Out of time and money, Emerald Oil Inc. filed for Chapter 11 bankruptcy March 23 with a stalking horse waiting in the wings to buy its assets.
Emerald, based in Denver, obtained $20 million in debtor-in-possession financing, subject to bankruptcy court approval to maintain operations during the court process.
The bankruptcy comes after multiple attempts to take on loans fizzled and the company was finally broken by sustained low commodity prices and an October borrowing base redetermination. It also puts Emerald among the ranks of companies such as Magnum Hunter Resources Corp., Swift Energy, Sabine Oil & Gas Corp. and Samson Resources Corp. that have been taken down by the slump in energy prices.
The company said it has executed a non-binding term sheet which would lead to the sale of substantially all assets to Latium Enterprises Inc., a portfolio company with assets in the U.S. and U.K.
It’s unclear what price Emerald’s assets might command through a stalking horse bidder, which is used to maximize a bankrupt company’s worth. The company entered bankruptcy with $291 million in total assets and $337 million in liabilities. Most of its liabilities are tied to $260.5 million in debt obligations.
As of March 15, the company leased about 76,000 net acres in the Williston Basin’s McKenzie, Dunn, Billings and Stark counties, N.D.
The company estimates its proved reserves in the Middle Bakken and Three Forks formations consist of 14,000 thousand barrels of oil and 11,000 million cubic feet of gas.
In a sworn statement filed with the bankruptcy, Ryan Smith, Emerald’s CFO, said the company was already suffering from low commodity prices when it was overtaken by its debt. In October, its borrowing base was lowered to $120 million from $200 million.
“At the time, the principal amount of about $140 million was outstanding under the credit facility, resulting in a deficiency of about $20 million,” Smith said in his affidavit.
Under the terms of its credit agreement, Emerald was obligated to repay the deficiency in three monthly installments beginning on November. Unable to negotiate a way to stabilize the business and satisfy its creditors, a forbearance agreement expired in January.
“Out of liquidity runway, the debtors filed these Chapter 11 cases rather than remaining under the constant threat of impending creditor remedies while hoping for an immediate turnaround in both the global commodities and capital markets,” Smith said.
McAndrew Rudisill, president and CEO, said the company’s plans for Emerald give it the opportunity to continue business operations.
“This process is the only path going forward and should enable the business to execute a turnaround in the current low oil price environment,” Rudisill said. “Importantly, Emerald's plan and the Latium transaction would allow the business to continue to operate and would provide a sound path for potential recovery for company stakeholders.”
Emerald Oil employs about 27 people. The suit was filed in U.S. District Bankruptcy Court in Delaware, where Emerald is incorporated.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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