Oil and Gas

Insolvent Terra Energy's Alberta assets not covered by receivership

CALGARY, Alberta, April 6 (Reuters) - The receiver in Canada’s latest oil and gas insolvency case will not attempt to sell the company’s Alberta assets because of concerns about provincial regulations around oil well cleanup costs, according to a source close to the matter.

A Vancouver court appointed Ernst & Young as receiver for Terra Energy Corp last week after the company’s lender Canadian Western Bank demanded full repayment of its C$15.9 million loan.

The court order, filed on Thursday, says the receivership process “shall not include any oil or gas wells, pipelines or facilities located within the Province of Alberta or licensed by the Alberta Energy Regulator”.

The source, who is not authorised to speak to the media, said Ernst & Young did not want to run the risk of becoming liable for the wells Terra owns in Alberta.

A spokeswoman for Ernst & Young declined to comment.

Calgary-based Terra, which has around 3,500 barrels of oil equivalent per day of producing assets in Alberta and British Columbia, is the latest junior company to hit the wall during the two-year global oil price slump.

The Alberta Energy Regulator said it will be issuing closure orders to Terra Energy, directing the company and its working interest partners to suspend and abandon its licensed properties, but did not comment on why Ernst & Young was not handling those assets.

Concerns over Alberta’s oil well liability regulations have risked pushing more junior companies towards insolvency and disrupting energy asset sales at a time when companies are already struggling with low oil prices.

In statement last month, Terra said attempts to sell assets in Alberta to help pay down debt were hampered by the company having a liability management rating of below one, the ratio regulators use to assess whether a company’s assets cover the cost of fully reclaiming all its oil wells.

Most of the company’s production is in east-central British Columbia, but just under half comes from Alberta where it holds 133 well licences, 32 facility licences and 51 pipeline licences. (Editing by David Gregorio)