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MLCJR LLC – Privately-Held Gulf of Mexico E&P Cox Oil, Buffeted by Low Commodity Prices and then (as a result of Disastrous Hedging Arrangements) by High Commodity Prices, Seeks Court Authority to Access $75mn ($50mn Interim) of New Money DIP Financing

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May 15, 2023 – The Debtors requested Court authority to: (i) access $75.0mn in new money debtor-in-possession (“DIP”) financing (including $50.0mn on an interim basis) to be provided by prepetition lenders BP Energy Company (“bpec”) and Amarillo National Bank (“ANB,” and together with bpec, the “DIP Lenders”) and (ii) use cash collateral [Docket No. 18, with a DIP term sheet attached at Exhibit A]. 

The requested new money DIP financing is part of a $345.2mn package consisting of (a) the $75.0mn of new money financing; (b) subject to entry of a final DIP order, a first lien first out facility of up to $220.2mn (the “FLFO Refinancing Facility") and (c) also subject to entry of a final DIP order, a first lien second out facility (the “FLSO Refinancing Facility” and, together with the FLFO Refinancing Facility, the “Refinancing Facilities”) in the aggregate principal amount of $50.0mn.

The FLFO Refinancing Facility will mostly be used to repay @$190.0mn owed to bpec in respect of "materially out-of-the-money" swap arrangements, with the balance, along with the $50.0mn being made available by the FLSO Refinancing Facility, to be used to repay a $80.0mn prepetition revolving loan facility with the Debtors' other prepetition-turned-DIP lender, ANB.

Case Status

On May 14, 2023, privately held MLCJR LLC and five affiliated debtors (dba Cox Oil, together “Cox Operating” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. At filing, the privately-held Debtors, who own and operate assets in the Gulf of Mexico, noted a string of setbacks including macro-level headwinds (OPEC Spat, COVID); Hurricanes in 2021 and 2022 resulting on over $90.0mn in damages; an accident in which one of their rigs was put out of commission (costing the Debtors 1,500 barrels of oil per day in lost production and the subject of a $225.0mn lawsuit); disastrously out of the money swaps*; and…the coup de grace…an involuntary Chapter 7 filed against them at the end of April (although the Debtors note they were preparing to file voluntarily, with or without the involuntary petition).

*The Debtors' disastrous hedging strategy, which has left the Debtors holding a $190.0mn bill after prepetition-turned DIP lender bpec served them with notice that it was terminating its swap agreement on April 28th, will probably be causing a lot of anxiety in the E&P sector. Not only is it a huge sum, but with the swaps closed, the Debtors are effectively unable to operate at all. The Debtors explain: "The Debtors and bpec were party to a swap agreement that was materially out-of-the-money to the Debtors and secured by substantially all assets of the Debtors….In the intervening years after entry into the agreements, market conditions shifted dramatically, positioning the Debtors on the wrong side of what otherwise would have been positive economic developments for the Debtors as a result of the improved commodity price environment. Thus, instead of reaping the benefits of strong demand and correspondingly high prices for hydrocarbons, the Debtors are obligated under the terms of these agreements to pay their counterparties increased market prices….[the termination has] effectively frozen the Debtors out of the current oil and gas market boom."

The DIP Motion

The motion [Docket No. 18] provides, “As of the Petition Date, the amount of Cash Collateral held by the Debtors was only approximately $825,000. If this Motion is not approved and the Debtors do not obtain authorization to borrow under the DIP Facility, the Debtors will suffer immediate and irreparable harm. Without the funds available under the DIP Facility, including pursuant to the Initial Draw and the Interim Draws, and the use of the Cash Collateral, the Debtors will not have sufficient available sources of working capital and financing to carry on the operation of their business. The DIP Facility will provide vendors, government authorities, and other third parties with necessary credit support during the pendency of these Chapter 11 Cases. The Debtors’ ability to pay their employees, to maintain business relationships with their vendors, suppliers, operators and managers, to make capital expenditures and to satisfy other working capital and operational needs, and to otherwise finance their operations is essential to the Debtors’ continued viability.”

Key Terms of DIP Financing

  • Borrower: MLCJR LLC
  • Guarantors: 
    • Cox Operating, L.L.C
    • Energy XXI Gulf Coast, LLC
    • Energy XXI GOM, LLC
    • M21K LLC
    • EPL Oil & Gas, Inc
    • Cox Oil Offshore, L.L.C
  • Non-Debtor Guarantors:
    • Cox Gathering LLC
    • CEXXI, LLC
    • EPL of Louisiana, L.L.C
    • EPL Pipeline, L.L.C
    • Energy XXI M21K, LLC
    • Energy XXI Onshore, LLC
    • Energy XXI Pipeline, LLC
    • Energy XXI Pipeline II, LLC
    • Energy XXI Texas Onshore, LLC
    • Soileau Catering, LLC
    • SP 49 Pipeline LLC
    • Energy XXI Services, LLC
    • Energy XXI GIGS Services, LLC
  • DIP Agent: Amarillo National Bank
  • DIP Lender: BP Energy Company and Amarillo National Bank
  • DIP Facility: A senior secured priming superpriority debtor in possession term loan facility in an aggregate principal amount not to exceed $345,191,752, 11 consisting of (a) a new money term loan facility in the aggregate principal amount of $75,000,000; (b) subject to entry of the Final Order, a first lien first out facility refinancing the Prepetition Swap Obligations and a portion of the Prepetition Loan Obligations in the aggregate principal amount of up to $220,191,752; and (c) subject to entry of the Final Order, a first lien second out facility refinancing any remaining Prepetition Loan Obligations in the aggregate principal amount of $50,000,000.
  • New Money: $75.0mn ($50.0mn Interim)
  • DIP Availability: The new money DIP Loans will be available to the Debtors in accordance with the following:
    • Upon entry of the Interim Order and satisfaction of all applicable conditions precedent, the Borrower shall be entitled to make one or more draws of the new money DIP Loans up to the maximum aggregate principal amount of $50,000,000 (the “Initial Amount”). Subject to the satisfaction of the Initial Draw Conditions (as defined in the DIP Term Sheet), the Debtors may make one or more weekly initial draws of the new money DIP Loans in the maximum aggregate principal amount of $20,000,000 (collectively, the “Initial Draw”)
    • Immediately upon the Closing Date and satisfaction of all applicable conditions precedent, the Debtors may make one or more additional draws of new money DIP Loans up to the aggregate amount of the Initial Amount (each an “Interim Draw” and collectively, the “Interim Draws”).
    • Upon entry of the Final Order, and satisfaction of all applicable conditions precedent, the full remaining amount of new money DIP Loans shall be available to the Debtors, subject to compliance with the applicable terms, conditions and covenants described in the DIP Documents, in additional draws (each an “Other Draw” and collectively, the “Other Draws” and, together with the Initial Draw, each Interim Draw, and each Other Draw, each a “Draw” and collectively, the “Draws”), up to the aggregate principal amount of the undrawn DIP Commitments under the New Money Facility at any time prior to five (5) business days before the DIP Termination Date.
  • Roll-Up: NA, but see "Use of Proceeds" as to refinancing of Prepetition Agreements with final DIP order
  • Interest Rates:  
    • The DIP Loans under the New Money Facility shall bear interest at a per annum rate equal to Wall Street Journal Prime plus ten percent (10.00%) per annum, in each case payable in kind by capitalizing such interest in arears on the first day of each month.
    • Upon entry of the Final Order, the DIP Loans under the Refinancing Facilities shall bear interest at Wall Street Journal Prime plus 2.75 percent (2.75%) (i.e., the Default Rate under the Prepetition Loan Agreement) per annum.
  • Use of Proceeds: Solely to (i) make payments for general corporate or working capital purposes in a manner consistent with the then current Approved Budget (as defined in the DIP Term Sheet) (subject to any Permitted Variance (as defined in the DIP Term Sheet), (ii) prior to entry of the Final Order, make monthly payments to the Prepetition Lender of interest at the non-default rate as provided in the Prepetition Loan Documents, (iii) pay the reasonable fees, costs and expenses of the DIP Agent and the DIP Lenders, (iv) pay fees and expenses of professionals associated with the Chapter 11 Cases, (v) provide Adequate Protection (as defined in the DIP Term Sheet), and (vi) in the case of the Refinancing Facilities, upon entry of the Final Order, to refinance amounts outstanding under the Prepetition Agreements, pursuant to the refinancing mechanics.
  • Maturity Date:  NA
  • Fees and Expenses: 
    • Upon entry of the Interim Order, and subject to certain professional fee procedural requirements detailed therein, the Debtors shall pay all reasonable and documented prepetition and postpetition fees and out-of-pocket expenses of the DIP Agent and DIP Secured Parties in connection with the DIP Facility, as provided in the DIP Documents.
    • The DIP Facility also includes an upfront fee in an amount equal to 2.00% of the DIP Commitments, which shall be due and payable in kind to the DIP Lenders on the Closing Date ratably based on their respective DIP Commitments on the Closing Date (the “Upfront Fee”);
    • The DIP Facility also includes a fee in an amount equal to 1.00% of the Initial Draw, which shall be due and payable in kind to bpec on the date of funding (“the Preliminary Advance Fee”), which is incremental to the Upfront Fee.
  • Milestones:The DIP Documents shall require compliance with the following milestones (the “Milestones”), including without limitation:
    • The Interim Order shall have been entered by the Court; no later than the date that is five (5) days after the Petition Date.
    • The Debtors shall have filed a motion, in form and substance reasonably acceptable to the DIP Lenders, seeking final approval of procedures governing the sale (the “Sale”) and marketing process (the “Sale Process”) for substantially all of the Debtors’ assets (the “Bidding Procedures Motion”); no later than the date that is seven (7) days after the Petition Date.
    • The Debtors shall have filed a motion (the “Venue Motion”) seeking to dismiss or transfer venue of the involuntary bankruptcy case (Case No. 23-10734) filed against Cox Operating, L.L.C. in the United States Bankruptcy Court for the Eastern District of Louisiana (the “Louisiana Court”) and shall have requested emergency consideration thereof by the Louisiana Court; no later than the date that is seven (7) days after the Petition Date.
    • The Closing Date shall have occurred; no later than the date that is fourteen (14) days after the Petition Date.
    • The Debtors shall have obtained an order from the Louisiana Court granting the Venue Motion, provided that in the event the Louisiana Court does not consider the Venue Motion within fourteen (14) days after the Petition Date, this Milestone shall be deemed automatically extended until the date that the Louisiana Court considers and rules on the Venue Motion; no later than the date that is fourteen (14) days after the Petition Date.
    • The Final Order shall have been entered by the Court; no later than the date that is thirty (30) days after the Petition Date.
    • An order granting the Bidding Procedures Motion, in form and substance reasonably acceptable to the DIP Lenders (the “Bidding Procedures Order”), shall have been entered by the Court; no later than the date that is thirty (30) days after the Petition Date.
    • The bid deadline set forth in Bidding Procedures Order shall have passed; no later than the date that is seventy-five (75) days after the Petition Date.
    • The Debtors shall have made a determination, in consultation with and subject to the written consent of the DIP Lenders, as to whether to proceed with the Auction (as defined below) or pursue an Approved Plan of Reorganization (as defined in the DIP Term Sheet); no later than the date that is eighty (80) days after the Petition Date.
    • If the Debtors have determined not to pursue an Approved Plan of Reorganization, the auction (the “Auction”), if any, on the terms set forth in Bidding Procedures Order shall have occurred; no later than the date that is eighty-five (85) days after the Petition Date.
    • If the Debtors have determined that the highest and best bid received through the Sale Process is not an Approved Sale, or (b) if the Auction did not occur, the Debtors shall have filed with the Court an Approved Plan of Reorganization and a disclosure statement with respect to the Approved Plan of Reorganization; no later than the date that is ninety (90) days after the Petition Date.
    • If the Debtors have determined that the highest and best bid received through the Sale Process is an Approved Sale, an order approving the Sale (the “Sale Order”), in form and substance reasonably acceptable to the Required DIP Lenders (as defined in the DIP Term Sheet), shall have been entered by the Court; no later than the date that is ninety-five (95) days after the Petition Date.
    • If the Debtors have determined that the highest and best bid received through the Sale Process is an Approved Sale; no later than the date that is fifteen (15) days after the entry of the Sale Order, the Sale shall have been consummated; provided that, if such failure is due solely to additional time required to obtain pending regulatory approvals, such date shall be extended solely for the additional time as necessary to complete such regulatory approvals;
    • If the Debtors did not hold an Auction, an order conditionally approving the disclosure statement in respect of an Approved Plan of Reorganization, in form and substance reasonably satisfactory to the DIP Lenders, shall have been entered by the Court; no later than the date that is one hundred five (105) days after the Petition Date.
    • If the Debtors did not hold an Auction, an order confirming the Approved Plan of Reorganization, in form and substance reasonably satisfactory to the DIP Lenders, shall have been entered by the Court; no later than the date that is one hundred forty (140) days after the Petition Date.
    • If the Debtors did not hold an Auction, the effective date of an Approved Plan of Reorganization shall have occurred in accordance with its terms; no later than the date that is one hundred fifty-five (155) days after the Petition Date

A screenshot of a document 
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Initial DIP Budget (See Exhibit B of Docket No. 18]

General Background

Events Leading to the Chapter 11 Filings

In a declaration in support of first day filings (the “Omohundro Declaration"), Ryan Omohundro, the Debtors’ CRO commented: “The Debtors have faced significant operational challenges in their recent history, largely due to idiosyncratic factors outside of their control and an inadequate financing structure to withstand these challenges. This, in turn, has resulted in the liquidity crisis that prompted the filing of these Chapter 11 Cases.

  • First, in 2019, the Debtors assumed control of the Energy XXI Assets. Soon thereafter, in early 2020, the OPEC price war and COVID-19 led to significant production curtailment. Late 2020 proved no less challenging due to Hurricanes Laura, Sally, Delta, and Zeta, with storm damage from the 2020 hurricane season alone resulting in over $30 million of repair expenses to date. In 2021, the Debtors made significant progress on production restoration, but were dealt additional damage by Hurricane Ida. The resulting shut-ins led to significant production decline in late 2021 and an additional $61.5 million (and counting) of storm repair costs.
  • Second, significant damage was inflicted upon certain of the Debtors’ assets by third parties, and the Debtors have yet to be compensated for such destruction. Specifically, in October 2020, the M/V Atina—a crude oil tanker flagged under the laws of Malta—struck one of the Debtors’ platforms off the coast of Louisiana, SP-57B. The collision caused major damage and required the platform to be shut down. Pending repairs, the platform has remained offline at the cost of approximately 1,500 barrels of oil per day in lost production. To date, neither the M/V Atina nor her owners, operators, or agents have compensated the Debtors for such damages. Accordingly, the Debtors are pursuing approximately $225 million in damage claims against such parties in the suit captioned Cox Operating, LLC v. Atina M/V et al., Case No. 2:20-cv-02845 (E.D. La.), with trial scheduled to begin in September 2023. Pending a judgment and recovery thereon, the Debtors continue to suffer mounting damages….These challenges have limited the Debtors’ base production and stretched their payables profile. The Debtors currently have an aggregate of approximately 10 Mboe/d of suspended or shut-in net production.
  • Third, the Debtors’ entry into the VPP Agreement and the ISDA Agreement have effectively frozen the Debtors out of the current oil and gas market boom. The Debtors entered into these agreements in lieu of utilizing existing cash or other forms of capital, such as the issuance of debt. However, the economic characteristics of both the VPP Agreement and the ISDA Agreement effectively peg the calculation of cash obligations at future points to variable commodity prices. In the intervening years after entry into the agreements, market conditions shifted dramatically, positioning the Debtors on the wrong side of what otherwise would have been positive economic developments for the Debtors as a result of the improved commodity price environment. Thus, instead of reaping the benefits of strong demand and correspondingly high prices for hydrocarbons, the Debtors are obligated under the terms of these agreements to pay their counterparties increased market prices. In the end, the Debtors’ existing capital structure did not provide sufficient flexibility or liquidity to respond to the market and operational challenges facing the Debtors."

About the Debtors

According to the Debtors: "Cox is a privately-held entity that owns and operates assets in the Gulf of Mexico and was founded by fourth generation oilman, Brad E. Cox…. Cox has grown through enhanced development of production and reserves in existing assets along with strategic acquisitions. Cox’s assets are located in both the OCS in the Gulf of Mexico and the shallow waters off the coast of Louisiana.            

The Company currently operate more than 600 producing wells from approximately 500 structures over 66 fields with daily production of approximately 85,000 BOE. These operated assets stretch from offshore Florida to Texas. Cox is based in Dallas, Texas with operation staff in New Orleans, Louisiana and Houston."

The Omohundro Declaration adds: "The Company was established in 2003 and commenced operations in the GOM in 2004. Since then, the Company has remained privately owned and has grown to become one of the largest privately owned independent operators in the GOM, consistently maintaining its focus on the acquisition, exploration, development, and operation of oil and natural gas properties in Louisiana state waters and the GOM Outer Continental Shelf."

Corporate Structure

 

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The post MLCJR LLC – Privately-Held Gulf of Mexico E&P Cox Oil, Buffeted by Low Commodity Prices and then (as a result of Disastrous Hedging Arrangements) by High Commodity Prices, Seeks Court Authority to Access $75mn ($50mn Interim) of New Money DIP Financing appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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