Oilsands Quest Inc. (AMEX: BQI) has been granted protection under the Companies’ Creditors Arrangement Act until December 21,2011, allowing the insolvent company to continue operating normally as it attempts to reorganize its financial affairs.
“We made the difficult decision to seek creditor protection because we believe this step to be in the best interest of all our stakeholders,” Garth Wong, Chief Executive Officer of Oilsands Quest, said in a news release.
“We have been actively seeking options to manage our liquidity and to raise the capital we need to proceed with developing our assets. To protect those assets and find a solution that will enable them to be developed, we are seeking options to restructure our affairs up to and including the sale of the company.”
In an affidavit filed with the court petition, Wong reported that the company has assets totalling US$166.9 million, of which US$12.5 million are current assets. The remaining US$154.3 million consist of heavy oil reserves requiring substantial additional investment over the long term to bring them into production.
Company liabilities total US$33.9 million, almost all of which are debts owed to Canadian suppliers or creditors. Wong noted that although the company's assets exceed its liabilities, Oilsands Quest is unable to pay its obligations as they become due and is therefore insolvent.
Oilsands Quest is a development stage company with permits, leases and licenses to explore and develop natural resource properties in Alberta and Saskatchewan. So far the company has not received any revenue from these properties and none of its estimated resources have been classified as proved reserves. Wong noted that significant exploration and development is still required to establish proved reserves and develop the necessary production infrastructure to commercialize these assets.
Oilsands Quest’s decision to seek CCAA protection came after it failed to find a financial partner to develop an estimated $1 billion oil sands project. Following repeated attempts to arrange additional financing, on September 25, 2011 the company entered into a non-binding letter of intent with an unidentified third party to sell its Wallace Creek assets for a total of $60 million, including a $40 million cash payment on closing.
The sale of the Wallace Creek property would have provided the company with the financial resources to move its largest and most advanced asset, Axe Lake lands, toward commercial development. Of the 466 exploration wells Oilsands Quest has drilled, a total of 359 are located in its Axe Lake property. However, the potential buyer, after conducting due diligence over an extended period, backed out on November 28, leading to Oilsands Quest’s filing for CCAA protection in the Alberta Court of Queen’s Bench.