- Majority of lenders agree to support restructuring plan
- CEO sees chance to capitalize on energy price downturn
Magnum Hunter Resources Corp., an oil and gas explorer once heady with spending amid the U.S. shale boom, filed for bankruptcy as its heavy debt load was exacerbated by the glut in cheap energy.
The company said Tuesday that it has the support of a majority of its lenders for a turnaround plan. Holders of 75 percent of the company’s debt have agreed to support the restructuring, which calls for a $200 million loan to keep Magnum Hunter operating in bankruptcy, according to a statement.
The loan will convert to equity in a new, reorganized company in a process that Chief Executive Officer Gary C. Evans said will be efficient and cost-effective, and allow it to take advantage of the energy slump.
“This restructuring will position Magnum Hunter as a market leader in the upstream sector with an ideal capital structure to capitalize on the large number of opportunities anticipated in our industry due to the precipitous commodity cycle downturn ,” Evans said in the statement.
A bankruptcy judge would still need to approve any plan.
Gas slumped to a 14-year low Monday amid record-breaking December warmth in the eastern U.S. Magnum Hunter blamed the slump, plus its own “substantial debt,” for the bankruptcy. The company had stopped drilling in its two main locations -- the Marcellus Shale and the Utica Shale -- at the start of this year due to the price drop.
Magnum is among many other energy firms that have succumbed to financial troubles, including Samson Resources Corp., which filed for bankruptcy in September.
Magnum listed debts of more than $1.1 billion in the Chapter 11 filing in Delaware. Among the biggest claims unsecured by collateral are notes due in 2020, listed in court papers at $634.6 million.
Marcellus and Utica assets, as well as properties in Kentucky, accounted for 96 percent of Irving, Texas-based Magnum’s total proved reserves. The Williston Basin in North Dakota and Saskatchewan accounted for the rest, as of June 30, the company has said.
The company also has midstream and oilfield services in West Virginia, Ohio and Texas. In 2014, its shares rose dramatically, even as its debt exceeded earnings by about 70 times, according to data compiled by Bloomberg. The stock now trades for pennies.
Magnum tried several options to stave off bankruptcy. It tried to raise cash by selling its stake in the Eureka Hunter pipeline business. A sale would generate $460 million to $600 million, the company said in an Aug. 7 report. Morgan Stanley’s infrastructure arm owns the rest of Eureka, which carries gas between Ohio and West Virginia, according to Magnum’s annual report.
Eureka Hunter Holdings LLC and its units aren’t part of Tuesday’s Chapter 11 case.
In October, PJT Partners, a firm that combines Blackstone and Paul Taubman’s advisory businesses, was hired to advise Magnum Hunter on financial options. Kirkland & Ellis LLP was hired as legal adviser.
The case is In re Magnum Hunter Resources Corp., 15-12533, U.S. Bankruptcy Court, District Of Delaware (Wilmington).