distressed m&a: current trends · © 2020 haynes and boone, llp 2015-2019 cumulative e&p...

© 2020 Haynes and Boone, LLP

Distressed M&A: Current Trends

Matt Ferris – Restructuring Michael A. Freeman – M&A; Energy214.651.5955 [email protected] [email protected]

© 2020 Haynes and Boone, LLP© 2020 Haynes and Boone, LLP

2015-2019 CUMULATIVE NORTH AMERICAN E&P BANKRUPTCY FILINGS

1

HAYNES AND BOONE OIL PATCH BANKRUPTCY MONITOR

NU

MB

ER O

F FI

LIN

GS

717

1417

3410

97 7 2 8 6

124 6 5

13

15 9

0

50

100

150

200

250

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

2019Q1

2019Q2

2019Q3

2019Q4

Cumulative bankruptciesNew bankruptcies since the previous quarter

(As of December 31, 2019)


2015-2019 CUMULATIVE E&P UNSECURED DEBT, SECURED DEBT AND AGGREGATE DEBT

2

HAYNES AND BOONE OIL PATCH BANKRUPTCY MONITOR

$0

$20

$40

$60

$80

$100

$120

$140

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

2019Q1

2019Q2

2019Q3

2019Q4

BIL

LIO

NS



2015-2019 E&P BANKRUPTCY FILINGS BY LOCATION

3

TEXAS

94

DELAWARE32

COLORADO

11

LOUISIANA

ALASKA

MASSACHUSETTS1

OKLAHOMA

6

ALABAMA

VIRGINIA

NEW YORK

ARIZONA

1

UTAH2

MINNESOTA

MONTANA1

KENTUCKYCALIFORNIA 5

CANADA

18

WEST VIRGINIA

NEW MEXICO

1

311

10

2

1

111

PENNSYLVANIA

2NEVADA

1

MICHIGAN

1

NEW JERSEY1

WYOMING

1



2015-2019 E&P SECURED AND UNSECURED DEBT BY FILING LOCATION

4

NEW YORK$20,306,579,582

DELAWARE$23,793,425,757


TEXAS$57,451,081,928

ALABAMA$212,726

ALASKA$217,158,133

ARIZONA$3,699,213

CALIFORNIA$71,772,722

CANADA$1,710,380,228

COLORADO$472,109,287

KENTUCKY$15,381,247

LOUISIANA$592,922,110

MASSACHUSETTS$3,578,276

MICHIGAN$1,558,932

MINNESOTA$1,233,733

NEW YORK$20,308,779,582

DELAWARE$25,211,350,343

TEXAS$68,681,104,491

MONTANA$83,726,167

NEVADA$1,042,675

NEW JERSEY$1,024,566

NEW MEXICO$1,286,649

OKLAHOMA$553,310,479

PENNSYLVANIA$2,009,791,901

UTAH$274,640,449

VIRGINIA$1,250,928,395

WEST VIRGINIA$40,865,611

WYOMING$117,302,400


Distressed Sales Options

Out of Court/Contractual Sales

Foreclosure Sales

Chapter 11 Plan Sale

Stand Alone Bankruptcy 363 Sale

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Advantages of 363 Sales

6

►Speed of Process►Transfer of assets free and clear of liens, claims and encumbrances

(often without the lienholder’s or claimholder’s consent)►Transfer of otherwise non-assignable contracts and leases►**Rejection of burdensome contracts and leases**►Avoidance of exposure to claims under fraudulent transfer laws►Limited exposure for breach of representations and warranties;

limited buyer recourse


Stalking Horse Protections

7

Break Up Fee

Expense Reimbursement

Overbid Requirements

Topping Fee

Bid Increments


Break-Up Fee & Expense Reimbursement–What Will a Court Approve?

8

Almost always: Reimbursement of Reasonable and Necessary Expenses (sometimes capped)Sometimes: Percentage of Proceeds (break-up fee average is approximately 3.0%)Sometimes: A percentage fee, plus expense reimbursementAmount of fees and expenses cannot have a “chilling effect”


Due Diligence Period

9

§ In bankruptcy sale situations, due diligence period is often accelerated

§ A strategic consideration for a prospective Stalking Horse is to propose a very abbreviated due diligence period

§ Competing bidders and other constituents may argue for extending proposed due diligence time frames

§ Title and environmental due diligence in upstream transactions must be conducted prior to signing a definitive agreementv Limited period between signing and closing for topping biddersv No traditional adjustment mechanics


Contract/Lease Provisions–Opportunity to Assume or Reject Contracts & Leases

§ Purchaser will have an opportunity and a time frame to decide which contracts or leases will be assumed and assigned

§ Assumption and assignment will require a cure of defaults – which will impact net sale proceeds

§ Bankruptcy allows for assignment of contracts and leases notwithstanding anti-assignment restrictions with limited exceptions

§ Purchaser must establish / provide adequate assurance of future performance

§ Burdensome contracts and leases can be rejected

10


Recent Trends - Midstream Services Agreements

§ In re Sabine Oil and Gas Corporation (2016)§ New York court interpreted Texas law§ Sabine was a Texas-based E&P company that had pre-petition gas

gathering agreements with two service providers§ Sabine wanted to reject the agreements because it was no longer

financially viable for it to deliver the minimum amounts under the agreements

§ General Rule: Agreements that “run with the land” are not executory contracts that can be rejected under the Bankruptcy Code

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Recent Trends - Midstream Services Agreements (Sabine)

§ Sabine Court’s Conclusion:v The agreements concerned Sabine’s interest in personal property

(the extracted gas and condensate) and did not affect its real property interests

v The Court found that the agreements were executory and could be rejected in the bankruptcy proceeding

§ The Sabine decision was upheld by the Federal appellate court

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§ Fast forward to December 20, 2019

§ In re Alta Mesa Resources, Inc. (2019)v Texas court this time, but interpreting Oklahoma law

§ Alta Mesa Court Conclusions:v (1) The dedications in the gathering agreement created covenants that “run with

the land” and cannot be rejected in bankruptcy

AND

v (2) The requirements to form a real property covenant in Texas mirror those in Oklahomaü the Alta Mesa court thereby suggesting its conclusion would have been the

same if the case had been decided under Texas law

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§ Takeaways from Sabine and Alta Mesa:v There is uncertainty at this point regarding the standard in Bankruptcy

Courtsv Sabine interpreted Texas law (but by a New York bankruptcy court)v Alta Mesa interpreted Oklahoma law (but by a Texas bankruptcy court,

with a suggestion that Texas law was the same)

v The laws of a particular state will determine whether an agreement contains covenants that “run with the land”

v Agreements can be fixedü The courts have provided clues for necessary language in agreements

to ensure a real property interest is granted

14


Questions?

Q/A Session to Follow

15


16

Contact Us:

Matt FerrisRestructuring214.651.5955

[email protected]

Michael A. FreemanM&A; Energy214.651.5362

[email protected]


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ORANGE COUNTY600 Anton BoulevardSuite 700Costa Mesa, CA 92626United States of AmericaT +1 949.202.3000F +1 949.202.3001

PALO ALTO525 University AvenueSuite 400Palo Alto, CA 94301United States of AmericaT +1 650.687.8800F +1 650.687.8801

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distressed m&a: current trends · © 2020 haynes and boone, llp 2015-2019 cumulative e&p...

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