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Approach Resources Inc. – Buyers’ Remorse Emerges as New COVID-19 Symptom; Debtors Urge Court to Enforce $192.5mn Sale to Tom Barrack and Sam Zell Controlled Entity


April 6, 2020 – Further to attempts by Alpine Energy Acquisitions (the “Purchaser” or "Stalking Horse") to back out of its Court-approved purchase of substantially all of the Debtors' assets, the Debtors have asked the Court to enforce its March 4th sale order and the asset purchase agreement (“APA”) executed amongst the Debtors and the Purchaser [Docket No. 356].

In a lengthy (as would be expected of a $192.5mn dispute) and highly redacted motion, the Debtors state that: "Since the Buyer contractually committed to purchase substantially all of the Debtor's assets, crude oil prices have crashed. Now, the Buyer wants out of its obligation to purchase the Debtors' Assets. But the Buyer has a problem: the Buyer does not have a ' contractual out' for the fall in commodity prices The Buyer's purported termination of the Asset Purchase Agreement is wholly meritless… Therefore, the Debtors ask that the Court enforce the Sale Order and the Purchase Agreement by ordering the Buyer to immediately Close on the Sale and perform all other obligations under the Purchase Agreement."

The $192.5mn question is clearly whether or not the Purchaser has been provided a "contractual out" by the COVID-19 virus. The motion continues: "Finally, the Purchase Agreement provides specific terms under which the Buyer may terminate the Purchase Agreement.

Applicable here, such grounds are: (i) that the Debtors breached a representation, warranty or covenant (ii) which would result in a Seller Material Adverse Effect ('MAE') (specifically excluding any change in commodity prices or the economic environment); and (iii) such breach, if curable , has not been cured by the earlier of 10 business days after written notice to the Debtors of such breach and the Closing Outside Date. However, as detailed herein, the Debtors did not breach the Purchase Agreement and the Buyer provided absolutely no notice whatsoever to the Debtors of such alleged breaches before attempting to terminate the Purchase Agreement….

As a result of the Buyer’s delays and breaches, the Debtors and their estates have incurred significant costs since March 26, 2020, in the form of reasonable and necessary professionals’ fees and G&A Expenses. The Debtors are entitled to recover such fees and expenses that would not have been incurred but for the Buyer’s delay and breaches."

The Debtors point to an apparently seller-friendly "Seller Material Adverse Effect" clause which "specifically [excludes] any change in commodity prices or the economic environment" and would certainly appear to have a strong case as to some of the more procedural aspects of the Purchaser's attempt to back out of the APA (eg failure to comply with notice and cure provisions).

A letter from the Purchaser to the Debtors, dated March 26, 2020, "pursuant to which the Buyer purports to terminate the Court-approved Purchase Agreement" and according to the debtors includes "false allegations of breach" has been filed with the Court, as was the Debtors' response to the Purchaser, but both documents have been sealed.

Background on Asset Sale 

On March 4, 2020, the Court issued an order approving the proposed $192.5mn sale of substantially all of the Debtors’ assets to the Purchaser [Docket No. 301]. The executed APA, dated as of February 4, 2020, was attached to the sale order as Exhibit 1.

On February 10, 2020, the Court hearing the Approach Resources Inc. cases authorized the Debtors to enter into a stalking horse asset purchase agreement, with the Purchaser, an acquisition vehicle formed by Alpine Energy [Docket No. 251] and on February 24th, the Debtors notified the Court that, absent any further qualified bids beyond that of the Stalking Horse, they had cancelled the auction scheduled for February 26th and designated the Stalking Horse as the "Prevailing Purchaser" [Docket No. 274].

Alpine Energy is a joint venture formed in September 2019 between Sam Zell’s Equity Group Investments (“EGI”) and Tom Barrack's (he of Trump confidante fame) Colony Capital, Inc. (NYSE: CLNY or “Colony”). Alpine Energy’s first investment was a $500.0mn DrillCo financing with California Resources Corporation (NYSE: CRC), the largest oil & gas exploration and production company in California. At that time Alpine Energy Chairman Craig Perry stated "We are aggressively pursuing opportunities in the upstream oil & gas industry and look forward to speaking with operators in need of capital solutions.” 

Perry, who graduated summa cum laude from Princeton, notes in his bio that he has an "Uber Rider Rating of 4.96." An interesting piece of alternative data…and, we thought at the time…pretty funny. Pretty clearly the Debtors would not presently concur with that rating.

Key Terms of the Stalking Horse APA

Purchase Price: The aggregate consideration for the assets will be (i) cash of $192.5mn and (ii) the assumption of "Assumed Obligations," with adjustments as specified in Section 3.1(b) and Section 3.2 of the agreement.

About Alpine Capital

According to their website: "Alpine Energy Capital is an Independent Oil and Gas Company. We manage upstream assets in the lower 48 and focus on providing direct access to oil and gas investment opportunities for our partners. The firm employs over 30 professionals with a broad range of experience."

According to the press release announcing the Alpine JV: "Alpine Energy Capital, an energy investment management platform backed by Equity Group Investments and Colony Capital, combines investment management expertise with a highly experienced technical and operating team to provide direct and unique investor access to oil and gas investment opportunities."

About the Debtors

The Debtors, a Delaware corporation headquartered in Fort Worth, Texas, are an independent exploration and production company focused on the acquisition and development of U.S. onshore oil and natural gas resources. Approach Oil & Gas Inc., a Delaware corporation (“AOG”), and Approach Operating, LLC (“Approach Operating”), Approach Delaware, LLC (“Approach Delaware”), Approach Services, LLC (“Approach Services”) and Approach Midstream Holdings LLC (“Approach Midstream”), each a Delaware limited liability company, are wholly-owned subsidiaries of Approach. Approach Resources I, LP (“Approach LP”) is a Texas limited partnership with Approach Operating holding a 1% general partnership interest and Approach Delaware holding a 99% limited partnership interest.

The Debtors engage in the exploration, development, production and acquisition of unconventional oil and gas reserves in the Midland Basin of the greater Permian Basin in West Texas, where the Debtors leased approximately 113,000 net acres as of the Petition Date. Approach is a holding company with no independent assets or operations. All of the Debtors’ oil and gas leases are held by AOG and Approach LP. All of the Debtors’ employees are employed by Approach Operating, and the Debtors’ assets are operated by Approach Operating. Approach Operating manages substantially all of the Debtors’ receipts and disbursements. Approach Midstream, Approach Delaware and Approach Services currently perform no material services, and hold no material assets.

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The post Approach Resources Inc. – Buyers’ Remorse Emerges as New COVID-19 Symptom; Debtors Urge Court to Enforce $192.5mn Sale to Tom Barrack and Sam Zell Controlled Entity appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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