Unsecured creditors of bankrupt Oklahoma fossil fuels driller Samson Resources Corp. told a Delaware judge on Tuesday that Skadden Arps Slate Meagher & Flom LLP can't serve as counsel to the court-appointed independent director because the firm is biased towards a former client that has interests conflicting with Samson's.
Tulsa-based Samson filed for bankruptcy in September, and the debtors have asked for Skadden to be approved as counsel to independent director Alan Miller. But the unsecured creditors said Skadden can't be impartial in helping Miller independently try to determine whether Samson has claims arising from the 2011 leveraged buyout that left it with $7.2 billion in debt.
Skadden advised Vulcan Inc., a participant in the 2011 LBO, and that old client sits among a group of equity sponsors that controls the board and has interests that conflict with the company's own — especially on claims concerning that very LBO, the filing said. The buyout from the founding Schusterman family in 2011 was led by Kohlberg Kravis Roberts & Co. LP affiliates and investors Crestview Partners, ITOCHU Corp. and Natural Gas Partners.
The conflict of interest between Samson and the board is the very reason an independent director is needed, the unsecured creditors said, so impartiality is paramount.
“Despite protestations to the contrary, Skadden is not disinterested as required of Section 327(a) counsel — particularly as it relates to the main event of the proposed retention: the investigation of the claims and causes of action the debtors may have against the first-lien lenders, the second-lien lenders, and the equity sponsors arising from the failed 2011 LBO,” the unsecured creditors said.
Samson said in August that it intended to file for Chapter 11 protection after striking a $450 million restructuring support agreement with a group of its second-lien lenders, joining a club of energy companies that have struggled in a soft market.
In a June presentation to investors, the company said it had cut $80 million worth of outlay by firing 375 employees and by closing down offices in The Woodlands, Texas, and Oklahoma City, among other things.
The company has said it explores for, develops and taps oil and natural gas on 1.5 million owned acres “in some of the most prolific and long-lived basins in the United States.”
Among its debts, Samson listed a $942 million first-lien revolving credit facility, $1 billion in second-lien term notes and $2.25 billion in senior unsecured notes.
Samson attorney Joshua Sussberg of Kirkland & Ellis LLP has said the bankruptcy is a result of historic declines in oil and gas profits.
Samson suspended exploration and drilling operations in February, and although its more than 7,000 operational wells remain in production, Sussberg said it cannot sustain itself on that revenue alone, as the assets are steadily being depleted.
The prepack had the backing of more than two-thirds of junior lenders and would allow those lenders to exchange their debt for equity, subject to dilution. Samson hopes to shed more than $3 billion in debt and emerge with enough cash on hand to resume most of its business.
Meanwhile, U.S. trustee Andrew Vara has argued that Samson's attorneys at Kirkland & Ellis shouldn't be able to recover fees for defending fee disputes, especially after the Supreme Court's June ruling in Baker Botts LLP v. Asarco. Kirkland & Ellis wants to use the fee-request provision in its contract with Samson to go around the June ruling, Vara said. The Supreme Court held in Asarco that firms can only be compensated for activities directly benefiting the client, but Vara said defense against fee objections benefits only the firm.
Vara has been vigilant about objecting to attempts to recover fees for the defense of fee disputes: He's filed similar objections in the bankruptcies of the Baha Mar resort and Boomerang Tube LLC.
Samson is represented by Joshua Sussberg, James Sprayregen, Paul Basta, Edward Sassower, Ross Kwasteniet, Brad Weiland, and Yosef Riemer of Kirkland & Ellis LLP and Morton Branzburg of Klehr Harrison Harvey Branzburg LLP.
The unsecured creditors are represented by Michael Farnan, Joseph Farnan Jr. and Joseph Farnan III of Farnan LLP and Thomas Lauria, Glenn Kurtz, J. Christopher Shore, Michele 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.
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