Brief clip from the PDF....
Midstream Thoughts – Contract
Rejection, CHK Swipes Left
What's Incremental To Our View
We previously have generally been of the view WMB (Buy) and CEQP (Hold)
have been the “names to watch” if/when Chesapeake (Dingmann, Sell) were ever
to file. With that now official, so far amongst contract rejections it appears neither
WMB or CEQP have been specifically identified as having rejected contracts. It’s
difficult to say whether this puts these two midstream operators firmly in the clear
(with respect to rejection) or if multiple iterations of contract filings could occur.
That said, we think both names have thus far dodged what many have feared.
Rejections Named. To the best we can tell, Chesapeake is mainly seeking to
reject certain natural gas transportation and/or processing contracts with Energy
Transfer (ET, NR) largely across the Eagle Ford and Haynesville regions. Kinder
Morgan (Buy) is also a mentioned counterparty where relief is being sought on
certain natural gas assets in the Eagle Ford. Outside the Gulf Coast region, the
Red Oak and Liberty pipeline projects (now deferred) are also named where
Plains All American (Buy) has significant interest.
Pointed Questions. WMB seemingly for years has received constant line of
questioning as it relates to its exposure to CHK. This morning, the company
released a statement emphasizing its exposure has stepped down from 18% of
consolidated revenue in 2015 to 6% in 2019 (<9% EBITDA), though made no
reference to its contracts with the company. To the extent filings at this point
in time represent the entire universe of rejections, perhaps what we view has
been an overhang for the stock turns out to be less an issue than the market
was making it out to be. CEQP also has fielded CHK questions, particularly after
doubling down on the PRB last year. While an anchor customer in bankruptcy is
never good news, so far early in this process the contract rejection risk has yet
to materialize to the best of our knowledge.