Terra Energy Corp shuts down operations after Canadian Western Bank demands full repayment of debt

CALGARY – Canadian junior gas and oil producer Terra Energy Corp on Monday turn off production, ceased operations and announced the resignation of directors and officers, after its lender, Canadian Western Bank, demanded full repayment of their debt.

Terra, that was producing around 3,600 barrels of oil equivalent from the operations in western Alberta and north-eastern British Columbia, said that at current low oil prices the price of operating was a lot more than its revenue.

The company is the most recent Canadian producer to fall victim to the prolonged slump in global crude prices, which have plunged by nearly two-thirds since June 2014.

Canadian Western Bank served notice on Friday demanding repayment in full of the $15.9 million owed through the company by March 28.

“The company’s lender has declined to provide further financial support to Terra and there’s no other means of financing open to the company at the moment,” Terra said inside a statement on its website.

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Canadian Western Bank has not announced a receiver to sell Terra’s assets and declined to comment on the problem.

Since September 2015 Terra has sold off around $12 million in oil and gas assets to assist pay down debt, however the amount was not enough to cover all its liabilities.

Terra also said the asset sales in Alberta were hampered through the company using a liability management rating of below one – the ratio that regulators use to evaluate whether a company’s revenues cover the price of fully reclaiming its oil wells.

Liability management ratings and oil well liabilities are becoming an increasingly hot topic in Alberta, where lawyers have warned buyer concerns over reclamation costs tied to inactive wells are disrupting energy asset sales.

Terra shares were suspended from trading on the Toronto Stock Exchange.

? Thomson Reuters 2016