ATP Oil & Gas Corp. is walking away from an oil-drilling platform in the Gulf of Mexico, leaving it unmanned and a threat to public safety at the start of hurricane season, attorneys told a bankruptcy judge Thursday.
The Houston company's Gomez Field deepwater drilling operation is not part of the package that lenders, led by an affiliate of Credit Suisse AG, are trying to buy in a deal that would leave little or no cash in the Chapter 11 coffers. At a hearing in the U.S. Bankruptcy Court in Houston Thursday, ATP won permission to abandon Gomez and to cut a deal with lenders that means the company can cover essential expenses, at least for a few more weeks.
ATP filed for Chapter 11 bankruptcy protection last year, blaming the after-effects of the drilling moratorium that followed the 2010 Deepwater Horizon disaster in the Gulf of Mexico. What lenders want to buy out of the bankruptcy are the money-making oil operations, particularly ATP's Clipper and Telemark hub projects. The rest, including Gomez and its aged drilling rig, will be left behind in an increasingly troubled Chapter 11 case.
ATP's unsecured creditors have protested the sale to lenders, and the company has been wrestling with banks all week, trying to avert a sudden shut-off of cash. The company went to court Thursday, winning permission to abandon the Gomez project, while striking a temporary truce with lenders that will reopen the flow of cash, which was shut off in advance of Thursday's hearing.
Judge Marvin Isgur signed off on a temporary emergency order that allows ATP to cover payroll and essential expenses while talks continue about the shape of the proposed lender takeover. Unsecured creditors want lenders to cover the cost of winding down ATP's unwanted business operations and wrapping up the Chapter 11 proceeding.
Lenders say they have agreed to allot $44 million to environmental safety and shutdown costs, in a deal with regulators, part of their drive to get court approval on the sale.
Thursday's hearing in the U.S. Bankruptcy Court in Houston focused mainly on the Gomez operation, which ATP says is too costly to keep going.
The U.S. Department of Interior asked that ATP not be permitted to shake off its responsibilities to clean up after the unprofitable Gomez drilling platform. An affiliate of Andarko Petroleum Corp. joined in, protesting that ATP's lenders should not be allowed to strip out assets worth hundreds of millions of dollars in bankruptcy and leave the Gomez project in dangerous shape.
"We don't believe the debtor can abandon its property in violation of laws designed to protect public health and safety," said Weil Gotshal & Manges LLP's Lydia Protopapas, attorney for Andarko.
"What do you want me to do?" Judge Isgur asked. "They don't have money. The DIP lender says, 'Fine, close them down. We don't care.'"
"DIP" is shorthand for the $650 million-plus bankruptcy loan that lenders have offered to cancel as part of the sale.
The government wrangled an agreement from ATP that the costs of a safe shutdown of the Gomez drilling operation--estimated by regulators at about $153 million--will rank as a top-priority expense in ATP's bankruptcy case. That doesn't mean the Gomez bills will be paid, as the Chapter 11 case is running dangerously low on cash. Other operators in the Gulf of Mexico are likely to wind up cleaning up after ATP, Judge Isgur said.
In testimony Thursday, Andarko executive Gary Mitchell said leaving the Gomez floating drilling rig--the 37-year-old ATP Innovator--unmanned could mean "a constant threat of hydrocarbons going into the Gulf of Mexico," as well as drifting equipment crashing into neighboring operations and tangled lines.
"It would be a horrible spaghetti mess, as you can imagine," Mr. Mitchell said.
Judge Isgur overruled Andarko's objection, citing case law that he said bars him from pushing aside the secured lender's liens and ordering the banks to free up cash to protect the public health and safety.
Regulators, he said, have the option of going after companies that were formerly associated with the Gomez operation to cover the cleanup costs instead of trying to chase ATP for money it may not have.
Copyright (c) 2012 Dow Jones & Company, Inc.
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