Laricina Energy Ltd. (“Laricina” or the “Company”) advises that it has decided to suspend operations at its Germain Commercial Demonstration Project (“CDP”). This action reflects the Company’s continuing efforts to implement cost controls towards maintaining its financial position to protect the long-term value of its assets in this difficult commodity and capital markets environment. Shut-in activities at Germain have begun and suspension of the Germain CDP is expected to be completed by mid-March.
The Company is experiencing many of the same challenges the rest of the crude oil and oil sands industry is facing. The rapid decline in crude oil pricing combined with Laricina’s focus on reducing capital and operating costs led the Company to make the difficult decision to curtail operations and remain focused on protecting shareholder value and managing debt obligations. Future phases at Germain Phase 2 have also been put on hold until further notice.
An updated reserves and resource assessment and economic evaluation prepared by GLJ Petroleum Consultants Ltd. (“GLJ”) as of December 31, 2014 using GLJ’s January 1, 2015 price forecast (the “GLJ Report”), determined Laricina’s probable undeveloped reserves at Germain (Grand Rapids Formation) reflecting the suspension of operations and associated project delay were 389 million barrels of bitumen, unchanged from September 30, 2014, the date of the last independent report by GLJ regarding Germain (Grand Rapids Formation) and Saleski (the “GLJ September Report”). The before tax 10% present value of these reserves was $193 million as compared to $168 million at September 30, 2014, an increase of 14.9%.
The Company’s contingent resources (best estimate) at Germain (Grand Rapids Formation) were unchanged from the GLJ September Report totalling 933 million barrels of bitumen, and the before tax 10% present value of these resources was $3,355 million as compared to $3,544 million, approximately a 5% decrease, and is primarily a result of changes in assumptions for future capital and operating costs, development timeline and price forecasts. The GLJ Report reinforces the long-term value of Germain.
Based on the updated GLJ Report, Laricina’s net working interest probable undeveloped reserves at Saleski (Grosmont Formation) were relatively unchanged totalling 100 million barrels of bitumen, an increase of 2% from the GLJ September Report, and the before tax 10% present value of these reserves was $69 million, an increase of 32.7% as compared to $52 million at September 30, 2014. The Company’s contingent resources (best estimate) at Saleski (Grosmont Formation) were relatively unchanged at 1,491 million barrels of bitumen, and the before tax 10% present value of these resources was $2,917 million, an increase of 8.0% compared to $2,702 million, again primarily a result of changes in assumptions for future capital and operating costs and price forecasts.
Next steps at the Saleski pilot continue to be evaluated with the Company’s 40% working interest partner. As at the end of January, 2015, 80% of the overall detailed engineering had been completed for Saleski Phase 1, a 10,700 barrel-per-day commercial-scale project in the Grosmont Formation. Further work on Saleski Phase 1 has been suspended as the Company continues to evaluate available financing alternatives and opportunities within a minimized capital spending program. Engineering documentation will be preserved so that continuation of the detailed engineering can be reactivated and completed when market conditions allow. Laricina has a 60% working interest in Saleski and is the operator.
As announced in Laricina’s third quarter report on October 31, 2014, financial advisors have been engaged to assist the Company in evaluating the 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.
Laricina continues discussions with CPPIB Credit Investments Inc., a wholly-owned subsidiary of CPP Investment Board (collectively “CPPIB”) regarding the Company’s previously announced defaults under the terms of the trust indenture (the “Indenture”) relating to the $150 million in 11.5% senior secured notes (the “Notes”) issued in March of 2014. 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.
The Company also today announced that Adam Vigna has resigned from Laricina’s Board of Directors effective February 18, 2015, a position he has held since November, 2014. Mr. Vigna is CPPIB’s representative on the Board of Directors and his resignation eliminates any CPPIB board representation while an active dialogue is underway with CPPIB in relation to the defaults under the Indenture previously communicated to shareholders. CPPIB retains the contractual right to nominate one representative for election by shareholders to the Company’s Board of Directors so long as CPPIB owns greater than 10% of the basic common shares issued and outstanding. As of February 19, 2015, CPPIB held approximately 15.3% of Laricina’s outstanding basic common shares and is the sole holder of the Notes.
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 0.2 billion barrels of prospective resources (best estimate) as determined by Laricina’s independent reservoir engineers as at December 31, 2014 for Germain Grand Rapids, Germain Winterburn, Saleski Grosmont, Burnt Lakes, Conn Creek, Poplar Creek and Portage properties, and as at December 31, 2013 for Thornbury, Thornbury West, House River, Germain Wabiskaw and Boiler Rapids 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.