We checked in with Michael Blankenship and Isaac Griesbaum at Winston & Strawn LLP to get some perspective for this week’s Downturn Dialogue installment.

Since they are plugged-in to water deal flow, regularly advising on some of the sector’s biggest transactions, we asked them what their clients are seeking help with on the commercial side of water midstream in these turbulent times.

Their answers revealed some great insight on market trends in this space. Here’s what they shared about what they are being asked to work on for oilfield water companies these days:

“The midstream company’s rights under their customer contracts and applicable law in the event of a customer’s bankruptcy and understanding the steps they can proactively take to mitigate the risk of rejection or renegotiation in bankruptcy, including, understanding:

• • commercial risks and likelihood of a third party midstream water company being able to offer better terms based on the contract rates, service level, available capacity, capital flexibility, asset locations and other key commercial and operational concerns;
  • the potential impacts of bankruptcy of their customers and the associated timeline and analyzing whether their agreements may be subject to rejection in bankruptcy based on the guidelines outlined in recent bankruptcy court decisions; and
  • the available steps and options to shore up credit support and provide the best negotiating position, including demands for adequate assurance and engaging proactively to cement relationships prior to any potential insolvency events.

The strength of the midstream company’s relative negotiating position when customers request fee reductions, which focuses on:

• • commercial risks and likelihood of a third party midstream water company being able to offer better terms based on the contract rates, service level, available capacity, capital flexibility, asset locations and other key commercial and operational concerns; and
  • the contract terms that would present hurdles to the customer terminating outside of bankruptcy, including liquidated damages, MVCs, dedication provisions, termination rights and other key terms.

In most cases we are finding that midstream companies are willing to discuss fee reductions, although they may insist on limiting to a specific time period, tying the reduction to the price of oil and/or requiring other changes to the agreement that improve their position beyond the economics, including inserting adequate assurance provisions, shoring up the dedication language, extending the term of the agreement, expanding the AMI and others. We have found producers generally willing to engage on these points in connection with the discussion on fees.”

Read the full update here for more of the team’s thoughts on the water midstream deal landscape…

-written by Michael Blankenship and Isaac Griesbaum, Winston & Strawn LLP, for Infill Thinking & Oilfield Water Connection readers April 2020 You’ll be able to hear directly from Eric Johnson, a partner at the firm, when we are able to convene our postponed Oilfield Water Markets Conference. 

And now for this week’s news and analysis…