HighPoint Resources files for Chapter 11 protection

May 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

May 2021 Issue

HighPoint Resources Corp has filed for Chapter 11 bankruptcy as part of a pre-packaged reorganisation plan and merger with Colorado-based oil & gas operator Bonanza Creek Energy Inc.

HighPoint, a shale oil producer based in Denver, made the voluntary filing on 14 March in the US Bankruptcy Court for the District of Delaware, indicating estimated liabilities of up to $1bn. Deutsche Bank AG was listed as HighPoint’s largest creditor with claims unsecured by collateral of $641m.

The oil-price war between Russia and Saudi Arabia last year and the decline in crude demand due to the COVID-19 pandemic made HighPoint’s $765m debt burden untenable, said William Crawford, HighPoint’s chief financial officer, in court papers.

HighPoint filed customary motions with the court seeking a variety of ‘first-day’ relief, including authority to pay owner royalties, employee wages and benefits, and certain vendors and suppliers in the ordinary course for goods and services provided.

In November 2020, Bonanza Creek agreed to merge with HighPoint in a $376m transaction which was expected to close in early 2021. In early February, Bonanza Creek launched an offer to exchange common stock and newly issued senior notes due in 2026 for all of HighPoint’s senior notes due in October 2022.

Under the terms of the deal, Bonanza Creek will issue 9.8 million shares of common stock and up to $100m in senior unsecured notes to HighPoint debt holders in an exchange offer and the remaining debt to be assumed for a transaction value around $376m. The transaction was unanimously approved by the board of directors of each company.

HighPoint filed for Chapter 11 following approval from the companies’ shareholders to merge as part of a pre-packaged debt restructuring agreement. Notably, the bankruptcy plan and the merger deal with Bonanza Creek involve $625m in unsecured debt in exchange for shares in the combined company. If the restructuring goes to plan, HighPoint shareholders will own 30.4 percent of the merged company’s stock.

HighPoint operates in the Denver-Julesburg (DJ) Basin of Colorado and Wyoming. The company holds interest in about 142,000 net acres located in three main areas across the DJ Basin, where more than three-quarters of its drilling rigs are idled, according to the Baker Hughes rig count. The company’s estimated proved reserves for the year ended 2019 were just over 127 million barel of oil equivalent (BOE). Net production across that same time was around 12,500 BOE per day. The merged company is expected to be able to generate a free cash flow of approximately $340m through 2023 to pay off debt and return to shareholders through dividends or share repurchases.

At the time of the merger, Scot Woodall, chief executive of HighPoint, said: “This transaction will create a premier DJ Basin player with a peer-leading cost structure and a large, attractive rural footprint. The transaction provides HighPoint stakeholders with the opportunity to participate in a larger DJ Basin producer with both an attractive balance sheet and free cash flow profile.”

“The combination of Bonanza Creek and HighPoint creates significant scale in the rural DJ Basin, which will immediately increase free cash flow generation,” said Eric Greager, president and chief executive of Bonanza Creek. “The combination of our complementary asset bases will yield significant synergies and represents a transformative transaction for Bonanza Creek.”

Bonanza Creek expects the strategic combination to generate $15m of near-term capital expenditures (capex) savings. In 2021, synergies are forecast at $31m, consisting of savings from general and administrative expenses, lease operating expenses and capital capex. Additionally, integrating HighPoint’s midstream infrastructure into Bonanza Creek’s “should provide additional flow assurance, operating and surface cost efficiencies and greater flexibility to third-party processing and takeaway”, the company said.

Richard Summerfield