VOLUMETRIC PRODUCTION PAYMENTS IN BANKRUPTCY JEFF NICHOLS, KARL BURRER, ELLEN CONLEY I. INTRODUCTION.............................................2 II. VOLUMETRIC PRODUCTION PAYMENT. ..........................
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SECTION 5411(B): SAFE HARBOR FOR PRODUCTION PAYMENTS.....8
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Characteristicsof a VPP ............... .......... 3 Documenting the VPP.................... .......... 4 1. The Purchaseand Sale Agreement .................. 4 2. The Conveyance..............................5 3. The Production andDelivery Agreement.. ....... 6 4. Deed of Trust ....................... ............. 7 . Hedge Agreements ................... .............. 8 Safe HarborProvisions Under Section 541(b)(4)..........9 1. Transfer of a ProductionPayment by a Written Conveyance ................................ 10 2. VPP Buyer Does Not Participatein Operations........11 3. The VPP is Only Subject to Inclusion Pursuantto Sections 365 or 542............ ....... 12 a. Inclusion Under Section 365 ............ ..... 13 b. Inclusion Under Section 542 ................. 13 c. Inclusion Through Other Means ................ 13 PotentialExclusionfrom the Estate on Other Grounds........... 14 1. Jurisdictions Onere Minerals are Considered Interests in Land the. sts........................ ..... 14 2. JurisdictionsWhere Minerals are Considered PersonalProperty ............................. 15
RECHARACTERIZATION OF THE VPP AND THE POTENTIAL CONSEQUENCES ..............
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Recharacterizationof Transactionsin Bankruptcy ............... 15 1. Recharacterizationof VPPs: In re Senior-G&A Operating Co ................. .......... 17 2. Applicability of Senior-G&A to Modern VPP Transactions ............................. 19 3. PossibleIssuesfor the VPP Grantee IfIts Interests were Recharacterized ............................... 21 V. AVOIDANCE OF UNRECORDED VPPS .......................... 23 A. The Debtor'sAvoidance Power Under Section 544(a) (3) ..... 23 1