Oil hedges turn toxic for weak balance sheets

By Robert Campbell

NEW YORK (Reuters) - Companies with weak balance sheets are discovering that hedges against oil price moves can be almost as punishing as this summer's leap in crude costs.

Physical oil trader SemGroup LP told its lenders this week it may file for bankruptcy after margin calls on hedges designed to protect its 500,000 barrels per day business from a fall in oil prices gobbled up its cash reserves.

SemGroup's publicly traded subsidiary SemGroup Energy Partners LP SGLP.O disclosed its privately held parent's financial troubles late on Thursday.

Traders are required to post a margin, a percentage of their position in cash, to guarantee they will meet their obligations. When the price of a futures contract rises, traders who are short the contract receive a margin call from the exchange requiring them to post even more cash.

"It's a classic producer squeeze," said John Kilduff, senior vice president at MF Global in New York. "They have the oil and assets in the ground but they have to make these real-time margin calls."

The high cost of oil and the growing volatility of oil prices have created headaches for a wide range of companies, particularly airlines and freight companies that depend on affordable fuel.

Energy analysts said more liquidity problems are likely to surface in the wake of the torrid rally since April that pushed oil prices up 45 percent to a record $147.27 a barrel.

Companies facing the biggest threat right now could be those that took short positions on crude, experts said. Independent oil and gas producers, companies like SemGroup that buy and trade oil, and refiners head the list of potential victims and the credit crunch at U.S. banks is making the situation worse.