Five years have passed since commodity prices cratered and the energy industry faced an onslaught of producer bankruptcies. For almost as long, producers and midstream companies have squared off over whether dedications in gathering and processing agreements are real property interests—and therefore immune from the reach of the bankruptcy court—or executory contracts that may be shed by a debtor through the restructuring process.

Until recently, the only ruling on the characterization of these dedications, Sabine, came down in favor of producers. However, a recent opinion in Badlands Energy by a Colorado bankruptcy court may have evened the playing field, providing midstream companies leverage in their negotiations with producers.

The financial implications of the characterization of dedications in gathering and processing agreements are huge. Over the past two decades, midstream companies have collectively invested billions of dollars in pipeline infrastructure in response to the domestic shale boom. Transportation and related fees charged to producers are structured to provide midstream companies with a return of and on their investment over the life of the agreement.

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