Stone on Oct. 20 entered into a comprehensive restructuring support agreement (RSA) with certain holders of the firm's 1.75% senior convertible notes due 2017 and 7.5% senior notes due 2022 to support restructuring on the terms of a prepackaged plan of reorganization.
The RSA contemplates that Stone will file for voluntary relief under Chapter 11 of the US bankruptcy code on or before Dec. 9 to implement the plan of reorganization. The RSA is contingent, in part, on the firm agreeing to sell its Appalachia properties for $350 million in cash.
The sale to Tug Hill is effective June 1 and expected to close by Feb. 27, 2017.
Stone’s Appalachia volumes for the second quarter included 21 MMcfed from Heather and Buddy fields, 11 MMcfed of intermittent production from Mary field, and 4 MMcfed attributed to final adjustments working interests in two Mary units.
The firm shut output from Mary in September 2015 citing “unacceptable” operating margins caused by low commodity pricing and fees for transportation, processing, and gathering (OGJ Online, Sept. 25, 2015).
In the second quarter, Stone entered into an interim gas gathering and processing agreement with Williams Co. Inc., providing near-term relief by permitting Stone to resume Mary production, which subsequently averaged 75 MMcfed in July, with total Appalachia volumes averaging 95 MMcfed during the month (OGJ Online, June 30, 2016).
At the end of the second quarter, Stone said 57 of its Appalachia wells representing more than 60 MMcfed in potential volume remained shut “due to downstream liquids-handling capacity constraints.” The firm, however, said it expected most of that production to come online later in the third quarter, and, as a result, projected Appalachia output to reach 125 MMcfed in the quarter.
"The sale of the Appalachia properties, an important component of the restructuring support agreement, will further streamline our operations and allow us to advance our efforts to grow value in the Gulf of Mexico, which is central to our long-term business plan," said David Welch, Stone chairman, president, and chief executive officer.
Stone holds interests in more than 100 gulf lease blocks. In late June, an explosion at the third-party Pascagoula, Miss., gas processing plant caused a temporary suspension of Pompano production operations, but the firm restored most output within days through the utilization of a gas injection well. The firm that month also agreed with Ensco PLC to terminate the ENSCO 8503 deepwater rig contract. Stone’s second-quarter gulf production was 138 MMcfed.
Assuming implementation of the prepackaged plan of reorganization, Stone expects it will have eliminated $850 million in principal of outstanding debt and reduced its annual interest payment burden by $46 million.
Contact Matt Zborowski at firstname.lastname@example.org.