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Midstream view brightens as analyst waves off fears of dropped G&P contracts

Theworst of the financial storm seems to have passed for the midstream energysector, partly because financial difficulties saddling upstream producers aresubsiding, an analyst at D.A. Davidson & Co. said.

"[C]ontractrenegotiations haven't been as disruptive as expected," Poe Fratt said ina May 3 note, referring to market expectationsof revenue losses for pipeline operators as a result of price adjustments ongathering and processing agreements with distressed E&P companies.

"Naturalgas centric MLPs are faring better as the view that midstream companies wouldhave to be forced to cut gathering and processing contracts after the Sabineruling turned out tobe inaccurate," Fratt wrote in the report.

Theproducer Sabine Oil & Gas LLCin March won a court ruling to sever its gathering contracts with Nordheim Eagle Ford Gathering and HPIP Gonzales HoldingsLLC.

In aseparate case that turned out differently, Quicksilver Resources Inc. also filed a motion to dropits gathering and processing deals. Quicksilver's assets were at bankruptcy auction byBlueStone Natural Resources II LLC, which signed a new 10-year agreement with asQuicksilver withdrew its motion.

Frattsaid the new contract will alleviate fears of widespread contract rejections orrestructurings, echoing similar contentionsamong lawyers that the altered agreement could set a precedent for futureproceedings involving attempts by troubled drillers to reject their midstreamcontracts.