On March 8, 2016, the United States Bankruptcy Court for the Southern District of New York (the “Court”) ruled from the bench in In re Sabine Oil & Gas Corp. in a case of first impression that a midstream gathering agreement could be rejected as an “executory contract” by a debtor in bankruptcy. While most practitioners and midstream companies had assumed that such agreements, if properly structured, were “bankruptcy proof,” the Court’s decision could significantly impact midstream gatherers and require more attention to the structure of transactions.

Background -

Sabine Oil & Gas Corporation (“Sabine”) was formed by the merger of Forest Oil Corporation and Sabine Oil & Gas LLC in December 2014. In July 2015, Sabine filed for bankruptcy, citing (among other things) the substantial declines in the price for oil and gas.