Scanrock Oil & Gas Bankruptcy: $50M Contested Case Confirms After 212-Day Fight

Scanrock Oil & Gas confirmed an Amended Joint Consolidated Plan of Reorganization on September 3, 2025, but only after a seven-month fight that ran through nearly every contested mechanism available in a chapter 11 case: a U.S. Trustee motion to install a chapter 11 trustee, an Official Committee push for substantive consolidation, royalty owners asserting Texas statutory super-priority, and a secured lender that moved both to lift the automatic stay and to convert the case to chapter 7. The plan that emerged consolidated ten debtor entities for distribution purposes and handed two ranch properties to an independent plan agent to sell and repay the bank. The dispute did not end at emergence — the reorganized debtors and Prosperity Bank were still litigating the bank's collateral reach into early 2026.

The cases were filed in the U.S. Bankruptcy Court for the Northern District of Texas, Fort Worth Division, before Judge Mark X. Mullin under lead case number 25-90001. Scanrock Oil & Gas, Inc. and O'Ryan Ranches, Ltd. filed first on February 3, 2025, with the remaining oil-and-gas debtors following on February 9, 2025 and the two Oregon ranch entities filing on April 25, 2025. The plan became effective on September 20, 2025.

Prosperity's Matured Loan and the Foreclosure Trigger

Ryan C. Hoerauf built the Scanrock enterprise over roughly 35 years as a West Texas operator with interests in oil-and-gas exploration, production, treatment facilities, and related mineral-processing businesses across Texas, Louisiana, and New Mexico. The First Day Declaration of CRO Brad Walker described a vertically integrated operator that extracted value from otherwise uneconomic fields and also owned significant ranch real estate tied to the business. The enterprise grew to ten debtor entities by confirmation, with Scanrock Oil & Gas, Inc. as the lead debtor.

The filing was driven by a matured bank loan, not a sudden operational collapse. The First Day Declaration traced the distress to long-running revenue pressure from crude and gas price declines beginning in 2014 and again in 2018, compounded by interest rates that rose from roughly 4% to 8.75% and left the company able to service little more than minimum interest. The Prosperity Bank facility matured on September 3, 2024, and Prosperity demanded payment in full on October 8, 2024.

A December 2024 forbearance bought time but set a hard condition: the debtors had to deliver a signed sale agreement for the Oregon Ranch by December 15, 2024. The anticipated buyer fell ill and no agreement was executed by the deadline. Prosperity terminated the forbearance, noticed a February 4, 2025 foreclosure on the Llano Ranch, and separately noticed a February 10, 2025 disposition of PB Materials stock. Those notices forced the debtors to retain bankruptcy counsel, Riverbend Special Situations Group, and Lain, Faulkner & Co. on an emergency basis around January 30, 2025, and to file for chapter 11 to stop the foreclosure and use cash collateral while marketing assets.

Ranch Collateral and the Prepetition Capital Structure

The collateral story centered on two ranches and an operating oil-and-gas platform. As of the petition date, the debtors stated that Prosperity Bank was owed at least $50,142,060.73 under a restated April 1, 2023 loan package, secured by the Llano Ranch, a second lien on the Oregon Ranch, and oil-and-gas interests. The amended disclosure statement later updated Prosperity's balance to at least $51,101,493.84 as of April 25, 2025. AgWest held an approximately $10.8 million first lien on the Oregon Ranch, senior to Prosperity's second lien on that property.

Below the secured debt, the First Day Declaration identified roughly $10.5 million of general unsecured debt and more than $6 million of unpaid prepetition royalty obligations, including more than $3 million held in suspense. The Oregon Ranch spanned 44,328 acres in Crook County, Oregon; the Llano Ranch covered 1,739.514 acres in southwestern Llano County, Texas; and the estates held oil-and-gas reserves, leaseholds, royalty, mineral, and equipment interests in Texas. The debtors employed about 18 people and used an average of 12 independent contractors, with aggregate wage and benefit burdens of roughly $143,770 per pay cycle.

The debtors did not seek debtor-in-possession financing. The case ran instead on consensual and contested use of Prosperity's cash collateral, which made the early-case budget fights the practical substitute for a DIP negotiation.

Cash Collateral Fight and Prosperity's Stay Relief

The Cash Collateral Motion filed on the petition date sought immediate authority to use Prosperity's cash collateral, pegging the bank's claim at not less than $50,142,060.73 and offering a package of replacement liens, section 507(b) superpriority claims, fee reimbursement, reporting covenants, and a professional-fee carve-out. The debtors argued that without immediate access they could not pay vendors, workers, and utilities and would suffer immediate irreparable harm.

The budget fight quickly became a royalty fight. The Ad Hoc Royalty Interest Owners Group objected to the cash collateral budget, arguing the proposed budget used funds that were not property of the estate, failed to provide adequate protection for royalty owners, and embedded an improper challenge process and challenge budget. The court granted interim relief on February 13, 2025 and entered a second interim cash collateral order on March 4, 2025, with disputes continuing into the spring.

Prosperity pressed its collateral position directly as well. On March 25, 2025, it moved for relief from the automatic stay to foreclose on the Llano Ranch, arguing the debtors lacked equity — a scheduled value of roughly $26,092,710 against a claim exceeding $50 million — and that the ranch lost approximately $97,000 per month and operated as a "vanity ranch" not necessary for an effective reorganization. The stay-relief motion put the Llano Ranch, later central to creditor recoveries, in play from the case's first weeks.

Governance Dispute and the Independent CRO

On March 28, 2025, the U.S. Trustee moved to appoint a chapter 11 trustee for Smackover, Ryan C. Hoerauf, Inc., and O'Ryan Family Limited Partnership, invoking section 1104(a)(1) for cause and, alternatively, section 1104(a)(2) as in creditors' best interests. The motion's theory was that the CRO structure did not resolve the estates' conflicts: Brad Walker remained constrained by Hoerauf, while the various estates had interests adverse to one another. The U.S. Trustee also pointed to undisclosed or poorly tracked intercompany transfers and testimony that oil-and-gas revenues had been used to service other entities' obligations.

The dispute over control and fiduciary duty ran through the middle of the case, drawing objections to the CRO retention from royalty owners and the U.S. Trustee. It was ultimately resolved without a stranger-trustee by strengthening Walker's mandate over the most conflicted entities. On May 5, 2025, the court employed Brad Walker as CRO for the Oregon debtors — O'Ryan Ranches, LLC and O'Ryan Oregon Ranches, LLC — granting him "sole and exclusive authority to manage the Debtors and the Estates," including authority to sell substantially all of those debtors' assets, to the exclusion of prepetition management and governance documents.

Committee Formation and Substantive Consolidation

The early fight over creditor representation produced an official committee. The Ad Hoc Royalty Interest Owners Group filed an emergency motion on March 13, 2025 to appoint a committee, and the U.S. Trustee appointed the Official Committee of Unsecured Creditors on March 18, 2025, amending the appointment on April 23, 2025; Halliburton was among the initial members. The committee retained Porter Hedges LLP as counsel and Riveron RTS, LLC as financial advisor, and became the central creditor-side actor driving plan improvements.

Royalty owners and Texas super-priority. The royalty constituency carried unusual leverage. Under Texas Business & Commerce Code Section 9.343, royalty interests are automatically perfected on recording of the underlying oil-and-gas lease and carry purchase-money super-priority, giving royalty owners secured-like status without filing financing statements. Because oil-and-gas leases are the primary asset of most operators, debtors routinely seek authority to keep royalty payments current to prevent lease termination. That dynamic made the royalty group a constituency whose objections had to be settled rather than overridden.

The substantive consolidation motion. On May 9, 2025, the committee filed an emergency motion for substantive consolidation of all debtor estates, arguing the debtors operated as a single enterprise under Hoerauf, commingled funds, disregarded corporate formalities, and left records so entangled that untangling them would be wasteful and value-destructive. The committee framed consolidation as recovery-driven — it would make the full enterprise asset base available to creditors, including royalty and unsecured creditors otherwise trapped at asset-poor operating entities, and as superior to expensive tracing litigation. The confirmation order ultimately adopted substantive consolidation for distribution purposes only, creating a consolidated estate while preserving existing liens unless modified by the plan.

The Amended Consolidated Plan and Class Treatment

The debtors filed an original plan and disclosure statement built around repaying debt through property sales, then replaced them. On July 3, 2025, they filed an amended joint plan and amended disclosure statement describing a liquidation-oriented but confirmable reorganization driven by controlled asset sales, plan-agent oversight, and deferred creditor payments rather than an immediate chapter 7. In August 2025, the court approved the disclosure statement for creditor voting, allowing solicitation to proceed despite the open objections.

The amended plan set out class-specific treatment for the consolidated estate:

The committee's August 17 statement in support described the amended plan as a "remarkable improvement" over the original and projected that both royalty and unsecured creditors would receive 100% recoveries, albeit through different mechanics. Royalty owners nonetheless continued to object into August, arguing the plan shifted operational risk onto Class 6 claimants, treated producing and non-producing royalty owners differently, and overreached through injunction and exculpation language. Prosperity Bank had also escalated, filing a motion to convert the case to chapter 7 alongside its plan objection, while Well Castle Limited and Arnold Oil Company Fuels, LLC, the Gill Parties, and the U.S. Small Business Administration lodged their own objections.

On August 19, 2025, the court conditionally confirmed the plan after the debtors settled with the Ad Hoc Royalty Interest Owners Group, certain individual creditors, and the SBA. The court entered the confirmation order on September 3, 2025, finding the plan feasible, proposed in good faith, and fair and reasonable, and entered an amended confirmation order on September 8. The plan became effective on September 20, 2025, triggering an October 20, 2025 administrative and professional claims bar date and a January 19, 2026 claims objection deadline.

Plan agent and the ranch sale process. Rather than a single 363 auction, the plan routed the two principal real-estate assets to an independent plan agent, Eric Taube, appointed under section 1123(b)(3)(B) to market and sell the ranches, monetize estate causes of action, monitor payments, and resolve unsecured claims. The reorganized debtors retained the oil-and-gas operating entities, while the plan agent controlled the ranch dispositions. The plan divided the Llano Ranch into Parcel 1 — designated for sale alongside the Oregon Ranch to fund Prosperity's recovery — and Parcel 2, retained subject to junior liens supporting royalty, working-interest, and unsecured recoveries. The post-hearing plan contemplated a "lengthy agreed sale period" to maximize value rather than a forced near-term sale.

Professional Fees and Claims Administration

Stretto, Inc. served as the claims, noticing, and solicitation agent, handling ballot distribution and service of the solicitation and confirmation materials. The reorganization carried substantial professional costs, reflected in the first and final fee orders entered after the effective date. Lead debtor counsel Munsch Hardt Kopf & Harr was allowed $1,245,643.00 in fees plus $10,000 for fee-application work and $25,958.64 in expenses, and Brad Walker, LLC / Riverbend was allowed $1,111,362.50 in fees plus expenses.

On the committee side, Porter Hedges LLP was allowed $790,493.50 in fees and $25,405.89 in expenses, and financial advisor Riveron RTS, LLC was allowed $396,831.50 in fees. Debtor financial advisor Lain, Faulkner & Co. was allowed $135,241.50, and Jobe Law PLLC, counsel to O'Ryan Ranches, Ltd., was allowed $112,852.50, with remaining amounts payable from the unused Jobe carve-out after applying its retainer. The reorganized debtors' quarter-end report for December 31, 2025 recorded $515,000 in bankruptcy professional payments made on December 5, 2025.

Post-Confirmation Litigation Over Prosperity's Collateral

The case did not go quiet after emergence. On November 5, 2025, the reorganized debtors moved to substitute Rochelle McCullough, LLP for Munsch Hardt and Jobe Law as counsel for post-confirmation administration. Two collateral fights then carried into early 2026, both testing how far Prosperity's liens reached beyond the ranch sales the plan had designated to repay it.

First, the reorganized debtors and Prosperity clashed over surplus mineral interests. On February 3, 2026, the debtors filed an expedited motion to interpret the plan and compel Prosperity to release its lien on certain non-producing mineral leases in Ector County, Texas, which the debtors had agreed to sell to Occidental Petroleum for $480,000 plus a retained overriding royalty interest. The debtors argued the plan satisfied Prosperity exclusively from the Oregon and Llano ranch sales and that the bank's consent was not required for ordinary-course mineral sales; Prosperity refused to release its lien unless it received 50% of the proceeds. The court took up the dispute at a February 18, 2026 hearing.

Second, a separate adversary proceeding, Adv. No. 25-09033, put Prosperity's lien on PB Materials stock at issue. Cornerstone Investment FCV, LP sued to invalidate the bank's lien on the PBM shares, arguing the prepetition pledge by O'Ryan P&E violated a stockholders' agreement. Prosperity answered and counterclaimed on January 20, 2026, contending the restrictive stockholders' agreement had terminated on October 2, 2023 and that it had no knowledge of the alleged restrictions when the pledge was made.

Key Timeline

Frequently Asked Questions

What caused Scanrock Oil & Gas to file for chapter 11?

The First Day Declaration attributed the filing to a Prosperity Bank loan that matured on September 3, 2024 and was accelerated, compounded by years of oil-and-gas price weakness and rising interest rates. After a December 2024 forbearance's Oregon Ranch sale condition went unmet, Prosperity terminated the forbearance and noticed a foreclosure, forcing the chapter 11 filing.

Why did Prosperity Bank seek to convert the case to chapter 7?

Prosperity, owed more than $50 million and secured by the ranches and oil-and-gas interests, filed both a stay-relief motion to foreclose on the Llano Ranch and a motion to convert the case to chapter 7, alongside objections to the plan. An August 28, 2025 hearing on the conversion motion was continued with no date set, and the motion remained pending past the plan's September 20 effective date until Prosperity withdrew it without prejudice on October 13, 2025.

What was substantive consolidation and why did the committee pursue it?

Substantive consolidation is an equitable remedy that combines the assets and liabilities of multiple entities into a single estate. The committee argued the debtors operated as one commingled enterprise under Hoerauf, and that consolidation would make the full asset base available to creditors. The confirmation order adopted substantive consolidation for distribution purposes only.

How were royalty owners treated, and why did they matter?

Under Texas Business & Commerce Code Section 9.343, royalty owners hold automatically perfected super-priority interests, giving them secured-like leverage. The Ad Hoc Royalty Interest Owners Group organized, sought its own committee, and objected to cash collateral and the plan. Under the confirmed plan, Class 6 royalty and working-interest claims are paid over 60 months at 120% of ordinary distributions, backed by junior liens on the Llano Ranch.

Who ran the asset sales under the confirmed plan?

The plan appointed Eric Taube as an independent plan agent to market and sell the Oregon Ranch and Llano Ranch Parcel 1 to repay Prosperity, while the reorganized debtors kept the oil-and-gas operating business. Llano Ranch Parcel 2 was retained subject to junior liens supporting royalty, working-interest, and unsecured recoveries.

Is there ongoing litigation after confirmation?

Yes. Into early 2026, the reorganized debtors and Prosperity were litigating whether the bank's lien reached a $480,000 mineral sale to Occidental Petroleum, and a separate adversary proceeding (Adv. No. 25-09033) was testing the validity of Prosperity's lien on PB Materials stock.

For more analysis of Texas oil-and-gas restructurings and contested chapter 11 plans, see ElevenFlo's coverage of Alpine Summit Energy Partners' liquidating plan, the Barrow Shaver Resources sale to TexOil, the Sanchez Energy Eagle Ford lien fight, and the PetroQuest Energy East Texas 363 sale.