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UNITED STATES BANKRUPTCY COURT

DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
__________________________________________
In re:
)
)
)
BUCKINGHAM OIL INTERESTS, INC.
)
)
)
Debtor.
)
__________________________________________)

Chapter 11
Case No.: 15-13441 (JNF)

MOTION OF CHAPTER 11 TRUSTEE FOR AN ORDER (A) AUTHORIZING SALE OF

INTERESTS IN OIL AND GAS PROPERTIES FREE AND CLEAR OF LIENS,
CLAIMS, ENCUMBRANCES, AND INTERESTS BY INTERNET AUCTION
MECHANISM; (B) AUTHORIZING ASSUMPTION AND ASSIGNMENT OF CERTAIN
EXECUTORY CONTRACTS IN CONNECTION THEREWITH; (C) SCHEDULING A
SALE HEARING AND POST-AUCTION HEARING; AND (D) GRANTING OTHER
RELATED RELIEF
Charles A. Dale III, the duly appointed Chapter 11 trustee for the bankruptcy estate of the
above-captioned debtor (the Trustee), hereby submits this motion (the Motion) for an order
substantially in the form attached hereto as Exhibit A (the Sale Authorization Order): (a)
authorizing the Trustee to sell certain interests in oil and gas properties free and clear of liens,
claims, encumbrances, and interests by an internet auction mechanism; (b) authorizing the
assumption and assignment of certain executory contracts in connection therewith; (c)
scheduling a sale hearing on this Motion and scheduling a subsequent post-auction hearing for
purposes of reporting the auction results and entry of an order identifying the winning bidders as
good faith purchasers; and (e) granting related relief.
Notably, the sale process outlined by this Motion does not contemplate the Court holding
a so-called bid procedures hearing separate from the sale hearing as is commonly done in
Chapter 11 cases. Rather, and for the reasons explained below, the Trustee respectfully
requests a sale hearing on this Motion in approximately 21 days time (i.e., the week of

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October 19-23, 2015), at which time he will seek authority to sell the Debtors assets
through the proposed internet mechanism, with any objections to the relief sought herein to
be filed with Court by 4:30 p.m. Eastern time on a day that is at least three (3) business
days prior to the hearing. 1 Following such hearing, and if such authority is obtained, the
auction will thereafter be conducted and the parties will return to the Court for a report on the
auction results and for approval of the winning bidders.
In further support of this Motion, the Trustee respectfully states as follows:
Jurisdiction and Venue
1.

This Court has jurisdiction over the Motion pursuant to 28 U.S.C. 157 and 1334.

Venue is proper pursuant to 28 U.S.C. 1408 and 1409. The Motion is a core proceeding
pursuant to 28 U.S.C. 157(b). The statutory predicates for the relief requested herein are
sections 363 and 365 of title 11 of the United States Code, 11 U.S.C. 101, et seq. (the
Bankruptcy Code), Rules 2002 and 6004 of the Federal Rules of Bankruptcy Procedure (the
Bankruptcy Rules), and Rule 6004-1 of the Local Bankruptcy Rules for the United States
Bankruptcy Court for the District of Massachusetts (the Local Rules).
Background
A.

General
2.

On September 1, 2015 (the Petition Date), Buckingham Oil Interests, Inc. (the

Debtor) filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code (the
Chapter 11 Case) in this Court.

While he is not seeking a bid procedures hearing, the Trustee would welcome a Status Conference prior to the end
of October should the Court desire one.

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On the Petition Date, the United States Trustee (the U.S. Trustee) moved, with the

assent of the Debtor, for an order directing the appointment of a Chapter 11 trustee. [Docket No.
2].
4.

On September 1, 2015, the Court entered an order authorizing the United States

Trustee to appoint a Chapter 11 trustee to conduct the Debtors business. [Docket No. 4].
5.

On September 1, 2015, the U.S. Trustee filed the Application for and Certificate of

Appointment of Chapter 11 Trustee, requesting the Courts approval of the appointment of

Charles A. Dale III as Chapter 11 Trustee (the Certificate of Appointment). [Docket No. 5].
6.

On September 15, 2015, the Court entered an order approving the appointment of the

Chapter 11 Trustee. [Docket No. 19].

B.
7.

The Debtors Business and a Description Oil and Gas Assets

The Debtor is in the business of oil and gas exploration and production. The Debtor

was incorporated in Texas, but its headquarters are located in Falmouth, Massachusetts. Since at
least 2005, the Debtor has acquired working interests in approximately 100 prospects, each
comprised of multiple oil and gas leases and wells in sixty (60) counties and parishes in eleven
(11) different states, including Texas and Louisiana. A map reflecting the locations is attached
hereto as Exhibit B. Each prospect is typically owned by multiple parties and governed by one
or more joint operating agreements or similar contracts. Under each joint operating agreement,
one party (referred to as the operator) generally has the exclusive right to conduct operations.
Each operator may drill several wells in an effort to discover commercial quantities of
hydrocarbons. Although the Chapter 11 Trustee has not concluded his review, it appears that the
Debtor owns a working interest in as many as 300 individual wells.

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A high-level understanding of the various property rights and interests involved in the

oil and gas industry is necessary for considering this Motion. As the Seventh Circuit Court of
Appeals has stated: In attempting to convert dreams of black gold to hard cash, aspiring
capitalists split the property interest in oil into more fragments than the atom or the rainbow.
Jones v. Salem Natl Bank (In re Fallop), 6 F.3d 422, 424 (7th Cir. 1993) (internal citations
omitted).
9.

A landowner may sever the right to oil, gas, and other minerals from those to the

surface of his land, among other things, by grant or by reservation in a deed. Once severed, the
right to minerals is referred to as the mineral estate and the remainder is the surface estate.
The mineral estate generally remains a real property interest of equal dignity to that of the
surface estate and, as a general rule, all of the common law and statutory principles applicable to
real property, such as conveyancing, recordation, and the statute of frauds are equally applicable.
In fact, in Texas (where the majority of the Debtors wells are located), the mineral estate is
considered dominant over the surface estate, allowing the mineral rights owner to use as much of
the surface as is reasonably necessary to explore, drill, and produce the minerals underlying the
land, in some cases subject to pre-existing uses.
10.

Although the mineral rights owner may explore and drill for himself, it is far more

common for him to lease this right to another entity. Simply put, the mineral lease is a grant
by the mineral owner (the lessor) to another (the lessee, or more typically a joint enterprise of
several lessees) authorizing the lessee to explore, drill for, and produce oil, gas, and other
hydrocarbons at its own cost and risk, in exchange for consideration, most importantly a
fractional royalty on any oil obtained from the wells drilled. The lease is granted for a primary
term (typically one to five years) during which the lessee has the right to attempt to drill and
obtain production in commercial quantities and, if it does so, to produce the oil and/or gas for
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as long thereafter as production is maintained, i.e., to produce the well until oil and/or gas are no
longer produced in commercial quantities. Of the Debtors 100 prospects, some are already
producing oil and gas in commercial quantities while others are still in the exploration stage (and
some have been determined to be non-commercial or dry holes).
11.

Although the traditional nomenclature dubs this arrangement a lease, Texas and

many other oil-producing states treat a mineral lease as a conveyance of a real property interest,
such as a deed, creating a fee simple determinable estate in the lessee. If oil is found though
such exploration, the lease can then be maintained past the primary term (into the secondary
term) by continuous commercial production of oil or gas from the well. The end of the
primary term (without production of oil) or the end of production during the secondary term is
the determinable event of the fee simple that terminates the lease. In other words, the lease
may continue until all the wells drilled on the lease (or on lands pooled or unitized with the
lease) are no longer commercial, at which point the interest in the mineral estate reverts back to
the lessor. 2 The leases comprising Debtors 100 prospects are in various stages of their
respective terms.
12.

The person who holds the leasehold interest initially possesses the working interest 3

because he is the person entitled to work the land, i.e., drill and develop the minerals. The
working interest owner is also liable for all of the costs of drilling, production, and operations.
Just as the surface of the land can be bifurcated from the minerals underneath it, the working
interest can, and frequently is, severed from the mineral owner, and thereafter, the
2

As a rule, actual production of oil or gas is necessary to maintain a lease, and the production must be in paying
quantities, i.e., an amount sufficient to exceed the continued cost of operations, or at least enough that a reasonable
operator would continue operating the well in anticipation of future profitability. A temporary cessation of
production will not terminate the lease. Whether the cessation is temporary is determined by a combination of
factors such as the reason for the stoppage, the duration, and the lessees diligence in restoring production.
3 Working interest, although used frequently as though it refers to a type of real property right, is primarily an
accounting term that refers to a cost-bearing interest.

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recipient/holder is referred to as the working interest owner. Often, several companies will
join together in being the working interest owner so that they can share the risks and costs of a
particular project or pool their respective leasehold interests to meet drilling spacing
requirements or achieve economies of scale. In this situation, the working interest is often
fractionalized to reflect each partys percentage of participation. The Debtors primary asset is
its ownership of working interests in over 100 prospects, many of which contain multiple leases
and wells. The Debtors percentage working interest various by prospect and, in some cases, by
well. As a general rule, its interest in projects operated by third-parties was around 20% or less
whereas those operated by its affiliate Paint Rock Operating LLC (Paint Rock) was around
40%.
13.

When the working interest is held among several parties, the owners will usually

execute an agreement to memorialize the rights and obligations of each. These so-called joint
operating agreements (and other similar agreements) require each working interest owner to
contribute capital toward the ongoing costs of operations (including drilling). As of the Petition
Date, the Debtor was a party to numerous joint operating and other agreements relative to its 100
prospects. If the Debtor were to sell its working interest in a particular prospect, the conveyance
of that working interest would necessarily remain subject to any associated joint operating
agreement (i.e., it runs with the land) and any outstanding obligations associated therewith
would need to be assumed and/or cured at closing.
14.

The operator is the company (generally designated by the relevant joint operating

agreement) that actually drills and operates the well. That can be one of the working interest
holders or it can be a contract operator hired by the group for a fee to conduct operations on its
behalf. Notably, the Debtor is not an operator. Rather, its prospects are operated by an
unaffiliated third-party or by its affiliate, Paint Rock.
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The drilling and other costs are communicated to the working interest owners by the

operator. These requests for additional funds to keep drilling over the period of the lease are
commonly called capital calls. The working interest owners may, in turn, satisfy their
respective share of these capital calls by looking to their own investors for funding. 4 The
Trustee is in the process of quantifying all of the outstanding capital calls for the Debtors
prospects, and the Debtors respective share of liability on each. It is believed, however, that as
of the Petition Date, the Debtor was subject to dozens of capital calls, which in the aggregate
require over $1.5 million in additional funding. Upon the sale of the Debtors working interest in
a particular prospect, any associated capital calls would need to be satisfied.
16.

Based on his investigation to-date, the Trustee believes the following table summarizes

the Debtors holdings:

Type of Interest

Debtors Holdings as of Petition Date

Surface Estate Holder (i.e., owner of top of

the land)

No

Mineral Estate Holder/Mineral Lessor (i.e.,

owner of underneath the land)

No

Mineral Lessee (i.e., initially holds the right No, but certain of the Debtors affiliates
to explore and drill underneath the land)
may hold the mineral lease for certain
prospects.
Working Interest Owner (i.e., assigned the
right from the mineral lessee to explore and
drill underneath the land)

Yes, the Debtors percentage ownership

varies by prospect, but is typically
anywhere between 10-40%.

Operator

No, but the Debtors affiliate, Paint Rock,

operates some of the prospects in which it
has a working interest

Prior to the Petition Date, certain parties entered into participation agreements with the Debtor with respect to
certain of the Debtors prospects. The Debtor then looked to such parties for the funding necessary to satisfy the
associated capital calls on those prospects.

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Before the working interest owners such as the Debtor may enjoy any of the profits

from their efforts, any number of other parties may be entitled to share in the proceeds, namely
through a royalty interest. A royalty interest is a nonpossessory right to a share of the oils value
free of the cost of production. A royalty interest in minerals, unlike royalties under contracts in
other industries, is generally a real property interest subject to all of the same rules of
conveyancing and recordation as any other real property interest. Most commonly, the lessor of
the mineral rights reserves a royalty for himself under the mineral lease (a lessors royalty).
The lessors royalty is paid off the top starting with the first barrel out of the ground. As a
result, the royalty value is determined at the well and before the product is gathered, treated, and
transported to market.
18.

Overriding royalties are also common. These are royalty interests carved out of a

working interest, i.e., a royalty which all or some of the working interest owners must pay out of
their share of the prospects production. Like a lessors royalty, overriding royalties are
generally free of costs, meaning the holder does not contribute to the cost of actually getting the
oil out of the ground. Often, an overriding royalty is granted to someone (commonly a landman
or geologist) as a fee or additional consideration for a service provided to one or all of the
working interest owners.
19.

Finally, a working interest owner may owe a net profits interest to another entity. A

net profits interest is a type of overriding royalty interest which is payable only after all costs of
production are deducted. Net profits interests are more likely to be granted on a specific well or
group of wells, rather than on an entire prospect or leasehold.
20.

As of the Petition Date, it is believed that certain of the Debtors holdings were

burdened by royalties, overriding royalties, and/or net profits interests.

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Other Encumbrances
21.

In addition to the joint operating agreements (and pending cash calls thereunder),

royalties, overriding royalties, and net profits interests, certain of the Debtors working interests
may be subject to mineral liens or similar type mechanics liens asserted by oilfield service
providers.
22.

Certain prospects may be subject to preferential rights of purchase, rights of first

refusal, rights of first negotiations, consents or permissions to assign, approval rights, or similar
rights by nature of joint operating and other agreements between third parties and the Debtor
(collectively, Preferential Rights).
23.

Additionally, First Financial Bank, N.A. (First Financial) asserts a claim against the

Debtor in the amount of $1,290.530.87 as of the Petition Date on account of a prepetition loan to
the Debtor, including $1,272,655.10 of outstanding principal, $13,150.77 of accrued interest, and
$4,725.00 of late fees. First Financial asserts that its claim is secured by a valid, perfected, and
non-avoidable first-priority lien upon certain oil and gas properties in Menard County, Texas,
along with equipment, production contracts, severed hydrocarbons, and other assets related
thereto, including the products and proceeds thereon, all as more particularly described in that
certain Deed of Trust and Security Agreement (Oil and Gas) by and among the Debtor as
grantor, the Bank as beneficiary, and two individuals as trustees executed November 19, 2014.
24.

Among other creditors and parties-in-interest, the Trustee intends to serve notice of

this Motion, to the extent ascertainable in its records, on any: (i) mineral lessors, (ii) mineral
lessees, (iii) co-working interest owners (including those subject to joint operating agreements
with the Debtor and parties from whom the Debtor received it interests, even if those interests
are not governed by a joint operating agreement), (iv) operators, (v) holders of royalties,
overriding royalties, or net profits interests, (vi) oilfield service providers contracting with Paint
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Rock and other third party operators, (vii) First Financial, and (viii) investors who may have
entered into participation or other agreements with the Debtor or an affiliate to invest capital in
the Debtors oil and gas prospects.
Relief Requested
25.

Although the Trustee continues to analyze the Debtors affairs and consider all

possible restructuring alternatives, he has decided, as a matter of his business judgment, to

initiate a sale process that will efficiently monetize these assets in manner that maximizes their
value to the bankruptcy estate. Based on, among other things, the numerous pending capital calls
on the Debtors prospects, the estates inability to satisfy capital calls based on existing liquidity
constraints, 5 and the Debtors general lack of institutional knowledge resulting from Darryl
Buckinghams death, the Trustee believes that time is of the essence and that he move quickly to
be in a position to consummate sales of the Debtors working interests. 6
26.

After consultation with colleagues that regularly represent clients in the oil and gas

industry, the Trustee has selected EnergyNet.com to assist him with the sale of the Debtors oil
and gas interests. Contemporaneously with the filing of this Motion, the Trustee is filing an
application to employ EnergyNet as his sales broker and consultant. As discussed further in its
retention application, EnergyNet is a widely-known, reputable, and professional firm that
specializes in oil and gas marketing and divestitures. EnergyNet conducts efficient oil and gas
auctions, sealed bids, and negotiated sale services that facilitate transactions of producing
working interests (operated and non-operated), overrides, royalties, mineral interests, and non5

The Trustee is currently investigating the cause(s) of the Debtors liquidity crisis.

The Trustee has decided to initiate a sale process that will efficiently monetize and transfer these assets to buyers
who can provide such ongoing financial support, provided that a reorganization plan does not materialize in the
interim. Based on initial discussions with several prepetition investors, there appears to be significant interest in a
reorganization plan that would be supported by additional capital investment from such investors. The Trustee is
actively pursuing these discussions. If a plan materializes from these discussions, the Trustee may elect not to sell
certain assets pursuant to this Motion.

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producing leaseholds. EnergyNet is unique in its approach, as the bulk of its sales solicitations
and auctions are conducted online (similar to E-bay). EnergyNets technological reach presents
an oil and gas property portfolio to thousands of potential buyers with multi-billion-dollar buying
power and allows buyers the flexibility and convenience of conducting their acquisition and
divestment activities online. In light of the circumstances leading to the filing of this Chapter 11
Case, the current liquidity crisis facing the estate, and the fact that no prior marketing of the
Debtors oil and gas assets has taken place, the Trustee believes the use of EnergyNets internet
auction mechanism is in the best interests of the estate.
27. By this Motion, and as discussed further herein, the Trustee respectfully requests entry
of the proposed Sale Authorization Order which shall:
a. authorize the Trustee to sell the Debtors oil and gas interests free and clear of
all liens, claims, encumbrances pursuant to the sale process described below;
b. authorizing the assumption and assignment of certain designated executory
contracts in connection with the proposed sale(s), particularly the joint
operating agreements and any other similar agreements concerning
exploration and well operations;
c. setting a sale hearing at which the Trustee will seek authority to sell the
Debtors assets through the EnergyNet internet auction mechanism;
d. setting a post-auction hearing at which the Trustee can report the result(s) of
the EnergyNet auction(s) and present an order identifying the winning bidders
and seeking to have each qualified as good faith purchasers; and
e. granting other related relief.
The Sale Process
28. The Trustees proposed sale process is as follows:
A.

General Description of Terms

29. In light of the circumstances of this case, the Debtors oil and gas assets will be sold

AS IS, WHERE IS to the highest bidder pursuant to the EnergyNet process outlined below.

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30. Joint operating agreements and similar executory contracts relating to exploration and
production operations at the Debtors existing prospects shall be assumed and assigned to the
winning bidder(s) with any cure amounts to be paid from the respective sale proceeds.
Otherwise, the sales shall be free and clear to the broadest extent possible under section 363(f)
of the Bankruptcy Code. Any party asserting a lien, claim, encumbrance, or other interest
(including Preferential Rights) in the oil and gas assets that opposes such relief must object to
this Motion or otherwise be deemed to consent to the relief herein and any valid lien, claim,
encumbrance, or other interest shall attach to the respective proceeds.
B.

Hearing Date and Objection Deadline

31. In accordance with MLBR 6004-1(c)(4), the Trustee respectfully seeks a hearing on

this Motion during the week of October 19-23, 2015 (the Sale Hearing), with any objections
to the relief sought herein to be filed with Court by 4:30 p.m. Eastern time on a day that is at
least three (3) business days prior to the hearing (the Objection Deadline). 7 Once the Sale
Hearing and Objection Deadline are set by the Clerk, the Trustee shall include such dates on a
notice of sale, substantially in the form attached hereto as Exhibit C, the Notice of Sale, which
shall then be served in accordance with Bankruptcy Rules 2002 and 6004, and MLBR 60041(c)(5). 8 Additionally, EnergyNet shall transmit the Notice of Sale to its network of registered
users and potential bidders.
C.

The EnergyNet Auction Process and the Qualification of Bidders

32. Contemporaneously with service of the Notice of Sale, the Trustee will begin supplying

EnergyNet with information to populate data rooms concerning the Debtors oil and gas assets.

In light of the internet auction mechanism proposed hereby, there is no need for the Clerk to assign a date for
making higher offers as contemplated under MLBR 6004-1(c)(4).

To the extent that any objections are not resolved prior to the Sale Hearing, the Trustee may file response(s)
thereto.

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33. Prior to opening the data rooms to potential bidders, the Trustee and his professionals
will need to decide: (i) whether to separately market and sell each prospect individually or to
group certain prospects in lots depending upon locations, cross-contractual obligations, or
other circumstances; (ii) whether to implement an open cry type auction process (i.e., where
bidders are aware of the current highest bid throughout the bidding period) or a sealed bid
process for each asset or asset lot; and (iii) whether to implement minimum bid requirements or
no reserve bidding. 9 The Trustee respectfully requests that he be authorized to make these
decisions in his business judgment. Once such decisions are made, and the data rooms are
complete (approximately 2 weeks from service of the Sale Notice), EnergyNet shall notify its
network of registered users and potential bidders of the proposed sale.
34. Immediately after entry of the Sale Authorization Order, EnergyNet shall open the
bidding process and notify its network of registered users and potential bidders that they shall
have seven (7) calendar days to submit bids for the assets (provided that the bid deadline is on a
business day other than Monday). Under EnergyNets standard procedure, the winning bidder
has two (2) full banking days to deliver the purchase price to EnergyNets escrow bank (Wells
Fargo Bank of Amarillo, Texas).
35. Each of the bidding opportunities for the Debtors oil and gas assets will be accessible
at https://www.energynet.com/buckingham. Any party potentially interest in submitting a bid for
any of the Debtors oil and gas assets that is not already a registered user of the EnergyNet
platform must first complete the registration form at https://www.energynet.com/bidder_reg.pl.
(the Registration Webpage). As further set forth on the Registration Webpage, to participate in
bidding, interested parties will have to (i) execute EnergyNets Buyers Agreement and (ii)

It is likely that the Trustee will implement minimum bid requirements sufficient to cover applicable cure amounts,
including pending cash calls outstanding under joint operating agreements.

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submit bank contact information so that EnergyNet can (a) verify the partys financial ability to
consummate similar transactions and (b) establish the partys bidding allowance (i.e., the
maximum amount EnergyNet determines the party can bid at auction(s) based on EnergyNets
verification of banking information).
36. EnergyNets form Buyers Agreement which concerns the EnergyNet bid process
(but is not the ultimate operative sale/conveyance document), as modified to address the
circumstances of this proposed sale, is attached hereto as Exhibit D. 10 The specific bidding
procedures for each asset or assets lots will be set forth on separate Property Information Page
accessible from https://www.energynet.com/buckingham. The Trustee represents that any such
procedures will be substantially consistent with those typically implemented by EnergyNet in
similar circumstances and, thus, shall be familiar to the vast majority potential bidders. The
Trustee respectfully submits that the foregoing satisfies the requirements of MLBR 60041(e)(2)(A)(v). By this Motion, the Trustee requests authority to comply with these procedures.
D.

Assumption and Assignment of Certain Executory Contracts

37. Generally speaking, joint operating agreements and similar contracts relating to

ongoing exploration and development operations will be assumed and assigned to winning
bidders with any cure amount to be paid from the sale proceeds of the respective prospect.
Although the Notice of Sale will set forth this intention, the particular executory contracts to be
assumed and assigned along with the proposed cure amount shall be set forth in a notice of
assumption and assignment (the Assignment Notice) to be filed and served on all the
respective counterparties by no later than October 6, 2015.

10

Any objection based on the

The form Buyers Agreement remains subject to further review and material revision by the Trustee and his
professionals.

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proposed cure amounts, adequate assurance of future performance, or otherwise must be filed
with the Court by no later than the Objection Deadline.
E.

Good Faith Purchaser Finding Hearing

38. Based on the foregoing, the Trustee is hopeful that the EnergyNet bidding process shall

conclude by no later than October 29, 2015. Therefore, the Trustee requests that the Court hold a
post-auction hearing on October 30, 2015 where the Trustee can report the results of the bidding,
submit an order identifying the winning bidders, and ask for a finding for each bidder thereby
conferring good faith purchaser protections afforded under section 363(m) of the Bankruptcy
Code (the Good Faith Purchaser Order).
F.

Closing of Sales
39. Immediately upon entry of the Good Faith Purchase Order, the Trustee shall proceed

with closing the sales through the execution and delivery of the appropriate conveyance
documents to the winning bidders, at which time EnergyNets escrow bank shall release the
purchase price to EnergyNet for disbursement to the Trustee less EnergyNets commission and
other payments as directed by the Trustee, i.e., cure amounts. By this Motion, the Trustee
requests authority to consummate the sales to the winning bidders (as determined by the
EnergyNet bidding process) and, subject to the terms of any order approving EnergyNets
employment, pay EnergyNets commission in connection with such transactions.
Basis for Relief
A.

The Proposed Sales are Within the Trustees Sound Business Judgment
40. Section 363(b)(1) of the Bankruptcy Code provides 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). Moreover, section 105(a) of the Bankruptcy Code provides that

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bankruptcy courts may issue any order, process, or judgment that is necessary or appropriate to
carry out the provisions of [the Bankruptcy Code]. 11 U.S.C. 105(a).
41. A sale of a debtors assets should be authorized pursuant to section 363 of the
Bankruptcy Code if a sound business purpose exists for doing so. In re Aerovox, 269 B.R. 74,
80 (Bankr. D. Mass. 2001); see also In re Martin, 91 F.3d 389, 395 (3d Cir. 1996); In re Lionel
Corp., 722 F.2d 1063, 1071-72 (2d Cir. 1983).
42. A trustees business decision should be approved by the court unless it is shown to be
so manifestly unreasonable that it could not be based upon sound business judgment, but only on
bad faith, or whim or caprice. In re Cadkey Corp., 317 B.R. 19, 22-23 (D. Mass. 2004); In re
Aerovox, Inc., 269 B.R. at 80 (citing In re Logical Software, 66 B.R. 683, 686 (Bankr. D. Mass.
1986)). A trustee is often obliged to make difficult business decisions that may later be open to
serious criticism by obstreperous creditors. DiStefano v. Stern (In re J.F.D. Enters., Inc.), 223
B.R. 610, 625 (Bankr. D. Mass. 1998) (citing Mosser v. Darrow, 341 U.S. 267, 273-74 (1951)).
Nevertheless, such decisions are entitled to great judicial deference. In re WPRV-TV, Inc.,
143 B.R. 315, 319 (D.P.R. 1991), vacated on other grounds, 165 B.R. 1 (D.P.R. 1992); see also
In re Thinking Machs. Corp., 182 B.R. 365, 368 (D. Mass. 1995) (emphasizing the high degree
of deference usually afforded purely economic decisions of trustees), revd on other grounds,
67 F.3d 1021 (1st Cir. 1995). In considering approval of a trustees business decision, the court
does not act as an arbiter of disputes between creditors and the estate but as an overseer of the
wisdom with which the bankruptcy estates property is being managed by the trustee or debtorin-possession. In re Aerovox, Inc., 269 B.R. at 80 (quoting In re Orion Pictures Corp., 4 F.3d
1095, 1099 (2d Cir. 1993)).
43. Courts have applied various factors in determining whether a sound business
justification exists, including: (i) whether a sound business reason exists for the proposed
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transaction; (ii) whether fair and reasonable consideration is provided; (iii) whether the
transaction has been proposed and negotiated in good faith; and (iv) whether adequate and
reasonable notice is provided. See Fulton State Bank v. Schipper (In re Schipper), 933 F.2d.
513, 515 (7th Cir. 1991); see also In re Lionel Corp., 722 F.2d at 1071 (setting forth the sound
business purpose test); accord In re Montgomery Ward Holding Corp., 242 B.R. 147, 153-54
(D. Del. 1999). While the Bankruptcy Code does not define good faith, the First Circuit has
used the traditional equitable definition of good faith in the context of a good faith purchaser,
requiring that such purchaser provide value in good faith and without knowledge of adverse
claims. Jeremiah v. Richardson, 148 F.3d 17, 23 (1st Cir. 1998).
44. Pursuant to Bankruptcy Rule 2002, twenty-one day notice by mail is sufficient notice of
the proposed use, sale, or lease of property of the estate other than in the ordinary course of
business. Subject to Bankruptcy Rule 6004, the notice of a proposed use, sale, or lease of
property required under Bankruptcy Rule 2002(a)(2) must include the time and place of any
public sale, the terms and conditions of any private sale, and the time fixed for filing objections.
See Fed. R. Bankr. P. 2002(c)(1). Moreover, the notice of a proposed use, sale, or lease of
property is sufficient if it generally describes the property. Id.
45. The Trustees proposed sale of the Debtors oil and gas assets through the EnergyNet
platform is justified because it will expose the assets to the greatest number of qualified bidders
in the most efficient manner possible. The estate is facing severe liquidity constraints, yet
continues to be subject to cash calls relating to ongoing exploration and production. To the
extent that outstanding cash calls are not satisfied and ongoing operations stall, the estate may be
subject to additional liabilities. The process described herein shall yield maximum purchase
prices and provides good and sufficient notice of the proposed sales. Therefore, the Trustee

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submits that he has satisfied the requirements of section 363(b) of the Bankruptcy Code and
Bankruptcy Rules 2002 and 6004.
B.

Assumption and Assignment of Executory Contracts

46. By this Motion, the Trustee seeks authority to assume and assign to the winning bidders

the joint operating and similar agreements relating to ongoing exploration and production at the
respective prospects sold. In assuming and assigning these agreements, the Trustee and the
winning bidders shall comply with the provisions of section 365(f)(2) of the Bankruptcy Code.
47. Section 365(f)(2) of the Bankruptcy Code provides, in pertinent part, that:
The trustee may assign an executory contract or unexpired lease of
the debtor only if
(A)
the trustee assumes such contract or lease in
accordance with the provisions of this section; and
(B)
adequate assurance of future performance by the
assignee of such contract or lease is provided, whether or
not there has been a default in such contract or lease.
11 U.S.C. 365(f)(2). Under section 365(a) of the Bankruptcy Code, a trustee, subject to the
courts approval, may assume or reject any executory contract or unexpired lease of the debtor.
11 U.S.C. 365(a).
48. Section 365(b)(1) of the Bankruptcy Code, in turn, codifies the requirements for
assuming an unexpired lease or executory contract of a debtor. This subsection provides:
(b) (1) If there has been a default in an executory contract or
unexpired lease of the debtor, the trustee may not assume such
contract or lease unless, at the time of assumption of such contract
or lease, the trustee
(A)
cures, or provides adequate assurance that the
trustee will promptly cure, such default . . . ;
(B)
compensates, or provides adequate assurance that
the trustee will promptly compensate, a party other than the
debtor to such contract or lease, for any actual pecuniary
loss to such party resulting from such default; and
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(C)
provides adequate assurance of future performance
under such contract or lease.
11 U.S.C. 365(b)(1).
49. The meaning of adequate assurance of future performance depends on the facts and
circumstances of each case, but should be given practical, pragmatic construction. EBG
Midtown S. Corp. v. McLaren/Hart Envtl. Engg Corp. (In re Sanshoe Worldwide Corp.), 139
B.R. 585, 592 (S.D.N.Y. 1992);see also In re Prime Motor Inns, Inc., 166 B.R. 993, 997 (Bankr.
S.D. Fla. 1994) (the degree of assurance necessary falls considerably short of an absolute
guaranty); Carlisle Homes, Inc. v. Azzari (In re Carlisle Homes, Inc.), 103 B.R. 524, 538
(Bankr. D.N.J. 1988).
50. Among other things, adequate assurance may be provided by demonstrating the
assignees financial health and experience in managing the type of enterprise or property
assigned. See, e.g., In re Bygaph, Inc., 56 B.R. 596, 605-06 (Bankr. S.D.N.Y. 1986) (adequate
assurance of future performance is present when prospective assignee of lease from debtor has
financial resources and has expressed willingness to devote sufficient funding to business in
order to give it strong likelihood of succeeding).
51. Defaults under any agreement to be assumed and assigned shall be cured from the sale
proceeds relating to the prospect or well covered by such agreement. Moreover, the Trustee
submits that satisfaction of the requirements to become registered bidder on the EnegyNet
platform constitutes evidence sufficient to establish adequate assurance of future performance.
As such, the Trustee satisfies the requirements of section 365 of the Bankruptcy Code with
respect to the proposed assumption and assignments of executory contracts.
52. The Trustee also request that the Court include in the Sale Authorization Order
provisions barring the non-debtor parties to executory contracts, assumed and assigned under
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such order, from: (i) asserting any default, loss, or liability against the assignee of such contract
based on any event or circumstance arising prior to the date of assignment; or (ii) objecting to the
assumption and assignment of its contract, unless the non-debtor party timely objects to this
Motion.
D.

Authorization for Free and Clear Sale

53. Section 363(f) of the Bankruptcy Code provides that a debtor may sell property free

and clear of any interest in such property of an entity other than the estate, only if
(a) applicable non-bankruptcy law permits sale of such
property free and clear of such interest;
(b) such entity consents;
(c) such interest is a lien and the price at which such
property is to be sold is greater than the aggregate value
of all liens on such property;
(d) such interest is in bona fide dispute; or
(e) such entity could be compelled, in a legal or equitable
proceeding, to accept a money satisfaction of such
interest.
11 U.S.C. 363(f). The Trustee submits that one or more of these elements is present with
respect to the contemplated sales. Accordingly, a sale free and clear of liens, claims, and
interests is permitted under section 363(f)(3) of the Bankruptcy Code.
E.

Additional Disclosures as Required Under MLBR 6004-1(e)(2)

54. In accordance with MLBR 6004-1(e)(2), the Trustee hereby represents the following to

the best of his knowledge: (i) neither the Trustee nor any party in interest has any connections
with EnergyNet or any expected bidder; provided, however, as discussed further in the
declaration supporting the Trustees application to employ EnergyNet, the Trustee understands
that a significant number of parties in interest, including the Debtor, are registered users of the
EnergyNet platform and, therefore, may be bidders; (ii) the only fees associated with the use of
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the proposed internet auction mechanism is the 3.5% commission to be paid to EnergyNet under
their engagement agreement; and (iii) the proposed internet auction mechanism will not provide
auction services or any other services beyond access to its automated on-line services and related
customer support. 11
F.

Waiver of Stay Imposed by Bankruptcy Rule 6004 and 6006

55. In order to maximize the value of the Debtors oil and gas assets, it is essential that the

sales occur on an expedited basis. The financial burden imposed on the Debtors operations by
virtue of the estates inability to satisfy ongoing cash calls is substantial and will only be rectified
by cure. Accordingly, the Trustee respectfully requests that the Court waive the stays impose by
Bankruptcy Rule 6004(h) and 6006(d) upon entry of the Sale Authorization Order.
Notice
56. In accordance with MLBRs 6004-1(b) and 6004-1(d)(3), upon the Clerks scheduling
of the Sale Hearing and the Objection Deadline, this Motion along with the Notice of Sale shall
be served on: (i) counsel to the Debtor; (ii) the Office of the United States Trustee for Region
One; (iii) counsel to First Financial; (iv) any known creditor asserting an alleged lien or security
interest in the Debtors property; (v) all parties who have filed appearances in the case; (v); the
twenty (20) largest unsecured creditors; (vi) the Securities and Exchange Commission; and (vii)
any other parties requesting notice. The Notice of Sale shall be served upon all of the Debtors
creditors and investors, as well as all known parties identified in paragraphs 21-24 above and
will be mailed electronically to all registered users of the EnergyNet platform. The Trustee
submits that no other or further notice of the relief requested is necessary.

11

The Trustee is aware MLBR 6004-1(d)(6) requires auctioneers to file a bond in an amount fixed by the U.S.
Trustee. This bonding requirement appears to be unnecessary in the context of selling oil and gas interests through
EnergyNets internet auction mechanism since EnergyNet will not be in possession of estate property.

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WHEREFORE, the Trustee respectfully request that the Court enter an Order,
substantially in the form attached hereto as Exhibit A: (a) authorizing the Trustee to sell the
Debtors interests in oil and gas properties free and clear of liens, claims, encumbrances, and
interests by an internet auction mechanism; (b) authorizing the assumption and assignment of
certain executory contracts in connection therewith; (c) scheduling a sale hearing and a separate
post-auction hearing for purposes of reporting the auction results and entry of an order
identifying the winning bidders as good faith purchasers; and (d) granting other relief as the
Court deems just and appropriate.
DATED: September 22, 2015
Respectfully submitted,
CHARLES A. DALE III,
CHAPTER 11 TRUSTEE
By his proposed counsel,
/s/ Mackenzie L. Shea
Mackenzie L. Shea (BBO No. 666241)
David A. Mawhinney (BBO No. 681737)
K&L Gates LLP
State Street Financial Center
One Lincoln Street
Boston, Massachusetts 02111
Tel: (617) 261-3100
Fax: (617) 261-3175
E-mail:
mackenzie.shea@klgates.com
David.mawhinney@klgates.com
Proposed counsel to the Chapter 11 Trustee

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