Alberta Court approves Fallon Energy receivership and reverse vesting transaction

Fallon Energy Inc., an Alberta oil and gas company, was placed into receivership on July 2, 2026, with the Court also approving a reverse vesting transaction that will allow senior secured creditor 3994856 Canada Inc. to acquire the company’s newly issued shares while leaving its oil and gas assets, licences and associated environmental obligations within Fallon.

Fallon is a privately owned Alberta oil and gas producer registered in Saskatchewan, with heavy-oil assets in the Greater Lloydminster area. The company holds licences and permits covering 170 wells, but all of its wells had been shut in, it had no employees and it was generating no revenue when the restructuring began. 399 said it was owed approximately $4.28 million, representing about 82% of Fallon’s approximately $5.21 million of secured debt.

Fallon’s financial decline is attributed to low oil prices, production losses caused by vandalism and an October 2025 contractor error that affected multiple wells and caused flooding damage at certain sites. Fallon also became embroiled in a dispute with 399 over a receivables factoring arrangement. The lender alleged that, in December 2025, Fallon’s sole director and shareholder redirected more than $600,000 of receivables that had been purchased by 399. It commenced litigation on January 16, 2026, and a consent order made on January 22 directed the marketers to pay December receivables into court. Receivables for January through April were subsequently held in trust by MLT Aikins because of competing claims involving 399 and Saskatchewan rural municipalities.

399 also alleged that it advanced approximately $2.87 million between October 1 and November 27, 2025 in reliance on production reports that substantially overstated Fallon’s output. According to its brief, a November 5 report showed production of 676 barrels per day and projected 749 barrels per day following optimization, while Fallon was producing approximately 20 barrels per day from its final two operating wells by April 2026.

A prior sale effort did not produce a transaction. Fallon retained Sayer Energy Advisors in 2025 to market its assets, with a December 11 bid deadline. Several bids were received but none was accepted. Sayer said Fallon had not disclosed during the process that the assets were subject to a 16% gross overriding royalty payable to 399 or that the October contractor error had occurred. Rye said both matters negatively affected the assets’ economics and that disclosure would have resulted in lower bids.

On April 24, 2026 Fallon filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act. At the time, Fallon had shut in all of its wells and had no revenue, which continues to be the case. The stay was extended to July 8, 2026, with Fallon advising that it would work with 399 to advance a transaction under which 399 would assume all of Fallon’s oil and gas assets. 399 alleged that it had not received the information required from Fallon to advance such a transaction, and that the NOI proceedings were no longer viable since 399 had lost confidence in Fallon and would not support any proposal advanced by the company.

At the same time that it sought and obtained the appointment of a receiver, 399 also obtained approval of an RVO whereby Fallon’s existing equity will be cancelled for nominal consideration and newly issued shares will be acquired by 399 or its nominee. Fallon will retain the oil and gas assets, abandonment and reclamation obligations, environmental liabilities and specified retained contracts and liabilities. Other claims, encumbrances and transferred assets will move to a residual asset trust.

The transaction was structured to keep Fallon’s regulatory licences and oil and gas interests in the existing corporate entity, permit operations to restart and place responsibility for the environmental obligations with the acquiring party. Once the receiver delivers its closing certificate, 399 will hold the purchased shares free of transferred claims, Fallon will exit the insolvency proceedings and creditors will look to the residual trust and its assets according to their existing priorities.

Grant Thornton is the receiver. Counsel is Bennett Jones for 399, Cassels for Fallon, McDougall Gauley for the receiver, and MLT Aikins for the oil marketers.