Sabine Oil and Gas Co., which has declared a state of bankruptcy, recently got a break at the expense of its suppliers and contractors, when a U.S. bankruptcy judge ruled that it can shed off its contracts with pipeline operators.
According to Fuelfix, Sabine in its filing in July, had requested that it be spared settling its bligations with two contractors, saying that these payments were "unnecessarily burdensome." The two companies related to the case, HPIP Gonzales Holdings LLC and Nordheim Eagle Ford Gathering LLC, an affiliate of Cheniere Energy, objected, stating their position that their contracts with Sabine remain binding because of the access that they have been given to the land where Sabine is extracting its oil. Judge Shelley Chapman in Manhattan ruled in favor of Sabine, making it clear that bankrupt oil companies can sever agreements made before the plummeting of oil and gas prices.
Carl Surran posts in Seeking Alpha that the ruling is far from being uncontested. If maintained, Sabine stands to save $115 million. However, Judge Chapman attests that his ruling is not binding, which means another court can overturn it on appeal.
Energy companies and their business associates alike will be watching closely. Reuters Africa points out that the ultimate decision will have longstanding repercussions on the oil and energy industries. For example, associates like transportation companies that deliver oil from one state to the other can be affected, as their exposure to the risks now prevailing in the embattled oil and gas industries will increase significantly.
Bloomberg intelligence analyst Michael Kay, in an interview with Fuelfix, says that the ruling which is "against the existing rate structure" is bound to set a precedent in similar cases, with varying risks of exposure to the players in the sector.
