Since filing for Chapter 11 bankruptcy earlier in November, Oklahoma City-based Gulfport Energy Corp contends a number of things led to its path to the bankruptcy court—but mostly it blames the actions of the Midship gas pipeline owned by Cheniere Energy.
Gulfport contends its liquidity was constrained in early 2020 by lower revenue, high fixed costs including interest on its unsecured notes and firm transportation rates sometimes resulting in reduced margin versus selling natural gas in-basin.
But in a filing in the U.S. Bankruptcy Court of Southern Texas, Gulfport points a finger of blame at Cheniere Energy’s Midship pipeline, a 234-mile project that became operational in the past year moving gas out of Oklahoma’s STACK and SCOOP plays to Gulf Coast and Southeast markets.
The line became operational in April nearly a year after it was originally scheduled. The 1.44 Bcf/d line moves gas from the SCOOP and the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties (STACK).
“To obtain leverage in ongoing contract negotiations and secure an advantageous cash position prior to Gulfport’s bankruptcy, Midship made false statements to Scotia Bank and wrongfully drew $75.6 million” from the letter of credit, Gulfport said in a complaint.
“The Debtors’ liquidity position was also worsened by the actions of Midship,” stated Gulfport in the late November court filing.
The firm agreed in July of this year to pay $32.9 million to Midship as a prepayment for reservation charges and Gulfport’s parent would provide a $34 million surety bond to Gulfport with the intention of lowering an existing $75.6 million letter of credit already in place in favor of Midship. It would have not only lowered the letter of credit to $12.2 million but would have also resulted in $79.1 million in credit assurance to Midship.
Gulfport contends that in late September, it made the $32.9 million prepayment in cash and a few days later, Midship drew down the full $75.6 million in the letter of credit in place. It resulted in Midship receiving $108.5 million cash from Gulfport.
“These actions severely affected the Debtors’ liquidity, as Midship was only entitled to $79.1 million in credit assurance
under the fourth amendment,” claimed Gulfport in its bankruptcy court filing.
Gulfport had already been in mid-September talks with operators of the Rockies Express Pipeline and revealed that if it could not get some relief, it would have to file Chapter 11 bankruptcy. Gulfport says a day after talks with the REX pipeline, REX filed a petition with the Federal Energy Regulatory Commission seeking an order that FERC had exclusive jurisdiction in the publics’ interest over the REX contract with Gulfport.
Midship, Rover Pipeline and subsidiaries of TC Energy Corporation joined REX in petitioning the FERC.
FERC eventually ruled in early November that Gulfport could not change the contract that had a value of approximately $380 million with Cheniere Energy.
About a week later, Gulfport filed Chapter 11.