Current issues ‘running with’ contract rejections in oil, gas cases

The prolonged downturn of oil prices has begun to take its toll. Over 27 oil and gas bankruptcy cases have filed in 2016, and over 69 since 2015,1 as companies seek to access powerful protections under the U.S. Bankruptcy Code (the Code).

One such protection at the forefront of the trend is the ability to escape certain burdensome contracts. Rejecting these contracts under §365 of the Code can create substantial bargaining power for a going concern enterprise or increase the value of assets sold through a bankruptcy.

This article analyzes a hiccup in this strategy presented in three recent cases—one that promises to recur. The outcome in these cases will signal a trend that broadly affects similar agreements across the industry.

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