Midstream companies are bracing for rulings in a pair of bankruptcy court cases involving distressed exploration and production (E&P) companies.

According to reports, a judge in U.S. Bankruptcy Court for the Southern District of New York will issue a ruling Tuesday in the case of Sabine Oil & Gas Corp. [No. 15-11835-SCC]. Court records show the Houston-based E&P has asked Judge Shelley Chapman for permission to reject the natural gas and condensate gathering agreements it signed in 2014 with Nordheim Eagle Ford Gathering LLC, a subsidiary of Cheniere Energy Inc. The agreements cover all of Sabine’s natural gas interests in a geographic area of DeWitt County, TX (see Shale Daily, July 15, 2015).

The records show Sabine also wants to cancel separate gathering, treating and processing agreements signed in 2013 between Forest Oil Corp., which Sabine acquired in December 2014, and HPIP Gonzales Holdings LLC (see Shale Daily, Jan. 14, 2015; May 6, 2014).

Meanwhile, in U.S. Bankruptcy Court for the Delaware District, Judge Laurie Silverstein is mulling a similar request by Quicksilver Resources Inc. [No. 15-10585-LSS] to terminate its gathering and processing contracts with Crestwood Midstream Partners LP. The contracts expire in 2020 (see Shale Daily, March 18, 2015).

According to court documents, Quicksilver argued cancellation of the contracts is necessary for the court-approved sale of some of its assets to BlueStone Natural Resources II LLC, for $245 million (see Shale Daily, Jan. 25).

Early this month, the Gas Processors Association (GPA) and the Texas Pipeline Association filed a brief with the Delaware bankruptcy court urging it to deny canceling the contracts with Quicksilver.

“…rejection of the CMLP contracts and the dedications contained therein would fundamentally alter the structural and financial underpinnings of the midstream gas gathering and delivery systems that are critical to the operation of our nation’s gas markets,” the GPA said. “Such a determination would threaten the sanctity of thousands of bargained-for contracts between midstream companies and their producer counter-parties…”

The GPA said a ruling in favor of Quicksilver would, among other things, “undermine investor confidence in midstream companies,” and increase the capital costs for investments in midstream infrastructure. Gathering and processing services would also become more expensive for producers, and midstream companies would be forced “to require producers to make additional upfront capital investments and/or pledge collateral or post more costly financial assurances such as letters of credit or other guarantees, thereby harming producers.”

According to Reuters, Silverstein indicated last Friday that she wanted to take some time to consider both sides of the case before issuing a ruling.

Midstream companies are fearful that, should Quicksilver and Sabine be allowed to terminate their contracts, a host of other E&P companies struggling in the low commodity price environment could attempt the same strategy (see Daily GPI, Feb. 23). Executives and analysts say that could spell trouble for the midstream sector as well.