UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the quarterly period ended
September 30, 2009




OR




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the transition period from
__________ to _________




Commission
File Number 001-33503




SEMGROUP
ENERGY PARTNERS, L.P.


(Exact
name of registrant as specified in its charter)




Delaware
              (State
      or other jurisdiction of incorporation or organization)
            20-8536826
              (IRS
      Employer
              Identification
      No.)Two
      Warren Place
              6120
      South Yale Avenue, Suite 500
              Tulsa,
      Oklahoma 74136
              (Address
      of principal executive offices, zip code)
              
              Registrant’s
      telephone number, including area code: (918) 237-4000


Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes  x    No  
o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes  oNo   o




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




Large
accelerated filero                                                                                  Accelerated
filerx




Non-accelerated
filer o(Do not check if a
smaller reporting company) Smaller reporting
companyo




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yeso No x




As of
November 6, 2009, there were 21,702,309 common units and 12,570,504 subordinated
units outstanding.












TABLE OF CONTENTSPagePART I.  FINANCIAL
      INFORMATION
              1Item 1.  Financial
      Statements
              1Consolidated Balance Sheets as of December 31, 2008
      and September 30, 2009
              1Consolidated Statements of Operations for the Three
      and Nine Months Ended September 30, 2008 and 2009
              2Consolidated Statements of Changes in Partners’
      Capital (Deficit) for the Nine Months Ended September 30,
      2009
              3Consolidated Statements of Cash Flows for the Nine
      Months Ended September 30, 2008 and 2009
              4Notes to Unaudited Consolidated Financial
      Statements
              5Item 2.  Management’s Discussion and Analysis
      of Financial Condition and Results of Operations
              23Item 3.  Quantitative and Qualitative
      Disclosures about Market Risk
              37Item 4.  Controls and
      Procedures
              38PART II.  OTHER
      INFORMATION
              39Item 1.  Legal
    Proceedings
              39Item 3.  Defaults Upon Senior
      Securities
              41Item 6.  Exhibits
              41




i





PART
I.                     FINANCIAL
INFORMATION




Item
1.Financial
Statements




SEMGROUP
ENERGY PARTNERS, L.P.


CONSOLIDATED BALANCE SHEETS


(in
thousands, except per unit data)




As
      of
              December
      31,
              2008
            
            
            As
      of
              September
      30, 2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            28,785
            
            
            $
            5,638Accounts
      receivable, net of allowance for doubtful accounts of $554
              and
      $429 at December 31, 2008 and September 30, 2009,
              respectively
            
            
            8,342
            
            
            
            11,906Receivables
      from related parties, net of allowance for doubtful
              accounts of $0 for both dates
            
            
            18,912
            
            
            
            1,010Prepaid
      insurance
            
            
            2,256
            
            
            
            3,461Other
      current assets
            
            
            1,811
            
            
            
            1,691Total
      current assets
            
            
            60,106
            
            
            
            23,706Property,
      plant and equipment, net of accumulated depreciation of
              $80,277
      and $95,002 at December 31, 2008 and September 30, 2009,
              respectively
            
            
            284,489
            
            
            
            277,942Goodwill
            
            
            6,340
            
            
            
            6,340Debt
      issuance costs
            
            
            1,956
            
            
            
            6,999Intangibles
      and other assets, net
            
            
            1,750
            
            
            
            1,847Total
      assets
            
            $
            354,641
            
            
            $
            316,834LIABILITIES AND PARTNERS’ CAPITAL
      (DEFICIT)Current
      liabilities:Accounts
      payable
            
            $
            2,610
            
            
            $
            4,767Payables to
      related parties
            
            
            20,134
            
            
            
            4,048Accrued
      interest payable
            
            
            175
            
            
            
            3,403Accrued
      property taxes payable
            
            
            1,951
            
            
            
            3,237Interest rate
      swap settlements payable
            
            
            1,505
            
            
            
            129Unearned
      revenue
            
            
            2,765
            
            
            
            4,888Accrued
      payroll
            
            
            170
            
            
            
            4,338Other
      accrued liabilities
            
            
            2,753
            
            
            
            2,752Current
      portion of capital lease obligations
            
            
            866
            
            
            
            412Total
      current liabilities
            
            
            32,929
            
            
            
            27,974Long-term
      debt
            
            
            448,100
            
            
            
            422,499Long-term
      capital lease obligations
            
            
            255
            
            
            
            —Commitments
      and contingencies (Notes 4, 9 and 12)Partners’
      capital (deficit):Common
      unitholders (21,557,309 units issued and outstanding as of December 31,
      2008 and September 30, 2009)
            
            
            481,007
            
            
            
            477,023Subordinated
      unitholders (12,570,504 units issued and outstanding
              for
      both dates)
            
            
            (284,332
            )
            
            
            (287,205
            )General
      partner interest (2.0% interest with 690,725 general partner
              units
      outstanding for both dates)
            
            
            (323,318
            )
            
            
            (323,457
            )Total
      partners’ capital (deficit)
            
            
            (126,643
            )
            
            
            (133,639
            )Total
      liabilities and partners’ capital (deficit)
            
            $
            354,641
            
            
            $
            316,834





See
accompanying notes to unaudited consolidated financial
statements.


1


SEMGROUP
ENERGY PARTNERS, L.P.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in
thousands, except per unit data)


Three
      Months
              Ended
      September 30,
            
            
            Nine
      Months
              Ended
      September 30,2008
            
            
            2009
            
            
            2008
            
            
            2009(unaudited)Service
      revenue:Third
      party revenue
            
            $
            15,571
            
            
            $
            39,021
            
            
            $
            26,222
            
            
            $
            93,625Related
      party revenue
            
            
            38,223
            
            
            
            998
            
            
            
            123,062
            
            
            
            26,077Total
      revenue
            
            
            53,794
            
            
            
            40,019
            
            
            
            149,284
            
            
            
            119,702Expenses:Operating
            
            
            27,368
            
            
            
            24,479
            
            
            
            80,405
            
            
            
            71,425General
      and administrative
            
            
            27,177
            
            
            
            7,106
            
            
            
            33,244
            
            
            
            22,939Total
      expenses
            
            
            54,545
            
            
            
            31,585
            
            
            
            113,649
            
            
            
            94,364Gain
      on settlement transaction
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,585Operating
      income (loss)
            
            
            (751
            )
            
            
            8,434
            
            
            
            35,635
            
            
            
            27,923Other
      expenses:Interest
      expense
            
            
            11,041
            
            
            
            11,242
            
            
            
            15,905
            
            
            
            35,742Income
      (loss) before income taxes
            
            
            (11,792
            )
            
            
            (2,808
            )
            
            
            19,730
            
            
            
            (7,819
            )Provision
      for income taxes
            
            
            59
            
            
            
            51
            
            
            
            227
            
            
            
            159Net
      income (loss)
            
            $
            (11,851
            )
            
            $
            (2,859
            )
            
            $
            19,503
            
            
            $
            (7,978
            )Allocation
      of net income (loss) to limited and subordinated partners:General
      partner interest in net income (loss)
            
            $
            (237
            )
            
            $
            (57
            )
            
            $
            3,681
            
            
            $
            (158
            )Net
      income (loss) allocable to limited and subordinated
    partners
            
            $
            (11,614
            )
            
            $
            (2,802
            )
            
            $
            15,822
            
            
            $
            (7,820
            )Basic
      and diluted net income (loss) per common unit
            
            $
            (0.33
            )
            
            $
            (0.08
            )
            
            $
            0.50
            
            
            $
            (0.23
            )Basic
      and diluted net income (loss) per subordinated unit
            
            $
            (0.33
            )
            
            $
            (0.08
            )
            
            $
            0.50
            
            
            $
            (0.23
            )Weighted
      average common units outstanding - basic and diluted
            
            
            21,426
            
            
            
            21,577
            
            
            
            20,015
            
            
            
            21,557Weighted
      average subordinated partners’ units outstanding - basic anddiluted
            
            
            12,571
            
            
            
            12,571
            
            
            
            12,571
            
            
            
            12,571





See
accompanying notes to unaudited consolidated financial
statements.


2


SEMGROUP
ENERGY PARTNERS, L.P.


CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(DEFICIT)


(in
thousands)





Common
      Unitholders
            
            
            Subordinated
      Unitholders
            
            
            General
      Partner Interest
            
            
            Total
      Partners’ Capital (Deficit)(unaudited)Balance,
      December 31, 2008
            
            $
            481,007
            
            
            $
            (284,332
            )
            
            $
            (323,318
            )
            
            $
            (126,643
            )Net
      loss
            
            
            (4,940
            )
            
            
            (2,880
            )
            
            
            (158
            )
            
            
            (7,978
            )Equity-based
      incentive compensation
            
            
            956
            
            
            
            7
            
            
            
            1
            
            
            
            964Consideration
      paid in excess of historical cost of assets acquired from Private
      Company
            
            
            —
            
            
            
            —
            
            
            
            18
            
            
            
            18Balance,
      September 30, 2009
            
            $
            477,023
            
            
            $
            (287,205
            )
            
            $
            (323,457
            )
            
            $
            (133,639
            )





See
accompanying notes to unaudited consolidated financial statements.





3


SEMGROUP
ENERGY PARTNERS, L.P.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)




Nine
      Months Ended
              September
      30,2008
            
            
            2009(unaudited)Cash
      flows from operating activities:Net
      income (loss)
            
            $
            19,503
            
            
            $
            (7,978
            )Adjustments
      to reconcile net income (loss) to net cash provided by
              operating
      activities:Provision
      for uncollectible receivables from third parties
            
            
            432
            
            
            
            (125
            )Depreciation
      and amortization
            
            
            15,587
            
            
            
            17,055Amortization
      of debt issuance costs
            
            
            616
            
            
            
            5,289Gain
      on settlement transaction
            
            
            —
            
            
            
            (2,585
            )(Gain) loss on
      sale of assets
            
            
            178
            
            
            
            (54
            )Equity-based
      incentive compensation
            
            
            17,964
            
            
            
            (24
            )Changes
      in assets and liabilities:Increase
      in accounts receivable
            
            
            (5,720
            )
            
            
            (3,439
            )Decrease
      (increase) in receivables from related parties
            
            
            (9,626
            )
            
            
            12,996Increase
      in prepaid insurance
            
            
            (2,506
            )
            
            
            (1,205
            )Decrease
      (increase) in other current assets
            
            
            (1,529
            )
            
            
            120Increase
      in other assets
            
            
            (113
            )
            
            
            (320
            )Increase
      (decrease) in accounts payable
            
            
            (377
            )
            
            
            1,842Increase
      (decrease) in payables to related parties
            
            
            5,677
            
            
            
            (15,197
            )Increase
      (decrease) in accrued interest payable
            
            
            (449
            )
            
            
            3,228Increase
      in accrued property taxes
            
            
            1,944
            
            
            
            1,286Increase
      (decrease) in interest rate swap settlements payable
            
            
            1,505
            
            
            
            (1,376
            )Increase
      in unearned revenue
            
            
            453
            
            
            
            2,123Increase
      in accrued payroll
            
            
            —
            
            
            
            4,168Increase
      in other accrued liabilities
            
            
            1,616
            
            
            
            987Decrease
      in interest rate swap liability
            
            
            (2,233
            )
            
            
            —Net
      cash provided by operating activities
            
            
            42,922
            
            
            
            16,791Cash
      flows from investing activities:Acquisition
      of assets from Private Company
            
            
            (514,669
            )
            
            
            —Capital
      expenditures
            
            
            (5,485
            )
            
            
            (3,513
            )Proceeds
      from sale of assets
            
            
            386
            
            
            
            217Net
      cash used in investing activities
            
            
            (519,768
            )
            
            
            (3,296
            )Cash
      flows from financing activities:Debt
      issuance costs
            
            
            (2,094
            )
            
            
            (10,332
            )Payments
      on capital lease obligations
            
            
            (939
            )
            
            
            (709
            )Borrowings
      under credit facility
            
            
            518,600
            
            
            
            24,700Payments
      under credit facility
            
            
            (160,100
            )
            
            
            (50,301
            )Proceeds
      from equity issuance, net of offering costs
            
            
            161,238
            
            
            
            —Distributions
      paid
            
            
            (23,717
            )
            
            
            —Net
      cash provided by (used in) financing activities
            
            
            492,988
            
            
            
            (36,642
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            16,142
            
            
            
            (23,147
            )Cash
      and cash equivalents at beginning of period
            
            
            416
            
            
            
            28,785Cash
      and cash equivalents at end of period
            
            $
            16,558
            
            
            $
            5,638Supplemental
      disclosure of cash flow information:Increase
      in accounts payable related to purchases of property, plant and
      equipment
            
            $
            168
            
            
            $
            315Non-cash
      addition to property, plant and equipment related to settlement (see Note
      2)
            
            
            —
            
            
            
            (9,536
            )





See
accompanying notes to unaudited consolidated financial
statements.


4


SEMGROUP
ENERGY PARTNERS, L.P.


NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS




1.
            ORGANIZATION
      AND NATURE OF BUSINESS




SemGroup
Energy Partners, L.P. and subsidiaries (the “Partnership”) is a publicly traded
master limited partnership with operations in twenty-three states. The
Partnership provides integrated terminalling, storage, gathering and
transportation services for companies engaged in the production, distribution
and marketing of crude oil and liquid asphalt cement. The Partnership manages
its operations through three operating segments: (i) crude oil terminalling
and storage services; (ii) crude oil gathering and transportation services and
(iii) asphalt services. The Partnership was formed in February 2007 as a
Delaware master limited partnership initially to own, operate and develop a
diversified portfolio of complementary midstream energy assets.




On July
20, 2007, the Partnership issued 12,500,000 common units, representing limited
partner interests in the Partnership, and 12,570,504 subordinated units,
representing additional limited partner interests in the Partnership, to
SemGroup Holdings, L.P. (“SemGroup Holdings”) and 549,908 general partner units
representing a 2.0% general partner interest in the Partnership to SemGroup
Energy Partners G.P., L.L.C. SemGroup Holdings subsequently offered 12,500,000
common units pursuant to a public offering at a price of $22 per unit. In
addition, the Partnership issued an additional 1,875,000 common units to the
public pursuant to the underwriters’ exercise of their over-allotment option.
The initial public offering closed on July 23, 2007. In connection with its
initial public offering, the Partnership entered into a Throughput Agreement
(the “Throughput Agreement”) with SemGroup, L.P. (collectively, with its
subsidiaries other than the Partnership and the Partnership’s general partner,
the “Private Company”) under which the Partnership provided crude oil gathering
and transportation and terminalling and storage services to the Private
Company.




On
February 20, 2008, the Partnership purchased land, receiving infrastructure,
storage tanks, machinery, pumps and piping at 46 liquid asphalt cement and
residual fuel oil terminalling and storage facilities (the “Acquired Asphalt
Assets”) from the Private Company for aggregate consideration of $379.5 million,
including $0.7 million of acquisition-related costs. For accounting purposes,
the acquisition has been reflected as a purchase of assets, with the Acquired
Asphalt Assets recorded at the historical cost of the Private Company, which was
approximately $145.5 million, with the additional purchase price of $234.0
million reflected in the statement of changes in partners’ capital as a
distribution to the Private Company. In conjunction with the purchase of the
Acquired Asphalt Assets, the Partnership amended its existing credit facility,
increasing its borrowing capacity to $600 million. Concurrently, the Partnership
issued 6,000,000 common units, receiving proceeds, net of underwriting discounts
and offering-related costs, of $137.2 million. The Partnership’s general partner
also made a capital contribution of $2.9 million to maintain its 2.0% general
partner interest in the Partnership. On March 5, 2008, the Partnership issued an
additional 900,000 common units, receiving proceeds, net of underwriting
discounts, of $20.6 million, in connection with the underwriters’ exercise of
their over-allotment option in full. The Partnership’s general partner made a
corresponding capital contribution of $0.4 million to maintain its 2.0% general
partner interest in the Partnership. In connection with the acquisition of the
Acquired Asphalt Assets, the Partnership entered into a Terminalling and Storage
Agreement (the “Terminalling Agreement”) with the Private Company and certain of
its subsidiaries under which the Partnership provided liquid asphalt cement
terminalling and storage and throughput services to the Private Company and the
Private Company agreed to use the Partnership’s services at certain minimum
levels. The board of directors of the Partnership’s general partner (the
“Board”) approved the acquisition of the Acquired Asphalt Assets as well as the
terms of the related agreements based on a recommendation from its conflicts
committee, which consisted entirely of independent directors. The conflicts
committee retained independent legal and financial advisors to assist it in
evaluating the transaction and considered a number of factors in approving the
acquisition, including an opinion from the committee’s independent financial
advisor that the consideration paid for the Acquired Asphalt Assets was fair,
from a financial point of view, to the Partnership.




On May
12, 2008, the Partnership purchased the Eagle North Pipeline System, a 130-mile,
8-inch pipeline that originates in Ardmore, Oklahoma and terminates in
Drumright, Oklahoma (the “Acquired Pipeline Assets”) from the Private Company
for aggregate consideration of $45.1 million, including $0.1 million of
acquisition-related costs. For accounting purposes, the acquisition has been
reflected as a purchase of assets, with the Acquired Pipeline Assets recorded at
the historical cost of the Private Company, which was approximately $35.1
million, with the additional purchase price of $10.0 million reflected in the
statement of changes in partners’ capital as a distribution to the Private
Company. The acquisition was funded with borrowings under the Partnership’s
existing revolving credit facility. The Board approved the acquisition of the
Acquired Pipeline Assets based on a recommendation from its conflicts committee,
which consisted entirely of independent directors. The conflicts committee
retained independent legal and financial advisors to assist it in evaluating the
transaction and considered a number of factors in approving the acquisition,
including an opinion from the committee’s independent financial advisor that the
consideration paid for the Acquired Pipeline Assets was fair, from a financial
point of view, to the Partnership.




5
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




On May
30, 2008, the Partnership purchased eight recently constructed crude oil storage
tanks located at the Cushing Interchange from the Private Company and the
Private Company assigned a take-or-pay, fee-based agreement to the Partnership
that commits substantially all of the 2.0 million barrels of new storage to a
third-party customer through August 2010 (the “Acquired Storage Assets”) for
aggregate consideration of $90.3 million, including $0.3 million of
acquisition-related costs. For accounting purposes, the acquisition has been
reflected as a purchase of assets, with the Acquired Storage Assets recorded at
the historical cost of the Private Company, which was approximately $17.2
million, inclusive of $0.6 million of completion costs subsequent to the close
of the acquisition, with the additional purchase price of $73.1 million
reflected in the statement of changes in partners’ capital as a distribution to
the Private Company. The acquisition was funded with borrowings under the
Partnership’s existing revolving credit facility. The Board approved the
acquisition of the Acquired Storage Assets based on a recommendation from its
conflicts committee, which consisted entirely of independent directors. The
conflicts committee retained independent legal and financial advisors to assist
it in evaluating the transaction and considered a number of factors in approving
the acquisition, including an opinion from the committee’s independent financial
advisor that the consideration paid for the Acquired Storage Assets was fair,
from a financial point of view, to the Partnership.




On July
22, 2008, the Private Company and certain of its subsidiaries filed voluntary
petitions (the “Bankruptcy Filings”) for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the “Bankruptcy Court”), Case No. 08-11547-BLS. The Private Company
and its subsidiaries continue to operate their businesses and own and manage
their properties as debtors-in-possession under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code (the “Bankruptcy Cases”). By order dated October 28, 2009, the
Bankruptcy Court confirmed the Private Company’s reorganization
plan.  Pursuant to this reorganization plan, the Private Company
expects to exit bankruptcy during the fourth quarter of 2009 and become a
publicly traded company in 2010.  None of the Partnership, its general
partner, the subsidiaries of the Partnership nor the subsidiaries of the
Partnership’s general partner were party to the Bankruptcy Filings. See Notes 2,
4, 7 and 12 for a discussion of the impact of the Bankruptcy Filings and related
events upon the Partnership.




For the
three and nine months ended September 30, 2009, respectively, the Partnership
derived approximately 3% and 21% of its revenues, excluding fuel reimbursement
revenues related to fuel and power consumed to operate its liquid asphalt cement
storage tanks, from services it provided to the Private Company.




2.
            BASIS
      OF PRESENTATION












Due to
the previous common control of the Private Company and the Partnership, the
acquisitions of fixed assets from the Private Company at or following the
closing of the Partnership's initial public offering and prior to the Change of
Control (as defined below) in July 2008 were recorded at the historical cost of
the Private Company. All significant intercompany accounts and transactions have
been eliminated in the preparation of the accompanying financial
statements.




Prior to
the close of its initial public offering in July 2007, the Partnership entered
into a Throughput Agreement with the Private Company under which the Partnership
provided crude oil gathering and transportation and terminalling and storage
services to the Private Company. In connection with its February 2008 purchase
of the Acquired Asphalt Assets, the Partnership entered into a Terminalling
Agreement with the Private Company under which the Partnership provided liquid
asphalt cement terminalling and storage and throughput services to the Private
Company (see Note 7). In connection with the Settlement, the Private Company
rejected the Throughput Agreement and the Terminalling Agreement as part of the
Bankruptcy Cases.


6
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Prior to
the close of its initial public offering in July 2007, the Partnership entered
into an Omnibus Agreement (the “Omnibus Agreement”) with the Private Company
under which the Partnership reimbursed the Private Company for the provision of
various general and administrative services for the Partnership’s benefit. The
Omnibus Agreement was amended and restated in conjunction with the purchase of
the Acquired Asphalt Assets in February 2008 (the “Amended Omnibus Agreement”)
(see Note 7). The events related to the Bankruptcy Filings terminated the
Private Company’s obligations to provide services to the Partnership under the
Amended Omnibus Agreement. The Private Company continued to provide such
services to the Partnership until the effective date of the Settlement at which
time the Private Company rejected the Amended Omnibus Agreement and the Private
Company and the Partnership entered into the Shared Services Agreement (as
defined below) and the Transition Services Agreement (as defined below) relating
to the provision of such services.





On April
7, 2009, the Partnership and the Private Company executed definitive
documentation relating to the settlement of certain matters between the
Partnership and the Private Company, to be effective as of 11:59 PM CDT March
31, 2009 (the “Settlement”).  The Settlement provided for the
following, among other items:




·
            the
      Partnership transferred certain crude oil assets located in Kansas and
      northern Oklahoma to the Private Company.  These transfers
      included real property and associated personal property at locations where
      the Private Company owned the pipeline.  The Partnership
      retained certain access and connection rights to enable it to continue to
      operate its crude oil trucking business in such areas.  In
      addition, the Partnership transferred our interests in the SCADA System, a
      crude oil inventory tracking system, to the Private Company (collectively,
      the “Transferred Settlement
Assets”);




·
            the
      Private Company transferred to the Partnership (i) 355,000 barrels of
      crude oil line fill and tank bottoms, which are necessary for the
      Partnership to operate its crude oil tank storage operations and its
      Oklahoma and Texas crude oil pipeline systems, (ii) certain personal
      property located in Oklahoma, Texas and Kansas used in connection with the
      Partnership’s crude oil trucking business and (iii) certain real property
      located in Oklahoma, Kansas, Texas and New Mexico that was intended to be
      transferred in connection with the Partnership’s initial public offering
      (the “Crude Oil Assets”).  In addition, the Private Company
      transferred certain asphalt processing assets that were connected to,
      adjacent to, or otherwise contiguous with the Partnership’s existing
      asphalt facilities and associated real property interests to the
      Partnership (the “Asphalt Assets”).  The transfer of the Asphalt
      Assets in connection with the Settlement provides the Partnership with
      outbound logistics for its existing asphalt assets and, therefore, allows
      it to provide asphalt terminalling, storage and processing services to
      third parties;




·
            the
      Private Company rejected the Throughput Agreement and the Partnership and
      the Private Company entered into a new Throughput Agreement (the “New
      Throughput Agreement”) pursuant to which the Partnership provides certain
      crude oil gathering, transportation, terminalling and storage services to
      the Private Company;




·
            the
      Private Company rejected the Terminalling Agreement and the Partnership
      and the Private Company entered into a new Terminalling and Storage
      Agreement (the “New Terminalling Agreement”) pursuant to which the
      Partnership provides liquid asphalt cement terminalling and storage
      services for the Private Company’s remaining asphalt
      inventory;




·
            the
      Private Company rejected the Amended Omnibus Agreement and the Partnership
      and the Private Company entered into a Shared Services Agreement (the
      “Shared Services Agreement”) pursuant to which the Private Company
      provides certain operational services for the
  Partnership;




·
            the
      Partnership and the Private Company entered into a Transition Services
      Agreement (the “Transition Services Agreement”), pursuant to which the
      Private Company provides certain corporate, crude oil and asphalt
      transition services, in each case for a limited amount of time, to the
      Partnership;




·
            the
      Partnership offered employment to certain crude oil employees;
      and




·
            certain
      pre-petition claims by the Private Company and the Partnership were netted
      and waived.




The
Partnership accounted for the Settlement as an exchange of nonmonetary
assets.  Accordingly, the accounting for the Settlement was based upon
the fair value of the assets the Partnership transferred to the Private
Company.  These assets included the Transferred Settlement Assets
(fair value of $5.5 million) and a receivable for March 2009 services provided
to the Private Company (fair value of $4.0 million).  The fair value
was allocated to the assets that the Partnership received in the Settlement,
with $7.5 million recorded to pipeline linefill and tank bottoms, $1.7 million
to the Asphalt Assets, and $0.3 million to the received pipeline
easements.  The fair value of the Transferred Settlement Assets
exceeded their book value, which resulted in the Partnership recording a gain of
approximately $2.6 million in the three months ended June 30,
2009.  Please see “Item 15. Exhibits, Financial Schedules” and the
Consolidated Financial Statements included therein in the Partnership’s annual
report on Form 10-K for the year ended December 31, 2008 filed with the
Securities and Exchange Commission (the “SEC”) on July 2, 2009 (the “2008 Form
10-K”) for a further discussion of the Settlement.


7
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The
Bankruptcy Filings and the events related thereto have had a significant impact
upon the Partnership’s business and results of operations and may in the future
impact it in various ways. These items include, among others: (i) the
reconstitution of the Board and management in connection with a change of
control that occurred in July 2008 (the “Change of Control”), (ii) the events of
default that were triggered under the Partnership’s credit facility, the
Forbearance Agreement and amendments thereto and the Credit Agreement Amendment
that the Partnership entered into in order to waive such events of default,
(iii)the
uncertainty relating to and the rebuilding of the Partnership’s business to
provide services to and derive revenues from third parties instead of relying
upon the Private Company for substantially all of its revenues, (iv) the hiring
of certain operational employees in connection with the Settlement and the
rejection of the Amended Omnibus Agreement, (v)becoming a party
to securities and other litigation as well as governmental investigations, (vi)
being delisted from the Nasdaq Global Market, (vii) failing to make
distributions for the second, third and fourth quarters of 2008 and the first,
second and third quarters of 2009, and the expectation that the Partnership will
not make a distribution for the fourth quarter of 2009, (viii) experiencing
increased general and administrative expenses due to the costs related to legal
and financial advisors as well as other related costs, (ix) experiencing
increased interest expense as a result of the Forbearance Agreement and
amendments thereto and the Credit Agreement Amendment and (x) the entering into
the Settlement with the Private Company. Certain of these items are discussed in
more detail below. In addition, please see “Item 15. Exhibits, Financial
Schedules” and the Consolidated Financial Statements included therein in the
2008 Form 10-K for a further discussion of the impact of the Bankruptcy Filings
upon the Partnership’s business.




The
statements of operations for the three and nine months ended September 30, 2008
and 2009 and the statements of cash flows for the nine months ended September
30, 2008 and 2009 are unaudited. In the opinion of management, the unaudited
interim financial statements have been prepared on the same bases as the audited
financial statements and include all adjustments necessary to present fairly the
financial position and results of operations for the respective interim
periods.  All adjustments are of a recurring nature unless otherwise
disclosed herein.  These consolidated financial statements and notes
should be read in conjunction with the consolidated financial statements and
notes thereto included in the 2008 Form 10-K. Interim financial results are not
necessarily indicative of the results to be expected for an annual period. The
year-end balance sheet data was derived from audited financial statements, but
does not include all disclosures required by accounting principles generally
accepted in the United States of America. The Partnership has performed an
evaluation of subsequent events through November 13, 2009, which is the date the
financial statements in this quarterly report are filed on Form
10-Q.




3.
            PROPERTY,
      PLANT AND EQUIPMENT




Estimated
      Useful Lives (Years)
            
            
            December
      31, 2008
            
            
            September
      30,
              2009Land
            
            
            
            
            $
            15,065
            
            
            $
            15,430Land
      improvements
            
            
            10-20
            
            
            
            5,366
            
            
            
            5,408Pipelines
      and facilities
            
            
            5-31
            
            
            
            95,010
            
            
            
            97,610Storage
      and terminal facilities
            
            
            10-35
            
            
            
            166,950
            
            
            
            164,399Transportation
      equipment
            
            
            3-10
            
            
            
            24,744
            
            
            
            23,426Office
      property and equipment and other
            
            
            3-31
            
            
            
            19,972
            
            
            
            20,551Pipeline
      linefill and tank bottoms
            
            
            
            
            
            
            —
            
            
            
            7,763Construction-in-progress
            
            
            
            
            
            
            37,659
            
            
            
            38,357Property,
      plant and equipment, gross
            
            
            
            
            
            
            364,766
            
            
            
            372,944Accumulated
      depreciation
            
            
            
            
            
            
            (80,277
            )
            
            
            (95,002
            )Property,
      plant and equipment, net
            
            
            
            
            
            $
            284,489
            
            
            $
            277,942





Property,
plant and equipment includes assets under capital leases of $1.2 million and
$0.5 million, net of accumulated depreciation of $5.3 million and $5.8 million
at December 31, 2008 and September 30, 2009, respectively. All capital leases
relate to the transportation equipment asset category.  At September
30, 2009, $37.1 million of construction-in-progress consists of the Eagle North
Pipeline System, a 130-mile, 8-inch pipeline that was acquired by the
Partnership from the Private Company on May 12, 2008.  The Partnership
expects to resume capital expenditures on this pipeline in the fourth quarter of
2009 and expects to incur an additional $3.5 million to $4.0 million in capital
expenditures prior to placing this pipeline system in service at the end of the
second quarter of 2010.




Depreciation
expense for the nine months ended September 30, 2008 and September 30, 2009 was
$15.4 million and $16.8 million, respectively.




8
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


4.
            LONG
      TERM DEBT




Due to events related to the Bankruptcy
Filings, events of default occurred under the Partnership’s credit
agreement.  Effective on September 18, 2008, the Partnership and the
requisite lenders under its credit facility entered into a Forbearance Agreement
and Amendment to Credit Agreement (the “Forbearance Agreement”) under which the
lenders agreed, subject to specified limitations and conditions, to forbear from
exercising their rights and remedies arising from the Partnership’s defaults and
events of default described therein for the period commencing on September 18,
2008 and ending on the earliest of (i) December 11, 2008, (ii) the occurrence of
any default or event of default under the credit agreement other than certain
defaults and events of default indicated in the Forbearance Agreement, or (iii)
the failure of the Partnership to comply with any of the terms of the
Forbearance Agreement (the “Forbearance Period”).  On December 11,
2008, the lenders agreed to extend the Forbearance Period until December 18,
2008 pursuant to a First Amendment to Forbearance Agreement and Amendment to
Credit Agreement (the “First Forbearance Amendment”), on December 18, 2008, the
lenders agreed to extend the Forbearance Period until March 18, 2009 pursuant to
a Second Amendment to Forbearance Agreement and Amendment to Credit Agreement
(the “Second Forbearance Amendment”), and on March 18, 2009, the lenders agreed
to further extend the Forbearance Period until April 8, 2009 pursuant to a Third
Amendment to Forbearance Agreement and Amendment to Credit Agreement (the “Third
Forbearance Amendment”).




The
Partnership, its subsidiaries that are guarantors of the obligations under the
credit facility, Wachovia Bank, National Association, as Administrative Agent,
and the requisite lenders under the Partnership’s credit agreement entered into
the Consent, Waiver and Amendment to Credit Agreement (the “Credit Agreement
Amendment”), dated as of April 7, 2009, under which, among other things, the
lenders consented to the Settlement (see Note 2) and waived all existing
defaults and events of default described in the Forbearance Agreement and
amendments thereto.





Prior to
the execution of the Forbearance Agreement, the credit agreement was comprised
of a $350 million revolving credit facility and a $250 million term loan
facility.  The Forbearance Agreement permanently reduced the
Partnership’s revolving credit facility under the credit agreement from $350
million to $300 million and prohibited the Partnership from borrowing additional
funds under its revolving credit facility during the Forbearance
Period.   Under the Forbearance Agreement, the Partnership agreed
to pay the lenders executing the Forbearance Agreement a fee equal to 0.25% of
the aggregate commitments under the credit agreement after giving effect to the
above described commitment reduction.  The Second Forbearance
Amendment further permanently reduced the Partnership’s revolving credit
facility under the credit agreement from $300 million to $220
million.  In addition, under the Second Forbearance Amendment, the
Partnership agreed to pay the lenders executing the Second Forbearance Amendment
a fee equal to 0.375% of the aggregate commitments under the credit agreement
after the above described commitment reduction.  Under the Third
Forbearance Amendment, the Partnership agreed to pay a fee equal to 0.25% of the
aggregate commitments under the credit agreement after the above described
commitment reduction.  The amendments to the Forbearance Agreement
prohibited the Partnership from borrowing additional funds under its revolving
credit facility during the extended Forbearance Period.




The
Credit Agreement Amendment subsequently further permanently reduced the
Partnership’s revolving credit facility under the credit agreement from $220
million to $50 million, and increased the term loan facility from $250 million
to $400 million.  Upon the execution of the Credit Agreement
Amendment, $150 million of the Partnership’s outstanding revolving loans were
converted to term loans and the Partnership became able to borrow additional
funds under its revolving credit facility.  Substantially all of the
Partnership’s assets are pledged as collateral under the Credit
Agreement.  Pursuant to the Credit Agreement Amendment, the credit
facility and all obligations thereunder will mature on June 30,
2011.  As of November 6, 2009, the Partnership had an aggregate unused
credit availability under its revolving credit facility of approximately $26.6
million. Pursuant to the Credit Agreement Amendment, the Partnership’s revolving
credit facility is limited to $50.0 million.  If any of the financial
institutions that support the Partnership’s revolving credit facility were to
fail, it may not be able to find a replacement lender, which could negatively
impact its ability to borrow under its revolving credit
facility.





After
giving effect to the Credit Agreement Amendment, amounts outstanding under the
Partnership’s credit facility bear interest at either the LIBOR rate plus 6.50%
per annum, with a LIBOR floor of 3.00%, or the Base rate plus 5.50% per annum,
with a Base rate floor of 4.00% per annum.  The Partnership pays a fee
of 1.50% per annum on unused commitments under its revolving credit
facility.  After giving effect to the Credit Agreement Amendment,
interest on amounts outstanding under the Partnership’s credit facility must be
paid monthly.  The Partnership’s credit facility, as amended by the
Credit Agreement Amendment, requires the Partnership to pay additional interest
on October 6, 2009, April 6, 2010, October 6, 2010 and April 6, 2011, equal to
the product of (i) the sum of the total amount of term loans then outstanding
plus the aggregate commitments under the revolving credit facility and (ii)
0.50%, 0.50%, 1.00% and 1.00%, respectively.  In October 2009, the
Partnership paid additional interest of $2.3 million.  During the nine
months ended September 30, 2008 and 2009, the weighted average interest rate
incurred by the Partnership was 5.90% and 9.32%, respectively.





9
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Among
other things, the Partnership’s credit facility, as amended by the Credit
Agreement Amendment, requires the Partnership to make (i) minimum quarterly
amortization payments on March 31, 2010 in the amount of $2.0 million, June 30,
2010 in the amount of $2.0 million, September 30, 2010 in the amount of $2.5
million, December 31, 2010 in the amount of $2.5 million and March 31, 2011 in
the amount of $2.5 million, (ii) mandatory prepayments of amounts outstanding
under the revolving credit facility (with no commitment reduction) whenever cash
on hand exceeds $15.0 million, (iii) mandatory prepayments with 100% of asset
sale proceeds, (iv) mandatory prepayment with 50% of the proceeds raised through
equity sales and (v) annual prepayments with 50% of excess cash flow (as defined
in the Credit Agreement Amendment).  The Partnership’s credit
facility, as amended by the Credit Agreement Amendment, prohibits the
Partnership from making draws under the revolving credit facility if it would
have more than $15.0 million of cash on hand after making the draw and applying
the proceeds thereof.  Based on borrowings under the credit facility
as of September 30, 2009, the Partnership estimates a final principal repayment
of $411.0 million in 2011 in connection with the June 30, 2011 maturity of all
obligations under the credit facility.  Based on the borrowing rates
currently available to the Partnership for debt with similar terms and
maturities and consideration of the Partnership’s non-performance risk,
long-term debt at September 30, 2009 approximates its fair value.




Under the
credit agreement, the Partnership is subject to certain limitations, including
limitations on its ability to grant liens, incur additional indebtedness, engage
in a merger, consolidation or dissolution, enter into transactions with
affiliates, sell or otherwise dispose of its assets (other than the sale or
other disposition of the assets of the asphalt business, provided that such
disposition is at arm’s length to a non-affiliate for fair market value in
exchange for cash and the proceeds of the disposition are used to pay down
outstanding loans), businesses and operations, materially alter the character of
its business, and make acquisitions, investments and capital
expenditures.  The credit agreement prohibits the Partnership from
making distributions of available cash to its unitholders if any default or
event of default (as defined in the credit agreement) exists.  The
credit agreement, as amended by the Credit Agreement Amendment, requires the
Partnership to maintain a leverage ratio (the ratio of its consolidated funded
indebtedness to its consolidated adjusted EBITDA, in each case as defined in the
credit agreement), determined as of the last day of each month for the twelve
month period ending on the date of determination, that ranges on a monthly basis
from not more than 5.50 to 1.00 to not more than 9.75 to 1.00.  In
addition, pursuant to the Credit Agreement Amendment, the Partnership’s ability
to make acquisitions and investments in unrestricted subsidiaries is limited and
the Partnership may only make distributions if its leverage ratio is less than
3.50 to 1.00 and certain other conditions are met.  As of September
30, 2009, the Partnership’s leverage ratio was 6.02 to 1.00, which is in
compliance with the covenant specified in the Partnership’s credit
facility.  However, if the Partnership’s leverage ratio does not improve,
it may not make quarterly distributions to its unitholders in the
future.





The
credit agreement, as amended by the Credit Agreement Amendment, also requires
the Partnership to maintain an interest coverage ratio (the ratio of its
consolidated EBITDA to its consolidated interest expense, in each case as
defined in the credit agreement) that ranges on a monthly basis from not less
than 2.50 to 1.00 to not less than 1.00 to 1.00. As of September 30, 2009, the
Partnership’s interest coverage ratio was 1.78 to 1.00, which is in compliance
with the covenant specified in the Partnership’s credit facility.





Further,
the Partnership is required to maintain a monthly consolidated adjusted EBITDA
for the prior twelve months ranging from $45.4 million to $82.9 million as
determined at the end of each month.  In addition, capital
expenditures are limited to $12.5 million in 2009, $8.0 million in 2010 and $4.0
million in the six months ending June 30, 2011.  As of September 30,
2009, the Partnership is in compliance with these covenants.





The
credit agreement specifies a number of events of default (many of which are
subject to applicable cure periods), including, among others, failure to pay any
principal when due or any interest or fees within three business days of the due
date, failure to perform or otherwise comply with the covenants in the credit
agreement, failure of any representation or warranty to be true and correct in
any material respect, failure to pay debt, and other customary
defaults.  In addition, a change of control of the Partnership or the
Partnership’s general partner will be an event of default under the credit
agreement.  If an event of default exists under the credit agreement, the
lenders will be able to accelerate the maturity of the credit agreement and
exercise other rights and remedies, including taking available cash in the
Partnership’s bank accounts.  If an event of default exists and the
Partnership is unable to obtain forbearance from its lenders or a waiver of the
events of default under its credit agreement, it may be forced to sell assets,
make a bankruptcy filing or take other action that could have a material adverse
effect on its business, the price of its common units and its results of
operations.  The Partnership is also prohibited from making cash
distributions to its unitholders while the events of default exist.




10
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Interest
expense related to debt issuance cost amortization for the three month periods
ended September 30, 2008 and 2009 was $0.4 million and $1.0 million,
respectively, and was $0.6 million and $5.3 million for the nine month periods
ended September 30, 2008 and 2009, respectively.  Interest expense in
the three months ended March 31, 2009 includes $0.4 million of debt issuance
cost amortization expense attributable to 2008, which is not material to the
2008 or 2009 financial statements.  In connection with the Forbearance
Agreement and amendments thereto and the Credit Agreement Amendment, $1.4
million and $8.8 million in debt issuance costs were capitalized in March 2009
and April 2009, respectively.




The
Partnership is exposed to market risk for changes in interest rates related to
its credit facility. Interest rate swap agreements were previously used to
manage a portion of the exposure related to changing interest rates by
converting floating-rate debt to fixed-rate debt. In August 2007 the Partnership
entered into interest rate swap agreements with an aggregate notional value of
$80.0 million that mature on August 20, 2010. Under the terms of the interest
rate swap agreements, the Partnership was to pay fixed rates of 4.9% and receive
three-month LIBOR with quarterly settlement.  In March 2008 the
Partnership entered into interest rate swap agreements with an aggregate
notional value of $100.0 million that mature on March 31, 2011.  Under
the terms of the interest rate swap agreements, the Partnership was to pay fixed
rates of 2.6% to 2.7% and receive three-month LIBOR with quarterly
settlement.  The interest rate swaps did not receive hedge accounting
treatment. Changes in the fair value of the interest rate swaps were recorded in
interest expense in the statements of operations.  In addition, the
interest rate swap agreements contained cross-default provisions to events of
default under the credit agreement.  Due to events related to the
Bankruptcy Filings, all of these interest rate swap positions were terminated in
the third quarter of 2008, and the Partnership recorded a $1.5 million liability
at September 30, 2008 with respect to these positions.  As of November
6, 2009, the Partnership’s remaining interest rate swap liability is $0.1
million.




5.
            NET
      INCOME PER LIMITED PARTNER UNIT




On
January 1, 2009, the Partnership adopted a new accounting method for the
presentation of net income per limited partner unit for Master Limited
Partnerships. Under the new accounting methodology, the excess of distributions
over earnings or excess of earnings over distributions for each period are
allocated to the entities’ general partner based on the general partner’s
ownership interest at the time. The Partnership has retrospectively applied this
new accounting method to the three and nine months ended September 30,
2008. Until January 1, 2009, the Partnership’s accounting practice, for
purposes of calculating earnings per unit, was to allocate net income (loss) to
the general partner based on the general partner’s share of total or pro forma
distributions, as applicable, including incentive distribution rights. The
adoption of this new accounting method did not materially impact the
Partnership’s financial position, results of operations or cash
flows.  The following sets forth the computation of basic and diluted
net income (loss) per common and subordinated unit (in thousands, except per
unit data):




Three
      Months Ended
              September
      30, 2008
            
            
            Three
      Months Ended September 30, 2009
            
            
            Nine
      Months Ended September 30, 2008
            
            
            Nine
      Months Ended September 30, 2009Net
      income (loss)
            
            $
            (11,851
            )
            
            $
            (2,859
            )
            
            $
            19,503
            
            
            $
            (7,978
            )Less: General partner interest
      in net income (loss)
            
            
            (237
            )
            
            
            (57
            )
            
            
            3,681
            
            
            
            (158
            )Net income (loss) available to
      limited and subordinated partners
            
            $
            (11,614
            )
            
            $
            (2,802
            )
            
            $
            15,822
            
            
            $
            (7,820
            )Basic
      and diluted weighted average number of units:Common units
            
            
            21,426
            
            
            
            21,557
            
            
            
            20,015
            
            
            
            21,557Subordinated
    units
            
            
            12,571
            
            
            
            12,571
            
            
            
            12,571
            
            
            
            12,571Restricted and phantom
      units
            
            
            641
            
            
            
            480
            
            
            
            552
            
            
            
            472Basic
      and diluted net income (loss) per common unit
            
            $
            (0.33
            )
            
            $
            (0.08
            )
            
            $
            0.50
            
            
            $
            (0.23
            )Basic
      and diluted net income (loss) per subordinated unit
            
            $
            (0.33
            )
            
            $
            (0.08
            )
            
            $
            0.50
            
            
            $
            (0.23
            )





11
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The
difference between the amounts of net income allocated to the limited and
general partners and the related earnings per unit calculations under the new
accounting methodology and the Partnership’s previous accounting methodology for
the three and nine months ended September 30, 2008 is provided in the table
below (in thousands):





(in
      thousands, except per unit amounts)Current
      Accounting Methodology
            
            
            As
      Previously Reported
            
            
            DifferenceThree Months Ended September 30,
      2008General
      partner interest in net income
            
            $
            (237)
            
            
            $
            (237)
            
            
            $
            —Net
      income available to limited and subordinated partners
            
            
            (11,614)
            
            
            
            (11,614)
            
            
            
            —$
            (11,851)
            
            
            $
            (11,851)
            
            
            $
            —Basic
      and diluted weighted average number of units:Common
      units
            
            
            21,426
            
            
            
            21,426
            
            
            
            —Subordinated
      units
            
            
            12,571
            
            
            
            12,571
            
            
            
            —Restricted
      and phantom units
            
            
            641
            
            
            
            641
            
            
            
            —Basic
      and diluted net income per common unit
            
            $
            (0.33)
            
            
            $
            (0.33)
            
            
            $
            —Basic
      and diluted net income per subordinated unit
            
            $
            (0.33)
            
            
            $
            (0.33)
            
            
            $
            —Nine Months Ended September 30,
      2008General
      partner interest in net income
            
            $
            3,681
            
            
            $
            3,368
            
            
            $
            313Net
      income available to limited and subordinated partners
            
            
            15,822
            
            
            
            16,135
            
            
            
            (313)$
            19,503
            
            
            $
            19,503
            
            
            $
            —Basic
      and diluted weighted average number of units:Common
      units
            
            
            20,015
            
            
            
            20,015
            
            
            
            —Subordinated
      units
            
            
            12,571
            
            
            
            12,571
            
            
            
            —Restricted
      and phantom units
            
            
            552
            
            
            
            552
            
            
            
            —Basic
      and diluted net income per common unit
            
            $
            0.50
            
            
            $
            0.51
            
            
            $
            (0.01)Basic
      and diluted net income per subordinated unit
            
            $
            0.50
            
            
            $
            0.51
            
            
            $
            (0.01)




6.
            PARTNERS’
      CAPITAL AND DISTRIBUTIONS




The
Partnership has not made a distribution to its common unitholders, subordinated
unitholders or general partner since May 15, 2008 due to the events of default
that existed under its credit agreement, restrictions under the credit
agreement, and the uncertainty of its future cash flows relating to the
Bankruptcy Filings.  The Partnership’s unitholders will be required to
pay taxes on their share of the Partnership’s taxable income even though they
did not receive a distribution for the quarters ended June 30, 2008, September
30, 2008, December 31, 2008, March 31, 2009 or June 30, 2009 and will not
receive a distribution for the quarter ended September 30, 2009.  In
addition, the Partnership does not currently expect to make a distribution
relating to operations during the fourth quarter of 2009.  Pursuant to
the Credit Agreement Amendment, the Partnership is prohibited from making
distributions to its unitholders if its leverage ratio (as defined in the credit
agreement) exceeds 3.50 to 1.00.  As of September 30, 2009, the
Partnership’s leverage ratio was 6.02 to 1.00. If the Partnership’s leverage
ratio does not improve, it may not make quarterly distributions to its
unitholders in the future.  The Partnership’s partnership agreement
provides that, during the subordination period, which the Partnership is
currently in, the Partnership’s common units will have the right to receive
distributions of available cash from operating surplus in an amount equal to the
minimum quarterly distribution of $0.3125 per common unit per quarter, plus any
arrearages in the payment of the minimum quarterly distribution on the common
units from prior quarters, before any distributions of available cash from
operating surplus may be made on the subordinated units.  After giving
effect to the nonpayment of distributions for the quarters ended June 30, 2008,
September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009 and
September 30, 2009, each common unit was entitled to an arrearage of $1.88, or
total arrearages for all common units of $40.7 million based upon 21,702,309
common units outstanding as of November 6, 2009.




As a
result of the Private Company’s control of the Partnership’s general partner,
consideration paid in excess of the historical cost of the Acquired Asphalt
Assets, Acquired Pipeline Assets, and Acquired Storage Assets (which were
acquired from the Private Company prior to the Change of Control) were treated
as distributions to the Private Company.  This resulted in an
aggregate reduction in partners’ capital of $317.1 million and negative
partners’ capital of $133.6 million as of September 30, 2009.




12
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


7.
            RELATED
      PARTY TRANSACTIONS




Prior to
the close of its initial public offering in July 2007, the Partnership entered
into the Throughput Agreement with the Private Company. For the three month
periods ended September 30, 2008 and 2009, the Partnership recognized revenue of
$17.2 million and $0.9 million, respectively, under the Throughput Agreement,
and for the nine month periods ended September 30, 2008 and 2009, the
Partnership recognized revenue of $73.4 million and $4.1 million, respectively,
under the Throughput Agreement.





In
conjunction with the purchase of the Acquired Asphalt Assets in February 2008,
the Partnership entered into the Terminalling Agreement with the Private
Company. For the nine month periods ended September 30, 2008 and 2009, the
Partnership recognized revenue of $49.1 million and $21.8 million, respectively,
under the Terminalling Agreement, including fuel reimbursement revenues related
to fuel and power consumed to operate its liquid asphalt cement storage
tanks.





Based on
the minimum requirements under the Throughput Agreement and the Terminalling
Agreement, the Private Company was obligated to pay the Partnership an aggregate
minimum monthly fee totaling $135 million annually for the Partnership’s
gathering and transportation services and the Partnership’s terminalling and
storage services.  Pursuant to an order of the Bankruptcy Court
entered on September 9, 2008, the Private Company began making payments under
the Throughput Agreement at a market rate based upon the Private Company’s
actual usage rather than the contractual minimums.  In connection with
the Settlement, the Private Company rejected the Throughput Agreement and the
Terminalling Agreement as part of its Bankruptcy Cases (see Note
2).





In
connection with the Settlement, the Partnership and the Private Company entered
into various agreements including the New Throughput Agreement pursuant to which
the Partnership provides certain crude oil gathering, transportation,
terminalling and storage services to the Private Company and the New
Terminalling Agreement pursuant to which the Partnership provides certain liquid
asphalt cement terminalling and storage services for the Private Company’s
remaining asphalt inventory.  For a further discussion of these
agreements, and the other agreements entered into in connection with the
Settlement, please see Note 2 herein and  “Item 15. Exhibits,
Financial Schedules” and the Consolidated Financial Statements included therein
in the 2008 Form 10-K.





As of
December 31, 2008 and September 30, 2009, the Partnership had $18.9 million and
$1.0 million, respectively, in receivables from the Private Company and its
subsidiaries, including the pre-petition receivables of $10.5 million as of
December 31, 2008.  The $10.5 million relates to amounts that were due
from the Private Company as of December 31, 2008 and are considered pre-petition
debt in the Bankruptcy Cases.  In connection with the Settlement,
pre-petition related party receivables were netted against pre-petition related
party payables of $10.6 million and waived in April 2009 (see Note
2).





Prior to
the Bankruptcy Filings, the Partnership paid the Private Company a fixed
administrative fee for providing general and administrative services to the
Partnership.  This fixed administrative fee was initially fixed at
$5.0 million per year through July 2010.  Concurrently with the
closing of the purchase of the Acquired Asphalt Assets in February of 2008, the
Partnership amended and restated the Omnibus Agreement, increasing the fixed
administrative fee the Partnership paid the Private Company for providing
general and administrative services to the Partnership from $5.0 million per
year to $7.0 million per year.  For the nine month periods ended
September 30, 2008 and 2009, the Partnership recorded general and administrative
expenses of $5.0 million and $1.8 million, respectively, for the services
provided under the Omnibus Agreement.  The obligation for the Private
Company to provide services under the Amended Omnibus Agreement and the
corresponding administrative fee payable by the Partnership were terminated in
connection with the events related to the Change of Control.  The
Private Company continued to provide such services to the Partnership until the
effective date of the Settlement at which time the Private Company rejected the
Amended Omnibus Agreement and the Private Company and the Partnership entered
into the Shared Services Agreement and the Transition Services Agreement
relating to the provision of such services (see Note 2).  In addition,
in connection with the Settlement, the Private Company waived the fixed
administrative fee payable by the Partnership under the Amended Omnibus
Agreement for the month of March 2009 (see Note 2).




13
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Prior to
entering into the Shared Services Agreement, the Partnership also reimbursed the
Private Company for direct operating payroll and payroll-related costs and other
operating costs associated with services the Private Company’s employees
provided to the Partnership. For the nine month periods ended September 30, 2008
and 2009, the Partnership recorded $21.6 million and $7.8 million, respectively,
in compensation costs and $2.3 million and $0.6 million, respectively, in other
operating costs related to services provided by the Private Company’s employees
which are reflected as operating expenses in the accompanying statement of
operations. As of December 31, 2008 and September 30, 2009, respectively,
the Partnership had $20.1 million and $2.8 million in payables to the Private
Company and its subsidiaries, including the pre-petition payables of $10.6
million at December 31, 2008.  Pursuant to the Settlement, these
pre-petition related party payables were netted against pre-petition related
party receivables and waived in April 2009 (see Note 2).  After the
effective date of the Settlement, these costs are reimbursed pursuant to the
Shared Services Agreement and the Transition Services Agreement (see Note
2).  In addition, in connection with the Settlement, the Private
Company waived the direct operational costs attributable to the Partnership’s
asphalt operations and payable by the Partnership under the Amended Omnibus
Agreement for the month of March 2009 (see Note 2).





During
the nine months ended September 30, 2009, the Partnership provided crude oil
gathering and transportation services to an entity on whose board of directors a
member of the Board serves.  The Partnership earned revenue of $3.5
million for services it provided to this entity in the nine months ended
September 30, 2009, and as of September 30, 2009 the Partnership has a $0.8
million receivable from this entity.




On November
5, 2009, the Partnership was notified by Manchester Securities Corp.
("Manchester"), which controls the Partnership's general partner, that
Manchester was seeking reimbursement of certain expenses of approximately $1.3
million that it stated were incurred for the benefit of the Partnership and as
such were reimbursable under the provisions of the partnership agreement of the
Partnership. Subsequently, the Partnership requested and received information
submitted by Manchester supporting the claim and, accordingly, the Partnership
has accrued approximately $1.3 million of expenses in the three months ended
September 30, 2009.


8.
            LONG-TERM
      INCENTIVE PLAN




In July
2007, the Partnership’s general partner adopted the SemGroup Energy Partners
G.P., L.L.C. Long-Term Incentive Plan (the “Plan”). The compensation committee
of the Board administers the Plan. The Plan authorizes the grant of an aggregate
of 1.25 million common units deliverable upon vesting. Although other types of
awards are contemplated under the Plan, currently outstanding awards include
“phantom” units, which convey the right to receive common units upon vesting,
and “restricted” units, which are grants of common units restricted until the
time of vesting. The phantom unit awards also include distribution equivalent
rights (“DERs”).





Subject
to applicable earning criteria, a DER entitles the grantee to a cash payment
equal to the cash distribution paid on an outstanding common unit prior to the
vesting date of the underlying award. Recipients of restricted units are
entitled to receive cash distributions paid on common units during the vesting
period which distributions are reflected initially as a reduction of partners’
capital. Distributions paid on units which ultimately do not vest are
reclassified as compensation expense.





In July
2007, 475,000 phantom common units and 5,000 restricted common units were
granted which vest ratably over periods of four and three years, respectively.
In October 2007, 5,000 restricted common units were granted which vest ratably
over three years. In June 2008, 375,000 phantom common units were granted which
vest ratably over three years.  In July 2008, 5,000 restricted common
units were granted which vest ratably over three years.  These grants
are equity awards and, accordingly, the fair value of the awards as of the grant
date is expensed over the vesting period. The weighted average grant date
fair-value of the awards granted in 2007 and 2008 is $22.06 per unit and $25.86
per unit, respectively. The value of these award grants was approximately $10.5
million, $0.1 million, $0.1 million, $9.8 million and $0.1 million on their
grant dates, respectively.  Due to the Change of Control related to
the Private Company’s liquidity issues, all outstanding awards as of July 18,
2008 vested.  On August 14, 2008, 282,309 common units were issued in
connection with the vesting of certain of the outstanding awards.  In
October 2009, 145,000 common units were issued in connection with the vesting of
certain of the outstanding awards due to the Change of Control related to the
Private Company’s liquidity issues.





In
addition, in December 2008 the Plan was amended to provide for the delivery of
subordinated units in addition to common units upon vesting and 3,333 restricted
common units and 1,667 restricted subordinated units were awarded under the
Plan.  In April 2009, the 1,667 restricted subordinated units
previously awarded to Duke R. Ligon were cancelled and were replaced by a grant
of 1,667 restricted common units.  The restricted common units granted
to Mr. Ligon vest in one-third increments over a three-year
period.  In March 2009, 30,000 phantom common units were granted which
vest in one-third increments over three years.  The weighted average
grant date fair value of the awards granted in 2008 and 2009 that are
outstanding as of November 6, 2009 is $2.45 per unit and $2.25 per unit,
respectively. The Partnership’s equity-based incentive compensation expense for
the nine months ended September 30, 2008 and 2009 was approximately $19.4
million and $0, respectively.





14
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


9.
            COMMITMENTS
      AND CONTINGENCIES




The
Partnership is subject to various legal actions and claims, including a
securities class action and other lawsuits, an SEC investigation and a Grand
Jury investigation due to events related to the Bankruptcy Filings (see “Item
15. Exhibits, Financial Schedules” and the Consolidated Financial Statements
included therein in the 2008 Form 10-K).  The Partnership intends to
vigorously defend these actions.  There can be no assurance regarding
the outcome of the litigation.  An estimate of possible loss, if any,
or the range of loss cannot be made and therefore the Partnership has not
accrued a loss contingency related to these actions.





The
Partnership is from time to time subject to various legal actions and claims
incidental to its business, including those arising out of environmental-related
matters.  As described in Part I, “Item 1A. Risk Factors” of the
Partnership’s 2008 Form 10-K and in Part II, “Item 1A. Risk Factors” of the
Partnership’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009,
these legal proceedings may have a material adverse effect on the financial
position, results of operations or cash flows of the Partnership. Once
management determines that information pertaining to a legal proceeding
indicates that it is probable that a liability has been incurred and the amount
of such liability can be reasonably estimated, an accrual is established equal
to its estimate of the likely exposure. The Partnership did not have an accrual
for legal settlements as of December 31, 2008 or September 30,
2009.





The
Partnership has contractual obligations to perform dismantlement and removal
activities in the event that some of its liquid asphalt cement and residual fuel
oil terminalling and storage assets are abandoned. These obligations include
varying levels of activity including completely removing the assets and
returning the land to its original state. The Partnership has determined that
the settlement dates related to the retirement obligations are indeterminate.
The assets with indeterminate settlement dates have been in existence for many
years and with regular maintenance will continue to be in service for many years
to come. Also, it is not possible to predict when demands for the Partnership’s
terminalling and storage services will cease, and the Partnership does not
believe that such demand will cease for the foreseeable
future.  Accordingly, the Partnership believes the date when these
assets will be abandoned is indeterminate. With no reasonably determinable
abandonment date, the Partnership cannot reasonably estimate the fair value of
the associated asset retirement obligations.  Management believes that
if the Partnership’s asset retirement obligations were settled in the
foreseeable future the potential cash flows that would be required to settle the
obligations based on current costs are not material.  The Partnership
will record asset retirement obligations for these assets in the period in which
sufficient information becomes available for it to reasonably determine the
settlement dates.





In the
Amended Omnibus Agreement and other agreements with the Private Company, the
Private Company agreed to indemnify the Partnership for certain environmental
and other claims relating to the crude oil and liquid asphalt cement assets that
have been contributed to the Partnership.  In connection with the
Settlement, the Partnership waived these claims and the Amended Omnibus
Agreement and other relevant agreements, including the indemnification
provisions therein, were rejected as part of the Bankruptcy Cases.  If
the Partnership experiences an environmental or other loss, it would experience
losses that may have a material adverse effect on its business, financial
condition, results of operations, cash flows, ability to make distributions to
its unitholders, the trading price of its common units and the ability to
conduct its business.




10.
            OPERATING
      SEGMENTS




The
Partnership’s operations consist of three operating segments: (i) crude oil
terminalling and storage services, (ii) crude oil gathering and transportation
services and (iii) asphalt services.  Historically, management
evaluated the performance of the Partnership’s operations by aggregating both
the crude oil terminalling and storage operating segment and the asphalt
services operating segment due to both segments having the same primary customer
(the Private Company) and similar service contracts.  As a result of
the Bankruptcy Filings, the services provided by these operating segments are no
longer for the same customer base nor are they based on contracts with similar
provisions.  As a result, the Partnership has three reportable
segments as follows:




CRUDE OIL TERMINALLING AND STORAGE
SERVICES— The Partnership provides crude oil terminalling and storage
services at its terminalling and storage facilities located in Oklahoma and
Texas.




15
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


CRUDE OIL GATHERING AND
TRANSPORTATION SERVICES—The Partnership owns and operates two pipeline
systems, the Mid-Continent system and the Longview system, that gather crude oil
purchased by the Private Company and its other customers and transports it to
refiners, to common carrier pipelines for ultimate delivery to refiners or to
terminalling and storage facilities owned by the Partnership and others. The
Partnership refers to its gathering and transportation system located in
Oklahoma and the Texas Panhandle as the Mid-Continent system. It refers to its
second gathering and transportation system, which is located in Texas, as the
Longview system. In addition to its pipelines, the Partnership uses its owned
and leased tanker trucks to gather crude oil for the Private Company and its
other customers at remote wellhead locations generally not covered by pipeline
and gathering systems and to transport the crude oil to aggregation points and
storage facilities located along pipeline gathering and transportation systems.
In connection with its gathering services, the Partnership also provides a
number of producer field services, ranging from gathering condensates from
natural gas companies to hauling produced water to disposal wells.




ASPHALT SERVICES—The
Partnership provides liquid asphalt cement and residual fuel terminalling,
storage and blending services at its terminalling and storage facilities located
in twenty-three states.  In addition, the Partnership leases certain
of its terminalling and storage facilities to third parties.




The
Partnership’s management evaluates performance based upon segment operating
margin, which includes revenues from related parties and external customers and
operating expenses excluding depreciation and amortization. The non-GAAP measure
of operating margin (in the aggregate and by segment) is presented in the
following table. The Partnership computes the components of operating margin by
using amounts that are determined in accordance with GAAP. A reconciliation of
operating margin to income (loss) before income taxes, which is its nearest
comparable GAAP financial measure, is included in the following table. The
Partnership believes that investors benefit from having access to the same
financial measures being utilized by management. Operating margin is an
important measure of the economic performance of the Partnership’s core
operations. This measure forms the basis of the Partnership’s internal financial
reporting and is used by its management in deciding how to allocate capital
resources between segments.  Income (loss) before income taxes,
alternatively, includes expense items, such as depreciation and amortization,
general and administrative expenses and interest expense, which management does
not consider when evaluating the core profitability of an
operation.




The following table reflects certain
financial data for each segment for the periods indicated.  For the
three and nine month periods ended September 30, 2008, segment information has
been recast to reflect the change in segment presentation adopted at December
31, 2008:




16
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




Crude
      Terminalling and Storage
            
            
            Crude
      Gathering and Transportation
            
            
            Asphalt
      Terminalling and Storage
            
            
            Total(in
      thousands)Three
      Months Ended September 30, 2008Service
      revenueThird
      party revenue
            
            $
            4,661
            
            
            $
            10,910
            
            
            $
            —
            
            
            $
            15,571Related
      party revenue
            
            
            6,666
            
            
            
            10,668
            
            
            
            20,889
            
            
            
            38,223Total
      revenue for reportable segments
            
            
            11,327
            
            
            
            21,578
            
            
            
            20,889
            
            
            
            53,794Operating
      expenses (excluding depreciation and amortization)
            
            
            (58
            )
            
            
            14,413
            
            
            
            7,199
            
            
            
            21,554Operating
      margin (excluding depreciation and amortization)
            
            
            11,385
            
            
            
            7,165
            
            
            
            13,690
            
            
            
            32,240
            (1
            )Total
      assets (end of period)
            
            
            85,691
            
            
            
            102,462
            
            
            
            160,960
            
            
            
            349,113Three
      Months Ended September 30, 2009Service
      revenueThird
      party revenue
            
            $
            10,286
            
            
            $
            13,254
            
            
            $
            15,481
            
            
            $
            39,021Related
      party revenue
            
            
            715
            
            
            
            279
            
            
            
            4
            
            
            
            998Total
      revenue for reportable segments
            
            
            11,001
            
            
            
            13,533
            
            
            
            15,485
            
            
            
            40,019Operating
      expenses (excluding depreciation and amortization)
            
            
            439
            
            
            
            12,542
            
            
            
            5,854
            
            
            
            18,835Operating
      margin (excluding depreciation and amortization)
            
            
            10,562
            
            
            
            991
            
            
            
            9,631
            
            
            
            21,184
            (1
            )Total
      assets (end of period)
            
            
            76,838
            
            
            
            97,872
            
            
            
            142,124
            
            
            
            316,834Nine
      Months Ended September 30, 2008Service
      revenueThird
      party revenue
            
            $
            5,672
            
            
            $
            20,548
            
            
            $
            2
            
            
            $
            26,222Related
      party revenue
            
            
            26,361
            
            
            
            47,628
            
            
            
            49,073
            
            
            
            123,062Total
      revenue for reportable segments
            
            
            32,033
            
            
            
            68,176
            
            
            
            49,075
            
            
            
            149,284Operating
      expenses (excluding depreciation and amortization)
            
            
            1,848
            
            
            
            45,891
            
            
            
            17,080
            
            
            
            64,819Operating
      margin (excluding depreciation and amortization)
            
            
            30,185
            
            
            
            22,285
            
            
            
            31,995
            
            
            
            84,465
            (1
            )Total
      assets (end of period)
            
            
            85,691
            
            
            
            102,462
            
            
            
            160,960
            
            
            
            349,113Nine
      Months Ended September 30, 2009Service
      revenueThird
      party revenue
            
            $
            30,604
            
            
            $
            41,391
            
            
            $
            21,630
            
            
            $
            93,625Related
      party revenue
            
            
            2,571
            
            
            
            1,689
            
            
            
            21,817
            
            
            
            26,077Total
      revenue for reportable segments
            
            
            33,175
            
            
            
            43,080
            
            
            
            43,447
            
            
            
            119,702Operating
      expenses (excluding depreciation and amortization)
            
            
            1,843
            
            
            
            38,364
            
            
            
            14,163
            
            
            
            54,370Gain
      on settlement transaction
            
            
            (2,585
            )
            
            
            —
            
            
            
            —
            
            
            
            (2,585
            )Operating
      margin (excluding depreciation and amortization)
            
            
            33,917
            
            
            
            4,716
            
            
            
            29,284
            
            
            
            67,917
            (1
            )Total
      assets (end of period)
            
            
            76,838
            
            
            
            97,872
            
            
            
            142,124
            
            
            
            316,834




17
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(1)
            The
      following table reconciles segment operating margin (excluding
      depreciation and amortization) to income (loss) before income taxes (in
      thousands):




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2008
            
            
            2009
            
            
            2008
            
            
            2009Operating
      margin (excluding depreciation and amortization)
            
            $
            32,240
            
            
            $
            21,184
            
            
            $
            84,465
            
            
            $
            67,917Depreciation
      and amortization
            
            
            5,814
            
            
            
            5,644
            
            
            
            15,586
            
            
            
            17,055General
      and administrative expenses
            
            
            27,177
            
            
            
            7,106
            
            
            
            33,244
            
            
            
            22,939Interest
      expense
            
            
            11,041
            
            
            
            11,242
            
            
            
            15,905
            
            
            
            35,742Income
      (loss) before income taxes
            
            $
            (11,792
            )
            
            $
            (2,808
            )
            
            $
            19,730
            
            
            $
            (7,819
            )




11.
            RECENTLY
      ISSUED ACCOUNTING STANDARDS




In June
2009, the Financial Accounting Standards Board (“FASB”) established the FASB
Accounting Standards Codification (“Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with GAAP.  While the Codification does not change GAAP, it does
change the manner in which the Partnership references authoritative accounting
principles in its consolidated financial statements.  The Codification is
effective for this Quarterly Report.




On April
1, 2009, the Partnership adopted a new accounting standard related to subsequent
events.  The standard establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  The
standard provides:




·
              The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements;




·
              The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements; and





·
              The disclosures that an entity
      should make about events or transactions that occurred after the balance
      sheet date.




On April
2, 2009, the Partnership adopted a new accounting standard that requires an
entity to provide disclosures about fair value of financial instruments in
interim financial information.  Under the standard, the Partnership is
required to include disclosures about the fair value of its financial
instruments whenever it issues financial information for interim reporting
periods.  In addition, the Partnership is required to disclose in the
body or in the accompanying notes of its summarized financial information for
interim reporting periods and in its financial statements for annual reporting
periods the fair value of all financial instruments for which it is practicable
to estimate that value, whether recognized or not recognized in the statement of
financial position.  This standard did not materially impact the
Partnership’s financial position, results of operations, or cash
flows.




12.
            SUBSEQUENT
      EVENTS




Sale
of the Partnership’s General Partner




On October 8, 2009, the Partnership
announced that Manchester has entered into an agreement with Vitol, Inc.
(“Vitol”) pursuant to which Vitol will acquire 100% of the membership interests
in SemGroup Energy Partners G.P., L.L.C., the Partnership’s general partner, and
the Partnership’s subordinated units (the “Vitol Change of Control”). The
agreement is subject to a number of customary closing conditions and approvals,
including consent from the Partnership’s lenders under its credit
agreement.




If the Vitol Change of Control is
consummated, 30,000 outstanding phantom unit awards and 5,000 outstanding
restricted unit awards under the Plan will vest and the executives of the
Partnership’s general partner will be entitled to certain payments under the
SemGroup Energy Partners G.P., L.L.C. 2009 Executive Cash Bonus
Plan.  In addition, if the Vitol Change of Control is consummated, it
will constitute a change of control under the employment agreements of the
Partnership’s named executive officers.  See Part III, “Item 11.
Executive Compensation” of the Partnership’s 2008 Form 10-K for a description of
potential payments that may be made in connection with a change of control of
the Partnership or the Partnership’s general partner.




18
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Transfer
of Certain Assets to Subsidiary Taxed as a Corporation




The Partnership has entered into new
storage contracts and leases with third party customers with respect to
substantially all of its asphalt facilities.  At the time of entering
into such agreements, it was unclear under current tax law as to whether the
rental income from the leases, and whether the fees attributable to certain of
the processing services the Partnership provides under certain of the storage
contracts, constitute “qualifying income.”  In the second quarter of
2009, the Partnership submitted a request for a ruling from the IRS that rental
income from the leases constitutes “qualifying income.”  In October
2009, the Partnership received a favorable ruling from the IRS.  As
part of this ruling, however, the Partnership has agreed to transfer certain of
its asphalt processing assets and related fee income, to a subsidiary taxed as a
corporation.  Such subsidiary will be required to pay federal income
tax on its income at the corporate tax rate, which is currently a maximum of
35%, and will likely pay state (and possibly local) income tax at varying rates.
Distributions from such subsidiary will generally be taxed again to unitholders
as corporate distributions and none of the income, gains, losses, deductions or
credits of such subsidiary will flow through to the Partnership’s unitholders.
If a material amount of entity-level taxes are incurred by such subsidiary, then
the Partnership’s cash available for distribution to its unitholders could be
substantially reduced. The Partnership does not anticipate future entity-level
taxes incurred by such subsidiary to be significant.




Litigation




Between
July 21, 2008 and September 4, 2008, the following class action complaints were
filed:




1.           Poelman v. SemGroup Energy Partners,
L.P., et al., Civil Action No. 08-CV-6477, in the United States District
Court for the Southern District of New York (filed July 21,
2008).  The plaintiff voluntarily dismissed this case on August 26,
2008;




2.           Carson v. SemGroup Energy Partners,
L.P. et al., Civil Action No. 08-cv-425, in the Northern District of
Oklahoma (filed July 22, 2008);




3.           Charles D. Maurer SIMP Profit
Sharing Plan f/b/o Charles D. Maurer v. SemGroup Energy Partners, L.P. et
al., Civil Action No. 08-cv-6598, in the United States District Court for
the Southern District of New York (filed July 25, 2008);




4.           Michael Rubin v. SemGroup Energy
Partners, L.P. et al., Civil Action No. 08-cv-7063, in the United States
District Court for the Southern District of New York (filed August 8,
2008);




5.           Dharam V. Jain v. SemGroup Energy
Partners, L.P. et al., Civil Action No. 08-cv-7510, in the United States
District Court for the Southern District of New York  (filed August
25, 2008); and




6.           William L. Hickman v. SemGroup
Energy Partners, L.P. et al., Civil Action No. 08-cv-7749, in the United
States District Court for the Southern District of New York (filed September 4,
2008).




Pursuant
to a motion filed with the MDL Panel, the Maurer case has been transferred to
the Northern District of Oklahoma and consolidated with the Carson
case.  The Rubin, Jain, and Hickman cases have also been transferred
to the Northern District of Oklahoma.




A hearing
on motions for appointment as lead plaintiff was held in the Carson case on
October 17, 2008.  At that hearing, the court granted a motion to
consolidate the Carson
and Maurer cases for
pretrial proceedings, and the consolidated litigation is now pending as In Re: SemGroup Energy Partners,
L.P. Securities Litigation , Case No. 08-CV-425-GKF-PJC. The court
entered an order on October 27, 2008, granting the motion of Harvest Fund
Advisors LLC to be appointed lead plaintiff in the consolidated
litigation.  On January 23, 2009, the court entered a Scheduling Order
providing, among other things, that the lead plaintiff may file a consolidated
amended complaint within 70 days of the date of the order, and that defendants
may answer or otherwise respond within 60 days of the date of the filing of a
consolidated amended complaint.  On January 30, 2009, the lead
plaintiff filed a motion to modify the stay of discovery provided for under the
Private Securities Litigation Reform Act. The court granted Plaintiff’s motion,
and we and certain other defendants filed a Petition for Writ of Mandamus in the
Tenth Circuit Court of Appeals that was denied after oral argument on April 24,
2009.




19
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The lead
plaintiff filed a consolidated amended complaint on May 4, 2009.  In
that complaint, filed as a putative class action on behalf of all purchasers of
our units from July 17, 2007 to July 17, 2008 (the “class period”), lead
plaintiff asserts claims under the federal securities laws against us, our
general partner, certain of our current and former officers and directors,
certain underwriters in our initial and secondary public offerings, and certain
entities who were investors in the Private Company and their individual
representatives who served on the Private Company’s management committee. Among
other allegations, the amended complaint alleges that our financial condition
throughout the class period was dependent upon speculative commodities trading
by the Private Company and its Chief Executive Officer, Thomas L. Kivisto, and
that defendants negligently and intentionally failed to disclose this
speculative trading in our public filings during the class period. The amended
complaint further alleges there were other material omissions and
misrepresentations contained in our filings during the class
period.  The amended complaint alleges claims for violations of
sections 11, 12(a)(2), and 15 of the Securities Act of 1933 for damages and
rescission with respect to all persons who purchased our units in the initial
and secondary offerings, and also asserts claims under section 10b, Rule 10b-5,
and section 20(a) of the Securities and Exchange Act of 1934. The amended
complaint seeks certification as a class action under the Federal Rules of Civil
Procedure, compensatory and rescissory damages for class members, pre-judgment
interest, costs of court, and attorneys’ fees.




On July
22, 2009, all of the defendants filed motions to dismiss the amended
complaint.  The lead plaintiff filed a response in opposition to the
defendants' motion to dismiss on September 1, 2009.  On October 8, 2009,
the defendants filed a reply in support of their motion to dismiss.  The
lead plaintiff filed a supplemental opposition to the defendants' motion to
dismiss on October 29, 2009.  The defendants' motion to dismiss is
currently pending before the court.




The
Partnership intends to vigorously defend these actions.  There can be
no assurance regarding the outcome of the litigation.  An estimate of
possible loss, if any, or the range of loss cannot be made and therefore the
Partnership has not accrued a loss contingency related to these
actions.  However, the ultimate resolution of these actions could have
a material adverse effect on the Partnership’s business, financial condition,
results of operations, cash flows, ability to make distributions to its
unitholders, the trading price of the Partnership’s common units and its ability
to conduct its business.




In March
and April 2009, nine current or former executives of the Private Company and
certain of its affiliates filed wage claims with the Oklahoma Department of
Labor against our general partner.  Their claims arise from the
Partnership’s general partner’s Long-Term Incentive Plan, Employee Phantom Unit
Agreement (“Phantom Unit Agreement”).  Most claimants alleged that
phantom units previously awarded to them vested upon the Change of Control that
occurred in July 2008.  One claimant alleged that his phantom units
vested upon his termination.  The claimants contended the
Partnership’s general partner’s failure to deliver certificates for the phantom
units within 60 days after vesting caused them to be damaged, and they
sought recovery of approximately $2 million in damages and
penalties.  On April 30, 2009, all of the wage claims were dismissed
on jurisdictional grounds by the Department of Labor.




On July
8, 2009, the nine executives filed suit against our general partner in Tulsa
County district court claiming they are entitled to recover the value of phantom
units purportedly due them under the Phantom Unit Agreement. The claimants
assert claims against our general partner for alleged failure to pay wages and
breach of contract and seek to recover the alleged value of units in the total
amount of approximately $1.3 million, plus additional damages and attorneys’
fees.  The Partnership has distributed phantom units to certain of the
claimants, but the litigation remains pending.




The
Official Committee of Unsecured Creditors of SemCrude, L.P. ("Unsecured
Creditors Committee") filed an adversary proceeding in connection with the
Bankruptcy Cases against Mr. Kivisto, Gregory C. Wallace and Westback Purchasing
Company, L.L.C., a limited liability trading partnership that Mr. Kivisto owned
and controlled.  In that proceeding, filed February 18, 2009, the
Unsecured Creditors Committee asserted various claims against the defendants on
behalf of the Private Company’s bankruptcy estate, including claims based upon
theories of fraudulent transfer, breach of fiduciary duties, waste, breach of
contract, and unjust enrichment.  On June 8, 2009, the Unsecured
Creditors Committee filed a Second Amended Complaint asserting additional claims
against Kevin L. Foxx and Alex G. Stallings, among others, based upon certain
findings and recommendations in the Examiner’s Report (see Part I, Item 1 of
this quarterly report and “Item 1. Business—Impact of the Bankruptcy of the
Private Company and Certain of its Subsidiaries and Related Events—Examiner” in
the 2008 Form 10-K). The claims against Mr. Foxx are based upon theories of
fraudulent transfer, unjust enrichment, and breach of fiduciary duty with
respect to certain bonus payments received from the Private Company, and other
claims of breach of fiduciary duty and breach of contract are also alleged
against Messrs. Foxx and Stallings in the amended complaint.  On
October 6, 2009, the Unsecured Creditors Committee filed a Third Amended
Complaint which, among other things, asserts additional fraudulent transfer and
waste claims and additional breach of fiduciary duty allegations against Messrs.
Foxx and Stallings.   Messrs. Foxx and Stallings have informed us
that they intend to vigorously defend these claims.




20
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


On July
24, 2009, the Partnership filed suit against Navigators Insurance Company
(“Navigators”) and Darwin National Assurance Company (“Darwin”) in Tulsa County
district court. In that suit, the Partnership is seeking a declaratory judgment
that Darwin and Navigators did not have the right to rescind binders issued to
the Partnership for two excess insurance policies in our Directors and Officers
insurance program for the period from July 18, 2008 to July 18, 2009. The face
amount of each policy was $10,000,000. The suit seeks a declaratory judgment
that the binders were enforceable insurance contracts of Navigators and Darwin
that have not been rescinded or cancelled. The suit also alleges that the
attempted rescissions were in breach of contract and violated the duty of good
faith and fair dealing, for which the Partnership is seeking the recovery of
damages and attorneys fees.  Navigators and Darwin have answered the
petition and the parties are engaged in discovery.




The
Partnership may become the subject of additional private or government actions
regarding these matters in the future.  Litigation may be
time-consuming, expensive and disruptive to normal business operations, and the
outcome of litigation is difficult to predict.  The defense of these
lawsuits may result in the incurrence of significant legal expense, both
directly and as the result of the Partnership’s indemnification
obligations.  The litigation may also divert management’s attention
from the Partnership’s operations which may cause its business to
suffer.  An unfavorable outcome in any of these matters may have a
material adverse effect on the Partnership’s business, financial condition,
results of operations, cash flows, ability to make distributions to its
unitholders, the trading price of the Partnership’s common units and its ability
to conduct its business. All or a portion of the defense costs and any amount
the Partnership may be required to pay to satisfy a judgment or settlement of
these claims may not be covered by insurance.




Continuing
Effects of the Bankruptcy Filings




In
addition to the items described above and in “Item 15. Exhibits, Financial
Schedules” and the Consolidated Financial Statements included therein in the
2008 Form 10-K, the Bankruptcy Filings have had and may in the future continue
to have a number of other impacts on the Partnership’s business and
management.  In the Amended Omnibus Agreement and other agreements
with the Private Company, the Private Company agreed to indemnify the
Partnership for certain environmental and other claims relating to the crude oil
and liquid asphalt cement assets that have been contributed to the
Partnership.  In connection with the Settlement, the Partnership
waived these claims and the Amended Omnibus Agreement and other relevant
agreements, including the indemnification provisions therein, were rejected as
part of the Bankruptcy Cases.  If the Partnership experiences an
environmental or other loss, it would experience increased losses that may have
a material adverse effect on the Partnership's business, financial condition,
results of operations, cash flows, ability to make distributions to its
unitholders, the trading price of its common units and its ability to conduct
its business.




The
Partnership is currently pursuing entering into additional crude oil gathering
and transportation contracts with third parties.  The uncertainty
relating to the Bankruptcy Filings and the recent global market and economic
conditions may make it more difficult to enter into service contracts with third
party customers.




In
addition, general and administrative expenses (exclusive of non-cash
compensation expense related to the vesting of the units under the Plan - see
Note 8) increased by approximately $6.4 million, $4.8 million and $4.8 million,
or approximately 278%, 209% and 209%, to approximately $8.7 million for the
first quarter of 2009, $7.1 million for the second quarter of 2009 and $7.1
million for the third quarter of 2009, respectively, compared to $2.3 million in
the second quarter of 2008.  This increase is due to increased costs
related to legal and financial advisors as well as other related costs in
connection with events related to the Bankruptcy Filings, the securities
litigation and governmental investigations, and the Partnership’s efforts to
enter into storage contracts with third party customers and pursue strategic
opportunities.  The Partnership expects this increased level of
general and administrative expenses to continue for the remainder of 2009 and
into 2010.




The
Partnership has also experienced increased interest expenses and other costs due
to the events of default that existed under the Partnership’s credit agreement
and the entering into the Forbearance Agreement, the amendments thereto and the
Credit Agreement Amendment. Please see “Item 2.— Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Liquidity and
Capital Resources” for a discussion of these agreements and the associated
expenses.




21
 SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Confirmation
of the Private Company’s Reorganization Plan




By order dated October 28, 2009, the
Bankruptcy Court confirmed the Private Company’s reorganization
plan.  Pursuant to this reorganization plan, the Private Company
expects to exit bankruptcy during the fourth quarter of 2009 and become a
publicly traded company in 2010.  The Partnership expects that the
reorganized Private Company will compete with the Partnership’s crude oil
terminalling and storage operations and the Partnership’s crude oil gathering
and transportation operations.  For a discussion of certain risks
related the Partnership’s relationship with the Private Company, including risks
relating to competition and the Partnership’s reliance upon the Private Company
for certain shared services, please see Part I, “Item 1A. Risk Factors” in the
Partnership’s 2008 Form 10-K.




22


Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations




As
used in this quarterly report, unless we indicate otherwise: (1) “SemGroup
Energy Partners,” “our,” “we,” “us” and similar terms refer to SemGroup Energy
Partners, L.P., together with our subsidiaries and (2) the “Private Company”
refers to SemGroup, L.P. and its subsidiaries and affiliates (other than our
general partner and us). The following discussion analyzes the historical
financial condition and results of operations of the Partnership and should be
read in conjunction with our financial statements and notes thereto, and
Management’s Discussion and Analysis of Financial Condition and Results of
Operations presented in our Annual Report on Form 10-K for the year ended
December 31, 2008.




Forward-Looking
Statements




This
report contains “forward-looking statements” intended to qualify for the safe
harbors from liability established by the federal securities
laws.  Statements included in this quarterly report that are not
historical facts (including any statements concerning the benefits of the
Settlement (as defined below) or the Credit Agreement Amendment (as defined
below), the impact of the Bankruptcy Filings (as defined below) and any
statements regarding plans and objectives of management for future operations or
economic performance, or assumptions or forecasts related thereto), including,
without limitation, the information set forth in Management’s Discussion and
Analysis of Financial Condition and Results of Operations, are forward-looking
statements. These statements can be identified by the use of forward-looking
terminology including “may,” “will,” “should,” “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “continue,” or other similar words. These statements
discuss future expectations, contain projections of results of operations or of
financial condition, or state other “forward-looking” information. We and our
representatives may from time to time make other oral or written statements that
are also forward-looking statements.




Such
forward-looking statements are subject to various risks and uncertainties that
could cause actual results to differ materially from those anticipated as of the
date of the filing of this report. Although we believe that the expectations
reflected in these forward-looking statements are based on reasonable
assumptions, no assurance can be given that these expectations will prove to be
correct. Important factors that could cause our actual results to differ
materially from the expectations reflected in these forward-looking statements
include, among other things, those set forth in Part I, “Item 1A. Risk Factors”
in our Annual Report on Form 10-K for the year ended December 31, 2008, which
was filed with the Securities and Exchange Commission (the “SEC”) on July 2,
2009 (the “2008 Form 10-K”), and those set forth in Part II, “Item 1A. Risk
Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30,
2009, which was filed with the SEC on August 24, 2009.




All
forward-looking statements included in this report are based on information
available to us on the date of this report. We undertake no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained
throughout this report.




Overview




We are a
publicly traded master limited partnership with operations in twenty-three
states. We provide integrated terminalling, storage, gathering and
transportation services for companies engaged in the production, distribution
and marketing of crude oil and liquid asphalt cement. We manage our operations
through three operating segments: (i) crude oil terminalling and storage
services, (ii) crude oil gathering and transportation services and (iii)
asphalt services.  We were formed in February 2007 as a Delaware
master limited partnership initially to own, operate and develop a diversified
portfolio of complementary midstream energy assets.




From our
formation until the Settlement (as defined below), we relied on the Private
Company for a substantial portion of our revenues, which were derived from
services provided to the finished asphalt product processing and marketing
operations of the Private Company pursuant to the Terminalling and Storage
Agreement (the “Terminalling Agreement”) and from services provided to the crude
oil purchasing, marketing and distribution operations of the Private Company
pursuant to the Throughput Agreement (the “Throughput
Agreement”).  Additionally, during that time period, we paid the
Private Company a fixed administrative fee for the provision by the Private
Company of various general and administrative services to us pursuant to the
Amended and Restated Omnibus Agreement between us and the Private Company (the
“Amended Omnibus Agreement”).




23


On July
22, 2008 and thereafter, the Private Company and certain of its subsidiaries
filed voluntary petitions (the “Bankruptcy Filings”) for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the “Bankruptcy Court”), Case No.
08-11547-BLS.  The Private Company and its subsidiaries continue to
operate their businesses and own and manage their properties as
debtors-in-possession under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code (the
“Bankruptcy Cases”).  By order dated October 28, 2009, the Bankruptcy
Court confirmed the Private Company’s reorganization plan.  Pursuant
to this reorganization plan, the Private Company expects to exit bankruptcy
during the fourth quarter of 2009 and become a publicly traded company in
2010.  None of us, our general partner, our subsidiaries nor the
subsidiaries of our general partner are debtors in the Bankruptcy
Cases.




On April
7, 2009, we and the Private Company executed definitive documentation relating
to the settlement of certain matters between the Private Company and us, to be
effective as of 11:59 PM CDT March 31, 2009 (the “Settlement”).  The
Settlement provided for the following, among other items:




·
            we
      transferred certain crude oil assets located in Kansas and northern
      Oklahoma to the Private Company.  These transfers included real
      property and associated personal property at locations where the Private
      Company owned the pipeline.  We retained certain access and
      connection rights to enable us to continue to operate our crude oil
      trucking business in such areas.  In addition, we transferred
      our interests in the SCADA System, a crude oil inventory tracking system,
      to the Private Company (collectively, the “Transferred Settlement
      Assets”);




·
            the
      Private Company transferred to us (i) 355,000 barrels of crude oil line
      fill and tank bottoms, which are necessary for us to operate our crude oil
      tank storage operations and our Oklahoma and Texas crude oil pipeline
      systems, (ii) certain personal property located in Oklahoma, Texas and
      Kansas used in connection with our crude oil trucking business and (iii)
      certain real property located in Oklahoma, Kansas, Texas and New Mexico
      that was intended to be transferred in connection with our initial public
      offering (the “Crude Oil Assets”).  In addition, the Private
      Company transferred certain asphalt processing assets that were
      connected to, adjacent to, or otherwise contiguous with our existing
      asphalt facilities and associated real property interests to us (the
      “Asphalt Assets”).  The transfer of the Asphalt Assets in
      connection with the Settlement provides us with outbound logistics for our
      existing asphalt assets and, therefore, allows us to provide asphalt
      terminalling, storage and processing services to third
      parties;




·
            the
      Private Company rejected the Throughput Agreement and we and the Private
      Company entered into a new Throughput Agreement (the “New Throughput
      Agreement”) pursuant to which we provide certain crude oil gathering,
      transportation, terminalling and storage services to the Private
      Company;




·
            the
      Private Company rejected the Terminalling Agreement and we and the Private
      Company entered into a new Terminalling and Storage Agreement (the “New
      Terminalling Agreement”) pursuant to which we provide liquid asphalt
      cement terminalling and storage services for the Private Company’s
      remaining asphalt inventory;




·
            the
      Private Company rejected the Amended Omnibus Agreement and we and the
      Private Company entered into a Shared Services Agreement (the “Shared
      Services Agreement”) pursuant to which the Private Company provides
      certain operational services for
us;




·
            we
      and the Private Company entered into a Transition Services Agreement (the
      “Transition Services Agreement”), pursuant to which the Private Company
      provides certain corporate, crude oil and asphalt transition services, in
      each case for a limited amount of time, to
us;




·
            we
      offered employment to certain crude oil employees;
  and




·
            certain
      pre-petition claims by the Private Company and us were netted and
      waived.




24


We
accounted for the Settlement as an exchange of nonmonetary
assets.  Accordingly, the accounting for the Settlement was based upon
the fair value of the assets we transferred to the Private
Company.  These assets included the Transferred Settlement Assets
(fair value of $5.5 million) and a receivable for March 2009 services provided
to the Private Company (fair value of $4.0 million).  The fair value
was allocated to the assets that we received in the Settlement, with $7.5
million recorded to pipeline linefill and tank bottoms, $1.7 million to the
Asphalt Assets, and $0.3 million to the received pipeline
easements.  The fair value of the Transferred Settlement Assets
exceeded their book value, which resulted in our recording a gain of
approximately $2.6 million in the three months ended June 30, 2009.





Please see “Item 1. Business—Impact of
the Bankruptcy of the Private Company and Certain of its Subsidiaries and
Related Events” in the 2008 Form 10-K for a further discussion of the
Settlement.




Impact
of the Bankruptcy of the Private Company and Certain of its Subsidiaries and
Related Events




The
Bankruptcy Filings and the events related thereto have had a significant impact
on our business and results of operations and may in the future impact it in
various ways. These items include, among others: (i) the reconstitution of the
Board and management in connection with a change of control that occurred in
July 2008 (the “Change of Control”), (ii) the events of default that were
triggered under our credit facility, the Forbearance Agreement and amendments
thereto and the Credit Agreement Amendment that we entered into in order to
waive such events of default, (iii) the uncertainty relating to and the
rebuilding of our business to provide services to and derive revenues from third
parties instead of relying upon the Private Company for substantially all of our
revenues, (iv) the hiring of certain operational employees in connections with
the Settlement and the rejection of the Amended Omnibus Agreement, (v) becoming
a party to securities and other litigation as well as governmental
investigations, (vi) being delisted from the Nasdaq Global Market, (vii) failing
to make distributions for the second, third and fourth quarters of 2008 and the
first, second and third quarters of 2009, and the expectation that we will not
make a distribution for the fourth quarter of 2009, (viii) experiencing
increased general and administrative expenses due to the costs related to legal
and financial advisors as well as other related costs, (ix) experiencing
increased interest expense as a result of the Forbearance Agreement and
amendments thereto and the Credit Agreement Amendment and (x) the entering into
the Settlement with the Private Company. Certain of these items are discussed in
more detail below. In addition, please see “Item 1. Business—Impact of the
Bankruptcy of the Private Company and Certain of its Subsidiaries and Related
Events” and “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Impact of the Bankruptcy of the Private Company and
Certain of its Subsidiaries and Related Events” in the 2008 Form 10-K for a
further discussion of the impact of the Bankruptcy Filings upon our
business.




Our
Revenues




For the
three and nine months ended September 30, 2009, respectively, we derived
approximately 3% and 21% of our revenues, excluding fuel reimbursement revenues
related to fuel and power consumed to operate our liquid asphalt cement storage
tanks, from services we provided to the Private Company and its
subsidiaries.  Prior to an order relating to the settlement of certain
matters between us and the Private Company issued by the Bankruptcy Court on
September 9, 2008 (the “Order”) and the Settlement, the Private Company was
obligated to pay us minimum monthly fees totaling $76.1 million annually and
$58.9 million annually in respect of the minimum commitments under the
Throughput Agreement and the Terminalling Agreement, respectively, regardless of
whether such services were actually utilized by the Private
Company.  The Order required the Private Company to make certain
payments under the Throughput Agreement and Terminalling Agreement during a
portion of the third and fourth quarters of 2008, including the contractual
minimum payments under the Terminalling Agreement.  In connection with
the Settlement, we waived the fees due under the Terminalling Agreement during
March 2009.  In addition, the Private Company rejected the Throughput
Agreement and the Terminalling Agreement and we and the Private Company entered
into the New Throughput Agreement and the New Terminalling
Agreement.  Revenues from services provided to the Private Company
under the New Throughput Agreement and New Terminalling Agreement are
substantially less than prior revenues from services provided to the Private
Company as the new agreements are based upon actual volumes gathered,
transported, terminalled and stored instead of certain minimum volumes and are
at reduced rates when compared to the Throughput Agreement and Terminalling
Agreement.  Also in connection with the Settlement, the Private
Company transferred certain asphalt assets to us that were connected to our
existing asphalt assets.  The transfer of the Private Company’s
asphalt assets in connection with the Settlement provides us with asphalt
processing assets and outbound logistics for our existing asphalt assets and,
therefore, allows us to provide asphalt services for third parties.




25





We have
been pursuing opportunities to provide crude oil terminalling and storage
services, crude oil gathering and transportation services and asphalt services
to third parties.  As a result of new crude oil third-party storage
contracts, we increased our third-party crude oil terminalling and storage
revenue from approximately $1.0 million, or approximately 10% of total crude oil
terminalling and storage revenue during the second quarter of 2008, to
approximately $10.2 million, $10.3 million and $10.3 million, or approximately
88%, 96% and 94% of total crude oil terminalling and storage revenue for the
first, second and third quarters of 2009, respectively.




In
addition, as a result of new third-party crude oil transportation contracts and
reduced commitments of usage by the Private Company under the Throughput
Agreement and New Throughput Agreement, we increased our third-party gathering
and transportation revenue from approximately $5.0 million, or approximately 21%
of total gathering and transportation revenue during the second quarter of 2008,
to approximately $13.9 million, $14.2 million and $13.3 million, or
approximately 93%, 98% and 98% of total crude oil gathering and transportation
revenue for the first, second and third quarters of 2009,
respectively.





The
significant majority of the increase in third party revenues results from an
increase in third-party crude oil services provided and a corresponding decrease
in the Private Company’s crude oil services provided due to the termination of
the monthly contract minimum revenues under the Throughput Agreement in
September 2008 and reduced revenues under the New Throughput
Agreement.  Average rates for the new third-party crude oil
terminalling and storage and transportation and gathering contracts are
comparable with those previously received from the Private
Company.  However, the volumes being terminalled, stored, transported
and gathered have decreased as compared to periods prior to the Bankruptcy
Filings, which has negatively impacted total revenues.  As an example,
third quarter 2009 total revenues are approximately $11.9 million (or
approximately 24%) less than second quarter 2008 total revenues, in each case
excluding fuel reimbursement revenues related to fuel and power consumed to
operate our liquid asphalt cement storage tanks.





In
addition, we currently have entered into leases and storage agreements with
third party customers relating to 45 of our 46 asphalt
facilities.  The majority of these leases and storage agreements with
third parties extend through December 31, 2011.  We operate the
asphalt facilities pursuant to the storage agreements while our contract
counterparties operate the asphalt facilities that are subject to the lease
agreements.  The revenues we receive pursuant to these leases and
storage agreements are less than the revenues received under the Terminalling
Agreement with the Private Company.  We expect annual revenues from
these leases and storage agreements to be approximately $40
million.




We are
continuing to pursue additional contracts with third parties; however, these
additional efforts may not be successful.  In addition, certain third
parties may be less likely to enter into business transactions with us due to
the Bankruptcy Filings.  As a result, unless we are able to generate
additional third party revenues, we will continue to experience lower volumes in
our system which could have a material adverse effect on our results of
operations and cash flows.




Our
Expenses




Events
related to the Bankruptcy Filings, the securities litigation and governmental
investigations, and our efforts to enter into storage contracts with third party
customers and pursue strategic opportunities have resulted in increased expenses
beginning in the third quarter of 2008 due to the costs related to legal and
financial advisors as well as other related costs.  General and
administrative expenses (exclusive of non-cash compensation expense related to
the vesting of the units under the SemGroup Energy Partners G. P., L.L.C.
Long-Term Incentive Plan (the “Plan”)) increased by approximately $4.8 million,
or approximately 209%, to approximately $7.1 million for the third quarter of
2009, compared to $2.3 million in the second quarter of 2008.  We
expect this increased level of general and administrative expenses to continue
for the remainder of 2009 and into 2010.




In
addition, we have experienced increased interest expenses and other costs due to
the events of default that existed under our credit agreement and the entering
into the Forbearance Agreement, the amendments thereto and the Credit Agreement
Amendment.  Please see “—Liquidity and Capital Resources” for a
discussion of these agreements and the associated expenses.









26


Expansions




On
February 20, 2008, we purchased land, receiving infrastructure, storage tanks,
machinery, pumps and piping at 46 liquid asphalt cement and residual fuel oil
terminalling and storage facilities (the “Acquired Asphalt Assets”) from the
Private Company for aggregate consideration of $379.5 million, including $0.7
million of acquisition-related costs. For accounting purposes, the acquisition
has been reflected as a purchase of assets, with the Acquired Asphalt Assets
recorded at the historical cost of the Private Company, which was approximately
$145.5 million, with the additional purchase price of $234.0 million reflected
in the statement of changes in partners’ capital as a distribution to the
Private Company.





On May
12, 2008, we purchased the Eagle North Pipeline System, a 130-mile, 8-inch
pipeline that originates in Ardmore, Oklahoma and terminates in Drumright,
Oklahoma as well as other real and personal property related to the pipeline
(the “Acquired Pipeline Assets”) from the Private Company for aggregate
consideration of $45.1 million, including $0.1 million of acquisition-related
costs.  For accounting purposes, the acquisition has been reflected as
a purchase of assets, with the Acquired Pipeline Assets recorded at the
historical cost of the Private Company, which was approximately $35.1 million,
with the additional purchase price of $10.0 million reflected in the statement
of changes in partners’ capital as a distribution to the Private
Company.  We expect to resume capital expenditures on this pipeline in
the fourth quarter of 2009 and expect to incur an additional $3.5 million to
$4.0 million in capital expenditures prior to placing this pipeline system in
service at the end of the second quarter of 2010.





On May
30, 2008, we purchased certain land, crude oil storage and terminalling
facilities with an aggregate of approximately 2.0 million barrels of storage
capacity and related assets located at the Cushing Interchange from the Private
Company and we assumed a take-or-pay, fee-based, third party contract through
August 2010 relating to the 2.0 million barrels of storage capacity (the
“Acquired Storage Assets”) for aggregate consideration of $90.3 million,
including $0.3 million of acquisition-related costs.  For accounting
purposes, the acquisition has been reflected as a purchase of assets, with the
Acquired Storage Assets recorded at the historical cost of the Private Company,
which was approximately $17.2 million, inclusive of $0.6 million of completion
costs subsequent to the close of the acquisition, with the additional purchase
price of $73.1 million reflected in the statement of changes in partners’
capital as a distribution to the Private Company.




Recent
Developments




Sale
of our General Partner




On October 8, 2009, we announced that
Manchester Securities Corp. (“Manchester”) has entered into an agreement with
Vitol, Inc. (“Vitol”) pursuant to which Vitol will acquire 100% of the
membership interests in SemGroup Energy Partners G.P., L.L.C., our general
partner, and our subordinated units (the “Vitol Change of Control”). The
agreement is subject to a number of customary closing conditions and approvals,
including consent from the lenders under our credit
agreement.




If the Vitol Change of Control is
consummated, 30,000 outstanding phantom unit awards and 5,000 outstanding
restricted unit awards under the Plan will vest and the executives of our
general partner will be entitled to certain payments under the SemGroup Energy
Partners G.P., L.L.C. 2009 Executive Cash Bonus Plan.  In addition, if
the Vitol Change of Control is consummated, it will constitute a change of
control under the employment agreements of our named executive
officers.  See Part III, “Item 11. Executive Compensation” of our 2008
Form 10-K for a description of potential payments that may be made in connection
with a change of control of us or our general partner.




27


Transfer
of Certain Assets to Subsidiary Taxed as a Corporation




We have entered into new storage
contracts and leases with third party customers with respect to substantially
all of our asphalt facilities.  At the time of entering into such
agreements, it was unclear under current tax law as to whether the rental income
from the leases, and whether the fees attributable to certain of the processing
services we provide under certain of the storage contracts, constitute
“qualifying income.”  In the second quarter of 2009, we submitted a
request for a ruling from the IRS that rental income from the leases constitutes
“qualifying income.”  In October 2009, we received a favorable ruling
from the IRS.  As part of this ruling, however, we have agreed to
transfer certain of our processing assets and related fee income, to a
subsidiary taxed as a corporation.  Such subsidiary will be required
to pay federal income tax on its income at the corporate tax rate, which is
currently a maximum of 35%, and will likely pay state (and possibly local)
income tax at varying rates.  Distributions from such subsidiary will
generally be taxed again to unitholders as corporate distributions and none of
the income, gains, losses, deductions or credits of such subsidiary will flow
through to our unitholders. If a material amount of entity-level taxes are
incurred by such subsidiary, then our cash available for distribution to our
unitholders could be substantially reduced.  We do not anticipate
future entity-level taxes incurred by such subsidiary to be
significant.




Confirmation
of the Private Company’s Reorganization Plan




By order dated October 28, 2009, the
Bankruptcy Court confirmed the Private Company’s reorganization
plan.  Pursuant to this reorganization plan, the Private Company
expects to exit bankruptcy during the fourth quarter of 2009 and become a
publicly traded company in 2010.  We expect that the reorganized
Private Company will compete with our crude oil terminalling and storage
operations and our crude oil gathering and transportation
operations.  For a discussion of certain risks related our
relationship with the Private Company, including risks relating to competition
and our reliance upon the Private Company for certain shared services, please
see Part I, “Item 1A. Risk Factors” in our 2008 Form 10-K.









28


Results
of Operations




The table
below summarizes the financial results of the Partnership for the three and nine
months ended September 30, 2008 and 2009.




Three
      Months ended
                September
      30,
            
            
            Nine
      Months Ended
                September
      30,2008
            
            
            2009
            
            
            2008
            
            
            2009(in
      thousands)
            
            
            (in
      thousands)Service
      revenues:Crude
      oil terminalling and storage revenues:Third
      party
            
            $
            4,661
            
            
            $
            10,286
            
            
            $
            5,672
            
            
            $
            30,604Related
      party
            
            
            6,666
            
            
            
            715
            
            
            
            26,361
            
            
            
            2,571Total
      crude oil terminalling and storage
            
            
            11,327
            
            
            
            11,001
            
            
            
            32,033
            
            
            
            33,175Crude
      oil gathering and transportation revenues:Third
      party
            
            
            10,910
            
            
            
            13,254
            
            
            
            20,548
            
            
            
            41,391Related
      party
            
            
            10,668
            
            
            
            279
            
            
            
            47,628
            
            
            
            1,689Total
      crude oil gathering and transportation
            
            
            21,578
            
            
            
            13,533
            
            
            
            68,176
            
            
            
            43,080Asphalt
      services revenues:Third
      party
            
            
            —
            
            
            
            15,481
            
            
            
            2
            
            
            
            21,630Related
      party
            
            
            20,889
            
            
            
            4
            
            
            
            49,073
            
            
            
            21,817Total
      asphalt services
            
            
            20,889
            
            
            
            15,485
            
            
            
            49,075
            
            
            
            43,447Total
      revenues
            
            
            53,794
            
            
            
            40,019
            
            
            
            149,284
            
            
            
            119,702Operating
      expenses:Crude
      oil terminalling and storage
            
            
            991
            
            
            
            1,552
            
            
            
            4,759
            
            
            
            5,081Crude
      oil gathering and transportation
            
            
            16,212
            
            
            
            14,038
            
            
            
            51,334
            
            
            
            43,143Asphalt
      services
            
            
            10,165
            
            
            
            8,889
            
            
            
            24,312
            
            
            
            23,201Total
      operating expenses
            
            
            27,368
            
            
            
            24,479
            
            
            
            80,405
            
            
            
            71,425General
      and administrative expenses:
            
            
            27,177
            
            
            
            7,106
            
            
            
            33,244
            
            
            
            22,939Gain
      on settlement transaction:
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,585Operating
      income (loss)
            
            
            (751
            )
            
            
            8,434
            
            
            
            35,635
            
            
            
            27,923Interest
      expense
            
            
            11,041
            
            
            
            11,242
            
            
            
            15,905
            
            
            
            35,742Income
      tax expense
            
            
            59
            
            
            
            51
            
            
            
            227
            
            
            
            159Net
      income (loss)
            
            $
            (11,851
            )
            
            $
            (2,859
            )
            
            $
            19,503
            
            
            $
            (7,978
            )




Three
Months Ended September 30, 2009 Compared to the Three Months Ended September 30,
2008




Service revenues. Service
revenues were $40.0 million for the three months ended September 30, 2009
compared to $53.8 million for the three months ended September 30, 2008, a
decrease of $13.8 million, or 26%.  Service revenues include revenues
from crude oil terminalling and storage services, crude oil gathering and
transportation services and asphalt services. Crude oil terminalling and storage
revenues decreased by $0.3 million to $11.0 million for the three months ended
September 30, 2009 compared to $11.3 million for the three months ended
September 30, 2008, primarily due to our transferring certain crude oil storage
assets located in Kansas and northern Oklahoma to the Private Company in April
2009 in connection with the Settlement.




29


Our crude
oil gathering and transportation services revenue decreased by $8.1 million to
$13.5 million for the three months ended September 30, 2009 compared to $21.6
million for the three months ended September 30, 2008.  The decrease
is primarily due to the impact of the Bankruptcy Filings and the resulting
decrease in the volume of crude oil we gathered and transported for our
customers.  Historically, the Private Company was a first purchaser of
crude oil and it utilized our gathering and transportation assets to deliver its
crude oil to market.  As we are not in the business of purchasing
crude oil, the utilization of our crude oil gathering and transportation assets
is now dependent on third party purchasers of crude oil, some of whom own
alternative gathering and transportation assets.  Our reliance on
third party purchasers of crude oil has resulted in a decrease in the
utilization of our crude oil gathering and transportation assets, and we
continue to expect a similar level of utilization of these assets for the
remainder of 2009.  In connection with the Bankruptcy Filings, the
Private Company rejected the Throughput Agreement, and we concurrently began to
replace this business with services provided to third party
customers.  Third parties accounted for 98% of our total crude oil
gathering and transportation revenue of $13.5 million for the three months ended
September 30, 2009 compared to 51% of our total crude oil gathering and
transportation revenue for the three months ended September 30,
2008.




Our
asphalt services revenue decreased by $5.4 million to $15.5 million for the
three months ended September 30, 2009 compared to $20.9 million for the three
months ended September 30, 2008.  The decrease is primarily due to the
impact of the Private Company's rejection of the Terminalling
Agreement.  In connection with entering into the Settlement with the
Private Company in April of 2009, we executed a new Terminalling Agreement with
the Private Company.  In addition, we currently have entered into
leases and storage agreements with third party customers relating to 45 of our
46 asphalt facilities.  We expect annual revenues from these leases
and storage agreements to be approximately $40 million excluding fuel
reimbursement revenues related to fuel and power consumed to operate our liquid
asphalt cement storage tanks.




Operating
expenses. Operating expenses include salary and wage expenses
and related taxes and depreciation and amortization
expenses.  Operating expenses decreased by $3.7 million, or 13%, to
$24.5 million for the three months ended September 30, 2009 compared to $28.2
million for the three months ended September 30, 2008.  Crude oil
terminalling and storage operating expenses decreased by $0.2 million to $1.6
million for the three months ended September 30, 2009 compared to $1.8 million
for the three months ended September 30, 2008.  The decrease is
primarily a result of a decrease in costs we incur by directly employing our
operating personnel as compared to what we were historically charged by the
Private Company for personnel costs related to the operation of our crude oil
terminalling and storage assets.  Our crude oil gathering and
transportation operating expenses decreased by $2.2 million to $14.0 million for
the three months ended September 30, 2009 compared to $16.2 million for the
three months ended September 30, 2008.  The decrease is due to the
decreased utilization of our crude oil gathering and transportation assets as
discussed above. Our asphalt operating expenses decreased $1.3 million, or 13%,
to $8.9 million for the three months ended September 30, 2009 compared to $10.2
million for the three months ended September 30, 2008 primarily due to the
Private Company's rejection of the Terminalling Agreement and a related
reduction in fuel and power consumed to heat our liquid asphalt cement storage
tanks.  This reduction in fuel and power costs is also a result of the
timing in which we entered into new lease and storage contracts with third party
customers during the second quarter of 2009.  While our total
operating expenses related to our asphalt operations decreased, property taxes
related to these operations increased by $0.5 million to $1.1 million for the
three months ended September 30, 2009 compared to $0.6 million for the three
months ended September 30, 2008 primarily as a result of the asphalt assets we
received in the Settlement.




Fuel
expenses incurred in our crude oil gathering and transportation segment
decreased by $1.7 million to $1.7 million for the three months ended September
30, 2009 compared to $3.4 million for the three months ended September 30, 2008.
The decline in our fuel costs is primarily attributable to the decreased
utilization of our crude oil transport trucks as a result of the impact of the
Bankruptcy Filings.  Fuel and power expenses incurred in association
with the boiler systems used to heat our liquid asphalt cement storage tanks
decreased by $3.3 million to $1.4 million for the three months ended September
30, 2009 compared to $4.7 million for the three months ended September 30,
2008.  The decline in these fuel and power costs primarily the result
of a decline in natural gas prices.




Our
repair and maintenance expenses increased by $0.2 million to $1.7 million for
the three months ended September 30, 2009 compared to $1.5 million for the three
months ended September 30, 2008.  This increase was primarily due to
right of way maintenance related to our crude oil gathering and transportation
services.




30


Insurance
premium expenses increased by $0.3 million to $0.7 million for the three months
ended September 30, 2009 compared to $0.4 million for the three months ended
September 30, 2008.  This increase was primarily due to our
independently obtaining health insurance for our employees in conjunction with
separating from the Private Company.  Historically, we were allocated
premiums under the Private Company’s self-insured health plan for the Private
Company’s employees that provided services to us.




The three
months ended September 30, 2008 includes a decrease of $0.9 million in our
allowance for doubtful accounts for amounts due from the Private Company that
had been reserved as of June 30, 2008.  Pursuant to the
Settlement, our pre-petition claims against the Private Company have been
netted against pre-petition claims by the Private Company against us and
waived.  As a result, the allowance previously established for amounts
due us from the Private Company has been reversed.  The three months
ended September 30, 2008 also includes an allowance for doubtful accounts
increase of $0.1 million for services provided to certain third parties as of
September 30, 2008.  The allowance related to amounts due from third
parties increased as a result of certain third party customers netting amounts
due them from the Private Company with amounts due to us.  We have
experienced no additional collection issues with respect to amounts due us as of
September 30, 2009.




General and administrative
expenses. General and administrative expenses decreased by $20.1 million,
or 74%, to $7.1 million for the three months ended September 30, 2009 compared
to $27.2 million for the three months ended September 30, 2008. This decrease is
primarily attributable to the $18.0 million in equity-based incentive
compensation we incurred in the third quarter of 2008 associated with the
vesting of all awards outstanding under the Plan at the time of the Change of
Control.  In addition legal, financial advisory and other professional
expenses decreased by $2.0 million to $4.3 million for the three months ended
September 30, 2009 compared to $6.3 million for the three months ended September
30, 2008.




Interest
expense.Interest expense represents interest on capital lease
obligations and long-term borrowings under our credit
facility.  Interest expense remained relatively consistent at $11.2
million for the three months ended September 30, 2009 compared to $11.0 million
for the three months ended September 30, 2008.




Nine
Months Ended September 30, 2009 Compared to the Nine Months Ended September 30,
2008




Service
revenues.  Service revenues were $119.7 million for the nine
months ended September 30, 2009 compared to $149.3 million for the nine months
ended September 30, 2008, a decrease of $29.6 million, or
20%.   Service revenues include revenues from crude oil
terminalling and storage services, crude oil gathering and transportation
services and asphalt services. Crude oil terminalling and storage revenues
increased by $1.2 million to $33.2 million for the nine months ended September
30, 2009 compared to $32.0 million for the nine months ended September 30, 2008,
primarily due to an increase in revenue generated by short-term storage
contracts at our Longview terminal in East Texas. In connection with the
Bankruptcy Filings, the Private Company rejected the Throughput Agreement, and
we concurrently began to replace this business with services provided to third
party customers.  This resulted in a $25.0 million increase in our
third party crude oil terminalling and storage revenues during the nine months
ended September 30, 2009 as compared to the nine months ended September 30,
2008.




Our crude
oil gathering and transportation services revenue decreased by $25.1 million to
$43.1 million for the nine months ended September 30, 2009 compared to $68.2
million for the nine months ended September 30, 2008.  The decrease is
primarily due to the impact of the Bankruptcy Filings and the resulting decrease
in the volume of crude oil we gathered and transported for our
customers.  Historically, the Private Company was a first purchaser of
crude oil and it utilized our gathering and transportation assets to deliver its
crude oil to market.  As we are not in the business of purchasing
crude oil, the utilization of our crude oil gathering and transportation assets
is now dependent on third party purchasers of crude oil, some of whom own
alternative gathering and transportation assets.  Our reliance on
third party purchasers of crude oil has resulted in a decrease in the
utilization of our crude oil gathering and transportation assets, and we
continue to expect a similar level of utilization of these assets for the
remainder of 2009.  In connection with the Bankruptcy Filings, the
Private Company rejected the Throughput Agreement, and we concurrently began to
replace this business with services provided to third party
customers.  Third parties accounted for 96% of our total crude oil
gathering and transportation revenue of $43.1 million for the nine months ended
September 30, 2009 compared to 30% of our total crude oil gathering and
transportation revenue of $68.2 million for the nine months ended September 30,
2008.




31


Our
asphalt services revenue decreased by $5.7 million to $43.4 million for the nine
months ended September 30, 2009 compared to $49.1 million for the nine months
ended September 30, 2008.  The decrease is primarily due to the impact
of the Private Company's rejection of the Terminalling Agreement and the timing
of our entering into new leases and storage agreements with third party
customers in the middle of the second quarter of 2009, and is partially offset
by the fact that our results of operations for the nine months ended September
30, 2008 include only approximately seven months of operations due to the timing
of our purchase of the Acquired Asphalt Assets.  In connection with
entering into the Settlement with the Private Company in April of 2009, we
executed a new Terminalling Agreement with the Private Company.  In
addition, we currently have entered into leases and storage agreements with
third party customers relating to 45 of our 46 asphalt facilities.  We
expect annual revenues from these leases and storage agreements to be
approximately $40 million.




Operating expenses. Operating
expenses include salary and wage expenses and related taxes and depreciation and
amortization expenses.  Operating expenses decreased by $8.6 million,
or 11%, to $71.4 million for the nine months ended September 30, 2009 compared
to $80.0 million for the nine months ended September 30, 2008.  Crude
oil terminalling and storage operating expenses increased by $0.3 million to
$5.1 million for the nine months ended September 30, 2009 compared to $4.8
million for the nine months ended September 30, 2008. The increase is primarily
a result of an increase in repair and maintenance of our crude oil storage
tanks.  Our crude oil gathering and transportation operating expenses
decreased by $7.7 million to $43.2 million for the nine months ended September
30, 2009 compared to $50.9 million for the nine months ended September 30,
2008.  The decrease is due to the decreased utilization of our crude
oil gathering and transportation assets as discussed above.  Our
asphalt operating expenses decreased by $1.1 million to $23.2 million for the
nine months ended September 30, 2009 compared to $24.3 million for the nine
months ended September 30, 2008.  This was primarily due to decreased
fuel and power expenses incurred for the boiler systems used to heat our liquid
asphalt cement storage tanks due to the Private Company’s rejection of the
Terminalling Agreement and the timing of our entering into new leases and
storage agreements with third party customers.  This decrease was
partially offset by increased compensation expenses related to the hiring of our
asphalt operational personnel in June of 2009 and increased property taxes
associated with the asphalt assets we received in the Settlement.




Fuel
expenses incurred in our crude oil gathering and transportation segment
decreased by $4.7 million to $5.0 million for the nine months ended September
30, 2009 compared to $9.7 million for the nine months ended September 30, 2008.
The decline in our fuel costs is primarily attributable to the decreased
utilization of our crude oil transport trucks as a result of the impact of the
Bankruptcy Filings.  Fuel and power expenses incurred in association
with the boiler systems used to heat our liquid asphalt cement storage tanks
decreased by $7.1 million to $3.6 million for the nine months ended September
30, 2009 compared to $10.7 million for the nine months ended September 30,
2008.  The decline in these fuel and power costs is a result of
decreased utilization of our asphalt storage tanks by the Private Company as a
result of its Bankruptcy Filings, its rejection of the Terminalling Agreement in
April of 2009 and the timing of our contracting our asphalt assets to new third
party customers.




Our
repair and maintenance expenses decreased by $0.5 million to $5.4 million for
the nine months ended September 30, 2009 as compared to the nine months ended
September 30, 2008, primarily due to the decreased utilization of our crude oil
gathering and transportation assets noted above. Lease expense related to crude
oil tanker trucks increased by $0.3 million to $2.3 million for the nine months
ended September 30, 2009. This increase is attributable to the replacement of
crude oil transport vehicles that were historically financed through capital
leases.




Insurance
premium expenses increased by $0.4 million to $1.7 million for the nine months
ended September 30, 2009 compared to $1.3 million for the nine months ended
September 30, 2008.  This increase was primarily due to our
independently obtaining health insurance for our employees in conjunction with
separating from the Private Company.  Historically, we were allocated
premiums under the Private Company’s self-insured health plan for the Private
Company’s employees that provided services to us.




The nine
months ended September 30, 2008 reflects a $0.4 million allowance for doubtful
accounts related to amounts due from third parties as of September 30,
2008.  The allowance related to amounts due from third parties was
established as a result of certain third party customers netting amounts due
them from the Private Company with amounts due to us. We have experienced no
additional collection issues with respect to amounts due us as of September 30,
2009.




32


As a
result of the growth in our property and equipment associated with the Acquired
Pipeline Assets, the Acquired Storage Assets and the asphalt assets received in
the Settlement, our property taxes increased by $1.5 million to $3.8 million for
the nine months ended September 30, 2009 compared to $2.3 million for the nine
months ended September 30, 2008.




Depreciation
expense increased by $1.4 million to $16.8 million for the nine months ended
September 30, 2009 compared to $15.4 million for the nine months ended September
30, 2008, primarily as a result of growth in our property and equipment
associated with the Acquired Storage Assets and the Acquired Asphalt
Assets.




Gain on settlement
transaction.   Operating income for the nine months ended
September 30, 2009 includes a $2.6 million gain recognized in connection with
the Settlement.   We have accounted for the assets transferred
pursuant to the Settlement as an exchange of nonmonetary
assets.  Accordingly, we recorded the Crude Oil Assets and the Asphalt
Assets received in the Settlement at the fair value of the Transferred
Settlement Assets, resulting in our recording a gain of $2.6 million in the nine
months ended September 30, 2009.




General and administrative
expenses.  General and administrative expenses decreased by
$10.3 million, or 31%, to $22.9 million for the nine months ended September 30,
2009 compared to $33.2 million for the nine months ended September 30, 2008.
This decrease is primarily attributable to the $18.0 million in equity-based
incentive compensation we incurred in the third quarter of 2008 associated with
the vesting of all awards outstanding under the Plan at the time of the Change
of Control.  This decrease was offset by increased costs related to
legal and financial advisers as well as other related costs incurred in
connection with events related to the Bankruptcy Filings, the securities
litigation and governmental investigations, and our efforts to enter into
storage contracts with third party customers and pursue other strategic
opportunities.




Interest
expense.  Interest expense represents interest on capital lease
obligations and long-term borrowings under our credit facility and the impact of
our interest rate swap agreements. Total interest expense increased by $19.8
million to $35.7 million for the nine months ended September 30, 2009 compared
to $15.9 million for the nine months ended September 30, 2008.  Cash
interest expense increased by $12.8 million to $30.5 million for the nine months
ended September 30, 2009 compared to $17.7 million for the nine months ended
September 30, 2008.  The increase was primarily due to both an
increase in average borrowings outstanding as a result of our financing of the
purchase of the Acquired Pipeline Assets and the Acquired Storage Assets and
higher interest rates under our amended credit facility during the nine months
ended September 30, 2009.  Non-cash interest expense increased by $7.1
million to $5.3 million for the nine months ended September 30, 2009 compared to
non-cash interest income of $1.8 million for the nine months ended September 30,
2008. The increase is due to both the amortization of debt issuance costs
incurred in connection with our amended credit facility and the Forbearance
Agreement and amendments thereto and the fair value accounting for the interest
rate swaps that were terminated in the third quarter of 2008 as a result of
events related to the Bankruptcy Filings.  Interest expense in the
three months ended March 31, 2009 includes $0.4 million of debt issuance cost
amortization expense attributable to 2008, which is not material to our 2008 or
2009 financial statements.




Effects
of Inflation




In recent
years, inflation has been modest and has not had a material impact upon the
results of our operations.




Off
Balance Sheet Arrangements




We do not
have any off-balance sheet arrangements.




33


Liquidity
and Capital Resources




Cash
Flows and Capital Expenditures




The
following table summarizes our sources and uses of cash for the nine months
ended September 30, 2008 and 2009:




Nine
      Months Ended
              September
      30,2008
            
            
            2009(in
      millions)Net
      cash provided by operating activities
            
            $
            42.9
            
            
            $
            16.8Net
      cash used in investing activities
            
            
            (519.8
            )
            
            
            (3.3
            )Net
      cash provided by (used in) financing activities
            
            
            493.0
            
            
            
            (36.6
            )




Operating
Activities.  Net cash provided by operating activities was
$16.8 million for the nine months ended September 30, 2009 as compared to the
$42.9 million for the nine months ended September 30, 2008.  The
decrease in net cash provided by operating activities is primarily due to net
income decreasing from net income of $19.5 million for the nine months ended
September 30, 2008 to a net loss of $8.0 million for the nine months ended
September 30, 2009.  This $27.5 million decrease in net income was
significantly impacted by decreased revenues under our agreements with the
Private Company, increased general and administrative expenses related to legal
and financial advisors as a result of the Bankruptcy Filings and increased
interest expense under our credit facility.  In addition, net cash
provided by our operating activities decreased by $2.6 million as a result of
the gain we recognized on the Settlement in the second quarter of
2009.  The decrease in our equity-based compensation expense resulted
in an $18.0 million decrease in cash provided by operating activities in the
comparative nine month periods.  In addition, the change in our
provision for uncollectible receivables resulted in a $0.6 million decrease in
cash provided by operating activities for the nine months ended September 30,
2009 compared to the nine months ended September 30, 2008.  Gains on
sale of assets also decreased in the comparative periods, resulting in a $0.2
million decrease in cash provided by operating activities.




These
decreases in cash provided by operating activities were partially offset by
changes in working capital, which resulted in a $14.5 million increase in cash
provided by operating activities.  Also, an increase in the
amortization of debt issuance costs associated with our credit facility,
resulted in $4.7 million more cash provided by operating
activities.  Furthermore, unrealized losses related to our interest
rate swaps recorded during the nine months ended September 30, 2008 resulted in
a $2.2 million increase in cash provided by operating activities as compared to
the nine months ended September 30, 2009.  Lastly, depreciation
increased by approximately $1.5 million in the nine months ended September 30,
2009 compared to the nine months ended September 30, 2008.




Investing
Activities.  Net cash used in investing activities was $3.3
million for the nine months ended September 30, 2009 compared to $519.8 million
for the nine months ended September 30, 2008.  Net cash used in
investing activities for the nine months ended September 30, 2008 includes our
$379.5 million purchase of our Acquired Asphalt Assets, our $45.1 million
purchase of our Acquired Pipeline Assets and our $90.3 million purchase of our
Acquired Storage Assets.  Net cash used in investing activities during
the nine months ended September 30, 2009 is primarily comprised of maintenance
capital expenditures.




Financing
Activities.  Net cash used in financing activities was $36.6
million for the nine months ended September 30, 2009 as compared to $493.0
million provided by financing activities for the nine months ended September 30,
2008.  Net cash provided by financing activities for the nine months
ended September 30, 2008 includes proceeds of an underwritten public offering
and borrowings under our credit facility in connection with our purchase of the
Acquired Asphalt Assets in February 2008 as well as borrowings under our credit
facility in connection with our purchase of our Acquired Pipeline Assets and our
Acquired Storage Assets in the second quarter of 2008.  Net cash used
in financing activities for the nine months ended September 30, 2009 is
primarily comprised of payments under our credit facility and debt issuance
costs related to our amended credit facility.  As a result of our
entering into the Credit Agreement Amendment in April of 2009, cash flows from
financing activities for the remainder of 2009 are expected to include
borrowings and payments under our credit facility.




34


Our
Liquidity and Capital Resources




Cash flow
from operations and our credit facility are our primary sources of liquidity. At
September 30, 2009, we had approximately $27.5 million of availability under our
revolving credit facility.  At September 30, 2009 we have a working
capital deficit of $4.3 million.  This deficit does not have a
material impact on our liquidity as we have sufficient availability under our
revolving credit agreement to fund our current operating and capital expenditure
requirements.  As of November 6, 2009, we had an aggregate unused
credit availability under our revolving credit facility of approximately $26.6
million.  Usage of our revolving credit facility is subject to ongoing
compliance with covenants. If we are
unable to sustain our sources of revenue generation and reestablish our
relationships within the credit markets, this cash position and availability
under our credit facility may not be sufficient to operate our business over the
long-term. Historically, we have derived a substantial majority of our revenues
from services provided to the Private Company, and as such, our liquidity was
affected by the liquidity and credit risk of the Private Company.  Due
to the events related to the Bankruptcy Filings, including decreased revenues in
our crude oil gathering and transportation and asphalt services segments,
increased general and administrative expenses related to legal and financial
advisors as well as other related costs, and uncertainties related to securities
and other litigation, we face uncertainty with respect to our ability to comply
with covenants under our credit facility and substantial doubt as to our ability
to continue as a going concern.




Capital Requirements. Our
capital requirements consist of the following:




·
            maintenance
      capital expenditures, which are capital expenditures made to maintain the
      existing integrity and operating capacity of our assets and related cash
      flows further extending the useful lives of the assets;
  and




·
            expansion
      capital expenditures, which are capital expenditures made to expand or to
      replace partially or fully depreciated assets or to expand the operating
      capacity or revenue of existing or new assets, whether through
      construction, acquisition or
modification.




Expansion
capital expenditures for organic growth projects totaled $0.5 million in the
nine months ended September 30, 2009 compared to $4.7 million in the nine months
ended September 30, 2008.  We expect expansion capital expenditures
for organic growth projects to be approximately $1 million to $2 million in
2009.  Maintenance capital expenditures totaled $2.9 million in the nine
months ended September 30, 2009 compared to $3.3 million in the nine months
ended September 30, 2008.  We expect maintenance capital expenditures
to be approximately $8 million in 2009.




No
assurance can be given that we will not be required to restrict our operations
because the limitations on our ability to incur capital expenditures due to
restrictions under our credit agreement described below.




Our Ability to Grow Depends on Our
Ability to Access External Expansion Capital.  Our partnership
agreement provides that we distribute all of our available cash to our
unitholders. Available cash is reduced by cash reserves established by our
general partner to provide for the proper conduct of our business (including for
future capital expenditures) and to comply with the provisions of our credit
facility. Pursuant to the Credit Agreement Amendment, we are prohibited from
making distributions to our unitholders if our leverage ratio (as defined in the
credit agreement) exceeds 3.50 to 1.00.  As of September 30, 2009, our
leverage ratio was 6.02 to 1.00.  If our leverage ratio does not
improve, we may not make quarterly distributions to our unitholders in the
future.




We expect
that for the foreseeable future, substantially all of our cash generated from
operations will be used to reduce our debt.  In the event that we are
again able to pay distributions, we may not grow as quickly as businesses that
reinvest their available cash to expand ongoing operations because we distribute
all of our available cash.




We do not
expect to make significant acquisitions or expansion capital expenditures in the
near term.  We currently intend to put the Acquired Pipeline Assets
into service at the end of the second quarter of 2010.  We expect to
resume capital expenditures related to this project in the fourth quarter of
2009 and to incur an estimated $3.5 to $4.0 million in additional expenditures
prior to placing the Acquired Pipeline Assets into service.  Capital
expenditures are limited under our credit agreement to $12.5 million in 2009,
$8.0 million in 2010 and $4.0 million in 2011.  To the extent we are
unable to finance growth externally and we are unwilling to establish cash
reserves to fund future acquisitions, our cash distribution policy will
significantly impair our ability to grow.




Description of Credit
Facility.  As of November 6, 2009, we had $423.4 million
in outstanding borrowings under our credit facility (consisting of $23.4
million under our revolving credit facility and $400.0 million under our term
loan facility) with an aggregate unused credit availability under our revolving
credit facility of approximately $26.6 million . The credit facility is
guaranteed by certain of our subsidiaries.




35


In
connection with the Settlement, we, our subsidiaries that are guarantors of the
obligations under the credit facility, Wachovia Bank, National Association, as
Administrative Agent, and the requisite lenders under our credit agreement
entered into the Consent, Waiver and Amendment to Credit Agreement (the “Credit
Agreement Amendment”), dated as of April 7, 2009, under which, among other
things, the lenders consented to the Settlement and waived all existing defaults
and events of default described in the Forbearance Agreement and amendments
thereto.




The
Credit Agreement Amendment permanently reduced our revolving credit facility
under the credit agreement to $50 million, and increased the term loan facility
to $400 million.  Upon the execution of the Credit Agreement
Amendment, $150 million of our outstanding revolving loans were converted to
term loans and we became able to borrow additional funds under our revolving
credit facility.  Pursuant to the Credit Agreement Amendment, the
credit facility and all obligations thereunder will mature on June 30,
2011.




During
the nine months ended September 30, 2008 and 2009, the weighted average interest
rate incurred by us was 5.9% and 9.3%, respectively.  After giving
effect to the Credit Agreement Amendment, amounts outstanding under our credit
facility bear interest at either the LIBOR rate plus 6.5% per annum, with a
LIBOR floor of 3.0%, or the federal funds rate plus 0.5% (the “Base rate”) plus
5.5% per annum, with a Base rate floor of 4.0% per annum.  We pay a
fee of 1.5% per annum on unused commitments under our revolving credit
facility.  After giving effect to the Credit Agreement Amendment,
interest on amounts outstanding under our credit facility must be paid
monthly.  Our credit facility, as amended by the Credit Agreement
Amendment, requires us to pay additional interest on October 6, 2009, April 6,
2010, October 6, 2010 and April 6, 2011, equal to the product of (i) the sum of
the total amount of term loans then outstanding plus the aggregate commitments
under the revolving credit facility and (ii) 0.5%, 0.5%, 1.0% and 1.0%,
respectively.  In October 2009, we paid additional interest of $2.3
million.  Due to the Credit Agreement Amendment, the interest expense
we incur in 2009 will be substantially greater than the interest expense we
incurred in 2008.




Among
other things, our credit facility, as amended by the Credit Agreement Amendment,
requires us to make (i) minimum quarterly amortization payments on March 31,
2010 in the amount of $2.0 million, June 30, 2010 in the amount of $2.0 million,
September 30, 2010 in the amount of $2.5 million, December 31, 2010 in the
amount of $2.5 million and March 31, 2011 in the amount of $2.5 million, (ii)
mandatory prepayments of amounts outstanding under the revolving credit facility
(with no commitment reduction) whenever cash on hand exceeds $15.0 million,
(iii) mandatory prepayments with 100% of asset sale proceeds, (iv) mandatory
prepayment with 50% of the proceeds raised through equity sales and (v) annual
prepayments with 50% of excess cash flow (as defined in the Credit Agreement
Amendment).  Our credit facility, as amended by the Credit Agreement
Amendment, prohibits us from making draws under the revolving credit facility if
we would have more than $15.0 million of cash on hand after making the draw and
applying the proceeds thereof.




The
credit facility contains financial covenants relating to leverage and interest
coverage.  As discussed above, if our leverage ratio does not improve,
we may not make quarterly distributions to our unitholders in the
future.  Other covenants contained in the credit agreement restrict
our ability to, among other things, grant liens, incur additional indebtedness,
engage in a merger, consolidation or dissolution, enter into transactions with
affiliates, sell or otherwise dispose of our assets (other than the sale or
other disposition of the assets of the asphalt business, provided that such
disposition is at arm’s length to a non-affiliate for fair market value in
exchange for cash and the proceeds of the disposition are used to pay down
outstanding loans), businesses and operations, materially alter the character of
our business, and make acquisitions, investments and capital
expenditures.




The
credit agreement specifies a number of events of default (many of which are
subject to applicable cure periods), including, among others, failure to pay any
principal when due or any interest or fees within three business days of the due
date, failure to perform or otherwise comply with the covenants in the credit
agreement, failure of any representation or warranty to be true and correct in
any material respect, failure to pay debt, and other customary
defaults.  In addition, it is an event of default under our credit
agreement if there is a change of control of us or our general
partner.  If an event of default exists under the credit agreement,
the lenders will be able to accelerate the maturity of the credit agreement and
exercise other rights and remedies, including taking available cash in our bank
accounts.  If an event of default exists and we are unable to obtain
forbearance from our lenders or a waiver of the events of default under our
credit agreement, we may be forced to sell assets, make a bankruptcy filing or
take other action that could have a material adverse effect on our business, the
price of our common units and our results of operations.  We are also
prohibited from making cash distributions to our unitholders if any default or
event of default (as defined in the credit agreement) exists.




36


For a
further description of our credit facility, please see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Our Liquidity and Capital
Resources—Description of Credit Facility” and the 2008 Form 10-K.




Contractual Obligations. A
summary of our contractual cash obligations over the next several fiscal years,
as of September 30, 2009, is as follows:




Payments
      Due by PeriodContractual
      Obligations
            
            Total
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            4-5
      years
            
            
            More
      than 5 years(in
      millions)Shared
      Services Agreement obligations (1)
            
            $
            5.1
            
            
            $
            1.9
            
            
            $
            3.0
            
            
            $
            0.2
            
            
            $
            —Debt
      obligations (2)
            
            
            504.3
            
            
            
            50.7
            
            
            
            453.6
            
            
            
            —
            
            
            
            —Capital
      lease obligations
            
            
            0.4
            
            
            
            0.4
            
            
            
            —
            
            
            
            —
            
            
            
            —Operating
      lease obligations
            
            
            12.2
            
            
            
            3.8
            
            
            
            5.8
            
            
            
            1.5
            
            
            
            1.1Financial
      advisory obligations (3)
            
            
            1.0
            
            
            
            1.0
            
            
            
            —
            
            
            
            —
            
            
            
            —




(1)
            Represents
      required future payments under the Shared Services Agreement into which we
      and the Private Company entered in connection with the
      Settlement.  See “Item 1. Business—Impact of the Bankruptcy of
      the Private Company and Certain of its Subsidiaries and Related Events” in
      the 2008 Form 10-K.




(2)
            Represents
      required future principal repayments of borrowings and interest payments
      under our credit facility, all of which is variable rate debt. For
      purposes of calculating interest payments on our variable rate debt, the
      interest rate on our outstanding borrowings of 9.5% as of September 30,
      2009 was used.  All amounts outstanding under the credit
      facility mature in June 2011.  The amounts included in this
      table also reflect the additional interest payments specified in the
      Credit Agreement Amendment.  See “Item 7. Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation—Liquidity and Capital Resources” in the 2008 Form 10-K for an
      additional description of the Credit Agreement
  Amendment.





(3)
              Represents
      required future payments under a financial advisory services
      contract.


Recent
Accounting Pronouncements




For
information regarding recent accounting developments that may affect our future
financial statements, see Note 11 of the Notes to the Consolidated Financial
Statements included in Part I, Item 1 of this quarterly report.




Item 3.  Quantitative
and Qualitative Disclosures about Market Risk




We are
exposed to market risk due to variable interest rates under our credit
facility.




Commencing
on December 12, 2008, indebtedness under the credit agreement bore interest at
our option, at either (i) the Base rate plus 5.0% per annum, with a Base rate
floor of 4.0% per annum, or (ii) LIBOR plus 6.0% per annum, with a LIBOR floor
of 3.0% per annum.  After giving effect to the Credit Agreement
Amendment, amounts outstanding under our credit facility bear interest at either
the LIBOR rate plus 6.5% per annum, with a LIBOR floor of 3.0%, or the Base rate
plus 5.5% per annum, with a Base rate floor of 4.0% per annum.  We pay
a fee of 1.5% on unused commitments under our revolving credit
facility.  After giving effect to the Credit Agreement Amendment,
interest on amounts outstanding under our credit facility must be paid
monthly.  Our credit facility, as amended by the Credit Agreement
Amendment, requires us to pay additional interest on October 6, 2009, April 6,
2010, October 6, 2010 and April 6, 2011, equal to the product of (i) the sum of
the total amount of term loans then outstanding plus the aggregate commitments
under the revolving credit facility and (ii) 0.5%, 0.5%, 1.0% and 1.0%,
respectively.  In October 2009, we paid additional interest of $2.3
million.




37


During
the nine months ended September 30, 2008 and 2009, the weighted average interest
rate incurred by us was 5.90% and 9.32%, respectively.  We expect
the interest expense we incur in 2009 to be substantially greater than the
interest expense we incurred in 2008.




Due to
the Forbearance Agreement and amendments thereto and the Credit Agreement
Amendment, we expect our interest expense to be greater than our interest
expense prior to the Bankruptcy Filings.  Changes in economic
conditions could result in higher interest rates, thereby increasing our
interest expense and reducing our funds available for capital investment,
operations or distributions to our unitholders. Additionally, if domestic
interest rates continue to increase, the interest rates on any of our future
credit facilities and debt offerings could be higher than current levels,
causing our financing costs to increase accordingly. Based on borrowings as of
September 30, 2009 and the 3.00% LIBOR floor under our credit facility, an
increase or decrease of 100 basis points in the interest rate will not impact
annual interest expenses.  An increase of 350 basis points in the
current LIBOR rate will result in increased annual interest of approximately
$3.2 million based on borrowings and interest rates as of September 30,
2009.




Item 4.  Controls
and Procedures




Evaluation of disclosure controls
and procedures.  Our general partner’s management, including
the Chief Executive Officer and Chief Financial Officer of our general partner,
evaluated as of the end of the period covered by this report, the effectiveness
of our disclosure controls and procedures as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer of our general partner concluded that our
disclosure controls and procedures, as of September 30, 2009, were
effective.




Changes in internal control over
financial reporting.  There were no changes in our internal
control over financial reporting that occurred during the three months ended
September 30, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




38


PART
II.                     OTHER
INFORMATION




Item
1.                     Legal
Proceedings




Between
July 21, 2008 and September 4, 2008, the following class action complaints were
filed:




1.           Poelman v. SemGroup Energy Partners,
L.P., et al., Civil Action No. 08-CV-6477, in the United States District
Court for the Southern District of New York (filed July 21,
2008).  The plaintiff voluntarily dismissed this case on August 26,
2008;




2.           Carson v. SemGroup Energy Partners,
L.P. et al., Civil Action No. 08-cv-425, in the Northern District of
Oklahoma (filed July 22, 2008);




3.           Charles D. Maurer SIMP Profit
Sharing Plan f/b/o Charles D. Maurer v. SemGroup Energy Partners, L.P. et
al., Civil Action No. 08-cv-6598, in the United States District Court for
the Southern District of New York (filed July 25, 2008);




4.           Michael Rubin v. SemGroup Energy
Partners, L.P. et al., Civil Action No. 08-cv-7063, in the United States
District Court for the Southern District of New York (filed August 8,
2008);




5.           Dharam V. Jain v. SemGroup Energy
Partners, L.P. et al., Civil Action No. 08-cv-7510, in the United States
District Court for the Southern District of New York  (filed August
25, 2008); and




6.           William L. Hickman v. SemGroup
Energy Partners, L.P. et al., Civil Action No. 08-cv-7749, in the United
States District Court for the Southern District of New York (filed September 4,
2008).




Pursuant
to a motion filed with the MDL Panel, the Maurer case has been transferred to
the Northern District of Oklahoma and consolidated with the Carson
case.  The Rubin, Jain, and Hickman cases have also been transferred
to the Northern District of Oklahoma.




A hearing
on motions for appointment as lead plaintiff was held in the Carson case on
October 17, 2008.  At that hearing, the court granted a motion to
consolidate the Carson
and Maurer cases for
pretrial proceedings, and the consolidated litigation is now pending as In Re: SemGroup Energy Partners,
L.P. Securities Litigation , Case No. 08-CV-425-GKF-PJC. The court
entered an order on October 27, 2008, granting the motion of Harvest Fund
Advisors LLC to be appointed lead plaintiff in the consolidated
litigation.  On January 23, 2009, the court entered a Scheduling Order
providing, among other things, that the lead plaintiff may file a consolidated
amended complaint within 70 days of the date of the order, and that defendants
may answer or otherwise respond within 60 days of the date of the filing of a
consolidated amended complaint.  On January 30, 2009, the lead
plaintiff filed a motion to modify the stay of discovery provided for under the
Private Securities Litigation Reform Act. The court granted Plaintiff’s motion,
and we and certain other defendants filed a Petition for Writ of Mandamus in the
Tenth Circuit Court of Appeals that was denied after oral argument on April 24,
2009.




The lead
plaintiff filed a consolidated amended complaint on May 4, 2009.  In
that complaint, filed as a putative class action on behalf of all purchasers of
our units from July 17, 2007 to July 17, 2008 (the “class period”), lead
plaintiff asserts claims under the federal securities laws against us, our
general partner, certain of our current and former officers and directors,
certain underwriters in our initial and secondary public offerings, and certain
entities who were investors in the Private Company and their individual
representatives who served on the Private Company’s management committee. Among
other allegations, the amended complaint alleges that our financial condition
throughout the class period was dependent upon speculative commodities trading
by the Private Company and its Chief Executive Officer, Thomas L. Kivisto, and
that defendants negligently and intentionally failed to disclose this
speculative trading in our public filings during the class period. The amended
complaint further alleges there were other material omissions and
misrepresentations contained in our filings during the class
period.  The amended complaint alleges claims for violations of
sections 11, 12(a)(2), and 15 of the Securities Act of 1933 for damages and
rescission with respect to all persons who purchased our units in the initial
and secondary offerings, and also asserts claims under section 10b, Rule 10b-5,
and section 20(a) of the Securities and Exchange Act of 1934. The amended
complaint seeks certification as a class action under the Federal Rules of Civil
Procedure, compensatory and rescissory damages for class members, pre-judgment
interest, costs of court, and attorneys’ fees.




39


On July
22, 2009, all of the defendants filed motions to dismiss the amended
complaint.  The lead plaintiff filed a response in opposition to the
defendants' motion to dismiss on September 1, 2009.  On October 8, 2009,
the defendants filed a reply in support of their motion to dismiss.  The
lead plaintiff filed a supplemental opposition to the defendants' motion to
dismiss on October 29, 2009.  The defendants' motion to dismiss is
currently pending before the court.




We intend
to vigorously defend these actions.  There can be no assurance
regarding the outcome of the litigation.  An estimate of possible
loss, if any, or the range of loss cannot be made and therefore we have not
accrued a loss contingency related to these actions.  However, the
ultimate resolution of these actions could have a material adverse effect on our
business, financial condition, results of operations, cash flows, ability to
make distributions to our unitholders, the trading price of the our common units
and our ability to conduct our business.




In March
and April 2009, nine current or former executives of the Private Company and
certain of its affiliates filed wage claims with the Oklahoma Department of
Labor against our general partner.  Their claims arise from our
general partner’s Long-Term Incentive Plan, Employee Phantom Unit Agreement
(“Phantom Unit Agreement”).  Most claimants alleged that phantom units
previously awarded to them vested upon the Change of Control that occurred in
July 2008.  One claimant alleged that his phantom units vested upon
his termination.  The claimants contended our general partner’s
failure to deliver certificates for the phantom units within 60 days after
vesting caused them to be damaged, and they sought recovery of
approximately $2 million in damages and penalties.  On April 30, 2009,
all of the wage claims were dismissed on jurisdictional grounds by the
Department of Labor.




On July
8, 2009, the nine executives filed suit against our general partner in Tulsa
County district court claiming they are entitled to recover the value of phantom
units purportedly due them under the Phantom Unit Agreement. The claimants
assert claims against our general partner for alleged failure to pay wages and
breach of contract and seek to recover the alleged value of units in the total
amount of approximately $1.3 million, plus additional damages and attorneys’
fees.  We have distributed phantom units to certain of the claimants,
but the litigation remains pending.




The
Official Committee of Unsecured Creditors of SemCrude, L.P. ("Unsecured
Creditors Committee") filed an adversary proceeding in connection with the
Bankruptcy Cases against Mr. Kivisto, Gregory C. Wallace and Westback Purchasing
Company, L.L.C., a limited liability trading partnership that Mr. Kivisto owned
and controlled.  In that proceeding, filed February 18, 2009, the
Unsecured Creditors Committee asserted various claims against the defendants on
behalf of the Private Company’s bankruptcy estate, including claims based upon
theories of fraudulent transfer, breach of fiduciary duties, waste, breach of
contract, and unjust enrichment.  On June 8, 2009, the Unsecured
Creditors Committee filed a Second Amended Complaint asserting additional claims
against Kevin L. Foxx and Alex G. Stallings, among others, based upon certain
findings and recommendations in the Examiner’s Report (see Part I, Item 1 of
this quarterly report and “Item 1. Business—Impact of the Bankruptcy of the
Private Company and Certain of its Subsidiaries and Related Events—Examiner” in
the 2008 Form 10-K). The claims against Mr. Foxx are based upon theories of
fraudulent transfer, unjust enrichment, and breach of fiduciary duty with
respect to certain bonus payments received from the Private Company, and other
claims of breach of fiduciary duty and breach of contract are also alleged
against Messrs. Foxx and Stallings in the amended complaint.  On
October 6, 2009, the Unsecured Creditors Committee filed a Third Amended
Complaint which, among other things, asserts additional fraudulent transfer and
waste claims and additional breach of fiduciary duty allegations against Messrs.
Foxx and Stallings.   Messrs. Foxx and Stallings have informed us
that they intend to vigorously defend these claims.




On July
24, 2009, we filed suit against Navigators Insurance Company (“Navigators”) and
Darwin National Assurance Company (“Darwin”) in Tulsa County district court. In
that suit, we are seeking a declaratory judgment that Darwin and Navigators did
not have the right to rescind binders issued to us for two excess insurance
policies in our Directors and Officers insurance program for the period from
July 18, 2008 to July 18, 2009. The face amount of each policy was $10,000,000.
The suit seeks a declaratory judgment that the binders were enforceable
insurance contracts of Navigators and Darwin that have not been rescinded or
cancelled. The suit also alleges that the attempted rescissions were in breach
of contract and violated the duty of good faith and fair dealing, for which we
are seeking the recovery of damages and attorneys fees.  Navigators
and Darwin have answered the petition and the parties are engaged in
discovery.




40


Item
3.                      Defaults
Upon Senior Securities





During the
nine months ended September 30, 2009, events of default existed under our credit
agreement.  For a description of our credit facility and the defaults
thereunder, please see “Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources”
in this quarterly report and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources”
in the 2008 Form 10-K.  The Credit Agreement Amendment waived all
existing defaults and events of default described in the Forbearance Agreement
and amendments thereto, and no events of default existed as of September 30,
2009.





Item
6.                      Exhibits




The
information required by this Item 6 is set forth in the Index to Exhibits
accompanying this quarterly report and is incorporated herein by
reference.




41


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 thereunto
duly authorized.




SEMGROUP ENERGY PARTNERS,
L.P.





By:SemGroup Energy Partners G.P.,
L.L.C.


its General Partner








Date:  November
13,
2009                                                                           By:           /s/ Alex
G.
Stallings


Alex G.
Stallings


Chief Financial
Officer and Secretary








Date:  November
13,
2009                                                                           By:           /s/ James
R.
Griffin


James R.
Griffin


Chief Accounting
Officer





INDEX
TO EXHIBITS




Exhibit
      Number
            Exhibit
      Name3.1
            Certificate
      of Limited Partnership of SemGroup Energy Partners, L.P. (the
      “Partnership”), dated February 22, 2007 (filed as Exhibit 3.1 to the
      Partnership’s Registration Statement on Form S-1 (Reg. No. 333-141196),
      filed March 9, 2007, and incorporated herein by
reference).3.2
            First
      Amended and Restated Agreement of Limited Partnership of the Partnership,
      dated July 20, 2007 (filed as Exhibit 3.1 to the Partnership’s Current
      Report on Form 8-K, filed July 25, 2007, and incorporated herein by
      reference).3.3
            Amendment
      No. 1 to First Amended and Restated Agreement of Limited Partnership of
      the Partnership, effective as of July 20, 2007 (filed as Exhibit 3.1 to
      the Partnership’s Current Report on Form 8-K, filed on April 14, 2008, and
      incorporated herein by reference).3.4
            Amendment
      No. 2 to First Amended and Restated Agreement of Limited Partnership of
      the Partnership, dated June 25, 2008 (filed as Exhibit 3.1 to the
      Partnership’s Current Report on Form 8-K, filed on June 30, 2008, and
      incorporated herein by reference).3.5
            Certificate
      of Formation of SemGroup Energy Partners G.P., L.L.C. (the “General
      Partner”), dated February 22, 2007 (filed as Exhibit 3.3 to the
      Partnership’s Registration Statement on Form S-1 (Reg. No. 333-141196),
      filed March 9, 2007, and incorporated herein by
reference).3.6
            Amended
      and Restated Limited Liability Company Agreement of the General Partner,
      dated July 20, 2007 (filed as Exhibit 3.2 to the Partnership’s Current
      Report on Form 8-K, filed July 25, 2007, and incorporated herein by
      reference).3.7
            Amendment
      No. 1 to Amended and Restated Limited Liability Company Agreement of the
      General Partner, dated June 25, 2008 (filed as Exhibit 3.2 to the
      Partnership’s Current Report on Form 8-K, filed on June 30, 2008, and
      incorporated herein by reference).3.8
            Amendment
      No. 2 to Amended and Restated Limited Liability Company Agreement of the
      General Partner, dated July 18, 2008 (filed as Exhibit 3.1 to the
      Partnership’s Current Report on Form 8-K, filed on July 22, 2008, and
      incorporated herein by reference).4.1
            Specimen
      Unit Certificate (included in Exhibit 3.2).10.1
            SemGroup
      Energy Partners G.P., L.L.C. 2009 Executive Cash Bonus Plan (filed as
      Exhibit 10.22 to the Partnership’s Annual Report on Form 10-K, filed on
      July 2, 2009, and incorporated herein by reference).31.1*
            Certifications
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2*
            Certifications
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1*
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C., Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit
      is furnished to the SEC and shall not be deemed to be
    “filed.”












*  Filed
herewith.