We are receiving royalties from an operator in Reeves County, Texas. If the operator declares bankruptcy what happens to the oil wells? Are royalties withheld? Are the assets sold to healthier, stronger companies?
In general, the wells are a source of revenue which the company needs. The royalties usually continue to get paid as the mineral owners are a special class of debtor. Sometimes the company pays them, sometimes a trust company that is appointed for the bankrupcty pays them. Usually the assets are sold to stronger and healthier companies. Gven the situation at the moment, the settlement may take longer than usual.
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Thank you. I really appreciate the information you provided. Given the current situation, I’m trying to prepare for the worst case scenario.
The price of oil has dropped quite sharply this last week or so. Your checks in the future may be quite a bit lower than they were before due to both natural production decline and the price drop. They will reflect the new prices very soon. Nothing you can do about it, but budget wisely.
Marilyn, I just received a letter announcing Tapstone electing to file Chapter 11. Do mineral owners continue to get paid? Thanks in advance. RB
Not giving legal advice of course, but every company that I have dealt with so far that went into bankruptcy (Ch 11) has continued to pay royalties.
Chapter 11 is where the debtor negotiates with creditors to alter the terms of their loans without having to liquidate their assets. Chapter 7 is where the debtors assets are sold to pay their debts. Needed to clarify that for the first question in the thread.
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There are a couple of articles in the Blog section on bankruptcies, including this one I wrote.
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On April 1st Whiting Petroleum announced they have filed a Chapter 11 Bankruptcy. Today is April 2nd and they have NOT made March royalty payments. It is my understanding that Chapter 11s usually continue making royalty payments. Do they have more time than previously to make the payments, or could this be a sign of another direction being taken. Ed Selby
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