Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 1 of 8 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: COBALT INTERNATIONAL ENERGY, INC., et al. 1 Debtor(s. CASE NO.: 17-36709 CHAPTER 11 Jointly Administered OBJECTION OF HALLIBURTON ATLANTIC LIMITED AND HALLIBURTON OVERSEAS LIMITED-SUCURSAL DE ANGOLA TO THE MOTION OF PLAN ADMINISTRATOR FOR AUTHORITY TO DIRECT FUNDS IN FURTHERANCE OF SETTLEMENT ORDER AND PLAN AND NOTICE OF DISTRIBUTION TO THE HONORABLE UNITED STATES BANKRUPTCY COURT JUDGE MARVIN ISGUR: Halliburton Atlantic Limited and Halliburton Overseas Limited-Sucursal de Angola (collectively the Halliburton Entities file this Objection of Halliburton Atlantic Limited and Halliburton Overseas Limited-Sucursal de Angola to the Motion of Plan Administrator for Authority to Direct Funds in Furtherance of Settlement Order and Plan and Notice of Distribution (the Objection, and respectfully state as follows: BACKGROUND 1. On December 14, 2017 (the Petition Date, Cobalt International Energy, Inc. and certain affiliated entities (the Debtors filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the Bankruptcy Court. 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, LP (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 77024.
Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 2 of 8 2. On January 23, 2018, the Debtors filed the Joint Chapter 11 Plan of Cobalt International Energy, Inc. and its Debtor Affiliates [Docket No. 272] which was subsequently amended on February 21, 2018 and March 8, 2018 (as amended, the Plan [Docket Nos. 462, 553 and 561]. Also on January 23, 2018, the Debtors filed the Disclosure Statement for the Joint Chapter 11 Plan of Cobalt International Energy, Inc. and its Debtor Affiliates [Docket No. 274] which was subsequently amended on February 21, 2018 and March 8, 2018 (as amended and approved, the Disclosure Statement [Docket Nos. 464, 549 and 562]. On April 5, 2018, this Court entered the Order (I Confirming the Fourth Amended Joint Chapter 11 Plan of Cobalt International Energy, Inc. and Its Debtor Affiliates and (II Approving the Sale Transaction (the Confirmation Order [Docket No. 784] confirming the Plan. 3. The Halliburton Entities and certain non-debtor Cobalt affiliates are parties to various agreements relating to oil and gas production in Angola. Specifically, the Halliburton Entities are party to (i that certain Angola Master Service Agreement No. A20-071 between CIE Angola Block 20 Ltd. (a non-debtor subsidiary of the Debtors and Halliburton Atlantic Limited and Halliburton Overseas Limited-Sucursal de Angola; and (ii that certain Angola Master Service Agreement No. A21-206 between CIE Angola Block 21 Ltd. (also a non-debtor subsidiary of the Debtors and Halliburton Atlantic Limited and Halliburton Overseas Limited- Sucursal de Angola; and (iii Service Agreements under the foregoing (collectively the Agreements. As of the Petition Date, non-debtors CIE Angola Block 20 Ltd. and/or CIE Angola Block 21 Ltd. (together the Angolan Subsidiaries owed the Halliburton Entities the principal amount of $1,116,091.93 for outstanding invoices under the Agreements in addition to interest and attorneys fees. 2
Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 3 of 8 4. On December 21, 2017, the Debtors filed their Debtors Motion For Entry of An Order (I Authorizing Performance Under Settlement Agreement, (II Approving Settlement Agreement, and (III Granting Related Relief (the Settlement Motion [Docket No. 127] seeking approval of a global settlement of issues between certain Cobalt entities (all non- Debtors and Sonangol, the state oil and gas company of the Republic of Angola. Among other things, the settlement allows a transfer of assets from the Angolan Subsidiaries to Sonangol in exchange for a $500 million payment from Sonangol (the Sonangol Settlement. On January 25, 2018, this Court entered the Order Approving Debtors Motion For Entry of An Order (I Authorizing Performance Under Settlement Agreement, (II Approving Settlement Agreement, and (III Granting Related Relief (the Settlement Order [Docket No. 300]. 5. Pursuant to paragraph 9 of the Settlement Order, [t] he Debtors shall cause the $500 million settlement payment or any portion thereof actually received from Sonangol to be deposited into a segregated depository account located in the United States established and maintained by the Angolan Subsidiaries. No distributions or transfers shall be made from the segregated depository account absent further order of this Court. Additionally, in the Disclosure Statement, the Debtors specifically preserved the rights of creditors asserting claims against the non-debtor Angolan Subsidiaries: The Settlement Order requires the Debtors to cause the $500 million settlement payment or any portion thereof actually received from Sonangol to be deposited into a segregated depository account located in the United States established and maintained by the [non-debtor] Angolan Subsidiaries. The Settlement Order also provides that settlement proceeds shall not be distributed without further order from the Court. Various parties in interest, including creditors asserting claims against the Angolan Subsidiaries, have asserted or may assert claims against or interests in the settlement proceeds. Such rights and arguments are preserved under the Settlement Order and the Plan. 3
Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 4 of 8 See Disclosure Statement section VIII. G. (emphasis added. 6. Prior to the chapter 11 filing, the Debtors were aware that the Halliburton Entities (and other creditors asserted claims against the non-debtor Angolan Subsidiaries. The Halliburton Entities have been in discussions to settle their claims against the Angolan Subsidiaries for several months. The Parties even discussed claims asserted against the Angolan Subsidiaries in the context of the Plan. As a result (and to resolve a confirmation objection, the Debtors included the following language in paragraph 178 of the Confirmation Order: For the avoidance of doubt, Halliburton Atlantic Limited and Halliburton Overseas Limited-Sucursal de Angola, each in their capacity as creditors of certain non-debtor affiliates (collectively, the Halliburton Entities shall not be considered Releasing Parties or Released Parties and the release, exculpation, and/or injunctive provisions contained in Article VIII of the Plan shall not affect the Halliburton Entities; provided that nothing herein shall be deemed an admission as to the validity of any claim against a Debtor or non- Debtor Entity or a waiver of the Debtors or non-debtors right to dispute any such claim on any grounds. 7. More recently, counsel for the Halliburton Entities has been in discussion with counsel for the Plan Administrator. To date, the issues between the parties remain unresolved. Thus, on September 11, 2018, the Halliburton Entities have initiated arbitration proceedings against the Angolan Subsidiaries. 8. On June 29, 2018, the Plan Administrator filed a notice informing the Court that all of the Sonangol Settlement Proceeds were received and deposited into the segregated account [Docket No. 988]. 9. On August 22, 2018, the Plan Administrator filed his Motion of Plan Administrator for Authority to Direct Funds in Furtherance of Settlement Order and Plan and Notice of Distribution (the Motion [Docket No. 1022] seeking authority to transfer the 4
Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 5 of 8 Sonangol Settlement Proceeds 2 from the Segregated Account to the Plan Administrator Account, and make a $365 million Interim Distribution to the Second Lien Noteholders, pursuant to the distribution mechanism set forth in the Plan. Objection 10. The Halliburton Entities object to the transfer of the Sonangol Settlement Proceeds from the account maintained by the Angolan Subsidiaries and to any distribution from such proceeds, including the Interim Distribution, until claims asserted against the Angolan Subsidiaries are satisfied. 11. Pursuant to the Plan, in describing the Rights and Powers of the Plan Administrator, the Plan Administrator is required to appoint new directors and officers of the non-debtor subsidiaries. See Plan, Article IV.D. The Plan Administrator is also responsible for winding down the Debtors businesses and affairs and making all distributions to holders of Allowed Claims in accordance with the Plan. See Plan, Article IV.D. The Plan was silent regarding whether the new directors and officers would be tasked with the wind down of the Angolan Subsidiaries and payment of the Angolan Subsidiaries creditors before upstreaming the proceeds from the Sonangol Settlement to the Plan Administrator. The Sonangol Settlement Proceeds were generated from the transfer of assets owned by the Angolan Subsidiaries. The Halliburton Entities (as creditors of the Angolan Subsidiaries object to the Plan Administrator s effort to sweep and commingle cash that should first be utilized to pay creditors of those non- Debtor entities. 12. The Debtors did not file chapter 11 for the Angolan Subsidiaries. Because they were not debtors, the Angolan Subsidiaries did not file schedules of assets and liabilities. It is 2 Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Motion. 5
Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 6 of 8 unclear what liabilities and/or claims exist at the non-debtor entities and the priority of any such claims. This is not the first time that a party in interest has pointed out a lack of clarity regarding what will become of claims against the Angolan Subsidiaries. In its response to the Debtors Motion for Entry of An Order (I Authorizing Performance under Settlement Agreement, (II Authorizing Settlement Agreement, and (III Granting Related Relief [Docket No. 127], Sonangol itself identified the problem: Debtors non-debtor subsidiaries must also undertake to pay all Angolan creditors (including Angolan landlords for rented property, pay any Angolan taxes due (including any taxes due under the Petroleum Tax Law, and ensure that Angolan employees will be terminated in accordance with Angolan labor laws. It is reasonable for Debtors to undertake that settlement payments will not be transferred out of Angola until these items have been completed. Once the payments are transferred out of Angola, they will likely become part of the Debtors Estates beyond the reach of the Angolan Government and citizens. See Sur-Reply to Debtors Omnibus Reply in Support of Limited Objection & Reservation of Rights to Debtors Motion for Entry of An Order (I Authorizing Performance under Settlement Agreement, (II Authorizing Settlement Agreement, and (III Granting Related Relief [Docket No. 288] at paragraph 6. 13. The non-debtor subsidiaries, including the Angolan Subsidiaries, were not substantively consolidated as part of the Plan. Notwithstanding the lack of transparency with respect to the Angolan Subsidiaries, the Plan Administrator seeks to use the Angolan Subsidiaries Sonangol Settlement Proceeds to pay secured claims asserted against the Debtors as if they were secured claims against the Angolan Subsidiaries. In paragraph 25 of the Motion, the Plan Administrator states: The Second Lien Noteholders have a second-lien pledge of 65% of Cobalt LP s ownership interests in Cobalt International, and 100% second-lien pledge on intercompany claims. See Disclosure Statement at p. 30, VI.D.1, VI.D.2. 6
Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 7 of 8 As a result, at least 65% of the Sonangol Settlement Proceeds received by Cobalt LP are subject to the Second Lien Noteholders liens and thus constitute Net Cash available for distribution to holders of Second Lien Notes Secured Claims. 14. There are several levels of non-debtor entities between the Debtor that granted the pledge 3 and the non-debtor entity at which the Sonangol Settlement Proceeds are being held. Additionally, the intercompany claims listed in the Debtors schedules of assets and liabilities are generally listed as unsecured claims. The Plan provides: Allowed Intercompany Claims shall be treated pari passu with General Unsecured Claims against the applicable Debtor and will share in distributions from such Debtor. In lieu of Cash payment to the Debtors holding such Intercompany Claims, the distributions on account of such Intercompany Claims may be made to the creditors of the Debtor holding such Intercompany Claims. See Plan, Article III.B.8. 15. Presumably, the Second Lien Noteholders have a lien on unsecured Intercompany Claims. That lien, however, does not elevate the priority of the unsecured Intercompany Claims vis-à-vis other creditors of the Angolan Subsidiaries. 16. Without knowing more, the claims for which the Plan Trustee is seeking to pay, including any Intercompany Claims asserted against the Angolan Subsidiaries, should likely be treated pari passu with the claims of creditors of the Angolan Subsidiaries. The Sonangol Settlement Proceeds should be maintained in a segregated account and not distributed until such time as creditors of the Angolan Subsidiaries, including the Halliburton Entities, are paid. CONCLUSION 17. The Angolan Subsidiaries (non-debtors have not been wound down, nor have their creditors been satisfied. The Angolan Subsidiaries were not debtors in these chapter 11 3 The Disclosure Statement identifies Cobalt International Energy, Inc. as issuer and the other Debtors as guarantors. The guarantors are listed as Cobalt International Energy GP, LLC, Cobalt International Energy, L.P., Cobalt GOM LLC, Cobalt GOM #1 LLC, and Cobalt GOM #2 LLC. See Disclosure Statement section VI.D.1 and VI.D.2. The Angolan Subsidiaries are not listed as guarantors. 7
Case 17-36709 Document 1042 Filed in TXSB on 09/12/18 Page 8 of 8 cases. Perhaps they should have been. The Halliburton Entities respectfully request that the Court deny the Motion until the Angolan Subsidiaries are wound up and the creditors of the Angolan Subsidiaries are satisfied and grant such further relief to which the Halliburton Entities are entitled. DATED: September 12, 2018 Respectfully submitted, HAYNES AND BOONE, LLP /s/ Kourtney P. Lyda Odean Volker Texas State Bar No. 20607715 Henry Flores Texas State Bar No. 00784062 Kourtney P. Lyda Texas State Bar No. 24013330 1221 McKinney Street, Ste. 2100 Houston, TX 77010 Telephone No.: (713 547-2000 Email: odean.volker@haynesboone.com Email: henry.flores@haynesboone.com Email: kourtney.lyda@haynesboone.com Counsel for Halliburton Atlantic Limited and Halliburton Overseas Limited-Sucursal de Angola 8
Case 17-36709 Document 1042-1 Filed in TXSB on 09/12/18 Page 1 of 1 CERTIFICATE OF SERVICE I hereby certify the a true and correct copy of the foregoing pleading was served by (i electronic mail via the Court s ECF system to all parties authorized to receive electronic notice in this case and (ii first class United States mail, postage prepaid and properly addressed, to all parties appearing on the below Service List on September 12, 2018. Counsel to Plan Administrator: Shari L. Heyen David R. Eastlake Greenberg Traurig, LLP 1000 Louisiana Streeet, Suite 1700 Houston, TX 77002 SERVICE LIST /s/ Kourtney P. Lyda Kourtney P. Lyda