By James Norman

SECTION: Pg. 1 Vol. 83 No. 233

Greka Energy, an affiliate of Randeep Grewal's troubled California heavy oil and asphalt empire, filed last week for voluntary Chapter 7 bankruptcy liquidation in New York, beset by legal judgments, state environmental litigation and a federal criminal probe (ON 11/14).

The company's Nov 30 bankruptcy filing, under the name Saba Enterprises and including Greka, Horizontal Ventures and Petro Union, lists debts of up to $50-mil but assets of less than $50,000 and Greka sees no hope of payout for unsecured creditors, which include Chevron's Unocal arm.

Greka general counsel Susan Whalen insisted in a phone message to Platts the companies in the bankruptcy filings are not connected to Greka's 5,000 b/d California producing operations or its idle 10,000 b/d asphalt plant near Santa Barbara. "They're not affiliated, so there is no affect on our California operations," she said.

But a growing roster of irate creditors who could be stymied in collecting tens of millions of dollars in pending court judgments against Greka think otherwise and say they will be going after Greka's assets, in whatever corporate name they may reside.

Among them may be Ilyas Chaudhary, whose Capco Acquisub is listed as one of the top unsecured creditors in the New York bankruptcy pleading signed by Grewal. Chaudhary and Grewal have been rivals ever since Grewal effectively took over Chaudhary's Saba Petroleum in 1997 and changed its name to Greka.

In February of this year, New Mexico court records indicate Capco and other plaintiffs won a $5.6-mil judgment against Greka. In a consolidated case, property owners there won their own $16-mil verdict. That included $12-mil of punitive damages against Greka, which was sanctioned for failing to cooperate in the case.

Greka has appealed, but failed to post the required bond to block enforcement of those judgments and Capco recently began slapping liens on whatever Greka property it can find, including its California assets. The New York bankruptcy could be aimed at thwarting those liens.

A bankruptcy trustee has been appointed and a hearing for creditors is set Jan 26 in Manhattan federal bankruptcy court.

Meanwhile, a UK creditor holding unpaid notes from Windsor Energy US, whose former Rincon Island production unit offshore California was bought by Greka, filed an involuntary Chapter 7 case Oct 25 against Greka entities in Santa Barbara.

Grewal is no stranger to bankruptcy court. In 1996, Greka's publicly listed predecessor Petro Union filed for Chapter 11 bankruptcy reorganization in Indiana. It emerged in 1998 and was taken over by Grewal's private Horizontal Ventures, which also gained control of Chaudhary's Saba, renamed Greka.

In 2003 Grewal took Greka private in a $32-mil stock buyout, in which his funding was never disclosed.

In addition to Greka's roughly 5,000 b/d of California heavy oil output, down by about half since 1997 and gushing 1-mil b/d of water, Greka's asphalt plant has been idled since June for what Greka claims is a major "turnaround." Its main hope for the future, however appears to be Greka rights to a massive 1.7-mil gross acres of coalbed methane rights in China, partnered with CNPC's China United CBM.

Until recently, the World Bank's International Finance Corp was considering $20-mil of senior debt and a $10-mil equity infusion for Grewal's Cayman Islands registered Greka Energy (International) BV to fund $25-mil of China CBM work over three years. Last month an IFC spokesman told Platts: "We're not doing the deal. We decided to drop it."

In October the US Attorney's office in Los Angeles disclosed in a court filing a federal criminal probe is under way into Greka, its Santa Maria Refinery and unspecified individuals. That may relate to massive civil and criminal complaints filed last year against Greka by Santa Barbara County prosecutor Thomas Sneddon over more than 100 alleged environmental and safety miscues and Greka's apparent cover-up effort.

With some 1,200 California producing wells (plus some 600 water injectors) acquired from Unocal, Shell, Vintage and other companies, Greka also faces sizeable plugging and abandonment liabilities. On Nov 10 a California state court ruled against Greka in a lawsuit by Shell Oil affiliate Aera Energy over Greka's alleged failure to plug and abandon idle wells in the venerable El Capitan field. Last year Unocal won a similar case against Greka over former Unocal properties bought by Saba in the mid-1990s. That may be the basis for Unocal being listed as a creditor in the New York bankruptcy.

Grewal, now based in Hong Kong, did not return calls for comment for a Platts story Nov 14. General counsel Whalen at that time declined comment on Greka's finances and pending legal matters but insisted: "Greka denies any wrongdoing."

Greka's lawyer in the Santa Barbara County civil and criminal cases has argued Greka is a victim of overzealous regulatory scrutiny that has turned routine inspection and maintenance issues into a massive criminal case with potential theoretical penalties in the hundreds of millions of dollars.