Warren Resources Lawyers Lay Out Plans to Exit Bankruptcy Proceedings
June 03 2016 - 5:59PM
Dow Jones News
By Katy Stech
Lawyers who put oil and gas producer Warren Resources Inc. into
bankruptcy proceedings laid out plans at a Friday court hearing for
the company to get a fresh financial start.
The Houston-based company said its executives have negotiated a
$20 million bankruptcy loan so it can continue pulling natural gas
from underground deposits in Pennsylvania and crude oil from the
Los Angeles basin for Phillips 66 Co.'s refinery in Carson, Calif.
Warren also drills for gas in Wyoming.
The company faces $545.2 million in debt, according to documents
filed in U.S. Bankruptcy Court in Houston.
Warren Resources, however, won't need to spend that loan money
right away because it negotiated to spend $10 million of cash in an
otherwise-restricted bank account, officials told Judge Marvin
Isgur at the hearing.
The consent to spend that restricted cash came from Blackstone
Group's GSO Capital Partners, which would forgive $248 million it
is owed for 82.5% ownership in Warren Resources under a
restructuring proposal. Warren Resources would also emerge with a
fresh $130 million loan from GSO Capital.
Lawyers for the company said the bankruptcy proceedings would
wrap up by mid-September under the restructuring proposal, which
still needs to be approved by Judge Isgur and creditors who have
the power to vote.
The untouched bankruptcy loan and quick timeline drew criticism
from Claren Road Asset Management LLC, a lower-ranking lender
poised to get the remaining 17.5% ownership in Warren Resources as
payback on its $167.3 million debt.
At Friday's hearing, Claren Road lawyer Kurt Mayr suggested
Warren's unexpected bankruptcy filing and potentially quick
restructuring would enable GSO Capital to take over the company
before natural gas prices rebound and the company's value rises.
"We can see why [GSO Capital] would like to have this case in and
out of court while prices are low," Mr. Mayr said in court
papers.
Allegations that energy companies have rushed through bankruptcy
proceedings to the detriment of some groups of creditors and
shareholders have been raised throughout the two-year energy-market
downturn, showing how difficult it has been to predict the timing
of an oil-price recovery.
Angry Magnum Hunter Resources Corp. shareholders who braced to
recover no money from the Irving, Texas, oil and natural gas
producer argued earlier this year that executives rushed that
bankruptcy case. They noted natural gas prices rose after the Dec.
15 filing.
"[Magnum Hunter and lenders poised to take over ownership] have
incentive to undervalue the company so that they can benefit from
any future rebound in commodities prices," a group of shareholders
wrote in a February 25 letter. A bankruptcy judge favored Magnum
Hunter's plan, calling the outcome for shareholders
"unfortunate."
Meanwhile, Warren Resources officials said they needed the
restricted cash to pay for operations and vouched for the company's
hardship during Friday's hearing. In court papers, they said oil
and gas sales fell to $83.7 million last year, a 42% decrease
compared to 2014. Amid the trouble, Warren Resources failed to make
a $7.5 million payment to bondholders on Feb. 1.
"There remains great uncertainty in the oil and gas market, with
a number of industry experts predicting continued depressed prices
throughout 2016," Chief Executive Officer James Watt said in court
papers.
Like Magnum Hunter's bankruptcy plan, Warren Resources' deal
wouldn't provide any payout to shareholders.
Warren Resource's shares trade publicly on Nasdaq under the WRES
symbol. As of April 30, the company had issued 85,250,025 shares of
common stock.
Write to Katy Stech at katherine.stech@wsj.com
(END) Dow Jones Newswires
June 03, 2016 18:44 ET (22:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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