E. PENDING LITIGATION
· The Debtors are currently involved in proceedings in the Harrison County Central Appraisal District (the CAD) related to certain ad valorem tax assessments for the years 2014, 2015, and 2016. Case No. 2016-01595/Protest No. 30352. On March 13, 2017, Debtor Azure TGG, LLC (TGG) filed suit against the CAD under Case No. 17-0196T, 71st Judicial District Court, Harrison County, Texas. TGGs suit asserts that the CAD and its Appraisal Review Board incorrectly appraised Azures oil and gas pipelines and gathering systems located within Harrison County as of January 1, 2014, 2015 and 2016.
· Debtor ETG is involved in eminent domain proceedings in the 273rd District Court of Sabine County, Texas in connection with a right-of-way granted to ETG. TPF II East Texas Gathering, LLC v. Bobbie Torrence, et al., Case No. 12664.
· The Debtors are involved in employment litigation in Harris County, Texas. Floyd Woodfork v. Nudevco Midstream Development LLC and Marlin Midstream LP, EEOC Charge No. 460-2105-00673, Cause No. 2106-47188, 334th Judicial District, Harris County, Texas.
KEY EVENTS LEADING TO THE COMMENCEMENT
OF THE CHAPTER 11 CASES
A. THE SUSTAINED DROP IN OIL AND GAS PRICES
The oil and gas industry has been enduring one of the longest and deepest troughs in oil and gas prices in recent history. The downturn has led many exploration and production companies, whose businesses are directly impacted by price fluctuations in commodities, to sizably reduce their capital and operating expenditures relating to hydrocarbon production and drilling activities, causing a substantial reduction in the volumes serviced by midstream service providers such as the Debtors. In early 2016, crude oil and natural gas spot prices reached multi-year lows of approximately $26 per Bbl and $1.50 per MMBtu, respectively. This represented a decline in oil prices of more than 75% from a peak of over $105 per Bbl in mid-year 2014 and a decline in natural gas prices of more than 74% from a peak of over $5.8 per MMBtu in early 2014.
As a result of the downturn, in 2015, Anadarko Petroleum Corporation (Anadarko), one of the Debtors largest customers, chose not to renew a significant contract that generated approximately $7.5 million in total revenue in 2015. The continued weakness in natural gas and crude oil prices pushed AES to default on its obligations under the AES Agreements in early 2016. The AES Agreements generated $29.1 million of the Debtors total revenue in 2015, comprising 36% of the Debtors total annual revenue. Collectively, the Anadarko contracts and the AES Agreements generated 45% of the Debtors total revenues in 2015. Although the Debtors were able to make up for some of the lost revenues through other contracts, total revenue in the first three quarters of 2016 decreased approximately 14% from total revenue in the first three quarters of 2015 (from $61.3 million to $53.0 million).
B. DEFAULT UNDER THE PREPETITION CREDIT AGREEMENT
The reduction in the Debtors revenues also led to a material reduction in their EBITDA, and by the fourth quarter of 2015, the Debtors had fallen out of compliance with certain debt and liquidity covenants under the Credit Agreement (the Covenant Defaults). To comply with leverage covenants under the Credit Agreement, on October 26, 2015, the Debtors entered into the second amendment to the