Tulsa World: State court asked to rule on SemGroup

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State court asked to rule on SemGroup
Oklahoma's oil and gas industry would be greatly affected by the outcome, the AG says.

BRIEF FILED
Drew Edmondson: It argues for the Oklahoma Supreme Court to decide whether oil and gas producers should be guaranteed payment.

By ROD WALTON World Staff Writer
Published: 7/30/2009 2:33 AM
Last Modified: 7/30/2009 4:03 AM

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

Oklahoma Attorney General Drew Edmondson said Wednesday that his office has entered the SemGroup LP fray, asking an appeals court to let the state Supreme Court, instead of a federal bankruptcy judge, decide laws determining hundreds of millions of dollars allegedly owed to oil and gas producers.

The ruling would have "a significant impact on the governance of the oil and gas industry in Oklahoma," Edmondson said in a statement.

The amicus brief, filed Tuesday in the U.S. 3rd Circuit Court of Appeals, argued for the Oklahoma Supreme Court to decide whether producers have "an implied trust" guaranteeing them payment for oil and natural gas sold to SemGroup's SemCrude subsidiary on credit prior to bankruptcy.

SemGroup LP filed for Chapter 11 bankruptcy protection in Delaware last July. The Tulsa-based midstream company owed as much as $1 billion to producers, but U.S. Bankruptcy Judge Brendan L. Shannon ruled this summer that secured creditors, such as banks, had the lien priority over producers.

The amicus brief, supporting a 3rd Circuit appeal by producers, also noted that Shannon's decision was at odds with a previous opinion by Edmondson's office. In November, the attorney general wrote that SemCrude was legally bound to fully pay producers.

"This

conflict has created uncertainty in the law," the brief reads. "It is important for the Oklahoma Supreme Court to rule on these questions to give certainty to future transactions initiated under the Oklahoma Production Revenue Standards Act, to avoid needless litigation in the future and to promote the efficient administration of Oklahoma law."

In other words, Edmondson spokesman Charlie Price said the state, which developed the implied trust governing production, should also decide what it means. The "implied trust" law reportedly indicates that proceeds owed producers should be set aside and protected from other funds owed to creditors in the bankruptcy.

"We think it's appropriate for a state court to do that and not a federal court," Price said.

Ultimately, producers from several states asked the court for about $414 million in payments for the oil and gas sold on credit shortly before and after the bankruptcy petition. Shannon, however, sided with secured creditors and approved a proposed reorganization plan going forward to a vote of creditors.

The amended reorganization plan, if approved, would pay producers about 8 cents on the dollar, according to reports. The original reorganization called for only 4 cents payback on the dollar.

Unsecured creditors, such as producers, also would get a total 5 percent of equity in the reorganized SemGroup if it emerges from Chapter 11 as a publicly traded company by October, according to court records. Opposition from producers caused SemGroup to amend its plan.

Tulsa attorney Gary McDonald, who is representing some of the state producers aligned against SemGroup, previously admitted that the amount of court precedent on the trust laws was slender, a concern also raised by Judge Shannon. The bankruptcy judge also was dealing with producers' bills from New Mexico, Kansas and New Mexico, he noted.

"It's a difficult process to manage," McDonald said during a May 6 speech at the Mid-Con Expo Energy Conference in Oklahoma City.

Thousands of producers and royalty owners were hit hard by the SemGroup bankruptcy, as the company was a primary buyer for oil and gas statewide. Oklahoma Independent Petroleum Association President Mike Terry has predicted that many producers could file for bankruptcy themselves due to the loss of SemCrude revenues and falling prices.

The parent SemGroup filed for bankruptcy after amassing $2.4 billion in margin losses on failed oil futures trades. The company's traders, led by co-founder Tom Kivisto, stuck to a "short" position predicting lower prices even as oil rose to its historic high of $147 per barrel last summer, according to reports.

SemGroup also owed at least $2.5 billion to banks, hedge funds and other creditors, according to reports.

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 "Edmondson enters SemGroup case on behalf of energy producers," which was published on 7/29/2009.

	Report Comment soonergirl72, (7/29/2009 12:57:28 PM) Nice to see someone is finally stepping in for the oil and gas industry. This whole ordeal has already hurt the oklahoma based producers in a huge way.
	Report Comment Incredulous, (7/30/2009 8:21:13 AM) This is simply theft of oil. Apparently not a crime in Oklahoma if you are connected enough.
	Report Comment Cassius Dio, (7/30/2009 3:55:19 PM) The producers lost this case when the venue was Delaware, rather than Oklahoma. How did Delaware get involved anyway: easier for the goniffs to get there? Hopefully, however, the Appeals court will look for a more just result than enriching the people with dirty hands and screwing the honest business people.
	Report Comment Avant Agape, Avant (7/30/2009 4:25:42 PM) Where has the AG been all this time? It has been a year now and all he offered was a 14 pg doc telling them that they were wrong in Delaware and that was in Nov. after we had been to court how many times? By the way, most large corp. will incorporate in Delaware because they are so favorable to BANKRUPTCY! Look at virtually all of your credit card companies. You should be required to proceed with something of this magnitude where you are based, not with what state gives you the biggest breaks.

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