The largest energy producer to date has filed for Chapter 11 bankruptcy protection amid a continued supply glut and uncertainty among international competitors.
Houston-based LINN Energy (NASDAQ: LINE), founded in 2003 and completing its IPO in 2006, announced a deal Wednesday that would allow $8.3 billion of its debt to be restructured and receive $2.2 billion in new financing, according to a company statement. At the time of the announcement, roughly 66% of its creditors were on board with the plan. The company claims $11.6 billion in assets.
Should the federal court approve, LINN Energy will be able to access the new $2.2 billion loan through its cash collateral to better facilitate regular company operations without the hassle of additional bankruptcy financing.
Mark E. Ellis, Chairman, President and Chief Executive Officer for the company argued the agreement was necessary as LINN and other independent oil and gas drillers continue to be impacted by reduced commodity prices. Bankruptcy “will provide a platform for future growth” while the new cash will stabilize regular business operations. The company notes that it does not currently intend to seek debtor-in-position financing as of now.
LINN’s company structure offers a contrast for some of the Texas oil companies filing for bankruptcy in the recent months. LINN Energy, a master limited partnership (MLP), is able to avoid corporate taxes by design and pays out cash to investors. This arrangement comes with a risk, however. Should an MLP seek bankruptcy protection, investors caught still holding company shares will also faces taxes on forgiven debts.
Beginning in April, LINN Energy moved to avoid that problem for its investors by offering two rounds of share exchanges with its affiliate, LinnCo (NASDAQ: LNCO). Due to bankruptcy, the values of both stocks are trading below 40 cents per share. LINN Energy was dropped from the Alerian Small Cap MLP Index as a result of the Chapter 11 filing on Thursday.
LINN Energy holds the claim to being the first independent oil and natural gas company to be publicly traded a decade ago with approximately 1,800 employees spread across the United States. The company owns a proven reserve of roughly 17 years’ worth of natural gas, according to 2014 figures. Exploration operations at its apex were occurring in 12 states with the highest density in Texas and Oklahoma. The Houston Chronicle listed LINN as one its Top Places to Work for six years, most recently in 2015.
LINN joins a growing list of energy outfits filing for bankruptcy protection. As Breitbart Texas previously reported, more than 50 other companies have faced similar fortunes since January 2015. Two similar drillers in Houston, Energy XXI and Goodrich Petroleum, filed inside a 24 hour period in mid-April. As rigs continue to remain stacked while international competitors fail to agree on output caps, more bankruptcies are likely to follow.
LINN Energy, LinnCo and Berry Petroleum Company together are being advised by the Houston office of Kirkland & Ellis LLP. The case was filed in the United States Bankruptcy Court for the Southern District of Texas, Victoria Division.
Logan Churchwell is a founding member of the Breitbart Texas team. You can follow him on Twitter @LCChurchwell.