WBH Energy files for Chapter 11 Bankruptcy Protection | January 5, 2015
WBH Energy and 2 affiliates filed for protection under Chapter 11 of the United States Bankruptcy Code on January 5, 2015 In the United States Bankruptcy Court for the Western District of Texas under Case No. 15-10003.
WBH could be the first U.S. petroleum firm to file for Chapter 11 bankruptcy protection following OPEC’s price fixing endeavors, signaling problems for the states shale production industry.
The Debtors in the jointly administered proceedings are WBH Energy Partners LLC (15-10004), WBH Energy, LP (15-10003), and WBH Energy GP, LLC (15-10005).
Joseph S. Warnock is the Vice President of the above-referenced debtors and debtors in possession (collectively, the “Debtors” or “WBH”) and discusses the filing:
“Together, the Debtors operate an oil and gas exploration and production business with a primary focus on the Barnett Combo Play of the Fort Worth Basin. Each of the Debtors is a Texas entity, is based in Austin, Texas, and was founded in 2011.
“WBH Energy, LP is a real property holding company that owns working interests in approximately 1,500 leases consisting of approximately 2,570 net acres throughout the Barnett Combo Play. Of those leases, approximately 30 horizontal wells and 7 vertical wells are currently producing and 6 horizontal wells have been drilled and cased. WBH Energy, LP is managed by its general partner, WBH Energy GP, LLC.
“WBH Energy Partners LLC is the oil and gas operating company responsible for developing the working interests of WBH Energy, LP and its non-affiliated, non-debtor partner,
“U.S. Energy Development Corporation (“USED”). Specifically, WBH Energy Partners LLC is the operator of certain oil and gas interests pursuant to that certain Joint Operating Agreement (the “JOA”) dated September 1, 2011, by and between itself, as operator, and WBH Energy, LP and USED as oil and gas lease owners and/or oil and gas interest owners. WBH Energy, LP and USED have agreed to the joint development of certain oil and gas lease interests pursuant to that certain Participation Agreement dated September 1, 2011, by and between WBH Energy, LP and USED (the “Participation Agreement”). WBH Energy Partners LLC is a member managed limited liability company. WBH Energy Partners LLC’s four employees and four managing members handle all tasks related to operation of the oil and gas interests. WBH Energy Partners LLC does not receive any material revenue from the sale of oil and gas; rather, WBH Energy Partners LLC is compensated through operator fees for its services. If WBH Energy Partners LLC was removed as operator it would effectively be out of business.
Capital Structure
“Each of the Debtors is a borrower pursuant to that certain senior secured Amended and Restated Loan Agreement (as amended, modified, and supplemented, the “Senior Facility”), dated as of December 19, 2013, by and between WBH Energy Partners LLC, WBH Energy, LP, WBH Energy GP, LLC, as borrowers, on the one hand, and Green Bank, N.A., (“Green Bank”) as lender, on the other. (CL lII Funding Holding Company, LLC has succeeded to the interests of Green Bank under the Senior Facility, as described below) Approximately $5,512,000 in principal amount is currently outstanding under the Senior Facility. Pursuant to that certain Amended, Restated and Supplemented Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement, dated December 19, 2013, and the Security Agreement between Green Bank and WBH Energy Partners LLC (together, the “Senior Security Agreement”) the Senior Facility is secured by, among other things, a senior lien on (i) all oil and gas leases and interests owned by WBH Energy, LP, (ii) all liquid or gaseous hydrocarbons accruing to or produced from the leases and interests described in the foregoing clause, (iii) all proceeds of the foregoing, and (iv) substantially all assets of WBH Energy Partners, LLC.
“WBH Energy, LP is a borrower pursuant to that certain junior secured Credit Agreement (as amended, modified, and supplemented, the “Junior Facility”), dated as of December 19, 2013, by and between WBH Energy, LP, as borrower, and CL III Funding Holding Company, LLC (“Castlelake”) as lender. Approximately $24,000,000 in principal amount is currently outstanding under the Junior Facility. Pursuant to that certain Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement, dated December 19, 2013 (the “Junior Security Agreement”) the Junior Facility is secured by, among other things, a junior lien on (i) all oil and gas leases and interests owned by WBH Energy, LP, (ii) all liquid or gaseous hydrocarbons accruing to or produced from the leases and interests described in the foregoing clause, (iii) all proceeds of the foregoing. The Junior Facility is further secured by, among other things, a lien against all accounts, contract rights, and rights to payment, related to the oil and gas properties of WBH Energy, LP, and owned by WBH Energy Partners LLC.
“The priorities between the lenders under the Senior Facility and the lenders under the Junior Facility are governed by that certain Intercreditor Agreement, dated December 19, 2013, by and among the Debtors, Green Bank, and Castlelake. Pursuant to the terms of the Intercreditor Agreement, Castlelake requested Green Bank sell its rights under the Senior Security Agreement and on December 10, 2014, Castlelake provided the Debtors’ notice of Green Bank’s assignment of its interest in the Senior Facility and Senior Security Agreement to Castlelake.
Events Leading to Chapter 11 Filing
“In early September 2014, the Junior Lender informed the Debtors that it was declining to release further funds under the Junior Credit Facility. As a result, WBH Energy LP was unable to fund its share of expenses due to WBH Energy Partners LLC under the Joint Operating Agreement. WBH Energy Partners LLC, in tum, was then unable to fund its payment obligations to various vendors. Consequently, the Debtors’ lease development plan was placed in jeopardy. The Debtors immediately entered into restructuring discussions with their Junior Lenders.
“As restructuring discussions continued between the Debtors and the Junior Lender, the Debtors also entered into discussions with USED related to the WBH Energy, LP’s lack of funds to move forward with well completion. On November 20, 2014, USED informed WBH Energy Partners LLC (“Operator”) that it believed Operator was insolvent and therefore deemed to resign as the operator under the JOA. Operator disagreed that it was insolvent and stated that it remained as operator under the JOA.
“On December 3, 2014, the Junior Lender sent WBH Energy, LP a default and acceleration notice under the Junior Credit Facility.
“On December 9, 2014, USED provided the Debtors with a Notice of Default under the Joint Operating Agreements, asserting the Debtors were in default for failure to pay its share of operational expenses in the amount of approximately $12 million. Pursuant to the Joint Operating Agreement, USED asserted that the Debtors have until January 9, 2015 to cure the default or USED may foreclose on WBH Energy, LP’s interest in its leases.
“On December 12, 2014, Castlelake provided the Debtors with a default and acceleration notice under the Senior Credit Facility. On the same day, Castlelake also issued a Notice of Trustee’s sale under the Junior Credit Facility, which set such sale for January 6, 2015 Facility. In addition, on December 23, 2014, Castlelake filed a Verified Complaint in the Fourth Judicial District Court for the County of Hennepin, Minnesota, styled CL III Funding Holding Company, LLC a Delaware limited liability company v. WBH Energy, LP, a Texas limited partnership, WBH Energy GP, LLC, a Texas limited liability company, and WBH Energy Partners, LLC, a Texas limited liability company, for breach of contract, appointment of a receiver, declaratory judgment enforcing rights under the deeds of trusts, and injunction. A week later, Castlelake issued a notice of sale of collateral under the Uniform Commercial Code, pursuant to which Castlelake sought to foreclose on the accounts of WBH Energy Partners LLC.
“On December 29, 2014, USED filed a petition in the 27lst Judicial District of Jack County, Texas (“State Court”), styled US. Energy Development Corporation v. WBH Energy Partners LLC, WBH Energy, LP and WBH Energy GP, LLC, for breach of contract, fraud, breach of fiduciary duty, conspiracy, accounting, foreclosure, constructive trust, exemplary damages, declaratory judgment, and a temporary injunction. Specifically, USED alleges that the Debtors resigned as operator under the terms of the Joint Operating Agreement and is in default under the Joint Operating Agreement. USED alleges that it has the right to replace WBH Energy Partners LLC as operator under the Joint Operating Agreement with itself, effective immediately. The Debtors dispute all of these allegations. On the same day the petition was filed, the State Court judge entered an ex parte Order Granting USED’s Application for Temporary Restraining Order against Defendants WBH Energy Partners, LLC. (“TRO”). The TRO restrains the WBH Energy Partners LLC from, among other things, acting as operator under the Joint Operating Agreement; interfering or opposing USED designation and approval as operator under the Joint Operating Agreement; and withholding any documentation in connection with the operations under the Joint Operating Agreement. The TRO also requires the Debtors to deliver data relating to operations to USED; advise parties to pay production proceeds to USED instead of Debtors; and complete forms to be filed with the Texas Railroad Commission changing the operator to USED. The hearing on USED’s application for temporary injunction against the Debtors is currently set for January 9, 2015.
“In order to preserve the value of the Debtors’ businesses and potential value to unsecured creditors, the Debtors were forced to file these bankruptcy cases before the January 6, 2015 foreclosure date. In addition, the Debtors could not operate their businesses as a result of the TRO unless they filed these bankruptcy cases.
For more information regarding the case, please call:
Dallas: Richard G. Grant, Practice Chair | Direct: 214-210-2929
New York: Robert W. Dremluk | Direct: 516-883-2759
