From The Wall Street Journal

The battle for control over bankrupt Mexican oil-drilling company Oro Negro turned ugly over the weekend, as attorneys for the company’s creditors, escorted by Mexican federal police officers, flew in helicopters to Oro Negro’s five drilling rigs in the Gulf of Mexico and attempted to seize control of them, setting up a tense standoff that continued Monday.

On Friday, a criminal court judge in Mexico City ruled the rigs must be handed over to the bondholders.

Mexico City prosecutors have been investigating Oro Negro, an embattled oil-services firm led Gonzalo Gil, the son of Mexico’s former finance minister, for fraud, according to disclosures Oro Negro made in a New York bankruptcy court last week.

Ricardo Contreras, a lawyer representing the creditors group, on Sunday flew out over the shallow waters of the Gulf of Mexico with the police officers, attempting to enforce the judge’s order. He managed to land on just one of the drilling platforms, known as Decus, after workers placed obstacles on the heliports of the others, according to videos of the incident and both sides’ accounts.

“A criminal judge ordered restitution of the rigs and ordered federal authorities to assist in those orders. It’s that simple,” said Paul Leand, a New York investor who heads the ad hoc committee of Oro Negro bondholders, an oversight body. “At the end of the day, we have no interest in holding on to these rigs. What we’re interested in is protecting and securing our collateral.”

The dust-up is just the latest chapter in a yearslong fight between Oro Negro, its creditors and Petróleos Mexicanos, or Pemex, Mexico’s massive state oil company, but illustrates how the 2014 collapse in oil prices continues to reverberate even today for some investors.

On the eve of Mexico’s historic oil reform, which was signed into law in 2013, Oro Negro raised nearly $1 billion in debt and hundreds of millions in equities, leased five drilling rigs from Singapore, and rushed to join a handful of oil-services companies offering to lease maritime oil platforms known as jackup rigs to Pemex to help the oil giant increase crude oil production.

But the collapse in crude prices prompted Pemex to pull back, slashing the day rates it paid to contractors. Soon, Oro Negro couldn’t make debt payments and filed for bankruptcy protection in Mexico last year.

As the situation began to sour, all three parties began exchanging legal broadsides. This year, Oro Negro filed a complaint under the North American Free Trade Agreement, alleging Pemex colluded with bondholders to put the driller out of business and hand over its assets to a competitor that had received preferential treatment through the downturn. Pemex and the bondholders deny any wrongdoing.

“The oil-field services sector has taken a major beating over the course of the downturn in prices, and specifically the offshore market has had a tough time,” said Pablo Medina, an Houston-based analyst with research firm Welligence Energy Analytics. “A lot of the investments in that space were very ill-timed. Pemex’s reduction of its drilling activities took a lot of companies like Oro Negro by surprise.”

Oro Negro sought and won chapter 15 bankruptcy protection in the U.S. in April, defeating an objection from bondholders. Chapter 15 acts much like chapter 11, halting lawsuits and blocking creditors from seizing assets governed by U.S. law.

On Monday, Oro Negro filed a lawsuit asking Judge Shelley Chapman, the New York bankruptcy judge overseeing the Oro Negro case, for a cease-and-desist order preventing bondholders from taking over or otherwise interfering with the rigs. The lawsuit also is seeking payment for damages.

What happens next is unclear. As of Monday afternoon, Mr. Contreras, the lawyer for the bondholders, as well another individual, remained on the Decus oil rig, without contact with the company, and additional helicopters have been blocked from landing, according to the bondholder group.


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