Moving to avert the largest corporate bankruptcy in Canada's history, the Canadian government and major banks today offered a financial aid package believed to be worth more than $1 billion to Dome Petroleum Ltd., the debt-plagued independent oil company.
Dome directors met to discuss the long-awaited aid deal with government officials and bankers in Toronto.
The company declined to specify the value of the proposal, but banking and oil industry sources said Dome's creditors and the government are expected to share equally in providing an injection of $1 billion or more of capital for the ailing company.
At the same time, Dome's largest creditors have agreed to delay payment of the company's debts, including $1 billion in bank loans due Sept. 30.
An announcement from the company's headquarters in Calgary said Dome would need time to study the proposal, which may require the approval of shareholders and the company's creditors in the United States and Europe.
As the Sept. 30 deadline neared, the government of Prime Minister Pierre Trudeau searched vigorously for a way to avert a corporate collapse that could send tremors through Canada and the world financial community.
Dome's financial obligations were run up in a splurge of expansion in recent years that left the company with a debt load estimated at $6 billion.
With its financial position now in tatters, Dome has little hope of making the payments itself. Until recently, months of secret negotiations between the Canadian government and the banks were fruitless. Few have doubted that a deal would eventually be reached to save the $8.5-billion empire of oil, pipeline, mining and other interests built up by Dome's legendary wheeler-dealer chairman, Jack Gallagher.
"There's just too much to lose to let it go under," said Ira Katzin, an oil analyst at Pitfield MacKay Ross Ltd., a Toronto brokerage firm.
Letting Dome collapse was unthinkable to Canadian authorities, despite a statement by Trudeau a few weeks ago that "we're not going to bail it out." But an aide explained that Trudeau was only rejecting a cash handout to the company, a clarification that left open the possibility of government help through loan guarantees or another financial measure.
Default by Dome, with its huge borrowings from Canadian, U.S. and European financial institutions, would have repercussions throughout the international banking sector. Two dozen U.S. banks, led by New York's Citibank, have loaned Dome $1.8 billion and banks in Switzerland and Britain may also face significant exposure.
Dome's debts also pose severe problems for Canada's major banks, four of which are collectively owed an estimated $3.4 billion by the firm.
Dome's high-risk drilling ventures in the Beaufort Sea in Canada's Arctic are crucial to the Liberal government's much-publicized drive for badly needed new petroleum supplies.
The politically astute Gallagher, a 66-year-old former geologist, has been a key agent of the 1980 national energy program, which relied on government subsidies and takeovers to force foreign-owned companies out of Canada's lucrative oil and gas business.
Behind the scenes, officials were worried that a Dome collapse might undercut confidence in Canada among foreign countries.
Starting with only $250,000, Gallagher began exploring for oil in the far north of Canada, then expanded rapidly into other petroleum ventures and diversified by making several costly acquisitions that left the company burdened with debt.
Events turned against Dome when the steep climb in world oil prices abruptly halted, demand for petroleum products slumped dramatically and interest rates rose to record levels just as Dome took on huge new debts to participate in the Canadianization of the country's energy business.
In the first half of 1982, the company lost $51 million and by June it was temporarily delaying repayment of some of its debts.
Since mid-1981, when it reached 21 1/4 on the American Stock Exchange, the company's stock has plummeted. On Wednesday, it closed at 4 3/16. Trading was halted yesterday.
While some observers see Dome as one of the casualties of Ottawa's aggressive energy tactics, others contend the company, rather than raise money through stock offerings, simply took a chance on more bank borrowing and lost because interest rates soared unexpectedly.