Monday, April 1, 2013

Man Down! GMX Resources Files for Chapter 11

GMX Resources and two affiliated entities filed for Chapter 11 bankruptcy this morning.  The company ran out of external financing options and is looking to sell its assets to the holders of its 2017 Senior Secured Notes.  By filing for Chapter 11, GMX can tap into readily accessible debtor-in-possession (DIP) financing to support its operations (such as making payroll and paying royalties).

GMX was a victim of prolonged low natural gas prices that crushed the company's operating cash flow, so the company couldn't fund its capital investments in new drilling.  It is the same song all of the other natural gas producers are singing.  GMX made a concerted effort a couple of years ago to enter the liquids-rich areas in the Bakken Shale and the Rocky Mountains, but it was a little late.  The company entered those plays on the back end of the ramp-up and didn't have the capital resources to drill the leases it acquired.

It is plenty ironic that GMX filed for bankruptcy the same day Aubrey McClendon left his CEO job at Chesapeake Energy.  Both victims of the same boom fall on the same day.  Who will be next?

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