Breitburn Energy Partners Files for Chapter 11 Bankruptcy -- Update
May 16 2016 - 8:30AM
Dow Jones News
By Peg Brickley
Breitburn Energy Partners LP filed for chapter 11 bankruptcy
protection Sunday, taken down by plunging oil prices.
Business operations will continue while Breitburn negotiates a
restructuring of its balance sheet, continuing talks with creditors
that began a month ago, Chief Executive Hal Washburn said in a
release.
The decision to file for bankruptcy was made when it became
"abundantly clear that those negotiations could not be concluded
and an appropriate restructuring consummated on an out-of-court
basis" in time to avert a cascade of defaults that would have
squeezed Breitburn's liquidity, James Jackson, chief financial
officer of a Breitburn subsidiary, wrote in a court filing.
Breitburn's hedging assets, contracts that cushion the company's
cash holdings against price volatility, will be a central factor in
restructuring talks, according to the court papers. The company
estimates proceeds of its hedging agreements could be up to $500
million. Outside bankruptcy, hedges are "a significant source of
liquidity."
In bankruptcy, however, a dispute is brewing with Breitburn's
senior lenders, many of whom are also counterparties to the hedge
agreements. The company hopes negotiations will avoid litigation
over the question of whether it is entitled to use the hedging
proceeds, according to court papers. Meanwhile, Breitburn has come
to terms with senior lenders on financing arrangements that will
support normal operations in bankruptcy.
The Los Angeles company joined a crowd of oil-and-gas firms in
bankruptcy, including Linn Energy LLC, which also attracted
investors with partnership tax benefits. In April, Breitburn
suspended distributions to preferred investors and skipped bond
interest payments.
Distributions to common shareholders were cut, then suspended
last year, as Breitburn took steps to get its finances in line with
plunging oil prices.
Citing the "prolonged decline in commodity prices," Mr. Washburn
said Breitburn's existing debt is unsustainable. In papers filed in
the U.S. Bankruptcy Court in New York, Breitburn reported assets of
$4.7 billion and debts of $3.4 billion as of March 31.
About $3 billion of Breitburn's debts are bank and bond debt,
topped by $1.25 billion in loans from lenders led by Wells Fargo
Bank, NA. Breitburn is carrying $650 million of senior secured
second-lien bonds and $1.1 billion in unsecured bonds.
Breitburn said it has been in talks with bondholders about a
balance-sheet restructuring. The company has lined up $75 million
in bankruptcy financing, and is in talks with senior lenders about
bankruptcy emergence financing.
Chapter 11 financing from existing senior lenders could include
an additional $75 million, if certain conditions are met, according
to court papers.
Shares of the energy exploration and production company have
plummeted over the past year, as the price of oil sank and losses
mounted. Breitburn's estimated proven reserves, which were valued
at $4.5 billion at the end of 2014, were worth only $1.3 billion as
of the end of 2015.
Breitburn has crude oil and natural gas assets in the Midwest,
Ark-La-Tex, the Permian Basin, the Mid-Continent, the Rockies, the
Southeast and California.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
May 16, 2016 08:15 ET (12:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.