Great Western Petroleum eyes Extraction amid ongoing effort to address 2021 maturities

Great Western Petroleum is attempting to put together a bid for peer Extraction Oil & Gas, which is currently running a dual-track bankruptcy plan process, according to two sources familiar with the matter.
 
The E&P companies have complementary asset bases, given their operational focus in Colorado’s DJ Basin. Great Western has a liquids-rich production mix and low-cost acreage that supports healthy cash margins, according to a Moody’s note on 6 October.
 
Though a potential tie-up could allow the companies to capture midstream value, some investors view that idea as "over-hyped," one of the sources said. 
 
Colorado operator HighPoint Resources was also in the run for Extraction’s assets, as reported. Its efforts unraveled this week, however, and HighPoint is no longer pursuing a deal with Extraction, Debtwire reported today.
 
For its part, Great Western’s pursuit is also seen as a tall order, given its own balance sheet issues and lack of support from its sponsor, The Broe Group, the sources and a third source said.
 
“Without equity I think it’s hard to pull off a deal,” said the third source.
 
At the same time, Great Western’s ability to secure debt financing for Extraction is hampered by the slim asset coverage of the potential pro forma company, the first two sources said.
 
Besides exploring a bid for Extraction assets, Great Western has cast a wide net in recent months for liability management and equity-enhancing transactions. After a failed exchange offer – in which holders of the 9% senior unsecured notes due September 2021 had the opportunity to swap their holdings into new 11% second lien term loans due 2024, or a mix of new loans and cash – the company has more recently been trying to raise new debt.
 
The company is working with Citi to gauge interest from outside investors to provide capital, including new second lien debt, sources said. Proceeds would address near-term maturities, as reported
 
The process remains ongoing, but some prospective investors have shied away, given macro headwinds including the ongoing regulatory uncertainty in Colorado.
 
Great Western needs to address its USD 250m 9% senior unsecured notes due 2021 by this March, or it will trigger a springing maturity on its revolver. 
 
As of 30 September, the borrower had USD 85m of availability under the facility, following a borrowing base cut to USD 485m, from USD 600m in a recent redetermination, Moody's noted. 
 
Great Western’s cash flow is buoyed by its hedges through 2021 and lower FY20 capital spending plan, the rating agency said. However, its access to the capital market is hobbled by the deeply discounted trading levels of its notes, regulatory uncertainty in Colorado and overall low appetite in the E&P sector. 
 
The 9% notes last traded at 58.5 on 24 September, according to MarketAxess. 
 
Both Moody’s and S&P downgraded the credit last week, citing high refinancing risk and likelihood of a distressed transaction.
 

Messages left with Great Western were not returned.