Energy XXI files for Chapter 11 in Houston

Independent oil and natural gas producer Energy XXI voluntarily filed for Chapter 11 bankruptcy protection at the Houston, Texas, Southern District yesterday as part of a restructuring plan.

EXXI reported reaching an agreement with 63 percent of second lien noteholders, clearing the way to eliminate $2.8 billion of outstanding secured and unsecured notes. The company said that operations are expected to continue their “ordinary course” throughout the restructuring process.

In the Chapter 11 filing signed by chief financial officer Bruce Busmire, EXXI reported total assets at $1.76 billion and total debts of $3.62 billion as of 31 December 2015. Unsecured debt securities were reportedly $1.45 billion at that time, and a combination of six groupings of subordinated debt securities totaled roughly $1.34 billion. 

Entities owning, controlling or holding more than 5 percent of voting securities include Mount Kellet Capital Management LP, BlackRock and The Vanguard Group, court papers said. Equity security holders identified in the 14 April filing include Allianz Global Investors (41,265 shares preferred stock), BlackRock Fund Advisors (4,773,661 common shares), California Public Employees' Retirement System (1,374,591 common shares), CEDE & Co (total of 96,959,615 in three buckets of common stock), Goldman Sachs (1,094,654 common shares), Invesco Powershares Capital Management (2,420,586), Morgan Stanley (1,326,395 common shares), and Mount Kellet Capital Management (5,923,158 common shares).

EXXI said chief executive and board member John Schiller will continue in his role in the restructured company.

“Today's announcement reflects the next step in our efforts to respond proactively to the challenging market environment,” Schiller said. “Over the last several months, we have worked to actively manage our balance sheet, and after thoroughly evaluating our options with the help of our outside advisors, we determined that entering these agreements and implementing them through a court-supervised process is the best course of action for Energy XXI and all our shareholders.” 

As of 30 June 2015, EXXI was faced with US federal tax net operating loss carry forwards of $1.1 billion according to a 16 February explanatory statement. By 29 February, the company reported receipt of a NASDAQ note of deficiency due to its bid price falling below the minimum of $1 per share, initiating a 180-day grace period to return to compliance (meaning the price must rise above $1 per share for at least one 10-business day period) ending 22 August. 

In anticipation of the filing, EXXI's stock price fell to $0.26 cents per share from $0.65 between 3:55 pm and 4:00 pm on 13 April, and it fell even further on the following day to hover near the $0.20 mark. According to the filing, the company had 800,759 shares of preferred stock and 95,459,002 shares of common stock outstanding at 2015 end. 

Following more than 40 other energy companies that sought protection from creditors last year according to Reuters, EXXI is the latest casualty of the drop in oil price to $40 per barrel. In February, consulting firm Deloitte noted that as many as 35 percent of all oil and gas exploration and production companies were at high risk of bankruptcy. 

EXXI is engaged in the acquisition, development, operation and exploration of oil and natural gas properties primarily offshore on the Gulf of Mexico Shelf, as well as onshore in Louisiana and Texas. With a reported $180 million in cash on hand as of 31 March 2016, EXXI believes it has sufficient liquidity to continue operations and support the business throughout the financial restructuring process. 

According to a company statement, PJT Partners will serve as financial advisor, Opportune LLP as restructuring advisor, and Vinson & Elkins as legal advisor through the court-supervised process.