Canada's Fairborne Energy Ltd. says it is exploring strategic options, including a possible sale of the company or its assets, but the process could be drawn out because of concerns about the oil and natural gas producer's debt.
The company, with operations in Alberta, Saskatchewan and Manitoba, had a debt of $261.1-million at the end of 2011. Last year, it sold some of its natural gas assets to repay debt.
Analysts said the debt burden may hamper Fairborne's attempts to seek a huge premium.
"This company is distressed in terms of leverage. So, a buyer doesn't need to pay a big premium because they are backed up against the wall," said analyst Matthew Taylor of National Bank Financial.
However, the company, which has a market value of $243-million, said its shares were undervalued given its assets. The shares have lost more than a third of their value in the past six months, but rose sharply on Thursday.
Fairborne produced an average of 14,781 barrels of oil equivalent a day in 2011.
More than 80 per cent of Fairborne's production is natural gas, the prices of which have fallen to decade lows, forcing many energy companies to shift toward liquids-rich areas.
Although companies with operations in the Alberta Deep Basin are being seen as potential suitors, names such as Tourmaline Oil Corp., Bonavista Energy Corp. and Legacy Oil are doing the rounds.
However, analysts said Fairborne may have to split and sell its assets as they are spread across different provinces and buyers may be wary of expanding beyond their core drilling regions.
"We could see the Sinclair [in Manitoba]assets go relatively quick. They could fetch around $90-million or so," analyst Jeremy McCrea of Altacorp Capital said.
The Sinclair light oil assets currently produce about 850 barrels of oil a day.
Fairborne said its board has established a special committee of independent directors to oversee the strategic review process.
It has not yet set a definite schedule to complete the evaluation.