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Furie files Ch. 11
Assets $50 million, debt $450 million; Cook Inlet E&P goes on market
Steve Sutherlin Petroleum News
Furie Operating Alaska LLC, headquartered in Anchorage, filed a voluntary petition for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware Aug. 9, listing about $450 million in debt. The company said it plans to sell its assets, which it listed on its petition with an estimated value of less than $50 million, by early January 2020. The company said it had fewer than 49 creditors.
Furie listed two affiliates on the petition - its parent company Cornucopia Oil and Gas Co. LLC and Corsair Oil and Gas LLC.
Furie petitioned the court to approve “superpriority senior secured postpetition financing in the form of a multiple-draw term loan credit facility in an aggregate principal amount of up to $15 million.”
Judge Laurie Selber Silverstein granted Furie and its affiliates access to the first $7 million of the interim debtor-in-possession financing Aug. 12, clearing the way for the company to use $3 million for its interim budget needs, according to a report by Law360. Silverstein warned the company that key provisions of the financing remain subject to challenges, particularly provisions directing $4 million of the loan budget to pay fees incurred by prepetition lenders.
According to the petition, “after any administrative expenses are paid, no funds will be available to unsecured creditors.”
Furie cited uncertainty with Alaska state tax credit reimbursements it has historically received, years of liquidity issues and breaches of credit facilities, construction delays, and cost overruns, according to a first-day declaration of Chief Operating Officer Scott M. Pinsonnault.
Cook Inlet operations Furie holds a majority working interest in 35 competitive oil and gas leases in Cook Inlet where it operates a wholly owned offshore natural gas production platform, the declaration said. The facility can accommodate a total of six wells and a production crew of up to 28 workers. As of the petition date, Furie is operating four wells on the production platform. The platform is connected to subsea pipeline that delivers natural gas directly to an onshore processing facility.
Furie’s largest debt is $368 million owed on a secured term loan facility administered by private equity entity Energy Capital Partners Mezzanine Opportunities Fund A LP, followed by $75 million owed on a tax credit term loan facility administered by ING Capital LLC.
The company owes $1 million in pre-petition royalty obligations, and $8 million in trade debt, the declaration said.
Furie listed its largest unsecured creditor as the U.S. Department of Justice, owed $7.2 million from a 2017 settlement agreement, arising from a lawsuit Furie brought challenging a U.S. Customs and Border Protection determination that the company - then named Escopeta Oil - violated the Jones Act in 2011 when it brought a jack-up rig to Cook Inlet from Texas.
Customs initially fined the company $15 million, which Justice said was the largest Jones Act penalty levied in history. The parties ultimately settled the case for $10 million.
Escopeta went on to make a large natural gas find in late 2011, which led to the installation of Furie’s offshore natural gas production platform in 2015.
Installation of the production platform, however, stressed the company’s finances.
It was scheduled to be installed - and it did arrive - in Cook Inlet in 2014, but it arrived too 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.
Wave of debt builds up In July 2014, private equity firm Energy Capital Partners Mezzanine Opportunities Fund committed $160 million to Furie for the development of its Cook Inlet gas field.
By 2015, Furie was saddled with debt and no production income to pay it, when an unforeseen development added to Furie’s woes. Gov. Bill Walker surprised Furie and other operators with a veto of $200 million from a $700 million legislative appropriation to purchase state oil and gas tax credits from companies that had no tax liabilities to the state. In 2016, Walker vetoed an additional $430 million from the reimbursement program.
While the state did appropriate 100% of the funds which were required by statute to be deposited in the tax credit reimbursement fund in 2015 and 2016, Furie and other companies had become accustomed to cashing their credits in each year. When Furie scrapped its 2017 drilling program it blamed state fiscal policy.
In a plan of development submitted to state officials in October 2017, Furie said its failure to conduct any new development or exploration drilling at the Kitchen Lights unit in 2017 was due to “the lack of any meaningful appropriation to the oil and gas tax credit fund for the purchase of Alaska oil and gas production tax credit certificates.”
“Furie has invested hundreds of millions of dollars in exploring and developing the KLU (Kitchen Lights unit) and has a very substantial amount of tax credit certificates in the queue awaiting purchase by the state,” the company said in the plan. “These certificates are a key component to funding further exploration and development activities in the KLU and were relied on by Furie when putting together its work program and budget.”
Regime change instituted In 2018, lender ECP started foreclosure proceedings against the owners of the Kitchen Lights unit, scheduling a sale for April 13 of that year, but the sale was canceled by ECP when a new agreement was presumably reached with the owners.
On March 23, 2018, Ankura Consulting Group LLC was retained to assist Furie and its affiliates “with interim management and financial advisory services,” Pinsonnault said in the first-day declaration.
Pinsonnault, a senior managing director at Ankura, was then installed as interim COO of Furie.
“At Ankura, I focus primarily on restructuring in the energy sector,” Pinsonnault said. “My past experiences include leading the energy restructuring and advisory practices for two national consulting firms, serving as the chief restructuring officer for multiple oil and gas companies, and acting as the advisor to numerous companies in the energy sector in connection with various restructuring transactions.”
Under Pinsonnault - using a fresh round of financing from its lenders - Furie completed its planned 2018 drilling program, curing a 2017 default with the Alaska Department of Natural Resources’ Division of Oil and Gas.
In December, the company’s new plan of development for the Kitchen Lights unit was approved.
But in early January, Furie ran into problems when hydrate plugs at its onshore processing facility and in the 15-mile subsea pipeline from the offshore production platform slowed natural gas delivery to a trickle later that month and put Furie’s contract with utility Enstar Natural Gas in jeopardy. Gas output fell from 739,023 thousand cubic feet to 1,886 mcf in February.
In a Feb. 20 email, Pinsonnault told Petroleum News that his company was “prepared to open up production very shortly after restoring pipeline utility and going through the proper safety inspections.” He added that Furie had “mobilized a vast array of human and physical resources to address the issues.
“We take precautions and have procedures in place to mitigate this on a daily basis, but sometimes variables occur outside normal operating parameters that we cannot control, such as climate conditions,” Pinsonnault said.
Natural gas output from Furie’s platform in April rose to 347,919 thousand cubic feet versus 68,651 mcf in March, according to the Alaska Oil and Gas Conservation Commission - far short of the 853,410 mcf in November 2018, prior to the field going down because of hydrate plugs.
Also in April, a public notice of a foreclosure sale auction was posted by EPC in the Anchorage Daily News, and in Hart Energy’s Industry Voice. The sale was later postponed.
SUBHED: Fast track to January sale
Under the provisions of the petition, Ankura will be retained “to represent and assist the authorized officers and the company to carry out their duties under the Bankruptcy Code,” and also to carry on the duties under the March 23, 2018 engagement letter.
If all goes according to plan, the asset sale will close by Jan. 6, 2020. The sale schedule, as set forth in the declaration is as follows:
*Bidding Procedures and Bidding Protections Objection Deadline: 5:00 p.m. (prevailing Eastern Time) on August 29, 2019
*Hearing to consider entry of the Bidding Procedures Order: 10:00 a.m. (prevailing Eastern Time) on September 5, 2019
*Deadline to Approve the Bidding Procedures Order: No later than thirty-five (35) calendar days after the Petition Date
*Deadline for Debtors to file Potential Assumption and Assignment Notice: Within five (5) Business Days after entry of the Bidding Procedures Order
*Stalking Horse Objection Deadline (if any): Not later than seven (7) calendar days after service of a Stalking Horse Approval Notice (if any)
*Assumption and Assignment Objection Deadline: 5:00 p.m. (prevailing Eastern Time) on October 2, 2019
*Bid Deadline
*Sale Objection Deadline: 5:00 p.m. (prevailing Eastern Time) on October 4, 2019
*Auction (if necessary) to be held at the offices of McDermott Will & Emery LLP, 340 Madison Avenue, New York, New York 10173: 10:00 a.m. (prevailing Eastern Time) on October 7, 2019
*Sale Hearing: 10:00 a.m. (prevailing Eastern Time) on October 25, 2019
*Adequate Assurance Objection Deadline: The earlier of (i) 10:00 a.m. (prevailing Eastern Time) on October 25, 2019 or (ii) 5:00 p.m. (prevailing Eastern Time) on the day that is fourteen (14) days after service of the Notice of Auction Results
*Sale Closing: Not later than one hundred fifty (150) calendar days after the Petition Date
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