Tortoise Energy Capital is one of four investment vehicles managed by Tortoise Capital Advisors LLC. Each of the others also announced distribution decreases. Tortoise Energy Infrastructure Corp. (NYSE:TYG) decreased distributions by $0.02 to $0.54, and expects at least $0.52 for the rest of 2009. Tortoise North American Energy Corp. (NYSE:TYN) reduced distributions by $0.05/share to $0.37 and expects a floor of $0.36 for the rest of the year. Tortoise Capital Resources Corp. (NYSE:TTO) dropped its distribution by $0.035.

Tortoise Energy Capital’s CEO put it this way, “While we expect the next year to be challenging for almost every industry, including the energy infrastructure sector, we continue to believe the flow of energy commodities remains critical to our economy and that the long term prospects for MLP investments are attractive.”

He’s probably right, but remember Keynes: “In the long term, we’re all dead.”

Paul Ausick

A group of lenders challenged SemGroup’s plan to use some of the cash to stay in business. The lenders argue that the protections being granted "are not commensurate with the substantial amount of cash being made available to debtors."

The fate of SemGroup Energy Partners (SGLP) is still unclear, althoughthat company has expressed a desire to remain in business. How thatmight happen is also vague, because as much as 90% of SGLP’s revenue isderived from its parent. SGLP’s common unit price hovered around$25/unit until last Friday, when it fell to $11/unit following adowngrade of its debt to junk status. The stock closed at $8/unityesterday. The company’s long-term debt is approximately $300 million.

Other investors are also feeling the pinch. Tortoise Capital Adisors,LLC, which is the investment adviser for Tortoise Energy InfrastructureCorp. (NYSE:TYG), Tortoise Energy Capital Corp (NYSE:TYY), and TortoiseNorth American Energy Corp (NYSE:TYN), issued a press release lateyesterday. In the release, Tortoise noted that the value of SemGroup’s8.75% Senior Notes had decreased in value from 96.5% of par to 11.5% ofpar. Other creditors have not disclosed their exposure yet.

SemGroup’s problems stemmed from its short position in NYMEX crude oilfutures. The demands for cash to cover its positions overtook itsability to raise the money. SGLP, which owns pipelines and terminals,could not by itself generate the necessary liquidity.

It’s hard to believe, though, that SemGroup’s problems drove down thecost of crude. The company’s trading business amounted to just 500,000b/d, out of more than 85 million b/d worldwide. Besides, it was bettingthat crude prices would fall. SemGroup got its market timing wrong, andit’s now paying the price.

Paul Ausick
July 24, 2008