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Cobalt Ch. 11 Wind-Down Plan Approved After Settlement

05 April 2018

A Texas bankruptcy judge on Thursday approved Cobalt International Energy Inc.'s Chapter 11 plan and bid to sell its Gulf of Mexico assets after the oil and gas producer reached a settlement to resolve objections lodged by unsecured creditors.

After a multiday confirmation hearing, U.S. Bankruptcy Judge Marvin Isgur allowed the troubled exploration and production company to move ahead with its orderly liquidation plan that had drawn opposition from junior bondholders and unsecured creditors.

The objectors argued ahead of the hearing that the plan should not pass muster in the bankruptcy court because it releases potential causes of action that could be brought by creditors against debtors or third parties. Unsecured noteholders also complained that the plan was premised on the results of an auction that was not competitive and failed to maximize the value of Cobalt’s assets.

According to court documents, the debtors were able to reach a settlement with the unsecured creditors’ committee that establishes a reserve for the class and releases derivative action claims.

Houston-based Cobalt filed for bankruptcy in December with hopes of facilitating a restructuring capped off with a sale of the entire business, which includes oil fields in the Gulf of Mexico and off the coast of Angola and Gabon in West Africa.

The 12-year-old deep-water drilling company, which had then opted to defer multimillion-dollar interest payments to two groups of noteholders, said its woes were caused by a prolonged downturn in the exploration and production industry. Amid a three-year decline in oil prices, Cobalt said it was forced to hold off on drilling. It said it is currently producing oil from only one of its fields — an area located off the coast of Louisiana.

According to Cobalt, it attempted to raise capital in 2015 by selling its Angolan assets for $1.75 billion, but the deal ultimately fell through. Faced with mounting debt liabilities and a handful of investor suits, including a consolidated class action stemming from the company's alleged bribery of Angolan officials, Cobalt opted to sell everything in bankruptcy.

Before submitting its wind-down plan, Cobalt reached a $500 million settlement to resolve a failed sale of certain assets to Angolan state-owned oil company Sonangol EP, ending an arbitration dispute in which Cobalt was seeking more than $2 billion.

The company held an auction last month for four main offshore discoveries in the Gulf of Mexico and certain additional offshore exploration leases, together fetching offers in the aggregate of close to $580 million.

Using the proceeds of the settlement and the asset sale, Cobalt said it developed a Chapter 11 plan that pays out first lien note holders in full and provides a “significant cash distribution” to creditors with second lien claims.

The debtors are represented by James H.M. Sprayregen, Marc Kieselstein, Chad J. Husnick, Brad Weiland and Laura Krucks of Kirkland & Ellis LLP and by Zack A. Clement.

The creditors’ committee is represented by Robert J. Feinstein and Ira Kharasch of Pachulski Stang Ziehl & Jones LLP, and by Kenneth Green of Snow Spence Green LLP.

The case is In re: Cobalt International Energy Inc., case number 4:17-bk-36709, in the U.S. Bankruptcy Court for the Southern District of Texas.

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