ROSE ROCK MIDSTREAM, L.P.

We control the operations of our consolidated subsidiary, Rose Rock Midstream, L.P. (NYSE: RRMS) ("Rose Rock"), through our ownership of the general partner interest. As of June 30, 2016, we own the 2% general partner interest and a 55.1% limited partner interest. Subsequent to the adoption of ASU 2015-02, Rose Rock is considered to be a variable interest entity due to the limited partners' lack of substantive kick-out rights or substantive participating rights. We will continue to consolidate Rose Rock as we are the primary beneficiary due to our general partner interest, majority limited partner interest and incentive distribution rights.

Rose Rock's assets are pledged as collateral under its senior secured revolving credit facility agreement. The credit agreement restricts Rose Rock’s ability to make certain types of payments relating to its units, including the declaration or payment of cash distributions; provided that Rose Rock may make quarterly distributions of available cash so long as no default under the agreement then exists or would result therefrom. The agreement is guaranteed by all of Rose Rock’s material domestic subsidiaries and secured by a lien on substantially all of the property and assets of Rose Rock and the guarantors, subject to customary exceptions. Rose Rock's creditors have no recourse to the credit of SemGroup.

Cash distributions

We receive distributions from Rose Rock on our common 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.

The following table shows the cash distributions paid or declared during 2016 and 2015 (in thousands, except for per unit amounts):



	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, 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		$	604	$	5,333	$	13,665	$	—	$	10,622	$	30,224
March 31, 2016	$	0.6600		$	605	$	5,338	$	13,665	$	—	$	10,643	$	30,251
June 30, 2016	$	0.6600	*	$	605	$	5,339	$	13,665	$	—	$	10,648	$	30,257

*Expected distributions related to the quarter ended June 30, 2016, which will be paid on August 12, 2016 to unitholders of record as of August 2, 2016.

Summarized financial information

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



	(Unaudited)
	June 30, 2016		December 31, 2015
Cash	$	7,909	$	9,059
Other current assets	413,625		310,555
Property, plant and equipment, net	443,327		441,596
Equity method investments	427,961		438,291
Goodwill	26,628		26,628
Other noncurrent assets, net	17,978		19,461
Total assets	$	1,337,428	$	1,245,590

Current liabilities	$	356,248	$	283,029
Long-term debt	774,488		732,356
Partners’ capital attributable to SemGroup	135,609		149,376
Partners’ capital attributable to noncontrolling interests	71,083		80,829
Total liabilities and partners' capital	$	1,337,428	$	1,245,590

Certain summarized income statement information of Rose Rock for the three months and six months ended June 30, 2016 and 2015 is shown below (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Revenue	$	169,144	$	223,303	$	373,095	$	357,996
Cost of products sold	$	128,763	$	173,133	$	280,154	$	269,370
Operating, general and administrative expenses	$	26,868	$	29,985	$	53,469	$	56,556
Depreciation and amortization expense	$	8,235	$	10,608	$	16,128	$	20,751
Earnings from equity method investments	$	17,078	$	17,683	$	37,917	$	38,547
Net income	$	9,922	$	17,068	$	36,390	$	31,668

Pending acquisition of outstanding common units

On May 30, 2016, SemGroup entered into an Agreement and Plan of Merger (the "Merger Agreement") with Rose Rock whereby SemGroup would acquire all of the outstanding common limited partner units of Rose Rock not already beneficially owned by SemGroup in exchange for shares of SemGroup Class A common stock. Each common limited partner unit of Rose Rock would be acquired in exchange for 0.8136 shares of SemGroup Class A common stock. Subsequent to the transaction, Rose Rock would be wholly owned by SemGroup or would be merged into SemGroup.

If completed, the merger will be accounted for in accordance with FASB Accounting Standards Codification 810, Consolidation - Overall - Changes in a Parent’s Ownership Interest in a Subsidiary. As SemGroup controls Rose Rock and will continue to control Rose Rock after the merger, the changes in SemGroup’s ownership interest in Rose Rock will be accounted for as an equity transaction and no gain or loss will be recognized in SemGroup’s consolidated statements of operations and comprehensive income (loss) as a result of the merger.

Completion of the merger is conditioned upon, among other things: (i) majority approval of Rose Rock common unitholders; (ii) all material required governmental consents and approvals having been received; (iii) the absence of legal injunctions or impediments prohibiting the transactions contemplated by the Merger Agreement; (iv) the effectiveness of a registration statement on Form S-4 with respect to the issuance of SemGroup Class A common stock to be issued in exchange for Rose Rock common limited partner units; (v) approval of the listing on the New York Stock Exchange, subject to official notice of issuance, of the SemGroup Class A common stock to be issued; and (vi) majority approval by SemGroup stockholders of the SemGroup Class A common stock issuance.

A subsidiary of SemGroup which beneficially owns a majority of Rose Rock's common units has agreed to deliver a written consent approving the Merger Agreement and the transactions contemplated by such agreement.

The Merger Agreement provides for certain termination rights for Rose Rock. The Merger Agreement provides that upon termination of the Merger Agreement (i) in connection with the failure of the stockholders of SemGroup to approve the SemGroup stock issuance, SemGroup will pay Rose Rock's out-of-pocket expenses in an amount up to $3.8 million and (ii) in connection with a change by SemGroup of its recommendation in favor of approval of the SemGroup stock issuance under certain circumstances, SemGroup will pay to Rose Rock a termination fee in the amount of $15.5 million. Under no circumstance will SemGroup be required to both reimburse Rose Rock's expenses and pay Rose Rock the termination fee.

Rose Rock’s currently outstanding senior notes will remain outstanding after the merger is consummated, and no “change of control” will occur thereunder. It is currently contemplated that SemGroup and its subsidiaries that currently are guarantors of SemGroup’s outstanding senior notes will provide guaranties of Rose Rock’s senior notes once the merger is consummated. In addition, it is currently contemplated that Rose Rock and its subsidiaries that currently are guarantors of Rose Rock’s outstanding senior notes will provide guaranties of SemGroup’s senior notes and secured revolving credit facility once the merger is consummated. In connection with the consummation of the merger, Rose Rock’s existing senior secured revolving credit facility is contemplated to be terminated and SemGroup’s senior secured revolving credit facility is contemplated to be amended and upsized to cover the needs of the combined company. SemGroup is currently considering consummating certain internal “clean-up” mergers after the merger occurs, which would ultimately result in Rose Rock merging into SemGroup, with SemGroup being the surviving entity of that merger. If SemGroup determines to consummate these internal mergers after the merger occurs, SemGroup, upon consummation of these internal mergers, would directly assume and become the successor issuer of Rose Rock’s outstanding senior notes.