IN THE UNITED STATES BANKRUPTCY COURT FOR …cases.gcginc.com/kwk/pdflib/158_10585.pdf · in the...

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

) In re: ) Chapter 11 ) Quicksilver Resources Inc., et al.,1 ) Case No. 15-10585 (LSS) ) Debtors. ) Jointly Administered )

) )

Hearing Date: April 27, 2015 at 2:00 p.m. (EDT)

Obj. Deadline: April 20, 2015 at 4:00 p.m. (EDT)

DEBTORS’ MOTION FOR AN ORDER AUTHORIZING THE

DEBTORS TO ENTER INTO AN AGREEMENT WITH ENI PETROLEUM US LLC

The debtors and debtors in possession in the above-captioned chapter 11 cases

(collectively, the “Debtors”) seek entry of an order, substantially in the form attached hereto as

Exhibit A (the “Proposed Order”), authorizing Quicksilver Resources Inc. (“QRI”) to enter into

an amendment substantially in the form annexed hereto as Exhibit B (the “2015 Amendment”)

to that certain Joint Exploration Agreement, dated as of November 1, 2013 (as amended from

time to time, the “JEA”) with Eni Petroleum US LLC (“Eni”). In support of this motion, the

Debtors respectfully state as follows:

JURISDICTION

1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2).

2. Venue in this Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax

identification number, are: Quicksilver Resources Inc. [6163]; Barnett Shale Operating LLC [0257]; Cowtown Drilling, Inc. [8899]; Cowtown Gas Processing L.P. [1404]; Cowtown Pipeline Funding, Inc. [9774]; Cowtown Pipeline L.P. [9769]; Cowtown Pipeline Management, Inc. [9771]; Makarios Resources International Holdings LLC [1765]; Makarios Resources International Inc. [7612]; QPP Holdings LLC [0057]; QPP Parent LLC [8748]; Quicksilver Production Partners GP LLC [2701]; Quicksilver Production Partners LP [9129]; and Silver Stream Pipeline Company LLC [9384]. The Debtors’ address is 801 Cherry Street, Suite 3700, Unit 19, Fort Worth, Texas 76102.

Case 15-10585-LSS Doc 158 Filed 04/06/15 of 9

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3. The predicates for the relief requested herein are section 363(b) of title 11 of the

United States Code (the “Bankruptcy Code”) and rule 6004 of the Federal Rules of Bankruptcy

Procedure (the “Bankruptcy Rules”).2

BACKGROUND

A. General Background

4. On March 17, 2015 (the “Petition Date”), each of the Debtors filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code in this Court. The Debtors continue

to operate their businesses and manage their properties as debtors in possession pursuant to

Bankruptcy Code sections 1107(a) and 1108. These chapter 11 cases have been consolidated for

procedural purposes only and are being jointly administered pursuant to Bankruptcy Rule 1015

and Local Rule 1015-1. On March 25, 2015, the U.S. Trustee appointed the Official Committee

of Unsecured Creditors. No request for the appointment of a trustee or examiner has been made

in these chapter 11 cases.

B. Specific Background

5. The Debtors are engaged in the acquisition, exploration, development, and

production of onshore oil and natural gas in North America and include two primary areas of

development and exploration in the United States, including the Delaware basin in western Texas

(“West Texas”). The Debtors’ West Texas assets are an oil exploration opportunity. The

Debtors’ focus in West Texas is on approximately 60,000 gross (27,000 net) acres in Pecos

County, which are being jointly developed with Eni and an undisclosed third-party. In October

and November 2013, the Debtors entered into two separate agreements involving their West

2 Under rule 9013-1(f) of the Local Rules of Bankruptcy Practice and Procedure of the United States

Bankruptcy Court for the District of Delaware (the “Local Rules”), the Debtors hereby confirm their consent to the entry of a final order by this Court in connection with this Motion if it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments in connection therewith consistent with Article III of the United States Constitution.


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Texas assets, the largest of which is the JEA whereby QRI and Eni jointly evaluate, explore, and

develop approximately 52,500 gross acres currently held by the Debtors in Pecos County, Texas.

Under the terms of the JEA, Eni has agreed to pay 100% of the cost of drilling, completing and

equipping wells on the assets up to a total of $52.0 million, thereby earning a 50% interest in the

Debtors’ acreage.

6. Pursuant to the JEA, the Debtors have drilled and completed three wells in Pecos

County with Eni. The drilling and completion costs for these wells, as well as one additional

well, are expected to be substantially covered by Eni as part of its $52 million funding

requirement pursuant to the JEA. Thereafter, the Debtors will participate equally in all future

revenue, operating, and capital expenditures with Eni under the JEA. During 2015, the Debtors,

together with Eni, expect to drill an additional four wells in West Texas under the JEA

(collectively, the “New Wells”). Under the JEA, QRI may opt to be or be deemed to be a non-

consenting party for any New Well, the effect of which would be to relieve QRI of all of its share

of operating or capital expenditures associated with such New Well. Consequently, however,

QRI also will not share in any revenue derived from the operation of any New Well for which it

goes or is deemed to go non-consent. Additionally, QRI would be subject to a penalty before

being permitted to participate in any revenue under such New Well. Thus, presently, the Debtors

are faced with an all-or-nothing proposition with respect to their rights and obligations for any

New Wells under the JEA.

7. Before the Petition Date, the Debtors and Eni began discussions regarding an

alternate allocation of costs and percentage of working interest associated with the New Wells.

Following an arm’s-length negotiation, the Debtors and Eni have agreed to a modification with

respect to the cost allocation for the New Wells. Accordingly, and for the reasons stated herein,


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in the exercise of their business judgment, the Debtors have determined that it is in their best

interest to enter into the 2015 Amendment to reduce its capital expenditures with respect to the

New Wells. Importantly, although the Debtors believe that entering into an amendment of the

JEA is an activity conducted in the ordinary course, out of an abundance of caution, and at Eni’s

request, the Debtors are seeking authority to enter into the 2015 Amendment.

8. The material terms of the 2015 Amendment3 are summarized as follows:

• Eni’s and QRI’s interests in New Wells drilled pursuant to the JEA will be approximately 64.5% and 35.5%, respectively;

• QRI will be deemed to be a non-consenting party for approximately 14.5% of the interest (the “Non-Consent Interest”) in any New Well and any production therefrom (representing the difference between QRI’s original interest in each New Well under the JEA and its interest under the 2015 Amendment);

• In the event that QRI wishes to return to the equal split in expenditures and revenues for a New Well, QRI will be subject to a 300% penalty with respect to the Non-Consent Interest for such New Well; and

• Eni shall pay to QRI an amount equal QRI’s Non-Consent Interest share of drilling and spacing unit costs associated with any New Well.

9. In sum, the Debtors will participate in each New Well drilled pursuant to the JEA

on a reduced basis, thus allowing them to participate in the New Wells at an approximate

aggregate reduced cost of $11.0 million, while retaining the option to revert to an equal

participation basis should the Debtors determine it is economically beneficial to do so. The 2015

Amendment will facilitate the continued exploration of the West Texas wells at a reduced cost

and will maintain optionality with respect to the West Texas assets for the Debtors and enable

them to further evaluate their long-term investment in such assets in advance of any future lease

extension or long-term capital costs. Specifically, substantially all of QRI’s undeveloped

3 The summary of the 2015 Amendment provided herein is qualified in its entirety by the 2015

Amendment. In the case of any inconsistency between this summary and the 2015 Amendment, the 2015 Amendment shall govern.


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acreage in Pecos County within West Texas is subject to continuous development clauses. These

clauses will require that QRI and/or its partners drill a significant number of well locations

between 2016 and 2018 to hold the related undeveloped acreage beyond the initial lease term

expiration date. If QRI is unable to meet the requirements of these continuous development

clauses in West Texas, QRI may lose the remaining undeveloped acreage associated with those

leases. Further the Debtors believe that beginning to drill on the New Wells in May 2015 will

ultimately provide the most efficient landscape for the costs attendant to the New Wells and

facilitate the Debtors’ and Eni’s timely performance under the JEA and the 2015 Amendment.4

RELIEF REQUESTED

10. As discussed, the Debtors believe that amending a pre-existing joint exploration

agreement, such as the JEA discussed herein, is ordinary course, and therefore, QRI does not

require authority from the Court to enter into the 2015 Amendment. Nonetheless, out of an

abundance of caution and pursuant to Eni’s request, the Debtors seek entry of the Proposed

Order, pursuant to Bankruptcy Code section 363(b), authorizing QRI to enter into the 2015

Amendment.

SUPPORTING AUTHORITY

Entry into the 2015 Amendment is Warranted Under Bankruptcy Code Section A.363(b) and Within the Debtors’ Sound Business Judgment

11. Bankruptcy Code section 363(b)(1) provides, in relevant part, that “[t]he trustee,

after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business,

property of the estate . . . .” 11 U.S.C. § 363(b)(1). Although the Bankruptcy Code does not

specify a standard for determining when it is appropriate for a court to authorize the use, sale, or

lease of property of the estate, courts have required that such use, sale, or lease be based upon the

4 Notably, if the Debtors delay the drilling on the New Wells, such delay could result in additional—and

potentially material—costs.


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debtor’s sound business judgment. See, e.g., In re Martin, 91 F.3d 389, 394-95 (3d Cir. 1996)

(court may defer to debtor so long as there is “legitimate business justification” to approve the

use, sale, or lease of property outside the ordinary course of business) (citing In re Schipper, 933

F.2d 513, 515 (7th Cir. 1991)); In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143, 145-47

(3d Cir. 1986) (adopting the “articulated business justification” test set forth in In re Lionel

Corp., 722 F.2d 1063, 1070-71 (2d Cir. 1983)); In re Fed. Mogul Global, Inc., 293 B.R. 124, 126

(D. Del. 2003); In re Del. & Hudson Ry. Co., 124 B.R. 169, 178 (D. Del. 1991); In re Allegheny

Int’l, Inc., 117 B.R. 171, 176 (W.D. Pa. 1990); see also In re Montgomery Ward Holding Corp.,

242 B.R. 147, 153 (D. Del. 1999); In re Del. & Hudson Ry. Co., 124 B.R. at 175-76 (concluding

that the Third Circuit adopted a “sound business purpose” test in Abbotts Dairies).

12. To determine whether a debtor has exercised its business judgment appropriately

under Bankruptcy Code 363, the court “is required to examine whether a reasonable business

person would make a similar decision under similar circumstances.” In re Exide Techs., Inc.,

340 B.R. 222, 239 (Bankr. D. Del. 2006). Once a debtor articulates a valid business justification,

it is presumed that “in making a business decision the directors of a corporation acted on an

informed basis, in good faith and in the honest belief that the action was in the best interests of

the company.” In re Integrated Res., Inc., 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v.

Van Gorkom, 488 A.2d 858, 872 (Del. 1985)).

13. The business judgment rule shields a debtor’s management from judicial second-

guessing, and it mandates that a court approve a debtor’s business decision unless that decision is

a product of bad faith or gross abuse of discretion. See Lubrizol Enters., Inc. v. Richmond Metal

Finishers, Inc., 756 F.2d 1043, 1047 (4th Cir. 1985), cert. denied, 475 U.S. 1057 (1986); see also

In re Bridgeport Holdings, Inc., 388 B.R. 548, 567 (Bankr. D. Del. 2008).


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14. In the Debtors’ reasoned business judgment, entry into the 2015 Amendment is in

the best interest of their estates. The negotiations between the Debtors and Eni that led to the

2015 Amendment were extensive and conducted at arm’s length and in good faith. Entry into

the 2015 Amendment benefits the Debtors’ estates because it permits the Debtors to follow a via

media with respect to QRI’s participation in each New Well, rather than the current “all or

nothing” options under the JEA. Under the 2015 Amendment, the Debtors now have the option

to generate additional revenue streams while minimizing their capital and operating

expenditures. Additionally, drilling the New Wells in West Texas at this time will enable the

Debtors to further analyze the productivity of this region in advance of any future required

continuous development and lease renewal costs that are likely required in 2016 and 2017.

Accordingly, the Debtors submit that there is ample business justification for entering into the

2015 Amendment.

Relief from the 14-Day Stay Period Under Bankruptcy Rule 6004(h) is Warranted B.

15. The Debtors request that the Court waive the 14-day stay period under

Bankruptcy Rule 6004(h) and order that, if and when entered, the Proposed Order be effective

immediately. Bankruptcy Rule 6004(h) provides that an “order authorizing the use, sale, or lease

of property . . . is stayed until the expiration of 14 days after entry of the order, unless the court

orders otherwise.” Fed. R. Bankr. P. 6004(h).

16. To successfully implement the relief requested in this Motion, the Debtors request

that the Court enter an order providing that the Debtors have established cause for such relief

from the 14-day stay period under Bankruptcy Rule 6004(h). Absent relief from the 14-day stay

period, the Debtors will not have the ability to immediately benefit from the favorable terms of

the 2015 Amendment, which could detract from the Debtors’ estates. Additionally, given the

timing of the hearing on this motion and the need to begin drilling on the New Wells in the near


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term, relief from the 14-day stay is warranted to enable the Debtors’ to timely perform under the

2015 Amendment.

DEBTORS’ RESERVATION OF RIGHTS

17. Nothing herein is intended or should be deemed as an assumption or rejection

under Bankruptcy Code section 365 of the JEA and the Debtors expressly reserve all rights

related thereto; provided, however, the Debtors’ obligations under the 2015 Amendment shall

constitute an administrative priority claim under Bankruptcy Code section 503 and the terms, and

provisions of the 2015 Amendment, including but not limited to provisions dealing with division

of interests in the New Wells, the Non-Consent Interest, and non-consent penalties, shall be

binding on the Debtors and the estates (and their successors and assigns) notwithstanding any

assumption or rejection of the JEA under Bankruptcy Code section 365.

NOTICE

18. No trustee or examiner has been appointed in these chapter 11 cases. The Debtors

have provided notice of this Motion to (a) the Office of the United States Trustee for the District

of Delaware, Attn: Jane Leamy, Esq.; (b) counsel to the Official Committee of Unsecured

Creditors; (c) counsel to the agents under the Debtors’ pre-petition credit facilities; (d) counsel to

the Ad Hoc Group of Second Lienholders; (e) counsel to the indenture trustees under the

Debtors’ pre-petition indentures; (f) the United States Securities and Exchange Commission; (g)

the United States Internal Revenue Service; (h) counsel to Eni; and (i) any parties entitled to

notice pursuant to Local Rule 2002-1(b). In light of the nature of the relief requested in this

Motion, the Debtors respectfully submit that no further notice is necessary.


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WHEREFORE, for the reasons set forth herein, the Debtors respectfully request

that the Court (a) enter the Proposed Order substantially in the form annexed hereto as Exhibit A

granting the relief requested in the motion and (b) grant such other and further relief as may be

just and proper.

Wilmington, Delaware Date: April 6, 2015 /s/ Rachel L. Biblo RICHARDS, LAYTON & FINGER, P.A.

Paul N. Heath (DE 3704) Amanda R. Steele (DE 5530) Rachel L. Biblo (DE 6012) One Rodney Square 920 North King Street Wilmington, Delaware 19801 Telephone: (302) 651-7700 Facsimile: (302) 651-7701 – and –

AKIN GUMP STRAUSS HAUER & FELD LLP Charles R. Gibbs (admitted pro hac vice) Sarah Link Schultz (admitted pro hac vice) 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Telephone: (214) 969-2800 Facsimile: (214) 969-4343 Ashleigh L. Blaylock (admitted pro hac vice) Kevin M. Eide (admitted pro hac vice) Robert S. Strauss Building 1333 New Hampshire Avenue, N.W. Washington, DC 20036-1564 Telephone: (202) 887-4000 Facsimile: (202) 887-4288 PROPOSED COUNSEL FOR DEBTORS AND

DEBTORS IN POSSESSION




) In re: ) Chapter 11 ) Quicksilver Resources Inc., et al.,1 ) Case No. 15-10585 (LSS) ) Debtors. ) Jointly Administered ) ) Hearing Date: April 27, 2015 at 2:00 p.m. (EDT)

) Obj. Deadline: April 20, 2015 at 4:00 p.m. (EDT)

NOTICE OF MOTION AND HEARING

PLEASE TAKE NOTICE that, on April 6, 2015, the above-captioned debtors and

debtors in possession (collectively, the “Debtors”) filed the Debtors’ Motion for an Order

Authorizing the Debtors to Enter into an Agreement with ENI Petroleum US LLC (the “Motion”)

with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

PLEASE TAKE FURTHER NOTICE that, any responses or objections to the Motion

must be filed in writing with the Bankruptcy Court, 824 N. Market Street, 3rd Floor, Wilmington,

Delaware 19801, and served upon and received by the undersigned proposed counsel for the

Debtors on or before April 20, 2015 at 4:00 p.m. (Eastern Daylight Time).

PLEASE TAKE FURTHER NOTICE that, if an objection is timely filed, served and

received and such objection is not otherwise timely resolved, a hearing to consider such

objection and the Motion will be held before The Honorable Laurie Selber Silverstein at the



Case 15-10585-LSS Doc 158-1 Filed 04/06/15 Page 1 of 2

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Bankruptcy Court, 824 N. Market Street, 6th Floor, Courtroom 2, Wilmington, Delaware 19801

on April 27, 2015 at 2:00 p.m. (Eastern Daylight Time).

IF NO OBJECTIONS TO THE MOTION ARE TIMELY FILED, SERVED AND

RECEIVED IN ACCORDANCE WITH THIS NOTICE, THE BANKRUPTCY COURT

MAY GRANT THE RELIEF REQUESTED IN THE MOTION WITHOUT FURTHER

NOTICE OR HEARING.

Wilmington, Delaware Date: April 6, 2015 /s/ Rachel L. Biblo RICHARDS, LAYTON & FINGER, P.A.

Paul N. Heath (DE 3704) Amanda R. Steele (DE 5530) Rachel L. Biblo (DE 6012) One Rodney Square 920 North King Street Wilmington, Delaware 19801 Telephone: (302) 651-7700 Facsimile: (302) 651-7701 – and –

AKIN GUMP STRAUSS HAUER & FELD LLP Charles R. Gibbs (admitted pro hac vice) Sarah Link Schultz (admitted pro hac vice) 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Telephone: (214) 969-2800 Facsimile: (214) 969-4343 Ashleigh L. Blaylock (admitted pro hac vice) Kevin M. Eide (admitted pro hac vice) Robert S. Strauss Building 1333 New Hampshire Avenue, N.W. Washington, DC 20036-1564 Telephone: (202) 887-4000 Facsimile: (202) 887-4288 PROPOSED COUNSEL FOR DEBTORS AND

DEBTORS IN POSSESSION


Exhibit A

Proposed Order




) In re: ) Chapter 11 ) Quicksilver Resources Inc., et al.,1 ) Case No. 15-10585 (LSS) ) Debtors. ) Jointly Administered )

ORDER AUTHORIZING THE DEBTORS TO

ENTER INTO AN AGREEMENT WITH ENI PETROLEUM US LLC

Upon the Debtors’ Motion for Entry of an Order Authorizing the Debtors to Enter Into

an Agreement with Eni Petroleum US LLC (the “Motion”)2 of the above-captioned debtors and

debtors in possession (collectively, the “Debtors”) seeking entry of this Order pursuant to

Bankruptcy Code section 363(b) and Bankruptcy Rule 6004 authorizing the Debtors to enter into

the 2015 Amendment; and the Court having jurisdiction to consider the Motion and the relief

requested therein in accordance with 28 U.S.C. §§ 157 and 1334; and consideration of the

Motion and the relief requested therein being a core proceeding in accordance with 28 U.S.C.

§ 157(b)(2); and venue being proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409; and

due and proper notice of the Motion being adequate and appropriate under the particular

circumstances; and a hearing having been held to consider the relief requested in the Motion; and

upon the record of the hearing, and all proceedings had before the Court; and the Court having

found and determined that the relief sought in the Motion is in the best interests of the Debtors’



2 All capitalized terms not otherwise defined herein are to be given the meanings ascribed to them in the Motion.


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estates, their creditors, and other parties in interest and a sound exercise of the Debtors’ business

judgment and necessary for the administration of their chapter 11 cases, and that the legal and

factual bases set forth in the Motion establish just cause for the relief granted herein; and any

objections to the requested relief having been withdrawn or overruled on the merits; and after

due deliberation and sufficient cause appearing therefor, it is hereby ORDERED:

1. The Motion is granted as set forth herein.

2. The Debtors are authorized to enter into the 2015 Amendment, and the terms of

the 2015 Amendment are approved.

3. The Debtors’ obligations under the 2015 Amendment shall constitute an

administrative priority claim under Bankruptcy Code section 503, and the terms and provisions

of the 2015 Amendment, including but not limited to provisions dealing with division of interests

in the New Wells, the Non-Consent Interest, and non-consent penalties, shall be binding on the

Debtors and their estates (and their successors and assigns) notwithstanding any assumption or

rejection of the JEA under Bankruptcy Code section 365.

4. Notwithstanding Bankruptcy Rule 6004(h), this Order shall be immediately

effective and enforceable upon its entry.

5. The Debtors are authorized to take all actions necessary to effectuate the relief

granted pursuant to this Order.

6. The Court retains jurisdiction with respect to all matters arising from or related to

the interpretation or implementation of this Order and the 2015 Amendment.

Wilmington, Delaware

Date: _______________, 2015 THE HONORABLE LAURIE SELBER SILVERSTEIN UNITED STATES BANKRUPTCY JUDGE


Exhibit B

2015 Amendment


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