[Editor's note: A version of this story appears in the September 2021 issue of Oil and Gas Investor magazine.]

An E&P’s power to reject its midstream agreements in bankruptcy creates great leverage for the company to negotiate better terms with its midstream provider when faced with distress. Whether the E&P actually has this power in bankruptcy has been a hot topic during the past five years. Courts around the country have reached inconsistent conclusions. In some cases, courts have excused E&Ps from out-of-market agreements and granted them leverage to renegotiate with their midstream providers. In other cases, courts have denied an E&P this leverage and forced it to honor the terms of its agreement.

The different outcomes of these cases have raised questions about how midstream companies and their E&P providers can structure their agreements to enhance the predictability of how such agreements will be treated if the E&P goes through bankruptcy. Unfortunately, no silver bullet exists, but parties do have a few tools that they can use to make the treatment of their midstream agreements in bankruptcy more predictable.

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