Sem Group meltdown

[cannon_fodder]

Very fair points MacGyver.  I over simplified it.

Production is a high risk venture for SURE.  Huge up front costs and very uncertain returns.

I guess I was trying to convey that Energy Trading has more immediate risk.  They can disappear over night on one huge loss.  Most exploration has SOME return, even if it fails to cover the cost.  Very few wells are "dry holes."  

Bah.  Am I conveying what I mean at all?  Just that trading has more potential to be all or nothing.  Look at what oil companies go under - most aren't exploration. More Energy Trading companies have gone under in the last 10 years probably 5 to 1.

[FOTD]

quote:Originally posted by Conan71

quote:Originally posted by FOTD

The latest rumor is three or four execs will be facing stiff jail terms.

Tee Kay (rhymes with Ken Lay) will be in jail for some time.

Taking Tulsa down a notch from third to fourth tier. Shed a tear for Tom Terrific.

And remember, it ain't ova til the lady sez DNova......

I believe there will be quite a bit more investigation before anyone connected to this will be given their due process THEN may face stiff sentencing.  That's the general order our justice system works in.

Yes. They'll live lavishly and on the bail in some beautiful Island. Surely, stashed some bucks just in case things went bad.

Who here has been effectd by this debacle? What companies had to find out the hard way they won't get paid for what they delivered? What small business in town has had their tit removed? WHo and how many will find out they got screwed? The drama will continue to unfold in the months ahead.

But Conan your %10 came in and even the devil  agrees to due process ..... then I will wonder if Tee Kay will pull a Ken Lay and fly away.

[cannon_fodder]

Ken Lay didn't fly away, he died.

[FOTD]

Hey, I can believe what I want.

He was one of the smartest guys in the room.....


[][:X]

[yayaya]

uh-yeah-dnova
heard something very interesting about that connection a few weeks before all this happened

[inteller]

quote:Originally posted by OUGrad05

quote:Originally posted by Conan71

quote:Originally posted by OUGrad05

So what did Samson do?  Donate a bunch of money to the city?  They're a midsize private firm aren't they?

Okay, pay attention to previous posts:

THE SAMSON COMMENT WAS AN INNOCUOUS COMMENT TO YANK INTELLER'S CHAIN!

Wakeup on the wrong side of the bed this morning?

must have...and I don't know why he directed the comment specifically at me.  I could care less what they do really.  Now if Williams goes belly up again, that could be bad.

[FOTD]

Is that a tip, a rumor, inside info, or just a comment?^

[inteller]

quote:Originally posted by FOTD

Is that a tip, a rumor, inside info, or just a comment?^

last i heard Williams was doing well for itself.  they've hired a few flunkies over there, but i think they got rid of the worst at the top.

[FOTD]

quote:Originally posted by inteller

quote:Originally posted by FOTD

Is that a tip, a rumor, inside info, or just a comment?^

last i heard Williams was doing well for itself.  they've hired a few flunkies over there, but i think they got rid of the worst at the top.

Well, we know that....some were higher ups at that Sem group.

[inteller]

quote:Originally posted by FOTD

quote:Originally posted by inteller

quote:Originally posted by FOTD

Is that a tip, a rumor, inside info, or just a comment?^

last i heard Williams was doing well for itself.  they've hired a few flunkies over there, but i think they got rid of the worst at the top.

Well, we know that....some were higher ups at that Sem group.

yup, no one knows how to run a company in the ground like those thugs.

the up side for williams and other concerns in town is that there is now a fresh pool of highly skilled labor on the market.

[FOTD]

Highly skilled? For what? How to bruise a local economy?

The TulsaWhirled reporting continues to be like a high school rag with teeny bits of lazy investigative reporting.

Several independent oil producers want their money and have been offered only last years pricing at just over $60/barrel when they though they were due $140.

I'm also currious about other donors like Zarrow and QT and Kaiser et al who gave thinking goals were attained not realizing the consequences to the Tee Kay ( rhymes with Ken Lay) debacle of insufficient funds to complete projects and goals.

Cover ups and ommissions indicate our newspaper is dubious. Urby should fall in the cracks with tittlelating details of all the other "gossip" going around. What a mess.

It ain't ova til the lady sez DNova......

[waterboy]

Urby fill in the details? The same Urby who just named TeeKay as their Absolute Best Business Leader of 2008? I doubt they'll do much or Tulsa People either. Their readers have very little to do with those awards. They depend on advertising dollars spent and social climbing potential for the publishers which means his award was for being a friend or potential friend of the publishers.

There is no investigative press in Tulsa. Too expensive and every story creates a new enemy from the "oligarchy". This story will unfurl on blogs, this forum and perhaps from outside publications.

[inteller]

quote:Originally posted by FOTD

Highly skilled? For what? How to bruise a local economy?

The TulsaWhirled reporting continues to be like a high school rag with teeny bits of lazy investigative reporting.

Several independent oil producers want their money and have been offered only last years pricing at just over $60/barrel when they though they were due $140.

I'm also currious about other donors like Zarrow and QT and Kaiser et al who gave thinking goals were attained not realizing the consequences to the Tee Kay ( rhymes with Ken Lay) debacle of insufficient funds to complete projects and goals.

Cover ups and ommissions indicate our newspaper is dubious. Urby should fall in the cracks with tittlelating details of all the other "gossip" going around. What a mess.

It ain't ova til the lady sez DNova......

i'm not referring to the people up top.  I'm talking about the people doing the actual real work.  They have a number of highly skilled and experienced IT professionals over there.  They will get a job no doubt, but if Tulsa isn't careful they will lose them entirely as they move to Dallas and Houston.

[FOTD]

Some journalism:

http://online.wsj.com/article/SB121702824404886365.html?mod=hps_us_whats_news



In Oil Debacle, Ex-Basketball Star
In College Shot a Brick
By JASON WOMACK and CAROLYN CUI
July 26, 2008; Page B1

In Oil Debacle, Ex-Basketball Star
In College Shot a Brick
By JASON WOMACK and CAROLYN CUI
July 26, 2008; Page B1

Houston

Until just days ago, 56-year-old Tom Kivisto was one of the most public, revered figures in Tulsa, Okla.'s thriving business scene. The founder and recently deposed head of SemGroup LP had built one of the largest private companies in the U.S., a perch from which he oversaw a range of donations to local groups and his alma mater, the University of Kansas.

This past week, the company he built filed for Chapter 11 bankruptcy-law protection after losing $2.4 billion on energy contracts with various other parties. One of those parties, according to court documents, was a firm owned by Mr. Kivisto. That trade cost SemGroup $290 million.

A person familiar with SemGroup's trading and court documents suggests the firm was an active trader that used risky, complicated trading techniques including options trades that exposed it to greater risks if the market made big moves. A spokesman for SemGroup declined to comment on the company's trading strategies. "We have not disclosed how the company hedged its positions," he said.

Mr. Kivisto hasn't made any public statements since the bankruptcy filing, a change for a man who was an outspoken community member and a 2007 "Tulsan of the Year."

"I think it's disturbing that we haven't heard from him," said Jake Dollarhide, a Tulsa-based money manager who knows Mr. Kivisto through community organizations. "After all of the things he's done for the city of Tulsa, it's eerie."

Several attempts to reach Mr. Kivisto on his cellular phone and at a number listed as his home number were unsuccessful.

SemGroup's collapse is also catching the attention of those who received donations from Mr. Kivisto. The Tom and Julie Kivisto Family Foundation pledged $7.5 million to fund a stadium for the Tulsa Drillers minor-league baseball team. Mr. Kivisto was also behind a $12 million pledge toward the University of Kansas's new football complex. So far about $4 million of the amount has been extended, according to a school official.
Mr. Kivisto has a long history in the sports world, having watched his father, Ernie, become one of the winningest basketball coaches in Illinois high-school history. The younger Mr. Kivisto took his own basketball skills to the University of Kansas, where he led the Jayhawks to a Final Four appearance in 1974, and where he still holds the school's single-game assist record.

The roots of Mr. Kivisto's business career began at Koch Industries, a privately held energy giant where he eventually rose to become vice president of crude-oil marketing for the company. He was the "fair-haired boy" of Koch, said Dewey F. Bartlett Jr., a longtime Oklahoma oil man and president of Keener Oil & Gas Co.

After 15 years at Koch, Mr. Kivisto struck out on his own, founding oil-marketing company Eaglwing Trading in 1993, which is listed in bankruptcy filings as a subsidiary of SemGroup.

In 2000, he founded SemGroup with a $65 million loan from BOK Financial Corp., where he would later serve as a director. SemGroup grew rapidly in following years by making more than 50 oil and gas acquisitions from several companies, including several deals with Dynegy Inc. and Williams Cos.

Mr. Kivisto saw storage as a new frontier in the oil and gas business. As other countries developed refineries and began exporting petroleum products, storage facilities, such as the key hub in Cushing, Okla., would become increasingly important. SemGroup Energy Partners owns 1,200 miles of pipeline and 15 million barrels of oil-storage capacity, including seven million barrels of capacity at Cushing.

Mr. Bartlett said Mr. Kivisto always maintained that the price of crude oil would be driven by world demand and that the "wild card" in the market was the war on terror.

"I still think he is one of the brightest, most astute people I've ever met as far as what drives our business," Mr. Bartlett said. "I just think he's not seeing anybody."

SemGroup in court documents this week attributed its losses to volatility in the commodities markets and tighter margin requirements, or the collateral a trader must post to support its positions.

According to a person familiar with the firm's trading, in addition to buying and selling futures to hedge the commodities it owned, SemGroup traded options that exposed it to greater risks if the market made big moves. The person said SemGroup sold puts, a trade that has the potential for large losses.

The company, which transports, stores and distributes crude oil and refined products, is one of the nation's largest private firms and by some estimates handles oil volumes representing 2.5% of U.S. consumption. SemGroup creditors as well as others in the energy industry have questioned whether its troubles helped lead to a fall in oil prices earlier this month.

What is unclear is whether SemGroup's dilemma rose out of unusually active trading with insufficient risk management or whether the company was merely a victim of current circumstances.

High volatility and high prices have put a strain on many physical oil players, which try to hedge their risk by placing bets in the financial markets to help them lock in profit regardless of the direction of oil's moves. Given the current volatility, those bets have become more costly, prompting firms to use riskier strategies that cost less up front but have a greater downside. Failure to manage that risk can lead to dire results.
"It's something new that everybody is adjusting to," said Montie Krumnow, a broker at Starsupply GFI, an over-the-counter energy brokerage. "How to react to these drastic changes....That's the main struggle."

The companies owed money by SemGroup range from major public corporations to small, private gathering companies, which buy oil from producers and sell it to companies like SemGroup. One such gathering company, Central Kansas Crude LLC, is owed $21.8 million by SemGroup, according to court filings.

Chuck Touchstone, Central Kansas Crude's president, said he had sold oil to SemGroup, his only customer, for seven years without asking for a letter of credit.

"Our part of the country does business on a handshake and a promise," Mr. Touchstone said. "You just don't ask a big company like that, 'Are you going broke?' You just don't ask."

Mr. Touchstone said SemGroup's collapse will have ripple effects throughout the industry.

"People will take harder looks at financials, they'll try to get secured credit lines, and the trouble is I'll have to do the same thing," he said. "That limits everybody's ability to draw on their credit."

--Jessica Resnick-Ault, Joseph Checkler, Aaron Lucchetti and Ben Casselman contributed to this article.

Write to Carolyn Cui at carolyn.cui@wsj
 News Licensing   Advertising   About Dow Jones
Copyright © 2008 Dow Jones & Company, Inc. All Rights Reserved

[FOTD]

More Journalism:

http://online.wsj.com/article/SB121699348325584683.html?mod=loomia&loomia_si=t0:a16:g2:r1:c0.124027

COMMODITIES  


 
SemGroup Collapse Leaves
Oil-Distribution System Exposed
Producers Cut Back
Scheduled Deliveries
On Broad Network
By BRIAN BASKIN
July 26, 2008; Page B6

SemGroup LP's implosion has left a hole in the intricate web of oil pipelines and storage terminals relied upon by refiners throughout the Midwest.

Over the past eight years, the Tulsa, Okla., private company bought or acquired oil pipelines, trucks and storage terminals across a swath of the oil patch stretching from east Texas to the Kansas-Nebraska border. At least 2,000 producers, big and small, sold their oil to SemGroup, which sent the crude onto refiners across the region. SemGroup filed for Chapter 11 bankruptcy protection on July 22, citing a $3.2 billion loss in the futures market. The top 30 creditors are owed as much as $1.4 billion, with as many as 5,000 others also due money, many from physical oil transactions for which SemGroup never paid.


A publicly traded subsidiary, SemGroup Energy Partners, owns most of the pipelines and terminals that the private SemGroup used to move its oil, including tanks at Cushing, Okla., a key storage hub closely monitored in energy markets. Under new management, the public company has vowed to forge new relationships with producers and refiners.

"This is a toll road business model; we are simply paid based on volume transported," said Gabriel Hammond, managing director at Alerian Capital Management, one of the hedge funds that took over management of the public company on Monday. He was speaking in a conference call with investors and analysts earlier this past week.

If only it were that simple. Few producers have so far been willing to pay the toll if they believe the road ahead could be blocked at any minute by financial troubles bleeding over from the private SemGroup to the public one. Pipeline space is typically booked a month or more in advance, so for now it's business as usual across both SemGroup assets. But the companies are quickly falling behind in scheduling future oil deliveries.

Mr. Hammond said it could be weeks before the company knows how successfully it can operate without its former parent, which provided 89% of its revenue in the first three months of 2008.

One SemGroup Energy Partners pipeline system delivers oil to a ConocoPhillips refinery in Borger, Texas, while a second links east and south Texas oil to other pipelines that criss-cross the Midwest and Gulf Coast. ConocoPhillips declined to comment.

The privately held SemGroup also operated a pipeline system between Wichita, Kan., and Cushing, a region home to many small producers that rely on a single oil marketing company for their entire business.


• SemGroup's Kivisto in Spotlight
07/26/08
• Oil Bets Slam SemGroup
07/25/08Central Kansas Crude LLC, for example, trucked 5,000 barrels a day from small producers to a pipeline owned by SemGroup that connected into Cushing. When SemGroup told the company on July 18 that it would have difficulty making payments, the trucking operation was shut down immediately, leaving many producers with nowhere to send their oil, said Rick Navarro, director of crude-oil supply at Central Kansas Crude.

Central Kansas Crude is owed $21.8 million by SemGroup, according to the bankruptcy filing.

In a July 22 letter, SemGroup's acting chief executive, Terry Ronan, told suppliers that they might be eligible to be paid existing bills if they continue to do business with the company. "If your supplier protection agreement is accepted by SemGroup, you will receive payment, in full, in cash or kind of your pre-bankruptcy claim," the letter says.

Companies that are due payment for goods and services provided to SemGroup before the filing must agree by Sunday to provide goods or services to SemGroup through Jan. 31, according to a copy of the letter reviewed by Dow Jones.

Not everyone sees SemGroup's collapse as a disruptive force in the market. Numerous pipelines cut through Texas and Oklahoma, and Cushing storage is only at half capacity. If SemGroup vanishes for good, the physical market will simply rearrange itself around other companies' assets, one trader said.

In other commodity markets:

GOLD: Prices on the Comex division of the Nymex recovered from early weakness as traders bought futures to cover previously sold positions ahead of the weekend. Stronger-than-expected durable-goods and housing data, which pressured gold early in the session, still revealed a serious credit crisis, one analyst said. Nearby July gold added $4.60 to settle at $926.60 a troy ounce, while most-active August rose $4.50 to $926.80.

COCOA: Prices rose as the market took some direction from other commodity markets and as traders bought futures to cancel previous sales. September cocoa on the ICE Futures U.S. exchange added $69 to settle at $2,813 a metric ton.