After filing for Chapter 11 bankruptcy protection Nov. 13, Gulfport Energy is asking a federal bankruptcy court to reject the Utica Shale gas producer's firm gas transportation agreements with Rockies Express Pipeline, Rover Pipeline and several TC Energy units, and, to block Federal Energy Regulatory Commission actions that might "usurp" the court's role.
Rejection of REX and Rover agreements would save the debtors about $18 million in net costs per year, or about $222 million over the remaining term of the firm transportation agreements, Gulfport told the bankruptcy court. TC Energy commitments put the debtors on the hook for $700 million in aggregate gross costs for remaining terms for firm capacity that is unneeded for the debtors' operations, Gulfport further argued.
The cases are among several testing boundaries between FERC and bankruptcy courts over gas transportation agreements when shippers seek bankruptcy protection. Others involve bankruptcy filings of Ultra Petroleum and Chesapeake Energy.
The disputes are closely watched as a wave of oil and gas producer bankruptcies is expected amid the coronavirus pandemic and other oil market challenges, and courts have divided over related jurisdictional questions.
In response to requests from pipeline companies at FERC, the commission recently asserted concurrent jurisdiction with the bankruptcy courts and concluded that the public interest did not warrant altering firm gas transportation contracts between Gulfport and pipeline companies including REX, Rover, TC Energy and Midship Pipeline.
Gulfport filed for voluntary Chapter 11 bankruptcy protection Nov. 13 in the US Bankruptcy Court for the Southern District of Texas Houston Division (Gulfport Energy, 20-35562), and in motions Nov. 15 sought rejection of the contracts.
Gulfport complaints
In a separate complaint (Gulfport Energy, 20-03464), the natural gas producer also asked for a declaratory judgment confirming the bankruptcy court's exclusive jurisdiction to determine the debtors' right to reject the gas transportation agreements under the bankruptcy code and find FERC cannot preempt or veto that by acting under the Natural Gas Act. It also asked the court to block further FERC orders or enforcement that "might interfere with this court's exclusive jurisdiction."
While courts have divided over the jurisdictional questions, in one recent precedent, in the Ultra case, the US Bankruptcy Court for the Southern District of Texas allowed the producer to reject gas transportation contracts with REX Aug. 6. In an Aug. 21 opinion explaining its reasoning, the court said the bankruptcy court was not authorized to grant a wholesale exception to the bankruptcy code preventing rejection of FERC approved contracts. And, considering the public policy consequences of the rejection, the bankruptcy court found no evidence rejection would disrupt natural gas supplies or harm public welfare. FERC has indicated it planned an appeal in the 5th US Circuit Court of Appeals.
Recent FERC actions
In its recent orders on REX, Rover and other pipelines, FERC has looked differently at the public policy implications than has the bankruptcy court. FERC found the commission is barred from changing a filed rate unless that rate harms the public utility – in this case the pipeline.
"Gulfport argues the opposite – namely that the gas pipeline will remain in service regardless of whether the Gulfport [transportation service agreements] are modified, abrogated or kept intact," FERC said in its Oct. 28 order siding with REX on treatment of gas transportation contracts. FERC concluded the gas agreement did not impair the financial ability of the public utility, in this case, the pipeline, to continue service.
Separately, Gulfport took action against another Midship, another company with which it has firm gas transportation agreements. It filed a complaint in the bankruptcy court seeking to recover $76 million, as well as punitive damages, saying Midship improperly drew on a letter of credit.
