How Lilis Energy fended off the wolves during the oil bust

In 2015, Lilis Energy cut most of its workers, wrote down the value of its reserves to almost nothing and didn't pay its executives for four months as it wrestled to avoid bankruptcy during the oil bust.

Hundreds of U.S. energy companies filed in bankkruptcy courts, but Lilis Energy CEO Avi Mirman said he and the only other people left at his oil company - a chief financial officer and general counsel - were determined to avoid bankruptcy proceedings, even though it cost them their paychecks. Instead, Mirman invested his own money in the company, and Lilis raised stock-market capital to acquire Brushy Resources, a San Antonio-based driller with property in the prolific Permian Basin in West Texas.

"We were living by the skin of our teeth," Mirman said. "But we refused to go into bankruptcy."

Lilis recently spoke to the Houston Chronicle about how his company came through the downturn without falling into bankruptcy. Edited excerpts:

Q: What happened to Lilis Energy during the downturn?

A: As you know, 2015 was a pretty rough year for most of us in the oil and gas business. We were close to filing for bankruptcy. We got delisted. But none of us wanted to go bankrupt - none of us wanted that to our names. We had to let everybody go except three people in the management team. We didn't take a check for four months. In 2015, the value of company assets were less than the size of the loans.

Q: So what did you do?

A: We're finance people. My specialty has been in distressed mergers and acquisitions. What better industry to exploit? We found a company in the Permian Basin and agreed to acquire them in December 2015. We raised another $20 million in equity. We also drew $31 million from a new credit facility, and it was a super-friendly loan with minimal covenants, not the kind of loan you'd see an energy company get back then. That helped propel us forward.

(Lilis Energy refinanced its debt by converting some of it to equity, closing its acquisition of Brushy Resources in June 2016 and applying for relisting on the Nasdaq. And oil prices rose.)

Q: What are your plans now?

A: We're substantially bigger now, with some 40 people, including 25 to 30 in San Antonio. And it's a bit different today because the cost to drill a well is substantially lower. We want to drill about a dozen wells in 2017. We expect to drill a well a month, and we expect to deploy a two-rig program in 2018 and drill about 20.

Q: What's happening in the oil patch now?

A: I do expect service prices to go up. Frac sand prices have gone up dramatically higher than it was six months ago. It affects your economics. But I'd like to think we can somehow do some cost containment.

Q: After all these bankruptcies, is the industry any better for it?

A: OPEC's first goal was to flood the market and get prices to the point where they put a lot of us out of business. But lower prices backfired on OPEC. The assets that were in the hands of the weak are now in the hands of the strong. They're not going to be able to smoke U.S. producers out.