July 16, 2020 / 8:47 PM / a month ago

UPDATE 1-Marketing firm sues Occidental for payment of crude

(Adds Occidental declined to comment)

By Liz Hampton and Devika Krishna Kumar

July 16 (Reuters) - Midstream marketing firm MidCon Gathering LLC is suing Occidental Petroleum, alleging the shale giant did not pay for crude deliveries, the latest dispute to arise from production shut-ins prompted by a crash in oil prices this year.

A sharp decline in oil prices due to the coronavirus pandemic has sparked a wave of contract disputes as producers shut-in wells to manage the drop in demand. Shale major Continental Resources drew anger after it declared force majeure on some contracts in April, and marketer Eighty-Eight Oil LLC made a similar move after it fell short on barrels it committed to sell.

Houston-based MidCon said Occidental owes it $1.1 million for past crude deliveries, according to a lawsuit filed in a Texas District Court.

A dispute arose after MidCon declared force majeure because it was unable to source all of the 7,000 barrels per day it had committed to sell to Occidental. The company blamed well shut-ins, as well as a court-ordered shut-in imposed on one supplier.

MidCon was eventually able to source the barrels it committed to Occidental, and agreed to make up May deliveries that fell short in June, as long as Occidental agreed to provide a letter of credit or prepayment ahead of the delivery.

Occidental refused to provide any such assurance, and so MidCon halted all deliveries, prompting Occidental to withhold payment.

Some producers have been selling at discounted rates after failing to deliver contractual volumes in previous months when they shut wells, in order to avoid legal disputes with buyers, market sources said.

Refiners and purchasers have sought to rework some lease purchase agreements to avoid being cut off from supplies unexpectedly if prices plunge again.

Occidental declined to comment and MidCon did not immediately respond to a request for comment. (Reporting by Liz Hamptond; editing by Jonathan Oatis and Marguerita Choy)

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