Basic Energy Services, Inc. – Announces Results of Auction as Trio of Asset Sales Generate $100mn (Topping $72mn in Stalking Horse Bids)

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September 16, 2021 – Further to a September 15th auction, the Debtors have filed a notice of successful bidders [Docket No. 366] which designates the winning bidder in respect of each of three asset sale groupings. Also filed was the the asset purchase agreements of Ranger Energy Acquisition, LLC (“Ranger”) [Docket No. 368] which has filed an 8K in respect of its acquisition of the Debtors' "Non-California Well Servicing Assets."

A sale hearing remains scheduled for September 23rd.

On September 15th, the Debtors had notified the Court of two starting bid; that of Ranger for the Non-California Well Servicing Assets ($26.25mn opener) and LKCM Headwater Investments III, L.P. (“LKCM”) for all of the "California Assets" ($28.6mn opener). No starting bid was notified in respect of the Debtors' "Non-California Water Logistics Assets."

Ranger in fact prevailed in at auction in respect of its target, although pushed to a purchase price of $36.65mn by back-up bidder Axis Energy Services Holdings, LLC (which had earlier been named stalking horse in respect of this asset grouping).

LKCM was ultimately topped by the $43.0mn bid of Berry Corporation (“Berry,” which had earlier been designated as a stalking horse) for the California Assets, with LKCM to serve as back-up bidder.

Select Energy Service, the stalking horse in respect of the Non-California Water Logistics Assets as named as the successful bidder in respect of that asset grouping with a $20.0mn purchase price. No back-up bidder was named and no explanation given as to the shift upwards in purchase price (Select Energy's initial stalking horse bid was $15.0mn)

Auction Results

The Debtors' notice provides: "As a result of the Auction, the Debtors identified the following Successful Bidders and Successful Bids and the Back-Up Bidders and the Back-Up Bids:

  1. California Assets: i. Successful Bidder/Successful Bid: Berry Corporation (bry) (“Berry”), for a purchase price of $43,000,000 and otherwise on the terms and conditions of its final bid placed at the Auction ii. Back-Up Bidder/Back-Up Bid: LKCM Headwater Investments III, L.P., for a purchase price of $42,000,000 and otherwise on the terms and conditions of its final bid placed at the Auction
  2. Non-California Well Servicing Assets: i. Successful Bidder/Successful Bid: Ranger Energy Acquisition, LLC (“Ranger”), for a purchase price of $36,650,000 and otherwise on the terms and conditions of its final bid placed at the Auction ii. Back-Up Bidder/Back-Up Bid: Axis Energy Services Holdings, LLC, for a purchase price of $36,400,000 and otherwise on the terms and conditions of its final bid placed at the Auction
  3. Non-California Water Logistics Assets: i. Successful Bidder/Successful Bid: Select Energy Services, LLC, for a purchase price of $20,000,000 and otherwise on the terms and conditions of its Stalking Horse Bid."

Background

On August 25th, the Court hearing the Basic Energy Services cases issued a bidding procedures order (i) authorizing bidding procedures in respect of a sale of substantially all of the Debtors’ assets (the “Sale”), (ii) authorizing the Debtors to enter into stalking horse agreements with (a) Berry Corporation (“Berry,” $27.0mn bid), (b) Axis Energy Services Holdings, LLC (“Axis,” $17.5mn bid) and (c) Select Energy Services, LLC (“Select,” $15.0mn bid) (each, a “Stalking Horse Bidder” and, collectively, the “Stalking Horse Bidders”), (iii) approve bidder protections for the Stalking Horse Bidders and (iv) adopt a proposed auction/sale timetable culminating in an auction on September 13, 2021 (now September 15th) and a sale hearing on September 23, 2021. 

On August 17, 2021, Basic Energy Services, Inc. and 12 affiliated Debtors (OTCQX: BASX; “Basic Energy” or the “Debtors,” providers of wellsite services to oil and natural gas drilling and producing companies) filed for Chapter 11 protection noting $331.0mn of total assets and $549.0mn of total liabilities (as at March 31, 2021). At filing, the Debtors who emerged from a previous Chapter 11 at the end of 2016, noted “persistent liquidity and operational challenges.”

In a press release announcing the filing, the Debtors advised that: “…it has entered into asset purchase agreements with each of Axis Energy Services Holdings, LLC ('Axis'), Berry Corporation (NASDAQ: BRY) ('Berry') and Select Energy Services, Inc. (NYSE: WTTR) ('Select') pursuant to which, if consummated:

  • Axis will acquire substantially all of the Company's Well Servicing and Completion & Remedial segment assets outside of California.
  • Berry will acquire substantially all of the Company's assets in California.
  • Select will acquire substantially all of the Company's Water Logistics segment assets outside of California, including all of the assets of Agua Libre Midstream, LLC.

To facilitate the sales, Basic has commenced voluntary Chapter 11 proceedings…"

The Debtors' requesting motion [Docket No. 39] reads, “The consummation of value-maximizing sales of the Debtors’ assets is the cornerstone of these chapter 11 cases. To that end, the Debtors have secured three separate stalking horse agreements (each, a ‘Stalking Horse Bid’, and collectively, the ‘Stalking Horse Bids’) for the sale of substantially all of the Debtors’ (i) assets and equipment related to the Debtors’ California business lines, (ii) certain assets related to the Debtors’ well servicing and completion and remedial businesses outside of California and certain real property locations and (iii) certain assets related to the Debtors’ water logistics business outside of California, saltwater disposal wells, certain real property locations and certain accounts receivable (each, a ‘Stalking Horse Package’). The aggregate purchase price for these Stalking Horse Bids is $72 million, plus certain additional payments for working capital and the assumption of millions of dollars in liabilities. The Stalking Horse Bids are subject to higher or better offers to be solicited in accordance with the proposed Bidding Procedures….

The Stalking Horse Bids are the result of extensive prepetition marketing efforts and analysis by the Debtors and their advisors. The Debtors have left no stone unturned in advance of filing, and any party that may want to put in a bid is either well aware of or has been participating in the Debtors’ marketing process that has been ongoing for three (3) months. Given the extensive marketing efforts, the exigencies of the Debtors’ financial condition, the restrictions in the Debtors’ post-petition financing and use of cash collateral and the Stalking Horse Bids themselves, an expeditious sale of such businesses and assets is critical.

In support of the Debtors’ marketing and sale process (the ‘Marketing Process’), the Debtors and their advisors have developed bidding and auction procedures for the orderly and value-maximizing marketing and sale of the Debtors’ business (the ‘Bidding Procedures’). Under the Bidding Procedures, parties may submit bids for the purchase and sale of all or part of the Debtors’ businesses, in accordance with the Bidding Procedures. The Bidding Procedures are designed to continue to promote a competitive and robust bidding process and to generate the highest or otherwise best value for the Debtors’ estates, while allowing the Debtors to implement sale transactions on an expedited basis.

The Bidding Procedures are also intended to provide the Debtors with flexibility to solicit proposals, negotiate transactions, hold an auction and proceed to consummate the proposed Sale Transactions, all while protecting the due process rights of all interested parties and ensuring that there is a full and fair opportunity to review and consider proposed transactions.

Given the exigencies of the Debtors’ business operations and financial condition, it is vital that the Debtors consummate the Sale Transactions as soon as possible. Accordingly, the Debtors request approval of a comprehensive set of procedures that will facilitate a potential sale transaction in a timely and efficient manner.”

Marketing Efforts

The motion notes, “Following months of evaluating potential sale or merger transactions under the guidance of an independent special committee of the Board of Directors (the ‘Board’), in March 2021 the Debtors, with the assistance of Weil, Gotshal & Manges LLP (‘Weil’), Lazard Frères & Co. (‘Lazard’), and Alix Partners, LLP, focused their efforts on engaging with an ad hoc group of the Debtors’ bondholders and the Debtors’ ABL Lenders regarding a potential standalone reorganization transaction. After approximately three (3) months of deliberation, the Debtors, with the support of the Ad Hoc Group (as defined in the Bidding Procedures) and the ABL Lenders, determined it was in their best interest to explore a sale and marketing process to maximize the value of the Debtors’ estates. To implement this strategy, the Debtors and Lazard designed a process to solicit bids for the Debtors’ businesses or assets, including for all or part of the Debtors’ businesses or assets. Beginning in May 2021, Lazard began marketing substantially all of the Debtors’ businesses and assets (the ‘Marketing Process’).

In connection with this solicitation, the Debtors and their advisors prepared, among other things, comprehensive marketing materials and an electronic data room to provide potential investors and bidders with adequate information upon which to make a proposal. During this process, twenty-four (24) interested parties executed confidentiality agreements and were granted access to the electronic data room, which contains significant diligence and other confidential information about the Debtors’ businesses and assets. Lazard informed each of these parties that the Company required a fast-tracked transaction in order to address the Company’s liquidity and operational needs and that the Debtors would likely be filing these chapter 11 cases in the near-term. The parties were invited to submit an indication of interest and/or a formal written letter of intent to act as a stalking horse bidder for the sale of the Debtors’ assets.

The Debtors received ten (10) indications of interest (‘IOIs’), including multiple bids for the Debtors’ water logistics business. In evaluating the IOIs, the Debtors analyzed, among other considerations: (i) the structure of the proposed transaction; (ii) the form and amount of consideration offered; (iii) the assets to be acquired and the liabilities to be assumed; and (iv) any execution or other risks. The Debtors met regularly with their advisors and consulted with their key stakeholders before and after IOIs were submitted. Lazard also continued to work with all interested parties to maintain competitive tension and interest.

The Debtors engaged in extensive negotiations with the Stalking Horse Bidders over the terms of potential agreements to purchase the Assets, and ultimately executed binding purchase agreements.

Prospective bidders have continued to express interest and stay engaged. Accordingly, the Debtors believe that the targeted Marketing Process will allow them to maximize value for their estates for the benefit of their stakeholders. Throughout the Marketing Process, the Debtors coordinated with all of their major stakeholders, allowing such stakeholders to provide input prior to execution of any IOI or purchase agreement. Additionally, the Marketing Process for the Debtors’ businesses and assets has been, and is expected to remain, comprehensive and vigorous.

While the Debtors believe they have conducted a comprehensive outreach in the market to prospective bidders, the Debtors would like to use the postpetition Marketing Process to allow additional or existing interested bidders to offer higher or better terms. The Debtors intend to continue their discussions with bidders who expressed interest in the Debtors’ businesses or assets. At the same time, the Debtors and their creditors have the benefit of the Stalking Horse Bids, which will set a floor price for the Debtors’ businesses and assets. As such, the Debtors have determined that it is in their best interest to (i) continue marketing the Debtors’ businesses and assets postpetition, (ii) continue the ongoing diligence with all interested parties, and (iii) continue/complete the Marketing Process in chapter 11, to maximize value of the Debtors’ estates.”

Key Terms of Berry Stalking Horse Agreement:

  • Seller(s): Basic Energy Services, Inc., Basic Energy Services, L.P., C&J Well Services, Inc., and KVS Transportation, Inc. (the “Berry Sellers”)
  • Buyer: Berry Corporation
  • Purchase Price: $27.0mn cash, plus adjustments based on the amount of accounts receivable being acquired by Berry and accounts payable being assumed by Berry.
  • Break-up fee: $810,000 (3% of purchase price) plus reasonable and documented costs and expenses up to $540,000, to be treated as super-priority administrative claims in any bankruptcy case.

Key Terms of Axis Stalking Horse Agreement:

  • Seller(s): Basic Energy Services, Inc., Basic Energy Services, L.P., C&J Well Services, Inc., and KVS Transportation, Inc. (the “Axis Sellers”).
  • Buyer: Axis Energy Services Holdings, LLC
  • Purchase Price: Aggregate consideration consisting of:
    • $17.5mn cash,
    • $7.5mn of Class D preferred units of Axis, plus acquired accounts receivable less assumed prepetition accounts payable that is related to accounts that have valid rights to assert a lien.
  • Break-up fee: $750,000 (3% of the purchase price) plus reasonable and documented costs and expenses up to $500,000 (“Expense Reimbursement”), to be treated as super-priority administrative claims in any bankruptcy case.

Key Terms of Select Stalking Horse Agreement:

  • Seller(s): Basic Energy Services, Inc., Basic Energy Services, L.P., C&J Well Services, Inc., and KVS Transportation, Inc. (the “Select Sellers”).
  • Buyer: Select Energy Services, LLC
  • Purchase Price: Aggregate purchase price consisting of the following:
  1. $15.0mn cash.
  2. $5.0mn of Class A common stock of Select.
  • Break-up fee: $500,000 (2.5% of the purchase price) plus reasonable and documented costs and expenses up to $500,000, to be treated as super-priority administrative claims. The Stalking Horse Bid Protections are payable only upon consummation of an alternative transaction.

About the Debtors

According to the Debtors: “Basic Energy Services provides wellsite services essential to maintaining production from the oil and gas wells within its operating areas. The Company’s operations are managed regionally and are concentrated in major United States onshore oil-producing regions located in Texas, California, New Mexico, Oklahoma, Arkansas, Louisiana, Wyoming, North Dakota, Colorado and Montana. Our operations are focused in prolific basins that have historically exhibited strong drilling and production economics in recent years as well as natural gas-focused shale plays characterized by prolific reserves. Specifically, the Company has a significant presence in the Permian Basin, Bakken, Los Angeles and San Joaquin Basins, Eagle Ford, Haynesville and Powder River Basin. We provide our services to a diverse group of over 2,000 oil and gas companies.”

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