Oilsands junior seeks creditor protection
Pension board unit demands full loan payment
CALGARY • 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. reports that it has been granted Companies’ Creditors Arrangement Act protection by the Court of Queen’s Bench. Pricewaterhouse-Coopers has been appointed monitor.
“Requesting this creditor protection was a difficult, but necessary step,” said chief executive Glen Schmidt in the release. “This was done after careful consideration of all available alternatives and the Laricina board of directors believes that this is in the best interests of all its stakeholders. We will continue to work hard with our advisers to pursue strategic alternatives as we seek to restructure and further reduce costs.”
He did not immediately return a call asking for further comment.
The company said it went to court after receiving a demand for payment in full by March 26 from the holder of $150 million in senior secured notes issued in March 2014.
It warned in January it was in technical default of production covenants under the notes, purchased by a subsidiary of the Canada Pension Plan Investment Board. The board is also Laricina’s largest individual shareholder with 15.3% of its shares.
In a statement sent to the Calgary Herald on Tuesday, the board said it had been in contact with Laricina since the default occurred Dec. 31 and had provided sufficient time for its strategic review process. It 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.”
The default was triggered when Laricina’s fourth-quarter production of 1,255 barrels per day of bitumen missed its promised level by about 18%, the company said.
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.
Laricina’s action follows a similar CCAA filing in FP1 January by nationalpost.comfellow Calgary-based oilsands producer Southern Pacific Resource Corp. Both companies sought protection after unsuccessful reviews of their strategic alternatives failed 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.
The agreement would leave existing shareholders with only 2% of the company, but will improve its balance sheet and provide some liquidity.
Laricina said it has sufficient liquidity for the initial stay period which expires on April 24 and which may be extended. The CCAA filing is intended to give the company time to formulate a restructuring plan with its creditors and which will require court approval.
Meanwhile, Laricina’s board and management will operate the company. It said a strategic alternatives pro-
Requesting this creditor protection was a difficult, but necessary step
cess 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 planning for its $520-million, 10,700-bpd Saleski commercial project that it had proposed with its 40% partner, private Osum Oil Sands Corp. of Calgary. It would be the first commercial project to target the Grosmont carbonates formation and would be built on an existing pilot project. Laricina said it needed to raise at least $350 million to build it.
“Laricina’s business is based on technologies, pract i ces 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.
The company has reported probable undeveloped reserves at Germain of 389 million barrels of bitumen and 100 million barrels of bitumen at Saleski.