A Canadian court has granted Canacol Energy Ltd. permission to walk away from natural gas supply and transportation contracts, a key step in the company’s restructuring under the Companies’ Creditors Arrangement Act (CCAA).
It protects Colombian residential consumers and small businesses.
The ruling by Justice Colin C.J. Feasby allows Canacol, a Calgary-based company that operates in Colombia, to disclaim its offtake agreements. The judge described the move as necessary after weeks of failed negotiations between the company and its contract counterparties.
How the judge handled Colombia’s natural gas market
Justice Feasby spent considerable time examining how Colombia’s natural gas market works.
He concluded it is fundamentally different from the North American market.
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It required a tailored approach, according to the decision.
The judge acknowledged that Canacol’s restructuring is intended to preserve and eventually grow its gas production in Colombia. The alternative — failing to restructure — would pose a greater risk to the country’s gas supply, Feasby found. The company told the judge that canceling its offtake agreements would not affect pricing in the regulated market, which serves households and small businesses. The judge accepted that and ordered the disclaimer to include a requirement that existing pricing continue for counterparties serving that regulated segment.
Colombian sovereignty and legal authority respected
The ruling made clear that questions about Colombian law, the country’s constitution, and public policy should be handled by Colombian courts.
He said those issues belong in Colombia after the Canadian proceeding.
Both a U.S. bankruptcy court in New York and Colombia’s Superintendency of Companies have recognized the Canadian CCAA process as the foreign main proceeding, the decision notes.
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The company plans to seek recognition of the disclaimer orders from the Colombian Superintendency. At the same time, it said it will keep trying to reach commercial agreements with its counterparties.
Good faith negotiations came first
A negotiated outcome would have been better, the judge stressed.
But after weeks of unsuccessful talks between the company and its contract partners, the disclaimer ruling became necessary, the judge said.
The judge encouraged both sides to bargain in good faith.
He noted that the old contract terms are no longer sustainable given the company’s insolvency and declining gas production.
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The company’s ability to deliver gas depends on partner agreements.
It said that.
What comes next for the company
Peter Laurinaitis of Breakpoint Advisory Partners LLC, the company’s court-appointed chief restructuring officer, said the decision shows a balanced approach to a complex cross-border restructuring. He noted the judge recognized the company’s effort to protect regulated consumers in Colombia.
Canacol Energy Ltd. is a natural gas exploration and production company with operations in Colombia. The company is publicly traded on the Toronto Stock Exchange under the ticker CNE.