In the News Law360

Samson Gets OK on Skadden Ch. 11 Role, Reveals Hack

08 December 2015

A Delaware bankruptcy judge sided with Samson Resources Corp. on Tuesday over retaining Skadden Arps Slate Meagher & Flom LLP to represent one of its directors, a bright spot on a day the debtor in the uncertain case also said it was struck by a $1.8 million hacking attack.

During a hearing in Wilmington, U.S. Bankruptcy Judge Christopher S. Sontchi rejected arguments from the official committee of unsecured creditors that Skadden would be conflicted if the firm represented independent director Alan Miller as he looked into whether Samson had claims connected to the 2011 leveraged buyout that left it billions of dollars in debt.

The committee had argued that Skadden advised Vulcan Inc., a participant in the 2011 LBO, and that the old client sits among a group of equity sponsors that controls the board and has interests that conflict with the company's own.

Samson had pushed back, contending that the committee's objection was actually a “tactical ploy” to control potential claims from the buyout and a move essentially looking to control whatever litigation might emerge, the debtor said in court papers.

Samson's small victory on the retention was bright news for the debtor in a young case that has already seen its share of turmoil, with the company's CEO resigning and its restructuring support agreement in danger of falling apart.

Now, Samson has revealed that it fell victim to a hacking attack in November when an outside party was able to tap into the debtor's system and digitally impersonate its chief financial officer to direct that $1.8 million be transferred out, Samson attorney Joshua Sussberg of Kirkland & Ellis LLP told Judge Sontchi.

The company was able to retrieve about $1.5 million of the money with the help of JPMorgan Chase & Co., Sussberg said.

Samson is implementing a policy to prevent such an incident from happening again, including new rules that require any fund transfers to be requested with a paper-based backup and require approval from more brass, the attorney added.

The incident comes after several blows to the case, including CEO Randy Limbacher's announcement he would be resigning by early December. Samson has also said the restructuring agreement with lenders it entered court with is in danger of collapsing as energy commodity prices continue to tumble.

On Tuesday, Sussberg said Samson remains in “diligent discussions” with creditors to try to find a path forward or come up with some alternative, but the historic dip in oil prices is not helping the situation.

Since Samson filed for Chapter 11 protection in September, the price of oil has gone down 22 percent, and the price of natural gas even further at 31 percent, Sussberg said.

And things could be getting worse from a producer's perspective with the Organization of the Petroleum Exporting Countries ending a meeting Friday with no agreement on a production quota, and the price of oil Tuesday at about $37 per barrel, the lowest in years, the attorney said.

Counsel for Samson had told the court in October that they were looking into the possibility of reworking the restructuring deal, but the replacement may represent less value for second-lien creditors.

When Samson filed for bankruptcy, the company listed debts that included a $942 million first-lien revolving credit facility, $1 billion in second-lien term notes and more than $2 billion in senior unsecured notes, with much of the liabilities coming from a 2011 leveraged buyout from the founding Schusterman family led by Kohlberg Kravis Roberts & Co. LP affiliates and investors Crestview Partners, Itochu Corp. and Natural Gas Partners.

The reorganization was supposed to allow Samson, which suspended its exploration and drilling in February, to shed more than $3 billion in debt and emerge with $250 million in cash on hand that would allow it to resume the bulk of its business, according to a first-day declaration from Chief Financial Officer Philip Cook.

Samson is represented by James H.M. Sprayregen, Paul M. Basta, Edward O. Sassower, Ross M. Kwasteniet, Brad Weiland, Yosef J. Riemer and Joshua Sussberg of Kirkland & Ellis LLP, and Morton R. Branzburg of Klehr Harrison Harvey Branzburg LLP.

The committee is represented by Joseph J. Farnan Jr., Joseph J. Farnan III and Michael J. Farnan of Farnan LLP, and Thomas E Lauria, Glenn M. Kurtz, J. Christopher Shore, Michele J. Meises and Thomas MacWright of White & Case LLP.

The case is In re: Samson Resources Corp., case number 1:15-bk-11934, in the U.S. Bankruptcy Court for the District of Delaware.