Case Document 3063 Filed in TXSB on 04/22/14 Page 1 of 10

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1 Case Document 3063 Filed in TXSB on 04/22/14 Page 1 of 10 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: Chapter 11 ATP Oil & Gas Corporation, Case No Debtor. Hon. Marvin Isgur ANADARKO E&P ONSHORE LLC S MOTION FOR RELIEF FROM THE AUTOMATIC STAY TO EFFECTUATE SETOFF A HEARING WILL BE CONDUCTED ON THIS MATTER ON MAY 15, 2014 AT 1:30 PM CENTRAL STANDARD TIME IN COURTROOM 404, UNITED STATES BANKRUPTCY COURT, SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, UNITED STATES COURTHOUSE, 515 RUSK, HOUSTON, TEXAS IF YOU OBJECT TO THE RELIEF REQUESTED, YOU MUST RESPOND IN WRITING, SPECIFICALLY ADDRESSING EACH PARAGRAPH OF THIS PLEADING. UNLESS OTHERWISE DIRECTED BY THE COURT, YOU MUST FILE YOUR RESPONSE WITH THE CLERK OF THE BANKRUPTCY COURT WITHIN TWENTY-THREE (23) DAYS FROM THE DATE YOU WERE SERVED WITH THIS PLEADING, YOU MUST SERVE A COPY OF YOUR RESPONSE ON THE PERSON WHO SENT YOU THE NOTICE; OTHERWISE, THE COURT MAY TREAT THE PLEADING AS UNOPPOSED AND GRANT THE RELIEF REQUESTED. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. TO THE HONORABLE MARVIN ISGUR, UNITED STATES BANKRUPTCY JUDGE: Anadarko E&P Onshore LLC, f/k/a Anadarko E&P Company LP ( Anadarko ), hereby files this motion for relief from the automatic stay to effectuate setoff (the Motion ) and respectfully states as follows: 1

2 Case Document 3063 Filed in TXSB on 04/22/14 Page 2 of 10 JURISDICTION 1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This is a core proceeding within the meaning of 28 U.S.C Venue is proper in this district pursuant to 28 U.S.C and BACKGROUND 2. On August 17, 2012, the above-captioned debtor (the Debtor or ATP ) filed its voluntary petition under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ). 3. Anadarko has or had interests in several offshore leases in which the Debtor also has or had an interest. Prior to the commencement of the Debtor s bankruptcy case, Anadarko and ATP engaged in several transactions resulting in the creation of mutual interests and obligations. 4. For example, Anadarko acquired a two percent of eight-eighths (2% of 8/8ths) overriding royalty interest in MC (lease OCS-G 14016), arising out of a reservation in the Partial Assignment of Operating Rights and Bill of Sale by and between Anadarko and ATP effective April 28, 2003 (the ORRI ). 2 ATP was the operator of MC 711 and was required to make payments to ORRI holders such as Anadarko during the prepetition period. Anadarko did not receive any ORRI payments during the months of March 2012 through June Anadarko holds a claim of approximately $691,062.47, for such unpaid amounts and has filed a corresponding proof of claim. 1 2 Except as otherwise noted, this Motion refers to blocks by their commonly used abbreviations (i.e., MC for Mississippi Canyon, EI for Eugene Island, etc.) and the block on which the lease is located. In Schedule F, ATP states that it owes Anadarko US Offshore the amount of $207, This amount is presumably attributable to unpaid royalties relating to MC 711 and, thus, is properly owed to Anadarko E&P Onshore LLC, f/k/a Anadarko E&P Company LP, not Anadarko US Offshore. 2

3 Case Document 3063 Filed in TXSB on 04/22/14 Page 3 of Additionally, Anadarko and ATP are parties to a certain Production Handling Agreement for the Eugene Island ( EI ) 142 Facility, dated February 1, 2001 (the PHA ), by and between Anadarko, ATP, and Petrobras America Inc. ( Petrobras ). Anadarko and Petrobras (collectively, the EI 162 Owners ) are the owners of an existing platform and certain existing wells located on EI 162. Those wells are connected by flowline to the EI 142 A Platform, located on OCS-G 10726, EI 142 (the EI 142 Platform ). Anadarko and ATP collectively operated as the processor of the EI 142 Platform, performing various processing services for the EI 162 Owners as described therein. In connection with such processing services, Anadarko and ATP prepared a running balance sheet documenting the work performed and amounts owing between them. As is evidenced by Anadarko s credit memorandum, attached hereto as Exhibit A, audits of such balance sheet were performed and, as a result of unresolved audit exceptions, Anadarko generated a credit due to ATP in the amount of $61, (the ATP Credit ). 6. On or about September 4, 2012, Anadarko received two checks from ATP, both of which were dated August 27, 2012, in the amounts of $7, and $111,188.59, respectively, on account of the outstanding prepetition ORRI obligations (collectively, the Anadarko Receivable ). A copy of the two checks are attached hereto collectively as Exhibit B. ATP stopped payment on these two checks in September of 2012 (i.e., post-petition). Though payment was stopped, presumably due to the commencement of the bankruptcy case, ATP has not disputed the amounts owing on account of the Anadarko Receivable. 3

4 Case Document 3063 Filed in TXSB on 04/22/14 Page 4 of 10 RELIEF REQUESTED 7. By this Motion, Anadarko seeks relief from the automatic stay pursuant to sections 362 and 553 of the Bankruptcy Code to setoff the Anadarko Credit against the Anadarko Receivable. ARGUMENT A. Setoff of the ATP Credit Against the Anadarko Receivable is Appropriate 8. Setoff is a right founded in equity to facilitate the adjustment of mutual obligations. Galaz v. Galaz (In re Galaz), 480 F. App x 790, 792 (5th Cir. 2012) ( Setoff is a longstanding fixture in bankruptcy law having its roots in equity. ); 5 COLLIER ON BANKRUPTCY Section 553 of the Bankruptcy Code provides that this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case. 11 U.S.C. 553(a). 9. While courts are generally entitled to discretion in permitting setoff, compelling circumstances must be found before it is disallowed. See Bird, II v. Carl s Grocery Co. (In re NWFX, Inc.), 864 F.2d 593, 595 (8th Cir. 1989) (compelling reasons required to disallow setoff); Bohack Corp. v. Borden, Inc. (In re Bohack Corp.), 599 F.2d 1160, 1165 (2d Cir. 1979) (determining, under section 68 of the Bankruptcy Act (predecessor to section 553 of the Bankruptcy Code), that [t]he policy of the Bankruptcy Act is to allow setoffs and counterclaims. This court is reluctant to disturb this policy unless compelling circumstances require it. A decision disallowing a setoff must not be made cavalierly. The statutory remedy of set off should be enforced unless the court finds after due reflection that allowance would not be consistent with the provisions and purposes of the Bankruptcy Act as a whole. ); Scherling v. 4

5 Case Document 3063 Filed in TXSB on 04/22/14 Page 5 of 10 Chase Manhattan Bank, N.A. (In re Tilston Roberts Corp.), 75 B.R. 76, 79 (S.D.N.Y. 1987) (citing Bohack, stating that [t]he Second Circuit has repeatedly favored the allowance of setoffs, and has noted specifically its reluctance to disturb the Bankruptcy Code's policy of allowing setoffs unless compelling circumstances require it. ); Niagara Mohawk Power Corp. v. Utica Floor Maintenance, Inc. (In re Utica Floor Maintenance, Inc.), 41 B.R. 941, 944 (N.D.N.Y. 1984) (citing Bohack and noting the strong policy favoring setoff and the requirement of compelling reasons to defer that right ); In re Springfield Casket Co. Inc., 21 B.R. 223, 228 (Bankr. S.D. Ohio 1982) (setoff should be permitted absent compelling circumstances for not doing so). 10. As noted by the United States Court of Appeals for the Fifth Circuit, there are three requirements for setoff under section 553 of the Bankruptcy Code: (1) The creditor has both a claim against and owes a debt to the debtor, both of which arose pre-petition; (2) the claim and the debt are mutual; and (3) both the claim and the debt are valid and enforceable. In re Galaz, 480 F. App x at 793; I.R.S. v. Luongo (In re Luongo), 259 F.3d 323, 334 (5th Cir. 2001) (citing Braniff Airways, Inc. v. Exxon Co., 814 F.2d 1030, 1035 (5th Cir. 1987)). 11. Mutuality is not defined by the Bankruptcy Code. However, it is generally held to mean that the competing claim and debt must be owed in the same right between the same parties, and the parties must be acting in the same capacity. In re Luongo, 259 F.3d at 334; 5 COLLIER ON BANKRUPTCY [3][a]. Moreover, mutuality generally requires that the competing credit must be deemed to have arisen prior to the time of the filing of the chapter 11 cases. See, e.g., Braniff Airways, Inc., 814 F.2d at 1038 (finding that where both debts were deemed to have arisen prepetition, mutuality of obligation existed). 5

6 Case Document 3063 Filed in TXSB on 04/22/14 Page 6 of Here, both ATP s debt to Anadarko, and Anadarko s obligation to credit ATP on account of the ATP Credit, constitute prepetition obligations and the debts are valid and owing by and between the same ATP and Anadarko entities. All setoff requirements have been satisfied and, accordingly, Anadarko may properly setoff the Anadarko Receivable against the ATP Credit. B. Relief From the Automatic Stay to Effectuate the Setoff is Appropriate 13. Prior to effectuating a setoff, a creditor must obtain relief from the automatic stay or must otherwise obtain an order allowing the setoff. Braniff Airways, Inc., 814 F.2d at 1041, n.13. Pursuant to section 362 of the Bankruptcy Code, an automatic stay went into effect upon the commencement of the Debtor s chapter 11 case. The automatic stay expressly prohibits the following: the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor 11 U.S.C. 362(a)(7). 14. Although the automatic stay is intended to, inter alia, protect a debtor from interference with its efforts to successfully reorganize, upon request of a party in interest and after notice and a hearing the Court is empowered to grant relief from the stay in order to effectuate a setoff. 11 U.S.C. 362(d). 15. The automatic stay does not defeat the right of setoff, rather it merely stays its enforcement pending an orderly examination of the debtor's and creditor's rights. Biggs v. Stovin (In re Luz Int l, Ltd.), 219 B.R. 837, 841 (B.A.P. 9th Cir. 1998) (internal quotations omitted); see also In re Whitaker, 173 B.R. 359, 359 (Bankr. S.D. Ohio 1994) (granting relief from automatic stay upon cause shown in order to effectuate setoff); In re NTG Indus., Inc., 103 B.R. 195, 197 (Bankr. N.D. Ill. 1989) (granting relief from automatic stay to allow creditor to setoff prepetition 6

7 Case Document 3063 Filed in TXSB on 04/22/14 Page 7 of 10 claims). Upon establishing its right to setoff, a party [makes] a prima facie showing of cause for relief from [the automatic] stay. I.R.S. v. Orlinski (In re Orlinski), 140 B.R. 600, 603 (Bankr. S.D. Ga. 1991). Once such a showing is made, the burden shifts to the debtor to rebut either the right to setoff or the purported cause for relief from the stay. 16. Courts, including those in this circuit, frequently grant relief from the automatic stay to allow parties to effectuate a setoff of prepetition debts. See, e.g., In re Parrish, 75 B.R. 14 (N.D. Tex. 1987) (reversing order denying government s motion to seek relief from stay and directing bankruptcy court to permit setoff pursuant to section 553(a)); In re Gibson, 308 B.R. 763 (Bankr. N.D. Tex. 2002) (granting the government s motion for relief from stay to assert a setoff, finding that all of the requisite elements were met); In re Ellis, 236 B.R. 361 (Bankr. E.D. Tex. 1999) (lifting the automatic stay to permit setoff of funds held in bank account against the amount of the bank s allowed claim); In re Appel, 166 B.R. 624 (Bankr. S.D. Tex. 1994) (granting stay relief to permit bank to exercise its common law right to offset debts owed by debtor against undelivered cashier s checks in the bank s possession); Express Freight Lines, Inc. v. Kelly (In re Express Freight Lines, Inc.), 130 B.R. 288, 294 (Bankr. E.D. Wis. 1991) (lifting stay to permit setoff); In re The Julien Co., 116 B.R. 623 (Bankr. W.D. Tenn. 1990) (same); In re Springfield Casket Co., Inc., 21 B.R. at 228 (granting bank's request for relief from automatic stay to exercise right of setoff of prepetition deposits against debtor's prepetition unpaid obligations). 17. In the instant case, Anadarko should be granted stay relief to setoff the Anadarko Receivable against the ATP Credit. Permitting Anadarko to offset the Anadarko Receivable will not impede or jeopardize the estate s attempt to reorganize as, indeed, the Debtor is not seeking to reorganize. 7

8 Case Document 3063 Filed in TXSB on 04/22/14 Page 8 of Based upon the foregoing, Anadarko submits that the proposed setoff is appropriate and authorized under section 553 of the Bankruptcy Code, and Anadarko should be granted relief from the automatic stay in order to effectuate such setoff. NOTICE 19. Notice of this Motion has been provided in accordance with (i) Rule 4001(a)(1) of the Federal Rules of Bankruptcy Procedure, BLR (a)(4), and Procedure II.A.4 of the Administrative Procedures for the Filing, Signing, and Verifying of Documents by Electronic Means in Texas Bankruptcy Courts, and (ii) this Court s Order Establishing Notice Procedures [Dkt. No. 132]. Anadarko submits that the notice provided herein is fair and adequate under the circumstances and that no further notice is required. CONCLUSION WHEREFORE, premises considered, Anadarko respectfully requests entry of an order substantially in the form attached hereto as well as such other and further relief as the Court may deem just and proper. Respectfully submitted, Dated: April 22, 2014 /s/ Lydia Protopapas Lydia Protopapas Attorney-in-Charge State Bar No Southern District of Texas No lprotopapas@winston.com WINSTON & STRAWN LLP 1111 Louisiana Street, 25 th Floor Houston, Texas Telephone: (713) Facsimile: (713) Counsel to Anadarko E&P Onshore LLC 8

9 Case Document 3063 Filed in TXSB on 04/22/14 Page 9 of 10 CERTIFICATE OF CONFERENCE Pursuant to Local Rule (a)(1), I hereby certify that counsel to Anadarko conferred with counsel for the Debtor regarding the relief sought herein and, to date, have been unable to reach an agreement the requested relief. However, it is anticipated that the parties will continue to work toward a resolution of the Motion in advance of the hearing. Dated: April 22, 2014 /s/ Lydia Protopapas Lydia Protopapas CERTIFICATE OF SERVICE I hereby certify that on April 22, 2014, a true and correct copy of the aforementioned Motion was served in accordance with (i) Rule 4001(a)(1) of the Federal Rules of Bankruptcy Procedure, BLR (a)(4), and Procedure II.A.4 of the Administrative Procedures for the Filing, Signing, and Verifying of Documents by Electronic Means in Texas Bankruptcy Courts, and (ii) this Court s Order Establishing Notice Procedures [Dkt. No. 132]. Dated: April 22, 2014 /s/ Carrie V. Hardman Carrie V. Hardman

10 Case Document 3063 Filed in TXSB on 04/22/14 Page 10 of 10 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: Chapter 11 ATP Oil & Gas Corporation, Case No Debtor. Hon. Marvin Isgur ORDER GRANTING MOTION FOR RELIEF FROM THE AUTOMATIC STAY TO EFFECTUATE SETOFF Upon consideration of the Motion for Relief from the Automatic Stay to Effectuate Setoff (the Motion ), 1 filed by Anadarko E&P Onshore LLC, f/k/a Anadarko E&P Company LP ( Anadarko ), the Court finds that good cause exists to grant the relief requested in the Motion. Therefore, it is hereby further ORDERED that the Motion and all relief requested therein is GRANTED; and it is ORDERED that this Court shall retain jurisdiction with respect to all matters arising from or related to the implementation of this Order. Signed, this day of 2014 MARVIN ISGUR UNITED STATES BANKRUPTCY JUDGE 1 Terms not otherwise defined herein shall have the meaning ascribed to them in the Motion.

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17 Case Document Filed in TXSB on 04/22/14 Page 1 of 6 Exhibit B

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