Firefighters Pension & Relief Fund of New Orleans ex rel. Situated v. Bulmahn
| Decision Date | 21 November 2014 |
| Docket Number | CIVIL ACTION NO: 13-3935 SECTION: R,c/w 13-6233 SECTION: R,c/w 13-6084 SECTION: R,c/w 13-6083 SECTION: R |
| Parties | FIREFIGHTERS PENSION & RELIEF FUND OF THE CITY OF NEW ORLEANS, Individually and on Behalf of All Others Similarly Situated v. T. PAUL BULMAHN, ET AL. |
| Court | U.S. District Court — Eastern District of Louisiana |
This case is a securities class action brought on behalf of all persons who purchased the common stock of ATP Oil & Gas Corporation in the public market during the period December 16, 2010 through ATP's bankruptcy filing on August 17, 2012. Because it is in bankruptcy proceedings, ATP is not named as a defendant in this action. Instead, court-appointed Lead Plaintiffs Brian M. Neiman, William R. Kruse, and the Moshe Issac Foundation ("Lead Plaintiffs"), individually and on behalf of the class, are suing ATP's senior executives, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as SEC Rule 10b-5 promulgated thereunder. Defendants T. Paul Buhlman, Albert L. Reese, Jr., Keith R. Godwin, and Leland E. Tate filed a motion to dismiss plaintiffs' Consolidated Class Action Complaint for failure to state a claim on March 27, 2014.1 For the reasons that follow, the Court grants the motion with leave to amend.
Before filing for bankruptcy in 2012, ATP engaged in the acquisition, development, and production of oil and natural gas properties.2 The company acquired and developed properties with proven undeveloped reserves in the Gulf of Mexico and the North Sea, but the majority of the company's business was in the Gulf of Mexico.3 As of December 31, 2009, ATP had leasehold and other interests in 62 offshore blocks and 104 wells in the Gulf of Mexico, of which ATP was then operating a total of 93.4 As of March 16, 2010, ATP owned an interest in 36 oil platforms, including two floating production facilities: the ATP Innovator, located in the Gulf of Mexico at the company's Gomez Hub, and the ATP Titan, also in the Gulf of Mexico at ATP's Telemark Hub.5 When ATP filed for bankruptcy, construction on a third floating production facility, the Octabuoy, was underway in China for initial deployment at the company's Cheviot Hub in the North Sea.6 ATP described its floating production facilities as "fundamental to [its] hub strategy and business plan."7
On April 19, 2010, ATP raised $1.5 billion by selling unregistered private notes to institutional investors in a transaction exempt from the registration requirements under the Securities Act.8 On April 20, 2010, the day following the private note offering, the drilling rig Deepwater Horizon exploded and sank in the Gulf of Mexico, fracturing the well's pipe and creating "the largest oil spill in the history of the Gulf of Mexico."9 In response, the U.S. Department of the Interior issued two moratoria that halted all drilling at depths greater than 500 feet between May 6, 2010 and October 12, 2010.10 Although the moratoria were eventually lifted, the government instituted new rules and regulations that conditioned the issuance of drilling permits on additional testing, training, and compliance with new safety requirements.11 The Minerals Management Service did not issue any drilling permits until February 2011, prompting members of the oil and gas industry to refer to this period of permitting delays as the "de facto moratorium."12 ATP did not receive its first permit after the moratoria until March 18, 2011. Together, these three moratoria halted all of ATP's exploration and development operations in the Gulf of Mexico through early2011.13 The delay resulted in tens of millions of dollars in interruption and standby costs for ATP, while at the same time delaying anticipated revenues from the wells ATP had planned to complete and bring on line for production.14 ATP had spent in excess of $1 billion in infrastructure construction and other capital expenditures related to five such wells.15
Between April and December 2011, ATP issued three press releases announcing the drilling and completion of two wells at Green Canyon ("GC") Block 300 ("Clipper") in the deepwater Gulf of Mexico.16 Upon completion of the "Clipper Project," ATP announced in its December 12, 2011 press release that tests of the two wells revealed that they were capable of producing 22,000 barrels oil equivalent ("Boe"), per day.17 Each of these press releases was signed by Bulmahn and Reese.
In order to monetize the value in those reserves, ATP needed to build a pipeline from the Clipper wells to the nearest production platform, which was 16 miles away. The December press release stated that ATP expected to complete the pipeline in the third quarter of 2012.18
On or about October 12, 2010, ATP filed a Registration Statement and Prospectus with the Securities and Exchange Commission ("SEC"), indicating its intent to exchange the $1.5 billion in unregistered private notes for equivalent registered notes.19 Defendants Bulmahn, Reese, and Godwin signed the Registration Statement. Following a December 14, 2010 amendment, the Registration Statement was declared effective by the SEC, and the Exchange was effected on December 16, 2010.20
The Prospectus21 contained a section titled "Risks Related to Our Business," which provided a detailed account of the Deepwater Horizon explosion and the resulting moratoria. It also described the new regulatory requirements for obtaining drilling permits. It cautioned that "[t]he U.S. governmental and regulatory response to the Deepwater Horizon drilling rig accident and resulting oil spill could have a prolonged and material adverse impact on our Gulf of Mexico operations." It also indicated that "[a]lthough Moratorium II has been lifted, we cannot predict with certainty when permits will be granted under the new requirements." As discussed in further detail below, the Prospectus went on to provide a lengthy explanation of these risks. Importantly, it contained the following warning:
On September 26, 2011, Moody's published a report stating that ATP had a "high likelihood" of restructuring.25 Bloomberg News reported on the Moody's analysis on September 29, 2011 in an article titled "ATP $1.5 Billion of Debt Falls to Yield 23.4%, Trace Data Show":
ATP shows a "high likelihood" it may face some type of restructuring, analysts from Moody's Investors Service wrote in a Sept. 26 report. The company's asset base and cash flows are "not sufficient to cover" the second-lien notes, according to the report. Moody's assigns a Caa2 grade to ATP with a "negative" outlook.26
The same day, Bloomberg News also published defendant Reese's response in an article titled "ATP Says New Gulf of Mexico Oil Wells to Stave Off Default."27 The article stated in part:
Lead Plaintiffs allege that contrary to Reese's words of assurance, "everything was not fine." According to data available on the Bureau of Ocean Energy Management's website, MC Block 941, which already contained two producing wells, produced an average of 9,379 Boe per day in July 2011, the last full month before ATP announced its first production from Well #4.29 In September 2011, the first full month after Well #4's first production, Block 941 produced an average of 12,117 Boe per day. Plaintiffs reason that if, consistent with the initial production rate, Well #4 had continued to produce 7,000 Boe per day, Block 941's overall daily production in September should have been 16,692 Boe per day.30 Plaintiffs apparently assume that production from the two other wells at Block 941 remained constant, so that Well #4 must...
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