Laricina Energy was an early mover in a corner of the bitumen business that had yet to yield commercial success – oil from carbonates, or sedimentary rock-like limestone, where it has applied steam-assisted technology used in traditional oil sands development.
An Alberta court ordered Laricina Energy Ltd. to pay its lender and major shareholder a $20-million installment on its debt as the oil sands developer's protection from creditors took force.
Laricina was granted court protection this week after failing to reach an agreement with its lender, the Canada Pension Plan Investment Board, on how to remedy a default on $150-million of secured notes. Relations between the two sides have deteriorated over several months.
In a court document, CPPIB said it fears that Laricina's cash on hand may end up accounting for the bulk of the company's overall value as its projects have slowed and cash flow has dwindled. The company, however, says its proved plus probable bitumen reserves could be worth as much as $7.1-billion.
CPPIB lent Laricina the money a year ago to allow the company to proceed with development of its two Alberta oil projects. The 11.5 per cent notes carried covenants that required Laricina to meet spending and production targets. CPPIB says that the total owing is $173-million, including accrued interest.
The court-directed payment is to be applied to the debt as Laricina begins a process to restructure under the Companies' Creditors Arrangement Act. The notes have been in default since January.
CPPIB, which also owns 15.3 per cent of the company's equity, had applied to have Laricina placed into receivership, saying it had lost confidence and trust in the management over several months of trying to resolve its financial problems. The application was adjourned when the court granted the company protection under CCAA.
Laricina had hired financial advisers to seek out a deal to raise money, possibly through a sale, but there were no takers after several months of the "strategic alternatives process." The efforts began just as the oil-price crash took hold.
Laricina CEO Glen Schmidt said in an affidavit that he believes CPPIB sought to drive down the value of the company so it could acquire the assets itself. It's a contention that the investor disputes, saying that it negotiated with Laricina's board in good faith to find a solution.
"The crux of the dispute between Laricina and CPPIB is not, as is alleged by Laricina, an attempt to acquire Laricina's business and assets; rather, it is whether, given the circumstances of this case, Laricina should be given further opportunities to squander its principal, and possibly only, material asset [its cash on hand]," CPPIB's Mustafa Humayun said in his affidavit urging receivership.
Jeffrey Jones