Oasis Petroleum Inc. – Independent E&P Files Prepackaged Chapter 11 with $2.265bn of Funded Debt; Further to RSA, Noteholders to Swap $1.8bn of Debt for 100% of Emerged Equity

September 30, 2020 – Oasis Petroleum Inc. and eight affiliated Debtors (NASDAQ: OAS; “Oasis Petroleum” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-34771. The Debtors, an independent exploration and production company focused on assets in the Williston and Delaware Basins, are represented by Matthew Cavenaugh of Jackson Walker LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) AlixPartners, LLP as restructuring advisor, (iii) Tudor, Pickering, Holt & Co. and Perella Weinberg Partners as investment bankers and (iv) KCC as claims agent. 

The Debtors’ lead petition notes between 25,000 and 50,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn (including $2.265bn of funded debt). Documents filed with the Court list the Debtors’ five largest unsecured creditors as (i) US Bank N. A. (as trustee for $866.2mn 6.875% Bonds due March 2022), (ii) US Bank N. A. (as trustee for $405.5mn 6.25% Bonds due May 2026), (iii) US Bank N. A. (as trustee for $312.3mn 6.875% Bonds due January 2023), (iv) US Bank N. A. (as trustee for $248.4mn 2.625% Convertible Bonds due September 2023) and (v) US Bank N. A. (as trustee for $44.8mn 6.5% Bonds due November 2021).

In a press release  announcing the filing, Oasis Petroleum advised that: "it has entered into a restructuring support agreement (the 'RSA') with substantially all of its lenders in Oasis Petroleum's revolving credit facility and holders of 52% of the aggregate principal amount of the Company's bonds on a comprehensive 'pre-prepackaged' restructuring plan (the 'Plan') to strengthen the Company's balance sheet and significantly reduce its debt. 

Through this financial restructuring, Oasis Petroleum intends to reduce its total indebtedness by $1.8 billion, representing 100% of its senior unsecured notes and senior unsecured convertible notes. Upon emergence, the Company expects to have approximately $340 million of borrowings under the Oasis Petroleum credit facility.  It is expected that the restructuring process will be completed on an accelerated timeframe allowing for an emergence in November 2020, subject to Court approval.

Oasis Midstream Partners (NASDAQ: OMP), an independent legal entity operated as a Master Limited Partnership, and all subsidiaries in which it owns an equity interest are not included in Oasis Petroleum's Chapter 11 proceedings."

The Debtors' Chairman and Chief Executive Officer, Thomas B. Nusz, commented, "…due to historically low global energy demand and commodity prices, we determined that it is best for Oasis Petroleum to take decisive action to strengthen our liquidity and overcome the headwinds now challenging both our company and industry. We are confident that we are taking the right steps to position the business for long-term success."

RSA and Plan Overview

Key terms of the Debtors' restructuring support agreement (the "RSA") include:

• certain of the Consenting RBL Lenders will provide a superpriority debtor-in-possession revolving debtor-in-possession financing facility in an aggregate amount of $450 million   (the “DIP Facility”), including $150 million of new money loans and $300 million of “rolled up” prepetition RBL Claims;
• certain of the Consenting RBL Lenders will also provide a senior secured reserved-based lending exit facility in an aggregate amount up to $1.5 billion (the “Exit Facility”) and an initial borrowing base totaling up to $575 million, the proceeds of which will be used to refinance amounts outstanding under the DIP Facility and any remaining prepetition RBL Claims outstanding on the Effective Date, and otherwise fund the Debtors’ emergence from chapter 11;
• holders of Notes Claims will receive 100% of the new common equity in Reorganized Oasis, subject to dilution on account of the Management Incentive Plan and New Warrants (as defined below);
• certain long-running litigation claims asserted by Mirada will be settled on terms set forth in the Plan and a separate settlement agreement to be included in the Plan Supplement;
• payment in full in cash of all administrative and priority claims;
• payment in full or reinstatement of General Unsecured Claims; and
• holders of existing equity interests will receive certain 4-year warrants (the “New Warrants”) convertible into up to 7.5% of the new common equity in Reorganized Oasis.

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

• Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“RBL Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $361.0mn and expected recovery is 100%. Each holder of an Allowed RBL Claim (i) electing to participate in the Exit Facility by entry into the Exit Facility Commitment Letter will receive, (x) on a dollar-for-dollar basis in exchange for the portion of its RBL Claim representing the principal of the loans owed to such lender under the RBL Credit Agreement, an equal amount of the principal of the revolving loans under the Exit Facility as of the Effective Date, upon the terms and conditions set forth in the Exit Facility Term Sheet and (y) with respect to any other portion of such holder’s RBL Claim (to the extent not already paid prior to the Effective Date, including as adequate protection pursuant to the DIP Orders), cash in an amount equal to such portion of such holder’s RBL Claim, and (ii) not electing to participate in the Exit Facility by electing not to sign the Exit Facility Commitment Letter (x) shall be deemed to have funded a Second Out Term Loan on a dollar-for-dollar basis in exchange for the portion of its RBL Claim representing the principal of the loans owed to such lender, any unreimbursed claims for professional fees and expenses under the RBL Credit Agreement, and any of such holder’s Specified Default Interest and (y) with respect to any other portion of such holder’s RBL Claim (to the extent not already paid prior to the Effective Date, including as adequate protection pursuant to the DIP Orders), cash in an amount equal to such portion of such holder’s RBL Claim. The Liens securing the loans under the RBL Credit Agreement shall be retained and deemed assigned to the administrative agent under the Exit Facility to secure the Exit Facility upon the Effective Date.
• Class 4 (“Notes Claims and Mirada Claims”) is impaired, and entitled to vote on the Plan. The projected amount of claims is $1,877.0mn and expected recovery is 62%. Each holder of an Allowed Notes Claim or an Allowed Mirada Claim shall receive its Pro Rata share (calculated based on the aggregate amount of all Allowed Notes Claims and Allowed Mirada Claims) of 100% of the New Common Stock, subject to dilution on account of the Management Incentive Plan and the New Warrants; provided, that notwithstanding that the Mirada Claims are classified as Class 4 Claims, such claims, in lieu of any treatment as Class 4 Claims, shall be treated in accordance with the Mirada Settlement Agreement.
• Class 5 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected amount of claims is $5.0-$10.0mn and expected recovery is 100%. Each holder of an Allowed General Unsecured Claim shall receive, at the option of the applicable Debtor: (a) payment in full in Cash; or (b) Reinstatement.
• Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
• Class 7 (“Intercompany Interests Other Than in Oasis”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
• Class 8 (“Interests in Oasis”) is impaired and entitled to vote on the Plan. The projected amount of claims is N/A and expected recovery is 0%. Each holder of an Interest in Oasis shall receive its Pro Rata share of the New Warrants.

Events Leading to the Chapter 11 Filing

The Debtors’ Disclosure Statement details the events leading to the Chapter 11 filing. The story is of course a familiar one (ie, commodity prices, Saudi Arabia/Russia price war and COVID-19), with pain especially felt at independent O&Gs, but this variation adds an interesting wrinkle usually not discussed, the saturation of oil storage facilities and the need for well shut-ins.

The Disclosure Statement states: "The difficulties initially faced in 2020 by the Debtors are consistent with those faced industry-wide. Volatile market conditions have challenged oil and gas companies and others for years. From January 1, 2014 until April 20, 2020, WTI crude oil prices ranged from a high of $107.26 per barrel to a low of -$37.63 per barrel; during that same period Henry Hub natural gas prices ranged from a high of $6.15 per mmbtu to a low of $1.55 per mmbtu. As of the Petition Date, and due in part to the combined impact of the COVID- 19 pandemic and the oil price war between the Kingdom of Saudi Arabia and Russia, WTI was priced at $40.37 per barrel and natural gas was priced at $2.76 per mmbtu.

In early 2020, the initial spread of COVID-19 caused decreased factory output and transportation demand, resulting in a decline in energy prices. To address this, OPEC, led by the Kingdom of Saudi Arabia, called for additional cuts in oil production, subject to agreement by Russia. However, those initial efforts faltered, and the parties failed to reach an agreement as to production levels. Instead, both the Kingdom of Saudi Arabia and Russia announced that they would increase, rather than decrease, production, resulting in surplus supply amidst already decreasing demand for energy. Meanwhile, the COVID-19 pandemic continued and continues to spread, causing governments across the world to institute strict public health and safety measures, including stay-at-home orders that have further decreased energy demand. 

The corresponding effects on energy markets have been severe. In March 2020, oil prices plummeted to near $20 per barrel, which was the lowest in nearly twenty years until April 20, 2020, when the WTI crude oil price for May contracts settled at a negative price for the first time in history.

The effect of recent events on companies in the oil and gas industry (not just E&P companies) has been undeniable. However, independent oil and gas companies such as Oasis have been especially hard- hit, as their revenues are primarily generated from the sale of oil, natural gas, and NGLs. Making matters worse, the drastic decrease in demand and corresponding over-supply of oil, natural gas and NGLs has led to an unprecedented storage shortage. Oil and gas companies are left with no option but to consider well shut-ins and other production measures to address the impending storage issue."

Prepetition Indebtedness

As of the Petition date, the Debtors have approximately $2.265bn in aggregate outstanding secured and unsecured debt obligations, including: (a) approximately $361 million in outstanding borrowings under a reserve-based lending facility; (b) approximately $77.0mn in secured letters of credit issued but undrawn under the RBL Facility; (c) approximately $44.0mn in 6.50% senior unsecured notes due 2021; (d) approximately $834.0mn in 6.875% senior unsecured notes due 2022; (e) approximately $308.0mn in 6.875% senior unsecured notes due 2023; (f) approximately $245.0mn in 2.625% convertible notes due 2023; and (g) approximately $395.0mn in 6.250% senior unsecured notes due 2026.

Significant Prepetition Shareholders

• BlackRock Institutional Trust Company N.A.: 8.5%
• The Vanguard Group, Inc.: 8.0%
• EnCap Investments L.P.: 6.4%

The Disclosure Statement attached the following exhibits: 

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Liquidation Analysis
• Exhibit D: Financial Projections 
• Exhibit E: Valuation Analysis

About the Debtors

According to the Debtors: “Oasis is an independent exploration and production company focused on the acquisition and development of onshore, unconventional crude oil and natural gas resources in the United States."

Liquidation Analysis (see Exhibit E to Disclosure Statement for Analysis)

Corporate Structure Chart

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