Canada's top oil company in dire need of federal bailout
Confidential Canadian federal government figures obtained privately show that Dome Petroleum Ltd. is in such a dire financial state that unless it receives a bailout it could collapse by the fall.
The crunch should come before Sept. 30, the date when Dome must repay $1.3 billion (Canadian, or $1.03 billion US) to four of Canada's largest banks. The tabulations of the company's fiscal plight were originally compiled by its own executives and were supposed to be confidential background material for briefing the federal Cabinet on the extent of its liquidity crisis.
To ease its financial squeeze, Dome has just announced a 10 percent across-the-board salary reduction. That will save $40 million. Dome Petroleum is now Canada's largest oil company including production volume, reserves, and indebtedness, now estimated at about $8 billion (Can.). The company had $10.2 billion in assets at the end of last year.
The latest debt estimates are at least $1 billion more than earlier figures and include about $3.4 billion lent by Canadian banks.
Yet the federal government insists it is not now planning a rescue mission.
Dome's money problems pale beside the federal government's own deficit, now estimated at $20 billion for the 1983 fiscal year - by far the highest per capita public debt of any developed nation.
The company report admits that so far Dome has been singularly unsuccessful in selling off assets in the United States and overseas, particularly in Indonesia.
It wants about $700 million for its Indonesian properties inherited from Hudson's Bay Oil & Gas Company Ltd. It was the $2 billion purchase of Hudson's Bay about a year ago, then one-third owned by Conoco Inc., and subsequent buying up of minority shares, also costing about $2 billion, that plunged Dome Pete into its present crisis.
Most of the funds for that and earlier acquisitions here had been borrowed at high floating interest rates.
It wants about $600 million for the US properties similarly inherited or earlier acquired from other sources. Projections show the company will have to spend almost all of its cash flow on preferred-share dividends and interest payments while unable to effect reductions of the principal amounts. Dome Petroleum must come up with $200 million in repayments in September alone, and its total negative cash flow this year will amount to about $760 million. That is after it pared about $500 million from planned capital expenditures.
In fact, Dome and its half-owned subsidiary, Dome Canada Ltd., will not be able to meet already assumed exploration commitments. It's a worry to federal officials, too, who held out the carrot of federal tax incentives to prompt Dome to go into debt and to mount massive projects to earn the exploration grants. The government will pay as much as 80 percent of certain exploration costs.
In turn those grants were to be used to reduce bank indebtedness. Dome has not registered a positive cash flow since the $45.2 million in May.
It posted a $36.8 million loss for the month of June and expects to lose $126 .2 million more this month. The company's debt structure is particularly menacing from the point of view of short-term obligations.
About $2.5 billion must be repaid within a year, plus nearly $400 million due upon demand at any time.
About $4.8 billion is longer-term debt. Dome also has $2.2 billion outstanding in recently issued preferred shares.
It is widely accepted here that Ottawa would come up with a plan of sorts to make life at least livable for the ailing giant. It is believed that the banks may be pressured into converting some of the debt into equity to reduce the burden of repayments. But no official word is expected until after Parliament adjourns for the summer at the end of July.
The federal government fears a major revolt in the House if it bails out one and not all the corporate sufferers of overextension, inflation, high interest rates, and reduced demand for energy fuels in general. Dome owes about $1.08 billion to the Canadian Imperial Bank of Commerce, about $1.05 billion to the the Bank of Montreal, $800 billion to the Toronto Dominion Bank, $340 million to the Royal Bank of Canada, and about $140 million to the Bank of Nova Scotia.
Each of these banks except the Nova Scotia is due a $315 million installment of interest within two months. Industry experts say it is clear that Dome cannot pay up. But they point out the banks have little choice but to carry the company , since the alternative of receivership or outright bankruptcy could send destructive tidal waves through the entire Canadian petroleum industry and perhaps fatally rock the Canadian banking system.