John J. Rapisardi and Joseph Zujkowski
In our June 8, 2016 column, we discussed the U.S. Bankruptcy Court for the Southern District of New York’s (the Bankruptcy Court) opinion in the Sabine Chapter 11 cases allowing Sabine (a large Houston-based “upstream operator”) to reject “gathering agreements” with certain “midstream operators.” The decision was noteworthy because the midstream operators alleged that the gathering agreements contained covenants that “run with the land,” which could not be shed through exercise of a debtor’s right to reject executory contracts and unexpired leases under Bankruptcy Code Section 365, see In re Sabine Oil & Gas, 550-B.R. 59 (Bankr. S.D.N.Y. 2016). Recently, the Second Circuit affirmed this conclusion and held that Sabine could reject the gathering agreements in their entirety because “horizontal privity of estate,” which is required to create enforceable real property covenants in certain states, did not exist at the time the gathering agreements were executed, In re Sabine Oil & Gas Corp., 2018 WL 2386902 (2d Cir. May 25, 2018).
Gathering Agreements
In the oil and gas world, midstream operators provide a critical bridge between “upstream” exploration and production companies and “downstream” operators who handle marketing and delivery of the oil and gas extracted by the upstream operator.
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