September 23, 2008

Producers for Sem Must File By State


Read previous stories and court filings about SemGroup.

SemGroup LP has won court approval for rules limiting how many lawsuits that small oil producers in and around Texas can file against the oil transporter to collect about $393 million they are owed.

The producers, who have not been paid for oil they sold Tulsa- based SemGroup in June and July, must work together to file one group suit per state, according to an order filed Thursday in U.S. Bankruptcy Court in Wilmington, Del., by Judge Brendan L. Shannon.

"It gives the company some breathing room," said SemGroup attorney Martin Sosland in an interview. "Instead of having to run to court several times a week, we now have a process in place."

Since filing for bankruptcy July 22, SemGroup and its 24 affiliates have battled oil producers whose sales are given special repayment protections by state laws. Shannon's ruling replaces at least one class action and several other cases with 11 new lawsuits, one for each state where SemGroup bought oil or gas, to be filed by Oct. 7.

"It effectively cuts out anybody from doing anything outside of the procedures," said attorney Hartley Martyn, who filed a class- action lawsuit against SemGroup on behalf of oil producers in Oklahoma.

Under U.S. bankruptcy code, lawsuits like the one Martyn filed cannot proceed without permission from a judge. Shannon's order sets up rules to automatically allow the suits from the 11 states to go forward.

Lawyers for the producers "are going to meet and hopefully work out a complaint that everybody can agree on," Martyn said.

The oil producers have battled company lenders and other creditors over who will be paid first once SemGroup either shuts down and liquidates its assets in bankruptcy, or reorganizes.

Because of the different laws protecting crude oil sales, the priority of payments may vary from state to state. Although the U.S. bankruptcy code is federal, judges sometimes use state laws to settle disputes that arise in the course of a case, including questions about who is paid first.

SemGroup has about $460 million in cash, part of which will be used to finish a pipeline project that may be sold for a $100 million profit once completed, chief restructuring officer Lisa Donahue said in court. The 12-inch, 550-mile crude oil pipeline will run from near Platteville, Colo., to SemCrude's terminal in Cushing.

Originally published by STEVEN CHURCH Bloomberg News.

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