Fort Worth-based Southland Royalty Company LLC has filed for Chapter 11 bankruptcy, legal filings show.
The oil and gas company, backed by Houston-based EnCap Investments LP, owes about $540 million to a revolving credit facility, according to legal documents.
Southland is entering into the bankruptcy proceedings with a cash balance of about $12 million and has secured a debtor-in-possession loan for about $70 million. Frank Pometti is listed as its chief restructuring officer, and also serves as AlixPartners LLP’s managing director.
A representative for the company could not be reached for comment.
The company’s restructuring committee and board is seeking to restructure its capital structure either through a sale so it can have a “fresh start” or, if an “attractive” sale isn’t possible, then by de-leveraging its balance sheet through a chapter 11 plan, according to the filing.
The filings state that the downturn in the oil and gas sector has “created an extremely challenging environment for the Debtor’s business, depressing revenues generated by production activities, while at the same time reducing the value of proven reserves.”
Southland is an upstream energy company that is focused on the acquisition, development and exploitation of oil, natural gas and natural gas liquid reserves. The company conducts most of its operations in four states, with the majority of its business in Wyoming and New Mexico. The company was formed principally to produce and extract hydrocarbons in certain basins.
The filing states that the company has limited its drilling and capital expenditures to save its cash in the short term. However, the company has “sizable” payments in place because of certain “gathering agreements which require the Debtor to pay for transportation of hydrocarbons at specified minimum volume commitment levels (“MVC”).”
The MVC payments are due whether or not the company uses the midstream services, and as a result, the company has large fixed costs.
Additionally, the filing shows that exploration and production companies have endured a general decline over the past couple of years. In the first nine months of 2019, 33 exploration and production companies have filed for Chapter 11, compared to 22 E&P companies during the same time period in 2018.
The filing also states that its plugging and abandonment obligations, ongoing litigation with BP America Production Company, underperforming wells and other industry challenges have led up to the filing.
Please visit the Dallas Business Journal for more on this story and other business news.