SEC Filing | Energy Transfer

SEMGROUP CORPORATION

Date: August 31, 2017

/s/ William H. Gault

William H. Gault

View:

Download DOC

Download PDF

Download XLS

8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): July 17, 2017

SEMGROUP CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware

1-34736

20-3533152

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

Two Warren Place

6120 S. Yale Avenue, Suite 1500

Tulsa, OK 74136-4231

(Address of Principal Executive Offices) (Zip Code)

(918) 524-8100

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

EXPLANATORY NOTE

On July 17, 2017, SemGroup Corporation (the “Company”) filed with the Securities and Exchange Commission a Current Report on Form 8-K, dated July 17, 2017 (the “Initial Form 8-K”), to report that the Company acquired 100% of the equity interests in Buffalo Parent Gulf Coast Terminals LLC, the parent company of Buffalo Gulf Coast Terminals LLC (“BGCT”) and HFOTCO LLC doing business as Houston Fuel Oil Terminal Company (“HFOTCO”) (the “HFOTCO Acquisition”). This Current Report on Form 8-K/A amends Item 9.01 of the Initial Form 8-K to present certain financial statements of Buffalo Parent Gulf Coast Terminals LLC and to present certain unaudited pro forma financial statements of the Company in connection with the HFOTCO Acquisition.

Item 9.01 Financial Statements and Exhibits.

(a)	Financial Statements of Business Acquired.

Filed as Exhibit 99.2 to this Current Report on Form 8-K/A, and incorporated herein by reference, are audited historical consolidated financial statements of Buffalo Parent Gulf Coast Terminals LLC as of December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016 and unaudited historical consolidated financial statements of Buffalo Parent Gulf Coast Terminals LLC as of June 30, 2017 and for the six months ended June 30, 2017 and 2016.

(b)	Pro Forma Financial Information.

Filed as Exhibit 99.3 to this Current Report on Form 8-K/A, and incorporated herein by reference, are unaudited pro forma condensed consolidated financial statements of the Company as of and for the six months ended June 30, 2017, for the year ended December 31, 2016 and for the six months ended June 30, 2016, which have been prepared to give effect to the HFOTCO Acquisition. These unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and do not purport to represent what the Company’s actual results of operations or financial position would have been if the HFOTCO Acquisition had occurred on the dates indicated, nor are they necessarily indicative of the Company’s future operating results or financial position.

(d)	Exhibits.

The following exhibits are filed or furnished herewith.


Exhibit Number		Description

4.1*		Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $75 million Series 2010 Marine Terminal Revenue Bonds.

4.2*		Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $50 million Series 2011 Marine Terminal Revenue Bonds.

4.3*		Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $100 million Series 2012 Marine Terminal Revenue Bonds.

4.4*		Continuing Covenant Agreement, dated as of August 19, 2014, between HFOTCO, as obligor, BGCT, as the parent, Bank of America, N.A., as administrative agent and collateral agent, and the bondholders party thereto.

4.5*		Consent and Amendment to Continuing Covenant Agreement, dated as of June 5, 2017, between HFOTCO, as obligor, BGCT, as the parent, Bank of America, N.A., as administrative agent and collateral agent, and the bondholders party thereto.


Exhibit Number		Description

4.6*		Loan Agreement, dated as of November 1, 2010, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $75 million Series 2010 Marine Terminal Revenue Bonds.

4.7*		Loan Agreement, dated as of December 1, 2011, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $50 million Series 2011 Marine Terminal Revenue Bonds.

4.8*		Loan Agreement, dated as of October 1, 2012, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $100 million Series 2012 Marine Terminal Revenue Bonds.

4.9*		First Amendment to Loan Agreement, dated as of August 19, 2014, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $75 million Series 2010 Marine Terminal Revenue Bonds.

4.10*		First Amendment to Loan Agreement, dated as of August 19, 2014, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $50 million Series 2011 Marine Terminal Revenue Bonds.

4.11*		First Amendment to Loan Agreement, dated as of August 19, 2014, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $100 million Series 2012 Marine Terminal Revenue Bonds.

10.1*		Registration Rights Agreement by and among SemGroup Corporation, Buffalo Investor I, LP and Buffalo Investor II, LP, dated as of July 17, 2017.

10.2*		Credit Agreement, dated as of August 19, 2014, among BGCT, as the parent, HFOTCO, as the borrower, Morgan Stanley Senior Funding, Inc., as administrative agent, Bank of America, N.A., as collateral agent, and the lenders party thereto.

10.3*		Consent and Amendment No. 1 to Credit Agreement, dated as of June 14, 2017, among BGCT, as the parent, HFOTCO, as the borrower, Morgan Stanley Senior Funding, Inc., as administrative agent, Bank of America, N.A., as collateral agent, and the lenders party thereto.

23.1**		Consent of BDO USA, LLP.

99.1*		Press Release dated July 17, 2017, issued by the Company.

99.2**		Historical Consolidated Financial Statements of Buffalo Parent Gulf Coast Terminals LLC.

99.3**		Unaudited Pro Forma Condensed Consolidated Financial Statements of the Company.

*	Previously filed or furnished with the Initial Form 8-K.

**	Filed with this Current Report on Form 8-K/A.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EXHIBIT INDEX


Exhibit Number		Description

4.1*		Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $75 million Series 2010 Marine Terminal Revenue Bonds.

4.2*		Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $50 million Series 2011 Marine Terminal Revenue Bonds.

4.3*		Amended and Restated Bond Indenture, dated as of August 19, 2014, between Harris County Industrial Development Corporation and The Bank of New York Mellon Trust Company, National Association, as trustee, relating to $100 million Series 2012 Marine Terminal Revenue Bonds.

4.4*		Continuing Covenant Agreement, dated as of August 19, 2014, between HFOTCO, as obligor, BGCT, as the parent, Bank of America, N.A., as administrative agent and collateral agent, and the bondholders party thereto.

4.5*		Consent and Amendment to Continuing Covenant Agreement, dated as of June 5, 2017, between HFOTCO, as obligor, BGCT, as the parent, Bank of America, N.A., as administrative agent and collateral agent, and the bondholders party thereto.

4.6*		Loan Agreement, dated as of November 1, 2010, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $75 million Series 2010 Marine Terminal Revenue Bonds.

4.7*		Loan Agreement, dated as of December 1, 2011, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $50 million Series 2011 Marine Terminal Revenue Bonds.

4.8*		Loan Agreement, dated as of October 1, 2012, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $100 million Series 2012 Marine Terminal Revenue Bonds.

4.9*		First Amendment to Loan Agreement, dated as of August 19, 2014, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $75 million Series 2010 Marine Terminal Revenue Bonds.

4.10*		First Amendment to Loan Agreement, dated as of August 19, 2014, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $50 million Series 2011 Marine Terminal Revenue Bonds.

4.11*		First Amendment to Loan Agreement, dated as of August 19, 2014, by and between HFOTCO and Harris County Industrial Development Corporation, relating to $100 million Series 2012 Marine Terminal Revenue Bonds.

10.1*		Registration Rights Agreement by and among SemGroup Corporation, Buffalo Investor I, LP and Buffalo Investor II, LP, dated as of July 17, 2017.

10.2*		Credit Agreement, dated as of August 19, 2014, among BGCT, as the parent, HFOTCO, as the borrower, Morgan Stanley Senior Funding, Inc., as administrative agent, Bank of America, N.A., as collateral agent, and the lenders party thereto.

10.3*		Consent and Amendment No. 1 to Credit Agreement, dated as of June 14, 2017, among BGCT, as the parent, HFOTCO, as the borrower, Morgan Stanley Senior Funding, Inc., as administrative agent, Bank of America, N.A., as collateral agent, and the lenders party thereto.

23.1**		Consent of BDO USA, LLP.

99.1*		Press Release dated July 17, 2017, issued by the Company.

99.2**		Historical Consolidated Financial Statements of Buffalo Parent Gulf Coast Terminals LLC.

99.3**		Unaudited Pro Forma Condensed Consolidated Financial Statements of the Company.

*	Previously filed or furnished with the Initial Form 8-K.

**	Filed with this Current Report on Form 8-K/A.

EX-23.1

Exhibit 23.1

Consent of Independent Auditor

The Board of Directors and Shareholders

SemGroup Corporation

Tulsa, Oklahoma

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-210044) and Form S-8 (File Nos. 333-170968, 333-189905 and 333-214561) of SemGroup Corporation (the “Company”) of our report dated April 11, 2017 relating to our audit of the consolidated financial statements of Buffalo Parent Gulf Coast Terminals LLC as of December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016, included in Exhibit 99.2 to the Company’s Current Report on Form 8-K/A dated August 31, 2017.

/s/ BDO USA, LLP

Houston, Texas

August 31, 2017

EX-99.2

LOGO

Exhibit 99.2
Buffalo parent Gulf Coast Terminals LLC
Consolidated Financial Statements
As of December 31, 2016 and 2015 and June 30, 2017, and for each of the Three Years in the Period Ended December 31, 2016, and the Six Months Ended June 30, 2017 and 2016
The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.
BDO

Buffalo Parent Gulf Coast Terminals LLC

Contents


	Page
Independent Auditor’s Report		3

Consolidated Financial Statements
Balance Sheets		5
Statements of Operations and Comprehensive Income (Loss)		6
Statements of Changes in Members’ Capital		7
Statements of Cash Flows		8
Notes to Consolidated Financial Statements		9-25

Tel: 713-960-1706

Fax: 713-960-9549

www.bdo.com

2929 Allen Parkway, 20th Floor

Houston, Texas 77019-7100

Independent Auditor’s Report

To the Members of

Buffalo Parent Gulf Coast Terminals LLC

Houston, Texas

We have audited the accompanying consolidated financial statements of Buffalo Parent Gulf Coast Terminals LLC and its subsidiaries (collectively, the “Company”), which comprise the balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income (loss), changes in members’ capital, and cash flows for each of the three years in the period ended December 31, 2016, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Buffalo Parent Gulf Coast Terminals LLC and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in accordance with accounting principles generally accepted in the United States of America.

/s/BDO USA, LLP

April 11, 2017

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Consolidated Financial Statements

Buffalo Parent Gulf Coast Terminals LLC

Consolidated Balance Sheets

(in thousands)


	December 31,						June 30, 2017
	2016			2015			June 30, 2017
							*(Unaudited)*
Assets

Current Assets
Cash and cash equivalents	$	3,466		$	44,698		$	3,829
Accounts receivable, trade		10,437			5,650			9,387
Accounts receivable, other		3,942			323			1,356
Prepaid expenses and other		1,353			1,120			2,133

Total Current Assets		19,198			51,791			16,705

Property, Plant and Equipment, net of accumulated depreciation		561,865			518,457			613,513
Goodwill		907,700			907,700			907,700
Intangible Assets, net of accumulated amortization		20,900			23,026			19,837
Net Investment in Direct Financing Lease		67,784			65,384			67,825
Other Assets		8,172			14,765			5,353

Total Assets	$	1,585,619		$	1,581,123		$	1,630,933


Liabilities and Members’ Capital

Current Liabilities
Accounts payable	$	4,484		$	1,230		$	8,306
Accrued liabilities		5,576			5,460			4,407
Accrued property taxes		5,566			6,120			2,915
Current maturities of long-term debt		5,500			5,500			5,500

Total Current Liabilities		21,126			18,310			21,128

Pension Liability		10,239			10,835			9,669
Contract Liability, less accumulated amortization		469			2,974			232
Long-Term Derivative Liability		3,471			3,960			2,904
Long-Term Debt, less current maturities		746,593			749,781			744,998

Total Liabilities		781,898			785,860			778,931


Commitments and Contingencies (Note 10)

Members’ Capital
Members’ Capital		811,502			804,248			858,978
Accumulated other comprehensive loss		(7,781	)		(8,985	)		(6,976	)

Total Members’ Capital		803,721			795,263			852,002

Total Liabilities and Members’ Capital	$	1,585,619		$	1,581,123		$	1,630,933

See accompanying notes to consolidated financial statements.

Buffalo Parent Gulf Coast Terminals LLC

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands)


	Year Ended December 31,									Six Months Ended June 30,
	2016			2015			2014			2017			2016
										*(Unaudited)*			*(Unaudited)*
Revenues
Storage	$	123,519		$	123,903		$	116,940		$	58,736		$	62,316
Throughput and ancillary services		19,128			17,288			18,445			12,280			9,827
Direct financing lease income		12,825			7,443			—			6,391			6,449
Other		3,506			238			66			1,913			2,101

Total Revenues		158,978			148,872			135,451			79,320			80,693


Costs and Expenses
Operating and maintenance		31,589			28,525			27,491			16,419			14,789
Selling, general and administrative		13,373			14,236			12,256			7,509			7,207
Depreciation and amortization		29,352			28,697			25,769			13,359			14,927

Total Costs and Expenses		74,314			71,458			65,516			37,287			36,923

Income from Operations		84,664			77,414			69,935			42,033			43,770


Other Expense
Interest expense		(31,787	)		(36,126	)		(31,999	)		(14,216	)		(20,525	)
Loss on early extinguishment of debt		—			—			(50,434	)		—			—
Other expense, net		(51	)		(325	)		(327	)		(23	)		(26	)

Total Other Expense, net		(31,838	)		(36,451	)		(82,760	)		(14,239	)		(20,551	)

Income (Loss) Before Provision for Income Taxes		52,826			40,963			(12,825	)		27,794			23,219
Provision for Income Taxes		(572	)		(948	)		(907	)		(318	)		(248	)

Net Income (Loss)		52,254			40,015			(13,732	)		27,476			22,971

Other Comprehensive Income (Loss)
Defined benefit pension plan adjustment		1,204			1,133			(4,225	)		805			638

Total Comprehensive Income (Loss)	$	53,458		$	41,148		$	(17,957	)	$	28,281		$	23,609

See accompanying notes to consolidated financial statements.

Buffalo Parent Gulf Coast Terminals LLC

Consolidated Statements of Changes in Members’ Capital

(in thousands)


	Members’ Capital			Accumulated Other Comprehensive Loss			Total Members’ Capital
Balance, January 1, 2014	$	773,965		$	(5,893	)	$	768,072
Net loss		(13,732	)		—			(13,732	)
Contributions		58,000			—			58,000
Distributions		(54,000	)		—			(54,000	)
Defined benefit pension plan adjustment		—			(4,225	)		(4,225	)

Balance, December 31, 2014		764,233			(10,118	)		754,115
Net income		40,015			—			40,015
Defined benefit pension plan adjustment		—			1,133			1,133

Balance, December 31, 2015		804,248			(8,985	)		795,263
Net income		52,254			—			52,254
Distributions		(45,000	)		—			(45,000	)
Defined benefit pension plan adjustment		—			1,204			1,204

Balance, December 31, 2016		811,502			(7,781	)		803,721
Net income (unaudited)		27,476			—			27,476
Contributions (unaudited)		20,000			—			20,000
Defined benefit pension plan adjustment (unaudited)		—			805			805

Balance, June 30, 2017	$	858,978		$	(6,976	)	$	852,002

See accompanying notes to consolidated financial statements.

Buffalo Parent Gulf Coast Terminals LLC

Consolidated Statements of Cash Flows

(in thousands)


	Year Ended December 31,									Six Months Ended June 30,
	2016			2015			2014			2017			2016
										*(Unaudited)*			*(Unaudited)*
Cash Flows From Operating Activities
Net income (loss)	$	52,254		$	40,015		$	(13,732	)	$	27,476		$	22,971
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of contract liability		(2,505	)		(4,702	)		(7,544	)		(237	)		(1,645	)
Depreciation and amortization		29,352			28,697			25,769			13,359			14,927
Amortization of debt discount and
deferred financing costs		2,403			2,399			2,832			1,200			1,202
Loss on disposal of fixed assets		—			188			211			632			—
Loss on early extinguishment of debt		—			—			50,434			—			—
Net periodic pension fund costs		1,612			1,642			980			690			806
Loss/(gain) on interest rate swaps		236			4,943			1,156			(1,394	)		5,233
Changes in operating assets and liabilities:
Accounts receivable, trade		(4,787	)		1,345			(311	)		1,050			(551	)
Accounts receivable, other		(3,619	)		(258	)		941			2,586			(1,053	)
Prepaid expenses and other		(233	)		539			(1,928	)		(780	)		(1,217	)
Other assets		(1,766	)		(1,491	)		14			(837	)		(400	)
Accounts payable		1,332			(370	)		(677	)		(1,865	)		(77	)
Accrued liabilities		(1,613	)		(263	)		(593	)		(797	)		(2,838	)
Accrued property taxes		(554	)		794			424			(2,651	)		(2,778	)

Net Cash Provided By Operating Activities		72,112			73,478			57,976			38,432			34,580


Cash Flows From Investing Activities
Expenditures for property, plant and equipment		(59,618	)		(69,270	)		(54,032	)		(55,278	)		(31,216	)
Other assets		(826	)		(7,491	)		(7,800	)		—			—
Net investment in direct finance lease		(2,400	)		—			—			(41	)		(1,370	)

Net Cash Used In Investing Activities		(62,844	)		(76,761	)		(61,832	)		(55,319	)		(32,586	)


Cash Flows from Financing Activities
Repayments on long-term debt		(5,500	)		(5,500	)		(459,542	)		(2,750	)		(2,750	)
Proceeds from long-term debt		—			—			547,250			—			—
Penalty on early extinguishment of debt and fees		—			—			(39,548	)		—			—
Debt financing costs		—			(47	)		(11,149	)		—			—
Repayments of line of credit		—			—			(12,750	)		—			—
Restricted cash		—			—			14,572			—			—
Contributions		—			—			58,000			20,000			—
Distributions		(45,000	)		—			(54,000	)		—			(25,000	)

Net Cash Provided By (Used In) Financing Activities		(50,500	)		(5,547	)		42,833			17,250			(27,750	)

Net Increase (Decrease) in Cash and Cash Equivalents		(41,232	)		(8,830	)		38,977			363			(25,756	)
Cash and Cash Equivalents—Beginning of Year		44,698			53,528			14,551			3,466			44,698

Cash and Cash Equivalents—End of Year	$	3,466		$	44,698		$	53,528		$	3,829		$	18,942


Supplemental Cash Flow Information
Cash paid for interest, net of amounts capitalized	$	28,586		$	28,689		$	32,260		$	14,212		$	13,947


Non-Cash Investing and Financing Activities
Transfer of assets from property, plant and equipment to net investment in direct financing lease	$	—		$	65,384		$	—		$	—		$	—

Transfer of assets from other assets to property, plant and equipment	$	7,267		$	2,962		$	—		$	2,710		$	1,422

Accounts payable for construction in progress	$	2,204		$	282		$	6,582		$	7,891		$	1,243

Defined benefit pension plan adjustments	$	1,204		$	1,133		$	(4,225	)	$	805		$	638

See accompanying notes to consolidated financial statements.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

1. Organization and Nature of Business

Buffalo Parent Gulf Coast Terminals LLC (the “Company”), a Texas limited liability company, was formed on October 31, 2011 to acquire 100% interest in Buffalo Gulf Coast Terminals LLC. Buffalo Gulf Coast Terminals LLC holds 100% interest in HFOTCO LLC and is located in Houston, Texas. The Company, through its subsidiaries, is engaged in the terminaling, storage and transportation of residual fuel oil and crude oil on the Houston Ship Channel.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Buffalo Gulf Coast Terminals LLC and HFOTCO LLC. All intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

The Company provides integrated storage, throughput and ancillary services for residual fuel oil and crude oil. The Company’s customers are primarily integrated oil companies, refiners, bunker fuel marketers and trading firms. The Company generates revenues through the provision of fee based services to its customers under a combination of multi-year and month-to-month agreements. The agreements contain “take-or-pay” provisions whereby the Company is entitled to a minimum storage or throughput fee. The Company recognizes revenues when the service is provided, the residual fuel oil and crude oil are handled or when the customer’s ability to make up the minimum volume has expired, in accordance with the terms of the contracts.

In May 2014, the Company simultaneously entered into two long-term integrated storage and throughput agreements with a customer that were determined to be a direct financing lease. For the direct financing lease, the Company records the gross lease receivable, the estimated residual value of the leased assets, initial direct cost incurred less the unearned lease income as net investment in direct financing lease. Unearned lease income is the amount by which the gross lease receivable plus the estimated residual value exceeds the costs of the assets. Unearned lease income and initial direct costs incurred are amortized over the related lease term using the interest method. Amortization of unearned lease income and initial direct costs is suspended if, in the Company’s opinion, full payment of the contractual amount due under the agreements are doubtful.

Cash and Cash Equivalents

The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under agreed-upon trade terms. The Company provides terminaling, storage and throughput of residual fuel oil and crude oil to customers primarily in the fuel oil, petroleum and related service industries. The Company performs continuing credit evaluations of its customers and generally does not require collateral.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The Company’s management reviews accounts receivable on a monthly basis to determine if any receivables could potentially be uncollectible, and if so, includes a determined amount in its allowance for doubtful accounts. Based on the information available to the Company, management determined that no allowance for doubtful accounts was needed at December 31, 2016 and 2015. However, actual write-offs may occur.

Property, Plant, and Equipment

Property, plant and equipment acquired in connection with the acquisition of the Company was recorded at fair value as of the date of the acquisition and depreciated using the straight-line method over the remaining estimated useful lives. All other additions are recorded at cost, and depreciation is recognized using the straight-line method over the estimated useful lives. The following is a summary of the estimated useful lives.


	Estimated Useful Lives
Buildings		20 years
Tools and equipment		2-5 years
Furniture and fixtures		3-5 years
Vehicles		5 years
Steam and electrical systems		10 years
Operating equipment		20 years
Tanks, docks, pipelines, roads, valves and surface improvements		20-40 years

The Company capitalizes all direct and indirect construction costs and related interest. Indirect construction costs include general engineering, taxes and the cost of funds used during construction. Costs, including complete asset replacements and enhancements or upgrades that increase the original efficiency, productivity or capacity of property, plant and equipment, are also capitalized. The costs of repairs, minor replacements and maintenance projects which do not increase the original efficiency, productivity or capacity of property, plant and equipment, are expensed as incurred.

Impairment of Long-Lived Assets

Long-lived assets to be held and used by the Company are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases its evaluation on impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, the Company determines whether impairment has occurred through the use of an undiscounted cash flow analysis of the asset at the lowest level for which identifiable cash flows exist. If impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, is based on an estimate of discounted cash flows. In management’s opinion, there was no impairment of such assets for the years ended December 31, 2016, 2015 and 2014.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

Goodwill and Other Intangible Assets

Goodwill was $907.7 million at December 31, 2016 and 2015 and represents the excess of the purchase price of the Company over the fair value of net assets acquired as of acquisition date. The Company tests goodwill for impairment annually or at any other time when impairment indicators exist. Examples of such indicators, which would cause the Company to test goodwill for impairment between annual tests, include a significant change in business climate, significant unexpected competition and significant deterioration in market share.

Fair value is estimated by the Company using discounted cash flows and other market related valuation models, including earnings multiples and comparable asset market values. If circumstances change or events occur to indicate that the Company’s fair market value has fallen below book value, the Company will compare the estimated fair value of goodwill to its book value. If the book value of goodwill exceeds the estimated fair value of goodwill, the Company will recognize the difference as an impairment loss in the consolidated statement of operations and comprehensive income (loss). For the years ended December 31, 2016, 2015 and 2014, there was no impairment to the recorded value of goodwill.

The Company’s identifiable intangible asset is customer relationships and is amortized over fifteen years using the straight-line method. At December 31, 2016 and 2015, the customer relationships were $31.9 million and $31.9 million, respectively, and accumulated amortization was $11.0 million and $8.9 million, respectively. Amortization expense was $2.1 million for each of the years ended December 31, 2016, 2015 and 2014. Annual amortization expense is expected to be $2.1 million through 2025 and $2.0 million in 2026.

Recently Adopted Accounting Guidance

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU 2015-15,Interest – Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies ASU No. 2015-03 by stating that the staff of the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU 2015-03 and ASU 2015-15 are effective for periods beginning after December 15, 2015 and early adoption is permitted. The Company adopted these ASUs in the year ended December 31, 2016 and applied them retrospectively to the December 31, 2015 balances which resulted in $8.5 million deferred finance cost, previously presented as an asset in the balance sheet, being presented as a deduction from the long-term debt in the December 31, 2015 balance sheet.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

Deferred Financing Costs

Deferred financing costs represent costs incurred by the Company to obtain its debt financing. Deferred financing costs are amortized over the lives of the associated financing using the effective interest rate method. At December 31, 2016 and 2015, deferred financing costs, related to the Company’s revolving credit facility, presented as part of other assets amounted to $242,000 and $333,000, respectively, and amortization expense totaled $91,000, $91,000 and $429,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Deferred financing costs presented as a deduction from the long-term debt at December 31, 2016 and 2015 totaled $7.0 million and $8.5 million, respectively, and amortization expense totaled $1.5 million, $1.5 million and $1.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. Amortization of deferred finance cost is included in interest expense in the consolidated statements of operations and comprehensive income (loss).

Defined Benefit Pension Plan

The Company sponsors a defined benefit pension plan for its employees. The defined benefit pension plan requires actuarial assumptions to estimate the projected and accumulated benefit obligations, including the following variables: discount rate, expected salary increases, certain employee-related factors such as turnover, retirement age and mortality, and expected return of assets. These and other actuarial assumptions affect the annual expense and obligation that are recognized for the underlying plan. These assumptions reflect the Company’s historical experiences and management’s best judgment with regards to future expectations. The actuarial assumptions that are used may differ from actual results due to changing market rates or other factors. These differences could impact the amount of pension expense and liability recorded.

Income Taxes

The Company does not pay federal income tax on its taxable income. Instead, members of its parent company are liable for federal income tax on their respective shares of the Company’s taxable income reported on their federal income tax returns.

The Company is subject to a tax imposed by the State of Texas. The tax is a 0.75% tax that is levied on taxable margin. Taxable margin is defined as total revenue less deductions for cost of goods sold or compensation and benefits in which the total calculated taxable margin cannot exceed 70% of total revenue.

The Company accounts for uncertainty in income taxes in accordance with guidance within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740-10, Uncertain Tax Positions. The guidance requires the impact of a tax position to be recognized in the financial statements only if that position is more likely than not of being sustained upon examination by the taxing authority. The Company has not recognized any liabilities in the accompanying consolidated financial statements for uncertain tax positions. The Company’s tax years from 2012 are open for examination. Any penalties or interest assessed as the result of an examination will be passed through to the Company’s members.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade receivables. Cash and cash equivalents are held on deposit with major banks. Management of the Company believes that the financial institutions holding these amounts are financially sound and, accordingly, minimal credit risk exists with respect to these assets. The Company maintains cash and cash equivalents at financial institutions for which the combined account balances in individual institutions may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a credit risk related to amounts on deposit in excess of FDIC coverage. The Company has not experienced any losses in such accounts, and management of the Company believes that the financial institutions holding these amounts are financially sound and, accordingly, minimal credit risk exists with respect to these assets.

The Company extends credit to its customers primarily in the fuel oil, petroleum and related service industries. Customer concentration may impact the overall exposure to credit risk, either positively or negatively, in that the customer may be similarly affected by the changes in the economy or other conditions. For the year ended December 31, 2016, the Company had one customer that represented 11% of total revenues and 12% of accounts receivable at December 31, 2016, and represented 11% and 10% of total revenues for the six months ended June 30, 2017 and 2016, respectively, and 1% of accounts receivable at June 30, 2017.

Fair Value of Financial Instruments

FASB ASC Topic 820, Fair Value Measurements and Disclosures establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. Generally accepted accounting principles defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorized assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.

The three levels are defined as follows:

Level 1 - Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Other inputs that are observable directly or indirectly such as quoted prices in markets that are not active; or other inputs which are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 - Unobservable inputs for which there is little or no market data and which the Company makes its own assumptions about how market participants would price the assets and liabilities.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The Company’s fair value of financial instruments disclosure is based upon information available to management as of December 31, 2016 and 2015. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company’s financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable, long-term debt and interest rate swaps. The carrying value for cash and cash equivalents, accounts receivable and accounts payable approximates their fair value, principally due to the short term maturities of these instruments. The carrying value for the long-term debt approximates fair values because the interest rates are similar to other financial instruments with similar credit risks and terms.

The Company follows the provisions of FASB ASC Topic 815, Derivatives and Hedging, for its interest rate swaps which require all derivative instruments be recorded at fair value. The Company does not specifically designate interest rate swaps as cash flow hedges, even though they reduce its exposure to changes in interest rates of senior term notes and tax-exempt notes payable. Therefore, the Company records the change in the fair market values of interest rate swaps in the consolidated statement of operations and comprehensive income (loss). The Company has classified such fair value measurements as level 2 and determines fair value primarily by third party valuations.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s estimates and assumptions are based on historical experience and on various other assumptions and information that the Company’s management believes to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. While management believes that the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Reclassifications

Certain amounts for the years ended December 31, 2015 and 2014 have been reclassified to conform to the 2016 financial statement presentation.

Unaudited Interim Condensed Consolidated Financial Statements

In the opinion of the Company’s management, the unaudited condensed consolidated balance sheet as of June 30, 2017, the unaudited condensed consolidated statements of operations and comprehensive income (loss) and cash flows for the six months ended June 30, 2017 and 2016, and the unaudited condensed consolidated statement of changes in members’ capital for the six months ended June 30, 2017, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

3. Accounts Receivable – Other

Accounts receivable – other consists of the following (in thousands):


	December 31,
	2016		2015
Insurance claim receivable	$	3,560	$	195
Other		382		128

Accounts receivable—other	$	3,942	$	323

4. Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):


*December 31,*	2016			2015
Land	$	33,124		$	33,124
Buildings		3,258			2,824
Tools and equipment		746			647
Furniture and fixtures		2,515			2,192
Vehicles		1,134			976
Steam and electrical systems		29,682			27,905
Operating equipment		22,291			21,823
Tanks, docks, pipelines, roads, valves and surface improvements		538,537			490,133
Capital projects in progress		48,508			31,364

		679,795			610,988
Less: accumulated depreciation		(117,930	)		(92,531	)

Property and equipment, net	$	561,865		$	518,457

Depreciation expense was $25.4 million, $25.6 million and $23.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. Interest costs capitalized as part of the costs of construction were $1.5 million, $1.1 million and $365,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

5. Net Investment in Direct Financing Leases

On May 5, 2014, the Company simultaneously entered into two long-term integrated storage and throughput agreements with a customer that were determined to be a direct financing lease. The costs of the land, tanks and barge dock associated with the direct financing leases totaled $65.4 million at December 31, 2015. These were accounted for in property, plant and equipment until commencement of the agreements in June 2015, at which time such costs were transferred to net investment in direct financing lease. The ownership of the assets associated with the direct financing lease do not transfer to the customer at the end of the 10 year lease term. During 2016, an additional $2.4 million was incurred to complete the assets. The non-guaranteed estimated residual values of the assets associated with the agreement were determined by an independent valuation.

Minimum monthly payments in accordance with these agreements total approximately $1.1 million for the years ended December 31, 2016 and 2015, with an annual cost of living escalation pertaining to the land lease, as defined by the agreement.

The following table lists the components of the net investment in direct financing leases (in thousands):


*December 31,*	2016			2015
Total minimum lease payments to be received	$	108,102		$	120,927
Estimated residual values of leased property (non-guaranteed)		67,784			65,384
Less: unearned income		(108,102	)		(120,927	)

Net investment in direct financing leases	$	67,784		$	65,384

At December 31, 2016, minimum lease payments to be received for each of the five succeeding fiscal years and thereafter are as follows (in thousands):


*Year Ending December 31,*
2017	$	12,829
2018		12,833
2019		12,837
2020		12,841
2021		12,843
Thereafter		43,919

	$	108,102

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

6. Revolving Credit Facility and Long-Term Debt

The Company has a revolving credit facility with a syndicate of banks. The credit facility provides for borrowings up to $75 million, including letters of credit, and matures August 19, 2019. Borrowings under the credit facility bear interest at a margin over LIBOR with a floor on the LIBOR rate, as defined by the agreement, with the margin being 3.25% and the floor being 1.0%. The revolving credit facility is secured by substantially all assets of the Company and the Company’s equity interest in HFOTCO LLC. At December 31, 2016 and 2015, and June 30, 2017, there were no borrowings outstanding under the revolving credit facility.

The revolving credit facility contains certain covenants which included, among other things, certain financial ratios, limitations on encumbrance and sale of Company assets and distributions, as defined by the agreement. Certain covenants, primarily the financial ratios, are not triggered until borrowings under the revolving credit facility exceed a threshold, as defined by the agreement. At December 31, 2016 and 2015, and June 30, 2017, the Company was in compliance with the covenants.

Long-term debt consists of the following (in thousands):


*December 31,*	2016			2015
Senior secured term B note payable due in quarterly installments of $1,375, with a final payment due August 19, 2021 and quarterly interest (4.25% as of December 31, 2016) throughout the term of the loan, less debt discount of $3,526 and $4,296, respectively, and less deferred financing cost of $7,006 and $8,548, respectively.	$	527,093		$	530,281

Note payable with a final payment of $75,000 on November 1, 2050 with monthly interest payments linked to LIBOR plus a margin tied to the leverage ratio.		75,000			75,000

Note payable with a final payment of $50,000 on November 1, 2050 with monthly interest payments linked to LIBOR plus a margin tied to the leverage ratio.		50,000			50,000

Note payable with a final payment of $100,000 on November 1, 2050 with monthly interest payments linked to LIBOR plus a margin tied to the leverage ratio.		100,000			100,000

		752,093			755,281
Less: current maturities		(5,500	)		(5,500	)

Total long-term debt, less current maturities	$	746,593		$	749,781

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The Company had a $550 million senior secured term B loan agreement with a syndicate of banks. Borrowings under the term loan agreement bear interest at a margin over LIBOR with a floor on the LIBOR rate, as defined by the agreement, with the margin being 3.25% and the floor being 1.0%. The term loan is secured by substantially all assets of the Company and the Company’s equity interest in HFOTCO LLC.

The term loan agreement contains certain covenants which include, among other things, certain financial ratios, limitations on encumbrance and sale of Company assets and distributions, as defined by the agreement. Certain covenants, primarily the financial ratios, are not triggered until borrowings under the revolving credit facility exceed a threshold, as defined by the agreement. At December 31, 2016 and 2015, and June 30, 2017, the Company was in compliance with the covenants.

The Company had $225 million of tax-exempt notes payable held by three institutions. Interest rates at December 31, 2016 were 1.83%. The tax-exempt notes payable are secured by substantially all assets of the Company and the Company’s equity interest in HFOTCO LLC and has a priority position over the revolving credit facility and the senior secured term B loan agreement. The tax-exempt notes payable contain certain covenants which include, among other things, certain financial ratios, limitations on encumbrances and sale of Company assets and distributions, as defined by the agreement. At December 31, 2016 and 2015, and June 30, 2017, the Company was in compliance with these covenants.

Aggregate maturities of long-term debt, excluding debt discounts and deferred financing costs, as of December 31, 2016, are as follows (in thousands):


*Year Ending December 31,*
2017	$	5,500
2018		5,500
2019		5,500
2020		5,500
2021		5,500
Thereafter		735,125

	$	762,625

In August 2014, the Company entered into a new financing agreement with a syndicate of banks to refinance the Company’s existing revolving line of credit, senior secured notes and unsecured senior note at that time.

The refinancing was primarily treated as an extinguishment of debt, except for certain senior secured note holders that elected to participate in the refinancing. In association with the refinancing, the Company recorded a loss on early extinguishment of debt of approximately $50.4 million, which is comprised of debt breakage fees of approximately $36.9 million, other fees of approximately $2.6 million, write-off of deferred financing costs and original issued discounts of approximately $6.5 million and $4.4 million, respectively.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

7. Employee Benefit Plans

The Company has a qualified, noncontributory, defined-benefit retirement plan covering substantially all employees. The benefits of the plan are based primarily on years of service and the average annual compensation of an employee during three consecutive years of highest earnings during their last ten years of service. The Company’s funding policy is to contribute within the range of minimum required contributions and the maximum deductible amount within the time allowed for the Company to deduct the contributions for tax purposes. The Company uses a December 31 measurement date for this plan. The Company also has a nonqualified, noncontributory, defined-benefit supplemental retirement plan covering a former key executive, which is included in the plan disclosures below.

The changes in the plan benefit obligation, plan assets and the net periodic pension costs, respectively, during 2016 and 2015 are as follows (in thousands):


*December 31,*	2016			2015
Change in benefit obligation
Projected benefit obligation at beginning of year	$	23,926		$	23,942
Service cost		931			1,033
Interest cost		1,016			947
Actuarial gain		(404	)		(1,596	)
Benefits paid		(452	)		(400	)

Projected benefit obligation at end of year		25,017			23,926

Change in plan assets
Fair value of plan assets at beginning of year		13,091			12,748
Employer contribution		1,004			868
Actual return on plan assets		1,135			(125	)
Benefits paid		(452	)		(400	)

Fair value of plan assets at end of year		14,778			13,091

Net funded status	$	10,239		$	10,835

Net periodic pension cost
Service cost	$	931		$	1,033
Interest cost		1,016			947
Expected return on plan assets		(863	)		(964	)
Prior service cost		12			12
Recognized loss		516			614

Total	$	1,612		$	1,642

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The plan is under funded by $10.2 million and $10.8 million as of December 31, 2016 and 2015, respectively, which is shown as pension liability on the consolidated balance sheets.

The pension costs for the years ended December 31, 2016, 2015 and 2014 amounted to $1.6 million, $1.6 million and $1.0 million, respectively, and were recorded as part of operating costs and selling, general and administrative expenses allocated between the expense categories in relation to the labor costs.

Assumptions used in the determination of the Company’s pension accounting are as follows:


*December 31,*	2016			2015			2014
Discount rate		4.3	%		4.0	%		4.0	%
Average compensation growth		3.5	%		3.5	%		3.5	%
Expected return on plan assets		6.5	%		8.0	%		8.0	%

Net periodic benefit costs, the Company contributions, and benefits paid, were as follows (in thousands):


*Year Ended December 31,*	2016			2015			2014
Net periodic benefit costs	$	1,612		$	1,642		$	980
Contributions		1,004			868			1,174
Benefits paid		(452	)		(400	)		355

The Company’s assumption on expected long-term return on plan assets is based on a periodic review and modeling of the plan’s asset allocation and liability structure over a long-term period. The expected long-term rate of return on plan assets was selected from within the reasonable range of rates as determined by (1) historical real returns, net of inflation, and (2) projections of inflation over the long-term period during which benefits are payable to plan participants. Accumulated other comprehensive loss is comprised of the following (in thousands):


*Year Ended December 31,*	2016			2015
Net loss	$	(7,749	)	$	(8,941	)
Unrecognized prior service costs		(32	)		(44	)

	$	(7,781	)	$	(8,985	)

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit costs for 2017 is as follows (in thousands):


*December 31,*	Amount
Net loss	$	(415	)
Unrecognized prior service costs		(11	)

	$	(426	)

Plan Assets and Investment Strategy

The following table sets forth the composition of the pension plan assets (in thousands):


*December 31,*	2016		2015
Investments
Mutual funds	$	14,234	$	12,654
Cash balances		544		437

	$	14,778	$	13,091

During 2016 and 2015, the pension plan assets were invested in various mutual funds. The fair values of these investments are determined by quoted prices in active markets.

In accordance with FASB ASC 820, Fair Value Measurements and Disclosures, the mutual funds are classified as Level 1.

For the years ended December 31, 2016, 2015 and 2014, the actual return on pension plan assets amounted to a gain of $1,135,000, a loss of $125,000, and a gain of $793,000, respectively.

The Company’s investment strategy on its pension plan assets is designed to ensure that assets are invested in a manner necessary to meet expected future benefits that will be earned by plan participants. This strategy is periodically reviewed by the Company and the plan’s third-party administrator, and is established and administered in a manner that is compliant at all times with applicable government regulations.

Contributions and Benefit Payments

The Company expects to contribute the maximum amount that is allowed by law to its pension plan in 2017, which is estimated to be $1.1 million.

Contributions vary as a result of changes to investment performance, actuarial assumptions and the investment portfolio mix.

Contributions were approximately $1,004,000, $868,000 and $1,200,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The plan made benefit payments of approximately $452,000, $400,000 and $355,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The following table shows the expected benefit payments for the plan for the next ten years (in thousands):


*Year Ending December 31,*
2017	$	627
2018		737
2019		793
2020		946
2021		1,052
Thereafter (2022 - 2026)		6,433

	$	10,588

The Company has an accumulated benefit obligation in excess of plan assets, accordingly, the following should be considered (in thousands):


*Year Ended December 31,*	2016		2015
Projected benefit obligations	$	25,017	$	23,926
Accumulated benefit obligations		22,202		20,911
Fair value of plan assets		14,778		13,091

401(k) Benefit Plan

The Company also offers a 401(k) plan for the benefit of substantially all employees. The 401(k) plan provides for partial matching of contributions made by participating employees, as well as a profit-sharing provision, as determined at year-end by the member, allocated based on a participant’s compensation in excess of the taxable wage base. The Company contributed $353,000, $308,000 and $316,000 of matching contributions for the years ended December 31, 2016, 2015 and 2014, respectively. The Company also accrued $545,000, $517,000 and $523,000 for the profit sharing provision for the years ended December 31, 2016, 2015 and 2014, respectively.

8. Interest Rate Derivative Transactions

In accordance with the Company’s debt agreements, the Company entered into interest rate risk management transactions in the form of interest rate swaps for a portion of its outstanding debt balance. These transactions allow the Company to reduce exposure to interest rate fluctuations. While the use of these arrangements limits the Company’s ability to benefit from decreases in interest rates, it also reduces the Company’s potential exposure to increases in interest rates. The Company’s arrangements, to the extent it enters into any, apply to only a portion of its outstanding debt balance, provide only partial protection against interest rate increases and limit the Company’s potential savings from future interest rate declines. It is never management’s intention to hold or

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

issue derivative instruments for speculative trading purpose. The Company does not designate these interest rate swaps as cash flow hedges, even though they reduce its exposure to changes in interest rates. Therefore, the mark-to-market of these instruments is recorded in current earnings and included in interest expense. The Company uses readily available money market rates and interest swap market data to estimate the fair value of the interest rate swaps. The total impact on interest expense from the mark-to-market and settlements for the years ended December 31 was as follows (in thousands):


*Year Ended December 31,*	2016			2015
Beginning fair value of interest rate swaps	$	(4,261	)	$	682
Total loss on interest rate swaps		(2,969	)		(7,198	)
Cash settlement paid		2,733			2,255

		(4,497	)		(4,261	)
Less: current maturities		1,026			301

Ending fair value of interest rate swaps	$	(3,471	)	$	(3,960	)

The current maturities of the interest rate swaps at December 31, 2016 and 2015, are included in accrued liabilities in the accompanying consolidated balance sheets.

The table below summarizes the interest rate swap liabilities as of December 31, 2016 (in thousands):


Notional Amount	Fixed Rate	Effective Date	Maturity	Estimated Fair Market Value at December 31, 2016
100 Million	1.70%	10/16/2014	8/20/2018	$(531)
100 Million	1.66%	10/16/2014	8/20/2018	(467)
37.5 Million	1.66%	10/16/2014	8/20/2018	(171)
37.5 Million	1.70%	10/16/2014	8/20/2018	(200)
100 Million	1.17%	10/3/2016	10/1/2017	(469)
100 Million	1.59%	10/2/2017	10/1/2018	(565)
100 Million	1.81%	10/1/2018	8/19/2019	(406)
62.5 Million	1.14%	10/3/2016	10/2/2017	(279)
62.5 Million	1.57%	10/2/2017	10/1/2018	(339)
62.5 Million	1.79%	10/1/2018	8/19/2019	(243)
62.5 Million	1.14%	10/3/2016	10/2/2017	(278)
62.5 Million	1.53%	10/2/2017	10/1/2018	(318)
62.5 Million	1.76%	10/1/2018	8/19/2019	(231)

				$(4,497)

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The table below summarizes the interest rate swap assets (liabilities) as of December 31, 2015 (in thousands):


Notional Amount	Fixed Rate	Effective Date	Maturity	Estimated Fair Market Value at December 31, 2015
$100 million	1.70%	10/16/14	8/20/18	$(603)
$100 million	1.66%	10/16/14	8/20/18	(506)
$37.5 million	1.66%	10/16/14	8/20/18	(182)
$37.5 million	1.70%	10/16/14	8/20/18	(227)
$100 million	0.62%	10/1/15	10/1/16	(146)
$100 million	1.17%	10/3/16	10/1/17	(349)
$100 million	1.59%	10/2/17	10/1/18	(416)
$100 million	1.81%	10/1/18	8/19/19	(373)
$62.5 million	0.60%	10/1/15	10/3/16	(81)
$62.5 million	1.14%	10/3/16	10/2/17	(203)
$62.5 million	1.57%	10/2/17	10/1/18	(245)
$62.5 million	1.79%	10/1/18	8/19/19	(221)
$62.5 million	0.58%	10/1/15	10/3/16	(74)
$62.5 million	1.14%	10/3/16	10/2/17	(201)
$62.5 million	1.53%	10/2/17	10/1/18	(224)
$62.5 million	1.76%	10/1/18	8/19/19	(210)

				$(4,261)

9. Contract Liability

Contract liability represents the fair value of the below market contracts at the date of acquisition of the Company. The contract liability is being amortized into revenue on the straight-line basis over the remaining term of the contracts at acquisition date, which ranged from 6 months to 6 years. The contract liability will become fully amortized in 2017.

10. Commitments and Contingencies

In accordance with a Company agreement when cash and cash equivalents, excluding distributable proceeds, as defined by the agreement, exceeds $500,000 at the end of each calendar quarter, the Company will subsequently declare a distribution and distribute such excess cash and cash equivalents, as defined by the agreement, as long as the distribution would not violate any debt covenants.

The Company has certain non-cancellable land leases expiring through February 2051.

Buffalo Parent Gulf Coast Terminals LLC

Notes to Consolidated Financial Statements

(Information as of June 30, 2017 and for the

Six Months Ended June 30, 2017 and 2016 are Unaudited)

The minimum future lease payments under the leases as of December 31, 2016 are as follows (in thousands):


*Year Ending December 31,*
2017	$	1,183
2018		1,183
2019		1,358
2020		1,533
2021		1,533
Thereafter		39,693

	$	46,483

Rent expense for the years ended December 31, 2016, 2015 and 2014 totaled $1,069,000, $1,034,000 and $1,029,000, respectively.

From time to time, the Company may be subject to various lawsuits and claims, none of which, in the opinion of management, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

11. Subsequent Events

Subsequent to December 31, 2016, the Company received a $20 million contribution from its members.

Management of the Company performed an evaluation of subsequent events through April 11, 2017, which is the date the audited consolidated financial statements were available to be issued. In preparation of the condensed consolidated financial statements for the six months ended June 30, 2017 and 2016, management has evaluated subsequent events for the unaudited interim condensed consolidated financial statements presented through August 31, 2017.

On June 6, 2017, the Company and its members entered into a definitive agreement to sell 100% of the Company’s outstanding ownership interest to a publicly-traded company. The transaction closed on July 17, 2017, at which time the Company became a wholly-owned subsidiary of the publically-traded company.

On July 6, 2017 the Company entered into a ground lease for an initial term of five years which can be canceled after three years. The rent for the initial three years is $1 million per year.

EX-99.3

Exhibit 99.3

SemGroup Corporation

Unaudited Pro Forma Combined Condensed Financial Statements

On July 17, 2017, SemGroup Corporation (“SemGroup”) completed the acquisition of Buffalo Parent Gulf Coast Terminals LLC (“BPGCT”), which owns and operates HFOTCO LLC doing business as Houston Fuel Oil Terminal Company (“HFOTCO”), for a purchase price paid, or to be paid, in two payments. The first payment made on July 17, 2017, consisted of $301 million in cash (subject to customary adjustments for working capital, net indebtedness and capital expenditures), funded from our revolving credit facility, issuance of approximately 12.4 million shares of our Class A common stock and the assumption of existing HFOTCO net debt of approximately $761 million. The second payment requires us to pay the sellers $600 million in cash if paid on December 31, 2018 (the “Second Payment”). If paid prior to December 31, 2018, the amount payable will be discounted by 5% per annum. If not paid by December 31, 2018, the amount payable increases to $680 million and is due by December 31, 2019, or earlier if requested by the sellers.

The accompanying unaudited pro forma combined condensed financial statements of SemGroup have been prepared in accordance with Article 11 of Regulation S-X. The accompanying unaudited pro forma combined condensed balance sheet at June 30, 2017, reflects the acquisition as if it had occurred on that date. The accompanying unaudited pro forma combined condensed statements of operations for the six months ended June 30, 2017 and 2016 and the year ended December 31, 2016, reflect the acquisition as if it had occurred on January 1, 2016. The terms “we”, “our”, “us”, and similar language used in these unaudited pro forma combined condensed financial statements refer to SemGroup and its subsidiaries.

These unaudited pro forma combined condensed financial statements have been derived from our historical financial statements, which are included in our quarterly report on Form 10-Q for the quarter ended June 30, 2017 and our annual report on Form 10-K for the year ended December 31, 2016, and the historical financial statements of BPGCT, which are included elsewhere in this current report on Form 8-K/A. These unaudited pro forma combined condensed financial statements should be read in conjunction with our and BPGCT historical financial statements and related notes thereto.

These unaudited pro forma combined condensed financial statements are provided for illustrative purposes only and do not purport to represent what our actual results of operations would have been if the acquisition had occurred on the dates assumed, nor are they necessarily indicative of our future operating results. However, the pro forma adjustments shown in these unaudited pro forma combined condensed financial statements reflect estimates and assumptions that we believe to be reasonable.

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Balance Sheet

June 30, 2017

(in thousands)


	Historical						Pro Forma
	SemGroup			BPGCT			Adjustments				Combined
ASSETS
Current assets:
Cash and cash equivalents	$	56,535		$	3,829		$	(246	)	(a)	$	60,118
Accounts receivable, net		381,345			10,743			285		(a)		392,373
Receivable from affiliates		8,650			—			—				8,650
Inventories		80,446			—			—				80,446
Other current assets		16,150			2,133			106		(a)		18,389

Total current assets		543,126			16,705			145				559,976

Property, plant and equipment, net		1,948,787			613,513			713,520		(b)		3,275,820
Equity method investments		430,514			—			—				430,514
Goodwill		34,802			907,700			(634,497	)	(c)		308,005
Other intangible assets, net		145,639			19,837			266,163		(d)		431,639
Net investment in direct financing lease		—			67,825			(6,305	)	(e)		61,520
Other noncurrent assets		63,350			5,353			(853	)	(f)		67,850

Total assets	$	3,166,218		$	1,630,933		$	338,173			$	5,135,324

LIABILITIES AND OWNERS’ EQUITY
Current liabilities:
Accounts payable	$	326,810		$	8,306		$	(7,700	)	(a)	$	327,416
Payable to affiliates		3,508			—			—				3,508
Accrued liabilities		113,783			7,205			(165	)	(a)		120,823
Deferred revenue		9,425			117			61		(a)		9,603
Other current liabilities		1,920			—			—				1,920
Current portion of long-term debt		28			5,500			—				5,528

Total current liabilities		455,474			21,128			(7,804	)			468,798

Long-term debt, net		1,215,244			744,998			549,934		(g1)		2,826,501
								300,823		(g2)
								15,502		(g3)
Deferred income taxes		63,323			—			—				63,323
Other noncurrent liabilities		26,778			12,805			1,379		(h)		40,962
Commitments and contingencies
SemGroup owners’ equity:
Preferred stock, $0.01 par value		—			—			—				—
Common stock, $0.01 par value		661			—			124		(i)		785
Additional paid-in capital		1,505,941			—			330,217		(i)		1,836,158
Treasury stock, at cost		(7,824	)		—			—				(7,824	)
Accumulated deficit		(34,450	)		—			—				(34,450	)
Accumulated other comprehensive loss		(58,929	)		(6,976	)		6,976		(i)		(58,929	)
Members’ Capital		—			858,978			(858,978	)	(i)		—

Total owners’ equity		1,405,399			852,002			(521,661	)			1,735,740

Total liabilities and owners’ equity	$	3,166,218		$	1,630,933		$	338,173			$	5,135,324

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Statement of Operations

Six Months Ended June 30, 2017

(in thousands, except per share amounts)


	Historical					Pro Forma
	SemGroup			BPGCT		Adjustments					Combined
Revenues:
Product	$	741,367		$	—	$	—				$	741,367
Service		156,680			71,016		—					227,696
Lease		—			6,391		—					6,391
Other		31,142			1,913		—					33,055

Total revenues		929,189			79,320		—					1,008,509
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		689,105			—		—					689,105
Operating		125,429			16,419		—					141,848
General and administrative		48,396			7,509		(5,453	)	(n	)		50,452
Depreciation and amortization		50,201			13,359		23,236		(j	)		86,796
Loss on disposal or impairment, net		2,176			—		—					2,176

Total expenses		915,307			37,287		17,783					970,377

Earnings from equity method investments		34,844			—		—					34,844
Operating income		48,726			42,033		(17,783	)				72,976
Other expenses (income), net:
Interest expense		27,344			14,216		30,270		(k	)		71,830
Loss on early extinguishment of debt		19,930			—		—					19,930
Foreign currency transaction gain		(1,011	)		—		—					(1,011	)
Other expense (income), net		(591	)		23		—					(568	)

Total other expenses, net		45,672			14,239		30,270					90,181

Income (loss) from continuing operations before income taxes		3,054			27,794		(48,053	)				(17,205	)
Income tax expense (benefit)		3,720			318		(7,638	)	(l)			(3,600	)

Net income (loss)	$	(666	)	$	27,476	$	(40,415	)			$	(13,605	)

Net loss attributable to SemGroup per common share:
Basic	$	(0.01	)								$	(0.17	)
Diluted	$	(0.01	)								$	(0.17	)
Weighted average common shares outstanding:
Basic		65,717					12,384		(m	)		78,101
Diluted		65,717					12,384		(m	)		78,101

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Statement of Operations

Year Ended December 31, 2016

(in thousands, except per share amounts)


	Historical					Pro Forma
	SemGroup			BPGCT		Adjustments				Combined
Revenues:
Product	$	1,009,409		$	—	$	—			$	1,009,409
Service		265,030			142,647		—				407,677
Lease		—			12,825		—				12,825
Other		57,725			3,506		—				61,231

Total revenues		1,332,164			158,978		—				1,491,142
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		873,431			—		—				873,431
Operating		212,099			31,589		—				243,688
General and administrative		83,908			13,373		—				97,281
Depreciation and amortization		98,804			29,352		49,638		(j)		177,794
Loss on disposal or impairment, net		16,048			—		—				16,048

Total expenses		1,284,290			74,314		49,638				1,408,242

Earnings from equity method investments		73,757			—		—				73,757
Loss on issuance of common units by equity method investee		(41	)		—		—				(41	)

Operating income		121,590			84,664		(49,638	)			156,616
Other expenses (income), net:
Interest expense		62,650			31,787		60,540		(k)		154,977
Foreign currency transaction loss		4,759			—		—				4,759
Loss on sale or impairment of equity method investment		30,644			—		—				30,644
Other expense (income), net		(994	)		51		—				(943	)

Total other expenses, net		97,059			31,838		60,540				189,437

Income (loss) from continuing operations before income taxes		24,531			52,826		(110,178	)			(32,821	)
Income tax expense (benefit)		11,268			572		(21,622	)	(l)		(9,782	)

Income (loss) from continuing operations		13,263			52,254		(88,556	)			(23,039	)
Loss from discontinued operations, net of income taxes		(1	)		—		—				(1	)

Net income (loss)		13,262			52,254		(88,556	)			(23,040	)
Less: net income attributable to noncontrolling interests		11,167			—		—				11,167

Net income (loss) attributable to SemGroup	$	2,095		$	52,254	$	(88,556	)		$	(34,207	)

Net income (loss) attributable to SemGroup per common share:
Basic	$	0.04								$	(0.53	)
Diluted	$	0.04								$	(0.53	)
Weighted average common shares outstanding:
Basic		51,889					12,384		(m)		64,273
Diluted		52,281					12,384		(m)		64,665

SEMGROUP CORPORATION

Unaudited Pro Forma Combined Condensed Statement of Operations

Six Months Ended June 30, 2016

(in thousands, except per share amounts)


	Historical					Pro Forma
	SemGroup			BPGCT		Adjustments				Combined
Revenues:
Product	$	447,022		$	—	$	—			$	447,022
Service		126,273			72,143		—				198,416
Lease		—			6,449		—				6,449
Other		28,933			2,101		—				31,034

Total revenues		602,228			80,693		—				682,921
Expenses:
Costs of products sold, exclusive of depreciation and amortization shown below		373,789			—		—				373,789
Operating		104,899			14,789		—				119,688
General and administrative		41,835			7,207		—				49,042
Depreciation and amortization		49,106			14,927		27,468		(j)		91,501
Loss on disposal or impairment, net		14,992			—		—				14,992

Total expenses		584,621			36,923		27,468				649,012

Earnings from equity method investments		40,149			—		—				40,149
Loss on issuance of common units by equity method investee		(41	)		—		—				(41	)

Operating income		57,715			43,770		(27,468	)			74,017
Other expenses (income), net:
Interest expense		35,588			20,525		30,270		(k)		86,383
Foreign currency transaction loss		3,012			—		—				3,012
Loss on sale or impairment of equity method investment		30,644			—		—				30,644
Other expense (income), net		(678	)		26		—				(652	)

Total other expenses, net		68,566			20,551		30,270				119,387

Income (loss) from continuing operations before income taxes		(10,851	)		23,219		(57,738	)			(45,370	)
Income tax expense (benefit)		(16,749	)		248		(13,014	)	(l)		(29,515	)

Income (loss) from continuing operations		5,898			22,971		(44,724	)			(15,855	)
Loss from discontinued operations, net of income taxes		(4	)		—		—				(4	)

Net income (loss)		5,894			22,971		(44,724	)			(15,859	)
Less: net income attributable to noncontrolling interests		10,942			—		—				10,942

Net income (loss) attributable to SemGroup	$	(5,048	)	$	22,971	$	(44,724	)		$	(26,801	)

Net loss attributable to SemGroup per common share:
Basic	$	(0.11	)							$	(0.47	)
Diluted	$	(0.11	)							$	(0.47	)
Weighted average common shares outstanding:
Basic		44,553					12,384		(m)		56,937
Diluted		44,553					12,384		(m)		56,937

SEMGROUP CORPORATION

Notes to Unaudited Pro Forma Combined Condensed Financial Statements

1.	Basis of presentation

The historical consolidated financial information of the Company has been adjusted in the accompanying unaudited pro forma combined condensed financial information to give effect to pro forma events that are (i) directly attributable to the acquisition of BPGCT, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined condensed statements of operations, are expected to have a continuing impact on the results of operations.

The unaudited pro forma combined condensed financial information was prepared using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date.

2.	Pro forma adjustments

These adjustments reflect the estimated consideration paid or to be paid by SemGroup to acquire BPGCT. The following table represents the preliminary purchase price allocation to the assets acquired and liabilities assumed from BPGCT. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma combined condensed financial statements. The final purchase price allocation may differ from these estimates and could differ materially from the preliminary allocation described below (in thousands):


Preliminary consideration
Cash	$	300,823
Common shares		330,341
Second Payment		549,934
Liabilities assumed
Fair value of long-term debt		766,000
Pension obligation		10,610

Total preliminary consideration	$	1,957,708

Allocation to assets acquired
Cash acquired	$	3,583
Net working capital		6,369
Property, plant and equipment		1,327,033
Net investment in direct financing lease		61,520
Finite-lived intangible assets
Customer relationships		255,000
Customer contract		1,000
Non-compete agreement		30,000
Goodwill		273,203

Total fair value of assets acquired	$	1,957,708

(a) Adjustments to reflect the preliminary fair values of working capital items at the acquisition date. Final working capital adjustments will be made within 60 days of close.

(b) Adjustment to reflect the fair value of property, plant and equipment acquired.

(c) Adjustment to remove historical goodwill of BPGCT and record $273.2 million of goodwill reflected in the purchase price allocation.

SEMGROUP CORPORATION

Notes to Unaudited Pro Forma Combined Condensed Financial Statements

(d) Adjustment to remove historical intangible assets of BPGCT and record $286.0 million of intangibles reflected in the purchase price allocation.

(e) Adjustment to reflect the net investment in the direct financing lease at fair value on acquisition date.

(f) Adjustment to write-off historical BPGCT debt issuance costs associated with the HFOTCO revolving credit facility.

(g1) Adjustment to reflect the fair value of the Second Payment on the acquisition date.

(g2) Adjustment to reflect SemGroup’s revolver borrowing for cash consideration paid of $300.8 million

(g3) Adjustment to record assumed debt at fair value on acquisition date.

(h) Adjustments to record pension liability and interest rate swap liability at acquisition date fair values of $10.6 million and $3.5 million, respectively, and to write-off historical BPGCT contract liability of $0.2 million.

(i) Adjustments to write-off historical BPGCT equity including accumulated other comprehensive loss and record SemGroup par value and additional paid-in capital related to the acquisition.

(j) Adjustments to reflect increased depreciation and amortization expense due to increase in property, plant and equipment to fair value and the recognition of finite-lived intangible assets.

Property, plant and equipment is depreciated over periods of up to 25 years on a straight-line basis. Pro forma depreciation expense is based on the fair value of the assets at the acquisition date and is based on the expected useful life based on asset class and company policy. Adjustments to historical depreciation were made to bring total depreciation of BPGCT assets up to the following amounts (in thousands):


Six Months ended June 30, 2017		Year ended December 31, 2016		Six Months ended June 30, 2016
$	24,028	$	48,057	$	24,028

Finite-lived intangibles are amortized over their estimated useful lives. The non-compete agreement is effective for two years from the acquisition date and will be amortized straight-line over the two-year period. Customer relationships are being amortized over 20 years on an accelerated basis which matches the incremental cash flow models used to value the intangible assets and in consideration of a historical customer attrition rate of 5%. Customer contracts are being amortized over three years on a straight-line basis. Adjustments to amortization expense were made to remove historical amortization expense and reflect the following amounts of amortization expense related to the finite-lived intangibles recognized in the acquisition (in thousands):


Six Months ended June 30, 2017		Year ended December 31, 2016		Six Months ended June 30, 2016
$	12,567	$	30,933	$	18,367

SEMGROUP CORPORATION

Notes to Unaudited Pro Forma Combined Condensed Financial Statements

Amortization of intangible assets for the five years following the acquisition is expected to be (in thousands):


	Year ended December 31, 2017		Year ended December 31, 2018		Year ended December 31, 2019		Year ended December 31, 2020		Year ended December 31, 2021
Non-compete agreement	$	7,500	$	15,000	$	7,500	$	—	$	—
Customer relationships		10,700		9,800		22,000		21,500		21,800
Customer contracts		167		333		333		167		—

Total	$	18,367	$	25,133	$	29,833	$	21,667	$	21,800

(k) Adjustments to recognize interest expense related to the Second Payment which was discounted at 8% and SemGroup’s $300.8 million acquisition payment made from a borrowing on our revolving credit facility at 5.5%.

(l) Adjustments to recognize additional income tax expense based on SemGroup’s historical blended statutory rate of 37.7%. BPGCT is a pass-through entity for income tax purposes and therefore it’s historical financial statements only reflect Texas margins tax.

(m) Adjustment to reflect the 12.4 million common shares issued as consideration for the acquisition as if the acquisition had occurred on January 1, 2016. Common shares issued were valued based on the acquisition date market price of $26.68 per share.

(n) Adjustment to remove acquisition costs included in the historical financial statements of SemGroup.