Pacific Exploration Finalizes Restructuring Plan and Pledges Disciplined, Margin-Focused Future

Pacific Exploration & Production Corporation has finalized its long-awaited restructuring plan in a deal led by Catalyst Capital Group Inc. that recapitalized the embroiled Canadian energy company with $500 million USD and allowed it to reduce more than $5 billion USD of debt.

With the creditor-approval plan in place, overall debt has gone from $5.4 billion USD to just $250 million USD. The company also said that, in addition to the recapitalization, its operations have been cash-flow positive throughout the restructuring process. Common shares are now being traded on the Toronto Stock Exchange under the symbol “PEN.”

As part of the corporate restructuring, Pacific Exploration will undergo a major governance and executive overhaul. It will soon have a new board of directors, new CEO, and new CFO.

Current CEO Ronald Pantin and current CFO Carlos Perez will retire effective November 30. Pantin will be replaced by Jim Latimer as interim CEO until the company can select a permanent replacement. Camilo McAllister will become the new CFO. The board changes have already taken effect, led by new chairman Gabriel de Alba, managing director and partner at Catalyst Capital.

“Pacific is now emerging from its recapitalization with a renewed strategic focus, positive cash flow, a strong balance sheet, significantly reduced payables, and a board of directors with the unique skills and experience needed to guide management and drive value creation for all stakeholders,” said Gabriel de Alba.

With the plan completed, Pacific Exploration is expected to exit creditor protection. And now the company plans to get to work scaling back its reach and operational focus. The goal is now to reign in the excess that contributed to fiscal problems and improve the bottom line.

“Going forward, Pacific will implement a strategy to narrow its geographic focus and reduce organizational scale, complexity and cost while maximizing operating and cost efficiencies to ensure the company has sustainable production and growth,” said the chairman. “This company will be disciplined and margin-focused, not simply production-driven. As part of the strategy we will be reviewing the broad set of upstream and midstream assets within the company’s portfolio with an emphasis on value-maximizing initiatives.”

He continued. “In addition, while annualized SG&A — excluding severance and restructuring payments — has been reduced year over year by 28% during the course of the restructuring process, we are taking further steps to achieve a $110 million USD annualized expense in 2017, excluding one-time costs, compared to $221.5 million USD in 2015. It is our goal to rebuild Pacific in a way that allows it to be a truly competitive low-cost producer and a market leader over the long term.”

Pacific Exploration’s new board of directors includes the following members: Gabriel de Alba, Luis F. Alarcon, W. Ellis Armstrong, Raymond Bromark, Russell Ford, Barry Larson, and Camilo Marulanda.

Thow who have resigned from the board include: Serafino Iacono, Miguel de la Campa, Ronald Pantin, Augusto Lopez, Hernan Martinez, Dennis Mills, Francisco Solé, and Monica de Greiff.

In a statement, Pacific Exploration also released the following information concerning the plan and its future. It is included here in full.

The Plan substantially improved the capital structure of the Company by reducing the amount of outstanding debt by approximately U.S.$5.1 billion, from U.S.$5.4 billion as of December 31, 2015, to U.S.$250 million outstanding as of June 30, 2016 (after giving effect to the Creditor/Catalyst Restructuring Transaction on a pro forma basis), which represents the total aggregate amount outstanding under the Exit Notes. Cash upon emergence will be approximately U.S.$556 million and accounts payable have been reduced significantly from the U.S.$1.217 billion balance at December 31, 2015. The Company’s operations have been cash flow positive during the restructuring, with a focus on substantially reducing payables and investing in capex. Cash was also used to pay for one-time restructuring costs, interest on the DIP notes and DIP LC Facility, and the establishment of restricted cash accounts in order to ensure the payment of Colombian creditors.

The Plan additionally provided U.S.$480 million of additional liquidity through the DIP Financing and a committed letter of credit facility of approximately U.S.$116 million. With an improved capital structure, the Company will benefit from a reduction in its annual interest cost of approximately U.S.$232 million and no material debt maturing until 2021.

The following table sets out the Company’s consolidated capital structure, without reflecting undrawn letters of credit: (a) as at December 31, 2015 and (b) as at December 31, 2015 pro forma to reflect the implementation of the Plan including the relevant adjustments:

Further information concerning the Plan is available on SEDAR (www.sedar.com) and the Company’s website (www.pacific.energy).

BVC Listing

As a result of the share consolidation of 1 for 100,000 (and the rounding down, for no consideration, of any fractional shares), there are expected to be approximately 3,000 pre-Plan shares remaining, of which approximately 38 common shares are expected to be held by no more than twenty shareholders in Colombia. The listing of the shares of the Company on the Bolsa de Valores de Colombia (the “BVC”) is currently suspended and the Company expects its permanent delisting from the BVC. The Company expects to facilitate the sale of the shares held in Colombia and has published a guide for Colombian shareholders regarding the consolidation and delisting on SIMEV.

In conjunction with the delisting from the BVC, the Company has received notice from the Colombian Superintendence of Finance that the Company and its shares have been de-registered on the RVNE, the Colombian National Securities Registry. The Company does not intend to appeal this de-registration.