BA Energy first oil sands developer to file for protection

Claudia Cattaneo and Carrie Tait
Financial Post
Wednesday, January 14, 2009

CALGARY -- BA Energy Inc., developer of the $4-billion Heartland Upgrader near Edmonton, Wednesday became the first oil sands company to file for bankruptcy protection, fearing its parent company's major lender, Credit Suisse, will recall a US$507-million loan.

Columba Yeung, chief executive of parent company Value Creation Inc., said that company could default on its multi-million bank loan after BA was unable to repay it a $50-million loan. BA's failure to make good on this debt allows Value Creation's lenders to demand immediate payment of the US$507-million loan, Mr. Yeung said in an affidavit filed Dec. 30, 2008 with the Alberta's Court of Queen's Bench. The filing was made under the Companies' Creditors Arrangement Act.

"BA is suffering from a cash flow shortage and as such will be unable to repay a loan ... of approximately $50-million plus interest to VCI due Dec. 31, 2008," Mr. Yeung said in the affidavit, posted on the Web site of Ernst & Young Inc., acting as the monitor for BA's restructuring under CCAA.

Mr. Yeung said failure to repay the loan might place Value Creation in default of its main credit facility, allowing the lenders to accelerate repayment and immediately demand the full amount of the loan.

In an interview, Mr. Yeung said he still hopes a solution can be found ahead of a hearing Friday before Justice Barbara Romaine.

He blamed the credit crisis for BA's need to file for court protection.

"Who could have foreseen this recession, and the oil price going to the US$30s?" Mr. Yeung said.

"All the equity and debt markets are totally frozen, and (we are) in the middle of a major project that needs money."

As oil prices collapsed last fall, BA Energy became one of a long list of oil sands companies that deferred projects.

Its upgrader, originally designed to process bitumen from third parties, was already under construction.

Mr. Yeung created both BA and Value Creation, both private companies. Value Creation holds vast oil sands leases near Fort McMurray.

In Mr. Yeung's affidavit, he said the two companies have more than $768-million in assets and BA Energy has a tax pool of more than $588-million.

In March last year, Value Creation acquired BA and was in the process of amalgamating the sister companies.

Value Creation is in "recent and ongoing discussions" with "an international state-owned oil company" for an equity injection and a joint venture, Mr. Yeung said in the affidavit.

But the foreign company backed off its offer for an investment because of concerns over the lenders' intentions, he said.

He tells the court that if BA's Energy's restructuring plan, which includes its amalgamation with Value Creation, isn't approved, BA would be forced to sell its assets as well as some of Value Creation's assets "certaintly at far below market value."

Value Creation is a top oil sands lease holder with 3.2 billion barrels of contingent resources. It wanted to turn them into a major project called Terre De Grace using new technologies developed by Mr. Yeung that he believes would have been made money at US$40 a barrel.