So far the current downturn has shown that no one is immune to the volatile environment—from companies with huge portfolios to pioneer E&Ps with more than a century of longevity in the energy sector.
On May 12, Penn Virginia Corp. and certain of its subsidiaries filed voluntary petitions for Chapter 11 bankruptcy in the Eastern District of Virginia, Richmond division. The 134-year-old company’s filing comes on the heels of several E&P bankruptcies in May.
Penn Virginia announced it was seeking bankruptcy protection within hours of the Linn Energy family of companies which filed for bankruptcy protection only a day earlier. On May 2, Ultra Petroleum Corp. said it filed for Chapter 11 protections with $3.9 billion in debt.
Bankruptcies have already burned through billions of dollars in debt that has, in some cases, been converted to equity in companies. As of April 30, not including Penn Virginia or Linn, 29 E&Ps had filed for bankruptcy with $17 billion in collective debts.
Penn Virginia said it has worked out a restructuring support agreement with its lenders to reduce its long-term debt by more than $1 billion. The move will allow it to emerge from bankruptcy with “substantially less debt and a much stronger balance sheet,” said Edward B. Cloues II, Penn Virginia’s chairman and interim CEO.
“We will be in a better position to navigate the current industry environment and leverage the value of our underlying assets and operational expertise,” Cloues said in a statement. “Importantly, the announcement today provides Penn Virginia with an expedited plan to emerge from this process with committed financing, a new money investment and a clear path to future production and success”
Penn Virginia, based in Radnor, Pa., anticipates emerging from Chapter 11 by the end of the summer.
The company’s restructuring agreement covers 87%, or $1.03 billion, of its nearly $1.2 billion in total funded-debt obligations, the release said.
Subject to court approval, the company has received a commitment for $25 million in debtor-in-possession (DIP) financing from its reserve-base financing facility (RBL lenders). Combined with the company’s cash reserves and cash from operations, the DIP financing is expected to provide liquidity throughout the Chapter 11 process.
Additionally, the company has obtained a commitment for up to $128 million in exit financing from its RBL lenders, led by Wells Fargo as agent, and a $50 million rights offering that is backstopped and supported by certain of the company's senior unsecured noteholders.
Deep Roots
Penn Virginia’s history dates back to 1882, when it was founded and incorporated in the Commonwealth of Virginia as a mining company. It eventually transitioned to oil and gas before being swept up in the U.S. shale revolution.
In mid-2010, the company decided to shift its focus away from natural gas and towards oil and NGL, eventually entering the Eagle Ford Shale in South Texas, according to its website.
As of November 2015, Penn Virginia had about 100,000 net acres in the Eagle Ford’s Gonzales and Lavaca counties in Texas with more than 330 producing wells. The company's portfolio also includes assets in the Midcontinent and Marcellus Shale.
The company estimates 2016 capex of $140 million and $160 million, which will be deployed in the Eagle Ford for a one-rig drilling program. Operations will focus on maintaining the company's core position in the shale play.
In 2016, Penn Virginia plans to drill less costly, two-string Lower Eagle Ford wells in Gonzales County and northwestern Lavaca County where its economics are optimized. The company has hedged 6,000 barrels of daily crude oil production at a weighted average floor/swap price of $80.41 per barrel for the year.
In initial motions before a bankruptcy judge, Penn Virginia asked the court for authorization to generally continue its ongoing employee compensation and benefit programs without change or interruption.
Jefferies is financial adviser and Kirkland & Ellis LLP is legal counsel for Penn Virginia's debt restructuring. Alvarez & Marsal is the company's restructuring adviser, with the firm's R. Seth Bullock serving as chief restructuring officer.
PJT Partners is financial adviser and Milbank, Tweed, Hadley & McCloy LLP is legal adviser to the ad hoc committee of noteholders.
Opportune LLP is financial adviser and Bracewell LLP is acting as legal adviser to Wells Fargo (as agent) and the RBL lenders.
Emily Moser can be reached at emoser@hartenergy.com.
RELATED:
Linn Succumbs To Financial Tide; Files For Bankruptcy
Penn Virginia’s Latest Deal Buys Time During Leverage Crunch
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