A good read and I felt its important to keep everyone that is following this stock to read this.
A midstream pipeline operator contracted with Quicksilver Resources Inc. urged a Delaware bankruptcy court Friday to stop the oil and gas producer from rejecting the operator's agreement, in a closely watched fight both sides called “white hot” and that gas processors said could threaten the fragile midstream industry.
The battle unfolded during a hearing in Wilmington with a nervous midstream industry looking on — many of which fear that the historic plummet in energy commodity prices, which has swept so many producers into Chapter 11, could bubble over into their sector if the court allows Quicksilver to reject its agreements with Crestwood Midstream Partners LP and several affiliates.
Under bankruptcy law, debtors are permitted to reject certain contracts, and Quicksilver wants to ditch its agreement with Crestwood in part because doing so is a condition of closing for Quicksilver's $245 million oil and gas assets sale to Oklahoma-based BlueStone Natural Resources.
But Crestwood argued Friday that under the Texas law that governs the issue, Quicksilver's obligations would survive any transfer because of the type of property right bestowed by the agreements, and that the debtor is therefore actually not permitted to reject the contracts without at least a more involved adversary action.
Quicksilver struck back, contending that Crestwood is employing a “tortured reading” of bankruptcy rules and is really seeking to hold things up long enough for the BlueStone deal to fall through and the oil and gas producer to have to go with a backup bidder that has no such rejection requirement.
The asset sale was approved under Section 363 of the Bankruptcy Code, which transfers assets free and clear of liens and encumbrances, and Crestwood never objected, and even if it had, it could have been compelled to simply accept money to relinquish the interests it said should hold up the rejection process, argued Quicksilver's attorney Sarah Link Schultz of Akin Gump Strauss Hauer & Feld LLP.
U.S. Bankruptcy Judge Laurie Selber Silverstein noted that argument, wondering how she could square Crestwood's silence during the sale process with its request now.
“I don't know what to do with the failure to object to the 363 sale,” Judge Silverstein said from the bench. “There's a free-and-clear order out there.”
Meanwhile, the issue prompted amicus briefs, a rarity in the Delaware bankruptcy court, from The Gas Processors Association and Texas Pipeline Association, which argued that a decision Quicksilver's way would set the table to undermine the entire midstream industry and upset the balance by which midstream operators have been interacting with producers for decades.
Part of that relationship are deals that keep pipeline capacity fees level for a certain period of time, but dramatic gas price drops are pressuring producers to change those costs to squeak out some lean-time profit.
In court, attorneys for prospective buyer BlueStone said that the current contracts were “above market” and that the company “didn't want anything to do with them,” preferring instead to find a way to get a lower-priced deal.
Judge Silverstein did not rule Friday either on whether to accept the amicus briefs or on the dispute, but said she would render an opinion before the deal closing deadline at the end of the month.
Quicksilver had filed for Chapter 11 protection a year ago, marking one of many in the energy sector riding a wave into bankruptcy court as oil and gas prices continue to fall.
The company listed $2.3 billion in debt as of the end of 2014, and had struggled for a time to find a clear path out of Chapter 11, but the company's creditors have acknowledged it has made progress, shedding burdensome contracts and getting forbearances on loans to its nondebtor Canadian affiliates.
A major step came in the form of a 19-hour bankruptcy auction that saw BlueStone put in the winning bid in January.
Crestwood is represented by David M. Fournier and Michael J. Custer of Pepper Hamilton LLP, Alfredo R. Perez and Christopher M. Lopez of Weil Gotshal & Manges LLP, and Jonathan M. Hyman, James J. Ormiston, Philip B. Jordan and Lydia R. Webb of Gray Reed & McGraw PC.
Quicksilver is represented by Charles R. Gibbs, Sarah Link Schultz, Ashleigh L. Blaylock and Kevin M. Eide of Akin Gump Strauss Hauer & Feld LLP and Paul N. Heath, Amanda R. Steele and Rachel L. Biblo of Richards Layton & Finger PA.
The case is In re: Quicksilver Resources Inc., case number 1:15-bk-10585, in the U.S. Bankruptcy Court for the District of Delaware.
