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Addressing the Current Financial Crisis From an Oil and Gas Perspective: From Planning Issues Through Insolvency

Philip Eisenberg, Proceedings of 55th Annual Rocky Mountain Mineral Law Institute (2009)

Volatile commodity prices, economic turmoil, and the era of tight credit require energy companies to reevaluate fundamental business practices and understand the often complex and ever-changing world of bankruptcy. Merely hoping that a supplier or customer does not file bankruptcy, or sitting back and allowing the bankruptcy process to run its course, is no longer a smart business practice (if it ever was). Creditors must fight to protect their interests in bankruptcy court now more than ever, and that requires careful planning prior to bankruptcy and an astute understanding of the issues faced by energy companies in bankruptcy cases, not to mention the assistance of experienced bankruptcy counsel.
The consequences of a supplier or customer filing for bankruptcy protection can be devastating to an energy company that is not properly prepared or able to protect its rights. Unsecured debt may be repaid at cents on the dollar, if at all. Operating agreements and other executory contracts may be rejected or assigned to a third party. Liens may be stripped from collateral securing the lien, leaving a secured creditor to wait in line with unsecured creditors. Predecessors in interest may be liable for plugging and abandonment liabilities, and if that's not scary enough, most disputes will be heard on the debtor's home court--in a U.S. Bankruptcy Court.
A well-prepared energy