ExxonMobile: Profit King of the World!

Executives at ExxonMobile supremely weathered Americans cutting their driving 1.8% in April and 3.7% in May. They announced, yet again, record profits of $11.97 billion, up 17% from last year. A special charge related to the Supreme Court Exxon Valdez decision reduced their profit a mere $290 million for the quarter.

While the Bush administration bores in the American psyche to open up more areas for drilling, big oil continues raking in three year record profits.

Royal Dutch Shell put $11.56 billion in their tank, up 33% from a year ago

BP's second quarter profit soared 27% in 90 days, to almost $9.5 billion.

ConocoPhillips bottom line raced almost 31% from last quarter, to $5.44 billion

The most profitable company in the world, ExxonMobile, survived angry customers cutting back mileage (by some 40 billion). Clearly, customer satisfaction takes a back seat to profit and executive incentive compensation. It's called capitalism.

Angry customers are also upset voters. Will they watch politicians' current push for more giveaways to big oil? Three years ago, Congress and the White House provided $6 billion in subsidies via the 2005 Energy Bill. Pay attention, people. America, the ideal, is truly at risk.

Is Bennigan's the Economic Canary in the Coal Mine?

The Dallas Morning News reported on the abrupt closing of company owned Bennigan's and Steak & Ale restaurants. The article stated:

S&A Restaurant Corp., a subsidiary of Plano-based Metromedia Restaurant Group, has filed for Chapter 7 bankruptcy protection, the company said in an e-mail Tuesday. S&A operated the Steak & Ale, Bennigan's and The Tavern restaurants.

A Chapter 7 filing means all assets are to be sold off to pay creditors and the company will close – a move that shocked even insiders aware of the parent company's financial woes.

"I was blindsided by the Chapter 7," said Larry Briski, president of the Bennigan's Franchise Operators Association.

Might the closing of these company owned restaurant chains be the economic canary in the American coal mine? More information could shed light on this question, but as usual, they aren't talking.

Metromedia did not provide details on what drove it to pull the plug on its brands.

Hot an saucy has a brand new meaning.

BP Stands for Bully the Purchaser and Banner Profits!

In the second quarter Americans opened their pocketbooks wide every time they filled their gas tank. British Petroleum joined ConocoPhillips in announcing record revenues and record profits. ExxonMobile and Chevron share their windfalls later this week.

Smart Senators would be wise to cease and desist promoting oil company interests, especially during this period of "shaft the customer" record earnings. In 3 short months:

BP's second quarter profit soared 27% to almost $9.5 billion.

ConocoPhillips bottom line raced almost 31% to $5.4 billion

Who's celebrating these developments? Not many people I know. Chuck the oil fompany executives and their Congressional facilitators!

ManorCare: Carlyle's Christmas Gift Exchange

After The Carlyle Group failed 24 long term acute care patients in their New Orleans LifeCare affiliate, I thought some regulator or elected official would explore this blot as Carlyle pursued giant nursing home provider, ManorCare. Surely, some heroic leader would ask how the huge private equity firm planned to keep patients safe, should a future disaster occur. It didn't happen. Why not?

The Carlyle Group greased the skids with political donations and lobbyist guns. They hired Dutko Worldwide to market the HCR ManorCare deal. In one month they spent $60,000 to push the acquisition. As lobbyists, Carter Esham, Laine Gussom and Judy Lemons provided therapy to the challenged purchase.

Yes, that seems like small change given Carlyle's expenditure of $280,000 on Ogilvy Government Relations' Federalist Group, intended to influence Defense Department subcontracting and prevent repatriation of the capital gains tax (or changes to their preferred "carried interest" taxation.) But there's more. ManorCare spent $94,500 on lobbying activities in 2007. Did they put in a good word for the proposed sale while they met with Congressional leaders on Medicare, tort reform, and pay for performance?

HCR ManorCare provided some straight up juice in the form of $52,500 in campaign contributions to key members of the House Ways & Means Committee.

Charles B. Rangel, D-NY Chairman $10,000
John Lewis, D-GA $5,000
Xavier Becerra, D-CA $2,000
Earl Pomeroy, D-ND $1,500
Stephanie Tubbs Jones, D-OH $9,000
Mike Thompson, D-CA $1,000
John B. Larson, D-CT $1,000
Ron Kind, D-WI $2,000
Chris Van Hollen, D-MD $10,000
Kendrick B. Meek, D-FL $2,500
Allyson Y. Schwartz, D-PA $2,000

Dave Camp, R-MI $3,500
Paul Ryan, R-WI $1,500
Jon Porter, R-NV $2,500

The company donated to House leaders in both parties:

Steny Hoyer (D-MD) $2,500
Roy Blount (R-MO) $2,000

The present showcase has $60,000 in Carlyle lobbying, almost the same amount in campaign donations to one House Committee from ManorCare, and some $95,000 in company lobbying. That's over $200,000 washing around, apparently enough to remove the stain of 24 patient deaths in a Carlyle owned health care affiliate.

The White House performed similar work by omitting any mention of LifeCare, Memorial Hospital, or their corporate owners in their Lessons Learned report on Hurricane Katrina. It appears Congress is capable of the same. Report author, Frances Townsend, didn't need to be afraid of a subpoena after all!

But how did the story end? Carlyle got their Christmas present, Santa Bush got his milk and cookies and all were happy. Don't you love a good ending?

Gas Prices: Big Oil Profits Soar, while Transportation Dept. Revenue Drops

The Wall Street Journal reported on shrinking federal receipts as a result of Americans cutting back driving by some 40 billion miles in 2008. It made no mention of ConocoPhillips' recently announced record revenues and profits, but then neither did the company. Big oil hired high dollar word merchants to craft their quarterly profit news releases. In an "I feel your pain" move, they showed the strain of $140 a barrel oil on their operations, while avoiding the record nature of their bottom line altogether.

Americans cut their driving by 1.8% in April and 3.7% in May relative to last year. While demand dropped, what happened to gas prices? They rose some 20% over the same period. Huh? What happened to the relationship between demand and prices? Demand fell while prices skyrocketed?

The federal government's take per gallon is fixed. The Journal pointed out the Transportation Department isn't in a position to increase margins while demand declines. Thus, fewer tax dollars are available to replace America's aging transportation infrastructure. It stated:

"... it also means consumers are paying less in federal fuel taxes, which go largely to help finance highway and mass-transit systems. As a result, many such projects may have to be pared down or eliminated."

They baited the hook, now it's time for the big jerk.

The prospect of the highway fund running a big deficit has sparked a frenzy of lobbying on Capitol Hill, as business groups, ranging from the U.S. Chamber of Commerce to the National Stone, Sand & Gravel Association, have pressed lawmakers for a quick solution.

"We're going to spend a lot of time, money and effort on this," said U.S. Chamber of Commerce President Tom Donohue. "People need to understand that this infrastructure thing is not optional."

The U.S. Chamber of Commerce is known for at least two things, besides wanting private industry to replace public infrastructure. One, they want that expensive and pesky health insurance benefit to go away and both political parties facilitate the transfer of responsibility to the individual employee. And two, the Chamber is advised by ex-White House insider Frances Townsend, a friend of private equity underwriter (PEU), the Carlyle Group.

How is the Transportation Department doing under the prospect of less money? It's greasing the skids for their already in place plans to farm out infrastructure to private entities.

Transportation Secretary Mary Peters said administration officials are crafting an overhaul plan aimed at shaping the debate. The goal would be to give states more flexibility to set transportation spending, while making it easier for them to tap private-sector dollars. Also under consideration: asking Congress to loosen restrictions on states levying new tolls on interstate highways.

Despite Mary's over twenty years working for state and federal DOT's, she has "zero confidence that if we send more money to Washington we’ll get any better results back.” That's quite a revelation. I expected after twenty years, Mrs. Peters would know how to spend money effectively.

Also, recall that people are driving less, which translates into fewer drivers paying tolls. That means government will have to sweeten those deals to guarantee low risk 15% annual returns for PEU's. And don't forget the EPA pushing privatization of water deals, funded by "private activity bonds" and "water enterprise bonds". They were live on CSPAN2 today!

SemGroup, Another Carlyle Affiliate, Declares Bankruptcy

The private equity firm that wants to save America's failing banks had another internal failure. Months after the collapse of Carlyle Capital Corporation, another Carlyle affiliate declared bankruptcy. SemGroup filed for Chapter 11 on July 22nd. Oddly, SemGroup's press release mentioned no causes for the current action.

Company statements cite corporate cousins not impacted by the filing. They include other profitable divisions in the U.S. as well as international entities. Their byzantine organizational structure makes it difficult to understand the relationships between SemGroup affiliated corporations, but ownership of the parent is clear. Carlyle Group and Riverstone Holdings has a 29.3% stake in SemGroup, while hedge fund Ritchie Capital Management owns a 25.2% stake. SemGroup's management owns 30.5%. Other investors control the remaining 15%.

Seeking Alpha spoke to the events driving bankruptcy.

According to SemGroup's bankruptcy-court filings, the company found itself without enough cash to cover margin calls and on July 16 handed its trading account with the New York Mercantile Exchange to Barclays PLC, a move that forced SemGroup to recognize losses exceeding $2.4 billion. A Barclays spokesman declined to comment. Another $850 million of unrealized losses were incurred through over the counter trading, documents show.

Reuters reported the loss to be larger.

The Tulsa, Oklahoma-based company filed for bankruptcy on Tuesday after suffering $3.2 billion in losses on energy futures and derivatives trades that SemGroup says were designed to protect its physical oil trading business. SemGroup creditors said this week they had little idea of the extent of the firm's losses and were surprised by the much larger than expected size of the hedging program.

In February SemGroup offered shares to limited partners at $23.90 per unit. The prospectus remarked on the company's stable, predictable revenue streams (page 74). Not one time was the word "hedging" or "speculating" used in the over 200 page document.

A July 24th SEC filing gives a bit more information on the situation. It mentions two investor class action lawsuits filed against the company. The 8-K states:

Plaintiffs’ specific allegations include that, despite an obligation to do so, the Defendants failed to disclose between February 20, 2008 and May 8, 2008 that Parent was engaged in high-risk crude oil hedging transactions that could affect its ability to continue as a going concern or that Parent was suffering from liquidity problems.

On July 23, 2008, the Partnership and the General Partner each received Grand Jury subpoenas from the United States Attorney’s Office in Oklahoma City, Oklahoma, requiring, among other things, that the Partnership and the General Partner produce financial and other records related to the Partnership’s July 17, 2008 press release.

One creditor was taken aback by the failure. "These guys were supposed to be the straight arrows. They had smart, veteran traders and everyone is shocked by what has happened," said one source close to the bank lending group.

While The Carlyle Group was the second largest investor in SemGroup, it seems their reputation has taken another hit. What strings will they pull to keep their good name? Stay tuned!

Update 8-25-11:  SemGroup's energy trading was at the same level as Merrill Lynch

PEU's Want to Save Banks While Profiting Handsomely

"The flavor of the day is buying your own debt at below face value. I'm buying bank debt in my deal with leverage from the bank that made me that deal"--David Rubenstein in Forbes, May 2008

Not only is the co-founder of private equity underwriter (PEU), The Carlyle Group, buying back bank debt on the cheap, the magnanimous leader wants his firm to save those same struggling banks. Two Carlyle employees, Olivier Sarkozy and Randall Quarles, wrote an op-ed for the Wall Street Journal recommending private equity come to the rescue of failing banks. (Olivier is the step brother of French President Nicholas Sarkozy, who's concerned about "injecting more ethics into financial capitalism," at least that's what he told Barack Obama. Randall Quarles is an ex-high up in the Treasury Department.)

Leverage, $30 of debt per $1 of equity, is what sent Carlyle Capital Corporation crashing down just months ago. It's what contributed to the current credit crisis. Individuals and corporations borrowed at rates, their ability to pay predicated on the economic balloon's continued expansion. When the helium stopped flowing, much "credit owed" became "credit defaulted."

As David Rubenstein flies in to pick over the carcass of his own PEU's debt, he dangles the hope of bank rescue from Carlyle's deep pockets and the overflowing coffers of partner sovereign wealth funds. The price of a PEU bailout is decreased bank regulation, federally guaranteed debt repayment, and/or huge ownership chunks of the rescued institution.

Carlyle doesn't work for free and fellow co-founder William Conway "doesn't like a level playing field." It's the big boys game and clearly stacked in their favor. How many individuals are offered the chance to buy back their mortgage on the cheap?