Upstream Debt May Put Pipelines Under Pressure

摘要

Just like everything else, the bankruptcy river flows downstream, and as upstream players look to pass their debt burdens onto midstream operations through a rash of Chapter 11 filings, investors are wondering what is going to happen to all the pipelines as the industry continues to batten down the hatches amid the continued oil price downturn. Two such companies, Sabine Oil & Gas and Quicksilver, recently filed for Chapter 11 bankruptcy protection, arguing at bankruptcy court that they need to be relieved of their contracts with pipeline operators for shipping their oil and gas from the wellhead - a move that would leave the pipelines with no income, making it nearly impossible for them to stay afloat. On March 8, Judge Shelly Chapman of the U.S. Bankruptcy Court, Southern District of New York ruled that Sabine Oil & Gas would be able to reject certain contracts with midstream services providers Nordheim Eagle Ford Gathering and HPIP Gonzales Holdings. The court decided that the contracts could be rejected as a "reasonable exercise of business judgement" and due to the lack of challenge to Sabine's decision making process.