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Full title: Objection to Debtors' Application to Compromise Controversy (related document(s):215 Application to Compromise Controversy). Filed by Capital One, National Association (Warren, Matthew) (Entered: 05/17/2021)
Document posted on May 16, 2021 in the bankruptcy, 17 pages and 0 tables.
Bankrupt11 Summary (Automatically Generated)
In “exchange,” the Debtors are seeking:3 • to release numerous insider claims and causes of action against CEI and its officers and directors with respect to which the Prepetition Secured Parties’ were granted Adequate Protection Liens and Adequate Protection Superpriority Claims pursuant to the Debtors’ final cash collateral order [D.I. 124] (the “Cash Collateral Order”) to protect against any Diminution in Value of the Prepetition Secured Parties’ collateral; and • to transfer the Prepetition Secured Parties’ collateral constituting the Transferred Interests, and release the Prepetition Secured Parties’ security interests on the Transferred Interests, both without the Prepetition Secured Parties’ consent.Absent the Prepetition Agent and Prepetition Secured Parties’ consent, the Debtors cannot consummate the proposed Settlement and transfer the Transferred Interests free and clear of liens under Section 363(f)(2) of the Bankruptcy Code.The Debtors have not met their burdens under Section 363 of the Bankruptcy Code,7 and as a result the Motion should be denied absent the Prepetition Secured Parties’ consent. 7 Approval of Section 363(m) of the Bankruptcy Code is also not warranted in these circumstances, as the Debtors provide no justification in the Motion or other basis for why such section should apply to the Settlement.The Debtors have made it clear that they are determined to prosecute the proposed Settlement without the Prepetition Secured Parties’ consent despite the fact that the Prepetition 10 As the Prepetition Agent has previously highlighted in the Prepetition Agent’s Omnibus Response in Support of Debtors’ Emergency Motion for Use of Cash Collateral [D.I. 124], the Committee’s counsel has such intrinsic connections to CEI and its agents that the Prepetition Agent has its doubts as to whether any Committee input as to the CEI Settlement was negotiated at arms’ length. While the Committee has statutory and fiduciary duties to all unsecured creditors, the Prepetition Agent respectfully asserts that the Committee’s position with respect to the Settlement is immaterial, as unsecured creditors currently have no interest in the assets sought to be sold or causes of action sought to be released and will only have an interest in them if the Plan, as currently formulated, is confirmed and the Prepetition Secured Parties agree to release their liens and security interests over such assets.
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Document ContentsIN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: § § Case No. 21-30710 CASTEX ENERGY 2005 HOLDCO, § LLC, et al., § Chapter 11 § Debtors. 1 § (Jointly Administered) § Ref. Docket No. 215 PREPETITION AGENT’S OBJECTION TO DEBTORS’ MOTION FOR ENTRY OF AN ORDER: (I) APPROVING SETTLEMENT BETWEEN THE DEBTORS AND CASTEX ENERGY, INC.; (II) AUTHORIZING THE SALE OF TRANSFERRED INTERESTS; AND (III)AUTHORIZING ASSUMPTION AND ASSIGNMENT OF EXECUTORY CONTRACTS The Prepetition Agent, as representative of the Prepetition Secured Parties, respectfully submits this objection (this “Objection”) to the Debtors’ Motion for Entry of an Order: (I) Approving Settlement Between the Debtors and Castex Energy, Inc.; (II) Authorizing the Sale of Transferred Interests; and (III) Authorizing Assumption and Assignment of Executory Contracts [Docket No. 215] (the “Motion”),2 and respectfully states as follows. PRELIMINARY STATEMENT 1. This Objection could be avoided entirely if the Debtors would act reasonably. Within hours of initially receiving a draft of the Settlement the Prepetition Agent informed the Debtors that it would not object to the Settlement solely if the Settlement were to become effective at the time of the Effective Date of the proposed Plan, at which time the Adequate Protection 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, as applicable, are: Castex Energy 2005 Holdco, LLC (6832); Castex Energy 2005, LLC (6832); Castex Energy Partners, LLC (6832); and Castex Offshore, Inc. (8432). The Debtors’ mailing address is One Memorial City Plaza, 800 Gessner Rd., Suite 925, Houston, Texas 77024. 2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion.
1Superpriority Claims, Adequate Protection Liens, and other liens and claims of the Prepetition Secured Parties’ (including deficiency claims) would be released or waived and no longer implicated by the Settlement. Despite this dialogue, the Motion was filed without the Prepetition Secured Parties’ support less than two (2) business days after the Prepetition Agent received that first draft, with a Settlement containing materially broader releases than those contained in the initial draft and no adjustment to the timing of the Settlement’s effectiveness. The Prepetition Agent disagrees that this is a reasonable or otherwise legally permissible settlement–but if the Plan becomes effective, those issues are no longer its concern. Prior to the Effective Date of the Plan, however, the entire burden of this inappropriate, and legally impermissible Settlement will fall upon the Prepetition Secured Parties. Thus, this is ultimately a mere timing problem. Because the Debtors are unwilling to consent to the Prepetition Agent’s timing request, this Objection is going forward. 2. The context in which this Objection is filed is critical to the truly remarkableposition of the Debtors in pursuing the Settlement over the objection of the Prepetition Agent and the Prepetition Secured Parties. The Prepetition Agent and the other Prepetition Secured Parties consented to the Debtors’ use of their cash collateral during these Chapter 11 Cases and the filing of a Plan in order to provide for an orderly liquidation of the estate’s assets. Indeed, the Prepetition Secured Parties agreed to the release of certain assets and claims of the Prepetition Secured Parties for the benefit of junior creditors—including causes of action and millions of dollars of collateral—conditioned on the efficacy of that proposed Plan. In the face of that consent from the Prepetition Agent and the other Prepetition Secured Parties, the Debtors now seek to release claims and causes of action against an insider for which the estate is receiving negligible, if any value, over the strenuous objection of the very fulcrum party that, if the Plan is not ultimately confirmed
2and effective, would be most affected. Indeed, releasing these claims prematurely may create perverse incentives for CEI and its principals (against whom the estate and/or Prepetition Secured Parties may have significant credible claims) to undermine the Plan in connection with its confirmation or between the period of confirmation and effectiveness. 3. The only consideration the Debtors are receiving for the Settlement is a $1,430,000.00 cash payment (that the Debtors contend is already legally owed to them) and the assumption by CEI of P&A obligations estimated by the Debtors to equate to $1,422,469.00 (that CEI is likely already co-liable for as a joint working interest owner on the Transferred Interests). In “exchange,” the Debtors are seeking:3 • to release numerous insider claims and causes of action against CEI and its officers and directors with respect to which the Prepetition Secured Parties’ were granted Adequate Protection Liens and Adequate Protection Superpriority Claims pursuant to the Debtors’ final cash collateral order [D.I. 124] (the “Cash Collateral Order”) to protect against any Diminution in Value of the Prepetition Secured Parties’ collateral; and • to transfer the Prepetition Secured Parties’ collateral constituting the Transferred Interests, and release the Prepetition Secured Parties’ security interests on the Transferred Interests, both without the Prepetition Secured Parties’ consent. 4. Putting aside for the moment that the Debtors do not, and cannot, demonstrate that the Transferred Interests may be sold free and clear of the Prepetition Secured Parties’ liens and security interests under Section 363(f) of the Bankruptcy Code without their consent, the Motion fails to provide a reasonable level of detail on what the estates and Debtors are proposing to give up with respect to the releases under the Settlement. For example, what is the nature and basis for the potential causes of action against CEI and its directors and officers? What is their potential 3 The Settlement apparently does not address CEI’s return of that certain Irrevocable Standby Letter of Credit No. 30099916 (the “Letter of Credit”). The Prepetition Agent understands that the insurance policies, and corresponding premiums that were the obligations supported by such Letter of Credit, were cancelled in November, yet despite requests from the Debtors, CEI has refused to cancel and return such Letter of Credit.
3value? What investigation and analysis was done regarding those causes of action? On May 4, 2021, the Prepetition Agent reached out to the Debtors and the Committee on each of these questions, and more, in an attempt to quantify the aggregate value of the Settlement.4 The Prepetition Agent followed up on its informal inquiries with official subpoenas issued on May 12, 2021, when the Debtors and Committee did not respond as requested. As of the filing of this Objection, the Prepetition Agent has not received adequate answers to these questions to date and, to the contrary, has encountered resistance to production of documents and witnesses relating to the Settlement. Regardless, even a cursory review of the Debtors’ schedules and statements illustrates that the potential universe of preference claims against CEI alone for the one year prior to the Petition Date is approximately $22 million. 5. Based on the lack of clarity in the Motion, in discussions with the Debtors and theCommittee and the other facts and circumstances of the chapter 11 cases, the Motion not only fails to take into account deference to the paramount interests of the Debtors’ secured creditors, but the Prepetition Agent also believes, based on presently available information, that the Settlement consideration falls well below the lowest range of a reasonable settlement. Without a far more robust understanding of the Debtors’ “gets” for the requested CEI “gives,” the Debtors simply cannot meet their burden to demonstrate the Settlement is “fair and equitable” under Rule 9019 and should not be permitted to simply charge forward with these insider releases in advance of a chapter 11 plan or conversion of these cases to chapter 7. 6. Importantly, the Debtors’ agreement to release these causes of action and theTransferred Interests is also not explicitly tied to the Debtors’ confirmation of a chapter 11 plan. The Prepetition Agent understands from the Debtors’ perspective that the Settlement Payment is 4 A full list of the questions the Prepetition Agent delivered via email is included as Exhibit A hereto.
4“critical” to demonstrating to BOEM and BSEE that the Debtors have enough funding in connection with the Plan to consummate their obligations thereunder until the Debtors can access the Escrowed Talos Shares (as defined in the Plan). However, the Debtors have not shown any justification for why receipt of these funds (and the attendant release of claims and collateral) is critical outside of a plan process. 5 Put simply, if the Debtors do not confirm the Plan, why is it necessary to rush forward with this settlement over the objection of the Debtors’ fulcrum creditors who will, in the absence of the confirmed Plan, bear the brunt of this deal. 7. While the Prepetition Secured Parties have agreed to release their liens and interests on the causes of action and Transferred Interests upon the consummation of the Plan (at which time the Prepetition Agent would then concede it has no interest in the terms of the Settlement and thus no reason to object), the Prepetition Secured Parties have not, and will not, agree to release their collateral and interests without assurances that a Plan will be confirmed to globally resolve the issues outstanding in these cases. Indeed, the claims and causes of action against CEI are a major component of the Adequate Protection Liens and Adequate Protection Superpriority Claims granted to the Prepetition Secured Parties under the Cash Collateral Order – and are the Prepetition Secured Parties’ main protection against diminution in value if, as has been the Prepetition Agent’s concern throughout these cases, a chapter 11 plan cannot be confirmed and the cases are converted to chapter 7.6 5 The Debtors have not proposed an updated budget as contemplated and required by the Cash Collateral Order, nor have the Debtors provided reconciliation information the Prepetition Agent has requested regarding creditors refusing to remit funds to the Debtors that have in part led to the Debtors’ current cash constraints. The Prepetition Secured Parties have offered to work with the Debtors on amendments or revisions to the Cash Collateral Order in order to help bridge any temporary liquidity shortfall, but the Debtors have not engaged on such options and instead opt to continue to focus on pushing through the releases of CEI and the former insiders. 6 As highlighted in the Cash Collateral Order, the Prepetition Agent does not concede that the Adequate Protection Liens and Adequate Protection Superpriority Claims are enough to “adequately protect” the
58. While debtors-in-possession have discretion in exercising reasonable business judgment to settle outstanding claims, that discretion is not without limits. Specifically, as here, there is no urgent business need compelling the Debtors to continue to push forward with a quick sale of the Transferred Interests to a former insider outside of a plan process, without a fulsome analysis of what exactly is being released by the estates, and without the permission of the Prepetition Secured Parties, who as of the date hereof hold the only beneficial interests in the released causes of action and Transferred Interests. Accordingly, the Prepetition Agent respectfully requests that the Court deny approval of the Settlement as presented to this Court in the Motion. OBJECTION 9. The Debtors rely on Rule 9019 of the Federal Rules of Bankruptcy Procedure and Section 363 of the Bankruptcy Code as their legal predicate for seeking approval of the Settlement. Under either prong, the Prepetition Agent contends that the Settlement should not be approved outside of the consummation of a chapter 11 plan. I. The Debtors’ Have Not Demonstrated that the Transferred Interests Can Be Sold Free and Clear of the Prepetition Secured Parties’ Interests Absent Their Consent. 10. The sale of property free and clear of interests is authorized under a limited number of circumstances. Section 363(f) of the Bankruptcy Code delineates these exceptions: (f) The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if- (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; (2) such entity consents; Prepetition Secured Parties as to any diminution in their collateral. In fact, based on the facts and circumstances of these cases, the Prepetition Agent asserts that it would be impossible to adequately protect the Prepetition Secured Parties – making the claims and causes of action against CEI sought to be non-consensually released even more important.
6(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; (4) such interest is in bona fide dispute; or (5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. 11 U.S.C. § 363(f) (emphasis added). 11. The Debtors’ state “…given that the Prepetition Secured Parties have determined to release liens (or would ultimately release liens) in, to, or upon the Transferred Interests and the Transferred Interests JOAs in connection with the Plan, the Debtors believe that Prepetition Secured Parties will consent to the transfer.” Motion, at ¶ 54. The Debtors’ inference is that the Prepetition Secured Parties have agreed to give up their liens on causes of action and the Transferred Interests in connection with the Plan, so why not release them in connection with the Settlement – but this ignores the nuances of months of negotiations whereby the Prepetition Secured Parties expressly agreed to release their liens and interests (and to otherwise fund a plan process) solely in connection with the consummation of the Plan that compromises and settles all of the outstanding issues in these cases. Critically, the Prepetition Secured Parties have not, and will not, consent to any release of their liens or security interests on any collateral prior to the consummation of a Plan—and certainly not when the Debtors have failed to demonstrate that the value of the claims that are being given up are reasonable in light of the benefit being obtained by the Debtors’ estates. 12. Absent the Prepetition Agent and Prepetition Secured Parties’ consent, the Debtors cannot consummate the proposed Settlement and transfer the Transferred Interests free and clear of liens under Section 363(f)(2) of the Bankruptcy Code. See, e.g., In re CDX Gas, LLC, No. 08-37922-HR-11, 2009 WL 1651445, at *2 (Bankr. S.D. Tex. June 9, 2009). Additionally, the Debtors’ motion presents no plausible basis (and cites to no evidence) upon which they can meet
7any of the other exceptions to Section 363(f) in order to release the Prepetition Agent’s and Prepetition Secured Parties’ liens on the Transferred Interests non-consensually. Further, absent confirmation of a Plan on May 27, 2021, and the occurrence of the Effective Date fourteen (14) days thereafter, the Debtors’ cash collateral use will terminate pursuant to the failure to meet the applicable Milestones in the Cash Collateral Order, and the Debtors will then be unable to expend any portion of the Settlement Payment, as cash collateral of the Prepetition Secured Parties, without the Prepetition Secured Parties’ consent. 13. Even if the Debtors could demonstrate that the Prepetition Agent and Prepetition Secured Parties’ liens could be released non-consensually, as a general matter, a sale of assets under § 363 requires the estate to demonstrate that the proposed sale price is the highest and best offer. See In re Moore, 608 F.3d 253, 263 (5th Cir. 2010). As the Debtors are unable to quantify what is being given up by the Debtors in the Settlement, the Prepetition Agent does not believe that the Debtors have demonstrated that the sale of the Transferred Interests in connection with the receipt of the Settlement Payment is the highest and best offer for those assets. In essence, the Debtors seek permission to sell the Prepetition Secured Parties’ Collateral free and clear of liens without disclosing the full value of what is being exchanged. 14. The Debtors have not met their burdens under Section 363 of the Bankruptcy Code,7 and as a result the Motion should be denied absent the Prepetition Secured Parties’ consent. 7 Approval of Section 363(m) of the Bankruptcy Code is also not warranted in these circumstances, as the Debtors provide no justification in the Motion or other basis for why such section should apply to the Settlement. In any event, the Prepetition Agent’s rights to appeal should not be limited given the substantial, and rushed, nature of the Settlement.
8II. The Debtors Have Not Met Their Burden to Show That the Settlement is in the BestInterests of the Debtors and Their Creditors. 15. A proposed 9019 settlement must be “fair and equitable” and in the best interestsof the estate. Am. Can Co. v. Herpel (In re Jackson Brewing Co.), 624 F.2d 605, 608 (5th Cir.1980). As the party proposing the Settlement, the Debtors have the burden of proof.8 Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop., Inc. (In re Cajun Elec. Power Coop.), 119 F.3d 349, 354 (5th Cir. 1997)). The Fifth Circuit has articulated five factors in any “fair and equitable” analysis: (1) the probability of success in the litigation, with due consideration for the uncertainty in fact and law; (2) the complexity and likely duration of the litigation and any attendant expense, inconvenience, and delay, including the difficulties, if any, to be encountered in the matter of collection; (3) the paramount interest of the creditors and a proper deference to their respective views; (4) the extent to which the settlement is truly the product of arm’s-length bargaining and not fraud or collusion; and (5) all other factors bearing on the wisdom of the compromise. Matter of Foster Mortg. Corp., 68 F.3d 914, 917–18 (5th Cir. 1995) (emphasis added). 16. Far from meeting their burden, there is little to no information regarding the valueof what the Debtors are ultimately giving up by releasing CEI and its related persons, nor is it 8 When insiders of the Debtors may benefit from the proposed settlement, the Court should scrutinize the propose settlement even more closely. See In re Drexel Burnham Lambert Group, Inc., 134 B.R. 493, 498 (S.D.N.Y. 1991) (“We subjected the agreement to closer scrutiny because it was negotiated with an insider, and hold that closer scrutiny of insider agreements should be added to the cook book list of factors that Courts use to determine whether a settlement is fair and reasonable and in the best interest of the estate.”). Given the nature of the extensive prepetition relationship between CEI and its officers, directors and employees with the Debtors, the Prepetition Agent believes the Settlement falls squarely within the requirements of a heightened standard of scrutiny—and that when examined closely it does not meet those standards. The context here bears emphasis: CEI and certain of its officers and employees literally controlled the day to day operations, finances, bookkeeping, administration and other decision-making for all but approximately four months of the Debtors entire prepetition existence – and in the last year they received more than $22 million in payments from the Debtors. It is simply inappropriate to rush a settlement with these parties under present circumstances.
9clearly articulated what exactly CEI and its officers, directors and employees are being released from. The Settlement is just as cryptic when it comes to discussion of the other forms of consideration – including CEI’s continued ability to “cross net” which, despite the request of the Prepetition Agent, remains unquantified. 17. As a result, it is impossible for the Prepetition Agent, other creditors of the Debtors, and the Court to assess whether the Settlement is fair and equitable and in the best interests of creditors. How can the Prepetition Agent and the Court determine whether the Settlement Payment (which the Debtors contend is already a due and owing obligation of CEI, if not for the time and expense to seek turnover which the Debtors to date have not initiated, or filed any pleading with respect to, despite this Court setting an initial emergency hearing at the Debtors’ request) equals the release of claims today against CEI and its officers and directors? The answer is, simply, that Prepetition Agent and the Court cannot make such a determination at this time on this thin to non-existent evidentiary and investigatory record. The Court and creditors are left to speculate about the value that the Debtors are set to receive in exchange for the releases and other consideration—consideration that may very well be below the lowest range of a reasonable settlement.9 18. In addition, while the Debtors attempt to establish that the time and cost of litigation with respect to the CEI claims will be “significant,” it is difficult to understand how that level of complexity could develop when the other party to the Settlement is an insider of the Debtors. Presumably, the payment at issue should have already been the subject of at least a cursory investigation through the course of the Debtors preparing their schedules and, had the Debtors 9 The Prepetition Agent is suspect that the push for an earlier timing for the effectiveness of the Settlement suggests that CEI is seeking, as a primary goal, to effectuate releases for itself and its officer, directors and agents prior to the appointment of a chapter 7 trustee in the instance that these cases convert. However, if the Plan is not confirmed and the case converts to chapter 7, a chapter 7 trustee should be permitted the opportunity and flexibility to consider all potential claims, without being bound by a hasty and unnecessary pre-conversion settlement.
10timely filed their turnover motion, the “several days” of depositions they require could have already been completed. The Prepetition Agent is skeptical that the time and expense to seek turnover of the Settlement Payment is as high a burden as the Debtors present. 19. Further, the Debtors have failed to establish the “fair and reasonable” prong as to whether the Settlement is in the paramount interest of the Debtors’ creditors. The Debtors contend this prong has been satisfied because “[c]ounsel for the Committee has participated extensively in the negotiations between the Debtors and CEI and has provided significant input regarding the terms of the Settlement. As a result, the Committee fully supports the Settlement.”10 Motion, at ¶ 42. 20. While the Committee may have been involved in the settlement negotiations, the Debtors did not extensively consult the Prepetition Agent or the Prepetition Secured Parties. Rather, the Prepetition Agent was presented with an essentially final version of the Settlement on a Thursday night – albeit at that time the Debtors were still seeking to preserve certain Chapter 5 avoidance actions. The Prepetition Agent voiced its objection with respect to the timing of effectiveness of the Settlement later that night, and on the following Monday the Debtors filed the Motion with a Settlement attached that also released all the Debtors’ claims and causes of action with respect to “avoidance and recovery” actions under Chapter 5. 21. The Debtors have made it clear that they are determined to prosecute the proposed Settlement without the Prepetition Secured Parties’ consent despite the fact that the Prepetition 10 As the Prepetition Agent has previously highlighted in the Prepetition Agent’s Omnibus Response in Support of Debtors’ Emergency Motion for Use of Cash Collateral [D.I. 124], the Committee’s counsel has such intrinsic connections to CEI and its agents that the Prepetition Agent has its doubts as to whether any Committee input as to the CEI Settlement was negotiated at arms’ length. As the Prepetition Agent has previously flagged (and as disclosed by the Committee in its retention application), the Committee and CEI appear to be very familiar with one another, with lead counsel to the Committee having clerked for CEI’s counsel, as well as having appeared together as co-counsel for CEI on previous matters. See MC Asset Recovery, LLC v. Castex Energy, Inc. et al (4:07-cv-00076).
11Secured Parties are the creditors with the only current interests in the Transferred Interests and other claims and causes of action being released. While the Committee has statutory and fiduciary duties to all unsecured creditors, the Prepetition Agent respectfully asserts that the Committee’s position with respect to the Settlement is immaterial, as unsecured creditors currently have no interest in the assets sought to be sold or causes of action sought to be released and will only have an interest in them if the Plan, as currently formulated, is confirmed and the Prepetition Secured Parties agree to release their liens and security interests over such assets. The Transferred Interests are the Prepetition Secured Parties’ collateral, and the claims and causes of action against CEI were granted in connection with the Prepetition Secured Parties’ Adequate Protection Liens and Adequate Protection Superpriority Claims under the Cash Collateral Order in the instance that there is diminution in value of the Prepetition Secured Parties’ collateral. As a result, these assets should not be released other than consensually, in connection with the broad settlement of claims and interests under a Plan—and the Debtors have not otherwise shown that they have assessed the Settlement to be in the paramount interest of their creditors such that there is fair and justifiable reasons to affirm the Settlement over the Prepetition Secured Parties’ non-consent. Conclusion 22. The Prepetition Secured Parties should not be required to bear all of the risk in this transaction. It is clear that the Prepetition Secured Parties will be worse off if the proposed Settlement is approved by the Court without an accompanying effectiveness of the Plan – yet the Debtors inexplicably refuse to tie these events together. Accordingly, the Prepetition Agent respectfully requests that the Court (i) deny the relief requested in the Motion, unless the
12consummation of the Settlement is tied to the Effective Date of the Plan, and (ii) grant any and all other relief the Court deems just and necessary. [Remainder of page intentionally left blank.]
13Dated: May 17, 2021 Respectfully Submitted, /s/ Matthew L. Warren King & Spalding LLP Matthew L. Warren (Texas Bar No. 24119154) Lindsey Henrikson (admitted pro hac vice) R. Jacob Jumbeck (admitted pro hac vice) 110 N Wacker Drive, Suite 3800 Chicago, IL 60606 Telephone: (312) 995-6333 Email: firstname.lastname@example.org email@example.com firstname.lastname@example.org Attorneys for the Prepetition Agent
14CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing Notice of Appearance was served on May 17, 2021 on all parties entitled to receive service through the Court’s ECF system. /s/ Matthew L. Warren
15EXHIBIT A 1. What potential causes of action are the Debtors retaining against CEI and itsofficers/directors? For example, are John Stoika and the other officers being released intheir individual capacities from actions they took when they were officers/directors of theDebtors? a. Apart from preference and fraudulent transfer claims, what other claims do theDebtors / UCC propose to release through the reference to all “recovery” actionsunder the Chapter 5 of the bankruptcy code? b. What review was done to analyze and attempt to quantify the CEI released causesof action? Please provide any such analysis. 2. When did CEI pay the original 2020 insurance premiums and when did CEI receive therefund for such insurance premiums? 3. Was the allocation of insurance premiums between the Castex Debtor entities and the otherCEI entities reviewed? If so, how were the premium payments allocated and whatmethodology was used to allocate between the various entities managed by CEI? 4. What was the total insurance expense paid by CEI on account of the Castex Debtors during2020? What amount was paid to CEI by the Castex Debtors relating to such insurancepremiums? 5. The estate is conceding, in advance, any dispute with or claim against CEI regardingprospective “cross netting” of amounts owed to / from CEI and the Debtors. Have theDebtors / UCC analyzed how much the estate may be giving up through this concession? Ifso, please advise and provide the following: a. The aggregate amount released by the Debtors on account of permitting CEI “tocontinue to net JIBs against revenue and cross net to reduce shortfalls under andregarding such JOAs under which CEI is operator covering such properties otherthan the Transferred Interests” b. The breakdown of such amounts on a prepetition and postpetition basis (i.e. if theprepetition and postpetition were not permitted to be setoff). c. What is the net impact of future “cross netting” that would be sanctioned by theproposed settlement agreement? d. Would the “cross-netting” impact the amount of the insurance payment refund paidover to the Debtors? e. Would the “cross-netting” be used to recover payments that CEI claims are due (orbecome due) under the CTP Term Sheet?
166. What was the total amount of shared service expense paid to CEI during the 2 years priorto the bankruptcy filing? 7. What comparable transactions did the Debtors review relating to the shared servicesexpense charges by CEI during the 2 years prior to the bankruptcy filing? 8. Did the Debtors/UCC review the underlying financials to validate the accounting andexpense separation and treatment between the Castex Debtors and the other entitiesmanaged by CEI? a. In particular, please provide the Debtors/UCC analysis of the G&A allocationbetween such managed entities 9. What amount did CEI receive for the transfer of assets related to the Castex Debtors inconnection with asset sales to Talos during the 2 year period prior to the bankruptcy case? a. In particular, please advise on the value received by CEI relating to the sale ofCastex 2014 and Castex 2016 (e.g. transfer of seismic data without consideration,release of intercompany payables owing to CEP from Castex 2014 and Castex2016) b. Please include the Debtors/UCC assessment of the value of tag rights waived bythe Castex Debtors relating to such transactions 10.Please provide the list of “non-consents” relating to AFE’s proposed by CEI, or by anotheroperator where CEI or its principles and affiliates owned working interests in the sameproperty, for which the Castex Debtors did not consent during the 2 years prior to thebankruptcy case. 11.Please describe the assets within the Castex Laforche and related JV entity and theDebtors/UCC assessment of value. 12.What evaluation did the Debtors undertake, independent of information provided by CEI,on the net P&A associated with the Transferred Interests? What price deck was suchanalysis premised upon? 13.Please provide the Debtors/UCC valuation of the preference claims against CEI relating tothe payments to CEI during the 1 year prior to the bankruptcy case (approximating $22million) based on the Debtors/UCC assessment of any defenses relating thereto.