Lone Pine shares worthless under deal

source Calgary Herald (http://www.calgaryherald.com/business/Update+Lone+Pine+shares+worthless+under+deal/8958980/story.html)

CALGARY — Long-suffering shareholders of debt-laden junior gas producer Lone Pine Resources Inc. will be left with nothing under a deal struck with its noteholders to trade debt for stock.

The agreement announced Wednesday, which requires court approval, would result in shareholders having their stock cancelled without compensation while holders of the Calgary company’s debt instruments will wind up in full control.

“For the corporation, this could be viewed as quite positive, anytime you eliminate close to $300 million of aggregate debt,” said Tim Granger, president and chief executive of Lone Pine, in an interview.

“The noteholders are converting $195 million of their notes to equity and then backstopping a $100-million equity infusion. The struggle for the company was its lack of liquidity because of its debt burden and this eliminates that.”

Lone Pine was valued at $13 per share in an initial public offering in May 2011 when it was spun out from Denver-based Forest Oil Corp.

When the final distribution of 70 million shares was made to Forest shareholders on Sept. 30, 2011, the stock closed at $6.95, giving the company a market capitalization of about $600 million for its 85 million shares.

It has lately been fetching around four cents per share in thin trading. Its 52-week high was $1.78 set last October.

Granger said Wednesday’s deal, made with three large holders of about 75 per cent of its notes after the company missed $10-million interest payments in August and September, is good for employees, who will keep their jobs.

He agreed it’s not good for shareholders.

“That’s the unfortunate aspect out of this transaction,” he said. “The company needed to raise a significant amount of money — since last May when I came here, I’ve been back and forth to Toronto to raise capital — and capital is not being offered.”

Lone Pine was delisted from the New York Stock Exchange last week for failing to meet minimum market capitalization of $75 million and a minimum closing price of $1 US.

TMX Group, owner of the Toronto Stock Exchange, had started a 30-day review of the company’s listing privileges on Sept. 17 but it announced Wednesday it would go to an expedited review and suspend the shares immediately.

Lone Pine relieved CEO David Anderson of duty in February and hired Granger in April.

The company reported average production for the second quarter of 2013 ended June 30 of 47 million cubic feet of gas equivalent per day, off five per cent from the first quarter. Liquids production was 2,600 barrels per day, down 10 per cent.

Lone Pine volumes have declined because it hasn’t been investing to replace production. Its adjusted second quarter net loss was about $12 million.

Analyst Jeremy McCrea of Alta Corp. Capital, which is dropping coverage of the company, said he’s not surprised by Wednesday’s announcement.

“It was missteps by management, a higher leverage position to start off with and average to poor economics in their asset portfolio,” he said.

Granger agreed Lone Pine’s debt was too high but he said its failure was mainly due to crashing prices for natural gas.

“It was spun out to develop its great natural gas assets up in the Deep Basin,” he said. “It drilled a few wells but with the demise of natural gas pricing, switched to oil and started to drill at Evi. But it couldn’t transition fast enough.”

The restructuring is being implemented through the Court of Queen’s Bench of Alberta under the Companies’ Creditors Arrangement Act and in the U.S. via the United States Bankruptcy Court.

If approved, Lone Pine will initially carry on business as a private company, Granger said, with the noteholders as shareholders of common and convertible preferred shares. He said he hopes the company can start drilling again this winter.

Lone Pine must also obtain a new secured credit facility under the agreement.