Canadian oil, gas entities fight for their lives

Claudia Cattaneo and Carrie Tait
Financial Post
Thursday, January 15, 2009

BA Energy's Heartland upgrader project, shown under construction northeast of Fort Saskatchewan in October 2007.(Canwest News Service/Chris Schwarz)

CALGARY -- As oil sands developer BA Energy Inc. seeks help from an Alberta court Friday to prevent a fire sale of its assets and appease nervous bankers, it joins a growing list of Canadian oil and gas companies fighting for their lives amid the credit crunch.

While so far only smaller players have run into trouble, insolvency experts say the flood of energy companies headed to court will swell if energy prices stay weak.

"If [oil and gas] prices stay at these levels, absolutely you're seeing just the tip of the iceberg and the beginning of a big trend," said Tony DeMarinis, head of Torys LLP's restructuring and insolvency group in Toronto. "People forget just how capital intensive oil and gas companies are, in particular the juniors."

Rock Well Petroleum Inc., a private oil and gas company based in Calgary and Sheridan, Wy., filed for protection from creditors under the Companies' Creditors Arrangement Act this week, after taking the same step in Wyoming in December.

Less than a year ago, Rock Well, developer of an extraction technique to recover oil from depleted oil fields, was planning the year's largest oil IPO on the London Stock Exchange.

The company is restructuring its operations. It has reduced staff from 112 employees to 43 and is trying to sell assets and line up new lenders, executive Greg Florence said in an affidavit filed in Alberta.

Last week, the Toronto Stock Exchange said shares of Oilexco Inc. would be delisted in February after its stock collapsed. The company put its North Sea assets under the administration of Ernst & Young after its lenders, led by the Royal Bank of Scotland, refused to advance any more funding.

Calgary-based Oilexco was one of the top drillers in the UK North Sea and its assets include the Huntington Field, one of the region's biggest oil discoveries.

While not in court, Bow Valley Energy Ltd., the international explorer founded by Daryl (Doc) Seaman, the legendary oilman who died Sunday, is in discussions with its lenders to extend the expiry of debt that matured on Dec. 31. Meanwhile, its lenders have promised not to issue default notices until the talks have concluded.

Meanwhile, Bow Valley is looking for a buyer.

Ausam Energy Corp., a Calgary-based junior with operations in the United States, filed for Chapter 11 bankruptcy protection in Houston on Dec. 31, saying it was unable to secure new equity or debt on terms satisfactory to its primary lender.

Victor Kroeger, senior vice president and head of Deloitte & Touche Inc.'s restructuring practice in Calgary, said more insolvencies are in the pipeline but haven't been publicized.

While companies are suffering in a range of sectors, he predicts the oil and gas industry will rack up the most CCAA filings because of the large influx of capital in recent years, when oil and gas prices were strong, that swelled companies' debt.

"A lot of money flew into the city," he said. "With the climbing prices being what they were, (debt) was easily manageable."

At the same time, he warned creditors to be careful with whom they do business.

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

Columba Yeung, CEO of both BA Energy and parent Value Creation Inc., said in a court document this week that TD Securities Inc. and Genuity Capital Markets have been hired to prepare an analysis of the current market for oil and gas assets, Value Creation's technology and size of oil sands holdings.

Should a parade of energy companies march toward bankruptcy protection, junior producers and service companies will be at the front of the pack, Mr. DeMarinis said. Refiners and integrated companies are better suited to weather the storm, he said.

Energy companies will not be the only ones struggling to keep afloat as the economic crunch continues -- forestry companies, manufacturing concerns, base metals outfits will all be hit. "You can just list company after company," the Toronto-based lawyer said. "I've never seen anything quite like it."