For example, Energy XXI (OTCPK:EXXIQ), which sought Chapter 11 protection in April with $3.6B in debt, reached a tentative restructuring deal two weeks before the OPEC agreement that values its business at ~$600M; shareholders - who could be wiped out in the deal that gives control to bondholers - think the true figure is higher now, but their problem is timing, as energy producers likely would command higher prices as supplies tighten but that may not be enough to change their valuations today.
Breitburn Energy Partners (OTCPK:BBEPQ), which is trying to work out $3B in debt, appears headed for a valuation fight after its bankruptcy judge recently gave shareholders a louder voice in the case; Stone Energy (NYSE:SGY), which has said it may file for bankruptcy this week, may face a similar fight, according to the report.
“The challenge in each case is going to be, how close is one group of creditors or shareholders to starting to get a recovery?” says an attorney in the EXXI case. “And if you have a 10% change in price assumptions, is that enough?”
Breitburn Energy Partners (OTCPK:BBEPQ) spiked 65% in today's trade after a judge approved an equity committee as part of the company's bankruptcy proceeding, giving investors a voice in restructuring negotiations.
Bankruptcy judges rarely approve equity committees, but as oil prices have rebounded, they have allowed their creation in energy bankruptcy cases including Energy XXI and Hercules Offshore.
BBEP's public unitholders began fighting for an official place in court soon after the company filed for Chapter 11 bankruptcy in May, saying they could end up owing taxes if it canceled some of its ~$3.1B in debt in a reorganization.
Breitburn Energy Partners (OTCPK:BBEPQ) gets bankruptcy court approval on a $9.5M bonus package for CEO Halbert Washburn and three other top executives.
The judge approved the plan over the protests of the U.S. Trustee, who says he has been besieged by shareholders complaining that BBEP’s bankruptcy threatens substantial portions of their life savings.
BBEP has not yet said how it plans to resolve its debts but has said that there would be nothing left for shareholders; a group disputing that contention is planning a court fight aimed at getting an official committee appointed to represent them in the company’s bankruptcy.
Ross is angling to swap debt for ownership in Breitburn Energy Partners (OTCPK:BBEPQ), which filed for Chapter 11 protection in May, and has been buying debt of Permian Resources, which was founded by the late Aubrey McClendon, according to the report.
Ross' plan is to take control of oil and gas companies through debt investments and acquire companies or individual assets in traditional buyouts, anticipating that the deals eventually could offer a platform to roll up energy assets as he did with other out-of-favor industries.
The chapter 11 loan from senior lenders could run as high as $150M if approved in final form at a hearing set for July; the interim approval gives BBEP access to funds to continue normal operations while it engages in restructuring talks.
BBEP filed for bankruptcy protection without a restructuring agreement in place; having assets outside the reach of banks distinguishes BBEP from most of the energy companies in bankruptcy, and offers hope that unsecured creditors will be able to recover a good amount of their money in the bankruptcy proceeding, says a lawyer for an ad hoc group of bondholders.
Three oil and gas bankruptcies this week - Chaparral Energy, Penn Virginia (NYSE:PVA) and Linn Energy (NASDAQ:LINE) - suggests that crude at $45 a barrel isn't even enough to rescue energy companies on the verge of collapse.
According to law firm Haynes & Boone, 130 North American oil and gas producers and service companies have filed for bankruptcy since the start of 2015 owing almost $44B.
More energy firms are also nearing default, including Breitburn Energy Partners (NASDAQ:BBEP) and SandRidge Energy (NYSE:SD).
Wells Fargo cuts its rating on all upstream MLPs in its coverage to Underperform, the firm's equivalent to a Sell rating, and downgrades its sector rating to Underweight, citing the MLPs' high default risk and its belief that many "could have zero equity value" when their hedges expire over the next 1-2 years.
The upstream MLP's could have "very high" debt-to-EBITDA ratios over the next 12-24 months, and all could default on their debt payments during that time frame, according to Wells analyst Praneeth Satish.
Satish says Mid-Con Energy (MCEP -1.9%), Linn Energy (LINE -14.9%) and Atlas Resource Partners (ARP -2.6%) have the greatest risk of default in the near-term, while Breitburn Energy (BBEP +2.4%), EV Energy (EVEP -6.9%), Legacy Reserves (LGCY -7.9%), Memorial Production Partners (MEMP -6.4%), LINE and MCEP have the greatest risk of default in the medium term.
The analyst cuts his rating on all the above companies, plus LinnCo (LNCO -10.7%), to Underperform from Market Perform.
Standard & Poor's downgrades the junk ratings of 25 oil and gas companies on expectations of deteriorating credit quality due to low commodities prices and reduced production.
The ratings firm, which also affirmed the ratings of an additional 20 speculative-grade E&P companies, says the ratings actions follow a revision of its price assumptions for crude oil and natural gas.
Breitburn Energy Partners (NASDAQ:BBEP) -9.2% premarket after disclosing it received a non-compliance notice from Nasdaq regarding the minimum bid price requirement after closing below $1/unit for 30 consecutive trading days.
BBEP says it will consider available options to regain compliance with the listing requirements, including a reverse stock split and/or transferring to the Nasdaq Capital Market.