More "swimming(near) naked"?
Monday November 29, 6:04 pm Eastern Time
FOCUS- Plains All American roiled by rogue trader's losses
(adds byline, closing stock prices para 4, detail about the trader from paragraph 9)
By Atiya Hussain
NEW YORK, Nov 29 (Reuters) - Plains All American Pipeline and its parent, Plains Resources Inc., were in turmoil on Monday after the Houston-based energy company announced $160 million of losses stemming from unauthorized dealings by one of its oil traders.
Shares in both companies plummeted as Plains All American announced it was in default on some of its credit obligations and is negotiating a refinancing with bankers. The company warned it might not be able to renegotiate successfully, but added that Plains Resources is willing to inject $64 million cash if a deal with the lenders can be reached and other conditions met.
Plains All American said the losses would also ``have a material adverse effect' on its ability to pay dividends.
Plains All American, which primarily operates oil pipelines and storage facilities, saw its market value nearly halved as shares fell from last Friday's close on the New York Stock Exchange of $19.50 to settle at $10.375 on Monday. Plains Resources shares, listed on the American Stock Exchange, were similarly clobbered, settling down from $17.4375 at $10.
J.P. Morgan Securities was the first to downgrade Plains Resources, which owns 54 percent of Plains All American, lowering its recommendation to ``market perform' from ``buy' shortly after the announcement. Analyst Waqar Syed estimated that the oil trading losses would translate into an earnings loss for the parent company of $86 million, or $2.76 a share.
Plains All American said in a statement that the oil trader, who was not named, had been fired and an investigation was under way, which will be handled by outside counsel PricewaterhouseCoopers LLP. In addition, Arthur Andersen LLP is conducting an independent review of the facts on behalf of Plains All American's lenders.
The Plains statement said it appears from a preliminary investigation that the rogue trades began in January of this year and were done primarily in the period between April and November of 1999.
``It appears that the trader in question violated Plains All American's policy of maintaining a position that is substantially balanced between crude oil purchases and sales or future delivery obligations,' the statement said.
The company gave a private briefing to Wall Street insiders on Monday but officials were not available to make any further public comment beyond the statement statement.
Traders familiar with the situation said a Plains trader, described by one colleague as ``an old hand in his 40s,' had started off by simply hedging the company's physical position against a fall in prices but ended up betting substantially that prices would fall by contracting to sell oil at a future date when he hoped prices would be lower.
``He got married to his position. He saw there was plenty of oil out there (at Cushing, Oklahoma, where Plains has large storage facilities) and thought there was no way world oil prices were going to go higher,' said an experienced oil trader, who didn't wanted to be quoted by name.
But world oil prices rose relentlessly as OPEC held firmly to an April output-restraint deal, New York futures going from a February low just above $11 a barrel to a post-Gulf Crisis high last week above $27 a barrel.(cont)
biz.yahoo.com
fwiw: My father worked for the predecessor of this company prior to my birth. |
