US oil and gas driller Samson Resources has filed for bankruptcy in Delaware, undone by a collapse in energy prices and billions in debt that KKR & Co. and other investors piled on to fund a 2011 takeover.
Oklahoma-based Samson and its owners were stung by the same drop in energy prices that put money into the pockets of consumers through lower gasoline and heating costs, while driving other producers, such as Sabine and Quicksilver Resources, into Chapter 11.
Samson’s filing may be one of the biggest energy bankruptcies in the US this year, but it probably won’t be the last.
In a way, the shale-oil driller is a victim of its own success. Hydraulic fracturing and horizontal drilling allowed companies including Samson to tap previously hard-to-reach oil and gas deposits in shale formations, triggering a production boom that helped send prices tumbling.
Samson has said it will use the Chapter 11 process to try to shrink its $4.2billion debt load. Second-lien lenders would own “substantially all of the equity” of the company if the plan goes through, according to a statement last month.
The plan has support from more than 68 percent of its second-lien lenders, Samson said Wednesday. That backing could help speed the company through reorganization. Samson said it has as many as 10,000 creditors and that it will keep operating while in bankruptcy.
“The steps we are taking will allow our company to maximize future opportunities and compete more effectively with significantly less debt on our balance sheet,” chief executive Randy Limbacher said in a statement.
“We are confident the successful restructuring will have long-term benefits for our employees, vendors and business partners.”
New York-based KKR, controlled by billionaire investor Henry Kravis, oversees $102billion in private equity, credit, real estate and hedge fund capital. It led a takeover of Samson in 2011, adding $3.8billion in debt on the company. Including capitalized costs, rollover debt and fees, the total package came to $7.9billion.
A group led by Silver Point Capital, Cerberus Capital Management and Anschutz Investment agreed to cancel the debt Samson owes them in exchange for ownership, and use as much as $485million to pay down first-lien debt and “provide liquidity,” the company said in August.
KKR’s investment may be almost worthless if the experience of buyout partner Itochu Corp. is any measure. In June, the Japanese company got $1 for its 25% stake in Samson — for which it originally paid $1.04billion.
Samson’s filing in Wilmington marks the second time this year that KKR has been forced to turn over its stake in an energy company to lenders.
Energy Future Holdings filed for bankruptcy in April 2014, seven years after KKR took part in a record $48billion takeover of the electricity supplier.
KKR, its clients and funds it managed will lose their entire $3billion equity investment in Dallas-based Energy Future. The company first planned to cut that stake from 37% to less than 1% as it gathered lender backing for a restructuring. Energy Future then zeroed out the KKR group entirely.
“They will not have a stake in the reorganized companies,” Allan Koenig, an Energy Future spokesman, said last month.
Samson tried to save itself by selling assets, before telling investors in March that bankruptcy might be the fastest solution. By that time, its bonds traded for about 22 cents on the dollar.
Under bankruptcy court rules, the company will put its reorganisation plan up for a vote of creditors. The judge overseeing the case will take that tally into account before deciding whether to approve the plan.
The agreement may face opposition from lower-ranking creditors – including Oaktree Capital Management, GSO Capital Partners and Centerbridge Capital Partners – who could be wiped out in bankruptcy. Samson’s unsecured noteholders, owed $2.25billion, aren’t part of the lender deal.
Energy Future was forced to drop a similar debt-for-equity deal it had struck with lenders before filing for bankruptcy.
In that case, lower-ranking creditors complained they were being treated unfairly and threatened to sue. Later, those unsecured creditors, working with Hunt Consolidated, persuaded Energy Future to back a new restructuring plan.
Despite the dual hits of Energy Future and Samson, KKR’s second-quarter profit beat analysts’ estimates thanks to gains in private and public stakes held by Kravis’s firm. KKR also earns fees, even on money-losing buyouts. Advising, monitoring and arranging loans for Samson brought the firm and its investors around $100million, according to company documents.