Tulsa World: SemGroup fallout detailed

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SemGroup fallout detailed
An energy attorney speaks to the Oklahoma Independent Petroleum Association.

By ROD WALTON World Staff Writer
Published: 9/29/2009 2:25 AM
Last Modified: 9/29/2009 10:06 AM

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

OKLAHOMA CITY — Oil and gas producers may have lost millions to SemGroup's bankruptcy, but they may have learned a thing or two about how to protect their product in the future, an energy attorney said Monday.

JMA Energy Co. general counsel Bob McCutcheon also gave insights about his company's and other producers' fight over oil and gas sold around the time of SemGroup's financial collapse in the summer of 2008.

McCutcheon's comments were part of the Oklahoma Independent Petroleum Association Fall Conference at the Skirvin Hilton.

JMA joined the fight against a lack of payments totaling more than $400 million from SemGroup subsidiary SemCrude, but producers found themselves hobbled by inexact state law and a lack of secured creditor status, McCutcheon said. The judge overseeing SemGroup's bankruptcy sided with secured lienholders such as Bank of America as to having priority over paybacks for oil and gas.

"I don't want to argue implied trust again," McCutcheon told the OIPA members. "We need to get the best bankruptcy protection we can get in this next legislative session."

Oil and gas producers will get some satisfaction from SemGroup's bankruptcy. The Tulsa-based midstream company and its secured lenders agreed on $337 million in

payments in exchange for the Official Producers Committee's support of SemGroup's reorganization plan.

The company hopes to emerge from its now 13-month stay in Chapter 11 protection by early November. A confirmation hearing on the reorganization plan is scheduled Oct. 26.

The deal will pay producers 100 percent on their administrative claims for oil and gas sold on credit to SemCrude in the 20 days prior to the July 2008 bankruptcy. The remaining funds will be about 8 cents on the dollar for all other producer claims, McCutcheon noted.

All told, he said, producers will get about 40 percent of their money back. Secured lienholders will get 95 percent of SemGroup's value in equity if and when it emerges as a publicly traded company.

The compromise, considering the bankruptcy judge's previous decision putting secured lenders ahead of producers, "isn't a bad result," McCutcheon said.

The settlement was reached on the weekend of Sept. 13 in a sometimes contentious all day-and-night session in the chambers of retired U.S. Judge Kevin Gross in Wilmington, Del.

The arguments apparently got so heated that Gross "blew up" and left the mediation around 12:30 a.m. Sept. 14, McCutcheon said.

Bank of America, agent for the secured lenders, finally signed the settlement with the Official Producers Committee at around 5 a.m., he said.

Producers must look beyond SemGroup to control their financial risks with first purchasers, McCutcheon said, adding that trade credit insurance and, more than anything, tighter legislation are the way to go.

The OIPA Fall Conference, which began Sunday, also focused some of its attention on broader political issues. Potential federal changes to energy taxes, cap and trade legislation and oversight of hydraulic fracturing were hot topics of discussion.

"I think everybody's very concerned" about how the Obama administration and Democratic majority will overhaul energy policy, OIPA President Mike Terry said.

"They are more concerned about what's going on now than they've ever been in their lifetimes."

Former OIPA President and Oklahoma Energy Resources Board chairman Pete Brown, of Oklahoma City-based Cimarron Production Co., was named to the Wildcatters Hall of Honor over the weekend.

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 "Oil producers hope to learn from SemGroup scenario," which was published on 9/28/2009.

	Report Comment TulsaTulsa, (9/28/2009 9:39:11 PM) provide service or a product, make money, put it in the bank, pay employees, vicious business cycle
	Report Comment smp, Tulsa (9/29/2009 10:07:49 AM) "All told, he said, producers will get about 40 percent of their money back." That's pretty good, when you consider the original deal of 4 cents on the dollar.
	Report Comment Pinky, Tulsa (9/29/2009 6:30:42 PM) SemGroup as a whole was doomed when local businessman Matt Caughlin brought in the New Yorker to take over the business. Caughlin, owner of a small insurance firm, may have thought he'd win the insurance business of the new company. Well, it doesn't look like this plan worked out either. Circling the drain.....

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