Facing a lawsuit by one of its biggest customers, declining stock and prices, and cash flow issues that date back a year, Fort Worth, Tex.-based Emerge Energy Services, owners of Superior Silica Sands of Barron County, has filed a financial restructuring document with the U.S. Securities & Exchange Commission.
Documents were filed late April, in U.S. Federal District Court in Delaware.
The move comes after an announcement by the company in late March that it would cut back on both hiring and production in Wisconsin this year.
That same week, the company was sued by Pennsylvania-based Modern Materials Services, Inc., which does business as Arrow Material Services.
The suit alleged that Superior Silica Sands had failed to honor an agreement to deliver sand to Arrow’s San Antonio, Tex., “transloading” facility and had failed to pay nearly $400,000 in company invoices over the previous two years.
In a press release that accompanied the SEC filing, Emerge Energy announced it had reached an out-of-court settlement with its creditors. A special committee of Emerge board members had been created to oversee the process.
But, if the committee “determines … that the out-of-court restructuring is no longer possible,” an in-court Chapter 11 bankruptcy proceeding would commence, the release added.
According to a report from Wisconsin Public Radio Monday, May 13, Emerge Energy stock had sunk to 27 cents per share as of Friday, May 10, compared to more than $144 per share in 2014, when crude oil prices drove up profits and frac sand was in high demand.
The news means uncertainty for an industry in Barron County that once included hundreds of well-paying full-time jobs and profitable contracts between sand mines and independent truck owners. The truckers hauled sand from Superior Silica’s five operating mines to transloading facilities in Poskin – where it was shipped by rail to Ladysmith – and the Twin Cities.
In March, Shearer said the company would delay the start of mining until June, operate only two of its five mines this year, and cut back on seasonal hiring.
Thus far, Superior Silica Sands’ financial issues don’t seem to be affecting its ability to honor agreements with Barron County to maintain roads used to ship sand, and to reclaim lands subjected to frac sand mining.
protected thus far
According to County Zoning Administrator Dave Gifford, Barron County’s financial assurance fund for reclamation was full, at $17,690,901.
There are 7,727 acres approved for nonmetallic mining operations in Barron County; however, only 2,287 acres were being actively mined as of February, Gifford said Tuesday, May 14.
Gifford explained that the financial assurance ordinance creates an incentive for operations to mine only what they need and reclaim the land as they go.
For example, if a 160-acre parcel is approved for mining, a company may choose to mine 80 acres at a time, and leave or reclaim the rest, so they only have to pay for 80 acres, instead of 160 acres, into the reclamation fund.
Asked if he felt the county’s fund was sufficient to cover reclamation costs, Gifford said the ordinance had been restructured about three years ago, to increase the fund. State statute puts the financial assurance rate at $3,000 per acre, but allows counties to have higher rates. Barron County raised it from $3,000 to $5,000, Gifford said. The county reviews the rate periodically, to ensure it is enough to cover reclamation costs, he said.
Gifford added that some operators can pay an amount other than $5,000 into the fund, if they can show what the actual cost per acre is.
At $17.69 million, the fund is more than enough to cover the current actively mined acres; at $5,000 per acre with 2,287 acres, it works out to about $11.44 million.
Gifford noted there are payments to the highway department and township based on how many tons of sand are shipped over local roads, but that was separate from the reclamation ordinance.
Mark Servi, county highway commissioner, said Superior SilicaSands has been making quarterly payments based on the tonnage it hauls on county roads. In 2014, when the agreement began, the total was 12 cents per ton or an estimated $1.44 million.
Superior Silica Sands also agreed to pay $2.35 million to widen and strengthen the pavement on County Hwy. P in order to facilitate truck traffic between a dry sand plant in the town of Arland and the company’s rail facility at Poskin.
Delaware courts are fast
Placing the restructuring process in a Delaware court promises to keep it moving along at a fast pace, according to researchers.
In a 2003 study, Kenneth M. Ayotte and David A Skeel Jr., researchers for (respectively) the Columbia Business School and University of Pennsylvania Law School, said that Delaware courts exhibit “a great ability to reorganize marginal firms and (reorganize them) faster.”
Ayotte and Skeel said Delaware courts had a high level of experience “in terms of the likelihood of reorganization, but (that Delaware also) is a standout in terms of speed. We estimate that a Delaware bankruptcy requires about 40 percent less time to complete than an equivalent case in another court.”
Later, the researchers estimated Delaware bankruptcy cases are more than 200 days faster than an equivalent case filed in another court.