Yes, Ronny. An operator's leases are binding legal contracts, whereas most business bankruptcies are simply reorganizations of debt repayments. In other words, an operator's cash-flow income from their working wells per the signed leases which administer such will remain in effect.
That sounds way more optimistic then the reality would be. I suspect that there are some things in the leases that lean toward the operator and that the royalty owners will be stiffed. Just my opinion ..
You better just pray they don't file ..
I agree, KOH.
I guess my wording wasn't clear. The point is that a landowner/min. owner can't escape (invalidate/get out of) a valid/binding lease/legal contract -- whereas an operator can, in fact, delay payment of royalty (per certain circumstances, i.e., as a few operators are already doing).
I have been wanting to know how the mineral owner would be treated legally if the leaseholder filed. Do they owe you as a creditor when the cash flow gets interrupted? When and who pays off royalties due when an energy company swirls around in the bowl and gets flushed out of the picture? Someone else ends up with ownership of the lease at some point. I know that is still a valid legal document they are bound to honor. What happens in the middle? How long would it take to catch it up?
Frank, when the money dries up, it would be like squeezing a dried-up turnip. Could drag on for years, depending on the individual situation. (Note: This poster is not a bankruptcy lawyer.)
Hey, numerous royalty owners have been having trouble being put into pay with certain "in-the-black" operators. So, when the crud really hits the fan and there's a red-ink cash-flow problem -- seems to be obvious that such a failing operator won't cough it up.
Best to hope for would be a buyout by a deep-pockets entity who would sort through the paperwork and get folks paid within a reasonable amount of time (depending on the legalities of a takeover).
Won't be pretty or fast if it's a hostile takeover.
But this is just my un-professional opinion. I'm not a O&G insider/attorney.
Wouldn't the lessor have to get in the same line as the rest of the creditors for money owed?
Isn't the lease just one of the assets of the failed company that could be sold to pay debts?
Wouldn't the lease have to be maintained as to it's terms or become invalid?..it is an agreement..right?
What would happen to a lease if the operator just quit paying according to it's terms?..bankrupt or not?
I was thinking if the lessee stopped paying royalties during a bankruptcy and the well was still in production (not shut-in) then the terms of the lease would be violated. I have the same questions as P.G.
PG and Ronny -- yes, it can be somewhat confusing, to say the least.
And CheetahB's post below has basically nailed it, too, IMHO.
In other words, one way of thinking about this stuff is that "valid" leases are hard/real estate assets which can't be encumbered by a court -> short of a definitive civil judgment per a lengthy legal process. A poor analogy would a corporation owning a rent house, in a way, with a mortgage to a bank (i.e., with the title bank being the landowner/mineral owner).
So the landlord (operator) can keep collecting rent (pumping/pulling out the minerals) as long as most of the state/fed mineral laws are being adhered to (even though the royalty owners aren't being paid). In other words, a cash-short operator can claim a cash-flow problem and state that such monies owed to the royalty/landowners will eventually be paid in the future, but that more pressing "secured" debts are immediately due and thus owed in the short term so as to keep the operator operating.
Ergo, in one respect, the royalty owner might be the very last so-called debtor to be paid, and this would all be legal until the operator was sued and had a judgment placed against the business per a lengthy delay in royalty payments.
Again, please note that this poster is not a bankruptcy attorney, nor should the above be considered legal advice. No, this series of posts are simply nothing more than an un-professional opinion of a La. landowner (with some years of gov. contract law expertise), that's all.
No. Once again, Federal law circumvents common sense and even the terms of the lease itself. Lessors are not even as well off as vendors to the bankrupt party or company. IF you suspect a company is going to file bankruptcy, you might try to ger with a solid bankruptcy attorney and see if you can work something out with the company before they file, but in most cases, the Federal Bankrutpcy Court has the right to set aside agreements made for some period of time before the bankruptcy is filed. I believe we should demand a change in the bankruptcy laws, as they do not favor the peoople who actually owned the minerals prior to the execution of the base lease. Call your lawmakers and the sooner the better.
I posed the question with Chesapeake in mind. NOT that they would file bankruptcy but stranger things have happened. I feel better since they announced a dividend on their website yesterday. Pretty good for a company who's supposedly broke. Makes me wonder if lease language could be added which would dissolve a lease in the event of a bankruptcy.
R., maybe Carl Icahn is not a classical "pump-and-dump" type of guy, but any spin (stock dividend, etc.) whirling around the CHK tornado should be viewed with a seriously skeptical set of binoculars.
Timing and the psychology of public impression can, and does, trick some folks.
Yeah, well -- the Chesapeake stockholders better hope that the Hogshooter oil gusher has "long-term" lift via the flow up that okie/Tejas pipe string.
Of course, the divvied up assets of CHK as surely worth quite a bit more than some might think. Again, Carl is quite good at what he does.