US physical oil trader SemGroup LP declared bankruptcy yesterday after $3.2 billion (2 billion) in oil trading losses torpedoed the formerly 12th-largest private US company.
The Tulsa-based company racked up the massive losses as oil prices ran up record gains, undercutting short crude futures positions SemGroup bought to hedge against its 500,000 barrel-per-day trading business.
To meet obligations, SemGroup plans to sell off oil and natural gas gathering, transportation, and storage assets worth an estimated $6.14 billion that were purchased in a whirlwind of acquisitions since it was founded in 2000.
'We have determined that the best way to maximize value for our creditors is to undertake a sales process that will transition our valuable businesses to well-established companies,' Terry Ronan, SemGroup's acting CEO, said in a statement.
SemGroup took a $2.4 billion loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays, converting what it called 'loss contingencies' into an actual loss.
Since going public just over a year ago, SemGroup Energy's stock has lost 72% of its value, most of that in the past five trading days. The stock closed at $22.69 on July 16, the day before Semgroup Energy disclosed SemGroup LP was having liquidity issues, and ended Tuesday at $8.28.
SemGroup, ranked the No. 12 private U.S. company by Forbes.com in a 2007 article, also took $850 million in losses on July 17 when its over-the-counter hedging program was marked to market. It listed liabilities of $7.53 billion in its bankruptcy filing, including $3.1 billion of total debt $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 bankruptcy.
SemGroup Energy Partners management said it was confident the partnership could survive despite SemGroup's bankruptcy and would seek new business from third parties. The company's board has also authorised management to consider a sale or merger.
SemGroup Energy Partners also warned it was not ready to say if it would make a cash distribution to unitholders in the second quarter, though its management believes parent SemGroup will continue to use its fee-based assets to maintain operations while in bankruptcy.
SemLogistics, SemGroup's UK subsidiary, which owns Milford Haven terminal, the largest independent oil storage facility in the UK, in unaffected by this announcement. 'It is pretty much business as usual for us, all our customer needs will be met and there will be no redundancies,' explains Nigel Passmore, MD of SemLogistics.