Journal of
Corporate
Renewal
Jan/Feb
2016
offshore on the Outer Continental Shelf
(OCS) are required to plug and remove
all structures on a lease within certain
time periods after the end of production.
Conceivably, rather than undertaking
P&A measures, a debtor oil and gas
company could try to abandon the
well, site, or other facility pursuant to
Bankruptcy Code Section 554. Some
courts have allowed abandonment,
regardless of non-bankruptcy
environmental laws and regulations,
when no “imminent” or “immediate”
identifiable threat was posed to public
health and safety, especially if the
debtor lacks sufficient unencumbered
funds to do the remediation itself. 17
However, there is substantial authority
to the contrary, which is in line with
the general requirement that Chapter 11
debtors continue to operate and manage
their assets, requiring compliance
with environmental obligations under
applicable federal, state, and local
laws and regulations. 18 Moreover,
depending on the circumstances of
the particular oil well, site, or other
facility, substantial or nearly substantial
compliance with applicable non-
bankruptcy laws may be required in
any event to eliminate an imminent
or immediate risk to public safety. 19
In all likelihood, as a practical matter,
if the debtor lacks sufficient resources
to do so or otherwise fails to do so,
some party (including, for instance,
governmental authorities or other parties
in the chain of title) will undertake to
plug a debtor’s oil wells or otherwise
remediate the debtor’s oil and gas
facilities as a matter of public health and
safety, and may assert administrative
priority claims against the estate on
account of such actions. 20 Whether
a particular P&A claim is entitled to
administrative priority may depend on
applicable non-bankruptcy law and
when the liability arose thereunder.21
Closing Thoughts
This article only skims the surface of the
litany of legal, business, and operational
concerns that investors in E&P
companies must consider to understand
the risk profile of their investment. Given
the current economic conditions and the
short-term outlook for the oil and gas
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continued on page 22
Bradford J. Sandler is co-chair of Pachulski Stang
Ziehl & Jones’ national Committee Practice Group and
maintains a national practice representing debtors,
committees, acquirers, and other significant parties
in complex reorganizations and financially distressed
situations, both in and out of court. He is listed among
both “The Best Lawyers in America” and “Delaware
Super Lawyers” in bankruptcy and creditor-debtor
rights; is ranked among the top bankruptcy attorneys
by The Deal; holds an AV Preeminent Peer Rating from
Martindale-Hubbell; and is ranked among Bankruptcy/
Restructuring attorneys by Chambers USA.
