SemGroup settlement approved; officers realigned; lender forbearance extended to April 8

By Caroline Salls

Pittsburgh, March 23 - SemGroup, LP received court approval of a settlement agreement with SemGroup Energy Partners, LP that clears a path for potential asset sales, according to a company news release.

As previously reported, before its bankruptcy filing, SemGroup entered into four complex transactions with SemGroup Energy Partners under which it sold various assets to the company and entered into several services agreements. The transactions culminated in a situation where operations of the two companies became inextricably intertwined, SemGroup said.

As a result, several disputes arose regarding the assets and the agreements.

SemGroup said the disputes have hampered its efforts to sell its assets, including debtor SemMaterials assets, to which SemGroup Energy Partners, LP objected.

Under the settlement, SemGroup Energy Partners will transfer all of its storage tanks, related equipment and leasehold land rights connected to the Kansas System Tankage to SemGroup.

In exchange, SemGroup will transfer to SemGroup Energy Partners 355,000 barrels of crude oil that currently constitute line fill and tank bottoms in SemGroup Energy Partners' crude oil business.

Additionally, SemGroup will either transfer all of SemMaterials' and its affiliates' assets that are connected to SemGroup Energy Partners' liquid asphalt cement facilities to SemGroup Energy Partners or its affiliates or sell all of SemMaterials' and its affiliates' U.S. asphalt assets in each case as a going concern to a third party.

If the asphalt transferred assets are sold to SemGroup Energy Partners, SemGroup will retain its asphalt cement, residual fuel oil or other project or inventory currently stored in the asphalt transferred assets or in SemGroup Energy Partners liquid asphalt cement facilities.

SemGroup will pay a reduced monthly storage service fee and a reduced throughput fee.

Other agreements rejected

SemGroup and SemGroup Energy Partners also agreed that amounts owed to SemGroup under an omnibus agreement prior to July 22, 2008 would be netted against amounts owed to SemGroup Energy Partners under the companies' terminalling agreement and throughput agreement prior to July 22.

Any positive balance on either side will be waived.

SemGroup Energy Partners will have a $35 million claim as a result of the rejection of the terminalling agreement, which will be allowed as a general unsecured claim in the Chapter 11 cases of SemMaterials, K.C. Asphalt LLC and SemGroup.

SemGroup Energy Partners will also have a $20 million claim as a result of the rejection of the throughput agreement, which will be allowed as a general unsecured claim in the Chapter 11 cases of SemCrude, Eaglewing and SemGroup.

According to Monday's release, the settlement agreement is subject to SemGroup obtaining consent from its lenders to the transactions covered by the agreement and a waiver of existing credit agreement defaults.

Officer realignment

In addition, the company said in the release that the board of directors of its general partner realigned SemGroup's officers, appointing Michael J. Brochetti as executive vice president - corporate development and treasurer, Alex G. Stallings as chief financial officer and secretary and James R. Griffin as chief accounting officer.

Brochetti had previously served as CFO and Stallings had previously served as chief accounting officer and secretary. Griffin had previously served as controller of the company's general partner.

"We believe this realignment provides additional depth and expertise to our executive management team and better describes the day-to-day responsibilities of each of the officers," the chairman of the general partner's board of directors, Duke Ligon, said in the release.

Forbearance extension

Additionally, SemGroup's lenders extended the company's default forbearance period to April 8 from March 18.

"The forbearance extension will allow us additional time to negotiate definitive documents and the waiver of existing defaults or events of default under our credit agreement required in connection with the settlement agreement with the Private Company," Brochetti said in the release.

"Further, our current cash balance is in excess of $30 million, and we believe this amount of cash is sufficient to run our day to day operations in the near term."

SemGroup, a Tulsa, Okla., privately held limited partnership that provides midstream services to North America's energy industry, filed for bankruptcy on July 22, 2008 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 08-11525.

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