Alberta Oil Sands companies – BA Energy files for credit protection

Alberta oil sands and BA Energy

A major player in the Alberta Oil Sands projects, BA Energy Inc., filed for credit protection in early 2009. BA Energy Inc. was developing a $4 Billion Dollars Alberta Oil Sands Upgrader project near Edmonton in what is known as the Heartland Upgrader. These projects require significant capital in order to run its daily operations and would require funding from its credit facilities. Credit facilities for BA Energy Inc. are secured via a $507 Million US$ loan from Credit Suisse and due to the worsening financial crisis, this credit line is not guaranteed to be around for 2009. What this means for BA Energy Inc and its Alberta Oil Sands Upgrader projects is that there could be a callback of their loans in 2009 which would lead to credit protection. This has lead BA Energy Inc. to be the first Alberta Oil Sands developer to file for credit protection in 2009.

Financial crisis and BA Energy

How has the financial crisis affected BA Energy Inc. and other Alberta Oil Sands companies and what further developments will come in 2009? The financial crisis is a worldwide event that resulted from defaults in asset backed securities and the housing crisis in the US. Because there has been a dramatic default and loss as a result of the Financial Crisis and defaults of loans, the worldwide credit markets have literally been frozen. BA Energy Inc. and other Alberta Oil Sands Companies depend on vast amounts of credit to fund their daily operations. The funds that BA Energy Inc. require are provided by global credit facilities offered through banks such as Credit Suisse. Because of the mounting defaults in the US and the exposure that these global credit facilities companies including Credit Suisse has, the need to recall existing loans has been created. The global credit companies will recall loans with the highest risk first. Alberta Oil Sands projects including BA Energy Inc.’s Heartland Upgrader project are now considered high risk because of the drop in oil prices to sub $50. Not only have BA Energy Inc. filed for credit protection but it has also been one of many Alberta Oil Sands companies to postpone projects indefinitely. This will be a continuing theme while we are in the middle of the financial crisis and oil prices remain low.

Are more Alberta Oil Sands companies needing credit protection

Which Alberta Oil Sands companies will survive the financial crisis? Or more to the point which Alberta oil sands companies will have a strong enough balance sheet to weather out the financial crisis storm for 2009. Afterall, it is a result of the lower oil prices in Alberta that have created the lower profit expectations of all the companies. With Alberta oil sands companies projects being viable at a stable oil price of over $50, the current level is going to create significant problems for some of the smaller firms to survive. Large Alberta Oil Sands companies such as Suncor have significant cash reserves set aside to ride out rough patches including a short term lower oil price. However smaller companies such as BA Energy Inc. will need to file for credit protection. The forecast in 2009 will probably see a consolidation of the smaller Alberta Oil Sands companies with the larger ones and thus avoiding credit protection. However for existing shareholders of these smaller companies the outlook is poor that they will receive much value from their existing shares.