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Glen C. Schmidt, President and Chief Executive Officer of Laricina Energy Ltd.Tobin Grimshaw/The Globe and Mail

The troubles of privately held oil sands company Laricina Energy Ltd. are mounting.

The Alberta-based developer recently said that it defaulted on a loan and is now in negotiations with the lender, Canada Pension Plan Investment Board, which is also the company's largest shareholder. Laricina has two properties in the West Athabasca region, and a board of directors packed with oil patch and Bay Street experience.

The company said its agreements with the pension fund required average daily bitumen production at its Saleski and Germain projects of 1,255 barrels per day in its fourth quarter, but initial estimates have come in about 18 per cent below target. The company doesn't have a grace period to fix its missed bitumen production covenant.

As a result of this miss, the company must now consider the principle amount and interest payments as current liabilities on its balance sheet. That change pushes Laricina into default because of a related working capital covenant in its debt contract.

Laricina initially enticed CPPIB to invest $250-million in its operations in 2010 at $30 per private share. In March of last year, CPPIB invested another $150-million in Laricina in the form of the company's first debt financing. The developer also issued warrants that would allow the CPPIB to purchase shares at $15 to $20 each.

At that time, Laricina had plans to go public, but the weakening of the energy market caused the company to put such ideas on hold indefinitely in late 2014. Changes in foreign investment rules also weighed on the company's ability to access new financing.

Laricina was one of a few struggling oil and gas companies to seek help in looking for strategic options last year, including a possible auction. It hired BMO Nesbitt Burns, Peters & Co. Ltd. and Morgan Stanley to examine options. The company's board includes former Peters & Co. chief executive Ian Bruce, TransCanada Corp. chair Barry Jackson and CPPIB Equity Investments Inc.'s head of private debt, Adam Vigna. Laricina's chief executive Glen Schmidt previously ran Deer Creek Energy, until the oil sands company was sold for $1.6-billion in 2005.

If Laricina can't agree on a way to fix the situation with CPPIB, the result could be "the inability for the Company to operate as a going concern," it said in a statement.

Laricina said that it has yet to determine its next move, but noted that it "continues to implement cost controls at its operations in this challenging external environment."

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