A Cheniere Energy Inc. subsidiary said it legally drew down $75.6 million on a letter of credit from Gulfport Energy Corp. just weeks before the shale driller filed for Chapter 11 bankruptcy.

Responding to a complaint filed by the producer in the U.S. Bankruptcy Court for the Southern District of Texas, Midship Pipeline said allegations that it illegally withdrew those funds to hedge against financial fallout as Gulfport headed toward insolvency were "erroneous."

Whereas Gulfport claimed its agreement with Midship permitted the pipeline to draw down on the letter of credit only if the driller owed "money, obligations and/or liabilities," limiting withdrawals to the specific amounts owed, Midship told the court Gulfport failed to hold up its end of the deal.

"Gulfport and Midship expressly agreed ... that if Gulfport failed to deliver a $34 million surety bond by September 30, 2020, as it failed to do here, then Midship would have the absolute right to draw on the letter of credit 'immediately and in full,'" the pipeline said in a Nov. 20 filing. "Tellingly, Gulfport's motion fails even to acknowledge this dispositive provision, much less address it." (U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, docket 20-35562)

Had Gulfport delivered the surety bond on time as it did the $32.9 million prepayment, Midship would have reduced the letter of credit to $12.2 million per the agreement's terms.

"Gulfport cannot demonstrate a substantial likelihood of success on the merits of any of its claims," Midship added.

Midship, which operates a 1.4-Bcf/d pipeline in Oklahoma designed to move natural gas to the U.S. Gulf Coast and Southeast markets from Oklahoma's Anadarko Basin, had previously agreed to restructure Gulfport's contract to account for the driller's financial difficulties. Gulfport noted in the complaint that it "never missed a payment" to the pipeline company. The commercial service date for the gas pipeline was delayed by over a year.