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Debtor to immediately pay certain claims of certain critical vendors (the Critical Vendor
Claims) (the Motion).1
In support of its Motion, the Debtor respectfully states as follows:
I. JURISDICTION AND VENUE
1. This Court has jurisdiction over this Application pursuant to 28 U.S.C. 157 and
1334. Venue of the Debtors Chapter 11 case in this district is proper pursuant to 28 U.S.C.
1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. 157(b). The statutory
predicates for the relief sought hereby are Sections 105(a), 363, 1107(a), and 1108 of the
Bankruptcy Code and Rule 6003 of the Federal Rules of Bankruptcy Procedure, and Rule 8 of
the United States Bankruptcy Court for the Southern District of Texas Procedures for Complex
Chapter 11 Bankruptcy Cases.
II. PROCEDURAL STATUS
2. On the date hereof (the Petition Date), the Debtor filed a voluntary petition for
relief pursuant to Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Southern District of Texas, Houston Division (the Bankruptcy Court).
3. The Debtor continues to operate its business as debtor-in-possession pursuant to
Sections 1107(a) and 1108 of the Bankruptcy Code. The U.S. Trustee has not yet appointed any
official committees in this case, and no request has been made for the appointment of a trustee or
an examiner.
III. FACTUAL BACKGROUND
4. ATP is a Texas corporation based in Houston, Texas, which was organized in
1991, and, together with its domestic and foreign subsidiaries, is engaged in the acquisition,
development and production of oil and natural gas properties in the Gulf of Mexico, North Sea,
1 Capitalized terms used but not otherwise defined herein have the meaning attributed tothem in the Declaration of Albert L. Reese, Jr. in Support of First Day Motions (the ReeseAffidavit) filed contemporaneously herewith.
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and Eastern Mediterranean Sea. ATP is an experienced development and production company
with significant expertise in drilling and operating offshore wells, both in the deepwater and on
the shallower Outer Continental Shelf in the Gulf of Mexico. In 2012, ATP, through one of its
non-debtor foreign subsidiaries, also commenced drilling operations in the Eastern
Mediterranean Sea (offshore Israel). As of December 31, 2011, ATP owned leasehold and other
interests in the Gulf of Mexico in 38 offshore blocks and 49 wells, including 23 subsea wells.
ATP operates approximately 90% of its wells in the Gulf of Mexico, including all of its
deepwater wells.
5. ATPs properties in the Gulf of Mexico contain proved reserves of approximately
75.9 million barrels of crude oil equivalent (MMBoe), as reported at December 31, 2011 and
based on ATPs internal reserve report, are estimated at 76.6 MMBoe at June 30, 2012. ATP
owns, through wholly or majority owned non-debtor domestic subsidiaries, two floating
production facilities in deepwater of the Gulf of Mexico: theATP Titan, which operates at its
Telemark Hub, and the ATP Innovator, which operates at its Gomez Hub. In addition to its
reserves in the Gulf of Mexico, ATP also owns, through its wholly-owned foreign subsidiaries,
estimated proved reserves of approximately 42.9 MMBoe as reported at December 31, 2011 in
the Cheviot and other fields in the North Sea, interests in other valuable oil and gas properties in
the North Sea and the recently successfully-drilled Shimshon natural gas well in the Eastern
Mediterranean Sea (offshore Israel). ATPs UK subsidiary commissioned the construction of a
floating drilling and production platform intended for use at ATP UKs Cheviot field.
6. ATPs development plans and cash flows were dramatically impacted by the
April 20, 2010 blowout of BPs Macondo well and the resulting explosion of the Deepwater
Horizon in the Gulf of Mexico. Following the U.S. governments subsequent moratorium on
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further drilling operations. While the moratorium adversely affected all companies involved in
deepwater drilling in the Gulf of Mexico, the impact was especially profound on ATP, which is a
smaller company than its principal competitors, with a heavier concentration of operations in the
deepwater Gulf of Mexico. The moratorium blocked ATPs plans to drill and bring online six
wells during 2010 and 2011. ATP had already spent in excess of $1 billion in infrastructure
construction and other capital expenditures related to five of these wells, and was denied the
anticipated cash flow from these wells. In the years leading up to the moratorium, ATP funded a
major component of its capital expenditures with debt that it expected to service with revenues
from new wells, and ATP incurred significant interest costs during the moratorium from these
debts. The moratorium also required ATP to interrupt two drilling operations that were then in
process at significant cost to ATP, without providing for any relief from the resulting costs of
ceasing those drilling operations and demobilizing the related drilling equipment and personnel.
During the moratorium, ATP made significant capital expenditures to geographically diversify
its footprint, including continuing construction on the Octabuoy platform for development in the
North Sea and acquiring licenses in three blocks in the Eastern Mediterranean off of Israel. All
of these factors contributed to a substantial weakening of ATPs liquidity position during and
following the moratorium. The moratorium lasted 10 months, effectively ending on February 28,
2011, when the first deepwater drilling permit was issued.
7. In late 2011 ATP successfully completed and tested two new wells in Green
Canyon Block 300 (the Clipper Wells) in the deepwater Gulf of Mexico. The Clipper Wells
production tests substantially exceeded expectations, but those wells are 16 miles from the sales
point and require construction of additional pipeline infrastructure in order to begin production.
ATPs post-moratorium liquidity limitations have prevented it from generating all of the funds it
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needed to complete the final connection of the Clipper Wells to the sales pipeline; however, this
relatively straightforward project remains a source of significant near-term cash flow and
considerable potential value to the estate and its constituencies.
8. ATPs management closely monitored the impact of these challenging conditions
and evaluated potential alternatives to try to address its operational and financial issues and
improve its liquidity. ATP made diligent effort to identify and solicit partners, joint operators, or
investors for its operations, to share the costs of developing reserves with potentially significant
value. However, ATP has been unable to timely complete these transactions.
9. One option available to improve ATPs liquidity position was the sale to third
parties of overriding royalty (ORRI) and net profits interests (NPI) in future production
from specified wells. ATP relied heavily on such sales to provide immediate funds, selling more
than $700 million in ORRIs and NPIs in the last approximately three and a half years. While
providing much-needed liquidity, these reduced the cash flows available to ATP from its existing
and future production and added further pressure on ATP to bring ton-line he already-drilled
Clipper Wells and the additional wells at its Telemark hub. Despite its best efforts, ATPs costs
of debt and working capital needs put it in the untenable position of running out of cash before it
could complete the Clipper Wells pipeline project and generate the revenues necessary to remedy
its liquidity position.
10. As a result, ATP seeks Chapter 11 protection in order to protect and preserve its
assets and to obtain through a DIP loan facility the funds needed to fund working capital
requirements and complete the critically important Clipper Wells pipeline project, and certain
other specified capital projects that ATP needs to augment its producing reserves and revenues.
The DIP loan facility also ensures there will be sufficient funds available to pay employees,
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professionals and other necessary expenses associated with the administration of the Chapter 11
case. This should then enable ATP and its stakeholders to negotiate and implement an orderly
restructuring of its capital structure in order to operate profitably and maximize value for the
benefit of all of its stakeholders. ATP has determined, in the prudent exercise of its business
judgment, that the proposed course of action is the best alternative to ensure that maximum value
can be preserved for the benefit of its estate constituencies.
11. As of the Petition Date, ATP has aggregate funded debt outstanding of
approximately $1.9 billion, consisting of: (i) approximately $366 million owed under a first lien
term credit facility due in January 2015 evidenced by a Credit Agreement dated as of June 10,
2010 among ATP, as borrower, certain lenders party thereto and Credit Suisse, AG as
administrative agent and collateral agent, as amended in February 2011 and March 2012, which
amounts are secured by a first lien against approximately 80% of ATPs proved oil and gas
reserves in the Gulf of Mexico, a portion of the capital stock of material subsidiaries and certain
infrastructure assets, other than the ATP Innovator and the ATP Titan; (ii) approximately $1.5
billion owed to the noteholders under the 11.875% senior second lien bond indenture dated as of
April 23, 2010, payable on May 1, 2015, with principal payments due on May 1 and November 1
of each year and secured by a second lien on the collateral securing the first lien debt; and (iii)
$35 million under a convertible note and a warrant to purchase 3,923,767 shares of the ATPs
common stock issued under a private placement to an institutional investor in June 2012. As of
the Petition Date, ATP has outstanding trade and other payables in excess of $170 million and
outstanding balances under the ORRIs and NPIs in excess of $489 million.
IV. RELIEF REQUESTED
12. By this Motion, the Debtor requests entry of the Proposed Order authorizing the
Debtor to pay immediately the prepetition claims of three (3) vendors described herein (the
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Critical Vendors). As set out more fully on Exhibit A, attached hereto and incorporated
herein by reference, the prepetition claims of these Critical Vendors (collectively, the Critical
Vendor Claims), total approximately $3,994,298, and for the reasons described herein, the
Debtor believes the failure to pay these claims immediately will cause irreparable harm to the
estate. Each of the Critical Vendors is a subcontractor of Bluewater Industries L.P.
(Bluewater), the Debtors general contractor on the Clipper project described herein and in the
Reese Affidavit and, in the case of Aker Solutions and Performance Energy Services also
provide services directly to the Debtor with respect to the Clipper pipeline project. The amounts
the Debtor seeks authority to pay to the Critical Vendors will, when paid, reduce Bluewaters
claims against the Debtor to the extent relating to their Bluewater subcontracts. In addition, in
exchange for such payment the Debtor requests that the Critical Vendor be deemed to have
assigned to the DIP Agent, for the benefit of the DIP Lenders, any lien rights that the Critical
Vendor may have had with respect to Critical Vendor claim paid to it pursuant to the Motion.
13. As more fully described herein, if the Debtor is not permitted to immediately pay
the prepetition claims of these three Critical Vendors there is a substantial and immediate risk
that these Critical Vendors will not provide certain critical goods and services that must be
provided in the next several days in order to avoid the interruption in the Clipper pipeline project
and the substantial delay that will inevitably follow in the Debtors ability to complete this
critical project (as more fully described below, the Critical Vendors Services). This delay
will also cause a default under the Debtors debtor-in-possession loan facility which, while
including in the budget sufficient funds, as well as authority, to pay these claims, requires
completion of the project in a timely manner. Because the goods and services provided by these
Critical Vendors cannot be obtained in a timely manner from an alternative source, if the Debtor
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is not permitted to pay the Critical Vendor Claims immediately, its estate will suffer irreparable
harm, to the detriment of all of its stakeholders.
14. The Debtor has incurred costs of approximately $73 million for specialized steel
pipe and related materials that are currently en route to the Clipper pipeline site in the Gulf of
Mexico. Each of the Critical Vendors provides goods or services that are integral to the Clipper
project in which such pipe is off loaded, laid in the Gulf and ultimately connected to the Clipper
Wells. To the extent the Critical Vendors are not able or willing to provide their goods or
services at this crucial stage of the project, the boat on which the pipe is presently spooled for
delivery to the Clipper site will have no choice but to return to shore and offload the pipe so that
it can move to other scheduled jobs. This will cause a substantial delay in the project; a delay
that the Debtor and its estate simply cannot withstand. Any material delay in the Clipper
pipeline project will likely result in the near-term loss of the projected revenue stream from the
completed, but not yet producing Clipper Wells, which under the Debtors business plan are
expected to begin producing in Q4 2012. Without the Clipper Wells revenue stream coming in
as scheduled, the Debtor will likely default under its debtor-in-possession financing and may not
be able to fund its continuing operations. The $4 million that the Debtor proposes to pay to these
Critical Vendors is insignificant when compared to the potential loss of its ability to continue as
a going concern, especially in light of the substantial value to be created by the prompt
completion of the Clipper pipeline and the Debtors resulting ability to begin production from the
Clipper Wells.
15. The Debtor recognizes that critical vendor motions are generally disfavored in
this district and elsewhere. However, for the reasons set forth herein, in this limited instance the
Debtor believes, in the exercise of its business judgment, that ensuring its ability to obtain the
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Critical Vendors Services is critical to the viability of its business and, therefore, that it should
be authorized to immediately pay the Critical Vendors Claims in order to avoid irreparable harm
to its estate.2
A. Critical Vendors Services and Claims Respecting the Clipper Project
16. ATP has identified completion of the Clipper pipeline and the resulting ability to
commence production from the Clipper Wells as the principal component of its plan to improve
its cash flow and generate the liquidity necessary to complete and realize the value of its other
non-producing assets. Completion of the Clipper pipeline depends upon ATPs ability to install
and connect the piping from the wells to existing infrastructure at a host platform. ATP has
incurred costs of approximately $73 million on the manufacture of PLETs, jumpers, rigged pipe
and flexible tubing required to connect the Clipper Wells to the closest available offshore
platform nearly 16 miles away. That pipe has been spooled and, along with the related
components, loaded onto a specialized barge (the Deep Blue), which is operated by Technip
S.A. and is en route to the Clipper pipeline site and is expected to arrive within the next few
days. Once Deep Blue arrives at the Clipper site, ATP, through its general contractor, has
engaged the vessel under contract for 20 days to lay the pipe, with a stand-by rate of
2 In addition to the relief sought herein, the Debtor is also seeking authority, pursuant to itsmotion (the DIP Motion) for authority to obtain debtor in possession financing (and in theinterim and final orders sought in connection therewith), to pay the budgeted amounts associatedwith the completion of the Clipper Pipeline project. The amounts in the DIP Budgetrespecting the Clipper project include amounts payable to other subcontractors working on thatcritical project, in addition to those identified in this Motion. Although the total amountspayable may in certain instances relate to work performed or services or materials provided priorto the Petition Date, the Debtor believes that failure to pay such amounts could result in thesubcontractors refusal to deliver the critical materials or services and/or their postpetitionassertion of liens against the Debtors property pursuant to section 546(b) of the BankruptcyCode. As a result, and as described in the DIP Motion and recognized by the DIP Budget, inorder to assure the timely completion of the Clipper pipeline, the Debtor seeks authority to payany such amounts in their discretion, subject to the approval of the lenders under the Debtorsproposed DIP loan facility.
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approximately $520,000 to $570,000 per day in the event of any delays. After finishing its
contract on the Clipper project, Deep Blue is currently booked on other jobs for the next ten to
twelve months. If the Critical Vendors cannot perform certain necessary work in conjunction
with offloading and laying the pipe, Deep Blue will likely return to shore and offload the pipe,
rendering it useless except as scrap, and continue to its next scheduled job. Thus, ATP would
lose this order of pipe as well as the portion of the pipeline costs for which it has already paid
and it also would likely be unable to complete the Clipper pipeline and begin production from
the Clipper Wells for another year.
17. Bluewater, as general contractor, has hired a team of vendors to complete the
Clipper pipeline. While all of the approximately one dozen subcontractors working on the
Clipper project are essential to its successthe entire team is necessary to complete the pipeline
construction and interconnection to the host platformthe Debtor has narrowed that list of
vendors down to three critical vendors that must be paid immediately to avoid disruption of the
pipeline project. Each of these vendors is suffering its own financial distress as a result of the
Debtors failure to pay them or Bluewater the amounts due for their materials and/or services on
this project. Each has stated that they cannot and will not perform their remaining work on the
Clipper pipeline project unless their prepetition claims are paid. Without them, the Debtor will
be unable to complete the Clipper project within the time frame required by its DIP loan facility
and its business plan. The impact to the Debtor and its stakeholders will be devastating. The
materials and services to be provided by these three Critical Vendors are as follows:
(a) A&B Valve. A&B Valve and Piping Systems, L.L.C. (A&B Valve) hasmanufactured the majority of the valves used on the Clipper project in compliancewith the projects rigid subsea and host platform specifications. Safety,dependability and product integrity have paramount importance here because thevalves are used in high-pressure and subsea hydrocarbon service, and A&BValves products meet that high standard. ATP has ordered twenty-six topside
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valves and four PLET valves from A&B, which A&B refuses to release until itreceives payment of outstanding amounts owed to it. If ATP were forced to seekreplacement valves from another vendor, procuring the required materials andexecuting the precision fabrication requirements for the valves would take at leastthree to four months.
(b) Aker Solutions. Aker Solutions (Aker) is providing two of the three primarycomponents (subsea control module, umbilical and master controlstation/hydraulic power unit) that make up the subsea control system (SCM orpod).
There will be a pod installed on each subsea tree, which translates the electricalsignals received from the master control station/hydraulic power unit(MCS/HPU) on the host platform into hydraulic signals that then provides themotive force to operate the components (valves, chokes, etc.) on the subsea tree.These electrical signals and the hydraulic fluid are carried from the MCS/HPU tothe pod via the umbilical, which is a bundle of steel tubes and electrical
conductors that, like the pod, is designed specifically for the conditions of theClipper Subsea Field.
A standard part of any subsea field development is a systems integration test(SIT). In the SIT, the pod is connected to one end of the umbilical and a testset that emulates the functions of the MCS/HPU is connected to the other whileall the components are still onshore. All the functions the MCS/HPU and pod areto control are tested to verify proper construction and detect leaks or electricaltroubles prior to the umbilical being shipped offshore for installation.
The Clipper SIT is scheduled to start week commencing August 20, 2012 and
must be completed by September 1, 2012. The deadline is due to the scheduledarrival of the reel-installation vessel, Chickasaw. Given the size and weight of theapproximately 15-mile long umbilical the Chickasaw is one of the few vessels inthe Gulf of Mexico that can handle the load. The other vessels that can performthe task are contracted and have been contracted since early 2012 through the endof 2012. Thus, if the SIT is not completed comfortably before September 1, 2012,the umbilical will not be installed until sometime in the first quarter of 2013 at theearliest. Aker is currently holding delivery of the pod until they are paid in fullfor the component.
(c) PES. Performance Energy Services (PES) fabricates all of the interconnecting
piping (ICP) and instrumentation/electrical controls (I&E) necessary tosafely tie the Clipper Wells into the host platforms hydrocarbon processingfacility. PES has been involved in the Clipper project from its inception and hasbeen supplying personnel to install both ICP and I&E on the host platform, whohave been working offshore on the project since April 2012. Accordingly, thePES personnel have become familiar with the host platform operator and the hostplatform operator has become comfortable working with them. PES has statedthat it will pull its crews from the host platform if it does not receive payment of
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its outstanding claims. If ATP were forced to replace the PES personnel withworkers from a different vendor, ATP would fall at least four weeks behindschedule as the new personnel and the host platform operator established theworking relationship necessary for successful completion.
B. Harm to ATP If Critical Vendors Claims Are Not Paid
18. Without the immediate provision of the Critical Vendors Services, the Debtor
will likely be unable to complete the Clipper project for another year, putting the Debtors
reorganization in jeopardy. The Debtors business model and DIP loan budget rely on the timely
receipt of this critical revenue stream from the Clipper Wells to fund operations during its
reorganization. Without those funds, ATP cannot survive as a going concern and the value to the
Debtor and its estate of the $388 million proved PV-10 value, as of December 21, 2011, of the
hydrocarbon reserves in the Clipper Wells will be jeopardized. Indeed, ATPs ability continue as
a going concern hinges upon its ability to have these three Critical Vendors at the Clipper
pipeline site, ready and willing to work, whenDeep Blue arrives at the end of this week.
19. Deep Blue is one of only a few vessels in the world capable of transporting the
steel pipe used to connect a subsea well to existing infrastructure. Deep Blue, and the other
vessels like it, perform jobs around the globe and their time is scheduled up to a year in advance.
Neither Deep Blue nor any other similar vessel will be available for use on the Clipper project
for at least ten to twelve months should ATP, through its general contractor, not have the
necessary vendors ready to complete the Clipper pipeline whenDeep Blue is scheduled to arrive
at the end of the week. Because theDeep Blue will be on location for only 20 days, ATP has a
tight window of opportunity to complete the Clipper project this year. While other vendors
could potentially perform the work done by these Critical Vendors, none of the alternatives could
be in place in time to meet Deep Blue when it arrives at the Clipper site. Even if the general
contractor could obtain replacement vendors immediately, it does not have the weeks needed to
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get those vendors up to speed; it has days. Accordingly, failure to pay the $4 million in Critical
Vendors Claims immediately would result in the initial loss of ATPs $73 million investment in
the pipe and related materials carried byDeep Blue and the inability to capture both the Debtors
projected cash flows from the Clipper Wells following completion, and the estimated proved PV-
10 value of $388 million as of December 31, 2011. These factors together would severely limit
the Debtors ability to continue operating as a going concern.
V. BASIS FOR RELIEF
20. In order to protect against diminution in the value of a debtors estate and going-
concern enterprise, bankruptcy courts in this district (and elsewhere) commonly authorize the
payment of prepetition obligations in advance of a confirmed Chapter 11 plan. Courts have
relied on several legal theories, rooted in Sections 1107(a), 1108, 363(b), and 105(a) of the
Bankruptcy Code in authorizing such payments. Each of these theories supports the entry of an
order authorizing the immediate payment of the Critical Vendor Claims of these Critical
Vendors.
A. Sections 1107(a) and 1108 of the Bankruptcy Code and the Debtors
Fiduciary Duties
21. Pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code, a debtor-in-
possession is a fiduciary acting to protect and preserve the estate, including an operating
businesss going-concern value, on behalf of the debtors creditors and other parties in interest.
In re CEI Roofing, Inc., 315 B.R. 50, 59 (Bankr. N.D. Tex. 2004) (quoting In re Co Serv, L.L.C.,
273 B.R. 487, 497 (Bankr. N.D. Tex. 2002)). Implicit in the fiduciary duties of any debtor-in-
possession is the obligation to protect and preserve the estate, including an operating businesss
going-concern value. In re CoServ, 273 B.R. at 497. Some courts have noted that there are
instances in which a debtor can fulfill this fiduciary duty only . . . by the preplan satisfaction of
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a prepetition claim. Id. The CoServ court specifically noted that the preplan satisfaction of
prepetition claims would be a valid exercise of the debtors fiduciary duty when the payment is
the only means to effect a substantial enhancement of the estate . . . . Id.
B. Section 363(b) of the Bankruptcy Code and a Sound Business Justification
22. Consistent with the debtors fiduciary duties, courts have also authorized payment
of prepetition obligations under 363(b)(1) of the Bankruptcy Code where a sound business
purpose exists for doing so. See 11 U.S.C. 363(b)(1). See, e.g., Tropical Sportswear, 320 B.R.
15, 17-18 (M.D. Fla. 2005) (court authorized payment to critical vendors for prepetition amounts
when a sound business justification existed because the vendors would not do business with the
debtors absent the critical vendor status, and the disfavored creditors were not any worse off due
to the critical vendor order); In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y.
1989) (sound business justification existed to justify payment of prepetition wages); see also
Armstrong World Indus., Inc. v. James A. Phillips, Inc. (In re James A. Phillips, Inc.), 29 B.R.
391, 397 (Bankr. S.D.N.Y. 1983) (relying on Section 363, the court allowed a contractor to pay
prepetition claims of suppliers who were potential lien claimants because the payments were
necessary for general contractors to release funds owed to debtors). To do so, the debtor must
articulate some business justification, other than the mere appeasement of major creditors.
Ionosphere Clubs, 98 B.R. at 175.
C. Section 105(a) of the Bankruptcy Code and the Necessity of Payment
Doctrine
23. In addition, the Court may authorize payment of prepetition claims in appropriate
circumstances based on 105(a) of the Bankruptcy Code. Section 105(a), which codifies the
inherent equitable powers of the bankruptcy court, empowers the bankruptcy court to issue any
order, process, or judgment that is necessary or appropriate to carry out the provisions of this
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title. 11 U.S.C. 105(a). Under 105(a), courts may permit pre-plan payments of prepetition
obligations when essential to the continued operation of the debtors business. Specifically, the
Court may use its power under 105(a) to authorize payment of prepetition obligations pursuant
to the necessity of payment rule (also referred to as the doctrine of necessity). The Court
may, therefore, issue any order necessary or appropriate to allow a debtor-in-possession to
fulfill its duty to preserve the business going-concern value, including an order authorizing
payment in full or in part of certain prepetition claims of unsecured creditors prior to
confirmation of a plan. See In re CoServ, 273 B.R. at 496-97; see also In re Mirant Corp., et al.,
296 B.R. 427, 429-30 (Bankr. N.D. Tex. 2003).
24. The doctrine of necessity or the necessity of payment rule originated in
railway cases and was first articulated inMiltenberger v. Logansport, C.&S.W.R. Co., 106 U.S.
286 (1882). The doctrine was expanded to non-railroad debtors in the mid-century. See Dudley
v. Mealey, 147 F.2d 268, 271 (2d Cir. 1945) (holding, in a hotel reorganization case, that the
court was not helpless to apply the rule to supply creditors of non-railroad debtors where the
alternative was the cessation of operations). Today, the rationale for the necessity of payment
rulethe rehabilitation of a debtor in reorganization casesis the paramount policy and goal of
Chapter 11. Ionosphere Clubs, Inc., 98 B.R. at 176 (Bankr. S.D.N.Y. 1989). See also In re
Lehigh & New England Ry., 657 F.2d 570, 581 (3d Cir. 1981) (noting that the doctrine of
necessity permits immediate payment of claims to creditors where those creditors will not
supply services or material essential to the conduct of the business until their pre-reorganization
claims shall have been paid); In re Boston & ME. Corp., 634 F.2d 1359, 1382 (1st Cir. 1980)
(recognizing the existence of a judicial power to authorize trustees to pay claims for goods and
services that are indispensably necessary to the debtors continued operation); In re CoServ, 273
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B.R. at 500 (permitting Chapter 11 debtor to pay the claim of a prepetition general unsecured
creditor in full because the [d]ebtors very likely must deal with [such creditor] or risk harm to
their estates or their going concern value).
25. Courts in this district and elsewhere authorize Chapter 11 debtors to pay
prepetition claims of non-priority general unsecured creditors when payment is necessary to
preserve or enhance the value of the debtors estate to the benefit of all creditors. See, In re
Equalnet Commcns Corp., 258 B.R. 368, 369-70 (Bankr. S.D. Tex. 2000) (business transactions
critical to the survival of the business of the debtor are exceptions to the general rule of
nonpayment of prepetition claims prior to plan confirmation); see also In re CoServ, 273 B.R.
487, 497 (Bankr. N.D. Tex. 2002) (recognizing the doctrine of necessity); In re Mirant Corp.,
296 B.R. 427, 429 (Bankr. N.D. Tex. 2003) (noting that because payment of prepetition claims
outside a plan has become commonplace, and a vendor might condition future dealings with a
debtor on payment of its prepetition claim, a motion to pay critical vendors would be granted);In
re Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981) (stating that courts may
authorize payment of prepetition claims where there is the possibility that the creditor will
employ an immediate economic sanction, failing such payment);In re Just For Feet, 242 B.R.
821, 825 (Bankr. D. Del. 1999) (to invoke the necessity of payment doctrine, a debtor must
show that payment of the pre-petition claim is critical to the debtors reorganization); In re
Columbia Gas Sys., Inc., 171 B.R. 189, 191-92 (Bankr. D. Del. 1994) (same).
26. Oftentimes, the debtor must satisfy a prepetition claim in order to preserve its
business. In re CoServ, 273 B.R. at 497. Payment of pre-petition claims is necessary, and may
be authorized, whenever it is established that (1) it is critical that the debtor deal with the
claimant, (2) a failure to deal with the claimant risks probable harm or eliminates an economic
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advantage disproportionate to the amount of the claim, and (3) there is no practical or legal
alternative to payment of the claim. Id. at 498 (giving examples of when payment of prepetition
claims is required to preserve the debtors business and thus, justified: those that require
payment to avoid loss of a license through the exercise of a jurisdictions police power, claims,
such as warranty or refund claims, that could harm the debtors good will and destroy its going
concern value, or where payment of the prepetition unsecured claim is the only means to effect
a substantial enhancement of the estate).
27. The Debtors request for the limited relief sought in this motion is particularly
appropriate under any of the foregoing standards. The principal parties in interest in this case
have agreed that completion of the Clipper pipeline is a critical project and its timely completion
is key to the Debtors ultimate ability to reorganize successfully. The funding needed to
complete the project, including the payment of all prepetition amounts owed to the Bluewater
subcontractors working on the project is included in the DIP loan facility budget, subject only to
certain limited conditions respecting the timing of such payments and completion of the
necessary work. As stated above, the payment of the Critical Vendors Claims is essential to
keeping the project moving at what is a critical juncture. In order to successfully complete the
Clipper pipeline in a timely manner, without risk of substantial interruption, these three Critical
Vendors must be onsite and willing to perform the work necessary to lay the pipe that is en route
onboardDeep Blue. Given the tight window of time in whichDeep Blue will be onsite with the
pipe, there are no other vendors who could replace these Critical Vendors. If the project is
stopped because these vendors do not perform the work needed over the next week the Debtor
will almost certainly lose substantially all of its $73 million investment in the pipe currently
aboard Deep Blue and, more importantly will lose the ability to tap the vital cash flows it
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projects receiving from the Clipper Wells before the end of this year; cash flows the Debtor is
depending on to fund its continuing operations during its reorganization. Ultimately, failure to
pay these Critical Vendors Claims immediately will likely preclude the Debtor from continuing
as a going concern long enough for it to formulate and confirm a viable reorganization plan.
28. Courts in this district have granted similar relief in other Chapter 11 cases where
the payment of critical vendor claims was necessary to the debtors continued operation. Here,
the Debtor submits, such payment is critical. See, e.g., In re Mirant, 296 B.R. 427 (Bankr. N.D.
Tex. 2003);In re Equalnet Commcns Corp., 258 B.R. at 367-70 (Bankr. S.D. Tex. 2000);In re
U.S. InterMex Transp., LLC, Case No. 10-70033, Docket No. 83 (Bankr. S.D. Tex. March 3,
2010);In re Express Energy Servs. Operating, LP, Case No. 09- 38044, Docket No. 37 (Bankr.
S.D. Tex. Oct. 29, 2009);In re Edge Petroleum Corp., Case No. 09-20644, Docket No. 46 (Oct.
5, 2009); In re Corpus by the Sea, LLC, Case No. 09-20491, Docket No. 19 (Bankr. S.D. Tex.
Aug. 6, 2009); In re Texas Petrochemicals, LP, Case No. 03-40258-H3-11, Docket No. 85,
(Bankr. S.D. Tex. July 31, 2003); In re Philip Servs. Corp., et al., Case No. 03-37718-H2-11,
Docket Nos. 24, 56 and 526 (Bankr. S.D. Tex. June 2, 2003, June 9, 2003 and Aug. 4, 2003); In
re TransCom USA Mgmt. Co., Case No. 01-35158-H5-11, Docket No. 44 (Bankr. S.D. Tex. May
16, 2001);In re Agrifos Fertilizer, Case No. 01-35220-H2-11, Docket No. 23 (Bankr. S.D. Tex.
May 10, 2001); In re Drypers Corp., Case No. 00-39360-H4- 11, Docket No. 43 (Bankr. S.D.
Tex. Oct. 13, 2000);In re Pioneer Cos., Inc., et al., Case No. 01- 38259-H3-11, Docket Nos. 30
and 78 (Bankr. S.D. Tex. Aug. 1, 2001 and Aug. 17, 2001); In re Highland Health Servs., Inc.,
Case No. 01-35491-H5-11, Docket No. 23 (Bankr. S.D. Tex. May 16,2001).
VI. DEBTORS RESERVATION OF RIGHTS
29. Nothing contained herein is intended or should be construed as an approval or
assumption of any agreement or contract under Section 365 of the Bankruptcy Code.
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VII. NOTICE
30. Notice of this Motion has been provided by overnight delivery and electronic mail
or facsimile to: (a) Credit Suisse AG, as Administrative Agent for the Senior Lenders and
Administrative Agent for the DIP Lenders; (b) Cravath, Swaine & Moore LLP, as counsel to
Credit Suisse AG; (c) Bingham McCutchen LLP and Winstead PC, as counsel to certain DIP
Lenders and certain Senior Lenders; (d) The Bank of New York Mellon Trust Company, N.A.,
as Indenture Trustee for the Senior Second Lien Noteholders; (e) the 30 largest unsecured
creditors of the Debtor; (f) the holders of Net Profits Interests and Overriding Royalty Interests;
(g) the United States Trustees Office; (h) the Securities and Exchange Commission; and (i) the
Internal Revenue Service. The Debtor believes that the notice provided is fair and adequate and
that no further notice is necessary.
WHEREFORE, the Debtor respectfully requests that the Court enter an order granting the
relief requested by this Motion and such further relief as may be just and necessary under the
circumstances.
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Dated: August 17, 2012 Respectfully submitted,
MAYER BROWN LLP
By: /s/Charles S. KelleyCharles S. KelleyAttorney-in-ChargeState Bar No. 11199580Southern District of Texas Bar No. 15344
700 Louisiana Street, Suite 3400Houston, TX 77002-2730Telephone: 713 238-3000Facsimile: 713 238-4888
and
Howard S. Beltzer (pro hac vice application pending)Frederick D. Hyman (pro hac vice application pending)1675 BroadwayNew York, NY 10019Telephone: 212 506-2500Facsimile: 212 262-1910
and
Stuart M. Rozen (pro hac vice application pending)Sean T. Scott (pro hac vice application pending)71 South Wacker DriveChicago, IL 60606Telephone: 312 782-0600Facsimile: 312 701-7711
PROPOSED ATTORNEYS FOR THE DEBTOR AND
DEBTOR-IN-POSSESSION
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Exhibit A
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702943298
Exhibit A
Amounts of Critical Vendors Claims
Critical Vendor Amount of Claim
A&B Valve and Piping Systems, L.L.C. $1,568,217
Aker Solutions $777,850
Performance Energy Services $1,648,231
Total: $3,994,298
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IN THE UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
In re:
ATP Oil & Gas Corporation,
Debtor.
Chapter 11
Case No.: 12-____________
ORDER AUTHORIZING THE DEBTOR TO IMMEDIATELY PAY PREPETITION
OBLIGATIONS TO CERTAIN CRITICAL VENDORS
Upon consideration of the Debtors Emergency Motion for an Order Authorizing the
Debtor to Immediately Pay Prepetition Obligations to Certain Critical Vendors (the Motion);
and it appearing that this Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and
1334, and it appearing that this is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A); and
proper and adequate notice of the Motion and the hearing thereon having been given; and it
appearing that no other or further notice being necessary, and it appearing that the legal and
factual bases set forth in the Motion establish just cause for the relief granted herein; and the
Court having determined that the relief sought in the Motion is in the best interests of the Debtor
and its estate; and after due deliberation and sufficient cause appearing therefore; it is hereby:
1. ORDERED that the Motion is GRANTED as provided herein; and it is further
2. ORDERED that the Debtor is authorized, but not required, to the extent permitted
pursuant to the DIP Order, to pay or honor prepetition obligations to certain essential vendors
that provide (a) essential goods to the Debtor that were received by the Debtor before the Petition
Date; and/or (b) essential services that were rendered to, or on behalf of, the Debtor before the
Petition Date (collectively, the Critical Vendors); and it is further
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3. ORDERED that the Debtor is authorized to pay all or part of the prepetition
claims of Critical Vendors upon such terms and in the manner provided for in this order; and it is
further
4. ORDERED that the Critical Vendor shall be deemed to have assigned to the DIP
Agent, for the benefit of the DIP Lenders, any lien rights that the Critical Vendor may have had
with respect to the Critical Vendor claim that is paid to such Critical Vendor pursuant to this
Order.
5. ORDERED that the Debtor is authorized and empowered to take all actions
necessary to implement the relief granted in this Order; and it is further
6. ORDERED that each of the financial institutions at which the Debtor maintains
its accounts relating to the payment of the obligations described in the Motion is authorized, but
not directed, to (a) receive, process, honor and pay all checks presented for payment and to honor
all fund transfer requests made by the debtor related thereto, to the extent that sufficient funds
are on deposit in those accounts and (b) accept and rely on all representations made by the
Debtor with respect to which checks, drafts, wires, or transfers are date prior to, on or subsequent
to the Petition Date, and have no duty to inquire otherwise and shall be without liability for
following the Debtors instructions; and it is further
7. ORDERED that nothing in the Motion or this Order, nor as a result of any
payment made pursuant to this Order, shall be deemed or construed as an admission as to the
validity or priority of any claim against the Debtor, an approval or assumption of any agreement,
contract or lease pursuant to Section 365 of the Bankruptcy Code or a waiver of the right of the
Debtor, or shall impair the ability of the Debtor, to contest the validity and amount of any
payment made pursuant to this Order; and it is further
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8. ORDERED that, to the extent there is any inconsistency between the terms of the
interim or final order approving the DIP financing, if and when entered, and this Order, the terms
of the interim or final order approving the DIP financing, as applicable, shall govern; and it is
further
9. ORDERED that the Court retains jurisdiction with respect to all matters arising
from or related to the implementation of this Order.
SIGNED this ___ day of August, 2012.
____________________________________
UNITED STATES BANKRUPTCY JUDGE
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