United States District Court, E.D. Louisiana
ORDER AND REASONS
TRICHE MILAZZO UNITED STATES DISTRICT JUDGE
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.
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.
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
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.
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.
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.
now appeals the bankruptcy court's decision, arguing that
it improperly applied 11 U.S.C. § 503. The
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.” Mixed questions of law and
fact are reviewed de novo.
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.” 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 ...