Hart Oil files for Chapter 11

Hart Oil & Gas Inc. looks to drill into its cash collateral so it can continue operating its oil and gas properties.

The Rangely, Colo., oil and gas exploration company filed for Chapter 11 on Tuesday, Sept. 25, because of excessive debt, court papers show. A day later, Hart said it needed access to its revenue and cash on hand to make oil and gas lease payments, fund payroll and pay utilities.

Western Refining Southwest Inc. holds about $78,000 due to the debtor from the sale of crude oil. The debtor said it needs the funds immediately to continue operations.

Hart asserted it would lose the lease for its New Mexico property if it did not have access to the funds. Court papers filed Thursday indicated a lease payment is now due. In an affidavit filed Thursday, president Andrew Saied said Hart also needs the cash to repair necessary equipment used to extricate oil and gas from its wells and transport oil to a refinery.

The Internal Revenue Service, owed $42,736, and the State of New Mexico Taxation and Revenue Department, due $133,614, both would receive replacement liens under the proposed cash collateral terms.

Judge David Thuma of the U.S. Bankruptcy Court for the District of New Mexico in Albuquerque was scheduled to consider the request at a hearing late Friday.

Hart's next move is unclear.

About three months ago, the company entered into a sale and purchase agreement with Redevelopment Energy LLC. The Woodlands, Texas, potential buyer had agreed to acquire substantially all of Hart's assets for $4 million.

According to debtor counsel William Davis of William F. Davis & Associates PC, however, the deal has not closed, and it is unclear if the debtor will pursue the sale.

Davis said it is still too early in the case to tell if Hart will sell its assets or attempt to reorganize with an investment from equity holders.

The oil and gas company also has been in contact with a lender about potential postpetition financing, Davis said.

Founded in March 1991, Hart engages in oil and gas exploration services in Colorado, New Mexico and Texas. Most of the debtor's operations are in New Mexico.

In its petition, Hart reported $100,000 to $500,000 in assets and $1 million to $10 million in liabilities.

In the affidavit, Saied estimated that once all the company's wells are all operational, its assets would be worth $6 million to $7 million.

Court papers did not detail the nature of Hart's excessive debt.