Washington—Gulfport Energy has turned to the 5th US Circuit Court of Appeals to challenge Federal Energy Regulatory Commission decisions involving the intersection between the agency's Natural Gas Act authorities and US bankruptcy court decisions affecting gas transportation agreements.
The cases may test the boundaries of FERC's role in overseeing interstate gas transportation rates when gas producers seek to reject contracts in bankruptcy reorganization proceedings.Anticipating imminent bankruptcy filings by financially strapped gas producers, a handful of pipeline companies last fall asked FERC to weigh in to assert concurrent jurisdiction and hold expedited paper hearings on whether it would be in the public interest to abrogate existing gas transportation agreements.
The commission quickly thereafter found in multiple cases that the public interest did not warrant altering a firm gas transportation contract between a pipeline and its producer shippers. Pipelines involved included TC Energy, Rover, Midship Pipeline, and Rockies Express Pipeline.
Gulfport's petitions filed March 12 in the 5th Circuit appealed FERC's orders in relation to Gulfport's gas transportation contracts with TC Energy (Gulfport Energy v. FERC, 21-60201) and Rover Pipeline (Gulfport Energy v. FERC, 21-60200). The driller filed for Chapter 11 bankruptcy in November.
FERC also last fall asserted concurrent jurisdiction with the bankruptcy court to address the gas transportation agreements and ruled that the contracts at issue were subject to the filed-rate doctrine under the Mobile -Sierra presumption, which holds that freely negotiated rates, terms, and conditions meet a just-and-reasonable standard.
The new court filings do not yet lay out Gulfport's arguments. But, in a request for rehearing of FERC's paper hearing order involving its gas transportation contracts with units of TC Energy, Gulfport argued the quick FERC paper hearing violated its procedural rights, exceeded FERC's jurisdiction, and appeared designed to interfere with Gulfport's bankruptcy filing. It also argued FERC made findings in a nonexistent dispute.
"Although neither Gulfport nor the TC Energy pipelines asked the commission to abrogate or modify the Gulfport [transportation service agreements], the commission accepted the TC Energy pipelines' invitation to proceed as if it was considering a request from Gulfport to abrogate or modify the Gulfport TSAs," it wrote. "The commission's order marched quickly through each of the three Mobile-Sierra factors, and found insufficient evidence for arguments that neither Gulfport nor the TC Energy pipelines were actually making."
Chapter 11 proceedingsAs part of its Chapter 11 proceedings, Gulfport has asked the US Bankruptcy Court for the Southern District of Texas to reject its gas transportation contracts with REX, Rover, and several TC Energy units. Rejection of the REX and Rover agreements would save the debtors about $222 million over the remaining term of the firm transportation agreements, Gulfport told the bankruptcy court. The TC Energy commitments involved about $700 million in aggregate gross costs for remaining terms for firm capacity that is unneeded for the debtors' operations, Gulfport said. Gulfport, however, reached a settlement to revise a gas transportation contract Midship, according to bankruptcy court filings.
The new 5th Circuit appeals court cases come as a FERC official previously indicated a desire to have a nationwide ruling to put to rest uncertainty in disputes over the role of bankruptcy courts and FERC over natural gas contracts.
In addition to the Gulfport case, the 5th Circuit is expected to hear an appeal of a bankruptcy court's rejection of a gas transportation contract involving producer Ultra Resources and REX (FERC v. Ultra Resources. 20-20126).
In separate litigation, Chesapeake Energy recently moved to voluntarily dismiss a case involving FERC's decisions in relation to gas transportation projects involving ETC Tiger.
