December 14, 2021 – In advance of their December 15th Disclosure Statement hearing, the Debtors have filed a (i) Modified Second Amended Plan of Reorganization (showing changes only) [Docket No. 322] and (ii) an addendum to their Second Amended Disclosure Statement [Docket No. 321].

As amended, the Plan now treats the disputed $62.2mn PanAm LOU claim as part of Class 9 ("Existing Tenrgys Equity Interests") if it is allowed at all (with the debtors arguing in the first instance that it should not be). In addition to addressing the rationale for this treatment (see further below), the addendum to the Disclosure Statement also adds: (i) disclosure noting that further to the ongoing disputes with PanAm, "that it [is] no longer in the best interests of the Estates or their stakeholders to seek confirmation of a plan that relied on the Colombian Assets as a source of funding for its implementation [although the Debtors are hopeful that as a result of continuing efforts "the Colombian Assets may become an additional 'unbudgeted' source of funding for the Plan"] and (ii) adds disclosure as to $5.0mn of exit financing to be made available by members of management (see further below).

Plan Overview

On September 17, 2021, Tenrgys, LLC and 33 affiliated Debtors (“Tenrgys” or the “Debtors”) filed for bankruptcy noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn.

At filing, the Debtors pointed the finger squarely at creditor PanAm, owned by National Beverage founder Nick Caporella, which had acquired outstanding debt under the Debtors’ “2012 RBL Facility” (with a view to converting that debt into equity in the Debtors’ Colombian assets) in April 2019 before that relationship dramatically soured with the Debtors accusing PanAm of seeking “unilateral control over all of the Debtors’ business — international and domestic…” Please see our Petition date coverage for more on the relationship with PanAm.

The Second Amended Disclosure Statement [Docket No. 289] notes, “The Plan provides for the reorganization of the Debtors as a going concern and will significantly reduce the Reorganized Debtors’ long-term debt and annual interest payments, resulting in a stronger, de-levered balance sheet for the Reorganized Debtors… [T]he Plan provides for: 

1. the satisfaction of the Secured 2012 RBL Facility Claim by deferred cash payments over five years; 
2. the partial equitization and restructuring of the 2013 Loan Claim;
3. payment in full of Allowed General Unsecured Claims on the Effective Date or otherwise in the ordinary course of the Debtors’ business; and
4. Exit Financing of up to $5 million on the Effective Date to ensure liquidity and assist in commencing payments under the Plan.”

Update on PanAm Dispute and Colombian Assets

The Addendum to the Disclosure Statement provides: "…the Debtors’ wholly owned non-Debtor affiliate, Telpico, holds three oil and gas concessions in Colombia that have been assigned a risk-adjusted value of more than $97 million. These Colombian Assets are prospects that require significant capital to explore and develop, and each concession is subject to certain work-progress deadlines that must be met, or the ANH may terminate the concession. As described in Section II.B of the Disclosure Statement, the Debtors’ efforts to find third-party financial partners for the timely development of the Colombian Assets resulted in a relationship between the Debtors and PanAm, when PanAm and Tenrgys signed a letter of understanding dated April 2, 2019 (the ‘LOU’). But PanAm never provided the Debtors any funding for the Colombian Assets….

Because PanAm had been insisting on more and more control of the Colombian Assets and appeared already to have an alternative operator lined up to replace Telpico, the Debtors’ Original Plan in these Bankruptcy Cases proposed to surrender Telpico to PanAm in satisfaction of its alleged Secured 2012 RBL Facility Claim of approximately $71 million. The Debtors sought a confirmation timeline for their Original Plan that would have allowed the Debtors to continue performing necessary site-prep work—funded by the Debtors’ cash flows—until the Original Plan could be confirmed and ownership of Telpico transferred to PanAm in December 2021. This pace would have enabled the Debtors to work with PanAm to ensure a smooth transition and meet the necessary drilling deadlines…

But…PanAm objected to the Original Disclosure Statement accompanying the Debtors’ Original Plan. As a result of the Debtors’ efforts to address PanAm’s objections, the Debtors were unable to obtain Bankruptcy Court approval of the Original Disclosure Statement by the relevant milestone date in the Debtors’ prepetition RSA with the Consenting 2013 Loan Lender. Although the Debtors were able to enter into the Amended RSA with the Consenting 2013 Loan Lender, the Debtors determined, in light of the resulting delay, that it was no longer in the best interests of the Estates or their stakeholders to seek confirmation of a plan that relied on the Colombian Assets as a source of funding for its implementation. Therefore, the Debtors determined not to proceed with the Colombian Collateral Tender Transaction contemplated in the Original Plan.

Nevertheless, although the Debtors’ current Disclosure Statement and Plan do not rely on the Colombian Assets as a source of funding for implementation of the Plan, the Debtors are making every effort to preserve the value of the Colombian Assets to the greatest extent possible….In short, although the Plan does not assume the Colombian Assets will generate cash flows during the Plan period, the Debtors will use all reasonable efforts to maintain and maximize the value of the Colombian Assets, and the Debtors are hopeful that the Colombian Assets may become an additional “unbudgeted” source of funding for the Plan."

Update on Treatment of PanAm’s Second Proof of Claim

The Addendum to the Disclosure Statement provides: "On November 4, 2021, PanAm filed a proof of claim (Claim # 5-1) alleging the Secured 2012 RBL Facility Claim in the amount of $71,060,717.80 as of the Petition Date. The Debtors filed their Disclosure Statement and Plan on November 11, 2021. On November 24, 2021, PanAm timely filed a second proof of claim asserting an unsecured claim against the Debtors in the amount of $62,213,038.00 (Claim # 6-1, the ‘PanAm LOU Claim’), over and above the alleged Secured 2012 RBL Facility Claim.

In general, the PanAm LOU Claim alleges damages arising from the April 2, 2019 LOU, which is described in Section I of this Addendum and in Section II.B of the Disclosure Statement.

PanAm alleges that under the LOU, in the event of a chapter 11 filing by Tenrgys, Tenrgys was obligated to propose a chapter 11 plan that would convey to PanAm substantially all of the equity in the reorganized Tenrgys and entitle PanAm to receive a share of “Available Cash” distributed according to an “Available Cash Waterfall” as further described in the LOU. PanAm alleges that when Tenrgys filed these Bankruptcy Cases two-and-a-half years later, Tenrgys breached the LOU by failing to propose a chapter 11 plan that treats PanAm’s claims in the manner described in the LOU. PanAm further alleges that Tenrgys breached the covenant of good faith and fair dealing, engaged in a civil conspiracy with others to cause damage to PanAm, and induced PanAm to enter into the LOU by fraudulently misrepresenting in 2019 that in the event of bankruptcy, PanAm would receive substantially all of the equity in Tenrgys and a first-priority share of the “Available Cash” pursuant to the 'Available Cash Waterfall.' For all these claims arising from the LOU, PanAm alleges that it is entitled to an unsecured claim in the amount of $62,213,038 in “equity value” after and in addition to the full repayment of the Secured 2012 RBL Facility and all other debt.

The Debtors believe the claims and legal contentions asserted against them in the PanAm LOU Claim are not warranted by existing law, that material factual contentions contained in the PanAm LOU Claim have no evidentiary support, and that the PanAm LOU Claim is being presented for an improper purpose, such as to harass the Debtors, cause unnecessary delay of these Bankruptcy Cases, and/or enable PanAm to manipulate the voting process with respect to the Plan. Among other possible things, the Debtors intend to object to the PanAm LOU Claim and ask the Bankruptcy Court to disallow it for all purposes, if it is not withdrawn. 

The Debtors further believe that, because the PanAm LOU Claim arises from what PanAm alleges to be a transaction concerning securities of Tenrgys (or rescission, reimbursement, or contribution), to the extent, if any, the PanAm LOU Claim becomes an Allowed Claim, then section 510(b) of the Bankruptcy Code requires that the PanAm LOU Claim be subordinated to all claims or interests that are senior to or equal the claim or interest represented by the Tenrgys equity interests to which PanAm alleges it was entitled under the LOU, unless such equity interests constitute 'common stock' of Tenrgys, in which case the PanAm LOU Claim shall have the same priority as 'common stock.' Accordingly, under the Plan, any Allowed PanAm LOU Claim shall be included within Class 9 – Existing Tenrgys Equity Interests, and shall have the same priority as Existing Tenrgys Equity Interests for the purpose of distribution under the Plan.

PanAm disputes the Debtors’ above characterization of the PanAm LOU Claim."

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

• Class 1 (“Secured 2012 RBL Facility Claim”) is impaired and entitled to vote on the Plan. The aggregate amount of the claim is $71,060,717.80 and expected recovery is 100%. The Debtors will repay the Secured 2012 RBL Facility Claim in full over a five-year period in deferred Cash payments at an interest rate of 3.25% per annum, or such other interest rate as the Court may determine. Consistent with section 1129(b)(2)(A)(i) of the Bankruptcy Code, PanAm will retain its liens until the Secured 2012 RBL Facility Claim has been fully paid.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 4 (“Unsecured 2013 Loan Claim”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $122,327,458 and expected recovery is 30%. Each Holder will receive: (i) Payment of the sum of Five Hundred thousand Dollars ($500,000.00) in Cash; (ii) New Reorganized Tenrgys Membership Interests equal to thirty five percent (35.00%) of the equity in the Reorganized Tenrgys; and (iii) the New Secured Term Loan, which will be (a) a new $20 million floating rate second-lien term loan with market pricing (but with an interest rate of L+750 with a LIBOR floor of 1% if paid in cash, or L+950 with a LIBOR floor of 1% if paid in kind) and other market terms to be agreed and set forth in the New Secured Term Loan Documents.
• Class 5 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claim is $54,000 and expected recovery is 100%.
• Class 6 (“TOG Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 7 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 8 (“Intercompany Interests in the Debtors”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 9 (“Existing Tenrgys Equity Interests”) is impaired and entitled to vote on the Plan. Class 9 consists of all Existing Tenrgys Equity Interests.
  Class 9 shall also include the Allowed PanAm LOU Claim, if any. In  accordance with section 510(b) of the Bankruptcy Code and Bankruptcy Rule 7001(8), any Allowed PanAm LOU Claim shall be subordinated to  all claims or interests that are senior to Existing Tenrgys Equity Interests, and shall have the same priority as Existing Tenrgys Equity Interests for the purpose of distribution under the Plan. Treatment: On the Effective Date, each Holder of an Allowed Existing Tenrgys Equity Interest or Allowed PanAm LOU Claim on account of such Claim or Interest shall receive or retain such Holder’s Pro Rata share of 100% of the Reorganized Equity Interests, subject to dilution by the Reorganized Equity Interests to be received by the Holder of the 2013 Loan Claim.

Key Terms of Exit Facility Term Sheet

• Amount: $5.0mn
• Borrower: Reorganized Tenrgys, LLC
• Guarantors: All subsidiaries of Reorganized Tenrgys, LLC
• Facility Type: Term Loan
• Term: Five (5) Years and Three (3) Months
• Lenders: Certain members of the Tenrgys and Tellus Operating Group management teams
• Repayment: Principal due at maturity
• Interest Rate:  L + 750 cash pay quarterly; LIBOR floor of 100 bps
• Fees: None

Valuation of the Debtors’ Assets

The Disclosure Statement provides: “FTI Consulting, Inc. (‘FTI’) has valued the Debtors’ domestic oil-and-gas assets, including both oil-and-gas reserves and midstream assets, excluding the Colombian Assets (collectively, the ‘Domestic Assets’) between approximately $117,300,000 and $163,700,000 as of September 1, 2021. Moyes & Co. (‘Moyes’) has valued Telpico’s Colombian Assets between approximately $97,200,000 and $121,200,000 as of August 1, 2021.”

Key Documents

The Second Amended Disclosure Statement attached the following exhibits [Docket No. 289]:

• Exhibit A: Second Amended Plan of Reorganization 
• Exhibit B: Corporate Organization Chart 
• Exhibit C: Disclosure Statement Order 
• Exhibit D: Liquidation Analysis [updated at Docket No. 316]
• Exhibit E: Financial Projections [updated at Docket No. 317]
• Exhibit F: Amended RSA
• Exhibit G: FTI Valuation of the Debtors’ Assets

Proposed Key Dates

• Disclosure Statement Approval Deadline: December 22, 2021
• Confirmation Order Deadline: January 31, 2022
• Effective Date Deadline: February 23, 2022

Updated Liquidation Analysis [see Docket No. 316 for notes]

About the Debtors

According to the Debtors: “The Debtors operate an independent oil and natural gas business. Headquartered in Ridgeland, Mississippi, as of September 1, 2021, the Debtors had 11 productive fields and fieldwide units in Mississippi and Louisiana.

Debtor Tellus Energy, LLC (‘Tellus Energy’) and its Debtor subsidiaries Acadiana Mineral Owners, LLC; BAX, LLC; BOE, LLC; Eutaw Ventures, LLC; Jurassic Seismic Company; LASO, LLC; NOMS, LLC; North Cohay, LLC; PCE, LLC; RFND, LLC; RFS, LLC; SNPI, LLC; South Cohay, LLC; STP Ventures, LLC; Tallahala Exploration, LLC; Telpico USA, LLC; TC Energy, LLC; and WCOA, LLC (collectively, the ‘Upstream Debtors’) are involved in the ‘upstream’ segment of the oil-and-gas industry, which means that their business includes the exploration, drilling and extraction of oil, minerals and gaseous hydrocarbons, and other activities associated with the initial stages of oil-and-gas production.”

Corporate Structure Chart

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