Bridge Under Troubled Waters: Payette County Natural Gas Company Faces Uncertain Future 

Drilling into the company that hopes to bring the natural gas industry to Idaho

Being first has its challenges. Consider Bridge Resources, the first company poised to drill and produce commercial natural gas in Idaho. Its stock has practically bottomed out, trading for pennies, and its recent financial statements portray a company swimming in red ink. Bridge is in debt to a foreign bank for more than $44 million; it has hundreds of thousands of dollars invested in its Idaho operations while the state still hasn't formally adopted new rules for the industry; and its top three executives--CEO Edward Davies, Vice President Thomas Stewart and Exploration Manager Kim Parsons--resigned, effective immediately, on Sept. 20.

"I probably would have managed this differently," said Suzanne Budge, executive director of the newly formed Idaho Petroleum Council, an organization of gas industry representatives. "But they're on the tip of the spear."

A Canadian company with offices in Colorado, Bridge has been Idaho's 21st century pioneer in natural-gas exploration, with successful efforts at seven of 11 Payette County wellheads. But the company's success in the rural fields of western Idaho has not been matched by any recent fortunes in the boardroom. In fact, in the past 12 months, shares of Bridge Resources stock have lost as much as 94 percent of their value on the Toronto Stock Exchange.

"At March 31, 2011, the company had a net loss of $77,514,977 and cash flows used in operating activities of $7,102,731. As a result of losses, the company has a deficit of $170,149,607 at March 31, 2011," according to the company's fiscal year-end statement. "[Bridge] has a working capital deficiency of $57,655,587 and total liabilities currently exceed total assets."

Numerous calls to Bridge officials seeking comment were not returned by press time, although John Foster of Strategies 360, a consultant to the IPC, said Bridge's new management is hopeful for change.

"There is definitely a recognition by the new management at Bridge that this could have been done differently," Foster said.

Chief among Bridge's worries has been its inability to pay its debts. On March 31, Bridge Resources had an outstanding loan balance of more than $44.2 million, with a lending syndicate led by the Royal Bank of Scotland, and was in default on certain operating covenants of the loan.

"These matters cast substantial doubt on the company's ability to continue as a growing concern," stated a July 29 audited financial statement from KPMG, LLP, one of the world's largest and most reputable auditing firms.

Simply put, the company was in default, and upon default, the loan became payable on demand by the Bank of Scotland.

That may be news to the hundreds of Idahoans who have signed land leases with Bridge, through its broker Energy West. More than 260 agreements allow Bridge to explore, and possibly drill, for gas on tens of thousands of acres of private land, primarily in Payette County. But what the landowners may not know is that the Royal Bank of Scotland is a secured party on the leases, and the foreign bank's grip could tighten at anytime.

Through the course of our investigation, BW found that Bridge's misfortunes date back to 2008, only two years after the company began publicly trading on the Toronto Stock Exchange.

Lost At Sea

In November 2008, Bridge began producing natural gas from its Durango Field in the North Sea, off the coast of the United Kingdom. But almost from the beginning, there were problems.

According to Bridge statements, the company's high volume of gas production at Durango caused back-pressure at some of its competitors' wells, in effect limiting the competitors' production. Bridge shut down its well and was obliged to compensate its competitors for their production losses. By the time Bridge resumed its Durango production in February 2010, its well was pushing out an inexplicably high level of water with its gas, exceeding pipeline limit specifications and forcing another closure of the well.

Meanwhile, Bridge executives were spending more time in Idaho, eyeing the potential for substantial natural gas production in Payette County. Deciding to shift its focus almost entirely to Idaho, Bridge sold its North Sea assets after striking a deal to sell its wholly-owned U.K. subsidiary Bridge North Sea Ltd., including the Durango Field to Perenco UK.

Even though Bridge was exiting the North Sea, its new business associate had its own share of challenges in the region.

A July 6 investigation by The Guardian, a British newspaper, revealed through data obtained under the Freedom of Information Act, that Perenco UK experienced seven gas leaks in 2009-2010 at its North Sea rigs. Three of the leaks were deemed significant, including one 40-kilogram leak, equivalent to 88 pounds of gas flooding into the sea.

Perenco acquired the Durango well for $8.9 million, but when word of the sale reached investors, Bridge's financial status deteriorated.

Bridge Falls Down

On Dec. 8, 2010, investors woke to a jaw-dropping headline on "Lack of Strategic Alternatives Ruins Bridge Resources Corp."

"Bridge Resources Corp. announced in a press release that the proposed cash component for the divestiture of its wholly-owned subsidiary Bridge North Sea Limited will not allow full repayment of BUK's outstanding debt, and that the management is looking for other better alternatives," read the analysis.

An accompanying stock-performance chart was even more bleak. On Nov. 15, 2010, Bridge Resources shares had traded at 49 cents. By Dec. 7, 2010, its value had dropped to 7 cents a share. The stock continued to drop through much of 2011.

"Within a few days, the stock had collapsed," Ekaterina Zelenkova, author of the analysis, told BW from her office in Bulgaria. "And up until now, it has yet to recover from this huge plunge."

Zelenkova, who headed the internal audit department at Populiarna Kasa 95 before joining Hotstocked as a financial columnist, regularly reviews investments in small-to-medium companies in the North American market.

"If I were to explain their situation in a more simple way, it's like a painter who, due to illness, had his right hand cut off," said Zelenkova. "This was the case with Bridge. Huge debts continue to be one of the main reasons for skepticism among investors."

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