Sands Anderson Report on First Day Hearing in Bankruptcy Filings of Penn Virginia

Lawyers from the bankruptcy team of Sands Anderson attended yesterday's "First Day" hearings in the chapter 11 bankruptcy case of Penn Virginia Corporation and its affiliates. Penn Virginia is an oil and natural gas exploration company that is headquartered in Radnor, Pennsylvania and primarily operates in Texas and Oklahoma. The hearings were held before the Honorable Keith L. Phillips in the Richmond Division of the United States Bankruptcy Court for the Eastern District of Virginia. This bankruptcy case represents the latest significant filing in Richmond by an energy company, following Alpha Natural Resources, Patriot Coal, and James River Coal.

At the hearings, Penn Virginia previewed a comprehensive restructuring plan that is outlined in the Restructuring Support Agreement on file with the Court. Penn Virginia insisted that the agreement was heavily negotiated with stakeholders in the months leading up the bankruptcy filing and is supported by a majority of Penn Virginia's primary lenders. Although Penn Virginia did not yet seek approval to assume the agreement, 25 other motions were heard during the "First Day" hearings. All of the motions were approved by the Court, allowing Penn Virginia to continue operating. Certain motions were allowed on an interim basis, with final hearings to be heard on June 6, 2016.

The only truly contested motions involved new swap agreements and post-petition or "debtor in possession" financing. The office of the U.S. Trustee objected to entry of the swap order because final relief was sought within days of the bankruptcy filing and without input from a committee of unsecured creditors. The debtors contended that absent entry of the order, they would suffer immediate and irreparable harm. The debtors cited the rise and fall of the commodities market and their currently unhedged position. The Court ultimately granted the debtors' motion on a final basis. The U.S. Trustee also reserved all rights with respect to post-petition financing, which the Court approved on an interim basis.

Other motions heard and approved by the Court included the following:

• "Wages and Employee Benefits Motion" assuring payment of prepetition wages in an aggregate amount up to $589,452 on an interim basis and $2,796,452 on a final basis, and continuing certain employee benefit programs.
•  "Royalty Payments Motion" seeking to allow the debtors to pay amounts owed to the owners of oil and gas royalties, whether incurred prepetition or post-petition, in an aggregate amount up to $11.2 million on an interim basis and $28.4 million on a final basis.
• "Lienholders Motion" requesting authorization to pay ordinary course amounts owing for operating expenses, joint interest billings, marketing expenses, shipping and warehouse claims, and 503(b)(9) claims—where goods were sold to Penn Virginia in the ordinary course of business within 20 days prior to the bankruptcy filing—in an aggregate amount up to $8.4 million on an interim basis and $15.1 million on a final basis.
•  "Utilities Motion" seeking to preserve uninterrupted utility services through adequate assurance payments and procedures to deal with additional adequate assurance requests.
• "Taxes Motion" for payment of certain taxes and fees during the pendency of the bankruptcy case in an aggregate amount up to $1,361,237 on an interim basis and $4,831,276 on a final basis.

The next hearings in the case are scheduled for June 6, 2016. Prior to that date, the U.S. Trustee will likely appoint the committee of unsecured creditors from among those creditors listed as Penn Virginia's top 50 creditors. Of course, other creditors can also seek committee appointment.