Background

Favored shipper provisions are increasingly common in the natural gas industry to ensure shippers receive the most competitive rate on the pipeline. In Antero Resources Corp. v. Stonewall Gas Gathering LLC, Cause No. 24-BC11A-0027 (Tex. Bus. Ct., Third Div., April 2, 2026), the Texas Business Court resolved a dispute over the scope and application of a favored shipper clause in the parties’ Gas Gathering Agreement (Agreement). Antero v. Stonewall, slip op. at *2-3. The court found the favored shipper provision ambiguous, ultimately holding that Stonewall had breached the Agreement by failing to offer Antero reduced service fees upon entering three affiliate contracts with lower rates, but declined to award past money damages. Id. at *9.

Stonewall and Antero Resources entered into the Agreement covering the transportation of gas services on the Stonewall gas gathering system for a 15-year period. Id. at *1. The Agreement included a “favored shipper” provision prohibiting Stonewall from entering into any agreement with another shipper for gas gathering services at a fee lower than Antero’s service fee without first offering equivalent lower fees to Antero. Id. at *3. The favored shipper provision further provided that, upon entering into a qualifying third-party contract, Stonewall would “automatically reduce the Service Fee charged to Shipper to the same service fee charged pursuant to the Third Party Shipper Contract” on specified volumes. Id. at *3.

In 2024 and 2025, Stonewall entered into three affiliate shipper contracts with DTM Appalachia, each of which qualified as a third-party shipper contract under the Agreement. Id. at *4. The terms of each supply contract differed, but they all covered future gas deliveries on the pipeline. Id. at *4-5. The first affiliate contract, entered on July 9, 2024, provided for deliveries to begin on February 1, 2026, and listed a per-MMBtu fee lower than Antero’s service fee. Id. at *4. The second affiliate contract, executed on September 26, 2024, provided for a seven-year primary term with services to begin on an unspecified in-service date, also with a fee lower than Antero’s rate. Id. at *4-5. The third affiliate contract, executed on February 21, 2025, involved the construction of approximately five miles of new pipeline, with a 20-year primary term and no stated service fee because the ultimate price depended on construction costs. Id. at *5. As of the date of trial, no gas had flowed and no delivery charges had been billed or paid under any of the three affiliate contracts. Id. at *5.

Each of the affiliate contracts also contained a fee escalator provision, which stated that if “a court of competent jurisdiction issues a final, non-appealable order” determining that the affiliate contract’s service fee triggers section 4.5 of the Agreement, the service fee in the affiliate contract would automatically be adjusted to equal the service fee in the Agreement. Id. at *6. Antero filed suit, alleging breach of contract based on the favored shipper provision, seeking declaratory relief, specific performance, and damages for breach of the audit provision in section 9.4 of the Agreement. Id. at *6-7, 14. Antero sought past money damages in excess of $26 million and future money damages of more than $88 million. Id. at *6-7. On December 12, 2025, the court partially granted Antero’s motion for summary judgment as to certain declaratory relief claims (id. at *2); the remaining issues proceeded to a four-day bench trial during the week of January 12, 2026. Id. at *1.

Antero argued that the favored shipper provision was unambiguously triggered when Stonewall entered the affiliate contracts containing lower service fees and that the favored shipper provision required an immediate service fee rate reduction upon the execution of a third-party contract, regardless of when the gas flowed or charges were incurred. Id. at *6. Stonewall countered that because no gas had flowed under any of the three affiliate contracts, nothing had been “charged” under those contracts. Id. at *8. Stonewall argued that “the plain meaning of ‘charge’ in [the favored shipper provision] is ‘to demand a fee for services rendered’ or ‘to bill’ and that the use of the past tense ‘charged’ indicates a fee has already been incurred.” Id. at *8. Stonewall further contended that the fee escalator clause in each affiliate contract would automatically equalize the rates, meaning that no lower service fee was ever possible. Id. at *8.

The court’s decision

In an order issued by Judge Patrick K. Sweeten, the Texas Business Court declined to fully adopt either party’s interpretation of the favored shipper provision. Id. at *9-10. Applying established canons of contract construction, the court found that the service fee reduction provisions in the favored shipper provision were ambiguous. Id. at *9. Regarding the dispute over notice under the Agreement, the court rejected the parties’ competing interpretations and held that the phrase “[u]pon entering the third-party contract” “triggered Stonewall’s duty to immediately notify Antero of, and offer the service fee reduction in accordance with the terms of the third-party affiliate contract upon execution of those contracts.” Id. at *10 (emphasis added). This interpretation, the court reasoned, adheres to the text of the favored shipper provision, provides Antero notice of the contracted-for anticipated price reduction, and fulfills the provision’s purpose. Id. at *10.

However, the court drew a critical distinction regarding the actual amount of any fee reduction. The court held that the phrase “same service fee charged pursuant to the Third-Party Shipper Contract” provides that the reduced charge to Antero would be applied at the time the new shipper actually used, and therefore was charged for, gas shipping services. Id. at *10-11. In other words, while Stonewall had a duty upon execution of the affiliate contracts to offer Antero a future service fee reduction, the actual reduced fee would be determined by what was actually “charged” or billed to the third-party. Id. at *11.

Accordingly, the court found that Stonewall breached the favored shipper provision of the Agreement when it entered the first, second, and third affiliate contracts without offering Antero the lower service fee pursuant to those contracts. Id. at *12. However, the court declined to adopt Antero’s position that Stonewall was required to institute an automatic price reduction at the time the affiliate contracts were executed and prior to any gas flowing or being “charged pursuant to the Third Party Shipper Contract.” Id. at *12. Because no charges had been billed under the affiliate contracts, the court held that no damages resulted from the breach prior to February 1, 2026, and ordered that Antero take nothing on its breach of contract claim for past or future money damages. Id. at *12-13. The Court also denied Antero’s request for specific performance. Id. at *13.

The court granted declaratory relief, holding that the service fee provisions in each of the affiliate contracts trigger the favored shipper provision of the Agreement, and that the favored shipper provision requires automatic reduction of Antero’s service fee immediately upon the charge (billing) of a lower service fee to the third-party pursuant to any of the affiliate contracts. Id. at *13.

Finally, the court addressed Antero’s breach of contract claim based on the audit provision in section 9.4 of the Agreement. Section 9.4 gave each party “the right for two years ‘to examine the books, records, charts or EFM data of the other party’ following receipt of any statement, charge, or computation, to “‘verify the accuracy of any statement, charge or computation under the agreement.’” Id. at *14 (emphasis in original). The evidence was uncontested that Antero requested the underlying affiliate contracts on multiple occasions, beginning as early as August 14, 2024, and that Stonewall did not provide them. Id. at *13-14. The court rejected Stonewall’s argument that the actual contracts were unnecessary to verify the accuracy of charges, finding that the contracts contain multiple terms – including rates, formulas, start dates, and duration – needed to verify the accuracy of charges pursuant to the Agreement. Id. at *14.

The court found that Stonewall breached section 9.4 when it failed to provide the affiliate contracts within 14 days of Antero’s request and awarded $1 in nominal damages for the breach. Id. at *14-15. The court’s ruling on this point underscores that audit provisions in gas gathering agreements with a favored shipper provision require the timely exchange of sufficient and accurate information – including underlying third-party contracts – to allow the parties to verify charges under the agreement.​

Client Alert 2026-086