Case Document 732 Filed in TXSB on 04/02/18 Page 1 of 14

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1 Case Document 732 Filed in TXSB on 04/02/18 Page 1 of 14 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ) In re: ) Chapter 11 ) COBALT INTERNATIONAL ENERGY, INC., et al., 1 ) Case No (MI) ) Debtors. ) (Jointly Administered) ) DECLARATION OF DAVID D. POWELL, CHIEF FINANCIAL OFFICER OF COBALT INTERNATIONAL ENERGY, INC., IN SUPPORT OF CONFIRMATION OF THE DEBTORS JOINT CHAPTER 11 PLAN I, David D. Powell, hereby declare as follows under penalty of perjury: 1. I am the Chief Financial Officer of Cobalt International Energy, Inc. ( Cobalt ), one of the above-captioned debtors and debtors in possession (the Debtors ). I have served as Cobalt s Chief Financial Officer since I am generally familiar with Cobalt s day-to-day operations, business and financial affairs, and books and records, as well as the Debtors restructuring efforts. I have played an active role in the development of the Plan and I am familiar with the Plan s terms, as well as the negotiations that led to tis development. 2. Except as otherwise indicated herein, all facts set forth in this declaration are based upon my personal knowledge of the Debtors operations and finances and the Debtors restructuring activities, information gathered from my review of relevant documents, and information that other members of the Debtors management and advisors supplied to me. I am over the age of 18 and authorized to submit this declaration in support of the Debtors chapter 11 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: Cobalt International Energy, Inc. (1169); Cobalt International Energy GP, LLC (7374); Cobalt International Energy, L.P. (2411); Cobalt GOM LLC (7188); Cobalt GOM # 1 LLC (7262); and Cobalt GOM # 2 LLC (7316). The Debtors service address is: 920 Memorial City Way, Suite 100, Houston, Texas

2 Case Document 732 Filed in TXSB on 04/02/18 Page 2 of 14 plan (the Plan ). 2 If called upon to testify, I could and would competently testify to the facts set forth herein. The Plan I. Background. 3. The Plan is the product of extensive good-faith, arm s-length negotiations between the Debtors and all major stakeholder constituencies. The Plan is premised on a sale of substantially all of the Debtors assets, which will maximize value for the Estate and, in turn, the Debtors stakeholders. On or before February 22, 2018, the bid deadline set forth in the order approving the Bidding Procedures [Docket No. 299], the Debtors received bids from six different parties for substantially all of their assets located in the Gulf of Mexico. On March 6, 2018, the Debtors held an auction for all or substantially all of their Gulf of Mexico assets. Following the auction, the Debtors named four successful bidders for different asset packages, including (a) the Shenandoah prospect, (b) the Heidelberg prospect, (c) the North Platte prospect, and (d) the Anchor prospect and other exploration leases. The total aggregate purchase prices for the purchased assets is approximately $577.9 million. The Debtors believe that the purchase price reflects the highest and best value for the Gulf of Mexico assets. The Debtors complied with the Bankruptcy Code and the Court-approved sale procedures throughout the sale process. 4. Further, the Plan resolves certain Claims and Causes of Action that the Debtors, their stakeholders, and their advisors have thoroughly analyzed. As described more thoroughly in the Disclosure Statement, pursuit of the resolved Claims and Causes of Action would be highly uncertain to succeed and would introduce extensive delay, cost, and uncertainty in these Chapter 2 Capitalized terms used but not otherwise defined herein have the meanings set forth in the Plan or the Debtors Memorandum of Law in Support of Confirmation of Joint Chapter 11 Plan, filed contemporaneously herewith. 2

3 Case Document 732 Filed in TXSB on 04/02/18 Page 3 of Cases. The compromises set forth in the Plan are critical to bringing closure to the Debtors and all parties in interest for the matters addressed therein and permits the maximum recovery available for all creditor constituents. II. The Plan Satisfies the Bankruptcy Code s Requirements for Confirmation. 5. It is my understanding that the Bankruptcy Code sets forth certain requirements that any chapter 11 plan must comply with in order to be confirmed. For the reasons detailed below and with the assistance of the Debtors advisors, I believe that the Plan satisfies the applicable Bankruptcy Code requirements for confirming a chapter 11 plan. The reasons for this belief are set forth herein, except where such compliance is apparent on the face of the Plan, the Plan Supplement, and the related documents or where it will be the subject of other testimony or evidence introduced at the Confirmation Hearing. A. The Plan Fully Complies with the Applicable Provisions of the Bankruptcy Code 1129(a)(1). 6. I understand that section 1129(a)(1) of the Bankruptcy Code requires a chapter 11 plan to comply with all applicable provisions of the Bankruptcy Code. 1. Proper Classification of Claims and Interests I understand that section 1122 of the Bankruptcy Code states that a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class. I understand that substantially similar does not require similar claims be grouped together but merely that the class be homogenous. 8. I believe that each of the Claims and Interests in each particular Class is substantially similar to the other Claims and Interests in such Class. Article III.A of the Plan provides for the following Classes: Class 1 (Other Priority Claims); Class 2 (Other Secured Claims); Class 3 (First Lien Notes Claims); Class 4 (Second Lien Notes Secured Claims); Class 5 3

4 Case Document 732 Filed in TXSB on 04/02/18 Page 4 of 14 (Subsidiary General Unsecured Claims); Class 6 (Cobalt General Unsecured Claims); Class 7 (Section 510(b)); Class 8 (Intercompany Claims); Class 9 (Intercompany Interests); and Class 10 (Interests in Cobalt). 9. In general, the Plan s classification scheme follows the Debtors capital structure and relates to the different legal or factual nature particular to each class. For example, debt and equity are classified separately, different types of debt or equity are also classified separately. The General Unsecured Claims are further separately classified into Class 5 and Class 6 depending on whether the Claim is against Cobalt or a different Debtor. In addition, Intercompany Interests (Class 9) are classified separately from Interests in the Debtors (Class 10) held by third parties. 10. I believe that each of the Claims or Interests in a particular Class are substantially similar to the other Claims or Interests in such Class, and there is a reasonable basis for separate classifications. The differences in classification are in best interest of creditors, foster the Debtors reorganization efforts, do not violate the absolute priority rule, and do not needlessly increase the number of classes. Accordingly, I believe that the Plan fully complies with and satisfies section 1122 of the Bankruptcy Code. 2. Specification of Classes, Impairment, and Treatment 1123(a) (1 3). 11. It is my understanding that Article III of the Plan specifies in detail how Claims and Interests are classified, whether such Claims and Interests are impaired, and the treatment that each Class of Claims and Interests will receive under the Plan. 3. Equal Treatment of Similarly Situated Claims and Interests 1123(a)(4). 12. It is my understanding that the Plan provides for identical treatment within each Class of Claims or Interests. All holders of Allowed Claims or Interests will receive the same rights as other holders of Allowed Claims or Interests within such holders respective class. 4

5 Case Document 732 Filed in TXSB on 04/02/18 Page 5 of Means for Implementation 1123(a)(5). 13. I understand that section 1123(a)(5) of the Bankruptcy Code requires that a chapter 11 plan provide adequate means for a plan s implementation. I believe that the Plan provides adequate means for implementation as required under section 1123(a)(5) of the Bankruptcy Code. Article IV and various other provisions of the Plan detail (a) the Restructuring Transactions, including the execution and delivery of any appropriate agreements or documents consistent with the Plan, the rejection, assumption, or assumption and assignment of Executory Contracts and Unexpired Leases, and the filing of certificates and documents as appropriate and pursuant to applicable law, (b) the consideration sources for Plan distributions, which include the Debtors Cash on hand, the Sale Transaction Proceeds, and any other Cash that the Debtors receive or generate, (c) that notes, instruments, certificates, and other existing securities are cancelled, (d) the Plan Administrator s authority to act for the Debtors and responsibilities when effectuating the Plan, including winding down the Debtors businesses and affairs as expeditiously as reasonably possible, (e) the Plan Administrator s authority to make all distributions to holders of Allowed Claims in accordance with the Plan, (f) that certain mortgages, deeds of trust, Liens, pledges, and other security interests are released, (g) that certain Causes of Action are preserved and the Plan Administrator s ability to enforce rights related thereto when exercising reasonable business judgment, (h) the corporate matters that shall become effective on the Effective Date, such as releasing directors, officers, and managers from their duties, and (i) exemption from certain taxes and fees. 14. As a result, I believe that the Plan satisfies section 1123(a)(5) of the Bankruptcy Code. 5

6 Case Document 732 Filed in TXSB on 04/02/18 Page 6 of Prohibition of Issuance of Non-Voting Stock 1123(a)(6). 15. I am advised that section 1123(a)(6) of the Bankruptcy Code requires that a corporate debtor s chapter 11 plan provide that a reorganized debtor s charter is to include a prohibition against issuing non-voting equity securities and related protections for preferred shareholders. I believe that this provision is inapplicable to the Chapter 11 Cases. On the Effective Date, all remaining assets and the fiduciary duties, authority, power, and incumbency of any and all persons acting as directors and officers of the Debtors and the non-debtor subsidiaries shall be deemed to have been terminated, and vest in the Plan Administrator. The Plan Administrator shall be responsible for: (a) winding down the Debtors businesses; (b) resolving Disputed Claims; (c) making all distributions to holders of Allowed Claims; (d) litigating any causes of action; (e) filing tax returns; and (f) administering the Plan. Accordingly, section 1123(a)(6) of the Bankruptcy Code is inapplicable to confirmation of the Plan. 6. Selection of Officers and Directors 1123(a)(7). 16. I understand that section 1123(a)(7) of the Bankruptcy Code requires that a chapter 11 plan contain only provisions related to selecting directors and officers that are consistent with the interests of creditors and equity security holders and with public policy. I believe that the Plan satisfies the requirements of section 1123(a)(7) of the Bankruptcy Code. The Plan provides that, on the Effective Date, the term of the current members of the board of directors and officers of the Debtors and non-debtor subsidiaries shall expire and the Plan Administrator will be appointed. The Plan Administrator was selected by the Debtors, in consultation with the Committee, the Second Lien Ad Hoc Group, and the Second Lien Indenture Trustee, and disclosed in the Plan Supplement. 6

7 Case Document 732 Filed in TXSB on 04/02/18 Page 7 of 14 B. The Court Has Approved the Debtors Disclosure Statement 1129(a)(2) 17. It is my understanding that the Bankruptcy Code requires that a parties in interest receive the plan or a summary of the plan and a court approved disclosure statement prior to or at the time of the solicitation period. Court filings show that the Disclosure Statement and the Solicitation Package were approved on March 8, 2018, as containing adequate information. In addition, I believe the Debtors have timely mailed notices and ballots to the relevant interested parties, and all applicable notice periods were satisfied. C. The Debtors Proposed the Plan in Good Faith 1129(a)(3). 18. I understand that section 1129(a)(3) of the Bankruptcy Code requires that a chapter 11 plan be proposed in good faith and not by any means forbidden by law. I believe that the Plan was proposed in good faith based on the totality of the circumstances and will fairly achieve a result consistent with the Bankruptcy Code s objectives and purposes. Also, I believe that the law forbids neither the Plan nor its implementation. 19. The Debtors negotiated, drafted, and implemented their proposed restructuring in good faith. The Sale Transaction and related documents were negotiated, proposed, and entered into by the Debtors and the respective Purchasers in good faith and from arm s-length bargaining positions, without any collusion, fraud, or attempt to take grossly unfair advantage of any party, including any potential purchaser. As such, I understand that the Plan will achieve a result consistent with the objectives and purposes of the Bankruptcy Code and can be implemented without violating applicable law. D. Payment of Professional Fees and Expenses Are Subject to Court Approval 1129(a)(4). 20. I understand that section 1129(a)(4) of the Bankruptcy Code requires a Court to approve certain fees and expenses that either a plan proponent, debtor, or person receiving property 7

8 Case Document 732 Filed in TXSB on 04/02/18 Page 8 of 14 distributions under the plan has paid as reasonable. It is my understanding that all payments made or to be made by the Debtors for services or for costs or expenses in connection with these Chapter 11 Cases prior to the Effective Date, including all Fee Claims, have been approved by, or are subject to approval of, the Court. Further, Article II.B of the Plan provides that all final requests for payment of Fee Claims shall be filed and served no later than 45 days after the Effective Date for determination by the Court, after notice and a hearing, in accordance with the procedures established by the Bankruptcy Code and prior Court orders. This provides interested parties with adequate time to review Fee Claims. Therefore, the requisite Court approval and reasonableness requirements are provided for under the Plan. E. The Compliance with Governance Disclosure Requirements Does Not Apply to the Debtors 1129(a)(5). 21. I understand that section 1129(a)(5) of the Bankruptcy Code requires (a) that a plan proponent disclose the identity and affiliation of any individual proposed to serve as a director or officer of the debtor, or a successor thereto, under a chapter 11 plan, (b) that the appointment or continuance of such officers and directors be consistent with the interests of creditors and equity security holders and with public policy, and (c) that a plan proponent disclose the identities or affiliations of insiders to be employed or retained by the reorganized debtors as directors and officers and the nature of any compensation for such insider. Because the Plan provides for the liquidation of the Estate s remaining assets and dissolution of the Debtors, I understand that section 1129(a)(5) of the Bankruptcy Code is not applicable to these Chapter 11 Cases. Nevertheless, I believe that Article IV.D of the Plan satisfies the requirements of section 1129(a)(5) of the Bankruptcy Code, to the extent applicable, by providing for the appointment of the Plan Administrator. 8

9 Case Document 732 Filed in TXSB on 04/02/18 Page 9 of 14 F. The Plan Does Not Require the Government to Approve Rate Changes 1129(a)(6). 22. I have been advised that the Debtors are not subject to regulations that would invoke section 1129(a)(6) s requirement that they seek regulatory approval for rate changes provided for under the Plan. The Plan does not propose any rate changes. G. The Debtors Liquidation Analysis Satisfies the Best Interests Test 1129(a)(7). 23. I understand that section 1129(a)(7) of the Bankruptcy Code requires that any chapter 11 plan must satisfy the best interests of creditors test, which provides that holders of claims or interests in impaired, non-accepting classes must receive under a chapter 11 plan at least as much as they would in a liquidation. 24. I believe that all holders of Claims and Interests in all Impaired Classes will recover at least as much under the Plan as they would in a hypothetical chapter 7 liquidation. Substantially all of the assets of the Debtors assets will be liquidated through the Sale Transaction and the Plan effectuates a liquidation of the Debtors remaining assets. Although a chapter 7 liquidation would achieve the same goal, I believe that the Plan provides a greater recovery to holders of Allowed Second Lien Notes Claims and Allowed Subsidiary General Unsecured Claims than would a chapter 7 liquidation. Liquidating the Debtors Estate under the Plan likely provides holders of Second Lien Notes Claims and Allowed Subsidiary General Unsecured Claims with a larger, more timely recovery primarily due to expected materially lower realized sale proceeds in chapter 7. A chapter 7 trustee will not have the technical expertise and knowledge of the Debtors business necessary to drive a value maximizing marketing process and sale transaction, resulting in reduced recoveries for stakeholders. 25. In addition, the Estate would continue to be obligated to pay all unpaid expenses incurred by the Debtors during the chapter 11 cases. I understand that the conversion to chapter 7 9

10 Case Document 732 Filed in TXSB on 04/02/18 Page 10 of 14 would also require entry of a new bar date for filing claims that would be more than 90 days following conversation of the case to chapter 7. Thus, the amount of Claims ultimately filed and Allowed against the Debtors could materially increase, thereby further reducing creditor recoveries versus those available under the Plan. 26. A chapter 7 liquidation would also cause undue delays that will be detrimental to the value of the Debtors assets. The Debtors must either commence a unit saving drilling operation or obtain a suspension of production by June 2018, or else lose their interest in North Platte. The time needed for a of a chapter 7 trustee to become familiar with the Debtors highly technical assets could easily cause the Debtors to miss their June deadline or cause bids already obtained to be lost. 27. Furthermore, the distributable proceeds will be lower in a chapter 7 liquidation because of the chapter 7 trustee s fees and expenses. I understand that under the Bankruptcy Code, a chapter 7 trustee could collect fees up to three percent of the value of the Debtors assets. The chapter 7 trustee will also have to retain additional professionals to assist with the liquidation of the Debtors assets. These professionals, along with the chapter 7 trustee, will need time to become familiar with the Debtors highly technical assets and these specific chapter 11 cases, in order to complete the administration of the Estate. Therefore, the time and expense of a chapter 7 trustee will decrease the available distributable proceeds. 28. In light of the foregoing, I believe that a chapter 7 liquidation would result in materially reduced sale proceeds, increased expenses, delayed distributions, and the prospect of additional claims that were not asserted in the chapter 11 cases. H. Priority Cash Payments 1129(a)(9). 29. I understand that the Bankruptcy Code generally requires that claims entitled to administrative priority must be repaid in full in cash or receive certain other specified treatment. I understand that the Plan contemplates that Allowed Administrative Claims will be paid in full in 10

11 Case Document 732 Filed in TXSB on 04/02/18 Page 11 of 14 cash or receive other treatment rendering them unimpaired. In addition, Allowed Priority Tax Claims will be paid in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code. I. At Least One Impaired Class Voted to Accept the Plan 1129(a)(10). 30. I understand that section 1129(a)(10) of the Bankruptcy Code requires that, if a class of claims is impaired under a plan, at least one impaired class of claims must accept the plan, excluding acceptance by any insider. I understand that, exclusive of any acceptances by insiders, the Plan has been accepted by a Voting Class at each Debtor, as detailed in the Certification of P. Joseph Morrow IV With Respect to the Tabulation of Votes on the Fourth Amended Joint Chapter 11 Plan of Cobalt International Energy, Inc. and Its Debtor Affiliates (the Voting Report ) [Docket No. 721]. J. The Plan Is Feasible 1129(a)(11). 31. I understand that section 1129(a)(11) of the Bankruptcy Code requires a court to determine that a chapter 11 plan is feasible and that confirmation of such plan is not likely to be followed by the liquidation or further financial reorganization of the Debtors. 32. I believe that the The Plan is feasible. Through the Plan, the Debtors will fund the Disputed Claims Reserve, which will be used by the Plan Administrator for distribution on account of Disputed Claims that are not Assumed Liabilities and that are subsequently Allowed after the Effective Date. The Debtors established the amount of the Disputed Claims Reserve in consultation with the First Lien Ad Hoc Group, the First Lien Indenture Trustee, the Second Lien Ad Hoc Group, the Second Lien Indenture Trustee, the Unsecured Notes Ad Hoc Committee, and the Committee. Additionally, the Debtors will reserve funds in accordance with the Wind Down Budget to cover the reasonable activities and expenses to be incurred by the Plan Administrator in winding down the chapter 11 cases. The Debtors will also establish and fund the Fee Escrow to 11

12 Case Document 732 Filed in TXSB on 04/02/18 Page 12 of 14 pay Fee Claims. Finally, certain of the Debtors liabilities will be assumed by the Purchaser in accordance with the Sales Transaction Documentation. 1129(a)(11). 33. Accordingly, I believe the Plan satisfies the feasibility requirements of section K. The Plan Provides for Payment of All Fees 1129(a)(12). 34. I understand that section 1129(a)(12) of the Bankruptcy Code requires the payment of all fees payable under 28 U.S.C Article II.D of the Plan includes an express provision requiring payment of all fees in compliance with the Bankruptcy Code. L. Sections 1129(a)(13) (16) Do Not Apply to the Chapter 11 Cases 1129(a)(13) (16). 35. I understand that section 1129(a)(13) of the Bankruptcy Code requires chapter 11 plans to continue all retiree benefits (as defined in section 1114 of the Bankruptcy Code). The Debtors do not have, and will not have after consummation of the Plan, any obligations to pay such retiree benefits after consummation of the Plan and, as such, section 1129(a)(13) does not apply to the Plan. I further understand that sections 1129(a)(14) and 1129(a)(15) of the Bankruptcy Code apply only to debtors that are individuals, and that section 1129(a)(16) of the Bankruptcy Code applies only to debtors that are nonprofit entities or trusts. The Debtors are not individuals or nonprofit entities or trusts. M. The Plan Satisfies Cram-Down Requirements 1129(b). 36. I understand that in the event that less than all classes of claims or interests either accept a plan or are unimpaired, section 1129(b) of the Bankruptcy Code provides that a court may confirm a plan if it does not discriminate unfairly and provides fair and equitable treatment to each rejecting impaired class. 12

13 Case Document 732 Filed in TXSB on 04/02/18 Page 13 of I believe that the Plan does not discriminate unfairly with respect to each Class of Claims or Interest that is impaired and has not accepted the Plan. The Plan s treatment of these Classes is proper because all similarly situated holders of Claims and Interests will receive substantially similar treatment and the Plan s classification scheme rests on a legally acceptable rationale. Further, the fair and equitable standard has been met. To the extent any impaired rejecting class of claims or interests is not paid in full, no class junior to the impaired rejecting class will receive any distribution under the Plan on account of its junior claim or interest. III. The Principal Purpose of the Plan Is Not the Avoidance of Taxes as Required Under Section 1129(d) of the Bankruptcy Code. 38. I understand that section 1129(d) of the Bankruptcy Code prohibits confirmation of a chapter 11 plan if it was designed and proposed to evade taxes or the requirements of section 5 of the Securities Act. I do not believe that the Plan was proposed for either proscribed purpose; rather, I believe the Debtors filed the Plan to increase creditor recoveries expeditiously and to benefit the Estate. 13

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