Oil and Gas Bankruptcy Update: Samson Resources
Haynes and Boone has tracked 114 North American oil and gas producers that have filed for bankruptcy since the beginning of 2015. These bankruptcies, including Chapter 7, Chapter 11, Chapter 15, and Canadian cases, involve approximately $74.2 billion in cumulative secured and unsecured debt. As of December 14, 2016, 70 producers have filed bankruptcy so far this year, representing approximately $56.8 billion in cumulative secured and unsecured debt.
Texas leads the number of bankruptcy filings with 44 during the time period measured by Haynes and Boone, and also has the largest number of debt declared in courts with around US$29.5 billion.
The costliest bankruptcy in 2015 occurred when Oklahoma-based Samson Resources filed for Chapter 11 protection with an accumulated debt of roughly US$4.2 billion. This was followed in 2016 when Oklahoma-based SandRidge Energy reported a US$8.2 billion deficit, during a one-week span back in May where seven firms declared bankruptcy on debts of at least US$26.7 billion.
Samson Resources Corp., case number 1:15-bk-11934, in the U.S. Bankruptcy Court for the District of Delaware.
Started by Chares Schusterman (1935-2000), Samson Resources was a long time, successful Tulsa-based company. Charles Schusterman was a Soviet-born American businessman and philanthropist. He emigrated to the United States as a child with his family.
He attended the University of Oklahoma and graduated among the top 10 of his class, with a degree in Petroleum Engineering. After a stint in the United States Army, Mr. Schusterman returned to Tulsa and entered the oilfield salvage business. In 1961, he switched to acquiring and operating marginal oil properties. In 1971, he borrowed US$30,000 from his mother and founded Samson Resources, named for his father who had died when Mr. Schusterman was only 19 years old.
Over a period of 30 years, Mr. Schusterman built Samson into the second largest independent gas producing company headquartered in Oklahoma and one of the 20 largest independent oil and gas companies in the entire United States. Samson’s activities stretched from the deep waters of the Gulf of Mexico through 23 states to the frozen tundra of Canada, and into Russia and Venezuela as well. Its business included the production, development, and exploration for oil and gas as well as the acquisition and operation of producing properties.
After the death of Mr. Schusterman in 2000, private equity firm KKR & Co., acquired all Samson assets except the company’s onshore Gulf Coast and offshore deep-water Gulf of Mexico facilities, from the family of Lynn Schusterman (his wife) in a 2011 LBO for $7.2 billion, or 6.6 times the company’s cash flow, including more than $4 billion in debt. Henry R. Kravis, the private equity firm’s co-founder, and co-chairman is from Tulsa, where his father was an oil engineer. At the time, it was reported that Samson owned 4,000 wells and had at least partial ownership of more than 12,500 wells.
The economics of such a high valuation quickly fell apart. As supply increased, natural gas prices started to decline, culminating in the 2012 crash that saw gas prices drop as low as $1.90 per million British thermal units from a peak of $4.98 the previous year and more than $15 in 2005.
KKRs’ plan, to invest surplus cash in oil- and liquids-laden reserves was thwarted when falling gas prices eroded revenue. Gas stayed below $3 for most of 2012, driving down Samson’s adjusted cash flow by 36 percent in the first nine months of that year — not enough to cover interest and capital costs.
Samson originally filed for Chapter 11 reorganization in September 2015. After rounds of layoffs — the most recently confirmed case coming in late February of 2016 — Samson now employs about 270 at its downtown Tulsa headquarters.
Samson has struggled to find a path out of its year-old bankruptcy due to weak energy prices and drawn-out battles with junior unsecured creditors. In May of this year, it filed an amended Chapter 11 bankruptcy plan in the U.S. Bankruptcy Court for the District of Delaware that the company said would allow it to continue to operate its business on a go-forward basis with significantly less long-term debt and lower annual interest payments.
The Oklahoma oil-and-gas company has pushed off a courtroom duel with creditors in a bid to resolve its contentious bankruptcy.
In early December, the Delaware bankruptcy judge gave the go-ahead to begin the Chapter 11 confirmation battle for Samson Resources in March after approving its disclosure statement and a competing one proposed by unsecured creditors, setting up a head-to-head fight over how to reorganize the company’s $4 billion in debt.
U.S. Bankruptcy Judge Christopher S. Sontchi scheduled the confirmation start date for March 6, 2017, for a trial that will match Samson’s restructuring strategy that centers on a second-lien note debt-for-equity swap against a competing proposal from the official committee of unsecured creditors that essentially calls for a liquidation. The judge said that Samson hadn’t dealt with the unsecured creditors in good faith.
The scheduled confirmation hearing is set to be one of the unusual instances where two competing Chapter 11 plans will go head-to-head before the court and must be measured not only by the feasibility of each and how well they agree with the Bankruptcy Code but by which is in the better interests of the debtor and its creditors.
The discord between the unsecured creditors and Samson has only grown during the case, with an attorney for the committee calling the debtor’s plan a “declaration of war,” and Samson at one point seeking sanctions on accusations the creditors were interfering with sale solicitations. The showdown in March should be interesting to watch.
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Compiled and Published by GIB KNIGHT
Gib Knight is a private oil and gas investor and consultant, providing clients advanced analytics and building innovative visual business intelligence solutions to visualize the results, across a broad spectrum of regulatory filings and production data in Oklahoma and Texas. He is the founder of OklahomaMinerals.com, an online resource designed for mineral owners in Oklahoma. ☞Email:[email protected]