Tulsa World: Sem Partners stock stabilizes

MAKE US YOUR HOMEPAGE | Tuesday, February 09, 2010 | WIRELESS

Home > Business

Newspaper View Print this story

Comment

RSS

Bookmark

Sem Partners stock stabilizes
The publicly traded subsidiary to bankrupt SemGroup LP defies some expectations.

By ROD WALTON World Staff Writer
Published: 7/30/2008 2:10 AM
Last Modified: 7/30/2008 2:59 AM

The publicly traded subsidiary to bankrupt SemGroup LP defies some expectations.

SemGroup Energy Partners LP is on the rebound — for now.

The publicly traded subsidiary to bankrupt SemGroup LP has defied some expectations by stabilizing its Wall Street standing, if just a little. The Tulsa-based oil and asphalt storage and transport partnership's stock, known as SGLP on the ticker, closed at $8.54 per share Tuesday, its second straight day of going up instead of down.

In fact, the day's high of $8.75 was the stock's healthiest price since July 23, the day after SemGroup LP filed for Chapter 11 protection in Delaware federal court. Granted, SemGroup Energy Partners dropped from $24 per share two weeks ago to a low point of $5.98 on July 18, and all that's happened in the meantime is the parent company's bankruptcy amid revelations about $2.4 billion in trading losses and billions more in debt and alleged unpaid contracts to suppliers.

So what gives with SGLP's humble, yet surprising, comeback?

"People buying the stock seem to believe that the value of the hard assets more than offset whatever exposure it might have to the bankruptcy," said Kevin Starke, a Stamford, Conn.-based analyst who has been following the SemGroup saga.

SemGroup Energy Partners, which split off its voting control from the parent company last week when two hedge funds took over the board, owns and operates about 6.7 million barrels of oil storage and 46 liquid asphalt cement tanks with 6.6 million barrels of storage capacity, according to reports.

In addition, its crude oil assets in storage could be worth about $102 million.

The important thing, Starke noted, is that creditors such as those lined up by the dozens in SemGroup LP's bankruptcy case are not yet looking to take SGLP apart.

"What it shows right away, by all appearances, is the secured lenders to SemGroup (LP), SemCrude and other private entities do not have claims on the hard assets of SemGroup Energy Partners LP," he said.

Last week, new board members from Manchester Securities and Alerian Capital Management joined SGLP's CEO, Kevin Foxx, and other senior managers in a conference call to confirm their commitment to keep the public company moving forward. They pointed out the value of the company's assets and vowed to find third-party customers for SGLP's fee-based storage and transport services.

And there lies the possible storm front for SemGroup Energy Partners. The public company has plenty of debt on its own — some estimates as high as $450 million — and its main revenue source is doing business with the parent SemGroup LP.

Replacing up to 90 percent of revenue is tricky but not impossible, analysts say.

"If someone buys the parent's crude and asphalt assets and wants to continue the relationship with SGLP, then that'll be easy," Starke said. "The risks to the stock are that SGLP cannot reproduce its business with the parent with other companies on similar favorable terms."

The investors who are now running SGLP may say they are interested in running the company, but they are creditors and not necessarily energy company operators, he added.

"It's worth taking with a grain of salt given who they are and what they do," Starke said.

SemGroup Energy Partners also gained some bounce when the bankrupt SemGroup announced it had agreed to a $250 million "debtor in possession" loan with Bank of America this week. The loan, if approved by the bankruptcy court, would allow SemGroup LP to continue operations past Aug. 15, when the initial $50 million in approved cash funding would have run out, according to records.

"It indicates that someone is willing to come in and stabilize the situation," Starke said.

Bank of America's loan is supposed to be the lifeline SemGroup needs to survive until it can liquidate all of its assets as planned. The bank could loan the $250 million for up to nine months with interest equal to the London Interbank Offered Rate (currently 2.46 percent) plus 6 percent or the current prime rate (5 percent) plus another 5 percent, according to reports.

U.S. Bankruptcy Judge Brendan L. Shannon will hear motions Thursday on the proposed "debtor in possession" loan. Other creditors have until Wednesday to file their objections.

In a related Tuesday court action, DE Exploration Inc. gave notice that it wants to reclaim $2.2 million worth of oil delivered to SemCrude from June 11 to last week. The oil, totaling about 8,841 barrels, was sold to SemCrude on credit before the bankruptcy filing and has not been paid for.

DE Exploration joined a growing list of suppliers — including Bominflot Atlantic and Alon USA — who filed demands for reclaiming oil or other fuel they sold to subsidiaries such as SemMaterials or SemCrude on credit. Other smaller suppliers — such as Oklahoma independent producers — have said they also are waiting on SemGroup checks that should have been delivered beginning last week, according to reports.

Mike Terry, president of the Oklahoma Independent Petroleum Association, said he has been getting phone calls and e-mails from worried well operators and producers who are waiting on millions of dollars in total SemCrude payments. Many can afford to go only a month or two without a paycheck, he said.

SemGroup has offered those producers a supplier protection program, but many are wary about just how well protected they are in light of the company's extreme debt and lengthy list of major creditors.

"There's just so much angst about what's going to happen," Terry said.

SemGroup Energy Partners

Nasdaq symbol: SGLP

Tuesday close: $8.54

Monday close: $7.98

52-week high: $30.79*

52-week low: $5.98**

YTD change: -70.55%

*On July 31, 2007
**On July 18, 2008

Source: Bloomberg

Rod Walton 581-8457
rod.walton@tulsaworld.com By ROD WALTON World Staff Writer

Newspaper View Print this story

Comment

RSS

Bookmark

Reader Comments

Show: Most Recent Comment First

Add your comment

2 comments have been made on this story so far. Tell us what you think below!

Reporting Comments

If you see a comment that violates our terms and conditions, please help us by clicking the "Report this Comment" link next to a comment. That will alert the web staff to review the comment. Thank you. -- Web Editor Jason Collington

Report Comment

breathless , (7/30/2008 12:11:08 PM)

This defies logic. A company's stock rises when check written to suppliers bounce. I also think it is interesting that the layoff have not commenced. It it because Mr. Rowan and the bank don't want to pay any unemployment benefits?

Report Comment

JCR, TULSA (7/31/2008 1:56:10 PM)

I realize that it is of grave concern to the hundreds of employees of SGLP as to when their jobs will terminate. But, it is highly likely that they will at least be paid for the time that they are employed. However, on behalf of those thousands of small oil producers and royalty owners (of which I am one), I would like to generate some concern, as we have literally had a total of approximately 25 million barrels of oil stolen from us by Semcrude, L.P. during the months of June and July. The oil was picked-up by SCLP trucks, delivered to SCLP pipelines, and sold, the proceeds of which were, as usual, to be mailed to the producers and royalty holders. Instead, those approximately 3 billion $'s were used to cover margin calls by the Chicago Board of Trade to SCLP, for wreckless and possibly illegal gambling with oil futures. Furthermore, SCLP was despicably incideous in that they filed for bankruptcy on the very day (July 22) that checks were supposed to have begun arriving for June's oil collections, thus catching the producers by surprise, so that they were unable to stop oil collection by SCLP for the month of July befor it was essentially completed. So, to all the adjectives attributed to Kivisto and his boys, add "thief."

Add Your Comment
In order to post a comment on this article, you must sign in to Tulsaworld.com. If you do not have a site account, you can create an account for free.