Smaller Companies Show Early Signs of Oil Price Distress

Privately held Alta Mesa Holdings LP is taking steps to fend off problems with the fall borrowing base redetermination.

Since last summer, the small, privately held producer has been taking out second liens – which is rare in a strong market – paying them off and then pursuing other lines of credit. Just this week, the Houston exploration and production company sold off more of its oil and gas producing assets in the Eagle Ford to EnerVest Ltd. for a total price of $125 million.

This summer, the exploration and production (E&P) company’s lenders completed the semi-annual redetermination of the company’s borrowing base. Under the terms of a reserve-based revolving line of senior credit facility, the borrowing base was set at $300 million. At the same time, the company closed a $125 million second lien senior secured term loan with Morgan Stanley Energy Capital Inc. Net proceeds from that second lien transaction went toward the repayment of a portion of the company’s outstanding borrowing from its senior revolving credit facility. Maturity of the senior credit facility was extended to Oct. 13, 2017, and the second lien term facility is April 15, 2018 – essentially buying some time for oil prices to increase and augment Alta Mesa’s balance sheet.

In 2014, Alta sold off Eagle Ford assets in Karnes County in a deal with Memorial Production Operating LLC., which included a portion of the Eagleville field and was comprised of a working interest in all producing wells, effective Jan. 1, 2014. The company retained a net profits interest in the wells based on 50 percent of the working interest in 2014, which declined to 30 percent in 2015, 15 percent in 2016 and nothing in 2017. All told after customary adjustments, Alta Mesa pocketed $171 million from the transaction. Another sale of Eagle Ford assets netted Alta Mesa $210 million in a deal with ReOil Eagle I, LLC.

In June of this year, the company entered into a second lien senior secured term loan agreement with Morgan Stanley Energy Capital Inc. to borrow $125 million. The loan has an accordion feature that allows an additional $50 million to be borrowed under certain terms. After payment of transaction-related fees were expended, Alta Mesa used the cash to pay down outstanding debts under its credit facility. As of June 30, Alta Mesa was in compliance with the covenants of its term loan facility.

Alta Mesa still retains some acreage in the Eagle Ford, according to information on its website, including portions of Goliad and DeWitt counties.

Editor’s Note: No representative of Alta Mesa was immediately available for comment.

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