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Friday, March 11, 2016

Judicial Ruling Raises Major Questions for Midstream Companies

From Bloomberg Business:
A U.S. bankruptcy court ruling has thrown into question how heavily oil and natural gas pipeline operators can rely on their contracts with energy explorers to shield them from the worst industry downturn in decades. 
Judge Shelley Chapman ruled Tuesday that driller Sabine Oil & Gas Corp., which filed for bankruptcy in July, can reject contracts with two pipeline operators, HPIP Gonzales Holdings LLC and Cheniere Energy Inc.’s Nordheim Eagle Ford Gathering LLC affiliate. Analysts including energy consultancy WTRG Economics say the ruling threatens to set a precedent for other distressed energy explorers looking to break transportation commitments. 
The decision comes as operators have already seen their market values sink on concern that sliding oil and gas prices will force energy producers into bankruptcies and cut their revenues. The Alerian MLP Index, made up of nearly 50 pipeline partnerships once favored by investors for their high payouts and dependable, long-term shipping contracts, has plunged 40 percent in the past year.

Tuesday’s ruling “will impact Williams and others,” James Williams, WTRG Economics’s president, said by e-mail from London, Arkansas. “Normally, these take-or-pay contracts survive the bankruptcy hearings.” 
Williams Cos. was up 0.6 percent on Wednesday to $17.36 at 10:11 a.m. in New York after plunging as much as 10 percent on the news a day earlier. Energy Transfer Equity LP fell 0.8 percent to $7.27 after dropping as much as 13 percent on Tuesday. Spokesmen for the two companies didn’t provide comment on the judge’s decision.
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