Stone Energy Corporation (NYSE: SGY) today announced entry into a comprehensive restructuring support agreement and a purchase and sale agreement for its properties in the Appalachia basin.
On October 20, 2016 (the “Execution Date“), Stone entered into a purchase and sale agreement (the “PSA“) with TH Exploration III, LLC, an affiliate of Tug Hill, Inc. (“Tug Hill“). Pursuant to the terms of the PSA, Stone agreed to sell the Properties to Tug Hill (the “Disposition“) for $360 million in cash, subject to customary purchase price adjustments (the “Purchase Price“). The following description of the PSA is qualified by reference to the text of such agreement, a copy of which is included as Exhibit 10.2 to the Current Report on Form 8-K filed today.
“The sale of the Appalachia properties, an important component of the restructuring support agreement, will further streamline our operations and allow us to advance our efforts to grow value in the Gulf of Mexico, which is central to our long-term business plan,” said David Welch.
The Disposition has an effective date of June 1, 2016. In connection with the execution of the PSA, Tug Hill deposited $5.0 million in escrow, which amount may be supplemented by an additional $31 million at a later date on certain conditions being met. Upon a closing, the deposit will be credited against the Purchase Price. From the Execution Date through December 19, 2016 (the “Diligence Period“), Tug Hill intends to conduct customary due diligence to assess the aggregate dollar value of any title and environmental defects associated with the Properties. The parties expect to close the Disposition by February 27, 2017, subject to customary closing conditions and approval by the Bankruptcy Court.
The PSA contains customary representations, warranties and covenants. From and after the closing of the Disposition, Stone and Tug Hill, respectively, have agreed to indemnify each other and their respective affiliates against certain losses resulting from any breach of their representations, warranties or covenants contained in the PSA, subject to certain customary limitations and survival periods. Additionally, from and after closing of the Disposition, Stone has agreed to indemnify Tug Hill for certain identified retained liabilities related to the Properties, subject to certain survival periods, and Tug Hill has agreed to indemnify Stone for certain assumed obligations related to the Properties.
The PSA may be terminated, subject to certain exceptions, (i) upon mutual written consent, (ii) if the closing has not occurred by March 1, 2017, (iii) for certain material breaches of representations and warranties or covenants that remain uncured, (iv) if, on or prior to the end of the Diligence Period, title and environmental defect amounts (after application of customary thresholds and deductibles), casualty losses and the value of any assets excluded from the Properties due to the exercise of preferential purchase rights or consents equal or exceed $10 million in the aggregate, (v) if Stone fails to file for bankruptcy on or before December 9, 2016, (vi) if the Bankruptcy Court does not enter an order approving Stone’s assumption of the PSA and certain other matters within 30 days of Stone filing for bankruptcy, (vii) if the Bankruptcy Court does not enter a sale order for the Disposition by February 10, 2017, and (viii) upon the occurrence of certain other events specified in the PSA.