Oil and Gas E&P Restructurings and Bankruptcies: Navigating the - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Oil and Gas E&P Restructurings and Bankruptcies: Navigating the Unique Issues WEDNESDAY, DECEMBER 9, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: H. Joseph Acosta, Partner, FisherBroyle s, Dallas William R. Greendyke, Partner, Norton Rose Fulbright , Houston Louis R. Strubeck, Jr., Global Head, Financial Restructuring and Insolvency, Norton Rose Fulbright , Dallas The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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Oil and Gas E&P Restructurings and Bankruptcies December 9, 2015 Louis R. Strubeck H. Joseph Acosta Norton Rose Fulbright US, LLP FisherBroyles, LLP William R. Greendyke Norton Rose Fulbright US, LLP

Why are we here? • Low prices = low cash flow • Belt tightening across the country = low cash flow • RBL borrowing base redeterminations -- Reserves establish the borrowing base of the loan -- A lender providing a RBL will make its own calculation of collateral value when determining the borrowing base at each redetermination date • Covenant challenges / defaults in loan facilities • Significant roll off of hedges, which will begin accelerating at year end • Vendor issues • Customer issues • Litigation * The Result: Current commodity prices have placed a severe strain on both oilfield service companies and E&P companies. 6

The Largest 2015 Energy Related Chapter 11 Filings Company: Result: • WBH Energy LP (WDTX) Sale • CalDive International (DE) Sale • Dune Energy (WDTX) Sale • BPZ Resources (SDTX) Sale • Hercules Offshore (DE) Reorganization • RAAM Global Energy (SDTX) Reorganization • Miller Energy Resources (AK) Reorganization • Black Elk Offshore (SDTX) Sale / Liquidation • Sabine Oil & Gas (SDNY) Reorganization • Milagro Oil & Gas (DE) Sale • Luca International Group LLC (SDTX) Sale • ERG Resources (NDTX) Failed Sale / Reorganization • Quicksilver Resources (DE) Sale • Saratoga Resources (LA) ??? • Samson Resources (DE) Reorganization • Parallel Energy LP (DE) Sale 7

How long will it last? * Houston Business Journal, Oct. 9-15, 2015 8

Current Market Trends • General consensus that commodity prices will stay low for a lengthy period of time. * Source: World Bank Commodity Forecast Price Data, Oct. 2015 • Regulators are increasing pressure on energy lenders (write downs). • Companies have looked to alternative lenders / second lien debt. 9

Current Market Trends • Rig counts are substantially lower than last year resulting in excess capacity (supply v. demand). * Source: http://www.wtrg.com/rotaryrigs.html • Lower rig count = more competition = lower profit margins = less jobs. • Equipment values are depressed given excess in market. 10

So what do we do? • Out of court . . . -- rework lending facilities / indentures -- forbearance agreements -- recapitalize -- exchange offers • In court . . . -- chapter 7 or chapter 11 -- voluntary or involuntary -- state law remedies (i.e., litigation, receivers, injunctions, etc.) 11

Primary Goals and Benefits of Bankruptcy • Temporary relief from creditors via the “automatic stay” -- One of the most fundamental protections -- It is a statutory injunction imposed immediately upon the commencement of a bankruptcy case -- Provides a debtor with a breathing spell from its creditors (i.e., all collection action must cease) -- Actions taken in violation of stay are punishable by contempt of court • Give the debtor a fresh start . . . and hopefully reorganize • Treat similarly situated creditors equally in accordance with bankruptcy priority scheme (i.e., equitable distribution): -- Secured creditors get value of collateral -- Unencumbered assets divided by priority: * First, administrative expenses * Second, statutory priority (i.e., the IRS) * Third, general unsecured creditors * Last, equity interests 12

Key Players in Energy Bankruptcies • The Bankruptcy Judge • The Debtor (incl. its legal and financial advisors) • Creditors’ Committee (incl. its legal and financial advisors) • U.S. Trustee • Chapter 7 Trustee • Chapter 11 Trustee / Examiner • Lender(s) -- institutional? -- secured? -- bonds? • Other secured creditors? • Counterparties (derivative / contract) • Trade creditors / vendors / customers • Employees • Governmental / regulatory agencies • Potential buyers / investors • Equity holders 13

Chapter 11 Basics • Case commences • Automatic stay • First day orders (wages, critical vendors) • Cash collateral / DIP financing (fund the process) • Sale of assets? • Plan of reorganization or . . . liquidation? • Lien issues (perfection issues?) • Contract issues (JOAs, leases, royalties?) • Avoidance actions (preferences, fraudulent transfers) • Post-confirmation (reorganized debtor or liquidation trust) 14

Overview of the Chapter 11 Process • Chapter 11 case is commenced by the filing of a bankruptcy petition -- voluntary petition -- involuntary petition (becoming more and more common) • Most debtors file Chapter 11 where they are domiciled (i.e., incorporated) or where their primary place of business is located. • Generally, the debtor continues to operate its business in the ordinary course as the “debtor in possession.” The bankruptcy court can appoint a trustee to take over operations from the debtor if it finds sufficient cause. • The mere filing of a bankruptcy petition affords the debtor the benefit and protection of the automatic stay. • The filing of a case creates a “bankruptcy estate” comprised of all property and rights of the debtor. 15

Overview of the Chapter 11 Process (cont’d) • “First - day” motions are motions typically filed with or shortly after the debtor’s petition in a Chapter 11 case. -- Purpose is to ease the debtor’s transition into Chapter 11 • “First - day” motions vary from case to case but typically include: -- Administrative motions (i.e., joint administration, notice procedures, etc.) -- Operational motions (i.e., cash management, critical vendors, utilities, employee benefits and wages) -- Substantive motions (i.e., cash collateral, DIP financing, contract/lease rejection) * The relief sought in first- day motions can substantively affect a creditor’s rights, and such motions should be carefully reviewed. 16

DIP Loan Considerations • New lender or existing lender? • Did Debtor, FA, or IB shop the loan? • Market rates / terms? • Superpriority administrative claim? • Junior lien? • Priming lien? • Roll-up? • Chapter 5 causes of action? 17

Overview of the Chapter 11 Process (cont’d) • The debtor files its statement of financial affairs and schedules of assets and liabilities (incl. top 20 list) • Committee of Unsecured Creditors typically formed • 341 Creditors meeting held • Proof of claim deadline set • Stabilization of business -- 363 asset sales -- leases / executory contracts -- monthly operating reports -- disclosure statement / plan negotiation • Approval of Disclosure Statement & confirmation of Plan -- chapter 11 plan of liquidation -- chapter 11 plan of reorganization • Post-Confirmation matters -- preferences and fraudulent transfer claims? 18