Could the massive short covering of a company in Tulsa cause oil to go up by 20$ ??

[Joanne98]

Can somebody who knows more about the oil markets than me look at this?

Posted 28 July, 2008 | Digg This Article | Discuss This Article - Comments: 8




Big news recently is the world record loss in crude oil trading, taken by SemGroup, of Tulsa, Oklahoma, a large but mostly unknown oil pipeline, storage and trading company founded in 2000. To my knowledge, the reported $3.2 billion loss is the second largest commodity debacle ever, only behind the $6 billion loss recorded by Amaranth Advisers two years ago in natural gas.

What is remarkable is how little has been written about SemGroup’s loss. I realize that we have become numb to reports of multi-billion dollar losses, thanks to the mortgage and credit disaster. But it is still amazing to me that more attention has not been placed upon this oil trading loss, because it explains so much about the recent volatility in the price of oil. If there’s one concern ahead of the mortgage and credit crisis, it has to be the price of crude.

Given the recent fervor by elected officials to pin the blame for the unprecedented price moves in crude on speculators, I’m surprised that more observers are not making the connection between SemGroup’s actions and the big price move in crude oil. I thought the CFTC would be all over this major market event, but they instead announced, with great fanfare, charges concerning truly insignificant oil market violations. These events occurred more than a year ago and the dollar amount was a million dollars. The SemGroup’s loss was 3200 times more significant, yet neither the CFTC nor the NYMEX, where $2.4 billion of the loss reportedly occurred (the rest was OTC) have said a word about the 2nd largest commodity loss in history.

So, how do you lose $3.2 billion dollars in crude oil trading and how did that affect the price? The answer is with an obscene number of contracts on the wrong side of a rising market on the short side. That’s smack-dab where SemGroup was positioned, with more (and perhaps much more) than 100,000 short futures and options contracts.

The exact number of contracts that SemGroup actually held short has not been revealed. However, by dividing the total loss listed in bankruptcy filings and published reports, by a reasonable loss per barrel, it’s not hard to deduce the total number of short contracts held. To appreciate what a 100,000 contract position represents, it is the equivalent to 100 million barrels of oil, or more than every barrel produced and consumed in the entire world for a day.

In terms of dollar amounts, it appears that SemGroup held short positions on more than $15 billion worth of crude oil and perhaps much more. In practical terms, it would take a position of that size going against you in order to generate a loss of $3 billion. You should be asking yourself, how did the NYMEX and the CFTC allow SemGroup, or anyone, to amass such a large position that it, obviously, couldn’t stand behind? What do these regulators do all day?

I’m certain that when the details emerge, we will read of a story that has recurred in previous market debacles, namely, an initial market miscalculation compounded by repeated attempts to get whole by doubling up. As those increased bets don’t pan out, and margin calls can’t be met, the game is over in an instant and the loss is recorded.

In this case, it’s easy to see, based upon the timeline, how SemGroup’s trading debacle influenced oil prices, first up, then down. As the end came near for SemGroup’s large, increasing short position, that position was forcibly bought back (probably by SemGroup’s lead broker, said to be Barclays). This accounted, by my calculations, for the last $15 to $20 increase in the price of oil, up to the $147 price high. When the forced buyback of the short position was concluded, a buying void was suddenly created and prices then fell $20+ to date. So, not only did SemGroup manage to lose over $3 billion and go bankrupt in the process, it also dramatically influenced the price of oil and fuel for the rest of the world.

As the SemGroup story comes out, I’m certain my version will prove fairly accurate. In fact, I already wrote about it, or nearly so, in an article on June 10, titled "The Real Speculators"

http://www.investmentrarities.com/06-10-08.html In that article, I opined that speculators were influencing the price of crude oil alright, but it wasn’t the speculators everyone thought were the culprits, like hedge and index funds on the long side. Instead, the real speculators were short traders, mainly in the commercial category, who were stuck in losing positions and the buying back of those losing short positions was driving prices higher. I pointed out that these speculators on the short side were masquerading as commercials or legitimate hedgers.

Continued>>>
http://news.silverseek.com/TedButler/1217265595.php

WILMINGTON, Del., July 31 (Reuters) - Bankrupt energy trader SemGroup LP, which collapsed last week after $3.2 billion in bad bets on oil prices, faces a looming cash crunch after legal wrangling delayed a critical loan package on Thursday.

Disputes between its oil suppliers and its main lender Bank of America Inc (BAC.N: Quote, Profile, Research, Stock Buzz) over who has first priority claim on SemGroup's assets scuttled SemGroup's attempt to secure court approval of a $250 million credit line on Thursday.

Bank of America is demanding top priority in repayment in return for extending the $250 million loan. SemGroup's financial advisors said in court filings that other sources of financing were unlikely to be obtained as all of SemGroup's assets are already pledged to other borrowers.

Judge Brendan Shannon ordered the parties to negotiate over the weekend and prepare legal arguments over the status of state law that the oil producers say gives them priority over secured lenders like Bank of America.

A new hearing is set for Aug. 5.

SemGroup needs to secure a credit line to support its business while bankruptcy proceedings are ongoing or it will run out of cash by the week of Aug. 22, court filings show.

"It's not good news that they couldn't get this financing," said Susheel Kirpalani, an attorney who represents an ad hoc group of SemGroup creditors.

"Their suppliers will start to get nervous about doing business with a company in bankruptcy that has no credit."

SemGroup has been trying to operate its over 500,000 barrels per day oil trading business while it prepares to auction off its assets to pay its creditors.

The dispute over payment priorities comes as the circumstances of SemGroup's collapse and its current financial status remain murky.

SemGroup's advisers have admitted that improper speculative oil futures and options trades by SemGroup's former chief executive caused the massive losses, according to papers filed with the court by RZB Finance LLC, one of SemGroup's secured bank lenders.

Thomas Kivisto, SemGroup's co-founder and former CEO, was suspended by the company on July 17. A SemGroup spokesman contacted on July 22 when the company filed for bankruptcy said no criminality was suspected in the company's collapse and there were no plans to call in the police to investigate.

However, as early as July 18, some secured lenders were informed by The Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz), SemGroup's restructuring advisers, that Kivisto had been conducting a huge, unauthorized trading operation within the company, a source close to one of the lenders said Thursday.

Included in SemGroup's $2.4 billion loss on NYMEX energy futures and options was a $290 million tab racked up by Westback Supply LLC, a trading firm affiliated with Kivisto.

SemGroup's publicly traded affiliate SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research, Stock Buzz) faces a federal probe and numerous lawsuits over the timing of its disclosure of its parent's financial troubles.

http://www.pehub.com/article/articledetail.php?articlepostid=13751

Carlyle Group to Liquidate
$600 Million Hedge Fund
By JENNY STRASBURG
August 1, 2008; Page C3

Carlyle Group is liquidating its $600 million Blue Wave hedge fund, which has been plagued by losses in mortgage-backed securities since its March 2007 launch.

Blue Wave's liquidation is the latest black eye for the Washington-based buyout firm. In March, Carlyle Capital Corp., its publicly traded investment affiliate, all but collapsed as banks rushed to sell assets backing the mortgage fund. More recently, Carlyle Group's stake in energy trader SemGroup LP is expected to be wiped out as a result of wrong-way oil bets that caused the firm to collapse.

http://online.wsj.com/article/SB121755198963303009.html?mod=googlenews_wsj

Charging SemGroup Energy Partners, L.P. With Violations of the Federal Securities Laws -- SGLP


Last update: 9:03 p.m. EDT Aug. 1, 2008
NEW YORK, Aug 1, 2008 (PrimeNewswire via COMTEX) -- The Rosen Law Firm today announced that a class action lawsuit has been filed on behalf of purchasers of SemGroup Energy Partners, L.P ("SemGroup" of "Company") (SGLP:semgroup energy partners l p com unit lp
News, chart, profile, more
Last: 9.60+0.88+10.09%

4:00pm 08/01/2008

SGLP 9.60, +0.88, +10.1%) securities during the period from February 20, 2008 through July 17, 2008, including purchasers of SemGroup units sold through the Company's February 13, 2008 secondary offering (the "Class Period").

The complaint asserts that the Company's parent was at high risk for financial problems due to its investment in risky crude oil hedge transactions during the Class Period. The complaint also asserts that the Company was engaged in improper self-dealing transactions with its parent in an effort to support the Company's parent. On July 17, 2008 it was revealed that the Company's parent filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code due to lack of available funds. As a result of these adverse disclosures the complaint asserts that SemGroup's investors were damaged.
http://www.marketwatch.com/news/story/rosen-law-firm-announces-shareholder/story.aspx?guid=%7B6EECF6B6-A6FD-466F-8659-F6E5FFA67010%7D&dist=hppr

[Mojorabbit]

1. Wow

What a mess.

[DCKit]

2. Carlyle Group, Bank of America.... c'mon, who else?

Seems all the (other) usual suspects should be represented.

This is going to be a very interesting story.

[HCE SuiGeneris]

3. Supply and demand. You know if that's the mantra spewed by ChimpCo,

the opposite is more than likely true. And we just lost this major battle to regulate speculative trading because of the Repig Senate cons. Great.

Where does it end?

[Gabi Hayes]

4. details on that, please? when did it happen?

does this have to do with closing the Gramm and Dark Market loopholes?

thx

[HCE SuiGeneris]

5. Here's a couple of links...

http://downwithtyranny.blogspot.com/2008/07/senate-republicans-block-gas-price.html middle of column

http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00184

http://www.cattlenetwork.com/Content.asp?ContentID=239835

[Joanne98]

6. Zapata Announces Exposure to SemGroup Bankruptcy Filing

Aug 01, 2008 17:15 ETZapata Announces Exposure to SemGroup Bankruptcy Filing
CALGARY, ALBERTA--(Marketwire - Aug. 1, 2008) - Zapata Energy Corporation (TSX VENTURE:ZCO) has a potential exposure of up to $4.0 million, primarily in oil sales, to subsidiaries of SemGroup L.P. in Canada for the months of June and July 2008 which could equate to a net income exposure of up to $2.5 million.

On July 22, 2008, certain of the U.S subsidiaries of SemGroup filed for protection under Chapter 11 of the U.S. Bankruptcy Code and two Canadian SemGroup subsidiaries filed for creditor protection under the Canadian Companies' Creditors Arrangement Act ("CCAA"). Subsequent to this date, most of the remaining Canadian SemGroup subsidiaries have also filed for CCAA protection.

Zapata is currently working with SemGroup and seeking the advice of council to ensure that its exposure is minimized. Zapata is reasonably confident in the ultimate collection of a significant portion of the funds at risk. New marketing arrangements have been made to eliminate further exposure.

The delayed receipt of funds, or even the possible loss of the full amount is not expected to affect Zapata's operations or its planned capital program.

Zapata will provide further significant information regarding this matter as it becomes available.

In the meantime Zapata is midway through its eight well drilling program and expects to release results next week.

Zapata is a junior oil and gas production company operating in western Canada and trades on the TSX Venture Exchange under the symbol "ZCO."


http://www.marketwire.com/press-release/Zapata-Energy-Corporation-TSX-VENTURE-ZCO-885387.html

[Leopolds Ghost]

13. Zapata? Wasn't that the Texas-based front company GHW Bush used to handle the Bay of Pigs fiasco?

[Joanne98]

7. BOK put SemGroup money in Caymans

Some officials question the complexity of SemGroup's system.


In addition to losing about $87 million because of failed hedging activities by SemGroup LP last year, Bank of Oklahoma also has kept a "sweep account" that took the now-bankrupt Tulsa company's excess funds and deposited the money into a high-interest account in the Cayman Islands, records show.

http://www.tulsaworld.com/news/article.aspx?articleID=20080802_49_A1_Smfiil377512

[Joanne98]

8. How Funds' SemGroup Bet May Yet Pay

Default Terms on $150 Million Loan Give
Public Affiliate to Alerian, Manchester
By SERENA NG and ANN DAVIS
August 1, 2008; Page C1

SemGroup LP's collapse could make winners out of two little-known hedge funds that tossed the energy company a lifeline shortly before it filed for bankruptcy protection.

In late June, Alerian Capital Management LLC, of Dallas, and Manchester Securities Corp., of New York, agreed to lend $150 million to SemGroup. The hedge funds, both experienced energy investors, were approached by SemGroup at a time when it needed cash to meet margin calls on futures contracts and derivative trades that went against the closely held Tulsa, Okla., company.


The loan came with steep terms. Defaulting would give the two hedge funds SemGroup's interest in a profitable, publicly traded affiliate that owns more than 1,200 miles of pipelines and a large collection of energy-storage facilities at a delivery hub in Cushing, Okla., among other assets.

SemGroup Energy Partners LP, the publicly traded affiliate of SemGroup, known by its ticker symbol SGLP, held "most of the group's best assets," said Andrew Feltus, a money manager at Pioneer Investments in Boston. Pioneer used to own some SemGroup bonds but sold them earlier this year.

Days before filing for bankruptcy protection on July 22, SemGroup defaulted on the loan, giving Alerian and Manchester control of SGLP.

While the parent's demise surprised some people at the hedge funds, they have been reassuring other shareholders that SGLP will stay in business, even though more than 80% of SGLP's revenue comes from SemGroup, whose main business is running pipelines and storage facilities for oil and natural gas. SGLP didn't file for protection from its creditors.

If SGLP can steady itself and win new transportation and storage contracts from other companies in the region, the firm likely will attract new revenue sources -- and rescue its ailing stock price. That, and regular cash distributions SGLP makes to its holders, could help the hedge funds recoup their investment and profit from it in the longer run.

The shares have plunged 66% since June 25. In 4 p.m. Nasdaq Stock Market composite trading Thursday, they rose 3.2%, or 27 cents, to $8.72.

The loan by Alerian and Manchester could emerge as a source of contention in SemGroup's bankruptcy proceedings. Some of SemGroup's other lenders -- owed a total of more than $3 billion -- said they were unaware of the loan or not fully informed of its terms.

Equity holders in the private company that is in Chapter 11, SemGroup, include a fund sponsored by private-equity firms Carlyle Group LLC and Riverstone Holdings LLC, and Illinois hedge fund Ritchie Capital Management LLC.

Their stakes have shriveled in value. The Carlyle-Riverstone fund invested $75 million in SemGroup in 2005 in exchange for a 29.3% stake. Ritchie acquired a 25% ownership position in 2004.

It isn't known if SemGroup tried to raise cash from Carlyle, Riverstone and Ritchie before the company's collapse or if those investors had to sign off on the loan by Alerian and Manchester.

"By the time SemGroup reached out to the two hedge funds for capital, management had probably exhausted other options," such as raising capital from banks or existing investors, said Mark Easterbrook, an analyst at RBC Capital Markets. In a recent report, he said SGLP's pipeline, storage and terminal assets should remain viable with contracts from other energy companies, though cash flows could be impaired in the near term.

http://online.wsj.com/article/SB121754912975102793.html?mod=googlenews_wsj

[Joanne98]

9. SemGroup possible drag on IBC Bank

A possible connection with SemGroup LP may have contributed to lower second-quarter earnings at International Bancshares Corp.

The Laredo, Texas-based IBC, which has bank operations in Oklahoma, announced Friday that its net income dropped 4.6 percent for the quarter while earnings per share fell 4 percent.

IBC earned $33.0 million, or 48 cents per diluted share, compared with $34.6 million, or 50 cents a share, for the same quarter a year ago.

In a news release, IBC said second-quarter net income was negatively impacted by a pre-tax increase in the provision for possible loan losses of $3.0 million in connection with an energy-related commercial borrower that filed for bankruptcy protection July 22.

That is the same day Tulsa-based SemGroup LP filed for Chapter 11 bankruptcy protection. When contacted, an IBC representative said she could not disclose whether the borrower was SemGroup.

"We don't really get into details like that about our customers. Unfortunately, I can't confirm or deny that," said Judith Wawroski, a vice president with IBC Bank, during a phone interview from Texas.

She explained that IBC had to increase its cushion, or the reserve it sets aside for loans that cannot be collected, by $3 million in pre-tax dollars because of the specific relationship mentioned in the news release.

SemGroup's lengthy creditor list includes a creditor by the name of IBC, but no address or other information is provided.

IBC stated that it will continue monitoring the credit and adjust the allowance allocated to it as needed. Full financial statements on the company's second-quarter performance will be available later this month.

IBC's net income for the first half of the year grew 25 percent from the same period last year. Net income was $66.5 million, or 97 cents per diluted share, compared with $53.2 million, or 76 cents a share.

First-half income "represents a solid level of performance and reflects favorably on IBC's commitment to superior earnings despite the increase in the provision on the energy-related creditor," said Dennis E. Nixon, president and CEO, in a prepared statement.

"I am pleased with these earnings, especially in light of the continued credit turmoil and anxiety existing in the markets today. During this crisis, the company has maintained its sound credit underwriting standards and a sound investment strategy. Credit quality continued to be good and capital ratios are at strong levels."

At the end of June, IBC had total assets of $11 billion, loans of $5.7 billion and deposits of $7.2 billion.

IBC operates more than 260 banking facilities and more than 415 ATMs in Texas and Oklahoma. It entered the Oklahoma market in 2004 when it bought Local Financial Corp.

http://www.tulsaworld.com/business/article.aspx?articleID=20080802_51_E1_spancl455166

[Joanne98]

10. Quite a week for Carlyle

PE acquires storied consultancy but suffers another blow to its public market efforts.


By Kelly Holman

August 1, 2008

The Carlyle Group took one step forward and one step back this past week.

The Washington private equity firm completed its $2.5 billion acquisition of Booz Allen Hamilton through a deal that separates the McLean, Va.-based government consulting practice from its commercial and international-focused businesses, while simultaneously disclosing that it was getting out of the hedge fund business.

As a result of the purchase of the global consulting organization announced by Carlyle on Thursday, Booz Allen’s commercial and international businesses will operate separately as an independent company under the Booz & Co. name. The storied government consultancy that Carlyle is acquiring, which helped the US Navy prepare for World War II in 1940 and won its first US Air Force contract in 1947, will continue to operate as Booz Allen Hamilton.

“We look forward to supporting Ralph Shrader and his management team as we enter this new and important phase of Booz Allen’s leadership in the government services sector,” said Peter Clare, a managing director at Carlyle and head of its global aerospace, defense and government services team.

Besides having strong inroads with the US government and intelligence community over the years, Booz Allen carried out some major achievements in the 1970s. For instance, it raised its profile with the banking community in 1973 when it issued a report titled The Challenge Ahead for Banking. Three years later and one year after winning a Trident submarine contract, the consulting organization underwent its own leveraged buyout in the wake of hitting $100 million in sales and ending its reign of being a publicly held company that began in 1970. In 1979, it assisted Chrysler executives with the automaker’s turnaround.

Credit Suisse served as financial advisor to Booz Allen, which received counsel from Latham & Watkins. Debevoise & Plimpton provided counsel to Carlyle, while Banc of America Securities and Lehman Brothers served as its financial advisors.

Also on Thursday, Carlyle disclosed some less glamorous news.

The firm, which manages $82.7 billion of assets and 60 investments funds, said it was winding down its Carlyle-Blue Wave Partners Management hedge fund business, and liquidating positions in the Carlyle Multi-Strategy Partners funds. It marked the termination of Carlyle’s New York-based hedge fund investment unit, launched last spring by former Deutsche Bank professionals Ralph Reynolds and Richard Goldsmith.

Reynolds, Goldsmith and 39 employees are expected to leave Carlyle as a result of the $600 million hedge funds’ liquidation. The hedge fund group ran into trouble last year because of the subprime mortgage market implosion, which left its credit investment portfolio in trouble.

In 2008, Carlyle-Blue Wave launched a separate equities-only share class, essentially trying to make a new start with a clean slate, says a person familiar with the matter. That portion of the group’s business proved its worth, increasing by more than 2% in 2008, exceeding the S&P 500 index by 14%.

Ultimately, however, it wasn’t enough to sustain the investment group’s infrastructure at a time when the credit market remains mired in problems and the stock market remains volatile. As the firm’s official statement says, the funds weren’t able “to achieve the critical mass of assets under management necessary to support a multi-strategy fund infrastructure.”

“This is an orderly liquidation to assure a fair and equitable treatment of all investors,” said a spokesman for Carlyle, which holds a minority stake in Carlyle-Blue Wave. He declined to comment further on the wind-down.

The hedge fund casualty is the latest blow to Carlyle’s efforts to tap into the public market. In March, its Carlyle Capital business was shuttered after the fund, which invested in AAA-rated government agency residential mortgage-backed securities, didn’t meet margin calls and couldn’t reach agreement with its lenders.

Carlyle’s business is focused on generating returns from buyouts, venture capital and growth equity, real estate and leveraged finance.

http://www.iddmagazine.com/news/184358-1.html?CMP=OTC-RSS

[Joanne98]

11. kick

[madeline_con]

12. Oil falls; SemGroup shock likely a factor

Traders are wondering whether other oil companies will get into trouble.

7/24/2008
http://www.tulsaworld.com/business/article.aspx?articleID=20080724_49_E1_Taesae939234


SemGroup has a new CEO. Maybe the market will stabilize a bit.

[SahaleArm]

14. IB's are playing a shell game - Energy down, Financials up. n/t