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March 31, 2019 − Vanguard Natural Resources, Inc. and 11 affiliated Debtors (f/k/a VNR Finance Corp., now “VNR” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 19-31786. The Company, an independent exploration and production company focused on the production and development of oil and natural gas properties in the United States, is represented by Brian E. Schartz of Kirkland & Ellis. Further board-authorized engagements include (i) Blank Rome LLP as counsel, (ii) Evercore Group L.L.C. as financial advisor (iii) Opportune LLP as restructuring advisor and Prime Clerk as claims agent.
The Company’s petition notes between 1,000 and 5,000 creditors, estimated assets of $1.478bn and estimated liabilities of $1.196bn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) Pinedale Energy Partners ($2.4mn Trade Claim), (ii) WGR Operating LP ($2.1mn Trade Claim) and (iii) XTO Energy Inc. ($979k Trade Claim).
On August 1, 2017, VNR’s predecessor (“VNR LLC”) emerged from an earlier bankruptcy having delevered its balance sheet by approximately $850mn (or 47 percent of pre-filing funded debt),
In a press release announcing the filing, Mr. R. Scott Sloan, VNR’s President and CEO, commented, “The restructuring steps that we have announced today are necessary to attain a capital structure which is suitable for Vanguard’s assets and future business strategy. We are now focused on expediting an efficient in-court restructuring, maintaining our operational momentum and upholding our obligations to our employees and vital vendors and stakeholders.”
Debtor-in-Possession (“DIP”) Financing
VNR has obtained a committed $130 million debtor-in-possession financing facility (the ‘DIP Facility’), underwritten by Citibank, N.A., which contemplates $65.0mn in new money, up to $20.0mn of which will become immediately available upon Bankruptcy Court approval and $65.0mn of which will roll up obligations in respect of revolving loans under the Company’s existing credit agreement.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Sloan Declaration”) [Docket No. 25], R. Scott Sloan, VNR's President and Chief Executive Officer, detailed the events leading to the Company’s Chapter 11 filing. The Sloan Declaration states, “The difficulties faced by the Debtors are consistent with those faced industry-wide. Historically, the markets for oil, natural gas and NGLs have been volatile, and they likely will continue to be volatile in the future, especially given current geopolitical and economic conditions. Among the factors causing such volatility are the domestic and foreign supply of oil and natural gas, the ability of OPEC members to comply with the agreed upon production cuts and the cooperation of other producing countries to reduce production levels, social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, and the levels and growth of domestic and global economic activity.
These market conditions have affected oil and gas companies at every level of the industry around the world. All companies in the oil and gas industry (not just E&P companies) have felt these effects. However, independent oil and gas companies have been especially hard-hit, as their revenues primarily are generated from the sale of unrefined oil, natural gas, and NGLs. Over 100 oil and gas companies have filed for chapter 11 since the beginning of 2015, including, most recently, Parker Drilling Company, Gastar Exploration, Inc., EXCO Resources, Inc., Bonanza Creek Energy, Inc., Memorial Production Partners LP, Seadrill Limited, and Cobalt International Energy Inc. Numerous other oil and gas companies have defaulted on their debt obligations, negotiated amendments or covenant relief with creditors to avoid defaulting, or have effectuated out-of-court restructurings. The current volatility in the commodity markets has made it especially difficult for some companies to execute on any viable out-of-court restructuring alternatives.
Additionally, I understand that the Vanguard I Plan was predicated on various assumptions that ultimately did not materialize. As discussed further herein, it is my understanding that these may have included certain assumptions about: (a) commodity prices and basin differentials; (b) the pace and volume of divestments and the existence of valuable undeveloped resources to be sold; and (c) the expected returns on a number of capital investments pursued by Vanguard upon emergence—many of which have failed to come to full fruition and have challenged the Debtors’ liquidity over the last 18 months. The Debtors further had their liquidity constrained through borrowing base redeterminations under the First Lien Credit Facility and realized lower-than-expected asset divestment proceeds."
About the Company
Vanguard and its Debtor affiliates are an oil and natural gas company with production and development activities in the Rocky Mountain, Mid-Continent, Gulf Coast, and West Texas regions of the United States. The Debtors primarily operate in the “upstream” oil and gas sector and conduct their exploration and production activities across eight states in nine geologic basins. The Debtors’ assets are predominantly mature properties with long-lived production, relatively predictable decline curves, and lower-risk development opportunities.
Headquartered in Houston, Texas, Vanguard’s predecessor, Vanguard Natural Resources, LLC ('VNR LLC'), was founded in October 2006. Over the past decade, Vanguard has grown into a substantial energy company with upstream and midstream operations fueled primarily by acquisition-based growth. In October 2007, VNR LLC completed its initial public offering and began trading on the NASDAQ Global Select Market under the ticker symbol VNR. Among other acquisitions, in October 2015, VNR LLC completed two significant merger transactions: (a) with LRR Energy, L.P. and its general partner, LRE GP, LLC, in a $413.3 million unit-for-unit transaction; and (b) with Eagle Rock Energy Partners, L.P. in a $415.2 million unit-for-unit transaction.
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