By LUCAS TURNER | [email protected]
RBC I Last Wednesday Colorado oil and gas exploration and production company Ursa Piceance Holdings LLC filed for Chapter 11 bankruptcy protection, along with affiliated subsidiaries Ursa Piceance LLC, Ursa Operating Company LLC and Ursa Piceance Pipeline LLC.
Currently Ursa has producing wells in the regions of Boise Ranch, Battlement Mesa, Gravel Trend and Castle Springs. According to bankruptcy documents submitted to the court, the company holds $282.7 million in secured debt.
Ursa’s filings also list a number of unsecured debts, the largest of which include Garfield County for more than $5 million and Rio Blanco County for just over $718,000 in past-due taxes. Rio Blanco County Assessor Renae Neilson indicated that these unpaid taxes are from 2019, but she was not sure whether Ursa would ultimately be required to pay them following their Bankruptcy proceedings.
Jamie Chronister is Ursa’s Chief Restructuring Officer for the filing, and in a supporting declaration states that “The Debtors [Ursa] must continue to pay the Taxes to avoid potential costly distractions during these chapter 11 cases. Specifically, the Debtors’ failure to pay the Taxes could adversely affect the Debtors’ estates because the governmental authorities could file liens, seek to lift the automatic stay, or seek to impose penalties on the Debtors’ directors, officers, or employees, thereby diverting their attention from the administration of the Debtors’ chapter 11 cases.”
Chronister’s declaration lists multiple factors in the financial decline of the company, including “albatross” contractual obligations “entered into during a dramatically different market environment.” Chronister said, “Debtors had expensive obligations under certain agreements for pipeline transportation that the Debtors did not even use.”
Two separate contracts signed in 2013 with Ruby Pipeline and Wyoming Interstate Co., eventually led to breach-of-contract suits. Ruby is seeking a judgement of $13.7 million plus interest. WIC is seeking approximately $362,000 in damages. Both cases are based on allegations that Ursa Piceance “was required but failed to maintain a cash deposit or irrevocable letter of credit and for Ursa Piceance’s failure to make timely payments.”
Aside from an additional $15,000 in taxes owed to the Colorado Oil and Gas Conservation Commission, Ursa’s other unsecured debts listed in its lead petition are described as “trade payables” owed to various other entities.
The company owns around 41,000 acres of oil and gas properties in the Piceance Basin, and focuses primarily on natural gas and natural gas liquids. It was originally established in 2012 after securing a $150 million revolving loan fund that it used to acquire and continue operations on Piceance Basin assets previously owned by Antero Resources.
By 2015 the company was seeking additional capital to maintain operations and develop reserves, and thus secured financing through a second lien term loan of $50 million.
Chronister’s declaration details how in 2017, disappointing drilling results “particularly with development from a well pad that did not meet expectations” along with depressed prices reduced Ursa’s borrowing base, and affected their liquidity. The result was that Ursa could not acquire additional capital to drill more wells.
Developments of other large gas basins in the U.S., and more recently the economic impacts of the COVID-19 pandemic, were cited as reasons for long-term natural gas price declines and decreased commodity demand. Chronister’s declaration also lists 2019 “regulatory uncertainty” in the state of Colorado as a complicating factor in the company’s efforts to sell their assets, as well as to acquire additional financing.
Ursa had been engaged in a marketing process since December 2018, to explore potential sale of all its assets, and had also been exploring options to restructure/refinance debt and ultimately avoid a Chapter 11 filing. Though many parties had shown interest in purchasing the company’s assets over the course of 2019, ultimately no agreement for an out-of-court sale was made.
Moving forward, Ursa will continue to seek a buyer through an in-court sale. They have also filed for $10 million in additional financing to continue payments for various expenses, including utility services on existing operations, payroll for their 21 employees, insurance, royalty payments, and others. The financing will also fund the Chapter 11 cases.
If an acceptable buyer cannot be found, Ursa Piceance intends to pursue a “debt equitization transaction” with their RBL Lenders.
