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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (31552)	7/20/2008 4:24:19 PM
From: E_K_S	Respond to of 78753

Hi Paul - It looks like SemGroup wrongly bet on crude price to go down earlier this year. They hedged with future oil contracts and now have to cover which used up all their cash and now have a severe liquidity problem. SemGroup weighs bankruptcy tulsaworld.com From the article:"...SemGroup may not have enough cash on hand to pay margins for oil contracts it tries to buy in the future, some analysts said. One national investment professional said the parent company's cash-flow problems may pose significant problems to SemGroup Energy...." You are probably right that some "special notice" was provided to their banks which resulted in very heavy selling volume Thursday. From the article"...By Thursday morning, however, something dramatic happened as a stock that typically traded at a volume of about 68,000 shares daily was transacted more than 5 million times. Much of that drop happened in the morning, several hours before the Moody's report was released..." I wonder how many other of these small oil service companies may run into difficulties with future oil contract hedges. It's great when these hedges work for you but can be a disaster when they go against you. There are always two parties to these trades. ============================================================= The finance officer for ULTR implemented a FFA hedge strategy for their entire fleet for their bulk shipping division last year. It went sour when the future bulk rates hit new highs earlier this year. The company had to book a major loss for the last two quarters to unwind this hedge while all the other bulk shippers were raking in the money from the high rates. They should have just entered into longer fixed term contract leases, staggered amongst their different ships. Many of these smaller companies must be careful with these derivative option products and not to over leverage their normal business operation(s) just to obtain a bit more growth. I have noticed this occurring more frequently with negative results. Other than with Southwest Air, you usually hear about the blowups after the fact as a footnote in the annual report. EKS

To: Paul Senior who wrote (31552)	7/20/2008 6:39:47 PM
From: Spekulatius	Respond to of 78753

the Semgroup disaster that took SGLP down (although i do not think that SGLP has to declare bankruptcy even though Semgroup does) did let me sell my position in NGLS. NGLS is run by Targa Resources. This is also private equity and they have a junky "B" credit rating. Their balance sheet looks ugly. Even though NGLS balance sheet is above average for an MLP the concern I have regarding systemic risk with the General Partner is too high for my taste and decided to sell NGLS for a loss. I'll put the sales proceed in another (yet undecided MLP) and keep a close look on the General Partner's credit worthiness going forward.