When a company is in trouble, a complete restructuring of assets and balance sheet may be required, but in the end it all comes down to having good people managing good assets. A little luck never hurts, either, said James A. Watt, president and CEO of Houston-based Dune Energy Inc.
“Restructuring sounds intimidating, but it can be fun. There are lots of lesson that I’ve learned through the years that also make for some good cocktail stories,” the veteran of several complicated oil and gas restructurings told the Houston Energy Finance Group recently. “You must understand your owners’ needs. Good strategies, but without meeting your owners’ expectations, can fail,” he advised.
Dune (OTC: DUNR), finished 2013 in the red, with a loss of $47 million on revenues of $53.6 million, including an asset impairment of $31.4 million on the company’s Garden Island Bay Field in Louisiana.
Watt is applying lessons at Dune he learned from leading the restructuring of Dallas-based Box Energy Corp. starting in 1997. That saga included the founding family’s infighting, litigation from shareholders, high debt, gross mismanagement and demanding bondholders. Excessive general and administrative (G&A) costs were also part of the puzzle—at one time, the company had 60 employees yet only one major asset, and it was non-operated at that.
It took Watt three years to turn this corporate mess around, subsequently selling it while managing to grow production.
Watt was hired by the board of Remington Oil & Gas Corp. in 1998 to restructure that company. Remington was eventually sold to Helix Energy Solutions Group (NYSE: HLX) for $1.4 billion in cash and stock in July 2006. He then joined Dune in 2007, and was asked to restructure it. Today he’s on the boards of Helix and Bonanza Creek Energy Inc.(NYSE: BCEI).
Once at Dune, Watt raised $300 million in notes and $185 million in convertible preferred shares. The company was caught in the 2008 global financial crisis and exchanged debt for equity. Currently, Watt is working to balance the needs of Dune’s debt holders, who demand a return, with the corporation’s need to grow its assets along the Gulf Coast.
His final words of advice on corporate restructuring are, “I don’t care how much you have read the SEC documents before going in. Once you sign on the dotted line and walk into a company, it’s a different world. You will find more problems than you expect. That’s why it’s important to keep your bankers, auditors and lawyers informed; they are your friends.”