Source - AFX
By Alasdair Reilly 

    LONDON, Dec 31 (Reuters) - Oil exploration company Oilexco Inc said on Wednesday that its North Sea operating unit intends to file for bankruptcy protection after lenders refused to provide further funding to the company. 

       Oilexco shares lost nearly three-quarters of their value, tumbling 64 Canadian cents to 25 Canadian cents on the Toronto Stock Exchange. 

       The company, which first announced financing problems in October, was the exchange's most heavily traded issue on New Year's Eve, with more than 24 million shares changing hands early in the session. Its London-listed shares sank 60 percent to 20 pence. 

       Calgary, Alberta-based Oilexco said in a statement that subsidiary Oilexco North Sea Ltd is likely to file for administration as early as next week. 

       Oilexco won a $47.5 million bridge financing on Dec. 17 with its banking syndicate, led by Royal Bank of Scotland . The bridge loan matures on Jan. 31, 2009. 

       The company said in mid-December it was likely that incremental funding would be required in the short term, in addition to the bridge loan. 

       Oilexco is retaining Morgan Stanley and Merrill Lynch to conduct a strategic review to seek funding alternatives or a possible sale of the company or its assets. 

       Administrators are likely to continue those efforts, but the company said it could give no assurances that a deal would be completed. 

       Oilexco said it remains solvent and committed to the strategic review process. 

       The company tapped the financial market in October 2007 when it secured a $500 million loan from a syndicate of banks. 

       That financing was used to develop the Ptarmigan, Shelly and Huntington fields, for the completion of its acquisition of the Balmoral production vessel and for general corporate purposes. 

       Oilexco's producing properties, exploration and development activities are located in the North Sea, specifically the Outer Moray Firth and Central Graben areas off eastern Scotland. 

       It has been struggling with financing problems since October, when it announced the closing of a planned financing had been delayed by the credit crisis. It also cut its production target amid falling oil prices. 

    (Additional reporting by Jeffrey Jones in Calgary; editing by David Cowell and Rob Wilson) Keywords: OILEXCO INSOLVENCY      

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