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| vol 16, num 3 | October 2018 |
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| Fifth Circuit Rules that Louisiana Statutory Mineral Liens Are Extinguished as to Production Payments Sold in Arm’s-Length Transactions, Without Notice |
| Most oil and gas-producing states have oil and gas mineral lien statutes (similar to what many lawyers know as mechanic’s and materialman’s lien statutes) that grant automatically arising liens in favor of vendors that provide services in connection with oil and gas well operations. Louisiana’s version of the statute is known as the Louisiana Oil Well Lien Act (LOWLA). On June 14, 2018, in a case of first impression, the U.S. Court of Appeals for the Fifth Circuit entered a final judgment affirming for purposes of LOWLA’s “safe harbor” provision that the sale of a production payment qualifies as the sale or transfer of
“hydrocarbons” under the terms of LOWLA. Accordingly, the court held that LOWLA’s safe harbor operates to extinguish statutory liens as to production payments that are conveyed in “bona fide onerous transactions.” The Fifth Circuit panel’s opinion was issued on April 17, 2018 and was subject to a motion for rehearing en banc until June 14, 2018.
In OHA Investment Corp. v. Schlumberger Tech. Corp. (In re ATP Oil & Gas Corp.), OHA had purchased a production payment, aka a term overriding royalty interest (the “Term ORRI”), in outer continental shelf oil and gas properties owned and operated by ATP, an oil and gas exploration and production company.
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| Creditors, Take Care: Administrative Expenses Are Limited to Requested Services that Benefit a Debtor |
| The U.S. District Court for Eastern District of Louisiana recently affirmed the U.S. Bankruptcy Court for the Eastern District of Louisiana’s decision determining that (1) pre-demobilization expenses needed to be actually requested by the debtor in order to be entitled to administrative priority, and (2) the demobilization of an oil rig — the “logical” result of the rejection of a personnel and equipment supply contact — did not benefit a bankruptcy debtor’s estate and thus did not constitute an administrative expense. In In re Whistler Energy II LLC, Nabors Offshore Corp., a creditor of Whistler Energy II, LLC (the
debtor), contended that the bankruptcy court erred in disallowing much of its administrative expense priority claim for material and services that it provided to the debtor.
Prior to the bankruptcy proceedings, the debtor and Nabors entered into a contract under which Nabors agreed to provide the equipment and personnel necessary to drill wells and perform auxiliary operations and services for the debtor’s offshore oil and gas platform business. Following a platform accident, the debtor was thrust into an involuntary bankruptcy and requested that Nabors complete work associated with temporarily abandoning a well.
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| Tomorrow: Hot Topics and Recent Developments in Preference Law |
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Join the Unsecured Trade Creditors Committee on October 4 at 4 p.m. ET to discuss recent hot topics and important developments in preference law. The discussion will include cutting-edge issues regarding the “ordinary course” and “new value” defenses, as well as developing issues regarding the interplay of preference law with § 503(b)(9) and “critical vendor” programs. Ensure that your preference toolkit is up to date with the latest tricks of the trade by dialing (712) 432-1500, PIN 692933.
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