Distress in the Energy Industry - Amazon Web Services · What is Driving the Oil Revolution...
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2015 Allen Pfeiffer, Presiding Officer Duff & Phelps, LLC; Morristown, N.J. Loretta R. Cross, Moderator Stout Risius Ross, Inc.; Houston Daniel Beaulne Duff & Phelps, LLC; Dallas Lisa J. Donahue AlixPartners, LLP; New York Marshall S. Huebner Davis Polk & Wardwell LLP; New York William L. Wallander Vinson & Elkins LLP; Dallas Distress in the Energy Industry
Transcript of Distress in the Energy Industry - Amazon Web Services · What is Driving the Oil Revolution...
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Allen Pfeiffer, Presiding OfficerDuff & Phelps, LLC; Morristown, N.J.
Loretta R. Cross, ModeratorStout Risius Ross, Inc.; Houston
Daniel BeaulneDuff & Phelps, LLC; Dallas
Lisa J. DonahueAlixPartners, LLP; New York
Marshall S. HuebnerDavis Polk & Wardwell LLP; New York
William L. WallanderVinson & Elkins LLP; Dallas
Distress in the Energy Industry
Distress in the Energy Industry
Earn CLE credit on demand
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AmericAn BAnkruptcy institute
459
Glob
al Fin
ancia
l Adv
isory
Servi
ces
Distr
ess i
n the
Ene
rgy I
ndus
tryJa
nuar
y 12,
2015
VALCON 2015
460
Wha
t is D
riving
the O
il Rev
olutio
n
[Upd
ate
imag
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B&
W v
ersi
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f cov
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aphi
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aste
and
upd
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this
slid
e as
nee
ded
to s
epar
ate
sect
ions
.]
AmericAn BAnkruptcy institute
461
Wha
t is D
riving
the O
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Conv
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conv
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2003
2004
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VALCON 2015
462
Supp
ly Ch
ain
From
the w
ell he
ad to
the p
ump
4
Nat
ural
Gas
Cru
de O
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ontr
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rillin
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phys
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its
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oduc
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natio
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ail &
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istr
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ion)
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stre
am (t
rans
port
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ilfie
ld S
ervi
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quip
men
t
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inin
g(D
owns
trea
m)
Etha
ne
Prop
ane
But
ane
Iso-
But
ane
Nat
. Gas
olin
e
AmericAn BAnkruptcy institute
463
5
Wha
t is D
riving
the O
il Rev
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nven
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Unco
nven
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acLo
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ns fr
om Ye
ar 20
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2014
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rce:
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side
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ngin
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ch a
naly
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evin
Thu
ot
VALCON 2015
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6
Wha
t is D
riving
the O
il Rev
olutio
nCo
nven
tiona
l vs.
Unco
nven
tiona
l
AmericAn BAnkruptcy institute
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7
Wha
t is D
riving
the O
il Rev
olutio
nTe
chno
logy -
Tools
VALCON 2015
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8
Wha
t is D
riving
the O
il Rev
olutio
nOp
erati
onal
Effic
iency
–W
alking
Rig
AmericAn BAnkruptcy institute
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Wha
t is D
riving
the O
il Rev
olutio
n
$100
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il Pric
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nly M
oder
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olatili
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9
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il (W
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VALCON 2015
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10
Wha
t is D
riving
the O
il Rev
olutio
nUp
strea
m –P
rivate
Equ
ity C
apita
l Foc
used
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.S. E
&P
AmericAn BAnkruptcy institute
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11
Valu
e is
hig
hly
corr
elat
ed to
com
mod
ity p
rice
Wha
t is D
riving
the O
il Rev
olutio
nUp
strea
m –C
ommo
dity P
rice d
irectl
y imp
act V
aluati
ons
$-
$10
.00
$20
.00
$30
.00
$40
.00
$50
.00
$60
.00
$70
.00
$80
.00
$90
.00
$-
$20
.00
$40
.00
$60
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$12
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il (W
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VALCON 2015
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Wha
t is D
riving
the O
il Rev
olutio
n
Oil F
ield S
ervic
es O
vervi
ew
12
Exp
lora
tion
and
prod
uctio
nis
high
lyca
pita
lint
ensi
ve
P
redo
min
antly
, com
pani
es fo
cus
thei
r
capi
tal s
pend
ing
and
empl
oyee
s on
thei
r oil
and
gas
prop
ertie
s
O
FS c
ompa
nies
pro
vide
out
sour
ced
serv
ices
and
equ
ipm
ent f
or a
var
iety
of a
pplic
atio
ns
OFS
Indu
stry
isdr
iven
byac
tiviti
esof
the
E&
Pco
mpa
nies
and
high
lycy
clic
al
In a
typi
cal m
arke
t, E
&P
s ha
ve s
ome
pric
ing
pow
er o
ver O
FS c
ompa
nies
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raul
ic
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turin
g, 2
7%S
ubse
a E
quip
men
t, 14
% Rig
Equ
ipm
ent,
13%
Dril
ling
&
Com
plet
ion
Flui
ds,
10%
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plet
ion
Equ
ipm
ent &
S
ervi
ces,
9%
Ren
ting
& F
ishi
ng
Ser
vice
s, 6
%
Spe
cial
ty
Che
mic
als,
6%
Wel
l Ser
vici
ng, 5
%
Sur
face
Equ
ipm
ent,
5%
Coi
led
Tubi
ng
Ser
vice
s, 4
%Glo
bal O
FS S
pend
ing
by S
ervi
ce
Sou
rce:
Spe
ars
& A
ssoc
iate
s
AmericAn BAnkruptcy institute
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13
Wha
t is D
riving
the O
il Rev
olutio
nOi
l Fiel
d Ser
vices
–Gu
idelin
e Com
pany
Seg
ments
Follo
w 6
0 P
ublic
Com
pani
es in
Eig
ht S
egm
ents
8.9x
14.0
x
7.6x
6.
6x
8.9x
11.6
x
8.3x
6.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0
x
12.0
x
14.0
x
16.0
x
0910
1112
13LT
MJu
n-14
LTM
Oct
-14
NTM
Oilf
ield
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vice
s &
Equ
ipm
ent -
Div
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fied
8.9x
11.1
x
9.5x
8.
3x
9.4x
13.6
x
9.6x
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0.0x
2.0x
4.0x
6.0x
8.0x
10.0
x
12.0
x
14.0
x
16.0
x
0910
1112
13LT
MJu
n-14
LTM
Oct
-14
NTM
Oilf
ield
Ser
vice
s
4.8x
7.3x
4.4x
3.
5x
4.2x
6.2x
4.5x
3.
7x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0
x
12.0
x
14.0
x
16.0
x
0910
1112
13LT
MJu
n-14
LTM
Oct
-14
NTM
Con
trac
t Dril
ling
9.2x
12.6
x
10.3
x
9.4x
12.8
x
13.1
x
10.0
x
8.9x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0
x
12.0
x
14.0
x
16.0
x
0910
1112
13LT
MJu
n-14
LTM
Oct
-14
NTM
Oilf
ield
Equ
ipm
ent M
anuf
actu
rers
and
Su
pplie
rs
VALCON 2015
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Bill
Wal
land
er, P
artn
erVi
nson
& E
lkin
s L.
L.P.
Dis
tres
s in
the
Ener
gy In
dust
ry
Focu
s on
E&
P
AmericAn BAnkruptcy institute
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Focu
s on
E&
P
Dis
tress
in th
e E
nerg
y In
dust
ry
•E
nerg
y In
dust
ry S
ecto
rs•
The
Oil
and
Gas
Sup
ply
Par
adig
m S
hift
•Fa
lling
Ene
rgy
Pric
es•
Effe
ct o
f Fal
ling
Ene
rgy
Pric
es•
The
Run
way
for R
estru
ctur
ing
•R
estru
ctur
ing
Issu
es in
E&
P•
Valu
atio
n M
etho
ds E
&P
2
VALCON 2015
474
©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Prim
ary
Ene
rgy
Indu
stry
Sec
tors
•U
pstre
am (e
xplo
re a
nd p
rodu
ce)
–Ex
plor
atio
n an
d pr
oduc
tion
–O
ffsho
re (B
urea
u of
Oce
an E
nerg
y M
anag
emen
t) an
d on
shor
e (S
tate
age
ncie
s)•
Mid
stre
am (p
repa
re fo
r tra
nspo
rt/st
orag
e, tr
ansp
ort,
stor
e)–
Pipe
lines
–G
athe
ring
and
proc
essi
ng–
Gas
sto
rage
–Li
quef
ied
natu
ral g
as (L
NG
)•
Dow
nstre
am (r
efin
e fo
r sal
e, s
ale)
–R
efin
ing
and
petro
chem
ical
s–
Ret
ail
–Tr
adin
g an
d m
arke
ting
–Et
hano
l–
Pow
er•
Ren
ewab
les
–W
ind
–So
lar
–W
ater
•En
ergy
Ser
vice
s–
Oilf
ield
Ser
vice
s–
Ship
ping
–Fr
acki
ng (h
ttp://
frack
ing.
vela
w.co
m/ )
The
Eve
r-D
ynam
ic E
nerg
y In
dust
ry
3
AmericAn BAnkruptcy institute
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
It R
eally
Was
Diff
eren
t Thi
s Ti
me:
Sup
ply
is W
ay U
p
•U
.S. p
rodu
ctio
n of
cru
de o
il, a
long
with
liqu
ids
sepa
rate
d fro
m n
atur
al g
as, s
urpa
ssed
all
othe
r cou
ntrie
s in
201
4, w
ith d
aily
out
put e
xcee
ding
11
mill
ion
barr
els
in th
e fir
st
quar
ter.
•Th
e In
tern
atio
nal E
nerg
y A
genc
y pr
ojec
ts th
at U
.S. o
il ou
tput
will
surg
e to
13.
1 m
illio
nba
rrel
s pe
r day
in 2
019…
will
see
give
n re
cent
pric
e ad
just
men
ts.
Oil
and
Gas
Sup
ply
Par
adig
m S
hift
4
VALCON 2015
476
©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Sup
ply
Incr
ease
Via
Hyd
raul
ic F
ract
urin
g of
Oil
Oil
and
Gas
Sup
ply
Par
adig
m S
hift
•P
rodu
ctio
n in
oil-
rich
shal
e pl
ays
like
the
Bak
ken,
Eag
le F
ord,
an
d P
erm
ian
Bas
in
are
driv
ing
U.S
. do
mes
tic p
rodu
ctio
n.•
Acc
ordi
ng to
EIA
, oil
prod
uctio
n fro
m
shal
e fo
rmat
ions
in
Nor
th D
akot
a an
d Te
xas
incr
ease
d by
m
ore
than
78,
000
barr
els
per d
ayin
A
ugus
t 201
4.
U.S
. Ene
rgy
Inde
pend
ence
5
AmericAn BAnkruptcy institute
477
©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Oil,
Gas
, Coa
l Und
er P
ricin
g P
ress
ure…
from
200
8
Falli
ng E
nerg
y P
rices
$48.
36/b
bl–
01/0
9/15
$2.9
5/M
cf–
01/0
9/15
$48.
53/s
t–01
/09/
15
~$14
7/bb
l
~$14
0/st
~$13
.50/
Mcf
6
VALCON 2015
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
And
It’s
Not
Jus
t Ene
rgy…
Mor
e on
Thi
s N
ext T
ime…
Falli
ng C
omm
odity
Pric
es
Sou
rce:
http
://se
ekin
galp
ha.c
om/a
rticl
e/28
1146
5-ris
ing-
defla
tiona
ry-r
isks
-in-th
e-un
ited-
stat
es?i
fp=0•
Wha
t inf
latio
n?•
Com
mod
ities
dow
n ge
nera
lly
•W
hat e
arni
ngs?
-28%
7
AmericAn BAnkruptcy institute
479
©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Cyc
lical
Nat
ure
of O
il P
rices
: the
Rea
l Lon
g Te
rm
Falli
ng E
nerg
y P
rices
Sou
rce:
http
://se
ekin
galp
ha.c
om/a
rticl
e/28
1129
5-w
ere-
drow
ning
-in-c
rude
-oil?
ifp=0
Wes
t Tex
as In
term
edia
te C
rude
8
VALCON 2015
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Cyc
lical
Nat
ure
of O
il P
rices
: 4 O
il C
rash
es S
ince
199
4
Falli
ng E
nerg
y P
rices
2014
1998
2008
2001
9
AmericAn BAnkruptcy institute
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Est
imat
ed B
reak
even
for U
S O
il? $
70/b
bl?
Falli
ng E
nerg
y P
rices
Sou
rce:
http
://w
ww
.thef
isca
ltim
es.c
om/C
olum
ns/2
015/
01/0
9/W
hy-O
il-P
rices
-Are
-Hea
ded-
Bel
ow-3
5-B
arre
l
Thos
e w
ith h
ighe
r bre
akev
en a
nd le
vera
ge w
ill fa
ce is
sues
abs
ent
hedg
ing
relie
f.
01/0
9/15
You
Are
Her
e
10
VALCON 2015
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
The
Nee
d Fo
r Rev
enue
To
Fund
Deb
t/Neg
ativ
e Lo
ops
•E
xplo
ratio
n an
d pr
oduc
tion
(E&
P) c
ompa
nies
com
mon
ly u
se
debt
to fu
nd th
eir E
&P
prog
ram
s w
ith th
e ex
pect
atio
n th
at
prod
uctio
n w
ill e
vent
ually
gen
erat
e en
ough
reve
nue
to s
ervi
ce
that
deb
t•
Falli
ng o
il pr
ices
, how
ever
, sig
nific
antly
affe
ct a
hig
hly
leve
rage
d E
&P
com
pany
’s a
bilit
y to
fund
deb
t•
The
debt
adv
ance
d to
E&
P co
mpa
nies
in re
cent
yea
rs is
es
timat
ed to
be
$300
bill
ion
in le
vera
ged
loan
s an
d $2
00 b
illio
n in
hig
h yi
eld
debt
•Th
e ne
ed fo
r inc
reas
ed re
venu
e to
ser
vice
deb
t can
cre
ate
a ne
gativ
e fe
edba
ck lo
op w
ith c
ompa
nies
sel
ling
mor
e oi
l to
gene
rate
mor
e re
venu
e in
crea
sing
sup
ply
and
putti
ng fu
rther
pr
essu
re o
n pr
ices
Effe
ct o
f Fal
ling
Ene
rgy
Pric
es
11
AmericAn BAnkruptcy institute
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Bor
row
ing
Bas
e R
edet
erm
inat
ions
•E
&P
com
pani
es re
ly o
n re
serv
e-ba
sed
lend
ing
(RB
L) to
fund
op
erat
ions
, whi
ch is
tied
prim
arily
to th
e va
lue
of th
e co
mpa
ny’s
pr
oven
oil
and
gas
rese
rves
•R
BL
loan
s us
ually
requ
ire s
ched
uled
det
erm
inat
ions
of t
he
borro
win
g ba
se w
hich
can
be
nega
tivel
y af
fect
ed b
y fa
lling
en
ergy
pric
es le
adin
g to
redu
ced
avai
labi
lity
of a
dditi
onal
bo
rrow
ings
und
er th
e fa
cilit
y or
a b
orro
win
g ba
se d
efic
ienc
y•
Whe
n a
borro
wer
has
alre
ady
pled
ged
subs
tant
ially
all
of it
s as
sets
as
colla
tera
l, a
borro
win
g ba
se d
efic
ienc
y re
quire
s th
e bo
rrow
er to
pay
dow
n th
e de
bt in
ord
er to
avo
id a
n ev
ent o
f de
faul
t•
Whi
le y
et to
be
dete
rmin
ed, t
he re
dete
rmin
atio
n pr
oces
s m
ay
have
a m
ater
ial i
mpa
ct o
n ce
rtain
ene
rgy
com
pani
es
Effe
ct o
f Fal
ling
Ene
rgy
Pric
es
12
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Rol
e of
Hed
ges
and
Cas
h Fl
ow
•In
ord
er to
“hed
ge” a
gain
st a
dro
p in
pric
es, m
any
E&
P co
mpa
nies
util
ize
optio
ns o
r fu
ture
s or
com
bina
tions
suc
h as
the
“3-w
ay c
olla
r” (s
ell c
all h
ighe
st p
rice,
buy
put
lo
wer
pric
e, s
ell p
ut lo
wes
t pric
e)•
The
effe
ct o
f hed
ges
on c
ash
flow
s in
a fa
lling
pric
e en
viro
nmen
t can
be
illus
trate
d by
the
posi
tions
of t
wo
maj
or E
&P
com
pani
es: C
ontin
enta
l Res
ourc
es a
nd D
evon
E
nerg
y•
Con
tinen
tal R
esou
rces
lifte
d al
l of i
ts h
edge
s in
ear
ly N
ovem
ber 2
014
(whe
n oi
l was
tra
ding
at $
83/b
bl),
its c
urre
nt p
rodu
ctio
n ha
s be
en u
npro
tect
ed a
gain
st th
e sh
arp
decl
ine
in o
il pr
ices
•D
evon
Ene
rgy,
on
the
othe
r han
d, h
as h
edge
d ab
out 1
40,0
00 b
pd o
f cru
de fo
r nex
t ye
ar, w
hich
cou
ld re
sult
in o
ver a
bill
ion
dolla
rs in
reve
nue
agai
nst c
urre
nt o
il pr
ices
•Th
ose
usin
g th
e “3
way
col
lar”
are
hedg
ed to
the
low
est p
rice
of th
e so
ld p
ut, i
n ef
fect
, a p
artia
l hed
ge•
Hed
ging
pro
gram
s ar
e of
def
inite
dur
atio
n, a
nd a
poi
nt e
xist
s pr
ior t
o th
e en
d of
the
dura
tion
whe
n cr
edito
rs (a
ntic
ipat
ing
the
inab
ility
of t
he o
f the
com
pany
to re
plac
e th
e he
dges
and
con
tinue
rece
ivin
g fu
ndin
g fro
m h
edge
s) te
nd to
take
act
ion,
the
so-c
alle
d “h
edge
ledg
e”
Effe
ct o
f Fal
ling
Ene
rgy
Pric
es
13
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Ove
rvie
w o
f Ene
rgy
Res
truct
urin
g P
roce
ss/Is
sues
•Pr
e-ba
nkru
ptcy
/wor
kout
con
side
ratio
ns (r
isk
man
agem
ent)
–W
arni
ng s
igns
of d
istre
ss (d
owng
rade
, dec
linin
g ra
tios,
etc
.)–
Def
ault
–C
olla
tera
l rev
iew
/lien
hold
ers
–Li
tigat
ion
risk
asse
ssm
ent
–N
otic
e of
def
ault/
rese
rvat
ion
of ri
ghts
–Fo
rbea
ranc
e ag
reem
ents
–St
ate
law
rem
edie
s/re
ceiv
ers/
inju
nctio
ns•
Bank
rupt
cy fi
led/
typi
cal p
roce
ss c
ompo
nent
s–
Cas
e co
mm
ence
men
t (vo
lunt
ary
vs. i
nvol
unta
ry)
–Ke
y ca
se p
laye
rs (e
.g.,
debt
or, s
ecur
ed le
nder
, JO
As, M
&M)
–Au
tom
atic
sta
y (fe
dera
l inj
unct
ion)
–D
IP fi
nanc
ing/
cash
col
late
ral (
esta
te fu
ndin
g)–
Lien
prio
rity
issu
es (c
olla
tera
l gap
s, M
&M li
enho
lder
s)–
Exec
utor
y co
ntra
cts
(JO
As, l
ease
s, o
ther
)–
Asse
t sal
es (m
onet
izin
g as
sets
for c
redi
tors
)–
Plan
of r
eorg
aniz
atio
n (th
e “s
ynth
etic
sal
e”, o
ther
)–
Pref
eren
ces
(brin
ging
bac
k pr
efer
entia
l tra
nsfe
rs)
–Fr
audu
lent
tran
sfer
s (a
ctua
l vs.
con
stru
ctiv
e, v
alue
issu
es)
–Po
st-c
onfir
mat
ion
activ
ities
(liq
uida
tion
trust
s, o
ther
)
The
Run
way
for R
estru
ctur
ing
14
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Ban
krup
tcy
Pro
cess
Cha
lleng
es a
nd T
ools
•
Com
mon
cha
lleng
es le
adin
g to
def
ault
–Bo
rrow
ing
base
def
aults
(e.g
., de
clin
ing
rese
rve
valu
es, f
inan
cial
cov
enan
ts, e
tc.)
–In
abili
ty to
incr
ease
pric
ing/
pric
e vo
latil
ity–
Swin
gs in
val
ue o
f der
ivat
ives
–Li
quid
ity re
quire
men
ts o
f fut
ures
hed
ging
–O
pera
tions
issu
es a
nd u
npro
fitab
le lo
ng te
rm p
roje
cts
•Le
vera
ge is
sues
–Pl
an to
reor
gani
ze d
ebts
, fix
the
bala
nce
shee
t–
Bind
non
-con
sent
ing
cred
itors
to p
lan
•In
suffi
cien
t cas
h flo
w is
sues
–Au
tom
atic
sta
y br
eath
ing
room
–Bo
rrow
/use
cas
h co
llate
ral o
n a
post
-pet
ition
bas
is–
Dea
l with
ope
ratin
g is
sues
, con
tract
reje
ctio
n–
Parti
al a
sset
sal
es•
Sale
pro
cess
es a
nd th
e fre
e an
d cl
ear t
rust
ee d
eed
–Ba
nkru
ptcy
sal
e fre
e an
d cl
ear u
nder
Ban
krup
tcy
Cod
e §
363
–Ba
nkru
ptcy
Cou
rt ap
prov
al e
limin
ates
risk
of f
raud
ulen
t tra
nsfe
r cha
lleng
e–
Plan
sal
e fre
e an
d cl
ear,
the
“syn
thet
ic s
ale”
con
cept
to a
void
leas
e tra
nsfe
r fili
ng b
urde
n•
Liqu
idat
ion
–C
hapt
er 7
liqu
idat
ion,
the
last
opt
ion
The
Run
way
for R
estru
ctur
ing
–E
&P
15
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Nat
ure
of a
n O
il an
d G
as L
ease
–C
ontra
ct o
r Int
eres
t?
•P
erso
nal v
s. R
eal P
rope
rty In
tere
st–
Sta
te L
aw E
xam
ples
•Te
xas:
Fee
sim
ple
dete
rmin
able
, rea
l pro
perty
inte
rest
, not
sub
ject
to B
ankr
uptc
y C
ode
§36
5.–
Terr
y O
ilfie
ld S
uppl
y C
o., I
nc. v
. Am
eric
an S
ecur
ity B
ank,
N.A
., 19
5B
.R. 6
6, 7
0 (S
.D. T
ex. 1
996)
(“A
min
eral
leas
e in
Tex
as is
a d
eter
min
able
fee.
It i
s no
t a le
ase
or o
ther
form
of e
xecu
tory
con
tract
th
at a
deb
tor m
ay a
ccep
t or r
ejec
t.”)
•O
klah
oma:
Inco
rpor
eal h
ered
itam
ent o
r a “p
rofit
a p
endr
e”, r
eal p
rope
rty in
tere
st, n
ot s
ubje
ct to
B
ankr
uptc
y C
ode
§36
5–
See
In re
Hes
ton
Oil
Co.
, 97
B.R
. 34,
36
(N.D
. Okl
a. 1
986)
(an
oil a
nd g
as le
ase
is n
ot a
n un
expi
red
leas
e or
exe
cuto
ry c
ontra
ct w
ithin
the
purv
iew
of §
365
but i
s in
the
natu
re o
f an
esta
te in
real
pr
oper
ty h
avin
g th
e na
ture
of a
fee)
; In
re C
lark
Res
ourc
es, 6
8 B
.R. 3
58, 3
60 (B
ankr
. N.D
. Okl
a.
1986
)(und
er O
klah
oma
law
, oil
and
gas
leas
e is
not
an
unex
pire
d le
ase
or e
xecu
tory
con
tract
und
er
§36
5).
•K
ansa
s: P
erso
nal p
rope
rty, s
ubje
ct to
Ban
krup
tcy
Cod
e §
365
–U
tica
Nat
iona
l Ban
k an
d Tr
ust C
o. v
. Mar
ney,
661
P.2
d12
46 (K
an. 1
983)
(Hol
ding
that
an
oil a
nd g
as
leas
e is
not
fore
clos
ed b
y a
mor
tgag
e fo
recl
osur
e un
less
pro
vide
d fo
r by
stat
ute
beca
use
a le
ase
is
pers
onal
tyin
Kan
sas)
; Cat
e v.
Arc
hon
Oil
Com
pany
, Inc
., 69
5P.
2d13
52(O
kl. 1
985)
(Hol
ding
that
an
oil a
nd g
as le
ase
is a
n in
tere
st in
per
sona
ltyfo
r the
pur
pose
s of
a s
herif
f’s s
ale)
–S
ee In
re J
. H. L
and
& C
attle
Co.
, 8B
.R. 2
37, 2
39 (W
.D. O
kla.
198
1)(u
nder
Kan
sas
law
, an
oil a
nd
gas
leas
e is
with
in th
e re
ach
of §
365
and
may
be
reje
cted
by
a de
btor
with
cou
rt ap
prov
al)
Res
truct
urin
g Is
sues
–E
&P
16
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Join
t Ope
ratin
g A
gree
men
ts -
Exe
cuto
ry C
ontra
cts
•E
xecu
tory
con
tract
s–
Wils
on v
. TX
OP
rod.
Cor
p. (I
n re
Wils
on),
69 B
.R. 9
60, 9
63 (B
ankr
.N.D
.Tex
. 198
7), h
eld
that
a J
OA
is a
n ex
ecut
ory
cont
ract
–In
re P
rice,
71B
.R. 3
41, 3
43 (B
ankr
. N.D
. Okl
a. 1
987)
, the
cou
rt de
term
ined
that
the
oper
atin
g ag
reem
ent
at is
sue
“is d
ivis
ible
into
num
erou
s pr
ovis
ions
whi
ch o
pera
te s
epar
ate
and
inde
pend
ent o
f one
ano
ther
, pa
rticu
larly
the
Sub
sequ
ent O
pera
tion
prov
isio
n” a
t iss
ue•
Twilig
ht Z
one
Bef
ore
Ass
umpt
ion/
Rej
ectio
n–
The
term
s of
the
cont
ract
are
une
nfor
ceab
le a
gain
st th
e de
btor
as
held
in N
LRB
v. B
ildis
co&
Bild
isco
, 465
U
.S. 5
13, 5
32 (1
984)
–A
FEs
and
drill
outs
(deb
tor i
s no
t ope
rato
r)–
Adm
inis
trativ
e cl
aim
s–
In re
Wils
on h
eld
that
join
t ten
ancy
law
app
lies
in th
e tw
ilight
zon
e•
Ass
umpt
ion
Cur
es a
nd B
urde
ns–
Pot
entia
l pay
men
t of l
iens
(if d
ebto
r is
the
oper
ator
)–
Pay
men
t of J
IBs
(if d
ebto
r is
non-
oper
ator
)–
Pay
men
t of s
hare
of p
rodu
ctio
n ru
ns (i
f deb
tor i
s th
e op
erat
or)
–S
ubje
ct to
AFE
’sth
at a
rose
in th
e Tw
ilight
Zon
e•
Rej
ectio
n–
Doe
sn’t
affe
ct re
latio
nshi
p be
twee
n th
ird p
artie
s to
the
JOA
, dee
med
a b
reac
h im
med
iate
ly b
efor
e th
e fil
ing
of th
e ba
nkru
ptcy
cas
e•
If no
JO
A, t
enan
cy in
com
mon
can
resu
lt, n
ot a
gre
at p
lace
to b
e, e
xpen
se re
cove
ry o
nly
from
pro
duct
ion
is
ofte
n th
e re
sult
Res
truct
urin
g Is
sues
–E
&P
17
AmericAn BAnkruptcy institute
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©20
15 V
inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
M&
M L
iens
and
Tra
de V
endo
rs•
Valid
ity a
nd P
erfe
ctio
n of
Lie
ns–
Lien
not
ice
filed
with
in a
pplic
able
tim
e pe
riod
–N
otic
e m
ust m
eet t
echn
ical
requ
irem
ents
of s
tatu
te–
Lim
itatio
ns p
erio
d to
fore
clos
e•
Sco
pe o
f Lie
ns–
Varie
s by
sta
te (e
quip
men
t/mat
eria
ls v
s pr
oduc
tion,
wor
king
inte
rest
)–
Lien
s A
gain
st N
on-O
pera
tors
•E
xam
ple:
Tex
as li
en is
onl
y ag
ains
t the
ope
rato
r•
Exa
mpl
e: O
klah
oma
lien
encu
mbe
rs “a
ll of
the
leas
ehol
d” to
enc
umbe
r no
n-op
erat
ors
•Li
en P
riorit
y: F
inan
cial
Len
der v
s. M
&M
Lie
n C
redi
tor
–G
aps
in le
nder
’s p
erfe
ctio
n–
Rel
atio
n ba
ck to
com
men
cem
ent o
f wor
k va
ries
by s
tate
(e.g
., w
hat i
s co
ntin
uous
wor
k)–
End
ing
of p
erio
d of
wor
k
Res
truct
urin
g Is
sues
–E
&P
18
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Roy
alty
Cla
iman
ts•
In m
ost s
tate
s, th
e fa
ilure
to p
ay ro
yalti
es d
oes
not c
ause
leas
e te
rmin
atio
n (c
f. tim
e to
dril
l or o
ther
mea
ns to
hol
d th
e le
ase
such
as
dela
y re
ntal
s) (s
ome
exce
ptio
ns
exis
t in
certa
in s
tate
s an
d fe
dera
l lea
ses,
and
the
leas
e its
elf c
ould
con
tain
a
term
inat
ion
clau
se fo
r fai
lure
to p
ay ro
yalti
es)
•M
anag
emen
t typ
ical
ly p
lace
s a
high
prio
rity
on p
aym
ent o
f roy
alty
cla
ims,
as
do
pote
ntia
l pur
chas
ers
•R
oyal
ty c
redi
tors
ofte
n in
divi
dual
ly h
ave
clai
ms
that
are
not
of t
he m
agni
tude
of
othe
r cre
dito
rs e
ven
thou
gh in
the
aggr
egat
e th
ey m
ay c
olle
ctiv
ely
be a
larg
e cl
ass
of c
laim
ants
•R
oyal
ties
ofte
n flo
w th
roug
h a
gas
purc
hase
r suc
h th
at th
e ca
sh d
oes
not f
low
th
roug
h th
e de
btor
’s e
stat
e•
Roy
alty
cre
dito
rs h
ave
lien
right
s in
som
e st
ates
, oth
erw
ise
are
typi
cally
uns
ecur
ed
cred
itors
•Te
xas
has
UC
C fi
rst p
urch
aser
sta
tute
(lie
ns o
n pr
oduc
tion
and
proc
eeds
), O
klah
oma
has
a pr
oper
ty s
tatu
te (n
ot U
CC
) whi
ch g
rant
s lie
n an
d pe
rfect
ion
Res
truct
urin
g Is
sues
–E
&P
19
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Roy
alty
Cla
iman
ts’ L
iens
•Te
xas
Bus.
& C
omm
. Cod
e §
9-34
3–
Prov
ides
a s
ecur
ity in
tere
st in
favo
r of i
nter
est o
wne
rs to
sec
ure
the
oblig
atio
ns o
f the
firs
t pur
chas
er o
f oil
and
gas
prod
uctio
n–
The
secu
rity
inte
rest
is p
erfe
cted
aut
omat
ical
ly w
ithou
t the
filin
g of
a fi
nanc
ing
stat
emen
t–
Obt
ains
PM
SIst
atus
–At
tach
es to
oil
and
gas
prod
uctio
n, a
nd a
lso
in th
e id
entif
iabl
e pr
ocee
ds o
f tha
t pro
duct
ion
owne
d by
, rec
eive
d by
, or d
ue to
the
first
pur
chas
er–
In re
Sem
crud
e, L
P,
407
B.R
. 112
(Ban
kr.D
.Del
.200
9)•
Hel
d th
at th
e ba
nks'
prio
r per
fect
ed s
ecur
ity in
tere
sts
had
prio
rity
over
the
prod
ucer
s' s
tatu
tory
lien
s un
der t
he T
exas
Uni
form
Com
mer
cial
Cod
e•
The
cour
t rea
sone
d th
at th
e Te
xas
Uni
form
Com
mer
cial
Cod
e di
d no
t gov
ern
perfe
ctio
n an
d pr
iorit
y of
the
prod
ucer
's li
ens
unde
rco
nflic
t of l
aw ru
les
•Th
e pr
oduc
er w
ould
onl
y ha
ve p
riorit
y to
the
exte
nt th
at th
ey w
ere
perfe
cted
bef
ore
the
bank
s by
filin
g a
finan
cing
sta
tem
entu
nder
D
elaw
are
law
•O
il an
d G
as O
wne
rs' L
ien
Act o
f 201
0-52
Okl
ahom
a St
atut
es S
ectio
n 54
9 et
seq
.–
Rel
ativ
ely
new
and
unt
este
d st
atut
e…N
OT
UC
C–
“An
oil a
nd g
as li
en is
gra
nted
and
exi
sts
as p
art o
f and
inci
dent
to th
e ow
ners
hip
of o
il an
d ga
s rig
hts
and
is
perfe
cted
aut
omat
ical
ly w
ithou
t the
nee
d to
file
a fi
nanc
ing
stat
emen
t or a
ny o
ther
type
of d
ocum
enta
tion.
An
oil
and
gas
lien
exis
ts a
nd is
per
fect
ed fr
om th
e ef
fect
ive
date
of t
his
act.”
–“E
xcep
t for
a p
erm
itted
lien
, an
oil a
nd g
as li
en is
a li
en th
at ta
kes
prio
rity
over
any
oth
er li
en, w
heth
er a
risin
g by
co
ntra
ct, l
aw, e
quity
or o
ther
wis
e, o
r any
sec
urity
inte
rest
.” •
Perm
itted
lien
is n
arro
wly
def
ined
–At
tach
es to
oil
and
gas
and
its p
roce
eds
Res
truct
urin
g Is
sues
–E
&P
20
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©20
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Farm
outA
gree
men
ts
•G
ener
ally,
a p
arty
doe
s w
ork
on th
e w
ell a
nd in
stea
d of
bei
ng
paid
cas
h ea
rns
a pe
rcen
tage
of t
he w
orki
ng in
tere
st•
Def
ined
in B
ankr
uptc
y C
ode
§10
1 (2
1A)
•B
ankr
uptc
y C
ode
§54
1 (b
)(4)(A
) exc
lude
s fro
m p
rope
rty o
f the
es
tate
inte
rest
s of
the
debt
or in
hyd
roca
rbon
s to
the
exte
nt th
at
debt
or h
as tr
ansf
erre
d or
agr
ees
to tr
ansf
er s
uch
inte
rest
pu
rsua
nt to
a fa
rmou
t agr
eem
ent
•P
reve
nts
the
avoi
danc
e/un
doin
g of
un-
reco
rded
ass
ignm
ents
un
der a
farm
out
•P
reve
nts
debt
or fr
om re
ject
ing
farm
out a
gree
men
t und
er
Ban
krup
tcy
Cod
e§
365
to w
ithho
ld fr
om fa
rmee
earn
ed a
crea
ge
Res
truct
urin
g Is
sues
–E
&P
21
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Pro
duct
ion
Pay
men
ts
•Te
rm o
verri
ding
roya
lty s
atis
fiabl
ein
cas
h or
in k
ind
cont
inge
nt u
pon
prod
uctio
n of
liqu
id o
r gas
eous
hy
droc
arbo
ns fr
om p
artic
ular
real
pro
perty
from
a s
peci
fied
volu
me
or v
alue
det
erm
ined
with
out r
egar
ds to
pro
duct
ion
cost
s–
Def
ined
in B
ankr
uptc
y C
ode
§10
1(42
A)
•A
ssig
nee
of c
erta
in ty
pes
of p
rodu
ctio
n pa
ymen
t tak
es ti
tle
to th
e pr
oper
ty a
nd a
s a
resu
lt th
e pr
oduc
tion
paym
ent
ceas
es to
be
prop
erty
of t
he e
stat
e un
der B
ankr
uptc
y C
ode
§54
1(b)
(4)(
B)
Res
truct
urin
g Is
sues
–E
&P
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Sal
e Is
sues
•P
refe
rent
ial r
ight
s to
pur
chas
e/rig
hts
of fi
rst r
efus
al/c
onse
nt ri
ghts
–E
quity
vs.
ass
et s
ale
•C
ure
of M
&M
lien
s re
latin
g to
JO
As/
notic
e (T
X v
s O
K)
•P
aym
ent o
f joi
nt in
tere
st b
illin
gs (“
JIB
s”)f
or e
xecu
tory
con
tract
as
sum
ptio
ns•
Fund
ing
of a
utho
rizat
ions
for e
xpen
ditu
res
(“A
FEs”
)bet
wee
n si
gnin
g an
d cl
osin
g of
tran
sact
ion
•A
lloca
ting
vend
or p
aym
ents
and
acc
ount
s re
ceiv
able
bas
ed o
n th
e cl
osin
g da
te•
Not
ice
of s
ale
as to
less
ors
•E
nviro
nmen
tal c
once
rns
and
hold
back
s•
Form
of c
onsi
dera
tion
for t
he in
itial
bid
•R
easo
nabl
y eq
uiva
lent
val
ue•
“Syn
thet
ic s
ales
” to
avoi
d le
ase
trans
fer f
iling
bur
den,
pre
frig
hts
Res
truct
urin
g Is
sues
–E
&P
23
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Reg
ulat
ory
Mat
ters
Gen
eral
ly
Res
truct
urin
g Is
sues
–E
&P
•E
PA e
nviro
nmen
tal m
atte
rs–
Spi
lls a
nd c
lean
up–
Plu
ggin
g an
d ab
ando
nmen
t (“P
&A
”)–
Frac
king
con
cern
s•
Dep
artm
ent o
f Int
erio
r–
Offs
hore
leas
es
–O
pera
tions
/P&
A–
Bon
ding
•
Fede
ral E
nerg
y R
egul
ator
y C
omm
issi
on
–In
ters
tate
tran
smis
sion
of e
lect
ricity
–W
hole
sale
rate
s re
ason
able
ness
–C
ourts
not
set
tled
on ju
risdi
ctio
n fo
r con
tract
reje
ctio
n m
atte
rs•
Sta
te la
w–
Reg
ulat
ion
(or p
rohi
bitio
n) o
f fra
ckin
g–
P&
A–
Em
issi
ons
24
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inso
n &
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ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Valu
atio
n in
Ene
rgy
Res
truct
urin
g
•Th
e is
sue
of v
alua
tion
is im
porta
nt in
man
y st
ages
of a
C
hapt
er 1
1 pr
ocee
ding
incl
udin
g sa
les,
use
of e
stat
e pr
oper
ty, p
ost-p
etiti
on fi
nanc
ing
secu
red
by p
rimin
g lie
ns,
and
the
eval
uatio
n of
pre
-pet
ition
tran
sact
ions
und
er
fraud
ulen
t tra
nsfe
r law
s•
Whe
n va
luin
g a
com
plex
ene
rgy
ente
rpris
e, a
cou
rt w
ill
gene
rally
use
one
or m
ore
of th
e fo
ur m
ost c
omm
on
valu
atio
n m
etho
ds:
–D
isco
unte
d ca
sh fl
ow–
Com
para
ble
com
pani
es–
Com
para
ble
trans
actio
ns–
Mar
ket b
ased
app
roac
h
Res
truct
urin
g Is
sues
25
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Valu
atio
n M
etho
ds•
Dis
coun
ted
cash
flow
(DC
F)–
Whe
re a
com
pany
’s fu
ture
cas
h flo
w is
pro
ject
ed a
nd th
en d
isco
unte
d by
the
proj
ecte
d w
eigh
ted
aver
age
cost
of c
apita
l–
In th
e co
ntex
t of u
pstre
am o
il an
d ga
s va
luat
ions
, it i
s co
mm
on to
use
rese
rve
repo
rts th
at
estim
ate
the
volu
me
and
reco
vera
bilit
y of
hyd
roca
rbon
s–
Valu
atio
n of
E&
Pas
sets
has
sev
eral
mov
ing
parts
, inc
ludi
ng th
e re
serv
e vo
lum
e of
hy
droc
arbo
ns, t
he e
xpen
se re
quire
d to
ext
ract
the
hydr
ocar
bons
, the
exi
sten
ce o
f ar
rang
emen
ts w
ith th
ird p
artie
s ha
ving
inte
rest
s in
the
hydr
ocar
bons
, the
like
lihoo
d of
ex
tract
ion,
and
the
pric
e of
the
hydr
ocar
bons
in th
e fu
ture
•Th
us, v
alua
tion
hing
es s
igni
fican
tly o
n di
sput
ed o
r com
petin
g re
serv
e re
ports
–A
n E
&P
com
pany
’s re
serv
es a
re c
lass
ified
as
eith
er (1
) pro
ved
or (2
) unp
rove
d•
Pro
ved
rese
rves
are
typi
cally
ass
igne
d a
valu
e us
ing
a “P
V-10
” met
hodo
logy
whi
ch
disc
ount
s by
10%
the
pres
ent v
alue
of e
stim
ated
futu
re re
venu
es n
et o
f exp
ense
s–
Ther
e ar
e th
ree
cate
gorie
s of
pro
ved
rese
rves
:»
Pro
ved
deve
lope
d pr
oduc
ing
(PD
P) r
eser
ves
(mos
t val
uabl
e)»
Pro
ved
deve
lope
d no
n-pr
oduc
ing
(PD
NP
)res
erve
s (w
hich
mus
t be
disc
ount
ed
base
d on
risk
and
tim
e of
pro
duct
ion)
»P
rove
d un
deve
lope
d (P
UD
) res
erve
s (n
et a
crea
ge y
et to
be
“sho
t” w
ith s
eism
ic
whi
ch a
re o
ften
sign
ifica
ntly
dis
coun
ted
base
d on
incr
ease
d ris
k)•
Unp
rove
d re
serv
es a
re h
ighl
y sp
ecul
ativ
e an
d ty
pica
lly a
ssig
ned
little
to n
o va
lue
Res
truct
urin
g Is
sues
26
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inso
n &
Elki
ns L
LPC
onfid
entia
l & P
ropr
ieta
ry
Valu
atio
n M
etho
ds•
Com
para
ble
com
pany
–M
etho
d de
rives
a d
ebto
r’s v
alue
from
the
rela
tive
valu
e of
its
peer
s–
Two-
part
proc
ess.
•Fi
rst,
earn
ings
bef
ore
inte
rest
, tax
es, d
epre
ciat
ion,
and
am
ortiz
atio
n (E
BIT
DA
) of
the
Deb
tor i
s ca
lcul
ated
•N
ext,
mul
tiple
s of
EB
ITD
A ba
sed
on th
e E
BIT
DA
mul
tiple
s of
com
para
ble
com
pani
es a
re c
alcu
late
d, a
naly
zed,
and
use
d to
sel
ect a
n E
BIT
DA
mul
tiple
to
appl
y to
the
Deb
tor’s
EB
ITD
A to
det
erm
ine
the
Deb
tor’s
val
ue•
Com
para
ble
trans
actio
ns–
Iden
tifie
s a
rece
nt tr
ansa
ctio
n of
sim
ilarly
situ
ated
ass
ets
or a
n en
terp
rise
and
then
sc
ales
the
pric
e ac
cord
ing
to th
e D
ebto
r’s a
sset
s/en
terp
rise
valu
e•
Mar
ket b
ased
app
roac
h–
Exa
min
es th
e va
lue
the
mar
ket a
ssig
ns to
a d
ebto
r, of
ten
by u
sing
mar
ket e
vide
nce
to
asce
rtain
the
tota
l cap
ital v
alue
of t
he D
ebto
r–
Typi
cally
util
izes
the
mar
ket p
rice
assi
gned
to th
e se
curit
ies
in th
e D
ebto
r’s c
apita
l st
ruct
ure
by th
e st
ock
or b
ond
mar
kets
Res
truct
urin
g Is
sues
27
AmericAn BAnkruptcy institute
499
Dav
is P
olk
& W
ardw
ell L
LP
Dis
tres
s in
the
Ener
gy In
dust
ry
Pre
sent
ed b
y: M
arsh
all S
. Hue
bner
Febr
uary
201
5
PE
RSP
ECTI
VE
ON
TH
E C
OA
L IN
DU
STR
Y
VALCON 2015
500
Sel
ect L
egal
Issu
es in
a C
oal C
hapt
er 1
1 C
ase
2
Coa
l res
truct
urin
gs p
rese
nt u
niqu
e st
atut
ory
and
othe
r iss
ues.
The
se in
clud
e:
Labo
r-re
late
d Is
sues
Col
lect
ive
Bar
gain
ing
Agr
eem
ents
(111
3/11
14)
P
ensi
on o
blig
atio
ns /
with
draw
al; u
niqu
e at
tribu
tes
of U
MW
Am
ultie
mpl
oyer
pla
n
Coa
l Act
B
lack
Lun
g
Wor
kers
’ com
pens
atio
n ob
ligat
ions
E
nviro
nmen
tal/R
egul
ator
y Is
sues
O
ngoi
ng c
ompl
ianc
e w
ith e
nviro
nmen
tal r
egul
atio
ns
Rec
lam
atio
n ob
ligat
ions
P
erm
it bl
ock
cons
ider
atio
ns
Sur
etie
s; 3
65(c
)(2)
con
side
ratio
ns
C
ontra
ctua
l Iss
ues
R
ight
s un
der c
oal s
uppl
y co
ntra
cts
Li
ens
on c
oal l
ease
s
Ove
rrid
e ag
reem
ents
AmericAn BAnkruptcy institute
501
Labo
r-R
elat
ed Is
sues
3
C
olle
ctiv
e B
arga
inin
g A
gree
men
ts (C
BA
s) –
Sec
tions
111
3/11
14
Uni
ted
Min
e W
orke
rs o
f Am
eric
a (U
MW
A) r
epre
sent
s ce
rtain
act
ive
and
retir
ed c
oal m
iner
s
Less
than
12%
of a
ll m
iner
s cu
rren
tly e
mpl
oyed
in th
e U
.S. c
oal i
ndus
try a
re re
pres
ente
d by
the
UM
WA
M
ore
than
two-
third
s of
the
UM
WA’
sm
embe
rs a
re re
tiree
s
O
blig
atio
ns to
UM
WA-
repr
esen
ted
empl
oyee
s an
d re
tiree
s ar
e go
vern
ed b
y a
form
of i
ndus
try C
BA (t
he
NB
CW
A),
whi
ch p
rovi
des
for,
amon
g ot
her t
hing
s, li
fetim
e he
alth
care
C
urre
nt o
blig
atio
ns to
em
ploy
ees
and
retir
ees
unde
r the
CB
A m
ay b
e ad
just
ed u
nder
sec
tions
111
3 an
d 11
14 o
f the
Ban
krup
tcy
Cod
e, w
hich
impo
se p
roce
dura
l and
sub
stan
tive
rule
s fo
r mod
ifica
tion
and
reje
ctio
n
Sec
tion
1113
requ
ires
that
a d
ebto
r firs
t mak
e a
prop
osal
to th
e un
ion
befo
re m
odify
ing
or re
ject
ing
a C
BA.
If th
e un
ion
reje
cts
the
prop
osal
, a b
ankr
uptc
y co
urt w
ill lo
ok to
whe
ther
the
prop
osed
mod
ifica
tions
wer
e in
fact
“nec
essa
ry to
per
mit
reor
gani
zatio
n of
the
debt
or,”
whe
ther
they
wer
e “fa
ir an
d eq
uita
ble”
to a
ll af
fect
ed p
artie
s, w
heth
er th
e pr
opos
al w
as
reje
cted
“with
out g
ood
caus
e” a
nd w
heth
er th
e “b
alan
ce o
f the
equ
ities
” fav
ors
reje
ctio
n
Sec
tion
1114
, whi
ch is
virt
ually
iden
tical
to s
ectio
n 11
13 ,
gove
rns
the
mod
ifica
tion
and
reje
ctio
n of
retir
ee h
ealth
ben
efits
, an
d co
urts
rout
inel
y ap
ply
the
sam
e fa
ctor
s to
ana
lyze
the
suffi
cien
cy o
f req
uest
s un
der b
oth
sect
ions
U
nles
s an
d un
til th
e ba
nkru
ptcy
cou
rt ap
prov
es th
e m
odifi
catio
ns o
r gra
nts
emer
genc
y re
lief,
a co
mpa
ny
mus
t hon
or th
e te
rms
of th
e C
BA
The
NB
CW
Aha
s a
stro
ng s
ucce
ssor
ship
clau
se p
urpo
rting
to p
rohi
bit a
sig
nato
ry c
oal c
ompa
ny fr
om s
ellin
g its
ass
ets
abse
nt a
ssum
ptio
n of
the
CB
A by
the
purc
hase
r
VALCON 2015
502
Labo
r-R
elat
ed Is
sues
(con
t.)
4
M
ultie
mpl
oyer
Pen
sion
Pla
n O
blig
atio
ns /
With
draw
al
Con
tribu
tions
to th
e U
nite
d M
ine
Wor
kers
of A
mer
ica
1974
Pen
sion
Pla
n (th
e 19
74 P
lan)
may
be
requ
ired
by th
e C
BA
Th
e 19
74 P
lan
prov
ides
pen
sion
ben
efits
to a
ppro
xim
atel
y 93
,000
retir
ees
and
thei
r sur
vivi
ng s
pous
es
Gov
erne
d by
the
UM
WA
and
the
Bitu
min
ous
Coa
l Ope
rato
rs’ A
ssoc
iatio
n (B
CO
A), w
hich
is th
e co
al in
dust
ry b
arga
inin
g re
pres
enta
tive.
Mur
ray
Ene
rgy,
as
purc
hase
r of C
onso
l’sun
ion
min
es, c
ontro
ls th
e B
CO
A
G
ener
ally,
a d
ebto
r may
with
draw
from
a m
ultie
mpl
oyer
pen
sion
pla
n w
ith u
nion
con
sent
or s
ectio
n 11
13
relie
f; ho
wev
er, t
he 1
974
Pla
n ha
s ta
ken
the
posi
tion
that
the
unio
n an
d in
divi
dual
em
ploy
ers
do n
ot h
ave
the
auth
ority
to n
egot
iate
a m
odifi
catio
n or
term
inat
ion
of th
is o
blig
atio
n to
con
tribu
te
The
1974
Pla
n tru
st a
gree
men
t con
tain
s an
“Eve
rgre
en C
laus
e”, w
hich
pro
vide
s th
at p
artic
ipat
ing
empl
oyer
s ar
e bo
und
to m
ake
cont
inui
ng c
ontri
butio
ns to
the
1974
Pla
n so
long
as
the
empl
oyer
rem
ains
in th
e co
al in
dust
ry a
nd th
at th
e am
ount
s of
con
tribu
tion
will
be a
s sp
ecifi
ed in
futu
re a
gree
men
ts
Jo
int a
nd s
ever
al w
ithdr
awal
liab
ility
(lum
p su
m v
s. a
nnua
l ins
tallm
ents
)
Gen
eral
ly, o
utsi
de o
f ban
krup
tcy,
an
empl
oyer
is e
ntitl
ed u
nder
ER
ISA
to p
ay w
ithdr
awal
liab
ility
in e
qual
ann
ual i
nsta
llmen
ts
over
a p
erio
d of
tim
e; h
owev
er, t
he 1
974
Pla
n ha
s ta
ken
the
posi
tion
that
, by
filin
g a
chap
ter 1
1 pe
titio
n, a
mon
g ot
her t
hing
s, a
de
btor
lose
s th
is o
ptio
n an
d m
ust p
ay th
e lia
bilit
y as
a lu
mp
sum
(as
calc
ulat
ed b
y th
e 19
74 P
lan)
, the
reby
cre
atin
g a
larg
e ge
nera
l uns
ecur
ed c
laim
for w
ithdr
awal
liab
ility
S
imila
rly, w
hen
calc
ulat
ing
the
amou
nt o
f the
lum
p su
m c
laim
, the
197
4 P
lan
has
asse
rted
that
the
amou
nt s
houl
d eq
ual t
he
nom
inal
am
ount
of t
he d
ebto
r’s p
ropo
rtion
ate
shar
e of
unf
unde
d pe
nsio
n lia
bilit
ies,
rath
er th
an th
e ef
fect
ive
pres
ent v
alue
of
the
annu
al in
stal
lmen
t pay
men
ts
AmericAn BAnkruptcy institute
503
Labo
r-R
elat
ed Is
sues
(con
t.)
5
Th
e 19
74 P
lan
is in
“Ser
ious
ly E
ndan
gere
d” s
tatu
s, m
ay te
rmin
ate
and
trigg
er m
ass
with
draw
al li
abili
ty
as e
arly
as
2017
U
pon
a m
ass
with
draw
al, e
ach
cont
ribut
ing
empl
oyer
will
be
char
ged
with
ann
ual w
ithdr
awal
liab
ility
pay
men
ts
U
MW
Asi
gnat
ory
com
pani
es m
ay a
lso
cont
ribut
e to
a s
ingl
e em
ploy
er d
efin
ed b
enef
it pe
nsio
n pl
an fo
r th
eir n
on-u
nion
em
ploy
ees
Th
ere
are
two
gene
ral t
ypes
of p
ensi
on p
lans
: def
ined
ben
efit
plan
s an
d de
fined
con
tribu
tion
plan
s. D
efin
ed c
ontri
butio
n pl
ans
gene
rally
do
not
figu
re p
rom
inen
tly in
ban
krup
tcy
case
s be
caus
e th
e am
ount
of a
n em
ploy
ee’s
ben
efit
is e
qual
to th
e ba
lanc
e of
the
acco
unti
nto
whi
ch s
uch
empl
oyee
has
con
tribu
ted
a pe
rcen
tage
of i
ncom
e, a
nd th
us th
ere
is n
o lia
bilit
y or
sho
rtfal
l to
be in
sure
d by
PB
GC
In
ord
er to
term
inat
e a
defin
ed b
enef
it pl
an, t
he d
ebto
r or P
BG
Cm
ust i
nstit
ute
term
inat
ion
proc
eedi
ngs.
If a
def
ined
ben
efit
plan
iste
rmin
ated
, PB
GC
will
hav
e a
clai
m fo
r the
diff
eren
ce b
etw
een
the
pres
ent v
alue
of i
ts li
abili
ties
and
the
valu
e of
the
plan
’s a
sset
s (th
e “u
nfun
ded
bene
fit li
abili
ties”
cla
im),
whi
ch is
gen
eral
ly a
non
prio
rity
gene
ral
unse
cure
d cl
aim
exc
ept t
o th
e ex
tent
that
PB
GC
can
esta
blis
h th
at a
por
tion
of th
e cl
aim
is a
ttrib
utab
le to
ser
vice
s re
nder
ed p
ost-p
etiti
on o
r with
in 1
80 d
ays
prio
r to
bank
rupt
cy (i
n w
hich
cas
e,
such
por
tion
may
be
entit
led
to a
dmin
istra
tive
expe
nse
prio
rity
or p
riorit
y un
secu
red
clai
m s
tatu
s)
PB
GC
may
als
o ha
ve a
cla
im fo
r ter
min
atio
n pr
emiu
ms
calc
ulat
ed a
t $1,
250
per p
artic
ipan
t, pe
r yea
r, fo
r 3 y
ears
, whi
ch c
laim
wou
ldbe
an
adm
inis
trativ
e ex
pens
e cl
aim
S
ubse
quen
t to
plan
term
inat
ion,
ther
e is
ofte
n lit
igat
ion
over
bot
h th
e si
ze a
nd p
riorit
y of
PB
GC
clai
ms;
thes
e is
sues
are
com
plex
and
var
y gr
eatly
by
circ
uit
O
ne c
omm
on d
ispu
te c
ente
rs o
n w
heth
er P
BG
Cis
allo
wed
to u
se it
s re
gula
tory
(ver
y co
nser
vativ
e) p
rese
nt v
alue
met
hodo
logy
as
oppo
sed
to th
e “p
rude
nt
inve
stor
rate
” gen
eral
ly u
sed
by b
ankr
uptc
y co
urts
in c
alcu
latin
g cr
edito
r cla
ims
P
BGC
has
also
mad
e di
ffere
nt a
rgum
ents
in s
uppo
rt of
its
requ
est t
o be
trea
ted
as a
sec
ured
, prio
rity
tax,
oth
er p
riorit
y or
adm
inis
trativ
e cl
aim
ant
VALCON 2015
504
Labo
r-R
elat
ed Is
sues
(con
t.)
6
C
oal A
ct
Sta
tuto
ry o
blig
atio
n th
at re
quire
s ea
ch c
urre
nt a
nd fo
rmer
coa
l ind
ustry
em
ploy
er th
at w
as a
sig
nato
ry to
a
CB
Aas
of J
uly
20, 1
992
to m
aint
ain
the
bene
fit p
lan
that
was
in p
lace
for r
etire
es w
ho re
tired
prio
r to
Oct
ober
1, 1
994,
and
to p
ay a
nnua
l pre
miu
ms
to s
hare
in th
e co
st o
f hea
lth c
are
for "
orph
aned
“ ret
irees
w
hose
em
ploy
ers
have
gon
e ou
t of b
usin
ess
E
nact
ed in
199
2 in
ord
er to
pro
vide
for c
ontin
ued
finan
cing
for r
etire
e be
nefit
s fo
r min
ers
who
had
legi
timat
e ex
pect
atio
ns o
f life
time
heal
thca
re b
enef
its
Join
t and
sev
eral
liab
ility
on
entit
ies
that
wer
e un
der c
omm
on c
ontro
l as
of J
uly
20, 1
992
Tr
eate
d as
adm
inis
trativ
e ex
pens
e cl
aim
s in
the
bank
rupt
cy, m
ust b
e pa
id in
the
ordi
nary
cou
rse
C
asel
awis
unc
lear
on
whe
ther
cer
tain
of t
hese
obl
igat
ions
can
be
mod
ified
by
sect
ion
1114
One
cas
e ha
s he
ld th
at s
ectio
n 11
14 c
an b
e us
ed to
mod
ify o
nly
volu
ntar
y re
tiree
ben
efits
, not
retir
ee b
enef
its re
quire
d by
sta
tute
s su
ch a
s th
e C
oal A
ct.
Buc
kner
v. W
estm
orel
and
Coa
l Co.
(In
re W
estm
orel
and
Coa
l Co.
), 21
3 B
.R. 1
(Ban
kr.
D. C
olo.
199
7)
A
noth
er c
ase
has
held
that
, alth
ough
a d
ebto
r can
not m
odify
its
oblig
atio
n to
pay
ann
ual o
r mon
thly
pre
miu
ms
to th
e C
oal A
ct s
tatu
tory
orp
han
fund
s, it
can
use
111
4 to
mod
ify th
e re
tiree
ben
efits
it a
dmin
iste
rs p
ursu
ant t
o th
e C
oal A
ct.
The
case
, In
re H
oriz
on N
atur
al R
esou
rces
Co.
, 316
B.R
. 268
(Ban
kr. E
.D. K
y. 2
004)
, was
dec
ided
in th
e co
ntex
t of a
liq
uida
tion,
and
the
cour
t fou
nd th
at n
o bu
yer w
ould
pur
chas
e th
e de
btor
s’ a
sset
s ab
sent
term
inat
ion
of th
e re
tiree
be
nefit
s
“S
afe
Har
bor”
–as
sets
can
be
sold
free
and
cle
ar o
f Coa
l Act
liab
ility
if th
e pu
rcha
ser i
s “u
nrel
ated
to th
e se
ller”
, and
the
sale
is a
bon
a fid
e, a
rm’s
leng
th s
ale
for f
air m
arke
t val
ue
In s
uch
a ca
se, C
oal A
ct li
abilit
y w
ill re
vert
back
to th
e “la
st s
igna
tory
ope
rato
r” (i
.e.,
the
mos
t rec
ent c
oal i
ndus
try
empl
oyer
of t
he re
tiree
as
of J
uly
20, 1
992)
. If
ther
e is
no
mor
e re
cent
em
ploy
er, t
he m
iner
will
be p
rovi
ded
bene
fits
from
th
e st
atut
ory
Coa
l Act
fund
s ad
min
iste
red
by th
e U
MW
A
AmericAn BAnkruptcy institute
505
Labo
r-R
elat
ed Is
sues
(con
t.)
7
Fe
dera
l Bla
ck L
ung
Act
P
rovi
des
for m
onth
ly p
aym
ents
to c
oal m
iner
s to
tally
dis
able
d fro
m p
neum
ocon
iosi
s (b
lack
lung
dis
ease
)
Adm
inis
tere
d si
mila
r to
wor
kers
’ com
pens
atio
n; v
irtua
lly a
ll de
btor
s se
ek a
nd a
re g
rant
ed a
utho
rity
to
cont
inue
to p
ay c
laim
s du
ring
the
case
C
oal c
ompa
nies
are
usu
ally
requ
ired
to p
ost c
olla
tera
l to
the
Dep
artm
ent o
f Lab
or to
sec
ure
oblig
atio
ns, a
nd,
in a
ban
krup
tcy,
the
Dep
artm
ent o
f Lab
or w
ill h
ave
a ge
nera
l uns
ecur
ed c
laim
aga
inst
a c
ompa
ny fo
r any
de
ficie
ncy;
how
ever
, an
argu
men
t can
be
mad
e th
at a
t lea
st a
por
tion
of th
e cl
aim
(for
the
prio
r thr
ee y
ears
) may
be
affo
rded
prio
rity
stat
us a
s an
exc
ise
tax
unde
r sec
tion
507(
a)(8
)(E
) of t
he B
ankr
uptc
y C
ode
D
irect
ors
and
offic
ers
may
incu
r per
sona
l civ
il lia
bilit
y if
an o
pera
ting
com
pany
fails
to m
aint
ain
appr
oved
in
sura
nce
or q
ualif
y as
a s
elf-i
nsur
er
Can
like
ly s
ell a
sset
s “fr
ee a
nd c
lear
” of B
lack
Lun
g lia
bilit
ies,
and
liab
ility
will
reve
rt ba
ck to
the
mos
t rec
ent
empl
oyer
of t
he m
iner
. If
ther
e is
no
mor
e re
cent
em
ploy
er, t
he m
iner
will
be
prov
ided
ben
efits
from
a
stat
utor
y fu
nd a
dmin
iste
red
by th
e D
epar
tmen
t of L
abor
Th
ere
is a
n op
en q
uest
ion,
how
ever
, as
to w
heth
er d
irect
ors
and
offic
ers
may
stil
l be
liabl
e un
der t
hese
circ
umst
ance
s if
they
are
foun
d to
be
“prio
r ope
rato
rs” o
f the
min
e. W
hile
ther
e is
no
case
law
on
poin
t, th
e st
atut
e ap
pear
s br
oad
enou
gh
to c
over
this
sce
nario
W
orke
rs’ C
ompe
nsat
ion
Vi
rtual
ly a
ll de
btor
s se
ek a
nd a
re g
rant
ed a
utho
rity
to p
ay c
laim
s an
d co
ntin
ue th
eir w
orke
rs’ c
ompe
nsat
ion
prog
ram
s (in
clud
ing
stat
e bl
ack
lung
cla
ims)
U
sual
ly re
quire
d to
hav
e in
pla
ce u
nder
min
ing
perm
its
Vario
us s
tate
s re
quire
col
late
ral t
o be
pos
ted
to s
ecur
e ob
ligat
ions
, and
, in
a ba
nkru
ptcy
, the
insu
ranc
e co
mpa
ny o
r sta
te in
sura
nce
fund
will
hav
e ge
nera
l uns
ecur
ed c
laim
s ag
ains
t a c
ompa
ny fo
r any
def
icie
ncy
VALCON 2015
506
Env
ironm
enta
l / R
egul
ator
y Is
sues
8
Fe
dera
l and
sta
te re
gula
tory
aut
horit
ies
impo
se o
blig
atio
ns o
n th
e co
al m
inin
g in
dust
ry in
a w
ide
rang
e of
are
as
Empl
oyee
hea
lth a
nd s
afet
y
Perm
ittin
g an
d lic
ensi
ng re
quire
men
ts
Envi
ronm
enta
l pro
tect
ion
R
ecla
mat
ion
and
rest
orat
ion
of m
inin
g pr
oper
ties
afte
r min
ing
has
been
com
plet
ed
Surfa
ce s
ubsi
denc
e fro
m u
nder
grou
nd m
inin
g an
d th
e ef
fect
of m
inin
g on
sur
face
and
gro
undw
ater
qua
lity
and
avai
labi
lity
O
ver t
he p
ast s
ever
al y
ears
, new
regu
latio
ns, n
ew in
terp
reta
tions
of e
xist
ing
law
s an
d re
gula
tions
, an
d ci
tizen
law
suits
bro
ught
by
non-
gove
rnm
enta
l org
aniz
atio
ns h
ave
resu
lted
in in
crea
sed
com
plia
nce
cost
s fo
r coa
l com
pani
es a
nd th
eir c
usto
mer
s
In J
une
2013
, Pre
side
nt O
bam
a an
noun
ced
initi
ativ
es in
tend
ed to
redu
ce g
reen
hous
e ga
s em
issi
ons
glob
ally,
incl
udin
g cu
rtaili
ng U
.S. g
over
nmen
t sup
port
for p
ublic
fina
ncin
g of
new
coa
l-fire
d po
wer
pla
nts
over
seas
and
pro
mot
ing
fuel
sw
itchi
ng fr
om c
oal t
o na
tura
l gas
or r
enew
able
ene
rgy
sour
ces
Th
e E
PA h
as p
ropo
sed
a ru
le th
at a
ims
to re
duce
car
bon
diox
ide
emis
sion
s fro
m e
xist
ing
coal
-fire
d po
wer
pl
ants
by
30%
by
2030
from
the
2005
leve
l, w
hich
wou
ld re
quire
the
impl
emen
tatio
n of
cos
tly p
ollu
tion
cont
rol t
echn
olog
y, th
ereb
y pl
acin
g si
gnifi
cant
add
ition
al fi
nanc
ial a
nd o
pera
tiona
l bur
dens
on
pow
er p
lant
s fu
eled
by
coal
D
iffic
ult t
o es
timat
e im
pact
as
ther
e w
ill lik
ely
be y
ears
of l
itiga
tion
over
thes
e ru
les,
and
the
EPA
is n
ot re
quiri
ng p
rogr
ess
until
202
2
AmericAn BAnkruptcy institute
507
Env
ironm
enta
l/Reg
ulat
ory
Issu
es (c
ont.)
9
O
ngoi
ng c
ompl
ianc
e w
ith e
nviro
nmen
tal r
egul
atio
ns d
urin
g ba
nkru
ptcy
A
debt
or m
ust c
ontin
ue to
com
ply
with
its
envi
ronm
enta
l obl
igat
ions
und
er a
pplic
able
fede
ral,
stat
e an
d lo
cal l
aws,
regu
latio
ns a
nd p
erm
its, a
s w
ell a
ny o
blig
atio
ns u
nder
cou
rt or
ders
and
se
ttlem
ents
with
regu
lato
rs o
r non
-gov
ernm
enta
l org
aniz
atio
ns
In th
e ev
ent a
deb
tor f
ails
to c
ompl
y w
ith it
s ob
ligat
ions
, pen
altie
s as
sess
ed w
ill be
gra
nted
ad
min
istra
tive
expe
nse
stat
us, w
hich
mus
t be
paid
in fu
ll in
con
nect
ion
with
a re
orga
niza
tion
M
ay b
e jo
int a
nd s
ever
al li
abilit
y
Und
er c
erta
in fe
dera
l and
sta
te la
ws,
liab
ility
for c
onta
min
atio
n re
latin
g to
a s
ubsi
diar
y’s
faci
lity
can
exte
nd to
a p
aren
t if t
he p
aren
t is
deem
ed to
be
an “o
pera
tor”
of th
e re
leva
nt fa
cilit
y
R
elev
ant e
nviro
nmen
tal p
erm
its m
ight
impo
se li
abili
ty o
n th
e pa
rent
P
aren
t may
als
o ha
ve o
ther
dire
ct o
blig
atio
ns fo
r sub
sidi
ary
liabi
litie
s un
der a
gree
men
ts w
ith re
gula
tors
or
non
-gov
ernm
enta
l org
aniz
atio
ns
VALCON 2015
508
Env
ironm
enta
l/Reg
ulat
ory
Issu
es (c
ont.)
10
R
ecla
mat
ion
Obl
igat
ions
C
oal c
ompa
nies
hav
e th
e le
gal o
blig
atio
n to
clo
se a
nd re
stor
e (o
r rec
laim
) lan
d di
stur
bed
by m
inin
g op
erat
ions
S
tate
s re
quire
that
com
pani
es p
ost b
onds
to s
ecur
e th
ese
recl
amat
ion
oblig
atio
ns
May
be
join
t and
sev
eral
liab
ility
to th
e ex
tent
that
recl
amat
ion
bond
s co
ntai
n in
dem
nific
atio
n pr
ovis
ions
re
nder
ing
rela
ted
entit
ies
liabl
e
Rec
lam
atio
n ob
ligat
ions
can
not b
e di
scha
rged
in a
ban
krup
tcy,
and
for a
ll pr
actic
al p
urpo
ses
asse
ts c
anno
t be
sol
d fre
e an
d cl
ear o
f rec
lam
atio
n ob
ligat
ions
A pu
rcha
ser w
ill ha
ve to
ass
ume
the
oblig
atio
ns o
r neg
otia
te w
ith re
gula
tors
to d
evel
op a
sol
utio
n (e
.g.,
leav
e be
hind
as
sets
in, o
r ded
icat
e fu
ture
reve
nues
to, a
trus
t to
fund
the
oblig
atio
ns);
othe
rwis
e, re
gula
tors
may
not
app
rove
the
trans
fer o
f the
rela
ted
min
ing
perm
its to
the
purc
hase
r
P
erm
it B
lock
Con
side
ratio
ns
Fe
dera
l and
sta
te a
genc
ies
can
bloc
k th
e is
suan
ce o
r ren
ewal
of m
inin
g pe
rmits
(with
out w
hich
a c
oal
com
pany
can
not l
awfu
lly e
ngag
e in
coa
l min
ing)
in o
rder
to e
nfor
ce th
e pr
ovis
ions
of i
ts s
afet
y, h
ealth
and
en
viro
nmen
tal l
aws
M
ay b
e us
ed a
gain
st th
e co
al c
ompa
ny, a
ffilia
te e
ntiti
es a
nd p
erso
ns w
ho a
re d
eem
ed to
be
in c
ontro
l of t
he
perm
itted
ent
ity
Arg
uabl
y pr
eclu
des
reor
gani
zing
aro
und
“goo
d” a
sset
s an
d le
avin
g th
e “b
ad” a
sset
s (i.
e., t
hose
with
re
clam
atio
n ob
ligat
ions
) beh
ind
P
ower
ful i
ncen
tive
for a
coa
l min
ing
com
pany
to c
ompl
y w
ith a
pplic
able
law
s an
d ho
nor r
ecla
mat
ion
oblig
atio
ns fo
r all
affil
iate
s
AmericAn BAnkruptcy institute
509
Env
ironm
enta
l/Reg
ulat
ory
Issu
es (c
ont.)
11
S
uret
ies
B
efor
e a
coal
com
pany
can
obt
ain
min
ing
and
rela
ted
perm
its, t
hey
mus
t pro
vide
acc
epta
ble
finan
cial
ass
uran
ce to
the
rele
vant
sta
te a
genc
ies
to s
ecur
e pe
rform
ance
of i
ts o
blig
atio
ns
Req
uire
d am
ount
of f
inan
cial
ass
uran
ce is
sup
pose
d to
be
suffi
cien
t to
assu
re th
e co
mpl
etio
n of
the
recl
amat
ion
if th
e w
ork
has
to b
e pe
rform
ed b
y th
e re
gula
tory
aut
horit
y in
the
even
t of a
de
faul
t by
the
com
pany
, whi
ch w
ould
allo
w th
e st
ate
agen
cies
issu
ing
the
perm
its to
dra
w o
n th
e bo
nds
S
uret
ies
requ
ire c
ompa
nies
to e
xecu
te a
n in
dem
nity
agr
eem
ent a
s a
prec
ondi
tion
to is
suin
g bo
nds,
pur
suan
t to
whi
ch th
e su
rety
may
hav
e th
e rig
ht to
dem
and
colla
tera
l for
up
to 1
00%
of
the
valu
e of
the
bond
at a
ny ti
me
S
uret
ies
cann
ot d
eman
d m
ore
colla
tera
l dur
ing
chap
ter 1
1; b
ut th
e bo
nds
and
rela
ted
inde
mni
ty a
gree
men
ts a
rgua
bly
cann
ot b
e as
sum
ed a
bsen
t con
sent
by
the
sure
ty
Will
gene
rally
ride
thro
ugh
the
bank
rupt
cy u
nim
paire
d
VALCON 2015
510
Con
tract
ual I
ssue
s
12
Te
rmin
atio
n of
Coa
l Sup
ply
Agr
eem
ents
(CS
As)
C
ount
erpa
rty to
a C
SA
may
arg
ue th
at th
e co
ntra
ct is
a “f
orw
ard
cont
ract
” or “
swap
” tha
t qu
alifi
es a
s a
“pro
tect
ed c
ontra
ct” u
nder
the
Ban
krup
tcy
Cod
e, p
erm
ittin
g th
e pa
rty to
te
rmin
ate
an “i
n th
e m
oney
” con
tract
upo
n a
bank
rupt
cy fi
ling
with
out a
ny li
abilit
y to
the
debt
or
Som
e C
SA
sex
pres
sly
stat
e th
at th
ey a
re “f
orw
ard
cont
ract
s” a
nd e
ach
of th
e pa
rties
is a
“fo
rwar
d co
ntra
ct m
erch
ant”,
but
that
con
tract
ual l
angu
age
does
not
bin
d th
e co
urt
A
debt
or m
ight
arg
ue th
at th
e co
ntra
ct is
not
elig
ible
for t
his
safe
har
bor p
rote
ctio
n be
caus
e th
e ty
pe o
f co
al s
ubje
ct to
the
cont
ract
is n
ot a
“com
mod
ity” o
r is
not s
ubje
ct to
dea
ling
in th
e fo
rwar
d co
ntra
ct tr
ade
A
debt
or c
ould
als
o ar
gue
that
the
coun
terp
arty
is n
ot a
pro
tect
ed e
ntity
(i.e
., no
t a “f
orw
ard
cont
ract
m
erch
ant,”
“fin
anci
al p
artic
ipan
t” or
“com
mod
ity b
roke
r”),
and
the
cont
ract
is n
ot a
sw
ap a
gree
men
t (w
hich
allo
ws
any
coun
terp
arty
to te
rmin
ate)
Fi
nally
, a d
ebto
r cou
ld a
rgue
that
eve
n if
term
inat
ion
is p
erm
itted
, the
cou
nter
party
mus
t mak
e a
term
inat
ion
settl
emen
t pay
men
t
Th
e la
w in
this
are
a is
not
set
tled,
cre
atin
g lit
igat
ion
risk;
issu
es li
kely
wou
ld b
e su
bjec
t to
sign
ifica
nt fa
ctua
l dis
pute
, and
exp
ert i
nves
tigat
ion
and
test
imon
y m
ay b
e re
quire
d
AmericAn BAnkruptcy institute
511
Con
tract
ual I
ssue
s (c
ont.)
13
Li
ens
on C
oal L
ease
s
Coa
l lea
ses
ofte
n ha
ve a
nti-a
ssig
nmen
t pro
visi
ons,
whi
ch m
ay p
rohi
bit a
ssig
ning
and
/or p
ledg
ing
a le
ase
as
colla
tera
l with
out t
he c
onse
nt o
f the
less
or
Whi
le s
ectio
n 36
5(f)
of th
e B
ankr
uptc
y C
ode
allo
ws
debt
ors
to o
verr
ide
anti-
assi
gnm
ent c
laus
es, a
nd
argu
ably
sec
tion
364
of th
e B
ankr
uptc
y C
ode
allo
ws
debt
ors
to g
rant
a li
en o
n as
sets
in c
onne
ctio
n w
ith a
D
IP fi
nanc
ing
notw
ithst
andi
ng a
ny c
ontra
ctua
l pro
hibi
tions
on
gran
ting
liens
, coa
l com
pani
es a
re o
ften
sens
itive
to re
latio
nshi
ps w
ith th
eir l
esso
rs a
nd d
o no
t wan
t to
pled
ge th
eir l
ease
s as
col
late
ral f
or fi
nanc
ing
with
out l
esso
r con
sent
(whi
ch m
ay b
e di
fficu
lt an
d co
stly
to o
btai
n)
Cou
rts h
ave
held
that
a p
ledg
e do
es n
ot im
plic
ate
a pu
re a
nti-a
ssig
nmen
t pro
visi
on b
ecau
se, u
nlik
e as
sign
men
t, a
pled
ge a
llow
s th
e tit
le to
the
pled
ged
prop
erty
to re
mai
n w
ith th
e pl
edgo
r
It ca
n al
so b
e ar
gued
that
sec
tion
365
may
be
used
to o
verr
ide
anti-
pled
ge p
rovi
sion
s on
the
basi
s th
at, s
ince
Con
gres
s al
low
ed fo
r ass
ignm
ent i
n th
e fa
ce o
f a p
rohi
bitio
n, th
en p
ledg
ing,
som
ethi
ng le
ss th
an a
ssig
nmen
t, sh
ould
als
o be
al
low
ed
O
ne a
ltern
ativ
e is
to d
efer
litig
atio
n on
the
issu
e by
pro
vidi
ng th
at le
nder
s w
ill n
ot b
e gr
ante
d lie
ns o
n le
ases
th
at re
stric
t ass
ignm
ent o
r ple
dgin
g un
less
suc
h re
stric
tions
are
rend
ered
inef
fect
ive
by th
e B
ankr
uptc
y C
ode
or a
pplic
able
non
bank
rupt
cyla
w
Lend
ers
may
als
o se
ek a
ltern
ativ
es th
at w
ould
stil
l pro
vide
them
with
the
valu
e of
the
leas
e (e
.g.,
obta
inin
g th
e rig
ht to
ass
ign
the
leas
e, d
irect
the
sale
of t
he le
ase,
acc
ess
the
leas
ehol
d pr
oper
ty, c
redi
t bid
for t
he
leas
e, re
fuse
the
debt
ors’
pro
pose
d as
sign
men
ts a
nd re
ject
ions
and
cur
e th
e de
btor
s’ d
efau
lts u
nder
a
leas
e)
VALCON 2015
512
Con
tract
ual I
ssue
s (c
ont.)
14
O
verr
ide
Agr
eem
ents
Th
e te
rms
“ove
rrid
ing
roya
lty” o
r “ov
errid
e” re
fer t
o th
e in
tere
st in
pro
duct
ion
reta
ined
by
a le
ssee
afte
r ass
igni
ng a
leas
e to
a
third
par
ty, w
here
by th
e le
ssee
-ass
igno
r rec
eive
s pa
ymen
ts fr
om th
e as
sign
ee (o
ver a
nd a
bove
the
roya
lty re
serv
ed in
the
leas
e pa
yabl
e to
the
less
or) b
ased
on
the
amou
nt o
f coa
l min
ed fr
om re
serv
es c
over
ed b
y th
e ap
plic
able
leas
e
The
arra
ngem
ent i
s ge
nera
lly m
emor
ializ
ed in
two
sepa
rate
inst
rum
ents
, an
assi
gnm
ent o
f the
leas
e an
d an
ove
rrid
e pa
ymen
t ag
reem
ent
In
a b
ankr
uptc
y, th
e fo
llow
ing
issu
es m
ay a
rise:
whe
ther
the
over
ride
agre
emen
t is
exec
utor
y (i.
e., d
oes
a de
btor
hav
e to
as
sum
e or
reje
ct th
e ag
reem
ent)
and
whe
ther
the
over
ride
agre
emen
t is
inte
grat
ed w
ith th
e as
sign
men
t or t
he le
ase
(i.e.
, if a
de
btor
ass
umes
or r
ejec
ts th
e le
ase,
doe
s th
e ov
errid
e ag
reem
ent g
et a
ssum
ed o
r rej
ecte
d th
erew
ith)
In
the
Pat
riot C
oal b
ankr
uptc
y, th
e co
urt h
eld
that
an
over
ride
agre
emen
t bet
wee
n a
Pat
riot
subs
idia
ry a
nd c
erta
in A
lpha
Nat
ural
Res
ourc
es, I
nc. s
ubsi
diar
ies
was
not
an
exec
utor
y co
ntra
ct
subj
ect t
o as
sum
ptio
n or
reje
ctio
n be
caus
e th
ere
wer
e no
obl
igat
ions
rem
aini
ng o
n th
e pa
rt of
the
assi
gnor
. Th
e co
urt a
lso
held
that
, des
pite
the
fact
that
it is
like
ly th
at th
e pa
rties
wou
ld n
ot h
ave
ente
red
into
the
assi
gnm
ent a
bsen
t the
ove
rrid
e ag
reem
ent,
the
two
docu
men
ts w
ere
not
inte
grat
ed w
ith th
e as
sign
men
t or t
he u
nder
lyin
g le
ase
beca
use
they
wer
e al
l sep
arat
e co
ntra
cts
serv
ing
sepa
rate
pur
pose
s
Alth
ough
thes
e di
sput
es a
re h
ighl
y fa
ct-s
peci
fic, t
his
deci
sion
pro
vide
s a
path
for a
coa
l com
pany
to s
truct
ure
an o
verr
ide
arra
ngem
ent,
whe
reby
, in
a ba
nkru
ptcy
, it m
ay b
e ab
le to
ass
ume
the
leas
e w
ithou
t hav
ing
to a
ssum
e th
e ov
errid
e ag
reem
ent
and
cure
def
aults
ther
eund
er, l
eavi
ng th
e co
unte
rpar
ty w
ith a
gen
eral
uns
ecur
ed c
laim
for a
ny u
npai
d ro
yalti
es
AmericAn BAnkruptcy institute
513
ww
w.a
lixpa
rtner
s.co
m©
Alix
Par
tner
s, L
LP, 2
012
DIS
TRES
S IN
TH
E EN
ERG
Y IN
DU
STR
Y -I
mpa
ct o
n Po
wer
Febr
uary
26,
201
5
Lisa
J. D
onah
ueM
anag
ing
Dire
ctor
, Glo
bal H
ead
of T
urna
roun
d &
Res
truct
urin
g, A
lixP
artn
ers
LLP
VALCON 2015
514
Hig
hlig
hts
ww
w.a
lixpa
rtner
s.co
m2
S
hift
in e
lect
ricity
gen
erat
ion
away
from
mor
e ca
rbon
-inte
nsiv
e fu
els
such
as
coal
hel
ping
to s
tabi
lize
ener
gy re
late
d C
O2
Em
issi
ons
R
egul
atio
ns li
miti
ng C
O2
emis
sion
s on
exi
stin
g an
d ne
w p
lant
s•
New
pla
nts
will
have
to re
duce
CO
2 em
issi
ons
usin
g a
mec
hani
sm c
alle
d ca
rbon
cap
ture
seq
uest
ratio
n (C
CS
), bu
t eco
nom
ic a
nd te
chno
logi
cal v
iabi
lity
is s
till b
eing
que
stio
ned
•E
xist
ing
plan
ts m
ust c
ut C
O2
emis
sion
s by
30%
by
2030
ove
r 200
5 le
vels
E
volv
ing
natu
ral g
as m
arke
ts c
ontri
butin
g to
incr
ease
d us
e of
nat
ural
gas
for e
lect
ricity
gen
erat
ion
P
ower
Indu
stry
is b
enef
iting
from
the
“Sha
le R
evol
utio
n,” b
ut th
ere
are
othe
r fac
tors
con
tribu
ting
to th
e ch
angi
ng
land
scap
e fo
r pow
er g
ener
atio
n
Low
cos
t nat
ural
gas
from
sha
le p
rodu
ctio
n is
a s
econ
dary
driv
er o
f pro
duct
ion
shift
U
se o
f nat
ural
gas
for e
lect
ricity
gen
erat
ion
will
surp
ass
use
of c
oal b
y 20
35
N
o co
al-fi
red
capa
city
add
ition
s in
1H
201
4 (5
3.3%
cam
e fro
m n
atur
al g
as a
nd 4
1.9%
from
rene
wab
le
ener
gy)
S
ome
wor
k on
con
verti
ng to
nat
ural
gas
ove
r the
nex
t 1-3
yea
rs
No
imm
edia
te c
onst
ruct
ion
boom
in n
atur
al g
as-fi
red
faci
litie
s an
ticip
ated
due
to u
nuse
d ca
paci
ty o
f 70%
for
exis
ting
plan
ts
Ana
lyst
s es
timat
e op
erat
ing
natu
ral g
as-b
urni
ng p
lant
s at
full
capa
city
wou
ld p
rovi
de 5
0% o
f US
pow
er
requ
irem
ents
P
ipel
ine
cons
truct
ion
not a
ccel
erat
ing
beca
use
gas-
fired
faci
litie
s al
read
y ha
ve p
ipel
ines
In
crea
se in
pow
er c
onsu
mpt
ion
and
impr
ovem
ent i
n ec
onom
y ne
eded
bef
ore
sign
ifica
nt c
onst
ruct
ion
grow
th o
f gas
-fire
d fa
cilit
ies
will
occ
ur
AmericAn BAnkruptcy institute
515
Bac
kgro
und
of P
ower
Indu
stry
ww
w.a
lixpa
rtner
s.co
m3
In
depe
nden
t Pow
er P
rodu
cers
(IP
Ps) i
nclu
de in
depe
nden
t and
util
ity o
wne
d co
mpa
nies
that
ow
n po
wer
pl
ants
.
Inde
pend
ent –
AES
, NR
G, C
alpi
ne, D
yneg
y, In
terg
en, e
tc.
U
tility
ow
ned
–E
diso
n M
issi
on E
nerg
y (E
diso
n In
tern
atio
nal),
Lum
inen
t(E
nerg
y Fu
ture
Hol
ding
s), C
onEd
, Ent
ergy
, et
c.
Th
e IP
P in
dust
ry is
influ
ence
d by
hig
h ca
pita
l cos
ts to
con
stru
ct a
nd m
aint
ain
pow
er p
lant
s, a
n in
abili
ty
to s
tore
out
put,
and
pric
e vo
latil
ity.
E
lect
ricity
can
not b
e st
ored
and
ther
efor
e m
ust b
e so
ld in
to th
e m
arke
t.
Fuel
inpu
t and
ene
rgy
outp
ut p
rices
can
var
y w
idel
y an
d ar
e im
pact
ed b
y ev
ents
out
side
of a
n IP
P’s
co
ntro
l lik
e w
eath
er, e
cono
mic
clim
ate,
sup
ply/
dem
and,
etc
.
IPP
s w
ith c
oal p
rodu
ctio
n ar
e ch
alle
nged
by
envi
ronm
enta
l reg
ulat
ions
lim
iting
em
issi
ons
that
will
re
quire
sig
nific
ant c
apita
l inv
estm
ent t
o co
mpl
y, s
eek
wai
vers
or s
hut d
own/
sell
asse
ts.
IP
Ps
may
be
chal
leng
ed to
rais
e su
ffici
ent r
esou
rces
to fu
nd c
apita
l exp
endi
ture
s ne
eded
to k
eep
pace
w
ith re
gula
tions
and
tech
nolo
gy if
cap
ital m
arke
ts b
ecom
e le
ss a
cces
sibl
e du
e to
incr
easi
ng ri
sks
in th
e in
dust
ry c
ause
d by
suc
h th
ings
as:
Lo
w n
atur
al g
as p
rices
(typ
ical
ly s
ets
pow
er p
rices
in m
ost r
egio
ns) d
ue to
sha
le g
as b
oom
N
atur
al g
as-7
fuel
ed p
ower
sup
ply
disp
laci
ng c
oal p
ower
sup
ply
D
epre
ssed
dem
and
due
to e
nerg
y ef
ficie
ncy,
dem
and
side
man
agem
ent,
and
redu
ced
econ
omic
per
form
ance
O
vers
uppl
y of
pow
er in
all
regi
ons
exce
pt E
lect
ric R
elia
bilit
y C
ounc
il of
Tex
as (E
RC
OT)
VALCON 2015
516
Bac
kgro
und
of P
ower
Indu
stry
(con
tinue
d)
ww
w.a
lixpa
rtner
s.co
m4
M
arke
t stru
ctur
es a
nd re
gula
tions
cre
ate
unce
rtain
ty fo
r IP
Ps o
ver t
he lo
ng te
rm li
fe o
f pow
er p
lant
s.
Reg
ulat
ors
dete
rmin
e th
e le
vel o
f eas
e to
con
stru
ct n
ew p
ower
pla
nts
or tr
ansm
issi
on li
nes
via
perm
it pr
oces
ses,
si
te re
quire
men
ts, p
ublic
hea
rings
, etc
. For
exa
mpl
e, C
alifo
rnia
has
stri
ct e
nviro
nmen
tal a
nd p
erm
ittin
g re
gula
tions
w
hich
lim
it th
e ty
pe o
f pow
er p
lant
s th
at c
an b
e bu
ilt.
E
nviro
nmen
tal r
egul
atio
ns im
pact
and
, in
som
e in
stan
ces,
cre
ate
unce
rtain
ty fo
r IPP
s du
e to
sig
nific
ant c
osts
to
com
ply
or a
n in
abilit
y to
com
ply.
Li
mite
d em
issi
ons
from
coa
l pow
er p
lant
s ar
e ex
pect
ed to
resu
lt in
pla
nt re
tirem
ents
of 6
8 gi
gaw
atts
(GW
), ho
wev
er
exte
nsio
ns o
f tim
e to
com
ply
with
regu
latio
ns a
re le
adin
g to
mar
ket u
ncer
tain
ty re
gard
ing
timin
g of
impa
cts.
R
egul
atio
ns ty
pica
lly ta
ke y
ears
to b
e es
tabl
ishe
d, re
sulti
ng in
am
bigu
ity fo
r the
indu
stry
(for
exa
mpl
e, m
ercu
ry
regu
latio
ns w
ere
unde
r con
side
ratio
n fo
r yea
rs).
R
enew
able
Por
tfolio
Sta
ndar
ds (“
RPS
”) a
nd fe
dera
l inc
entiv
es, P
rodu
ctio
n Ta
x C
redi
ts (“
PTC
”), h
ave
led
to
addi
tiona
l ren
ewab
le p
ower
sou
rces
bei
ng in
stal
led
caus
ing
som
e do
wnw
ard
pres
sure
on
who
lesa
le p
ower
pric
es.
•R
PS h
ave
been
pas
sed
in 2
9 st
ates
and
requ
ire a
cer
tain
per
cent
age
of p
ower
to b
e so
urce
d fro
m re
new
able
so
urce
s --
perc
enta
ge re
quire
d ra
nges
from
10%
-40%
with
an
aver
age
of 2
2%.
P
erm
anen
t pow
er d
eman
d ch
ange
s w
ill h
ave
a lo
ng-te
rm im
pact
on
pow
er p
rices
.
Pow
er d
eman
d re
duct
ions
due
to d
eman
d si
de m
anag
emen
t and
ene
rgy
effic
ienc
y ar
e ex
pect
ed to
redu
ce fu
ture
de
man
d le
vels
long
term
.
AmericAn BAnkruptcy institute
517
Shal
e R
evol
utio
n is
Impa
ctin
g th
e po
wer
indu
stry
ww
w.a
lixpa
rtner
s.co
m5
Sou
rce:
Ene
rgy
Info
rmat
ion
Adm
inis
tratio
n
The
Pow
er In
dust
ry is
ben
efiti
ng fr
om th
e “S
hale
Rev
olut
ion”
, bu
t oth
er fa
ctor
s co
ntrib
utin
g to
the
chan
ging
land
scap
e fo
r pow
er g
ener
atio
n
Com
men
tary
Ann
ual U
S N
atur
al G
as P
rodu
ctio
n (tc
f)
G
ener
al Im
pact
s
Sha
le g
as p
rovi
des
the
larg
est s
ourc
e of
gro
wth
in U
S n
atur
al
gas
supp
ly, p
roje
cted
to in
crea
se 5
6% fr
om 2
012
to 2
040
R
educ
ed C
O2
Em
issi
ons
S
uppo
rted
deve
lopm
ent o
f int
erm
itten
t Win
d an
d S
olar
re
new
able
pow
er s
ourc
es th
roug
h di
vers
ifica
tion
of p
ower
pr
oduc
tion
S
peci
fic Im
pact
s
Con
tribu
ting
to m
ovem
ent a
way
from
coa
l-fire
d po
wer
ge
nera
tion
E
xpan
sion
of p
ipel
ine
trans
porta
tion
and
dist
ribut
ion
infra
stru
ctur
e to
fully
util
ize
the
incr
ease
d su
pply
of n
atur
al
gas,
and
con
vers
ion
of p
ower
pla
nts
from
coa
l to
natu
ral g
as
will
be n
eede
d w
hen
dem
and
incr
ease
s
Ext
ent o
f clo
sure
of c
oal-b
urni
ng g
ener
atin
g pl
ants
vs.
co
nver
sion
will
be im
pact
ed b
y th
e de
man
d fo
r ele
ctric
ity
Favo
rabl
e na
tura
l gas
pric
es h
ave
redu
ced
the
cost
of
prod
ucin
g el
ectri
city
for n
ow b
ut c
ould
be
impa
cted
by:
•N
ew re
stric
tions
on
shal
e fra
ckin
g du
e to
env
ironm
enta
l un
certa
intie
s•
Exp
ansi
on o
f LN
G te
rmin
als
and
incr
ease
d ex
ports
of L
NG
•In
crea
se p
rice
vola
tility
risk
due
to in
abili
ty to
hed
ge n
atur
al g
as
beyo
nd 1
-2 y
ears
(Coa
l is
typi
cally
pur
chas
ed v
ia lo
ng-te
rm
cont
ract
s w
hich
redu
ces
this
pric
ing
risk)
.
VALCON 2015
518
The
expa
nsio
n of
nat
ural
gas
pow
er g
ener
atio
n is
lead
ing
to a
shi
ft aw
ay fr
om c
oal p
ower
pro
duct
ion
ww
w.a
lixpa
rtner
s.co
m6
35%
16%
16%
32% 1%
Sou
rce:
Ene
rgy
Info
rmat
ion
Adm
inis
tratio
n
Com
men
tary
Elec
tric
ity P
rodu
ctio
n by
Fue
l,19
90-2
040
D
ecre
asin
g na
tura
l gas
pric
es, R
PS, a
nd e
nviro
nmen
tal
regu
latio
ns fo
r coa
l pla
nts
are
prom
ptin
g a
shift
to n
atur
al g
as
and
rene
wab
le e
lect
ricity
pro
duct
ion.
Shi
ft w
ill lik
ely
caus
e an
in
crea
se in
who
lesa
le p
ower
pric
e vo
latil
ity.
N
atur
al g
as-fi
red
gene
ratio
n pr
ojec
ted
to o
verta
ke c
oal-f
ired
gene
ratio
n in
201
9, re
achi
ng 3
5% b
y 20
40.
D
urin
g th
e ne
xt 1
0 ye
ars,
gro
wth
in e
lect
ricity
gen
erat
ion
from
re
new
able
s la
rgel
y po
licy-
driv
en.
G
as p
rocu
rem
ent i
s ty
pica
lly u
nder
sho
rt-te
rm c
ontra
cts,
w
here
as c
oal t
ends
to b
e pr
ocur
ed u
nder
long
-term
con
tract
s.
G
as p
ower
pla
nts
typi
cally
rely
on
pipe
line
deliv
erie
s ex
posi
ng
gas
plan
ts to
cha
ngin
g pi
pelin
e ra
te s
truct
ures
, ava
ilabi
lity,
and
di
srup
tions
.
Hig
h de
man
d fo
r gas
can
lim
it sp
ace
on p
ipel
ines
C
oal a
nd n
ucle
ar fu
el c
an b
e st
ored
in re
lativ
ely
larg
e qu
antit
ies
and
coal
tran
spor
tatio
n is
usu
ally
und
er lo
ng-te
rm
cont
ract
s pr
otec
ting
agai
nst f
uel s
uppl
y di
srup
tions
S
hift
to n
atur
al g
as is
not
cur
rent
ly a
driv
er o
f pip
elin
e co
nstru
ctio
n si
nce
all e
xist
ing
gas-
fired
faci
litie
s ar
e al
read
y fe
d by
an
exis
ting
pipe
line.
AmericAn BAnkruptcy institute
519
Reg
ulat
ions
and
low
er n
atur
al g
as p
rices
are
impa
ctin
g po
wer
pla
nt
retir
emen
ts a
nd in
stal
latio
ns
ww
w.a
lixpa
rtner
s.co
m7
Sour
ce: E
nerg
y In
form
atio
n Ad
min
istra
tion
Com
men
tary
US
Plan
t Cap
acity
Add
.(gw
ts),
201
3-20
40
C
apac
ity a
dditi
ons
proj
ecte
d to
con
tinue
to m
igra
te to
nat
ural
gas
.
A
dditi
ons
to p
ower
pla
nt c
apac
ity a
re p
roje
cted
to s
low
bet
wee
n 20
16-2
023
but a
ccel
erat
e be
yond
that
with
min
imal
coa
l cap
acity
ad
ded.
N
ew c
apac
ity b
etw
een
2013
and
204
0 fo
reca
st to
incl
ude
255
GW
of n
atur
al g
as (7
3% o
f add
ition
s) a
nd 8
1 G
S (2
3% o
f ad
ditio
ns) o
f Ren
ewab
les.
C
urre
nt re
gula
tions
requ
iring
coa
l pla
nt e
mis
sion
redu
ctio
ns a
re
expe
cted
to re
duce
app
roxi
mat
ely
68 G
W o
f coa
l gen
erat
ion
capa
city
ove
r the
nex
t 4-6
yea
rs.
S
igni
fican
tly lo
wer
nat
ural
gas
and
pow
er p
rices
are
driv
ing
wea
k gr
oss
mar
gins
for c
oal p
lant
s le
adin
g to
retir
emen
ts a
s w
ell a
s po
tent
ial f
uel c
onve
rsio
n in
som
e in
stan
ces.
P
ower
pla
nt in
stal
latio
ns c
an ta
ke c
onsi
dera
ble
time
and
“exp
ecte
d” re
tirem
ents
cou
ld b
e de
laye
d.
Pla
nt re
tirem
ents
can
be
due
to e
nviro
nmen
tal e
mis
sion
s or
un
econ
omic
al p
erfo
rman
ce
Som
e po
wer
pro
duce
rs m
ay c
hoos
e to
retro
fit o
r exp
and
exis
ting
inst
alla
tions
to m
eet d
eman
ds
C
O2
emis
sion
s in
the
elec
trici
ty s
ecto
r fro
m c
oal c
ombu
stio
n re
mai
n be
low
201
1 le
vels
thro
ugh
2040
as
mor
e po
wer
pla
nts
are
bein
g fu
eled
by
low
er-c
arbo
n fu
els
incl
udin
g na
tura
l gas
and
re
new
able
s
VALCON 2015
520
Will
an
incr
ease
in li
quef
ied
natu
ral g
as (L
NG
) exp
orts
impa
ct th
e av
aila
bilit
y of
che
ap n
atur
al g
as fo
r the
pow
er in
dust
ry?
ww
w.a
lixpa
rtner
s.co
m8
Sou
rce:
Ene
rgy
Info
rmat
ion
Adm
inis
tratio
n
Com
men
tary
Nat
ural
Gas
Pro
duct
ion,
Con
sum
ptio
n,
Impo
rts,
199
0-20
40 (t
cf)
LNG
exp
orts
cou
ld le
ad to
incr
ease
d na
tura
l gas
pric
es m
akin
g fu
rthe
r nat
ural
gas
pow
er
prod
uctio
n le
ss e
cono
mic
al th
an it
is to
day;
how
ever
, inc
reas
es in
sup
ply
shou
ld o
utpa
ce d
eman
d
D
iver
gent
vie
ws
exis
t on
the
impa
ct o
f LN
G e
xpor
ts o
n th
e po
wer
ge
nera
tion
sect
or.
G
as s
uppl
y co
ntin
ues
to o
utpa
ce d
eman
d, k
eepi
ng g
as p
rices
flat
with
m
inim
al im
pact
on
pow
er g
ener
atio
n
Sup
ply
can’
t kee
p up
with
dem
and
resu
lting
in h
ighe
r inp
ut
pric
es fo
r po
wer
pro
duce
rs
U
S E
nerg
y In
form
atio
n A
dmin
istra
tion
sugg
ests
that
LN
G e
xpor
ts
will
have
min
imal
impa
cts
on e
lect
ricity
sec
tor.
P
rodu
ctio
n gr
owin
g fa
ster
than
use
resu
lting
in U
S b
ecom
ing
an e
xpor
ter
of n
atur
al g
as
Wor
st c
ase
impa
ct fr
om n
atur
al g
as p
rice
incr
ease
s ca
used
by
expo
rting
LN
G is
mod
est (
1% m
axim
um re
duct
ion
in e
cono
mic
out
put w
ith a
m
inim
um o
f aro
und
.2%
)
Exp
ort l
evel
s an
d LN
G p
rice
incr
ease
s w
ill b
e co
nstra
ined
by
limita
tions
of
the
glob
al g
as m
arke
t
Som
e ex
perts
bel
ieve
the
impa
cts
of e
xpor
ting
LNG
cou
ld b
e of
fset
by
the
over
all f
avor
able
eco
nom
ic im
pact
s cr
eate
d by
LN
G e
xpor
t inc
ome
P
ower
Sec
tor i
s fo
cuse
d on
regu
lato
ry is
sues
driv
ing
the
shift
to
clea
ner p
ower
-pro
duci
ng u
nits
than
coa
l-fire
d un
its.
A
s LN
G e
xpor
t fac
ilitie
s co
me
onlin
e ov
er th
e ne
xt 2
-5 y
ears
in th
e U
S, t
he p
oten
tial e
xist
s fo
r exp
orts
to p
ush
natu
ral g
as p
rices
hig
her,
impa
ctin
g th
e co
st e
ffect
iven
ess
of n
atur
al g
as-fi
red
pow
er u
nits
.
AmericAn BAnkruptcy institute
521
Envi
ronm
enta
l Reg
ulat
ions
Impa
ctin
g th
e Po
wer
Indu
stry
ww
w.a
lixpa
rtner
s.co
m9
In
rece
nt y
ears
, bot
h fe
dera
l and
sta
te a
utho
ritie
s ha
ve e
nact
ed in
crea
sing
ly s
tring
ent r
egul
atio
ns li
miti
ng p
ollu
tant
s fro
m
pow
er g
ener
atio
n us
ing
carb
on-b
ased
fuel
s. T
he re
gula
tions
are
stil
l evo
lvin
g an
d su
bjec
t to
furth
er c
hang
es.
Fe
dera
l and
sta
te la
ws
can
diffe
r for
the
sam
e po
lluta
nt, a
nd p
ower
gen
erat
ors
are
requ
ired
to c
ompl
y w
ith b
oth
A
gen
erat
or m
ay c
hoos
e to
pay
pen
altie
s fo
r non
-com
plia
nce
rath
er th
an in
vest
cap
ital d
olla
rs
R
egul
atio
ns h
ave
had
impo
rtant
impl
icat
ions
for t
he e
lect
ricity
indu
stry
, for
cing
gen
erat
ors
to im
plem
ent c
ostly
pol
lutio
n co
ntro
ls. E
nviro
nmen
tal r
egul
atio
ns h
ave
had
an e
spec
ially
pro
foun
d im
pact
on
regi
ons
that
rely
on
coal
to p
rovi
de
elec
trici
ty.
S
peci
fic re
gula
tions
incl
ude:
Reg
iona
l Gre
enho
use
Gas
Initi
ativ
e (“
RG
GI”)
•R
egio
nal c
ap-a
nd-tr
ade
prog
ram
for C
O2
Em
issi
ons
appl
icab
le to
foss
il-fu
eled
ele
ctric
pow
er p
lant
s la
rger
than
25
MW
lo
cate
d in
9 p
artic
ipat
ing
north
east
ern
stat
es
Mer
cury
and
Air
Toxi
cs S
tand
ards
(“M
ATS
”)•
Issu
ed b
y th
e E
PA
on
12/2
1/11
, MA
TS re
quire
s fo
ssil-
fuel
ed s
team
ele
ctric
gen
erat
ors
to c
ontro
l em
issi
ons
of a
cid
gass
es, t
oxic
met
als,
and
mer
cury
•M
ATS
was
intro
duce
d fo
llow
ing
the
July
201
1 fin
aliz
atio
n of
its
Cro
ss-S
tate
Air
Pol
lutio
n R
ule
(“C
SAPR
”)•
Toge
ther
, the
two
rule
s w
ill a
ffect
the
utili
ty in
dust
ry b
y re
quiri
ng e
xpen
sive
retro
fits
or p
ossi
bly
forc
ing
plan
t ret
irem
ents
•M
ATS
will
requ
ire m
any
coal
-fire
d pl
ants
, whi
ch a
ccou
nt fo
r ½ o
f the
aci
d ga
s em
issi
ons
in th
e U
S, t
o in
stal
l wid
ely
avai
labl
e po
llutio
n-co
ntro
l tec
hnol
ogie
s in
clud
ing
flue
gas
desu
lfuriz
atio
n sc
rubb
ers
or d
ry s
orbe
nt in
ject
ion
syst
ems
•E
ffect
ive
in A
pril,
201
5 w
ith fu
ll ef
fect
in 2
016
•W
ill li
kely
driv
e a
high
leve
l of c
oal p
lant
clo
sure
s (a
ppea
rs to
be
cons
ensu
s vi
ew)
C
SAPR
–R
equi
res
stat
es to
sig
nific
antly
impr
ove
air q
ualit
y by
redu
cing
pow
er p
lant
em
issi
ons
that
con
tribu
te to
oz
one
and/
or fi
ne p
artic
le p
ollu
tion
in o
ther
sta
tes
•In
Aug
ust 2
012,
CS
AP
R w
as v
acat
ed a
nd re
man
ded
back
to th
e E
PA
by
the
US
Cou
rt of
App
eals
for t
he D
istri
ct o
f C
olum
bia
and
the
Cle
an A
ir In
ters
tate
Rul
e w
as re
inst
ated
O
ther
pot
entia
l are
as fo
r reg
ulat
ion:
•C
oal a
sh re
mov
al /
Coo
ling
wat
er in
take
/ G
reen
hous
e ga
ses
VALCON 2015
522
Nor
th A
mer
ica
Bos
ton
/ Chi
cago
/ D
alla
s / D
etro
it / L
os A
ngel
es /
Nas
hvill
e / N
ew Y
ork
/ San
Fra
ncis
co /
Was
hing
ton,
DC
EMEA
Dub
ai /
Düs
seld
orf /
Lon
don
/ Mila
n / M
unic
h / P
aris
Asia
Hon
g K
ong
/ Seo
ul /
Sha
ngha
i / T
okyo
©20
13 A
lixP
artn
ers,
LLC
Alix
Par
tner
sis
a le
adin
g gl
obal
bus
ines
s ad
viso
ry fi
rm o
f res
ults
-orie
nted
pr
ofes
sion
als
who
spe
cial
ize
in c
reat
ing
valu
e an
d re
stor
ing
perfo
rman
ce a
t eve
ry s
tage
of t
he b
usin
ess
lifec
ycle
. We
thriv
e on
ou
r abi
lity
to m
ake
a di
ffere
nce
in h
igh-
impa
ct s
ituat
ions
and
del
iver
su
stai
nabl
e, b
otto
m-li
ne re
sults
.
The
firm
’s e
xper
tise
cove
rs a
wid
e ra
nge
of b
usin
esse
s an
d in
dust
ries
whe
ther
they
are
hea
lthy,
cha
lleng
ed o
r dis
tress
ed. S
ince
198
1,
we
have
take
n a
uniq
ue, s
mal
l-tea
m, a
ctio
n-or
ient
ed a
ppro
ach
to h
elpi
ng
corp
orat
e bo
ards
and
man
agem
ent,
law
firm
s, in
vest
men
t ban
ks,
and
inve
stor
s re
spon
d to
crit
ical
bus
ines
s is
sues
. For
mor
e in
form
atio
n,
visi
t alix
partn
ers.
com
.
Alix
Par
tner
s. W
hen
it re
ally
mat
ters
.
AmericAn BAnkruptcy institute
523
Dis
tress
in th
e E
nerg
y In
dust
ry:
Ren
ewab
le E
nerg
y S
ecto
r
FOR
DIS
CU
SSIO
N P
UR
POSE
S O
NLY
Febr
uary
26,
201
5
VALC
ON
201
5Em
ergi
ng V
alua
tion
Issu
es in
B
ankr
uptc
y an
d B
eyon
d
VALCON 2015
524
Tabl
e of
Con
tent
s
2
I.O
verv
iew
of t
he R
enew
able
Ene
rgy
Sect
or3
II.K
ey T
rend
s in
the
Ren
ewab
le E
nerg
y Se
ctor
9
III.
Ren
ewab
le V
alua
tion
Driv
ers
20
App
endi
xB
riefO
verv
iew
of D
uff &
Phe
lps
and
Con
tact
Info
rmat
ion
24
AmericAn BAnkruptcy institute
525
Ove
rvie
w o
f the
R
enew
able
Ene
rgy
Sect
orI
VALCON 2015
526
•R
enew
able
ene
rgy
is e
lect
ricity
gen
erat
ed b
y fu
el
sour
ces
that
rest
ore
them
selv
es o
ver a
sho
rt pe
riod
of ti
me
and
do n
ot d
imin
ish
•R
enew
able
s ar
e co
nsid
ered
env
ironm
enta
lly
pref
erab
le to
con
vent
iona
l sou
rces
and
whe
n re
plac
ing
foss
il fu
els
have
sig
nific
ant p
oten
tial t
o re
duce
gre
enho
use
gas
emis
sion
s
•R
enew
able
tech
nolo
gies
incl
ude:
•S
olar
; •
Win
d;•
Geo
ther
mal
;•
Bio
mas
s;•
Bio
gas;
and
•Lo
w-Im
pact
Hyd
roel
ectri
city
.
4
Sou
rce:
EPA
–R
enew
able
Ene
rgy.
Ove
rvie
wW
hat i
s R
enew
able
Ene
rgy?
•R
enew
able
ene
rgy
dive
rsifi
es o
ur e
nerg
y su
pply
and
redu
ces
depe
nden
ce o
n im
porte
d fu
els
•R
enew
able
ene
rgy
is p
rimar
ily s
old
thro
ugh
a po
wer
pur
chas
e ag
reem
ent (
“PPA
”) a
nd n
ot o
n th
e m
erch
ant p
ower
mar
ket
AmericAn BAnkruptcy institute
527
•U
tility
Rat
e St
ruct
ures
•U
nfav
orab
le u
tility
rate
stru
ctur
es c
an in
crea
se th
e co
st o
f ren
ewab
les
(e.g
., th
roug
h st
and-
by ra
tes,
la
ck o
f net
met
erin
g) o
r com
plet
ely
disa
llow
con
nect
ion
to th
e el
ectri
cal g
rid
•La
ck o
f Int
erco
nnec
tion
Stan
dard
s•
The
abse
nce
of u
nifo
rm p
roce
dure
s an
d te
chni
cal r
equi
rem
ents
mak
e it
diffi
cult
for c
onne
ctin
g re
new
able
ene
rgy
syst
ems
to th
e el
ectri
c ut
ility
grid
•B
arrie
rs in
Env
ironm
enta
l Per
mitt
ing
•La
rge-
scal
e re
new
able
ene
rgy
tech
nolo
gies
are
sub
ject
to a
ll th
e ne
cess
ary
envi
ronm
enta
l per
mits
of
maj
or in
dust
rial f
acili
ties
•La
ck o
f Tra
nsm
issi
on•
Man
y re
new
able
reso
urce
s ar
e lo
cate
d in
rem
ote
area
s th
at la
ck re
ady
or c
ost-e
ffect
ive
acce
ss to
tra
nsm
issi
on
5
Sou
rce:
EPA
–R
enew
able
Ene
rgy.
Ove
rvie
w
Bar
riers
to R
enew
able
Ene
rgy
VALCON 2015
528
•Th
e U
nite
d S
tate
s E
nerg
y In
form
atio
n A
dmin
istra
tion
publ
ishe
d es
timat
ed
over
nigh
t cap
ital c
osts
for r
enew
able
s in
20
10 a
nd 2
013
•O
ver t
his
time
perio
d th
e co
st to
bui
ld
decr
ease
dfo
r ons
hore
win
d, s
olar
ph
otov
olta
ic, m
unic
ipal
sol
id w
aste
, co
nven
tiona
l hyd
roel
ectri
c, a
nd p
umpe
d st
orag
e
•Th
e ov
erni
ght c
apita
l cos
ts fo
r sol
ar
phot
ovol
taic
dec
reas
ed th
e m
ost
sign
ifica
ntly
of a
ny re
new
able
pow
er
sour
ce
6
Sou
rce:
EIA
–U
pdat
ed C
apita
l Cos
t Est
imat
es fo
r Util
ity S
cale
Ele
ctric
ity G
ener
atin
g P
lant
s, A
pril
2013
.
Ove
rvie
w
Cos
t of R
enew
able
Ene
rgy
AmericAn BAnkruptcy institute
529
•R
enew
able
Ele
ctric
ity P
rodu
ctio
n Ta
x C
redi
t (“P
TC”)
•O
rigin
ally
ena
cted
in 1
992,
the
PTC
has
bee
n re
new
ed a
nd e
xpan
ded
num
erou
s tim
es•
A c
orpo
rate
tax
cred
it of
2.3
cen
ts/k
ilow
att-h
our (
“kW
h”) f
or w
ind,
geo
ther
mal
, clo
sed-
loop
bio
mas
s;
1.1
cent
s/kW
h fo
r oth
er e
ligib
le te
chno
logi
es•
Gen
eral
ly a
pplie
s to
the
first
10
year
s of
ope
ratio
n•
The
Tax
Incr
ease
Pre
vent
ion
Act
of 2
014
exte
nded
the
expi
ratio
n da
te fo
r the
PTC
to D
ecem
ber 3
1,
2014
; the
refo
re p
roje
cts
that
are
not
und
er c
onst
ruct
ion
prio
r to
Janu
ary
1, 2
015,
are
inel
igib
le fo
r th
is c
redi
t•
His
toric
ally
whe
n th
e P
TC h
as b
een
allo
wed
to e
xpire
, the
Uni
ted
Sta
tes
has
face
d a
70%
-95%
dr
op-o
ff in
inst
alla
tions
•B
usin
ess
Ener
gy In
vest
men
t Tax
Cre
dit (
“ITC
”)•
A c
orpo
rate
tax
cred
it of
30%
for s
olar
, fue
l cel
ls, s
mal
l win
d, a
nd P
TC-e
ligib
le te
chno
logi
es; 1
0%
for g
eoth
erm
al, m
icro
turb
ines
, and
com
bine
d he
at a
nd p
ower
(“C
HP”
)•
For s
yste
ms
plac
ed in
ser
vice
afte
r Dec
embe
r 31,
201
6, th
e cu
rren
t 30%
cre
dit w
ill b
e re
duce
d to
10
% a
nd th
e cu
rren
t 10%
cre
dit w
ill e
xpire
for a
ll te
chno
logy
but
geo
ther
mal
7
Ove
rvie
w
Ince
ntiv
es to
Bui
ld R
enew
able
Ene
rgy
Sou
rce:
Uni
ted
Sta
tes
Dep
artm
ent o
f Ene
rgy;
AC
OR
E –
The
Out
look
for R
enew
able
Ene
rgy
in A
mer
ica,
201
4;
ww
w.d
sire
usa.
org.
VALCON 2015
530
8
Ove
rvie
w
Ince
ntiv
es to
Bui
ld R
enew
able
Ene
rgy
Sou
rce:
EIA
–M
ost S
tate
s H
ave
Ren
ewab
le P
ortfo
lio S
tand
ards
; EPA
–R
enew
able
Ene
rgy
Cer
tific
ates
(RE
Cs)
.
•R
enew
able
Por
tfolio
Sta
ndar
d Po
licie
s•
A re
new
able
por
tfolio
sta
ndar
d or
goa
l is
a st
ate
polic
y de
sign
ed to
incr
ease
gen
erat
ion
of e
lect
ricity
fro
m re
new
able
sou
rces
•Th
ese
polic
ies
eith
er re
quire
(ren
ewab
le p
ortfo
lio s
tand
ard)
or e
ncou
rage
(ren
ewab
le p
ortfo
lio g
oal)
elec
trici
ty p
rodu
cers
to s
uppl
y a
certa
in m
inim
um s
hare
of t
heir
elec
trici
ty fr
om d
esig
nate
d re
new
able
sou
rces
•R
enew
able
Ene
rgy
Cer
tific
ates
(“R
EC”)
•A
RE
C re
pres
ents
the
prop
erty
righ
ts to
the
envi
ronm
enta
l, so
cial
, and
oth
er n
on-p
ower
qua
litie
s of
re
new
able
ele
ctric
ity g
ener
atio
n•
A R
EC
can
be
sold
sep
arat
ely
or to
geth
er w
ith th
e un
derly
ing
phys
ical
ele
ctric
ity
•A
s re
new
able
gen
erat
ors
prod
uce
elec
trici
ty, t
hey
crea
te o
ne R
EC fo
r eve
ry 1
,000
kW
h of
ele
ctric
ity
plac
ed o
n th
e gr
id
•If
the
phys
ical
ele
ctric
ity a
nd th
e as
soci
ated
RE
Cs
are
sold
to s
epar
ate
buye
rs, t
he e
lect
ricity
is n
o lo
nger
con
side
red
“ren
ewab
le” o
r “gr
een”
AmericAn BAnkruptcy institute
531
Key
Tre
nds
in th
e R
enew
able
Ene
rgy
Sect
orII
VALCON 2015
532
•A
ccor
ding
to B
loom
berg
, whi
le th
e O
rgan
izat
ion
of th
e P
etro
leum
Exp
ortin
g C
ount
ries
(“O
PEC
”) is
dr
ivin
g do
wn
glob
al c
rude
pric
es, i
t is
havi
ng le
ss s
ucce
ss im
pact
ing
the
clea
n po
wer
indu
stry
•Fo
rbes
wro
te in
Jan
uary
201
5 th
at “a
s oi
l pric
es h
ave
tum
bled
, dem
and
for e
nerg
y ef
ficie
ncy
and
rene
wab
le e
nerg
y on
ly k
eeps
gro
win
g”
•Th
e In
tern
atio
nal E
nerg
y A
genc
y st
ated
that
gre
en e
nerg
y w
ill re
ceiv
e ne
arly
60
perc
ent o
f the
$5
trilli
on in
inve
stm
ent i
n ne
w p
ower
pla
nts
over
the
next
dec
ade
than
ks in
par
t to
glob
al li
mits
on
gree
nhou
se g
ases
•Th
is e
ffort
has
resu
lted
in lo
cal a
nd n
atio
nal i
ncen
tive
polic
ies
for r
enew
able
pow
er a
roun
d th
e w
orld
, ef
fect
ivel
y in
sula
ting
the
indu
stry
from
mar
ket f
luct
uatio
ns in
com
mod
ity p
rices
•S
ince
rene
wab
les
do n
ot re
quire
fuel
they
offe
r sta
bilit
y th
at o
il, g
as, a
nd c
oal c
anno
t pro
vide
10
Sou
rce:
Blo
ombe
rg –
OP
EC
Squ
eeze
on
Oil
Spa
res
Ren
ewab
les
From
Ene
rgy
Turm
oil,
Dec
embe
r 2, 2
014;
For
bes
–W
hy
Fallin
g O
il P
rices
Don
’t H
urt D
eman
d Fo
r Ren
ewab
le E
nerg
y, J
anua
ry 5
, 201
5.
Cur
rent
Env
ironm
ent
Effe
ct o
f Com
mod
ity P
rices
on
Ren
ewab
le E
nerg
y
AmericAn BAnkruptcy institute
533
11
Sou
rce:
EIA
-E
lect
ric P
ower
Mon
thly,
Dec
embe
r 201
4.
Net
Gen
erat
ion
for A
ll S
ecto
rs
Janu
ary
thro
ugh
Oct
ober
201
4
VALCON 2015
534
12
Tota
l In-
Ser
vice
Cap
acity
Ja
nuar
y th
roug
h O
ctob
er 2
014
Sou
rce:
EIA
-E
lect
ric P
ower
Mon
thly,
Dec
embe
r 201
4.
AmericAn BAnkruptcy institute
535
•Lo
w n
atur
al g
as
pric
es c
ontin
ued
to
supp
ort o
vera
ll gr
owth
•A
vaila
bilit
y of
tax
subs
idie
s an
d de
clin
ing
phot
ovol
taic
(“
PV”
) cos
ts c
ontin
ued
to d
rive
sola
r de
velo
pmen
t
13
Cap
acity
Add
ition
s Ja
nuar
y th
roug
h O
ctob
er 2
014
Sou
rce:
EIA
-E
lect
ric P
ower
Mon
thly,
Dec
embe
r 201
4.
VALCON 2015
536
•In
the
2014
pub
licat
ion,
co
al-fi
red
gene
ratio
n re
mai
ns p
ragm
atic
ove
r ne
xt fe
w y
ears
with
nu
clea
r ret
irem
ents
and
hi
gher
nat
ural
gas
pr
ices
rela
tive
to re
cent
hi
stor
y
•N
atur
al g
as p
roje
cted
to
surp
ass
coal
gen
erat
ion
by 2
035
•R
enew
able
ene
rgy
expe
cted
to g
row
to
16%
of g
ener
atio
n by
20
40
14
Sou
rce:
EIA
–A
nnua
l Ene
rgy
Out
look
, 201
1, 2
012,
201
3, a
nd 2
014
Ear
ly R
elea
se.
His
toric
al a
nd F
utur
e Tr
ends
Sum
mar
y
Elec
tric
ity G
ener
atio
n by
Fue
l (20
14 R
elea
se)
Elec
tric
ity G
ener
atio
n by
Fue
l (20
13 R
elea
se)
Elec
tric
ity G
ener
atio
n by
Fue
l (20
11 R
elea
se)
Elec
tric
ity G
ener
atio
n by
Fue
l (20
12 R
elea
se)
AmericAn BAnkruptcy institute
537
•E
IA p
roje
cts
rene
wab
le g
ener
atio
n to
incr
ease
from
524
billi
on k
Wh
in 2
011
to 8
58 b
illion
kW
h in
204
0 (a
vera
ge g
row
th
rate
of 1
.7%
per
yea
r)•
Win
d ge
nera
tion
to in
crea
se b
y 13
4 bi
llion
kWh
(2.6
% g
row
th p
er y
ear)
•S
olar
gen
erat
ion
to in
crea
se b
y 92
billi
on k
Wh
(9.8
% g
row
th p
er y
ear)
15
Sou
rce:
EIA
–A
nnua
l Ene
rgy
Out
look
, 201
4 E
arly
Rel
ease
.
Cur
rent
and
Fut
ure
Tren
dsR
enew
able
Ene
rgy
VALCON 2015
538
16
Sou
rce:
ww
w.d
sire
usa.
org.
Ren
ewab
le P
ortfo
lio S
tand
ard
Pol
icie
sD
rivin
g E
xpan
sion
in In
divi
dual
Sta
tes
AmericAn BAnkruptcy institute
539
•A
t the
end
of Q
3 20
14 th
e U
nite
d S
tate
s ha
d 16
.1 g
igaw
atts
(“G
W”)
of P
V ge
nera
ting
capa
city
com
pare
d to
1.2
GW
five
ye
ars
ago
•S
olar
see
ing
sign
ifica
nt g
row
th in
eac
h se
gmen
t (re
side
ntia
l, no
n-re
side
ntia
l, an
d ut
ility)
and
201
4 w
as s
et to
be
the
larg
est y
ear i
n hi
stor
y fo
r con
cent
rate
d so
lar p
ower
(“C
SP”)
•B
ecau
se th
e cu
rren
t ITC
of 3
0% is
sch
edul
ed to
dec
reas
e to
10%
in 2
017,
dev
elop
ers
of u
tility
-sca
le p
roje
cts
are
acce
lera
ting
proj
ect t
imel
ines
17
Sou
rce:
SE
IA –
U.S
. Sol
ar M
arke
t Ins
ight
, Q3
2014
.
Sol
ar D
evel
opm
ent
PV
Inst
alla
tions
Uni
ted
Stat
es P
V In
stal
latio
n Fo
reca
st 2
010-
2016
E
VALCON 2015
540
18
Sou
rce:
AW
EA
–M
arke
t R
epor
t, Q
3 20
14.
Win
d D
evel
opm
ent
Win
d In
stal
latio
ns•
Uni
ted
Sta
tes
win
d en
ergy
in
dust
ry in
stal
led
1,25
4 m
egaw
atts
(“M
W”)
in th
e fir
st
thre
e qu
arte
rs o
f 201
4 –
mor
e th
an in
all
of 2
013
•M
ore
than
13,
600
MW
of w
ind
capa
city
und
er c
onst
ruct
ion
•M
ajor
ity o
f win
d co
nstru
ctio
n is
w
ithin
Tex
as, f
ollo
wed
by
Okl
ahom
a, Io
wa,
Nor
th D
akot
a,
and
Kans
as
•U
tiliti
es c
ontin
ue to
sig
n P
PAs
for w
ind
pow
er
•C
orpo
rate
pur
chas
ers
such
as
Yah
oo! a
nd W
alm
art h
ave
sign
ed P
PAs
for w
ind
proj
ects
Uni
ted
Stat
es W
ind
Pow
er C
apac
ity In
stal
latio
ns, b
y St
ate
AmericAn BAnkruptcy institute
541
19
Sou
rce:
AW
EA
–M
arke
t R
epor
t, Q
3 20
14; A
CO
RE
–Th
e O
utlo
ok fo
r Ren
ewab
le E
nerg
y in
Am
eric
a, 2
014.
Win
d D
evel
opm
ent
Win
d In
stal
latio
ns
•To
tal w
ind
pow
er c
apac
ity
inst
alla
tions
for 2
013
wer
e ov
er 1
,000
MW
•H
owev
er, t
he to
tal 2
013
inst
alla
tions
repr
esen
ted
a 92
% re
duct
ion
from
the
reco
rd-s
ettin
g ov
er 1
3,00
0 M
W in
stal
led
durin
g 20
12
•Th
is d
rop-
off c
an b
e at
tribu
ted
to th
e la
te
exte
nsio
n of
the
prod
uctio
n ta
x cr
edit
and
inve
stm
ent t
ax
cred
it in
Jan
uary
201
3
Uni
ted
Stat
es W
ind
Pow
er C
apac
ity In
stal
latio
ns, b
y Q
uart
er
VALCON 2015
542
Ren
ewab
le V
alua
tion
Driv
ers
III
AmericAn BAnkruptcy institute
543
A
sset
Cha
ract
eris
tics
Fu
el T
ype
C
apac
ity (i
ncl.
degr
adat
ion)
R
emai
ning
Use
ful L
ife
Loca
tion
M
erch
ant R
even
ue
Mer
chan
t Cap
acity
Fac
tor
Lo
catio
n-B
ased
Pric
ing
Fo
rwar
d P
ower
& G
as C
urve
s
Inst
alle
d C
apac
ity P
aym
ents
A
ncilla
ry R
even
ue
C
ontra
cted
Rev
enue
P
ower
Pur
chas
e A
gree
men
ts
Tolli
ng /
Hed
ging
Con
tract
s
Va
riabl
e O
pera
ting
Exp
ense
s
Fuel
Exp
ense
A
sset
Man
agem
ent F
ees
O
ther
VO
M
Fi
xed
Ope
ratin
g E
xpen
ses
La
bor &
Ben
efits
P
lant
G&
A
Util
ities
In
sura
nce
P
rope
rty T
axes
C
apita
l Exp
endi
ture
s
Mai
nten
ance
Exp
ense
s
Inve
rter R
epla
cem
ent
C
ash
Flow
Con
side
ratio
ns
Wor
king
Cap
ital
A
ccel
erat
ed D
epre
ciat
ion
Ben
efits
A
sset
Ret
irem
ent O
blig
atio
ns
Tax
Cre
dits
/ In
cent
ives
21
Ren
ewab
le V
alua
tion
Driv
ers
Ope
ratin
g Fa
cilit
ies
VALCON 2015
544
S
ite S
elec
tion
W
ind
Avai
labi
lity
Stu
dies
Tr
ansm
issi
on /
Dis
tribu
tion
Line
s
Roa
ds /
Infra
stru
ctur
e
Env
ironm
enta
l Con
cern
s
Eas
e of
Per
mitt
ing
La
nd A
gree
men
ts
Doe
s D
evel
oper
Hav
e “S
ite
Con
trol”?
Q
ualit
y of
Lan
d Le
ases
Tu
rbin
es
Tech
nolo
gy /
Siz
e
Sec
ured
Sup
ply
Agr
eem
ent
Fi
nanc
ing
/ Cas
h fo
r Dow
n P
aym
ent
N
egot
iate
d W
arra
ntie
s
Fo
reca
sted
Per
form
ance
Fo
reca
sted
Cap
acity
Fac
tor
P
99, P
75, P
50
O&
M E
stim
ates
S
ales
/ Fi
nanc
ing
Agr
eem
ents
S
igne
d P
PA
Off
Take
r Cre
dit R
atin
g
Long
-Ter
m F
inan
cing
in
Pla
ce
O
ther
Item
s
Tran
smis
sion
Que
ue
Add
ition
al D
evel
opm
ent a
t S
ite
Exp
erie
nce
of D
evel
oper
22
Ren
ewab
le V
alua
tion
Driv
ers
Win
d D
evel
opm
ent A
sset
s
AmericAn BAnkruptcy institute
545
Fo
reca
sted
Per
form
ance
Fo
reca
sted
Cap
acity
Fact
or
Deg
rada
tion
Fact
ors
O
&M
Est
imat
es(V
aria
ble,
Fixe
d)
C
ontra
cted
Out
put
/ Off
Take
r
Tarif
fPric
ing
S
igne
dP
PA
Off
Take
rCre
ditR
atin
g
RE
CO
wne
rshi
p
M
erch
ant O
utpu
t
Avai
labl
eM
erch
antC
apac
ity
Loca
tion-
Bas
edP
ricin
g
O
ther
Item
s
Add
ition
alD
evel
opm
enta
tSite
U
sefu
lLife
ofTe
chno
logy
E
xper
ienc
eof
Dev
elop
er
23
Ren
ewab
le V
alua
tion
Driv
ers
Sol
ar D
evel
opm
ent A
sset
s
Site
Sel
ectio
n
Sol
ar S
tudi
es /
Pro
file
Tr
ansm
issi
on /
Inte
rcon
nect
ion
E
nviro
nmen
tal C
once
rns
E
ase
of P
erm
ittin
g
La
nd A
gree
men
ts
Qua
lity
ofLa
ndLe
ases
P
anel
s
Tech
nolo
gy/M
anuf
actu
rer
S
ecur
edS
uppl
yA
gree
men
t
War
rant
ies
Fi
nanc
ing
/ Tax
Fi
nanc
ing
(Ban
k,D
OE
,etc
.)
Tax
Ince
ntiv
es(C
ash
Gra
nt/
ITC
)
Tax
Equ
ityFi
nanc
ing
VALCON 2015
546
Brie
f Ove
rvie
w o
f Duf
f & P
help
s an
d C
onta
ct In
form
atio
nA
ppen
dix
AmericAn BAnkruptcy institute
547
25
Duf
f & P
help
sD
edic
ated
to D
eliv
erin
g Va
lue
VALCON 2015
548
26
Con
tact
Info
rmat
ion
Dan
iel B
eaul
ne
Man
agin
g D
irect
or
Duf
f & P
help
s, L
LC
1700
Pac
ific
Aven
ue, S
uite
160
0
Dal
las,
Tex
as 7
5201
(469
) 547
-39
39
Dan
iel.B
eaul
ne@
duffa
ndph
elps
.com
1
Valuation Metrics after the Drastic Decline in Oil Prices
FOR DISCUSSION PURPOSES ONLY
February 26, 2015
VALCON 2015 Emerging Valuation Issues in Bankruptcy and Beyond
2
Source Data: S&P Capital IQ Database.
Oil & Gas Industry Market Capitalization Relative to WTI Price
2
3
Source Data: S&P Capital IQ Database.
Oil & Gas Industry Key Valuation Metrics
Oil and Gas Exploration and Production
Under 25% Oil
25% - 75% Oil
Over 75% Oil
Enterprise Value / 2015 EBITDAFebruary 18, 2015 52.32$ 7.6x 7.4x 7.4x 6.1x 6.0xDecember 31, 2014 53.45$ 6.4x 6.1x 5.1x 5.0x 4.9xJune 30, 2014 106.07$ 7.4x 7.2x 5.8x 5.8x 5.0xDecember 31, 2013 98.17$ 6.6x 6.2x 4.7x 4.5x 4.7x
Enterprise Value / Daily Production (Boe)February 18, 2015 52.32$ N/M 45,367$ 63,805$ 88,215$ N/MDecember 31, 2014 53.45$ N/M 45,533$ 63,428$ 85,880$ N/MJune 30, 2014 106.07$ N/M 64,906$ 96,228$ 153,811$ N/MDecember 31, 2013 98.17$ N/M 51,750$ 87,937$ 125,267$ N/M
Debt / Total CapitalFebruary 18, 2015 52.32$ 33% 45% 43% 32% 29%December 31, 2014 53.45$ 35% 46% 46% 34% 30%June 30, 2014 106.07$ 23% 27% 27% 26% 25%December 31, 2013 98.17$ 20% 43% 32% 35% 24%
Debt / LTM EBITDAFebruary 18, 2015 52.32$ 2.4x 4.0x 2.5x 2.4x 1.8xDecember 31, 2014 53.45$ 1.9x 3.4x 2.3x 2.4x 1.3xJune 30, 2014 106.07$ 2.0x 2.5x 2.1x 2.1x 1.1xDecember 31, 2013 98.17$ 1.6x 1.8x 1.9x 2.0x 1.1x
Industry MetricsWTI Spot
Price
Oil and Gas Equipment
and Services
Integrated Oil and Gas
