On January 27, 2020 (the ” Petition Date “), Southland Royalty Company LLC (the “Debtor”) filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
The Debtor is represented by Shearman & Sterling as lead counsel, and by Young Conaway Stargatt & Taylor, LLP as Delaware counsel. The case has been assigned to the Honorable Karen B. Owens. A hearing on the Debtors’ first day motions was held on January 29, 2020. A meeting to form the unsecured creditors’ committee was held on February 10, 2020.
The Debtor is a privately-held independent exploration and production company engaged in the acquisition and development of hydrocarbons. Headquartered in Fort Worth, it conducts its business across four states, with the majority of operations in Wyoming and New Mexico. The Debtor owns leasehold interests in approximately 595,000 net acres between the Wamsutter field of the Green River Basin and the San Juan Basin, and mineral interests in approximately 150,000 networking interest mineral acres in the Wamsutter field.
With respect to its mineral interests, the Debtor is typically the sole operator and has retained a 100% working interest in a portion of such mineral acreage. The Debtor also owns non-cost bearing royalty interests on the mineral acreage it owns and has leased to other parties. The Debtor also owns surface rights on approximately 87,000 gross acres in the Wamsutter field.
The sustained downturn in the oil and gas sector has created a challenging environment for the Debtor’s business, depressing revenues generated by production activities, while at the same time reducing the value of proven reserves. As a result of these trends, the borrowing base on a loan from Citibank, N.A. and its affiliated lenders was re-determined and reduced in December, causing an accelerated repayment schedule. In addition, some of the measures taken to mitigate cash depletion contributed to the resulting liquidity crunch.
To conserve cash in the short term, the Debtor limited its drilling and capital expenditures, but in the long term, these measures deprive the Debtor of additional revenue and result in sizeable payments under certain gathering agreements. Under these contracts, the Debtor retains sizeable fixed costs even when it is deprived of the revenues associated with higher volumes of production.
The Debtor filed this case to facilitate restructuring, either through a sale of its business free and clear of liabilities or by de-leveraging its balance sheet through a chapter 11 plan ( See Frank A. Pometti Affidavit in Support ).
As of the Petition Date, the Debtor’s funded debt is approximately $540 million under the aforementioned loan from Citibank, N.A. and its affiliated lenders. The Debtors’ unsecured obligations are unspecified but include over $38 million due to its top creditors, the majority of which are trade creditors.
The Debtor has negotiated a debtor-in-possession credit facility which will provide it with $35 million of additional liquidity in new loans, and, subject to the entry of a final order, a dollar-for-dollar roll-up of existing loans under their prior reserve-based facility, for a total facility of $70 million to be used in accordance with a thirteen-week budget representing the need for $6,681,000. The DIP Facility will be initially provided by Citigroup Global Markets Inc. and/or certain of its affiliates and Barclays. On or prior to the date that is ten business days following the entry of the interim order approving the DIP financing, each lender under the Citibank, N.A. loan will have the opportunity to subscribe for a pro-rata percentage of the DIP commitments based on its loan amounts outstanding.
Substantially all of the Debtor’s cash is the cash collateral of the lenders under the Citibank, N.A. facility, and the Debtor’s current and projected cash balance is insufficient to fund its business for the time required to implement a financial restructuring. Without access to cash and the additional liquidity that the DIP facility will provide, the Debtor will have to curtail operations and begin a rapid liquidation. The DIP facility will enable an orderly restructuring, providing time to run a sale process and propose a chapter 11 plan, to the benefit of all stakeholders.
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| Approximately $540 million in a reserve-based revolving credit facility. |
| Unspecified but at least $ $38,177,518.40. |
| FIRST DAY RELIEF FOR AUTHORIZATION TO PAY AND PAYMENTS | |||||||
| Interim Relief An amount not to exceed $75,000. | Final Relief An amount not to exceed $75,000. | ||||||
| Interim Relief An amount not to exceed $4.1 million. | Final Relief An amount not to exceed $11.9 million. | ||||||
| Interim Relief An amount not to exceed $33,500,000. Amounts not to exceed:
No payment shall exceed the statutory cap of $13,650. | Final Relief An amount not to exceed $51,300,000. Amounts not to exceed:
No payment shall exceed the statutory cap of $13,650. | ||||||