INDUSTRY BRIEFS

Marathon to divest $950M in non-core assets

Marathon Oil Corp. has signed agreements for the sale of certain non-core assets for $950 million, bringing the total to approximately $1.3 billion since last year. In the largest transaction, the company will divest all of its Wyoming upstream and midstream assets for $870 million, excluding closing adjustments. The upstream properties, comprised primarily of waterflood developments in the Big Horn and Wind River basins, averaged 16,500 barrels of oil equivalent per day in first quarter 2016. The assets sold also include the Red Butte pipeline, a 570-mile pipeline that is the only export line in the area. The effective date of this transaction is Jan. 1, 2016, and closing is expected mid-year 2016. In separate transactions, Marathon Oil has signed agreements for the sale of its 10% working interest in the outside-operated Shenandoah discovery in the Gulf of Mexico, operated natural gas assets in the Piceance basin in Colorado, and certain undeveloped acreage in West Texas for a combined total of approximately $80 million. In a note dated April 12, Raymond James noted that while the timing for upstream monetizations is "not ideal in the current commodity landscape, there is still logic to streamlining the asset base."

Goodrich Petroleum files for Chapter 11

Following its latest unsuccessful attempt at recapitalization, Goodrich Petroleum Corp. filed for reorganization under Chapter 11 bankruptcy in order to implement the terms of a previously announced Restructuring Support Agreement (RSA). Through the Chapter 11 restructuring, the company expects to eliminate approximately $400 million in debt from its balance sheet. The RSA eliminates all of the company's prepetition funded indebtedness other than its first lien reserve based loan facility, which currently has approximately $40 million outstanding. The RSA also provides for the company's executive management team to remain with the company, which will allow for the company's operations to continue as normal throughout the court-supervised financial restructuring process, including the payment of royalty and operating expenses. Looking to increase liquidity in July, 2015, the company sold proved Eagle Ford reserves and associated leasehold in LaSalle and Frio Counties, TX, for $118 million. Following the sale, and prior to its Chapter 11 filing, the company attempted to restructure its balance sheet through voluntary exchange offers. The latest effort was unsuccessful as the Houston-based company was unable to secure necessary approvals from common stockholders, preferred stockholders and unsecured noteholders. Earlier in the year, Goodrich hired Lazard as a restructuring advisor, and Vinson & Elkins LLP as restructuring counsel.

Chesapeake amends revolving credit facility

Following the recent redetermination review by its bank syndicate group, Chesapeake Energy Corp.'s senior secured revolving credit facility borrowing base was reaffirmed at $4.0 billion. In connection with the redetermination, Chesapeake agreed to pledge additional assets as collateral. The next scheduled borrowing base redetermination review has been postponed, and the lenders have agreed not to exercise their interim redetermination right, in each case until June 2017. The amendment provides temporary covenant relief, with the facility's senior secured leverage ratio suspended until September 2017, then reverting to 3.5x through December 2017 and decreasing to 3.0x thereafter. In addition, the amendment reduces the interest coverage ratio to 0.65x from 1.1x through March 2017, after which it will increase to 0.70x through June 2017, then reverting to 1.2x in September 2017 and to 1.25x thereafter. During the period in which the existing maintenance covenants are suspended, Chesapeake has agreed to maintain a minimum liquidity amount of $500 million at all times, increasing to $750 million if its collateral coverage ratio falls below 1.1x, tested as of December 31, 2016. The amendment also gives Chesapeake the ability to incur up to $2.5 billion of first lien indebtedness secured on a pari passu basis with the existing obligations under the Credit Agreement, subject to payment priority in favor of the existing lenders and subject to the other limitations on junior lien debt set out in the Credit Agreement. Commenting in its energy update following the announcement, Raymond James analysts said the news "should help allay fears of a potential bankruptcy in 2016 and be viewed as a short-term positive. Of note, however, while Chesapeake's lenders have relaxed certain covenants in 2016, many of these covenants actually become more restrictive in 2017." Important, said the analysts, is the possible collateral value test, "which could result in reduced borrowing capacity should the company's collateral coverage ratio fall below 1.25x. Given the potential need to sell both core and non-core assets to help pay down over $10 billion in long-term debt (with significant debt maturities starting in 2017), this requirement could play a role next year."

Following Chapter 11, Saratoga Resources files motion to sell most of its assets

Ten months after filing for Chapter 11, Saratoga Resources Inc. has filed a motion, under Section 363 of the Bankruptcy Code, to conduct a sale of all or substantially all of its assets. The sale would exclude the company's federal leases and certain other assets that may be excluded by agreement between the company and its first lien lender. Saratoga also filed a separate motion to establish bid procedures relating to the proposed sale which the Bankruptcy Court for the Western District of Louisiana, Lafayette Division approved at a hearing held on April 7, 2016. According to its website, the company's principal holdings cover approximately 52,000 gross/net acres, mostly held by production, located in the transitional coastline and protected in-bay environment on parish and state leases of south Louisiana and in the shallow Gulf of Mexico Shelf. The 363 Motion is set for hearing on May 5, 2016.

Range closes Bradford County asset sale

Range Resources Corp. has completed the sale of its Bradford County non-operated assets. After purchase price adjustments based upon a January 1st effective date, Range received approximately $110 million of sales proceeds at the closing plus retaining the net cash flow since the effective date. In early February, Range signed a purchase and sale agreement covering its non-operating Marcellus interest in Bradford County, Pennsylvania for approximately $112 million. Range sold an average working interest of 23% covering approximately 10,900 net acres with net production of approximately 22 MMcf/d. Range will include the Bradford County operations in its operations until the closing date in its first quarter reported operations. The net proceeds were used to reduce debt and other corporate purposes. After the sale, the borrowing base under Range's revolving credit facility remains unchanged at $3 billion ($95 million drawn as of December 31, 2015). In a note following the close, Raymond James analysts said the divestiture "will certainly provide investors with slight relief." The company remains slightly overlevered when compared to its peer group, the analysts said, and "it would seem the company requires further asset sales (and perhaps an equity raise) to clean up the balance sheet."

Energy XXI files Chapter 11, enters rSA

Energy XXI Ltd. has filed Chapter 11. The company and certain of its subsidiaries have entered into a Restructuring Support Agreement (the RSA) with holders of more than 63% of the company's secured second lien 11.0% notes on the material terms of a balance sheet restructuring plan. Through the Chapter 11 restructuring, Energy XXI plans to eliminate more than $2.8 billion in debt from its balance sheet. The RSA eliminates substantially all of the company's prepetition funded indebtedness other than its first lien reserve based loan facility. The RSA also provides that John Schiller will continue as the reorganized company's CEO and a member of the board. The company continues negotiations with a steering committee of lenders under the company's first lien reserve based loan facility that is not party to the RSA. Energy XXI expects to maintain compliance with its existing long-term plan with the Bureau of Ocean Energy Management throughout the process and believes it has sufficient liquidity, including approximately $180 million of cash on hand as of March 31, 2016 and funds generated from ongoing operations, to continue operations and support the business during the financial restructuring process. PJT Partners LP is serving as Energy XXI's financial advisor, Opportune LLP is serving as Energy XXI's restructuring advisor, and Vinson & Elkins LLP is serving as Energy XXI's legal advisor.

SierraConstellation expands into Southwest

SierraConstellation Partners LLC (SCP), an interim management and advisory firm to middle-market companies in transition, has opened two new offices in Texas. The Dallas office will be headed by SCP Partner and managing director Tim Hassenger, and the Houston office will be headed by SCP managing director Drew McManigle. McManigle has more than 25 years of experience in operational leadership, business turnarounds and financial restructurings, and he has conducted complex litigation worldwide. Hassenger has more than 25 years of management, financial and operational experience in a wide range of industries.

PostRock Energy files Chapter 11

PostRock Energy Corp. and its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. After exploring alternatives and thorough consultation with its legal and financial advisors, PostRock's board of directors determined, in consultation with its secured lenders, that an orderly sale of the company's assets would be the most prudent and effective way to maximize value for PostRock's creditors. PostRock expects that its stockholders will lose their entire investment. PostRock directors Duke R. Ligon, Alexander P. Lynch, William H. Damon III, J. Philip McCormick and Clark W. Edwards will all resign effective upon the appointment of a trustee in bankruptcy.

Ultra Petroleum defers interest payment

On April 1, 2016, Ultra Petroleum Corp. decided to defer making an interest payment of approximately $26 million due on April 1, 2016 with respect to the company's 6.125% senior notes due 2024. Following that action, Standard & Poor's Ratings Services lowered Ultra's corporate credit rating to 'D,' adding that it believes Ultra will not pay its interest obligation within the 30-day grace period. S&P lowered Ultra's issue-level debt rating on subordinated senior unsecured debt from to 'D,' putting expected recovery from 0-10%. In its energy daily update April 5, Raymond James reminded readers that Ultra drew down the remainder of its $1 billion credit facility earlier in the year, noting the move is indicative that "efforts to sell assets to shore up the balance sheet were unsuccessful." With that, Raymond James calls Ultra's current debt levels "a concerning headwind" with bankruptcy a likely result.

Bill Barrett borrowing base reduced 11%

With its semi-annual borrowing base redetermination of its revolving credit facility maturing April 2020, Bill Barrett Corp. saw its bank group reduce the borrowing base from $375 million to $335 million, a reduction of 11%. There were no changes to the terms or conditions. The facility has $335 million of commitments and there are currently no borrowings outstanding. At the time of the announcement, the company's president and CEO, Scot Woodall, said the company remains "financially well-positioned with "an undrawn credit facility, over $100 million of cash on hand, and nearly two-thirds of our 2016 oil hedged at approximately $80 per barrel."