After embarking on an "aggressive" drilling program along the Gulf Coast and Alaska's North Slope, 11 subsidiaries of Australia's Linc Energy Ltd., which also hold assets in Wyoming's Powder River Basin, have voluntarily filed for bankruptcy protection.
Linc USA GP, which is based in Baytown TX, filed for Chapter 11 in U.S. Bankruptcy Court for the Southern District of Texas on May 29. The move comes less than two months after the parent company entered into voluntary administration in Australia.
According to an affidavit by Jude Rolfes, vice president for corporate development, the subsidiaries ramped up drilling in 2012, but that left their cash position vulnerable when oil prices collapsed. He said subsequent negotiations between the subsidiaries and creditors failed to reach an agreement on restructuring and recapitalization outside of Chapter 11.
Rolfes added that an ad hoc group holding more than 75% of first lien notes agreed to support the subsidiaries' "use of cash collateral and debtor in possession financing in furtherance of a liquidating Chapter 11 proceeding," but when faced with the expiration of a 30-day deadline related to interest payments in April, the subsidiaries had "no other options" but to file for Chapter 11.
"The precipitous decline in oil prices has hurt all producers, but has been particularly devastating to the debtors because of the monies expended conducting an aggressive drilling program on their Gulf Coast properties prior to 2015, drilling 21 wells in 2012, 33 wells in 2013, and 12 wells in 2014," Rolfes said, adding that the high costs of drilling, coupled with the drop in oil prices, wiped out the anticipated rate of return on the wells.
Rolfes said two subsidiaries, Linc USA GP and Linc Energy Finance (USA) Inc., are the issuers of two indentures. The entire principal amount, about $408.6 million, is currently outstanding. The 11 subsidiaries also owe approximately $5.8 million to vendors, and hold aggregate assets totaling more than $10 million and aggregate liabilities of more than $30 million, Rolfes said.
Besides the two aforementioned subsidiaries, the other nine affiliates are Diasu Holdings LLC; Diasu Oil & Gas Co. Inc.; Linc Alaska Resources LLC; Linc Energy Operations Inc.; Linc Energy Petroleum (Louisiana) LLC; Linc Energy Petroleum (Wyoming) Inc.; Linc Energy Resources Inc.; Linc Gulf Coast Petroleum Inc.; and Paen Insula Holdings LLC.
According to the affidavit, Linc Gulf Coast holds approximately 15,521 net acres and 150 producing wells, targeting conventional oil plays. Meanwhile, Linc Wyoming holds 27,821 net acres and 31 wells across three fields in the Powder River Basin, and Linc Alaska has approximately 18,540 net acres within the National Petroleum Reserve of Alaska, near Umiat, AK.
Linc USA GP's board of directors met and approved the filing on May 23. The company disclosed that most of the 30 largest creditors with unsecured claims were vendors owed nearly $3.8 million. The case is Linc USA GP and Linc Energy Finance (USA) Inc. [No. 16-32689]. Judge David R. Jones has been assigned to the case.
In Australia, parent company Linc Energy Ltd. entered into voluntary administration on April 15. Five years ago, the company said it was considering building an underground coal gasification project in the Powder River Basin (see Daily GPI, Oct. 7, 2011).