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Alta Mesa Holdings, LP v. Kingfisher Midstream, LLC (In re Alta Mesa Res., Inc.)

United States Bankruptcy Court for the Southern District of Texas, Houston Division

December 20, 2019, Decided; December 20, 2019, Entered

CASE NO: 19-35133, CHAPTER 11, ADVERSARY NO. 19-03609

Opinion

MEMORANDUM OPINION

Alta Mesa Holdings, LP contracted with Kingfisher Midstream, LLC to transport Alta Mesa's oil and gas over gathering systems to be constructed by Kingfisher. Because Kingfisher's rights under the gathering agreements "run with the land," the gathering agreements between Alta Mesa and Kingfisher are not subject to rejection under section 365 of the Bankruptcy Code. Summary judgment on the issue of rejection is granted to Kingfisher.

Summary of Decision

Alta Mesa Holdings, LP and Oklahoma Energy Acquisitions, LP (collectively "Alta Mesa"), the debtors and plaintiffs, are Texas limited partnerships doing business in Oklahoma. Alta Mesa is an upstream oil and gas producer whose business model involves locating, extracting, and selling hydrocarbons. Kingfisher Midstream, LLC ("Kingfisher"), the defendant, develops pipeline systems to transport extracted hydrocarbons. Pursuant to original and amended gathering agreements, Kingfisher built a gathering system linking Alta Mesa's wells to central collection points. In exchange, Alta Mesa promised to deliver all of its hydrocarbons, up to certain thresholds, to Kingfisher for fixed gathering fees. Because the fixed fees proved expensive, Alta Mesa filed [*5]  this adversary proceeding to invalidate the gathering agreements.

This memorandum opinion primarily focuses on Count I of Alta Mesa's complaint. In that count, Alta Mesa seeks a declaration that the gathering agreements are executory contracts subject to rejection under section 365 of the Bankruptcy Code. The answer depends on whether the agreements formed real property covenants running with the land. Under Oklahoma law, the gathering agreements did form real property covenants because they touch and concern Alta Mesa's leasehold interests, Alta Mesa and Kingfisher are in privity of estate, and Alta Mesa and Kingfisher intended that the gathering agreements bind successors. Because real property covenants are not executory and cannot be rejected under the Bankruptcy Code, Kingfisher is entitled to summary judgment on Count I.

Other relief is also sought by summary judgment. For the reasons set forth below, no other summary judgment relief is granted.

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2019 Bankr. LEXIS 3859 *; 2019 WL 7580122

IN RE: ALTA MESA RESOURCES, INC., et al, Debtors;ALTA MESA HOLDINGS, LP, et al, Plaintiffs VS. KINGFISHER MIDSTREAM, LLC, et al, Defendants.

CORE TERMS

gathering, covenants, real property, parties, easement, mineral, surface, reserves, hydrocarbons, touch, oil and gas lease, oil and gas, conveyance, bind, leases, summary judgment, dedicated, successors, horizontal privity, leasehold, transport, privity, non-moving, extracted, real property interest, negotiations, burdened, rights, executory contract, privity of estate

Bankruptcy Law, Procedural Matters, Adversary Proceedings, Judgments, Civil Procedure, Judgments, Summary Judgment, Entitlement as Matter of Law, Burdens of Proof, Movant Persuasion & Proof, Evidentiary Considerations, Nonmovant Persuasion & Proof, Real Property Law, Encumbrances, Restrictive Covenants, Administrative Powers, Executory Contracts & Unexpired Leases, Powers to Assume & Reject, Rejections, Preliminary Considerations, Federal & State Interrelationships, Erie Doctrine, Restrictive Covenants, Covenants Running With Land, Energy & Utilities Law, Oil, Gas & Mineral Interests, Implied Covenants, Oil, Gas & Mineral Interests, Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, Duty of Loyalty, Directors & Officers, Fiduciary Duties