Laricina Energy Ltd has missed its bitumen production covenant for the fiscal quarter ending December 31, 2014, putting it in default of $150 million secured loan from Canada Pension Plan Investment Board (CPPIB). The company received the debt funding in March 2014. Laricina said it is in discussions with CPPIB on a potential remedy to the default, and warned that a failure to reach an agreement “may result in the inability for the company to operate as a going concern.” Based in Calgary, Laricina is focused on exploring oil sands properties in Western Canada. It has been backed by CPPIB and U.S. private equity firm Lime Rock Partners since 2010.
Laricina Energy Ltd. Update on Debt Covenants and Strategic Alternatives Process
January 2, 2015
Laricina Energy Ltd. (“Laricina” or the “Company”) announces that it has missed its bitumen production covenant for the fiscal quarter ending December 31, 2014 under the terms of the trust indenture (the “Indenture”) relating to the $150 million in 11.5% senior secured notes (the “Notes”) issued in the first quarter of 2014. Missing this production covenant is an event of default for which there is no cure period under the Indenture. As a result, the Notes are required to be reclassified as a current liability at December 31, 2014 which causes the Company to be in default of a related working capital covenant under the Indenture.
The Notes were issued to CPPIB Credit Investments Inc., a wholly-owned subsidiary of CPP Investment Board (collectively “CPPIB”) pursuant to the Indenture dated March 20, 2014, due March 20, 2018. The Notes are fully secured against the assets of the Company.
Laricina reported on November 18, 2014 an updated reserves and resource assessment and economic evaluation of its assets at Saleski (Grosmont Formation) and at Germain (Grand Rapids Formation) as of September 30, 2014 by independent qualified reserves evaluator GLJ Petroleum Consultants Ltd. (“GLJ”), prepared using GLJ’s October 1, 2014 price forecast. Laricina’s working interest proved plus probable reserves assigned to these assets was 0.5 billion barrels of bitumen and the before tax 10% present value of these reserves was $0.2 billion. Laricina’s working interest contingent resources (best estimate) assigned to these assets was 2.4 billion barrels of bitumen and the before tax 10% present value of these resources was $6.2 billion. The updated economic evaluation did not include Laricina’s working interest contingent resources (best estimate) assigned to its non-core assets estimated at 1.5 billion barrels of bitumen by GLJ at December 31, 2013. An updated reserves and resource assessment and economic evaluation of all the Company’s properties for year end 2014 is currently underway. Laricina’s Germain and Saleski assets have a resource life of more than 25 years (at estimated future production levels) and generate value based on long-term crude oil prices which may be materially higher than near-term crude oil prices, based on the current crude oil futures curves and industry/analyst forecasts.
The Company estimates it had cash and cash equivalents of approximately $178 million as at December 31, 2014.
Under the terms of the Indenture, Laricina covenanted to achieve average daily bitumen production from the Saleski pilot (the “Saleski Pilot”) and the Germain commercial demonstration project (the “Germain CDP”) for the fourth quarter of 2014 of 1,255 barrels per day. Preliminary average daily production for the fourth quarter of 2014 is estimated to be approximately 18 percent below this target. The nature of the production shortfall is a result of the character of both the Germain CDP and Saleski Pilot being at a demonstration or pilot phase for the Grand Rapids and Grosmont formations, respectively, with high production variability as a result.
Today steady operations continue at the Germain CDP with increasing production and declining steam to oil ratios (“SOR”), with an average instantaneous SOR for the four producing well-pairs of approximately 3.2. At the Saleski Pilot the 3D well is in its fourth production cycle and the C zone wells are in a steam injection phase.
Under International Financial Reporting Standards the amount outstanding under the Notes and the related payment-in-kind interest notes, both of which were previously treated as non-current liabilities, now must be reclassified to current liabilities as at December 31, 2014 as a result of the production covenant breach.
Laricina is in discussions with CPPIB on a potential remedy to the defaults under the Indenture. The Company cautions that there are no assurances that an agreement with CPPIB will be achieved and the failure to reach an agreement may result in the inability for the Company to operate as a going concern.
As announced in Laricina’s third quarter report on October 31, 2014, financial advisors have been engaged to assist the Company in examining and pursuing a full range of financial and strategic alternatives. The strategic alternatives process continues; however there is no assurance that this ongoing process will result in a successful transaction. The Company continues to implement cost controls at its operations in this challenging external environment.
About Laricina Energy Ltd.
Laricina is a non-public, Calgary based, responsible energy company that will contribute supply to the growing demand for crude oil through in situ oil sands development.
Laricina’s goal is to create value by developing Canada’s oil sands using innovative in situ technologies. The Company has a diverse portfolio of oil sands assets at varied stages of development, and experienced people with the requisite technical expertise. Our current focus is on the Company’s two core producing projects – Saleski and Germain. Laricina’s asset base, holds 0.5 billion barrels of probable reserves, 3.9 billion barrels of contingent resources (best estimate) and 0.3 billion barrels of prospective resources (best estimate) as determined by Laricina’s independent reservoir engineers as at September 30, 2014 for Germain Grand Rapids and Saleski Grosmont, and as at December 31, 2013 for all other properties. These assets include oil sands resources in the familiar McMurray Formation, and the developing Grand Rapids, and Grosmont and Winterburn carbonate plays, all of which offer significant production potential.
This information release contains certain “forward-looking statements” within the meaning of such statements under applicable securities law including but not limited to final regulatory approval from the Alberta Energy Regulator and Alberta Environment. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “estimate”, “intend”, “believe”, “anticipate” and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements are based on Laricina’s experience and current beliefs as well as assumptions made by, and information currently available to, Laricina, and are subject to a variety of risks and uncertainties including, but not limited to, those associated with resource definition, unanticipated costs and expenses, regulatory approvals, fluctuating oil and gas prices, and the ability to access sufficient capital to finance future acquisitions and development. Laricina’s resources at Saleski and Burnt Lakes are contained in the Grosmont Formation, and a portion of Germain’s resources are contained in the Winterburn Formation, each a carbonate reservoir. Some of the Company’s contingent resources in the carbonates that are analogous to the Saleski pilot are based on established technologies that have been demonstrated to be commercially viable specifically for the subject reservoirs, and some are based on technology under development that require further development and piloting to confirm the commercial viability of applying these technologies to carbonate reservoirs. Resource volumes based on technology under development have a higher risk than volumes based on established technology. Although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the assumptions and factors discussed in this information release are not exhaustive and readers are not to place undue reliance on forward-looking statements. Laricina disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, subsequent to the date of this message, except as required under applicable securities legislation. The forward-looking statements are expressly qualified by these cautionary statements.
For further information please visit www.laricinaenergy.com or contact:
President and Chief Executive Officer
Marla Van Gelder
Vice President Corporate Development
Laricina Energy Ltd.
East Tower, 5th Ave Place
800, 425 1st Street SW
Calgary, AB. T2P 3L8
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