AAOG files for Chapter 11 bankruptcy
Company claims new lender trying to obtain its assets ‘on the cheap’
A San Antonio oil and gas company with operations in California has filed for bankruptcy protection, blaming a dispute with its new lender.
All American Oil & Gas Inc.’s Chapter 11 reorganization is the largest bankruptcy filing in San Antonio this year. It’s the parent company of exploration and production company Kern River Holding Inc. and a small power company called Western Power and Steam Inc., both of which also filed for bankruptcy.
AAOG President Patrick Morris in court papers described a feud with a lender that recently acquired the companies’ secured debt. He accused lender Kern Cal Oil 7 of attempting to strip the companies of their equity as part of a “predatory loan-to-own strategy.”
“Unlike many E&P cases, this bankruptcy filing is not the result of the Company’s poor operational underperformance, illiquidity, debt maturities or lack of underlying value,” Morris said in a court filing. “Rather, it was precipitated by KCO7’s efforts to exploit its rights under the Credit Agreements to obtain (the companies’) assets ‘on the cheap,’ and thereby to destroy tens of million in equity value.”
The companies’ equity value ranges from $35 million to $55 million, Morris said. They have an enterprise value ranging from $175 million to $195 million based on a recent valuation. They have about $142 million in debt that doesn’t mature for at least a year, he added in the court papers filed Monday.
“Our primary goal here is to protect the value of the companies,” Deborah Williamson, a bankruptcy lawyer for the three companies, said Tuesday. “We hope to be able to confirm a plan of reorganization that addresses the debt. Our goal is to file a plan that pays that debt in full … and pays all of our creditors in full over a reasonable period of time.”
Williamson added, “We are just trying to keep the companies operational and stable while we figure out if there’s a resolution, consensual or otherwise, with our lenders.”
An emergency hearing has been scheduled for Wednesday before Chief U.S. Bankruptcy Judge Ronald King.
Kern River Holding has a 215acre lease in the Kern River Oil Field in California’s San Joacquin Valley where the company has 124 producing wells, 43 steam injection wells and 15 observation wells. Western Power and Steam operates a 20-megawatt cogeneration facility adjacent to Kern River Holding. Western provides electricity and steam to aid Kern River Holdings’ oil extraction.
Kern River Holding is cash-flow positive and generated $25 million in earnings before interest, taxes and other items last year. It obtained two credit facilities totaling $137.6 million from a fund of investment management firm AllianceBernstein in 2015 and 2016. The debt, which is guaranteed by AAOG and Western, matures in 2019 and 2020.
Morris’ court filing indicated Kern River Holding anticipated refinancing the credit facilities over the next year or so, as it has done in the past.
That plan changed in mid-October when KCO7 acquired the debt from AllianceBernstein, Morris said.