Sabine Oil files bankruptcy to facilitate balance sheet restructuring

By Caroline Salls

Pittsburgh, July 15 – Sabine Oil & Gas Corp. filed Chapter 11 bankruptcy Wednesday in the U.S. Bankruptcy Court for the Southern District of New York to facilitate the restructuring of its balance sheet, according to a news release.

Sabine said it is in discussions with its lenders and debtholders regarding the terms of a consensual financial restructuring plan and is focused on achieving a resolution as soon as possible.

“The actions we are announcing today represent an important step forward in our efforts to strengthen the company’s capital structure,” president and chief executive officer David Sambrooks said in the release.

“Following a comprehensive review of our alternatives, the board of directors and management team determined that this process would produce the best outcome for Sabine and its stakeholders.

“Undertaking this process provides an orderly path forward to better align the company’s balance sheet with changing market dynamics.”

Sabine said its operations have been significantly affected by the recent and dramatic decline in oil prices, the continued low prices of natural gas and general uncertainty in the energy market.

These macro-economic factors, coupled with Sabine’s substantial debt obligations, resulted in the company’s decision to explore strategic restructuring alternatives to reduce its debt and achieve a sustainable capital structure, the company said in the release.

The company said it continues to evaluate and discuss alternatives with its stakeholders and believes that its in-court financial restructuring will position Sabine for profitability and long-term success.

Operations funding

The company said it expects that its cash on hand, combined with funds generated from ongoing operations, will provide sufficient liquidity to support the business during the balance sheet restructuring process.

Sabine requested court approval to use the cash collateral and disputed cash of its first-lien and second-lien lenders to fund its operations while in bankruptcy.

The company’s access to the cash collateral and disputed cash will expire on the earliest of Jan. 15, subject to an extension to Feb. 15, 45 days from the bankruptcy filing date if a final order has not been entered and occurrence of a termination event.

Fraudulent transfer suit

In addition, Sabine filed a lawsuit with the court against Wilmington Trust, NA in an attempt to recover an allegedly fraudulent transfer that occurred as part of a December 2014 business combination between Sabine Oil & Gas LLC (Sabine O&G) and Forest Oil, as well as related entities.

Sabine said Forest Oil was insolvent at the time from a balance-sheet standpoint.

Along with the business combination, the company said Forest Oil’s unencumbered assets were pledged to secure debt that Sabine O&G had previously incurred and that was under-secured.

According to the complaint, Forest Oil and its creditors did not receive reasonably equivalent value in exchange for that pledge. Rather, by effectively transferring the value of the pledged assets from Forest Oil’s creditors to Sabine O&G’s creditors, the company said the business combination impaired Forest Oil’s unsecured creditors.

Specifically, Sabine said in the complaint that the liens imposed on Forest Oil’s assets to secure $650 million in preexisting Sabine O&G debt under a second-lien loan should be avoided and should be preserved for the benefit of the company’s estate.

Debt details

According to court documents, Sabine had $2,483,373,000 in assets and $2,906,350,000 in debt as of May 31.

The company’s largest unsecured creditors are:

• Wilmington Savings Fund Society, FSB of Wilmington, Del., with a $577.91 million unsecured notes claim;

• Bank of New York Mellon Trust Co., NA of New York, with a $350 million unsecured notes claim;

• Delaware Trust Co. of Wilmington, Del., with a $222.06 million unsecured notes claim;

• El Rucio Land & Cattle Co., Inc. of San Antonio, with a $23 million litigation claim; and

• Baker Hughes, based in Houston, with a $2.29 million trade payable claim.

Lazard is serving as financial adviser to Sabine, and Kirkland & Ellis LLP is serving as legal counsel. Sabine also requested court approval for Zolfo Cooper Management, LLC to provide Jonathan A. Mitchell as its chief restructuring officer.

Formerly Forest Oil Corp., Sabine is an oil and gas company based in Houston. The Chapter 11 case number is 15-11835.

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