A shockwave that started in Tulsa, Okla., rippled through the Rim Country and oil markets throughout the United States this week as SemStream, the sole provider of propane to homes here, filed for bankruptcy.
SemStream's parent company, SemGroup, L.P., had apparently been playing a high-price speculative oil futures game and lost big time, to the tune of $3.2 billion. Apparently $2.4 billion of the $3.2 billion lost occurred when oil prices dropped as the company had purchased futures on margin.
Two large hedge funds, which had invested in SemGroup, had taken control of the company on Tuesday, replacing most of its current board. The president of the company resigned last week as problems were starting to emerge, according to stories in the Tulsa World, which is the hometown newspaper for SemGroup.
A Delaware bankruptcy judge has approved operating money for the company and neither corporate officials nor SemStream employees could provide any insight into what the end result would be for homeowners who use propane in the Rim Country.
Arizona Corporation Commissioners said there would be propane service now and in the future.
Court documents appear to say that SemGroup will sell all of its assets to pay off debt it accumulated while buying up other companies and to cover its loss in the hedged oil trading. SemGroup purchased Energy West in 2006 and renamed the company Semstream. It is presumed that SemStream would be one of the assets that will be sold.
One story written by Tulsa World reporter Rod Wolton said, "It was not immediately known if SemGroup, L.P. would exist in any form after the sell off of assets."
The impact in the Rim Country is unknown and there probably will not be any quick answers. SemStream's parent says it will layoff some 276 employees and local officials had no information about any layoffs or operational changes.
We find something quite wrong with the announced severance package. The 276 laid off employees will share a $1.1 million package, while six senior managers will share some $3 million, if they are fired, reports said.
The federal Securities and Exchange Commission is investigating the financial problems that led to the bankruptcy.
There are questions being raised about the parent company's lack of disclosure about its financial problems.
There is another investigation being conducted by the U.S. Attorney office in Oklahoma City and subpoenas have been given to company officials for a federal grand jury appearance relating to the $2.4 billion trading loss.
What a mess.
The company, after being founded just eight years ago in 2000, grew to be one of the largest companies of its kind in the United States.
It became recognized by Forbes magazine as one of the largest privately held U.S. companies. Now it is in the middle of an oil hedge scandal that affects many people across the country.
Greed can give a mighty push off that mountaintop.
Somewhere down the road the excuse of "we did it to help our customers" will probably be offered by one company official or another. Consider the snake oil salesman source. They did it to help their bank accounts.