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Phillips Murrah Directors Discuss Oil and Gas Lease Cancellation Lawsuits at Petroleum Alliance Lunch and Learn

Phillips Murrah presentation to Petroleum Alliance

Directors John M. Bunting and Zac K. Bradt discuss legal actions related to a lease cancellation lawsuit.

Defending Against and Preventing Lease Cancellation Lawsuits

As leasing and drilling activities have increased over the last few years, so have lawsuits by mineral owners seeking to cancel existing oil and gas leases. More often than not, those suits allege that existing wells have ceased producing in paying quantities, and therefore the leases are no longer held by production or “HBP”.

On August 13, Phillips Murrah P.C. hosted a lunch and learn presentation at The Petroleum Alliance of Oklahoma headquarters. Phillips Murrah Directors Zac Bradt and John Bunting discussed the factors courts consider in determining whether a well is producing in quantities sufficient to hold the lease and provided some tips on how to minimize the risk of having the court rule that a lease has terminated for lack of production in paying quantities.

Phillips Murrah presentation to Petroleum Alliance“It is important for oil and gas producers to have an understanding of how courts are interpreting oil and gas lease terms,” said Phillips Murrah Director Liz Brown, who is also a member of the Petroleum Alliance of Oklahoma Board of Directors.

In her introduction statement to the well-attended program, Liz explained that a typical situation ripe for this type of litigation is when a producer has an old lease with a one-eighth royalty and marginal production that is holding acreage in hot areas for oil and gas development such as in the SCOOP or the STACK.

“There have been quite a few recent court decisions exploring what constitutes production in paying quantities,” Liz continued. “I’m glad Zac and John took the time to share their insights with us, so that our members can have a better understanding of what the courts are looking at in making these determinations.”

Some of the other information provided at the recent Lunch and Learn included an explanation of the habendum clause and other lease terms, suggestions as to how a producer can position itself to defend against a lease cancellation lawsuit, and a comparison of how the courts in Texas and Oklahoma interpret production in paying quantities for purposes of determining whether a lease is held by production.

About the presenters:

portrait of Elizabeth K BrownElizabeth K. Brown is a Director whose practice is focused on serving her privately-held business clients at a strategic level as outside general counsel where she assists in managing the many legal issues that arise in running a business, including structuring and negotiating business transactions, managing litigation, settling disputes, assisting with tax planning and designing the estate and succession plan for the family business owners.


Photo of Director Zac K. Bradt

Zac K. Bradt is a Director and an attorney in the Energy & Natural Resources Practice Group. He 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.


Photo of Director John M. Bunting

John M. Bunting is an attorney practicing all facets of commercial litigation and insurance coverage law. His experience includes representing clients in complex commercial disputes; representing energy producers, disposal well operators, and oilfield service companies; representing auto dealers in disputes with manufacturers and competitors; and helping business clients obtain insurance coverage.


Video courtesy of the Petroleum Alliance of Oklahoma

Phillips Murrah Directors to present: Defending (and Preventing) Lease Cancellation Lawsuits

Petroleum Alliance logo

presented by

Phillips Murrah logTuesday, Aug. 13
11:30 a.m. to 1 p.m.
Petroleum Alliance of Oklahoma Headquarters
500 N.E. 4th Street, Oklahoma City

As leasing and drilling increase, so have lawsuits by mineral owners seeking to cancel existing leases. More often than not, those suits allege that existing wells have ceased producing in paying quantities, and therefore the leases are no longer HBP.

Photo of Director Zac K. Bradt

Zac K. Bradt

The presenters of this Lunch & Learn will be Phillips Murrah Directors Zachary K. Bradt and John M. Bunting. They will discuss how operators can defend against lease cancellation lawsuits, including factors that Oklahoma courts consider when determining whether a well is producing in quantities sufficient to hold a lease.

They will also discuss how operators can resolve such disputes outside of court; and how to prevent a lease cancellation suit by determining whether an existing lease is HBP prior to purchasing it.

To register, click HERE.

Presenters:

Photo of Director John M. Bunting

John M. Bunting

Zac K. Bradt is a Director and an attorney in the Energy & Natural Resources Practice Group. He 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.

John M. Bunting is an attorney practicing all facets of commercial litigation and insurance coverage law. His experience includes representing clients in complex commercial disputes; representing energy producers, disposal well operators, and oilfield service companies; representing auto dealers in disputes with manufacturers and competitors; and helping business clients obtain insurance coverage.

Phillips Murrah Director Liz Brown elected to Board of Oklahoma’s largest petroleum association

Phillips Murrah would like to congratulate Elizabeth K. Brown, Shareholder/Director and member of the Firm’s Energy and Natural Resources Practice Group, on being elected to the Board of Directors of the newly formed oil and gas industry advocacy organization, The Petroleum Alliance of Oklahoma. Liz formerly was a member of the OIPA Board of Directors until its recent merger into the Alliance.

Liz’s election to the Petroleum Alliance of Oklahoma Board of Directors will allow her to continue her involvement in oil and gas industry matters. She brings to the Board not only her experience in representing oil and gas businesses in legal matters, but also her practical knowledge of oil and gas operations that she has gained through managing The Gloria Corporation, a privately held oil and gas company founded by her father and based in Ada, Oklahoma. Having been raised in the oil business, Liz has been actively involved in every aspect of running a small, independent oil company.

Photo of Liz Brown at Gloria Corporation wellsite

Pictured here are Liz and her brother, Mike Kemp, in the field reworking one of the Gloria Corporation wells in Pontotoc County.

“Running a second-generation, family-owned oil and gas business is both rewarding and challenging” Liz said. “I feel very fortunate to have been able to continue the business my father started years ago.”

Also notably, Liz is one of four women who serve on the 41-member Board. She joins Valerie Mitchell (Corterra Energy Operating, LLC), Geree Wald Morton (Plaster & Wald Consulting Corp.), and Samantha Omey (ExxonMobil Corporation).

“I am honored to have been elected to serve on the Board of Directors of the newly formed Petroleum Alliance of Oklahoma to, among other things, bring attention to issues affecting smaller producers who make up a significant segment of the oil and gas industry,” Liz said.

Liz’s law practice with Phillips Murrah is focused on serving her privately held business clients as outside general counsel where she assists in managing the many legal issues that arise in running a business. Her role often involves structuring, negotiating and handling mergers and acquisitions, managing litigation, settling disputes, assisting with tax planning and designing estate and succession plans for family business owners.

The Petroleum Alliance of Oklahoma was formed in November 2018, when two of the state’s industry groups merged. Oklahoma Independent Petroleum Association and the Oklahoma Oil and Gas Association combined memberships to create a larger, stronger association with the aim to more effectively represent members in legislative and regulatory matters.

The new organization is now the largest trade association representing the oil and natural gas industry in the state, with more than 2,300 individuals from about 1,300 companies – companies that account for more than 90 percent of the state’s oil and natural gas production.

Firm selects Employee of the Month for July 2018

Nanette Morris

Nanette Morris

Nanette Morris, Paralegal, is Phillips Murrah’s Employee of the Month for July 2018.

“I’ve worked for Phillips Murrah for almost 19 years, and I can’t think of anywhere else I’d want to work,” Morris said. “The work is challenging and fun, and – even better – I get to work with so many smart and talented people.

“I really do love my job!”

The Employee of the Month is selected anonymously by Phillips Murrah staff on merits of teamwork and overall contributions to the Firm.

“Nanette has been with the firm for over eighteen years and is a highly skilled legal assistant,” Director Elizabeth K. Brown said. “She plays an integral role in our transactional and estate planning department.

“With her positive and professional demeanor, she works well even under the most stressful situations in  the practice of law. She is smart, hard-working and dependable and always a pleasure to work with. She definitely deserves this honor.”


Journal Record and Oklahoman Best Places to Work of 2017

Phillips Murrah has been recognized as one of the Best Places to Work in Oklahoma in 2017 by The Journal Record and an Oklahoma Top Work Place by The Oklahoman/Energage three years in a row. Our Firm strives to recognize and reward our employees for excellence.

Phillips Murrah announces 37 attorneys named to 2018 Best Lawyers list

Phillips Murrah is proud to announce that 37 of our attorneys have been named to The Best Lawyers in America© 2018 list in Oklahoma City.

The Best Lawyers in America 2018

Jennifer Ivester Berry – Commercial Transactions / UCC Law; Real Estate Law

Douglas A. Branch – Securities / Capital Markets Law; Venture Capital Law

Elizabeth K. Brown – Litigation – Trusts and Estates; Litigation and Controversy – Tax; Tax Law; Trusts and Estates

Michael D. Carter – Workers’ Compensation Law – Employers

Rodney L. Cook – Insurance Law

Bobby Dolatabadi – Corporate Law; Mergers and Acquisitions Law

Jason A. Dunn – Commercial Litigation

Joshua L. Edwards – Real Estate Law

Marc Edwards – Administrative / Regulatory Law; Commercial Litigation; Government Relations Practice

Nicholle Jones Edwards – Family Law

Shannon K. Emmons – Commercial Litigation; Employment Law – Management; Employment Law – Individuals

Juston R. Givens – Commercial Litigation

Sally A. Hasenfratz – Commercial Transactions / UCC Law; Construction Law; Land Use and Zoning Law; Real Estate Law

Terry L. Hawkins – Public Finance Law

Heather L. Hintz – Commercial Litigation

Timothy D. Kline – Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law; Commercial Transactions / UCC Law; Litigation – Bankruptcy

Fred A. Leibrock – Commercial Litigation; Insurance Law; Litigation – Antitrust; Litigation – ERISA; Litigation – Real Estate

Candace Williams Lisle – Commercial Litigation

Mark Lovelace – Banking and Finance Law; Business Organizations (including LLCs and Partnerships); Commercial Transactions / UCC Law

Melvin R. McVay, Jr. – Banking and Finance Law; Commercial Litigation; Litigation – Banking and Finance; Litigation – Bankruptcy; Litigation – Real Estate

Andrew S. Mildren – Administrative / Regulatory Law; Government Relations Practice

Jennifer L. Miller – Commercial Litigation

Cindy H. Murray – Real Estate Law

Robert O. O’Bannon – Business Organizations (including LLCs and Partnerships); Tax Law

Martin G. Ozinga – Commercial Litigation

Donald A. Pape – Banking and Finance Law

Michael R. Perri – Commercial Litigation; Energy Law; Natural Resources Law; Oil and Gas Law

William S. Price – Government Relations Practice

Dawn M. Rahme – Commercial Transactions / UCC Law; Litigation and Controversy – Tax; Tax Law; Trusts and Estates

Mary Holloway Richard – Health Care Law

Jim A. Roth – Energy Law; Energy Regulatory Law; Environmental Law; Government Relations Practice; Natural Resources Law

G. Calvin Sharpe – Medical Malpractice Law – Defendants; Personal Injury Litigation – Defendants

Robert N. Sheets – Commercial Litigation; Litigation – Land Use and Zoning; Litigation – Real Estate

Ellen K. Spiropoulos – Corporate Law

Lyndon W. Whitmire – Commercial Litigation; Product Liability Litigation – Defendants

Thomas G. Wolfe – Bet-the-Company Litigation; Commercial Litigation; Mass Tort Litigation / Class Actions – Defendants; Product Liability Litigation – Defendants

Raymond E. Zschiesche – Commercial Litigation; Mass Tort Litigation / Class Actions – Defendants; Product Liability Litigation – Defendants

Low oil and gas prices create opportunity for estate tax planning

This article was published in OIPA Wellhead, a publication produced by Oklahoma Independent Petroleum Association and distributed to its membership.

By Elizabeth K. Brown and Mike McDonald

brown-elizabeth-portrait

Liz Brown is a director at Phillips Murrah, P.C., where she has practiced for most of her legal career. Liz is primarily a tax and transactional lawyer with a special emphasis in the energy industry.

Act now to preserve your estate. Low oil and gas prices create opportunity for estate tax planning.

The current economic downturn in the oil and gas industry combined with the low interest rate environment and the availability of valuation discounting techniques creates a number of unique opportunities for tax planning.

Two planning concepts used to save estate taxes that work especially well while oil and gas prices are low are the gifting or sale of equity interests in a family business to children or trusts created for their benefit. The following is a typical structure of this planning concept.

The depressed value of oil and gas prices means business valuations are substantially lower than they were a year and a half ago. As a result, more assets can be given away to family members or trusts for the benefit of family members within the confines of the lifetime gift tax exclusion. All the while, the business owner can still maintain control over the business after the gifts.

Currently, there is a $5,450,000 (or $10,900,000 for a husband and wife) estate and gift tax exemption available to shelter assets transferred during lifetime or at death from gift and estate tax. This means that a business owner and his/her spouse can transfer up to $10,900,000 in asset value (either during lifetime or at death) in the aggregate to any one or more family members or others with no gift or estate tax liability. The value of assets transferred during lifetime or at death in excess of $5,450,000 (or $10,900,000 for a couple) is generally subject to estate tax on the death of the survivor of the business owner and his/her spouse.

If the business owner and his/her spouse have a net worth that exceeds $10,900,000, other planning techniques, such as gifting, can substantially reduce any potential estate tax liability. By the gifting or sale of interests in an independent oil and gas company, the value of the interest transferred is in effect “frozen” as of the date of the gift so that future appreciation in the value of the gifted interest is excluded from the business owner’s estate for estate tax purposes.

Gifts of equity interests in the oil and gas company made in trust instead of outright to the business owner’s children have other advantages as well. For example, if the business owner makes a gift of equity interests in the oil and gas company to a “granter trust,” the business owner will continue to be treated as the owner of the gifted interests after the gift for income tax purposes (but not for estate tax purposes).

As a result, the business owner will continue to pay the income tax on the income generated by the gifted equity interest in the oil and gas company. By doing so, the income tax attributable to the gifted interests paid by the business owner (instead of by the trust or the children) is, in effect, an additional gift from the business owner to the business owner’s children that is not taxable for gift tax purposes.

Additionally, assets gifted to multi-generational trusts can pass to younger generations free of gift or estate tax. Finally, gifts of equity interests in the oil and gas company made to a trust are protected from the claims of both the business owner’s creditors and the children’s creditors.

EKB Wellhead gfx 032816

Click to enlarge.

The benefit of gifting interests in an oil and gas company while oil and gas prices are down is illustrated by this example. If a 1 percent interest in an oil and gas company was worth $50,000 when oil prices were at $100 per barrel, a gift of a 20 percent interest in the oil and gas company would be worth $1,000,000 and would reduce the business owner’s unified estate and gift tax exemption by $1,000,000 ($50,000 x 20), leaving an exemption of $4,450,000 to shelter future estate or gift tax liability. If that same 1 percent interest in the oil and gas company is now valued at $15,000 with oil prices at a little over $30 per barrel, then the value of a gift of a 20 percent interest in the oil and gas company would be only $300,000 ($15,000 x 20) and would reduce the business owner’s gift tax exemption by only $300,000, leaving an exemption of $5,150,000 to shelter future estate or gift tax liability.

Any future appreciation in the value of the gifted or sold interest in the oil and gas company now valued at $300,000 would escape taxation in the business owner’s estate. So, if next year, oil prices go back to $100 per barrel, the 20 percent interest in the oil and gas company would have appreciated by $700,000. That appreciation would escape taxation in the business owner’s estate. In that event, the gift or sale of a minority interest in the oil and gas company made while prices are hovering around $30 per barrel would result in an overall tax savings of approximately $277,200 ($700,000 x the maximum estate tax rate of 39.6%).

As the value of the gifted interests increases over time, the tax savings would be even greater. The result of lower oil and gas prices is that greater quantities of oil and gas assets can be transferred out of the business owner’s estate and sheltered from tax, given the current depressed state of the energy industry. This can be particularly helpful long-range when the inevitable turnaround in the energy industry does occur.

In addition to future increases in oil prices, other foreseeable factors very well may adversely impact these planning techniques in the near future, including increases in interest rates and the anticipated change in the tax law limiting the use of discounting techniques.

The Federal Reserve has made it known that it intends to increase interest rates periodically throughout the year and the IRS has been considering issuing proposed regulations to limit the use of discounts for lack of marketability and lack of control in determining the value of gifts of equity interests in a closely held business. The low interest rate environment, along with lower business valuations, make oil and gas company and other estate tax planning techniques work especially well at this point in time.

If you are concerned about the partial impact of estate taxes on your oil and gas business, now is a great time to plan – before the recovery in oil and gas prices, the inevitable increase in interest rates, and the possible elimination of discounting techniques.

Don’t let this opportunity pass you by.

Elizabeth K Brown is an attorney and Director of Phillips Murrah P.C, a member of the OIPA board of directors and CEO of The Gloria Corporation, an oil and natural gas exploration and production company.

Mike McDonald, of Triad Energy in Oklahoma City, has served as chairman of the OIPA and president of the Domestic Energy Producers Alliance, and holds a Juris doctor the University of Mississippi and a master of laws degree from New York University.

In the face of industry uncertainty, proactively protect assets and family wealth

This article was published in OIPA Wellhead, a publication produced by Oklahoma Independent Petroleum Association and distributed to its membership.

Worried about the future? Take a proactive look at asset protection planning, family wealth preservation trusts

By Elizabeth K. Brown and Mike McDonald

brown-elizabeth-portrait

Liz Brown is a director at Phillips Murrah, P.C., where she has practiced for most of her legal career. Liz is primarily a tax and transactional lawyer with a special emphasis in the energy industry.

For those of us who lived in Oklahoma during the 1980s, it may feel a little like deja vu all over again.

While the Oklahoma economy is more diversified than it was in the 1980s, our State’s overall well-being is still tied heavily to the health of the oil and gas industry.

As a whole, our industry is much stronger and more financially sound than it was in the 1980s. But, if oil prices remain where they are now, or drop lower, difficult times may be ahead for all Oklahomans, but especially for energy producers and service companies.

Those of us who are concerned about the potential impact of this recent downturn and want to take steps to minimize any resulting financial hardship should take a serious look at asset protection planning.

Asset protection planning typically incorporates a wide range of techniques accepted under Oklahoma and bankruptcy law to shield assets from the claims of creditors.

The key to a solid asset protection plan is to establish the plan before a financial crisis is on the horizon, since transfers made with the intent to hinder, delay or defraud creditors or when the transferor is insolvent can be attacked and possibly invalidated. One of the asset protection planning tools available under Oklahoma law is the Family Wealth Preservation Trust, created under the Oklahoma Family Wealth Preservation Trust Act passed in 2004. This unique but little known Oklahoma law permits a person to transfer Oklahoma assets to a revocable “Preservation Trust” and protect those assets from claims of that person’s creditors.

To qualify as a Preservation Trust, the trust must meet the following requirements:

  • The Trust must be established by an individual (the “Grantor”);
  • The Trust must have as a trustee or co-trustee an Oklahoma bank or trust company — one that is chartered under Oklahoma law or is a nationally chartered bank or trust company that has a place of business at a physical location in Oklahoma;
  • The beneficiaries may only be certain “qualified beneficiaries” — the grantor’s spouse, the lineal ancestors and descendants of the Grantor or of the Grantor’s spouse, qualified charities and trusts for the sole benefit of qualified beneficiaries (note that the Grantor is not eligible to be a beneficiary);
  • A majority in value of the assets of the Preservation Trust must consist of “Oklahoma assets” — stocks, bonds, and ownership interests in Oklahoma-based companies, bonds issued by the state of Oklahoma or an Oklahoma governmental agency, accounts maintained with an Oklahoma-based bank, and real estate and mineral interests located in Oklahoma; and
  • The Trust Agreement must provide that the income produced by its assets is subject to Oklahoma income tax.

Until last year, there was a $1 million cap on contributions to a Preservation Trust. Effective Nov. 1, 2014, however, the Oklahoma legislature lifted the cap so that the Act now exempts all trust assets held in a Preservation Trust from attachment or execution to satisfy a judgment against the Grantor. This recent amendment eliminating the cap makes the Preservation Trust a much more attractive asset protection planning tool since now all assets in a Preservation Trust, regardless of value, are protected from claims of the Grantor’s creditors.

The most unique feature of the Preservation Trust is that the trust agreement can provide that the Preservation Trust can be revoked or amended by the Grantor at any time. This power of revocation or amendment allows the Grantor to retain ultimate control over the assets transferred to the Preservation Trust. Until the Act was passed, Oklahoma law did not allow a Grantor of a trust to set up a revocable trust and protect the assets in trust from the claims of the Grantor’s creditors. As a result, creditors could easily reach assets held in a revocable trust to satisfy their claims against the Grantor. Now, however, as long as the assets are held in the Preservation Trust, those assets are not subject to the claims of the Grantor’s creditors even though the Grantor has the power to revoke the Preservation Trust at any time.

Many energy companies that are owned and operated by Oklahoma producers are “Oklahoma-based companies” and thus suitable assets for transfer to a Preservation Trust. An Oklahoma-based company is a corporation, limited liability company, limited partnership, limited liability partnership or other legal entity formed or qualified to do business in Oklahoma that has its principal place of business in Oklahoma. The most problematic part of the Act seems to be the requirement that an Oklahoma bank or trust company serve as trustee or co-trustee of the Preservation Trust, since the fees of the corporate trustee increase the associated costs.

A typical asset protection plan for an Oklahoma oil and gas producer could, for example, involve the Grantor setting up a Preservation Trust and transferring equity interests in the Grantor’s Oklahoma-based business to the Preservation Trust. Alternatively, the Grantor could set up a new limited liability company (“Newco”) funded with Oklahoma marketable securities or deposit accounts, then transfer a part or all of the membership interests in Newco to the Preservation Trust. By doing so, the Newco membership interest owned by the Preservation Trust would be protected from the claims of the Grantor’s creditors.

If the Preservation Trust is set up in accordance with the Act (and subject to the provisions of the Uniform Fraudulent Transfer Act under which creditors, in certain instances, can attack asset transfers), any assets that are held in the Preservation Trust, including the stock or other equity interests in the Oklahoma based business, will not be subject to the claims of the Grantor’s creditors so long as a majority in value of the assets are Oklahoma assets. Even if the Preservation Trust owns some assets that are not Oklahoma assets, those assets also would still be protected as long as the majority in value of the assets in the Preservation Trust are Oklahoma assets.

In our industry, we have certainly weathered economic storms before and no doubt we will weather this one as well. While we are all hopeful that oil prices will recover in the short term, none of us have a crystal ball. Therefore, it is smart to consider taking some defensive moves now, including developing an asset protection plan possibly with a Preservation Trust. If you set up a Preservation Trust and the worst-case scenario develops, the assets in the Preservation Trust will be protected from the claims of your creditors. On the other hand, if and when the skies clear and commodity prices rebound, you can simply revoke the Preservation Trust and go back to business as usual.

Ask yourself…what do you have to lose?

About the authors:

Elizabeth K. Brown is a shareholder in the law firm of Phillips Murrah, P.C. She is also CEO of The Gloria Corporation, an independent oil producer based out of Ada, and a member of the Board of Directors of the Oklahoma Independent Petroleum Association and the National Stripper Well Association.

Mike McDonald, owner of Triad Energy in Oklahoma City, has served as chairman of the OIPA and president of the Domestic Energy Producers Alliance. He holds a juris doctor from the University of Mississippi and a master of laws degree from New York University.

 

Director named to national board

Originally published in The Journal Record on Nov. 5, 2014.
Click to see Elizabeth K. Brown’s attorney profile


Liz_Brown

Elizabeth K. Brown’s practice is focused at a strategic level on serving her clients as outside counsel where she assists privately held companies in managing the many legal issues that arise in running a business.

The National Stripper Well Association named Phillips Murrah Director Elizabeth K. Brown to the board of directors.

Brown was named to the Oklahoma Independent Petroleum Association board of directors in June 2013 and is a member of Phillips Murrah’s Tax and Private Wealth and Energy & Natural Resources Practice Groups.