Sabine Oil looking to increase liquidity; 2015 payments in jeopardy

By Caroline Salls

Pittsburgh, March 31 – Sabine Oil & Gas Corp. is considering actions to increase liquidity to levels sufficient to meet its commitments and may not be able to continue as a going concern because of its substantial liquidity concerns, according to a 10-K filed Tuesday with the Securities and Exchange Commission.

Despite a significant cash balance, the company said it may be unable to service interest payments on its debt or fund its capital expenditure program during the remainder of 2015 if its borrowing base is significantly decreased.

Sabine said the borrowing base under its new revolving credit facility is subject to its next semiannual redetermination in April. On Feb. 25, the company borrowed $356 million under the new revolver, which represented the remaining undrawn amount. Sabine’s cash balance at March 15 was $326.8 million.

Based on discussions with the lenders under the new facility, the company said its borrowing base may be decreased significantly.

Because the new revolver is fully drawn, any reduction in Sabine’s borrowing base as a result of the redetermination will result in a deficiency which must be repaid within 30 days or in six monthly installments thereafter.

Price decline impact

Sabine said its ability to service its debt obligations and fund its capital expenditures has been negatively impacted by significant decreases in the market price for oil, NGLs and natural gas during the fourth quarter of 2014 with continued weakness into the first quarter of 2015.

The company said the decrease in the market price for its production directly reduces its operating cash flow. While it uses hedging arrangements to reduce exposure to fluctuations in the prices of oil, NGLs and natural gas, Sabine said only a portion of its production is hedged, and it may be unable to effectively hedge production for future periods.

In addition, Sabine said the decrease in the market price for its production indirectly impacts its other sources of potential liquidity.

Lower market prices for the company’s production may result in lower borrowing capacity under its new revolver or higher borrowing costs from other potential sources of debt financing, the 10-K said.

Possible actions

According to the 10-K, the actions being considered to increase the company’s liquidity include dispositions of non-core assets, actively managing the company’s debt capital structure through a number of alternatives, including debt repurchases, debt-for-debt exchanges, debt-for-equity exchanges and secured financing, in- and out-of-court restructuring, minimizing capital expenditures, obtaining waivers or amendments from lenders, effectively managing working capital and improving cash flows from operations.

Sabine said the terms of the new revolver, its term loan facility and the indentures governing its senior notes require that some or all of the proceeds from specified asset sales be used to permanently reduce outstanding debt.

The company said the covenants in these debt agreements also impose limitations on the amount and type of additional debt it can incur, which may significantly reduce its ability to obtain liquidity. Also, Sabine’s ability to refinance any of its existing debt may be adversely impacted by the current conditions in the energy industry and the company’s financial condition.

Debt commitments

Absent any action with respect to the repayment or refinancing of its existing debt or any waivers or amendments to the agreements governing that debt, Sabine said its term loan will mature on Nov. 16, 2016 and the new revolver on April 7, 2016.

Additionally, the borrowing base under the new revolver is subject to at least semiannual redetermination, and, as a result, availability could be reduced and advances in excess of the new availability would need to be repaid.

The company said it also has substantial interest payments due during the next 12 months on its 2017 and legacy Forest Oil notes.

Any event of default and subsequent acceleration could allow the company’s secured lenders to foreclose on the assets securing that debt, the 10-K said.

Formerly Forest Oil Corp., Sabine is an oil and gas company based in Houston.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.