Producers Discuss Problems Faced with Interstate Pipelines

Article excerpt

Natural gas producers are facing wholesale abrogation of contracts with interstate pipelines, the Oklahoma Senate Select Committee on Natural Gas Trade Practices was told at its initial hearing Friday.

Many of the producers discussed the symptoms with the committee, including price-fixing and refusal to negotiate by the pipelines. Others tried diagnosis, finding changes in federal regulations as the cause for the distress the industry has felt since 1984.

Interstate pipelines are setting prices, regardless of the agreed-upon price of natural gas in the contracts with producers, the committee was told by Mike Coldren, representing the 1,200-member Oklahoma Independent Petroleum Association.

The pipelines are refusing to honor the take-or-pay clauses in those contracts and refusing to connect newly-drilled wells that are to be connected according to the contracts, he said.

"The last thing a producer wants to do is file a lawsuit against his purchaser. It's a last resort or he's a fool," said John Washburn, vice president of Hold Oil Co. in Tulsa.

A lawsuit requires million of dollars, many attorneys and many years. In addition, the pipelines draw out the judicial process, Washburn said, that reduces the producer's cash flow and can lead the producers to settling for less than the contracted price.

"The sanctity of contracts means nothing," Washburn said. Even at the outset of a contract, he said, some pipelines may not mean to follow through. Producers do not have the cash reserves to go up against a multi-million dollar pipeline company to make the pipeline stick to the contract, Washburn said. …