Magnum Hunter Learns From Sabine Ruling

The influence of a New York court’s closely watched ruling on the fate of an oil and gas company’s pipeline agreements is starting to be felt in Delaware.

Earlier this month, Judge Shelley Chapman of the U.S. Bankruptcy Court in Manhattan ruled that Sabine Oil & Gas could scrap pipeline agreements it struck before commodity prices sank. However, her ruling wasn’t binding for procedural reasons. She said an adversary proceeding was needed to address “the substantive legal disputes” related to Sabine’s request. Those disputes include the pipeline operators’ arguments that the agreements “run with the land”—that, is that they’re inextricably linked to the land where Sabine operates and therefore can’t be rejected in chapter 11.

Magnum Hunter Resources , which is under chapter 11 protection in Wilmington, Del., cites the Sabine ruling in connection with a newly filed (and heavily redacted) request to exit a gas-purchase agreement with Oneok Rockies Midstream. In addition to the rejection motion that Magnum Hunter filed, the typical way companies in bankruptcy seek to get out of burdensome deals, it has also filed an adversary proceeding asking the court to rule that the Oneok agreement doesn’t “run with the land.”

Of course, the Delaware court doesn’t have to follow the New York court’s ruling, but Magnum Hunter’s lawyers at Kirkland & Ellis (which also represents Sabine) said it can take note of the decision.

Magnum Hunter, which sought chapter 11 protection in December, recently reached a settlement on a separate request to tear up its pipeline agreement with Texas Gas Transmission. The deal, which is subject to court approval at an upcoming hearing, would give Texas Gas a $15 million claim in Magnum Hunter’s bankruptcy.

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ