Norse Energy Corp. USA 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 the company — a subsidiary of Norwegian Norse Energy Corp. ASA — 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’s Shale Daily on Friday. “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.

“We took the majority of their debt because the expectation was that New York, with the shale, had the greater value,” Holbrook said. “It would have been fine under normal circumstances but in this case, with four and half years of delay, it has been a tremendous cost to this company.”

Holbrook said Norse had consolidated its office personnel — bringing many from Pennsylvania and Texas — to Buffalo, NY, and at one point had more than 60 office employees in the state. It now has six. At the end of November, it had $1 million in cash on hand.

“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 Shale Daily, Dec. 5).

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.”

Asked if it was too late for Norse — ironically, one of the first companies to apply for an unconventional gas well permit to drill in New York — Holbrook said the company’s “operating ability has been significantly reduced over time. We don’t have a large staff any longer.

“But even back when we were geared up, we always felt that the best game plan was to team up with an industry partner, and we could bring what we still have: a significant acreage position, and the experience we’ve had drilling close to 500 wells in New York state.”

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 Shale Daily, Oct. 31, 2011; Oct. 25, 2011).

In January 2011, New York’s drilling moratorium prompted Norse to issue notices of force majeure and to extend the leases for 1,500-2,000 landowners covering its acres (see Shale Daily, March 3, 2011; Jan. 18, 2011). No additional notices have been necessary.

The company sold two natural gas pipeline subsidiaries to Appalachian Transportation and Marketing LLC for $20.7 million in 2011, and earlier this year it sold operated production in New York to EmKey Resources LLC for $37 million (see Shale Daily, March 19; May 25, 2011).

Norse was to replace Anschutz Exploration Corp. as the lead plaintiff in the case Anschutz Exploration Corp. v. Town of Dryden (No. 2011-0902), a legal challenge to local bans on hydraulic fracturing (fracking), which is under appeal in New York (see Shale Daily, Oct. 5).