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Chesapeake Sues FERC Over Pipeline Contracts

Source: Kallanish Energy, June 30, 2020

Chesapeake Energy has sued the Federal Energy Regulatory Commission to keep two pipeline companies from interfering in its Chapter 11 reorganization, Kallanish Energy reports.

Named in the suit were ETC Tiger Pipeline LLC and Gulf Southern.

Chesapeake Energy is seeking to reject certain negotiated contracts with the pipeline companies for moving natural gas.

It wants the federal bankruptcy court, not FERC, to decide the issue.

Chesapeake is the sixth-largest natural gas producer in the United States. It was once the No.2 natural gas producer in the country.

The company’s Chapter 11 filing on Sunday kicks off one of the biggest energy bankruptcies in recent years.

Chesapeake has asked the U.S. Bankruptcy Court in the Southern District of Texas to prevent legal action by the two pipeline companies, saying that to fulfill the contracts would endanger its negotiated reorganization plan to eliminate $7 billion in debt.

At year-end 2019, it had $9 billion in debt.

The Oklahoma-based company said it had paid $890 million since early 2009 for pipeline transportation under existing agreements with the two companies. Chesapeake owes $311 million for the remainder of the contracts.

Both companies last month petitioned FERC to protect their contracts with Chesapeake.

If FERC orders Chesapeake to comply with those terms, its Chapter 11 reorganization would face “irreparable harm,” it said in the court filing.

Chesapeake said they would likely file an appeal with a U.S. Court of Appeals if FERC orders those contracts to be upheld.

A third pipeline company, Stagecoach Pipeline & Storage, made a similar filing with FERC earlier this month.

In its Sunday filing, Chesapeake Energy cited debts of $10 billion and its reorganization will affect drilling service companies and pipeline companies from Pennsylvania to Texas to Wyoming.

Companies including Williams, Energy Transfer, and Crestwood Equity Partners all have contracts with Chesapeake that may be reduced or rejected in bankruptcy court, said Ryan Smith of East Daley Capital in a Reuters report.

Chesapeake is a major player in the Marcellus Shale in the Appalachian Basin, the Hayesville Shale in Louisiana and Texas, the Eagle Ford and Brazos Valley in Texas, in the Powder River Basin in Wyoming and Montana and the Mid-Continent in Oklahoma.

It was the major player in the Utica Shale in eastern Ohio but later divested those assets.

In late 2007, it controlled 13.2 million acres of leases across U.S. shale plays.