Bellatrix Exploration Ltd., an energy producer once worth nearly $2-billion, has filed for court protection as it seeks a buyer or new investor against a backdrop of depressed natural-gas prices.
Bellatrix said it sought protection from creditors to provide stability while it launched a process to explore strategic alternatives, which could include a sale, refinancing or recapitalization. The company completed a financial restructuring four months ago, but its shares have tumbled 81 per cent since then, putting its market capitalization at $15.5-million. At last count, its debt stood at $357-million.
Bellatrix is one of numerous Canadian energy companies struggling with commodity prices at a fraction of those in the U.S. markets, high debt and environmental liabilities as well as disinterest among investors. Recent moves by the Alberta government, including $23-million in tax breaks, have so far failed to lift their fortunes.
“This was a long time coming,” Raymond James analyst Jeremy McCrea said. He dropped his coverage of Bellatrix after its decision to file for protection under the Companies’ Creditors Arrangement Act on Wednesday and previously rated it as “underperform.”
“There are a lot of companies that were never profitable enough to keep operations going when capital markets dried up,” he said.
Indeed, a lack of access to capital has been a major problem for the oil patch. Semi-annual borrowing base reviews, in which lenders recalculate companies’ capacity for credit, are about to begin in the industry and financing is expected to get even tighter because of some forecasts calling for modest to no gains in oil and gas prices and the recent Redwater Supreme Court decision. That ruling placed environmental cleanup obligations ahead of secured creditors’ interests in bankruptcy cases.
“We believe that the commencement of the CCAA restructuring proceedings at this time will provide the company with the time and stability required to continue operating our business while we work to implement the strategic process and achieve an outcome that is in the best interests of Bellatrix and our stakeholders,” Bellatrix chief executive officer Brent Eshleman said in a statement.
Bellatrix gave no guarantee it could complete a rescue transaction, “and given the level of secured debt obligations of the company, there can be no assurance with respect to the levels of recovery that may be available to satisfy claims made by the company’s secured or unsecured creditors, and its shareholders,” it said.
In early June, the company completed a recapitalization, including a debt-for-equity swap that reduced its debt by $110-million, or 23 per cent. The new shares accounted for 83.5 per cent of the equity. After the restructuring, the energy market worsened.
The company, which produces natural gas and gas liquids in central Alberta, was worth $2-billion at its peak in 2014, just before the oil patch downturn began.
In the third quarter of this year, Alberta natural gas averaged the equivalent of US$0.77 per million British thermal units (mmBtu), compared with US$2.39 per mmBtu at Henry Hub, La., the delivery point for NYMEX gas futures. Oil prices have also languished. West Texas Intermediate crude averaged US$56.40 a barrel in the third quarter, down from US$69.61 a year earlier.
Bellatrix is not alone in seeking sales or new investments to escape a financial predicament. In September, Obsidian Energy Ltd., the former Penn West Petroleum, announced it had hired financial advisers to explore a sale or alternative arrangement.
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