[Just filed. Developing story.] July 5, 2023 – Alpine Summit Energy Partners, Inc. and six affiliated debtors (NASDAQ: ALPS; TSXV: ALPS.U; “Alpine Summit” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90739 (Judge David R. Jones). The Debtors, a Nashville, TN based based company "that operates and develops oil and gas assets," are represented by Eric M. English of Porter Hedges LLP. Further Board authorized appointments include: (i) Huron Consulting Services LLC as financial advisors, (ii) Houlihan Lokey Capital, Inc. and as investment bankers and (iii) Kroll Restructuring Administration LLC as claims agent.
At filing, the Debtors note between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $50.0mn and $100.0mn (these from operating subsidiary HB2 Origination, LLC, however, the lead Debtor's most recent 10-K has assets and liabilities of $354.3mn and $253.1mn, respectively for the year ended December 31, 2022). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Sotaog LLC ($4.9mn trade claim), (ii) Magnolia Oil & Gas Operating, LLC ($2.6mn royalty and non-operating interest claim) and (iii) Bold Production Services, LLC ($2.2mn trade claim).
Goals of the Chapter 11 Filings
The Perry Declaration (defined below) provides: "The purpose of these Chapter 11 Cases is to maximize the value of the Debtors’ assets for the benefit of their estates, which is currently contemplated to include a sale of substantially all of the Debtors’ assets pursuant to section 363 of the Bankruptcy Code and a plan of liquidation to distribute the sales proceeds."
In a June 21st press release (8-K here), the Debtors announced that: "…its Board of Directors unanimously voted to conclude its previously announced asset sale process, which was being conducted by Stephens Inc. ('Stephens')….Beginning on March 8, 2023, Stephens broadly solicited expressions of interest in a sale of various strategic, highly productive assets recently developed and proven by the Company. After considering several bids, the Company's Board of Directors concluded that the bids were not reflective of the value of the underlying assets and it was therefore not prudent to continue the sales process in the current environment. The impact of a force majeure[*] event, that has since been resolved, constrained production during April and May of 2023 and contributed to this outcome. The Company continues to review and evaluate its strategic options, including financing options, with the intent of maximizing value for its stakeholders….The Company has retained Porter Hedges LLP, Houlihan Lokey Capital, Inc., and Huron Consulting Group to assist with this process. However, there can be no assurance that such review will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms."
*In May 2023, Alpine Summit received notice of a “force majeure” from its major midstream provider in South Texas…attributed to unplanned outages at facilities downstream of the system, with the result that capacity on the system was limited and the Debtors' allocated volumes in that area was reduced by approximately 70%.
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Perry Declaration), Craig Perry, the Debtors’ President and CEO commented: “While the Debtors and their management team have a proven track record of acquiring and developing successful oil and gas assets, they have faced a series of headwinds that led to this filing. Those issues include: (i) a substantial and sustained drop in natural gas prices (down 53.7% Year over Year in the three months ending March 31st); (ii) limited available financing for the oil and gas industry, which ultimately made it impossible to fund our rapid expansion; (iii) an untimely force majeure event involving our primary midstream provider that limited our ability to deliver product to market, which depressed the bids in a prepetition marketing process; and (iv) vendor pricing and payment issues, which are a subject of the Debtors’ ongoing review and investigation.
The primary driver, however, for the Chapter 11 Cases is the absence of even basic credit availability for the Debtors’ newly developed assets. The Debtors rely on third party credit institutions to extend credit against wells that are brought online. Over the past several years, following two historic E&P industry downturns, finding reliable counterparties that are willing to extend credit for oil and gas assets has become increasingly difficult as ESG initiatives and concerns with the E&P industry model across the United States banking system winnowed down the pool of available lenders for the industry….The Debtors were executing a high-growth development plan that could not be funded solely by internally generated cash flows in the near term."
The Debtors have secured approximately $15.5mn in debtor-in-possession ("DIP") financing to be provided by their existing bank group. Of this $8.0mn will be available upon entry of an interim DIP order.
As of the Petition date, the Debtors’ primary debt obligations consisted of approximately $54,038,461.52 in principal and $510,363.23 in interest ($15,010.68 per diem in interest) under a $65.0mn, September 2022 senior credit agreement and approximately $90.7mn in unsecured trade-related/vendor debt.
In April and September 2022, Alpine Summit Funding LLC (the “SPV”)—a wholly-owned subsidiary of HB2 and a non-debtor—issued two tranches of notes, initially in an aggregate principal amount of $135.0mn, under an asset backed securitization facility (the “ABS Facility”) with affiliates of Kuvare Insurance Services LP.
About the Debtors
According to the Debtors: “Alpine Summit is a U.S. oil and natural gas development company that operates and develops oil and gas wells. Alpine Summit focuses its drilling activity in two main areas, the Austin Chalk and Eagle Ford formations in the Giddings Field in Austin, Fayette, Lee, Robertson and Washington Counties, TX (the 'Giddings Assets') and the Hawkville Field in Webb and LaSalle Counties, TX (the 'Hawkville Assets'), both well-positioned acreage locations in Texas which have produced substantial amounts of oil, natural gas, and NGLs for decades.
Alpine Summit distributes its commodity products through a network of marketing agreements covering its oil, natural gas, and NGLs. In general, these marketing agreements provide for Alpine Summit to receive prices that are referenced relative to highly visible and transparent benchmark prices and the Company is not reliant upon any single significant customer.
Alpine Summit enjoys a competitive advantage to other natural gas producers in the United States by virtue of its access to gulf coast natural gas markets without significant basis differentials. Alpine Summit anticipates being a beneficiary of the announced expansion of significant LNG export terminals in this area commencing in late Q4 2024 and well into 2026, since it views substantial expansion of interstate pipelines from other basins as unlikely.
Alpine Summit has become one of the more experienced energy operators in the Giddings and Hawkville Field areas and is complemented by a seasoned leadership team and a proven operating team. The Company's development history has enabled it to maintain a breadth of service provider contacts without undue reliance on any single service provider. The Company's employees are non-unionized and its service providers work on a contract basis.
The Debtors derive their consolidated revenue primarily from (i) the production and sale of natural gas (approximately 40.5%), (ii) the production and sale of natural gas liquids ('NGLs') (approximately 10.2%), and (iii) the production and sale of oil (approximately 49.3%)."
Corporate Structure Chart
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