O’BENCO IV, LP
CASE SUMMARY (Middle Market): O’Benco IV Seeks 363 Sale for Oil & Gas Assets After Secured Agent Delivers Foreclosure Notice, Proposes July 30 Auction
Wed 06/05/2019 12:31 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
Bid Procedures Motion
First Day Hearing Notice
O’Benco IV, a Shreveport, La.-based investment vehicle, which owns non-operating oil and gas working interests primarily in East Texas, filed for chapter 11 protection on Monday in the Bankruptcy Court for the Eastern District of Texas. Following an unsuccessful prepetition marketing process, the debtor seeks to pursue a 363 sale process, proposing a July 25 bid deadline and a July 30 auction. No stalking horse bidder has yet been selected.
The first day hearing is scheduled for Thursday, June 6, at 2:30 p.m. ET.
According to the first day declaration of William O’Brien IV, president and chief operating officer of O’Brien Resources, the managing member of the general partner of the debtor, facing falling revenue, limited capital, borrowing constraints and loan defaults due to low gas prices, the debtor engaged Sixpoint Partners in March 2018 to raise preferred equity to pay down subordinated notes, but such efforts failed. The company then engaged Houlihan Lokey in November 2018, which first attempted to raise capital in an attempt to refinance the debtor’s balance sheet and provide additional development capital. When that process failed to bring in capital at the level of the debtor’s existing debt balance, the debtor instructed Houlihan to market substantially all of the debtor’s assets.
“While several substantive offers were received,” the debtor says, “the Secured Lenders deemed them to be either unreliable or undervalued.” Subsequently, in May 2019, the secured lenders and administrative agent sent notice of intention to foreclose on substantially all of the debtor’s real property. The administrative agent then sent notice of intention to hold a public sale of all of the debtor’s oil and gas interests on June 4, and the debtor and its advisors subsequently determined to pursue a 363 sale process.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
The debtor is represented by Bracewell in Houston. The case has been assigned to Chief Judge Bill Parker (case number 19-60384).
Background
O’Benco IV was established to provide an “institutional quality, low cost platform” for investors to participate in the E&P space. The debtor is operated by O’Brien Resources, which is the managing member of O’BENCO IV GP, the general partner of the debtor. O’Benco owns non-operating oil and gas working interests in eastern Texas and has additional non-operating interests in western Texas, Kansas, Arkansas, Louisiana and Mississippi. The core assets in eastern Texas include a strong gas-weighted proved developed producing foundation, “with a compelling and technically de-risked stacked play oil-weighted development opportunity.” As of Dec. 31, 2018, the debtor’s real property assets covered approximately 87,413 net acres and approximately 130 gross producing wells. O’Benco also has approximately 90 miles of related midstream assets.
The debtor's largest unsecured creditors are listed below:
The case representatives are as follows:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
Bid Procedures Motion
First Day Hearing Notice
| Summary |
| O’Benco, an investment vehicle for investors to participate in the E&P space, owns non-operating oil and gas working interests primarily in East Texas |
| Seeks to run a 363 sale process for substantially all of its assets |
| Prepetition secured agent Associated Bank sent notice of intention to hold public sale of oil and gas interests on June 4 |
O’Benco IV, a Shreveport, La.-based investment vehicle, which owns non-operating oil and gas working interests primarily in East Texas, filed for chapter 11 protection on Monday in the Bankruptcy Court for the Eastern District of Texas. Following an unsuccessful prepetition marketing process, the debtor seeks to pursue a 363 sale process, proposing a July 25 bid deadline and a July 30 auction. No stalking horse bidder has yet been selected.
The first day hearing is scheduled for Thursday, June 6, at 2:30 p.m. ET.
According to the first day declaration of William O’Brien IV, president and chief operating officer of O’Brien Resources, the managing member of the general partner of the debtor, facing falling revenue, limited capital, borrowing constraints and loan defaults due to low gas prices, the debtor engaged Sixpoint Partners in March 2018 to raise preferred equity to pay down subordinated notes, but such efforts failed. The company then engaged Houlihan Lokey in November 2018, which first attempted to raise capital in an attempt to refinance the debtor’s balance sheet and provide additional development capital. When that process failed to bring in capital at the level of the debtor’s existing debt balance, the debtor instructed Houlihan to market substantially all of the debtor’s assets.
“While several substantive offers were received,” the debtor says, “the Secured Lenders deemed them to be either unreliable or undervalued.” Subsequently, in May 2019, the secured lenders and administrative agent sent notice of intention to foreclose on substantially all of the debtor’s real property. The administrative agent then sent notice of intention to hold a public sale of all of the debtor’s oil and gas interests on June 4, and the debtor and its advisors subsequently determined to pursue a 363 sale process.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Associated Bank (agent): $97.6 million
- Associated Bank (agent): $97.6 million
- Unsecured debt:
- Subordinated notes: $12.6 million (the list of largest unsecured creditors consists solely of holders of subordinated notes)
- Equity: The debtor’s equity is held as follows (a list of the limited partners is HERE):
The debtor is represented by Bracewell in Houston. The case has been assigned to Chief Judge Bill Parker (case number 19-60384).
Background
O’Benco IV was established to provide an “institutional quality, low cost platform” for investors to participate in the E&P space. The debtor is operated by O’Brien Resources, which is the managing member of O’BENCO IV GP, the general partner of the debtor. O’Benco owns non-operating oil and gas working interests in eastern Texas and has additional non-operating interests in western Texas, Kansas, Arkansas, Louisiana and Mississippi. The core assets in eastern Texas include a strong gas-weighted proved developed producing foundation, “with a compelling and technically de-risked stacked play oil-weighted development opportunity.” As of Dec. 31, 2018, the debtor’s real property assets covered approximately 87,413 net acres and approximately 130 gross producing wells. O’Benco also has approximately 90 miles of related midstream assets.
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Michael I. Morgan | Shreveport, LA | Subordinated Unsecured Loan |
$ 563,412 |
| The William Scott Martin Trust |
Tulsa, OK | Subordinated Unsecured Loan |
563,412 |
| Bishop Endeavors, L.L.C. |
Baldwin, LA | Subordinated Unsecured Loan |
563,412 |
| Robert Yokem | Shreveport, LA | Subordinated Unsecured Loan |
563,412 |
| William S. Maxwell | Benton, LA | Subordinated Unsecured Loan |
338,047 |
| Pierce and Amie Nunley |
Shreveport, LA | Subordinated Unsecured Loan |
338,047 |
| Bryan E. Lusk | Shreveport, LA | Subordinated Unsecured Loan |
338,047 |
| The Barry J. Belmont Revocable Trust |
Media, PA | Subordinated Unsecured Loan |
281,706 |
| David E. Fite | Shreveport, LA | Subordinated Unsecured Loan |
281,706 |
| Skyhawk Insurance, LLC |
Shreveport, LA | Subordinated Unsecured Loan |
225,365 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtor's Counsel | William A. (Trey) Wood III | Bracewell | Houston |
| Jason G. Cohen | |||
| Counsel to the Prepetition Agent |
Brian Minyard | Sidley Austin | Houston |
| Dennis Twomey | Chicago | ||
Cash Collateral Motion
The debtor seeks the use of cash collateral through Aug. 31, proposing as adequate protection for the secured lenders replacement liens, superpriority administrative expense claims, and a monthly payment of $300,000 in cash. The monthly adequate protection payment may be used to pay professional fees of the agent or lender, “provided however, the rights of all parties are reserved as to whether the payment constitutes a principal payment if the Court determines that the Lenders are not entitled to collect fees under Section 506(b) of the Bankruptcy Code.”
“The operation of the Debtor’s oil and gas wells is extremely capital intensive, and any lapse in operation, no matter how transitory, could have a devastating economic impact on the going concern value of the Debtor’s business,” the debtor stresses.
The debtor’s 13-week cash forecast is HERE.
Bid Procedures Motion
The company seeks approval of bid procedures for the sale of substantially all of its assets. The debtor initially hired Sixpoint Partners in March 2018 to raise preferred equity capital to pay down the subordinated notes in full and provide development capital, and Sixpoint reached out to approximately 40 parties, resulting in two indications of interest but “ended without success.”
In November, the debtor hired Houlihan to raise capital for a refinancing and for additional capital, canvassing approximately 90 parties, resulting in four indications of interest, but they were all “far below the company’s existing debt balance.” As a result, in March, Houlihan commenced a “divestiture marketing process” for substantially all assets, through which it contacted approximately 150 additional oil and gas exploration and production companies. This second round produced several “substantive” offers, however, the prepetition lenders found them to be unreliable or undervalued, leading to the decision to continue to market the assets in chapter 11.
The debtor proposes the following sale timeline:
Other Motions
The debtor also filed various standard first day motions, including the following:
The debtor seeks the use of cash collateral through Aug. 31, proposing as adequate protection for the secured lenders replacement liens, superpriority administrative expense claims, and a monthly payment of $300,000 in cash. The monthly adequate protection payment may be used to pay professional fees of the agent or lender, “provided however, the rights of all parties are reserved as to whether the payment constitutes a principal payment if the Court determines that the Lenders are not entitled to collect fees under Section 506(b) of the Bankruptcy Code.”
“The operation of the Debtor’s oil and gas wells is extremely capital intensive, and any lapse in operation, no matter how transitory, could have a devastating economic impact on the going concern value of the Debtor’s business,” the debtor stresses.
The debtor’s 13-week cash forecast is HERE.
Bid Procedures Motion
The company seeks approval of bid procedures for the sale of substantially all of its assets. The debtor initially hired Sixpoint Partners in March 2018 to raise preferred equity capital to pay down the subordinated notes in full and provide development capital, and Sixpoint reached out to approximately 40 parties, resulting in two indications of interest but “ended without success.”
In November, the debtor hired Houlihan to raise capital for a refinancing and for additional capital, canvassing approximately 90 parties, resulting in four indications of interest, but they were all “far below the company’s existing debt balance.” As a result, in March, Houlihan commenced a “divestiture marketing process” for substantially all assets, through which it contacted approximately 150 additional oil and gas exploration and production companies. This second round produced several “substantive” offers, however, the prepetition lenders found them to be unreliable or undervalued, leading to the decision to continue to market the assets in chapter 11.
The debtor proposes the following sale timeline:
- July 22 at 5 p.m. ET: Sale objection/cure objection deadline
- July 25 at 5 p.m. ET: Bid deadline
- July 30 at 11 a.m ET: Auction
- Aug. 1: Sale hearing
Other Motions
The debtor also filed various standard first day motions, including the following:
- Notice of Designation as Complex Chapter 11 Case
- The court has entered an order denying complex case treatment, saying that “while there may be a certain degree of complexity regarding the issues likely to arise in this bankruptcy case, it does not appear necessary for the Court to invoke the unique procedures invoked by the complex Chapter 11 case rules.”
- Motion to Pay Joint Interest Billings
- The debtor seeks approval to pay joint interest billing obligations, under which $0 is due as of the petition date. The joint operating agreements are with non-debtor affiliate O’Brien Resources. The company also seeks to pay O’Brien the $330,000 monthly management fee, which is paid in advance on or about the first of the month and severance tax obligations, which is “typically” $100,000 per month.
- Motion to Establish Interim Compensation Procedures for Professionals
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