NEW YORK, Oct 14 (Reuters) - Equity investors in Breitburn Energy Partners LP can receive representation on an official committee, a U.S. bankruptcy court said on Friday, giving investors in the bankrupt oil and gas company a voice in restructuring negotiations.
Breitburn, based in Los Angeles, filed for Chapter 11 bankruptcy in May, one of more than 100 energy companies that have sought court protection from creditors in the worst energy price crash in a generation.
The public unit holders of the master limited partnership began fighting for an official place in court soon after, saying they could end up owing taxes if the company canceled some of its roughly $3.1 billion in debt in a reorganization.
Equity holders must convince judges that they stand to recover money when arguing for an official committee, which would advocate for equity recovery.
Bankruptcy judges rarely approve such committees. But as oil prices have rebounded to about $50 per barrel from lows of $26 per barrel earlier this year, they have allowed their creation in energy bankruptcy cases including Energy XXI Ltd and Hercules Offshore Inc.
"(The) court concludes that ... equity has carried its burden that Breitburn does not appear to be hopelessly insolvent," bankruptcy Judge Stuart Bernstein of the Southern District of New York said.
Bernstein said the committee should focus on Breitburn's plan of reorganization, which has not been filed, and its solvency. The committee should also look into the potential tax hit the equity holders face, he said.
Stephen Karotkin and Ray Schrock, attorneys for Breitburn, told Bernstein that the tax issue was foremost for the company, and that its reorganization plan would aim to mitigate its impact.
Attorneys pushing for the formation of the committee had argued that Breitburn was able to raise $350 million in convertible preferred units in early 2015, when oil was trading at roughly the same level as today, a sign that the company is not now "hopelessly insolvent."
Reporting by Jessica DiNapoli; Editing by Carmel Crimmins and Richard Chang