Bankruptcy Court reinforces importance of parties’ intent in determining the nature of overriding royalty interests under state law.

On April 2, 2015, the United States Bankruptcy Court for the District of Delaware (the Court) issued an opinion in In re Delta Petroleum Corporation addressing whether certain overriding royalty interests (ORRIs) constitute interests in real property under applicable state law. The Court’s interpretation of the underlying assignment agreements focused on the intent of the parties to create either a real property interest, which would be excluded from the debtors’ bankruptcy estate, or a contractual right to payment, which would be included in the estate and subject to discharge in the bankruptcy proceeding. This Client Alert provides a brief discussion of the primary issues addressed in the Delta opinion and the lessons to be learned from the Court’s holdings.