Shareholders of Breitburn Energy Partners LP launched a last-ditch legal effort on Jan. 11 to prevent the bankrupt oil producer from wiping out their investment and sticking them with a huge tax bill at a time of surging crude prices.
At a hearing in U.S. Bankruptcy Court in New York, equity committee lawyer Vincent Indelicato said Breitburn's reorganization plan was based on an "indefensibly low" valuation. He also called it a "scheme" to give away assets to select creditors and reward management while hurting shareholders.
The stakes are especially high for Breitburn's shareholders because it is structured as a "MLP," which provides tax advantages when the company is profitable. But investors in such companies can lose more than 100% of their investment if the company does not make a profit.
Breitburn lawyer Ray Schrock urged U.S. Bankruptcy Court Judge Stuart Bernstein to approve the reorganization plan and bring the complex, 18-month bankruptcy to a close.
The plan, which envisions splitting Breitburn's oil and gas assets into two new companies, has the support of creditors holding more than $3 billion in claims. Two creditor groups will own the new companies.
In helping to craft the plan, Breitburn's investment banker Lazard Freres & Co. estimated the company's enterprise value, which includes debt and equity, at about $1.6 billion.
The equity committee estimates Breitburn is worth $3.8 billion, a valuation that would ensure some recovery on their investment and eliminate a tax charge.
Breitburn, however, has said the equity holders are about $1.5 billion shy of breakeven.
Breitburn filed for Chapter 11 bankruptcy protection in 2016 after oil prices had slumped to below $30 a barrel from more than $100 in 2014, triggering a wave of bankruptcies across the energy industry. Oil futures have since rebounded, trading above $60 per barrel in recent weeks to hit three-year highs.
New stock in energy-related companies, such as Peabody Energy Corp. and C&J Energy Services Inc. (NYSE: CJ) that exited bankruptcy last year, have rallied.
Under Breitburn's plan, unsecured creditors led by Elliott Management Corp. and WL Ross & Co. would own choice Permian Basin assets in Texas through a company formed through a $775 million rights offering.
Unsecured creditors with $793 million of debt would own a second company with oil reserves in California, the Rocky Mountains, the U.S. Midwest and Southeast. Retail bondholders would receive pennies on the dollar.
Recommended Reading
Range Resources Holds Production Steady in 1Q 2024
2024-04-24 - NGLs are providing a boost for Range Resources as the company waits for natural gas demand to rebound.
Hess Midstream Increases Class A Distribution
2024-04-24 - Hess Midstream has increased its quarterly distribution per Class A share by approximately 45% since the first quarter of 2021.
Baker Hughes Awarded Saudi Pipeline Technology Contract
2024-04-23 - Baker Hughes will supply centrifugal compressors for Saudi Arabia’s new pipeline system, which aims to increase gas distribution across the kingdom and reduce carbon emissions
PrairieSky Adds $6.4MM in Mannville Royalty Interests, Reduces Debt
2024-04-23 - PrairieSky Royalty said the acquisition was funded with excess earnings from the CA$83 million (US$60.75 million) generated from operations.
Equitrans Midstream Announces Quarterly Dividends
2024-04-23 - Equitrans' dividends will be paid on May 15 to all applicable ETRN shareholders of record at the close of business on May 7.