Milagro Oil & Gas Files for Chapter 11 Bankruptcy

Last week, Milagro Oil & Gas, one of the largest U.S. oil producers, filed for chapter 11 bankruptcy protection. The company cited refuge from a collapse of commodity prices and $468 million in debt for its decision to file for Chapter 11.

Milagro Oil & Gas restructuring plan

According to the Wall Street Journal, as part of its bankruptcy restructure, Milagro Oil & Gas has completed an agreement with its major creditors to trade its oil and gas assets to White Oak Resources VI LLC for $120 million in cash and $97 million in equity. In the acquisition, White Oak will take on a portion of the company’s operating liabilities, including its obligations to retire inactive wells in compliance with environmental regulations.

Milagro’s restructuring plan calls for the company to pay-down more than $88 million in top-ranking debt obligations, with equity swaps and sales to second lien note holders for $250 million worth of existing debt and new value from a rights offering.

The company has also reached an agreement for proposed bankruptcy financing from lenders that will provide $15 million in fresh cash, enabling Milagro to fulfill payments on its remaining top-ranking loan balances.

Following the completion of its restructuring plan, the company’s major asset will be its stake in White Oak.

Solution to financial trouble

Creditors became concerned about Milagro’s financial status after the company missed a $13 million interest payment on its $250 million in 10.5 percent senior secured second lien notes following a grace period.

In court papers, Milagro Oil & Gas claimed that a combination of factors led to their inability to service debt obligations to prepetition first lien lenders and noteholders. Milagro also cited the volatility of market prices in the energy sector, unsuccessful drilling programs and rising capital expenditures in exploration and development for its subsequent financial capitulation.

Milagro Oil & Gas had been seeking a resolution to its financial troubles as it had failed to generate profits for seven consecutive years.

However, the significance of Milagro’s decision to file for Chapter 11 bankruptcy protection is alarming because six other U.S. oil producers including Quicksilver, Saratoga Resources, BPZ Resources, Dune Energy and American Eagle Energy Corp. filed for bankruptcy protection in 2015. Sabine was the most notable among these companies as it is the largest oil producer to ever file for Chapter 11 bankruptcy protection with $2.9 billion in liabilities.

Currently, credit rating agencies expect more large oil producers to file for Chapter 11 bankruptcy protection in the near future.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.