PAR PETROLEUM CORP/CO | 2013 | FY | 3

Note 19 - Reorganization Under Chapter 11, Fresh-Start Reporting and the Effects of the Plan 
 
In December 2011 and January 2012, Delta and its subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). Delta and its subsidiaries included in the bankruptcy petitions are collectively referred to as the “Debtors.”
 
In March 2012, the Bankruptcy Court approved the procedures relating to plans of reorganization as well as asset sales. Following completion of the asset sales, the Debtors obtained approval from the Bankruptcy Court to proceed with Laramie Energy II, LLC (“Laramie”) as the sponsor of a plan of reorganization (the “Plan”). In June 2012, Delta entered into a Contribution Agreement (the “Contribution Agreement”) with a new joint venture formed by Delta and Laramie, Piceance Energy LLC (“Piceance Energy”), and Laramie to effect the transactions contemplated by Plan.
 
The Plan was declared effective on August 31, 2012 (the “Emergence Date”). On the Emergence Date, Delta consummated the transaction contemplated by the Contribution Agreement and each of Delta and Laramie contributed to Piceance Energy their respective assets in the Piceance Basin. Piceance Energy is owned 66.66% by Laramie and 33.34% by Delta. At the closing, Piceance Energy entered into a new credit agreement, borrowed $100 million under that agreement, and distributed approximately $72.6 million net of settlements to the company and approximately $24.9 million to Laramie. The company used its distribution to pay bankruptcy expenses and to repay its secured debt. The company also entered into a new credit facility and borrowed $13 million under that facility at closing, and used those funds primarily to pay bankruptcy claims and expenses.
 
Following the reorganization, Par retained its interest in the Point Arguello Unit offshore California and other miscellaneous assets and certain tax attributes, including significant net operating loss carryforwards. Based upon the Plan as confirmed by the Bankruptcy Court, Delta’s creditors were issued approximately 14.8 million shares of common stock, and Delta’s former stockholders received no consideration under the Plan.
 
Contemporaneously with the consummation of the Contribution Agreement, the company, through a wholly-owned subsidiary, entered into a Limited Liability company Agreement with Laramie that will govern the operations of Piceance Energy.
 
On the Emergence Date, Par adopted fresh-start reporting resulting in us becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements for periods prior to August 31, 2012 reflect the operations of Delta prior to reorganization (hereinafter also referred to as the “Predecessor”) and are not comparable to the consolidated financial statements presented on or after August 31, 2012. Fresh-start reporting was required upon emergence from Chapter 11 because (i) holders of voting shares immediately before confirmation of the Plan received less than 50% of the emerging entity and (ii) the reorganization value of our assets immediately before confirmation of the Plan was less than our post-petition liabilities and allowed claims. Fresh-start reporting results in a new basis of accounting and reflects the allocation of our estimated fair value to underlying assets and liabilities. The effects of the implementation of the Plan and fresh-start adjustments are reflected in the results of operations of the Predecessor in the eight month period ended August 31, 2012. Our estimates of fair value are inherently subject to significant uncertainties and contingencies beyond our reasonable control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially. Moreover, the market value of our common stock may differ materially from the equity valuation for accounting purposes.
 
In the application of fresh-start reporting, a successor entity must determine a value to be assigned to the equity of the emerging company as of the date of adoption of fresh-start reporting, which for us is August 31, 2012, the date the Debtors emerged from Chapter 11. To facilitate this calculation, we first determined the enterprise value of the Successor and the individual components of the opening balance sheet. The most significant item is our  33.34% interest in Piceance Energy, the value of which was estimated to be approximately $105.3 million as of the Emergence Date. We also considered the fair value of the other remaining assets. See Note 11 - Fair Value Measurements  for a detailed discussion of fair value and the valuation techniques.
 
The estimated enterprise value and the equity value are highly dependent on the achievement of the future financial results contemplated in the projections that were set forth in the Plan. The estimates and assumptions made in the valuation are inherently subject to significant uncertainties. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would have significantly affected the reorganization value include the assumptions regarding our direct ownership of estimated proved reserves, our indirect ownership of estimated proved reserves through our equity ownership in Piceance Energy, operating expenses, the amount and timing of capital expenditures and the discount rate utilized.
 
Fresh-start reporting reflects the value of the Successor as determined in the confirmed Plan. Under fresh-start reporting, our asset values are remeasured and allocated based on their respective fair values in conformity with the acquisition method of accounting for business combinations. The reorganization values approximated the fair values of the identifiable net assets. Liabilities existing as of the Effective Date, other than deferred taxes and derivatives, were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates. Deferred taxes and derivatives were determined in conformity with applicable accounting standards. Predecessor accumulated depreciation, accumulated amortization and retained deficit were eliminated. Under the Plan, our priority non-tax claims and secured claims are unimpaired in accordance with the Bankruptcy Code. Each general unsecured claim and noteholder claims received its pro rata share of new common stock of Par in full satisfaction of its claims.
 
The following condensed consolidated balance sheet presents the implementation of the Plan and the adoption of fresh-start reporting as of the Effective Date. Reorganization adjustments have been recorded within the condensed consolidated balance sheet to reflect the effects of the Plan, including discharge of liabilities subject to compromise and the adoption of fresh-start reporting.
 
 
 
 
August 31, 2012
 
 
 
 
 
 
 
Plan of
 
 
 
Fresh Start
 
 
 
 
 
 
 
 
 
 
 
Reorganization
 
 
 
Reporting
 
 
 
 
 
 
 
 
Predecessor
 
 
Adjustments
 
 
 
Adjustments
 
 
 
Successor
 
 
 
(in thousands)
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,954
 
$
74,167
(a)
 
$
 
 
 
$
4,882
 
 
 
 
 
 
 
(45,035)
(c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(24,204)
(d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,000)
(e)
 
 
 
 
 
 
 
 
Trust assets
 
 
—
 
 
3,446
(e)
 
 
 
 
 
 
3,446
 
Restricted cash
 
 
—
 
 
20,359
(d)
 
 
 
 
 
 
20,359
 
Trade accounts receivable, net
 
 
3,708
 
 
(1,727)
(a)
 
 
(1,981)
(g)
 
 
—
 
Prepaid assets
 
 
4,777
 
 
 
 
 
 
(4,777)
(g)
 
 
—
 
Prepaid reorganization costs
 
 
1,326
 
 
 
 
 
 
(1,326)
(g)
 
 
—
 
Total current assets
 
 
11,765
 
 
 
 
 
 
 
 
 
 
28,687
 
Property and equipment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oil and gas properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unproved
 
 
84
 
 
 
 
 
 
(84)
(g)
 
 
—
 
Proved
 
 
759,755
 
 
(740,392)
(a)
 
 
(14,776)
(g)
 
 
4,587
 
Land
 
 
4,000
 
 
(4,000)
(a)
 
 
 
 
 
 
—
 
Other
 
 
73,021
 
 
(47,493)
(a)
 
 
(21,289)
(g)
 
 
4,239
 
Total property and equipment
 
 
836,860
 
 
 
 
 
 
 
 
 
 
8,826
 
Less accumulated depreciation and depletion
 
 
(642,172)
 
 
607,603
(a)
 
 
34,569
(g)
 
 
—
 
Property and equipment, net
 
 
194,688
 
 
 
 
 
 
 
 
 
 
8,826
 
Long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in unconsolidated affiliates
 
 
3,629
 
 
105,344
(a)
 
 
(3,629)
(g)
 
 
105,344
 
Other long-term assets
 
 
307
 
 
 
 
 
 
(253)
(g)
 
 
54
 
Total long-term assets
 
 
3,936
 
 
 
 
 
 
 
 
 
 
105,398
 
Total assets
 
$
210,389
 
 
 
 
 
 
 
 
 
$
142,911
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities not subject to compromise
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debtor in possession financing
 
$
56,535
 
 
(56,535)
(c)
 
 
 
 
 
$
—
 
Accounts payable and other accrued liabilities
 
 
4,897
 
 
 
 
 
 
 
 
 
 
4,897
 
Other accrued liabilities
 
 
9,224
 
 
(2,685)
(b)
 
 
 
 
 
 
2,640
 
 
 
 
 
 
 
(1,500)
(c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,845)
(d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,446
(e)
 
 
 
 
 
 
 
 
Accrued reorganization and trustee expense
 
 
70,656
 
 
 
 
 
 
 
 
 
 
7,537
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities subject to compromise
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 3/4% Senior notes
 
 
115,000
 
 
(115,000)
(b)
 
 
 
 
 
 
—
 
7% Senior convertible notes
 
 
150,000
 
 
(150,000)
(b)
 
 
 
 
 
 
—
 
Accounts payable and other accrued liabilities
 
 
17,203
 
 
(2,560)
(a)
 
 
(1,981)
(g)
 
 
12,336
 
 
 
 
 
 
 
(3,526)
(d)
 
 
3,200
(g)
 
 
 
 
Total current liabilities
 
 
352,859
 
 
 
 
 
 
 
 
 
 
19,873
 
Long-term liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities not subject to compromise
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long – term debt
 
 
—
 
 
6,335
(c)
 
 
 
 
 
 
6,335
 
Derivative liabilities
 
 
—
 
 
6,665
(c)
 
 
 
 
 
 
6,665
 
Asset retirement obligations
 
 
4,414
 
 
(3,938)
(a)
 
 
 
 
 
 
476
 
Total liabilities
 
 
357,273
 
 
 
 
 
 
 
 
 
 
33,349
 
Stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
 
288
 
 
1,457
(b)
 
 
(288)
(f)
 
 
1,477
 
 
 
 
 
 
 
20
(d)
 
 
 
 
 
 
 
 
Additional paid-in capital
 
 
1,643,285
 
 
100,084
(b)
 
 
288
(f)
 
 
108,085
 
 
 
 
 
 
 
1,318
(d)
 
 
(1,636,890)
(h)
 
 
 
 
Retained earnings (accumulated deficit)
 
 
(1,790,457)
 
 
166,144
(b)
 
 
(14,765)
(g)
 
 
—
 
 
 
 
 
 
 
2,188
(d)
 
 
1,636,890
(h)
 
 
 
 
Total stockholders’ equity (deficit)
 
 
(146,884)
 
 
 
 
 
 
 
 
 
 
109,562
 
Total liabilities and equity (deficit)
 
$
210,389
 
 
 
 
 
 
 
 
 
$
142,911
 
 
Notes to Plan of Reorganization and Fresh Start Accounting Adjustments
 
 
(a)
Reflects the contribution of certain of our oil and gas assets and related prepaid expenses and asset retirement obligations to Piceance Energy in exchange for cash and a 33.34% interest in Piceance Energy.
 
 
 
 
(b)
Reflects the extinguishment of secured debt in exchange for common stock of the Successor. On the Emergence Date, we issued 14,573,608 shares of our common stock and warrants to acquire 959,213 shares of our common stock to the holders of our secured debt or their affiliates. We estimated the fair value of our common stock to be $7.00 per share on the Emergence Date. Accordingly, we recorded a gain on the settlement of secured debt within Reorganization items of approximately $166.1 million on the Predecessor’s consolidated statement of operations in the period from January 1, 2012 through August 31, 2012.
 
 
 
 
(c)
Reflects the Successor drawing $13 million under the Loan Agreement (see Note 10 - Debt) to repay amounts outstanding under the DIP Credit Facility with those proceeds and cash from contribution of assets to Piceance Energy.
 
 
 
 
(d)
Reflects the settlement of other claims with common stock of Successor and cash. On the Emergence Date, we issued 191,973 shares of our common stock to various creditors. We estimated the fair value of our common stock to be $7.00 per share on the Emergence Date. Accordingly, we recorded a gain on settlement of liabilities within Reorganization items of approximately $2.2 million on the Predecessor’s consolidated statement of operations in the period from January 1, 2012 through August 31, 2012.
 
 
 
 
(e)
Reflects the funding of the Recovery Trusts (see Note 13 - Commitments and Contingencies).
 
 
 
 
(f)
Reflects the cancellation of Predecessor common stock.
 
 
 
 
(g)
Reflects adjustments to remaining assets due to fresh-start reporting. On the Emergence Date, we adjusted the carrying value of our remaining assets to their estimated fair values. As a result of these adjustments, we recorded a loss for changes in asset fair values due to fresh-start reporting adjustments within Reorganization items of approximately $14.8 million on the Predecessor’s consolidated statement of operations in the period from January 1, 2012 through August 31, 2012.
 
 
 
 
(h)
Reflects the elimination of Predecessor’s accumulated deficit.

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