Oil Companies Reach Debt-Restructuring Deals
October 24 2016 - 4:20PM
Dow Jones News
Three oil and gas companies reached deals with creditors to
quickly slash hundreds of millions of dollars of debt in chapter 11
so they will be ready when energy prices recover.
Houston-based oil-well servicer Key Energy Services Inc. filed
for chapter 11 protection Monday, and Basic Energy Services Inc. of
Fort Worth, also an oil-well servicer, said it would do so by
Tuesday.
Meanwhile, oil and gas producer Stone Energy Corp. said
continuing negotiations yielded a plan to file for chapter 11
protection by Dec. 9 to finalize a restructuring deal.
To confront the aftershocks of the commodities rout, they are
turning to a so-called prepackaged bankruptcy, in which a company
negotiates and gains creditors' backing for a debt-restructuring
plan before filing for chapter 11 protection.
"The objective of the prepackaged plan is to get in and out as
quickly as possible so you can get back to business," said John
Penn, a Dallas-based restructuring partner at Perkins Coie who
isn't involved in these cases.
Such plans, which remain subject to court approval, tend to
allow for a streamlined chapter 11 case, as companies are able to
resolve potential disputes that could cause a bankruptcy to drag
on. Deals with creditors allow not only for faster bankruptcies but
also for cheaper ones.
Mr. Penn said prepackaged bankruptcies can be especially helpful
to oil and gas servicers whose survival depends on reassuring
customers that they will remain viable business partners.
"The pre-negotiated plan gives you the ability to file with the
story that you will survive, emerge and be able to continue
providing services," he said Monday. "If you just file without any
agreements about how you're going to reorganize, you inject an
incredible amount of uncertainty into your customers."
Companies that recently have taken advantage of the ability to
file a prepackaged bankruptcy include Global Geophysical Services
LLC, a seismic-data provider for the oil industry, which was in and
out of chapter 11 protection in two months. Oil and gas producers
Atlas Resource Partners LP and Halcó n Resources Corp. filed
prepackaged bankruptcies on July 27; Atlas emerged from chapter 11
on Sept. 1, and Halcó n followed on Sept. 9.
Key Energy's restructuring plan proposes to cut its $1 billion
in liabilities to about $250 million so the roughly 2,900-employee
company can emerge from chapter 11 with a "manageable debt
load."
Key Energy said in papers filed with the U.S. Bankruptcy Court
in Wilmington, Del., that it hopes to emerge from chapter 11
protection in less than three months, warning that a prolonged
chapter 11 case "could severely damage its ongoing business
operations and going-concern value."
The prepackaged restructuring plan that Basic Energy negotiated
with its lenders and bondholders requires the approximately
3,500-worker company file for chapter 11 protection by Tuesday. It
says it will do so in Delaware.
Under the plan, the company's $165 million term loan would be
amended to include more flexible borrowing terms. Unsecured
bondholders are slated to forgive more than $800 million in debt in
exchange for ownership of the restructured Basic Energy.
The proposed restructurings of the two oil-well servicers, as
well as Gulf of Mexico driller Stone Energy, are notable in that
they promise a recovery to shareholders, who rank at the end of the
chapter 11 payment line. Current equity holders are slated to hang
on to small stakes in each company, plus get warrants to buy more
shares. Key Energy shareholders have the choice to receive cash
instead.
Through Stone Energy's yet-to-be-filed chapter 11, the company
hopes to slash its debt load by about $850 million and exit chapter
11 protection under the ownership of its senior bondholders.
Stone Energy's advisers include lawyers at Latham & Watkins
and Andrews Kurth; Weil, Gotshal & Manges is advising Basic
Energy. Key Energy has hired Sidley Austin.
Write to Jacqueline Palank at jacqueline.palank@wsj.com
(END) Dow Jones Newswires
October 24, 2016 16:05 ET (20:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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