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More Oil & Gas Bankruptcies Likely

by Elizabeth Alford on March 17, 2016

Dozens of oil and gas producers have already filed bankruptcy due to low oil prices, and a recent court decision could mean more to come.

Related: Sabine Files Chapter 11

A New York judge ruled last week that Sabine Oil & Gas would be able to cancel the contracts it holds with midstream firms as part of its restructuring process during bankruptcy. This decision has many concerned that other companies will be encouraged to follow suite and file for bankruptcy if they know they can get out of such obligations.

After the announcement, Magnum Hunter immediately jumped to cancel four midstream contracts as it restructures, according to Law360.

Join the Discussion: How Will Oil Company Bankruptcy Affect Me As A Royalty Owner

U.S. Bankruptcy Judge Shelley C. Chapman is allowing Sabine to reject contracts for gas and condensate gathering services with Nordheim Eagle Ford Gathering LLC and HPIP Gonzales Holdings LLC. In her ruling, the judge shocked many by saying “the contracts should not be considered ‘covenants running with land’ under Texas state law because they only concern the hydrocarbons being pulled out of the ground, not Sabine’s land or its use of it. Covenants running with the land can’t be rejected in bankruptcy.”

Though gaining a lot of attention, the ruling isn’t binding and is only one judge’s interpretation of Texas state law so it is unclear about the reach it will have.

In January, Sabine Oil & Gas Corp. became the largest U.S. oil producer to file for Chapter 11 bankruptcy protection. This decision follows months of speculation as Sabine struggled to pay creditors.


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