Rockdale Marcellus enters Chapter 11

December 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

December 2021 Issue

Rockdale Marcellus LLC, an independent exploration and production company with a natural gas focused asset base, concentrated in the Marcellus Shale in Pennsylvania, filed for Chapter 11 protection in September in the Bankruptcy Court for the Western District of Pennsylvania, along with Rockdale Marcellus Holdings LLC.

The company reported $100m to $500m in both assets and liabilities and between 1000 and 5000 creditors. Rockdale’s largest creditor is White Oak Global Advisors, an investment firm that backed the original purchase of the Shell assets. Rockdale owes White Oak $50.5m. The next largest creditor is Aqua-ETC Water Solutions, owed $2m.

According to paperwork filed with the court, the case would be funded by debtor in possession (DIP) financing from existing first lien reserve based lending (RBL) lenders, with Delaware Trust Co. as administrative agent. The DIP lenders have agreed to provide $20m in new money plus a $40m rollup of the prepetition RBL obligations – around 35 percent of the outstanding principal owed. The DIP credit agreement lists Star V Partners LLC, Blackwell Partners LLC - Series A, Alta Fundamental Advisors Master LP and Alta Fundamental Advisers SP LLC - Series R, as providing DIP financing.

Rockdale, with permission from the bankruptcy court, plans to conduct an auction of its assets in mid-December.

According to court documents, Rockdale, “like many other participants in the oil and gas sector” has struggled “during a sustained period of depressed commodity pricing”, leading to a borrowing base redetermination by RBL lenders and a “costly” agreement with UGI Energy Services for gathering and transportation of gas from wellhead to market. The company also noted that even if commodity prices returned to their five-year average, the business would remain unsustainable if the UGI contracts stay in place.

“Building upon the Debtors’ pre-petition marketing and restructuring efforts, the Debtors are pursuing dual tracks to maximize the value of the estates, which will result in an asset sale restructuring, which allows the Debtors to enter into a sale transaction for the sale or disposition of the Debtors’ assets, or a standalone plan of reorganization,” Rockdale said in a statement.

The company is seeking to run a marketing process for plan sponsors or purchasers that allows for the selection of one or more stalking horse bidders.

Rockdale noted that although a recent increase in natural gas prices arrived “too late”, the upward price movement “presents an opportunity for significant future upside return when development capital is made available to fund additional drilling and completions activities”.

According to the company’s website, Rockdale was formed in 2017 with the acquisition of Shell’s operated Marcellus properties in Tioga, Lycoming and Bradford Counties in Pennsylvania. Rockdale owns and operates producing wells on a contiguous acreage position of around 48,000 gross acres, with around 100 percent working interest. As of March 2021, the company had over 100 future drilling locations identified in the highly productive Marcellus dry gas shale formation.

In May, funds managed by Alta Fundamental Advisers acquired 100 percent of Rockdale’s first lien RBL credit facility, a move which provided some breathing space for the company and Alta to determine to pause an ongoing sale process and consider a restructuring path.

“In the months that followed, the Debtors and Alta explored a variety of alternative restructuring paths, including an equity recapitalization, restructuring the Debtors’ second lien debt, and negotiating more favorable terms under their gas gathering agreement with UGI Texas Creek, LLC,” Rockdale noted, adding that none of these paths “proved viable within the time available to the Debtors”.

The company engaged Houlihan Lokey as its new investment banker on 16 September.

Richard Summerfield