News

A $3.2-billion (U.S.) trading loss on oil futures and derivatives sank high flying energy trader SemGroup LP, which at one time billed itself as the 14th-largest private company in the United States.

The Tulsa-based SemGroup shorted NYMEX crude oil futures to hedge against a decline in the value of the oil it purchased as part of its 500,000-barrel-per-day trading business, according to court documents, before surging crude prices forced it to recognize billions of dollars in losses on futures positions.

SemGroup was forced to recognize a $2.4-billion loss on July 16 after it transferred its NYMEX trading account to Barclays PLC. The firm had been recognizing this position as “loss contingencies,” according to its bankruptcy filing in Delaware federal court.

Included in the NYMEX losses is $290-million owed to SemGroup by a trading company owned by its founder and former chief executive officer Thomas Kivitso. SemGroup placed Mr. Kivitso on administrative leave on July 17.

The company also incurred $850-million in losses on July 17 when its over-the-counter hedging program was marked to market.

SemGroup listed assets of $6.14-billion and liabilities of $7.53-billion in its bankruptcy filing. Liabilities included $3.1-billion of total debt, including $2-billion of secured debt and $594-million in unsecured notes.

SemGroup's financial difficulties were disclosed by its publicly traded affiliate SemGroup Energy Partners LP last week, when it warned that a liquidity crisis at its parent could lead to a bankruptcy filing. SemGroup Energy Partners and its general partner are not part of the bankruptcy filing.

Two hedge funds took control of SemGroup Energy Partners' general partner last week under the terms of a loan they had made to SemGroup.

SemGroup Energy Partners management said on a conference call it was confident the partnership could survive despite SemGroup's bankruptcy and would seek new business from third parties. The company's board of directors has also authorized management to consider a sale or merger with a competitor.

SemGroup Energy Partners warned that it was not ready to say whether it would make a cash distribution to unitholders in the second quarter, although management believes SemGroup will continue to use its fee-based assets to maintain operations while in bankruptcy.