CASE PROFILE: Alpine Summit Energy Partners will look for buyer in Chapter 11

Legal Analysis 7 July

CASE PROFILE: Alpine Summit Energy Partners will look for buyer in Chapter 11

By Pat Holohan, Sara Tapinekis, and Seth Crystal

Alpine Summit Energy Partners (ASEP) filed for Chapter 11 on 5 July to sell its assets, citing an “increasingly difficult” environment to obtain new financing needed to support its operations.

The case is backed by USD 15.5m in debtor-in-possession (DIP) financing from prepetition lender Bank7. The DIP, if approved, would set a series of milestones for the case, including a 13 October deadline for the company to obtain court approval of the sales of its assets.

A hearing on approval of the DIP and other first day motions is scheduled for 6 July before Judge David Jones of the US Bankruptcy Court for the Southern District of Texas.

The company

The debtor formed in 2021 through the merger of Red Pine Petroleum Ltd and HB2 Origination LLC, with the combined entity taking on the ASEP name.

ASEP develops oil and gas wells, drilling primarily in the Austin Chalk and Eagle Ford formations in Texas. Since 2018, the company has drilled 44 wells and grown its production to 24,000 barrels of oil equivalent per day. The company generates 50.7% of its revenue from the production and sale of natural gas and natural gas liquids and the remaining 49.3% from the production and sale of oil.

The company trades on Nasdaq as ALPS and closed trading on Wednesday at USD 0.56 per share, plummeting from approximately USD 5 per share at the start of the year. ASEP’s executives hold 39.8% of the company’s voting shares.

The debt

ASEP comes into Chapter 11 with USD 54.5m in funded debt, consisting of a revolver with Bank7 and an asset-backed securitization facility with affiliates of Kuvare Insurance Services, both of which matured on 1 July. Courts documents do not state the specific amount each lender is owed.

The debtor also owes USD 90.7m to general unsecured creditors.

The descent

ASEP has been unable to bring in new credit to develop its assets, creating a liquidity crunch that has left the company unable to pay its invoices, CEO Craig Perry, who owns 29% of the company’s voting shares, said in his first day declaration.

Perry also cited the steep drop in natural gas prices, which are trading at USD 2.66 per metric million British thermal unit, down from over USD 9 per MMBtu in August 2022. Oil has also dropped over the past year, trading now at USD 71.56 per barrel from more than USD 90 in July 2022.

In mid-2022, the company entered talks with Bank7 about upsizing the borrowing base on its the revolver to USD 125m, from USD 65m, but the parties did not reach a deal. ASEP brought on Stephens Inc as financial advisor to explore a sale of its South Texas assets but did not receive any satisfactory bids, according to the declaration. As the company struggled to make payments on its contracts, operating partners and contract counterparties similarly refused to pay the debtor, leading ASEP to file a breach of contract complaint on the bankruptcy docket against Dallas Petroleum Group.

The company launched a full restructuring process this year, starting with the hiring of Porter Hedges as restructuring counsel in April and adding Huron Consulting Group and Houlihan Lokey over the spring. Despite searching for third-party DIP financing, ASEP found only an offer from Bank7 to fund a Chapter 11 case. The parties finalized that deal, with the lender agreeing to provide USD 15.5m to back the case and establishing a series of milestones for the sale of the company’s assets.