NGL Energy Partners LP (NYSE: NGL) (the “Partnership” “We” or
“NGL”) provides this update on certain bankruptcy proceedings
related to a customer of its FERC regulated subsidiary Grand Mesa
Pipeline, LLC (“Grand Mesa”). Extraction Oil & Gas, Inc.
(“Extraction”) is a customer of Grand Mesa under two Transportation
Services Agreements (“TSAs”) originally entered into in 2014 – one
is a TSA originally entered into with Extraction as the anchor
shipper of the pipeline (“Original TSA”) and the other is a much
smaller TSA that was originally entered into between Grand Mesa and
a different producer, but that Extraction was assigned (“Second
TSA”). On June 14, 2020, Extraction filed for relief under Chapter
11 of the United States Bankruptcy Code in the District of
Delaware. The next day, Extraction filed a motion to reject the
TSAs (the “Rejection Motion”).
The following is a brief (but not exhaustive) summary of the
issues within the bankruptcy relevant to Grand Mesa:
Extraction’s Motion to Reject the Original
TSA and Second TSA
Today, we learned that the bankruptcy court issued a bench
ruling granting Extraction’s motion to reject both of the long-term
TSAs entered into between Extraction and Grand Mesa. As a result,
Grand Mesa intends to appeal the bankruptcy court’s ruling and
raise what it respectfully believes are numerous infirmities with
the ruling.
Grand Mesa’s Motion Confirming that the
Automatic Stay Does Not Apply Or, In The Alternative, For Relief
From the Stay (“Lift Stay Motion”)
Shortly after Extraction’s filing of the Rejection Motion on
June 15, 2020, Grand Mesa filed the Lift Stay Motion because the
commitments, including the tariff rates committed to by Extraction
in the TSAs, were properly approved by the Federal Energy
Regulatory Commission (“FERC”). Once approved, the filed rates and
terms in the TSAs carry the “force of law” which can only be
modified or discontinued by the FERC on the basis of whether the
filed rates are just and reasonable or whether filed rates must be
set aside to avoid serious harm to the public interest. Grand
Mesa’s position within the bankruptcy case is that although the
bankruptcy court has authority over the rejection of Extraction’s
executory contracts as private obligations; the FERC has exclusive
jurisdiction under the Interstate Commerce Act over the
modification or discontinuation of the public law obligations that
the TSAs created and have imposed on both Extraction and Grand
Mesa. The FERC agrees with Grand Mesa’s position and on September
17, 2020, the FERC filed a Statement In Support of Motion of Grand
Mesa Pipeline, LLC. However, on October 14, 2020, the bankruptcy
court entered an order denying the Lift Stay Motion. Both Grand
Mesa and the FERC have appealed this ruling.
Extraction’s Adversary Proceeding
Regarding the Second TSA
The Second TSA is based upon an acreage dedication that “runs
with the land” and as such, multiple bankruptcy courts have held
that when an obligation in a contract is tied to and is a burden
upon real property interests under applicable state laws (in this
instance, Colorado) such contracts are not subject to rejection in
the context of bankruptcy as an executory contract. Regardless,
Extraction commenced an adversary proceeding seeking a declaratory
judgment that it does not qualify as a covenant running with the
land; and, as such, Extraction should be allowed to reject the
Second TSA. On October 14, 2020, the bankruptcy court granted
Extraction’s summary judgment motion and issued a ruling that the
acreage dedication in the Second TSA does not reflect a valid
covenant that runs with the land under Colorado law. Grand Mesa
respectfully disagrees with the bankruptcy court’s ruling and
believes Colorado real property law supports Grand Mesa’s position
that the dedication at issue in the Second TSA qualifies as a real
property covenant that touches and concerns the real property at
issue and runs with the land. Grand Mesa disagrees with the
bankruptcy court’s denial of Grand Mesa’s request to have this
specific state law issue heard and decided by a Colorado State
Court sitting in the state of Colorado. Grand Mesa has appealed
this ruling as well.
Extraction’s Disclosure Statement and
Amended Disclosure Statement
On July 31, 2020, Extraction filed a Disclosure Statement
relating to its “Plan of Reorganization”. On September 25, 2020,
Grand Mesa filed an Objection to the Disclosure Statement
requesting the bankruptcy court deny approval of the Disclosure
Statement because it did not contain adequate information and it
describes a “patently unconfirmable plan”. On October 22, 2020,
Extraction amended both its original Plan and original Disclosure
Statement. On October 28, 2020, Grand Mesa filed a Supplemental
Objection requesting approval of the amended Disclosure Statement
be denied, wherein Grand Mesa documented several unresolved and we
believe fatal deficiencies in the amended Disclosure Statement,
including (a) its failure to disclose the significant financial
ramifications to Extraction upon rejection of the Grand Mesa TSAs
and the other midstream agreements Extraction has sought to reject;
(b) its failure to adequately describe the risk to unsecured
creditors of substantial equity dilution and the benefits being
conferred upon the Rights Offering participants and backstop
parties at the expense of the unsecured creditors; (c) the apparent
incompleteness of the exit credit facility; (d) its failure to
provide adequate information regarding the scope of certain third
party releases; (e) its failure to disclose how beholden Extraction
is to the Senior Noteholders and the significant control and
influence those Noteholders have been provided under the
Restructuring Support Agreement; and (f) its failure to address the
need for the FERC’s approval in connection with any rate changes
under the Plan where the FERC has exclusive jurisdiction over the
Grand Mesa Pipeline tariff. Grand Mesa will continue to request
that it and the other stakeholders within the bankruptcy are given
full and meaningful information relating to Extraction’s proposed
Plan of Reorganization and will vigorously defend its rights as
necessary during this bankruptcy proceeding.
The Rights Offering
Extraction’s Rights Offering, as presented, permits only the
“Rights Offering Participants” including the Senior Noteholders,
and existing holders of preferred and common interests with the
right to purchase, at a steep discount, the “New Common Shares” of
the company that emerges from the bankruptcy. However, no similar
rights are provided to stakeholders like Grand Mesa who hold
similar claims against Extraction with similar long-term
expectations. Grand Mesa objected to the approval of the Rights
Offering on the grounds that it is not fair and equitable because,
among other reasons, to the extent the Rights Offering is
effectuated, the Senior Noteholders and the holders of lower
priority existing preferred and common interests will obtain more
value than other similarly-situated creditors, such as Grand Mesa.
Grand Mesa will continue to urge the bankruptcy court not to
approve any Rights Offering or Backstop Agreement that is improper
or inequitable.
Mr. Krimbill, the Partnership’s Chief Executive Officer,
commented “while we disagree with the rulings thus far and will
pursue overturning them on appeal, Grand Mesa also remains amenable
to resolving this on a commercial basis.” Mr. Krimbill continued,
“NGL owes it to its stakeholders to continue to defend the value of
the TSAs and will be considering all available legal remedies,
including but not limited to asserting Grand Mesa’s approximately
$650 million unsecured claim, which, under Extraction’s proposed
Plan of Reorganization, will ultimately convert to equity in the
emerged Extraction, and pursuing the appeals of the various rulings
in Extraction’s bankruptcy proceedings until there is final
resolution. Of course, we will also take such other interim action
as we deem necessary and appropriate.”
Forward Looking Statements
Certain matters contained in this press release include
“forward-looking statements.” All statements, other than statements
of historical fact, included in this press release may constitute
forward-looking statements. Although we believe that the
expectations reflected in these forward-looking statements are
reasonable, we cannot assure you that these expectations will prove
to be correct. These forward-looking statements are subject to
certain known and unknown risks and uncertainties, as well as
assumptions that could cause actual results to differ materially
from those reflected in these forward-looking statements. Factors
that might cause actual results to differ include, but are not
limited to, the risk factors discussed from time to time in each of
our documents and reports filed with the SEC.
Readers are cautioned not to place undue reliance on any
forward-looking statements contained in this press release, which
reflect management’s opinions only as of the date hereof. Except as
required by law, we undertake no obligation to revise or publicly
release the results of any revision to any forward-looking
statements.
About NGL Energy Partners LP
NGL Energy Partners LP, a Delaware limited partnership, is a
diversified midstream energy company that transports, stores,
markets and provides other logistics services for crude oil,
natural gas liquids and other products and transports, treats and
disposes of produced water generated as part of the oil and natural
gas production process. For further information, visit the
Partnership’s website at www.nglenergypartners.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20201102006023/en/
NGL Energy Partners LP
Trey Karlovich, 918-481-1119 Executive Vice President &
Chief Financial Officer Trey.Karlovich@nglep.com
or
Linda Bridges, 918-481-1119 Senior Vice President - Finance and
Treasurer Linda.Bridges@nglep.com
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