Tallgrass Energy Partners LP (TEP) and Ultra Resources Inc. said Tuesday they have settled a $303 million breach of contract claim TEP filed over missed payments for service on the Rockies Express Pipeline LLC (REX).
TEP had filed the claim as part of Ultra’s Chapter 11 restructuring proceedings.
Under the terms of the settlement, Ultra will pay REX $150 million in cash within six months of emerging from bankruptcy or no later than Oct. 30, according to TEP.
Ultra has also agreed to commit to a seven-year firm transportation agreement for 200,000 Dth/d of west-to-east service on REX. That agreement will begin Dec. 1, 2019 and total roughly $26.8 million a year.
"TEP worked closely with Ultra’s management to resolve REX’s claim and assist in Ultra’s restructuring efforts to emerge from bankruptcy. This settlement helps provide clarity to all parties involved, including Tallgrass, and we look forward to putting this matter behind us and having Ultra as a long-term customer on REX in support of their ongoing E&P [exploration and production] efforts," TEP CEO David Dehaemers said.
"The discussions were collaborative, mutually beneficial, and Ultra looks forward to a continuing shipper relationship with REX," Ultra CEO Mike Watford said. "We view this settlement, and in particular the new transportation contract, as a new beginning of a positive future business relationship between Ultra and REX."
TEP and its private affiliate Tallgrass Development together own a 75% interest in REX, a 1,713-mile pipeline that stretches from the Rockies to eastern Ohio. Phillips 66 owns the remaining 25% stake in REX. TEP recently added REX-related assets to its master limited partnership as part of a $140 million drop-down transaction announced earlier this month.
Ultra filed for Chapter 11 protection last spring after the company found itself holding more than $3.76 billion in debt at the start of the year. The Houston-based operator announced in November that it had reached agreements with most of its shareholders and creditors on a restructuring plan.
About a month before Ultra filed for bankruptcy, REX canceled the company's firm transportation contract due to missed payment and a failure to provide adequate credit support, the pipeline told FERC.