Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. MAGNUM HUNTER RESOURCES CORP (1335190) 10-K published on May 06, 2016 at 3:01 pm
Reporting Period: Dec 30, 2015
Our oil and natural gas operations are subject to stringent federal, state, local and foreign laws and regulations governing human health and safety aspects of our operations, the release, discharge and disposal of materials into the environment or otherwise relating to environmental protection. These laws and regulations may, among other things: (i) require the acquisition of permits to conduct drilling and other regulated activities; (ii) restrict the types, quantities and concentration of various substances that can be released into the environment or injected into formations in connection with oil and natural gas drilling and production activities; (iii) limit or prohibit drilling or pipeline construction activities on certain lands lying within wilderness, wetlands and other protected areas; (iv) require remedial measures to clean up or mitigate pollution from former and ongoing operations, such as requirements to close waste pits and plug abandoned wells, or at off-site waste disposal locations; (v) impose specific safety and health criteria addressing worker protection; and (vi) impose substantial liabilities for pollution resulting from drilling and production operations. Numerous governmental agencies, such as the EPA, and analogous state agencies (and, in some cases, private individuals) enforce these laws and regulations, which are often difficult and costly to comply with and which carry substantial administrative, civil and even criminal penalties, the imposition of investigatory or remedial obligations for failure to comply or the issuance of injunctions limiting or prohibiting our activities. Some environmental laws, rules and regulations relating to protection of the environment may, in certain circumstances, impose “strict liability” for environmental contamination, rendering a person liable for environmental and natural resource damages and cleanup costs regardless of negligence or fault on the part of such person. Other laws, rules and regulations may restrict the rate of oil and gas production below the rate that would otherwise exist or even prohibit exploration or production activities in sensitive areas. In addition, state laws often require some form of remedial action to prevent pollution from former operations, such as plugging of abandoned wells. Changes in environmental laws, rules and regulations occur frequently, and any changes that result in more stringent or costly well drilling, construction, completion, water management activities, waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance, and may otherwise have a material adverse effect on our competitive position, financial condition and results of operations.
In November 2015, Eclipse Resources I, LP (“Eclipse”) filed a complaint against Triad Hunter in a case styled Eclipse Resources I, LP v. Triad Hunter, LLC, Civil Action G.D. No. 2015-4589, in the Court of Common Pleas of Centre County, Pennsylvania. In its complaint, Eclipse alleged that Triad Hunter failed to honor its obligations under an Operating Agreement in constructing and operating a well located in Monroe County, Ohio, which experienced a blowout event in December 2014. Asserting purported claims for declaratory, common law and equitable relief, Eclipse is seeking recovery of its proportionate share of costs to remediate the well blowout event, legal fees in the action, removal of Triad Hunter as operator, and appointment of a receiver over the business and assets of Triad Hunter. Although the matter was initially stayed upon the filing of the Chapter 11 Cases, on January 21, 2016 the Bankruptcy Court approved a stipulation agreed to by the parties pursuant to which, among other things, the automatic stay was modified to allow the parties to proceed with the state court litigation. Pursuant to the stipulation, (i) Eclipse agreed to dismiss the pending action in the Court of Common Pleas of Centre County, Pennsylvania and refile the action in state court in Ohio; (ii) Eclipse is permitted to take or receive hydrocarbons from the affected wells in kind; (iii) Eclipse is required to fund up to $2.2 million in an escrow account pending the final and non-appealable resolution of the state court litigation; and (iv) Triad Hunter agreed to discontinue netting revenue otherwise owed to Eclipse from the sale of Eclipse hydrocarbons marketed by Triad Hunter. The prevailing party in the state court litigation will be entitled to recovery of the escrowed funds. We intend to mount a vigorous defense in the state court litigation. While the outcome of this matter cannot be predicted with certainty, we do not expect this matter to have a material adverse effect on our consolidated financial condition or results of operations.
On December 15, 2015 (the “Petition Date”), Magnum Hunter Resources Corporation and certain of its wholly owned subsidiaries, namely, Alpha Hunter Drilling, LLC (“Alpha Hunter Drilling”), Bakken Hunter Canada, Inc. (“Bakken Hunter Canada”), Bakken Hunter, LLC (“Bakken Hunter”), Energy Hunter Securities, Inc., Hunter Aviation, LLC, Hunter Real Estate, LLC, Magnum Hunter Marketing, LLC (“Magnum Hunter Marketing”), Magnum Hunter Production, Inc. (“MHP”), Magnum Hunter Resources GP, LLC, Magnum Hunter Resources, LP, Magnum Hunter Services, LLC, NGAS Gathering, LLC, NGAS Hunter, LLC (“NGAS Hunter”), PRC Williston LLC (“PRC Williston”), Shale Hunter, LLC (“Shale Hunter”), Triad Holdings, LLC, Triad Hunter, LLC (“Triad Hunter”), Viking International Resources Co., Inc. (“VIRCO”), and Williston Hunter ND, LLC (collectively, the “Filing Subsidiaries” and, together with the Company, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 cases (the “Chapter 11 Cases”) are being jointly administered by the Bankruptcy Court under the caption In re Magnum Hunter Resources Corporation, et al., Case No. 15-12533. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
In June 2015, Samson Resources Company (“Samson”) executed and filed ten oil and gas well liens in Divide County, North Dakota (the “Samson Liens”) to secure payments it contends were owed by Bakken Hunter. In July 2015, Bakken Hunter filed a complaint against Samson in a case styled Bakken Hunter, LLC v. Samson Resources Company, Case No. 4:15-cv-0008, in the United States District Court for the District of North Dakota, Northwestern Division. In its complaint, Bakken Hunter alleges that Samson breached certain agreements by, among other things, failing to promptly pay and discharge certain expenses resulting in third party liens, failing to keep accurate records, failing to make its accounts available to Bakken Hunter for audit and failing to respond to Bakken Hunter’s concerns about Samson’s billing and accounting practices. Bakken Hunter is seeking equitable relief and damages in an unliquidated amount and seeking a declaration that the Samson Liens are void. In August 2015, Samson filed and served its answer and counterclaims against Bakken Hunter, generally denying Bakken Hunter’s allegations and asserting its own claims for breach of contract, contending that Bakken Hunter failed to pay its proportionate share of certain expenses as a non-operator of certain oil and gas properties. In its counterclaims, among other relief, Samson sought a declaration that the Samson Liens were valid and sought in its counterclaims to foreclose on the Samson Liens. This matter has been stayed as a result of Samson’s bankruptcy filing in the United States Bankruptcy Court for the District of Delaware, Case No. 15-11942 (CSS). In November 2015, Bakken Hunter filed a Proof of Claim against Samson in the Samson bankruptcy; the Proof of Claim is based on the same facts alleged in Bakken Hunter’s complaint against Samson. During the pendency of these matters, Samson has continued to withhold all revenues owed to Bakken Hunter with respect to Bakken Hunter’s non-operated working interests in the oil and gas properties in Divide County, North Dakota as to which Samson is an operator under a theory of recoupment applicable to the expenses Samson claims Bakken Hunter, as a non-operated working interest owner, has failed to pay. Our Plan includes an agreed stipulation (the “Samson Stipulation”) between Bakken Hunter and Samson. Pursuant to the Samson Stipulation, among other things, (i) the joint operating agreement (the “Samson JOA”) between the parties will be assumed by Bakken Hunter in its bankruptcy proceeding, consistent with the terms of the Samson Stipulation; (ii) both parties reserved all rights of their respective claims against each other; (iii) the parties agreed to cooperate to complete Bakken Hunter’s ongoing audits under the Samson JOA for years 2013, 2014 and 2015; and (iv) so long as Bakken Hunter is not in default under the Samson JOA (including the current payment of joint interest billings), Samson shall cease offsetting Bakken Hunter’s revenue and timely remit such revenue to Bakken Hunter in the following manner: (a) each month, Samson shall remit all revenue due to Bakken under the Samson JOA up to the amount paid by Bakken Hunter to Samson in respect of the prior month’s joint interest billings plus any amounts for which Bakken Hunter properly reduced payment in accordance with the Samson JOA (such total, the “Prior Month’s Reimbursement”) and (b) any revenue in excess of the Prior Month’s Reimbursement will be placed into an escrow account pending resolution of the parties’ various claims. The Bankruptcy Court has not yet adjudicated the various claims asserted by Samson and Bakken Hunter against one another. While the outcome of these lawsuits cannot be predicted with certainty, management does not expect any of these lawsuits to have a material adverse effect on the Company’s consolidated financial condition or results of operations.
In November 2015, Eclipse Resources I, LP (“Eclipse”) filed a complaint against Triad Hunter in a case styled Eclipse Resources I, LP v. Triad Hunter, LLC, Civil Action G.D. No. 2015-4589, in the Court of Common Pleas of Centre County, Pennsylvania. In its complaint, Eclipse alleged that Triad Hunter failed to honor its obligations under an Operating Agreement in constructing and operating a well located in Monroe County, Ohio, which experienced a blowout event in December 2014. Asserting purported claims for declaratory, common law and equitable relief, Eclipse is seeking recovery of its proportionate share of costs to remediate the well blowout event, legal fees in the action, removal of Triad Hunter as operator, and appointment of a receiver over the business and assets of Triad Hunter. Although the matter was initially stayed upon the filing of the Chapter 11 Cases, on January 21, 2016 the Bankruptcy Court approved a stipulation agreed to by the parties pursuant to which, among other things, the automatic stay was modified to allow the parties to proceed with the state court litigation. Pursuant to the stipulation, (i) Eclipse agreed to dismiss the pending action in the Court of Common Pleas of Centre County, Pennsylvania and refile the action in state court in Ohio; (ii) Eclipse is permitted to take or receive hydrocarbons from the affected wells in kind; (iii) Eclipse is required to fund up to $2.2 million in an escrow account pending the final and non-appealable resolution of the state court litigation; and (iv) Triad Hunter agreed to discontinue