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payments will likely become
unsecured claims, because no lien
was filed (as the transaction was
documented as a sale). Indeed, in
the ATP Oil & Gas case, the debtors
VPPs as disguised financings; the
court refused to grant summary
judgment in favor of the purchasers.
The oil price collapse marks more than
just a temporary market correction, in
light of a number of factors that include:
• Technological advances have greatly
lowered the cost of domestic oil
production and increased its supply.
• Oil and gas field leases require
near constant drilling of new wells.
These newer, more productive wells
more than offset the production of
wells going offline, even as the net
number of wells comes down.
• OPEC has stopped supporting
prices, at least for the time being.
• Natural gas prices have fallen much
more precipitously than oil and show
no signs of rebounding significantly.
On a relative basis, oil is twice as
expensive as it has been historically.
These factors give rise to a new
equilibrium that will continue to
alter the investment landscape in the
oil and gas industry. The low-price
environment will offer opportunities
for discerning investors, but the
potential risks and rewards of any
investments must be considered
carefully. Factors to consider include:
• Independent and nontraditional
producers are likely to face
challenges at the next borrowing
base reset in October.
• Oilfield services companies may
see dramatic swings in revenues as
their customers adjust well counts.
• Wellhead monetization opportunities
offer a quick fix for many cash
strapped producers and may
be an attractive opportunity for
investors. The extent of commodity
risk in these investments is
often inversely correlated to the
challenges they may face in a
restructuring. Seemingly similar
transactions may have varying
treatment under differing state law.
Amid much uncertainty, one thing
is certain—the coming months will
present many opportunities for
restructuring professionals, as the
winners and losers of the swing in
crude oil prices become apparent. J
RNGWHHD. M; eia.gov/dnav/pet/hist/
LeafHandler.ashx?n=PE T&s=RW TC&f=D
4 The U. S. oil and gas industry typically
refers to “tight” oil rather than “shale” oil
because it is a broader term, encompassing
more geologic formations. The U. S.
Energy Information Agency has adopted
the convention of using the term “tight
oil” to refer to all resources, reserves, and
production associated with low-permeability
formations that produce oil, including
those associated with shale formations.
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