As part of its discussions with a group of noteholders to reach a restructuring agreement outside of court, Stone Energy Corp. disclosed in a regulatory filing this week that it is in negotiations to sell its Appalachian Basin assets.
Under a restructuring proposal filed on Tuesday with the U.S. Securities and Exchange Commission, Stone said it was negotiating with a third-party to sell its Marcellus Shale assets in Northern West Virginia and Northwest Pennsylvania for up to $350 million. That price is based on the July 26 strip. Stone also said a market test earlier this year had attracted interest for the Appalachian assets within a range of $250-400 million.
At the end of last year, the company held 75,100 acres in West Virginia and Pennsylvania and 110 producing wells. There were also 250 potential undrilled locations. If the company does sell its Appalachian assets, that would leave it with properties in the offshore Gulf of Mexico (GOM), where it has spent most of its capital budget this year and last.
Stone's credit facility was reduced from $500 million to $300 million in April, which resulted in a borrowing base deficiency that it warned at the time could lead to a breach of its lending agreement and default (see Shale Daily, April 18). The company has hired Lazard Ltd. as its financial adviser and Latham & Watkins LLP as a legal adviser to help it explore alternative financing and strategic alternatives, saying since the beginning of the year that asset sales and debt restructuring are options.
Previous discussions with noteholders failed to result in an agreement over the summer, the company disclosed in its filing, and the parties have since resumed discussions about restructuring. The company has not ruled out a Chapter 11 bankruptcy proceeding and noted in supporting materials that its restructuring proposals would be backed-up with a pre-packaged filing as a "fallback."
If it does sell its Appalachian assets, Stone outlined a plan to pay $150 million to its noteholders, $100 million to banks and dedicate another $100 million to its balance sheet. Late last year, the company said low commodity prices and negative differentials forced it to shut-in its largest Appalachian asset, the Mary Field in West Virginia. That led to about 100 MMcfe/d of 2015 curtailments.
In July, the company signed an interim gathering and processing agreement with Williams to begin steadily ramping up its production and end the curtailments by this month (see Shale Daily, July 1). Stone produced 174 MMcfe/d in the second quarter, which included 138 MMcfe/d from its GOM assets and 36 MMcfe/d from Appalachia. The company said it expects Appalachian volumes to be more than 125 MMcfe/d in the third quarter.