ROSE ROCK MIDSTREAM, L.P.

We control the operations of our consolidated subsidiary, Rose Rock Midstream, L.P. ("Rose Rock") through our ownership of the general partner interest. As of June 30, 2013, we own the 2% general partner interest and 58.2% of the limited partner interest made up of 2.9 million common units, 8.4 million subordinated units and 1.25 million Class A units.

On January 11, 2013, we contributed a 33% interest in SemCrude Pipeline, L.L.C. to Rose Rock in exchange for (i) cash of approximately $189.5 million, (ii) the issuance of 1.5 million common units, (iii) the issuance of 1.25 million Class A units and (iv) an increase of the capital account of the general partner of Rose Rock and a related issuance of general partner interest, to allow the general partner of Rose Rock to maintain its two percent general partner interest. SemCrude Pipeline, L.L.C. owns a 51% membership interest in White Cliffs Pipeline, L.L.C. ("White Cliffs"), which owns a 527-mile pipeline that transports crude oil from Platteville, Colorado to Cushing, Oklahoma (the "White Cliffs Pipeline"), giving Rose Rock an indirect 17% interest in White Cliffs.

The Class A units are not entitled to receive any distribution of available cash (other than upon liquidation) prior to the first day of the month immediately following the first month for which the average daily throughput volumes on the White Cliffs Pipeline for such month are 125,000 barrels per day or greater. Upon such date, the Class A units will automatically convert into common units.

As this transaction was between parties under common control, Rose Rock recorded its interest in SemCrude Pipeline, L.L.C. at SemGroup's historical value and as such no gain on the sale was recognized by SemGroup. Proceeds in excess of the historical value were accounted for as an equity transaction between Rose Rock and SemGroup and resulted in a $90.5 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $56.8 million (net of tax impact of $33.7 million). This non-cash entry represents the portion of the proceeds in excess of historical cost which were attributed to Rose Rock's third-party unitholders.

In connection with this transaction, Rose Rock issued and sold 2.0 million common units to third-party purchasers in a private placement for aggregate consideration of $59.3 million. In addition, Rose Rock exercised the accordion feature of its revolving credit facility and increased the total borrowing capacity under the credit facility from $150 million to $385 million and made a borrowing of $133.5 million under the credit facility. The proceeds from the private placement and the borrowing were used by Rose Rock to fund the cash consideration in the transaction with us and to pay certain related transaction costs and expenses. Subsequent to the transaction, SemGroup owns 58.2% of the limited partner interest and the 2% general partner interest in Rose Rock.

SemGroup incurred $1.4 million of expense associated with the transaction including amounts expensed by Rose Rock. Rose Rock incurred $3.7 million of cost, of which $1.6 million of equity issuance costs were offset against proceeds, $1.6 million was related to the borrowing and was deferred, and $0.5 million was expensed.

Outside ownership interests in Rose Rock are reflected in “noncontrolling interests in consolidated subsidiaries” on our condensed consolidated balance sheets at June 30, 2013 and December 31, 2012. The portion of Rose Rock’s net income attributable to outside owners is reflected within “net income attributable to noncontrolling interests” in our condensed consolidated statements of operations and comprehensive income (loss) for the three months and six months ended June 30, 2013.

We receive distributions from Rose Rock on our common and subordinated units, our 2% general partner interest and incentive distribution rights. Rose Rock intends to pay a minimum quarterly distribution of $0.3625 per unit, to the extent it has sufficient available cash, as defined in Rose Rock’s partnership agreement. Rose Rock’s partnership agreement requires Rose Rock to distribute all of its available cash each quarter in the following manner:



	Total Quarterly Distributions Per Unit Target Amount						Marginal Percentage Interest in Distributions
	Total Quarterly Distributions Per Unit Target Amount						Unitholders		General Partner		Incentive Distribution Rights
Minimum Quarterly Distributions					$	0.362500	98.0	%	2.0	%	—
First Target Distribution	above	$	0.362500	up to	$	0.416875	98.0	%	2.0	%	—
Second Target Distribution	above	$	0.416875	up to	$	0.453125	85.0	%	2.0	%	13.0	%
Third Target Distribution	above	$	0.453125	up to	$	0.543750	75.0	%	2.0	%	23.0	%
Thereafter				above	$	0.543750	50.0	%	2.0	%	48.0	%

The following table shows the distributions paid or declared for the six months ended June 30, 2013 and 2012 (in thousands, except for per unit amounts):



		Record Date	Payment Date	Distribution Per Unit			Distributions Paid/To Be Paid
Quarter Ended							SemGroup								Noncontrolling Interest Common Units		Total Distributions
Quarter Ended							General Partner		Incentive Distributions		Common Units		Subordinated Units		Noncontrolling Interest Common Units		Total Distributions
December 31, 2011	*	February 3, 2012	February 13, 2012	$	0.0670	*	$	23	$	—	$	93	$	561	$	470	$	1,147
March 31, 2012		May 7, 2012	May 15, 2012	$	0.3725		$	128	$	—	$	517	$	3,125	$	2,607	$	6,377
June 30, 2012		August 6, 2012	August 14, 2012	$	0.3825		$	131	$	—	$	532	$	3,209	$	2,678	$	6,550
December 31, 2012		February 4, 2013	February 14, 2013	$	0.4025		$	167	$	—	$	1,163	$	3,377	$	3,624	$	8,331
March 31, 2013		May 6, 2013	May 15, 2013	$	0.4300		$	179	$	41	$	1,242	$	3,607	$	3,872	$	8,941
June 30, 2013	**	August 5, 2013	August 14, 2013	$	0.4400	**	$	183	$	72	$	1,271	$	3,692	$	3,962	$	9,180

*Minimum quarterly distribution for quarter ended December 31, 2011 was prorated for the period beginning immediately after the closing of Rose Rock’s IPO, December 14, 2011 through December 31, 2011.

**Expected payment date and amounts for distributions related to the quarter ended June 30, 2013.

Certain summarized balance sheet information of Rose Rock is shown below (in thousands):



	(unaudited)
	June 30, 2013		December 31, 2012
Cash	$	3,650	$	108
Other current assets	247,195		250,509
Property, plant and equipment, net	296,084		291,530
Equity method investment	66,037		—
Other noncurrent assets, net	3,792		2,579
Total assets	$	616,758	$	544,726
Current liabilities	$	223,158	$	231,843
Long-term debt	166,549		4,562
Partners’ capital attributable to SemGroup	128,774		179,187
Partners’ capital attributable to noncontrolling interests	98,277		129,134
Total liabilities and partners’ capital	$	616,758	$	544,726

Certain summarized income statement information of Rose Rock for the three months and six months ended June 30, 2013 and 2012 is shown below (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Revenue	$	161,422	$	157,418	$	332,654	$	337,133
Cost of products sold	$	140,506	$	140,549	$	288,957	$	301,057
Operating, general and administrative expenses	$	9,061	$	8,267	$	18,040	$	16,197
Depreciation and amortization expense	$	3,690	$	2,999	$	7,197	$	5,966
Earnings from equity method investment	$	3,451	$	—	$	6,904	$	—
Net income	$	9,134	$	5,126	$	21,128	$	12,884