HOUSTON – Sabine Oil & Gas Corp. is working to avoid default on $1.7 billion in debt after an auditor raised “substantial doubts” about its ability to continue as a going concern, it said in regulatory filings Tuesday.
The Houston oil producer said the auditor’s assessment in its annual report Tuesday will trigger a default in 30 days on its $971 million revolving credit facility – a type of corporate loan from which funds can be borrowed, repaid and borrowed again – unless it convinces lenders to waive certain requirements in its credit agreement.
If Sabine and its lenders don’t come to an agreement, the firm could be required to repay its debts immediately, which could prompt defaults on its other debt. It said a $700 million bank loan could also be accelerated in 180 days unless it gets certain waivers from lenders.
Sabine said it is considering selling off some assets or restructuring its debt in and out of court, among other options to shore up its balance sheet. The firm had 289 employees at the end of last year. Sabine officials did not respond to requests for comment.
All told, Sabine had $2.82 billion in debt as of March 15. The firm had fully drawn its revolving credit earlier this month. It said it has $326.8 million in cash on hand. Low oil and natural gas prices, it said, have weighed heavily on the company’s cash flows.
Meanwhile, Sabine’s lenders are currently considering whether to cut the amount the firm can borrow from its revolving credit, the firm said. With its loan fully drawn, that could mean the firm would have to repay any amount the lenders trim from its borrowing base in 30 days or in six monthly installments.
“Based on discussions with lenders,” the firm said, “the company believes that its borrowing base may be decreased significantly.”
The producer, which has its main assets in East Texas and the Eagle Ford Shale in South Texas, has hired a financial advice firm and a law firm to evaluate alternatives to fix its balance sheet and bolster its available cash, Sabine CEO David Sambrooks said in a written statement.
In addition to asset sales and a debt restructuring, the firm might cut its capital spending, repurchase debt or do debt-for-debt or debt-for-equity exchanges, it said.
“We fully expect to continue operating in the ordinary course throughout the process,” Sambrooks said.
Sabine, which merged with Forest Oil Corp. last year, is only the latest oil company to become financially strained as oil prices have fallen by more than half since last summer.
U.S. oil and gas producers Quicksilver Resources, Dune Energy, BPZ Resources, as well as oil field service firm Cal Dive International, all filed for chapter 11 bankruptcy protection this month, as low oil prices continued to hammer the industry. Moody’s Investment Services said last week oil companies now make up the biggest portion of their worst-rated companies.