Tulsa World: SemGroup pipeline ready for operation

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SemGroup pipeline ready for operation
The company also completes a sale to keep 80 jobs in Tulsa.

By ROD WALTON World Staff Writer
Published: 5/19/2009 2:23 AM
Last Modified: 5/19/2009 6:14 AM

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

The 524-mile White Cliffs Pipeline project — a key piece of SemGroup LP's reorganization plan — is completed and will be delivering crude oil from Colorado to Cushing soon, CEO Terry Ronan told employees in a memo Monday.

Ronan's three-page communique also revealed that the sale of SemMaterials' intellectual properties and lab equipment to Rhone Midstream Holdings was complete. The $6.5 million deal preserves about 80 jobs at SemGroup's former campus in south Tulsa.

"Although we have a great deal of work ahead of us, we can all be proud of these accomplishments as we head toward our goal of a successful restructuring," Ronan wrote.

SemGroup LP is asking for court and creditor approval to emerge from Chapter 11 bankruptcy as a publicly traded company. It would have 1,000 employees, be based in Tulsa and work in the oil and gas gathering, storage and transportation business, according to the reorganization plan, filed Friday.

The White Cliffs pipeline from Platteville Station, Colo., to the giant hub at Cushing has been a hot topic throughout the SemGroup bankruptcy. The company's subsidiary SemCrude Pipeline was removed as the project manager last summer after a loan default.

The two sides worked out their differences

to continue construction, and refinancing of the $120 million credit facility to partially fund the pipeline is part of the reorganization plan. White Cliffs will be able to deliver at least 20,000 barrels a day to the storage tanks, reports say.

SemGroup insiders may be optimistic about creditor approval of their plan, but in court records they offered a sort of doomsday scenario just in case it is rejected: a Chapter 7 liquidation of SemGroup LP assets that they say might force an immediate layoff of half of the company's staff and could generate $600 million less for creditors.

SemGroup's liquidation analysis was filed with its reorganization plan Friday in a federal court in Delaware. The liquidation analysis was not reviewed by independent accountants.

All of SemGroup's assets, if sold, could generate between $1.5 billion and $1.77 billion in distributions to creditors after fees and operating expenses were paid in a Chapter 7 liquidation, the company estimates. The exit plan estimated $2.27 billion in equity value for creditors if SemGroup was allowed to emerge out of bankruptcy as a publicly traded company.

"Confirmation of the plan will provide all creditors a recovery that is not less than they would receive pursuant to a liquidation," the report concluded.

If not confirmed, a wind-down of SemGroup's entire operations likely would start in October and run through June 30, 2010, according to the liquidation alternative. Those eight months should allow SemGroup enough time to sell its business units such as SemCrude, SemStream, SemGas and operations in Mexico, Canada and Europe, reports say.

Half of SemGroup's corporate work force would be let go at the October start of the liquidation, the analysis predicted. Employees who are dismissed would receive one month's severance pay.

SemGroup now employs about 1,300 people, including 300 in Tulsa, reports show. It already is winding down or selling off its SemMaterials asphalt assets and has dismissed hundreds of employees in that unit.

The company's exclusive rights for shaping its own reorganization will run through a September vote by creditors. SemGroup's plan warned that Chapter 7 liquidation was possible if the reorganization was rejected.

What If: SemGroup’s liquidation value

Cash assets $952 million

Crude oil operations $315 million to $420 million

Canadian operations $240 million to $316 million

SemStream $115 million to $150 million

SemGas $45 million to $60 million

Milford Haven Wales $55 million to $75 million

Semmexico $10 million to $15 million

Minus fees and other costs $215 million to $230 million

Net available for creditors $1.5 billion to $1.77 billion

Equity value under reorganization $2.27 billion

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 "SemGroup updates White Cliffs project; court filing outlines "doomsday scenario"," which was published on 5/18/2009.

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Courage, bartlesville, home of the late BYD (5/19/2009 8:24:13 PM)

Moving the bottoms from large inland refineries are not very economical.Even with pipelines for the lighter products, it is better to have your products as close as possible to end users(large metro areas or deepwater ports.

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O&Gtrader, ft. worth (5/20/2009 10:12:08 AM)

nagnagnag: The approximate 72,000 barrels per day of Denver-Julesburg basin oil in the White Cliffs pipeline from Colorado will primarily go to Cushing and then refineries in the Great Lakes and Ohio River Valley. The shippers hope that a crude oil line from Nederland, TX, to Cushing (Seaway?) might get reversed one day and be able to ship Colorado crude oil to Gulf Coast refiners for a better price. The Canadians did a similar thing with their Spearhead pipeline that goes from Alberta to Chicago to Cushing. Greater potential markets mean greater market values. Until recently, Canadians and Coloradans were stuck with refiners in their geographic regions. Those refiners paid a lower price and said, "If you don't like it, build your own pipeline out of here." To the refiners' surprise, the producers did.

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