Nov 29 (Reuters) - Breitburn Energy Partners LP can begin seeking creditor support for a reorganization plan that would split the bankrupt U.S. oil firm into two separate, creditor-owned companies, a U.S. court ruled on Wednesday.
One of the companies would be created through a $775 million new share offering for unsecured creditors, led by investment firms Elliott Management Corp and WL Ross & Co, and hold prized Permian Basin assets. The other would be owned by secured creditors with $793 million of debt, and would house oil reserves in California, the Rocky Mountains, the U.S. Midwest and U.S. Southeast.
The sale of new stock, known as a rights offering, has become a popular but controversial strategy to revitalize bankrupt energy companies, because of large fees awarded to select creditors.
U.S. Bankruptcy Judge Stuart Bernstein in Manhattan approved the disclosures in Breitburn's plan on Wednesday, after scrutiny over costs linked to the rights offering and objections from an official equity committee representing shareholders, which has said the proposal is unfair.
Los Angeles-based Breitburn is one of more than 100 energy companies that filed for Chapter 11 bankruptcy after oil prices crashed in 2015.
Vincent Indelicato, a Proskauer Rose attorney who represents the equity committee, argued that as oil prices have recovered, Breitburn is worth more than double its $1.6 billion valuation under the reorganization plan. He said that would allow select bondholders to scoop up crown jewel assets on the cheap and at the cost of shareholders.
Because of Breitburn's structure as a 'master limited partnership', equity holders will both lose their investment, and could also be stuck with a hefty tax bill.
Breitburn reached an agreement in principle with its key creditors on the terms of the reorganization plan on Tuesday, paving the way for the court approval. The plan and the company's valuation can still be debated at a confirmation trial planned for January. (Reporting by Tracy Rucinski, Editing by Rosalba O'Brien)