Joint Ventures | 12 Months Ended |
Dec. 31, 2013 |
Joint Ventures [Abstract] | ' |
Joint Ventures | ' |
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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 December 31, 2013. |
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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 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. On December 31, 2013, the parties entered into the Second Amended and Restated Member Control Agreement ("Revised MCA") that, among other things, named DPT as the Facility Management Member. |
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Due to the Revised MCA, the Company accounted for this joint venture using the equity method of accounting through the end of business on December 31, 2013, at which time it was consolidated. Accordingly, the Company's share of income from the joint venture is included in other income on the consolidated statements of operations for all periods presented. The Company recorded an equity method investment in Dakota Petroleum Transport Solutions, LLC on its consolidated balance sheet as of December 31, 2012. At December 31, 2013, the Company reflected the assets and liabilities of DPTS at carryover basis as summarized in the following table: |
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| | As of | | | | | | | |
31-Dec-13 | | | | | | |
Current Assets | | | | | | | | | | |
Cash and Cash Equivalents | | $ | 6,921,264 | | | | | | | |
Other Current Assets | | | 455,905 | | | | | | | |
Due From Related Party | | | 2,840,292 | | | | | | | |
Other Receivables | | | 68,896 | | | | | | | |
Total Current Assets | | | 10,286,357 | | | | | | | |
Property and Equipment | | | | | | | | | | |
Total Property and Equipment | | | 49,771,156 | | | | | | | |
Less – Accumulated Depreciation | | | 1,205,880 | | | | | | | |
Total Property and Equipment, net | | | 48,565,276 | | | | | | | |
Other Assets | | | 402 | | | | | | | |
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Total Assets | | $ | 58,852,035 | | | | | | | |
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Current Liabilities | | | | | | | | | | |
Accounts Payable | | $ | 7,998,082 | | | | | | | |
Accounts Payable – Related Parties | | | 722 | | | | | | | |
Total Current Liabilities | | | 7,998,804 | | | | | | | |
Total Liabilities | | $ | 7,998,804 | | | | | | | |
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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. |
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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 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 $12,169, $42,783 and $80,986 for the years ended December 31, 2013, 2012 and 2011, respectively. No cash was received related to this rental income; the rental income recorded was 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 December 31, 2013 the Company has 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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Rental income related to the Supplemental Agreement was $11,310, $64,214 and $118,627 for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2012, the Company had received $186,113 in lease payments in excess of the amount reported as revenue. This amount is included as deferred rental income on the 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 December 31, 2013 and 2012. |
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The Revised MCA, among other things, named DPT as the Facility Management Member. This assumption of control of the day-to-day operations resulted in DPT becoming the primary beneficiary of the joint venture, which caused a change in how GAAP requires the Company to account for the joint venture. Effective December 31, 2013, the Company is required to consolidate the balance sheet of Dakota Petroleum Transport Solutions, LLC with and into its consolidated balance sheet. Beginning January 1, 2014, the Company will be consolidating the operations of Dakota Petroleum Transport Solutions, LLC with and into its consolidated financial statements. |
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Summarized financial information of Dakota Petroleum Transport Solutions, LLC is as follows: |
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| | Year Ended | |
December 31, |
| | 2013 | | 2012 | | 2011 | |
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Sales | | $ | 17,475,294 | | $ | 15,884,822 | | $ | 11,799,406 | |
Net Earnings | | | 7,926,044 | | | 6,491,033 | | | 7,844,398 | |
Company's Share of Equity in Net Earnings | | | 3,963,022 | | | 3,245,516 | | | 3,922,199 | |
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Total Assets | | | - | | | 13,652,679 | | | 6,820,137 | |
Total Liabilities | | | - | | | 2,617,257 | | | 519,761 | |
Share of Equity in Net Assets | | | - | | | 5,517,711 | | | 3,150,188 | |
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The balance sheet information as of December 31, 2013 has been excluded as it has been included in the consolidated balance sheet of the Company as of December 31, 2013. |
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The difference between the Company's share of equity in the net assets of DPTS and the investment in DPTS as shown on the consolidated balance sheet as of December 31, 2012 is due to 50% of the deferred rental income being eliminated through the investment in DPTS. |
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Pro Forma Information (Unaudited) |
The assumption of the control of day-to-day management of the operations was effective end of business December 31, 2013. Therefore, the operating results of Dakota Petroleum Transport Solutions, LLC have not been included in the Company's consolidated statements of operations for the years ended December 31, 2013, 2012, and 2011. The following unaudited pro forma results of operations assume that the change in control of day-to-day management of the operations had been effective for the aforementioned periods. Such results are not necessarily indicative of the actual results of operations that would have been realized nor are they necessarily indicative of future results of operations. |
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These pro forma amounts have been calculated after adjusting for intercompany amounts. In addition, the equity earnings from the Company's former non-controlling interest in Dakota Petroleum Transport Solution, LLC have been removed. |
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| | Year Ended | |
December 31, |
| | 2013 | | 2012 | | 2011 | |
Revenues | | $ | 17,475,294 | | $ | 15,884,822 | | $ | 11,799,406 | |
Net Income (Loss) | | | 735,658 | | | (79,153 | ) | | (726,592 | ) |
Net Income Attributable to Non-Controlling Interest | | | 2,461,022 | | | 1,921,517 | | | 2,384,199 | |
Net Loss Attributable to Shareholders of Dakota Plains Holdings, Inc. | | | (1,725,364 | ) | | (2,000,670 | ) | | (3,110,791 | ) |
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Pioneer Terminal |
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The Pioneer Terminal, which was commissioned on December 31, 2013, represents a significant expansion of the transloading facility. The total cost of the project was approximately $50 million, and funded equally by the members of DPTS. The Company contributed $17.5 million to DPTS in 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 December 31, 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 million 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 cash availability. At December 31, 2013 and 2012, the Company accrued a preferred dividend receivable of $252,057 and $819,178, respectively, on its consolidated balance sheet. The Company received a payment of $1.1 million related to the cumulative preferred return 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 are also paid pro rata based on the number of member units outstanding. The Company had not received any priority cash distribution payments from DPTS Marketing LLC prior to 2013 but received payments of $2.9 million during the year ended December 31, 2013. On August 30, 2013 DPTS Marketing LLC also 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, they subsequently amended the amended and restated member control agreement to extend the initial term through December 31, 2026. On December 31, 2013, the parties entered into the Second Amended and Restated Member Control Agreement that, among other things, increased the operating and accounting fees paid to the Trading Member and amended the limitations on its Trading Activities. |
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The Company is accounting for this joint venture using the equity method of accounting. The Company's share of the income or loss from the joint venture is included in other income on the consolidated statements of operations and the Company has recorded an investment in DPTS Marketing LLC on its consolidated balance sheet. |
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Summarized financial statements of DPTS Marketing LLC are summarized as follows |
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| | Year Ended | |
December 31, |
| | 2013 | | 2012 | | 2011 | |
Sales | | $ | 55,729,970 | | $ | 79,008,731 | | $ | 9,117,898 | |
Net Earnings | | | 5,923,344 | | | 20,821,192 | | | 4,628,558 | |
Company's Share of Equity in Net Earnings | | | 2,961,672 | | | 10,410,596 | | | 2,314,279 | |
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Total Assets | | | 33,523,175 | | | 49,399,386 | | | 26,813,607 | |
Total Liabilities | | | 10,605,497 | | | 5,587,792 | | | 2,820,465 | |
Share of Equity in Net Assets | | | 11,458,839 | | | 21,905,797 | | | 11,996,571 | |
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The Company has included $2,840,292 in due from related party on its consolidated balance sheet as of December 31, 2013 related to amounts due from DPTS Marketing LLC. |
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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 December 31, 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 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 consolidated statements of operations, and the Company has recorded an investment in Dakota Plains Services, LLC on its 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 year ended December 31, 2013 less the unrecognized losses from the period ended December 31, 2012. The Company did not recognize the loss from Dakota Plains Services, LLC for the period 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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| | Year Ended | |
December 31, |
| | 2013 | | 2012 | | 2011 | |
Sales | | $ | 15,420,096 | | $ | 1,336,482 | | $ | - | |
Net Earnings (Loss) | | | 452,761 | | | (192,151 | ) | | - | |
Company's Share of Equity in Net Earnings (Loss) | | | 130,305 | | | - | | | - | |
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Total Assets | | | 9,945,720 | | | 3,136,159 | | | - | |
Total Liabilities | | | 9,126,495 | | | 2,469,833 | | | - | |
Share of Equity in Net Assets | | | 70,399 | | | - | | | - | |