4 LEXPERT
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2016
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WWW.LEXPERT.CA
CHIP JOHNSTON CALLS it sinking below "the frost line." It's
that point where many oil and gas companies — their fortunes
pulled down by two years of depressed commodity prices — look
at their balance sheets and realize they are close to capsizing. John-
ston, a veteran Calgary energy lawyer and partner in Stikeman El-
liott LLP's corporate group, has been, like other energy-focused
lawyers, busy advising clients on how to best survive the repercus-
sions of this downturn.
Energy company insolvencies in the Western Canadian oil patch
are actually down compared to 2015's carnage. But with oil again
retreating to around $40 at the time of writing, a spike in insolven-
cies and bankruptcies could well happen in the latter half of the year.
Downturns bring with them a whole range of financial issues, and
stemming from those, legal issues. ey're concerns that, just three
years ago when times were good, energy company boards and execu-
tives perhaps ignored. e fine print in loans and other debt facilities
and other questions not talked about then "get a lot more attention
now," says Johnston. "I think in bear markets people are more con-
cerned, more thorough, more serious. e [legal] paper gets pulled
out; people are looking at what the indemnity agreement says."
ere are options to consider — legal life ras a floundering
company can reach for as their ship sinks. Canadian banks, for in-
stance, may be staunchly conservative. But Johnston says they also
Breaking
Point
Junior oil producers have
managed to hang on by cutting
expenses to the bone, but as
prices retreat once again, a
spike in bankruptcies late this
year could be inevitable
By Anthony Davis
DISTRESSED COMPANIES
PHOTO:
REUTERS
