SemGroup Energy considering options while stabilizing business, clarifying parent relationship

By Jennifer Lanning Drey

Portland, Ore., Aug. 20 - SemGroup Energy Partners, LP continues to work to stabilize the business and clarify the company's ongoing relationship with its bankrupt parent, SemGroup Holdings, LP, while at the same time is evaluating a full range of strategic alternatives to accelerate value creation, SemGroup Energy board member Gabriel Hammond said during a Wednesday conference call held to provide a business update.

SemGroup Energy now has four third-party crude oil storage contracts in place for 5.0 million barrels of its 6.8 million barrels of crude oil storage, he said.

"Although there are certainly significant risks on the road to becoming an independent company, we feel we are off to a solid start, and we will continue to work hard toward this goal," Kevin Foxx, chief executive officer of SemGroup, said during the call.

SemGroup Energy also continues to provide its parent with asphalt services but is considering various strategic alternatives for its liquid asphalt cement and terminalling assets, which could include contracting the assets to other parties.

Looking for forbearance agreement

Additionally, SemGroup Energy continues to work with its lenders in the hopes of reaching a forbearance agreement related to its credit facility, which is in default, Michael Brochetti, chief financial officer of SemGroup Energy, said during the call.

"We believe that our third-party re-contracting success is an important part of this and that we are off to a good start," he said.

The company is being charged a default interest rate of 8% and does not expect to be allowed to make additional borrowings under the facility or distributions until the business has been stabilized with third-party revenues and the company has ensured the lenders that its existing debt levels are appropriate considering the likely go-forward cash flows.

"Given the complexity of the situation, it's not unusual that a signed agreement is not complete at this point," Brochetti said.

SemGroup Energy has $15.4 million of cash and believes its liquidity is sufficient to operate given its forward assumptions at the time of the call, he said.

Seeking assurance of payment

SemGroup Energy also said it received a $2.7 million payment from SemGroup, LP on Aug. 15, boosting the company's confidence that it will continue to be paid for services provided while its parent is in bankruptcy.

Brochetti said given the uncertainty of the situation, SemGroup Energy continues to negotiate for future assurances that it will be paid and has filed a motion in bankruptcy court requesting adequate assurance of future payments for services it continues to provide.

"We feel it is critical to all parties with an interest in SGLP that we exercise any and all remedies, including legal actions, in order to provide some degree of certainty related to future cash flows," Brochetti said.

SemGroup Energy is a Tulsa, Okla., owner and operator of midstream energy assets. A subsidiary of SemGroup, LP is its general partner.

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