A U.S. District Court judge last week awarded $347.3 million in damages to Bank of America Corp. in a lawsuit originally filed by American Electric Power (AEP) four years ago in the midst of Enron Corp.'s bankruptcy proceedings.
In the U.S. District Court for the Southern District of New York, judge Thomas Griesa ruled that Bank of America had dealt with Enron on a secured basis and had a right to recover its security interest -- 55 Bcf of natural gas in the Bammel storage field in Harris County, TX, which AEP had acquired in a deal with Enron six years ago. The court also held that AEP converted the gas by refusing to turn it over to Bank of America upon request in May, 2004.
The court ruled that Bank of America may collect from AEP $347.3 million -- $6.315/MMBtu, the Houston Ship Channel market value of the gas on the date of conversion -- minus the cost to remove the gas from the Bammel storage facility. That figure has yet to be determined.
The case was originally filed four years ago in the U.S. District Court for the Southern District of Texas (see NGI, Dec. 1, 2003). Two AEP affiliates, Houston Pipe Line Co. and AEP Energy Services Gas Holding Co., simultaneously filed lawsuits against Bank of America and Enron related to the Enron bankruptcy proceeding, seeking clarification on previous contract agreements regarding the Bammel storage field and related pipeline assets.
AEP, which in 2001 bought the Houston Pipe Line system, including 4,000 miles of intrastate pipeline in Texas, from Enron for $727 million, at the time also signed a 30-year lease for the 7,000-acre underground Bammel storage reservoir and related pipeline facilities (see NGI, Jan. 15, 2001). The prepaid lease also included a right to renew for an additional 20 years.
At the time of the transaction, however, Bank of America claimed it had rights to some of the base gas in the field because of a $225 million gas monetization involving Enron in 1997. AEP said it obtained assurances from Bank of America regarding the gas monetization and obtained an exclusive "right to use" agreement covering the cushion gas from Enron and consented to by Bank of America.
Enron later filed for bankruptcy protection. Bank of America apparently changed its mind on the issue and AEP sought a declaratory judgment from the court that its agreements and leases of Bammel capacity were not subject to rejection under Section 365 of the bankruptcy code.
In April 2004 AEP settled with Enron, agreeing to pay $115 million for all of Enron's interests in the Bammel storage reservoir and related pipeline and storage assets, including 10.5 Bcf of gas in the storage field (see NGI, May 3, 2004). After Enron filed for bankruptcy, the case was transferred to the U.S. District Court for the Southern District of New York.
In August the federal court in Manhattan dismissed AEP's complaint in its entirety and granted summary judgment to Bank of America on three of its counterclaims, holding that Bank of America dealt with Enron on a secured basis throughout the course of the transactions.
©Copyright 2007 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.