Mon 11/16/2020 14:35 PM
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Relevant Documents:
Voluntary Petition
Plan
Restructuring Support Agreement
First Day Declaration
DIP Financing Motion
Notice of Hearing
8-K

Request a trial to access the above documents as well as reporting and analysis of hundreds of other stressed, distressed and performing credits and continue reading for the Americas Core Credit and First Day team's analysis of the Gulfport chapter 11 bankruptcy filing.

Gulfport Energy, an Oklahoma-based independent natural gas and oil company focused on the Appalachia and SCOOP regions of the U.S., and several affiliates filed chapter 11 petitions on Nov. 13 in the U.S. Bankruptcy Court for the Southern District of Texas. In advance of the bankruptcy filing, the debtors reached agreement on a restructuring support agreement with 95% of revolving credit facility lenders and certain noteholders that hold more than two-thirds of the outstanding principal amount of unsecured notes. The debtors have, as part of their first day papers, filed their plan pursuant to the RSA.

To finance the chapter 11 cases, Gulfport seeks entry into a $262.5 million debtor in possession facility including $105 million of new money provided by prepetition lenders. The debtors have also received commitments for $580 million in exit financing from the prepetition lenders. Additionally the cases would be funded by a $50 million rights offering backstopped by an ad hoc group of unsecured noteholders for new preferred stock convertible into reorganized equity at a conversion rate representing a 30% discount to plan equity value.

Under the plan, prepetition secured lenders, if they accept the plan and participate in the proposed $580 million exit facility, would receive their share of the $400 million revolver and the up to $180 million first-out term loan. Lenders that do not participate in the exit facility would receive their share of a second-out term loan.

Noteholders would receive 100% of the equity of the reorganized debtors, subject to dilution from the management incentive plan and the equity upon conversion of the convertible preferred stock, as well as $550 million of new unsecured notes. Existing equity interests would be canceled without any distribution. The debtors have also reached a settlement with counterparties to prepetition swap agreements resulting in payment of $60 million using proceeds of the DIP financing for certain “sold call” transactions.

Gulfport attributes the bankruptcy filing to sustained downturns in the commodities markets, exacerbated by “unprecedented” volatility and market uncertainty related to the Covid-19 pandemic. In his first day declaration, CFO Quentin Hicks notes “near-term liquidity and capital structure challenges.” Hicks states that lenders under its reserve-based lending facility on Oct. 8 reduced the company’s borrowing base to $580 million from $700 million, “leaving the debtors without access to any further liquidity” under the facility.

Hicks also states that another “key component” of the debtors’ plan and RSA milestone is that there would be “significant cost savings that will come from rejecting certain of the Debtors’ midstream contracts.” With that end, the debtors are filing rejection motions and adversary proceedings “to address these high midstream costs,” says Hicks. In order to consummate the plan and enter into the exit facility, the debtors are “required to permanently reduce their contractual future demand reservation fees by at least 50% of the present value of all such fees owed on October 31, 2020, and reduce the future firm transportation average daily demand reservation volumes by at least 35% of the amount as of October 31, 2020,” says the first day declaration (emphasis added). The rejection motions and adversary proceedings are summarized below.

The company’s prepetition capital structure is as follows:
Gulfport energy capital structure

According to the cash management motion, as of the petition date, the debtors have approximately $39 million of cash on hand.

The prepetition first lien credit facility is secured by substantially all of the Debtors’ assets and obligations and is guaranteed by each of Gulfport’s wholly owned subsidiaries, excluding Mule Sky LLC. All of Gulfport’s existing and future restricted subsidiaries that guarantee the credit facility, or certain other debt, guarantee the unsecured notes, but the notes are not guaranteed by Mule Sky LLC. Wells Fargo is the trustee of the notes.

Other liabilities include a mark to market liability under prepetition swap contracts, as discussed below, of $123 million as of Nov. 9, which the debtors say would rank pari passu with the RBL facility, plus certain “sold call” transactions of approximately $60.3 million.

The case has been assigned to Judge David Jones (case No. 20-35562). The debtors are represented by Kirkland & Ellis and Jackson Walker as co-counsel; Alvarez & Marsal as restructuring advisor; and Perella Weinberg Partners and its affiliate Tudor Pickering as financial advisor.

A first day hearing is scheduled for this afternoon, Monday, Nov. 16 at 4:30 p.m. ET.

Background

Founded in 1997 and headquartered in Oklahoma City, Gulfport has for the past five years focused on the exploration and production of natural gas and NGLs. Gulfport is a leading producer in the southern portion of Appalachia’s Utica Shale and the Oklahoma’s SCOOP play, with some 280,000 net reservoir acres and 4.5 trillion cubic feet of proved reserves; operating revenue for the 12-month period ending Sept. 30 was approximately $1.35 billion. CFO Quentin Hicks’ first day declaration notes that Gulfport’s management team is of relatively recent vintage: CEO David Wood was appointed in December 2018 and Hicks himself in August 2019. “The new management team transitioned the Debtors’ business from growth-oriented to a returns-based business, focused on generating cash flow and operating as cost-effectively as possible,” Hicks states.

Gulfport, like many industry peers, “experienced significant challenges over the past several years due to sustained downturns and volatility in commodities markets.” Hicks states. “Such challenges have been exacerbated throughout 2020 by the unprecedented volatility in global energy prices and market uncertainty due to the effects of the COVID-19 pandemic.” The debtors’ liquidity was further constrained by high fixed costs, including interest on the unsecured notes, high fixed-capacity reservation payments on firm transportation agreements, and firm transportation rates “that sometimes resulted in reduced margin versus selling natural gas in-basin.”

The debtors “quickly took action” to address these challenges, Hicks states, hiring Kirkland & Ellis, Perella Weinberg Partners and Tudor Pickering to explore alternatives, including M&A, financing solutions, covenant relief and “various potential transactions” with holders of their unsecured notes, equityholders or other third parties. Through the late spring and early summer, the debtors discussed potential “deleveraging M&A transactions,” even exchanging term sheets for one potential merger.

“Due in part to the Debtors’ level of existing funded indebtedness, these M&A negotiations stalled, and no actionable merger proposals were received,” Hicks states. The debtors also explored a potential “uptiering” exchange with unsecured bondholders and entered into an amendment of their RBL facility that would have allowed for the issuance of new second lien notes. Although the debtors explored such a transaction with bondholders, they were “ultimately unable to reach terms to make such a transaction actionable,” Hicks says.

The debtors also explored alternative financing from third parties, including a new term loan and structures involving overriding royalty interest sales. “Unfortunately, the cost of capital for these structures was very high and did not provide enough deleveraging or liquidity enhancement to justify the costs or burdens that would be placed on the Debtors’ drilling inventory economics,” Hicks states, and “[a]dditionally, many of the proposed structures contained covenants and conditions precedent that would have either been very difficult for the Debtors to meet or that would have had a material impact on the Debtors’ ability to operate their business.”

Most importantly, however, nearly every out-of-court alternative was premised on the renegotiation of midstream transportation service agreements, or TSAs, to address their high fixed costs, Hicks says. “Despite extensive outreach and sustained interaction with these contract counterparties,” Hicks says, only one was willing to discuss a potential amendment. “After these good faith efforts at renegotiation resulted in no improvement to the Debtors’ fixed cost structure, it became clear that any material improvement to the Debtors’ [TSAs] would likely require an in-court process,” Hicks states.

Hicks notes that many of their TSA counterparties quickly turned to litigation. Four counterparties filed petitions with FERC seeking orders that it would not be in the public interest for there to be any modification or abrogation of the applicable agreements. FERC “quickly opened four ‘paper hearings’ to issue rulings on an expedited basis.” The one counterparty that had agreed to an amendment, Midship Pipeline Co., “breached its agreements and further depleted the Debtors’ liquidity.” According to Hicks, after receiving a $32.9 million prepayment as provided under the recent amendment, “Midship refused to reduce its credit support and drew down in full the $75.6 million letter of credit under the prior agreement. This resulted in Midship receiving $108.5 million in cash from the Debtors when it was only entitled to $79.2 million. Midship’s brazen breach, for the bald purpose of obtaining leverage against the Debtors during their restructuring, further reduced the Debtors’ liquidity in the weeks leading up to the Petition Date.”

Beginning in July, the debtors engaged actively with an ad hoc group of noteholders represented by Paul Weiss and Houlihan Lokey. They discussed potential restructuring options including discounted debt-for-debt exchanges and a prearranged chapter 11 process “to maximize value through potential renegotiation or rejection of certain midstream contracts,” recounts Hicks. As these discussions continued, the debtors faced “increasingly tightening liquidity” and looming deadlines related to their capital structure, with the Oct. 8 borrowing base reduction being the main catalyst for the bankruptcy filing, says Hicks. To facilitate the restructuring, Hicks notes that the debtors entered a grace period related to nonpayment of interest due Oct. 15 on their unsecured notes due 2024, at the same time entering a forbearance agreement with RBL lenders, and also entered a grace period for an interest payment due Nov. 1 on their 2023 notes and extended the forbearance with RBL lenders to Nov. 13.

The debtors' largest unsecured creditors are listed below:


 










































































10 Largest Unsecured Creditors
Creditor Location Type Amount
UMB Bank, N.A. Minneapolis 6% Senior Notes
Due 2024
596,955,040
UMB Bank, N.A. Minneapolis 6.375% Senior
Notes Due 2025
507,870,000
UMB Bank, N.A. Minneapolis 6.375% Senior
Notes Due 2026
374,617,000
UMB Bank, N.A. Minneapolis 6.625% Senior
Notes Due 2023
335,334,812
Universal Pressure
Pumping
Oklahoma City Trade 5,166,998
Ohio Gathering
Company LLC
Denver Trade 2,266,829
Marketwest Utica
EMG LLC
Denver Trade 2,125,580
EQT Production
Company, Corp.
Pittsburgh Joint Interest
Billings
2,063,065
B&L Pipeco
Services, Inc.
Houston Trade 2,026,540
Equitrans Water
(OH), LLC
Canonsburg, Pa. Trade 1,929,542

The case representatives are as follows:



 









































































































































































Representatives
Role Name Firm Location
Debtors' Co-Counsel Edward O. Sassower Kirkland
& Ellis
New York
Steven N. Serajeddini
Christopher S. Koenig Chicago
Anna G. Rotman Houston
Jamie Alan Aycock
Diana Clough Benton
Debtors' Co-Counsel Matthew D. Cavenaugh Jackson
Walker
Houston
Veronica A. Polnick
Cameron A. Secord
Debtors' Restructuring
Advisor
N/A Alvarez
& Marsal
N/A
Debtors' Financial
Advisor
Douglas McGovern Perella
Weinberg
Partners
New York
Debtors' Tax Advisor N/A PwC N/A
Counsel to the Special
Committee of the
Gulfport Energy Board
of Directors
N/A Wachtell, Lipton,
Rosen & Katz
N/A
Financial Advisor to
the Special Committee
of the Gulfport Energy
Board of Directors
N/A Chilmark
Partners
 N/A
Counsel to the Special
Committee of the
Governing Body of
Each Company
Other Than Gulfport
Energy Corporation
N/A Katten Muchin
Rosenman
N/A
Financial Advisor to the
Special Committee of
the Governing Body of
Each Company Other
Than Gulfport Energy
Corporation
N/A M-III
Partners
N/A
Co-Counsel to the
Ad Hoc Group of
Noteholders
Alan W. Kornberg Paul, Weiss,
Rifkind, Wharton
& Garrison
New York
Robert A. Britton
Michael M. Turkel
Miriam M. Levi
Stephanie P. Lascano
Co-Counsel to the
Ad Hoc Group of
Noteholders
John F. Higgins Porter
Hedges
Houston
M. Shane Johnson
Megan Young-John
Financial Advisor
to the Ad Hoc Group
of Noteholders
N/A Houlihan
Lokey
N/A
Co-Counsel to Nova
Scotia Bank
Adam J. Goldberg Latham
& Watkins
New York
Hugh K. Murtagh
Evan E. H. Schladow
Co-Counsel to Nova
Scotia Bank
Timothy A. Davidson II Hunton
Andrews
Kurth
Houston
Joseph P. Rovira
Catherine A. Diktaban
United States
Trustee
Hector Duran, Jr. Office of the
U.S. Trustee
Houston
Jayson B. Ruff
Stephen Douglass Statham
Debtors' Claims
Agent
Sophie Frodsham Epiq New York



 


Cleansing Materials

Included in cleansing materials, dated Nov. 15, Gulfport provides certain projections through 2024 using a range of natural gas prices including the Nymex strip as of Oct. 14 and assuming that prices remain flat at either $2.60 per Mcf, $2.75 per Mcf or $2.90 per Mcf. The company makes the following forecast for EBITDA and unlevered free cash flow through 2024:
EBITDA, Unlevered Free Cash Flow - Gulfport Chapter 11

Results are based on the above gas price assumptions and also production which ends the forecast period in 2024 roughly flat to the fourth quarter of 2020, after bottoming in 2022. According to the estimates, total production equals 1.084 Bcfe per day in the fourth quarter of 2020 bottoming at 999 Mcfe per day in 2022 and recovering to 1.072 Bcfe per day in 2024, with gains in the company’s SCOOP play offset by declines in Appalachia.

Capex is estimated to total $289 million in 2021, rising to $337 million in 2024.

G&A expenses are roughly flat at approximately $70 million, including approximately $25 million capitalized, through the forecast period.

Restructuring Support Agreement

The RSA contemplates the following milestones:

  • Monday, Nov. 16 (three business days after the petition date): deadline for entry of interim DIP order and hedging order (with the latter required under the DIP milestones);

  • Dec. 13 (30 days after the petition date): deadline for debtors to file plan, disclosure statement and concurrent filing of the backstop approval motion;

  • Dec. 18 (35 days after the petition date): deadline for entry of final DIP order;

  • Feb. 21, 2021 (100 days after after the petition date): deadline for entry of DS approval order;

  • April 2, 2021 (140 days after the petition date): deadline to file plan supplement;

  • April 27, 2021 (165 days after the petition date): deadline for entry of confirmation order; and

  • May 12, 2021 (180 days after the petition date): deadline for occurrence of plan effective date and for the court to have entered orders “permanently reducing the future demand reservation fees … taken as a whole, by at least 50%” and “reducing the future firm transportation average daily demand reservation volumes … by at least 35%,” as calculated from designated base dates.


Exit Credit Facility

The RSA includes a term sheet for the $1.5 billion senior secured exit credit facility, consisting of a senior secured revolver, with an initial commitment amount of $400 million, and a $180 million senior secured first-out term loan facility, term loan A. The exit credit facility would also include a second-out term loan facility, term loan B, if necessary. The initial borrowing base on the senior secured exit facility would initially be set at $580 million.

The loans from the exit credit facility would be used to repay all amounts outstanding under the DIP and prepetition credit facilities and would also be available to provide letters of credit up to $100 million.

The revolver matures on the date three years after the closing date. The first-out term loan facility would also mature in three years and would amortize at a rate of $15 million per quarter. The second-out term loan facility would mature 42 months after the closing date.

Interest under the revolver would be based on the following utilization grid:

The interest rates on the first-out and second-out term loans would accrue at L+3% and 2%, respectively, both subject to a 1% LIBOR floor.

Unsecured Notes

According to a term sheet attached to the RSA, the new unsecured notes given to the existing unsecured noteholders as part of the proposed plan would total $550 million. The notes would pay 8% interest and mature in five years from issuance. Guarantees would be the same as under the exit credit facility.

Convertible Preferred Stock

According to a term sheet attached to the RSA, the new convertible preferred stock would have a liquidation preference of $55 million initially, comprising $50 million of new-money proceeds plus the $5 million backstop. Dividends would accrue at either 10% cash or 15% PIK per year. However, the dividend would be limited to PIK as long as net debt / LTM EBITDA is equal to or greater than 1.5x. The PIK dividends would be cumulative and compound quarterly.

The conversion price for the preferred stock would be established on the basis of a 30% discount to plan equity value. If the preferred stock is redeemed within three years, the value would equal the liquidation value plus the sum of all remaining dividends through the initial three-year anniversary. The value would be just the liquidation value if redeemed after three years.

Other Terms

The RSA directs Gulfport to pay and reimburse the consenting stakeholder professionals’ transaction expenses accrued as of the agreement effective date and, after the agreement effective date has occurred, all accrued and unpaid transaction expenses on a monthly basis and within seven business days of receipt of invoices. On the plan effective date, Gulfport would pay all accrued and unpaid transaction expenses incurred, provided that once the Gulfport has obtained a final order of the bankruptcy court approving the payment of the transaction expenses of the consenting noteholder professionals, Paul Weiss shall deduct its transaction expenses from the noteholder counsel retainer until the noteholder counsel retainer is reduced to an amount that is at or below $2 million.

Plan of Reorganization

The plan of reorganization, filed concurrently with the chapter 11 filing, details the following classes of claims and case status:
Gulfport claims and interests

Treatment of Claims and Interests

The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:

  • Class 1 - Other secured claims: Each holder of an other secured claim would receive, at the option of the debtor, payment in full in cash, collateral that secures the other claim, reinstatement or such other treatment that renders the claim unimpaired.

  • Class 2 - Other priority claims: Each holder of an other priority claim would receive treatment in a manner consistent with section 1129(a)(9) of the Bankruptcy Code to render the claim unimpaired.

  • Class 3 - RBL Claims: Each holder of an RBL claim would receive (i) if such holder elects to participate in the exit RBL/term loan A facility, its pro rata share of the exit RBL/first-out term loan A, or (ii) if such holder does not participate, would receive its share of the exit second-out term loan B facility.

  • Class 4A - General unsecured claims against Gulfport parent: Each holder of a general unsecured claim (including noteholder claims, rejection damages claims and litigation claims) against Gulfport parent would receive its share of the Gulfport parent equity pool (which is equal to 6% of all new common stock, subject to dilution by the management incentive plan and any conversion by the new preferred stock). However, once holders of notes claims receive distributions up to 94% of the pre-dilution new common stock, the note claim holders would waive any excess recovery on account of their pro rata share of the Gulfport parent equity pool until holders of allowed general unsecured claims against the parent have received new common stock with a value sufficient to satisfy their allowed claim in full, based on plan value.

  • Class 4B - General unsecured claims against Gulfport subsidiaries: Each holder of a general unsecured claim (including noteholder claims, rejection damages claims and litigation claims) against Gulfport subsidiaries would receive (i) its pro rata share of the Gulfport subsidiaries equity pool (which is equal to 94% of the the new common stock, subject to dilution by the management incentive plan and any conversion by the new preferred stock); (ii) rights offering subscription rights to purchase the new convertible preferred stock; and (iii) new unsecured notes.

  • Class 5 - Intercompany claims: The plan shall be considered a settlement of the intercompany claims pursuant to Bankruptcy Rule 9019, and therefore any and all intercompany claims would be canceled on the effective date in exchange for the distributions contemplated by the plan to holders of claims.

  • Class 6 - Intercompany interests: Holders of intercompany interests would receive no recovery or distribution.

  • Class 7 - Gulfport parent interests: All interests in the Gulfport parent would be canceled, released and extinguished.

  • Class 8 - Section 510(b) claims: All allowed section 510(b) claims, if any, shall be canceled, released, and extinguished, and will be of no further force or effect.


DIP Financing Motion

The debtors seek entry into a $262.5 million DIP facility in the form of a superpriority revolving credit facility, which would provide $105 million of new-money commitments, with $90 million available on an interim basis, along with $157.5 million to roll up each DIP lender’s ratable share of the outstanding principal amount of the loans under the prepetition first lien credit agreement.

The DIP is part of a negotiated “DIP-to-exit” agreement with prepetition lenders for a committed $580 million exit facility that would refinance the prepetition revolver. On Oct. 8, the debtors’ prepetition RBL was redetermined to a borrowing base of $580 million from $700 million.

Interest on the DIP loan accrues at L+4.5% with a LIBOR floor of 1%. The DIP also includes an upfront fee of 1%, an unused commitment fee of 0.5% and letter of credit fees of 0.2%. The DIP matures the earlier of Aug. 31, 2021, the effective date of an approved plan of reorganization, the consummation of a sale of the debtors’ equity interests or assets, or the date of termination related to an event of default. Bank of Nova Scotia is the administrative agent.

Upon entry of the interim order, the debtors are to repay the terminated call exposure, as discussed below, in full. Other proceeds of the DIP will be used for fees and expenses, funding working capital, funding the first lien adequate protection payments and funding the costs of the administration of the chapter 11 cases.

To secure the DIP financing, the debtors propose to grant liens on all of the debtors’ unencumbered assets, to provide first-priority priming security interests on collateral of the prepetition secured parties and to provide a perfected junior-priority security interest in all of the debtors’ encumbered assets that were subject to prior prepetition liens.

The DIP obligations would also rank pari passu with the hedging obligations as part of the global resolution discussed below. Upon emergence, the hedging obligations would continue as part of the exit facility.

In support of the DIP motion, the debtors attach the declaration of Douglas McGovern, a partner at Perella Weinberg, the debtors’ proposed investment banker, to the DIP motion.

Adequate Protection

The company proposes the following adequate protection to its prepetition lenders: replacement liens on the DIP collateral; superpriority administrative claims, junior only to the DIP claims; reimbursement in cash for any and all reasonable fees; and delivery to the prepetition first lien agent of all reports and documents provided to the DIP parties.

In addition, the debtors propose, subject to entry of a final order, a waiver of the estates’ right to seek to surcharge the bridge facility 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 up to $5 million (following delivery of a carve-out trigger notice). The proposed interim DIP order provides for a standard and customary lien challenge period that must commence the earliest of (i) 40 calendar days after the petition date, or Dec. 13, or (ii) with respect to any official committee of unsecured creditors, 30 calendar days following its formation (but no later than 60 days following the petition date, or Jan. 12, 2021) and the date of confirmation of a chapter 11 plan.

DIP Budget

The proposed budget for the use of the DIP facility is HERE.

DIP Milestones

The DIP financing milestones conform to those required under the RSA.

Adversary Proceedings and Rejection Motions

Concurrently with the other first day filings, the debtors have commenced a number of adversary proceedings and filed several rejection motions directed at effectuating the “key component” of realizing cost savings, relieving the debtors of uneconomic midstream contracts and reducing the debtors’ demand reservation volume obligations.

To that end, the debtors are seeking to reject their negotiated midstream TSAs with Rockies Express Pipeline LLC, or Rockies; Rover Pipeline LLC, or Rover; several TC Energy Pipeline companies (ANR Pipeline Co., or ANR; Columbia Gas Transmission LLC, or Columbia Gas; and Columbia Gulf Transmission LLC, or Columbia Gulf); and Texas Gas Transmission. The rejection motions are also summarized below:

  • Motion to reject agreements with Rockies Express Pipeline LLC and Rover Pipeline LLC

    • This motion seeks to reject a series of firm transportation negotiation rate agreements with Rockies and Rover.

    • Rejection of the agreements with Rockies would allow the debtors to save approximately $8 million per year and $117 million over the term of the agreements, according to the pleading.

    • Rejection of the agreement with Rover would allow the debtors to save approximately $10 million per year and $105 million over the term of the agreement.



  • Motion to reject agreements with TC Energy Pipeline Cos. and Texas Gas Transmission

    • This motion seeks to reject a number of other firm transportation agreements with ANR, Columbia Gas and Columbia Gulf, and Texas Gas Transmission.

    • Rejection of the Columbia Gas agreement would allow the debtors to save approximately $14 million per year.

    • The debtors seek to reject the Columbia Gulf agreements because while they are profitable in isolation, they have been rendered uneconomic due to the requirement that gas be first transported under the Columbia Gas agreement.

    • Rejection of the agreement with Texas Gas would allow the debtors to save approximately $6 million per year and $85 million over the term of the agreement.




In connection with the rejection motions, the debtors have instituted two adversary proceedings to obtain related declaratory relief. The debtors commenced an adversary proceeding against the Federal Energy Regulatory Commission, or FERC, seeking declaratory relief. A number of the TSAs are subject to regulation by FERC, and Midship Pipeline Company LLC, or Midship, Rockies, Rover and TC Energy all instituted proceedings before FERC in anticipation of Gulfport filing for bankruptcy. The FERC proceedings were directed at prohibiting Gulfport from rejecting the TSAs without first obtaining authorization from the commission. Following the procedural response and hoping to obtain similar relief obtained in the Ultra chapter 11 proceedings, the debtors have instituted an adversary proceeding against FERC seeking a declaratory judgment confirming that rejection of the TSAs under the Bankruptcy Code constitutes a breach of the agreement “as opposed to modification or abrogation,” which requires FERC approval, and a confirmation of the bankruptcy court’s exclusive jurisdiction over rejection of contracts under section 365 of the Bankruptcy Code, “which FERC cannot preempt or veto acting under the [National Gas Act].”

The debtors also seek to enjoin FERC from issuing or enforcing orders or ruling under the prepetition proceedings that would interfere with the bankruptcy court’s exclusive jurisdiction over the rejection of contracts, would “hinder” the debtors’ ability to reorganize or would “enforce or compel” the debtors’ performance under the TSAs.

In addition, the debtors have also commenced an adversary proceeding against Midship seeking to recover $75.6 million, as well as punitive damages, in connection with what the debtors say was Midship’s improper drawing on a letter of credit related to the parties’ gas transportation agreement. The debtors have requested a hearing schedule in the adversary proceeding that would allow for a final judgment by mid-February 2021, including a requested hearing on dispositive motions during the week of Jan. 25 and a trial during the week of Feb. 8.

In the cleaning materials, the debtors detail outstanding letter of credits and the pipeline counterparty:
Gulfport summary of credit, letter of credit detail, surety bonds outstanding detail

Motion to Perform Under Prepetition Lender Swap Contracts

The debtors seek authority to continue many of their prepetition lender swap contracts and to enter into new hedging agreements postpetition, which the debtors state are part of a global resolution of hedge-related issues and are critical components of the RSA. According to the motion, absent the global resolution, the swap counterparties would have the right under the “safe harbors” provided by the Bankruptcy Code to terminate all of the prepetition contracts, which would result in $183 million owed to these parties.

The debtors hedge a significant portion of their production, according to the motion, and currently have approximately 26% of forecast production in 2021 hedged with various third-party financial institutions. As of Nov. 11, the debtors were party to hedging agreements on approximately 183,000 barrels of oil, 411 Bcf of gas, and 91,500 barrels of natural gas liquids. As of Nov. 9, the mark-to-market liability on the swap contracts was $123 million, which would rank pari passu with the RBL facility, according to the filing.

In addition, the resolution includes a “consensual termination” of certain “sold call” transactions for a payment by the debtors from the DIP facility of approximately $60.3 million. According to the DIP motion, 75% of the sold calls for 2022 were consensually terminated, and the parties agreed that the debtors would use approximately $60 million of the DIP financing proceeds to pay down these consensually terminated hedges in exchange for the counterparties agreeing not to terminate their remaining sold calls as the result of the debtors chapter 11 filing. The termination of the sold calls for 2022 is a condition precedent to the extension of the interim commitment contemplated by the DIP motion.

Other Motions

The debtors also filed various standard first day motions, including the following:




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