©Linn Energy

Linn Energy, the Houston-based oil and gas producer, has become the biggest US casualty of the slump in crude prices over the past two years, filing for bankruptcy on Wednesday evening.

Linn and its associated companies, LinnCo and Berry Petroleum, said they were seeking Chapter 11 bankruptcy protection as part of a debt restructuring agreed with the lenders of at least two-thirds of its credit facility.

Mark Ellis, chief executive, said he expected the restructuring to “provide a platform for future growth”.

The group, which is one of the 20 largest oil and gas producers in the US, reported total debts of $9.3bn in February.

Those borrowings make it the largest debtor among about 70 North American exploration and production companies that have gone bankrupt in this downturn, according to Haynes and Boone, the law firm.

As part of the restructuring, lenders are proposing a new $2.2bn credit facility tied to the values of Linn’s reserves. The company said it planned to continue normal operations during the restructuring process.

Linn had an unusual financial structure for an oil production company, being organised as a tax-privileged limited partnership that was expected to distribute most of its free cash flow as dividends.

That model, which is available to oil and gas companies under US law, is more common among pipeline operators and other businesses that are expected to have more stable cash flows and less exposure to commodity price risk.

Linn’s bankruptcy had been looming for months, with production in decline and debt of more than seven times last year’s cash from operations.

The units, which the partnership has instead of shares, lost more than 95 per cent of their value between September 2014 and the end of 2015. They closed on Wednesday at about 33 cents, down from a high point in 2014 of more than $33.

The company warned in March that it expected to breach its debt covenants, and uncertainty over its ability to meet its obligations raised “substantial doubt about the company’s ability to continue as a going concern”.

It also offered holders of units in Linn the chance to exchange them for shares in its affiliate LinnCo, which is structured as a regular corporation. Unit holders can be hit with tax liabilities when a partnership restructures its debts, because the write-off can be treated as a taxable gain.

Linn said it planned to continue paying wages and providing healthcare and other defined benefits to its staff, and to keep paying its suppliers in full.

“Like many others in our industry, Linn has been impacted by continued low commodity prices,” Mr Ellis said in a statement. “We believe that these steps will provide us the financial flexibility to successfully manage in the current commodity price environment and, when combined with constructive agreements with our remaining creditors and potential third-party financing, will provide a platform for future growth.”

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