Tulsa World: Lawyer hopeful about debts

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Lawyer hopeful about debts
Creditors fear they'll recover little from SemGroup's bankruptcy.

By ROD WALTON World Staff Writer
Published: 5/7/2009 2:27 AM
Last Modified: 5/7/2009 6:00 AM

Complete coverage: Read all the stories and documents related to the SemGroup collapse.

Many oil and gas producers fear they may get only pennies on the dollar, if that, for the $400 million and more owed them by bankrupt SemGroup LP. But one of its attorneys remains optimistic about total payback.

"That's the ballgame," Tulsa attorney Gary McDonald said Wednesday during the Mid-Con Expo Energy Conference at the Cox Convention Center in Oklahoma City.

"One hundred percent recovery: That's what the statutes intended," he added. "I think the prospects for full recovery are very good."

SemCrude and Eaglwing, two SemGroup subsidiaries caught up in the Tulsa energy company's July 22, 2008, bankruptcy, owe hundreds of producers for oil and gas bought in the 50 days before the Chapter 11 filing. The producers group also includes thousands more people as operators, working interests and royalty owners, according to reports.

A key battle in Delaware federal bankruptcy court pits the producers against a mammoth group of secured lenders led by Bank of America. Those creditors backed a $2.5 billion credit line and hold secured claims on SemGroup's assets, according to reports.

Oil and gas producers, McDonald pointed out, also are a large group but tethered to a variety of state laws governing those liens for product sold prior to bankruptcy.

Most of the oil and gas was sold to SemCrude and Eaglwing from Oklahoma, Texas, Kansas and New Mexico.

"It's a difficult process to manage," he said.

The Oklahoma statute guarding producers' interest is clear, McDonald added. The revenues for "all sale of product shall be regarded as separate or distinct from all other funds," he told the Mid-Con Expo crowd of producers, industry workers and media.

Legal precedent, however, is slim on these types of trust cases, a concern apparently raised by Delaware Federal Judge Brendan L. Shannon earlier in the proceedings. The reason for the low volume of case law, McDonald replied, is that the system has worked in protecting producers.

McDonald and other producer counselors will begin their final arguments Wednesday in the Wilmington, Del., courtroom. The Tulsa lawyer believes that he will get a fair hearing.

"You should know that we have a fine judge," he said of Shannon, whom he credited with noting the producers' rights when the judge approved SemGroup's debtor-in- possession financing last year.

"He takes his time," McDonald added. "I am confident that the decision he reaches is a decision he believes is right as a matter of law."

Some officials have estimated the producers' claims to be as much as $1 billion. SemGroup filed for Chapter 11 bankruptcy protection after its traders, led by its CEO and co-founder Tom Kivisto, ran up $2.4 billion in margin losses on failed oil-futures positions, according to reports.

SemGroup traders were taking a mostly short position, based on the assumption that prices would return to historic levels on the New York Mercantile Exchange. Oil, meanwhile, rose to a historic high of $147 per barrel in the same month that SemGroup collapsed financially.

The Tulsa company is pursuing a reorganization plan that could be focused on its SemCrude unit. The deadline for delivering that plan to Shannon's court is May 15.

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

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Some reader comments for this story were copied from "Attorney for producers in SemGroup case remains hopeful on recovery," which was published on 5/6/2009.

	Report Comment Cassius Dio, (5/7/2009 6:10:42 AM) Bankruptcy Courts have wide discretion in lining up creditors. It would not be surprising then if the good faith producers were put ahead of the bad faith lenders, who made Kivisto wild gambles possible and profited from the malfeasance. In short Chuck Touchstone, and his like, should be paid in full while Anon or Goldman or whatever should be referred to the DOJ for a criminal. investigation.
	Report Comment wow, (5/7/2009 8:05:11 AM) Cassius Duo Chuck is in KS, 100% different law than OK and TX. In other words, I wouldn't stay up at night waiting for that check in the mail. There are only two producers in KS that have a shot at 100% recovery, and I imagine you know who they are.
	Report Comment O&Gtrader, ft. worth (5/7/2009 9:39:16 AM) I went to OKC for the Expo. Mr. McDonald was informative and cheerful. Of course, with hundreds of millions in legal fees out there to be spread around I would imagine that all the lawyers in the SemGroup matter "universe" are privately grinning like goats eating briars. The Expo was sort of a small affair and I think that was a result of the Swine Flu scare and the economic downturn. There were as many people at McDonald's talk as there were for the earlier talk on natgas powered vehicles (about 150). There were about 40 exhibitors by my count mostly servicing the producer and gas processor industry. It cost me $325.00 just to get in and walk around. Except for McDonald, I never heard or overheard the word "SemGroup" mentioned by anyone for the rest of the day.
	Report Comment LocalBoy, B.A. (5/7/2009 10:43:09 AM) wow, what does the state where the creditor is located have to do with any of this?
	Report Comment LocalBoy, B.A. (5/7/2009 10:45:31 AM) Strike that question. I see the state lien issue. movin too fast today...
	Report Comment Cassius Dio, (5/7/2009 11:00:38 AM) I admit not being an expert on Bankruptcy law. But, I do look for justice. Touchstone did nothing wrong, even when tempted by some bad actors. The Oklahoma law may not help Touchstone, but might if the law protects all producers who supply Oklahoma companies. The bad actors, who allegedly wanted Touchstone to go bankrupt and thus defraud his creditors, need to be brought to justice, regardless how well connected this guys are. Nobody is going to send me a check, no matter what the Court decides. Nevertheless the law should assist the Touchstones of this world and ashcan the alleged Goldman Goniffs.
	Report Comment zzx375, BA (5/7/2009 2:20:27 PM) My understanding is the attorneys and accountants involved in bankruptcy procedings are guaranteed to get paid.
	Report Comment wow, (5/7/2009 4:40:22 PM) CD, I agree. They owe me too. I hope we know more on the 15th deadline.
	Report Comment black gold, (5/9/2009 11:20:40 PM) Know this creditors, in case you already don't know it: a very good offer to buy Sem Materials in toto was made in late July or early August of 2008 one with many more zeros behind the decimal point than the offers received recently for the residual fuels and I.P. entities. The party tending the offer was told by the judge that Blackstone, Alix partners, etc were handling all bankruptcy/reorg matters and procedure set in place would have to be followed. And so began the 8 month process of Alix partners bleeding millions from the company to arrive at the sale of the entities in April and May of 2009 in bits and pieces for pennies on the dollar compared to that early offer. TK and GW may have acted criminally but they weren't the only ones.

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