I feel as if there is going to be a wave of new bankruptcy filings within the next year or so. I think that the shale drillers are going to cannibalize themselves.
In that regard, you might want to protect yourself on future lease agreements by adding protective language. An example clause is as follows:
“If Lessee, or its permitted successors or assigns, files for relief (or if an involuntary filing is instituted against any such party) under the United States Bankruptcy Code, then Lessee shall within fifteen (15) days of any such filing provide Lessor with written notice thereof, and the rights of such party in and to the Leased Premises, the equipment or fixtures thereon, or the unsold Oil and Gas produced therefrom, shall automatically terminate, ipso facto, and be of no further force and effect, upon such voluntary or involuntary filing; PROVIDED, HOWEVER, such termination shall not apply to any acreage and depths within a Producing Block on which is located a well or wells producing in Paying Quantities or on which sufficient Continuous Operations are being conducted to otherwise maintain this Lease insofar as it covers such pooled acreage. If, and only if, for any reason and for so long as, the above and foregoing provision is held by a court of competent jurisdiction to be illegal, invalid, unenforceable or unconscionable under any present or future law (or interpretation thereof), such provision shall be deemed severed from this Agreement as if this Agreement had been executed without same and the following provision shall apply. If, following the granting of relief under the Bankruptcy Code to Lessee, this Agreement should be held to be an executory contract under the Bankruptcy Code, Lessor shall be entitled to a determination by Lessee, as debtor in possession, or by any trustee for debtor within thirty (30) days from the date an order for relief is entered under the Bankruptcy Code as to the rejection or assumption of this agreement. In the event of an assumption, Lessor shall be entitled to adequate assurances as to the future performance of debtor’s obligations hereunder and the protection of Lessors interests hereunder.”
Best wishes,
Buddy Cotten