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'Operating Interests,' 'Working Interests,' 'Production Payments' and 'Overriding' Royalty Interests

By Amy M. Tonti and Robert P. Simons
June 02, 2015

The recent decline in oil prices and the historically low and stagnant natural gas prices are causing various parties in the oil and gas industries to seek bankruptcy protection. As a result, bankruptcy judges must apply specialized Bankruptcy Code provisions and varying other applicable non-bankruptcy laws to determine the rights of debtor and non-debtor parties to such agreements as those providing Overriding Royalty Interests (ORRI) and Net Operating Interests (NOI).

For guidance, the Bankruptcy Code defines certain terms such as “Farmout” (section 101(21A), “Term Overriding Royalty” (section 101(56A), and “Production Payments” ' 101(42A). However, bankruptcy courts must also resort to the application of non-bankruptcy laws that classify various interests in minerals, oil and gas as “real property,” while others deem the interests “personal property,” and yet others treat the interests as a third kind of property ' distinguished from real and personal property. For a good visual overview of the various mineral rights considerations in bankruptcy, see http://tinyurl.com/k6eezx6.

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