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Energy Partners Ltd. Driven to Bankruptcy

New Orleans-based Energy Partners Ltd. (EPL) and some of its subsidiaries filed for Chapter 11 bankruptcy protection, the company said last Friday. The filing was foreshadowed in late March when EPL said it couldn't meet a debt payment following a reduction in its borrowing base. In recent years EPL has put itself up for sale, scrapped one merger, fought off a hostile takeover and tangled with environmental regulators.

"During the past year, an extraordinary confluence of factors led to our need to pursue this financial restructuring, including the impact of hurricanes, the collapse of the credit markets, sharply declining commodity prices and a resulting deficiency in the company's borrowing base," said Alan D. Bell, chief restructuring officer. "The board and management believe this financial restructuring is a necessary and prudent step and represents the best path forward for EPL's future. In addition, having a pre-negotiated plan of reorganization will allow us to target an accelerated timeline for emergence from bankruptcy, at which point we expect to be a stronger, more competitive company.

"The Chapter 11 process allows us to preserve the value of our assets and to operate our business without interruption while we implement our restructuring in a controlled, court-supervised environment."

EPL said it reached an agreement with a note holders committee on a restructuring that would cut the company's debt "and provide a long-term solution for its balance sheet."

The filing was made in U.S. Bankruptcy Court for the Southern District of Texas in Houston. EPL said it expects the court to rule on the plan of reorganization prior to Aug. 15. EPL retained Vinson & Elkins LLP as legal counsel, and Parkman Whaling LLC as financial advisor.

At the time of filing EPL had more than $13 million in cash, which it said should be enough along with cash from operations to fund payment of operating costs and expenses. EPL said it intends to pay all its vendors and other service providers in full, whether their claims arose prior to or after the filing of the Chapter 11 cases, and to continue paying employee salaries and benefits and to maintain its cash management systems.

EPL is not alone in the credit crunch. A number of independent producers have seen their credit lines cut recently due to weak commodity prices and tight capital markets (see NGI, April 6).

Two years ago EPL said there were no definitive offers when the company went looking for a buyer (see NGI, March 19, 2007). This followed EPL's scrapping of a deal to acquire Lafayette, LA-based Stone Energy Corp. (see NGI, Oct. 16, 2006), which followed a hostile offer for EPL from ATS Inc., a subsidiary of Australia's Woodside Petroleum Ltd. (see NGI, Oct. 30, 2006).

Woodside made its final offer for EPL in mid-November 2006. "Despite the fall in commodity prices since our offer commenced, ATS has maintained its offer price at $23 per share," Woodside said at the time. "There have been no competing bids for EPL, despite the fact that our offer has been outstanding for two and a half months."

Early last year EPL entered a plea agreement that ended an investigation into possible violation of environmental regulations in the Gulf of Mexico (see NGI, Feb. 25, 2008).

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