Sanchez Energy files for Chapter 11 protection

November 2019 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

November 2019 Issue

In a bid to strengthen its balance sheet and support its long-term strategy, independent oil and natural gas production company Sanchez Energy Corporation has voluntarily filed for reorganisation under Chapter 11 of the US Bankruptcy Code.

Sanchez Energy’s decision to file follows an extensive review of strategic alternatives to align its capital structure with the continued low commodity price environment. Furthermore, the company intends to use the Chapter 11 process to substantially reduce its indebtedness and provide the financial flexibility to position itself for future success.

An exploration and production company focused on the acquisition and development of US onshore unconventional oil and natural gas resources, Sanchez Energy’s current focus is on the Eagle Ford Shale – a South Texas geological formation, 50 miles wide and 400 miles long, containing a large amount of oil and natural gas.

“Sanchez Energy has assembled a high-quality asset base and has substantial liquidity to continue operating safely and efficiently, while we maintain productive relationships with our business partners and midstream counterparties,” said Tony Sanchez, III, president and chief executive of Sanchez Energy. “Over the last year, we have taken proactive steps to address the challenging oil and natural gas price environment, including stabilising our production profile, improving our capital efficiency and reducing our overall cost structure.

“Undergoing a financial restructuring through a voluntary process represents the next phase for Sanchez Energy,” he continued. “We are working with our creditors on a plan to right-size our balance sheet, further invest in our assets and generate long-term value for our stakeholders.

To this end, the company has received commitments from certain of its senior lenders for $175m in new financing, of which $25m will be used to repay borrowings and replace a letter of credit currently outstanding under the company’s existing revolving credit facility. Along with cash on hand and cash flow generated by ongoing operations, this will help support the business and fund continued capital investment throughout the Chapter 11 restructuring process.

In addition, the company has filed a number of customary motions with the US Bankruptcy Court for the Southern District of Texas to authorise the payment of certain pre-petition obligations. Among other things, these motions seek authorisation for Sanchez Energy to continue to operate in the normal course of business without interruption to its relationships with its royalty interest owners and working interest and joint billing partners, among others.

“We are pleased to have received approval of our first day motions, which will enable Sanchez Energy to continue normal operations while we maintain productive relationships with our business partners and midstream counterparties,” adds Mr Sanchez. “We appreciate the prompt action by the court in approving our first day motions and would like to thank our partners for their continued support.”

Acting as Sanchez Energy’s financial adviser during the Chapter 11 process is Moelis & Co. Akin Gump Strauss Hauer & Feld LLP and Jackson Walker LLP are acting as legal counsel, while Alvarez & Marsal is restructuring adviser.

Mr Sanchez concluded: “I would like to thank our team of talented employees for their continued dedication to the company. I am confident in the future of Sanchez Energy.”

Fraser Tennant