March 6, 2020 – The Court hearing the EP Energy Corporation case confirmed the Debtors’ Fourth Amended Joint Chapter 11 Plan of Reorganization, clearing the way for the Debtors to exit bankruptcy in the coming weeks, minus $3.3bn of prepetition debt. Judge Martin Isgur brushed aside late-in-the-day objections from creditors who had argued that the recent coranavirus outbreak and its powerful downward impact on oil prices left the Debtors' Plan unfeasible; an argument that has only strengthened in the days immediately following the Court's confirmation order. Depending on which side of the argument one falls, there will be enormous relief or regret that the Debtors' Plan confirmation hearing, delayed while parties scrambled to understand the impact of the coronavirus in advance of presenting their arguments to Judge Isgur, was continued to March 5th and not to March 6th or 9th. The Court has yet to release its confirmation order; although a proposed order, and a subsequent amendment, are available at Docket Nos. 1014 and 1015, respectively.
In a March 6th press release, the Debtors noted that, with the Court order, "The Company expects to complete its financial restructuring process and emerge from Chapter 11 bankruptcy protection as a private company in the coming weeks.
Upon emergence, the Company will reduce its debt by approximately $3.3 billion, will receive approximately $629 million in senior secured exit financing from the Company's existing revolving loan lenders, and approximately $325 million of new-money equity financing from certain of its existing noteholders. Such deleveraging and financing will ensure that EP Energy will have greater financial flexibility to support ongoing operations.
The Debtors' President and Chief Executive Officer Russell Parker added, “This milestone represents the commitment of our financial restructuring, which is being achieved on an expedited basis thanks to the support of our creditors and stakeholders and their confidence in our long-term value creation opportunities. Confirmation of our Plan enables EP Energy to begin taking the final steps in a process that will significantly reduce our debt and strengthen our capital structure. Based on the strength of our assets and our continued improvement on our operational execution and capital efficiency, EP Energy is poised to succeed in this operating environment and drive value for all our stakeholders.”
In a Court filing filed by longstanding Plan critic "MSB Owners" the following (with brief hindsight, very rosy) assessment of the Debtors' near-term competitive environment was put to the Court: "This downturn has hit oil prices particularly hard. The downward pressure on economic activity, first in China and now elsewhere, is immediate and drastic in suppressing oil demand. At close of the market on January 21, crude oil was trading at the West Texas Intermediate index at $58.38 per barrel. By the close of business on February 28, 2020, the price had fallen to $44.76 per barrel, a decrease of 19.3%. The stock prices of oil and gas producers mirror this downturn. Exxon Mobil’s stock has slid from $67.58 to $51.44 in the same period for a loss of almost 24% in stock value. Other oil and gas producers have seen similar losses in stock value over the same period: Marathon Oil Corp., 35.5%; Chevron Corp., 17.7%, ConocoPhillips, 22.8%; EOG Resources, Inc. 24.7%; Devon Energy Corp., 35%. Indeed, every producer has seen a meaningful loss in value since COVD-19 began its grim march across the globe, with losses being even more significant when pegged to the late December 2019 disclosure of the virus in China (e.g., oil price decrease of 26.67%)….It appears undisputed that such evidence would be highly relevant to the feasibility of the Debtors’ Plan.
While the Debtors are substantially hedged for 2020 and thus substantially insulated from near term price declines, the early price forecasts for 12 months from now are plainly bearish. This would preclude Debtors from replacing the hedges with a $60/bbl strike price contract. Indeed, Debtors will need to adjust to $46/bbl oil [with commensurate differentials lower for the waxy Uinta crude that itself has higher transportation costs due to the need for trucking and heat].”
To give a sense of just how far those figures have shifted in recent days, crude oil at the West Texas Intermediate Index was just above $32 in early trading on March 9th; and pre-market Exxon Mobil stock was trading under $43 per share.
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