Oil Driller Lonestar Hits Ch. 11 With Deal To Cut $390M In Debt

By Elise Hansen
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Law360 (October 1, 2020, 11:23 AM EDT) -- Lonestar Resources filed for Chapter 11 protection on Thursday with a plan in hand to slash about $390 million in debt, making it the latest oil and gas company to enter bankruptcy amid the COVID-19 pandemic and depressed commodity prices.

Lonestar Resources US Inc. and 21 affiliates filed their petitions in the Southern District of Texas. Lonestar reported more liabilities than assets, with about $626 million in debt and nearly $560 million in assets, court filings show.

Lonestar is an oil and natural gas company focused on exploration and development in southern Texas' Eagle Ford Shale play, according to court filings. Together with its affiliates, Lonestar said it currently operates 256 wells in the region across 52,000 total acres.

The COVID-19 pandemic and the oil price war earlier this year cut into Lonestar's available cash, and the company in July chose not to make a $14.1 million interest payment on its debt, according to court filings.

"The debtors' significant debt and limited liquidity, the volatility of the commodity price market, and the debtors' resulting inability to comply with certain covenants in their debt agreements led to substantial doubt that the debtors would be able to continue as a going concern," the filings said.

Lonestar said it took a variety of measures to cut costs, such as reducing field workers' overtime and selling a minority interest in three of its wells. It also received a roughly $2.16 million loan through the Paycheck Protection Program, part of the federal government's pandemic relief package, court filings show.

But with a number of payment deadlines looming, the company ultimately determined that a court-supervised restructuring was its best option, the filings said.

The company announced in mid-September that it had entered a restructuring support agreement that would swap certain debt for equity. Under the deal, about $250 million in 11.25% senior notes would be converted to equity, with accumulated interest wiped out. Lenders for a revolving credit facility would receive warrants to purchase up to 10% in new equity, among other provisions, Lonestar said in an announcement at the time.

The deal is supported by Lonestar's revolving credit facility lenders and the holders of nearly 84% of the principal amount of its senior unsecured notes, according to court filings.

Funds will be available for unsecured creditors, the filings said.

Lonestar is the latest of numerous oil and gas companies to seek Chapter 11 protection in the midst of the COVID-19 pandemic and accompanying market volatility. Oasis Petroleum filed its Chapter 11 petition on Wednesday, hoping to cut $1.8 billion in debt, and drilling services company Superior Energy Services said the same day that it plans to seek Chapter 11 protection to wipe out $1.3 billion in debt.

On Monday, oil barge fleet Bouchard Transportation Co. Inc. filed for bankruptcy in pursuit of an operational restructuring, and in late September, Texas fracking company FTS International Inc. sought Chapter 11 protection with a plan to restructure or shed about $535.3 million in debt.

A representative for Lonestar did not immediately respond to a request for comment Thursday.

Lonestar is represented by Timothy A. Davidson II and Ashley L. Harper of Hunton Andrews Kurth LLP and George A. Davis, David A. Hammerman, Keith A. Simon, Annemarie V. Reilly and Madeleine C. Parish of Latham & Watkins LLP.

The case is In re: Lonestar Resources US Inc., case number 20-34805, in the U.S. Bankruptcy Court for the Southern District of Texas.

--Additional reporting by Vince Sullivan and Jeff Montgomery. Editing by Alyssa Miller.

Update: This story has been updated with more details and with counsel information for Lonestar.

For a reprint of this article, please contact reprints@law360.com.

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