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SemGroup shock wave: Former CEO Tom Kivisto helmed a meteoric rise ? and fall(Tulsa World (OK) (KRT) Via Acquire Media NewsEdge) Aug. 3--Read previous stories and court filings about SemGroup. Tom Kivisto was the wonder boy. He knew how to talk to everyone, from oil well operators to the richest men in the world. But by the mid-1990s, he was frustrated after losing out on promotions to higher-ups who did not appreciate the relationships with people working in the oil business at the grass-roots level. "I'm tired of training my bosses," he told one friend. So Kivisto set off on his own and co-founded SemGroup with Gregory Wallace, experienced at running the books for several Tulsa energy companies. Kivisto used his contacts and charisma honed on the University of Kansas basketball court to transform from play-maker to deal-maker. In eight short years, SemGroup LP rose to become a powerful and influential player in Tulsa, pumping millions into community and philanthropic projects, and becoming the nation's 12th-largest privately held firm, according to Forbes Magazine. In 2006, the company had revenues approaching $15 billion, the magazine reported, and it employed about 400 locally and 2,000 companywide. By May 2008, Kivisto, 56, was handing Paula Creamer her trophy for winning the SemGroup Championship LPGA tournament. Less than three months later, he was on leave from his job and his company was in bankruptcy. 'A good trader' Kivisto had become a star at KU as captain and leader of a Final Four team that turned around two losing seasons. After graduation, he worked for the university, soliciting donations from alumni. It was during this time he met some alumni employed by the Wichita-based Koch Industries. His salesmanship landed him an interview and then a job. Kivisto became executive vice president of Koch's Crude Oil Marketing. He oversaw the collection, purchasing and marketing of more than 440,000 barrels per day, according to the SemGroup biography of Kivisto. An oilman and friend who knew Kivisto at Koch remembers him as a quick study who understood the trading markets. "Kivisto was a good trader, someone who drew the differentials between, say, a barrel of Gulf oil or Midwestern crude," said the friend, who asked to remain anonymous. "The New York Mercantile Exchange is a tough, fast place, and traders there quickly figure out who knows what they're doing and who doesn't. Being the old athlete as Tom was, he enjoyed that it's competitive. It's eat or be eaten. The pressure was so enormous." Kivisto's reputation for being hard-working and honest was known even then, the businessman said. "He could help the producers become more transparent with what crude oil was worth by the barrel," said the former business associate. "He was extraordinarily well-spoken and very bright, very open and very trustworthy." Longtime Oklahoma oilman Dewey Bartlett Jr. said that after SemGroup's rise Kivisto was a highly sought-after expert on the crude oil and energy markets and had the attention of policymakers and politicians. "He was the guy to call," Bartlett said. "He has been in very high demand to speak to energy groups, legislators and any group interested in the pricing of energy. He also has a high degree of integrity and vision and obviously he is experiencing some terrible problems. "I hope he can get through it and emerge in a new direction that is both good for him and for Tulsa. He means a lot to this community, and we don't want to lose him." While Koch helped Kivisto develop his skills, the company also may have pushed him to strike out on his own. At Koch, Kivisto became dissatisfied with the company's business philosophy, the former associate said. He also was upset when he was denied promotions in the early 1990s. "He was passed over again," said the former associate. "It happened once or twice." Kivisto aired his dissatisfaction with Koch's business philosophy, the source said. "He was competitively jazzed in his experiences in oil trading and he also lamented that Koch was getting away from buying oil directly from the well operators." The business friend said Kivisto and his wife, Julie, became interested in moving to Tulsa, where he saw new opportunities. Kivisto has stated in previous interviews that the couple liked the hilly terrain, Tulsa's reputation as an oil town and good experiences that they had visiting the city. The rise Moving from Koch, Kivisto found his own niche in the crude-trading industry. From 1993 until founding SemGroup in 2000, Kivisto founded and served as president and chief executive officer of Eaglwing Trading, a crude oil marketing company. Numerous industry insiders contacted for this article said they did not know how Kivisto met Wallace and Kevin Foxx. During the early to mid-1990s, they all worked at small oil-related companies. Wallace was a financial officer for Anchor Drilling in Tulsa and Foxx owned Foxx Transports, which included a small fleet of oil trucks. According to a 2005 Tulsa World story, George Kaiser, chairman of Tulsa-based BOK Financial Corp., saw promise in Kivisto's business plan and loaned the limited partnership known as SemGroup $38 million. BOK officials declined Friday to clarify whether that initial loan came from Kaiser or Bank of Oklahoma. What is known is that in April 2000, Kivisto co-founded Seminole Transportation and Gathering, which became SemGroup LP, with Wallace. Foxx has also been involved at the management level since its founding. SemGroup was created as a midstream service company that provided the energy industry the means to move products from the wellhead to the wholesale marketplace. Kivisto served as the company's president and chief executive officer until being placed on administrative leave July 18 as his company faced its financial crisis. Kivisto, Wallace and Foxx were removed from the public company's board of directors. Wallace reportedly still is on staff at SemGroup LP as chief financial officer. Foxx remains CEO of SemGroup Energy Partners LP. No widespread layoffs have taken place at SemGroup, although officials have said they plan to cut 276 positions throughout the company. Kivisto brought other Koch alumni to his business ventures, including Jerry Parsons and Kevin Clement. Parsons was named president of SemMaterials last week, while Clement was promoted to chief operating officer of the same subsidiary. In all, about 60 former Koch employees and their families moved from Wichita to Tulsa to work at SemGroup. Right after its founding, the company made its first acquisition. Within five years, SemGroup had acquired more than 45 companies. The partnership named its business units with the "Sem" prefix and the function each played, such as SemGas, which oversaw natural gas, and SemCrude, which managed crude oil projects. The operation also had an international presence with SemCanada and SemEuro, with operations in Wales and Switzerland. Many SemGroup operations remained privately held under SemGroup LP. The company, however, spun off the publicly traded SemGroup Energy Partners in July 2007. The issue was received enthusiastically by investors. Units of the limited partnership soared 33 percent in their first day to close at $29.32 on the Nasdaq market, with more than 12 million traded. Inside SemGroup The environment at SemGroup, located in a Warren Place building at 61st Street and Yale Avenue, was employee-centric with free health food, a state-of-the-art exercise room and original art. Employees had access to healthy snacks and drinks throughout the day and catered meals with lean choices such as stir-fry chicken and vegetables. An emphasis on health included a large indoor running track and a variety of exercise machines, including some targeting specific muscle groups like those used in a golf swing. Original art on walls was rotated from two art galleries Kivisto owned in Chicago. Artwork at the office includes Russian paintings, statues from India, Chinese ceramics and African sculptures as well as works from Tulsa artists such as Jay O'Meilia, who sold Wallace two sculptures for about $3,000 each. The 18-inch tall statues are titled "Oil Patch Warrior." Kivisto tended to be attracted to pieces from undiscovered artists and dabbled in creating watercolor paintings. Kivisto stated in previous interviews that he wanted SemGroup to be in the top 10 percent of companies for charitable giving. The company supported about 35 charities and had a program to match employees' charitable gifts up to $5,000. Employees say the office environment was almost too good to be true. Employees who spoke to the Tulsa World requested their names not be used for fear of losing their jobs. "The culture has always been great, from the perspective of young, up-and-coming, wonderful people," an employee said. "We're still trying to carry that culture today." "He loved his employees," one worker said. "He told us, 'No matter what happens in your personal lives, I want you all to have a wonderful atmosphere to come to work to.' " Employees say they did not see the fall of their company coming. Most do not believe Kivisto should be blamed for the SemGroup meltdown. "Most of the media is totally missing the mark," said an employee. "There were others that have tried to wield certain power and intimidation that would leave certain people with a sting. You need to be looking at the top, but not the person that's been in the media." 'Prince of a man' About 2002, SemGroup and Kivisto started pumping millions into the Tulsa community. He was attracted to charities with a track record of success and transparency. The Kivistos were major donors to the Tulsa Ballet and made the dance company's largest gift in history : $1.5 million. SemGroup donated a wing of studios and office space for the ballet. Kivisto has donated $4 million, with a pledge of an additional $8 million, to KU's football facility. The field inside Memorial Stadium was named Kivisto Field in October 2006. Sharon King Davis of King Investment Co. said Kivisto was a stellar corporate citizen. "Tom is a great Tulsa citizen, corporate and individually," Davis said. "Tom and his wife, Julie, really care about the community and the company. He has always been a straight-up person. Tom was always easy to negotiate with. He is a prince of a man, a down-to-earth guy." Other notable donations from SemGroup include a founding sponsorship of the BOK Center, providing $1.1 million. And the company was in talks to be a major donor for a proposed downtown ballpark project to house the Tulsa Drillers, the city's Double-A baseball team. SemGroup was also presenting sponsor of the LPGA SemGroup Championship the last two years. Davis is the developer of Kings- Pointe shopping center, near 61st Street and Yale Avenue, which will feature the D'Novo gourmet meal delivery service and eatery. D'Novo has backing from Kivisto and had its headquarters on the eighth floor of the SemGroup building. The eatery is owned by Anna Hollinger, who could not be reached for comment. Davis said D'Novo is set to open on schedule in a few weeks. Personal possessions Kivisto's personal wealth includes a lavish south Tulsa home, a Maple Ridge home, a lakefront Grand Lake property and the two art galleries in Chicago. Kivisto's home in the 11000 block of South Louisville Place has a market value of $2.45 million and is in the gated community the Estates of Waterstone addition. The two-story home was built in 2006, is about 7,422 square feet and includes seven bathrooms and a pool. Kivisto purchased the home in 2006 in the name of Thomas L. Kivisto Trust for a price of about $2.38 million, according to land records. In 2007, Kivisto Enterprises Inc. purchased a home in the Maple Ridge neighborhood in the 1100 block of East 18th Street for $549,000, according to land records. A third home in The Points of Grand Lake was purchased and built in 1997-98 for $135,000. Its current market value is $347,866, according to land records. The home is about 2,900 square feet with three bedrooms and 2 1/2 bathrooms. All lakefront homes in the gated community have private boat docks, according to a real estate Web site. In Chicago, Kivisto owns the Gallery KH with his 25-year-old daughter, Lissa, who runs the gallery as a co-director with Kristen Hagan. Kivisto also helped establish KN Gallery in Chicago's historic John Hancock Building with Lara Niemira serving as director. Wallace has a home in the same Grand Lake addition as Kivisto that was purchased in 2007 for $865,000. His primary Tulsa residence is on the 1800 block of East 43rd Street in the Bolewood Acres neighborhood. The Tulsa residence was purchased in 2004 and has a market value of about $1.4 million. Political activity has not been a significant area of interest to the founders. As registered Republicans, the Kivistos have donated to the campaigns of a handful of candidates of both major political parties, ranging from $500 in 2002 for Republican Dana Murphy's race for Corporation Commission to $3,000 in 2006 to Democratic Gov. Brad Henry's campaign. They gave $2,300 in March to Republican Jim Ryun, who is running for Congress in Kansas, and $1,000 to the Barack Obama presidential campaign. The largest political donation came in 2006 for the First Class Education for Oklahoma initiative petition effort in which the couple gave $50,000. It was a campaign to require 65 percent of school funds to be spent in the classroom. The petition was invalidated by the state Supreme Court in 2007. Wallace's only campaign contribution was $2,500 to T. Brett Swab in the 2006 Tulsa County District Attorney's race. Wallace is also a registered Republican. The fall SemGroup's demise came fast and furious. Some analysts, such as Moody's Investors Service, had previously expressed concern over the company's heavy debt load, but almost everyone outside SemGroup was surprised by the swift turn of events beginning on the morning of July 17. Nasdaq market reports showed stock for SemGroup Energy Partners LP, the subsidiary which was taken public just a year earlier, trading at unprecedented levels and dropping from $22 to $11 per share. Rumors circulated about several possible scenarios until SemGroup LP released a statement that evening revealing its liquidity problems and possible need for bankruptcy protection. Kivisto was replaced as president and CEO of the parent company and placed on a leave of absence. He also resigned from the board of directors for BOK Financial Corp., parent of Bank of Oklahoma. The July 22 filing for Chapter 11 bankruptcy protection in Delaware shed light on SemGroup's deep financial hole. The company ran up about $2.4 billion of debt in its oil futures transactions. Court records also indicated that Kivisto, through his wholly owned trading company called Westback Holdings, tallied about $290 million in hedging losses. SemGroup alleges that Kivisto owes it that money, according to a court affidavit. Current standing SemGroup Energy Partners was not listed in the bankruptcy filing, but continues on with a reformed board. The Securities and Exchange Commission and the U. S. Attorney's Office in Oklahoma City are conducting inquiries. Bank of America has filed a lawsuit against Kivisto. Also, some shareholders have sued SemGroup Energy Partners, alleging it held a February stock sale of 6 million additional shares under false pretenses. Those lawsuits, which request class-action status in New York and Tulsa, allege that SemGroup Energy raised about $137 million from the stock sales and used it to help buy the parent company's asphalt operations. In his only public statement since the bankruptcy filing, Kivisto did not take questions July 27 but said SemGroup employees will "regain their trust" in the company once the chain of events is revealed. While Kivisto may have been a master at trading, a former Kivisto associate and others wonder where the company's board was as SemGroup allegedly played the short end of the futures market, waiting on prices to begin their inevitable decline. "When they did, it was too late for SemGroup," the former associate said. "It's another amazing part of an amazing story. How did all of them get here? How did it go unchecked for so long?" From Birth to Bankruptcy: The History of SemGroup LP April 2000: Tom Kivisto, a veteran of Koch Industries and several smaller energy startups, co-founds Sem- Group LP with GregWallace, who worked as financial officer for several drilling companies. Kevin Foxx, owner of Foxx Transports, also comes on board. 2000-02: SemGroup uses startup money to acquire smaller companies that specialize in gathering, storing and marketing fuel, such as Dynergy and Foxx Transports. December 2003: The Tulsa company buys propane assets and marketing services from strugglingWilliams Cos., which was on brink of bankruptcy only a year or so earlier. SemGroup reports that its subsidiaries such as SemCrude generated $8.3 billion in revenues for that year. Early to mid 2004: Acquisitions roll on as SemGas LP buys MidKan LLC and New Avoca Gas Storage LLC. December 2004: SemGroup LP agrees to sell 30 percent of its equity for $75 million to Carlyle/Riverstone Global Energy and Power Fund II LP. April 2005: Five years after its start, SemGroup LP buys the asphalt operations from Kivisto's former employer, Koch Industries' Koch Materials Co. The new owners move about 100 employees from Wichita, Kan., to Tulsa. January 2006: SemGroup LP buys the Milford Haven crude and refined products terminal, the United Kingdom's largest fuel storage facility holding 9.4 million barrels capacity and 80 storage tanks. September 2006: SemGroup LP is named as new title sponsor for the LPGA golf tournament starting in 2007. November 2006: Forbes ranks SemGroup LP fifth on its list of America's largest private companies. March 2007: SemGroup announces it will take subsidiary SemGroup Energy Partners LP public in July. The stock sale will help generate funds to pay off debt, the company says. July 2007: SemGroup Energy Partners LP takes its place on the Nasdaq market, offering 12.5 million units of the company at an initial price of $22 per share. Its ticker symbol is SGLP. January 14: SGLP buys liquid cement asphalt terminals and storage from its private sister company SemMaterials for $378.8 million. February 14: SGLP offers 6 million more shares at more than $23 per unit. May 1-4: The expanded SemGroup Championship LPGA tournament, o]ering four rounds and $1.8 million in prize money, is held at Cedar Ridge Country Club. Paula Creamer wins the event in a playoff over Juli Inkster. July 18: Stock prices for SGLP begin plummeting from $22 to $11 as rumors swirl around the health of its parent company. Later that day, SemGroup LP announces it has "liquidity" problems and Kivisto is replaced as president and CEO. July 21: Hedge funds Manchester Securities and Alerian Capital Management take over board control of the public SGLP after SemGroup LP defaults on a recent $150 million loan from the investors. The board takeover was part of the loan terms if a default occurred. July 22: SemGroup LP files for Chapter 11 bankruptcy protection in Delaware federal court, citing cash flow problems and $2.4 billion in trading losses on the oil futures market. Of those losses, $290 million are specifically attributed to Kivisto and his personal company,Westback Holdings, in court records. Tom Kivisto, 56 Co-founder of SemGroup LP in April 2000. Served as its president and chief executive o9cer until July 18. Has more than 33 years experience in energy marketing. From 1993 to 2000, founded and served as president and chief executive o9cer of Tulsa-based Eaglwing Trading, a crude-oil marketing company. Prior to Eaglwing, was executive vice president of Crude Oil Marketing for the Wichita-based Koch Industries. He oversaw the collection, purchasing and marketing of more than 440,000 barrels per day. Has been a board member of several Tulsa entities including Bank of Oklahoma, St. Francis Health System and Family and Children's Services. He is a member of the Tulsa Community Foundation and founded Project Single Parent with his wife, Julie, to help struggling single parents earn a college degree. Was the point guard for the University of Kansas basketball team from 1970 to 1974, starting on the storied 1974 Final Four team. He earned a bachelor's degree from the University of Kansas in pre-med/ psychology and did post-graduate work in urban planning. At KU, was named an Academic All-American, All Big 8 and Academic All Big 8. He is a native of the Chicago area and a member of the Illinois Basketball Hall of Fame. Has three children with his wife. Greg Wallace, 52 Co-founder of SemGroup with Tom Kivisto. Served as SemGroup's vice president, chief financial officer and secretary and as director of SemGroup Energy Partners. Before SemGroup, had 23 years experience in the energy industry in financial and administrative roles. Previous employers and jobs include Anchor Drill Fluids (chief financial o9cer), Integrated Drilling and Exploration Co. (chief financial o9cer) and Parker Drilling Co. (administrator). Has been a board member of The F&M Bank and Trust Company, The Center For IndividualsWith Physical Challenges, Project Single Parent, The Caring Center and the Tulsa County Sales Tax Overview Committee. Graduated from the University of Oklahoma with a business administration degree and holds a master's degree in international management from the American Graduate School of International Management. Married Jo Carol Cook in 1990 in Tulsa County. Kevin Foxx, 52 Houston resident Listed as a co-founder of SemGroup LP in April 2000 on itsWeb site. Executive vice president and chief operating officer. Serves as president and chief executive o9cer, and was director of, SemGroup Energy Partners since February 2007. Has more than 24 years experience in the crude oil gathering, transportation and storage industry. Prior to SemGroup, was president and operating manager of Foxx Transports, a Houston-based domestic oil gathering and trading company founded in 1995. After helping form SemGroup, sold Foxx Transports to SemCrude. Formed the transportation division of Elleron Oil company in 1987 and sold that division in 1992 to Plains Marketing, where he served as vice president. Holds a bachelor's degree of business management from LeTourneau University in Longview, Texas. He also attended the University of Oklahoma. World staff writer Lee Logan and Business Editor John Stancavage contributed to this report. To see more of the Tulsa World, or to subscribe to the newspaper, go to http://www.tulsaworld.com. Copyright (c) 2008, Tulsa World, Okla. Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |