Chapter 11 debtor Furie Operating Alaska LLC and related debtor companies, Cornucopia Oil & Gas Company LLC and Corsair Oil & Gas LLC, filed a third amended plan of reorganization June 7 in the U.S. Bankruptcy Court for the District of Delaware.
The plan sets forth the proposed acquisition of the assets and existing equity interests of the debtors assets by Anchorage based HEX Cook Inlet LLC, which is scheduled to close at the end of June.
The second amended plan was revised to address concerns raised by the U.S. Trustee, according to a declaration in support of confirmation of the third amended joint plan filed June 8 by Scott M. Pinsonnault of Ankura Consulting Group LLC, interim COO of Furie.
The debtors had filed a second amended joint plan of reorganization for the debtors on May 6, and a plan supplement on May 29, but the trustee’s concerns sent the parties back to the negotiating table.
Pinsonnault said extensive discussions between the debtors and the debtors’ key stakeholders, including HEX and the prepetition lenders, resulted in significant revisions to the plan and concessions by all parties involved.
The plan provides that the prepetition term loan administrative agent will complete a foreclosure for the retention and acceptance of the pledged interests - pledged equity - in Cornucopia and Corsair by its designee, in partial satisfaction of the prepetition term loan obligations, he said, adding that the pledged equity will be canceled and extinguished as per the plan and the confirmation order.
New equity interests will be issued to HEX Cook Inlet, and in exchange, HEX Cook Inlet will pay $5 million to the debtors, which will be used to satisfy certain claims and taxes.
The new plan will be considered by U.S. Bankruptcy Judge Laurie Selber Silverstein in an omnibus hearing June 11.
Escopeta bows out of the race
As the HEX acquisition moves closer to closing, a competing offer for the Furie assets has been withdrawn.
Danny Davis told Petroleum News June 7 that his company, Houston based Escopeta KLU Operating LLC, was dropping out of the running after a $5.5 million cash offer the company submitted in April failed to gain traction.
“We withdrew because we couldn’t get any cooperation out of anyone - nobody ... lenders, lawyers, no one,” he said. “No one took us seriously; we had our funds together and we could have closed but no one paid us any attention.”
Davis said Escopeta KLU had additional commitments from its investors to provide an additional $3 million for well workovers and working capital needs.
Davis is the former president of Escopeta Oil, the original operator of the Kitchen Lights unit - which along with an offshore natural gas production platform, pipelines and an onshore processing plant forms the nucleus of the Furie assets to be transferred in the sale.
For now, Davis is standing down, but he remains interested in purchasing the Furie assets and he said his group was ready as a backup if HEX owner John Hendrix is unable to close the transaction.
“If for some reason he defaults, or hesitates, we’re ready to move forward,” Davis said. “We’re ready to take over.”
Releases essential to closing the deal
In a memorandum filed June 8 supporting an order confirming the third amended plan, attorneys of the debtors argued that releases contained in the plan were vital to the successful reorganization of the companies.
“Each released party has made substantial contributions to the Chapter 11 cases, including, among other things, funding the Chapter 11 cases, which allowed for the parties to conduct the sale process in the attempt to find a buyer, investigate any claims belonging to the debtors, and provide for the plan process that will include the formulation of the litigation trust, funding the prosecution of claims by the litigation trust, negotiating and drafting the plan and documents in the plan supplement.” the memorandum said.
Each of the debtors’ lenders is accepting less than otherwise entitled, it said.
The royalty and working owners parties have agreed to reduce working interests in the oil and gas leases operated by the debtors and settle litigation claims, it said.
“The contributions of the released parties were essential to administering these Chapter 11 cases and preserving the value for the debtors’ creditors,” it said. “The underlying agreement would not have been reached absent such releases.”
Without the releases, the debtors’ prepetition lenders would not have contributed to the plan or the process of formulating and negotiating it, the memorandum said.
“The plan contemplates the acquisition of the new equity interests of the debtors assets by HEX, or its designee,” it said. “HEX and its designee, HEX Cook Inlet, have sufficient capital to consummate the acquisition.”
The United States objects
The United States, on behalf of the U.S. Bureau of Customs and Border Protection, filed an objection June 6 to the second amended plan of reorganization.
The United States filed a general unsecured claim against Furie, in the amount of $7,104,387.28, representing the unpaid portion of a 2017 settlement agreement from a lawsuit Furie brought challenging a $15 million fine levied over a determination by customs that the company violated the Jones Act in 2011 when it brought a jack-up rig to Cook Inlet from Texas.
The settlement agreement was listed in a notice of executory contracts and unexpired leases to be rejected by the debtors filed May 15, the objection said, adding that the United States objects to being listed in the rejection notice because the settlement agreement is not an executory contract within the meaning of the Bankruptcy Code.
The United States objected to plan provisions governing the rejection of contracts, the objection said, adding, “The United States reserves all of its rights of setoff, and to the extent the United States has a right of setoff, it is entitled to payment as a secured creditor.”
According to the memorandum in support of the third plan of reorganization, the United State raised the only objection to the plan.
The debtors amended the rejected contracts list to remove the Customs settlement agreement, accordingly, the objection to the plan’s treatment of rejected contracts has been resolved, the memorandum said.
Other objections by Customs were resolved, the memorandum said, including the scope of a claims estimation process and a reconsideration process.
That objection was also raised informally by the U.S. Trustee and was addressed through modifications to the definitions of contained in the plan, the memorandum said.
Objections over recoupment rights of the United States prompted changes in the plan’s language to bring the plan’s treatment of third party setoff and recoupment rights in line with applicable Third Circuit law, the memorandum said.
“As such, the debtors believe that the CBP’s objection to the plan’s treatment of setoff and recoupment rights has been resolved,” the memorandum said.
The debtors made modifications or otherwise addressed other points raised in the objection filed by the United States, the memorandum said.
“Accordingly, the debtors submit that each ground for objection laid out in the CBP Objection should be overruled,” it said.
- STEVE SUTHERLIN
