Blast Energy files Chapter 11, agrees to land drilling rig sale to offset senior debt

By Caroline Salls

Pittsburgh, Jan. 23 - Blast Energy Services, Inc. and its wholly owned subsidiary Eagle Domestic Drilling Operations LLC filed for Chapter 11 bankruptcy Friday in the U.S. Bankruptcy Court for the Southern District of Texas and has reached an asset purchase agreement with its senior lender regarding the sale of five land drilling rigs.

According to an 8-K filing with the Securities and Exchange Commission, the filing was made to allow the companies "to dispose of burdensome and uneconomical assets and reorganize their financial obligations and capital structure."

Cancellation of contracts by Hallwood Energy Petroleum and Quicksilver Resources in the fall of 2006 has reduced the companies' revenue expectations and consequently its ability to meet the scheduled payments on senior debt incurred for the August acquisition of a land drilling business, the 8-K said.

This cancellation was in violation of the terms of the drilling contracts, and Blast Energy and Eagle Domestic have filed suit for breach of contract.

As a result, the companies said they have received notice of defaults from their senior lender, and further discussions with the senior lender resulted in the mutual decision that the company should file for bankruptcy.

Additionally, the 8-K said the companies have agreed with the senior lender on an asset purchase agreement intended to offset the full amount of the $40.6 million senior note, accrued interest and default penalties.

Under this agreement, five land drilling rigs and associated spare parts will be sold, while the potential benefit of the customer litigation, the debtors' satellite communication business and the abrasive fluid jetting technology will remain with Blast Energy.

According to court documents, as of Sept. 30, Blast Energy had $63.5 million in assets and $51.02 million in debt.

The company's largest unsecured creditors include:

• Second Bridge, LLC, Norman, Okla., with a $4.8 million disputed consulting contract claim;

• Alberta Energy Partners, Montgomery, Texas, with a $2 million licensing fees claim; and

• Berg McAfee Cos., Cupertino, Calif., with a $1.08 million secured note claim.

Blast Energy is a Houston-based provider of fabricated mobile drilling rigs to the oil and natural gas sector. Its Chapter 11 case number is 07-30424.

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