Lilis Energy Inc. filed for Chapter 11 bankruptcy on June 29, succumbing to bankruptcy following months of struggling with its debt payments.

The filing follows a string of U.S. oil and gas companies that have gone bankrupt since the market collapse related to COVID-19. However, Lilis’ troubles precede the current downturn.

Lilis Energy is a Fort Worth-based independent E&P with a roughly 20,000-acre position in the Permian’s Delaware Basin. 

Throughout 2019, Lilis struggled to generate returns and even temporarily suspended drilling and completion operations toward the end of the second quarter. Despite reporting improved operational efficiencies and G&A cost savings in its third-quarter 2019 results, by late last year, the company said it had hired Barclays Capital Inc. as financial adviser to explore strategic alternatives. 

Then, in January, Lilis began missing payments on its revolving credit agreement resulting in a borrowing base deficiency. The company ended up selling a chunk of its Permian acreage in New Mexico’s Lea County, which it said would fund repayment of a “substantial portion” of its borrowing base deficiency. Still, the company was unable to make the final payment of $7.75 million due June 5 and entered into forbearance earlier this month.

On June 29, Lilis said in a statement it had entered a restructuring support agreement certain investment funds and entities affiliated with Värde Partners Inc., which collectively own all of the company’s outstanding preferred stock. The Minneapolis-based alternative investment firm had also approached Lilis in January with a non-binding cash take-private offer.

The restructuring is expected to reduce Lilis’ debt obligations by more than $34.9 million, rightsizing its bank indebtedness for future operations, according to a company release.

“While facing this challenging environment, we have worked diligently to explore a variety of alternatives to cut costs, improve our liquidity and address debt maturities,” Joseph C. Daches, Lilis’ CEO, president and CFO, said in a statement on June 29. “We are pleased to receive the continued support of our lenders and preferred shareholders and are confident that Lilis Energy can emerge from Chapter 11 better positioned to meet the challenges that have faced us.”

Lilis received a commitment from its bank lenders under its credit agreement to provide up to $15 million in debtor-in-possession (DIP) financing, which it expects to provide liquidity to continue to operate during the restructuring process.

The restructuring plan is contingent upon the Värde Funds’ election to provide, on or before Aug. 17, an agreed equity commitment and provision of additional DIP financing. The agreement is also subject to termination by the reserve-based loan lenders and the Värde Funds in the event certain milestones in the reorganization process are not met, the company release said.

Vinson & Elkins LLP is legal adviser, Barclays Capital is investment banker and Opportune LLP is restructuring adviser to Lilis.

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