$15M Furie sale on hold over dispute with winning bidder Hendrix
John Hendrix was poised to purchase Furie Operating Alaska LLC after winning a December bankruptcy auction for the Cook Inlet gas producer with a $15 million bid, but initial negotiations to close the sale appear to have hit roadblocks, leading the company and its lenders to work on other arrangements, according to court records.
A longtime oil industry professional and adviser to former Gov. Bill Walker, Hendrix sought to purchase Furie through his newly formed company Hex LLC.
While Hex won the Dec. 5 auction, an apparent misunderstanding or disagreement over the structure of the sale prevented the company from meeting deposit deadlines and finalizing the security purchase agreement for Furie.
Hendrix was general manager of Apache Corp.’s operations in Cook Inlet prior to working in the Walker administration.
Houston-based Apache left Alaska in 2016 as the company prioritized its global operations during the bottom of the downturn in oil prices.
According to a court notice filed Feb. 20 by Hex attorney David Bundy, the auction was advertised as an asset sale but conducted as an equity sale to keep Furie in control of its Inlet operations and eligible to receive outstanding refundable tax credit payments from the state.
Uncertainties stemming from a royalty claim filed by three minority owners in the state leases that Furie operates are alleging collectively shorted them an estimated $50.7 million also prevented Hex from obtaining financing for the sale, according to Bundy.
“Until that (royalty) issue was resolved, Hex could not forecast its future income and expenses and lenders were unwilling to commit,” Bundy wrote, adding that Furie leaders were not willing to extend Dec. 24 and Jan. 10 deposit deadlines laid out in the auction terms.
Attorneys for Furie and its primary lenders claim in separate court filings that Hex did not negotiate “in good faith” during the process, an allegation Bundy disputes.
According to the Feb. 20 filing by Bundy, Furie was continually informed of the challenges Hex encountered while trying to close the sale. He said in a brief phone call that discussions to resolve the situation are ongoing but referred further questions to Hendrix.
Hendrix and Furie leaders did not return calls seeking comment in time for this story.
Furie operates the Kitchen Lights Unit in central Cook Inlet and currently has contracts to supply Homer Electric Association, or HEA, and Enstar Natural Gas. Furie also signed a contract with Chugach Electric Association in 2017 to supply the Anchorage electric utility with firm gas shipments beginning in 2023.
Texas-based Furie filed for Chapter 11 bankruptcy protection Aug. 9 in federal Bankruptcy Court for the District of Delaware. According to the company’s bankruptcy petition, Furie owed lenders approximately $440 million when it filed for Chapter 11 protection and was also owed roughly $105 million in refundable tax credits from the State of Alaska.
Furie officials estimated the value of the company’s assets at between $10 million and $50 million in their initial bankruptcy filings.
The financial challenges were nearly continuous for the company, which had net gas sales of $25.4 million and absorbed a net loss of $58.5 million in 2017, according to the bankruptcy filings. The situation worsened in 2018 when the company sold $42.8 million of natural gas but took a loss of nearly $152 million.
Furie lost $21.4 million in the first quarter of 2019, when a freeze-up in a gas production pipeline kept the company from supplying HEA and Enstar with gas for more than a month. Once gas deliveries resumed, Furie was only able to supply Enstar with less-than-contracted amounts for several months as well.
The utilities purchased gas from other area producers and drew on reserves stored in the Cook Inlet Natural Gas Storage Alaska facility commonly known as CINGSA.
The company installed the Julius R platform in the Kitchen Lights field in 2015, which at the time was the first new development platform the Inlet built since the 1980s.
Hex’s struggles to close the auction sale pushed Furie to turn to an “acquisition by foreclosure” with Kachemak Exploration LLC, a newly formed company owned 50-50 by New York-based Melody Capital Partners LP and GFR Holdings LP of Dallas.
Melody Capital Partners was one of several lenders that collectively loaned approximately $244.5 million to Furie, according to the original bankruptcy filing.
Attorneys for Furie and Kachemak Exploration filed a bankruptcy reorganization plan with the court Feb. 26, which indicates the $50.7 million in royalty working interest owner claims have been settled for $500,000 in total.
Furie officials said in 2017 they planned to work on developing oil prospects in the Kitchen Lights gas field, but those plans were largely scuttled because of the state’s delay in repaying millions of dollars in oil and gas tax credits the company earned for its previous work, according to the company’s filings with the state Division of Oil and Gas.
Elwood Brehmer can be reached at [email protected].