Reservoir Exploration Technology (RXT) files Chapter 11 Bankruptcy | files Liquidation Plan | 11-5-13
On November 5, 2013, Reservoir Exploration Technology, Inc. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Northern District of Texas under case No. 13-45148-11. The case is pending before the Honorable Dennis M. Lynn.
According to the Debtor’s Disclosure Statement, the Debtor is one of the Reservoir Exploration Technology Group of companies engaged in providing seismic data and related geophysical services to the oil and gas industry and specializing in multi-component sea-floor acquisition of seismic data. The Debtor is one of several wholly owned subsidiaries of Reservoir Exploration Technology ASA (“RXT ASA” or “Parent”), which is located in Lysaker, Norway. Prior to the Petition Date, RXT ASA and its subsidiaries, including the Debtor, primarily and historically operated through operating crews of one to three vessels equipped with advanced seismic equipment, including but not limited to technology developed by RXT ASA and its subsidiaries. These operations were focused in the Gulf of Mexico, the North Sea, West Africa and the Caspian Sea, with the Debtor primarily conducting operations in the Gulf of Mexico and maintaining its headquarters in Houston, Texas.
Other subsidiaries of RXT ASA and affiliates of the Debtor include: RXT (UK) Limited, RXT Management AS, RXT Kazakhstan LLP, RXT Norway AS, and RXT BVI Inc. In addition, RXT ASA owns a 95% interest in RXT Saudi LLC, with the other 5% interest in RXT Saudi LLCowned by RXT Norway, AS.
According to the Debtor’s Disclosure Statement, prior to the Petition Date, the Reservoir Exploration Technology Group engaged in a concerted enterprise with a consolidated cash management system. Pursuant to these relationships, the Debtor historically has not generated any income through direct payments from customers. However, through the allocation of costs and internal invoicing among the group under this consolidated cash management system, the Debtor both incurs intercompany debts and expenses, and has also historically generated “income” for accounting and reporting purposes. Through a Management Services Agreement dated as of January 1, 2008, among the five (5) subsidiaries of RXT ASA, the Debtor is allocated a 5% share of enterprise costs for management services provided by RXT ASA (with an additional 5% cost plus mark up). However, the Debtor also historically provided marketing services to the group, as to which the Debtor allocates 40% (plus a 7% mark up) of its costs to each of RXT ASA, and RXT Norway AS. The group also employed cost allocations for personnel and administrative matters, and steaming costs (expenses relating to steaming to destinations).
As a seismic data acquisition enterprise, the Reservoir Exploration Technology Group has historically faced relatively high costs and expenses of operating with extremely specialized and technically advanced, scientific and heavy equipment, and has operated in a very specialized market and industry in which competing bids for contracts from oil and gas customers must be won in order to produce revenues. Revenues for the group were severely impacted by the generally poor international economy in 2008 and 2009, following which RXT ASA implemented a financial restructuring under which substantial debts were converted to equity interests, and the fleet of vessels and operations were substantially reduced in order to minimize operating expenses. These measures, however, led to reduced revenues and more acute cash flow problems and needs. Although the group attempted to address these problems by procuring a favorable backlog of project contracts and jobs for 2011 and 2012, subsequent technical and operating problems with the fleet depressed the projected revenues, increased the operating expenses, and delayed the schedule for completing these projects. This ultimately impacted the group’s abilities to procure additional project inventory and address its lack of liquidity.
Again according to the Debtor’s Disclosure Statement, following this long period of financial distress, RXT ASA filed for bankruptcy protection under the laws of Norway on June 13, 2013, which case remains pending as of the Petition Date (the “Parent’s Foreign Bankruptcy Case”). Mr. Jon Skjorshammer of The Selmer Law Firm, with offices in Oslo, Norway, has been appointed by the Norwegian bankruptcy court as the liquidator for RXT ASA in the Parent’s Foreign Bankruptcy Case (“Skjorshammer” or “Liquidator”). Since the time of his appointment, the Liquidator has sought to wind up the operations and financial affairs of RXT ASA and its wholly owned subsidiaries, including the Debtor. Pursuant thereto, certain other members of the Reservoir Exploration Technology Group of companies are also the subject of liquidation or insolvency proceedings, including RXT (UK) Limited and RXT BVI Inc.
The Plan of Liquidation
On the Petition Date, the Debtor filed its Plan of Liquidation Dated as of November 5, 2013 (“Plan”). According to the Debtor, the Plan proposes, among other things, the means by which all Claims against and Equity Interests in the Debtor will be finally resolved and treated for purposes of making distributions thereon, consistent with the provisions and priorities mandated by the Bankruptcy Code, and without the need to await the liquidation of the Receivable Asset.
According to the Debtor, the Plan is designed to accomplish the orderly liquidation of the Debtor’s Estate and distribution of the proceeds of such liquidation to the beneficiaries of the Estate, comprised of all Allowed Claims against, and Equity Interests in, the Debtor. The Plan does so through a number of structures and mechanisms. First, it incorporates the RXT ASA Settlement, a proposed settlement and compromise with the Liquidator on behalf of the RXT ASA, under which RXT ASA has agreed to expeditiously liquidate the Debtor’s Receivable Asset and other unliquidated intercompany receivables by taking an assignment of the Debtor’s interests in these assets and providing immediate Plan funding to the Debtor to ensure its ability to presently propose and perform its Plan. Specifically, under the RXT ASA Settlement RXT ASA agrees to: (i) in exchange for an assignment of all of the Debtor’s interests in the Receivable Asset and any other intercompany receivables, to act as the Plan Funder, and pay to the Liquidating Trust the Plan Funding in the amount of $630,000, in order to allow the Liquidating Trustee to pay the costs of administration of the Liquidating Trust and make distributions called for under the Plan; and (ii) in connection with same, subordinate its Claim against the Debtor (which the Debtor has assessed at a value of not less than approximately $18.5 million) to all general, Allowed Unsecured Claims, in order to efficiently and equitably resolve any disputes related to the allowability or treatment of RXT ASA’s Claim without the need for undue delays or unnecessary litigation expense, and critically, to ensure the maximization of distributions to non-insider Creditors.
The Disclosure Statement provides the following table seting out the Debtor’s estimates of the total Allowed amount of Claims and Equity Interests falling within each Class, and summary of the treatment afforded to each Class under the Plan.