Following the bankruptcy filing last week of Energy XXI, CorEnergy Infrastructure Trust has indicated that the proceedings should not impact the Grand Isle Gathering System, which it owns and is operated by an EXXI subsidiary.
CorEnergy told Infrastructure Investor in an email that it expects GIGS operations to continue as usual with rent payments each month into the company's REIT.
“EXXI's filings are specifically structured to enable production from the Gulf of Mexico fields and to exclude the GIGS asset from the Chapter 11 proceeding,” the company said.
Since EXXI is the guarantor on the GIGS lease, its filing would have constituted a default under the lease terms. In order to facilitate post-filing financing arrangements between the EXXI Debtor Group and its lenders, however, CorEnergy has provided a conditional waiver to certain remedies available to it as a result of the non-monetary defaults, the company said in a statement.
David Schulte, CorEnergy's chief executive, said that “as long as our tenant remains in compliance with our lease, including the timely payment of rent, we intend for GIGS Services to maintain its operations of our asset”.
Grand Isle Corridor LP is a wholly-owned subsidiary of CorEnergy and is owner of the GIGS assets. As per the restructuring support agreement that is part of EXXI's 8-K, “existing common stock and preferred stock of the company would be extinguished, and existing equity holders would not receive consideration in respect to their equity interests”. New equity will be issued 100 percent to the second lien holders.
CorEnergy indicated that the reason the subsidiary which operates the asset was left out of the filing is that production from the area served by the gathering system “remains economical with an estimated field operating cost, including rent from the gathering system, of about $20.68 BOE (barrel of oil equivalent) compared to current WTI prices around $41/barrel”.
EXXI's business involves acquiring, developing, operating and exploring oil and natural gas properties, primarily offshore, on the Gulf of Mexico Shelf as well as onshore in Louisiana and Texas. It follows more than 40 other energy companies who have sought protection from creditors in the past year following a drop in oil price to $40 per barrel. Deloitte published a report in February indicating that as many as 35 percent of current oil and gas producers could seek bankruptcy protections by the end of 2016.
As reported last week, some of the largest holders of common stock in EXXI include the California Public Employees' Retirement System, Goldman Sachs and Morgan Stanley. BlackRock is among the companies holding more than 5 percent voting rights.
With a reported $180 million in cash on hand as of 31 March 2016, the company believes it has sufficient liquidity to continue operations and support the business throughout the financial restructuring process.
CorEnergy stated that “the incentives for EXXI and its creditors strongly favour continuing to operate GIGS as the essential infrastructure for producing revenue from those offshore fields. As we have consistently communicated, CorEnergy believes its dividends are stable and adequately funded.” It did not elaborate on EXXI's future plans.