Case Document 664 Filed in TXSB on 12/07/17 Page 1 of 12

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1 Case Document 664 Filed in TXSB on 12/07/17 Page 1 of 12 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: ) Chapter 11 ) LINC USA GP, et al. 1 ) Case No (DRJ) ) Debtors. ) (Jointly Administered) MOTION OF THE CHAPTER 11 CREDITOR TRUSTEE TO ENFORCE SALE ORDER AGAINST THE TEXAS RAILROAD COMMISSION AND TORRENT GULF COAST LLC [Relates to Doc. No. 347] THIS MOTION SEEKS ENTRY OF AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. A HEARING WILL BE CONDUCTED ON THIS MATTER ON JANUARY 4, 2018 AT 3:00 P.M. IN COURTROOM 400, UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS, 515 RUSK STREET, HOUSTON, TEXAS REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEYS. TO THE HONORABLE DAVID R. JONES CHIEF UNITED STATES BANKRUPTCY JUDGE: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtors federal tax identification number, are: Linc Energy Finance (USA), Inc. (6684); Linc USA GP (5234); Linc Energy Resources, Inc. (9613); Linc Gulf Coast Petroleum, Inc. (6790); Linc Energy Petroleum (Louisiana), LLC (1074); Linc Alaska Resources, LLC (2362); Paen Insula Holdings, LLC (1681); Linc Energy Petroleum (Wyoming), Inc. (9859); and Linc Energy Operations, Inc. (5806). 1

2 Case Document 664 Filed in TXSB on 12/07/17 Page 2 of 12 Alexandre Zyngier, as the Trustee (the Trustee ) of the Linc Chapter 11 Creditor Trust (the Trust ), established pursuant to the confirmed plan of liquidation for the above-captioned debtors and debtors in possession (collectively, the Debtors ), files this Motion to Enforce Sale Order against the Texas Railroad Commission and Torrent Gulf Coast, LLC (the Motion ), and respectfully states as follows: PRELIMINARY STATEMENT 1. Prepetition, the Debtors were required by the Texas Railroad Commission (the RRC ) to obtain bonds to secure the performance of statutory plugging and abandonment obligations arising from ownership of certain oil and gas assets located in the State of Texas (as further defined herein, the Gulf Coast Assets ). These bonds were secured by cash collateral posted by the Debtors in the amount of $3,387, During these bankruptcy cases, the Debtors sold the Gulf Coast Assets to Torrent Gulf Coast LLC ( Torrent ) pursuant to a sale order entered by this Court on August 31, 2016 (the Sale Order ) (Doc. No. 347). 2. Among other things, the Sale Order and APA (defined below) required Torrent to assume the Debtors plugging and abandonment obligations with respect to the Gulf Coast Assets, and in turn, contemplated that the Debtors bonds securing these obligations (along with the collateral) would be released. To effectuate this part of the transaction, the Sale Order expressly addressed administrative transfer of operatorship to Torrent, which is accomplished through the filing of a Form P-4 with and acceptance by the RRC. Specifically, the Sale Order provided: The parties to the transaction shall, within five (5) business days of the closing of the Asset Purchase Agreement, execute two-signature P-4 forms (Certificate of Compliance and Transport Authority) in form and substance approved by the Railroad Commission of Texas (such approval not to be unreasonably withheld or conditioned). See Sale Order at 40. 2

3 Case Document 664 Filed in TXSB on 12/07/17 Page 3 of Unfortunately, over one year after the entry of the Sale Order, the RRC has not approved all of the P-4 forms executed by Torrent (the P-4s ). Accordingly, certain of the Debtors bonds related to the Gulf Coast Assets (as further defined herein, the Subject Bonds ), remain in place. The RRC has taken the position that Torrent needs to take certain additional actions in order for the RRC to approve the P-4s and release the Subject Bonds. Torrent, on the other hand, contends that it has taken all actions necessary to assume operatorship and plugging and abandonment obligations with respect to all of the Gulf Coast Assets. The Trustee, regrettably, is caught in the middle. 4. The Trustee has expended considerable time and resources attempting to facilitate a compromise between the Creditor Trust, the RRC, and Torrent; however, such efforts have been unsuccessful. Accordingly, the Trustee files this Motion to extricate itself from the ongoing struggle regarding the P-4s and operatorship of the Gulf Coast Assets. Specifically, the Trustee requests that the Court enter an order: a. Requiring the RRC to approve the P-4s designating Torrent as operator of the Subject Wells (as defined below) within fifteen (15) days and requiring the RRC to execute all documentation necessary to effectuate the release of the Subject Bonds; or b. Requiring the RRC to approve P-4s designating a third party of its choosing as operator of the Subject Wells (as defined below) within fifteen (15) days and requiring the RRC to execute all documentation necessary to effectuate the release of the Subject Bonds; or c. If the RRC does not approve a new operator of the Subject Wells within fifteen (15) days, requiring the RRC to proceed with ordering the plugging and abandonment of the Subject Wells, including calling upon the Torrent Bonds (defined below) securing the plugging and abandonment obligations as necessary. JURISDICTION & VENUE 5. This Court has jurisdiction over this matter pursuant to 28 U.S.C This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). Further, the Debtors 3

4 Case Document 664 Filed in TXSB on 12/07/17 Page 4 of 12 Plan (as defined below) expressly retained this Court s post-confirmation jurisdiction to decide or resolve any motions.contested or litigated matters and any other matters. involving the Debtors and enter and enforce any order related to or otherwise in connection with any sale of property by the Debtors. See (Doc. No. 450) Plan, Article XII(vi) and (viii); see also (Doc. No. 536) Confirmation Order at 3 (finding that the Plan s retention of jurisdiction comports with 28 U.S.C. 1334). 6. Further, this Court has jurisdiction to interpret and enforce the Sale Order and to resolve disputes regarding the sale of the Gulf Coast Assets in the Sale Order. See (Doc. No. 347) Sale Order at Venue in this Court is proper pursuant to 28 U.S.C and BACKGROUND A. The Debtors Plan and Creation of the Creditor Trust 8. On May 29, 2016 (the Petition Date ), the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the Court ). 9. On February 13, 2017, the Court entered the Order Approving Debtors Disclosure Statement on a Final Basis and Confirming Debtors Joint Plan of Liquidation Under Chapter 11 of the Bankruptcy Code (Doc. No. 536) (the Confirmation Order ), which confirmed the Debtors Joint Plan of Liquidation Under Chapter 11 of the United States Bankruptcy Code (Doc. No. 450) (the Plan ). On April 3, 2017, the Plan became effective (the Effective Date ). 10. The Plan and Confirmation Order established the Trust and provided that the collateral securing any bond released after the Plan s Effective Date should be transferred to the Trust. As provided under Section 5.06 of the Plan, the Debtors rights under any bonds that 4

5 Case Document 664 Filed in TXSB on 12/07/17 Page 5 of 12 have not been released as of the date thereof, including the right to receive the proceeds therefrom, shall be transferred to the Creditor Trust as Creditor Trust as Creditor Trust Assets. 11. Pursuant to the Creditor Trust Agreement (Doc. No ), the Trustee continues to carry-out his duties to liquidate the Trust s assets and distribute the proceeds to holders of the Trust s interests. B. The Sale of the Gulf Coast Assets to Torrent 12. On August 31, 2016, the Court entered the Sale Order, which approved the sale of substantially all of the assets (previously defined as the Gulf Coast Assets ) owned by Linc Gulf Coast Petroleum, Inc. ( Linc Gulf Coast ) to Torrent (Doc. No 347). The Sale Order also approved the Asset Purchase Agreement between Linc Gulf Coast and Torrent (the APA ) (Doc. No ). 13. The Gulf Coast Assets conveyed pursuant to the Sale Order include, but are not limited to, the following wells that are the subject of this Motion (previously defined as the Subject Wells ): API No. ID No. Lease Name Well Field Name Loc. Code GRASS ISLAND (FARWELL STATE TRACT A-) BAY/ESTUARY STATE TRACT GRASS ISLAND (4220) BAY/ESTUARY GRASS ISLAND (FARWELL STATE TRACT R-) BAY/ESTUARY TX STATE TRACT 87 3 UMBRELLA POINT (F-15) BAY/ESTUARY STATE TRACT CEDAR POINT (MIOCENE) BAY/ESTUARY STATE TRACT CEDAR POINT (UPPER FRIO) BAY/ESTUARY STATE TRACT CEDAR POINT, S. (FRIO 3) BAY/ESTUARY A full list of the wells conveyed pursuant to the Sale Order is attached as Exhibit B to the APA. (Doc. No ). 5

6 Case Document 664 Filed in TXSB on 12/07/17 Page 6 of The Sale Order expressly required Torrent to assume the Debtors plugging and abandonment obligations with respect to all of the Gulf Coast Assets including the Subject Wells. See Sale Order at 40. Paragraph 40 of the Sale Order provides: Notwithstanding anything in the Asset Purchase Agreement or in this Order to the contrary, the Purchaser shall assume the Debtors plugging and abandonment liabilities with respect to the Assets, including any such liabilities owed to the Railroad Commission of Texas. See Doc. 347 at To enable this transition, the Sale Order provided that [t]he parties to the transaction shall, within five (5) business days of the closing of the Asset Purchase Agreement, execute two-signature P-4 forms [] in form and substance approved by the Railroad Commission of Texas (such approval not to be unreasonably withheld or conditioned). Id. Likewise, the APA provided that Torrent assumed Linc Gulf Coast s plugging and abandonment obligations, and that the Debtors bonds securing these obligations would be released after closing. See APA at Sections and Section 2.3 of the APA provided: [O]n the Closing Date, [Torrent] shall execute and deliver to [the Debtors] the Assumption Agreement in the form attached hereto as Exhibit G pursuant to which [Torrent] shall assume and agree to discharge, when due (in accordance with their respective terms and subject to the respective conditions thereof), only the following Liabilities of [the Debtors] (b) All of [the Debtors] Liabilities (1) under applicable Environmental Laws to restore the surface of the Properties or to bring the Properties into compliance with applicable Environmental Laws and (2) to properly plug and abandon and decommission Wells, Assigned Equipment and Assigned Midstream Assets, in each case, whether such Liabilities arise prior to, on, or after the Effective Time. 3 Section 8.5(c)of the APA provided: [Torrent] acknowledges that [the Debtors] have no duty to maintain any Security Arrangements after the Closing. To the extent [the Debtors] and/or any of their Affiliates have any obligations pursuant to any Security Arrangement or have pledged or otherwise provided any property that secures any such Security Arrangement (collectively, the 6

7 Case Document 664 Filed in TXSB on 12/07/17 Page 7 of The Debtors had three separate bonds securing their plugging and abandonment obligations for the Subject Wells: Blanket Performance Bond No. 17s101859, Blanket Performance Bond No , and Blanket Performance Bond No (previously defined as the Subject Bonds ). These bonds were secured by collateral in the amount of $3,387, (the Collateral ). 17. After entry of the Sale Order, Torrent and Linc Gulf Coast executed the requisite P-4s to transfer operatorship of the Subject Wells to Torrent (the Torrent P-4s ) and submitted the Torrent P-4s to the RRC for approval. Additionally, Torrent posted a blanket bond to secure its plugging and abandonment obligations with regard to the Subject Wells (the Torrent Bonds ). The Debtors and Torrent intended for the Torrent Bonds to replace the Subject Bonds, as contemplated by the APA and the Sale Order. C. The Dispute Concerning the Subject Wells and the Subject Bonds 18. The RRC has received and acknowledged the Torrent P-4s and the Torrent Bonds. Nonetheless, the RRC refuses to approve the Torrent P-4s, apparently for two reasons. First, the RRC contends that mineral leases on which the Subject Wells are located have expired and that Torrent must execute new mineral leases before the RRC can approve the Torrent P-4s. Second, the RRC contends that the Torrent Bonds are insufficient, and that Torrent must increase its financial assurance with the RRC before the RRC can transfer operatorship of the Subject Wells to Torrent. 19. Moreover, the RRC takes the position that Linc Gulf Coast remains the official operator of-record for the Subject Wells until the RRC approves the Torrent P-4s. [Debtors ] Obligations ), [Torrent] shall take such actions, prior to Closing, as are necessary to cause the [Debtors ] Obligations and the Security Arrangements to be released and terminated, and any of [Debtors ] property pledged or otherwise provided to secured such Security Arrangements returned to the [Debtors], concurrent with the Closing. 7

8 Case Document 664 Filed in TXSB on 12/07/17 Page 8 of 12 Accordingly, the RRC will not release the Subject Bonds posted by the Debtors because it alleges that the Trust remains liable for the plugging and abandonment of the Subject Wells Torrent, on the other hand, asserts that it assumed all responsibility for plugging and abandonment of the Subject Wells as required by the Sale Order and the APA. Torrent further contends that it should not be required to sign up new mineral leases for the Subject Wells until and unless it decides to develop the Wells. Finally, Torrent contends that it is fully bonded for all plugging and abandonment obligations associated with the Subject Wells pursuant to the Torrent Bonds. Thus, Torrent contends that it has taken all actions necessary to enable the RRC to approve the Torrent P-4s and transfer operatorship of the Subject Wells to Torrent. D. The Trustee s Efforts to Facilitate a Compromise 21. The Trustee has expended considerable time and resources attempting to facilitate a compromise between Torrent and the RRC concerning approval of the Torrent P-4s. Unfortunately, such efforts have not been successful. As a result, the Trust remains embroiled in an ongoing struggle regarding the Torrent P-4s and the Subject Wells. 22. It has become apparent to the Trustee that the issues surrounding the Torrent P-4s and operatorship of the Subject Wells will only be resolved through direct negotiations between the RRC and Torrent or entry of a Court order. Moreover, if there is no deal to be had between Torrent and the RRC, the RRC should either appoint another operator for the Subject Wells or 4 The RRC relies upon Section (a) of the Texas Natural Resources Code in support of its argument that the Trust remains liable for the plugging and abandonment of the Subject Wells. See TEX. NAT. RES. CODE (a) ( The duty of a person to plug an unplugged well that has ceased operations ends only if the person s interest in the well is sold or conveyed while the well is in compliance with the rules of the commission relating to safety or the prevention or control of pollution. ). 8

9 Case Document 664 Filed in TXSB on 12/07/17 Page 9 of 12 proceed with plugging them. 5 Otherwise, the Trustee fears that the Trust will remain indeterminately liable with respect to the Subject Wells, which would controvert the clear intentions of the Sale Order and the APA to absolve the Trust of such liability. Furthermore, the Trustee wishes to resolve these issues in an expedient fashion so that the Subject Bonds may be released and the Collateral which is of significant value distributed to beneficiaries of the Creditor Trust. RELIEF REQUESTED AND BASIS THEREFOR 23. As set forth above, the Trustee files this Motion in an effort to enforce the Sale Order by: (i) extracting the Trust from the dispute concerning the Torrent P-4s and the Subject Wells, (ii) relieving the Trust of its pending liability as operator of-record for the Subject Wells, and (iii) expediting the process of releasing the Subject Bonds so that the Trustee may distribute the Collateral to beneficiaries of the Creditor Trust. 24. Specifically, the Trustee seeks an order granting the following relief: a. Requiring the RRC to approve the P-4s designating Torrent as operator of the Subject Wells (as defined below) within fifteen (15) days and requiring the RRC to execute all documentation necessary to effectuate the release of the Subject Bonds; or b. Requiring the RRC to approve P-4s designating a third party of its choosing as operator of the Subject Wells (as defined below) within fifteen (15) days and requiring the RRC to execute all documentation necessary to effectuate the release of the Subject Bonds; or c. If the RRC does not approve a new operator of the Subject Wells within fifteen (15) days, requiring the RRC to proceed with ordering the plugging and abandonment of the Subject Wells, including calling upon the Torrent Bonds (defined below) securing the plugging and abandonment obligations as necessary. 5 The Trustee acknowledges the RRC s position that the Trust remains liable for the plugging and abandonment of the Subject Wells. Nonetheless, the Trustee believes that expediting plugging operations is in the best interest of the Trust absent the appointment of a new operator because abandonment would allow the Trust to obtain finality with regard to the potential liabilities associated with the Wells. Moreover, if the RRC calls upon the Subject Bonds to pay for the Wells plugging operations, the Trust is entitled to reimbursement for such costs under the Torrent APA. See APA section 2.3 9

10 Case Document 664 Filed in TXSB on 12/07/17 Page 10 of The relief sought by the Trustee is necessary to effectuate the terms of the Sale Order, which contemplated that the Trust would be relieved of its plugging and abandonment obligations with respect to the Subject Wells, and that the Torrent P-4s would be promptly executed and approved. See, e.g., Sale Order at 40 ( the Purchaser shall assume the Debtors plugging and abandonment liabilities with respect to the Assets, including any such liabilities owed to the Railroad Commission of Texas [and] [t]he parties to the transaction shall, within five (5) business days of the closing of the Asset Purchase Agreement, execute two-signature P- 4 forms [] in form and substance approved by the Railroad Commission of Texas (such approval not to be unreasonably withheld or conditioned) (emphasis added). 26. The relief sought by the Trustee is also consistent with the APA, which the Court approved in all respects pursuant to sections 363 and 365 of the Bankruptcy Code, and which contemplated that the Trust would be promptly relieved of its plugging and abandonment obligations with regard to the Subject Wells. See Sale Order at 15 (approving APA); APA at sections 2.3 and 8.5(c). 27. Finally, the relief sought by the Trustee is authorized under section 105 of the bankruptcy code. A bankruptcy court s authority under 105 to enforce its own orders cannot be reasonably questioned. See, e.g., Cano v. GMAC Mortg. Corp. (In re Cano), 410 B.R. 506 (Bankr. S.D. Tex. 2009). CONCLUSION WHEREFORE, the Trustee respectfully requests that the Court enter an order, substantially in the form attached hereto: (i) granting the Motion; and (ii) granting such other and further relief as may be just and proper. Dated: December 7,

11 Case Document 664 Filed in TXSB on 12/07/17 Page 11 of 12 Porter Hedges LLP /s/ Eric M. English Eric M. English State Bar No Amy T. Geise State Bar No Porter Hedges LLP 1000 Main Street, 36 th Floor Houston, Texas Telephone: (713) Facsimile: (713) ATTORNEYS FOR ALEXANDRE ZYNGIER, THE TRUSTEE OF THE LINC CHAPTER 11 CREDITOR TRUST 11

12 Case Document 664 Filed in TXSB on 12/07/17 Page 12 of 12 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing instrument was duly served by United States first class mail to all parties listed below and by electronic transmission to all registered ECF users appearing in the case on December 7, 2017: Torrent Oil, LLC Attn: Henri DeLaunay 2 Greenway Plaza, Suite 250 Houston, TX hdelaunay@torrentoil.com J. Casey Roy Assistant Attorney General Texas Attorney General s Office Bankruptcy & Collections Division P. O. Box MC 008 Austin, Texas /s/ Amy T. Geise Amy T. Geise 12

13 Case Document Filed in TXSB on 12/07/17 Page 1 of 2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: ) Chapter 11 ) LINC USA GP, et al. 1 ) Case No (DRJ) ) Debtors. ) (Jointly Administered) ORDER GRANTING MOTION OF THE CHAPTER 11 CREDITOR TRUSTEE TO ENFORCE SALE ORDER AGAINST THE TEXAS RAILROAD COMMISSION AND TORRENT GULF COAST LLC [Doc. No. ] Upon the Motion to Enforce Sale Order against the Texas Railroad Commission and Torrent Gulf Coast, LLC (the Motion ) 2 filed by Alexandre Zyngier, as the Trustee (the Trustee ) of the Linc Chapter 11 Creditor Trust (the Trust ), the Trust established pursuant to the confirmed plan of liquidation for the above-captioned debtors and debtors in possession (collectively, the Debtors ); and the Court having found and determined that the legal and factual bases set forth in the Motion establish good cause for granting the Motion; that the compromise is in the best interest of the Trust and its beneficiaries and should be approved; and adequate notice of the Motion has been given to creditors and parties-interest in this case; and after due deliberation and sufficient cause appearing therefore, it is hereby: ORDERED, ADJUDGED, AND DECREED that: 1. The Motion is hereby GRANTED. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtors federal tax identification number, are: Linc Energy Finance (USA), Inc. (6684); Linc USA GP (5234); Linc Energy Resources, Inc. (9613); Linc Gulf Coast Petroleum, Inc. (6790); Linc Energy Petroleum (Louisiana), LLC (1074); Linc Alaska Resources, LLC (2362); Paen Insula Holdings, LLC (1681); Linc Energy Petroleum (Wyoming), Inc. (9859); and Linc Energy Operations, Inc. (5806). 2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Motion. 1

14 Case Document Filed in TXSB on 12/07/17 Page 2 of 2 2. It is hereby ORDERED that: a. Within fifteen (15) days, the RRC shall approve the Torrent P-4s and execute all documentation necessary to effectuate the release of the Subject Bonds; or b. Within fifteen (15) days, the RRC shall approve P-4s designating a third party of its choosing as operator of the Subject Wells and execute all documentation necessary to effectuate the release of the Subject Bonds; or c. If the RRC does not approve a new operator of the Subject Wells within fifteen (15) days, the RRC shall order the plugging and abandonment of the Subject Wells, including calling upon the Torrent Bonds bonds securing the plugging and abandonment obligations as necessary. 3. This Court shall retain jurisdiction over all matters arising out of or related to the Motion and this Order. Dated: Houston, Texas, 2018 THE HONORABLE DAVID R. JONES UNITED STATES BANKRUPTCY JUDGE 2