ROSE ROCK MIDSTREAM, L.P.

At December 31, 2015, we owned the 2% general partner interest and a 55.1% limited partner interest made up of 20,704,418 common units of Rose Rock. We also own certain incentive distribution rights, which are described below. We control the operations of Rose Rock through our ownership of the general partner interest and consolidate Rose Rock. Rose Rock owns and operates all of our domestic crude oil assets with the exception of the Maurepas Pipeline. The outside ownership interests in Rose Rock are reflected in “noncontrolling interests in consolidated subsidiaries” on our consolidated balance sheets. The portion of the net income of Rose Rock that is attributable to outside owners is reflected within “net income attributable to noncontrolling interests” in our consolidated statements of operations and comprehensive income.

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 related to the earnings for each of the following periods (in thousands, except for per unit amounts):



	Distribution Per Unit			Distributions 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, 2012	$	0.4025		$	167	$	—	$	1,163	$	3,377	$	3,624	$	8,331

March 31, 2013	$	0.4300		$	179	$	41	$	1,242	$	3,607	$	3,872	$	8,941
June 30, 2013	$	0.4400		$	183	$	72	$	1,271	$	3,692	$	3,962	$	9,180
September 30, 2013	$	0.4500		$	232	$	127	$	1,301	$	3,775	$	6,189	$	11,624
December 31, 2013	$	0.4650		$	257	$	244	$	2,041	$	3,901	$	6,398	$	12,841

March 31, 2014	$	0.4950		$	278	$	488	$	2,173	$	4,153	$	6,811	$	13,903
June 30, 2014	$	0.5350		$	334	$	888	$	3,646	$	4,488	$	7,362	$	16,718
September 30, 2014	$	0.5750		$	377	$	1,835	$	3,918	$	4,824	$	7,912	$	18,866
December 31, 2014	$	0.6200		$	485	$	3,487	$	6,551	$	5,202	$	8,544	$	24,269

March 31, 2015	$	0.6350		$	568	$	4,450	$	13,148	$	—	$	10,213	$	28,379
June 30, 2015	$	0.6500		$	590	$	4,979	$	13,458	$	—	$	10,456	$	29,483
September 30, 2015	$	0.6600		$	604	$	5,333	$	13,665	$	—	$	10,619	$	30,221
December 31, 2015	$	0.6600	(1)	$	604	$	5,333	$	13,665	$	—	$	10,622	$	30,224

(1) The distribution to common unitholders related to earnings for the quarter ended December 31, 2015 was payable on February 12, 2016 to holders of record at February 2, 2016.

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



	December 31,
	2015		2014
Cash	$	9,059	$	3,625
Other current assets	310,555		271,144
Property, plant and equipment, net	441,596		396,066
Equity method investment	438,291		269,635
Goodwill	26,628		36,116
Other noncurrent assets	31,702		29,677
Total assets	$	1,257,831	$	1,006,263

Current liabilities	$	283,029	$	265,682
Long-term debt	744,597		432,092
Partners’ capital attributable to SemGroup	149,376		238,560
Partners’ capital attributable to noncontrolling interests	80,829		69,929
Total liabilities and partners’ capital	$	1,257,831	$	1,006,263

Certain summarized income statement information of Rose Rock for the years ended December 31, 2015, 2014, and 2013 is shown below (in thousands):



	Year Ended December 31,
	2015		2014		2013
Revenue	$	844,711	$	1,298,097	$	767,202
Costs of products sold	$	671,769	$	1,131,362	$	663,759
Operating, general and administrative expenses	$	114,476	$	99,894	$	51,624
Depreciation and amortization expense	$	41,998	$	40,035	$	23,708
Earnings from equity method investment	$	76,355	$	57,378	$	17,571
Net income	$	49,673	$	62,925	$	37,515
Noncontrolling interest in consolidated subsidiaries retained by SemGroup	$	—	$	7,758	$	1,256
Net income attributable to Rose Rock Midstream, L.P.	$	49,673	$	55,167	$	36,259

Drop-down Transactions with Rose Rock

2015 drop-down transaction

On February 13, 2015, we contributed WOT and Glass Mountain Holding, LLC, which holds our 50% interest in Glass Mountain, to Rose Rock in exchange for (i) cash of approximately $251.2 million, (ii) the issuance of 1.75 million common units and (iii) 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 2% general partner interest. The cash consideration was funded through a borrowing under Rose Rock's credit facility and the issuance and sale of 2.3 million common units in an underwritten public offering for net proceeds of $89.1 million. SemGroup used the proceeds from these transactions to pay amounts owed under its revolving credit facility.

As the acquisition was between parties under common control, Rose Rock recorded its interest in acquired assets and liabilities at SemGroup's historical value and SemGroup did not recognize a gain on the transaction. Proceeds in excess of the historical value were accounted for as a dividend from Rose Rock to SemGroup and resulted in a $51.5 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $30.7 million (net of tax impact of $20.8 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.

Additionally, the acquisition of WOT created a change in reporting entity which required Rose Rock's historical results to be recast as if WOT had been part of Rose Rock in prior periods. The historical summarized financial information of Rose Rock has been recast to reflect this change. The impact to prior periods was not significant. Earnings of WOT prior to the acquisition have been allocated to the general partner. The acquisition of the equity method investment in Glass Mountain did not create a change in reporting entity. As such, prior periods have not been recast to include the historical results of Glass Mountain. There was no impact to SemGroup from the Rose Rock recast as these entities are all reported within the Crude Transportation segment.

2014 drop-down transaction

On June 23, 2014, we contributed the remaining 33% interest in SemCrude Pipeline, L.L.C. ("SCPL") to Rose Rock in exchange for (i) cash of approximately $114.4 million, (ii) the issuance of 2.425 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 and a related issuance of general partner interest, to allow the general partner to maintain its 2% general partner interest. Subsequent to this transaction, Rose Rock owns 100% of SCPL, which owns a 51% membership interest in White Cliffs. SemGroup used the proceeds from these transactions to pay amounts owed under its revolving credit facility.

The Class A units were 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. The Class A units converted to common units in January 2015.

As this transaction was between parties under common control, Rose Rock recorded its interest in SCPL 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 a dividend from Rose Rock to SemGroup and resulted in an $85.2 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $53.2 million (net of tax impact of $31.9 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.

SemGroup incurred approximately $0.9 million of expense associated with this transaction, including $0.4 million of costs incurred by Rose Rock.

2013 drop-down transactions

On January 11, 2013, we contributed a 33% interest in SCPL 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 2% general partner interest.

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 approximately $59.3 million. In addition, Rose Rock made a borrowing of $133.5 million under its revolving 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.

On December 16, 2013, we contributed an additional 33% interest in SCPL to Rose Rock in exchange for (i) cash of approximately $173.1 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 2% general partner interest. The cash consideration was funded through a borrowing under Rose Rock's credit facility.

As these transactions were between parties under common control, Rose Rock recorded its interest in SCPL at SemGroup's historical value and as such no gain was recognized by SemGroup. Proceeds in excess of the historical value were accounted for as a dividend from Rose Rock to SemGroup and resulted in a $180.2 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $112.9 million (net of tax impact of $67.3 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.

SemGroup incurred approximately $2.2 million of expense associated with these transactions, including expenses of Rose Rock. Rose Rock incurred $1.6 million of equity issuance costs which were offset against proceeds, $1.6 million of costs related to the January 2013 borrowing which were deferred, and $0.9 million of acquisition related costs which were expensed. SemGroup used the proceeds from these transactions to pay amounts owed under its revolving credit facility.

Rose Rock equity issuance

In August 2013, Rose Rock sold 4.75 million common limited partner units to third-party purchasers for $152.5 million, net of underwriting discounts and commissions. Proceeds were used to repay borrowings on the Rose Rock credit facility.

Rose Rock conversion of subordinated and Class A units

On January 1, 2015, certain operational targets were achieved by White Cliffs and all 3,750,000 Class A units held by the Company were converted to common units on a one-for-one basis. The conversion did not impact the total number of Rose Rock's outstanding units representing limited partner interests.

On February 17, 2015, certain targets specified in Rose Rock’s partnership agreement were achieved and all 8,389,709 subordinated units held by the Company were converted to common units. The conversion did not impact the total number of Rose Rock’s outstanding units representing limited partner interests.