Approach Resources Inc. entered bankruptcy on Nov. 18 after over a year of being battered by weak natural gas prices in the Permian Basin, where the Fort Worth, Texas-based independent’s operations are focused.
As part of the voluntary Chapter 11 filing in the United States Bankruptcy Court for the Southern District of Texas (Houston Division), Approach said it will begin to explore strategic alternatives that include either a restructuring of its balance sheet or the sale of its business as a going concern.
In the meantime, the company has received a commitment from its pre-petition lenders for $16.5 million as part of a “debtor-in-possession” (DIP) financing, subject to court approval and customary closing conditions.
Approach has struggled to maintain operations since the second half of last year when pipeline constraints forced natural gas prices at the Waha hub in the Permian Basin to tumble to their lowest on record. The company began deferring most of its drilling and completions activity beginning in third-quarter 2018.
In March 2019, Ross Craft, the company’s founder and former CEO, said an “extreme Waha gas discount” in the basin drove Approach to begin conserving capital and reducing cash operating expenses.
However, he also noted: “Our capital expenditure budget is designed to be funded primarily through cash flows from operations.”
As of August, Approach operated about 116,000 net acres, mostly in Crockett and Schleicher counties, Texas, focused on the Wolfcamp Shale resource play. The company has posted four straight years of losses with revenue of $114 million in 2018.
In April 2019, Craft resigned as CEO from the company. He was replaced by Sergei Krylov, who also retained his role as Approach CFO.
Also, earlier this year, Approach began exploring deleveraging alternatives following the breach of certain financial covenants under its revolving credit facility. The company’s stock was later delisted from the NASDAQ on Nov. 1 after it failed to regain trading above the $1 per share minimum last seen in March 2019.
On Nov. 18, Approach said it will continue to operate without interruption and anticipates having sufficient liquidity to timely pay all employees, vendors and suppliers for services and products provided during the Chapter 11 process.
Upon court approval, the company’s DIP financing will be provided by its current syndicate of RBL lenders, with JPMorgan Chase Bank NA as administrative agent.
Approach selected Perella Weinberg Partners LP to act as its investment banker in connection with the Chapter 11 case, including to advise the company in its exploration of these strategic alternatives. The company is also being assisted by Alvarez & Marsal North America LLC as financial adviser and Thompson & Knight LLP as legal advisers.
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