Asset Marketer Expects More Property Sales Post-Chapter 11 _ Oil and Gas Investor

9/26/2016 Asset Marketer Expects More Property Sales PostChapter 11 | Oil and Gas Investor

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ACQUISITIONS & DIVESTITURES

Asset Marketer Expects MoreProperty Sales Post-Chapter 11Nissa Darbonne, Hart Energy Thursday, September 22, 2016 - 9:59am

Chris Atherton, president of asset-marketing ᠌rm EnergyNet, addresses Hart Energy's recent A&D Strategies andOpportunities conference in Dallas. (Source: Hart Energy)

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DALLAS—Asset sales by distressed E&Ps have been few relative to the number of bankruptcy

᠌lings to date. However, this may change going forward due to continued low oil price,

according to Chris Atherton, president of asset-marketing ᠌rm EnergyNet.

“I think there will be considerable assets for sale by these companies after they emerge from

Chapter 11,” Atherton said at Hart Energy’s recent A&D Strategies and Opportunities

conference.

Since year-end 2014, more than 100 North American oil producers have ᠌led for bankruptcy

as of Sept. 9, according to law ᠌rm Haynes and Boone LLP’s “Oil Patch Bankruptcy Monitor.”

Debt-for-equity exchanges by troubled oil and gas producers have given these companies

more time to wait out sub-$50 oil and sub-$3 natural gas, Atherton said.

“Many people thought the A&D market would be ᠤooded with assets in 2015 and into 2016

from bankruptcies and that it would be an extraordinary opportunity for buyers with dry

powder,” he said.

Debt-for-equity exchanges have given troubled operators more time, however. “We all

expected an onslaught of bankrupt assets on the market, but … it’s being deferred into the

future,” Atherton said.

Buyers should be careful of buying assets from sellers that may still ᠌le Chapter 11, he added.

“Buying assets pre-bankruptcy has its pros and cons. Obviously, it is faster. You don’t have a

judge overseeing it,” he said. Also, the deal structure may be more ᠤexible and the process

may be less expensive.

But, if the seller does end up in bankruptcy court, “the court could deem it a fraudulent

transfer and try to claw back those assets,” he said.

The transaction would be seen more favorably if the sale process had been competitive. “It

would help to have information that it was a marketed process,” he said.

Post-᠌ling by the distressed asset-owner, buying assets from bankruptcy court as the “stalking

horse” bidder—known as a 363 sale—is the most popular process. In this, a prospective buyer

has already put in a bid.

“Once you are the stalking horse, you are a kind of bird-in-hand to the creditors and to the

entity. They don’t have a whole lot of initiative to ᠌nd someone who is going to top your bid,”

Atherton said.



The court may still shop for other bids, but, “most of the time, the stalking horse is the buyer

of the asset. You want to be in that position,” he said.

A recent exception was Rice Energy Inc.’s (NYSE: RICE) $200 million bid this past spring for coal

operator Alpha Natural Resources Inc.’s Marcellus and Utica leasehold.

Vantage Energy Inc. won Alpha’s assets for $340 million in an auction. Vantage has since ᠌led

an S-1 to go public with its portfolio, which includes Barnett shale properties.

“Rice was able to get the break-up fee,” which was up to $3.5 million, but it had already sold

shares to fund the acquisition for net proceeds of $312 million. “It wasn’t a good outcome for

them,” Atherton said.

The challenges of buying out of bankruptcy court include the ᠌nancial commitment that may

prevent the prospective buyer from participating in other acquisitions.

“You may feel bogged down in the process,” Atherton said. It is also “slow and painful. Be

ready for delays.” Still, “you want to get your foot in the door. Be the bird-in-hand.”

Buyers of assets out of Chapter 11 proceedings have included:

BlueStone Natural Resources LLC from Quicksilver Resources Inc. ($2 billion of debt);Texegy LLC from Swift Energy Co. ($1.2 billion);BXP Partners LP from Argent Energy Trust and its U.S. subsidiary ($205 million);Resource Energy LLC from American Eagle Energy Corp. ($194 million);Scout Energy Partners LP from Parallel Energy LP ($170 million);White Oak Energy LLC from Milagro Oil & Gas Inc. ($1.1 billion); andWhite Marlin Oil & Gas Co. LLC from Dune Energy Inc. ($108 million).

Operators who remain in bankruptcy court currently include:

Linn Energy LLC ($6.1 billion of debt) and subsidiary Berry Petroleum Co. LLC ($1.8billion);Ultra Petroleum Corp. ($3.8 billion);Paci᠌c Exploration & Production Corp. ($5.3 billion);Energy XXI Ltd. ($2.8 billion);SandRidge Energy Inc. ($8.3 billion); andBreitBurn Operating LP ($5.8 billion).

Atherton said few producers’ balance sheets were prepared for this extended commodity

price downturn.

“Just about every E&P company after Thanksgiving Day of 2014 became distressed,” he said.

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Among North American producers who have ᠌led for bankruptcy-court protection, their

secured and unsecured debt is some $68 billion, according to the Haynes and Boone count, as

of early September. Among them, 58 were able to manage through year-end 2015, but

persistently low commodity prices and upcoming debt maturities resulted in imminent

default. Those ᠌ling in bankruptcy court this year owed $50 billion to creditors.

The law ᠌rm reported that “despite the recent spike in oil prices,” which drove the prompt-

month WTI contract past $47 on Sept. 8, “all indications suggest more producer bankruptcy

᠌lings will occur during 2016.”

Nissa Darbonne can be reached at [email protected].

https://mail.google.com/mail/?view=cm&fs=1&tf=1&[email protected]

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Asset Marketer Expects More Property Sales Post-Chapter 11 _ Oil and Gas Investor