Bankrupt, sale-bound oil and gas producer Furie Operating Alaska LLC and its affiliates won access Monday to the first $7 million of a proposed $15 million Chapter 11 loan after a Delaware bankruptcy judge cautioned that key provisions will remain subject to challenges.
Judge Laurie Selber Silverstein zeroed in on provisions that would budget $4 million of the interim debtor-in-possession loan budget for fees incurred by prepetition lenders for the drilling rig operator, which entered Chapter 11 for an all-asset sale on Friday with $450 million in debt.
Furie would meanwhile receive $3 million for their interim budget needs — a “de minimis” amount, the judge said, given the liability releases and indemnifications for creditors and their more than $360 million in liens woven into the DIP agreement.
“I’m not inclined to give, if I were ever inclined to approve, an indemnification, release or anything on basically a $3 million interim financing, and $4 million going back to finance the lenders own expenses,” Judge Silverstein said, noting later that she granted only interim approval for the DIP order.
Chad J. Husnick of Kirkland & Ellis LLP, counsel to prepetition lender Energy Capital Partners Mezzanine Opportunities Fund, said ECP made its first loan to Furie in 2014 and had worked with the struggling business, through multiple credit amendments in an effort to avoid bankruptcy, at great expense and without success.
“It is a big number. I don’t mean to downplay that in any way shape or form,” Husnick said. “But if the lenders are going to put the money in to finance this process, they should get the benefit of the bargain in making sure their fees get paid.”
Furie and two affiliates retreated into bankruptcy after a multi-year run of operating troubles, cost overruns, credit agreement breaches and operating losses on its platform, which can produce from up to six wells. The business was additionally burdened by the state of Alaska's failure to fully fund a tax credit program for oil and gas producers in recent years, undercutting operators, including Furie, who borrowed against future receipts of the tax credit to finance their businesses. In Furie's case, some $105 million in tax credits were hung up by the state's actions.
The company’s debt includes $368 million owed on a secured term loan facility administered by private equity entity ECP, about $75 million owed on a tax credit term loan facility administered by ING Capital LLC, about $1 million in prepetition royalty obligations and $8 million in trade debt.
Timothy W. Walsh of McDermott Will & Emery LLP, counsel to Furie and its affiliates, said the company had retained Seaport Global Securities LLC in April to run a traditional marketing and sales process for all of the company’s assets. Plans currently call for bids to be received through Oct. 4, with an auction if warranted on Oct. 7 and a sale hearing on Oct. 25.
Proceedings could be complicated by litigation in Harris County, Texas, initiated by individuals who have royalty or working interests in the debtors, according to Trey Taylor, an attorney with RG Taylor II P.C. & Associates in Houston.
Taylor, addressing the court by phone, said his clients only recently learned about the case and had concerns about the extent of claims against royalty income by creditors as well as concerns about potentially excessive operating expenses on the part of the businesses.
“We did have some concerns about our interests being pledged, or priorities being given on matters we have an interest in,” Taylor said.
Judge Silverstein said that all of her routine, first hearing decisions on Monday were for “interim relief, that I’m going to find, if it’s appropriate, to avoid immediate and irreparable harm.”
Also approved Monday were limitations on trading in company equity and potential transfers of some $350 million in net operating loss credits accrued by the business. The NOLs have value to Furie’s Alaska operations for tax purposes, potentially reducing future federal tax liabilities.
Furie Operating Alaska LLC is represented by Matthew P. Ward and Ericka F. Johnson of Womble Bond Dickinson LLP and Timothy W. Walsh, Darren Azman and Riley T. Orloff of McDermott Will & Emery LLP.
Energy Capital Partners Mezzanine Opportunities Fund A, LP is represented by Brett Michael Haywood and Mark D. Collins of Richards Layton & Finger P.A. and Chad J. Husnick, George Kildonas and Andrew R. McGann of Kirkland & Ellis LLP.
The case is In re: Furie Operating Alaska LLC et al., case number 1:19-bk-11781, in the U.S. Bankruptcy Court for the District of Delaware.