The bankruptcy case of Quicksilver Resources Inc. took several turns on Wednesday. The company closed on the court-approved sale of some of its assets in the Barnett Shale to BlueStone Natural Resources II for $245 million, and Crestwood Equity Partners LP said it struck a 10-year gathering and processing agreement with BlueStone.
Quicksilver subsequently withdrew its motion in U.S. Bankruptcy Court for the Delaware District [15-10585] to reject its gathering and processing contracts with Crestwood Midstream Partners LP (see Shale Daily, March 18, 2015).
Last January, BlueStone submitted the winning bid at a court-approved auction of Quicksilver oil and natural gas assets in the Barnett Shale, in the Fort Worth Basin in North Texas, and in the Delaware Basin in West Texas (see Shale Daily, Jan. 25). The assets in the latter group are primarily in Pecos County, but some are also spread across Crockett and Upton counties.
Quicksilver had argued that cancellation of its contracts with Crestwood was necessary for the BlueStone deal to go through. That argument is worrisome to midstream companies, which fear other producers struggling in the low commodity price environment -- such as Sabine Oil & Gas Corp. and Magnum Hunter Resources Corp. -- could attempt the same strategy (see Daily GPI, Feb. 23). Executives and analysts say that could, in turn, spell trouble for the midstream sector.
Under its agreement with BlueStone, Crestwood will provide natural gas gathering and processing services for a decade using a fixed-fee and percent of proceeds fee structure. BlueStone, in turn, has provided production assurances to Crestwood and agreed to return all currently shut-in wells to production by July 1. BlueStone also agreed not to shut in or choke back production for economic reasons through the end of 2018.
The agreement covers the Alliance, Cowtown and Lake Arlington systems in the Barnett Shale.
"I am pleased to announce our new long-term relationship with BlueStone, which will bring an experienced and financially sound oil and gas operator to our Barnett Shale systems and final resolution to Crestwood's participation in the Quicksilver bankruptcy process," said Robert G. Phillips, CEO of Crestwood's general partner.
The next hearing in Quicksilver's bankruptcy case was rescheduled from June 15 to June 21.
Last month, a bankruptcy court judge in Manhattan [15-11835] ruled that Sabine could terminate some of its gathering contracts as part of its recovery in Chapter 11, but industry experts said they don't believe the ruling sets a precedent in the midstream sector (see Daily GPI, March 9). Nevertheless, midstream companies are being advised to fortify their contracts with producers.
In another case before the Delaware bankruptcy court [15-12533], Magnum wants to reject similar contracts that one of its subsidiaries signed with Texas Gas Transmission LLC (see Shale Daily, Dec. 17, 2015).