The Bottom Line:
The Securities & Exchange Commission (SEC) filed a complaint against an entity that allegedly had fraudulently offered securities in an entity owning an oil and gas drilling and production company, and subsequently issued deeds of trust in the oil interests to dissolve the operation. Stapleton Group, as receiver, completed a successful turnaround, transforming the insolvent business to cash flow positive through capital improvements, operational improvements and creditor negotiations. Stapleton then prepared the business for sale as a going concern, salvaging a return of capital to the defrauded investors.
The Business Issues:
The oil and gas company had been severely mismanaged and neglected, owed money to numerous vendors who were threatening to lien revenues, and suffered from substantial deferred maintenance and substandard capital improvements. It carried numerous liabilities and threats by unpaid vendors to lien the company’s oil production revenues, eliminating its equity value.
Genesis of Stapleton’s Engagement:
The SEC nominated and the U.S. District Court appointed Stapleton as Federal Regulatory Receiver to take possession of the business, discover the sources of its operational issues, devise a strategy to monetize the receivership estate’s assets and achieve the best possible recovery for the creditors.
Obstacles and Stapleton’s Solutions:
- The company had no cash on hand.
- Stapleton quickly identified and implemented methods to increase production and reduce expenses, resulting in positive net income and stabilizing cash flow.
- Stapleton reduced staffing, saving approximately $13,000 per month.
- Stapleton obtained court approval to sell an old, unused oil rig, generating a recovery for the estate and much-needed capital for operations and capital improvements.
- The company had significant outstanding payables and vendors were threatening to file liens against the company’s proceeds.
- Stapleton proactively educated the vendors on the risks of liens, which would ultimately bankrupt the operations.
- Stapleton negotiated payment plans with the vendors, mitigating the risk of liens and increasing working capital to improve operations.
- The company had substantial deferred maintenance and lapsing compliance.
- Stapleton retained a local expert to prioritize capital improvement projects, maximizing monthly production and bringing additional wells online
- Stapleton approached deferred maintenance tactically, using available cash to repair the highest producing wells.
- Stapleton immediately took action to bring well permitting, licensing and reporting into compliance.
- Stapleton brought current royalty payments for land and mineral leaseholds, thereby preserving the leases for a prospective buyer.
- An investor initiated litigation seeking recovery of his equity interest from the company’s sale proceeds ahead of other investors.
- Stapleton used cost-effective strategies to investigate the origination of the investor’s contribution, determining he may not have been a true equity-holder and, therefore, did not have a preference.
- Selling the company’s real property, equipment and personal property was complicated by fractionalized investor deeds in the oil land and mineral rights.
- Stapleton engaged a land title expert to evaluate the ownership and lease rights of the oil land.
- Stapleton obtained court-approval to pursue a recovery plan to restore title to the receivership entities and sell the company.
- Stapleton analyzed historical well and geological data to understand future perforation and drilling opportunities for an acquirer.
- Stapleton worked with a local oil expert and a large oil & gas brokerage to develop a marketing and offering package for the sale of the company.