Mitigating Rejection of Midstream Agreements in Bankruptcy

Practical Law has published the article “Mitigating Rejection of Midstream Agreements in Bankruptcy,” authored by Akin Gump corporate partner David Sweeney, financial restructuring partner Jason Rubin and litigation counsel Laura Warrick.

The article discusses recent bankruptcy case law rejecting midstream contracts and covenants running with the land. It also offers some suggestions for producers and midstream providers on how they might navigate the resulting “new reality,” including the following:

• “Conducting diligence to identify red flags and address potential issues before they become problems.
• “Addressing the shortcomings of covenants running with the land noted by the bankruptcy courts.
• “Replacing covenants running with the land with a substitute, such as a presently possessory interest or a lien.”

The article concludes by noting that the “recent wave of case law on covenants running with the land and the ability of debtors in Chapter 11 to reject contracts containing them is disrupting one way in which midstream providers historically have sought to achieve that goal.” As a result, it says, “midstream companies should consider new ways to protect their investments, interests and rights in a potential bankruptcy.”