COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2014 |
Commitments and Contingencies Disclosure [Abstract] | ' |
COMMITMENTS AND CONTINGENCIES | ' |
COMMITMENTS AND CONTINGENCIES |
General |
Due to the nature of our business, some contamination of the real estate property owned or leased by us is possible. Environmental site assessment of the property would be necessary to adequately determine remediation costs, if any. Management does not consider the amounts that would result from any environmental site assessments to be significant to the consolidated financial position or results of our operations. Accordingly, no provision for potential remediation costs is reflected in the accompanying consolidated financial statements. We are subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on our consolidated financial position or results of operations. |
West Delta 32 |
We continue to go through the discovery phases of the civil litigation of the personal injury lawsuits filed as a result of the November 16, 2012, explosion and fire which occurred on our West Delta 32-E platform, located in the Gulf of Mexico approximately 17 miles southeast of Grand Isle, Louisiana. Several civil lawsuits have been filed as a result of the West Delta 32 Incident. The lawsuits that were filed in Texas have been transferred to the United States District Court for the Eastern District of Louisiana, and all cases have been consolidated for discovery purposes in that Court. The first plaintiff’s case will be tried in either December of 2014 or January of 2015. All civil cases filed as a result of the West Delta 32 Incident are being defended by insurance defense counsel. We believe we have strong defenses and cross-claims and intend to defend ourselves. |
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Thomas Andrus, et al |
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As previously reported, six investors in Black Elk Energy, LLC (“BEE”) filed a purported derivative complaint on behalf of BEE in the Supreme Court of the State of New York, County of New York, against the Company, John Hoffman, Iron Island Technologies Inc., and various entities and individuals associated with the Company’s majority unit owner (the “Platinum Defendants”). The lawsuit seeks unspecified damages allegedly arising from (1) the dilution of BEE’s ownership interest in the Company through various financing transactions with the Platinum Defendants and the issuance of membership units under management and employee incentive programs; and (2) the alleged mismanagement of the Company in connection with certain alleged safety violations and the West Delta 32 Incident. We believe there are strong defenses to the claims asserted in the lawsuit, and the Company intends to defend the case vigorously. |
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On or about September 24, 2013, Plaintiffs filed a motion for a preliminary injunction to restrain a portion of the proceeds of the Company’s proposed sale of certain oil fields in the Gulf of Mexico. The Court denied the motion on November 15, 2013. On or about November 20, 2013, we filed a motion to dismiss the complaint in its entirety, inter alia, on the grounds that (i) the claims fail to state a cause of action; (ii) the claims are refuted by documentary evidence; (iii) plaintiffs, who are not members of the Company, lack standing to assert a claim for mismanagement of the Company; and (iv) certain claims are barred by the statute of limitations. |
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Oral arguments were heard on July 24, 2014. At that time, the judge has asked for additional briefing on the Conflicts of Law issue. We had a conference call with the Court on Friday, September 5, 2014 to set a schedule for the supplemental briefs the Court has requested. Our revised brief was due and submitted on or about September 10, 2014. Oral arguments on the motions to dismiss were heard on November 6, 2014 and we are awaiting the judge's ruling. |
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Grand Isle Shipyard ("GIS") Matters |
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On April 29, 2013, Grand Isle Shipyards, Inc. (“GIS”) sued BEEOO, Enviro Tech Systems, LLC, Wood Group USA, Inc., and Compass Engineering & Consultants, LLC in the United States District Court for the Eastern District of Louisiana for damages it alleged incurred in connection with the West Delta 32 Incident. GIS specifically sought damages for loss of property and equipment, expenses in the form of indemnity and medical benefits paid to or on behalf of its employees, and for unpaid invoices in connection with the work it performed at West Delta 32. Upon motion by BEEOO, however, the court dismissed GIS’ lawsuit and ordered GIS and BEEOO to first attempt to resolve their claims through mediation which took place on November 12, 2013. Since the mediation was unsuccessful, the Parties have now agreed to enter into binding Arbitration pursuant to and in accordance with the MSA. |
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Invoice Arbitration - On October 8, 2014, Black Elk submitted to the Arbitrator its initial briefing on all affirmative claims and defenses. This briefing was drafted and submitted pursuant to an order from the Arbitrator. GIS ignored this order to some degree and submitted Motions for summary Judgment on that date instead. GIS asked for summary judgment on all of its claims and confusingly argued that Black Elk is not entitled to summary judgment on its affirmative claims (Black Elk obviously has not sought summary judgment on its affirmative claims). On October 17, 2014, the parties participated in a telephonic hearing with the Arbitrator regarding the briefing and preexisting motions. The Arbitrator (1) granted Black Elk the right to conduct an audit pursuant to the MSA between the parties, (2) granted Black Elk limited discovery concerning the use of D&R workers on Black Elk platforms, and (3) stated that he would not be granting any dispositive motions in the case (i.e. GIS’ Motions for Summary Judgment). |
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The arbitration, currently scheduled for December 1, 2014, has been delayed until the new year. This was a necessary step as both parties will need to take depositions and aggregate discovery before an arbitration can take place. |
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Platform Arbitration - The arbitration case for damages to the West Delta 32 Platform is scheduled for hearing before a three-arbitrator panel on May 12, 2015. The arbitration proceeding initiated by Black Elk against Compass Engineering & Consultants, LLC for damages arising from the explosion of the WD-32 Platform has been abated pending resolution of Compass’ separate lawsuit filed in the United States District for the Western District of Louisiana seeking a declaration that it was not subjected to arbitration. We are currently in the process of drafting discovery to GIS concerning D&R Resources, LLC's employees' rates, duties, and training. We will continue to defend ourselves vigorously. |
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Vistar Oil Texas, LLC Joint Venture |
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On April 16, 2014, Vistar Oil Texas LLC (“Vistar”) filed a petition against Black Elk in Harris County District Court. This suit alleges that Black Elk breached an Acquisition and Participation Agreement and a Joint Operating Agreement between the parties, primarily by failing to provide Vistar with the funds required to bring several wells into operation in Wilson County, Texas. Vistar alleges damages of approximately $6,500,000, certain lease acquisition costs and promissory note payments required to cover liens placed on the wells. Vistar further alleges that Black Elk is in breach by refusing to provide approximately $10,350,000 to Vistar to acquire additional property. This case is in discovery. We believe we have strong potential defenses and have submitted counterclaims, and intend to defend ourselves vigorously. |
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Arthur Garza III |
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On August 31, 2014, Arthur Garza, former Chief Technical Officer of Black Elk Energy Offshore Operations, LLC, filed suit against Black Elk Energy Offshore Operations for payment of severance under his employment agreement. This case is in discovery. We believe we have strong potential defenses and intend to defend ourselves vigorously. |
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Operating Leases |
We lease office space and certain equipment under non-cancellable operating lease agreements that expire on various dates through 2020. |
Approximate future minimum lease payments for operating leases at September 30, 2014 were as follows: |
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Period Ending September 30, | (in thousands) |
2015 | $ | 4,056 | |
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2016 | 2,072 | |
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2017 | 1,784 | |
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2018 | 1,655 | |
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2019 | 1,590 | |
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Thereafter | 1,941 | |
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| $ | 13,098 | |
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Escrow Accounts |
Pursuant to the purchase agreement from W&T Offshore, Inc. (the “W&T Acquisition”), we are required to fund two escrow accounts (the “W&T Escrow Accounts”), relating to the operating and non-operating properties that were acquired in maximum aggregate amount of $63.8 million ($32.6 million operated and $31.2 million non-operated) for future P&A costs that may be incurred on such properties. As of November 2010, we fully funded the operating escrow account in the amount of $32.6 million and the payment schedule for the Non-Operated Properties Escrow Account was amended and commenced on December 2011. As of September 30, 2014, we have funded $20.5 million into the non-operating escrow account, leaving $10.7 million to be funded through May 1, 2017. |
The obligations under the W&T Escrow Accounts are fully guaranteed by an affiliate of Platinum. W&T Offshore Inc. (“W&T”) has a first lien on the entirety of the W&T Escrow Accounts, and BP Corporation North America Inc. and Platinum are pari passu second lien holders. Once P&A obligations with respect to the interest in properties acquired from the W&T Acquisition have been fully satisfied, the lien on the W&T Escrow Accounts will be automatically extinguished. W&T also has a second priority lien with respect to the interest in properties acquired from the W&T Acquisition (with Platinum and BNP Paribas sharing a first priority lien), which lien will be released once the W&T Escrow Accounts have been fully funded. |
On December 19, 2012, we entered into a Third Amendment to Purchase and Sale Agreement (the “Third Amendment”) with W&T. Pursuant to the Third Amendment, we caused performance bonds (the “ARGO Bonds”) in an aggregate amount of $32.6 million to be issued by Argonaut Insurance Company to W&T to guaranty our performance of certain plugging and abandonment obligations. Upon receipt of the ARGO Bonds, W&T (i) released its rights to any money held in an escrow account established to secure our performance of certain plugging and abandonment obligations with respect to the Operated Properties Escrow Account, (ii) released the security interest and deposit account control agreement formerly securing its rights in the Operated Properties Escrow Account and (iii) authorized the escrow agent to release such funds from the Operated Properties Escrow Account to or at our direction. In addition, we and W&T agreed that until the funding of an escrow account established to our performance of certain plugging and abandonment obligations with respect to certain non-operated properties is complete, we may not obtain reductions of the ARGO Bonds under any circumstances without W&T’s consent. As of September 30, 2014, we no longer use ARGO Bonds as these are now backed by cash collateral. |
Pursuant to the purchase agreement for the Maritech acquisition, we are required to fund an escrow account (the “Maritech Escrow Account”), relating to the properties that were acquired, of $13.1 million to be used for future P&A costs that may be incurred on such properties. This escrow obligation was fully funded in February 2014. |
In regards to the Merit acquisition, we are required to establish an escrow account to secure the performance of our P&A obligations and other indemnity obligations with respect to P&A and/or decommissioning of the acquired wells and facilities. We paid $33 million in surety bonds at closing and are required to, over time, deposit in the escrow account an amount equal to $60 million, which is to be paid in 30 equal monthly installments payable on the first day of each month commencing on June 1, 2011. This escrow obligation was fully funded in November 2013. |