By Josh Swanson and Caren Stanley
The tsunami that has rocked the oil and gas industry claimed its biggest fish yet as Whiting Petroleum, one of the largest operators in North Dakota, filed for Chapter 11 bankruptcy on April 1. A depressed market in the wake of the COVID-19 pandemic, coupled with the ongoing strife between Russia and Saudi Arabia, has oil prices at their lowest levels in a generation. Whiting Petroleum is the first large shale producer to file for bankruptcy, and likely not the last.
The New York Times reported in late March that, “Global oil benchmark prices hover around $20 a barrel – levels not seen in a generation – and regional prices in West Texas and North Dakota have fallen even further, to around $10 a barrel. That is about a quarter of the price that shale operators typically need to cover the costs of pulling oil out of the ground.” The same article warns that if prices remain depressed, “[a] big wave of bankruptcies is inevitable by the end of the year, experts say.”
If you are a business with outstanding accounts receivable for labor and materials provided in western North Dakota, it is imperative that you act now – if you haven’t already – to protect your legal rights. Unsecured creditors will have a difficult, if not impossible time, collecting on accounts in the event a company files bankruptcy and has not paid you for your services and materials. One long-time industry attorney summed it up on a recent webinar thusly: “Unsecured creditors are likely to be facing bloodbaths in these cases.” There are steps you can take under North Dakota law, including the filing of well and pipeline liens under Chapter 35-24, N.D.C.C., to advance your claim to payment and avoid the worst of the bloodbath.
Time is critical, particularly for service and material providers who face a strict six (6) month statutory window to get their well and pipeline liens filed. The main benefit of filing well and pipeline liens is that it allows for status as a secured creditor against the well/pipeline that received the benefit of the provider’s services and materials versus being an unsecured creditor. Failing to take appropriate action could come at a heavy cost, and leave you fighting for scraps along with other unsecured creditors. Given the high level of detail and legal requirements for properly perfecting a lien, this is not a situation where you want to resort to self-help without the assistance of an experienced attorney. If you fail to follow the statutory requirements, your lien will be ineffective, and fail to serve its intended purpose.
If you have the legal basis for asserting a lien, now is the time to do it. If you are leasing equipment to the debtor, tough decisions have to be made – for example, should you act now to get the equipment back or continue to work with the debtor throughout a bankruptcy case. This is not the time to send a second or third letter asking for payment. Nice finishes last when it comes to protecting your interests and getting paid for the work you have done. Hiring an experienced attorney to navigate you through these times, while it may cost you on the front end, could be one of the best decisions you make.
During these uncertain economic times, Vogel Law Firm is here for you with a team of experienced and dedicated oil and gas, debtor/creditor, and bankruptcy attorneys and staff. We also handle all matters of breach of contract claims and business-to-business disputes. To schedule a meeting with a Vogel Law Firm attorney, call 701.237.6983.
Disclaimer: These materials are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials does not create an attorney-client relationship between the Vogel Law Firm and the user or browser. The opinions expressed at or through these materials are the opinions of the individual author and may not reflect the opinions of the Vogel Law Firm or any individual attorney. Under no circumstances shall the Vogel Law Firm have any liability to you for any loss or damage of any kind incurred as a result of the use of the information or your reliance on any information provided.
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