State oil producers sue Goldman Sachs
05/21/2010 12:00 AM
05/21/2010 6:54 AM
Dozens of Kansas oil producers are suing Goldman Sachs and several oil companies, contending they deliberately avoided paying for millions of dollars worth of oil.
The suit stems from the 2008 bankruptcy of oil and gas middleman SemGroup and its many subsidiaries.
SemGroup, based in Tulsa, collected oil from 54 producers in Kansas and 33 in Oklahoma in June and July of 2008, but it declared bankruptcy in late July before paying for the oil.
In the bankruptcy settlement, the producers received some money for the oil, but they are now seeking the full amount.
SemGroup emerged from bankruptcy in December and now operates as a public company.
In the suit, the producers are going after the companies that acquired the oil from SemGroup, contending they never actually paid for it.
The suit names as defendants J. Aron, Goldman Sachs' commodities trading unit, as well as British Petroleum, ConocoPhilllips, Plains Marketing GP and Plains Marketing.
The producers contend J. Aron knew of SemGroup's precarious cash flow problems in 2008 because Goldman Sachs was SemGroup's investment banker.
By May 2008, as the price of crude oil and gas spiked, margins on SemGroup's options contracts rose. On May 21 of that year, according to the suit, J. Aron told SemGroup to expect a margin call of $80 million to $100 million.
J. Aron and SemGroup agreed to an arrangement where SemGroup would buy large amounts of oil and gas from the Kansas and Oklahoma plaintiffs and deliver it to J. Aron as collateral, even though it knew SemGroup didn't have the cash available to pay for it, according to the suit. Payment for the oil and gas typically was not due to the producers for 50 days after the delivery.
But SemGroup's financial situation deteriorated and, on July 21, J. Aron notified SemGroup that it was in default on the options margins and foreclosed on the producers' oil and gas.
The suit contends British Petroleum also took oil from SemGroup in lieu of money owed by SemGroup, without actually paying for it.
But, said Kyle Lonergan, the producers' New York attorney, Kansas and Oklahoma law gives the producers a lien on the oil that was never cleared.
"The defendants never paid for the oil," Lonergan said. "Our clients are entitled to the proceeds from their production."
Representatives of Goldman Sachs and British Petroleum declined to comment.
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