Oil company Dune Energy Inc., which has been on Mergers & Acquisitions Distressed Company Watch List since September, has filed for bankruptcy and will attempt to sell itself after a failed merger.

The company is just one of many companies to face distress as crude oil prices remain low. For more, see Investors Flow Into Oil and Gas

Houston-based Dune has about 74,000 acres of land in 15 producing oil and natural gas fields in Texas and Louisiana.

Dune filed for Chapter 11 bankruptcy protection in the Western District of Texas in Austin on March 8. The company's case is assigned to Judge Christopher Mott, who will hear the business' first-day motions at a March 10 hearing. According to debtor counsel Charles Beckham from Hayes and Boone LLP, Mott approved Dune's first-day motions on the 10th and the business is heading to a final hearing on its debtor-in-possession financing motion on April 2. 

Dune filed a motion for a $10 million debtor-in-possession loan on March 9, which would be provided by the company's pre-petition lenders Bank of Montreal and CIT (NYSE: CIT). Dune is required to sell under the terms of the DIP agreement. The company filed for bankruptcy with $37 million in first-lien debt and $67.8 million in second lien debt, according to court papers.

The company is also asking Mott to approve its sale motion, which comes after planned merger with Eos Petro Inc. fell apart. Eos had agreed to acquire the business for about $0.30 per share in September, but told Dune in December that it wouldn't be able to complete the merger. The companies began negotiations to try to make a merger happen, but Eos couldn't secure sufficient financing, so the deal fell through, according to a SEC filing.

Dune says in court documents that it's been trying to sell for two years. If the sale motion is approved, bids would be due June 5 and an auction would be scheduled for June 9, if multiple bids come in, and a sale hearing would be held June 12.

Dune says it is owed $5.5 million from Eos because the merger didn't work out, according to court documents.

Dune defaulted on a covenant of its credit agreement in the second quarter of 2014 that required it to have a debt to Ebitdax (Earnings before interest, taxes, depreciation, amortization and exploration expenses) ratio of 4:1, and it had a ratio of 5.28:1, according to SEC filings. The company worked out a forbearance agreement that was in place until Dec. 31, or until a merger agreement was terminated.

As of Sept. 30, the company had $4.1 million in cash and had registered a loss of $39.4 million for the first nine months of the year. The company says in a quarterly filing with the U.S. Securities and Exchange Commission on Nov. 14, that if Eos deal failed, there would be substantial doubt about its ability to continue as a going concern, or without the threat of liquidation.

The company experienced a decrease in oil produced from its wells between 2013 and 2014, which it says in SEC filings were "caused by normal reservoir declines and a decrease in production."

Haynes and Boone LLP and Deloitte Transactions and Business Analytics LLP are advising the business.

Troubles in the energy sector are widely documented. Earlier in March, Vancouver-based Jericho Oil Corp. bought an interest in an Oklahoma oilfield, saying it wanted to buy assets at discounted prices because of turbulence in the energy market. 

Another oil company on our Distressed Company Watch List, Ivanhoe Energy Inc., filed for protection under the Bankruptcy and Insolvency Act in Canada after trying to restructure outside of court. 

Dealmakers indicated in February that their short-term expectations for M&A in the energy sector dropped. 

For the previous edition of Turnaround Tuesday, see Another Troubled Retailer, Joe's Jeans, Negotiates with Lenders

For more struggling companies, check out our Distressed Company Watch List

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