Upstream Debt May Put Pipelines Under Pressure
By Irina Slav
OilPrice.com
Sat, 27 February 2016
Just like everything else, the bankruptcy river flows downstream, and as upstream players look to pass their debt burdens onto midstream operations through a rash of Chapter 11 filings, investors are wondering what is going to happen to all the pipelines as the industry continues to batten down the hatches amid the continued oil price downturn.
Two such companies, Sabine Oil and Quicksilver, recently filed for Chapter 11 bankruptcy protection, arguing at bankruptcy court that they need to be relieved of their contracts with pipeline operators for shipping their oil and gas from the wellhead—a move that would leave the pipelines with no income, making it nearly impossible for them to stay afloat.
Sabine and Quicksilver insist they should not be obliged to continue using the services of the pipeline operators under Chapter 11 restructuring circumstances, arguing that they would be able to save money ($35 million in the case of Sabine Oil, according to a Reuters report) this way. This money, so the argument goes, could be put to better use finding an alternative way of transporting the company’s crude oil and gas.
For the time being, Chapter 11 may save Sabine and Quicksilver from defaulting on massive debt loads, but what of the pipelines?
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