In a number of recent chapter 11 cases filed by “upstream” energy and production companies, the debtor’s rejection of “gathering agreements” or similar contracts with “midstream operators” has raised the issue of whether the debtor’s mineral estate is free of obligations stemming from covenants that “run with the land” as either real covenants or equitable servitudes.1 In In re Sabine Oil and Gas Corp., the U.S. Bankruptcy Court for the Southern District of New York held, in construing Texas law, that covenants that “run with the land” in four gathering agreements were not enforceable upon rejection of these agreements.2
The decision is on direct appeal to the U.S. Court of Appeals for the Second Circuit (with a request that the key issues on appeal be certified to the Texas Supreme Court for its review and guidance).3 If the Bankruptcy Court’s decision is upheld, the question for those in the oil and gas industry will be whether the Sabine decision is limited on its facts and not generally applicable to other oil and gas gathering agreements.
Gathering Agreements
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