Article by Jarrod Martin and Tyler Greenwood on "A Primer On Best Practices in Oil and Gas Bankruptcies–Royalty Owners”
In an article published on May 19, 2021 in SHALE Oil & Gas Business Magazine, Jarrod Martin and Tyler Greenwood discuss common questions for royalty owners that inevitably arise with respect to royalty leases.
“In typical oil and gas leases, parties contract to certain terms, conditions, and clauses, including the ‘habendum clause’,” explain Martin and Greenwood. “The habendum clause normally defines and breaks down the duration of the lease into two terms: a primary term (such as ‘for five years’) and a secondary term (such as ‘for so long as oil and gas are produced in paying quantities’).”
Martin and Greenwood further explain that this clause typically lasts as long as the condition in the secondary term is satisfied. Recent current events, including low oil prices, the pandemic, and a new administration scrutinizing oil and gas production, have royalty owners questioning, with respect to royalty leases, what they can do to protect themselves and whether there are safeguards within their lease.
“Assume you have an existing royalty lease, and given recent volatility, you are rightfully concerned a bankruptcy filing by a producer, or upstream purchaser, is going to impact your investment,” said Martin and Greenwood. “You correctly believe in such an event, certain protections will be afforded to you, but without more information, you do not know which actions to take.”
To read the article in full, click here.