The U.S subsidiary of Norwegian producer Norse Energy Corp. ASA filed for Chapter 11 bankruptcy protection on Friday, just days after a New York judge ruled the cash-strapped company had to deposit millions into an escrow account for a legal dispute with a drilling company.
The bankruptcy filing is the latest setback for Norse Energy Corp. USA as it tries to weather the ongoing moratorium on high-volume hydraulic fracturing (HVHF) in New York.
"Clearly the moratorium weaved a threat all through the experience that we've had and what we're experiencing at the present," Norse executive vice president Dennis Holbrook told NGI. "In the last five to six years this company has spent more than $100 million in New York state on the expectation that we would be able to move forward."
On Nov. 27, New York State Supreme Court Judge John Michalek denied a motion for summary judgment from Bradford Drilling Associates LP, which sued Norse last December over a halted joint venture drilling program. But Michalek ordered Norse to deposit $7.65 million -- the amount Bradford was seeking -- into an escrow account pending a result in the case, which is expected to go to court in the second half of 2013.
"Part of his rationale was he was concerned that we were running short of cash," Holbrook said of the judge's ruling. "I'm not sure where he thought we were going to come up with the money to escrow, but that's what he ordered. The bottom line is that was going to be an immediate obligation on us, so we felt [filing for bankruptcy] was appropriate to protect the assets for all stakeholders."
Holbrook said there were other issues too involved with the bankruptcy filing. About three years ago, the company had agreed to assume nearly $100 million in debt from another subsidiary operating in offshore Brazil, he said.
"If we weren't in the financial straits we're in, then there might have been less likelihood that the court would have felt that there was a need to [the escrow account]," Holbrook said. "And we're in the financial straits we're in to a great extent because of four and a half years of regulatory delay in New York. Not exclusively, by any means, but clearly that weighed very heavily on this firm."
The New York Department of Environmental Conservation is working to finalize its supplemental generic environmental impact statement (SGEIS) on HVHF. Supporters of the practice believe the state could complete the process in the spring and begin issuing drilling permits next year (see NGI, Dec. 3).
Holbrook agrees with that assessment. "I do think that New York is finally on the brink of allowing this process to move forward," he said. "I do believe that [Gov. Andrew Cuomo] will follow through on what he said, which is that he wants the SGEIS in place before the legislature comes back in session. They're on a schedule that could allow for the SGEIS gets issued toward the end of the calendar year, and the regulations by the end of February."
Norse holds about 130,000 net acres in New York's portion of the Marcellus and Utica shales. Last fall it put its acreage up for sale, began looking for joint venture partners and considered shifting its attention to opportunities in Pennsylvania (see NGI, Oct. 31, 2011).
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