In 2011, Samson Resources Corp., then Samson Investment Co., drew a $7.2 billion bid from private equity investors led by Kohlberg Kravis Roberts & Co. LP (KKR).
Samson, based in Tulsa, Okla., now finds itself with $4.9 billion in liabilities and nearly a billion dollars in debt due in 2016. And KKR and other investors are poised to forfeit a $4.1 billion investment.
Samson ultimately succumbed to separate downturns, first in natural gas prices in 2012 and then in crude oil values in the second half of 2014. After a cumulative net loss of $1.9 billion in the past 12 months Samson filed for bankruptcy reorganization Sept. 16, the largest E&P to do so amid the downturn in oil prices.
But the company promises to return stronger.
“The actions we are now taking will allow us to not only weather the current storm but also provide a strong foundation that will enable us to capitalize on future opportunities with significantly less debt on our balance sheet and a near-term infusion of new capital to provide additional liquidity,” said Randy Limbacher, CEO and director.
“A number of unexpected and unprecedented challenges have crippled Samson’s ability both to sustain its leveraged capital structure and to commit the capital necessary for exploration and production,” said Philip Cook, CFO, in a sworn statement.
However, Samson came to court with a plan. In a deal with its lenders, the company would deleverage more than $3 billion and reduce debt service by more than $250 million. The company’s deal with its creditors would also produce at least $450 million in new capital.
Under the terms of its restructuring agreement, lenders including Silver Point, Cerberus and Anschutz will permanently pay down existing first lien debt. In turn, the lenders will own substantially all of the equity in the reorganized company.
Coming out of bankruptcy, the company will have $250 million to restart drilling operations and began selling noncore assets.
The company’s business plan going forward will be to complete a divestiture program and restart spending in early 2016.
As part of a large-scale transformation, Samson will:
- Look for bolt-on acquisitions in East Texas and Bakken.
- Add a large resource play acquisition.
- Test its Fort Union, Granite Wash and Mowry developments for upside.
The company will also target repeatable inventory with high-return projects. The company also plans to strengthen its portfolio in competitive environments and is most interested in the Eagle Ford, Permian, East Texas and Bakken.
A&D All Over Again
As it rights itself, Samson intends to sell assets it has previously marketed but been unable to move in the past 18 months.
In March, Samson was able to sell its Arkoma Basin properties in Oklahoma for about $48 million before it pulled back from asset sales because of further declines in commodity prices.
As Samson recovers, it will return to pieces of its A&D plan launched in early 2014.
Assets that failed to sell can be sold at the “proper time,” Samson said.
Samson will look to divest in the San Juan Basin, Wyoming’s Wamsutter gas field and noncore Midcontinent assets. It will also leverage minerals and areas with limited inventory to re-deploy capital into core areas with upside potential.
Samson’s core assets are in East Texas (298,000 net acres) and the Williston Basin (98,000 net acres). In East Texas, production is 161 million cubic feet equivalent per day (cfe/d) and Taylor and the Cotton Valley are economic at $3 per thousand cubic feet (Mcf).
The Williston produces 2,000 barrels of oil equivalent per day (boe/d) with predictable well results.
Samson now joins companies such as American Eagle Energy Corp., Quicksilver Resources Inc., Saratoga Resources Inc., Milagro Oil & Gas Inc. and Sabine Oil & Gas that have filed for Chapter 11 bankruptcy in 2015.
Quicksilver, which has an estimated $1.21 billion in assets, filed for bankruptcy in March after it was unable to sell its assets in the Barnett Shale, Delaware Basin, Horn River Basin and Horseshoe Canyon. On Sept. 17 the company said it would market and sell all or a portion of its U.S. and Canadian assets.
Milagro, like Samson, was hit by a dramatic fall in natural gas prices. In 2007, the company purchased 1,000 gas wells for $825 million. After closing in 2007, natural gas prices fell and the company took at $430 million impairment charge.
Samson, acquired in December 2012, has been in the same line of fire.
In 2011, a KKR-led group of oil and gas investors including ITOCHU, Natural Gas Partners and Crestview began the process of buying Samson.
The investors’ strategy was to flip Samson from a natural gas company to one focused on oil and NGL production.
At the beginning of negotiations for Samson, forward natural gas prices were between $4 and $7.50 per million Btu (MMBtu).
In April 2012, just after the sale closed, New York Mercantile Exchange (NYMEX) near-term natural gas prices had declined by 40% and strangled the company’s cash flow.
Already weakened by sustained low gas prices, oil began its descent in mid-2014.
Samson has halted drilling and well development.
In addition to attempts to divest noncore assets, the company reduced 375 positions, closed offices in Texas and Oklahoma and shut in about 1,000 negative cash flow wells. The moves resulted in about $80 million in annualized savings.
“Although Samson Resources has completed a series of initiatives to strengthen our business during this difficult and extended period of low commodity prices, we–like many of our peers–have not been able to overcome industry headwinds,” Limbacher said.
Samson has since felt the pain of the freefall in oil prices. In the first quarter of 2015, the company reduced the value of its oil and gas properties by $ $629.5 million to reflect commodity prices.
The company has a PV-10 of $1.4 billion. Its business calls for it to return its PV-10 to $1.7 billion.
Sustained lower oil prices may lead to Permian consolidation, the return of tough times to other shale plays and U.S. E&Ps helping rebalance global inventories.
The SEC says Luca International Group hit up investors for the E&P while hiding huge losses. Luca’s founder is accused in a federal suit of using investor funds on a $2.5 million house.
Souki’s departure comes about four months after Icahn took a stake in the company that eventually rose to 13.8%. He also won control of two seats on the company’s board.