Nine Point Energy Holdings, Inc.
CASE SUMMARY: Nine Point Energy to Run Sale Process; Existing Lenders/DIP Lenders to Serve as Stalking Horse With Credit Bid of at Least $250M
Tue 03/16/2021 17:53 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Agenda
Nine Point Energy Holdings Inc., a Denver-based private E&P company focused on the Williston Basin, filed for chapter 11 protection on Monday, March 15, in the Bankruptcy Court for the District of Delaware, along with affiliate Foxtrot Resources LLC. The debtors have entered into term sheets providing for DIP financing and the sale of substantially all of the debtors’ assets, with certain prepetition secured lenders serving as DIP lenders, and an entity to be designated by AB Private Credit Investors, as prepetition and DIP agent, as the stalking horse. The debtors say a going-concern sale process, coupled with the DIP financing, will allow them to “capitalize on opportunities for profitable growth following emergence.”
For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Nine Point Energy bankruptcy filing Request a Trial here.
The debtors terminated their agreements with their largest midstream services provider, Caliber Midstream Partners LP, on March 15, citing Caliber’s insolvency and the ability of other third-party midstream servicers to provide the same services on more favorable economic terms. The debtors filed a related adversary complaint under seal seeking a declaratory judgment that the termination of the contracts was valid and that the contracts do not contain covenants or equitable servitudes running with the land (or, even if they do, that they can be rejected). The complaint also seeks relief with respect to the sale of the contracts free and clear as they relate to the debtors’ sale process.
Pursuant to the stalking horse term sheet, the aggregate consideration for the purchased assets would consist of (i) a credit bid in an aggregate amount “not less than $250 million,” comprising (a) the full amount of the DIP obligations outstanding as of the closing date, and (b) a portion of up to 100% of the prepetition obligations; (ii) assumption of certain assumed liabilities; (iii) any liens or claims granted by the debtors to the prepetition agent as adequate protection; and (iv) certain “Excluded Cash.” The stalking horse reserves the right to increase the credit bid amount up to the full amount of the prepetition obligations.
The debtors are requesting approximately $88.1 million in DIP financing - comprising $18 million of new money ($13 million on an interim basis), a rollup of up to $54 million under the prepetition credit facility ($39 million on an interim basis) and up to approximately $16.1 million under the prepetition swap agreement facility (all of which would be pursuant to the interim order) - from certain of their prepetition lenders, with prepetition agent AB Private Credit Investors serving as DIP agent.
Nine Point was formed in connection with the chapter 11 plan and exit from bankruptcy of its predecessor, Triangle USA Petroleum, which filed chapter 11 in June 2016 to implement a balance sheet restructuring. Triangle Petroleum Corp., or TPC, was Triangle USA’s parent at the time, and through Triangle USA’s plan, TPC’s equity interest in Triangle USA was canceled, and TPC later filed its own bankruptcy proceedings in May 2019, emerging about a month later after approval of its uncontested prepackaged debt-for-equity plan under which JPMorgan Securities LLC, holder of a $167 million second lien secured note, was slated to receive 100% of the reorganized equity.
The first day hearing is set for Wednesday, March 17, at 2 p.m. ET.
The company reports $100 million to $500 million in both assets and liabilities, and its prepetition capital structure includes:
The prepetition credit agreement provides for an initial term loan of $225 million, a delayed-draw term loan commitment of $80 million and a revolving loan commitment of $15 million with AB Private Credit Investors LLC as agent, but the revolving loan facility was eliminated in connection with certain amendments. The prepetition secured swap obligations are secured by liens on the prepetition collateral that are pari passu with the prepetition loan obligations.
The debtors have approximately $2 million in cash as of the petition date.
The debtors also have hedging arrangements and are party to crude oil derivative contracts with four counterparties, two of which are prepetition lenders or their affiliates.
The debtors are represented by Latham & Watkins and Young Conaway Stargatt & Taylor as co-counsel, AlixPartners as financial advisor and Perella Weinberg as investment banker. The debtors are also working with Lyons Benenson & Co. as consultant and Stretto as claims agent. The case has been assigned to Judge Mary F. Walrath (case No. 21-10570).
Events Leading to the Bankruptcy Filing
The company attributes the bankruptcy filing to a “challenging” macroeconomic landscape, with 2020 marking a “a sudden, unprecedented, and precipitous drop in oil prices due to (a) the global outbreak of COVID-19 and the resulting dramatic drop in oil and gas demand, and (b) the oil price war between Russia and the Organization of the Petroleum Exporting Countries.” These events, “compounded by the disastrous and ongoing macroeconomic impact of the COVID-19 pandemic on both the United States and the global economy,” have left the debtors, “through no fault of their own,” facing “significant economic challenges.”
Nine Point’s revenue from commodity sales (excluding the effects of hedges and other derivatives) declined by more than $36.4 million from the fourth quarter of 2019 to the fourth quarter of 2020. April 2020 revenue of $2.6 million represented the lowest monthly total in the debtors’ history, the debtors say. Proven reserve values fell, by the debtors’ estimates, from nearly $562 million at the end of fiscal year 2019 to approximately $120 million at the end of fiscal year 2020. The downturn has also affected the debtors’ production, which dropped from approximately 15,000 boe/d as of Dec. 31, 2019, to approximately 8,700 boe/d as of Dec. 31, 2020.
In the midst of last year’s “strenuous” market conditions, the debtors engaged in negotiations with their prepetition secured lenders aimed at achieving a consensual and value-preserving solution to the debtors’ financial constraints. To that end, on July 3, 2020, the debtors entered into an amendment and waiver agreement through which Nine Point Energy Holdings converted all of its existing Series A convertible preferred stock into an aggregate 1,012,637,142 shares of common stock and issued 163,065,562 new shares of common stock, representing approximately 13.87% of the pro forma equity, to the prepetition secured lenders. As part of this transaction, the prepetition credit agreement was also amended to, among other things, (a) convert $15 million in outstanding loans under the revolver and $20 million in existing funded delayed-draw term loans into term loans with the same terms and conditions as the loans under the initial prepetition term loan facility, (b) terminate the outstanding commitments under the revolver and reduce the remaining commitments under the delayed-draw facility to $15 million, (c) modify the amortization payments from a quarterly schedule to a monthly schedule, (d) institute anti-cash-hoarding provisions if cash is greater than $12.5 million at the end of any fiscal quarter, (e) impose a minimum liquidity covenant of $5 million and grant certain covenant relief and (f) eliminate the consolidated current ratio covenant.
The debtors ran a prepetition marketing process with the help of Perella Weinberg and Tudor, Pickering, Holt & Co after receiving “numerous inquiries from private E&P companies concerning a potential going-concern sale transaction,” but these sale efforts were unsuccessful in achieving any proposals in excess of the company’s debt.
After the amendments to the prepetition indebtedness, the debtors faced challenges securing sufficient swap transactions to comply with obligations under the prepetition credit agreement. Leading up to the March 11 expiration of the limited waiver, the debtors and their prepetition secured lenders negotiated potential resolutions to address the defaults related to swap agreements. “In the face of dwindling liquidity, despite the Debtors’ best efforts, they were not able to secure sufficient hedging arrangements to be in compliance with the Prepetition Credit Agreement’s hedging covenant before the expiration of the Limited Waiver,” leading to entry into a forbearance agreement that gave the debtor enough time to file the chapter 11 case.
Background
Nine Point is an independent oil and gas exploration and production company focused on the development of unconventional shale oil and natural gas resources in the Williston Basin of North Dakota and Montana. The debtors collectively hold interests in and operate approximately 198 wells in the Williston Basin, where the company has operated since 2011. Nine Point’s holdings cover approximately 54,917 net (117,289 gross) acres, primarily located in McKenzie and Williams counties of North Dakota. In addition to operating oil and gas properties, the debtors also engage in strategic acquisitions of oil and natural gas resources. The debtors’ headquarters are in Denver, and they have a field office in Alexander, N.D.
The debtors’ average daily production decreased from 14,400 boe/d in fiscal year 2019 to 9,750 boe/d in fiscal year 2020. The company’s revenue from oil and gas sales decreased from approximately $217.7 million in 2019 to $94.6 million in 2020. As of the end of January 2021, the debtors’ 2021 year-to-date revenue was approximately $8.9 million.
The company’s corporate organizational structure is shown below:
With the proliferation of hydraulic fracturing and other unconventional techniques in the Middle Bakken shale beginning in the mid-2000s, the Williston Basin has experienced a significant increase in production, the debtors say, “turning North Dakota into the second largest oil-producing state in the country.” As one of the largest unconventional plays in North America, the Williston Basin is highly competitive, with more than 100 E&P operators - ranging from major integrated operators to small independent producers - active in the region, according to the debtors’ first day declaration.
Oil and gas production in the Williston Basin is constrained by substantial technical and economic challenges. In addition to the region’s dependence on unconventional and capital-intensive exploration and drilling technologies, including horizontal drilling and hydraulic fracturing, the Williston Basin is constrained by limited gathering infrastructure and long-distance pipeline capacity. Owing to these and other factors, the Williston Basin has relatively high breakeven costs and differentials, making it vulnerable to commodity price fluctuations.
Midstream Service Contracts
Caliber Midstream Partners LP was the debtors’ largest midstream services provider until its termination on March 15. During its engagement, Caliber provided gathering services to the company pursuant to several long-term midstream services agreements, or MSAs. The two most significant Caliber MSAs were for gathering and related services for crude oil and for gas and water. The debtors and Caliber also were parties to other ancillary agreements, including revenue commitment agreements, gathering services agreements, pipeline handling agreements, fresh water agreements and produced water agreements. The details concerning the ancillary agreements are redacted in the debtors’ first day declaration.
As of Dec. 31, 2020, 135 of the debtors’ operated wells were connected to the Caliber gathering system.
After the debtors determined that other third-party midstream service providers could provide the same services on more favorable economic terms than Caliber, and right before the bankruptcy filing on March 15, the debtors sent Caliber a termination notice as well as an offer to enter into a new contract with Caliber for a 30-day term, under which Caliber would provide the same services to the debtors as contemplated under the Caliber contracts, including the current fees, except for the revenue commitment agreement.
The company says that although it believes that the termination of the Caliber contracts was “valid,” the debtors filed an adversary proceeding against Caliber “out of an abundance of caution” seeking declaratory judgments that: (i) the termination of the Caliber contracts was valid; (ii) the Caliber contracts do not contain “covenants or equitable servitudes running with the land”; (iii) [Redacted]; (iv) even if the Caliber contracts contain covenants or equitable servitudes with the land, “[Redacted] can be rejected if the Caliber Contracts are rejected”; and (v) even if the Caliber contracts contain covenants or equitable servitudes with the land, the debtors may sell their assets, “[Redacted] to a third party purchaser free and clear of any purported covenant running with the land.” The complaint was filed under seal.
The debtors also filed a sealed motion seeking authorization to reject the Caliber contracts to the extent it is determined that the termination of any of the Caliber contracts was invalid.
In the 2016 Triangle USA cases, the debtors ultimately settled a long-running dispute with Caliber, with respect to the Caliber midstream parties’ appeal of the order confirming the Triangle USA Petroleum debtors’ plan of reorganization. TPC also disclosed in its 2019 chapter 11 filing that its operations consisted of a joint venture investment in Caliber Midstream Services.
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
DIP Financing Motion
The debtors request $88.1 million in DIP financing, including (i) $18 million of new money ($13 million on an interim basis), (ii) a rollup of up to $54 million under the prepetition credit facility (at a 3:1 ratio), with $39 million on an interim basis, and (iii) a rollup of up to approximately $16.1 million under the prepetition swap agreement facility (all of which would be pursuant to the interim order) - with prepetition agent AB Private Credit Investors as DIP agent. The DIP lenders include Goldman Sachs, AB Private Credit Investors entities, AB NPE Holdings, Prudential entities, Orix Corporate Capital Inc. and Cargill.
“The proposed interim draw on the DIP Facility of $13 million was sized in order to ensure that the Debtors were able to meet these critical expenses while maintaining minimum liquidity of $5 million (consistent with the Debtors’ historical practices and the requirements of the Prepetition Credit Agreement),” the debtors say.
The debtors also seek authority to enter into the DIP swap documents “(which the Debtors anticipate being of similar scope and character to the Prepetition Swap Agreements) in the ordinary course of business, consistent with their prepetition practices.”
The DIP financing bears interest at the adjusted LIBOR plus 8%, subject to an adjusted LIBOR floor of 1%, with 2% added for the default interest rate, and matures on the earlier of (i) 90 days after the petition date, (ii) 30 days from the petition date if the final order has yet to be entered, (iii) two business days from termination of the stalking horse agreement, (iv) the date of the sale of substantially all of the debtors’ assets or (v) other customary events. The DIP proceeds may be used for (i) working capital and general corporate purposes, (ii) bankruptcy-related costs and expenses and (iii) costs and expenses related to the DIP facility.
The prepetition secured parties have consented to the priming of their liens. Subject to entry of the final order, the DIP collateral would include proceeds of avoidance actions.
The facility includes various fees, including a 2% commitment fee.
In support of the proposed DIP financing, the debtors filed the declaration of John Cesarz, partner at Perella Weinberg Partners, the debtors’ investment banker. In support of the prepetition swap rollup, Cesarz says that “based on, among other things, the Debtors’ prepetition marketing process ... the market does not believe there is residual value beyond the secured debt and that any junior secured or unsecured financing would be ‘out of the money’ at the time of funding.”
Adequate protection for the prepetition secured parties would consist of (i) replacement liens, (ii) superpriority claims, (iii) monthly reimbursement of fees and expenses of the prepetition secured parties, (iv) quarterly payment (a) in cash of interest under the prepetition credit agreement and (b) in kind with respect to default rate interest under the prepetition credit agreement and (v) the right to credit bid.
The prepetition swap counterparties would receive adequate protection in the form of claims and liens of equal priority to the DIP obligations and DIP liens. The debtors assert that the proposed rollup of the prepetition secured swap counterparties’ claims into DIP obligations on an interim basis is sufficient adequate protection. The debtors say that they are trying to engage with the prepetition swap counterparties regarding the proposed treatment of their claims and liens under the interim order to obtain their consent. “In the event that such consent is not obtained, however, the Debtors respectfully submit that such parties are adequately protected by the proposed treatment of the Prepetition Secured Swap Obligations,” the motion says.
In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carve-out for professional fees is $500,000.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
The lien challenge deadline is the earlier of the bid deadline and 75 days after entry of the interim DIP order. The UCC investigation budget is $50,000.
Bid Procedures Motion
The company began a going-concern marketing process in November through investment bankers Perella Weinberg and Tudor Pickering, who reached out to 23 parties, of which 16 expressed interest in a potential transaction and executed confidentiality agreements, and six submitted proposals, none of which were “actionable, due to, among other factors, the fact that none of the proposals was in excess of the Debtors’ indebtedness.”
The debtors seek procedures for the sale of substantially all of their assets with an entity to be designated by AB Private Credit Investors as prepetition and DIP agent, as the stalking horse, with a credit bid of at least $250 million (for the full amount of the outstanding DIP obligations and up to 100% of the preposition obligations), assumption of certain liabilities, any liens or claims granted by the debtors to the DIP lenders as adequate protection for any diminution in value of the interests of the DIP lenders in their collateral resulting from the use of cash collateral or otherwise and excluded cash (for the a wind-down and payments following sale closing).
Initial and subsequent overbids are $100,000. The debtors propose an expense reimbursement up to $750,000.
The stalking horse term sheet contemplates a management incentive plan providing for the issuance of 10% of fully diluted common equity of the purchaser.
The debtors also seek to sell their assets free and clear of the Caliber agreements.
The debtors propose the following sale timeline:
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Agenda
| Summary |
| Nine Point Energy is a private E&P company focused on the Williston Basin |
| Entered into term sheet regarding the sale of substantially all of the debtors’ assets with an entity to be designated by AB Private Credit Investors, as prepetition and DIP agent, to serve as stalking horse bidder; purchase consideration includes a credit bid of “not less than $250 million” |
| Entered into DIP financing term sheet, including $18 million of new money to be funded by certain prepetition lenders and a rollup of $59 million of prepetition secured debt plus a rollup of $16.1 million in prepetition secured swap obligations |
| DIP milestones include a sale closing deadline of June 13 (90 days after the petition date) |
Nine Point Energy Holdings Inc., a Denver-based private E&P company focused on the Williston Basin, filed for chapter 11 protection on Monday, March 15, in the Bankruptcy Court for the District of Delaware, along with affiliate Foxtrot Resources LLC. The debtors have entered into term sheets providing for DIP financing and the sale of substantially all of the debtors’ assets, with certain prepetition secured lenders serving as DIP lenders, and an entity to be designated by AB Private Credit Investors, as prepetition and DIP agent, as the stalking horse. The debtors say a going-concern sale process, coupled with the DIP financing, will allow them to “capitalize on opportunities for profitable growth following emergence.”
For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Nine Point Energy bankruptcy filing Request a Trial here.
The debtors terminated their agreements with their largest midstream services provider, Caliber Midstream Partners LP, on March 15, citing Caliber’s insolvency and the ability of other third-party midstream servicers to provide the same services on more favorable economic terms. The debtors filed a related adversary complaint under seal seeking a declaratory judgment that the termination of the contracts was valid and that the contracts do not contain covenants or equitable servitudes running with the land (or, even if they do, that they can be rejected). The complaint also seeks relief with respect to the sale of the contracts free and clear as they relate to the debtors’ sale process.
Pursuant to the stalking horse term sheet, the aggregate consideration for the purchased assets would consist of (i) a credit bid in an aggregate amount “not less than $250 million,” comprising (a) the full amount of the DIP obligations outstanding as of the closing date, and (b) a portion of up to 100% of the prepetition obligations; (ii) assumption of certain assumed liabilities; (iii) any liens or claims granted by the debtors to the prepetition agent as adequate protection; and (iv) certain “Excluded Cash.” The stalking horse reserves the right to increase the credit bid amount up to the full amount of the prepetition obligations.
The debtors are requesting approximately $88.1 million in DIP financing - comprising $18 million of new money ($13 million on an interim basis), a rollup of up to $54 million under the prepetition credit facility ($39 million on an interim basis) and up to approximately $16.1 million under the prepetition swap agreement facility (all of which would be pursuant to the interim order) - from certain of their prepetition lenders, with prepetition agent AB Private Credit Investors serving as DIP agent.
Nine Point was formed in connection with the chapter 11 plan and exit from bankruptcy of its predecessor, Triangle USA Petroleum, which filed chapter 11 in June 2016 to implement a balance sheet restructuring. Triangle Petroleum Corp., or TPC, was Triangle USA’s parent at the time, and through Triangle USA’s plan, TPC’s equity interest in Triangle USA was canceled, and TPC later filed its own bankruptcy proceedings in May 2019, emerging about a month later after approval of its uncontested prepackaged debt-for-equity plan under which JPMorgan Securities LLC, holder of a $167 million second lien secured note, was slated to receive 100% of the reorganized equity.
The first day hearing is set for Wednesday, March 17, at 2 p.m. ET.
The company reports $100 million to $500 million in both assets and liabilities, and its prepetition capital structure includes:
- Secured debt:
- Prepetition credit agreement: $256.9 million in principal plus $4.3 million in interest (excluding PIK interest)
- Prepetition swap agreements: $16.1 million (mark to market value)
- Equity: A list of equityholders is HERE.
The prepetition credit agreement provides for an initial term loan of $225 million, a delayed-draw term loan commitment of $80 million and a revolving loan commitment of $15 million with AB Private Credit Investors LLC as agent, but the revolving loan facility was eliminated in connection with certain amendments. The prepetition secured swap obligations are secured by liens on the prepetition collateral that are pari passu with the prepetition loan obligations.
The debtors have approximately $2 million in cash as of the petition date.
The debtors also have hedging arrangements and are party to crude oil derivative contracts with four counterparties, two of which are prepetition lenders or their affiliates.
The debtors are represented by Latham & Watkins and Young Conaway Stargatt & Taylor as co-counsel, AlixPartners as financial advisor and Perella Weinberg as investment banker. The debtors are also working with Lyons Benenson & Co. as consultant and Stretto as claims agent. The case has been assigned to Judge Mary F. Walrath (case No. 21-10570).
Events Leading to the Bankruptcy Filing
The company attributes the bankruptcy filing to a “challenging” macroeconomic landscape, with 2020 marking a “a sudden, unprecedented, and precipitous drop in oil prices due to (a) the global outbreak of COVID-19 and the resulting dramatic drop in oil and gas demand, and (b) the oil price war between Russia and the Organization of the Petroleum Exporting Countries.” These events, “compounded by the disastrous and ongoing macroeconomic impact of the COVID-19 pandemic on both the United States and the global economy,” have left the debtors, “through no fault of their own,” facing “significant economic challenges.”
Nine Point’s revenue from commodity sales (excluding the effects of hedges and other derivatives) declined by more than $36.4 million from the fourth quarter of 2019 to the fourth quarter of 2020. April 2020 revenue of $2.6 million represented the lowest monthly total in the debtors’ history, the debtors say. Proven reserve values fell, by the debtors’ estimates, from nearly $562 million at the end of fiscal year 2019 to approximately $120 million at the end of fiscal year 2020. The downturn has also affected the debtors’ production, which dropped from approximately 15,000 boe/d as of Dec. 31, 2019, to approximately 8,700 boe/d as of Dec. 31, 2020.
In the midst of last year’s “strenuous” market conditions, the debtors engaged in negotiations with their prepetition secured lenders aimed at achieving a consensual and value-preserving solution to the debtors’ financial constraints. To that end, on July 3, 2020, the debtors entered into an amendment and waiver agreement through which Nine Point Energy Holdings converted all of its existing Series A convertible preferred stock into an aggregate 1,012,637,142 shares of common stock and issued 163,065,562 new shares of common stock, representing approximately 13.87% of the pro forma equity, to the prepetition secured lenders. As part of this transaction, the prepetition credit agreement was also amended to, among other things, (a) convert $15 million in outstanding loans under the revolver and $20 million in existing funded delayed-draw term loans into term loans with the same terms and conditions as the loans under the initial prepetition term loan facility, (b) terminate the outstanding commitments under the revolver and reduce the remaining commitments under the delayed-draw facility to $15 million, (c) modify the amortization payments from a quarterly schedule to a monthly schedule, (d) institute anti-cash-hoarding provisions if cash is greater than $12.5 million at the end of any fiscal quarter, (e) impose a minimum liquidity covenant of $5 million and grant certain covenant relief and (f) eliminate the consolidated current ratio covenant.
The debtors ran a prepetition marketing process with the help of Perella Weinberg and Tudor, Pickering, Holt & Co after receiving “numerous inquiries from private E&P companies concerning a potential going-concern sale transaction,” but these sale efforts were unsuccessful in achieving any proposals in excess of the company’s debt.
After the amendments to the prepetition indebtedness, the debtors faced challenges securing sufficient swap transactions to comply with obligations under the prepetition credit agreement. Leading up to the March 11 expiration of the limited waiver, the debtors and their prepetition secured lenders negotiated potential resolutions to address the defaults related to swap agreements. “In the face of dwindling liquidity, despite the Debtors’ best efforts, they were not able to secure sufficient hedging arrangements to be in compliance with the Prepetition Credit Agreement’s hedging covenant before the expiration of the Limited Waiver,” leading to entry into a forbearance agreement that gave the debtor enough time to file the chapter 11 case.
Background
Nine Point is an independent oil and gas exploration and production company focused on the development of unconventional shale oil and natural gas resources in the Williston Basin of North Dakota and Montana. The debtors collectively hold interests in and operate approximately 198 wells in the Williston Basin, where the company has operated since 2011. Nine Point’s holdings cover approximately 54,917 net (117,289 gross) acres, primarily located in McKenzie and Williams counties of North Dakota. In addition to operating oil and gas properties, the debtors also engage in strategic acquisitions of oil and natural gas resources. The debtors’ headquarters are in Denver, and they have a field office in Alexander, N.D.
The debtors’ average daily production decreased from 14,400 boe/d in fiscal year 2019 to 9,750 boe/d in fiscal year 2020. The company’s revenue from oil and gas sales decreased from approximately $217.7 million in 2019 to $94.6 million in 2020. As of the end of January 2021, the debtors’ 2021 year-to-date revenue was approximately $8.9 million.
The company’s corporate organizational structure is shown below:
With the proliferation of hydraulic fracturing and other unconventional techniques in the Middle Bakken shale beginning in the mid-2000s, the Williston Basin has experienced a significant increase in production, the debtors say, “turning North Dakota into the second largest oil-producing state in the country.” As one of the largest unconventional plays in North America, the Williston Basin is highly competitive, with more than 100 E&P operators - ranging from major integrated operators to small independent producers - active in the region, according to the debtors’ first day declaration.
Oil and gas production in the Williston Basin is constrained by substantial technical and economic challenges. In addition to the region’s dependence on unconventional and capital-intensive exploration and drilling technologies, including horizontal drilling and hydraulic fracturing, the Williston Basin is constrained by limited gathering infrastructure and long-distance pipeline capacity. Owing to these and other factors, the Williston Basin has relatively high breakeven costs and differentials, making it vulnerable to commodity price fluctuations.
Midstream Service Contracts
Caliber Midstream Partners LP was the debtors’ largest midstream services provider until its termination on March 15. During its engagement, Caliber provided gathering services to the company pursuant to several long-term midstream services agreements, or MSAs. The two most significant Caliber MSAs were for gathering and related services for crude oil and for gas and water. The debtors and Caliber also were parties to other ancillary agreements, including revenue commitment agreements, gathering services agreements, pipeline handling agreements, fresh water agreements and produced water agreements. The details concerning the ancillary agreements are redacted in the debtors’ first day declaration.
As of Dec. 31, 2020, 135 of the debtors’ operated wells were connected to the Caliber gathering system.
After the debtors determined that other third-party midstream service providers could provide the same services on more favorable economic terms than Caliber, and right before the bankruptcy filing on March 15, the debtors sent Caliber a termination notice as well as an offer to enter into a new contract with Caliber for a 30-day term, under which Caliber would provide the same services to the debtors as contemplated under the Caliber contracts, including the current fees, except for the revenue commitment agreement.
The company says that although it believes that the termination of the Caliber contracts was “valid,” the debtors filed an adversary proceeding against Caliber “out of an abundance of caution” seeking declaratory judgments that: (i) the termination of the Caliber contracts was valid; (ii) the Caliber contracts do not contain “covenants or equitable servitudes running with the land”; (iii) [Redacted]; (iv) even if the Caliber contracts contain covenants or equitable servitudes with the land, “[Redacted] can be rejected if the Caliber Contracts are rejected”; and (v) even if the Caliber contracts contain covenants or equitable servitudes with the land, the debtors may sell their assets, “[Redacted] to a third party purchaser free and clear of any purported covenant running with the land.” The complaint was filed under seal.
The debtors also filed a sealed motion seeking authorization to reject the Caliber contracts to the extent it is determined that the termination of any of the Caliber contracts was invalid.
In the 2016 Triangle USA cases, the debtors ultimately settled a long-running dispute with Caliber, with respect to the Caliber midstream parties’ appeal of the order confirming the Triangle USA Petroleum debtors’ plan of reorganization. TPC also disclosed in its 2019 chapter 11 filing that its operations consisted of a joint venture investment in Caliber Midstream Services.
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Caliber Midstream
Partners LP |
Denver | Trade | $ 3,278,964 |
| Henry Hill Oil
Services |
Williston, N.D. | Trade | 855,171 |
| Caliber Midstream
North Dakota LLC |
Denver | Trade | 409,171 |
| Brigade Energy
Services LLC |
Centennial, Colo. | Trade | 389,566 |
| Baker Hughes
Business Support |
Minot, N.D. | Trade | 383,393 |
| Hiland Partners
Holdings LLC |
Dallas | Trade | 375,000 |
| Weatherford US LP | Williston, N.D. | Trade | 335,594 |
| Wild Transport | Isle, Minn. | Trade | 326,180 |
| P2 Energy
Solutions |
Denver | Trade | 202,849 |
| Go Wireline LLC | Williston, N.D. | Trade | 195,750 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel | Richard A. Levy | Latham
& Watkins |
Chicago |
| Caroline A. Reckler | |||
| Jonathan Gordon | |||
| George A. Davis | New York | ||
| Nacif Taousse | |||
| Alistair K. Fatheazam | |||
| Jonathan J. Weichselbaum | |||
| Debtors' Co-Counsel | Michael R. Nestor | Young
Conaway Stargatt & Taylor |
Wilmington, Del |
| Kara Hammond Coyle | |||
| Ashley E. Jacobs | |||
| Jacob D. Morton | |||
| Debtors' Financial
Advisor |
John R. Castellano | AlixPartners | Chicago |
| Debtors' Investment
Banker |
John Cesarz | Perella
Weinberg Partners |
New York |
| Co-Counsel to the
Prepetition Agent and DIP Agent |
David M. Hillman | Proskauer
Rose |
New York |
| Michael T. Mervis | |||
| Megan R. Volin | |||
| Stephen A. Boyko | Boston | ||
| Charles A. Dale | |||
| Paul V. Possinger | Chicago | ||
| Jordan Sazant | |||
| Co-Counsel to the
Prepetition Agent and DIP Agent |
Adam G. Landis | Landis
Rath & Cobb |
Wilmington, Del. |
| Kerri K. Mumford | |||
| Matthew R. Pierce | |||
| Counsel to
Prepetition Lender and DIP Lender Goldman Sachs Bank USA |
William L. Wallander | Vinson
& Elkins |
Denver |
| Matthew D. Struble | |||
| Debtors' Claims
Agent |
Sheryl Betance | Stretto | Irvine, Calif. |
DIP Financing Motion
The debtors request $88.1 million in DIP financing, including (i) $18 million of new money ($13 million on an interim basis), (ii) a rollup of up to $54 million under the prepetition credit facility (at a 3:1 ratio), with $39 million on an interim basis, and (iii) a rollup of up to approximately $16.1 million under the prepetition swap agreement facility (all of which would be pursuant to the interim order) - with prepetition agent AB Private Credit Investors as DIP agent. The DIP lenders include Goldman Sachs, AB Private Credit Investors entities, AB NPE Holdings, Prudential entities, Orix Corporate Capital Inc. and Cargill.
“The proposed interim draw on the DIP Facility of $13 million was sized in order to ensure that the Debtors were able to meet these critical expenses while maintaining minimum liquidity of $5 million (consistent with the Debtors’ historical practices and the requirements of the Prepetition Credit Agreement),” the debtors say.
The debtors also seek authority to enter into the DIP swap documents “(which the Debtors anticipate being of similar scope and character to the Prepetition Swap Agreements) in the ordinary course of business, consistent with their prepetition practices.”
The DIP financing bears interest at the adjusted LIBOR plus 8%, subject to an adjusted LIBOR floor of 1%, with 2% added for the default interest rate, and matures on the earlier of (i) 90 days after the petition date, (ii) 30 days from the petition date if the final order has yet to be entered, (iii) two business days from termination of the stalking horse agreement, (iv) the date of the sale of substantially all of the debtors’ assets or (v) other customary events. The DIP proceeds may be used for (i) working capital and general corporate purposes, (ii) bankruptcy-related costs and expenses and (iii) costs and expenses related to the DIP facility.
The prepetition secured parties have consented to the priming of their liens. Subject to entry of the final order, the DIP collateral would include proceeds of avoidance actions.
The facility includes various fees, including a 2% commitment fee.
In support of the proposed DIP financing, the debtors filed the declaration of John Cesarz, partner at Perella Weinberg Partners, the debtors’ investment banker. In support of the prepetition swap rollup, Cesarz says that “based on, among other things, the Debtors’ prepetition marketing process ... the market does not believe there is residual value beyond the secured debt and that any junior secured or unsecured financing would be ‘out of the money’ at the time of funding.”
Adequate protection for the prepetition secured parties would consist of (i) replacement liens, (ii) superpriority claims, (iii) monthly reimbursement of fees and expenses of the prepetition secured parties, (iv) quarterly payment (a) in cash of interest under the prepetition credit agreement and (b) in kind with respect to default rate interest under the prepetition credit agreement and (v) the right to credit bid.
The prepetition swap counterparties would receive adequate protection in the form of claims and liens of equal priority to the DIP obligations and DIP liens. The debtors assert that the proposed rollup of the prepetition secured swap counterparties’ claims into DIP obligations on an interim basis is sufficient adequate protection. The debtors say that they are trying to engage with the prepetition swap counterparties regarding the proposed treatment of their claims and liens under the interim order to obtain their consent. “In the event that such consent is not obtained, however, the Debtors respectfully submit that such parties are adequately protected by the proposed treatment of the Prepetition Secured Swap Obligations,” the motion says.
In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carve-out for professional fees is $500,000.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- Interim DIP order: Entered by March 18;
- Stalking horse agreement: Delivered to DIP agent by April 5;
- Bid procedures order: Entered by April 14;
- Final DIP order: Entered by April 14;
- Bid deadline: April 29;
- Auction: May 4;
- Sale order: Entered by May 14; and
- Sale consummation: By June 13.
The lien challenge deadline is the earlier of the bid deadline and 75 days after entry of the interim DIP order. The UCC investigation budget is $50,000.
Bid Procedures Motion
The company began a going-concern marketing process in November through investment bankers Perella Weinberg and Tudor Pickering, who reached out to 23 parties, of which 16 expressed interest in a potential transaction and executed confidentiality agreements, and six submitted proposals, none of which were “actionable, due to, among other factors, the fact that none of the proposals was in excess of the Debtors’ indebtedness.”
The debtors seek procedures for the sale of substantially all of their assets with an entity to be designated by AB Private Credit Investors as prepetition and DIP agent, as the stalking horse, with a credit bid of at least $250 million (for the full amount of the outstanding DIP obligations and up to 100% of the preposition obligations), assumption of certain liabilities, any liens or claims granted by the debtors to the DIP lenders as adequate protection for any diminution in value of the interests of the DIP lenders in their collateral resulting from the use of cash collateral or otherwise and excluded cash (for the a wind-down and payments following sale closing).
Initial and subsequent overbids are $100,000. The debtors propose an expense reimbursement up to $750,000.
The stalking horse term sheet contemplates a management incentive plan providing for the issuance of 10% of fully diluted common equity of the purchaser.
The debtors also seek to sell their assets free and clear of the Caliber agreements.
The debtors propose the following sale timeline:
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case No. 21-10570.
- Motion to establish trading procedures
- Nine Point seeks to establish trading procedures for its common stock, to be able to object to and prevent transfers if necessary to preserve net operating losses. The debtors had about $222.2 million in federal NOLs as of Dec. 31, 2020, and an “indeterminate” amount of net unrealized built-in losses as of the same date.
- Motion to pay employee wages and benefits
- The debtors seek to pay employee obligations on an interim basis in the amounts set forth in the third column below:
- Motion to use cash management system
- The company has bank accounts with JPMorgan Chase Bank.
- Motion to pay oil and gas claims
- On an interim basis, the debtors request approval to pay up to $19.2 million in obligations related to their oil and gas properties in the ordinary course of business, including royalties and other working interests, production taxes, lease maintenance payments, working interest disbursements and joint interest billings, lease operating expenses, and gathering, transportation and processing expenses.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors estimate that they have approximately $660,000 in tax obligations, of which they are seeking to pay $526,000 on an interim basis.
- Motion to provide utilities with adequate assurance
- Motion to file consolidated creditors lists
- Motion to extend the schedules/statements filing deadline
- Application to appoint Stretto as claims agent
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