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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