Client Alert: Court Finds Debtor Can Reject Midstream Service Agreements in Bankruptcy

On March 10, 2017, the District Court for the Southern District of New York entered an order affirming a bankruptcy court’s decision to allow an oil and gas producing debtor to reject gas gathering agreements with two midstream service companies pursuant to section 365 of the Bankruptcy Code. The entry of the district court’s order further establishes a body of precedent in the Second Circuit that suggests midstream service companies are at risk of having their agreements rejected upon the bankruptcy of a debtor contract-counterparty.  However, this outcome is dependent upon the particular language in a gas gathering agreement and the related conveyance documents.