Forcenergy Falls Into Chapter 11
Inability to find a buyer for its "high-quality" Gulf of Mexico
properties pushed Miami-based Forcenergy over the edge into Chapter
11 bankruptcy last week, Chairman Stig Wennerstrom said in a
conference call. At least one other debt-laden producing company
could follow in its footsteps.
"We had a lot of interest in [the properties] but no success in
getting to closing. It's a soft market. It's a buyers' market out
there, and, by the way, these properties are not for sale anymore."
Forcenergy, which has current production of about 200 MMcf/d of
gas and 22,000 barrels/d of oil and condensate, is laden with debt.
The company owes $315 million from a $320 million credit facility
as well as $50 to $60 million of payables to vendors, some of which
are overdue. On a net basis, the company has about $40 million of
negative working capital.
"We also attempted to raise capital basically for the last 12
months in a market with downward spiraling product prices, both in
oil and gas. We didn't succeed in raising capital to the terms we
were looking for," Wennerstrom said. "Lately, what made us act over
the weekend is that we heard rumors that trade vendors tried to
organize and were talking about pushing us into involuntary
bankruptcy. We said that is not in the best interest of all the
stakeholders in the company."
Not all company stakeholders took that news to heart. In fact,
on the Yahoo! Internet message board where investors post thoughts
on the company, nearly all that could be found among recent posts
was grousing and gloating. The New York Stock Exchange last Tuesday
suspended trading of Forcenergy shares and moved to delist the
company from the exchange, prompting one investor to write
Wednesday, "How can we liquidate our stock? What are our options?
Please someone let me know." Another wrote, "I only have a few
thousand lost in the FEN scam, but I would be interested in filing
a class action suit." But yet another post called the stock a
gamble from the start. "You guys make me puke. Anyone with half a
brain could see that this (Chapter 11) was a possibility."
The filing came as a surprise to at least one analyst, however,
Jeffrey Robertson of Salomon Smith Barney said he did not expect
it. "I knew they didn't have a lot of liquidity under their bank
lines, but I didn't realize they had this much trade payables out
($50 to $60 million). I'm not sure how long it will take them to
emerge from bankruptcy, maybe up to a year plus or minus.
"There are other companies that don't have a lot of liquidity,
but I don't know that anybody is going to have to take the steps
that Force has taken."
One name that has come up is that of Dallas-based independent
Coho Energy. On March 8, Coho said it had been notified by lenders
that it is in default under its existing credit agreement. The
default stems from non-payment of the first of five installments
due March 2 on the difference between the company's total loan of
$239.6 million and the borrowing base of $150 million. In February
lenders had cut Coho's borrowing base. Jefferies & Co.
downgraded the company from "buy" to "hold" Feb 22. Coho's last
trade was March 5 when it closed at 5/8.
Petrie Parkman analyst Paul Leibman said, "If in fact the
[Forcenergy] trade creditors were getting ready to do something,
obviously they wanted to preempt the process and have a choice of
what venue they file in. I don't know any inside skinny here that
would suggest some sleight of hand being played."
The last trade in Forcenergy shares was March 19. The stock
closed at 2 1/8. The stock's 12-month high was 27 _ and low was _.
Independent Forcenergy for the nine months ended Sept. 30 had
total revenues of $210.6 million and a net loss of $19.8 million,
versus net income of $18.9 million for the period one year prior.
Activities are in the Gulf of Mexico, Alaska, Australia and
offshore Gabon. Forcenergy began life as a Swedish company which
then created an American subsidiary based in Miami. Forcenergy Inc.
and subsidiary Forcenergy Resources are the two entities filing for
bankruptcy protection. Most of the company's assets are held by
Wennerstrom touted the company's asset base, saying it has much
upside potential. "And we had a positive discretionary cash flow,
even in months like January. It is clearly on the positive side.
The immediate plan for the near future is to contact our
bondholders to discuss conversion of debt to equity.
"We will complete our debt financing, which is well underway. We
are looking at a pretty sizeable debt financing to provide us with
ample capital through the bankruptcy process. We also will be
working to secure new capital to strengthen the company and
increase its ability when we emerge from bankruptcy to act on
opportunities in the marketplace."
One analyst listening to the company's conference call
questioned how Forcenergy could have positive discretionary cash
flow in January or more recently when the company owes vendors $50
to $60 million, at least some of it overdue.
Joe Fisher, Houston