Extraction Oil & Gas, Inc. – Energy Exploration and Development Company Secures Confirmation of Sixth Amended Plan of Reorganization

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December 23, 2020 – The Court overseeing the Extraction Oil & Gas cases issued an order confirming the Debtors' Sixth Amended Plan of Reorganization [Docket No. 1509].

On June 14, 2020, Extraction Oil & Gas, Inc. and nine affiliated Debtors (NASDAQ: XOG; “Extraction” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11548. At filing, the Debtors, an independent, Denver-based energy exploration and development company, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. The Debtors most recent 10-Q listed total assets and total liabilities of $2.7bn and $2.28bn, respectively. 

On December 22, 2020, the Debtors filed a Sixth Amended Plan of Reorganization and a related Disclosure Statement Supplement [Docket Nos. 1505 and 1507, respectively], and separately filed a Plan blackline showing changes to the version filed on December 21st [Docket No. 1506].

On December 21, 2020, in anticipation of their December 21st Plan confirmation hearing, the Debtors also filed (i) Amended Plan voting results [Docket No. 1430] and (ii) a memorandum in support of Plan confirmation (the “Memorandum”) [Docket No. 1410].

The Fifth Amended Plan incorporated a Global Settlement of issues among the Debtors, the Creditors’ Committee, the Required Consenting Senior Noteholders and the Backstop Parties. Additionally, the Fifth Amended Plan clarified the details of a GUC Cash Out Election, under which Holders of General Unsecured Claims may elect to receive, in lieu of their Pro Rata share of GUC Subscription Rights, Cash in an amount equal to their Pro Rata share of $17.5 million (which represents 65% of the total value of the GUC Subscription Rights, or such higher amount as agreed upon by the Debtors, the Required Consenting Senior Noteholders, the Required Backstop Parties and the Creditors’ Committee, in full and final satisfaction of such General Unsecured Claims.

The Sixth Amended Disclosure Statement [Docket No. 1502] includes a “Summary of Plan Modifications,” which states that modifications were made to the treatment of General Unsecured Claims, Article IV of the Plan was amended to incorporate the terms of a Midstream Settlement and equity rights offering details were amended in Article 4.F.4. of the Plan. (See more on Sixth Amended Plan changes below).

Overview of the Plan

The Debtors' Memorandum in Support of Confirmation of the Fourth Amended Plan (no Memorandum has been filed in support of the Fourth Amended Plan), states [Docket No. 1410]. "The Court should confirm the Plan. The Plan marks a significant achievement for the Debtors — despite the readily apparent challenges of restructuring in the midst of the COVID-19 pandemic and severe price dislocations in the oil and gas sector, the Debtors have nearly reached consensus around a plan of reorganization that will shed over $1.4 billion of funded debt, inject new equity into the reorganized Debtors, provide meaningful recoveries to unsecured creditors and pay essential trade claimants and vendors in full….

Despite the foregoing and their best efforts, the Debtors were not able to resolve every objection to Confirmation of the Plan…For the reasons set forth herein, the Debtors believe that the Plan comports with the requirements of the Bankruptcy Code and that the objections to the Plan should be overruled. Accordingly, the Court should confirm the Plan and send a clear message to the Debtors’ employees, customers, vendors, and stakeholders that the Debtors are positioned for go-forward success upon exit from chapter 11."

The Disclosure Statement [Docket No. 1019] notes, “The Plan provides for the restructuring of the Debtors through a Stand-Alone Restructuring. The Debtors contemplated a dual-track process that included a Combination Transaction, but ultimately determined the Stand-Alone Restructuring was the superior path forward. 

On the Effective Date, (i) Reorganized XOG shall issue the New Common Shares and the New Warrants to fund distributions to certain Holders of Claims and Interests in accordance with Article III of the Plan, (ii) Reorganized XOG shall enter into the Exit Facility, which shall be a new credit facility and/or term loan in an amount sufficient to pay on the Effective Date certain Holders of Claims as set forth in Article III of the Plan, and to provide incremental liquidity and (iii) the New Board shall be authorized to implement the Management Incentive Plan.

The Reorganized Debtors will fund distributions under the Plan with Cash on hand on the Effective Date, the revenues and proceeds of all assets of the Debtors, including proceeds from all Causes of Action not settled, released, discharged, enjoined or exculpated under the Plan or otherwise on or prior to the Effective Date, the Exit Facility, the Equity Rights Offering, the New Common Shares and the New Warrants.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement; also see Liquidation Analysis below):

  • Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 3 (“Revolving Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $465,143,000 and the estimated recovery with and without the GUC Equity Rights Offering is 100%. Each Holder of a Revolving Credit Agreement Claim will receive either: (i) if such Holder elects to participate in the Exit RBL Facility on a pro rata basis, determined on a ratable basis with respect to its percentage of the Obligations (as defined in the Revolving Credit Agreement) under the Revolving Credit Agreement, such Holder of a Revolving Credit Agreement Claim will become an Exit RBL Facility Lender in accordance with the terms of the Exit RBL Facility Documents; or (ii) if such Holder does not elect to participate in the Exit RBL Facility as provided above (including by not making any election with respect to the Exit RBL Facility on the ballot), its Pro Rata Share of the Exit Term Loans.
  • Class 4 (“Senior Notes Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $1,131,866,000 and the estimated recovery with the GUC Equity Rights Offering is 25.9% and without is 24.4%. Each Holder of a Senior Notes Claim shall receive its Pro Rata share of (A) the Claims Equity Allocation and (B) the Senior Noteholder Subscription Rights.
  • Class 5 (“Trade Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 6 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $626,702,000 and the estimated recovery with the GUC Equity Rights Offering is 16.7% and without is 19.5%. Each Holder will receive its Pro Rata share of: (i) the Claims Equity Allocation; and (ii) the GUC Subscription Rights, subject to Article IV.E.4 of the Plan; provided that each GUC Cash Out Holder will receive, in lieu of the GUC Subscription Rights, Cash in an amount equal to 40% of the value of such Holder’s GUC Subscription Rights.
  • Class 7 (“Existing Preferred Interests”) is impaired and entitled to vote on the Plan. The projected amount of interests is $198,660,000 and the estimated recovery with the GUC Equity Rights Offering is 6% and without is 3.3%. Each Holder of an Existing Preferred Interest will receive its Pro Rata share of (A) 50% of the Existing Interests Equity Allocation, (B) the Existing Preferred Interest Subscription Rights, (C) 50% of the Tranche A Warrants and (D) 50% of the Tranche B Warrants; provided that if Class 3, 4, 6, or 8 votes to reject the Plan, Holders of Existing Preferred Interests will receive no distribution and any Existing Preferred Interest Subscription Right will be canceled.
  • Class 8 (“Existing Common Interests”) is impaired and entitled to vote on the plan. The estimated recovery with GUC Equity Rights Offering and without the GUC Equity Rights Offering is N/A. Each Holder of an Existing Common Interest will receive its Pro Rata share of (A) 50% of the Existing Interests Equity Allocation, (B) the Existing Common Interest Subscription Rights, (C) 50% of the Tranche A Warrants and (D) 50% of the Tranche B Warrants; provided that if Class 3, 4, 6, or 7 votes to reject the Plan, Holders of Existing Common Interests will receive no distribution and any Existing Common Interest Subscription Right will be canceled.
  • Class 9 (“Other Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 10 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 11 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 12 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the plan.

Voting Results

On December 16, 2020, the claims agent notified the Court of the Plan voting results [Docket No. 1364]. On December 19, 2020, the claims agent filed the amended Plan voting results [Docket No. 1430], which were as follows:

  • Class 3 (“Revolving Credit Agreement Claims”): 16 claim holders, representing $478,934,990.90 (100%) in amount and 100% in number, voted in favor of the Plan.
  • Class 4 (“Senior Notes Claims”): 297 claim holders, representing $1,051,725,000.00 (99.89%) in amount and 98.67% in number, voted in favor of the Plan. 4 claim holders, representing $1,141,000.00 (0.11%) in amount and 1.33% in number, rejected the Plan.
  • Class 6 (“General Unsecured Claims”): 164 claim holders, representing $199,112,636.31 (39.05%) in amount and 84.10% in number, voted in favor of the Plan. 31 claims holders, representing $310,837,286.44 (60.95%) in amount and 15.90% in number, rejected the Plan. 10 abstained members representing $970,223.35.
  • Class 7 (“Existing Preferred Interests”): 6 claim holders, representing $170,000.0 (100%) in amount and 100% in number, voted in favor of the Plan.
  • Class 8 (“Existing Common Interests Total”) (DTC): 424 claim holders, representing $7,573,094.00 (84.50%) in amount and 79.10% in number, voted in favor of the Plan. 112 claims holders, representing $1,388,888.00 (15.50%) in amount and 20.90% in number, rejected the Plan.
  • Class 8 (“Existing Common Interests Total”) (Registered): 7 claim holders, representing $50,097,932.00 (100%) in amount and 100% in number, voted in favor of the Plan.

Sixth Amended Plan

The Disclosure Statement Supplement provides the following in respect of changes included in the Debtors' Sixth Amended Plan:

  • The treatment of Claims pursuant to the Plan has been modified. Each Holder of a General Unsecured Claim will receive its Pro Rata share of: (i) the Claims Equity Allocation; and (ii) the GUC Subscription Rights; provided that each GUC Cash Out Holder will receive, in lieu of the GUC Subscription Rights, Cash in an amount equal to 65% of the value of such Holder’s GUC Subscription Rights, or such higher amount as agreed upon by the Debtors, the Required Consenting Senior Noteholders, the Required Backstop Parties and the Creditors’ Committee; provided, further, that each Midstream Party that executes a Midstream Settlement Transaction Term Sheet shall waive its right to distributions under Article III.B.6.(b) of the Plan, including for the avoidance of doubt, any right to participate in the GUC Equity Rights Offering or the GUC Cash Out Election.
  • Article IV of the Plan has been amended to provide for the terms of the Midstream Settlement. Pursuant to the Midstream Settlement, on the Effective Date, the Participating AHG Members shall purchase the Settlement Shares from the Debtors for the Settlement Shares Purchase Price and the Debtors shall cause the Settlement Shares to be issued to the Participating AHG Members in accordance with the terms of the Share Purchase Agreement. The Debtors shall use the proceeds of the Settlement Shares to fund the applicable Midstream Settlement Payment to each Midstream Party in full and final satisfaction of each Midstream Claim. Each Midstream Party that executes a Midstream Settlement Transaction Term Sheet will waive the right to any other distributions under the Plan and will waive the right to participate in the GUC Equity Rights Offering or the GUC Cash Out Election on account of such Midstream Claims. For the avoidance of doubt, any proceeds on account of the Equity Rights Offering or the Exit Facility shall in no way be used to fund the Midstream Settlement Payments. The Participating AHG Members, and subject to each Midstream Party’s receipt of the Midstream Settlement Payment, each Midstream Party will be deemed to withdraw all pending litigation, appeals and other proceedings against the Debtors or in connection with such Midstream Party’s General Unsecured Claims and such Midstream Parties will be deemed to be Releasing Parties and Released Parties under the Plan notwithstanding any contrary election in such Midstream Parties’ ballots cast in connection with voting on the Plan.
  • The Equity Rights Offering Article IV.F.4 of the Plan has been amended to provide: Solicitation of the GUC Equity Rights Offering Shares will commence immediately following entry of the Confirmation Order. Each Midstream Party that executes a Midstream Settlement Transaction Term Sheet and each Participating AHG Member shall not be eligible to participate in the GUC Equity Rights Offering on account of any Midstream Claim or any of the Midstream Parties’ General Unsecured Claim. Article IV.F.4.a of the Plan has also been amended to provide as follows: In lieu of receiving its Pro Rata share of GUC Subscription Rights, Holders of General Unsecured Claims may make the GUC Cash Out Election and receive Cash in an amount equal to their Pro Rata share of $17.5 million (which represents 65% of the total value of the GUC Subscription Rights as set forth in the Disclosure Statement), or such higher amount as agreed upon by the Debtors, the Required Consenting Senior Noteholders, the Required Backstop Parties and the Creditors’ Committee in full and final satisfaction of such General Unsecured Claims. Holders of General Unsecured Claims that make the GUC Cash Out Election are still eligible to receive their Pro Rata share of the Claims Equity Allocation based on the Allowed amount of such Holders’ General Unsecured Claims.

The Equity Rights Offering

The Disclosure Statement provides: “In accordance with the Stand-Alone Restructuring, the Equity Rights Offering will allow the Debtors to raise necessary capital pursuant to the terms of the Plan. The Debtors and Reorganized Debtors, as applicable, will implement the Equity Rights Offering in accordance with the Equity Rights Offering Procedures. The Backstopped Equity Rights Offering Amount is $200 million and shall be fully backstopped by the Backstop Parties pursuant to the terms and conditions in the Backstop Commitment Agreement and the Backstop Order. The GUC Equity Rights Offering Amount is $50 million and is currently not backstopped.

Pursuant to the Backstop Commitment Agreement, the Equity Rights Offering Procedures, the Plan, and the other Equity Rights Offering Documents, the Equity Rights Offering shall be open to all Equity Rights Offering Participants. In advance of Confirmation, the Debtors shall file a motion seeking the Court’s determination with respect to the amount of certain General Unsecured Claims, including certain asserted rejection damages as a result of the Court’s November 2, 2020 bench ruling. Prior to or simultaneous with Confirmation, the Court shall have entered the GUC Estimation Order, which form order shall be reasonably acceptable to the Required Consenting Senior Noteholders and the Creditors’ Committee, determining the aggregate amount of Allowed General Unsecured Claims, which amount shall constitute a maximum limitation on such Allowed General Unsecured Claims for all purposes under the Plan, including for purposes of distributions, discharge, and GUC Subscription Rights. The Backstopped Equity Rights Offering Shares will be solicited simultaneously with Solicitation. Solicitation of the GUC Equity Rights Offering Shares will commence immediately following entry of the GUC Estimation Order. Holders of General Unsecured Claims shall have three (3) Business Days between commencement of the GUC Equity Rights Offering and the GUC Equity Rights Offering Subscription Deadline to exercise the GUC Subscription Rights; provided that no Holder of a General Unsecured Claim shall be permitted to exercise more than its Pro Rata share of the GUC Subscription Rights. The GUC Subscription Rights are not transferrable. The value ascribed to the GUC Subscription Rights is $26.9 million. Upon exercise of the Subscription Rights by the Equity Rights Offering Participants pursuant to the terms of the Backstop Commitment Agreement, the Equity Rights Offering Procedures, the Plan, and the other Equity Rights Offering Documents, the Reorganized Debtors shall be authorized to issue the Equity Rights Offering Shares in accordance with the Plan, the Backstop Commitment Agreement, the Equity Rights Offering Procedures, and the other Equity Rights Offering Documents. 

On the Effective Date, Reorganized XOG, subject to the terms of Article IV.E.4 and Article VII.C.1 of the Plan, shall issue (a) the Equity Rights Offering Shares pursuant to the Equity Rights Offering and (b) the New Common Shares to the Backstop Parties on account of the Backstop Obligations and the Backstop Commitment Premium pursuant to the terms of the Backstop Commitment Agreement. On the Effective Date, the rights and obligations of the Debtors under the Backstop Commitment Agreement shall vest in the Reorganized Debtors. Notwithstanding anything to the contrary in the Plan or the Confirmation Order, (a) the Debtors’ obligations under the Backstop Commitment Agreement shall remain unaffected and shall survive following the Effective Date in accordance with the terms thereof, (b) any such obligations shall not be discharged under the Plan, and (c) none of the Reorganized Debtors shall terminate any such obligations.”

Key Documents

On December 4, 2020, the Debtors filed their Initial Plan Supplement [Docket No. 1273] and attached the following exhibits:

  • Exhibit A: New Organizational Documents
  • Exhibit B: Exit Facility Documents
  • Exhibit C: Schedule of Retained Causes of Action
  • Exhibit D: Members of the New Board
  • Exhibit E: Schedule of Assumed Executory Contracts and Unexpired Leases
  • Exhibit F: Schedule of Rejected Executory Contracts and Unexpired Leases
  • Exhibit G: New Warrants Agreement
  • Exhibit H: Registration Rights Agreement
  • Exhibit I: Management Incentive Plan
  • Exhibit J: GUC Rights Offering Procedures

On December 17, 2020, the Debtors filed their First Amended Plan Supplement [Docket No. 1380] and attached the following exhibits:

  • Exhibit D: Members of the New Board
  • Exhibit E: Schedule of Assumed Executory Contracts and Unexpired Leases
  • Exhibit E-1: Redline to Version in Initial Plan Supplement
  • Exhibit F: Schedule of Rejected Executory Contracts and Unexpired Leases
  • Exhibit F-1: Redline to Version in Initial Plan Supplement

On December 21, 2020, the Debtors filed the Second Amended Plan Supplement [Docket No. 1472] and attached the following exhibits:

  • Exhibit E: Schedule of Assumed Executory Contracts and Unexpired Leases
  • Exhibit E-1: Redline to Version in Initial Plan Supplement

DIP Financing

The Debtors have obtained a commitment for $125.0mn of debtor-in-possession (“DIP”) financing from certain of their prepetition revolving credit facility lenders and underwritten by Wells Fargo Bank, National Association (the “DIP Facility”). The DIP Facility contemplates $50.0mn of new money ($15.0mn available upon entry of an interim DIP order) and a “roll-up” of $75.0mn of prepetition revolving loans.

Prepetition Indebtedness

Funded Debt

Maturity

Outstanding Principal

Interest

Secured Debt

Prepetition RBL Facility

August 2022

$650.0mn

L + 0.5% – 2.5%

 Total Secured Debt

$650.0mn

 

As of the Petition date, the Debtors’ capital structure included outstanding funded-debt obligations in the aggregate principal amount of approximately $1.75bn, comprised of: (i) $650.0mn of outstanding loans under the Prepetition RBL Facility with a $650.0mn borrowing base, (ii) $400.0m in outstanding principal amount of its 2024 Senior Notes and (iii) $700.2mn in outstanding principal amount of its 2026 Senior Notes.

Unsecured Debt

2024 Senior Notes

May 2024

$400.0mn

7.375%

2026 Senior Notes

February 2026

$700.2mn

5.625%

 Total Funded Debt

$1,750.2mn

 Outstanding Debt Obligations

Principal Prepetition Shareholders

  • YT Extraction Co Investment Partners, LP: 14.7%
  • Yorktown Energy Partners X, L.P.: 12.7%
  • Yorktown Energy Partners IX, L.P.: 5.6%
  • Yorktown Energy Partners XI, L.P.: 3.1%
  • BlackRock, Inc.: 9.1%
  • Morgan Stanley: 8.5%
  • Goldman Sachs & Co. LLC: 7.8%
  • Dimensional Fund Advisors LP: 5.7%

Liquidation Analysis (See Exhibit C to Disclosure Statement [Docket No. 1019] for notes)

About the Debtors

Denver-based Extraction Oil & Gas, Inc. is an independent energy exploration and development company focused on exploring, developing and producing crude oil, natural gas and NGLs primarily in the Wattenberg Field in the Denver-Julesburg Basin of Colorado. For further information, please visit www.extractionog.com. The Company’s common shares are listed for trading on the NASDAQ under the symbol: “XOG.”

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