Strategy

New Gulf Joins Energy’s Chapter 11 Parade

The oil driller has a debt-for-equity swap in place with a bondholder group that will erase more than $400 million in debt from its books.
Matthew HellerDecember 18, 2015

The oil price downturn has claimed another casualty as New Gulf Resources filed Chapter 11 bankruptcy after agreeing to a debt-for-equity swap with bondholders.

More than three dozen North American energy companies have filed bankruptcy this year. In its petition filed Thursday, oil driller New Gulf said it has a deal in place with a bondholder group  that will erase more than $400 million in debt from its books.

The bondholders, along with Castle Hill Asset Management LLP, have agreed to provide the company with a $75 million bankruptcy loan, Dow Jones reports. Half of the loan will be used to repay New Gulf’s bank debt in full, and the remainder will be used to fund New Gulf’s continuing operations, according to court papers.

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New Gulf’s CEO Ralph A. Hill said the restructuring will enable the company “to compete more effectively in the challenging commodity price environment.”

“We are confident that by enhancing liquidity and right-sizing the company’s debt, the restructuring will allow New Gulf Resources to navigate the industry’s current down-cycle and bridge to a recovery in commodity prices,” he said in a news release.

New Gulf, founded in 2011, focuses on drilling in the East Texas Basin. Like many other energy companies, it has been hit by low oil prices — which dipped again to less than $35 a barrel on Thursday.

In addition, the company incurred a debt load of more than $570 million, in part related to the acquisition of more drilling properties in 2014 . During the summer, New Gulf realized it would be facing a cash crunch and needed a new line of capital by early 2016 to keep its operations running, New Gulf CFO Danni S. Morris said in court papers.

New Gulf in February sold nearly all of its gas gather and processing infrastructure for approximately $85 million to an affiliate of Enbridge Energy Partners but only received two bids for its other assets.

Cubic Energy, which drills for oil and natural gas in Texas and Louisiana, filed a Chapter 11 petition last week.