Tuesday, November 13 , 2018, 11:32 am | Fair 71º


Oil Company with Santa Barbara County Operations Files for Bankruptcy

A Houston-based oil company that was the largest onshore producer of oil in Santa Barbara County filed for bankruptcy earlier this year, and will be selling its local assets and pulling out of the state.

On April 30, ERG Intermediate Holdings, which owns more than 20,000 acres in the Cat Canyon Field in Northern Santa Barbara County, filed for Chapter 11 bankruptcy protection in the Northern District of Texas, Dallas Division. 

The company's subsidiaries, ERG Resources, LLC, ERG Interests, LLC, ERG Operating Company, LLC, and West Cat Canyon, LLC, are all included in the bankruptcy filing.

"The decision to file for bankruptcy protection was made after careful consideration of the best path forward for these Companies and their employees, vendors, and customers," a statement from the company's website said.

The statement said that the companies are preparing to conduct an orderly sale of its California assets, and "reorganize" around its Texas assets.

The company owns oil and gas leases in Liberty County, Texas, and also has an office in Bakersfield.

In 2010, ERG purchased almost 8,000 acres of the Cat Canyon Field from Chevron, and made other purchases of 12,200 additional acres in Cat Canyon as it sought to grow in California.

In a declaration filed in a Texas bankruptcy court by the company's chief financial officer, Kelly Plato, the reasons for the bankruptcy seemed to stem from plummeting oil prices, a drying up of needed capital, and an underestimation of the time and money needed to navigate Santa Barbara County's permitting process for oil and gas operations.

"The permitting process is relatively long compared to other basins and is uncertain. As a result, the debtors took risk on the ability to get new operating permits when they acquired the leases in the Cat Canyon Field," Plato wrote.

Between 2010 and 2012, the company focused on building infrastructure, hiring an operating team and building a regulatory team of three employees hired specifically to "address the regulatory hurdles in the region."

Plato also estimated that full development of the Cat Canyon property would require $1 billion in capital expenditures.

By the end of 2013, the company had drilled 97 thermal wells and had reached peak production levels of approximately 5,000 barrels a day in the Cat Canyon Field, Plato said.

At the peak, the company was selling oil at the wellhead for almost $100 a barrel.

Prices have been depressed, however, and the price for the Cat Canyon production was $38 at the beginning of this year.

"This has caused and is causing a significant drop in revenues," Plato wrote.

Planner Errin Briggs said that the company notified the county just after the bankruptcy was filed.

Briggs said that the company was able to work through the court and get an order that would allow them to continue working with vendors such as the county.

Two of the projects the company had been working on with the county, including putting in 16 conventional wells and a water injection well, are on hold in the short term.

The county has not been notified of a sale of the property or a transfer of ownership, Briggs said.

Noozhawk staff writer Lara Cooper can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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