By Becky Yerak, The Wall Street Journal ~ Arena Energy LP has filed for bankruptcy with a plan to sell virtually all of its assets to private-equity firm Lime Rock Partners and a management group in a deal that includes $64.2 million in cash.
The Texas-based driller, which operates in the Gulf of Mexico, filed for chapter 11 protection Thursday in U.S. Bankruptcy Court in Houston to restructure more than $1 billion in debt.
Arena was founded in 1999 and controls about 341,000 acres in the Gulf of Mexico.
The company’s bankruptcy comes less than a month after its reserve-based loan matured. It hasn’t made interest payments on that debt since late March to preserve liquidity.
In court records, Arena said that like many of its peers, it has been challenged in recent years by the downturn and volatility in the commodities market.
Those problems, it said, have been exacerbated in recent months by a drop in global energy prices and market uncertainty due to the combined effects of the coronavirus pandemic and a price war between Saudi Arabia and Russia.
Arena has 57 employees and had $580.8 million in revenue last year. Its biggest unsecured creditors include the U.S. Small Business Administration, which is owed $1.8 million.
Lime Rock, with offices in Texas and Connecticut, is a buyout firm with a focus on oil-and-gas companies. The private-equity firm counts stakes in Prime Rock Resources, Augustus Energy Partners II and Crown Rock among its holdings of oil-and-gas drillers and services companies.
The restructuring agreement leaves open the possibility that other potential buyers could emerge and have their offers considered. But no formal competitive bidding process has been set up in the Arena case, a process that is common in large bankruptcies.
The lack of formal bid procedures could hinder transparency, which is particularly critical since insiders remain involved in the new prospective ownership group, said Philip Eisenberg, a lawyer for one potential bidder, W&T Offshore Inc. The interest of competing bidders could be chilled without a more traditional bid setup and sharing of information, he said.
“We have some serious concerns about the process,” Mr. Eisenberg told Judge Marvin Isgur during Arena’s debut in bankruptcy court Friday.
Judge Isgur said that perhaps W&T would still appear in the chapter 11 case with a better offer for Arena.
Brian Resnick, a representative for the proposed buyer, said the restructuring agreement that Arena has in hand helps eliminate uncertainty during the bankruptcy. The negotiations occurred with tremendous separation from the insiders, he said.
Judge Isgur ended the hearing by asking the parties to be prompt in responding to reasonable requests for information.
Arena enters bankruptcy with a restructuring agreement that is supported by 72% of its reserve-based facility lenders and 94% of term-loan lenders. The deal must be approved by bankruptcy court.
Reserved-based lenders are expected to recoup between 10 cents and 20 cents on the dollar of the nearly $630 million they are owed. Arena’s term lenders are expected to receive about 2 cents on the dollar of the $439 million they are owed.
The proposed deal includes the assumption of certain liabilities.
Arena is owned by a small group of current or former employees and their family members.
Representing Arena and related entities in their bankruptcies are law firms Jackson Walker LLP and Kirkland & Ellis LLP. Its financial adviser is Evercore Group LLC. Alvarez & Marsal North America LLC is its restructuring adviser.
The case, number 20-34215.