Pacific Energy Resources Ltd (“Debtors”), a group of oil and gas producers that develop resources in the Western United States, filed chapter 11 petitions for bankruptcy on March 8, 2009.  Debtors filed their bankruptcy petitions in the United States Bankruptcy Court for the District of Delaware. As stated in the Affidavit in Support of First Day Motions, Debtors own oil and gas reserves located offshore of California and Alaska.  In 2008, Debtors’ revenue exceeded $226 million.  Despite strong revenue, the drop in oil prices towards the end of 2008 required Debtors to enter into forbearance agreements with its lenders.  By mid-February, the lenders declared Debtors in default and three weeks later, Debtors filed for bankruptcy.

Debtors’ Postpetition Financing

Under Debtors’ Motion to Approve DIP Financing,  Debtors seek up to $40 million in debtor-in-possession financing (the “DIP Facility”).  The DIP Facility refunds prepetition loans totaling $142 million and grants superpriority liens to J. Aron & Company and Silver Point Finance, Debtors’ collateral agents.  According to their Motion,  Debtors are unable to rely solely on cash collateral to fund the bankruptcy.  Without the DIP Facility, Debtors contend they would lack the liquidity necessary to reorganize.

Debtors’ Liabilities

The Debtors consist of several entities, however, the two primary entities in this bankruptcy proceeding are Pacific Energy Resources Ltd (“PERL”) and Pacific Energy Alaska Operating LLC (“PEAO”).  As of the date Debtors filed for bankruptcy,  PERL estimated its liabilities as follows:

  • Prepetition Lenders … $361 million
  • Subordinated Noteholders … $32 million
  • Unsecured Lender … $1 million
  • Unsecured Obligations … $4 million.

PEAO estimated its liabilities as:

  • Prepetition Lenders … $413 million
  • Chevron … $25 million
  • Subordinated Noteholders … $32 million
  • Unsecured Obligations … $9 million

Security for the DIP Facility

The DIP Facility seeks superpriority status pursuant to section 364(c)(1) of the Bankruptcy Code.  Further,  the Facility is secured by a first priority perfected security interest pursuant to sections 364(c)(2) and 364(d) of the Bankruptcy Code.  Section 364(c)(1) and (2) of the Bankruptcy Code authorizes Debtors to obtain credit with “priority over all administrative expenses” and “secured by a lien on property of the estates that is not otherwise subject to a lien.”  Before a debtor can obtain postpetition credit, section 364 requires that the debtor demonstrate it was “unable to obtain unsecured credit”  that would be allowed as an administrative expense. In support of their Motion, Debtors cite a decision in the Ames bankruptcy finding that the debtor demonstrated the unavailability of unsecured financing, as required under section 364, where the debtor had sought unsecured financing from several institutional lenders. In re Ames Dept. Stores, 115 B.R. 34, 40(Bankr. S.D.N.Y. 1990).  For a further discussion regarding the adequacy of a debtor’s attempt to obtain DIP financing, read my post regarding the Pliant bankruptcy from February 13, 2009.


This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.  Judge Carey entered the Debtors Interim DIP Financing Order on March 10, 2009, two days after Debtors filed for bankruptcy.  At the time of this writing, no parties in interest have filed formal objections to the Debtors’ Motion to Approve DIP Financing.