Joint Ventures | 9 Months Ended |
Sep. 30, 2014 |
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 DPTS. 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 DPTS 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, 2014. |
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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 DPTS. |
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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 DPTS 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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On June 1, 2012, DPT entered into an amended and restated member control agreement with DPTS and PTS. The amended and restated member control agreement, among other things, incorporated all previous amendments 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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As a result of the Revised MCA, the Company accounted for the 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 Companys share of income from the joint venture is included in other income on the condensed consolidated statement of operations for the three and nine months ended September 30, 2013. At September 30, 2014 and December 31, 2013, the Company reflected the assets and liabilities of DPTS at carryover basis. |
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On August 30, 2013, the Board of Governors of DPTSM authorized a distribution to each of its members simultaneously in the amount of $10 million, which was used by its members to fund capital contributions to DPTS in order to fund a portion of the Pioneer Terminal. |
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Supplemental Agreement |
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In September 2010, the Company entered into a Supplemental Agreement to the DPTS 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 in the accompanying condensed consolidated balance sheets. |
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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 $1,972 and $9,719 for the three and nine months ended September 30, 2013, respectively. No cash was received related to this rental income; the rental income recorded was treated as an increase in the Companys 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 DPTS until it 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, 2014, the Company had been fully 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 $2,542 and $8,156 for the three and nine months ended September 30, 2013, respectively. There were no future lease payments receivable related to this agreement as of September 30, 2014 and December 31, 2013. |
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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 a change in the Companys method of accounting for the joint venture. Effective December 31, 2013, the Company consolidated the accounts of DPTS into its consolidated balance sheet. Beginning January 1, 2014, the Company began including the operations of DPTS in its consolidated statements of operations. The operations of DPTS for the periods prior to January 1, 2014 are included in the pro forma financial statements below. |
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Pro Forma Information |
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The assumption of the control of day-to-day management of the operations was effective at the end of business December 31, 2013. Therefore, the operating results of DPTS have not been included in the Companys condensed consolidated statements of operations for the three and nine months ended September 30, 2013. 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 Companys former non-controlling interest in DPTS have been removed. |
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| | Three Months | | Nine Months | | | | | | | |
Ended | Ended | | | | | | |
September 30, | September 30, | | | | | | |
2013 | 2013 | | | | | | |
Revenues | | $ | 3,356,845 | | $ | 12,906,617 | | | | | | | |
Net Income (Loss) | | | (1,490,386 | ) | | 1,088,860 | | | | | | | |
Net Income Attributable to Non-Controlling Interest | | | 567,377 | | | 3,151,528 | | | | | | | |
Net Loss Attributable to Shareholders of Dakota Plains Holdings, Inc. | | | (2,057,763 | ) | | (2,062,668 | ) | | | | | | |
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DPTS Marketing LLC |
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The Company, through DPM, entered into a joint venture with PTS. The Company and PTS each own 50% of the outstanding member units of DPTSM. 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 DPTSM 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, 2014. |
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Each of the members of DPTSM 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 September 30, 2014 and December 31, 2013, the Company reported a preferred dividend receivable of $626,027 and $252,057, respectively, on its condensed consolidated balance sheets. In September 2013, the Company received a payment of $1.1 million related to the cumulative preferred return. This payment was for the cumulative preferred return from the date of the initial $10 million contribution through June 30, 2013. No additional payments related to the preferred return have been received since September 2013. |
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The operations of DPTSM commenced in May 2011. Under the member control agreement, the profits and losses of DPTSM 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 did not receive any priority cash distribution payments from DPTSM for the nine months ended September 30, 2014. The Company received its first priority cash distribution payments in April and June 2013. |
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On June 1, 2012, DPM entered into an amended and restated member control agreement with DPTSM 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. 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 member who performs and is solely responsible for purchasing, selling, storing, transporting, marketing and transacting trades in North Dakota crude oil, and entering into related agreements and conducting related activities on behalf of DPTSM (Trading Member) and amended the limitations on its trading activities. |
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The Company accounts for this joint venture using the equity method of accounting. The Companys share of 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 DPTSM on its condensed consolidated balance sheet. |
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The unaudited financial statements of DPTSM are summarized as follows: |
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| | Three Months Ended | | Nine Months Ended | |
September 30, | September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Sales | | $ | 15,273,607 | | $ | 9,115,703 | | $ | 41,637,411 | | $ | 44,234,110 | |
Net Earnings (Losses) | | | 578,463 | | | (2,201,127 | ) | | (2,587,964 | ) | | 3,144,653 | |
Companys Share of Equity in Net Earnings (Losses) | | | 289,232 | | | (1,100,564 | ) | | (1,293,982 | ) | | 1,572,326 | |
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| | September 30, | | December 31, | | | | | | | |
2014 | 2013 | | | | | | |
Total Assets | | $ | 31,054,796 | | $ | 33,523,175 | | | | | | | |
Total Liabilities | | | 11,473,028 | | | 10,605,497 | | | | | | | |
Share of Equity in Net Assets | | | 9,790,884 | | | 11,458,836 | | | | | | | |
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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 DPS. 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 DPS. 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, 2014. |
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The member control agreement of DPS 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 no distributions for the nine months ended September 30, 2014. The Company received a tax distribution in June 2013. |
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The operations of DPS commenced in September 2012. Under provisions of the member control agreement the profits and losses of DPS 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 DPS on its condensed consolidated balance sheet. As required by GAAP, the Company recognized its pro rata share of the net income from DPS for the nine months ended September 30, 2013 less the unrecognized losses from the period ended December 31, 2012. The Company did not recognize the loss from DPS for the year ended December 31, 2012 or decrease its investment in DPS 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 DPS. |
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The unaudited financial statements of DPS are summarized as follows: |
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| | Three Months Ended | | Nine Months Ended | |
September 30, | September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Sales | | $ | 4,780,797 | | $ | 3,805,769 | | $ | 14,569,046 | | $ | 10,902,636 | |
Net Earnings | | | 329,475 | | | 28,630 | | | 1,178,835 | | | 617,639 | |
Companys Share of Equity in Net Earnings | | | 164,738 | | | 14,315 | | | 589,418 | | | 212,744 | |
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| | | | | | | | September 30, | | December 31, | |
2014 | 2013 |
Total Assets | | | | | | | | $ | 8,758,351 | | $ | 9,945,720 | |
Total Liabilities | | | | | | | | | 6,760,292 | | | 9,126,495 | |
Share of Equity in Net Assets | | | | | | | | | 659,817 | | | 70,399 | |
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DPTS Sand, LLC |
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The Company, through its wholly owned subsidiary, Dakota Plains Sand, LLC, entered into a joint venture with PTS. The Company and PTS each own 50% of the outstanding member units of DPTS Sand, LLC. The joint venture was formed to engage in the operation of a sand transloading facility near New Town, North Dakota and any other lawful activities as the board of governors may determine from time to time. |
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Each of the members of DPTS Sand, LLC was required to make an initial capital contribution of $1,000. 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, 2014. |
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The operations of DPTS Sand, LLC commenced in June 2014. Under the member control agreement, the profits and losses of DPTS Sand, 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. |
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The initial term of the joint venture is until December 31, 2026, and the term will automatically extend in one-year renewal periods unless and until terminated. |
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As part of the member control agreement, the Company is the Facility Management Member of DPTS Sand, LLC. As the Facility Management Member, the Company is responsible for the day-to-day operations of DPTS Sand, LLC. Accordingly, the Company has consolidated the accounts of DPTS Sand, LLC with and into its consolidated financial statements since the inception of DPTS Sand, LLC. |
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