The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
Issue link: https://digital.carswellmedia.com/i/522960
24 | LEXPERT • June 2015 | www.lexpert.ca/usguide-corporate/ e fi nancing was considered telling about the kinds of pressure even the large resource companies have been facing — it is estimated many of Canada's landlocked producers need oil at $70 a barrel or more and need north of $90 a barrel to be guaran- teed a profi t. Some large upstream and integrated producers are reportedly looking at selling off mid-stream assets to raise cash. "In Canada, our oil and gas industry has a lot more of the upstream players owning mid-stream assets," says Craig Hoskins, a partner at Norton Rose Fulbright Canada LLP in Calgary. "It's much more common than in the United States, where they are really two distinct industries. "You have to wonder whether, to come up with creative fi nancing means at a time oil prices are low and capital markets are closed off , we'll see more of the Canadian upstream players deciding to go this route." Giant Encana Corp. became one of the fi rst to sell some midstream assets to generate cash, selling 500 kilometers of pipeline and compression facilities in British Columbia to Veresen Midstream, a new partnership between midstream Calgary-based provider Veresen Inc. and KKR. e new partnership agreed to invest up to $5 billion Canadian to support mid-stream development in the Montney basin – one of North America's hottest energy plays – under the 30-year fee-for- service arrangement. Alicia Quesnel, an M&A and energy practitioner at Burnet, Duckworth & Palmer LLP in Calgary, believes the sale is on the cusp of an emerging trend. In structuring it with a taker- pay obligation over a long term, she says, "the company gets the benefi t of cash from the sale but they still have access to the facil- ity they previously owned. "Typically mid-stream businesses are not growth businesses. It's a little more like a utility where you know you're going to get a steady distribution over the life of the facility." Chip Johnston, a partner at Stikeman Elliott LLP in Calgary, is not so sure there will be a rush of sales. "People love midstream because it's a play on energy without commod ities. Capital is very keen on the kind of yield it off ers but part of the dynamic in the Canadian industry is owners are not keen to give up control of their destiny. ose are big issues for a company in terms of what they can sell and at what price. So those assets will get looked at and folks have started to do very interesting things around that. " e challenge in Canadian business is transportation has always been tough, and I think it breeds a certain conservatism to giving up those assets. e Americans have a somewhat more wide open transportation system, fundamentally they can sell into lots of markets we can't, and I think they're probably ahead of us in terms of thinking about how to monetize and manage those assets." ere's nothing like a battered balance sheet to light a fi re. Sandra Rubin is a freelance legal affairs writer. company is in default if it misses a deadline. "Once you go into default, the banks are sitting there and saying: 'Okay, for an additional $10 million that you need to extend your operations, we'll charge you a fee of $5 million.' So now your loan goes from $100 million to $115 million," he says. "To stay in business, you pretty much have to do it. "And if you don't make the next 60-day requirement and you have to extend again, the bank will give you another $10 million to keep your operation but there are fees and charges. And all of a sudden instead of being $100 million, the debt is $130 million. So the equity gets squeezed out." To avoid going off side on debt repayments, an increasing number of companies are turning to joint-venture partners, says Sabine, adding that strategy, too, can sometimes be a bit like doing a deal with the devil. "If you're sitting there and you've got a really good prospective piece of ground, you can negotiate a joint venture where you step back and for them incurring the ongoing obligations up to the amount you already spent, they earn in. " e problem is that most people have to pick fi nancially strong and viable partners. e partners have full access to all the resources, all the background, all the data. If the company has to raise additional money and can't do it, then the partner becomes the acquirer. "Amongst our client base that's something people get concerned about now. If prices in the commodity continue to fall they could fi nd themselves not the partner in the project, but being swallowed." IT'S NOT JUST juniors and mid-sized companies feeling the pinch of slumping commodities prices. Even the majors and super-majors are feeling some heat. Cenovus Energy Inc., one of Canada's largest integrated oil companies, announced in February it was doing a C$1.5-billion bought-deal share off ering to fund its 2015 capital expenditure program. By that point Cenovus had already cut 800 jobs, scaled back its CAPEX program, shelved some expansion plans, and had been trying to sell or spin off some of its royalty-free proper- ties to shore up its balance sheet. « RESOURCE DEALS "A lot of [the junior miners] are just putting the company on ice and hoping they can survive and pay their listing fees until things pick up. You spend no money on the project and lay everybody off. At the junior end of the market, that's just endemic, most of them are just running on fumes." Gordon Chambers Cassels Brock & Blackwell LLP