On June 16, 2015, the Asset Sales Committee sponsored a webinar titled Buying and Selling Oil & Gas Assets in Bankruptcy Cases. The presentation, by Thompson & Knight Partner Ira L. Herman, Greenberg Traurig Shareholder Shari Heyen and Conway MacKenzie Managing Director Bryan M. Gaston, is available in ABI’s CLE Center.
The program opened with a discussion of the Bankruptcy Code provisions normally considered when oil and gas assets are “in play” in a bankruptcy case. This part of the presentation was followed by an in-depth discussion of the specialized due diligence concerns associated with the purchase and sale of upstream energy (oil and gas) assets. Such specialized due diligence, we learned, generally falls into one of two categories. The first category covers the regulatory regimes applicable in the jurisdiction where the oil and gas properties “in play” are located. State and federal regulations may apply with respect to a given property. For example, state law may govern certain decommissioning obligations when a well is no longer productive, while federal law may govern bonding requirements with respect to offshore properties. These regulatory schemes are particularly important to consider vis-a-vis a sale of oil and gas assets in bankruptcy, as the obligations imposed by the applicable statutes and rules are unlikely to be released or modified as a result of any action taken in a bankruptcy case.
The final segment of the webinar was a discussion concerning the legal and economic interests used by owners of hydrocarbon reserves to raise the capital needed to produce oil and gas, as production is a very capital-intensive business. The types of interests discussed included ownership interests, working interests, royalty interests, overriding royalty interests, net profit interests and production payments. The discussion of these specialized interests included a number of observations regarding the treatment of these interests under the Bankruptcy Code and applicable case law precedent.
The Asset Sales Committee encourages practitioners to review this helpful webinar, as the ongoing distress in the oil and gas sector portends that the issues addressed by the panel may be at the forefront of significant future restructurings.