CHAPTER 5 HARD TIMES CASE STUDY

• Jurisdiction: United States

Problems and Opportunities During Hard Times in the Minerals Industry
(May 1986)
CHAPTER 5
HARD TIMES CASE STUDY

FACTUAL HISTORY

Hoosier Oil Company (the "Company") is a Denver oil and gas company engaged in exploration and production. The Company owns substantial amounts of developed and undeveloped oil and gas properties in several states and it is the sole general partner of several public limited partnerships which were formed in connection with drilling many of its prospects.

The major development property of the Company is the Golden Spike Field in San Juan County, Utah. This field contains fee, federal and Indian leases. The Company owns a 25% interest in the field (with the exception of one well) and is the operator of all wells in the field under a standard A.A.P.L. Form 610-1982 operating agreement. Two of the Company's partnerships own beneficial interests in the field, Hoosier Drilling Programs 1983 and 1984 each owning 12-1/2%. Record title to the interests of the Programs is held by the Company pursuant to a nominee agreement. The remainder of the interests in the Golden Spike Field are owned by Muscle Petroleum, a major oil company with a 35% interest, and several small independent producers with a total of 15%. These independent producers are old cronies of the founder of the Company, Robert ("Bobby") Night, and because of their long relationship with Night, the Company also holds record title to their interests in the field. The exception to this ownership pattern is the Golden Spike #5 well, in which the Company's interest was assigned to Mr. Night, its sole shareholder, in February, 1986 in exchange for cancellation of a $250,000 debt owed to Night.

The drilling history in the field is mixed. The Golden Spike wells #1 through #5, drilled in 1983 and 1984, were all producers. In June, 1985, the Company drilled the Navajo #1, a dry hole at a total cost...