Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Law360 (June 15, 2020, 11:26 AM EDT) -- Colorado energy exploration company Extraction Oil & Gas Inc. filed for Chapter 11 protection late Sunday in Delaware blaming reduced energy consumption due to the COVID-19 outbreak and an ongoing international pricing war for its liquidity problems.
Extraction said in initial court filings that its liquidity has been strained for several months and it could not survive past June on its current cash holdings. It intends to exchange hundreds of millions of dollars' worth of secured note debt for the bulk of the equity in a reorganized company.
"Facing a liquidity shortfall at the end of June 2020, no actionable line of sight to meaningfully extend that runway without jeopardizing the value of their assets, and limited ability to achieve the consensus needed to deleverage, the debtors file these Chapter 11 cases to obtain access to mission-critical financing and provide a 'breathing spell' in which to further negotiate the terms of a comprehensive restructuring," Extraction President and CEO Matthew R. Owens said in a first-day declaration.
The company has been negotiating with holders of about $1.4 billion of secured debt for the last several weeks and has gained the support of most of its senior noteholders for a debt-for-equity swap. Lenders under a reserve-based lending facility have pledged $125 million of post-petition financing, with $15 million in cash being sought on an interim basis.
The debtor-in-possession loans consist of $50 million in new money lending and a roll-up of $75 million of the RBL lenders' prepetition debt, according to the filings.
Extraction's capital structure consists of $1.1 billion in senior secured notes and $600 million under the RBL facility, Owens said in the declaration.
The debtor's restructuring support agreement with its lenders calls for a Chapter 11 plan and disclosure statement to be filed within 21 days of the petition date and the company anticipates exiting bankruptcy within 130 days.
Extraction is seeking permission through a slate of first-day motions to make payments on its working interest and royalty obligations, continue its insurance programs and to pay its employees' wages.
A video hearing conference before U.S. Bankruptcy Judge Christopher S. Sontchi is scheduled for 1 p.m. Tuesday for the court to consider the first-day motions.
Other energy producers have fallen into bankruptcy in recent weeks, laying the blame for their woes at the feet of COVID-19 and a pricing war between Russia and the Organization of Petroleum Exporting Countries led by Saudi Arabia. Both entities have increased their oil production since March, further driving down already declining oil commodity prices.
Templar Energy hit Chapter 11 earlier this month with plans for an asset sale of its production assets, and a frac sand miner and distributor — Vista Proppants and Logistics LLC — said its customer base had vanished almost overnight due to the same macroeconomic factors facing the entire industry.
Extraction operates in the Wattenberg Field of the Denver-Julesburg Basin in Colorado, working 295,000 acres in the Rocky Mountain region. Through 2019, the company produced a daily average of more than 88,000 barrels of oil equivalent per day, the declaration said.
The debtor is represented by Marc R. Abrams, Richard W. Riley and Stephen B. Gerald of Whiteford Taylor & Preston LLC and Christopher Marcus, Allyson Smith and Ciara Foster of Kirkland & Ellis LLP.
The case is In re: Extraction Oil & Gas Inc. et al., case number 20-11548, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Alyssa Miller.
Update: This story has been updated with more details.
For a reprint of this article, please contact firstname.lastname@example.org.