Chapter 11 debtor Furie Operating Alaska LLC and related debtor companies - Cornucopia Oil & Gas Company LLC and Corsair Oil & Gas LLC - are slated to be sold to Anchorage-based Hex LLC under an amended bankruptcy plan. But another offer from Danny Davis is in the wings.
The plan - filed April 20 in the U.S. Bankruptcy Court for the District of Delaware - references a term sheet dated April 14 between the debtors, lenders and the acquirer for a sale of the equity in the debtor companies. The assets include the offshore Cook Inlet Kitchen Lights unit, an offshore natural gas production platform, pipelines and facilities.
Hex is to pay $5 million in cash. A $15 million debtor in possession, or DIP, refinancing loan will be issued, secured by a second priority lien behind ING Capital LLC on the state of Alaska tax credit priority collateral, also secured by a second priority lien on all of the assets or property of the reorganized debtors behind a first lien to Alaska Industrial Development and Export Authority debt, not to exceed $7.5 million in principal amount plus an additional $5 million in advances.
The first source of repayment for the DIP loan is state of Alaska tax credits already earned but unpaid to date.
Prepetition term loan lenders will receive shares of a $21 million new term loan issued by the reorganized Cornucopia Oil and Gas, secured by a third priority lien on the tax credit priority collateral.
Proceeds from the state tax credits are to be applied first to repay a new $60 million tax credit loan to ING until repaid in full; second, to repay the $15 million DIP replacement loan until repaid in full; third, to repay the $21 million new term loans, split 75% to the holders of the new term loans and 25% to the acquirer for every dollar; and fourth, the remainder, if any, to the acquirer.
An existing gas sales agreement with Alaska Pipeline Co. will be assumed by the “applicable reorganized debtor(s).”
Need agreement with WIOs
Hex aims to close the transaction by June 30, but that will be subject to resolving issues with working interest owners, Hex President and CEO John Hendrix said during an appearance at an April 15 board meeting of the Alaska Industrial Development and Export Authority in Anchorage.
“The working interest owners, we’re still working that out; as you know right now they have an agreement that’s in place that we’re going to continue to work with them and get a resolution,” Hendrix said.
Alan Weitzner, AIDEA chief investment officer, said Hex’s AIDEA financing is contingent on resolving the relationship with the working interest owners.
“The closing that we’re focusing on for June 30 would be in structuring our loan that enables John (Hendrix) to have the capital to acquire the company and one of the conditions is ultimately that this is being sold with those issues fully defined to John for his operation,” Weitzner said.
The working interest owners - also known as the RWIO group - are Giza Holdings LLC; Taylor Minerals LLC; Allen Lawrence Berry; the 2007 Allen Lawrence Berry Trust; and Danny Davis, according to a consent letter filed as part of the amended plan April 19, as Exhibit C to the term sheet. The letter which is signed by the members of the RWIO group, proposes to keep alive a settlement the RWIO members agreed to in February to support a now defunct sale of the Furie assets to Kachemak LLC, which has been replaced by Hex as the buyer.
According to Danny Davis - former president of Escopeta Oil, the original operator of the Kitchen Lights unit - the consent letter was signed under duress.
Davis told Petroleum News April 17 that Hendrix called on April 13 to put Davis in touch with Michael Schmidt of Seaport Global Securities, which is advising the debtors in the Hex sale.
Davis said, “If we did not agree to go forward with the Hex trade, they were going to throw this - and I mean they, which is the lawyers for Furie and everyone involved, the creditors and everyone, according to this guy Mr. Schmidt, and Hendrix, they were going to throw this into a Chapter 7 and we would lose everything.”
Another buyer in the wings?
According to Davis, Hex is not the only party interested in purchasing the Furie assets.
“Now two weeks ago - and this is very important - I formed a little Texas company, just like the LLC (Hendrix is) forming and the one that Kachemak formed, but I formed one called Escopeta KLU Operating LLC and we put a term sheet in front of the lawyers for the creditors and the lenders to come in and pay in cash $5.5 million for that property, with $3 million in working capital to rework wells with and to move forward with,” Davis said. “We put a term sheet in front of everyone and everyone told us to get lost; they weren’t interested in dealing with us; they never considered it.”
“And we were offering more cash; when you have cash you can get out of a bankruptcy quicker, the company is stronger because the Hex deal has a $22.5 million loan against it just to start,” Davis said, adding that he didn’t believe the property could support such a heavy debt burden at present.
“That’s why we made a cash offer ... it puts the lenders - the creditors in a better position because we’re contributing $8 million worth of cash, and no one spoke to us, and no one said yes,” Davis said. “All they said was, if you’re serious we want $6 million in our escrow account tomorrow - no one’s going to do that until they sign your term sheet,” he said, adding, “we had the money sitting in banks here in Houston. I have partners too, and my partners aren’t loans, they’re equity partners.”
“No one ever took us seriously and no one even reported this to the judge, or no one even said, hey, let’s step back and think about this,” Davis said.
“They never asked Hex to put up $6 million cash in an escrow account,” Davis said. “I think at this time, as we speak today he has $500,000 up; we made that offer in our term sheet two weeks ago.”
Escopeta KLU was ready to offer $6 million cash if need be, and close the deal in short order, Davis said.
In late 2019, Hex submitted the winning bid of $15,000,010 in the auction for Furie’s assets, according to a notice filed with the bankruptcy court on Dec. 6.
That deal came apart.
“Later on you had the Kachemak people show up, do a lot of leg work and get everybody together,” Davis said.
The RWIO group “made a trade to contribute some of our working interest - would go from 20% to 10%; keep our overrides; have an executed operating agreement - everything you need for Kachemak to move forward, and of course when things got upside down a few weeks ago, (Kachemak) backed out and Hendrix put his hand back in the game,” he said. “But in the meantime, all of our executed agreements which gave releases to all the creditors, ECP, Melody, everyone involved ... were out there and something needed to be done with them.”
Davis said Escopeta KLU is new, but it’s a known entity. (Among other things, Hendrix headed up Apache’s operations in the Cook Inlet basin, so he, too, is known in the region.)
“Lawrence Berry and myself, like always ... we had Escopeta Oil of Alaska, we had Escopeta Oil,” he said.
“Why they wouldn’t consider a cash offer to move forward with I don’t know,” he said. “When you offer people cash and they don’t take it, something’s up.”
Davis said that at the least, one of the working interest owners should be put on the board.
“Nobody knows this property better than myself,” he said. “I built this project starting in 1998.”
Calls to Hendrix and Furie’s New York attorneys from Petroleum News were not returned.
