American Oil and Gas Reporter - July 2016 - 97

ConventionCoverage: Oklahoma Independent Petroleum Association
that risk was a large consideration, as
was the economic viability of mature
production. "A lot of folks are receiving
contract negotiation offers for production
in the latter stages of its life cycle," he
described. "How are the risk and reward
commensurate when the pipe is already
connected, the wellhead has been producing for years, and the only thing that
is changing is the contract? We have seen
threefold increases on expenses for an
existing well."
Kegin reasoned that many midstream
companies' structure as master limited
partnerships influenced their contract offers. "MLPs' business model is to increase
distributions to end-holders," he related.
"You can do that one of three ways: increase volume through your system, increase fees, or make acquisitions. If you
cannot buy other companies or add volume, the only thing left is to raise fees."
Other considerations he cited included
the disproportionate cost sometimes associated with moving low volumes, but a
number of audience comments and questions emphasized that many of the wells
facing unprofitability in the face of higher
gathering rates were not yielding a mere
1-3 Mcf a day, but more like 30-40 Mcf/d.
Producers' lack of leverage against predatory practices calls for legislative or regulatory relief, some producers suggested.
However, Le Norman reminded, even
short of such measures, producers are not
completely powerless. "There is power
in aggregation," he observed. "If a company
says it needs a certain profit margin to

make a stripper system work, then assign
the pipe over and let us aggregate. I am
not saying it is going to be easy, but there
is a whole array of things we can do."
Workout Time
Phillips Murrah PC attorneys and Directors Elizabeth K. Brown, Clayton Ketter, Melvin McVay and Stephen Elliott
offered a panel presentation on oil and
gas industry workouts and bankruptcies.
Ketter, who moderated, noted that 15
oil and gas companies went bankrupt in
2013 and 14 did the same in 2014, but
that number jumped to 67 in 2015 and
stood at 35 so far in 2016. However, he
said, for many companies facing financial
trouble, bankruptcy tends not to be the
first nor best choice. "Beyond the stigma
of filing bankruptcy, you have to pay attorneys, financial advisers, and more,"
he noted. "The cost of seeking a bankruptcy can be high, so before jumping
into that, you typically want to see if you
can do an out-of-court workout."
McVay described a workout as an attempt by a debtor and its creditors to
deal with financial problems or issues
without resorting to litigation, foreclosure
or bankruptcy. "The consensual workout
agreement, by definition, is a mutual
agreement between a lender and a borrower essentially to renegotiate the terms
of the debt-which probably at that point
is technically in default-so as to avoid
litigation and bankruptcy," he detailed.
"The debtor is looking for relief from
the debt service burden through measures
such as extending the term of the loan or

LEFT: Insurica Energy Practice Leader & Producer Dave Deardeuff
(right) accepts the OIPA Partner Award bestowed on his company by
association Chairman Jeffery McDougall. RIGHT: McDougall (right)
bestows OIPA's 2016 Member of the Year Award on Continental Re-

maybe extending payments under the
loan."
McVay went on to suggest that many
people anticipated seeing more oil and
gas companies declare bankruptcy during
this downturn than actually have occurred.
"That may be partially attributable to
more workouts going on," he held.
Along with avoiding bankruptcy costs,
he added that other advantages of avoiding
it included staying clear of the transparency
requirements that open a company's finances to public scrutiny, as well as the
toll a bankruptcy tends to exact on employees.
McVay acknowledged that a company
with a cash flow problem could be reluctant to pay an attorney to examine its options, but he asserted it was worth the investment. "That really is the time to do it
because there are a lot of things you can
and should do, and there are things you
may do but should not," he advised.
"Simply getting some preliminary advice
does not need to entail a lot of time or
expense, but going early is the best solution."
Attorneys also may act as a barrier to
disgruntled creditors, he added. "One advantage of hiring an attorney early-particularly if the firm has a name for bankruptcies or workouts-is your lenders know
you are in a serious financial situation.
That may convince them to seriously
consider a workout plan."
Protect Yourself
Meanwhile, Brown said, when doing
business with a company in financial dif-

sources Vice President of Government Relations and Regulatory
Affairs Blu Hulsey. OIPA also honored Representative Pat Ownby, RArdmore, as Legislator of the Year, though Ownby was absent
because he was celebrating his 40th wedding anniversary.

JULY 2016 97

American Oil and Gas Reporter - July 2016

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