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Bankruptcy Court Agrees to Modify, Expunge Claims Against Sabine

A federal bankruptcy court judge in Manhattan granted a request by Sabine Oil & Gas Corp. and its subsidiaries to modify the amount of some claims by its creditors, and agreed to disallow and expunge other claims, including duplicates and those with insufficient documentation.

Meanwhile, a second federal judge denied a motion by some of Sabine's unsecured creditors to appeal a reorganization plan for the Houston-based company executed in U.S. Bankruptcy Court for the Southern District of New York [No. 15-11835].

In an order filed Wednesday, the bankruptcy court judge, Shelley Chapman, agreed to modify four claims against Sabine collectively valued at $314,054 to reflect partial payments totaling $125,434. Court records show the claimants are four Texas-based companies: Geonix LP, JKM Compression Inc., Triangle Well Servicing Co. and Key Energy Services Inc.

Chapman's order disallowed and expunged 39 claims collectively valued at $948,848 for having no applicable liability. Also dismissed were four claims (with a total value of $140,689) with insufficient documentation; two amended claims ($9.74 million); 14 duplicate claims ($6.7 million), and six duplicate debt claims ($98,221).

On Monday, U.S. District Judge John Koeltl denied a motion by several unsecured creditors -- specifically, the Official Committee of Unsecured Creditors, the Bank of New York Mellon Trust Co., the Wilmington Savings Fund Society FSB, and Delaware Trust Co. -- for a direct appeal to the U.S. Court of Appeals for the Second Circuit.

Sabine fought a bitter battle in bankruptcy court with its creditors and midstream companies it signed agreements with in the past.

Faced with crushing debt and the collapse in oil and gas prices, Sabine voluntarily filed for Chapter 11 bankruptcy in July 2015 (see Shale DailyJuly 15, 2015). Last March, Chapman ruled that Sabine could terminate agreements with Nordheim Eagle Ford Gathering LLC and HPIP Gonzales Holdings LLC, but was unable to determine whether the covenants at issue run with the land under Texas law and ordered further proceedings on the matter (see Daily GPI, March 9; March 8). The court ultimately sided with Sabine in May, agreeing that the contracts do not run with the land.

Last June, Chapman rejected a motion by Nordheim, a subsidiary of Cheniere Energy Inc., and HPIP, to stay a court ruling that would have allowed Sabine to cancel agreements it signed with them in 2013 and 2014 (see Shale DailyJune 15). She also rejected a summary judgment stay motion. The court ultimately approved a reorganization plan last July, and it emerged from Chapter 11 one month later (see Daily GPIAug. 15;July 28).

Midstream companies are fearful that, should Sabine and other producers 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 are divided over whether the Sabine case could spell trouble for the midstream sector. While some agree the ruling could be troublesome, others don't believe the ruling sets a precedent. Nevertheless, the latter group is advising midstream companies to fortify their contracts with producers.

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