As the global price of oil has continued to decrease, the oil and gas industry has experienced some significant collateral damage. In 2015, several big industry players, including Quicksilver Resources, American Eagle Energy, Sabine Oil & Gas, Hercules Offshore, Milagro and Saratoga Resources filed for Chapter 11 bankruptcy. Magnum Hunter Resources, Corp., one of Ohio’s long-time oil and gas players, just recently filed for bankruptcy in December of 2015. According to the Short-Term Energy Outlook released by the U.S. Energy Information Administration (EIA) on February 9, 2016, the price of crude oil will likely average $38.00 per barrel in2016.It goes without saying that the industry will likely continue to face many challenges in the near future.
Like many other areas of practice, the oil and gas practice tends to be affected by the market of the industry in which lawyers practice. When oil and gas development in Ohio was at its peak in recent years, Ohio lawyers experienced increasing demand for assistance with leasehold acquisitions, title due diligence and litigation involving many different types of claims related to validity of lease terms and mineral ownership. With the downturn in the oil and gas market, Ohio lawyers should expect to continue seeing a shift in the legal landscape in the near term.
Top market-related developments oil and gas lawyers should expect to continue seeing through 2016:
1. More bankruptcies
Low oil and gas prices may continue to present solvency issues for oil and gas producers. As with the recession, creditors’ rights and bankruptcy attorneys should expect to see more and more producers and operators who seek assistance navigating mounting and unpayable debt.
To read more about navigating bankruptcy and insolvency, read John Brody’s blog, “Strategies to Manage Insolvency and Bankruptcy in the Oil and Gas Downturn.”
2. Less acquisition of new oil and gas leases
As companies slow operations and development, acquisition of new leases will likely also remain stagnant. Expect operators to focus on existing operations and lowering their budgets.
3. Increased litigation involving breach of contract for failure to pay royalties
In late-2015, Chesapeake was named as a defendant in more than one class action lawsuit involving claims relating to unpaid royalties. As landowners increasingly become more sophisticated, operators and producers must take care to comply with their contractual obligations in order to minimize exposure to costly litigation.
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