Law360 (June 29, 2020, 11:24 AM EDT) -- Oil and gas production company Lilis Energy Inc. hit Chapter 11 late Sunday in Texas with $251 million in debt, saying it could not withstand the financial pressures of declining energy prices worsened during the COVID-19 pandemic.
In a statement accompanying its bankruptcy filing, Lilis said it has received the support of many of its creditors for a restructuring plan that will cut about $35 million of debt out of its capital structure. The plan hinges on a commitment from preferred equity holder Varde Partners Inc. to provide a new equity investment and a supplemental debtor-in-possession financing package by mid-August.
If Varde doesn't come through on those commitments, Lilis is prepared to pivot to a sale process to find a buyer for its assets, the statement said.
"While facing this challenging environment, we have worked diligently to explore a variety of alternatives to cut costs, improve our liquidity and address debt maturities," Lilis President and CEO Joseph C. Daches said in the statement. "We are pleased to receive the continued support of our lenders and preferred shareholders and are confident that Lilis Energy can emerge from Chapter 11 better positioned to meet the challenges that have faced us."
The debtor's bank lenders are providing a $15 million DIP package at the outset of the case, which would provide an initial disbursement of $5 million. The loan is anticipated to be sufficient to cover the debtor's operating expenses through the Chapter 11 case, the statement said.
Lilis operates dozens of wells on its 27,000 acres of land in the Permian Basin of Texas and New Mexico, according to a first-day declaration from Daches. It has proven reserves of 14,000 million barrels of oil equivalent, about half of which is oil.
Its debt consists of $64 million in senior reserved-based loans and $25 million in junior RBLs. It also has $322 million in outstanding preferred equity.
In response to the drop in oil prices caused by the COVID-19 outbreak and a pricing war among oil-producing nations, Lilis shut in 12 wells in April 2020 that it identified as uneconomical operations. In May and June, another 19 wells were designated for short-term shut in, but they could quickly be returned to operational status because they are naturally flowing wells, the company said.
After an initial furlough of some of its employees, Lilis was forced to permanently lay-off more than 40% of its workers this month to reduce personnel costs to the company, the declaration said.
The debtor is represented by Harry A. Perrin, David S. Meyer, George R. Howard, Steven Zundell and Michael A. Garza of Vinson & Elkins LLP.
The case is In re: Lilis Energy Inc., case number 20-33274, in the U.S. Bankruptcy Court for the Southern District of Texas.
--Editing by Alyssa Miller.
Update: This story has been updated with more details from the filing.
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