EIG: Pacific Exploration notes payments unlikely, restructuring needed

By Caroline Salls

Pittsburgh, Jan. 20 – EIG Pacific Holdings Ltd. said Pacific Exploration & Production Corp. (Pacific E&P) will likely not make the deferred interest payments on its 2021 notes and 2023 notes when due.

As previously reported, Harbour Energy Ltd. subsidiary EIG made a tender offer last week for Pacific E&P’s $4.1 billion of outstanding senior notes, saying it believed that “Pacific E&P is on the verge of insolvency and out of other options.”

The next day, Pacific E&P announced that it had elected to use the 30-day grace period for making scheduled interest payments on the notes.

“We correctly informed the market about the dire financial situation at Pacific E&P last week, and we believe the situation will spiral downward now that the cloak of denial has been lifted and in the face of a rapidly deteriorating market environment,” EIG chief executive officer and Harbour Energy co-chairman R. Blair Thomas said in a Wednesday news release from EIG.

Because the tender offer includes all unpaid interest across all four tranches of notes up to the end of the grace period on Feb. 19, EIG said the tender offer consideration of $175 per $1,000 of principal plus interest is effectively $200.66 per $1,000 of principal on average across all four tranches of notes.

“With an average effective price of approximately 20.1%, our offer represents a 100% premium over the average 10% bid price where Pacific E&P’s bonds were trading immediately before our offer was launched and when the market expected the company to make its January interest payments,” Thomas said in the release.

“We believe the company’s cash position is dire and that the market has underestimated the severity of the situation.

“The only credible solution is one that combines a significant infusion of new capital with a balance sheet restructuring in order to avoid a long and value-destructive asset level reorganization or distressed sale.

“We believe the company would have material trade and contractual claims, many of which may have structural seniority to the bondholders in a true liquidation of the company.

“There are few other potential sponsors with the capacity to fund the significant capital needs of the company, the technical and managerial capabilities to oversee an E&P company of this scale, the ability to navigate the numerous complex legal and regulatory issues that an in-court restructuring will involve, as well as the familiarity with Pacific E&P’s operations and management team to be relevant on the timescale necessitated by the company’s situation.

“We are committed to shepherding the company through an expeditious reorganization that will permit it to continue operating, remain intact and thrive once again.”

Pacific E&P is a Toronto-based explorer and producer of natural gas and crude oil with operations focused in Latin America.

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