ATP Oil Seeks Court Permission to Sell Shelf Drilling Areas

ATP Oil & Gas Corp. is seeking bankruptcy-court permission to sell 18 of its 38 offshore exploration and drilling areas at an auction next month.

ATP, which primarily drills in both the shallow and deep waters of the Gulf of Mexico, on Tuesday filed court papers proposing a February auction of its leases and other interests in 18 shallow drilling areas, located on the Outer Continental Shelf in the Gulf.

The sale is the first of a two-step process whereby ATP will sell its shelf and deepwater drilling areas in order to avoid defaulting on its $617.6 million bankruptcy loan from lenders led by Credit Suisse AG.

ATP's lenders are requiring the company to put the shelf leases and interests on the auction block by Feb. 26, to win court approval of the winning bid by Feb. 28 and to close a sale by March 15.

The sale would also include the production facilities, pipelines, machinery and other equipment related to the shelf drilling operations.

ATP said it is open to selling all of its shelf assets to one bidder or splitting them among multiple bidders.

Despite marketing the assets since late last year, ATP hasn't lined up a stalking horse to lead off the bidding for its assets. However, if ATP eventually designates one, it wants permission to pay a breakup fee of 3% of the stalking horse offer in the event the bidder loses at auction.

The U.S. Bankruptcy Court in Houston will consider approving ATP's proposal to auction its shelf properties at a Jan. 24 hearing.

If approved, ATP's auction rules would allow the bankruptcy lenders to credit bid for the assets--that is, offer to forgive some or all of the outstanding bankruptcy loan in exchange for the assets.

Credit Suisse and ATP's other bankruptcy lenders would be first in line to receive the sale proceeds, court papers show.

Last month, the bankruptcy court allowed ATP to adjust the terms of its bankruptcy loan to avoid defaulting on the loan in the wake of its failure to maintain certain production levels, among other issues. The loan amendment set deadlines for the dual sales, including an April 11 benchmark for ATP to close the sale of its deepwater properties.

In connection with the loan amendment, ATP's unsecured creditors expressed their concern that the sales won't "result in value-maximizing transactions" as soon as it was known that sales were required. Not only do the bankruptcy lenders rank at the top of the heap of creditors, but $1.5 billion in second-lien debt must also be paid before unsecured creditors may pocket any of the sale proceeds.

ATP, of Houston, sought Chapter 11 protection on Aug. 17, which it blamed, in part, on the ban on deepwater drilling in the Gulf of Mexico that the Obama administration put into play following the 2010 Deepwater Horizon oil spill. ATP later resumed drilling in the Gulf when the ban was lifted.


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