Joint Ventures | 9 Months Ended |
Sep. 30, 2013 |
Joint Ventures [Abstract] | ' |
Joint Ventures | ' |
3 | Joint Ventures | | | | | | | | | | | | |
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Dakota Petroleum Transport Solutions, LLC |
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On November 9, 2009, the Company entered into a joint venture with Petroleum Transport Solutions, LLC ("PTS"). The Company and PTS each own 50% of the outstanding member units of Dakota Petroleum Transport Solutions, LLC. The joint venture was formed to engage in the acquisition, construction and operation of a petroleum transloading facility in New Town, North Dakota ("Transloading Facility"). |
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Each of the members of Dakota Petroleum Transport Solutions, LLC was required to make an initial capital contribution of $50,000. Each member received 1,000 member units for their initial capital contribution, for a total of 2,000 member units issued and outstanding as of September 30, 2013. |
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On August 30, 2013, the Board of Governors of DPTS Marketing LLC authorized a distribution to each member simultaneously in the amount of $10 million, which was used by its members to fund capital contributions to Dakota Petroleum Transport Solutions, LLC in order to increase the funds available for the Pioneer Project Facility Reserve. |
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As part of the joint venture agreement, the Company owns the transloading facility and certain equipment acquired and leases the property to Dakota Petroleum Transport Solutions, LLC. |
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The operations of the transloading facility commenced in November 2009. Under provisions of the member control agreement the profits and losses of Dakota Petroleum Transport Solutions, LLC are split 50/50, pro rata based on the number of member units outstanding. The cash payments from the joint venture also are paid pro rata based on the number of member units outstanding. |
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In December 2011, Dakota Plains transferred all of its assets and liabilities, excluding its equity interest in its wholly owned subsidiaries and its real property, to Dakota Plains Transloading, LLC ("DPT"). DPT is a wholly owned subsidiary of the Company that was formed in August 2011. The primary purpose of DPT is to participate in the ownership and operation of the transloading facility near New Town, North Dakota through which producers, transporters, and marketers may transload crude oil and related products from and onto the Canadian Pacific Railway. |
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On June 1, 2012, DPT entered into an amended and restated member control agreement with Dakota Petroleum Transport Solutions, LLC and PTS. The amended and restated member control agreement, among other things, incorporated all previous amendment and supplements, extended the initial term through December 31, 2021, and provided for the initial term to automatically extend in two-year intervals unless and until terminated. On August 30, 2012, the parties amended the amended and restated member control agreement to permit certain other ventures. On June 17, 2013, the parties further amended the amended and restated member control agreement to, among other things, extend the initial term through December 31, 2026. |
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The Company accounts for this joint venture using the equity method of accounting. The income or loss from the joint venture is included in other income on the condensed consolidated statements of operations, and the Company has recorded an investment in Dakota Petroleum Transport Solutions, LLC on its condensed consolidated balance sheet. |
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Supplemental Agreement |
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In September 2010, the Company entered into a Supplemental Agreement to the Dakota Petroleum Transport Solutions, LLC member control agreement ("Supplemental Agreement"). The purpose of the Supplemental Agreement was to obtain access to site improvements and certain additional transloading equipment necessary to fulfill certain transloading contracts. Under this Supplemental Agreement the Company agreed to provide funds for the site improvements. The total costs incurred for these site improvements were $1,299,201. These costs have been capitalized as property and equipment on the Company's condensed consolidated balance sheet. |
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As part of the Supplemental Agreement, PTS was required to pay all costs for the acquisition of four new transloaders. The total cost of these transloaders was $658,012, with an estimated residual value of $131,602 at the end of the initial Agreement term for a net cost incurred of $526,410. |
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To reflect the economics of the $526,410 of costs incurred, the Company recognized rental income of $9,719 and $38,909 for the nine month periods ended September 30, 2013 and 2012, respectively, and $1,972 and $(1,584) for the three month periods ended September 30, 2013 and 2012, respectively. The remaining monthly rental income will be recognized by the Company through December 31, 2026. No cash will be received related to this rental income; the rental income recorded is being treated as an increase in the Company's investment in the joint venture. |
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In order to render fair and equitable the leases for the additional expenditures by the members relating to the site improvements and new equipment, the Supplemental Agreement included a provision that the Company would receive 75% of the cash distributions from Dakota Petroleum Transport Solutions, LLC until the Company had been reimbursed. The additional expenditures would also incur interest at an interest rate of 7% per annum until paid in full. After the Company was reimbursed and received the required interest, the cash distributions reverted back to the 50/50 split as per the original agreement. Only the cash distributions were changed under the Supplemental Agreement, the profit and loss allocations remained the same as the original member control agreement. As of September 30, 2013 the Company had been reimbursed for the additional expenditures related to the Supplemental Agreement. |
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In the first quarter of 2013, the Company settled an outstanding invoice related to the costs incurred as part of the Supplemental Agreement. The invoice was settled for $21,546 less than the original invoice amount. Based on this the total additional expenditures incurred by the Company were $772,791. |
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The Company will report the $386,396, 50% of the costs incurred in excess of amounts incurred by PTS, as rental income over the life of the joint venture and $386,395 will be included as income from investment in Dakota Petroleum Transport Solutions, LLC as the related expense is recorded by DPTS. Rental income related to the Supplemental Agreement was $8,156 and $59,045 for the nine month periods ended September 30, 2013 and 2012, respectively, and $2,542 and $5,170 for the three month periods ended September 30, 2013 and 2012, respectively. As of September 30, 2013 and December 31, 2012, the Company has received $167,184 and $186,113, respectively, in lease payments in excess of the amount reported as revenue. This amount is included as deferred rental income on the condensed consolidated balance sheet with the amount to be earned in the next twelve months recorded as a current liability. There were no future lease payments receivable related to this agreement as of September 30, 2013 and December 31, 2012. |
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The unaudited financial statements of Dakota Petroleum Transport Solutions, LLC are summarized as follows: |
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| | Three Months Ended | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 | |
Sales | | $ | 3,356,844 | | $ | 4,162,436 | | $ | 12,906,617 | | $ | 11,591,616 | |
Net Earnings | | | 1,134,752 | | | 965,134 | | | 6,303,055 | | | 4,762,514 | |
Company's Share of Equity in Net Earnings | | | 567,376 | | | 482,567 | | | 3,151,527 | | | 2,381,257 | |
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| | September 30, | | December 31, | | | | | | | |
2013 | 2012 | | | | | | |
Total Assets | | $ | 41,237,144 | | $ | 13,652,679 | | | | | | | |
Total Liabilities | | | 4,739,791 | | | 2,617,257 | | | | | | | |
Share of Equity in Net Assets | | | 18,248,676 | | | 5,517,711 | | | | | | | |
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The differences between the Company's share of equity in the net assets of DPTS and the investment in DPTS as shown on the condensed consolidated balance sheet is due to 50% of the deferred rental income entered into with DPTS being eliminated through the investment in DPTS. Since 50% of the rental income received from DPTS is eliminated and reported through income from DPTS on the Company's condensed consolidated statements of operations, 50% of the deferred rental income received under the terms of the lease agreements is eliminated against the investment in DPTS. |
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DPTS commenced construction on the Pioneer Project on March 25, 2013. The Pioneer Project will represent a significant expansion of the transloading facility. Completion of the Pioneer Project is expected in December 2013, and the total cost of the project is estimated to be $50 million, which will be funded equally by the members of DPTS. The Company contributed $10 million to DPTS in September 2013 and has secured financing for its remaining portion of the project (see Note 8). |
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DPTS Marketing LLC |
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The Company, through its wholly owned subsidiary Dakota Plains Marketing, LLC, entered into a joint venture with PTS. The Company and PTS each own 50% of the outstanding member units of DPTS Marketing LLC. The joint venture was formed to engage in the purchase, sale, storage, transport and marketing of hydrocarbons produced within North Dakota to or from refineries and other end-users or persons and to conduct trading activities. |
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Each of the members of DPTS Marketing LLC was required to make an initial capital contribution of $100. Each member received 1,000 member units for their initial capital contribution, for a total of 2,000 member units issued and outstanding as of September 30, 2013. |
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Each of the members of DPTS Marketing LLC was also required to make an initial Member Preferred Contribution of $10,000,000 to support the trading activities of the joint venture. Upon written agreement of all the members, the members will make such additional Member Preferred Contributions as are agreed upon. All Member Preferred Contributions made shall entitle the member to receive a cumulative preferred return of 5% per annum, which preferred return will be paid in cash on a quarterly basis subject to there being cash available. At September 30, 2013 and December 31, 2012, the Company reported a preferred dividend receivable of $126,029 and $819,178, respectively, on its condensed consolidated balance sheets. The Company received a payment of $1.1 million related to the cumulative preferred return from DPTS Marketing LLC in September 2013. This payment was for the cumulative preferred return from the date of the initial $10 million contribution through June 30, 2013. |
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The operations of DPTS Marketing LLC commenced in May 2011. Under the member control agreement, the profits and losses of DPTS Marketing LLC are split 50/50, pro rata based on the number of member units outstanding. The cash payments from the joint venture will also be paid pro rata based on the number of member units outstanding. The Company received priority cash distribution payments from DPTS Marketing LLC of $2.9 million during the nine month period ended September 30, 2013. The Company had received no priority cash distributions payments prior to 2013. On August 30, 2013 DPTS Marketing LLC made a distribution to each member simultaneously in the amount of $10 million. |
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On June 1, 2012, DPM entered into an amended and restated member control agreement with DPTS Marketing LLC and PTS. The amended and restated member control agreement, among other things, incorporated all previous amendment and supplements, extended the initial term through December 31, 2021, and provided for the initial term to automatically extend in two-year intervals unless and until terminated. On August 30, 2012, the parties amended the amended and restated member control agreement to permit certain other ventures. On June 17, 2013, the parties further amended the amended and restated member control agreement to extend the initial term through December 31, 2026. |
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The Company accounts for this joint venture using the equity method of accounting. The income or loss from the joint venture is included in other income on the condensed consolidated statements of operations and the Company has recorded an investment in DPTS Marketing LLC on its condensed consolidated balance sheet. |
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The unaudited financial statements of DPTS Marketing LLC are summarized as follows: |
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| | Three Months Ended | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 | |
Sales | | $ | 9,115,703 | | $ | 24,204,483 | | $ | 44,234,110 | | $ | 59,330,940 | |
Net Earnings (Loss) | | | (2,201,127 | ) | | 2,862,128 | | | 3,144,653 | | | 17,967,255 | |
Company's Share of Equity in Net Earnings (Loss) | | | (1,100,564 | ) | | 1,431,064 | | | 1,572,326 | | | 8,983,628 | |
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| | September 30, | | December 31, | | | | | | | |
2013 | 2012 | | | | | | |
Total Assets | | $ | 31,332,147 | | $ | 49,399,386 | | | | | | | |
Total Liabilities | | | 10,941,108 | | | 5,587,792 | | | | | | | |
Share of Equity in Net Assets | | | 10,195,519 | | | 21,905,797 | | | | | | | |
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Dakota Plains Services, LLC |
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The Company, through its wholly owned subsidiary Dakota Plains Trucking, LLC, entered into a joint venture with JPND II, LLC ("JPND"). The Company and JPND each own 50% of the outstanding member units of Dakota Plains Services, LLC. The joint venture was formed to engage in the transportation by road of hydrocarbons and materials used or produced in the extraction of hydrocarbons to or from refineries and other end-users or persons, wherever located, and any other lawful activities as the board of governors may determine from time to time. |
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JPND made an initial capital contribution of $650,000 to Dakota Plains Services, LLC. The Company was not required to make a capital contribution. Each member received 1,000 member units, for a total of 2,000 member units issued and outstanding as of September 30, 2013. |
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The member control agreement of Dakota Plains Services, LLC includes a provision that JPND will receive all distributions from the joint venture until the aggregate amount of distributions received is equal to their initial capital contribution. The cash distributions will be split 50/50 after JPND has received distributions equal to its capital contribution. The Company received a tax distribution from Dakota Plains Services, LLC in June 2013. |
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The operations of Dakota Plains Services, LLC commenced in September 2012, under provisions of the member control agreement the profits and losses of Dakota Plains Services, LLC are split 50/50, pro rata based on the number of member units outstanding. |
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The initial term of the joint venture is until December 31, 2022, and the term will automatically extend in two-year renewal periods unless and until terminated. |
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The Company accounts for this joint venture using the equity method of accounting. The income or loss from the joint venture is included in other income on the condensed consolidated statements of operations, and the Company has recorded an investment in Dakota Plains Services, LLC on its condensed consolidated balance sheet. As required by GAAP, the Company recognized its pro rata share of the net income from Dakota Plains Services, LLC for the nine months ended September 30, 2013 less the unrecognized losses from the year ended December 31, 2012. The Company did not recognize the loss from Dakota Plains Services, LLC for the year ended December 31, 2012 or decrease its investment in Dakota Plains Services, LLC below zero as of December 31, 2012. GAAP prohibits the Company from reducing the investment below zero unless the Company is obligated to provide financial support to Dakota Plains Services, LLC. |
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The unaudited financial statements of Dakota Plains Services, LLC are summarized as follows: |
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| | Three Months Ended | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 | |
Sales | | $ | 3,805,769 | | $ | 99,431 | | $ | 10,902,636 | | $ | 99,431 | |
Net Earnings (Loss) | | | 28,630 | | | (99,757 | ) | | 617,639 | | | (99,757 | ) |
Company's Share of Equity in Net Earnings | | | 14,315 | | | — | | | 212,744 | | | — | |
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| | September 30, | | December 31, | | | | | | | |
2013 | 2012 | | | | | | |
Total Assets | | $ | 7,836,756 | | $ | 3,136,159 | | | | | | | |
Total Liabilities | | | 6,852,652 | | | 2,469,833 | | | | | | | |
Share of Equity in Net Assets | | | 152,838 | | | — | | | | | | | |
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