Dome Petroleum risks all in Beaufort Sea Drilling as company negotiates for fiscal aid
Directors of Dome Petroleum Ltd., the financially strained independent oil company, have spent the last few days considering a long-awaited refinancing package from the Canadian government and four of Canada's largest banks.
The rescue proposal, the product of months of negotiations between the banks and the government, was presented only a week before the company faces a potentially ruinous debt-repayment deadline. Dome owes the banks a total of about $4 billion (US). A decision by the company on whether to accept the deal is expected shortly. But it may then take some months to work out details.
Dome, which got into trouble by borrowing for huge corporate takeovers at a time of soaring interest rates, was due to make payments totaling about $1.3 billion by Sept. 30 to the four banks. They are the Canadian Imperial Bank of Commerce, the Royal Bank, the Toronto-Dominion Bank, and the Bank of Montreal.
With Dome in a cash squeeze, Prime Minister Pierre Trudeau's government and the financial community feared a default that could send shock waves through Canada's banking system and hurt the country's image abroad.
Also, Dome's aggressive takeovers of foreign-owned oil and gas assets fitted in well with Ottawa's nationalistic energy plans. And the company's exploration push in the Beaufort Sea is crucial to the hunt for much-needed new petroleum supplies in Canada.
Dome's recent acquisitions, most notably the $3 billion 1981 takeover of Hudson's Bay Oil & Gas Company, had made it the largest independent oil firm in Canada. But in the process the company ran up nearly $6 billion in debts. This, coupled with the downturn in the oil business worldwide, brought on the threat of bankruptcy.
To avert such a collapse, Ottawa and the banks have offered to help the company restructure its debt. Details are sketchy, but it is expected that Dome will issue a convertible debenture worth about $1 billion, which would be taken up on a 50-50 basis by the government and the banks. According to one report, the Canadian banks will insist that other banks, mostly in the United States, put $500 million in an existing secured loan that the Canadian banks previously made to Dome. These other banks have unsecured loans to Dome that make them especially interested in rescuing the company.
At a later date, Ottawa and the Canadian banks may both become major shareholders in Dome by converting their investment to common shares. Ottawa's interest in the company would be held by a government-owned corporation.
Also, the package would allow Dome to reschedule most of its debt in order to relieve the company's current cash-flow problems. But the price for the refinancing deal will probably be a reshuffling of Dome's senior management.