1. Bruce Ruzinsky
Jackson Walker L.L.P. •
Monica Blacker •
Dealing with Counterparty/Bankruptcy Risk in the Upstream Oil and Gas Industry

2. Reducing Counterparty Risk Pre-Bankruptcy
Perfecting rights related to oil and gas leases and joint operating agreements
Operator and non-operator liens
Analyze your rights under JOAs and other operative agreements
Possible traps under Producer’s lien statutes

3. Special Protections and Safe Harbor Contracts
Farmouts
Defined in 101(21A) of the Bankruptcy Code
Exception from property of the estate
Forward Contracts
Defined in 101(25) of the Bankruptcy Code
Given certain “safe harbor” protections
Forward contract merchants may immediately set off or net amounts owed
Exception from ipso facto clause prohibition
Certain Super-Defenses

4. Recent SemCrude Decision
District Court held that bankruptcy court did not err in finding that purchasers of oil from the debtor (which the debtor had purchased on credit from oil producers) took the oil free and clear of the producers' liens as either: (i) buyers for value pursuant to U.C.C. § or (ii) buyers in the ordinary course of business pursuant to U.C.C. §
District Court’s decision turns significantly on the failure of the producers to record their liens, it is prudent as part of the due diligence on the creditworthiness of a counterparty to check for recorded liens.
Producers can take away a couple of lessons: (i) to the extent they want the priority of their liens to be recognized, they may consider recording them, and (ii) the automatic liens may not be sufficient to protect their interests, so they may want to evaluate a buyer’s credit and put in place additional risk-mitigation measures.

5. Post-Bankruptcy Basics
Notice of Bankruptcy Filing, Now What?
Possible Reclamation Rights or Administrative Claims under 503(b)
Automatic Stay in Place that Limits Actions
Leases and Executory Contracts
Bar Date
Use of Cash Collateral and/or DIP Financing
Avoidance Action
Plans and Disclosure Statements

6. Reclamation Rights and 503(b) Claims
Reclamation rights arise under the UCC and Section 2.702(b) of the Tex. Bus.& Comm. Code
Seller can reclaim goods delivered within 10 days of notice
Bankruptcy Code §546 (c) provides a longer reclamation period
Seller can demand goods up to 45 days after receipt by debtor or not later than 20 days after the commencement of the case if the 45 day period expires after the bankruptcy is filed
Administrative Claim
Section 503(b)(9) grants an administrative expense claim to a seller for goods received by the debtor within 20 days of the case and sold in the ordinary course of business

7. Automatic Stay
The filing of the bankruptcy case acts as an automatic stay of the “commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case.” §362
Only applies to property of the estate as defined by §541

8. Executory Contracts and Leases
A debtor can assume or reject an unexpired lease or executory contract under § 365(a)
Character of Oil and Gas Leases
“Executory contract” not defined
Various states have differing views
JOAs are executory contracts
Timing and Twilight Periods

9. Avoidance Actions
Chapter 5 of the Bankruptcy Code provides a trustee (or debtor in possession) with certain avoidance powers
Preferences §547
Statutory defenses
Fraudulent transfers §548
Payments made under Forward Contracts and Swap Agreements may be protected from avoidance actions under certain safe harbor protections

10. Plans and Disclosure Statements
The Disclosure Statement in a chapter 11 case is designed to give creditors adequate information that would enable them to make an informed judgment about their treatment under the plan
The Debtor has the exclusive right to file a plan for 120 days after the petition date and 180 days to solicit
The plan includes classification of claims and their treatment
Creditors who are impaired are entitled to vote
Class of claims deemed to accept a plan if creditors that hold at least 2/3 in amount and more than ½ in number of the allowed claims vote to accept
Parties in interest may object
Confirmation of a plan discharges debtor from debts arising prior to confirmation

11. If you forget everything we said…at least remember these:
Know Who You Are Doing Business With:
Don’t let your counterparty get too far behind in payments
Move to a prepay situation if bankruptcy is imminent
Get a Bankruptcy Lawyer involved
There are many deadlines that come fast (i.e., bar date, use of cash collateral, rejection or assumption of contracts)
Watch for negative notice
Get Your Lien Documents filed