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Natural Gas-Heavy Vanguard Files for Chapter 11

Relief in commodity prices toward the end of 2016 was not enough to pull natural gas-rich Vanguard Natural Resources LLC out of the bankruptcy vortex, with the Houston-based onshore explorer filing for Chapter 11 protection on Thursday.

The exploration company, formed as a master limited partnership, last year concentrated a lot of its capital in the Green River Basin of Wyoming.  It also has a large portfolio of onshore properties in the Anadarko, Arkoma, Big Horn, Permian, Piceance, Powder River, Williston and Wind River basins, as well as along the Gulf Coast in Texas, Louisiana, Mississippi and Alabama.

Third quarter production rose 10% year/year to 423,787 Mcfe/d from 386,679 Mcfe/d -- a feat accomplished as capital expenditures fell to $13.6 million from $28.1 million. Natural gas output, up 4% year/year to 27,381 MMcf (298 MMcf/d) accounted for 70% of third quarter output, while crude oil made up 16% and liquids 14%.

"We continue to believe in the quality of our asset base and the dedication and competence of our office and field employees," CEO Scott W. Smith said. "The depressed commodity price cycle, which has persisted over the past two years, combined with a tightened regulatory environment for senior debt providers, has resulted in a situation where, despite reducing our total debt by over $500 million in 2016, we find ourselves unable to meet the obligations of our current credit facility.

"With a successful restructuring of our balance sheet, Vanguard will be better positioned to weather this new 'lower-for-longer' commodity price environment, while also improving our long-term financial security and better position us for long-term success."

The voluntary bankruptcy petition was filed in U.S. Bankruptcy Court for the Southern District of Texas in Houston. Vanguard also filed a restructuring support agreement (RSA) with bondholders for senior notes due in 2019, 2020 and 2023 that would eliminate about $708 million in debt. The producer has obtained a $50 million debtor-in-possession financing facility, which if approved by the court would provide enough liquidity to continue business operations.

The series of motions filed with the court when granted would enable the company to maintain its operations without interruption throughout the restructuring process. Included are requests to continue to pay employee wages, honor existing employee benefit programs and pay royalties to mineral owners under the terms of the applicable agreements.

Motions also were filed seeking authority to pay expenses associated with production operation and drilling/completion activities, as well as costs associated with gathering, processing, transportation marketing and those related to joint interest billing for nonoperated properties.

Following a year when dozens of producers and oilfield services companies filed for bankruptcy protection, 2017 is expected to see fewer restructurings, according to Fitch Ratings.

"After driving the 2016 rate, U.S. energy defaults will taper off" in 2017,with a forecast of just 3% compared with the current 18.8% November trailing 12-month rate," Fitch analysts said at the end of December. "We expect the U.S. high-yield default rate to finish 2017 at roughly 3%."

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