CHK Chesapeake Energy Corporation

By Patrick Fitzgerald 

SandRidge Energy Inc. became the latest victim of the prolonged downturn in energy sector, filing for bankruptcy protection Monday after reaching a deal with its creditors to swap $3.7 billion in debt for control of the oil and gas company.

The Oklahoma City company filed for chapter 11 protection in U.S. Bankruptcy Court in Houston after reaching a deal with the majority of its lenders and bondholders on the terms of a "prearranged" debt-restructuring pact.

SandRidge Chief Executive James Bennett said the proposed debt swap, which requires court approval, would allow the reorganized company to concentrate on oil and gas exploration and development in the company's active Oklahoma and Colorado project areas.

The company will stay open during the chapter 11 case and expects to exit bankruptcy "with minimal disruption to our business," Mr. Bennett said.

SandRidge says it has enough cash to fund its continuing operations without a bankruptcy loan. Among its initial bankruptcy request is the authority to pay operating expenses associated with production activities, royalties and wages to its workers. The company also intends to pay all suppliers and vendors in full during the bankruptcy.

SandRidge was founded in 2006 by Tom Ward, who had co-founded Chesapeake Energy Corp. with Aubrey McClendon, who died in March, in 1989. After leaving Chesapeake, Mr. Ward paid $500 million to take control of a natural-gas producer, which he renamed SandRidge and built into a leading shale producer with a market capitalization of more than $11 billion,

But the company stumbled during the financial crisis and struggled to recover. Activist investors replaced Mr. Ward a few years ago and installed Mr. Bennett as CEO. TPG-Axon Capital Management LP, which led the campaign to oust Mr. Ward, and Mount Kellett Capital Management LP each lost more than $150 million in the company's decline as did veteran Canadian investor Prem Watsa, according to securities filings.

Under Mr. Bennett's leadership, the company sold the Gulf drilling fields back to one of the private-equity firms from which it had bought them. It received just over half the price it had paid about two years earlier.

SandRidge joins the ranks of oil and gas drillers to file for bankruptcy in recent weeks as low oil prices continue to roil the energy sector. Linn Energy, Midstates Petroleum Co. and Ultra Petroleum Corp. have all recently filed for bankruptcy in Texas. Also, Breitburn Energy Partners LP filed for bankruptcy Monday in New York.

Those companies join Samson Resources Corp., Magnum Hunter Resources Corp., Emerald Oil Inc., Swift Energy Co., and dozens more that had earlier sought bankruptcy.

More than 70 North American exploration-and-production companies have filed for bankruptcy protection since the beginning of 2015, based on data from law firm Haynes and Boone LP.

Additional energy companies may follow suit. Exco Resources Inc. said Friday that it hired advisers and formed a committee to explore alternatives, including seeking bankruptcy protection. Separately, a subsidiary of American Energy Partners LP, the Oklahoma City oil and gas company founded by Mr. McClendon after he was ousted by activist investors, has defaulted on a $450 million loan after the executive's death, according to people familiar with the situation.

Representatives for Exco and American Energy Monday couldn't immediately be reached for comment.

SandRidge drills for oil and gas in Oklahoma, Kansas and Texas, where it has 4,411 gross producing wells and more than 2 million gross acres under lease. As of Dec. 31, it had four rigs in operation.

At the end of last year, the company employed more than 1,100 people but has since reduced its head count to 657, according to court papers. The company listed assets of $7 billion and debts of about $4 billion in its chapter 11 petition filed with the bankruptcy court.

The law firm Kirkland & Ellis LLP is handling the chapter 11 case, and Houlihan Lokey, Inc. is SandRidge's financial adviser.

Sandridge's case number is 16-32488. U.S. Bankruptcy Judge Marvin Isgur has been assigned the case, and an initial hearing is slated for Wednesday afternoon in Houston.

--Stephanie Gleason, Shasha Dai, and Ryan Dezember contributed to this article

Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com

(END) Dow Jones Newswires

May 16, 2016 18:40 ET (22:40 GMT)

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