“Oil woes may clog pipeline companies’ revenues”
In both cases, whether the producers are able to get out of the deals will come down to the specifics of the contracts and the bankruptcy laws in various states, said Tye Hancock, a partner who specializes in bankruptcies at Thompson & Knight.
Judges will need to determine whether the midstream contracts are agreements between businesses, such as an office space lease, or a covenant placed on land that remains no matter who owns it, similar to a deed restriction, Hancock said. Contracts between businesses are easily voided in bankruptcy, but land covenants are much harder to skirt.
“In this down cycle, these concepts are going to be tested again and again,” Hancock said.