CHAPTER 6 MARKETING AND DISTRIBUTION OF PRODUCTION IN TIMES OF FINANCIAL DISTRESS
| Jurisdiction | United States |
(Feb 2010)
MARKETING AND DISTRIBUTION OF PRODUCTION IN TIMES OF FINANCIAL DISTRESS
Scott A. Butcher
Crowe & Dunlevy P.C.
Oklahoma City, Oklahoma
M. Scott Regan
EnCana Oil & Gas (USA) Inc.
Denver, Colorado
James F. Cress
Holme Roberts & Owen LLP
Denver, Colorado
Judy Hamilton Morse is a shareholder and director in the Firm's Oklahoma City office and serves as chair of the Litigation section for the Firm. As an experienced trial lawyer, Ms. Morse focuses on litigation and trial practice, as well as bankruptcy and creditors' rights. Ms. Morse has represented both plaintiffs and defendants in a number of business litigation matters in various industries including securities, financial services, lending, consumer credit, franchising, real estate and energy. Ms. Morse has represented creditors, debtors, committees and trustees in bankruptcy cases in numerous jurisdictions throughout the country. She has served as lead counsel for debtors in chapter 11 reorganization cases for Homeland Stores, Inc., Harold's Stores, Inc., TSG, Inc., Hadson Corporation, Freymiller Trucking, Inc., and Magnolia Gas Company, L.L.C., among others. Recently, Ms. Morse has represented approximately 40 oil and gas producers in the SemCrude bankruptcy pending in Delaware and has represented a public authority in the bankruptcy of Lehman Brothers pending in the Southern District of New York. Ms. Morse is admitted to practice in all state courts in Oklahoma, as well as the United States District Courts for the Western, Northern and Eastern Districts of Oklahoma and the Northern District of Texas, and the United States Court of Appeals for the Tenth Circuit. She has been listed for over 10 years in the Best Lawyers Publication and is recognized in Bet the Company Litigation, Commercial Litigation, Bankruptcy and Creditor-Debtor Rights Law and Franchise Law. She was also selected as the 2010 Oklahoma City Bankruptcy and Creditor-Debtor Rights Lawyer of the Year by Best Lawyers. Ms. Morse was named one of Oklahoma's Top 25 Female Lawyers and recognized in Business Litigation by SuperLawyers in 2008 and 2009. She is a member of both the Litigation Counsel of America and the International Defense Counsel Association. Ms. Morse was appointed by the Chief Judge to the Admissions and Grievances Committee for the Western District of Oklahoma and is a member of the Board of Directors of the Oklahoma County Bar Association. She received the Oklahoma Bar Association's Professionalism Award in 2008. She is the past President and Trustee of the Oklahoma Bar Foundation, previously served on the Board of Trustees of the American Inns of Court and is a Master of the Bench in the William J. Holloway, Jr. American Inn of Court. She is an Oklahoma Fellow of the American Bar Foundation. Ms. Morse received a Bachelor of Arts from the University of Oklahoma. She continued her education at the University of Oklahoma College of Law, where she received her Juris Doctor. She graduated with honors, and was a member of the Order of the Coif and Phi Beta Kappa. She was editor-in-chief of the Oklahoma Law Review, and was awarded the Nathan Scarritt Prize for the highest law school grade point average.
Scott A. Butcher, a graduate of New York University School of Law, is a general litigation attorney in the Oklahoma City office of Crowe and Dunlevy. While at NYU, Mr. Butcher served as a Senior Staff Editor on the Environmental Law Journal and was a recipient of the Dean's Scholarship and the Elliot F. Shepard Scholarship. He has experience working with law firms in New York as well as Oklahoma and clinical experience working with the U.S. Attorney for the Eastern District of New York. Mr. Butcher also spent time working for the U.S. Attorney for the Western District of Oklahoma in the Violent Crimes section of the Criminal Division.
M. Scott Regan is an Attorney for EnCana Oil & Gas (USA) Inc. in Denver, Colorado. Mr. Regan is responsible for upstream and midstream operations in the Wind River and Green River basins of Wyoming, as well as midstream operations in Colorado. Mr. Regan began his legal career with the law firm of Crowley, Haughey, Hanson, Toole & Dietrich (now Crowley Fleck) in Helena, Montana. After moving to Denver, Colorado in 1998, Mr. Regan was an associate with Holland & Hart until 2002, and later with Kerr Brosseau Bartlett O'Brien. Prior to joining EnCana in 2004, Mr. Regan's practice focused on oil and gas, litigation, and commercial transactions. Mr. Regan currently serves on the Rocky Mountain Mineral Law Foundation Long Range Planning Committee and is a member of the Montana and Colorado State Bar Associations, the Denver Bar Association, and the American Bar Association. Mr. Regan is the author of "Tonack v. Montana Bank: Preemption, Interpretation, and Older Employees Under Montana's Wrongful Discharge From Employment Act," 56 Mont. L. Rev. 585 (1995). Mr. Regan received his B.A. in History, with Honors, from Montana State University (1993) and his J.D. from the University of Montana (1996), where he served as an editor of the Montana Law Review.
James F. Cress is a partner in the Denver office of Holme Roberts & Owen LLP practicing international and domestic mining and natural resources law. He has negotiated and documented complex acquisitions, asset dispositions and financings and provided counsel regarding mining, land and title issues for coal, uranium, gold, copper, iron, oil and gas, molybdenum and other mineral-producing clients. He has experience in private and U.S. federal mineral royalty matters, and administrative appeals and litigation of mining and public lands issues. He has testified as a mining royalty expert before House and Senate committees considering mining royalty legislation. He has advised clients on the development, implementation and interpretation of mining law and regulation in the U.S., Asia, the former Soviet Union and Latin America. His international experience includes negotiation of substantial investments in developing countries, including negotiations with host governments, and includes work in the Philippines, Kazakhstan, Mexico, Argentina, Peru, Ethiopia, Brazil, Suriname and Burma. He has been an adjunct professor and lecturer in the University of Denver's Graduate Studies Program in Natural Resources and Environmental Law. He has served the Rocky Mountain Mineral Law Foundation as a member of the editorial board for the Form 5A committee and the current Form 5 LLC committee, revision author and member of the editorial committee for American Law of Mining (2d Ed.), mining chair for 1998 Annual Institute and international co-chair for the 2006 Annual Institute, and member of the Form 7 confidentiality and non-disclosure agreement committee, as well as authoring papers for various annual and special institutes. He is listed in "International Who's Who of Mining Lawyers" and "Best Lawyers in America."
Chapter 6
TABLE OF CONTENTS
I. Introduction
II. The SemGroup Experience - Testing the Statutory Regimes that Arose out of the Oil and Gas Bust in the 1980s
A. SemGroup's Bankruptcy Filing in the Summer of 2008
B. The Banks' Security Interests
C. Downstream Purchasers
D. Background of Producer Claims
E. Delaware Bankruptcy Court's Findings Regarding the Background of the Oil and Gas Industry
F. Reclamation Claims
G. Twenty-Day Claims Under Bankruptcy Code §503(b)(9)
1. Burden of Proof
2. Value and Other Terms
3. The Outcome of the §503(b)(9) Twenty-Day Claims
H. State Law Lien and Trust Claims
1. Lien and Trust Procedures Orders and Adversary Proceedings
2. Intervention of Downstream Purchasers
3. Competing Summary Judgment Motions on the Threshold Issues
I. Oklahoma Adversary Proceeding
1. The Oklahoma Production Revenue Standards Act
2. The Oklahoma Lien Act
J. The Texas Adversary Proceeding
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1. Interpretation of Texas Lien Statute
2. Choice of Law Applicable to Determine Perfection
3. Choice of Law Applicable to Determine Priority of Any Properly Perfected Security Interest
4. Impact of Court's Decision in the Texas Adversary
K. The Kansas Adversary
L. The Aftermath of the Opinions in the Oklahoma, Kansas and Texas Adversaries
1. Appeals to the Third Circuit Court of Appeals
2. Basic Terms of Settlement Among Producers, Debtors and Banks
3. Downstream Purchaser Litigation
4. Preparing for the Next Bust
III. MARKETING PRODUCTION ON BEHALF OF NON-OPERATORS AND ROYALTY OWNERS
A. Risks Associated with Marketing Non-Operators' Production
1. The Right, but not the Obligation, to Market Under the JOA
2. The Prudent Operator Standard and Exculpatory Clause
3. Non-Operators May Attempt to Impose Fiduciary Duties on the Operator
4. Non-Operators May Attempt to Seek Reimbursement from the Operator for Financial Losses
B. Risks Associated with Marketing Royalty Owners' Production
1. Title Stays with the Lessor Under an In Kind Royalty Clause
2. Title Passes to the Lessee Under an "In Money" Royalty Clause
3. Title Could Pass to the Lessee Under a Hybrid Royalty Clause
C. The Effect of Marketing Agreements and Division Orders
IV. STRUCTURING ARRANGEMENTS FOR THE DISTRIBUTION OF PRODUCTION: THE MIDSTREAM PERSPECTIVE
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A. Midstream Agreements
B. Exposure and Risk Allocation in Midstream Agreements
1. Risk Allocation and Construction of New Infrastructure
2. The Dedication
3. "Economic Out"
4. Credit Provisions and Other Risk-Mitigation Arrangements
V. DERIVATIVES AGREEMENTS: HOW THEY WORK (OR DON'T WORK) IN TIMES OF FINANCIAL DISTRESS AND BANKRUPTCY
A. Derivatives Agreement Protections Against Counterparty Insolvency And Bankruptcy
1. The ISDA Master Agreement
2. Collateral and the Credit Support Annex
3. "Bridging" Agreements
B. Bankruptcy Code Protections for Derivatives Transactions...
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