Gavilan Resources LLC has filed for bankruptcy in federal court in Houston, citing the collapse in oil prices and a dispute with a partner over acreage in the Eagle Ford Shale oil field.
“The precipitous decline in oil prices from the combined effect of the COVID-19 pandemic and the flooding of oil markets by warring international producers forced Gavilan into these chapter 11 proceedings,” wrote CEO David E. Roberts Jr. in a court filing.
The bankruptcy will have little immediate impact on Gavilan’s 24 employees, because the company wants to continue to employ them throughout its Chapter 11 bankruptcy, according to the court filing by CEO David E. Roberts.
However, the case highlights the stresses under which Texas oil drillers are operating as the coronavirus has locked down the economy and collapsed demand for fuel products. With so few commuters on the roads and jets in the air, oil supply surged and prices dropped by 60%.
In addition to the supply glut, the CEO pointed to “an increasingly unworkable relationship” with Sanchez Energy Corp., with whom Gavilan acquired thousands of acres of leasehold in the Eagle Ford Shale in 2017 for a price of about $2.3 billion.
Even in bankruptcy, Gavilan plans to continuing its legal fight with Sanchez over rights to the Eagle Ford oil field, while auctioning off its other assets. It has hired hired investment banker Lazard Freres & Co for the bankruptcy auction.
The disputed acreage, known as the Comanche Assets, were meant to be operated under various agreements between Gavilan and Sanchez. But Sanchez, which is itself bankrupt, defaulted on its obligations even as it continued to operate the field, according to Gavilan.
Roberts wrote that Sanchez “continues wrongfully to operate the Comanche Assets under the joint operating agreements.” A trial on the dispute between the two companies began on March 9, 2020 but was adjourned at the court’s suggestion to allow the companies time to negotiate a settlement. It is set to resume later this week, on May 22 and May 26.
Gavilan is not locally owned but rather is controlled by Blackstone Group, one of the world’s largest private equity firms. Gavilan is headquartered in Houston. The company has about $550 million in secured debt, according to filings in the U.S. Bankruptcy Court for Western Texas.
