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Magnum Hunter midstream contract dispute focused on W.Va., Ohio agreements

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Essential Energy Insights - January 2021


Magnum Hunter midstream contract dispute focused on W.Va., Ohio agreements

The question of whether Magnum Hunter Resources Corp. can reject parts of itsmaster gas gathering contract while keeping other parts is confronting aDelaware bankruptcy judge, as the producer tries to get approval of its Chapter11 reorganization.

Eureka HunterPipeline LLC thinks Magnum Hunter, which owns 45% of the midstreamcompany it is facing down in court, is just trying to pick and choose which contractsit wants to abide by.

"The rejection motion is nothing more than an attemptto do something that the bankruptcy code specifically proscribes — namely therejection of the unfavorable portions of an executory contract while retainingthe benefits of the favorable portions," Eureka's majority owner, NorthHaven Infrastructure Partners II Buffalo Holdings LLC, said in its March 24objection to Magnum Hunter's reorganization plan in the U.S. Bankruptcy Courtfor the District of Delaware.

Magnum Hunter wants out of agreements it signed forgathering services in Ritchie County, W.Va., and Monroe County, Ohio, whilekeeping five other agreements for gas gathering in Appalachia.

Eureka contended that it invested $60 million in the RitchieCounty expansion alone on the strength of Magnum Hunter's commitment to minimumvolumes of service.

Eureka said that breaking the master gas service agreementbetween itself and Magnum Hunter into its seven individual geographiccomponents is a matter to be decided in state court and quoted a recent NewYork bankruptcy court ruling inthe Sabine Oil bankruptcy where the judge refused to rule onmatters of state law.

Eureka did not mention that the same judge decided the onlyjudgement she needed to make was whether Sabine's decision to break itsgathering and processing contracts was reasonable. She found that Sabine couldbreak its gathering and processing contracts in Texas.

NHIP's plan is to "obfuscate simple bankruptcy issueswith a morass of jurisdictional contentions that, if correct, would dismantlethe administration of bankruptcy cases throughout the country and, moreimportantly, in these cases, delay the debtors from moving forward withconfirmation of the plan of reorganization that maximizes value for itsstakeholders. NHIP's ill-conceived strategy is dead on arrival," MagnumHunter said in reply March 28, noting the Sabine decision treating gatheringcontracts like any other in bankruptcy.

Magnum Hunter contended that it only needs to meet the "low"bar of showing that individual transaction confirmations to the gas gatheringservice agreements, such as the one for Ritchie County, are burdensome and canbe broken.

According to the court docket, the Delaware court has a telephonehearing on March 29 with a full hearing scheduled for 11 a.m. on March 31 inWilmington.

An early victim of low natural gas prices in Appalachia,Magnum Hunter filed forbankruptcy protection on Dec. 15, 2015, saying it had more than $1billion in debt to service with $1.46 billion in assets, mostly leases and itsinterest in Eureka Hunter.