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Downturn Strikes Again: SandRidge, Breitburn File For Chapter 11

SandRidge Energy Inc. and Breitburn Energy Partners LP both filed for restructuring under Chapter 11 Monday, adding to a growing list of oil and gas bankruptcies induced by the commodity price rout.

The two also followed the trend of having restructuring agreements with creditors already in place, allowing both to continue to operate. Breitburn said it has “more than adequate” liquidity to continue its operations as negotiations continue.

After weeks of speculation, SandRidge voluntarily filed for bankruptcy protection on Monday, the first step in a "pre-arranged" reorganization and restructuring agreement (RSA) with most of its creditors.

In a statement, the Oklahoma City-based independent said the RSA will involve creditors holding more than two-thirds of its $4.1 billion in funded debt obligations: 98% of the outstanding debt under its reserve-based lending facility (RBL), 79% of its second lien notes and 55% of its unsecured notes. SandRidge said the RSA will provide equity for approximately $3.7 billion of funded indebtedness.

According to an 8-K filed with the U.S. Securities and Exchange Commission (SEC) on Monday, once SandRidge signs the RSA it will have permanently repaid approximately $40 million of its first lien borrowings. Under the agreement, first lien creditors will receive their proportionate share of $35 million in cash and be able to participate in a new $425 million RBL, which will have no borrowing base redetermination until October 2018.

Meanwhile, second lien creditors will receive their proportionate share of $300 million of new mandatorily convertible debt, and 85% of new common stock in the reorganized company. Creditors with general unsecured claims in SandRidge will receive their proportionate share of $10 million in cash and 15% of the new common stock. The company's existing 7.0% and 8.5% convertible preferred stock and common stock will be canceled and released.

SandRidge, which has principal operations in Oklahoma and Kansas, told the SEC that it expects to continue its normal oil and gas operations throughout the Chapter 11 proceedings. In a statement, the company said it has "ample liquidity to fund its ongoing operations and capital programs," and would be able to avoid debtor-in-possession financing or requiring additional capital.

"We are pleased that our creditors recognize the long-term value SandRidge and its employees can create with an improved balance sheet," said SandRidge CEO James Bennett. "We look forward to completing this next phase of the process quickly with minimal disruption to our business."

In a separate 10-K filing in March, the company told the SEC there was "substantial doubt" that it could continue with its pre-filing structure (see Shale DailyMarch 30).

SandRidge filed for Chapter 11 in U.S. Bankruptcy Court for the Southern District of Texas [Case No. 16-32509]. Judge David Jones will preside over the case.

Breitburn announced Monday that it has submitted voluntary Chapter 11 filings for it and a number of its affiliates to the U.S. Bankruptcy Court for the Southern District of New York.

The Los Angeles-based Breitburn has spent the last 30 days in “constructive discussions” with both secured and unsecured creditors to negotiate the terms of a restructuring. The exploration and production (E&P) company said it has “more than adequate” liquidity to continue its operations as negotiations continue, helped by a $75 million debtor-in-processing financing arrangement.

"Our long-lived, low-decline portfolio of diverse assets continues performing in line with our expectations, but the current outlook for commodity prices makes our existing debt burden unsustainable,” said Breitburn CEO Hal Washburn. “Taking this action now gives us flexibility in maximizing the value of the ongoing business. By continuing the proactive approach we started 15 months ago and restructuring our balance sheet now, we expect to create a stronger and more financially sound company for the benefit of all our stakeholders.”

Monday’s Chapter 11 announcements come just days after two other U.S. onshore operators -- Linn Energy LLC and Penn Virginia Corp. -- filed for bankruptcy (see Shale Daily, May 12). A few days before that it was Chaparral Energy Inc. seeking bankruptcy protection (see Shale Daily, May 10).

In its 1Q2016 results released last week, Breitburn reported a net loss of $103.8 million (minus 54 cents/share) for the quarter. That’s compared with a net loss of $61.5 million (minus 29 cents/share) in 1Q2015.

At the end of the first quarter, the E&P reported liabilities and equity totaling a little more than $4.7 billion.

Breitburn holds acreage in both conventional and unconventional plays in the Permian Basin, East Texas/Louisiana/Arkansas, the Midcontinent, the Rockies, California, the Midwest and the Southeast, with around half of its proved reserves weighted to oil.

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