The saga of Dome Petroleum Ltd. is turning into Canada’s longest-running financial drama. Last week, as Swiss lawyers argued in Zurich’s Cantonal Court over whether to send the once high-flying Calgary-based resource company even closer toward the abyss of bankruptcy, company executives awaited approval from Dome’s 56 other creditors on a complex restructuring of its $6.1-billion debt. Dome’s final game plan in part ties debt repayment to the price of oil. But the creditors were studying the proposal against the unsettling backdrop of the company’s recent write-off of a staggering $2.2 billion in the value of its assets. While stressing that his company was in serious difficulty, Dome chairman J. Howard Macdonald assured creditors last week that “even a net loss of this magnitude has very little bearing on the day-to-day operations of Dome.”
Disclosing its precipitous loss in its annual report filed with the U.S. Securities and Exchange Commission (SEC), Dome blamed low oil prices for the sharp decline in its revenues and the value of its oil and gas reserves. As well, SEC regulations forced the company to report a $214-million loss in for-
eign exchange transactions that service its massive debt. Even if such losses do not affect Dome’s day-to-day operations, the record loss by a Canadian company increases the pressure to sell off once-valuable assets as Dome tries to keep ahead of its everswelling debt load.
Even the debt restructuring plan, which defers some repayments and waives others while allowing lenders the option to convert loans to share equity, does not provide all the answers to Dome’s problems. “The plan, if implemented, will not resolve all of the company’s financial difficulties,” the report to the SEC notes. “As a result of specified minimum levels of debt service including the compounding of interest under certain circumstances, the company will continue to be vulnerable in the current energy price environment and operational difficulties will arise.”
What concerns some observers is whether Dome will have any assets left in order to be
in a position to benefit from a future increase in oil prices. Dome is still Canada’s largest independent oil and gas producer, with assets valued at $5 billion. But since 1981, it has lost more than half its reserves, reduced its landholdings to 15 million acres from 54 million acres and watched the value of its assets tumble from $10 billion. Said Ken Croft, Midland Doherty Ltd.’s Calgary oil analyst: “That’s fine if you’re a company with no debt, but this one is quite a different situation. You are, over time, eroding the asset base of the company.”
At the same time, local oil companies are showing no eagerness to enter joint agreements with Dome that require cash outlays. In such a climate, some observers give Dome little chance of survival. Said Montreal oil analyst Manfred Madden of McNeil Mantha Inc.: “It’s a dead duck. This thing is falling apart. It’s bad, really bad.” There is growing pressure, too, on Dome to give up other holdings,
including its 48-per-cent interest in Encor Energy Corp. Ltd., formerly known as Dome Canada Ltd. Those shares, worth about $308 million, are held by the Canadian Imperial Bank of Commerce as part security against the $1 billion that Dome owes the bank. Most of the $3 billion that Dome owes to five Canadian banks is secured against Dome assets, leaving a consortium of international lenders with largely unsecured debts of $3.1 billion. Banks are also pressing Dome to sell its 21.5-percent holding in Dome Mines Ltd. of Toronto in order to permit Dome Mines to repay the banks its own $225-million loan guarantee signed for sister company Dome Petroleum. That would allow Dome Mines to distance itself from troubled Dome Petroleum.
In Zurich, Dome’s lawyers last week argued that Swiss bondholders, including a private investor to whom Dome owes a relatively minor $43,000, committed technical errors in their applications for Swiss courts to order Dome to pay overdue interest. Dome’s strategy is to delay a Swiss court decision that would not only jeopardize acceptance of its overall debt restructuring plan before a June 30 deadline but also likely trigger an avalanche of default actions leading to eventual bankruptcy.
To some observers, last week’s manoeuvres were simply delaying the inevitable—the demise of Dome Petroleum. As veteran Calgary Sun energy columnist Tom Kennedy put it, “the Swiss would be doing everyone a favor getting on with those final rites. The sooner the better.” Added Kennedy, a long-time Dome-watcher: “For Dome Pete, it’s reckoning time. No more miracles. No more delaying tactics. The silk hat’s in the pawn shop. The last rabbit left no fowarding address.”
Certainly, Dome has been performing a dazzling high-wire act over the chasm of its multi-billion-dollar debt. Since Macdonald took over the company in October, 1983, he has spent most of his time negotiating a series of complicated debt restructurings with his patient European and North American bankers. But with oil prices showing no prospects of dramatic change—last weeks’ $23 to $25 a barrel was far short of the $34 needed by Dome to make its payments on schedule—the Swiss proceedings seemed to be one more step toward an unavoidably unpleasant ending.
But the investment community has not given up on Dome entirely. “We are still hopeful,” said one senior Calgary banker. “It is a situation that you cannot afford to get tired of. If we hang in there, all of us will be better off than by pressing for a quick solution.” Still, even in the longest saga, the day of reckoning eventually arrives. □
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