After a year of steep losses, dwindling cash flow and growing debt, Magnum Hunter Resources Corp. said Tuesday that it has filed for Chapter 11 bankruptcy protection in a final effort to restructure the company and clean up its balance sheet.
Filed in the U.S. Bankruptcy Court for the District of Delaware, Magnum and most of its subsidiaries said the move is supported by a majority of its creditors. Under a prearranged restructuring plan, lenders holding nearly all of the company's first lien debt, 66.5% of its second lien debt and 79% of senior unsecured notes have entered into a restructuring support agreement.
Those parties would provide $200 million in financing so Magnum can meet its vendor, employee and other stakeholder obligations during the bankruptcy. Under the restructuring plan, Magnum said that financing would then be converted to equity if it emerges from the Chapter 11 process, which is expected early next year.
CEO Gary Evans, who has continued to promote the company throughout its troubles, called the plan and support agreement "unprecedented" for the oil and gas industry.
"At a very challenging time for the entire energy industry, when many of our competitors have been forced to either file for bankruptcy without a plan to emerge in place or continue to attempt to restructure with creditors without an end game, our global restructuring accomplishment is definitely an outlier," he said.
In announcing the bankruptcy filing, the company said its has "been significantly impacted by the recent and continued dramatic decline in both oil and natural gas prices, as well as natural gas liquids prices and general uncertainty in the overall energy markets." Last month, after it said it was in default with its creditors and had a capital deficit of more than $1 billion, the company said in a U.S. Securities and Exchange Commission filing that it was considering bankruptcy or a private restructuring (see Shale Daily, Nov. 12). Its shares have since been delisted from the New York Stock Exchange.
In recent years, the company has sold assets in Texas, North Dakota and Canada to build up a core in the Appalachian Basin, where its operations have been suspended for most of the year. Magnum has promised but failed to deliver on a Utica Shale joint venture, the sale of its 45% stake in the Eureka Hunter Pipeline system and other liquidity-enhancing events such as having a third party assume some of its transportation liabilities to free up more credit. Its executive ranks have been shuffled and its liquidity has dried up.
Eureka Hunter Holdings LLC -- in which Morgan Stanley Infrastructure Inc. owns a 53% interest -- has not been included in the bankruptcy filings. Eureka consists of nearly 200 miles of 20-inch diameter wet and dry natural gas gathering lines that span five counties in West Virginia and three counties in Ohio. When it first tried to sell the system earlier this year, Magnum valued it at more than $1 billion (see Shale Daily, June 25).
In October the company hired PJT Partners LP to explore "strategic alternatives" (see Shale Daily, Oct. 12) In the meantime, a majority stockholder and supporters have waged a public fight for better results. In letters to the company, they have said they would sue Magnum to stop bankruptcy and have accused management of a lack of transparency and shareholder accountability.