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Full title: Response/Objection Filed by Official Committee Of Unsecured Creditors. (Related document(s):294 Amended Chapter 11 Plan) (Stewart, Paul) (Entered: 05/26/2021)

Document posted on May 25, 2021 in the bankruptcy, 8 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

While the Committee has been generally supportive of the Debtors’ efforts to reach global resolution, and further, is agreeable to most of the terms set forth in the Plan and Term Sheet, certain issues remain in contention and the Committee has not agreed to all of the stated terms.The Committee’s disagreement stems from three discrete and limited issues: (i) a requirement under the Term Sheet that the Debtors and the Liquidating Trust (as applicable) assume all contracts relating to certain offshore oil and gas leases defined in the Term Sheet as the Walter New Operated Properties, the Debtor Terminated Leases, and the Walter Present Operated Properties (the “Assumption Obligation”), (ii) that any party other than the Committee select the Liquidating Trustee, or have veto rights over the Committee’s selection of Liquidating Trustee (the “Veto Rights”), and (iii) the release of potential Avoidance Actions against Debtor’s special   3 Capitalized terms not otherwise defined herein shall have the meaning ascribed in the Plan, or Term Sheet, as applicable.Moreover, some of these contracts are with parties other than just Walter, thereby exposing the Liquidating Trust to possible additional liability and claims of parties other than Walter who are not parties to the Term Sheet.The Committee objects to confirmation to the extent that any party other than the Committee – whose members comprise the beneficiaries of the Trust – select the Liquidating Trustee, and that unrestricted Veto Rights are provided to Talos and Walter (or any other party) in the Committee’s selection of Liquidating Trustee. While the Debtors seek to preserve Avoidance Actions in other places within the Plan, the expansive definition of who benefits from the releases and exculpations ostensibly includes Thompson & Knight, LLP and unjustifiably negates a significant potential creditor recovery source.

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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re Chapter 11 CASTEX ENERGY 2005 HOLDCO, LLC, et al.1 Case No. 21-30710 (MI) (Jointly Administered) LIMITED OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO CONFIRMATION OF THE DEBTORS’ THIRD AMENDED JOINT CHAPTER 11 PLAN   The Official Committee of Unsecured Creditors (the “Committee”) of Castex Energy 2005 Holdco, LLC, et al (collectively, the “Debtors”) files this Limited Objection to Confirmation of the Debtors’ Third Amended Joint Chapter 11 Plan [Dkt. 294] (the “Plan”). In support thereof, the Committee respectfully represents as follows: The Third Amended Plan and Purported Term Sheet 1. The Debtors, the Committee, the Secured Lenders and an ever-increasing number of other interested parties have been working diligently to resolve outstanding matters and achieve a global resolution of all Plan issues. Toward this end, the various parties have circulated numerous drafts of term sheets attempting to memorialize the terms of such global settlement. As of the date of the filing of this Objection, the Debtors filed a Third Amended Joint Chapter 11 Plan2 which   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) (collectively, the “Debtors”). The Debtors’ mailing address is: One Memorial City Plaza, 800 Gessner Rd., Suite 925, Houston, TX 77024. 2 The amended plan is found at Dkt. 294-1; the redline of the amended Plan and the Term Sheet are found at Dkts. 295-1 and 295-2. Citations in this limited opposition will be to the redline of the Plan, rather than the clean version.

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includes and attempts to incorporate the terms outlined within a term sheet between the Debtors, the Committee, Walter, Talos, TPIC and the Secured Lenders3 as of May 26, 2021 (the “Term Sheet”). Further, the Debtors filed a Notice [Dkt. 295] associated with the Plan which indicates that the Term Sheet has not been executed by all parties “but the Debtors believe the Settlement Parties have substantially agreed to the terms set forth therein.” 2. While the Committee has been generally supportive of the Debtors’ efforts to reach global resolution, and further, is agreeable to most of the terms set forth in the Plan and Term Sheet, certain issues remain in contention and the Committee has not agreed to all of the stated terms. The Committee feels it necessary, out of an abundance of caution, to file this Limited Objection to confirmation of the Plan in its present form since the Debtors’ seek to incorporate certain terms of the Term Sheet to which the Committee has not agreed in the Plan and the ultimately the Confirmation Order. 3. The Committee’s disagreement stems from three discrete and limited issues: (i) a requirement under the Term Sheet that the Debtors and the Liquidating Trust (as applicable) assume all contracts relating to certain offshore oil and gas leases defined in the Term Sheet as the Walter New Operated Properties, the Debtor Terminated Leases, and the Walter Present Operated Properties (the “Assumption Obligation”), (ii) that any party other than the Committee select the Liquidating Trustee, or have veto rights over the Committee’s selection of Liquidating Trustee (the “Veto Rights”), and (iii) the release of potential Avoidance Actions against Debtor’s special   3 Capitalized terms not otherwise defined herein shall have the meaning ascribed in the Plan, or Term Sheet, as applicable.

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counsel Thompson & Knight, LLP.4 In all other respects the Committee believes that it is supportive of the proposed Plan and proposed global settlement terms. Assumption of Unspecified Contracts is Not Appropriate under the Bankruptcy Code 4. The Term Sheet provides, “Debtors and the Liquidating Trust, as applicable, will assume all contracts associated with the properties covered hereby as requested by Walter . . .”5 The Committee’s concern is that the assumption by the Liquidating Trust of unspecified contracts may expose the Liquidating Trust to future, unforeseen trust operating expenses, sapping the ability of the Liquidating Trust to fulfill its core mission.6 While the Term Sheet provides that “Cure Costs” relating to such assumption will be borne by Walter, cure is a backward-looking obligation. The Term Sheet also indicates that the Liquidating Trust will have no responsibility for joint interest billings attributable to the Debtors’ working interest in the relevant properties.7 However, these two sources of potential liability are not the only sources of potential future liability which could lie under the proposed, but yet unspecified, to-be-assumed contracts, and Walter is not releasing or indemnifying the Liquidating Trust from all forward-looking costs and obligations under to-be-assumed contracts. Moreover, some of these contracts are with parties other than just Walter, thereby exposing the Liquidating Trust to possible additional liability and claims of parties other than Walter who are not parties to the Term Sheet.   4 Language previously agreed-upon by the Debtors and Committee removing Thompson & Knight LLP from the definition of Released and Exculpated Parties was removed from the Plan prior to filing. 5 Dkt. 295-2, page 3 of 15, ¶ 3. 6 Moreover, the Committee is confused as to how a parent (the Liquidating Trust) of a subsidiary (Castex Offshore, Inc.) can be forced to assume a contract of the subsidiary. Perhaps that is not the ultimate intent, but as drafted, the Term Sheet provides the Liquidating Trust “will assume.” 7 Dkt. 295-2, page 3 of 15, ¶ 5.

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5. At this time, no party has been able to advance a sufficient reason why assumption, versus rejection, of the contracts are necessary. Rejection is simply breach. Whatever contracts Walter is concerned with still exist. The only thing Walter cannot do in the rejection context is compel performance of obligations going forward from the Post-Effective Date Debtor (or Liquidating Trust). If other non-debtor, non-Walter parties to the contract exist, rejection by the applicable debtor does not terminate Walter’s rights against the other non-debtor parties. The Committee is unconvinced that assumption of any contracts relating to these leases and wells is necessary or even advisable as a condition of settlement. All assumption does is place either the applicable Post-Effective Date Debtor or the Liquidating Trust at risk for further liability since neither can genuinely perform any projected obligations. 6. The Committee believes that assumption of such contracts is not in the best interest of the either the estates or the Liquidating Trust, and furthermore, seemingly violates 11 U.S.C. § 365(b)(1)(C). For these reasons, the Committee objects to confirmation of the Plan if a condition of global settlement is the Assumption Obligation. Unfettered Veto Rights Over Selection of the Post-Effective Date Liquidating Trustee are Not Warranted Nor Appropriate 7. The Committee has met, received pitches, spoken with numerous potential candidates and selected a reputable professional, Thomas Thompson of Seaport Global Securities, LLC, to serve as liquidating trustee. The Term Sheet provides that the Committee may select a liquidating trustee, but subject to the unfettered approval of Talos and Walter.8 Having Veto Rights provides Talos, but really Walter, gratuitous leverage with which to extract concessions on items such as the contested Assumption Obligation. Even were it necessary to provide Talos and Walter with   8 Dkt. 295-2, page 7 of 15.

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some form of say on the liquidating trustee matter, the Committee suggests that any approval rights be circumscribed with the limitation that such approval “not be unreasonably withheld.” The Plan, on the other hand, indicates that the Debtors will select the Trustee, subject to approval by the Secured Lenders.9 The Committee objects to confirmation to the extent that any party other than the Committee – whose members comprise the beneficiaries of the Trust – select the Liquidating Trustee, and that unrestricted Veto Rights are provided to Talos and Walter (or any other party) in the Committee’s selection of Liquidating Trustee. The Debtors’ Release of a Substantial Preference Claim against Thompson & Knight, LLP is Improper 8. Article VII, Sections E, F and G of the Plan contain extensive and broad releases and exculpations of certain “Released Parties.” In turn, Released Parties is a defined term under the Plan and includes virtually anyone having anything to do with the Debtors, including its agents, professionals, etc. The Committee objects to the proposed releases and exculpations contained in the Plan to the extent that the Plan purports to release Avoidance Actions against Thompson & Knight, LLP, and thus would impair any ability of the Liquidating Trust to pursue claims against such entity. 9. The Fifth Circuit in In re Pacific Lumber Co., 584 F.3d 229, 251-253 (5th Cir. 2009) expressly disapproved of wide-ranging non-debtor releases and exculpations, such as the ones set forth in this Plan. While bankruptcy courts may approve consensual non-debtor releases in certain circumstances, such releases must be “specific in language, integral to the plan, a condition of the settlement, and given for consideration . . ..” See, e.g., In re Wool Growers Cent. Storage Co., 371 B.R. 768, 775-76 (Bankr. N.D. Tex. 2007).   9 Dkt. 295-1, page 14 of 59, at definition of Liquidating Trustee.

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10. The Debtors list a substantial pre-petition payment to Thompson & Knight, LLP (approximately $1.4 million) which may be recoverable as a preferential payment. Released Parties includes former attorneys. While the Debtors seek to preserve Avoidance Actions in other places within the Plan, the expansive definition of who benefits from the releases and exculpations ostensibly includes Thompson & Knight, LLP and unjustifiably negates a significant potential creditor recovery source. 11. Perhaps recognizing the issue, the Debtors’ Plan attempts the set forth the proposed releases as the product of a settlement to be approved under Bankruptcy Rule 9019. See, e.g., In re Bigler LP, 442 B.R. 537, 543-44 (Bankr. S.D. Tex. 2010) (a bankruptcy court may exercise its power under § 1123(b)(3)(A) to approve a settlement between creditors and debtors that releases a nonparty because it was based on the creditor's consent, for consideration, and pursuant to arm's length negotiations). However, neither the Plan nor the Disclosure Statement indicate what consideration and negotiations took place with regard to Thompson & Knight, LLP.10 Nor is it apparent that the proposed release of the Thompson & Knight, LLP Avoidance Action is integral to the plan. See, Wool Growers, supra. Instead, the Thompson & Knight, LLP releases seem to have no consideration given and are appear to be an unwarranted add-on bestowed on the Debtors’ counsel without regard to specificity, consideration, or plan success. Reservation of Rights 12. The Debtors filed the Plan late in the day on the day before confirmation. While unavoidable due to continued negotiations between various stakeholders, the Committee has had little time to examine in-depth the revised plan. The Committee understands that the parties are proceeding in good faith in settlement negotiations and is hopeful that a resolution may be reached.   10 The Committee notes that Thompson & Knight, LLP is not a party to the proposed Term Sheet.

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Nonetheless, in the event that settlement is not reached, the Committee reserve all rights to assert further objections as necessary. STEWART ROBBINS BROWN & ALTAZAN, LLC By: /s/ P. Douglas Stewart, Jr. Paul D. Stewart, Jr. (LA. Bar # 24661, admitted SDTX) William S. Robbins (TX Bar # 24100894) Brandon A. Brown (TX Bar # 24104237) Baton Rouge, LA 70801-0016 Telephone: (225) 231-9998 Facsimile: (225) 709-9467 Email: dstewart@stewartrobbins.com wrobbins@stewartrobbins.com bbrown@stewartrobbins.com Lead Counsel for the Official Committee of Unsecured Creditors of Castex Energy 2005 Holdco, L.L.C. -And- Signatures Continue on Following Page

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Tom A. Howley (TX Bar # 24010115) Eric Terry (TX Bar # 00794729) HOWLEY LAW PLLC Pennzoil Place – South Tower 711 Louisiana St., Suite 1850 Houston, Texas 77002 Telephone: 713-333-9125 Facsimile: 713-659-9601 Email: tom@howley-law.com Email: eric@howley-law.com Local Counsel for the Official Committee of Unsecured Creditors of Castex Energy 2005 Holdco, L.L.C. CERTIFICATE OF SERVICE I hereby certify that on this 26th day of May 2021, a true and correct copy of the foregoing LIMITED OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO CONFIRMATION OF THE DEBTORS’ THIRD AMENDED JOINT CHAPTER 11 PLAN was sent via ECF Noticing to all parties registered to receive CM/ECF Notices in this case. /s/ P. Douglas Stewart, Jr. P. Douglas Stewart, Jr.

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