(Adds comments by lawyers)
Jan 11 (Reuters) - Shareholders of Breitburn Energy Partners LP launched a last-ditch legal effort on Thursday to prevent the bankrupt oil producer from wiping out their investment and sticking them with a huge tax bill at a time of surging crude prices.
At a hearing in U.S. Bankruptcy Court in New York, equity committee lawyer Vincent Indelicato said Breitburn's reorganization plan was based on an "indefensibly low" valuation. He also called it a "scheme" to give away assets to select creditors and reward management while hurting shareholders.
The stakes are especially high for Breitburn's shareholders because it is structured as a "master limited partnership," which provides tax advantages when the company is profitable. But investors in such companies can lose more than 100 percent of their investment if the company does not make a profit.
Breitburn lawyer Ray Schrock urged U.S. Bankruptcy Court Judge Stuart Bernstein to approve the reorganization plan and bring the complex, 18-month bankruptcy to a close.
The plan, which envisions splitting Breitburn's oil and gas assets into two new companies, has the support of creditors holding more than $3 billion in claims. Two creditor groups will own the new companies.
In helping to craft the plan, Breitburn's investment banker Lazard Freres & Co estimated the company's enterprise value, which includes debt and equity, at about $1.6 billion.
The equity committee estimates Breitburn is worth $3.8 billion, a valuation that would ensure some recovery on their investment and eliminate a tax charge.
Breitburn, however, has said the equity holders are about $1.5 billion shy of break-even.
Breitburn filed for Chapter 11 bankruptcy protection in 2016 after oil prices had slumped to below $30 a barrel from more than $100 in 2014, triggering a wave of bankruptcies across the energy industry. Oil futures have since rebounded, trading above $60 per barrel in recent weeks to hit three-year highs.
New stock in energy-related companies, such as Peabody Energy Corp and C&J Energy Services that exited bankruptcy last year, have rallied.
Under Breitburn's plan, unsecured creditors led by Elliott Management Corp and WL Ross & Co would own choice Permian Basin assets in Texas through a company formed through a $775 million rights offering.
Unsecured creditors with $793 million of debt would own a second company with oil reserves in California, the Rocky Mountains, the U.S. Midwest and Southeast. Retail bondholders would receive pennies on the dollar. (Editing by Dave Gregorio and G Crosse)