Canadian Manufacturing

Ivanhoe Energy: Timeline of a bankruptcy

The company's ambitious plans began to crumble, sapping cash reserves. By the end of May, Ivanhoe has had just $7,004

CALGARY—Early last year, Ivanhoe Energy was developing an oilsands project in Alberta, had partnered with China National Petroleum Corporation on an oil play in Ecuador, was pushing ahead with a proprietary heavy oil refining technology and wanted to build an offshore floating refinery.

This week, those lofty aspirations perished as the company declared bankruptcy after failing to reach a deal with creditors.
For over a decade, the company’s goal was to use a process that converts heavy oil to light oil for easier transportation and processing, which it spent $100 million to acquire in 2004.

Ivanhoe had bought up heavy oil projects in China, Mongolia, Ecuador and Canada so it could put the technology to use, and had even partnered with SBM Offshore to work on developing a ship-based refinery that would use the technology.

But one by one, those projects fell apart.

In 2012, the company decided to scale back its global operations, selling off its Zitong petroleum contract in China to Shell for $96 million and curtailing exploration in Mongolia.

Flush with $170 million in working capital, the company turned to its 2,784-hectare Tamarack heavy oil project near Fort McMurray, Alta., and the 110,000-hectare Block 20 in Ecuador.

By early 2014, the Tamarack project was bogged down as the Alberta Energy Regulator considered new regulations for steam-assisted gravity drainage projects like Tamarack. By March, Ivanhoe had suspended development on the $1.37 billion project and started looking for a buyer.

In Ecuador, the company spent $70 million mapping Block 20 before deciding it couldn’t finance exploration on its own. The company struck a deal with the Chinese national oil company CNPC, and in April 2014 the partners made a US$2 billion development proposal to the Ecuador government.

But then, according to documents filed with Ivanhoe’s trustee, a high-level CNPC executive was arrested as part of a Chinese government corruption crackdown, and progress on Block 20 stopped. The deal fell apart, and by February Ivanhoe had laid off all staff in Ecuador and shut operations.

The cost of severance pay for workers in Ecuador ate into the company’s dwindling cash reserves, and the company missed a $2.1 million interest payment to the Bank of New York Mellon. When the bank demanded payment in February, Ivanhoe went into creditor protection and its shares on the Toronto Stock Exchange and Nasdaq were delisted.

Company founder Robert Friedland, a mining promoter who also founded Ivanhoe Mines and played a key role in developing the Voisey’s Bay nickel deposit in Labrador, fought to keep Ivanhoe Energy alive. He personally loaned US$5.11 million to the company in recent months to keep it afloat and continued buying up shares of the company.

According to documents filed with company trustee Ernst & Young Inc., Friedland was willing to invest more in the company if he could find a partner to help back him, but none could be found.

The creditor’s report says the company’s total debt stands at $103.6 million, $94.3 million of which is owed to the Bank of New York Mellon and $6.4 million owed to Friedland.

At the end of last month, the company had $7,004 in cash.

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