The enactment of the Tax Reform Act of 1986, which ended the many tax shelter advantages previously available to real estate investors, coupled with the savings and loan crises, effectively collapsed the real estate boom of the early-to-mid 1980’s. From 1988 to 1993, countless numbers of real estate loans went into default and many real estate borrowers sought to involuntarily restructure their loans through the “cram-down” provisions of Chapter 11 under title 11 of the United States Code (the “Bankruptcy Code”). 

Prior to May 19, 2016, enforcing security against a financially-troubled O&G borrower in Alberta was a difficult proposition because the Alberta Energy Regulator (AER) had promulgated regulations to the effect that it would not license acquirers of producing wells unless potential environmental liabilities for the costs of abandonment, remediation and reclamation for non-producing wells were covered, either by the acquirer assuming the liabilities or posting the necessary R&R bonding.

In most financing transactions, particularly project finance transactions, lenders seek to obtain security over all of a borrower’s assets. One crucial asset that sometimes does not get sufficient attention is insurance proceeds. Lenders are accustomed to ensuring access to the borrower’s insurance coverage through “additional insured” or “loss payee” provisions.

Nearly every day a different E&P company makes an announcement that indicates the company is facing financial distress, insolvency or bankruptcy.  Many of these companies are Operators under Joint Operating Agreements and with each announcement there are likely Non-Operators concerned about the impact these events will have on their non-operated working interests.  Non-Operators should understand their JOA rights and options when their Operator becomes distressed.

Yesterday, Energy XXI Ltd. became the latest domestic oil and gas company to pursue a more deleveraged balance sheet via Chapter 11 restructuring. This does not come as a surprise to those following the company – for much of the last three months Energy XXI’s stock has been trading at less than $1.00 per share. According to the press release issued by the company, the filing comes after the company reached agreement with more than 63% of second lien note holders on the material terms of the restructuring.

On remand by the First Circuit Court of Appeals, the Federal District Court of Massachusetts found Sun Capital Partners III, LP (“Sun Fund III”) and Sun Capital Partners IV, LP (“Sun Fund IV, and together with Sun Fund III, the “Sun Funds”) liable for the withdrawal liability of Scott Brass, Inc.

This alert describes certain information regarding the recently filed bankruptcy case of Emerald Oil, Inc. and is an example of current developments in the energy industry.

Emerald Oil, Inc. and its subsidiaries (collectively referred to as the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code on March 22, 2016 in the District of Delaware, pursuant to which the Debtors plan to sell substantially all of their assets (the “Assets”) in a possible auction in July 2016.

We previously posted here and here and here about chapter 11 l

With the steep collapse of oil and gas prices in the last eighteen months, dozens of exploration and production companies have declared bankruptcy and many more companies are expected to file for bankruptcy protection unless prices rebound dramatically. As the prospect of further bankruptcies looms, it is important for parties to understand how to adequately protect their security interests and the nature of competing liens that could prevent them from fully realizing on the value of the collateral securing their counterparty’s obligations.

Australia is making several significant reforms to its insolvency legislation – with more changes likely to come – to provide much-needed comfort for directors and to align legislation on ipso facto clauses in order to prevent contractual terminations simply as a result of the commencement of an insolvency proceeding. (See the Productivity Commission Report on Business Set-up, Transfer and Closure (available here)).