Buying Oil or Gas Wells in a Bankruptcy Auction

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For auctions from a bankruptcy lot, it is important to consider all factors involved in the sale that may also include taxes for any oil or gas wells, property rights and unclaimed rights of another that owns a portion of the land or well. Before finalizing the deal, it is crucial to consult with a real estate or bankruptcy lawyer about these circumstances.

There are several considerations when an oil or gas well is purchasable through a bankruptcy auction. Most of these types of auctions do not permit the potential buyers to assess the possible asset. This could lead to a well that runs dry quickly, and this could incur a loss for the buyer. Additionally, there may exist impurities in the oil or gas that could cause a need for cleaning it before it is usable on the open market. This increases costs for the purchaser, and it could complicate the situation further. If the auction conflicts with another property claim on the land, the interest in the well may involve a dispute.

Potential Risks in Purchase

The financial risks of purchasing an oil or gas well are significant when the well purchase is through an auction. If the bankruptcy is due to a lack of oil or gas, the risk increases to possible financial loss. The buyer will need to ensure the title is clear, mechanical and other liens are no longer an issue and assignments, contracts and lessor issues. Other difficulties in these situations may involve legacy liability, claims from suppliers, service entities and other owners. Operations that existed before the well sold to the new owner and projects that are part of a joint venture with a company may complicate the sale.

Pros of a Purchase through Auction

It is possible to mitigate the risks of the bankruptcy auction process through a series of approaches that may provide advantages. It is important to purchase the well through a structured bankruptcy transaction. This may ensure that the well is free and clear of liens, claims, liabilities and other encumbrances. The court order attached to the acquisition will ensure that the purchase does not contain any fraudulent transfers or any liability accrues to the successor of the purchase. This is especially important when the well could have other claims attached or another company that started a project or joint venture with the company that fell through bankruptcy.

Through a structured bankruptcy auction, there is a limitation of any possible future liability. The nature of the purchase possessing a free and clear aspect should prevent the future liability issues that could come with an auction purchase. Other issues such as bylaws of a company imposing a majority of stockholder votes in selling any company assets do not take part in these sales. Other rights also do not apply to this type of auction such as the approval of termination, consent, change of control and similar rights that would when the sale progresses through an entity.

The Negative Side of an Auction

There are many limitations in buying a well through a bankruptcy auction. This process is public, and any potential buyer must submit all competitive bidding. He or she may also face publicity and need to go through the court order for the sale. Going through the bankruptcy auction, the buyer must obtain an approval by the court to secure the purchase of the well. Bids often fail, and this could lead to complications if the funds are tied up in the auction for a certain amount of time. If the purchase does go through, it could take time. There are often delays that occur due to objections by creditors and the court review of the sale.

he publicity in purchasing anything through a bankruptcy auction is possible. The public may become aware of the purchase when it involves a gas or oil well of a large land mass. Additionally, the media may spin the sale into something negative that affects the buyer. However, the individual may transfer the ownership smoothly depending on how he or she does so with the well. The sale itself is final, and it is open to review by creditors and the public.

Legal Help in a Bankruptcy Auction

It is important to consult a lawyer before and after purchasing items through a bankruptcy auction. A business lawyer may explain the company side of such sales, while a real estate lawyer has the knowledge about the land purchase.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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