SemGroup Corp. will eliminate its chief risk officer position by the end of this month, two years after creating the oversight job in the wake of a Chapter 11 bankruptcy that stemmed from bad bets in oil futures trading.
"This is a step in the evolution of where we've been and where we're going," Chief Financial Officer Bob Fitzgerald said Thursday during a conference call that included outgoing Chief Risk Officer David Gorte.
The Tulsa-based midstream asphalt, oil and gas company hired Gorte in November 2009, one month before emerging from bankruptcy as a reorganized, publicly traded corporation. Predecessor and privately held SemGroup LP sought Chapter 11 protection in July 2008 after amassing close to $3 billion in margin losses on oil futures trading positions.
Fitzgerald praised Gorte for bringing "best in class" risk management practices to SemGroup over the past two years. Gorte himself noted that the job was continually evolving, and he did not see a need for his executive role to continue.
"My recommendation was that the group be revamped and the CRO role be eliminated to better fit the ongoing business model," Gorte said. "The system and other people who remain in the risk management group are more than sufficient to handle the company's ongoing risk."
Gorte's last day as one of SemGroup's top executives will be Feb. 1, although he may be needed from time to time after that.
"SemGroup and Mr. Gorte have entered into a consulting services agreement, effective Feb. 2, 2012," the company's filing with the U.S. Securities and Exchange Commission states. "Mr. Gorte, acting as an independent contractor, will provide certain services to SemGroup on an as-needed basis at SemGroup's request."
A U.S. bankruptcy examiner criticized SemGroup for its poor risk management after its collapse. Examiner Louis Freeh's report accused co-founder and CEO Tom Kivisto of running a secretive, risky and "short" trading strategy that proved disastrous as oil futures jumped to a historic high of $147 per barrel in July 2008.
Kivisto has never spoken publicly about the extent of his trading strategy and was never charged with a crime, although he settled several lawsuits related to the SemGroup collapse. His Tulsa attorney, John Tucker, has argued that the "short" futures position would have reaped billions if the company had held on until crude oil prices shrunk back below $100.
Kivisto was fired in 2008, replaced by interim CEO Terry Ronan. Norm Szydlowski took the reins around the same time that the risk officer role was created and Gorte joined the company.
Since then, SemGroup Corp. has focused on fee-based businesses in oil, gas and asphalt storage and transportation. The move, along with the sale of the SemCanada Crude marketing unit in late 2010, helped eliminate a significant portion of the company's commodity risk, spokeswoman Liza Barclay said.
Fitzgerald pointed out that SemGroup LP was largely a marketing and trading group before the bankruptcy and reorganization.
"Today that model has completely changed 180 degrees," he said. "Seventy-five to 80 percent of our business today is fee-based."
Among other improvements that SemGroup made is investing more than $1 million in the Enterprise Risk Management software system.
The company also added credit specialists and risk management advisers.
Rod Walton 918-581-8457
rod.walton@tulsaworld.com
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