Transportation Services Agreements At Risk in Chapter 11 Proceedings

The second quarter of 2020 saw no fewer than 18 new Chapter 11 filings among such companies, the most since 2016, when the industry faced historic struggles. One of these second quarter filers was Extraction Oil and Gas Inc., on June 14, in the U.S.  Bankruptcy Court for the District of Delaware (Case No. 20-11548). Extraction, an energy exploration and development company, focuses on the production of crude oil and natural gas in Colorado, where it is based. Crucial to its chain of operations are transportation services agreements, or TSAs — also commonly known as "gathering agreements" or "gathering and processing agreements" — between Extraction, as the producer, and midstream companies, which provide the physical and capital infrastructure necessary for the transportation and processing of the upstream producer's gas. Product valued in the billions of dollars flows into this midstream infrastructure, providing for storage, piping and transport. Thus, producers such as Extraction must carefully and comprehensively negotiate these midstream TSAs, as they frequently represent the only means to maintain control over the product once it leaves their facilities.