scc Doc 742 Filed 01/22/16 Entered 01/22/16 16:58:34 Main Document Pg 1 of 19

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1 Pg 1 of 19 Paul M. Basta, P.C. James H.M. Sprayregen, P.C. Jonathan S. Henes, P.C. Ryan Blaine Bennett (admitted pro hac vice) Christopher Marcus, P.C. Brad Weiland (admitted pro hac vice) KIRKLAND & ELLIS LLP KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP KIRKLAND & ELLIS INTERNATIONAL LLP 601 Lexington Avenue 300 North LaSalle Street New York, New York Chicago, Illinois Telephone: (212) Telephone: (312) Facsimile: (212) Facsimile: (312) Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) SABINE OIL & GAS CORPORATION, et al., 1 ) Case No (SCC) ) Debtors. ) (Jointly Administered) ) DEBTORS RESPONSE TO NORDHEIM S SURREPLY REGARDING REJECTION OF CERTAIN EXECUTORY CONTRACTS On September 30, 2015, the Debtors filed the Debtors Motion for Entry of an Order Authorizing Rejection of Certain Executory Contracts [Docket No. 371] (the Motion ). 2 Nordheim filed an objection to the Motion (the Nordheim Objection ) on October 8, 2015, and on October 14, 2015, the Debtors filed a reply thereto (the Reply ). On January 8, 2016, following several adjournments of the matter, Nordheim filed Nordheim s Surreply Regarding Rejection of Certain Executory Contracts [Docket No. 676] (the Surreply ). 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, include: Sabine Oil & Gas Corporation (4900); Giant Gas Gathering LLC (3438); Sabine Bear Paw Basin LLC (2656); Sabine East Texas Basin LLC (8931); Sabine Mid-Continent Gathering LLC (6085); Sabine Mid-Continent LLC (6939); Sabine Oil & Gas Finance Corporation (2567); Sabine South Texas Gathering LLC (1749); Sabine South Texas LLC (5616); and Sabine Williston Basin LLC (4440). The location of Debtor Sabine Oil & Gas Corporation s corporate headquarters and the Debtors service address is: 1415 Louisiana, Suite 1600, Houston, Texas Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion.

2 Pg 2 of 19 While the Debtors Reply addressed the legal arguments raised in the Nordheim Objection, the Surreply sets forth a series of new sophistic arguments that, to the extent not addressed in the Reply, necessitate a response. For the limited purpose of refuting these assertions, the Debtors, with the permission of the Court, have filed this response (this Response ) to the Surreply, and respectfully state as follows: Response 1. At its core, Nordheim s argument is relatively simple: Nordheim alleges that, on the basis of one phrase, it is entitled to jump the line ahead of the Debtors secured and unsecured creditors and receive at least $35 million in otherwise allocable plan value arising from Nordheim s unsecured services contract with Sabine Oil & Gas Corporation. Specifically, Nordheim argues that, even though there was no transfer of any interest in the Debtors mineral estates to Nordheim, Nordheim somehow acquired a $35 million real property interest in certain of Sabine South Texas LLC s in-place hydrocarbon assets (the Mineral Interests ) that is not subject to the preexisting liens or claims of any of the Debtors other creditors. Nordheim attempts to pull off this coup by inventing a new stick in the bundle of property rights. But this stick is not recognized under Texas law and cannot compensate for the fact that Nordheim has not received a conveyance here. 2. Ultimately, Nordheim is searching for a loophole to allow midstream gatherers, unlike all other participants in the oil and gas industry, to become immune to industry-wide credit risk under the conditions that have led to this and other oil and gas bankruptcies. While it may be true that certain oil and gas agreements specifically, those that contemplate an actual transfer of an interest in a mineral estate from a grantor to a grantee can create covenants running with the land, this is a case-by-case and contract-by-contract inquiry; here, Nordheim fails to satisfy the running with the land standard. Instead, as the Reply and this Response 2

3 Pg 3 of 19 make clear, Nordheim is entitled to no preferential treatment over other creditors because as much as Nordheim may have hoped to create a covenant running with the land, Nordheim simply cannot establish the elements necessary to do so under Texas law. I. Neither of Nordheim s Theories of Conveyance Passes Muster. 3. Recognizing that privity of estate is absolutely required under Texas law for a covenant to run with the land, Nordheim advances (for the first time in its Surreply) two equally unavailing theories of conveyance in an attempt to fabricate privity of estate. 3 First, Nordheim asserts that the conveyance of a surface parcel unrelated to the Mineral Interests satisfies the privity of estate requirement. Second, Nordheim argues that the Debtors conveyed certain real property sticks of the Mineral Interests, and that this conveyance satisfies the privity of estate requirement. As set forth below, neither of these theories of conveyance withstands scrutiny. A. The Sale of a Separate and Distinct Parcel of Surface Land Cannot Result in a Burden on the Mineral Interests. 4. It is established under Texas law that [a] covenant may only validly be created as part of the conveyance of an interest in the land burdened with the covenant. El Paso Natural Gas Co. v. Amoco Production Co., No , 1992 WL 43925, at *11 (Del. Ch. Mar. 4, 1992) (citing Clear Lake Apartments, Inc. v. Clear Lake Utilities Co., 537 S.W.2d 48, 51 (Tex. App. 1976), aff d as modified, 549 S.W.2d 385 (Tex. 1977); Panhandles and S.F Ry. Co. v. Wiggins, 161 S.W.2d 501, 505 (Tex. App. 1942)). See also Talley v. Howsley, 170 S.W.2d 240, 243 (Tex. App. 1943) (noting that a covenant running with the land only runs with the land conveyed to or by the covenantor ). 3 The Nordheim Objection did not argue that a conveyance had been made, rather relied on the argument that privity of contract between Sabine and Nordheim satisfied the privity of estate requirement. 3

4 Pg 4 of Nordheim claims that the Mineral Interests can be inextricably burdened with the terms of the Nordheim Agreements because Sabine conveyed to Nordheim a separate and distinct acre parcel of surface land (the Nordheim Surface Parcel ) a surface parcel that was long ago severed, in its chain of title, from any mineral estate 4 for purposes of conveniently locating its gathering facility In support of this argument, Nordheim argues that a covenant running with the land and the associated conveyance may be found in two separate documents. Surreply 10. That is possible, but wholly unrelated to the issue here. The relevant inquiry is not whether the covenant and conveyance are found in the same document; it is whether the transaction involves a conveyance of an interest in the same real property that is burdened with the covenant. Here, it clearly does not. The only real property conveyed in connection with the Nordheim Agreements was the Nordheim Surface Parcel; Nordheim alleges that the covenants run with the Mineral Interests an entirely separate real property interest. 7. Notably, while Nordheim cites to Energytec in furtherance of this argument, Energytec does not create an interest in one estate based on the transfer of a separate estate; rather, Energytec discusses a single estate, a pipeline, at all times, and simply notes that the covenant and sale were contained in two different documents. See Energytec, 739 F.3d 215, 217 (5th Cir. 2013) ( Mescalaro conveyed all its interest in a gas pipeline, its rights-of-way, and a 4 Sabine purchased the surface parcel of land from Jo Ann Hoelscher on October 1, 2013, and the Special Warranty Deed states that Ms. Hoelscher grants the surface estate only of the Lands to Sabine; Ms. Hoelscher had previously been the recipient of the surface of the Lands by devise and conveyance. See Warranty Deed, attached hereto as Exhibit A. 5 By analogy, this argument is akin to saying that if A gives B the exclusive right to mow his lawn by contract, B purchases a lawnmower, and A sells B a nearby shed on unrelated property to store the lawnmower, by virtue of A selling B the shed, the exclusive right to mow becomes a real covenant burdening the lawn. 4

5 Pg 5 of 19 processing plant... Mescalaro conveyed the interests subject to the Transportation Fee and other terms and provisions of the letter agreement. ) To satisfy the privity of estate requirement, Nordheim must show a conveyance of an interest in the same property with which the covenant runs. Because the property conveyed to Nordheim included only a surface parcel with no connection whatsoever to the Mineral Interests, there cannot be any privity of estate for a covenant that purportedly runs with those Mineral Interests. B. Granting Nordheim the Right to Gather Gas and Condensate Produced from the Mineral Interests, and Receive a Fee for that Service, Is Not a Conveyance of a Real Property Interest Sufficient to Create Privity of Estate. 9. Nordheim has invented two new real property interests, or sticks, that it claims are sufficient to satisfy the privity of estate requirement, namely, the right to choose a gatherer and the right to negotiate the gatherer s fees. Specifically, Nordheim claims that Sabine gave the choose your transport stick and the choose your price stick in its bundle to Nordheim[.] Surreply 13. These sticks do not exist under Texas law. 1. The Property Rights that Comprise a Mineral Estate are Limited by Texas Law and Do Not Include the Rights to Choose One s Transport or Price. 10. Under Texas law, there are five real property rights that comprise a mineral estate. Lesley v. Veterans Land Bd. of State, 352 S.W.3d 479, (Tex. Sup. Ct. 2011) (stating that the right to lease is one stick in the bundle ). These five rights are: (1) the right to develop (the right of ingress and egress), (2) the right to lease (the executive right), (3) the 6 As Nordheim itself notes, the parcel of land sold to it was sold in exchange for $111,684.00, which amount reflects the value of such land. By subsequently investing in its gathering system, Nordheim did what most any service provider does it invested in inventory and infrastructure to provide its services. There is simply no reason to elevate a contract counterparty s claims to ride-through status simply because they relied on a contractual promise in making capital investment decisions allowing Nordheim to prime secured creditors in this manner would defeat the entire purpose of the bankruptcy discharge and upend the risk structure of commercial secured lending. 5

6 Pg 6 of 19 right to receive bonus payments, (4) the right to receive delay rentals, (5) the right to receive royalty payments. Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). Each of these five rights is a separate and distinct property interest which may be conveyed or reserved separately and/or conveyed or reserved relative to any of the other interests. Chesapeake Exploration, L.L.C. v. BNW Property Co., 393 S.W.3d 852, 855 (Tex. 2012). These five rights represent the sum total of a mineral estate and cannot be expanded to create artificial property rights. Otherwise, all contracts could be twisted into covenants running with the land, as enterprising parties could claim possession over the choose your vendors stick or outsource your employees stick or any number of other unrecognized property rights. Simply put, neither choosing one s transport nor choosing one s price is a transferable interest in a mineral estate under Texas law, and thus Sabine was not in privity of estate with Nordheim by virtue of entering into an exclusive gathering services contract and setting fees under that contract. 2. As a Matter of Settled Texas Law, Exclusive Rights to Provide Services Do Not Run with the Land or Establish Privity of Estate. 11. Even if the choose your transport stick and choose your price stick were real property rights in a mineral estate, Nordheim fails to cite any authority for its argument that the conveyance of such rights creates privity of estate between the contract parties. Indeed, Nordheim has ignored multiple Texas cases wherein courts specifically found that the grant of analogous rights did not create privity of estate. 12. For example, in Clear Lake Apartments, Inc. v. Clear Lake Utilities Co., the Houston Court of Appeals explicitly held that an exclusive services contract between a utility company and landowner did not create a covenant running with the land. 537 S.W.2d at In that case, Clear Lake Utilities Company ( Utilities ) entered into a contract (the Exclusive Service Contract ) with North Clear Lake Development Corporation ( NCL ), 6

7 Pg 7 of 19 which granted Utilities the exclusive right to furnish water and sewer services to an eight acre tract of land owned by NCL. Id. at 50. The contract further provided that it shall be binding upon and shall inure to the benefit of Company and Landowner and the respective heirs, legal representatives, successors and assigns of them, and shall constitute covenants running with Said Land and with Company s water and sewer disposal system and properties[.] Id. at Clear Lake Apartments, Inc. ( Apartments ) subsequently acquired the property from NCL, and thereafter informed Utilities that it intended to terminate the Exclusive Service Contract and enter a contract for water and sewer services with an alternate provider. Id. at 50. Utilities filed suit, arguing, among other things, that the Exclusive Service Contract was a covenant running with the land and as such, was binding on Apartments. Id. at The court determined that privity of estate did not exist between Utilities and NCL because the Exclusive Service Contract was not part of any transaction conveying the land involved. Id. The court thus found that the Exclusive Service Contract did not run with the land. Id. Clear Lake Apartments stands for the common-sense proposition that the contractual grant of a right to perform services only collaterally related to real property (or, as Nordheim might refer to them, the choose your water company stick or choose your sewage company stick) is not a conveyance of an interest in real property sufficient to create privity of estate under Texas law. 16. In a similar case, Wayne Harwell Properties v. Pan American Logistics Center, Inc., the San Antonio Court of Appeals determined that a contract between a landowner and developer which granted the developer a right of first refusal and percentage of the cash flow generated from the land was not a covenant running with the land. 945 S.W.2d 216 (Tex. App. 1997). 7

8 Pg 8 of In Wayne Harwell, Vaughan & Sons, Inc. ( Vaughn ), as landowner, entered into two development agreements (the Development Agreements ) with Wayne Harwell Properties, Inc. and N. Wayne Harwell (collectively, Harwell ), which granted Harwell a right of first refusal to be general contractor on any improvements to the land, and a 20-year assignment of 15% of the net cash flow interest generated from the land. Id. at 217. Vaughn intended to develop the property as a commercial venture, and the rights granted to Harwell were intended to compensate Harwell for his land development expertise. Id. 18. The Development Agreements were recorded in the real property records of Bexar County, Texas. Id. Vaughn later sold a portion of the property to Browning-Ferris Inc. ( BFI ), and filed a lawsuit against Harwell seeking a declaratory judgment that the Development Agreements burdening the land were personal covenants that were unenforceable against BFI. Id. Harwell argued that the Development Agreements were real covenants running with the land and enforceable against BFI. Id. 19. The court focused its running with the land analysis on the dispositive issue of whether privity of estate existed between Vaughn and Harwell. Id. at 218. Harwell argued that Vaughn s grant of a cash-flow interest in the land in question qualifie[d] as a grant of interest in the land sufficient to create privity of estate between the parties. Id. 20. The court rejected this argument, citing well-established Texas law on the issue: For a covenant to run with the land... the covenant must be made between parties who are in privity of estate at the time the covenant is made, and must be contained in a grant of the land or in a grant of some property interest in the land. Id. The court further recognized the reluctance of Texas courts to characterize interests as running with the land, stating: Land is an article of commerce. It should be subject to ready sale and lease. To burden lands with personal 8

9 Pg 9 of 19 covenants would be to hamper and impede real estate transactions to the detriment of owners, purchasers, and agents. Id. (quoting Blasser v. Cass, 314 S.W.2d 807, 809 (Tex. 1958)). 21. The holdings of Harwell and Clear Lake Apartments, taken together, are fatal to Nordheim s bundle of sticks argument. The grant of an exclusive right to provide water and sewer services to a particular tract of land closely analogous to Nordheim s exclusive contractual right to gather gas produced from a particular tract of land pursuant to the acreage dedication (i.e., the choose your transport stick) did not create privity of estate in Clear Lake Apartments. Likewise, the grant of a percentage interest in the cash flow generated from a particular tract of land similar to Nordheim s contractual right to receive fees for transporting gas and condensate produced from a particular tract of land (i.e., the choose your price stick) did not create privity of estate in Harwell. Nordheim s bundle of sticks argument simply does not hold up under Texas law. 3. Any Rights in the Mineral Interests Allegedly Conveyed to Nordheim Remain Subject to Liens. 22. Finally, the conveyance of any interest in the Mineral Interests, and certainly one worth upwards of $35 million, would either require a release of any liens encumbering such interests or be subject to any such liens. Nordheim did not obtain any release of liens in connection with its entry into the Nordheim Agreements. Accordingly, to the extent that an interest in the Mineral Interests was transferred to Nordheim, such interests remain encumbered by any liens that existed on the Mineral Interests at the time of such alleged transfer. II. The Nordheim Agreements Do Not Create An Equitable Servitude. 23. In the Surreply, Nordheim incorporates an entirely new theory to its argument in its attempt to circumvent the Debtors ability to reject the Nordheim Agreements, claiming that even if there is no covenant running with the land here, the Nordheim Agreements create an 9

10 Pg 10 of 19 equitable servitude. Under Texas law, however, an equitable servitude requires that the covenant in question both limits the use of the burdened land and benefits the land of the party seeking to enforce it. Reagan Nat l Advert. of Austin, Inc. v. Capital Outdoors, Inc., 96 S.W.3d 490, 495 (Tex. App. 2002). A. The Nordheim Agreements Do Not Limit the Use of the Purportedly Burdened Land. 24. Nordheim cannot establish that the Nordheim Agreements limit the use of the burdened land. Nordheim s position is that the burdened land is the Mineral Interests. The Nordheim Agreements specifically address any limitations imposed on the Interests, stating that Sabine reserves the right subject to the Dedication, to operate its Interests free from any control by Gatherer and in a manner as Shipper, in its sole discretion, may deem advisable. Gathering Agreements 1.4. Thus, the only potential limitation which Nordheim could conceivably argue has been placed on the Interests is the Dedication. That argument, however, fails for two reasons. 25. First, despite Nordheim s attempts to muddy the waters on this issue, it is the Gas and Condensate, i.e., produced minerals, that are dedicated to Nordheim, not the Mineral Interests. A simple reading of the Dedication clause establishes this. See, e.g., Nordheim Gas Agreement 1.1 (1) (stating that Sabine dedicates for gathering and dehydration under this Agreement all Gas produced and saved from Sabine s wells within the Nordheim Dedicated Area). Under Texas law, the Gas and Condensate are personal property they are not the real property interests. See Riley v. Riley, 972 S.W.2d 149, 155 (Tex. App. 1998) (citing Phillips Petroleum Co. v. Adams, 513 F.3d 355, 363 (5th Cir. 1975) ( Texas law provides that oil and gas are realty when in place and personalty when severed from the land by production. ). Thus, the limitation imposed by the Dedication relates to personal property, not the burdened land. 10

11 Pg 11 of Second, the Texas Supreme Court has analyzed an analogous fact pattern in the context of an equitable servitude and decided the matter directly contrary to Nordheim s position. Clear Lake City Water Authority v. Clear Lake Utilities, 549 S.W.2d 385, 388 (Tex. 1977) ( Clear Lake II ). Recall Clear Lake Apartments, wherein the Houston Court of Appeals found that the Exclusive Service Contract did not run with the land because privity of estate did not exist between the parties to the contract (Utilities and NCL). See 15, supra. After losing its argument at the court of appeals, Utilities appealed to the Texas Supreme Court and argued that the Exclusive Service Contract was binding on Apartments as an equitable servitude. See Clear Lake II at 388. Noting that the equitable servitude concept has application only to promises respecting the use of land, the court found that the Exclusive Service Contract did not create an equitable servitude, explaining its decision as follows: Enforcement of the exclusive service provision would not have restricted NCL in the use of its real property. At most, NCL s promise limited NCL s freedom to contract with other suppliers of water and sewer service. Such a limitation affects the use of land only collaterally and will not create an equitable servitude upon the land. Id.; see also Superior Phones, Ltd. v. Cherokee Communications, Inc., 964 S.W.2d 325 (Tex. App. 1998) (holding that an agreement which granted one party the exclusive right to provide pay telephone services for a particular property was not an equitable servitude because, at most, the agreement limited the landowner s freedom to choose a pay telephone service provider for the premises and only collaterally limited the use of the real property). 27. The comparison between Clear Lake II and the present dispute is clear. Both involve a contract counterparty seeking to create an equitable servitude from an agreement which grants such counterparty the exclusive right to perform services collaterally related to real property. The Texas Supreme Court s analysis in Clear Lake II is equally applicable to this 11

12 Pg 12 of 19 matter, and mandates the same result: the Nordheim Agreements do not limit the use of the purportedly burdened land and thus do not create an equitable servitude upon the Mineral Interests. B. The Nordheim Agreements Do Not Benefit the Nordheim Surface Parcel, They Benefit Nordheim Personally. 28. Most Texas cases analyzing equitable servitudes involve the enforcement of restrictive covenants, so it is typically straightforward to establish that the covenant benefits the land of the party seeking to enforce it. Texas courts generally have little difficulty finding, for example, that a covenant which prohibits a property from being used as a car lot or junkyard, benefits the property of an adjacent landowner seeking to enforce that restriction. See, e.g., Hartsfield v. Country Club Village Community Committee, 2005 WL , *3 (Tex. App. 2005). The Debtors have found no Texas cases, however, where a commercial contract between two parties was found to create an equitable servitude upon the land. 7 See Reagan Nat l Advert. of Austin, 96 S.W.3d at ; In re El Paso Refinery, LP, 302 F.3d 343, (5th Cir. 2002); Clear Lake City Water Authority, 549 S.W.2d at 388; Martindale v. Gulf Oil Corp., 345 S.W.2d 810, 813 (Tex. App. 1961). 29. The Nordheim Agreements benefit Nordheim personally; they do not benefit the Nordheim Surface Parcel itself. Under the Nordheim Agreements, Nordheim has a contractual right to gather all of the Gas and Condensate produced from a specified area, and to receive a fee for performing that service. The Nordheim Agreements grant no special rights or benefits to the Nordheim Surface Parcel. The lone paragraph in the Nordheim Agreements discussing the conveyance of a surface parcel does not even specify the location of such land. It certainly does 7 The Debtors also did not find, and Nordheim does not cite, any Texas case where an equitable servitude was found to burden a mineral estate. 12

13 Pg 13 of 19 not impose any special rights or benefits upon that surface parcel. There is likewise no mention of the tract of land whatsoever in the short form memoranda of agreement that were subsequently recorded. The entity actually benefitting from the Nordheim Agreements (as between Nordheim personally and the Nordheim Surface Parcel) is perhaps best identified though a hypothetical: if Nordheim were to relocate the processing facilities from the Nordheim Surface Parcel to a new tract of land, the Debtors would still be obligated, if the contracts remained in effect, to deliver gas and condensate to Nordheim, not to a particular tract of land. Accordingly, the obligations created by the Nordheim Agreements run entirely to the personal benefit of Nordheim, and not, as Nordheim argues, to the Nordheim Surface Parcel. III. Recordation of the Nordheim Agreements Has Many Purposes and Is Not Sufficient to Create a Property Interest Where One Does Not Otherwise Exist. 30. With its legal arguments unavailing, Nordheim engages in a last ditch attempt to create a nondischargeable obligation by stating that, absent an intent to convey real property, there is no other reason to file the Gathering Agreements of record. Surreply 19. First, the recordation of a document that does not otherwise convey real property does not become a conveyance of real property simply by virtue of being recorded. See, e.g., Wayne Harwell Properties, 945 S.W.2d at 217 (holding that an agreement, which was recorded in the real property records, was not a covenant running with the land because privity of estate did not exist between the parties). And second, the purpose of recording a document is to put third parties on constructive notice of the contents of that recorded document, which can be desirable for any number of reasons; recordation is not a replacement for satisfaction of the running with the land criteria. 13

14 Pg 14 of 19 IV. Nordheim s Surreply Misstates the Facts of Energytec 31. Energytec provides a prime example of a situation in which privity of estate does exist, and illustrates how privity of estate is lacking in this case. Nordheim s arguments, however, misstate the Energytec facts. Nordheim claims that in Energytec, the owner of certain leases conveyed such leases pursuant to an assignment and bill of sale, and conveyed the covenants, a transportation fee and consent rights, via a separate letter agreement. Surreply 10. Energytec did not involve a conveyance of leases at all, but rather a conveyance of a pipeline system from its original owner ( Mescalero ) to a third party ( Producers ). Energytec, 739 F.2d 215, 217 (5th Cir. 2013) ( Mescalero conveyed all its interest in a gas pipeline, its rights-ofway, and a processing plant to Producers. ). In connection with that conveyance, Mescalero reserved for an affiliate ( Newco ) the right to receive transportation fees for gas transported along that pipeline. Id. at 217 ( As partial consideration for the conveyance of the pipeline system, Producers was required to pay Newco a transportation fee based on the amount of gas flowing through the pipeline. ). The agreement in question stated that the burden of the covenants ran with the pipeline. Id. at 222. Applying these facts, the court correctly held that privity of estate existed under Texas law: the covenant was created in a transaction involving a conveyance of the same real property that was burdened with the covenant. Id. at In sum, Energytec is a case about surface pipeline interests, not mineral estates, and could only be on all fours with the instant dispute to the extent Nordheim asserts that the Nordheim Agreements run with Nordheim s gathering system. V. Conclusion 33. The Debtors rest upon their Reply to rebut the remainder of Nordheim s assertions in the Surreply. The Debtors are seeking to reject and compromise a $35 million burden on their estates that arises from a contract for the provision of gathering services. 14

15 Pg 15 of 19 Nordheim, meanwhile, is asking to ride through these chapter 11 cases with their $35 million unsecured contractual obligation intact, at the expense of plan value otherwise distributable to the Debtors creditors, based on a single phrase and a flawed interpretation of Texas property law. The Court should overrule the Nordheim Objection, grant the Debtors motion as filed, and enter the proposed order. Dated: January 22, 2016 New York, New York /s/ Ryan Blaine Bennett Paul M. Basta, P.C. Jonathan S. Henes, P.C. Christopher Marcus, P.C. KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) and - James H.M. Sprayregen, P.C. Ryan Blaine Bennett (admitted pro hac vice) Brad Weiland (admitted pro hac vice) KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 300 North LaSalle Street Chicago, Illinois Telephone: (312) Facsimile: (312) Counsel to the Debtors and Debtors in Possession 15

16 Pg 16 of 19 Exhibit A Warranty Deed 16

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