Case 12-36187 Document 17 Filed in TXSB on 08/17/12Docket #0017 20 Filed: 8/17/2012 Page 1 of Date

IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: ATP Oil & Gas Corporation, Debtor. Chapter 11

Case No.: 12-____________

DEBTORS EMERGENCY MOTION FOR AN ORDER AUTHORIZING THE DEBTOR TO IMMEDIATELY PAY PREPETITION OBLIGATIONS TO CERTAIN CRITICAL VENDORS NOTICE UNDER BLR 9013-1(b) AND 9013-1(i) THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. EMERGENCY RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EMERGENCY BASIS, THEN YOU WILL HAVE LESS THAN 21 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EMERGENCY CONSIDERATION IS NOT WARRANTED; YOU SHOULD FILE AN IMMEDIATE RESPONSE. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. ATP Oil & Gas Corporation (ATP or the Debtor) submits this motion for entry of an order substantially in the form submitted herewith (the Proposed Order) authorizing the

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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. 1. JURISDICTION AND VENUE

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. 2. PROCEDURAL STATUS

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. 4. FACTUAL BACKGROUND

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,
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Capitalized terms used but not otherwise defined herein have the meaning attributed to them in the Declaration of Albert L. Reese, Jr. in Support of First Day Motions (the Reese Affidavit) filed contemporaneously herewith. 2
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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: the ATP 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. 12. RELIEF REQUESTED

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 6
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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. 16. Critical Vendors Services and Claims Respecting the Clipper Project 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

In addition to the relief sought herein, the Debtor is also seeking authority, pursuant to its motion (the DIP Motion) for authority to obtain debtor in possession financing (and in the interim and final orders sought in connection therewith), to pay the budgeted amounts associated with the completion of the Clipper Pipeline project. The amounts in the DIP Budget respecting the Clipper project include amounts payable to other subcontractors working on that critical project, in addition to those identified in this Motion. Although the total amounts payable may in certain instances relate to work performed or services or materials provided prior to the Petition Date, the Debtor believes that failure to pay such amounts could result in the subcontractors refusal to deliver the critical materials or services and/or their postpetition assertion of liens against the Debtors property pursuant to section 546(b) of the Bankruptcy Code. As a result, and as described in the DIP Motion and recognized by the DIP Budget, in order to assure the timely completion of the Clipper pipeline, the Debtor seeks authority to pay any such amounts in their discretion, subject to the approval of the lenders under the Debtors proposed DIP loan facility. 9
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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) has manufactured the majority of the valves used on the Clipper project in compliance with the projects rigid subsea and host platform specifications. Safety, dependability and product integrity have paramount importance here because the valves are used in high-pressure and subsea hydrocarbon service, and A&B Valves products meet that high standard. ATP has ordered twenty-six topside 10
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valves and four PLET valves from A&B, which A&B refuses to release until it receives payment of outstanding amounts owed to it. If ATP were forced to seek replacement valves from another vendor, procuring the required materials and executing the precision fabrication requirements for the valves would take at least three to four months. (b) Aker Solutions. Aker Solutions (Aker) is providing two of the three primary components (subsea control module, umbilical and master control station/hydraulic power unit) that make up the subsea control system (SCM or pod). There will be a pod installed on each subsea tree, which translates the electrical signals received from the master control station/hydraulic power unit (MCS/HPU) on the host platform into hydraulic signals that then provides the motive 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 to the 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 the Clipper 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 test set that emulates the functions of the MCS/HPU is connected to the other while all the components are still onshore. All the functions the MCS/HPU and pod are to control are tested to verify proper construction and detect leaks or electrical troubles 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 scheduled arrival of the reel-installation vessel, Chickasaw. Given the size and weight of the approximately 15-mile long umbilical the Chickasaw is one of the few vessels in the Gulf of Mexico that can handle the load. The other vessels that can perform the task are contracted and have been contracted since early 2012 through the end of 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 the earliest. Aker is currently holding delivery of the pod until they are paid in full for the component. (c) PES. Performance Energy Services (PES) fabricates all of the interconnecting piping (ICP) and instrumentation/electrical controls (I&E) necessary to safely tie the Clipper Wells into the host platforms hydrocarbon processing facility. PES has been involved in the Clipper project from its inception and has been supplying personnel to install both ICP and I&E on the host platform, who have been working offshore on the project since April 2012. Accordingly, the PES personnel have become familiar with the host platform operator and the host platform operator has become comfortable working with them. PES has stated that it will pull its crews from the host platform if it does not receive payment of 11
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its outstanding claims. If ATP were forced to replace the PES personnel with workers from a different vendor, ATP would fall at least four weeks behind schedule as the new personnel and the host platform operator established the working relationship necessary for successful completion. B. 18. Harm to ATP If Critical Vendors Claims Are Not Paid 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, when Deep 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 when Deep Blue is scheduled to arrive at the end of the week. Because the Deep 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 by Deep Blue and the inability to capture both the Debtors projected cash flows from the Clipper Wells following completion, and the estimated proved PV10 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. 20. BASIS FOR RELIEF

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. 21. Sections 1107(a) and 1108 of the Bankruptcy Code and the Debtors Fiduciary Duties 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-inpossession 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. 22. Section 363(b) of the Bankruptcy Code and a Sound Business Justification 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. 23. Section 105(a) of the Bankruptcy Code and the Necessity of Payment Doctrine 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 in Miltenberger 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 onboard Deep Blue. Given the tight window of time in which Deep 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. 29. DEBTORS RESERVATION OF RIGHTS

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. 18
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VII. 30.

NOTICE

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. [Remainder of page intentionally left blank]

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Dated: August 17, 2012

Respectfully submitted, MAYER BROWN LLP

By:

/s/Charles S. Kelley Charles S. Kelley Attorney-in-Charge State Bar No. 11199580 Southern District of Texas Bar No. 15344 700 Louisiana Street, Suite 3400 Houston, TX 77002-2730 Telephone: 713 238-3000 Facsimile: 713 238-4888 and Howard S. Beltzer (pro hac vice application pending) Frederick D. Hyman (pro hac vice application pending) 1675 Broadway New York, NY 10019 Telephone: 212 506-2500 Facsimile: 212 262-1910 and Stuart M. Rozen (pro hac vice application pending) Sean T. Scott (pro hac vice application pending) 71 South Wacker Drive Chicago, IL 60606 Telephone: 312 782-0600 Facsimile: 312 701-7711 PROPOSED ATTORNEYS FOR THE DEBTOR AND DEBTOR-IN-POSSESSION

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Exhibit A

Case 12-36187 Document 17-1 Filed in TXSB on 08/17/12 Page 2 of 2

Exhibit A Amounts of Critical Vendors Claims Critical Vendor A&B Valve and Piping Systems, L.L.C. Aker Solutions Performance Energy Services Total: Amount of Claim $1,568,217 $777,850 $1,648,231 $3,994,298

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Case 12-36187 Document 17-2 Filed in TXSB on 08/17/12 Page 1 of 3

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. 2. ORDERED that the Motion is GRANTED as provided herein; and it is further 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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