Alta Mesa Succumbs To Bankruptcy; Names Mark Castiglione CEO

After months of financial struggles, Alta Mesa Resources Inc. entered bankruptcy on Sept. 12 while also naming a new CEO.

The Houston-based independent, which bet big on Oklahoma’s Stack play, joins a growing number of U.S. shale producers that have filed for bankruptcy so far this year amid challenging commodity prices and a tough energy capital market.

On Aug. 14, law firm Haynes & Boone reported bankruptcy filings by U.S. energy producers so far this year have already nearly matched the total for the whole of 2018. According to the firm’s report, a total of 26 E&P companies with debts totaling $10.96 billion have filed for court restructuring through mid-August. By comparison, the firm counted 28 E&P bankruptcy filings in 2018, involving $13.2 billion in debt.

Alta Mesa’s Struggles

Alta Mesa became the largest publicly traded Stack pure-play in February 2018 through a combination of Alta Mesa Holdings LP with Silver Run Acquisition Corp. II—a special purpose acquisition company led by industry veteran Jim Hackett—and Kingfisher Midstream LLC.

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The deal centered on unifying upstream and midstream companies into an oil and gas manufacturer with funding from Silver Run II and private-equity firm Riverstone Holdings LLC. However, Alta Mesa began to face mounting debt hurdles including a potential default as a payment due under a reserve-based lending loan came due this month, according to a filing with the U.S. Securities and Exchange Commission (SEC).

As of May 1, Alta Mesa Resources reported debt of about $1.1 billion and $144 million of total liquidity. Roughly $868 million of the reported debt was allocated toward Alta Mesa’s upstream operations. The company’s midstream platform, Kingfisher Midstream LLC, and its subsidiaries are not debtors and are not part of the Chapter 11 reorganization process, the company release on Sept. 12 said.

In a June report, Stacey Morris, director of research at Alerian, noted, so far this year, Alta Mesa had written down assets by $3.1 billion, laid off nearly a third of its employees, and underwent an investigation by the SEC for potential fraud due to reporting errors.

“[Alta Mesa’s] missed targets and lowered guidance are largely the result of numerous missteps by management and high spending rather than a significant geological issue in Oklahoma,” Morris said in the report. “Fortunately, [Alta Mesa’s] problems do not have much direct read-through for E&Ps and midstream companies in the region.”

Leadership Changes

Within the past year, Alta Mesa’s leadership team also underwent a transition starting with the resignation of CEO Hal Chappelle and COO Michael E. Ellis in late 2018. At the time, Hackett assumed the role of Alta Mesa’s interim CEO. Other leadership appointments included the naming of John C. Regan as CFO in January.

Then, in August, Alta Mesa filed its annual report for 2018, in which it raised concerns over its own ability to continue operating due to the company’s level of debt and the current commodity price environment.

Hackett, who on Sept. 12 resumed his former role as executive chairman, said the company determined that bankruptcy protection was the best option in order for Alta Mesa to continue production operations while negotiating with its lenders.

“We believe that the Chapter 11 process provides the best pathway for Alta Mesa Resources and Alta Mesa Holdings to restructure their respective balance sheets and to regain the financial flexibility necessary to develop their large position in the Stack in a manner that will maximize value for all their stakeholders,” Hackett said in a statement.  

On Sept. 12, Alta Mesa also promoted Mark Castiglione to CEO from his previous position as interim executive vice president strategy and corporate development.

Castiglione joined Alta Mesa in late 2018 from Meridian Energy LLC, where he served as executive vice president. His background includes working for SandRidge Energy Inc., Quantum Resources Management LLC, El Paso Corp., Encana Corp. and Simmons & Co. International. Castiglione had begun his career in 1994 as a reservoir engineer at Burlington Resources.

Commenting on the appointment, Hackett said: “When I assumed the interim CEO role, I said that we would endeavor to find the right individual to lead the organization as it continues to progress forward with the development of our asset base. Mark Castiglione has demonstrated the skills required to lead this organization into the future, and he has the full support of the board.”

On Alta Mesa’s executive team, Castiglione is joined by John Campbell, who was named president and COO on Sept. 12 after holding the position on an interim basis.

Hackett will remain involved with the board and management team in the restructuring process, according to the company release. Randy Limbacher, formerly interim president, also accepted the role of executive vice president of strategy, and will provide strategic counsel to the management team and board.