Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: ATP OIL & GAS CORPORATION CASE NO. 12-36187 Chapter 11 Debtor. HON. MARVIN ISGUR OBJECTION OF TOTAL E&P USA, INC. TO DEBTOR S EMERGENCY MOTION FOR ENTRY OF AN ORDER PURSUANT TO 11 U.S.C. 365(A) (I) AUTHORIZING OMNIBUS REJECTION OF CERTAIN UNEXPIRED LEASES RELATED TO THE DEBTOR S REMAINING PROPERTIES, RELINQUISHMENT, AND ABANDONMENT OF ANY INTERESTS RELATED THERETO AND (II) APPROVING PROCEDURES FOR THE REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES [Related to Dkt. No. 1932] TO THE HONORABLE MARVIN ISGUR, UNITED STATES BANKRUPTCY JUDGE: Total E&P USA, Inc. ( TOTAL ) files this Objection (the Objection ) to the Debtor s Emergency Motion for Entry of an Order Pursuant to 11 U.S.C. 365(a) (I) Authorizing Omnibus Rejection of Certain Unexpired Leases Related to the Debtor s Remaining Properties, Relinquishment, and Abandonment of Any Interests Related Thereto and (II) Approving Procedures for the Rejection of Executory Contracts and Unexpired Leases (the Rejection Procedures Motion ) [Dkt. No. 1932] and would show the Court the following: I. BACKGROUND 1. TOTAL filed proof of claim number 484 (the Proof of Claim ) in the abovecaptioned bankruptcy case, in which TOTAL asserted its administrative priority claim for liabilities the Debtor owes pursuant to the Purchase and Sale Agreement dated December 4, 2006, other ancillary agreements, and applicable law. HOU:0531221/00022:1680956v1
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 2 of 9 2. TOTAL previously filed its Reservation of Rights and Limited Objection (the Limited Objection ) to Debtor s Request For Authority to Assume and Assign Certain Executory Contracts and Unexpired Leases Under Assumption and Assignment Procedures In Conjunction With Sale or Sales of Substantially All of Debtor s Deepwater Property Assets. [Dkt. No. 1720] In the Limited Objection, TOTAL objected to the Debtor s designation of $0 as the appropriate cure amount for TOTAL. 3. To avoid making duplicative filings, TOTAL incorporates by reference its Proof of Claim and its Limited Objection. 4. By way of further response to the Rejection Procedures Motion, TOTAL objects to the Rejection Procedures Motion to the extent it contemplates rejection of the Debtor s outer continental shelf leases ( OCS Leases ) and repudiation of the Debtor s decommissioning liabilities related to the OCS Leases. II. ARGUMENT A. The Debtor Cannot Escape Its Decommissioning Liabilities Which Are Administrative Priority Expenses. 5. TOTAL recognizes that the Court has addressed ATP s decommissioning liabilities in the context of the rejection and/or abandonment of leases and contracts in connection with ATP s Gomez properties. Under the order entered by the Court [Docket #1999], ATP retains its decommissioning obligations despite the rejection and/or abandonment. TOTAL submits that ATP should retain such obligations, as administrative priority expenses of the estate, for leases rejected under the present Rejection Procedures Motion as well. 6. Much of the following argument may be unnecessary to the extent that the Court has already ruled that ATP retains its decommissioning obligations; however, the below is stated HOU:0531221/00022:1680956v1 2
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 3 of 9 in an abundance of caution and to the extent that ATP or other parties seek differing treatment for the OCS Leases that are the subject of the Rejection Procedures Motion. 7. As a matter of law, the Debtor may not repudiate its decommissioning liabilities related to the OCS Leases by rejecting the OCS Leases. ATP, as a debtor in possession, has a duty to comply with all statutory and regulatory obligations. 28 U.S.C. 959(b); Norris Square Civil Assoc. v. St. Mary s Hospital (In re St. Mary s Hospital), 86 B.R. 393, 398 (Bankr. E.D. Penn. 1988). With respect to the OCS Leases, such obligations include decommissioning obligations pursuant to 30 C.F.R. 250.700, et seq.; Texas v. Lowe (In the Matter of H.L.S. Energy Co., Inc.), 151 F.3d 434, 438 (5th Cir. 1998) ( a combination of Texas and federal law placed on the trustee an inescapable obligation to plug the unproductive wells. ) (emphasis added). The Supreme Court held that bankruptcy courts do not have the power to authorize an abandonment without formulating conditions that will adequately protect the public s health and safety. Midlantic Natl. Bank v. N.J. Dept. of Envtl. Prot., 474 U.S. 494, 506-07 (1986). The Debtor s decommissioning obligations for the OCS Leases give rise to administrative expense claims. H.L.S. Energy Co., Inc., 151 F.3d at 436 (state s costs incurred for post-petition environmental obligations related to oil and gas wells are administrative priority expenses pursuant to 11 U.S.C. 503(b)(1)(A)). 8. This Court has previously ruled that post-petition decommissioning expenses should be afforded administrative priority pursuant to 11 U.S.C. 503(b)(1)(A), regardless of whether the debtor s pre-petition activities led to the necessity of the post-petition expenses. In re Am. Coastal Energy Inc., 399 B.R. 805, 807 (Bankr. S.D. Tex. 2009). Where the estate cannot avoid environmental liabilities by abandoning estate assets, the expenses incurred to eliminate the threat [of hazardous materials] was necessary to preserve the estate. Id. at 812 (citing Pa. Dep't of Envtl. Res. v. Conroy, 24 F.3d 568, 569-70 (3d Cir. 1994) (finding that costs HOU:0531221/00022:1680956v1 3
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 4 of 9 incurred by state agency to remediate property will be accorded administrative expense treatment because the expenses incurred to remove the threat are necessary to preserve the estate); U.S. v. LTV Corp. (In re Chateaugay Corp.), 944 F.2d 997, 1009-10 (2d Cir. 1991) (finding that expenses to remove toxic substances that pose a significant hazard to public health are necessary to preserve the estate); Lancaster v. State of Tenn. (In re Wall Tube & Metal Prods. Co.), 831 F.2d 118, 121-22 (7th Cir. 1987) (finding that in the absence of compliance by the debtor's estate, state was entitled to administrative expense to assess the gravity of the environmental hazard)). See also In re N.P. Mining Co., Inc., 963 F. 2d 1449, 1457 (11th Cir. 1992); In re Oldco M Corp., 438 B.R. 775, fn.8 (Bankr. S.D.N.Y. 2010). In the bankruptcy case of Tri-Union Development Corporation overseen by Judge Greendyke under Case No. 03-44908, a debtor s attempt to escape decommissioning liabilities through lease assignment failed, and the Court issued an order confirming that the debtor retained these inescapable liabilities. In the Tri-Union case, the debtor filed a motion to assume and assign a farm-out agreement on OCS leases and proposed a plan in which they would remain in the chain of title for the assigned OCS leases, yet escape all decommissioning liabilities and obtain a release of all Minerals Management Service claims. (For convenience, a copy of the motion is attached hereto as Exhibit A ) 1 9. In an objection filed in the Tri-Union case, the United States (on behalf of the Department of Interior, Minerals Management Service) argued in response that debtors cannot 1 See Expedited Motion for Entry of an Order Authorizing Debtor Tri-Union Development Corporation to Assume Executory Contract with Cabot Oil & Gas Corporation; Debtors Fourth Amended Disclosure Statement Under 11 U.S.C. 1125, Article 7 C-2g(iii). [Case No. 03-44908, Dkt. No. 91] HOU:0531221/00022:1680956v1 4
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 5 of 9 assign their OCS leases and escape their decommissioning obligations. (For convenience, a copy of the objection is attached hereto as Exhibit B ). 2 The United States articulated this position: As lessees and owners of operating rights, Tri-Union is jointly and severally responsible for meeting decommissioning obligations, 30 C.F.R. 250.170(a). If other responsible parties are unable to fulfill these obligations, or if the collected forfeited bond amount is insufficient to pay for the full cost of the P&A, the Regional Director [of the MMS] may look to Tri-Union as predecessor-in-title lessee or operating rights owner to fulfill these obligations or to recover all costs in excess of the amount collected under forfeiture of the bond. 30 C.F.R. 256.62(f) & 256.59(f). Debtor Tri-Union s P&A Obligations are a legal liability of the estate which cannot be discharged simply by attempting to transfer those obligations to other parties. See Exhibit B, 9. 10. Judge Greendyke entered an order approving Tri-Union s assumption and assignment of the OCS leases but ordered that Tri-Union s assumption of the Farm-Out Agreement and Tri-Union s subsequent assignment of its oil and gas leases (OCS G 10744 Eugene Block 277) to Cabot Oil & Gas Corporation, if any, does not affect Tri-Union s statutory, regulatory and contractual plugging and abandonment on that lease. A copy of this order is attached as Exhibit C for convenience. 3 11. Further, the OCS Leases are neither executory contracts nor unexpired leases, and as such are not subject to assumption or rejection pursuant to 11 U.S.C. 365. Matter of Topco, Inc., 894 F.2d 727, n.17 (5th Cir.1990) (oil and gas leases are not actual leases under Texas law), In re WRT Energy Corp., 202 B.R. 579, 583 (Bankr. W.D. La. 1996) (considering oil and gas leases under Louisiana law); In re Heston Oil Co., 69 B.R. 34 (N.D. Okla. 1986) (oil and gas leases under Oklahoma law are not unexpired leases or executory contracts subject to assumption 2 United States Objection to Debtors Fourth Amended Disclosure Statement Under 11 U.S.C. 1125 in Support of Fourth Amended Plan of Reorganization of Tri-Union Development Corporation and Tri-Union Operating Company. [Case No. 03-44908, Dkt. No. 631] 3 Order Authorizing Debtor Tri-Union Development Corporation to Assume Executory Contract with Cabot Oil & Gas Corporation. [Case No. 03-44908, Dkt. No. 134] 5 HOU:0531221/00022:1680956v1
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 6 of 9 or rejection); Matter of Biron, Inc., 23 B.R. 241 (Bankr. S.D. Ohio 1982) (purchase agreement for interest in oil and gas lease was not an executory contract). Mineral leases, such as the OCS Leases, are not leases in the sense used in Section 365. See Matter of Topco, Inc., 894 F.2d at n.17; In re WRT Energy Corp., 202 B.R. at 583 (mineral leases vest the lessee with real rights while leases of real property vest the lessee with personal rights). The OCS Leases also do not qualify as executory contracts because performance does not remain due on both sides. See N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 522 n.6 (1984) (quoting H.R.Rep. No. 95 595, 95th Cong., 1st Sess. 347 (1977)); In re WRT Energy Corp., 202 B.R. at 585 (mineral lessor has no affirmative duties under Louisiana law and mineral leases are therefore not executory contracts). The Debtor may not use Section 365 to assume or reject the OCS Leases because they are neither executory contracts nor unexpired leases. 12. Here, the Rejection Procedures Motion clearly demonstrates the Debtor s attempt to abandon its decommissioning obligations for the OCS Leases by rejecting the OCS Leases under the Rejection Procedures Motion. By seeking to reject the OCS Leases and identifying $0 cure amounts, the Debtor blatantly tries to escape its inescapable decommissioning obligations on the insufficient basis that such OCS Leases are not profitable. This Court should reject that attempt and deny the Rejection Procedures Motion pursuant to Section 365. B. Objections to Other Aspects of the Debtor s Motion 13. TOTAL also objects to the other aspects of the Rejection Procedures Motion that would circumvent normal claim objection procedures and create more unjustified burdens for creditors (with no clear corresponding benefit to the estate). 14. TOTAL has already filed its Proof of Claim and objected to the proposed cure amount of $0 in its Limited Objection. TOTAL should not be required to file an additional objection to the Debtor s proposed rejection of TOTAL s agreements, or to do so within 10 days HOU:0531221/00022:1680956v1 6
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 7 of 9 of receiving an omnibus rejection notice, as set forth in Paragraph 11 of the Rejection Procedures Motion. Nor should TOTAL be required to litigate its claim on an emergency basis at the Debtor s whim, as set forth in Paragraph 15 of the Rejection Procedures Motion, or only two days after receiving the Debtor s Reply to TOTAL s objection, as set forth in Paragraph 13. 15. TOTAL submits that the normal claim objection process under the Bankruptcy Code should apply. The Bankruptcy Code sets forth a process for the Debtor to object to TOTAL s Proof of Claim with due consideration for due process and a fair opportunity to respond; TOTAL s rights should not be circumvented simply because the Debtor does not profit by its agreements with TOTAL. See 11 U.S.C. 365; Fed. R. Bankr. Proc. 3007(a) (providing that a claim objection must be delivered to the creditor at least 30 days prior to hearing). III. RESERVATION OF RIGHTS 16. Total further reserves all rights to bring any additional argument or objection after it has had an opportunity and reasonable notice. WHEREFORE TOTAL E&P USA, INC. requests that the Rejection Procedures Motion be denied and that TOTAL be granted all further relief to which it may be entitled under law or at equity. HOU:0531221/00022:1680956v1 7
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 8 of 9 Dated: June 19, 2013. Respectfully Submitted, By: /s/ Philip G. Eisenberg Philip G. Eisenberg Texas State Bar No. 24033923 W. Steven Bryant Texas State Bar No. 24027413 Brooke B. Chadeayne Texas State Bar No. 24072030 2800 JPMorgan Chase Tower 600 Travis Street, Ste. 2800 Houston, Texas 77002 Tel. (713) 226-1200 Fax. (713) 223-3717 ATTORNEYS FOR TOTAL E&P USA, INC. HOU:0531221/00022:1680956v1 8
Case 12-36187 Document 2052 Filed in TXSB on 06/19/13 Page 9 of 9 CERTIFICATE OF SERVICE I hereby certify that, on June 19, 2013 a true and correct copy of the foregoing Objection was duly served by ECF on the parties,receiving electronic service in these Bankruptcy Cases via ECF, and on the parties listed below by separate electronic mail. /s/ Philip G. Eisenberg Philip G. Eisenberg Mayer Brown LLP Attn: Charles S. Kelley 700 Louisiana Street, Suite 3400 Houston, Texas 77002 CKelley@mayerbrown.com Counsel for the Debtor Jefferies & Company, Inc. Attn: Stephen Straty 300 Crescent Court, Suite 500 Dallas, Texas 75201 sstraty@jefferies.com Debtor s Investment Banker Cravath, Swaine & Moore LLP Attn: Paul H. Zumbro Worldwide Plaza 825 Eighth Avenue New York, New York 10019 pzumbro@cravath.com Counsel for the DIP Agent Bingham McCutchen LLP Attn: Ronald J. Silverman 339 Park Avenue New York, New York 10022 Ronald.silverman@bingham.com -and- Winstead PC Attn: Phillip Lamberson 500 Winstead Building 2728 N. Harwood Street Dallas, Texas 75201 plamberson@winstead.com Counsel to Certain DIP Lenders Milbank, Tweed, Hadley & McCloy LLP Attn: Evan R. Fleck 1 Chase Manhattan Plaza New York, New York 10005 efleck@milbank.com Counsel to the Official Committee of Unsecured Creditors Diamond McCarthy LLP Attn: Kyung S. Lee 909 Fannin Street, Suite 1500 Houston, Texas 77010 klee@diamondmccarthy.com Counsel to the Official Equity Committee Wachtell, Lipton, Rosen & Katz LLP Attn: Attn: Scott K. Charles 51 West 52nd Street New York, New York 10019 skcharles@wlrk.com Counsel to the Ad Hoc Committee of Second Lien Notes U.S. Trustee s Office Attn: Nancy Lynne Holley 515 Rusk Avenue, Suite 3516 Houston, Texas 77002 Nancy.Holley@usdoj.gov Trial Counsel for the United States Trustee for the Southern District of Texas HOU:0531221/00022:1680956v1 9
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