CALGARY – A small energy producer with wells and facilities in Alberta and B.C. says it has shut down production, laid off all non-executive employees and its directors and officers have resigned after a bank called in a loan.
Calgary-based Terra Energy Corp. has long been struggling to turn a profit, first as low natural gas prices cut into earnings and then as the collapse in crude prices derailed its plans to switch focus from natural gas to oil.
But the final blow came last week, when Terra said Canadian Western Bank was exercising its right under the federal Bankruptcy and Insolvency Act to call in its loan of $15.9 million plus interest, costs and fees.
The company has until next Monday to repay.
Terra said since it was losing money on its operations at current commodity prices and had no alternative financing options, the company had no choice but to halt production and lay off staff.
“The directors have determined that Terra’s business is no longer viable,” the company said Monday in a news release. It did not respond to requests for comment.
The company did not say how many employees were affected, but as of an early 2015 filing, the company had a total of 32 staff in its Calgary and Fort St. John, B.C., offices.
As of its last corporate filing dated Sept. 30, 2015, Terra was producing the equivalent of about 2,500 barrels of oil a day.
Sonny Mottahed, chief executive of Black Spruce Merchant Capital, said he expects more small exploration and production companies to fall victim to low oil and gas prices if they persist.
“With the commodity price where it has been for as long as it has been, it certainly would not surprise me to see a number of junior (exploration and production) companies being forced into bankruptcy,” said Mottahed.
He said the number of bankruptcies in the oilpatch so far have been limited in part because banks are reluctant to take on company assets, but at some point they may feel forced to step in.
“Banks are not in the business of owning assets, they’re in the business of loaning money,” said Mottahed.
“But after a certain point of time they need to inject themselves and get more actively involved. I think you’re going to see that in a number of cases moving forward.”
He said banks may have less appetite to lend to small producers if volatile commodity prices continue.