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What effect does bankruptcy have on oil and gas leases?

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Mar. 31, 2016.


Melissa R. Gardner is a Director who represents both privately-owned and public companies in a wide variety of oil and gas matters, with a strong emphasis on oil and gas title examination.

By Phillips Murrah Director Melissa R. Gardner

It is an understatement to say these are trying times in the oil and gas industry.

There are multiple reports in the news that predict we have not hit bottom and that our state will be uniquely affected. While oil and gas companies, contractors and service companies have industry insiders to rely on, many individual mineral owners might find themselves without resources or direction, wondering what effect these proceedings will have on the benefits they’ve come to expect under oil and gas leases.

Here’s some helpful information for those who have executed these leases, who are faced with persistent negative news about the companies holding the leases.

It is important to note that, if a company is considering bankruptcy, it could take various forms. Chapter 7 and Chapter 11 are the two most common types of business bankruptcy.

In the first, business typically ceases and a trustee takes control of all assets, including the business’s oil and gas leases, with any eye toward liquidation. However, in Chapter 11 bankruptcy proceedings, the company generally remains in control of its assets and develops a plan of reorganization, often with the goal of remaining in business after its debts are restructured. While Chapter 11 may be ultimately more favorable to the mineral owners, one can take comfort that current payments and leases are not necessarily in jeopardy in either case.

In a bankruptcy proceeding, the bankruptcy trustee or Chapter 11 debtor in possession is only ultimately entitled to property of the bankruptcy debtor, which generally would not include royalties payable to mineral owners. Likewise, in Oklahoma, oil and gas leases typically survive the bankruptcy. This means royalty payments frequently continue, virtually uninterrupted, after a bankruptcy case has been filed and the leases may continue to be developed for the benefit of all notwithstanding the bankruptcy.

Obviously, this downturn has been difficult for many in our state. Hopefully, these facts will provide a mineral owner with some comfort that, even in these times, the payments they have come to rely on under existing oil and gas leases will not automatically be affected adversely by a leaseholder’s bankruptcy. It’s certainly worth investigating more before you assume these benefits will disappear.

Avoiding the b-word: The many faces of financial restructuring

Clay Ketter’s guest column, Gavel to Gavel, originally published in The Journal Record  on Mar. 11, 2015.
View Clay Ketter’s attorney profile here.


Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

The current price of crude oil is sure to make people use language that is inappropriate in polite conversation. As news of idled rigs, layoffs and credit defaults becomes a daily occurrence, the use of the b-word is sure to come up more and more. Of course, I’m referring to that nasty little 10-letter word, bankruptcy.

The stigma that once surrounded a bankruptcy filing has subsided as multiple high-profile companies such as American Airlines, General Motors and the Los Angeles Dodgers have entered the bankruptcy process and emerged as stronger, more viable businesses. Despite these successes, one group that has been gradually shunning the use of the b-word is, surprisingly, bankruptcy attorneys. Yes, the people most familiar with the ins and outs of the Bankruptcy Code, rather than announce themselves as bankruptcy experts, are instead asking to be referred to as financial restructuring specialists. This is particularly true for those attorneys that focus on businesses, as opposed to individuals, facing financial difficulties.

At first glance, it would appear that a rebranding effort is the motivation for this shift. Bankruptcy may suggest failure, death, layoffs and closings. Financial restructuring, comparatively, signifies repair and rebirth of a business. Although marketing has played a part, it fails to explain the whole story. The use of the phrase “financial restructuring” reflects the reality that debtors and creditors facing financial stress have many options at their disposal, not just bankruptcy.

Workouts, divestitures, mergers and asset sales are just some of the tools that a financial restructuring professional may utilize to assist debtors and creditors in resolving financial difficulties. Options also include a bankruptcy filing, whether it be a Chapter 11 reorganization or a Chapter 7 liquidation. However, a bankruptcy filing is not always the right choice. Depending on the circumstances, it often makes sense to avoid the time and expense of a formal proceeding, and instead resolve matters out of court. The title of financial restructuring attorney reflects the fact that multiple options are available to address and repair economic trouble, not just bankruptcy.

Should crude oil prices remain depressed, we are certain to see the b-word used more frequently. However, it’s important to remember that, depending on the circumstances, a more conservative approach may be better.