Sabine Oil & Gas May Reject Pipeline Contracts

A federal bankruptcy judge dealt a blow to pipeline operators and other midstream oil companies Tuesday, ruling that Sabine Oil & Gas Corp. can scrap pipeline deals it made before oil and gas prices plummeted.

Judge Shelley Chapman of the U.S. Bankruptcy Court in Manhattan agreed to let Sabine out of the pipeline deals in a closely watched decision that energy and restructuring experts warn could roil the so-called midstream sector.

"The court preliminarily finds that none of the covenants run with the land," Judge Chapman said, potentially knocking down the pipeline operators' argument that the agreements can't be broken because they are inextricably tied to the land on which Sabine operates.

However, the judge added that her ruling isn't binding. She said the dispute over whether the deals can be broken raises uncertain legal issues that will have to be addressed later.

Houston-based Sabine sought to exit a contract with an affiliate of Cheniere Energy Inc. because of the likelihood that it wouldn't meet the deal's requirement to deliver a certain amount of natural gas in southern Texas. Sabine also sought to reject another deal it made with a midstream company that halted construction of its pipeline in 2014.

Sabine, which sought chapter 11 protection last summer to restructure some $3 billion in debt, said it could save as much as $115 million by exiting the deals and wants to be free to negotiate more favorable contracts.

Write to Tom Corrigan at [e-mail]

(END) Dow Jones Newswires

March 08, 2016 16:05 ET (21:05 GMT)

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