WILMINGTON, Del. (Reuters) - Breitburn Energy Partners LP BBEPQ.PK detailed plans at a Thursday court hearing to exit bankruptcy by transferring the oil-and-gas producer’s assets to creditors, but opponents pressed for an auction of main reserves to generate more money.
Breitburn filed for Chapter 11 bankruptcy in May 2016, one of more than 100 energy companies that sought court protection from creditors after oil prices crashed from more than $100 a barrel in 2014.
On Thursday, it proposed splitting into two companies, with one owning its prized assets in the Permian Basin in Texas and the other owning its reserves in California, the Rocky Mountains, U.S. Midwest and U.S. Southeast.
Holders of Breitburn’s unsecured bonds would be given the opportunity to buy their share of the Permian company’s stock, valued at $775 million, in what is known as a rights offering.
The stock sale would be guaranteed or backstopped by a group of creditors led by the investment firms Elliott Management Corp and W.L. Ross & Co, founded by U.S. Commerce Secretary Wilbur Ross. The bondholders guaranteeing the stock sale would receive the opportunity to buy at least 40 percent of the stock and would receive additional stock as a fee.
Unsecured creditors and holders of the company’s common units, similar to shares, have said the best way to determine the value of the Permian assets is through an auction.
They argued at Thursday’s hearing that the rights offering amounted to a sale, but one that benefited a few large bondholders without generating a market-tested price.
“Put all this stuff up for auction and see where the value lies,” said Vincent Indelicato, a Proskauer Rose attorney who represents an official equity committee. “What are they so afraid of?”
U.S. Bankruptcy Judge Stuart Bernstein in Manhattan said an auction raised the risk of determining the rights offering overvalued the Permian assets. At the same time, Bernstein seemed to acknowledge that strategic bidders would likely pay more.
Diamondback Energy Inc made an unsolicited offer this month of $725 million for Breitburn’s Permian assets, which Bernstein said “it makes you think” about the proper valuation.
Breitburn’s Permian reserves total 42 million barrels of oil equivalents, according to the company’s website, and account for 22 percent of its proved reserves, according to court filings.
West Texas oil futures CLc1 were trading at $50.29 in midday trade on Thursday.
A hearing was requested for Nov. 8 to review the disclosures in the plan. If the disclosures are approved, creditors would vote on the plan by Dec. 11.
Reporting by Tom Hals in Wilmington, Delaware; Editing by Susan Thomas