Shock: Judge May Allow Drillers to Cancel Gathering Pipeline Deals

There is a situation brewing that has the potential to upend the midstream (pipelines & processing plants) market–here in the Marcellus/Utica and across the country. This is one of those complex issues that takes time to understand, but please stick with us. This is important. There are currently two court cases–one in New York and the other in Delaware–in which producers (i.e. drillers) who are in bankruptcy are arguing that they should be allowed to dissolve contracts they previously signed with pipeline gathering companies. In the New York case, the judge is signaling that she leans toward allowing the driller (Sabine Oil & Gas) to do just that. The pipeline company (Cheniere’s Nordheim Eagle Ford Gathering) spent $84 million building a gathering system for Sabine’s wells. Until now, midstream companies have taken solace that if a driller goes bankrupt, whoever buys the assets, if it comes to that, would also inherit the existing, long-term deal to use their pipelines. This case, if it goes against the midstream company, threatens to undo that. That’s sending shock waves through the midstream industry…

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