Some 60 E & P companies have filed for Chapter 11 or Chapter 7 thus far in this 18-month-old constricted capital-access cycle, and Storm Cat Energy Corp., Denver, is among them, having placed its U.S. subsidiaries in Chapter 11 in November 2008.

Joe Brooker, the chief executive officer who was brought in by investors in July 2007 to focus the company’s business plan, says there are, generally, three types of oil and gas producers that have ended up needing reorganization of their financial structure.

"The first type is the ‘second-lien gang,’ such as ours," Brooker says. He presented recently to attendees at a two-day Rocky Mountain Mineral Law Foundation special institute, "Dealing With Financial Distress In The Energy Industry," in Houston. Other types are the "borrowing-base-redetermination gang" and "the pre-pack gang."

Brooker is managing Storm Cat through Chapter 11 in hopes of emerging capitalized, with coalbed-methane assets in the Powder River Basin and in British Columbia, and shale-gas assets in Arkansas’ Fayetteville.

He describes "insolvency planning" in this way. "When you are in ‘a zone of insolvency,’ your fiduciary duty now applies to all of your constituents, beyond just the shareholders," he says. And, it’s all about the asset-value "pie."

"It’s your job to maintain the size of that pie. Reorganization determines who gets what slice of that pie. It’s your job to keep the pie as big as you can, as long as you can."

He offers these tips:

  • Be fully informed and keep good records.
  • Act in the best interests of all constituents, both creditors and shareholders.
  • Retain professional advisors.
  • Make sure the D & O (directors and officers) policy is in force. "That’s going to be viewed as an asset of the estate."
  • Retain key employees.

Communication with constituents is key while in bank­ruptcy, both via meetings and telephone calls and through formal SEC filings. "Richard Nixon said little things can become big things…Don’t let the little things become big things," he said. "Communicate, communicate, communicate."