Breitburn Energy Partners files for Chapter 11 protection

July 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Breitburn Energy Partners became the latest oil producer to tread a well worn path to bankruptcy, entering Chapter 11 in May. It is the latest in a host of oil & gas firms in the US to file for bankruptcy protection.

Los Angeles-based Breitburn noted in a statement that the ongoing slide in oil and natural gas prices made its existing debt pile “unsustainable”. Accordingly, the company had no choice but to apply for bankruptcy in the US Bankruptcy Court for the Southern District of New York. Breitburn had reported debt totalling $3.4bn at the end of the first quarter of 2016; around $3bn of the company’s debts are bank and bond debt, with $1.25bn in loans from lenders led by Wells Fargo Bank. A sizable portion of the company’s debt relates to a $2bn debt-financed deal to purchase a Houston oil partnership in 2014. The company also has $650m worth of senior secured second-lien bonds and $1.1bn in unsecured bonds. Court documentation, however, noted that Breitburn is actually in possession of assets exceeding its liabilities by around $1.3bn.

Breitburn’s filing came as its grace period for an interest payment relating to two separate senior notes was expiring, and the firm was unable to meet these obligations. According to James Jackson, the company’s chief financial officer, Breitburn took the decision to file for bankruptcy protection when it became “abundantly clear that those negotiations could not be concluded and an appropriate restructuring consummated on an out-of-court basis”.

Regardless of the company’s unserviceable debt, Breitburn expects to continue its operations moving forward as it will be able to call on cash from its operations, cash on hand and a $75m debtor-in-possession (DIP) financing facility.

Hal Washburn, Breitburn’s chief executive, said: “The prolonged decline in commodity prices that began in 2014 has placed significant financial stress on today’s oil and gas industry. Our long-lived, low-decline portfolio of diverse assets continues performing in line with our expectations, but the current outlook for commodity prices makes our existing debt burden unsustainable. Taking this action now gives us flexibility in maximising the value of the ongoing business. By continuing the proactive approach we started 15 months ago and restructuring our balance sheet now, we expect to create a stronger and more financially sound company for the benefit of all our stakeholders.

“During the restructuring process, we will continue managing our business and operating our assets as we do today. Cash from our operations, cash on hand and cash available under the DIP Financing Facility will provide us with more than sufficient funds to operate our business during the restructuring process. We look forward to working with our service providers, suppliers, customers, vendors, and partners to ensure that Breitburn emerges from the restructuring process a stronger company.”

The company has been in extensive talks with its existing second lien noteholders and the advisers to its unsecured noteholders regarding the company’s need for, sponsorship of, and terms of a balance sheet restructuring. Breitburn has also been in negotiations with its revolving lenders regarding their potential support for emergence finance once the company is in a position to exit bankruptcy. The firm hopes to use its restructuring period to deleverage and recapitalise, and the support of its lenders will obviously be integral to that process.

Breitburn has struggled over the last year or so, fighting to keep its head above water amid tumbling oil prices and mounting losses. Given the drop in oil prices from more than $100 a barrel for crude to below $30 in January 2016, it is little surprise that the oil & gas space has become a hotbed for bankruptcy filings.

The company’s share price has fallen markedly over the last year. In April, it missed an interest payment of $46m as it contemplated its next move. Like so many of Breitburn’s contemporaries, that move was filing for bankruptcy protection.

Richard Summerfield