UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549
 
 FORM
      10-K




Mark
      One
              [  X  ]
            Annual
      Report Pursuant to Section 13 or 15(d) of the
              Securities
      Exchange Act of 1934
              For
      the fiscal year ended December 31, 2008OR[     ]
            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
            
            20-8536826(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer Identification No.)





Two
      Warren Place
              6120
      South Yale Avenue, Suite 500
              Tulsa,
      Oklahoma
            
            74136(Address
      of principal executive offices)
            
            (Zip
      Code)





(918)
237-4000


(Registrant’s
telephone number, including area code)


_______________________




Securities
Registered Pursuant to Section 12(b) of the Act:




Title
      of each class
            
            Name
      of each exchange on which registeredCommon
      Units representing limited
              partner
      interests
            
            OTC




Securities
Registered Pursuant to Section 12(g) of the Act:


None


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.




Yes o                       
No x




Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.





Yes o                       
No x




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 the
past 90 days.




Yes o                                  No
x




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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).




Yes o                                  No
o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   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
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
accelerated filer o     Accelerated
filer x      Non-accelerated
filer o       Smaller
reporting company o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes o                       
No x




As of
June 30, 2008, the aggregate market value of the registrant’s common units held
by non-affiliates of the registrant was  approximately $457.8 million,
based on $25.34 per common unit, the closing price of the common units as
reported on the Nasdaq Global Market on such date.




At June
26, 2009, there were 21,557,309 common units and 12,570,504 subordinated units
outstanding.




DOCUMENTS INCORPORATED BY
REFERENCE:


None









TABLE OF CONTENTS




PagePART I
                      
                      1Item
      1.
                      Business.
                      1Item
      1A.
                      Risk Factors.
                      24Item
      1B.
                      Unresolved Staff Comments.
                      51Item
      2.
                      Properties.
                      51Item
      3.
                      Legal Proceedings.
                      52Item
      4.
                      Submission of Matters to a Vote of Security
      Holders.
                      53PART II
                      
                      54Item
      5.
                      Market for Registrant's Common Equity, Related Unitholder
      Matters and Issuer Purchases of Equity Securities.
                      54Item
      6.
                      Selected Financial Data.
                      56Item
      7.
                      Management's Discussion and Analysis of Financial Condition
      and Results of Operation.
                      58Item
      7A.
                      Quantitative and Qualitative Disclosures about Market
      Risk.
                      76Item
      8.
                      Financial Statements and Supplementary Data
      .
                      77Item
      9.
                      Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure.
                      77Item
      9A.
                      Controls and Procedures.
                      78Item
      9B.
                      Other Information.
                      79PART III
                      
                      80Item
      10.
                      Directors, Executive Officers and Corporate
      Governance.
                      80Item
      11.
                      Executive Compensation.
                      85Item
      12.
                      Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters.
                      95Item
      13.
                      Certain Relationships and Related Transactions,
      and Director Independence.
                      97Item
      14.
                      Principal Accountant Fees and
      Services.
                      104PART IV
                      
                      105Item
      15.
                      Exhibits, Financial Statement
    Schedules.
                      105












i
 Table of Contents


DEFINITIONS




We use
the following oil and gas measurements and industry terms in this
report:




Barrel:
One barrel of petroleum products equals 42 United States gallons.




Bpd:
Barrels per day.




Common carrier
pipeline: A pipeline engaged in the transportation of petroleum products
as a public utility and common carrier for hire.




Condensate:
A natural gas liquid with a low vapor pressure, mainly composed of propane,
butane, pentane and heavier hydrocarbon fractions.




Feedstock:
A raw material required for an industrial process such as in petrochemical
manufacturing.




Finished asphalt
products: As used herein, the term refers to liquid asphalt cement sold
directly to end users and to asphalt emulsions, asphalt cutbacks, polymer
modified asphalt cement and related asphalt products processed using liquid
asphalt cement. The term is also used to refer to various residual fuel oil
products directly sold to end users.




Liquid asphalt
cement:Liquid asphalt cement is a dark brown to black cementitious
material that is primarily produced by petroleum distillation. When crude oil is
separated in distillation towers at a refinery, the heaviest hydrocarbons with
the highest boiling points settle at the bottom. These tar-like fractions,
called residuum, require relatively little additional processing to become
products such as asphalt cement or residual fuel oil. Liquid asphalt cement is
primarily used in the road construction and maintenance industry. Residual fuel
oil is primarily used as a burner fuel in numerous industrial and commercial
business applications. As used herein, the term refers to both liquid asphalt
cement and residual fuel oils.




Midstream:
The industry term for the components of the energy industry in between the
production of oil and gas (upstream) and the distribution of refined and
finished products (downstream).




Terminalling:
The receipt of crude oil and petroleum products for storage into storage tanks
and other appurtenant equipment, including pipelines, where the crude oil and
petroleum products will be commingled with other products of similar quality;
the storage of the crude oil and petroleum products; and the delivery of
the crude oil and petroleum products as directed by a distributor into a truck,
vessel or pipeline.




Throughput:
The volume of product transported or passing through a pipeline, plant, terminal
or other facility.




ii
 Table of Contents


PART I




As used
in this annual report, unless we indicate otherwise: (1) ”SemGroup Energy
Partners,” “our,” “we,” “us” and similar terms refer to SemGroup Energy
Partners, L.P., together with its subsidiaries and (2) the “Private
Company” refers to SemGroup, L.P. and its subsidiaries and affiliates (other
than our general partner and us).  The historical financial statements
for periods prior to the contribution of the assets, liabilities and operations
to us by the Private Company on July 20, 2007 reflect the assets,
liabilities and operations of our predecessor.




Forward
Looking Statements





This
report contains “forward-looking statements” within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended.  Statements included in this annual 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) 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 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 “Item 1A—Risk
Factors,” included in this annual report, and those set forth from time to time
in our filings with the Securities and Exchange Commission (“SEC”), which are
available through the Investor Relations link at www.SGLP.com and through the
SEC’s Electronic Data Gathering and Retrieval System (“EDGAR”) at
http://www.sec.gov.





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.





Item
1.  Business.




Overview




We are a
publicly traded master limited partnership with operations in twenty-three
states. We provide integrated terminalling, storage, processing, 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.




In July
2007, we issued 12,500,000 common units, representing limited partner interests,
and 12,570,504 subordinated units, representing additional limited partner
interests, to SemGroup Holdings, L.P., or SemGroup Holdings, and 549,908 general
partner units representing a 2% general partner interest to SemGroup Energy
Partners G.P., L.L.C., our general partner. SemGroup Holdings then completed a
public offering of 12,500,000 common units at a price of $22 per unit. In
addition, we issued an additional 1,875,000 common units to the public pursuant
to the underwriters’ exercise of their over-allotment option. We did not receive
any proceeds from the common units sold by SemGroup Holdings. We received net
proceeds of approximately $38.7 million after deducting underwriting discounts
from the sale of common units in connection with the exercise of the
underwriters’ over-allotment option. We used these net proceeds to reduce
outstanding borrowings under our credit facility.  In connection with
our initial public offering, we entered into a Throughput Agreement (the
“Throughput Agreement”) with the Private Company under which we provided crude
oil gathering and transportation and terminalling and storage services to the
Private Company.  The Throughput Agreement was subsequently rejected
by the Private Company in connection with the Bankruptcy Cases (as defined
below).




1
 Table of Contents


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.  In conjunction with the purchase of the Acquired
Asphalt Assets, we amended our existing credit facility,
increasing our borrowing capacity to $600 million. Concurrently, we
issued 6,000,000 common units in an underwritten public offering, receiving
proceeds, net of underwriting discounts and offering-related costs, of $137.2
million. Our general partner also made a capital contribution of $2.9
million to maintain its 2.0% general partner interest in us. On March 5,
2008, we issued an additional 900,000 common units in an underwritten
public offering, receiving proceeds, net of underwriting discounts, of $20.6
million, in connection with the underwriters’ exercise of their over-allotment
option in full. Our general partner made a corresponding capital
contribution of $0.4 million to maintain its 2.0% general partner interest in
us.  In connection with the acquisition of the Acquired Asphalt
Assets, we entered into a Terminalling and Storage Agreement (the
“Terminalling Agreement”) with the Private Company and certain of its
subsidiaries under which we provided liquid asphalt cement terminalling and
storage and throughput services to the Private Company and the Private Company
has agreed to use the our services at certain minimum
levels.  The Terminalling Agreement was subsequently rejected by the
Private Company in connection with the Bankruptcy Cases.  Our general
partner’s Board of Directors (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
us.




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.  The acquisition was funded with borrowings under our revolving
credit facility.  We have suspended capital expenditures on this
pipeline due to the continuing impact of the Bankruptcy Filings (as defined
below).  Management currently intends to put the asset into service in
early 2010 and is exploring various alternatives to complete the
project.  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 us.




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 with a
term 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.  The acquisition
was funded with borrowings under our 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
us.




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




Due to
the events related to the Bankruptcy Filings (as defined below) described
herein, including the uncertainty relating to future cash flows, we face
substantial doubt as to our ability to continue as a going
concern.  While it is not feasible to predict the ultimate outcome of
the events surrounding the Bankruptcy Cases (as defined below), we have been and
could continue to be materially and adversely affected by such events and we may
be forced to 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.




2
 Table of Contents


Bankruptcy
Filings




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”). None of us, our general partner,
our subsidiaries nor the subsidiaries of our general partner are debtors in the
Bankruptcy Cases.  However, because of the contractual relationships
with the Private Company and certain of its subsidiaries, the Bankruptcy Filings
have adversely impacted us and may in the future impact us in various ways,
including the items discussed herein.




Bankruptcy
Court Order




On
September 9, 2008, the Bankruptcy Court entered an order relating to the
settlement of certain matters between us and the Private Company (the “Order”)
in the Bankruptcy Cases.  Among other things, the Order provided that
(i) the Private Company was to directly pay any utility costs attributable to
the operations of the Private Company at certain shared facilities, and the
Private Company was to pay us for past utility cost reimbursements that were due
from the Private Company; (ii) commencing on September 15, 2008, payments under
the Terminalling Agreement were netted against amounts due under the Amended
Omnibus Agreement (as defined below); (iii) the Private Company was to make
payments under the Throughput Agreement for the month of August 2008 based upon
the monthly contract minimums in the Throughput Agreement and netted against
amounts due under the Amended Omnibus Agreement; (iv) the Private Company was to
make payments under the Throughput Agreement for the months of September and
October 2008 based upon actual volumes for each such month and at a rate equal
to the average rate charged by us to third-party shippers in the same
geographical area, with any such amounts netted against amounts due under the
Amended Omnibus Agreement; (v) representatives of us and the Private Company
were to meet to discuss the transition to us of certain of the Private Company’s
employees necessary to maintain our business, and pending agreement between the
parties, the Private Company was to continue to provide services in accordance
with the Amended Omnibus Agreement through at least November 30, 2008; (vi) the
Private Company was to consent to an order relating to a third-party storage
contract which provided that we were the rightful owner of the rights in and to
a certain third-party storage agreement and the corresponding amounts due
thereunder; and (vii) we were to enter into a specified lease with the Private
Company to permit the Private Company to construct a pipeline.




Settlement
with the Private Company




On March
12, 2009, the Bankruptcy Court held a hearing and approved the transactions
contemplated by a term sheet (the “Settlement Term Sheet”) relating to the
settlement of certain matters between the Private Company and us (the
“Settlement”).  The Bankruptcy Court entered an order approving the
Settlement upon the terms contained in the Settlement Term Sheet on March 20,
2009.  We and the Private Company executed definitive documentation,
in the form of a master agreement (the “Master Agreement”), dated April 7, 2009
to be effective as of 11:59 PM CDT March 31, 2009, and certain other transaction
documents to effectuate the Settlement and that superseded the Settlement Term
Sheet.  The Bankruptcy Court entered an order approving the Master
Agreement and the Settlement on April 7, 2009.


3
 Table of Contents




The
Settlement provided for the following:




•
            we
      transferred certain crude oil storage assets located in Kansas and
      northern Oklahoma to the Private
Company;




•
            the
      Private Company transferred ownership of 355,000 barrels of crude oil tank
      bottoms and line fill to us;




•
            the
      Private Company rejected the Throughput
  Agreement;




•
            we
      and one of our subsidiaries have a $20 million unsecured claim against the
      Private Company and certain of its subsidiaries relating to rejection of
      the Throughput Agreement;




•
            we
      and the Private Company entered into a Throughput Agreement, dated as of
      April 7, 2009 to be effective as of 11:59 PM CDT March 31, 2009 (the “New
      Throughput Agreement”), pursuant to which we provide certain crude oil
      gathering, transportation, terminalling and storage services to the
      Private Company;




•
            we
      offered employment to certain crude oil
  employees;




•
            the
      Private Company transferred its asphalt assets that are connected to the
      Acquired Asphalt Assets to us;




•
            the
      Private Company rejected the Terminalling
  Agreement;




•
            one
      of our subsidiaries has a $35 million unsecured claim against the Private
      Company and certain of its subsidiaries relating to rejection of the
      Terminalling Agreement;




•
            we
      and the Private Company entered into a Terminalling and Storage Agreement,
      dated as of April 7, 2009 to be effective as of 11:59 PM CDT March 31,
      2009 (the “New Terminalling Agreement”), pursuant to which we provide
      liquid asphalt cement terminalling and storage services for the Private
      Company’s remaining asphalt
inventory;




•
            we
      and the Private Company entered into an Access and Use Agreement, dated as
      of April 7, 2009 to be effective as of 11:59 PM CDT March 31, 2009 (the
      “New Access and Use Agreement”), pursuant to which we will allow the
      Private Company access rights to our asphalt facilities relating to its
      existing asphalt inventory;




•
            the
      Private Company agreed to remove all of its remaining asphalt inventory
      from our asphalt storage facilities no later than October 31,
      2009;




•
            the
      Private Company will be entitled to receive 20% of the proceeds of any
      sale by us of any of the asphalt assets transferred to us in connection
      with the Settlement that occurs prior to December 31,
  2009;




•
            the
      Private Company rejected the Amended Omnibus
  Agreement;




•
            we
      and the Private Company entered into a Shared Services Agreement, dated as
      of April 7, 2009 to be effective as of 11:59 PM CDT March 31, 2009 (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,
      dated April 7, 2009 to be effective as of 11:59 PM CDT March 31, 2009 (the
      “Transition Services Agreement”), pursuant to which the Private Company
      will provide certain corporate, crude oil and asphalt transition services,
      in each case for a limited amount of time, to
  us;




•
            other
      than as provided above, we and the Private Company entered into mutual
      releases of claims relating to the rejection of the Terminalling
      Agreement, the Throughput Agreement and the Amended Omnibus
      Agreement;




•
            certain
      pre-petition claims by the Private Company and us were netted and
      waived;




•
            we
      and the Private Company resolved certain remaining issues related to the
      contribution of crude oil assets to us in connection with our initial
      public offering, our acquisition of the Acquired Asphalt Assets, our
      acquisition of the Acquired Pipeline Assets and our acquisition of the
      Acquired Storage Assets, including the release of claims relating to such
      acquisitions; and




•
            we
      and the Private Company entered into a Trademark License Agreement, dated
      as of April 7, 2009 to be effective as of 11:59 PM CDT March 31, 2009 (the
      “Trademark Agreement”), which provides us with a non-exclusive, worldwide
      license to use certain trade names, including the name “SemGroup”, and the
      corresponding mark until December 31, 2009, and the Private Company waived
      claims for infringement relating to such trade names and mark prior to the
      date of such license agreement.  4
 Table of Contents




Management
is obtaining independent valuations of the assets transferred.  Please see
“Item 13—Certain Relationships and Related Party Transactions, and Director
Independence—Agreements Related to the Settlement with the Private Company” for
more detailed descriptions of the agreements that were entered into in
connection with the Settlement.





Claims Against
and By The Private Company’s Bankruptcy Estate




In
connection with the Settlement, we and the Private Company entered into mutual
releases regarding certain claims.  In addition, the Settlement
provided that we have a $35 million unsecured claim against the Private Company
relating to rejection of the Terminalling Agreement and a $20 million unsecured
claim against the Private Company relating to rejection of the Throughput
Agreement.  On May 15, 2009, the Private Company filed a joint plan of
reorganization with the Bankruptcy Court (the “Reorganization
Plan”).  If such plan is confirmed without material amendment, our
claims will be impaired, and we will recover substantially less than the nominal
value of such claims.  We may also have additional claims against the
Private Company that were not released in connection with the Settlement, and
the Private Company may also have additional claims against us that were not
released in connection with the Settlement.  Any claims asserted by us
against the Private Company in the Bankruptcy Cases will be subject to the claim
allowance procedure provided in the Bankruptcy Code and bankruptcy
rules.  If an objection is filed, the Bankruptcy Court will determine
the extent to which any such claim that has been objected to is allowed and the
priority of such claim.




Examiner




On August
12, 2008, a motion was filed by the United States Trustee asking the Bankruptcy
Court to appoint an examiner to investigate the Private Company’s trading
strategies as well as certain “insider transactions,” including the contribution
of the crude oil assets to us in connection with our initial public offering,
the sale of the Acquired Asphalt Assets to us in February 2008, the sale of the
Acquired Pipeline Assets to us in May 2008, the sale of the Acquired Storage
Assets to us in May 2008, and the entering into the Holdings Credit Agreements
by SemGroup Holdings.  On September 10, 2008, the Bankruptcy Court
approved the appointment of an examiner, and on October 14, 2008, the United
States Trustee appointed Louis J. Freeh, former director of the Federal Bureau
of Investigation, as the examiner (the “Examiner”).  On April 15,
2009, the Examiner filed a report summarizing the findings of his investigation
with the Bankruptcy Court (the “Examiner’s Report”).





The
Examiner was directed by the Bankruptcy Court to (i) investigate the
circumstances surrounding the Private Company’s trading strategy, the transfer
of the New York Mercantile Exchange account, certain insider transactions, the
formation of us, the potential improper use of borrowed funds and funds
generated from the Private Company’s operations and the liquidation of its
assets to satisfy margin calls related to the trading strategy for the Private
Company and certain entities owned or controlled by the Private Company’s
officers and directors and (ii) determine whether any directors, officers or
employees of the Private Company participated in fraud, dishonesty,
incompetence, misconduct, mismanagement, or irregularity in the management of
the affairs of the Private Company and whether the Private Company’s estates
have causes of action against such persons arising from any such
participation.




The
Examiner’s Report identified potential claims or causes of action against
current officers of our general partner who were former officers and/or
directors of the Private Company, including (i) against Kevin L. Foxx for his
failure to develop a suitable risk management policy or integrate a suitable
risk management policy into the Private Company’s business controls, and for his
failure to comply with the risk management policy that did exist, thereby
subjecting the Private Company to increased risk and (ii) against Alex G.
Stallings for his failure to stop Thomas L. Kivisto from engaging in trading
activity on his own behalf through Westback Purchasing Company, L.L.C.
(“Westback”), a limited liability trading partnership that Mr. Kivisto owned and
controlled, thereby subjecting the Private Company to increased risk and
losses.  In addition, the Examiner’s Report criticized Mr. Foxx for
certain conflicts of interest with entities that he or his family invested in
and that had a business relationship with the Private Company. 
Additionally, the Examiner’s Report identified a number of potential claims or
causes of action against Mr. Kivisto and Gregory C. Wallace, who are former
directors of our general partner and former officers of the Private Company,
including, without limitation, for negligence and mismanagement, fraud and false
statements, conversion and corporate waste, unjust enrichment, breach of
fiduciary duties and breach of contract.





5
 Table of Contents


The
Examiner did not perform a detailed analysis applying the elements of any of the
causes of action identified in the Examiner’s Report to the facts of the Private
Company’s Bankruptcy Cases or otherwise evaluate the strength of any particular
claims the Private Company’s bankruptcy estate may have.  In addition,
the Examiner did not analyze potential defenses that may be available with
respect to these causes of action.





The
Examiner’s Report and related exhibits are publicly available at
www.kccllc.net/SemGroup.




Bankruptcy
Adversary Proceeding




The
Official Committee of Unsecured Creditors of SemCrude, L.P. (“Unsecured
Creditors Committee”) filed an adversary proceeding in connection with the
Bankruptcy Cases  against Thomas L. Kivisto, Gregory C. Wallace, and
Westback.  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 described above (see “—Examiner”). 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.  Messrs. Foxx and Stallings have informed us
that they intend to vigorously defend these claims.





Board
and Management Composition




On July
18, 2008, Manchester Securities Corp. (“Manchester”) and Alerian Finance
Partners, LP (“Alerian”), as lenders to SemGroup Holdings, the sole member of
our general partner, exercised certain rights described below under a Loan
Agreement and a Pledge Agreement, each dated June 25, 2008 (the “Holdings Credit
Agreements”), that were triggered by certain events of default under the
Holdings Credit Agreements.  On July 18, 2008, Manchester and Alerian
exercised their right under the Holdings Credit Agreements in connection with
certain events of default thereunder to vote the membership interests of our
general partner in order to reconstitute the Board (the “Change of
Control”).  Messrs. Thomas L. Kivisto, Gregory C. Wallace, Kevin L.
Foxx, Michael J. Brochetti and W. Anderson Bishop were removed from the
Board.  Mr. Bishop had served as the chairman of the audit committee
and as a member of the conflicts committee and compensation committee of the
Board.  Messrs. Sundar S. Srinivasan, David N. Bernfeld and Gabriel
Hammond (each of whom is affiliated with Manchester or Alerian) were appointed
to the Board.  Mr. Srinivasan was elected as Chairman of the
Board.  Messrs. Brian F. Billings and Edward F. Kosnik remain as
independent directors of the Board and continue to serve as members of the
conflicts committee, audit committee and compensation committee of the
Board.  On October 1, 2008, Dave Miller (who is an affiliate of
Manchester) and Duke R. Ligon were appointed members of the Board.





On March
20, 2009, Alerian transferred its interest in the Holdings Credit Agreements to
Manchester (Alerian is still potentially entitled to receive a portion of
certain potential recoverable value from such interest).  The Holdings
Credit Agreements are secured by our subordinated units and incentive
distribution rights and the membership interests in our general partner owned by
SemGroup Holdings.  Manchester has not foreclosed on our subordinated
units owned by SemGroup Holdings or the membership interests in our general
partner.  Manchester may in the future exercise other remedies
available to them under the Holdings Credit Agreements and related loan
documents, including taking action to foreclose on the collateral securing the
loan.  Neither we nor our general partner is a party to the Holdings
Credit Agreements or the related loan documents.





SemGroup
Holdings is party to the Bankruptcy Cases.  On May 15, 2009, the
Private Company filed the Reorganization Plan.  The Reorganization
Plan does not address the reorganization of SemGroup Holdings, including the
satisfaction of any obligations it has to Manchester under the Holdings Credit
Agreements or the disposition of the ownership interests in our general partner
or our subordinated units and incentive distribution rights.  The
membership units in our general partner, as well as our subordinated units and
our incentive distribution rights, may be transferred, without the consent of
our unitholders, to a third party as part of the Bankruptcy Cases or subsequent
to the resolution of the Bankruptcy Cases.  Furthermore, Manchester
may transfer all or a portion of its interests in the Holdings Credit Agreements
(including its rights to vote the membership interest in our general partner) to
a third party.  Any new owner of our general partner or holder of such
voting rights would be in a position to replace the board of directors and
officers of our general partner with its own choices and thereby influence the
decisions made by the board of directors and officers.  In addition,
any such change of control of us or our general partner will result in an event
of default under our credit agreement, may result in additional uncertainty in
our operations and business and could have a material adverse effect on our
business, cash flows, ability to make distributions to our unitholders, the
price of our common units, our results of operations and ability to conduct our
business.





6
 Table of Contents


Operation
and General Administration of the Partnership




As is the
case with many publicly traded partnerships, we have not historically directly
employed any persons responsible for managing or operating us or for providing
services relating to day-to-day business affairs.  Pursuant to the
Amended Omnibus Agreement, the Private Company operated our assets and performed
other administrative services for us such as accounting, legal, regulatory,
development, finance, land and engineering.  The events related to the
Bankruptcy Filings terminated the Private Company’s obligations to provide
services to us under the Amended Omnibus Agreement.  The Private
Company continued to provide such services to us until the effective date of the
Settlement at which time the Private Company rejected the Amended Omnibus
Agreement and we and the Private Company entered into the Shared Services
Agreement and the Transition Services Agreement relating to the provision of
such services.  In addition, in connection with the Settlement, we
made offers of employment to, and now employ, certain individuals associated
with our crude oil operations and subsequently made additional offers of
employment to, and now employ, certain individuals associated with our asphalt
operations.  The costs to directly employ these individuals as well as
the costs under the Shared Services Agreement and the Transition Services
Agreement may be higher than those previously paid by us under the Amended
Omnibus Agreement, which could have a material adverse effect on our business,
cash flows, ability to make distributions to our unitholders, the price of our
common units, our results of operations and ability to conduct our
business.




In
addition, in connection with the Settlement, we agreed to not solicit the
Private Company’s employees for a year from the time of the
Settlement.  In connection with the Bankruptcy Cases, the Private
Company may reduce a substantial number of its employees or some of the Private
Company’s employees may choose to terminate their employment with the Private
Company, some of whom may currently be providing general and administrative and
operating services to us under the Shared Services Agreement or the Transition
Services Agreement.  Any reductions in critical personnel who provide
services to us and any increased costs to replace such personnel could have a
material adverse effect on our business, cash flows, ability to make
distributions to our unitholders, the price of our common units, our results of
operations and ability to conduct our business.




Credit
Facility




As
described below under “Item 7. Management’s Discussion and Analysis of Financial
Condition—Liquidity and Capital Resources”, in connection with the events
related to the Bankruptcy Filings, certain events of default occurred under our
credit agreement.  On September 18, 2008, we and the requisite lenders
under our credit facility entered into the Forbearance Agreement (as defined
below) relating to such events of default.  On April 7, 2009, we and
the requisite lenders entered into the Credit Agreement Amendment (as defined
below), under which the lenders consented to the Settlement and waived all
existing defaults and events of default described in the Forbearance Agreement
and amendments thereto.  See “Item 7. Management’s Discussion and
Analysis of Financial Condition—Liquidity and Capital Resources” for more
information regarding our credit facility, the Forbearance Agreement and the
Credit Agreement Amendment.





Distributions
to Our Unitholders




We did
not make a distribution to our common unitholders, subordinated unitholders or
general partner attributable to the results of operations for the quarters ended
June 30, 2008, September 30, 2008, December 31, 2008 or March 31, 2009 due to
the events of default under our credit agreement and the uncertainty of our
future cash flows relating to the Bankruptcy Filings.  In addition, we
do not currently expect to make a distribution relating to the second quarter of
2009.  Our unitholders will be required to pay taxes on their share of our
taxable income even though they did not receive a cash distribution for the
applicable periods.  We distributed approximately $14.3 million to our
unitholders for the three months ended March 31, 2008.  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 December 31, 2008 and March 31, 2009, our
leverage ratio was 4.86 to 1.00 and 5.28 to 1.00, respectively. If our
leverage ratio does not improve, we may not make quarterly distributions to our
unitholders in the future.





7
 Table of Contents


Our
partnership agreement provides that, during the subordination period, which we
are currently in, our common units 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 and March 31, 2009, each common unit was
entitled to an arrearage of $1.25, or total arrearages for all common units of
$26.9 million based upon 21,557,309 common units outstanding as of June 26,
2009.  Please see “Item 5. Market for Registrant’s Common Equity,
Related Unitholder Matters and Issuer Purchases of Equity
Securities—Distributions of Available Cash” for further discussion regarding
distributions to our unitholders.





Nasdaq
Delisting




Effective
at the opening of business on February 20, 2009, trading in our common units was
suspended on the Nasdaq Global Market (“Nasdaq”) due to our failure to timely
file our periodic reports with the SEC, and our common units were subsequently
delisted from Nasdaq.  Our common units are currently traded on the Pink
Sheets, which is an over-the-counter securities market, under the symbol
SGLP.PK.  The fact that our common units are not listed on a national
securities exchange is likely to make trading such common units more difficult
for broker-dealers, unitholders and investors, potentially leading to further
declines in the price of our common units.  In addition, it may limit
the number of institutional and other investors that will consider investing in
our common units, which may have an adverse effect on the price of our common
units.  It may also make it more difficult for us to raise capital in
the future.




We
continue to work to become compliant with our SEC reporting obligations and
intend to promptly seek the relisting of our common units on Nasdaq as soon as
practicable after we have become compliant with such reporting
obligations.  However, we may not be able to relist our common units
on Nasdaq or any other national securities exchange, and we may face a lengthy
process to relist our common units if we are able to relist them at
all.





Other
Effects




The
Bankruptcy Filings have had and may in the future continue to have a number of
other impacts on our business and management.  In the Amended Omnibus
Agreement and other agreements with the Private Company, the Private Company
agreed to indemnify us for certain environmental and other claims relating to
the crude oil and asphalt assets that have been contributed to us.  In
connection with the Settlement, we 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
we experience an environmental or other loss, we would experience increased
losses that may have a material adverse effect on our business, cash flows,
ability to make distributions to our unitholders, the price of our common units,
our results of operations and ability to conduct our business.




We are
currently pursuing various strategic alternatives for our business and assets
including the possibility of entering into strategic partnerships (potentially
involving the issuance of additional interests in our company), additional
storage contracts with third party customers, and/or the sale of all or a
portion of our assets.  The uncertainty relating to the Bankruptcy
Filings and the recent global market and economic conditions may make it more
difficult to pursue strategic opportunities or enter into storage contracts with
third party customers.





See “Item
7. Management’s Discussion and Analysis of Financial Condition—Impact of the
Bankruptcy of the Private Company and Certain of its Subsidiaries and Related
Events” for further discussion of the impact of the Bankruptcy Filings and
events related thereto upon our results of operations.




8
 Table of Contents


Our
Assets and Services





Our
network of assets provides our customers the flexibility to access multiple
points for the receipt and delivery of crude oil and the terminalling, storage
and processing of crude oil and asphalt cement. We do not take title to, or
marketing responsibility for, the crude oil or asphalt cement that we gather,
transport, terminal and store. As a result, our operations have minimal direct
exposure to changes in crude oil and asphalt cement prices, but the volumes of
crude oil and asphalt cement we gather, transport, terminal or store are
indirectly affected by commodity prices. We generate revenues by charging a fee
for services provided at each transportation stage as crude oil is shipped from
its origin at the wellhead to destination points such as the Cushing
Interchange, to refineries in Oklahoma, Kansas and Texas or to pipelines and by
charging a fee for services provided for the terminalling and storage of crude
oil and asphalt cement.




•
            Asphaltservices.    Our
      46 asphalt cement terminals are located in 23 states and as such are well
      positioned to provide asphalt services in the market areas they serve
      throughout the continental United States.  With our
      approximately 7.4 million barrels of total asphalt product and
      residual fuel oil storage capacity, we are able to provide our customers
      the ability to effectively manage their asphalt product storage and
      processing and marketing activities.  As of June 26, 2009, we
      have entered into storage contracts or leases with third party customers
      relating to 45 of our 46 asphalt
facilities.




•
            Crude oil
      terminalling
      and storage assets and services.    We
      provide crude oil terminalling and storage services at our terminalling
      and storage facilities located in Oklahoma and Texas. We currently own and
      operate an aggregate of approximately 8.7 million barrels of storage
      capacity. Of this storage capacity, approximately 6.7 million barrels
      are located at our terminal in Cushing, Oklahoma. Our Cushing terminal is
      strategically located within the Cushing Interchange, one of the largest
      crude oil marketing hubs in the United States and the designated point of
      delivery specified in all New York Mercantile Exchange, or NYMEX, crude
      oil futures contracts. Our terminals have a combined capacity to receive
      or deliver approximately 10.0 million barrels of crude oil per month.
      We also own approximately 26 acres of additional land within the Cushing
      Interchange where we can develop additional storage
    capacity.




•
            Crude oil
      gathering and transportation assets and services.    We
      own and operate two pipeline systems, the Mid-Continent system and the
      Longview system, collectively consisting of approximately 1,150 miles of
      pipelines that gather crude oil for our customers and transport it to
      refiners, to common carrier pipelines for ultimate delivery to refiners or
      to terminalling and storage facilities owned by us and others. Our
      pipeline gathering and transportation system located in Oklahoma and the
      Texas Panhandle, which we refer to as the Mid-Continent system, has a
      combined length of approximately 820 miles. Our second pipeline gathering
      and transportation system located in East Texas, which we refer to as the
      Longview system, consists of approximately 330 miles of tariff-regulated
      crude oil gathering pipeline. In addition to our pipelines, we use our
      approximately 200 owned or leased tanker trucks to gather crude oil in
      Kansas, Oklahoma, Texas, New Mexico and Colorado for our customers at
      remote wellhead locations generally not connected to pipeline and
      gathering systems and transport the crude oil to aggregation points and
      storage facilities located along pipeline gathering and transportation
      systems. In connection with our gathering services, we also provide a
      number of producer field services, ranging from gathering condensates from
      natural gas producers to hauling production waste water to disposal
      wells.




Prior to
the Settlement, we derived substantially all of our revenues from services
provided to the crude oil purchasing, marketing and distribution operations of
the Private Company pursuant to the Throughput Agreement, and the services
provided to the finished asphalt product processing and marketing operations of
the Private Company pursuant to the Terminalling Agreement.  For the
year ended December 31, 2008, we derived approximately 73%, of our revenues,
excluding fuel surcharge revenues related to fuel and power consumed to operate
our asphalt cement storage tanks, from services we provided to the Private
Company.  Prior to 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 Terminalling Agreement, respectively, regardless of
whether such services were actually utilized by the Private
Company.  As described herein, 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.  We expect revenues from services provided to
the Private Company under the New Throughput Agreement and New Terminalling
Agreement to be 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.





9
 Table of Contents


We have
been pursuing opportunities to provide crude oil terminalling and storage
services and crude oil gathering and transportation services to third parties.
As a result of new crude oil third-party storage contracts, we increased our
crude oil third-party terminalling and storage revenue from approximately $1.0
million, or approximately 10% of total terminalling and storage
revenue during the second quarter of 2008, to approximately $4.6 million,
$8.4 million and $10.2 million, or approximately 41%, 83% and 88% of total
terminalling and storage revenue for the third quarter of 2008,
the fourth quarter of 2008 and the first quarter 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, 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 $10.9
million, $13.6 million and $13.7 million, or approximately 51%, 85% and 93% of
total gathering and transportation revenue for the third quarter of 2008,
the fourth quarter of 2008 and the first quarter 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.  Average rates for the new third-party crude oil
terminalling and storage and gathering and transportation contracts are
comparable with those previously received from the Private
Company.  However, the volumes being terminalled, stored, gathered and
transported have decreased as compared to periods prior to the Bankruptcy
Filings, which has negatively impacted total revenues.  As an example,
fourth quarter 2008 total revenues are approximately $9.5 million (or
approximately 19%) less than second quarter 2008 total revenues, in each case
excluding fuel surcharge revenues related to fuel and power consumed to operate
our liquid asphalt cement storage tanks.





In
addition, we have recently 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 were
effective during May 2009 and 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.





Industry
Overview




Crude
Oil Industry




We
provide crude oil gathering, transportation, storage and terminalling services
to independent producers, marketers and refiners of crude oil products. The
market we serve, which begins at the source of production and extends to the
point of distribution to the end user customer, is commonly referred to as the
“midstream” market. Our crude oil operations are located primarily in Oklahoma,
Kansas and Texas where there are extensive crude oil production operations in
place and our assets extend from gathering systems and trucking networks in and
around these producing fields to transportation pipelines carrying crude oil to
logistics hubs, such as the Cushing Interchange, where we have substantial
terminalling and storage facilities that aid our customers in managing the
delivery of their crude oil.




Gathering and
transportation.    Pipeline transportation is
generally considered the lowest cost method for shipping crude oil and refined
petroleum products to other locations. Crude oil and refined products pipelines
transport about two-thirds of the petroleum shipped in the United States. Crude
oil pipelines transport oil from the wellhead to logistics hubs and/or
refineries. Logistics hubs like the Cushing Interchange provide storage and
connections to other pipeline systems and modes of transportation, such as
tankers, railroads, and trucks. Barges and railroads provide additional
transportation capabilities shipping crude oil between gathering storage
systems, pipelines, terminals and storage centers and end-users. Barge
transportation is typically a cost-efficient mode of transportation that allows
for the ability to transport large volumes of crude oil over long
distances.




Trucking
complements pipeline gathering systems by gathering crude oil from operators at
remote wellhead locations not served by pipeline gathering systems. These trucks
can also be used to transport crude oil to aggregation points and storage
facilities, which are generally located along pipeline gathering and
transportation systems. Trucking is generally limited to low volume, short haul
movements where other alternatives to pipeline transportation are often
unavailable. Trucking costs escalate sharply with distance, making trucking the
most expensive mode of crude oil transportation. Despite being small in terms of
both volume per shipment and distance, trucking is an essential component to the
completeness of the oil distribution system.


10
 Table of Contents




Terminalling and
storage.    Terminalling and storage facilities
complement the crude oil pipeline gathering and transportation systems.
Terminals are facilities where crude oil is transferred to or from a storage
facility or transportation system, such as a gathering pipeline, to another
transportation system, such as trucks or another pipeline. Terminals play a key
role in moving crude oil to end-users such as refineries by providing the
following services:




•
            storage
      and inventory management;




•
            distribution;
      and




•
            blending
      to achieve specified grades of crude
oil.




Storage
and terminalling assets generate revenues through a combination of storage and
throughput charges to third parties. Storage fees are generated when tank
capacity is provided to third parties. Terminalling fees, also referred to as
throughput fees, are generated when a terminal receives crude oil from a shipper
and redelivers it to another shipper. Both storage and terminalling fees are
earned from refiners and gatherers that need segregated storage or custom
blended crude oils for refining feedstocks, pipeline operators, refiners or
traders that need segregated storage for foreign cargoes, traders who make or
take delivery under NYMEX contracts and producers and marketers that seek to
increase their marketing alternatives.




Overview of the Cushing
Interchange.    The Cushing Interchange is one of the
largest crude oil marketing hubs in the United States and the designated point
of delivery specified in all NYMEX crude oil futures contracts. As the NYMEX
delivery point and a cash market hub, the Cushing Interchange serves as the
primary source of refinery feedstock for Midwest refiners and plays an integral
role in establishing and maintaining markets for many varieties of foreign and
domestic crude oil. The following table lists substantially all of the incoming
pipelines connected to the Cushing Interchange, the proprietary terminals within
the complex and all outgoing pipelines from the Cushing Interchange for delivery
throughout the United States:




Incoming
      Pipelines
                          to
      Cushing Interchange
                        
                        Cushing Interchange Proprietary
                          Terminals
                        
                        Outgoing
      Pipelines from Cushing
                          InterchangeSemGroup
      Energy Partners, L.P.
                          SemGroup,
      L.P. (the Private Company)
                          BP
      p.l.c.
                          TEPPCO
      Partners, L.P.
                          Basin
      Pipeline
                          Sunoco
      Logistics Partners, L.P.
                          Plains
      All American Pipeline, L.P.
                          Seaway
      Crude Pipeline Company
                          ConocoPhillips
                          Enbridge
      Energy Partners, L.P.
                        
                        SemGroup
      Energy Partners, L.P.
                          BP
      p.l.c.
                          TEPPCO
      Partners, L.P.
                          Basin
      Pipeline
                          Enbridge
      Energy Partners, L.P.
                          Plains
      All American Pipeline, L.P.
                          ConocoPhillips
                          Seaway
      Crude Pipeline Company
                        
                        BP
      p.l.c.
                          Cush-Po,
      Inc.
                          ConocoPhillips
                          Sunoco Logistics Partners, L.P.
                          Enbridge Energy Partners, L.P.
                          Osage Pipeline Company, LLC
                          Ozark Pipeline
                          Plains
      All American Pipeline, L.P.




Due to
our pipeline and terminalling infrastructure, we have the ability to receive
and/or deliver, directly or indirectly, to all pipelines and terminals within
the Cushing Interchange.




Asphalt
Industry




Liquid
asphalt cement is one of the oldest engineering materials. Liquid asphalt
cement’s adhesive and waterproofing properties have been used for building
structures, waterproofing ships, mummification and numerous other
applications.  In the United States, approximately 90% of liquid
asphalt cement consumed is used for road paving and approximately 10% is used
for roofing products, with other specialty applications accounting for only a
very small fraction of consumption.




Production
of liquid asphalt cement begins with the production of crude oil. Liquid asphalt
cement is a dark brown to black cementitious material that is primarily produced
by petroleum distillation. When crude oil is separated in distillation towers at
a refinery, the heaviest hydrocarbons with the highest boiling points settle at
the bottom. These tar-like fractions, called residuum, require relatively little
additional processing to become products such as asphalt base or residual fuel
oil. Liquid asphalt cement production represents only a small portion of the
total product production in the crude oil refining process. The liquid asphalt
cement produced by petroleum distillation can be sold by the refinery either
directly into the wholesale and retail liquid asphalt cement markets or to a
liquid asphalt cement marketer.




11
 Table of Contents


In its
normal state, asphalt cement is too viscous a liquid to be used at ambient
temperatures. For paving applications, asphalt cement can be heated (as for hot
mix asphalt), diluted or cut back with petroleum solvents (cutback asphalts), or
emulsified in a water base with emulsifying chemicals by a colloid mill (asphalt
emulsions). Approximately 90% of the road paving liquid asphalt cement in the
United States is used for hot mix asphalt. Hot mix asphalt is produced by mixing
hot asphalt cement and heated aggregate (stone, sand and/or gravel). The hot mix
asphalt is loaded into trucks for transport to the paving site, where it is
placed on the road surface by paving machines and compacted by rollers. Hot mix
asphalt is used for new construction, reconstruction and for thin maintenance
overlays on existing roads.




Asphalt
emulsions and cutback asphalts are used for a variety of applications including
spraying as a tack coat between an old pavement and a new hot mix asphalt
overlay, cold mix pothole patching material, and preventive maintenance surface
applications such as chip seals. Asphalt emulsions are also used for fog seal,
slurry seal, scrub seal, sand seal and microsurfacing maintenance treatments,
for warm mix emulsion/aggregate mixtures, base stabilization and both central
plant and in-place recycling. Asphalt emulsions and cutback asphalts are
generally sold directly to government agencies but are also sold to contractors
for use in applications such as chip seals.




The
asphalt industry in the United States is characterized by a high degree of
seasonality. Much of this seasonality is due to the impact that weather
conditions have on road construction schedules, particularly in cold weather
states. Refineries produce liquid asphalt cement year round, but the peak
asphalt demand season is during the warm weather months when most of the road
construction activity in the United States takes place. As a result, liquid
asphalt cement prices can vary dramatically from the winter to summer months.
Liquid asphalt cement marketers and finished asphalt product producers with
access to extensive storage capacity possess the inherent advantage of being
able to purchase supply from refineries at low prices in the low demand winter
months and then sell finished asphalt products at higher prices in the peak
summer demand season.




Residual
Fuel Oil Industry




Like
asphalt cement, residual fuel oil is another by-product of the crude oil
distillation process. Residual fuel oil is primarily used as a burner fuel in
numerous industrial and commercial business applications including the utility
industry, the shipping and paper industry, steel mills, tire manufacturing,
schools and food processors.




The
residual fuel oil industry in the United States is characterized by a high
degree of seasonality with much of the seasonality driven by the impact of
weather on the need to produce power for heating and cooling applications. The
residual fuel oil market is largely a commodity market with price functioning as
the primary decision-making criterion. However, many customers have unique
product specifications driven by their particular business applications that
require the blending of various components to meet those
specifications.




Residual
fuel oil is purchased from a variety of refiners by our customers and
transported to our terminalling and storage facilities via numerous
transportation methods including rail tank car, barge, ship and truck. Some of
our customers use our asphalt assets to service their residual fuel oil
business.




Crude
Oil Terminalling and Storage Services




With approximately
8.7 million barrels of above-ground crude oil terminalling facilities and
storage tanks, we are able to provide our customers the ability to effectively
manage their crude oil inventories and significant flexibility in their
marketing and operating activities. Our crude oil terminalling and storage
assets are located throughout our core operating areas with the majority of our
crude oil terminalling and storage strategically located at the Cushing
Interchange.




Our crude
oil terminals and storage assets receive crude oil products from pipelines,
including those owned by us, and distribute these products to interstate common
carrier pipelines and regional independent refiners, among other third
parties.




Our crude
oil terminals derive most of their revenues from terminalling fees charged to
customers. The Private Company was our primary customer prior to the Order and
the Settlement.


12
 Table of Contents




The table
below sets forth the total average barrels stored at and delivered out of our
Cushing terminal in each of the periods presented and the total storage capacity
at our Cushing terminal and at our other terminals at the end of such
periods:




Year
      Ended December 31,2007(1)
                                      
                                      
                                      2008Average
      crude oil barrels stored per month at our Cushing terminal
                                      
                                      
                                      2,194,070
                                      
                                      
                                      
                                      1,451,732Average
      crude oil delivered (Bpd) to our Cushing terminal
                                      
                                      
                                      63,448
                                      
                                      
                                      
                                      26,395Total
      storage capacity at our Cushing terminal (barrels at end of
      period)
                                      
                                      
                                      4,765,000
                                      
                                      
                                      
                                      6,710,000Total
      other storage capacity (barrels at end of period)
                                      
                                      
                                      1,952,150
                                      
                                      
                                      
                                      1,962,764





(1)
            Includes
      results of operations of our predecessor for the period from January 1,
      2007 through July 20, 2007.




The
following table outlines the location of our crude oil terminals and their
storage capacities and number of tanks as of December 31, 2008:




Location
                                          
                                          Storage
                                            Capacity
                                            (barrels)
                                          
                                          
                                          Number
                                            of
                                            TanksCushing,
      Oklahoma
                                          
                                          
                                          6,710,000
                                          
                                          
                                          
                                          36Longview,
      Texas
                                          
                                          
                                          430,000
                                          
                                          
                                          
                                          7Other(1)(2)
                                          
                                          
                                          1,532,764
                                          
                                          
                                          
                                          275Total
                                          
                                          
                                          8,672,764
                                          
                                          
                                          
                                          318





(1)
            Consists
      of miscellaneous storage tanks located at various points along our
      pipeline and gathering system.


(2)
            In
      connection with the Settlement, we transferred certain crude oil assets to
      the Private Company and acquired certain truck tanks in Kansas and
      Oklahoma.  As of June 26, 2009, we have approximately 1,062,000
      barrels of other storage capacity and approximately 320 other
      tanks.




Cushing
Terminal.    One of our principal assets is our
Cushing terminal, which is located within the Cushing Interchange in Cushing,
Oklahoma. Currently, we own and operate 36 crude oil storage tanks with
approximately 6.7 million barrels of storage capacity at this
location.




Our
predecessor completed construction of three new storage tanks with approximately
450,000 barrels of additional capacity at our Cushing terminal in March
2007.  We also own 26 additional acres of land within the Cushing
Interchange that is available for future expansion. This acreage is capable of
housing an additional 1.5 million barrels of storage in four to six above
ground tanks. In May 2008, we acquired the Acquired Storage Assets from the
Private Company which consisted of 2.0 million barrels of storage
capacity.




Our
predecessor purchased the Cushing terminal in 2000 at which time the facility
had approximately 790,000 barrels of storage capacity. The storage capacity of
our Cushing terminal was substantially expanded in a series of phases beginning
in 2002.  Prior to the Bankruptcy Filings, the Private Company used the
Cushing terminal and our other storage assets to conduct its crude oil business
and has been the primary driver of the increased volumes terminalled and stored
each year since our predecessor purchased the assets.




Our
Cushing terminal was constructed over the last 50 years and it has an expected
remaining life of at least 20 years. Over 85% of our total storage capacity in
our Cushing terminal has been built since 2002. We estimate that all of our
tanks have a weighted average age of seven years. The relatively young age of
our tanks helps reduce required maintenance capital at our Cushing
terminal.




The
design and construction specifications of our storage tanks meet or exceed the
minimums established by the American Petroleum Institute, or API. Our storage
tanks also undergo regular maintenance inspection programs that are more
stringent than established governmental guidelines. We believe that these design
specifications and inspection programs will result in lower future maintenance
capital costs to us.




A key
attribute of our Cushing terminal is that through our pipeline and gathering
system interface, we have access and connectivity to all the terminals located
within the Cushing Interchange. This connectivity is a key attribute of our
Cushing terminal because it provides us the ability to deliver to virtually any
customer within the Cushing Interchange.


13
 Table of Contents




Our
Cushing terminal can receive crude oil from our Mid-Continent system as well as
from pipelines owned by the Private Company, BP Amoco, TEPPCO, Basin, Sunoco
Logistics Partners, Plains All American, Seaway, ConocoPhillips, Enbridge Energy
Partners and two truck racks. Our Cushing terminal’s pipeline connections to
major markets in the Mid-Continent region provide our customers with marketing
flexibility. Our Cushing terminal can deliver crude oil via pipeline and, in the
aggregate, is capable of receiving and/or delivering 282,000 Bpd of crude
oil.




LongviewTerminal.    We own and operate the Longview
terminal, located in Longview, Texas, consisting of seven tanks with a total
storage capacity of 430,000 barrels. We use our Longview terminal in connection
with our Longview system. The Longview terminal can receive and ship crude oil
in both directions at the same time. A number of other potential customers have
access to the Longview terminal. Our predecessor acquired the Longview terminal
in 2000. Since 2000, our predecessor has conducted several expansion projects to
increase the capacity and connectivity of our Longview terminal. The Longview
terminal was constructed beginning in the 1940s and we believe it has a
remaining life of at least 20 years.




Crude
Oil Gathering and Transportation Services




Pipeline
Gathering and Transportation Services




We own
and operate a crude oil gathering and transportation system in the Mid-Continent
region of the United States with a combined length of approximately 820 miles
and a 330 mile tariff regulated crude oil gathering and transportation
pipeline in the Longview, Texas area.  In addition, we acquired the
Eagle North Pipeline System in May 2008.  We have suspended capital
expenditures on this pipeline due to the continuing impact of the Bankruptcy
Filings.  Management currently intends to put the asset into service in
early 2010 and is exploring various alternatives to complete the
project.




System
                                      
                                      Asset
      Type
                                      
                                      Length
                                        (miles)
                                      
                                      Average
                                        Throughput for
                                        Year
      Ended
                                        December 31, 2007
                                        (Bpd)(1)
                                      
                                      Average
                                        Throughput for
                                        Year
      Ended
                                        December 31, 2008
                                        (Bpd)
                                      
                                      Pipe Diameter
                                        RangeMid-Continent
                                      
                                      Gathering and transportation
      pipelines
                                      
                                      
                                      820
                                      
                                      
                                      31,661
                                      
                                      
                                      25,442
                                      
                                      4” to 20”Longview
                                      
                                      Gathering
      and transportation pipelines
                                      
                                      
                                      330
                                      
                                      
                                      27,404
                                      
                                      
                                      26,218
                                      
                                      6” to 8”Eagle
      North
                                      
                                      Gathering
      and transportation pipelines
                                      
                                      
                                      130
                                      
                                      
                                      n/a
                                      
                                      
                                      n/a
                                      
                                      
                                      8”





(1)
            Includes
      results of operations of our predecessor for the period from January 1,
      2007 through July 20, 2007.





Mid-Continent
System.    Our Mid-Continent gathering and
transportation system consists of approximately 820 miles of gathering pipelines
that, in aggregate, gather wellhead crude oil from approximately 11,000 wells
for transport to our primary transportation systems that provide access to our
Cushing terminal and other storage facilities. The Oklahoma portion of our
Mid-Continent system consists of approximately 790 miles of various sized
pipeline. Crude oil gathered into the Oklahoma portion of our Mid-Continent
system is transported to our Cushing terminal or delivered to local area
refiners. The Mid-Continent system also includes a small, 34-mile gathering and
transportation system in the Texas Panhandle near Dumas, Texas. Crude oil
collected through the Texas Panhandle portion of our Mid-Continent system is
transported by pipeline and delivered to a ConocoPhillips refinery near Borger,
Texas. For the years ended December 31, 2007 and 2008, this system gathered
an average of approximately 31,661 Bpd and 25,442 Bpd of crude oil,
respectively.  Since the Bankruptcy Filings, we have experienced and
continue to experience decreased volumes in the Bpd gathered by our
Mid-Continent gathering and transportation system.  For the fourth
quarter of 2008 and the first quarter of 2009, the system gathered an average of
19,978 and 20,519 Bpd, respectively. The Private Company historically has been
the sole shipper on our Mid-Continent system. The Mid-Continent system was
constructed in various stages beginning in the 1940s and we believe it has a
remaining life of at least 20 years.


14
 Table of Contents




LongviewSystem.    Our Longview system consists of
approximately 330 miles of tariff regulated crude oil gathering pipeline. The
East Texas portion of this system delivers to crude oil terminalling, refinery
and storage facilities at various delivery points in the East Texas region. Our
Longview system also includes a small pipeline gathering system
(Thompson-to-Webster) located near Houston, Texas. The Thompson-to-Webster
gathering system, located south of Houston, consists of 42 miles of 6” and 8”
pipeline. Deliveries made from this gathering system are transported to
refineries in the Baytown/Texas City area. Shippers on the Longview system
include the Private Company, ExxonMobil, Plains All American L.P., Delek,
Eastex, Sunoco Logistics Partners L.P. and Wapiti. The Longview system was
constructed in various stages beginning in the 1940s and we believe it has a
remaining life of at least 20 years.




Eagle North Pipeline
System.  On May 12, 2008, we purchased the Acquired Pipeline
Assets, including the Eagle North Pipeline System, a 130-mile, 8-inch pipeline
that originates in Ardmore, Oklahoma and terminates in Drumright, Oklahoma, from
the Private Company for aggregate consideration of $45.1 million, including $0.1
million of acquisition-related costs.  The acquisition was funded with
borrowings under our revolving credit facility.  We have suspended
capital expenditures on this pipeline due to the continuing impact of the
Bankruptcy Filings.  Management currently intends to put the asset into
service in early 2010 and is exploring various alternatives to complete the
project.




Trucking
Services




We
provide two types of trucking services: crude oil transportation services and
producer field services.




Crude Oil Transportation
Services.    To complement our pipeline gathering and
transportation business, we use our approximately 200 owned or leased tanker
trucks, which have an average tank size of approximately 200 barrels. Our tanker
trucks moved an average of 67,515 Bpd and 59,439 Bpd, respectively, for the
years ended December 31, 2007 and 2008 from wellhead locations not served
by pipeline gathering systems to aggregation points and storage
facilities.  Since the Bankruptcy Filings, we have experienced and
continue to experience decreased volumes in the Bpd moved by our tanker
trucks.  For the fourth quarter of 2008 and the first quarter of 2009,
our tanker trucks moved an average of 51,726 and 49,837 Bpd,
respectively.  Several of our trucking services operating areas, such
as West Texas, are not currently served by our gathering and transportation
pipeline systems. In these areas, our trucking operations extend our ability to
gather and aggregate crude oil on our systems. This ability allows the crude oil
marketing customers we serve to increase the level of service they are able to
provide to their customers and facilitates the transportation of incremental
volumes on our system. The following table outlines the distribution of our
trucking assets among our operating areas as of December 31, 2008:




State
                              
                              Number of TrucksOklahoma
                              
                              
                              54Kansas
                              
                              
                              34Dumas,
      Texas
                              
                              
                              40West
      Texas/New Mexico
                              
                              
                              74Colorado
                              
                              
                              10Total
                              
                              
                              212




Normally
we assign trucks to a specific area but, when needed, we can temporarily
relocate them to meet demand. We dispatch our drivers with advanced computer
technology out of central locations in Oklahoma City, Oklahoma, Abilene, Texas
and Dumas, Texas. The drivers are provided with hand-held computers and after
loading, the drivers provide the customers with a printed computer generated
ticket with the information needed for payment. The hand-held computer can
transmit as well as receive needed information to accomplish daily workloads.
The drivers are also provided mobile communications to enhance safety and
security.




Producer Field
Services.    We provide a number of producer field
services for companies such as Eagle Rock Energy, DCP Midstream and
ConocoPhillips. These services include gathering condensates by way of bobtail
trucks for natural gas companies to hauling produced water to disposal wells,
providing hot and cold fresh water, chemical and down hole well treating, wet
oil clean up and building and maintaining separation facilities. We provide
these services at contractual hourly rates. Our producer service fleet consists
of approximately 100 trucks in a number of different sizes. Currently, we
operate 17 different producer service facilities and have the ability to tailor
our services to fit the needs of our customers.


15
 Table of Contents




Asphalt
Services




With
approximately 7.4 million barrels of total asphalt product and residual
fuel oil storage capacity, we are able to provide our customers the ability to
effectively manage their asphalt product storage and processing and marketing
activities. Our 46 terminals are located in 23 states and as such are well
positioned to provide asphalt services in the market areas they serve throughout
the continental United States.




We now
serve the asphalt industry by providing our customers access to their market
areas through a combination of the leasing of certain of our asphalt facilities
and through the provision of storage and processing services at other of our
asphalt and residual fuel oil facilities. In our asphalt services segment, we
generate revenues by charging a fee for the lease of a facility or for services
provided as asphalt products are terminalled, stored and/or processed in our
facilities.




We have
recently 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 were effective during May
2009 and 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.  During 2008 and the first quarter of 2009, we generated
revenues from our asphalt assets pursuant to the Terminalling Agreement with the
Private Company.  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.




At
facilities where we have storage contracts, we receive, terminal, store and/or
process our customer’s asphalt products until we deliver these products to our
customers or other third parties.  Our asphalt assets include the
logistics assets, such as docks and rail spurs and the piping and pumping
equipment necessary, to facilitate the unloading of liquid asphalt cement into
our terminalling and storage facilities as well as the processing and
manufacturing equipment required for the processing of asphalt emulsions,
asphalt cutbacks, polymer modified asphalt cement and other related finished
asphalt products. After initial unloading, the liquid asphalt cement is moved
via heat traced pipelines into large storage tanks. These tanks are insulated
and contain heating elements that allow the asphalt cement to be stored in a
heated state. The asphalt cement can then be directly sold by our customers to
end users or used as a raw material for the processing of asphalt emulsions,
asphalt cutbacks, polymer modified asphalt cement and related finished asphalt
products that we process in accordance with the formulations and specifications
provided by our customers.  Dependent on the product, the processing
of asphalt entails combining asphalt cement and various other products such as
emulsifying chemicals and polymers to achieve the desired specification and
application requirements.




At leased
facilities, our customers conduct the operations at the asphalt facility,
including the storage and processing of asphalt products, and we collect a
monthly rental fee relating to the lease of such facility.




We do not
take title to, or marketing responsibility for, the liquid asphalt product that
we terminal, store and/or process. As a result, our asphalt operations have
minimal direct exposure to changes in commodity prices, but the volumes of
liquid asphalt cement we terminal or store are indirectly affected by commodity
prices.




During
2008 and the first quarter of 2009, the Private Company was our primary customer
pursuant to the Terminalling Agreement under which the Private Company paid us a
fee based on the number of barrels of liquid asphalt cement we terminalled or
stored based upon certain minimum levels.


16
 Table of Contents




The
following table outlines the location of each asphalt facility and their
respective storage capacity as of December 31, 2008:




Location
                        
                        Number of
                          Tanks
                        
                        Shell Capacity
                          (Barrels)St.
      Louis, MO
                        
                        
                        13
                        
                        
                        499,550Newport
      News, VA
                        
                        
                        15
                        
                        
                        497,000Saginaw,
      TX
                        
                        
                        26
                        
                        
                        494,668Gloucester
      City, NJ
                        
                        
                        8
                        
                        
                        455,524Halstead,
      KS
                        
                        
                        11
                        
                        
                        341,394Memphis,
      TN*
                        
                        
                        17
                        
                        
                        327,929Catoosa,
      OK*
                        
                        
                        8
                        
                        
                        291,116Spokane,
      WA*
                        
                        
                        19
                        
                        
                        273,644Las
      Vegas, NV
                        
                        
                        13
                        
                        
                        272,005Port
      of Catoosa, OK*
                        
                        
                        9
                        
                        
                        269,500Boise,
      ID
                        
                        
                        16
                        
                        
                        261,398Muskogee,
      OK
                        
                        
                        15
                        
                        
                        229,520Lubbock,
      TX
                        
                        
                        15
                        
                        
                        228,340Bay
      City, MI
                        
                        
                        6
                        
                        
                        181,571Denver,
      CO*
                        
                        
                        6
                        
                        
                        173,905Salt
      Lake City, UT
                        
                        
                        17
                        
                        
                        165,538New
      Madrid, MO
                        
                        
                        10
                        
                        
                        150,468Warsaw,
      IN
                        
                        
                        10
                        
                        
                        134,032Morehead
      City, NC
                        
                        
                        9
                        
                        
                        128,552Chicago,
      IL
                        
                        
                        4
                        
                        
                        127,195Parsons,
      TN
                        
                        
                        7
                        
                        
                        114,214Grand
      Island, NE
                        
                        
                        6
                        
                        
                        111,600Pasco,
      WA
                        
                        
                        8
                        
                        
                        103,223Pekin,
      IL
                        
                        
                        2
                        
                        
                        102,090Billings,
      MT
                        
                        
                        8
                        
                        
                        100,000Woods
      Cross, UT
                        
                        
                        12
                        
                        
                        98,592Dodge
      City, KS
                        
                        
                        9
                        
                        
                        84,699Pueblo,
      CO
                        
                        
                        11
                        
                        
                        75,146Grand
      Junction, CO
                        
                        
                        11
                        
                        
                        68,161Ennis,
      TX
                        
                        
                        11
                        
                        
                        63,895Fontana,
      CA
                        
                        
                        10
                        
                        
                        52,913Spokane,
      WA*
                        
                        
                        4
                        
                        
                        43,277Columbus,
      OH
                        
                        
                        4
                        
                        
                        26,524Northumberland,
      PA
                        
                        
                        8
                        
                        
                        23,333Reading,
      PA
                        
                        
                        7
                        
                        
                        11,810Catoosa,
      OK*
                        
                        
                        4
                        
                        
                        9,063Austin,
      TX
                        
                        
                        4
                        
                        
                        8,568Garden
      City, GA
                        
                        
                        5
                        
                        
                        8,214Denver,
      CO*
                        
                        
                        5
                        
                        
                        8,167Little
      Rock, AR
                        
                        
                        4
                        
                        
                        6,722Sedalia,
      MO
                        
                        
                        3
                        
                        
                        6,271El
      Dorado, KS
                        
                        
                        4
                        
                        
                        5,619Salina,
      KS
                        
                        
                        5
                        
                        
                        5,590Lawton,
      OK
                        
                        
                        5
                        
                        
                        4,935Memphis,
      TN*
                        
                        
                        4
                        
                        
                        3,095Ardmore,
      OK
                        
                        
                        3
                        
                        
                        2,090Total(1)
                        
                        
                        411
                        
                        
                        6,650,660





*
            Denotes
      locations that have more than one
facility.





(1)
            In
      connection with the Settlement, 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 transfer increased our shell
      capacity to approximately 7.4 million barrels of total asphalt
      product and residual fuel oil storage capacity.  The transfer of
      the Private Company’s asphalt assets in connection with the Settlement
      provides us with outbound logistics and processing assets for our existing
      asphalt assets and, therefore, allows us to provide asphalt terminalling,
      storage and processing services to third
  parties.


17
 Table of Contents




The
asphalt assets range in age from two years to over fifty years and we expect
that the storage tanks and related assets will have an average remaining life of
in excess of 20 years. Our asphalt assets have been well
maintained.




The
Private Company acquired the majority of our asphalt assets from Koch Materials
Company in April 2005. Since that time until our acquisition in February 2008
and pursuant to the Settlement Agreement, the asphalt assets were operated by
SemMaterials, L.P., a wholly owned subsidiary of the Private
Company.




Competition




We are
subject to competition from other crude oil gathering, transportation,
terminalling and storage operations that may be able to supply our customers
with the same or comparable services on a more competitive basis. We compete
with national, regional and local gathering, storage and pipeline companies and
liquid asphalt cement storage and processing companies, including the major
integrated oil companies, of widely varying sizes, financial resources and
experience.  In addition, the Private Company has indicated in its
Reorganization Plan that it intends to emerge from bankruptcy later this
year.  If it is successful in its reorganization, we will compete with
the Private Company in the provision of various services, including the
provision of crude oil terminalling and storage services at the Cushing
Interchange.  We rely upon the Private Company to provide us certain
services, including services related to our crude oil operations at the Cushing
Interchange, pursuant to the Shared Services Agreement.




With
respect to our crude oil gathering and transportation services, these
competitors include TEPPCO Partners, L.P., Plains All American Pipeline, L.P.,
ConocoPhillips, Sunoco Logistics Partners L.P. and National Cooperative Refinery
Association, among others. With respect to our crude oil storage and
terminalling services, these competitors include BP plc, Enbridge Energy
Partners, L.P. and Plains All American Pipeline, L.P. Several of our competitors
conduct portions of their operations through publicly traded partnerships with
structures similar to ours, including Plains All American Pipeline, L.P., TEPPCO
Partners, L.P. and Sunoco Logistics Partners L.P.  Our ability to
compete could be harmed by factors we cannot control, including:




•
            price
      competition from gathering, transportation, terminalling and storage
      companies, some of which are substantially larger than us and have greater
      financial resources, and control substantially greater storage capacity,
      than we do;




•
            the
      perception that another company can provide better
  service;




•
            our
      prior association with the Private Company and any negative goodwill
      created by the Bankruptcy Filings;




•
            the
      availability of crude oil alternative supply points, or crude oil supply
      points located closer to the operations of our customers;
    and




•
            a
      decision by our competitors to acquire or construct crude oil midstream
      assets and provide gathering, transportation, terminalling or storage
      services in geographic areas, or to customers, served by our assets and
      services.




The
asphalt industry is highly fragmented and regional in nature. Participants range
in size from major oil companies to small family-owned proprietorships. Our
competitors in the asphalt business include: refiners such as BP p.l.c., Flint
Hills Resources, L.P., CHS, Inc., Exxon Mobil Corporation, ConocoPhillips
Company, NuStar Energy L.P., Ergon, Inc., Marathon Petroleum Company LLC, Alon
USA LP, Suncor Energy Inc. and Valero Energy Corporation; resellers such as
NuStar Energy L.P., Idaho Asphalt Supply, Inc. and Asphalt Materials, Inc.; and
large road construction firms such as OldCastle Materials, Inc., APAC, Inc. and
Colas SA. We also compete with national, regional and local liquid asphalt
cement terminalling and storage companies including the major integrated oil
companies and a variety of others including KinderMorgan Energy Partners,
International-Matex Tank Terminals and Houston Fuel Oil Terminal
Company.




If we are
unable to compete with services offered by other midstream enterprises, our
ability to make distributions to our unitholders may be adversely affected.
Additionally, we also compete with national, regional and local companies,
including potentially the Private Company, for asset acquisitions and expansion
opportunities. Some of these competitors are substantially larger than us and
have greater financial resources and lower costs of capital than we
do.


18
 Table of Contents




Regulation




LongviewSystem.The Federal Energy Regulatory Commission,
or FERC, pursuant to the Interstate Commerce Act of 1887, or ICA, as amended,
the Energy Policy Act of 1992 (“Energy Policy Act”), and rules and orders
promulgated thereunder, regulates the tariff rates for our Longview system. The
FERC requires that interstate oil pipelines file tariffs that contain rules and
regulations governing the rates and charges for services performed. These
tariffs apply to the interstate movement of crude and liquid petroleum products.
Pursuant to the ICA, the rates, terms and conditions for providing service on
ICA-regulated pipelines must be just and reasonable, and the service must be
provided on a non-discriminatory basis. The ICA permits interested persons to
challenge proposed new or changed rates and authorizes the FERC to suspend the
effectiveness of such rates for a period of up to seven months and to
investigate such rates. If, upon completion of an investigation, the FERC finds
that the new or changed rate is unlawful, it is authorized to require the
carrier to refund the revenues in excess of the prior tariff during the term of
the investigation. The FERC may also investigate, upon complaint or on its own
motion, rates that are already in effect and may order a carrier to change its
rates prospectively. Upon an appropriate showing, a shipper may obtain
reparations for damages sustained for a period of up to two years prior to the
filing of a complaint.




All of
our FERC regulated rates are deemed just and reasonable, or grandfathered, under
the Energy Policy Act. The Energy Policy Act limits the circumstances under
which a complaint can be made against such grandfathered rates. In order to
challenge grandfathered rates, a party would have to show that it was previously
contractually barred from challenging the rates, or that the economic
circumstances of the liquids pipeline that were a basis for the rate or the
nature of the service underlying the rate had substantially changed or that the
rate was unduly discriminatory or preferential.




We cannot
predict what rates we will be allowed to charge in the future for service on our
Longview system.  Currently, we have one tariff rate on the Longview
System that is regulated by FERC with the other tariff rates being regulated by
the Texas Railroad Commission.  Because rates charged for transportation
services must be competitive with those charged by other transporters, the rates
set forth in our tariffs will be determined based on competitive factors in
addition to regulatory considerations.




Gathering and
Intrastate Pipeline Regulation.    In
the states in which we operate, regulation of crude gathering facilities and
intrastate crude pipeline facilities generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take requirements
and complaint-based rate regulation. For example, our intrastate crude pipeline
facilities in Texas must have a tariff on file and charge just and reasonable
rates for service, which much be provided on a non-discriminatory basis.
Although state regulation is typically less onerous than at FERC, proposed and
existing rates subject to state regulation and the provision of
non-discriminatory service are subject to challenge by complaint.




Pipeline
Safety.    The
laws and regulations in the states in which we operate are subject to change,
resulting in potentially more stringent requirements and increased costs. For
instance, in Texas, the Texas Railroad Commission, or RRC, incorporates into its
own rules those federal safety standards for hazardous liquids pipelines
contained in Title 40, Part 195 of the Federal Code of Regulations. In September
2006, the United States Department of Transportation, or DOT, proposed an
amendment of Part 195 by broadening the scope of coverage to include certain
rural onshore hazardous liquid gathering and low-stress pipeline systems found
near “unusually sensitive areas,” including non-populated areas requiring extra
protection because of the presence of sole source drinking water resources,
endangered species, or other ecological resources. Also, on December 6,
2006, the Congress passed, and on December 29, 2006, President Bush signed
into law the Pipeline Inspection, Protection, Enforcement and Safety Act of
2006, or PIPES, which reauthorizes and amends the DOT’s pipeline safety
programs. Included in PIPES is a provision eliminating the regulatory exemption
contained in Part 195 for hazardous liquid pipelines operated at low
stress.  Final rules promulgated under PIPES were promulgated in July
2008 and extend all existing safety regulations, including integrity management
requirements, to large-diameter low-stress pipelines within a defined “buffer”
area around an “unusually sensitive area,” which include areas that contain
sole-source drinking water, endangered species, or other ecological resources.
Operators of these, and all other low-stress pipelines, are required by the
rules to comply with annual reporting requirements. Owing to the RRC’s
incorporation by reference of the safety standards contained in Part 195, the
issuance of any new gathering and low-stress pipeline safety regulations,
including requirements for integrity management of those pipelines, are likely
to increase the operating costs of our pipelines subject to such new
requirements, and such future costs may be material.


19
 Table of Contents




Trucking
Regulation.    We
operate a fleet of trucks to transport crude oil and oilfield materials as a
private, contract and common carrier. We are licensed to perform both intrastate
and interstate motor carrier services. As a motor carrier, we are subject to
certain safety regulations issued by the DOT. The trucking regulations cover,
among other things, driver operations, maintaining log books, truck manifest
preparations, the placement of safety placards on the trucks and trailer
vehicles, drug and alcohol testing, safety of operation and equipment, and many
other aspects of truck operations. We are also subject to requirements of the
federal Occupational Safety and Health Act, as amended, or OSHA, with respect to
our trucking operations.




Environmental,
Health and Safety Risks




General.    Our
midstream crude oil gathering, transportation, terminalling and storage
operations, together with the asphalt assets that we acquired from the Private
Company, are subject to stringent federal, state, and local laws and regulations
relating to the discharge of materials into the environment or otherwise
relating to protection of the environment. As with the midstream and liquid
asphalt cement industries generally, compliance with current and anticipated
environmental laws and regulations increases our overall cost of business,
including our capital costs to construct, maintain and upgrade equipment and
facilities. Failure to comply with these laws and regulations may result in the
assessment of significant administrative, civil and criminal penalties, the
imposition of investigatory and remedial liabilities, and even the issuance of
injunctions that may restrict or prohibit some or all of our operations. We
believe that our operations are in substantial compliance with applicable laws
and regulations. However, environmental laws and regulations are subject to
change, resulting in potentially more stringent requirements, and we cannot
provide any assurance that the cost of compliance with current and future laws
and regulations will not have a material affect on our results of operations or
earnings.




There are
also risks of accidental releases into the environment inherent in the nature of
both our midstream and liquid asphalt cement operations, such as leaks or spills
of petroleum products or hazardous materials from our pipelines, trucks,
terminals and storage facilities. A discharge of petroleum products or hazardous
materials into the environment could, to the extent such event is not covered by
insurance, subject us to substantial expense, including costs related to
environmental clean-up or restoration, compliance with applicable laws and
regulations, and any personal injury, natural resource or property damage claims
made by neighboring landowners and other third parties.




The
following is a summary of the more significant current environmental, health and
safety laws and regulations to which our business operations are subject and for
which compliance may require material capital expenditures or have a material
adverse impact on our results of operations or financial position.




Water.    The
federal Clean Water Act and analogous state and local laws impose restrictions
and strict controls regarding the discharge of pollutants into waters of the
United States and state waters. Permits must be obtained to discharge pollutants
into these waters. The Clean Water Act and analogous laws provide significant
penalties for unauthorized discharges and impose substantial potential
liabilities for cleaning up spills and leaks into water. In addition, the Clean
Water Act and analogous state laws require individual permits or coverage under
general permits for discharges of storm water runoff from certain types of
facilities. Some states also maintain groundwater protection programs that
require permits for discharges or operations that may impact groundwater
conditions. We believe that we are in substantial compliance with any such
applicable state requirements.




The
federal Oil Pollution Act, as amended, or OPA, was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972, the Clean Water
Act, and other statutes as they pertain to prevention and response to oil
spills. The OPA, and analogous state and local laws, subject owners of
facilities used for storing, handling or transporting oil, including trucks and
pipelines, to strict, joint and potentially unlimited liability for containment
and removal costs, natural resource damages and certain other consequences of an
oil spill, where such spill is into navigable waters, along shorelines or in the
exclusive economic zone of the United States. The OPA, the Clean Water Act and
other analogous laws also impose certain spill prevention, control and
countermeasure requirements, such as the preparation of detailed oil spill
emergency response plans and the construction of dikes and other containment
structures to prevent contamination of navigable or other waters in the event of
an oil overflow, rupture or leak. We believe that we are in substantial
compliance with applicable OPA and analogous state and local
requirements.


20
 Table of Contents




Air
Emissions.    Our
operations are subject to the federal Clean Air Act, as amended, as well as to
comparable state and local laws. We believe that our operations are in
substantial compliance with these laws in those areas in which we operate.
Amendments to the federal Clean Air Act enacted in 1990 imposed a federal
operating permit requirement for major sources of air emissions. Some of our
midstream and liquid asphalt cement terminals hold such a permit, which is
referred to as a “Title V permit.” We may be required to incur certain
capital expenditures in the next several years for air pollution control
equipment in connection with obtaining or maintaining permits and approvals
addressing air emission related issues. Although we can provide no assurance, we
believe future compliance with the federal Clean Air Act, as amended, will not
have a material adverse effect on our financial condition or results of
operations.




Climate.Legislative and regulatory measures to address concerns that emissions of
certain gases, commonly referred to as “greenhouse gases” (“GHGs”), may be
contributing to warming of the Earth’s atmosphere are in various phases of
discussions or implementation at the international, national, regional, and
state levels. The oil and gas industry is a direct source of certain GHG
emissions, namely carbon dioxide and methane, and future restrictions on such
emissions could impact our future operations. In the United States, federal
legislation requiring GHG controls may be enacted by the end of 2009. In
addition, EPA is considering initiating a rulemaking to regulate GHGs as a
pollutant under the CAA. Furthermore, EPA recently issued proposed regulations
that would require the economy-wide monitoring and reporting of GHG emissions on
an annual basis, including extensive GHG monitoring and reporting requirements.
The rule as proposed would apply to natural gas transmission compression and
could apply to emissions from other activities we conduct. Although this
proposed rule would not control GHG emission levels from any facilities, if it
applied to us, it would still cause us to incur monitoring and reporting costs.
The EPA has also recently proposed findings that GHGs in the atmosphere endanger
public health and welfare, and that emissions from mobile sources cause or
contribute to GHGs in the atmosphere. These proposed findings, if finalized as
proposed, would not immediately affect our operations, but standards eventually
promulgated pursuant to these findings could affect our operations and ability
to obtain air permits for new or modified facilities. Legislation and
regulations are also in various stages of discussions or implementation in many
of the states in which we operate. Lawsuits have been filed seeking to force the
federal government to regulate GHG emissions under the CAA and to require
individual companies to reduce GHG emissions from their operations. These and
other lawsuits may result in decisions by state and federal courts and agencies
that could impact our operations and ability to obtain certifications and
authorizations to construct future projects.




Passage
of climate change legislation or other federal or state legislative or
regulatory initiatives that regulate or restrict GHG emissions in areas in which
we conduct business could adversely affect the demand for our products and
services, and depending on the particular program adopted could increase the
costs of our operations, including costs to operate and maintain our facilities,
install new emission controls on our facilities, acquire allowances to authorize
our GHG emissions (e.g., at compressor stations), pay any taxes related to our
GHG emissions and/or administer and manage a GHG emissions
program.  At this time, it is not possible to accurately estimate how
laws or regulations addressing GHG emissions would impact our
business.  Although we would not be impacted to a greater degree than
other similarly situated midstream transporters of petroleum products, a
stringent greenhouse gas control program could have an adverse effect on our
cost of doing business and could reduce demand for the products we
transport.




Solid
Waste Disposal and Environmental Remediation.




The
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, or CERCLA, also known as Superfund, as well as comparable state and
local laws, impose liability without regard to fault or the legality of the
original act, on certain classes of persons associated with the release of a
“hazardous substance” into the environment. These persons include the owner or
operator of the site or sites where the release occurred and companies that
disposed of, or arranged for the disposal of, the hazardous substances found at
the site. Under CERCLA, such persons may be subject to strict joint and several
liability for cleanup costs, for damages to natural resources, and for the costs
of certain health studies. It is not uncommon for neighboring landowners and
other third parties to file claims for personal injury and property damage
allegedly caused by releases of hazardous substances or other pollutants. We
generate materials in the course of our operations that are regulated as
hazardous substances. Beyond the federal statute, many states have enacted
environmental response statutes that are analogous to CERCLA.


21
 Table of Contents




We
generate wastes, including “hazardous wastes,” that are subject to the
requirements of the federal Resource Conservation and Recovery Act, as amended,
or RCRA, as well as to comparable state and local laws. While normal costs of
complying with RCRA would not be expected to have a material adverse effect on
our financial conditions, we could incur substantial expense in the future if
the RCRA exclusion for oil and gas waste were eliminated. Should our oil and gas
wastes become subject to RCRA, we would become subject to more rigorous and
costly disposal requirements, resulting in additional capital expenditures or
operating expenses for us.




We
currently own or lease properties where hazardous substances are being handled
or have been handled for many years. Although we believe that operating and
disposal practices that were standard in the midstream and liquid asphalt cement
industries at the time were utilized at properties leased or owned by us,
historical releases of hazardous substances or associated generated wastes have
occurred on or under the properties owned or leased by us, or on or under other
locations where these wastes were taken for disposal. In addition, many of these
properties have been operated in the past by third parties whose treatment and
disposal or release of hazardous substances or associated generated wastes were
not under our control. These properties and the materials disposed on them may
be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could
be required to remove or remediate previously spilled hazardous materials or
associated generated wastes (including wastes disposed of or released by other
site occupants or by prior owners or operators), or to clean up contaminated
property (including contaminated groundwater).




Contamination
resulting from the release of hazardous substances or associated generated
wastes is not unusual within the midstream and liquid asphalt cement industries.
 Other assets we have acquired or will acquire in the future may have
environmental remediation liabilities for which we are not indemnified. In the
future, we likely will experience releases of hazardous materials, including
petroleum products, into the environment from our pipeline terminalling and
storage operations, or discover releases that were previously unidentified.
Although we maintain a program designed to prevent and, as applicable, to detect
and address such releases promptly, damages and liabilities incurred due to
environmental releases from our assets may substantially affect our
business.




OSHA.    We
are subject to the requirements of OSHA, as well as to comparable state and
local laws that regulate the protection of worker health and safety. In
addition, the OSHA hazard communication standard requires that certain
information be maintained about hazardous materials used or produced in
operations and that this information be provided to employees, state and local
government authorities and citizens. We believe that our operations are in
substantial compliance with OSHA requirements, including general midstream and
liquid asphalt cement industry standards, record keeping requirements and
monitoring of occupational exposure to regulated substances.




Anti-Terrorism
Measures.    The federal Department of Homeland
Security Appropriations Act of 2007 requires the Department of Homeland
Security, or DHS, to issue regulations establishing risk-based performance
standards for the security of chemical and industrial facilities, including oil
and gas facilities that are deemed to present “high levels of security risk.”
The DHS issued an interim final rule in April 2007 regarding risk-based
performance standards to be attained pursuant to the act and, on November 20,
2007, further issued an Appendix A to the interim rules that establish
chemicals of interest and their respective threshold quantities that will
trigger compliance with these interim rules. We have not yet determined the
extent to which our facilities are subject to the interim rules or the
associated costs to comply, but it is possible that such costs could be
substantial.




Operational
Hazards and Insurance




Pipelines,
terminals, storage tanks, and similar facilities may experience damage as a
result of an accident or natural disaster. These hazards can cause personal
injury and loss of life, severe damage to and destruction of property and
equipment, pollution or environmental damage and suspension of operations. We
have maintained insurance of various types and varying levels of coverage that
we consider adequate under the circumstances to cover our operations and
properties, including coverage for pollution related events. However, such
insurance does not cover every potential risk associated with operating
pipelines, terminals and other facilities. Notwithstanding what we believe is a
favorable claims history, the overall cost of the insurance program as well as
the deductibles and overall retention levels that we maintain have increased.
Through the utilization of deductibles and retentions we self insure the
“working layer” of loss activity to create a more efficient and cost effective
program. The working layer consists of high frequency/low severity losses that
are best retained and managed in-house. As we continue to grow, we will continue
to monitor our retentions as they relate to the overall cost and scope of our
insurance program.


22
 Table of Contents




Employees




During
2008 we did not directly employ any persons responsible for managing or
operating us or for providing services relating to day-to-day business
affairs.  Pursuant to the Amended Omnibus Agreement, the Private
Company operated our assets and performed other administrative services for us
such as accounting, legal, regulatory, development, finance, land and
engineering.  In addition, in connection with the Settlement, we made
offers of employment to, and now employ, certain individuals associated with our
crude oil operations and subsequently made additional offers of employment to,
and now employ, certain individuals associated with our asphalt
operations.  The costs to directly employ these individuals as well as
the costs under the Shared Services Agreement and the Transition Services
Agreement may be higher than those previously paid by us under the Amended
Omnibus Agreement.  As of June 26, 2009, we employed approximately 400
persons.  None of these employees are represented by labor unions or
covered by any collective bargaining agreement.  We believe that
relations with these employees are satisfactory.





In
addition, in connection with the Settlement, we agreed to not solicit the
Private Company’s employees for a year from the time of the
Settlement.  In connection with the Bankruptcy Cases, the Private
Company may reduce a substantial number of its employees or some of the Private
Company’s employees may choose to terminate their employment with the Private
Company, some of whom may currently be providing general and administrative and
operating services to us under the Shared Services Agreement or the Transition
Services Agreement.  Any reductions in critical personnel who provide
services to us and any increased costs to replace such personnel could have a
material adverse effect on our ability to conduct our business and our results
of operations.





Prior to
the events surrounding the Bankruptcy Filings, the officers of our general
partner were also employees and officers or directors of the Private
Company.  Messrs. Kevin Foxx and Alex Stallings resigned the positions
each officer held with SemGroup, L.P. in July 2008.  Mr. Michael
Brochetti had previously resigned from his position with SemGroup, L.P. in March
2008.  Mr. Jerry Parsons left the employment of SemGroup, L.P. in
March 2009.  Messrs. Foxx, Brochetti, Stallings, and Parsons remain as
officers of our general partner.  Mr. Peter Schwiering continues to
serve as an officer of the Private Company and as an officer of our general
partner.




Financial Information about
Segments




Information
regarding our operating revenues and identifiable assets attributable to each of
our segments is presented in Note 17 to our consolidated financial statements
included in this annual report on Form 10-K.




Available
Information




We
provide public access to our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to these reports filed
with the SEC under the Securities and Exchange Act of 1934.  These
documents may be accessed free of charge on our website, www.sglp.com, as soon
as is reasonably practicable after their filing with the
SEC.  Information contained on our website is not incorporated by
reference in this report or any of our other filings.  The filings are
also available through the SEC at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549.  Information on the operation of
the Public Reference Room is available by calling 1-800-SEC-0330.  The
SEC also maintains a website that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC.  The SEC’s website is www.sec.gov.




23
 Table of Contents


Item
1A.                      RiskFactors.




Limited
partner interests are inherently different from the capital stock of a
corporation, although many of the business risks to which we are subject are
similar to those that would be faced by a corporation engaged in a similar
business. You should carefully consider the following risk factors together with
all of the other information included in this report. If any of the following
risks were actually to occur, our business, financial condition, or results of
operations could be materially adversely affected. In that case, we might not be
able to pay distributions on our common units, the trading price of our common
units could decline and our unitholders could lose all or part of their
investment.




Risks
Related to the Bankruptcy Filings





We
may not be able to continue as a going concern.





The
financial statements included in this annual report on Form 10-K have been
prepared assuming we will continue as a going concern, though such an assumption
may not be true.  We earned 73% of our revenues, excluding fuel
surcharge revenues related to fuel and power consumed to operate our liquid
asphalt cement storage tanks, for the year ended December 31, 2008 from the
Private Company, which commenced the Bankruptcy Cases in July 2008, the effects
of which are more fully described herein.  Events and uncertainties
related to the Bankruptcy Filings, including uncertainties relating to our
ability to comply with covenants under our credit facility, our exposure and
sensitivity to interest rate risks given the materiality of our borrowings under
our credit facility, and uncertainties related to securities and other
litigation, raise substantial doubt about our ability to continue as a going
concern.  While it is not feasible to predict the ultimate outcome of
the events surrounding the Bankruptcy Cases, we have been and could continue to
be materially and adversely affected by such events and we may be forced to make
a bankruptcy filing or take other action that could have a material adverse
effect on our business, cash flows, ability to make distributions to our
unitholders, the price of our common units, our results of operations and
ability to conduct our business.  See “Item 1. Business—Impact of the
Bankruptcy of the Private Company and Certain of its Subsidiaries and Related
Events,” “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operation—Impact of the Bankruptcy of the Private Company and
Certain of its Subsidiaries and Related Events” and Note 19 to the consolidated
financial statements.





The
Bankruptcy Filings may continue to have a material adverse effect on our results
of operations and our ability to make distributions to our
unitholders.





As of the
date of the Bankruptcy Filings, we were party to various agreements with the
Private Company and its subsidiaries, including subsidiaries that are debtors in
the Bankruptcy Cases.  Under the Throughput Agreement, we provided
certain crude oil gathering, transportation, terminalling and storage services
to a subsidiary of the Private Company that is a debtor in the Bankruptcy
Cases.  Under the Terminalling Agreement, we provided certain liquid
asphalt cement terminalling and storage services to a subsidiary of the Private
Company that is a debtor in the Bankruptcy Cases.  For the year ended
December 31, 2008, we derived approximately 73% of our revenues, excluding fuel
surcharge 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 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 used by the
Private Company.  In connection with the Settlement, 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.  We expect revenues from services provided to
the Private Company under the New Throughput Agreement and New Terminalling
Agreement to be 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.  See “─The Private Company has rejected
certain contracts it has with us as part of the Bankruptcy Cases, which could
have a material adverse effect on our results of operations, cash flows and
ability to make distributions to our unitholders.”





24
 Table of Contents


We have
been pursuing opportunities to provide crude oil terminalling and storage
services and crude oil gathering and transportation services to third
parties.  Although 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, 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, fourth quarter 2008 total revenues are
approximately $9.5 million (or approximately 19%) less than second quarter 2008
total revenues, in each case excluding fuel surcharge revenues related to fuel
and power consumed to operate our liquid asphalt cement storage tanks.  In
addition, we have recently entered into leases and storage agreements with third
parties relating to certain of our asphalt facilities.  The revenues
that we will receive pursuant to these leases and storage agreements will be
less than the revenues received under the Terminalling Agreement with the
Private Company.





Our
efforts to increase the third party revenue 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 and our
financial condition.  The Private Company may also choose to curtail
its operations or liquidate its assets as part of the Bankruptcy
Cases.  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 business, cash flows, ability
to make distributions to our unitholders, the price of our common units, our
results of operations and ability to conduct our business.




The
Private Company has rejected certain contracts it has with us as part of the
Bankruptcy Cases, which could have a material adverse effect on our business,
cash flows, ability to make distributions to our unitholders, the price of our
common units, our results of operations and ability to conduct our
business.




In
connection with the Settlement, among other things, the Private Company rejected
certain agreements, including the Terminalling Agreement, the Throughput
Agreement and the Amended Omnibus Agreement (see “Item 1. Business—Impact of the
Bankruptcy of the Private Company and Certain of its Subsidiaries and Related
Events—Settlement with the Private Company”).  We may not be able to
replace the volumes provided by the Private Company under the Terminalling
Agreement and the Throughput Agreement and any contracts we make with third
parties may be for prices that are less than those charged the Private Company
under the Throughput Agreement and the Terminalling Agreement, which could have
a material adverse effect on our business, cash flows, ability to make
distributions to our unitholders, the price of our common units, our results of
operations and ability to conduct our business.





We have
recently entered into leases and storage agreements with third party customers
relating to 45 of our 46 asphalt facilities.  The revenues that
we will receive pursuant to these leases and storage agreements will be less
than the revenues received under the Terminalling Agreement with the Private
Company.  Without sufficient revenues from our asphalt assets, we may
be unable to meet the covenants, including the minimum liquidity, minimum EBITDA
and minimum receipt requirements, under our credit agreement.  Any
significant decrease in the amount of revenues that we receive from our asphalt
operations could have a material adverse effect on our business, cash flows,
ability to make distributions to our unitholders, the price of our common units,
our results of operations and ability to conduct our business.




We
did not make a distribution for the second quarter, third quarter or fourth
quarter of 2008 or the first quarter of 2009, do not expect to make a
distribution for the second quarter of 2009 and may not make distributions in
the future.





We did
not make a distribution to our common unitholders, subordinated unitholders or
general partner attributable to the results of operations for the quarters ended
June 30, 2008, September 30, 2008, December 31, 2008 or March 31, 2009 due to
the events of default under our credit agreement and the uncertainty of our
future cash flows relating to the Bankruptcy Filings.  In addition, we
do not currently expect to make a distribution relating to the second quarter of
2009.  Our unitholders will be required to pay taxes on their share of
our taxable income even though they did not receive a cash distribution for the
applicable periods.  See “—Tax Risks to Common Unitholders—Our
unitholders have been and will be required to pay taxes on their share of our
taxable income even if they have not or do not receive any cash distributions
from us.”  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 December 31,
2008 and March 31, 2009, our leverage ratio was 4.86 to 1.00 and 5.28 to 1.00,
respectively.  We are uncertain as to when, if ever, our leverage
ratio will be below 3.50 to 1.00 and therefore we are uncertain as to when or
if we may again make distributions to our unitholders.





25
 Table of Contents


We
are exposed to the credit risk of the Private Company and the material
nonperformance by the Private Company could reduce our ability to make
distributions to our unitholders.





In
connection with the Settlement we entered into the Shared Services Agreement and
the Transition Services Agreement.  Pursuant to such agreements we
continue to rely upon the Private Company for certain operational and
administrative services relating to our operations.  If the Private
Company fails to reorganize successfully, it may no longer be able to provide
such operational and administrative services to us.  Any material
nonperformance under the Shared Services Agreement or the Transition Services
Agreement by the Private Company could materially and adversely impact our
business, cash flows, ability to make distributions to our unitholders, the
price of our common units, our results of operations and ability to conduct our
business.  See “─The Private Company has rejected certain contracts it
has with us as part of the Bankruptcy Cases, which could have a material adverse
effect on our business, cash flows, ability to make distributions to our
unitholders, the price of our common units, our results of operations and
ability to conduct our business.”





In
addition, the Private Company has defaulted under its credit facilities and its
indenture relating to its senior notes.  Moody’s and Fitch Ratings
have withdrawn their ratings of the Private Company due to the Bankruptcy
Filings.  Though we have no indebtedness rated by any credit rating
agency, we may have rated debt in the future. Credit rating agencies such as
Moody’s and Fitch Ratings may consider the Private Company’s debt ratings when
assigning ours, because of our historical relationship with the Private
Company.  Due to the Private Company’s default of its indebtedness and
the uncertainty related to the Bankruptcy Filings, we could experience an
increase in our borrowing costs or difficulty accessing capital markets if we
are able to access them at all. Such a development could adversely affect our
ability to grow our business and to make distributions to
unitholders.





Prior
to the Settlement, we did not have employees and relied solely on the employees
of the Private Company.  We continue to rely upon the Private Company
for certain operational and administrative services and may experience increased
costs as we begin employing individuals directly associated with our
operations.





As is the
case with many publicly traded partnerships, we have not historically directly
employed any persons responsible for managing or operating us or for providing
services relating to day-to-day business affairs.  Pursuant to the
Amended Omnibus Agreement, the Private Company operated our assets and performed
other administrative services for us such as accounting, legal, regulatory,
development, finance, land and engineering.  The events related to the
Bankruptcy Filings terminated the Private Company’s obligations to provide
services to us under the Amended Omnibus Agreement.  The Private
Company continued to provide such services to us until the effective date of the
Settlement at which time the Private Company rejected the Amended Omnibus
Agreement and we and the Private Company entered into the Shared Services
Agreement and the Transition Services Agreement relating to the provision of
such services.  In addition, in connection with the Settlement, we
made offers of employment to, and now employ, certain individuals associated
with our crude oil operations and subsequently made additional offers of
employment to, and now employ, certain individuals associated with our asphalt
operations.  The costs to directly employ these individuals as well as
the costs under the Shared Services Agreement and the Transition Services
Agreement may be higher than those previously paid by us under the Amended
Omnibus Agreement, which could have a material adverse effect on our business,
cash flows, ability to make distributions to our unitholders, the price of our
common units, our results of operations and ability to conduct our
business.




In
addition, in connection with the Bankruptcy Cases, the Private Company may
reduce a substantial number of its employees or some of the Private Company’s
employees may choose to terminate their employment with the Private Company,
some of whom may currently be providing general and administrative and operating
services to us under the Shared Services Agreement or the Transition Services
Agreement.  Any reductions in critical personnel who provide services
to us and any increased costs to replace such personnel could have a material
adverse effect on our business, cash flows, ability to make distributions to our
unitholders, the price of our common units, our results of operations and
ability to conduct our business.




26
 Table of Contents


Certain
of our officers and personnel who perform services for us also provide services
to the Private Company.




We rely
upon the Private Company to provide us certain services, including services
related to our crude oil operations at the Cushing Interchange, pursuant to the
Shared Services Agreement.  In addition, Peter L. Schwiering, our
Executive Vice President — Crude Operations, is an officer of the Private
Company.  If Mr. Schwiering or other employees of the Private Company
performing services on our behalf favor the Private Company’s interests over our
interests when conducting our operations, it may have a material adverse effect
on our business, cash flows, ability to make distributions to our unitholders,
the price of our common units, our results of operations and ability to conduct
our business.




Our
interests may be adverse to the Private Company’s interests due to the
Bankruptcy Filings.




The
Settlement provided that we have a $35 million unsecured claim against the
Private Company relating to rejection of the Terminalling Agreement and a $20
million unsecured claim against the Private Company relating to rejection of the
Throughput Agreement.  On May 15, 2009, the Private Company filed the
Reorganization Plan.  If such plan is confirmed without material
amendment, our claims will be impaired, and we will recover substantially less
than the nominal value of such claims if we recover anything.  We may also
have additional claims against the Private Company that were not released in
connection with the Settlement.  In addition, if the Private Company
fails to make its payments under the New Throughput Agreement or the New
Terminalling Agreement or otherwise fails to perform under the contracts we have
with the Private Company, we may have potential claims against the Private
Company’s bankruptcy estate.  Any claims asserted by us against the
Private Company in the Bankruptcy Cases will be subject to the claim allowance
procedure provided in the Bankruptcy Code and bankruptcy rules.  If an
objection is filed, the Bankruptcy Court will determine the extent to which any
such claim that has been objected to is allowed and the priority of such claim,
which may reduce the value of any such claim.





As a
result of these items, our interests may be adverse to the Private Company’s
interests.  The Private Company provides various administrative and
operational services for us pursuant to the Shared Services Agreement and the
Transition Services Agreement.  In addition, we rely upon the Private
Company’s personnel for the implementation of certain of our internal
controls.  The progress of the Bankruptcy Cases may influence the
Private Company’s decision to continue providing any of these services, which
could have a material adverse effect on our business, cash flows, ability to
make distributions to our unitholders, the price of our common units, our
results of operations and ability to conduct our business.




The
Private Company may assert claims against us in the Bankruptcy Cases, which
could have a material adverse effect on our cash flows and ability to make
distributions to our unitholders.




Pursuant
to the Settlement, the Private Company released certain of its claims against
us.  However, there may be other claims against us that have not been
released in connection with the Settlement.  If claims are identified,
such claims may prompt the filing of lawsuits in the Bankruptcy Cases to seek
monetary damages or to challenge or to seek to unwind transactions with us under
the bankruptcy laws.  Such litigation may be expensive and, if
successful, would have a material adverse effect on our business, cash flows,
ability to make distributions to our unitholders, the price of our common units,
our results of operations and ability to conduct our business.





We
may experience significant costs in changing our name and
trademark.





In
connection with the Settlement, we and the Private Company entered into the
Trademark Agreement, pursuant to which the Private Company granted us a
non-exclusive, worldwide license to use certain trade names, including the name
“SemGroup” and the corresponding mark, until December 31, 2009, and the Private
Company waived claims for infringement relating to such trade names and mark
prior to the effective date of such Trademark Agreement (see “Item 1.
Business—Impact of the Bankruptcy of the Private Company and Certain of its
Subsidiaries and Related Events—Settlement with the Private
Company”).  As such, we will be required to change our name and
trademark upon or prior to the expiration of the Trademark
Agreement.  The expenses associated with such a change may be
significant, which could have a material adverse effect on our business, cash
flows, ability to make distributions to our unitholders, the price of our common
units, our results of operations and ability to conduct our
business.





27
 Table of Contents


Our
future operations and cash flows are uncertain and may cause events of default
under our credit agreement.




Our
future operations and cash flows are uncertain.  The covenants and
other requirements under our credit facility were designed using certain
projections and assumptions relating to revenues, EBITDA and cash
flows.  In addition, our interest expense has increased due to our
entering into the Forbearance Agreement, as amended, and the Credit Agreement
Amendment.  For example, the weighted average interest rate incurred
by us during the three months ended June 30, 2008 was 4.62% resulting in
interest expense of approximately $4.3 million as compared to a weighted average
interest rate incurred by us of 9.00% during the three months ended March 31,
2009 resulting in interest expense of approximately $10.0
million.  This increased interest expense may have a material adverse
effect on our business, cash flows, ability to make distributions to our
unitholders, the price of our common units, our results of operations and
ability to conduct our business.





An
event of default will occur under our credit agreement if we fail to become
current in our periodic filings.





It is an
event of default under the credit agreement if we do not file our delinquent
quarterly and annual reports with the SEC by September 30, 2009, unless we
retain new auditors, in which case such deadline is extended to December 31,
2009.  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 the 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 while the
events of default exist.




An
event of default will occur under our credit agreement if there is a change of
control of us or our general partner.





It is an
event of default under the credit agreement if there is a change of control of
us or our general partner.  We cannot assure our unitholders that a
change of control will not occur.  The membership units in our general
partner, as well as our subordinated units and our incentive distribution
rights, may be transferred, without the consent of our unitholders, to a third
party as part of the Bankruptcy Cases or subsequent to the resolution of the
Bankruptcy Cases.  Furthermore, Manchester may transfer all or a
portion of its interests in the Holdings Credit Agreements (including its rights
to vote the membership interest in our general partner) to a third
party.  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 the 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 while the
events of default exist.




We
are subject to an SEC inquiry and a Federal Grand Jury subpoena.





On July
21, 2008, we received a letter from the staff of the SEC giving notice that the
SEC is conducting an inquiry relating to us and requesting, among other things,
that we voluntarily preserve, retain and produce to the SEC certain documents
and information relating primarily to our disclosures respecting the Private
Company’s liquidity issues, which were the subject of our July 17, 2008 press
release.  On October 22, 2008, we received a subpoena from the SEC
pursuant to a formal order of investigation requesting certain documents
relating to, among other things, the Private Company’s liquidity
issues.  We have been cooperating, and intend to continue cooperating,
with the SEC in its investigation.




On July
23, 2008, we and our general partner each received a Grand Jury subpoena from
the United States Attorney’s Office in Oklahoma City, Oklahoma, requiring, among
other things, that we and our general partner produce financial and other
records related to our July 17, 2008 press release.  We have been
informed that the U.S. Attorneys’ Offices for the Western District of Oklahoma
and the Northern District of Oklahoma are in discussions regarding the
subpoenas, and no date has been set for a response to the
subpoenas.  We and our general partner intend to cooperate fully with
this investigation if and when it proceeds.




28
 Table of Contents


In the
event that either the SEC inquiry or the Grand Jury investigation leads to
action against any of our current or former directors or officers, or the
Partnership itself, the trading price of our common units may be adversely
impacted.  In addition, the SEC inquiry and the Grand Jury
investigation may result in the incurrence of significant legal expense, both
directly and as the result of our indemnification obligations.  These
matters may also divert management’s attention from our operations which may
cause our business to suffer.  If we are subject to adverse findings
in either of these matters, we could be required to pay damages or penalties or
have other remedies imposed upon us which could have a material adverse effect
on our business, cash flows, ability to make distributions to our unitholders,
the price of our common units, our results of operations and ability to conduct
our business.  All or a portion of the defense costs and any amount we
may be required to pay in connection with the resolution of these matters may
not be covered by insurance.




We
have been named as a party in lawsuits and may be named in additional litigation
in the future, all of which could result in an unfavorable outcome and 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 our common units and our ability to conduct our
business.




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, theMaurer case has been
transferred to the Northern District of Oklahoma and consolidated with theCarson case.  TheRubin, Jain, andHickman cases have also been
transferred to the Northern District of Oklahoma.




A hearing
on motions for appointment as lead plaintiff was held in theCarson 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 asIn 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 obtained an extension to file its consolidated amended complaint until
May 4, 2009; defendants have 60 days from that date to answer or otherwise
respond to the complaint.





29
 Table of Contents


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.




We intend
to vigorously defend these actions.  There can be no assurance regarding
the outcome of the litigation.




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 allege that phantom
units previously awarded to them vested upon the Change of Control that
occurred in July 2008.  One claimant alleges that his phantom units
vested upon his termination.  The claimants contend our general
partner’s failure to deliver certificates for the phantom units within 60 days
after vesting has caused them to be damaged, and they seek 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.  Our general partner intends to vigorously defend
these claims.




We 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 claims and lawsuits may
result in the incurrence of significant legal expense, both directly and as the
result of our indemnification obligations.  The litigation may also
divert management’s attention from our operations which may cause our business
to suffer.  An unfavorable outcome in any of these matters, including
any substantial costs incurred in settling these matters, may have a material
adverse effect on our business, cash flows, ability to make distributions to our
unitholders, the price of our common units, our results of operations and
ability to conduct our business. All or a portion of the defense costs and any
amount we may be required to pay to satisfy a judgment or settlement of these
claims may not be covered by insurance.




We
may experience increased losses as a result of waivers relating to the Private
Company’s indemnification obligations.




In the
Amended Omnibus Agreement and other agreements with the Private Company, the
Private Company agreed to indemnify us for certain environmental and other
claims relating to the crude oil and liquid asphalt cement assets that have been
contributed to us.  In connection with the Settlement, we 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 we experience an environmental or other loss, we
would experience increased losses that may have a material adverse effect on our
business, cash flows, ability to make distributions to our unitholders, the
price of our common units, our results of operations and ability to conduct our
business.





30
 Table of Contents


Our
common units were delisted from the Nasdaq and are currently quoted on the
Pink Sheets, which may make buying or selling our common units more
difficult.




Effective
at the opening of business on February 20, 2009, trading in our common units was
suspended on Nasdaq due to our failure to timely file our periodic reports with
the SEC, and our common units were subsequently delisted from Nasdaq.  Our
common units are currently traded on the Pink Sheets, which is an
over-the-counter securities market, under the symbol SGLP.PK.  The
fact that our common units are not listed on a national securities exchange is
likely to make trading such common units more difficult for broker-dealers,
unitholders and investors, potentially leading to further declines in the price
of our common units.  In addition, it may limit the number of
institutional and other investors that will consider investing in our common
units, which may have an adverse effect on the price of our common
units.  It may also make it more difficult for us to raise capital in
the future.




We
continue to work to become compliant with our SEC reporting obligations and
intend to promptly seek the relisting of our common units on Nasdaq as soon as
practicable after we have become compliant with such reporting
obligations.  However, we may not be able to relist our common units
on Nasdaq or any other national securities exchange, and we may face a lengthy
process to relist our common units if we are able to relist them at
all.




If
our general partner fails to develop or maintain an effective system of internal
controls, then we may not be able to accurately report our financial results or
prevent fraud. As a result, current and potential unitholders could lose
confidence in our financial reporting, which would harm our business and the
trading price of our common units.




SemGroup
Energy Partners G.P., L.L.C., our general partner, has sole responsibility for
conducting our business and for managing our operations. Effective internal
controls are necessary for our general partner, on our behalf, to provide
reliable financial reports, prevent fraud and operate us successfully as a
public company. If our general partner’s efforts to develop and maintain its
internal controls are not successful, it is unable to maintain adequate controls
over our financial processes and reporting in the future or it is unable to
assist us in complying with our obligations under Section 404 of the
Sarbanes-Oxley Act of 2002, our operating results could be harmed or we may fail
to meet our reporting obligations.




We and
our general partner rely upon the Private Company for certain personnel related
to our internal controls and disclosure controls and procedures for certain of
our crude oil and asphalt operations.  In connection with the
Settlement, we migrated to our own accounting system and no longer rely upon the
Private Company’s accounting system, which may change the design or
implementation of certain of our controls.  Ineffective internal controls
could cause us to report inaccurate financial information or cause investors to
lose confidence in our reported financial information, which would likely have a
negative effect on the trading price of our common units.





The
equity interests in our general partner may be transferred to a third party in
the Bankruptcy Cases.





SemGroup
Holdings is party to the Bankruptcy Cases.  On May 15, 2009, the
Private Company filed the Reorganization Plan.  The Reorganization
Plan does not address the reorganization of SemGroup Holdings, including the
satisfaction of any obligations it has to Manchester under the Holdings Credit
Agreements or the disposition of the ownership interests in our general partner
or our subordinated units and incentive distribution rights.  The
membership units in our general partner, as well as our subordinated units and
our incentive distribution rights, may be transferred, without the consent of
our unitholders, to a third party as part of the Bankruptcy Cases or subsequent
to the resolution of the Bankruptcy Cases.  Furthermore, Manchester
may transfer all or a portion of its interests in the Holdings Credit Agreements
(including its rights to vote the membership interest in our general partner) to
a third party.  Any new owner of our general partner or holder of such
voting rights would be in a position to replace the board of directors and
officers of our general partner with its own choices and thereby influence the
decisions made by the board of directors and officers.  In addition,
any such change of control of us or our general partner will result in an event
of default under our credit agreement, may result in additional uncertainty in
our operations and business and could have a material adverse effect on our
business, cash flows, ability to make distributions to our unitholders, the
price of our common units, our results of operations and ability to conduct our
business.





31
 Table of Contents


We
may continue to incur substantial costs as a result of events related to the
Bankruptcy Filings.




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 has resulted in
increased expense and we expect it to continue to result in increased expense
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 our
general partner’s long-term incentive plan (the “Plan”)) increased by
approximately $6.9 million, $7.5 million and $5.7 million, or approximately
300%, 326% and 248%, to approximately $9.2 million for the third quarter of
2008, $9.8 million for the fourth quarter of 2008 and $8.0 million for the first
quarter of 2009, respectively, compared to $2.3 million in the second quarter of
2008.  We expect this increased level of general and administrative
expenses to continue throughout 2009.  These increased costs may be
substantial and could have a material adverse effect on our business, cash
flows, ability to make distributions to our unitholders, the price of our common
units, our results of operations and ability to conduct our
business.




We may not be
able to raise sufficient capital to operate or grow our business.




As of
June 26, 2009, we had an aggregate unused credit availability under our
revolving credit facility of approximately $28.1 million and cash on hand of
approximately $3.0 million. Pursuant to the Credit Agreement Amendment, our
revolving credit facility is limited to $50.0 million.  In addition,
if any of the financial institutions that support our revolving credit facility
were to fail, we may not be able to find a replacement lender, which could
negatively impact our ability to borrow under our revolving credit
facility.  For instance, Lehman Brothers Commercial Bank is one of the
lenders under our $50.0 million revolving credit facility, and Lehman Brothers
Commercial Bank has agreed to fund approximately $2.5 million (approximately 5%)
of the revolving credit facility.  On several occasions Lehman Brothers
Commercial Bank has failed to fund revolving loan requests under our revolving
credit facility, effectively limiting the aggregate amount of our revolving
credit facility to $47.5 million.  Our ability to access capital markets
may also be limited due to the Bankruptcy Filings and the related uncertainty of
our future cash flows.  In addition, we may have difficulty obtaining
a credit rating or any credit rating that we do obtain may be lower that it
otherwise would be due to our relationships with the Private
Company.  The lack of a credit rating or a low credit rating may also
adversely impact our ability to access capital markets.  If we fail to
raise additional capital or an event of default exists 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.  In addition,
if we are unable to access the capital markets for acquisitions or expansion
projects, it will have a material adverse effect on our business, cash flows,
ability to make distributions to our unitholders, the price of our common units,
our results of operations and ability to conduct our business.





We
are not fully insured against all risks incident to our business, and could
incur substantial liabilities as a result.




We may
not be able to maintain or obtain insurance of the type and amount we desire at
reasonable rates. As a result of changing market conditions, premiums and
deductibles for certain of our insurance policies may increase substantially in
the future. In some instances, certain insurance could become unavailable or
available only for reduced amounts of coverage. If we were to incur a
significant liability for which we were not fully insured, it could have a
material adverse effect on our business, cash flows, ability to make
distributions to our unitholders, the price of our common units, our results of
operations and ability to conduct our business.




32
 Table of Contents


Risks
Related to Our Business





We
depend upon the Private Company for a portion of our revenues and are therefore
indirectly subject to the business risks of the Private Company.




Because
we depend upon the Private Company for a portion of our revenues, we are
indirectly subject to the business risks of the Private Company, many of which
are similar to the business risks we face. In particular, these business risks
include the following:




•
            the
      inability of the Private Company to generate adequate gross margins from
      the purchase, transportation, storage and marketing of petroleum
      products;




•
            material
      reductions in the supply of crude oil, liquid asphalt cement and petroleum
      products;




•
            a
      material decrease in the demand for crude oil, finished asphalt and
      petroleum products in the markets served by the Private
      Company;




•
            the
      inability of the Private Company to manage its commodity price risk
      resulting from its ownership of crude oil, liquid asphalt cement and
      petroleum products;




•
            contract
      non-performance by the Private Company’s customers;
  and




•
            various
      operational risks to which the Private Company’s business is
      subject.





In
addition, as a result of the Bankruptcy Filings, we are also currently subject
to the risks described above under “—Risks Related to the Bankruptcy
Filings.”





We
may not be able to obtain funding or obtain funding on acceptable terms because
of the deterioration of the credit and capital markets. This may hinder or
prevent us from meeting our future capital needs.




Global
financial markets and economic conditions have been, and continue to be,
disrupted and volatile. The debt and equity capital markets have been
exceedingly distressed. These issues, along with significant write-offs in the
financial services sector, the re-pricing of credit risk and the current weak
economic conditions have made, and will likely continue to make, it difficult to
obtain funding.




In
particular, the cost of raising money in the debt and equity capital markets has
increased substantially while the availability of funds from those markets
generally has diminished significantly. Also, as a result of concerns about the
stability of financial markets generally and the solvency of counterparties
specifically, the cost of obtaining money from the credit markets generally has
increased as many lenders and institutional investors have increased interest
rates, enacted tighter lending standards, refused to refinance existing debt at
maturity at all or on terms similar to our current debt and reduced and, in some
cases, ceased to provide funding to borrowers.  These factors may have
a material adverse effect on our ability to refinance our outstanding debt or,
in the event we fail to comply with the covenants of the credit facility, to
obtain a waiver of events of default under our credit agreement or to negotiate
forbearance with our lenders.




Due to
these factors, we cannot be certain that funding will be available if needed and
to the extent required, on acceptable terms or at all. If funding is not
available when needed, or is available only on unfavorable terms, we may be
unable to operate or grow our existing business, make future acquisitions, or
otherwise take advantage of business opportunities or respond to competitive
pressures any of which could have a material adverse effect on our financial
condition and results of operations.  In addition, such financing, if
available, may be at higher interest rates or result in substantial equity
dilution.





33
 Table of Contents


We
require a significant amount of cash to service our indebtedness. Our ability to
generate cash depends on many factors beyond our control.




Our
ability to make payments on and to refinance our indebtedness and to fund any
future capital expenditures depends on our ability to generate cash in the
future. This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. We cannot assure our unitholders that we will generate sufficient cash
flow from operations or that future borrowings will be available to us under our
credit agreement or otherwise at all or in an amount sufficient to enable us to
pay our indebtedness or to fund our other liquidity needs.




We
may not have sufficient cash from operations following the establishment of cash
reserves and payment of fees and expenses, including cost reimbursements to our
general partner, to enable us to make cash distributions to holders of our
common units and subordinated units.





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 December 31, 2008 and March 31, 2009, our
leverage ratio was 4.86 to 1.00 and 5.28 to 1.00, respectively. If our
leverage ratio does not improve, we may not make quarterly distributions to our
unitholders in the future.  Even if we are permitted to make
distributions under our credit agreement, we may not have sufficient available
cash from operating surplus each quarter to enable us to make cash
distributions. The amount of cash we can distribute on our units principally
depends upon the amount of cash we generate from our operations, which will
fluctuate from quarter to quarter based on, among other things, the risks
described in this section, including the Bankruptcy Filings.





In
addition, the actual amount of cash we will have available for distribution will
depend on other factors, including:




•
            the
      level of capital expenditures we
make;




•
            the
      cost of acquisitions;




•
            our
      debt service requirements and other
liabilities;




•
            fluctuations
      in our working capital needs;




•
            our
      ability to borrow funds and access capital
  markets;




•
            restrictions
      contained in our credit facility or other debt agreements, including the
      ability to make distributions while events of default exist under our
      credit facility; and




•
            the
      amount of cash reserves established by our general
  partner.




The
amount of cash we have available for distribution to holders of our common units
and subordinated units depends primarily on our cash flow and not solely on
earnings reflected in our financial statements. Consequently, even if we are
profitable and are otherwise able to pay distributions, we may not be able to
make cash distributions to holders of our common units and subordinated
units.




Our
unitholders should be aware that the amount of cash we have available for
distribution depends primarily upon our cash flow and not solely on earnings
reflected in our financial statements, which will be affected by non-cash items.
As a result, we may make cash distributions, if permitted by our credit
agreement, during periods when we record losses for financial accounting
purposes and may not make cash distributions during periods when we record net
earnings for financial accounting purposes.





34
 Table of Contents


A
significant decrease in demand for crude oil and/or finished asphalt products in
the areas served by our storage facilities and pipelines could reduce our
ability to make distributions to our unitholders if we are otherwise permitted
to make distributions under our credit agreement.




A
sustained decrease in demand for crude oil and/or finished asphalt products in
the areas served by our storage facilities and pipelines could significantly
reduce our revenues and, therefore, reduce our ability to make or increase
distributions to our unitholders if we are otherwise permitted to make
distributions under our credit agreement. Factors that could lead to a decrease
in market demand for crude oil and finished asphalt products
include:




•
            lower
      demand by consumers for refined products, including finished asphalt
      products, as a result of recession or other adverse economic conditions or
      due to high prices caused by an increase in the market price of crude oil
      or higher fuel taxes or other governmental or regulatory actions that
      increase, directly or indirectly, the cost of gasolines or other refined
      products;




•
            a
      shift by consumers to more fuel-efficient or alternative fuel vehicles or
      an increase in fuel economy of vehicles, whether as a result of
      technological advances by manufacturers, governmental or regulatory
      actions or otherwise; and




•
            fluctuations
      in demand for crude oil, such as those caused by refinery downtime or
      shutdowns, could also significantly reduce our revenues and, therefore,
      reduce our ability to make distributions to our
    unitholders.




Certain
of our field and pipeline operating costs and expenses are fixed and do not vary
with the volumes we gather and transport. These costs and expenses may not
decrease ratably or at all should we experience a reduction in our volumes
gathered or transmitted by our gathering and transportation operations. As a
result, we may experience declines in our margin and profitability if our
volumes decrease.  Due to events related to the Bankruptcy Filings,
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, fourth quarter 2008 total revenues
are approximately $9.5 million (or approximately 19%) less than second
quarter 2008 total revenues, in each case excluding fuel surcharge revenues
related to fuel and power consumed to operate our liquid asphalt cement storage
tanks.  Our future total revenues may be further impacted because, in
connection with the Settlement, the Private Company rejected the Terminalling
Agreement and the Throughput Agreement and we and the Private Company entered
into the New Throughput Agreement and the New Terminalling
Agreement.  We expect revenues from services provided to the Private
Company under the New Throughput Agreement and New Terminalling Agreement to be
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 (see “Item 1. Business—Impact of the Bankruptcy of the Private Company
and Certain of its Subsidiaries and Related Events—Settlement with the Private
Company”).





A
material decrease in the production of crude oil from the oil fields served by
our pipelines could materially reduce our ability to make distributions to our
unitholders if we are otherwise permitted to make distributions under our credit
agreement.





The
throughput on our crude oil pipelines depends on the availability of
attractively priced crude oil produced from the oil fields served by such
pipelines, or through connections with pipelines owned by third parties. Crude
oil production may decline for a number of reasons, including natural declines
due to depleting wells, a material decrease in the price of crude oil, or the
inability of producers to obtain necessary drilling or other permits from
applicable governmental authorities. If we are unable to replace volumes lost
due to a temporary or permanent material decrease in production from the oil
fields served by our crude oil pipelines, our throughput could decline, reducing
our revenue and cash flow and adversely affecting our ability to make
distributions to our unitholders if we are otherwise permitted to make
distributions under our credit agreement. The Private Company may also have
difficulty attracting producers while it is in bankruptcy.  In
addition, it is difficult to attract producers to a new gathering system if the
producer is already connected to an existing system. As a result, the Private
Company or third-party shippers on our pipeline systems may experience
difficulty acquiring crude oil at the wellhead in areas where there are existing
relationships between producers and other gatherers and purchasers of crude
oil.





35
 Table of Contents


A
material decrease in the production of liquid asphalt cement could materially
reduce our ability to make distributions to our unitholders if we are otherwise
permitted to make distributions under our credit agreement.





The
throughput at our asphalt facilities depends on the availability of attractively
priced liquid asphalt cement produced from the various liquid asphalt cement
producing refineries. Liquid asphalt cement production may decline for a number
of reasons, including refiners processing more light, sweet crude oil or
refiners installing coker units that further refine heavy residual fuel oil
bottoms such as liquid asphalt cement. If we are unable to replace volumes lost
due to a temporary or permanent material decrease in production from the
suppliers of liquid asphalt cement, our throughput could decline, reducing our
revenue and cash flow and adversely affecting our ability to make distributions
to our unitholders if we are otherwise permitted to make distributions under our
credit agreement.





Our
debt levels under the credit agreement may limit our ability to make
distributions and our flexibility in obtaining additional financing and in
pursuing other business opportunities.





Our level
of debt under the credit facility could have important consequences for us,
including the following:




•
            our
      ability to obtain additional financing, if necessary, for working capital,
      capital expenditures, acquisitions or other purposes may be impaired or
      such financing may not be available on favorable
  terms;




•
            we
      will need a substantial portion of our cash flow to make principal and
      interest payments on our debt, reducing the funds that would otherwise be
      available for operations, future business opportunities and distributions
      to unitholders;




•
            our
      debt level will make us more vulnerable to competitive pressures or a
      downturn in our business or the economy generally;
  and




•
            our
      debt level may limit our flexibility in responding to changing business
      and economic conditions.




Our
ability to service our debt will depend upon, among other things, our future
financial and operating performance, which will be affected by prevailing
economic conditions and financial, business, regulatory and other factors. Our
ability to service debt under our credit facility also will depend on market
interest rates, since the interest rates applicable to our borrowings will
fluctuate with the London Interbank Offered Rate, or LIBOR, or the prime rate,
and are higher due to the Forbearance Agreement, as amended, and the Credit
Agreement Amendment. If our operating results are not sufficient to service our
current or future indebtedness, we will be forced to take actions such as
reducing distributions, reducing or delaying our business activities,
acquisitions, investments or capital expenditures, selling assets, restructuring
or refinancing our debt, or seeking additional equity capital. We may not be
able to effect any of these actions on satisfactory terms, or at
all.





We
expect that for the foreseeable future, substantially all of our cash generated
from operations will be used to service our debt and restrictions in our credit
facility may prevent us from making capital expenditures, growing our business
or otherwise engaging in beneficial transactions.





We expect
that for the foreseeable future, substantially all of our cash generated from
operations will be used to service our debt.  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.  In addition, pursuant to the Credit
Agreement Amendment, our revolving credit facility is limited to $50.0
million  Capital expenditures are also limited under our credit
agreement to $12.5 million in 2009, $8.0 million in 2010 and $4.0 million in
2011.  These restrictions may prevent us making capital expenditures,
growing our business or otherwise engaging in beneficial
transactions.  Furthermore, our credit facility, as amended by the
Credit Agreement Amendment, requires us to comply with certain restrictive
financial covenants, including minimum interest coverage ratios and maximum
leverage ratios (see “Management’s Discussion and Analysis of Financial
Condition —Liquidity and Capital Resources” and Note 8 to our Consolidated
Financial Statements).  Failure to comply with these covenants may
result in an event of default under our credit facility and may have a material
adverse effect on our business, cash flows, ability to make distributions to our
unitholders, the price of our common units, our results of operations and
ability to conduct our business.





36
 Table of Contents


If we borrow funds to make any
permitted quarterly distributions, our ability to pursue acquisitions and other
business opportunities may be limited and our operations may be materially and
adversely affected.





Available
cash for the purpose of making distributions to unitholders includes working
capital borrowings. If we borrow funds to pay one or more quarterly
distributions, such amounts will incur interest and must be repaid in accordance
with the terms of our credit facility. Currently we are prohibited from paying
distributions to our unitholders due to our failure to maintain a leverage
ratio that is less than 3.50 to 1.00, as required by our credit
agreement.  In addition, any amounts borrowed for permitted
distributions to our unitholders will reduce the funds available to us for other
purposes under our credit facility, including amounts available for use in
connection with acquisitions and other business opportunities.  If we
are unable to pursue our growth strategy due to our limited ability to borrow
funds, our operations may be materially and adversely affected.





We
face intense competition in our gathering, transportation, terminalling and
storage activities. Competition from other providers of crude oil gathering,
transportation, terminalling and storage services that are able to supply
our customers with those services at a lower price could reduce our ability
to make distributions to our unitholders if we are otherwise permitted to make
distributions under our credit agreement.





We are
subject to competition from other crude oil gathering, transportation,
terminalling and storage operations that may be able to supply the Private
Company and our other customers with the same or comparable services on a more
competitive basis. We compete with national, regional and local gathering,
storage, terminalling and pipeline companies, including the major integrated oil
companies, of widely varying sizes, financial resources and experience. Some of
these competitors are substantially larger than us, have greater financial
resources, and control substantially greater storage capacity than we do. With
respect to our gathering and transportation services, these competitors include
TEPPCO Partners, L.P., Plains All American Pipeline, L.P., ConocoPhillips,
Sunoco Logistics Partners L.P. and National Cooperative Refinery Association,
among others. With respect to our storage and terminalling services, these
competitors include BP plc, Enbridge Energy Partners, L.P. and Plains All
American Pipeline, L.P.  Several of our competitors conduct portions of
their operations through publicly traded partnerships with structures similar to
ours, including Plains All American Pipeline, L.P., TEPPCO Partners, L.P.,
Sunoco Logistics Partners L.P. and Enbridge Energy Partners, L.P. Our ability to
compete could be harmed by numerous factors, including:




•
            price
      competition;




•
            the
      perception that another company can provide better
  service;




•
            the
      uncertainty relating to the Private Company having filed bankruptcy;
      and




•
            the
      availability of alternative supply points, or supply points located closer
      to the operations of the Private Company’s
  customers.




In
addition, the Private Company owns midstream assets and may engage in
competition with us. If we are unable to compete with services offered by other
midstream enterprises, including the Private Company, our ability to make
distributions to our unitholders may be adversely affected if we are otherwise
permitted to make distributions under our credit agreement.





Some
of our pipeline systems are dependent upon their interconnections with other
crude oil pipelines to reach end markets.





Some of
our pipeline systems are dependent upon their interconnections with other crude
oil pipelines to reach end markets. Reduced throughput onthese
interconnecting pipelines as a result of testing, line repair, reduced operating
pressures or other causes could result in reduced throughput on ourpipeline
systems that would adversely affect our revenue and cash flow and our ability to
make distributions to our unitholders.




37
 Table of Contents


Prior
to the Bankruptcy Filings, a principal focus of our business strategy was to
grow and expand our business through acquisitions. If we are able to pursue this
strategy in the future but are unable to make acquisitions on economically
acceptable terms, our future growth may be limited.





Prior to
the Bankruptcy Filings, a principal focus of our business strategy was to grow
and expand our business through acquisitions.  If we are able to
stabilize our business, we may be able to again pursue this
strategy.  Our ability to grow depends, in part, on our ability to
make acquisitions that result in an increase in the cash generated per unit from
operations. If we are unable to make these accretive acquisitions, either
because we are (1) unable to identify attractive acquisition candidates or
negotiate acceptable purchase contracts with them, (2) unable to obtain
financing for these acquisitions on economically acceptable terms or (3) outbid
by competitors, then our future growth and ability to increase distributions
will be limited. Furthermore, even if we do make acquisitions that we believe
will be accretive, these acquisitions may nevertheless result in a decrease in
the cash generated from operations per unit.





Any
acquisition involves potential risks, including, among other
things:




•
            mistaken
      assumptions about volumes, revenues and costs, including
      synergies;




•
            an
      inability to integrate successfully the businesses we
    acquire;




•
            an
      inability to hire, train or retain qualified personnel to manage and
      operate our business and assets;




•
            the
      assumption of unknown liabilities;




•
            limitations
      on rights to indemnity from the
seller;




•
            mistaken
      assumptions about the overall costs of equity or
  debt;




•
            the
      diversion of management’s and employees’ attention from other business
      concerns;




•
            unforeseen
      difficulties operating in new product areas or new geographic areas;
      and




•
            customer
      or key employee losses at the acquired
  businesses.




If we
consummate any future acquisitions, our capitalization and results of operations
may change significantly, and our unitholders will not have the opportunity to
evaluate the economic, financial and other relevant information that we will
consider in determining the application of these funds and other
resources.





Our
acquisition strategy is based, in part, on our expectation of ongoing
divestitures of energy assets by industry participants. A material decrease in
such divestitures would limit our opportunities for future acquisitions and
could adversely affect our operations and cash flows available for distribution
to our unitholders.





Prior
to the Bankruptcy Filings, our growth strategy included acquiring midstream
entities or assets that are distinct and separate from our existing
terminalling, storage, gathering and transportation operations.  If we
are able to pursue this strategy in the future, it could subject us to
additional business and operating risks.





We may
acquire midstream assets that have operations in new and distinct lines of
business from our crude oil or our liquid asphalt cement operations. Integration
of a new business is a complex, costly and time-consuming process. Failure to
timely and successfully integrate acquired entities’ new lines of business with
our existing operations may have a material adverse effect on our business,
financial condition or results of operations. The difficulties of integrating a
new business with our existing operations include, among other
things:




•
            operating
      distinct businesses that require different operating strategies and
      different managerial expertise;




•
            the
      necessity of coordinating organizations, systems and facilities in
      different locations;




•
            integrating
      personnel with diverse business backgrounds and organizational cultures;
      and




•
            consolidating
      corporate and administrative
functions.




In
addition, the diversion of our attention and any delays or difficulties
encountered in connection with the integration of a new business, such as
unanticipated liabilities or costs, could harm our existing business, results of
operations, financial conditions and prospects. Furthermore, new lines of
business will subject us to additional business and operating risks. For
example, we may in the future determine to acquire businesses that are subject
to significant risks due to fluctuations in commodity prices. These new business
and operating risks could have a material adverse effect on our financial
condition or results of operations.  38
 Table of Contents


Expanding
our business by constructing new assets subjects us to risks that projects may
not be completed on schedule, and that the costs associated with projects may
exceed our expectations, which could cause our cash available for distribution
to our unitholders to be less than anticipated.





The
construction of additions or modifications to our existing assets, and the
construction of new assets, involves numerous regulatory, environmental,
political, legal and operational uncertainties and requires the expenditure of
significant amounts of capital. If we undertake these types of projects, they
may not be completed on schedule or at all or at the budgeted cost. In addition,
our revenues may not increase immediately upon the expenditure of funds on a
particular project. Moreover, we may construct facilities to capture anticipated
future growth in demand in a market in which such growth does not
materialize.  We acquired the Acquired Pipeline Assets from the
Private Company in May 2008.  We have suspended capital expenditures
on this pipeline due to the continuing impact of the Bankruptcy
Filings.  Management currently intends to put the asset into service
in early 2010 and is exploring various alternatives to complete the
project.





We
are exposed to the credit risks of our third-party customers in the ordinary
course of our gathering activities. Any material nonpayment or nonperformance by
our third-party customers could reduce our ability to make distributions to our
unitholders.





We are
subject to risks of loss resulting from nonpayment or nonperformance by our
third-party customers. Some of our customers may be highly leveraged and subject
to their own operating and regulatory risks. In addition, any material
nonpayment or nonperformance by our customers could require us to pursue
substitute customers for our affected assets or provide alternative services.
Any such efforts may not be successful or may not provide similar fees. These
events could reduce our ability to make distributions to our
unitholders.





Our
revenues from third-party customers are generated under contracts that must be
renegotiated periodically and that allow the customer to reduce or suspend
performance in some circumstances, which could cause our revenues from those
contracts to decline and reduce our ability to make distributions to our
unitholders.





Some of
our contract-based revenues from customers are generated under contracts with
terms which allow the customer to reduce or suspend performance under the
contract in specified circumstances, such as the occurrence of a catastrophic
event to our or the customer’s operations. The occurrence of an event which
results in a material reduction or suspension of our customer’s performance
could reduce our ability to make distributions to our unitholders if we are
otherwise permitted to make distributions under our credit
agreement.





Many of
our contracts with customers for producer field services have terms of one year
or less. As these contracts expire, they must be extended and renegotiated or
replaced. We may not be able to extend, renegotiate or replace these contracts
when they expire, and the terms of any renegotiated contracts may not be as
favorable as the contracts they replace. In particular, our ability to extend or
replace contracts could be harmed by numerous competitive factors, such as those
described above under “—We face intense competition in our gathering,
transportation, terminalling and storage activities. Competition from other
providers of crude oil gathering, transportation, terminalling and storage
services that are able to supply our customers with those services at a
lower price could reduce our ability to make distributions to our unitholders.”
Additionally, we may incur substantial costs if modifications to our terminals
are required in order to attract substitute customers or provide alternative
services. If we cannot successfully renew significant contracts or must renew
them on less favorable terms, or if we incur substantial costs in modifying our
terminals, our revenues from these arrangements could decline and our ability to
make distributions to our unitholders could suffer if we are otherwise permitted
to make distributions under our credit agreement.





39
 Table of Contents


We
may incur significant costs and liabilities as a result of pipeline integrity
management program testing and any necessary pipeline repair, or preventative or
remedial measures, which could have a material adverse effect on our results of
operations.





The DOT
has adopted regulations requiring pipeline operators to develop integrity
management programs for transportation pipelines located where a leak or rupture
could do the most harm in “high consequence areas”, including high population
areas, areas that are sources of drinking water, ecological resource areas that
are unusually sensitive to environmental damage from a pipeline release and
commercially navigable waterways, unless the operator effectively demonstrates
by risk assessment that the pipeline could not affect the area. The regulations
require operators of covered pipelines to:




•
            perform
      ongoing assessments of pipeline
integrity;




•
            identify
      and characterize threats to pipeline segments that could impact a high
      consequence area;




•
            improve
      data collection, integration and
analysis;




•
            repair
      and remediate the pipeline as necessary;
and




•
            implement
      preventive and mitigating actions.




Effective
July 2008, the DOT broadened the scope of coverage of its existing pipeline
safety standards, including its integrity management programs, to include
certain rural onshore hazardous liquid and low-stress pipeline systems found
near “unusually sensitive areas,” including non-populated areas requiring extra
protection because of the presence of sole source drinking water resources,
endangered species, or other ecological resources. Also, in December 2006, the
Pipeline Inspection, Protection, Enforcement and Safety Act of 2006 was enacted.
This act reauthorizes and amends the DOT’s pipeline safety programs and includes
a provision eliminating the regulatory exemption for hazardous liquid pipelines
operated at low stress. Adoption of new or more stringent pipeline safety
regulations affecting our gathering or low-stress pipelines could result in more
rigorous and costly integrity management planning requirements being imposed on
those lines, which could have a material adverse effect on our results of
operations. Please read “Item 1. Business—Regulation—Pipeline Safety” for more
information.





Our
operations are subject to environmental and worker safety laws and regulations
that may expose us to significant costs and liabilities. Failure to comply with
these laws and regulations could adversely affect our ability to make
distributions to our unitholders if we are otherwise permitted to make
distributions under our credit agreement.





Our
midstream crude oil gathering, transportation, terminalling and storage
operations, together with the liquid asphalt cement terminalling and storage
assets that we acquired from the Private Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of the
environment. Various governmental authorities, including the EPA, have the power
to enforce compliance with these laws and regulations and the permits issued
under them, and violators are subject to administrative, civil and criminal
penalties, including civil fines, injunctions or both. Joint and several strict
liability may be incurred without regard to fault or the legality of the
original conduct under CERCLA, RCRA and analogous state laws for the remediation
of contaminated areas. Private parties, including the owners of properties
located near our terminalling and storage facilities or through which our
pipeline systems pass, also may have the right to pursue legal actions to
enforce compliance, as well as seek damages for non-compliance with
environmental laws and regulations or for personal injury or property damage.
Moreover, new stricter laws, regulations or enforcement policies could be
implemented that significantly increase our compliance costs and the cost of any
remediation that may become necessary, some of which may be
material.





In
performing midstream operations and asphalt services, we incur environmental
costs and liabilities in connection with the handling of hydrocarbons and solid
wastes. We currently own, operate or lease properties that for many years have
been used for midstream activities, including properties in and around the
Cushing Interchange, and with respect to our asphalt assets, for asphalt
activities. Activities by us or prior owners, lessees or users of these
properties over whom we had no control may have resulted in the spill or release
of hydrocarbons or solid wastes on or under them. Additionally, some sites we
own or operate are located near current or former storage, terminal and pipeline
operations, and there is a risk that contamination has migrated from those sites
to ours. Increasingly strict environmental laws, regulations and enforcement
policies as well as claims for damages and other similar developments could
result in significant costs and liabilities, and our ability to make
distributions to our unitholders could suffer as a result. Please see “Item
1—Business—Regulation” for more information.





40
 Table of Contents


In
addition, the workplaces associated with the storage facilities and pipelines we
operate are subject to OSHA requirements and comparable state statutes that
regulate the protection of the health and safety of workers. The OSHA hazard
communication standard requires that we maintain information about hazardous
materials used or produced in our operations and that we provide this
information to employees, state and local government authorities, and local
residents. Failure to comply with OSHA requirements, including general industry
standards, recordkeeping requirements and monitoring of occupational exposure to
regulated substances, could subject us to fines or significant compliance costs
and adversely affect our ability to make distributions to our unitholders if we
are otherwise permitted to make distributions under our credit
agreement.





Adoption
of legislation and regulatory measures targeting greenhouse gas (GHG) emissions
could affect our operations, expose us to significant costs and liabilities, and
reduce demand for the products we transport.




The oil
and gas industry is a direct source of certain GHG emissions, namely carbon
dioxide and methane, and future restrictions on such emissions could impact our
future operations. Federal legislation requiring GHG controls may be enacted by
the end of 2009. In addition, EPA is considering initiating a rulemaking to
regulate GHGs as a pollutant under the CAA. EPA recently proposed findings under
the CAA that GHGs in the atmosphere endanger public health and welfare, and that
emissions from mobile sources cause or contribute to GHGs in the atmosphere. If
the findings are finalized as proposed, EPA standards eventually promulgated
pursuant to these findings could affect our operations and ability to obtain air
permits for new or modified facilities. Furthermore, EPA recently issued
proposed regulations that would require the economy-wide monitoring and
reporting of GHG emissions on an annual basis. The rule as proposed would apply
to natural gas transmission compression and could apply to emissions from other
activities we conduct. Although this proposed rule would not control GHG
emission levels from any facilities, if it applied to us, it would still cause
us to incur monitoring and reporting costs. Legislation and regulations are also
in various stages of discussions or implementation in many of the states in
which we operate.




Passage
of climate change legislation or other federal or state legislative or
regulatory initiatives that regulate or restrict GHG emissions in areas in which
we conduct business could potentially:




•
            adversely
      affect the demand for our products and
services;




•
            affect
      our operations and ability to obtain air permits for new or modified
      facilities;




•
            increase
      the costs to operate and maintain our
  facilities;




•
            increase
      the costs to install new emission controls on our
    facilities;




•
            increase
      the costs of our business by requiring us to acquire allowances to
      authorize our GHG emissions (e.g., at compressor stations);
      and




•
            increase
      the costs of our business by requiring us to pay any taxes related to our
      GHG emissions and/or administer and manage a GHG emissions
      program.




Please
read “Item 1. Business—Environmental, Health and Safety Risks—Climate” for more
information.




Our
business involves many hazards and operational risks, including adverse weather
conditions, which could cause us to incur substantial liabilities.





Our
operations are subject to the many hazards inherent in the transportation and
storage of crude oil and the storage and processing of liquid asphalt cement,
including:




•
            explosions,
      fires, accidents, including road and highway accidents involving our
      tanker trucks;




•
            extreme
      weather conditions, such as hurricanes which are common in the
      Gulf Coast and tornadoes and flooding which are common in the
      Midwest;




•
            damage
      to our pipelines, storage tanks, terminals and related
      equipment;




•
            leaks
      or releases of crude oil into the environment;
  and




•
            acts
      of terrorism or vandalism.




If any of
these events were to occur, we could suffer substantial losses because of
personal injury or loss of life, severe damage to and destruction of property
and equipment, and pollution or other environmental damage resulting in
curtailment or suspension of our related operations. In addition, mechanical
malfunctions, faulty measurement or other errors may result in significant costs
or lost revenues.  41
 Table of Contents


We
do not own all of the land on which our pipelines and facilities are located,
which could disrupt our operations.





We do not
own all of the land on which our pipelines and crude oil and asphalt facilities
have been constructed, and we are therefore subject to the possibility of more
onerous terms and/or increased costs to retain necessary land use if we do not
have valid rights-of-way or if such rights-of-way or any material real property
leases lapse or terminate. We obtain the rights to construct and operate our
pipelines and some of our crude oil and asphalt facilities on land owned by
third parties and governmental agencies for a specific period of time. Our loss
of these rights, through our inability to renew leases, right-of-way contracts
or otherwise, could have a material adverse effect on our business, results of
operations and financial condition and our ability to make cash distributions to
our unitholders.  In addition, we are in the process of obtaining
consents from the lessors for certain leased property that was transferred to us
as part of the acquisition of our asphalt assets.  If any consent is
denied, it could have a material adverse effect on our business, results of
operations and financial condition and our ability to make cash distributions to
our unitholders.




Terrorist
attacks, and the threat of terrorist attacks, have resulted in increased costs
to our business. Continued hostilities in the Middle East or other sustained
military campaigns may adversely impact our results of operations.





The
long-term impact of terrorist attacks, such as the attacks that occurred on
September 11, 2001, and the threat of future terrorist attacks on our industry
in general, and on us in particular, is not known at this time. Increased
security measures taken by us as a precaution against possible terrorist attacks
have resulted in increased costs to our business. Uncertainty surrounding
continued hostilities in the Middle East or other sustained military campaigns
may affect our operations in unpredictable ways, including disruptions of crude
oil supplies and markets for our services, and the possibility that
infrastructure facilities could be direct targets of, or indirect casualties of,
an act of terror.




Changes
in the insurance markets attributable to terrorist attacks may make certain
types of insurance more difficult for us to obtain. Moreover, the insurance that
may be available to us may be significantly more expensive than our existing
insurance coverage. Instability in the financial markets as a result of
terrorism or war could also affect our ability to raise capital.




Risks
Inherent in an Investment in Us





Some
of our general partner’s directors are affiliates of certain creditors of
SemGroup Holdings; therefore, such creditors may have different business
interests than the common unitholders.





Manchester
is a creditor under a loan agreement with SemGroup Holdings, which is a
subsidiary of the Private Company.  This loan is secured by our
subordinated units and incentive distribution rights and the membership
interests in our general partner, owned by SemGroup Holdings.  On July
18, 2008, Manchester and Alerian declared an event of default under the loan
agreement and exercised their right under a pledge agreement with SemGroup
Holdings to direct the vote of the membership interests of our general
partner.  Manchester and Alerian exercised these voting rights to
reconstitute our general partner’s board of directors.  On March 20,
2009, Alerian transferred its interest in the Holdings Credit Agreements to
Manchester (Alerian is still potentially entitled to receive a portion of
certain potential recoverable value from such interest).  Manchester
may have business interests that are different from the business interests of
our common unitholders.





42
 Table of Contents


Our
general partner has sole responsibility for conducting our business and managing
our operations.  Our general partner has conflicts of interest with us
and limited fiduciary duties, which may permit it to favor its own interests to
the detriment of our unitholders.





Conflicts
of interest may arise between our general partner, on the one hand, and us and
our unitholders, on the other hand.  In resolving those conflicts of
interest, our general partner may favor its own interests and the interests of
its affiliates over the interests of our unitholders. Although the conflicts
committee of our general partner’s board of directors may review such conflicts
of interest, our general partner’s board of directors is not required to submit
such matters to the conflicts committee. These conflicts include, among others,
the following situations:




•
            neither
      our partnership agreement nor any other agreement requires the general
      partner or any person who controls the general partner to pursue a
      business strategy that favors us.  Such persons may make these
      decisions in their best interest, which may be contrary to our
      interests;




•
            our
      general partner is allowed to take into account the interests of parties
      other than us, such as creditors and the Private Company and their
      affiliates, in resolving conflicts of
interest;




•
            if
      we do not have sufficient available cash from operating surplus, our
      general partner could cause us to use cash from non-operating sources,
      such as asset sales, issuances of securities and borrowings, to pay
      distributions, which means that we could make distributions that
      deteriorate our capital base and that our general partner could receive
      distributions on its subordinated units and incentive distribution rights
      to which it would not otherwise be entitled if we did not have sufficient
      available cash from operating surplus to make such
      distributions;




•
            our
      general partner has limited its liability and reduced its fiduciary
      duties, and has also restricted the remedies available to our unitholders
      for actions that, without the limitations, might constitute breaches of
      fiduciary duty;




•
            our
      general partner determines the amount and timing of asset purchases and
      sales, borrowings, issuance of additional partnership securities and
      reserves, each of which can affect the amount of cash that is distributed
      to unitholders;




•
            our
      general partner determines the amount and timing of any capital
      expenditures and whether a capital expenditure is a maintenance capital
      expenditure, which reduces operating surplus, or an expansion capital
      expenditure, which does not reduce operating surplus. This determination
      can affect the amount of cash that is distributed to our unitholders and
      the ability of the subordinated units to convert to common
      units;




•
            our
      general partner may make a determination to receive a quantity of our
      Class B units in exchange for resetting the target distribution levels
      related to its incentive distribution rights without the approval of the
      conflicts committee of our general partner or our
    unitholders;




•
            our
      general partner determines which costs incurred by it and its affiliates
      are reimbursable by us and the Private Company determines the allocation
      of shared overhead expenses;




•
            our
      partnership agreement does not restrict our general partner from causing
      us to pay it or its affiliates for any services rendered to us or entering
      into additional contractual arrangements with any of these entities on our
      behalf;




•
            our
      general partner intends to limit its liability regarding our contractual
      and other obligations and, in some circumstances, is entitled to be
      indemnified by us;




•
            our
      general partner may exercise its limited right to call and purchase common
      units if it and its affiliates own more than 80% of the common
      units;




•
            our
      general partner controls the enforcement of obligations owed to us by our
      general partner and its affiliates;
and




•
            our
      general partner decides whether to retain separate counsel, accountants or
      others to perform services for us.




43
 Table of Contents


Our
partnership agreement limits our general partner’s fiduciary duties to holders
of our common units and subordinated units and restricts the remedies available
to holders of our common units and subordinated units for actions taken by our
general partner that might otherwise constitute breaches of fiduciary
duty.





Our
partnership agreement contains provisions that reduce the fiduciary standards to
which our general partner would otherwise be held by state fiduciary duty laws.
For example, our partnership agreement:




•
            permits
      our general partner to make a number of decisions in its individual
      capacity, as opposed to in its capacity as our general partner. This
      entitles our general partner to consider only the interests and factors
      that it desires, and it has no duty or obligation to give any
      consideration to any interest of, or factors affecting, us, our affiliates
      or any limited partner. Examples include the exercise of its right to
      receive a quantity of our Class B units in exchange for resetting the
      target distribution levels related to its incentive distribution rights,
      the exercise of its limited call right, the exercise of its rights to
      transfer or vote the units it owns, the exercise of its registration
      rights and its determination whether or not to consent to any merger or
      consolidation of the partnership or amendment to the partnership
      agreement;




•
            provides
      that our general partner will not have any liability to us or our
      unitholders for decisions made in its capacity as a general partner so
      long as it acted in good faith, meaning it believed the decision was in
      the best interests of our
partnership;




•
            generally
      provides that affiliated transactions and resolutions of conflicts of
      interest not approved by the conflicts committee of the board of directors
      of our general partner acting in good faith and not involving a vote of
      unitholders must be on terms no less favorable to us than those generally
      being provided to or available from unrelated third parties or must be
      “fair and reasonable” to us, as determined by our general partner in good
      faith. In determining whether a transaction or resolution is “fair and
      reasonable,” our general partner may consider the totality of the
      relationships between the parties involved, including other transactions
      that may be particularly advantageous or beneficial to
  us;




•
            provides
      that our general partner and its officers and directors will not be liable
      for monetary damages to us, our limited partners or assignees for any acts
      or omissions unless there has been a final and non-appealable judgment
      entered by a court of competent jurisdiction determining that the general
      partner or its officers and directors acted in bad faith or engaged in
      fraud or willful misconduct or, in the case of a criminal matter, acted
      with knowledge that the conduct was criminal;
  and




•
            provides
      that in resolving conflicts of interest, it will be presumed that in
      making its decision the general partner acted in good faith, and in any
      proceeding brought by or on behalf of any limited partner or us, the
      person bringing or prosecuting such proceeding will have the burden of
      overcoming such presumption.




By
purchasing a common unit, a common unitholder will become bound by the
provisions in the partnership agreement, including the provisions discussed
above.





The
Private Company may compete with us, which could adversely affect our existing
business and limit our ability to acquire additional assets or
businesses.





Neither
our partnership agreement nor any other agreement with the Private Company
prohibits the Private Company or any successor to the Private Company or
acquirer of its assets from owning assets or engaging in businesses that compete
directly or indirectly with us.  The Private Company has indicated in
its Reorganization Plan that it intends to emerge from bankruptcy later this
year.  If it is successful in its reorganization, we will compete with
the Private Company in the provision of various services, including the
provision of crude oil terminalling and storage services at the Cushing
Interchange.  In addition, the Private Company or any successor to the
Private Company or acquirer of its assets may acquire, construct or dispose of
additional midstream or other assets in the future, without any obligation to
offer us the opportunity to purchase or construct any of those
assets.  As a result, competition from the Private Company or any
successor to the Private Company or acquirer of its assets could adversely
impact our results of operations and cash available for
distribution.





44
 Table of Contents


Cost
reimbursements due to our general partner and its affiliates for services
provided, which are determined by our general partner, may be substantial and
will reduce our cash available for distribution to our unitholders.





Pursuant
to our partnership agreement, the Private Company receives reimbursement for the
payment of operating expenses related to our operations and for the provision of
various general and administrative services for our benefit. Payments for these
services may be substantial and reduce the amount of cash available for
distribution to unitholders. In addition, under Delaware partnership law, our
general partner has unlimited liability for our obligations, such as our debts
and environmental liabilities, except for our contractual obligations that are
expressly made without recourse to our general partner. To the extent our
general partner incurs obligations on our behalf, we are obligated under our
partnership agreement to reimburse or indemnify our general partner. If we are
unable or unwilling to reimburse or indemnify our general partner, our general
partner may take actions to cause us to make payments of these obligations and
liabilities. Any such payments would reduce the amount of cash otherwise
available for distribution to our unitholders. Please see “Item 13—Certain
Relationships and Related Party Transactions, and Director
Independence—Agreements Related to Our Acquisition of the Asphalt Assets—Amended
Omnibus Agreement.”





Holders
of our common units have limited voting rights and are not entitled to elect our
general partner or its directors.





Unlike
the holders of common stock in a corporation, unitholders have only limited
voting rights on matters affecting our business and, therefore, limited ability
to influence management’s decisions regarding our business. Unitholders did not
elect our general partner or our general partner’s board of directors, and have
no right to elect our general partner or our general partner’s board of
directors on an annual or other continuing basis. The present board of directors
of our general partner was chosen by Manchester pursuant to its rights
under the Holdings Credit Agreements to direct the vote of the membership
interests of our general partner.  Furthermore, if the unitholders are
dissatisfied with the performance of our general partner, they have little
ability to remove our general partner. Amendments to our partnership agreement
may be proposed only by or with the consent of our general partner. As a result
of these limitations, the price at which the common units will trade could be
diminished because of the absence or reduction of a takeover premium in the
trading price.





Removal
of our general partner without its consent will dilute and adversely affect our
common unitholders.





If our
general partner is removed without cause during the subordination period and
units held by our general partner and its affiliates are not voted in favor of
that removal, all remaining subordinated units will automatically convert into
common units and any existing arrearages on our common units will be
extinguished. A removal of our general partner under these circumstances would
adversely affect our common units by prematurely eliminating their distribution
and liquidation preference over our subordinated units, which would otherwise
have continued until we had met certain distribution and performance tests.
Cause is narrowly defined to mean that a court of competent jurisdiction has
entered a final, non-appealable judgment finding the general partner liable for
actual fraud or willful or wanton misconduct in its capacity as our general
partner. Cause does not include most cases of charges of poor management of the
business, so the removal of the general partner because of the unitholders’
dissatisfaction with our general partner’s performance in managing our
partnership will most likely result in the termination of the subordination
period and conversion of all subordinated units to common units.





Control
of our general partner may be transferred to a third party without unitholder
consent.





Our
general partner may transfer its general partner interest to a third party in a
merger or in a sale of all or substantially all of its assets without the
consent of the unitholders. Furthermore, our partnership agreement does not
restrict the ability of SemGroup Holdings, the owner of our general partner,
from transferring all or a portion of its ownership interest in our general
partner to a third party, or Manchester from transferring all or a portion of
its loan interest voting rights in the general partner, to a third party. The
new owner of our general partner would then be in a position to replace the
board of directors and officers of our general partner with its own choices and
thereby influence the decisions made by the board of directors and
officers.





45
 Table of Contents


We
may issue additional units without approval of our unitholders, which would
dilute our unitholders’ ownership interests.





Our
partnership agreement does not limit the number or price of additional limited
partner interests (including any securities of equal or senior rank to our
common units, and options, rights, warrants and appreciation rights relating to
any such securities) that we may issue at any time without the approval of our
unitholders. In addition, because we are a limited partnership, we will not be
subject to the shareholder approval requirements relating to the issuance of
securities (other than in connection with the establishment or material
amendment of a stock option or purchase plan or the making or material amendment
of any other equity compensation arrangement) contained in Nasdaq Marketplace
Rule 5635 if we are again listed on Nasdaq.  The issuance by us of
additional common units or other equity securities of equal or senior rank will
have the following effects:




•
            our
      unitholders’ proportionate ownership interest in us will
      decrease;




•
            the
      amount of cash available for distribution on each unit may
      decrease;




•
            because
      a lower percentage of total outstanding units will be subordinated units,
      the risk that a shortfall in the payment of the minimum quarterly
      distribution will be borne by our common unitholders will
      increase;




•
            the
      ratio of taxable income to distributions may
  increase;




•
            the
      relative voting strength of each previously outstanding unit may be
      diminished; and




•
            the
      market price of the common units may
decline.




Our
partnership agreement restricts the voting rights of unitholders, other than our
general partner and its affiliates, including the Private Company, owning 20% or
more of our common units.





Unitholders’
voting rights are further restricted by the partnership agreement provision
providing that any units held by a person that owns 20% or more of any class of
units then outstanding, other than our general partner, its affiliates, their
transferees and persons who acquired such units with the prior approval of the
board of directors of our general partner, cannot vote on any matter. Our
partnership agreement also contains provisions limiting the ability of
unitholders to call meetings or to acquire information about our operations, as
well as other provisions.





Affiliates
of our general partner may sell common units in the public markets, which sales
could have an adverse impact on the trading price of the common
units.





Executive
officers and directors of our general partner beneficially own an aggregate of
578,087 common units and SemGroup Holdings owns 12,570,504 subordinated
units, although such units are collateral to a loan between SemGroup Holdings
and Manchester. All of the subordinated units will convert into common units at
the end of the subordination period and may convert earlier. The sale of these
units in the public markets could have an adverse impact on the price of the
common units or on any trading market that may develop.





Our
general partner has a limited call right that may require our unitholders to
sell their common units at an undesirable time or price.





If at any
time our general partner and its affiliates own more than 80% of the common
units, our general partner will have the right, but not the obligation, which it
may assign to any of its affiliates or to us, to acquire all, but not less than
all, of the common units held by unaffiliated persons at a price not less than
their then-current market price. As a result, our unitholders may be required to
sell their common units at an undesirable time or price and may not receive any
return on their investment. Our unitholders also may incur a tax liability upon
a sale of their units. At the end of the subordination period, assuming no
additional issuances of common units and no sales of subordinated units, our
general partner and its affiliates (excluding executive officers and directors)
will own 36.8% of the common units.





46
 Table of Contents


Common
units held by persons who are not Eligible Holders will be subject to the
possibility of redemption.





The
Longview system is, and any additional interstate pipelines that we acquire or
construct may be, subject to the rate regulation of the FERC. Our general
partner has the right under our partnership agreement to institute procedures,
by giving notice to each of our unitholders, that would require transferees of
common units and, upon the request of our general partner, existing holders of
our common units to certify that they are Eligible Holders. The purpose of these
certification procedures would be to enable us to utilize a federal income tax
expense as a component of the pipeline’s cost of service upon which tariffs may
be established under FERC rate-making policies applicable to entities that pass
through their taxable income to their owners. Eligible Holders are individuals
or entities subject to United States federal income taxation on the income
generated by us or entities not subject to United States federal income taxation
on the income generated by us, so long as all of the entity’s owners are subject
to such taxation. If these tax certification procedures are implemented, we will
have the right to redeem the common units held by persons who are not Eligible
Holders at the lesser of the holder’s purchase price and the then-current market
price of the units. The redemption price would be paid in cash or by delivery of
a promissory note, as determined by our general partner.





Our
unitholders’ liability may not be limited if a court finds that unitholder
action constitutes control of our business.





A general
partner of a partnership generally has unlimited liability for the obligations
of the partnership, except for those contractual obligations of the partnership
that are expressly made without recourse to the general partner. Our partnership
is organized under Delaware law and we conduct business in a number of other
states. The limitations on the liability of holders of limited partner interests
for the obligations of a limited partnership have not been clearly established
in some of the other states in which we do business.





Our
unitholders could be liable for our obligations as if they were a general
partner if:




•
            a
      court or government agency determined that we were conducting business in
      a state but had not complied with that particular state’s partnership
      statute; or




•
            a
      unitholder’s right to act with other unitholders to remove or replace the
      general partner, to approve some amendments to our partnership agreement
      or to take other actions under our partnership agreement constitute
      “control” of our business.




Unitholders
may have liability to repay distributions that were wrongfully distributed to
them.





Under
certain circumstances, unitholders may have to repay amounts wrongfully returned
or distributed to them. Under Section 17-607 and 17-804 of the Delaware Revised
Uniform Limited Partnership Act, we may not make a distribution to our
unitholders if the distribution would cause our liabilities to exceed the fair
value of our assets. Delaware law provides that for a period of three years from
the date of the impermissible distribution, limited partners who received the
distribution and who knew at the time of the distribution that it violated
Delaware law will be liable to the limited partnership for the distribution
amount. Substituted limited partners are liable for the obligations of the
assignor to make contributions to the partnership that are known to the
substituted limited partner at the time it became a limited partner and for
unknown obligations if the liabilities could be determined from the partnership
agreement. Liabilities to partners on account of their partnership interests and
liabilities that are non-recourse to the partnership are not counted for
purposes of determining whether a distribution is permitted.





Tax
Risks to Common Unitholders





Our
unitholders have been and will be required to pay taxes on their share of our
taxable income even if they have not or do not receive any cash distributions
from us.




Because
our unitholders are treated as partners to whom we will allocate taxable income
which could be different in amount than the cash we distribute, they will be
required to pay any federal income taxes and, in some cases, state and local
income taxes on their share of our taxable income, even if our unitholders
receive no cash distributions from us. In this regard, we did not pay a
distribution to our unitholders for the quarters ended June 30, 2008, September
30, 2008, December 31, 2008 or March 31, 2009.  In addition, we do not
expect to make a distribution relating to the second quarter of 2009 and may not
be able to make distributions in the future.  Thus, our unitholders
may not receive cash distributions from us equal to their share of our taxable
income or even equal to the actual tax liability that results from their share
of our taxable income.





47
 Table of Contents


The
storage contracts and leases we recently entered into with third party customers
with respect to certain of our asphalt facilities could generate levels of
non-qualifying income that require us to transfer certain of these contracts and
the related asphalt assets and rental or fee income to one or more subsidiaries
taxed as corporations.  Any such subsidiary taxed as a corporation
would be subject to entity level federal and state income taxes on its net
taxable income and, if a material amount of entity-level taxes were incurred,
then our cash available for distribution to our unitholders could be
substantially reduced.





We
recently entered into new storage contracts and leases with third party
customers with respect to substantially all of our asphalt
facilities.  It is 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.”  We may not be successful
in obtaining this ruling.  If we are not successful in obtaining this
ruling, we will likely have to transfer the leases and the related asphalt
assets and rental income, and/or certain of the processing assets and related
fee income, to one or more subsidiaries taxed as corporations.  Even
if successful in obtaining this ruling, we will likely transfer certain of the
processing assets and related fee income, to one or more subsidiaries taxed as
corporations  Any such subsidiary that is taxed as a corporation would
pay federal income tax on its income at the corporate tax rate, which is
currently a maximum of 35%, and would likely pay state (and possibly local)
income tax at varying rates.  Distributions would generally be taxed
again to unitholders as corporate distributions and none of the income, gains,
losses, deductions or credits of any such subsidiary would flow through to our
unitholders.  If a material amount of entity-level taxes were incurred
by any such subsidiaries, then our cash available for distribution to our
unitholders could be substantially reduced.





Our
tax treatment depends on our status as a partnership for federal income tax
purposes, as well as our not being subject to a material amount of entity-level
taxation by individual states. If the IRS were to treat us as a corporation or
if we were to become subject to a material amount of entity-level taxation for
state tax purposes, then our cash available for distribution to our unitholders
would be substantially reduced.





The
anticipated after-tax economic benefit of an investment in our common units
depends largely on us being treated as a partnership for federal income tax
purposes.  If less than 90% of the gross income of a publicly traded
partnership, such as us, for any taxable year is “qualifying income” from
sources such as the transportation, marketing (other than to end users), or
processing of crude oil, natural gas or products thereof, interest, dividends or
similar sources, that partnership will be taxable as a corporation under Section
7704 of the Internal Revenue Code for federal income tax purposes for that
taxable year and all subsequent years.





If we
were treated as a corporation for federal income tax purposes, then we would pay
federal income tax on our income at the corporate tax rate, which is currently a
maximum of 35%, and would likely pay state income tax at varying
rates.  Distributions would generally be taxed again to unitholders as
corporate distributions and none of our income, gains, losses, deductions or
credits would flow through to our unitholders.  Because a tax would be
imposed upon us as an entity, cash available for distribution to our unitholders
would be substantially reduced.  Treatment of us as a corporation
would result in a material reduction in the anticipated cash flow and after-tax
return to unitholders and thus would likely result in a substantial reduction in
the value of our common units.





Current
law may change, so as to cause us to be treated as a corporation for federal
income tax purposes or otherwise subject us to entity-level taxation. In
addition, because of widespread state budget deficits and other reasons, several
states are evaluating ways  to subject partnerships to entity-level
taxation through the imposition of state income, franchise and other forms of
taxation. For example, we are required to pay annually a Texas franchise tax at
a maximum effective rate of 0.7% of our gross income apportioned to Texas with
respect to the prior year.  As of June 26, 2009, we paid $0.1 million
and $0.3 million representing our estimated tax liability related to our
2007 and 2008 gross income apportioned to Texas,
respectively.  Imposition of such a tax on us by Texas and, if
applicable, by any other state will reduce the cash available for distribution
to our unitholders. The partnership agreement provides that if a law is enacted
or existing law is modified or interpreted in a manner that subjects us to
taxation as a corporation or otherwise subjects us to entity-level taxation for
federal, state or local income tax purposes, the minimum quarterly distribution
amount and the target distribution amounts will be adjusted to reflect the
impact of that law on us.





48
 Table of Contents


The
tax treatment of publicly traded partnerships or an investment in our common
units could be subject to potential legislative, judicial or administrative
changes and differing interpretations, possibly on a retroactive
basis.





The
present federal income tax treatment of publicly traded partnerships, including
us, or an investment in our common units may be modified by administrative,
legislative or judicial interpretation at any time. For example, members of
Congress are considering substantive changes to the existing federal income tax
laws that affect certain publicly traded partnerships. Any modification to the
federal income tax laws and interpretations thereof may or may not be applied
retroactively. Although the currently proposed legislation would not appear to
affect our tax treatment as a partnership, we are unable to predict whether any
of these changes, or other proposals, will ultimately be enacted. Any such
changes could negatively impact the value of an investment in our common
units.





If
the IRS contests any of the federal income tax positions we take, the market for
our common units may be adversely affected, and the costs of any contest will
reduce our cash available for distribution to our unitholders.





We have
not requested a ruling from the IRS with respect to our treatment as a
partnership for federal income tax purposes or any other matter affecting us.
The IRS may adopt positions that differ from the conclusions of our counsel. It
may be necessary to resort to administrative or court proceedings to sustain
some or all of our counsel’s conclusions or the positions we take. A court may
not agree with some or all of our counsel’s conclusions or the positions we
take. Any contest with the IRS may materially and adversely impact the market
for our common units and the price at which they trade. In addition, the costs
of any contest with the IRS will be borne indirectly by our unitholders and our
general partner because the costs will reduce our cash available for
distribution.





Tax
gain or loss on the disposition of our common units could be more or less than
expected.





If our
unitholders sell their common units, they will recognize a gain or loss equal to
the difference between the amount realized and their tax basis in those common
units. Prior distributions to our unitholders in excess of the total net taxable
income our unitholders were allocated for a common unit, which decreased their
tax basis in that common unit, will, in effect, become taxable income to our
unitholders if the common unit is sold at a price greater than their tax basis
in that common unit, even if the price our unitholders receive is less than
their original cost. A substantial portion of the amount realized, whether or
not representing gain, may be ordinary income. In addition, if our unitholders
sell their units, they may incur a tax liability in excess of the amount of cash
our unitholders receive from the sale.





Tax-exempt
entities, regulated investment companies and foreign persons face unique tax
issues from owning common units that may result in adverse tax consequences to
them.





Investment
in common units by tax-exempt entities, such as individual retirement accounts
(known as IRAs), regulated investment companies (known as mutual funds), and
non-U.S. persons raises issues unique to them. For example, virtually all of our
income allocated to organizations exempt from federal income tax, including
individual retirement accounts and other retirement plans, will be unrelated
business taxable income and will be taxable to them. Distributions to non-U.S.
persons will be reduced by withholding taxes at the highest applicable effective
tax rate, and non-U.S. persons will be required to file United States federal
income tax returns and pay tax on their share of our taxable income. If a
potential unitholder is a tax-exempt entity or a foreign person, it should
consult its tax advisor before investing in our common units.





We
will treat each purchaser of units as having the same tax benefits without
regard to the units purchased. The IRS may challenge this treatment, which could
adversely affect the value of the common units.





Because
we cannot match transferors and transferees of common units and because of other
reasons, we will adopt depreciation and/or amortization positions that may not
conform with all aspects of existing Treasury regulations. A successful IRS
challenge to those positions could adversely affect the amount of tax benefits
available to our unitholders. It also could affect the timing of these tax
benefits or the amount of gain from their sale of common units and could have a
negative impact on the value of our common units or result in audit adjustments
to our unitholders’ tax returns.





49
 Table of Contents


The
sale or exchange of 50% or more of our capital and profits interests during any
twelve-month period will result in the termination of our partnership for
federal income tax purposes.





We will
be considered to have terminated for federal income tax purposes if there are
one or more transfers of interests in our partnership that together represent a
sale or exchange of 50% or more of the total interests in our capital and
profits within a twelve-month period. For these purposes,




•
            multiple
      transfers of the same interest within a twelve month period will be
      counted only once;




•
            if
      the Private Company sells or exchanges its interests in SemGroup Holdings
      or our general partner, the interests held by SemGroup Holdings or our
      general partner, as the case may be, in us will be deemed to have been
      sold or exchanged; and




•
            if
      50% or more of the total interests in the Private Company’s capital and
      profits are sold or exchanged within a twelve month period, the Private
      Company, SemGroup Holdings and the general partner will be deemed to have
      sold or exchanged all of their interests in
us.




Our
termination would, among other things, result in the closing of our taxable year
for all unitholders, which would result in us filing two tax returns (and our
unitholders could receive two Schedules K-1) for one fiscal year and could
result in a deferral of depreciation deductions allowable in computing our
taxable income. In the case of a unitholder reporting on a taxable year other
than a fiscal year ending December 31, the closing of our taxable year may also
result in more than twelve months of our taxable income or loss being includable
in his taxable income for the year of termination. Our termination currently
would not affect our classification as a partnership for federal income tax
purposes, but instead, we would be treated as a new partnership for tax
purposes. If treated as a new partnership, we must make new tax elections and
could be subject to penalties if we are unable to determine that a termination
occurred.





Our
unitholders likely will be subject to state and local taxes and return filing or
withholding requirements as a result of investing in our common
units.





In
addition to federal income taxes, our unitholders will likely be subject to
other taxes, such as state and local income taxes, unincorporated business taxes
and estate, inheritance, or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property. Our unitholders likely
will be required to file state and local income tax returns and pay state and
local income taxes in some or all of these various jurisdictions. Further, our
unitholders may be subject to penalties for failure to comply with those
requirements. We own property and conduct business in Texas, Oklahoma, Kansas,
Colorado, New Mexico, Arkansas, California, Georgia, Idaho, Illinois, Indiana,
Missouri, Michigan, Montana, Nebraska, Nevada, New Jersey, North Carolina, Ohio,
Pennsylvania, Tennessee, Utah, Virginia and Washington. Of these states, Texas
does not currently impose a state income tax on individuals. We may own property
or conduct business in other states or foreign countries in the future. It is
each unitholder’s responsibility to file all federal, state and local tax
returns. Under the tax laws of some states where we will conduct business, we
may be required to withhold a percentage from amounts to be distributed to a
unitholder who is not a resident of that state. For example, in the case of
Oklahoma, we are required to either report detailed tax information about our
non-Oklahoma resident unitholders with an income in Oklahoma in excess of $500
to the taxing authority, or withhold an amount equal to 5% of the portion of our
distributions to unitholders which is deemed to be the Oklahoma share of our
income. Similarly, we are required to withhold Kansas income tax at a rate of
6.45% on each non-Kansas resident unitholder’s share of our taxable income that
is attributable to Kansas (regardless of whether such income is distributed),
unless the non-Kansas resident unitholder files a tax reporting affidavit with
us which we, in turn, are required to file with the Kansas Department of
Revenue. Our counsel has not rendered an opinion on the state and local tax
consequences of an investment in our common units.





We
prorate our items of income, gain, loss and deduction between transferors and
transferees of our units each month based upon the ownership of our units on the
first day of each month, instead of on the basis of the date a particular unit
is transferred. The IRS may challenge this treatment, which could change the
allocation of items of income, gain, loss and deduction among our
unitholders.





We
prorate our items of income, gain, loss and deduction between transferors and
transferees of our units each month based upon the ownership of our units on the
first day of each month, instead of on the basis of the date a particular unit
is transferred. The use of this proration method may not be permitted under
existing Treasury Regulations, and, accordingly, our counsel is unable to opine
as to the validity of this method. If the IRS were to challenge this method or
new Treasury regulations were issued, we may be required to change the
allocation of items of income, gain, loss and deduction among our
unitholders.





50
 Table of Contents


A
unitholder whose units are loaned to a “short seller” to cover a short sale of
units may be considered as having disposed of those units. If so, he would no
longer be treated for tax purposes as a partner with respect to those units
during the period of the loan and may recognize gain or loss from the
disposition.




Because a
unitholder whose units are loaned to a “short seller” to cover a short sale of
units may be considered as having disposed of the loaned units, he may no longer
be treated for tax purposes as a partner with respect to those units during the
period of the loan to the short seller and the unitholder may recognize gain or
loss from such disposition. Moreover, during the period of the loan to the short
seller, any of our income, gain, loss or deduction with respect to those units
may not be reportable by the unitholder and any cash distributions received by
the unitholder as to those units could be fully taxable as ordinary income. Our
counsel has not rendered an opinion regarding the treatment of a unitholder
where common units are loaned to a short seller to cover a short sale of common
units; therefore, unitholders desiring to assure their status as partners and
avoid the risk of gain recognition from a loan to a short seller are urged to
modify any applicable brokerage account agreements to prohibit their brokers
from borrowing their units.




We
will adopt certain valuation methodologies that may result in a shift of income,
gain, loss and deduction between the general partner and the unitholders. The
IRS may challenge this treatment, which could adversely affect the value of the
common units.




When we
issue additional units or engage in certain other transactions, we determine the
fair market value of our assets and allocate any unrealized gain or loss
attributable to our assets to the capital accounts of our unitholders and our
general partner. Our methodology may be viewed as understating the value of our
assets. In that case, there may be a shift of income, gain, loss and deduction
between certain unitholders and the general partner, which may be unfavorable to
such unitholders. Moreover, under our valuation methods, subsequent purchasers
of common units may have a greater portion of their Internal Revenue Code
Section 743(b) adjustment allocated to our tangible assets and a lesser portion
allocated to our intangible assets. Because the determination of value and the
allocation of value are factual matters, rather than legal matters, our counsel
is unable to opine as to these matters. The IRS may challenge our valuation
methods, or our allocation of the Section 743(b) adjustment attributable to our
tangible and intangible assets, and  allocations of income, gain, loss
and deduction between the general partner and certain of our
unitholders.




A
successful IRS challenge to these methods or allocations could adversely affect
the amount of taxable income or loss being allocated to our unitholders. It also
could affect the amount of gain from our unitholders’ sale of common units and
could have a negative impact on the value of the common units or result in audit
adjustments to our unitholders’ tax returns without the benefit of additional
deductions.





Item
1B. UnresolvedStaff Comments.




None.




Item
2.                      Properties.




A
description of our properties is contained in “Item 1—Business.”




Title to
Properties




Substantially
all of our pipelines are constructed on rights-of-way granted by the apparent
record owners of the property. Lands over which pipeline rights-of-way have been
obtained may be subject to prior liens that have not been subordinated to the
right-of-way grants. We have obtained, where necessary, easement agreements from
public authorities and railroad companies to cross over or under, or to lay
facilities in or along, watercourses county roads, municipal streets, railroad
properties and state highways, as applicable. In some cases, property on which
our pipelines were built was purchased in fee. Our crude oil terminals are on
real property owned or leased by us.




Our
asphalt assets are on real property owned or leased by us.  Some of the
real property leases that were transferred to us as part of the acquisition of
our asphalt assets require the consent of the grantor of such rights, which in
certain instances is a governmental entity. Our general partner is continuing to
obtain these consents.




We
believe that we have satisfactory title to all of our
assets.  Although title to such properties is subject to encumbrances
in certain cases, such as customary interests generally retained in connection
with acquisition of real property, liens related to environmental liabilities
associated with historical operations, liens for current taxes and other burdens
and minor easements, restrictions and other encumbrances to which the underlying
properties were subject at the time of acquisition by our predecessor or us, we
believe that none of these burdens will materially interfere with their use in
the operation of our business.




51
 Table of Contents


Item
3.                      Legal
Proceedings.




On July
21, 2008, we received a letter from the staff of the SEC giving notice that the
SEC is conducting an inquiry relating to us and requesting, among other things,
that we voluntarily preserve, retain and produce to the SEC certain documents
and information relating primarily to our disclosures respecting the Private
Company’s liquidity issues, which were the subject of our July 17, 2008 press
release.  On October 22, 2008, we received a subpoena from the SEC
pursuant to a formal order of investigation requesting certain documents
relating to, among other things, the Private Company’s liquidity
issues.  We have been cooperating, and intend to continue cooperating,
with the SEC in its investigation.




On July
23, 2008, we and our general partner each received a Grand Jury subpoena from
the United States Attorney’s Office in Oklahoma City, Oklahoma, requiring, among
other things, that we and our general partner produce financial and other
records related to our July 17, 2008 press release.  We have been
informed that the U.S. Attorneys’ Offices for the Western District of Oklahoma
and the Northern District of Oklahoma are in discussions regarding the
subpoenas, and no date has been set for a response to the
subpoenas.  We and our general partner intend to cooperate fully with
this investigation if and when it proceeds.




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, theMaurer case has been
transferred to the Northern District of Oklahoma and consolidated with theCarson case.  TheRubin, Jain, andHickman cases have also been
transferred to the Northern District of Oklahoma.





A hearing
on motions for appointment as lead plaintiff was held in theCarson 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 asIn 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.




52
 Table of Contents


The lead
plaintiff obtained an extension to file its consolidated amended complaint until
May 4, 2009; defendants have 60 days from that date to answer or otherwise
respond to the complaint.





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.




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 allege that phantom
units previously awarded to them vested upon the Change of Control that
occurred in July 2008.  One claimant alleges that his phantom units
vested upon his termination.  The claimants contend our general
partner’s failure to deliver certificates for the phantom units within 60 days
after vesting has caused them to be damaged, and they seek 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.  Our general partner intends to continue to vigorously
defend these claims.





The
Unsecured Creditors Committee filed an adversary proceeding in connection with
the Bankruptcy Cases  against Thomas L. Kivisto, Gregory C. Wallace,
and Westback.  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 “Item 1.
Business—Impact of the Bankruptcy of the Private Company and Certain of its
Subsidiaries and Related Events—Examiner”). 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.  Messrs. Foxx and Stallings have informed us that they
intend to vigorously defend these claims.




We 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 claims and lawsuits may
result in the incurrence of significant legal expense, both directly and as the
result of our indemnification obligations.  The litigation may also
divert management’s attention from our operations which may cause our business
to suffer.  An unfavorable outcome in any of these matters may 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.
All or a portion of the defense costs and any amount we may be required to pay
to satisfy a judgment or settlement of these claims may not be covered by
insurance.




Item
4.                      Submission of Matters to a Vote of Security
Holders.




None.




53
 Table of Contents


PART II




Item
      5.
            Market for Registrant’s Common Equity, Related Unitholder
      Matters and Issuer Purchases of Equity Securities.




Our
common units began trading on Nasdaq under the symbol “SGLP” on July 18,
2007 at an initial public offering price of $22.00 per common unit. Effective at
the opening of business on February 20, 2009, trading in our common units was
suspended on Nasdaq due to our failure to timely file our periodic reports with
the SEC, and our common units were subsequently delisted from
Nasdaq.  Our common units are currently traded on the Pink Sheets,
which is an over-the-counter securities market, under the symbol
SGLP.PK.




On June
26, 2009, there were 21,557,309common
units outstanding, held by approximately 21 unitholders of record of our common
units.  This number does not include unitholders whose units are held
in trust by other entities.  The actual number of unitholders is
greater than the number of holders of record.  We have also issued
12,570,504 subordinated units, for which there is no established public trading
market.  The subordinated units are held by one record holder,
SemGroup Holdings.




The
following table shows the high and low sales prices per common unit, as reported
by Nasdaq and distributions declared by quarter since the initial public
offering of our common units in July 2007.




Low
                            
                            
                            High
                            
                            
                            Cash
                              Distribution
                              per
      Unit2007:Third
      Quarter(1)
                            
                            $
                            24.16
                            
                            
                            $
                            31.00
                            
                            
                            $
                            0.24(2)Fourth
      Quarter
                            
                            
                            24.02
                            
                            
                            
                            30.50
                            
                            
                            
                            0.33752008:First
      Quarter
                            
                            
                            22.20
                            
                            
                            
                            29.09
                            
                            
                            
                            0.40Second
      Quarter
                            
                            
                            24.50
                            
                            
                            
                            28.00
                            
                            
                            No
      Distribution(3)Third
      Quarter
                            
                            
                            3.17
                            
                            
                            
                            29.50
                            
                            
                            No
      Distribution(3)Fourth
      Quarter
                            
                            
                            0.87
                            
                            
                            
                            6.99
                            
                            
                            No
      Distribution(3)





(1)
            For
      the period from July 18, 2007, the day our common units began trading
      on Nasdaq, through September 30,
2007.


(2)
            Reflects
      the pro rata portion of the $0.3125 minimum quarterly distribution per
      unit for the period from the July 23, 2007 closing of our initial
      public offering through September 30,
2007.


(3)
            We
      did not make a distribution to our common unitholders, subordinated
      unitholders or general partner attributable to the results of operations
      for the quarters ended June 30, 2008, September 30, 2008, December 31,
      2008 or March 31, 2009 due to the events of default under our credit
      agreement and the uncertainty of our future cash flows relating to the
      Bankruptcy Filings.  In addition, we do not currently expect to
      make a distribution relating to the second quarter of
      2009.




Distributions
of Available Cash




Our
partnership agreement requires that, within 45 days after the end of each
quarter, we distribute all of our available cash (as defined in our partnership
agreement) to unitholders of record on the applicable record date.




Available
cash, for any quarter, consists of all cash on hand at the end of that
quarter:




•
            less
      the amount of cash reserves established by our general partner
      to:




•
            provide
      for the proper conduct of our
business;




•
            comply
      with applicable law, any of our debt instruments or other agreements;
      or




•
            provide
      funds for distributions to our unitholders for any one or more of the next
      four quarters;




•
            plus
      all additional cash and cash equivalents on hand on the date of
      determination of available cash for the quarter resulting from working
      capital borrowings made after the end of the quarter. Working capital
      borrowings are generally borrowings that are made under a credit facility,
      commercial paper facility or similar financing arrangement, and in all
      cases are used solely for working capital purposes or to pay distributions
      to partners and with the intent of the borrower to repay such borrowings
      within 12 months.


54
 Table of Contents


Our
partnership agreement provides that, during the subordination period, which we
are currently in, our 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.  We did not
make a distribution to our common unitholders, subordinated unitholders or
general partner attributable to the results of operations for the quarters ended
June 30, 2008, September 30, 2008, December 31, 2008 or March 31, 2009 due to
the events of default under our credit agreement and the uncertainty of our
future cash flows relating to the Bankruptcy Filings.  After giving
effect to the nonpayment of distributions for the quarters ended June 30, 2008,
September 30, 2008, December 31, 2008 and March 31, 2009, each common unit was
entitled to an arrearage of $1.25, or total arrearages for all common units of
$26.9 million based upon 21,557,309 common units outstanding as of June 26,
2009.  In addition, we do not currently expect to make a distribution
relating to the second quarter of 2009.  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 December 31, 2008 and March 31, 2009, our
leverage ratio was 4.86 to 1.00 and 5.28 to 1.00, respectively.  If our
leverage ratio does not improve, we may not make quarterly distributions to our
unitholders in the future.





In
addition, in the event we are not prohibited under our credit facility from
paying distributions, the amount of distributions paid under our cash
distribution policy and the decision to make any distribution is determined by
our general partner, taking into consideration the terms of our partnership
agreement. The board of directors of our general partner will have broad
discretion to establish cash reserves for the proper conduct of our business and
for future distributions to our unitholders, and the establishment of those
reserves could result in a reduction in cash distributions to our
unitholders.





General Partner
Interest and Incentive Distribution Rights.





Upon the
closing of our initial public offering, SemGroup Holdings received 12,570,504
subordinated units.  During the subordination period, the common units 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 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. These units are
deemed “subordinated” units because for a period of time, referred to as the
subordination period, the subordinated units are not entitled to receive any
distributions until the common units have received the minimum quarterly
distribution and any arrearages from prior quarters.  Furthermore, no
arrearages will be paid on the subordinated units.




The
subordination period will extend until the first day of any quarter beginning
after June 30, 2010 that each of the following tests are met:





·
            distributions
      of available cash from operating surplus on each of the outstanding common
      units, subordinated units and general partner units equaled or exceeded
      the minimum quarterly distribution for each of the three consecutive,
      non-overlapping four-quarter periods immediately preceding that
      date;





·
            the
      “adjusted operating surplus” (as defined in our partnership agreement)
      generated during each of the three consecutive, non-overlapping
      four-quarter periods immediately preceding that date equaled or exceeded
      the sum of the minimum quarterly distributions on all of the outstanding
      common units and subordinated units during those periods on a fully
      diluted basis and the related distribution on the general partner units
      during those periods; and





·
            there
      are no arrearages in payment of the minimum quarterly distribution on the
      common units. If the unitholders remove the general partner without cause,
      the subordination period may end before June 30,
  2010.





55
 Table of Contents


The
subordination period will automatically terminate and all of the subordinated
units will convert into common units on a one-for-one basis if each of the
following occurs:





·
            distributions
      of available cash from operating surplus on each outstanding common unit
      and subordinated unit equaled or exceeded $1.88 (150% of the annualized
      minimum quarterly distribution) for any four-quarter period immediately
      preceding that date;





·
            the
      “adjusted operating surplus” (as defined in our partnership agreement)
      generated during any four-quarter period immediately preceding that date
      equaled or exceeded the sum of $1.88 (150% of the annualized minimum
      quarterly distribution) on all of the outstanding common units and
      subordinated units and general partner units on a fully diluted basis;
      and





·
            there are no
      arrearages in payment of the minimum quarterly distribution on the common
      units.





We will
make distributions of available cash (as defined in its partnership agreement)
from operating surplus for any quarter during any subordination period in the
following manner:
  ·
                    first,
      98% to the holders of common units and 2% to our general partner, until
      each common unit has received a minimum quarterly distribution of $0.3125
      plus any arrearages from prior
quarters;
 
 ·
                    second, 98% to the
      holders of subordinated units and 2% to our general partner, until each
      subordinated unit has received a minimum quarterly distribution of
      $0.3125;
  ·
                      third,
      98% to all unitholders, pro rata, and 2% to the general partner, until
      each unitholder has received a distribution of
      $0.3594;
 ·
                  fourth,
      85% to all unitholders, pro rata, and 15% to the general partner, until
      each unitholder has received a distribution of
    $0.3906;
 
 ·
                  fifth,
      75% to all unitholders, pro rata, and 25% to the general partner, until
      each unitholder has received a distribution of $0.4688;
      and
 
 ·
                  thereafter,
      50% to all unitholders, pro rata, and 50% to the general
      partner.


The
maximum distribution of 50% to our general partner includes distributions paid
to our general partner in respect of its 2% general partner interest and assumes
that our general partner maintains its general partner interest at 2%. The
maximum distribution of 50% does not include any distributions that our general
partner may receive on common or subordinated units that it owns.




For
equity compensation plan information, see “Item 12—Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.”





Item
6.                      Selected Financial Data.




The
following table shows selected historical financial and operating data of
SemGroup Energy Partners, L.P. Predecessor, our predecessor, and historical
financial and operating data of SemGroup Energy Partners, L.P. for the periods
and as of the dates presented. In connection with the closing of our initial
public offering, the Private Company contributed certain crude oil gathering,
transportation, terminalling and storage assets to us in connection with our
initial public offering, which we refer to as the Crude Oil Business. The Crude
Oil Business had historically been a part of the integrated operations of the
Private Company, and neither the Private Company nor our predecessor recorded
revenue associated with the gathering, transportation, terminalling and storage
services provided on an intercompany basis. The Private Company and our
predecessor recognized only the costs associated with providing such services.
Accordingly, revenues reflected in the historical financial statements of our
predecessor represent services provided to third parties and do not include any
revenues for services provided to the Private Company.  In addition, our
results of operations for the year ended December 31, 2008 were affected by the
Bankruptcy Filings and related events, which resulted in decreased revenues and
increased expenses (see “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operation —Impact of the Bankruptcy of the
Private Company and Certain of its Subsidiaries and Related Events—Our
Revenues,” and “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operation—Impact of the Bankruptcy of the Private
Company and Certain of its Subsidiaries and Related Events—Our Expenses,”
respectively).  56
 Table of Contents


Due to
the events related to the Bankruptcy Filings, including uncertainties related to
future revenues and cash flows, we do not expect our financial results for the
year ended December 31, 2008 to be indicative of our future financial
results.  Since the Bankruptcy Filings, 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, fourth quarter 2008 total revenues are
approximately $9.5 million (or approximately 19%) less than second quarter 2008
total revenues, in each case excluding fuel surcharge revenues related to fuel
and power consumed to operate our liquid asphalt cement storage
tanks.  Our future total revenues will be further impacted because,
pursuant to the Settlement, the Private Company rejected the Terminalling
Agreement and the Throughput Agreement (see “Item 1. Business—Impact of the
Bankruptcy of the Private Company and Certain of its Subsidiaries and Related
Events—Settlement with the Private Company”).  We have entered into
crude oil storage and transportation agreements and asphalt leases and storage
agreements with third parties, but the revenues received from such agreements
are less than the revenues received from the Private Company pursuant to the
Terminalling Agreement and the Throughput Agreement.  In addition, we
have experienced increased expenses since the Bankruptcy Filings, including
increased general and administrative expenses related to the costs of legal and
financial advisors and increased interest expense related to the events of
default under our credit facility, the associated Forbearance Agreement and
amendments thereto and the Credit Agreement Amendment.  For these
reasons and due to the other factors described in “Item 7—Management’s
Discussion and Analysis of Financial Condition and Results of
Operation—Overview—Items Impacting the Comparability of Our Financial Results,”
our results of operations are not comparable to our predecessor’s historical
results and our historical results may not be indicative of our future
results.




We
derived the information in the following table from, and that information should
be read together with and is qualified in its entirety by reference to, the
historical financial statements and the accompanying notes included elsewhere in
this annual report. The table should be read together with “Item 1— Business”
and “Item 7— Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”




Year Ended
      December 31,2004
                                                          
                                                          
                                                          2005
                                                          
                                                          
                                                          2006
                                                          
                                                          
                                                          2007(1)
                                                          
                                                          
                                                          2008(in
      thousands, except per unit data)Statement
      of Operations Data:Service
      revenues:Third party
      revenue
                                                          
                                                          $
                                                          15,857
                                                          
                                                          
                                                          $
                                                          20,361
                                                          
                                                          
                                                          $
                                                          28,839
                                                          
                                                          
                                                          $
                                                          28,303
                                                          
                                                          
                                                          $
                                                          48,295Related
      party revenue
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          46,262
                                                          
                                                          
                                                          
                                                          143,885Total
      revenue
                                                          
                                                          
                                                          15,857
                                                          
                                                          
                                                          
                                                          20,361
                                                          
                                                          
                                                          
                                                          28,839
                                                          
                                                          
                                                          
                                                          74,565
                                                          
                                                          
                                                          
                                                          192,180Expenses:Operating
                                                          
                                                          
                                                          30,996
                                                          
                                                          
                                                          
                                                          38,467
                                                          
                                                          
                                                          
                                                          51,608
                                                          
                                                          
                                                          
                                                          67,182
                                                          
                                                          
                                                          
                                                          103,510Allowance
      for doubtful accounts
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          568General
      and administrative
                                                          
                                                          
                                                          7,570
                                                          
                                                          
                                                          
                                                          6,280
                                                          
                                                          
                                                          
                                                          11,097
                                                          
                                                          
                                                          
                                                          13,595
                                                          
                                                          
                                                          
                                                          43,085Total
      expenses
                                                          
                                                          
                                                          38,566
                                                          
                                                          
                                                          
                                                          44,747
                                                          
                                                          
                                                          
                                                          62,705
                                                          
                                                          
                                                          
                                                          80,777
                                                          
                                                          
                                                          
                                                          147,163Operating
      income (loss)
                                                          
                                                          
                                                          (22,709
                                                          )
                                                          
                                                          
                                                          (24,386
                                                          )
                                                          
                                                          
                                                          (33,866
                                                          )
                                                          
                                                          
                                                          (6,212
                                                          )
                                                          
                                                          
                                                          45,017Interest
      expense(2)
                                                          
                                                          
                                                          1,973
                                                          
                                                          
                                                          
                                                          2,597
                                                          
                                                          
                                                          
                                                          1,989
                                                          
                                                          
                                                          
                                                          6,560
                                                          
                                                          
                                                          
                                                          26,951Income
      (loss) before income taxes
                                                          
                                                          
                                                          (24,682
                                                          )
                                                          
                                                          
                                                          (26,983
                                                          )
                                                          
                                                          
                                                          (35,855
                                                          )
                                                          
                                                          
                                                          (12,772
                                                          )
                                                          
                                                          
                                                          18,066Provision
      for income taxes
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          141
                                                          
                                                          
                                                          
                                                          291Net
      income (loss)
                                                          
                                                          $
                                                          (24,682
                                                          )
                                                          
                                                          $
                                                          (26,983
                                                          )
                                                          
                                                          $
                                                          (35,855
                                                          )
                                                          
                                                          $
                                                          (12,913
                                                          )
                                                          
                                                          $
                                                          17,775General
      partner interest in net income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          264
                                                          
                                                          
                                                          $
                                                          3,334Limited
      partner interest in net income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          12,941
                                                          
                                                          
                                                          $
                                                          14,441Basic
      and diluted net income per limited partner unit:Common
      units
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          0.55
                                                          
                                                          
                                                          $
                                                          0.46Subordinated
      units
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          0.40
                                                          
                                                          
                                                          $
                                                          0.46Cash
      distributions per unit to limited partners:(3)Paid
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          0.24
                                                          
                                                          
                                                          $
                                                          0.74Declared
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          0.58
                                                          
                                                          
                                                          $
                                                          0.40Balance
      Sheet Data (at period end):Property,
      plant and equipment, net
                                                          
                                                          $
                                                          49,601
                                                          
                                                          
                                                          $
                                                          64,688
                                                          
                                                          
                                                          $
                                                          92,245
                                                          
                                                          
                                                          $
                                                          102,239
                                                          
                                                          
                                                          $
                                                          284,489Total
      assets
                                                          
                                                          
                                                          57,739
                                                          
                                                          
                                                          
                                                          72,912
                                                          
                                                          
                                                          
                                                          104,847
                                                          
                                                          
                                                          
                                                          125,482
                                                          
                                                          
                                                          
                                                          354,641Long-term
      debt and capital lease obligations
                                                          
                                                          
                                                          35,337
                                                          
                                                          
                                                          
                                                          38,849
                                                          
                                                          
                                                          
                                                          36,757
                                                          
                                                          
                                                          
                                                          91,959
                                                          
                                                          
                                                          
                                                          449,221Total
      division equity/partners’ capital (deficit)
                                                          
                                                          
                                                          20,198
                                                          
                                                          
                                                          
                                                          28,799
                                                          
                                                          
                                                          
                                                          62,146
                                                          
                                                          
                                                          
                                                          17,229
                                                          
                                                          
                                                          
                                                          (126,643
                                                          )





(1)
            Net
      income and net income per unit is presented for the period from
      July 20, 2007 through December 31, 2007.(2)
            Interest
      expense before July 20, 2007 reflects interest on capital lease
      obligations and debt payable to the Private Company. Interest expense
      after July 20, 2007 includes interest expense incurred under our
      credit facility.(3)
            Cash
      distributions paid per unit to limited partners represent payments made
      per unit during the period stated.  Cash distributions declared
      per unit to limited partners represent distributions declared per unit for
      the quarters within the period stated.  Declared distributions
      were paid within 45 days following the close of each
    quarter.  57
 Table of Contents




Item
7.                      Management’s
Discussion and Analysis of Financial Condition and Results of
Operation.




On
July 23, 2007, we completed our initial public offering of common units. In
our initial public offering, an aggregate of 14,375,000 common units (including
1,875,000 common units sold pursuant to the full exercise by the underwriters of
their over-allotment option) were sold to the public at a price of $22.00 per
unit. Upon completion of our initial public offering, we had 14,375,000 common
units, 12,570,504 subordinated units and 549,908 general partner units
outstanding. The subordinated units and membership interests in our general
partner units are owned by SemGroup Holdings.  Our general partner
units are owned by our general partner.




The
historical financial statements for periods prior to the contribution of the
assets, liabilities and operations to us by the Private Company on July 20,
2007 reflect the assets, liabilities and operations of our predecessor. The
following discussion analyzes the historical financial condition and results of
operations of us and our predecessor and should be read in conjunction with our
financial statements and notes thereto. In certain circumstances and for ease of
reading we discuss the financial results of our predecessor as being “our”
financial results during historical periods when this business was owned by the
Private Company.




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.




In July
2007, we issued 12,500,000 common units, representing limited partner interests,
and 12,570,504 subordinated units, representing additional limited partner
interests, to SemGroup Holdings, and 549,908 general partner units representing
a 2% general partner interest to SemGroup Energy Partners G.P., L.L.C., our
general partner. SemGroup Holdings then completed a public offering of
12,500,000 common units at a price of $22 per unit. In addition, we issued an
additional 1,875,000 common units to the public pursuant to the underwriters’
exercise of their over-allotment option. We did not receive any proceeds from
the common units sold by SemGroup Holdings. We received net proceeds of
approximately $38.7 million after deducting underwriting discounts from the sale
of common units in connection with the exercise of the underwriters’
over-allotment option. We used these net proceeds to reduce outstanding
borrowings under our credit facility.  In connection with our initial
public offering, we entered into the Throughput Agreement with the Private
Company under which we provided crude oil gathering and transportation and
terminalling and storage services to the Private
Company.




On
February 20, 2008, we purchased the Acquired Asphalt Assets, consisting of
land, receiving infrastructure, storage tanks, machinery, pumps and piping at 46
liquid asphalt cement and residual fuel oil terminalling and storage facilities
(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, we amended our existing credit facility,
increasing our borrowing capacity to $600 million. Concurrently, we
issued 6,000,000 common units in an underwritten public offering, receiving
proceeds, net of underwriting discounts and offering-related costs, of $137.2
million. Our general partner also made a capital contribution of $2.9
million to maintain its 2.0% general partner interest in us. On March 5,
2008, we issued an additional 900,000 common units in an underwritten
public offering, receiving proceeds, net of underwriting discounts, of $20.6
million, in connection with the underwriters’ exercise of their over-allotment
option in full. Our general partner made a corresponding capital
contribution of $0.4 million to maintain its 2.0% general partner interest in
us.  In connection with the acquisition of the Acquired Asphalt
Assets, we entered into the Terminalling Agreement with the Private Company
and certain of its subsidiaries under which we provided liquid asphalt cement
terminalling and storage and throughput services to the Private Company and the
Private Company agreed to use our services at certain minimum
levels.  Our general partner’s 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
us.




58
 Table of Contents


On May
12, 2008, we purchased the Acquired Pipeline Assets consisting of 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 from the Private Company for aggregate
consideration of $45.1 million, including $0.1 million of acquisition-related
costs.  The acquisition was funded with borrowings under our revolving
credit facility.  We have suspended capital expenditures on this
pipeline due to the continuing impact of the Bankruptcy Filings. 
Management currently intends to put the asset into service in early 2010 and is
exploring various alternatives to complete the project.  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
us.




On May
30, 2008, we purchased the Acquired Storage Assets consisting of 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 with a term through August 2010 relating to the
2.0 million barrels of storage capacity for aggregate consideration of $90.3
million, including $0.3 million of acquisition-related costs.  The
acquisition was funded with borrowings under our 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 us.




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





The
Private Company made the Bankruptcy Filings on July 22, 2008.  The
Bankruptcy Filings and the events related thereto have had a significant impact
upon our business and results of operations.  These items include,
among others: (i) the reconstitution of our Board and management in connection
with the Change of Control, (ii) the events of default that were triggered under
our credit facility, the corresponding Forbearance Agreement 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 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 Nasdaq, (vii) failing to make distributions for the second,
third and fourth quarters of 2008 and the first 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
agreements and amendments to our credit facility 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” for a further discussion of the impact of the
Bankruptcy Filings upon our business.




Our
Revenues




For the
year ended December 31, 2008, we derived approximately 73% of our revenues,
excluding fuel surcharge 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 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.  As described above, 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.  We expect
revenues from services provided to the Private Company under the New Throughput
Agreement and New Terminalling Agreement to be 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 outbound logistics for our existing asphalt assets and,
therefore, allows us to provide asphalt services for third parties.




59
 Table of Contents


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 terminalling and storage
revenue during the second quarter of 2008, to approximately $4.6 million,
$8.4 million and $10.2 million, or approximately 41%, 83% and 88% of total
terminalling and storage revenue for the third quarter of 2008,
the fourth quarter of 2008 and the first quarter 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, 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 $10.9
million, $13.6 million and $13.7 million, or approximately 51%, 85% and 93% of
total gathering and transportation revenue for the third quarter of 2008,
the fourth quarter of 2008 and the first quarter 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.  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,
fourth quarter 2008 total revenues are approximately $9.5 million (or
approximately 19%) less than second quarter 2008 total revenues, in each case
excluding fuel surcharge revenues related to fuel and power consumed to operate
our liquid asphalt cement storage tanks.





In
addition, we have recently 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 were
effective during May 2009 and 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.  The Private Company may also choose to
curtail its operations or liquidate its assets as part of the Bankruptcy
Cases.  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 has 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 Plan as described in Note 14 to our
Consolidated Financial Statements) increased by approximately $6.9 million, $7.5
million and $5.7 million, or approximately 300%, 326% and 248%, to approximately
$9.2 million for the third quarter of 2008, $9.8 million for the fourth quarter
of 2008 and $8.0 million for the first quarter of 2009, respectively, compared
to $2.3 million in the second quarter of 2008.  We expect this
increased level of general and administrative expenses to continue throughout
2009.





Our
financial results as of December 31, 2008 reflect a $0.6 million allowance for
doubtful accounts related to amounts due from third parties as of December 31,
2008.  The allowance is related primarily to amounts due from third
parties and was established as a result of certain third party customers netting
amounts due them from the Private Company with amounts due to
us.  Also, due to the change of control of our general partner related
to the Private Company’s liquidity issues, all outstanding awards under the
Plan vested on July 18, 2008, resulting in an incremental $18.0 million in
non-cash compensation expense for the twelve months ended December 31,
2008.




60
 Table of Contents


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.




We also
may experience increased operational expenses as a result of directly employing
individuals associated with our operations.  Historically, we did not
directly employ any persons responsible for managing or operating us or for
providing services relating to day-to-day business affairs as these services
were provided to us by the Private Company pursuant to the Amended Omnibus
Agreement.  In connection with the Settlement, the Private Company
rejected the Amended Omnibus Agreement and we and the Private Company entered
into the Shared Services Agreement and the Transition Services Agreement
relating to the provision of such services.  In addition, we now
directly employ approximately 400 individuals associated with our crude oil and
asphalt operations.  The costs to directly employ these individuals as
well as the costs under the Shared Services Agreement and the Transition
Services Agreement may be higher than those previously paid by us under the
Amended Omnibus Agreement, which 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 our common units and
our ability to conduct our business.




Taxation
as a Corporation




The
anticipated after-tax economic benefit of an investment in our common units
depends largely on us being treated as a partnership for federal income tax
purposes.  If less than 90% of the gross income of a publicly traded
partnership, such as us, for any taxable year is “qualifying income” from
sources such as the transportation, marketing (other than to end users), or
processing of crude oil, natural gas or products thereof, interest, dividends or
similar sources, that partnership will be taxable as a corporation under Section
7704 of the Internal Revenue Code for federal income tax purposes for that
taxable year and all subsequent years.




If we
were treated as a corporation for federal income tax purposes, then we would pay
federal income tax on our income at the corporate tax rate, which is currently a
maximum of 35%, and would likely pay state income tax at varying
rates.  Distributions would generally be taxed again to unitholders as
corporate distributions and none of our income, gains, losses, deductions or
credits would flow through to our unitholders.  Because a tax would be
imposed upon us as an entity, cash available for distribution to our unitholders
would be substantially reduced.  Treatment of us as a corporation
would result in a material reduction in the anticipated cash flow and after-tax
return to unitholders and thus would likely result in a substantial reduction in
the value of our common units.





We
recently entered into new storage contracts and leases with third party
customers with respect to substantially all of our asphalt
facilities.  It is 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.”  We may not be successful
in obtaining this ruling.  If we are not successful in obtaining this
ruling, we will likely have to transfer the leases and the related asphalt
assets and rental income, and/or certain of the processing assets and related
fee income, to one or more subsidiaries taxed as corporations.  Even
if successful in obtaining this ruling, we will likely transfer certain of the
processing assets and related fee income, to one or more subsidiaries taxed as
corporations  Any such subsidiary that is taxed as a corporation would
pay federal income tax on its income at the corporate tax rate, which is
currently a maximum of 35%, and would likely pay state (and possibly local)
income tax at varying rates.  Distributions would generally be taxed
again to unitholders as corporate distributions and none of the income, gains,
losses, deductions or credits of any such subsidiary would flow through to our
unitholders.  If a material amount of entity-level taxes were incurred
by any such subsidiaries, then our cash available for distribution to our
unitholders could be substantially reduced.





61
 Table of Contents




Global
Economic Conditions





Global
financial markets and economic conditions have been, and continue to be,
disrupted and volatile. The debt and equity capital markets have been
exceedingly distressed. These issues, along with significant write-offs in the
financial services sector, the re-pricing of credit risk and the current weak
economic conditions have made, and will likely continue to make, it difficult to
obtain funding.




In
particular, the cost of raising money in the debt and equity capital markets has
increased substantially while the availability of funds from those markets
generally has diminished significantly. Also, as a result of concerns about the
stability of financial markets generally and the solvency of counterparties
specifically, the cost of obtaining money from the credit markets generally has
increased as many lenders and institutional investors have increased interest
rates, enacted tighter lending standards, refused to refinance existing debt at
maturity at all or on terms similar to our current debt and reduced and, in some
cases, ceased to provide funding to borrowers.  These factors may have
a material adverse effect on our ability to refinance our outstanding debt or,
in the event we fail to comply with the covenants of the credit facility, to
obtain a waiver of events of default under our credit agreement or to negotiate
forbearance with our lenders.  In addition, these factors may restrict
the future operation and growth of our business and our ability to make future
acquisitions or to otherwise take advantage of business
opportunities.  If we are able to obtain any such financing, it may be
at higher interest rates or result in substantial equity dilution.




Additional
Items Impacting the Comparability of Our Financial Results





In addition to the impacts on our future
results of operations described above, our future results of operations and cash
flows may not be comparable to the historical results of operations for the
periods presented below for our predecessor, for the reasons described
below.  The historical financial statements for periods prior to the
contribution of the assets, liabilities and operations to us by the Private
Company on July 20, 2007 reflect the assets, liabilities and operations of
our predecessor.




·
            There
      are differences in the way our predecessor recorded revenues and the way
      we record revenues.




·
            Historically,
      a substantial portion of our revenues were derived from services provided
      to the crude oil purchasing, marketing and distribution operations of the
      Private Company pursuant to the Throughput Agreement. Under the Throughput
      Agreement, the Private Company paid us a fee for gathering,
      transportation, terminalling and storage services based on volume and
      throughput. In rendering these services, we did not take title to, or
      marketing responsibility for, the crude oil that we gathered, transported,
      terminalled or stored and, therefore, we had minimal direct exposure to
      changes in crude oil prices.




·
            The
      Crude Oil Business had historically been a part of the integrated
      operations of the Private Company, and neither the Private Company nor our
      predecessor recorded revenue associated with the gathering,
      transportation, terminalling and storage services provided on an
      intercompany basis. The Private Company and our predecessor recognized
      only the costs associated with providing such services. As such, the
      revenues we received under the Throughput Agreement are not reflected in
      the historical financial statements of our
  predecessor.




·
            Our
      predecessor recognized revenues from third parties for (1) crude oil
      storage services, (2) crude oil transportation services and
      (3) crude oil producer field services. Although a substantial
      majority of our revenues are derived from services provided to the Private
      Company, we also recognize revenue for gathering, transportation,
      terminalling and storage services provided to third
    parties.




·
            There
      are differences in the way general and administrative expenses were
      allocated to our predecessor and the way we recognize general and
      administrative expenses.




·
            General
      and administrative expenses include office personnel and benefit expenses,
      costs related to our administration facilities, and insurance, accounting
      and legal expenses, including costs allocated by the Private Company for
      centralized general and administrative services performed by the Private
      Company. Such costs were allocated to our predecessor based on the nature
      of the respective expenses and its proportionate share of the Private
      Company’s head count, compensation expense, net revenues or square footage
      as appropriate.




·
            We
      were party to an Omnibus Agreement with the Private
      Company.  The Omnibus Agreement was amended (the “Amended
      Omnibus Agreement”) in connection with the purchase of the Acquired
      Asphalt Assets to, among other things, increase the fixed administrative
      fee payable under such agreement from $5.0 million per year to $7.0
      million per year. Pursuant to the Amended Omnibus Agreement, we were
      required to pay our general partner and the Private Company this fixed
      administrative fee for the provision by our general partner and the
      Private Company of various general and administrative services to us for
      three years following the acquisition of our asphalt
      assets.  The events related to the Bankruptcy Filings terminated
      the Private Company’s obligations to provide services to us under the
      Amended Omnibus Agreement.  The Private Company continued to
      provide such services to us until the effective date of the Settlement at
      which time the Private Company rejected the Amended Omnibus Agreement and
      we and the Private Company entered into the Shared Services Agreement and
      the Transition Services Agreement relating to the provision of such
      services (see “Item 1. Business—Impact of the Bankruptcy of the Private
      Company and Certain of its Subsidiaries and Related Events—Settlement with
      the Private Company”).  For a more complete description of the
      Amended Omnibus Agreement, see “Item 13—Certain Relationships and Related
      Party Transactions, and Director Independence—Agreements Related to Our
      Acquisition of the Asphalt Assets —Amended Omnibus
    Agreement.”  62
 Table of Contents




·
              We
      incur incremental general and administrative expenses as a result of being
      a publicly traded limited partnership, including costs associated with
      annual and quarterly reports to unitholders, financial statement audit,
      tax return and Schedule K-1 preparation and distribution, investor
      relations activities, registrar and transfer agent fees, incremental
      director and officer liability insurance costs and independent director
      compensation. These incremental general and administrative expenditures
      are not reflected in the historical financial statements of our
      predecessor.




·
            With
      the exception of capital lease obligations and prepaid insurance, no
      working capital was contributed to us in connection with our initial
      public offering.




·
            Our
      predecessor had $31.2 million in debt payable to the Private Company which
      was not assumed by us in our initial public offering. We entered into a
      $250.0 million five-year credit facility and borrowed $137.5 million under
      that facility and used net proceeds of approximately $38.7 million from
      the issuance of 1,875,000 common units pursuant to the underwriters’
      exercise of their over-allotment option in our initial public offering to
      reduce outstanding borrowings under our credit facility.  In
      connection with the purchase of our Acquired Asphalt Assets, we amended
      our credit facility to increase our borrowing capacity to $600.0
      million.  This borrowing capacity has subsequently been reduced
      as described in “—Liquidity and Capital
      Resources.”




Factors
That Will Significantly Affect Our Results




Commodity
Prices. Although our current operations have minimal direct exposure
to commodity prices, the volumes of crude oil and liquid asphalt cement we
gather, transport, terminal or store are indirectly affected by commodity
prices. Petroleum product prices may be contango (future prices higher than
current prices) or backwardated (future prices lower than current prices)
depending on market expectations for future supply and demand. Our terminalling
and storage services benefit most from an increasing price environment, when a
premium is placed on storage, and our gathering and transportation services
benefit most from a declining price environment when a premium is placed on
prompt delivery.




Volumes. Our results of
operations are dependent upon the volumes of crude oil we gather, transport,
terminal and store and asphalt we terminal, store and/or process.  Our
results of operations are impacted by our ability to utilize our pipeline and
storage capacity to transport and store supplies of crude oil for our customers.
An increase or decrease in the production of crude oil from the oil fields
served by our pipelines or an increase or decrease in the demand for crude oil
in the areas served by our pipelines and storage facilities will have a
corresponding effect on the volumes we gather, transport, terminal and store.
The production and demand for crude oil and liquid asphalt cement are driven by
many factors, including the price for crude oil.




Acquisition
Activities. Prior to the Bankruptcy Filings, our strategy was to
pursue both strategic and accretive acquisitions within the midstream industry.
If we are able to stabilize our business, we may be able to again pursue this
strategy.  These acquisition efforts may involve assets that, if acquired,
would have a material effect on our financial condition and results of
operations. We can give no assurance that any such acquisition efforts will be
successful or that any such acquisition will be completed on terms considered
favorable to us.




Organic Expansion
Activities. Prior to the Bankruptcy Filings, our strategy was to
pursue opportunities to expand our existing asset base and consider constructing
additional assets in strategic locations. If we are able to stabilize our
business, we may be able to again pursue this strategy.  The
construction of additions or modifications to our existing assets, and the
construction of new assets, involve numerous regulatory, environmental,
political, legal and operational uncertainties beyond our control and may
require the expenditure of significant amounts of capital.




Credit Facility
Restrictions.  We expect that for the foreseeable future,
substantially all of our cash generated from operations will be used to reduce
our debt.  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.  In
addition, pursuant to the Credit Agreement Amendment, our revolving credit
facility is limited to $50.0 million.  These restrictions
may prevent us making capital expenditures or growing our
business.  Furthermore, our credit facility, as amended by the Credit
Agreement Amendment, requires us to comply with certain restrictive financial
covenants, including minimum interest coverage ratios and maximum leverage
ratios (see “—Liquidity and Capital Resources” and Note 8 to our Consolidated
Financial Statements).  Failure to comply with these covenants may
result in an event of default under our credit facility and may have a material
adverse impact on our ability to meet our capital requirements.


63
 Table of Contents




Distributions to our
Unitholders. 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
December 31, 2008 and March 31, 2009, our leverage ratio was 4.86 to 1.00 and
5.28 to 1.00, respectively. If our leverage ratio does not improve, we may
not make quarterly distributions to our unitholders in the future.  If
we are permitted to make distributions to our unitholders under our credit
facility, we expect that we will distribute to our unitholders most of the cash
generated by our operations.  In such a case, we expect that we will
rely upon external financing sources, including commercial bank borrowings and
other debt and equity issuances, to fund our acquisition and expansion capital
expenditures, as well as our working capital needs.




Results
of Operations




The
following table and discussion is a summary of our results of operating for each
of the years ended December 31, 2006, 2007 and 2008:


Year
      Ended December 31,2006
                  
                  
                  2007
                  
                  
                  2008(in
      thousands)Service
      revenues:Crude oil terminalling and
      storage revenues:Third party
                  
                  $
                  8,345
                  
                  
                  $
                  7,857
                  
                  
                  $
                  13,877Related party
                  
                  
                  730
                  
                  
                  
                  16,894
                  
                  
                  
                  28,089Total crude oil terminalling
      and storage
                  
                  
                  9,075
                  
                  
                  
                  24,751
                  
                  
                  
                  41,966Crude
      oil gathering and transportation revenues:Third party
                  
                  
                  19,764
                  
                  
                  
                  20,446
                  
                  
                  
                  34,416Related party
                  
                  
                  -
                  
                  
                  
                  29,368
                  
                  
                  
                  49,953Total crude oil gathering and
      transportation
                  
                  
                  19,764
                  
                  
                  
                  49,814
                  
                  
                  
                  84,369Asphalt
      services revenues:Third party
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2Related party
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  65,843Total asphalt
      services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  65,845Total
      revenues
                  
                  
                  28,839
                  
                  
                  
                  74,565
                  
                  
                  
                  192,180Operating
      expenses:Crude oil terminalling and
      storage
                  
                  
                  4,494
                  
                  
                  
                  4,863
                  
                  
                  
                  6,314Crude oil gathering and
      transportation
                  
                  
                  47,114
                  
                  
                  
                  62,319
                  
                  
                  
                  65,438Asphalt
services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  31,758Allowance for doubtful
      accounts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  568Total
      operating expenses
                  
                  
                  51,608
                  
                  
                  
                  67,182
                  
                  
                  
                  104,078General
      and administrative
      expenses
                  
                  
                  11,097
                  
                  
                  
                  13,595
                  
                  
                  
                  43,085Operating
      income (loss)
                  
                  
                  (33,866
                  )
                  
                  
                  (6,212
                  )
                  
                  
                  45,017Interest
      expense
                  
                  
                  1,989
                  
                  
                  
                  6,560
                  
                  
                  
                  26,951Income
      tax expense
                  
                  
                  -
                  
                  
                  
                  141
                  
                  
                  
                  291Net
      income (loss)
                  
                  $
                  (35,855
                  )
                  
                  $
                  (12,913
                  )
                  
                  $
                  17,775










64
 Table of Contents




Year
Ended December 31, 2008 Compared to Year Ended December 31,
2007




Service revenues. Service
revenues, including fuel surcharge revenues of $12.9 million in 2008 related to
fuel and power consumed to operate our liquid asphalt cement storage tanks, were
$192.2 million for the twelve months ended December 31, 2008 compared to $74.6
million for the twelve months ended December 31, 2007, an increase of $117.6
million, or 158%. Crude oil terminalling and storage revenues increased by $17.2
million to $42.0 million for the twelve months ended December 31, 2008 compared
to $24.8 million for the twelve months ended December 31, 2007, primarily due to
the fact that prior to our initial public offering in July of 2007 our
predecessor accounted for only the costs of operating our assets and not the
revenue associated with the services it provided to the Private Company on an
intercompany basis.  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 77% increase in our third party crude
oil terminalling and service revenues during the year ended December 31, 2008 as
compared to the year ended December 31, 2007.  In the first quarter of
2009, third parties accounted for 88% of our total crude oil terminalling and
storage revenue of $11.6 million.  We expect this increased amount of
third party revenue to continue in the foreseeable future.




Our crude
oil gathering and transportation services revenue increased by $34.6 million to
$84.4 million for twelve months ended December 31, 2008 compared to $49.8
million for the twelve months ended December 31, 2007, primarily due to the fact
that, prior to our initial public offering, our predecessor historically did not
account for these services it provided on an intercompany basis.  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 68%
increase in our third party crude oil gathering and transportation revenues
during the year ended December 31, 2008 as compared to the year ended December
31, 2007.  In the first quarter of 2009, third parties accounted for
93% of our total crude oil gathering and transportation revenue of $14.8
million.  We expect this increased amount of third party revenue to
continue in the foreseeable future.




We
acquired our asphalt assets from the Private Company in February 2008 and in
March 2009 in connection with the Settlement.  Our asphalt services
revenue was $65.8 million for twelve months ended December 31,
2008.  All of this revenue was generated under the Terminalling
Agreement.




Operating
expenses. Operating expenses include salary and wage expenses and
related taxes and depreciation and amortization expenses.  Operating
expenses increased by $36.9 million, or 55%, to $104.1 million for the twelve
months ended December 31, 2008, including $12.9 million of fuel and power
expense to operate our liquid asphalt cement storage tanks, compared to $67.2
million for the twelve months ended December 31, 2007.  This increase
was primarily due to our acquisition of our asphalt assets from the Private
Company in February 2008, which accounted for $31.8 million of the $36.9 million
increase.  Crude oil terminalling and storage operating expenses
increased by $1.4 million to $6.3 million for the twelve months ended December
31, 2008 compared to $4.9 million for the twelve months ended December 31, 2007
primarily as a result of depreciation expense related to the Acquired Storage
Assets as well as depreciation related to crude oil storage assets placed in
service in 2007 prior to our initial public offering.  Our crude oil
gathering and transportation operating expenses increased by $3.1 million to
$65.4 million for the twelve months ended December 31, 2008 compared to $62.3
million for the twelve months ended December 31, 2007 due to both higher diesel
fuel prices and growth in our operations.




As a
result of our acquisition of the Acquired Asphalt Assets and the Acquired
Storage Assets in 2008, our depreciation expense increased by $11.9 million to
$21.0 million in 2008.  Also, approximately $5.7 million of the
increase in operating expenses related to increased compensation expense, with
$3.5 million of the increased compensation expense resulting from the
acquisition of our asphalt assets in 2008.  The remaining increase in
compensation expense is primarily attributed to growth in our crude oil
gathering and transportation segment in 2008.




In
addition, our fuel expenses related to our crude oil gathering and
transportation segment increased by $2.1 million to $11.7 million as a result of
increased utilization of our assets and rising diesel prices.  We also
experienced a $2.3 million increase in property tax expenses in 2008 due
primarily to our acquisition of the Acquired Asphalt Assets.


65
 Table of Contents




General and administrative
expenses.  General and administrative expenses increased by $29.5
million, or 217%, to $43.1 million for the twelve months ended December 31, 2008
compared to $13.6 million for the twelve months ended December 31,
2007.  The increase was primarily the result of the impact of the
Private Company’s Bankruptcy Filings.  As a result of the change of
control of our general partner that occurred in July of 2008, we recognized an
incremental $18.0 million in non-cash compensation expense due to the vesting of
all outstanding awards under the Plan.  Furthermore, 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 has resulted in increased expense
beginning in the third quarter of 2008 due to the costs related to legal and
financial advisors as well as other related costs.  These incremental
costs accounted for $10.8 million of our increased general and administrative
expenses in 2008.  We expect this increased level of general and
administrative expenses to continue throughout 2009.




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. Interest expense increased by $20.4 million to $27.0 million for the
twelve months ended December 31, 2008 compared to $6.6 million for the twelve
months ended December 31, 2007. The increase was primarily due to an increase in
the average long-term borrowings outstanding during the twelve months ended
December 31, 2008 compared to the twelve months ended December 31, 2007, which
accounted for approximately $23.7 million of the increase in interest expense,
net of capitalized interest.  The decrease in the average interest
rate we incurred on our borrowings from 2007 to 2008 resulted in a $4.2 million
decrease in interest expense for the twelve months ended December 31, 2008
compared to the twelve months ended December 31, 2007.  Furthermore,
interest expense associated with the events of default that existed under our
credit agreement and the entering into the Forbearance Agreement and the
amendments thereto accounted for approximately $3.5 million of an increase in
interest expense for the twelve months ended December 31, 2008.  In
addition, the two interest rate swap agreements entered into during the third
quarter of 2007 and the three additional interest rate swap agreements entered
into in February 2008 resulted in $0.9 million in interest income for the twelve
months ended December 31, 2008 compared to $2.2 million of interest expense for
the twelve months ended December 31, 2007.  Due to events related to
the Bankruptcy Filings, all of these interest rate swap positions were
terminated in the third quarter of 2008, and we have recorded a $1.5 million
liability as of December 31, 2008 with respect to these positions.




Year
Ended December 31, 2007 Compared to Year Ended December 31,
2006




Service revenues. Service
revenues were $74.6 million for the twelve months ended December 31, 2007
compared to $28.8 million for the twelve months ended December 31, 2006, an
increase of $45.8 million, or 159%. Crude oil terminalling and storage revenues
increased by $15.7 million to $24.8 million for the twelve months ended December
31, 2007 compared to $9.1 million for the twelve months ended December 31, 2006,
primarily due to revenues generated under the Throughput Agreement subsequent to
the closing of our initial public offering. Our predecessor historically did not
account for these services which were provided on an intercompany
basis.




Our crude
oil gathering and transportation services revenue increased by $30.0 million to
$49.8 million for twelve months ended December 31, 2007 compared to $19.8
million for the twelve months ended December 31, 2006, primarily due to revenues
generated under the Throughput Agreement subsequent to the closing of our
initial public offering. Our predecessor historically did not account for these
services which were provided on an intercompany basis.




Operating
expenses. Operating expenses include salary and wage expenses and
related taxes and depreciation and amortization expenses. Operating expenses
increased by $15.6 million, or 30%, to $67.2 million for the twelve months ended
December 31, 2007 compared to $51.6 million for the twelve months ended December
31, 2006.  Crude oil terminalling and storage operating expenses
increased by $0.4 million to $4.9 million for the twelve months ended December
31, 2007 compared to $4.5 million for the twelve months ended December 31,
2006.  Our crude oil gathering and transportation operating expenses
increased by $15.2 million to $62.3 million for the twelve months ended December
31, 2007 compared to $47.1 million for the twelve months ended December 31,
2006.




Approximately
$5.3 million of this increase in operating expenses was due to our acquisition
of Big Tex Crude Oil Company (“Big Tex”) on June 30, 2006. Included in
operating expenses for the twelve months ended December 31, 2007 is $1.6 million
in costs associated with the clean up of a crude oil leak that occurred in the
twelve months ended December 31, 2007 in relation to a thirty-five mile pipeline
located in Conroe, Texas. This gathering line was sold by the Private Company on
April 30, 2007, and we have no future obligations associated with the
aforementioned leak because this gathering line was not part of the crude oil
assets that were contributed to us in connection with our initial public
offering. Our repair and maintenance expenses increased by $2.3 million to $8.2
million for the twelve months ended December 31, 2007 compared to $5.9 million
for the twelve months ended December 31, 2006, of which $0.9 million related to
the Big Tex acquisition. The additional increase in repair and maintenance
expenses was due primarily to the timing of routine maintenance in our crude oil
gathering and transportation segment.


66
 Table of Contents




In
addition, our fuel expenses increased by $2.0 million to $9.6 million for the
twelve months ended December 31, 2007 compared to $7.6 million for the twelve
months ended December 31, 2006, of which $0.6 million related to the Big Tex
acquisition. The additional increase in our fuel costs is attributable to the
increase in number of transport trucks we operated for the respective periods,
the rising price of diesel fuel during the comparative periods and a fire at a
refinery located in western Texas that resulted in our transporting
0.7 million barrels of crude oil to alternative locations which were a
greater distance from the barrels’ respective points of origination than the
refinery that normally receives those barrels. The Throughput Agreement provided
for a fuel surcharge, recorded in revenue, which offsets increases in fuel
expenses related to either rising diesel prices or force majeure events such as
the refinery fire that impacted our operations during the twelve months ended
December 31, 2007.




Compensation
expense increased by $3.7 million to $22.9 million for the twelve months ended
December 31, 2007 compared to $19.2 million for the twelve months ended December
31, 2006, of which $2.8 million related to the Big Tex
acquisition.  The remaining increase is attributable to the growth in
our crude oil gathering and transportation segment.  As a result of
the growth in our property and equipment during this period, our insurance
premiums increased by $0.5 million to $1.7 million for the twelve months ended
December 31, 2007 compared to $1.2 million for the twelve months ended December
31, 2006.  Furthermore, as a result of our increase in operating
leases during this period, including the acquisition of Big Tex, our vehicle
rent expense increased by $1.1 million to $1.5 million for the twelve months
ended December 31, 2007 compared to $0.4 million for the twelve months ended
December 31, 2006.  Lastly, our third party transportation costs
increased by $0.5 million to $0.7 million for the twelve months ended December
31, 2007 compared to $0.2 million for the twelve months ended December 31, 2006
primarily as a result of our utilization of third party transportation services
to meet customer demand.




General and administrative
expenses.  General and administrative expenses increased by $2.5
million, or 23%, to $13.6 million for the twelve months ended December 31, 2007
compared to $11.1 million for the twelve months ended December 31,
2006.  The increase was primarily the result of growth in our
business, and was comprised of a $1.5 million increase in compensation expenses
(including $1.2 million recognized during 2007 under our long-term incentive
plan, which did not exist in 2006) and a $1.4 million increase in outside
professional service costs attributed to our operating as a public
company.  This was partially offset by a $0.3 million decrease in
travel and meeting expenses.




Interest expense. 
Interest expense represents interest on capital lease obligations and long-term
borrowings under our revolving credit facility. Interest expense increased by
$4.6 million to $6.6 million for the twelve months ended December 31, 2007
compared to $2.0 million for the twelve months ended December 31, 2006. The
increase was primarily due to an increase in the average long-term borrowings
during the twelve months ended December 31, 2007 compared to the twelve months
ended December 31, 2006, which accounted for approximately $2.4 million of the
total increase in interest expense, and is a reflection of borrowings under our
new revolving credit facility. In addition, during the third quarter of 2007, we
entered into two interest rate swap agreements, the fair value accounting for
which resulted in $2.2 million in interest expense for the twelve months ended
December 31, 2007.




Effects
of Inflation




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




Off
Balance Sheet Arrangements




We do not
have any off-balance sheet financing arrangements.





67
 Table of Contents


Liquidity
and Capital Resources




Cash
Flows and Capital Expenditures




Cash
generated from operations and borrowings under our credit facility have
historically been the primary sources of our liquidity. Due to the events
related to the Bankruptcy Filings, including uncertainties related to future
revenues and cash flows, we do not expect our historical cash flows to be
indicative of our future financial cash flows.  As of June 26, 2009,
we had $421.9 million in outstanding borrowings under our credit facility
(consisting of $21.9 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 $28.1 million
and cash on hand of approximately $3.0 million.  Pursuant to the
Credit Agreement Amendment, our revolving credit facility is limited
to $50.0 million.  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,
our predecessor’s sources of liquidity included cash generated from operations
and funding from the Private Company.  The following table summarizes
our sources and uses of cash for the twelve months ended December 31, 2006, 2007
and 2008:





Year
      Ended December 31,2006
                  
                  
                  2007
                  
                  
                  2008(in
      millions)Net
      cash provided by (used in) operating activities
                  
                  $
                  (25.8
                  )
                  
                  $
                  (0.6
                  )
                  
                  $
                  56.0Net
      cash used in investing activities
                  
                  
                  (41.3
                  )
                  
                  
                  (20.0
                  )
                  
                  
                  (520.3
                  )Net
      cash provided by financing activities
                  
                  
                  67.1
                  
                  
                  
                  21.0
                  
                  
                  
                  492.7





Operating Activities
    Net cash provided by operating activities increased
$56.6 million for the twelve months ended December 31, 2008 as compared to the
twelve months ended December 31, 2007.  The increase in net cash
provided by operating activities is primarily due to a $30.7 million increase in
our net income for the year ended December 31, 2008 compared to the year ended
December 31, 2007 primarily as a result of revenues generated by services
provided under the Throughput Agreement and the Terminalling Agreement, which
have been rejected by the Private Company in connection with the Bankruptcy
Cases.  Prior to the Private Company’s contribution of Crude Oil
Business to us, our predecessor did not record revenue associated with the
gathering, transportation, terminalling and storage services provided on an
intercompany basis.  In addition, net cash provided by our operating
activities was impacted by certain non-cash items, including a $11.9 million
increase in depreciation and amortization and a $16.8 million increase in
equity-based compensation.  The increase was offset by a decrease in
our interest rate swap liability of $2.2 million.  Net cash used in
operating activities was $0.6 million for the twelve months ended December 31,
2007 as compared to $25.8 million for the twelve months ended December 31,
2006.  This decrease in net cash used in operating activities is
primarily due to a $22.9 million decrease in our net loss for the twelve months
ended December 31, 2007 compared to the twelve months ended December 31,
2006.In addition,
our cash used in operating activities decreased in 2007 due to a $0.9 million
increase in depreciation and amortization, an increase in our unrealized loss
related to derivative instruments of $2.2 million, and an increase in
equity-based incentive compensation expense of $1.2 million.  The
impact of the above increases was partially offset by an increase of $1.8
million in cash used related to changes in working capital.




Investing Activities. 
Net cash used in investing activities was $520.3 million for the twelve months
ended December 31, 2008 compared to $20.0 million for the twelve months ended
December 31, 2007. This increase is primarily attributable to the purchase of
our Acquired Asphalt Assets in February 2008 for approximately $380 million, our
purchase of our Acquired Storage Assets in May 2008 for approximately $90
million, and our purchase of our Acquired Pipeline Assets in May 2008 for
approximately $45 million.  Expansion capital expenditures for organic
growth projects totaled $2.3 million in 2008 compared to $17.5 million in
2007.  The 2007 expansion capital expenditures are primarily comprised
of expenditures made by our predecessor for the construction of crude oil
storage assets that are a part of our crude oil assets.  We expect
2009 expansion capital expenditures for organic growth projects to be
approximately $2 million to $5 million in 2009.  Maintenance capital
expenditures totaled $3.7 million in 2008 as compared to $2.7 million in
2007.  The increase is primarily due to the maintenance of our
Acquired Asphalt Assets, which we purchased in February 2008.  We
expect maintenance capital expenditures to be approximately $7 million in
2009.  Net cash used in investing activities was $20.0 million for the
twelve months ended December 31, 2007 as compared to $41.3 million for the
twelve months ended December 31, 2006.  This decrease was attributable
to a reduction in capital expenditures primarily resulting from the timing of
construction projects in our crude oil terminalling and storage segment. Capital
expenditures for the years ended December 31, 2007 and 2006 were $20.4
million and $41.5 million, respectively, consisting of both our acquisition of
Big Tex on June 30, 2006 and expenditures for the construction of
additional crude oil storage capacity during these periods.


68
 Table of Contents




Financing
Activities.    Net cash provided by financing
activities was $492.7 million for the twelve months ended December 31, 2008 as
compared to $21.0 million for the twelve months ended December 31,
2007.  Net cash provided by financing activities for the twelve months
ended December 31, 2008 is primarily comprised of the change in our net
borrowings under our credit facility of $358.5 million and proceeds from the
February 2008 public offering, net of offering fees, of $161.2 million, and is
offset by distributions paid of $23.7 million for the twelve months ended
December 31, 2008.  Prior to our initial public offering our net cash
provided by financing activities primarily comprised of capital contributions
received from the Private Company.  The capital contributions served
to fund our working capital needs and both maintenance and expansion capital
expenditure projects that are reflected in net cash used in investing activities
for the twelve months ended December 31, 2007.  Net cash provided by
financing activities was $21.0 million for the twelve months ended December 31,
2007 as compared to $67.1 million for the twelve months ended December 31,
2006.  This decrease was attributable to a reduction in capital
expenditures primarily resulting from the timing of construction projects in our
crude oil terminalling and storage segment.  Net cash provided by
financing activities is primarily comprised of capital contributions of $39.3
million and $69.2 million received by us from the Private Company for the years
ended December 31, 2007 and 2006, respectively. The capital contributions
served to fund our working capital needs and both maintenance and expansion
capital expenditure projects that are reflected in net cash used in investing
activities prior to our initial public offering in July 2007.




Our
Liquidity and Capital Resources




Cash flow
from operations and our credit facility are our primary sources of liquidity. At
December 31, 2008, we had approximately $21.9 million of availability under our
revolving credit facility.  As of June 26, 2009, we had an aggregate
unused credit availability under our revolving credit facility of approximately
$28.1 million and cash on hand of approximately $3.0 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
described herein, including the uncertainty relating to future cash flows, we
face 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.





No
assurance can be given that we will not be required to restrict our operations
because of possible limitations on our ability to obtain financing for our
maintenance capital expenditures and our expansion capital expenditures due to
restrictions under our credit agreement and the uncertainty related to the
Bankruptcy Filings.




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
December 31, 2008 and March 31, 2009, our leverage ratio was 4.86 to 1.00 and
5.28 to 1.00, respectively.  As discussed under “—Factors That Will
Significantly Affect our Results—Credit Facility Restrictions,” 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.





69
 Table of Contents


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 in early 2010, and we expect to make capital expenditures related
to this project during 2009.  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. In July 2007 we entered into a $250.0 million five-year
credit facility with a syndicate of financial institutions. In connection with
our acquisition of our asphalt assets, we amended this credit facility to
increase the total amount we may borrow to $600.0 million.




The
credit facility is available for general partnership purposes, including working
capital, capital expenditures, distributions and repayment of indebtedness that
is assumed in connection with acquisitions. Due to events related to the
Bankruptcy Filings, events of default occurred under our credit
agreement.  Effective on September 18, 2008, we and the requisite
lenders under our 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 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 us 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”).




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.




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 our revolving
credit facility under the credit agreement from $350 million to $300 million and
prohibited us from borrowing additional funds under our revolving credit
facility during the Forbearance Period.  Under the Forbearance
Agreement, we 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 our revolving credit facility
under the credit agreement from $300 million to $220 million.  In
addition, under the Second Forbearance Amendment, we 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, we
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 us from borrowing additional funds under
our revolving credit facility during the extended Forbearance
Period.




70
 Table of Contents


The
Credit Agreement Amendment subsequently further permanently reduced our
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 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.  Under the Credit Agreement Amendment, we agreed to pay the
lenders executing the Credit Agreement Amendment a fee equal to 2.00% of the
aggregate commitments under the credit agreement after the above described
commitment reduction, or $9.0 million, offset by the $1.2 million fee paid
pursuant to the Third Forbearance Amendment.  As of June 26, 2009, we
had $421.9 million in outstanding borrowings under our credit facility
(consisting of $21.9 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 $28.1 million
and cash on hand of approximately $3.0 million. Pursuant to the Credit Agreement
Amendment, our revolving credit facility is limited to $50.0 million. 
If any of the financial institutions that support our revolving credit facility
were to fail, we may not be able to find a replacement lender, which could
negatively impact our ability to borrow under our revolving credit
facility.  For instance, Lehman Brothers Commercial Bank is one of the
lenders under our $50.0 million revolving credit facility, and Lehman Brothers
Commercial Bank has agreed to fund approximately $2.5 million (approximately 5%)
of the revolving credit facility.  On several occasions Lehman Brothers
Commercial Bank has failed to fund revolving loan requests under our revolving
credit facility, effectively limiting the aggregate amount of our revolving
credit facility to $47.5 million.




Prior to
the events of default, indebtedness under the credit agreement bore interest at
our option, at either (i) the higher of the administrative agent’s prime
rate or the federal funds rate plus 0.5% (the “Base rate”), plus an applicable
margin that ranges from 0.50% to 1.75%, depending on our total leverage ratio
and senior secured leverage ratio, or (ii) LIBOR plus an applicable margin
that ranges from 1.50% to 2.75%, depending upon our total leverage ratio and
senior secured leverage ratio.  During the Forbearance Period
indebtedness under the credit agreement bore interest at our option, at either
(i) the Base rate, plus an applicable margin that ranges from 2.75% to
3.75%, depending upon our total leverage ratio, or (ii) LIBOR plus an
applicable margin that ranges from 4.25% to 5.25%, depending upon our total
leverage ratio.  Pursuant to the Second Forbearance Amendment,
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 6.50% 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.  We now pay a fee of 1.50% 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, now 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) 0.50%, 0.50%, 1.00% and 1.00%, respectively.




During
the twelve months ended December 31, 2008, the weighted average interest rate
incurred by us was 6.45% resulting in interest expense of approximately $24.2
million.  During the three months ended March 31, 2009, the weighted
average interest rate incurred by us was 9.0% resulting in interest expense of
approximately $10.0 million.  We expect the interest expense we incur
in 2009 to be substantially greater than the interest expense we incurred in
2008.




Among
other things, our credit facility, as amended by the Credit Agreement Amendment,
now 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.




71
 Table of Contents


Under the
credit agreement, we are subject to certain limitations, including limitations
on our ability to 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 prohibits us from making
distributions of available cash to our 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 us to maintain
a leverage ratio (the ratio of our consolidated funded indebtedness to our
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, our
ability to make acquisitions and investments in unrestricted subsidiaries is
limited and we may only make distributions if our leverage ratio is less than
3.50 to 1.00 and certain other conditions are met.  As of December 31,
2008 and March 31, 2009, our leverage ratio was 4.86 to 1.00 and 5.28 to 1.00,
respectively. If our leverage ratio does not improve, we may not make
quarterly distributions to our unitholders in the future.




The
credit agreement, as amended by the Credit Agreement Amendment, also requires us
to maintain an interest coverage ratio (the ratio of our consolidated EBITDA to
our 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 December 31, 2008 and March 31, 2009, our interest
coverage ratio was 3.58 to 1.00 and 2.64 to 1.00, respectively.





Further,
under the Credit Agreement Amendment we are required to maintain a minimum
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.  As of March 31, 2009, our consolidated adjusted EBITDA for the
prior twelve months is approximately $84.9 million.  Under the Credit
Agreement Amendment, consolidated adjusted EBITDA generally means our
consolidated net income for the prior twelve months, plus, to the extent
deducted in determining net income, our interest expense, income taxes,
depreciation, amortization, non-cash charges and restructuring charges for such
period, minus, to the extent added in determining net income, our non-cash items
of income for such period, all adjusted to take into account any material
acquisitions or dispositions.  In addition, our capital expenditures
are limited under the Credit Agreement Amendment to $12.5 million in 2009, $8.0
million in 2010 and $4.0 million in the six months ending June 30,
2011.  In the three months ended March 31, 2009, our capital
expenditures were approximately $1.4 million.




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.  It is also an event of default under the credit agreement if
we do not file our delinquent quarterly and annual reports with the SEC by
September 30, 2009, unless we retain new auditors, in which case such deadline
is extended to December 31, 2009.  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 while the events of default exist.




72
 Table of Contents


Contractual
Obligations.  A summary of our contractual cash obligations over the
next several fiscal years, as of December 31, 2008, 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)Omnibus
      Agreement obligations(1)
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Debt
      obligations(2)
                
                
                548.9
                
                
                
                40.3
                
                
                
                508.6
                
                
                
                -
                
                
                
                -Capital
      lease obligations
                
                
                1.2
                
                
                
                0.9
                
                
                
                0.3
                
                
                
                -
                
                
                
                -Operating
      lease obligations
                
                
                12.3
                
                
                
                3.8
                
                
                
                7.9
                
                
                
                0.5
                
                
                
                0.1Financial
      advisory obligations(3)
                
                
                1.5
                
                
                
                1.5
                
                
                
                -
                
                
                
                -
                
                
                
                -Employee
      contract obligations(4)
                
                
                0.6
                
                
                
                0.6
                
                
                
                -
                
                
                
                -
                
                
                
                -





(1)
            As
      of December 31, 2008, the Private Company still provided services to us
      under the Amended Omnibus Agreement and we still paid our general partner
      and the Private Company a fixed administrative fee, in the amount of $7.0
      million per year, for the provision by our general partner and the Private
      Company of various general and administrative services pursuant to the
      Amended Omnibus Agreement.  The events related to the Bankruptcy
      Filings terminated the Private Company’s obligations to provide services
      to us under the Amended Omnibus Agreement.  The Private Company
      continued to provide such services to us until the effective date of the
      Settlement at which time the Private Company rejected the Amended Omnibus
      Agreement and we and the Private Company entered into the Shared Services
      Agreement and the Transition Services Agreement relating to the provision
      of such services (see “Item 1. Business—Impact of the Bankruptcy of the
      Private Company and Certain of its Subsidiaries and Related
      Events—Settlement with the Private
Company”).




(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 borrowing of 9.0% as of
      December 31, 2008 was used.  All amounts outstanding under the
      credit facility mature in June 2011.  The amounts included in
      this table do not reflect the effect of the Third Forbearance Amendment or
      the Credit Agreement Amendment, which were entered into after December 31,
      2008.  See Note 8 of the Notes to the Consolidated Financial
      Statements included in this annual report on Form
  10-K.




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




(4)
            Represents
      required future payments to certain of our employees under retention
      agreements.




Critical
Accounting Policies and Estimates




Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements. We prepared these financial
statements in conformity with generally accepted accounting principles in the
United States. As such, we are required to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the periods presented. We based our estimates on historical
experience, available information and various other assumptions we believe to be
reasonable under the circumstances. On an on-going basis, we evaluate our
estimates; however, actual results may differ from these estimates under
different assumptions or conditions. The accounting policies that we believe
require our most difficult, subjective or complex judgments and are the most
critical to our reporting of results of operations and financial position are as
follows:




Use of
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts
and disclosure of contingencies. We make significant estimates including:
(1) allowance for doubtful accounts receivable; (2) estimated useful
lives of assets, which impacts depreciation; (3) estimated cash flows and
fair values inherent in impairment tests under SFAS No. 142, “Goodwill and
Other Intangible Assets” (“SFAS 142”) and SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”); (4) estimated
fair value of assets and liabilities acquired and identification of associated
intangible assets; (5) accruals related to revenues and expenses; and
(6) liability and contingency accruals. Although we believe these estimates
are reasonable, actual results could differ from these estimates.




Property, Plant
and Equipment. Property, plant and equipment are recorded at cost.
Expenditures for maintenance and repairs that do not add capacity or extend the
useful life of an asset are expensed as incurred. The carrying value of the
assets is based on estimates, assumptions and judgments relative to useful lives
and salvage values. As assets are disposed of or sold, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is included in other income in the statements of
operations.


73
 Table of Contents




We
calculate depreciation using the straight-line method, based on estimated useful
lives of our assets. These estimates are based on various factors including age
(in the case of acquired assets), manufacturing specifications, technological
advances and historical data concerning useful lives of similar assets.
Uncertainties that impact these estimates include changes in laws and
regulations relating to restoration and abandonment requirements, economic
conditions and supply and demand in the area. When assets are put into service,
we make estimates with respect to useful lives and salvage values that we
believe to be reasonable. However, subsequent events could cause us to change
our estimates, thus impacting the future calculation of depreciation and
amortization. The estimated useful lives of our asset groups are as
follows:




Asset
      Group
              
              Estimated Useful Lives (Years)Land
      improvements
              
              
              10-20Pipelines
      and facilities
              
              
              5-31Storage
      and terminal facilities
              
              
              10-35Transportation
      equipment, injection stations
              
              
              3-10Office
      property and equipment and other
              
              
              3-31




We
capitalize certain costs directly related to the construction of assets,
including interest and engineering costs. Upon disposition or retirement of
property, plant and equipment, any gain or loss is included in other income in
the statements of operations.




We have
contractual obligations to perform dismantlement and removal activities in the
event that some of our asphalt assets are abandoned. These obligations include
varying levels of activity including completely removing the assets and
returning the land to its original state. We have 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. In
addition, it is not possible to predict when demands for our asphalt services
will cease, and we do not believe that such demand will cease for the
foreseeable future.  Accordingly, we believe the date when these
assets will be abandoned is indeterminate. With no reasonably determinable
abandonment date, we cannot reasonably estimate the fair value of the associated
asset retirement obligations.  We believe that if our 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.  We will record asset retirement obligations for these
assets in the period in which sufficient information becomes available for us to
reasonably determine the settlement dates, and we will apply the provisions of
SFAS No. 143, “Accounting for Asset Retirement Obligations.”




Impairment of
Long-lived Assets. Long-lived assets with recorded values that are not
expected to be recovered through future cash flows are written-down to estimated
fair value in accordance with SFAS 144 as amended. Under SFAS 144, assets
are tested for impairment when events or circumstances indicate that their
carrying values may not be recoverable. The carrying value of a long-lived asset
is not recoverable if it exceeds the sum of the undiscounted cash flows expected
to result from the use and eventual disposition of the asset. If the carrying
value exceeds the sum of the undiscounted cash flows, an impairment loss equal
to the amount the carrying value exceeds the fair value of the asset is
recognized. Fair value is generally determined from estimated discounted future
net cash flows.




Fair Value of
Assets and Liabilities Acquired and Identification of Associated Goodwill and
Intangible Assets.  In conjunction
with each acquisition, we must allocate the cost of the acquired entity to the
assets and liabilities assumed based on their estimated fair values at the date
of acquisition. As additional information becomes available, we may adjust the
original estimates within a short time subsequent to the acquisition. We are
also required to recognize intangible assets separately from goodwill. Goodwill
and intangible assets with indefinite lives are not amortized but instead are
periodically assessed for impairment. The impairment testing entails estimating
future net cash flows relating to the asset based on our estimate of market
conditions including pricing, demand, competition, operating costs and other
factors. Intangible assets with finite lives are amortized over the estimated
useful life determined by management. Determining the fair value of assets and
liabilities acquired, as well as intangible assets that relate to such items as
customer relationships and contracts with suppliers, involves professional
judgment and is ultimately based on acquisition models and our assessment of the
value of the assets acquired and, to the extent available, third-party
assessments. Uncertainties associated with these estimates include changes in
production by producers and refiners, economic obsolescence factors in the area
and potential future sources of cash flow. Although the resolution of these
uncertainties has not historically had a material impact on our results of
operations or financial condition, we cannot provide assurance that actual
amounts will not vary significantly from estimated amounts.


74
 Table of Contents




Allocation
Methodologies Used to Derive Our Predecessor Financial Statements on a Carve-out
Basis. Our predecessor employed various allocation methodologies to
separate certain general and administrative expenses incurred by the Private
Company and recorded in its financial statements presented herein. The Private
Company provided to our predecessor centralized corporate functions such as
legal, accounting, treasury, insurance administration, risk management, health,
safety and environmental, information technology, human resources, credit,
payroll, taxes and other corporate services and the use of facilities that
support these functions. The allocation methodologies vary based on the nature
of the charge and include, among other things, employee headcount, compensation
expense, net revenues and square footage of facilities. Our predecessor’s
management believes that the allocation methodologies used to allocate indirect
costs to it are reasonable. If certain general and administrative expenses were
allocated using different methodologies, our predecessor’s results of operations
could have significantly differed from those presented herein.




Recent
Accounting Pronouncements





In April
2009, the Financial and Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) Statement No. 107-1 and Accounting Principles Board (APB)
28-1 (collectively, FSP FAS 107-1), “Interim Disclosures about Fair Value of
Financial Instruments.”  FSP FAS 107-1 amends FAS 107, “Disclosures about
Fair Value of Financial Instruments,” to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information.  The FSP FAS 107-1 also amends APB Opinion 28, “Interim
Financial Reporting,” to require those disclosures in summarized financial
information at interim reporting periods. Under FSP FAS 107-1, we will be
required to include disclosures about the fair value of our financial
instruments whenever we issue financial information for interim reporting
periods.  In addition, we will be required to disclose in the body or in
the accompanying notes of our summarized financial information for interim
reporting periods and in our 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.  FSP FAS 107-1 is effective for periods ending after
June 15, 2009. We are currently evaluating the impact FSP FAS 107-1 may
have on our consolidated financial statements.




In
June 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities“ (“EITF 03-6-1”).  EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (“EPS”) under the
two-class method.  EITF 03-6-1 will be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those years.  All prior-period EPS data presented will be
adjusted retrospectively to conform with the provisions of EITF 03-6-1. We are
evaluating the expected impact of adoption of EITF 03-6-1.




In
April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) No. FAS 142-3 “Determination of the Useful Life of
Intangible Assets“ (“FSP No. FAS 142-3”).  FSP No. FAS
142-3 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets“ (“SFAS 142”).  The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (revised 2007), “Business Combinations,” and
other GAAP.  This FSP will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years.  We are evaluating the expected impact; however, we
believe adoption will not impact our financial position, results of operations
or cash flows.




In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.
133” (“SFAS No. 161”). This Statement requires enhanced disclosures about our
derivative and hedging activities. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. We will adopt SFAS No. 161 beginning
January 1, 2009. With the adoption of this statement, we do not expect any
significant impact on our financial position, results of operations or cash
flows.




75
 Table of Contents


In March
2008, the Emerging Issues Task Force (“EITF”) of the FASB reached a final
consensus on Issue No. 07-4, “Application of the Two-Class Method under
FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships”
(“Issue No. 07-4”). This conclusion reached by the EITF affects how a
master limited partnership (“MLP”) allocates income between its general partner,
which typically holds incentive distribution rights (“IDRs”) along with the
general partner interest, and the limited partners. It is not uncommon for MLPs
to experience timing differences between the recognition of income and
partnership distributions. The amount of incentive distribution is typically
calculated based on the amount of distributions paid to the MLP’s partners. The
issue is whether current period earnings of an MLP should be allocated to the
holders of IDRs as well as the holders of the general and limited partnership
interests when applying the two-class method under SFAS No. 128, “Earnings Per
Share.”




The
conclusion reached by the EITF in Issue No. 07-4 is that when current
period earnings are in excess of cash distributions, the undistributed earnings
should be allocated to the holders of the general partner interest, the holders
of the limited partner interest and incentive distribution rights holders based
upon the terms of the partnership agreement. Under this model, contractual
limitations on distributions to incentive distribution rights holders would be
considered when determining the amount of earnings to allocate to them. That is,
undistributed earnings would not be considered available cash for purposes of
allocating earnings to incentive distribution rights holders. Conversely, when
cash distributions are in excess of earnings, net income (or loss) should be
reduced (increased) by the distributions made to the holders of the general
partner interest, the holders of the limited partner interest and incentive
distribution rights holders. The resulting net loss would then be allocated to
the holders of the general partner interest and the holders of the limited
partner interest based on their respective sharing of the losses based upon the
terms of the partnership agreement.




Issue
No. 07-4 is effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. The accounting treatment is
effective for all financial statements presented. We do not expect the impact of
the adoption of Issue 07-4 on our presentation of earnings per unit to be
significant.




In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.”  This statement requires assets acquired and
liabilities assumed to be measured at fair value as of the acquisition date,
acquisition related costs incurred prior to the acquisition to be expensed and
contractual contingencies to be recognized at fair value as of the acquisition
date. This statement is effective for financial statements issued for fiscal
years beginning after December 15, 2008. We are currently assessing the
impact, if any, the adoption of this statement will have on our financial
position, results of operations or cash flows.





Item
7A.                      Quantitative and Qualitative Disclosures about Market
Risk.




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




As of
June 26, 2009 we had $421.9 million outstanding under our credit facility that
was subject to a variable interest rate.  Interest rate swap
agreements were 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 we 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, we were to pay fixed rates of 4.9% and
receive three-month LIBOR with quarterly settlement.  In March 2008 we
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, we were to pay fixed rates of 2.6% to 2.7% and
receive three-month LIBOR with quarterly settlement.  The interest
rate swaps do not receive hedge accounting treatment under Statement of
Financial Accounting Standard (“SFAS”) SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS 133”). Changes in the fair
value of the interest rate swaps are recorded in interest expense in the
statements of operations.  In addition, the interest rate swap
agreements contain 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 we have recorded a $1.5 million liability as of December 31, 2008
with respect to these positions.




76
 Table of Contents


Prior to
the events of default, indebtedness under the credit agreement bore interest at
our option, at either (i) the Base rate, plus an applicable
margin that ranges from 0.50% to 1.75%, depending on our total leverage ratio
and senior secured leverage ratio, or (ii) LIBOR plus an applicable margin
that ranges from 1.50% to 2.75%, depending upon our total leverage ratio and
senior secured leverage ratio.  During the Forbearance Period
indebtedness under the credit agreement bore interest at our option, at either
(i) the Base rate, plus an applicable margin that ranges from 2.75% to
3.75%, depending upon our total leverage ratio, or (ii) LIBOR plus an
applicable margin that ranges from 4.25% to 5.25%, depending upon our total
leverage ratio.  Pursuant to the Second Forbearance Amendment,
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 6.50% 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.  We now pay a fee of 1.50% 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, now 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) 0.50%,
0.50%, 1.00% and 1.00%, respectively.




During
the twelve months ended December 31, 2008, the weighted average interest rate
incurred by us was 6.45% resulting in interest expense of approximately $24.2
million.  During the three months ended March 31, 2009, the weighted
average interest rate incurred by us was 9.0% resulting in interest expense of
approximately $10.0 million.  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, the Second Forbearance Amendment and the Credit
Agreement Amendment, we expect our interest expense to continue to increase as
compared to 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 December 31, 2008, an increase or
decrease of 100 basis points in the interest rate will result in increased or
decreased, respectively, annual interest expenses of $4.5 million.





Item
8.                      Financial Statements and Supplementary
Data.




Our
consolidated financial statements, together with the report of our independent
registered public accounting firm PricewaterhouseCoopers LLP, are set forth on
pages F-1 through F-41 of this report and are incorporated herein by
reference.





Item
9.                      Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.




None.


77
 Table of Contents




Item
9A.                   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 December 31, 2008, were
effective.




Management’s Report on Internal
Control Over Financial Reporting. Our general partner’s management is
responsible for establishing and maintaining adequate internal control over
financial reporting. Our general partner’s management, including the Chief
Executive Officer and Chief Financial Officer of our general partner, conducted
an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on its evaluation under the framework in Internal Control — Integrated
Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2008. Our internal control over
financial reporting as of December 31, 2008 has been audited by
PricewaterhouseCoopers LLP, our independent registered public accounting firm,
as stated in their report appearing on page F-2.




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 December 31,
2008 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




However,
since the beginning of the third quarter of 2008, the Private Company has made
the Bankruptcy Filings, and, as previously announced, in July 2008 the Board
created an internal review subcommittee of the Board comprised of directors who
are independent of management and the Private Company to determine whether we
participate in businesses other than as described in our filings with the SEC
and to conduct investigations into other such specific items as are deemed to be
appropriate by the subcommittee.  The subcommittee retained
independent legal counsel to assist it in its
investigations.




The
subcommittee has investigated a short-term financing transaction involving two
subsidiaries of the Private Company.  This transaction was identified
as a potential source of concern in a whistleblower report made after the
Private Company filed for bankruptcy.  Although the transaction did
not involve us or our subsidiaries, it was investigated because it did involve
certain senior executive officers of our general partner who were also senior
executive officers of the Private Company at the time of the
transaction.  Based upon its investigation, counsel for the
subcommittee found that, subject to the subcommittee’s lack of access to Private
Company documents and electronic records and witnesses, although certain
irregularities occurred in the transactions, the transaction did not appear to
cause the relevant officers to understand or believe that the Private Company
had a lack of liquidity that imperiled the Private Company’s ability to meet its
obligations to us and that certain aspects of the documentation of the
transaction that were out of the ordinary did not call into question the
integrity of any of the relevant officers.




The
subcommittee also investigated whether certain senior executive officers of our
general partner who were also senior executive officers of the Private Company
knew and understood, beginning as early as July 2007 and at various times
thereafter, about a lack of liquidity at the Private Company that imperiled the
Private Company’s ability to meet its obligations to us.  Based upon
this investigation, and subject to the subcommittee’s lack of access to Private
Company documents and electronic records and witnesses, counsel for the
subcommittee found that each of the officers had access to and reviewed Private
Company financial information, including information regarding the Private
Company’s commodity trading activities, from which they could have developed an
understanding of the nature and significance of the trading activities that led
to liquidity problems at the Private Company well before they say they
did.  While the officers each stated sincerely that they did not
understand the nature or extent of the Private Company’s trading-related
problems until the first week of July 2008 or later, objective evidence suggests
that they showed at least some indifference to known or easily discoverable
facts and that they failed to adhere to procedures under the Private Company’s
Risk Management Policy created expressly to ensure that the Private Company’s
trading activities were properly monitored.  Nonetheless, counsel for
the subcommittee was not persuaded by the documents and other evidence it was
able to access that the officers in fact knew and understood that the Private
Company’s liquidity or capital needs were a significant cause for alarm until,
at the earliest, the second quarter of 2008.  Moreover, while it
appeared to counsel that the officers developed a growing awareness of the
nature and severity of the Private Company’s liquidity issues over the second
quarter of 2008, counsel was unable to identify with any more precision the
specific level of concern or understanding these individuals had prior to July
2008.  While not within the scope of such counsel’s investigation,
counsel was requested by the subcommittee to note any information that came to
counsel’s attention during its investigation that suggested that the officers
intended to deceive or mislead any third party.  Subject to
limitations described in its report, no information came to counsel’s attention
during its investigation that suggested to counsel that the officers intended to
deceive or to mislead any third parties.  In addition, in connection
with the investigation, counsel for the subcommittee did not express any
findings of intentional misconduct or fraud on the part of any officer or
employee of us.




78
 Table of Contents


After
completion of the internal review, a plan was developed with the advice of the
audit committee of the Board to further strengthen our processes and
procedures.  This plan includes, among other things, reevaluating
executive officers and accounting and finance personnel (including a realignment
of officers as described elsewhere in this report) and hiring, as deemed
necessary, additional accounting and finance personnel or consultants;
reevaluating our internal audit function and determining whether to expand the
duties and responsibilities of such group; evaluating the comprehensive training
programs for all management personnel covering, among other things, compliance
with controls and procedures, revising the reporting structure so that the Chief
Financial Officer reports directly to the audit committee, and increasing the
business and operational oversight role of the audit committee.




We and
our general partner rely upon the Private Company for certain personnel related
to our internal controls and disclosure controls and procedures for certain of
our crude oil and asphalt operations.  In connection with the
Settlement, we migrated to our own accounting system and no longer rely upon the
Private Company’s accounting system, which may change the design or
implementation of certain of our internal controls.




Item
9B.                      Other
Information.




On July
1, 2009, the compensation committee of the Board adopted the SemGroup Energy
Partners G.P., L.L.C. 2009 Executive Cash Bonus Plan (the “2009 Cash Bonus
Plan”). Under the 2009 Cash Bonus Plan, participating senior executives,
including the named executive officers, will be eligible to receive a cash award
based on our level of achievement of specified performance objectives
established by the compensation committee for fiscal 2009. Awards under the 2009
Cash Bonus Plan will equal a percentage of the participant’s base salary
(ranging from 52.5% to 125% of base salary) depending on the individual and the
level of our achievement of the applicable company performance objectives
(ranging from 85% to greater than 110% of the target performance
level).  In general, a participant must be an active employee as of
the applicable payment date to receive an award under the 2009 Cash Bonus
Plan.





The
compensation committee has adopted the following performance measures under the
2009 Cash Bonus Plan:





(1) For
the Chief Executive Officer, the Chief Financial Officer, any Executive Vice
President other than the Operations Participants (as defined below) and the
Chief Accounting Officer (the “Corporate Executive Participants”), earnings
before interest, taxes, depreciation and amortization, and restructuring and
certain other non-cash charges (“EBITDA”) of the Partnership.





(2) For
the Executive Vice President - Crude Operations and the Executive Vice President
- Asphalt Operations (the “Operations Participants”), a combined performance
measure including EBITDA of the crude business or the asphalt business,
respectively, and EBITDA of the Partnership.





Participants
who meet the highest level of attainment will be eligible to participate in
awards from a bonus pool equal to 5% of EBITDA of the Partnership in excess of
110% of targeted EBITDA of the Partnership, to be awarded at the discretion of
the compensation committee.





Awards
under the 2009 Cash Bonus Plan for the year ending December 31, 2009 will be
paid in two installments.  The first installment will be paid in July
2009 and will equal 40% of the participant’s base salary (24% in the case of the
Chief Accounting Officer to reflect that he was not an executive officer for the
full six month period).  Corporate Executive Participants will be
eligible for the July 2009 payment if the actual EBITDA of the Partnership for
the first six months of 2009 exceeds 95% of the target EBITDA for the first six
months of 2009.  Operational Participants will be eligible for the
July 2009 payment if the actual EBITDA of the Partnership for the first six
months of 2009 exceeds 95% of the target EBITDA for the first six months of 2009
and the EBITDA of the crude business or asphalt business, respectively, exceeds
95% of the target EBITDA for the first six months of 2009.  The second
payment will be determined and paid within 15 days after the filing of the
Partnership’s annual report on Form 10-K for the year ended December 31,
2009.





In
addition, upon a Change of Control of the Partnership, awards will be determined
on a pro-rata basis as of the date of such Change of Control with the actual
EBITDA of the Partnership, the crude business and the asphalt business,
respectively, being calculated as of the most recently completed month prior to
the Change of Control (the “Change of Control Period”) for which financial
statements are available and the target performance measures being adjusted for
the Change of Control Period.  For purposes of the 2009 Cash Bonus
Plan, a “Change of Control” means any of the following events: (i) any
person or group other than the Private Company, Manchester Securities Corp.,
Alerian Finance Partners, LP, or their respective affiliates, shall become the
beneficial owner, by way of merger, consolidation, recapitalization,
reorganization or otherwise, of 50% or more of the combined voting power of the
equity interests in us or our general partner; (ii) our limited partners
approve, in one or a series of transactions, a plan of complete liquidation of
us; (iii) the sale or other disposition by either our general partner or us
of all or substantially all of the assets of our general partner or us in one or
more transactions to any person other than our general partner and its
affiliates; or (iv) a transaction resulting in a person other than our
general partner or an affiliate of our general partner being our general
partner.





The
description of the 2009 Cash Bonus Plan above does not purport to be complete
and is qualified in its entirety by reference to the complete text of the 2009
Cash Bonus Plan, a copy of which filed as an exhibit to this annual report on
Form 10-K.


79
 Table of Contents


PART III




Item
10.                      Directors, Executive Officersand Corporate
Governance.




SemGroup
Energy Partners G.P., L.L.C., our general partner, manages our operations and
activities. Our general partner is not elected by our unitholders and will not
be subject to re-election on a regular basis in the future. The directors of our
general partner oversee our operations. Unitholders are not entitled to elect
the directors of our general partner or directly or indirectly participate in
our management or operation. Our general partner owes a limited fiduciary duty
to our unitholders. Our general partner will be liable, as general partner, for
all of our debts (to the extent not paid from our assets), except for
indebtedness or other obligations that are made specifically nonrecourse to it.
Our general partner, therefore, may cause us to incur indebtedness or other
obligations that are nonrecourse to it.





Directors
and Executive Officers




Prior to
the Bankruptcy Filings and the event related thereto, all of the executive
officers of our general partner were employed by both our general partner and
the Private Company and allocated their time between managing our business and
affairs and the business and affairs of the Private Company. Messrs. Foxx and
Stallings resigned the positions each officer held with SemGroup, L.P. in July
2008.  Mr. Brochetti had previously resigned from his position with
SemGroup, L.P. in March 2008. Mr. Parsons left the employment of SemGroup, L.P.
in March 2009.  Mr. Schwiering continues to serve as an officer of the
Private Company and may have conflicts of interest and may favor the Private
Company’s interests over our interests when conducting our
operations.




On July
18, 2008, Manchester and Alerian exercised their right under the Holdings Credit
Agreements in connection with certain events of default thereunder to vote the
membership interests of our general partner in order to reconstitute the Board
and effect the Change of Control.  Messrs. Thomas L. Kivisto, Gregory
C. Wallace, Kevin L. Foxx, Michael J. Brochetti and W. Anderson Bishop were
removed from the Board.  Mr. Bishop had served as the chairman of the
audit committee and as a member of the conflicts committee and compensation
committee of the Board.  Messrs. Sundar S. Srinivasan, David N.
Bernfeld and Gabriel Hammond (each of whom is affiliated with Manchester or
Alerian) were appointed to the Board.  Mr. Srinivasan was elected as
Chairman of the Board.  Messrs. Brian F. Billings and Edward F. Kosnik
remained as independent directors of the Board and continue to serve as members
of the conflicts committee, audit committee and compensation committee of the
Board.




On
October 1, 2008, Dave Miller (who is an affiliate of Manchester) and Duke R.
Ligon were appointed members of the Board. Mr. Ligon is an independent member of
the Board and is the chairman of the audit committee and also serves on the
compensation committee and the conflicts committee of the Board. In connection
with his appointment to the Board, Mr. Ligon was granted an award of 5,000
restricted common units.  The restricted common units granted to Mr.
Ligon vest in one-third increments over a three-year period.




On
January 9, 2009, Mr. Srinivasan resigned his positions as Chairman of the Board
and as a director.  Mr. Ligon was subsequently elected as Chairman of
the Board.




On March
18, 2009, the Board realigned the officers of our general partner appointing
Michael J. Brochetti as Executive Vice President—Corporate Development and
Treasurer, Alex G. Stallings as Chief Financial Officer and Secretary, and James
R. Griffin as Chief Accounting Officer.  Mr. Brochetti had previously
served as Chief Financial Officer, Mr. Stallings had previously served as Chief
Accounting Officer and Secretary and Mr. Griffin had previously served as
controller.





Prior to
the events surrounding the Bankruptcy Filings, the officers of our general
partner were also employees and officers or directors of the Private
Company.  Messrs. Foxx and Stallings resigned the positions each
officer held with SemGroup, L.P. in July 2008.  Mr. Brochetti had
previously resigned from his position with SemGroup, L.P. in March
2008.  Mr. Parsons left the employment of SemGroup, L.P. in March
2009.  Messrs. Foxx, Brochetti, Stallings, and Parsons remain as
officers of our general partner.  Mr. Schwiering continues to serve as
an officer of the Private Company and as an officer of our general
partner.




80
 Table of Contents




The
following table shows information regarding the current directors and executive
officers of SemGroup Energy Partners G.P., L.L.C.


Name
                            Age
                            Position with
      SemGroup Energy Partners G.P., L.L.C.Kevin L. Foxx
                            53
                            
                            President
      and Chief Executive OfficerMichael J. Brochetti
                            43
                            
                            Executive
      Vice President—Corporate Development and TreasurerAlex G. Stallings
                            42
                            
                            Chief
      Financial Officer and SecretaryJames
      R. Griffin
                            32
                            
                            Chief
      Accounting OfficerPeter L. Schwiering
                            65
                            
                            Executive
      Vice President—Crude OperationsJerry
      A. Parsons
                            56
                            
                            Executive
      Vice President—Asphalt OperationsDuke
      R. Ligon
                            68
                            
                            Director,
      Chairman of the Board and Audit CommitteeBrian
      F. Billings
                            70
                            
                            Director,
      Chairman of the Conflicts CommitteeEdward
      F. Kosnik
                            64
                            
                            Director,
      Chairman of the Compensation CommitteeGabriel
      Hammond
                            30
                            
                            DirectorDave
      Miller
                            30
                            
                            DirectorDavid
      N. Bernfeld
                            29
                            
                            Director


Our
directors hold office until the earlier of their death, resignation, removal or
disqualification or until their successors have been elected and qualified.
Officers serve at the discretion of the board of directors. There are no family
relationships among any of our directors or executive officers.




Kevin L. Foxx has more
than 24 years of experience in the crude oil gathering, transportation,
terminalling and storage industry. Mr. Foxx has served as President and Chief
Executive Officer of our general partner since February 2007.  Mr.
Foxx served as a director of our general partner from February 2007 to July
2008. Mr. Foxx served as the Private Company’s Chief Operating Officer and
Executive Vice President and as a member of the Private Company’s Management
Committee from 2000 to July 2008. Mr. Foxx founded and served as President of
Foxx Transports, L.L.C., a domestic oil gathering and trading company based in
Houston, Texas. Foxx Transports, L.L.C. was founded in 1995 and became part of
the Private Company in 2000. Prior to founding Foxx Transports, L.L.C., Mr. Foxx
formed the transportation division of Elleron Oil Company in 1987 and later sold
that division to Plains Marketing in 1992, where he served as Vice
President.




Michael J. Brochetti has
served as Executive Vice-President—Corporate Development and Treasurer of our
general partner since March 2009.  Mr. Brochetti served as Chief
Financial Officer of our general partner from February 2007 to March
2009.  Mr. Brochetti also served as a director of our general partner
from February 2007 to July 2008.  Mr. Brochetti served as the Private
Company’s Senior Vice President—Finance from October 2005 to March 2008. Prior
to joining the Private Company, Mr. Brochetti was employed by Bank of America,
N.A. in Boston, Massachusetts, since 1992, serving in various capacities, most
recently as Director—Specialized Industries where he helped lead the financial
institution’s relationships with key clients in the energy industry. Prior to
joining Bank of America, Mr. Brochetti was employed with Barclays Bank, PLC, in
the lending group’s corporate banking division.




Alex G. Stallings has
served as Chief Financial Officer and Secretary of our general partner since
March 2009.  Mr. Stallings served as Chief Accounting Officer and
Secretary of our general partner from February 2007 to March
2009.  Additionally, Mr. Stallings served as the Private Company’s
Chief Accounting Officer from September 2002 to July 2008. Prior to joining the
Private Company, Mr. Stallings served as Chief Accounting Officer for Staffmark,
Inc., a temporary staffing company where he was responsible for the public
reporting and integration of numerous acquisitions during his tenure. Mr.
Stallings also previously was an audit manager for the public accounting firm of
Coopers & Lybrand, working in its Tulsa, Oklahoma office.




James R. Griffin has served as
the Chief Accounting Officer of our general partner since March
2009.  Mr. Griffin served as our general partner’s controller from May
of 2007 to March 2009 and the Private Company’s transactional services
controller from September 2006 to May 2007.  Prior to joining the
Private Company, Mr. Griffin served in various capacities, most recently as an
audit manager, for the public accounting firm of PricewaterhouseCoopers LLP,
working in its Tulsa, Oklahoma office since January 2000.


81
 Table of Contents




Peter L. Schwiering has
served as Executive Vice President—Crude Operations of our general partner since
February 2007 and Vice President of Operations of SemCrude, L.P. since 2000.
Prior to joining the Private Company, Mr. Schwiering worked for Dynegy Pipeline
as manager of pipeline and commercial business. He also served with Sun Company
for 25 years in various positions. He began with Sun in its New Jersey
operations as a marketing representative for petroleum products. When he left
Sun in 1995, Mr. Schwiering was the company’s manager of business
development—Western Region, and he was based in Oklahoma.




Jerry A. Parsons has served as
Executive Vice-President—Asphalt Operations of our general partner since
February 20, 2008. Mr. Parsons served as Vice President, Corporate
Development—North America of the Private Company from June 2005 to March 2009.
Before joining the Private Company in June 2005, Mr. Parsons served as Vice
President, Business Development for Koch Materials, Inc. (a subsidiary of Koch
Industries, Inc.), where he oversaw the development of business operations
supplying asphalt cement and related products to the road construction and
roofing industries. Mr. Parsons joined Koch Industries, Inc. in 1974 and has
over 30 years of experience in a variety of energy related businesses, including
asphalt, refining, trading, crude oil and transportation.




Duke R. Ligon has served as a
director of our general partner since October 2008.  He is an attorney
and served as senior vice president and general counsel of Devon Energy
Corporation from January 1997 until he retired in February 2007. Since February
2007, Mr. Ligon has served in the capacity of Strategic Advisor to Love’s Travel
Stops & Country Stores, Inc., based in Oklahoma City, and has acted as
Executive Director of the Love’s Entrepreneurship Center at Oklahoma City
University. He is also a member of the Board of Directors of Quest Midstream
Partners, L.P., Heritage Trust Company, Security State Bank, Panhandle Oil and
Gas Inc. (NYSE: PHX), Pre-Paid Legal Services, Inc. (NYSE: PPD), TransMontaigne
Partners L.P. (NYSE: TLP) and TEPPCO Partners, L.P. (NYSE: TPP).  Mr.
Ligon received an undergraduate degree in chemistry from
Westminster College and a law degree from the University of Texas School of
Law.




Brian F. Billings has served
as a director of our general partner since October 2007. Mr. Billings served as
a director of Buckeye GP LLC, the general partner of Buckeye Partners, L.P.
(NYSE: BPL), from its 1986 inception and as the chairman of its audit committee
since 1999 until his resignation in September 2007. In addition, he was
president of Buckeye GP LLC from 1986 to 1990. During Mr. Billings’ career, he
also served as executive vice president of Williams Exploration Company and as
president of Williams Energy Company, both of which are subsidiaries of The
Williams Companies, Inc. Mr. Billings later was president of The Penn Central
Corporation’s energy group which, through Buckeye Pipe Line Company and other
subsidiaries, engaged in natural gas and refined products transportation,
natural gas liquids processing and marketing, oil and gas exploration, and
refining operations. Mr. Billings has been a private investor since
2001.




Edward F. Kosnik has served as
a director of our general partner since July 2008.  Mr. Kosnik has
been a private investor since 2001. Most recently, Kosnik served as a director
and member of the audit committee of Buckeye GP LLC, the general partner of
Buckeye Partners, L.P. (NYSE: BPL), from its 1986 inception until his
resignation in September 2007. He previously served on the board of directors of
Premcor, Inc. from November 2004 to September 2005 and was a member of Premcor,
Inc.’s audit committee.  In addition, Mr. Kosnik has served as a
member of the Board of Trustees and a member of the audit committee of
Marquette University since September 2006.  Prior to 2001, Mr.
Kosnik served in various capacities, including as President and Chief Executive
Officer and Chief Operating Officer, at Berwind Group, a private diversified
operating and investment company from 1997-2001, and as Executive Vice President
and Chief Financial Officer of Alexander & Alexander, a global insurance
brokerage company from 1994-1997.  In addition, he served in various
capacities, including as Chairman, Chief Executive Officer and Chief Financial
Officer, at JWP Inc, a global facility management and contracting company, from
1992-1997, President and Chief Executive Officer of Sprague Technologies Inc.,
an electronics component manufacturer, from 1987-1992 and as Executive Vice
President and Chief Financial Officer of The Penn Central Corporation from
1983-1987.




Gabriel Hammond has served as
a director of our general partner since July 2008 and was initially appointed to
the Board in connection with his affiliation with Alerian.  On March
20, 2009, Alerian transferred its interest in the Holdings Credit Agreements to
Manchester (Alerian is still potentially entitled to receive a portion of
certain potential recoverable value from such
interest).  Currently, Mr. Hammond serves as a director, but not
pursuant to any agreement or understanding.  Mr. Hammond is the
Managing Partner of Alerian. Prior to founding the company in 2004, Mr. Hammond
covered the broader Energy and Power sector at Goldman, Sachs & Co. in the
firm’s Equity Research Division. Specializing in the Master Limited Partnership
midstream energy space, Mr. Hammond advised Goldman Sachs Asset Management,
which holds an estimated $2 billion of MLP securities (both as principal and on
behalf of its clients), with portfolio allocation, short-term trading, and
tax-advantaged specialty applications. Mr. Hammond sits on the Board of
Directors of the National Association of Publicly Traded
Partnerships.




82
 Table of Contents




Dave Miller has served as a
director of our general partner since October 2008 and was appointed to the
Board in connection with his affiliation with Elliott Associates, L.P., which is
the parent of Manchester.  Mr. Miller is a Portfolio Manager at
Elliott Associates, L.P.  Mr. Miller joined Elliott Associates, L.P.
in March 2003 after having worked in mergers and acquisitions and financing
advisory roles at Peter J. Solomon Company.  Mr. Miller received an
A.B. degree, magna cum laude, from Harvard University.  He is
currently a manager of JCIM, LLC, an automotive component supply joint-venture
affiliated with Johnson Controls, Inc.




David N. Bernfeld has served
as a director of our general partner since July 2008 and was appointed to the
Board in connection with his affiliation with Elliott Associates, L.P., which is
the parent of Manchester.  Mr. Bernfeld has served as an analyst at
Elliott Associates, L.P. since April 2008. Prior to joining Elliott Associates,
L.P., Mr. Bernfeld was an analyst with DKR Capital, Inc. since 2007, a Private
Equity Associate at Ardshiel, Inc. from 2003 until 2005, and an Analyst in the
Mergers and Acquisition Group of Bear, Stearns & Co. Inc. from 2001 through
2003.  Mr. Bernfeld received an M.B.A. from
Columbia Business School in 2007, and a B.A. in Economics and
Mathematics from Haverford College in 2001.




Independence
of Directors




During
2008, we were listed on Nasdaq, and we intend to apply for relisting of our
securities after becoming timely in our periodic filings with the
SEC.  Our general partner currently has six directors, three of whom
(Messrs. Billings, Kosnik and Ligon) are “independent” as defined under the
independence standards established by Nasdaq.  In addition, Mr. Bishop
was an independent director of our general partner prior to his removal from the
Board in connection with the Change of Control.  Nasdaq’s independence
definition includes a series of objective tests, such as that the director is
not an employee of the company and has not engaged in various types of business
dealings with the company. In addition, the board of directors has made a
subjective determination as to each independent director that no relationships
exist which, in the opinion of the board, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. In
making these determinations, the directors reviewed and discussed information
provided by the directors and us with regard to each director’s business and
personal activities as they may relate to us and our
management.  Nasdaq does not require a listed limited partnership like
us to have a majority of independent directors on the board of directors of our
general partner or to establish a nominating committee.





In
addition, the members of the audit committee also each qualify as “independent”
under special standards established by the SEC for members of audit committees,
and the audit committee includes at least one member who is determined by the
board of directors to meet the qualifications of an “audit committee financial
expert” in accordance with SEC rules, including that the person meets the
relevant definition of an “independent” director.  Mssrs. Billings and
Kosnik are the independent directors who have been determined to be audit
committee financial experts. Unitholders should understand that this designation
is a disclosure requirement of the SEC related to experience and understanding
with respect to certain accounting and auditing matters. The designation does
not impose any duties, obligations or liability that are greater than are
generally imposed on a member of the audit committee and board of directors, and
the designation of a director as an audit committee financial expert pursuant to
this SEC requirement does not affect the duties, obligations or liability of any
other member of the audit committee or board of directors.


Board
Committees




We have
standing conflicts, audit and compensation committees of the board of directors
of our general partner.  In addition, in July 2008 the Board created
an internal review subcommittee of the Board.  Each member of the
audit, compensation and conflicts committees is an independent director in
accordance with Nasdaq and applicable securities laws.  Each of the
audit, compensation and conflicts committees has a written charter approved by
the board of directors of our general partner.  The written charter
for each of these committees is available on our web site at www.sglp.com under
the “Investors—Corporate Governance” section.  We will also provide a
copy of any of our committee charters to any of our unitholders without charge
upon written request to the attention of Investor Relations at 6120 South Yale,
Suite 500, Tulsa, Oklahoma 74136.  The current members of the audit,
compensation and conflicts committees and the internal review subcommittee of
the Board and a brief description of the functions performed by each committee
are set forth below:




83
 Table of Contents


Conflicts
Committee.  The members of the conflicts committee are Messrs.
Billings (chairman), Kosnik and Ligon.  Mr. Bishop also served as a
member of the conflicts committee prior to the Change of Control in July
2008.  The primary responsibility of the conflicts committee is to
review matters that the directors believe may involve conflicts of
interest.  The conflicts committee determines if the resolution of the
conflict of interest is fair and reasonable to us.  The conflicts
committee may retain independent legal and financial advisors to assist it in
its evaluation of a transaction.  The members of the conflicts
committee may not be officers or employees of our general partner or directors,
officers, or employees of its affiliates and must meet the independence
standards to serve on an audit committee of a board of directors established by
Nasdaq (or any national securities exchange upon which the common units are
traded) and the SEC.  Any matters approved by the conflicts committee
will be conclusively deemed to be fair and reasonable to us, approved by all of
our partners, and not a breach by our general partner of any duties it may owe
us or our unitholders.




Audit
Committee.  The members of the audit committee are Messrs.
Billings, Kosnik and Ligon (chairman).  Mr. Bishop also served as a
member of the audit committee prior to the Change of Control in July
2008.  The primary responsibilities of the audit committee are to
assist the Board in its general oversight of our financial reporting, internal
controls and audit functions, and it is directly responsible for the
appointment, retention, compensation and oversight of the work of our
independent auditors.  In connection with the internal review, the
audit committee increased its business and oversight role.




Compensation Committee.The members of the
compensation committee are Messrs. Billings, Kosnik (chairman after his
appointment to the Board in July 2008) and Ligon.  Mr. Bishop also
served as a member of the compensation committee prior to the Change of Control
in July 2008 and as the chairman of the compensation committee prior to Mr.
Kosnik’s appointment to the Board.  The primary responsibility of the
compensation committee is to oversee compensation decisions for the outside
directors of our general partner and executive officers of our general partner
as well as our long-term incentive plan.




Internal Review
Subcommittee.  The members of the internal review subcommittee
are Messrs. Bernfeld, Billings and Hammond.  The internal review
subcommittee is comprised of directors who are independent of management and the
Private Company to determine whether we participate in businesses other than as
described in our filings with the SEC and to conduct investigations into other
such specific items as are deemed to be appropriate by the
subcommittee.




Code
of Ethics and Business Conduct





Our
general partner has adopted a Code of Business Conduct and Ethics applicable to
all of our general partner’s employees, including all officers, and including
our general partner’s independent directors, who are not employees of our
general partner, with regard to their activities relating to us.  The
Code of Business Conduct and Ethics incorporate guidelines designed to deter
wrongdoing and to promote honest and ethical conduct and compliance with
applicable laws and regulations.  They also incorporate our
expectations of our general partner’s employees that enable us to provide
accurate and timely disclosure in our filings with the Securities and Exchange
Commission and other public communications.  The Code of Business
Conduct and Ethics is publicly available under the “Investors - Corporate
Governance” section of our web site at www.sglp.com.  The information
contained on, or connected to, the our web site is not incorporated by reference
into this Annual Report on Form 10-K and should not be considered part of
this or any other report that we file with, or furnish to, the Securities and
Exchange Commission.  We will also provide a copy of the Code of
Business Conduct and Ethics to any of our unitholders without charge upon
written request to the attention of Investor Relations at 6120 South Yale, Suite
500, Tulsa, Oklahoma 74136.  If any substantive amendments are made to
the Code of Business Conduct and Ethics or if we or our general partner grant
any waiver, including any implicit waiver, from a provision of the code to any
of our general partner’s executive officers and directors, we will disclose the
nature of such amendment or waiver on that web site or in a current report on
Form 8-K.




Section
16(a) Beneficial Ownership Reporting Compliance




Based
solely upon a review of Forms 3, 4 and 5 (and any amendments thereto) furnished
to us, we believe that no directors, officers, beneficial owners of more than
10% of any class of the Partnership’s securities or any other person subject to
Section 16 of the Exchange Act failed to file reports required by Section 16(a)
of the Exchange Act during the year ended December 31, 2008 except as
follows: one report on Form 4 filed by each of Messrs. Schwiering, Kivisto,
Parsons, Brochetti, Stallings, Wallace and Foxx, with respect to the award of
phantom units; one report with respect to the award of restricted units upon Mr.
Ligon’s appointment to the Board later filed on a Form 5, and one report with
respect to purchase of common units on the open market later filed on a Form 5
by Cushing MLP Opportunity Fund I, LP.




84
 Table of Contents


Reimbursement
of Expenses of our General Partner




We were
party to the Amended Omnibus Agreement with the Private
Company.  Pursuant to the Amended Omnibus Agreement, we were required
to pay our general partner and the Private Company an annual fixed
administrative fee of $7.0 million for the provision by our general partner and
the Private Company of various general and administrative services to
us.  The events related to the Bankruptcy Filings terminated the
Private Company’s obligations to provide services to us under the Amended
Omnibus Agreement.  The Private Company continued to provide such
services to us until the effective date of the Settlement at which time the
Private Company rejected the Amended Omnibus Agreement and we and the Private
Company entered into the Shared Services Agreement and the Transition Services
Agreement relating to the provision of such services (see “Item 1.
Business—Impact of the Bankruptcy of the Private Company and Certain of its
Subsidiaries and Related Events—Settlement with the Private
Company”).  In addition, in connection with the Settlement, we made
offers of employment to, and now employ, certain individuals associated with our
crude oil operations and subsequently made additional offers of employment to,
and now employ, certain individuals associated with our asphalt
operations.  The costs to directly employ these individuals as well as
the costs under the Shared Services Agreement and the Transition Services
Agreement may be higher than those previously paid by us under the Amended
Omnibus Agreement, which 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 our common units and our
ability to conduct our business.  For a more complete description of
the Amended Omnibus Agreement and the Shared Services Agreement, see “Item
13—Certain Relationships and Related Party Transactions, and Director
Independence.”




Item
11.                      Executive Compensation.




Compensation
Discussion and Analysis




As is the
case with many publicly traded partnerships, we have not historically directly
employed any persons responsible for managing or operating us or for providing
services relating to day-to-day business affairs.  SemGroup Energy
Partners G.P., L.L.C., our general partner, manages our operations and
activities, and its board of directors and officers make decisions on our
behalf. Each of the executive officers of our general partner, including
Kevin L. Foxx, Michael J. Brochetti, Alex G. Stallings,
Peter L. Schwiering and Jerry A. Parsons (collectively, the “named
executive officers”), have entered into an employment agreement with a
subsidiary of our general partner. During portions of 2008, each of the named
executive officers was also employed by and provided services to the Private
Company.  The compensation for the named executive officers for services
rendered to us is determined by the compensation committee of our general
partner.  The events related to the Bankruptcy Filings terminated the
Private Company’s obligations to provide services to us under the Amended
Omnibus Agreement.  The Private Company continued to provide such
services to us until the effective date of the Settlement at which time the
Private Company rejected the Amended Omnibus Agreement. In connection with
the Settlement, we made offers of employment to, and now employ, certain
individuals associated with our crude oil operations and subsequently made
additional offers of employment to, and now employ, certain individuals
associated with our asphalt operations.





Compensation
Methodology.    Prior to the Bankruptcy Filings and
the events related thereto, our general partner sought to improve our operating
performance to provide a return to unitholders in the form of distributions and
to maintain a capital structure to support future growth. Since the time of the
Bankruptcy Filings, our general partner has had to devote considerable time and
effort to stabilizing our business, replacing the substantial amount of revenues
previously derived from services provided to the Private Company with revenues
to third parties, curing bank credit defaults and negotiating a new credit
agreement amendment, negotiating a settlement with the Private Company, managing
litigation, and bringing current our various regulatory and financial filings.
These additional challenges have played an important role in the compensation
committee's deliberations concerning discretionary bonus awards in 2008 and
in formulating the 2009 Cash Bonus Plan.




85
 Table of Contents




The
compensation committee of our general partner seeks to provide a total
compensation package designed to drive performance and reward contributions in
support of these business strategies and to attract, motivate and retain high
quality talent with the skills and competencies required by us. Prior to the
Bankruptcy Filings, the compensation committee examined the compensation
practices of our peer companies, which consisted of other publicly traded master
limited partnerships having a business mix comparable to ours. Previously, these
peer companies included Enbridge Energy Partners, L.P., Magellan Midstream
Partners, L.P., Plains All American Pipeline, L.P., Sunoco Logistics Partners
L.P. and TEPPCO Partners, L.P. The compensation committee also reviewed
compensation data from the general midstream energy industry to obtain a general
understanding of current compensation practices, as it believed that the
competition for executive talent was broader than just the peer
companies.  The compensation committee is currently reevaluating these
peer companies, compensation in the general midstream industry and other items
it deems relevant and has recently adopted an incentive cash bonus plan for the
year ended December 31, 2009 taking into account the changes to our business and
priorities discussed earlier as a result of the Bankruptcy Filings and related
events.  Please see “—2009 Cash Bonus Plan.”  The
compensation committee may review and, in certain cases, participate in, various
relevant compensation surveys and consult with compensation consultants with
respect to determining compensation for the named executive
officers.  The compensation committee did not participate in any such
surveys during the year ended December 31, 2008.




Elements of
Compensation.    The
primary elements of our general partner’s compensation program are a combination
of annual cash and long-term equity-based compensation. For 2008, the principal
elements of compensation for the named executive officers were the
following:




•
            base
      salary;




•
            discretionary
      bonus awards;




•
            long-term
      incentive plan awards; and




•
            other
      benefits.




Base
Salary.  During 2008, our general partner’s compensation
committee established base salaries for the named executive officers based on
various factors including the amounts it considered necessary to attract and
retain the highest quality executives, the responsibilities of the named
executive officers and market data including publicly available market data for
the peer companies listed above as reported in their filings with the SEC. The
compensation committee is currently reviewing the compensation of the named
executive officers, including the base salaries payable to such officers. As
part of its review, the compensation committee may review the compensation of
executives in similar positions with similar responsibility in the peer
companies listed above and in companies in the midstream energy industry with
which we believe we generally compete for executives. As discussed above, during
2008, the base salaries of the named executive officers were allocated to us by
our general partner as general and administrative expenses and were included in
the annual administrative fee that we paid to our general partner and the
Private Company pursuant to the Amended Omnibus Agreement for the provision of
certain general and administrative functions.  There were no changes
to base salaries during 2008.




Each of
the named executive officers have entered into employment agreements with a
subsidiary of our general partner. The employment agreements provided for an
initial annual base salary of $450,000, $300,000, $275,000, $250,000 and
$250,000, for Mr. Foxx, Mr. Brochetti, Mr. Stallings,
Mr. Schwiering and Mr. Parsons, respectively. These initial base salary
amounts were determined based upon the scope of each executive’s
responsibilities that are commensurate with such executive’s position as well as
the added responsibilities the executives have that are typical of executives in
publicly traded partnerships, taking into account competitive market
compensation paid by similar companies for comparable positions. In March 2009,
Mr. Stallings’ annual base salary was increased to $300,000 in connection with
his appointment as the Chief Financial Officer and Secretary of our general
partner.




Discretionary Bonus
Awards.    Our general partner’s compensation
committee may also award discretionary bonus awards to the named executive
officers. Our general partner may use discretionary bonus awards for achieving
financial and operational goals and for achieving individual performance
objectives.  On December 18, 2008, the compensation committee
awarded the following cash bonus awards to the named executive officers: Kevin
Foxx - $365,000; Michael Brochetti - $245,000; Alex Stallings - $225,000; Peter
Schwiering - $120,000; and Jerry Parsons - $215,000.  In awarding
these cash bonuses, the compensation committee considered, among other factors,
the role and responsibility of each officer with our general partner, the change
in each named executive officer’s responsibility after the Bankruptcy
Filings, the difficult operational, financial, legal and working
environment caused by the Bankruptcy Filings, each named executive officer’s
past compensation, perceived contribution of each named executive officer to our
general partner and to us generally, target EBITDA during the third and fourth
quarters of 2008, actual and projected financial results for the third and
fourth quarters of 2008, obtaining forbearances under our credit agreement and
satisfying the covenants in such agreements and each named executive officer’s
efforts in rebuilding our business after July 2008 as a substantial majority of
our business was derived from services provided to the Private Company prior to
the Bankruptcy Filings in July 2008.


86
 Table of Contents




Long-Term Incentive Plan
Awards.Our
general partner has adopted a Long-Term Incentive Plan, or the Plan, for
employees, consultants and directors of our general partner and its affiliates
(including the Private Company prior to the Change of Control) who perform
services for us. Each of the named executive officers are eligible to
participate in this plan. The long-term incentive plan provides for the grant of
unit awards, restricted units, phantom units, unit options, unit appreciation
rights, distribution equivalent rights and substitute awards. For a more
detailed description of this plan, please see “—Long-Term Incentive
Plan.”




On
June 20, 2008, our general partner’s compensation committee made grants of
phantom units under the Plan to eligible individuals who performed services for
us, including the named executive officers. In connection therewith, the
compensation committee approved two forms of Phantom Unit Grant Agreements to be
used for grants of phantom units under the Plan.




Phantom
Units granted under the form of Phantom Unit Grant Agreement filed as Exhibit
10.15 hereto (“Type A Awards”) were to vest in one-third increments over a three
year period, subject to earlier vesting on a change of control or upon a
termination without cause or due to death or disability. The Type A Awards had
distribution equivalent rights for each fiscal quarter in which our quarterly
cash distribution to our subordinated and common unitholders for such quarter
equals or exceeds $0.39 per unit (or $1.56 per unit on an annualized basis).
Pursuant to the distribution equivalent right, the grantee was entitled to
receive a cash payment with respect to each Phantom Unit then outstanding equal
to the product of (i) the per unit cash distributions paid to the
Partnership’s unitholders during such fiscal quarter, if any, multiplied by
(ii) the number of phantom units included in the grant.




Phantom
Units granted under the form of Phantom Unit Grant Agreement filed as Exhibit
10.16 hereto (“Type B Awards”) have substantially similar terms as Type A
Awards, except that the phantom units have distribution equivalent rights for
each fiscal quarter in which our quarterly cash distribution to our subordinated
and common unitholders for such quarter equals or exceeds $0.47 per unit (or
$1.88 per unit on an annualized basis).




The named
executive officers were granted Type A Awards and Type B Awards as indicated
below:







Officer
              
              Type A Awards
              
              Type B AwardsKevin
      L. Foxx
              
              35,000
              
              30,000Michael
      J. Brochetti
              
              27,000
              
              23,000Alex
      G. Stallings
              
              24,000
              
              21,000Jerry
      A. Parsons
              
              11,000
              
              9,000Peter
      L. Schwiering
              
              8,000
              
              7,000




The
Change of Control constituted a change of control under the Plan, which resulted
in the early vesting of all awards under the Plan, including the Type A Awards
and the Type B Awards.  See “—Change of Control”
below.




Other
Benefits.    The employment agreements entered into
by each of the named executive officers with our general partner provide that
the named executive officer is eligible to participate in any employee benefit
plans maintained by our general partner. During 2008, our general partner did
not maintain any benefit plans other than the long-term incentive plan described
above. In addition, the employment agreements provide that each named executive
officer is entitled to reimbursement for out-of-pocket expenses incurred while
performing his duties under the employment agreement.




Prior to
the Bankruptcy Filings, the Private Company provided certain perquisites to our
named executive officers.  After the Bankruptcy Filings, we provided
these perquisites, including country club memberships, car allowances and
reimbursement of certain deductibles and co-payments for medical expenses, to
our named executive officers.




Compensation
Mix.    Our
general partner’s compensation committee determines the mix of compensation,
both among short and long-term compensation and cash and non-cash compensation,
to establish structures that it believes are appropriate for each of the named
executive officers. The compensation committee is currently evaluating the mix
of base salary, bonus awards, awards under the long-term incentive plan and the
other benefits that are available to the named executive officers to ensure that
such mix fits the overall compensation objectives of our general partner and us
taking into account the changes to and rebuilding of our business as a result of
the Bankruptcy Filings and related events. The compensation committee
recently adopted the 2009 Cash Bonus Plan for the year ended December 31, 2009
taking into account the changes to our business and priorities discussed earlier
as a result of the Bankruptcy Filings and related events.  Please see
“—2009 Cash Bonus Plan.”


87
 Table of Contents




Role of Executive
Officers in Executive Compensation.    Our general
partner’s compensation committee determines the compensation of the named
executive officers. Our chief executive officer, Mr. Foxx, provides
periodic recommendations to the compensation committee regarding the
compensation of other named executive officers. In addition, the employment
agreements entered into by the named executive officers were originally approved
by the management committee of the Private Company’s general partner pursuant to
its limited liability company agreement. Mr. Foxx served on this management
committee at the time of the approval of such agreements, but did not
participate in the approval of his employment agreement.




Employment
Agreements.    As indicated above, each of the named
executive officers has entered into an employment agreement with our general
partner. All of these agreements are substantially similar except for the
amounts of compensation paid to the respective named executive officer. Each of
the employment agreements has a term of two years that will automatically be
extended for one year periods unless either party gives 90 days advance
notice.




The
employment agreements provide for the initial annual base salaries described
above. As described above, Mr. Stallings’ base salary was increased in March
2009 in connection with the realignment of our executive officers.  In
addition, each of the named executive officers is eligible for discretionary
bonus awards and long-term incentives which may be made from time to time in the
sole discretion of the board of directors of our general partner. The employment
agreements also provide that the named executive officers are eligible to
participate in any employee benefit plans maintained by our general partner and
are entitled to reimbursement for certain out-of-pocket expenses.




Pursuant
to the employment agreements, each of the named executive officers has agreed
not to disclose any confidential information obtained by him while employed
under the agreement. In addition, each employment agreement contains payment
obligations that may be triggered by a termination after a change of control as
defined therein.  The Change of Control resulted in a change of
control under the employment agreements of the named executive
officers.  See “—Change of Control” below.




Potential
Payments Upon Change of Control or Termination.




Employment
Agreements.    Under the employment agreements
entered into with our named executive officers, our general partner may be
required to pay certain amounts upon a change of control of us or our general
partner or upon the termination of the executive officer in certain
circumstances. These termination payments were set by comparing similar payments
made by the peer companies listed above and other companies in the midstream
energy industry with which we believed we generally competed for executives.
Except in the event of termination for Cause, termination by the named executive
officer other than for Good Reason, or termination after the expiration of the
term of the employment agreement, the employment agreements provide for payment
of any unpaid base salary and vested benefits under any incentive plans, a lump
sum payment equal to twelve months of base salary and continued participation in
our general partner’s welfare benefit programs for the longer of the remainder
of the term of the employment agreement or one year after
termination.




If within
one year after a change of control occurs the named executive officer is
terminated by our general partner without Cause or the named executive officer
terminates the agreement for Good Reason, he will be entitled to payment of any
unpaid base salary and vested benefits under any incentive plans, a lump sum
payment equal to 24 months of base salary and continued participation in our
general partner’s welfare benefit programs for the longer of the remainder of
the term of the employment agreement or one year after termination. If such
termination occurred effective as of December 31, 2008, Messrs Foxx,
Brochetti, Stallings, Schwiering and Parsons would have been entitled to lump
sum payments of $900,000, $600,000, $550,000, $500,000 and $500,000,
respectively, in addition to continued participation in our general partner’s
welfare benefit programs and the amounts of unpaid base salary and benefits
under any incentive plans.  As discussed below, the Change of Control
constituted a change of control under the employment
agreements.


88
 Table of Contents




For
purposes of the employment agreements:




“Cause”
means (i) conviction of the executive officer by a court of competent
jurisdiction of any felony or a crime involving moral turpitude; (ii) the
executive officer’s willful and intentional failure or willful intentional
refusal to follow reasonable and lawful instructions of the Board;
(iii) the executive officer’s material breach or default in the performance
of his obligations under the employment agreement; or (iv) the executive
officer’s act of misappropriation, embezzlement, intentional fraud or similar
conduct involving our general partner.




“Good
Reason” means (i) a material reduction in the executive officer’s base
salary; (ii) a material diminution of the executive officer’s duties,
authority or responsibilities as in effect immediately prior to such diminution;
or (iii) the relocation of the named executive officer’s principal work
location to a location more than 50 miles from its current
location.




“Change
of Control” means any of the following events: (i) any person or group
other than the Private Company and its affiliates, shall become the beneficial
owner, by way of merger, consolidation, recapitalization, reorganization or
otherwise, of 50% or more of the combined voting power of the equity interests
in us or our general partner; (ii) our limited partners approve, in one or
a series of transactions, a plan of complete liquidation of us; (iii) the
sale or other disposition by either our general partner or us of all or
substantially all of the assets of our general partner or us in one or more
transactions to any person other than our general partner and its affiliates; or
(iv) a transaction resulting in a person other than our general partner or
an affiliate of our general partner being the general partner of the
partnership.




LTIP Awards.The
restricted and phantom units granted under the Plan will vest automatically upon
a change of control (as defined in the Plan) of us or our general partner,
subject to any contrary provisions in the award agreement.  As of
December 31, 2008, Mr. Ligon was on the only individual holding unvested awards
under the Plan.




Change
of Control





The
Change of Control constituted a change of control under the Plan, which resulted
in the early vesting of all awards under the Plan.  As such, the
phantom units awarded to Messrs. Foxx, Brochetti, Stallings, Schwiering and
Parsons in the amounts of 150,000 units, 90,000 units, 75,000 units, 45,000
units and 20,000 units, respectively, were fully vested upon the Change of
Control.  The common units underlying such awards were issued to such
individuals in August 2008.  In addition, the 5,000 restricted units
awarded to each of Messrs. Billings, Kosnik and Bishop for their service as
independent members of the Board were fully vested upon the Change of
Control.




The
Change of Control also resulted in a change of control under the employment
agreements of Messrs. Foxx, Brochetti, Stallings, Schwiering and
Parsons.  If within one year after the Change of Control any such
officer is terminated by our general partner without Cause (as defined above
under “—Potential Payments Upon Change of Control or Termination”) or such
officer terminates the agreement for Good Reason (as defined above under
“—Potential Payments Upon Change of Control or Termination”), he will be
entitled to payment of any unpaid base salary and vested benefits under any
incentive plans, a lump sum payment equal to 24 months of base salary and
continued participation in the our general partner’s welfare benefit programs
for one year after termination. Upon such an event, Messrs Foxx, Brochetti,
Stallings, Schwiering and Parsons would be entitled to lump sum payments of
$900,000, $600,000, $550,000, $500,000 and $500,000, respectively, in addition
to continued participation in our general partner’s welfare benefit programs and
the amounts of unpaid base salary and benefits under any incentive
plans.  As of the date of the filing of this report, none of these
officers is entitled to these benefits as none of them has been terminated by
our general partner without Cause or has terminated his agreement for Good
Reason.




Long-Term
Incentive Plan




General.    Our
general partner has adopted the Plan for employees, consultants and directors of
our general partner and its affiliates (including the Private Company prior to
the Change of Control) who perform services for us. The summary of the Plan
contained herein does not purport to be complete and is qualified in its
entirety by reference to the Plan. The Plan provides for the grant of unit
awards, restricted units, phantom units, unit options, unit appreciation rights,
distribution equivalent rights and substitute awards. Subject to adjustment for
certain events, an aggregate of 1,250,000 common units may be delivered pursuant
to awards under the Plan. Units that are cancelled, forfeited or are withheld to
satisfy our general partner’s tax withholding obligations are available for
delivery pursuant to other awards. The Plan is administered by the compensation
committee of our general partner’s board of directors. The Plan has been
designed to furnish additional compensation to employees, consultants and
directors and to align their economic interests with those of common
unitholders.  In addition, in December 2008 the Plan was amended to
provide for the delivery of subordinated units in addition to common
units.


89
 Table of Contents




Unit
Awards.    The compensation committee may grant unit
awards to eligible individuals under the Plan. A unit award is an award of
common units or subordinated units that are fully vested upon grant and not
subject to forfeiture.




Restricted Units and Phantom
Units.    A restricted unit is a common unit or
subordinated unit that is subject to forfeiture. Upon vesting, the forfeiture
restrictions lapse and the recipient holds a common unit or a subordinated unit
that is not subject to forfeiture. A phantom unit is a notional unit that
entitles the grantee to receive a common unit or subordinated unit upon the
vesting of the phantom unit or, in the discretion of the compensation committee,
cash equal to the fair market value of a common unit or subordinated unit. The
compensation committee may make grants of restricted units and phantom units
under the Plan to eligible individuals containing such terms, consistent with
the Plan, as the compensation committee may determine, including the period over
which restricted units and phantom units granted will vest. The compensation
committee may, in its discretion, base vesting on the grantee’s completion of a
period of service or upon the achievement of specified financial objectives or
other criteria. In addition, the restricted and phantom units will vest
automatically upon a change of control (as defined in the Plan) of us or our
general partner, subject to any contrary provisions in the award
agreement.  The Change of Control constituted a change of control
under the Plan.  See “—Change of Control” above.




If a
grantee’s employment, consulting or membership on the board of directors
terminates for any reason, the grantee’s restricted units and phantom units will
be automatically forfeited unless, and to the extent, the award agreement or the
compensation committee provides otherwise.




Distributions
made by us with respect to awards of restricted units may, in the compensation
committee’s discretion, be subject to the same vesting requirements as the
restricted units. The compensation committee, in its discretion, may also grant
tandem distribution equivalent rights with respect to phantom
units.




We intend
for restricted units and phantom units granted under the Plan to serve as a
means of incentive compensation for performance and not primarily as an
opportunity to participate in the equity appreciation of the common units.
Therefore, participants will not pay any consideration for the common units they
receive with respect to these types of awards, and neither we nor our general
partner will receive remuneration for the units delivered with respect to these
awards.




Unit Options and Unit Appreciation
Rights.    The Plan also permits the grant of options
covering common units, subordinated units and unit appreciation rights. Unit
options represent the right to purchase a number of common units or subordinated
units at a specified exercise price. Unit appreciation rights represent the
right to receive the appreciation in the value of a number of common units or
subordinated units over a specified exercise price, either in cash or in common
units or subordinated units as determined by the compensation committee. Unit
options and unit appreciation rights may be granted to such eligible individuals
and with such terms as the compensation committee may determine, consistent with
the Plan; however, a unit option or unit appreciation right must have an
exercise price equal to the fair market value of a common unit or subordinated
unit on the date of grant.




Distribution Equivalent
Rights.    Distribution equivalent rights are rights
to receive all or a portion of the distributions otherwise payable on units
during a specified time. Distribution equivalent rights may be granted alone or
in combination with another award.




By giving
participants the benefit of distributions paid to unitholders generally, grants
of distribution equivalent rights provide an incentive for participants to
operate our business in a manner that allows our partnership to provide
increasing partnership distributions. Typically, distribution equivalent rights
will be granted in tandem with a phantom unit, so that the amount of the
participant’s compensation is tied to both the market value of our units and the
distributions that unitholders receive while the award is outstanding. We
believe this aligns the participant’s incentives directly to the measures that
drive returns for our unitholders.




Substitute
Awards.    The compensation committee, in its
discretion, may grant substitute or replacement awards to eligible individuals
who, in connection with an acquisition made by us, our general partner or an
affiliate, have forfeited an equity-based award in their former employer. A
substitute award that is an option may have an exercise price less than the
value of a common unit or subordinated unit on the date of grant of the
award.


90
 Table of Contents




Source of Common Units;
Cost.    Common units to be delivered with respect to
awards may be common or subordinated units acquired by our general partner on
the open market, common or subordinated units already owned by our general
partner, common or subordinated units acquired by our general partner directly
from us or any other person or any combination of the foregoing. Our general
partner will be entitled to reimbursement by us for the cost incurred in
acquiring common and subordinated units. With respect to unit options, our
general partner will be entitled to reimbursement by us for the difference
between the cost incurred by our general partner in acquiring these units and
the proceeds received from an optionee at the time of exercise. Thus, we will
bear the cost of the unit options. If we issue new units with respect to these
awards, the total number of units outstanding will increase, and our general
partner will remit the proceeds it receives from a participant, if any, upon
exercise of an award to us. With respect to any awards settled in cash, our
general partner will be entitled to reimbursement by us for the amount of the
cash settlement.




Amendment or Termination of
Long-Term Incentive Plan.    Our general partner’s
board of directors, in its discretion, may terminate the Plan at any time with
respect to the units for which a grant has not theretofore been made. The Plan
will automatically terminate on the earlier of the 10th anniversary of the date
it was initially approved by our unitholders or when units are no longer
available for delivery pursuant to awards under the Plan. Our general partner’s
board of directors will also have the right to alter or amend the Plan or any
part of it from time to time and the compensation committee may amend any award;
provided, however, that no change in any outstanding award may be made that
would materially impair the rights of the participant without the consent of the
affected participant.




2009
Cash Bonus Plan




On July
1, 2009, the compensation committee adopted the 2009 Cash Bonus
Plan.  This plan provides for incentive payments to our named
executive officers based upon the overall financial performance measured by
EBITDA of our asphalt and/or crude oil operations.  In addition, the
compensation committee may make discretionary incentive payments based upon the
performance of such named executive officer.  Please see “Item
9B—Other Information” for a description of the 2009 Cash Bonus
Plan.




Compensation
Committee Report




The
compensation committee of the general partner of SemGroup Energy Partners, L.P.
has reviewed and discussed the Compensation Discussion and Analysis section of
this report required by Item 402(b) of Regulation S-K with management of
the general partner of SemGroup Energy Partners, L.P. and, based on that review
and discussion, has recommended that the Compensation Discussion and Analysis be
included in this Annual Report on Form 10-K.




The
Compensation Committee




Edward F.
Kosnik, Committee Chair


Brian F.
Billings


Duke R.
Ligon




91
 Table of Contents


Summary
Compensation Table





The
following table summarizes the compensation of our named executive officers for
the fiscal years ended 2008 and 2007.




Name
      and Position (1)
                
                Year
                
                
                Salary
                  ($)(2)
                
                
                Bonus
                  ($)(2)
                
                
                Stock
      Awards
                  ($)
      (4)
                
                
                Option
      Awards
                  ($)
                
                
                Non-Equity
      Incentive
                  Plan
      Compensation
                  ($)
                
                
                All
      Other
                  Compensation
                  ($)
      (5)
                
                
                Total
                  ($)Kevin
      L. Foxx
                  President
      and Chief Executive Officer
                
                
                2008
                  2007
                
                
                
                450,000
                  202,050
                
                
                
                365,000
                  —
                
                
                
                3,361,493
      210,715
                
                
                
                —
                  —
                
                
                
                —
                  —
                
                
                
                4,715
                  —
                
                
                
                4,181,208
      412,765Michael
      J. Brochetti
                  Executive
      Vice President - Corporate Development and Treasurer
                
                
                2008
                  2007
                
                
                
                300,000
                  134,700
                
                
                
                245,000
                  —
                
                
                
                2,090,467
                  99,160
                
                
                
                —
                  —
                
                
                
                —
                  —
                
                
                
                16,491
                  —
                
                
                
                2,651,958
      233,860Alex
      G. Stallings
                  Chief
      Financial Officer and Secretary
                
                
                2008
                  2007
                
                
                
                275,000
                  123,475
                
                
                
                225,000
                  —
                
                
                
                1,764,351
                  74,370
                
                
                
                —
                  —
                
                
                
                —
                  —
                
                
                
                420
                  —
                
                
                
                2,264,771
      197,845Peter
      L. Schwiering
                  Executive
      Vice President - Crude Operations
                
                
                2008
                  2007
                
                
                
                250,000
                  112,250
                
                
                
                120,000
                  —
                
                
                
                978,351
                  74,370
                
                
                
                —
                  —
                
                
                
                —
                  —
                
                
                
                159
                  —
                
                
                
                1,348,510
      186,620Jerry
      A. Parsons
                  Executive Vice President -
      Asphalt Operations(5)
                
                
                2008
                  2007
                
                
                
                215,750
                  N/A
                
                
                
                215,000
                  N/A
                
                
                
                524,000
                  N/A
                
                
                
                —
                  N/A
                
                
                
                —
                  N/A
                
                
                
                —
                  N/A
                
                
                
                954,750
                  N/A





(1)
            
            During
      2008, Mr. Brochetti served as our general partner’s Chief Financial
      Officer and Mr. Stallings served as our Chief Accounting Officer and
      Secretary.  The officers of our general partner were realigned
      in March 2009.(2)
            
            We
      did not pay any bonuses during the year ended December 31,
      2007.  Any bonus amounts received by the named executive
      officers during 2007 were paid by the Private Company.(3)
            
            Mr.
      Stallings’ annual base salary was increased to $300,000 in March
      2009.(4)
            
            Dollar
      amounts represent the compensation expense recognized in 2008 with respect
      to phantom unit grants under our the Plan. See Note 14 to our
      Consolidated Financial Statements for assumptions used in calculating
      these amounts.(5)
            
            Prior
      to the Bankruptcy Filings, the Private Company provided certain
      perquisites to our named executive officers.  After the
      Bankruptcy Filings, we provided these perquisites, including country club
      memberships and reimbursement of certain deductibles and co-payments for
      medical expenses, to our named executive officers.(6)
            
            Mr. Parsons became an
      executive officer of our general partner in connection with our
      acquisition of the Asphalt Acquired Assets in February
      2008.  Mr. Parsons’ annual base salary is
      $250,000.





92
 Table of Contents


Grants
of Plan-Based Awards Table for Fiscal 2008




The
following tables provide information concerning each grant of an award made to a
named executive officer during 2008, including, but not limited to, awards made
under our general partner’s Long-Term Incentive Plan.





Estimated
      Future Payouts Under Non-Equity Incentive Plan Awards
                
                Estimated
      Future Payouts Under Equity Incentive Plan AwardsName
                
                Grant
                  Date
                
                Threshold
                  ($)
                
                Target
                  ($)
                
                Maximum
                  ($)
                
                Threshold
                  ($)
                
                Target
                  ($)
                
                Maximum
                  ($)
                
                All
      Other Unit Awards: Number of Units (#)(1)
                
                All
      Other Unit Awards: Number of Securities Underlying Options
                  (#)
                
                Exercise
      or Base Price of Option Awards
                  ($/Sh)
                
                Grant
      Date Fair Value of Unit and Option Awards
                  ($)(2)Kevin
      L. Foxx
                
                June
      20, 2008
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                65,000
                
                —
                
                —
                
                1,703,000Michael
      J. Brochetti
                
                June
      20, 2008
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                50,000
                
                —
                
                —
                
                1,310,000Alex
      G. Stallings
                
                June
      20, 2008
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                45,000
                
                —
                
                —
                
                1,179,000Peter
      L. Schwiering
                
                June
      20, 2008
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                15,000
                
                —
                
                —
                
                393,000Jerry
      A. Parsons
                
                June
      20, 2008
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                20,000
                
                —
                
                —
                
                524,000





(1)
            
            These
      amounts represent grants of phantom units under our general partner’s
      Long-Term Incentive Plan.  See Note 14 to our Consolidated
      Financial Statements.  These phantom units vested in connection
      with the Change of Control.  See “Compensation Discussion and
      Analysis—Change of Control.”(2)
            
            The
      grant date fair value of these awards is computed in accordance with SFAS
      123(R).





Outstanding
      Equity Awards at Fiscal Year-End
2008




There was
no outstanding equity award made to a named executive officer as of December 31,
2008.  The Change of Control constituted a change of control under the
Plan, which resulted in the early vesting of all awards under the
Plan.  As such, the phantom units awarded to Messrs. Foxx, Brochetti,
Stallings, Schwiering and Parsons are fully vested.  The common units
underlying such awards were issued to such individuals in August 2008.




Option
Exercises and Stock Vested Table for Fiscal 2008





The
following table provides information regarding each vesting of phantom units
held by our named executive officers in 2008.





Stock
      AwardsName
                  
                  Number
      of Shares Acquired on
                    Vesting
                    (#)
                  
                  
                  Value
      Realized on Vesting
                    ($) (1)Kevin
      L. Foxx
                  
                  
                  150,000
                  
                  
                  $
                  1,580,850Michael
      J. Brochetti
                  
                  
                  90,000
                  
                  
                  
                  948,510Alex
      G. Stallings
                  
                  
                  75,000
                  
                  
                  
                  790,425Peter
      L. Schwiering
                  
                  
                  45,000
                  
                  
                  
                  474,255Jerry
      A. Parsons
                  
                  
                  20,000
                  
                  
                  
                  210,780





(1) The
amounts shown for phantom units are based on the average of the high and low
trading prices of our common unit on August 13, 2008, the date of issuance
of such common units.


93
 Table of Contents




Director
Compensation for Fiscal 2008





Name
                
                Fees
      Earned or Paid in Cash
                  ($)
                
                
                Stock
      Awards
                  ($)
                
                
                Option
      Awards
                  ($)
                
                
                Non-Equity
      Incentive Plan Compensation
                  ($)
                
                
                Change
      in Pension Value and Nonqualified Deferred Compensation
      Earnings
                  ($)
                
                
                All
      Other Compensation
                  ($)
                
                
                Total
                  ($)Thomas
      L. Kivisto(1)....
                
                
                —
                
                
                
                3,361,493
                (3)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                3,361,493Gregory
      C. Wallace(1)..
                
                
                —
                
                
                
                3,361,493
                (3)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                3,361,493W.
      Anderson Bishop(1)
                
                
                31,500
                
                
                
                97,558
                (4)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                129,058Brian
      F. Billings
                
                
                156,000
                
                
                
                126,061
                (4)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                282,061Edward
      F. Kosnik
                
                
                132,000
                
                
                
                120,000
                (4)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                252,000Duke
      R. Ligon
                
                
                110,000
                
                
                
                205
                (5)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                110,205Sundar
      Srinivasan(2)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Dave
      Miller(2)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —David
      Bernfeld(2)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Gabriel
      Hammond(2)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —





(1)
            
            Messrs.
      Kivisto, Wallace and Bishop were removed from the Board in connection with
      the Change of Control in July 2008.(2)
            
            Affiliated
      with Manchester or Alerian.(3)
            
            These
      amounts represent the grant date fair value of phantom units awarded under
      the Plan.  The grant date fair value of these awards is computed
      in accordance with SFAS 123(R).  See Note 14 to our
      Consolidated Financial Statements for assumptions used in calculating
      these amounts.(4)
            
            These
      amounts represent the grant date fair value of restricted units awarded
      under the Plan.  The grant date fair value of these awards is
      computed in accordance with SFAS 123(R).  See Note 14 to
      our Consolidated Financial Statements for assumptions used in calculating
      these amounts.  These restricted units vested in connection with
      the Change of Control. These phantom units vested in connection with
      the Change of Control.  The value of these awards for each of
      Messrs. Bishop, Billings and Kosnik was $41,500 and $12,600 on July 18,
      2008, the date that such restricted common units vested, and December 31,
      2008, respectively, based upon the closing prices of our common units of
      $8.30 and $2.52 as reported by Nasdaq on July 18, 2008 and December 31,
      2008, respectively.(5)
            
            These
      amounts represent the grant date fair value of restricted units awarded
      under the Plan.  The grant date fair value of these awards is
      computed in accordance with SFAS 123(R).  See Note 14 to
      our Consolidated Financial Statements for assumptions used in calculating
      these amounts.




Directors
who are not officers or employees of the Private Company prior to the Change of
Control or any other controlling entity after the Change of Control or their
affiliates receive compensation for attending meetings of the board of directors
and committees thereof.  Prior to the Bankruptcy Filings, such
directors received (a) $50,000 per year as an annual retainer fee;
(b) $5,000 per year for each committee of the board of directors on which
such director served, except that the chairperson of the audit committee
received $10,000 per year; (c) $1,500 for each meeting of the board of
directors that such director attended; (d) 5,000 restricted common units
upon becoming a director, vesting in one-third increments over a three-year
period; (e) 1,000 restricted common units on each anniversary of becoming a
director, vesting in one-third increments over a three-year period;
(f) reimbursement for out-of-pocket expenses associated with attending
meetings of the board of directors or committees; and (g) director and
officer liability insurance coverage.  Each director is fully
indemnified by us for actions associated with being a director to the fullest
extent permitted under Delaware law.  Subsequent to the Bankruptcy
Filings, the annual retainer fee was increased to $75,000 and the grants of
1,000 restricted common units upon each anniversary of becoming a director were
eliminated.  In addition, beginning in 2009, the Chairman of the Board
received an additional annual fee of $20,000.  As of December 31, 2008,
there were 5,000 restricted units outstanding.




Compensation
Committee Interlocks and Insider Participation





During
the fiscal year ended 2008, the compensation committee of our general partner
was comprised of Brian F. Billings, Edward F. Kosnik (chairman since his
appointment to the Board in July 2008), Duke R. Ligon and W. Anderson Bishop
(prior to his removal from the Board in July 2008 and who served as chairman
prior to Mr. Kosnik’s appointment to the Board).  No member of the
compensation committee was an officer or employee of our general partner. As
described above, each of the named executive officers has entered into an
employment agreement with our general partner.  The base salary
amounts payable to such individuals under these agreements were initially
determined by the board of directors of our general partner prior to the
organization of the conflicts committee.  The compensation committee,
consisting of independent directors, subsequently ratified these employment
agreements including the base salary amounts.  Messrs. Foxx and
Brochetti served on the board of directors of our general partner when these
employment agreements were initially approved, but they did not participate in
the approval of their respective employment agreements.  In addition,
these employment agreements were required to be approved by the management
committee of the Private Company’s general partner pursuant to its limited
liability company agreement.  Mr. Foxx served on this management
committee at the time of the approval of such agreements, but did not
participate in the approval of his employment agreement.  94
 Table of Contents




Item
      12.
            SecurityOwnership of Certain Beneficial Owners
      and Management and Related Stockholder Matters.




Security
Ownership of Certain Beneficial Owners and Management




The
following table sets forth the beneficial ownership of our units as of June 26,
2009 held by:




•
            each
      person who beneficially owns 5% or more of our outstanding
      units;




•
            all
      of the directors of our general
partner;




•
            each
      named executive officer of our general partner;
  and




•
            all
      directors and officers of our general partner as a
  group.




Except as
indicated by footnote, the persons named in the table below have sole voting and
investment power with respect to all units shown as beneficially owned by them,
subject to community property laws where applicable.  Percentage of
total common and subordinated units beneficially owned is based on 21,557,309 common
units and 12,570,504 subordinated units outstanding as of June 26,
2009.




Name
      of Beneficial Owner(1)
                    
                    Common
                      Units
                      Beneficially
                      Owned
                    
                    
                    Percentage of
                      Common
                      Units
                      Beneficially
                      Owned
                    
                    
                    Subordinated
                      Units
                      Beneficially
                      Owned
                    
                    
                    Percentage
      of
                      Subordinated
                      Units
                      Beneficially
                      Owned
                    
                    
                    Percentage of
                      Total
                      Common
      and
                      Subordinated
                      Units
                      Beneficially
                      OwnedSemGroup
      Holdings, L.P.(2)
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    12,570,504
                    
                    
                    
                    100
                    %
                    
                    
                    36.8
                    %Kevin
      L. Foxx(3)
                    
                    
                    230,325
                    
                    
                    
                    1.1
                    %
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Michael
      J. Brochetti(4)
                    
                    
                    111,245
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Alex
      G. Stallings(5)
                    
                    
                    91,037
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Peter
      L. Schwiering(6)
                    
                    
                    70,622
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Jerry
      A. Parsons(7)
                    
                    
                    14,910
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Duke
      R. Ligon(8)
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Brian
      F. Billings
                    
                    
                    10,000
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Edward
      F. Kosnik(9)
                    
                    
                    5,000
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Gabriel
      Hammond
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Dave
      Miller(2)
      (10)
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *David
      N. Bernfeld(2)
      (10)
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    *Swank
      Capital, LLC(11)
                    
                    
                    4,990,415
                    
                    
                    
                    23.2
                    %
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    14.6
                    %MSD
      Capital, L.P.(12)
                    
                    
                    3,481,994
                    
                    
                    
                    16.2
                    %
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    10.2
                    %Neuberger
      Berman Inc.(13)
                    
                    
                    1,503,864
                    
                    
                    
                    7.0
                    %
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    4.4
                    %Costa
      Brava Partnership III L.P.(14)
                    
                    
                    1,178,507
                    
                    
                    
                    5.5
                    %
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    3.5
                    %All
      named executive officers and directors as a group (12
    persons)
                    
                    
                    543,087
                    
                    
                    
                    2.5
                    %
                    
                    
                    —
                    
                    
                    
                    *
                    
                    
                    
                    1.6
                    %





*
            Less
      than 1%


(1)
            Unless
      otherwise indicated, the address for all beneficial owners in this table
      is Two Warren Place, 6120 South Yale Avenue, Suite 500, Tulsa,
      Oklahoma 74136.


(2)
            The
      Holdings Credit Agreements are secured by our subordinated units and
      incentive distribution rights and the membership interests in our general
      partner owned by SemGroup Holdings.  Manchester has not
      foreclosed on our subordinated units or incentive distribution rights
      owned by SemGroup Holdings or the membership interests in our general
      partner but has exercised the voting rights of the membership interests in
      our general partner and may in the future exercise the voting rights in
      our subordinated units.  In addition, Manchester may in the
      future exercise other remedies available to them under the Holdings Credit
      Agreement and related loan documents, including taking action to foreclose
      on the collateral securing the loan.  Neither we nor our general
      partner is a party to the Holdings Credit Agreements or the related loan
      documents.  The address for SemGroup Holdings is Two Warren
      Place, 6120 South Yale Avenue, Suite 700, Tulsa,
      Oklahoma 74136.  Because Manchester has the right to direct
      the voting of our 12,570,504 subordinated units, it may be deemed to be
      the beneficial owner of such units.  The address for Manchester
      is 712 Fifth
      Avenue,New
      York,NY10019.  95
 Table of Contents




(3)
            Mr. Foxx
      may be deemed to be the beneficial owner of 20,000 common units held by
      his wife and 10,000 common units held by his
      daughter.  Substantially all the common units owned by Mr. Foxx
      are held in a margin account.


(4)
            Substantially
      all the common units owned by Mr. Brochetti are held in a margin
      account.


(5)
            Substantially
      all the common units owned by Mr. Stallings are held in a margin
      account.


(6)
            Substantially
      all the common units owned by Mr. Schwiering are held in a margin
      account.


(7)
            Mr.
      Parsons has shared investment power with respect to the 14,910 common
      units that are jointly held with his
spouse.


(8)
            Does
      not include unvested restricted units granted under the Plan, none of
      which will vest within 60 days of the date
  hereof.


(9)
            Mr.
      Kosnik has shared investment power with respect to the 5,000 common units
      that are jointly held with his
spouse.


(10)
            Messrs.
      Miller and Bernfeld are affiliated with Elliott Associates,
      L.P.  Manchester, a wholly-owned subsidiary of Elliott
      Associates, L.P., entered into the Holdings Credit Agreements with
      SemGroup Holdings.


(11)
            Based
      on a Schedule 13G/A, dated February 17, 2009, filed by Swank Capital,
      LLC with the SEC. The filing is made jointly with Swank Energy Income
      Advisors, LP and Jerry V. Swank. The filers report that Swank Capital, LLC
      and Jerry V. Swank have sole voting power and Swank Energy Income
      Advisors, LP has shared voting power with respect to the 4,990,415 common
      units and that their address is 3300 Oak Lawn Avenue, Suite 650, Dallas,
      TX 75219.


(12)
            Based
      on a Schedule 13G/A, dated June 16, 2009, filed by MSD Capital, L.P. with
      the SEC as updated by Forms 4 filed with the SEC through June 19, 2009.
      The filing is made jointly with MSD Torchlight, L.P. The filers report
      that they have shared voting power with respect to the common units and
      that their address is 645 Fifth Avenue, 21st Floor, New York, New York
      10022.


(13)
            Based
      on a Schedule 13G, dated June 11, 2009, filed by Neuberger Berman Inc.
      with the SEC. The filing is made jointly with Neuberger Berman, LLC. The
      filers report that they own 1,503,864 common units and that both filers
      have sole voting power with respect to 1,340,004 common units and shared
      dispositive power with respect to 1,503,864 common units.  Their
      address as reported in such Schedule 13G is 605 Third Avenue, New York,
      New York 10158.


(14)
            Based
      on a Schedule 13G, dated December 22, 2008, filed by Costa Brava
      Partnership III L.P. with the SEC. The filing is made jointly with Roark,
      Rearden & Hamot, LLC and Seth W. Hamot. The filers report that they
      each have sole voting power with respect to the 1,178,507 common units and
      that their address is 420 Boylston Street, Boston, MA 02116.




Securities
Authorized for Issuance under Equity Compensation Plans




Equity
Compensation Plan Information (1)




(a)
                    Number of securities to be issued
                    upon exercise of outstanding
                    options, warrants and rights
                  
                  
                  (b)
                    Weighted-average exercise
                    price of outstanding options,
                    warrants and rights
                  
                  
                  (c)
                    Number of securities
                    remaining available for future
                    issuance under equity
                    compensation plans (excluding
                    securities reflected in column
                    (a))Equity
      compensation plans approved by security holders
                  
                  
                  —
                  
                  
                  
                  N/A
                  
                  
                  
                  N/AEquity
      compensation plans not approved by security holders
                  
                  
                  5,000
                  
                  
                  $
                  0
                  
                  
                  
                  380,000Total
                  
                  
                  5,000
                  
                  
                  $
                  0
                  
                  
                  
                  380,000





(1)Our general partner
      has adopted and maintains the Plan for employees, consultants and
      directors of our general partner and its affiliates (including the Private
      Company prior to the Change of Control) who perform services for
      us.  All outstanding awards under the Plan on the date of the
      Change of Control vested due to such Change of Control.  In
      connection with Mr. Duke R. Ligon’s appointment to the Board, the
      compensation committee awarded him a restricted unit grant 5,000 units
      under the Plan.  No value is shown in column (b) of the table
      because the restricted units do not have an exercise price.  For
      more information about the Plan, which did not require approval by our
      unitholders, please see “Item 11—Executive Compensation—Compensation
      Discussion and Analysis—Long-Term Incentive
  Plan.”


96
 Table of Contents




Item
13.                      Certain Relationships and Related
Transactions,
and Director Independence.




Distributions
and Payments to Our General Partner and Its Affiliates




Our
general partner is a subsidiary of SemGroup Holdings, which owns 12,570,504
subordinated units representing an aggregate 36.8% limited partner interest in
us as of June 26, 2009. In addition, our general partner owns a 2% general
partner interest in us and the incentive distribution rights.





The
following table summarizes the distributions and payments made by us to our
general partner and its affiliates in connection with the formation of SemGroup
Energy Partners, L.P. and to be made to us by our general partner and its
affiliates in connection with the ongoing operation and liquidation of SemGroup
Energy Partners, L.P. These distributions and payments were determined by and
among affiliated entities and, consequently, are not the result of arm’s-length
negotiations.





Formation
Stage





The
      consideration received by the Private Company and its subsidiaries for the
      contribution of the assets and liabilities to us
              ·12,500,000
      common units;
                ·12,570,504
      subordinated units;
                ·549,908
      general partner units;
                ·the
      incentive distribution rights; and
                ·$137.5
      million cash payment from the proceeds of borrowings under our credit
      facility.





Operational
Stage




Distributions
      of available cash to our general partner and its
affiliates
                Unless
      restricted by the terms of our credit agreement, we will generally make
      cash distributions 98% to our unitholders pro rata, including our general
      partner and its affiliates, as the holder of 12,570,504 subordinated
      units, and 2% to our general partner. In addition, if distributions exceed
      the minimum quarterly distribution and other higher target distribution
      levels, our general partner will be entitled to increasing percentages of
      the distributions, up to 50% of the distributions above the highest target
      distribution level.






Payments
      to our general partner and its affiliates
              We
      will reimburse our general partner for the payment of certain operating
      expenses and for the provision of various general and administrative
      services for our benefit.  Prior to the Settlement, we
      reimbursed the Private Company for such services.  Please see
      “—Agreements Relating to Our Acquisition of the Asphalt Assets—Amended
      Omnibus Agreement—Reimbursement of General and Administrative
      Expenses.”




Withdrawal
      or removal of our general partner
              If
      our general partner withdraws or is removed, its general partner interest
      and its incentive distribution rights will either be sold to the new
      general partner for cash or converted into common units, in each case for
      an amount equal to the fair market value of those
    interests.




Liquidation
Stage




Liquidation
              Upon
      our liquidation, the partners, including our general partner, will be
      entitled to receive liquidating distributions according to their
      respective capital account
balances.




97
 Table of Contents


Agreements
Relating to Our Initial Public Offering




In
connection with our initial public offering, we and other parties entered into
various documents and agreements relating to, among other things, the vesting of
assets in, and the assumption of liabilities by, us and our subsidiaries. These
agreements were not the result of arm’s-length negotiations, and they, or any of
the transactions that they provide for, may not have been effected on terms at
least as favorable to the parties to these agreements as they could have been
obtained from unaffiliated third parties. All of the transaction expenses
incurred in connection with these transactions, including the expenses
associated with transferring assets into our subsidiaries, were paid from the
proceeds of our initial public offering.




Omnibus
Agreement




In
connection with our initial public offering, we entered into an Omnibus
Agreement with the Private Company and our general partner that addresses the
reimbursement of our general partner for costs incurred on our behalf and
indemnification matters.  Concurrently with the closing of the
acquisition of our asphalt assets on February 20, 2008, we amended and restated
this Omnibus Agreement.  For a description of the Amended Omnibus
Agreement, please see “—Agreements Relating to Our Acquisition of the Asphalt
Assets—Amended Omnibus Agreement.”




Throughput
Agreement




In
connection with our initial public offering, we entered into the Throughput
Agreement with the Private Company. Prior to the Order and the Settlement, a
substantial portion of our revenues were derived from services provided to the
crude oil purchasing, marketing and distribution operations of the Private
Company pursuant to this agreement. None of these revenues are reflected in the
historical financial statements of our predecessor. Under this agreement, we
provided crude oil gathering and transportation services and terminalling and
storage services to the Private Company.  Under the Throughput
Agreement, certain services were subject to minimum requirements each month,
regardless of the amount of such services actually used by the Private Company
in a given month. The Throughput Agreement did not apply to any services we
provided to customers other than the Private Company.  We generated
revenues of approximately $78.0 million from the Private Company with respect to
services provided pursuant to the Throughput Agreement during fiscal
2008.  In connection with the Settlement, the Throughput Agreement was
rejected as part of the Bankruptcy Cases.




Agreements
Relating to Our Acquisition of the Asphalt Assets




Purchase
and Sale Agreement for the Asphalt Assets




On
January 14, 2008, we entered into a purchase and sale agreement with the
Private Company pursuant to which we acquired the Acquired Asphalt Assets on
February 20, 2008 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, we amended our existing credit facility,
increasing our borrowing capacity to $600 million. Concurrently, we
issued 6,000,000 common units, receiving proceeds, net of underwriting discounts
and offering-related costs, of $137.2 million. Our general partner also
made a capital contribution of $2.9 million to maintain its 2.0% general partner
interest in us. On March 5, 2008, we 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. Our general partner made a corresponding capital
contribution of $0.4 million to maintain its 2.0% general partner interest in
us.  In connection with the acquisition of the Acquired Asphalt
Assets, we entered into the Terminalling Agreement with the Private Company
and certain of its subsidiaries under which we provided liquid asphalt cement
terminalling and storage and throughput services to the Private Company and the
Private Company agreed to use our services at certain minimum levels (see
“—Terminalling Agreement”).  In connection with the Settlement, the
Private Company rejected the Terminalling Agreement.  Our general
partner’s 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 us.


98
 Table of Contents




Amended
Omnibus Agreement




Concurrently
with the closing of the acquisition of our asphalt assets on February 20, 2008,
we amended and restated the Omnibus Agreement that we entered into with the
Private Company, our general partner and others, as described
herein.  The events related to the Bankruptcy Filings terminated the
Private Company’s obligations to provide services to us under the Amended
Omnibus Agreement.  The Private Company continued to provide such
services to us until the effective date of the Settlement at which time the
Private Company rejected the Amended Omnibus Agreement and we and the Private
Company entered into the Shared Services Agreement and the Transition Services
Agreement relating to the provision of such services (see “Item 1.
Business—Impact of the Bankruptcy of the Private Company and Certain of its
Subsidiaries and Related Events—Settlement with the Private
Company”).




Under the
Amended Omnibus Agreement, we reimbursed the Private Company for the payment of
certain operating expenses and for the provision of various general and
administrative services for our benefit with respect to the Crude Oil Business
and our asphalt business. Under the Amended Omnibus Agreement, the fixed
administrative fee that we paid to the Private Company for providing general and
administrative services to us increased to $7.0 million per year from $5.0
million per year in the original Omnibus Agreement. We also were obligated to
reimburse the Private Company for operating expenses, which were not included in
the $7.0 million annual fixed administrative fee, to the extent incurred by
the Private Company on our behalf.  Such operating expenses primarily
included compensation of operational personnel performing services for our
benefit and the cost of their employee benefits and insurance coverage expenses
the Private Company incurred with respect to our business and
operations.




Under the
Amended Omnibus Agreement, the Private Company indemnified us for certain
potential environmental claims, losses and expenses.  In addition, the
Amended Omnibus Agreement contained non-competition and right of first refusal
provisions.  In connection with the Settlement, the Amended Omnibus
Agreement, including the indemnification, non-competition and right of first
refusal provisions therein, was rejected as part of the Bankruptcy
Cases.




Terminalling
Agreement




In
connection with our acquisition of the asphalt assets, we entered into the
Terminalling Agreement with the Private Company. Prior to the Settlement, a
substantial portion of our revenues were derived from services provided to the
finished asphalt product processing and marketing operations of the Private
Company pursuant to this agreement. Under this agreement, we provided asphalt
terminalling and storage services to the Private Company.  Such
services were subject to minimum throughput requirements each month, regardless
of the amount of such services actually used by the Private Company in a given
month.  The Terminalling Agreement did not apply to any services we
provided to customers other than the Private Company.  We generated
revenues of approximately $53.0 million, excluding fuel surcharge revenues
related to fuel and power consumed to operate our asphalt storage tanks, from
the Private Company with respect to services provided pursuant to the
Terminalling Agreement during fiscal 2008.  In connection with the
Settlement, the Terminalling Agreement was rejected as part of the Bankruptcy
Cases.




Access
and Use Agreement




In
connection with our acquisition of our asphalt assets, we entered into a
terminal access and use agreement, which we refer to as the Access and Use
Agreement, with the Private Company. Pursuant to the Access and Use Agreement,
the Private Company reserved the right to access facilities used for both
terminalling and storage of liquid asphalt cement and processing of finished
asphalt products. In addition, pursuant to the Access and Use Agreement we were
indemnified for any losses that occur from the Private Company’s operations at
or relating to our asphalt assets.  In connection with the Settlement,
the Access and Use Agreement was rejected as part of the Bankruptcy
Cases.




99
 Table of Contents




Agreements
Relating to Other Acquisitions from the Private Company




On May
12, 2008, we entered into a purchase and sale agreement with the Private
Company, pursuant to which we acquired the Acquired Pipeline Assets from the
Private Company for aggregate consideration of $45.1 million, including $0.1
million of acquisition-related costs.  The acquisition was funded with
borrowings under our revolving credit facility.  We have suspended
capital expenditures on this pipeline due to the continuing impact of the
Bankruptcy Filings.  Management currently intends to put the asset into
service in early 2010 and is exploring various alternatives to complete the
project.  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 us.




On May
20, 2008, we entered into a purchase and sale agreement with the Private
Company, pursuant to which we acquired the Acquired Storage Assets from the
Private Company for aggregate consideration of $90.3 million, including $0.3
million of acquisition-related costs.  The acquisition was funded with
borrowings under our 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 us.




Agreements
Relating to the Settlement with the Private Company




In
connection with the Settlement, we entered into various agreements with the
Private Company.  These agreements are discussed in more detail
below.




Shared
Services Agreement





In
connection with the Settlement, we entered into the Shared Services Agreement
with the Private Company.  Pursuant to the Shared Services Agreement,
the Private Company will provide certain general shared services, Cushing shared
services (as described below), and SCADA services (as described below) to
us.  In addition, we pay a general administrative fee to the Private
Company under the Shared Services Agreement.  This general
administrative fee was approximately $10,000 for the month of May
2009.





The
general shared services include crude oil movement services, Department of
Transportation services, right-of-way services, environmental services, pipeline
and civil structural maintenance services, safety services, pipeline truck
station maintenance services, project support services and truck dispatch
services.  The fees for such general shared services are fixed at
$125,000 for the month of April 2009.  Thereafter the fees will be
calculated in accordance with the formulas contained therein.  For
example, in the month of May 2009, the fees for such general shared services
were approximately $123,000.  The Private Company has agreed to
provide the general shared services for three years (subject to earlier
termination as provided therein) and the term may be extended an additional year
by mutual agreement of the parties.





The
Cushing shared services include operational and maintenance services related to
terminals at Cushing, Oklahoma.  The fees for such Cushing shared
services are fixed at $20,000 for the month of April
2009.  Thereafter the fees will be calculated in accordance with the
formulas contained therein.  For example, in the month of May 2009,
the fees for such Cushing shared services were approximately
$25,000.  The Private Company has agreed to provide the Cushing shared
services for three years (subject to earlier termination as provided therein)
and the term may be extended an additional year by mutual agreement of the
parties.





The SCADA
services include services related to the operation of the SCADA system which is
used in connection with our crude oil operations.  The fees for such
SCADA services are fixed at $15,000 for the month of April
2009.  Thereafter the fees will be calculated in accordance with the
formulas contained therein.  For example, in the month of May 2009,
the fees for such SCADA services were approximately $10,000.  The
Private Company has agreed to provide the SCADA services for five years (subject
to earlier termination as provided therein) and we may elect to extend the term
for two subsequent five year periods.





100
 Table of Contents


Transition
Services Agreement





In
connection with the Settlement, we entered into the Transition Services
Agreement with the Private Company.  Pursuant to the Transition
Services Agreement, the Private Company will provide certain corporate, crude
oil and asphalt transition services, in each case for a limited amount of time,
to us.  During the month of April and May 2009, we incurred fees of
approximately $1.1 million and $0.2 million, respectively, under the Transition
Services Agreement.  We expect future fees under the Transition
Services Agreement to decrease as services are transitioned from the Private
Company to us and the agreement is eventually terminated.





Transfer
of Crude Oil Assets





In
connection with the Settlement, 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.





In
addition, 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.





Management
is obtaining independent valuations of the assets transferred.





Transfer
of Asphalt Assets





In
connection with the Settlement, 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 transfer of the Private Company’s 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.  Management is obtaining independent valuations of the assets
transferred.





New
Throughput Agreement





In
connection with the Settlement, we and the Private Company entered into the New
Throughput Agreement pursuant to which we provide certain crude oil gathering,
transportation, terminalling and storage services to the Private
Company.





Under the
New Throughput Agreement, we charge the following fees: (i) barrels gathered via
gathering lines will be charged a gathering rate of $0.75 per barrel, (ii)
barrels transported within Oklahoma will be charged $1.00 per barrel while
barrels transported on the Masterson Mainline will be charged $0.55 per barrel,
(iii) barrels transported by truck will be charged in accordance with the
schedule contained therein, including a fuel surcharge, (iv) storage fees shall
equal $0.50 per barrel per month for product located in storage tanks located in
Cushing, Oklahoma and $0.44 per barrel per month for product not located in
dedicated Cushing storage tanks, and (v) a delivery charge of $0.08 per barrel
will be charged for deliveries out of the Cushing Interchange Terminal. The
New Throughput Agreement has an initial term of one year with additional
automatic one-month renewals unless either party terminates the agreement upon
thirty-days prior notice.





New
Terminalling and Storage Agreement





In
connection with the Settlement, we and the Private Company entered into the
Terminalling and Storage Agreement pursuant to which we provide certain asphalt
terminalling and storage services for the remaining asphalt inventory of the
Private Company.  Storage services under the New Terminalling
Agreement are equal to $0.565 per barrel per month multiplied by the total shell
capacity in barrels for each storage tank where the Private Company and its
affiliates have product; provided that if the Private Company removes all
product from a storage tank prior to the end of the month, then the storage
service fees shall be pro-rated for such month based on the number of calendar
days storage was actually used.  Throughput fees under the New
Terminalling Agreement are equal to $9.25 per ton; provided that no fees are
payable for transfers of product between storage tanks located at the same or
different terminals.  The New Terminalling Agreement has an initial
term that expires on October 31, 2009, which may be extended for one month by
mutual agreement of the parties.





101
 Table of Contents


New
Access and Use Agreement





In
connection with the Settlement, we and the Private Company entered into the New
Access and Use Agreement pursuant to which we will allow the Private Company
access rights to our asphalt facilities relating to its existing asphalt
inventory.  The term of the Access and Use Agreement will end
separately for each terminal upon the earlier of October 31, 2009 or until all
of the existing asphalt inventory of the Private Company is removed from such
terminal.





Trademark
Agreement





In
connection with the Settlement, we and the Private Company entered into the
Trademark License Agreement pursuant to which the Private Company granted us a
non-exclusive, worldwide license to use certain trade names, including the name
“SemGroup”, and the corresponding mark until December 31, 2009, and the Private
Company waived claims for infringement relating to such trade names and mark
prior to the effective date of the Trademark Agreement.





Building
and Office Leases





In
connection with the Settlement, we leased office space in Oklahoma City,
Oklahoma and certain facilities in Cushing, Oklahoma to the Private
Company.  We collect rental fees of approximately $19,000 per month as
a result of these leases.  The term for the leases expires on March
31, 2014.





Easements





In
connection with the Settlement, we and the Private Company granted mutual
easements relating to access, facility improvements, existing and future
pipeline rights and corresponding rights of ingress and egress for properties
owned by the parties at Cushing, Oklahoma.  In addition, we granted
the Private Company certain pipeline easements at Cushing, Oklahoma, together
with the corresponding rights of ingress and egress.




Indemnification
of Directors and Officers





Under our
partnership agreement, in most circumstances, we will indemnify the following
persons, to the fullest extent permitted by law, from and against all losses,
claims, damages or similar events:


·
            our
      general partner;




·
            any
      departing general partner;




·
            any
      person who is or was an affiliate of a general partner or any departing
      general partner;




·
            any
      person who is or was a director, officer, member, partner, fiduciary or
      trustee of any entity set forth in the preceding three bullet
      points;




·
            any
      person who is or was serving as director, officer, member, partner,
      fiduciary or trustee of another person at the request of our general
      partner or any departing general
  partner; and




·
            any
      person designated by our general
partner.




Any
indemnification under these provisions will only be out of our assets. Unless it
otherwise agrees, our general partner will not be liable for, or have any
obligation to contribute or lend funds or assets to us to enable us to
effectuate, indemnification.  We may purchase insurance against
liabilities asserted against and expenses incurred by persons for our
activities, regardless of whether we would have the power to indemnify the
person against liabilities under our partnership agreement.




102
 Table of Contents


We and
our general partner have also entered into separate indemnification agreements
with each of the directors and officers of our general partner.  The
terms of the indemnification agreements are consistent with the terms of the
indemnification provided by our partnership agreement and our general partner’s
limited liability company agreement.  The indemnification agreements
also provide that we and our general partner must advance payment of certain
expenses to such indemnified directors and officers, including fees of counsel,
subject to receipt of an undertaking from the indemnitee to return such advance
if it is it is ultimately determined that the indemnitee is not entitled to
indemnification.





Other
Related Party Transactions





Mr.
Ligon, a member of the Board, also serves as a member of the board of directors
of the general partner of TEPPCO Partners, L.P. (“TEPPCO”).  We
provide crude oil gathering and transportation services to
TEPPCO.  During the year ended December 31, 2008, we earned
revenue of approximately $1.3 million from services provided to TEPPCO, and as
of December 31, 2008, we have a receivable in the amount of approximately
$0.7 million as a result of services provided to TEPPCO.





During
2008, Mr. Wallace, a former member of the Board, served on the board of
directors of the F&M Bank & Trust Company.  We lease
transport trucks and trailers in connection with our crude oil gathering and
transportation services from Harvard Capital, Inc., a subsidiary of F&M
Bank & Trust Company.  During the year ended
December 31, 2008, we made payments of $2.2 million to Harvard Capital
Inc., and as of December 31, 2008, we have future commitments to Harvard
Capital, Inc. totaling $7.7 million.  In addition, during 2008,
Mr. Kivisto, a former member of the Board, served on the board of directors
of the BOK Financial Corporation. We have a banking relationship with Bank of
Oklahoma, which is a subsidiary of BOK Financial Corporation.





Approval
and Review of Related Party Transactions





If we
contemplate entering into a transaction, other than a routine or in the ordinary
course of business transaction, in which a related person will have a direct or
indirect material interest, the proposed transaction is submitted for
consideration to the Board of our general partner or to our management, as
appropriate. If the Board is involved in the approval process,it
determines whether to refer the matter to the conflicts committee of the Board,
as constituted under our limited partnership agreement. If a matter is referred
to the conflicts committee, it obtains information regarding the proposed
transaction from management and determines whether to engage independent legal
counsel or an independent financial advisor to advise the members of the
committee regarding the transaction. If the conflicts committee retains such
counsel or financial advisor, it considers such advice and, in the case of a
financial advisor, such advisor’s opinion as to whether the transaction is fair
and reasonable to us and to our unitholders.





Director
Independence




Please
see “Item 10—Directors, Executive Officers and Corporate
Governance—Directors, Executive Officers and Corporate Governance” of this
report for a discussion of director independence matters.




103
 Table of Contents


Item 14.  Principal Accountant Fees and Services.




We have engaged PricewaterhouseCoopers
LLP as our principal accountant. The following table summarizes fees we have
paid PricewaterhouseCoopers LLP for independent auditing, tax and related
services for each of the last two fiscal years:





Year
      Ended December 31,2007
              
              
              2008Audit
      fees (1)
              
              $
              586,500
              
              
              $
              887,600Audit-related
      fees (2)
              
              
              —
              
              
              
              —Tax
      fees (3)
              
              
              303,856
              
              
              
              290,213All
      other fees (4)
              
              
              —
              
              
              
              —





(1)
            Audit
      fees represent amounts billed for each of the years presented for
      professional services rendered in connection with (a) the audit of
      our annual financial statements and internal controls over financial
      reporting, (b) the review of our quarterly financial statements and
      (c) those services normally provided in connection with statutory and
      regulatory filings or engagements, including comfort letters, consents and
      other services related to SEC matters.  In addition to the
      amounts presented above, we have incurred $1.0 million in audit fees in
      2009 related to the fiscal year 2008 audit and investigation performed by
      the internal review subcommittee of the
Board.


(2)
            Audit-related
      fees represent amounts we were billed in each of the years presented for
      assurance and related services that are reasonably related to the
      performance of the annual audit or quarterly reviews, and include fees
      incurred in connection with our initial public
  offering.


(3)
            Tax
      fees represent amounts we were billed in each of the years presented for
      professional services rendered in connection with tax compliance, tax
      advice and tax planning.  This category primarily includes
      services relating to the preparation of unitholder annual
      K-1 statements.


(4)
            All
      other fees represent amounts we were billed in each of the years presented
      for services not classifiable under the other categories listed in the
      table above.





All audit
and non-audit services provided by PricewaterhouseCoopers LLP are subject to
pre-approval by our audit committee to ensure that the provisions of such
services do not impair the auditor’s independence.  Under our
pre-approval policy, the audit committee is informed of each engagement of the
independent auditor to provide services under the policy.  The audit
committee of our general partner has approved the use of PricewaterhouseCoopers
LLP as our independent principal accountant.


104
 Table of Contents


PART IV




Item 15.  Exhibits, Financial Statement Schedules.




(a)               Financial
Statements and Schedules




(1)
            See
      the Index to Financial Statements on
  page F-1.




(2)
            All
      schedules have been omitted because they are either not applicable, not
      required or the information called for therein appears in the consolidated
      financial statements or notes
thereto




(3)           Exhibits




Exhibit
                    Number
                  Description3.1
                  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
                  Credit
      Agreement, dated July 20, 2007, among the Partnership, Wachovia Bank,
      National Association, as Administrative Agent, L/C Issuer and Swing Line
      Lender, Bank of America, N.A., as Syndication Agent and the other lenders
      from time to time party thereto (filed as Exhibit 10.1 to the
      Partnership’s Current Report on Form 8-K, filed July 25, 2007, and
      incorporated herein by reference).10.2
                  Amended
      and Restated Credit Agreement, dated February 20, 2008, among the
      Partnership, Wachovia Bank, National Association, as Administrative Agent,
      L/C Issuer and Swing Line Lender, Bank of America, N.A., as Syndication
      Agent and the other lenders from time to time party thereto (filed as
      Exhibit 10.4 to the Partnership’s Current Report on Form 8-K, filed
      February 25, 2008, and incorporated herein by
  reference).10.3
                  Forbearance
      Agreement and Amendment to Credit Agreement, dated September 12, 2008 but
      effective as of September 18, 2008, by and among SemGroup Energy Partners,
      L.P., Wachovia Bank, National Association, as Administrative Agent, L/C
      Issuer and Swing Line Lender, and the Lenders party thereto (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      September 22, 2008, and incorporated herein by
  reference).10.4
                  First
      Amendment to Forbearance Agreement and Amendment to Credit Agreement,
      dated as of December 11, 2008, by and among SemGroup Energy Partners,
      L.P., Wachovia Bank, National Association, as Administrative Agent, L/C
      Issuer and Swing Line Lender, and the Lenders party thereto (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      December 12, 2008, and incorporated herein by
  reference).






105
 Table of Contents




Exhibit
                        Number
                      Description10.5
                      Second
      Amendment to Forbearance Agreement and Amendment to Credit Agreement,
      dated as of December 18, 2008, by and among SemGroup Energy Partners,
      L.P., Wachovia Bank, National Association, as Administrative Agent, L/C
      Issuer and Swing Line Lender, and the Lenders party thereto (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      December 19, 2008, and incorporated herein by
  reference).10.6
                      Third
      Amendment to Forbearance Agreement and Amendment to Credit Agreement,
      dated as of March 17, 2009, by and among SemGroup Energy Partners, L.P.,
      Wachovia Bank, National Association, as Administrative Agent, L/C Issuer
      and Swing Line Lender, and the Lenders party thereto (filed as Exhibit
      10.1 to the Partnership’s Current Report on Form 8-K, filed on March 19,
      2009, and incorporated herein by reference).10.7
                      Consent,
      Waiver and Amendment to Credit Agreement, dated as of April 7, 2009, by
      and among SemGroup Energy Partners, L.P., as Borrower, SemGroup Energy
      Partners G.P., L.L.C., SemGroup Energy Partners Operating, L.L.C.,
      SemMaterials Energy Partners, L.L.C., SemGroup Energy Partners, L.L.C.,
      SemGroup Crude Storage, L.L.C., SemPipe, L.P., SemPipe G.P., L.L.C. and
      SGLP Management, Inc., as Guarantors, Wachovia Bank, National Association,
      as Administrative Agent, L/C Issuer and Swing Line Lender, and the Lenders
      party thereto (filed as Exhibit 10.14 to the Partnership’s Current Report
      on Form 8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.8*
                      Amendment
      to Credit Agreement, dated as of May 19, 2009, by and among SemGroup
      Energy Partners, L.P., the Guarantors, Wachovia Bank, National
      Association, as Administrative Agent, L/C Issuer and Swing Line Lender,
      and the Lenders party thereto.10.9†
                      SemGroup
      Energy Partners G.P., L.L.C. Long-Term Incentive Plan (filed as Exhibit
      10.5 to the Partnership’s Current Report on Form 8-K, filed July 25, 2007,
      and incorporated herein by reference).10.10†
                      Amendment
      to the SemGroup Energy Partners G.P., L.L.C. Long Term Incentive Plan
      (filed as Exhibit 10.1 to the Partnership’s Current Report on Form 8-K,
      filed on December 23, 2008, and incorporated herein by
      reference).10.11†
                      Form
      of Employment Agreement (filed as Exhibit 10.6 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed May 25,
      2007, and incorporated herein by reference).10.12†
                      Form
      of Employment Agreement (filed as Exhibit 10.14 to the Partnership’s
      Quarterly Report on Form 10-Q, filed on March 23, 2009, and incorporated
      herein by reference).10.13†
                      Form
      of Indemnification Agreement (filed as Exhibit 10.7 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed
      May 25, 2007, and incorporated herein by
  reference).10.14†
                      Form
      of Phantom Unit Agreement (filed as Exhibit 10.8 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed May 25,
      2007, and incorporated herein by reference).10.15†
                      Form
      of Phantom Unit Agreement (filed as Exhibit 10.1 to the Partnership’s
      Current Report on Form 8-K, filed on June 24, 2008, and incorporated
      herein by reference).10.16†
                      Form
      of Phantom Unit Agreement (filed as Exhibit 10.2 to the Partnership’s
      Current Report on Form 8-K, filed on June 24, 2008, and incorporated
      herein by reference).10.17†
                      Form
      of Phantom Unit Agreement (filed as Exhibit 10.15 to the Partnership’s
      Quarterly Report on Form 10-Q, filed on March 23, 2009, and incorporated
      herein by reference).10.18†
                      Form
      of Retention Agreement (filed as Exhibit 10.16 to the Partnership’s
      Quarterly Report on Form 10-Q, filed on March 23, 2009, and incorporated
      herein by reference).10.19†
                      Form
      of Restricted Unit Agreement (filed as Exhibit 10.9 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed May 25,
      2007, and incorporated herein by reference).10.20†
                      Form
      of Director Restricted Common Unit Agreement (filed as Exhibit 10.2 to the
      Partnership’s Current Report on Form 8-K, filed on December 23, 2008, and
      incorporated herein by
reference).




106
 Table of Contents




Exhibit
                    Number
                  Description10.21†
                  Form
      of Director Restricted Subordinated Unit Agreement (filed as Exhibit 10.3
      to the Partnership’s Current Report on Form 8-K, filed on December 23,
      2008, and incorporated herein by reference).10.22†*
                  SemGroup
      Energy Partners G.P., L.L.C. 2009 Executive Cash Bonus
  Plan10.23
                  Closing
      Contribution, Conveyance, Assignment and Assumption Agreement, dated July
      20, 2007, among the Partnership, the General Partner, SemCrude, L.P.,
      SemGroup, L.P. and SemGroup Energy Partners Operating, L.L.C. (filed as
      Exhibit 10.2 to the Partnership’s Current Report on Form 8-K, filed July
      25, 2007, and incorporated herein by reference).10.24
                  Purchase
      and Sale Agreement, dated as of January 14, 2008, by and among
      SemMaterials, L.P. and SemGroup Energy Partners Operating, L.L.C. (filed
      as Exhibit 2.1 to the Partnership’s Current Report on Form 8-K, filed on
      January 15, 2008, and incorporated herein by
reference).10.25
                  Purchase
      and Sale Agreement, dated as of May 12, 2008, by and between SemCrude,
      L.P. and SemGroup Energy Partners, L.L.C. (filed as Exhibit 2.1 to the
      Partnership’s Current Report on Form 8-K, filed on May 15, 2008, and
      incorporated herein by reference).10.26
                  Purchase
      and Sale Agreement, dated as of May 20, 2008, by and between SemGroup
      Energy Partners, L.L.C. and SemCrude, L.P. (filed as Exhibit 2.1 to the
      Partnership’s Current Report on Form 8-K, filed on May 23, 2008, and
      incorporated herein by reference).10.27
                  Omnibus
      Agreement, dated July 20, 2007, among the Partnership, the General
      Partner, SemGroup, L.P. and SemManagement, L.L.C. (filed as Exhibit 10.3
      to the Partnership’s Current Report on Form 8-K, filed July 25, 2007, and
      incorporated herein by reference).10.28
                  Amended
      and Restated Omnibus Agreement, dated as of February 20, 2008, by and
      among SemGroup, L.P., SemManagement, L.L.C., SemMaterials, L.P., the
      Partnership, SemGroup Energy Partners G.P., L.L.C. and SemMaterials Energy
      Partners, L.L.C. (filed as Exhibit 10.3 to the Partnership’s Current
      Report on Form 8-K, filed February 25, 2008, and incorporated herein by
      reference).10.29#
                  Throughput
      Agreement, dated July 20, 2007, among the Partnership, SemGroup Energy
      Partners, L.L.C., SemCrude, L.P., Eaglwing, L.P. and SemGroup, L.P. (filed
      as Exhibit 10.4 to the Partnership’s Current Report on Form 8-K, filed
      July 25, 2007, and incorporated herein by reference).10.30#
                  Terminalling
      and Storage Agreement, dated as of February 20, 2008, by and between
      SemMaterials, L.P. and SemMaterials Energy Partners, L.L.C. (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed
      February 25, 2008, and incorporated herein by
  reference).10.31
                  Terminal
      Access and Use Agreement, dated as of January 28, 2008, by and among
      SemMaterials Energy Partners, L.L.C., SemMaterials, L.P. and K.C. Asphalt,
      L.L.C. (filed as Exhibit 10.2 to the Partnership’s Current Report on Form
      8-K, filed February 25, 2008, and incorporated herein by
      reference).10.32
                  Agreed
      Order of the United States Bankruptcy Court for the District of Delaware
      Regarding Motion by SemGroup Energy Partners, L.P. (i) to Compel Debtors
      to Provide Adequate Protection and (ii) to Modify the Automatic Stay
      (filed as Exhibit 99.1 to the Partnership’s Current Report on Form 8-K,
      filed on September 9, 2008, and incorporated herein by
      reference).10.33
                  Master
      Agreement, dated as of April 7, 2009 to be effective as of 11:59 PM CDT
      March 31, 2009, by and among by and among SemGroup, L.P., SemManagement,
      L.L.C., SemOperating G.P., L.L.C., SemMaterials, L.P., K.C. Asphalt,
      L.L.C., SemCrude, L.P., Eaglwing, L.P., SemGroup Holdings, L.P., SemGroup
      Energy Partners, L.P., SemGroup Energy Partners G.P., L.L.C., SemGroup
      Energy Partners Operating, L.L.C., SemGroup Energy Partners, L.L.C.,
      SemGroup Crude Storage, L.L.C., SemPipe, L.P., SemPipe G.P., L.L.C., SGLP
      Management, Inc. and SemMaterials Energy Partners, L.L.C. (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      April 10, 2009, and incorporated herein by reference).10.34
                  Shared
      Services Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among SemGroup Energy Partners, L.P.,
      SemGroup Energy Partners, L.L.C., SemGroup Crude Storage, L.L.C., SemPipe
      G.P., L.L.C., SemPipe, L.P., SemCrude, L.P. and SemManagement, L.L.C.
      (filed as Exhibit 10.2 to the Partnership’s Current Report on Form 8-K,
      filed on April 10, 2009, and incorporated herein by
      reference).




107
 Table of Contents




Exhibit
                        Number
                      Description10.35
                      Transition
      Services Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among SemGroup Energy Partners, L.P.,
      SemGroup Energy Partners, L.L.C., SemGroup Crude Storage, L.L.C., SemPipe
      G.P., L.L.C., SemPipe, L.P., SemMaterials Energy Partners, L.L.C., SGLP
      Asphalt L.L.C., SemCrude, L.P., SemGroup, L.P., SemMaterials, L.P. and
      SemManagement, L.L.C. (filed as Exhibit 10.3 to the Partnership’s Current
      Report on Form 8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.36
                      Contribution,
      Conveyance, Assignment and Assumption Agreement, dated as of April 7, 2009
      to be effective as of 11:59 PM CDT March 31, 2009, by and among
      SemMaterials, L.P., K.C. Asphalt, L.L.C., SGLP Asphalt, L.L.C. and
      SemMaterials Energy Partners, L.L.C. (filed as Exhibit 10.4 to the
      Partnership’s Current Report on Form 8-K, filed on April 10, 2009, and
      incorporated herein by reference).10.37
                      Membership
      Interest Transfer Agreement, dated as of April 7, 2009 to be effective as
      of 11:59 PM CDT March 31, 2009, by and between SemMaterials, L.P. and
      SemMaterials Energy Partners, L.L.C. (filed as Exhibit 10.5 to the
      Partnership’s Current Report on Form 8-K, filed on April 10, 2009, and
      incorporated herein by reference).10.38
                      Throughput
      Agreement, dated as of April 7, 2009 to be effective as of 11:59 PM CDT
      March 31, 2009, by and among SemGroup Energy Partners, L.L.C. and
      SemCrude, L.P. (filed as Exhibit 10.6 to the Partnership’s Current Report
      on Form 8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.39
                      Terminalling
      and Storage Agreement, dated as of April 7, 2009 to be effective as of
      11:59 PM CDT March 31, 2009, by and between SemMaterials Energy Partners,
      L.L.C. and SemMaterials, L.P. (filed as Exhibit 10.7 to the Partnership’s
      Current Report on Form 8-K, filed on April 10, 2009, and incorporated
      herein by reference).10.40
                      Access
      and Use Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and between SemMaterials, L.P. and SemMaterials
      Energy Partners, L.L.C. (filed as Exhibit 10.8 to the Partnership’s
      Current Report on Form 8-K, filed on April 10, 2009, and incorporated
      herein by reference).10.41
                      Trademark
      License Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among SemGroup, L.P., SemMaterials, L.P. and
      SemGroup Energy Partners, L.P. (filed as Exhibit 10.9 to the Partnership’s
      Current Report on Form 8-K, filed on April 10, 2009, and incorporated
      herein by reference).10.42
                      Office
      Lease, dated as of April 7, 2009 to be effective as of 11:59 PM CDT March
      31, 2009, by and between SemGroup Energy Partners, L.L.C. and SemCrude,
      L.P. (filed as Exhibit 10.10 to the Partnership’s Current Report on Form
      8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.43
                      Building
      Lease, dated as of April 7, 2009 to be effective as of 11:59 PM CDT March
      31, 2009, by and between SemGroup Energy Partners, L.L.C. and SemCrude,
      L.P. (filed as Exhibit 10.11 to the Partnership’s Current Report on Form
      8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.44
                      Mutual
      Easement Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, among SemCrude, L.P., SemGroup Energy Partners,
      L.L.C., and SemGroup Crude Storage, L.L.C. (filed as Exhibit 10.12 to the
      Partnership’s Current Report on Form 8-K, filed on April 10, 2009, and
      incorporated herein by reference).10.45
                      Pipeline
      Easement Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among White Cliffs Pipeline, L.L.C.,
      SemGroup Energy Partners, L.L.C., and SemGroup Crude Storage, L.L.C.
      (filed as Exhibit 10.13 to the Partnership’s Current Report on Form 8-K,
      filed on April 10, 2009, and incorporated herein by
      reference).




108
 Table of Contents




Exhibit
      Number
                      Description10.46
                      Term
      Sheet, dated as of March 6, 2009 (filed as Exhibit 10.1 to the
      Partnership’s Current Report on Form 8-K, filed on March 10, 2009, and
      incorporated herein by reference).21.1*
                      List
      of Subsidiaries of SemGroup Energy Partners, L.P.23.1*
                      Consent
      of PricewaterhouseCoopers, L.L.P.23.2*
                      Consent
      of PricewaterhouseCoopers, L.L.P. for Exhibit 99.1.31.1*
                      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.”99.1*
                      SemGroup
      Energy Partners G.P., L.L.C. Financial
  Statements.
 
 *    Filed
herewith.


#     Certain
      portions of this exhibit have been granted confidential treatment by the
      Securities and Exchange Commission. The omitted portions have been
      separately filed with the Securities and Exchange
    Commission.


†     As
      required by Item 15(a)(3) of Form 10-K, this exhibit is identified as
      a compensatory plan or arrangement.







109
 Table of Contents




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) 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:  July
2,
2009                                                                                     By:      /s/ Alex G
Stallings


Alex G. Stallings


Chief Financial Officer and
Secretary




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on July 2, 2009.




Signature
                Title/s/
      Kevin L. Foxx
                President
      and Chief Executive Officer
                  (Principal
      Executive Officer)Kevin
      L. Foxx/s/
      Alex G. Stallings
                Chief
      Financial Officer and Secretary
                  (Principal
      Financial Officer)Alex
      G. Stallings/s/
      James R. Griffin
                Chief
      Accounting Officer
                  (Principal
      Accounting Officer)James
      R. Griffin/s/
      Duke R. Ligon
                DirectorDuke
      R. Ligon/s/
      Brian F. Billings
                DirectorBrian
      F. Billings/s/
      Edward F. Kosnik
                DirectorEdward
      F. Kosnik/s/
      Gabriel Hammond
                DirectorGabriel
      Hammond/s/
      Dave Miller
                DirectorDave
      Miller/s/
      David N. Bernfeld
                DirectorDavid
      N. Bernfeld







Table of Contents


INDEX
TO FINANCIAL STATEMENTS





SEMGROUP
      ENERGY PARTNERS, L.P. AUDITED FINANCIAL STATEMENTS:Report of Independent Registered Public
      Accounting Firm
            F-2Consolidated Balance Sheets as of December 31, 2007 and
      2008
            F-3Consolidated Statements of Operations for the Years Ended
      December 31, 2006, 2007 and 2008
            F-4Consolidated Statements of Changes in Division
      Equity/Partners’ Capital for the Years Ended December 31, 2006, 2007
      and 2008
            F-5Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2006, 2007 and 2008
            F-6Notes to the Consolidated Financial
      Statements
            F-7





F-1
 Table of Contents


Reportof Independent Registered Public Accounting
Firm




To the
Board of Directors of SemGroup Energy Partners G.P., L.L.C. and Unitholders of
SemGroup Energy Partners, L.P.:





In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statement of operations, of changes in partners' capital (deficit)
and cash flows present fairly, in all material respects, the financial position
of SemGroup Energy Partners, L.P. and subsidiaries (the “Partnership”) at
December 31, 2008 and 2007 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.  Also in our opinion, the Partnership maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2008 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Partnership's management is
responsible for these financial statements and for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting.  Our
responsibility is to express opinions on these financial statements, and on the
Partnership's internal control over financial reporting based on our audits
(which was an integrated audit in 2008).  We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects.  Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.  Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.





The
accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 19 to the
consolidated financial statements, the Partnership has substantial long-term
debt, a deficit in partners’ capital, significant litigation uncertainties, and
other issues, which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 19. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





A
partnership’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A partnership’s
internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the partnership; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the partnership’s assets
that could have a material effect on the financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





/s/
PricewaterhouseCoopers LLP


Tulsa,
Oklahoma


July 2,
2009


F-2
 Table of Contents


SEMGROUP ENERGY PARTNERS, L.P.


CONSOLIDATED
BALANCE SHEETS


(in
thousands, except per unit data)





As
      of December 31,2007
                    
                    
                    2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    416
                    
                    
                    $
                    28,785Accounts
      receivable, net of allowance for doubtful accounts of $0 and $554 at
      December 31, 2007 and December 31, 2008, respectively
                    
                    
                    2,666
                    
                    
                    
                    8,342Receivables
      from related parties, net of allowance for doubtful accounts of $0 for
      both dates
                    
                    
                    9,665
                    
                    
                    
                    18,912Prepaid
      insurance
                    
                    
                    797
                    
                    
                    
                    2,256Other
      current assets
                    
                    
                    442
                    
                    
                    
                    1,811Total
      current assets
                    
                    
                    13,986
                    
                    
                    
                    60,106Property,
      plant and equipment, net of accumulated depreciation of $40,222 and
      $80,277 at December 31, 2007 and December 31, 2008,
      respectively
                    
                    
                    102,239
                    
                    
                    
                    284,489Goodwill
                    
                    
                    6,340
                    
                    
                    
                    6,340Debt
      issuance costs
                    
                    
                    944
                    
                    
                    
                    1,956Intangibles
      and other assets, net
                    
                    
                    1,973
                    
                    
                    
                    1,750Total
      assets
                    
                    $
                    125,482
                    
                    
                    $
                    354,641LIABILITIES AND PARTNERS’ CAPITAL
      (DEFICIT)Current
      liabilities:Accounts
      payable
                    
                    $
                    3,045
                    
                    
                    $
                    2,610Payables
      to related parties
                    
                    
                    10,227
                    
                    
                    
                    20,134Accrued
      interest payable
                    
                    
                    449
                    
                    
                    
                    175Accrued
      property taxes payable
                    
                    
                    -
                    
                    
                    
                    1,951Interest
      rate swap settlements payable
                    
                    
                    -
                    
                    
                    
                    1,505Unearned
      revenue
                    
                    
                    -
                    
                    
                    
                    2,765Other
      accrued liabilities
                    
                    
                    340
                    
                    
                    
                    2,923Current
      portion of capital lease obligations
                    
                    
                    1,236
                    
                    
                    
                    866Total
      current liabilities
                    
                    
                    15,297
                    
                    
                    
                    32,929Long-term
      debt
                    
                    
                    89,600
                    
                    
                    
                    448,100Long-term
      capital lease obligations
                    
                    
                    1,123
                    
                    
                    
                    255Interest
      rate swaps liability
                    
                    
                    2,233
                    
                    
                    
                    -Commitments
      and contingencies (Notes 8, 15 and 19)Partners’
      capital (deficit):Common
      unitholders (14,375,000 and 21,557,309 units issued and outstanding at
      December 31, 2007 and December 31, 2008, respectively)
                    
                    
                    317,004
                    
                    
                    
                    481,007Subordinated
      unitholders (12,570,504 units issued and outstanding for both
      dates)
                    
                    
                    (287,210
                    )
                    
                    
                    (284,332
                    )General
      partner interest (2.0% interest with 549,908 and 690,725 general partner
      units outstanding at December 31, 2007 and December 31, 2008,
      respectively)
                    
                    
                    (12,565
                    )
                    
                    
                    (323,318
                    )Total
      Partners’ capital (deficit)
                    
                    
                    17,229
                    
                    
                    
                    (126,643
                    )Total
      liabilities and Partners’ capital (deficit)
                    
                    $
                    125,482
                    
                    
                    $
                    354,641





The
accompanying notes are an integral part of these financial
statements.


F-3
 Table of Contents


SEMGROUP ENERGY PARTNERS, L.P.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands, except per unit data)








Year
      ended December 31,2006
                
                
                2007
                
                
                2008Service
      revenue:Third
      party revenue
                
                $
                28,109
                
                
                $
                28,303
                
                
                $
                48,295Related
      party revenue
                
                
                730
                
                
                
                46,262
                
                
                
                143,885Total
      revenue
                
                
                28,839
                
                
                
                74,565
                
                
                
                192,180Expenses:Operating
                
                
                51,608
                
                
                
                67,182
                
                
                
                103,510Allowance
      for doubtful accounts
                
                
                -
                
                
                
                -
                
                
                
                568General
      and administrative
                
                
                11,097
                
                
                
                13,595
                
                
                
                43,085Total
      expenses
                
                
                62,705
                
                
                
                80,777
                
                
                
                147,163Operating
      income (loss)
                
                
                (33,866
                )
                
                
                (6,212
                )
                
                
                45,017Other
      expenses:Interest
      expense
                
                
                1,989
                
                
                
                6,560
                
                
                
                26,951Income
      (loss) before income taxes
                
                
                (35,855
                )
                
                
                (12,772
                )
                
                
                18,066Provisions
      for income taxes
                
                
                -
                
                
                
                141
                
                
                
                291Net
      income (loss)
                
                $
                (35,855
                )
                
                $
                (12,913
                )
                
                $
                17,775Allocation
      of net income (loss) to limited and subordinated partners:Net
      loss attributed to SemGroup Energy Partners Predecessor
                
                
                
                
                
                $
                (26,118
                )
                
                $
                -General
      partner interest in net income
                
                
                
                
                
                $
                264
                
                
                $
                3,334Net
      income allocable to limited and subordinated partners
                
                
                
                
                
                $
                12,941
                
                
                $
                14,441Basic
      and diluted net income per common unit
                
                
                
                
                
                $
                0.55
                
                
                $
                0.46Basic
      and diluted net income per subordinated unit
                
                
                
                
                
                $
                0.40
                
                
                $
                0.46Weighted
      average common units outstanding - basic and diluted
                
                
                
                
                
                
                14,375
                
                
                
                20,401Weighted
      average subordinated partners’ units outstanding - basic and
      diluted
                
                
                
                
                
                
                12,571
                
                
                
                12,571




The
accompanying notes are an integral part of these financial
statements.





F-4
 Table of Contents


SEMGROUP ENERGY PARTNERS, L.P.


CONSOLIDATED
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (DEFICIT)


(in
thousands)





Predecessor
      Division Equity
                
                
                Common
      Unitholders
                
                
                Subordinated
      Unitholders
                
                
                General
      Partner Interest
                
                
                Total
      Partners’ Capital (Deficit)Balance
      December 31, 2005
                
                $
                28,799
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                28,799Contributions
      from the Private Company
                
                
                69,202
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                69,202Net
      loss
                
                
                (35,855
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (35,855
                )Balance
      December 31, 2006
                
                
                62,146
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                62,146Contributions
      from the Private Company
                
                
                71,931
                
                
                
                -
                
                
                
                1
                
                
                
                -
                
                
                
                71,932Net
      loss from January 1, 2007 through July 19, 2007
                
                
                (26,118
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (26,118
                )Allocation
      of SGLP Predecessor equity in exchange for 12,500,000 common units,
      12,570,504 subordinated units and a 2% general partnership interest
      (represented by 549,908 units)
                
                
                28,504
                
                
                
                275,000
                
                
                
                (290,783
                )
                
                
                (12,721
                )
                
                
                -Distribution
      to SemGroup Holdings
                
                
                (136,463
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (136,463
                )Proceeds
      from sale of 1,875,000 common units, net of underwriters’ discount and
      offering expenses of $3.2 million
                
                
                -
                
                
                
                38,036
                
                
                
                -
                
                
                
                -
                
                
                
                38,036Net
      income from July 20, 2007 through December 31, 2007
                
                
                -
                
                
                
                6,903
                
                
                
                6,038
                
                
                
                264
                
                
                
                13,205Equity-based
      incentive compensation
                
                
                -
                
                
                
                631
                
                
                
                551
                
                
                
                24
                
                
                
                1,206Distributions
      paid
                
                
                -
                
                
                
                (3,566
                )
                
                
                (3,017
                )
                
                
                (132
                )
                
                
                (6,715
                )Balance,
      December 31, 2007
                
                
                -
                
                
                
                317,004
                
                
                
                (287,210
                )
                
                
                (12,565
                )
                
                
                17,229Net
      income
                
                
                -
                
                
                
                8,818
                
                
                
                5,623
                
                
                
                3,334
                
                
                
                17,775Equity-based
      incentive compensation
                
                
                -
                
                
                
                11,081
                
                
                
                6,526
                
                
                
                357
                
                
                
                17,964Distributions
      paid
                
                
                -
                
                
                
                (13,719
                )
                
                
                (9,271
                )
                
                
                (727
                )
                
                
                (23,717
                )Proceeds
      from sale of 6,900,000 common units, net of underwriters’ discount and
      offering expenses of $7.1 million
                
                
                -
                
                
                
                157,823
                
                
                
                -
                
                
                
                -
                
                
                
                157,823Proceeds
      from issuance of 140,817 general partner units
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,365
                
                
                
                3,365Consideration
      paid in excess of historical cost of assets acquired from Private
      Company
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (317,082
                )
                
                
                (317,082
                )Balance,
      December 31, 2008
                
                $
                -
                
                
                $
                481,007
                
                
                $
                (284,332
                )
                
                $
                (323,318
                )
                
                $
                (126,643
                )




The
accompanying notes are an integral part of these financial
statements.


F-5
 Table of Contents


SEMGROUP ENERGY PARTNERS, L.P.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)





Year
      Ended December 312006
                
                
                2007
                
                
                2008Cash
      flows from operating activities:Net
      income (loss)
                
                $
                (35,855
                )
                
                $
                (12,913
                )
                
                $
                17,775Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Provision
      for uncollectible receivables from third parties
                
                
                -
                
                
                
                -
                
                
                
                554Depreciation
      and amortization
                
                
                8,597
                
                
                
                9,478
                
                
                
                21,328Amortization
      and write off of debt issuance costs
                
                
                -
                
                
                
                93
                
                
                
                1,082Unrealized
      loss related to interest rate swaps
                
                
                -
                
                
                
                2,233
                
                
                
                -Loss
      on sale of assets
                
                
                405
                
                
                
                95
                
                
                
                251Equity-based
      incentive compensation
                
                
                -
                
                
                
                1,206
                
                
                
                17,964Changes
      in assets and liabilitiesIncrease
      in accounts receivable
                
                
                (444
                )
                
                
                (122
                )
                
                
                (6,230
                )Increase
      in receivables from related parties
                
                
                -
                
                
                
                (9,665
                )
                
                
                (9,247
                )Increase
      in prepaid insurance
                
                
                -
                
                
                
                -
                
                
                
                (1,459
                )Decrease
      (increase) in other current assets
                
                
                (23
                )
                
                
                17
                
                
                
                (1,674
                )Decrease
      (increase) in other assets
                
                
                -
                
                
                
                138
                
                
                
                (74
                )Increase
      (decrease) in accounts payable
                
                
                1,165
                
                
                
                (947
                )
                
                
                (485
                )Increase
      in payables to related parties
                
                
                -
                
                
                
                10,227
                
                
                
                9,907Decrease
      in accrued interest payable
                
                
                -
                
                
                
                -
                
                
                
                (274
                )Increase
      in accrued property taxes
                
                
                -
                
                
                
                -
                
                
                
                1,951Increase
      in interest rate swap settlements payable
                
                
                -
                
                
                
                -
                
                
                
                1,505Increase
      in unearned revenue
                
                
                -
                
                
                
                -
                
                
                
                2,765Increase
      (decrease) in other accrued liabilities
                
                
                374
                
                
                
                (394
                )
                
                
                2,583Decrease
      in interest rate swap liability
                
                
                -
                
                
                
                -
                
                
                
                (2,233
                )Net
      cash provided by (used in) operating activities
                
                
                (25,781
                )
                
                
                (554
                )
                
                
                55,989Cash
      flows from investing activities:Acquisition
      of assets from Private Company
                
                
                (9,835
                )
                
                
                -
                
                
                
                (514,668
                )Capital
      expenditures
                
                
                (31,640
                )
                
                
                (20,351
                )
                
                
                (6,016
                )Proceeds
      from sale of assets
                
                
                146
                
                
                
                366
                
                
                
                375Net
      cash used in investing activities
                
                
                (41,329
                )
                
                
                (19,985
                )
                
                
                (520,309
                )Cash
      flows from financing activities:Debt
      issuance costs
                
                
                -
                
                
                
                (1,037
                )
                
                
                (2,094
                )Payments
      on capital lease obligations
                
                
                (2,092
                )
                
                
                (1,748
                )
                
                
                (1,238
                )Borrowings
      under credit facility
                
                
                -
                
                
                
                158,450
                
                
                
                518,600Payments
      under credit facility
                
                
                -
                
                
                
                (68,850
                )
                
                
                (160,100
                )Proceeds
      from equity issuance, net of offering costs
                
                
                -
                
                
                
                38,036
                
                
                
                161,238Distributions
      paid
                
                
                -
                
                
                
                (143,178
                )
                
                
                (23,717
                )Contributions
      from Private Company
                
                
                69,202
                
                
                
                39,282
                
                
                
                -Net
      cash provided by financing activities
                
                
                67,110
                
                
                
                20,955
                
                
                
                492,689Net
      increase in cash and cash equivalents
                
                
                -
                
                
                
                416
                
                
                
                28,369Cash
      and cash equivalents at beginning of period
                
                
                -
                
                
                
                -
                
                
                
                416Cash
      and cash equivalents at end of period
                
                $
                -
                
                
                $
                416
                
                
                $
                28,785Supplemental
      disclosure of cash flow information:Predecessor
      liabilities not contributed to Partnership
                
                $
                -
                
                
                $
                32,650
                
                
                $
                -Increase
      (decrease) in accounts payable related to purchase of property, plant and
      equipment
                
                
                (859
                )
                
                
                (769
                )
                
                
                50Cash
      paid for interest, net of amount capitalized
                
                
                1,989
                
                
                
                3,639
                
                
                
                27,655Cash
      paid for income taxes
                
                
                -
                
                
                
                -
                
                
                
                141




The
accompanying notes are an integral part of these financial
statements.








F-6
 Table of Contents




SEMGROUP
ENERGY PARTNERS, L.P.
 NOTES TO 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.





F-7
 Table of Contents


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.




For the
year ended December 31, 2008, the Partnership derived approximately 73% of its
revenues, excluding fuel surcharge revenues related to fuel and power consumed
to operate its liquid asphalt cement storage tanks, from services it provided to
the Private Company.




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. 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 8 and
19 for a discussion of the impact of the Bankruptcy Filings and related events
upon the Partnership.





2.
BASIS OF PRESENTATION




The
accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern.  Prior to consummating
the Settlement (as defined below in Note 19), events of default existed under
the Partnership’s credit facility, including during the year ended December 31,
2008.  As discussed in Notes 8 and 19 to the financial statements, the
Partnership entered into the Credit Agreement Amendment (as defined below) under
which, among other things, the lenders under the Partnership’s credit facility
consented to the Settlement and waived all existing defaults and events of
default described in the Forbearance Agreement (as defined below) and amendments
thereto.  However, the Partnership continues to face uncertainty
relating to its ability to comply with certain financial covenants specified in
its credit facility, its exposure and sensitivity to interest rate risks given
the materiality of its borrowings under its credit facility, and uncertainties
related to securities and other litigation as discussed in Note
19.  These factors raise substantial doubt about the Partnership’s
ability to continue as a going concern.  Management’s plans in regard
to these matters are also discussed in Note 19.  The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.




The
accompanying consolidated financial statements and related notes include the
accounts of the Partnership, and prior to July 20, 2007, the operations
contributed to the Partnership by the Private Company in connection with the
Partnership’s initial public offering. The financial statements have been
prepared in accordance with accounting principles and practices generally
accepted in the United States of America (“GAAP”).




The
accompanying financial statements include the results of operations of crude oil
terminalling and storage and gathering and transportation operations that were
contributed to the Partnership prior to the closing of the Partnership’s initial
public offering on a carve-out basis and are referred to herein as the
“Predecessor.”  Both the Partnership and the Predecessor had common
ownership and, in accordance with Emerging Issues Task Force Issue
No. 87-21, “Change of Accounting Basis in Master Limited Partnership
Transactions,” the assets and liabilities transferred were carried forward to
the Partnership at their historical amounts.  Additionally, due to the
previous common control of the Private Company and the Partnership, the
subsequent acquisitions of fixed assets from the Private Company prior to the
Change of Control (as defined below in Note 19) 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.





F-8
 Table of Contents


Through
the date of the initial public offering, the Private Company provided cash
management services to the Predecessor through a centralized treasury system. As
a result, all of the Predecessor’s charges and cost allocations covered by the
centralized treasury system were deemed to have been paid to the Private Company
in cash during the period in which the cost was recorded in the financial
statements. In addition, cash advances by the Private Company in excess of cash
earned by the Predecessor are reflected as contributions from the Private
Company in the statements of cash flows.




Historically,
the Predecessor was a part of the integrated operations of the Private Company,
and neither the Private Company nor the Predecessor recorded revenue associated
with the terminalling and storage and gathering and transportation services
provided on an intercompany basis. The Private Company and the Predecessor
recognized only the costs associated with providing such services. Accordingly,
revenues reflected in these financial statements for all periods prior to the
contribution of the assets, liabilities and operations to the Partnership by the
Private Company on July 20, 2007 relate to services provided to third
parties. 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 13).  In
connection with the Settlement, the Private Company rejected the Throughput
Agreement and the Terminalling Agreement as part of its Bankruptcy Cases (as
defined below in Note 19).





The
accompanying financial statements include allocated general and administrative
charges from the Private Company for indirect corporate overhead to cover costs
of functions such as legal, accounting, treasury, environmental safety,
information technology and other corporate services. General and administrative
charges allocated by the Private Company prior to the contribution of the
assets, liabilities and operations to the Partnership by the Private Company
were $3.8 million and $3.2 million for the years ended December 31, 2006 and
2007, respectively. Management believes that the allocated general and
administrative expense is representative of the costs and expenses incurred by
the Private Company for the Predecessor. Prior to the close of its initial
public offering in July 2007, the Partnership entered into an 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 13).  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 in Note 19)
relating to the provision of such services (see Note 19).




3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




USE OF ESTIMATES —The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosure of
contingencies. Management makes significant estimates including:
(1) allowance for doubtful accounts receivable; (2) estimated useful
lives of assets, which impacts depreciation; (3) estimated cash flows and
fair values inherent in impairment tests under SFAS No. 142, “Goodwill and
Other Intangible Assets” (“SFAS 142”) and SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”); (4) estimated
fair value of assets and liabilities acquired and identification of associated
intangible assets; (5) accruals related to revenues and expenses; and
(6) liability and contingency accruals. Although management believes these
estimates are reasonable, actual results could differ from these
estimates.




RECLASSIFICATIONS — Certain
amounts in the Partnership’s consolidated financial statements have been
reclassified to conform to the 2008 presentation.  These
reclassifications did not impact previously reported net income or partners’
capital.


F-9
 Table of Contents




CASH AND CASH EQUIVALENTS —
The Partnership includes as cash and cash equivalents, cash and all investments
with maturities at date of purchase of three months or less which are readily
convertible into known amounts of cash.




ACCOUNTS RECEIVABLE — The
majority of the Partnership’s accounts receivable relate to its gathering and
transportation activities. Accounts receivable included in the balance sheets
are reflected net of the allowance for doubtful accounts of $0.0 million and
$0.6 million at December 31, 2007 and 2008, respectively.




The
Partnership reviews all outstanding accounts receivable balances on a monthly
basis and records a reserve for amounts that the Partnership expects will not be
fully recovered. Although the Partnership considers its allowance for doubtful
trade accounts receivable to be adequate, there is no assurance that actual
amounts will not vary significantly from estimated amounts.




PROPERTY, PLANT AND EQUIPMENT
— Property, plant and equipment are recorded at cost. Expenditures for
maintenance and repairs that do not add capacity or extend the useful life of an
asset are expensed as incurred. The carrying value of the assets is based on
estimates, assumptions and judgments relative to useful lives and salvage
values. As assets are disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is included in
other income in the statements of operations.




Depreciation
is calculated using the straight-line method, based on estimated useful lives of
the assets. These estimates are based on various factors including age (in the
case of acquired assets), manufacturing specifications, technological advances
and historical data concerning useful lives of similar assets. Uncertainties
that impact these estimates include changes in laws and regulations relating to
restoration and abandonment requirements, economic conditions, and supply and
demand in the area. When assets are put into service, management makes estimates
with respect to useful lives and salvage values that it believes are reasonable.
However, subsequent events could cause management to change its estimates, thus
impacting the future calculation of depreciation.




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 (see Note 15).  Such
obligations are recognized in the period incurred if reasonably estimable under
the provisions of SFAS No 143, “Accounting for Asset Retirement
Obligations.”




IMPAIRMENT OF LONG-LIVED
ASSETS — Long-lived assets with recorded values that are not expected to
be recovered through future cash flows are written-down to estimated fair value
in accordance with SFAS 144 as amended. Under SFAS 144, a long-lived
asset is tested for impairment when events or circumstances indicate that its
carrying value may not be recoverable. The carrying value of a long-lived asset
is not recoverable if it exceeds the sum of the undiscounted cash flows expected
to result from the use and eventual disposition of the asset. If the carrying
value exceeds the sum of the undiscounted cash flows, an impairment loss equal
to the amount by which the carrying value exceeds the fair value of the asset is
recognized. Fair value is generally determined from estimated discounted future
net cash flows. There were no asset impairments in the three year period ended
December 31, 2008.




DEBT ISSUANCE COSTS — Costs
incurred in connection with the issuance of long-term debt related to the
Partnership’s credit facilities are capitalized and amortized using the
straight-line method over the term of the related debt. Use of the straight-line
method does not differ materially from the “effective interest” method of
amortization.




GOODWILL AND OTHER INTANGIBLE
ASSETS — Goodwill represents the excess of the cost of acquisitions over
the amounts assigned to assets acquired and liabilities assumed. Goodwill is not
amortized but is tested annually for impairment and when events and
circumstances warrant an interim evaluation. Goodwill is tested for impairment
at a level of reporting referred to as a reporting unit. The Partnership has
three reporting segments comprised of (i) its crude oil terminalling and
storage operations, (ii) its crude oil gathering and transportation
operations and (iii) its asphalt operations. All of the Partnership’s goodwill
is attributed to its crude oil gathering and transportation reporting unit. If
the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired. Since adoption of SFAS 142, the
Partnership has not recognized any impairment of goodwill.


F-10
 Table of Contents




Acquired
customer relationships and non-compete agreements are capitalized and amortized
over useful lives ranging from 5 to 10 years using the straight-line method of
amortization. An impairment loss is recognized for amortizable intangibles if
the carrying amount of an intangible asset is not recoverable and its carrying
amount exceeds its fair value.  No impairment loss was recognized in
the three year period ended December 31, 2008.




ENVIRONMENTAL MATTERS —
Liabilities for loss contingencies, including environmental remediation costs,
arising from claims, assessments, litigation, fines, and penalties and other
sources are charged to expense when it is probable that a liability has been
incurred and the amount of the assessment and/or remediation can be reasonably
estimated. No material environmental liabilities exist as of December 31,
2008.




REVENUE RECOGNITION — The
Partnership’s revenues consist of (i) terminalling and storage revenues and
(ii) gathering and transportation revenues.




Terminalling
and storage revenues consist of (i) storage fees from actual storage used
on a month-to-month basis; (ii) storage fees resulting from short-term and
long-term contracts for committed space that may or may not be utilized by the
customer in a given month; and (iii) terminal throughput charges to pump
crude oil to connecting carriers or to deliver liquid asphalt cement out of the
Partnership’s terminals. Terminal throughput charges are recognized as the crude
oil exits the terminal and is delivered to the connecting crude oil carrier or
third-party terminal and as the liquid asphalt cement is delivered out of the
Partnership’s terminal. Storage revenues are recognized as the services are
provided and the amounts earned on a monthly basis. All terminalling and storage
revenues are based on actual volumes and rates.




Gathering
and transportation revenues consist of fees recognized for the gathering of
crude oil for the Partnership’s customers and the transportation of the crude
oil to refiners, to common carrier pipelines for ultimate delivery to refiners,
or to terminalling and storage facilities owned by the Partnership and others.
Revenue for the gathering and transportation of crude oil is recognized when the
service is performed and is based upon regulated and non-regulated tariff rates
and the related transport volumes.




INCOME AND OTHER TAXES — The
Partnership is not subject to federal income taxes. For federal and most state
income tax purposes, all income, gains, losses, expenses, deductions and tax
credits generated by the Partnership flow through to the unitholders of the
Partnership. Beginning in 2007, the state of Texas implemented a
partnership-level tax based on a percentage of the revenue earned for services
provided in the state of Texas. The Partnership has estimated its liability
related to this tax to be $0.1 million and $0.3 million at December 31,
2007 and 2008, respectively, which is reported as a provision for income taxes
on its consolidated statements of operations.  See “Taxation as a
Corporation” in Note 19 for a discussion of certain risks related to the
Partnership’s ability to be treated as a partnership for federal income tax
purposes.




STOCK BASED COMPENSATION — 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 general partner’s board of directors 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 earnings 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. Cash distributions paid on DERs are accounted for
as partnership distributions. Recipients of restricted units are entitled to
receive cash distributions paid on common units during the vesting period. The
unit-based awards granted during 2007 and 2008 have been accounted for under the
provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
123(R)”).




Under
SFAS 123(R), the Partnership classifies unit award grants as either equity
or liability awards. All award grants made under the Plan from its inception
through December 31, 2008 are classified as equity awards. Fair value for
award grants classified as equity is determined on the grant date of the award
and this value is recognized as compensation expense ratably over the requisite
service period of unit award grants, which generally is the vesting period. Fair
value for equity awards is calculated as the closing price of the Partnership’s
common units representing limited partner interests in the Partnership (“limited
partner units”) on the grant date. Compensation expense related to unit-based
payments is included in general and administrative expenses on the Partnership’s
consolidated statements of operations.


F-11
 Table of Contents




DERIVATIVE INSTRUMENTS — The
Partnership utilizes derivative instruments to manage its exposure to interest
rate risk. The Partnership records all derivative instruments on the balance
sheet as either assets or liabilities measured at their fair value under the
provisions of SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“SFAS 133”) . SFAS 133 requires that
changes in derivative instruments’ fair value be recognized currently in
earnings unless specific hedge accounting criteria are met, in which case,
changes in fair value are deferred to accumulated other comprehensive income and
reclassified into earnings when the underlying transaction affects earnings.
Changes in the fair value of the Partnership’s interest rate swaps are
recognized currently in earnings. See Note 8 for further
discussion.




4.
OTHER CURRENT ASSETS




Other
current assets consist of the following (in thousands):




December 31,2007
                
                
                2008Prepaid
      deposits
                
                $
                -
                
                
                $
                1,560Acquisitions
      in progress
                
                
                306
                
                
                
                -Other
      prepayments
                
                
                136
                
                
                
                251Total
      other current assets
                
                $
                442
                
                
                $
                1,811





5.
PROPERTY, PLANT AND EQUIPMENT




Property,
plant and equipment, net is stated at cost and consisted of the following (in
thousands):





EstimatedUseful
                    
                    
                    December
      31,
                    
                    
                    December
      31,Lives
      (Years)
                    
                    
                    2007
                    
                    
                    2008Land
                    
                    
                    
                    
                    $
                    309
                    
                    
                    $
                    15,065Land
      improvements
                    
                    
                    10-20
                    
                    
                    
                    -
                    
                    
                    
                    5,366Pipelines
      and facilities
                    
                    
                    5-31
                    
                    
                    
                    34,626
                    
                    
                    
                    95,010Storage
      and terminal facilities
                    
                    
                    10-35
                    
                    
                    
                    71,873
                    
                    
                    
                    166,950Transportation
      equipment
                    
                    
                    3-10
                    
                    
                    
                    25,133
                    
                    
                    
                    24,744Office
      property and equipment and other
                    
                    
                    3-31
                    
                    
                    
                    8,505
                    
                    
                    
                    19,972Construction-in-progress
                    
                    
                    
                    
                    
                    
                    2,015
                    
                    
                    
                    37,659Property,
      plant and equipment, gross
                    
                    
                    
                    
                    
                    
                    142,461
                    
                    
                    
                    364,766Accumulated
      depreciation
                    
                    
                    
                    
                    
                    
                    (40,222)
                    
                    
                    
                    (80,277)Property,
      plant and equipment, net
                    
                    
                    
                    
                    
                    $
                    102,239
                    
                    
                    $
                    284,489




Property,
plant and equipment includes assets under capital leases of $2.4 million and
$1.2 million, net of accumulated depreciation of $4.2 million and $5.3 million
at December 31, 2007 and 2008, respectively. All capital leases relate to
the transportation equipment asset category.  At December 31, 2008,
$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 has suspended capital
expenditures on this pipeline due to the continuing impact of the Bankruptcy
Filings (see Note 19).  Management currently intends to put the asset into
service in early 2010 and is exploring various alternatives to complete the
project.




Depreciation
expense for the years ended December 31, 2006, 2007 and 2008 was $8.5
million, $9.1 million and $21.0 million, respectively.


F-12
 Table of Contents




6.
INTANGIBLES AND OTHER ASSETS, NET




Other
assets, net of accumulated amortization, consist of the following (in
thousands):





December 31,2007
                                  
                                  
                                  2008Customer
      relationships
                                  
                                  $
                                  1,858
                                  
                                  
                                  $
                                  1,858Non-compete
      agreements
                                  
                                  
                                  557
                                  
                                  
                                  
                                  557Deposits
                                  
                                  
                                  4
                                  
                                  
                                  
                                  19Other
                                  
                                  
                                  -
                                  
                                  
                                  
                                  59Other
      assets, gross
                                  
                                  
                                  2,419
                                  
                                  
                                  
                                  2,493Accumulated
      amortization
                                  
                                  
                                  (446
                                  )
                                  
                                  
                                  (743
                                  )Other
      assets, net
                                  
                                  $
                                  1,973
                                  
                                  
                                  $
                                  1,750




Amortization
of intangibles for the years ended December 31, 2006, 2007 and 2008 were
$0.1 million, $0.3 million and $0.3 million, respectively. The estimated
aggregate amortization expense on amortizable intangible assets currently owned
by the Partnership is as follows (in thousands):




For
      twelve months ending:December 31,
      2009
                      
                      $
                      297December 31,
      2010
                      
                      
                      297December 31,
      2011
                      
                      
                      241December 31,
      2012
                      
                      
                      186December 31,
      2013
                      
                      
                      186Thereafter
                      
                      
                      465Total
      estimated aggregate amortization expense
                      
                      $
                      1,672




7.
ACQUISITIONS




On
June 30, 2006, the Private Company completed the acquisition of the assets
of Big Tex Crude Oil Company (“Big Tex”), a crude oil gathering, transportation
and marketing company located in Abilene and Midland, Texas, and in Hobbs, New
Mexico, for total consideration of approximately $15.5 million. Assets from this
acquisition assigned to the Partnership totaled $9.8 million, consisting
primarily of equipment, vehicles and intangibles related to customer
relationships and non-compete agreements, including goodwill of $1.6 million and
intangibles of $2.4 million.




The
Partnership has acquired various assets, including the Acquired Asphalt Assets,
the Acquired Pipeline Assets and the Acquired Storage Assets, from the Private
Company.  See Notes 1, 11 and 13 for a description of these
acquisitions.  In addition, the Partnership acquired certain liquid
asphalt cement assets and crude oil assets from the Private Company in
connection with the Settlement (see Note 19).





8.
LONG TERM DEBT




On
July 20, 2007, the Partnership entered into a $250.0 million five-year
credit facility with a syndicate of financial institutions. The Partnership
borrowed approximately $137.5 million prior to the closing of the initial
public offering. The Partnership distributed $136.5 million, net of debt
issuance costs of $1.0 million, advanced under the credit agreement to SemGroup
Holdings. On July 23, 2007, the Partnership repaid approximately $38.7
million under the credit facility with the proceeds it received in connection
with the exercise of the underwriters’ over-allotment option in the
Partnership’s initial public offering.




In
connection with its purchase of the Acquired Asphalt Assets, the Partnership
amended this credit facility to increase the total borrowing capacity to $600.0
million.




F-13
 Table of Contents


Due to
events related to the Bankruptcy Filings, events of default occurred under the
Partnership’s credit agreement (see Note 19).  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 19) 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 June 26, 2009, the Partnership had an aggregate unused
credit availability under its revolving credit facility of approximately $28.1
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.  For instance, Lehman Brothers Commercial Bank is one of the
lenders under the Partnership’s $50.0 million revolving credit facility, and
Lehman Brothers Commercial Bank has agreed to fund approximately $2.5 million
(approximately 5%) of the revolving credit facility.  On several occasions
Lehman Brothers Commercial Bank has failed to fund revolving loan requests under
the Partnership’s revolving credit facility, effectively limiting the aggregate
amount of the Partnership’s revolving credit facility to $47.5
million.




F-14
 Table of Contents


Prior to
the events of default, indebtedness under the credit agreement bore interest at
the Partnership’s option, at either (i) the higher of the administrative
agent’s prime rate or the federal funds rate plus 0.5% (the “Base rate”), plus
an applicable margin that ranges from 0.50% to 1.75%, depending on the
Partnership’s total leverage ratio and senior secured leverage ratio, or
(ii) LIBOR plus an applicable margin that ranges from 1.50% to 2.75%,
depending upon the Partnership’s total leverage ratio and senior secured
leverage ratio.  During the Forbearance Period indebtedness under the
credit agreement bore interest at the Partnership’s option, at either
(i) the Base rate, plus an applicable margin that ranges from 2.75% to
3.75%, depending upon the Partnership’s total leverage ratio, or (ii) LIBOR
plus an applicable margin that ranges from 4.25% to 5.25%, depending upon the
Partnership’s total leverage ratio.  Pursuant to the Second
Forbearance Amendment, commencing on December 12, 2008, indebtedness under the
credit agreement bore interest at the Partnership’s 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 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 now 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, now 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.





During
the three months ended December 31, 2008, the weighted average interest rate
incurred by the Partnership was 7.72% resulting in interest expense of
approximately $8.9 million.  During the twelve months ended December
31, 2006, 2007, and 2008, the Partnership capitalized interest of $1.1 million,
$0.7 million, and $0.9 million, respectively.




Among
other things, the Partnership’s credit facility, as amended by the Credit
Agreement Amendment, now 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 December 31, 2008, the Partnership estimates an additional principal
repayment of $436.6 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 December 31, 2008 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 December 31, 2008, the Partnership’s leverage ratio was
4.86 to 1.00. If the Partnership’s leverage ratio does not improve, it may
not make quarterly distributions to its unitholders in the future.




F-15
 Table of Contents


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 December 31,
2008, the Partnership’s interest coverage ratio was 3.58 to 1.00.




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.




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.  It is
also an event of default under the credit agreement if the Partnership does not
file its delinquent quarterly and annual reports with the SEC by September 30,
2009, unless the Partnership retains new auditors, in which case such deadline
is extended to December 31, 2009.  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.





The
Partnership capitalized debt issuance costs of approximately $1.0 million and
$2.1 million in 2007 and 2008, respectively, which are being amortized
straight-line through June 2011.  Amortization expense related to debt
issuance costs for the years ended December 31, 2007 and 2008 was $0.1 million
and $0.6 million, respectively.  In connection with the forbearance
agreements entered into in 2008, $0.5 million in debt issuance costs associated
with the Partnership’s credit facility were written off and recorded as
additional interest expense in 2008.




The
Partnership is exposed to market risk for changes in interest rates related to
its credit facility. Interest rate swap agreements were 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 do not receive hedge accounting
treatment under SFAS 133. Changes in the fair value of the interest rate swaps
are recorded in interest expense in the statements of operations.  In
addition, the interest rate swap agreements contain 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 has recorded a $1.5
million liability as of December 31, 2008 with respect to these
positions.





F-16
 Table of Contents


9.
FAIR VALUE MEASUREMENTS




The
Partnership adopted SFAS No. 157, “ Fair Value Measurements ,”
effective January 1, 2008 for financial assets and liabilities measured on
a recurring basis. SFAS No. 157 applies to all financial assets and
financial liabilities that are being measured and reported on a fair value
basis. In February 2008, the FASB issued FSP No. 157-2, which delayed the
effective date of SFAS No. 157 by one year for nonfinancial assets and
liabilities except those that are recognized and recorded in the financial
statements at fair value on a recurring basis. As defined in SFAS No. 157, fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price). SFAS No. 157 requires disclosure that
establishes a framework for measuring fair value and expands disclosure about
fair value measurements. The statement requires fair value measurements be
classified and disclosed in one of the following categories:




Level
      1:
            
            Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or liabilities. The Partnership
      considers active markets as those in which transactions for the assets or
      liabilities occur in sufficient frequency and volume to provide pricing
      information on an ongoing basis.Level
      2:
            
            Quoted
      prices in markets that are not active, or inputs which are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability.Level
      3:
            
            Measured
      based on prices or valuation models that require inputs that are both
      significant to the fair value measurement and less observable from
      objective sources (i.e., supported by little or no market activity). The
      Partnership’s Level 3 instruments are comprised of interest rate
      swaps.  Although the Partnership utilizes third party broker
      quotes to assess the reasonableness of its prices and valuation, the
      Partnership does not have sufficient corroborating market evidence to
      support classifying these assets and liabilities as Level
    2.





As
required by SFAS No. 157, financial assets and liabilities are classified
based on the lowest level of input that is significant to the fair value
measurement. The Partnership’s assessment of the significance of a particular
input to the fair value measurement requires judgment, and may affect the
valuation of the fair value of assets and liabilities and their placement within
the fair value hierarchy levels.





The
following table sets forth a reconciliation of changes in the fair value of the
Partnership’s net financial liabilities classified as level 3 in the fair value
hierarchy (in thousands):





Fair
      Value Measurements Using
                            Significant
      Unobservable Inputs
                            (Level
      3)
                            For
      the Year Ended December 31, 2008Beginning
      balance
                          
                          $
                          (2,233)Total
      gains or losses (realized/unrealized)Included
      in earnings (1)
                          
                          
                          2,785Included
      in other comprehensive incomePurchases,
      issuances, and settlements
                          
                          
                          (552)Transfers
      in and/or out of Level 3
                          
                          
                          -Ending
      balance, December 31, 2008
                          
                          $
                          -The
      amount of total losses for the period includedin
      earnings attributable to the change in the unrealizedgains
      or losses relating to liabilities still held atthe
      reporting date
                          
                          $
                          -(1)
      Amounts reported as included in earnings are reported as interest expense
      on the statements of operations.





F-17
 Table of Contents


10.
NET INCOME PER LIMITED PARTNER UNIT




Subject
to applicability of Emerging Issues Task Force Issue No. 03-06 (“EITF
03-06”), “Participating Securities and the Two-Class Method under Financial
Accounting Standards Board (“FASB”) Statement No. 128,” as discussed below,
Partnership income is allocated to the limited partners, including the holders
of subordinated units, and to the general partner after consideration of its
incentive distribution rights.  Income allocable to the limited
partners is first allocated to the common unitholders up to the quarterly
minimum distribution of $0.3125 per unit, with remaining income allocated to the
subordinated unitholders up to the minimum distribution amount. Basic and
diluted net income per common and subordinated partner unit is determined by
dividing net income attributable to common and subordinated partners by the
weighted average number of outstanding common and subordinated partner units
during the period.




EITF
03-06 addresses the computation of earnings per share by entities that have
issued securities other than common stock that contractually entitle the holder
to participate in dividends and earnings of the entity when, and if, it declares
dividends on its common stock (or partnership distributions to unitholders).
Under EITF 03-06, in accounting periods where the Partnership’s aggregate net
income exceeds aggregate dividends declared in the period, the Partnership is
required to present earnings per unit as if all of the earnings for the periods
were distributed.  The twelve months ended December 31, 2008 earnings
per share calculation reflects the summation of the quarterly calculations, as
earnings per share for master limited partnerships is calculated based on the
distribution provisions set forth in the partnership
agreement.  The following sets forth the computation of basic and
diluted net income per common and subordinated unit (in thousands, except per
unit data):





January
      1, 2007 to
                  
                  
                  July
      20, 2007 to
                  
                  
                  Twelve
      Months EndedJuly
      19,
                  
                  
                  December
      31,
                  
                  
                  December
      31,2007
                  
                  
                  2007
                  
                  
                  2008Net
      income (loss)
                  
                  $
                  (26,118
                  )
                  
                  $
                  13,205
                  
                  
                  $
                  17,775Less:
      General partner interest in net income (loss)
                  
                  
                  (26,118
                  )
                  
                  
                  264
                  
                  
                  
                  3,334Net
      income available to limited and subordinated partners
                  
                  $
                  -
                  
                  
                  $
                  12,941
                  
                  
                  $
                  14,441Basic
      weighted average number of units:Common
      units
                  
                  
                  
                  
                  
                  
                  14,375
                  
                  
                  
                  20,401Subordinated
      units
                  
                  
                  
                  
                  
                  
                  12,571
                  
                  
                  
                  12,571Restricted
      and phantom units
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  525Diluted
      weighted average number of units:Common
      units
                  
                  
                  
                  
                  
                  
                  14,375
                  
                  
                  
                  20,401Subordinated
      units
                  
                  
                  
                  
                  
                  
                  12,571
                  
                  
                  
                  12,571Restricted
      and phantom units
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  525Basic
      and diluted net income per common unit
                  
                  
                  
                  
                  
                  $
                  0.55
                  
                  
                  $
                  0.46Basic
      and diluted net income per subordinated unit
                  
                  
                  
                  
                  
                  $
                  0.40
                  
                  
                  $
                  0.46




11.
PARTNERS’ CAPITAL AND DISTRIBUTIONS




In
accordance with the terms of its partnership agreement, each quarter the
Partnership distributes all of its available cash (as defined) to its
unitholders. Generally, distributions are allocated first, 98% to the common
unitholders and 2% to its general partner until the Partnership distributes for
each common unit an amount equal to the minimum quarterly distribution $0.3125
per unit. Subject to any arrearages in the minimum quarterly distribution to the
common unitholders, amounts then are distributed 98% to the subordinated
unitholders and 2% to the general partner up to the minimum quarterly
distribution for the quarter. Amounts distributable above the minimum quarterly
amount are generally distributed 98% to all unitholders and 2% to its general
partner, subject to the incentive distribution rights of the general partner.
The incentive distribution rights entitle the general partner to receive
increasing percentages, up to a maximum of 50%, of cash the Partnership
distributes in excess of $0.3594 per unit each quarter. Distributions are also
paid to the holders of restricted units and phantom units as disclosed in Note
14.


F-18
 Table of Contents




On
October 25, 2007, the Partnership declared a pro-rated cash distribution of
$0.24 per unit on its outstanding units. The distribution was paid on
November 14, 2007 to unitholders of record on November 1, 2007. The
distribution was pro-rated for the partial quarter following the closing of the
Partnership’s initial public offering and therefore corresponded to the period
July 23, 2007 through September 30, 2007. The total distribution paid
was approximately $6.7 million, with approximately $3.5 million, $3.0 million,
and $0.1 million paid to the Partnership’s common unitholders, subordinated
unitholders and general partner, respectively, and $0.1 million paid to phantom
and restricted unitholders pursuant to awards granted under the Partnership’s
long-term incentive plan.




On
January 24, 2008, the Partnership declared a cash distribution of $0.3375
per unit on its outstanding units. The distribution was paid on
February 14, 2008 to unitholders of record on February 1, 2008. The
distribution is for the period October 1, 2007 through December 31,
2007. The total distribution paid was approximately $9.5 million, with
approximately $4.9 million, $4.2 million, and $0.2 million paid to the
Partnership’s common unitholders, subordinated unitholders and general partner,
respectively, and $0.2 million paid to phantom and restricted unitholders
pursuant to awards granted under the Partnership’s long-term incentive
plan.





On
February 20, 2008, the Partnership purchased 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, and 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.  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 April
24, 2008, the Partnership declared a cash distribution of $0.40 per unit on its
outstanding units for the three month period ended March 31,
2008.  The distribution was paid on May 15, 2008 to unitholders of
record on May 5, 2008. The total distribution paid was approximately $14.3
million, with approximately $8.5 million, $5.0 million, and $0.6 million paid to
the Partnership’s common unitholders, subordinated unitholders and general
partner, respectively, and $0.2 million paid to phantom and restricted
unitholders pursuant to awards granted under the Partnership’s long-term
incentive plan.





On May
12, 2008, the Partnership purchased 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, and 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 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.





On May
30, 2008, the Partnership purchased the Acquired Storage Assets from the Private
Company 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, and 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 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.





F-19
 Table of Contents


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 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 $126.6 million as of December 31, 2008.  As a result of the Private
Company’s control of the Partnership’s general partner, the Partnership was
subject to the risk that the Private Company may favor its own interest in
proposing the terms of any acquisition (or drop downs) the Partnership makes
from the Private Company and such terms may not be as favorable as those
received from an unrelated third party.  The Board approved the
acquisition of the Acquired Asphalt Assets, the Acquired Pipeline Assets, and
Acquired Storage 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 these transactions and considered
a number of factors in approving the acquisitions, including opinions from the
committee’s independent financial advisor that the consideration paid for the
Acquired Asphalt Assets, the Acquired Pipeline Assets, and the Acquired Storage
Assets was fair, from a financial point of view, to the
Partnership.




12.
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK




Nexen
Marketing USA, Inc. accounted for 14% of the Predecessor’s revenues for the year
ended December 31, 2006. No other customers accounted for 10% or more of
the Predecessor’s revenues during the year ended December 31, 2006. As a
result of entering into the Throughput Agreement with the Private Company in
conjunction with the Partnership’s initial public offering, the revenues
generated by this customer was replaced by fees charged for services provided to
the Private Company.




For the
years ended December 31, 2007 and 2008, the Private Company accounted for
approximately 62% and 73%, respectively, of the Partnership’s revenues,
excluding fuel surcharge revenues related to fuel and power consumed to operate
its liquid asphalt cement storage tanks. As a result of the Bankruptcy Filings,
the Partnership has made efforts to replace revenues generated by services
provided to the Private Company with revenues generated from services provided
to other third party customers (see Note 19).




No other
customers accounted for 10% or more of the Partnership’s revenues during the
years ended December 31, 2007 and 2008.




Financial
instruments that potentially subject the Partnership to concentrations of credit
risk consist principally of trade receivables. The Partnership’s accounts
receivable are primarily from producers, purchasers and shippers of crude oil
and liquid asphalt cement and at times will include the Private Company. This
industry concentration has the potential to impact the Partnership’s overall
exposure to credit risk in that the customers may be similarly affected by
changes in economic, industry or other conditions. The Partnership reviews
credit exposure and financial information of its counterparties and generally
require letters of credit for receivables from customers that are not considered
creditworthy, unless the credit risk can otherwise be reduced.





13.
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 years ended
December 31, 2007 and 2008, the Partnership recognized revenue of $45.6 million
and $77.7 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 year ended December 31, 2008, the Partnership recognized
revenue of $65.8 million under the Terminalling Agreement, including fuel
surcharge 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 $135.0 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 19).




F-20
 Table of Contents


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 19.




As of
December 31, 2007 and 2008, the Partnership had $9.7 million and $18.9
million, respectively, in receivables from the Private Company and its
subsidiaries, including the pre-petition receivables that will be netted
and waived due to the Settlement of $0 and $10.5 million,
respectively.  The $10.5 million relates to amounts that were due from
the Private Company as of December 31, 2008 and are considered prepetition debt
in the Bankruptcy Cases.  In connection with the Settlement, these
pre-petition related party receivables will be netted against pre-petition
related party payables and waived (see Note 19).




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, 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 years ended December 31, 2007 and 2008, the Partnership
paid the Private Company $2.2 million and $6.9 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 of the Partnership’s
general partner.  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 19).  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 19).





The
Partnership also reimburses the Private Company for direct operating payroll and
payroll-related costs and other operating costs associated with services the
Private Company’s employees provide to the Partnership. For the years ended
December 31, 2007 and 2008, the Partnership recorded $10.5 million and $30.5
million, respectively, in compensation costs and $1.3 and $3.2 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, 2007 and 2008, the
Partnership had $10.2 million and $20.1 million in payables to
the Private Company and its subsidiaries, including the pre-petition payables
that will be netted and waived due to the Settlement of $0 and $10.6 million,
respectively.  Pursuant to the Settlement, these pre-petition related
party payables will be netted against pre-petition claims related party
receivables and waived (see Note 19).  After the effective date of the
Settlement, these costs will be reimbursed pursuant to the Shared Services
Agreement and the Transition Services Agreement (see Note 19).  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 19).




The
Partnership has acquired various assets, including the Acquired Asphalt Assets,
the Acquired Pipeline Assets and the Acquired Storage Assets, from the Private
Company.  See Notes 1 and 11 for a description of these
acquisitions.  In addition, the Partnership acquired certain liquid
asphalt cement assets and crude oil assets from the Private Company in
connection with the Settlement (see Note 19).





During
the year ended December 31, 2008 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 $1.3 million for
services it provided to this entity in 2008, and as of December 31, 2008 the
Partnership has a $0.7 million receivable from this entity.




F-21
 Table of Contents


During
the years ended December 31, 2007 and 2008, the Partnership made payments of
$1.2 million and $2.2 million, respectively, to a third party entity on
whose board of directors a former member of the Board served in connection with
leased transport trucks and trailers utilized in the Partnership’s crude oil
gathering and transportation services segment. At December 31, 2008 the
Partnership had future commitments to this entity totaling $7.7
million.




During
2008, the Partnership had a banking relationship with a third party banking
entity on whose board of directors a former member of the Board
served.





14.
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 under SFAS 123(R), 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 of the Partnership’s general partner related to the Private
Company’s liquidity issues, all outstanding awards as of July 18, 2008
vested.  The Partnership’s equity-based incentive compensation expense
for the years ended December 31, 2007 and 2008 was $1.2 million and $19.4
million, respectively.  Equity-based compensation allocated from the
Private Company to the Partnership for the year ended December 31, 2006 was
not significant.  On August 14, 2008, 282,309 common units were issued
in connection with the vesting of certain of the outstanding
awards.  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, and as of December 31, 2008, these were the only awards
outstanding under the Plan.  In April 2009, the 1,667 restricted
subordinated units were cancelled and were replaced by a grant of 1,667
restricted common units.  In the year ended December 31, 2008, there
were no forfeitures of awards.





F-22
 Table of Contents


15.
COMMITMENTS AND CONTINGENCIES




The
Partnership leases certain real property, equipment and operating facilities
under various operating and capital leases. It also incurs costs associated with
leased land, rights-of-way, permits and regulatory fees, the contracts for which
generally extend beyond one year but can be cancelled at any time should they
not be required for operations. Future non-cancellable commitments related to
these items at December 31, 2008, are summarized below (in
thousands):




Capital
                  Leases
                
                
                Operating
                  LeasesFor
      twelve months ending:December 31,
      2009
                
                $
                933
                
                
                $
                3,752December 31,
      2010
                
                
                261
                
                
                
                3,282December 31,
      2011
                
                
                1
                
                
                
                2,890December 31,
      2012
                
                
                -
                
                
                
                1,672December 31,
      2013
                
                
                -
                
                
                
                417Thereafter
                
                
                -
                
                
                
                239Total
      future minimum lease payments
                
                
                1,195
                
                
                $
                12,252Less
      amount representing interest
                
                
                (74
                )Net
      future minimum lease payments
                
                
                1,121Less
      current portion
                
                
                (866
                )$
                255




Rental
expense related to leases was $1.3 million, $2.4 million and $3.8 million for
each of the years ended December 31, 2006, 2007 and 2008,
respectively.




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 Note
19).  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 its
common units and the Partnership’s ability to conduct its business.





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. Management believes that these legal proceedings will not 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, 2007 or 2008.




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.




F-23
 Table of Contents


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.




16.
ENVIRONMENTAL REMEDIATION




The
Partnership maintains insurance of various types with varying levels of coverage
that it considers adequate under the circumstances to cover its operations and
properties. The insurance policies are subject to deductibles and retention
levels that the Partnership considers reasonable and not excessive. Consistent
with insurance coverage generally available in the industry, in certain
circumstances the Partnership’s insurance policies provide limited coverage for
losses or liabilities relating to gradual pollution, with broader coverage for
sudden and accidental occurrences. Although the Partnership maintains a program
designed to prevent and, as applicable, to detect and address such releases
promptly, damages and liabilities incurred due to environmental releases from
its assets may substantially affect its business.




At
December 31, 2007 and 2008, the Partnership was not aware of any existing
conditions that may cause it to incur significant expenditures in the future for
the remediation of existing contamination. As such, the Partnership has not
reflected in the accompanying financial statements any liabilities for
environmental obligations to be incurred in the future based on existing
contamination. Changes in the Partnership’s estimates and assumptions may occur
as a result of the passage of time and the occurrence of future
events.





17.
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 reporting unit and the
asphalt services reporting unit due to both units having the same primary
customer (the Private Company) and similar service contracts.  As a
result of the Bankruptcy Filings, the services provided by these reporting units
are no longer for the same customer base nor are they based on contracts with
similar provisions.  As a result, the Partnership now has three
reporting 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.




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.





F-24
 Table of Contents




The
Partnership’s management evaluates performance based upon segment operating
margin, which includes revenues from affiliates 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:





Crude
      Oil Terminalling and Storage
                                    
                                    
                                    Crude
      Oil Gathering and Transportation
                                    
                                    
                                    Asphalt
      Services
                                    
                                    
                                    Total(in
      thousands)Year
      ended December 31, 2006Service
      revenueThird
      party revenue
                                    
                                    $
                                    8,345
                                    
                                    
                                    $
                                    19,764
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    28,109Related
      party revenue
                                    
                                    
                                    730
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    730Total
      revenue for reportable segments
                                    
                                    
                                    9,075
                                    
                                    
                                    
                                    19,764
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    28,839
                                    (1)Operating
      expense (excluding depreciation and amortization)
                                    
                                    
                                    2,334
                                    
                                    
                                    
                                    40,677
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    43,011Operating
      margin (excluding depreciation and amortization)
                                    
                                    
                                    6,741
                                    
                                    
                                    
                                    (20,913
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (14,172
                                    )(2)Additions
      to long-lived assets
                                    
                                    
                                    22,586
                                    
                                    
                                    
                                    13,969
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    36,555Total
      assets (end of period)
                                    
                                    
                                    54,221
                                    
                                    
                                    
                                    50,626
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    104,847Year
      ended December 31, 2007Service
      revenueThird
      party revenue
                                    
                                    $
                                    7,857
                                    
                                    
                                    $
                                    20,446
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    28,303Related
      party revenue
                                    
                                    
                                    16,894
                                    
                                    
                                    
                                    29,368
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    46,262Total
      revenue for reportable segments
                                    
                                    
                                    24,751
                                    
                                    
                                    
                                    49,814
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    74,565
                                    (1)Operating
      expense (excluding depreciation and amortization)
                                    
                                    
                                    2,024
                                    
                                    
                                    
                                    55,680
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    57,704Operating
      margin (excluding depreciation and amortization)
                                    
                                    
                                    22,727
                                    
                                    
                                    
                                    (5,866
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    16,861
                                    (2)Additions
      to long-lived assets
                                    
                                    
                                    12,566
                                    
                                    
                                    
                                    7,016
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    19,582Total
      assets (end of period)
                                    
                                    
                                    65,508
                                    
                                    
                                    
                                    59,974
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    125,482Year
      ended December 31, 2008Service
      revenueThird
      party revenue
                                    
                                    $
                                    13,877
                                    
                                    
                                    $
                                    34,416
                                    
                                    
                                    $
                                    2
                                    
                                    
                                    $
                                    48,295Related
      party revenue
                                    
                                    
                                    28,089
                                    
                                    
                                    
                                    49,953
                                    
                                    
                                    
                                    65,843
                                    
                                    
                                    
                                    143,885Total
      revenue for reportable segments
                                    
                                    
                                    41,966
                                    
                                    
                                    
                                    84,369
                                    
                                    
                                    
                                    65,845
                                    
                                    
                                    
                                    192,180Operating
      expense (excluding depreciation and amortization)
                                    
                                    
                                    2,353
                                    
                                    
                                    
                                    58,269
                                    
                                    
                                    
                                    21,560
                                    
                                    
                                    
                                    82,182Allowance
      for doubtful accounts
                                    
                                    
                                    -
                                    
                                    
                                    
                                    568
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    568Operating
      margin (excluding depreciation and amortization)
                                    
                                    
                                    39,613
                                    
                                    
                                    
                                    25,532
                                    
                                    
                                    
                                    44,285
                                    
                                    
                                    
                                    109,430
                                    (2)Additions
      to long-lived assets
                                    
                                    
                                    17,299
                                    
                                    
                                    
                                    38,834
                                    
                                    
                                    
                                    147,766
                                    
                                    
                                    
                                    203,899Total
      assets (end of period)
                                    
                                    
                                    89,450
                                    
                                    
                                    
                                    103,238
                                    
                                    
                                    
                                    161,953
                                    
                                    
                                    
                                    354,641





(1)  Historically,
the Predecessor was a part of the integrated operations of the Private Company,
and neither the Private Company nor the Predecessor recorded revenue associated
with the terminalling and storage and gathering and transportation services
provided on an intercompany basis.  Accordingly, revenues reflected
for all periods prior to the contribution of the assets, liabilities and
operations to the Partnership by the Private Company on July 20, 2007 are
substantially services provided to third parties.





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





Year
      Ended December 31,2006
                
                
                2007
                
                
                2008(in
      thousands)Operating
      margin (excluding depreciation and amortization)
                
                $
                (14,172
                )
                
                $
                16,861
                
                
                $
                109,430Depreciation
      and amortization
                
                
                8,597
                
                
                
                9,478
                
                
                
                21,328General
      and administrative expenses
                
                
                11,097
                
                
                
                13,595
                
                
                
                43,085Interest
      expense
                
                
                1,989
                
                
                
                6,560
                
                
                
                26,951Income
      (loss) before income taxes
                
                $
                (35,855
                )
                
                $
                (12,772
                )
                
                $
                18,066


F-25
 Table of Contents




18.
RECENTLY ISSUED ACCOUNTING STANDARDS




In April
2009, the Financial and Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) Statement No. 107-1 and Accounting Principles Board (APB)
28-1 (collectively, FSP FAS 107-1), “Interim Disclosures about Fair Value of
Financial Instruments.”  FSP FAS 107-1 amends FAS 107, “Disclosures about
Fair Value of Financial Instruments,” to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information.  The FSP FAS 107-1 also amends APB Opinion 28, “Interim
Financial Reporting,” to require those disclosures in summarized financial
information at interim reporting periods. Under FSP FAS 107-1, the Partnership
will be 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 will be 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.  FSP FAS 107-1 is effective for periods ending after
June 15, 2009. The Partnership is currently evaluating the impact FSP FAS
107-1 may have on our consolidated financial statements.




In
June 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 03-6-1, “ Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities “ (“EITF 03-6-1”).  EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (“EPS”) under the
two-class method.  EITF 03-6-1 will be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those years.  All prior-period EPS data presented will be
adjusted retrospectively to conform with the provisions of EITF 03-6-1. The
Partnership is evaluating the expected impact of adoption of EITF
03-6-1.




In
April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) No. FAS 142-3 “ Determination of the Useful Life of
Intangible Assets “ (“FSP No. FAS 142-3”).  FSP No. FAS
142-3 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, “ Goodwill and Other Intangible
Assets “ (“SFAS 142”).  The intent of this FSP is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (revised 2007), “ Business Combinations ,” and
other GAAP.  This FSP will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years.  The Partnership is evaluating the expected impact;
however, it believes adoption will not impact the Partnership’s financial
position, results of operations or cash flows.




In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.
133” (“SFAS No. 161”). This Statement requires enhanced disclosures about the
Partnership’s derivative and hedging activities. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Partnership will adopt SFAS No. 161 beginning
January 1, 2009. With the adoption of this statement, the Partnership does
not expect any significant impact on its financial position, results of
operations or cash flows.




In March
2008, the Emerging Issues Task Force (“EITF”) of the FASB reached a final
consensus on Issue No. 07-4, “Application of the Two-Class Method under
FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships”
(“Issue No. 07-4”). This conclusion reached by the EITF affects how a
master limited partnership (“MLP”) allocates income between its general partner,
which typically holds incentive distribution rights (“IDRs”) along with the
general partner interest, and the limited partners. It is not uncommon for MLPs
to experience timing differences between the recognition of income and
partnership distributions. The amount of incentive distribution is typically
calculated based on the amount of distributions paid to the MLP’s partners. The
issue is whether current period earnings of an MLP should be allocated to the
holders of IDRs as well as the holders of the general and limited partnership
interests when applying the two-class method under SFAS No. 128, “Earnings Per
Share.”




F-26
 Table of Contents


The
conclusion reached by the EITF in Issue No. 07-4 is that when current
period earnings are in excess of cash distributions, the undistributed earnings
should be allocated to the holders of the general partner interest, the holders
of the limited partner interest and incentive distribution rights holders based
upon the terms of the partnership agreement. Under this model, contractual
limitations on distributions to incentive distribution rights holders would be
considered when determining the amount of earnings to allocate to them. That is,
undistributed earnings would not be considered available cash for purposes of
allocating earnings to incentive distribution rights holders. Conversely, when
cash distributions are in excess of earnings, net income (or loss) should be
reduced (increased) by the distributions made to the holders of the general
partner interest, the holders of the limited partner interest and incentive
distribution rights holders. The resulting net loss would then be allocated to
the holders of the general partner interest and the holders of the limited
partner interest based on their respective sharing of the losses based upon the
terms of the partnership agreement.




Issue
No. 07-4 is effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. The accounting treatment is
effective for all financial statements presented. The Partnership does not
expect the impact of the adoption of Issue 07-4 on its presentation of
earnings per unit to be significant.




In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.”  This statement requires assets acquired and
liabilities assumed to be measured at fair value as of the acquisition date,
acquisition related costs incurred prior to the acquisition to be expensed and
contractual contingencies to be recognized at fair value as of the acquisition
date. This statement is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The Partnership is currently
assessing the impact, if any, the adoption of this statement will have on its
financial position, results of operations or cash flows.





19.
EVENTS RELATED TO THE BANKRUPTCY FILINGS AND SUBSEQUENT EVENTS




Due to
the events related to the Bankruptcy Filings described herein, including the
uncertainty relating to the Partnership’s ability to comply with certain
restrictive financial covenants specified in its credit facility, its exposure
and sensitivity to interest rate risks given the materiality of its borrowings
under its credit facility, and uncertainties related to securities and other
litigation, the Partnership faces substantial doubt as to its ability to
continue as a going concern.  While it is not feasible to predict the
ultimate outcome of the events surrounding the Bankruptcy Cases (as defined
below), the Partnership has been and could continue to be materially and
adversely affected by such events and it may be forced to 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.




Bankruptcy
Filings




On July
17, 2008, the Partnership issued a press release announcing that the Private
Company was experiencing liquidity issues and was exploring various
alternatives, including raising additional equity, debt capital or the filing of
a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
to address these issues.  The Partnership filed this press release in
a Current Report on Form 8-K filed with the SEC on July 18, 2008.




On July
22, 2008 and thereafter, the Private Company and certain of its subsidiaries
made the Bankruptcy Filings.  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”). None of the Partnership, its general partner, the
subsidiaries of the Partnership nor the subsidiaries of the general partner are
debtors in the Bankruptcy Cases.  However, because of the contractual
relationships with the Private Company and certain of its subsidiaries, the
Bankruptcy Filings have adversely impacted the Partnership and may in the future
impact the Partnership in various ways, including the items discussed
below.  The Partnership’s financial results as of December 31, 2008
also reflect a $0.6 million allowance for doubtful accounts related to amounts
due from third parties as of December 31, 2008.  The allowance related
primarily 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 the Partnership.  Also, due to the change of
control of the Partnership’s general partner related to the Private Company’s
liquidity issues, all outstanding awards under the Plan vested on July 18, 2008,
resulting in an incremental $18.0 million in non-cash compensation expense for
the year ended December 31, 2008 (see Note 14).  In addition to the
allowance for doubtful accounts and non-cash compensation expense described
above, the results of operations for the year ended December 31, 2008 included
in this annual report were affected by the Bankruptcy Filings and related
events, which resulted in decreased revenues and increased general and
administrative expenses as described below under “—Partnership Revenues,” and
“—Other Effects,” respectively.




F-27
 Table of Contents


Board
and Management Composition




On July
9, 2008, Edward F. Kosnik was appointed as an independent member of the
Board.  Mr. Kosnik is the chairman of the compensation committee
and also serves on the audit committee and the conflicts committee of the Board.
Under the provisions of the Plan, Mr. Kosnik was granted an award of 5,000
restricted common units on July 9, 2008. These restricted common units
vested on July 18, 2008 in connection with the change of control of the
Partnership’s general partner described below.




On July
18, 2008, Manchester Securities Corp. (“Manchester”) and Alerian Finance
Partners, LP (“Alerian”), as lenders to SemGroup Holdings, the sole member of
the Partnership’s general partner, exercised certain rights described below
under a Loan Agreement and a Pledge Agreement, each dated June 25, 2008 (the
“Holdings Credit Agreements”), that were triggered by certain events of default
under the Holdings Credit Agreements.  On March 20, 2009, Alerian
transferred its interest in the Holdings Credit Agreements to Manchester
(Alerian is still potentially entitled to receive a portion of certain potential
recoverable value from such interest).  The Holdings Credit Agreements
are secured by the subordinated units and incentive distribution rights of the
Partnership and the membership interests in the Partnership’s general partner
owned by SemGroup Holdings.  Manchester has not foreclosed on the
subordinated units of the Partnership owned by SemGroup Holdings or the
membership interests in the Partnership’s general partner.  Manchester
may in the future exercise other remedies available to them under the Holdings
Credit Agreement and related loan documents, including taking action to
foreclose on the collateral securing the loan.  Neither the
Partnership nor the Partnership’s general partner is a party to the Holdings
Credit Agreements or the related loan documents.





On July
18, 2008, Manchester and Alerian exercised their right under the Holdings Credit
Agreements in connection with certain events of default thereunder to vote the
membership interests of the Partnership’s general partner in order to
reconstitute the Board (the “Change of Control”).  Messrs. Thomas L.
Kivisto, Gregory C. Wallace, Kevin L. Foxx, Michael J. Brochetti and W. Anderson
Bishop were removed from the Board.  Mr. Bishop had served as the
chairman of the audit committee and as a member of the conflicts committee and
compensation committee of the Board.  Messrs. Sundar S. Srinivasan,
David N. Bernfeld and Gabriel Hammond (each of whom is affiliated with
Manchester or Alerian) were appointed to the Board.  Mr. Srinivasan
was elected as Chairman of the Board.  Messrs. Brian F. Billings and
Edward F. Kosnik remain as independent directors of the Board and continue to
serve as members of the conflicts committee, audit committee and compensation
committee of the Board.  In addition, Messrs. Foxx and Alex Stallings
resigned the positions each officer held with SemGroup, L.P. in July
2008.  Mr. Brochetti had previously resigned from his position with
SemGroup, L.P. in March 2008.  Messrs. Foxx, Brochetti and Stallings
remain as officers of the Partnership’s general partner.




On
October 1, 2008, Dave Miller (who is an affiliate of Manchester) and Duke R.
Ligon were appointed members of the Board. Mr. Ligon is an independent member of
the Board and is the chairman of the audit committee and also serves on the
compensation committee and the conflicts committee of the Board. Under the
provisions of the Plan, Mr. Ligon was granted an award of 3,333 restricted
common units and 1,667 restricted subordinated units on December 23, 2008 (see
Note 14). In April 2009, the 1,667 restricted subordinated units granted to Mr.
Ligon were cancelled and replaced with 1,667 restricted common units (see Note
14).  The restricted common units granted to Mr. Ligon vest in
one-third increments over a three-year period.




On
January 9, 2009, Mr. Srinivasan resigned his positions as Chairman of the Board
and as a director.  Mr. Ligon was subsequently elected as Chairman of
the Board.




On March
18, 2009, the Board realigned the officers of the Partnership’s general partner
appointing Michael J. Brochetti as Executive Vice President—Corporate
Development and Treasurer, Alex G. Stallings as Chief Financial Officer and
Secretary, and James R. Griffin as Chief Accounting Officer.  Mr.
Brochetti had previously served as Chief Financial Officer, Mr. Stallings had
previously served as Chief Accounting Officer and Secretary and Mr. Griffin had
previously served as controller.





SemGroup
Holdings is party to the Bankruptcy Cases.  On May 15, 2009, the
Private Company filed the Reorganization Plan.  The Reorganization
Plan does not address the reorganization of SemGroup Holdings, including the
satisfaction of any obligations it has to Manchester under the Holdings Credit
Agreements or the disposition of the ownership interests in the Partnership’s
general partner or the Partnership’s subordinated units and incentive
distribution rights.  The membership units in the Partnership’s
general partner, as well as the Partnership’s subordinated units and its
incentive distribution rights, may be transferred, without the consent of the
Partnership’s unitholders, to a third party as part of the Bankruptcy Cases or
subsequent to the resolution of the Bankruptcy Cases.  Furthermore,
Manchester may transfer all or a portion of its interests in the Holdings Credit
Agreements (including its rights to vote the membership interest in the
Partnership’s general partner) to a third party.  Any new owner of the
Partnership’s general partner or holder of such voting rights would be in a
position to replace the board of directors and officers of the Partnership’s
general partner with its own choices and thereby influence the decisions made by
the board of directors and officers.  In addition, any such change of
control of the Partnership or its general partner will result in an event of
default under the Partnership’s credit agreement, may result in additional
uncertainty in the Partnership’s operations and business and could have a
material adverse effect on the Partnership’s business, cash flows, ability to
make distributions to its unitholders, the price of its common units, its
results of operations and ability to conduct its business.





F-28
 Table of Contents


Bankruptcy
Court Order




On
September 9, 2008, the Bankruptcy Court entered an order relating to the
settlement of certain matters between the Partnership and the Private Company
(the “Order”) in the Bankruptcy Cases.  Among other things, the Order
provided that (i) the Private Company was to directly pay any utility costs
attributable to the operations of the Private Company at certain shared
facilities, and the Private Company was to pay the Partnership for past utility
cost reimbursements that were due from the Private Company; (ii) commencing
on September 15, 2008, payments under the Terminalling Agreement were netted
against amounts due under the Amended Omnibus Agreement and were made on the
15th day of each month for the prior month (with a three business-day grace
period); (iii) the Private Company provided the Partnership with a letter of
credit in the amount of approximately $4.9 million to secure the Private
Company’s postpetition obligations under the Terminalling Agreement; (iv) the
Private Company was to make payments under the Throughput Agreement for the
month of August on September 15, 2008 (with a three business-day grace period)
based upon the monthly contract minimums in the Throughput Agreement and netted
against amounts due under the Amended Omnibus Agreement; (v) the Private Company
was to make payments under the Throughput Agreement for the months of September
and October on October 15, 2008 (with a three business-day grace period) and
November 15, 2008 (with a three business-day grace period), respectively, or
three business days after amounts due are determined and documentation therefore
was provided and exchanged based upon actual volumes for each such month and at
a rate equal to the average rate charged by the Partnership to third-party
shippers in the same geographical area, with any such amounts netted against
amounts due under the Amended Omnibus Agreement; (vi) the parties were to
reevaluate the Throughput Agreement and the payment terms with respect to
services provided after October 2008; (vii) representatives of the Private
Company and the Partnership were to meet to discuss the transition to the
Partnership of certain of the Private Company’s employees necessary to maintain
the Partnership’s business, and pending agreement between the parties, the
Private Company was to continue to provide services in accordance with the
Amended Omnibus Agreement through at least November 30, 2008; (viii) the Private
Company was to consent to an order relating a third-party storage contract which
provided that the Partnership was the rightful owner of the rights in and to a
certain third-party storage agreement and the corresponding amounts due
thereunder; and (ix) the Partnership was to enter into a specified lease with
the Private Company to permit the Private Company to construct a
pipeline.





Settlement
with the Private Company




On March
12, 2009, the Bankruptcy Court held a hearing and approved the transactions
contemplated by a term sheet (the “Settlement Term Sheet”) relating to the
settlement of certain matters between the Private Company and the Partnership
(the “Settlement”).  The Bankruptcy Court entered an order approving
the Settlement upon the terms contained in the Settlement Term Sheet on March
20, 2009.  The Partnership and the Private Company executed definitive
documentation, in the form of a master agreement (the “Master Agreement”), dated
April 7, 2009 to be effective as of 11:59 PM CDT March 31, 2009, and certain
other transaction documents to effectuate the Settlement and that superseded the
Settlement Term Sheet.  The Bankruptcy Court entered an order
approving the Master Agreement and the Settlement on April 7,
2009.  In addition, in connection with the Settlement, the Partnership
and the requisite lenders under the Partnership’s secured credit facility
entered into the Credit Agreement Amendment 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.




F-29
 Table of Contents


The
Settlement provided for the following:




·
            the
      Partnership transferred certain crude oil storage assets located in Kansas
      and northern Oklahoma to the Private
Company;




·
            the
      Private Company transferred ownership of 355,000 barrels of crude oil tank
      bottoms and line fill to the
Partnership;




·
            the
      Private Company rejected the Throughput
  Agreement;




·
            the
      Partnership and one of its subsidiaries have a $20 million unsecured claim
      against the Private Company and certain of its subsidiaries relating to
      rejection of the Throughput
Agreement;




·
            the
      Partnership and the Private Company entered into the New Throughput
      Agreement (as defined below) pursuant to which the Partnership provides
      certain crude oil gathering, transportation, terminalling and storage
      services to the Private Company;




·
            the
      Partnership offered employment to certain crude oil
    employees;




·
            the
      Private Company transferred its asphalt assets that are connected to the
      Acquired Asphalt Assets to the
Partnership;




·
            the
      Private Company rejected the Terminalling
  Agreement;




·
            a
      subsidiary of the Partnership has a $35 million unsecured claim against
      the Private Company and certain of its subsidiaries relating to rejection
      of the Terminalling Agreement;




·
            the
      Partnership and the Private Company entered into the New Terminalling
      Agreement (as defined below) pursuant to which the Partnership provides
      liquid asphalt cement terminalling and storage services for the Private
      Company’s remaining asphalt
inventory;




·
            the
      Private Company agreed to remove all of its remaining asphalt inventory
      from the Partnership’s asphalt storage facilities no later than October
      31, 2009;




·
            the
      Private Company will be entitled to receive 20% of the proceeds of any
      sale by the Partnership of any of the asphalt assets transferred to the
      Partnership in connection with the Settlement that occurs prior to
      December 31, 2009;




·
            the
      Private Company rejected the Amended Omnibus
  Agreement;




·
            the
      Partnership and the Private Company entered into the Shared Services
      Agreement (as defined below) pursuant to which the Private Company
      provides certain operational services for the
  Partnership;




·
            other
      than as provided above, the Partnership and the Private Company entered
      into mutual releases of claims relating to the rejection of the
      Terminalling Agreement, the Throughput Agreement and the Amended Omnibus
      Agreement;




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




·
            the
      Private Company and the Partnership resolved certain remaining issues
      related to the contribution of crude oil assets to the Partnership in
      connection with the Partnership’s initial public offering, the
      Partnership’s acquisition of the Acquired Asphalt Assets, the
      Partnership’s acquisition of the Acquired Pipeline Assets and the
      Partnership’s acquisition of the Acquired Storage Assets, including the
      release of claims relating to such acquisitions;
  and




·
            the
      Partnership and the Private Company entered into the Trademark Agreement
      (as defined below) which provides the Partnership with a non-exclusive,
      worldwide license to use certain trade names, including the name
      “SemGroup”, and the corresponding mark until December 31, 2009, and the
      Private Company waived claims for infringement relating to such trade
      names and mark prior to the date of such license
  agreement.





Management
is obtaining independent valuations of the assets transferred.  Certain
terms of transaction documents relating to the Settlement are discussed in more
detail below.





F-30
 Table of Contents


Shared
Services Agreement





In
connection with the Settlement, the Partnership entered into a Shared Services
Agreement, dated April 7, 2009 to be effective as of 11:59 PM CDT March 31, 2009
(the “Shared Services Agreement”), with the Private Company.  Pursuant
to the Shared Services Agreement, the Private Company will provide certain
general shared services, Cushing shared services (as described below), and SCADA
services (as described below) to the Partnership.





The
general shared services include crude oil movement services, Department of
Transportation services, right-of-way services, environmental services, pipeline
and civil structural maintenance services, safety services, pipeline truck
station maintenance services, project support services and truck dispatch
services.  The fees for such general shared services are fixed at
$125,000 for the month of April 2009.  Thereafter the fees will be
calculated in accordance with the formulas contained therein.  The
Private Company has agreed to provide the general shared services for three
years (subject to earlier termination as provided therein) and the term may be
extended an additional year by mutual agreement of the parties.





The
Cushing shared services include operational and maintenance services related to
terminals at Cushing, Oklahoma.  The fees for such Cushing shared
services are fixed at $20,000 for the month of April
2009.  Thereafter the fees will be calculated in accordance with the
formulas contained therein.  The Private Company has agreed to provide
the Cushing shared services for three years (subject to earlier termination as
provided therein) and the term may be extended an additional year by mutual
agreement of the parties.





The SCADA
services include services related to the operation of the SCADA system which is
used in connection with the Partnership’s crude oil operations.  The
fees for such SCADA services are fixed at $15,000 for the month of April
2009.  Thereafter the fees will be calculated in accordance with the
formulas contained therein.  The Private Company has agreed to provide
the SCADA services for five years (subject to earlier termination as provided
therein) and the Partnership may elect to extend the term for two subsequent
five year periods.





Transition
Services Agreement





In
connection with the Settlement, the Partnership entered into a Transition
Services Agreement, dated April 7, 2009 to be effective as of 11:59 PM CDT March
31, 2009 (the “Transition Services Agreement”), with the Private
Company.  Pursuant to the Transition Services Agreement, the Private
Company will provide certain corporate, crude oil and asphalt transition
services, in each case for a limited amount of time, to the
Partnership.





Transfer
of Crude Oil Assets





In
connection with the Settlement, 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 its interests in
the SCADA System, a crude oil inventory tracking system, to the Private
Company.





In
addition, 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.





Transfer
of Asphalt Assets





In
connection with the Settlement, 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 transfer of the
Private Company’s 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.





F-31
 Table of Contents


New
Throughput Agreement





In
connection with the Settlement, the Partnership and the Private Company entered
into a Throughput Agreement, dated as of April 7, 2009 to be effective as of
11:59 PM CDT March 31, 2009 (the “New Throughput Agreement”), pursuant to which
the Partnership provides certain crude oil gathering, transportation,
terminalling and storage services to the Private Company.





Under the
New Throughput Agreement, the Partnership charges the following fees: (i)
barrels gathered via gathering lines will be charged a gathering rate of $0.75
per barrel, (ii) barrels transported within Oklahoma will be charged $1.00 per
barrel while barrels transported on the Masterson Mainline will be charged $0.55
per barrel, (iii) barrels transported by truck will be charged in accordance
with the schedule contained therein, including a fuel surcharge, (iv) storage
fees shall equal $0.50 per barrel per month for product located in storage tanks
located in Cushing, Oklahoma and $0.44 per barrel per month for product not
located in dedicated Cushing storage tanks, and (v) a delivery charge of $0.08
per barrel will be charged for deliveries out of the Cushing Interchange
Terminal. The New Throughput Agreement has an initial term of one year with
additional automatic one-month renewals unless either party terminates the
agreement upon thirty-days prior notice.





New
Terminalling and Storage Agreement





In
connection with the Settlement, the Partnership and the Private Company entered
into a Terminalling and Storage Agreement, dated as of April 7, 2009 to be
effective as of 11:59 PM CDT March 31, 2009 (the “New Terminalling Agreement”),
pursuant to which the Partnership provides certain asphalt terminalling and
storage services for the remaining asphalt inventory of the Private
Company.  Storage services under the New Terminalling Agreement are
equal to $0.565 per barrel per month multiplied by the total shell capacity in
barrels for each storage tank where the Private Company and its affiliates have
product; provided that if the Private Company removes all product from a storage
tank prior to the end of the month, then the storage service fees shall be
pro-rated for such month based on the number of calendar days storage was
actually used.  Throughput fees under the New Terminalling Agreement
are equal to $9.25 per ton; provided that no fees are payable for transfers of
product between storage tanks located at the same or different
terminals.  The New Terminalling Agreement has an initial term that
expires on October 31, 2009, which may be extended for one month by mutual
agreement of the parties.





New
Access and Use Agreement





In
connection with the Settlement, the Partnership and the Private Company entered
into an Access and Use Agreement, dated as of April 7, 2009 to be effective as
of 11:59 PM CDT March 31, 2009 (the “New Access and Use Agreement”), pursuant to
which the Partnership will allow the Private Company access rights to the
Partnership’s asphalt facilities relating to its existing asphalt
inventory.  The term of the Access and Use Agreement will end
separately for each terminal upon the earlier of October 31, 2009 or until all
of the existing asphalt inventory of the Private Company is removed from such
terminal.





Trademark
Agreement





In
connection with the Settlement, the Private Company and the Partnership entered
into a Trademark License Agreement, dated as of April 7, 2009 to be effective as
of 11:59 PM CDT March 31, 2009 (the “Trademark Agreement”), pursuant to which
the Private Company granted the Partnership a non-exclusive, worldwide license
to use certain trade names, including the name “SemGroup”, and the corresponding
mark until December 31, 2009, and the Private Company waived claims for
infringement relating to such trade names and mark prior to the effective date
of the Trademark Agreement.





Building
and Office Leases





In
connection with the Settlement, the Partnership leased office space in Oklahoma
City, Oklahoma and certain facilities in Cushing, Oklahoma to the Private
Company.  The terms for the leases expire on March 31,
2014.  The rents for such leases are as described in the exhibits
thereto.





F-32
 Table of Contents


Easements





In
connection with the Settlement, the Partnership and the Private Company granted
mutual easements relating to access, facility improvements, existing and future
pipeline rights and corresponding rights of ingress and egress for properties
owned by the parties at Cushing, Oklahoma.  In addition, the
Partnership granted the Private Company certain pipeline easements at Cushing,
Oklahoma, together with the corresponding rights of ingress and
egress.





Partnership
Revenues




For the
year ended December 31, 2008, the Partnership derived approximately 73% of its
revenues, excluding fuel surcharge revenues related to fuel and power consumed
to operate its liquid asphalt cement storage tanks, from services it provided to
the Private Company and its subsidiaries.  Prior to the Order and the
Settlement, the Private Company was obligated to pay the Partnership 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.  As described above, 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, the
Partnership 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 the Partnership and the Private
Company entered into the New Throughput Agreement and the New Terminalling
Agreement.  The Partnership expects revenues from services provided to
the Private Company under the New Throughput Agreement and New Terminalling
Agreement to be 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.




The
Partnership has 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, the Partnership increased its third-party
terminalling and storage revenue from approximately $1.0 million, or
approximately 10% of total terminalling and storage revenue during the
second quarter of 2008, to approximately $4.6 million and $8.4 million, or
approximately 41% and 83% of total terminalling and storage revenue for the
third and fourth quarter of 2008, 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, the Partnership increased its third-party crude oil 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 $10.9 million and $13.6 million, or approximately 51% and 85% of
total crude oil gathering and transportation revenue for the third and
fourth quarter of 2008, 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 crude oil services provided to the Private Company due to the termination of
the monthly contract minimum revenues under the Throughput Agreement in
September 2008.  Average rates for the new third-party crude oil
terminalling and storage and gathering and transportation contracts are
comparable with those previously received from the Private
Company.  However, the volumes being terminalled, stored, gathered and
transported have decreased as compared to periods prior to the Bankruptcy
Filings, which has negatively impacted total revenues.  As an example,
fourth quarter 2008 total revenues are approximately $9.5 million (or
approximately 19%) less than second quarter 2008 total revenues, in each case
excluding fuel surcharge revenues related to fuel and power consumed to operate
its liquid asphalt cement storage tanks.




In
addition, the Partnership has recently entered into leases and storage
agreements with third parties relating to 45 of its 46 asphalt
facilities.




F-33
 Table of Contents


The
Partnership has entered into various crude oil transportation and storage
contracts with third parties and is 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 the Partnership due to the Bankruptcy
Filings.  The Private Company may also choose to curtail its
operations or liquidate its assets as part of the Bankruptcy
Cases.  As a result, unless the Partnership is able to generate
additional third party revenues, the Partnership will continue to experience
lower volumes in its system which could have a material adverse effect on its
results of operations and cash flows.





Asphalt
Operations




Historically,
the Partnership provided liquid asphalt cement terminalling and storage services
to the Private Company pursuant to the Terminalling Agreement.  In
connection with the Settlement, the Private Company rejected the Terminalling
Agreement and the Partnership and the Private Company entered into the New
Terminalling Agreement whereby the Partnership provides liquid asphalt cement
terminalling and storage services to the Private Company in connection with its
remaining asphalt inventory.  The New Terminalling Agreement has an
initial term that ends on October 31, 2009 and the Private Company has agreed to
remove all of its existing asphalt inventory no later than such date, and the
Partnership expects that the Private Company may remove it much earlier than
such date.  Also in connection with the Settlement, the Private
Company transferred certain asphalt assets to the Partnership that were
connected to the Partnership’s existing asphalt assets.  The transfer
of the Private Company’s 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
asphalt industry in the United States is characterized by a high degree of
seasonality. Much of this seasonality is due to the impact that weather
conditions have on road construction schedules, particularly in cold weather
states. Refineries produce liquid asphalt cement year round, but the peak
asphalt demand season is during the warm weather months when most of the road
construction activity in the United States takes place. As a result, liquid
asphalt cement is typically purchased from refineries at low prices in the low
demand winter months and then processed and sold at higher prices in the peak
summer demand season.  Any significant decrease in the amount of
revenues that the Partnership receives from its liquid asphalt cement
terminalling, storage and processing operations could have a material adverse
effect on the Partnership’s cash flows, financial condition and results of
operations.




The
Partnership has recently entered into leases and storage agreements with third
parties relating to 45 of its 46 asphalt
facilities.




The
revenues that the Partnership will receive pursuant to these leases and storage
agreements will be less than the revenues received under the Terminalling
Agreement with the Private Company.  Without sufficient revenues from its
asphalt assets, the Partnership may be unable to meet the covenants, including
the minimum liquidity, minimum EBITDA and minimum receipt requirements, under
its credit agreement.





Operation
and General Administration of the Partnership




As is the
case with many publicly traded partnerships, the Partnership has not
historically directly employed any persons responsible for managing or operating
the Partnership or for providing services relating to day-to-day business
affairs.  Pursuant to the Amended Omnibus Agreement, the Private
Company operated the Partnership’s assets and performed other administrative
services for the Partnership such as accounting, legal, regulatory, development,
finance, land and engineering.  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 and the Transition Services Agreement relating to the
provision of such services.  In addition, in connection with the
Settlement, the Partnership made offers of employment to, and now employs,
certain individuals associated with its crude oil operations and subsequently
made additional offers of employment to, and now employs, certain individuals
associated with its asphalt operations.  The costs to directly employ
these individuals as well as the costs under the Shared Services Agreement and
the Transition Services Agreement may be higher than those previously paid by
the Partnership under the Amended Omnibus Agreement, which could have a material
adverse effect on the Partnership’s business, cash flows, ability to make
distributions to its unitholders, the price of its common units, its results of
operations and ability to conduct its business.




F-34
 Table of Contents


In
addition, in connection with the Settlement, the Partnership agreed to not
solicit the Private Company’s employees for a year from the time of the
Settlement.  In connection with the Bankruptcy Cases, the Private
Company may reduce a substantial number of its employees or some of the Private
Company’s employees may choose to terminate their employment with the Private
Company, some of whom may currently be providing general and administrative and
operating services to the Partnership under the Shared Services Agreement or the
Transition Services Agreement.  Any reductions in critical personnel
who provide services to the Partnership and any increased costs to replace such
personnel could have a material adverse effect on the Partnership’s business,
cash flows, ability to make distributions to its unitholders, the price of its
common units, its results of operations and ability to conduct its
business.





Intellectual
Property Rights




Pursuant
to the Amended Omnibus Agreement, the Partnership licensed the use of certain
trade names and marks, including the name “SemGroup.”  This license
terminated automatically upon the Change of Control.  In connection
with the Settlement, the Private Company and the Partnership entered into the
Trademark Agreement, pursuant to which the Private Company granted the
Partnership a non-exclusive, worldwide license to use certain trade names,
including the name “SemGroup” and the corresponding mark, until December 31,
2009, and the Private Company waived claims for infringement relating to such
trade names and mark prior to the effective date of such Trademark
Agreement (see “—Settlement with the Private Company”).  As such, the
Partnership will be required to change its name and trademark upon or prior to
the expiration of the Trademark Agreement.  The expenses associated
with such a change may be significant, which 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 its common units and its ability to conduct its
business.




Credit
Facility




As
described in Note 8, in connection with the events related to the Bankruptcy
Filings, events of default occurred under the Partnership’s credit
agreement.  On September 18, 2008, the Partnership and the requisite
lenders under its credit facility entered into the Forbearance Agreement
relating to such events of default.  On April 7, 2009, the Partnership
and the requisite lenders entered into the Credit Agreement Amendment, under
which the lenders consented to the Settlement and waived all existing defaults
and events of default described in the Forbearance Agreement and amendments
thereto.  See Note 8 for more information regarding the Partnership’s
credit facility, the Forbearance Agreement and the Credit Agreement
Amendment.





Distributions
to Unitholders





The
Partnership did not make a distribution to its common unitholders, subordinated
unitholders or general partner attributable to the results of operations for the
quarters ended June 30, 2008, September 30, 2008, December 31, 2008 or March 31,
2009 due to the events of default under its credit agreement and the uncertainty
of its future cash flows relating to the Bankruptcy Filings.  In
addition, the Partnership does not currently expect to make a distribution
relating to the second quarter of 2009. 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 cash distribution for such periods.  The
Partnership distributed approximately $14.3 million to its unitholders for the
three months ended March 31, 2008.  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 December 31, 2008, the Partnership’s leverage
ratio was 4.86 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.





F-35
 Table of Contents


Nasdaq
Delisting




Effective
at the opening of business on February 20, 2009, trading in the Partnership’s
common units was suspended on the Nasdaq Global Market (“Nasdaq”) due to its
failure to timely file its periodic reports with the SEC, and the Partnership’s
common units were subsequently delisted from Nasdaq.  The
Partnership’s common units are currently traded on the Pink Sheets, which is an
over-the-counter securities market, under the symbol SGLP.PK.  The
fact that the Partnership’s common units are not listed on a national securities
exchange is likely to make trading such common units more difficult for
broker-dealers, unitholders and investors, potentially leading to further
declines in the price of the common units.  In addition, it may limit
the number of institutional and other investors that will consider investing in
the Partnership’s common units, which may have an adverse effect on the price of
its common units.  It may also make it more difficult for the
Partnership to raise capital in the future.




The
Partnership continues to work to become compliant with its SEC reporting
obligations and intends to promptly seek the relisting of its common units on
Nasdaq as soon as practicable after it has become compliant with such reporting
obligations.  However, the Partnership may not be able to relist its
common units on Nasdaq or any other national securities exchange, and the
Partnership may face a lengthy process to relist its common units if it is able
to relist them at all.





Claims
Against and By the Private Company’s Bankruptcy Estate




In
connection with the Settlement, the Partnership and the Private Company entered
into mutual releases regarding certain claims.  In addition, the
Settlement provided that the Partnership has a $35 million unsecured claim
against the Private Company relating to the rejection of the Terminalling
Agreement and a $20 million unsecured claim against the Private Company relating
to rejection of the Throughput Agreement.  On May 15, 2009, the Private
Company filed the Reorganization Plan.  If such plan is confirmed
without material amendment, the Partnership’s claims will be impaired, and the
Partnership will recover substantially less than the nominal value of such
claims if it recovers anything.  The Partnership may also have additional
claims against the Private Company that were not released in connection with the
Settlement, and the Private Company may also have additional claims against the
Partnership that were not released in connection with the
Settlement.  Any claims asserted by the Partnership against the
Private Company in the Bankruptcy Cases will be subject to the claim allowance
procedure provided in the Bankruptcy Code and bankruptcy rules.  If an
objection is filed, the Bankruptcy Court will determine the extent to which any
such claim that has been objected to is allowed and the priority of such
claim.




Governmental
Investigations




On July
21, 2008, the Partnership received a letter from the staff of the SEC giving
notice that the SEC is conducting an inquiry relating to the Partnership and
requesting, among other things, that the Partnership voluntarily preserve,
retain and produce to the SEC certain documents and information relating
primarily to the Partnership’s disclosures respecting the Private Company’s
liquidity issues, which were the subject of the Partnership’s July 17, 2008
press release.  On October 22, 2008, the Partnership received a
subpoena from the SEC pursuant to a formal order of investigation requesting
certain documents relating to, among other things, the Private Company’s
liquidity issues.  The Partnership has been cooperating, and intends
to continue cooperating, with the SEC in its investigation.




On July
23, 2008, the Partnership and its general partner each received a Grand Jury
subpoena from the United States Attorney’s Office in Oklahoma City, Oklahoma,
requiring, among other things, that the Partnership and its general partner
produce financial and other records related to the Partnership’s July 17, 2008
press release.  The Partnership has been informed that the U.S.
Attorneys’ Offices for the Western District of Oklahoma and the Northern
District of Oklahoma are in discussions regarding the subpoenas, and no date has
been set for a response to the subpoenas.  The Partnership and its
general partner intend to cooperate fully with this investigation if and when it
proceeds.





F-36
 Table of Contents


Securities
and Other 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 United States Judicial Panel on Multidistrict
Litigation (“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 the
Partnership 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 obtained an extension to file its consolidated amended complaint until
May 4, 2009; defendants have 60 days from that date to answer or otherwise
respond to the complaint.





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
the Partnership’s units from July 17, 2007 to July 17, 2008 (the “class
period”), lead plaintiff asserts claims under the federal securities laws
against the Partnership, its general partner, certain of the Partnership’s
current and former officers and directors, certain underwriters in the
Partnership’s 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 the Partnership’s 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 the Partnership’s public filings during the class period.
Specifically, 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 the Partnership’s 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.





F-37
 Table of Contents


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 the Partnership’s 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 allege that phantom units previously
awarded to them vested upon the Change of Control that occurred in July
2008.  One claimant alleges that his phantom units vested upon his
termination.  The claimants contend the Partnership’s general
partner’s failure to deliver certificates for the phantom units within 60 days
after vesting has caused them to be damaged, and they seek 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.  The Partnership’s general partner intends to continue
to vigorously defend these claims.





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.





Examiner




On August
12, 2008, a motion was filed by the United States Trustee asking the Bankruptcy
Court to appoint an examiner to investigate the Private Company’s trading
strategies as well as certain “insider transactions,” including the contribution
of the crude oil assets to the Partnership in connection with its initial public
offering, the sale of the Acquired Asphalt Assets to the Partnership, the sale
of the Acquired Pipeline Assets to the Partnership, the sale of the Acquired
Storage Assets to the Partnership, and the entering into the Holdings Credit
Agreements by SemGroup Holdings.  On September 10, 2008, the
Bankruptcy Court approved the appointment of an examiner, and on October 14,
2008, the United States Trustee appointed Louis J. Freeh, former director of the
Federal Bureau of Investigation, as the examiner (the “Examiner”).  On
April 15, 2009, the Examiner filed a report summarizing the findings of his
investigation with the Bankruptcy Court (the “Examiner’s Report”).




The
Examiner was directed by the Bankruptcy Court to (i) investigate the
circumstances surrounding the Private Company’s trading strategy, the transfer
of the New York Mercantile Exchange account, certain insider transactions, the
formation of the Partnership, the potential improper use of borrowed funds and
funds generated from the Private Company’s operations and the liquidation of its
assets to satisfy margin calls related to the trading strategy for the Private
Company and certain entities owned or controlled by the Private Company’s
officers and directors and (ii) determine whether any directors, officers or
employees of the Private Company participated in fraud, dishonesty,
incompetence, misconduct, mismanagement, or irregularity in the management of
the affairs of the Private Company and whether the Private Company’s estates
have causes of action against such persons arising from any such
participation.




F-38
 Table of Contents


The
Examiner’s Report identified potential claims or causes of action against
current officers of the Partnership’s general partner who were former officers
and/or directors of the Private Company, including (i) against Kevin L. Foxx for
his failure to develop a suitable risk management policy or integrate a suitable
risk management policy into the Private Company’s business controls, and for his
failure to comply with the risk management policy that did exist, thereby
subjecting the Private Company to increased risk and (ii) against Alex G.
Stallings for his failure to stop Thomas L. Kivisto from engaging in trading
activity on his own behalf through Westback Purchasing Company, L.L.C.
(“Westback”), a limited liability trading partnership that Mr. Kivisto owned and
controlled, thereby subjecting the Private Company to increased risk and
losses.  In addition, the Examiner’s Report criticized Mr. Foxx for certain
conflicts of interest with entities that he or his family invested in and that
had a business relationship with the Private Company.  Additionally,
the Examiner’s Report identified a number of potential claims or causes of
action against Mr. Kivisto and Gregory C. Wallace, who are former directors of
the Partnership’s general partner and former officers of the Private Company,
including, without limitation, for negligence and mismanagement, fraud and false
statements, conversion and corporate waste, unjust enrichment, breach of
fiduciary duties and breach of contract.





The
Examiner did not perform a detailed analysis applying the elements of any of the
causes of action identified in the Examiner’s Report to the facts of the Private
Company’s Bankruptcy Cases or otherwise evaluate the strength of any particular
claims the Private Company’s bankruptcy estate may have.  In addition,
the Examiner did not analyze potential defenses that may be available with
respect to these causes of action.





The
Examiner’s Report and related exhibits are publicly available at
www.kccllc.net/SemGroup.





Bankruptcy
Adversary Proceeding




The
Official Committee of Unsecured Creditors of SemCrude, L.P. (“Unsecured
Creditors Committee”) filed an adversary proceeding in connection with the
Bankruptcy Cases  against Thomas L. Kivisto, Gregory C. Wallace, and
Westback.  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 described above (see “—Examiner”). 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.  Messrs. Foxx and Stallings have informed the
Partnership that they intend to vigorously defend these claims.





Internal
Review




As
previously announced, in July 2008 the Board created an internal review
subcommittee of the Board comprised of directors who are independent of
management and the Private Company to determine whether the Partnership
participates in businesses other than as described in its filings with the SEC
and to conduct investigations into other such specific items as are deemed to be
appropriate by the subcommittee.  The subcommittee retained
independent legal counsel to assist it in its investigations.




The
subcommittee has investigated a short-term financing transaction involving two
subsidiaries of the Private Company.  This transaction was identified
as a potential source of concern in a whistleblower report made after the
Private Company filed for bankruptcy.  Although the transaction did
not involve the Partnership or its subsidiaries, it was investigated because it
did involve certain senior executive officers of the Partnership’s general
partner who were also senior executive officers of the Private Company at the
time of the transaction.  Based upon its investigation, counsel for
the subcommittee found that, subject to the subcommittee’s lack of access to
Private Company documents and electronic records and witnesses, although certain
irregularities occurred in the transactions, the transaction did not appear to
cause the relevant officers to understand or believe that the Private Company
had a lack of liquidity that imperiled the Private Company’s ability to meet its
obligations to the Partnership and that certain aspects of the documentation of
the transaction that were out of the ordinary did not call into question the
integrity of any of the relevant officers.




F-39
 Table of Contents


The
subcommittee also investigated whether certain senior executive officers of the
Partnership’s general partner who were also senior executive officers of the
Private Company knew and understood, beginning as early as July 2007 and at
various times thereafter, about a lack of liquidity at the Private Company that
imperiled the Private Company’s ability to meet its obligations to the
Partnership.  Based upon this investigation, and subject to the
subcommittee’s lack of access to Private Company documents and electronic
records and witnesses, counsel for the subcommittee found that each of the
officers had access to and reviewed Private Company financial information,
including information regarding the Private Company’s commodity trading
activities, from which they could have developed an understanding of the nature
and significance of the trading activities that led to liquidity problems at the
Private Company well before they say they did.  While the officers
each stated sincerely that they did not understand the nature or extent of the
Private Company’s trading-related problems until the first week of July 2008 or
later, objective evidence suggests that they showed at least some indifference
to known or easily discoverable facts and that they failed to adhere to
procedures under the Private Company’s Risk Management Policy created expressly
to ensure that the Private Company’s trading activities were properly
monitored.  Nonetheless, counsel for the subcommittee was not
persuaded by the documents and other evidence it was able to access that the
officers in fact knew and understood that the Private Company’s liquidity or
capital needs were a significant cause for alarm until, at the earliest, the
second quarter of 2008.  Moreover, while it appeared to counsel that
the officers developed a growing awareness of the nature and severity of the
Private Company’s liquidity issues over the second quarter of 2008, counsel was
unable to identify with any more precision the specific level of concern or
understanding these individuals had prior to July 2008.  While not
within the scope of such counsel’s investigation, counsel was requested by the
subcommittee to note any information that came to counsel’s attention during its
investigation that suggested that the officers intended to deceive or mislead
any third party.  Subject to limitations described in its report, no
information came to counsel’s attention during its investigation that suggested
to counsel that the officers intended to deceive or to mislead any third
parties.  In addition, in connection with the investigation, counsel
for the subcommittee did not express any findings of intentional misconduct or
fraud on the part of any officer or employee of the Partnership.




After
completion of the internal review, a plan was developed with the advice of the
audit committee of the Board to further strengthen the processes and procedures
at the Partnership.  This plan includes, among other things,
reevaluating executive officers and accounting and finance personnel (including
a realignment of officers as described elsewhere in this report) and hiring, as
deemed necessary, additional accounting and finance personnel or consultants;
reevaluating the Partnership’s internal audit function and determining whether
to expand the duties and responsibilities of such group; evaluating the
comprehensive training programs for all management personnel covering, among
other things, compliance with controls and procedures, revising the reporting
structure so that the Chief Financial Officer reports directly to the audit
committee, and increasing the business and operational oversight role of the
audit committee.





Equity
Awards and Employment Agreements




The
Change of Control constituted a change of control under the Plan, which resulted
in the early vesting of all awards under the Plan.  As such, the
phantom units awarded to Messrs. Kevin L. Foxx, Michael J. Brochetti, Alex G.
Stallings, Peter L. Schwiering and Jerry A. Parsons in the amounts of 150,000
units, 90,000 units, 75,000 units, 45,000 units and 20,000 units, respectively,
are fully vested.  The common units underlying such awards were issued
to such individuals in August 2008.  In addition, the 5,000 restricted
units awarded to each of Messrs. Billings, Kosnik and Bishop for their service
as independent members of the Board fully vested.




The
Change of Control also resulted in a change of control under the employment
agreements of Messrs. Foxx, Brochetti, Stallings, Schwiering and
Parsons.  If within one year after the Change of Control any such
officer is terminated by the Partnership’s general partner without Cause (as
defined below) or such officer terminates the agreement for Good Reason (as
defined below), he will be entitled to payment of any unpaid base salary and
vested benefits under any incentive plans, a lump sum payment equal to 24 months
of base salary and continued participation in the Partnership’s general
partner’s welfare benefit programs for one year after termination. Upon such an
event, Messrs Foxx, Brochetti, Stallings, Schwiering and Parsons would be
entitled to lump sum payments of $900,000, $600,000, $550,000, $500,000 and
$500,000, respectively, in addition to continued participation in the
Partnership’s general partner’s welfare benefit programs.  As of the
date of the filing of this report, none of these officers is entitled to these
benefits as none of them has been terminated by the Partnership’s general
partner without Cause or has terminated his agreement for Good
Reason.




F-40
 Table of Contents


For
purposes of the employment agreements:




“Cause”
means (i) conviction of the executive officer by a court of competent
jurisdiction of any felony or a crime involving moral turpitude; (ii) the
executive officer’s willful and intentional failure or willful intentional
refusal to follow reasonable and lawful instructions of the Board;
(iii) the executive officer’s material breach or default in the performance
of his obligations under the employment agreement; or (iv) the executive
officer’s act of misappropriation, embezzlement, intentional fraud or similar
conduct involving the Partnership’s general partner.




“Good
Reason” means (i) a material reduction in the executive officer’s base
salary; (ii) a material diminution of the executive officer’s duties,
authority or responsibilities as in effect immediately prior to such diminution;
or (iii) the relocation of the named executive officer’s principal work
location to a location more than 50 miles from its current
location.





Taxation
as a Corporation




The
anticipated after-tax economic benefit of an investment in the Partnership’s
common units depends largely on the Partnership being treated as a partnership
for federal income tax purposes.  If less than 90% of the gross income
of a publicly traded partnership, such as the Partnership, for any taxable year
is “qualifying income” from sources such as the transportation, marketing (other
than to end users), or processing of crude oil, natural gas or products thereof,
interest, dividends or similar sources, that partnership will be taxable as a
corporation under Section 7704 of the Internal Revenue Code for federal income
tax purposes for that taxable year and all subsequent
years.




If the
Partnership were treated as a corporation for federal income tax purposes, then
it would pay federal income tax on its income at the corporate tax rate, which
is currently a maximum of 35%, and would likely pay state income tax at varying
rates.  Distributions would generally be taxed again to unitholders as
corporate distributions and none of the Partnership’s income, gains, losses,
deductions or credits would flow through to its unitholders. Because a tax would
be imposed upon the Partnership as an entity, cash available for distribution to
its unitholders would be substantially reduced.  Treatment of the
Partnership as a corporation would result in a material reduction in the
anticipated cash flow and after-tax return to unitholders and thus would likely
result in a substantial reduction in the value of the Partnership’s common
units.





The
Partnership recently entered into new storage contracts and leases with third
party customers with respect to substantially all of its asphalt
facilities.  It is 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.”  The Partnership may not be successful in obtaining this
ruling.  If the Partnership is not successful in obtaining this
ruling, it will likely have to transfer the leases and the related asphalt
assets and rental income, and/or certain of the processing assets and related
fee income, to one or more subsidiaries taxed as corporations.  Even
if successful in obtaining this ruling, the Partnership will likely transfer
certain of the processing assets and related fee income, to one or more
subsidiaries taxed as corporations  Any such subsidiary that is taxed
as a corporation would pay federal income tax on its income at the corporate tax
rate, which is currently a maximum of 35%, and would likely pay state (and
possibly local) income tax at varying rates.  Distributions would
generally be taxed again to unitholders as corporate distributions and none of
the income, gains, losses, deductions or credits of any such subsidiary would
flow through to the Partnership’s unitholders.  If a material amount
of entity-level taxes were incurred by any such subsidiaries, then the
Partnership’s cash available for distribution to its unitholders could be
substantially reduced.





Other
Effects




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 various strategic alternatives for its
business and assets including the possibility of entering into strategic
partnerships (potentially involving the issuance of additional interests in the
Partnership), additional storage contracts with third party customers, and/or
the sale of all or a portion of the Partnership’s assets.  The
uncertainty relating to the Bankruptcy Filings and the recent global market and
economic conditions may make it more difficult to pursue strategic opportunities
or enter into storage 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 14) increased by approximately $6.9 million and $7.5 million, or
approximately 300% and 326%, to approximately $9.2 million for the third quarter
of 2008, $9.8 million for the fourth quarter of 2008, 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 throughout 2009.




20.
QUARTERLY FINANCIAL DATA (UNAUDITED):




Summarized
quarterly financial data is as follows (in thousands, except per unit
amounts):







First
      Quarter
                
                
                Second
      Quarter
                
                
                Third
      Quarter
                
                
                Fourth
      Quarter
                
                
                Total(in
      thousands, except per unit data)2007:Revenues
                
                $
                8,634
                
                
                $
                10,464
                
                
                $
                25,280
                
                
                $
                30,187
                
                
                $
                74,565Operating
      income (loss)
                
                
                (11,855
                )
                
                
                (11,695
                )
                
                
                6,803
                
                
                
                10,535
                
                
                
                (6,212
                )Net
      income (loss)
                
                
                (12,284
                )
                
                
                (12,211
                )
                
                
                4,317
                
                
                
                7,265
                
                
                
                (12,913
                )Basic
      and diluted net income per common unit
                
                
                —
                
                
                
                —
                
                
                
                0.24
                
                
                
                0.31
                
                
                
                0.55Basic
      and diluted net income per subordinated unit
                
                
                —
                
                
                
                —
                
                
                
                0.19
                
                
                
                0.21
                
                
                
                0.402008:Revenues
                
                $
                40,214
                
                
                $
                55,276
                
                
                $
                53,794
                
                
                $
                42,896
                
                
                $
                192,180Operating
      income (loss)
                
                
                14,938
                
                
                
                21,448
                
                
                
                (751
                )
                
                
                9,382
                
                
                
                45,017Net
      income (loss)
                
                
                9,758
                
                
                
                21,596
                
                
                
                (11,851
                )
                
                
                (1,728
                )
                
                
                17,775Basic
      and diluted net income (loss) per common unit
                
                
                0.31
                
                
                
                0.53
                
                
                
                (0.33
                )
                
                
                (0.05
                )
                
                
                0.46Basic
      and diluted net income (loss) per subordinated unit
                
                
                0.31
                
                
                
                0.53
                
                
                
                (0.33
                )
                
                
                (0.05
                )
                
                
                0.46




Historically,
the Predecessor was a part of the integrated operations of the Private Company,
and neither the Private Company nor the Predecessor recorded revenue associated
with the crude oil terminalling and storage and gathering and transportation
services provided on an intercompany basis. The Private Company and the
Predecessor recognized only the costs associated with providing such services.
Accordingly, revenues reflected in these financial statements for all periods
prior to the contribution of the assets, liabilities and operations to the
Partnership by the Private Company on July 20, 2007 are substantially
services provided to third parties. 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 provides crude oil gathering and
transportation and terminalling and storage services to the Private Company (See
Note 13).


F-41
 Table of Contents


INDEX
TO EXHIBITS




Exhibit
                                Number
                              Description3.1
                              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
                              Credit
      Agreement, dated July 20, 2007, among the Partnership, Wachovia Bank,
      National Association, as Administrative Agent, L/C Issuer and Swing Line
      Lender, Bank of America, N.A., as Syndication Agent and the other lenders
      from time to time party thereto (filed as Exhibit 10.1 to the
      Partnership’s Current Report on Form 8-K, filed July 25, 2007, and
      incorporated herein by reference).10.2
                              Amended
      and Restated Credit Agreement, dated February 20, 2008, among the
      Partnership, Wachovia Bank, National Association, as Administrative Agent,
      L/C Issuer and Swing Line Lender, Bank of America, N.A., as Syndication
      Agent and the other lenders from time to time party thereto (filed as
      Exhibit 10.4 to the Partnership’s Current Report on Form 8-K, filed
      February 25, 2008, and incorporated herein by
  reference).10.3
                              Forbearance
      Agreement and Amendment to Credit Agreement, dated September 12, 2008 but
      effective as of September 18, 2008, by and among SemGroup Energy Partners,
      L.P., Wachovia Bank, National Association, as Administrative Agent, L/C
      Issuer and Swing Line Lender, and the Lenders party thereto (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      September 22, 2008, and incorporated herein by
  reference).10.4
                              First
      Amendment to Forbearance Agreement and Amendment to Credit Agreement,
      dated as of December 11, 2008, by and among SemGroup Energy Partners,
      L.P., Wachovia Bank, National Association, as Administrative Agent, L/C
      Issuer and Swing Line Lender, and the Lenders party thereto (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      December 12, 2008, and incorporated herein by
  reference).10.5
                              Second
      Amendment to Forbearance Agreement and Amendment to Credit Agreement,
      dated as of December 18, 2008, by and among SemGroup Energy Partners,
      L.P., Wachovia Bank, National Association, as Administrative Agent, L/C
      Issuer and Swing Line Lender, and the Lenders party thereto (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      December 19, 2008, and incorporated herein by
  reference).10.6
                              Third
      Amendment to Forbearance Agreement and Amendment to Credit Agreement,
      dated as of March 17, 2009, by and among SemGroup Energy Partners, L.P.,
      Wachovia Bank, National Association, as Administrative Agent, L/C Issuer
      and Swing Line Lender, and the Lenders party thereto (filed as Exhibit
      10.1 to the Partnership’s Current Report on Form 8-K, filed on March 19,
      2009, and incorporated herein by reference).10.7
                              Consent,
      Waiver and Amendment to Credit Agreement, dated as of April 7, 2009, by
      and among SemGroup Energy Partners, L.P., as Borrower, SemGroup Energy
      Partners G.P., L.L.C., SemGroup Energy Partners Operating, L.L.C.,
      SemMaterials Energy Partners, L.L.C., SemGroup Energy Partners, L.L.C.,
      SemGroup Crude Storage, L.L.C., SemPipe, L.P., SemPipe G.P., L.L.C. and
      SGLP Management, Inc., as Guarantors, Wachovia Bank, National Association,
      as Administrative Agent, L/C Issuer and Swing Line Lender, and the Lenders
      party thereto (filed as Exhibit 10.14 to the Partnership’s Current Report
      on Form 8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.8*
                              Amendment
      to Credit Agreement, dated as of May 19, 2009, by and among SemGroup
      Energy Partners, L.P., the Guarantors, Wachovia Bank, National
      Association, as Administrative Agent, L/C Issuer and Swing Line Lender,
      and the Lenders party thereto.10.9†
                              SemGroup
      Energy Partners G.P., L.L.C. Long-Term Incentive Plan (filed as Exhibit
      10.5 to the Partnership’s Current Report on Form 8-K, filed July 25, 2007,
      and incorporated herein by reference).10.10†
                              Amendment
      to the SemGroup Energy Partners G.P., L.L.C. Long Term Incentive Plan
      (filed as Exhibit 10.1 to the Partnership’s Current Report on Form 8-K,
      filed on December 23, 2008, and incorporated herein by
      reference).10.11†
                              Form
      of Employment Agreement (filed as Exhibit 10.6 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed May 25,
      2007, and incorporated herein by reference).10.12†
                              Form
      of Employment Agreement (filed as Exhibit 10.14 to the Partnership’s
      Quarterly Report on Form 10-Q, filed on March 23, 2009, and incorporated
      herein by reference).10.13†
                              Form
      of Indemnification Agreement (filed as Exhibit 10.7 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed
      May 25, 2007, and incorporated herein by
  reference).10.14†
                              Form
      of Phantom Unit Agreement (filed as Exhibit 10.8 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed May 25,
      2007, and incorporated herein by reference).10.15†
                              Form
      of Phantom Unit Agreement (filed as Exhibit 10.1 to the Partnership’s
      Current Report on Form 8-K, filed on June 24, 2008, and incorporated
      herein by reference).10.16†
                              Form
      of Phantom Unit Agreement (filed as Exhibit 10.2 to the Partnership’s
      Current Report on Form 8-K, filed on June 24, 2008, and incorporated
      herein by reference).10.17†
                              Form
      of Phantom Unit Agreement (filed as Exhibit 10.15 to the Partnership’s
      Quarterly Report on Form 10-Q, filed on March 23, 2009, and incorporated
      herein by reference).10.18†
                              Form
      of Retention Agreement (filed as Exhibit 10.16 to the Partnership’s
      Quarterly Report on Form 10-Q, filed on March 23, 2009, and incorporated
      herein by reference).10.19†
                              Form
      of Restricted Unit Agreement (filed as Exhibit 10.9 to the Partnership’s
      Registration Statement on Form S-1 (Reg. No. 333-141196), filed May 25,
      2007, and incorporated herein by reference).10.20†
                              Form
      of Director Restricted Common Unit Agreement (filed as Exhibit 10.2 to the
      Partnership’s Current Report on Form 8-K, filed on December 23, 2008, and
      incorporated herein by reference).10.21†
                              Form
      of Director Restricted Subordinated Unit Agreement (filed as Exhibit 10.3
      to the Partnership’s Current Report on Form 8-K, filed on December 23,
      2008, and incorporated herein by reference).10.22†*
                              SemGroup
      Energy Partners G.P., L.L.C. 2009 Executive Cash Bonus
  Plan10.23
                              Closing
      Contribution, Conveyance, Assignment and Assumption Agreement, dated July
      20, 2007, among the Partnership, the General Partner, SemCrude, L.P.,
      SemGroup, L.P. and SemGroup Energy Partners Operating, L.L.C. (filed as
      Exhibit 10.2 to the Partnership’s Current Report on Form 8-K, filed July
      25, 2007, and incorporated herein by reference).10.24
                              Purchase
      and Sale Agreement, dated as of January 14, 2008, by and among
      SemMaterials, L.P. and SemGroup Energy Partners Operating, L.L.C. (filed
      as Exhibit 2.1 to the Partnership’s Current Report on Form 8-K, filed on
      January 15, 2008, and incorporated herein by
reference).10.25
                              Purchase
      and Sale Agreement, dated as of May 12, 2008, by and between SemCrude,
      L.P. and SemGroup Energy Partners, L.L.C. (filed as Exhibit 2.1 to the
      Partnership’s Current Report on Form 8-K, filed on May 15, 2008, and
      incorporated herein by reference).10.26
                              Purchase
      and Sale Agreement, dated as of May 20, 2008, by and between SemGroup
      Energy Partners, L.L.C. and SemCrude, L.P. (filed as Exhibit 2.1 to the
      Partnership’s Current Report on Form 8-K, filed on May 23, 2008, and
      incorporated herein by reference).10.27
                              Omnibus
      Agreement, dated July 20, 2007, among the Partnership, the General
      Partner, SemGroup, L.P. and SemManagement, L.L.C. (filed as Exhibit 10.3
      to the Partnership’s Current Report on Form 8-K, filed July 25, 2007, and
      incorporated herein by reference).10.28
                              Amended
      and Restated Omnibus Agreement, dated as of February 20, 2008, by and
      among SemGroup, L.P., SemManagement, L.L.C., SemMaterials, L.P., the
      Partnership, SemGroup Energy Partners G.P., L.L.C. and SemMaterials Energy
      Partners, L.L.C. (filed as Exhibit 10.3 to the Partnership’s Current
      Report on Form 8-K, filed February 25, 2008, and incorporated herein by
      reference).10.29#
                              Throughput
      Agreement, dated July 20, 2007, among the Partnership, SemGroup Energy
      Partners, L.L.C., SemCrude, L.P., Eaglwing, L.P. and SemGroup, L.P. (filed
      as Exhibit 10.4 to the Partnership’s Current Report on Form 8-K, filed
      July 25, 2007, and incorporated herein by reference).10.30#
                              Terminalling
      and Storage Agreement, dated as of February 20, 2008, by and between
      SemMaterials, L.P. and SemMaterials Energy Partners, L.L.C. (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed
      February 25, 2008, and incorporated herein by
  reference).10.31
                              Terminal
      Access and Use Agreement, dated as of January 28, 2008, by and among
      SemMaterials Energy Partners, L.L.C., SemMaterials, L.P. and K.C. Asphalt,
      L.L.C. (filed as Exhibit 10.2 to the Partnership’s Current Report on Form
      8-K, filed February 25, 2008, and incorporated herein by
      reference).10.32
                              Agreed
      Order of the United States Bankruptcy Court for the District of Delaware
      Regarding Motion by SemGroup Energy Partners, L.P. (i) to Compel Debtors
      to Provide Adequate Protection and (ii) to Modify the Automatic Stay
      (filed as Exhibit 99.1 to the Partnership’s Current Report on Form 8-K,
      filed on September 9, 2008, and incorporated herein by
      reference).10.33
                              Master
      Agreement, dated as of April 7, 2009 to be effective as of 11:59 PM CDT
      March 31, 2009, by and among by and among SemGroup, L.P., SemManagement,
      L.L.C., SemOperating G.P., L.L.C., SemMaterials, L.P., K.C. Asphalt,
      L.L.C., SemCrude, L.P., Eaglwing, L.P., SemGroup Holdings, L.P., SemGroup
      Energy Partners, L.P., SemGroup Energy Partners G.P., L.L.C., SemGroup
      Energy Partners Operating, L.L.C., SemGroup Energy Partners, L.L.C.,
      SemGroup Crude Storage, L.L.C., SemPipe, L.P., SemPipe G.P., L.L.C., SGLP
      Management, Inc. and SemMaterials Energy Partners, L.L.C. (filed as
      Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, filed on
      April 10, 2009, and incorporated herein by reference).10.34
                              Shared
      Services Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among SemGroup Energy Partners, L.P.,
      SemGroup Energy Partners, L.L.C., SemGroup Crude Storage, L.L.C., SemPipe
      G.P., L.L.C., SemPipe, L.P., SemCrude, L.P. and SemManagement, L.L.C.
      (filed as Exhibit 10.2 to the Partnership’s Current Report on Form 8-K,
      filed on April 10, 2009, and incorporated herein by
      reference).10.35
                              Transition
      Services Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among SemGroup Energy Partners, L.P.,
      SemGroup Energy Partners, L.L.C., SemGroup Crude Storage, L.L.C., SemPipe
      G.P., L.L.C., SemPipe, L.P., SemMaterials Energy Partners, L.L.C., SGLP
      Asphalt L.L.C., SemCrude, L.P., SemGroup, L.P., SemMaterials, L.P. and
      SemManagement, L.L.C. (filed as Exhibit 10.3 to the Partnership’s Current
      Report on Form 8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.36
                              Contribution,
      Conveyance, Assignment and Assumption Agreement, dated as of April 7, 2009
      to be effective as of 11:59 PM CDT March 31, 2009, by and among
      SemMaterials, L.P., K.C. Asphalt, L.L.C., SGLP Asphalt, L.L.C. and
      SemMaterials Energy Partners, L.L.C. (filed as Exhibit 10.4 to the
      Partnership’s Current Report on Form 8-K, filed on April 10, 2009, and
      incorporated herein by reference).10.37
                              Membership
      Interest Transfer Agreement, dated as of April 7, 2009 to be effective as
      of 11:59 PM CDT March 31, 2009, by and between SemMaterials, L.P. and
      SemMaterials Energy Partners, L.L.C. (filed as Exhibit 10.5 to the
      Partnership’s Current Report on Form 8-K, filed on April 10, 2009, and
      incorporated herein by reference).10.38
                              Throughput
      Agreement, dated as of April 7, 2009 to be effective as of 11:59 PM CDT
      March 31, 2009, by and among SemGroup Energy Partners, L.L.C. and
      SemCrude, L.P. (filed as Exhibit 10.6 to the Partnership’s Current Report
      on Form 8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.39
                              Terminalling
      and Storage Agreement, dated as of April 7, 2009 to be effective as of
      11:59 PM CDT March 31, 2009, by and between SemMaterials Energy Partners,
      L.L.C. and SemMaterials, L.P. (filed as Exhibit 10.7 to the Partnership’s
      Current Report on Form 8-K, filed on April 10, 2009, and incorporated
      herein by reference).10.40
                              Access
      and Use Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and between SemMaterials, L.P. and SemMaterials
      Energy Partners, L.L.C. (filed as Exhibit 10.8 to the Partnership’s
      Current Report on Form 8-K, filed on April 10, 2009, and incorporated
      herein by reference).10.41
                              Trademark
      License Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among SemGroup, L.P., SemMaterials, L.P. and
      SemGroup Energy Partners, L.P. (filed as Exhibit 10.9 to the Partnership’s
      Current Report on Form 8-K, filed on April 10, 2009, and incorporated
      herein by reference).10.42
                              Office
      Lease, dated as of April 7, 2009 to be effective as of 11:59 PM CDT March
      31, 2009, by and between SemGroup Energy Partners, L.L.C. and SemCrude,
      L.P. (filed as Exhibit 10.10 to the Partnership’s Current Report on Form
      8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.43
                              Building
      Lease, dated as of April 7, 2009 to be effective as of 11:59 PM CDT March
      31, 2009, by and between SemGroup Energy Partners, L.L.C. and SemCrude,
      L.P. (filed as Exhibit 10.11 to the Partnership’s Current Report on Form
      8-K, filed on April 10, 2009, and incorporated herein by
      reference).10.44
                              Mutual
      Easement Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, among SemCrude, L.P., SemGroup Energy Partners,
      L.L.C., and SemGroup Crude Storage, L.L.C. (filed as Exhibit 10.12 to the
      Partnership’s Current Report on Form 8-K, filed on April 10, 2009, and
      incorporated herein by reference).10.45
                              Pipeline
      Easement Agreement, dated as of April 7, 2009 to be effective as of 11:59
      PM CDT March 31, 2009, by and among White Cliffs Pipeline, L.L.C.,
      SemGroup Energy Partners, L.L.C., and SemGroup Crude Storage, L.L.C.
      (filed as Exhibit 10.13 to the Partnership’s Current Report on Form 8-K,
      filed on April 10, 2009, and incorporated herein by
      reference).10.46
                              Term
      Sheet, dated as of March 6, 2009 (filed as Exhibit 10.1 to the
      Partnership’s Current Report on Form 8-K, filed on March 10, 2009, and
      incorporated herein by reference).21.1*
                              List
      of Subsidiaries of SemGroup Energy Partners, L.P.23.1*
                              Consent
      of PricewaterhouseCoopers, L.L.P.23.2*
                              Consent
      of PricewaterhouseCoopers, L.L.P. for Exhibit 99.1.31.1*
                              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.”99.1*
                              SemGroup
      Energy Partners G.P., L.L.C. Financial
  Statements.


______________________


*     Filed
herewith.


#     Certain
      portions of this exhibit have been granted confidential treatment by the
      Securities and Exchange Commission. The omitted portions have been
      separately filed with the Securities and Exchange
    Commission.


†     As
      required by Item 15(a)(3) of Form 10-K, this exhibit is identified as
      a compensatory plan or arrangement.