May 17, 2016 03:51 PM

Lafayette independent operator disclosed May 16 that it won’t make a $29 million interest payment due on senior notes maturing in 2022.

Energy industry analysts and others who follow the sector closely haven’t held back in recent months: falling oil prices could propel Lafayette-based Stone Energy Corp. into bankruptcy.

Stone itself is now acknowledging that possibility. In a May 16 8-K Filing with the Securities and Exchange Commission, the company confirmed that it is analyzing strategic alternatives to address its liquidity, including refinancing alternatives through a private restructuring, asset sales and a prearranged bankruptcy filing.

The Lafayette-based independent oil and gas exploration and production company, which so far has had the liquidity to meet its current obligations, disclosed in the filing that it will not make a $29 million interest payment due to senior bondholders with $775 million in bonds maturing in 2022. The company will instead use the 30-day grace period (which, according to the SEC filing, extends the latest date for making this interest payment to June 14 of this year before default occurs) to negotiate a plan bondholders will support, a plan that could include bankruptcy.

“The company had $367 million in cash at the end of the first quarter and adequate liquidity to continue operations,” Stone Chairman, President and CEO Dave Welch tells ABiz. “That said, we are examining strategic options to maximize the value of the enterprise. A potential filing using a prearranged deal with the key parties is an option that has possible benefits and like all options is wise to consider.”

One option is certainly for Stone to propose a reorganization plan in bankruptcy where the creditors reduce and/or restructure some of the debt while still allowing the company to operate since it has adequate liquidity to do so. At the very least, such a scenario could buy the company some time.

Stone also indicated in the filing that it may implement a reverse stock split to address anticipated non-compliance with the NYSE’s minimum stock price requirement and further noted that it expects to be notified this week that it is out of compliance with the exchange's listing standards because its average global market cap has been less than $50 million over a consecutive 30 trading-day period and because its stockholders’ equity was below $50 million.

Stone’s stock (SGY) closed at 32 cents a share today (dropping 18 cents), down from the $13 range in May a year ago. The stock traded as high as $49 in April 2014, just a few months before the price of oil began to slide from upwards of $100 a barrel.

Stone, headquartered at 625 E. Kaliste Saloom Road, has taken numerous steps to address the effects the downturn has had on its business. After a round of layoffs in September, when oil was trading at about $45 per barrel, Welch told ABiz he thought the various steps the company had taken would position it for survival over the next couple of years if oil got back up to the $50 range. Unfortunately for the company, which has drilling operations in the Appalachian Basin and in the Gulf of Mexico, prices fell even further and have only recently approached the $50 mark.

Today The Wall Street Journal also made note of the potential bankruptcy filing and the toll oil prices have taken on the local company in a story titled "Stone Energy Says Bankruptcy Filing a Possibility":

Like so many peers, Stone’s finances have suffered under the weight of low prices. The company said that prices it realized during the first quarter averaged $36.87 per barrel of oil, $13.01 per barrel of natural gas liquid and $2.22 per million cubic feet of natural gas. During the same period in 2015, when prices already had begun to decline, Stone averaged $66.28 per barrel of oil, $18.11 per barrel of natural gas liquids and $2.54 per million cubic feet of natural gas, it said. ...

Earlier this month, lenders reduced Stone’s revolving credit facility to $300 million from $500 million. With more than $457 million in drawn and $18.3 million in letters of credit on the facility, Stone had a few choices to make up the $175.3 million deficiency, including the six-month repayment plan.

Stone announced a few weeks ago that it had begun negotiations with lenders and bondholders regarding strategic alternatives, but it didn’t point to bankruptcy specifically as a possibility. In March, the company hired Lazard as its financial adviser and Latham & Watkins LLP as its legal adviser.

Read the WSJ story here (subscription may be required).

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