'Operating Interests,' 'Working Interests,' 'Production Payments' and 'Overriding' Royalty Interests

The recent decline in oil prices and the historically low and stagnant natural gas prices are causing various parties in the oil and gas industries to seek bankruptcy protection. As a result, bankruptcy judges must apply specialized Bankruptcy Code provisions and varying other applicable non-bankruptcy laws to determine the rights of debtor and non-debtor parties to such agreements as those providing Overriding Royalty Interests (ORRI) and Net Operating Interests (NOI).

For guidance, the Bankruptcy Code defines certain terms such as “Farmout” (section 101(21A), “Term Overriding Royalty” (section 101(56A), and “Production Payments” ' 101(42A). However, bankruptcy courts must also resort to the application of non-bankruptcy laws that classify various interests in minerals, oil and gas as “real property,” while others deem the interests “personal property,” and yet others treat the interests as a third kind of property ' distinguished from real and personal property. For a good visual overview of the various mineral rights considerations in bankruptcy, see http://tinyurl.com/k6eezx6.

The Bankruptcy Code enumerates exceptions to the otherwise wide breath of “Property of the Debtor's Estate.” Some of the exceptions include: 1) any power that the debtor may exercise solely for the benefit of an entity other than the debtor (' 541(b)(1)); 2) any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease before the commencement of the bankruptcy case, and ceases to include any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease during the case (' 541(b)(2)); and 3) any interest of the debtor in liquid or gaseous hydrocarbons to the extent that ' (A) (i) the debtor has transferred or has agreed to transfer such interest pursuant to a farmout agreement or any written agreement directly related to a farmout agreement; and (ii) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 544(a)(3) of this title; or (B) (i) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which such production payment is transferred; and (ii) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 542 of this title (emphasis added) (' 541(b)(4)).

The owner of a mineral interest ' usually a landowner ' grants a right to explore, drill, and produce to an E&P operator ' referred to as an “Operating Interest” or “Working Interest.” “Royalty Interests” generally convey the right to share in a contracted portion of production ' if production occurs. Often, owners of mineral estates that grant a Working Interest retain a Royalty Interest. “Net Profit Interests” generally are carved out of the Working Interest, but are payable from net production profits over a stated term. ORRIs generally are pared out of the Working Interest, while Royalty Interests are carved from the Mineral Interest.

Several courts have recently considered whether “Production Payments” are always “Overriding Royalty Interests” (see NGP Capital Resource Co. v. ATP Oil & Gas Corp. (In re ATP Oil and Gas), Case No. 12-36187, Adv. No. 12-03443, Doc No. 145 at 32 (Bankr. S.D. Tex. Jan 6, 2013)). See also, Tow v. HBK Main Street Investments, L.P., ( In re ATP Oil and Gas), Case No. 12-36187, Adv. No. 14-03286, Doc No. 27 (Bankr. S.D. Tex. Mar 10, 2015). Courts have also determined whether the debtor's interest is held solely for the benefit of a third party and hence is not Property of the Estate. (Dahlberg v. ConocoPhillips Co. ( In re Reichmann Petroleum Corp.), 434 B.R. 790, 797-798 (Bankr. S.D. Tex. 2010), addressing whether the debtor's estate held technical title to revenue from interests, while the interests are held solely for the benefit of a third-party, non-working interest owner.)

Other cases addressing the oil and gas interest addressed whether the non-debtor interest rises to the level of a conveyance of real property, such that the debtor retains little advantage over the interest-holder. For example, under Pennsylvania property law, oil and gas leases do not vest oil and gas interests until production; hence, they are considered executory prior to production, and the contract is subject to rejection as either an executory contract or an unexpired lease. If production has not occurred prior to the bankruptcy filing of the debtor-lessor, then the lessee's interest remains “inchoate.” T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261, 267 (Pa. 2012). Section 362(a)(3) of the Bankruptcy Code prevents this inchoate interest of the lessee from converting to freehold estate.

The result is that the debtor-lessor's estate remains the owner of the oil and gas interest. If the agreement is deemed a real property lease (as opposed to a contract) (see, 11 U.S.C. ' 365(m)), the lessee would retain rights under the lease even if the lease is rejected, such that the lessee can enforce its rights to exploration. 11 U.S.C. ' 365(h)(1)(A)(ii). See In re Mustafa Tayfur v. Swepi LP, Central Appalachian Petroleum, et al., No. 14-3478 (3d Cir. March 18, 2015) (holding because the lessee retains the rights to exploration, the debtor-lessor could not relet for more money, and hence did not meet the test necessary to reject the lease ' that rejection would be financially beneficial to the debtor's estate). If production had occurred prior to the petition date, then the lessee's interest would be a “fee” ownership, and not property of the debtor's estate. Id.

A case to watch is In re Delta Petroleum General Recovery Trust, et al. v. BWAB Limited Liability Company, (Adv. Proc. No. 12-50898) and In re Delta Petroleum General Recovery Trust, et al. v. Aleron Larson, Jr., (Adv. Proc. No. 12-50877) (Bankr. D. Del. Apr. 2, 2015) (Dkt. No. 110). In Delta Petroleum, the court considered cross motions for summary judgment regarding the parties' rights under various ORRI and NOI agreements entered into between 1994 and 1999.

Delta Bankruptcy Filing

On Dec. 16, 2011, Delta (and most but not all of its affiliates) filed Chapter 11 Bankruptcy Petitions. The debtors' Bankruptcy Schedules listed a NOI as a real property interest. Neither BWAB nor Larson, counterparties to the ORRIs, filed proofs of claim in the Delta bankruptcy case. Delta obtained approval from the bankruptcy court to continue making payments under the ORRIs, and made such payments until September, 2012. Delta confirmed its Chapter 11 plan in August 2012. Among other things, the plan transferred all property of Delta's Estate to the Post-Confirmation Trust ' free and clear of all liens, claims and encumbrances.

Post-Confirmation Litigation

A Trustee under a Post-Confirmation Trust filed complaints against BWAB and Larson, the counter parties to the ORRIs, arguing that the rights and claims under the ORRI agreements constitute: 1) contractual rights to payment or claims that have been discharged by the debtors' confirmed Chapter 11 plan of reorganization; or 2) real property interests that may be avoided and recovered pursuant to Bankruptcy Code sections 544(a)(3) and 550 because of failure to record the interest. Larson and BWAB defended and countersued, asserting that under the ORRI agreements, they hold real property interests that were not part of the debtor's bankruptcy estate or that passed through the bankruptcy case unaffected.

Relying on California law, the court recited that “[A] land owner may enter into an oil and gas lease which grants to an operating lessee the privilege of entering upon the land for the purpose of producing oil and gas, [and] the interest thus created in the lessee is a profit a prendre, that is, an incorporeal hereditament or interest in real property. [citations omitted]. The term 'overriding royalty' is applied generally in the industry to such fractional interests in the production of oil and gas as are created from the lessee's estate. [citations omitted]. ' Both California and Colorado have determined that overriding royalty interest is an interest in real property. [citations omitted].” In re Delta Petroleum, Case No. 12-50877, Dkt. No. 110 at page 15-16.

1994 ORRI

The Post-Confirmation Trustee argued that the 1994 ORRI is not a real property interest, but was an interest in “net profits” rather than an interest in oil and gas, and therefore was a contractual interest for the payment of money that was extinguished by the debtors' plan. The Trustee also argued that the 1999 NOI Agreement transferred Whiting's interest in the net revenues to Delta; therefore, the net revenues became property of the debtors' estate. BWAB countered that the 1994 ORRI is a real property interest owned by BWAB, and therefore it never became part of the Debtors' Bankruptcy Estate and could not be extinguished by the plan.

Examining the language of the 1994 ORRI, “particularly its definition of 'Net Revenues,'” the court found that the ORRI, “established the parties' intent to grant BWAB a fractional interest in the revenue received from the hydrocarbons produced by Whiting's working interest in the Properties, after specific deduction.” Therefore, the court held the 1994 ORRI should be treated in the same manner as a typical overriding royalty interest in real property, as consistent with California law. Further, the real property interest was properly recorded at the time of its grant in 1994. As for the 1999 NOI Agreement, the court noted that agreement provided for the assignment of the net revenues after deduction of the royalties and overriding royalties, and hence it did not alter the rights of BWAB under the 1994 ORRI. Consequently, because the 1994 ORRI is a real property interest of BWAB, that interest was not extinguished, stripped or avoided by confirmation of Delta's Chapter 11 plan.

1999 BWAB ORRI/Assignment and the 1999 Larson ORRI/Assignment

The Post-Confirmation Trustee challenged the 1999 ORRIs on two grounds: 1) the NOI transferred by Whiting to Delta was not a real property interest and hence the 1999 ORRIs cannot be a real property interest; and 2) if the court holds that the 1999 ORRIs are real property interests, then the interests are avoidable because the interests were not recorded pursuant to the strong-arm provision of section 544(a)(3) of the Bankruptcy Code. BWAB and Larson argue that 1999 ORRIs are real property interests, but the 1999 ORRIs could not be recorded because the NOI was not recorded, hence the chain of title would not be complete.

The crucial determination to the rights of the parties, as with the 1994 ORRI, was whether the 1999 ORRIs conveyed real property interests to Larson and BWAB. The various analytical permutations that were considered by the court are summarized as follows.

Real Property or Not

The 1999 Assignments, which embodied the 1999 ORRIs, provided that “Delta conveyed overriding royalty interest in the oil and gas leases and lands,” and hence appear to be ORRIs. However, other language in the 1999 Assignment provided that Delta “conveyed a fractional percentage of the interest that Delta obtained from Whiting in the NOI Agreement.” Because the 1999 Assignment contained conflicting language on its face, the court determined that further evidence was needed to clarify the parties' intention. Hence, summary judgment was denied. The court further held that just because the Debtor listed the NOI on its Bankruptcy Schedules as a “real property interest,” it would not bind the Post-Confirmation Trustee to such a conclusion as to the nature of the NOI.

Failure to Record the ORRIs if Real Property

Even though summary judgment was denied, the court considered if the 1999 ORRIs were real property interests, whether the failure to record the ORRIs in the public records permits the Post-Confirmation Trustee to avoid the ORRIs pursuant to the strong-arm provision of section 544(a)(3) of the Bankruptcy Code. Relying on California law that requires holders of ORRIs to duly record their interests, the court concluded that if the ORRIs were real property, the failure to record would make the ORRIs avoidable pursuant to the strong-arm provision of section 544(a)(3) of the Bankruptcy Code.

If ORRIs Not Real Property

Neither BWAB nor Larson filed Proofs of Claim and the 1999 Agreements were not in default until after the debtors' Chapter 11 plan was confirmed and no additional payments were made. The Post-Confirmation Trustee asserted that if the ORRIs are not real property, they are merely claims for the payment of money, which were discharged under the Plan. The court concluded that “although there was no breach prior to the Plan Effective Date, the contractual right to payment is a claim within the definition in Bankruptcy Code ' 101(5). Accordingly, to the extent that the 1999 ORRIs are contractual rights to payment [and not real property interests], they are 'claims: that are subject to the discharge provisions of the Debtors' confirmed Plan.'”

Recovery of Post-Petition Payment

The Post-Confirmation Trustee also sued to recover post-petition payments made to Larson and BWAB under the 1999 Agreements, because the 1999 Agreements are avoidable under section 544(a)(3). However, if the payments were “production payments” or “ term overriding royalty,” they would be excluded from Property of the Estate pursuant to section 541(b)(4)(B), and hence not recoverable. The court reserved judgment on the Post-Confirmation Trustee's request for turnover of post-petition payments made on the 1999 Agreements under section 542(a), pending further briefing.

The court denied the Post-Confirmation Trustee's request for unjust enrichment, and claw-back of post-petition payments, as well as those for recovery under fraudulent transfer laws and other avoidance recoveries.

Conclusion

When dealing with interests, rights and claims involving oil and gas, bankruptcy counsel must carefully consider: 1) the parties' rights under applicable non-bankruptcy law (local real property, state laws, federal law, etc.) ' which may differ significantly depending on the applicable jurisdiction(s); 2) the effect of the parties' agreement (beyond the title); and 3) the unique Bankruptcy Code provisions that apply to these interests, rights and claims (e.g., 11 U.S.C. ” 541 (b)(4)).

Amy M. Tonti is a partner in Reed Smith LLP's Commercial Restructuring and Bankruptcy Group and member of this newsletter's Board of Editors. Robert P. Simons is a partner, a member of firm's Business & Finance Department, and heads its Coal Industry Team.

The recent decline in oil prices and the historically low and stagnant natural gas prices are causing various parties in the oil and gas industries to seek bankruptcy protection. As a result, bankruptcy judges must apply specialized Bankruptcy Code provisions and varying other applicable non-bankruptcy laws to determine the rights of debtor and non-debtor parties to such agreements as those providing Overriding Royalty Interests (ORRI) and Net Operating Interests (NOI).

For guidance, the Bankruptcy Code defines certain terms such as “Farmout” (section 101(21A), “Term Overriding Royalty” (section 101(56A), and “Production Payments” ' 101(42A). However, bankruptcy courts must also resort to the application of non-bankruptcy laws that classify various interests in minerals, oil and gas as “real property,” while others deem the interests “personal property,” and yet others treat the interests as a third kind of property ' distinguished from real and personal property. For a good visual overview of the various mineral rights considerations in bankruptcy, see http://tinyurl.com/k6eezx6.

The Bankruptcy Code enumerates exceptions to the otherwise wide breath of “Property of the Debtor's Estate.” Some of the exceptions include: 1) any power that the debtor may exercise solely for the benefit of an entity other than the debtor (' 541(b)(1)); 2) any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease before the commencement of the bankruptcy case, and ceases to include any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease during the case (' 541(b)(2)); and 3) any interest of the debtor in liquid or gaseous hydrocarbons to the extent that ' (A) (i) the debtor has transferred or has agreed to transfer such interest pursuant to a farmout agreement or any written agreement directly related to a farmout agreement; and (ii) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 544(a)(3) of this title; or (B) (i) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which such production payment is transferred; and (ii) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 542 of this title (emphasis added) (' 541(b)(4)).

The owner of a mineral interest ' usually a landowner ' grants a right to explore, drill, and produce to an E&P operator ' referred to as an “Operating Interest” or “Working Interest.” “Royalty Interests” generally convey the right to share in a contracted portion of production ' if production occurs. Often, owners of mineral estates that grant a Working Interest retain a Royalty Interest. “Net Profit Interests” generally are carved out of the Working Interest, but are payable from net production profits over a stated term. ORRIs generally are pared out of the Working Interest, while Royalty Interests are carved from the Mineral Interest.

Several courts have recently considered whether “Production Payments” are always “Overriding Royalty Interests” (see NGP Capital Resource Co. v. ATP Oil & Gas Corp. (In re ATP Oil and Gas), Case No. 12-36187, Adv. No. 12-03443, Doc No. 145 at 32 (Bankr. S.D. Tex. Jan 6, 2013)). See also, Tow v. HBK Main Street Investments, L.P., ( In re ATP Oil and Gas), Case No. 12-36187, Adv. No. 14-03286, Doc No. 27 (Bankr. S.D. Tex. Mar 10, 2015). Courts have also determined whether the debtor's interest is held solely for the benefit of a third party and hence is not Property of the Estate. (Dahlberg v. ConocoPhillips Co. ( In re Reichmann Petroleum Corp.), 434 B.R. 790, 797-798 (Bankr. S.D. Tex. 2010), addressing whether the debtor's estate held technical title to revenue from interests, while the interests are held solely for the benefit of a third-party, non-working interest owner.)

Other cases addressing the oil and gas interest addressed whether the non-debtor interest rises to the level of a conveyance of real property, such that the debtor retains little advantage over the interest-holder. For example, under Pennsylvania property law, oil and gas leases do not vest oil and gas interests until production; hence, they are considered executory prior to production, and the contract is subject to rejection as either an executory contract or an unexpired lease. If production has not occurred prior to the bankruptcy filing of the debtor-lessor, then the lessee's interest remains “inchoate.” T.W. Phillips Gas & Oil Co. v. Jedlicka , 42 A.3d 261, 267 (Pa. 2012). Section 362(a)(3) of the Bankruptcy Code prevents this inchoate interest of the lessee from converting to freehold estate.

The result is that the debtor-lessor's estate remains the owner of the oil and gas interest. If the agreement is deemed a real property lease (as opposed to a contract) (see, 11 U.S.C. ' 365(m)), the lessee would retain rights under the lease even if the lease is rejected, such that the lessee can enforce its rights to exploration. 11 U.S.C. ' 365(h)(1)(A)(ii). See In re Mustafa Tayfur v. Swepi LP, Central Appalachian Petroleum, et al., No. 14-3478 (3d Cir. March 18, 2015) (holding because the lessee retains the rights to exploration, the debtor-lessor could not relet for more money, and hence did not meet the test necessary to reject the lease ' that rejection would be financially beneficial to the debtor's estate). If production had occurred prior to the petition date, then the lessee's interest would be a “fee” ownership, and not property of the debtor's estate. Id.

A case to watch is In re Delta Petroleum General Recovery Trust, et al. v. BWAB Limited Liability Company, (Adv. Proc. No. 12-50898) and In re Delta Petroleum General Recovery Trust, et al. v. Aleron Larson, Jr., (Adv. Proc. No. 12-50877) (Bankr. D. Del. Apr. 2, 2015) (Dkt. No. 110). In Delta Petroleum, the court considered cross motions for summary judgment regarding the parties' rights under various ORRI and NOI agreements entered into between 1994 and 1999.

Delta Bankruptcy Filing

On Dec. 16, 2011, Delta (and most but not all of its affiliates) filed Chapter 11 Bankruptcy Petitions. The debtors' Bankruptcy Schedules listed a NOI as a real property interest. Neither BWAB nor Larson, counterparties to the ORRIs, filed proofs of claim in the Delta bankruptcy case. Delta obtained approval from the bankruptcy court to continue making payments under the ORRIs, and made such payments until September, 2012. Delta confirmed its Chapter 11 plan in August 2012. Among other things, the plan transferred all property of Delta's Estate to the Post-Confirmation Trust ' free and clear of all liens, claims and encumbrances.

Post-Confirmation Litigation

A Trustee under a Post-Confirmation Trust filed complaints against BWAB and Larson, the counter parties to the ORRIs, arguing that the rights and claims under the ORRI agreements constitute: 1) contractual rights to payment or claims that have been discharged by the debtors' confirmed Chapter 11 plan of reorganization; or 2) real property interests that may be avoided and recovered pursuant to Bankruptcy Code sections 544(a)(3) and 550 because of failure to record the interest. Larson and BWAB defended and countersued, asserting that under the ORRI agreements, they hold real property interests that were not part of the debtor's bankruptcy estate or that passed through the bankruptcy case unaffected.

Relying on California law, the court recited that “[A] land owner may enter into an oil and gas lease which grants to an operating lessee the privilege of entering upon the land for the purpose of producing oil and gas, [and] the interest thus created in the lessee is a profit a prendre, that is, an incorporeal hereditament or interest in real property. [citations omitted]. The term 'overriding royalty' is applied generally in the industry to such fractional interests in the production of oil and gas as are created from the lessee's estate. [citations omitted]. ' Both California and Colorado have determined that overriding royalty interest is an interest in real property. [citations omitted].” In re Delta Petroleum, Case No. 12-50877, Dkt. No. 110 at page 15-16.

1994 ORRI

The Post-Confirmation Trustee argued that the 1994 ORRI is not a real property interest, but was an interest in “net profits” rather than an interest in oil and gas, and therefore was a contractual interest for the payment of money that was extinguished by the debtors' plan. The Trustee also argued that the 1999 NOI Agreement transferred Whiting's interest in the net revenues to Delta; therefore, the net revenues became property of the debtors' estate. BWAB countered that the 1994 ORRI is a real property interest owned by BWAB, and therefore it never became part of the Debtors' Bankruptcy Estate and could not be extinguished by the plan.

Examining the language of the 1994 ORRI, “particularly its definition of 'Net Revenues,'” the court found that the ORRI, “established the parties' intent to grant BWAB a fractional interest in the revenue received from the hydrocarbons produced by Whiting's working interest in the Properties, after specific deduction.” Therefore, the court held the 1994 ORRI should be treated in the same manner as a typical overriding royalty interest in real property, as consistent with California law. Further, the real property interest was properly recorded at the time of its grant in 1994. As for the 1999 NOI Agreement, the court noted that agreement provided for the assignment of the net revenues after deduction of the royalties and overriding royalties, and hence it did not alter the rights of BWAB under the 1994 ORRI. Consequently, because the 1994 ORRI is a real property interest of BWAB, that interest was not extinguished, stripped or avoided by confirmation of Delta's Chapter 11 plan.

1999 BWAB ORRI/Assignment and the 1999 Larson ORRI/Assignment

The Post-Confirmation Trustee challenged the 1999 ORRIs on two grounds: 1) the NOI transferred by Whiting to Delta was not a real property interest and hence the 1999 ORRIs cannot be a real property interest; and 2) if the court holds that the 1999 ORRIs are real property interests, then the interests are avoidable because the interests were not recorded pursuant to the strong-arm provision of section 544(a)(3) of the Bankruptcy Code. BWAB and Larson argue that 1999 ORRIs are real property interests, but the 1999 ORRIs could not be recorded because the NOI was not recorded, hence the chain of title would not be complete.

The crucial determination to the rights of the parties, as with the 1994 ORRI, was whether the 1999 ORRIs conveyed real property interests to Larson and BWAB. The various analytical permutations that were considered by the court are summarized as follows.

Real Property or Not

The 1999 Assignments, which embodied the 1999 ORRIs, provided that “Delta conveyed overriding royalty interest in the oil and gas leases and lands,” and hence appear to be ORRIs. However, other language in the 1999 Assignment provided that Delta “conveyed a fractional percentage of the interest that Delta obtained from Whiting in the NOI Agreement.” Because the 1999 Assignment contained conflicting language on its face, the court determined that further evidence was needed to clarify the parties' intention. Hence, summary judgment was denied. The court further held that just because the Debtor listed the NOI on its Bankruptcy Schedules as a “real property interest,” it would not bind the Post-Confirmation Trustee to such a conclusion as to the nature of the NOI.

Failure to Record the ORRIs if Real Property

Even though summary judgment was denied, the court considered if the 1999 ORRIs were real property interests, whether the failure to record the ORRIs in the public records permits the Post-Confirmation Trustee to avoid the ORRIs pursuant to the strong-arm provision of section 544(a)(3) of the Bankruptcy Code. Relying on California law that requires holders of ORRIs to duly record their interests, the court concluded that if the ORRIs were real property, the failure to record would make the ORRIs avoidable pursuant to the strong-arm provision of section 544(a)(3) of the Bankruptcy Code.

If ORRIs Not Real Property

Neither BWAB nor Larson filed Proofs of Claim and the 1999 Agreements were not in default until after the debtors' Chapter 11 plan was confirmed and no additional payments were made. The Post-Confirmation Trustee asserted that if the ORRIs are not real property, they are merely claims for the payment of money, which were discharged under the Plan. The court concluded that “although there was no breach prior to the Plan Effective Date, the contractual right to payment is a claim within the definition in Bankruptcy Code ' 101(5). Accordingly, to the extent that the 1999 ORRIs are contractual rights to payment [and not real property interests], they are 'claims: that are subject to the discharge provisions of the Debtors' confirmed Plan.'”

Recovery of Post-Petition Payment

The Post-Confirmation Trustee also sued to recover post-petition payments made to Larson and BWAB under the 1999 Agreements, because the 1999 Agreements are avoidable under section 544(a)(3). However, if the payments were “production payments” or “ term overriding royalty,” they would be excluded from Property of the Estate pursuant to section 541(b)(4)(B), and hence not recoverable. The court reserved judgment on the Post-Confirmation Trustee's request for turnover of post-petition payments made on the 1999 Agreements under section 542(a), pending further briefing.

The court denied the Post-Confirmation Trustee's request for unjust enrichment, and claw-back of post-petition payments, as well as those for recovery under fraudulent transfer laws and other avoidance recoveries.

Conclusion

When dealing with interests, rights and claims involving oil and gas, bankruptcy counsel must carefully consider: 1) the parties' rights under applicable non-bankruptcy law (local real property, state laws, federal law, etc.) ' which may differ significantly depending on the applicable jurisdiction(s); 2) the effect of the parties' agreement (beyond the title); and 3) the unique Bankruptcy Code provisions that apply to these interests, rights and claims (e.g., 11 U.S.C. ” 541 (b)(4)).

Amy M. Tonti is a partner in Reed Smith LLP's Commercial Restructuring and Bankruptcy Group and member of this newsletter's Board of Editors. Robert P. Simons is a partner, a member of firm's Business & Finance Department, and heads its Coal Industry Team.