PAUL WALDIE AND NORVAL SCOTT

Wednesday, July 30, 2008

TORONTO, CALGARY — Dewey Bartlett's family has been in the oil business in Oklahoma for nearly 100 years but if you ask him who really understands the energy market, he's quick to answer – Tom Kivisto, a former basketball star who built Tulsa-based SemGroup LP into an oil services giant in just eight years.

“Tom was one that many of us would always either call or if there was an opportunity to hear him speak, we always enjoyed it because he was one of the better people around that could articulate markets, that could talk about the significance of various events and how they affected a market,” said Mr. Bartlett, president of Tulsa-based Keener Oil and Gas Co. “He's a very, very bright guy.”

These days Mr. Bartlett, along with just about everyone else in the North American energy business, is trying to figure out what happened at SemGroup.

The company stunned lenders and investors last week by filing for bankruptcy protection in the United States and Canada, citing $3.2-billion (U.S.) in debt, stemming mainly from losses on energy trading. Creditors include Husky Energy Inc., ARC Energy Trust, and Nexen Inc., as well as Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada, which are owed as much as $100-million (Canadian) each, according to one analyst (the banks declined comment).

Lawsuits are flying, and there are allegations in court filings that Mr. Kivisto, 56, engaged in unauthorized options trading. Court filings indicate that a trading company he owns owes SemGroup $290-million (U.S.). A criminal investigation is under way, along with a probe by the U.S. Securities and Exchange Commission.

Mr. Kivisto, normally a fixture on the Tulsa social scene, has stayed largely out of sight. He has taken an “administrative leave of absence” from SemGroup, and last Saturday issued a brief statement expressing his concern for the company's employees and the community. “I trust, however, as the facts and truths surrounding this chain of events are revealed, the SemGroup employees will regain their trust in what they initially believed,” he said.

The turn of events is a remarkable comedown for Mr. Kivisto, regarded as a local hero in Tulsa for his support of many charitable causes, which have included donating money to build new facilities for the ballet, baseball team and the football team at his alma mater, the University of Kansas. “He had breathed new life into the charitable sector in Tulsa,” said Jake Dollarhide, a Tulsa investment adviser who worked with Mr. Kivisto on many projects.

Mr. Kivisto grew up in suburban Chicago, son of an acclaimed high school basketball coach. He was a standout basketball player at Kansas, helping guide the team to a Final Four appearance in the 1974 National Collegiate Athletic Association championships. He earned a post-graduate degree in urban planning before joining Koch Inc., a private energy company based in Wichita, Kan., where he was put in charge of crude oil marketing.

Mr. Kivisto struck out on his own in the early 1990s, moving to Tulsa with his wife, Julie, and starting his own oil marketing company called Eaglwing Trading. In 2000, he secured a $65-million loan from the Bank of Oklahoma and launched SemGroup, using the root of an Indo-European word “sem” which means “one.”

The creation of SemGroup coincided with the demise of Enron Corp. and a slump in the energy sector, giving Mr. Kivisto ample opportunity to snap up assets from distressed companies. Over the next eight years, SemGroup bought nearly 50 companies and expanded into Canada, where it became a major, and highly respected, oil and gas trader in Calgary. Traders estimate SemCanada, SemGroup's Canadian subsidiary, was one of the 10 largest traders of Canadian natural gas.

By 2005, SemGroup's annual revenue topped $20-billion and its operations included pipelines, storage, transportation and dozens of other services for the oil and gas sector. In July 2007, SemGroup spun off a limited partnership, taking it public on the Nasdaq Stock Market at $23.90 a unit.

But unbeknownst to almost everyone, SemGroup was facing a liquidity crisis. Wrong bets on energy trades had left the company scrambling to cover margin calls, which soared to $2.4-billion. On July 17, the limited partnership announced the company was considering bankruptcy protection. The units sank to $8.30 and investors clamoured for answers. Mr. Kivisto was removed as chief executive officer the next day, and SemGroup filed for protection a few days later.

While most people in Tulsa are hoping for the best, Mr. Dollarhide is less optimistic. “The sand in the hour glass is falling at a faster and faster pace,” he said. “Any time you have the SEC in town doing inquiries, any time you have grand jury subpoenas … who knows? Nothing is untouchable at this point.”

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