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Full title: Response (Filed By Castex Energy, Inc. ).(Related document(s):215 Application to Compromise Controversy) (Phillips, Louis) (Entered: 05/24/2021)

Document posted on May 23, 2021 in the bankruptcy, 15 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

Because under the Settlement, the Debtors are releasing certain claims against CEI, CEI believes that it is helpful for the Court and other parties in interest for CEI to explain its side of the CEI Dispute and why the release of these asserted claims against CEI and Settlement with CEI is reasonable and in the best interests of the estate.The SSA This Court is now well-aware that Castex Energy Partners, L.P., Castex Energy 2005, L.P., Castex Energy II, LLC, Castex Energy IV, LLC, and Castex Offshore, Inc. (“Prior Debtors”) filed voluntary petitions relief on October 17, 2017, which were jointly administered before this Court under CaseThe Debtors shall release CEI, its officers, directors, employees and agents from: (i) any and all claims and causes of action against CEI arising under or related to the Transferred Interests and Transferred Interests JOAs, other than, any claims against such parties for the breach of a fiduciary duty arising under applicable law, including without limitation, the duties of loyalty and care; (ii) any avoidance or recovery action against CEI under Chapter 5 of the Bankruptcy Code; and (iii) any claims and causes of action against CEI arising from or related to the INC Indemnification Claim.But as set forth herein, CEI had accrued claims against the Debtors under SSA, CTP, and August 5 Letter Agreement when the Talos Transaction closed and the Debtors did not pay the incentives due to CEI.Given the assumed P&A Obligations (discussed below), the defenses of CEI to the claims of the Debtors to the amount of the Settlement Payment, the lack of value of the Transferred Interests and Transferred JOAs, more than sufficient consideration is being paid by CEI, and both the Debtors and the UCC have had an “open book” opportunity to evaluate the value of the consideration given by CEI against the value (or lack thereof) of the value to be obtained by CEI.

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION § In re: § Case No. 21-30710 § CASTEX ENERGY 2005 HOLDCO, § Chapter 11 LLC, et al., § § (Jointly Administered) Debtors.1 § § Related Pleadings: Dkt. No. 215 RESPONSE IN SUPPORT OF 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 THE ASSUMPTION AND ASSIGNMENT OF EXECUTORY CONTRACTS Castex Energy, Inc. (“CEI”) files this Response (the “Response”) to the 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 the Assumption and Assignment of Executory Contracts (Dkt. No. 215) (the “Settlement Motion”) filed by the above-captioned debtors (the “Debtors”). As set forth in the Settlement Motion, and in this Response, the settlement embodied in the Settlement Motion (the “Settlement”) is the product of extensive arms-length negotiations between the Debtors, CEI, and the Unsecured Creditors Committee (the “UCC”). There were two objections to the Settlement Motion (Dkt. Nos. 240, 254) filed by the agent for the prepetition lenders and RLI Insurance Company (“RLI”), respectively. As of filing 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.

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of this Response, both objections have been resolved. CEI has agreed with RLI that approval of the Settlement will not affect the rights of RLI under its bonds and related indemnity agreement(s) (with all rights and defenses of CEI preserved) and RLI withdrew its objection (Dkt. No. 264). Further, CEI, the Debtors, the UCC and the prepetition lenders, through the lenders’ agent, have agreed to take up the Settlement Motion prior to the confirmation hearing and submit to the Court the agreed form of order that has been filed of record (Dkt. No. 250) (“9019 Order”). As a result of agreement to this form of order the lenders’ agent withdrew its objection to the Settlement (Dkt. No. 252). THE DISPUTE BETWEEN THE DEBTORS AND CEI In the Settlement Motion, the Debtors outline the “CEI Dispute.” Settlement Motion, p. 4-11. The Debtors have outlined their claims while only briefly explaining CEI’s side of the CEI Dispute, which is of course understandable given that it is the Debtors’ motion. Because under the Settlement, the Debtors are releasing certain claims against CEI, CEI believes that it is helpful for the Court and other parties in interest for CEI to explain its side of the CEI Dispute and why the release of these asserted claims against CEI and Settlement with CEI is reasonable and in the best interests of the estate. a. The SSA This Court is now well-aware that Castex Energy Partners, L.P., Castex Energy 2005, L.P., Castex Energy II, LLC, Castex Energy IV, LLC, and Castex Offshore, Inc. (“Prior Debtors”) filed voluntary petitions relief on October 17, 2017, which were jointly administered before this Court under Case No. 17-35835 (the “Prior Bankruptcy Cases”). While after the Prior Bankruptcy Cases, CEI and the Debtors were no longer affiliates, CEI and the Debtors entered into a Second Amended and Restated Shared Services Agreement (the “SSA”), approved by this Court as part of the

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confirmation of the plan in the Prior Bankruptcy Cases. Pursuant to the SSA, CEI: (i) managed all of the Debtors’ oil and gas assets for which the Debtors are the designated operator, by acting in the nature of a contract operator, and managed the Debtors’ non-operated assets as well; (ii) was responsible for all of the Debtors’ management and back office operations; and (iii) provided all personnel to the Debtors for an agreed monthly fee. b. The CTP, the August 5 Letter Agreement, and the RemainCo Transaction In January 2020, it became clear that the Debtors intended to pursue a divestiture strategy and needed CEI to help. On January 31, 2020, the Debtors issued a termination notice of the SSA (as they had the right to do) which provided that the effective date of the termination would be some 180 days after the termination notice. But to induce CEI to remain party to the SSA throughout the proposed divestiture process, the Debtors proposed the Castex Transition Program, dated January 31, 2020 (the “CTP”). The CTP was executed between Castex Energy 2005 Holdco, LLC (“Holdco”) and CEI to “provide certain incentives to CEI in connection with a Transaction.” The CTP defines a Transaction, and states that the various incentives due to CEI would be provided upon definitive documentation being executed and a Transaction being consummated. CEI performed, in full, under the CTP. The Debtors ultimately determined that they desired to make a sale of substantially all of the valuable oil and gas properties to Talos Energy, Inc. (the “Talos Transaction”).2 On the eve of closing of the Talos Transaction, the Debtors informed CEI that it did not consider the Talos Transaction to be a Transaction under the CTP. 2 The Talos Transaction did not deal with the less valuable properties and associated plugging and abandonment obligations associated therewith. CEI did not participate in the decision of the Debtors to choose Talos as the purchasing party.

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CEI, of course, opposed such a reading of the CTP. On August 5, 2020, before the closing of the Talos Transaction, Holdco and CEI entered into a letter agreement (the “August 5 Letter Agreement”). The Debtors assert, in part, that the CTP is not binding on the Debtors. However, the August 5 Letter Agreement specifically provides that the “CTP shall be enforceable against Castex Energy 2005, LLC, Castex Energy Partners, LLC (“CEP”) and Castex Offshore, Inc. as if they were original parties thereto.” See August 5 Letter Agreement, ¶4. In the August 5 Letter Agreement, while the Debtors and CEI reserved their arguments regarding whether the Talos Transaction was, in fact, a Transaction, the parties agreed that for purposes of the CEI JOA Payment (as defined in the CTP), the Talos Transaction would qualify as a Transaction. As set forth in CEI’s Proofs of Claims, the CEI JOA Payment through the Petition Date is $5,169,549.78. To appease CEI and further induce it to take actions necessary to close the Talos Transaction, the Debtors began formally promoting to CEI the prospect of a “RemainCo Transaction” (which had been previously discussed), whereby the Debtors would offload the remaining properties indirectly to CEI or another third party, along with some agreed funding, so that third party interest holders, creditors, and regulatory agencies would be protected. The Debtors and CEI negotiated the RemainCo Transaction and related documentation extensively. However, at the penultimate stage of negotiations, the prepetition lenders objected to the RemainCo Transaction and refused to allow the agreed upon funding and transaction. At the Debtors’ request, CEI granted multiple extensions of the SSA until the end of 2020. At this point, CEI was finally convinced that there was no agreement to be had with the Debtors that would actually deal with regulatory issues and obligations of the Debtors or the fact that the assets remaining after the Talos Transaction could not sustain such obligations. Therefore, CEI,

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in accordance with the terms of the SSA, as amended, set December 5, 2020 as the final Termination Date (as defined in the SSA). c. Insurance Premium Refund and Suspense Funds Throughout the Bankruptcy Case, the Debtors have continually referenced that it has turnover claims against CEI for wrongfully holding property of the estate. See Brickley Dec., ¶37. In April 2020, the Debtors’ Board elected to be covered under a renewed CEI policy and to pay CEI an amount equal to the full premium balance. In May 2020, CEI collected payment for the premiums. After the Talos Transaction closed in August 2020, CEI amended its insurance policy to remove coverage for the CEP and Castex Offshore, Inc. (“COI”) assets sold to Talos, as Talos assumed the insurance obligations related to properties that it had purchased. CEI was issued a refund from the insurance underwriters (the “Insurance Refund”) on a piecemeal basis, as follows: 09/11/2020 -$756,631.73 ACCRUED INSURANCE REIMBURSEMNT 09/16/2020 -$70,809.90 ACCRUED INSURANCE REIMBURSEMNT 09/28/2020 -$263,957.18 ACCRUED INSURANCE REIMBURSEMNT 10/09/2020 -$12,468.23 ACCRUED INSURANCE REIMBURSEMNT 10/31/2020 -$38,158.70 ACCRUED INSURANCE REIMBURSEMNT ($1,142,025.74) “Insurance Premium Refunds” CEI operated certain properties that were sold to Talos in the Talos Transaction and for which Talos took over operation. At the time of the Talos Transaction, there was $180,445.41

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in suspended revenue (the “Suspense Funds”) that Talos, as operator, became responsible for. This amount was captured as a downward purchase price adjustment of the closing, and rather than CEI transferring the Suspense Funds to Talos (as CEI was not a party to the Talos Transaction), the Suspense Funds amount was retained by CEI as of the closing of the Talos Transaction in August 2020. Any claims by the Debtors against CEI for the amounts of the Insurance Refund and the Suspense Funds accrued much earlier than 90 days before the commencement of the Bankruptcy Case, and constituted claims under the SSA against CEI. As of the commencement of the Bankruptcy Case, there was no action for turnover, only a prior breach of SSA claim. Also, since the termination of the SSA, CEI has collected an additional insurance refund from the cancellation of coverage under the CEI policy(ies) that provided coverage for properties retained by the Debtors. CEI claims the right of recoupment of the amount attributable to the interest of the Debtors, in the amount of $86,773.90 (“Cancellation Amount”). d. CEI as Operator Apart from forgoing, CEI also acts as operator of certain onshore oil and gas properties in Louisiana, in which one of the Debtors, CEP is a non-operating working interest owner (the “CEI Operated Properties”). The operations are governed by multiple Operating Agreements (“JOAs”). Under these JOAs, CEI is the operator and CEP holds non-operating working interests (“Non-Operating Working Interests”). As set forth in the Settlement Motion, CEP owes its share of costs associated with the CEI Operated Properties pursuant to these JOAs, including plugging and abandonment obligations (“P&A Obligations”). Under the Debtors’ Plan, the Debtors propose to abandon all interests in the CEI Operated Properties and to reject all contracts, including the partnership agreement of Castex Lafourche, LP and the limited liability agreement of CTS-Castex, LLC. Further, the Debtors do not propose to fund P&A Obligations associated with the CEI

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Operated Properties. Finally, under the Debtors’ Plan, the lenders and lenders’ agent shall release the pre-petition liens upon the assets of the Debtors relating to the oil and gas properties (and, it appears, to the other property being acquired by CEI under the Settlement). e. The INC Demand The Debtors recite that on March 30, 2021, the Debtors received an Incident of Non-Compliance (“INC”) from BSEE following inspection of Vermilion, Block 215, Platform A/CF which at the time of the INC, CEI was the contract operator of. Settlement Motion, ¶25. The Debtors assert that CEI is liable for the civil penalty of $45,463 related to the INC. Id . The INC was a result of employees of a third party contractor of Castex Offshore, Inc. (“COI”). No CEI employees were involved with the INC. Thus, CEI does not believe it has any liability for the INC. However, CEI has agreed with RLI that the Settlement will not affect any rights that RLI might have against CEI under its bonds and related indemnity agreement(s) (with all rights and defenses of CEI preserved). SETTLEMENT As this Court is aware, CEI has been a vocal creditor in this Bankruptcy Case. Dkt. Nos. 29, 117, 139, 168. This is because, in part, from the outset of the Bankruptcy Case, the Debtors have asserted numerous claims against CEI based on the forgoing. See Brickley Dec. at ¶37. Despite the adversarial nature of the relationship, in early April, CEI and the Debtors commenced good faith settlement negotiations. While the substance of the communications exchanged between the parties are protected by the FED.R.EVID. 408, the communications were robust and at times, heated. When a deal began to materialize, the parties included the UCC in the discussions. Throughout this time, CEI provided thousands of pages of documents and spent hours answering

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questions from the Debtors, the UCC, and their advisors (financial and oil and gas). Eventually, the Settlement was reached and the Settlement Motion filed. As set forth in the Settlement Motion, the basics terms of the Settlement are as follows: i. CEI shall pay the Debtors $1,430,000.00 (“Settlement Payment”) in immediately available funds to be received by the Debtors on or before the business day that is two (2) days following entry of the 9019 Order, assuming that the Debtors’ Plan is confirmed and the Effective Date under the Plan occurs. ii. CEI shall waive and release the Debtors from: (i) any claim that could arise from the payment of the Settlement Payment, including, but not limited to, any claims arising pursuant to section 502(h) of the Bankruptcy Code; (ii) any claims and causes of action against the Debtors arising from or related to the Debtors’ interest in the Transferred Interests, including, but not limited to any claims arising from or under any of the Transferred Interests JOAs. Collectively, the releases provided for in this subparagraph shall be referred to herein as the “CEI Released Claims.” The CEI Released Claims will be effective upon entry of the 9019 Order. iii. The Debtors shall release CEI, its officers, directors, employees and agents from: (i) any and all claims and causes of action against CEI arising under or related to the Transferred Interests and Transferred Interests JOAs, other than, any claims against such parties for the breach of a fiduciary duty arising under applicable law, including without limitation, the duties of loyalty and care; (ii) any avoidance or recovery action against CEI under Chapter 5 of the Bankruptcy Code; and (iii) any claims and causes of action against CEI arising from or related to the INC Indemnification Claim. Collectively, the releases provided for in this subparagraph shall be referred to herein as the “Debtor Released Claims.” The Debtor Released Claims, except for the release of the any avoidance or recovery action against CEI under Chapter 5 of the Bankruptcy Code (“Chapter 5 Claims”), will be effective upon entry of the 9019 Order. The release of the Chapter 5 Claims will be effective upon the Effective Date of the Debtors’ Plan. iv. Pursuant to section 363 of the Bankruptcy Code, the Debtors shall sell and transfer, in exchange for the consideration set forth herein, to the designee of CEI all of the Debtors’ interests in the Transferred Interests, as is, with no warranties, with an Effective Time to be the closing, with all revenues, expenses, and obligations accruing or existing as of closing to be transferred, with no adjustments to price or consideration. For the avoidance of doubt, the Transferred Interests shall not include the Apache Claims or the Talos Shares (as defined in the Debtors’ Plan). The approval of the transfer of the Transferred Interests will be effective upon entry of the 9019 Order. v. Pursuant to section 365 of the Bankruptcy Code, the Debtors shall, subject to reasonable agreement regarding the amount and payment of any cure costs, assume and assign any Transferred Interests JOAs relating to the Transferred Interests. The

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approval of the assumption and assignment will be effective upon entry of the 9019 Order. vi. In addition to the release of CEI Released Claims provided above, CEI agrees to assume any and all P&A Obligations of the Debtors existing and arising in relation to the Transferred Interests and the Transferred Interests JOAs. This assumption of P&A Obligations will be effective upon entry of the 9019 Order. vii. Pursuant to section 363(f) of the Bankruptcy Code, the sale of the Transferred Interests and the assignment of the Transferred Interests JOAs shall be free and clear of all liens, claims, encumbrances and other interests (other than those specifically assumed by CEI). This free and clear effect will be effective upon entry of the 9019 Order. viii. To the broadest extent possible, all claims and causes of action not expressly included in the CEI Released Claims or the Debtor Released Claims including, but not limited to, any claims or causes of action for the breach of a fiduciary duty arising under applicable law, shall be retained and preserved by all parties. ix. As to any property other than a Transferred Interest, and any JOA other than the Transferred Interests JOAs, CEI shall be entitled to continue to net JIBs against revenue and cross net to reduce shortfalls under and regarding such JOAs under which CEI is operator covering such properties other than the Transferred Interests. This provision of the Settlement will be effective upon entry of the 9019 Order. x. Upon receipt by CEI of any additional insurance refunds arising from cancellation of insurance on or after December 5, 2020, CEI will pay to the Debtors an amount equal to the amount of any refund(s) attributable to insurance covering properties of CEP and COI that was cancelled. CEI further agrees to reasonably cooperate with the Debtors’ representatives in determining if any such amounts are owed. This provision of the Settlement will be effective upon entry of the 9019 Order. a. Settlement Payment The Settlement Payment of $1,430,00.00 includes the amount of the Insurance Premium Refunds, the Suspense Funds, and the Cancellation Amount ($1,409,245.05), plus a small additional amount (resulting in the even amount of $1,430,000). From the inception of the Bankruptcy Case, the Debtors asserted that they would file a turnover action pursuant to section 542 of the Bankruptcy Code for the Insurance Premium Refund and the Suspense Funds in excess of $1.3 Million. Dkt. No. 41 (Cash Collateral Budget, n. 1 (Beginning cash balance does not include the $1.3 + mm of the debtor’s money that CEI is holding. Withheld funds will be pursued

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shortly after a bankruptcy is filed). The Debtors sent a demand under section 542 of the Bankruptcy Code and/or section 553(b) of the Bankruptcy Code. Essentially, the Debtors alleged that CEI was wrongfully withholding property of the estate and even if CEI claimed a right of setoff or recoupment under section 553(b) of the Bankruptcy Code, to the extent that so exercising that right reduced the indebtedness of the Debtors within the ninety (90) days preceding the Petition Date, the Insurance Premium Refund was recoverable. The Debtors even asked, and received, a setting from the Court on what was termed a “preliminary injunction” hearing. But as set forth herein, CEI had accrued claims against the Debtors under SSA, CTP, and August 5 Letter Agreement when the Talos Transaction closed and the Debtors did not pay the incentives due to CEI. CEI’s claims against the Debtors exceeded $7 million. Because CEI had claims against the Debtors at the time when it received the Insurance Premium Refunds and the Suspense Amount, CEI retained both under its rights of recoupment/compensation/setoff under the agreements. The Insurance Refund and Suspense Funds were not the property of the Debtors when recoupment, compensation or setoff was effected, but even if they had been, the Supreme Court clarified that mere retention of property of the estate does not violate section 362(a)(3) of the Bankruptcy Code. City of Chicago, Illinois v. Fulton, 141 S. Ct. 585, 589 (2021). Therefore, CEI did not wrongfully retain “estate property.” Id. at 591. Section 542(b) of the Bankruptcy Code specifically provides for retention of estate property that is subject to the right of setoff. See 11 U.S.C. § 542(b). As such, the Debtors could not maintain a valid claim against the Debtors under section 542 of the Bankruptcy Code. Section 553(b) of the Bankruptcy Code was inapplicable because CEI obtained its rights by the end of October, 2020 (the Debtors having been in default as of then), CEI did not improve its position during the 90 days before the bankruptcy filings, as

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required by section 553(b) of the Bankruptcy Code. As such, CEI was free to effect an unavoidable setoff under the terms of section 553(b) of the Bankruptcy Code. Also, CEI asserts the right of recoupment as regards the Cancellation Amount. Therefore, the Settlement Payment consists of amounts which are not subject to turnover under section 542 of the Bankruptcy Code, and are not avoidable under section 553 of the Bankruptcy Code. Instead, the Settlement Payment reflects valuable consideration, in addition to the consideration provided through assumption of P&A Obligations. b. Transferred Interests and Transferred JOAs The Transferred Interests and Transferred JOAs include oil and gas properties that the Debtors propose to abandon, limited partnership and LLC membership interests subject to partnership and LLC agreements that the Debtors propose to reject, a promissory note of CEP of unknown value, and JOAs that the Debtors propose to reject. Further, the lenders and their agent, under the Plan will release their liens upon the Transferred Interests and Transferred JOAs. CEI has provided information to the Debtors and the UCC regarding P&A Obligation amounts to be assumed, the valuation of the Transferred Interests, and the status of revenues versus obligations existing as of the commencement of the Bankruptcy Case and after. Representatives of CEI had extensive discussions with representatives of the CRO and the UCC financial advisor, answering all questions to the satisfaction of every questioner (CEI believes). Given the assumed P&A Obligations (discussed below), the defenses of CEI to the claims of the Debtors to the amount of the Settlement Payment, the lack of value of the Transferred Interests and Transferred JOAs, more than sufficient consideration is being paid by CEI, and both the Debtors and the UCC have had an “open book” opportunity to evaluate the value of the consideration given by CEI against the value (or lack thereof) of the value to be obtained by CEI. In fact, the Debtors are retaining breach of

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duty and breach of SSA claims against CEI and its officers. So, the Settlement leaves the Debtors (and Reorganized Debtors or liquidation trust) with Causes of Action under the Debtors’ Plan. c. Assumed P&A Obligations As set forth herein, there are significant P&A Obligations associated with various CEI Operated Properties that the Debtors do not intend to fund in the Plan. CEI has agreed to assume these certain P&A Obligations associated with the Transferred Interests (in excess of $1.4-$1.5 million). Without the assumption by CEI of the P&A Obligations associated with the Transferred Interests, the Debtors and other parties to the various JOAs would be saddled with Debtors’ share of these costs. As such, the assumption of P&A Obligations by CEI reduces the claims against the estate and provides an actual path to addressing a material portion of the onshore the P&A Obligations. d. Release of CEI from Chapter 5 Causes of Action As explained herein, the Debtors do not have a valid cause of action under section 542 of the Bankruptcy Code against CEI. It has been implied that the Debtors may have other Chapter 5 Causes of Action against CEI related to the payments made under the SSA. As this Court determined, the SSA was “proposed in good faith, negotiated at arms’ length, … critical to the success and feasibility of [the 2018 Plan] … and fair, reasonable, and in the best interests of the debtors…” See Prior Bankruptcy Cases, Dkt. No. 448, Paragraph LLL. While the Debtors previously asserted that the Schooner Management Fee was less one half of the fee that the Debtors paid CEI under the SSA, it bears noting that the scope of services that Schooner provided was drastically narrowed after the Debtors sold all their valuable property to Talos (See Brickley Dec. at ¶ 39 (capitalized terms defined therein)), and also that the combination of the payments to Schooner and the CRO are far higher than one-half of the monthly fee under the SSA. As well,

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CEI provided the transition services to effect the Talos Transaction, such that it was not until very close to the termination date of the SSA (December 5, 2020) that CEI was only dealing with the Debtors’ assets. CEI’s claims against the Debtors precluded negotiation of an extension of the SSA, so the Debtors have no idea what the monthly payment would have been had CEI and the Debtors been able to contract for an extension, so they cannot compare what is being paid to Schooner with what CEI would have been paid. And while CEI certainly received payments under the SSA during the period for actions under section 547 of the Bankruptcy Code, these payments were made in the ordinary course of business between CEI and the Debtors—and at least half of the payments were prepayments. See11 U.S.C. § 547(c)(2); 11 U.S.C. § 547(b)(2). As such, the payments under the SSA to CEI are not subject to avoidance under section 547 of the Bankruptcy Code. The accounting of the Debtors’ payments to CEI under the SSA has been provided to the Debtors and the UCC. CEI asserts there are no valid Chapter 5 Causes of Action existing against CEI. Nonetheless, CEI, like the Debtors, recognizes the inherent costs associated with potential litigation and that there is always some uncertainty. Under the terms of the 9019 Order, the release of Chapter 5 Causes of Action will be effective as of the Effective Date of the Debtors’ Plan. e. The INC Release As set forth herein, CEI firmly asserts that it has no liability for the INC civil penalty. But again, CEI recognizes that there are always costs and risk associated with defending asserted claims like these. THE SETTLEMENT SHOULD BE APPROVED The Debtors set forth the applicable standard for approval of the Settlement under Fifth Circuit law and FED.R. BANKR.P. 9019. The Settlement reached between the parties reflects a

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fair and equitable settlement that is the best interests of the estate. The Cadle Co. v. Mims (In re Moore), 608 F.3d 253, 263 (5th Cir. 2010). While this Court need conduct a mini-trial to determine the probable outcome of the claims released, CEI believes that it has set forth herein that there are serious weaknesses of the claims the Debtors will release against CEI. Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop., Inc. (In re Cajun Elec. Power Coop.), 119 F.3d 349, 355 (5th Cir. 1997). And in return, the Debtors will receive considerable cash and the assumption of P&A Obligations which will significantly benefit the Debtors and the Debtors’ other creditors. Respectfully submitted, KELLY HART PITRE /s/ Louis M. Phillips Louis M. Phillips (#10505) One American Place 301 Main Street, Suite 1600 Baton Rouge, LA 70801-1916 Telephone: (225) 381-9643 Facsimile: (225) 336-9763 Email: louis.phillips@kellyhart.com and Amelia L. Hurt (LA #36817, TX #24092553) 400 Poydras Street, Suite 1812 New Orleans, LA 70130 Telephone: (504) 522-1812 Facsimile: (504) 522-1813 Email: amelia.hurt@kellyhart.com Counsel for Castex Energy Inc.

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CERTIFICATE OF SERVICE A true and correct copy of the foregoing document was served on May 24, 2021, on the persons/entities receiving service via ECF notification. /s/ Louis M. Phillips Louis M. Phillips (#10505)

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