(Reuters) - Halcón Resources Corp, which produces oil in Texas and North Dakota, said on Wednesday it plans to file for a prepackaged bankruptcy that would wipe out $1.8 billion in debt and help it survive the drop in crude prices.
Shares of the Houston-based company fell 55 percent to 44 cents in after-hours trading.
The bankruptcy marks a setback to Halcón Chief Executive Floyd Wilson’s long-running goal to build and then sell the company to the highest bidder, a plan that mimicked Wilson’s 2011 sale of Petrohawk to BHP Billiton for more than $12 billion at a 65 percent premium to its shares.
Yet almost from the beginning, Halcón was saddled by high costs and high debt, despite having some quality acreage. Indeed, the value of Halcón’s holdings in North Dakota’s Bakken shale formation have long eclipsed the market value of the company.
Halcón’s restructuring plan will eliminate about $222 million of preferred equity, and reduce the company’s annual interest payments by more than $200 million.
Debtholders will hold most of Halcón’s shares after it emerges from bankruptcy protection, the company said in a statement, with existing common shareholders getting 4 percent of the new equity and existing preferred shareholders receiving $11.1 million.
In a prepackaged bankruptcy, companies and their creditors agree on a reorganization plan prior to the bankruptcy filing.
Wilson did not immediately respond to a request for comment.
Together with several former colleagues from Petrohawk, Wilson pooled $55 million to form Halcón in 2011. EnCap Investments LP, a private equity firm, together with a subsidiary of Liberty Mutual Holding Co [LBRTE.UL], invested $550 million.
In a 2013 interview with Reuters he boasted: “We will be successful. I’ve been doing this a long time. Nothing keeps me up at night.”
A near-60 percent fall in crude prices has eroded cash flows at oil producers, forcing them to restructure to cut debt and reduce interest payments. More than 60 U.S. oil producers have so far sought bankruptcy protection, though most are not prepackaged.
PJT Partners is the company’s financial adviser and Weil, Gotshal & Manges LLP is the legal counsel, while Alvarez & Marsal is the restructuring adviser.
Reporting by Vishaka George in Bengaluru; Editing by Terry Wade and Diane Craft