Thermometers -- May 19, 2016

Updates

May 20, 2016: from a reader, more specific bankruptcy notes with regard to North Dakota --
http://m.bismarcktribune.com/a-look-at-bankruptcy-in-the-oil-patch/article_9825a064-bad7-11e5-ab46-731b07866b19.html.

Many operators who file bankruptcy are in arrears on royalty payments. A new law goes into effect at the end of February in North Dakota that allows a royalty holder to file a security lien when the royalty has not been paid when due. The royalty owner must file the lien with the state and record the lien in the county where the well is located within 90 days of production to have a lien. With good records and timely filing and recording, mineral interest owners can gain a secured position in a bankruptcy proceeding. This greatly increases a royalty holder’s chances of a full recovery because secured creditors are paid before unsecured creditors.

May 20, 2016: from a reader, this link regarding royalties and bankruptcies -- http://www.mineralrightsforum.com/m/blogpost?id=4401368%3ABlogPost%3A609909

From the linked article, which seems very, very good and is worth looking at -- 

E. How Does This Affect my Royalties?

Because Texas royalty owners may have a secured claim to sales proceeds, and because of the possibility of terminating the lease if it is worded properly, the effect on royalty payments is often not as large as many would fear. Particularly in a Chapter 11, the operator usually quickly gets permission from the court to continue to pay royalty owners during the bankruptcy.

However, there is no one-size-fits-all outcome on royalty payments, and it can vary from a complete stop of payments, if they have not stopped already, to proportional payments, to full payments.

The payment for any royalties overdue at the time the bankruptcy is filed are considered claims against the bankruptcy estate, and may take a substantial amount of time to collect, if at all. If your operator has stopped paying royalties and eventually files a voluntary Chapter 7, your chance of getting 100 cents on the dollar is poor.

May 20, 2016: from oilprice.com -- 

Halcon Resources Corp announced yesterday that it is filing for Chapter 11 bankruptcy protection as part of a restructuring agreement with creditors—a move that could wipe out $1.8 billion, or 65 percent, of its debt and $222 million of preferred stock equity.

The agreement would also reduce Halcon’s ongoing annual interest burden by more than $200 million. The shareholders affected by the restructuring include those holding 3rd Lien Notes due 2022, Senior Notes due 2020, Senior Notes due 2021, Senior Notes due 2022, Convertible Notes due 2020, and Perpetual Convertible Preferred Stock.

The affected stakeholder would then receive shares of common stock, warrants, and/or cash.

Halcon is expected to operate as usual during the restructuring process, and pay all suppliers and vendors in full for goods and services provided.

Later, 2:45 p.m. Central Time: see comments. Folks are asking how the Halcon bankruptcy will affect royalty payments.
 

Original Post

 

I was going to do a post on thermometers. I haven't gotten around to it, but if I find some time, I might do just that.

I'm trying to sort out the "thermometers" in the Bakken.

Halcon might be one. I was thinking about that the other day and now this headline today: Halcon reaches pact with creditors on prepackaged bankruptcy plan. The plan would wipe out $1.8 billion in debt and help it survive the drop in crude prices.

The bankruptcy marks a setback to Halcón Chief Executive Floyd Wilson's long-running goal to build and then sell the company to the highest bidder, a plan that mimicked Wilson's 2011 sale of Petrohawk to BHP Billiton for more than $12 billion at a 65 percent premium to its shares.

Yet almost from the beginning, Halcón was saddled by high costs and high debt, despite having some quality acreage. Indeed, the value of Halcón's holdings in North Dakota's Bakken shale formation have long eclipsed the market value of the company.

Halcón's restructuring plan will eliminate about $222 million of preferred equity, and reduce the company's annual interest payments by more than $200 million. 

Another "thermometer" might be EOG.