continued until we had met certain distribution and performance tests. Cause is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner liable for actual fraud, gross negligence or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business, so the removal of our general partner because of the unitholder’s dissatisfaction with our general partner’s performance in managing our partnership will most likely result in the termination of the subordination period and conversion of all subordinated units to common units.

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

Unitholders’ voting rights are further restricted by a provision of our partnership agreement providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.

Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, our partnership agreement does not restrict the ability of SemGroup to transfer all or a portion of its ownership interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with its own designees and thereby exert significant control over the decisions made by the board of directors and officers.

Index to Financial Statements

Our general partner’s incentive distribution rights may be transferred to a third party without unitholder consent.

Our general partner may transfer all or a portion of its incentive distribution rights to a third party at any time without the consent of our unitholders. If our general partner transfers its incentive distribution rights to a third party but retains its general partner interest, our general partner will not have the same incentive to grow our partnership and increase our quarterly distributions to unitholders over time as it would have had if it had retained ownership of its incentive distribution rights.

Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements so that the counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.

Our general partner may elect to cause us to issue to it additional common and general partner units in connection with a resetting of the target distribution levels related to its incentive distribution rights without the approval of the Conflicts Committee of its board of directors or the holders of our common units. This could result in lower distributions to holders of our common units.

Our general partner has the right, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48%) for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

If our general partner elects to reset the target distribution levels, it will be entitled to receive the number of common units equal to that number of common units which would have entitled their holder to an average aggregate quarterly cash distribution in the prior two quarters equal to the average of the distributions to our general partner on the incentive distribution rights in the prior two quarters. Our general partner will also be issued the number of general partner units necessary to maintain its general partner interest in us that existed immediately prior to the reset election. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common units and general partner units to our general partner in connection with resetting the target distribution levels. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner’s Right to Reset Incentive Distribution Levels.”

Index to Financial Statements

Our general partner has a limited call right that may require you to sell your units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price that is not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. At the completion of this offering, and assuming no exercise of the underwriters’ option to purchase additional common units, SemGroup will own approximately % of our outstanding common units. At the end of the subordination period, assuming no additional issuances of common units (other than upon the conversion of the subordinated units), SemGroup will own approximately % of our outstanding common units. For additional information about this right, please read “The Partnership Agreement—Limited Call Right.”

You will experience immediate and substantial dilution in pro forma net tangible book value of $ per common unit.

The estimated initial public offering price of $ per common unit exceeds our pro forma net tangible book value of $ per unit. Based on the estimated initial public offering price of $ per common unit, you will incur immediate and substantial dilution of $ per common unit. This dilution results primarily because the assets contributed by our general partner and its affiliates are recorded in accordance with GAAP at their historical cost, and not their fair value. Please read “Dilution.”

We may issue additional units without your approval, which would dilute your existing ownership interests.

Our partnership agreement does not limit the number of additional limited partner interests that we may issue at any time without the approval of our unitholders. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

•

our existing unitholders’ proportionate ownership interest in us will decrease;

•

the amount of cash available for distribution on each unit may decrease;

•

because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

•

the ratio of taxable income to distributions may increase;

•

the relative voting strength of each previously outstanding unit may be diminished; and

•

the market price of the common units may decline.

SemGroup may sell units in the public or private markets, and such sales could have an adverse impact on the trading price of the common units.

After the sale of the common units offered by this prospectus, assuming that the underwriters do not exercise their option to purchase additional common units, SemGroup will hold an aggregate of common units and subordinated units. All of the subordinated units will convert into common units at the end of the subordination period and may convert earlier under certain circumstances. In addition, we have agreed to provide SemGroup with certain registration rights which may facilitate the sale by SemGroup of its common and subordinated units into the public markets. Please see “The Partnership Agreement—Registration Rights” and “Units Eligible for Future Sale.” The sale of these units in the public or private markets could have an adverse impact on the price of the common units or on any trading market that may develop.

Index to Financial Statements

There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for our common units. After this offering, there will be only publicly traded common units, assuming no exercise of the underwriters’ option to purchase additional common units. We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. You may not be able to resell your common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

The initial public offering price for the common units will be determined by negotiations between us and the representative of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price. The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:

•

our quarterly distributions;

•

our quarterly or annual earnings or those of other companies in our industry;

•

the loss of a large customer;

•

announcements by us or our competitors of significant contracts or acquisitions;

•

changes in accounting standards, policies, guidance, interpretations or principles;

•

general economic conditions;

•

the failure of securities analysts to cover our common units after this offering or changes in financial estimates by analysts;

•

future sales of our common units; and

•

other factors described in these “Risk Factors.”

Your liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law, and we conduct business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business. You could be liable for any and all of our obligations as if you were a general partner if a court or government agency were to determine that:

•

we were conducting business in a state but had not complied with that particular state’s partnership statute; or

•

your right to act with other unitholders to remove or replace our general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute “control” of our business.

For a discussion of the implications of the limitations of liability on a unitholder, please read “The Partnership Agreement—Limited Liability.”

Index to Financial Statements

Unitholders may have liability to repay distributions that were wrongfully distributed to them.

Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of an impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners are liable both for the obligations of the assignor to make contributions to the partnership that were known to the substituted limited partner at the time it became a limited partner and for those obligations that were unknown if the liabilities could have been determined from the partnership agreement. Neither liabilities to partners on account of their partnership interest nor liabilities that are non-recourse to the partnership are counted for purposes of determining whether a distribution is permitted.

An increase in interest rates may cause the market price of our common units to decline.

Like all equity investments, an investment in our common units is subject to certain risks. In exchange for accepting these risks, investors may expect to receive a higher rate of return than would otherwise be obtainable from lower-risk investments. Accordingly, as interest rates rise, the ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly traded limited partnership interests. Reduced demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline.

We will incur increased costs as a result of being a publicly traded partnership.

We have no history operating as a publicly traded partnership. As a publicly traded partnership, we will incur significant legal, accounting and other expenses. Public companies are required to comply with the rules and regulations of the SEC and the securities exchanges, as well as laws enacted by Congress such as the Sarbanes-Oxley Act of 2002. We expect these rules and regulations to increase our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our publicly traded partnership reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for our general partner to obtain director and officer liability insurance and to possibly result in our general partner having to accept reduced policy limits and coverage. As a result, it may be more difficult for our general partner to attract and retain qualified persons to serve on its board of directors or as executive officers. We have included $2.3 million of estimated incremental costs per year associated with being a publicly traded partnership in our financial forecast included elsewhere in this prospectus. However, it is possible that our actual incremental costs of being a publicly traded partnership will be higher than we currently estimate.

The NYSE does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements.

We intend to apply to list our common units on the NYSE. As a limited partnership, we will not be required to, and do not intend to, have a majority of independent directors on our general partner’s board of directors or establish a compensation committee or a nominating and corporate governance committee, as is required for other NYSE-listed entities. Accordingly, unitholders will not have the same protections afforded to investors in other entities, including most corporations, that are subject to all of the NYSE corporate governance requirements. Please see “Management.”

Index to Financial Statements

If we fail to develop or maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud, which would likely have a negative impact on the market price of our common units.

Prior to this offering, we have not been required to file reports with the SEC. Upon the completion of this offering, we will become subject to the public reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We prepare our combined financial statements in accordance with GAAP, but our internal accounting controls may not currently meet all standards applicable to companies with publicly traded securities. Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and to operate successfully as a publicly traded partnership. Our efforts to develop and maintain our internal controls may not be successful, and we may be unable to maintain effective controls over our financial processes and reporting in the future or to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002, which we refer to as Section 404. For example, Section 404 will require us, among other things, to annually review and report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. We must comply with Section 404 for our fiscal year ending December 31, 2012. Any failure to develop, implement or maintain effective internal controls or to improve our internal controls could harm our operating results or cause us to fail to meet our reporting obligations. Given the difficulties inherent in the design and operation of internal controls over financial reporting, we can provide no assurance as to our, or our independent registered public accounting firm’s, conclusions about the effectiveness of our internal controls, and we may incur significant costs in our efforts to comply with Section 404. Ineffective internal controls will subject us to regulatory scrutiny and a loss of confidence in our reported financial information, which could have an adverse effect on our business and would likely have a negative effect on the trading price of our common units.

If we are deemed to be an “investment company” under the Investment Company Act of 1940, it would adversely affect the price of our common units and could have a material adverse effect on our business.

Our initial assets will consist of our ownership interests in our operating subsidiaries. If our assets are deemed to be “investment securities” within the meaning of the Investment Company Act of 1940, or the Investment Company Act, we would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our organizational structure or contract rights so as to fall outside of the definition of investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of certain securities or other property from or to our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us or our affiliates. The occurrence of some or all of these events would adversely affect the price of our common units and could have a material adverse effect on our business.

Moreover, treatment of us as an investment company would prevent our qualification as a partnership for federal income tax purposes, in which case we would be treated as a corporation for federal income tax purposes. As a result, we would pay federal income tax on our taxable income at the corporate tax rate, distributions to you would generally be taxed again as corporate distributions and none of our income, gains, losses or deductions would flow through to you. If we were taxed as a corporation, our cash available for distribution to you would be substantially reduced. Therefore, treatment of us as an investment company would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of our common units. For a discussion of the federal income tax implications that would result from our treatment as a corporation in any taxable year, please read “Material Federal Income Tax Consequences—Partnership Status.”

Index to Financial Statements

Tax Risks to Common Unitholders

In addition to reading the following risk factors, you should read “Material Federal Income Tax Consequences” for a more complete discussion of the expected material federal income tax consequences of owning and disposing of our common units.

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service, or IRS, were to treat us as a corporation for federal income tax purposes or we were to become subject to material additional amounts of entity-level taxation for state purposes, then our cash available for distribution to our unitholders would be substantially reduced.

The anticipated after-tax economic benefit of an investment in the common units depends largely on our being treated as a partnership for federal income tax purposes. We have not requested, and do not plan to request, a ruling from the IRS on this or any other tax matter affecting us.

Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes. A change in our business or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.

If we were to be treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35.0%, and would likely pay state and local income tax at varying rates. Distributions would generally be taxed again as corporate dividends (to the extent of our current and accumulated earnings and profits), and no income, gains, losses, deductions, or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. Therefore, if we were to be treated as a corporation for federal income tax purposes, there would be a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.

In Texas, we will be subject to an entity-level tax on any portion of our income that is generated in Texas in the prior year. Imposition of any such additional taxes on us or an increase in the existing tax rates would reduce the cash available for distribution to our unitholders.

Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.

If we were to be subjected to a material amount of additional entity-level taxation by individual states, it would reduce our cash available for distribution to our unitholders.

Changes in current state law may subject us to additional entity-level taxation by individual states. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any such taxes would reduce the cash available for distribution to you. Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to entity-level taxation, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.

Index to Financial Statements

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. Recently, members of the U.S. Congress have considered substantive changes to the existing federal income tax laws that affect certain publicly traded partnerships which, if enacted, may or may not be applied retroactively. Although we are unable to predict whether any of these changes or any other proposals will ultimately be enacted, any such changes could negatively impact the value of an investment in our common units.

Your share of our income will be taxable to you for U.S. federal income tax purposes even if you do not receive any cash distributions from us.

Because you will be treated as a partner to whom we will allocate taxable income, which could be different in amount than the cash we distribute, your allocable share of our taxable income will be taxable to you, which may require the payment of federal income taxes and, in some cases, state and local income taxes on your share of our taxable income even if you receive no cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that results from that income.

If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution to our unitholders.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the conclusions of our counsel expressed in this prospectus or from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take and such positions may not ultimately be sustained. A court may not agree with some or all of our counsel’s conclusions or the positions we take. Any contest with the IRS, and the outcome of any IRS contest, may have a materially adverse impact on the market for our common units and the price at which they trade. In addition, the costs of any contest with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our cash available for distribution.

Tax gain or loss on the disposition of your common units could be more or less than expected.

If you sell your common units, you will recognize a gain or loss for federal income tax purposes equal to the difference between the amount realized and your tax basis in those common units. Because distributions in excess of your allocable share of our net taxable income decrease your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the common units you sell will, in effect, become taxable income to you if you sell such common units at a price greater than your tax basis in those common units, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized on any sale of your common units, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. In addition, because the amount you realize will include your share of our nonrecourse liabilities, if you sell your common units, you may incur a tax liability in excess of the amount of cash you receive from the sale. Please read “Material Federal Income Tax Consequences—Disposition of Common Units—Recognition of Gain or Loss” for a further discussion of the foregoing.

Index to Financial Statements

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult a tax advisor before investing in our common units.

We will treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Because we cannot match transferors and transferees of common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. Our counsel is unable to opine as to the validity of such filing positions. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. Please read “Material Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we will adopt.

We prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

We will prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be permitted under existing Treasury Regulations. If the IRS were to challenge this method or new Treasury regulations were to be issued, we could be required to change the allocation of items of income, gain, loss and deduction among our unitholders. Andrews Kurth LLP has not rendered an opinion with respect to whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations. Please read “Material Federal Income Tax Consequences—Disposition of Common Units—Allocations Between Transferors and Transferees.”

A unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of those common units. If so, he would no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

Because a unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of the loaned common units, he may no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could

Index to Financial Statements

be fully taxable as ordinary income. Our counsel has not rendered an opinion regarding the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units. As a result, unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning their common units.

We will adopt certain valuation methodologies and monthly conventions for U.S. federal income tax purposes that may result in a shift of income, gain, loss and deduction between our general partner and our unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.

When we issue additional units or engage in certain other transactions, we will determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner. Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and our general partner, which may be unfavorable to such unitholders. Moreover, under our valuation methods, subsequent purchasers of common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, our allocation of the Section 743(b) adjustment attributable to our tangible and intangible assets, and our allocations of taxable income, gain, loss and deduction between our general partner and certain of our unitholders.

A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss allocated to our unitholders. It also could affect the amount of taxable gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have technically terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two Schedules K-1 if special relief from the IRS was not available) for one fiscal year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead we would be treated as a new partnership for tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred. Please read “Material Federal Income Tax Consequences—Disposition of Common Units—Constructive Termination” for a discussion of the consequences of our termination for federal income tax purposes.

As a result of investing in our common units, you may become subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.

In addition to federal income taxes, our unitholders will likely be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if they do not live

Index to Financial Statements

in any of those jurisdictions. Our unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. We will initially own property or conduct business in a number of states, most of which currently impose a personal income tax on individuals. Most of these states also impose an income tax on corporations and other entities. As we make acquisitions or expand our business, we may own property or conduct business in additional states that impose a personal income tax. It is your responsibility to file all U.S. federal, state and local tax returns. Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units.

Compliance with and changes in tax laws could adversely affect our performance.

We are subject to extensive tax laws and regulations, including federal, state and foreign income taxes and transactional taxes such as excise, sales/use, payroll, franchise and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted that could result in increased tax expenditures in the future. Many of these tax liabilities are subject to audits by the respective taxing authority. These audits may result in additional taxes as well as interest and penalties.

Index to Financial Statements

USE OF PROCEEDS

We expect to receive net proceeds of approximately $ million from the issuance and sale of the common units offered by this prospectus, based upon the mid-point of the price range set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions, structuring fees and offering expenses. We intend to use the net proceeds from this offering to make a cash distribution to SemGroup.

An increase or decrease in the initial public offering price of $1.00 per common unit would cause the net proceeds from the offering, after deducting underwriting discounts and commissions and structuring fees, to increase or decrease by $ million, and we will adjust the amount of the cash distribution to SemGroup accordingly.

SemGroup has informed us that all of the net proceeds distributed to it will be used to repay, on a pro rata basis, a portion of the aggregate $275 million of indebtedness outstanding under its term loan A and term loan B. The interest rates in effect at June 30, 2011 on the term loan A and the term loan B were 3.69% and 5.75%, respectively. Term loan A matures on June 20, 2016, and term loan B matures on June 20, 2018. SemGroup entered into the term loans in June 2011 and used the proceeds from the term loans, together with proceeds from a new revolving credit facility, to retire its previous revolving credit facility and term loan.

Affiliates of certain of the underwriters are lenders under SemGroup’s term loan A and will, in that respect, receive a portion of the net proceeds of this offering. Please read “Underwriting.”

Index to Financial Statements

CAPITALIZATION

The following table shows:

•

the historical cash and cash equivalents and capitalization of our predecessor as of March 31, 2011; and

•

our pro forma cash and cash equivalents and capitalization as of March 31, 2011, after giving effect to the pro forma adjustments described in our unaudited pro forma combined financial statements, including:

•

our receipt of net proceeds of $ million from the issuance and sale of common units to the public at an assumed initial offering price of $ (based upon the mid-point of the price range set forth on the cover page of this prospectus) and the use of such proceeds as described in “Use of Proceeds”; and

•

the other transactions described in “Summary—Formation Transactions and Partnership Structure.”

We derived this table from, and it should be read in conjunction with and is qualified in its entirety by reference to, the unaudited historical and unaudited pro forma combined financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


	As of March 31, 2011
	Historical		Pro Forma
	(in thousands)
Cash and cash equivalents	$	—		$

Long-term debt	$	—		$ —
Owners’ equity:
SemGroup Corporation (net parent equity)		273,352		—
Limited partners:
Common unitholders—public		—
Common unitholder—SemGroup		—
Subordinated unitholder—SemGroup		—
General partner		—

Total owners’ equity		273,352

Total capitalization	$	273,352		$

Index to Financial Statements

DILUTION

Dilution is the amount by which the offering price paid by the purchasers of common units sold in this offering will exceed the pro forma net tangible book value per unit after the offering. On a pro forma basis as of March 31, 2011, after giving effect to the offering of common units and the application of the related net proceeds, and assuming the underwriters’ option to purchase additional common units is not exercised, our net tangible book value would have been $ million, or $ per unit. Net tangible book value excludes $ million of net intangible assets. Purchasers of common units in this offering will experience substantial and immediate dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table:


Initial public offering price per common unit				$
Net tangible book value per unit before the offering(1)
Increase in net tangible book value per unit attributable to purchasers in the offering

Less: Pro forma net tangible book value per unit after the offering(2)

Immediate dilution in tangible net book value per common unit to purchasers in the offering(3)				$

(1)	Determined by dividing the number of units ( common units, subordinated units and general partner units) to be issued to our general partner and its affiliates for the contribution of assets and liabilities to us into the net tangible book value of the contributed assets and liabilities.

(2)	Determined by dividing the total number of units to be outstanding after the offering ( common units, subordinated units and general partner units) into our pro forma net tangible book value.

(3)	If the initial public offering price were to increase or decrease by $1.00 per common unit, then dilution in net tangible book value per common unit would equal $ and $ , respectively.

The following table sets forth the number of units that we will issue and the total consideration contributed to us by our general partner and its affiliates and by the purchasers of common units in this offering upon the closing of the transactions contemplated by this prospectus:


	Units Acquired				Total Consideration
	Number	Percent			Amount	Percent
	(In thousands)
General partner and affiliates(1)(2)(3)				%	$			%
Purchasers in the offering				%				%

Total			100.0	%	$		100.0	%

(1)	The units acquired by our general partner and its affiliates consist of common units, subordinated units and general partner units.

(2)

The assets contributed by our general partner and its affiliates were recorded at historical cost in accordance with GAAP. Book value of the consideration provided by our general partner and its affiliates, as of March 31, 2011, after giving effect to the application of the new proceeds of the offering, would have equaled $ , reduced by the distributions made to our general partner and its affiliates in connection with this offering of $ .

(3)	Assumes the underwriters’ option to purchase additional common units is not exercised.

Index to Financial Statements

OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

You should read the following discussion of our cash distribution policy in conjunction with the factors and assumptions upon which our cash distribution policy is based, which are included under the heading “—Assumptions and Considerations” below. In addition, please read “Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business. For additional information regarding our historical and pro forma operating results, you should refer to our historical and pro forma combined financial statements and related notes included elsewhere in this prospectus.

General

Rationale for Our Cash Distribution Policy

Our partnership agreement requires us to distribute all of our available cash quarterly. Our cash distribution policy reflects our belief that our unitholders will be better served if we distribute rather than retain our available cash. Generally, our available cash is the sum of our (i) cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and (ii) cash on hand resulting from working capital borrowings made after the end of the quarter. Because we are not subject to an entity-level federal income tax, we expect to have more cash to distribute to our unitholders than would be the case if we were subject to federal income tax.

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

There is no guarantee that our unitholders will receive quarterly distributions from us. We do not have a legal obligation to pay the minimum quarterly distribution or any other distribution except as provided in our partnership agreement. Our cash distribution policy may be changed at any time and is subject to certain restrictions, including the following:

•

Our cash distribution policy will be subject to conditions to cash distributions under our new revolving credit facility. If we were to be unable to satisfy these conditions, we would be prohibited from making cash distributions notwithstanding our cash distribution policy. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility.”

•

Our general partner will have the authority to establish reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment or increase of those reserves could result in a reduction in cash distributions to our unitholders from the levels we currently anticipate pursuant to our stated cash distribution policy. Any determination to establish cash reserves made by our general partner in good faith will be binding on our unitholders. Our partnership agreement provides that in order for a determination by our general partner to be considered to have been made in good faith, our general partner must believe that the determination is in our best interests.

•

While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions contained therein, may be amended. Our partnership agreement generally may not be amended during the subordination period without the approval of our public common unitholders other than in certain limited circumstances where no unitholder approval is required. However, our partnership agreement can be amended with the consent of our general partner and the approval of a majority of the outstanding common units (including common units held by SemGroup) after the subordination period has ended. At the closing of this offering, assuming no exercise of the underwriters’ option to purchase additional common units, SemGroup will own our general partner and approximately % of our outstanding common units and all of our outstanding subordinated units, or % of our limited partner interests.

Index to Financial Statements

•

Even if our cash distribution policy is not modified or revoked, the amount of cash that we distribute and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement.

•

Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets.

•

We may lack sufficient cash to pay distributions to our unitholders for a number of reasons, including as a result of increases in our operating or general and administrative expenses, principal and interest payments on our debt, tax expenses, working capital requirements and anticipated cash needs.

•

If and to the extent our distributable cash flow materially declines, we may elect to reduce our quarterly cash distributions in order to service or repay our debt or fund expansion capital expenditures.

Our Ability to Grow is Dependent on Our Ability to Access External Expansion Capital

Because we will distribute all of our available cash to our unitholders, we expect that we will rely primarily upon external financing sources, including borrowings under our new revolving credit facility and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. In addition, because we intend to distribute all of our available cash, our growth may not be as fast as that of businesses which reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement or in the new revolving credit facility that we expect to enter into on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional bank borrowings (under our revolving credit facility or otherwise) or other debt to finance our growth strategy will increase our interest expense, which in turn may impact the available cash that we have to distribute to our unitholders.

Our Minimum Quarterly Distribution

Upon completion of this offering, our partnership agreement will provide for a minimum quarterly distribution of $ per unit per quarter, or $ per unit on an annualized basis, to be paid no later than 45 days after the end of each fiscal quarter beginning with the quarter ending December 31, 2011. This equates to an aggregate cash distribution of $ million per quarter, or $ million on an annualized basis, based on the number of common, subordinated and general partner units expected to be outstanding immediately after the closing of this offering. We will adjust our first distribution for the period from the closing of this offering through December 31, 2011 based on the length of that period.

To the extent the underwriters exercise their option to purchase additional common units, we will use the net proceeds from that exercise to redeem from Rose Rock Midstream Holdings, LLC the number of common units equal to the number of common units issued upon such exercise, at a price per common unit equal to the proceeds per common unit before expenses but after deducting underwriting discounts and commissions and structuring fees. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units or subordinated units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units. Please read “Use of Proceeds.”

Initially, our general partner will be entitled to 2.0% of all distributions that we make prior to our liquidation. In the future, our general partner’s initial 2.0% interest in these distributions may be reduced if we issue additional units and our general partner does not contribute a proportionate amount of capital to us to maintain its initial 2.0% general partner interest.

The table below sets forth the number of common, subordinated and general partner units expected to be outstanding immediately following the closing of this offering, assuming that the underwriters do not exercise

Index to Financial Statements

their option to purchase additional common units, and the aggregate distribution amounts payable on those units during the year following the closing of this offering at our minimum quarterly distribution rate of $ per unit per quarter ($ per unit on an annualized basis).


	Number of Units	Minimum Quarterly Distributions
	Number of Units	One Quarter	Annualized
Publicly held common units		$	$
Common units held by SemGroup
Subordinated units held by SemGroup
2.0% general partner interest held by SemGroup

Total		$	$

During the subordination period, before we make any quarterly distributions to the holders of our subordinated units, our common unitholders will be entitled to receive the full minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. The subordination period generally will end, and all of the subordinated units will convert into an equal number of common units, once we have earned and paid at least (i) $ on each outstanding common and subordinated unit and the corresponding distributions on our general partner’s 2.0% interest for each of three consecutive, non-overlapping four-quarter periods ending on or after December 31, 2014, or (ii) $ (150% of the annualized minimum quarterly distribution) on each outstanding common and subordinated unit and the corresponding distributions on our general partner’s 2.0% interest and the incentive distribution rights for any four-quarter period. Please read the “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordination Period.”

If we do not pay the minimum quarterly distribution on our common units, our common unitholders will not be entitled to receive such payments in the future except during the subordination period. To the extent we have available cash in any future quarter during the subordination period in excess of the amount necessary to pay the minimum quarterly distribution to holders of our common units and the corresponding distributions on our general partner’s 2.0% interest, we will use this excess available cash to pay any distribution arrearages on the common units related to prior quarters before any cash distribution is made to holders of the subordinated units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordination Period.”

Our cash distribution policy, as expressed in our partnership agreement, may not be modified or repealed without amending our partnership agreement. The actual amount of our cash distributions for any quarter is subject to fluctuations based on the amount of cash we generate from our business and the amount of reserves our general partner establishes in accordance with our partnership agreement as described above. We will pay our distributions on or about the 15th of each of February, May, August and November to holders of record on or about the 1st of each such month. If the distribution date does not fall on a business day, we will make the distribution on the business day immediately preceding the indicated distribution date.

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our annualized minimum quarterly distribution of $ per unit for the twelve months ending September 30, 2012. In those sections, we present two tables, consisting of:

•

“Partnership Unaudited Pro Forma Available Cash,” in which we present the amount of cash we would have had available for distribution on a pro forma basis for the year ended December 31, 2010 and the twelve months ended March 31, 2011; and

•

“Partnership Statement of Estimated Adjusted EBITDA,” which supports our belief that we will be able to generate sufficient estimated adjusted EBITDA to pay the minimum quarterly distribution on all units for the twelve months ending September 30, 2012.

Index to Financial Statements

Unaudited Pro Forma Available Cash for the Year Ended December 31, 2010 and the Twelve Months Ended March 31, 2011

If we had completed the transactions contemplated in this prospectus on January 1, 2010, our pro forma available cash generated for each of the year ended December 31, 2010 and the twelve months ended March 31, 2011 would have been approximately $31.6 million and $31.0 million, respectively. These amounts would have been sufficient to pay the full minimum quarterly distribution of $ per unit per quarter ($ per unit on an annualized basis) on all of our common units and subordinated units for such periods.

Our unaudited pro forma available cash for the year ended December 31, 2010 and the twelve months ended March 31, 2011 includes general and administrative expenses of approximately $2.3 million that we expect to incur as a result of becoming a publicly traded partnership. Our general partner will determine the general and administrative expenses to be reimbursed by us in accordance with our partnership agreement. Incremental general and administrative expenses related to being a publicly traded partnership include expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance expenses; expenses associated with listing on the NYSE; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees and director and officer insurance expenses. These expenses are not reflected in our historical financial statements.

We based the adjustments made to our historical financial results upon currently available information and specific estimates and assumptions. The pro forma amounts below do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of the date indicated. In addition, cash available to pay distributions is primarily a cash accounting concept, while our historical combined financial statements were prepared on an accrual basis. As a result, you should view the amount of pro forma available cash only as a general indication of the amount of cash available to pay distributions that we might have generated had we completed the transactions contemplated in this prospectus on January 1, 2010 or April 1, 2010.

Index to Financial Statements

The following table illustrates, on a pro forma basis for the year ended December 31, 2010 and the twelve months ended March 31, 2011, the amount of cash that would have been available for distribution to our unitholders, assuming that the transactions contemplated in this prospectus had been consummated at the beginning of such periods. Each of the adjustments reflected or presented below is explained in the footnotes to such adjustments.

Partnership Unaudited Pro Forma Available Cash


	Year Ended December 31, 2010			Twelve Months Ended March 31, 2011
	(In thousands, except per unit data)
Pro forma net income	$	21,093		$	23,414
Add:
Depreciation and amortization expense		10,435			10,649
Unrealized (gain) loss related to derivatives		763			(910	)
Provision for uncollectable accounts receivable(1)		3,340			1,937
Loss (gain) on disposal of long-lived assets		67			26
Interest expense (income), net		1,332			1,742
Income tax expense (income), net		—			—

Adjusted EBITDA(2)	$	37,030		$	36,858
Less:
Incremental general and administrative expense of being a publicly traded partnership(3)		2,300			2,300
Cash interest expense		1,332			1,742
Maintenance capital expenditures(4)		1,820			1,816
Expansion capital expenditures(4)		14,912			14,471
Add:
Capital contribution to fund expansion capital expenditures(5)		14,912			14,471

Pro forma available cash	$	31,578		$	31,000

Pro forma cash distributions:
Distributions per unit	$			$

Distributions to public common unitholders(6)	$			$
Distributions to SemGroup—common units(6)
Distributions to SemGroup—subordinated units(6)
Distributions to our general partner(6)

Total cash distributions

Excess (shortfall)	$			$

Percent of minimum quarterly distributions payable to common unitholders			%			%
Percent of minimum quarterly distributions payable to subordinated unitholders			%			%

(1)

Provision for uncollectable accounts receivable for the year ended December 31, 2010 of $3.3 million reflects a charge taken due to the bankruptcy of a customer. Due to subsequent recoveries made in the first quarter of 2011, the net amount of the provision was reduced to $1.9 million for the twelve months ended March 31, 2011.

(2)	For a definition of adjusted EBITDA and a reconciliation to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Index to Financial Statements

(3)

Reflects an adjustment to our pro forma adjusted EBITDA for estimated cash expenses associated with being a publicly traded partnership, such as expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance expenses; expenses associated with listing on the NYSE; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees; and director and officer insurance expenses.

(4)

Historically, we have not made a distinction between maintenance capital expenditures and expansion capital expenditures. Under our partnership agreement, maintenance capital expenditures are capital expenditures made to maintain our long-term operating income or operating capacity, while expansion capital expenditures are capital expenditures that we expect will increase our operating income or operating capacity over the long term. Examples of maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to acquire additional assets to grow our business, to expand and upgrade our systems and facilities and to construct or acquire similar systems or facilities.

For the year ended December 31, 2010, our capital expenditures totaled $17 million. We estimate that 11% of our capital expenditures, or $2 million, were maintenance capital expenditures and that 89% of our capital expenditures, or $15 million, were expansion capital expenditures. Expansion capital expenditures for the year ended December 31, 2010 primarily consisted of expenses associated with the construction of 850,000 barrels of additional crude oil storage capacity in Cushing.

For the twelve months ended March 31, 2011, our capital expenditures totaled $16 million. We estimate that 11% of our capital expenditures, or $2 million, were maintenance capital expenditures and that 89% of our capital expenditures, or $14 million, were expansion capital expenditures. Expansion capital expenditures for the twelve months ended March 31, 2011 primarily consisted of expenses associated with the construction of 850,000 barrels of additional crude oil storage capacity in Cushing.

(5)

We funded our expansion capital expenditures during the year ended December 31, 2010 and the twelve months ended March 31, 2011 through a capital contribution made to us by SemGroup. We expect that in the future, our expansion capital expenditures will primarily be funded through borrowings or the sale of debt or equity securities.

(6)	Based on the number of common units, subordinated units and general partner units expected to be outstanding upon the completion of this offering, assuming that the underwriters’ option to purchase additional common units is not exercised.

Estimated Adjusted EBITDA for the Twelve Months Ending September 30, 2012

Set forth below is a Partnership Statement of Estimated Adjusted EBITDA that supports our belief that we will be able to generate sufficient cash available for distribution to pay the aggregate annualized minimum quarterly distribution on all of our outstanding units for the twelve months ending September 30, 2012. The financial forecast presents, to the best of our knowledge and belief, our expected results of operations, adjusted EBITDA and cash available for distribution for the forecast period. We define adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit), depreciation and amortization and any non-cash adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities.

For a reconciliation of adjusted EBITDA to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Our Partnership Statement of Estimated Adjusted EBITDA reflects our judgment, as of the date of this prospectus, of conditions we expect to exist and the course of action we expect to take in order to be able to pay the annualized minimum quarterly distribution on all of our outstanding common, subordinated and general partner units for the twelve months ending September 30, 2012. The assumptions discussed below under “—Assumptions and Considerations” are those that we believe are significant to our ability to generate our

Index to Financial Statements

estimated adjusted EBITDA. We believe our actual results of operations and cash flows will be sufficient to generate the minimum estimated adjusted EBITDA necessary to pay the aggregate annualized minimum quarterly distribution to all our unitholders for the twelve months ending September 30, 2012. We can, however, give you no assurance that we will generate this amount. There will likely be differences between our estimated adjusted EBITDA and our actual results, and those differences could be material. If we fail to generate the minimum estimated adjusted EBITDA set forth below, we may not be able to pay the aggregate annualized minimum quarterly distribution to all of our unitholders. In order to fund distributions on all of our outstanding common, subordinated and general partner units at our initial rate of $ per unit on an annualized basis for the twelve months ending September 30, 2012, our adjusted EBITDA for the twelve months ending September 30, 2012 must be at least $ million.

We do not, as a matter of course, make public projections as to future operations, earnings or other results. However, management has prepared the Partnership Statement of Estimated Adjusted EBITDA and related assumptions and considerations set forth below to substantiate our belief that we will have sufficient available cash to pay the aggregate annualized minimum quarterly distribution to all our unitholders for the twelve months ending September 30, 2012. This forecast is a forward-looking statement and should be read together with our historical combined financial statements and the accompanying notes included elsewhere in this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The accompanying prospective financial information was not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our management, is substantially consistent with those guidelines and was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the assumptions on which we base our belief that we can generate the minimum adjusted EBITDA necessary for us to have sufficient cash available for distribution to pay the aggregate annualized minimum quarterly distribution on all of our outstanding common, subordinated and general partner units for the twelve months ending September 30, 2012. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.

The prospective financial information included in this prospectus has been prepared by, and is the responsibility of, our management. BDO USA, LLP, our independent registered public accounting firm, has not examined, compiled or performed any procedures with respect to the accompanying prospective financial information and, accordingly, BDO USA, LLP does not express an opinion or any other form of assurance with respect thereto. The report of BDO USA, LLP included in this prospectus relates to our historical financial information. It does not extend to the prospective financial information and should not be read to do so.

When considering our financial forecast, you should keep in mind the risk factors and other cautionary statements under “Risk Factors.” Any of the risks discussed in this prospectus, to the extent they are realized, could cause our actual results of operations to vary significantly from those that would enable us to generate the minimum adjusted EBITDA necessary to pay the aggregate annualized minimum quarterly distribution on all of our outstanding common, subordinated and general partner units for the twelve months ending September 30, 2012.

We are providing the Partnership Statement of Estimated Adjusted EBITDA to supplement our historical combined financial statements and in support of our belief that we will have sufficient available cash to pay the aggregate annualized minimum quarterly distribution on all of our outstanding common, subordinated and general partner units for the twelve months ending September 30, 2012. Please read below under “—Assumptions and Considerations” for further information about the assumptions we have made for the financial forecast.

We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update this financial forecast to reflect events or circumstances after the date of this prospectus. Therefore, you are cautioned not to place undue reliance on this information.

Index to Financial Statements

Partnership Statement of Estimated Adjusted EBITDA


	Twelve Months Ending September 30, 2012
	(In thousands, except per unit data)
Revenues	$	359,170
Cost of products sold, exclusive of depreciation and amortization		294,464
Unrealized gain (loss) on derivatives(1)		—

Adjusted gross margin(2)		64,706

Operating expenses:
Operating		20,256
General and administrative(3)		11,221
Depreciation and amortization		12,081

Total operating expenses	$	43,558

Operating income	$	21,148
Interest expense, net(4)		3,442

Net income	$	17,706
Add:
Depreciation and amortization		12,081
Interest expense, net		3,442
Income tax expense (benefit)(5)		—

Estimated adjusted EBITDA(6)	$	33,229
Less:
Cash interest expense		2,778
Maintenance capital expenditures		4,007
Expansion capital expenditures		32,904
Add:
Borrowings to fund expansion capital expenditures		32,904

Estimated distributable cash flow	$	26,444
Less:
Cash reserves

Minimum estimated available cash from distributable cash flow	$

Per unit minimum annual distribution	$

Annual cash distributions:
Publicly held common units
Common units held by SemGroup
Subordinated units held by SemGroup
2% general partner interest

Total minimum annual cash distributions	$

(1)	Because we believe it is not reasonably possible to forecast unrealized gains or losses on derivatives for future periods, we have assumed none for purposes of this forecast.

(2)	For a definition of adjusted gross margin and a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

(3)

Includes incremental general and administrative expenses of $1.5 million resulting from SemGroup’s allocation of additional overhead expenses to us upon completion of this offering, which are reflected in our unaudited pro forma financial statements, and an estimated $2.3 million of incremental general and administrative expenses that we anticipate incurring as a result of becoming a publicly traded partnership, which are not reflected in our unaudited pro forma financial statements.

(4)

Reflects (i) pro forma interest expense on $15.4 million of average borrowings outstanding during the forecast period under our new revolving credit facility to fund the $32.9 million of estimated expansion capital expenditures and $3.3 million in credit facility arrangement fees at an assumed interest rate of 5.75%, (ii) the pro forma amortization during the forecast period of the $3.3 million in credit facility arrangement fees, which will be amortized over a five-year period and (iii) letters of credit and commitment fees.

(5)	As a limited partnership, we expect that we will pay no income tax during the forecast period.

(6)	For a definition of adjusted EBITDA and a reconciliation to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Index to Financial Statements

Assumptions and Considerations

We believe our minimum estimated available cash from distributable cash flow for the twelve months ending September 30, 2012 will be not less than $ million. Our estimates do not assume any incremental revenue, expenses or other costs associated with potential acquisitions. We believe that the estimates, assumptions and considerations incorporated into our calculation of minimum estimated available cash from distributable cash flow are reasonable, and include the following:

Revenues


	Pro Forma Year Ended December 31, 2010			Pro Forma Twelve Months Ended March 31, 2011			Forecast for Twelve Months Ending September 30, 2012
	(in thousands)
Gross product revenue	$	555,755		$	681,250		$	1,098,684
Nonmonetary transaction adjustment (1)		(397,447	)		(489,160	)		(780,066	)
Net unrealized gain (loss) on derivatives		—			—			—

Product revenue		158,308			192,090			318,618
Service revenue		49,408			46,124			40,552
Other		365			476			—

Total Revenue	$	208,081		$	238,690		$	359,170

(1)

Accounting Standards Codification (ASC) 845-10-15, “Nonmonetary Transactions,” requires transactions in which inventory is purchased from a customer and then resold to the same customer to be presented in the income statement on a net basis. This results in an equal reduction of product revenue and costs of products sold, but has no effect on operating income (loss). Based on our experience in 2010, we estimate that our product revenue during the forecast period, after reduction pursuant to ASC 845-10-15, will be approximately 29% of our gross product revenue.

Product Revenues. Our product revenues consist of revenues generated by the purchase and sale of crude oil pursuant to fixed-margin transactions or in our marketing business. We estimate that our product revenues for the twelve months ending September 30, 2012 will be $318.6 million, as compared to $158.3 million and $192.1 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively. We expect product revenues to increase primarily due to a shift in our Kansas and Oklahoma operations from fee-based transportation agreements, which are not included in product revenues, to fixed-margin transactions, which are included in product revenues. We have assumed an average sales price of $98.14 per barrel for crude oil sold during the forecast period based on NYMEX forward price data as of July 29, 2011, compared to an average sales price of $78.64 and $79.73 per barrel for crude oil sold during the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively.

Service Revenues. Our service revenues consist of revenues generated by fees charged for the unloading, transportation and storage of crude oil and related ancillary fees. We estimate that our total service revenues for the twelve months ending September 30, 2012 will be $40.6 million, as compared to $49.4 million and $46.1 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively. Service revenues are expected to decrease primarily due to a shift in our Kansas and Oklahoma operations to fixed-margin transactions, which are not included in service revenues, from fee-based agreements, which are included in service revenues. We anticipate that this decrease in service revenues will be partially offset by additional revenues arising from additional barrels of storage capacity at our Cushing terminal that we expect to be placed into service at various points during the forecast period.

Index to Financial Statements

Costs of Products Sold

We estimate that our costs of products sold will be $294.5 million for the twelve months ending September 30, 2012, as compared to $146.6 million and $174.2 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively, primarily due to a shift in our Kansas and Oklahoma operations from fee-based transportation agreements to fixed-margin transactions. The cost of crude oil purchased under fixed-margin agreements is included in costs of products sold. We have assumed an average cost of $95.98 per barrel for crude oil purchased during the forecast period based on NYMEX forward price data as of July 29, 2011 (less a transportation fee), compared to an average cost of $76.48 and $77.46 per barrel for crude oil purchased during the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively.

Adjusted Gross Margin

We define adjusted gross margin as total revenues minus costs of products sold and unrealized gain (loss) on derivatives. Because we believe it is not reasonably possible to forecast unrealized gains or losses on derivatives for future periods, we have assumed none for the twelve months ending September 30, 2012. We estimate that our adjusted gross margin will be $64.7 million for the twelve months ending September 30, 2012, as compared to $62.2 million and $63.6 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively, primarily due to:

•

an expected increase in adjusted gross margin from our storage operations due to an expected increase in contracted storage capacity to approximately 6.8 million barrels as of September 30, 2012 from approximately 4.5 million barrels as of December 31, 2010 and March 31, 2011, partially offset by an expected decrease in our average storage rate for the twelve months ending September 30, 2012 by $0.09 per barrel and $0.08 per barrel compared to the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively, due to the expiration of the recognition of deferred storage revenues attributable to a prepaid contract;

•

a slight expected decrease in adjusted gross margin attributable to our fee-based and fixed-margin gathering and transportation operations due to an increase in short-haul volumes, partially offset by an expected increase in transportation volumes to approximately 14.2 million barrels for the twelve months ending September 30, 2012 from approximately 9.7 million barrels for the year ended December 31, 2010 and 10.9 million barrels for the twelve months ended March 31, 2011;

•

an expected increase in adjusted gross margin from our marketing operations due to a higher anticipated spread between the purchase and sale price for volumes sold, partially offset by an expected decrease in marketing volumes to approximately 5.1 million barrels for the twelve months ending September 30, 2012 from approximately 5.8 million barrels for the year ended December 31, 2010 and 5.6 million barrels for the twelve months ended March 31, 2011; and

•

an expected increase in adjusted gross margin from our Platteville operations due to an expected increase in unloading volumes to approximately 13.5 million barrels for the twelve months ending September 30, 2012 from approximately 9.4 million barrels for the year ended December 31, 2010 and 9.9 million barrels for the twelve months ended March 31, 2011, due to a capacity expansion on the White Cliffs Pipeline. We expect that the per-barrel unloading fee we receive will remain relatively constant.

Index to Financial Statements

The table below compares our estimated contracted storage capacity and estimated transportation, marketing and unloading volumes for the twelve months ending September 30, 2012 to our historical contracted storage capacity and transportation, marketing and unloading volumes for the year ended December 31, 2010 and the twelve months ended March 31, 2011:


	Year Ended December 31, 2010			Twelve Months Ended March 31, 2011			Forecast for Twelve Months Ending September 30, 2012
Cushing storage capacity (MMBbls as of period end)		4.7			4.7			7.0
Percent of Cushing capacity contracted (as of period end)		95	%		95	%		96	%
Transportation volumes (Average Bpd)		26,600			29,900			38,900
Marketing volumes (Average Bpd)		15,800			15,300			14,100
Unloading/Platteville volumes (Average Bpd)		25,800			27,100			36,900

Operating Expenses

Our operating expenses include salary and wage expense, utility costs, insurance premiums, taxes and other operating costs. We estimate that we will incur operating expenses of $20.3 million for the twelve months ending September 30, 2012, as compared to $20.4 million and $20.0 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively. Operating expenses for the year ended December 31, 2010 and the twelve months ended March 31, 2011 were increased by $3.3 million and $1.9 million, respectively, due to a provision for uncollectable accounts receivable. The uncollectable receivable relates to a charge taken due to the bankruptcy of a customer. The provision for the twelve months ended March 31, 2011 was reduced due to recoveries in the first quarter of 2011, but we do not assume any recoveries will be made in the forecast period. Our forecasted operating expenditures are otherwise higher due to incremental operating expenses associated with growth projects and additional business activities.

We do not expect our operating expenses to increase proportionately when we make capacity additions adjacent to our existing facilities in the future, as we believe we will be able to capitalize on our current scale and existing infrastructure to improve operating margins with incremental growth and because these additions do not require significant additions of operating employees.

General and Administrative Expenses

We estimate that our general and administrative expenses will be $11.2 million for the twelve months ending September 30, 2012, as compared to $9.2 million and $6.0 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively, on a pro forma basis. General and administrative expenses for the year ended December 31, 2010 included bankruptcy-related expenses that we will not incur during the forecast period. General and administrative expenses for the twelve months ended March 31, 2011 were lower than those for the year ended December 31, 2010 due to a credit relating to overhead allocated for calendar year 2010 that was recognized in December 2010 and was offset by only nine months’ worth of applicable expenses. We estimate that we will incur $1.5 million of incremental general and administrative expenses resulting from SemGroup’s allocation of additional overhead to us upon completion of this offering, primarily relating to financial reporting and legal expenses and corporate services. These incremental general and administrative expenses are reflected in our unaudited pro forma financial statements. Additional incremental general and administrative expenses consist of approximately $2.3 million of expenses that we expect to incur as a result of operating as a publicly traded partnership that are not reflected in our unaudited pro forma financial statements, such as expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance expenses; expenses associated with listing on the NYSE; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees; and director and officer insurance expenses.

Index to Financial Statements

Depreciation and Amortization

We estimate that our depreciation and amortization expense will be $12.1 million for the twelve months ending September 30, 2012, as compared to $10.4 million and $10.6 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively. The expected increase is attributable to the completion of the construction of additional storage capacity at Cushing during the forecast period. Estimated depreciation and amortization expense reflects our estimates, which are based on consistent average depreciable asset lives and depreciation methodologies.

Capital Expenditures

•

Maintenance Capital Expenditures. We estimate that our maintenance capital expenditures will be $4.0 million for the twelve months ending September 30, 2012, of which $0.7 million is expected to relate to truck replacements. The remaining $3.3 million of maintenance capital expenditures are expected to relate primarily to increased integrity management expenses to comply with new regulations. Maintenance capital expenditures were $1.8 million for the year ended December 31, 2010 and $1.8 million for the twelve months ended March 31, 2011, and included general maintenance, upgrades and integrity management.

•

Expansion Capital Expenditures. We have assumed expansion capital expenditures of $32.9 million for the twelve months ending September 30, 2012, as compared to $14.9 million and $14.5 million for the year ended December 31, 2010 and the twelve months ended March 31, 2011, respectively. Our planned expansion capital expenditures relate primarily to the construction of 1.95 million barrels of storage capacity at our Cushing terminal. After the closing of this offering, we expect to fund expansion capital expenditures with funds generated from our operations, borrowings under our new revolving credit facility, the issuance of additional partnership units and debt offerings. For purposes of this forecast, we have assumed that we will fund all of the forecasted expansion capital expenditures with borrowings under our new credit facility. The expansion capital expenditures incurred during the year ended December 31, 2010 and the twelve months ended March 31, 2011 were associated with capacity expansion at our Cushing terminal, which were funded through a capital contribution from SemGroup.

Financing

Our forecast for the twelve months ending September 30, 2012 is based on the following significant financing assumptions:

•

We expect to have average borrowings of approximately $15.4 million under our new revolving credit facility, which we expect to incur to fund our forecasted $32.9 million of expansion capital expenditures and the payment of an estimated $3.3 million in credit facility arrangement fees, and an average of $37.4 million in letters of credit outstanding to support our purchasing activities.

•

The borrowings under our new revolving credit facility will bear interest at an average rate of 5.75% through September 30, 2012. An increase or decrease of 1.0% in the interest rate will result in increased or decreased, respectively, annual interest expenses of $0.2 million.

•

We will remain in compliance with the financial and other covenants in our new credit facility.

Regulatory, Industry and Economic Factors

Our forecast for the twelve months ending September 30, 2012 is based on the following significant assumptions related to regulatory, industry and economic factors:

•

There will not be any new federal, state or local regulation of the portions of the energy industry in which we operate, or a new interpretation of existing regulation, that will be materially adverse to our business.

Index to Financial Statements

•

There will not be any major adverse change in the portions of the midstream energy industry that we serve or in general economic conditions, including in the levels of crude oil production and demand in the geographic areas that we serve.

•

There will not be any material accidents, weather-related incidents, unscheduled downtime or similar unanticipated events with respect to our facilities or those of third parties on which we depend.

•

We will not make any acquisitions or other significant expansion capital expenditures (other than as described above).

•

Market, insurance and overall economic conditions will not change substantially.

While we believe that our assumptions supporting our estimated adjusted EBITDA and cash available for distribution for the twelve months ending September 30, 2012 are reasonable in light of our current beliefs concerning future events, the assumptions are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those we anticipate. If our assumptions are not realized, the actual adjusted EBITDA and cash available for distribution that we generate could be substantially less than the amounts that we currently expect to generate and could, therefore, be insufficient to permit us to make the full minimum quarterly distribution on all of our units, in which event the market price of our common units could decline materially.

Index to Financial Statements

PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS

Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.

Distributions of Available Cash

General

Our partnership agreement requires that, within 45 days after the end of each quarter, beginning with the quarter ending December 31, 2011, we distribute all of our available cash to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution for the period from the closing of the offering through December 31, 2011 based on the actual length of the period.

Definition of Available Cash

Available cash generally means, for any quarter, all cash on hand at the end of that quarter:

•

less the amount of cash reserves established by our general partner at the date of determination of available cash for that quarter to:

•

provide for the proper conduct of our business (including reserves for our future capital expenditures);

•

comply with applicable law, any of our debt instruments or other agreements; and

•

provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for common and subordinated units unless it determines that the establishment of reserves will not prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter and the next four quarters);

•

plus, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.

The purpose and effect of the last bullet point above is to allow our general partner, if it so decides, to use cash from working capital borrowings made after the end of the quarter but on or before the date of determination of available cash for that quarter to pay distributions to unitholders. Under our partnership agreement, working capital borrowings are generally borrowings that are made under a credit facility, commercial paper facility or similar financing arrangement with the intent to repay such borrowings within 12 months with funds other than from additional working capital borrowings, and that in all cases are used solely for working capital purposes or to pay distributions to unitholders. The proceeds of working capital borrowings increase operating surplus and repayments of working capital borrowings are generally operating expenditures (as described below) and thus reduce operating surplus when repayments are made. However, if working capital borrowings, which increase operating surplus, are not repaid during the 12-month period following the borrowing, they will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowings are in fact repaid, they will not be treated as a further reduction in operating surplus because operating surplus will have been previously reduced by the deemed repayment.

Intent to Distribute the Minimum Quarterly Distribution

We intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $ per unit, or $ on an annualized basis, to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our general partner. However, there is no guarantee that we will pay the minimum

Index to Financial Statements

quarterly distribution on our units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a discussion of the restrictions to be included in our revolving credit facility that may restrict our ability to make distributions.

Operating Surplus and Capital Surplus

General

All cash distributed to unitholders will be characterized as either being paid from “operating surplus” or “capital surplus.” We treat distributions of available cash from operating surplus differently than distributions of available cash from capital surplus.

Operating Surplus

We define operating surplus as:

•

$ million (as described below); plus

•

all of our cash receipts after the closing of this offering, excluding cash from interim capital transactions (as defined below); plus

•

working capital borrowings made after the end of a quarter but on or before the date of determination of operating surplus for that quarter; plus

•

cash distributions paid on equity issued to finance all or a portion of the construction, acquisition, development or improvement of a capital improvement or replacement of a capital asset (such as equipment or facilities) in respect of the period beginning on the date that we enter into a binding obligation to commence the construction, acquisition, development or improvement of a capital improvement or replacement of a capital asset and ending on the earlier to occur of the date the capital improvement or capital asset commences commercial service and the date that it is abandoned or disposed of; plus

•

cash distributions paid on equity issued to pay the construction-period interest on debt incurred, or to pay construction-period distributions on equity issued, to finance the capital improvements or capital assets referred to above; less

•

all of our operating expenditures (as defined below) after the closing of this offering; less

•

the amount of cash reserves established by our general partner to provide funds for future operating expenditures; less

•

all working capital borrowings not repaid within 12 months after having been incurred, or repaid within such 12-month period with the proceeds of additional working capital borrowings; less

•

any cash loss realized on disposition of an investment capital expenditure.

As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by operations. For example, the definition of operating surplus includes a provision that will enable us, if we choose, to distribute as operating surplus up to $ million of cash we receive in the future from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus.

We define interim capital transactions as (i) borrowings, refinancings or refundings of indebtedness (other than working capital borrowings and items purchased on open account in the ordinary course of business) and sales of debt securities, (ii) sales of equity securities, (iii) sales or other dispositions of assets, other than sales or

Index to Financial Statements

other dispositions of inventory, accounts receivable and other assets in the ordinary course of business and sales or other dispositions of assets as part of ordinary course asset retirements or replacements, (iv) the termination of commodity hedge contracts or interest rate hedge contracts prior to the termination date specified therein (provided that cash receipts from any such termination will be included in operating surplus in equal quarterly installments over the remaining scheduled life of the contract), (v) capital contributions received and (vi) corporate reorganizations or restructurings.

We define operating expenditures as all of our cash expenditures, including, but not limited to, taxes, reimbursements of expenses to our general partner, interest payments, payments made in the ordinary course of business under interest rate hedge contracts and commodity hedge contracts (provided that payments made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior to the expiration of its stipulated settlement or termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such interest rate hedge contract or commodity hedge contract), maintenance capital expenditures (as discussed in further detail below), director and officer compensation, repayment of working capital borrowings and non-pro rata repurchases of our units; provided, however, that operating expenditures will not include:

•

repayments of working capital borrowings where such borrowings have previously been deemed to have been repaid (as described above);

•

payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than working capital borrowings;

•

expansion capital expenditures;

•

actual maintenance capital expenditures;

•

investment capital expenditures;

•

payment of transaction expenses (including, but not limited to, taxes) relating to interim capital transactions;

•

distributions to our partners; or

•

non-pro rata purchases of any class of our units made with the proceeds of an interim capital transaction.

Capital Surplus

Capital surplus is defined in our partnership agreement as any distribution of available cash in excess of our cumulative operating surplus. Accordingly, except as described above, capital surplus would generally be generated by:

•

borrowings other than working capital borrowings;

•

sales of our equity and debt securities; and

•

sales or other dispositions of assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of ordinary course retirement or replacement of assets.

Characterization of Cash Distributions

Our partnership agreement requires that we treat all available cash distributed as coming from operating surplus until the sum of all available cash distributed since the closing of this offering equals the operating surplus from the closing of this offering through the end of the quarter immediately preceding that distribution. Our partnership agreement requires that we treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. We do not anticipate that we will make any distributions from capital surplus.

Index to Financial Statements

Capital Expenditures

Maintenance capital expenditures 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. We expect that a primary component of maintenance capital expenditures will include expenditures for routine equipment and facility maintenance or replacement due to obsolescence. Maintenance capital expenditures will also include interest (and related fees) on debt incurred and distributions on equity issued (including incremental distributions on incentive distribution rights) to finance all or any portion of the construction or development of a replacement asset that is paid in respect of the period that begins when we enter into a binding obligation to commence constructing or developing a replacement asset and ending on the earlier to occur of the date that any such replacement asset commences commercial service and the date that it is abandoned or disposed of.

Maintenance capital expenditures reduce operating surplus, but expansion capital expenditures and investment capital expenditures do not.

Expansion capital expenditures are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operating income or operating capacity over the long term. Expansion capital expenditures include interest payments (and related fees) on debt incurred and distributions on equity issued to finance the construction, acquisition or development of an improvement to our capital assets and paid in respect of the period beginning on the date that we enter into a binding obligation to commence construction, acquisition or development of the capital improvement and ending on the earlier to occur of the date that such capital improvement commences commercial service and the date that such capital improvement is abandoned or disposed of. Examples of expansion capital expenditures include the acquisition of equipment, or the construction, development or acquisition of additional crude oil storage capacity.

Capital expenditures that are made in part for expansion capital purposes and in part for other purposes will be allocated between expansion capital expenditures and expenditures for other purposes by our general partner.

Investment capital expenditures are those capital expenditures that are neither maintenance capital expenditures nor expansion capital expenditures. Investment capital expenditures largely will consist of capital expenditures made for investment purposes. Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes or development of facilities that are in excess of the maintenance of our existing operating capacity or operating income, but that are not expected to expand, for more than the short term, our operating capacity or operating income.

Subordination Period

General

Our partnership agreement provides that, during the subordination period (which we define below), the common units will have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $ per common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. These units are deemed “subordinated” because for a period of time, referred to as the subordination period, the subordinated units will not be entitled to receive any distributions until the common units have received the minimum quarterly distribution plus any arrearages from prior quarters. Furthermore, no arrearages will be paid on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that during the subordination period there will be available cash to be distributed on the common units.

Index to Financial Statements

Subordination Period

Except as described below, the subordination period will begin on the closing date of this offering and will extend until the first business day of any quarter beginning after December 31, 2014, that each of the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and general partner units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;

•

the adjusted operating surplus (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units, subordinated units and general partner units during those periods on a fully diluted basis; and

•

there are no arrearages in payment of the minimum quarterly distribution on the common units.

Early Termination of Subordination Period

Notwithstanding the foregoing, the subordination period will automatically terminate on the first business day of any quarter beginning after December 31, 2012, that each of the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and general partner units equaled or exceeded $ (150% of the annualized minimum quarterly distribution) for the four-quarter period immediately preceding that date;

•

the adjusted operating surplus (as defined below) generated during the four-quarter period immediately preceding that date equaled or exceeded the sum of (i) $ (150% of the annualized minimum quarterly distribution) on all of the outstanding common units, subordinated units and general partner units during that period on a fully diluted basis and (ii) the distributions made on the incentive distribution rights; and

•

there are no arrearages in payment of the minimum quarterly distributions on the common units.

In addition, if the unitholders remove our general partner other than for cause and no units held by our general partner and its affiliates are voted in favor of such removal:

•

the subordination period will end and each subordinated unit will immediately and automatically convert into one common unit;

•

any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and

•

our general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests.

Expiration of the Subordination Period

When the subordination period ends, each outstanding subordinated unit will convert into one common unit and will thereafter participate pro rata with the other common units in distributions of available cash.

Adjusted Operating Surplus

Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net drawdowns of reserves of cash established in prior periods. Adjusted operating surplus for a period consists of:

•

operating surplus generated with respect to that period (excluding any amounts attributable to the item described in the first bullet point under the caption “—Operating Surplus and Capital Surplus—Operating Surplus” above); less

Index to Financial Statements

•

any net increase in working capital borrowings with respect to that period; less

•

any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus

•

any net decrease in working capital borrowings with respect to that period; plus

•

any net decrease made in subsequent periods to cash reserves for operating expenditures initially established with respect to that period to the extent such decrease results in a reduction in adjusted operating surplus in subsequent periods; plus

•

any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.

Distributions of Available Cash from Operating Surplus During the Subordination Period

We will make distributions of available cash from operating surplus for any quarter during the subordination period in the following manner:

•

first, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;

•

second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;

•

third, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

•

thereafter, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.

The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not issue additional classes of equity securities.

Distributions of Available Cash from Operating Surplus After the Subordination Period

We will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:

•

first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and

•

thereafter, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.

The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not issue additional classes of equity securities.

Index to Financial Statements

General Partner Interest and Incentive Distribution Rights

Our partnership agreement provides that our general partner initially will be entitled to 2.0% of all distributions that we make prior to our liquidation. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us in order to maintain its 2.0% general partner interest if we issue additional units. Our general partner’s 2.0% interest, and the percentage of our cash distributions to which it is entitled from such 2.0% interest, will be proportionately reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us in order to maintain its 2.0% general partner interest. Our partnership agreement does not require that our general partner fund its capital contribution with cash. It may instead fund its capital contribution by the contribution to us of common units or other property.

Incentive distribution rights represent the right to receive an increasing percentage (13.0%, 23.0% and 48.0%) of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to restrictions in our partnership agreement.

The following discussion assumes that our general partner maintains its 2.0% general partner interest, that there are no arrearages on common units and that our general partner continues to own the incentive distribution rights.

If for any quarter:

•

we have distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and

•

we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

then, we will distribute any additional available cash from operating surplus for that quarter among the unitholders and our general partner in the following manner:

•

first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives a total of $ per unit for that quarter (the “first target distribution”);

•

second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives a total of $ per unit for that quarter (the “second target distribution”);

•

third, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives a total of $ per unit for that quarter (the “third target distribution”); and

•

thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

Index to Financial Statements

Percentage Allocations of Available Cash from Operating Surplus

The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our general partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit Target Amount.” The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our general partner include its 2.0% general partner interest and assume that our general partner has contributed any additional capital necessary to maintain its 2.0% general partner interest, our general partner has not transferred its incentive distribution rights and that there are no arrearages on common units.


	Total Quarterly Distribution Per Unit Target Amount		Marginal Percentage Interest in Distributions
	Total Quarterly Distribution Per Unit Target Amount		Unitholders			General Partner
Minimum Quarterly Distribution		$		98.0	%		2.0	%
First Target Distribution		up to $		98.0	%		2.0	%
Second Target Distribution	above $	up to $		85.0	%		15.0	%
Third Target Distribution	above $	up to $		75.0	%		25.0	%
Thereafter		above $		50.0	%		50.0	%

General Partner’s Right to Reset Incentive Distribution Levels

Our general partner, as the initial holder of our incentive distribution rights, has the right under our partnership agreement to elect to relinquish the right to receive incentive distribution payments based on the initial target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and target distribution levels upon which the incentive distribution payments to our general partner would be based. If our general partner transfers all or a portion of our incentive distribution rights in the future, then the holder or holders of a majority of our incentive distribution rights will be entitled to exercise this right. The following discussion assumes that our general partner holds all of the incentive distribution rights at the time that a reset election is made. Our general partner’s right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general partner are based may be exercised, without approval of our unitholders or the Conflicts Committee, at any time when there are no subordinated units outstanding and we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distribution for each of the four consecutive fiscal quarters immediately preceding such time. If our general partner and its affiliates are not the holders of a majority of the incentive distribution rights at the time an election is made to reset the minimum quarterly distribution amount and the target distribution levels, then the proposed reset will be subject to the prior written concurrence of the general partner that the conditions described above have been satisfied. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that our general partner will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.

In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common units based on a predetermined formula described below that takes into account the “cash parity” value

Index to Financial Statements

of the average cash distributions related to the incentive distribution rights received by our general partner for the two quarters immediately preceding the reset event as compared to the average cash distributions per common unit during that two-quarter period. Our general partner will also be issued the number of general partner units necessary to maintain its general partner interest in us immediately prior to the reset election.

The number of common units that our general partner would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to the quotient determined by dividing (x) the average of the aggregate cash distributions received by our general partner in respect of its incentive distribution rights during the two consecutive fiscal quarters ended immediately prior to the date of such reset election by (y) the average of the amount of cash distributed per common unit during each of these two quarters.

Following a reset election, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per unit for the two fiscal quarters immediately preceding the reset election (which amount we refer to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:

•

first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives an amount equal to 115.0% of the reset minimum quarterly distribution for that quarter;

•

second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives an amount per unit equal to 125.0% of the reset minimum quarterly distribution for the quarter;

•

third, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives an amount per unit equal to 150.0% of the reset minimum quarterly distribution for the quarter; and

•

thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders and our general partner at various cash distribution levels (i) pursuant to the cash distribution provisions of our partnership agreement in effect at the closing of this offering, as well as (ii) following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the average quarterly cash distribution amount per common unit during the two fiscal quarters immediately preceding the reset election was $ .


			Marginal Percentage Interest in Distributions
	Quarterly Distribution Per Unit Prior to Reset		Unitholders			2.0% General Partner Interest			Incentive Distribution Rights			Quarterly Distributions Per Unit Following Hypothetical Reset
Minimum Quarterly Distribution		$		98.0	%		2.0	%		—
First Target Distribution		up to $		98.0	%		2.0	%		—
Second Target Distribution	above $	up to $		85.0	%		2.0	%		13.0	%
Third Target Distribution	above $	up to $		75.0	%		2.0	%		23.0	%
Thereafter		above $		50.0	%		2.0	%		48.0	%

(1)	This amount is 115.0% of the hypothetical reset minimum quarterly distribution.

(2)	This amount is 125.0% of the hypothetical reset minimum quarterly distribution.

(3)	This amount is 150.0% of the hypothetical reset minimum quarterly distribution.

Index to Financial Statements

The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of incentive distribution rights, based on an average of the amounts distributed each quarter for the two quarters immediately prior to the reset. The table assumes that immediately prior to the reset there would be common units outstanding, our general partner has maintained its 2.0% general partner interest and the average distribution to each common unit would be $ for the two quarters prior to the reset.

Quarterly
Distribution Per
Unit Prior to Reset

Cash
Distributions
to Common
Unitholders
Prior to Reset

Cash Distribution to General
Partner Prior to Reset

Total
Distributions

2.0%
General
Partner
Interest

Incentive
Distribution
Rights

Total

Minimum Quarterly Distribution

First Target Distribution

up to $

Second Target Distribution

above $

up to $

Third Target Distribution

above $

up to $

Thereafter

above $

The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of incentive distribution rights, with respect to the quarter in which the reset occurs. The table reflects that, as a result of the reset, there would be common units outstanding, our general partner’s 2.0% interest has been maintained, and the average distribution to each common unit would be $ . The number of common units to be issued to our general partner upon the reset was calculated by dividing (i) the average of the amounts received by our general partner in respect of its incentive distribution rights for the two quarters prior to the reset as shown in the table above, or $ , by (ii) the average available cash distributed on each common unit for the two quarters prior to the reset as shown in the table above, or $ .

Quarterly Distribution
Per Unit After Reset

Cash
Distributions
to Common
Unitholders
After Reset

Cash Distribution to General
Partner After Reset

Total
Distributions

2.0%
General
Partner
Interest

Incentive
Distribution
Rights

Total

Minimum Quarterly Distribution

First Target Distribution

up to $

Second Target Distribution

above $

up to $

Third Target Distribution

above $

up to $

Thereafter

above $

Index to Financial Statements

Our general partner will be entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for the immediately preceding four consecutive fiscal quarters based on the highest level of incentive distributions that it is entitled to receive under our partnership agreement.

Distributions from Capital Surplus

How Distributions from Capital Surplus Will Be Made

We will make distributions of available cash from capital surplus, if any, in the following manner:

•

first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each common unit that was issued in this offering, an amount of available cash from capital surplus equal to the initial public offering price in this offering;

•

second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and

•

thereafter, as if they were from operating surplus.

The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not issue additional classes of equity securities.

Effect of a Distribution from Capital Surplus

Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the “unrecovered initial unit price.” Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in the unrecovered initial unit price. Because distributions of capital surplus will reduce the minimum quarterly distribution after any of these distributions are made, it may be easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus before the unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.

Once we distribute capital surplus on a unit issued in this offering in an amount equal to the initial unit price, we will reduce the minimum quarterly distribution and the target distribution levels to zero. We will then make all future distributions from operating surplus, with 50.0% being paid to the unitholders, pro rata, and 50.0% to our general partner. The percentage interests shown for our general partner include its 2.0% general partner interest and assume that our general partner has not transferred the incentive distribution rights.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:

•

the minimum quarterly distribution;

•

the number of common units into which a subordinated unit is convertible;

•

target distribution levels;

•

the unrecovered initial unit price; and

•

the number of general partner units comprising the general partner interest.

Index to Financial Statements

For example, if a two-for-one split of the common units should occur, the minimum quarterly distribution, the target distribution levels and the unrecovered initial unit price would each be reduced to 50% of its initial level, and each subordinated unit would be convertible into two common units. We will not make any adjustment by reason of the issuance of additional units for cash or property.

In addition, if legislation is enacted or if existing law is modified or interpreted by a governmental authority, so that we become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement specifies that the minimum quarterly distribution and the target distribution levels for each quarter may be reduced by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter and the denominator of which is the sum of available cash for that quarter plus our general partner’s estimate of our aggregate liability for the quarter for such income taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted for in subsequent quarters.

Distributions of Cash Upon Liquidation

General

If we dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and our general partner, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of outstanding common units to a preference over the holders of outstanding subordinated units upon our liquidation, to the extent required to permit common unitholders to receive their unrecovered initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the holders of common units to fully recover all of these amounts, even though there may be cash available for distribution to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights of our general partner.

Manner of Adjustments for Gain

The manner of the adjustment for gain is set forth in our partnership agreement. If our liquidation occurs before the end of the subordination period, we will allocate any gain to our partners in the following manner:

•

first, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances;

•

second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until the capital account for each common unit is equal to the sum of: (1) the unrecovered initial unit price; (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and (3) any unpaid arrearages in payment of the minimum quarterly distribution;

•

third, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until the capital account for each subordinated unit is equal to the sum of: (1) the unrecovered initial unit price; and (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

•

fourth, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the first target distribution per unit

Index to Financial Statements

over the minimum quarterly distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98.0% to the unitholders, pro rata, and 2.0% to our general partner, for each quarter of our existence;

•

fifth, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to our general partner for each quarter of our existence;

•

sixth, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 75.0% to the unitholders, pro rata, and 25.0% to our general partner for each quarter of our existence;

•

thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

The percentages set forth above are based on the assumption that our general partner has not transferred its incentive distribution rights and that we do not issue additional classes of equity securities.

If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that clause (3) of the second bullet point above and all of the fourth bullet point above will no longer be applicable.

Manner of Adjustments for Losses

If our liquidation occurs before the end of the subordination period, after making allocations of loss to the general partner and the unitholders in a manner intended to offset in reverse order the allocations of gains that have previously been allocated, we will generally allocate any loss to our general partner and unitholders in the following manner:

•

first, 98.0% to the holders of subordinated units in proportion to the positive balances in their capital accounts and 2.0% to our general partner, until the capital accounts of the subordinated unitholders have been reduced to zero;

•

second, 98.0% to the holders of common units in proportion to the positive balances in their capital accounts and 2.0% to our general partner, until the capital accounts of the common unitholders have been reduced to zero; and

•

thereafter, 100.0% to our general partner.

If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that all of the first bullet point above will no longer be applicable.

Adjustments to Capital Accounts

Our partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units, our partnership agreement requires that we generally allocate any

Index to Financial Statements

later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the partners’ capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made. In contrast to the allocations of gain, and except as provided above, we generally will allocate any unrealized and unrecognized loss resulting from the adjustments to capital accounts upon the issuance of additional units to the unitholders and our general partner based on their respective percentage ownership of us. In this manner, prior to the end of the subordination period, we generally will allocate any such loss equally with respect to our common and subordinated units. If we make negative adjustments to the capital accounts as a result of such loss, future positive adjustments resulting from the issuance of additional units will be allocated in a manner designed to reverse the prior negative adjustments, and special allocations will be made upon liquidation in a manner that results, to the extent possible, in our unitholders’ capital account balances equaling the amounts they would have been if no earlier adjustments for loss had been made.

Index to Financial Statements

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

The following table shows selected historical combined financial and operating data of our predecessor for accounting purposes, and summary pro forma combined financial and operating data of Rose Rock Midstream, L.P. for the periods and as of the dates indicated. The selected historical combined financial data of our predecessor as of December 31, 2009 and 2010 and for the year ended December 31, 2008, the eleven months ended November 30, 2009, the one month ended December 31, 2009 and the year ended December 31, 2010 are derived from the audited combined financial statements of our predecessor included elsewhere in this prospectus. The selected historical combined balance sheet data of our predecessor as of November 30, 2009 are derived from the audited combined financial statements of our predecessor not included in this prospectus. The selected historical combined balance sheet data of our predecessor as of December 31, 2008 are derived from unaudited combined financial statements of our predecessor not included in this prospectus. The selected historical combined financial data of our predecessor as of December 31, 2006 and 2007 and for the years ended December 31, 2006 and 2007 are derived from the unaudited combined financial statements of our predecessor not included in this prospectus. The selected historical combined financial data of our predecessor as of March 31, 2011 and for the three months ended March 31, 2010 and 2011 are derived from the unaudited combined interim financial statements of our predecessor included elsewhere in this prospectus. The following table should be read together with, and is qualified in its entirety by reference to, the audited and unaudited historical and unaudited pro forma combined financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For ease of reference, we refer to the historical financial data of our predecessor as being “our” historical financial data.

The selected pro forma combined financial data presented in the following table for the year ended December 31, 2010 and as of and for the three months ended March 31, 2011 are derived from the unaudited pro forma combined financial statements of Rose Rock Midstream, L.P. included elsewhere in this prospectus. The pro forma balance sheet data were prepared assuming that the offering and the related transactions occurred as of March 31, 2011, and the pro forma statement of operations data were prepared assuming that the offering and the related transactions occurred as of January 1, 2010. These transactions include, and the pro forma financial data give effect to, the following:

•

the elimination of Eaglwing, L.P., which is included in the historical combined financial statements of our predecessor, but which will not be contributed to us;

•

SemGroup’s contribution to us of 100% of the limited and general partner interests in SemCrude, L.P., which owns all of our initial assets;

•

our issuance to SemGroup of common units, subordinated units and a 2% general partner interest and our issuance to the public of common units;

•

the application of the net proceeds of this offering as described under “Use of Proceeds”;

•

our entry into our new $ million revolving credit facility; and

•

the allocation by SemGroup to us of certain corporate overhead expenses that were not allocated to our predecessor.

Index to Financial Statements

On July 22, 2008, SemGroup and certain subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Later during 2008, certain other U.S. subsidiaries filed petitions for reorganization. During the reorganization process, SemGroup filed a Plan of Reorganization with the court, which was confirmed on October 28, 2009. 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 emerged from bankruptcy on November 30, 2009. As described in the notes to the financial statements included in this prospectus, on November 30, 2009, SemGroup applied fresh-start accounting, whereby its assets, liabilities and new capital structure were adjusted to reflect their estimated fair value as of November 30, 2009. As a result, the financial data of our predecessor prior to November 30, 2009 are not comparable to the financial data of our predecessor on and after November 30, 2009.

Index to Financial Statements


	Predecessor Historical (Prior to Emergence)												Predecessor Historical (Subsequent to Emergence)											Rose Rock Midstream, L.P. Pro Forma
	Year Ended December 31, 2006			Year Ended December 31, 2007			Year Ended December 31, 2008			Eleven Months Ended November 30, 2009			Month Ended December 31, 2009			Year Ended December 31, 2010			Three Months Ended March 31, 2010			Three Months Ended March 31, 2011		Year Ended December 31, 2010			Three Months Ended March 31, 2011
																			(Unaudited)					(Unaudited)
	(In thousands, except per unit and operating data)
Statement of operations data:
Revenues(1):
Product	$	5,609,866		$	3,152,563		$	3,010,645		$	197,203		$	6,724		$	158,308		$	40,475		$	74,257	$	158,308		$	74,257
Service		20,141			22,521			19,129			40,281			3,891			49,408			12,707			9,423		49,408			9,423
Other		1,433			1,013			10			3			—			365			—			111		365			111

Total revenues		5,631,440			3,176,097			3,029,784			237,487			10,615			208,081			53,182			83,791		208,081			83,791
Expenses(1):
Costs of products sold, exclusive of depreciation and amortization shown below		5,461,259			3,430,889			3,685,594			180,154			5,969			146,614			38,414			66,000		146,614			66,000
Operating(2)		(4,822	)		62,179			298,874			15,614			1,536			20,398			5,157			4,664		20,398			4,664
General and administrative		45,317			69,134			33,841			5,813			1,270			7,660			2,481			2,357		9,160			2,735
Depreciation and amortization		9,030			6,860			2,995			3,193			818			10,435			2,469			2,683		10,435			2,683

Total expenses		5,510,784			3,569,062			4,021,304			204,774			9,593			185,107			48,521			75,704		186,607			76,082

Operating income (loss)		120,656			(392,965	)		(991,520	)		32,713			1,022			22,974			4,661			8,087		21,474			7,709
Other expenses (income):
Interest expense		2,910			3,589			2,907			1,699			43			482			73			483		1,332			696
Other expense (income), net		(7,696	)		(2,713	)		(806	)		(1,602	)		(306	)		(985	)		(727	)		—		(951	)		—

Total other expenses (income)		(4,786	)		876			2,101			97			(263	)		(503	)		(654	)		483		381			696

Income (loss) before reorganization items		125,442			(393,841	)		(993,621	)		32,616			1,285			23,477			5,315			7,604		21,093			7,013
Reorganization items gain (loss)(1)		—			—			(94,424	)		99,936			—			—			—			—		—			—

Net income (loss)	$	125,442		$	(393,841	)	$	(1,088,045	)	$	132,552		$	1,285		$	23,477		$	5,315		$	7,604	$	21,093		$	7,013

Net income (loss) per common unit (basic and diluted)																								$			$

Net income (loss) per subordinated unit (basic and diluted)																								$			$

Index to Financial Statements


	Predecessor Historical (Prior to Emergence)												Predecessor Historical (Subsequent to Emergence)												Rose Rock Midstream, L.P. Pro Forma
	Year Ended December 31, 2006			Year Ended December 31, 2007			Year Ended December 31, 2008			Eleven Months Ended November 30, 2009			Month Ended December 31, 2009			Year Ended December 31, 2010			Three Months Ended March 31, 2010			Three Months Ended March 31, 2011			Year Ended December 31, 2010		Three Months Ended March 31, 2011
																			(Unaudited)						(Unaudited)
	(In thousands, except per unit and operating data)
Statement of cash flows data:
Net cash provided by (used in):
Operating activities	$	28,158		$	(246,782	)	$	(56,164	)	$	58,931		$	2,088		$	31,492		$	19,015		$	25,173
Investing activities		35,597			(37,719	)		58,836			(34,490	)		(2,047	)		(16,723	)		(1,972	)		(1,525	)
Financing activities		(38,073	)		266,068			(27,931	)		(23,426	)		(1,056	)		(14,466	)		2,625			(23,951	)
Other financial data:
Adjusted gross margin	$	358,962		$	388,666		$	(150,428	)	$	57,079		$	4,364		$	62,230		$	14,852		$	16,202		$	62,230	$	16,202
Adjusted EBITDA		255,146			260,045			(509,975	)		(40,412	)		1,864			38,564			9,087			8,883			37,030		8,505
Capital expenditures		30,799			37,856			76,192			34,530			2,047			16,732			1,972			1,528
Balance sheet data (at period end):
Property, plant and equipment, net	$	133,522		$	80,357		$	82,346		$	252,477		$	253,706		$	260,048		$	253,218		$	256,261				$	256,261
Total assets		1,117,714			1,340,110			771,797			298,799			297,949			357,131			316,828			364,472					290,014
Total long-term debt		—			—			—			—			—			—			—			—					3,300
Net parent equity (deficit)		207,639			(131,744	)		(1,136,417	)		280,370			280,214			289,988			288,682			273,352					195,838
Operating data:
Cushing storage capacity (MMBbls as of period end)														3.9			4.7			4.2			4.7
Percent of Cushing capacity contracted (as of period end)														100	%		95	%		98	%		95	%
Transportation volumes (Average Bpd)(3)														24,300			26,600			21,300			34,500
Marketing volumes (Average Bpd)														2,100			15,800			12,200			10,300
Unloading/Platteville volumes (Average Bpd)														21,700			25,800			24,100			29,300

(1)	For a discussion of items impacting our predecessor, see Note 12 to our audited combined financial statements for the year ended December 31, 2010 and Note 5 to our unaudited interim combined financial statements for the three months ended March 31, 2011.

(2)	During the year ended December 31, 2006, operating expense was reduced by a gain of approximately $71.0 million on the sale of long-lived assets.

(3)	Includes fee-based services and fixed-margin transactions.

Index to Financial Statements

Non-GAAP Financial Measures

In addition, adjusted EBITDA is used as a liquidity measure to assess:

•

the ability of our assets to generate sufficient cash flow to make distributions to our partners;

•

our ability to incur and service debt and fund capital expenditures; and

•

the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Index to Financial Statements


	Predecessor Historical (Prior to Emergence)												Predecessor Historical (Subsequent to Emergence)												Rose Rock Midstream, L.P. Pro Forma
	Year Ended December 31, 2006			Year Ended December 31, 2007			Year Ended December 31, 2008			Eleven Months Ended November 30, 2009			Month Ended December 31, 2009			Year Ended December 31, 2010			Three Months Ended March 31, 2010			Three Months Ended March 31, 2011			Year Ended December 31, 2010			Three Months Ended March 31, 2011
	(Unaudited; in thousands)
Reconciliation of adjusted gross margin to net income (loss):
Net income (loss)	$	125,442		$	(393,841	)	$	(1,088,045	)	$	132,552		$	1,285		$	23,477		$	5,315		$	7,604		$	21,093		$	7,013
Add:
Unrealized (gain) loss on derivatives		188,781			643,458			505,382			(254	)		(282	)		763			84			(1,589	)		763			(1,589	)
Operating expense		(4,822	)		62,179			298,874			15,614			1,536			20,398			5,157			4,664			20,398			4,664
General and administrative expense		45,317			69,134			33,841			5,813			1,270			7,660			2,481			2,357			9,160			2,735
Interest expense		2,910			3,589			2,907			1,699			43			482			73			483			1,332			696
Depreciation and amortization expense		9,030			6,860			2,995			3,193			818			10,435			2,469			2,683			10,435			2,683
Other expense (income)		(7,696	)		(2,713	)		(806	)		(1,602	)		(306	)		(985	)		(727	)		—			(951	)		—
Reorganization items (gain) loss		—			—			94,424			(99,936	)		—			—			—			—			—			—

Adjusted gross margin	$	358,962		$	388,666		$	(150,428	)	$	57,079		$	4,364		$	62,230		$	14,852		$	16,202		$	62,230		$	16,202

Reconciliation of adjusted EBITDA to net income (loss):
Net income (loss)	$	125,442		$	(393,841	)	$	(1,088,045	)	$	132,552		$	1,285		$	23,477		$	5,315		$	7,604		$	21,093		$	7,013
Add:
Interest expense		2,910			3,589			2,907			1,699			43			482			73			483			1,332			696
Income tax expense (benefit)		—			—			—			—			—			—			—			—			—			—
Depreciation and amortization		9,030			6,860			2,995			3,193			818			10,435			2,469			2,683			10,435			2,683
Unrealized (gain) loss on derivatives		188,781			643,458			505,382			(254	)		(282	)		763			84			(1,589	)		763			(1,589	)
(Gain) loss on impairment or sale of assets		(70,961	)		49			2,901			(40	)		—			67			43			2			67			2
Non-cash reorganization items		—			—			63,896			(24,682	)		—			—			—			—			—			—
Provision for uncollectible accounts receivable		(56	)		(70	)		(11	)		—			—			3,340			1,103			(300	)		3,340			(300	)
Adjustments for plan effects and fresh start accounting		—			—			—			(152,880	)		—			—			—			—			—			—

Adjusted EBITDA	$	255,146		$	260,045		$	(509,975	)	$	(40,412	)	$	1,864		$	38,564		$	9,087		$	8,883		$	37,030		$	8,505

Reconciliation of adjusted EBITDA to net cash provided by (used in) operating activities:
Net cash provided by (used in) operating activities	$	28,158		$	(246,782	)	$	(56,164	)	$	58,931		$	2,088		$	31,492		$	19,015		$	25,173
Less:
Changes in assets and liabilities, net of acquisitions and deconsolidated subsidiaries		(224,078	)		(503,238	)		456,718			101,042			267			(6,590	)		10,001			16,773
Add:
Interest expense		2,910			3,589			2,907			1,699			43			482			73			483

Adjusted EBITDA	$	255,146		$	260,045		$	(509,975	)	$	(40,412	)	$	1,864		$	38,564		$	9,087		$	8,883

Index to Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of the financial condition and results of operations of our predecessor and its subsidiaries in conjunction with the historical combined financial statements and related notes of our predecessor included elsewhere in this prospectus. Among other things, those financial statements and the related notes include more detailed information regarding the basis of presentation for the following information.

Overview

For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 81% and 74% of our adjusted gross margin, respectively, was generated from fee-based services or fixed-margin transactions. For a definition of adjusted gross margin and a reconciliation of adjusted gross margin to net income (loss), its most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States, or GAAP, please see “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

How We Evaluate Our Operations

Our management uses a variety of financial and operational metrics to analyze our performance. We view these metrics as important factors in evaluating our profitability and review these measurements on at least a monthly basis for consistency and trend analysis. These metrics include financial measures, including adjusted gross margin, operating expenses and adjusted EBITDA, and operating data, including contracted storage capacity and transportation, marketing and unloading volumes.

Adjusted Gross Margin

We view adjusted gross margin as an important performance measure of the core profitability of our operations, as well as our operating performance as compared to that of other companies in our industry, without regard to financing methods, historical cost basis, capital structure or the impact of fluctuating commodity prices. We define adjusted gross margin as total revenues minus cost of products sold and unrealized gain (loss) on derivatives. Adjusted gross margin allows us to make a meaningful comparison of the operating results between our fee-based activities, which do not involve the purchase or sale of crude oil, and our fixed-margin and marketing operations, which do. In particular, adjusted gross margin provides a way to compare the actual transportation fee received under fixed-fee contracts with the effective transportation fee realized through a fixed-margin transaction. In addition, adjusted gross margin allows us to make a meaningful comparison of the results of our fixed-margin and marketing operations across different commodity price environments because it measures the spread between the product sales price and cost of products sold. See “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Index to Financial Statements

Contracted Storage Capacity and Transportation, Marketing and Unloading Volumes

In our Cushing storage operations, we charge our customers a fee for storage capacity provided, regardless of actual usage. On our Kansas and Oklahoma system, we provide transportation services on a fee basis or pursuant to fixed-margin transactions, but in either case, the adjusted gross margin we generate is dependent on the volumes of crude oil transported (if on a fee basis) or purchased and sold (if pursuant to a fixed-margin transaction). We refer to these volumes, in the aggregate, as transportation volumes. Similarly, on our Kansas and Oklahoma system and through our Bakken Shale operations, we conduct marketing activities involving the purchase and sale of crude oil or related derivative contracts. We refer to the crude oil volumes purchased and sold in our marketing operations as marketing volumes. Finally, at our Platteville truck unloading facility, we charge our customers a fee based on the volumes unloaded.

Operating Expenses

Our management seeks to maximize the profitability of our operations in part by minimizing operating expenses. These expenses are comprised of salary and wage expense, utility costs, insurance premiums, taxes and other operating costs, some of which are independent of the volumes we handle.

The current high levels of crude oil exploration, development and production activities are increasing competition for personnel and equipment. This increased competition is placing upward pressure on the prices we pay for labor, supplies and miscellaneous equipment. To the extent we are unable to procure necessary services or offset higher costs, our operating results will be negatively impacted.

Adjusted EBITDA

We define adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit), depreciation and amortization and any non-cash adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities. We use adjusted EBITDA as a supplemental performance and liquidity measure to assess:

•

our operating performance as compared to that of other companies in our industry, without regard to financing methods, historical cost basis, capital structure or the impact of fluctuating commodity prices;

•

the ability of our assets to generate sufficient cash flow to make distributions to our partners;

•

our ability to incur and service debt and fund capital expenditures; and

•

the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Note About Non-GAAP Financial Measures

Adjusted gross margin and adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial condition and results of operations.

Net income (loss) is the GAAP measure most directly comparable to adjusted gross margin, and net income (loss) and cash provided by (used in) operating activities are the GAAP measures most directly comparable to adjusted EBITDA. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool because it excludes some but not all items that affect the most directly comparable GAAP financial measure. You should not consider adjusted gross margin or adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because adjusted gross margin and adjusted EBITDA may be defined differently by other companies in our industry, our definitions of these

Index to Financial Statements

non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Management compensates for the limitations of adjusted gross margin and adjusted EBITDA as analytical tools by reviewing the comparable GAAP measures, understanding the differences between adjusted gross margin and adjusted EBITDA, on the one hand, and net income (loss) and net cash provided by (used in) operating activities, 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 measures that our management uses in evaluating our operating results.

How We Generate Adjusted Gross Margin

We generate adjusted gross margin by providing fee-based services, by entering into fixed-margin transactions and through marketing activities. Revenues from our fee-based services are included in service revenues, and revenues from our fixed-margin and marketing activities are including in product revenues.

Fee-Based Services

We charge a capacity or volume-based fee for the unloading, transportation and storage of crude oil and related ancillary services. Our fee-based services include substantially all of our operations in Cushing and Platteville and a portion of the transportation services we provide on our Kansas and Oklahoma pipeline system. Some of our fee-based contracts are take-or-pay contracts whereby the customer is required to pay us a fixed minimum monthly fee regardless of usage. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 75% and 59% of our adjusted gross margin, respectively, was generated by providing fee-based services to customers.

Fixed-Margin Transactions

We purchase crude oil from a producer or supplier at a designated receipt point at an index price less a transportation fee, and simultaneously sell an identical volume of crude oil at a designated delivery point to the same party at the same index price, thereby locking in a fixed margin that is in effect economically equivalent to a transportation fee. We refer to these arrangements as “fixed-margin” or “buy/sell” transactions. These fixed-margin transactions account for a portion of the adjusted gross margin we generate on our Kansas and Oklahoma pipeline system and through our Bakken Shale operations. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 6% and 15% of our adjusted gross margin, respectively, was generated through fixed margin transactions.

Marketing Activities

We conduct marketing activities by purchasing crude oil for our own account from producers, aggregators and traders and selling crude oil to traders and refiners. Our marketing activities account for a portion of the adjusted gross margin we generate on our Kansas and Oklahoma pipeline system and through our Bakken Shale operations. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 19% and 26% of our adjusted gross margin, respectively, was generated through marketing activities.

We mitigate the commodity price exposure of our crude oil marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of crude oil to create “back-to-back” transactions intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts. All of our marketing activities are subject to our comprehensive risk management policy, which establishes limits to manage risk and mitigate financial exposure. See “Business—Risk Governance and Comprehensive Risk Management Policy” for more information on our Comprehensive Risk Management Policy.

Index to Financial Statements

More specifically, we utilize futures and swap contracts to manage our exposure to market changes in commodity prices, to protect our adjusted gross margin on our purchased crude oil and to manage our liquidity risk associated with margin deposit requirements on our overall derivative positions. As we purchase inventory from suppliers, we may establish a fixed or variable margin with future sales by:

•

selling a like quantity of crude oil for future physical delivery to create an effective back-to-back transaction; or

•

entering into futures and swaps contracts on the NYMEX or over-the-counter markets.

Items Affecting the Comparability of Our Financial Results

Our future results of operations may not be comparable to our historical results of operations for the reasons described below:

•

On July 22, 2008, SemGroup and certain of its U.S. subsidiaries, including our predecessor, filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On November 30, 2009, SemGroup emerged from bankruptcy as a newly reorganized company. As a result, we applied fresh- start reporting on November 30, 2009. We recorded individual assets and liabilities based on their fair values at November 30, 2009, using the assistance of a valuation advisor to determine the values of certain assets. As a result of these factors (the bankruptcy and fresh-start reporting) and other factors, our post-emergence financial statements are not comparable with our pre-emergence financial statements for 2008 and the first eleven months of 2009. Due to the effect of the bankruptcy on our financial statements, we present comparisons of our results of operations for (i) the year ended December 31, 2010 versus the eleven months ended November 30, 2009, (ii) December 2009 versus the average of the eleven months ended November 30, 2009 and (iii) the eleven months ended November 30, 2009 versus the year ended December 31, 2008.

•

Prior to our emergence from bankruptcy on November 30, 2009, we were allocated a portion of the interest expense for indebtedness incurred by SemGroup, but after our emergence, we have only been allocated interest expense for outstanding letters of credit.

•

Prior to December 2010, our Bakken Shale operations were conducted through a different SemGroup subsidiary, so they are not reflected in our historical results of operations prior to that month.

•

We estimate that we will incur $1.5 million of incremental general and administrative expenses resulting from SemGroup’s allocation of additional overhead to us upon completion of this offering, primarily relating to financial reporting and legal expenses and corporate services. In addition, we expect to incur further incremental general and administrative expenses of approximately $2.3 million as a result of operating as a publicly traded partnership, such as expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance expenses; expenses associated with listing on the NYSE; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees; and director and officer insurance expenses. None of these incremental general and administrative expenses are reflected in the historical combined financial statements of our predecessor, although the $1.5 million of incremental allocated general and administrative expenses is reflected in our unaudited pro forma financial statements.

•

Our business model changed dramatically from 2008 to 2009 as we shifted away from trading activities toward a business heavily weighted in fee-based services and fixed-margin transactions. Until July 2008, we engaged in significant crude oil marketing activities and substantially all of our revenues and costs of goods sold were associated with the purchase and sale of crude oil. During SemGroup’s bankruptcy in 2008, we no longer had access to the working capital necessary to continue this crude oil marketing business, and we abandoned this business model in or about July 2008.

Index to Financial Statements

General Trends and Outlook

We expect our business to continue to be affected by the key trends discussed below. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.

Commodity Prices

Our fee-based operations have minimal direct exposure to commodity prices. With respect to our fixed-margin and marketing operations, increases or decreases in commodity prices will directly affect revenues generated and the cost of products sold, but generally have significantly lesser impact on adjusted gross margin. As a result, our fixed-margin and marketing operations are generally not directly affected by the absolute level of crude oil prices, but are affected by overall levels of the supply of and demand for crude oil and relative fluctuations in market-related indices. However, to the extent that we do not enter into “back-to-back” purchase and sale transactions, our marketing operations have direct exposure to commodity price volatility.

All of our operations are indirectly affected by commodity prices. Crude oil prices have been highly volatile in the past, and we expect that volatility to continue. The demand for storage capacity results in part from our customers’ desire to have the ability to take advantage of profit opportunities created by volatility in the price of crude oil. The lack of a contango market for crude oil (when the prices for future deliveries are higher than the current prices) negatively affects the demand for our storage assets because the margin between crude oil futures prices relative to spot prices may not cover the cost of purchasing crude oil and holding it in storage. On the other hand, increased volatility in crude oil prices increases the value of these assets by increasing the option value of crude oil stored. Further, the higher the level of absolute crude oil prices, the higher the costs of financing and insuring crude oil in storage, which negatively affects storage economics. Changes in crude oil prices may also indirectly impact the volumes of crude oil we gather, transport and market.

Recently, Cushing has experienced a shortfall in takeaway pipeline capacity, which has been cited as a principal reason for the decline in price of the WTI Index compared to other crude oil price indices. We believe that if and when any of several planned takeaway pipeline expansion projects are completed, this price differential will narrow and Cushing will remain the predominant benchmarking and transportation hub for crude oil in the United States. Please read “Industry Overview—Overview of Cushing.”

Interest Rates

The credit markets recently have experienced near-record lows in interest rates. If the overall economy strengthens, it is likely that monetary policy will tighten, resulting in higher interest rates to counter possible inflation. If this occurs, interest rates on floating rate credit facilities and future offerings in the debt capital markets could be higher than current levels, causing our financing costs to increase accordingly.

In addition, there is a financing cost for the storage capacity user to carry the cost of the inventory while it is stored in the facility. That financing cost is impacted by the cost of capital or interest rate incurred by the storage user as well as the commodity cost of the crude oil in inventory. The higher the financing cost, the lower the margin that will be left over from the price spread that was intended to be captured. Accordingly, a significant increase in interest rates could impact the demand for storage capacity independent of other market fundamentals.

Index to Financial Statements

Our implied distribution yield is a product of our unit price and the level of our cash distributions. The distribution yield is often used by investors to compare and rank related yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our common units, and a rising interest rate environment could have an adverse impact on our unit price and our ability to issue additional equity to make acquisitions, reduce debt or for other purposes.

Results of Operations

Three Months Ended March 31, 2011 Versus Three Months Ended March 31, 2010


	Predecessor
	Three Months Ended March 31, 2010			Three Months Ended March 31, 2011
	(Unaudited; in thousands)
Statement of operations data:
Revenues:
Product	$	40,475		$	74,257
Service		12,707			9,423
Other		—			111

Total revenues		53,182			83,791
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		38,414			66,000
Operating		5,157			4,664
General and administrative		2,481			2,357
Depreciation and amortization		2,469			2,683

Total expenses		48,521			75,704

Operating income		4,661			8,087
Other expenses (income):
Interest expense		73			483
Other expense(income), net		(727	)		—

Total other expenses (income)		(654	)		483

Income before reorganization items		5,315			7,604
Reorganization items gain (loss)		—			—

Net income	$	5,315		$	7,604

Adjusted gross margin(1)	$	14,852		$	16,202

(1)	For a definition of adjusted gross margin and a reconciliation to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Index to Financial Statements

Revenue

Revenue increased in the three months ended March 31, 2011 to $84 million from $53 million in the three months ended March 31, 2010.


	Predecessor
	Three Months Ended March 31, 2010			Three Months Ended March 31, 2011
	(Unaudited; in thousands)
Gross product revenue	$	86,554		$	210,376
Nonmonetary transaction adjustment(1)		(45,995	)		(137,708	)
Net unrealized gain (loss) on derivatives		(84	)		1,589

Product revenue		40,475			74,257
Service revenue		12,707			9,423
Other		—			111

Total revenue	$	53,182		$	83,791

(1)

Accounting Standards Codification (ASC) 845-10-15, “Nonmonetary Transactions,” requires transactions in which inventory is purchased from a customer and then resold to the same customer to be presented in the income statement on a net basis. This results in an equal reduction of product revenue and costs of products sold, but has no effect on operating income (loss). However, changes in the level of such purchase and sale activity between periods can have an effect on the comparison between those periods.

Product revenue increased in the three months ended March 31, 2011 to $74 million from $40 million in three months ended March 31, 2010. The increase was primarily a result of a shift in our Kansas and Oklahoma operations from fee-based transportation agreements, which are not included in product revenues, to fixed-margin transactions, which are included in product revenues. The increase was also due to an increase in the average sales price of crude oil to $91 per barrel for the three months ended March 31, 2011 from $76 per barrel for the same period in 2010.

Gross product revenue was reduced by $138 million and $46 million during the three months ended March 31, 2011 and 2010, respectively, in accordance with ASC 845-10-15.

Service revenue decreased in the three months ended March 31, 2011 to $9 million from $13 million from the three months ended March 31, 2010. The decrease in service revenue was primarily due to a shift in our Kansas and Oklahoma operations to fixed-margin transactions, which are not included in service revenues, from fee-based agreements, which are included in service revenues.

Costs of Products Sold

Costs of products sold increased in the three months ended March 31, 2011 to $66 million from $38 million in the three months ended March 31, 2010. Costs of products sold reflected reductions of $138 million and $46 million in the three months ended March 31, 2011 and 2010, respectively, in accordance with ASC 845-10-15. Costs of products sold increased due to the shift from fee-based transportation agreements to fixed-margin transactions, as described above. The increase was also due to an increase in the average cost of crude oil per barrel to $87 from $74 per barrel for the same period in 2010.

Index to Financial Statements

Adjusted Gross Margin

We define adjusted gross margin as total revenues minus costs of products sold and unrealized gain (loss) on derivatives. Adjusted gross margin increased in the three months ended March 31, 2011 to $16 million from $15 million in the three months ended March 31, 2010, due to:

•

a decrease in adjusted gross margin from our storage operations due to a decrease in our average storage rate by $0.06 per barrel for the three months ended March 31, 2011 compared to the three months ended March 31, 2010, as well as the expiration of the recognition of deferred revenues attributable to a prepaid contract in January 2011, partially offset by an increase in contracted storage capacity;

•

a slight decrease in adjusted gross margin attributable to our fee-based and fixed-margin transportation operations due to an increase in short-haul volumes, leading to a decrease in average transportation rates;

•

an increase in adjusted gross margin from our marketing operations resulting from a higher spread between the purchase and sale price for volumes of crude oil sold, as the difference in our average sales price per barrel over the cost per barrel increased to $4 per barrel from $2 per barrel, partially offset by fewer marketing volumes sold; and

•

an increase in adjusted gross margin from our Platteville operations resulting from increased unloading volumes.

Operating Expense

Operating expense remained relatively unchanged for both the three months ended March 31, 2011 and the three months ended March 31, 2010, although operating expenses for the three months ended March 31, 2011 were reduced due to a partial recovery made on a previously written-off account receivable.

General and Administrative Expense

General and administrative expense remained relatively unchanged for both the three months ended March 31, 2011 and the three months ended March 31, 2010.

Depreciation and Amortization

Depreciation and amortization expense remained relatively unchanged for both the three months ended March 31, 2011 and the three months ended March 31, 2010.

Index to Financial Statements

Year Ended December 31, 2010 Versus Eleven Months Ended November 30, 2009

Our results of operations for the year ended December 31, 2010 were generally affected by the additional month of operations included in the year ended December 31, 2010 when compared to the eleven months ended November 30, 2009. This is in addition to any other factors described below.


	Predecessor
	Prior to Emergence			Subsequent to Emergence
	Eleven Months Ended November 30, 2009			Year Ended December 31, 2010
	(Unaudited; in thousands)
Statement of operations data:
Revenues:
Product	$	197,203		$	158,308
Service		40,281			49,408
Other		3			365

Total revenues		237,487			208,081
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		180,154			146,614
Operating		15,614			20,398
General and administrative		5,813			7,660
Depreciation and amortization		3,193			10,435

Total expenses		204,774			185,107

Operating income		32,713			22,974
Other expenses (income):
Interest expense		1,699			482
Other expense(income), net		(1,602	)		(985	)

Total other expenses (income)		97			(503	)

Income before reorganization items		32,616			23,477
Reorganization items gain (loss)		99,936			—

Net income	$	132,552		$	23,477

Adjusted gross margin(1)	$	57,079		$	62,230

(1)	For a definition of adjusted gross margin and a reconciliation to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Index to Financial Statements

Revenue

Revenue decreased in 2010 to $208 million from $237 million in the eleven months ended November 30, 2009.


	Predecessor
	Prior to Emergence			Subsequent to Emergence
	Eleven Months Ended November 30, 2009			Year Ended December 31, 2010
	(Unaudited; in thousands)
Gross product revenue	$	383,937		$	556,518
Nonmonetary transaction adjustment		(186,988	)		(397,447	)
Net unrealized gain (loss) on derivatives		254			(763	)

Product revenue		197,203			158,308
Service revenue		40,281			49,408
Other		3			365

Total revenue	$	237,487		$	208,081

Product revenue decreased in 2010 to $158 million from $197 million in the eleven months ended November 30, 2009. The average sales price of crude oil increased to $79 per barrel for the year ended December 31, 2010 from $58 per barrel for the eleven months ended November 30, 2009. In accordance with ASC 845-10-15, gross product revenue was reduced by $397 million and $187 million in 2010 and the eleven months ended November 30, 2009, respectively.

Service revenue increased in 2010 to $50 million from $40 million in the eleven months ended November 30, 2009 primarily due to the completion of additional storage expansion projects.

Costs of Products Sold

Costs of products sold decreased in 2010 to $147 million from $180 million in the eleven months ended November 30, 2009. Costs of products sold reflected reductions of $397 million and $187 million in 2010 and the eleven months ended November 30, 2009, respectively, in accordance with ASC 845-10-15. The average cost per barrel of crude oil increased to $76 per barrel for the year ended December 31, 2010 from $55 per barrel for the eleven months ended November 30, 2009.

Adjusted Gross Margin

Adjusted gross margin increased in 2010 to $62 million from $57 million in the eleven months ended November 30, 2009, due to:

•

an increase in adjusted gross margin from our storage operations due to an increase in contracted storage capacity to approximately 4.5 million barrels as of December 31, 2010 from approximately 3.9 million barrels as of November 30, 2009;

•

a decrease in adjusted gross margin from transportation due to a reduction in truck transportation revenue received from SemCanada Crude Company. For a period in 2010, SemCanada Crude Company assumed responsibility for their own trucking;

•

a decrease in adjusted gross margin from marketing due to approximately $3.9 million realized from a contango strategy in the eleven months ended November 30, 2009 that was not continued in 2010; and

•

an increase in adjusted gross margin at Platteville due to the inclusion of a full year of operations. Platteville began operations in June 2009.

Index to Financial Statements

Operating Expense

Operating expense increased in 2010 to $20 million from $16 million in the eleven months ended November 30, 2009. The increase was due primarily to bad debt expense of $3.3 million related to a customer that declared bankruptcy.

General and Administrative Expense

General and administrative expense increased in 2010 to $8 million from $6 million in the eleven months ended November 30, 2009. The increase was due primarily to the recognition of incentive compensation and restricted stock expense in general and administrative expense. During bankruptcy, certain costs related to the governance of our predecessor were classified as reorganization items. After emergence, such costs were classified as general and administrative expenses.

Depreciation and Amortization

Depreciation and amortization expense increased in 2010 to $10 million from $3 million in the eleven months ended November 30, 2009. This increase was due primarily to higher depreciation as a result of higher fixed asset values which were recorded as part of fresh-start reporting.

Index to Financial Statements

December 2009 Versus Average of Eleven Months Ended November 30, 2009

We desire to provide a meaningful comparison of our results of operations for December 2009 to those for the eleven months ended November 30, 2009. In order to make this comparison as useful as possible, we have based the comparison on the monthly average for the eleven months ended November 30, 2009. In this way, any significant changes from the average can be identified and become the subject of explanation.


	Predecessor
	Prior to Emergence		Subsequent to Emergence
	Average of Eleven Months Ended November 30, 2009		Month Ended December 31, 2009
	(Unaudited; in thousands)
Statement of operations data:
Revenues:
Product	$	17,928	$	6,724
Service		3,662		3,891
Other		—		—

Total revenues		21,590		10,615
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		16,378		5,969
Operating		1,420		1,536
General and administrative		528		1,270
Depreciation and amortization		290		818

Total expenses		18,616		9,593

Operating income		2,974		1,022
Other expenses (income):
Interest expense		155		43
Other expense (income), net		(146)		(306)

Total other expenses (income)		9		(263)

Income before reorganization items		2,965		1,285
Reorganization items gain		9,085		—

Net income	$	12,050	$	1,285

Adjusted gross margin(1)	$	5,189	$	4,364

(1)	For a definition of adjusted gross margin and a reconciliation to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Index to Financial Statements

Revenue

Revenue in December 2009 was approximately 51% less than the average revenue for the eleven months ended November 30, 2009.


	Predecessor
	Prior to Emergence			Subsequent to Emergence
	Average of Eleven Months Ended November 30, 2009			Month Ended December 31, 2009
	(Unaudited; in thousands)
Gross product revenue	$	34,904		$	22,509
Nonmonetary transaction adjustment		(16,999	)		(16,067	)
Net unrealized gain (loss) on derivatives		23			282

Product revenue		17,928			6,724
Service revenue		3,662			3,891
Other		—			—

Total revenue	$	21,590		$	10,615

Product revenue in December 2009 was approximately 62% less than the average revenues for the eleven months ended November 30, 2009, primarily because certain marketing activities that occurred in the first eleven months of 2009 did not occur in December due to the expiration of a third-party lease.

Service revenue in December 2009 was approximately 6% more than the average revenues for the eleven months ended November 30, 2009, primarily due to completion of additional storage expansion projects.

Costs of Products Sold

Costs of products sold in December 2009 were approximately 64% less than the average of the costs of products sold for the eleven months ended November 30, 2009, because certain marketing activities that occurred in the first eleven months of 2009 did not occur in December, as described above.

Adjusted Gross Margin

Adjusted gross margin in December 2009 was approximately 11% less than the average adjusted gross margin for the eleven months ended November 30, 2009, due to the combination of events described in revenue and costs of products sold above.

Operating Expense

Operating expense in December 2009 was approximately 8% higher than the average operating expense for the eleven months ended November 30, 2009.

General and Administrative Expense

General and administrative expense in December 2009 was approximately 140% higher than the average general and administrative expense for the eleven months ended November 30, 2009. During bankruptcy, certain costs related to the reorganization and governance of our predecessor were classified as reorganization items. After emergence from bankruptcy, such costs were classified as general and administrative expenses.

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Depreciation and Amortization

Depreciation and amortization in December 2009 was approximately three times the average depreciation and amortization for the eleven months ended November 30, 2009. The increase reflected higher depreciation as a result of higher fixed asset values which were recorded as part of fresh-start reporting.

Eleven Months Ended November 30, 2009 Versus Year Ended December 31, 2008

Our business model changed dramatically from 2008 to 2009. Please see “—Items Affecting the Comparability of Our Financial Results” above.


	Predecessor (Prior to Emergence)
	Year Ended December 31, 2008			Eleven Months Ended November 30, 2009
	(In thousands)
Statement of operations data:
Revenues, including revenues from affiliates:
Product	$	3,010,645		$	197,203
Service		19,129			40,281
Other		10			3

Total revenues		3,029,784			237,487
Expenses, including expenses from affiliates:
Costs of products sold, exclusive of depreciation and amortization shown below		3,685,594			180,154
Operating		298,874			15,614
General and administrative		33,841			5,813
Depreciation and amortization		2,995			3,193

Total expenses		4,021,304			204,774

Operating income (loss)		(991,520	)		32,713
Other expenses (income):
Interest expense		2,907			1,699
Other expense(income), net		(806	)		(1,602	)

Total other expenses (income)		2,101			97

Income (loss) before reorganization items		(993,621	)		32,616
Reorganization items gain (loss), including expenses allocated from affiliates		(94,424	)		99,936

Net income (loss)	$	(1,088,045	)	$	132,552

Adjusted gross margin(1)	$	(150,428	)	$	57,079

(1)	For a definition of adjusted gross margin and a reconciliation to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical Financial and Operating Data—Non-GAAP Financial Measures.”

Index to Financial Statements

Revenue

Revenue declined in the eleven months ended November 30, 2009 to $237 million from $3,030 million in 2008, and product revenue declined in the eleven months ended November 30, 2009 to $197 million from $3,011 million in 2008. These declines reflected the change in our business model described above. The focus on storage was enhanced when 4.2 million barrels of new Cushing storage capacity was placed in service between February 2009 and January 2010. Service revenues increased in the eleven months ended November 30, 2009 to $40 million from $19 million in 2008 as a result of the change in our business model described above.

Costs of Products Sold

Costs of products sold declined in the eleven months ended November 30, 2009 to $180 million from $3,686 million in 2008. This decline was due to the shift from an emphasis on marketing and trading to a focus on transportation and storage described above.

Adjusted Gross Margin

Adjusted gross margin increased in the eleven months ended November 30, 2009 to $57 million from $(150) million in 2008 due to the combination of events described in revenue and costs of products sold above.

Operating Expense

Operating expense declined in the eleven months ended November 30, 2009 to $16 million from $299 million in 2008. This decline was due primarily to a write off of an account receivable in 2008 valued at $285 million. For additional information relating to the write off of this account receivable, refer to Note 13 of our audited financial statements included elsewhere in this prospectus.

General and Administrative Expense

General and administrative expense decreased in the eleven months ended November 30, 2009 to $6 million from $34 million in 2008. This decline was due primarily to a decrease in the allocation of corporate overhead, reflecting a sharp drop in corporate overhead following bankruptcy.

Depreciation and Amortization

Depreciation and amortization remained relatively unchanged for both the eleven months ended November 30, 2009 and the year ended December 31, 2008.

Liquidity and Capital Resources

Following the closing of this offering, we expect our sources of liquidity to include:

•

cash generated from operations;

•

borrowings under our new credit facility; and

•

issuances of debt and equity securities.

We believe that the cash generated from these sources will be sufficient to allow us to distribute the minimum quarterly distribution on all of our outstanding common, subordinated and general partner units and meet our requirements for working capital and capital expenditures for the foreseeable future.

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Working Capital

Working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. Our working capital was $16 million, $29 million and $25 million at March 31, 2011, December 31, 2010 and December 31, 2009, respectively.

Cash Flows

Operating Activities. We experienced operating cash inflows of $25 million during the three months ended March 31, 2011. Net income of $8 million included $1 million of non-cash expenses. The primary non-cash expense was $3 million of depreciation, which was partially offset by $2 million of unrealized gains on derivatives. Changes in working capital increased operating cash flows by $17 million.

We experienced operating cash inflows of $31 million during the year ended December 31, 2010. Net income of $23 million included $14 million of non-cash expenses, and we used $6 million of cash for working capital.

We experienced operating cash inflows of $2 million during the month ended December 31, 2009. Net income of $1 million included $1 million of non-cash expenses.

We experienced operating cash inflows of $59 million during the eleven months ended November 30, 2009. Net income of $133 million included non-cash income (net of non-cash expenses) of $174 million, including a $153 million gain upon adoption of fresh-start reporting. We generated $101 million of cash from the reduction of working capital, which was due in part to the resolution of disputes with customers who had contested receivables. Many of these receivables were collected or written off during the eleven months ended November 30, 2009.

We experienced operating cash outflows of $56 million during the year ended December 31, 2008. We experienced a net loss of $1.1 billion; however, we filed for bankruptcy protection during 2008, and as a result, certain obligations to make payments to creditors were stayed.

Investing Activities. Our cash outflows from investing activities related primarily to capital expenditures of $2 million for each of the three months ended March 31, 2011 and 2010, $17 million for the year ended December 31, 2010, $2 million for the month ended December 31, 2009, $34 million for the eleven months ended November 30, 2009, and cash inflows of $59 million for the year ended December 31, 2008. Our cash inflows from investing activities consisted primarily of $135 million of proceeds received on the sale of property, plant and equipment to an affiliate during the year ended December 31, 2008.

Financing Activities. Our cash outflows from financing activities consisted primarily of changes in our intercompany accounts with SemGroup and its other controlled subsidiaries. Our net payments to SemGroup through these accounts were $24 million for the three months ended March 31, 2011, $14 million for the year ended December 31, 2010, $1 million for the month ended December 31, 2009, $22 million for the eleven months ended November 30, 2009, and $13 million for the year ended December 31, 2008. For the three months ended March 31, 2010, our net receipts from SemGroup through the intercompany accounts were $3 million. We also experienced financing cash outflows associated with changes in book overdrafts, which amounted to $1 million during the eleven months ended November 30, 2009 and $15 million during the year ended December 31, 2008.

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:

•

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

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construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity; or

•

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.

We have budgeted $37.2 million in capital expenditures for the twelve months ending September 30, 2012, of which $32.9 million represents expansion capital expenditures, which are expected to relate primarily to the construction of 1.95 million barrels of storage capacity at our Cushing terminal, and $4.0 million represents maintenance capital expenditures, of which $0.7 million is expected to relate to truck replacements, and the remaining $3.3 million is expected to related primarily to increased integrity management expenses to comply with new regulations.

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 borrowings under our new credit facility and the issuance of debt and equity securities.

Distributions

We intend to pay a quarterly distribution at an initial rate of $ per unit, which equates to an aggregate distribution of $ million per quarter, or $ million on an annualized basis, based on the number of common, subordinated and general partner units anticipated to be outstanding immediately after the closing of this offering. We do not have a legal obligation to make distributions except as provided in our partnership agreement.

Revolving Credit Facility

Concurrently with the closing of this offering, we anticipate that we will enter into a new -year, $ million revolving credit facility. We expect the new credit facility to include customary operational and financial covenants. The new credit facility is likely to limit our ability to, among other things:

•

incur additional debt;

•

make cash distributions on, or redeem or repurchase, units;

•

make certain investments and acquisitions;

•

incur certain liens or permit them to exist;

•

enter into certain transactions with affiliates;

•

merge or consolidate with another company or otherwise engage in a change of control; and

•

transfer or otherwise dispose of assets.

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.

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Customer Concentration

Three of our customers accounted for more than 10% of our total revenue for the year ended December 31, 2010, at approximately 18.4%, 24.0% and 26.7%, respectively. Two of our customers accounted for more than 10% of our total revenue for the eleven months ended November 30, 2009, at approximately 35.0% and 43.0%, respectively. Although we have contracts with customers of varying duration, if one or more of our major customers were to default on their contract or if we were to be 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 make cash distributions to our unitholders 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.

Contractual Obligations

In the ordinary course of business we enter into various contractual obligations for varying terms and amounts. The following table includes our non-cancellable contractual obligations as of December 31, 2010, and our best estimate of the period in which the obligation will be settled:


Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
	(in thousands)
Operating leases	$	1,554	$	550	$	972	$	32	$	—
Purchase commitments		276,224		276,224		—		—		—

Total	$	277,778	$	276,774	$	972	$	32	$	—

The bulk 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).

In addition to the items in the table above, we have entered into certain derivative instruments that are recorded at fair value on our combined balance sheet as of December 31, 2010.

Letters of Credit

In connection with our purchasing activities, we provide certain suppliers and transporters with irrevocable standby and performance letters of credit to secure our obligation for the purchase of crude oil. Our liabilities with respect to these purchase obligations are recorded as accounts payable on our balance sheet in the month the crude oil is purchased. Generally, these letters of credit are issued for 50- to 70-day periods (with a maximum of a 364-day period) and are terminated upon completion of each transaction. At March 31, 2011 and December 31, 2010, we had outstanding letters of credit of approximately $32 million and $19 million, respectively.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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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 and interest 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 interest rates or commodity prices and the timing of transactions.

We are exposed to various market risks, including volatility in crude oil prices and interest rates. We have in the past used, and expect that in the future we will continue to use, 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, which governs our enterprise-wide risks, including the market risks discussed in this item. Subject to our Comprehensive Risk Management Policy, our finance and treasury function has responsibility and authority for managing exposure to interest rates. See “Business—Risk Governance and Comprehensive Risk Management Policy” for more information on our Comprehensive Risk Management Policy.

Commodity Price Risk

Commodity prices have historically been volatile and cyclical. For example, NYMEX West Texas Intermediate benchmark prices have ranged from an all-time high of over $145 per barrel (June/July 2008) to a low of approximately $12 per barrel (March 1986) over the last 25 years. The table below outlines the range of NYMEX prompt month daily settle prices for crude oil for the three and six months ended June 30, 2011 and the years ended December 31, 2010, 2009 and 2008.


	Light Sweet Crude Oil Futures ($/Barrel)
Three Months Ended June 30, 2011
High	$	113.93
Low	$	90.61

High/Low Differential	$	23.32

Six Months Ended June 30, 2011
High	$	113.93
Low	$	84.32

High/Low Differential	$	29.61

Year Ended December 31, 2010
High	$	91.51
Low	$	68.01

High/Low Differential	$	23.50

Year Ended December 31, 2009
High	$	81.37
Low	$	33.98

High/Low Differential	$	47.39

Year Ended December 31, 2008
High	$	145.29
Low	$	33.87

High/Low Differential	$	111.42

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Revenue from our asset-based activities is dependent on throughput volume, tariff rates, the level of fees generated from our pipeline systems, capacity contracted to third parties, capacity that we use for our own operational or marketing activities and the level of other fees generated at our storage facilities. Profit from our marketing activities is dependent on our ability to sell crude oil 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 crude oil marketing activities are generally not directly affected by the absolute level of crude oil prices, but are affected by overall levels of supply and demand for crude oil and relative fluctuations in marked-related indices.

Based on our open derivative contracts at March 31, 2011, a 5% increase in the applicable market price or prices for each derivative contract would result in a $0.1 million decrease in our crude oil sales revenues. A 5% decrease in the applicable market price or prices for each derivative contract would result in a $0.1 million increase in 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.

Margin deposits or other credit support, including letters of credit, are generally required on derivative instruments utilized 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 will have exposure to changes in interest rates in conjunction with our entry into a new credit facility contemporaneous with the closing of this offering.

The credit markets have recently experienced historical lows in interest rates. If the overall economy strengthens, it is likely that monetary policy will tighten, resulting in higher interest rates to counter possible inflation. Interest rates on floating rate credit facilities and future debt offerings could be higher than current levels, causing our financing costs to increase accordingly.

During 2010, substantially all of our interest expense was incurred at fixed rates. As a result, an increase or decrease in interest rates would have had no material impact on our interest expense for the year ended December 31, 2010.

Impact of Seasonality

Our sales volumes in our Bakken Shale operations typically decline in the winter due to the decreased levels of drilling and completion of new wells during the winter months.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operation is based upon our combined financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements and related disclosures requires the application

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of appropriate technical accounting rules and guidance, as well as the use of estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and related disclosures of contingent assets and liabilities. The application of these policies involves judgments regarding future events, including the likelihood of success of particular projects and legal and regulatory challenges. These judgments, in and of themselves, could materially affect the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment may also have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies have not changed.

On an on-going basis, we evaluate these estimates using historical experience, consultation with experts and other methods we consider reasonable. Actual results may differ substantially from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

Our significant accounting policies are summarized in Note 2 of our audited combined financial statements included elsewhere in this prospectus. We identify our critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations, and that require the most difficult, subjective and complex judgments by management regarding estimates about matters that are inherently uncertain.


Accounting Policy		Judgment/Uncertainty Affecting Application
Fresh Start Reporting and Reorganization Value		Determination of reorganization value Allocation of the reorganization value to our assets based on their fair values

Derivative Instruments		Assumptions used in valuation techniques Market maturity and economic conditions Contract interpretation Market conditions in the energy industry, especially the effects of price volatility on contractual commitments

Impairment of Long Lived Assets		Recoverability of investment through future operations Regulatory and political environments and requirements Estimated useful lives of assets Environmental obligations and operational limitations Estimates of future cash flows Estimates of fair value Judgment about triggering events

Contingencies		Estimated financial impact of event Judgment about the likelihood of event occurring Regulatory and political environments and requirements

Fresh-Start Reporting and Reorganization Value

As part of SemGroup’s emergence from bankruptcy on November 30, 2009, we implemented fresh-start reporting in accordance with ASC 852, “Reorganizations.” Accordingly, our assets were adjusted to reflect their estimated fair value as of November 30, 2009. As a result, the financial data of our predecessor prior to November 30, 2009 are not comparable to the financial data of our predecessor on and after November 30, 2009.

Under fresh-start reporting, a reorganization value is determined and allocated to our net assets based on their relative fair values in a manner similar to the accounting provisions applied to business combinations under ASC 805, “Business Combinations.” Adjustments necessary to state our balance sheet accounts at fair value were made based on the work of management, financial consultants and independent appraisals. The estimates and assumptions used to derive the reorganization value and the allocation of that value to assets is inherently subject

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to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. Modification to these assumptions could have significantly changed the reorganization value and the resultant fair values of our assets.

Derivative Instruments

We follow the guidance of ASC 815, “Derivatives and Hedging,” to account for derivative instruments. ASC 815 requires us to mark-to-market all derivative instruments on the balance sheet, and recognize changes in the fair value of non-hedge derivative instruments immediately in earnings. In certain cases, we may apply hedge accounting to our derivative instruments. The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure; (ii) whether the overall risk is being reduced; and (iii) if there is a correlation between the fair value of the derivative instrument and the underlying hedged item. Changes in the fair value of derivative instruments accounted for as hedges are either recognized in earnings as an offset to the changes in the fair value of the related hedged item, or deferred and recorded as a component of other comprehensive income and subsequently recognized in earnings when the hedged transactions occur.

Certain derivative instruments that meet the criteria for derivative accounting treatment also qualify for a scope exception to derivative accounting, as they are considered to be a normal purchase normal sale (“NPNS”). The availability of this exception is based on the assumption that we have the ability, and intent, to deliver or take delivery of the underlying item. These assumptions are based on internal forecasts of sales and historical physical delivery on contracts. Derivatives that are considered to be NPNS are exempt from derivative accounting treatment and are accounted for under accrual accounting. If it is determined that a transaction designated as NPNS no longer meets the scope exception due to changes in estimates, the related contract would be recorded on the balance sheet at fair value combined with immediate recognition through earnings.

Evaluation of Assets for Impairment and Other Than Temporary Decline in Value

In accordance with ASC 360, “Property, Plant and Equipment,” we evaluate property, plant and equipment for impairment whenever indicators of impairment exist. Examples of such indicators are:

•

significant decrease in the market price of a long-lived asset;

•

significant adverse change in the manner an asset is used or its physical condition;

•

adverse business climate;

•

accumulation of costs significantly in excess of the amount originally expected for the construction or acquisition of an asset;

•

current period loss combined with a history of losses or the projection of future losses; and

•

change in our intent about an asset from an intent to hold such asset through the end of its estimated useful life to a greater than fifty percent likelihood that such asset will be disposed of before then.

Recoverability of assets to be held and used is measured by comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Generally, fair value will be determined using valuation techniques such as the present value of expected future cash flows. However, actual future market prices and costs could vary from the assumptions used in our estimates and the impact of such variations could be material.

Contingencies

We record a loss contingency when management determines that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Such determinations are subject to interpretations of current facts and circumstances, forecasts of future events and estimates of the financial impacts of such events. Gain contingencies are not recorded.

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INDUSTRY OVERVIEW

General

We provide gathering, transportation, storage and marketing services to producers and users of crude oil. The market we serve, which begins at the point of purchase at the source of production and extends to the point of distribution to the end-user customer, is commonly referred to as the “midstream” market.

Crude Oil Industry Overview

Refined petroleum products, such as jet fuel, gasoline and distillate fuel oil, are all sources of energy derived from crude oil. According to 2009 data compiled by the EIA, petroleum currently accounts for about 35% of the nation’s total annual energy consumption. Growth in petroleum consumption is expected to keep pace with growth in overall energy consumption over the next 20 to 25 years. The EIA expects U.S. annual petroleum consumption to grow 13.5% from 17.1 million barrels per day in 2009 to 19.4 million barrels per day in 2035. The diagram below depicts the segments of the crude oil value chain and our participation in the crude oil industry.

LOGO

Our crude oil business operates in Colorado, Kansas, Montana, North Dakota, Oklahoma and Texas where there are extensive crude oil production operations, and our assets extend from gathering systems in and around producing fields to transportation pipelines carrying crude oil to logistics hubs, such as Cushing, where we have a storage facility that aids our customers in managing the delivery of crude oil.

Gathering and Transportation

Pipeline transportation is generally the lowest cost method for shipping crude oil and transports about two-thirds of the petroleum shipped in the United States. Crude oil pipelines transport oil from the wellhead to logistics hubs and/or refineries. Crude oil gathering assets generally consist of a network of smaller diameter pipelines that are connected directly to the well site or central receipt points delivering into larger diameter trunk lines. Logistic hubs like Cushing provide storage and connections to other pipeline systems and modes of transportation, such as tankers, railroads and trucks. Trucking complements pipeline gathering systems by gathering crude oil from operators at remote wellhead locations not served by pipeline gathering systems. Trucking is generally limited to low volume, short haul movements because trucking costs escalate sharply with distance, making trucking the most expensive mode of crude oil transportation.

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Barges and railroads provide additional transportation capabilities for shipping crude oil between gathering storage systems, pipelines, terminals and storage centers and end-users. Barge transportation is typically a cost-efficient mode of transportation that allows for the ability to transport large volumes of crude oil over long distances.

Competition in the crude oil gathering industry is typically regional and based on proximity to crude oil producers, as well as access to attractive delivery points. Overall demand for gathering services in a particular area is generally driven by crude oil producer activity in the area.

Storage Terminals and Supply

Storage terminals complement crude oil pipeline gathering and transportation systems and address a fundamental imbalance in the energy industry: crude oil is produced in different locations and at different times than it is ultimately consumed. Within the United States, there are also geographical imbalances, as a substantial majority of the petroleum refining that occurs in the United States east of the Rocky Mountains is concentrated in the Gulf Coast region, particularly Louisiana and Texas, which account for more than 50% of all refining capacity in the United States, according to the EIA. Over time, the crude oil storage business has evolved from its beginnings as a component of integrated production processes into a mature, stand-alone operation.

Terminals are facilities in which crude oil is transferred to or from a storage facility or transportation system, such as a gathering pipeline, to another transportation system, such as trucks or another pipeline. Terminals play a key role in moving crude oil to end-users, such as refineries, by providing the following services:

•

inventory management;

•

distribution; and

•

upgrading to achieve marketable grades or qualities of crude oil.

Overview of Cushing

Following Cushing’s early beginnings as an oil boom town and refining center, industry participants constructed storage facilities and interconnecting pipelines to support the refining activities. As nearby production slowed and the importance of refining waned, these operators opted to continue to use the complex logistical infrastructure they had established in Cushing to transport and store crude oil. With that history, Cushing has become one of the largest crude oil marketing hubs in the United States and is the designated point of delivery specified in all NYMEX crude oil futures contracts. As the NYMEX delivery point and a cash market hub, Cushing serves as a significant source of refinery feedstock for Mid-Continent refiners and plays an integral role in establishing and maintaining markets for many varieties of foreign and domestic crude oil.

Because of this, Cushing is one of the largest commercial crude oil storage terminals in the United States. According to EIA data, since 2004, Cushing shell storage capacity has more than doubled to 57.9 million barrels, with 48.0 million barrels of working capacity. Growing volumes of Canadian crude oil imported into the United States and growing production from domestic unconventional plays, including in the Rocky Mountain and Mid-Continent regions, contributed to record high storage levels at Cushing of over 41.0 million barrels at the end of March 2011 (86% of working capacity). At any given time, Cushing holds 5% to 10% of the total U.S. crude oil inventory.

Storage capacity at Cushing, while relatively constant through the 1990s and early 2000s, began to increase significantly in the mid-2000s. This growth in capacity was a direct result of the strong economics associated with crude oil storage. With the recent discovery and production of crude oil from unconventional plays, including the Mississippian oil trend, Granite Wash, Bakken Shale and Canadian oil sands, Cushing has continued to play an important role in aggregating these volumes for further transportation and delivery to end-users.

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With multiple inbound and outbound pipeline interconnections, the Cushing hub serves as a liquidity point for crude oil. Recently, Cushing has experienced a shortfall in takeaway pipeline capacity, which has been cited as a principal reason for the decline in price of the WTI Index compared to other crude oil price indices. However, the following planned major pipeline projects, if completed, should provide significant additional takeaway capacity, which we believe will allow Cushing to remain the predominant benchmarking and transportation hub for crude oil in the United States:

•

TransCanada’s Keystone Pipeline—The $13 billion Keystone pipeline system will play an important role in linking a growing supply of Canadian crude oil with the largest refining markets in the United States. Keystone Cushing (Phase II), an extension of the Keystone Pipeline from Steele City, Nebraska to Cushing, went into service in February 2011. Phase III of the Keystone Pipeline, which would be built to deliver 500,000 Bpd from Cushing to refineries in Port Arthur, Texas, is waiting U.S. government approval. If approved, Phase III is currently expected to commence commercial operations in 2013.

•

Enterprise Products Partners’ and Energy Transfer Partners’ Double E Pipeline—On April 26, 2011, Enterprise Products Partners L.P. and Energy Transfer Partners, L.P. announced an agreement to design and construct the Double E crude oil pipeline from Cushing to the Houston, Texas area. The pipeline would provide an outlet for more than 400,000 Bpd of crude oil supplies that are priced at a substantial discount to imported crude oil on the Gulf Coast. The pipeline would also give refiners on the Gulf Coast improved access to growing supplies of domestic crude oil production and an alternative to higher priced crude oil imports, which represent their largest source of supply. Subject to sufficient commitments from shippers and the required regulatory approvals, the new pipeline is expected to begin service in the fourth quarter of 2012.

•

Enbridge’s Monarch Pipeline—Enbridge Inc.’s planned Monarch Pipeline is expected to originate at Enbridge’s Cushing terminal and connect to Houston area terminal and refinery pipeline infrastructure via a 24-inch pipeline with eight stations. The design is based on 370,000 Bpd, expandable to approximately 480,000 Bpd. It is expected to commence operations in late 2013, subject to receipt of sufficient commitments from shippers and the required regulatory approvals.

•

Magellan Midstream Partners, LP—Magellan Midstream Partners, LP recently announced that it was exploring a project to link existing pipelines from Cushing to Gulf Coast refineries. The project would have 60,000 to 70,000 Bpd of capacity.

We cannot provide any assurances regarding when, or if, any of these pipeline projects will be completed, or the actual effect that any of them may have on crude oil prices at Cushing.

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The following table reflects open positions in NYMEX WTI crude oil futures from January 1986 through July 2011, according to the Commodities Futures Trading Commission.

LOGO

Overview of the Williston and Denver-Julesburg (DJ) Basins

The Williston Basin is spread across North Dakota, South Dakota, Montana and parts of southern Canada. The basin produces oil and natural gas from numerous producing horizons including, but not limited to, the Bakken, Three Forks, Madison and Red River formations. Commercial oil production activities began in the Williston Basin in the 1950’s with the first well drilled in 1953. Much of North Dakota’s production increases are associated with accelerating horizontal drilling programs in the Bakken shale formation. A 2008 United States Geological Survey, or USGS, assessment estimated 3.0 to 4.3 billion barrels of undiscovered, technically recoverable oil in the United States portion of the Bakken Formation. The USGS report classified the formation as the largest continuous oil accumulation ever assessed by it in the contiguous United States. The 2008 USGS assessment showed a 25-fold increase in the amount of technically recoverable oil as compared to the agency’s 1995 estimate of 151 million barrels of oil. New geologic models applied to the Bakken Formation, advances in drilling and production technologies, and additional oil discoveries resulted in these substantially larger technically recoverable oil volumes. Approximately 135 million barrels of oil were produced from the Bakken between 1953 and 2008, with 36 million barrels produced in 2008 alone. According to state statistics, oil production from the Bakken in North Dakota has steadily increased from about 28 million barrels in 2008, to 50 million barrels in 2009 to approximately 86 million barrels in 2010. According to an EIA report issued July 27, 2011, North Dakota’s oil production is expected to continue to increase as operators intensify development activity at the Bakken and underlying Sanish/Three Forks formations.

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The Denver-Julesburg Basin is a structural basin located in eastern Colorado, southeastern Wyoming, western Kansas, and the Nebraska Panhandle and covers an area of more than 42,000 square miles. The basin has a long history of oil and gas exploration and production. Gas production is dominated by the Wattenberg tight gas field. Development activity is currently focused on exploitation of the Wattenberg field including the use of recompletions, multi-stage fracturing, and infill drilling. The Niobrara Shale formation, primarily an oil play in the Denver-Julesburg Basin, is situated in northeastern Colorado and parts of adjacent Wyoming, Nebraska, and Kansas. A USGS study estimated mean undiscovered hydrocarbons from the Niobrara at 40 million barrels of oil, 32 million barrels of natural gas liquids, and 330 billion cubic feet of natural gas in the DJ Basin. The Niobrara shale is in its early stages and companies have been leasing land for future drilling. We expect exploration and production companies to apply horizontal drilling techniques proven in the Bakken Shale to access large amounts of oil deposits in the Niobrara Shale.

Overview of the Granite Wash and Mississippian Oil Trend

The Granite Wash is part of the Anadarko Basin and spans an estimated 1,180 square miles (3,056 square kilometers) across western Oklahoma and the north-eastern Texas Panhandle. The USGS has estimated mean undiscovered hydrocarbons from Granite Wash at 16 million barrels of oil, 3 million barrels of natural gas liquids and 90 billion cubic feet of natural gas. As an unconventional emerging play, several major players have obtained high acreage positions and have transitioned to horizontal drilling techniques, and efficiency gains are generally expected. Much of the Granite Wash development activity is in the southern flank of the Anadarko Basin within the Texas Panhandle, where granite wash fields were deposited as deep-water turbidites, consisting of laterally-extensive and liquids-rich reservoirs.

The Mississippian oil trend is an expansive carbonate stratigraphic trap producing at relatively shallow depths and is located in northern Oklahoma near the panhandle and in southern Kansas. For the past 50 years, it has been a proven, commercial trend producing from thousands of vertical wells, and in the last several years, current players have begun drilling horizontal laterals in existing vertical wells and in new wells. Underlying the uppermost Mississippian layer is the Mississippian “lime,” a limestone sequence that enhances porosity and permeability. In 2011, over 150 horizontal wells are planned to be drilled with much of the recent activity focused within Woods and Alfalfa counties in Oklahoma.

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BUSINESS

Overview

We are a growth-oriented Delaware limited partnership recently formed by SemGroup to own, operate, develop and acquire a diversified portfolio of midstream energy assets. We are engaged in the business of crude oil gathering, transportation, storage and marketing in Colorado, Kansas, Montana, North Dakota, Oklahoma and Texas for third party customers, ourselves and our affiliates. We serve areas that are experiencing strong production growth and drilling activity through our exposure to the Bakken Shale in North Dakota and Montana, the Denver-Julesburg (DJ) Basin and the Niobrara Shale in the Rocky Mountain region, and the Granite Wash and the Mississippian oil trend in the Mid-Continent region. The majority of our assets are strategically located in or connected to the Cushing, Oklahoma crude oil marketing hub. Cushing is the designated point of delivery specified in all NYMEX crude oil futures contracts and is one of the largest crude oil marketing hubs in the United States. Cushing serves as a significant source of refinery feedstock for Mid-Continent refiners and plays an integral role in establishing and maintaining markets for many varieties of foreign and domestic crude oil. We expect that throughput and demand for storage services at the Cushing hub will continue to increase with the expansion of existing, and construction of new, pipelines and other transportation related logistical assets into and away from the hub. We believe that our connectivity in Cushing and our numerous interconnections with third-party pipelines, refineries and storage terminals provide our customers with the flexibility to access multiple points for the receipt and delivery of crude oil.

How We Generate Adjusted Gross Margin

We generate adjusted gross margin by providing fee-based services, by entering into fixed-margin transactions and through marketing activities.

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gross margin we generate on our Kansas and Oklahoma pipeline system and through our Bakken Shale operations. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 19% and 26% of our adjusted gross margin, respectively, was generated through marketing activities.

Business Strategies

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Capitalizing on organic growth opportunities associated with our existing assets. We seek to identify and evaluate economically attractive organic expansion and asset enhancement opportunities that leverage our existing asset footprint and strategic relationships with our customers. We recently completed construction of 350,000 barrels of additional storage capacity at our Cushing terminal. In addition, we are currently building an additional 1.95 million barrels of crude oil storage capacity at Cushing and an additional 100,000 barrels of crude oil storage capacity at our Platteville facility that we expect to place into service before the end of 2012. We also expect to build six additional truck unloading lanes, which we anticipate will be supported by long-term, take-or-pay contracts, and 10,000 barrels of additional storage capacity at our Platteville facility. Additionally, we are in the process of expanding capacity on portions of our Kansas and Oklahoma pipeline system through de-bottlenecking projects and are evaluating additional markets for our Bakken Shale operations.

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Focusing on stable, fee-based services and fixed-margin transactions. We focus on opportunities to provide midstream services under fee-based arrangements and fixed-margin transactions, which minimize our direct exposure to commodity price fluctuations. Like 95% of our existing storage capacity at Cushing, we anticipate that all of the additional 1.95 million barrels of crude oil storage capacity that we expect to build and place into service before the end of 2012 will be contracted to third parties under long-term contracts that provide for a fixed fee that is not tied to usage.

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Mitigating commodity price exposure. We mitigate the commodity price exposure of substantially all our crude oil marketing operations by entering into “back-to-back” transactions, which are intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered, and through the use of derivative contracts. All of our marketing activities are subject to a comprehensive risk management policy, which establishes limits in order to attempt to manage risk and reduce our exposure to fluctuating commodity prices.

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Maintaining financial flexibility and utilizing leverage prudently. We plan to pursue a disciplined financial policy and seek to maintain a conservative capital structure to allow us to execute on our identified growth projects, as well as pursue additional growth projects and acquisitions to even in challenging market environments. We will have minimal debt at the closing of this offering and expect to have $ million of available capacity under our revolving credit facility.

Competitive Strengths

We believe that the following competitive strengths position us to successfully execute our principal business objective:

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Strategically located assets that provide a strong platform for growth and operational flexibility to our customers. The majority of our assets are located in or connect to Cushing, and our numerous interconnections with third-party pipelines, refineries and storage terminals provide our customers with the flexibility to access multiple points for the receipt and delivery of crude oil. With our existing

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storage capacity in Cushing and the additional capacity that we expect to build, we believe that we are well positioned to take advantage of the increased throughput at Cushing that is expected to result from the construction of additional transportation capacity to and from the hub. In addition, our Kansas, Oklahoma, North Dakota and Montana operations and Platteville facility provide us with access to the growing production in the Bakken Shale, DJ Basin, Niobrara Shale, Granite Wash and Mississippian oil trend.

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Modern crude oil storage and unloading assets. Our Cushing storage tanks and our Platteville facility have all been placed into service since the beginning of 2009. The recent construction of these facilities results in reduced maintenance costs, and we believe that customers prefer the additional reliability and safety that is generally associated with newer assets.

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Stable cash flow. For the year ended December 31, 2010 and the three months ended March 31, 2011, approximately 81% and 74% of our adjusted gross margin, respectively, was generated from fee-based services, some of which provide for fixed fees that are not dependent on usage, or fixed-margin transactions. Approximately 95% of our Cushing storage capacity is contracted to customers pursuant to fixed fee contracts. The majority of throughput on our Kansas and Oklahoma system is transported pursuant to contracts that provide for a flat volumetric transportation fee or fixed-margin transactions. In addition, all of the throughput on our Platteville facility is handled pursuant to contracts that provide for a flat volumetric unloading fee. Our fee-based services and fixed-margin transactions mitigate our exposure to margin fluctuations caused by commodity price volatility.

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Affiliation with SemGroup. We believe that our relationship with SemGroup strengthens our ability to make strategic acquisitions and to access other business opportunities. In addition, we believe that SemGroup, as the owner of our general partner interest, all of our incentive distribution rights and a % limited partner interest in us, will be motivated to promote and support the successful execution of our business strategies.

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Experienced, knowledgeable management team with a proven track record. Our management team has an average of over 27 years of experience in the energy industry, including in building, acquiring, integrating and operating midstream assets. In addition, our management team has established strong relationships with producers, marketers and refiners of crude oil throughout the U.S. upstream and midstream industries, which we believe will be beneficial to us in pursuing acquisition and organic expansion opportunities.

Our Relationship with SemGroup

One of our principal strengths is our relationship with SemGroup. SemGroup provides gathering, transportation, processing, storage, distribution, marketing, and other midstream services primarily to independent oil and natural gas producers, refiners of petroleum products, and other market participants located in the Mid-Continent and Rocky Mountain regions of the United States and in Canada, Mexico and the United Kingdom. Since 2008, SemGroup has taken numerous steps to restructure its business portfolio and to shift away from trading activities and toward a business heavily weighted in fee-based and fixed-margin activities. At June 30, 2011, excluding the assets being contributed to us in connection with this offering, SemGroup had a midstream asset portfolio that included, among other assets:

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a 51% interest in the White Cliffs Pipeline, which SemGroup operates;

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9.1 million barrels of owned NGL and multi-product storage capacity located throughout the United States and in the United Kingdom;

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an additional 3.8 million barrels of leased NGL storage;

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twelve owned NGL terminals across the United States;

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thirteen asphalt terminals in Mexico;

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majority interests in four natural gas processing plants located in Alberta, Canada, with a combined operating capacity of 654 million cubic feet per day, or MMcf/d, of capacity;

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three natural gas processing plants located in Oklahoma and Texas, with a combined 73 MMcf/d of capacity; and

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over 350 owned and leased railcars.

SemGroup’s Class A common stock trades on the New York Stock Exchange, or NYSE, under the symbol “SEMG.”

Following the completion of this offering, SemGroup will continue to own and operate a substantial portfolio of midstream assets and will retain a significant interest in us through its ownership of a % limited partner interest and 2.0% general partner interest in us, as well as all of our incentive distribution rights. Given SemGroup’s significant ownership in us following this offering, we believe that SemGroup will be motivated to promote and support the successful execution of our business strategies. This support could include the potential contribution to us over time of additional midstream assets that SemGroup currently owns or acquires or develops in the future and the facilitation of accretive acquisitions. However, SemGroup is under no obligation to offer any assets or business opportunities to us or accept any offer for its assets that we may choose to make. SemGroup constantly evaluates acquisitions and dispositions and may elect to acquire or dispose of assets in the future without offering us the opportunity to purchase those assets. SemGroup has retained such flexibility because it believes it is in the best interests of its shareholders to do so. We cannot say with any certainty which, if any, opportunities to acquire assets from SemGroup may be made available to us or if we will choose to pursue any such opportunity. Moreover, the consideration to be paid by us for assets offered to us by SemGroup, if any, as well as the consummation and timing of any acquisition by us of these assets, would depend upon, among other things, the timing of SemGroup’s decision to sell, transfer or otherwise dispose of these assets, our ability to successfully negotiate a purchase price and other terms, and our ability to obtain financing.

We will enter into an omnibus agreement with SemGroup and our general partner that will govern our relationship with them regarding certain reimbursement and indemnification matters. Please read “Certain Relationships and Related Party Transactions—Agreements with Affiliates—Omnibus Agreement.” While our relationship with SemGroup provides us with a significant advantage, it is also a source of potential conflicts. For example, SemGroup is not restricted from competing with us, and may acquire, construct or dispose of midstream energy assets without any obligation to offer us the opportunity to acquire or construct such assets. Please read “Conflicts of Interest and Fiduciary Duties” and “Risk Factors—Risks Inherent in an Investment in Us— SemGroup owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. SemGroup and our general partner will have conflicts of interest with us and may favor their own interests to your detriment.”

Assets and Operations

We own and operate all of our assets, which consist of:

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over 5.0 million barrels of crude oil storage capacity in Cushing, with an additional 1.95 million barrels of capacity scheduled to be placed into service before the end of 2012;

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a 640-mile crude oil gathering and transportation pipeline system with 670,000 barrels of associated storage capacity in Kansas and northern Oklahoma that is connected to several third-party pipelines and refineries and our storage terminal in Cushing;

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a crude oil gathering, storage, transportation and marketing business in the Bakken Shale in North Dakota and Montana in which we handled an average of 5,800 barrels of crude oil per day for the six months ended June 30, 2011; and

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a modern, ten-lane crude oil truck unloading facility with 120,000 barrels of associated storage capacity in Platteville, Colorado which connects to the origination point of SemGroup’s White Cliffs Pipeline, with an additional 100,000 barrels of storage capacity under construction and an additional six truck unloading lanes and 10,000 barrels of additional storage capacity expected to be completed by the end of 2012.

Cushing Storage

General. We own and operate 17 crude oil storage tanks in Cushing with an aggregate storage capacity of approximately 5.0 million barrels. Our storage terminal has a combined capacity to receive or deliver 240,000 barrels of crude oil per day, and has inbound connections with the White Cliffs Pipeline from Platteville, Colorado, the Cimarron Pipeline from Boyer, Kansas, and our Kansas and Oklahoma gathering system, and two-way interconnections with all of the other major storage terminals in Cushing, including the delivery point specified in all crude oil futures contracts traded on the NYMEX. Connection with this terminal provides our customers with access to multiple pipelines outbound from Cushing. Our Cushing terminal also includes truck unloading facilities.

Our Cushing storage tanks had a weighted average age of only two years as of June 30, 2011. The design and construction specifications of our storage tanks meet or exceed the minimums established by the American Petroleum Institute, or API. Our storage tanks also undergo regular maintenance and inspection programs, and we believe that these design specifications and maintenance and inspection programs reduce our maintenance capital expenditures.

In part, as a result of its role as the designated point of delivery specified in all NYMEX crude oil futures contracts, Cushing is one of the largest crude oil marketing hubs in the United States. Cushing serves as a significant source of refinery feedstock for Mid-Continent refiners and plays an integral role in establishing and maintaining markets for many varieties of foreign and domestic crude oil. Recently, Cushing has experienced a shortfall in takeaway pipeline capacity, which has been cited as a principal reason for the decline in price of the WTI Index compared to other crude oil price indices. We believe that if and when any of several planned takeaway pipeline expansion projects are completed, this price differential will narrow and Cushing will remain the predominant benchmarking and transportation hub for crude oil in the United States. Please read “Industry Overview—Overview of Cushing.”

Adjusted Gross Margin and Contracts. We generate adjusted gross margin from our Cushing storage by charging third parties a fee for the use of the storage tanks. Approximately 95% of our Cushing storage is committed under long-term contracts with third parties that provide for a fixed fee that is not tied to usage. As of June 30, 2011, our weighted average contract fee was $0.40 per barrel per month. Our existing storage contracts had a weighted average life of 4.5 years as of June 30, 2011, and none of our third-party contracts expire before 2015.

Customers. Our primary customers at Cushing are pipeline companies and crude oil traders.

Competition. Competition for crude oil storage customers is intense and is based primarily on price, access to supply, access to logistics assets, distribution capabilities, the ability to meet regulatory requirements, and maintenance of quality of service and customer relationships. Our major competitors in Cushing include Enbridge Energy Partners, L.P., Magellan Midstream Partners, L.P., Plains All American Pipeline, L.P., Blueknight Energy Partners, L.P. and Enterprise Products Partners L.P. Several of these competitors have announced their intention to significantly expand their storage capacity at Cushing.

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Growth Opportunities. We expect to place into service an additional 1.95 million barrels of crude oil storage capacity before the end of 2012, all of which is backed by third-party, five-year commitments that will commence on the in-service date of the new storage capacity, and we have 100 acres of additional land as well as additional infrastructure which we believe will be sufficient to grow our storage capacity by an additional six to seven million barrels in the future.

Kansas and Oklahoma System

General. We own and operate an approximately 640-mile crude oil gathering and transportation pipeline system and 670,000 barrels of associated storage in Kansas and northern Oklahoma. This system gathers crude oil from throughout the region and delivers it to pipelines and refineries and our Cushing terminal. The system can currently transport in excess of 40,000 barrels of crude oil per day. During the year ended December 31, 2010 and the six months ended June 30, 2011, we transported an average of approximately 31,000 and 32,000 barrels per day, respectively, from approximately three receipt points. The system has pipeline diameters ranging from four to twelve inches and has 28 pump stations. This system also includes 18 truck unloading stations.

Delivery Points. Our Kansas and Oklahoma system connects to pipelines owned by Sunoco Logistics Partners L.P., Plains All American Pipeline, L.P., Kaw Pipeline Company, Jayhawk Pipeline LLC and MV Purchasing, LLC in Kansas and Oklahoma, and refineries owned by Frontier Oil Corporation and ConocoPhillips Company, and our storage terminal in Cushing, thereby providing our customers with multiple delivery options.

Supply. According to the EIA, crude oil production in Kansas grew from approximately 35.6 million barrels in 2006 to approximately 40.5 million barrels in 2010, and in Oklahoma it grew from approximately 62.8 million barrels in 2006 to approximately 69.5 million barrels in 2010. As of March 2011, year-to-date production (annualized) in Kansas and Oklahoma was approximately 40.5 million barrels and 69.8 million barrels, respectively. We expect that the strong pricing environment for crude oil will continue to drive increasing crude oil production in Kansas and Oklahoma.

Adjusted Gross Margin and Contracts. We primarily generate adjusted gross margin from our Kansas and Oklahoma system by charging a flat volumetric transportation fee to our customers or by purchasing crude oil from an aggregator at a receipt point on our system at an index price less a transportation fee, and simultaneously selling an identical volume of crude oil at a delivery point on our system to the same party at the same index price, through which we are able to lock in a fixed margin that is in effect economically equivalent to a transportation fee.

We also generate adjusted gross margin through marketing activities, whereby we purchase crude oil from one party and sell it to another. We mitigate the commodity price exposure of our crude oil marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of crude oil to create “back-to-back” transactions intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts. All marketing activities are subject to a comprehensive risk management policy, which establishes limits in order to attempt to manage risk and mitigate financial exposure.

Our crude oil purchases in our Kansas and Oklahoma and Bakken Shale operations are made pursuant to 30-day, evergreen contracts at prices that are typically based on published or “posted” prices, plus or minus a differential. The differential is determined based on the grade of oil produced, transportation costs and competitive factors. Both the price and the differential change in response to market conditions. Posted prices can change daily, and differentials, in general, can change every 30 days as contracts renew. We sell crude oil primarily to refiners and other resellers in various types of sale and exchange transactions, at market prices for terms ranging from one to twelve months.

One of the contracts on our Kansas and Oklahoma system is a take-or-pay contract, whereby the customer is required to pay us a fixed minimum monthly transportation fee regardless of the volumes actually transported on

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our system. For the six months ended June 30, 2011, approximately 18% of the adjusted gross margin associated with our Kansas and Oklahoma system was derived from a take-or-pay contract. Most of our fixed fee and fixed margin contracts are 30-day, evergreen contracts, although some extend for up to four years.

Customers. The primary customers for our Kansas and Oklahoma system are aggregators, local producers and refineries.

Competition. Competition for crude oil volumes is primarily based on reputation, commercial terms, reliability, interconnectivity, location and available capacity. Our major competitors are MV Purchasing, LLC, Plains All American Pipeline, L.P. and the National Cooperative Refinery Association. Magellan Midstream Partners, L.P. has recently completed a line to Cushing, which has diverted some volumes from our system, but to date we have been able to replace those volumes and maintain our throughput.

Growth Opportunities. We believe that we will be able to increase the utilization of our Kansas and Oklahoma system as a result of the increased drilling activity that we expect will occur, as described above under “—Supply.” We are currently expanding capacity on portions of our Kansas and Oklahoma system through de-bottlenecking projects.

Bakken Shale Operations

General. We own and operate a crude oil gathering, storage, transportation and marketing business in the Bakken Shale area in western North Dakota and eastern Montana. Using our fleet of 16 trucks and two truck unloading facilities, we purchase crude oil at the wellhead, transport it via our trucks and third-party pipelines, including the Enbridge North Dakota System (utilizing historically accrued allocation rights), and market it to customers, primarily at the crude oil marketing hub in Clearbrook, Minnesota. We own tanks in Trenton and Stanley, North Dakota, with an aggregate storage capacity of 60,200 barrels, that connect into the Enbridge North Dakota System. During the six months ended June 30, 2011, we handled and marketed an average of approximately 5,800 barrels per day.

Adjusted Gross Margin and Contracts. We generate adjusted gross margin in our Bakken Shale operations through the purchase and sale of crude oil. As in our Kansas and Oklahoma operations, we mitigate the commodity price exposure of our crude oil marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of crude oil to create “back-to-back” transactions intended to lock in positive margins based on the timing, location or quality of the crude oil purchased and delivered or (ii) derivative contracts. All marketing activities are subject to a comprehensive risk management policy, which establishes limits in order to attempt to manage risk and mitigate financial exposure.

Customers. We purchase our crude oil from producers in the Bakken Shale. We then sell the crude oil to traders or refiners.

Competition. We compete for crude oil volumes with other midstream operators, including Plains All American Pipeline, L.P. and Eighty Eight Oil LLC. Competition is primarily based on reputation, commercial terms, reliability, interconnectivity, location and available capacity. Although competition can be intense, we believe that it is currently mitigated to some degree by the shortage of takeaway capacity out of the Bakken Shale, which reduces the number of options that producers have for getting their crude oil to market. However, additional midstream operators are constructing additional pipeline capacity in the Bakken Shale, and existing operators are expanding their capacity, and therefore competition may intensify in the future.

Growth Opportunities. We believe that significant new drilling activity in the Bakken Shale will result in crude oil production growing faster than available takeaway capacity over the medium term. We anticipate that through a combination of additional allocated capacity on Enbridge Inc.’s planned expansion of its North Dakota Pipeline, which is scheduled for completion in early 2013, additional rail capacity and infrastructure expansion, we will be able to significantly expand our operations in North Dakota and Montana.

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Platteville Facility

General. We own and operate a modern, ten-lane crude oil truck unloading facility in Platteville, Colorado, which connects to the origination point of SemGroup’s White Cliffs Pipeline and was first placed into service in 2009. Substantially all of the crude oil production from the DJ Basin and the nearby Niobrara Shale must initially be transported by truck due to a shortage of gathering capacity, and the White Cliffs Pipeline is the only direct pipeline out of the DJ Basin to the Cushing market and to Mid-Continent refineries. Throughput at the facility averaged 25,800 barrels per day and 31,100 barrels per day for the year ended December 31, 2010 and the six months ended June 30, 2011, respectively. The facility includes 120,000 barrels of crude oil storage capacity.

Adjusted Gross Margin and Contracts. We generate adjusted gross margin at our Platteville facility by charging our customers a volumetric fee for unloading their crude oil at our facility. While we do not currently contract directly with any of the customers at our Platteville facility, certain of our customers have entered into longer-term, take-or-pay contracts on the White Cliffs Pipeline, whereby they pay a fixed minimum monthly fee regardless of the volumes actually unloaded at our facility.

Customers. Our primary customers at our Platteville facility include two crude oil producers which have entered into 10,000 barrel per day take-or-pay transportation contracts on the White Cliffs Pipeline.

Competition. Our Platteville facility is the only injection point in Colorado into the White Cliffs Pipeline, and the White Cliffs Pipeline is the only pipeline out of the DJ Basin to Cushing. As a result, we do not face direct competition with respect to our Platteville facility. However, producers in the region served by this facility do have other options for the delivery of crude oil, including delivery to local refineries or through rail transportation.

Growth Opportunities. We believe that throughput at our Platteville facility will continue to grow due to increasing production from the DJ Basin and Niobrara Shale and a shortage of takeaway capacity from the Rocky Mountain region. We currently have an additional 100,000 barrels of crude oil storage capacity under construction, and we expect to build an additional six truck unloading lanes, which we anticipate will be supported by long-term, take-or-pay contracts, and 10,000 barrels of additional storage capacity at the facility by the end of 2012.

Operational Hazards and Insurance

Pipelines, terminals, storage tanks and other facilities may experience damage as a result of an accident, natural disaster or deliberate act. These hazards can also cause personal injury and loss of life, severe damage to, and destruction of, property and equipment, pollution or environmental damage and suspension of operations. Through the services of a major national insurance broker, we maintain insurance of various types and varying levels of coverage similar to that maintained by other companies in the industry and which we consider adequate, under the circumstances, to cover our operations and properties, including coverage for natural catastrophes, pollution related events and acts of terrorism and sabotage. The limit of operational insurance maintained covering loss of, or damage to, property and products is approximately $2.0 million per loss. The limits for business interruption loss vary by insured location, with insured values totaling $323.8 million. For claims arising under general liability, automobile liability and excess liability, the limits maintained total $250.0 million per occurrence/claim. Primary and excess liability insurance limits maintained for pollution liability claims vary by location for claims arising from gradual pollution with limits of $20.0 million per claim and $40.0 million in the aggregate. The combined primary and excess liability insurance limits for claims arising from sudden and accidental pollution total $270.0 million per claim and $290.0 million in the aggregate. This insurance does not cover every potential risk associated with operating our pipelines, terminals and other facilities. We have a favorable claims history enabling us to self-insure the “working layer” of loss activity utilizing deductibles and self-insured retentions commensurate with our financial abilities and in line with industry standards, in order to create a more efficient and cost effective program and a consistent risk profile. The working layer consists of

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high frequency/low severity losses that are best retained and managed in-house. Sizeable or difficult self-insured claims or losses may be handled by professional adjusting firms hired by us. We will continue to monitor the appropriateness of our deductibles and retentions as they relate to the overall cost and scope of our risk and insurance program.

Regulation

General.

Our operations are subject to extensive regulation. The following discussion of certain laws and regulations affecting our operations should not be relied on as an exhaustive review of all regulatory considerations affecting us, due to the myriad of complex federal, state, provincial, foreign and local regulations that may affect our business.

Regulation of Transportation and Storage Operations

Department of Transportation. All crude oil interstate pipelines, and certain intrastate crude oil pipelines and storage facilities, are subject to regulation by the DOT with respect to the design, construction, operation and maintenance of the pipeline systems and storage facilities. The DOT routinely conducts audits of regulated assets and we must make certain records and reports available to the DOT for review as required by the Secretary of Transportation. In some states, the DOT has given a state agency authority to assume all or part of the regulatory and enforcement responsibility over the intrastate assets.

Trucking Regulation. We own and operate a fleet of trucks to transport crude oil. We are licensed to perform both intrastate and interstate motor carrier services and are subject to certain safety regulations issued by the DOT. DOT regulations cover, among other things, driver operations, maintaining log books, truck manifest preparations, the placement of safety placards on the trucks and trailer vehicles, drug and alcohol testing, safety of operation and equipment and many other aspects of truck operations. We are also subject to Occupational Safety and Health Administration, or OSHA, regulations with respect to our trucking operations.

Environmental, Health and Safety Regulation

General. Our operations are subject to varying degrees of stringent and complex laws and regulations by multiple levels of government relating to the production, transportation, storage, processing, release and disposal of crude oil, crude oil-based products and other materials or otherwise relating to protection of the environment. As with the industry generally, compliance with current and anticipated environmental laws and regulations increases our overall costs of business, including our capital costs to construct, maintain and upgrade pipelines, equipment and facilities. The failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of removal or remedial obligations and the issuance of injunctions limiting or prohibiting our activities.

The clear trend in environmental regulation, particularly with respect to crude oil facilities, is the placement of more restrictions and limitations on activities that may affect the environment and, thus, any changes in environmental laws and regulations or re-interpretations of enforcement policies that result in costly waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our operations and financial condition. We may be unable to pass on such increased costs to our customers. Moreover, accidental releases, leaks or spills may occur in the course of our operations and we may incur significant costs and liabilities as a result, including those related to claims for damage to property, natural resources or persons. While we believe that we are in substantial compliance with existing applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse effect on us, there can be no assurance that the current conditions will continue in the future.

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The following is a summary of the more significant current environmental, health and safety laws and regulations to which our operations are subject.

Water Discharges. Our operations can result in the discharge of pollutants, including oil. The Oil Pollution Act, or OPA, was enacted in 1990 and amends provisions of the Federal Water Pollution Control Act of 1972, as amended, the Clean Water Act, as amended, and other statutes as they pertain to prevention of, and response to, oil spills. The OPA, the Clean Water Act and analogous state and local laws subject owners of facilities to strict, joint and potentially unlimited liability for containment and removal costs, natural resource damages and certain other consequences of an oil spill, where such spill is into navigable waters, along shorelines or in the exclusive economic zone of the U.S. In the event of an oil spill from one of our facilities into navigable waters, substantial liabilities could be imposed. Spill prevention, control and countermeasure requirements of these laws require appropriate containment berms or dikes and other containment structures at storage facilities to prevent contamination of soils, surface waters and groundwater in the event of an oil overflow, rupture or leak.

The federal Clean Water Act and analogous state and local laws impose restrictions and strict controls regarding the discharge of pollutants into waters of the United States and state waters, including groundwater in many jurisdictions. Permits must be obtained to discharge pollutants into these waters. The Clean Water Act and analogous state and local laws provide significant penalties for unauthorized discharges and can impose liability for responding to and cleaning up spills. In addition, the Clean Water Act and analogous state and local laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. These permits may require us to monitor and sample the storm water runoff from certain of our facilities.

Air Emissions. Our operations are subject to the federal Clean Air Act, as amended, and comparable state and local laws. These laws and regulations regulate emissions of air pollutants from various sources, including certain of our facilities, and impose various monitoring and reporting requirements. Pursuant to these laws and regulations, we may be required to obtain environmental agency pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and comply with the terms of air permits containing various emissions and operational limitations and utilize specific emission control technologies to limit emissions. We may be required to incur certain capital expenditures in the future for air pollution control equipment and leak detection and monitoring systems in connection with obtaining or maintaining operating permits and approvals for air emissions. There are significant potential monetary fines for violating air emission standards and permit provisions.

Climate Change. On December 15, 2009, the EPA issued a notice of its final finding and determination that emissions of CO₂, methane, and other GHGs present an endangerment to public health and the environment because emissions of such gases contribute to warming of the Earth’s atmosphere and other climatic changes. This final finding and determination allows the EPA to begin regulating GHG emissions under existing provisions of the Clean Air Act. Accordingly, the EPA has adopted regulations that require a reduction in emissions of GHGs from motor vehicles and also trigger permit review for GHG emissions from certain large stationary sources. In addition, the EPA issued a final rule, effective in December 2009, requiring the reporting of GHG emissions from specified large GHG emission sources in the U.S., beginning in 2011 for emissions occurring in 2010 (EPA’s Greenhouse Gas Reporting Program, or GHGRP). Further, on November 8, 2010, EPA finalized new GHG reporting requirements for upstream petroleum and natural gas systems, which will be added to EPA’s GHG Reporting Rule. Facilities containing petroleum and natural gas systems that emit 25,000 metric tons or more of CO₂ equivalent per year will be required to report annual GHG emissions to EPA, with the first report due on March 31, 2012. In December 2010, the EPA issued three concurrent actions related to its GHGRP which require the collection of certain additional business related data, and therefore, it is deferring the reporting of certain information.

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legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or GHG cap and trade programs. Depending on the particular program and scope thereof, we could be required to purchase and surrender allowances for GHG emissions resulting from our operations or could face additional taxes and higher cost of doing business. Although we would not be impacted to a greater degree than other similarly situated midstream energy service providers, a stringent GHG control program could have an adverse effect on our cost of doing business and could reduce demand for crude oil.

Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address GHG emissions would impact our business, any such new federal, state or regional restrictions on emissions of GHGs that may be imposed in areas in which we conduct business could also have an adverse affect on our cost of doing business and demand for crude oil.

Hazardous Substances and Wastes. The environmental laws and regulations affecting our operations relate to the release of hazardous substances or solid wastes into soils, groundwater and surface water, and include measures to prevent and control pollution. These laws and regulations generally regulate the generation, storage, treatment, transportation and disposal of solid and hazardous wastes, and may require investigatory and corrective actions at facilities where such waste may have been released or disposed. For instance, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the “Superfund” law, and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that contributed to a release of “hazardous substance” into the environment. Potentially responsible persons can include the current owner or operator of the site where a release previously occurred and companies that disposed, or arranged for the disposal, of the hazardous substances found at the site. Under CERCLA, these persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the potentially responsible classes of persons the costs they incur. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other wastes released into the environment. Although “petroleum,” as well as natural gas and NGLs, have been for the most part excluded from CERCLA’s definition of a “hazardous substance,” in the course of ordinary operations, we may generate wastes that may fall within the definition of a “hazardous substance.” In addition, there are other laws and regulations that can create liability for releases of petroleum. Moreover, we may be responsible under CERCLA or other laws for all or part of the costs required to clean up sites at which such wastes have been disposed.

We also generate, and may in the future generate, both hazardous and nonhazardous solid wastes that are subject to requirements of the federal Resource Conservation and Recovery Act, or RCRA, and/or comparable state laws. We are not currently required to comply with a substantial portion of the RCRA requirements because our operations generate minimal quantities of hazardous wastes as currently defined under RCRA. From time to time, the EPA and state regulatory agencies have considered the adoption of stricter disposal standards for nonhazardous wastes, including crude oil and natural gas wastes. Moreover, it is possible that some wastes generated by us that are currently classified as nonhazardous may in the future be designated as “hazardous wastes,” resulting in the wastes being subject to more rigorous and costly management and disposal requirements. Changes in applicable laws or regulations may result in an increase in our capital expenditures, facility operating expenses or otherwise impose limits or restrictions on our operations.

We currently own or lease, and have in the past owned or leased, and in the future we may own or lease, properties that have been used over the years for petroleum product operations. Solid waste disposal practices within the oil and natural gas and related industries have improved over the years with the passage and implementation of various environmental laws and regulations. Nevertheless, some petroleum products and other solid wastes have been disposed of on, or under, various properties owned or leased by us during the operating history of those facilities. In addition, a number of these properties may have been operated by third parties over whom we had no control as to such entities’ handling of petroleum products or other wastes and the manner in which such substances may have been disposed of or released. These properties and the wastes disposed of

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thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, we could be required to remove or remediate previously disposed wastes or property contamination, including groundwater contamination, or to take action to prevent future contamination.

Employee Safety. We are subject to the requirements of OSHA, the purpose of which is to protect the health and safety of workers. In addition, the OSHA hazard communication standard and comparable state statutes require us to organize and disclose information concerning hazardous materials used, produced or transported in our operations. Some of our facilities are subject to the OSHA Process Safety Management regulations that are designated to prevent or minimize the consequences of catastrophic releases of toxic, reactive, flammable or explosive chemicals.

Hazardous Materials Transportation Requirements. DOT regulations affecting pipeline safety require pipeline operators to implement measures designed to reduce the environmental impact of oil discharge from onshore oil pipelines. These regulations require operators to maintain comprehensive spill response plans, including extensive spill response training for pipeline personnel. In addition, DOT regulations contain detailed specifications for pipeline operation and maintenance.

Anti-Terrorism Measures. The federal Department of Homeland Security Appropriations Act of 2007 requires the Department of Homeland Security, or DHS, to issue regulations establishing risk-based performance standards for the security of chemical and industrial facilities, including oil and gas facilities that are deemed to present “high levels of security risk.” The DHS issued an interim final rule in April 2007 regarding risk-based performance standards to be attained pursuant to this act and, on November 20, 2007, further issued an Appendix A to the interim rules that establish chemicals of interest and their respective threshold quantities that will trigger compliance with the interim rules. To the extent our facilities are subject to existing or new rules, it is possible that the costs to comply with such rules could be substantial.

Title to Properties

Substantially all of our pipelines are constructed on rights-of-way granted by the record owners of the property. Lands over which pipeline rights-of-way have been obtained may be subject to prior liens that have not been subordinated to the right-of-way grants. We have obtained, where necessary, easement agreements from public authorities and railroad companies to cross over or under, or to lay facilities in or along, watercourses, county roads, municipal streets, railroad properties and state highways, as applicable. In some cases, property on which our pipeline was built was purchased in fee. Our Cushing storage terminal and Platteville facility are on real property owned by us.

We believe that we have satisfactory title to all of the assets we own. Although title to such properties is subject to encumbrances in certain cases, such as customary interests generally retained in connection with acquisition of real property, liens related to environmental liabilities associated with historical operations, liens for current taxes and other burdens and minor easements, restrictions and other encumbrances to which the underlying properties were subject at the time of acquisition by us, we believe that none of these burdens will materially detract from the value of such properties or from our interest therein or will materially interfere with their use in the operation of our business.

Office Facilities

In addition to our gathering, transportation and storage facilities described above, our general partner maintains its office headquarters in Tulsa, Oklahoma. We also have satellite offices located in Oklahoma City, Oklahoma, Cushing Oklahoma, Platteville, Colorado and Wichita, Kansas. The current lease for our general partner’s Tulsa headquarters expires in May 2019. While we may require additional office space as our business expands, we believe that our existing facilities are adequate to meet our needs for the immediate future, and that additional facilities will be available on commercially reasonable terms as needed.

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Employees

The officers of our general partner will manage our operations and activities. As of March 31, 2011, SemGroup employed approximately 80 people who will provide direct support to our operations. From and after the effective date of this offering, all of the employees required to conduct and support our operations will be employed by SemGroup pursuant to an omnibus agreement between us and our general partner and SemGroup. None of these employees are covered by collective bargaining agreements, and SemGroup considers its employee relations to be good.

Legal Proceedings

Manchester Securities appeal. On October 21, 2009, Manchester Securities Corporation, a creditor of SemGroup Holdings, L.P. (a subsidiary of SemGroup), filed an objection to SemGroup’s plan of reorganization. In the objection, Manchester argued that the plan of reorganization should not be confirmed because it did not provide for an alleged $50 million claim of SemGroup Holdings, L.P. against SemCrude Pipeline, L.L.C. (another subsidiary of SemGroup). On October 28, 2009, the bankruptcy court overruled the objection and entered the confirmation order approving the plan of reorganization. On November 4, 2009, Manchester filed a notice of appeal of the confirmation order. On December 4, 2009, Manchester’s appeal was docketed in the United States District Court for the District of Delaware. SemGroup filed a motion to dismiss the appeal as equitably moot. On February 18, 2011, the District Court granted SemGroup’s motion to dismiss the appeal. On March 22, 2011, Manchester filed a notice to appeal this order. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.

Luke Oil appeal. On October 21, 2009, Luke Oil Company, C&S Oil/Cross Properties, Inc., Wayne Thomas Oil and Gas and William R. Earnhardt Company (collectively, “Luke Oil”) filed an objection to the plan of reorganization “to the extent that the Plan of Reorganization may alter, impair, or otherwise adversely affect Luke Oil’s legal rights or other interests.” On October 28, 2009, the bankruptcy court overruled the Luke Oil objection and entered the confirmation order. On November 6, 2009, Luke Oil filed a notice of appeal. On December 23, 2009, Luke Oil’s appeal was docketed in the United States District Court for the District of Delaware. SemGroup filed a motion to dismiss the appeal as equitably moot. Luke Oil has filed a motion to stay the briefing on SemGroup’s motion to dismiss. On February 18, 2011, the District Court denied the stay motion and ordered the parties to complete briefing. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.

Claims reconciliation process. A large number of parties have made claims against us for obligations alleged to have been incurred prior to the Petition Date. On September 15, 2010, the bankruptcy court entered an order estimating the contingent, unliquidated and disputed claims and authorizing distributions to holders of allowed claims. Pursuant to that order SemGroup has begun making distributions to the claimants. SemGroup continues to attempt to settle unresolved claims.

Pursuant to the plan of reorganization, SemGroup committed to settle authorized and allowed bankruptcy claims by paying a specified amount of cash, issuing a specified number of warrants, and issuing a specified number of shares of SemGroup Corporation common stock. SemGroup does not believe the resolution of the remaining outstanding claims will exceed the total amount of consideration established under the plan of reorganization for all claimants; instead, the resolutions of the remaining claims in some cases will impact the relative share of the established pool of common stock and warrants that certain claimants receive.

However, under certain circumstances SemGroup could be required to pay additional funds to settle the specified group of claims to be settled with cash. Pursuant to the plan of reorganization, a specified amount of restricted cash was set aside at time of SemGroup’s emergence from bankruptcy, which SemGroup expects to be

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sufficient to settle this group of claims. Since that time, SemGroup has made significant progress in resolving these claims, and SemGroup continues to believe that the cash set aside at that time will be sufficient to settle these claims. However, SemGroup has not yet reached a resolutions of all of these claims, and if the total settlement amount of all of these claims exceeds the specified amount, SemGroup will be required to pay additional funds to satisfy the total settlement amount for this specified group of claims. If this were to become probable of occurring, SemGroup would be required to record a liability and a corresponding expense, and we could be required to share in this expense.

PEMEX lawsuit. On May 26, 2011, PEMEX Exploración y Producción (“PEMEX”) filed a lawsuit against several defendants, including SemCrude, L.P., in federal court in Texas. The lawsuit alleges that SemCrude purchased at least $10.4 million of condensate that had been stolen from PEMEX. The lawsuit does not allege that SemCrude knew the condensate had been stolen, and states that PEMEX “does not allege that SemCrude acted with intent or knowledge that it was a part of any conspiracy.” The lawsuit seeks damages from SemCrude in the amount of the purchased condensate, plus attorneys’ fees and statutory penalties. We cannot reliably predict the final outcome of this matter as this lawsuit has only recently been filed.

KDHE matter. The Kansas Department of Health and Environment (“KDHE”) initiated discussions during SemGroup’s bankruptcy proceeding regarding five of our sites in Kansas that KDHE believes, based on their historical use, may have soil or groundwater contamination in excess of state standards. At the present time, no contamination has been confirmed. KDHE sought SemGroup’s agreement to undertake assessments of these sites to determine whether they are contaminated. SemGroup 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. At the present time, no violation of law has been alleged and the amount of this potential cleanup cannot be determined because it is not yet known whether these sites are contaminated.

We are also party to various 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 combined financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our combined liabilities may change materially as circumstances develop.

Risk Governance and Comprehensive Risk Management Policy

The board of directors of our general partner is responsible for oversight of our enterprise-wide risk and has approved our comprehensive risk management policy. The comprehensive risk management policy is designed to ensure we: identify and communicate our risk appetite and risk tolerances; establish an organizational structure that prudently separates responsibilities for executing, valuing and reporting our business activities; value (where appropriate), report and manage all material business risks in a timely and accurate manner; effectively delegate authority for committing our resources; foster the efficient use of capital and collateral; and minimize the risk of a material adverse event. The audit committee of the board of directors of our general partner has oversight responsibilities for the implementation of, and compliance with, our comprehensive risk management policy.

Our risk management committee, comprised of certain of our general partner’s corporate and business segment officers, oversees the financial and non-financial risks associated with all activities governed by our comprehensive risk management policy, including: asset operations; marketing and trading; investments, divestitures, and other capital expenditures and dispositions; credit risk management; and other strategic activities. We also have a risk management group that is assigned responsibility for independently monitoring compliance with, reporting on, and enforcing the provisions of our comprehensive risk management policy.

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With respect to our commodity marketing activities, our comprehensive risk management policy provides a set of limits for specified activities related to the purchase and sale of physical commodities, the purchase and sale of derivatives and capital transactions involving market and credit risk. With respect to market risk activities involving commodity price risk, our comprehensive risk management policy provides a set of limits that considers our commodity and owned and leased asset positions. Our comprehensive risk management policy also specifies the types of transactions that may be executed by incumbents of named positions without specific approval of the board of directors of our general partner or the risk management committee. It also restricts proprietary trading activities within limits significantly more restrictive than the corporate market risk management limits.

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MANAGEMENT

Management of Rose Rock Midstream, L.P.

Our general partner will manage our operations and activities on our behalf through its directors and officers. All of our executive officers will be employed and compensated by our general partner, and references to “our officers” and “our directors” refer to the officers and directors of our general partner. Our general partner is not elected by our unitholders and will not be subject to re-election in the future. The directors of our general partner oversee our operations. Unitholders will not be entitled to elect the directors of our general partner, which will all be appointed by SemGroup, or directly or indirectly participate in our management or operations. Our general partner will, however, be accountable to us and our unitholders as a fiduciary. Fiduciary duties owed to unitholders by our general partner are prescribed by law and our partnership agreement, which contains various provisions modifying and restricting the fiduciary duties that might otherwise be owed by our general partner.

Upon the closing of this offering, we expect that our general partner will have at least five directors, at least one of whom will be independent as defined under the independence standards established by the NYSE and the Exchange Act. The NYSE does not require a listed publicly traded partnership, such as ours, to have a majority of independent directors on the board of directors of our general partner or to establish a compensation committee or a nominating committee. We are, however, required to have an audit committee of at least three members, and all its members are required to meet the independence and experience standards established by the NYSE and the Exchange Act, subject to certain transitional relief during the one-year period following consummation of this offering.

Following the consummation of this offering, our general partner will not receive any management fee or other compensation in connection with its management of our business, but we will reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not limit the amount of expenses for which it and its affiliates may be reimbursed. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us.

Directors and Executive Officers

Directors are appointed for a term of one year and hold office until their successors have been elected or qualified or until the earlier of their death, resignation, removal or disqualification. Officers serve at the discretion of the board. The following table shows information for the directors and executive officers of our general partner.


Name	Age		Position with Rose Rock Midstream GP, LLC
Norman J. Szydlowski		60	President, Chief Executive Officer and Director
Peter L. Schwiering		67	Chief Operating Officer and Director
Robert N. Fitzgerald		52	Senior Vice President, Chief Financial Officer and Director
Timothy O’Sullivan		54	Vice President and Director
Candice L. Cheeseman		55	General Counsel and Secretary
Paul Largess		60	Vice President, Controller and Chief Accounting Officer
Deborah S. Fleming		55	Vice President and Treasurer

Norman J. Szydlowski. Mr. Szydlowski is the President and Chief Executive Officer and a director of Rose Rock Midstream GP, LLC. Mr. Szydlowski has also served as a director and as President and Chief Executive Officer of SemGroup Corporation since November 2009. From January 2006 until January 2009, Mr. Szydlowski served as president and chief executive officer of Colonial Pipeline Company, an interstate common carrier of petroleum products. From 2004 to 2005, he served as a senior consultant to the Iraqi Ministry of Oil in Baghdad on behalf of the U.S. Department of Defense, where he led an advisory team in the rehabilitation, infrastructure security and development of future strategy of the Iraqi oil sector. From 2002 until 2004, he served as vice

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president of refining for Chevron Corporation (formerly ChevronTexaco), one of the world’s largest integrated energy companies. Mr. Szydlowski joined Chevron in 1981 and served in various capacities of increasing responsibility in sales, planning, supply chain management, refining and plant operations, transportation and construction engineering.

As the current President and Chief Executive Officer of SemGroup Corporation, Mr. Szydlowski provides a management representative on the board of directors of our general partner with knowledge of the day-to-day operations of SemGroup obtained as a result of his role. Thus, he can facilitate the board’s access to timely and relevant information and its oversight of management’s strategy, planning and performance. In addition, Mr. Szydlowski brings to the board considerable management and leadership experience, most recently as president and chief executive officer of Colonial Pipeline Company, and extensive knowledge of the energy industry and of our business gained during his 29-year career in the energy business.

Peter L. Schwiering. Mr. Schwiering is the Chief Operating Officer and a director of Rose Rock Midstream GP, LLC. He also serves as President of SemCrude, L.P., a position he has held since August 2009. Mr. Schwiering joined SemCrude, L.P. in 2000 as Vice President of Operations. Prior to joining SemCrude, L.P., Mr. Schwiering worked for Dynegy Pipeline as manager of pipeline and commercial business. He also served with Sun Company for 15 years in various positions, last serving as the company’s manager of business development – Western Region, based in Oklahoma. Mr. Schwiering’s over 25 years of experience in the midstream energy industry along with his knowledge of our assets from his experience as president of SemCrude, L.P. provide him with the necessary skills to serve as a member of the board of directors of our general partner.

Robert N. Fitzgerald. Mr. Fitzgerald is the Senior Vice President and Chief Financial Officer and a director of Rose Rock Midstream GP, LLC. Mr. Fitzgerald joined SemGroup Corporation in November 2009 and serves as SemGroup Corporation’s Senior Vice President and Chief Financial Officer. Prior to joining SemGroup, Mr. Fitzgerald served as chief financial officer from February 2008 to November 2009 of Windsor Energy Group, a private independent oil and gas exploration and development company. He has also served from December 2006 until February 2008 as executive vice president of LinkAmerica Corp. and from January 2003 until December 2006 as chief operating officer and chief financial officer of Arrow Trucking Company, both commodity transportation companies. From January 2000 until January 2003, he served as vice president, finance of Williams Communications Group, a global communication company. Prior to that, Mr. Fitzgerald was with BP Amoco and Amoco Corporation for 20 years, working in various financial and operations positions in Tulsa, Oklahoma; Houston, Texas; Denver, Colorado; and Chicago, Illinois. Mr. Fitzgerald is currently a member of the American Institute of Certified Public Accountants, the Institute of Management Accountants and the Institute of Internal Auditors. He is a certified public accountant. Mr. Fitzgerald’s over 20 years of financial and operational experience, in general, and experience in the energy industry, in particular, including his experience with SemGroup Corporation, provide him with the necessary skills to serve as a member of the board of directors of our general partner.

Timothy O’Sullivan. Mr. O’Sullivan is the Vice President and a director of Rose Rock Midstream GP, LLC. Mr. O’Sullivan also serves as Vice President, Corporate Planning and Strategic Initiatives of SemGroup Corporation, a position he has held since April 2010. From February 2005 until April 2010, he served as President and Chief Operating Officer of SemGas. From 2001 until joining SemGroup Corporation, Mr. O’Sullivan worked for Williams Power Company where he was director of global gas and power origination. He was previously employed with Koch Industries, Inc. for 19 years where he served in various capacities in its natural gas division, including business development, marketing and trading, and executive management. Mr. O’Sullivan began his career as a staff accountant for Main Hurdman. Mr. O’Sullivan is a member of the board of directors of the Gas Processors Association and serves on its Executive and Finance Committee. Mr. O’Sullivan’s experience with SemGroup Corporation and its affiliates along with his over 20 years of experience in the energy industry provide him with the necessary skills to serve as a member of the board of director of our general partner.

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Candice L. Cheeseman. Ms. Cheeseman is the General Counsel and Secretary of Rose Rock Midstream GP, LLC. Ms. Cheeseman joined SemGroup Corporation in February 2010 and serves as SemGroup Corporation’s General Counsel and Secretary. Prior to joining SemGroup Corporation, Ms. Cheeseman served as general counsel of Global Power Equipment Group Inc., a comprehensive provider of power generation equipment and maintenance services for energy customers, since May 2004. In September 2006, Global Power Equipment Group Inc. and its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. Global Power Equipment Group and its subsidiaries emerged from bankruptcy protection in January 2008. Prior to Global Power, she was employed by WilTel Communications Group, an internet, data, voice and video service provider, where she served in a variety of capacities, including general counsel and secretary, commencing in November 2002. Ms. Cheeseman has been a practicing attorney for two decades serving in various capacities for Williams Communications, Marriott International and law firms in the Washington D.C. area.

Paul Largess. Mr. Largess is the Vice President, Chief Accounting Officer and Controller of Rose Rock Midstream GP, LLC. He has also serves as Vice President, Chief Accounting Officer and Controller of SemGroup Corporation, a position held since November 2009. From 2007 to 2009, he worked as a consultant and at the University of Tulsa as an adjunct professor of accounting. Mr. Largess retired as controller of CITGO Petroleum Corporation in 2006, after 21 years of service in a number of positions in accounting, finance and audit. Prior to joining CITGO, Mr. Largess worked as an auditor with Texaco and in public accounting. He serves on the board of directors of ADDvantage Technologies Group, Inc., as chairman of its audit committee and as a member of its corporate governance committee and nominating committee. Mr. Largess is a certified public accountant.

Deborah S. Fleming. Ms. Fleming is Vice President and Treasurer of Rose Rock Midstream GP, LLC. Ms. Fleming joined SemGroup Corporation in August 2010 and serves as SemGroup Corporation’s Vice President and Treasurer. During 2009 and early 2010, she served as an adjunct professor of graduate finance in the Meinders School of Business at Oklahoma City University. Ms. Fleming served as treasurer of OGE Energy Corporation from 2004 to 2009, also serving as vice president from 2006 to 2009. She also formerly served as assistant treasurer for The Williams Companies, Inc. Ms. Fleming is a Chartered Financial Analyst (CFA) and a Certified Treasury Professional (CTP).

Director Independence

In accordance with the rules of the NYSE, SemGroup must appoint at least one independent director prior to the listing of our common units on the NYSE, one additional member within 90 days of that listing, and one additional independent member within 12 months of that listing. SemGroup may not have appointed all three independent directors to the board of directors of our general partner by the date our common units first trade on the NYSE.

Committees of the Board of Directors

The board of directors of our general partner will have an audit committee and a conflicts committee. We do not expect that we will have a compensation committee, but rather that our board of directors will approve equity grants to directors and employees.

Audit Committee

We are required to have an audit committee of at least three members, and all its members are required to meet the independence and experience standards established by the NYSE and the Exchange Act, subject to certain transitional relief during the one-year period following consummation of this offering as described above. The audit committee of the board of directors of our general partner will serve as our audit committee and will assist the board in its oversight of the integrity of our combined financial statements and our compliance with

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legal and regulatory requirements and partnership policies and controls. The audit committee will have the sole authority to (1) retain and terminate our independent registered public accounting firm, (2) approve all auditing services and related fees and the terms thereof performed by our independent registered public accounting firm, and (3) pre-approve any non-audit services and tax services to be rendered by our independent registered public accounting firm. The audit committee will also be responsible for confirming the independence and objectivity of our independent registered public accounting firm. Our independent registered public accounting firm will be given unrestricted access to the audit committee and our management, as necessary.

Conflicts Committee

We expect that at least two independent members of the board of directors of our general partner will serve on a conflicts committee to review specific matters that the board believes may involve conflicts of interest (including certain transactions with SemGroup). The conflicts committee will determine if the resolution of the conflict of interest is fair and reasonable to us. The members of the special committee may not be officers or employees of our general partner or directors, officers, or employees of its affiliates and must meet the independence and experience standards established by the NYSE and the Exchange Act to serve on an audit committee of a board of directors, along with other requirements. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners and not a breach by our general partner of any duties it may owe us or our unitholders.

Compensation of Directors

The officers or employees of our general partner or of SemGroup who also serve as directors of our general partner will not receive additional compensation for their service as a director of our general partner. Following the closing of this offering, we anticipate that directors of our general partner who are not officers or employees of our general partner or of SemGroup will receive compensation for their service as directors, which compensation package has not yet been determined. In addition, non-employee directors will be reimbursed for out-of-pocket expenses in connection with attending meetings of the board of directors or its committees. Each director will be indemnified for his actions associated with being a director to the fullest extent permitted under Delaware law.

Compensation Discussion and Analysis

All of our executive officers and other employees necessary for our business to function will be employed and compensated by our general partner, subject to reimbursement by us. We and our general partner were formed in 2011; therefore, we incurred no cost or liability with respect to compensation of our executive officers, nor has our general partner accrued any liabilities for incentive compensation for our executive officers for the fiscal year ended December 31, 2010 or for any prior periods. Accordingly, we are not presenting any compensation information for historical periods. Following the closing of this offering, we expect that the most highly compensated officers of our general partner, including our general partner’s principal executive and financial officers, will be Norman J. Szydlowski, President and Chief Executive Officer (“CEO”), Robert N. Fitzgerald, Senior Vice President and Chief Financial Officer, Candice L. Cheeseman, General Counsel and Secretary, Timothy R. O’Sullivan, Vice President, and Peter L. Schwiering, Chief Operating Officer (collectively, our “named executive officers”). Employees of our general partner or its affiliates may participate in employee benefit plans and arrangements sponsored by our general partner or its affiliates, including plans that may be established by our general partner or its affiliates in the future.

Each of our named executive officers, other than Mr. Schwiering, is also a named executive officer of SemGroup and we expect that, with the exception of Mr. Schwiering, our named executive officers will devote less than a majority of their total business time to our general partner. Mr. Schwiering is also an employee of SemGroup, and we expect that he will devote approximately two-thirds of his total business time to us. Compensation paid or awarded by us in 2011 with respect to the named executive officers will reflect only the portion of compensation expense that is payable by us pursuant to the terms of the omnibus agreement, which

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will be determined based on the amount of time each named executive officer will actually spend working for us relative to the amount of time each will spend working for SemGroup.

Future compensation of our named executive officers who are employed by SemGroup will be structured in a manner similar to how SemGroup currently compensates its executive officers. The following discussion relating to compensation paid by SemGroup is based on information provided to us by SemGroup and does not purport to be a complete discussion and analysis of SemGroup’s executive compensation philosophy and practices. The elements of compensation discussed below, and SemGroup’s decisions with respect to future changes to the levels of such compensation related to our named executive officers, are subject to the discretion of the Compensation Committee of SemGroup’s Board of Directors (the “Compensation Committee”) and approval of our general partner.

SemGroup’s Compensation Philosophy

SemGroup’s compensation philosophy is to offer an executive compensation program designed to motivate high performance, ethics and alignment with the interests of its stockholders. SemGroup’s compensation program rewards executive officers for achieving performance objectives and fostering as well as demonstrating SemGroup company values through defined employee and leadership competencies. This forms the basis of SemGroup’s pay-for-performance philosophy.

To support SemGroup’s compensation philosophy, the following objectives were established:

•

Attract, motivate and retain exceptional talent with market competitive compensation;

•

Link pay to performance;

•

Drive achievement of both long-term and annual business objectives;

•

Reinforce corporate values; and

•

Align executive compensation with stockholder interests.

SemGroup designs, implements and administers its compensation program to support its philosophy and collectively achieve these objectives.

Compensation Overview

Consistent with SemGroup’s philosophy, its compensation program consists of a market-competitive pay mix designed to motivate performance that achieves SemGroup’s business objectives, is aligned with the interests of its stockholders, and is measured by obtaining the Right Results the Right Way. Right Results is an assessment of each executive’s success relative to his or her objectives as well as SemGroup’s four key foundational tenets which include his or her efforts to keep employees safe, do the right thing by the customer, follow all the rules, and be profitable and enhance stockholder value. Right Way reflects executive officer’s behavior as exhibited through SemGroup’s company values and defined leadership competencies.

SemGroup’s compensation program for its executive officers consists of the following four direct components:

•

base salary;

•

short-term incentive program;

•

long-term incentive program; and

•

benefits.

Each form of compensation accomplishes different objectives. Dividing the total compensation awarded to executive officers among these components helps SemGroup achieve a balanced set of incentives to accomplish its goals.

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Index to Financial Statements

Elements of Compensation

SemGroup’s mix of compensation includes: base pay, short-term cash incentives, long-term equity incentives and benefits. The chart below illustrates how SemGroup’s compensation design supports its compensation objectives:


Compensation Element	Compensation Objective	Key Features
Base Salary	• Attract and retain executives by providing a stable income at a level that appropriately compensates executive officers for their day to day execution of their primary duties and is consistent with the market. • Link pay to performance and reinforce corporate values by basing annual merit increases on an executive’s direct contributions.	• Annual review to ensure SemGroup’s compensation is in line with the market. • Annual adjustments based on performance rating and the market. • Compensation Committee approves base pay of CEO and other executive officers during first quarter of each year.

Short-term incentives	• Drive achievement of annual business objectives by providing short-term incentives tied to achievement of company and individual goals. • Link pay to performance by directly tying goals to SemGroup’s business objectives. • Attract talent and motivate high-performance individuals by rewarding achievement of annual performance metrics. • Reinforce corporate values through shared performance objectives with an emphasis on SemGroup’s defined employee and leadership competencies. • Align executives with stockholders by setting performance metrics that will yield strong financial results.	• Discretionary program. • Target performance measure levels set to achieve annual objectives. • Reviewed annually in relation to current market data and approved by the Compensation Committee. • Funded through the achievement of annual performance measures.

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Index to Financial Statements


Compensation Element	Compensation Objective	Key Features

Long-term incentives	• Attract, retain and motivate high-performance individuals by providing equity awards that provide opportunity to share in long-term wealth creation. • Link pay to performance by directly linking payouts to achievement of long-term performance measures. • Drive achievement of long-term business objectives by rewarding the achievement of long-term performance measures and sustained performance by SemGroup. • Align with best interests of stockholders by reinforcing the critical objective of building stockholder value over the long-term.	• In the form of equity awards under SemGroup’s Equity Incentive Plan. • Vest in increments over a three year period. • Individual targets set in relation to current market data and executive’s role at SemGroup and approved by the Compensation Committee.

Benefits	• Attract and retain individuals by offering market competitive benefits.	• Reviewed annually to ensure they are competitive with the market.

SemGroup believes that the majority of an executive’s compensation should be based on his or her contribution to the success of the company and the creation of value for its stockholders. SemGroup’s executive compensation is heavily weighted toward variable, “at risk”, pay elements based on performance. To further strengthen its alignment with stockholders, the majority of its executives’ “at risk” compensation is based on SemGroup’s long-term success.

Compensation Methodology

Setting executive pay is an annual process that involves SemGroup’s management, its Compensation Committee, its Audit Committee and compensation consultants. Pay programs are reviewed to ensure consistency with SemGroup’s compensation philosophy and business objectives. SemGroup’s Compensation Committee strives to target total direct compensation levels to be competitive with the market in which it competes for executive talent.

Each executive officer’s total compensation is reviewed in light of market conditions and individual responsibilities and accomplishments. Part of this review includes considering the appropriate compensation level and mix. Each individual element of compensation is reviewed against the market median which represents the 50^th percentile of compensation paid to similarly situated executives represented in the survey market data to ensure SemGroup’s compensation is in line with the market as compared to a peer group established by SemGroup’s Compensation Committee from time to time. Variations from the median may occur due to experience, skills, criticality of function to the company and the sustained performance of the executive.

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Index to Financial Statements

Base Salary

During the first quarter, recommendations are made by SemGroup’s CEO to the Compensation Committee on base pay for the year. The Compensation Committee considers the recommendations and approves the base pay of SemGroup’s CEO and other executive officers. Base pay affects other elements of SemGroup’s total compensation including its short-term and long-term incentives. In approving base salaries for the executive officers, the Compensation Committee considers the impact on the executive officers’ total compensation.

Short-Term Incentives

SemGroup’s executive officers participate in a short-term incentive program which rewards employees for making decisions that improve SemGroup’s performance in line with its annual objectives. Similar to base pay, competitive market information is used to determine short-term incentive targets (as expressed as a percent of base pay) for each executive officer. SemGroup’s short-term incentives are based on achievement of certain performance measures (which for 2010 were consolidated net income and consolidated EBITDA) as established by SemGroup’s Compensation Committee and attainment of these performance measures can result in payments of short-term incentives along a continuum between threshold and maximum levels, which correspond to 0% through 200% of the executive officer’s short-term incentive target.

Long-Term Incentive Awards

SemGroup provides long-term incentives in the form of equity awards under its equity incentive plan. The Compensation Committee oversees the administration of the equity incentive plan with full power and authority to determine when and to whom awards will be granted, along with the type, amount and other terms and conditions of each award.

To determine the value of equity awards to be granted to executive officers, we consider the following factors:

•

the proportion of long-term incentives relative to base pay;

•

the executive’s impact on SemGroup’s performance and ability to create value;

•

SemGroup’s long-term business objectives;

•

awards made to executives in similar positions with other comparably sized energy companies; and

•

the executive’s performance.

In addition, our general partner intends to adopt a long-term incentive plan (LTIP) primarily for the benefit of eligible officers, employees and directors of our general partner and its affiliates, including SemGroup, who perform services for us. In connection with the closing of this offering, as well as annually thereafter to reward service or performance, the board of directors of our general partner will grant awards to our general partner’s outside directors and its executive officers and key employees pursuant to the LTIP. SemGroup will determine the overall amount of all long-term equity incentive compensation to be granted annually for the officers and employees of our general partner. The portion of such compensation to be delivered from the LTIP will be granted by our general partner’s board of directors and are subject to reimbursement under our omnibus agreement. We expect the awards to our executive officers under the LTIP will be generally made on an annual basis and will vest based on the achievement of total unitholder return goals over a specified period as compared to a peer group of companies to be determined by our board.

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Index to Financial Statements

Benefits

SemGroup’s executive officers currently receive the same level of health and welfare benefits provided to all employees. In addition, SemGroup’s executive officers participate in the 401(k) Plan which provides for a matching contribution of a portion of an employee’s annual tax-deferred contribution. SemGroup’s executive officers currently receive no perquisites (perks) or supplemental benefits, except for the following:

•

Tax and Financial Planning Allowance: SemGroup provides up to $15,000 annually to SemGroup’s CEO for annual income tax return preparation and financial planning to provide expertise on current tax laws, to assist with personal financial planning and to prepare for contingencies such as death and disability. SemGroup provides this benefit in order to help its CEO keep his focus on his responsibilities at SemGroup.

Executive Severance Agreements

In June 2010, SemGroup entered into severance agreements with each of our named executive officers, other than Norman J. Szydlowski, to encourage and motivate such executive officers to devote their full attention to their duties without the distraction of concerns regarding their involuntary or constructive termination of employment. Each named executive officer is employed by SemGroup, and their services are shared with us, and we share in the expenses of their compensation under the omnibus agreement. Each severance agreement is for a term ending on the second anniversary of the date of such agreement. Additionally, each severance agreement provides for a twelve month non-compete period following the termination of employment, regardless of the reason for the termination. The definitions of certain words in quotations are provided below.

Each severance agreement generally provides that if within two years after a “change in control” of the SemGroup (i) an executive officer resigns for “good reason” or (ii) the employment of an executive officer is terminated other than for “cause,” “disability,” death or a “disqualification disaggregation,” such executive officer is entitled to the following:

•

within 10 business days after the termination data, a lump sum payment of all accrued but unpaid base salary, any accrued earned but unpaid annual bonus, accrued but unpaid vacation and any other amounts or benefits due but not paid;

•

on the first business day following six months after the termination date, a lump sum payment equal to (i) any unpaid earned annual bonus for the fiscal year prior to the fiscal year of termination; and (ii) a severance amount equal to two times his base salary as of the termination date plus an annual bonus amount equal to his target percentage multiplied by his base salary in effect at the termination date as if performance goals were achieved at 100%;

•

continued participation in SemGroup’s medical benefit plans for so long as the executive officer elects coverage or 18 months from the termination whichever is less, in the same manner and at the same cost as similarly situated active employees;

•

all unvested stock options, shares of restricted stock and restricted stock units held by the executive officer will vest and will be paid out in accordance with the terms of the respective award agreements;

•

continued participation in SemGroup’s directors’ and officers’ liability insurance for six years or any longer known applicable statute of limitations period; and

•

outplacement benefits for six months at a cost not exceeding $10,000.

Notwithstanding the foregoing, if any amount or benefit to be paid above would be an excess parachute payment (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended), then the payment to be paid or provided under a severance agreement will be reduced to the minimum extent necessary so that no portion of any such payment, as so reduced, constitutes an excess parachute payment.

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Index to Financial Statements

If an executive officer’s employment is terminated for “cause,” the executive officer is entitled to a lump sum payment of all accrued but unpaid base salary, any accrued earned but unpaid annual bonus, accrued but unpaid vacation and any other amounts or benefits due but not paid.

If an executive officer’s employment is terminated by us without cause prior to a change in control, such executive officer is entitled to the following:

•

within 30- business days after the termination date, a lump sum payment of all accrued but unpaid base salary, any accrued earned but unpaid annual bonus, accrued but unpaid vacation and any other amounts or benefits due but not paid;

•

on the first business day following six months after the termination date, a lump sum payment equal to (i) any unpaid earned annual bonus for the fiscal year prior to the fiscal year of termination; and (ii) a severance amount equal to his base salary as of the termination date plus an annual bonus amount equal to his target percentage multiplied by his base salary in effect at the termination date as if performance goals were achieved at 100%;

•

all unvested stock options, shares of restricted stock and restricted stock units held by the executive officer will only vest and will be paid out in accordance with the terms of the respective award agreements;

•

continued participation in SemGroup’s directors’ and officers’ liability insurance for six years or any known longer applicable statute of limitations period; and

•

outplacement benefits for six months at a cost not exceeding $10,000.

Pursuant to the severance agreements, during the term of the severance agreement and for a period of twelve months following the date of termination of employment, an executive officer may not, directly or indirectly, compete with us or encourage any of SemGroup’s employees to quit or leave SemGroup’s employ or solicit any third party who is an established customer of SemGroup to cease being SemGroup’s customer or take away from us the business of such customer. The severance agreements also require an executive officer to keep all SemGroup’s trade secrets and proprietary information confidential, restrict an executive officer from disparaging or criticizing us and restrict us from disparaging or criticizing the executive officer.

The severance agreements with SemGroup’s executive officers use the following definitions:

“Cause” means an executive officer’s

•

conviction of or a plea of nolo contendere to a felony or a crime involving fraud, dishonesty or moral turpitude;

•

willful or reckless material misconduct in the performance of his duties that has an adverse effect on the SemGroup or any of its subsidiaries or affiliates;

•

willful or reckless violation or disregard of SemGroup’s code of business conduct and ethics, any applicable code of ethics for SemGroup’s CEO and senior financial officers or any policy of the SemGroup or its subsidiaries; or

•

habitual or gross neglect of his or her duties.

Cause generally does not include bad judgment or negligence (other than habitual neglect or gross negligence); acts or omissions made in good faith after reasonable investigation by the executive officer or acts or omissions with respect to which SemGroup’s board of directors could determine that the executive officer had satisfied the standards of conduct for indemnification or reimbursement under SemGroup’s Certificate of Incorporation, bylaws, any applicable indemnification agreement, or applicable law; or failure (despite good faith efforts) to meet performance goals, objectives, or measures for a period beginning upon a change of control and continuing for two years or until the termination of the agreement, whichever happens first. An executive

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Index to Financial Statements

officer’s act or failure to act (except as related to a conviction or plea or nolo contendere described above), when done in good faith and with a reasonable belief after reasonable investigation that such action or non-action was in the best interest of the SemGroup or its subsidiaries or affiliates or required by law shall not be cause if the executive officer cures the action or non-action within 10 days of notice. Furthermore, no act or failure to act will be cause if the executive officer acted under the advice of counsel representing SemGroup or required by the legal process.

“Change in control” means:

•

any person or group (other than an affiliate of SemGroup or an employee benefit plan sponsored by us or its affiliates) becomes a beneficial owner, as such term is defined under the Securities Exchange Act of 1934, of 30% or more of SemGroup’s common stock or 30% or more of the combined voting power of all securities entitled to one vote generally in the election of directors (“Voting Securities”), unless such person owned both more than 70% of common stock and Voting Securities, directly or indirectly, in substantially the same proportion immediately before such acquisition;

•

SemGroup’s directors as of the date of the agreement (“Existing Directors”) and directors whose election, or nomination for election by stockholders, are approved after that date by at least two-thirds of the Existing Directors cease to constitute a majority of SemGroup’s directors;

•

consummation of any merger, reorganization, recapitalization, consolidation or similar transaction (“Reorganization Transaction”), other than a Reorganization Transaction that results in the persons who were the direct or indirect owners of outstanding common stock and Voting Securities of SemGroup prior to the transaction becoming, immediately after the transaction, the owners of at least 60% of the then outstanding common stock and Voting Securities representing at least 60% of the combined voting power of the then outstanding Voting Securities of the surviving corporation in substantially the same respective proportions as such persons’ ownership immediately before such Reorganization Transaction; or

•

approval by SemGroup’s stockholders of the sale or other disposition of all, or substantially all, of SemGroup’s consolidated assets or SemGroup’s complete liquidation other than a transaction that would result in (i) a related party owning more than 50% of the assets that were owned by SemGroup immediately prior to the transaction or (ii) the persons who were the direct or indirect owners of SemGroup’s outstanding common stock and Voting Securities prior to the transaction continuing to own directly or indirectly, 50% or more of the assets owned by SemGroup immediately prior to the transaction.

A change in control will not occur with respect to an executive officer if (i) the executive officer agrees in writing prior to an event that such an event will not be a change in control; or (ii) the Board determines that a liquidation, sale or other disposition approved by the stockholders, as described in the fourth bullet above, will not occur, except to the extent termination occurred prior to such determination.

“Disability” means a physical or mental infirmity that impairs the executive officer’s ability to substantially perform his duties for twelve months or more and for which he is receiving income replacement benefits from a SemGroup plan for not less than three months.

“Disqualification disaggregation” means the cessation of an executive officer’s employment by us or affiliates (during the period beginning upon a change in control and continuing for two years or until the termination of the agreement, whichever happens first), if the executive officer is employed by the successor in substantially the same position and the successor has assumed SemGroup’s obligations under the severance agreement.

“Good reason” means, generally, a material adverse reduction in the nature and scope of the executive officer’s office, position, duties, functions, responsibilities or authority, a reduction in the executive officer’s base salary, a reduction in the executive officer’s annual bonus, required relocation, a material reduction in the

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Index to Financial Statements

level of aggregate compensation or benefits not applicable to peer executives, a relocation of generally more than 50 miles, a successor company’s failure to honor the agreement or the failure of the board to provide written notice of the act or omission constituting “cause.”

Employment Agreements

Mr. Szydlowski entered into an employment agreement with SemGroup on November 30, 2009 which governs the terms and conditions of his employment, including his duties and responsibilities, compensation and benefits and applicable severance terms. Mr. Szydlowski is employed by SemGroup Corporation and his services are shared with us, and we share in the expenses of his compensation under the omnibus agreement. The ultimate reimbursement obligation is determined based on the amount of time Mr. Szydlowski actually spends working for us.

The employment agreement may be terminated at any time, with or without good cause or for any or no cause, by Mr. Szydlowski or by SemGroup. Mr. Szydlowski’s base salary under the agreement is $790,000 per year. In addition, Mr. Szydlowski may receive annual cash incentives payable for the achievement of certain performance goals established by SemGroup’s board of directors or the Compensation Committee. Under the agreement, he was awarded 94,800 shares of restricted stock, with vesting to occur in three equal annual installments on December 31 of 2010, 2011 and 2012. Mr. Szydlowski is entitled to reimbursement for his annual income tax preparation and financial planning up to $15,000 per year.

In the event Mr. Szydlowski’s employment is terminated by SemGroup without cause, or should Mr. Szydlowski resign for good reason, in each case not in connection with or following a change in control, Mr. Szydlowski is entitled to (i) a severance payment equal to two times his base salary in effect at the time of termination and (ii) immediate vesting of 50 percent of those shares of restricted stock awarded under the employment agreement that are unvested as of the date of termination.

Upon a change in control, all of Mr. Szydlowski’s unvested shares of restricted stock awarded under the employment agreement shall immediately vest. In the event Mr. Szydlowski’s employment is terminated by SemGroup without cause, or should Mr. Szydlowski resign for good reason, in each case in connection with or following a change in control, Mr. Szydlowski is entitled to (i) a severance payment equal to two times his base salary in effect at the time of termination and (ii) immediate vesting of any unvested shares of such restricted stock.

The receipt by Mr. Szydlowski of any payments or benefits pursuant to his employment agreement is subject to his compliance with the following restrictions set forth in the employment agreement:

•

for a period of two years following the date of termination, Mr. Szydlowski is restricted from disparaging or criticizing SemGroup and SemGroup is restricted from disparaging or criticizing him;

•

for a period of five years following the date of termination, Mr. Szydlowski must keep all of SemGroup’s trade secrets and proprietary information confidential;

•

for a period of eighteen months following the date of termination, Mr. Szydlowski may not, directly or indirectly, compete with SemGroup; and

•

for a period of two years following the date of termination, Mr. Szydlowski may not, directly or indirectly, encourage any of SemGroup employees to quit or leave SemGroup’s employ or solicit any third party who is SemGroup’s customer to cease being their customer or take away from them the business of such customer.

Regardless of the manner in which Mr. Szydlowski’s employment terminates, he is entitled to receive amounts earned during his term of employment, including accrued salary, accrued, but unused, vacation pay and unreimbursed business expenses.

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Index to Financial Statements

Cause is defined in Mr. Szydlowski’s employment agreement as:

•

he has committed a willful serious act, such as embezzlement against SemGroup or other wrongful act intending to enrich himself at the expense of SemGroup or conviction of a felony;

•

he has engaged in willful or wanton improper conduct that has caused demonstrable and serious injury, monetary or otherwise, to SemGroup;

•

in carrying out his duties he has been guilty of willful gross neglect or willful gross misconduct, resulting in either case in material harm to SemGroup; or

•

he has refused to carry out his duties in gross dereliction of duty and, after receiving written notice to such effect from SemGroup’s Chairman of the Board, he fails to cure the existing problem within 30 days.

Good reason is defined in Mr. Szydlowski’s employment agreement as the occurrence of any of the following, without his express written consent:

•

a significant reduction of his responsibilities, relative to his responsibilities in effect immediately prior to such reduction, including a reduction in responsibilities by virtue of a change in control;

•

a material reduction in the kind or level of welfare and/or retirement benefits relative to the benefits to which he is entitled immediately prior to such reduction with the result that his overall benefits package is significantly reduced other than pursuant to a reduction that also is applied to substantially all other executive officers of SemGroup; or

•

the failure of SemGroup to comply with its obligations and commitments under the employment agreement, which failure is not cured within 30 days after written notice to SemGroup (which notice and opportunity to cure shall not be required if it is apparent that SemGroup lacks the ability or willingness to so comply).

A change in control is defined in Mr. Szydlowski’s employment agreement as the occurrence of any of the following events:

•

any consolidation, amalgamation or merger of SemGroup with or into any other person, or any other corporate reorganization, business combination, transaction or transfer of securities of SemGroup by its stockholders, or a series of transactions (including the acquisition of capital stock of SemGroup), whether or not SemGroup is a party thereto, in which the stockholders of SemGroup immediately prior to such consolidation, merger, reorganization, business combination or transaction, collectively have beneficial ownership, directly or indirectly, of capital stock representing directly, or indirectly through one or more entities, less than fifty percent (50%) of the equity (measured by economic value or voting power (by contract, share ownership or otherwise) of SemGroup or other surviving entity immediately after such consolidation, merger, reorganization, business combination or transaction;

•

the sale or disposition, in one transaction or a series of related transactions, of all or substantially all of the assets of SemGroup to any person;

•

during any period of twelve consecutive months, individuals who, as of the beginning of such period, constituted SemGroup’s entire board of directors (together with any new directors whose election by such board or nomination for election by SemGroup’s stockholders was approved by a vote of at least two-thirds of the directors of SemGroup, then still in office, who were directors at the beginning of the period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority thereof; or

•

approval by the stockholders of a complete liquidation or dissolution of SemGroup.

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Index to Financial Statements

Compensation Program as it Relates to Risk

SemGroup has reviewed its compensation policies and practices for both executives and non-executives as they relate to risk and have determined that at this time they are not reasonably likely to have a material adverse effect on SemGroup.

In reaching this conclusion, SemGroup considered the various elements of SemGroup’s compensation program that are designed to help mitigate excessive risk taking, including:

•

Components of Compensation: SemGroup uses a mix of compensation elements including base salary, short-term incentives and long-term incentives to avoid placing too much emphasis on any one component of compensation.

•

Level of Compensation: SemGroup’s total direct compensation is designed to be competitive with the marketplace and aligned with the interest of its stockholders.

•

Short-term Incentive: SemGroup’s short-term incentive plan does not allow for unlimited payouts. Short-term incentive payments cannot exceed 200% of target levels. SemGroup’s short-term incentive is discretionary and is subject to the Compensation Committee’s approval.

•

Equity Awards: SemGroup’s restricted stock awards drive a long-term perspective and vest over a three-year period.

•

Board/Compensation Committee Oversight: The board of directors and the Compensation Committee maintain full discretion of reviewing and administering all awards under short- and long-term incentive plans.

•

Performance Measures: SemGroup’s performance goal setting process is aligned with SemGroup’s business strategy and SemGroup’s key foundational tenets.

•

Comprehensive Risk Management Policy: SemGroup’s policy provides that employees will not be compensated for exposing us to undue risk as determined by its senior management and/or board of directors.

SemGroup’s compensation program is intended to motivate executive officers and employees to achieve business objectives that generate stockholder returns while demonstrating behaviors that are consistent with SemGroup’s values.

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Index to Financial Statements

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of units following the closing of this offering and the related transactions by:

•

each person who is known to us to beneficially own 5% or more of such units to be outstanding;

•

our general partner;

•

each of the directors and named executive officers of our general partner; and

•

all of the directors and executive officers of our general partner as a group.

All information with respect to beneficial ownership has been furnished by the respective directors, officers or 5% or more unitholders as the case may be.

Our general partner is wholly owned by SemGroup.

The amounts and percentage of units beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. In computing the number of common units beneficially owned by a person and the percentage ownership of that person, common units subject to options held by that person that are currently exercisable or exercisable within 60 days of , 2011, if any, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all units shown as beneficially owned by them, subject to community property laws where applicable.

The percentage of units beneficially owned is based on a total of common units and subordinated units outstanding immediately following this offering.

Name of Beneficial Owner(1)

Common Units
to be
Beneficially
Owned

Percentage of
Common Units
to be
Beneficially
Owned

Subordinated Units
to be Beneficially
Owned

Percentage of
Subordinated Units
to be Beneficially
Owned

Percentage of Total
Common and
Subordinated Units
to be Beneficially
Owned

SemGroup Corporation(2)

Norman J. Szydlowski

Peter L. Schwiering

Robert N. Fitzgerald

Timothy O’Sullivan

Candice L. Cheeseman

Paul Largess

Deborah S. Fleming

All directors and executive officers as a group
(7 persons)

*	Less than 1%.

(1)	Unless otherwise indicated, the address for all beneficial owners in this table is Two Warren Place, 6120 S. Yale Avenue, Suite 700, Tulsa, Oklahoma 74136-4216.

(2)	SemGroup Corporation may be deemed to beneficially own the common units and subordinated units held by Rose Rock Midstream Holdings, LLC.

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Index to Financial Statements

The following table sets forth, as of August 1, 2011, the number of shares of SemGroup’s Class A common stock owned by each of the directors and executive officers of our general partner and all directors and executive officers of our general partner as a group. None of the directors or executive officers beneficially owns any of SemGroup’s Class B common stock.


Name of Beneficial Owner(1)	Shares of Class A Common Stock Owned Directly or Indirectly		Shares of Class A Common Stock Underlying Options Exercisable Within 60 Days		Total Shares of Class A Common Stock Beneficially Owned(2)		Percentage of Total Shares of Class A Common Stock Beneficially Owned
Norman J. Szydlowski(3)		115,231		—		115,231		*
Peter L. Schwiering		12,450		—		12,450		*
Robert N. Fitzgerald		25,646		—		25,646		*
Timothy O’Sullivan		8,773		—		8,773		*
Candice L. Cheeseman		21,361		—		21,361		*
Paul Largess		8,698		—		8,698		*
Deborah S. Fleming		10,380		—		10,380		*
All directors and executive officers as a group (7 persons)		202,439		—		202,439		*

*	Less than 1%.

(1)	Unless otherwise indicated, the address for all beneficial owners in this table is Two Warren Place, 6120 S. Yale Avenue, Suite 700, Tulsa, Oklahoma 74136-4216.

(2)	Shares beneficially owned include shares of restricted Class A common stock held by the directors and executive officers over which they have voting power but not investment power.

(3)	Of the 115,231 shares held by Mr. Szydlowski, 31,600 shares are held of record by the Szydlowski Family Trust Agreement, dated June 9, 2004, of which Mr. Szydlowski is the trustee.

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Index to Financial Statements

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Immediately following the closing of this offering, SemGroup will own common units and subordinated units, representing a combined % limited partner interest in us (or common units and subordinated units, representing a combined % limited partner interest in us, if the underwriters exercise their option to purchase additional common units in full). In addition, SemGroup will own and control our general partner, which will own a 2.0% general partner interest in us and all of our incentive distribution rights.

Distributions and Payments to our General Partner and its Affiliates

The following table summarizes the distributions and payments to be made by us to our general partner and its affiliates in connection with our formation, ongoing operation and any liquidation of Rose Rock Midstream, L.P. These distributions and payments were determined by and among affiliated entities and, consequently, are not the result of arm’s-length negotiations.

Pre-IPO Stage

The consideration received by our general partner and its affiliates prior to or in connection with this offering

• common units;

• subordinated units;

• all of our incentive distribution rights; and

• 2.0% general partner interest.

Post-IPO Stage

Distributions of available cash to our general partner and its affiliates

We will initially make cash distributions 98.0% to our unitholders pro rata, including SemGroup, as the holder of an aggregate of common units and subordinated units, and 2.0% to our general partner, assuming it makes any capital contributions necessary to maintain its 2.0% general partner interest in us. In addition, if distributions exceed the minimum quarterly distribution and target distribution levels, the incentive distribution rights held by our general partner will entitle our general partner to increasing percentages of the distributions, up to 48.0% of the distributions above the highest target distribution level.

Assuming we have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units for four quarters, our general partner and its affiliates would receive an annual distribution of approximately $ million on its 2.0% general partner interest and SemGroup would receive an annual distribution of approximately $ million on its common units and subordinated units.

Payments to our general partner and its affiliates

Our general partner will not receive a management fee or other compensation for its management of us. However, we will reimburse our general partner and its affiliates for all expenses incurred on our behalf. Our partnership agreement provides that our general partner will determine the amount of these reimbursed expenses.

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Withdrawal or removal of our general partner

If our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. Please read “The Partnership Agreement—Withdrawal or Removal of Our General Partner.”

Liquidation Stage

Liquidation

Upon our liquidation, our partners, including our general partner, will be entitled to receive liquidating distributions according to their particular capital account balances.

Agreements with Affiliates

We and other parties have or will enter into the various documents and agreements with certain of our affiliates, as described in more detail below. These agreements will affect the offering transactions, including the vesting of assets in, and the assumptions of liabilities by, us and our subsidiaries, and the application of the proceeds of this offering. These agreements have been negotiated among affiliated parties and, consequently, are not the result of arm’s-length negotiations.

Contribution Agreement

In connection with the closing of this offering, we will enter into a contribution agreement that will effect the formation transactions, including:

•

the distribution by SemCrude, L.P to SemGroup of:

•

all of its interests in SemCrude Pipeline, L.L.C., which holds a 51% interest in the White Cliffs Pipeline;

•

cash and accounts receivable; and

•

certain inactive assets and related liabilities; and

•

the contribution by SemGroup to us of all of its interests in SemCrude, L.P., which owns all of our initial assets.

All of the transaction expenses incurred in connection with these formation transactions will be paid from the proceeds of this offering.

Omnibus Agreement

In connection with the closing of this offering, we will enter into an omnibus agreement with our general partner and SemGroup that will address certain aspects of our relationship with them, including:

•

our use of the name “Rose Rock” and related marks; and

•

certain indemnification obligations.

The omnibus agreement can be amended by written agreement of all parties to the agreement. However, we may not agree to any amendment or modification that would, in the determination of our general partner, be adverse in any material respect to the holders of our common units without prior approval of the conflicts committee. In the event of (i) a “change in control” (as defined in the omnibus agreement) of us or our general partner or (ii) the removal of Rose Rock Midstream GP, LLC as our general partner in circumstances where

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“cause” (as defined in our partnership agreement) does not exist and the common units held by SemGroup and its affiliates were not voted in favor of such removal, in either case, the omnibus agreement will terminate, and we will have a 90-day transition period to cease our use of the name “Rose Rock” and related marks.

In addition, we will also agree to indemnify SemGroup from any losses, costs or damages incurred by it or its affiliates (other than us) that are attributable to the ownership and operation of our assets and the assets of our subsidiaries following the closing of this offering.

In no event will SemGroup or we, as applicable, be obligated to indemnify the other party for any claims, losses or expenses or income taxes referred to above to the extent any such amounts are either (i) reserved for in our financial statements as of the closing of this offering, or (ii) recovered by the indemnified party under available insurance coverage, from contractual rights or against any third party.

SemGroup and its affiliates will not be restricted, under either our partnership agreement or the omnibus agreement, from competing with us. SemGroup will be permitted to compete with us and may acquire or dispose of midstream or other assets in the future without any obligation to offer us the opportunity to purchase those assets.

Other Transactions with Related Persons

We have historically engaged in certain transactions with other subsidiaries of SemGroup. These transactions included:

•

providing leased storage and management services for White Cliffs Pipeline, which generated $0.5 million of revenues in the three months ended March 31, 2011 and $1.5 million of revenues in year ended December 31, 2010;

•

purchasing condensate for SemStream, L.P., certain of which purchases were fixed price forward purchases, which we recorded at fair value at each balance sheet date, with the unrealized gains being recorded to revenue. For the three months ended March 31, 2011, we purchased $12.9 million of condensate from SemStream, L.P. and recorded $0.8 million of unrealized gains from these transactions. For the year ended December 31, 2010, we purchased $36.8 million of condensate from SemStream, L.P. and recorded $1.4 million of unrealized gains from these transactions;

•

purchasing condensate for SemGas, L.P. For the three months ended March 31, 2011 and for the year ended December 31, 2010, we purchased $1.5 million and $4.4 million of condensate, respectively, from SemGas, L.P.; and

•

participating in SemGroup’s cash management program, pursuant to which cash we received from customers was transferred to SemGroup on a regular basis, and when we remitted payments to suppliers, SemGroup transferred cash to us to cover the payments.

For information regarding our historical related party transactions, please read Note 12 to our audited financial statements beginning on page F-45.

Procedures for Review, Approval and Ratification of Related-Person Transactions

The board of directors of our general partner will adopt a code of business conduct and ethics in connection with the closing of this offering that will provide that the board of directors of our general partner or its authorized committee will periodically review all related-person transactions that are required to be disclosed under SEC rules and, when appropriate, initially authorize or ratify all such transactions. In the event that the board of directors of our general partner or its authorized committee considers ratification of a related-person transaction and determines not to so ratify, the code of business conduct and ethics will provide that our management will make all reasonable efforts to cancel or annul the transaction.

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The code of business conduct and ethics will provide that, in determining whether to recommend the initial approval or ratification of a related-person transaction, the board of directors of our general partner or its authorized committee should consider all of the relevant facts and circumstances available, including (if applicable) but not limited to: (i) whether there is an appropriate business justification for the transaction; (ii) the benefits that accrue to us as a result of the transaction; (iii) the terms available to unrelated third parties entering into similar transactions; (iv) the impact of the transaction on director independence (in the event the related person is a director, an immediate family member of a director or an entity in which a director or an immediately family member of a director is a partner, shareholder, member or executive officer); (v) the availability of other sources for comparable products or services; (vi) whether it is a single transaction or a series of ongoing, related transactions; and (vii) whether entering into the transaction would be consistent with the code of business conduct and ethics.

The code of business conduct and ethics described above will be adopted in connection with the closing of this offering, and as a result the transactions described above were not reviewed under such policy.

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CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

Conflicts of Interest

Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates (including SemGroup), on the one hand, and us and our unaffiliated limited partners, on the other hand. The directors and executive officers of our general partner have fiduciary duties to manage our general partner in a manner beneficial to its owners. At the same time, our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders.

Whenever a conflict arises between our general partner or its affiliates, on the one hand, and us and our limited partners, on the other hand, our general partner will resolve that conflict. Our partnership agreement contains provisions that modify and limit our general partner’s fiduciary duties to our unitholders. Our partnership agreement also restricts the remedies available to unitholders for actions taken by our general partner that, without those limitations, might constitute breaches of its fiduciary duty.

Our general partner will not be in breach of its obligations under the partnership agreement or its fiduciary duties to us or our unitholders if the resolution of the conflict is:

•

approved by the Conflicts Committee, although our general partner is not obligated to seek such approval;

•

approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates;

•

on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

•

fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us.

Our general partner may, but is not required to, seek the approval of such resolution from the Conflicts Committee. In connection with a situation involving a conflict of interest, any determination by our general partner involving the resolution of the conflict of interest must be made in good faith, provided that, if our general partner does not seek approval from the Conflicts Committee and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the third and fourth bullet points above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the Partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our partnership agreement, our general partner or the Conflicts Committee may consider any factors it determines in good faith to consider when resolving a conflict. When our partnership agreement requires someone to act in good faith, it requires that person to have an honest belief that he is acting in the best interests of the partnership.

Conflicts of interest could arise in the situations described below, among others.

SemGroup may compete with us.

Our partnership agreement provides that our general partner will be restricted from engaging in any business activities other than acting as our general partner (or as general partner of another company of which we are a partner or member) or those activities incidental to its ownership of interests in us. However, certain affiliates of our general partner, including SemGroup, are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us.

Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not apply to our general partner or any of its affiliates, including its executive officers, directors

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and SemGroup. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. Therefore, SemGroup may compete with us for investment opportunities and may own an interest in entities that compete with us.

Our general partner is allowed to take into account the interests of parties other than us, such as SemGroup, in resolving conflicts.

Our partnership agreement contains provisions that reduce the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include the exercise of our general partner’s limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of the partnership.

Our partnership agreement limits the liability and reduces the fiduciary duties owed by our general partner, and also restricts the remedies available to our unitholders for actions that, without those limitations, might constitute breaches of its fiduciary duty.

In addition to the provisions described above, our partnership agreement contains provisions that restrict the remedies available to our unitholders for actions that might otherwise constitute breaches of our general partner’s fiduciary duty. For example, our partnership agreement:

•

provides that our general partner shall not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as such decisions are made in good faith, which means the honest belief that the decision is in our best interest;

•

provides generally that affiliated transactions and resolutions of conflicts of interest not approved by the Conflicts Committee and not involving a vote of unitholders must either be (1) on terms no less favorable to us than those generally being provided to or available from unrelated third parties or (2) “fair and reasonable” to us, as determined by our general partner in good faith, provided that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and

•

provides that our general partner and its executive officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its executive officers or directors acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that their conduct was criminal.

Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.

Under our partnership agreement, our general partner has full power and authority to do all things, other than those items that require unitholder approval or with respect to which our general partner has sought Conflicts Committee approval, on such terms as it determines to be necessary or appropriate to conduct our business including, but not limited to, the following:

•

the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into our securities, and the incurring of any other obligations;

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•

the purchase, sale or other acquisition or disposition of our securities, or the issuance of additional options, rights, warrants and appreciation rights relating to our securities;

•

the mortgage, pledge, encumbrance, hypothecation or exchange of any or all of our assets;

•

the negotiation, execution and performance of any contracts, conveyances or other instruments;

•

the distribution of our cash;

•

the selection and dismissal of employees and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

•

the maintenance of insurance for our benefit and the benefit of our partners;

•

the formation of, or acquisition of an interest in, the contribution of property to, and the making of loans to, any limited or general partnership, joint venture, corporation, limited liability company or other entity;

•

the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity, otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense, the settlement of claims and litigation;

•

the indemnification of any person against liabilities and contingencies to the extent permitted by law;

•

the making of tax, regulatory and other filings, or the rendering of periodic or other reports to governmental or other agencies having jurisdiction over our business or assets; and

•

the entering into of agreements with any of its affiliates to render services to us or to itself in the discharge of its duties as our general partner.

Our partnership agreement provides that our general partner must act in “good faith” when making decisions on our behalf, and our partnership agreement further provides that in order for a determination to be made in “good faith,” our general partner must have an honest belief that the determination is in our best interests. Please read “The Partnership Agreement—Voting Rights” for information regarding matters that require unitholder approval.

Actions taken by our general partner may affect the amount of cash available for distribution to unitholders or accelerate the right to convert subordinated units.

The amount of cash that is available for distribution to unitholders is affected by decisions of our general partner regarding such matters as:

•

the amount and timing of asset purchases and sales;

•

cash expenditures and the amount of estimated reserve replacement expenditures;

•

borrowings;

•

the issuance of additional units; and

•

the creation, reduction or increase of reserves in any quarter.

Our general partner determines the amount and timing of any capital expenditures and whether a capital expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash that is distributed to our unitholders and to our general partner and the ability of the subordinated units to convert into common units.

In addition, our general partner may use an amount, initially equal to $ million, which would not otherwise constitute available cash from operating surplus, in order to permit the payment of cash distributions on its units and incentive distribution rights. All of these actions may affect the amount of cash distributed to our

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unitholders and our general partner and may facilitate the conversion of subordinated units into common units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”

In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our general partner to our unitholders, including borrowings that have the purpose or effect of:

•

enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or

•

hastening the expiration of the subordination period.

For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly distribution on our common units and our subordinated units, our partnership agreement permits us to borrow funds, which would enable us to make this distribution on all outstanding units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordination Period.”

Our partnership agreement provides that we and our subsidiaries may borrow funds from our general partner and its affiliates. Our general partner and its affiliates may not borrow funds from us, or our operating company and its operating subsidiaries.

We will reimburse our general partner and its affiliates for expenses.

We will reimburse our general partner and its affiliates for costs incurred in managing and operating us. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith, and it will charge on a fully allocated cost basis for services provided to us. The fully allocated basis charged by our general partner does not include a profit component. Please read “Certain Relationships and Related Party Transactions.”

Contracts between us, on the one hand, and our general partner and its affiliates, on the other, will not be the result of arm’s-length negotiations.

Our partnership agreement allows our general partner to determine, in good faith, any amounts to pay itself or its affiliates for any services rendered to us. Our general partner may also enter into additional contractual arrangements with any of its affiliates on our behalf. Neither our partnership agreement nor any of the other agreements, contracts, and arrangements between us and our general partner and its affiliates are or will be the result of arm’s-length negotiations. Similarly, agreements, contracts or arrangements between us and our general partner and its affiliates that are entered into following the closing of this offering will not be required to be negotiated on an arm’s-length basis, although, in some circumstances, our general partner may determine that the Conflicts Committee may make a determination on our behalf with respect to such arrangements.

Our general partner will determine, in good faith, the terms of any of these transactions entered into after the close of this offering.

Our general partner and its affiliates will have no obligation to permit us to use any facilities or assets of our general partner and its affiliates, except as may be provided in contracts entered into specifically for such use. There is no obligation of our general partner and its affiliates to enter into any contracts of this kind.

Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements so that counterparties to such agreements have recourse only against our assets and not against our general partner or its assets or any affiliate of our general partner or its assets. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s fiduciary duties, even if we could have obtained terms that are more favorable without the limitation on liability.

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Common units are subject to our general partner’s limited call right.

Our general partner may exercise its right to call and purchase common units, as provided in our partnership agreement, or may assign this right to one of its affiliates or to us. Our general partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. As a result, a common unitholder may have to sell his common units at an undesirable time or price. Please read “The Partnership Agreement—Limited Call Right.”

Common unitholders will have no right to enforce obligations of our general partner and its affiliates under agreements with us.

Any agreements between us, on the one hand, and our general partner and its affiliates, on the other, will not grant to the unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor.

Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

The attorneys, independent accountants and others who perform services for us have been retained by our general partner. Attorneys, independent accountants and others who perform services for us are selected by our general partner or the Conflicts Committee and may perform services for our general partner and its affiliates. We may retain separate counsel for ourselves or the holders of common units in the event of a conflict of interest between our general partner and its affiliates, on the one hand, and us or the holders of common units, on the other, depending on the nature of the conflict. We do not intend to do so in most cases.

Our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the Conflicts Committee or our unitholders. This election may result in lower distributions to our public common unitholders in certain situations.

Our general partner has the right, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48%) for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distribution at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be reset to an amount equal to the average cash distribution per unit for the two fiscal quarters immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion; however, it is possible that our general partner could exercise this reset election at a time when we are experiencing declines in our aggregate cash distributions or at a time when our general partner expects that we will experience declines in our aggregate cash distributions in the foreseeable future. In such situations, our general partner may be experiencing, or may expect to experience, declines in the cash distributions it receives related to its incentive distribution rights and may therefore desire to be issued common units, which are entitled to specified priorities with respect to our distributions and which therefore may be more advantageous for the general partner to own in lieu of the right to receive incentive distribution payments based on target distribution levels that are less certain to be achieved in the then current business environment. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received had we not issued common units to our general partner in connection with resetting the target distribution levels related to our general partner’s incentive distribution rights. Please read

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“Provisions of Our Partnership Agreement Relating to Cash Distributions—Distributions of Available Cash” and “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner Interest and Incentive Distribution Rights.”

Fiduciary Duties

Our general partner is accountable to us and our unitholders as a fiduciary. Fiduciary duties owed to unitholders by our general partner are prescribed by law and the partnership agreement. The Delaware Act provides that Delaware limited partnerships may, in their partnership agreements, modify or eliminate, except for the contractual covenant of good faith and fair dealing, the fiduciary duties owed by the general partner to limited partners and the partnership.

Our partnership agreement contains various provisions restricting the fiduciary duties that might otherwise be owed by our general partner. We have adopted these provisions to allow our general partner or its affiliates to engage in transactions with us that would otherwise be prohibited by state-law fiduciary standards and to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. Without such modifications, such transactions could result in violations of our general partner’s state-law fiduciary duty standards. We believe this is appropriate and necessary because the board of directors of our general partner has fiduciary duties to manage our general partner in a manner beneficial both to its owners, as well as to our unitholders. Without these modifications, our general partner’s ability to make decisions involving conflicts of interest would be restricted. The modifications to the fiduciary standards enable our general partner to take into consideration the interests of all parties involved, so long as the resolution is fair and reasonable to us. These modifications also enable our general partner to attract and retain experienced and capable directors. These modifications disadvantage the common unitholders because they restrict the rights and remedies that would otherwise be available to unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as described below, and permit our general partner to take into account the interests of third parties in addition to our interests when resolving conflicts of interest. The following is a summary of the material restrictions of the fiduciary duties owed by our general partner to the limited partners:


State law fiduciary duty standards		Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.

Partnership agreement modified standards		Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary duties or applicable law. For example, our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under applicable law. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or our limited partners whatsoever. These standards reduce the obligations to which our general partner would otherwise be held. Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders or that are not approved by the Conflicts Committee must be: • on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or

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		• “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us). If our general partner does not seek approval from the Conflicts Committee and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, the board of directors, which may include board members affected by the conflict of interest, acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.

		In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that our general partner or its officers and directors acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful.

Rights and remedies of unitholders		The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of the partnership agreement. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of himself and all other similarly situated limited partners to recover damages from a general partner for violations of its fiduciary duties to the limited partners.

By purchasing our common units, each common unitholder automatically agrees to be bound by the provisions in our partnership agreement, including the provisions discussed above. This is in accordance with the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited partner to sign a partnership agreement does not render the partnership agreement unenforceable against that person.

Under our partnership agreement, we must indemnify our general partner and its officers, directors and managers, to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our general partner or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful. We also must provide this indemnification for criminal proceedings when our general partner or these other persons acted with no knowledge that their conduct was unlawful. Thus, our general partner could be indemnified for its negligent acts if it met the requirements set forth above. To the extent that these provisions purport to include indemnification for liabilities arising under the Securities Act of 1933, or the Securities Act, in the opinion of the SEC, such indemnification is contrary to public policy and therefore unenforceable. Please read “The Partnership Agreement—Indemnification.”

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DESCRIPTION OF THE COMMON UNITS

The Units

The common units represent limited partner interests in us. The holders of common units, along with the holders of subordinated units, are entitled to participate in partnership distributions and are entitled to exercise the rights and privileges available to limited partners under our partnership agreement. For a description of the relative rights and preferences of holders of common units and subordinated units in and to partnership distributions, please read this section and “Our Cash Distribution Policy and Restrictions on Distributions.” For a description of the rights and privileges of limited partners under our partnership agreement, including voting rights, please read “The Partnership Agreement.”

Transfer Agent and Registrar

Duties

will serve as the registrar and transfer agent for the common units. We will pay all fees charged by the transfer agent for transfers of common units except the following that must be paid by our unitholders:

•

surety bond premiums to replace lost or stolen certificates, or to cover taxes and other governmental charges in connection therewith;

•

special charges for services requested by a holder of a common unit; and

•

other similar fees or charges.

There will be no charge to our unitholders for disbursements of our cash distributions. We will indemnify the transfer agent, its agents and each of their respective stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.

Resignation or Removal

The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no successor has been appointed and has accepted the appointment within 30 days after notice of the resignation or removal, our general partner may act as the transfer agent and registrar until a successor is appointed.

Transfer of Common Units

By transfer of common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission are reflected in our books and records. Each transferee:

•

automatically agrees to be bound by the terms and conditions of, and is deemed to have executed, our partnership agreement;

•

represents and warrants that the transferee has the right, power, authority and capacity to enter into our partnership agreement; and

•

gives the consents, waivers and approvals contained in our partnership agreement, such as the approval of all transactions and agreements that we are entering into in connection with this offering.

Our general partner will cause any transfers to be recorded on our books and records no less frequently than quarterly.

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We may, at our discretion, treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holder’s rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.

Common units are securities and are transferable according to the laws governing the transfer of securities. In addition to other rights acquired upon transfer, the transferor gives the transferee the right to become a substituted limited partner in our partnership for the transferred common units.

Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the common unit as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.

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Index to Financial Statements

THE PARTNERSHIP AGREEMENT

The following is a summary of the material provisions of our partnership agreement. The form of our partnership agreement is included in this prospectus as Appendix A. We will provide prospective investors with a copy of our partnership agreement upon request at no charge.

We summarize the following provisions of our partnership agreement elsewhere in this prospectus:

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with regard to distributions of available cash, please read “Provisions of our Partnership Agreement Relating to Cash Distributions”;

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with regard to the fiduciary duties of our general partner, please read “Conflicts of Interest and Fiduciary Duties”;

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with regard to the transfer of common units, please read “Description of the Common Units—Transfer of Common Units”; and

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with regard to allocations of taxable income and taxable loss, please read “Material Federal Income Tax Consequences.”

Organization and Duration

We were organized in August 2011 and have a perpetual existence.

Purpose

Our purpose under our partnership agreement is limited to any business activities that are approved by our general partner and in any event that lawfully may be conducted by a limited partnership organized under Delaware law; provided that our general partner may not cause us to engage, directly or indirectly, in any business activity that our general partner determines would cause us to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes.

Although our general partner has the power to cause us, our operating company and its subsidiaries to engage in activities other than the business of crude oil gathering, transportation, storage and marketing, our general partner has no current plans to do so and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners. Our general partner is generally authorized to perform all acts it determines to be necessary or appropriate to carry out our purposes and to conduct our business.

Cash Distributions

Our partnership agreement specifies the manner in which we will make cash distributions to holders of our common units and other partnership securities as well as to our general partner in respect of its general partner interest and its incentive distribution rights. For a description of these cash distribution provisions, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”

Capital Contributions

Unitholders are not obligated to make additional capital contributions, except as described below under “—Limited Liability.”

For a discussion of our general partner’s right to contribute capital to maintain its 2.0% general partner interest if we issue additional units, please read “—Issuance of Additional Securities.”

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Voting Rights

The following is a summary of the unitholder vote required for approval of the matters specified below. Matters that require the approval of a “unit majority” require:

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during the subordination period, the approval of a majority of the outstanding common units, excluding those common units held by our general partner and its affiliates, and a majority of the outstanding subordinated units, voting as separate classes; and

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after the subordination period, the approval of a majority of the outstanding common units.

By virtue of the exclusion of those common units held by our general partner and its affiliates from the required vote, and by their ownership of all of the subordinated units, during the subordination period our general partner and its affiliates do not have the ability to ensure passage of, but do have the ability to ensure defeat of, any amendment that requires a unit majority.

In voting their common and subordinated units, our general partner and its affiliates will have no fiduciary duty or obligation whatsoever to us or our limited partners, including any duty to act in good faith or in the best interests of us and our limited partners.

Issuance of additional units

No approval right.

Amendment of our partnership agreement

Certain amendments may be made by our general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read “—Amendment of Our Partnership Agreement.”

Merger of our partnership or the sale of all or substantially all of our assets

Unit majority in certain circumstances. Please read “—Merger, Sale or Other Disposition of Assets.”

Dissolution of our partnership

Unit majority. Please read “—Termination and Dissolution.”

Continuation of our business upon dissolution

Unit majority. Please read “—Termination and Dissolution.”

Withdrawal of our general partner

Under most circumstances, the approval of a majority of the common units, excluding common units held by our general partner and its affiliates, is required for the withdrawal of our general partner prior to December 31, 2021 in a manner that would cause a dissolution of our partnership. Please read “—Withdrawal or Removal of Our General Partner.”

Removal of our general partner

Not less than 66 ²/3% of the outstanding units, voting as a single class, including units held by our general partner and its affiliates. Please read “—Withdrawal or Removal of Our General Partner.”

Transfer of our general partner interest

Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its

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assets to, such person. The approval of a majority of the outstanding common units, excluding common units held by our general partner and its affiliates, is required in other circumstances for a transfer of the general partner interest to a third party prior to June 30, 2020. Please read “—Transfer of General Partner Interest.”

Transfer of incentive distribution rights

No approval required at any time. Please read “—Transfer of Incentive Distribution Rights.”

Transfer of ownership interests in our general partner

No approval required at any time. Please read “—Transfer of Ownership Interests in Our General Partner.”

Limited Liability

Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that it otherwise acts in conformity with the provisions of our partnership agreement, its liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital it is obligated to contribute to us for its common units plus its share of any undistributed profits and assets. If it were determined, however, that the right of, or exercise of the right by, the limited partners as a group:

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to remove or replace our general partner;

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to approve some amendments to our partnership agreement; or

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to take other action under our partnership agreement;

constituted “participation in the control” of our business for the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under the laws of Delaware, to the same extent as our general partner. This liability would extend to persons who transact business with us who reasonably believe that a limited partner is a general partner. Neither our partnership agreement nor the Delaware Act specifically provides for legal recourse against our general partner if a limited partner were to lose limited liability through any fault of our general partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for such a claim in Delaware case law.

Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which recourse of creditors is limited shall be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides that a limited partner who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act shall be liable to the limited partnership for the amount of the distribution for three years. Under the Delaware Act, a substituted limited partner of a limited partnership is liable for the obligations of its assignor to make contributions to the partnership, except that such person is not obligated for liabilities unknown to it at the time it became a limited partner and that could not be ascertained from the partnership agreement.

Our subsidiaries conduct business in five states and we may have subsidiaries that conduct business in other states in the future. Maintenance of our limited liability as a member of our operating company may require compliance with legal requirements in the jurisdictions in which our operating company conducts business, including qualifying our subsidiaries to do business there.

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Limitations on the liability of members or limited partners for the obligations of a limited liability company or limited partnership have not been clearly established in many jurisdictions. If, by virtue of our ownership interest in our operating company or otherwise, it were determined that we were conducting business in any state without compliance with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace our general partner, to approve some amendments to our partnership agreement, or to take other action under our partnership agreement constituted “participation in the control” of our business for purposes of the statutes of any relevant jurisdiction, then the limited partners could be held personally liable for our obligations under the law of that jurisdiction to the same extent as our general partner under the circumstances. We will operate in a manner that our general partner considers reasonable and necessary or appropriate to preserve the limited liability of the limited partners.

Issuance of Additional Securities

Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities for the consideration and on the terms and conditions determined by our general partner without the approval of our limited partners.

It is possible that we will fund acquisitions through the issuance of additional common units, subordinated units or other partnership securities. Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions of available cash. In addition, the issuance of additional common units or other partnership securities may dilute the value of the interests of the then-existing holders of common units in our net assets.

In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership securities that, as determined by our general partner, may have rights to distributions or special voting rights to which the common units are not entitled. In addition, our partnership agreement does not prohibit our subsidiaries from issuing equity securities, which may effectively rank senior to the common units.

Upon issuance of additional partnership securities, our general partner will be entitled, but not required, to make additional capital contributions to the extent necessary to maintain its 2.0% general partner interest in us. Our general partner’s 2.0% interest in us will be reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2.0% general partner interest. Moreover, our general partner will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units, subordinated units or other partnership securities whenever, and on the same terms that, we issue those securities to persons other than our general partner and its affiliates, to the extent necessary to maintain the percentage interest of the general partner and its affiliates, including such interest represented by common and subordinated units, that existed immediately prior to each issuance. The holders of common units will not have preemptive rights under our partnership agreement to acquire additional common units or other partnership securities.

Amendment of Our Partnership Agreement

General

Amendments to our partnership agreement may be proposed only by our general partner. However, our general partner will have no duty or obligation to propose any amendment and may decline to do so free of any fiduciary duty or obligation whatsoever to us or our limited partners, including any duty to act in good faith or in the best interests of us or our limited partners. In order to adopt a proposed amendment, other than the amendments discussed below, our general partner must seek written approval of the holders of the number of units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below, an amendment must be approved by a unit majority.

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Prohibited Amendments

No amendment may be made that would:

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enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected; or

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enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to our general partner or any of its affiliates without the consent of our general partner, which consent may be given or withheld at its option.

The provision of our partnership agreement preventing the amendments having the effects described in the clauses above can be amended upon the approval of the holders of at least 90.0% of the outstanding units, voting as a single class (including units owned by our general partner and its affiliates). Upon the closing of this offering, affiliates of our general partner will own approximately % of the outstanding common and subordinated units.

No Unitholder Approval

Our general partner may generally make amendments to our partnership agreement without the approval of any limited partner to reflect:

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a change in our name, the location of our principal place of business, our registered agent or our registered office;

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the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;

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a change that our general partner determines to be necessary or appropriate for us to qualify or to continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or to ensure that neither we, our operating company, nor its subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;

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a change in our fiscal year or taxable year and related changes;

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an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, agents, or trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisors Act of 1940 or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed;

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an amendment that our general partner determines to be necessary or appropriate in connection with the authorization of issuance of additional partnership securities or rights to acquire partnership securities;

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any amendment expressly permitted in our partnership agreement to be made by our general partner acting alone;

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an amendment effected, necessitated, or contemplated by a merger agreement that has been approved under the terms of our partnership agreement;

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any amendment that our general partner determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership, joint venture, limited liability company or other entity, as otherwise permitted by our partnership agreement;

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mergers with, conveyances to or conversions into another limited liability entity that is newly formed and has no assets, liabilities or operations at the time of the merger, conveyance or conversion other than those it receives by way of the merger, conveyance or conversion; or

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any other amendments substantially similar to any of the matters described above.

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In addition, our general partner may make amendments to our partnership agreement without the approval of any limited partner if our general partner determines that those amendments:

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do not adversely affect in any material respect the limited partners considered as a whole or any particular class of partnership interests as compared to other classes of partnership interests;

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are necessary or appropriate to satisfy any requirements, conditions, or guidelines contained in any opinion, directive, order, ruling, or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;

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are necessary or appropriate to facilitate the trading of units or to comply with any rule, regulation, guideline, or requirement of any securities exchange on which the units are or will be listed for trading;

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are necessary or appropriate for any action taken by our general partner relating to splits or combinations of units under the provisions of our partnership agreement; or

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are required to effect the intent expressed in this prospectus or the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement.

Opinion of Counsel and Limited Partner Approval

Our general partner will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the limited partners or result in our being treated as an entity for federal income tax purposes in connection with any of the amendments described above under “—No Unitholder Approval.” No other amendments to our partnership agreement will become effective without the approval of holders of at least 90.0% of the outstanding units voting as a single class unless we first obtain an opinion of counsel to the effect that the amendment will not affect the limited liability under applicable law of any of our limited partners.

In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences of any type or class of outstanding units in relation to other classes of units will require the approval of at least a majority of the type or class of units so affected. Any amendment that reduces the voting percentage required to take any action must be approved by the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced.

Merger, Sale or Other Disposition of Assets

A merger or consolidation of us requires the prior consent of our general partner. However, our general partner will have no duty or obligation to consent to any merger or consolidation and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interest of us or our limited partners.

In addition, our partnership agreement generally prohibits our general partner, without the prior approval of the holders of a unit majority, from causing us to, among other things, sell, exchange or otherwise dispose of all or substantially all of our and our subsidiaries’ assets in a single transaction or a series of related transactions, including by way of merger, consolidation, other combination or sale of ownership interests of our subsidiaries. Our general partner may, however, mortgage, pledge, hypothecate, or grant a security interest in all or substantially all of our and our subsidiaries’ assets without that approval. Our general partner may also sell all or substantially all of our and our subsidiaries’ assets under a foreclosure or other realization upon those encumbrances without that approval. Finally, our general partner may consummate any merger without the prior approval of our unitholders if we are the surviving entity in the transaction, our general partner has received an opinion of counsel regarding limited liability and tax matters, the transaction would not result in a material amendment to the partnership agreement (other than an amendment that the general partner could adopt without the consent of the limited partners), each of our units will be an identical unit of our partnership following the transaction and the partnership securities to be issued do not exceed 20.0% of our outstanding partnership securities immediately prior to the transaction.

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If the conditions specified in our partnership agreement are satisfied, our general partner may convert us or any of our subsidiaries into a new limited liability entity or merge us or any of our subsidiaries into, or convey all of our assets to, a newly formed limited liability entity, if the sole purpose of that conversion, merger or conveyance is to effect a mere change in our legal form into another limited liability entity, our general partner has received an opinion of counsel regarding limited liability and tax matters and the governing instruments of the new entity provide the limited partners and our general partner with the same rights and obligations as contained in our partnership agreement. Our unitholders are not entitled to dissenters’ rights of appraisal under our partnership agreement or applicable Delaware law in the event of a conversion, merger or consolidation, a sale of substantially all of our assets or any other similar transaction or event.

Termination and Dissolution

We will continue as a limited partnership until dissolved under our partnership agreement. We will dissolve upon:

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the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner other than by reason of a transfer of its general partner interest in accordance with our partnership agreement or withdrawal or removal following the approval and admission of a successor general partner;

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the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;

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the entry of a decree of judicial dissolution of our partnership; or

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there being no limited partners, unless we are continued without dissolution in accordance with the Delaware Act.

Upon a dissolution under the first clause above, the holders of a unit majority may also elect, within specific time limitations, to continue our business on the same terms and conditions described in our partnership agreement and appoint as a successor general partner an entity approved by the holders of units representing a unit majority, subject to our receipt of an opinion of counsel to the effect that:

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the action would not result in the loss of limited liability of any limited partner; and

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neither we nor any of our subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to continue (to the extent not already so treated or taxed).

Liquidation and Distribution of Proceeds

Upon our dissolution, unless we are continued as a limited partnership, the liquidator authorized to wind up our affairs will, acting with all of the powers of our general partner that are necessary or appropriate, liquidate our assets and apply the proceeds of the liquidation as described in “Provisions of Our Partnership Agreement Relating to Cash Distributions—Distributions of Cash Upon Liquidation.” The liquidator may defer liquidation or distribution of our assets for a reasonable period of time if it determines that an immediate sale or distribution would be impractical or would cause undue loss to our partners. The liquidator may distribute our assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the partners.

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Withdrawal or Removal of Our General Partner

Except as described below, our general partner has agreed not to withdraw voluntarily as our general partner prior to December 31, 2021 without obtaining the approval of the holders of at least a majority of the outstanding common units, excluding common units held by the general partner and its affiliates, and furnishing an opinion of counsel regarding limited liability and tax matters. On or after December 31, 2021, our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving at least 90 days’ advance notice, and that withdrawal will not constitute a violation of our partnership agreement. Notwithstanding the information above, our general partner may withdraw without unitholder approval upon 90 days’ notice to the limited partners if at least 50.0% of the outstanding common units are held or controlled by one person and its affiliates, other than our general partner and its affiliates. In addition, our partnership agreement permits our general partner in some instances to sell or otherwise transfer all of its general partner interest and incentive distribution rights in us without the approval of the unitholders. Please read “—Transfer of General Partner Interest” and “—Transfer of Incentive Distribution Rights.”

Upon withdrawal of our general partner under any circumstances, other than as a result of a transfer by our general partner of all or a part of its general partner interest in us, the holders of a unit majority may select a successor to that withdrawing general partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be obtained, we will be dissolved, wound up and liquidated, unless within a specified period of time after that withdrawal, the holders of a unit majority agree in writing to continue our business and to appoint a successor general partner. Please read “—Termination and Dissolution.”

Our general partner may not be removed unless that removal is approved by the vote of the holders of not less than 66²/3% of all outstanding units, voting together as a single class, including units held by our general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of our general partner is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding common units, and a majority of the outstanding subordinated units, voting as a single class. The ownership of more than 33¹/3% of the outstanding units by our general partner and its affiliates gives them the ability to prevent our general partner’s removal. At the closing of this offering, affiliates of our general partner will own % of the outstanding common and subordinated units.

Our partnership agreement also provides that if our general partner is removed as our general partner under circumstances where cause does not exist and units held by our general partner and its affiliates are not voted in favor of that removal:

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the subordination period will end and all outstanding subordinated units will immediately and automatically convert into common units on a one-for-one basis;

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any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and

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our general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of the interests at the time.

In the event of removal of our general partner under circumstances where cause exists or withdrawal of our general partner where that withdrawal violates our partnership agreement, a successor general partner will have the option to purchase the general partner interest and incentive distribution rights of the departing general partner for a cash payment equal to the fair market value of those interests. Under all other circumstances where our general partner withdraws or is removed by the limited partners, the departing general partner will have the option to require the successor general partner to purchase the general partner interest of the departing general partner and its incentive distribution rights for their fair market value. In each case, this fair market value will be determined by agreement between the departing general partner and the successor general partner. If no agreement is reached, an independent investment banking firm or other independent expert selected by the

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departing general partner and the successor general partner will determine the fair market value. Or, if the departing general partner and the successor general partner cannot agree upon an expert, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.

If the option described above is not exercised by either the departing general partner or the successor general partner, the departing general partner’s general partner interest and its incentive distribution rights will automatically convert into common units equal to the fair market value of those interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.

In addition, we will be required to reimburse the departing general partner for all amounts due to it, including, without limitation, all employee-related liabilities, including severance liabilities, incurred in connection with the termination of any employees employed by the departing general partner or its affiliates for our benefit.

Transfer of General Partner Interest

Except for transfer by our general partner of all, but not less than all, of its general partner interest to:

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an affiliate of our general partner (other than an individual); or

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another entity as part of the merger or consolidation of our general partner with or into another entity or the transfer by our general partner of all or substantially all of its assets to another entity,

our general partner may not transfer all or any of its general partner interest to another person prior to December 31, 2021 without the approval of the holders of at least a majority of the outstanding common units, excluding common units held by our general partner and its affiliates. As a condition of this transfer, the transferee must, among other things, assume the rights and duties of our general partner, agree to be bound by the provisions of our partnership agreement and furnish an opinion of counsel regarding limited liability and tax matters.

In addition, to the extent the general partner interest is pledged as collateral under a debt instrument with respect to which the general partner is an obligor or guarantor, the general partner interest may be transferred pursuant to bona fide foreclosure by the lenders under such debt instrument.

Our general partner and its affiliates may, at any time, transfer common or subordinated units to one or more persons, without unitholder approval, except that they may not transfer subordinated units to us.

Transfer of Ownership Interests in Our General Partner

At any time, the owners of our general partner may sell or transfer all or part of their ownership interests in our general partner to an affiliate or a third party without the approval of our unitholders.

Transfer of Incentive Distribution Rights

At any time, our general partner may transfer all or a portion of its incentive distribution rights to an affiliate or a third party without the approval of our unitholders.

Change of Management Provisions

Our partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove our general partner or otherwise change our management. If any person or group, other than our general partner and its affiliates, acquires beneficial ownership of 20.0% or more of any class of

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units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires the units directly from our general partner or its affiliates or any transferee of that person or group that is approved by our general partner or to any person or group who acquires the units with the prior approval of the board of directors of our general partner.

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the subordination period will end and all outstanding subordinated units will immediately and automatically convert into common units on a one-for-one basis;

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any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and

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Limited Call Right

If at any time our general partner and its affiliates own more than 80.0% of the then-issued and outstanding limited partner interests of any class, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all, but not less than all, of the remaining limited partner interests of the class held by unaffiliated persons as of a record date to be selected by our general partner, on at least 10, but not more than 60, days notice. The purchase price in the event of this purchase is the greater of:

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the highest price paid by our general partner or any of its affiliates for any limited partner interests of the class purchased within the 90 days preceding the date on which our general partner first mails notice of its election to purchase those limited partner interests; and

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the average of the daily closing prices of the partnership securities of such class for the 20 consecutive trading days preceding the date three days before the date the notice is mailed.

As a result of our general partner’s right to purchase outstanding limited partner interests, a holder of limited partner interests may have his limited partner interests purchased at an undesirable time or price. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his common units in the market. Please read “Material Federal Income Tax Consequences—Disposition of Common Units.”

Meetings; Voting

Except as described below regarding a person or group owning 20.0% or more of any class of units then outstanding, unitholders who are record holders of units on the record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited.

Our general partner does not anticipate that any meeting of unitholders will be called in the foreseeable future. Any action that is required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting. Meetings of the unitholders may be called by our general partner or by unitholders owning at least 20.0% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of

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a greater percentage of the units, in which case the quorum will be the greater percentage. The units representing the general partner interest are units for distribution and allocation purposes, but do not entitle our general partner to any vote other than its rights as general partner under our partnership agreement, will not be entitled to vote on any action required or permitted to be taken by the unitholders and will not count toward or be considered outstanding when calculating required votes, determining the presence of a quorum, or for similar purposes.

Each record holder of a unit has a vote according to its percentage interest in us, although additional limited partner interests having special voting rights could be issued. Please read “—Issuance of Additional Securities.” However, if at any time any person or group, other than our general partner and its affiliates, or a direct or subsequently approved transferee of our general partner or its affiliates, acquires, in the aggregate, beneficial ownership of 20.0% or more of any class of units then outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum, or for other similar purposes. Common units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and its nominee provides otherwise. Except as our partnership agreement otherwise provides, subordinated units will vote together with common units as a single class.

Any notice, demand, request, report or proxy material required or permitted to be given or made to record holders of common units under our partnership agreement will be delivered to the record holder by us or by the transfer agent.

Status as Limited Partner

By transfer of common units in accordance with our partnership agreement, each transferee of common units will be admitted as a limited partner with respect to the common units transferred when such transfer and admission are reflected in our books and records. Except as described above under “—Limited Liability,” the common units will be fully paid, and unitholders will not be required to make additional contributions.

Non-Citizen Assignees; Redemption

If we are or become subject to federal, state, or local laws or regulations that, in the determination of our general partner, create a substantial risk of cancellation or forfeiture of any property in which we have an interest based on the nationality, citizenship or other related status of any limited partner or assignee, our general partner may request any limited partner or assignee to furnish to the general partner an executed citizenship certification or such other information about his nationality, citizenship or related status. If a limited partner fails to furnish such citizenship certification or other requested information about his nationality, citizenship or other related status within 30 days after a request for such citizenship certification or other requested information or our general partner determines after receipt of the information that the limited partner is not an eligible citizen, the limited partner may be treated as a non-citizen assignee. A non-citizen assignee does not have the right to direct the voting of his units and may not receive distributions in kind upon our liquidation.

Furthermore, we have the right to redeem all of the common and subordinated units of any holder that our general partner concludes is not an eligible citizen or fails to furnish the information requested by our general partner. The redemption price in the event of such redemption for each unit held by such unitholder will be the lesser of (i) the current market price (the date of determination of which shall be the date fixed for redemption) and (ii) the price paid for each such unit by the unitholder. The redemption price will be paid, as determined by our general partner, in cash or by delivery of a promissory note. Any such promissory note will bear interest at the rate of 5% annually and be payable in three equal annual installments of principal and accrued interest, commencing one year after the redemption date.

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Index to Financial Statements

Non-Taxpaying Assignees; Redemption

In the event any rates that we charge our customers become regulated by the Federal Energy Regulatory Commission, to avoid any adverse effect on the maximum applicable rates chargeable to customers by us, or in order to reverse an adverse determination that has occurred regarding such maximum rate, our partnership agreement provides our general partner the power to amend the agreement. If our general partner, with the advice of counsel, determines that our not being treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes, coupled with the tax status (or lack of proof thereof) of one or more of our limited partners, has, or is reasonably likely to have, a material adverse effect on the maximum applicable rates chargeable to customers by us, then our general partner may adopt such amendments to our partnership agreement as it determines necessary or advisable to:

•

obtain proof of the U.S. federal income tax status of our member (and their owners, to the extent relevant); and

•

permit us to redeem the units held by any person whose tax status has or is reasonably likely to have a material adverse effect on the maximum applicable rates or who fails to comply with the procedures instituted by our general partner to obtain proof of the U.S. federal income tax status. The redemption price in the case of such a redemption will be the average of the daily closing prices per unit for the 20 consecutive trading days immediately prior to the date set for redemption.

Indemnification

Under our partnership agreement, we will indemnify the following persons, in most circumstances, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:

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our general partner;

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any departing general partner;

•

any person who is or was an affiliate of our general partner or any departing general partner;

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any person who is or was a member, manager, partner, director, officer, fiduciary or trustee of our partnership, our subsidiaries, our general partner, any departing general partner or any of their affiliates;

•

any person who is or was serving at the request of the general partner or any departing general partner as an officer, director, member, manager, partner, fiduciary or trustee of another person; and

•

any person designated by our general partner.

Any indemnification under these provisions will only be out of our assets. Unless it otherwise agrees, our general partner will not be personally liable for, or have any obligation to contribute or loan funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under our partnership agreement.

Reimbursement of Expenses

Our partnership agreement requires us to reimburse our general partner for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Our general partner is entitled to determine in good faith the expenses that are allocable to us.

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Index to Financial Statements

Books and Reports

Our general partner is required to keep or cause to be kept appropriate books and records of our business at our principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis. For fiscal and tax reporting purposes, we use the calendar year.

We will furnish or make available (by posting on our website or other reasonable means) to record holders of common units, within 120 days after the close of each fiscal year, an annual report containing audited financial statements and a report on those financial statements by our independent public accountants, including a balance sheet and statements of operations, and our equity and cash flows. Except for our fourth quarter, we will also furnish or make available summary financial information within 90 days after the close of each quarter.

As soon as practicable, but in no event later than 90 days after the close of each quarter except the last quarter of each fiscal year, our general partner will mail or make available to each record holder of a unit a report containing our unaudited financial statements and such other information as may be required by applicable law, regulation or rule. This information is expected to be furnished in summary form so that some complex calculations normally required of partners can be avoided. Our ability to furnish this summary information to unitholders will depend on the cooperation of unitholders in supplying us with specific information. Every unitholder will receive information to assist him in determining its federal and state tax liability and filing its federal and state income tax returns, regardless of whether he supplies us with information.

Right to Inspect Our Books and Records

Our partnership agreement provides that a limited partner can, for a purpose reasonably related to its interest as a limited partner, upon reasonable demand and at its own expense, have furnished to him:

•

a current list of the name and last known business, residence or mailing address of each partner;

•

a copy of our federal, state and local income tax returns;

•

true and full information as to the amount of cash, and a description and statement of the net agreed value of any other capital contribution by each partner and that each partner has agreed to contribute in the future, and the date on which each became a partner;

•

copies of our partnership agreement, the certificate of limited partnership of the partnership, related amendments, and powers of attorney under which they have been executed;

•

information regarding the status of our business and financial condition; and

•

any other information regarding our affairs as is just and reasonable.

Our general partner may, and intends to, keep confidential from the limited partners trade secrets or other information the disclosure of which our general partner believes in good faith is not in our best interests or that we are required by law or by agreements with third parties to keep confidential.

Registration Rights

Under our partnership agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws any common units, subordinated units, or other partnership securities proposed to be sold by our general partner or any of its affiliates, other than individuals, or their assignees if an exemption from the registration requirements is not otherwise available. These registration rights continue for two years and for so long thereafter as is required for the holder to sell its partnership securities following any withdrawal or removal of Rose Rock Midstream GP as our general partner. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions. Please read “Units Eligible for Future Sale.”

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Index to Financial Statements

UNITS ELIGIBLE FOR FUTURE SALE

After the sale of the common units offered by this prospectus, SemGroup will hold an aggregate of common units and subordinated units (or common units and subordinated units if the underwriters exercise their option to purchase additional units in full). All of the subordinated units will convert into common units at the end of the subordination period. The sale of these common and subordinated units could have an adverse impact on the price of the common units or on any trading market that may develop.

The common units sold in this offering will generally be freely transferable without restriction or further registration under the Securities Act, except that any common units held by an “affiliate” of ours may not be resold publicly except in compliance with the registration requirements of the Securities Act or under an exemption under Rule 144 or otherwise. Rule 144 permits securities acquired by an affiliate of the issuer to be sold into the market in an amount that does not exceed, during any three-month period, the greater of:

•

1.0% of the total number of the securities outstanding; or

•

the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale.

Sales under Rule 144 are also subject to specific manner of sale provisions, holding period requirements, notice requirements and the availability of current public information about us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned his common units for at least six months (provided we are in compliance with the current public information requirement) or one year (regardless of whether we are in compliance with the current public information requirement), would be entitled to sell common units under Rule 144 without regard to the rule’s public information requirements, volume limitations, manner of sale provisions and notice requirements.

Our partnership agreement provides that we may issue an unlimited number of limited partner interests of any type without a vote of the unitholders at any time. Any issuance of additional common units or other equity securities would result in a corresponding decrease in the proportionate ownership interest in us represented by, and could adversely affect the cash distributions to and market price of, common units then outstanding. Please read “The Partnership Agreement—Issuance of Additional Securities.”

Under our partnership agreement, our general partner and its affiliates, excluding any individual who is an affiliate of our general partner, have the right to cause us to register under the Securities Act and applicable state securities laws the offer and sale of any common units that they hold. Subject to the terms and conditions of our partnership agreement, these registration rights allow our general partner and its affiliates or their assignees holding any common units to require registration of any of these common units and to include any of these common units in a registration by us of other common units, including common units offered by us or by any unitholder. Our general partner and its affiliates will continue to have these registration rights for two years following the withdrawal or removal of our general partner. In connection with any registration of this kind, we will indemnify each unitholder participating in the registration and its officers, directors, and controlling persons from and against any liabilities under the Securities Act or any applicable state securities laws arising from the registration statement or prospectus. We will bear all costs and expenses incidental to any registration, excluding any underwriting discounts and commissions. Except as described below, our general partner and its affiliates may sell their common units in private transactions at any time, subject to compliance with applicable laws.

SemGroup, our general partner and the executive officers and directors of our general partner have agreed not to sell any common units they beneficially own for a period of 180 days from the date of this prospectus. Please read “Underwriting” for a description of these lock-up provisions.

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Index to Financial Statements

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

This section is a summary of the material tax considerations that may be relevant to prospective unitholders who are individual citizens or residents of the U.S. and, unless otherwise noted in the following discussion, is the opinion of Andrews Kurth LLP, counsel to our general partner and us, insofar as it relates to legal conclusions with respect to matters of U.S. federal income tax law. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), existing and proposed Treasury regulations promulgated under the Internal Revenue Code (the “Treasury Regulations”) and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to “us” or “we” are references to Rose Rock Midstream, L.P. and our operating subsidiaries.

The following discussion does not comment on all federal income tax matters affecting us or our unitholders. Moreover, the discussion focuses on unitholders who are individual citizens or residents of the U.S. and has only limited application to corporations, estates, trusts, nonresident aliens or other unitholders subject to specialized tax treatment, such as tax-exempt institutions, foreign persons, IRAs, real estate investment trusts (REITs) or mutual funds. In addition, the discussion only comments, to a limited extent, on state, local, and foreign tax consequences. Accordingly, we encourage each prospective unitholder to consult, and depend on, his own tax advisor in analyzing the federal, state, local and foreign tax consequences particular to him of the ownership or disposition of common units.

No ruling has been or will be requested from the IRS regarding any matter affecting us or prospective unitholders. Instead, we will rely on opinions of Andrews Kurth LLP. Unlike a ruling, an opinion of counsel represents only that counsel’s best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements made herein may not be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact the market for the common units and the prices at which common units trade. In addition, the costs of any contest with the IRS, principally legal, accounting and related fees, will result in a reduction in cash available for distribution to our unitholders and our general partner and thus will be borne indirectly by our unitholders and our general partner. Furthermore, the tax treatment of us, or of an investment in us, may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.

All statements as to matters of federal income tax law and legal conclusions with respect thereto, but not as to factual matters, contained in this section, unless otherwise noted, are the opinion of Andrews Kurth LLP and are based on the accuracy of the representations made by us.

For the reasons described below, Andrews Kurth LLP has not rendered an opinion with respect to the following specific federal income tax issues: (i) the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units (please read “—Tax Consequences of Unit Ownership—Treatment of Short Sales”); (ii) whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please read “—Disposition of Common Units—Allocations Between Transferors and Transferees”); and (iii) whether our method for depreciating Section 743 adjustments is sustainable in certain cases (please read “—Tax Consequences of Unit Ownership—Section 754 Election” and “—Uniformity of Units”).

Partnership Status

A partnership is not a taxable entity and incurs no federal income tax liability. Instead, each partner of a partnership is required to take into account his share of items of income, gain, loss and deduction of the partnership in computing his federal income tax liability, regardless of whether cash distributions are made to

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Index to Financial Statements

him by the partnership. Distributions by a partnership to a partner are generally not taxable to the partnership or the partner unless the amount of cash distributed to him is in excess of the partner’s adjusted basis in his partnership interest.

Section 7704 of the Internal Revenue Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the “Qualifying Income Exception,” exists with respect to publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of “qualifying income.” Qualifying income includes income and gains derived from the transportation, storage, processing and marketing of crude oil, natural gas and other products thereof. Other types of qualifying income include interest (other than from a financial business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes qualifying income. We estimate that less than % of our current gross income is not qualifying income; however, this estimate could change from time to time. Based upon and subject to this estimate, the factual representations made by us and our general partner and a review of the applicable legal authorities, Andrews Kurth LLP is of the opinion that at least 90% of our current gross income constitutes qualifying income. The portion of our income that is qualifying income may change from time to time.

No ruling has been or will be sought from the IRS and the IRS has made no determination as to our status or the status of our operating subsidiaries for federal income tax purposes or whether our operations generate “qualifying income” under Section 7704 of the Internal Revenue Code. Instead, we will rely on the opinion of Andrews Kurth LLP on such matters. It is the opinion of Andrews Kurth LLP that, based upon the Internal Revenue Code, its regulations, published revenue rulings and court decisions and the representations described below that:

•

We will be classified as a partnership for federal income tax purposes; and

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Each of our operating subsidiaries will be disregarded as an entity separate from us or will be treated as a partnership for federal income tax purposes.

In rendering its opinion, Andrews Kurth LLP has relied on factual representations made by us and our general partner. The representations made by us and our general partner upon which Andrews Kurth LLP has relied are:

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Neither we nor the operating subsidiaries has elected or will elect to be treated as a corporation; and

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For each taxable year, more than 90% of our gross income has been and will be income of the type that Andrews Kurth LLP has opined or will opine is “qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code.

We believe that these representations have been true in the past and expect that these representations will continue to be true in the future.

If we fail to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in which case the IRS may also require us to make adjustments with respect to our unitholders or pay other amounts), we will be treated as if we had transferred all of our assets, subject to liabilities, to a newly formed corporation, on the first day of the year in which we fail to meet the Qualifying Income Exception, in return for stock in that corporation, and then distributed that stock to the unitholders in liquidation of their interests in us. This deemed contribution and liquidation should be tax-free to unitholders and us so long as we, at that time, do not have liabilities in excess of the tax basis of our assets. Thereafter, we would be treated as a corporation for federal income tax purposes.

If we were taxed as a corporation for federal income tax purposes in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction would be reflected only on our tax return rather than being passed through to our unitholders, and our net income

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Index to Financial Statements

would be taxed to us at corporate rates. In addition, any distribution made to a unitholder would be treated as taxable dividend income, to the extent of our current and accumulated earnings and profits, or, in the absence of earnings and profits, a nontaxable return of capital, to the extent of the unitholder’s tax basis in his common units, or taxable capital gain, after the unitholder’s tax basis in his common units is reduced to zero. Accordingly, taxation as a corporation would result in a material reduction in a unitholder’s cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the units.

The discussion below is based on Andrews Kurth LLP’s opinion that we will be classified as a partnership for federal income tax purposes.

Limited Partner Status

Unitholders who are admitted as limited partners of Rose Rock Midstream, L.P. will be treated as partners of Rose Rock Midstream, L.P. for federal income tax purposes. Also, unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common units will be treated as partners of Rose Rock Midstream, L.P. for federal income tax purposes.

A beneficial owner of common units whose units have been transferred to a short seller to complete a short sale would appear to lose his status as a partner with respect to those units for federal income tax purposes. Please read “—Tax Consequences of Unit Ownership—Treatment of Short Sales.”

Income, gain, deductions or losses would not appear to be reportable by a unitholder who is not a partner for federal income tax purposes, and any cash distributions received by a unitholder who is not a partner for federal income tax purposes would therefore appear to be fully taxable as ordinary income. These holders are urged to consult their own tax advisors with respect to their tax consequences of holding common units in Rose Rock Midstream, L.P. The references to “unitholders” in the discussion that follows are to persons who are treated as partners in Rose Rock Midstream, L.P. for federal income tax purposes.

Tax Consequences of Unit Ownership

Flow-Through of Taxable Income. Subject to the discussion below under “—Entity-Level Collections,” we will not pay any federal income tax. Instead, each unitholder will be required to report on his income tax return his share of our income, gains, losses and deductions without regard to whether we make cash distributions to him. Consequently, we may allocate income to a unitholder even if he has not received a cash distribution. Each unitholder will be required to include in income his allocable share of our income, gains, losses and deductions for our taxable year ending with or within his taxable year. Our taxable year ends on December 31.

Treatment of Distributions. Distributions by us to a unitholder generally will not be taxable to the unitholder for federal income tax purposes, except to the extent the amount of any such cash distribution exceeds his tax basis in his common units immediately before the distribution. Cash distributions made by us to a unitholder in an amount in excess of a unitholder’s tax basis generally will be considered to be gain from the sale or exchange of the common units, taxable in accordance with the rules described under “—Disposition of Common Units” below. Any reduction in a unitholder’s share of our liabilities for which no partner, including the general partner, bears the economic risk of loss, known as “nonrecourse liabilities,” will be treated as a distribution by us of cash to that unitholder. To the extent our distributions cause a unitholder’s “at-risk” amount to be less than zero at the end of any taxable year, he must recapture any losses deducted in previous years. Please read “—Limitations on Deductibility of Losses.”

A decrease in a unitholder’s percentage interest in us because of our issuance of additional common units will decrease his share of our nonrecourse liabilities, and thus will result in a corresponding deemed distribution of cash. This deemed distribution may constitute a non-pro rata distribution. A non-pro rata distribution of money

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Index to Financial Statements

or property may result in ordinary income to a unitholder, regardless of his tax basis in his common units, if the distribution reduces the unitholder’s share of our “unrealized receivables,” including depreciation recapture, depletion recapture and/or substantially appreciated “inventory items,” each as defined in the Internal Revenue Code, and collectively, “Section 751 Assets.” To that extent, the unitholder will be treated as having been distributed his proportionate share of the Section 751 Assets and then having exchanged those assets with us in return for the non-pro rata portion of the actual distribution made to him. This latter deemed exchange will generally result in the unitholder’s realization of ordinary income, which will equal the excess of (i) the non-pro rata portion of that distribution over (ii) the unitholder’s tax basis (generally zero) for the share of Section 751 Assets deemed relinquished in the exchange.

Ratio of Taxable Income to Distributions. We estimate that a purchaser of common units in this offering who owns those common units from the date of closing of this offering through the record date for distributions for the period ending December 31, 2014, will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be % or less of the cash distributed with respect to that period. Thereafter, we anticipate that the ratio of allocable taxable income to cash distributions to the unitholders will increase. These estimates are based upon the assumption that gross income from operations will approximate the amount required to make the minimum quarterly distribution on all units and other assumptions with respect to capital expenditures, cash flow, net working capital and anticipated cash distributions. These estimates and assumptions are subject to, among other things, numerous business, economic, regulatory, legislative, competitive and political uncertainties beyond our control. Further, the estimates are based on current tax law and tax reporting positions that we will adopt and with which the IRS could disagree. Accordingly, we cannot assure you that these estimates will prove to be correct. The actual ratio of allocable taxable income to cash distributions could be higher or lower than expected, and any differences could be material and could materially affect the value of the common units. For example, the ratio of allocable taxable income to cash distributions to a purchaser of common units in this offering will be higher, and perhaps substantially higher, than our estimate with respect to the period described above if:

•

gross income from operations exceeds the amount required to make minimum quarterly distributions on all units, yet we only distribute the minimum quarterly distributions on all units; or

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we make a future offering of common units and use the proceeds of the offering in a manner that does not produce substantial additional deductions during the period described above, such as to repay indebtedness outstanding at the time of this offering or to acquire property that is not eligible for depreciation or amortization for federal income tax purposes or that is depreciable or amortizable at a rate significantly slower than the rate applicable to our assets at the time of this offering.

Basis of Common Units. A unitholder’s initial tax basis for his common units will be the amount he paid for the common units plus his share of our nonrecourse liabilities. That basis will be increased by his share of our income and by any increases in his share of our nonrecourse liabilities. That basis will be decreased, but not below zero, by distributions from us, by the unitholder’s share of our losses, by any decreases in his share of our nonrecourse liabilities and by his share of our expenditures that are not deductible in computing taxable income and are not required to be capitalized. A unitholder will have no share of our debt that is recourse to our general partner, but will have a share, generally based on his share of profits, of our nonrecourse liabilities. Please read “—Disposition of Common Units—Recognition of Gain or Loss.”

Limitations on Deductibility of Losses. The deduction by a unitholder of his share of our losses will be limited to the tax basis in his units and, in the case of an individual unitholder, estate, trust, or corporate unitholder (if more than 50% of the value of the corporate unitholder’s stock is owned directly or indirectly by or for five or fewer individuals or some tax-exempt organizations) to the amount for which the unitholder is considered to be “at risk” with respect to our activities, if that is less than his tax basis. A common unitholder subject to these limitations must recapture losses deducted in previous years to the extent that distributions cause his at-risk amount to be less than zero at the end of any taxable year. Losses disallowed to a unitholder or recaptured as a result of these limitations will carry forward and will be allowable as a deduction to the extent

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Index to Financial Statements

that his at-risk amount is subsequently increased, provided such losses do not exceed such common unitholder’s tax basis in his common units. Upon the taxable disposition of a unit, any gain recognized by a unitholder can be offset by losses that were previously suspended by the at-risk limitation but may not be offset by losses suspended by the basis limitation. Any loss previously suspended by the at-risk limitation in excess of that gain would no longer be utilizable.

In general, a unitholder will be at risk to the extent of the tax basis of his units, excluding any portion of that basis attributable to his share of our nonrecourse liabilities, reduced by (i) any portion of that basis representing amounts otherwise protected against loss because of a guarantee, stop loss agreement or other similar arrangement and (ii) any amount of money he borrows to acquire or hold his units, if the lender of those borrowed funds owns an interest in us, is related to the unitholder or can look only to the units for repayment. A unitholder’s at-risk amount will increase or decrease as the tax basis of the unitholder’s units increases or decreases, other than tax basis increases or decreases attributable to increases or decreases in his share of our nonrecourse liabilities.

In addition to the basis and at-risk limitations on the deductibility of losses, the passive loss limitations generally provide that individuals, estates, trusts and some closely-held corporations and personal service corporations can deduct losses from passive activities, which are generally defined as trade or business activities in which the taxpayer does not materially participate, only to the extent of the taxpayer’s income from those passive activities. The passive loss limitations are applied separately with respect to each publicly traded partnership. Consequently, any passive losses we generate will only be available to offset our passive income generated in the future and will not be available to offset income from other passive activities or investments, including our investments or a unitholder’s investments in other publicly traded partnerships, or salary or active business income. Passive losses that are not deductible because they exceed a unitholder’s share of income we generate may be deducted in full when he disposes of his entire investment in us in a fully taxable transaction with an unrelated party. The passive loss limitations are applied after other applicable limitations on deductions, including the at-risk rules and the basis limitation.

A unitholder’s share of our net income may be offset by any of our suspended passive losses, but it may not be offset by any other current or carryover losses from other passive activities, including those attributable to other publicly traded partnerships.

Limitations on Interest Deductions. The deductibility of a non-corporate taxpayer’s “investment interest expense” is generally limited to the amount of that taxpayer’s “net investment income.” Investment interest expense includes:

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interest on indebtedness properly allocable to property held for investment;

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our interest expense attributed to portfolio income; and

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the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.

The computation of a unitholder’s investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment or qualified dividend income (if applicable). The IRS has indicated that the net passive income earned by a publicly traded partnership will be treated as investment income to its unitholders. In addition, the unitholder’s share of our portfolio income will be treated as investment income.

Entity-Level Collections. If we are required or elect under applicable law to pay any federal, state, local or foreign income tax on behalf of any unitholder or our general partner or any former unitholder, we are authorized to pay those taxes from our funds. That payment, if made, will be treated as a distribution of cash to the unitholder on whose behalf the payment was made. If the payment is made on behalf of a person whose identity

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cannot be determined, we are authorized to treat the payment as a distribution to all current unitholders. We are authorized to amend our partnership agreement in the manner necessary to maintain uniformity of intrinsic tax characteristics of units and to adjust later distributions, so that after giving effect to these distributions, the priority and characterization of distributions otherwise applicable under our partnership agreement is maintained as nearly as is practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in which event the unitholder would be required to file a claim in order to obtain a credit or refund.

Allocation of Income, Gain, Loss and Deduction. In general, if we have a net profit, our items of income, gain, loss and deduction will be allocated among our general partner and the unitholders in accordance with their percentage interests in us. At any time that distributions are made to the common units in excess of distributions to the subordinated units, or incentive distributions are made to our general partner, gross income will be allocated to the recipients to the extent of these distributions. If we have a net loss, that loss will be allocated first to our general partner and the unitholders in accordance with their percentage interests in us to the extent of their positive capital accounts and, second, to our general partner.

Specified items of our income, gain, loss and deduction will be allocated to account for (i) any difference between the tax basis and fair market value of our assets at the time of an offering and (ii) any difference between the tax basis and fair market value of any property contributed to us by the general partner and its affiliates that exists at the time of such contribution, together, referred to in this discussion as the “Contributed Property.” The effect of these allocations, referred to as Section 704(c) Allocations, to a unitholder purchasing common units from us in this offering will be essentially the same as if the tax bases of our assets were equal to their fair market values at the time of this offering. In the event we issue additional common units or engage in certain other transactions in the future, “reverse Section 704(c) Allocations,” similar to the Section 704(c) Allocations described above, will be made to the general partner and all of our unitholders immediately prior to such issuance or other transactions to account for the difference between the “book” basis for purposes of maintaining capital accounts and the fair market value of all property held by us at the time of such issuance or future transaction. In addition, items of recapture income will be allocated to the extent possible to the unitholder who was allocated the deduction giving rise to the treatment of that gain as recapture income in order to minimize the recognition of ordinary income by some unitholders. Finally, although we do not expect that our operations will result in the creation of negative capital accounts, if negative capital accounts nevertheless result, items of our income and gain will be allocated in an amount and manner sufficient to eliminate the negative balance as quickly as possible.

An allocation of items of our income, gain, loss or deduction, other than an allocation required by the Internal Revenue Code to eliminate the difference between a partner’s “book” capital account, credited with the fair market value of Contributed Property, and “tax” capital account, credited with the tax basis of Contributed Property, referred to in this discussion as the “Book-Tax Disparity,” will generally be given effect for federal income tax purposes in determining a partner’s share of an item of income, gain, loss or deduction only if the allocation has “substantial economic effect.” In any other case, a partner’s share of an item will be determined on the basis of his interest in us, which will be determined by taking into account all the facts and circumstances, including:

•

his relative contributions to us;

•

the interests of all the partners in profits and losses;

•

the interest of all the partners in cash flow; and

•

the rights of all the partners to distributions of capital upon liquidation.

Andrews Kurth LLP is of the opinion that, with the exception of the issues described in “—Section 754 Election” and “—Disposition of Common Units—Allocations Between Transferors and Transferees,” allocations under our partnership agreement will be given effect for federal income tax purposes in determining a partner’s share of an item of income, gain, loss or deduction.

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Treatment of Short Sales. A unitholder whose units are loaned to a “short seller” to cover a short sale of units may be considered as having disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition. As a result, during this period:

•

any of our income, gain, loss or deduction with respect to those units would not be reportable by the unitholder;

•

any cash distributions received by the unitholder as to those units would be fully taxable; and

•

all of these distributions would appear to be ordinary income.

Because there is no direct or indirect controlling authority on the issue relating to partnership interests, Andrews Kurth LLP has not rendered an opinion regarding the tax treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and loaning their units. The IRS has previously announced that it is studying issues relating to the tax treatment of short sales of partnership interests. Please also read “—Disposition of Common Units—Recognition of Gain or Loss.”

Alternative Minimum Tax. Each unitholder will be required to take into account his distributive share of any items of our income, gain, loss or deduction for purposes of the alternative minimum tax. The current minimum tax rate for noncorporate taxpayers is 26% on the first $175,000 of alternative minimum taxable income in excess of the exemption amount and 28% on any additional alternative minimum taxable income. Prospective unitholders are urged to consult with their tax advisors as to the impact of an investment in units on their liability for the alternative minimum tax.

Tax Rates. Under current law, the highest marginal U.S. federal income tax rate applicable to ordinary income of individuals is 35% and the highest marginal U.S. federal income tax rate applicable to long-term capital gains (generally, capital gains on certain assets held for more than twelve months) of individuals is 15%. However, absent new legislation extending the current rates, beginning January 1, 2013, the highest marginal U.S. federal income tax rate applicable to ordinary income and long-term capital gains of individuals will increase to 39.6% and 20%, respectively. Moreover, these rates are subject to change by new legislation at any time.

Recently enacted legislation will impose a 3.8% Medicare tax on certain net investment income earned by individuals, estates and trusts for taxable years beginning after December 31, 2012. For these purposes, net investment income generally includes a unitholder’s allocable share of our income and gain realized by a unitholder from a sale of units. In the case of an individual, the tax will be imposed on the lesser of (i) the unitholder’s net investment income or (ii) the amount by which the unitholder’s modified adjusted gross income exceeds $250,000 (if the unitholder is married and filing jointly or a surviving spouse), $125,000 (if the unitholder is married and filing separately) or $200,000 (in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of (i) undistributed net investment income, or (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.

Section 754 Election. We will make the election permitted by Section 754 of the Internal Revenue Code. That election is irrevocable without the consent of the IRS unless there is a constructive termination of the partnership. Please read “—Disposition of Common Units—Constructive Termination.” The election will generally permit us to adjust a common unit purchaser’s tax basis in our assets, or inside basis, under Section 743(b) of the Internal Revenue Code to reflect his purchase price. This election does not apply with respect to a person who purchases common units directly from us. The Section 743(b) adjustment belongs to the purchaser and not to other unitholders. For purposes of this discussion, the inside basis in our assets with respect to a unitholder will be considered to have two components: (i) his share of our tax basis in our assets, or common basis, and (ii) his Section 743(b) adjustment to that basis.

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We will adopt the remedial allocation method as to all our properties. Where the remedial allocation method is adopted, the Treasury Regulations under Section 743 of the Internal Revenue Code require a portion of the Section 743(b) adjustment that is attributable to recovery property that is subject to depreciation under Section 168 of the Internal Revenue Code and whose book basis is in excess of its tax basis to be depreciated over the remaining cost recovery period for the property’s unamortized Book-Tax Disparity. Under Treasury Regulation Section 1.167(c)-1(a)(6), a Section 743(b) adjustment attributable to property subject to depreciation under Section 167 of the Internal Revenue Code, rather than cost recovery deductions under Section 168, is generally required to be depreciated using either the straight-line method or the 150% declining balance method. Under our partnership agreement, our general partner is authorized to take a position to preserve the uniformity of units even if that position is not consistent with these and any other Treasury Regulations. Please read “—Uniformity of Units.”

We intend to depreciate the portion of a Section 743(b) adjustment attributable to unrealized appreciation in the value of Contributed Property, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or amortization method and useful life applied to the property’s unamortized Book-Tax Disparity, or treat that portion as non-amortizable to the extent attributable to property which is not amortizable. This method is consistent with the methods employed by other publicly traded partnerships but is arguably inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to a material portion of our assets. To the extent this Section 743(b) adjustment is attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we will apply the rules described in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be taken, we may take a depreciation or amortization position under which all purchasers acquiring units in the same month would receive depreciation or amortization, whether attributable to common basis or a Section 743(b) adjustment, based upon the same applicable rate as if they had purchased a direct interest in our assets. This kind of aggregate approach may result in lower annual depreciation or amortization deductions than would otherwise be allowable to some unitholders. Please read “—Uniformity of Units.” A unitholder’s tax basis for his common units is reduced by his share of our deductions (whether or not such deductions were claimed on an individual’s income tax return) so that any position we take that understates deductions will overstate the common unitholder’s basis in his common units, which may cause the unitholder to understate gain or overstate loss on any sale of such units. Please read “—Disposition of Common Units—Recognition of Gain or Loss.” Andrews Kurth LLP is unable to opine as to whether our method for depreciating Section 743 adjustments is sustainable for property subject to depreciation under Section 167 of the Internal Revenue Code or if we use an aggregate approach as described above, as there is no direct or indirect controlling authority addressing the validity of these positions. Moreover, the IRS may challenge our position with respect to depreciating or amortizing the Section 743(b) adjustment we take to preserve the uniformity of the units. If such a challenge were sustained, the gain from the sale of units might be increased without the benefit of additional deductions.

A Section 754 election is advantageous if the transferee’s tax basis in his units is higher than the units’ share of the aggregate tax basis of our assets immediately prior to the transfer. In that case, as a result of the election, the transferee would have, among other items, a greater amount of depreciation deductions and his share of any gain or loss on a sale of our assets would be less. Conversely, a Section 754 election is disadvantageous if the transferee’s tax basis in his units is lower than those units’ share of the aggregate tax basis of our assets immediately prior to the transfer. Thus, the fair market value of the units may be affected either favorably or unfavorably by the election. A basis adjustment is required regardless of whether a Section 754 election is made in the case of a transfer of an interest in us if we have a substantial built-in loss immediately after the transfer, or if we distribute property and have a substantial basis reduction. Generally a built-in loss or a basis reduction is substantial if it exceeds $250,000.

The calculations involved in the Section 754 election are complex and will be made on the basis of assumptions as to the value of our assets and other matters. For example, the allocation of the Section 743(b) adjustment among our assets must be made in accordance with the Internal Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment allocated by us to our tangible assets to goodwill instead.

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Goodwill, as an intangible asset, is generally nonamortizable or amortizable over a longer period of time or under a less accelerated method than our tangible assets. We cannot assure you that the determinations we make will not be successfully challenged by the IRS and that the deductions resulting from them will not be reduced or disallowed altogether. Should the IRS require a different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek permission from the IRS to revoke our Section 754 election. If permission is granted, a subsequent purchaser of units may be allocated more income than he would have been allocated had the election not been revoked.

Tax Treatment of Operations

Accounting Method and Taxable Year. We use the year ending December 31 as our taxable year and the accrual method of accounting for federal income tax purposes. Each unitholder will be required to include in income his share of our income, gain, loss and deduction for our taxable year ending within or with his taxable year. In addition, a unitholder who has a taxable year ending on a date other than December 31 and who disposes of all of his units following the close of our taxable year but before the close of his taxable year must include his share of our income, gain, loss and deduction in income for his taxable year, with the result that he will be required to include in income for his taxable year his share of more than twelve months of our income, gain, loss and deduction. Please read “—Disposition of Common Units—Allocations Between Transferors and Transferees.”

Initial Tax Basis, Depreciation and Amortization. The tax basis of our assets will be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on the disposition of these assets. The federal income tax burden associated with the difference between the fair market value of our assets and their tax basis immediately prior to (i) this offering will be borne by our general partner and its affiliates, and (ii) any other offering will be borne by our general partner and all of our unitholders as of that time. Please read “—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction.”

To the extent allowable, we may elect to use the depreciation and cost recovery methods, including bonus depreciation to the extent applicable, that will result in the largest deductions being taken in the early years after assets subject to these allowances are placed in service. Please read “—Uniformity of Units.” Property we subsequently acquire or construct may be depreciated using accelerated methods permitted by the Internal Revenue Code.

If we dispose of depreciable property by sale, foreclosure or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation previously deducted and the nature of the property, may be subject to the recapture rules and taxed as ordinary income rather than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to property we own will likely be required to recapture some or all of those deductions as ordinary income upon a sale of his interest in us. Please read “—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction” and “—Disposition of Common Units—Recognition of Gain or Loss.”

The costs we incur in selling our units (called “syndication expenses”) must be capitalized and cannot be deducted currently, ratably or upon our termination. There are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The underwriting discounts and commissions we incur will be treated as syndication expenses.

Valuation and Tax Basis of Our Properties. The federal income tax consequences of the ownership and disposition of units will depend in part on our estimates of the relative fair market values, and the initial tax bases, of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates and determinations of basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain,

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loss or deductions previously reported by unitholders might change, and unitholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.

Disposition of Common Units

Recognition of Gain or Loss. Gain or loss will be recognized on a sale of units equal to the difference between the amount realized and the unitholder’s tax basis for the units sold. A unitholder’s amount realized will be measured by the sum of the cash or the fair market value of other property received by him plus his share of our nonrecourse liabilities. Because the amount realized includes a unitholder’s share of our nonrecourse liabilities, the gain recognized on the sale of units could result in a tax liability in excess of any cash received from the sale.

Prior distributions from us that in the aggregate were in excess of cumulative net taxable income for a common unit and, therefore, decreased a unitholder’s tax basis in that common unit will, in effect, become taxable income if the common unit is sold at a price greater than the unitholder’s tax basis in that common unit, even if the price received is less than his original cost.

Except as noted below, gain or loss recognized by a unitholder, other than a “dealer” in units, on the sale or exchange of a unit will generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of units held for more than twelve months will generally be taxed at a maximum U.S. federal income tax rate of 15% through December 31, 2012 and 20% thereafter (absent new legislation extending or adjusting the current rate). However, a portion of this gain or loss, which will likely be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal Revenue Code to the extent attributable to assets giving rise to depreciation recapture or other “unrealized receivables” or to “inventory items” we own. The term “unrealized receivables” includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the sale of a unit and may be recognized even if there is a net taxable loss realized on the sale of a unit. Thus, a unitholder may recognize both ordinary income and a capital loss upon a sale of units. Capital losses may offset capital gains and no more than $3,000 of ordinary income each year, in the case of individuals, and may only be used to offset capital gains in the case of corporations.

The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must be allocated to the interests sold using an “equitable apportionment” method, which generally means that the tax basis allocated to the interest sold equals an amount that bears the same relation to the partner’s tax basis in his entire interest in the partnership as the value of the interest sold bears to the value of the partner’s entire interest in the partnership. Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholder who can identify common units transferred with an ascertainable holding period to elect to use the actual holding period of the common units transferred. Thus, according to the ruling discussed above, a common unitholder will be unable to select high or low basis common units to sell as would be the case with corporate stock, but, according to the Treasury Regulations, he may designate specific common units sold for purposes of determining the holding period of units transferred. A unitholder electing to use the actual holding period of common units transferred must consistently use that identification method for all subsequent sales or exchanges of common units. A unitholder considering the purchase of additional units or a sale of common units purchased in separate transactions is urged to consult his tax advisor as to the possible consequences of this ruling and application of the Treasury Regulations.

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Specific provisions of the Internal Revenue Code affect the taxation of some financial products and securities, including partnership interests, by treating a taxpayer as having sold an “appreciated” partnership interest, one in which gain would be recognized if it were sold, assigned or terminated at its fair market value, if the taxpayer or related persons enter(s) into:

•

a short sale;

•

an offsetting notional principal contract; or

•

a futures or forward contract;

in each case, with respect to the partnership interest or substantially identical property.

Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect to the partnership interest, the taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership interest or substantially identical property. The Secretary of the Treasury is also authorized to issue regulations that treat a taxpayer that enters into transactions or positions that have substantially the same effect as the preceding transactions as having constructively sold the financial position.

Allocations Between Transferors and Transferees. In general, our taxable income and losses will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned among the unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month, which we refer to in this prospectus as the “Allocation Date.” However, gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among the unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.

Although simplifying conventions are contemplated by the Internal Revenue Code and most publicly traded partnerships use similar simplifying conventions, the use of this method may not be permitted under existing Treasury Regulations as there is no direct or indirect controlling authority on this issue. Recently, however, the Department of the Treasury and the IRS issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders, although such tax items must be prorated on a daily basis. Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we have adopted. Existing publicly traded partnerships are entitled to rely on these proposed Treasury Regulations; however, they are not binding on the IRS and are subject to change until final Treasury Regulations are issued. Accordingly, Andrews Kurth LLP is unable to opine on the validity of this method of allocating income and deductions between transferor and transferee unitholders because the issue has not been finally resolved by the IRS or the courts. If this method is not allowed under the Treasury Regulations, or only applies to transfers of less than all of the unitholder’s interest, our taxable income or losses might be reallocated among the unitholders. We are authorized to revise our method of allocation between transferor and transferee unitholders, as well as unitholders whose interests vary during a taxable year, to conform to a method permitted under future Treasury Regulations.

A unitholder who disposes of units prior to the record date set for a cash distribution for any quarter will be allocated items of our income, gain, loss and deductions attributable to the month of sale but will not be entitled to receive that cash distribution.

Notification Requirements. A unitholder who sells any of his units is generally required to notify us in writing of that sale within 30 days after the sale (or, if earlier, January 15 of the year following the sale). A purchaser of units who purchases units from another unitholder is also generally required to notify us in writing of that purchase within 30 days after the purchase. Upon receiving such notifications, we are required to notify

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the IRS of that transaction and to furnish specified information to the transferor and transferee. Failure to notify us of a purchase may, in some cases, lead to the imposition of penalties. However, these reporting requirements do not apply to a sale by an individual who is a citizen of the U.S. and who effects the sale or exchange through a broker who will satisfy such requirements.

Constructive Termination. We will be considered to have terminated our tax partnership for federal income tax purposes upon the sale or exchange of our interests that, in the aggregate, constitute 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of measuring whether the 50% threshold is reached, multiple sales of the same interest are counted only once. A constructive termination results in the closing of our taxable year for all unitholders. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. A constructive termination occurring on a date other than December 31 will result in us filing two tax returns (and unitholders could receive two Schedules K-1 if the relief discussed below is not available) for one fiscal year and the cost of the preparation of these returns will be borne by all common unitholders. We would be required to make new tax elections after a termination, including a new election under Section 754 of the Internal Revenue Code, and a termination would result in a deferral of our deductions for depreciation. A termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the termination. The IRS has recently announced a relief procedure whereby if a publicly traded partnership that has technically terminated requests publicly traded partnership technical termination relief and the IRS grants such relief, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year notwithstanding two partnership tax years.

Uniformity of Units

Because we cannot match transferors and transferees of units, we must maintain uniformity of the economic and tax characteristics of the units to a purchaser of these units. In the absence of uniformity, we may be unable to completely comply with a number of federal income tax requirements, both statutory and regulatory. A lack of uniformity can result from a literal application of Treasury Regulation Section 1.167(c)-1(a)(6). Any non-uniformity could have a negative impact on the value of the units. Please read “—Tax Consequences of Unit Ownership—Section 754 Election.”

We intend to depreciate the portion of a Section 743(b) adjustment attributable to unrealized appreciation in the value of Contributed Property, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or amortization method and useful life applied to the property’s unamortized Book-Tax Disparity, or treat that portion as nonamortizable, to the extent attributable to property the common basis of which is not amortizable, consistent with the regulations under Section 743 of the Internal Revenue Code, even though that position may be inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to a material portion of our assets. Please read “—Tax Consequences of Unit Ownership—Section 754 Election.” To the extent that the Section 743(b) adjustment is attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we will apply the rules described in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be taken, we may adopt a depreciation and amortization position under which all purchasers acquiring units in the same month would receive depreciation and amortization deductions, whether attributable to common basis or a Section 743(b) adjustment, based upon the same applicable rate as if they had purchased a direct interest in our assets. If this position is adopted, it may result in lower annual depreciation and amortization deductions than would otherwise be allowable to some unitholders and risk the loss of depreciation and amortization deductions not taken in the year that these deductions are otherwise allowable. This position will not be adopted if we determine that the loss of depreciation and amortization deductions will have a material adverse effect on the unitholders. If we choose not to utilize this aggregate method, we may use any other reasonable depreciation and amortization method to preserve the uniformity of the intrinsic tax characteristics of

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any units that would not have a material adverse effect on the unitholders. In either case, and as stated above under “—Tax Consequences of Unit Ownership—Section 754 Election,” Andrews Kurth LLP has not rendered an opinion with respect to these methods. Moreover, the IRS may challenge any method of depreciating the Section 743(b) adjustment described in this paragraph. If this challenge were sustained, the uniformity of units might be affected, and the gain from the sale of units might be increased without the benefit of additional deductions. Please read “—Disposition of Common Units—Recognition of Gain or Loss.”

Tax-Exempt Organizations and Other Investors

Ownership of units by employee benefit plans, other tax-exempt organizations, non-resident aliens, foreign corporations and other foreign persons raises issues unique to those investors and, as described below to a limited extent, may have substantially adverse tax consequences to them. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our common units.

Employee benefit plans and most other organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, are subject to federal income tax on unrelated business taxable income. Virtually all of our income allocated to a unitholder that is a tax-exempt organization will be unrelated business taxable income and will be taxable to it.

Non-resident aliens and foreign corporations, trusts or estates that own units will be considered to be engaged in business in the U.S. because of the ownership of units. As a consequence, they will be required to file federal tax returns to report their share of our income, gain, loss or deduction and pay federal income tax at regular rates on their share of our net income or gain. Moreover, under rules applicable to publicly traded partnerships, we will withhold at the highest applicable effective tax rate from cash distributions made quarterly to foreign unitholders. Each foreign unitholder must obtain a taxpayer identification number from the IRS and submit that number to our transfer agent on a Form W-8BEN or applicable substitute form in order to obtain credit for these withholding taxes. A change in applicable law may require us to change these procedures.

In addition, because a foreign corporation that owns units will be treated as engaged in a U.S. trade or business, that corporation may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our income and gain, as adjusted for changes in the foreign corporation’s “U.S. net equity,” which is effectively connected with the conduct of a U.S. trade or business. That tax may be reduced or eliminated by an income tax treaty between the U.S. and the country in which the foreign corporate unitholder is a “qualified resident.” In addition, this type of unitholder is subject to special information reporting requirements under Section 6038C of the Internal Revenue Code.

A foreign unitholder who sells or otherwise disposes of a common unit will be subject to U.S. federal income tax on gain realized from the sale or disposition of that unit to the extent the gain is effectively connected with a U.S. trade or business of the foreign unitholder. Under a ruling published by the IRS, interpreting the scope of “effectively connected income,” a foreign unitholder would be considered to be engaged in a trade or business in the U.S. by virtue of the U.S. activities of the partnership, and part or all of that unitholder’s gain would be effectively connected with that unitholder’s indirect U.S. trade or business. Moreover, under the Foreign Investment in Real Property Tax Act, a foreign common unitholder generally will be subject to U.S. federal income tax upon the sale or disposition of a common unit if (i) he owned (directly or constructively applying certain attribution rules) more than 5% of our common units at any time during the five-year period ending on the date of such disposition and (ii) 50% or more of the fair market value of all of our assets consisted of U.S. real property interests at any time during the shorter of the period during which such unitholder held the common units or the five-year period ending on the date of disposition. Currently, more than 50% of our assets consist of U.S. real property interests and we do not expect that to change in the foreseeable future. Therefore, foreign unitholders may be subject to federal income tax on gain from the sale or disposition of their units.

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Administrative Matters

Information Returns and Audit Procedures. We intend to furnish to each unitholder, within 90 days after the close of each calendar year, specific tax information, including a Schedule K-1, which describes his share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which will not be reviewed by counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine each unitholder’s share of income, gain, loss and deduction. We cannot assure you that those positions will yield a result that conforms to the requirements of the Internal Revenue Code, Treasury Regulations or administrative interpretations of the IRS. Neither we nor Andrews Kurth LLP can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible. Any challenge by the IRS could negatively affect the value of the units.

The IRS may audit our federal income tax information returns. Adjustments resulting from an IRS audit may require each unitholder to adjust a prior year’s tax liability, and possibly may result in an audit of his return. Any audit of a unitholder’s return could result in adjustments not related to our returns as well as those related to our returns.

Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined in a partnership proceeding rather than in separate proceedings with the partners. The Internal Revenue Code requires that one partner be designated as the “Tax Matters Partner” for these purposes. Our partnership agreement names Rose Rock Midstream GP as our Tax Matters Partner.

The Tax Matters Partner has made and will make some elections on our behalf and on behalf of unitholders. In addition, the Tax Matters Partner can extend the statute of limitations for assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the IRS unless that unitholder elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all the unitholders are bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any unitholder having at least a 1% interest in profits or by any group of unitholders having in the aggregate at least a 5% interest in profits. However, only one action for judicial review will go forward, and each unitholder with an interest in the outcome may participate.

A unitholder must file a statement with the IRS identifying the treatment of any item on his federal income tax return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of this consistency requirement may subject a unitholder to substantial penalties.

Nominee Reporting. Persons who hold an interest in us as a nominee for another person are required to furnish to us:

•

the name, address and taxpayer identification number of the beneficial owner and the nominee;

•

whether the beneficial owner is:

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a person that is not a U.S. person;

•

a foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing; or

•

a tax-exempt entity;

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the amount and description of units held, acquired or transferred for the beneficial owner; and

•

specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales.

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Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons and specific information on units they acquire, hold or transfer for their own account. A penalty of $100 per failure, up to a maximum of $1.5 million per calendar year, is imposed by the Internal Revenue Code for failure to report that information to us. The nominee is required to supply the beneficial owner of the units with the information furnished to us.

Accuracy-Related Penalties. An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is attributable to one or more specified causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Internal Revenue Code. No penalty will be imposed, however, for any portion of an underpayment if it is shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith regarding that portion.

For individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000 ($10,000 for most corporations). The amount of any understatement subject to penalty generally is reduced if any portion is attributable to a position adopted on the return:

•

for which there is, or was, “substantial authority”; or

•

as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return.

If any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an “understatement” of income for which no “substantial authority” exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for unitholders to make adequate disclosure on their returns and to take other actions as may be appropriate to permit unitholders to avoid liability for this penalty. More stringent rules apply to “tax shelters,” which we do not believe includes us, or any of our investments, plans or arrangements.

A substantial valuation misstatement exists if (a) the value of any property, or the adjusted basis of any property, claimed on a tax return is 150% or more of the amount determined to be the correct amount of the valuation or adjusted basis, (b) the price for any property or services (or for the use of property) claimed on any such return with respect to any transaction between persons described in Internal Revenue Code Section 482 is 200% or more (or 50% or less) of the amount determined under Section 482 to be the correct amount of such price, or (c) the net Internal Revenue Code Section 482 transfer price adjustment for the taxable year exceeds the lesser of $5 million or 10% of the taxpayer’s gross receipts.

No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for most corporations). If the valuation claimed on a return is 200% or more than the correct valuation or certain other thresholds are met, the penalty imposed increases to 40%. We do not anticipate making any valuation misstatements.

In addition, the 20% accuracy-related penalty also applies to any portion of an underpayment of tax that is attributable to transactions lacking economic substance. To the extent that such transactions are not disclosed, the penalty imposed is increased to 40%. Additionally, there is no reasonable cause defense to the imposition of this penalty to such transactions.

Reportable Transactions. If we were to engage in a “reportable transaction,” we (and possibly you and others) would be required to make a detailed disclosure of the transaction to the IRS. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a “listed transaction” or that it produces certain kinds of losses for partnerships, individuals, S corporations, and trusts in excess of $2 million in any single year, or $4 million in any combination of 6 successive tax years. Our participation in a reportable transaction could increase the likelihood that our federal income tax information return (and possibly your tax return) would be audited by the IRS. Please read “—Information Returns and Audit Procedures.”

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Index to Financial Statements

Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed transaction, you may be subject to the following provisions of the American Jobs Creation Act of 2004:

•

accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at “—Accuracy-Related Penalties”;

•

for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability; and

•

in the case of a listed transaction, an extended statute of limitations.

We do not expect to engage in any “reportable transactions.”

Recent Legislative Developments

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. For example, in the last session of Congress, the U.S. House of Representatives passed legislation that would provide for substantive changes to the definition of qualifying income and the treatment of certain types of income earned from profits interests in partnerships. It is possible that these legislative efforts could result in changes to the existing federal income tax laws that affect publicly traded partnerships. As previously proposed, we do not believe any such legislation would affect our tax treatment as a partnership. However, the proposed legislation could be modified in a way that could affect us. We are unable to predict whether any of these changes, or other proposals, will ultimately be enacted. Any such changes could negatively impact the value of an investment in our units.

State, Local, Foreign and Other Tax Considerations

In addition to federal income taxes, you likely will be subject to other taxes, such as state, local and foreign income taxes, unincorporated business taxes, and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which we do business or own property or in which you are a resident. We currently do business or own property in several states, most of which impose personal income taxes on individuals. Most of these states also impose an income tax on corporations and other entities. Moreover, we may also own property or do business in other states in the future that impose income or similar taxes on nonresident individuals. Although an analysis of those various taxes is not presented here, each prospective unitholder should consider their potential impact on his investment in us. A unitholder may be required to file income tax returns and to pay income taxes in many of these jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. In some jurisdictions, tax losses may not produce a tax benefit in the year incurred and may not be available to offset income in subsequent taxable years. Some of the jurisdictions may require us, or we may elect, to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular unitholder’s income tax liability to the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return. Amounts withheld will be treated as if distributed to unitholders for purposes of determining the amounts distributed by us. Please read “—Tax Consequences of Unit Ownership—Entity-Level Collections.” Based on current law and our estimate of our future operations, our general partner anticipates that any amounts required to be withheld will not be material.

It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, of his investment in us. Accordingly, each prospective unitholder is urged to consult, and depend upon, his tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholder to file all state, local and foreign, as well as U.S. federal tax returns, that may be required of him. Andrews Kurth LLP has not rendered an opinion on the state, local or foreign tax consequences of an investment in us.

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Index to Financial Statements

INVESTMENT IN ROSE ROCK MIDSTREAM, L.P. BY EMPLOYEE BENEFIT PLANS

An investment in us by an employee benefit plan is subject to additional considerations because the investments of these plans are subject to the fiduciary responsibility and prohibited transaction provisions of ERISA and the restrictions imposed by Section 4975 of the Internal Revenue Code and provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Internal Revenue Code or ERISA, collectively, “Similar Laws.” For these purposes the term “employee benefit plan” includes, but is not limited to, qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs or annuities established or maintained by an employer or employee organization, and entities whose underlying assets are considered to include “plan assets” of such plans, accounts and arrangements, collectively, “Employee Benefit Plans.” Among other things, consideration should be given to:

•

whether the investment is prudent under Section 404(a)(1)(B) of ERISA and any other applicable Similar Laws;

•

whether in making the investment, the plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA and any other applicable Similar Laws;

•

whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment return. Please read “Material Federal Income Tax Consequences—Tax-Exempt Organizations and Other Investors”; and

•

whether making such an investment will comply with the delegation of control and prohibited transaction provisions of ERISA, the Internal Revenue Code and any other applicable Similar Laws.

The person with investment discretion with respect to the assets of an Employee Benefit Plan, often called a fiduciary, should determine whether an investment in us is authorized by the appropriate governing instrument and is a proper investment for the plan.

Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit Employee Benefit Plans from engaging, either directly or indirectly, in specified transactions involving “plan assets” with parties that, with respect to the Employee Benefit Plan, are “parties in interest” under ERISA or “disqualified persons” under the Internal Revenue Code unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Internal Revenue Code. In addition, the fiduciary of the ERISA plan that engaged in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Internal Revenue Code.

In addition to considering whether the purchase of common units is a prohibited transaction, a fiduciary should consider whether the Employee Benefit Plan will, by investing in us, be deemed to own an undivided interest in our assets, with the result that our general partner would also be a fiduciary of such Employee Benefit Plan and our operations would be subject to the regulatory restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of the Internal Revenue Code, ERISA and any other applicable Similar Laws.

The Department of Labor regulations and Section 3(42) of ERISA provide guidance with respect to whether, in certain circumstances, the assets of an entity in which Employee Benefit Plans acquire equity interests would be deemed “plan assets.” Under these rules, an entity’s assets would not be considered to be “plan assets” if, among other things:

(a) the equity interests acquired by the Employee Benefit Plan are publicly offered securities—i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, are freely transferable and are registered under certain provisions of the federal securities laws;

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Index to Financial Statements

(b) the entity is an “operating company,”—i.e., it is primarily engaged in the production or sale of a product or service, other than the investment of capital, either directly or through a majority-owned subsidiary or subsidiaries; or

(c) there is no significant investment by “benefit plan investors,” which is defined to mean that less than 25% of the value of each class of equity interest, disregarding any such interests held by our general partner, its affiliates and some other persons, is held generally by Employee Benefit Plans.

Our assets should not be considered “plan assets” under these regulations because it is expected that the investment will satisfy the requirements in (a) and (b) above.

In light of the serious penalties imposed on persons who engage in prohibited transactions or other violations, plan fiduciaries contemplating a purchase of common units should consult with their own counsel regarding the consequences under ERISA, the Internal Revenue Code and other Similar Laws.

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Index to Financial Statements

UNDERWRITING

Barclays Capital Inc. is acting as representative of the underwriters and as book-running manager of this offering. Under the terms of an underwriting agreement, which will be filed as an exhibit to the registration statement relating to this prospectus, each of the underwriters named below has severally agreed to purchase from us the respective number of common units shown opposite its name below:


Underwriter		Number of Common Units
Barclays Capital Inc.

Total

The underwriting agreement provides that the underwriters’ obligation to purchase the common units depends on the satisfaction of the conditions contained in the underwriting agreement, including:

•

the obligation to purchase all of the common units offered hereby (other than those common units covered by their option to purchase additional common units as described below), if any of the common units are purchased;

•

the representations and warranties made by us and SemGroup to the underwriters are true;

•

there is no material change in our business or the financial markets; and

•

we and SemGroup deliver customary closing documents to the underwriters.

Commissions and Expenses

The following table summarizes the underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional common units. The underwriting fee is the difference between the price to the public and the amount the underwriters pay to us for the common units.


	No Exercise	Full Exercise
Per common unit	$	$
Total	$	$

We will pay an aggregate structuring fee equal to % of the gross proceeds from this offering (excluding any proceeds from the exercise of the option to purchase additional common units) to Barclays Capital Inc. and LCT Capital, LLC for evaluation, analysis and structuring of our partnership.

The representative of the underwriters has advised us that the underwriters propose to offer the common units directly to the public at the public offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $ per common unit. After the offering, the representative may change the offering price and other selling terms. Sales of common units made outside of the United States may be made by affiliates of the underwriters.

We estimate that the expenses of this offering incurred by us will be $ million (excluding underwriting discounts and commissions and structuring fees).

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Index to Financial Statements

Option to Purchase Additional Common Units

We have granted the underwriters an option, exercisable for 30 days after the date of the underwriting agreement, to purchase, from time to time, in whole or in part, up to an aggregate of additional common units at the public offering price less underwriting discounts and commissions. This option may be exercised if the underwriters sell more than common units in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional common units based on the underwriter’s underwriting commitment in the offering as indicated in the table at the beginning of this Underwriting section.

Lock-Up Agreements

We, our subsidiaries, our general partner and its affiliates, including SemGroup, and the directors and executive officers of our general partner have agreed that, without the prior written consent of Barclays Capital Inc., we and they will not, directly or indirectly, (1) offer for sale, sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any of our common units (including, without limitation, common units that may be deemed to be beneficially owned by us or them in accordance with the rules and regulations of the SEC and common units that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common units, (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic consequences of ownership of the common units, (3) make any demand for or exercise any right or file or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any common units or securities convertible into or exercisable or exchangeable for common units or any of our other securities or (4) publicly disclose the intention to do any of the foregoing, for a period of 180 days after the date of this prospectus.

These restrictions do not apply to, among other things:

•

the sale of common units pursuant to the underwriting agreement;

•

issuances of common units by us pursuant to any employee benefit plan in effect as of the date of the underwriting agreement, provided that such common units will be subject to the 180-day restricted period; and

•

the filing of one or more registration statements on Form S-8 relating to any employee benefit plan in effect as of the date of the underwriting agreement.

The 180-day restricted period described above will be extended if:

•

during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs; or

•

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,

in which case the restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or occurrence of the material event, unless such extension is waived in writing by Barclays Capital Inc.

Barclays Capital Inc., in its sole discretion, may release the common units and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. When determining whether or not to release the common units and other securities from lock-up agreements, Barclays Capital Inc. will consider, among other factors, the holder’s reasons for requesting the release, the number of common units and other securities for which the release is being requested and market conditions at the time. Barclays Capital Inc. has no present intent or arrangement to release any of the securities that would be subject to these lock-up agreements.

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Index to Financial Statements

Offering Price Determination

Prior to this offering, there has been no public market for our common units. The initial public offering price will be negotiated among the representatives and us. In determining the initial public offering price of our common units, the representatives will consider:

•

the history and prospects for the industry in which we operate;

•

our financial information;

•

the ability of our management and our business potential and earning prospects;

•

the prevailing securities markets at the time of this offering; and

•

the recent market prices of, and the demand for, publicly traded common units of generally comparable companies.

Indemnification

We and certain of our affiliates, including SemGroup, have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

Stabilization, Short Positions and Penalty Bids

The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common units, in accordance with Regulation M under the Securities Exchange Act of 1934.

•

Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

•

A short position involves a sale by the underwriters of common units in excess of the number of common units the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of common units involved in the sales made by the underwriters in excess of the number of common units they are obligated to purchase is not greater than the number of common units that they may purchase by exercising their option to purchase additional common units. In a naked short position, the number of common units involved is greater than the number of common units in their option to purchase additional common units. The underwriters may close out any short position by either exercising their option to purchase additional common units and/or purchasing common units in the open market. In determining the source of common units to close out the short position, the underwriters will consider, among other things, the price of common units available for purchase in the open market as compared to the price at which they may purchase common units through their option to purchase additional common units. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the common units in the open market after pricing that could adversely affect investors who purchase in the offering.

•

Syndicate covering transactions involve purchases of the common units in the open market after the distribution has been completed in order to cover syndicate short positions.

•

Penalty bids permits the representatives to reclaim a selling concession from a syndicate member when the common units originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common units or preventing or retarding a decline in the market

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price of the common units. As a result, the price of the common units may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NYSE or otherwise and, if commenced, may be discontinued at any time.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common units. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Electronic Distribution

A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of common units for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.

Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

New York Stock Exchange

We intend to apply to list our common units on the NYSE under the symbol “RRMS.” The underwriters have undertaken to sell the minimum number of common units to the minimum number of beneficial owners necessary to meet the NYSE distribution requirements for trading.

Discretionary Sales

The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of common units offered by them.

Stamp Taxes

If you purchase common units offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Relationships

The underwriters and their affiliates have in the past and may in the future perform investment banking, commercial banking, advisory and other services for us, SemGroup and our respective affiliates from time to time for which they have received and may in the future receive customary fees and expenses. SemGroup has informed us that all of the net proceeds of this offering distributed to it will be used to repay a portion of the aggregate $275 million of indebtedness outstanding under its term loan A and term loan B. An affiliate of Barclays Capital Inc. is a lender under term loan A and will, in that respect, ultimately receive a portion of the net proceeds of this offering. For a description of term loan A, please read “Use of Proceeds” on page 50.

FINRA

Because the Financial Industry Regulatory Authority, Inc., or FINRA, is expected to view the common units offered hereby as interests in a direct participation program, the offering is being made in compliance with

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Rule 2310 of the FINRA Rules. Investor suitability with respect to the common units should be judged similarly to the suitability with respect to other securities that are listed for trading on a national securities exchange.

Selling Restrictions

European Economic Area

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a “relevant member state”), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state, an offer of securities described in this prospectus may not be made to the public in that relevant member state other than:

•

to any legal entity which is a qualified investor as defined in the Prospectus Directive;

•

to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant dealer or dealers nominated by the issuer for any such offer; or

•

in any other circumstances falling within Article 3(2) of the Prospectus Directive;

provided that no such offer of securities shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

For purposes of this provision, the expression an “offer of securities to the public” in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state), and includes any relevant implementing measure in each relevant member state. The expression “2010 PD Amending Directive” means Directive 2010/73/EU.

We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the securities as contemplated in this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is authorized to make any further offer of the securities on behalf of us or the underwriters.

United Kingdom

We may constitute a “collective investment scheme” as defined by section 235 of the Financial Services and Markets Act 2000, or FSMA, that is not a “recognized collective investment scheme” for the purposes of FSMA, or CIS, and that has not been authorized or otherwise approved. As an unregulated scheme, it cannot be marketed in the United Kingdom to the general public, except in accordance with FSMA. This prospectus is only being distributed in the United Kingdom to, and is only directed at:

(i)

if we are a CIS and are marketed by a person who is an authorized person under FSMA, (a) investment professionals falling within Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) Order 2001, as amended, or the CIS Promotion Order, or (b) high net worth companies and other persons falling within Article 22(2)(a) to (d) of the CIS Promotion Order; or

(ii)

otherwise, if marketed by a person who is not an authorized person under FSMA, (a) persons who fall within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or Financial Promotion Order, or (b) Article 49(2)(a) to (d) of the Financial Promotion Order; and

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(iii)

in both cases (i) and (ii) to any other person to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). The common units are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such common units will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.

An invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) in connection with the issue or sale of any common units which are the subject of the offering contemplated by this prospectus will only be communicated or caused to be communicated in circumstances in which Section 21(1) of FSMA does not apply to us.

Switzerland

This prospectus is being communicated in Switzerland to a small number of selected investors only. Each copy of this prospectus is addressed to a specifically named recipient and may not be copied, reproduced, distributed or passed on to third parties. The common units are not being offered to the public in Switzerland, and neither this prospectus nor any other offering materials relating to the common units may be distributed in connection with any such public offering.

We have not been registered with the Swiss Financial Market Supervisory Authority FINMA as a foreign collective investment scheme pursuant to Article 120 of the Collective Investment Schemes Act of June 23, 2006, or the CISA. Accordingly, the common units may not be offered to the public in or from Switzerland, and neither this prospectus nor any other offering materials relating to the common units may be made available through a public offering in or from Switzerland. The common units may only be offered and this prospectus may only be distributed in or from Switzerland by way of private placement exclusively to qualified investors (as this term is defined in the CISA and its implementing ordinance).

Germany

This document has not been prepared in accordance with the requirements for a securities or sales prospectus under the German Securities Prospectus Act (Wertpapierprospektgesetz), the German Sales Prospectus Act (Verkaufsprospektgesetz), or the German Investment Act (Investmentgesetz). Neither the German Federal Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht—BaFin) nor any other German authority has been notified of the intention to distribute our common units in Germany. Consequently, our common units may not be distributed in Germany by way of public offering, public advertisement or in any similar manner and this document and any other document relating to the offering, as well as information or statements contained therein, may not be supplied to the public in Germany or used in connection with any offer for subscription of our common units to the public in Germany or any other means of public marketing. Our common units are being offered and sold in Germany only to qualified investors which are referred to in Section 3, paragraph 2 no. 1, in connection with Section 2, no. 6, of the German Securities Prospectus Act, Section 8f paragraph 2 no. 4 of the German Sales Prospectus Act, and in Section 2 paragraph 11 sentence 2 no. 1 of the German Investment Act. This document is strictly for use of the person who has received it. It may not be forwarded to other persons or published in Germany.

The offering does not constitute an offer to sell or the solicitation or an offer to buy our common units in any circumstances in which such offer or solicitation is unlawful.

Netherlands

Our common units may not be offered or sold, directly or indirectly, in the Netherlands, other than to qualified investors (gekwalificeerde beleggers) within the meaning of Article 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht).

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Index to Financial Statements

VALIDITY OF THE COMMON UNITS

The validity of the common units offered hereby will be passed upon for us by Andrews Kurth LLP, Houston, Texas. Certain legal matters in connection with the common units offered hereby will be passed upon for the underwriters by Baker Botts L.L.P., Houston, Texas.

EXPERTS

The financial statements as of December 31, 2010 and 2009 and for the one month ended December 31, 2009, and the year ended December 31, 2010 (subsequent to emergence), and for the year ended December 31, 2008, and for the eleven months ended November 30, 2009 (prior to emergence) included in this Prospectus have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting.

The balance sheet of Rose Rock Midstream, L.P. as of August 11, 2011 (date of inception) included in this Prospectus has been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 regarding the common units. This prospectus does not contain all of the information found in the registration statement. For further information regarding us and the common units offered in this prospectus, you may desire to review the full registration statement, including the exhibits. The registration statement, including the exhibits, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of this material can also be obtained upon written request from the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 at prescribed rates or from the SEC’s web site on the Internet at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on public reference rooms.

As a result of the offering, we will file with or furnish to the SEC periodic reports and other information. These reports and other information may be inspected and copied at the public reference facilities maintained by the SEC or obtained from the SEC’s website as provided above. Our website is located at and will be activated immediately after the closing of this offering. We expect to make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

We intend to furnish or make available to our unitholders annual reports containing our audited financial statements prepared in accordance with GAAP. Our annual report will contain a detailed statement of any transactions with our general partner or its affiliates, and of fees, commissions, compensation and other benefits paid or accrued to our general partner or its affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed. We also intend to furnish or make available to our unitholders quarterly reports containing our unaudited interim financial information, including the information required by Form 10-Q, for the first three fiscal quarters of each fiscal year.

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Index to Financial Statements

FORWARD-LOOKING STATEMENTS

Some of the information in this prospectus may contain forward-looking statements. These statements can be identified by the use of forward-looking terminology including “will,” “may,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. These statements discuss future expectations, contain projections of financial condition or of results of operations, or state other “forward-looking” information. These forward-looking statements involve risks and uncertainties. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. The risk factors and other factors noted throughout this prospectus could cause our actual results to differ materially from those contained in any forward-looking statement.

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Index to Financial Statements

INDEX TO FINANCIAL STATEMENTS


	Page
ROSE ROCK MIDSTREAM, L.P.
Unaudited Pro Forma Combined Financial Statements:
Introduction		F-2
Unaudited Pro Forma Combined Balance Sheet as of March 31, 2011		F-3
Unaudited Pro Forma Combined Statement of Operations for the Three Months Ended March 31, 2011		F-4
Unaudited Pro Forma Combined Statement of Operations for the Year Ended December 31, 2010		F-5
Notes to Unaudited Pro Forma Combined Financial Statements		F-6
Audited Balance Sheet:
Report of Independent Registered Public Accounting Firm		F-8
Balance Sheet as of August 5, 2011		F-9
Note to Audited Balance Sheet		F-10

ROSE ROCK MIDSTREAM PREDECESSOR
Unaudited Condensed Combined Financial Statements as of March 31, 2011 and for the Three Months Ended March 31, 2011 and 2010:
Condensed Combined Balance Sheets		F-11
Unaudited Condensed Combined Statements of Operations		F-12
Unaudited Condensed Combined Statements of Cash Flows		F-13
Notes to Unaudited Condensed Combined Financial Statements		F-14
Audited Combined Financial Statements:
Report of Independent Registered Public Accounting Firm		F-23
Balance Sheets as of December 31, 2010 and 2009		F-24
Statements of Operations for the Year Ended December 31, 2010, Month Ended December 31, 2009, Eleven Months Ended November 30, 2009 and Year Ended December 31, 2008		F-25
Statements of Changes in Net Parent Equity (Deficit) for the Year Ended December 31, 2010, Month Ended December 31, 2009, Eleven Months Ended November 30, 2009 and Year Ended December 31, 2008		F-26
Statements of Cash Flows for the Year Ended December 31, 2010, Month Ended December 31, 2009, Eleven Months Ended November 30, 2009 and Year Ended December 31, 2008		F-27
Notes to Audited Combined Financial Statements		F-28

F-1

Index to Financial Statements

ROSE ROCK MIDSTREAM, L.P.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Introduction

In connection with the closing of the offering, SemGroup Corporation will contribute all of its interests in SemCrude, L.P. to a newly-formed Delaware limited partnership, Rose Rock Midstream, L.P. (the “Partnership”). The unaudited pro forma combined financial statements of the Partnership as of March 31, 2011, the three months ended March 31, 2011, and the year ended December 31, 2010 are set forth below. References to “we”, “us”, “our” and similar language in these unaudited pro forma combined financial statements refer to the Partnership. References to “SemGroup” in these unaudited pro forma combined financial statements refer to SemGroup Corporation and its consolidated subsidiaries other than us.

These unaudited pro forma combined financial statements have been derived from the historical combined financial statements of our predecessor included elsewhere in this Prospectus. The pro forma adjustments give effect to the following:

•

the elimination of Eaglwing, L.P., which is included in the historical combined financial statements of our predecessor, but which will not be contributed to us;

•

SemGroup’s contribution to us of 100% of the limited and general partner interests in SemCrude, L.P., which owns all of our initial assets;

•

our issuance to SemGroup of common units, subordinated units and a 2% general partner interest and our issuance to the public of common units;

•

our use of the net proceeds of the offering to make a distribution to SemGroup;

•

our entry into our new $ million revolving credit facility; and

•

the allocation of certain corporate overhead expenses that were not previously allocated to our predecessor.

The unaudited pro forma combined balance sheet and results of operations were derived by adjusting the historical combined financial statements of our predecessor. The pro forma adjustments have been prepared as if the completion of this offering had taken place on March 31, 2011, in the case of the unaudited pro forma balance sheet, and on January 1, 2010, in the case of the unaudited pro forma statements of operations for the three months ended March 31, 2011 and the year ended December 31, 2010. All of the assets and liabilities contributed to us by SemGroup will be recorded at their historical basis. The unaudited pro forma combined statements of operations have been prepared on the basis that we will be treated as a partnership for federal income tax purposes.

The pro forma adjustments are based on currently available information and certain estimates and assumptions. The unaudited pro forma combined financial statements are not necessarily indicative of the results that actually would have occurred if the initial public offering had occurred on the dates indicated or the results that will occur in the future. Actual adjustments will differ from the pro forma adjustments. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the offering as contemplated and the pro forma adjustments give appropriate effect to those assumptions and are properly applied in these unaudited combined pro forma financial statements.

The unaudited combined pro forma financial statements of the Partnership have been derived from the historical combined financial statements of our predecessor included elsewhere in this Prospectus and are qualified in their entirety by reference to such historical combined financial statements and related notes thereto. The unaudited pro forma combined financial statements should be read in conjunction with the accompanying notes and with the historical combined financial statements and notes of our predecessor.

F-2

Index to Financial Statements

ROSE ROCK MIDSTREAM, L.P.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

MARCH 31, 2011

Amounts in thousands


	Predecessor		Adjustments					Partnership Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	139,500		(a	)	$	—
				(139,500	)	(b	)
Accounts receivable, net of allowance for doubtful accounts		77,758		(77,758	)	(c	)		—
Inventories		26,256							26,256
Other current assets		3,132							3,132

Total current assets		107,146		(77,758	)				29,388

Property, plant and equipment, net of accumulated depreciation		256,261							256,261
Other assets, net		1,065		3,300		(d	)		4,365

Total assets	$	364,472	$	(74,458	)			$	290,014

LIABILITIES AND OWNERS’ EQUITY
Current liabilities:
Accounts payable	$	76,513	$	(16	)	(e	)	$	76,497
Accrued liabilities		10,031		(228	)	(f	)		9,803
Deferred revenue		1,796							1,796
Other current liabilities		2,780							2,780

Total current liabilities		91,120		(244	)				90,876

Long-term debt		—		3,300		(d	)		3,300

Owners’ equity:
Net parent equity		273,352		(139,500	)	(b	)		56,338
				(77,758	)	(c	)
				16		(e	)
				228		(f	)

General partner interest ( general partner units)		—
Common unitholders—public ( common units)		—		139,500		(a	)		139,500
Common unitholders—SemGroup ( common units)		—
Subordinated unitholders—SemGroup ( subordinated units)		—

Total owners’ equity		273,352		(77,514	)				195,838

Total liabilities and owners’ equity	$	364,472	$	(74,458	)			$	290,014

The accompanying notes are an integral part of these unaudited pro forma combined financial statements.

F-3

Index to Financial Statements

ROSE ROCK MIDSTREAM, L.P.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2011

Amounts in thousands, except per share amounts


	Predecessor		Adjustments					Partnership Pro Forma
Revenues, including revenues from affiliates:
Product	$	74,257						$	74,257
Service		9,423							9,423
Other		111							111

Total revenues		83,791		—					83,791

Expenses, including expenses from affiliates:
Costs of products sold, exclusive of depreciation and amortization shown below		66,000							66,000
Operating		4,664							4,664
General and administrative		2,357		(1	)	(e	)		2,735
				379		(g	)
Depreciation and amortization		2,683							2,683

Total expenses		75,704		378					76,082

Operating income		8,087		(378	)				7,709
Interest expense		483		213		(h	)		696

Net income	$	7,604	$	(591	)			$	7,013

General partner interest in net income
Common unitholders’ interest in net income
Subordinated unitholders’ interest in net income
Weighted average common units outstanding (basic and diluted)
Net income per common unit (basic and diluted)

The accompanying notes are an integral part of these unaudited pro forma combined financial statements.

F-4

Index to Financial Statements

ROSE ROCK MIDSTREAM, L.P.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2010

Amounts in thousands, except per share amounts


	Predecessor			Adjustments					Partnership Pro Forma
Revenues, including revenues from affiliates:
Product	$	158,308							$	158,308
Service		49,408								49,408
Other		365								365

Total revenues		208,081			—					208,081

Expenses, including expenses from affiliates:
Costs of products sold, exclusive of depreciation and amortization shown below		146,614								146,614
Operating		20,398								20,398
General and administrative		7,660			(16	)	(e	)		9,160
					1,516		(g	)
Depreciation and amortization		10,435								10,435

Total expenses		185,107			1,500					186,607

Operating income		22,974			(1,500	)				21,474

Other expenses (income):
Interest expense		482			850		(h	)		1,332
Other income, net		(985	)		34		(e	)		(951	)

Total other expenses (income), net		(503	)		884					381

Net income	$	23,477		$	(2,384	)			$	21,093

General partner interest in net income
Common unitholders’ interest in net income
Subordinated unitholders’ interest in net income
Weighted average common units outstanding (basic and diluted)
Net income per common unit (basic and diluted)

The accompanying notes are an integral part of these unaudited pro forma combined financial statements.

F-5

Index to Financial Statements

ROSE ROCK MIDSTREAM, L.P.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

•

the elimination of Eaglwing, L.P., which is included in the historical combined financial statements of our predecessor, but which will not be contributed to us;

•

SemGroup’s contribution to us of 100% of the limited and general partner interests in SemCrude, L.P., which owns all of our initial assets;

•

our issuance to SemGroup of common units, subordinated units and a 2% general partner interest and our issuance to the public of common units;

•

our use of the net proceeds of the offering to make a distribution to SemGroup;

•

our entry into a new $ million revolving credit facility; and

•

the allocation of certain corporate overhead expenses that were not previously allocated to our predecessor.

The pro forma adjustments included herein assume that the underwriters will not exercise their option to purchase additional common units. If the underwriters exercise their option to purchase additional common units, the Partnership will use the net proceeds from that exercise to redeem from SemGroup a number of common units equal to the number of common units issued upon such exercise, at a price per common unit equal to the price per common unit in the offering before expenses but after deducting underwriting discounts and commissions and structuring fees. Accordingly, the exercise of the underwriters’ option will not affect the total number of units outstanding after the offering or the amount of cash needed to pay the minimum quarterly distribution on all units.

Upon completion of this offering, the Partnership anticipates incurring incremental general and administrative expense of $2.3 million per year as a result of being a publicly traded partnership, such as expenses associated with annual and quarterly reporting, tax return and Schedule K-1 preparation and distribution expenses, Sarbanes-Oxley compliance expenses, expenses associated with listing on the NYSE, independent auditor fees, legal fees, investor relations expenses, registrar and transfer agent fees and director and executive officer liability insurance expenses. The unaudited pro forma combined financial statements do not reflect this anticipated incremental general and administrative expense.

Note 2. Pro Forma Adjustments

(a)

Reflects the estimated gross proceeds to the Partnership of $150 million from the issuance and sale of million common units at an assumed initial public offering price of $ per unit, net of underwriting discounts and commissions and other offering costs of approximately $10.5 million. We anticipate borrowing under a new revolving credit facility to fund operating activities subsequent to the offering.

F-6

Index to Financial Statements

(b)

Reflects the distribution of net proceeds of the offering to SemGroup.

(c)

Reflects the elimination of accounts receivable of our predecessor that are not being contributed to the Partnership.

(d)

Reflects the capitalization of $3.3 million of credit facility arrangement fees and borrowing of an estimated $3.3 million on a new revolving credit facility to fund such fees.

(e)

Reflects the accounts of Eaglwing, L.P., which were included in the historical combined financial statements of our predecessor, but which will not be contributed to us.

(f)

Reflects the elimination of environmental liabilities of our predecessor related to assets that are not being assumed by the Partnership because they are not being contributed to the Partnership.

(g)

Reflects pro forma general and administrative expense for additional charges from SemGroup. In connection with the initial public offering, we estimate that we will incur $1.5 million of incremental general and administrative expenses annually, and $0.4 million quarterly, resulting from SemGroup allocating additional overhead to us upon completion of the offering, primarily relating to financial reporting and legal expenses and corporate services. This incremental expense is in addition to the estimated $2.3 million of incremental third party expense referred to in Note 1 above, which is not reflected in these unaudited combined pro forma financial statements.

(h)

Reflects pro forma interest expense on $3.3 million of estimated borrowings on a new credit facility at an estimated interest rate of 5.75% and pro forma amortization of the $3.3 million in debt issuance costs, assuming a five-year amortization period.

Note 3. Pro Forma Net Income per Limited Partner Unit

The Partnership computes income per unit using the two-class method. Net income available to common unitholders and subordinated unitholders for purposes of the basic income per unit computation is allocated between the common unitholders and subordinated unitholders by applying the provisions of the partnership agreement as if all net income for the period had been distributed as cash. Under the two-class method, any excess of distributions declared over net income will be allocated to the partners based on their respective sharing of income specified in the partnership agreement. Pro forma net income per unit is determined by dividing the pro forma net income that would have been allocated to the common unitholders and the subordinated unitholders under the two-class method, after deducting the general partner’s 2.0% interest in pro forma net income, by the number of common units and subordinated units expected to be outstanding at the closing of the offering. For purposes of this calculation, it is assumed that only the cash available for distribution is distributed and the number of common units and subordinated units outstanding were and , respectively. All units were assumed to have been outstanding since January 1, 2010. Pursuant to the partnership agreement, to the extent that the quarterly distributions exceed certain targets, SemGroup is entitled to receive certain incentive distributions that will result in more net income proportionately being allocated to SemGroup than to the holders of common and subordinated units. The pro forma net income per unit calculations assume that no incentive distributions were made to SemGroup.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 260 (“ASC 260”) (formerly Emerging Issues Task Force Issue No. 03-06, Participating Securities and the Two-Class Method under FASB Statement No. 128), addresses the computation of earnings per share by entities that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the entity. ASC 260 provides that the general partner’s interest in net income is to be calculated based on the amount that would be allocated to the general partner if all the net income for the period were distributed, and not on the basis of actual cash distributions for the period. The application of ASC 260 may have an impact on earnings per limited partner unit in future periods if there are material differences between net income and actual cash distributions or if other participating units are issued.

F-7

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors

Rose Rock Midstream GP, LLC

Tulsa, Oklahoma

We have audited the accompanying balance sheet of Rose Rock Midstream, L.P. as of August 11, 2011 (date of inception). This balance sheet is the responsibility of the Partnership’s management. Our responsibility is to express an opinion on this balance sheet based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Rose Rock Midstream, L.P. at August 11, 2011, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

BDO USA, LLP

Dallas, Texas

August 12, 2011

F-8

Index to Financial Statements

ROSE ROCK MIDSTREAM, L.P.

BALANCE SHEET AS OF AUGUST 11, 2011


Assets
Cash	$	1,000

Total assets	$	1,000

Partners’ capital
General partner	$	20
Limited partners		980

Total partners’ capital	$	1,000

The accompanying note is an integral part of this balance sheet.

F-9

Index to Financial Statements

ROSE ROCK MIDSTREAM, L.P.

NOTE TO AUDITED BALANCE SHEET

Rose Rock Midstream, L.P. (the “Partnership”) is a Delaware limited partnership formed on August 5, 2011. The Partnership was formed to own, operate, develop, and acquire a diversified portfolio of midstream energy assets.

On August 11, 2011, Rose Rock Midstream Holdings, LLC (a wholly-owned subsidiary of SemGroup Corporation) contributed $979 to the Partnership in exchange for a 97.9% limited partner interest in the Partnership. Also on August 11, 2011, Rose Rock Midstream Corporation (a wholly-owned subsidiary of Rose Rock Midstream Holdings LLC) contributed $1 to the Partnership in exchange for a 0.1% limited partner interest in the Partnership. Also on August 11, 2011, Rose Rock Midstream GP, LLC (a wholly-owned subsidiary of Rose Rock Midstream Holdings LLC) contributed $20 to the Partnership in exchange for a 2% general partner interest in the Partnership.

F-10

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Condensed Combined Balance Sheets

(Dollars in thousands)


	March 31, 2011		December 31, 2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	303
Accounts receivable (net of allowance of $3,040 at March 31, 2011 and $3,340 at December 31, 2010)		77,758		73,387
Inventories		26,256		17,968
Other current assets		3,132		4,360

Total current assets		107,146		96,018

Property, plant and equipment (net of accumulated depreciation of $13,924 at March 31, 2011 and $11,243 at December 31, 2010)		256,261		260,048
Other assets, net		1,065		1,065

Total assets	$	364,472	$	357,131

LIABILITIES AND NET PARENT EQUITY
Current liabilities:
Accounts payable	$	76,513	$	51,212
Accrued liabilities		10,031		10,278
Deferred revenue		1,796		2,535
Other current liabilities		2,780		3,118

Total current liabilities		91,120		67,143

Commitments and contingencies (Note 3)
Net parent equity		273,352		289,988

Total liabilities and net parent equity	$	364,472	$	357,131

The accompanying notes are an integral part of these unaudited condensed combined financial statements.

F-11

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Unaudited Condensed Combined Statements of Operations

(Dollars in thousands)


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Revenues, including revenues from affiliates (Note 5):
Product	$	74,257	$	40,475
Service		9,423		12,707
Other		111		—

Total revenues		83,791		53,182
Expenses, including expenses from affiliates (Note 5):
Costs of products sold, exclusive of depreciation and amortization shown below		66,000		38,414
Operating		4,664		5,157
General and administrative		2,357		2,481
Depreciation and amortization		2,683		2,469

Total expenses		75,704		48,521

Operating income		8,087		4,661
Other expenses (income):
Interest expense		483		73
Other income, net		—		(727	)

Total other expenses (income)		483		(654	)

Net income	$	7,604	$	5,315

The accompanying notes are an integral part of these unaudited condensed combined financial statements.

F-12

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Unaudited Condensed Combined Statements of Cash Flows

(Dollars in thousands)


	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Net cash provided by operating activities	$	25,173		$	19,015
Cash flows from investing activities:
Capital expenditures		(1,528	)		(1,972	)
Proceeds from sale of long-lived assets		3			—

Net cash used in investing activities		(1,525	)		(1,972	)

Cash flows from financing activities:
Change in book overdrafts		289			(405	)
Principal payments on capital lease obligations		—			(123	)
Net contributions from (distributions to) SemGroup		(24,240	)		3,153

Net cash provided by (used in) financing activities		(23,951	)		2,625

Net increase (decrease) in cash and cash equivalents		(303	)		19,668
Cash and cash equivalents at beginning of period		303			—

Cash and cash equivalents at end of period	$	—		$	19,668

The accompanying notes are an integral part of these unaudited condensed combined financial statements.

F-13

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

1.	OVERVIEW

Basis of presentation

SemGroup Corporation is a Delaware Corporation with its headquarters in Tulsa, Oklahoma. SemGroup Corporation is the successor entity of SemGroup, L.P., which was an Oklahoma limited partnership.

SemGroup Corporation plans to contribute a wholly-owned subsidiary, SemCrude, L.P. (“SemCrude”), to a newly-formed Delaware limited partnership, Rose Rock Midstream, L.P. (“Rose Rock Midstream”), and to sell limited partner interests in Rose Rock Midstream through an initial public offering. These combined financial statements are those of the predecessor of Rose Rock Midstream (the “Rose Rock Midstream Predecessor”).

The Rose Rock Midstream Predecessor includes SemCrude, exclusive of its wholly-owned subsidiary SemCrude Pipeline, L.L.C. (“SemCrude Pipeline”), which holds a 51% interest in the White Cliffs Pipeline. SemCrude plans to transfer its ownership interests in SemCrude Pipeline to an affiliate prior to the closing of this offering, and as a result, SemCrude Pipeline will not be contributed to Rose Rock Midstream. Therefore, SemCrude’s ownership of SemCrude Pipeline is not reflected in these combined financial statements of the Rose Rock Midstream Predecessor.

These combined financial statements also include Eaglwing, L.P. (“Eaglwing”), a wholly-owned subsidiary of SemGroup. Eaglwing, which is not currently conducting any revenue-generating operations, will not be contributed to Rose Rock Midstream, but it is included in the financial statements of our predecessor because it previously conducted business operations that were similar to those of SemCrude.

The accompanying condensed combined financial statements are unaudited. The condensed combined balance sheet at December 31, 2010 is derived from audited financial statements.

These unaudited condensed combined financial statements as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission. These condensed combined financial statements include all normal and recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Rose Rock Midstream Predecessor and the results of its operations and its cash flows.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the accompanying 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. These condensed, combined financial statements should be read in conjunction with the audited combined financial statements and notes thereto for the year ended December 31, 2010, which are included beginning on page F-23 of this registration statement on Form S-1.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

The terms “we”, “our”, “us”, and similar language used in these notes to combined financial statements refer to the Rose Rock Midstream Predecessor. The term “SemGroup” refers to SemGroup Corporation, SemGroup, L.P., and their other controlled subsidiaries.

F-14

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

1.	OVERVIEW, Continued

Operations

Our operations include the following:

•

a storage terminal in Cushing, Oklahoma with approximately 5.0 million barrels of crude oil storage capacity;

•

an approximately 640-mile crude oil gathering and transportation pipeline system and 670,000 barrels of associated storage in Kansas and northern Oklahoma;

•

a crude oil gathering, transportation and marketing business in the Bakken Shale area in western North Dakota and eastern Montana; and

•

a modern, ten-lane crude oil truck unloading facility in Platteville, Colorado which connects to the origination point of SemGroup’s White Cliffs Pipeline.

Eaglwing conducted crude oil trading and marketing operations. Eaglwing ceased revenue generating operations during 2008.

Our operations are similar in geography, nature of the services we provide, and type of customers we serve. We are managed by SemGroup as one operating segment.

Bankruptcy

On July 22, 2008 (the “Petition Date”), SemGroup, L.P., SemCrude, and Eaglwing filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. 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 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, SemCrude, and Eaglwing emerged from bankruptcy protection on November 30, 2009 (the “Emergence Date”).

2.	FINANCIAL INSTRUMENTS

Our 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 concurrently selling and purchasing like quantities of crude oil, or by entering into futures contracts or other derivative instruments, with the result that many of our crude oil marketing transactions become back-to-back transactions that are intended to lock in positive margins based on the time or location of delivery or the quality of the crude oil. All marketing activities are subject to a comprehensive risk management policy, which establishes limits in order to attempt to manage risk and mitigate financial exposure. Our storage and transportation assets also can be used to mitigate location and time basis risk. In addition, when we engage in back-to-back purchases and sales, the sales and purchase prices are intended to lock in positive margins for us, i.e., the sales price is intended to exceed purchase costs and all other fixed and variable costs. All marketing activities are subject to SemGroup’s risk management policy, which establishes limits to manage risk and mitigate financial exposure.

Our commodity derivatives were comprised of crude oil forward contracts and futures contracts. These are defined as follows:

Forward contracts—Over the counter 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.

F-15

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

2.	FINANCIAL INSTRUMENTS, Continued

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.

We record certain commodity derivative assets and liabilities at fair value at each balance sheet date. The table below summarizes the balances of these assets and liabilities (in thousands):


	March 31, 2011												December 31, 2010
	Level 1		Level 2			Level 3		Netting*			Total		Level 1			Level 2			Level 3		Netting*			Total
Assets	$	8,251	$	793		$	2,464	$	(8,927	)	$	2,581	$	97,773		$	208		$	1,619	$	(97,981	)	$	1,619
Liabilities		8,133		2,397			14		(8,927	)		1,617		99,362			863			—		(97,981	)		2,244

Net assets (liabilities) at fair value	$	118	$	(1,604	)	$	2,450	$	—		$	964	$	(1,589	)	$	(655	)	$	1,619	$	—		$	(625	)

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

“Level 1” measurements were obtained using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include futures contracts that are traded on an exchange.

“Level 2” measurements use as inputs market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include over-the-counter (OTC) traded physical fixed priced purchases and sales forward contracts.

“Level 3” measurements were obtained using information from a pricing service and internal valuation models incorporating observable and unobservable market data. These include physical fixed price purchases and sales forward contracts with an affiliate for which there is not a highly liquid OTC market, and therefore are not included in Level 1 or Level 2 above.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment, and may affect the valuation of assets and liabilities and their placement within the fair value levels.

The following table summarizes changes in the fair value of our commodity derivatives classified as Level 3 in the fair value hierarchy (in thousands):


	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Beginning balance	$	1,619		$	218
Total gain or loss (realized and unrealized) included in product revenues		2,168			109
Settlements		(1,337	)		(218	)

Ending balance	$	2,450		$	109

Amount of total gain or loss included in earnings for the period attributable to the change in unrealized gain or loss relating to assets and liabilities still held at the reporting date	$	2,450		$	109

F-16

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

2.	FINANCIAL INSTRUMENTS, Continued

The following table sets forth the notional quantities for derivatives entered into during the periods indicated (amounts in thousands of barrels):


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Sales		3,413		264
Purchases		3,731		240

We have not designated any of our commodity derivatives as accounting hedges. We record the fair value of the derivatives on our condensed combined balance sheets in other current assets and other current liabilities. The fair value of our commodity derivatives recorded to other current assets and other current liabilities was as follows (in thousands):


	March 31, 2011				December 31, 2010
	Assets		Liabilities		Assets		Liabilities
Commodity contracts	$	2,581	$	1,617	$	1,619	$	2,244

Realized and unrealized gains (losses) from commodity derivatives were recorded to product revenue in the following amounts (in thousands):


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Commodity contracts	$	810	$	(84	)

3.	COMMITMENTS AND CONTINGENCIES

Bankruptcy matters

(a)

Confirmation Order appeals

Manchester Securities appeal. On October 21, 2009, Manchester Securities Corporation, a creditor of SemGroup Holdings, L.P. (a subsidiary of SemGroup), filed an objection to the Plan of Reorganization. In the objection, Manchester argued that the Plan of Reorganization should not be confirmed because it did not provide for an alleged $50 million claim of SemGroup Holdings, L.P. against SemCrude Pipeline, L.L.C. (another subsidiary of SemGroup). On October 28, 2009, the bankruptcy court overruled the objection and entered the confirmation order approving the Plan of Reorganization. On November 4, 2009, Manchester filed a notice of appeal of the confirmation order. On December 4, 2009, Manchester’s appeal was docketed in the United States District Court for the District of Delaware. SemGroup filed a motion to dismiss the appeal as equitably moot. On February 18, 2011, the District Court granted SemGroup’s motion to dismiss the appeal. On March 22, 2011, Manchester filed a notice to appeal this order. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.

F-17

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

3.	COMMITMENTS AND CONTINGENCIES, Continued

Luke Oil objection and entered the confirmation order. On November 6, 2009, Luke Oil filed a notice of appeal. On December 23, 2009, Luke Oil’s appeal was docketed in the United States District Court for the District of Delaware. SemGroup filed a motion to dismiss the appeal as equitably moot. Luke Oil has filed a motion to stay the briefing on SemGroup’s motion to dismiss. On February 18, 2011, the District Court denied the stay motion and ordered the parties to complete briefing. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.

(b)

Claims reconciliation process

A large number of parties have made claims against us for obligations alleged to have been incurred prior to the Petition Date. On September 15, 2010, the bankruptcy court entered an order estimating the contingent, unliquidated and disputed claims and authorizing distributions to holders of allowed claims. Pursuant to that order SemGroup has begun making distributions to the claimants. SemGroup continues to attempt to settle unresolved claims.

Pursuant to the Plan of Reorganization, SemGroup committed to settle authorized and allowed bankruptcy claims by paying a specified amount of cash, issuing a specified number of warrants, and issuing a specified number of shares of SemGroup Corporation common stock. SemGroup does not believe the resolution of the remaining outstanding claims will exceed the total amount of consideration established under the Plan of Reorganization for all claimants; instead, the resolutions of the remaining claims in some cases will impact the relative share of the established pool of common stock and warrants that certain claimants receive.

However, under certain circumstances SemGroup could be required to pay additional funds to settle the specified group of claims to be settled with cash. Pursuant to the Plan of Reorganization, a specified amount of restricted cash was set aside at the Emergence Date, which SemGroup expects to be sufficient to settle this group of claims. Since the Emergence Date, SemGroup has made significant progress in resolving these claims, and SemGroup continues to believe that the cash set aside at the Emergence Date will be sufficient to settle these claims. However, SemGroup has not yet reached a resolutions of all of these claims, and if the total settlement amount of all of these claims exceeds the specified amount, SemGroup will be required to pay additional funds to satisfy the total settlement amount for this specified group of claims. If this were to become probable of occurring, SemGroup would be required to record a liability and a corresponding expense, and we could be required to share in this expense.

PEMEX lawsuit

On May 26, 2011, PEMEX Exploración y Producción (“PEMEX”) filed a lawsuit against several defendants, including SemCrude, L.P. The lawsuit alleges that SemCrude purchased at least $10.4 million of condensate that had been stolen from PEMEX. The lawsuit does not allege that SemCrude knew the condensate had been stolen, and states that PEMEX “does not allege that SemCrude acted with intent or knowledge that it was a part of any conspiracy.” The lawsuit seeks damages from SemCrude in the amount of the purchased condensate, plus attorneys’ fees and statutory penalties. We cannot reliably predict the final outcome of this matter as this lawsuit has only recently been filed.

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 combined financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our liabilities may change materially as circumstances develop.

F-18

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

3.	COMMITMENTS AND CONTINGENCIES, Continued

Environmental

We may from time to time experience leaks of petroleum products from our facilities, as a result of which we may incur remediation obligations or property damage claims. In addition, we are subject to numerous environmental regulations. Failure to comply with these regulations could result in the assessment of fines or penalties by regulatory authorities.

The Kansas Department of Health and Environment (the “KDHE”) initiated discussions during SemGroup’s bankruptcy proceeding regarding five of our sites in Kansas that KDHE believes, bases on their historical use, may have soil or groundwater contamination in excess of state standards. At the present time, no contamination has been confirmed. KDHE sought SemGroup’s agreement to undertake assessments of these sites to determine whether they are contaminated. SemGroup 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. At the present time, no violation of law has been alleged and the amount of this potential cleanup cannot be determined because it is not yet known whether these sites are contaminated.

Asset retirement obligations

We may be subject to removal and restoration costs upon retirement of our facilities. However, we do not believe the present value of such obligations under current laws and regulations, after taking into account the estimated lives of our facilities, is material to our financial position or results of operations.

Purchase and sale commitments

We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We establish a margin for these purchases by entering into various types of physical and financial sales and exchange transactions through which we seek to maintain a position that is substantially balanced between purchases on the one hand and sales and future delivery obligations on the other. We account for these commitments as normal purchases and sales, and therefore we do not record assets or liabilities related to these agreements until the product is purchased or sold. At March 31, 2011, such commitments included the following (in thousands):


	Volume (barrels)		Value (US Dollars)
Fixed price sales		270		$ 25,721
Floating price purchases		20,771		$2,230,523
Floating price sales		20,575		$2,251,943

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).

F-19

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

4.	NET PARENT EQUITY

The following table shows the changes in our combined net parent equity from December 31, 2010 to March 31, 2011 (in thousands):


Balance at December 31, 2010	$	289,988
Net income		7,604
Net distributions to SemGroup		(24,240	)

Balance at March 31, 2011	$	273,352

5.	TRANSACTIONS WITH SEMGROUP

Intercompany accounts

We participate in SemGroup’s cash management program. Under this program, cash we receive from customers is transferred to SemGroup on a regular basis; when we remit payments to suppliers, SemGroup transfers cash to us to cover the payments. In addition, SemGroup incurs certain expenses on our behalf that are reported within our combined statements of operations.

We record transactions with SemGroup and its other controlled subsidiaries to intercompany accounts. When our intercompany accounts have been in a net receivable position, we have reported the balance as a reduction to equity on our combined balance sheet. When our intercompany accounts have been in a net payable position, we have reported the balance as a current liability on our combined balance sheet. In our combined statements of cash flows, we have reported the net change in the intercompany accounts as a financing cash flow within “net contributions from (distributions to) SemGroup”. We have reported the net change in equity associated with these transactions with SemGroup as “net distributions to SemGroup” in the table in Note 4 showing changes in net parent equity.

Our intercompany accounts were in a net receivable position of $41.1 million at March 31, 2011 and $15.1 million at December 31, 2010. We have reported these balances as reductions to equity on our combined balance sheets, as we do not expect to collect these intercompany receivables.

Direct employee expenses

We do not directly employ any persons to manage or operate our business. These functions are performed by employees of SemGroup. SemGroup charged us $2.5 million during each of the three months ended March 31, 2011 and March 31, 2010 for direct employee costs. These expenses were recorded to operating expenses and general and administrative expenses in our combined statements of operations.

Allocated expenses

SemGroup incurs expenses to provide certain indirect corporate general and administrative services to its subsidiaries. Such expenses include employee compensation costs, professional fees and rental fees for office space, among other expenses.

SemGroup allocates general and administrative expenses to its subsidiaries based on criteria such as actual usage, headcount, and estimates of effort or benefit. SemGroup charged us $1.3 million during the three months ended March 31, 2011 and $1.8 million during the three months ended March 31, 2010 for such allocated costs. These expenses were recorded to general and administrative expenses in our combined statements of operations.

F-20

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

5.	TRANSACTIONS WITH SEMGROUP, Continued

SemGroup credit facilities

SemGroup is a borrower under a credit agreement with a total capacity of $625 million and a maturity date in June 2018. We, along with other subsidiaries of SemGroup, serve as subsidiary guarantors under this credit agreement, and the agreement is secured with a lien on substantially all of our assets. SemGroup has not allocated this debt to its subsidiaries, and our combined statements of operations do not include any allocated interest expense.

We utilize letters of credit under SemGroup’s revolving credit facility. At March 31, 2011, we had outstanding letters of credit of $38.8 million. Our combined statements of operations include direct charges from SemGroup for our letter of credit usage, which is reported within interest expense.

SemGroup’s credit agreement includes customary affirmative and negative covenants, including limitations on the creation of new indebtedness, liens, sale and lease-back transactions, new investments, making fundamental changes including mergers and consolidations, making of dividends and other distributions by SemGroup, making material changes in SemGroup’s business, modifying certain documents and maintenance of a consolidated leverage ratio and an interest coverage ratio. In addition, the credit agreement prohibits any commodity transactions that are not permitted by SemGroup’s Comprehensive Risk Management Policy.

The credit agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the credit agreement from time to time, including in respect of letter of credit disbursement obligations, inaccuracy of representations and warranties in any material respect when made or when deemed made, violation of covenants, cross payment-defaults of SemGroup and its restricted subsidiaries to any material indebtedness, cross acceleration to any material indebtedness, bankruptcy and insolvency events, the occurrence of a change of control, certain unsatisfied judgments, certain ERISA events, certain environmental matters and certain assertions of or actual invalidity of certain loan documents. A default under the credit agreement would permit the participating banks to terminate commitments, require immediate repayment of any outstanding loans with interest and any unpaid accrued fees, and require the cash collateralization of outstanding letter of credit obligations.

Since emergence from bankruptcy, SemGroup has maintained compliance with the terms of its credit agreements.

SemStream

We purchase condensate from SemStream, L.P. (“SemStream”), which is also a wholly-owned subsidiary of SemGroup. Certain of these purchases were fixed price forward purchases, which we recorded at fair value at each balance sheet date, with the unrealized gains or losses being recorded to revenue. Our transactions with SemStream consisted of the following (amounts in thousands):


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Sales	$	831	$	339
Purchases	$	12,917	$	8,002

F-21

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Unaudited Condensed Combined Financial Statements

5.	TRANSACTIONS WITH SEMGROUP, Continued

SemGas

We purchase condensate from SemGas, L.P. (“SemGas”), which is also a wholly-owned subsidiary of SemGroup. Our purchases from SemGas included the following (amounts in thousands):


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Purchases	$	1,511	$	1,140

White Cliffs

SemGroup owned 99% of White Cliffs and controlled it until September 30, 2010. Subsequent to that date, SemGroup owns 51% of White Cliffs and exercises significant influence over it. We generated revenues from White Cliffs of $0.5 million for each of the three months ended March 31, 2011 and 2010.

SemCanada Crude

We conduct a crude oil marketing business in the Bakken Shale in western North Dakota and eastern Montana. During the three months ended March 31, 2010, we conducted this business along with SemCanada Crude Company (“SemCanada Crude”), which is also wholly-owned by SemGroup. SemCanada Crude purchased crude oil and sold it to us; we transported the product and sold it back to SemCanada Crude, which sold the crude to third parties. Sales to and purchases from SemCanada Crude were recorded within product revenues and costs of goods sold in our combined statements of operations. The amounts were as follows (amounts in thousands):


	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Sales	$	(45	)	$	3,036
Purchases	$	—		$	4,210

During 2010, SemGroup began winding down the operations of SemCanada Crude. Since December 2010, we have continued this marketing operation without the participation of SemCanada Crude.

F-22

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors

Rose Rock Midstream GP, LLC

Tulsa, Oklahoma

We have audited the accompanying combined balance sheets of Rose Rock Midstream Predecessor (the “Partnership”) as of December 31, 2009, and 2010 (Subsequent to Emergence), and the related combined statements of operations, change in net parent equity (deficit), and cash flows for the one month ended December 31, 2009 and for the year ended December 31, 2010 (Subsequent to Emergence), and for the year ended December 31, 2008 and for the eleven months ended November 30, 2009 (Prior to Emergence). These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Rose Rock Midstream Predecessor at December 31, 2009 and 2010 (Subsequent to Emergence), and the combined results of its operations and its cash flows for the one month ended December 31, 2009 and the year ended December 31, 2010 (Subsequent to Emergence), and for the year ended December 31, 2008 and the eleven months ended November 30, 2009 (Prior to Emergence), in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the combined financial statements, effective November 30, 2009, the Partnership emerged from bankruptcy and applied fresh-start accounting. As a result, the statements of combined operations and cash flows for the one month ended December 31, 2009 and the year ended December 31, 2010, are presented on a different basis than that for the periods before fresh-start and, therefore, are not comparable.

/s/ BDO USA, LLP

BDO USA, LLP

Dallas, Texas

August 12, 2011

F-23

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Combined Balance Sheets

(Dollars in thousands)


	Subsequent to Emergence
	December 31, 2010		December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	303	$	—
Restricted cash		—		16,681
Accounts receivable (net of allowance of $3,340 at December 31, 2010)		73,387		6,823
Inventories		17,968		14,879
Other current assets		4,360		4,674

Total current assets		96,018		43,057

Property, plant and equipment (net of accumulated depreciation of $11,243 at December 31, 2010 and $818 at December 31, 2009)		260,048		253,706
Other assets, net		1,065		1,186

Total assets	$	357,131	$	297,949

LIABILITIES AND NET PARENT EQUITY
Current liabilities:
Accounts payable	$	51,212	$	10,714
Accrued liabilities		10,278		2,007
Deferred revenue		2,535		4,171
Other current liabilities		3,118		843

Total current liabilities		67,143		17,735

Commitments and contingencies (Note 9)
Net parent equity		289,988		280,214

Total liabilities and net parent equity	$	357,131	$	297,949

The accompanying notes are an integral part of these combined financial statements.

F-24

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Combined Statements of Operations

(Dollars in thousands)


	Subsequent to Emergence						Prior to Emergence
	Year Ended December 31, 2010			Month Ended December 31, 2009			Eleven Months Ended November 30, 2009			Year Ended December 31, 2008
Revenues, including revenues from affiliates (Note 12):
Product	$	158,308		$	6,724		$	197,203		$	3,010,645
Service		49,408			3,891			40,281			19,129
Other		365			—			3			10

Total revenues		208,081			10,615			237,487			3,029,784

Expenses, including expenses from affiliates (Note 12):
Costs of products sold, exclusive of depreciation and amortization shown below		146,614			5,969			180,154			3,685,594
Operating		20,398			1,536			15,614			298,874
General and administrative		7,660			1,270			5,813			33,841
Depreciation and amortization		10,435			818			3,193			2,995

Total expenses		185,107			9,593			204,774			4,021,304

Operating income (loss)		22,974			1,022			32,713			(991,520	)

Other expenses (income):
Interest expense		482			43			1,699			2,907
Other expense (income), net		(985	)		(306	)		(1,602	)		(806	)

Total other expenses (income)		(503	)		(263	)		97			2,101

Income (loss) before reorganization items		23,477			1,285			32,616			(993,621	)
Reorganization items gain (loss), including expenses allocated from affiliates (Note 5)		—			—			99,936			(94,424	)

Net income (loss)	$	23,477		$	1,285		$	132,552		$	(1,088,045	)

The accompanying notes are an integral part of these combined financial statements.

F-25

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Combined Statements of Changes in Net Parent Equity (Deficit)

(Dollars in thousands)


Balance at December 31, 2007 (Prior to emergence)	$	(131,744	)
Net loss		(1,088,045	)
Gain on sale of property, plant and equipment to affiliate		82,834
SemGroup interest capitalized to property, plant and equipment		538

Balance at December 31, 2008 (Prior to emergence)		(1,136,417	)
Net loss, prior to implementation of Plan of Reorganization		(20,328	)
Other		(17	)

Balance prior to implementation of Plan of Reorganization		(1,156,762	)
Implementation of Plan of Reorganization		1,437,132

Balance at November 30, 2009 (Subsequent to emergence)		280,370
Net income		1,285
Net distributions to SemGroup		(1,441	)

Balance at December 31, 2009 (Subsequent to emergence)		280,214
Net income		23,477
Net distributions to SemGroup		(13,703	)

Balance at December 31, 2010 (Subsequent to emergence)	$	289,988

The accompanying notes are an integral part of these combined financial statements.

F-26

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Combined Statements of Cash Flows

(Dollars in thousands)


	Subsequent to Emergence						Prior to Emergence
	Year Ended December 31, 2010			Month Ended December 31, 2009			Eleven Months Ended November 30, 2009			Year Ended December 31, 2008
Cash flows from operating activities:
Net income (loss)	$	23,477		$	1,285		$	132,552		$	(1,088,045	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		10,435			818			3,193			2,995
Loss (gain) on disposal of long-lived assets		67			—			(40	)		2,901
Non-cash reorganization items		—			—			(24,682	)		63,896
Provision for (recovery of) uncollectible accounts receivable		3,340			—			—			(11	)
Gain on fresh start reporting		—			—			(152,880	)		—

Changes in assets and liabilities:
Decrease (increase) in restricted cash		16,681			(3,022	)		(13,659	)		—
Decrease (increase) in accounts receivable		(69,904	)		5,277			630,706			335,426
Decrease (increase) in inventories		(3,210	)		(2,161	)		12,105			68,221
Decrease (increase) in margin deposits		(2,006	)		—			—			14,307
Decrease (increase) in other current assets		3,721			(399	)		(3,016	)		(1,231	)
Decrease (increase) in other assets		121			1,587			3,231			(3,011	)
Increase (decrease) in accounts payable and accrued liabilities		48,007			(1,015	)		(528,733	)		972,489
Change in net derivative asset / liability		763			(282	)		154			(424,101	)

Net cash provided by (used in) operating activities		31,492			2,088			58,931			(56,164	)


Cash flows from investing activities:
Capital expenditures		(16,732	)		(2,047	)		(34,530	)		(76,192	)
Proceeds from sale of long-lived assets		9			—			40			135,028

Net cash provided by (used in) investing activities		(16,723	)		(2,047	)		(34,490	)		58,836


Cash flows from financing activities:
Change in book overdrafts		(425	)		425			(807	)		(14,594	)
Principal payments on capital lease obligations		(338	)		(40	)		(450	)		(496	)
Net distributions to SemGroup		(13,703	)		(1,441	)		(22,169	)		(12,841	)

Net cash used in financing activities		(14,466	)		(1,056	)		(23,426	)		(27,931	)

Net increase (decrease) in cash and cash equivalents		303			(1,015	)		1,015			(25,259	)
Cash and cash equivalents at beginning of period		—			1,015			—			25,259

Cash and cash equivalents at end of period	$	303		$	—		$	1,015		$	—

The accompanying notes are an integral part of these combined financial statements.

F-27

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

1.	OVERVIEW

Basis of presentation

SemGroup Corporation is a Delaware Corporation with its headquarters in Tulsa, Oklahoma. SemGroup Corporation is the successor entity of SemGroup, L.P., which was an Oklahoma limited partnership.

The Rose Rock Midstream Predecessor includes SemCrude, exclusive of its wholly-owned subsidiary SemCrude Pipeline, L.L.C. (“SemCrude Pipeline”) which holds a 51% interest in the White Cliffs Pipeline. SemCrude plans to transfer its ownership interests in SemCrude Pipeline to an affiliate prior to the offering, and as a result, SemCrude Pipeline will not be contributed to Rose Rock Midstream. Therefore, SemCrude’s ownership of SemCrude Pipeline is not reflected in these combined financial statements of the Rose Rock Midstream Predecessor. These combined financial statements also include Eaglwing, L.P. (“Eaglwing”), a wholly-owned subsidiary of SemGroup. Eaglwing, which is not currently conducting any revenue-generating operations, will not be contributed to Rose Rock Midstream, but it is included in the financial statements of our predecessor because it previously conducted business operations that were similar to those of SemCrude.

These combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant transactions between SemCrude and Eaglwing have been eliminated.

Operations

Our operations include the following:

•

a storage terminal in Cushing, Oklahoma with approximately 5.0 million barrels of crude oil storage capacity;

•

an approximately 640-mile crude oil gathering and transportation pipeline system and 670,000 barrels of associated storage in Kansas and northern Oklahoma;

•

a crude oil gathering, transportation and marketing business in the Bakken Shale area in western North Dakota and eastern Montana; and

•

a modern, ten-lane crude oil truck unloading facility in Platteville, Colorado which connects to the origination point of SemGroup’s White Cliffs Pipeline.

Eaglwing conducted crude oil trading and marketing operations. Eaglwing ceased revenue generating operations during 2008.

Bankruptcy

F-28

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

1.	OVERVIEW, Continued

of Reorganization with the court, which was confirmed on October 28, 2009. 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, SemCrude, and Eaglwing emerged from bankruptcy protection on November 30, 2009 (the “Emergence Date”).

The accompanying combined financial statements of the Rose Rock Midstream Predecessor include its activities prior to emergence from bankruptcy and its activities subsequent to emergence from bankruptcy. As described in Note 5, the Rose Rock Midstream Predecessor applied fresh-start reporting on the Emergence Date. As a result, the combined financial statements of the Rose Rock Midstream Predecessor subsequent to the Emergence Date are not comparable to its combined financial statements prior to the Emergence Date.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our significant estimates include, but are not limited to: (1) allowances for doubtful accounts receivable; (2) estimated useful lives of assets, which impacts depreciation; (3) estimated fair values of long-lived assets recorded in fresh-start reporting; (4) estimated fair values of long-lived assets used in impairment tests; (5) fair values of derivative instruments; and (6) accrual and disclosure of contingent losses. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.

FRESH-START REPORTING—We adopted fresh-start reporting on the Emergence Date. In connection with fresh-start reporting, we recorded our assets and liabilities at fair value at the Emergence Date.

CASH AND CASH EQUIVALENTS—Cash includes currency on hand and demand and time deposits with banks or other financial institutions. Cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase. Balances at financial institutions may exceed federally insured limits.

RESTRICTED CASH—The December 31, 2009 restricted cash balance consists of cash that was temporarily restricted pursuant to an agreement with a customer.

ACCOUNTS RECEIVABLE—Accounts receivable are reported net of the allowance for doubtful accounts. Our assessment of the allowance for doubtful accounts is based on several factors, including the overall creditworthiness of our customers, existing economic conditions, and the amount and age of past due accounts. We enter into netting arrangements with certain counterparties to help mitigate credit risk. Receivables subject to netting are presented as gross receivables (with the related accounts payable also presented gross) until such time as the balances are settled. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are written off against the allowance for doubtful accounts only after all collection attempts have been exhausted.

At the Emergence Date, as part of fresh-start reporting, we recorded accounts receivable at fair value. This was accomplished by reducing the allowance for doubtful accounts to $0 and recording a corresponding reduction to accounts receivable. We report any amounts we have collected in excess of the estimated Emergence Date fair value as reductions to operating expenses in the combined statements of operations.

F-29

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

INVENTORIES—Inventories primarily consist of crude oil. Inventories are valued at the lower of cost or market, with cost generally determined using the weighted-average method. The cost of inventory includes applicable transportation costs.

We enter into exchanges with third parties whereby we acquire products that differ in location, grade, or delivery date from products we have available for sale. These exchanges are valued at cost, and although a transportation, location or product differential may be recorded, generally no gain or loss is recognized.

PROPERTY, PLANT AND EQUIPMENT—Property, plant and equipment is recorded at cost (although, as described above, property, plant and equipment was adjusted to fair value at November 30, 2009 upon adoption of fresh-start reporting). We capitalize costs that extend or increase the future economic benefits of property, plant and equipment, and expense maintenance costs that do not. When assets are disposed of, their cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is recorded within operating expenses in the combined statements of operations.

Depreciation is calculated primarily on the straight-line method over the following estimated useful lives:


Pipelines and related facilities			20 years
Storage and terminal facilities			10 – 25 years
Office and other property and equipment			3 – 7 years

LINEFILL—Pipelines and storage facilities generally require a minimum volume of product in the system to enable the system to operate. Such product, known as linefill, is generally not available to be withdrawn from the system. Linefill owned by us in facilities operated by us is recorded at historical cost, is included in property, plant and equipment in the combined balance sheets, and is not depreciated. We also own linefill in third party facilities, which is included in inventory on the combined balance sheets.

IMPAIRMENT OF LONG-LIVED ASSETS—We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. We test an asset group for impairment by estimating the undiscounted cash flows expected to result from its use and eventual disposition. If the estimated undiscounted cash flows are lower than the net book value of the asset group, we then estimate the fair value of the asset group and record a reduction to the net book value of the assets and a corresponding impairment loss.

DERIVATIVE INSTRUMENTS—We generally record the fair value of derivative instruments on the combined balance sheets and the change in fair value as an increase or decrease to product revenue.

As shown in Note 8, the fair value of derivatives at December 31, 2010 and 2009 are recorded to other current assets or other current liabilities on the combined balance sheets. Related margin deposits are recorded to other current assets or other current liabilities on the combined balance sheets. Margin deposits have not generally been netted against derivative assets or liabilities at December 31, 2010 and 2009.

The fair value of a derivative contract is determined based on the nature of the transaction and the market in which the transaction was executed. Quoted market prices, when available, are used to value derivative transactions. In situations where quoted market prices are not readily available, we estimate the fair value using other valuation techniques that reflect the best information available under the circumstances. Fair value measurements of derivative assets include consideration of counterparty credit risk. Fair value measurements of derivative liabilities include consideration of our creditworthiness.

F-30

Index to Financial Statements

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Notes to Combined Financial Statements

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

We have elected “normal purchase” and “normal sale” treatment for certain commitments to purchase or sell petroleum products at future dates. This election is only available when a transaction is expected to result in physical delivery of product over a reasonable period in the normal course of business and is not expected to be net settled. Agreements accounted for under this election are not recorded at fair value; instead, the transaction is recorded when the product is delivered.

INTERCOMPANY ACCOUNTS—We participate in SemGroup’s cash management program. Under this program, cash we receive from customers is transferred to SemGroup on a regular basis; when we remit payments to suppliers, SemGroup transfers cash to us to cover the payments. In addition, SemGroup incurs certain expenses on our behalf that are reported within our combined statements of operations.

We record transactions with SemGroup and its other controlled subsidiaries to intercompany accounts. When our intercompany accounts have been in a net receivable position, we have reported the balance as a reduction to equity on our combined balance sheet. When our intercompany accounts have been in a net payable position, we have reported the balance as a current liability on our combined balance sheet. In our combined statements of cash flows, we have reported the net change in the intercompany accounts as a financing cash flow within “net distributions to SemGroup”. We have reported the net change in equity associated with these transactions with SemGroup as “net distributions to SemGroup” in our combined statements of changes in net parent equity.

Our intercompany accounts were in a net receivable position of $15.1 million at December 31, 2010 and $1.4 million at December 31, 2009. We have reported these balances as reductions to equity on our combined balance sheets, as we do not expect to collect these intercompany receivables.

CONTINGENT LOSSES—We record a liability for a contingent loss when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We record attorneys’ fees incurred in connection with a contingent loss at the time the fees are incurred. We do not record liabilities for attorneys’ fees that are expected to be incurred in the future.

ASSET RETIREMENT OBLIGATIONS—Asset retirement obligations include legal or contractual obligations associated with the retirement of long-lived assets, such as requirements to incur costs to dispose of equipment or to remediate the environmental impacts of the normal operation of the assets. We record liabilities for asset retirement obligations when a known obligation exists under current law or contract and when a reasonable estimate of the value of the liability can be made.

REVENUE RECOGNITION—Sales of product are recognized at the time title to the product transfers to the purchaser, which typically occurs upon receipt of the product by the purchaser. Shipping and handling revenues are included in the price of product charged to customers, and are classified as revenues. Terminal and storage revenues are recognized at the time the service is performed. Revenue for the transportation of product is recognized upon delivery of the product to its destination. Certain revenue transactions are reported on a net basis, including derivative instruments considered held for trading purposes and certain buy/sell transactions (see “Purchases and Sales of Inventory with the Same Counterparty”). Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue).

COSTS OF PRODUCTS SOLD—Costs of products sold consists of the cost to purchase the product, the cost to transport the product to the point of sale, and the cost to store the product until it is sold.

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Index to Financial Statements

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Notes to Combined Financial Statements

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

PURCHASES AND SALES OF INVENTORY WITH THE SAME COUNTERPARTY—We routinely enter into transactions to purchase inventory from, and sell inventory to, the same counterparty. Such transactions that are entered into in contemplation of one another are recorded on a net basis, and therefore no revenue or expense is recognized on the transactions. We accounted for $397.4 million of such transactions on a net basis during the year ended December 31, 2010, $35.2 million of such transactions on a net basis during the month ended December 31, 2009, $187.0 million of such transactions on a net basis during the eleven months ended November 30, 2009, and $2.1 billion of such transactions on a net basis during the year ended December 31, 2008.

INTEREST EXPENSE—The interest expense reported in our combined statements of operations consists of letter of credit fees. SemGroup has been a borrower on several corporate credit agreements (and our assets currently serve as collateral under these agreements), but SemGroup did not allocate this debt to its subsidiaries. SemGroup did not charge us interest on the balances in our intercompany accounts.

INCOME TAXES—SemCrude and Eaglwing are pass-through entities for federal and state income tax purposes. Our earnings are allocated to SemGroup, which is responsible for any related income taxes. Because of this, no provision for income taxes is reported in our combined statements of operations.

INTEREST INCOME—Interest income, which relates primarily to margin deposits, is reported in other income in the combined statements of operations.

REORGANIZATION ITEMS—As described in Note 1, SemGroup, SemCrude and Eaglwing operated as debtors-in-possession subject to the jurisdiction of the bankruptcy court during the period from the Petition Date to the Emergence Date. Revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the business are reported as reorganization items in the combined statements of operations. The effects of the adjustments to the reported amounts of assets resulting from the adoption of fresh-start reporting are reported within reorganization items in the combined statement of operations for the eleven months ended November 30, 2009.

OPERATING SEGMENT—Our operations are similar in geography, nature of the services we provide, and type of customers we serve. We are managed by SemGroup as one operating segment.

3.	ACQUISITION

During 2008, we acquired a pipeline for $35 million. Later during 2008, we sold this pipeline to an affiliate, as described in Note 4 below.

4.	DISPOSALS OF LONG-LIVED ASSETS

Assets sales to Blueknight

During 2008, we sold a pipeline system and certain storage tanks with a combined net book value of $52 million to Blueknight Energy Partners, L.P. (“Blueknight”), formerly known as SemGroup Energy Partners, L.P., a former subsidiary of SemGroup. We received proceeds of $135 million from these transactions, and recorded the gain as an increase to net parent equity (since the transactions were between entities under common control, we did not record a gain to the combined statement of operations).

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Index to Financial Statements

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Notes to Combined Financial Statements

4.	DISPOSALS OF LONG-LIVED ASSETS, Continued

Texas pipeline

We abandoned our ownership interests in a small pipeline in Texas during 2008, and recorded a reduction of $2.9 million to property, plant and equipment and a corresponding loss to operating expenses in the combined statement of operations.

5.	REORGANIZATION

On July 22, 2008, SemGroup and many of its affiliates (including SemCrude and Eaglwing), filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Certain claims against us in existence prior to the filing of the petitions for relief under the federal bankruptcy laws were stayed while SemGroup continued business operations as a debtor-in-possession. We received approval from the court to pay or otherwise honor certain of our obligations incurred before the Petition Date. The court also approved our use of cash to meet our post Petition Date obligations.

While in bankruptcy, SemGroup filed a Plan of Reorganization with the court, which was confirmed on October 28, 2009. The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, SemGroup’s equity structure upon emergence, and SemGroup’s financing arrangements upon emergence.

Determination of reorganization value

An essential element in negotiating a reorganization plan with the various classes of creditors is the determination of reorganization value by the parties in interest. In the event that the parties in interest cannot agree on the reorganization value, the court may be called upon to determine the reorganization value of the entity before a plan of reorganization can be confirmed.

During the reorganization process, a reorganization value was proposed. This reorganization value was ultimately agreed to by the creditors and confirmed by the court. The proposed reorganization value was determined by applying the following valuation methods:

•

a “guideline company” approach, in which valuation multiples observed from industry participants were considered and comparisons were made between SemGroup’s expected performance relative to other industry participants to determine appropriate multiples to apply;

•

analysis of recent transactions involving companies determined to be similar to SemGroup; and

•

a calculation of the present value of SemGroup’s estimated future cash flows.

After completing this analysis, the reorganization value of SemGroup was determined to be $1.5 billion. This proposed reorganization value was determined using numerous projections and assumptions. These estimates are subject to significant uncertainties, many of which are beyond SemGroup’s control, including, but not limited to, the following:

•

changes in the economic environment;

•

changes in supply or demand for petroleum products;

•

changes in prices of petroleum products;

•

the ability to successfully implement expansion projects;

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Index to Financial Statements

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Notes to Combined Financial Statements

5.	REORGANIZATION, Continued

•

the ability to improve relationships with customers and suppliers, as these relationships were adversely impacted by the bankruptcy filing;

•

the ability to renew certain business operations that were limited during the bankruptcy due to limitations on access to capital; and

•

the ability to manage the additional costs associated with being a public company.

The use of different estimates could have resulted in a materially different proposed reorganization value, and there can be no assurance that actual results will be consistent with the estimates that were used to determine the proposed reorganization value. The reorganization value confirmed by the court was utilized in the application of fresh-start reporting.

Valuation of our assets and liabilities

SemGroup determined that $280 million of its reorganization value was attributable to us. We recorded individual assets and liabilities based on their estimated fair values at the Emergence Date.

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Notes to Combined Financial Statements

5.	REORGANIZATION, Continued

November 30, 2009 balance sheet

The following table shows the effects of our emergence from bankruptcy on our November 30, 2009 combined balance sheet (in thousands):


	Prior to Emergence			Reorganization Adjustments			Fresh Start Adjustments			Subsequent to Emergence
ASSETS
Current assets:
Cash and cash equivalents	$	1,015		$	—		$	—		$	1,015
Restricted cash		13,659			—			—			13,659
Accounts receivable		12,100			—			—			12,100
Receivable from affiliate		13,443			(13,443	)(a)		—			—
Inventories		12,718			—			—			12,718
Other current assets		4,466			(409	)(b)		—			4,057

Total current assets		57,401			(13,852	)		—			43,549

Property, plant and equipment		95,347			—			157,130	(h)		252,477
Goodwill		2,296			—			(2,296	)(h)		—
Other intangible assets		1,954			—			(1,954	)(h)		—
Other assets, net		2,773			—			—			2,773

Total assets	$	159,771		$	(13,852	)	$	152,880		$	298,799

LIABILITIES AND NET PARENT EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	11,726		$	(665	)(c)	$	—		$	11,061
Advances from parent		34,942			(34,942	)(d)		—			—
Accrued liabilities		2,355			—			—			2,355
Payable to affiliate		4,587			(4,587	)(e)		—			—
Other current liabilities		5,013			—			—			5,013

Total current liabilities		58,623			(40,194	)		—			18,429

Liabilities subject to compromise		1,257,910			(1,257,910	)(f)		—			—

Net parent equity (deficit):
Net parent equity (deficit)—Predecessor		(1,156,762	)		1,156,762	(g)		—			—
Net parent equity—Successor		—			127,490	(g)		152,880	(i)		280,370

Net parent equity (deficit)		(1,156,762	)		1,284,252			152,880			280,370

Total liabilities and net parent equity (deficit)	$	159,771		$	(13,852	)	$	152,880		$	298,799

(a)

Prior to emergence from bankruptcy, we had a receivable from SemCanada Crude Company (“SemCanada Crude”). SemCanada Crude is a wholly-owned subsidiary of SemGroup that applied for bankruptcy protection in Canada in July 2008 and emerged from bankruptcy on November 30, 2009, concurrent with the emergence of SemGroup and SemCrude. While in bankruptcy, SemGroup did not consolidate SemCanada Crude. Pursuant to the Plan of Reorganization, SemCanada Crude made payments to creditors of SemGroup’s U.S. subsidiaries, and accordingly our receivable from SemCanada Crude was extinguished.

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Notes to Combined Financial Statements

5.	REORGANIZATION, Continued

(b)	Reflects the transfer to SemGroup of a commodity derivative contract.

(c)	We elected not to cancel certain contracts that were in effect prior to the Petition Date. For these contracts, we were required to make payments to the counterparties to cure defaults on the contracts. These payments were made by SemGroup upon emergence from bankruptcy.

(d)	Our liabilities to SemGroup and its controlled subsidiaries were extinguished pursuant to the Plan of Reorganization.

(e)	Our liability to an affiliate was extinguished in the reorganization process.

(f)	Represents the transfer to SemGroup of liabilities subject to compromise, pursuant to the Plan of Reorganization.

(g)	Reflects the cancellation of predecessor equity and the issuance of successor equity.

(h)	Reflects the adjustments to the recorded values of assets resulting from fresh-start reporting.

(i)	Reflects the reorganization items gain resulting from fresh-start reporting.

Reorganization items

The reorganization items gain (loss) shown on the combined statements of operations consists of the following (in thousands):


	Prior to Emergence
	Eleven Months Ended November 30, 2009			Year Ended December 31, 2008
Gain on asset revaluation in fresh-start reporting(a)	$	152,880		$	—
Professional fees(b)		(74,705	)		(26,828	)
Adjustment to liabilities subject to compromise(c)		39,780			—
Loss on disposal or impairment of long-lived assets(d)		(11,677	)		(3,942	)
Uncollectable accounts expense(e)		(3,329	)		(55,348	)
Employment costs(f)		(2,921	)		(1,699	)
Loss on rejected contracts(g)		—			(6,607	)
Other		(92	)		—

Total reorganization items gain (loss)	$	99,936		$	(94,424	)

(a)	We revalued our assets and liabilities in fresh-start reporting, and recorded a reorganization gain for the increase in fair value of the net assets over the previously recorded values.

(b)	SemGroup incurred a variety of professional fees related to the restructuring of the business, including, among others:

•

legal fees related to the reorganization process, including those related to bankruptcy court filings and hearings, negotiation of credit agreements, settlements of disputes with claimants, and other matters;

•

general management consulting services related to the disposal of assets, the reconciliation and negotiation of pre-petition claims, preparation for emergence from bankruptcy, and other matters;

•

valuation advisory fees for the determination of the reorganization value of the business required for the Plan of Reorganization and the valuation of long-lived assets required by fresh-start reporting;

•

accounting fees for assistance with fresh-start reporting and preparation for public company financial reporting obligations; and

•

fees paid to the United States Trustee.

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Notes to Combined Financial Statements

5.	REORGANIZATION, Continued

SemGroup allocated a portion of these fees to us, based on our reorganization value relative to the total reorganization value of SemGroup’s United States subsidiaries that emerged from bankruptcy.

(c)

Represents refinements to the estimated amount of valid claims by pre-petition creditors. During 2008, we recorded an estimated loss for the total amount of valid claims subject to compromise, reported within revenues, costs of products sold, and reorganization items in the combined statements of operations. During 2009, we refined this estimate as we reviewed the claims, and reversed some of the amounts that had been accrued. This amount also includes the return to us of $10 million of cash that had been seized by a creditor. We recorded a loss during 2008 when the cash was seized, reported as a reduction to revenues in the combined statement of operations, and we recorded a gain in 2009 when it was recovered.

(d)

During the eleven months ended November 30, 2009, we reached an agreement with Blueknight to settle a variety of outstanding matters. As part of this settlement, we surrendered property, plant and equipment and recorded a loss of $11.7 million. During the year ended December 31, 2008, Eaglwing ceased revenue-generating operations, and we recorded an impairment of the full amount of goodwill associated with Eaglwing.

(e)	Represents the write-off of receivables in situations where we believe the customer non-payment was related to SemGroup’s bankruptcy.

(f)	Employment costs include severance related to the termination of employment relationships and bonuses paid to retain personnel during the reorganization.

(g)	During the reorganization, we rejected numerous contracts, which resulted in damage claims by counterparties. We recorded reorganization losses and liabilities subject to compromise for the estimated amounts of such damages.

6.	OTHER CURRENT ASSETS

Other current assets consist of the following (in thousands):


	Subsequent to Emergence
	December 31, 2010		December 31, 2009
Product prepayments	$	—	$	4,084
Other prepaid expenses		735		372
Margin deposits		2,006		—
Derivative assets		1,619		218

Total other current assets	$	4,360	$	4,674

F-37

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Notes to Combined Financial Statements

7.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):


	Subsequent to Emergence
	December 31, 2010			December 31, 2009
Land	$	16,786		$	16,769
Pipelines and related facilities		147,213			141,155
Storage and terminal facilities		70,170			67,411
Linefill		16,004			15,884
Office and other property and equipment		2,540			2,133
Construction-in-progress		18,578			11,172

Property, plant and equipment, gross		271,291			254,524
Accumulated depreciation		(11,243	)		(818	)

Property, plant and equipment, net	$	260,048		$	253,706

We recorded depreciation expense of $10.4 million for the year ended December 31, 2010, $0.8 million for the month ended December 31, 2009, $2.8 million for the eleven months ended November 30, 2009, and $2.6 million for the year ended December 31, 2008.

We include within the cost of property, plant and equipment interest costs incurred by SemGroup while an asset is being constructed. We capitalized $0.5 million of interest costs during the year ended December 31, 2008. Since the related debt was recorded by SemGroup, rather than by us, no interest expense related to SemGroup’s debt is reported in our combined statements of operations. The increase in the value of property, plant and equipment associated with capitalized interest is reported as an increase to our net parent equity.

8.	FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK

Commodity derivative contracts

We seek to manage the price risk associated with our marketing operations by limiting our net open positions through concurrently selling and purchasing like quantities of crude oil, or by entering into futures contracts or other derivative instruments, with the result that many of our crude oil marketing transactions become back-to-back transactions that are intended to lock in positive margins based on the time or location of delivery or the quality of the crude oil. All marketing activities are subject to a comprehensive risk management policy, which establishes limits in order to attempt to manage risk and mitigate financial exposure. Our storage and transportation assets also can be used to mitigate location and time basis risk. In addition, when we engage in back-to-back purchases and sales, the sales and purchase prices are intended to lock in positive margins for us, e.g., the sales price is intended to exceed purchase costs and all other fixed and continued variable costs. All marketing activities are subject to SemGroup’s risk management policy, which establishes limits to manage risk and mitigate financial exposure.

F-38

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Notes to Combined Financial Statements

8.	FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK, Continued

Our commodity derivatives were comprised of crude oil and natural gas liquids forward contracts and futures contracts. These are defined as follows:

Forward contracts—Over the counter 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.

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.

We record certain commodity derivative assets and liabilities at fair value at each balance sheet date. The table below summarizes the balances of these assets and liabilities at December 31, 2010 and 2009 (in thousands):


	Subsequent to Emergence
	December 31, 2010														December 31, 2009
	Level 1			Level 2			Level 3		Netting*			Total			Level 1			Level 2		Level 3		Netting*			Total
Assets	$	97,773		$	208		$	1,619	$	(97,981	)	$	1,619		$	—		$	—	$	245	$	(27	)	$	218
Liabilities		99,362			863			—		(97,981	)		2,244			80			—		27		(27	)		80

Net assets (liabilities) at fair value	$	(1,589	)	$	(655	)	$	1,619	$	—		$	(625	)	$	(80	)	$	—	$	218	$	—		$	138

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

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Index to Financial Statements

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Notes to Combined Financial Statements

8.	FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK, Continued

The following table reconciles changes in the fair value of commodity derivatives classified as Level 3 in the fair value hierarchy (in thousands):


	Subsequent to Emergence					Prior to Emergence
	Year Ended December 31, 2010		Month Ended December 31, 2009			Eleven Months Ended November 30, 2009
Beginning balance	$	218	$	408		$	(11	)
Total gain or loss (realized and unrealized) included in product revenues		919		4			2,013
Settlements		482		(194	)		(1,594	)

Ending balance	$	1,619	$	218		$	408

Amount of total gain or loss included in earnings for the period attributable to the change in unrealized gain or loss relating to assets and liabilities still held at the reporting date	$	1,619	$	218		$	408

The following table sets forth the notional quantities for derivative instruments entered into during the periods indicated (amounts in thousands of barrels):


	Subsequent to Emergence				Prior to Emergence
	Year Ended December 31, 2010		Month Ended December 31, 2009		Eleven Months Ended November 30, 2009
Sales		6,313		69		2,766
Purchases		6,522		49		2,426

We have not designated any of our commodity derivative instruments as accounting hedges. We record the fair value of the derivative instruments on our combined balance sheets in other current assets and other current liabilities. The fair value of our commodity derivative assets and liabilities recorded to other current assets and other current liabilities was as follows (in thousands):


	Subsequent to Emergence
	December 31, 2010				December 31, 2009
	Assets		Liabilities		Assets		Liabilities
Commodity contracts	$	1,619	$	2,244	$	218	$	80

Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):


	Subsequent to Emergence					Prior to Emergence
	Year Ended December 31, 2010			Month Ended December 31, 2009		Eleven Months Ended November 30, 2009
Commodity contracts	$	(1,929	)	$	282	$	351

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Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

8.	FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK, Continued

Transfer of derivative positions in July 2008

During July 2008, we transferred to SemGroup certain of our open derivative positions and related margin deposits, and recorded a corresponding increase of $321.7 million to our intercompany liabilities. SemGroup subsequently transferred these derivatives (along with certain derivatives entered into by its other subsidiaries) to a third party, and SemGroup recorded a loss of $143 million on this third-party transaction. The losses on our derivatives prior to their transfer to SemGroup are reflected in our combined statement of operations, and the losses subsequent to the transfer of these derivatives to SemGroup are not reflected in our combined statement of operations.

Concentrations of risk

During the year ended December 31, 2010, we generated approximately $88 million of revenue (net of any purchases required to be netted against costs of products sold, as described in Note 2) from a third party customer, which represented approximately 42% of our combined revenue. We purchased approximately $18 million of product from one third party supplier, which represented approximately 12% of our costs of products sold. At December 31, 2010, two third party customers accounted for 41% of our combined accounts receivable.

During the month ended December 31, 2009, we generated approximately $4 million of revenue (net of any purchases required to be netted against costs of products sold, as described in Note 2) from a third party customer, which represented approximately 38% of our combined revenue. At December 31, 2009, two third party customers accounted for 31% of our combined accounts receivable.

During the eleven months ended November 30, 2009, we generated approximately $193 million in revenue (net of any purchases required to be netted against costs of products sold, as described in Note 2) from one third party customer, which represented approximately 80% of our combined revenue. We purchased approximately $125 million of product from one supplier, which represented approximately 69% of our costs of products sold.

During the year ended December 31, 2008, we generated approximately $1.8 billion and $0.6 billion in revenue (net of any purchases required to be netted against costs of products sold, as described in Note 2) from two third party customers, which represented approximately 59% and 20%, respectively, of our combined revenue.

As described in Note 12, we also generated significant revenues and expenses during the periods from 2008 through 2010 from other subsidiaries of SemGroup.

9.	COMMITMENTS AND CONTINGENCIES

Bankruptcy matters

(a)

Confirmation order appeals

Manchester Securities appeal. On October 21, 2009, Manchester Securities Corporation, a creditor of SemGroup Holdings, L.P. (a subsidiary of SemGroup), filed an objection to the Plan of Reorganization. In the objection, Manchester argued that the Plan of Reorganization should not be confirmed because it did not provide for an alleged $50 million claim of SemGroup Holdings, L.P. against SemCrude Pipeline, L.L.C. On October 28, 2009, the bankruptcy court overruled the objection and entered the confirmation order approving the Plan of Reorganization. On November 4, 2009, Manchester filed a notice of appeal of the confirmation order. On December 4, 2009, Manchester’s appeal was docketed in the United States District Court for the District of Delaware. SemGroup filed a motion to dismiss the appeal as equitably moot. On February 18, 2011, the District Court granted SemGroup’s motion to dismiss the appeal. On March 22,

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Notes to Combined Financial Statements

9.	COMMITMENTS AND CONTINGENCIES, Continued

2011, Manchester filed a notice to appeal this order. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.

Luke Oil appeal. On October 21, 2009, Luke Oil Company, C&S Oil/Cross Properties, Inc., Wayne Thomas Oil and Gas and William R. Earnhardt Company (collectively, “Luke Oil”) filed an objection to the Plan of Reorganization “to the extent that the Plan of Reorganization may alter, impair, or otherwise adversely affect Luke Oil’s legal rights or other interests.” On October 28, 2009, the bankruptcy court overruled the Luke Oil objection and entered the confirmation order. On November 6, 2009, Luke Oil filed a notice of appeal. On December 23, 2009, Luke Oil’s appeal was docketed in the United States District Court for the District of Delaware. SemGroup filed a motion to dismiss the appeal as equitably moot. Luke Oil has filed a motion to stay the briefing on SemGroup’s motion to dismiss. On February 18, 2011, the District Court denied the stay motion and ordered the parties to complete briefing. While SemGroup believes that this action is without merit and is vigorously defending this matter on appeal, an adverse ruling on this action could have a material adverse impact on us.

(b)

Claims reconciliation process

PEMEX lawsuit

On May 26, 2011, PEMEX Exploración y Producción (“PEMEX”) filed a lawsuit against several defendants, including SemCrude, L.P. The lawsuit alleges that SemCrude purchased at least $10.4 million of condensate that had been stolen from PEMEX. The lawsuit does not allege that SemCrude knew the condensate had been stolen, and states that PEMEX “does not allege that SemCrude acted with intent or knowledge that it was a part of any conspiracy”. The lawsuit seeks damages from SemCrude in the amount of the purchased condensate, plus attorney’s fees and statutory penalties. We cannot reliably predict the final outcome of this matter, as this lawsuit has only recently been filed.

F-42

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

9.	COMMITMENTS AND CONTINGENCIES, Continued

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 combined 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.

Environmental

The Kansas Department of Health and Environment (“KDHE”) initiated discussions during SemGroup’s bankruptcy proceeding regarding five of our sites in Kansas that KDHE believes, based on their historical use, may have soil or groundwater contamination in excess of state standards. At the present time, no contamination has been confirmed. 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. At the present time, no violation of law has been alleged and the amount of this potential cleanup cannot be determined because it is not yet known whether these sites are contaminated.

Asset retirement obligations

Leases

We have entered into operating lease agreements for office space, office equipment, land and trucks. Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2010, are as follows (in thousands):


For twelve months ending:
December 31, 2011	$	550
December 31, 2012		521
December 31, 2013		344
December 31, 2014		107
December 31, 2015		27
Thereafter		5

Total future minimum lease payments	$	1,554

F-43

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

9.	COMMITMENTS AND CONTINGENCIES, Continued

We recorded lease and rental expenses of $0.7 million for the year ended December 31, 2010, $0.1 million for the month ended December 31, 2009, $0.7 million for the eleven months ended November 30, 2009, and $1.0 million for the year ended December 31, 2008.

Purchase and sale commitments

We routinely enter into agreements to purchase and sell petroleum products at specified future dates. We establish a margin for these purchases by entering into various types of physical and financial sales and exchange transactions through which we seek to maintain a position that is substantially balanced between purchases on the one hand and sales and future delivery obligations on the other. We account for these commitments as normal purchases and sales, and therefore we do not record assets or liabilities related to these agreements until the product is purchased or sold. At December 31, 2010, such commitments included the following (in thousands):


	Volume (barrels)		Value
Fixed price sales		79	$	6,491
Floating price purchases		2,943	$	276,224
Floating price sales		2,736	$	256,588

10.

EMPLOYEE BENEFITS AND EQUITY-BASED COMPENSATION

We do not directly employ any persons to manage or operate our business, as these functions are performed by employees of SemGroup. At December 31, 2010, SemGroup had approximately 80 employees who were dedicated primarily to the management and operation of our business. None of these employees are represented by labor unions, and none are subject to collective bargaining agreements.

Equity-based compensation

Certain of SemGroup’s employees who support us participate in SemGroup’s equity-based compensation program. Awards under this program generally represent awards of restricted stock of SemGroup, which are subject to specified vesting periods. SemGroup charged us $0.4 million during the year ended December 31, 2010 related to such equity-based compensation. We estimate that we will record expense of $0.4 million during each of the years ending December 31, 2011 and 2012 related to equity-based awards that had been granted as of December 31, 2010. Certain additional awards were granted during first quarter 2011; we estimate that we will record expense of $0.1 million during each of 2011, 2012, and 2013 related to these new awards.

Retention awards

Certain of SemGroup’s employees who support us were granted retention awards by SemGroup. These awards will vest in December 2011, contingent on the continued service of the recipients. Each award has a specified value that will be payable either in cash or in shares of SemGroup common stock. SemGroup charged

F-44

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

10.

EMPLOYEE BENEFITS AND EQUITY-BASED COMPENSATION, Continued

us $0.3 million during the year ended December 31, 2010 related to these awards, and we estimate that we will be charged an additional $0.4 million during the year ending December 31, 2011 related to these awards.

Defined contribution plan

Most of the employees of SemGroup who support us participate in one of SemGroup’s defined contribution plans. SemGroup charged us $0.3 million during each of the year ended December 31, 2010, the eleven months ended November 30, 2009, and the year ended December 31, 2008, for contributions made by SemGroup to this plan.

Allocated employee compensation expenses

As described in Note 12, SemGroup allocated certain corporate general and administrative expenses to us. These allocated expenses included equity-based compensation, retention awards, and defined contribution plan benefits for corporate employees, and such expenses are in addition to the expenses described above for employees who directly support our operations.

Prior to emergence

Prior to the Petition Date, certain of SemGroup’s employees who supported us participated in equity-based compensation programs. These awards were cancelled in the reorganization. Certain other employees participated in a supplemental executive retirement plan, which was terminated on December 31, 2008.

11.

SUPPLEMENTAL INFORMATION—STATEMENTS OF CASH FLOWS

The non-cash reorganization items shown on the combined statement of cash flows for the eleven months ended November 30, 2009 includes a $3.3 million allowance for uncollectable accounts, an $11.7 million loss on disposal of property, plant and equipment, and a $39.8 million gain on adjustments to liabilities subject to compromise. The non-cash reorganization items shown on the combined statement of cash flows for the year ended December 31, 2008 includes a $55.3 million allowance for uncollectable accounts, $4.6 million of accruals for contract rejection claims, and a $3.9 million goodwill impairment.

As described in Note 5, we transferred certain assets and liabilities to SemGroup on November 30, 2009, pursuant to SemGroup’s Plan of Reorganization. This non-cash activity is not reflected in our combined statement of cash flows for the eleven months ended November 30, 2009.

12.

RELATED PARTY TRANSACTIONS—SEMGROUP

Direct employee expenses

We do not directly employ any persons to manage or operate our business. These functions are performed by employees of SemGroup. SemGroup charged us $8.2 million during the year ended December 31, 2010, $0.8 million during the month ended December 31, 2009, and $7.7 million during the eleven months ended November 30, 2009, for direct employee costs. These expenses were recorded to operating expenses and general and administrative expenses in our combined statements of operations. During the year ended December 31, 2008, we recorded a credit (a reduction to expense) of $0.1 million for direct employee compensation costs. This was due to the reversal during 2008 of $10.3 million of incentive compensation expense that had been recorded during 2007 related to a discretionary cash-based incentive compensation program.

F-45

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

12.

RELATED PARTY TRANSACTIONS—SEMGROUP, Continued

Allocated expenses

In 2008 and for the eleven months ended November 30, 2009, SemGroup’s corporate general and administrative expenses were allocated to its subsidiaries based on percentages established by SemGroup management. At the beginning of each year, management estimated corporate general and administrative costs and assigned the subsidiaries a flat monthly charge of that amount. From time to time, the monthly charges were reviewed and adjusted. In addition to the flat monthly charge, the subsidiaries would also be allocated a portion of the over or under allocation of actual corporate general and administrative expense from the prior month. This monthly “true up” was based on each subsidiary’s year to date allocation as a percentage of the total year to date corporate general and administrative expense.

Beginning in December 2009, the general and administrative expenses of each corporate department have been allocated to the subsidiaries 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 subsidiary. In contrast, certain accounting department costs are allocated based on the number of transactions processed for a given subsidiary compared to the total number processed.

SemGroup charged us $4.9 million during the year ended December 31, 2010, $1.0 million during the month ended December 31, 2009, $4.1 million during the eleven months ended November 30, 2009, and $31.9 million during the year ended December 31, 2008 for such allocated costs. These expenses were recorded to general and administrative expenses in our combined statements of operations.

Allocated reorganization expenses

As described in Note 5, the reorganization items in our combined statements of operations include professional fees allocated from SemGroup of $74.6 million for the eleven months ended November 30, 2009 and $26.8 million for the year ended December 31, 2008. The reorganization items in our combined statements of operations also include employee expenses allocated from SemGroup of $1.5 million for the eleven months ended November 30, 2009 and $0.7 million for the year ended December 31, 2008.

SemGroup credit facilities

SemGroup is a borrower under a credit agreement with a total capacity of $625 million and a maturity date in June 2018. We, along with other subsidiaries of SemGroup, serve as a subsidiary guarantor under this agreement, and the agreement is secured by a lien on substantially all of our assets. SemGroup has not allocated this debt to its subsidiaries, and our combined statements of operations do not include any allocated interest expense. SemGroup did not charge us interest expense on intercompany payables during the years from 2008 through 2010.

We utilize letters of credit under SemGroup’s credit facility. At December 31, 2010, we had outstanding letters of credit of $19.2 million. Our combined statements of operations include direct charges from SemGroup for our letter of credit usage, which is reported within interest expense.

F-46

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

12.

RELATED PARTY TRANSACTIONS—SEMGROUP, Continued

Since emergence from bankruptcy, SemGroup has maintained compliance with the terms of its credit agreements.

Cash management

We participate in SemGroup’s cash management program. Under this program, cash we receive from customers is transferred to SemGroup on a regular basis; when we remit payments to suppliers, SemGroup transfers cash to us to cover the payments. As described Note 2, such cash transfers were recorded to intercompany accounts.

SemStream

We purchase condensate from SemStream, L.P. (“SemStream”), which is also a wholly-owned subsidiary of SemGroup. Certain of these purchases were fixed price forward purchases, which we recorded at fair value at each balance sheet date, with the unrealized gains being recorded to revenue. Our transactions with SemStream consisted of the following (amounts in thousands):


	Subsequent to Emergence				Prior to Emergence
	Year Ended December 31, 2010		Month Ended December 31, 2009		Eleven Months Ended November 30, 2009		Year Ended December 31, 2008
Sales	$	1,401	$	—	$	—	$	—
Purchases	$	36,811	$	2,952	$	26,306	$	104,822

F-47

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

12.

RELATED PARTY TRANSACTIONS—SEMGROUP, Continued

SemGas

We purchase condensate from SemGas, L.P. (“SemGas”), which is also a wholly-owned subsidiary of SemGroup. Our purchases from SemGas included the following (amounts in thousands):


	Subsequent to Emergence				Prior to Emergence
	Year Ended December 31, 2010		Month Ended December 31, 2009		Eleven Months Ended November 30, 2009		Year Ended December 31, 2008
Purchases	$	4,427	$	441	$	3,239	$	6,880

White Cliffs

SemGroup owned 99% of White Cliffs and controlled it until September 30, 2010. Subsequent to that date, SemGroup owns 51% of White Cliffs and exercises significant influence over it. We generated revenues from White Cliffs of $1.5 million for the year ended December 31, 2010, $0.1 million for the month ended December 31, 2009, and $0.8 million for the eleven months ended November 30, 2009.

SemCanada Crude

We conduct a crude oil marketing business in the Bakken Shale in eastern North Dakota and western Montana. For most of the time during the periods 2008 through 2010, we conducted this business along with SemCanada Crude Company (“SemCanada Crude”), which is also wholly-owned by SemGroup. SemCanada Crude purchased crude oil and sold it to us; we transported the product and sold it back to SemCanada Crude, which sold the crude to third parties. Sales to and purchases from SemCanada Crude were recorded within product revenues and costs of goods sold in our consolidated statements of operations. The amounts were as follows (amounts in thousands):


	Subsequent to Emergence				Prior to Emergence
	Year Ended December 31, 2010		Month Ended December 31, 2009		Eleven Months Ended November 30, 2009		Year Ended December 31, 2008
Sales	$	21,526	$	1,799	$	141,651	$	315,500
Purchases	$	11,587	$	—	$	136,623	$	210,570

During 2010, SemGroup began winding down the operations of SemCanada Crude. We have continued this marketing operation without the participation of SemCanada Crude.

Blueknight

Blueknight (formerly SemGroup Energy Partners, L.P.) was a controlled subsidiary of SemGroup until July 2008, when certain creditors exercised their option to take control of the Board of Directors of Blueknight’s general partner. These creditors also seized all of SemGroup’s ownership interests in Blueknight prior to SemGroup’s emergence from bankruptcy.

F-48

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

12.

RELATED PARTY TRANSACTIONS—SEMGROUP, Continued

During the eleven months ended November 30, 2009 and the year ended December 31, 2008 we purchased crude oil transportation, terminalling, and storage services from Blueknight. During the eleven months ended November 30, 2009 we received payments from Blueknight for transition services. The amounts were as follows (in thousands):


	Prior to Emergence
	Eleven Months Ended November 30, 2009		Year Ended December 31, 2008
Revenues	$	1,358	$	—
Purchases	$	3,045	$	77,995

On April 7, 2009, SemGroup and Blueknight executed definitive documentation related to the settlement of certain matters and entered into a settlement of a shared services agreement. As part of the settlement, we transferred certain property, plant and equipment and inventory to Blueknight, and Blueknight transferred certain property, plant and equipment to us. We recorded a loss of $11.7 million to reorganization items in our combined statement of operations for the eleven months ended November 30, 2009 related to these transfers.

SemEuro Supply

During the year ended December 31, 2008, we sold $25 million of crude oil to SemEuro Supply Limited, which is also a wholly-owned subsidiary of SemGroup.

13.

RELATED PARTY TRANSACTIONS—OTHER

Westback

During 2008, we entered into certain derivative arrangements with Westback Purchasing Company, L.L.C. (“Westback”), which was owned by an individual who was one of SemGroup’s officers at the time. Under this arrangement, we entered into derivative transactions with a counterparty, or NYMEX broker, at the request of Westback. The understanding of the arrangement was for us to remit to Westback any gains we generated from the derivative transactions, and for Westback to reimburse us for any losses incurred from the derivative transactions. The intended benefit of these transactions for Westback was to expand its access to derivatives markets, since counterparties and brokers would be more willing to transact with us than with Westback, due to our larger financial resources. In return, we were to receive fees from Westback for our services. We also had a similar arrangement with Westback for the purchase and sale of physical commodities.

During 2008, we concluded that it was no longer probable that we would collect reimbursement from Westback for a portion of these losses, and we recorded an allowance for uncollectable accounts of $285.5 million to operating expenses in the combined statement of operations. At the Emergence Date, as part of the reorganization process, our rights to these receivables were transferred to pre-petition creditors.

BOK Financial Corporation

One of the former officers of SemGroup served on the Board of Directors of BOK Financial Corporation (“BOK”) until July 16, 2008. Prior to SemGroup’s bankruptcy, we entered into certain commodity derivative transactions with BOK. BOK also served as trustee for one of SemGroup’s defined contribution benefit plans in which employees who support us participate.

F-49

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

13.

RELATED PARTY TRANSACTIONS—OTHER, Continued

Crude purchases

We purchased $87.2 million of crude oil during the year ended December 31, 2008 from entities owned by certain of SemGroup’s officers at this time.

Equipment leases

During 2008, an individual who was one of SemGroup’s officers at the time served on the management committee of an entity from which we leased transportation equipment. We made payments of $0.1 million to this entity during the period January 1, 2008 to July 22, 2008.

14.

CONDENSED COMBINING STATEMENTS OF OPERATIONS (Unaudited)

Our condensed combining statement of operations for the year ended December 31, 2010 is shown below (amounts in thousands):


	SemCrude			Eaglwing			Eliminations		Combined
Total revenues, including revenues from affiliates	$	208,081		$	—		$	—	$	208,081
Expenses, including expenses from affiliates:
Costs of products sold, exclusive of depreciation and amortization shown below		146,614			—			—		146,614
Operating		20,398			—			—		20,398
General and administrative		7,644			16			—		7,660
Depreciation and amortization		10,435			—			—		10,435

Total expenses		185,091			16			—		185,107

Operating income (loss)		22,990			(16	)		—		22,974
Other expenses (income):
Interest expense		482			—			—		482
Other		(951	)		(34	)		—		(985	)

Total other expenses (income)		(469	)		(34	)		—		(503	)

Net income	$	23,459		$	18		$	—	$	23,477

F-50

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

14.

CONDENSED COMBINING STATEMENTS OF OPERATIONS (Unaudited), Continued

Our condensed combining statement of operations for the month ended December 31, 2009 is shown below (amounts in thousands):


	SemCrude			Eaglwing		Eliminations		Combined
Total revenues, including revenues from affiliates	$	10,615		$	—	$	—	$	10,615
Expenses, including expenses from affiliates:
Costs of products sold, exclusive of depreciation and amortization shown below		5,969			—		—		5,969
Operating		1,536			—		—		1,536
General and administrative		1,270			—		—		1,270
Depreciation and amortization		818			—		—		818

Total expenses		9,593			—		—		9,593

Operating income		1,022			—		—		1,022
Other expenses (income):
Interest expense		43			—		—		43
Other		(306	)		—		—		(306	)

Total other expenses (income)		(263	)		—		—		(263	)

Net income	$	1,285		$	—	$	—	$	1,285

Our condensed combining statement of operations for the eleven months ended November 30, 2009 is shown below (amounts in thousands):


	SemCrude			Eaglwing			Eliminations			Combined
Total revenues, including revenues from affiliates	$	237,435		$	75		$	(23	)	$	237,487
Expenses, including expenses from affiliates:
Costs of products sold, exclusive of depreciation and amortization shown below		180,086			91			(23	)		180,154
Operating		15,598			16			—			15,614
General and administrative		5,718			95			—			5,813
Depreciation and amortization		3,193			—			—			3,193

Total expenses		204,595			202			(23	)		204,774

Operating income (loss)		32,840			(127	)		—			32,713
Other expenses (income):
Interest expense		1,699			—			—			1,699
Other		(1,595	)		(7	)		—			(1,602	)

Total other expenses (income)		104			(7	)		—			97
Income (loss) before reorganization items		32,736			(120	)		—			32,616
Reorganization items gain (loss), including expenses allocated from affiliates		(103,380	)		3,444			—			(99,936	)

Net income (loss)	$	136,116		$	(3,564	)	$	—		$	132,552

F-51

Index to Financial Statements

ROSE ROCK MIDSTREAM PREDECESSOR

Notes to Combined Financial Statements

14.

CONDENSED COMBINING STATEMENTS OF OPERATIONS (Unaudited), Continued

Our condensed combining statement of operations for the year ended December 31, 2008 is shown below (amounts in thousands):


	SemCrude			Eaglwing			Eliminations			Combined
Total revenues, including revenues from affiliates	$	3,904,624		$	365,426		$	(1,240,266	)	$	3,029,784
Expenses, including expenses from affiliates:
Costs of products sold, exclusive of depreciation and amortization shown below		3,892,588			1,033,272			(1,240,266	)		3,685,594
Operating		13,026			285,848			—			298,874
General and administrative		31,991			1,850			—			33,841
Depreciation and amortization		2,995			—			—			2,995

Total expenses		3,940,600			1,320,970			(1,240,266	)		4,021,304

Operating loss		(35,976	)		(955,544	)		—			(991,520	)
Other expenses (income):
Interest expense		2,907			—			—			2,907
Other		(441	)		(365	)		—			(806	)

Total other expenses (income)		2,466			(365	)		—			2,101
Loss before reorganization items		(38,442	)		(955,179	)		—			(993,621	)
Reorganization items loss, including expenses allocated from affiliates		(88,812	)		(5,612	)		—			(94,424	)

Net loss	$	(127,254	)	$	(960,791	)	$	—		$	(1,088,045	)

F-52

Index to Financial Statements

APPENDIX A

Amended and Restated Agreement

of Limited Partnership of Rose Rock Midstream, L.P.

[To be provided by amendment]

A-1

Index to Financial Statements

APPENDIX B

Glossary of Terms

Barrel: One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.

Bpd: One stock tank barrel per day.

condensate: A natural gas liquid with a low vapor pressure, mainly composed of propane, butane, pentane and heavier hydrocarbon fractions.

Mcf: One thousand cubic feet.

MMBbls: One million barrels.

MMcf/d: One million cubic feet per day.

NGLs: Natural gas liquids. The combination of ethane, propane, normal butane, iso-butane and natural gasolines that when removed from natural gas become liquid under various levels of higher pressure and lower temperature.

NYMEX: New York Mercantile Exchange.

play: A proven geological formation that contains commercial amounts of hydrocarbons.

receipt point: The point where production is received by or into a gathering system or transportation pipeline.

throughput: The volume of natural gas transported or passing through a pipeline, plant, terminal or other facility during a particular period.

wellhead: The equipment at the surface of a well used to control the well’s pressure; also, the point at which the hydrocarbons and water exit the ground.

WTI: West Texas Intermediate, a type of crude oil commonly used as a price benchmark.

B-1

Index to Financial Statements

[Logo]

Rose Rock Midstream, L.P.

Common Units

Representing Limited Partner Interests

Prospectus

, 2011

Barclays Capital

Index to Financial Statements

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.

Other Expenses of Issuance and Distribution.

Set forth below are the expenses (other than underwriting discounts and commissions and structuring fees) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the SEC registration fee, the FINRA filing fee and the NYSE listing fee, the amounts set forth below are estimates.


SEC registration fee	$	21,029
FINRA filing fee		18,613
NYSE listing fee		*
Printing and engraving expenses		*
Fees and expenses of legal counsel		*
Accounting fees and expenses		*
Transfer agent and registrar fees		*
Miscellaneous		*

Total	$	*

To be provided by amendment.

Item 14.

Indemnification of Directors and Officers.

Rose Rock Midstream, L.P.

Subject to any terms, conditions or restrictions set forth in the partnership agreement, Section 17-108 of the Delaware Revised Uniform Limited Partnership Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. The section of the prospectus entitled “The Partnership Agreement—Indemnification” discloses that we will generally indemnify officers, directors and affiliates of our general partner to the fullest extent permitted by the law against all losses, claims, damages or similar events and is incorporated herein by reference.

The underwriting agreement to be entered into in connection with the sale of the securities offered pursuant to this registration statement, the form of which will be filed as an exhibit to this registration statement, provides for indemnification of Rose Rock Midstream, L.P. and our general partner, their officers and directors, and any person who controls our general partner, including indemnification for liabilities under the Securities Act.

Rose Rock Midstream GP, LLC

Subject to any terms, conditions or restrictions set forth in the limited liability company agreement, Section 18-108 of the Delaware Limited Liability Company Act empowers a Delaware limited liability company to indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.

Under the limited liability agreement of our general partner, in most circumstances, our general partner will indemnify the following persons, to the fullest extent permitted by law, from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings (whether civil, criminal, administrative or investigative):

•

any person who is or was an affiliate of our general partner (other than us and our subsidiaries);

•

any person who is or was a member, partner, officer, director, employee, agent or trustee of our general partner or any affiliate of our general partner;

II-1

Index to Financial Statements

•

any person who is or was serving at the request of our general partner or any affiliate of our general partner as an officer, director, employee, member, partner, agent, fiduciary or trustee of another person; and

•

any person designated by our general partner.

Our general partner will purchase insurance covering its officers and directors against liabilities asserted and expenses incurred in connection with their activities as officers and directors of our general partner or any of its direct or indirect subsidiaries.

Item 15.

Recent Sales of Unregistered Securities.

On August 5, 2011, in connection with the formation of Rose Rock Midstream, L.P., we issued (i) the 2.0% general partner interest in us to Rose Rock Midstream GP, LLC for $20, (ii) a 0.1% limited partner interest in us to Rose Rock Midstream Corporation for $1 and (iii) a 97.9% limited partner interest in us to Rose Rock Midstream Holdings, LLC for $979, in each case in an offering exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.

Item 16.

Exhibits and Financial Statement Schedules.

The following documents are filed as exhibits to this registration statement:


Exhibit Number		Description

1.1*		Form of Underwriting Agreement.

3.1		Certificate of Limited Partnership of Rose Rock Midstream, L.P.

3.2		Agreement of Limited Partnership of Rose Rock Midstream, L.P.

3.3*		Form of Amended and Restated Agreement of Limited Partnership of Rose Rock Midstream, L.P., (included as Appendix A to the Prospectus).

3.4		Certificate of Formation of Rose Rock Midstream GP, LLC.

3.5		Limited Liability Company Agreement of Rose Rock Midstream GP, LLC.

3.6*		Form of Amended and Restated Limited Liability Company Agreement of Rose Rock Midstream GP, LLC.

5.1*		Opinion of Andrews Kurth LLP as to the legality of the securities being registered.

8.1*		Opinion of Andrews Kurth LLP relating to tax matters.

10.1*		Form of Credit Agreement.

10.2*		Form of Contribution, Conveyance and Assumption Agreement.

10.3*		Form of Long-Term Incentive Plan.

10.4*		Form of Omnibus Agreement.

10.5*		Form of Administrative Services Agreement.

21.1*		List of Subsidiaries of Rose Rock Midstream, L.P.

23.1		Consent of BDO USA, LLP.

23.2*		Consent of Andrews Kurth LLP (contained in Exhibit 5.1).

23.3*		Consent of Andrews Kurth LLP (contained in Exhibit 8.1).

24.1		Power of attorney (included on signature page).

*	To be filed by amendment.

II-2

Index to Financial Statements

Item 17.

Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(1) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(2) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(3) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(4) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant undertakes to send to each common unitholder, at least on an annual basis, a detailed statement of any transactions with Rose Rock Midstream GP, LLC, our general partner, or its affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to Rose Rock Midstream GP, LLC or its affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.

The undersigned registrant undertakes to provide to the common unitholders the financial statements required by Form 10-K for the first full fiscal year of operations of the company.

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Index to Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa, State of Oklahoma, on August 12, 2011.


Rose Rock Midstream, L.P.

By:	Rose Rock Midstream GP, LLC, its general partner

		By:	/s/ Norman J. Szydlowski
		Name:	Norman J. Szydlowski
		Title:	Chief Executive Officer and President

Each person whose signature appears below appoints Robert N. Fitzgerald and Peter L. Schwiering , and each of them, any of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and the dates indicated.


Signature	Title	Date
/s/ Norman J. Szydlowski Norman J. Szydlowski	Chief Executive Officer and President (Principal Executive Officer) and Director	August 12, 2011

/s/ Peter L. Schwiering Peter L. Schwiering	Chief Operating Officer and Director	August 12, 2011

/s/ Robert N. Fitzgerald Robert N. Fitzgerald	Senior Vice President, Chief Financial Officer and Director (Principal Financial Officer)	August 12, 2011

/s/ Timothy O’Sullivan Timothy O’Sullivan	Vice President and Director	August 12, 2011

/s/ Paul Largess Paul Largess	Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)	August 12, 2011

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Index to Financial Statements


Exhibit Number		Description

	1.1*	Form of Underwriting Agreement.

	3.1	Certificate of Limited Partnership of Rose Rock Midstream, L.P.

	3.2	Agreement of Limited Partnership of Rose Rock Midstream, L.P.

	3.3*	Form of Amended and Restated Agreement of Limited Partnership of Rose Rock Midstream, L.P. (included as Appendix A to the Prospectus).

	3.4	Certificate of Formation of Rose Rock Midstream GP, LLC.

	3.5	Limited Liability Company Agreement of Rose Rock Midstream GP, LLC.

	3.6*	Form of Amended and Restated Limited Liability Company Agreement of Rose Rock Midstream GP, LLC.

	5.1*	Opinion of Andrews Kurth LLP as to the legality of the securities being registered.

	8.1*	Opinion of Andrews Kurth LLP relating to tax matters.

	10.1*	Form of Credit Agreement.

	10.2*	Form of Contribution, Conveyance and Assumption Agreement.

	10.3*	Form of Long-Term Incentive Plan.

	10.4*	Form of Omnibus Agreement.

	10.5*	Form of Administrative Services Agreement.

	21.1*	List of Subsidiaries of Rose Rock Midstream, L.P.

	23.1	Consent of BDO USA, LLP.

	23.2*	Consent of Andrews Kurth LLP (contained in Exhibit 5.1).

	23.3*	Consent of Andrews Kurth LLP (contained in Exhibit 8.1).

	24.1	Power of attorney (included on signature page).

*	To be filed by amendment

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