Kinder Morgan pipeline JV files for Chapter 11 bankruptcy with at least $500M in debt


Houston-based Ruby Pipeline filed for Chapter 11 bankruptcy protection on March 31 in Delaware to restructure debt.

Ruby is a natural gas pipeline joint venture between Kinder Morgan Inc. (NYSE: KMI) and Canada-based Pembina Pipeline Corp. (NYSE: PBA). The pipeline runs 683 miles from Wyoming to Oregon.

In its initial bankruptcy petition, Ruby estimated both its assets and estimated liabilities are between $500 million and $1 billion. The largest unsecured claim listed in the petition is $475 million related to 6% senior notes due in April 2022.

As of March 31, Ruby had approximately $718.875 million outstanding in aggregate principal amount, not including interest, collectively under its 2022 unsecured notes, 2026 subordinated notes and the Klamath agreement in favor of the Klamath tribes, according to a declaration filed by Will W. Brown, vice president of commercial for the Kinder Morgan Natural Gas Pipelines West Region. In 2010, the company had “agreed to support a Living Cultural Center for the Klamath Tribes as a result of the potential damage or destruction to certain cultural resources of great significance to the Klamath Tribes expected to be caused by the construction of the Ruby Pipeline,” per the declaration filed with the court April 1.

The Chapter 11 petition was filed in response to an upcoming debt repayment obligation, Ruby said in a March 31 statement.

“In recent months, the joint venture owners have been working diligently with Ruby’s bondholders in an effort to work out a mutually satisfactory resolution,” Ruby said. “While those efforts will continue, Ruby’s current financial condition necessitates this filing.”

In a separate March 31 statement, Ruby said its estimated general and administrative expenses, ad valorem taxes and operating expenses for fiscal year 2023 are expected to be $8.4 million, $12.8 million and $4.7 million, respectively.

“KMI will continue to operate the pipeline as Chapter 11 permits daily operations to continue,” the March 31 statement added. “Ruby’s customers should notice no difference in its operations.”

In its latest annual financial report filed with the U.S. Securities and Exchange Commission in February, Kinder Morgan recorded a $116 million loss from Ruby in 2021, which included a non-cash impairment charge of $117 million.

“The impairment at Ruby was the result of upcoming contract expirations and additional uncertainty identified in late February 2021 regarding the proposed development of a third-party LNG exporting facility that could significantly increase the demand for its services,” the report states.

Kinder Morgan reported earnings from Ruby of $15 million in 2020 and a loss of $609 million in 2019, the latter of which included a non-cash impairment charge of $650 million.

When the Ruby Pipeline was built, the company had inked firm contracts with 12 shippers, most of which were for 10 years and expired in July 2021, Brown said in the April 1 declaration. The company has had a harder time inking similar long-term contracts in the current market environment, per the declaration.

“Over the past decade, natural gas supplies have increased in North America, which has generally resulted in lower natural gas prices,” the declaration states. “This, coupled with certain other challenging macroeconomic fundamentals, has resulted in decreased profitability in the Rocky Mountain basins and extraction from such basins trails other basins in North America. Consequently, there is less demand for natural gas from the Rocky Mountain basins and less natural gas has been transported through western natural gas pipelines, including the Ruby Pipeline, during the past decade. The result of the foregoing factors has created a challenging re-contracting environment for the Debtor as shippers generally need to transport less natural gas from the Rocky Mountain basins.”

Bankruptcy filings in the U.S. oil and gas industry plummeted in 2021, sustaining a trend that took hold early in the year as commodity prices recovered, according to law firm Haynes and Boone LLP’s latest report tracking those filings. That low filing rate should carry on through 2022, Buddy Clark, co-chair of the firm’s energy practice group, told the Houston Business Journal.

Generally, there are fewer midstream bankruptcies than upstream bankruptcies due to the nature of the customer contracts they make. The four midstream companies that declared bankruptcy in 2021 brought just $8.26 million in debt to the courts, Haynes and Boone reported. That’s down from $690 million in aggregate debt that midstream companies filed in 2020 and the lowest of any year tracked by Haynes and Boone. Since 2015, only four years have seen debt from midstream bankruptcies total more than $1 billion, peaking at $12.8 billion in 2016.

Haynes and Boone has tracked upstream and midstream bankruptcies since 2015, but the firm has decided to end the report for the foreseeable future.

“The wave of bankruptcies we saw that started in 2015 is over,” Clark said.

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