Fieldwood Energy, a Houston-based exploration-and-production company focused on the Gulf of Mexico shelf, has entered into forbearance agreements with first lien last-out and second lien term loan lenders after skipping coupon payments on both facilities that were due at the end of December 2017, according to several sources familiar with the matter.

The $517 million first lien last-out term loan due September 2020 bears interest at LIBOR+700 bps while the $1.6 billion second lien term loan’s rate is LIBOR+712.5 bps. Coupons were due on Dec. 29, the sources said. Fieldwood did make the Dec. 29 coupon payment on its $387 million reverse-based term loan due August 2020, which bears interest at LIBOR+700 bps, according to sources. Fieldwood also has a $755 million first lien term loan due September 2018 and a $1.6 billion second lien term loan due September 2020.

Fieldwood’s second lien notes last traded at 35, according to Advantage Data, little changed from levels seen in December but below the 39 context seen in early October. The first lien last out recently traded at 69.125, also in line with December pricing but below October’s 83.

According to sources, the company has released a statement to lenders that says that it has entered into forbearance agreements to provide it with additional time to engage in discussions regarding a comprehensive and consensual deleveraging plan and to strengthen its balance sheet. The statement characterized the discussions as “productive.”

Fieldwood declined to comment.

On the company’s mid-December earnings call, according to sources, it said it was talking to several parties and expected to have a global solution soon. The company did not offer financial projections and did not take questions on the call, sources noted.

The company is working with Evercore and Weil Gotshal to address its $3.26 billion debt burden, Reorg previously reported. A cross-holder group focused largely on the second lien debt is working with Davis Polk. Franklin Resources, whose mutual funds hold about 30% of the first lien term loan, is working with Houlihan Lokey.

Fieldwood, a Riverstone Holdings portfolio company, completed a debt exchange in 2016 after the collapse in oil prices that began in mid-2014. As part of the exchange, the company traded $517.5 million of its second lien term loans for the new $517.5 million first lien last-out debt. Riverstone purchased more than $640 million of the second lien term loan “at a significant discount,” according to Moody’s, which said it regarded the transactions as a “distressed exchange.”

Riverstone declined to comment.

Fieldwood has benefited from the late-autumn increase and ongoing stability in the price of Louisiana light sweet crude. LLS, at which most of Fieldwood’s production is sold, is trading at a $5 premium to West Texas Intermediate, currently quoted at $61.40. After transportation costs, this results in a realized price for Fieldwood of almost $64/bbl, sources say.

The increase in LLS and WTI is concomitant with the increase in Brent, currently trading at $67.50, as commodity markets continue their recovery from 2014. Prices have been supported in recent weeks by the extension of output cuts that OPEC and Russia announced at the end of December, the closure of the Forties pipeline network in the North Sea, a pipeline explosion in Libya and unrest in Iran. And while U.S. producers have shown a willingness to increase output even as archrival OPEC cuts, as the IEA said in its December Oil Market Report, “the new mantra in the US shale regions is ‘moderation’, reflecting a desire to greet stronger prices as an opportunity to consolidate rather than to launch yet more headlong expansion.”
 
However, the IEA also raised its annual growth forecast for total U.S. crude oil to 390 kb/d for 2017 and 870 kb/d for 2018. “The flexibility and ingenuity of the shale sector raises challenges to forecasters,” the agency said.

Another plus for Gulf of Mexico operators, many of which are headquartered in Houston or along the coast of Louisiana: moves by the Trump administration to ease some of the safety requirements put in place by the Obama administration after the Deepwater Horizon disaster in 2010.