On May 25, 2018, the United States Court of Appeals for the Second Circuit (the “Court”) affirmed a district court’s affirmance of a bankruptcy court’s decision in In re Sabine Oil & Gas Corp. that permitted a debtor to reject a midstream gathering agreement as an “executory contract.” The Court’s decision, which is the first Court of Appeals to address the rejection of a midstream gathering agreement, firmly establishes a debtor’s right to do so under certain circumstances.

BACKGROUND -

...Sabine Oil & Gas Corporation (“Sabine”) and its co-debtors (collectively, the “Debtors”) initiated adversary proceedings in the Bankruptcy Court seeking declaratory judgments that the covenants contained in gathering agreements with Nordheim Eagle Ford Gathering, LLC (“Nordheim”) and HPIP Gonzales Holdings, LLC (“HPIP”) did not run with the land, and thus, the Debtors could reject the agreements...