(Reuters) – Pipeline operator Williams Companies Inc said on Monday it would take possession of some of Chesapeake Energy Corp’s assets in exchange for accepting lower gas-gathering fees from the bankrupt shale producer.
Oil producers have asked pipeline operators to accept reduced collection and transportation fees, among other incentives, as they try to cut costs to survive low oil prices due to a drop in the coronavirus-induced demand.
In June of this year, Chesapeake, the sixth-largest natural gas producer in the United States, filed for protection from its creditors in the biggest oil and gas bankruptcy in five years.
His Chapter 11 filing, citing $10 billion in debt, was expected to affect drilling companies and gas transporters from Texas to Wyoming to Pennsylvania, which faced rate cuts or discharges before the bankruptcy court.
While many intermediary companies have taken legal action against producers who refused to honor agreements made before the pandemic, some have restructured those contracts outside of court.
As part of Monday’s agreement, Chesapeake will pay all pre-bankruptcy and past claims related to interim expenses, in accordance with existing contracts between the companies, Williams said.
Chesapeake will also make long-term gas supply commitments of up to 150,000 decatherms per day for Williams’ Transco Regional Energy Access pipeline currently under development.
The producer will not reject Williams’ gathering agreements in the Eagle Ford, Marcellus or Mid Continent areas, the pipeline operator said in a statement.
Earlier this year, Williams, one of the world’s largest gas pipeline operators, reduced its exposure to Chesapeake to 6% of its revenue from 18% five years ago and said it plans to continue supplying services despite any restructuring.
Collection fees are charged by pipeline operators to collect natural gas from a producer’s wells and then transport it to its destination.
Reporting by Shariq Khan in Bengaluru; Editing by Shinjini Ganguli