⛽️New Chapter 11 Bankruptcy Filing - Rosehill Resources Inc. ($ROSE)⛽️

Rosehill Resources Inc. ($ROSE)

July 27, 2020

Stop us if you’ve heard this before: Rosehill Resources Inc. ($ROSE), a Texas-based independent E&P company focused, via a fellow-debtor operating company, Rosehill Operating Company LLC (“ROC”), on the Permian Basin (and, more specifically, the Delaware Basin), filed for bankruptcy because of the usual suspects that literally every oil and gas company blames. Seriously, it’s like everyone is just copying and pasting Arya Stark’s hitlist at this point: “Vladimir Putin, Mohammad Bin Salman Al Saud, COVID-19, the competition, too much debt, etc. etc.” Never mind: we’ll stop ourselves. We’ve all heard this before. Many. MANY. Times.

Speaking of the debt, here is what the capital structure looks like and this is what will happen to it pursuant to the prepackaged plan of reorganization that’s already on file:

©️PETITION LLC

That should be pretty self-explanatory but there are a few things to highlight:

• The $235mm exit RBL actually represents a decreased borrowing base. The original RCF had a maximum commitment of $500mm with a most recent borrowing base of $340mm. That borrowing base amount created a deficiency/liability the company struggled — when coupled with service obligations related to the RCF, secured notes and preferred stock — to make.

• The DIP will run at 8% PIK which is better than the 10% cash pay under the secured notes.

In terms of operations, Rosehill operates or owns working interests in 133 oil and gas wells of which 128 are producing or are capable of production. And here’s what that production looks like:

Is that interesting? Not particularly. We include only to demonstrate that we’re not the only ones who are capable of highly unfortunate and irritating typographical errors. More interesting is the fact that Rosehill earned $302.3mm in revenue in ‘19 against $239mm of operating expense. Revenue was basically flat from ‘18 whereas the company’s operating expense increased. On the plus side, the company had some favorable hedge agreements in place which, upon monetization, resulted in $87.6mm in proceeds that the company ultimately used to paydown its RCF immediately prior to the filing. Actually, who are we kidding? That’s not particularly interesting either.

Given how boring this bankruptcy is, the last thing we’ll mention — again because we and the entire world of finance seems to be obsessed with the topic — is that the company emanated out of … wait for it … wait for it … a SPAC!! While the company was originally incorporated in 2015 as a SPAC under the name KLR Energy Acquisition Corporation — sponsored by the KLR Group’s Edward Kovalik, Stephen Lee and Reid Rubinstein — the business corporation that ultimately became Rosehill Resources Inc. occurred in April 2017.

The rest, as they say, is now history. Perhaps we should start taking a running tally: new SPAC IPOs vs. old SPACs that have now filed for chapter 11 bankruptcy!

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: $226.5mm RCF, $106.1mm second lien secured notes,

• Professionals:

  • Legal: Gibson Dunn & Crutcher LLP (David Feldman, Matthew Kelsey, Dylan Cassidy, Hillary Holmes, Shalla Prichard, Michael Neumeister, Ashtyn Hemendinger) & Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

  • Financial Advisor: Opportune LLP

  • Investment Banker: Jefferies Group LLC (Jeffrey Finger)

  • Claims Agent: Epiq Corporate Restructuring LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Admin Agent: JPMorgan Chase Bank NA

    • Legal: White & Case LLP (Mark Holmes) & Bracewell LLP (Jason Cohen)

  • Admin Agent to the Secured Note Purchase Agreement: US Bank NA

    • Legal: Shipman & Goodwin LLP (Kimberly Cohen, Robert Borden)

  • Second Lien Noteholders & Series B Preferred Stockholderes & Majority DIP Lenders: EIG Management Company LLC

    • Legal: Kirkland & Ellis LLP (Chad Husnick, Christopher Koenig, Mary Kogut Brawley) & Zack A. Clement PLLC (Zach Clement)

  • Tax Receivable Claimant & Preferred and Common Stockholder: Tema Oil & Gas Company

    • Legal: McDermott Will & Emery LLP (James Kapp III, Brandon White, Nathan Coco, Fred Levenson, Michael Boykins)
      
      
      

⛽️New Chapter 11 Bankruptcy Filing - Unit Corporation ($UNT)⛽️

Unit Corporation

May 22, 2020

Oklahoma is where a lot of the action is at. Unit Corporation ($UNT) is a publicly-traded Tulsa-based holding company that, through three operating segments, offers (i) oil and gas exploration and production, (ii) contract drilling and (iii) midstream services. Like every other oil and gas company under the sun, this one has too much funded debt. $789mm to be exact, split between a $139mm RBL facility and $650mm in ‘21 subordinated unsecured notes. And like every other oil and gas company under the sun, it cannot sustain its capital structure. For months now, the debtors have been the bankruptcy equivalent of deadbeats — bouncing from one standstill agreement to the next so as not to get hit with a meaningful on-schedule redetermination liability that they wouldn’t be able to satisfy (PETITION Note: this is particularly relevant because they had already been hit by a “wildcard” or “off-schedule” redetermination in January, knocking their borrowing base down $75mm. Instant liability! Yay!!). On brand, the debtors likewise couldn’t afford their semi-annual May 15 interest payment.

Why the bankruptcy now? Well, you’ve seen this movie many times already in the last month or so. You’ve got a starring role for Vladimir Putin. And a starring role for MBS. And you’ve got a few plagues for added drama: first, plummeting commodity prices and then a global pandemic. These factors negatively impacted liquidity and sparked a number of strategic processes including (a) the sale of 50% ownership in Superior Pipeline Company to SP Investor Holdings LLC for $300mm in spring of 2018 and (b) an attempted up-tier exchange of the subordinated notes into newly issued 10% senior secured notes and 7% junior notes. The debtors, however, were unable to successfully obtain the requisite number of tenders. Not only would the exchange have extended the debtors’ maturity profile and eliminated short-and-medium term refi risk, it would have removed the danger that the debtors would trigger a springing maturity in their RBL. Oh well.

Luckily the debtors got themselves an agreement with 70% of the subordinated noteholders and the RBL lenders on the terms of a consensual financial restructuring transaction — like, as the shotclock was about to go off (read: when the standstill agreement expired on May 22, the filing date). The deal includes, among other things, (i) a $36mm new money DIP credit facility, (ii) a debt-for-equity swap by the noteholders for equity in each of reorganized Unit Corp and the upstream and contact drilling opcos, (iii) a new $180mm exit facility from the RBL lenders in exchange for a 5% exit fee paid in post-reorg equity in reorganized Unit Corp. (PETITION Note: apparently the RBL lenders have no interest in owning equity in contact drilling services), and (iv) payment in full in cash or reorganized equity to general unsecured claimants depending upon which entity they have a claim against. Notably, equityholders who do not opt out of releases will receive out-of-the-money warrants exercisable for an aggregate of 12.5% of the interests in the reorganized Unit Corp entity.

We’d be remiss if we didn’t highlight one other aspect of these cases. As is all the rage these days, management got away with an amended incentive structure on the eve of bankruptcy that enriched them all to the tune of $900k. Sweeeeeet. Meanwhile, they spent a good chunk of November ‘19 through April ‘20 sh*tcanning their employees and promising them 4 weeks of severance for every year of service up to 104 weeks. While this is admittedly a pretty rich severance plan, it appears that the restructuring support agreement memorializing the above-referenced transaction proposes to renege on this policy and instead provide merely four to 13 weeks severance to employees. You’ve gotta love these oil and gas execs: they’re wildly proficient at destroying value but still manage to always siphon some off for themselves. It’s awesome.

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: $139mm RBL facility (BOKF NA), $650mm in ‘21 subordinated unsecured notes (Wilmington Trust NA)

• Professionals:

  • Legal: Vinson & Elkins LLP (Harry Perrin, Paul Heath, Matthew Pyeatt, David Meyer, Lauren Kanzer, Zachary Paiva, Emily Tomlinson)

  • Financial Advisor: Opportune LLP (Gary Pittman)

  • Investment Banker: Evercore Group LLC (Bo Yi)

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • RBL Agent: BOKF NA

    • Legal: Frederic Dorwart Lawyers PLLC (Samuel Ory) & Bracewell LLP (William A. Trey Wood III)

    • Financial Advisor: Huron Consulting Group Inc.

  • Ad Hoc Group

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Lauren Tauro)

    • Financial Advisor: Greenhill & Co. Inc.

⛽️New Chapter 11 Filing - Echo Energy Partners I LLC⛽️

Echo Energy Partners I LLC

March 24, 2020

Soooooo, this is an odd one. On March 24, 2020, Oklahoma City-based Echo Energy Partners I LLC, an independent oil and gas company — primarily natural gas from the Anadarko Basin — filed for bankruptcy in the Southern District of Texas. It was a bare bones filing. For well over a week, the docket sat empty with no real substantive pleadings filed or definitive information coming through about the case. Then, finally, over a week later, the company filed more actual first day motions and its First Day Declaration. Usually the automatic stay doesn’t apply to the debtors’ work but, yeah, sure, more power to them.

Anyway, now we know what’s up. And it’s not particularly original or interesting. The upshot? Apparently nobody wants to finance “gas-heavy, capital intensive, non-operated wells with longer production curves” in a $2.00 per million Btu environment let alone a now-sub-$2.00 per million Btu environment. The debtor, therefore, ran into severe liquidity constraints — a situation compounded by third-party operators like Continental Resources inc. ($CLR) initiating forced forfeitures of the debtor’s working interest in key wells.

What’s the plan now? Well, it ain’t looking good. The debtor has a $8.5mm DIP commitment from its pre-petition lender, Texas Capital Bank ($TCBI), and hopes to use the chapter 11 process to pursue a sale of its business.

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: $80mm RCF (Texas Capital Bank) & $165mm notes (HPS Investment Partners LLC)

• Professionals:

  • Legal: Bracewell LLP (William A. Wood III, Jason G Cohen)

  • Manager: John T. Young Jr.

  • Financial Advisor: Opportune LLP (Gregg Laswell)

  • Claims Agent: Stretto (*click on the link above for free docket access)

⛽️New Chapter 11 Bankruptcy Filing - Edgemarc Energy Holdings LLC⛽️

Edgemarc Energy Holdings LLC

May 15, 2019

Pennsylvania-based Edgemarc Energy Holdings LLC and its eight affiliated debtor affiliates are the latest in a string of oil and gas related bankruptcy filings. Don’t let $73/barrel brent crude and $63/barrel West Texas Intermediate prices full you: this is one of many oil and gas filings on the near term horizon.

Edgemarc is a natural gas E&P company focused on the Appalachian Basin in Ohio and Pennsylvania; it and its affiliates control approximately 45k net acres and have drilled and developed 60 producing wells. Now, everyone knows that, right now, the Permian Basin in West Texas is the shizz and, therefore, hearing about the Appalachian Basin may put some of you on edge. But, here, there was an extraordinary externality that really helped push the company into bankruptcy, other more macro factors notwithstanding.

In September 2018, a pipeline and gathering system under construction by a third-party (ETC Northeast Pipeline LLC) exploded. This pipeline was meant to be the gathering and processing avenue for the debtors’ natural gas. Imagine spending a ton of time milking a farm full of cows only to have the production facility designed for processing and transporting the milk explode right as you were about to bring your product to market. Kinda hard to make money in that scenario, right? The same applies to drilling for natural gas: its hard to generate revenue when you can’t process, transport and sell it. And, unfortunately, repair hasn’t been easy: what was supposed to be a “within weeks” project now looks poised to push well into 2020.

According to the debtors, a subsequent dispute with ETC prevented the debtors from flowing their gas through alternative pipelines. Consequently, the debtors “had no other means of selling gas from the affected wells” and opted to “shut in” their Pennsylvania wells and pause all remaining Pennsylvania operations — a hit to 33% of the company’s production activity. Compounding matters, the debtors and ETC are now embroiled in litigation. 😬

Suffice it to say that any company that suddenly loses the ability to sell 33% of its product will struggle. Per the company:

The Debtors’ inability to sell gas from their Pennsylvania properties had a substantial negative impact on their liquidity and ability to satisfy their funded debt, contractual and other payment obligations.

Ya think?!?!? The debtors have approximately $77mm of funded debt; they also has fixed transportation services agreements pursuant to which they agreed to fixed amounts of transportation capacity with various counterparties that exposes the debtors to financial liability regardless of whether they actually transport nat gas. This is so critical, in fact, that the debtors have already filed motions seeking to reject transportation services agreements with Rover Pipeline LLC, Rockies Express Pipeline LLC, and Texas Gas Transmission LLC. Combined, those three entities constitute 3 of the top 4 creditors of the estate, to the tune of over $6mm. These obligations — along with a downward redetermination of the borrowing base under the debtors’ revolving credit facility — severely constrained the debtors’ ability to operate. The debtors have, therefore, filed for chapter 11 with the hope of finding a buyer; they do not have a stalking horse purchaser lined up (though they do have a commitment for a $107.79mm DIP from their prepetition lenders, of which $30mm is new money). The company generated consolidated net revenue of $116.9mm in fiscal 2018.

Significantly, the company is seeking to reject a “marketing service agreement” and “operational agency agreement” with BP Energy Company ($BP), pursuant to which BP agreed to purchase and receive 100% of the debtors’ nat gas capacity. We gather (see what we did there?) that it’s hard to perform under those agreements when you can’t transport your product: accordingly, BP is listed as the debtors’ largest unsecured creditor at ~$41mm. BP’s rights to setoff and/or recoupment (PETITION Note: Weil Gotshal & Manges LLP just happened to write about these two remedies this week here) will be a major facet of this case: if BP is able to exercise remedies, the debtors ability to operate post-restructuring will be threatened. Per the company:

Docket #17, Rejection Motion.

The privately-held company is owned primarily by affiliates of Goldman Sachs and the Ontario Teachers’ Pension. Absent “holdup value,” we can’t imagine they’ll get any return on their investment given the circumstances.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure:

• Professionals:

  • Legal: Davis Polk & Wardwell LLP (Darren Klein, Lara Samet Buchwald, Aryeh Falk, Jonah Peppiatt) & (local) Landis Rath & Cobb (Adam Landis, Kerri Mumford, Kimberly Brown, Holly Smith)

  • Directors: Patrick J. Bartels Jr., Scott Lebovitz, Sebastien Gagnon, Baird Whitehead, Zvi Orvitz, Romeo Leemrijse, Verlyn Holt, Jack Golden, George Dotson, Callum Streeter, Alan Shepard

  • Financial Advisor: Opportune LLC and Dacarba LLC

  • Investment Banker: Evercore Partners

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition & DIP Agent: Keybank NA

    • Legal: Hunton Andrews Kurth LLP (Timothy Davidson, Joseph Rovira) & (local) Connolly Gallagher LLP (Jeffrey Wisler)

  • Equityholders: Goldman Sachs & Ontario Teachers’ Pension Plan Board

    • Legal: Wachtell Lipton Rosen & Katz (Richard Mason, Emil Kleinhaus, Michael Cassel) & (local) Drinker Biddle & Reath LLP (Steven Kortanek, Patrick Jackson, Joseph Argentina Jr.)

  • ETC

    • Legal: Akerman LLP (John MItchell, David Parham, Yelena Archiyan) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, TImothy Cairns)

New Chapter 11 Filing - Fieldwood Energy LLC

Fieldwood Energy LLC

• 2/15/18 Recap: Riverstone Holdings (12% owned by Goldman Sachs) attempted to keep Fieldwood Energy LLC out of bankruptcy back in the beginning of the oil & gas collapse but, alas, it appears the capital structure was too hefty to manage in a continued depressed oil and gas market. Today, the company filed a prepackaged plan of reorganization to slice its debt virtually in half (from $3.26b to $1.6b), implement a $525mm rights offering (use of proceeds = purchase Noble Energy's Gulf of Mexico assets), and secure a $60mm DIP credit facility. Existing RBL lenders will be paid in cash in full; first lien lenders will receive a $1.14b FILO TL and cash; holders of the prepetition FILO facility will receive a share of $518mm second lien term loan and cash; and the second lien lenders and Riverstone will receive 20.25% of the new equity plus rights to purchase the remainder via the rights offering. Translation: Riverstone will still own a significant percentage of this company. More to come...
• Jurisdiction: S.D. of Texas (Judge Jones)
• Capital Structure: $3.26b debt     
• Company Professionals:
  • Legal: Weil Gotshal & Manges LLP (Stephen Karotkin, Ray Schrock, Matthew Barr, Alfredo Perez, Jessica Liou, Daniel Gwen, Patrick Steel)
  • Financial Advisor: Opportune LLP
  • Investment Banker: Evercore Group LLC (David Ying)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition Reserves-Based Lending Facility Agent: Citibank NA
    • Legal: Willkie Farr & Gallagher LLP (Jennifer Hardy, Ana Alfonso, Debra McElligott)
  • Ad Hoc Group of First Lien Term Loan Lenders
    • Legal: O'Melveny & Myers LLP (George Davis, David Johnson, Evie Whiting and Daniel Shamah) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Kristhy Peguero, Jennifer Wertz)
  • Prepetition Agent of the Second Lien Term Loan Facility: Cortland Capital Market Services LLC
    • Legal: Davis Polk & Wardwell LLP (Damian S. Schaible, Darren S. Klein, Natasha Tsiouris) & (local) Haynes and Boone LLP (Henry Flores, Kenric Kattner, Kourtney Lyda)
  • Noble Energy, Inc.
    • Legal: Bracewell LLP (William A. Wood III) 
  • Apache Corporation
    • Legal: Andrews Kurth Kenyon LLP (Robin Russell)
  • PE Sponsor
    • Riverstone V FW Holdings Sub LLC
      • Legal: Vinson & Elkins LLP (David Meyer, Jessica Peet)

Updated 4/2/18 (case confirmed)

New Chapter 11 Filing - Knight Energy Holdings LLC

Knight Energy Holdings LLC

• 8/8/17 Recap: We were starting to sleep on the oil and gas services space. This trainwreck - which had been kicking around for quite a while - is finally in bankruptcy court. We could bore you with the usual details about services companies sucking wind ever since gas prices imploded - what was it? nearly 24 months ago? - but why waste precious space when we can amuse you with stories of drug racketeering instead? After all, "People Make the Difference." Hahaha. Anyway, we guess it's our duty to, in fact, bore you with some more of the mundane restructuring facts so we will once we have more information. For now, we understand that the filing is pursuant to a restructuring support agreement and the debtors seek a multi-draw DIP credit facility of $10mm. More to come.
• Jurisdiction: W.D. of Louisiana (Judge Summerhays)
• Capital Structure: $mm debt     
• Company Professionals:
  • Legal: Heller Draper Patrick Horn & Dabney, LLC (Douglas Draper, William Patrick III, Tristan Manthey, Cherie Nobles)
  • Financial Advisor: Opportune LLP (Gary Pittman)
  • Investment Banker: Bayshore Partners (Michael Turner)
  • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Sponsor: Clearlake Capital Group LP
  • DIP Agent: Cantor Fitzgerald Securities
  • Official Committee of Unsecured Creditors
    • Legal: Baker Donelson Bearman Caldwell & Berkowitz PC (Jan M. Hayden, Edward H. Arnold III, Lacey Rochester, Susan Matthews)

Updated 9/21/17

Chapter 11 Filing - Rooster Energy Ltd.

Rooster Energy Ltd.

• 6/2/17 Recap: Integrated oil and gas offshore exploration and production company with properties located in the outer continental shelf of Gulf of Mexico filed for bankruptcy because it was an offshore exploration and production company operating in the Gulf of Mexico. 
• Jurisdiction: W.D. of Louisiana
• Capital Structure: $53.1mm '18 debt (Angelo Gordon Energy Servicer LLC), $24mm subordinate secured debt (K2 Principal Fund LP)    
• Company Professionals:
  • Legal: Baker Donelson Bearman Caldwell & Berkowitz PC (Jan Hayden, Edward Arnold III, Lacey Rochester, Susan Mathews, Daniel Ferretti)
  • Financial Advisor: Opportune LLP (Sean Clements)
  • Investment Banker:
  • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Official Committee of Unsecured Creditors (Cochun Properties)
    • Legal: Heller Draper Patrick Horn & Dabney LLC (William Patrick III, Tristan Manthey)
  • Official Committee of Unsecured Creditors (Rooster)
    • Legal: Arent Fox LLP (George Angelich)

New Chapter 11 Filing - Vanguard Natural Resources

Vanguard Natural Resources

• 2/2/17 Recap: Houston-based oil and gas producer files chapter 11 pursuant to a restructuring support agreement that, if implemented, will permit the company to cut over $700mm of debt. The company has secured a $50mm DIP. 
• Jurisdiction: SD of Texas
• Capital Structure: $1.372b '18 L+250 RBL (Citibank N.A.), $76mm '20 7% second lien notes, $51'm '19 8.375% unsecured notes (Wilmington Trust), $382mm '20 7.875% unsecured notes (UMB Bank)    
• Company Professionals:
  • Legal: Paul Hastings LLP (Chris Dickerson, James Grogan, Todd Schwartz, Alexander Bongartz, Brendan Gage)
  • Financial Advisor: Opportune LLP (Scott Anchin)
  • Investment Banker: Evercore Partners (Daniel Aronson, Marco Acerra)
  • Claims Agent: Prime Clerk (*click on company name for docket)
• Other Parties in Interest:
  • Ad Hoc Group of 2L noteholders (Fir Tree Inc., Wexford Capital LP, York Capital Management Global Advisors)
    • Legal: Morrison & Foerster LLP (Jonathan Levine, John Pintarelli, Daniel Harris) & (local) Jackson Walker LLP (Monica Blacker, Matthew Cavenaugh)
  • Ad Hoc Committee of Senior Noteholders & UMB Bank NA
    • Legal: Milbank (Dennis Dunne, Andrew LeBlanc, Samuel Khalil) & (local) Porter Hedges LLP (John Higgins, Eric English)
    • Investment Bank: PJT Partners Inc.
  • RBL Lender: Citibank NA
    • Legal: Weil (Stephen Karotkin, Joseph Smolinsky, Blaire Cahn, Christopher Lopez)
  • UMB Bank
    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Benjamin Feder, T. Charlie Liu)
  • Wilmington Trust
    • Legal: Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman) & (local) Cole Schotz PC (Michael Warner, Benjamin Wallen)
  • Independent Directors of the Board
    • Legal: Andrews Kurth Kenyon LLP (Robin Russell, Tad Davidson, Joseph Buoni)
  • Unsecured Noteholder & Preferred Unitholder: Panning Capital Management 
    • Legal: Munger Tolles & Olson LLP (Thomas Wolper, Seth Goldman) & (local) Norton Rose Fulbright US LLP (William Greendyke, Jason Boland, Bob Bruner, Louis Strubeck) 
  • Ad Hoc Equity Committee
    • Legal: Gardere Wynne Sewell LLP (John Melko, Sharon Beausoleil, Michael Riordan, Sean Wilson, Holland O'Neil)
  • Official Committee of Unsecured Creditors
    • Legal: Akin Gump (Charles Gibbs, Michael Stamer, Abid Qureshi, Meredith Lahaie, Kevin Zuzolo)
    • Financial Advisor: FTI Consulting

Updated 3/22/17