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In re Whistler Energy II, LLC

United States District Court, E.D. Louisiana

July 20, 2018

IN RE WHISTLER ENERGY II, LLC

         SECTION: “H” (1)

          ORDER AND REASONS

          JANE TRICHE MILAZZO UNITED STATES DISTRICT JUDGE

         Before the Court is an appeal by Nabors Offshore Corporation from a decision of the United States Bankruptcy Court for the Eastern District of Louisiana. For the following reasons, the decision of the bankruptcy court is AFFIRMED.

         BACKGROUND

         This matter arises out of the Chapter 11 bankruptcy of Whistler Energy II, LLC (“Whistler”). Its creditor, Nabors Offshore Corporation (“Nabors”), alleges that the bankruptcy court erred in disallowing much of its administrative expense priority claim under 11 U.S.C. § 503(b)(1)(A) for materials and services that it provided to Whistler before and after it filed for bankruptcy.

         Whistler owns and operates an offshore oil and gas platform with several producing wells. On February 25, 2014, Nabors and Whistler entered into a contract under which Nabors agreed to provide the equipment and personnel necessary to drill additional wells and perform auxiliary operations and services for Whistler (the “Contract”). Specifically, it agreed to provide the MODS 201 platform drilling rig, four engines with generators, a rig crane, nine personnel buildings or living quarters, and 31 crew members. Nabors charged a daily rate for these materials and services. On July 16, 2014, the Contract was amended to add two additional living quarters and two cranes for an additional fee.

         In November 2015, Nabors began drilling the A-13 Well on Whistler's platform. On March 10, 2016, a Nabors employee suffered a fatal injury while working on the platform before the A-13 Well was completed. As a result, the Bureau of Safety and Environmental Enforcement (“BSEE”) ordered Whistler to shut-in drilling operations but allowed it to continue producing existing wells. On March 26, 2016, three of Whistler's creditors filed an involuntary bankruptcy petition against it. At some point thereafter, Whistler decided to temporarily abandon the well, and it paid Nabors to complete the work, which it did on June 20.

         On July 25, the bankruptcy court entered an order rejecting the Contract between Nabors and Whistler effective June 20, and Whistler asked Nabors to provide a demobilization plan for its drilling rig and equipment. BSEE approved the demobilization plan on October 20, and Nabors began demobilizing its equipment from Whistler's platform.

         In the bankruptcy action, Nabors filed a Motion for Allowance of Administrative Expense Claim Pursuant to 11 U.S.C. § 503(b) for Unpaid Services and Equipment Provided to Debtor Post-Order for Relief and for Demobilization-Related Costs, which was heard by the bankruptcy court in December 2016. Nabors sought, inter alia, a pre-demobilization administrative claim in the amount of $4.7 million and a demobilization administrative priority claim in the amount of $3.25 million. The bankruptcy court ultimately held that Nabors was only entitled to an administrative priority claim for the cost of pre-demobilization services between June 20 and October 20, 2016 that Whistler had requested. It found that Nabors was not entitled to an administrative priority claim for demobilization expenses because such were merely a consequence of the rejection of the Contract. Nabors was allowed an administrative priority claim in the amount of $897, 024 and a general unsecured rejection damages claim in the amount of $6, 070, 901.98.

         Nabors now appeals the bankruptcy court's decision, arguing that it improperly applied 11 U.S.C. § 503. The debtor-in-possession opposes.

         LEGAL STANDARD

         Where a district court sits as an appellate court in a bankruptcy case, “[t]he bankruptcy court's findings of fact are reviewed under a clear error standard, while conclusions of law are reviewed de novo.”[1] Mixed questions of law and fact are reviewed de novo.[2]

         LAW AND ANALYSIS

         Pursuant to § 365 of the Bankruptcy Code, Whistler's rejection of the Contract with Nabors acts as a breach of the contract from the date of the filing of the petition and leaves Nabors with an unsecured claim. Nabors contends, however, that its claim should be treated as an administrative priority claim because the services and materials that it provided were necessary and beneficial to Whistler. Section 507(a)(1) of the bankruptcy code establishes that administrative expenses incurred in bankruptcy are given priority in distribution. These administrative expenses include “the actual and necessary costs and expenses of preserving the estate.”[3] In order to qualify as an “actual and necessary cost, ” a claim “must have arisen post-petition and as a result of actions taken by ...


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