Warren Resources announced its full year 2016 forecast and the initiation of efforts to restructure its outstanding debt.
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As a result of decreased production and ongoing negotiations with vendors and pipeline operators, Warren anticipates that Lease Operating Expenses (LOE), field gathering and transportation fees and taxes will decline by $10.6 million, or 21%, in 2016 to $39.0 million.
Warren also forecasts General and Administrative Expenses (G&A) will be $12.7 million in 2016, versus $17.6 million in 2015, reflecting a 28% decrease. For 2015 this includes $2.6 million of stock based compensation and for 2016 stock based compensation is projected to be $1.8 million.
Expected cash interest increases in 2016 to $37.3 million, reflecting a full year of cash interest on the first lien credit facility put in place in May of 2015.
In arriving at these estimates, Warren has assumed average prices of $29.24 per barrel of oil and $1.47 per Mcf of gas, whereas in 2015 Warren realized average pricing of $41.38 per barrel of oil and $1.61 per Mcf of gas.
The only capital expenditures currently included in Warren’s 2016 plan are for facility and pipeline work in California. Even with these planned reductions in G&A and total LOE, projected cash expenses exceed projected revenues in 2016.
Based on those projections, Warren has initiated discussions with its creditors regarding a restructuring of its debt obligations.
As of December 31, 2015, Warren’s first lien creditors held debt of $235 million in principal amount, second lien creditors held debt of $51 million in principal amount, and investors held $167 million principal amount of Warren’s unsecured senior notes. Warren had $26.8 million in cash at year end 2015.
Additionally, Warren recently announced that it would not make the approximately $7.5 million interest payment due February 1, 2016 on its unsecured notes, and instead anticipates utilizing the applicable 30-day grace period to initiate negotiations with note holders.
If Warren cannot come to a workable agreement regarding an out-of-court restructuring, it will have to seek protection from its creditors through a bankruptcy proceeding in order to preserve and maximize value for its stakeholders.
James A. Watt, Warren’s President and CEO, commented, “These are very difficult times for Warren and its industry peers. We are making significant cuts in both G&A and overall operating costs, but we must seek further concessions from our various debt holders and vendors to survive what is anticipated to be a lengthy downturn in commodity prices.†■