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UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA

IN RE: VIRGIN OFFSHORE U.S.A., INC., DEBTOR

CASE NO. 11-13028 CHAPTER 11 CHIEF JUDGE ELIZABETH W. MAGNER

TRUSTEES RESPONSE TO LIMITED OBJECTION BY THE VIRGIN OIL COMPANY, INC. PLAN TRUST TO THE CONFIRMATION OF TRUSTEES FIRST AMENDED CHAPTER 11 PLAN OF REORGANIZATION DATED MARCH 28, 2013

This Court has full authority to issue orders for the purpose of carrying out the confirmed plan including directing the execution or delivery of any instrument that is necessary for the consummation of the plan. 11 U.S.C. 1142. Gerald H. Schiff, chapter 11 trustee for the Virgin Offshore U.S.A., Inc. bankruptcy estate (the Trustee), submits that this authority includes issuing orders approving the sale of assets and directing a joint sale, if necessary, because the FIRST AMENDED CHAPTER 11 PLAN OF REORGANIZATION DATED MARCH 28, 2013 SUBMITTED BY GERALD H. SCHIFF, CHAPTER 11 TRUSTEE FOR THE ESTATE OF VIRGIN OFFSHORE, USA, INC. (the Plan)1 cannot be substantially consummated until the Existing Oil and Gas Assets (as defined in the Plan) are liquidated. The Plan specifically provides that these assets will be liquidated by sale or auction and provides a deadline for liquidation that is conditioned upon completion of the P&A Work (as defined in the Plan).2 Furthermore, the Plan specifically reserves the right to request Court

authority to direct a joint sale of the Existing Oil and Gas Assets co-owned by Virgin Offshore U.S.A., Inc. (the Debtor) and The Virgin Oil Company, Inc. Plan Trust (the Plan Trust).
1 2

(R. at 402.) See First Amended Chapter 11 Plan of Reorganization Dated March 28, 2013 Submitted by Gerald H. Schiff, Chapter 11 Trustee for the Estate of Virgin Offshore, USA, Inc., at Article (VI)(C)(2).

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The Plan Trust argues in the Limited Objection3 that the Plan cannot be confirmed because the Trustee reserves the right to request bankruptcy court approval of a joint sale of Virgin Offshore U.S.A., Inc.s oil and gas assets. The Plan Trust believes that distributions to creditors (a majority of which are creditors of both estates) will be made through development of the assets rather than liquidation. As of the date of the confirmation hearing, the Plan Trust (1) has not presented a development plan and (2) has expressed no interest in selling the co-owned assets. The Trustee disagrees with the Plan Trust regarding the prospects of development and believes the best (and only) opportunity for distributions to creditors is through liquidation of the assets. Additionally, the greatest value that may be realized for the co-owned assets is through a joint sale. What the Plan Trust suggests by its Limited Objection is that a Court directed joint sale of the co-owned assets is only available prior to or contemporaneous with confirmation and not pursuant to a confirmed plan. If that is the case, the Trustee is left with no other option but to pull the Plan and amend to provide for either (1) a pre-confirmation liquidation of the assets by virtue of a Section 363 sale or (2) an effective date that post dates any contemplated liquidation of the assets. The Trustee submits that the Plan already provides for liquidation and reserves the right to request the Court to direct a liquidation that is in the best interest of creditors. As filed, the Trustees liquidating Plan cannot be consummated without a Court approved liquidation and specifically reserves the right to compel a joint sale to effect liquidation, if necessary. Section 363(h) of the Bankruptcy Code provides a mechanism by which a trustee may sale co-owned property subject to court approval and the Trustee has specifically reserved the right for this Court to direct a sale in accordance with the Bankruptcy Code plan requirements. See 11 U.S.C. 1123(a)(5)(D) and (b)(4). Because the Plan complies with the requirements of the Bankruptcy Code and does not request that this Court exceed its authority,
3

(R. at 427.)

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the Plan is confirmable with the specific joint sale provision.

Upon confirmation,

implementation of the Plan will be supervised by this Court and creditors will have the opportunity to object to any proposed sale of the assets. This Court retains authority to approve a post confirmation sale of assets and direct the execution of any document that may be necessary to consummate the plan, including issuance of an order directing a joint sale of the assets coowned with the Plan Trust. For this reason, the Trustee requests that the Limited Objection be denied and that the Plan be confirmed as filed. A. The bankruptcy court retains post confirmation jurisdiction to determine matters pertaining to the implementation and execution of a confirmed plan. Although the statutory basis for the Courts jurisdiction does not change after confirmation of a plan of reorganization, i.e., jurisdiction still is governed by 28 U.S.C. 1334, the Trustee acknowledges that the scope of the jurisdiction narrows after confirmation of a plan. See In re U.S. Brass Corp., 301 F.3d 296 (5th Cir. 2002). In Craigs Stores, the Fifth Circuit held that bankruptcy jurisdiction ceases to exist post confirmation, other than for matters pertaining to the implementation or execution of the plan. See In re Craig's Stores of Tex., Inc., 266 F.3d 388, 391 (5th Cir. 2001). Since Craigs Stores, the Fifth Circuit and courts within the Fifth Circuit have applied the implementation or execution test on multiple occasions. See, e.g., In re Network Cancer Care, L.P., 197 Fed. Appx 284, 286, 2006 WL 2034425 (5th Cir. July 19, 2006) (affirming lower courts and finding that bankruptcy court had jurisdiction over post confirmation professional fee matter where professionals services pertained to the implementation and execution of the debtors reorganization plan); In re Enron Corp. Sec., Derivative & ERISA Litig., 2005 WL 1745471, *1 (S.D. Tex. July 25, 2005) (post-confirmation related to bankruptcy jurisdiction is restricted to matters pertaining to implementation or execution of the reorganization plan). -3-

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Following Craigs Stores and U.S. Brass Corp., bankruptcy courts within the Fifth Circuit have developed multifactor tests to determine whether post confirmation related to jurisdiction exists. For example, in In re EBCO Land Dev., Ltd., 2008 WL 1766693 (Bankr. S.D. Tex. Apr. 17, 2008), the bankruptcy court distilled a six-factor test: 1. 2. 3. 4. 5. 6. whether state law or bankruptcy law governs the suit; whether the claim arose pre-petition or post-petition; whether there are provisions in the confirmed plan expressly retaining jurisdiction; whether substantial consummation occurred; whether the reorganized debtor is a party; and whether there are any indices of forum shopping.

Id. at *3-6. Turning to this matter, application of the foregoing factors necessarily requires a finding that this Court may exercise post confirmation jurisdiction to approve and direct a joint sale of assets, if necessary. The Plans specific reservation of the right to pursue such a sale establishes the requisite nexus for purposes of post confirmation jurisdiction and involves the application of post confirmation bankruptcy law. More importantly, the Plan will not be substantially consummated until the Debtors assets are liquidated. Section 1101 of the Bankruptcy Code defines substantial consummation as, inter alia, the transfer of all or substantially all of the property proposed by the plan to be transferred. 11 U.S.C. 1101(2)(A). Here, the Plan specifically requires the liquidation of the Debtors assets to fund distributions to creditors. The Plan goes on to specify that any sale of the assets, including a joint sale, is subject to bankruptcy court approval. The Plan Trusts argument that a joint sale is not permissible is based solely upon its disinterest in liquidating the assets and continued belief in a development plan. The Trustee cannot understand why the Plan Trust

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would unequivocally and prematurely denounce a joint sale that has yet to be proposed or negotiated. Regardless, the Trustee has been unable to locate any case law that denies the Debtor the right to seek bankruptcy court approval of a sale that is specifically retained in the confirmed plan. In support of the Limited Objection, the Plan Trust cites In re Golf, LLC, 322 B.R. 874 (Bankr. D. Neb. 2004) for the proposition that Section 363 may only be used by a trustee and the bankruptcy court during the pendency of a bankruptcy case and before confirmation.4 However, Golf is not controlling in this case. In Golf, the debtor was denied a request to invoke Section 363(f) to sell certain property post confirmation, but the confirmed plan made no specific mention of the property at issue.5 That is not the case here. The Trustees Plan proposes to operate consistent with the Bankruptcy Code sale requirements, not contrary to those requirements. The Plan Trust seeks to deny the Trustee this right simply because it disagrees with the approach. The Trustee has proposed a Plan that specifically reserves the right to seek this Courts approval of a joint sale, if necessary; a right that would otherwise be available to the Trustee in bankruptcy absent plan confirmation. It cannot be that confirmation of a plan forecloses a trustees ability to apply provisions of the Bankruptcy Code necessary for the implementation and execution of a confirmed plan. Under Craig Stores and its progeny, this Court retains jurisdiction to implement and execute the confirmed plan, including ordering and directing the liquidation of assets to effect substantial consummation. Accordingly, the Plan Trusts Limited

See Limited Objection, at p.4. Golf, 322 B.R. at 874-76 (reasoning that the sale of specific assets was not encompassed by language in the confirmed plan that provided jurisdiction for the Bankruptcy Court[t]o hear and determine any and all pending or future applications for approval of the sale of the Assets or any portion thereof).
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Objection must be denied and the Trustee should be permitted to reserve the right to seek Court approval of a joint sale. B. This Court may issue orders directing the joint sale of assets pursuant to a confirmed plan. A bankruptcy court retains post confirmation power to direct the debtor and any other necessary party to execute or deliver or to join in the execution or delivery of any instrument required to effect a transfer of property dealt with by a confirmed plan, and to perform any other act, including the satisfaction of any lien, that is necessary for the consummation of the plan.6 Furthermore, Bankruptcy Rule 3020 expressly permits bankruptcy courts to issue any order necessary to administer the estate notwithstanding the entry of the order of confirmation. Here, the Trustee has expressly provided in the Plan that a sale of the assets shall be subject to this Courts review and approval, including consideration of directing a joint sale. It is clear from the proposed Plan that liquidation of the Existing Oil & Gas Assets is necessary to effect substantial consummation of the Plan and therefore necessary to the administration of the estate.7 What the Plan Trust suggests is that the Trustee should not be entitled to reserve the right to direct a joint sale simply because such right is unavailable post confirmation. Yet, if the Plan provides for the right to seek an order directing a joint sale consistent with the provisions of Section 363(h), this Court retains authority to issue orders to effect such provision. Additionally, the Plan Trusts argument that the Trustee will no longer have standing to invoke Section 363 powers fails when a plan specifically provides for such retention by a trustee or debtor. Section 1123(b)(3) of the Bankruptcy Code specifically provides that a fiduciary may

11 U.S.C. 1142. 11 U.S.C. 1101(2)(A) (defining one of the components of substantial consummation as transfer of all or substantially all of the property proposed by the plan to be transferred).
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control and administer an estate after the confirmation of a plan.8 It seems axiomatic that such retention would include the trustees power to invoke a sale pursuant to Section 363 in order to consummate the confirmed plan.9 Lastly, the Fifth Circuit has held that a trustee may retain post confirmation power if specifically provided for in a confirmed plan.10 There is no dispute that when powers are not

specifically reservedas in Western Integrated Networkssuch powers cease to exist postconfirmation.11 Here, the Plan specifically reserves the power of the Trustee to obtain court approval of a proposed sale, a Section 363(h) sale if necessary. Accordingly, the Limited Objection should be overruled and the Plan confirmed. C. Reservation of the right to pursue a joint sale is in the best interest of creditors and a necessary component of the Trustees proposed Plan. The Trustee envisions no other prospects for making distribution to creditors than a proposed liquidation of the assets. The Trustee specifically discussed this issue in the Amended Disclosure Statements liquidation analysis: The Trustee can only anticipate one alternative to a liquidating plan continued operation and development of the Existing Oil and Gas Assets. The Trustee believes this option is not in the best interests of the creditors because of the unavailability of financing to pursue some or all of the proposed well development plans. The Virgin Oil Plan Trust has indicated its desire to propose and compel pursuit of well development plan that will require Offshore and/or Reorganized Offshore to elect to participate and pay its share of development costs. Offshore is not in a position to raise capital and has no immediate sources
8 9

See 11 U.S.C. 1123(b)(3). Once the Plan is confirmed, the confirmed plan controls and preference for enforcing the terms of a plan can even preempt state law and federal statute. See In re Dial Bus. Forms, Inc., 283 B.R. 537 (B.A.P. 8th Cir. 2002) aff'd, 341 F.3d 738 (8th Cir. 2003) (holding that terms of the confirmed plan controlled over any other contrary provision of the Missouri Uniform Commercial Code); and In re In re Contempri Homes, Inc., 247 B.R. 135, 136 (Bankr. M.D. Pa. 2000) (holding that terms of the confirmed plan controlled over a contrary federal statute providing for disbursement of trustees fees). 10 See In re Texas Wyoming Drilling, Inc., 647 F.3d 547, 551-52 (5th Cir. 2011) (finding that specific language in the bankruptcy plan was sufficient to allow a trustee to bring a post-confirmation avoidance action). 11 In re W. Integrated Networks, LLC, 329 B.R. 334 (Bankr. D. Col. 2005) (holding first that the confirmed plans reservation of powers lacked the necessary specificity to confer standing then analyzing what a trustees powers are post-confirmation in absence of a specific reservation).

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of capital to satisfy these expected funding requirements. As a result, Reorganized Offshore will likely go non-consent on these development proposals, and be subject to significant payout penalties prior to receiving any revenues from production. For these reasons, the Trustee does not deem participation in a lengthy and costly development program as the most effective means to make Distributions. The Trustee believes that confirmation of the Plan preserves the current value, if any, of Offshores remaining assets for satisfaction of the P&A Work and subsequent Distributions to creditors.12 The Amended Disclosure Statement was approved by this Court. All creditors are on notice of the proposed liquidation, and none have objected. Only the Plan Trust objects, though. Neither this Court nor the Trustee has experienced even a whiff of a possible development plan even though one was promised to the Court by the Plan Trust months ago. The Trustees proposed liquidation of the assets through a sale, joint sale or auction also satisfies the plan requirements of section 1123 of the Bankruptcy Code. A joint sale of the coowned assets makes sense because the Plan Trust and Debtor maintain a special relationship and any potential purchaser (1) obtains a 100% ownership interest in Empire and a 60% interest in Ship Shoal; (2) obtains operating rights to EC 2, EC 219, WC 78 and potentially VM 179; (3) is unhampered by any future involvement with the bankruptcy court; (4) would assume all future P&A liability; and (5) arguably will offer a higher price for the assets than in an individual sale or auction. Such an option should not be foreclosed to the Trustee simply because the Courts approval of a joint sale might occur post confirmation. The Plan Trust and Trustee fundamentally disagree regarding the prospect of future development of the co-owned assets (counsel for the Trustee believes this is true though the Trustee knows of no proposed development plan). This Debtor does not have the resources to participate in development and has been severely hampered by the current state of affairs and the

12

See First Amended Disclosure Statement in Support of Chapter 11 Plan of Reorganization Dated March 28, 2013 Submitted by Gerald H. Schiff, Chapter 11 Trustee for the Estate of Virgin Offshore, USA, Inc. at Article (XV). (Doc. 401).

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P&A liability that has been underfunded in the past.

Regardless of the Plan Trusts

dissatisfaction with the Trustees reservation of a right to seek a joint sale, the Trustee must be able to pursue a joint sale. If the Court disagrees that the Plan cannot reserve a trustees right to effect a joint sale of co-owned property, the Trustee must amend to provide for (1) a pre-confirmation liquidation, (2) an effective date that post dates an approved section 363 sale, and/or (3) a reservation that the assets do not vest in the reorganized debtor. Such an approach was not available to the Trustee when the Plan was filed. For the reasons discussed herein, the Trustee submits that the Plan can be confirmed with the Court retaining the authority to issue orders necessary to consummation, including directing a joint sale of the co-owned oil and gas assets. Upon confirmation, the Plan controls and the specific retention of authority is not contrary to the post confirmation provisions of the Bankruptcy Code. The Plan Trust will have every opportunity to review proposals and to refuse to participate. If the Plan Trust refuses to participate in a joint sale, the Trustee must be given the opportunity (an opportunity that clearly exists pre-confirmation) to request that this Court direct a joint sale that is in the best interest of creditors. Accordingly, the Limited Objection should be denied. GORDON, ARATA, MCCOLLAM, DUPLANTIS & EAGAN, LLC By: /s/Louis M. Phillips Louis M. Phillips (La. Bar No. 10505) One American Place 301 Main Street, Suite 1600 Baton Rouge, LA 70825 Phone: (225) 381-9643 Facsimile: (225) 336-9763 Email: lphillips@gordonarata.com

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- AND Patrick Rick M. Shelby (La Bar. No. 31963) James D. Rhorer (La. Bar No. 34052) 201 St. Charles Avenue, 40th Floor New Orleans, LA 70170-4000 Telephone: (504) 582-1111 Email: pshelby@gordonarata.com - AND Armistead M. Long (La. Bar No. 33949) 400 East Kaliste Saloom Road, Suite 4200 Lafayette, LA 70508 Phone: (337) 237-0132 Facsimile: (337) 237-3451 Email: along@gordonarata.com Attorneys for Gerald H. Schiff, Chapter 11 Trustee
CERTIFICATE OF SERVICE I hereby certify that a copy of the above and foregoing has been served upon the following parties by electronic notice via the Courts CM/ECF system on this 17th day of June, 2013: Stewart F. Peck, speck@lawla.com Christopher T. Caplinger, ccaplinger@lawla.com Benjamin W. Kadden, bkadden@lawla.com Joseph P. Briggett, jbriggett@lawla.com H. Kent Aguillard, kaguillard@yhalaw.com Brent B. Barriere, barrier@phelps.com Raymond A. Beyt, rab@beytlaw.com Frederick L. Bunol, fbunol@derbeslaw.com, dharvey@derbeslaw.com Jeffrey Burmaster, jburmaster@kingkrebs.com Jeffery D. Carruth, jcarruth@wkpz.com Leo D. Congeni, leocongeni@bellsouth.net Michael A. Crawford, mike.crawford@taylorporter.com Albert J. Derbes, ajdiv@derbeslaw.com, jbourdeaux@derbeslaw.com Carl Dore, carldore@doremahone.com, lgraham@doremahoney.com Douglas S. Draper, dsd@hellerdraper.com, lcollins@hellerdraper.com Steven G. Durio, durio@dmsfirm.com, bsandoz@dmsfirm.com Stanwood R. Duval, stan@duvallawfirm.com J. David Forsyth, jdf@sessions-law.com Tanya N. Garrison, tgarrison@wkpz.com Robert C. Gravolet, Robert.Gravolet@usdoj.gov, Adaline.L.Patterson@usdoj.gov

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Thomas G. Gruenert, tgruenert@ggzlawfirm.com kkeeling@ggzlafirm.com George B. Jurgens, gjurgens@kingkrebs.com, gchristian@kingkrebs.com Omer F. Kuebel, nobankecf@lockeliddell.com Mark Mintz, mmintz@joneswalker.com, sliberio@joneswalker.com Patricia Williams Prewitt, pwp@pattiprewittlaw.com Jacque B. Pucheu, jacque@pprlaw.com, jvienne@pprlaw.com Ryan J. Richmond, rrichmond@stewartrobbins.com Kathleen Shahan, Kathie.shahan@usdoj.gov Thomas J. Smith, tsmith@gjtbs.com, crose@gjtbs.com, chickman@gjtbs.com Office of the U.S. Trustee, USTPRegion5.NR.ECF@usdoj.gov Dennis J. Vidrine, dennisv@vidrinelaw.com Arthur A. Vingiello, avingiello@steffeslaw.com David F. Waguespack, Waguespack@carverdarden.com Guy E. Wall, gwall@wallbulling.com, melon@wallbulling.com Kristin S. Wallis, kwallis@csj-law.com, lderry@csj-law.com Timothy A. York, tyork@qsclpc.com

/s/Louis M. Phillips

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