FERC v. Ultra Res., Inc. (In re Ultra Petro. Corp.)

FERC v. Ultra Res., Inc. (In re Ultra Petro. Corp.)

Opinion

King, Circuit Judge:

We are asked to determine whether Ultra Resources, Inc.'s rejection of a filed-rate contract in bankruptcy relieves it of its obligation to continue performance absent the approval of FERC (the Federal Energy Regulatory Commission). We are also asked to consider whether, under 11 U.S.C. § 1129(a)(6), the bankruptcy court was required [*2]  to obtain the approval of FERC before confirming Ultra Resources's reorganization plan. We hold that under the particular circumstances presented here, Ultra Resources is not subject to a separate public-law obligation to continue performance of its rejected contract, and that 11 U.S.C. § 1129(a)(6) did not require the bankruptcy court to seek FERC's approval before it confirmed Ultra Resource's reorganization plan. We therefore AFFIRM.

Ultra Resources, Inc. ("Ultra") is an energy company whose primary business is the production of natural gas. It contracted with Rockies Express Pipeline LLC ("REX") to reserve space on REX's pipeline for Ultra's natural gas. Under the contract, Ultra would pay a monthly reservation charge to reserve a certain amount of space in the pipeline, regardless of how much gas it actually shipped (or even if it ultimately shipped no gas). The contract was made in the shadow of REX's application to FERC to construct a new pipeline, and Ultra was one of the "anchor shippers" whose commitments partially induced REX to construct its pipeline.

The original agreement between Ultra and REX was made in 2008. In 2016, after Ultra failed a creditworthiness check, REX sued for damages in Texas [*3]  state court and asserted that the contract had been terminated based on Ultra's failure to meet creditworthiness requirements. Ultra then filed for Chapter 11 bankruptcy, and Ultra and REX settled REX's contract claim. Ultra and REX also agreed to a new contract which is the subject of the instant case. The new agreement was slated to run from 2019 until 2026, and reserved space on the REX pipeline for Ultra's natural gas at a rate of $169 million over the life of the agreement—a price Ultra was required to pay whether or not it used the pipeline. Shortly before this new agreement went into effect, Ultra suspended its drilling program; it later filed again for Chapter 11 bankruptcy. Anticipating the bankruptcy filing, REX had previously petitioned FERC for a declaration that Ultra could not reject the contract between Ultra and REX without FERC's approval; Ultra filed for bankruptcy before FERC issued a decision.

As part of the bankruptcy proceedings, Ultra sought permission from the bankruptcy court to reject its natural gas shipping contract with REX. REX objected and requested that the bankruptcy court refrain from issuing a decision until proceedings could occur before FERC, which [*4]  would decide whether rejecting the contract was in the public interest, arguing that FERC had exclusive authority to decide whether Ultra should be relieved of its obligations under the filed-rate contract with REX. The bankruptcy court denied that request, but asked FERC to "participate as a party-in-interest in" the bankruptcy proceedings and "comment on whether the rejection of [the contract] would harm the public interest."

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