U.S. shale firm's bankruptcy exit shows new chapter just as tough
By Tom Hals and Terry Wade
(Reuters) - Magnum Hunter Resources Corp and its founder Gary Evans are emblematic for the U.S. shale revolution: it started small, borrowed heavily to snap up land and rivals and then crumbled under the weight of debt when prices crashed.
Now, the oil and gas company is among the first casualties of the energy slump to exit bankruptcy and Evans has a message for its peers: even once you are debt-free you cannot take survival for granted if energy prices do not recover soon.
With little chance of seeing hundreds of millions of dollars in debt repaid, creditors including Goldman Sachs, Highbridge Capital Management, CVC Capital Partners and Third Point agreed to convert all of it into shares in a revamped Magnum Hunter.
Bankruptcy lawyers say that by eliminating its entire $1 billion debt load, cutting costs by renegotiating contracts with suppliers and moving quickly, Magnum Hunter has already provided a template for other cash-strapped drillers.
Swift Energy, which filed a few weeks after Magnum Hunter, followed a similar route and has already emerged from bankruptcy. Companies that have lingered in bankruptcy, such as Quicksilver Resources Inc, have ended up in piecemeal asset sales at bargain basement prices.
Now Evans and the new board face a fateful decision.
One option is to hunker down and minimize spending and borrowing while waiting for markets to eventually recover.
Another is to ramp up drilling to get the company growing again, widening losses until oil and gas prices rise. Continued...