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UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA

IN RE: VIRGIN OFFSHORE USA, INC., DEBTOR

CASE NO. 11-13028 CHAPTER 11 CHIEF JUDGE ELIZABETH W. MAGNER

FIRST AMENDED DISCLOSURE STATEMENT IN SUPPORT OF CHAPTER 11 PLAN OF REORGANIZATION DATED MARCH 28, 2013 SUBMITTED BY GERALD H. SCHIFF, CHAPTER 11 TRUSTEE FOR THE ESTATE OF VIRGIN OFFSHORE U.S.A., INC.

GORDON, ARATA, MCCOLLAM, DUPLANTIS & EAGAN, LLC By: /s/Louis M. Phillips Louis M. Phillips (La. Bar No. 10505) GORDON, ARATA, MCCOLLAM, DUPLANTIS, & EAGAN, LLC One American Place 301 Main Street, Suite 1600 Baton Rouge, LA 70825 Phone: (225) 381-9643 Email: lphillips@gordonarata.com - AND Patrick Rick M. Shelby (La Bar. No. 31963) James D. Rhorer (La. Bar No. 34052) 201 St. Charles Avenue, 40th Floor New Orleans, LA 70170-4000 Telephone: (504) 582-1111 Email: pshelby@gordonarata.com

- AND Armistead M. Long (La. Bar No. 33949) GORDON, ARATA, MCCOLLAM, DUPLANTIS, & EAGAN, LLC 400 East Kaliste Saloom Road, Suite 4200 Lafayette, LA 70508 Phone: (337) 237-0132 Facsimile: (337) 237-3451 Email: along@gordonarata.com Attorneys for Gerald H. Schiff, Chapter 11 Trustee

Dated: March 28, 2013

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TABLE OF CONTENTS I. SUMMARY INFORMATION ON CHAPTER 11 ............................................ 3 A. B. C. D. E. F. G. WHO IS OFFSHORE?......................................................................................... 3 HOW LONG HAS OFFSHORE BEEN IN CHAPTER 11? ............................ 3 HAS A TRUSTEE BEEN APPOINTED? .......................................................... 3 HAS A COMMITTEE OF UNSECURED CREDITORS BEEN APPOINTED? ....................................................................................................... 3 WHAT IS OFFSHORE ATTEMPTING TO DO IN CHAPTER 11? ............. 3 HAS A PLAN OF REORGANIZATION BEEN PROPOSED?....................... 4 IF THE PLAN OF REORGANIZATION IS THE DOCUMENT WHICH GOVERNS HOW A CLAIM WILL BE TREATED, WHY AM I RECEIVING THIS DISCLOSURE STATEMENT? ............................. 4 HAS THIS DISCLOSURE STATEMENT BEEN APPROVED BY THE BANKRUPTCY COURT? ......................................................................... 4 HOW DO I DETERMINE WHICH CLASS I AM IN? ................................... 4 WHY IS CONFIRMATION OF A PLAN OF REORGANIZATION IMPORTANT?...................................................................................................... 5 WHAT IS NECESSARY TO CONFIRM A PLAN OF REORGANIZATION? ......................................................................................... 5 AM I ENTITLED TO VOTE ON THE PLAN? ............................................... 5 WHEN IS THE DEADLINE BY WHICH I NEED TO RETURN MY BALLOT? .............................................................................................................. 5

H. I. J. K. L. M. II. III.

INTRODUCTION................................................................................................. 5 VOTING PROCEDURES AND REQUIREMENTS ........................................ 7 A. B. C. D. Ballots and Voting Deadline ................................................................................. 7 Creditors Solicited to Vote ................................................................................... 8 Definition of Impairment ..................................................................................... 9 Classes Impaired Under the Plan ...................................................................... 10

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E. F. IV.

Vote Required for Class Acceptance ................................................................. 10 Distributions Only to Holders of Allowed Claims ........................................... 10

CONFIRMATION OF THE PLAN .................................................................. 10 A. B. Confirmation Hearing ........................................................................................ 10 Requirements for Confirmation of the Plan..................................................... 11 1. 2. 3. Feasibility.................................................................................................. 11 Best Interests Test ..................................................................................... 12 Fair and Equitable Test (Cramdown) .................................................... 12

V.

GENERAL INFORMATION ............................................................................ 13 A. B. History of Offshore, Debt, Management and Corporate Structure ............... 13 Events Leading to Offshores Bankruptcy Case .............................................. 14

VI.

OFFSHORE ASSETS, P&A LIABILITY and claims analysis ...................... 16 A. Assets .................................................................................................................... 16 1.
a. b. c. d. e.

Existing Oil and Gas Assets and Producing Wells............................... 17

EASTCAMERON2............................................................................................................. 19 EASTCAMERON219......................................................................................................... 19 EMPIRE .............................................................................................................................. 20 SHIPSHOAL153/154...................................................................................................... 20 WESTCAMERON78 .......................................................................................................... 20

2. B. C.

Expired Leases ........................................................................................ 21

P&A Liability ...................................................................................................... 21 Claims Analysis ................................................................................................... 25 1. 2. 3. Empire Secured Claims .......................................................................... 26 Unsecured/Undisputed General Unsecured Claims ............................ 27 Filed Claims ............................................................................................. 27

VII.

DESCRIPTION OF THE PLAN ....................................................................... 28


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A. B.

General ................................................................................................................. 28 Purpose and Summary of Plan and the Offshore Plan Trust ......................... 28

VIII. SIGNIFICANT EVENTS DURING OFFSHORES BANKRUPTCY CASE ............................................................................................................................... 29 A. B. C. D. E. F. G. H. I. J. K. L. IX. Involuntary Petition ............................................................................................ 29 Appointment of the Trustee ............................................................................... 29 Schedules, Statement of Financial Affairs and 341 Creditors Meeting ......... 30 Retention of Professionals by the Trustee ........................................................ 30 Oil/Offshore Settlement ...................................................................................... 31 Sooner/Specialty Settlement ............................................................................... 32 Lien Claimants Adversary Proceeding ............................................................. 33 D&O Litigation ................................................................................................... 34 Assumption of Unexpired Oil and Gas Leases ................................................. 34 Assumption of Master License Agreement for Geophysical Data.................. 35 Claims Bar Date .................................................................................................. 37 Monthly Operating Reports ............................................................................... 37

SUMMARY OF THE PLAN TERMS CONCERNING CLASSIFICATION AND TREATMENT OF CLAIMS, ACCEPTANCE OR REJECTION OF PLAN, DISTRIBUTIONS, AND DISPUTED CLAIMS ................................. 37 A. B. General ................................................................................................................. 37 Unclassified Claims ............................................................................................. 38 1. 2. 3. C. Administrative Expense Claims ................................................................ 38 Priority Tax Claims ................................................................................... 40 Other ......................................................................................................... 40

Classified Claims and Treatment Summary .................................................. 40 1. CLASS 1 EMPIRE SECURED CLAIMS ............................................. 41

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(1) (2) (3)

Claim.................................................................................................................................41 Treatment......................................................................................................................... 41 Voting................................................................................................................................ 42

2.
(1) (2) (3)

CLASS 2 RLI INSURANCE CLAIM ................................................... 42

Claim.................................................................................................................................42 Treatment......................................................................................................................... 42 Voting................................................................................................................................ 42

3.
(1) (2) (3)

CLASS 3 UNSECURED CLAIMS ....................................................... 42

Claim.................................................................................................................................42 Treatment......................................................................................................................... 42 Voting................................................................................................................................ 44

4.
(1) (2) (3)

CLASS 4 EQUITY INTERESTS .......................................................... 44

Classification..................................................................................................................... 44 Treatment......................................................................................................................... 44 Voting................................................................................................................................ 44

X.

PROCEDURES FOR RESOLVING AND TREATING CONTESTED AND DISPUTED CLAIMS ......................................................................................... 44 A. B. C. D. Prosecution of Objections to Claims ................................................................. 44 Allowance of Claims ........................................................................................... 45 Controversy Concerning Impairment............................................................... 45 Payments and Distributions on Disputed Claims and Class 3 Claims ........... 45

XI. XII.

EXECUTORY CONTRACTS AND UNEXPIRED LEASES ........................ 46 MEANS OF IMPLEMENTATION OF THE PLAN ...................................... 47 A. B. Operation of Reorganized Offshore Post-Effective Date ................................ 47 The Offshore Equity Trust and Appointment, Powers and Removal of the Offshore Equity Trustee .............................................................................. 48 i. ii. Establishment of the Offshore Equity Trust ........................................ 48 Purpose of the Offshore Equity Trust................................................... 49

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iii. iv. v. vi. vii. C. D. E.

Issuance of Equity by the Debtor to the Offshore Equity Trust......... 49 Appointment of and Compensation for the Offshore Equity Trustee ..................................................................................................... 50 Powers and Duties of the Offshore Equity Trustee ............................. 50 Indemnification of the Offshore Equity Trustee .................................. 50 Tax Treatment of the Offshore Equity Trust ....................................... 51

Offshore Equity Trust Distributions ................................................................. 51 Term and Termination of the Offshore Equity Trust and Offshore Equity Trustee ..................................................................................................... 53 Causes of Action and Avoidance Actions.......................................................... 54

XIII. SUMMARY OF PLAN TERMS CONCERNING CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN, EFFECT OF CONFIRMATION OF PLAN, AND EFFECTIVE DATE ............................. 55 A. B. The Effective Date ............................................................................................... 55 Conditions Precedent to Effective Date ............................................................ 55 1. 2. 3. C. D. Confirmation Order ................................................................................... 55 Documents ................................................................................................ 55 Authorizations ........................................................................................... 56

Waiver of Conditions .......................................................................................... 56 Effects of Confirmation ...................................................................................... 56 1. 2. 3. 4. 5. Assets of the Debtor .................................................................................. 56 Cancellation of Class 4 Equity Interests ................................................... 56 Issuance of New Equity ............................................................................ 56 Conversion of Allowed Class 3 General Unsecured Claims into Beneficial Interests in the Offshore Equity Trust ..................................... 57 Findings by the Bankruptcy Court ............................................................ 57

XIV. DISCHARGE, RELEASE, INJUNCTION, AND RELATED PROVISIONS ............................................................................................................................... 58


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A. B. C. D. E. F. G. H. I. J. K. L. M. N. XV.

Discharge of Debtor ............................................................................................ 58 Injunction............................................................................................................. 58 Exculpations ........................................................................................................ 58 Indemnification Obligations .............................................................................. 59 Limited Release ................................................................................................... 59 Releases by Consenting Parties.......................................................................... 60 Retention of Jurisdiction .................................................................................... 60 Modification of the Plan ..................................................................................... 62 Successors and Assigns ....................................................................................... 62 Reservation of Rights .......................................................................................... 62 Governing Law .................................................................................................... 62 No Admission or Waivers ................................................................................... 62 Continuing Viability of Other Orders/Agreements ......................................... 62 Limitations on Liability. ..................................................................................... 63

FEASIBILITY OF THE PLAN AND LIQUIDATION ANALYSIS ............. 63

XVI. MATERIAL UNCERTAINTIES ...................................................................... 64 A. B. C. D. Uncertainty Regarding Objections to Claims .................................................. 65 Uncertainty Regarding Acceptance of the Plan ............................................... 65 Uncertainty Regarding the Continued Operation of Existing Oil And Gas Assets and Liquidation ............................................................................... 65 Other Uncertainties ............................................................................................ 66

XVII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN66 A. B. C. Introduction ......................................................................................................... 66 IRS Circular 230 Disclosure .............................................................................. 67 Consequences to Holders of Claims .................................................................. 67 1. Realization and Recognition of Gain or Loss in General ......................... 67
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2. 3. D.

Accrued Interest ........................................................................................ 68 Withholding .............................................................................................. 68

Consequences to Offshore or Reorganized Offshore ....................................... 68 1. 2. 3. Discharge-of-Indebtedness Income Generally ..................................... 68 Utilization of Net Operating Loss Carryovers ..................................... 69 Alternative Minimum Tax ..................................................................... 70

XVIII.CONCLUSION ................................................................................................... 71 XIX. RECOMMENDATION OF THE TRUSTEE .................................................. 71

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IMPORTANT This First Amended Disclosure Statement (the Disclosure Statement) in Support of the FIRST AMENDED CHAPTER 11 PLAN OF REORGANIZATION DATED MARCH 28, 2013 SUBMITTED BY GERALD H. SCHIFF, CHAPTER 11 TRUSTEE FOR THE ESTATE OF VIRGIN OFFSHORE U.S.A., INC. (the Plan) has been prepared by counsel for Gerald H. Schiff (the Trustee), Chapter 11 Trustee for the Bankruptcy Estate of Virgin Offshore U.S.A., Inc. (Offshore or Debtor). This Disclosure Statement describes the terms and provisions of the Plan. The Chapter 11 bankruptcy case of Offshore is pending in the United States Bankruptcy Court for the Eastern District of Louisiana (the Bankruptcy Court) under Chapter 11 of Title 11, United States Code (the Bankruptcy Code). The Trustee believes that the Plan provides the best opportunity and mechanism for maximizing the recovery of all Holders of all Claims. A copy of the Plan is attached hereto as Exhibit A and should be reviewed carefully. THIS DISCLOSURE STATEMENT, TOGETHER WITH THE PLAN, WHICH IS ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE AS IF FULLY SET FORTH HEREIN, SHOULD BE READ IN THEIR ENTIRETY. FOR THE CONVENIENCE OF CREDITORS AND HOLDERS OF EQUITY INTERESTS, THE TERMS OF THE PLAN ARE SUMMARIZED IN THIS DISCLOSURE STATEMENT, BUT THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE PLAN ITSELF, WHICH IS CONTROLLING IN THE EVENT OF ANY INCONSISTENCY. THIS DISCLOSURE STATEMENT, INCLUDING ITS EXHIBITS, IS THE ONLY DOCUMENT AUTHORIZED BY THE BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES UNDER THE PLAN. MANY OF THE REPRESENTATIONS AND FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT ABOUT THE DEBTOR HAVE BEEN OBTAINED FROM DOCUMENTS AND INFORMATION PREPARED BY OR ON BEHALF OF THE DEBTOR. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE OF THIS DISCLOSURE STATEMENT UNLESS ANOTHER TIME IS SPECIFIED. THE DELIVERY OR FILING OF THIS DISCLOSURE STATEMENT SHALL UNDER NO CIRCUMSTANCES CONSTITUTE A REPRESENTATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT SINCE THE DATE OF COMPILATION OF THIS DISCLOSURE STATEMENT AND THE MATERIALS RELIED UPON IN THE PREPARATION OF THIS DISCLOSURE STATEMENT. THE TRUSTEE BELIEVES THAT THIS INFORMATION IS RELIABLE, BUT THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS NOT BEEN AUDITED BY AN INDEPENDENT THIRD PARTY. ALTHOUGH EVERY REASONABLE EFFORT HAS BEEN MADE TO PRESENT ACCURATE INFORMATION, THE ACCURACY OF THIS INFORMATION CANNOT BE GUARANTEED.

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FURTHER, A CAPITALIZED TERM USED IN THIS DISCLOSURE STATEMENT AND NOT DEFINED HEREIN HAS THE MEANING ASCRIBED TO THAT TERM IN THE PLAN. ALSO, IN THE EVENT OF ANY DISCREPANCY BETWEEN A TERM EMPLOYED HEREIN AND IN THE PLAN, THE MEANING ASCRIBED TO SUCH TERM IN THE PLAN SHALL CONTROL. The Trustee urges those Holders of Allowed Claims entitled to vote upon the Plan to vote in favor of the Plan. /s/ Gerald H. Schiff Gerald H. Schiff, Chapter 11 Trustee

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I.

SUMMARY INFORMATION ON CHAPTER 11

This Disclosure Statement is offered in connection with solicitation of acceptances of the Plan. This Disclosure Statement is being provided in order to disclose important and necessary information to allow a reasonably informed decision by Creditors and Interest Holders exercising their right to vote on, or otherwise participate in, confirming the Plan. The purpose of this summary is to answer questions which are often asked by a party receiving a disclosure statement. Unless otherwise stated, the information contained herein is as of March 28, 2013, or as of any date as indicated within the exhibits to this Disclosure Statement. A. WHO IS OFFSHORE?

Offshore is a corporation incorporated under the laws of the State of Delaware. Offshore has one shareholder, Virgin Oil Company, Inc. (Virgin Oil). Virgin Oil is corporation incorporated under the laws of the State of Louisiana. Offshore has been in existence since December 6, 1999. According to documents filed in the chapter 11 bankruptcy case of Virgin Oil, Offshore was formed as a wholly owned subsidiary of Virgin Oil for the purpose of serving as Operator of properties to be acquired by Virgin Oil. These documents state that the business model of Virgin Oil and Offshore involved the purchase of oil and gas leases in the name of Offshore and further allege that when a decision to drill a well was made. Virgin Oil and Offshore would raise money from third party investors. B. HOW LONG HAS OFFSHORE BEEN IN CHAPTER 11?

On September 16, 2011, an involuntary petition was filed by Precision Drilling Company, LP, Dynamic Energy Services, LLC and Tanner Services, LLC and subsequently consented to by Offshore on October 6, 2011. The order for relief was entered on October 12, 2011 (the Order for Relief). C. HAS A TRUSTEE BEEN APPOINTED?

Yes. On October 6, 2011, Offshore filed a Motion to Appoint Chapter 11 Trustee which was granted by the Court on October 11, 2011.The Office of the United State Trustee nominated Gerald H. Schiff as the Trustee on October 13, 2011, and moved for an order approving the appointment of Gerald H. Schiff as the Trustee. On October 14, 2011, this Court entered an Order approving the appointment of Gerald H. Schiff as chapter 11 trustee of the Offshore Estate. D. No. E. WHAT IS OFFSHORE ATTEMPTING TO DO IN CHAPTER 11? HAS A COMMITTEE APPOINTED? OF UNSECURED CREDITORS BEEN

Chapter 11 is the principal reorganization chapter of the Bankruptcy Code. Under Chapter 11, a debtor is reorganizing its assets and liabilities to maximize the return to its
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creditors. Formulation and confirmation of a plan of reorganization, providing for such reorganization, is the principal purpose of the Chapter 11 process. The plan of reorganization is the legal document which sets forth the means by which holders of claims and equity interests against a debtor will be treated. F. HAS A PLAN OF REORGANIZATION BEEN PROPOSED?

Yes. The Plan is submitted herewith. See, Exhibit A. A capitalized term used in this Disclosure Statement and not defined herein has the meaning assigned to that term in the Plan. To the extent that it is necessary, the Trustee has redefined capitalized terms within the Disclosure Statement so that the meaning of such capitalized terms is consistent with Article I of the Plan. G. IF THE PLAN OF REORGANIZATION IS THE DOCUMENT WHICH GOVERNS HOW A CLAIM WILL BE TREATED, WHY AM I RECEIVING THIS DISCLOSURE STATEMENT?

In order to confirm a plan of reorganization, the Bankruptcy Code provides that proponents solicit acceptances of a proposed plan of reorganization. Before proponents can solicit such acceptances, the Bankruptcy Court must approve the information to be sent to the creditors and holders of equity interests, disclosing information to allow them to make informed judgments about the plan of reorganization. The purpose of this Disclosure Statement is to provide that information required by the Bankruptcy Code. H. HAS THIS DISCLOSURE STATEMENT BEEN APPROVED BY THE BANKRUPTCY COURT?

No. The Trustee is requesting the Bankruptcy Court to approve this Disclosure Statement at hearing on April 18, 2013, as containing information of a kind, and in sufficient detail, adequate to enable a hypothetical, reasonable investor typical of each class of Creditors, whose acceptance is being solicited, to make an informed judgment whether to vote to accept or reject the Plan. THIS DISCLOSURE STATEMENT, TOGETHER WITH THE PLAN WHICH IS ATTACHED HERETO, SHOULD BE READ IN ITS ENTIRETY. FOR THE CONVENIENCE OF CREDITORS AND HOLDERS OF EQUITY INTERESTS, THE TERMS OF THE PLAN ARE SUMMARIZED IN THIS DISCLOSURE STATEMENT, BUT THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE PLAN ITSELF, WHICH IS CONTROLLING IN THE EVENT OF ANY INCONSISTENCY. I. HOW DO I DETERMINE WHICH CLASS I AM IN?

You will find in the Plan a reference to the discussion of the Classes of Creditors and Equity Interests and the treatment provided to such Classes. Article VI of the Disclosure Statement explains, among other things, what Creditors or types of Creditor Claims and Equity Interests are in each Class, the estimated size of each Class, and estimated distributions to members of the Classes if the Plan is Confirmed. If you are unsure as to the Class in which your
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Claim or Equity Interest falls, you may need to consult an attorney. The Trustee does advise that you discuss with tax advisers the extent to which, if any, recovery of interest and any attendant recovery from or on account of the distributions to you would constitute taxable income to you. J. WHY IS CONFIRMATION OF A PLAN OF REORGANIZATION IMPORTANT?

Confirmation of a plan of reorganization is necessary for a debtor in Chapter 11 to provide the bankruptcy court-approved treatment to its creditors and interest holders under its plan. Confirmation of a plan of reorganization will also bind creditors, interest holders, the debtors, and other parties-in-interest, regardless of whether they have voted, voted against, or voted for the plan of reorganization. K. WHAT IS NECESSARY REORGANIZATION? TO CONFIRM A PLAN OF

Confirmation of a plan can be premised upon, among other things, the vote in favor of the plan of two-thirds in total dollar amount and a majority in number of claims actually voting in each voting class. (If the vote is insufficient, a bankruptcy court can still confirm the plan, but only upon being provided additional proof regarding the ultimate fairness of the plan to the creditors in accordance with the Bankruptcy Code). Confirmation can only be effected by a court order. L. AM I ENTITLED TO VOTE ON THE PLAN?

A Creditor of Offshore is not entitled to vote on the Plan unless its Claim or Equity Interest is IMPAIRED. Article II below (VOTING PROCEDURES AND REQUIREMENTS) contains an explanation of voting. Under the Plan, Holders of Allowed Claims and Equity Interests in Classes 1, 2, 3 and 4 are IMPAIRED, and, subject to the terms of this Disclosure Statement, the Plan, and applicable bankruptcy law regarding Disputed Claims, are entitled to vote on the Plan. M. WHEN IS THE DEADLINE BY WHICH I NEED TO RETURN MY BALLOT?

The deadline for returning your Ballot is 5:00 p.m. Central Time on ____________, 2013 (the Voting Deadline). Article III below contains further explanation. II. INTRODUCTION

The Trustee submits this Disclosure Statement under section 1125 of the Bankruptcy Code in connection with the solicitation of acceptances of the Plan. This Disclosure Statement, which includes the Plan as Exhibit A, will be transmitted to all Holders of Claims against and Equity Interests in Offshore. However, the Trustee is seeking votes only from Holders of Allowed Claims and Equity Interests in Impaired Classes 1, 2, 3 and 4.
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All persons receiving this Disclosure Statement and the Plan are urged to review fully the provisions of the Plan and all attached exhibits, in addition to reviewing this Disclosure Statement. This Disclosure Statement is not intended to replace careful review and analysis of the Plan. Rather, it is submitted as an aid and supplement in your review of the Plan and an effort to explain the terms and implications of the Plan on file with the Bankruptcy Court. Every effort has been made to explain fully the various aspects of the Plan as it may affect all Creditors and Interest Holders. If you have any questions, you may contact the Trustees legal counsel and every effort will be made to assist you. However, please be advised that counsel for the Trustee cannot provide you with legal advice, including, but not limited to, a determination of whether you possess a Claim or Equity Interest, the amount of any such Claim or Equity Interest, your ability to vote on the Plan, etc. Creditors and Interest Holders should read this Disclosure Statement in its entirety prior to voting on the Plan. No solicitation of votes on the Plan may be made, except pursuant to this Disclosure Statement and section 1125 of the Bankruptcy Code. No other party has been authorized to utilize any information concerning Offshore or their businesses, other than the information contained in this Disclosure Statement, to solicit votes on the Plan. Creditors and Interest Holders should not rely on any information relating to Offshore other than that contained in this Disclosure Statement and the Exhibits attached hereto. EXCEPT AS SET FORTH IN THIS DISCLOSURE STATEMENT AND THE EXHIBITS, REPRESENTATIONS CONCERNING OFFSHORE, THE ASSETS, THE LIABILITIES OR THE PLAN ARE NOT AUTHORIZED, NOR ARE ANY SUCH REPRESENTATIONS TO BE RELIED UPON IN ARRIVING AT A DECISION WITH RESPECT TO THE PLAN. ANY REPRESENTATIONS MADE TO SECURE ACCEPTANCE OR REJECTION OF THE PLAN OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD BE REPORTED TO COUNSEL FOR OFFSHORE. THE FACTUAL INFORMATION REGARDING OFFSHORE, INCLUDING THE ASSETS AND LIABILITIES OF OFFSHORE, HAS BEEN DERIVED FROM NUMEROUS SOURCES, INCLUDING, BUT NOT LIMITED TO OFFSHORES BOOKS AND RECORDS, SCHEDULES, AND DOCUMENTS SPECIFICALLY IDENTIFIED HEREIN. THE TRUSTEE ALSO COMPILED THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT FROM RECORDS AVAILABLE TO HIM, INCLUDING, BUT NOT LIMITED TO, PLEADINGS AND REPORTS ON FILE WITH THE BANKRUPTCY COURT, LOAN AGREEMENTS, BUSINESS RECORDS AND PLEADINGS AND REPORTS ON FILE IN LOUISIANA STATE AND FEDERAL COURTS. ANY APPROVAL BY THE BANKRUPTCY COURT OF THE DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR A GUARANTY OF THE ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER APPROVED NOR DISAPPROVED THE INFORMATION CONTAINED IN THE DISCLOSURE STATEMENT. THE SECURITIES AND EXCHANGE COMMISSION HAS ALSO NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. NEITHER THE TRUSTEE NOR COUNSEL FOR THE TRUSTEE CAN WARRANT NOR REPRESENT THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS WITHOUT INACCURACY. NEITHER THE TRUSTEE NOR HIS COUNSEL HAS VERIFIED THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, ALTHOUGH THEY DO NOT HAVE ACTUAL KNOWLEDGE OF ANY INACCURACIES. THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON BY ANY PERSON OR ENTITY FOR ANY PURPOSE OTHER THAN BY HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE ON THE PLAN IN DETERMINING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN. NOTHING CONTAINED HEREIN WILL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE TRUSTEE, OFFSHORE OR ANY OTHER PARTY. CERTAIN OF THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE FORWARD LOOKING PROJECTIONS AND FORECASTS BASED UPON CERTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. NOTHING CONTAINED IN THIS DISCLOSURE STATEMENT, EXPRESS OR IMPLIED, IS INTENDED TO GIVE RISE TO ANY COMMITMENT OR OBLIGATION OF THE TRUSTEE OR OFFSHORE OR WILL CONFER UPON ANY PERSON ANY RIGHTS, BENEFITS, OR REMEDIES OF ANY NATURE WHATSOEVER. EXCEPT AS OTHERWISE NOTED HEREIN, THE INFORMATION CONTAINED HEREIN IS GENERALLY INTENDED TO DESCRIBE FACTS AND CIRCUMSTANCES ONLY AS OF THE DATE OF THIS DISCLOSURE STATEMENT, AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR THE CONFIRMATION OF THE PLAN WILL CREATE ANY IMPLICATION, UNDER ANY CIRCUMSTANCES, THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS CORRECT AT ANY TIME AFTER THE DATE OF THIS DISCLOSURE STATEMENT OR THAT THE TRUSTEE OR OFFSHORE WILL BE UNDER ANY OBLIGATION TO UPDATE SUCH INFORMATION IN THE FUTURE. III. VOTING PROCEDURES AND REQUIREMENTS A. Ballots and Voting Deadline

A Ballot to be used for voting to accept or reject the Plan is enclosed with this Disclosure Statement and transmitted to all Creditors and Interest Holders entitled to vote. Creditors and Interest Holders should carefully review the Ballot and the instructions thereon, and must
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execute the Ballot, and return it to the address indicated thereon by the deadline to enable the Ballot to be considered for voting purposes. FOR YOUR VOTE TO BE COUNTED, YOU MUST COMPLETE THE BALLOT, INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOXES INDICATED ON THE BALLOT, AND SIGN AND RETURN THE BALLOT TO THE ADDRESS SET FORTH ON THE PRE-ADDRESSED ENVELOPE. IF A BALLOT IS RECEIVED AFTER THE VOTING DEADLINE, IT WILL NOT BE COUNTED. If you hold Claims in more than one Class under the Plan, you must return two (or more) completed Ballots, i.e., one for each Claim. You must vote the entirety of your Claim within a single Class under the Plan to either accept or reject the Plan. Accordingly, a Ballot (or multiple Ballots with respect to multiple Claims within a single class) that partially rejects and partially accepts the Plan will not be counted. The Ballot is for voting purposes only and does not constitute and shall not be deemed a proof of Claim or Equity Interest or an assertion of a Claim or Equity Interest. The Bankruptcy Court has directed that, in order to be counted for voting purposes, Ballots for the acceptance or rejection of the Plan must be received no later than 5:00 p.m., Central Time, on ____________, 2013, or as subsequently notified, at the following address: GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, LLC Attention: Virgin Offshore U.S.A., Inc. Claims Balloting 301 Main Street, Suite 1600 Baton Rouge, Louisiana 70801-1916 Telephone: (225) 381-9643 Facsimile: (225) 336-9763 ANY BALLOTS RECEIVED AFTER 5:00 P.M., CENTRAL TIME, ON ______________, 2013 WILL NOT BE COUNTED. After careful review of this Disclosure Statement and all exhibits attached hereto, please indicate your vote on the enclosed Ballot and return the Ballot in the enclosed self-addressed return envelope to be received by the date and time set forth above. B. Creditors Solicited to Vote

Any Creditor of Offshore with an Impaired Allowed Claim under the Plan is being solicited to vote, if either (i) its Claim has been scheduled by Offshore and such Claim is not scheduled as disputed, contingent, or unliquidated, or (ii) it has filed a Proof of Claim pursuant to section 501 of the Bankruptcy Code on or before the last date set by the Bankruptcy Court for such filings. Any Claim as to which an objection has been filed, if such objection is still pending on the voting date, is not entitled to have its vote counted, unless the Bankruptcy Court temporarily allows the Claim upon motion by such Creditor whose Claim has been objected to,
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in an amount which the Bankruptcy Court deems proper for the purpose of accepting or rejecting the Plan, subject to the terms of this Disclosure Statement and applicable law regarding the inability of Creditors whose Claims are subject to objection as of confirmation to have votes counted. Such motion must be heard and determined by the Bankruptcy Court prior to the date and time established by the Bankruptcy Court to confirm the Plan. In addition, a Creditors vote may be disregarded if the Bankruptcy Court determines that the Creditors acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code. C. Definition of Impairment

Under section 1124 of the Bankruptcy Code, a class of claims or equity interests is impaired under a plan of reorganization unless, with respect to each claim or equity interest of such class, the plan: 1. leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest; or notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default -a. cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code or of a kind that section 365(b)(2) of the Bankruptcy Code expressly does not require to be cured; reinstates the maturity of such claim or interest as such maturity existed before such default; compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; if such claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real property lease subject to section 365(b)(1)(A) of the Bankruptcy Code, compensates the holder of such claim or such interest (other than Offshore or an insider) for any actual pecuniary loss incurred by such holder as a result of such failure; and does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest.

2.

b.

c.

d.

e.

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D.

Classes Impaired Under the Plan

Allowed Claims in Classes 1, 2, 3 and 4 are IMPAIRED under the Plan. Thus, Holders of Claims and Equity Interests in Classes 1, 2, 3 and 4 are being solicited to accept or reject the Plan. The remaining Claimants whose Claims are either Administrative Claims or Unsecured Priority Claims and therefore are dealt with pursuant to section 1129(a)(9) of the Bankruptcy Code and compromise. The Trustee, however, specifically reserves the right to contest (1) the Impaired or Unimpaired status of any class under the Plan; and (2) whether any Ballots cast by such class should be allowed to be counted for purposes of Confirmation of the Plan. E. Vote Required for Class Acceptance

Acceptance of the Plan by a Class of Creditors will be obtained by the acceptance of the Plan by Holders of two-thirds in dollar amount and a majority in number of the Claims in any such Class, which actually cast Ballots for acceptance or rejection of the Plan. In other words, acceptance takes place only if two-thirds in amount and majority in number of the Creditors in a given class who vote cast their Ballots in favor of acceptance. F. Distributions Only to Holders of Allowed Claims

A Claim will receive a Distribution under the Plan only if it is an Allowed Claim. Allowed under the Plan shall mean, with respect to any Claim, a Claim (i) that has been listed by Offshore in its Schedules, as the same may from time to time be amended in accordance with Bankruptcy Rule 1009, other than Claims scheduled as contingent, unliquidated or disputed, or proof of which has been timely filed with the Bankruptcy Court on or prior to the Claims Bar Date and that is not a Disputed Claim, (ii) as to which a Final Order has been entered allowing such Claim or any portion thereof or (iii) that is deemed Allowed under the Plan. Any Claim allowed solely for the purpose of voting to accept or reject the Plan pursuant to an Order of the Bankruptcy Court shall not be considered an Allowed Claim there under. Unless otherwise specified within the Plan or by Final Order of the Bankruptcy Court, an Allowed Claim shall not, for purposes of computation of distributions under the Plan, include interest on such Claim from and after the Petition Date. IV. CONFIRMATION OF THE PLAN A. Confirmation Hearing

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a hearing on Confirmation of the Plan. Section 1128(b) provides that any party in interest may object to Confirmation of the Plan. By order of the Bankruptcy Court dated April __, 2013, the Confirmation Hearing has been scheduled for ___________, 2013, at __:00 a.m., United States Bankruptcy Court, Eastern District of Louisiana, 707 Florida Street, Room 222, Baton Rouge, LA 70801. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice,
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except for an announcement made at the Confirmation Hearing or any adjournment thereof. Any objection to Confirmation must be made in writing and filed with the Bankruptcy Court with proof of service and actually received by the following parties on or before ____________, 2013 at 5:00 p.m. Central Time: Virgin Offshore U.S.A., Inc.: VIRGIN OFFSHORE U.S.A., INC. Attn: Gerald H. Schiff 301 Main Street, Suite 1600 Baton Rouge, LA 70801-1906 Telephone: (225) 381-9643 Facsimile: (225) 336-9763

Counsel for the Trustee:

GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, LLC Attn: Louis M. Phillips 301 Main Street, Suite 1600 Baton Rouge, LA 70801-1906 Telephone: (225) 381-9643 Facsimile: (225) 336-9763 And

United States Trustee:

OFFICE OF THE UNITED STATES TRUSTEE Attention: Carolyn Cole 400 Poydras Street, Suite 2110 New Orleans, LA 70130 Telephone: (504) 589-4018 Facsimile: (504) 589-4096

UNLESS AN OBJECTION TO CONFIRMATION IS PROPERLY AND TIMELY SERVED AND FILED, IT WILL NOT BE CONSIDERED BY THE BANKRUPTCY COURT. B. Requirements for Confirmation of the Plan

At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for Confirmation are that the Plan (a) is feasible, (b) is in the best interests of Holders of Claims and Equity Interests Impaired under the Plan, and (c) is accepted by all Impaired Classes of Claims and Equity Interests or, if rejected by an Impaired Class, that the Plan does not discriminate unfairly and is fair and equitable as to such Class. 1. Feasibility As more particularly described in this Disclosure Statement, the primary purpose of the Plan filed by the Trustee in this case is to (i) cancel the existing Equity Interest and issue new
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Equity Interest to be held in trust for the beneficial interest of Holders of Allowed General Unsecured Claims, (ii) provide for the disallowance and/or modification of certain Secured and Unsecured Claims, (iii) pay the Allowed Claims of the Creditors of the Debtor, (iv) preserve the value of Offshores interest in the claims and Causes of Action against the former directors and officers of Offshore, and (v) provide for a liquidation of the Offshore Estate. The Bankruptcy Code requires that Confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of a debtor. The Trustees Plan is a liquidating plan that specifically contemplates the liquidation of all remaining assets of Offshore and Distribution of the proceeds of that liquidation and the proceeds of the prior collections to the Creditors of Offshores estate. The liquidation and distribution of Offshores assets is discussed and the Exhibits containing the underlying information are described and referred to, infra. The Trustee believes that the Plan proposes a suitable method for such liquidation and Distribution and that Confirmation of the Plan is not likely to be followed by the need for further financial reorganization. Accordingly, the Plan is feasible and satisfies the requirements of Section 1129 of the Bankruptcy Code. 2. Best Interests Test At the Confirmation Hearing, the Bankruptcy Court must, among other things, determine whether Creditors and Holders of Equity Interests would receive at least as much under the Plan as they would receive in liquidation under Chapter 7. The Liquidation Analysis is discussed in Article XV, infra. 3. Fair and Equitable Test (Cramdown) If a sufficient number of Creditors and amount of Claims, and the requisite amount in the Impaired Classes vote to accept the Plan, the Trustee believes that the Bankruptcy Court will approve Confirmation and that the Plan will satisfy all of the applicable statutory requirements of the section 1129(a) of the Bankruptcy Code. The Trustee may seek to confirm the Plan notwithstanding the non-acceptance of the Plan by any Impaired Class of Claims entitled to vote on the Plan. To obtain confirmation, it must be demonstrated to a bankruptcy court that a plan does not discriminate unfairly and is fair and equitable with respect to each dissenting impaired class. A plan does not discriminate unfairly if the legal rights of a dissenting impaired class are treated in a manner consistent with the treatment of other classes whose legal rights are substantially similar to those of the dissenting impaired Class and if no class receives more than it is entitled to for its claims. The Trustee believes the Plan satisfies this requirement. The Bankruptcy Code establishes different fair and equitable tests for secured claims, unsecured claims, and holders of equity interests. a. Secured Claims. with respect to treatment of a secured claim under a plan, fair and equitable means either (i) the impaired secured creditor retains its liens to the extent of its allowed claim and receives deferred cash payments at least equal to the allowed amount of its claims with a present value as of the effective date of
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a plan at least equal to the value of such creditors interest in the property securing its liens, (ii) property subject to the lien of the impaired secured creditor is sold free and clear of that lien, with that lien attaching to the proceeds of sale, and such lien proceeds are treated in accordance with clauses (i) and (iii) hereof, or (iii) the impaired secured creditor realizes the indubitable equivalent of its claim under a plan. b. Unsecured Claims. with respect to treatment of an unsecured claim under a plan, fair and equitable means either, (i) each impaired unsecured creditor receives or retains property of a value equal to the amount of its allowed claim, or (ii) the holders of claims and interests that are junior to the claims of the dissenting class will not receive any property under a plan. Equity Interests. With respect to the treatment of equity interests under a plan, fair and equitable means either (i) each equity interest holder will receive or retain under a plan property of a value equal to the greatest of the allowed amount of any fixed liquidation preference or redemption price, if any, of such equity interest or the value of the equity interest, or (ii) the holders of equity interests that are junior to the dissenting class of equity interests will not receive or retain any property under a plan on account of such junior equity interest.

c.

The Trustee believes that the Plan can be confirmed on a non-consensual basis if the Holders of any Class of Claims or Equity Interests entitled to vote on the Plan vote to reject the Plan (provided at least one Impaired Class of Claims entitled to vote votes to accept the Plan). If appropriate, the Trustee will demonstrate at the Confirmation Hearing that the Plan satisfies the requirements of section 1129(b) of the Bankruptcy Code as to any non-accepting Class. V. GENERAL INFORMATION A. History of Offshore, Debt, Management and Corporate Structure

Offshore is a corporation incorporated under the laws of the State of Delaware whose sole shareholder is Virgin Oil. Virgin Oil was incorporated under the laws of the State of Louisiana for the purpose of developing an exploration and production oil and gas business in China and the United States. On December 6, 1999, Virgin Oil formed Offshore as a whollyowned subsidiary to serve as Operator of certain oil and gas properties owned or to be acquired. The Virgin Oil/Offshore business model was to purchase oil and gas leases in the name of Offshore and name Offshore as operator. Offshore was the only entity qualified by the Minerals Management Service as an operator. In order to fund the cost of operating and/or developing these properties, Virgin Oil and Offshore solicited and obtained money from third party investors (the Investors), often on a third for a quarter basis. Offshores involvement in this business model was necessary to enable transfers to investors free and clear of liens in favor of Virgin Oils lenders. These liens affected only Virgin Oils working interest, and not the interests of Offshore or the Investors. In exchange for investor participation, Offshore granted certain unrecorded contractual working interests in the Virgin Oil and Offshore properties to Investors. The portion of contractual working interest not obtained by the Investors was
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assigned to Virgin Oil. Offshore did not retain a contractual interest of its own. Despite the contractual assignments, the public records only identify Offshore and Virgin Oil as record title owners of the oil and gas assets. To further complicate the analysis, record title does not accurately reflect the division of interest that was maintained internally by Offshore. The financial and operational structure of Virgin Oil and Offshore, although not seamless, was such that Offshore served as operator of the oil and gas properties not operated by third parties. All permits and licenses required by the State or Federal Government relating to the oil and gas properties owned and operated by Virgin Oil and Offshore were placed under the name of Offshore. Virgin Oil acted as Offshores agent in the field and handled much of the day-to-day operations of the facilities. As operator, Offshore sent joint interest billings to the Investors and to Virgin Oil relating to the payment of expenses and the development of oil and gas properties. Offshore also received payments for production, if any, related to the producing properties,1 and paid expenses and distributed revenue, if any, to the Investors. As described below, RLI Insurance Company (RLI) issued (or caused to be issued) bonds on behalf of Offshore under a bonding program for future plug and abandonment work relating to expired oil and gas leases (the P&A Work). In connection therewith, Virgin Oil executed certain indemnity agreements in favor of RLI, thereby obligating itself on the bonds. Various P&A savings accounts in the name of Offshore and/or Virgin Oil were also pledged to RLI as additional security for the bond issuance. Pursuant to the Investors contractual obligations, Offshore expensed amounts from Investor revenues, if any, to fund its portion of the P&A accounts. B. Events Leading to Offshores Bankruptcy Case

By 2004, Virgin Oil was operating six facilities through Offshore, and Virgin Oil and Offshore claimed to have grown their reserve base to 11.0 MMBoe. Nevertheless, Virgin Oils borrowing base of $28 million was fully-leveraged by the end of 2005 following a $17 million dry hole expense incurred from the drilling of two high-potential wells. Further, due to damage from both Hurricanes Katrina and Rita, all production at Offshores operating facilities was shutin until sometime in 2006. Due to their difficult financial position, Virgin Oil and Offshore began self-marketing the oil and gas assets during the first half of 2006, and on June 30, 2006 entered into an agreement with a London-based oil company for an asset sale. This deal did not close and the agreement was terminated in December 2006. During the summer of 2007, Virgin Oil participated in the drilling of a fifty billion cubic foot prospect at High Island Block 198, situated structurally high to a productive Spinnaker Exploration well, and logged 150 feet of gas pay in the well. The well was subsequently completed for a total well cost of approximately $18 million. The completion of the well proved
Currently, the only producing properties in which Virgin Oil and Offshore hold an interest are the Louisiana State Oil and Gas Lease SL 18165, Empire Field, Plaquemines Parish Louisiana (herein referred to as the Empire Lease) and the Federal Oil and Gas Lease referred to as Block 153, Ship Shoal, bearing Serial Number OCS-G18011 (referred to as Ship Shoal). The Empire and Ship Shoal wells are collectively referred to herein as the Producing Wells.Offshore obtained Court approval to assume these and other unexpired oil and gas leases and has paid the cure amounts pursuant to the Assumption Order. Page 14 of 72 First Amended Disclosure Statement Dated March 28, 2013
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to be tight, thus providing a very limited reservoir, and in six months the well no longer produced. This well and other wells needing investment caused Virgin Oil to seek additional capital through a larger credit facility. On September 11, 2007, Virgin Oil entered into a $75 million credit agreement with CIT Capital USA, Inc. (CIT) and Whitney National Bank (Whitney), which provided an immediate $38 million in available funding to satisfy Virgin Oils outstanding obligations. Only Virgin Oil collateral was pledged to secure the credit facility. By mid-2008, Virgin Oil and Offshore decided to participate in the drilling of a well on a lease set to expire at Empire Field, onshore Plaquemines Parish, Louisiana. In September 2008, during the testing phase of the Empire well operation, an additional shut-in at Empire was caused by both Hurricane Gustav and the lodging of a sidewall core gun in the well bore. Attempts to retrieve the core gun were unsuccessful and the site was evacuated in advance of Hurricane Gustavs landfall. Floodwaters from Hurricane Ike halted re-mobilization efforts and efforts to clear the well bore were unsuccessful. A sidetrack was commenced causing the cost of the well to increase by approximately $7 million in expenses owed to vendors. Repairs took months, and production was not re-established until June 2009. As a result of the foregoing, Virgin Oil entered into serious negotiations for a sale of approximately 75% of the assets jointly owned by Virgin Oil and Offshore for $44 million, but an agreement was never finalized. Due to the down-time after Hurricane Gustav and Ike and the failure of the proposed asset sale, Virgin Oil was unable to keep unsecured creditors from pushing the company into bankruptcy. On June 25, 2009, an involuntary Chapter 7 case was filed against Virgin Oil commencing bankruptcy case no. 09-11899. The case was eventually converted to Chapter 11 on August 20, 2010. Offshores business operations and finances were significantly influenced by the Virgin Oil bankruptcy proceedings. As discussed, the financial and operational structure of Virgin Oil and Offshore were inextricably intertwined resulting in numerous disputes between the parties with respect to the amounts owed to each entity, amounts owed to mutual Investors and creditors, ownership interests in certain oil and gas properties, and future operations on such properties. Additionally, because Offshore is the operator of record, it was burdened with significant P&A responsibilities related to several oil and gas properties (defined below as Expired Leases) whose leases had expired and facilities required abandonment. In addition to these significant liabilities, Offshore remained responsible for certain accounting and operator related duties to Virgin Oil, the Investors, federal agencies and state agencies. To further complicate Offshores financial situation, the entity was never managed to generate revenue (as all revenue, if any, was paid to Investors or Virgin Oil). Offshore acted on a cash through put basis in order to facilitate contractual investment in its oil and gas assets. Offshore also took steps to insulate the Investors (mainly the Investors in the Producing Wells) by establishing two separate entities VOI, LLC and OGAS, LLC. After the Virgin Oil bankruptcy filing, all cash transactions including the payment of expenses and the distribution of revenue to Investors was conducted from the newly formed LLCs in an attempt to further insulate the Investors from Virgin Oils creditors.

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Throughout the course of the Virgin Oil bankruptcy case, much energy and focus was given to disputes concerning the rights and interests of the Investors to Virgin Oil and Offshores assets, and to the competing interests of the members of the Official Committee of Unsecured Creditors of the Virgin Oil Estate (the Virgin Oil Committee), CIT and other creditors. These disputes resulted in a very litigious Virgin Oil bankruptcy case which, coupled with Offshores similar financial problems, significantly contributed to the filing of an involuntary bankruptcy petition against Offshore on September 16, 2011 and the subsequent appointment of the Trustee. VI. OFFSHORE ASSETS, P&A LIABILITY AND CLAIMS ANALYSIS A. Assets

Offshores assets include (1) ownership interests in Existing Oil and Gas Assets (defined below), (2) a working interest in the proceeds from Producing Wells, (3) an interest in any recovery from the D&O Litigation2 pursuant to the Recovery Allocation Agreement3, (4) an interest in proceeds, if any, from its BP Claim, and (5) Excess Cash. The Trustee has investigated Offshores books and records and ascertained that these are the only current assets. Under the Plan, Reorganized Offshore shall retain all right, title, and interest in the Debtors Assets, including, without limitation, the Existing Oil and Gas Assets and Expired Leases. Under applicable non-bankruptcy law and pertinent agreements, the Investors may remain responsible for a proportionate contractual share of the P&A costs on the Expired Leases and Existing Oil and Gas Assets. These Investors include certain parties who have asserted contractual/ownership claims against the Debtor, which are specifically identified in this Disclosure Statement and Plan as the Investor Claims.4 A discussion of the Plans treatment of the Investors is divided into three primary categories: (1) Investors in Producing Wells,5 (2) Investors in the Expired Leases and nonproducing Existing Oil and Gas Assets (the P&A Properties),6 and (3) all other Investors. The Trustee submits that the Investors contracts for the Producing Wells are executory contracts pursuant to Section 365 of the Bankruptcy Code. Under Article VII of the Plan, Reorganized Offshore shall reject the Investors contracts for the
D&O Litigation means those certain proceedings commenced on August 19, 2011 styled The Official Committee of Unsecured Creditors of Virgin Oil Company, Inc., et al v. Robert Fulton Smith, Jr., et al, Civil Action No. 2011-8906 pending before the Civil District Court for the Parish of Orleans, State of Louisiana. 3 Recovery Allocation Agreement means the compromise between Virgin Oil Co., Inc. Plan Trust and collectively, Cahaba Partnership, Ltd., Lagniappe Productions of Louisiana, LLC, Ann Broome Priske, Horizon Energy, LLC, B.A. Adams Oil and Gas Investments, LLC, Kathy Roberts, The Carlton Capital Group LLC, ADM Properties, Inc., W.D. Mounger, Delta Royalty Company, Inc., Silver Sands Offshore, LLC, Silver Sands High Island 198, LLC, Silver Sands Ship Shoal, LLC, Paul McMullan, Jr., in his capacity as Executor for the Estate of Dr. Paul McMullan and Mrs. Georgie McMullan and Offshore approved by order entered by the Bankruptcy Court in the Bankruptcy Case on May 3, 2012 and the terms and conditions thereof that are incorporated into this Plan by reference to the agreement. 4 Investor Claims means any Claim evidenced by a Proof of Claim filed by any Person or Entity in the Bankruptcy Case that assert an ownership, economic or revenue interest and/or claim for damages for loss thereof based upon certain contractual investment agreements with the Debtor. The Investor Claims are Disputed by the Debtor. A schedule of the Investor Claims and Claimants is attached as Exhibit J. 5 See Exhibit K identifying the Investors in the Producing Wells and their contractual investment percentage. 6 See Exhibit L identifying the Investors in the P&A Properties and their contractual investment percentage. Page 16 of 72 First Amended Disclosure Statement Dated March 28, 2013
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Producing Wells and avoid any ownership interest asserted in those wells under Section 544(a)(3) of the Bankruptcy Code. With respect to all other Offshore properties, including the P&A Properties, the Trustee takes the position that such Investors contracts are not executory contracts as of the Petition Date. As of the Petition Date, these properties were fully depleted, decommissioned and/or scheduled for decommissioning as part of the P&A Work. As such, Offshore owes no further obligations to the Investors in the properties identified in Exhibits L and M and these agreements can neither be assumed nor rejected pursuant to Section 365 of the Bankruptcy Code. A brief discussion of each category is provided below because treatment of the Investors agreements is property specific. Thus, certain Investors in numerous wells will have to identify the treatment received in each category summarized below. For a detailed discussion of the Investors claim analysis, please refer to subsection C of this Article. A summary schedule of these three categories identifying the specific properties in each category is as follows:
Category of Investors Producing Wells Expired Leases and non-producing Existing Oil and Gas Assets All Remaining Wells Leases/Blocks Ship Shoal and Empire EC 2, EC 219, WC 78, SMI 153, VM 179, HI 198, WC 41, EC 104, EC 122, EC 133/134 and WC 494 Horelica, Chigger, Eugene Island, Galveston Island, Brazos and Sabine Pass Exhibit K L M

1. Existing Oil and Gas Assets and Producing Wells Attached as Exhibit B is a schedule of Offshores decimal ownership interest in oil and gas leases that have either expired (Expired Leases) or been assumed by the Trustee (Existing Oil and Gas Assets) as reflected by record title. The schedule was prepared by the Trustee upon investigation of the Bureau of Ocean Energy Management (BOEM) records and certain percentages have been revised based upon agreement as set forth in the Oil/Offshore Settlement.7 The Trustee further notes that these percentages do not, in all cases, match the division of interest percentages maintained internally by Offshore. Furthermore, the BOEM and related public records reflect that the Investors have no recorded ownership interest in any of the oil and gas assets owned by Offshore. As a result, the Investor analysis and determination of recoverable P&A costs from Investors, and the division of those costs with the Virgin Oil Plan Trust is further complicated. The Trustee submits that Exhibits K, L and M are based upon the billing decks used internally by Offshore to bill and pay revenue from its oil and gas assets. To further complicate matters, if record title is used as the basis for splitting interest between Virgin
Oil/Offshore Settlement means the compromise between the Virgin Oil bankruptcy estate and Offshore Estate approved by order entered by the Bankruptcy Court in the Bankruptcy Case on January 5, 2012 and the terms and conditions thereof that are incorporated into this Plan by reference to the agreement. The Oil/Offshore Settlement includes all agreements executed pursuant to the agreement of the parties including the joint operating agreements, contract operator agreement, and decommissioning term sheet. Furthermore, the releases and obligations set forth in the Oil/Offshore Settlement are incorporated into the Plan as if fully set forth therein. Page 17 of 72 First Amended Disclosure Statement Dated March 28, 2013
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Oil and Offshore, the billing decks, in some instances, do not match record title. In fact, record title interests (Exhibit B) reflect that Offshore owns a greater percentage of certain properties while the internal billing and revenue decks reflect that only the contractual interest of the Investors was owned by Offshore. Yet, Offshore billed 100% of the expenses based upon the billing deck and paid 100% of the revenue from production based upon similar revenue decks. Accordingly, for purposes of this Disclosure Statement, the Trustee shall rely upon the internal billing decks to analyze the P&A cost and the Investor Claims. Regarding a valuation of the assets, the Trustee has not commissioned the preparation of a reserve report for the Existing Oil and Gas Assets. However, a reserve report dated March 17, 2010 (the Reserve Report), was prepared by James F. Hubbard, Petroleum Engineer, but the Trustee cannot and will not rely upon the analysis within that report. Perhaps the Reserve Report can be used as a basis to evaluate the various properties of Offshore, but the Trustee has no basis upon which to rely upon the valuation components. A copy of certain portions of the Reserve Report is attached hereto as Exhibit C. The Trustee has had preliminary discussions with third parties interested in acquiring an interest in Offshores assets, developing the assets, and purchasing the assets outright. As of the filing of this amended Disclosure Statement, offers to purchase the assets have only been for the jointly held interests of Offshore and Virgin Oil, and one particular offer was in the range of $9 million for the Existing Oil and Gas Assets jointly owned by Virgin Oil and Offshore (including properties not currently owned by either Offshore or Virgin Oil and resolution of the D&O Litigation). Such offers are consistent with Virgin Oil and Offshores pre-bankruptcy marketing strategy. The Plan contemplates a potential joint sale of the assets of Offshore and Virgin Oil pursuant to Section 363(h) of the Bankruptcy Code in the event that Offshore is unable to sell or obtain offers to purchase its interest in the assets. As of the Petition Date, Offshore was the operator of record for all Existing Oil and Gas Assets (except Ship Shoal operated by Century Exploration and East Cameron 2 operated by Breton Energy) and Expired Leases. As provided for in the Oil/Offshore Settlement, the Trustee agreed to execute new joint operating agreements on all Existing Oil and Gas Assets and name the Virgin Oil Plan Trust as operator of these assets. To date, only the operating rights for Empire have been transferred to the Virgin Oil Plan Trust. Regarding the Expired Leases, Offshore remains the operator and cannot be removed as operator; therefore, Offshore is the entity responsible for initiating and completing the P&A Work described herein. Pursuant to the Plans treatment of executory contracts set forth in Article VII of the Plan, Reorganized Offshore shall reject the Investor contracts for the Producing Wells8 under section 365 of the Bankruptcy Code. Furthermore, with respect to the Investors in the Producing Wells (Ship Shoal and Empire), the Trustee shall invoke proceedings to avoid any contractual claim to ownership in the Producing Wells pursuant to section 544(a)(3) of the Bankruptcy Code. Because the Producing Wells are Offshores only source of income, the Trustee submits that the production proceeds from the Producing Wells are necessary to service the secured debt for Empire and to replenish the P&A escrow funds for Ship Shoal. To the extent that these Investors in the Producing Wells assert a rejection claim, the Trustee reserves the right to offset the funds escrowed from production for P&A (which the Trustee submits is the entire amount of
8

See Exhibit K identifying the Investors in the Producing Wells and their contractual investment percentage. Page 18 of 72 First Amended Disclosure Statement Dated March 28, 2013

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production remaining after payment of expenses) against the amounts the Investors claim are due as a result of the Trustees rejection of their contractual agreements. The remaining Existing Oil and Gas Assets, namely EC 2, EC 219 and WC 78, are currently non-producing facilities, and the Trustee sought to maintain Offshores ownership value on these blocks, if any, by assuming these leases with the BOEM. Virgin Oil investigated development opportunities on these blocks and concluded that development was not cost effective. Because there is no current production from these remaining Existing Oil and Gas Assets and no development plan, the treatment of the Investors in these specific properties shall be identical to the treatment of the Investors in the Expired Leases set forth below and more fully described in Article VII of the Plan. These Investors have been identified as Investors in the nonproducing Existing Oil and Gas Assets and included in the Trustees P&A analysis provided in the attached Exhibit L. The Existing Oil and Gas Assets are as follows: a. EAST CAMERON 2 (NON-PRODUCING) Offshore and Virgin Oil own a 40.0% working interest in a Federal Oil and Gas Lease referred to as OCS-G #32124, Block 2 of East Cameron (East Cameron 2 or EC 2). Potential future net income from new drilling amounts to approximately $8.66 million (classified as proven reserves in the Reserve Report). Breton Energy is the current operator of record. The estimated net investment totals approximately $1.25 million. Net operating expenses during the estimated term of production totals approximately $540,000. Net plugging and abandonment expenses total $625,000, to be paid in 2016, proceeds to be escrowed from production revenues. Offshore is currently 100% holder of record title to the 40.0% working interest in EC 2; however, pursuant to the Oil/Offshore Settlement, the Trustee agreed to assign the Virgin Oil Plan Trust a 25.014% share of the EC 2 working interest and Offshore shall retain a 14.986% working interest. b. EAST CAMERON 219 (NON-PRODUCING) Offshore and Virgin Oil own a 65.952% working interest in Federal Oil and Gas Lease referred to as OCS-G #33580, Block 219, East Cameron (East Cameron 219 or EC 219). Potential future net income from new drilling (6500 sd. prospect) amounts to approximately $30 million (classified as possible reserves in the Reserve Report). The estimated net investment to cover new drilling expenses totals approximately $4.62 million. Net operating expenses during the estimated term of production totals approximately $3 million. Net plugging and abandonment expenses total $1.98 million, to be paid in 2020, proceeds to be escrowed from production revenues. Offshore owes an assignment to the Virgin Oil Plan Trust of its interest in the EC 219 lease pursuant to the Oil/Offshore Settlement. Upon further investigation, the Virgin Oil Plan Trust determined that this lease had no development potential. As a result, EC 219 has been included in the current decommissioning project described in detail below.

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c. EMPIRE (PRODUCING) Offshore owns a 15% interest in that certain Louisiana State Oil and Gas Lease referred to as SL 18165, Empire Field, Plaquemines Parish, Louisiana (the Empire Lease). The Empire Lease includes one of only three of Offshores Producing Wells and the Virgin Oil Plan Trust is the current operator. This currently producing well provides an estimate of potential future net income (classified proven reserves in the Reserve Report) of $72.5 million. The estimated net additional investment to cover new drilling expenses totals approximately $386,000. Net operating expenses during the estimated term of production totals approximately $2.62 million. Net plugging and abandonment expenses total $250,000, paid after 2024, proceeds to be escrowed from production revenues. Pursuant to the Oil/Offshore Settlement and the Empire Lien Compromise9, Offshore currently receives 30% of the net revenues from production (an average of approximately $33,000 per month) and is obligated to pay 80% of these proceeds to the Holders of Empire Secured Claims (defined below) and retain 20% for operations. d. SHIP SHOAL 153 / 154 (PRODUCING) Pursuant to a Joint Development Agreement with Century Exploration, Offshore owns a working interest in Federal Oil and Gas Leases referred to as Block 154, Ship Shoal and Block 153, Ship Shoal (collectively Ship Shoal). This currently producing property comprising two wells (the remaining Producing Wells) provides an estimate of potential future net income (classified proven producing reserves), at a modified 30% of the Reserve Report numbers based on early encroachment of produced water in the reservoir, of $8.57 million. Net operating expenses during the estimated term of production totals approximately $3.71 million. Net plugging and abandonment expense totals $1.13 million, paid in 2013, proceeds escrowed from production revenues. The escrowed proceeds from Ship Shoal production are currently pledged in a savings account to secure the RLI Bond obligations. Furthermore, Ship Shoal provides approximately 95% of Offshores operating income, which averages approximately $75,000 per month after payment of joint interest billings to Century. The Trustee anticipates that any monthly proceeds from Ship Shoal production not set aside for operating costs and expenses will continued to be escrowed to replenish Offshores portion of the P&A escrow funds. e. WEST CAMERON 78 (NON-PRODUCING) Offshore and Virgin Oil own a 17.732% working interest in Federal Oil and Gas Lease referred to as OCS-G #33043, Block 78, West Cameron (West Cameron 78). Potential future net income from re-drilling the prospect from the existing platform totals $8.56 million. The estimated net additional investment to cover drilling expenses totals $1.4 million. Net operating expenses during the estimated term of production totals approximately $510,000. Net plugging and abandonment expenses total $434,000, paid in 2016, proceeds to be escrowed from production revenues. The Debtor previously had an interest in Lease 19702, Block 78, West Cameron said lease expired and was reacquired in June, 2009. Offshore owes an assignment to

Empire Lien Compromise means the December 3, 2012 Order of the Bankruptcy Court approving the Joint Motion to Approve Settlement and Compromise filed by the Trustee and lien claimant Dynamic Energy Services, LLC and the settlement related thereto between the Lien Adversary parties. Page 20 of 72 First Amended Disclosure Statement Dated March 28, 2013

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the Virgin Oil Plan Trust of its interest in the WC 78 lease pursuant to the Oil/Offshore Settlement. 2. Expired Leases The Expired Leases identified on Exhibit B are certain oil and gas leases that have expired on their own terms. Exhibit B also identifies an estimate of the total potential plug and abandonment (P&A) obligations relating to such properties. The P&A estimate is supported by the P&A liability records maintained by the BOEM and attached as Exhibit D. Further description of the P&A liability is provided in subsection B. Pursuant to the Oil/Offshore Settlement, the Trustee has named the Virgin Oil Plan Trustee, Whistler Energy, as its contract operator for undertaking certain P&A Work (as defined below) on Offshore and the Virgin Oil Plan Trusts behalf on the Expired Leases and certain non-producing Existing Oil and Gas Assets. As agreed between the parties under the Oil/Offshore Settlement and related agreements, Offshore will utilize funds provided by RLI, arising out of and limited to the appropriate bonds, in conjunction with and with the prior approval of BOEM, to pay for the initial expense of any such P&A Work. RLI shall (i) draw down on any applicable P&A Escrow Account(s) (as defined herein below) to reimburse itself for any draws under any Bond, and (ii) receive a General Unsecured Claim to be treated as a Class 3 Claim under the Plan, to the extent RLI is not reimbursed out of the P&A Escrow Account. As discussed above, the Investors may remain responsible for a proportionate contractual share of the P&A costs on the P&A Properties. These Investors include certain parties who have asserted contractual/ownership claims against the Debtor, which are specifically identified in this Disclosure Statement and Plan as the Investor Claims.10 Based on the Trustees analysis of the Investor contracts and Investor Claims, and in the exercise of his business judgment, the Trustee determined that the Investors contracts in these leases/wells are unnecessary for Offshores ongoing business operations, and that these contracts were not executory under Section 365 of the Bankruptcy Code on the Petition Date. As such, Offshore owes no further obligations to the Investors in the properties identified in Exhibits L and M and these agreements can neither be assumed nor rejected pursuant to Section 365 of the Bankruptcy Code. B. P&A Liability

RLI Insurance Company issued bonds (the Bonds) on behalf of Offshore to cover certain obligations of Offshore and Virgin Oil arising from or out of the ownership of interest in oil and gas properties and activities related thereto (the Bonding Program). The obligations covered by the Bonds include, but are not limited to, royalty obligations, plugging and abandonment obligations and penalties assessed for non-compliance with applicable rules and regulations governing ownership and operation of oil and gas properties. The Bonding Program includes, but is not limited to, bonds issued in regard to oil and gas property on the Outer Continental Shelf where Offshore is the operator of record, namely with respect to Offshores Existing Oil and Gas Assets and Expired Leases. Under the Bonding Program, bonds were issued to the Minerals Management Service (n/k/a BOEM). The approximate principal sum outstanding
10

A schedule of the Investor Claims and Claimants is attached as Exhibit J. Page 21 of 72

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under the Bonds is $11,025,000.00. The obligations of Offshore and Virgin Oil in regard to the Bonds are evidenced by, among other things, various indemnity agreements and various assignments of P&A escrow accounts (the P&A Escrow Accounts) executed by Offshore and/or Virgin Oil in favor of RLI (collectively the Bond Documents). A significant component of Offshores bankruptcy case and the Trustees duties has been the oversight and management of Offshores aging oil and gas assets and the significant P&A liabilities of such assets, including the permitting, contracting, and reviewing of the documentation and submittals necessary to commence the P&A Work. Whistler Energy, acting as Offshores agent, has been instrumental in that process and continues to provide engineering and management expertise to facilitate a successful completion of the P&A Work. As of the filing of this Disclosure Statement and the Plan, all regulatory requirements necessary for commencement of the P&A Work have been submitted and approved. The Trustee can report that the P&A Work has commenced and the P&A Work contractors are presently in the process of decommissioning the Expired Leases. A schedule of the P&A Work and anticipated completion dates is attached as Exhibit E. Following is a summary of the scope of the P&A Work, including the estimated decommissioning cost for each facility, the funds currently escrowed by Offshore and Virgin Oil, the estimated time to decommission each facility and the remaining P&A obligations for the Producing Wells that are not within the current scope of the P&A Work. This schedule gives Investors and creditors an idea (and represents the Trustees best guess) of the cost to complete the work and the outstanding obligations once the work is completed. Lease/Block EC 219 OCS-G 33580/19750 HI 198 OCS-G 17151 EC 133/134/122/104 OCS-G 21572, 25948, 25949, 27042 WC 41 OCS-G 17753 WC 494 OCS-G 15097 WC 78 OCS-G 19702/33043 VM 179 OCS-G 23822/25980 SMI 153 OCS-G 17947 EC 2 OCS-G 10605/32124 P&A Escrow $479,345 $667,004 $28,959 $106,791 $123,969 $106,458 $0 $0 $0 Estimated P&A Cost $956,800 $1,424,243 $1,380,900 $838,400 $2,182,500 $791,400 $201,200 $414,883 $1,164,400 P&A Bonds $800,000 $1,150,000 $1,150,000 $1,350,000 N/A N/A $525,000 $1,500,000 $650,000 Est. Time to Complete 11 days 19 days 14 days 11 days 19 days 3 days 7 days 8 days 13 days

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General Area-Wide Bond Total Current P&A SS 153 OCS-G 18011 Empire Field State Lease 18165 TOTAL P&A $1,512,526 $391,905 $25,000 $1,929,431 $9,354,726 $1,620,000 $500,000 $11,474,726

$3,000,000 $10,125,000 N/A N/A 105 days N/A N/A

As indicated by the above schedule, the economic scope of the P&A Work is between $9 and $10 million. The project is anticipated to take approximately 105 days to complete. Virgin Oil and Offshore have escrowed approximately $1.93 million for the P&A Work and Offshore has $10,125,000 of bonding, including the $3,000,000 area-wide bond, to fund the work. The Producing Wells are not included within the scope of the P&A Work. Under the Plan, the Bond Documents will be assumed, and the Debtors obligations under the Bond Documents shall continue. Reorganized Offshore will work cooperatively with RLI in the exercise of RLIs rights against third parties pursuant to the Bond Documents or otherwise, in regard to the payment of plugging and abandonment expenses relating to the Debtors offshore oil & gas properties and the discharge of the Bonds pursuant to their terms and conditions. As agreed between the parties under the Oil/Offshore Settlement and related agreements, Offshore will utilize funds provided by RLI, arising out of and limited to the appropriate bonds, in conjunction with and with the prior approval of BOEM, to pay for the initial expense of any such P&A Work. Thereafter, RLI shall (i) draw down on any applicable P&A Escrow Account(s) to reimburse itself for any draws under any Bond, and (ii) receive a General Unsecured Claim to be treated as a Class 3 Claim under the Plan, to the extent RLI is not reimbursed out of the P&A Escrow Account. Based upon the numbers provided above, the Trustee estimates that RLI will be left with a general unsecured claim under both the Virgin Oil Plan and this Plan in the total approximate amount of $7.6 million upon completion of the P&A Work (calculated as $9,354,726 plus $150,000 in mobilization cost less $1,904,431 in escrow funds). Of this amount, Offshores estimated portion of the P&A cost is $2.34 million (based upon Offshores internal division of interest records). As discussed, Offshore did not retain any revenue from production and all costs were expensed prior to distributing any revenue. A schedule of the Investor contractual interest in the P&A Properties based upon this billing deck is attached as Exhibit L. This schedule also provides the Trustees best estimate of P&A Work costs that may be recoverable from each Investor based upon their contractual agreements with Offshore. The actual recoverability of P&A cost from the Investors is speculative. Of the 35 Investors that filed proofs of claim, only 24 invested in the P&A Properties. The total recoverable cost based upon Offshores billing deck from these Investors is $1,080,000. The remaining amount based upon the internal billing records, namely $1,270,000, is apportioned among Investors that have made no appearance in the Bankruptcy Case. The total P&A Work liability attributable to Offshore could be recoverable from the Investors; however, there is a discrepancy between the interest Virgin Oil seeks to apply (record title) and the interest Offshore
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seeks to apply (internal billing deck). Because record title reflects a higher percent interest owned by Offshore than the internal billing deck reflects, the total amount of P&A Work liability cannot be recovered from the Investors and is not attributed to Virgin Oil. The difficulty in estimating recoverability of P&A costs lies in the disagreement between the record title interest of Virgin Oil and Offshore (as identified on Schedule B of the Contract Operator Agreement with Whistler) and the actual internal delineation of interest that controlled the billing and payment of revenue between the two entities and with respect to the Investors (as applied in Exhibit L). As discussed, for purposes of this Disclosure Statement and the Plan, the Trustee shall rely upon Offshores internal billing deck. The following table demonstrates the difficulty in estimating the P&A cost attributable to Offshore: Offshore Record Title Interest Total Estimated P&A Cost P&A Escrow Funds P&A Cost Distribution - Virgin Oil - Offshore $4,497,661 $3,102,634 $5,260,017 $2,340,278 $9,504,726 $1,904,431 Offshore DOI Billing Deck $9,504,726 $1,904,431

Bid solicitations for the P&A Work were sent out in mid-2012, permitting was completed by October 2012 and the master service agreements between the selected contractors and Offshore were completed and executed by December 2012. The P&A Work commenced in early January 2013 in accordance with the schedule provided in Exhibit E. By early February 2013, Offshores primary P&A contractor, Chet Morrison Contractors (Chet Morrison), had successfully completed the P&A work at South Marsh Island 152, and one of two wells at High Island 198. Unfortunately, the parties faced significant challenges in plugging and abandoning the other well at High Island 198. After spending a considerable amount of time and money, including costs related to downtime, the decision was made to move onto the next property, West Cameron 41, while a new plan was conceived and submitted for approval by the BOEM/BSEE, and Chet Morrison has successfully completed the plugging of the wells at West Cameron 41. Since completion of the work at WC 41, the P&A Work has been temporarily halted and Chet Morrison has demobilized. On February 5, 2013, Chet Morrison provided informal notice to Whistler of its intention to cease the P&A Work until it has been paid in full for the P&A Work done to date. As of that date, the total P&A cost for the SMI 152 and HI 198 work had reached $1,538,125. Because such cessation was not in compliance with the terms and spirit of the master service agreement between Chet Morrison and Offshore, Whistler responded in writing on February 6, 2013 to Chet Morrison, preserving all contractual and legal rights and remedies vis--vis Chet Morrison with respect to the cessation of the P&A Work. Whistler advised, however, that it remained committed to recommencing the P&A Work with Chet Morrison as soon as feasible given the timing and mechanics for payments contemplated in the Oil/Offshore Settlement and the Decommissioning Term Sheet by and between Offshore, the Virgin Oil Plan Trust, the BOEM, and RLI. Thereafter, Chet Morrison delivered formal written
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notice of work cessation on February 7, 2012, which notice including a commitment by Chet Morrison that all costs associated with demobilizing and remobilizing for the P&A Work would be on Chet Morrisons account. As of the filing of this Disclosure Statement, the P&A Work has not recommenced and Chet Morrison has invoiced a total of $1,839,126 for work completed at SMI 152, HI 198 and WC 41. In addition, Offshore has received the final EOR (End of Operations Report) from the BSEE indicating successful completion of P&A Work on the SMI 152 and WC 41 properties. Chet Morrison has indicated that it will hold Offshore to a $2,000,000 credit limit for the P&A Work although no such credit limit was ever discussed and is not set forth in the Offshore/Chet Morrison management services agreement. As a result of Chet Morrisons decision to impose a credit limit, it is likely that further cessation in the P&A Work will be unavoidable as work is recommenced and completed due to similar delays in obtaining the EORs and related regulatory approval of the invoices. Whistler is presently working in conjunction with Offshore to prepare and submit for BOEM approval the first rounds of invoices and request a waiver of the normal bond reduction procedures, which submittal shall be made by March 28, 2013. This submittal and approval process is central to the success of the P&A Work (and the Plan); therefore, further disclosure regarding the outcome of the submittal and waiver request will be provided by the Trustee as needed. At this time, and because of the delay associated with the temporary cessation of work by Chet Morrison, Whistler revised the anticipated date of completion for the P&A Work, which is currently estimated for completion in October 2013, and the revised scheduling is provided in Exhibit E to the Disclosure Statement. C. Claims Analysis

Holders of Allowed (i) Administrative Claims, including Cure Claims except for the Century Exploration Cure that shall be paid over seven (7) months commencing postConfirmation, (ii) Professional Fee Claims; and (iii) Priority Tax Claims will receive 100% distribution on account of their Claims (the Confirmation Payments). As stated above and reflected in the Operating Budget attached hereto as Exhibit F, the Trustee anticipates that Offshore will have sufficient Excess Cash available as of Confirmation to satisfy the Confirmation Payments. On the Effective Date, except as otherwise provided for herein, (i) the existing Debtor Equity Interests shall be deemed extinguished, cancelled and of no further force or effect, and (ii) the obligations of the Debtor under any agreements governing the Debtor Equity Interests and any indebtedness or obligation of the Debtor with respect to the Debtor Equity Interests shall be discharged without further act or action under any applicable agreement, law, regulation, order, or rule and without any action on the part of the Bankruptcy Court or any Person. The following table provides a summary of the claims analysis discussion:

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Type Claim Admin. Claims - Century Exploration Cure12 Priority Claims Empire Secured Claims Investor Claims - Secured - Unsecured RLI Claim - Secured/P&A Est. - Premium Cure General Unsecured Claim - Undisputed - Disputed/Unscheduled TOTAL 1. Empire Secured Claims
13

Plan Estimate $300,000 $141,870 $33,220 $3,119,359 $ $ -

Filed Claims $1,600,00011 $141,870 $33,220 $3,119,359 $18,011,237 $16,889,833 $1,012,682 $ -

$2,350,000 $150,000 $5,604,667 $ $11,699,116

$5,604,667 $3,024,824 $49,437,692

Pursuant to the Empire Lien Compromise, any and claims asserted in the Lien Adversary14 regarding the Empire Lease were comprised and approved by the Bankruptcy Court. The Empire Lease lien claimants were divided into tiers for purposes of distributing portions of the net revenue proceeds from the Empire Lease according to the claimants interests therein. Following is a list of the Holders of Empire Secured Claims in each tier:

11

Claim No. 33 for P&A obligation at HI 198 filed by EP Energy E&P Company, LP. This Claim will be mooted by completion of P&A Work at HI 198 in or around October 2013. 12 Century Exploration is the operator of the Ship Shoal Producing Well and filed Claim No. 69. The cure payment is in connection with the Estates assumption of the joint operating agreement pursuant to the Plan. The cure payment shall be paid over seven months (the Century Exploration Cure). 13 As of the Petition Date, the Empire Secured Claims totaled $3,983,954.02. As of the date of the filing of the Plan, the Empire Secured Claims have been reduced by $864,595.28. Holders of Empire Secured claims are currently receiving and will continue to receive under the Plan, a pro-rata share of eighty (80%) percent of the Empire Well production proceeds paid to Offshore. Offshore currently receives thirty-five (35%) percent of the Empire Well production proceeds from the Virgin Oil Plan Trust. The Empire Secured Claims may ultimately prove to be secured claims of an amount (value) less than the face amount of the Claims because of the value of the Empire Well and net proceeds payable to Offshore there from. For a discussion of the treatment of the Class 1 Empire Secured Claims, please refer to Article III of the Plan. 14 Lien Compromise means the compromise between the Trustee, the Debtor and various lien claimants involved in the Lien Adversary, which was approved by order entered by the Bankruptcy Court in the Bankruptcy Case on December 3, 2012. The Lien Compromise includes all agreements executed pursuant to the agreement of the parties including the settlement agreement and mutual release. The terms and conditions of the Lien Compromise are incorporated into the Plan as if fully set forth therein. Page 26 of 72 First Amended Disclosure Statement Dated March 28, 2013

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Tier 1 - Dynamic Energy Services, LLC, Industrial & Oilfield Services, Inc., Tanner Services, LLC, Global Vessel & Tank, LLC, Ranger Specialty Supply & Control Systems, LLC, Newpark Mats & Integrated Services, LLC, Newpark Environmental Services, LLC, Weatherford International, Inc., GE Oil & Gas Pressure Control, LP as successor in interest to Wood Group Pressure Control, LP, Quality Energy Services, Inc., and Stokes & Spiehler Offshore, Inc. Tier 2 - Workover Specialties, LLC Tier 3 - Precision Drilling Company, LP A complete schedule of the claimants and the amount of their recognized Claims is attached as Exhibit G. The Empire Lease lien claimants shall be treated as Holders of Class 1 Empire Secured Clams and are entitled to vote on the Plan. As of the Petition Date, the Empire Secured Claims totaled $3,983,954.02. To the extent that the Empire Secured Claims are not paid out of the Empire Well, Empire Lease lien claimants will be Holders of Class 3 General Unsecured Claims in such residual amount. 2. Offshore Scheduled General Unsecured Claims Offshore scheduled 114 unsecured creditors as undisputed. These Creditors are Holders of General Unsecured Claims in the undisputed total amount of $5,604,667. Holders of General Unsecured Claims are treated as Class 3 claimants and shall be entitled to vote on the Plan. A list of the scheduled and undisputed General Unsecured Claims is attached as Exhibit H. 3. Filed Claims A schedule of the filed proofs of claims, the claimant and corresponding claim amount is attached as Exhibit I. While the Trustee has not yet conducted a thorough claim-by-claim analysis, the Trustee has broken down the filed claims to include (1) Priority Tax Claims totaling approximately $33,220, (2) the RLI Insurance Claim, (3) the Investor Claims, which are disputed, and (4) other General Unsecured Claims, which may be subject to dispute. The RLI Insurance Claim shall be treated as a Class 2 Claim in the Plan subject to the treatment set forth therein. The RLI Insurance Claim treatment is identical to the treatment afforded RLIs claim in the Virgin Oil Bankruptcy Case. The Investor Claims are evidenced by a Proof of Claim filed by any Person or Entity in the Bankruptcy Case that assert an ownership, economic or revenue interest and/or claim for damages for loss thereof based upon certain contractual investment agreements with the Debtor. A schedule of the Investor Claims and Claimants is attached as Exhibit J and total approximately $35,000,000. The Investor Claims are Disputed by the Trustee to the extent that the Investors assert an ownership interest in Offshores oil and gas assets and/or a claim to a portion of the revenue from the Producing Wells. Offshore did not schedule any Investors as creditors and/or co-owners of any oil and gas assets. There were a total of 35 Investors who filed Investor Claims. There are over 250 Investors that signed contractual investment agreements with Virgin Oil and Offshore. Due to the large number of Investors and the record ownership
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interest disagreement with Virgin Oil, the Plan shall treat the Investors agreements, which includes those asserting Investor Claims, in three separate categories: (1) Investors in Producing Wells,15 (2) Investors in the Expired Leases and nonproducing Existing Oil and Gas Assets,16 and (3) all other Investors. As set forth in Article VII of the Plan, the Estate shall reject all Investors contracts in the Producing Wells. The Estate shall also institute proceedings to avoid any ownership interest the Investors may assert in the Producing Wells pursuant to Section 544 of the Bankruptcy Code (as such interests were not perfected). To the extent the Investor Claims represent rejection claims for the Producing Well contracts and are Allowed by Final Order of the Bankruptcy Court, the Trustee reserves the right to seek reimbursement from these Investors for any and all P&A Work liabilities based upon their contractual interests identified in Exhibit K. Further, to the extent that the Investors are parties to the D&O Litigation and Recovery Allocation Agreement as indicated on Exhibit J, these Investors shall not be permitted to participate in or receive any distribution of that portion of the proceeds received by Offshore from the D&O Litigation.17 A list of the remaining claims that were not scheduled by the Debtor, that may be Disputed and that may be additional General Unsecured Claims is attached as Exhibit N. These additional filed Claims total $3,024,824 and require further investigation by the Trustee. VII. DESCRIPTION OF THE PLAN A. General

The entire text of the Plan has been provided, with this Disclosure Statement, to all Holders of Claims and Interests known to the Trustee based upon filings by the Debtor and other parties in interest in the Chapter 11 Case. The Plan is the operative controlling legal document and, therefore, should be read carefully and independently of this Disclosure Statement. Creditors, Claimants, and other Holders of Claims and Interests, are further urged to consult with counsel and other professionals in order to fully resolve any questions concerning the Plan. B. Purpose and Summary of Plan and the Offshore Plan Trust

The Plan will be compliant with the priority scheme of the Bankruptcy Code. The purpose and effect of the Plan is to, inter alia, (a) provide for cancellation of the Equity Interest in the Debtor; (b) provide for the creation of the Offshore Equity Trust, which shall receive from the Debtor and will own on behalf of the Offshore Equity Trust Beneficiaries, the Equity Interest in Reorganized Offshore; (c) provide for the contribution of Allowed General Unsecured Claims in exchange for a beneficial interest in the Offshore Equity Trust; (d) provide for the payment of all Allowed Administrative Claims, including Cure Claims (excluding the Century Exploration
15

See Exhibit K identifying the Investors in the Producing Wells and their contractual investment percentage. 16 See Exhibit L identifying the Investors in the P&A Properties and their contractual investment percentage. 17 The Recovery Allocation Agreement specifically provides that in the event that Investor Claims are allowed, Investors acknowledged and agreed that they shall have no claim to, and will not be entitled to a distribution of any part of twenty (20%) percent the net Recovery from the D&O Litigation allocated to Offshore. Page 28 of 72 First Amended Disclosure Statement Dated March 28, 2013

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Cure), and Priority Tax Claims as of the Effective Date; (e) provide that the Trustee shall be appointed as President and sole Director of Reorganized Offshore and shall be primarily responsible for marketing and fulfilling the Reorganized Debtors obligations in connection with the Existing Oil and Gas Assets and Expired Leases with a goal of maximizing the value of the Existing Oil and Gas Assets and completing the P&A Work; and (f) provide that Reorganized Offshore and the Offshore Equity Trust shall make the Distributions contemplated in the Plan. Gerald H. Schiff, as President of Reorganized Offshore, shall direct Reorganized Offshore in its efforts to effectuate the completion of the P&A Work to the satisfaction of RLI, the Virgin Oil Plan Trust, and the BOEM. Reorganized Offshores primary responsibility will be to liquidate the Existing Oil and Gas Assets in accordance with the Plan and distribute the proceeds there from. Further, Reorganized Offshore shall work to compel the liquidation of the Assets of Reorganized Offshore and the Distributions to the Offshore Equity Trust, if any, of (1) net collections from the D&O Litigation, (2) net collections from the BP Claim, and (3) net Excess Cash. Gerald H. Schiff shall also serve as the Offshore Equity Trustee whose primary responsibility shall be to make Distributions to the Offshore Equity Trust Beneficiaries in accordance with the Plan. The Trustee does not contemplate any need for the approval of capital expenditures by Holders of Allowed Claims due to the Reorganized Debtors lack of sources of capital to invest in exploration and development of the Existing Oil and Gas Assets. As a result, the Trustee believes that liquidation of Reorganized Offshores Assets and subsequent Distribution of the proceeds to the Offshore Equity Trust for the benefit of Holders of General Unsecured Claims from such liquidation provides the best opportunity for making Distributions to Holders of Allowed Claim as set forth in the Plan. VIII. SIGNIFICANT EVENTS DURING OFFSHORES BANKRUPTCY CASE A. Involuntary Petition

On September 16, 2011, an involuntary petition pursuant to Chapter 11 of the Bankruptcy Code was filed by Precision Drilling Company, LP, Dynamic Energy Services, LLC and Tanner Services, LLC in the United States Bankruptcy Court for the Eastern District of Louisiana. The case was originally assigned to the Honorable Jerry Brown, Bankruptcy Judge, and was subsequently transferred to the Honorable Elizabeth Magner, Bankruptcy Judge. Offshore consented to the bankruptcy on October 6, 2011, and the Order for Relief was entered by the Bankruptcy Court on October 12, 2011. Offshores bankruptcy case is currently docketed as bankruptcy case no. 11-13028. B. Appointment of the Trustee

On October 6, 2011, Offshore filed a Motion to Appoint Chapter 11 Trustee. The Bankruptcy Court granted the Motion on October 11, 2011. The Office of the United States Trustee then nominated Gerald H. Schiff as the Chapter 11 Trustee on October 13, 2011, and moved for an order approving the appointment of Gerald H. Schiff as Trustee. By Order entered October 14, 2011, the Bankruptcy Court approved the appointment of Gerald H. Schiff as Chapter 11 Trustee of the Offshore Bankruptcy Estate. As Trustee, Mr. Schiff is vested with the

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exclusive ability to exercise control over property of the Offshore Estate and to manage and operate the business of Offshore. C. Schedules, Statement of Financial Affairs and 341 Creditors Meeting

The 341(a) Meeting of Creditors was initially convened on December 12, 2011. Kraig Stutes, Offshores contract accountant, and Lori Montecino, Offshores office manager, appeared on behalf of Offshore and addressed questions regarding Offshores financial affairs and prospects or reorganization. The Meeting of Creditors was continued to enable filing and review of Offshores Schedules and Statement of Financial Affairs. Offshores Schedules and Statement of Financial Affairs were filed on December 22, 2011. The continued Meeting of Creditors was held on January 27, 2012, at which time the Trustee updated the attending parties regarding events that had transpired in Offshores bankruptcy case. D. Retention of Professionals by the Trustee18

Immediately following his appointment, the Trustee moved to employ the law firm of Gordon, Arata, McCollam, Duplantis & Eagan, LLC (Gordon Arata) as legal counsel for the Trustee on October 17, 2011. On January 11, 2012, the Bankruptcy Court issued an Order authorizing the Trustee to employ Gordon Arata on a final basis. On December 28, 2011, the Trustee moved the Bankruptcy Court for authorization to employ the accounting firm of Patrick J. Gros, APAC (the Gros Firm) as accountant for the Offshore Estate pursuant to section 327(a) of the Bankruptcy Code. By Order entered January 11, 2012, the Bankruptcy Court authorized the Trustee to employ the Gros Firm as accountant for the Offshore Estate. Since that time, the Gros Firm has provided the necessary general accounting services required of the Trustee on behalf of the Offshore Estate. On March 27, 2012, the Trustee moved the Bankruptcy Court for authorization to employ the Brent Barriere of the law firm of Phelps Dunbar, LLP (Phelps Dunbar) as special litigation counsel to pursue certain claims of Offshore against its officers and directors (said claims are discussed, infra). By Order entered May 1, 2012, the Bankruptcy Court authorized the Trustee to employ Brent Barriere and the law firm of Phelps Dunbar19 as special litigation counsel for the Trustee.

Prior to the Trustees appointment, Offshore retained the law firm of Heller, Draper, Patrick & Horn, LLC (Heller Draper) to serve as its bankruptcy counsel. Heller Draper subsequently filed an Ex Parte Motion to Withdraw as Counsel, which was granted by the Bankruptcy Court on December 3, 2012. 19 As of the filing of this amended Disclosure Statement, Brent Barriere has left the Phelps Dunbar law firm and joined Fishman Haygood Phelps Walmsley Willis & Swanson, L.L.P. (Fishman Haygood). All plaintiffs in the D&O Litigation, including the Trustee, and Phelps Dunbar has consented to Brent Barrieres continued representation of the Estate as special counsel in the D&O Litigation. Page 30 of 72 First Amended Disclosure Statement Dated March 28, 2013

18

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E.

Oil/Offshore Settlement

At the time of the filing of the Offshore bankruptcy case, the Virgin Oil Committee and CIT were in the midst of negotiations to address the various disputes between the Virgin Oil estate and Offshore, and to obtain all parties consent to the terms of a Second Amended Chapter 11 Plan of Reorganization filed by the Virgin Oil Committee and CIT. In connection with the Virgin Oil bankruptcy filing, and prior to the filing of Offshores involuntary Chapter 11 petition, Offshore had asserted a number of claims and causes of action against the Virgin Oil estate.20 Largely due to the filing of the Offshore bankruptcy petition, the Virgin Oil Committee and CIT engaged in extensive negotiations in an effort to address Offshores claims and to obtain the consent of the Offshore Estate to the terms of Virgin Oils Second Amended Chapter 11 Plan of Reorganization. These negotiations led to a proposed settlement term sheet that was memorialized in the filing of certain modifications to the Second Amended Chapter 11 Plan of Reorganization on or about October 5, 2011.21 Shortly thereafter, the Trustee was appointed in the Offshore bankruptcy case and was vested with the exclusive power to assert Offshores claims against the Virgin Oil estate. The Trustee was assigned the task of evaluating the proposed settlement terms and advising the Offshore Estate and the Bankruptcy Court as to whether the settlement was fair and equitable and in the best interest of Offshores Creditors. On December 9, 2011, the Trustee filed a Motion for Approval of Settlement and Compromise seeking to settle the disputes existing between the Virgin Oil and Offshore estates. By Order entered January 5, 2012, the Bankruptcy Court granted the Trustees Motion and approved the terms of the settlement agreement (the Oil/Offshore Settlement). Under the terms of the Oil/Offshore Settlement, Offshore agreed to support confirmation of Virgin Oils Second Amended Chapter 11 Plan of Reorganization, as modified and supplemented, and to release all of its claims for recoupment and rejection damages. Additionally, the Oil/Offshore Settlement governs the performance of the requisite P&A Work,22 provides for the execution of joint operating agreements and a contract operating agreement with the Oil Plan Trust,23 resolves disputes concerning interests in the Empire Lease, assigns certain
Offshores claims and causes of action against the Virgin Oil estate included the following: (i) a claim in the amount of $3,837,310.00 for recoupment of alleged overpayments made by Offshore to fund the Empire Lease, (ii) a rejection claim in the amount of $20 million in connection with the rejection of a joint operating agreement between Virgin Oil and Offshore for the Empire Lease, (iii) a cure claim in the amount of $477,790.40, together with interest and attorneys fees, in connection with the assumption of a joint operating agreement affecting Ship Shoal, and (iv) an administrative claim in the amount of $7,300,000.00 arising out of alleged P&A liability and lease operating expenses related to certain OCS leases. 21 On December 13, 2011, the bankruptcy court in the Virgin Oil bankruptcy case entered an order confirming the Second Amended Chapter 11 Plan of Reorganization, as modified and supplemented.
22 20

Under the terms of the Oil/Offshore Settlement, Whistler Energy, LLC, the Court-appointed Chief Restructuring Officer for the Virgin Oil Estate, was appointed as contract operator for all purposes related to the P&A Work. Whistler Energy, LLC now serves as the trustee of the Oil Plan Trust. 23 The Oil Plan Trust is the trust, established for the benefit of certain Holders of Claims as set forth in Virgin Oils Second Amended Plan, pursuant to the terms of the Plan Trust Agreement in accordance with Treasury Regulation Section 301-701-4(d), which shall have the sole purpose of liquidating and distributing the Plan Trust Assets according to the terms of the Second Amended Plan. Page 31 of 72 First Amended Disclosure Statement Dated March 28, 2013

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previously unrecorded working interests to Virgin Oil, and specifically regulates future operations of and investment in oil and gas properties held by Virgin Oil and Offshore. F. Sooner/Specialty Settlement

While the Oil/Offshore Settlement was a vast achievement, the Trustee was also faced with the challenge of addressing numerous issues with respect to Offshores Estate, including developing a strategy for obtaining a release of revenue being held in suspense by Specialty Rental Tools & Supply, LLC (Specialty) and Sooner Pipe, LLC (Sooner). Specialty and Sooner were judgment creditors of Offshore by virtue of an amended judgment they received against Offshore on January 10, 2011 in the amount of $247,509.15 in a civil action styled as Specialty Rental Tools & Supply, LLC and Sooner Pipe, LLC v. Virgin Offshore, USA, Inc., Civil District Court for the Parish of Orleans, State of Louisiana, Case No. 10-7175. Specialty and Sooner took various steps to execute on the amended judgment, including: (i) service of a Petition for Garnishment on Whitney seeking the seizure of a $25,000.00 certificate of deposit which had previously been pledged to the Commissioner of Conservation for the State of Louisiana in connection with the P&A costs of the Empire Lease, and (ii) service of Petitions for Garnishment on Texon Distributing, LP and Texon Crude Oil, LLC (collectively Texon) seeking the seizure of a stream of working interest payments being made to Offshore for production from Ship Shoal. In response to the Petitions for Garnishment, Texon placed the Ship Shoal funds in suspense. Thereafter, Specialty and Sooner filed a Motion to Lift Stay seeking relief from the automatic stay to proceed against the certificate of deposit and the Ship Shoal funds. Specialty and Sooner also filed a Motion to Prohibit Use of Cash Collateral seeking a prohibition against Offshores use of the Ship Shoal funds. Following the appointment of the Trustee, the Trustee filed Oppositions to both the Motion to Lift Stay and the Motion to Prohibit Use of Cash Collateral. The Trustee observed, among other things, that service of the Petitions for Garnishment on Whitney and Texon occurred within ninety days of the September 16, 2011 effective date of relief, and therefore any resulting seizure by Specialty and Sooner would constitute an avoidable transfer pursuant to section 547 of the Bankruptcy Code. Sooner and Specialty responded by filing a Motion to Withdraw that portion of the Motion to Lift Stay which sought relief against the certificate of deposit. The Bankruptcy Court granted the Motion to Withdraw, and only the Motion to Lift Stay as to the Ship Shoal funds and the Motion to Prohibit Use of Cash Collateral remained pending. The Trustee subsequently engaged in discussions with Sooner and Specialty in order to reach a mutually acceptable compromise. As a result of these discussions, a settlement was reached whereby the Trustee agreed to recognize Sooner/Specialtys secured creditor status subject to a 25% reduction in the amount of the amended judgment and an agreed payment schedule over a period of six months. On December 9, 2011, the Trustee filed a Motion Pursuant to Bankruptcy Rule 9019 for Approval of Settlement and Compromise, which was granted by the Bankruptcy Court by Order entered January 5, 2012. All payments have been made to Sooner and Specialty by the Offshore Estate in accordance with the terms of the settlement.
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G.

Lien Claimants Adversary Proceeding

On October 21, 2011, Dynamic Energy Services, LLC, Precision Drilling Company, LP, Tanner Services, LLC and Industrial Oilfield Services, Inc. filed an adversary proceeding seeking to determine the validity, ranking and priority of liens against Offshores interest in the Empire Lease. The adversary proceeding was styled as Dynamic Energy Services, et al. versus Virgin Offshore USA, et al. bearing adversary no. 11-01111 (the Lien Adversary). In a previous adversary proceeding within the Virgin Oil bankruptcy case, the Bankruptcy Court had determined that Virgin Oil holds an 85% working interest in the Empire Lease and that Offshore holds the remaining 15% working interest. At the time of the Lien Adversary, an escrow account under the control of Virgin Oil was receiving all funds from the operations at Empire, including the 15% share attributable to Offshore. The Bankruptcy Court had also previously determined that Virgin Oil was the Operator of the Empire Lease; yet, because Offshore was listed as the Operator of record with the State of Louisiana, several vendors with lien rights perfected or attempted to perfect liens against Offshore. Following the commencement of the Offshore bankruptcy case, the Lien Adversary was filed in order to resolve the competing lien claims. The Lien Adversary spawned a series of summary judgment motions, stipulations, agreed orders withdrawing claims, etc. The lien claims of multiple parties involved in the Lien Adversary were opposed by the Trustee. In general, the Trustees oppositions to the various summary judgment motions were broken down into two groups: (i) one group of claimants who filed secured proofs of claim in the Virgin Oil bankruptcy case within the time limits specified by 11 U.S.C. 546(b) and La. R.S. 9:4865(C) but either did not file or did not timely file a separate notice pleading referencing 11 U.S.C. 546(b), and (ii) a single claimant who filed a notice of lis pendens outside of the time period specified by La. R.S. 9:4865(C). The Bankruptcy Court ruled in favor of the claimants who timely filed secured proofs of claim in the Virgin Oil bankruptcy, and ruled against Precision Drilling Company, LP, the claimant who filed a tardy notice of lis pendens. Several appeals followed; however, in light of the significant delays, costs and risks associated with the appeals, the Trustee and the remaining parties to the Lien Adversary entered into settlement negotiations. On November 6, 2012, the Trustee and lien claimant Dynamic Energy Services, LLC, filed a Joint Motion to Approve Settlement and Compromise, and the Motion was approved by the Bankruptcy Court on December 3, 2012 (the Empire Lien Compromise). Pursuant to the terms of the Empire Lien Compromise, all appeals related to the Lien Adversary were dismissed. In addition, the remaining lien claimants were divided into tiers for purposes of distributing portions of the net revenue proceeds from the Empire Lease according to the claimants interests therein. To date, in excess of $543,225.00 has been distributed to the Empire lien claimants. Upon payment in full of the Empire lien claimants respective secured claims against the Empire Lease, the Empire Lien Compromise requires each claimant to cause the inscription of each lien or judgment to be canceled and erased.
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H.

D&O Litigation

On August 18, 2011, the Virgin Oil Committee filed an Application in the Virgin Oil bankruptcy case requesting that Brent Barriere of Phelps Dunbar be engaged as special counsel under a contingency fee arrangement to prosecute all claims, demands and causes of action of Virgin Oil against its current and former officers and directors. The Application further requested that, in as much as Virgin Oil was the sole shareholder of Offshore, Brent Barriere of Phelps Dunbar be permitted to prosecute derivative claims on behalf of the Virgin Oil Committee and against current or former officers and directors for breach of fiduciary and other duties owed to Offshore. Following an August 19, 2011 hearing on the Application, the Bankruptcy Court announced that it would grant the requested relief. An Order granting the relief was entered on September 7, 2011. On August 19, 2011, Brent Barriere of Phelps Dunbar filed a Petition on behalf of the Virgin Oil Committee and certain individual investors against Robert Fulton Smith, Jr., Paul Temple, Doug Sewell, Dewey Lane, Harry Williamson, Joseph Gibbs and Offshore, styled as The Official Committee of Unsecured Creditors of Virgin Oil Company, Inc. et al. v. Robert Fulton Smith, Jr., et al., Civil District Court for the Parish of Orleans, State of Louisiana, Case No. 2011-8906 (the D&O Litigation). Offshore was named as a nominal defendant because the Virgin Oil Committee had asserted derivative claims on behalf of Offshore. The Petition also asserted claims of Virgin Oil against Offshore arising from Offshores alleged failure to pay certain joint interest billings totaling approximately $825,000.00. On February 10, 2012, a Second Supplemental, Superseding and Amending Petition was filed in the D&O Litigation, which, in substance, eliminated the joint interest billing claim and realigned the Trustee as a plaintiff. As no conflict of interest existed between Virgin Oil, Offshore and the various persons and entities who invested in oil and gas leases promoted by Virgin Oil and Offshore, the Trustee sought to pursue Offshores claims against its officers and directors via the D&O Litigation. The Trustee engaged in a series of negotiations with the Virgin Oil Committee and its successor, the Oil Plan Trust, to determine how any recovery from the D&O Litigation would be allocated between the parties. On March 27, 2012 the Trustee filed an Application to Employ Phelps Dunbar as Special Litigation Counsel to pursue the D&O Litigation. The Trustees Application was subsequently approved by the Bankruptcy Court on May 1, 2012. Additionally, the Trustee filed a Motion Pursuant to Bankruptcy Rule 9019 for Approval of Proposed Recovery Allocation Agreement, which was granted by the Bankruptcy Court on May 3, 2012 (the Allocation Agreement). Under the terms of the Allocation Agreement, any recovery (after expenses) from the D&O Litigation shall be allocated as follows: 40% to Whistler Energy, LLC as the trustee of the Oil Plan Trust; 20% to the Trustee or to his successor and assign; and 40% to the investors in oil and gas leases promoted by Virgin Oil and Offshore. I. Assumption of Unexpired Oil and Gas Leases

On June 7, 2012, the Trustee filed an Omnibus Motion for Entry of Order Authorizing (i) the Assumption of Certain Nonresidential Immovable Property Leases and (ii) Payment of Any
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Cure Amounts. In the Motion, the Trustee requested the Bankruptcy Courts authorization to assume eleven unexpired oil and gas mineral leases with Federal and State agencies and certain individual surface leases. By Order entered July 16, 2012, the Bankruptcy Court authorized the Trustee to assume the leases on behalf of the Offshore Estate.24 The referenced leases are central to the operation of Offshores core business functions, and much, if not all, of Offshores revenues are generated from the oil and gas production facilities located on the leased properties. Moreover, the potential for future production, development and marketing of the leased properties for oil and gas production are contingent upon the Offshore Estate maintaining the leases, and Offshores current oil and gas production facilities and future prospects upon and within the immovable properties covered by the leases are the sole assets of the Offshore Estate. J. Assumption of Master License Agreement for Geophysical Data

On January 16, 2003, prior to the commencement of the Offshore bankruptcy case, Offshore entered into a Master License Agreement for Geophysical Data (the TGSN License) with TGS-NOPEC Geophysical Company, LP (TGSN). The TGSN License grants Offshore a non-exclusive license to use certain geophysical and geological data resulting from seismic surveys performed by or on behalf of TGSN and certain interpretations generated by TGSN, together with the results of all processing, reprocessing, and re-display thereof (collectively the Seismic Material). Pursuant to the terms of the TGSN License, Offshore subsequently paid for and TGSN provided access to certain Seismic Material relating to lands covered by the Ship Shoal lease.

24

The following leases have been assumed by the Trustee on behalf of the Offshore Estate:

United States Department of the Interior, Minerals Management Service (Bureau of Ocean Energy Management), Oil and Gas Leases as follows: a. b. c. d. e. f. East Cameron Area, Block 2; OCS-G 32124 East Cameron Area, Block 219; OCS-G 33580 Ship Shoal Area, Block 150; OCS-G 0419 Ship Shoal Area, Block 153; OCS-G 18011 Ship Shoal Area, Block 154; OCS-G 0420 West Cameron Area, Block 78; OCS-G 33043

State of Louisiana, Department of Natural Resources, State Lease #18165, Empire Field, Plaquemines Parish, Louisiana Plaquemines Parish Government, Mineral Office, Surface and Subsurface Agreement, PPG File #48 State Lease #18165, Empire Field, Plaquemines Parish, Louisiana Mrs. Mary Lou Pennison, Surface Lease Empire Field, Plaquemines Parish, Louisiana Sharon Stockfleth Dickinson, Surface Lease Empire Field, Plaquemines Parish, Louisiana James R. Stockfleth, Surface Lease Empire Field, Plaquemines Parish, Louisiana Page 35 of 72 First Amended Disclosure Statement Dated March 28, 2013

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On April 14, 2012, in compliance with the TGSN License, Offshore provided written notice to TGSN that the Oil Plan Trust a Related Entity as that term is used under the TGSN License would use the Seismic Material to review and propose future operations at Ship Shoal. On June 19, 2012, Mr. Ben Kadden, on behalf of the Oil Plan Trust, again notified TGSN of the Oil Plan Trusts intended use of the Seismic Material and again sought access to same. On June 22, 2012, Mr. Kadden received a letter from TGSN denying its consent for transfer of any geophysical and/or geological data under the TGSN License to the Oil Plan Trust. In the letter, TGSN asserted that because Offshore had consented to the Order for Relief and the appointment of the Trustee, the TGSN license had been terminated effective immediately.25 On October 23, 2012, the Trustee filed a Motion to Assume the TGSN License for the benefit of the Offshore Estate. In the Motion to Assume, the Trustee asserted that the TGSN License is a valuable asset of the Offshore Estate and that Offshore requires the license and access to the Seismic Material in the ordinary course of its business operations as a working interest owner in Ship Shoal. Accordingly, the TGSN License enables Offshore to analyze the value of its interest in the applicable blocks, propose future development, effectively consider offers from third parties for purchase of its oil and gas assets, and/or provide necessary access to Related Entities including the Oil Plan Trust. On November 6, 2012, TGSN filed an Opposition to the Trustees Motion to Assume, alleging that the Seismic Material was subject to federal copyright law and that the TGSN License could not be assumed by the Trustee under section 365 of the Bankruptcy Code. The Trustee filed a Reply to TGSNs Opposition on November 14, 2012. On November 20, 2012, the Bankruptcy Court entered an Order granting the Motion to Assume and permitting assumption of the TGSN License by the Trustee. Thereafter, on November 27, 2012, TGSN filed a Notice of Appeal indicating that it would appeal the Bankruptcy Courts Order authorizing the assumption of the TGSN License. In connection therewith, TGSN filed a Motion to Stay Pending Appeal Pursuant to Rule 8005 requesting the Bankruptcy Court to enter an order staying the assumption pending the outcome of TGSNs appeal. The Trustee filed an Opposition to the Motion to Stay Pending Appeal on December 5, 2012. On December 6, 2012, the Bankruptcy Court entered an Order denying TGSNs Motion to Stay Pending Appeal. In its Reasons for the Order, the Bankruptcy Court summarized its previous findings that the TGSN License did not prohibit the assumption of the license by the Trustee, and that no law, state or federal, excused TGSN from accepting performance from Offshore. TGSNs appeal is currently pending before the United States District Court for the Eastern District of Louisiana.

25

TGSN also referred the Oil Plan Trust to a separate letter, also dated June 22, 2012 and addressed to Offshore, which purportedly terminated the TGSN License and demanded the return of all Seismic Material. This letter was sent to an improper address and was never received by the Trustee. Page 36 of 72 First Amended Disclosure Statement Dated March 28, 2013

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K.

Claims Bar Date

On September 19, 2012, the Bankruptcy Court entered an Order setting December 7, 2012 as the last date for filing Claims against Offshore (the Offshore Claims Bar Date) and January 7, 2013 as the last date for filing governmental unit claims (the Offshore Governmental Claims Bar Date). Notice of the Offshore Claims Bar Date and the Offshore Governmental Claims Bar Date was mailed to all persons on the Offshore mailing matrix, and each Creditor received a letter from the Trustee containing the bar date order and a proof of claim form. This letter from the Trustee advised of the necessity of filing proofs of claim as a pre-condition to Allowance of those Claims listed as disputed, unliquidated, or contingent. Claims scheduled as disputed, unliquidated, or contingent, will be disallowed if proof of any such Claim is not filed by the Offshore Claims Bar Date or, where applicable, the Offshore Governmental Claims Bar Date. L. Monthly Operating Reports

The Trustee has filed Monthly Operating Reports for the months of October 2011 through January 2013. As with the Bankruptcy Schedules, copies of the Monthly Operating Reports may also be obtained from the Office of the Clerk of Court for the United States Bankruptcy Court for the Eastern District of Louisiana, 500 Poydras Street, Room B-709, New Orleans, LA 70130. Copies of these monthly operating reports may be obtained by written request to the Trustees attorneys, Louis M. Phillips, Rick M. Shelby and Armistead M. Long, Gordon, Arata, McCollam, Duplantis & Eagan, LLC, One American, Place, 301 Main Street, Suite 1600, Baton Rouge, LA 70801-1916. THE SUMMARY OF THE PLAN SET FORTH BELOW IN ARTICLE VII AND THE FOLLOWING ARTICLES IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PLAN. IN THE EVENT OF ANY INCONSISTENCY BETWEEN THE PROVISIONS OF THE PLAN AND THE SUMMARY CONTAINED HEREIN, THE TERMS OF THE PLAN WILL GOVERN. A COPY OF THE PLAN IS ATTACHED HERETO AS EXHIBIT A. CREDITORS ARE ENCOURAGED TO THOROUGHLY REVIEW THE TERMS OF THE PLAN AND TO SEEK INDEPENDENT LEGAL OR FINANCIAL ADVICE REGARDING THE TERMS OR TREATMENT CONTAINED THEREIN. IX. SUMMARY OF THE PLAN TERMS CONCERNING CLASSIFICATION AND TREATMENT OF CLAIMS, ACCEPTANCE OR REJECTION OF PLAN, DISTRIBUTIONS, AND DISPUTED CLAIMS A. General

The Plan provides for the payment of Allowed Administrative Expense Claims and Allowed Priority Claims (if any), and four separate classifications of claims, the Allowed Empire Secured Claims, the Allowed RLI Insurance Claim, Allowed General Unsecured Claims, and Allowed Equity Interests.

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B.

Unclassified Claims

As provided in section 1123(a)(a) of the Bankruptcy Code, Administrative Expense Claims, Priority Tax Claims, and Professional Fee Claims are not classified for purposes of voting on, or receiving distributions under, the Plan. Holders of Administrative Expense Claims, Priority Tax Claims, and Professional Fee Claims are not entitled to vote on the Plan but, rather, are treated separately under section 1129(a)(9)(A) of the Bankruptcy Code. 1. Administrative Expense Claims Administrative Expense Claims shall be comprised of all Claims entitled to administrative priority under and pursuant to sections 507(a)(1) and 503 of the Bankruptcy Code. Administrative Expense Claims are costs or expenses of administration of Offshores Chapter 11 Case incurred prior to the Effective Date and allowed under sections 503(b) and 507(a)(l) of the Bankruptcy Code, including, without limitation (i) actual and necessary costs and expenses of preserving the Estate or; (ii) indebtedness or obligations incurred or assumed by Offshore during the Chapter 11 Case, including, without limitation, all compensation and reimbursement of expenses to the extent allowed by Final Orders under section 330 or 503(b) of the Bankruptcy Code, and (iii) fees or charges assessed against the Estate under 28 U.S.C. 1930. All Professionals seeking payment of an Administrative Claim pursuant to an award by the Bankruptcy Court of compensation for services rendered or reimbursement of expenses incurred through and including the Effective Date under Sections 503(b)(2), 503(b)(3) or 503(b)(4) of the Bankruptcy Code shall file their respective final applications for allowances of compensation for services rendered and reimbursement of expenses incurred through the Effective Date within thirty (30) days of the occurrence of the Effective Date. If granted, such Professional Compensation Claim shall be paid in full in such amounts as are Allowed by the Bankruptcy Court (i) on the date such Administrative Claim becomes an Allowed Administrative Claim, or as soon thereafter as is practicable or (ii) upon such other terms as may be mutually agreed upon between the Holder of an Administrative Claim and the Trustee or, on and after the Effective Date, the Offshore Equity Trustee. The Holder of an Administrative Expense Claim, other than (i) a claim for fees by professionals employed by the bankruptcy estate under section 327 of the Bankruptcy Code, (ii) the fees payable to the U.S. Trustee under 28 U.S.C. 1930, and (iii) an Administrative Expense Claim which is Allowed by Final Order prior to the Confirmation Date, must file with the Bankruptcy Court within twenty (20) days after the Effective Date and serve on Offshore against whom the Claim is asserted, and its counsel, and all parties on the limited mailing matrix approved by order of the Bankruptcy Court, a request for payment of such Administrative Expense Claim. Such request must (1) be set and noticed for hearing in accordance with the Bankruptcy Rules and the Local Rules of the Bankruptcy Court, and (2) set forth at a minimum (i) the name of the Holder of the Claim, (ii) the amount of the Claim, (iii) the basis of the Claim, and (iv) the basis for its allowance as an Administrative Expense Claim. This requirement shall not supersede any applicable Local Rule of the Bankruptcy Court regarding the required content of motions seeking approval of Administrative Expense Claims. Failure to file this request
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timely and properly shall result in the Administrative Expense Claim being forever barred and discharged. Except to the extent any entity entitled to payment of any Allowed Administrative Expense Claim agrees to a different treatment, the Plan provides that each Holder of an Allowed Administrative Expense Claim will receive cash in an amount equal to such Allowed Administrative Expense Claim on the later of the Effective Date or within twenty (20) days after the date such Administrative Expense Claim becomes an Allowed Administrative Expense Claim. Notwithstanding the immediately preceding two (2) paragraphs, however, Allowed Administrative Expense Claims representing liabilities incurred in the ordinary course of business by Offshore through the Effective Date, except, (i) Allowed Administrative Expense Claim for Professional Fees, (ii) outside the ordinary course of business borrowing, (iii) any ordinary course of business expense that is past due according to business terms after the Petition Date, and (iv) the amount necessary to provide cure payments for the assumption of executory contracts or unexpired leases, shall be paid in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions, as the Claims accrue, and only such expenses incurred in the operation of the ordinary course of the business of Offshore, post-petition, shall be assumed by Offshore as ordinary course of business obligations, to be paid post-Confirmation as these Claims come due. Entities doing business with Offshore post-petition and prior to the Effective Date whose Allowed Administrative Expense Claims represent Claims arising in the ordinary course of business post-petition shall not be required to file a request for payment as otherwise required herein. Total Administrative Expense Claims through Confirmation have not been estimated at this time. However, as of the date of the Plan, GAMDE estimates that fees and expenses due to it from the Estate will aggregate approximately $220,000 for the period from that encompassed by GAMDEs First Interim Fee Application through the Confirmation Date. The Trustee is also entitled to the trustee commission as calculated under section 326 of the Bankruptcy Code currently at three (3%) percent of all monies disbursed. Trustee fees due as of the date of filing of this Disclosure Statement approximate $75,000. Trustees compensation will accrue at three (3%) percent of total disbursements to Creditors both until and after the Effective Date. As of the date of this Disclosure Statement, the Gros Firm estimates that fees and expenses due to it from the Estate will aggregate approximately $12,000 for the period from that encompassed by the Gros Firms Second Interim Fee Application through the Confirmation Date. All pre-Effective Date Fee Claims are subject to review and approval by the Bankruptcy Court. After the Effective Date, Bankruptcy Court approval will not be sought prior to payment of Professional fees to counsel and for accounting services and for services of the Trustee as President of Reorganized Offshore and the Offshore Equity Trustee. Classified Administrative Expense Claims shall not be entitled to vote on the Plan.
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2. Priority Tax Claims Each Holder of an Allowed Priority Tax Claim shall receive Cash in an amount equal to the amount of such Allowed Priority Tax Claim on the latest of (a) the Effective Date or (b) the first Periodic Distribution Date after such Priority Tax Claim is Allowed pursuant to (i) any agreement between the Trustee and the Holder of such Priority Tax Claim or (ii) a Final Order. The Trustee retains the right to prepay any Allowed Priority Tax Claim, or any remaining balance of such a Claim, in full or in part, at any time on or after the Effective Date without premium or penalty. The only Priority Tax Claims filed against the Estate and subject to review by the Trustee are Claim No. 4 by the IRS for $10,058.80 and Claim Nos. 15 and 16 filed by the Louisiana Department of Revenue for a total of $17,318.82. Holders of Allowed Priority Tax Claims are covered by section 1129(a)(9) of the Bankruptcy Code, and, therefore, will not be solicited and shall not vote on the Plan. 3. Other Offshore has been paying its ongoing expenses in the ordinary course of business. It is current on its payment obligations to the Office of the United States Trustee. C. Classified Claims and Treatment Summary

The categories of Claims and Equity Interests listed below classify Claims and Equity Interests for all purposes, including voting, confirmation, and distribution pursuant hereto and pursuant to sections 1122 and 1123(a)(1) of the Bankruptcy Code. A Claim or Equity Interest shall be deemed classified in a particular Class only to the extent that the Claim or Equity Interest qualifies within the description of that Class and shall be deemed classified in a different Class to the extent that any remainder of such Claim or Equity Interest qualifies within the description of such different Class. A Claim or Equity Interest is in a particular Class only to the extent that such Claim or Equity Interest is Allowed in that Class and has not been paid or otherwise settled prior to the Effective Date. Class Number Class 1 Class 2 Class 3 Class 4 Claim Empire Secured Claims RLI Insurance Claim General Unsecured Claims Debtor Equity Interests Status Impaired Impaired Impaired Impaired Voting Rights Entitled to Vote Entitled to Vote Entitled to Vote Entitled to Vote

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1. CLASS 1 EMPIRE SECURED CLAIMS (1) Claim.

Class 1 consists of the Empire Secured Claims. As of the Effective Date, the Empire Secured Claims shall be reduced by all payments made by the Estate to Holders of Empire Secured Claims after the Petition Date. As of the Petition Date, the Empire Secured Claims totaled $3,983,954.02. A schedule of the Empire Secured Claims is attached as Exhibit G. As of the date of the filing of the Plan, the Empire Secured Claims have been reduced by $864,595.28. (2) Treatment.

The Holder of an Allowed Empire Secured Claim shall receive in full and final satisfaction of any and all Class 1 Secured Claims against the Debtor payments from the Empire Lease production proceeds in accordance with the Oil/Offshore Compromise and the Empire Lien Compromise, or, in the event of sale of interest of the Debtor or Reorganized Debtor in the Empire Lease (i) 80% of the proceeds attributable to such interest plus (ii) an amount equal to 80% of the interest of the Virgin Oil Plan Trust in the Empire Lease if such interest is sold or if such interest is not sold a continuation of the share of the payments by the Virgin Oil Plan Trust to be made to the Reorganized Debtor under the Empire Lease Compromise and the Oil/Offshore Settlement as called for under the Oil/Offshore Settlement and the Empire Lease Compromise (80% of such payments). In the event that proceeds from the Empire Lease and the Empire Lease Collateral discontinue and are insufficient to satisfy the full amount of the Empire Secured Claims any unsecured portion of an Empire Secured Claims shall be treated as a Class 3 General Unsecured Claim. Confirmation of the Plan shall constitute the reaffirmation of all Liens in favor of the Holders of Allowed Empire Secured Claims as of the Petition Date and all Liens granted under the Empire Lien Compromise. Further, Confirmation shall constitute the granting to Holders of Allowed Empire Secured Claims a Lien on eighty percent (80%) of the proceeds received by the Debtor and/or Reorganized Debtor from the Empire Lease production and/or the proceeds allocated to the value of the Empire Lease in connection with a transfer of the Empire Lease approved by Final Order of the Bankruptcy Court in the amount of the Empire Secured Claims. At all times the terms, conditions, and obligations of Offshore and the Holders of Allowed Empire Secured Claims under the Empire Lien Compromise shall remain in full force and effect until the Empire Secured Claims are paid, in full. To the extent that additional documentation is necessary, Reorganized Offshore shall be authorized and directed to execute such documentation. The Holders of Allowed Empire Secured Claims shall not take any affirmative action to foreclose on or otherwise attempt to affirmatively enforce the Liens of the Holder(s) of Empire Secured Claims against the Empire Lien collateral.

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(3)

Voting.

The Holders of Class 1 Empire Secured Claims are IMPAIRED and shall be entitled to vote to accept or reject the Plan. 2. CLASS 2 RLI INSURANCE CLAIM (1) Claim.

Class 2 consists of the RLI Insurance Claim. RLI Insurance Company is the Holder of the RLI Insurance Claim. (2) Treatment.

On the Effective Date, the Debtor shall pay its portion of the outstanding bond premiums on Existing Oil and Gas Assets. In connection with the Plan, those certain indemnity agreements and assignments of P&A escrow accounts (the P&A Escrow Accounts) executed by the Debtor and/or Virgin Oil in favor of RLI (collectively the Bond Documents) will be assumed and the Debtors obligations under the Bond Documents shall continue. As to oil and gas leases that expired prior to the Petition Date (Expired Leases) for which Bonds were issued, the Reorganized Debtor shall honor its obligations to continue the plug and abandonment work on the Expired Leases (the P&A Work) as specifically set forth in the Oil/Offshore Settlement and approved by the Bankruptcy Court. To satisfy the P&A Work obligations, the Reorganized Debtor shall utilize funds provided by RLI, arising out of and limited to the appropriate bonds, in conjunction with and with the prior approval of BOEM, to pay for the initial expense of any such P&A Work. Thereafter, RLI shall (i) draw down on any applicable P&A Escrow Account(s) to reimburse itself for any draws under any Bond, and (ii) receive a General Unsecured Claim to be treated as a Class 3 Claim under the Plan, to the extent RLI is not reimbursed out of the P&A Escrow Account. For the avoidance of doubt, RLI shall receive upon the completion of the P&A Work, a Class 3 General Unsecured Claim in the amount of the total draws under all Bonds less the funds drawn down by RLI on the P&A Escrow Accounts. (3) Voting.

Class 2 is IMPAIRED. Class 2 will be entitled to vote to accept or reject the Plan. 3. CLASS 3 UNSECURED CLAIMS (1) Claim.

Class 3 consists of all Allowed General Unsecured Claims. (2) Treatment.

On the Effective Date, each Holder of Allowed Class 3 General Unsecured Claims shall contribute the Allowed amount of such Class 3 Claim in exchange for a beneficial interest in the Offshore Equity Trust, which shall be the owner of the new Equity Interest in Reorganized
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Offshore, to be issued as of the Effective Date. Each Holder of an Allowed Unsecured Claim shall receive a beneficial interest equal to such Holders pro rata share of the Allowed Class 3 Unsecured Claims (the Offshore Equity Trust Beneficiaries). Each Holders pro rata share of the Beneficial Interest in the Offshore Equity Trust shall be determined as of the date on which all Allowed Unsecured Claims have been determined by final and unappealable Order pursuant to the Claims Objection process described in Article V of the Plan. Additionally, due to the treatment of the Class 2 RLI Insurance Claim and the uncertainty of Reorganized Offshores P&A liability, no Distributions shall be made to Holders of Class 3 Claims until completion of the P&A Work and determination of all Allowed Claims. Based on the uncertainty of the timing and cost of the P&A Work and subsequent determination of the final RLI General Unsecured Claim, the Trustee cannot determine the amount, if any, of Distributions that shall be made to Holders of Class 3 Claims at this time. Upon completion and determination of Allowed Claims, including the RLI General Unsecured Claim, and the liquidation of Reorganized Offshores assets as set forth in Article VI of the Plan, Reorganized Offshore shall be able to report to the Offshore Equity Trust the identities of the Offshore Equity Trust Beneficiaries and pro-rata share of Distributions to be made to each Offshore Equity Trust Beneficiaries. Due to the material uncertainties related to the P&A Work and liquidation of Offshores remaining assets, Distributions to Allowed Unsecured Claims may not occur. Furthermore, the timing of a final determination of all Allowed Claims is dependent solely upon completion of the P&A Work. As of the filing of the Plan, the anticipated completion of the P&A Work is October 2013. It is expected that within 30-60 days of the P&A Work completion, Reorganized Offshore should have a final determination of the Allowed Claims. At that time, Distributions will only be deliverable from a successful outcome of the D&O Litigation and/or a successful liquidation of Reorganized Offshores assets. Presently, it is too speculative for the Trustee to estimate any amount of Distributions. Furthermore, because all revenue from the Producing Wells is being utilized by Offshore and/or Reorganized Offshore for cost and expenses, the Trustee does not anticipate making any partial Distributions. Within thirty (30) days after the determination of Allowed Unsecured Claims, Reorganized Offshore shall provide to the Offshore Equity Trustee a final list of Allowed Class 3 Claims that identifies the Offshore Equity Trust Beneficiaries. The Offshore Equity Trust Beneficiaries shall receive pro-rata shares of any Distributions as set forth in Article VI of the Plan. A current schedule of the General Unsecured Claims that have been filed by Creditors and/or scheduled by the Debtor (and not currently identified as Disputed) is attached as Exhibit H, but Exhibit H does not, in the estimation of the Plan Proponent, represent the relative interests that shall become the interests of the Offshore Equity Trust Beneficiaries. To the extent that (i) any Holder of an Allowed Class 3 Claim receives a payment in partial or complete satisfaction of such Allowed Class 3 Claim from a source other than the Reorganized Debtor, including without limitation, recovery from the Virgin Oil Plan Trust; or, (ii) RLI and/or Holders of Allowed Empire Secured Claims become entitled to an Allowed Class 3 claim pursuant to Section III(B)(2) of the Plan, the pro rata calculation for future Distributions and division beneficial interests in the Offshore Equity Trust Assets shall be adjusted retroactively to the Effective Date and future Distributions to Holders of Allowed Class 3 Claims shall be adjusted accordingly.
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(3)

Voting.

Class 3 is IMPAIRED. Class 3 will be entitled to vote to accept or reject the Plan. 4. CLASS 4 EQUITY INTERESTS (1) Classification

Class 4 consists of existing Equity Interests. The Virgin Oil Plan Trust is the only Holder of an Equity Interest in the Debtor. (2) Treatment.

On the Effective Date, all existing Equity Interests shall be converted into a secondary subordinated beneficial interest in the Offshore Equity Trust, to be issued as of the Effective Date (the Secondary Offshore Equity Trust Beneficiary). The agreements, instruments, and other documents relating to any Equity Interests, shall be cancelled, and any rights, obligations, and Claims under all such agreements, instruments, and other documents will be deemed fully and finally waived, released, cancelled, extinguished, and forever discharged. The rights of the Secondary Offshore Equity Trust Beneficiary to receive Distributions shall be subordinate to the rights of the Offshore Equity Trust Beneficiaries and the Secondary Offshore Equity Trust Beneficiary shall only receive Distributions from the Offshore Equity Trust in the event that and after all expenses of the Offshore Equity Trust are paid in full, all Allowed Claims in Classes 1 and 2 are paid in full, and Distributions in the aggregate amount of the Allowed Class 3 Claims have been made to the Offshore Equity Trust Beneficiaries, including Distributions to the Holders of Class 2 Claims on account and in the amount of any such Holders Class 3 Claim. (3) Voting.

Class 4 is IMPAIRED. Class 4 will be entitled to vote to accept or reject the Plan. X. PROCEDURES FOR RESOLVING AND TREATING CONTESTED AND DISPUTED CLAIMS A. Prosecution of Objections to Claims

As of the Effective Date, Reorganized Offshore shall have the exclusive authority on or before the Claims Objection Bar Date26 to file objections, settle, compromise, withdraw or litigate to judgment objections to Claims. Hearings on any such objections shall be fixed for hearing at least twenty-eight (28) days after the filing of the objections or at such other time as may be fixed by the Bankruptcy Court or agreed to by the parties (subject to the authority of the Bankruptcy Court). Reorganized Offshore shall litigate to judgment, settle or withdraw objections to Disputed Claims, and with regard to objections, if any, pending as of Confirmation,
26

Claims Objection Bar Date means, for all Claims, the latest of (a) 180 days after the Effective Date, or (b) such other period of limitation as may be specifically fixed by a Final Order of the Bankruptcy Court for objecting to such Claim. Page 44 of 72 First Amended Disclosure Statement Dated March 28, 2013

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Reorganized Offshore shall be deemed, without further action of the Bankruptcy Court, to be the judicial substitute as the party in interest with Bankruptcy Court approved standing in Bankruptcy Case, under the Plan, or in any judicial proceeding or appeal to which the Trustee is a party, and shall be entitled to litigate to judgment, settle or withdraw objections to Disputed Claims without the necessity of notice or hearing. From and after the Effective Date, Reorganized Offshore may settle or compromise any Disputed Claim without approval of the Bankruptcy Court. B. Allowance of Claims

Except as to Claims allowed by the Plan or as otherwise expressly provided herein or in any Final Order by the Bankruptcy Court prior to the Effective Date (including the Confirmation Order), no Claim shall be deemed Allowed, unless and until such Claim is deemed Allowed under the Bankruptcy Code or the Bankruptcy Court enters a Final Order in the Chapter 11 Case allowing such Claim. Except as to Claims Allowed by the or any order entered by the Bankruptcy Court prior to the Effective Date (including the Confirmation Order), the Reorganized Debtor, after confirmation, will have and retain any and all rights and defenses the Debtor or the Trustee had with respect to any Claim as of the Petition Date or thereafter. To the extent that Reorganized Offshore objects to any filed Claims and there has been no final determination regarding allowance of such Disputed Claims prior to any Distribution, Reorganized Offshore shall escrow such claimants pro-rata share27 of any Distribution and retain such amount until the Bankruptcy Court enters a Final Order in the Chapter 11 Case allowing or denying such Claim. C. Controversy Concerning Impairment

If a controversy arises as to whether any Claims or any Class of Claims are Impaired under the Plan, the Bankruptcy Court shall, after notice and a hearing, determine such controversy before the Confirmation Date. D. Payments and Distributions on Disputed Claims and Class 3 Claims

Notwithstanding any provision herein to the contrary, except as otherwise agreed by the Debtor and/or Reorganized Debtor, in its sole discretion, no payments, partial payments, Distributions, partial Distributions, treatment or Plan classification will be made with respect to a Holder of a Disputed Claim and Holders of Class 3 General Unsecured Claim until the resolution of all Disputed Claims by settlement or Final Order. Upon resolution of all Disputed Claim, by settlement or Final Order and the providing by the Reorganized Debtor of the final list of allowed Class 3 Claims to the Offshore Equity Trustee, the beneficial interests in the Offshore Equity Trust shall be deemed to have been issued to the Offshore Equity Trust Beneficiaries. Thereafter, distributions to the Offshore Equity Trust and to Offshore Trust Beneficiaries shall be made in conformity with Article VI of the Plan. No distributions to Holder(s) of Class 4 Claims

27

Pro Rata Share means, at any time, the proportion that the amount of a Claim in a particular Class or Classes (or portions thereof, as applicable) bears to the aggregate amount of all Claims (including Disputed Claims) in such Class or Classes, unless the Plan provides otherwise. Page 45 of 72 First Amended Disclosure Statement Dated March 28, 2013

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shall be made unless and until all Allowed Claims in Classes 1, 2 and 3 have been paid in full and there are remaining assets to be liquidated and/or funds available for Distribution. XI. EXECUTORY CONTRACTS AND UNEXPIRED LEASES

Immediately prior to the Effective Date, all executory contracts and unexpired leases of the Debtor for which assumption has not been previously approved by Final Order of the Bankruptcy Court will be deemed assumed by Reorganized Offshore except those executory contracts and unexpired leases that (1) have been rejected by order of the Bankruptcy Court, (2) are subject of a motion to reject pending on the Effective Date, (3) are identified on a list to be filed with the Bankruptcy Court on or before the Confirmation Date as contracts or leases to be rejected, or (4) are rejected pursuant to the terms of the Plan. The Trustee hereby excludes any and all settlement agreements and related contracts approved by Final Order of the Bankruptcy Court from the category of executory contracts covered by the Plan, including but not limited to the Oil/Offshore Settlement, the Empire Lien Compromise, the Contract Operator Agreement, the Recovery Allocation Agreement, and the Decommissioning Term Sheet. Entry of the Confirmation order by the Bankruptcy Court shall constitute approval of such assumption and rejection of executory contracts and unexpired leases pursuant to Sections 365(a) and 1123 of the Bankruptcy Code. The Investors contracts in the Producing Wells are executory contracts pursuant to Section 365 of the Bankruptcy Code. Reorganized Offshore shall reject the Investors contracts in connection with the Producing Wells.28 Furthermore, with respect to the Investors in the Producing Wells (Ship Shoal and Empire), Reorganized Offshore shall within 30 days after the Effective Date institute proceedings to avoid any contractual claim to ownership in the Producing Wells pursuant to section 544(a)(3) of the Bankruptcy Code. To the extent that the Investors in the Producing Wells assert a rejection claim, Reorganized Offshore reserves the right to offset the funds escrowed from production for P&A (which the Trustee submits is the entire amount of production remaining after payment of expenses) against the amounts the Investors claim are due as a result of the rejection of their contractual agreements. The Trustees best estimate of the Investors interests applicable to such offset is provided in the attached Exhibit K. The provisions (if any) of each Executory Contract and Unexpired Lease to be assumed and assigned under the Plan which are or may be in default, shall be satisfied solely by Cure. At least ten (10) days prior to the Confirmation Hearing, any party to an Executory Contract or Unexpired Lease that is to be assumed under the Plan shall submit in writing to the Trustee an estimate of that partys alleged Cure Claim. To the extent that the Trustee does not object to the estimated Cure Claim at or before the Confirmation Hearing, such Cure Claim shall be deemed allowed and paid as an Administrative Claim on the Effective Date. In the event of a dispute regarding (a) the nature or the amount of any Cure, (b) the ability of the Debtor to provide adequate assurance of future performance (within the meaning of section 365 of the Bankruptcy Code) under the contract or lease to be assumed, or (c) any other matter pertaining to assumption, the Bankruptcy Court shall make a determination as to the nature and amount of
28

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such Cure Claim(s) at the Confirmation Hearing, and Cure shall occur as soon as practicable following the entry of a Final Order resolving the dispute and approving the assumption and, as the case may be, assignment. Any Rejection Claim must be filed with the Bankruptcy Court and served upon the Trustee by, the earlier of, thirty (30) days after (i) notice of entry of an order approving the rejection of such Executory Contract or Unexpired Lease, or (ii) fourteen (14) days after the Confirmation Date. Any such Claim that is not filed with the Bankruptcy Court within the time provided above will be deemed discharged and not entitled to participate in Offshore Equity Trust Distributions under the Plan. Unless otherwise ordered by the Bankruptcy Court, all Claims arising from the rejection of Executory Contracts and Unexpired Leases will be treated as a Class 3 General Unsecured Claim. XII. MEANS OF IMPLEMENTATION OF THE PLAN A. Operation of Reorganized Offshore Post-Effective Date

Reorganized Offshore will exist after the Effective Date as a separate entity, with all the powers of a corporation under the applicable law, without prejudice to any right to terminate such existence (whether by merger or otherwise) under applicable law after the Effective Date. Except as otherwise provided in the Plan, on the Effective Date, all property, including appurtenant rights and privileges, comprising the Offshore Estate will vest in Reorganized Offshore, free and clear of all Claims, Liens, charges, encumbrances and interests of Creditors and Holders of Equity Interests (except as otherwise expressly provided in the Plan). As of the Effective Date, Reorganized Offshore may operate its business and use, acquire and settle and compromise Claims without supervision of the Bankruptcy Court free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by the Plan and Confirmation Order. Reorganized Offshore may also pay the charges it incurs for Professional fees, disbursements, expenses or related support services after the Effective Date without any application to the Bankruptcy Court. The Confirmation Order shall also provide that Reorganized Offshore will be responsible for the timely payment of all statutory fees under 28 U.S.C. 1930 relating to the Bankruptcy Case. In conformity with applicable non-bankruptcy law, Reorganized Offshore shall cause to be filed with all appropriate governmental agencies appropriate Restated Articles of Incorporation and/or By-Laws, to the extent necessary under the Bankruptcy Code and as necessary to conform to the terms of the Plan. A form of the Restated Articles of Incorporation and the Restated By-Laws, if any, shall be contained in the Plan Supplement. The articles of organization of Offshore shall be amended and restated to the extent necessary: (i) to prohibit the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, subject to further amendment as permitted by applicable law; and (ii) to effectuate the provisions of the Plan, without the need for any further approval action by Offshore or its shareholders, officers, or directors, or Reorganized Offshore or its shareholders, officers, or directors. After the Effective Date, the Equity Interest in Reorganized Offshore shall be held by the Offshore Equity Trust for the beneficial interest of Holders of Allowed Claims.

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On the Effective Date, all matters provided for under the Plan that would otherwise require approval of Offshore and/or Reorganized Offshore or its shareholders, officers, or directors, including, without limitation, the adoption and effectiveness of the Restated Articles of Incorporation and/or By-Laws, and the election or appointment, as the case may be, of officers of Reorganized Offshore as provided for under the Plan, shall be deemed to have occurred and shall be in effect from and after the Effective Date without any requirement of further action by Offshore or Reorganized Offshore or its shareholders, officers, or directors. As of the Effective Date, the officers of Reorganized Offshore shall be authorized and directed to issue, execute and deliver, through authorized representatives, the agreements, documents, securities and instruments contemplated by the Plan in the name of and on behalf of Reorganized Offshore. By means of Confirmation, the Trustee, Gerald H. Schiff, shall be deemed and appointed (and shall have all past acts ratified) as President and sole Director of Reorganized Offshore, and Lori Montecino shall be deemed and appointed as Secretary of Reorganized Offshore. Gerald Schiff shall compensation as a director and president of Reorganized Offshore equal to 3% of payments to creditors of Reorganized Offshore (which shall not be inclusive of distributions to the Offshore Equity Trust) and Lori Montecino shall continue to receive her contract rate of $3,500 per month as compensation. Reorganized Offshore shall be entitled to retain professionals of its choosing. Reorganized Offshore shall make periodic Distributions to the Offshore Equity Trust as follows: (i) Distributions of the net proceeds, if any, from the sale and/or transfer of Existing Oil and Gas Assets by Reorganized Offshore within sixty (60) days of receipt of the proceeds, subject to payment of the Class 1 Empire Secured Claims from any proceeds allocated to the Empire Lease; (ii) Distributions of the net proceeds from currently Producing Wells, less the Distributions due to the Class 1 Empire Secured Claims and after payment of reasonable and ordinary expenses; (iii) Distributions of the net proceeds, if any, from the prosecution and/or settlement of the D&O Litigation by Reorganized Offshore within sixty (60) days of receipt and after payment of all fees and expenses; (iv) Distributions of the net proceeds, if any, derived from the BP Claim by Reorganized Offshore within sixty (60) days of receipt of the net proceeds; and (v) if, in the sole discretion of the management of Reorganized Offshore, available Excess Cash exists in an amount sufficient to render feasible a Distribution of Excess Cash to the Offshore Equity Trust for the benefit of the Offshore Equity Trust Beneficiaries, Reorganized Offshore shall make such a Distribution. B. The Offshore Equity Trust and Appointment, Powers and Removal of the Offshore Equity Trustee i. Establishment of the Offshore Equity Trust

On the Effective Date, the Debtor, by and through the Trustee, shall execute the Offshore Equity Trust Agreement, a form of which will be filed by the Plan Proponent as part of the Plan Supplement at least twenty (20) days prior to the Confirmation Hearing, and shall take all other steps necessary to establish the Offshore Equity Trust. The Confirmation Order shall specifically include and constitute approval of the Offshore Equity Trust Agreement and authorization of the Trustee to execute the Offshore Equity Trust Agreement on behalf of the Debtor.
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ii.

Purpose of the Offshore Equity Trust

After the Effective Date, the Offshore Equity Trust will make Distributions to Offshore Equity Trust Beneficiaries according to the terms of the Plan and the Offshore Equity Trust Agreement. The Offshore Equity Trust shall be established for the sole purpose of holding the Equity Interest of Reorganized Offshore and distributing the Distributions made by Reorganized Offshore to the Offshore Equity Trust, which shall hold such Distributions as necessary to pay expenses of the Trust and thereafter for the benefit of Offshore Equity Trust Beneficiaries in accordance with Treasury Regulation section 301.7701-4(d). The Offshore Equity Trust shall not have as its objective the conduct of a trade or business for profit but shall own the new Equity Interests in Reorganized Offshore for the purpose of directing the liquidation the assets of Reorganizing Offshore by virtue of the sole membership interest of the Trust and the officer and director status as regards Reorganized Offshore of the Offshore Equity Trustee. Interests in the Offshore Equity Trust shall not be certificated or transferable, except with respect to a transfer by will or under the laws of descent and distribution, as set forth in the Offshore Equity Trust Agreement. iii. Issuance of Equity by the Debtor to the Offshore Equity Trust

Upon the Effective Date, all Class 4 Equity Interests shall be cancelled and the Debtor shall issue new equity interests to the Offshore Equity Trust for the benefit of the Offshore Equity Trust Beneficiaries and Secondary Offshore Equity Trust Beneficiary, free and clear of any and all Claims, Interests, debts, Liens, Security Interests, and encumbrances but subject to the Liens specifically provided for under the Plan or in the Confirmation Order. Under section 1145 of the Bankruptcy Code, the interest of the Offshore Equity Trust Beneficiaries and Secondary Offshore Equity Trust Beneficiary in Distributions, if any, from the Offshore Equity Trust shall be exempt from registration under the Securities Act of 1933, as amended, and applicable state and local laws requiring registration of securities. The interests of the Offshore Equity Trust Beneficiaries and Secondary Offshore Equity Trust Beneficiary in Distributions from the Offshore Equity Trust shall be exempt from registration under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 because: (i) the interests in the Offshore Equity Trust will not be represented by certificates; (ii) the Offshore Equity Trust exists for the sole purpose of directing the liquidation and distribution the Reorganized Offshore Assets; (iii) the Offshore Equity Trust shall only exist for the period of time necessary to accomplish this stated objective; (iv) the Offshore Equity Trust and Reorganized Offshore will issue annual unaudited financial statements to Offshore Equity Trust Beneficiaries and Secondary Offshore Equity Trust Beneficiary; (v) the Bankruptcy Court shall have continuing jurisdiction over all matters related to the Offshore Equity Trust; and (vi) the interests in the Offshore Equity Trust will not be transferable, except with respect to a transfer by will or under the laws of descent and distribution, as set forth in the Offshore Equity Trust Agreement. If, however, the Offshore Equity Trustee determines, with advice of counsel, that the Offshore Equity Trust is required to comply with the registration and reporting requirements of the Securities Exchange Act of 1934, as amended, the Investment Company Act of 1940, as amended or any state or local laws, then the Offshore Equity Trustee shall take any and all action to comply with such registration and reporting requirements.
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iv.

Appointment of and Compensation for the Offshore Equity Trustee

The Trustee shall serve as the Offshore Equity Trustee following Confirmation of the Plan. On the Effective Date, the Trustee shall be appointed as the Offshore Equity Trustee. Any successor Offshore Equity Trustee shall be appointed as provided for in the Offshore Equity Trust Agreement. The Offshore Equity Trustees powers and duties are described below, and are further explained in the Offshore Equity Trust Agreement. The Offshore Equity Trustee, and any successor Offshore Equity Trustee, shall receive, without Bankruptcy Court approval, reasonable compensation for services rendered equivalent to three (3%) percent of (1) all Distributions made by the Offshore Equity Trustee, including but not limited to all payments made by the Offshore Equity Trustee in the ordinary course to maintain the Offshore Equity Trust, all Distributions, if any, made to Offshore Equity Trust Beneficiaries and the Secondary Offshore Equity Trust Beneficiary according to the terms of the Plan and the Offshore Equity Trust Agreement, and (2) reimbursement of out-of-pocket expenses of the Offshore Equity Trustee in handling his duties as Trustee of the Trust. Further, the Offshore Equity Trustee shall be entitled to retain counsel of his choosing, including counsel for the Trustee and Reorganized Offshore (i.e. Gordon Arata) and such entitlement shall be recognized by the Offshore Equity Trust Agreement, Reorganized Offshore By-Laws and Confirmation Order. No Offshore Equity Trustee shall be required to give any bond or surety or other security for the performance of its duties. Procedures for selection of a successor Offshore Equity Trustee shall be as set forth in the Offshore Equity Trust Agreement. v. Powers and Duties of the Offshore Equity Trustee

The rights, powers and privileges of the Offshore Equity Trustee (to act on behalf of the Offshore Equity Trust) will be specified in the Offshore Equity Trust Agreement and will include, among others, the authority and responsibility to: (i) accept, preserve, receive, collect, manage, invest, supervise and protect the Distributions from Reorganized Offshore, as provided in the Plan and the Offshore Equity Trust Agreement; (ii) liquidate, transfer or otherwise dispose of the Offshore Equity Trust Assets or any part thereof or any interest therein upon such terms as the Offshore Equity Trustee determines to be necessary, appropriate or desirable, pursuant to the procedures for making Distributions prescribed in the Plan, and otherwise consistent with the terms of the Plan; (iii) calculate and make Distributions, if any, to the Offshore Equity Trust Beneficiaries and the Secondary Offshore Equity Trust Beneficiary; (iv) comply with the Plan and exercise its rights and fulfill its obligations there under; (v) retain and compensate, without further Order of the Bankruptcy Court, the services of professionals or other persons or entities to represent, advise and assist the Offshore Equity Trustee in the fulfillment of its responsibilities in connection with the Plan and the Offshore Equity Trust Agreement; (vi) file appropriate tax returns on behalf of the Offshore Equity Trust and pay taxes owed by the Offshore Equity Trust, if any; and (viii) terminate the Offshore Equity Trust as provided in the terms of the Plan and the Offshore Equity Trust Agreement. vi. Indemnification of the Offshore Equity Trustee

The Offshore Equity Trust shall indemnify and hold harmless the Offshore Equity Trustee and its professionals, and any duly designated agent or representative thereof (in their
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capacity as such), from and against and in respect to any and all liabilities, losses, damages, claims, costs and expenses, including without limitation, attorneys fees arising out of or due to their actions or omissions, or consequences of such actions or omissions, other than as a result of their fraud, willful misconduct or gross negligence, with respect to the Offshore Equity Trust or the drafting, negotiation, implementation or administration of the Plan. vii. Tax Treatment of the Offshore Equity Trust

The Offshore Equity Trust is to be established for the primary purpose of holding newly issued equity interests in the Debtor for the benefit of the Offshore Equity Trust Beneficiaries and the Secondary Offshore Equity Trust Beneficiary. Pursuant to Treasury Regulation 301.7701-4(d), the Offshore Equity Trust is intended to be characterized as a Liquidating Trust for all purposes under the Internal Revenue Code, and all items of income, deduction, credit or loss of the Offshore Equity Trust shall be allocated pro rata for federal, state and local income tax purposes among the Offshore Equity Trust Beneficiaries. C. Offshore Equity Trust Distributions

The Offshore Equity Trustee shall make Distributions, if any, ratably to the Offshore Equity Trust Beneficiaries and the Secondary Offshore Equity Trust Beneficiary, after deduction of fees and expenses incurred by the Offshore Equity Trustee and any professionals employed by the Offshore Equity Trust, and after such compensation to the Offshore Equity Trustee as provided in the Offshore Equity Trust Agreement. Before making any Distribution, the Offshore Equity Trustee may request written notification of the Offshore Equity Trust Beneficiarys federal taxpayer identification number or social security number if the Offshore Equity Trustee determines, in his reasonable discretion, that such information is necessary to fulfill its tax reporting and withholding obligations or otherwise. The Offshore Equity Trustee, in its reasonable discretion, may suspend distributions to any Offshore Equity Trust Beneficiary that has not provided its federal taxpayer identification number or social security number, as the case may be, after a request is made of the Holder. If any distribution to Offshore Equity Trust Beneficiary is returned to the Offshore Equity Trustee as undeliverable, then unless and until the Offshore Equity Trustee is notified in writing of the Holders then current address: (A) such undeliverable Distributions will remain in the possession of the Offshore Equity Trust, and no further attempt will be made to deliver such Distribution, and (B) no attempt will be made to deliver subsequent Distributions to such Beneficiary. Any Offshore Equity Trust Beneficiary that does not assert a Claim for an undeliverable Distribution by delivering to the Offshore Equity Trustee a written notice setting forth such Holders then current address within 180 days after the later of (A) the Effective Date and (B) the last date on which a distribution was deliverable to the Holder, will have its Claim for undeliverable Distributions discharged and will be forever barred from asserting such Claim or any Claim for subsequent distributions against Offshore, Reorganized Offshore, the Offshore Equity Trust, the Offshore Equity Trustee, or their respective assets, and such undeliverable
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Distributions shall thereafter be redistributed to the Offshore Equity Trust Beneficiaries entitled to Distribution thereof. Nothing contained in the Plan will require the Offshore Equity Trustee to attempt to locate any Holder of an Allowed General Unsecured Claim that becomes an Offshore Equity Trust Beneficiary. No Distributions to the Offshore Equity Trust shall be made until full completion of the P&A Work and final determination of all Allowed Claims, and Reorganized Offshore has submitted a final schedule of the Holder of Allowed Class 3 General Unsecured Claims that are entitled to a beneficial interest in the Offshore Equity Trust as set forth in Article III of the Plan. Upon completion of the P&A Work and determination of all Allowed Claims, the Offshore Equity Trustee shall make pro rata Distributions to the Offshore Equity Trust Beneficiaries of the Distributions made by Reorganized Offshore to the Offshore Equity Trust as soon as practicable, but in no case later than ninety (90) days after receipt of such Distributions. For the avoidance of doubt, the pro rata Distributions by the Offshore Equity Trust to the Holders of Class 3 Claims shall be from the following types of proceeds distributed by Reorganized Offshore to the Trust, in accordance with the objectives of the Trust as owner of Reorganized Offshore to oversee the liquidation of Assets of Reorganized Offshore: (1) The net proceeds received from Reorganized Offshore from currently Producing Wells, less expenses involved in administering the Offshore Equity Trust. The net proceeds, if any, received from Reorganized Offshore from the sale and/or transfer by Reorganized Offshore of Existing Oil and Gas Assets.29 The net proceeds received from Reorganized Offshore pursuant to the Recovery Allocation Agreement, if any, for the prosecution and/or settlement of the D&O Litigation. The net proceeds, if any, derived by Reorganized Offshore from the BP Claim. The available Excess Cash that Reorganized Offshore distributes to the Offshore Equity Trust.

(2)

(3)

(4) (5)

The rights of the Secondary Offshore Equity Trust Beneficiary to receive Distributions shall be subordinate to the rights of the Offshore Equity Trust Beneficiaries and the Secondary Offshore Equity Trust Beneficiary shall only receive Distributions from the Offshore Equity Trust in the event that funds are available for Distribution after all expenses of the Offshore
29

Regarding the prospect of a sale or sales of the Existing Oil and Gas Assets, the Trustee has received, entertained and investigated offers. However, as of the filing of this Plan, no offers have reached the level of completeness that warranted seeking Bankruptcy Court approval. Reorganized Offshore shall continue to investigate the market and pursue prospects for the sale of the Existing Oil & Gas Assets and any proposed sale shall be subject to Bankruptcy Court approval. Further, the Reorganized Offshore shall retain all rights of the Estate and the Trustee to seek and obtain Bankruptcy Court approval of a Section 363(h) joint sale of the Existing Oil and Gas Assets to the extent such an offer would be made. In the event that the Existing Oil & Gas Assets have not been transferred pursuant to final approval by the Bankruptcy Court upon completion of the P&A Work, Reorganized Offshore shall submit a procedure for auctioning the Existing Oil & Gas Assets for final approval by the Bankruptcy Court to be commenced within one hundred eighty (180) days after completion of the P&A Work. Page 52 of 72

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Equity Trust are paid in full, all Allowed Claims in Classes 1 and 2 are paid in full, and Distributions in the aggregate amount of the Allowed Class 3 Claims have been made to the Offshore Equity Trust Beneficiaries, including Distributions to the Holders of Class 2 Claims on account and in the amount of any such Holders Class 3 Claim. Except as otherwise provided in the Plan, in the event that the Offshore Equity Trustee were to fail to make any payment or perform any obligation when due under the Plan or under any instrument issued under the Plan, the affected Claimant/Beneficiary shall give thirty-five (35) days written notice to the Offshore Equity Trustee with opportunity to cure any such failure; if cure is not timely effected, then and only then may such Claimant proceed to enforce its rights and remedies pursuant to applicable law. D. Term and Termination of the Offshore Equity Trust and Offshore Equity Trustee

The Offshore Equity Trust shall be created, effective as of the Effective Date. Thereupon, the Offshore Equity Trust shall remain and continue in full force and effect until (i) the Reorganized Debtors assets having been wholly converted to Cash or abandoned, (ii) all costs, expenses and obligations incurred in administering the Reorganized Debtors assets and the Offshore Equity Trust have been fully paid, and (iii) the P&A Work has been fully completed and approved. The Offshore Equity Trust will terminate and cease to exist on the date that is the later of liquidation of all Assets of Reorganized Offshore and three (3) years from the Effective Date; provided, however, that upon complete liquidation of the Reorganized Debtors assets and satisfaction as far as possible of all remaining obligations, liabilities and expenses of Reorganized Offshore and the Offshore Equity Trust prior to such date, and upon conclusion of the prosecution of all Causes of Action and all Claim Objections litigated by Reorganized Offshore for purposes of establishing Holders of Allowed Class 3 Claims pro rata share of the beneficial interest in the Offshore Equity Trust, the Offshore Equity Trustee may, with approval of the Bankruptcy Court, sooner terminate the Offshore Equity Trust; and provided further, that prior to the end of three (3) years from the Effective Date, the Offshore Equity Trustee may move the Bankruptcy Court to extend the termination date of the Offshore Equity Trust after notice to interested parties and an opportunity for hearing. The Offshore Equity Trust is designed to receive the Distributions, if any, from Reorganized Offshore and to distribute same to the Offshore Equity Trust Beneficiaries and Secondary Offshore Equity Trust Beneficiary consistent with the procedures described herein. For the avoidance of doubt, the Offshore Equity Trust shall only exist for the period of time necessary to make Distributions to the Offshore Equity Trust Beneficiaries and Secondary Offshore Equity Trust Beneficiary as reflected herein. Upon termination and complete satisfaction of its duties under the Offshore Equity Trust Agreement, the Offshore Equity Trustee will be forever discharged and released from all powers, duties, responsibilities and liabilities pursuant to the Offshore Equity Trust Agreement.

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E.

Causes of Action and Avoidance Actions

As of the Effective Date, pursuant to section 1123(b)(3) of the Bankruptcy Code, except as otherwise provided in the Plan, any and all Causes of Action shall be property of the Reorganized Debtor, and Reorganized Offshore shall be deemed, without further action of the Bankruptcy Court, to be the judicial substitute as the party in interest with Bankruptcy Court approved standing in the Offshore Chapter 11 Case, under the Plan, or in any judicial proceeding or appeal to which Offshore is a party, or in which the Offshore shall become a party, and shall have the standing as provided in the Plan, to pursue any and all Causes of Action and to commence, prosecute, collect upon, settle, compromise any and all Causes of Action. Upon the Effective Date, Reorganized Offshore shall retain the rights afforded under sections 547 and 502(d) of the Bankruptcy Code to utilize avoidance powers under the Bankruptcy Code as the basis upon which to object to and/or reduce Claims, whether or not Offshore or the Trustee has determined to waive affirmative recovery under such avoidance powers regarding the Holders of such Claims. Confirmation of the Plan will also constitute a finding that any possible Avoidance Actions against those Creditors who vote to accept the Plan and whose Claims are listed as undisputed, non-contingent, and liquidated on the Bankruptcy Schedules are waived. In addition to the Avoidance Actions retained by Reorganized Offshore, Reorganized Offshore specifically reserves for investigation and prosecution any and all claims or Causes of Action with regard to the following: (1) The D&O Claim. Any and all actions, Causes of Action or Claims against any present or former director or officer of the Debtor, along with any and all other Causes of Action or Claims of any kind against any present or former director or officer of the Debtor or any other Person which may be covered under Policy No. DOC 2974663 08 issued by Zurich North America Specialties or Policy No. 555-75-82 issued by National Union Fire Ins. Co. of Pittsburg or any other insurance policies to which the Debtor or its present or former officers or directors may be beneficiaries and as specifically prayed for in the D&O Litigation and the Paxton Intervention. (2) The BP Claim. Any and all claims and Causes of Action filed on behalf of Offshore in the Deepwater Horizon oil spill litigation. (3) Investor P&A Claims. Any and all claims and Causes of Action for reimbursement for any and all P&A Work liabilities, including the existence of an Allowed Class 3 Claim in favor of RLI, from the Investors based upon certain contractual investment agreements between the Investors and Offshore. Under Article VII of the Plan, Reorganized Offshore shall reject the Investors contracts in the Producing Wells and avoid any ownership interest asserted by such Investors in those properties. Portions of the revenue received from the Producing Wells shall be escrowed for P&A of said properties. Certain of the Investors asserting Claims are also Investors in the P&A Properties. Exhibit L identifies the billing deck interest of each Investor in the P&A Properties, the estimated total P&A cost for each P&A Property, and the itemized cost for each Investor. Reorganized Offshore reserves any and all rights to (1) seek
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reimbursement of each Investors portion of the P&A Work cost based upon such Investors contractual interest in each P&A Property as identified in Exhibit L and/or (2) assert any other Causes of Action Reorganized Offshore may have pursuant to the Investors contracts with Offshore. A current schedule of the Investors in the P&A Properties and their estimated contractual P&A amounts is attached as Exhibit L, but Exhibit L does not, in the estimation of the Plan Proponent, represent the final determinable amount of P&A liability as such amount will not be known until completion of the P&A Work. XIII. SUMMARY OF PLAN TERMS CONCERNING CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN, EFFECT OF CONFIRMATION OF PLAN, AND EFFECTIVE DATE A. The Effective Date

The Effective Date shall be the first Business Day that is at least one (1) full Business Day after the Confirmation Order becomes a Final Order and all the conditions precedent to the Effective Date described below have been satisfied or waived. B. Conditions Precedent to Effective Date

The Effective Date shall not occur until the following conditions have been satisfied or waived: 1. Confirmation Order

The Confirmation Order, in form and substance reasonably acceptable to the Trustee, must have become a Final Order and must, among other things, provide that, except as expressly provided in the Plan, Offshore is discharged effective upon the Effective Date from any debt (as that term is defined in section 101(12) of the Bankruptcy Code), and Offshores liability in respect thereof is extinguished completely, whether reduced to judgment or not, liquidated or unliquidated, contingent or non-contingent, asserted or unasserted, fixed or unfixed, matured or unmatured, disputed or undisputed, legal or equitable, or known or unknown, or that arose from any agreement of Offshore that has either been assumed or rejected in the Bankruptcy Case or pursuant to the Plan, or obligation of Offshore incurred before the Effective Date, or from any conduct of Offshore prior to the Effective Date, or that otherwise arose before the Effective Date, including, without limitation, all interest, if any, on any such debts, whether such interest accrued before or after the Petition Date. 2. Documents

All documents, actions, and agreements necessary to implement the Plan shall have been effected or executed including the Offshore Equity Trust Agreement.

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3.

Authorizations

Offshore shall have received all authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions or documents that are determined by the Trustee to be necessary to implement the Plan. C. Waiver of Conditions

The conditions precedent to the Effective Date may be waived or modified by an act of Offshore pursuant to writing signed by authorized representatives of the Trustee and filed with the Bankruptcy Court. D. Effects of Confirmation 1. Assets of the Debtor The property and assets of the Estate shall vest in the Reorganized Debtor on the Effective Date, subject only to the lien rights granted under and by the Plan and the Confirmation Order. From and after the Effective Date, the Reorganized Debtor may use and dispose of the Reorganized Offshore property free of any restrictions imposed under the Bankruptcy Code, except as may be specifically provided herein and the Offshore Plan Trust Agreement. As of the Effective Date, all property of the Reorganized Debtor shall be free and clear of all Liens, Claims and interests of Holders of Claims and Equity Interests, except as provided in the Plan. 2. Cancellation of Existing Class 4 Equity Interests Upon the Effective Date, all existing Equity Interests shall be converted into a secondary subordinated beneficial interest in the Offshore Equity Trust, to be issued as of the Effective Date. The agreements, instruments, and other documents relating to any existing Equity Interests, shall be cancelled, and any rights, obligations, and Claims under all such agreements, instruments, and other documents will be deemed fully and finally waived, released, cancelled, extinguished, and forever discharged. . 3. Issuance of New Equity Upon the Effective Date, Reorganized Offshore shall cause new Equity Interests to be issued to the Offshore Equity Trust for the benefit of the Offshore Equity Trust Beneficiaries and the Secondary Offshore Equity Trust Beneficiary.

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4. Conversion of Allowed Class 3 General Unsecured Claims into Beneficial Interests in the Offshore Equity Trust Upon the Effective Date the Holders of Allowed Class 3 General Unsecured Claims shall contribute the Allowed amount of such Class 3 Claim in exchange for a beneficial interest in the new Equity to be issued by Reorganized Offshore and held by the Offshore Equity Trust for the benefit of the Allowed Class 3 General Unsecured Claims. The beneficial interests received by any Holder shall be in same proportion as that Holders Allowed Class 3 General Unsecured Claim bore to the total Allowed Class 3 General Unsecured Claims. 5. Findings by the Bankruptcy Court (a) Confirmation shall constitute a finding by the Bankruptcy Court that the Reorganized Debtor is entitled to cancel the Class 4 Equity Interests and Holders of Allowed Class 3 General Unsecured Claims shall contribute the Allowed amount of such Class 3 Claim in exchange for a beneficial interest in the new Equity to be issued by Reorganized Offshore and held by the Offshore Equity Trust for the benefit of the Allowed Class 3 General Unsecured Claims; Confirmation shall be deemed a finding by the Bankruptcy Court that the Trustee and/or Offshore Plan Trustee are authorized and directed to take all actions necessary or appropriate to enter into, implement and consummate the contracts, instruments, releases, leases, indentures and other agreements or documents created in connection with the Plan, including without limitation the Offshore Plan Trust Agreement; Confirmation shall be deemed a finding by the Bankruptcy Court that any claim, right, cause, or Cause of Action of the Debtor, or any Holder of any Claim, that is waived or deemed waived pursuant to the Plan or pursuant to the Disclosure Statement, shall have been waived and released upon the Effective Date, subject to the reservations or right and avoidance power set forth in the Plan; and Confirmation shall constitute a finding that cause exists to abrogate the stay of the effect of the Confirmation Order in accordance with Bankruptcy Rule 3020(e).

(b)

(c)

(d)

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XIV. DISCHARGE, RELEASE, INJUNCTION, AND RELATED PROVISIONS A. Discharge of Debtor

The rights afforded under the Plan and the treatment of all Claims and Equity Interests under the Plan shall be in exchange for and in complete satisfaction, discharge, and release of Claims and Equity Interests of any nature whatsoever, including any interest accrued on such Claims from and after the Commencement Date, against the Debtor, the Reorganized Debtor and the Offshore Equity Trust, or any of their assets or properties. Except as otherwise provided herein, on the Effective Date, all such Claims against and Equity Interests in the Debtor, the Reorganized Debtor and the Offshore Equity Trust, shall be satisfied, discharged, and released in full, and all persons shall be precluded from asserting against the Debtor, the Reorganized Debtor or the Offshore Equity Trust, and/or any party released under the Plan, their successors and/or assigns, their assets, or their properties any other or further Claims or Equity Interests based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Confirmation Date. B. Injunction

THERE SHALL BE AN INJUNCTION TO THE FULL EXTENT ALLOWED UNDER SECTIONS 1141 AND 524 OF THE BANKRUPTCY CODE, AND ALL HOLDERS OF CLAIMS SHALL BE ENJOINED FROM PURSUING ANY ACTION ON ACCOUNT OF OR RELATED TO ANY CLAIM THROUGH ANY CONDUCT OR PROCEEDING WHATSOEVER, WITH RESPECT TO DISCHARGED, RELEASED, ENJOINED OR EXCULPATED CLAIMS, AND AS AGAINST ANY PERSON SUBJECT TO OR DERIVING RIGHTS FROM THE DISCHARGE AND/OR ANY RELEASE OR EXCULPATION ARISING UNDER THE PLAN. C. Exculpations

The Debtor, the Reorganized Debtor and the Offshore Equity Trust and each of their respective representatives (including the Trustee and the Offshore Equity Trustee), shall have no liability to any Holder of any Claim, for any act or omission occurring during the course of this Bankruptcy Case occurring up to the Effective Date, including acts or omissions in connection with, or arising out of, the filing of the petition, the preparation of motions, memoranda, or other documents, preparation and/or negotiation of the Disclosure Statement and the Plan, the solicitation of votes for and the pursuit of Confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for gross negligence or willful misconduct as determined by a Final Order of the Bankruptcy Court, which shall possess exclusive jurisdiction over all such determinations, and, in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. Such exculpations shall not apply to any liability for costs, if any, that may assessed or taxed against the Debtor, the Reorganized Debtor and the Offshore Equity Trust and each of their respective representatives (including the Trustee and the Offshore Equity Trustee)in connection with the D&O Litigation.
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D.

Indemnification Obligations

Subject to the occurrence of the Effective Date, the obligations of the Debtor, the Reorganized Debtor and the Offshore Equity Trust to indemnify, defend, reimburse or limit the liability of directors, officers or employees who were directors, officers or employees of the Debtor against any liabilities, claims or causes of action for post Petition Date activities as provided in any of the articles of incorporation or By-laws of Offshore, or under applicable state or federal law, shall be discharged, irrespective of whether such indemnification, defense, reimbursement or limitation is owed in connection with an event occurring after the date of entry of the Order for Relief, except that obligations of the Debtor and the Reorganized Debtor to indemnify, defend, reimburse or limit the liability of employees against any liabilities, claims or causes of action for post Petition Date activities as provided in any of the articles of incorporation or By-laws of the Debtor or under applicable state or federal law shall survive Confirmation of the Plan only with respect to any such claims or causes of action as may be asserted against the Trustee and Lori Montecino30, but no other person. The indemnification obligations of the Debtor and the Reorganized Debtor, set forth herein are limited to those authorized or permitted under state or federal law as the same is now or may become applicable at the time any claim for indemnification is made. E. Limited Release

On the Effective Date, the Debtor, the Reorganized Debtor shall release (i) those officers of the Debtor employed by Offshore as of the Confirmation Date, (ii) persons who are employed by Offshore as of the Confirmation Date, (iii) the Trustee, and (iv) each of Offshores respective officers, employees and representatives, for any act or omission occurring up to the Confirmation Date, including acts or omissions in connection with, or arising out of, the Disclosure Statement, the Plan, the solicitation of votes for and the pursuit of Confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for acts or omissions constituting gross negligence or willful misconduct as determined by a Final Order of the Bankruptcy Court, which shall possess exclusive jurisdiction over all such determinations, and, in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. For the avoidance of doubt, the releases granted by the Debtor in this Section shall not relate to any Claims or Causes of Action specifically reserved by the Debtor pursuant to Article VII(E) of the Plan.

Lori Montecino was the only Offshore employee as of the date of appointment of the Trustee and has worked for Offshore and Virgin Oil for over 12 years. Her assistance and knowledge has been instrumental in maintaining the billing and accounting records, as well as providing institutional knowledge that the Trustee would not otherwise have had. Mrs. Montecino will also be appointed as Secretary of Reorganized Offshore on the Effective Date. Page 59 of 72 First Amended Disclosure Statement Dated March 28, 2013

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F.

Releases by Consenting Parties

On and after the Effective Date, each Consenting Party31 shall be deemed to have unconditionally released (i) the Debtor, the Reorganized Debtor (ii) each of their respective officers, employees, advisors, agents, affiliates, and representatives (including any attorneys, accountants, financial advisors, investment bankers and other professionals retained by such persons or entities), and (iii) the Trustee, from any and all Claims (as defined in section 101(5) of the Bankruptcy Code), obligations, rights, suits, damages, causes of action, remedies and liabilities whatsoever, including any derivative claims, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that such Person or Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event or other occurrence taking place on or before the Effective Date in any way relating or pertaining to (a) the Offshore Chapter 11 Case or (ii) the negotiation, formulation and preparation of the Plan, or any related agreements, instruments or other documents. G. Retention of Jurisdiction

Under 28 U.S.C. 157(b) and 1334, and sections 105(a) and 1142 of the Bankruptcy Code, and notwithstanding entry of the Confirmation Order and occurrence of the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of, and related to, the Bankruptcy Case and the Plan to the fullest extent permitted by law, including, among other things, jurisdiction to: (a) Allow, disallow, determine, liquidate, classify, estimate, or establish the priority or secured or unsecured status of any Claim or Equity Interest, including the resolution of any request for payment of any Administrative Claim and the resolution of any objections to the allowance or priority of Claims or Equity Interests; (b) Hear and determine all Professional Fee Claims; provided, however, that from and after the Effective Date, the payment of the fees and expenses of the retained Professionals of the Debtor and the Offshore Equity Trust shall be made in the ordinary course of business and shall not be subject to the approval of the Bankruptcy Court; (c) Effectuate performance of and payments under the provisions of the Plan;

(d) Hear and determine any and all adversary proceedings, motions, applications, and contested or litigated matters arising out of, under, or related to, the Bankruptcy Case, including all controversies, suits and disputes that may arise in connection with the interpretation or enforcement of the Plan, and matters concerning state, local and federal taxes according to Sections 346, 505 and 1146 of the Bankruptcy Code; (e) Enter such orders as may be necessary or appropriate to execute, implement, or consummate the provisions of the Plan or Confirmation Order and all contracts, instruments,
31

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releases, and other agreements or documents created in connection with the Plan or the Confirmation Order; (f) Hear and determine disputes arising in connection with the interpretation, implementation, consummation, or enforcement of the Plan or the Confirmation Order, including disputes arising under agreements, documents, or instruments executed in connection with the Plan or the Confirmation Order; (g) Consider any modifications of the Plan, cure any defect or omission, or reconcile any inconsistency in any order of the Bankruptcy Court, including, without limitation, the Confirmation Order; (h) Issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any entity with implementation, consummation, or enforcement of the Plan or the Confirmation Order; (i) Enter and implement such orders as may be necessary or appropriate if the Confirmation Order is for any reason reversed, stayed, revoked, modified, or vacated; (j) Hear and determine any matters arising in connection with or relating to the Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release, or other agreement or document created in connection with the Plan, the Disclosure Statement, or the Confirmation Order; (k) Enforce all orders, judgments, injunctions, releases, indemnifications, and rulings entered in connection with the Bankruptcy Cases; (l) Recover all assets of the Debtor, wherever located; exculpations,

(m) Hear and determine matters concerning state, local, and federal taxes in accordance with section 346, 505, and 1146 of the Bankruptcy Code; (n) Hear and determine all disputes involving the existence, nature, or scope of Offshores discharge; (o) Hear and determine such other matters as may be provided in the Confirmation Order or as may be authorized under, or not inconsistent with, provisions of the Bankruptcy Code; (p) Enter a final decree closing the Bankruptcy Case and discharging the Trustee and/or Offshore Equity Trustee; and (q) Interpret and enforce the terms of any settlement and compromise set forth within the Plan or approved by Final Order of the Bankruptcy Court to ensure compliance with the Confirmation Order which shall be a Final Order of the Bankruptcy Court directing through the approval of compromises contained within the Plan and previously approved by the Bankruptcy Court that the parties to such compromises have resolved that all disputes arising there under are reserved for decision in the Bankruptcy Court.
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H.

Modification of the Plan

The Trustee reserves the right, in accordance with the Bankruptcy Code and the Bankruptcy Rules to (1) amend or modify the Plan prior to the entry of the Confirmation Order and (2) after the entry of the Confirmation Order, the Trustee and/or Reorganized Offshore, whichever is applicable, may, upon order of the Bankruptcy Court, amend or modify the Plan, in accordance with section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent of the Plan. I. Successors and Assigns

The rights, benefits, and obligations of any Person named or referred to in the Plan shall be binding on, and shall inure to the benefit of, any heir, executor, administrator, successor, or assign of such Person. J. Reservation of Rights

Except as expressly set forth herein, the Plan shall have no force or effect unless the Bankruptcy Court shall enter the Confirmation Order. None of the filing of the Plan, any statement or provision contained herein, or the taking of any action by the Trustee and/or the Reorganized Debtor, with respect to the Plan shall be or shall be deemed to be an admission or waiver of any rights of Offshore, the Trustee, Reorganized Offshore or the Offshore Equity Trust, with respect to the Holders of Claims or Equity Interests prior to the Effective Date. K. Governing Law

Except to the extent that the Bankruptcy Code or Bankruptcy Rules are applicable, and subject to the provisions of any contract, instrument, release, indenture or other agreement or document entered into in connection herewith, the rights and obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Louisiana, without giving effect to the principles of conflict of laws thereof. L. No Admission or Waivers

Except as expressly set forth in the Plan, nothing contained in the Plan will constitute an admission or waiver by the Trustee, the Debtor, the Reorganized Debtor or the Estate with respect to any matter set forth herein, including, without limitation, liability on any Claim or Interest or the propriety of any classification of any Claim or Interest. M. Continuing Viability of Other Orders/Agreements

Except to the extent expressly modified or otherwise provided by the Plan, or as otherwise ordered by the Bankruptcy Court (i) all Final Orders previously entered by the Bankruptcy Court and (ii) any agreements between Creditors or between the Debtor or Reorganized Debtor and their Creditors will continue in full force and effect.
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N.

Limitations on Liability.

Notwithstanding anything to the contrary contained in the Plan, on or after the Confirmation Date, and except to the extent covered by insurance, none of the Debtor, the Estate, the Chapter 11 Trustee, the Reorganized Debtor nor any of their respective employees, shareholders, partners, directors, attorneys, accountants, representatives, agents or Professionals employed by any of them, shall have or incur any liability to any Entity for actions taken or omitted to be taken in connection with or relating to the formulation or confirmation of the Plan, the Disclosure Statement or any contract, instrument, release or other agreement or document created in connection with the Plan, other than for gross negligence, willful misconduct or fraud. This release is limited to the matters set forth herein and in the Disclosure Statement. XV. FEASIBILITY OF THE PLAN AND LIQUIDATION ANALYSIS

The Bankruptcy Court must find that confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of Offshore or any successor to Offshore, unless such liquidation or reorganization is proposed in the Plan. The Bankruptcy Court must find that all creditors and equity interest holders who do not accept the Plan will receive at least as much under the Plan as such claim and equity interest holders would receive in a Chapter 7 liquidation. As a preliminary matter, the Trustee is not interested in converting this Bankruptcy Case because the conversion would significantly affect the value of Offshores assets and likely hinder any opportunity to make distributions to Holders of Allowed Claims. The Trustee submits that the Plan is the best opportunity to realize value, if any, for the benefit of the creditors and to facilitate the completion of the P&A Work. The Trustee believes that liquidation under Chapter 7 would result in substantial diminution of the value of the estate because of (i) the uncertainty of the P&A Work and the uncertainty of completion and oversight post-conversion, (ii) the additional administrative expenses involved in the U.S. Trustees appointment of a Chapter 7 trustee and attorneys, accountants and other professionals to assist such trustee; and (iii) the likelihood that the disruption and delay caused by the conversion to Chapter 7 would hamper the bankruptcy estates ability to realize the greatest return from the marketing and sale of the Existing Oil and Gas Assets and the Causes of Action retained by Reorganized Offshore. In fact, the Trustee is uncertain of any value that may be retained by the Chapter 7 estate upon conversion given the significant P&A responsibilities of the Debtor and the remaining assets available to satisfy those responsibilities. Accordingly, the Trustee has proposed a liquidating Plan and believes that that Plan is the proper vehicle to maintain the necessary oversight and completion of the P&A Work, thereby avoiding any additional delays, penalties and/or liability, while preserving and subsequently liquidating the assets for the benefit of the Creditors. Absent Offshores ability to reorganize and attempt to successfully complete the P&A Work, the Trustee believes that the Estate retains little to no value. As a result, the Trustee did not perform a liquidation analysis because the Plan provides for eventual liquidation and distribution of the Debtors remaining assets. The Trustee can only anticipate one alternative to a liquidating plan continued operation and development of the Existing Oil and Gas Assets. The Trustee believes this option is not in the best interests of the creditors because of the unavailability of financing to pursue
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some or all of the proposed well development plans. The Virgin Oil Plan Trust has indicated its desire to propose and compel pursuit of well development plan that will require Offshore and/or Reorganized Offshore to elect to participate and pay its share of development costs. Offshore is not in a position to raise capital and has no immediate sources of capital to satisfy these expected funding requirements. As a result, Reorganized Offshore will likely go non-consent on these development proposals, and be subject to significant payout penalties prior to receiving any revenues from production. For these reasons, the Trustee does not deem participation in a lengthy and costly development program as the most effective means to make Distributions. The Trustee believes that confirmation of the Plan preserves the current value, if any, of Offshores remaining assets for satisfaction of the P&A Work and subsequent Distributions to creditors. If the Plan were not confirmed, then the likely outcome would be the conversion of the Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code, which would require the immediate appointment of a Chapter 7 bankruptcy trustee to liquidate the remaining assets of the Debtor and to distribute the proceeds of that liquidation. As discussed, the Trustee believes that the assets would likely be consumed by the Estates need to pay for administrative costs, P&A liabilities and related obligations. As a result, the Trustee believes that the Holders of Claims against the Debtors would recover less in a Chapter 7 liquidation than they would recover under the proposed Plan. In fact, it is the Trustees belief that the Holders of Administrative Claims and Class 3 General Unsecured Claims would receive nothing in a Chapter 7 liquidation. The Trustee also believes that the Plan results in a fair balancing of all parties rights, and again urges all Creditors and Holders of Interests to vote to accept the Plan. Therefore, the Trustee believes that the interests of creditors are best served through confirmation of the proposed Plan. The conversion to Chapter 7 would result only in further delays and greater expenses to the detriment of creditors. Additionally, conversion of the case to Chapter 7 would eliminate any possibility of prompt disbursements to creditors. Generally, a Chapter 7 trustee must complete the administration of all assets before making distributions to unsecured creditors. In addition, if the case is converted, the Chapter 7 trustee would have to retain a new set of professionals (accountants and attorneys) into the case to assist the trustee with his responsibilities. The cost of these additional professionals, of course, must be paid from funds which would otherwise be paid to creditors. In addition, section 726(b) of the Bankruptcy Code elevates the priority of the trustee and his professionals above the administrative expenses of the Chapter 11 proceedings. For these reasons, it is the belief of Offshore that the Plan provides the best resolution of Offshores financial issues, and it preserves the value of the Debtors assets for the benefit of the Creditors. XVI. MATERIAL UNCERTAINTIES HOLDERS OF CLAIMS AGAINST OFFSHORE SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN, PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN.

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A.

Uncertainty Regarding Objections to Claims

The Plan provides that objections to Claims can be filed with the Bankruptcy Court after the Confirmation Date. A Claimant or holder of an interest may not know that its Claim will be objected to until after the Confirmation Date. B. Uncertainty Regarding Acceptance of the Plan

For the Plan to be confirmed, each impaired Class of Claims is given the opportunity to vote to accept or reject the Plan. With regard to such impaired voting Classes, the Plan will be deemed accepted by a Class of impaired Claims if the Plan is accepted by claimants of such Class actually voting on the Plan who hold at least two-thirds (2/3) in amount and more than one-half (1/2) in number of the total Allowed Claims of the Class voted. Only those members of a Class who vote to accept or reject the Plan will be counted for voting purposes. The Trustee reserves the right to request confirmation pursuant to the cramdown provisions in section 1129(b) of the Bankruptcy Code, which will allow confirmation of the Plan regardless of the fact that a particular Class of Claims or Equity Interests has not accepted the Plan. C. Uncertainty Regarding the Continued Operation of Existing Oil And Gas Assets and Liquidation

Prices for oil and gas are subject to fluctuation in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors beyond the Trustees control. These factors include political conditions in the Middle East and elsewhere, domestic and foreign supply of oil and gas, the level of consumer demand, weather conditions, domestic and foreign government regulations and taxes, the price and availability of alternative fuels and overall economic conditions. From time to time, oil and gas prices have been depressed by excess domestic and imported supplies. Current price levels may not be sustained, and predictions of future oil and gas price movements cannot be made with certainty. A decline in oil and gas prices likely would adversely affect the value of the Existing Oil and Gas Assets and Reorganized Offshores liquidity. Any substantial or extended decline in the prices of oil or gas almost certainly would have a material adverse effect on Reorganized Offshores financial condition and resulting distributions to Creditors. The operation of oil and gas properties and especially the significant P&A Work undertaken by the Debtor is subject to numerous risks, including the risks of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental accidents such as oil spills, natural gas leaks, ruptures or discharges of toxic gases, the occurrence of any of which could result in substantial losses to Reorganized Offshore due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. In accordance with customary industry practice, the Debtor has maintained insurance against some, but not all, of the risks described above. There can be no assurance the levels of insurance maintained by the Debtor or Reorganized Debtor will be adequate to cover any losses or liabilities. Furthermore, the Trustee cannot predict the continued availability of insurance, or availability at commercially acceptable premium levels.
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Offshores oil and gas operations are also subject to extensive rules and regulations promulgated by federal and state agencies. Failure to comply with such rules and regulations can result in substantial penalties. Offshore has been cited for several reoccurring incidences of noncompliance, many of which will be addressed in connection with the P&A Work. Nonetheless, increased regulation costs, including annual inspection fees, have affected the Debtors cash flow and may reduce the funds available to make distributions to creditors under the Plan. Because such rules and regulations are frequently amended or interpreted by federal and state agencies or jurisdictions, the Trustee is unable to predict the future cost or impact of complying with such rules, regulations and laws. Lastly, the uncertainties in connection with obtaining necessary regulatory approvals for release of bond funds to make payments to contractors performing the P&A Work and application of the P&A Escrow Funds by RLI may impact the recoveries available to make distributions under the Plan. D. Other Uncertainties

The Trustee has tried to project the most common uncertainties which could affect implementation and realization of the Plan. However, events outside the control of the Trustee and Debtor and not heretofore seen, may affect the viability of the Plan. XVII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN A. Introduction

THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN OF THE SIGNIFICANT FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO OFFSHORE, AND TO HOLDERS OF CLAIMS AND EQUITY INTERESTS AND IS BASED ON THE INTERNAL REVENUE CODE, TREASURY REGULATIONS PROMULGATED AND PROPOSED THERE UNDER, JUDICIAL DECISIONS AND PUBLISHED ADMINISTRATIVE RULES AND PRONOUNCEMENTS OF THE IRS AS IN EFFECT ON THE DATE HEREOF. CHANGES IN SUCH RULES OR NEW INTERPRETATIONS THEREOF COULD SIGNIFICANTLY AFFECT THE TAX CONSEQUENCES DESCRIBED BELOW. NO RULINGS HAVE BEEN REQUESTED FROM THE IRS. MOREOVER, NO LEGAL OPINIONS HAVE BEEN REQUESTED FROM COUNSEL WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE PLAN. THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE PLAN TO THE HOLDERS OF CLAIMS AND EQUITY INTERESTS MAY VARY BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER. IN ADDITION, THIS DISCUSSION DOES NOT COVER ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO OFFSHORE OR THE HOLDERS OF ALLOWED CLAIMS OR EQUITY INTERESTS (SUCH AS HOLDERS WHO DO NOT ACQUIRE THEIR CLAIM ON ORIGINAL ISSUE), NOR DOES THE DISCUSSION DEAL WITH TAX ISSUES PECULIAR TO CERTAIN TYPES OF TAXPAYERS (SUCH AS DEALERS IN SECURITIES, S CORPORATIONS, LIFE INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS). NO ASPECT OF FOREIGN, STATE, LOCAL OR ESTATE AND GIFT TAXATION IS ADDRESSED.
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THE FOLLOWING SUMMARY IS, THEREFORE, NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF A CLAIM OR EQUITY INTEREST. HOLDERS OF CLAIMS OR EQUITY INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES PECULIAR TO THEM UNDER THE PLAN. THE TRUSTEE ASSUMES NO RESPONSIBILITY FOR THE TAX EFFECT THAT CONFIRMATION AND RECEIPT OF ANY DISTRIBUTION UNDER THE PLAN MAY HAVE ON ANY GIVEN CREDITOR OR OTHER PARTY IN INTEREST. B. IRS Circular 230 Disclosure

THIS DISCLOSURE STATEMENT IS WRITTEN TO SUPPORT THE PROMOTION OR THE MARKETING OF TRANSACTIONS DISCUSSED HEREIN. TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS, THE TRUSTEE IS INFORMING YOU THAT THIS DISCLOSURE STATEMENT IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING TAX-RELATED PENALTIES THAT MAY BE IMPOSED ON SUCH TAXPAYER UNDER THE TAX CODE. TAXPAYERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. C. Consequences to Holders of Claims 1. Realization and Recognition of Gain or Loss in General The federal income tax consequences of the implementation of the Plan to a Holder of a Claim will depend, among other things, upon the origin of the Holders Claim, when the Holders Claim becomes an Allowed Claim, when the Holder receives payment in respect of such Claim, whether the Holder reports income using the accrual or cash method of accounting, whether the Holder has taken a bad debt deduction or worthless security deduction with respect to such Claim, and whether the Holders Claim constitutes a security for federal income tax purposes. Generally, a Holder of an Allowed Claim will realize gain or loss on the exchange under the Plan of its Allowed Claim for stock and other property (such as Cash and new debt instruments), in an amount equal to the difference between (i) the sum of the amount of any Cash and the issue price of any debt instrument, (other than any consideration attributable to a Claim for accrued but unpaid interest), and (ii) the adjusted basis of the Allowed Claim exchanged there for (other than basis attributable to accrued but unpaid interest previously included in the Holders taxable income). The treatment of accrued but unpaid interest and amounts allocable thereto varies depending on the nature of the Holders Claim and is discussed below. Whether or not such realized gain or loss will be recognized (i.e., taken into account) for federal income tax purposes will depend in part upon whether such exchange qualifies as a recapitalization or other reorganization as defined in the Tax Code, which may in turn depend upon whether the Claim exchanged is classified as a security for federal income tax purposes.
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The term security is not defined in the Tax Code or in the Treasury Regulations. One of the most significant factors considered in determining whether a particular debt instrument is a security is the original term thereof. In general, the longer the term of an instrument, the greater the likelihood that it will be considered a security. As a general rule, a debt instrument having an original term of 10 years or more will be classified as a security, and a debt instrument having an original term of fewer than five years will not. Debt instruments having a term of at least five years but less than 10 years are likely to be treated as securities, but may not be, depending upon their resemblance to ordinary promissory notes, whether they are publicly traded, whether the instruments are secured, the financial condition of Offshore at the time the debt instruments are issued, and other factors. Each Holder of an Allowed Claim should consult his or her own tax advisor to determine whether his or her Allowed Claim constitutes a security for federal income tax purposes. 2. Accrued Interest Each Holder of an Allowed Claim is urged to consult its tax advisor regarding the allocation of consideration and deductibility of unpaid interest for tax purposes. The Plan proposes to pay interest on all claims. 3. Withholding All distributions to Holders of Claims under the Plan are subject to any applicable withholding. Under federal income tax law, interest, dividends, and other reportable payments may, under certain circumstances, be subject to backup withholding at a 28% rate. Backup withholding generally applies if the Holder (a) fails to furnish its social security number or other taxpayer identification number (TIN), (b) furnishes an incorrect TIN, (c) fails properly to report interest or dividends, or (d) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons are exempt from backup withholding, including, in certain circumstances, corporations and financial institutions. D. Consequences to Offshore or Reorganized Offshore 1. Discharge-of-Indebtedness Income Generally In general, the discharge of a debt obligation by a debtor for an amount less than the adjusted issue price (generally, the amount received upon incurring the obligation plus the amount of any previously amortized original issue discount and less the amount of any previously amortized bond issue premium) gives rise to cancellation-of-indebtedness (COD) income which must be included in a debtors income for federal income tax purposes, unless, in accordance with Section 108(e)(2) of the Tax Code, payment of the liability would have given rise to a deduction. A corporate debtor that issues its own stock or its own debt in satisfaction of its debt is treated as realizing COD income to the extent the fair market value of the stock or the issue price of new debt issued is less than the adjusted issue price of the old debt. COD income is not recognized by a taxpayer that is a debtor in a title 11 (bankruptcy) case if a discharge is
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granted by the court or pursuant to a plan approved by the court (the bankruptcy exclusion rules). The Trustee has not determined if any COD income will be realized by the Debtor pursuant to the Plan. However, it is possible that the issuance and exchange of Reorganized Offshore Common Stock for Allowed Class 3 Claims may give rise to COD income realization. Such COD income will not be recognized by the Debtor due to the bankruptcy exclusion rules. However, the Debtor, as a result of the exception, is subject to a reduction of certain of their tax attributes to the extent that COD income is not recognized under the bankruptcy exclusion rules. Thus, while the Debtor will not recognize taxable income from discharge of indebtedness, it will experience reductions in (i) any net operating losses (NOLs) that it has, (ii) the tax basis of its property, and (iii) other tax attributes, as set forth in Section 108(b)(2) of the Tax Code. However, the Trustee does not expect any such reductions to have a material effect on its cash flow. 2. Utilization of Net Operating Loss Carryovers In general, whenever there is a 50% ownership change of a debtor corporation during a three-year period, the ownership change rules in Section 382 of the Tax Code limit the utility of NOLs remaining (after any attribute reduction) on an annual basis to the product of the fair market value of the corporate entity immediately before the ownership change, multiplied by a hypothetical interest rate published monthly by the IRS called the long-term tax-exempt rate. The long-term tax-exempt rate is 2.77% for February, 2013. In any given year, this limitation may be increased by certain built-in gains realized after, but accruing economically before, the ownership change and the carryover of unused Section 382 limitations from prior years. On the other hand, if at the date of an ownership change the adjusted basis for federal income tax purposes of a debtors assets exceed the fair market value of such assets by prescribed amounts, (a net unrealized built-in loss) then, upon the realization of such net unrealized built-in losses during a five-year period beginning on the date of the ownership change, such losses are treated as if they were part of the net operating loss carryover, rather than the current deduction, and are also subject to the Section 382 limitation. During the last three years, there has been one shift in the ownership of the Debtors stock the transfer of Virgin Oils 100% interest in the Offshore stock was made to the Virgin Oil Plan Trust pursuant to Virgin Oils plan of reorganization. To the best of the Trustees knowledge, this ownership shift did not give rise to any Section 382 change of ownership which would limit the utilization of the companys net operating loss carryovers prior to implementation of the Plan. However, the Trustee is certain that implementation of the Plan will create a Section 382 change of ownership. Nevertheless, the harsh effects of the ownership change rules can be ameliorated by an exception that applies in the case of certain reorganizations under the Bankruptcy Code. Under the so-called Section 382(l)(5) bankruptcy exception to section 382 of the Tax Code, if (i) the corporation is, immediately before the ownership change, under the jurisdiction of the court in a title 11 case and (ii) the shareholders and certain qualified creditors of the corporation (determined immediately before such ownership change) own (after the ownership change and as a result of being shareholders or qualified creditors immediately before such change), at least
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50% (by vote and value) of the reorganized corporations stock, then the harsh limits of section 382 will not apply to the corporations NOLs. Instead, accrued interest deductions for the 3 tax years ending prior to the year of the ownership change, plus those in the year of the change, on any debt exchanged for stock under the plan are eliminated from the corporations NOLs. In addition, although an ownership change that qualifies under the (l)(5) exception is nonetheless an ownership change, should a second ownership change occur within 2 years after this permitted ownership change, then the amount of the section 382 limitation will thereafter be zero. If the debtor would otherwise qualify for the Section 382(l)(5) bankruptcy exception, but the NOL reduction rules mandated thereby would greatly reduce the NOL, the debtor may elect instead to be subject to the annual limitation rules of Section 382 of the Tax Code, but is permitted to value the equity of the corporation for purposes of applying the formula by using the value immediately after the ownership change (by increasing the value of the old loss corporation to reflect any surrender or cancellation of Creditors Claims) instead of immediately before the ownership change (the Section 382(l)(6) limitation). Alternatively, if the debtor does not qualify for the Section 382(l)(5) bankruptcy exception, the utility of its NOL would automatically be governed by the Section 382(l)(6) limitation. Based on the 2011 tax return prepared by the Gros Firm but no yet filed, the Trustee believes Offshore has an NOL of approximately $10,667,000 as of December 31, 2011. However, the amount of the NOL could be reduced or eliminated because of audit adjustments by the IRS that result from IRS examinations of the Debtors returns, or any COD income as a result of the rules discussed above. In addition, depending upon the valuation placed on the Debtors assets, the Debtor could have a net unrealized built-in loss. Holders of Claims should note, however, that the amount of NOLs available to the Debtor or Reorganized Debtor is based on factual and legal issues with respect to which there can be no certainty. The actual annual utility of the NOL carryovers will be determined by actual market value and the actual long term tax-exempt rate at the date of reorganization and may be different from amounts described herein. Further, tax benefit from such NOL carryovers is dependent on the Debtor having positive taxable income. 3. Alternative Minimum Tax A corporation is required to pay alternative minimum tax to the extent that 20% of alternative minimum taxable income (AMI) exceeds the corporations regular tax liability for the year. AMI is generally equal to regular taxable income with certain adjustments. For purposes of computing AMI, a corporation is entitled to offset no more than 90% of its AMI with NOLs (as computed for alternative minimum tax purposes). Thus, if the Reorganized Debtor is subject to the alternative minimum tax in future years, a federal tax of 2% (20% of the 10% of AMI not offset by NOLs) will apply to any net taxable income earned by the Reorganized Debtor in future years that is otherwise offset by NOLs.

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XVIII. CONCLUSION The Trustee urges Creditors solicited by this Disclosure Statement to vote to accept the Plan and to evidence such acceptance by returning the Ballots so that they are received by , 2013. XIX. RECOMMENDATION OF THE TRUSTEE The Trustee believes that the Plan satisfies all of the statutory requirements of chapter 11 of the Bankruptcy Code and should be confirmed, even in the event that a particular Class of Claims does not vote to accept the Plan. Additionally, the Trustee believes that the Plan is fair and equitable to all Creditors, does not discriminate unfairly against any Class of Claims, and has been proposed in good faith. The Trustee therefore urges that all Creditors vote their Ballots to accept the Plan. Respectfully submitted, /s/ Gerald H. Schiff CHAPTER 11 TRUSTEE for the BANKRUPTCY ESTATE OF VIRGIN OFFSHORE U.S.A., Inc. AND GORDON, ARATA, MCCOLLAM, DUPLANTIS & EAGAN, LLC By: /s/Louis M. Phillips Louis M. Phillips (La. Bar No. 10505) GORDON, ARATA, MCCOLLAM, DUPLANTIS, & EAGAN, LLC One American Place 301 Main Street, Suite 1600 Baton Rouge, LA 70825 Phone: (225) 381-9643 Facsimile: (225) 336-9763 Email: lphillips@gordonarata.com - AND Patrick Rick M. Shelby (La Bar. No. 31963) James D. Rhorer (La. Bar No. 34052) 201 St. Charles Avenue, 40th Floor New Orleans, LA 70170-4000 Telephone: (504) 582-1111
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Email: pshelby@gordonarata.com - AND Armistead M. Long (La. Bar No. 33949) GORDON, ARATA, MCCOLLAM, DUPLANTIS, & EAGAN, LLC 400 East Kaliste Saloom Road, Suite 4200 Lafayette, LA 70508 Phone: (337) 237-0132 Facsimile: (337) 237-3451 Email: along@gordonarata.com Attorneys for Gerald H. Schiff, Chapter 11 Trustee

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