Costilla Energy Inc., a Texas-based producer with assets inSouth Texas and the Permian Basin, reported last week it has filedfor Chapter 11 with the U.S. Bankruptcy Court in Midland, TX. Thecompany said despite this setback, its oil and gas operations willcontinue without interruption. The company did not return phonecalls by press time.

The action was taken to implement a restructuring of itsliabilities, which include $180 million in unsecured 10.25% seniornotes, $26.5 million in secured debt under a bank credit facility,$50 million of convertible preferred stock, and hedgingobligations, Costilla said in a statement. The company was not indefault on its senior notes or bank obligations at the time offiling and has been in discussions with a steering committee of itssenior note holders and with its bank group for the past severalweeks, the company said.

Costilla said it intends to file a reorganization plan with theU.S. Bankruptcy Court as soon as practicable. It has conducted anextensive review of potential restructuring options in consultationwith its financial advisors Petrie Parkman & Co., and expects toconclude its evaluation of these options within the next fewweeks. The company has been under financial hardship for months. LastJune, it missed a debt payment, and had to seek a reprieve on its debtfor the second time (see Daily GPI, June2).

Costilla produced 4.5 Bcf of natural gas and 227,000 barrels ofcrude oil, or a total of approximately 5.9 Bcfe for the secondquarter of 1999. Its average rate of production was approximately64.5 MMcfe/d. Costilla recorded negative cash flow of $91,000, or$0.01/ share, and a net loss applicable to common equity of $16.8million, or $1.20/share. The company reported reserves of 115.4Bcfe.

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