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Trustee Objects to Breakup Fees in Samson's Ch.11 Sales

Samson Resources Corp.’s Chapter 11 bidding rules for a proposed $650 million asset sale have drawn an objection from the Office of the U.S. Trustee in Delaware over the breakup fees offered to bidders who make stalking horse offers.
The objection, filed Thursday, followed by about a week the energy company's report that it had added three more sites to its proposed sale of oil and gas tracts, bringing the number of sites to six. A hearing is scheduled on the sale plan Oct. 17. The three additions more than doubled the revenues anticipated from sales of oil and gas deposits centered in North Dakota, Montana, Wyoming, Oklahoma and Texas.
Along with the extra potential sales, Samson reported that breakup fees to be paid if stalking horse parties are outbid have risen to about $25.8 million, according to court filings. Those amounts, the trustee said in the objection, should be subject to review if paid prior to consummation of a sale to a party that is not a stalking horse bidder.
“No breakup fee nor expense reimbursement should be awarded, if at all, until after a sale has been consummated, all interested parties are given notice and an opportunity to be heard, and the court has determined that the fee was an actual and necessary cost and expense of preserving the estate,” the trustee's objection said.
In addition, the trustee objected to the absence of a process for review of expense reimbursements included in, or in some cases added to, the breakup fees.
Samson, in a reply to the court, called the stalking horse agreements a critical part of the company’s asset sale plan, and said that the plan and its features could produce a higher number after the six sites and current offers go to auction.
“The U.S. Trustee objection ignores the holistic nature of the stalking horse negotiations,” Samson said in a reply to the court. “The bid protections were and are part of overall deals that allowed the debtors to execute the stalking horse agreement.”
Since February, the company said it has reached out to more than 550 parties and received indications of interest from 57 bidders.
Samson sought Chapter 11 protection in September 2015, in one of the largest oil and gas company retreats into bankruptcy in Delaware since energy prices began plunging in 2014. The company listed more than $4 billion in debt, including a $942 million first-lien revolving credit facility, $1 billion in second-lien term notes and more than $2 billion in senior unsecured notes.
The U.S. trustee argued in its objection that a 1999 Third Circuit opinion concluded that the allowability of breakup fees depended on a requesting party’s ability to show that the fees were necessary to the bankruptcy estate’s value.
Wording in the opinion, according to the trustee, “suggests that the review of necessity to preserve the value of the estate is backward-looking, not forward-looking, and necessarily takes place after a sale is consummated.”
Earlier this month, Denver-based FourPoint Energy LLC, objected to a nearly $5.9 million breakup fee promised to Tecolote Holdings LLC on its $131.1 million offer on one tract centered on Oklahoma, saying that it gives the stalking horse bidder an unfair advantage.
According to FourPoint, the company would have to bid about $139.1 million to meet the minimum amount set by Samson in order to beat Tecolote’s stalking horse offer, taking into account the breakup fee and expenses.
Samson is represented by James Sprayregen, Paul Basta, Edward Sassower, Ross Kwasteniet, Brad Weiland, Yosef Riemer and Joshua Sussberg of Kirkland & Ellis LLP, and Morton Branzburg of Klehr Harrison Harvey Branzburg LLP.
The Office of the U.S. Trustee is represented by David L. Buchbinder.
FourPoint is represented by Jeffrey C. Walsh of Connolly Gallagher LLP, and David Zdunkewicz of Andrews Kurth 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.