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Dealing With Financial Distress in the Energy Industry: Acquisition of Distressed Properties

Rhett G. Campbell, Proceedings of 56th Annual Rocky Mountain Mineral Law Institute (2010)

Once a company with hydrocarbon assets files for chapter 11 bankruptcy, a common outcome is sale of the assets (or equity of the company) either through a formal sale process or through an opportunity for competing parties to file a plan of reorganization. As high quality exploration and production (E&P) assets in the continental United States become harder to find, it has become more common for prospective purchasers of hydrocarbons to view chapter 11 as a potential source of acquisition targets.
Bankruptcy trustees and debtors in chapter 7 and chapter 11 cases conduct private sales and true auctions with regularity. All such sales since 1978 are governed by 11 U.S.C. § 363, either with or without an accompanying plan of reorganization. Even prior to adoption of the Bankruptcy Code in 1978, sales of assets were permitted when they appeared to be perishable or deteriorating in value.2 Although the 1978 Bankruptcy Code was silent on the subject, the notion of an “emergency sale” was carried forward in practice, as in the classic example of the tomatoes rotting in the sun. With no emergency apparent in the record, a sale of all assets was remanded by the Ancor Exploration court.3 In recent years, however, a section 363(b) sale of debtor's assets out of the ordinary course of business and without a confirmed plan of reorganization has become more common. In fact, such a sale o