Things That Go BOOM! in the Night: SemGroup Energy 10 comments
-
Font Size:
-
Print
- TweetThis
Until now a little-known, though large, closely held partnership in Tulsa, Okla., SemGroup (SGLP) transports, stores and distributes crude oil and refined products. It filed for bankruptcy protection last week after losing more than $2.4 billion on energy contracts...Exactly what drove the company to that fate remains unclear, but clues have started to emerge amid court hearings and other ripples from the implosion.
News follows price
According to SemGroup's bankruptcy-court filings, the company found itself without enough cash to cover margin calls and on July 16 handed its trading account with the New York Mercantile Exchange to Barclays PLC, a move that forced SemGroup to recognize losses exceeding $2.4 billion. A Barclays spokesman declined to comment. Another $850 million of unrealized losses were incurred through over the counter trading, documents show.
[sources at end of post]
Nymex WTI crude oil futures topped out on Jul. 14 at $149.90 (intraday) and Jul. 15 (closing). The intraday ($122.50) and closing ($123.26) lows since then were both hit Friday, Jul. 25, representing declines of 17.2 and 15.5 percent, respectively. Mere coincidence, of course.
Another body in the Ritchie cemetery?
According to regulatory filings, a fund owned by Carlyle Group and Riverstone Holdings has a 29.3% stake in SemGroup, while hedge fund Ritchie Capital Management owns a 25.2% stake. SemGroup's management owns most of the remaining shares. Spokesmen for Ritchie and Carlyle/Riverstone declined to comment.
Ritchie has been a slow motion tank farm fire (formerly train-wreck) for about three years now, in a process featuring an endless stream of excuses for not returning investors’ funds, punctuated by restructuring plans of dubious efficacy, some abandoned along the way, a bankruptcy filing by two funds that lost an alleged $700 million in life settlement assets after partner Coventry First LLC was sued by New York State, a $40 million settlement for its involvement in the mutual fund market timing morass...well you get the general idea.
In late 2007, Ritchie investors filed an involuntary bankruptcy petition seeking liberation of their funds, only to be hit by a Ritchie countersuit alleging that the action was “disparagement” prohibited by the offering documents’ ban on public criticism of the fund and its management. (The bankruptcy shot was tossed; Ritchie then withdrew the countersuit.)
Among founder Thane Ritchie’s most consistently excellent excuses for limiting redemptions was that he needed time to realize the full value of private equity holdings. Mission, at least in this case, accomplished.
Was the hedger speculating?
SemGroup’s futures market losses have, naturally, given rise to speculation that the hedger was, in fact, speculating.
SemGroup had large “short” positions on crude-oil contracts, which were essentially bets that oil prices would fall. As part of its business, SemGroup uses these contracts — which commit the company to sell oil at fixed prices at future dates — to hedge its inventory and future oil purchases. But given the whopping size of SemGroup’s losses, some analysts and creditors suspect the firm may also have been making speculative trades not directly tied to its core business...
...Andrew Oram, an analyst at Moody’s Investors Service, said SemGroup’s bankruptcy-filing documents “brought to light additional large hedging liabilities and other unusual items that had not been reflected” in the company’s previous disclosures.
This one will run and run, but it does raise yet another question concerning the validity of the closely-followed Commodity Futures Trading Commission’s Commitments of Traders reports, which both sides of the Evil Speculators! debate have, like drunks and lampposts, leaned on to support their arguments. SemGroup’s positions were classified as “commercials” (i.e., used to hedge physical market risks); as the autopsy proceeds, it will be interesting to see what proportion of its trading should have been filed in the “Great Big Get Rich Poor Quick” bucket.
Public shareholders, meet The Shaft
When SemGroup filed for bankruptcy, two of its hedge-fund creditors, Alerian Capital Management and Manchester Securities, took control of the general partnership of SemGroup Energy [SGLP]. Shares of SemGroup Energy have fallen 67% since the start of last week. As of 4 p.m. Nasdaq composite trading Thursday, they were at $7.72, off 28 cents. [They closed Friday at $7.55.]
But further evidence, was it needed, of the advantages of ETFs (or, in this case, an ETN) compared with the joys of stock-picking.
If, of course, you really must. And while SGLP was not in the Bear-Linx Alerian Master [Energy] Limited Partnership exchange-traded note (BSR) (b. Jul. 20 2007) — its trading symbol was carefully chosen as an abbreviation for Bear Stearns Rubbish.
Wrong-Way Oil Bets Slam an Energy Firm
By Serena Ng, Peg Brickley and Carolyn Cui
July 25, 2008; Page C1
When Hedge Funds Bar the Door
By Susan Pulliam
The Wall Street Journal Jul. 2 2008
[This article provides reasonably comprehensive background on the Ritchie inferno but the second para needs be treated with caution. Yes, “A.R. Thane Ritchie has barred investors from leaving his fund,” the original redemption limits date back to 2005 (as noted later in the article). As well, Ritchie has several funds, and the limits have probably impacted each of them differently.]
Related Ancient History:
Ritchie Fund Rewrites Rules
by Emma Trincal
TheStreet.com Dec. 14 2005
Ritchie Announces Mutual Fund Trading Settlement
Business Wire (via Reuters) Feb. 5 2008
Related Articles
|
Find People on SA
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largest
increase in followers
in the last 7 days-
1
David Fry
-
2
Bill Gross
-
3
TraderMark
-
4
Peter Schiff
-
5
Serge Hagopian
Fastest Climbers » -
1
-
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 10 comments:
irproducts.com
Disclosure: short crude since 145.2 but will reevaluate my short position if crude gets down to the low 120s again.
biz.yahoo.com/rb/08072...
Incorrect.
SemGroup L.P. and multiple subsidiaries filed for bankruptcy protection. SemGroup L.P. owned the general partner of SemGroup Energy Partners L.P., which is the Master Limited Partnership (MLP).
SemGroup L.P. immediately lost control of the G.P. which is now run by Manchester/Elliot and Alerian because the G.P. secured a now defaulted loan from those two parties.
SemGroup Energy Partners L.P. (the publicly traded MLP, trading under ticker SGLP) is not bankrupt and has sufficient cash to survive for several quarters. SGLP is in talks with their lenders to cure their own default in their credit agreement resulting from their former parent's filing. And a likely sale of assets at the former parent (SemGroup L.P.) to any of the likely buyers will result in a resumption of cash flow to SGLP.
Likely buyers include Plains, NuStar, Enterprise, Kinder, and Enbridge. SGLP is trading at below its liquidation value.
....
no that is not what I was asking about either haha ... oh that's funny shit ... you guys have been trying to connect (money/love to oil/gold) lol no thats not the connections I was seeing
let's just say I got wronged all the way around in a situation. it wasn't even my fault. that crazy x toyed with my head massively.
but sure that works too. roflmao. hahaha
yeah so anyways, can I come back to class now?
lol, I am not even going to get into it. but it was only all mental
$3 billion in Fraud in Petters, plus $1 billion in eToys, KB, Stage Stores etc.,
It is a new day!