ReoStar Energy CORP (REOS) company history: the story so far

History

ReoStar was built through a 2007 share-for-assets deal, sold its pipeline stake, then fell into credit default and threatened foreclosure before deregistering in 2011.

2006-2007: From shell to ReoStar

The company began as Goldrange Resources. In December 2006 it signed a non-binding letter of intent with JMT Resources, REO Energy and Benco Operating to receive their oil and gas interests, estimated at $53,000,000, in exchange for Goldrange shares.

The deal closed on February 1, 2007. Goldrange issued 54,750,000 new shares to the three contributors, about 80.2% of the stock, so existing shareholders became a minority. The company renamed itself ReoStar Energy Corporation on February 5. The assets included about 8,800 Barnett Shale acres with a 22% average working interest in 44 wells, a 95% working interest in the Corsicana Field, about 6,450 Fayetteville Shale acres in Arkansas, and a share of the Tri-County Gas Gathering System. The board was replaced, with Mark Zouvas as chief executive and M.O. Rife III as chairman.

In May 2007 the company corrected a filing about its auditor change to Killman, Murrell. The former auditor's report had in fact included a going-concern warning, meaning substantial doubt that the company could keep operating. In June 2007 ReoStar sold its 30% pipeline interest to Cimmarron Gathering for $15 million. About $12.5 million arrived at once and $2.5 million was held in escrow for 180 days.

2008-2009: Borrowing and a South Texas bid

The record is quiet for the rest of 2007 and most of 2008. On October 30, 2008 ReoStar signed a $25,000,000 secured revolving credit facility with Union Bank of California as agent, secured by substantially all assets of the company and its three subsidiaries. Some shareholders pledged their shares.

On May 20, 2009 ReoStar agreed to buy 13,000 acres of the Hackberry Prospect in South Texas from ZAZA Energy and Eli Smith for $5,500,000. It would also issue 12,000,000 new shares to ZAZA and pay $1,500,000 a year for three years in overhead. Closing depended on raising at least $15 million by August 1, 2009. The filings seen here do not show whether it closed.

2010-2011: Default and exit

In February 2010 ReoStar received notice that it was in default on the credit facility, having missed leverage and interest coverage tests for the June and September 2009 quarters. About $10.8 million was drawn and the lenders cut the borrowing base to $7.6 million. They had taken no action at that point.

BT & MK Energy and Commodities (BTMK) later took over the facility. On October 15, 2010 it accelerated the note after a missed quarterly interest payment, putting the amount owed at $11,111,942. It said it would foreclose on the company's assets on November 2, 2010 unless paid in full. The outcome is not shown in the record. In June 2011 ReoStar deregistered its securities, ending its obligation to file reports with the SEC.

Written from the 10 story beats below (2006 to 16 June 2011), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

2011

16 June
ReoStar Energy CORP deregistered its securities, ending its obligation to file reports with the SEC.
listing compliance notice

2010

22 Oct
On Oct 15, 2010 ReoStar received a letter from BT & MK Energy and Commodities (BTMK), which had taken over the credit facility from Union Bank. The lender accelerated the note after a missed quarterly interest payment, putting the full amount owed at $11,111,942, and says it will foreclose on the company's assets on Nov 2, 2010 if it is not paid in full before then. This follows the February 2010 default notice and is the step from default to threatened loss of the assets securing the loan.
debt financing
17 Feb
ReoStar received a notice dated Feb 4, 2010 that it is in default on the $25M Union Bank credit facility from October 2008, for missing the leverage ratio and interest coverage tests for the quarters ended June 30 and Sept 30, 2009. About $10.8M is drawn, and the lenders cut the borrowing base to $7.6M, leaving a $3.2M shortfall. The lenders may demand full repayment, add 2% default interest or enforce against the collateral, but had taken no action as of the filing.
debt financing

2009

27 May
On May 20, 2009 ReoStar agreed to buy 13,000 acres of the Hackberry Prospect (Lavaca and Colorado Counties, South Texas, within the Eagle Ford shale trend) from ZAZA Energy and Eli Smith for $5,500,000. It also agreed to issue 12,000,000 new shares to ZAZA plus $1,500,000 a year for three years in overhead payments, so existing holders would be diluted. Closing requires ReoStar to raise at least $15 million, and the agreements end if not closed by August 1, 2009.
capital raising announcement

2008

4 Nov
On October 30, 2008 ReoStar signed a $25,000,000 secured revolving credit facility with Union Bank of California as agent, due three years after closing. Proceeds are to retire part of its existing debt and fund property acquisition and development, working capital and general purposes. It is secured by substantially all assets of ReoStar and its three subsidiaries, with some shareholders pledging their shares in the company.
debt financing

2007

7 June
ReoStar sold its 30% interest in the Tri-County Gas Gathering System, the pipeline joint venture it brought in with the 2007 asset deal, to Cimmarron Gathering (a Copano Energy subsidiary) for $15 million cash on June 6, 2007. About $12.5 million was received, with $2.5 million held in escrow for 180 days for title claims and cash calls owed through April 30, 2007 (estimated at $900,000).
asset acquisition disposition
15 May
This amendment corrects the May 2 auditor-change filing. The former auditor's report did include a paragraph saying operating losses raised substantial doubt about the company's ability to continue as a going concern, which the original filing had said was not the case. This contradicts the earlier statement; the dismissal and hiring of Killman, Murrell are unchanged.
auditor change
7 Feb
This information statement gives notice of a change in the whole board following the February 2007 asset deal. The contributors hold 54,750,000 shares, about 80.2% of the stock (JMT 23.2%, Benco 23.5%, REO Energy 33.5%); Mark Zouvas becomes CEO and Brett Bennett vice president; and M.O. Rife III (chairman), Zouvas, Bennett, Jean-Baptiste Heinzer and Alan Rae are named as incoming directors. Steve Bajic is to step down as a director after the 10-day waiting period. The company also renamed itself ReoStar Energy Corporation on February 5, 2007.
business combination
6 Feb
The deal flagged in the November 2006 letter of intent closed on February 1, 2007: Goldrange issued 54,750,000 new shares to JMT, REO Energy and Benco for their oil and gas assets, and the company became ReoStar. Assets described include about 8,800 Barnett Shale acres (22% average working interest in 44 wells drilled), a 95% working interest in the Corsicana Field, about 6,450 Fayetteville Shale acres in Arkansas, and a share of the Tri-County Gas Gathering System joint venture with Central Crude and Cimmarron. Existing shareholders are now a minority.
asset acquisition disposition

2006

1 Dec
The company, then named Goldrange Resources, signed a non-binding letter of intent with JMT Resources, REO Energy and Benco Operating to receive their oil and gas interests, estimated at $53,000,000, in exchange for Goldrange common shares. Nothing is final until a definitive agreement is signed; the obligation to negotiate ends if none is reached by December 31, 2006, and the contributors cannot negotiate with others until then.
material agreement