Laricina Energy granted protection
Second junior oilsands company heads to court for relief help
A second Calgary junior oilsands producer has been granted court protection from creditors as low oil prices and investor disinterest prevent recharging capital resources.
In a news release on its website, private Laricina Energy Ltd. reported that it has been granted Companies’ Creditors Arrangement Act protection by the Court of Queen’s Bench. Price water house Coopers has been appointed monitor.
President and chief executive Glen Schmidt said in an interview with the Herald on Tuesday that requesting creditor protection was a difficult, but necessary, step for the company which operates two northern Alberta demonstration projects but lacks the funds to build a commercial operation.
“It means that we have an orderly process,” he said. “It affords the company the time to manage its affairs so that the interest of all stakeholders are met. In addition, it provides integrity for those with a contractual relationship, such at the credit side of CPPIB.”
The company said it went to court after receiving a demand for payment in full by last Thursday from CPPIB Credit Investments Inc., the holder of $ 150 million in senior secured notes issued in March 2014. It is a subsidiary of the Canada Pension Plan Investment Board
Laricina warned in January it was in technical default of covenants attached to the notes after fourth- quarter production of 1,255 barrels per day of bitumen missed its promised level by about 18 per cent.
CPPIB is also Laricina’s largest individual shareholder with 15.3 per cent of its shares.
In a statement sent to the Herald on Tuesday, the board said it took action to protect “the interests of CPP’s 18 million contributors and beneficiaries.”
“We ultimately concluded that there was no reason for us to believe that the company could put the debt back into good standing, repay it, or make an acceptable restructuring proposal to us,” it said. “The court process will create court oversight and supervision that should help protect our interests.”
In an affidavit filed in court, CPPIB Credit Investments Inc. says it has lost confidence in management, blaming Laricina’s production miss on technical challenges and “operational errors,” charging management resisted taking “prudent measures” to reduce spending and adding that Laricina’s board was considering laying off executives, which would involve “substantial” severance payments.
It said it is owed $ 173 million as of March 16, with $ 162 million in principal — including interest payments that Laricina satisfied through increases in note obligations. Its application to place Laricina in receivership was adjourned by the court.
Laricina’s action follow a similar CCAA filing in January by fellow Calgary- based oilsands producer Southern Pacific Resource Corp. Both companies sought protection after failing to win new investors to pay for capital projects to improve or expand their oilsands works.
A third junior oilsands producer, Connacher Oil and Gas Ltd., won reluctant support from shareholders and debtholders Monday for a plan to exchange $ 1 billion in debt for shares, leaving existing shareholders with only two per cent of the company.
The CCAA filing is intended to give the company time to formulate a restructuring plan with its creditors and present it to the court for approval.
Meanwhile, Laricina’s board and management will operate the company. It said a strategic alternatives process begun in November will continue with advisers Peters & Co., BMO Capital Markets and Morgan Stanley Canada.
It said it had estimated current cash and cash equivalents on hand of about $ 140 million as of March 30.
In February, Laricina shut down its Germain oilsands demonstration project to save money. It taps the Grand Rapids oilsands formation.
It also halted plans for its $ 520- million, 10,700- bpd Saleski commercial project which it had proposed with its 40 per cent partner, private Osum Oil Sands Corp. of Calgary. It would be the first commercial project to target the Grosmont carbonates formation, using technology developed with an existing pilot project. Laricina said it needed to raise at least $ 350 million to build it.
“Laricina’s business is based on technologies, practices and methodologies that have not proven to be economic, and it is not clear that Laricina will ever be able to operate the projects in an economically feasible manner,” the CPPIB Credit affidavit states.
Schmidt said he disagrees with that assessment, noting that independent evaluators have assigned probable undeveloped reserves at Germain of 389 million barrels of bitumen and 100 million barrels of bitumen at Saleski.