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:
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:
Exit Credit Facility
- 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.
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.
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.
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:
Treatment of Claims and Interests
The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
DIP Financing Motion
- 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.
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.
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.
The proposed budget for the use of the DIP facility is HERE
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:
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.
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration / Order
- The cases will be jointly administered under case No. 20-35562.
- Motion for notification and hearing related to certain stock transfers
- The debtors seek to establish trading procedures for their common stock in order to be able to object to and prevent transfers if necessary to preserve net operating losses. The debtors have about $1.78 billion in NOLs.
- Motion to pay employee wages and benefits
- The debtors owe approximately $4.1 million in prepetition employee compensation and benefits.
- Motion to use cash management system
- The company has bank accounts with IberiaBank, Bank of America and JPMorgan Chase Bank NA.
- Motion to pay taxes and fees
- The debtors estimate that approximately $17.6 million relating to the prepetition period will become due and payable after the petition date.
- Motion to maintain insurance programs
- Motion to provide utilities with adequate assurance
- Application to appoint Epiq as claims, noticing, solicitation and administrative agent
- Motion to pay of mineral obligations
- The debtors estimate that as of the petition date, there is approximately $200.6 million outstanding on account of the royalties and non-operating working interest payments owed to holders of mineral and other interests.
- Motion to approve continuation of surety bond program
- In the 12 months preceding the petition date, the premiums for the surety bond program totaled approximately $1.9 million. However, as of the petition date, the debtors say they do not believe they owe any prepetition amounts on account of the surety bond program and are requesting authorization out of an abundance of caution.
- Motion to continue insurance coverage
- The aggregate annual premium for the insurance policies is approximately $12.9 million, not including applicable taxes and surcharges, deductibles, brokerage fees, consulting fees or commissions. However, as of the petition date, the debtors estimate there are no outstanding insurance policy premiums due but note that certain of the insurance policies’ premiums are subject to audit adjustment during or upon expiration of the applicable insurance policy.
- Motion to pay operating expenses, marketing expenses, shipping and warehousing claims and 503(b)(9) claims
- As of the petition date, the debtors estimate that they have approximately $74.3 million of operating expenses outstanding (including 503(b)(9) claims), approximately $36.7 million of which will come due and owing within the first 25 days of these chapter 11 cases. The debtors further estimate that they will be reimbursed approximately $3.3 million by owners of non-operating working interests.