Covia Corp., which provides proppants for oil and gas well operations across North America, on Tuesday said it had filed for bankruptcy, making it the third U.S. energy company in three days to seek Chapter 11 protection.
The petition to reorganize under Chapter 11 was filed in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division. Lower 48 explorer Chesapeake Energy Corp. filed for bankruptcy on Sunday, followed on Monday by Permian Basin pure-play Lilis Energy Inc. “The actions…are expected to significantly strengthen our balance sheet and improve our operating cash flow, making Covia an even stronger partner to our customers in both the near- and long-term,” said CEO Richard Navarre. The “unprecedented backdrop from the Covid-19 pandemic and recent energy price shocks” sharply cut into the end markets and the customer base.
“We have made important and substantial progress over the last year executing our strategy and aligning our business with changing market conditions; however, the negative impact of the pandemic and energy downturn has required this action,” he said.
The Covia team’s “hard work and commitment to working safely and productively in the face of recent challenges…gives me great confidence in our ability to continue to meet our customers’ needs and successfully exit the process even stronger.”
The restructuring would be a “major step toward creating a sustainable capital structure by reducing debt and eliminating excess fixed costs by more than $1 billion.” A restructuring support agreement already has been reached with most of the secured debt holders.
In addition to reducing debt, Covia expects to reduce excess fixed costs, improve operating cash flow and position it to better execute its go-forward business strategy through the reorganization process.
The U.S. operations should continue in the ordinary course of business serving customers. Current cash reserves are about $250 million, providing “substantial liquidity to fund operations, support its long-term investment program, and manage the reorganization process.”
Covia’s foreign subsidiaries in Canada, Denmark and Mexico were not included in the filings, and international operations are continuing in the ordinary course of business.
Several customary motions are seeking court authorization to support operations during the court-supervised process, which include paying employee wages and benefits without interruption. The company also intends to pay vendors and suppliers in full under normal terms for goods and services provided after the filing date.
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