As someone who's built a career in the natural gas business by consistently delivering success, the events related to Azure's public company, Azure Midstream Partners ("AMP"), were extremely challenging, educational and profoundly disappointing for me.
Eighteen months ago, when crude and natural gas prices plunged and drilling activity declined to the lowest levels in recent decades, some of AMP's gas volumes declined, and our biggest customer/counterparty defaulted on a contract. The combination of these events caused AMP to fall out of compliance with the terms of its bank covenants.
During 2016, we sought and were granted a series of waivers from the banks to work through possibilities to "fix" the MLP. The declining business environment and an onerous debt level limited our options with our bank group.
In parallel with this bank waiver process, the Azure management team tackled a multi-pronged strategic initiative to dramatically reduce costs, restructure non-performing contracts and raise capital through the sale of key, non-essential assets. This dramatically improved the balance sheet and streamlined operations. In 2016 alone, we reduced our debt by $55 million (from $225 million to $170 million) while Azure's commercial team continued to capture new business (despite the challenging environment).
Unfortunately, our progress failed to convince the lenders to continue taking reasonable steps forward with us, and they indicated they would not continue to provide waivers. This decision forced the board and management team to file Chapter 11 on January 30, 2017. Our goal in this action was to preserve and maximize value for all stakeholders. After an auction process, AMP's assets sold to Enterprise for $189 million (an increase of $37 million over the $152 million stalking horse bid).
Closing this sale of the AMP assets provided a complete recovery of the debt proceeds for our bank group, and allowed for the confirmation of our bankruptcy plan on June 2nd, 2017. The estate will be "wound down" by a transition team over the next few months led by Roy Bertolatus and supported by our private company, Azure Midstream Energy, LLC.
While we appreciate the expertise and professionalism of our bankruptcy lawyers and advisors, the process did cost the company approximately $20 million. Our focus (and hope) in this wind down is to recover all amounts owed to our creditors, quickly settle all proofs of claim as approved by the court, and obtain some value for our unitholders.
For losses sustained by AMP unit holders, I am personally sorry. Sometimes in business an unexpected current can wash you far from your intended destination. In many ways, AMP was caught up by larger forces – including historically low energy prices and OPEC's strategy to weaken America's energy industry. We make no excuses, but we do hope that all stakeholders recognize that the Azure management team and employees worked assiduously through extreme conditions to significantly improve the business value and trajectory.
As a 40-year veteran of the natural gas industry, I have been privileged to work with many outstanding professionals. However, the fortitude, grit, determination and sheer strength of will I witnessed by our CFO, Mandy Bush, and the entire senior management team, working through 1.5 years of forbearances and Chapter 11, all while running the business and marketing its assets, was humbling. If, as they say, "character is forged in fire," we have a team brimming with character and one that is battle-tested!
The lessons learned by the Azure management team over the past year are now embedded in everything we do running Azure's private company, Azure Midstream Energy. We incorporated new ways of streamlining operations and cost cutting while maintaining industry-leading safety. Azure won the GPA Midstream safety award last year for the third year in a row. We understand what it takes to fight for and win commercial opportunities in the most competitive circumstances, and we have a more highly-trained drive to continually improve our balance sheet through innovative initiatives.
Azure Midstream Energy is on track for $70 million in EBITDA this year and the future looks encouraging, particularly given the April 2017 report by the United State Geological Survey ("USGS") that the oil/gas resources contained within the Bossier & Haynesville formations are more than three times the estimate contained in their 2010 report. The increase in drilling rig activity in the region from 14 rigs in November 2015 to 38 rigs in June 2017 is another indication that the basin is becoming economically attractive. Azure's system is in the middle of both the Haynesville and Cotton Valley formations, and we are well positioned to take advantage of this very positive news.