Read the Tulsa World’s coverage of the SemGroup collapse and recovery.
SemGroup Corp. faced a flurry of challenges coming out of bankruptcy three years ago, from rebuilding trust with customers and creditors to whether it should keep a name sullied by financial collapse.
Norm Szydlowski, SemGroup's CEO since it emerged from Chapter 11, said the name part was deceptively simple and yet complex.
He recounted those tough days Thursday during the Friends of Finance speaker series at the University of Tulsa.
"We had angry bankers, angry suppliers and angry customers," he said. "It was difficult."
In the end, though, Szydlowski and the leadership team - some new and some veterans of the reorganization - opted not to run away from the once proud and civic-minded name.
The first part of SemGroup is a root word for one, Szydlowski pointed out, so consistency mattered despite the old company's bad reputation.
"We're not trying to pull the wool over anybody's eyes," he said. "So we kept the name."
The SemGroup LP story is well known in Tulsa, both as a cautionary tale and a "wonderful comeback story," Sam Combs said while introducing Szydlowski to the sellout Friends of Finance luncheon.
Co-founders Tom Kivisto, Gregory Wallace and Kevin Foxx built the oil, gas and asphalt transport, storage and energy trading outfit into one of the nation's fastest growing private companies from 2000 to 2008, but it fell victim to mounting margin calls on oil futures positions, pressuring its once-ample cash flow.
Szydlowski stepped into SemGroup in late 2009, a veteran of Colonial Pipeline and helping rebuild Iraq's oil infrastructure following the war to oust Saddam Hussein. He started engaging with a depleted but determined workforce who had hope for the future but was enduring endless questions and prying glances from neighbors and friends who knew about the scandal.
"It almost felt like they were wearing a scarlet letter, Szydlowski recalled. "The scarlet letter B for bankruptcy."
SemGroup refinanced its credit situation and now stands poised to benefit from the shale oil revolution occurring across the U.S., particularly in the Bakken Shale and northern Oklahoma's Mississippi Lime formation. Szydlowski estimated that his company will spend $500 million on capital projects through 2013, including the Glass Mountain Pipeline joint venture with Gavillon to bring crude oil from western and northern Oklahoma.
SemGroup grew its SemCrude division enough last year to spin off most of those assets, including storage tanks at the Cushing hub, into a master limited partnership called Rose Rock Midstream LP. Rose Rock is now trading separately on the stock market, and SemGroup plans to shift future assets into the master limited partnership.
"SemGroup Corp. over time will become a holding company for the MLP and an incubator of projects," Szydlowski said.
The International Energy Agency recently predicted that by 2020 the U.S. will no longer rely on imported oil. Szydlowski noted that Oklahoma's drilling is yielding 10 percent more oil this year than last.
The challenge with all the upstream (exploration and production) growth is that the midstream (pipelines and terminals) sector is not building fast enough to keep up, he said. Things will get better with infrastructure projects such as SemGroup's, he predicted, but right now it's a lot of trucks and rail cars crisscrossing above the Bakken Shale and other hot spots trying to move more oil than the transport and storage side can handle.
"In the interim, it's chaos," Szydlowski said. "But we like that, because chaos can bring opportunity, too."
A different kind of chaos almost did in SemGroup more than four years ago. This time around, however, the CEO said the company has lowered its credit load and plans to finance growth projects with 50-50 debt-equity financing.
"It's a good time to be in the place we're at," Szydlowski said, adding that Tulsa is reclaiming a pre-eminent position in the oil and gas industry.
"Tulsa knows the oil business," he said. "Like the people in our company, they're survivors."
Rod Walton 918-581-8457
rod.walton@tulsaworld.com
Original Print Headline: Resurgent SemGroup poised for big gains
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