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January 2, 2022 – The Debtors filed a motion to dismiss their Chapter 11 cases, noting that “there are no remaining assets of any value available for distributions to unsecured creditors or to support the administrative costs of pursuing anything other than the prompt exit from bankruptcy” [Docket No. 841].
The dismissal motion notes, “The Debtors filed these Chapter 11 Cases to effectuate a sale of their business as a going concern, thereby maximizing recoveries for the Debtors’ estates, preserving jobs, and maintaining business relationships. On August 9, 2021, the Debtors successfully consummated the sale of substantially all of their assets to the Purchaser (the ‘Sale’) in exchange for: (i) a credit bid in the aggregate amount of $250 million comprised of the full amount of the DIP Obligations and a portion of the Prepetition Obligations; (ii) the payment or assumption by the Purchaser of certain liabilities set forth in the APA, including Postpetition Payables and cure amounts; and (iii) the exclusion of $1.3 million in cash (the ‘Wind-Down Amount’) from the Sale, which remained with the Debtors post-closing to fund an orderly wind-down process in accordance with the budget agreed to by the Purchaser (the ‘Wind-Down Budget’).
As a result of the Purchaser’s payment and assumption of liabilities and agreement to fund the Wind-Down Amount, which the Debtors have used post-closing to satisfy ongoing administrative liabilities in accordance with the Wind-Down Budget, the Debtors believe that all valid administrative expense claims (other than professional fee claims) have either been paid or assumed by the Purchaser. The estates do not and will not have funds available to make a distribution to holders of general unsecured claims, however.
Although the Debtors have explored alternative options to bring these Chapter 11 Cases to a conclusion, the Debtors believe that it is clear that a dismissal is the most expeditious and cost-effective mechanism to wind down these Chapter 11 Cases. In reaching this conclusion, the Debtors determined that a dismissal would not negatively impact creditors (vis-à-vis conversion to chapter 7) because there are no remaining assets of any value available for distributions to unsecured creditors or to support the administrative costs of pursuing anything other than the prompt exit from bankruptcy.”
A hearing to consider the motion is set for February 23, 2022, with objections due by February 16, 2022.
On March 15, 2021, Nine Point Energy Holdings, Inc. and three affiliated Debtors (“Nine Point” or the “Debtors,” a Denver-based E&P company) filed for bankruptcy noting estimated assets between $100.0mn and $500.0mn and citing COVID-19, depressed commodity prices and the Saudi/Russia price war as necessitating Chapter 11 protection.
On May 24, 2021, the Debtors filed a Chapter 11 Plan of Liquidation and a related Disclosure Statement [Docket Nos. 362 and 363, respectively].
On June 29th, the Court hearing the Nine Point Energy Holdings cases issued an order approving the sale of substantially all the Debtors’ assets to Meadowlark Resources LLC (the “Buyer,” an entity formed by prepetition and DIP lenders and agented by AB Private Credit Investors; $250.0mn credit bid) [Docket No. 528]. The April 9, 2021 asset purchase agreement (the “APA”) governing the terms of the sale is attached to the order as Exhibit 2.
Petition Date Perspective
In a June 17, 2019 press release, the Debtors announced: "Nine Point Energy, LLC ('Nine Point') is pleased to announce its entry into a $320MM term loan facility with AB Private Credit Investors LLC ('AB-PCI') as Administrative Agent and Lead-Arranger. The purpose of the facility is to fund the continued growth of Nine Point's Williston Basin development program.
Patrick Gimlett, a Managing Director who leads AB-PCI's origination efforts in Energy added in that release, "Upstream oil and gas is a key area of specialization for us and we are excited to have utilized our industry knowledge and private credit structuring expertise to support Nine Point's continued growth."
Filing Date Highlights
- Prepetition lender agent AB Private Credit Investors to provide DIP financing and serve as stalking horse bidder ($250.0mn stalking horse APA)
- Debtors' third Chapter 11 filing in approximately five years
- Board of directors rejected prepetition purchase offers in out-of-court marketing process
- Pandemic and oil price drop hurt revenue
Goals of the Chapter 11 Filing
The Castellano Declaration [Docket No. 23] states, "The Debtors’ chief objective in commencing the Chapter 11 Cases is to pursue a value maximizing sale transaction that can optimally position the Debtors’ business for long-term success while also preserving the Debtors’ employees’ job. The Debtors believe that the proposed sale provides the Debtors with the best presently available opportunity to accomplish these goals and ensure their operations are preserved as a going-concern. In addition, the Debtors believe that the liquidity guaranteed under the DIP Term Sheet during the Chapter 11 Cases will ensure that the Debtors preserve value during the chapter 11 process and that the Debtors’ operations are best positioned to capitalize on opportunities for profitable growth following emergence."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Castellano Declaration”) [Docket No. 23], John R. Castellano, the Debtors’ restructuring advisor, detailed the events leading to Nine Point’s Chapter 11 filing. The Castellano Declaration provides: “The year 2020 marked a sudden, unprecedented, and precipitous drop in oil prices due to (a) the global outbreak of COVID-19 and the resulting dramatic drop in oil and gas demand and (b) the oil price war between Russia and the Organization of the Petroleum Exporting Countries. These events, compounded by the disastrous and ongoing macroeconomic impact of the COVID-19 pandemic on both the United States and the global economy, has left the Debtors — through no fault of their own — facing significant economic challenges.
In 2020, monthly average commodity spot prices fell to year-to-date lows of $16.55/Bbl for oil (in April) and $1.63/MMBtu for natural gas (in June). While oil prices have rebounded of late, the Debtors are still facing economic headwinds due to the ongoing COVID-19 pandemic and the effects of the drop in oil prices during 2020. The commodity price downturn has had predictable consequences on the Debtors. Excluding the effects of hedges and derivative activities, the Debtors’ weighted average sale price per barrel of oil equivalent fell from $41.13 in the fourth quarter of 2019 to $29.68 in the fourth quarter of 2020. As a result, the Debtors’ revenue from commodity sales (excluding the effects of hedges and other derivatives) declined over $36.4 million from the fourth quarter of 2019 to the fourth quarter of 2020. April 2020 revenue of $2.6 million represented the lowest monthly total in the Debtors’ history. The same trends are evident in the Debtors’ proven reserve values, which fell, by the Debtors’ estimates, from nearly $562 million at the end of fiscal year 2019 to approximately $120 million at the end of fiscal year 2020. The downturn has also affected the Debtors’ production, which dropped from approximately 15,000 boep/d as of December 31, 2019 to approximately 8,700 boep/d as of December 31, 2020.
The Debtors responded to the fall in commodity prices by proactively managing their liquidity and preserving the value of their business. Specifically, they took steps to reduce headcount (current headcount is down 16% from 2019 levels), limit workover activity, curtail capital expenditures by halting drilling and completion operations (in 2019 the Debtors drilled 20 gross wells and completed 22 gross wells, whereas in 2020 the Debtors drilled 2 gross wells and only completed 1 gross well resulting in a 73% reduction in capital expenditures), adjust the operating disbursement schedule, prioritize payments to vendors that are critical to ongoing business operations and delay non-essential payments.
In addition, the Debtors have judiciously managed their access to liquidity under the Prepetition Credit Facilities. In January of 2020, the Debtors drew down all availability under the Revolving Loan Facility. Then, in February of 2020, the Debtors restructured certain crude oil derivatives to improve their downside protection by approximately $2.5 million. The Debtors have also secured an approximately $1 million loan from the Small Business Administration under the Paycheck Protection Program and intend to seek full forgiveness of that loan.
Prior to the Petition Date, the Debtors entered into a Credit Agreement, dated as of June 7, 2019 by and among NPE, as borrower, Holdings, the lenders party thereto from time to time and AB Private Credit Investors LLC, as administrative agent, collateral agent and sole lead arranger (the “Prepetition Agent” and, together with the Prepetition Secured Lenders and Prepetition Secured Swap Counterparties, the “Prepetition Secured Parties”). The Prepetition Credit Agreement provides for an initial term loan commitment in the aggregate principal amount of $225 million (the “Initial Term Loan Facility”), a delayed draw term loan commitment in the aggregate principal amount of $80 million (the “Delayed Draw Term Loan Facility”) and a revolving loan commitment in the aggregate principal amount of $15 million (the “Revolving Loan Facility,” and together with the Initial Term Loan Facility and the Delayed Draw Term Loan Facility, the “Prepetition Credit Facilities”). As of the Petition Date, the Debtors owed an aggregate principal amount of approximately $256.9 million, plus approximately $4.3 million in accrued but unpaid interest (excluding PIK interest) (the “Prepetition Loans”), and other fees, costs and expenses, on the Prepetition Loans.
The Debtors are also obligated under certain swap agreements (the “Prepetition Swap Agreements”) with certain Secured Swap Counterparties (as defined in the Prepetition Credit Agreement, the “Prepetition Secured Swap Counterparties;” and the obligations under such Prepetition Swap Agreements, the “Prepetition Secured Swap Obligations”). As of March 12, 2021, the mark to market value of the Prepetition Secured Swap Obligations is approximately $16.1 million that would be owing by NPE.
On June 21, 2019, the Triangle Petroleum Debtors notified the Court that their Plan of Reorganization had become effective as of June 21, 2019. The Debtors' said they would emerge from bankruptcy in the hands of secured noteholder J.P. Morgan Securities, LLC (“JPMS”), which was in line for an estimated 36% – 43% recovery in respect of its $167.1mn note. JPMS's actual recovery depended on what it paid for the note, purchased in distress in October 2017, and what the Debtors' two principal assets, (i) Bakken Real Estate Development LLC (“BRED,” which owns a portfolio of residential and commercial real estate in Western North Dakota) and (ii) a minority interest in midstream services company, Caliber Holdings, were actually worth.
Additionally, in June 2016, Triangle USA Petroleum Corporation ("TUSA") and its subsidiaries and Ranger Fabrication, LLC and its respective subsidiaries, all of which were wholly owned direct or indirect subsidiaries of TPC at the time, filed Chapter 11 cases in the United States Bankruptcy Court for the District of Delaware. On March 24, 2017, the TUSA Debtors’ Plan took effect. Pursuant to the TUSA Plan, TPC’s equity interest in TUSA was cancelled.
Significant Prepetition Shareholders
Nine Point Energy Holdings' largest shareholders are:
- JPMorgan Securities LLP, with 235,879,985 shares held;
- CEC II TI Pool LP, with 176,380,726 shares held;
- Canyon Value Realization Fund LP, with 147,302,028 shares held; and
- Canyon Balanced Fund LP, with 103,249,766 shares held
About the Debtors
According to the Debtors: “Nine Point Energy is a private exploration and production company focused on value creation through the safe, efficient development of oil and gas assets within the Williston Basin."
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