As part of its bankruptcy filing Sunday, Oklahoma City’s Chesapeake Energy also filed suit against the Federal Energy Regulatory Commission in an attempt to prevent two pipeline companies from interfering with the bankruptcy.
The suit against FERC asks the bankruptcy court in Texas, where the legal filing was made on Sunday, to prevent legal action by ETC Tiger Pipeline LLC and Gulf South companies.
Chesapeake filed the motion “to reject certain negotiate rate firm natural gas transportation service agreements.” It stated it had paid $890 million since February 2009 for transportation under the agreements.
“But the pricing environment for oil and gas production and the Debtors’ financial condition when the Firm Transportation Agreements were executed were materially different than they are today,” stated the company in its filing. Chesapeake said because of the well-documented decline in commodity pricing for oil and gas, it is no longer economic to maintain the agreements and pay nearly $311 million in costs for the remainder of the terms.
Chesapeake argues that if it loses jurisdiction in the bankruptcy court due to any FERC ruling forcing it to continue with the pipeline contracts, it “would irreparable harm Chesapeake’s prospects for reorganization and, derivatively, threaten
injury upon all of Chesapeake’s stakeholders, including its creditors, employees, and business counterparties.”
Chesapeake maintains that Tiger and Gulf South have taken steps to jeopardize the bankruptcy court’s jurisdiction and the company’s prospects for reorganization. It was May 19, 2020 when Tiger filed a Petition for Declaratory Order and Request for Expedited Action with FERC. Tiger wants FERC to protect it from Chesapeake breaking any contract, arguing Chesapeake first has to get approval under the Natural Gas Act before a bankruptcy court can reject the agreement.
Gulf South did the same thing with a May 22 filing and like Tiger, did so “without advanced notice” to Chesapeake. The filings came as speculation mounted about Chesapeake’s possible bankruptcy.
Another pipeline company Stagecoach Pipeline and Storage Company LLC followed suit with a filing in June as it also wanted to protect the contract it had with Chesapeake Energy.
At the time of the filings by the three pipeline companies, they all requested expedited action by FERC “citing its anticipation that Chesapeake would file for bankruptcy protection and move the court for approval to reject the agreements.” In response, FERC established June 18 , June 25 and July 9 as the comment due dates.
Chesapeake answered some of the filings stating that if FERC ordered the company to continue with the agreements, it might be forced to challenge any such order in a Court of Appeals.
Source: Bankruptcy court