Macquarie played hardball in big Texas freeze trade, court documents show

Macquarie is embroiled in a nasty US legal dispute after trying to capitalise on a massive windfall from the big freeze in Texas. 

HOUSTON, TEXAS - FEBRUARY 21: The US and Texas flags fly in front of high voltage transmission towers. Last month millions of Texans lost power when winter storm Uri hit the state and knocked out coal, natural gas and nuclear plants that were unprepared for the freezing temperatures brought on by the storm. Picture: Getty Images

Macquarie Group is embroiled in a nasty legal dispute in the US after trying to further capitalise on a massive windfall gain made by its US gas trading unit from the big freeze in Texas.

XTO Energy is seeking a court declaration that the February winter storm was a “force majeure” event excusing it from contractual obligations to supply natural gas to Macquarie.

Based in Spring, Texas, XTO also wants a declaration that the investment bank is not entitled to $US11.7m ($15.2m) in damages because of the delivery and supply issues caused by the storm, which left the state without power for days as gas-and-power generators froze and tripped offline, leading to a meltdown of the grid.

XTO’s lawyers highlighted the inconsistency of Macquarie’s legal position, noting the diversified, Sydney-based group had itself relied on force majeure protection for the same winter freeze event in relation to gas it had contracted to sell to XTO.

The District Court writ, lodged in Travis County, also honed in on Macquarie’s super-profits made from gas trading in the big freeze.

It said the polar vortex had “single-handedly” changed Macquarie’s outlook, from a decrease in earnings to an achievement of a record profit in 2021.

“In its own February 22, 2021, press release, (Macquarie) stated that it expects its fiscal 2021 profits to jump by as much as 10 per cent after the February 2021 winter storm, and this was after (it) warned just two weeks earlier that earnings would be ‘slightly down’ for the year,” the claim said.

“In other words, the profits from the defendant’s trading operations during the February 2021 winter storm event single-handedly changed its financial outlook for the year.”

According to the Wall Street Journal, Macquarie’s energy business unit lifted its profit by $US215m due to the event.

With the Texas grid isolated from the rest of the country, Macquarie was able to draw from its huge US gas and oil storage position, with clients clamouring for emergency volumes of both the fossil fuel and supplies of electricity.

Gas briefly soared 300-fold to $US1250 per million British thermal units, while electricity in Texas hit a $US9000 per megawatt hour price cap.

XTO’s lawyers said in the claim that, from February 12, the company experienced an “extraordinary and unprecedented” winter storm that affected the supply, demand, transportation, processing, and delivery of gas across the south, including Texas, New Mexico, Oklahoma, Louisiana, Arkansas, Mississippi, and Alabama.

The weather event caused freezing, failures, interruption of operations and repairs, and the shutdown of wells, fields, gathering lines and pipelines.

Texas suffered widespread power failures and rolling blackouts which significantly affected natural gas production and transportation facilities. Ongoing interruption of transport and deliveries by third parties were continuing.

“These extreme and unprecedented operational issues caused by the February 2021 winter storm impacted XTO’s ability to deliver and supply gas to the defendant under the contract and thus qualify as a force majeure event under section 11 of the contract,” the writ said.

“In addition to the extreme and unprecedented effect of the winter storm on supply, transportation, processing, and delivery operations, there are emergency governmental orders from the Railroad Commission of Texas and the Louisiana Department of Natural Resources’ Office of Conservation that set priorities for deliveries of gas in response to the winter storm.

“These regulatory orders impacted the availability of gas and severely impacted XTO’s ability to supply gas to the defendant under the contract and thus also qualify as a force majeure event.”