Earlier this month, Tri-Valley Corporation and various affiliates (collectively "Tri-Valley" or "Debtors") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. This post will look briefly at Tri-Valley’s business, why the company filed for bankruptcy as well as Tri-Valley’s objectives while in bankruptcy.
On the same day that Tri-Valley filed petitions for bankruptcy, the company filed with the Bankruptcy Court what are commonly referred to as "first day motions." Tri-Valley also filed a declaration of its President and CEO in support of its first day motions and applications (the "Declaration" or "Decl."). As stated in its Declaration, Tri-Valley describes itself as a crude oil and natural gas exploration, development and production company. Decl. at *2. The company also explores parts of Alaska for precious metals. Id.
Most of Tri-Valley’s oil and natural gas production properties are located in either the Oxnard Oil Field near Oxnard, California or the Edison Oil Field near Bakersfield, California. The company also has natural gas fields in parts of Northern and Central California. Tri-Valley produces a heavy oil out of the Oxnard wells with average production ranging from 300 to 500 barrels per day. The company’s operations in Oxnard generated a profit of $1.6 million in 2011 due in part to higher oil prices and production as well as lower production costs. See Decl. at *5-6.
According to Tri-Valley, several factors caused the company to file for bankruptcy protection, however, the three most significant causes included (i) low cash flow stemming from operations; (ii) disputes concerning one of the company’s partnerships; and, (iii) an investigation of the company by the Securities and Exchange Commission. Decl. at *18. Beginning in 2011, Tri-Valley’s operations became dependent on obtaining additional cash. Without additional cash, the company could not fund the testing, drilling and development necessary to run an oil production company. High volatility in future oil prices also hampered the company’s revenues. Id. Entities which had previously provided Tri-Valley with funding refused to do so without the company first filing for bankruptcy.
On February 2, 2012, Tri-Valley received a subpoena from the SEC seeking documents and other data spanning from 2002 to the present. The SEC seeks documents relating to the company’s financial conditions, operations, transactions, business as well as the offer and sale of securities. According to Tri-Valley, the SEC is conducting a fact finding investigation concerning possible violation of federal securities laws. Decl. at *20. News of the SEC investigation further hampered the company’s operations and ability to obtain third party financing. Id.
In June, Tri-Valley retained a financial consultant to review the company’s finances and advise Tri-Valley on its alternatives. After discussions with the company’s core constituencies, the decision was made to place the company in bankruptcy and seek a sale of Tri-Valley’s assets under section 363 of the Bankruptcy Code. Decl. at *21. Tri-Valley intends to begin the bankruptcy sale process immediately. The company also intends to file a chapter 11 plan of reorganization within 30 days of its bankruptcy filing through which Tri-Valley can distribute the proceeds from its 363 sale. Decl. at *22.
The Tri-Valley bankruptcy is before the Honorable Mary F. Walrath of the Delaware Bankruptcy Court under case no. 12-12291(MFW). Tri-Valley is represented by the law firm Landis Rath and Cobb LLP. A copy of Tri-Valley’s Petition for Bankruptcy is available here for review. Tri-Valley’s Declaration in Support of First Day Pleadings is available here. Finally, a copy of the Request to Schedule a Meeting of Creditors is available here.
Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the District of Delaware. You can contact Jason at email@example.com or at 302 252 5833. For readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts that address various bankruptcy-related issues: