Oilexco unit seeks bankruptcy protection

Oilexco unit seeks bankruptcy protection

Wednesday, December 31, 2008
CALGARY — International oil producer Oilexco Inc. disclosed Wednesday that its main subsidiary is insolvent.

Oilexco shares fell 64 cents to 25 cents on the Toronto Stock Exchange, down from a high of $19.50 in June.

The company, focused on the British central North Sea, said wholly owned Oilexco North Sea Ltd. — which accounts for substantially all of the Calgary-based parent company's assets — would file for administration, a form of bankruptcy protection, with the British high court as soon as practicable, likely next week.

Oilexco said the decision came after a syndicate of lenders, headed by hard-pressed Royal Bank of Scotland, declined to provide more funding less than two weeks after approving $47.5-million in bridge financing.

The company had indicated it would need a further boost to stay afloat.

“Oilexco does not have any other source of funding at this time and has therefore concluded that an administration must be pursued,” it stated.

In the meantime, “all parties expect that safe and orderly operations will continue.”

The parent company “is considering its options in light of this development but at this time remains solvent and committed to the strategic review process that was previously announced.”

Oilexco hired Morgan Stanley and Merrill Lynch in mid-December to investigate strategic options, and it said Wednesday that “several parties have indicated significant interest” in possibilities which could include a sale of the company or some of its assets.

Oilexco said it “understands that it is the intention of the proposed administrators to continue this process, with the intention of selling Oilexco North Sea Ltd. or all or substantially all of its assets in such a way as to maximize the value of the assets for all stakeholders, and maintain the business, its employees and systems as a going concern.”

However, “there can be no certainty that any binding offers will be received or accepted or that any transaction will be completed or, if it is completed, that there will be any equity value for Oilexco shareholders.”

Oilexco tapped the financial market in October 2007 when it secured a $500-million loan from a syndicate of banks.

That financing was used to develop the Ptarmigan, Shelly and Huntington fields, for the completion of its acquisition of the Balmoral production vessel and for general corporate purposes.

Oilexco's producing properties, exploration and development activities are located in the North Sea, specifically the Outer Moray Firth and Central Graben areas off eastern Scotland.

It has been struggling with financing problems since October, when it announced the closing of a planned financing had been delayed by the credit crisis. It also cut its production target amid falling oil prices.

- With files from Reuters

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