SemGroup Files For Bankruptcy

Just as many feared, Tulsa-based SemGroup has filed for Chapter 11 bankruptcy.  The company was hinting last week it could happen after it announced it was having cash flow problems.  The News On 6's Steve Berg reports the company's bankruptcy filings revealed just how bad the cash flow problems are.

SemGroup took a $3.2 billion loss on a failed oil hedging strategy.

That figure shows just how fast that a company's luck can turn in the oil hedging business, says Jake Dollarhide with Tulsa's Longbow Asset Management.

"It can sink any company very fast, but particularly a company that's highly leveraged, used debt to raise capital, because debt is very unforgiving, because interest payments come whether you are successful or not," said Jake Dollarhide.

All is not lost however.

"SGLP is not a party to the bankruptcy filing and the fee-based assets that we own and control retain their value," said SemGroup Energy Partners CEO Kevin Foxx.

SGLP, or SemGroup Energy Partners, is the publicly traded subsidiary of SemGroup and operates things like pipelines and oil storage tanks, operations very different from the oil hedging. 

Some 80% of their revenue comes from SemGroup, the parent.

But, in a conference call on Monday morning, the CEO of the Energy Partners, Kevin Foxx, says they will be looking for outside partners to replace any lost business from the parent group.

"We believe we have a strong future as an independent energy transportation company and we are ready to take on the challenge of expanding our third party throughout agreements," said SemGroup Energy Partners CEO Kevin Foxx.

SemGroup the parent company's CEO Terry Ronan said they will begin a sales process of their businesses.  If that includes the Energy Partners, industry watchers say it's logical to assume that jobs could stay in this area.

"The assets aren't very movable.  The assets are where they are.  The Longview Pipeline in Texas.  The Mid-continent Pipeline in Oklahoma and Texas.  The assets they have around the Cushing area.  The storage tanks off Highway 75," said Jake Dollarhide.

"Our assets remain strategically located, and we are making every effort to insure that our assets remain busy and generating cash flow," said SemGroup Energy Partners CEO Kevin Foxx.

SemGroup, the parent company, reportedly held an employee meeting on Tuesday and said there would be layoffs, but didn't specify how many or where.

Meanwhile, investors have filed a class-action lawsuit against SemGroup Energy Partners saying they failed to disclose how much oil hedging the parent company was doing.

Related stories:

07/21/2008  Creditors Take Charge Of SemGroup

07/18/2008  Tough Times For Tulsa's SemGroup

07/18/2008  Cash Shortage Hurting SemGroup

07/18/2008  SemGroup's Sponsorships May Slow