UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA CASE NO CHAPTER 11

Transcription

1 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA IN RE: VIRGIN OFFSHORE USA, INC., DEBTOR CASE NO CHAPTER 11 CHIEF JUDGE ELIZABETH W. MAGNER DISCLOSURE STATEMENT IN SUPPORT OF CHAPTER 11 PLAN OF REORGANIZATION DATED JANUARY 31, 2013 SUBMITTED BY GERALD H. SCHIFF, CHAPTER 11 TRUSTEE FOR THE ESTATE OF VIRGIN OFFSHORE U.S.A., INC. GORDON, ARATA, MCCOLLAM, DUPLANTIS & EAGAN, LLC By: /s/louis M. Phillips Louis M. Phillips (La. Bar No ) GORDON, ARATA, MCCOLLAM, DUPLANTIS, & EAGAN, LLC One American Place 301 Main Street, Suite 1600 Baton Rouge, LA Phone: (225) AND - Patrick Rick M. Shelby (La Bar. No ) James D. Rhorer (La. Bar No ) 201 St. Charles Avenue, 40 th Floor New Orleans, LA Telephone: (504) pshelby@gordonarata.com - AND - Armistead M. Long (La. Bar No ) GORDON, ARATA, MCCOLLAM, DUPLANTIS, & EAGAN, LLC 400 East Kaliste Saloom Road, Suite 4200 Lafayette, LA Phone: (337) Facsimile: (337) along@gordonarata.com Attorneys for Gerald H. Schiff, Chapter 11 Trustee Dated: January 31, 2013

2 TABLE OF CONTENTS I. SUMMARY INFORMATION ON CHAPTER A. WHO IS OFFSHORE?... 3 B. HOW LONG HAS OFFSHORE BEEN IN CHAPTER 11?... 3 C. HAS A TRUSTEE BEEN APPOINTED?... 3 D. HAS A COMMITTEE OF UNSECURED CREDITORS BEEN APPOINTED?... 3 E. WHAT IS OFFSHORE ATTEMPTING TO DO IN CHAPTER 11?... 3 F. HAS A PLAN OF REORGANIZATION BEEN PROPOSED?... 4 G. IF THE PLAN OF REORGANIZATION IS THE DOCUMENT WHICH GOVERNS HOW A CLAIM WILL BE TREATED, WHY AM I RECEIVING THIS DISCLOSURE STATEMENT?... 4 H. HAS THIS DISCLOSURE STATEMENT BEEN APPROVED BY THE BANKRUPTCY COURT?... 4 I. HOW DO I DETERMINE WHICH CLASS I AM IN?... 4 J. WHY IS CONFIRMATION OF A PLAN OF REORGANIZATION IMPORTANT?... 5 K. WHAT IS NECESSARY TO CONFIRM A PLAN OF REORGANIZATION?... 5 L. AM I ENTITLED TO VOTE ON THE PLAN?... 5 M. WHEN IS THE DEADLINE BY WHICH I NEED TO RETURN MY BALLOT?... 5 II. INTRODUCTION... 5 III. VOTING PROCEDURES AND REQUIREMENTS... 7 A. Ballots and Voting Deadline... 7 B. Creditors Solicited to Vote... 8 C. Definition of Impairment... 9 D. Classes Impaired Under the Plan _1 i

3 E. Vote Required for Class Acceptance F. Distributions Only to Holders of Allowed Claims IV. CONFIRMATION OF THE PLAN A. Confirmation Hearing B. Requirements for Confirmation of the Plan Feasibility Best Interests Test Fair and Equitable Test ( Cramdown ) V. GENERAL INFORMATION A. History of Offshore, Debt, Management and Corporate Structure B. Events Leading to Offshore s Bankruptcy Case VI. OFFSHORE ASSETS, P&A LIABILITY and claims analysis A. Assets Existing Oil and Gas Assets and Producing Wells a. EAST CAMERON b. EAST CAMERON c. EMPIRE d. SHIP SHOAL 153 / e. WEST CAMERON Expired Leases B. P&A Liability C. Claims Analysis Empire Secured Claims Unsecured/Undisputed General Unsecured Claims Filed Claims VII. DESCRIPTION OF THE PLAN _1 ii

4 A. General B. Purpose and Summary of Plan and the Offshore Plan Trust VIII. SIGNIFICANT EVENTS DURING OFFSHORE S BANKRUPTCY CASE A. Involuntary Petition B. Appointment of the Trustee C. Schedules, Statement of Financial Affairs and 341 Creditors Meeting D. Retention of Professionals by the Trustee E. Oil/Offshore Settlement F. Sooner/Specialty Settlement G. Lien Claimants Adversary Proceeding H. D&O Litigation I. Assumption of Unexpired Oil and Gas Leases J. Assumption of Master License Agreement for Geophysical Data K. Claims Bar Date L. Monthly Operating Reports IX. SUMMARY OF THE PLAN TERMS CONCERNING CLASSIFICATION AND TREATMENT OF CLAIMS, ACCEPTANCE OR REJECTION OF PLAN, DISTRIBUTIONS, AND DISPUTED CLAIMS A. General B. Unclassified Claims Administrative Expense Claims Priority Tax Claims Other C. Classified Claims and Treatment Summary CLASS 1 EMPIRE SECURED CLAIMS _1 iii

5 (1) Claim (2) Treatment (3) Voting CLASS 2 RLI INSURANCE CLAIM (1) Claim (2) Treatment (3) Voting CLASS 3 UNSECURED CLAIMS (1) Claim (2) Treatment (3) Voting CLASS 4 EQUITY INTERESTS (1) Classification (2) Treatment (3) Voting X. PROCEDURES FOR RESOLVING AND TREATING CONTESTED AND DISPUTED CLAIMS A. Prosecution of Objections to Claims B. Allowance of Claims C. Controversy Concerning Impairment D. Payments and Distributions on Disputed Claims and Class 3 Claims XI. EXECUTORY CONTRACTS AND UNEXPIRED LEASES XII. MEANS OF IMPLEMENTATION OF THE PLAN A. Operation of Reorganized Offshore Post-Effective Date B. The Offshore Equity Trust and Appointment, Powers and Removal of the Offshore Equity Trustee i. Establishment of the Offshore Equity Trust ii. Purpose of the Offshore Equity Trust _1 iv

6 iii. Issuance of Equity by the Debtor to the Offshore Equity Trust iv. Appointment of and Compensation for the Offshore Equity Trustee v. Powers and Duties of the Offshore Equity Trustee vi. Indemnification of the Offshore Equity Trustee vii. Tax Treatment of the Offshore Equity Trust C. Offshore Equity Trust Distributions D. Term and Termination of the Offshore Equity Trust and Offshore Equity Trustee E. Causes of Action and Avoidance Actions XIII. SUMMARY OF PLAN TERMS CONCERNING CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN, EFFECT OF CONFIRMATION OF PLAN, AND EFFECTIVE DATE A. The Effective Date B. Conditions Precedent to Effective Date Confirmation Order Documents Authorizations C. Waiver of Conditions D. Effects of Confirmation Assets of the Debtor Cancellation of Class 4 Equity Interests Issuance of New Equity Conversion of Allowed Class 3 General Unsecured Claims into Beneficial Interests in the Offshore Equity Trust Findings by the Bankruptcy Court _1 v

7 XIV. DISCHARGE, RELEASE, INJUNCTION, AND RELATED PROVISIONS A. Discharge of Debtor B. Injunction C. Exculpations D. Indemnification Obligations E. Limited Release F. Releases by Consenting Parties G. Retention of Jurisdiction H. Modification of the Plan I. Successors and Assigns J. Reservation of Rights K. Governing Law L. No Admission or Waivers M. Continuing Viability of Other Orders/Agreements N. Limitations on Liability XV. FEASIBILITY OF THE PLAN AND LIQUIDATION ANALYSIS XVI. MATERIAL UNCERTAINTIES A. Uncertainty Regarding Objections to Claims B. Uncertainty Regarding Acceptance of the Plan C. Uncertainty Regarding the Continued Operation of Existing Oil And Gas Assets and Liquidation D. Other Uncertainties XVII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN55 A. Introduction B. IRS Circular 230 Disclosure _1 vi

8 C. Consequences to Holders of Claims Realization and Recognition of Gain or Loss in General Accrued Interest Withholding D. Consequences to Offshore or Reorganized Offshore Discharge-of-Indebtedness Income Generally Utilization of Net Operating Loss Carryovers Alternative Minimum Tax XVIII. CONCLUSION XIX. RECOMMENDATION OF THE TRUSTEE _1 vii

9 IMPORTANT This Disclosure Statement (the Disclosure Statement ) in Support of the CHAPTER 11 PLAN OF REORGANIZATION DATED JANUARY 31, 2013 SUBMITTED BY GERALD H. SCHIFF, CHAPTER 11 TRUSTEE FOR THE ESTATE OF VIRGIN OFFSHORE U.S.A., INC. (the Plan ) has been prepared by counsel for Gerald H. Schiff (the Trustee ), Chapter 11 Trustee for the Bankruptcy Estate of Virgin Offshore U.S.A., Inc. ( Offshore or Debtor ). This Disclosure Statement describes the terms and provisions of the Plan. The Chapter 11 bankruptcy case of Offshore is pending in the United States Bankruptcy Court for the Eastern District of Louisiana (the Bankruptcy Court ) under Chapter 11 of Title 11, United States Code (the Bankruptcy Code ). The Trustee believes that the Plan provides the best opportunity and mechanism for maximizing the recovery of all Holders of all Claims. A copy of the Plan is attached hereto as Exhibit A and should be reviewed carefully. THIS DISCLOSURE STATEMENT, TOGETHER WITH THE PLAN, WHICH IS ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE AS IF FULLY SET FORTH HEREIN, SHOULD BE READ IN THEIR ENTIRETY. FOR THE CONVENIENCE OF CREDITORS AND HOLDERS OF EQUITY INTERESTS, THE TERMS OF THE PLAN ARE SUMMARIZED IN THIS DISCLOSURE STATEMENT, BUT THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE PLAN ITSELF, WHICH IS CONTROLLING IN THE EVENT OF ANY INCONSISTENCY. THIS DISCLOSURE STATEMENT, INCLUDING ITS EXHIBITS, IS THE ONLY DOCUMENT AUTHORIZED BY THE BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES UNDER THE PLAN. MANY OF THE REPRESENTATIONS AND FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT ABOUT THE DEBTOR HAVE BEEN OBTAINED FROM DOCUMENTS AND INFORMATION PREPARED BY OR ON BEHALF OF THE DEBTOR. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE OF THIS DISCLOSURE STATEMENT UNLESS ANOTHER TIME IS SPECIFIED. THE DELIVERY OR FILING OF THIS DISCLOSURE STATEMENT SHALL UNDER NO CIRCUMSTANCES CONSTITUTE A REPRESENTATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT SINCE THE DATE OF COMPILATION OF THIS DISCLOSURE STATEMENT AND THE MATERIALS RELIED UPON IN THE PREPARATION OF THIS DISCLOSURE STATEMENT. THE TRUSTEE BELIEVES THAT THIS INFORMATION IS RELIABLE, BUT THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS NOT BEEN AUDITED BY AN INDEPENDENT THIRD PARTY. ALTHOUGH EVERY REASONABLE EFFORT HAS BEEN MADE TO PRESENT ACCURATE INFORMATION, THE ACCURACY OF THIS INFORMATION CANNOT BE GUARANTEED. Disclosure Statement Dated January 31, 2013 Page 1 of 61

10 FURTHER, A CAPITALIZED TERM USED IN THIS DISCLOSURE STATEMENT AND NOT DEFINED HEREIN HAS THE MEANING ASCRIBED TO THAT TERM IN THE PLAN. ALSO, IN THE EVENT OF ANY DISCREPANCY BETWEEN A TERM EMPLOYED HEREIN AND IN THE PLAN, THE MEANING ASCRIBED TO SUCH TERM IN THE PLAN SHALL CONTROL. The Trustee urges those Holders of Allowed Claims entitled to vote upon the Plan to vote in favor of the Plan. /s/ Gerald H. Schiff Gerald H. Schiff, Chapter 11 Trustee Disclosure Statement Dated January 31, 2013 Page 2 of 61

11 I. SUMMARY INFORMATION ON CHAPTER 11 This Disclosure Statement is offered in connection with solicitation of acceptances of the Plan. This Disclosure Statement is being provided in order to disclose important and necessary information to allow a reasonably informed decision by Creditors and Interest Holders exercising their right to vote on, or otherwise participate in, confirming the Plan. The purpose of this summary is to answer questions which are often asked by a party receiving a disclosure statement. Unless otherwise stated, the information contained herein is as of January 31, 2013, or as of any date as indicated within the exhibits to this Disclosure Statement. A. WHO IS OFFSHORE? Offshore is a corporation incorporated under the laws of the State of Delaware. Offshore has one shareholder, Virgin Oil Company, Inc. ( Virgin Oil ). Virgin Oil is corporation incorporated under the laws of the State of Louisiana. Offshore has been in existence since December 6, According to documents filed in the chapter 11 bankruptcy case of Virgin Oil, Offshore was formed as a wholly owned subsidiary of Virgin Oil for the purpose of serving as Operator of properties to be acquired by Virgin Oil. These documents state that the business model of Virgin Oil and Offshore involved the purchase of oil and gas leases in the name of Offshore and further allege that when a decision to drill a well was made. Virgin Oil and Offshore would raise money from third party investors. B. HOW LONG HAS OFFSHORE BEEN IN CHAPTER 11? On September 16, 2011, an involuntary petition was filed by Precision Drilling Company, LP, Dynamic Energy Services, LLC and Tanner Services, LLC and subsequently consented to by Offshore on October 6, The order for relief was entered on October 12, 2011 (the Order for Relief ). C. HAS A TRUSTEE BEEN APPOINTED? Yes. On October 6, 2011, Offshore filed a Motion to Appoint Chapter 11 Trustee which was granted by the Court on October 11, 2011.The Office of the United State Trustee nominated Gerald H. Schiff as the Trustee on October 13, 2011, and moved for an order approving the appointment of Gerald H. Schiff as the Trustee. On October 14, 2011, this Court entered an Order approving the appointment of Gerald H. Schiff as chapter 11 trustee of the Offshore Estate. D. HAS A COMMITTEE OF UNSECURED CREDITORS BEEN APPOINTED? No. E. WHAT IS OFFSHORE ATTEMPTING TO DO IN CHAPTER 11? Chapter 11 is the principal reorganization chapter of the Bankruptcy Code. Under Chapter 11, a debtor is reorganizing its assets and liabilities to maximize the return to its Disclosure Statement Dated January 31, 2013 Page 3 of 61

12 creditors. Formulation and confirmation of a plan of reorganization, providing for such reorganization, is the principal purpose of the Chapter 11 process. The plan of reorganization is the legal document which sets forth the means by which holders of claims and equity interests against a debtor will be treated. F. HAS A PLAN OF REORGANIZATION BEEN PROPOSED? Yes. The Plan is submitted herewith. See, Exhibit A. A capitalized term used in this Disclosure Statement and not defined herein has the meaning assigned to that term in the Plan. G. IF THE PLAN OF REORGANIZATION IS THE DOCUMENT WHICH GOVERNS HOW A CLAIM WILL BE TREATED, WHY AM I RECEIVING THIS DISCLOSURE STATEMENT? In order to confirm a plan of reorganization, the Bankruptcy Code provides that proponents solicit acceptances of a proposed plan of reorganization. Before proponents can solicit such acceptances, the Bankruptcy Court must approve the information to be sent to the creditors and holders of equity interests, disclosing information to allow them to make informed judgments about the plan of reorganization. The purpose of this Disclosure Statement is to provide that information required by the Bankruptcy Code. H. HAS THIS DISCLOSURE STATEMENT BEEN APPROVED BY THE BANKRUPTCY COURT? No. The Trustee is requesting the Bankruptcy Court to approve this Disclosure Statement at hearing on March 6, 2013, as containing information of a kind, and in sufficient detail, adequate to enable a hypothetical, reasonable investor typical of each class of Creditors, whose acceptance is being solicited, to make an informed judgment whether to vote to accept or reject the Plan. THIS DISCLOSURE STATEMENT, TOGETHER WITH THE PLAN WHICH IS ATTACHED HERETO, SHOULD BE READ IN ITS ENTIRETY. FOR THE CONVENIENCE OF CREDITORS AND HOLDERS OF EQUITY INTERESTS, THE TERMS OF THE PLAN ARE SUMMARIZED IN THIS DISCLOSURE STATEMENT, BUT THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE PLAN ITSELF, WHICH IS CONTROLLING IN THE EVENT OF ANY INCONSISTENCY. I. HOW DO I DETERMINE WHICH CLASS I AM IN? You will find in the Plan a reference to the discussion of the Classes of Creditors and Equity Interests and the treatment provided to such Classes. Article VI of the Disclosure Statement explains, among other things, what Creditors or types of Creditor Claims and Equity Interests are in each Class, the estimated size of each Class, and estimated distributions to members of the Classes if the Plan is Confirmed. If you are unsure as to the Class in which your Claim or Equity Interest falls, you may need to consult an attorney. The Trustee does advise that you discuss with tax advisers the extent to which, if any, recovery of interest and any Disclosure Statement Dated January 31, 2013 Page 4 of 61

13 attendant recovery from or on account of the distributions to you would constitute taxable income to you. J. WHY IS CONFIRMATION OF A PLAN OF REORGANIZATION IMPORTANT? Confirmation of a plan of reorganization is necessary for a debtor in Chapter 11 to provide the bankruptcy court-approved treatment to its creditors and interest holders under its plan. Confirmation of a plan of reorganization will also bind creditors, interest holders, the debtors, and other parties-in-interest, regardless of whether they have voted, voted against, or voted for the plan of reorganization. K. WHAT IS NECESSARY TO CONFIRM A PLAN OF REORGANIZATION? Confirmation of a plan can be premised upon, among other things, the vote in favor of the plan of two-thirds in total dollar amount and a majority in number of claims actually voting in each voting class. (If the vote is insufficient, a bankruptcy court can still confirm the plan, but only upon being provided additional proof regarding the ultimate fairness of the plan to the creditors in accordance with the Bankruptcy Code). Confirmation can only be effected by a court order. L. AM I ENTITLED TO VOTE ON THE PLAN? A Creditor of Offshore is not entitled to vote on the Plan unless its Claim or Equity Interest is IMPAIRED. Article II below (VOTING PROCEDURES AND REQUIREMENTS) contains an explanation of voting. Under the Plan, Holders of Allowed Claims in Classes 1, 2 and 3 are IMPAIRED, and, subject to the terms of this Disclosure Statement, the Plan, and applicable bankruptcy law regarding Disputed Claims, are entitled to vote on the Plan. M. WHEN IS THE DEADLINE BY WHICH I NEED TO RETURN MY BALLOT? The deadline for returning your Ballot is 5:00 p.m. Central Time on, 2013 (the Voting Deadline ). Article III below contains further explanation. II. INTRODUCTION The Trustee submits this Disclosure Statement under section 1125 of the Bankruptcy Code in connection with the solicitation of acceptances of the Plan. This Disclosure Statement, which includes the Plan as Exhibit A, will be transmitted to all Holders of Claims against and Equity Interests in Offshore. However, the Trustee is seeking votes only from Holders of Allowed Claims in Impaired Classes 1, 2 and 3. All persons receiving this Disclosure Statement and the Plan are urged to review fully the provisions of the Plan and all attached exhibits, in addition to reviewing this Disclosure Statement. Disclosure Statement Dated January 31, 2013 Page 5 of 61

14 This Disclosure Statement is not intended to replace careful review and analysis of the Plan. Rather, it is submitted as an aid and supplement in your review of the Plan and an effort to explain the terms and implications of the Plan on file with the Bankruptcy Court. Every effort has been made to explain fully the various aspects of the Plan as it may affect all Creditors and Interest Holders. If you have any questions, you may contact the Trustee s legal counsel and every effort will be made to assist you. However, please be advised that counsel for the Trustee cannot provide you with legal advice, including, but not limited to, a determination of whether you possess a Claim or Equity Interest, the amount of any such Claim or Equity Interest, your ability to vote on the Plan, etc. Creditors and Interest Holders should read this Disclosure Statement in its entirety prior to voting on the Plan. No solicitation of votes on the Plan may be made, except pursuant to this Disclosure Statement and section 1125 of the Bankruptcy Code. No other party has been authorized to utilize any information concerning Offshore or their businesses, other than the information contained in this Disclosure Statement, to solicit votes on the Plan. Creditors and Interest Holders should not rely on any information relating to Offshore other than that contained in this Disclosure Statement and the Exhibits attached hereto. EXCEPT AS SET FORTH IN THIS DISCLOSURE STATEMENT AND THE EXHIBITS, REPRESENTATIONS CONCERNING OFFSHORE, THE ASSETS, THE LIABILITIES OR THE PLAN ARE NOT AUTHORIZED, NOR ARE ANY SUCH REPRESENTATIONS TO BE RELIED UPON IN ARRIVING AT A DECISION WITH RESPECT TO THE PLAN. ANY REPRESENTATIONS MADE TO SECURE ACCEPTANCE OR REJECTION OF THE PLAN OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD BE REPORTED TO COUNSEL FOR OFFSHORE. THE FACTUAL INFORMATION REGARDING OFFSHORE, INCLUDING THE ASSETS AND LIABILITIES OF OFFSHORE, HAS BEEN DERIVED FROM NUMEROUS SOURCES, INCLUDING, BUT NOT LIMITED TO OFFSHORE S BOOKS AND RECORDS, SCHEDULES, AND DOCUMENTS SPECIFICALLY IDENTIFIED HEREIN. THE TRUSTEE ALSO COMPILED THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT FROM RECORDS AVAILABLE TO HIM, INCLUDING, BUT NOT LIMITED TO, PLEADINGS AND REPORTS ON FILE WITH THE BANKRUPTCY COURT, LOAN AGREEMENTS, BUSINESS RECORDS AND PLEADINGS AND REPORTS ON FILE IN LOUISIANA STATE AND FEDERAL COURTS. ANY APPROVAL BY THE BANKRUPTCY COURT OF THE DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR A GUARANTY OF THE ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED HEREIN. THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER APPROVED NOR DISAPPROVED THE INFORMATION CONTAINED IN THE DISCLOSURE STATEMENT. THE SECURITIES AND EXCHANGE COMMISSION HAS ALSO NOT Disclosure Statement Dated January 31, 2013 Page 6 of 61

15 PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. NEITHER THE TRUSTEE NOR COUNSEL FOR THE TRUSTEE CAN WARRANT NOR REPRESENT THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS WITHOUT INACCURACY. NEITHER THE TRUSTEE NOR HIS COUNSEL HAS VERIFIED THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, ALTHOUGH THEY DO NOT HAVE ACTUAL KNOWLEDGE OF ANY INACCURACIES. THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON BY ANY PERSON OR ENTITY FOR ANY PURPOSE OTHER THAN BY HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE ON THE PLAN IN DETERMINING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN. NOTHING CONTAINED HEREIN WILL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE TRUSTEE, OFFSHORE OR ANY OTHER PARTY. CERTAIN OF THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE FORWARD LOOKING PROJECTIONS AND FORECASTS BASED UPON CERTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. NOTHING CONTAINED IN THIS DISCLOSURE STATEMENT, EXPRESS OR IMPLIED, IS INTENDED TO GIVE RISE TO ANY COMMITMENT OR OBLIGATION OF THE TRUSTEE OR OFFSHORE OR WILL CONFER UPON ANY PERSON ANY RIGHTS, BENEFITS, OR REMEDIES OF ANY NATURE WHATSOEVER. EXCEPT AS OTHERWISE NOTED HEREIN, THE INFORMATION CONTAINED HEREIN IS GENERALLY INTENDED TO DESCRIBE FACTS AND CIRCUMSTANCES ONLY AS OF THE DATE OF THIS DISCLOSURE STATEMENT, AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR THE CONFIRMATION OF THE PLAN WILL CREATE ANY IMPLICATION, UNDER ANY CIRCUMSTANCES, THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS CORRECT AT ANY TIME AFTER THE DATE OF THIS DISCLOSURE STATEMENT OR THAT THE TRUSTEE OR OFFSHORE WILL BE UNDER ANY OBLIGATION TO UPDATE SUCH INFORMATION IN THE FUTURE. III. VOTING PROCEDURES AND REQUIREMENTS A. Ballots and Voting Deadline A Ballot to be used for voting to accept or reject the Plan is enclosed with this Disclosure Statement and transmitted to all Creditors and Interest Holders entitled to vote. Creditors and Interest Holders should carefully review the Ballot and the instructions thereon, and must execute the Ballot, and return it to the address indicated thereon by the deadline to enable the Ballot to be considered for voting purposes. Disclosure Statement Dated January 31, 2013 Page 7 of 61

16 FOR YOUR VOTE TO BE COUNTED, YOU MUST COMPLETE THE BALLOT, INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOXES INDICATED ON THE BALLOT, AND SIGN AND RETURN THE BALLOT TO THE ADDRESS SET FORTH ON THE PRE-ADDRESSED ENVELOPE. IF A BALLOT IS RECEIVED AFTER THE VOTING DEADLINE, IT WILL NOT BE COUNTED. If you hold Claims in more than one Class under the Plan, you must return two (or more) completed Ballots, i.e., one for each Claim. You must vote the entirety of your Claim within a single Class under the Plan to either accept or reject the Plan. Accordingly, a Ballot (or multiple Ballots with respect to multiple Claims within a single class) that partially rejects and partially accepts the Plan will not be counted. The Ballot is for voting purposes only and does not constitute and shall not be deemed a proof of Claim or Equity Interest or an assertion of a Claim or Equity Interest. The Bankruptcy Court has directed that, in order to be counted for voting purposes, Ballots for the acceptance or rejection of the Plan must be received no later than 5:00 p.m., Central Time, on, 2013, or as subsequently notified, at the following address: GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, LLC Attention: Virgin Offshore U.S.A., Inc. Claims Balloting 301 Main Street, Suite 1600 Baton Rouge, Louisiana Telephone: (225) Facsimile: (225) ANY BALLOTS RECEIVED AFTER 5:00 P.M., CENTRAL TIME, ON, 2013 WILL NOT BE COUNTED. After careful review of this Disclosure Statement and all exhibits attached hereto, please indicate your vote on the enclosed Ballot and return the Ballot in the enclosed self-addressed return envelope to be received by the date and time set forth above. B. Creditors Solicited to Vote Any Creditor of Offshore with an Impaired Allowed Claim under the Plan is being solicited to vote, if either (i) its Claim has been scheduled by Offshore and such Claim is not scheduled as disputed, contingent, or unliquidated, or (ii) it has filed a Proof of Claim pursuant to section 501 of the Bankruptcy Code on or before the last date set by the Bankruptcy Court for such filings. Any Claim as to which an objection has been filed, if such objection is still pending on the voting date, is not entitled to have its vote counted, unless the Bankruptcy Court temporarily allows the Claim upon motion by such Creditor whose Claim has been objected to, in an amount which the Bankruptcy Court deems proper for the purpose of accepting or rejecting the Plan, subject to the terms of this Disclosure Statement and applicable law regarding the inability of Creditors whose Claims are subject to objection as of confirmation to have votes Disclosure Statement Dated January 31, 2013 Page 8 of 61

17 counted. Such motion must be heard and determined by the Bankruptcy Court prior to the date and time established by the Bankruptcy Court to confirm the Plan. In addition, a Creditor s vote may be disregarded if the Bankruptcy Court determines that the Creditor s acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code. C. Definition of Impairment Under section 1124 of the Bankruptcy Code, a class of claims or equity interests is impaired under a plan of reorganization unless, with respect to each claim or equity interest of such class, the plan: 1. leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest; or 2. notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default -- a. cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code or of a kind that section 365(b)(2) of the Bankruptcy Code expressly does not require to be cured; b. reinstates the maturity of such claim or interest as such maturity existed before such default; c. compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; d. if such claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real property lease subject to section 365(b)(1)(A) of the Bankruptcy Code, compensates the holder of such claim or such interest (other than Offshore or an insider) for any actual pecuniary loss incurred by such holder as a result of such failure; and e. does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest. D. Classes Impaired Under the Plan Allowed Claims in Classes 1, 2 and 3 are IMPAIRED under the Plan. Thus, Holders of Claims in Classes 1, 2, and 3 are being solicited to accept or reject the Plan. Allowed Equity Interests in Class 4 are IMPAIRED under the Plan but are deemed to REJECT the Plan for the reasons discussed herein. The remaining Claimants whose Claims are either Administrative Page 9 of 61 Disclosure Statement Dated January 31, 2013

18 Claims or Unsecured Priority Claims and therefore are dealt with pursuant to section 1129(a)(9) of the Bankruptcy Code and compromise. The Trustee, however, specifically reserves the right to contest (1) the Impaired or Unimpaired status of any class under the Plan; and (2) whether any Ballots cast by such class should be allowed to be counted for purposes of Confirmation of the Plan. E. Vote Required for Class Acceptance Acceptance of the Plan by a Class of Creditors will be obtained by the acceptance of the Plan by Holders of two-thirds in dollar amount and a majority in number of the Claims in any such Class, which actually cast Ballots for acceptance or rejection of the Plan. In other words, acceptance takes place only if two-thirds in amount and majority in number of the Creditors in a given class who vote cast their Ballots in favor of acceptance. F. Distributions Only to Holders of Allowed Claims A Claim will receive a Distribution under the Plan only if it is an Allowed Claim. Allowed under the Plan shall mean, with respect to any Claim, a Claim (i) that has been listed by Offshore in its Schedules, as the same may from time to time be amended in accordance with Bankruptcy Rule 1009, other than Claims scheduled as contingent, unliquidated or disputed, or proof of which has been timely filed with the Bankruptcy Court on or prior to the Claims Bar Date and that is not a Disputed Claim, (ii) as to which a Final Order has been entered allowing such Claim or any portion thereof or (iii) that is deemed Allowed under the Plan. Any Claim allowed solely for the purpose of voting to accept or reject the Plan pursuant to an Order of the Bankruptcy Court shall not be considered an Allowed Claim thereunder. Unless otherwise specified within the Plan or by Final Order of the Bankruptcy Court, an Allowed Claim shall not, for purposes of computation of distributions under the Plan, include interest on such Claim from and after the Petition Date. IV. CONFIRMATION OF THE PLAN A. Confirmation Hearing Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a hearing on Confirmation of the Plan. Section 1128(b) provides that any party in interest may object to Confirmation of the Plan. By order of the Bankruptcy Court dated F, 2013, the Confirmation Hearing has been scheduled for, 2013, at :00 a.m., United States Bankruptcy Court, Eastern District of Louisiana, 707 Florida Street, Room 222, Baton Rouge, LA The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice, except for an announcement made at the Confirmation Hearing or any adjournment thereof. Any objection to Confirmation must be made in writing and filed with the Bankruptcy Court with proof of service and actually received by the following parties on or before, 2013 at 5:00 p.m. Central Time: Disclosure Statement Dated January 31, 2013 Page 10 of 61

19 Virgin Offshore U.S.A., Inc.: VIRGIN OFFSHORE U.S.A., INC. Attn: Gerald H. Schiff 301 Main Street, Suite 1600 Baton Rouge, LA Telephone: (225) Facsimile: (225) Counsel for the Trustee: GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, LLC Attn: Louis M. Phillips 301 Main Street, Suite 1600 Baton Rouge, LA Telephone: (225) Facsimile: (225) And United States Trustee: OFFICE OF THE UNITED STATES TRUSTEE Attention: Carolyn Cole 400 Poydras Street, Suite 2110 New Orleans, LA Telephone: (504) Facsimile: (504) UNLESS AN OBJECTION TO CONFIRMATION IS PROPERLY AND TIMELY SERVED AND FILED, IT WILL NOT BE CONSIDERED BY THE BANKRUPTCY COURT. B. Requirements for Confirmation of the Plan At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for Confirmation are that the Plan (a) is feasible, (b) is in the best interests of Holders of Claims and Equity Interests Impaired under the Plan, and (c) is accepted by all Impaired Classes of Claims and Equity Interests or, if rejected by an Impaired Class, that the Plan does not discriminate unfairly and is fair and equitable as to such Class. 1. Feasibility As more particularly described in this Disclosure Statement, the primary purpose of the Plan filed by the Trustee in this case is to (i) cancel the existing Equity Interest and issue new Equity Interest to be held in trust for the beneficial interest of Holders of Allowed General Unsecured Claims, (ii) provide for the disallowance and/or modification of certain Secured and Unsecured Claims, (iii) pay the Allowed Claims of the Creditors of the Debtor, (iv) preserve the value of Offshore s interest in the claims and Causes of Action against the former directors and officers of Offshore, and (v) provide for a liquidation of the Offshore Estate. Page 11 of 61 Disclosure Statement Dated January 31, 2013

20 The Bankruptcy Code requires that Confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of a debtor. The Trustee s Plan is a liquidating plan that specifically contemplates the liquidation of all remaining assets of Offshore and Distribution of the proceeds of that liquidation and the proceeds of the prior collections to the Creditors of Offshore s estate. The liquidation and distribution of Offshore s assets is discussed and the Exhibits containing the underlying information are described and referred to, infra. The Trustee believes that the Plan proposes a suitable method for such liquidation and Distribution and that Confirmation of the Plan is not likely to be followed by the need for further financial reorganization. Accordingly, the Plan is feasible and satisfies the requirements of Section 1129 of the Bankruptcy Code. 2. Best Interests Test At the Confirmation Hearing, the Bankruptcy Court must, among other things, determine whether Creditors and Holders of Equity Interests would receive at least as much under the Plan as they would receive in liquidation under Chapter 7. The Liquidation Analysis is discussed in Article XV, infra. 3. Fair and Equitable Test ( Cramdown ) If a sufficient number of Creditors and amount of Claims, and the requisite amount in the Impaired Classes vote to accept the Plan, the Trustee believes that the Bankruptcy Court will approve Confirmation and that the Plan will satisfy all of the applicable statutory requirements of the section 1129(a) of the Bankruptcy Code. The Trustee may seek to confirm the Plan notwithstanding the non-acceptance of the Plan by any Impaired Class of Claims entitled to vote on the Plan. To obtain confirmation, it must be demonstrated to a bankruptcy court that a plan does not discriminate unfairly and is fair and equitable with respect to each dissenting impaired class. A plan does not discriminate unfairly if the legal rights of a dissenting impaired class are treated in a manner consistent with the treatment of other classes whose legal rights are substantially similar to those of the dissenting impaired Class and if no class receives more than it is entitled to for its claims. The Trustee believes the Plan satisfies this requirement. The Bankruptcy Code establishes different fair and equitable tests for secured claims, unsecured claims, and holders of equity interests. a. Secured Claims. with respect to treatment of a secured claim under a plan, fair and equitable means either (i) the impaired secured creditor retains its liens to the extent of its allowed claim and receives deferred cash payments at least equal to the allowed amount of its claims with a present value as of the effective date of a plan at least equal to the value of such creditor s interest in the property securing its liens, (ii) property subject to the lien of the impaired secured creditor is sold free and clear of that lien, with that lien attaching to the proceeds of sale, and such lien proceeds are treated in accordance with clauses (i) and (iii) hereof, Disclosure Statement Dated January 31, 2013 Page 12 of 61

21 or (iii) the impaired secured creditor realizes the indubitable equivalent of its claim under a plan. b. Unsecured Claims. with respect to treatment of an unsecured claim under a plan, fair and equitable means either, (i) each impaired unsecured creditor receives or retains property of a value equal to the amount of its allowed claim, or (ii) the holders of claims and interests that are junior to the claims of the dissenting class will not receive any property under a plan. c. Equity Interests. With respect to the treatment of equity interests under a plan, fair and equitable means either (i) each equity interest holder will receive or retain under a plan property of a value equal to the greatest of the allowed amount of any fixed liquidation preference or redemption price, if any, of such equity interest or the value of the equity interest, or (ii) the holders of equity interests that are junior to the dissenting class of equity interests will not receive or retain any property under a plan on account of such junior equity interest. The Trustee believes that the Plan can be confirmed on a non-consensual basis if the Holders of any Class of Claims or Equity Interests entitled to vote on the Plan vote to reject the Plan (provided at least one Impaired Class of Claims entitled to vote votes to accept the Plan). If appropriate, the Trustee will demonstrate at the Confirmation Hearing that the Plan satisfies the requirements of section 1129(b) of the Bankruptcy Code as to any non-accepting Class. V. GENERAL INFORMATION A. History of Offshore, Debt, Management and Corporate Structure Offshore is a corporation incorporated under the laws of the State of Delaware whose sole shareholder is Virgin Oil. Virgin Oil was incorporated under the laws of the State of Louisiana for the purpose of developing an exploration and production oil and gas business in China and the United States. On December 6, 1999, Virgin Oil formed Offshore as a whollyowned subsidiary to serve as Operator of certain oil and gas properties owned or to be acquired. The Virgin Oil/Offshore business model involved the purchase of oil and gas leases in the name of Offshore. In order to fund the cost of operating and/or developing these properties, Virgin Oil and Offshore solicited and obtained money from third party investors, often on a third for a quarter basis. Offshore s involvement in this business model was necessary to enable transfers to investors free and clear of liens in favor of Virgin Oil s lenders. These liens were to affect only Virgin Oil s working interest, and not the interests of Offshore or those of third party investors. The portion not transferred to investors would be transferred to Virgin Oil, and Virgin Oil s interest would be carried for at least a portion of the drilling costs. In exchange for investor participation, Offshore granted certain unrecorded contractual working interests in the Virgin Oil and Offshore properties to investors. The financial and operational structure of Virgin Oil and Offshore, although not seamless, was such that Offshore served as Operator of the oil and gas properties not operated by third parties. All permits and licenses required by the State or Federal Government relating to Page 13 of 61 Disclosure Statement Dated January 31, 2013

22 the oil and gas properties owned and operated by Virgin Oil and Offshore were placed under the name of Offshore. Virgin Oil acted as Offshore s agent in the field and handled much of the day-to-day operations of the facilities. As Operator, Offshore sent joint interest billings to its investors and to Virgin Oil relating to the payment of expenses and the development of oil and gas properties. Offshore also received payments for production, if any, related to the producing properties, and distributed the proceeds to the appropriate parties. RLI Insurance Company ( RLI ) issued (or caused to be issued) bonds on behalf of Offshore under a bonding program for future plug and abandonment work relating to expired oil and gas leases (the P&A Work ). In connection therewith, Virgin Oil executed certain indemnity agreements in favor of RLI, thereby obligating itself on the bonds. Various P&A savings accounts in the name of Offshore and/or Virgin Oil were also pledged to RLI as additional security for the bond issuance. B. Events Leading to Offshore s Bankruptcy Case By 2004, Virgin Oil was operating six facilities through Offshore, and Virgin Oil and Offshore claimed to have grown their reserve base to 11.0 MMBoe. Nevertheless, Virgin Oil s borrowing base of $28 million was fully-leveraged by the end of 2005 following a $17 million dry hole expense incurred from the drilling of two high-potential wells. Virgin Oil began selfmarketing its assets during the first half of 2006, and on June 30, 2006 entered into an agreement with a London-based oil company for an asset sale. This deal did not close and the agreement was terminated in December During the summer of 2007, Virgin Oil participated in the drilling of a fifty billion cubic foot prospect at High Island Block 198, situated structurally high to a productive Spinnaker Exploration well, and logged 150 feet of gas pay in the well. The well was subsequently completed for a total well cost of approximately $18 million. The completion of the well proved to be tight, thus providing a very limited reservoir, and in six months the well no longer produced. This well and other wells needing investment caused Virgin Oil to seek additional capital through a larger credit facility. On September 11, 2007, Virgin Oil entered into a $75 million credit agreement with CIT Capital USA, Inc. ( CIT ) and Whitney National Bank ( Whitney ), which provided an immediate $38 million in available funding to satisfy Virgin Oil s outstanding obligations. By mid-2008, Virgin Oil and Offshore decided to participate in the drilling of a well on a lease set to expire at Empire Field, onshore Plaquemines Parish, Louisiana. 1 In September 2008, during the testing phase of the Empire well operation, Hurricane Ike related issues forced the owners to set a plug and re-drill the well. This in turn caused Virgin Oil to incur approximately $7 million in expenses owed to vendors. While every hurricane in the past had resulted in only a 1 Currently, the only producing properties in which Virgin Oil and Offshore hold an interest are the Louisiana State Oil and Gas Lease SL 18165, Empire Field, Plaquemines Parish Louisiana (herein referred to as the Empire Lease ) and the Federal Oil and Gas Lease referred to as Block 153, Ship Shoal, bearing Serial Number OCS-G18011 (referred to as Ship Shoal ). Offshore obtained Court approval to assume these and other unexpired oil and gas leases and has paid the cure amounts pursuant to the Assumption Order. Disclosure Statement Dated January 31, 2013 Page 14 of 61

23 few days of shut-in time on offshore properties, Hurricane Ike followed the coastline from Louisiana to Texas, causing the destruction of major commercial pipelines which move oil and gas into shore. Repairs took months, and production was not re-established until June As a result of the foregoing, Virgin Oil entered into serious negotiations for a sale of approximately 75% of the assets of Virgin Oil and Offshore for $44 million, but an agreement was never finalized. Due to the ten month down-time after Hurricane Ike and the failure of the proposed asset sale, Virgin Oil was unable to keep unsecured creditors from pushing the company into bankruptcy. On June 25, 2009, an involuntary Chapter 7 case was filed against Virgin Oil commencing bankruptcy case no The case was eventually converted to Chapter 11 on August 20, Offshore s business operations and finances were significantly influenced by the Virgin Oil bankruptcy proceedings. As discussed, infra, the financial and operational structure of Virgin Oil and Offshore were inextricably intertwined resulting in numerous disputes between the parties with respect to the amounts owed to each entity, ownership interests in certain oil and gas properties, and future operations on such properties. Further, throughout the course of the Virgin Oil bankruptcy case, much energy and focus was given to disputes concerning the rights and interests of certain third party investors to Virgin Oil and Offshore s assets, and to the competing interests of the members of the Official Committee of Unsecured Creditors of the Virgin Oil Estate (the Virgin Oil Committee ), CIT and other creditors. These disputes resulted in a very litigious Virgin Oil bankruptcy case which, coupled with Offshore s ineffective business model (Offshore was never set-up to generate revenue and solely operated on a cash through put basis), significantly contributed to the filing of an involuntary bankruptcy petition against Offshore on September 16, VI. OFFSHORE ASSETS, P&A LIABILITY AND CLAIMS ANALYSIS A. Assets Offshore s assets include (1) ownership interests in Existing Oil and Gas Assets described below, (2) a working interest in the proceeds from Producing Wells, (3) an interest in any recovery from the D&O Litigation pursuant to the Recovery Allocation Agreement, (4) an interest in proceeds, if any, from its BP Claim, and (5) Excess Cash. The Trustee has investigated Offshore s books and records and ascertained that these are the only current assets. 1. Existing Oil and Gas Assets and Producing Wells Attached as Exhibit B is a schedule of Offshore s position as to its decimal ownership interest in oil and gas leases that have either expired ( Expired Leases ) or been assumed by the Trustee ( Existing Oil and Gas Assets ). The schedule was prepared by the Trustee upon investigation of the BOEM records and certain percentages have been revised based upon agreement as set forth in the Oil/Offshore Settlement. The Trustee has not commissioned the preparation of a reserve report for the Existing Oil and Gas Assets; however, a recent reserve report dated March 17, 2010 (the Reserve Report ), was prepared by James F. Hubbard, Petroleum Engineer and shall be relied upon to provide information on the Existing Oil and Gas Disclosure Statement Dated January 31, 2013 Page 15 of 61

24 Assets. A copy of the pertinent portions of the Reserve Report is attached hereto as Exhibit C, including Mr. Hubbard s summary of proved reserves for each property. As of the Petition Date, Offshore was the operator of record for almost all Existing Oil and Gas Assets and Expired Leases. As provided for in the Oil/Offshore Settlement, the Trustee agreed to execute new joint operating agreements on all Existing Oil and Gas Assets and name the Virgin Oil Plan Trust as operator of these assets. Regarding the Expired Leases, Offshore remains the operator and cannot be removed as operator; therefore, Offshore is the entity responsible for initiating and completing the P&A Work described herein. The Existing Oil and Gas Assets are as follows: a. EAST CAMERON 2 Offshore and Virgin Oil own a % working interest in a Federal Oil and Gas Lease referred to as OCS-G #32124, Block 2 of East Cameron ( East Cameron 2 or EC 2 ). Potential future net income from new drilling amounts to approximately $8.66 million (classified as proven reserves in the Reserve Report). The estimated net investment totals approximately $1.25 million. Net operating expenses during the estimated term of production totals approximately $540,000. Net plugging and abandonment expenses total $625,000, to be paid in 2016, proceeds to be escrowed from production revenues. Offshore is currently 100% holder of record title to the % working interest in EC 2; however, pursuant to the Oil/Offshore Settlement, the Trustee agreed to assign the Virgin Oil Plan Trust a % share of the EC 2 working interest. b. EAST CAMERON 219 Offshore and Virgin Oil own a % working interest in Federal Oil and Gas Lease referred to as OCS-G #33580, Block 219, East Cameron ( East Cameron 219 or EC 219 ). Potential future net income from new drilling (6500 sd. prospect) amounts to approximately $30 million (classified as possible reserves in the Reserve Report). The estimated net investment to cover new drilling expenses totals approximately $4.62 million. Net operating expenses during the estimated term of production totals approximately $3 million. Net plugging and abandonment expenses total $1.98 million, to be paid in 2020, proceeds to be escrowed from production revenues. Offshore owes an assignment to the Virgin Oil Plan Trust of its interest in the EC 219 lease pursuant to the Oil/Offshore Settlement. c. EMPIRE Offshore owns a 15% interest in that certain Louisiana State Oil and Gas Lease referred to as SL 18165, Empire Field, Plaquemines Parish, Louisiana (the Empire Lease ). The Empire Lease includes one of only three of Offshore s Producing Wells and the Virgin Oil Plan Trust is the current operator. This currently producing well provides an estimate of potential future net income (classified proven reserves in the Reserve Report) of $72.5 million. The estimated net additional investment to cover new drilling expenses totals approximately $386,000. Net operating expenses during the estimated term of production totals approximately $2.62 million. Net plugging and abandonment expenses total $250,000, paid after 2024, proceeds to be escrowed from production revenues. Pursuant to the Oil/Offshore Settlement and the Empire Lien Compromise, Offshore currently receives 30% of the net revenues from production Disclosure Statement Dated January 31, 2013 Page 16 of 61