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Operator Distress Puts Non-Operators on High Alert

Nearly every day a different E&P company makes an announcement that indicates the company is facing financial distress, insolvency or bankruptcy.  Many of these companies are Operators under Joint Operating Agreements and with each announcement there are likely Non-Operators concerned about the impact these events will have on their non-operated working interests.  Non-Operators should understand their JOA rights and options when their Operator becomes distressed. Article V.B.3. of the 1989 Model Form Operating Agreement provides that if an Operator “becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have resigned without any action by Non-Operators, except the selection of a successor.” If an Operator becomes insolvent, but has not yet filed for bankruptcy protection, it may be prudent for the Non-Operators to act quickly to replace the Operator.  Even though the JOA provides that an Operator shall be deemed to have resigned when it files for… Continue Reading

May 2016
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