U.S. Bankruptcy Judge Laurie Selber Silverstein signed a second order March 6, authorizing Chapter 11 debtor Furie Operating Alaska LLC to enter into an acquisition by foreclosure agreement with acquirer Kachemak Exploration LLC; authorizing the parties to complete their obligations in connection with the agreement; and granting related relief.
Kachemak - a Delaware corporation recently formed by GFR Holdings of Fort Worth, Texas, and Melody Capital Partners L.P. - is seeking to acquire the Cook Inlet Kitchen Lights offshore unit, related infrastructure such as the Julius R offshore natural gas platform, together with an onshore processing facility and related pipelines.
The “second order” constitutes a final order, after notice of the motion and a court hearing to interested parties, the order said, adding that the court held a hearing to consider the relief on March 4, at which time all interested parties were offered an opportunity to be heard.
The order was signed and entered into the record on March 6, in the Chapter 11 bankruptcy case of Furie and its related companies in the U.S. Bankruptcy Court for the District of Delaware.
In comments during the March 4 hearing Selber Silverstein said that Anchorage based HEX LLC was named high bidder after an auction of the debtor’s assets held last year but that the debtor has taken the position that HEX was in default.
At that time, she asked if a representative of HEX was present and determined the company was not represented in the courtroom or on the phone.
“Hex has not filed an objection to the sale going forward,” she said.
“The revised language in the order is clear that I am not making a finding with respect to whether HEX is in default or that that they have no defenses or counterclaims to such an allegation, and nothing will preclude it from seeking return of its deposit,” she said.
Selber Silverstein said she looks at the Kachemak sale as “more of a private sale after the auction,” and she found that buyer not an insider.
“The relationships that do exist have been disclosed to the court and other parties in interest; I find no collusion,” she said.
“The HEX matter has been resolved to my satisfaction,” she said. “We’re in a bit of an unusual posture with this ever-continuing discussion but I’m satisfied based on, frankly, HEX’s failure to object to my approval of this proceeding, and its reservation that in my view is limited to remedies to its deposit, which I will deal with at another point and time, again, if that matter is not resolved.”
AIDEA board approves loan resolution for HEX asset purchase
Meanwhile, on March 4 in Anchorage, the Alaska Industrial Development and Export Authority board unanimously approved a resolution authorizing an AIDEA loan of up to $7.5 million for HEX to buy the same Cook Inlet assets which the debtors now plan to sell to Kachemak.
“The loan to HEX is in support of the company’s bid to acquire the Kitchen Lights offshore unit and related infrastructure out of bankruptcy from Furie Operating Alaska LLC,” AIDEA told Petroleum News in a March 6 email.
The sale would be structured as an acquisition of the limited liability companies (Cornucopia Oil & Gas Co. LLC and Corsair Oil & Gas LLC) that own the natural gas leases and the natural gas production infrastructure of the Kitchen Lights unit located in Cook Inlet, Alaska, AIDEA said in the resolution.
“The proposed loan to HEX would permit the continued production of natural gas from the Kitchen Lights Unit and enable the production of additional natural gas quantities from the unit, with the natural gas be delivered to utilities and other users in the State,” the resolution said.
“For a kid who grew up in Homer and has spent a lifetime working in Alaska oilfields, I believe it is important that Alaskans have the opportunity to compete for this asset,” said HEX President and CEO John Hendrix. “The HEX team is grateful for AIDEA, and thanks them for moving expeditiously to make this happen.”
“Today’s announcement is another sign that Cook Inlet will be able to supply the energy needs of Southcentral Alaska and beyond for many years to come,” said Gov. Mike Dunleavy.
The debtors negotiated the Kachemak agreement after HEX missed deadlines - for subsequent good faith deposits on Dec. 24 and Jan. 10, and to provide proof of financial wherewithal to consummate a transaction by Jan. 10 - each as required under the terms of its bid, the debtors said.
The debtors filed a Feb. 18 motion for approval of a settlement between the debtors, the lender parties, the buyer, and several litigants, including a royalty and working interest owners group.
In a notice of alternative offer filed Feb. 20 by HEX, HEX said it was unable to complete financing for the purchase primarily due to uncertainty created by the pending royalty dispute with the RWIO group, adding that HEX could not forecast its future income and expenses, therefore its lenders were unwilling to commit.
HEX said in its notice that the debtors had “agreed to work with HEX for two weeks to see if a better transaction can be structured.”
$7.1 million still owed on Jones Act fine; Feds reserve rights to tax overpayments
At the March 4 hearing in Delaware, the federal government let it be known that the United States does not waive its remedies for collection of amounts due it from the debtors - including the attachment of tax refunds.
Furie listed its largest unsecured creditor as the U.S. Department of Justice, owed $7.2 million from a 2017 settlement agreement from a lawsuit Furie brought challenging a $15 million fine levied over a U.S. Customs and Border Protection determination that the company - then named Escopeta Oil - violated the Jones Act in 2011 when it brought a jack-up rig to Cook Inlet from Texas.
Ellen Slights, with the U.S. Attorney’s Office, came forward during the Judge’s discussion of language in the acquisition agreement that might unintentionally pre-bind parties regarding assumptions or assignments which would not occur until the effective date of the sale plan.
Slights said she represented the Department of Homeland Security on behalf of Customs and Border Protection.
“The United States has entered onto a prepetition settlement agreement with the debtors, and the debtors under that agreement still owe the United States $7.1 million,” Slights said. “I rise, your honor, because I had not really participated in this sale process, up to this point, but on document number 571 dated February 21, 2020, the United States’ settlement agreement was included in a list of contracts to be assumed and assigned, and in that document that I’m looking at now, I’m not seeing any cure amounts. Perhaps there are things that have set it at some zero cure somewhere in the documents?”
“But I would say, your honor, that the reason I am here is our contract was removed; we were apparently put on inadvertently to this assume/assign list, but I am very concerned about this process and about having the United States’ rights affected by this process,” she said. “My particular concern is set-off, and to the extent I don’t know if the debtors have a federal tax refund, but to the extent that there is a tax overpayment, the United States will almost certainly be due a right of set-off to that overpayment, and the debtors have said that that right won’t be affected at all by this process, because it’s all tied to the plan confirmation.”
Orders signed March 4 re: Furie asset sale to Kachemak
Judge Laurie Selber Silverstein signed several orders March 4 to augment Furie’s acquisition by foreclosure agreement with Kachemak Exploration.
Selber Silverstein signed an order approving the debtors’ motion for approval of settlement between the debtors, the lender parties, the buyer, the Webb litigants and the RWIO parties, filed by Furie.
The judge also signed an order for approval of settlement between the debtors and Alaska Pipeline Co., filed by Furie.
Selber Silverstein also signed an order approving debtors’ motion for entry of an order establishing an administrative bar date and approving the form and manner of notice filed by Furie.
