Petroquest Energy enters bankruptcy

January 2019 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2019 Issue

Petroquest Energy has filed for Chapter 11 bankruptcy protection, hoping to eliminate approximately $204.5m of debt from its balance sheet.

The filing, which was made at the US Bankruptcy Court for the Southern District of Texas, Houston, will see the company implement a restructuring agreement with its first lien lenders and approximately 85 percent of its second lien noteholders. The company expects its operations to continue as normal throughout the restructuring process, and it will honour its commitments to its employees and partners.

“The restructuring support agreement and associated actions announced today begin a rebuilding process and new era for our company and our stakeholders because they allow us to definitively address the financial challenges that have made it difficult for us to compete,” said Charles Goodson, PetroQuest’s president and chief executive in a statement. “These steps will also allow us to resume investments in growth – most notably to develop our Cotton Valley assets in East Texas as well as our onshore assets in Central and South Louisiana. We thank our first and second lien lenders for their continued belief in and support of our business and look forward to completing the process as a stronger partner and employer.”

The Gulf Coast and offshore oil & gas company’s Chapter 11 plan will see Petroquest’s existing capital structure revamped. The restructuring agreement has the support of certain holders of 81.83 percent of its 10 percent second lien secured senior notes, due in 2021, certain holders of 84.76 percent of its 10 percent second lien senior secured PIK notes due in 2021 and the lenders under the company’s multi-draw term loan agreement.

Under the terms of the plan, Lafayette-based Petroquest will not only remove $204.5m of its existing debt. It also contemplates the payment in full of $50m of principal plus accrued interest of the term loans made pursuant to the pre-petition term loan agreement.

Petroquest has suffered significant financial difficulties in recent years. The company’s stock price, like so many other oil & gas companies, fell precipitously in the wake of declining oil prices. The company’s Chapter 11 filing came just days after it posted a third quarter loss of $5m. Oil & gas sales during the third quarter were $20.8m, compared to $28.2m in the third quarter of 2017. For the first nine months of 2018, oil & gas sales were $67.3m compared to $73.2m for the first nine months of 2017.

In September, the company announced that it had reached an agreement with lenders giving it a second grace period on an overdue payment on its outstanding debt. In August, Petroquest chose to not make a semi-annual interest payment of $14.2m in order to preserve its liquidity. The company said the decision would not be classified as a default on its debt, but could become a default if the payments were not made within a 30-day grace period. Petroquest noted that an administrative agent and lenders agreed not to take any immediate action once the grace period expired, but that its forbearance agreements would expire on 28 September or the ‘occurrence of certain events’ specified in the agreements would take place.

In September, Petroquest noted that it had repaid $32.5m on $50m of debt, and still has nearly $25m of cash on hand.

In late October, the company extended its forbearance agreements further, noting that it was still analysing and evaluating various alternatives with respect to its capital structure. At the time Petroquest noted that filing for Chapter 11 protection was one of the options under consideration; the filing came one week later.

Pending the approval of the company’s restructuring plan by the bankruptcy court, as well as the satisfaction of certain conditions to the plan and related transactions, Petroquest expected to execute the plan and emerge from Chapter 11 protection before the end of 2018.

Richard Summerfield