MTE seeks approval to use cash collateral for oil and gas well unit

By Sarah Lizee

Olympia, Wash., March 30 – MTE Holdings LLC is seeking court approval to use $550,000 of the cash collateral of its pre-petition secured lenders in connection with the debtors’ completion of the Alysheba oil and gas well unit., according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

The company said that while the debtors are nearing the end of their Chapter 11 cases, they also have to ensure that ongoing core oil and gas business operations continue to function and generate cash for the benefit of the estates and their creditors.

In February, the debtors’ management determined that unless the debtors, under lease agreements covering about 690 net acres of undeveloped oil and gas reserves valued at $15 million, commenced oil and gas development activities in connection with that acreage by April 1, the leases would terminate and the debtors would forfeit the rights to develop the oil and gas covered by the leases.

The debtors have been engaged with the lease counterparties on extending their right to develop the acreage covered by the leases by six months to around Oct. 1.

MTE said that it believes the debtors will obtain the extensions prior to April 1, and not have to expend any cash collateral.

However, should negotiations with the lessors fail, the debtors determined to seek court approval to use $200,000 of cash that constitutes the cash collateral of Natixis, New York Branch and BMO Harris Bank, NA to begin a partial hydraulic fracturing of the Alysheba 18 #2H DUC well unit and to seek further authority to use an additional $350,000 of cash collateral to continue Alysheba unit hydraulic fracturing activities.

“Simply put, if negotiations with the lessors fail, and the debtors do not obtain approval to begin the partial frac of the Alysheba unit, the debtors will lose the opportunity to develop an estimated $15 million in oil and gas reserves, impeding the debtors’ ability to generate cash and causing great harm to the value of the estates,” the company said.

“Any downward revisions to the value of the estates, in turn, will result in less cash and property available to distribute to creditors pursuant to a plan or sale.”

The company said that Natixis and BMO have reviewed the proposed capital expenditures and have not consented to the cash collateral use.

MTE is a Midland, Tex.-based holding company. The company filed bankruptcy on Oct. 22, 2019 under Chapter 11 case number 19-12269.

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