In the summer of 2008 the nation\u27s largest and fastest growing midstream crude oil purchaser, SemCrude, declared bankruptcy. SemCrude\u27s demise was not the result of a bear market but of its taste for risky options trading. The bankruptcy pitted the competing liens of thousands of unpaid oil and gas producers and royalty owners who sold their crude oil to SemCrude at the wellhead against those of SemCrude\u27s lenders and the claims of downstream purchasers. The Bankruptcy Court for the Federal District of Delaware found none of the producers\u27 lien rights to be perfected under applicable law and awarded priority to SemCrude\u27s lenders. Producers and royalty owners were left holding the bag.
This article hopes to frame the issue as a problem of systemic market risk like what ailed the financial sector preceding the 2007 financial crisis. As with the financial crisis, this problem may be solvable partly by restricting speculation by midstream crude oil and natural gas purchasers similar to how regulators restrict speculation by federally insured banks under § 619 of the Dodd-Frank Act, known as the Volcker rule
