Quicksilver Purchaser Strikes Pipeline Deal
The purchaser of bankrupt oil and gas company Quicksilver Resources Inc. (KWKAQ) has reached a new pipeline agreement, allowing the $245 million purchase to close.
BlueStone Natural Resources II LLC, which made the purchase offer for Quicksilver, and Crestwood Equity Partners LP reached a 10-year service agreement for the pipeline that services Quicksilver's Barnett Shale assets in Texas.
With this agreement, Quicksilver will reject its prior arrangement with Crestwood. BlueStone had said that agreement was too expensive and it wasn't going to complete its deal with Quicksilver unless the agreement was modified or nullified.
"The new agreements provide for comparable gathering, processing, compression and treating services to BlueStone, are in-line with our previously announced 2016 guidance, are designed to maximize production in the current low commodity price environment and provide significant upside to both Crestwood and BlueStone as commodity prices recover," Crestwood Chief Executive Robert Phillips said in a statement.
Quicksilver had previously asked a bankruptcy judge for permission to reject the agreement outright, making its arguments to Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court in Wilmington, Del., last month.
Pipeline operators and midstream operators have been watching this and other similar fights closely to find out whether bankruptcy judges will rule to let these companies exit their contracts--negotiated before oil prices took a nosedive--potentially spurring a mass exodus.
Last month, a New York bankruptcy judge was the first to rule on the matter, issuing a preliminary decision that permitted Sabine Oil & Gas to reject its pipeline agreements.
In considering the requests, bankruptcy judges must grapple with whether bankruptcy law will trump state law, which generally states that pipeline agreements "run with the land" and therefore can't be rejected in bankruptcy.
Judge Shelley Chapman of the U.S. Bankruptcy Court in Manhattan gave a non-binding ruling in March that the court would "defer to the business judgement of the debtors to reject the agreements," in permitting Sabine to let go of its pipeline contract. She did note, however, that there isn't a clear ruling from the Texas Supreme Court on the matter and that the agreements are governed by Texas law.
Recently, Magnum Hunter Resources Corp., another bankrupt oil and gas company, also reached a settlement with its pipeline operator rather than leaving the decision with the courts.
--Tom Corrigan and Jacqueline Palank contributed to this article.
