Semgroup co-founder Tom Kivisto speaks out for the first time in four years
BY ROD WALTON World Staff Writer
Sunday, July 22, 2012
7/22/12 at 8:29 AM
Revisit the headlines
and other documents
related to SemGroup’s
SemGroup prospering four years after collapse
Some key players in SemGroup bankruptcy are back in the news
SemGroup LP co-founder and former CEO Tom Kivisto came out swinging during his first interview in four years about the firm's rise and fall and rebirth.
Kivisto, in a response to a series of emailed questions supplied by the Tulsa World, said that time and investigation has proved his oil futures trading strategy was not "short" and did not bankrupt the firm by itself.
Instead, Kivisto said, SemGroup was partially a victim of the impending banking crisis, not the least of which was creditor Bank of America's own troubles.
He contended that creditors and bankruptcy handlers wanted to liquidate the company's assets until New York billionaire John Catsimatidis made an unsuccessful attempt to buy SemGroup in 2009.
Kivisto expressed admiration for the way the leaders of what is now SemGroup Corp. have handled the road out of bankruptcy. He criticized bankruptcy examiner Louis Freeh's report and the Tulsa World for "sensationalistic" coverage based on false premises about the company's downfall.
Up close with Tom Kivisto
Tom Kivisto's deeds prior to the July 2008 bankruptcy have spoken volumes, if only in emails and third-person accounts in investigation reports.
Former FBI Director Louis Freeh's examiner's report accused the former SemGroup CEO of misleading creditors and leading a speculative and secretive oil futures trading strategy that broke SemGroup.
His actual words, however, are few.
Kivisto did not give a deposition in that investigation. In fact, other than a brief press conference days after the SemGroup collapse gained nationwide attention, he has not talked publicly about what happened.
The Tulsa World approached Kivisto about doing interviews several times. He has declined until this most recent request for a questions-and-answers segment emailed through Kivisto's Tulsa attorney, John Tucker.
Kivisto, who splits his time between Tulsa and Chicago, did not respond to all of the 16 questions offered to him. These are the answers that he gave:
What was your vision when you first started what became SemGroup with Greg Wallace and Kevin Foxx?
"We saw that an opportunity existed for a company with a long-term assured supply of crude oil to move that oil where it was needed, when it was needed, in the form that it was needed, whether that be as oil, natural gas or even asphalt."
Were you always focused on making SemGroup a big civic player in Tulsa, contributing to the ballet and sponsoring the LPGA golf tournament, etc.? On balance, what do you believe that SemGroup and your contributions added to Tulsa civic life?
"Every company has a responsibility to share its success with its associates and its community. We wanted SemGroup to be in the top 10 percent of companies for charitable giving. SemGroup not only supported the arts, education, single parents, and hallmark sporting events, but was a sponsor of cutting edge health initiatives for its associates and for community groups."
Bankruptcy Examiner Louis Freeh accused you of leading a risky, secretive oil futures trading program which ultimately bankrupted SemGroup LP. Is that a fair criticism?
"It wasn't only unfair, it was wrong. The Freeh Report was proved to be incorrect and was discredited by the U.S. Commodity Futures Trading Commission report on oil trading in 2008.
"It (The Freeh Report) was authored by a group with zero experience in the energy industry or any knowledge of option trading. The Report ignored the analyses prepared by experts at the U.S. Commodity Futures Trading Commission which investigated all energy trading in 2008 and found SemGroup's NYMEX trading to be neutral and not short. The Freeh Report ignored the several outside auditors employed by others whose audits confirmed the SemGroup trading program was not speculative. The Freeh Report accused SemGroup and its officers of risky trading without any factual basis. The allegations in the report were discredited by the U.S. Commodity Futures Trading Commission (Sem was not short the market), and the SEC (no wrongdoing found by any individual at SemGroup)."
Your attorney, John Tucker, has said that your short position on oil futures, wagering that oil prices would ultimately fall during that historic run-up in 2008, was actually a smart move that would have paid off in billions for SemGroup only a month later. Do you agree and why?
"The question is based on a false premise. What we have always said was that SemGroup's positions in the futures market were balanced. It is a proven and documented fact that SemGroup was not 'short the market.'
"SemGroup never wagered that oil prices would fall. Those claims were a figment of imagination of others that were often repeated. The Commodity Futures Trading Commission completed a report in the Fall of 2008 reporting the findings of its investigation into the energy futures and option market and price run-up in 2008.
"The CFTC findings showed SemGroup had maintained a balanced option trading book and was not short the market during the 2008 oil price run up. The CFTC identified three financial entities, not SemGroup, that were short the market and 11 financial entities that were more active option traders in 2008. The SemGroup NYMEX trades were fully funded by margin deposits in 2008. Had the Bank of America not cancelled SemGroup's financing (because as was later revealed, Bank of America was on the brink of insolvency and out of money to lend) SemGroup's options book would have returned a large profit.
"By example, Chesapeake Energy booked a loss of more than $2 billion in just the second quarter of 2008 based on its hedged trading positions. But from June 30 to July 25, oil prices retreated from their all-time highs and the effect on Chesapeake's trading book was that Chesapeake reversed the entire mark-to-market loss and recorded a gain of $2.6 billion."
Why did the creditors decide to cut SemGroup off in June 2008? Do you believe the theory that Barclays and others got access to your trading book and took opposite positions? That's basically saying that the all-time high of $147 per barrel was partially a result of SemGroup's short position.
"First, SemGroup's NYMEX book was not short the market, as was confirmed by the investigation of the U.S. Commodity Futures Trading Commission. The all-time high oil price was likely caused by speculative trading by the investment companies identified by the U.S. Commodity Futures Trading Commission - Goldman Sachs, Barclays, and Vitol - whose NYMEX trading volumes were 400 percent of SemGroup's in 2008.
"As to reports of companies trading ahead of SemGroup, Goldman Sachs, J. Aron, Bank of America and Barclays Bank had access to the details of the SemGroup trading program. They were provided the entire book of SemGroup's trades and positions under confidentiality agreements. If one of those banks chose to use SemGroup's trading book to improperly trade against SemGroup, they could have. A person who had access to SemGroup's trading book and who knew that SemGroup was required by bank covenants to end each trading day with a balanced trade book (one that was not net short or long) could easily make money by trading ahead of SemGroup. Doing that on even a modest scale could force the price of oil up.
"Forbes, Bloomberg, and now the SemGroup Litigation Trust have reported that there was trading ahead of SemGroup in 2008. This trading ahead would increase market volatility and raise margin requirements, and when those things went up, so did SemGroup's capital requirements. In other litigation, a former Goldman Sachs officer testified that Goldman was unable to buy the SemGroup "book" in July 2008 because of a conflict of interest. That could mean Goldman Sachs was on the other side of SemGroup trades.
"Creditors did not cut SemGroup off in 2008. SemGroup was an early victim of the bank financial crisis of 2008. Bank of America, SemGroup's lead lender, ran out of money and cut SemGroup and others' credit lines. Bank of America was secretly on the brink of insolvency in 2008. Less than three months after B of A cut SemGroup's credit line, the bank survived only with a $15 billion bailout from the federal government, and it took another $30 billion three months later.
"As Bank of America's CEO told CNN in January 2009, 'The credit markets literally hit a wall, and nobody lending to consumers or who is in the capital markets is immune.'
What is your biggest criticism in how the SemGroup story was covered?
"National press coverage was balanced and insightful for the most part. By comparison, the Tulsa World's coverage was often sensationalistic. Its reporting tended to ignore actual facts in favor of repeating allegations from its own prior articles even after the sources had been discredited."
You had a brief press conference in July 2008 and promised that the true story would come out and vindicate you. Has it? Have you been proved right?
"Again, as we've said before, the more recent, impartial investigations have concluded that SemGroup's trading strategy was not short and was sound."
Do you think that SemGroup's Chapter 11 reorganization was handled right over those 19 months before it went public? What would you have changed?
"The outside firm brought in by Bank of America to take over SemGroup announced at the outset that their goal was liquidation, not reorganization. This would have put more than 2,000 people out of work. Reorganization was not seriously considered until John Catsimatidis intervened with his plan to restructure the company and save the jobs. Reorganization should have been the priority from the very beginning.
"Eventually, the secured creditors who took control of SemGroup realized that reorganization would return more value than liquidation, and it appears the reorganization of the company has been a success."
How do you think that Norm Szydlowski and others have guided the now publicly traded SemGroup Corp. since emerging from Chapter 11 in December 2009?
"It is a much different company now than it was several years ago. The company is following a new vision for itself. Observing this process from the outside, it looks like management is moving forward on a good path."
Will the real SemGroup story ever get told? How would you pitch it at a publisher's meeting?
"More information comes to light every week about what was happening inside banks and investment banking companies in 2008 - manipulation of interest rates and markets, insider trading, and exploiting confidential information. It may take one or more years, but the extraordinary circumstances of 2008 will be explained, fact by fact.
"Truth is a difficult thing to suppress. If people want to find it, truth will be found."
LP and Corp.: SemGroup through the Years
2000: Tom Kivisto, Gregory Wallace and Kevin Foxx merge assets to form what becomes SemGroup LP.
2003: SemGroup reports $8.3 billion in revenues that year.
2006: Forbes ranks SemGroup as fifth on list of America's largest private companies.
2007: Terminal and pipeline assets spun off into SemGroup Energy Partners LP, or SGLP, and taken public.
May 2008: Futures trading losses mount as Kivisto looks to partners to keep credit flowing.
June 2008: Margin calls for Kivisto's trading losses, including his private businesses, reach at least $2.4 billion.
July 14, 2008: A desperate SemGroup moves its trading book to Barclays for a $143 million fee.
July 17, 2008: SGLP units fall 50 percent in value and parent SemGroup admits "liquidity crisis."
July 22, 2008: SemGroup LP files to Chapter 11 bankruptcy protection.
July 26, 2008: Kivisto, on administrative leave, releases brief statement. He would not speak publicly again about SemGroup for four years.
October 2008: Kivisto officially fired. Terry Ronan runs company from July 2008 to December 2009.
April 2009: Louis Freeh releases hard-hitting report accusing Kivisto and others of misleading creditors about trading actions.
November 2009: Norm Szydlowski hired to replace Ronan as CEO of emerging SemGroup.
December 2009: SemGroup LP becomes incorporated and emerges as publicly traded midstream oil and gas firm.
June 2011: New $600 million credit facility announced that reduces interest expenses by 50 percent.
August 2011: SemGroup sells SemStream propane unit to NGL Energy Partners for $279 million and ownership stake.
March 2012: SemGroup turns first annual profit in years with $2.4 million net income for 2011.
May: Glass Mountain Pipeline finalized as joint venture with SemGroup, Gavillon and Chesapeake.
SemGroup continuing coverage
World staff writer Rod Walton began covering energy in late June 2008, one month before SemGroup LP announced its cashflow crisis and filed for bankruptcy protection. He has covered the SemGroup collapse since its beginning, including more than 100 stories. He has won Oklahoma Press Association and Great Plains awards for his stories about the SemGroup bankruptcy and oil futures trading collapse.
Original Print Headline: Up close with Tom Kivisto
Rod Walton 918-581-8457
Tom Kivisto speaks during an event in Tulsa in January 2008. He was fired from SemGroup in October of that year. Tulsa World file
Former SemGroup CEO Tom Kivisto says the impending bank crisis hurt the company. COURTESY