It’s certainly no surprise, but it sure does sting nonetheless. Stone Energy Corp. announced late Thursday that it had entered into a comprehensive restructuring support agreement ahead of what will likely be Chapter 11 bankruptcy. The bankruptcy reorganization filing should happen by Dec. 9.
On word of the restructuring agreement, shares of the Lafayette-based oil and gas exploration and production company lost nearly half their value in pre-market trading Friday. The shares closed at $9.69 Thursday and opened at $5.05 Friday, though they had rebounded to as high as $6.74 by mid-day.
By Tuesday of this week, the share price had fallen to $4.40.
In June the company's stock was trading so low that it commenced a 1-for-10 reverse stock split to meet New York Stock Exchange listing requirements.
Stone confirmed in May that it was negotiating a restructuring deal that could include bankruptcy. Amid falling oil prices, the company has been downsizing its workforce over the past two years but is not planning any additional job cuts this year, David Welch, the company’s chairman, president and chief executive officer, tells ABiz.
Through downsizing and attrition, Stone has cut its staff from 411 employees at the beginning of 2014 to 247 today, confirms Senior Vice President Human Resources and Administration Flo Ziegler. The reduction is a direct result of the dramatic drop in oil prices from more than $100 per barrel in mid-2014 to an average price of about $45 per barrel this year.
“The execution of the RSA is the culmination of months of hard work to right-size our balance sheet in response to a sustained period of low oil and natural gas commodity prices,” Welch says in the news release. “The agreement with our Noteholders will provide value to all of our stakeholders, improves our liquidity and better positions us to be profitable during a historically difficult time in our industry. Importantly, this agreement will allow all stakeholders to share in potential valuation growth if commodity prices improve.”
Stone also announced in the release that it has entered into a purchase and sale agreement with TH Exploration III, an affiliate of Tug Hill Inc., to sell its Appalachia properties for $360 million in cash.
“The sale of the Appalachia properties, an important component of the restructuring support agreement, will further streamline our operations and allow us to advance our efforts to grow value in the Gulf of Mexico, which is central to our long-term business plan,” Welch notes in the release.
According to the release:
The Company has been engaged in discussions and has exchanged proposals with the lenders under its revolving credit facility with respect to the treatment of the revolving credit facility in a chapter 11 proceeding and a related amendment to the revolving credit facility; however, no agreement has been reached. While the Company expects to continue discussions and related negotiations with its lenders, there can be no assurance that an agreement will be reached.
The RSA contains certain covenants on the part of the Company and the Noteholders who are signatories to the RSA, including that such Noteholders will vote in favor of the Plan, support the sale of the Properties and otherwise facilitate the restructuring transaction, in each case subject to certain terms and conditions in the RSA. The consummation of the Plan will be subject to customary conditions and other requirements, as well as the sale by Stone of the Properties for a cash purchase price of at least $350 million and approval of the Bankruptcy Court. The RSA also provides for termination by each party, or by either party, upon the occurrence of certain events, including without limitation, termination by the Noteholders upon the failure of the Company to achieve certain milestones set forth in Schedule 1 to the RSA.
Assuming implementation of the Plan, Stone expects that it will have eliminated approximately $850 million in principal of outstanding debt and reduced its annual interest payment burden by approximately $46 million.
Although the Company intends to pursue the restructuring in accordance with the terms set forth in the RSA, there can be no assurance that the Company will be successful in completing a restructuring or any other similar transaction on the terms set forth in the RSA, on different terms or at all.