Ferrellgas Exits Terminal Contract as Oil Falls

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 (ENB). 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.

Jamex Transfer is a subsidiary of Jamex Marketing, which Ferrellgas has identified as a related party in SEC filings. Related party transactions that meet certain thresholds, such as exceeding $120,000, are required to be disclosed. What Ferrellgas got for the contract is unknown.

Enbridge declined to comment.

The developments leave Ferrellgas without a reliable method to deliver Bakken crude to the 185,000 bpd refinery run by Monroe Energy, a subsidiary of Delta Air Lines (DAL). It also threatens Monroe Energy's ability to easily source Bakken crude if the market shifts in favor of domestic grades.

LET THE GOOD TIMES ROLL
In 2013, as U.S. crude-by-rail volumes were surging, Bridger Transfer Services, a subsidiary of Bridger Logistics, entered into a five-year contract with Eddystone, according to court documents.

The agreement gave Bridger unequaled access to transport crude to the rail terminal. Bridger agreed to pay $2.50 for each barrel of crude oil unloaded at the facility, with a minimum volume commitment of 64,750 bpd, according to the agreement.

Bridger then had a separate agreement with Monroe Energy to purchase the crude oil, according to regulatory filings. Monroe agreed to purchase half the crude at the Brent benchmark price minus $3 and the other half at cost, plus a fee, according to two people familiar with the agreement.

In June 2015, Ferrellgas bought Bridger Logistics for $822.5 million. They noted the Monroe agreement was Bridger's "largest revenue-generating contract" and boasted the deal gave it "exclusive use of unloading capacity" at the Eddystone facility.

In court and arbitration filings, Jamex Transfer said they stopped making payments because the rail station was "sub-standard" and the owners failed to make promised improvements.

Jamex Transfer also alleged Eddystone did not disclose that crude trains would be slowed by regional rail service. Its own financing was also a problem, Jamex said in court papers.

Through its attorneys, Jamex declined to comment.

Eddystone said Jamex is fabricating problems, when the real problem is that Bakken crude has become economically unattractive on the East Coast.

"The developments were connected with Monroe's reduced demand for North Dakota crude oil," Eddystone said in court documents.

By Jarrett Renshaw