Loan default allegation puts Connacher on brink

A U.S. lawsuit is threatening to make Connacher Oil and Gas Ltd. a casualty of crude’s collapse in Canada’s oilsands as creditors squeeze small producers in one of the priciest places to extract the fuel.

As oil prices resumed their slide to a new six-year low this week, creditors filed suit on Monday demanding Connacher immediately repay a $128.4 million US loan. If successful, the suit would make it difficult for the company to stay in business unless it finds some other source of capital, according to Moody’s Investors Service.

Connacher is among smaller oilsands companies that drew interest from debt investors willing to finance upstart developments when U.S. crude prices averaged more than $90 a barrel. With prices now about half that, those so-called junior developers are fighting to stay afloat.

“In this new pricing environment, my view is it’s going to be a struggle for junior oilsands players to continue to grow or even survive,” said Jeff Lyons, a national oil and gas leader in Calgary at De- loitte LLP, an audit, tax, consulting and financial advisory firm.

Chris Bloomer, Connacher’s CEO, didn’t return phone messages and emails requesting comment on the lawsuit by lenders. Connacher hasn’t yet responded in court to the allegations.

The suit comes as Connacher pursues a plan to help it free up more cash to survive the price slump by swapping $788 million US in bonds for equity. The company plans to meet with noteholders March 30 to vote on the plan, which it said will cut interest-rate payments by up to $80 million per year.