Oil Trader bankrupts SemGroup

detective · Jul 22, 2008

http://uk.reuters.com/article/oilRpt/idUKN2227689520080722

UPDATE 1-Failed oil hedges sink energy trader SemGroup LP
Tue Jul 22, 2008 3:34pm BST

By Robert Campbell

NEW YORK, July 22 (Reuters) - Energy trader SemGroup LP filed for bankruptcy on Tuesday after a failed oil hedging strategy left the fast-growing firm short of cash, its publicly traded unit, SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research), said in a regulatory filing.

Tulsa, Oklahoma-based SemGroup, which billed itself as the 14th-largest privately held U.S. company, had sold short NYMEX crude oil futures as a hedge against a decline in value of the oil it purchased as part of its 500,000 barrels per day trading business.

The bankruptcy filing affects approximately $2.6 billion of debt issued by SemGroup and its units. Publicly traded SemGroup Energy Partners and its general partner are not part of the bankruptcy filing, SGLP said.

Two hedge funds took control of SGLP's general partner last week under the terms of a loan they had made to SemGroup. (Editing by Tim Dobbyn)

bh_prop · Jul 22, 2008

Metallgesellschaft the 2nd

wareco · Jul 22, 2008

Quote from detective:

Oklahoma-based SemGroup, which billed itself as the 14th-largest privately held U.S. company, had sold short NYMEX crude oil futures as a hedge against a decline in value of the oil it purchased as part of its 500,000 barrels per day trading business.

What am I missing here? How do you go bankrupt hedging your long position in oil?

dont · Jul 22, 2008

Quote from wareco:

What am I missing here? How do you go bankrupt hedging your long position in oil?

I was wondering the same thing

mgookin · Jul 22, 2008

At .5M bpd it does not take much movement to do lots of damage. Looks like they took a big short position somewhere near the gutter and it went up on them.

bh_prop · Jul 22, 2008

Problem typically is a cash flow squeeze. Futures are marked to market and clearinghouses will continually make margin calls as prices rise. Also, if the price of the physical commodity you are long rises less quickly than the short futures hedge, you lose. If there was any speculative short selling outside of normal hedging practices, that would obviously contribute to losses as well.

Quote from wareco:

What am I missing here? How do you go bankrupt hedging your long position in oil?

Cutten · Jul 22, 2008

Quote from wareco:

How do you go bankrupt hedging your long position in oil?

If you cannot find enough cash to meet the margin call on the short hedge, you go bust.

Pa(b)st Prime · Jul 22, 2008

It's obvious the "hedge" in futures was a much larger position than Sem's production/inventory in the underlying.

Obtaining credit to make margin calls on a truly hedged position is readilly available.

rodmike9 · Jul 22, 2008

Quote from detective:

http://uk.reuters.com/article/oilRpt/idUKN2227689520080722

UPDATE 1-Failed oil hedges sink energy trader SemGroup LP
Tue Jul 22, 2008 3:34pm BST

By Robert Campbell

NEW YORK, July 22 (Reuters) - Energy trader SemGroup LP filed for bankruptcy on Tuesday after a failed oil hedging strategy left the fast-growing firm short of cash, its publicly traded unit, SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research), said in a regulatory filing.

Tulsa, Oklahoma-based SemGroup, which billed itself as the 14th-largest privately held U.S. company, had sold short NYMEX crude oil futures as a hedge against a decline in value of the oil it purchased as part of its 500,000 barrels per day trading business.

The bankruptcy filing affects approximately $2.6 billion of debt issued by SemGroup and its units. Publicly traded SemGroup Energy Partners and its general partner are not part of the bankruptcy filing, SGLP said.

Two hedge funds took control of SGLP's general partner last week under the terms of a loan they had made to SemGroup. (Editing by Tim Dobbyn)

thx for the article

TraderZones · Jul 22, 2008

Quote from detective:

http://uk.reuters.com/article/oilRpt/idUKN2227689520080722

UPDATE 1-Failed oil hedges sink energy trader SemGroup LP
Tue Jul 22, 2008 3:34pm BST

By Robert Campbell

NEW YORK, July 22 (Reuters) - Energy trader SemGroup LP filed for bankruptcy on Tuesday after a failed oil hedging strategy left the fast-growing firm short of cash, its publicly traded unit, SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research), said in a regulatory filing.

Tulsa, Oklahoma-based SemGroup, which billed itself as the 14th-largest privately held U.S. company, had sold short NYMEX crude oil futures as a hedge against a decline in value of the oil it purchased as part of its 500,000 barrels per day trading business.

The bankruptcy filing affects approximately $2.6 billion of debt issued by SemGroup and its units. Publicly traded SemGroup Energy Partners and its general partner are not part of the bankruptcy filing, SGLP said.

Two hedge funds took control of SGLP's general partner last week under the terms of a loan they had made to SemGroup. (Editing by Tim Dobbyn)

This is ANOTHER reason that eventually, human traders will disappear from financial firms, and secured, heavily-tested and heavily-guarded ALGORITHMIC trading will take over.