Huge oil trading loss sinks energy trader SemGroup

SemGroup LP declared bankruptcy on Wedneday after $3.2 bln in oil trading losses torpedoed the formerly 12th-largest private U.S. 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 bln 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 chief executive, said in a statement.
SemGroup took a $2.4 bln loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays Plc, converting what they called "loss contingencies" into an actual loss.
Included in the NYMEX loss was $290 mln owed to SemGroup by a trading company owned by co-founder and former chief executive Thomas Kivisto, who was placed on administrative leave on July 17.
Securities legislation limits publicly traded company executives from extensive dealings with their firms, but experts said privately held companies have more flexibility.
"They can't do anything illegal. But there is no particular disclosure to anyone apart from any contractual agreements that they may have with investors," said Kenneth Froewiss, a professor of finance at New York University.
SemGroup had engaged in regular hedging transactions with BOK Financial Corp, where Kivisto had been a board member since 2006 before resigning on July 16. As of the end of 2007, SemGroup had hedged 21 mln barrels of crude oil with BOK, which had a fair value of negative $130 mln.
As of the end of March, this position was worth negative $88 mln, said BOK spokesman Jesse Boudiette, who declined to comment on BOK's current exposure to SemGroup saying the bank would not speak publicly about individual clients.
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.