Ferrellgas sheds rail terminal contract as oil prices fall

Thu Sep 1, 2016 1:00am EDT
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By Jarrett Renshaw

NEW YORK, Sept 1 (Reuters) - Ferrellgas Partners LP has quietly shed a five-year contract at a Philadelphia-area crude rail terminal just a year after it obtained it through a deal that gave the propane company its first foothold in the oil logistics business.

The deal - the purchase of Bridger Logistics - allowed Ferrellgas to move at least 65,000 barrels of Bakken crude daily through a rail terminal in Eddystone, Pennsylvania owned by Enbridge. But deliveries stopped in February - the same time Ferrellgas sold the terminal contract to a company named Jamex Transfer Services based in Baton Rouge, Louisiana.

Ferrellgas, a retail propane supplier and midstream oil logistics company, has not disclosed the sale to investors. The details became public as an arbitration fight instigated by Enbridge spilled into New York federal court. The company declined to comment.

The quiet sale raises questions about how transparent Ferrellgas has been with investors about developments around the Eddystone terminal contract, which was held by Bridger until Ferrellgas bought the logistics company last year.

It also demonstrates how companies have been forced to reckon with the shifting economics in delivering oil by rail to the East Coast, viewed as a lucrative opportunity just a couple of years ago. Deliveries stopped in February after a fall in oil prices made it uneconomical to deliver the crude to the East Coast.

The contract had a minimum volume commitment, which means Ferrellgas paid Eddystone Rail Company, which is majority-owned by Canada's Enbridge, roughly $5 million a month whether it brought crude to the facility or not, according to court records. Jamex Transfer stopped making monthly payments to Eddystone in February, as trains stopped coming into the terminal.

Eddystone and its local investors in April asked a panel of arbitrators in New York to force Jamex to pay them millions of dollars in missed payments, along with payments due for the remainder of the contract, which expires in 2018.

Arbitrations are typically private affairs, but a portion became public in early August when Enbridge asked a federal judge in the Southern District of New York to enforce a subpoena against Ferrellgas.   Continued...