Fresh-start accounting valuation analysis

Fresh-start accounting valuation analysis

The client was a publicly-traded exploration and production company with a focus on developing its natural gas reserves. Due to the recent challenges experienced by the oil and gas industry in general, as well as the impact of COVID-19 on oil and gas demand and commodity prices, the company filed for Chapter 11 bankruptcy protection in 2020. The company successfully emerged out of Chapter 11 bankruptcy as a reorganized private entity with a much stronger balance sheet upon emergence. As part of the Chapter 11 process and emergence, Stout was engaged by the company to calculate the reorganization value and the fair value of the company's oil and gas reserve assets. Stout's valuation was performed under Financial Accounting Standards Board Accounting Standards Codification ("ASC") Topic 852, Reorganizations, and related accounting promulgations, including ASC Topic 805, Business Combinations, and ASC Topic 820, Fair Value Measurement. Stout's analysis was utilized by the company to satisfy its financial reporting requirements upon emergence.

Stout's valuation team worked over a several month process with the company's accounting, finance, operations, and reserves engineering team. In addition, Stout collaborated with various other advisors of the client engaged through the bankruptcy process, including accounting, financial and legal advisors. Stout's valuation was also reviewed by the company's auditor as part of the financial reporting process.

Given the challenging conditions faced by oil & gas companies, Stout has been actively involved with various industry participants (including some of the largest oil & gas companies filing for Chapter 11 bankruptcy protection and reorganization in 2020) in performing valuations related to fresh-start accounting, and assisting such companies in successfully navigating the bankruptcy process and emerging with a stronger balance sheet.