Vol. 25, No.08 Week of February 23, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

New buyer for KLU

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Kachemak Exploration to buy Furie assets; lawsuits and objections settled

Steve Sutherlin

Petroleum News

According to documents filed in the Chapter 11 bankruptcy case of Furie Operating Alaska LLC, Anchorage-based HEX LLC was unable to raise the money needed to buy Furie’s assets, primarily the Cook Inlet Kitchen Lights offshore unit and related infrastructure such as the Julius R offshore platform, onshore processing facility and related pipelines.

An alternative offer from Kachemak Exploration LLC has been accepted by all parties.

Kachemak is a Delaware corporation recently formed by Fort Worth Texas oil man John Upton’s GFR Holdings and Melody Capital Partners L.P., represented by Melody executive Blake Yaralian.

It further appears that all lawsuits and objections from all parties have been settled.

An Amended Notice of Auction Results filed Feb. 18 by Furie said the debtors have entered an Acquisition by Foreclosure Agreement, dated Feb. 17, between and among the debtors, as sellers, and Kachemak Exploration, as the acquirer.

An attachment to the documents listed Kachemak shareholders as: Melody Capital Partners FDB Credit Fund LLC, Melody Capital Partners Onshore Credit Fund L.P., Melody Capital Partners Offshore Credit Mini-Master Fund L.P., Melody Special Situations Offshore Credit Mini-Master Fund L.P. and any of their affiliated or other entities managed by Melody Capital Partners LP (collectively, the “Melody Lenders,” and together with Melody Capital Partners L.P., “Melody”) and GFR Holdings LLC, Vanco Oil & Gas Corp. and their respective affiliates.

The notice said the debtors intend to seek entry of an Approval Order, approving the debtors’ entry into the acquisition agreement. Furie is also seeking for the acquirer to be approved to replace HEX as the Successful Bidder.

The debtors are moving forward with the Sale Hearing currently scheduled for Feb. 20 at 2 p.m. (prevailing Eastern Time), the notice said.

Deposit into escrow

The acquirer has made a deposit into escrow of $200,000 as part of the acquisition agreement.

In connection with the acquisition, the acquirer agrees to pay the debtors an amount equal to $2 million, to be used solely to satisfy allowed fee claims and allowed administrative claims.

According to the support declaration by Scott Pinsonnault, Furie interim COO, filed on Feb. 18, “$1,050,000 in cash will be paid to certain creditors for the benefit of the debtors to resolve matters settled pursuant to the Stipulations and Settlements.”

The acquirer would waive the aggregate principal amount of loans made by Melody debtor in possession lenders under the DIP Credit Agreement.

The Pinsonnault declaration said the consideration includes forgiveness of $3 million in principal owed to the Melody Lenders under the debtors’ debtor-in-possession financing facility, and that $103 million in debt secured by the assets of the reorganized debtors will be provided to the debtors’ prepetition and remaining DIP lenders in full and final satisfaction of such lenders’ claims.

Pinsonnault said that on Feb. 17, Melody Capital provided the debtors with financial statements and other evidence demonstrating the acquirer’s ability to consummate the transaction contemplated by the Acquisition by Foreclosure Agreement.

Default declared on HEX bid

Contemporaneous with the execution of the acquisition agreement, the debtors will declare a default with respect to the HEX bid and seek appropriate relief to retain any deposit amounts received by debtors in connection with the HEX bid.

The amended notice filed by the debtors said that following the filing of the Initial Auction Notice, the debtors and HEX tried to negotiate a purchase agreement to embody the terms of HEX’s bid, the terms of which were read into the record at the auction. The debtors said HEX failed to make subsequent good faith deposits on Dec. 24 or Jan. 10 or provide proof of financial wherewithal to consummate a transaction by Jan. 10, each as required under the terms of its bid.

The unpaid good faith deposits were to be $500,000 and $750,000 respectively, according to the support declaration by Scott Pinsonnault.

The Pinsonnault declaration said that during negotiations, HEX made an inquiry to Pinsonnault “as to whether the Debtors would accept a substantially reduced purchase price of $10 million for the Debtors’ newly issued equity.”

Subsequent to the inquiry, “the Debtors determined, in the exercise of their fiduciary duties, that HEX was unable to consummate the transactions contemplated by the subsequent HEX bid and, therefore, was no longer a Qualified Bidder.”

HEX bid $15,000,010 for Furie’s assets according to a Dec. 6 notice filed in the U.S. Bankruptcy Court for the District of Delaware, which noted that the transaction with the successful bidder will be a purchase of equity securities through a plan of reorganization.

Following the auction, the debtors selected Energy Capital Partners Mezzanine Opportunities Fund A LP, debtor-in-possession agent and prepetition term loan administrative agent, as the alternate bidder.

That arrangement has been vacated, according to the Feb. 18 amended notice.

“In light of the superior offer received from the acquirer, and in exchange for certain financial accommodations, the debtors and ECP have agreed to allow ECP to withdraw as the alternate bidder,” the notice said.

Lawsuits and objections settlement hearing expedited

On Feb. 19, Judge Laurie Selber Silverstein signed an order entitled Order Granting Debtors’ Motion for (I) a Shortened Notice and Objection Period, (II) an Expedited Hearing, and (III) an Expedited Ruling With Respect to Debtors’ Motions Pursuant to Rule 9019 and Bankruptcy Code Section 105(a) for Approval of the Settlement Between the Debtors and APC and the Settlements Between the Debtors, the Lender Parties, the Buyer, the Webb Litigants, and the RWIO Litigants.

The order will fast-track the settlement motions to a hearing on March 4 at 2 p.m. Eastern Time. Objections or responses to the motions must be made by March 2 at 2 p.m. Eastern Time.

The court found that the relief in the motion was in the best interests of the debtors’ estates, the creditors, and other parties in interest.

The debtors’ motion for approval of the Settlement Between the Debtors, the Lender Parties, the Buyer, the Webb Litigants, and the RWIO Parties was filed on Feb. 18.

Also on Feb. 18, pursuant to the Settlement Agreement and Mutual Release, counsel for Giza Holdings LLC; Taylor Minerals LLC; Allen Lawrence Berry; the 2007 Allen Lawrence Berry Trust; and Danny Davis withdrew the objections of the royalty and working interest owners (RWIO Litigants) - filed on Dec. 17 - which might have stood in the way of closing the sale of the debtors’ assets.

Assuming that the settlement agreement and the acquisition agreements are approved by the bankruptcy court, it would appear that the closing of the asset sale could proceed fairly rapidly.

Furie, headquartered in Anchorage, filed a voluntary petition for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware Aug. 9, 2019, listing about $450 million in debt. The company said it planned to sell its assets, which it listed on its petition with an estimated value of less than $50 million, by early January 2020.

Furie listed two affiliates on the petition - its parent company Cornucopia Oil and Gas Co. LLC and Corsair Oil and Gas LLC.

Furie holds a majority working interest in 35 competitive oil and gas leases in Cook Inlet. Its offshore natural gas production platform is connected to a subsea pipeline that delivers natural gas directly to an onshore processing facility.

Gas discovery in 2011

The company, then named Escopeta Oil, made a large natural gas find in late 2011, which led to the installation of the natural gas production platform in 2015.

Installation of the production platform, however, stressed the company’s finances.

It was scheduled for installation - and it did arrive - in Cook Inlet in 2014, but it arrived late in the season thus installation was delayed. The company was forced to transport the platform component package back to Seattle, to sit on the back of its transport barge until a return to Alaska in 2015.

The heavy lift vessel for placing the platform on the seafloor also arrived in Cook Inlet in 2014, but it too had to leave and re-deploy to Alaska in 2015.

The field went online in December 2015. Instead of producing first gas in late 2014 as planned, Furie instead suffered substantial cost overruns on the project.

The Kitchen Lights unit was assembled by former Escopeta Oil President Danny Davis of Houston, Texas. Originally, Escopeta’s target in the acreage was oil, however, natural gas as a by-product was eyed as a solution to the gas shortage that gripped the Cook Inlet region in the early 2000s, according to historic interviews with Petroleum News.

Under subsequent management, Furie was unable to drill successfully to depths that were thought to hold oil deposits and it shifted its focus to exploiting the natural gas discovery.

Reliable sources have told Petroleum News that Kachemak Exploration intends to - and has the means to - vigorously explore for oil in the KLU.

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