10.03.16. A US bankruptcy judge has ruled that Sabine Oil & Gas can reject contracts it made with midstream companies before oil & gas prices nosedived.
The case is being closely watched by the US midstream industry as it potentially could inspire other bankrupt oil & gas producers to get out of pre-existing volume commitment contracts, widening the financial problems in the upstream sector to midstream processing and transporting operators.
Houston-based Sabine sought to exit a contract with an affiliate of Cheniere Energy Inc because of the likelihood that it could not meet the volume commitments for natural gas extracted in southern Texas. Sabine also sought to reject another deal it made with a midstream company that halted construction of its pipeline in 2014.
The Wall Street Journal reported that Judge Shelley Chapman of the US Bankruptcy Court in Manhattan agreed to let Sabine out of the pipeline deals, although she added that her ruling is not binding.
“Unfortunately, there appears to be no clear ruling from the Texas Supreme Court that answers all the questions at hand,” she was quoted as saying, noting that Sabine’s agreements with the pipeline operators are governed by Texas law.
Similar requests are pending in chapter 11 cases for other companies, including Quicksilver Resources and Magnum Hunter Resources.
10th March 2016
