Crown Eagle Energy Secures Victory in Restructuring Contract Dispute

Paul, Weiss secured a significant victory for Crown Eagle Energy LP, a portfolio company of Blackstone Credit and an owner of oil and gas assets in the Eagle Ford shale in south Texas (known as the Comanche assets), in a long-running contract dispute with a natural gas gathering and processing company stemming from the restructuring of Mesquite Energy, Inc. (formerly known as Sanchez Energy Corporation). On February 2, the U.S. Bankruptcy Court for the Southern District of Texas granted Crown Eagle and its co-defendants’ motion for judgment on the pleadings, rejecting all of the plaintiff’s claims.

While Sanchez Energy emerged from bankruptcy in June 2020, due to exigencies caused by the COVID-19 pandemic, the approved restructuring plan contained a unique provision allowing the debtors to assume and amend executory contracts after emergence. In December 2021, the Comanche working interest owners and several midstream providers consummated a comprehensive midstream restructuring pursuant to which, among other things, the reorganized debtors assumed certain agreements with clarifying amendments. Shortly thereafter, in early 2022, a disaffected natural gas gathering and processing company, Carnero G&P, filed the latest in a string of related actions in Texas state court alleging that the midstream restructuring breached its gathering and processing agreement.

The Comanche working interest owners timely removed the action to the bankruptcy court, and in the motion for judgment on the pleadings filed last August, the Comanche working interest owners argued that Carnero’s claims were barred by the confirmed plan and for failure to state a claim for which relief can be granted.

U.S. Bankruptcy Judge Marvin Isgur agreed with the Comanche working interest owners on all counts, granting the motion. “Carnero is barred from bringing this claim by the terms of the Plan,” Judge Isgur wrote. “Even if Carnero’s claims were not barred by the Plan, they fail as a matter of law. Carnero’s complaint fails to allege sufficient, well-plead factual allegations that support its claim for relief.”

“Here, no actual controversy exists between the parties regarding the proper interpretation of the at-issue agreements because the contractual terms are unambiguous and do not conflict with any provision of the Midstream Restructuring and Master Settlement Agreement,” the judge added. “There is no future, legal injury for the Court to prevent.”

The Paul, Weiss team handling the matter include restructuring partners Paul Basta, Alice Eaton and Sean Mitchell; and litigation partner Andrew Ehrlich and counsel Daniel Crane.