Duer Wagner III Oil Company files for Chapter 11 Bankruptcy Protection
Duer Wagner III Oil and Gas, LP and 11 affiliates filed for protection under Chapter 11 of the United States Bankruptcy Code on May 15, 2015 in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division, under Case No. 15-41961-11.
Steve N. Washuta is the Chief Operating Officer of and for Duer Wagner III Oil & Gas LP, Duer Wagner III & Partners, LLC, Duer Wagner Iii, Inc., Duer Wagner Iii Energy, LLC, Bodine Oil & Gas, LP, Jeffcoat LP, Lett Oil & Gas, LP, Modano Oil & Gas, LP, Norton Oil & Gas, LP, Nowitzki Oil & Gas, LP, Teixeira Oil & Gas, LP, Woodson Oil & Gas, LP (together, the “Debtors”) and discusses the filing:
“Duer Wagner III, Inc. (“DW3 Inc.”) is a Texas S corporation and owns 100% of the membership interest of Duer Wagner III Energy, LLC (“DW3 Energy”).
“Duer Wagner III Energy, LLC is a Texas limited liability company and owns a 1 % limited partnership interest in: Norton Oil & Gas, LP (“Norton”); Jeffcoat, LP (“Jeffcoat”); Lett Oil & Gas, LP (“Lett”); Woodson Oil & Gas, LP (“Woodson”); Modano Oil & Gas, LP (“Modano”); Teixeira Oil & Gas, LP (“Teixeira”); Nowitzki Oil & Gas, LP (“Nowitzki”) and Bodine Oil & Gas, LP (“Bodine”).
“Duer Wagner III & Partners, LLC (“DW3 Partners”) is a Texas limited liability company. DW3 Partners is non-owner, non-partner (0%) general partner of the following limited partnerships: Duer Wagner III Oil & Gas, LP (“DW3 O&G”); Norton, Jeffcoat; Lett; Woodson; Modano; Teixeira; Nowitzki and Bodine.
“DW3 O&G is a Texas limited partnership and owns 99% of the limited partnership interests in: Norton, Jeffcoat, Lett, Woodson, Modano, Teixeira, Nowitzki and Bodine.
“Duer Wagner, III (“Duer“), individually (a non-debtor) owns: 100% of the stock of DW3 Inc.; 100% of the membership interest of DW3 Partners; and 100% of the limited partnership interest ofDW3 O&G.
CAPITAL STRUCTURE1
“Each of the Debtors are obligors pursuant to that certain Senior Secured Credit Facility (as modified or amended) dated December 5, 2013 with LNV Corporation, a Nevada corporation, as the Lender and CLMG Corporation, a Texas corporation, as the Administrative Agent (the “Senior Secured Credit Facility”).
“Upon reason and belief, Beal Bank is an affiliate of LNV Corporation and CLMG Corporation.
“Under the Senior Secured Credit Facility, DW3 O&G is the borrower (referred to as the “Company” therein) and the following entities (and person) are referred to as “Guarantors”: DW3 Partners; DW3 Inc.; DW3 Energy; Norton; Jeffcoat; Lett; Woodson; Modano; Teixeira; Nowitzki; Bodine; and Duer, individually.
“Approximately $120 million in principal amount is currently outstanding under the Senior Secured Credit Facility.
“The Senior Secured Credit Facility requires periodic debt payments consisting of interest and principal pay down amounts that vary according to a formulaic schedule.
“The Senior Secured Credit Facility, all Guaranty Agreements, Deeds of Trust, Mortgages, Pledge Agreements, Security Documents, Collateral Account Agreements, Security Agreements, Royalty Agreements and-any and all other documents executed at or during the closing of the Senior Secured Credit Facility on or around December 5, 2013 and any and all amendments, supplements, forbearances, modifications, agreements, documents, instruments, and writings at any time delivered in connection therewith are collectively referred to herein as the “Loan Documents.” It is my understanding that the Senior Secured Credit Facility utilizes a similar definition of the term “Loan Documents”.
“The debt owed under the Senior Secured Credit Facility is collateralized by a majority of the Debtors’ oil and gas interests, and, pursuant to certain security documents CLMG Corporation asserts a security interest in specific real property interests owned by two non-borrower and non-debtor entities in Pitkin County, Colorado (collectively, the “Collateral”). LNV and/or CLMG claim to hold a security interst in some or all of the equity interest of the Debtors; however, the Debtors dispute such interest. Further, one or all of the Debtors own and hold oil and gas assets as well as contracts that are excluded or not included as part of the Collateral-such assets are owned and held free and clear, save and except any trade debt owed under applicable joint operating agreements as to such specific assets (the “Excluded Assets”) 3
EVENTS LEADING TO THE CHAPTER 11 FILINGS
“Duer is the President of the entities. The Debtors are managed by a single team of professionals with significant experience in different aspects of the oil and gas business. Duer has spent his life in and around the oil and gas business. He began his career as a driller and for more than thirty years has successfully owned, managed and controlled oil and gas interests throughout Texas, Louisiana, and North Dakota among other locations.
“The past nine months have brought a drastic reduction in the price per barrel of oil. The price going from a price per barrel in excess of $110 per barrel to approximately $37 per barrel, a decline of almost 66%.
“On account of the steep and drastic drop of the price of oil, the Debtors’ have seen their revenue (and profits) decline sharply-by more than fifty percent, making the payments due CLMG and other creditors increasingly difficult to make.
“The Debtors were parties to a small number of hedging agreements, but the hedge agreements were insufficient to counteract the drastic drop in market price of oil and gas driving down the overall revenues of the Debtors.
“In late 2013 the refinancing agreement provided that LNV, a subsidiary of Beal Bank, would act as lender and CLMG would serve as the administration agent.
“During late 2013, the Debtors (and the rest of the domestic oil and gas industry) were enjoying oil and gas nirvana. The oil and gas industry saw more than 4.5 years of oil prices above $68.00 per barrel (WTI), increased exploration, improved technology, increased demand and drastically improved expertise and efficiencies. In fact, on the date that LNV and the Debtors closed on the Senior Secured Credit Facility, the spot price for WTI closed at $97.14.
“At the time of entering into the Senior Secured Credit Facility, the Debtors’ ability to continue operating their businesses in the ordinary course, and their ability to cover their debt service payments was unquestioned. In fact, even if the price of oil had suddenly dropped by 30%, the Debtors could have continued to operate their businesses in the ordinary course and make any and all debt service payments.
During the second half of 2014 the bottom started to fall out of the oil market. From the end of July 2014 to mid-March 2015 the spot market price for oil (WTI) dropped almost 60%. The Debtors’ revenue dropped accordingly.
“The Debtors timely made their 2014 third and fourth quarter payments to LNV and/or CLMG under the Senior Secured Credit Facility. However, the constriction in revenues from the unexpected, prolonged drop in the price of oil restrained the Debtors’ ability to make the 2015 first quarter payment to LNV and/or CLMG under the Senior Secured Credit Facility.
“Commencing in late December 2014 up to and through the Petition Date, Debtors entered into restructuring and workout discussions with LNV and CLMG. Though agreements were made with regards to the Senior Secured Credit Facility, a global restructuring agreement could not be reached. Up until the eve of bankruptcy the Debtors made numerous restructuring proposals and thought they had reached a global resolution. Despite the best efforts of the Debtors, Duer, and the management team-and, LNV Corporation, CLMG Corporation and CSG Investments refused to accept a global restructuring or workout that would allow the Debtors to stay in business.
“In order to preserve the value of the Debtors’ business and to preserve the Debtors’ ability to pay all of its creditors and continue operating, the Debtors were forced to seek relief under the United States Bankruptcy Code and file these cases under chapter 11.
