EIG PROVIDES UPDATE ON PROPOSED RESTRUCTURING OF PACIFIC EXPLORATION & PRODUCTION CORP.
EIG is Offering to Acquire Any and All of the $4.10 Billion of Pacific E&P Senior Notes
EIG’s Offer Represents Price Certainty and a Significant Premium in an Environment Where Oil Prices are in Free-Fall
Interest Payments have Already been Missed and Bondholders Face Prospects of De Minimis
Recovery if They Continue on the Current Path
No Alternative has Emerged and Time is Critically Short
EIG Urges Holders of Senior Notes to Tender Today
WASHINGTON, D.C., January 20, 2016 – EIG Pacific Holdings Ltd. (the “Offeror”), a Cayman Islands limited company and subsidiary of Harbour Energy Ltd. (“Harbour Energy”), today provided an update regarding its pending tender offers (the “Tender Offers”) for the outstanding senior notes (the “Notes”) of Pacific Exploration & Production Corporation (TSX: PRE) (BVC: PREC) (“Pacific E&P” or the “Company”).
On January 13, 2016, the Offeror commenced tender offers to purchase for cash any and all of the approximately $4.10 billion aggregate principal amount of outstanding Notes of Pacific E&P. EIG announced that day that it believed “Pacific E&P is on the verge of insolvency and out of other options.” Less than 24 hours later, Pacific E&P confirmed the severity of its situation by announcing that it had elected to forego making scheduled interest payments and would be utilizing the 30 day interest payment grace period under the indentures governing its Notes and earlier today, S&P announced that it is lowering the Company’s corporate credit and issue-level rating to ‘D’ on S&P’s expectation that Pacific E&P will “enter into a general default and that it will fail to pay all or substantially all of its obligations as they come due.” “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,” said R. Blair Thomas, CEO of EIG and Co-Chairman of Harbour Energy’s Board of Directors.
It appears highly unlikely that Pacific E&P will make the deferred interest payments on the 2019 Notes and the 2025 Notes nor make interest payments on the 2021 Notes or the 2023 Notes when due. However, for those that tender, because Harbour Energy’s offer includes all accrued and unpaid interest payments across all four tranches of Notes up to the end of the Company’s 30-day grace period on February 19, 2016 (assuming the company does not file for insolvency prior to that), EIG’s Tender Offer consideration of $175 per $1,000 of principal plus accrued 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. 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. Our offer presents certainty of value to bondholders in light of a highly complex and uncertain outcome. Further, Pacific E&P is a capital intensive business operating in multiple jurisdictions with potentially unpredictable legal outcomes, and 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. We hope to work with the Board and management to ensure continuity, job preservation and an efficient restructuring process.”
Added Mr. Thomas, “We are grateful for the bondholders who have already indicated they will tender. We believe our proposal represents the best outcome for Pacific E&P as well as the bondholders as it provides a significant premium and de-risks recovery in a comprehensive and credible way. In our view, a single voice which is prepared to support further growth of the Company in partnership with Pacific E&P’s management and other stakeholders is the only viable solution.”
Mr. Thomas concluded, “EIG has been investing exclusively in the energy sector for more than 33 years. We are a disciplined investor and our offer is based on a thorough analysis of the Company’s current situation and its realistic prospects. Oil prices and energy markets are only moving in one direction right now so bondholders should be very cautious when listening to some of the false optimism being floated in the market. Any delay in accepting our offer will only result in further value degradation and a negative impact on the price at which we would value the bonds. We therefore urge holders of the senior notes to tender today.”
About EIG and Harbour Energy
Harbour Energy is an energy investment vehicle formed by EIG Global Energy Partners (“EIG”) and the Noble Group to pursue control and near control investments in high-quality upstream and midstream energy assets globally. Harbour Energy is externally managed by EIG. EIG specializes in private investments in energy and energy-related infrastructure on a global basis and had $14.3 billion under management as of September 30, 2015. During its 33-year history, EIG has invested $21.4 billion in the sector through more than 300 projects or companies in 35 countries on six continents. For more information, please visit www.harbourenergy.com.
Dan Gagnier / Brandon Messina
Sard Verbinnen & Co