September 9, 2008

SemGroup Companies Settle Feud


Read previous stories and court filings about SemGroup.

Publicly traded SemGroup Energy Partners had pressed its bankrupt parent for payments.

SemGroup Energy Partners and its bankrupt parent company, SemGroup LP, reached a settlement Tuesday on oil and asphalt payments, utility costs and other issues pitting the collapsed energy firm against its onetime subsidiary.

SemGroup LP spokesman Lance Ignon would not give dollar figures on the agreement and noted that the settlement papers had not been signed. SemGroup Energy Partners filed a motion in Delaware bankruptcy court asking for adequate financial protection from its parent firm.

"We are pleased with this outcome," Ignon said in a statement.

The publicly traded company, which SemGroup LP spun off last year in a stock offering, previously received more than 80 percent of its revenue from fee-based storage and transportation services from the parent, according to reports. SemGroup LP's July 22 filing for Chapter 11 bankruptcy protection put a serious fiscal pinch into the newer company, helping send it into credit default and into a search for new customers for its pipeline, storage and terminal operations.

The new deal gives SGLP, as SemGroup Energy Partners is known on the stock market, a one-month line of credit to ensure the parent group's payment for asphalt storage services. The one-month assurance was the same offer made by SemGroup LP before the settlement, according to court records.

SemGroup LP also will pay minimum rates for storage of its oil by SGLP, using contract terms reached before the bankruptcy filing, Ignon said. The contract will be revisited in November, he added.

The parent company also will pay SGLP for some pre-bankruptcy and current utility costs and back-office expenses. In return, the public firm will allow SemGroup easement for a pipeline project running through Kansas land owned by SGLP.

The two sides, once part of the same, fast-growing constellation of local energy and road materials companies, have sparred legally since SemGroup's bankruptcy. SemGroup Energy Partners argued that the parent company reneged on paying some anticipated fees, although SemGroup LP made more than $2 million in payment last month, according to reports.

The public SGLP told the Securities and Exchange Commission that its ability to find new customers, merger partners and simply to continue "as a going concern" were threatened by events surrounding the parent's bankruptcy. Managers with Manchester Securities and Alerian Capital Management took voting control of the SGLP board of directors earlier this summer after SemGroup LP defaulted on its credit agreement with the two hedge funds.

SemGroup Energy Partners officials say their company has found new customers but remains in credit default and with limited cash flow. The public company still has not filed a second-quarter earnings report and faces possible de-listing from the Nasdaq Stock Market for that omission.

The SemGroup collection of companies has been imperiled ever since co-founder Tom Kivisto and other traders racked up an estimated $2.4 billion in trading losses on oil futures contracts, according to reports.

Company officials were forced to tell creditors that SemGroup did not have adequate cash flows to meet margin calls on those losing futures positions.

SemGroup spun off its assets to take SGLP public in July 2007, but the company's value slipped more than 50 percent after traders learned about the parent firm's liquidity issues. Records show that SGLP received more than $100 million in annual revenue from SemGroup LP.

Trading for SGLP closed at $10.16 per unit Tuesday, down 24 cents from Friday.

Rod Walton 581-8457

[email protected]

Originally published by ROD WALTON World Staff Writer.

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