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Secured lender stymies Cougar's CCAA case

by Hayley Kaplan | Published May 16, 2012 at 10:08 AM

Cougar Oil and Gas Canada Inc.'s stay under Canada's Companies' Creditors Arrangement Act has ended after its secured lender placed it in receivership.

Canadian Western Bank put the Calgary, Alberta, oil and gas production and exploration company into receivership on May 11, said Peter Chisholm of Ernst & Young LLP, the company's former monitor in the CCAA proceedings and receiver. Therefore, the receivership terminates the debtor's CCAA proceedings, he said.

Chisholm said Ernst & Young has been appointed as Cougar's receiver and will seek to auction off the company's oil and gas assets. Advertisements to interested parties will probably be sent out this week, and letters of intent for the assets will likely be due in the next four weeks, Chisholm said.

Prior to being placed under receivership, Justice Adele Kent of the Court of Queen's Bench of Alberta approved Cougar's request to increase its new-money debtor-in-possession loan to C$2.15 million ($2.19 million) from C$1.7 million, Chisholm said.

Cougar said in an April 27 monitor's report that it entered into an amended DIP agreement with DIP lender Zentrum Energie Trust AG that would increase its DIP loan to C$2.15 million.

None of the terms of the DIP changed from the original loan facility except for the administrative expenses Cougar is required to pay Zentrum.

The DIP accrues 16% per annum interest in addition to a 2% fee on each DIP advance. Cougar is responsible for all Zentrum's administrative expenses associated with the DIP up to C$75,000. Cougar was responsible for C$40,000 in expenses under the original DIP facility. The DIP will be given to the debtor over a period of three months, which began one day after the court approved it.

Cougar is required to repay the DIP no later than one year after it was approved, which means it will mature on Feb. 23, 2013. Kent initially approved the company's DIP on Feb. 23 before it increased the loan.

The loan will be used to pay a C$1.29 million security deposit that Canada's Energy Resources Conservation Board has against the debtor, which will get Cougar's wells back in production.

At the time of the April 27 monitor's report, Cougar had also entered into an agreement to sell leases for four parcels of undeveloped land in the Trout Lake region of Alberta to Zentrum for C$50,000.

Cougar filed for CCAA production on Feb. 3 after the ERCB shut down the company's wells and facility on Jan. 23.

Cougar's oil and gas assets are primarily located in the Lucy Horn River Basin in northeast British Columbia and what is known as the Trout Property in Alberta. The latter is Cougar's most significant project, which produces about 95% of the company's cash flow. The remaining 5% of the debtor's cash flow comes from a nonoperating coal-bed methane field in central Alberta that is operated by Ember Resources Inc.

Cougar blamed its CCAA filing on a series of financial setbacks. First, the company's Rainbow Pipeline ruptured in April 2011, causing its operations to be reduced until August, which resulted in a reduction of Cougar's cash flow for several months.

In addition, Cougar drilled an additional well at Trout Property, which cost C$3 million. The drilling was expected to add substantially to the company's cash flow, but its results were ultimately unsuccessful.

Cougar acquired a series of oil and gas assets from PetroReal Energy Inc. in a settlement of certain debt obligations owed by PetroReal in January 2011. The assets consisted largely of nonproducing wells located at Trout Property, court documents show.

A sale of the nonproducing wells was scheduled to close Oct. 31 to an unspecified third party. However, the ECRB shut down the transaction on Oct. 6 after the closing was delayed because the governmental entity alleged Cougar was improperly abandoning the assets. The sale ultimately fell through.

Cougar's ECRB rating then dropped because of the abandonment issue, and the debtor was required to pay a C$620,074 security deposit to remain in good standing with the agency. Because Cougar was unable to pay the deposit, the agency shut down the company's wells and facility on Jan. 23, which led Cougar to file for CCAA protection, the debtor said in a Feb. 3 statement.

Cougar owes Canadian Western Bank C$2.4 million on a C$2.5 million secured loan and secured lender Sword Energy Inc. C$2.81 million for Cougar's C$6 million purchase of Trout Property on Aug. 18, 2009. Zentrum is owed C$2.75 million. In addition, Cougar owes about C$3.8 million in unsecured debt.

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Secured lender stymies Cougar's CCAA case

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