Restructuring

On February 20, 2024, the Court of Appeals for the Fifth Circuit affirmed the District Court’s decision finding certain appeals of the confirmation order approving Fieldwood Energy LLC’s chapter 11 plan (the “Plan”) to be “statutorily moot.” Weil, as bankruptcy counsel to Fieldwood during its chapter 11 case, defended the appeals. The Fifth Circuit’s opinion rejected arguments from several sureties who appealed the sale of estate assets “free and clear” of the sureties’ subrogation rights under the Plan. The sureties argued recent Supreme Court precedent limited the protections afforded under Section 363(m) of the Bankruptcy Code, which provides, in relevant part, that the “reversal or modification on appeal” of a sale authorized under Section 363 does not affect the “validity of the sale” unless the sale order is stayed pending an appeal. In doing so, the Fifth Circuit reinforced long-standing principles protecting the finality interest of bankruptcy sales, which is fundamental to maximizing value in chapter 11.

Before its bankruptcy, Fieldwood was among the largest oil and gas exploration and production companies operating in the Gulf of Mexico. Its portfolio of properties included interests in offshore oil and gas leases, including more than 300 platforms and 1,000 wells. It filed chapter 11 with nearly $2 billion in funded debt and billions of dollars in decommissioning obligations associated with its offshore assets.

Over the course of 18 months, Weil, on behalf of Fieldwood, negotiated a complex chapter 11 plan with multiple stakeholders, including the U.S. Government, that reduced Fieldwood’s funded debt by approximately $1.5 billion and resolved 100% of Fieldwood’s decommissioning obligations at no cost to the U.S. taxpayer. As a part of the Plan, certain of Fieldwood’s offshore assets were sold through a credit bid to its prepetition lenders for approximately $1 billion.

The Bankruptcy Court for the Southern District of Texas confirmed the Plan on June 25, 2021, and the credit bid sale closed shortly thereafter. Certain sureties appealed the confirmation order approving the Plan. The primary dispute on appeal was whether Fieldwood’s assets could be sold “free and clear” of the subrogation rights of the sureties who issued bonds securing Fieldwood’s decommissioning obligations.

After Weil successfully argued at the District Court that the appeals were statutorily moot, the sureties appealed to the Fifth Circuit. The Fifth Circuit’s decision affirming the District Court explained that the limits imposed by Section 363(m) “serve the interests of finality and certainty, and by extension, encourage the bidding for estate property.” The Court held that recent Supreme Court precedent, MOAC Mall Holdings LLC v. Transform Holdco LLC, did not narrow “the effect of Section 363(m) other than to clarify that a party can lose the benefit of its terms.” Unlike MOAC, neither Fieldwood nor the purchaser of its offshore assets ever suggested it would waive Section 363(m) on appeal. The Fifth Circuit held “Section 363(m) is alive and well and waivable. It was not waived here.” Further, the Fifth Circuit ruled that the record supported the District Court’s determination that the “free and clear” provision was integral to the credit bid sale and thus the appeal was statutorily moot under Section 363(m).

The Weil team was led by Restructuring partner Jessica Liou, who argued the appeal, Restructuring partner Alfredo R. Perez (retired), and Appeals and Strategic Counseling Co-Head Zack Tripp, and included Restructuring partner Cliff Carlson and Restructuring associate Jason George.