MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING TUESDAY, MAY 12 1998 (4)
IN THE NEWS
Canadian 88 Energy Corp. (EEE/TSE) of Calgary, Alberta, announced that it has spudded a second deep test on its foothills natural gas play in the Caroline area of West Central Alberta. The well is being drilled and operated by Canadian 88 at L.S.D. 10 of Sec. 2, Twp. 35, Rge. 6 W5M to a total depth of 4,055 meters at an estimated cost of $3.7 million to evaluate all formations down to the Cambrian.
Canadian 88 is also currently operating the drilling of a new well located in the Caroline area at L.S.D. 7 of Sec. 19, Twp. 33, Rge. 5 W5M being drilled to a total depth of 4,000 meters. A third deep well has also been licensed by Canadian 88 at Caroline in L.S.D. 10 of Sec. 24, Twp. 34, Rge. 6 W5M. The L.S.D. 7 of Sec. 19 Caroline well is being drilled immediately offsetting a 3,200 acre drilling license in Twp. 33, Rge. 5 W5M which sold for a record bonus of $8.25 million at the March 5, 1998 Alberta Petroleum and Natural Gas Rights Sale. The wells are part of a large multi-well deep drilling program Canadian 88 currently has underway in the Caroline/Chedderville area.
In addition, the Company said today in Calgary that it has successfully completed the drilling of wells #5 and #6 on its large Waterton natural gas play in the foothills of Southwest Alberta into the Mississippian formation and intermediate casing is currently being set on these wells to a total depth of 3,465 meters and 3,575 meters respectively, located at L.S.D. 3, Sec. 7, Twp. 7, Rge. 2 W5M and L.S.D. 16, Sec. 13, Twp. 7, Rge. 3 W5M. Both wells are being drilled down to the Devonian formation at an estimated total depth of 4.590 meters (14,917 feet) and 4,677 meters (15,200 feet).
The Company further said that construction operations are fully underway on its new 27 mile, 10 inch Waterton sour gas pipeline which will connect reserves from this play into Shell Canada Limited's Waterton Gas Plant. The Waterton play is being developed 100 percent by Canadian 88 Energy Corp. with Prize Energy Inc. having a 10 percent carried interest in the project.
In other developments, the Company said that drilling is proceeding ahead without difficulty on its new pool Wildcat well at L.S.D. 2 of Sec. 33 - Twp. 31 - Rge.10 - W5M at Yara Creek on the Company's Wildcat Hills exploration play. The well is evaluating the first of three large foothills Mississippian thrust sheets the Company has identified in the area for drilling during 1998. Reserve potential of these thrust sheets range from 100 to 500 Bcf apiece. Canadian 88 paid $1.58 million in total bonuses for 8,320 acres in the Wildcat Hills area at the March 5, 1998 Alberta Government Land Sale with offsetting lands purchased by Petro-Canada and Shell Canada Limited totaling $1.26 million for 5,760 acres. The well is expected to reach total depth within the next two to three weeks.
Canadian 88 has budgeted $175 million of capital spending in Western Canada during 1998 alongside its $150 million Rocky Mountain Exploration (RMX) Fund focusing on deep foothills natural gas exploration and development.
Canadian Occidental Petroleum (CXY/TSE) continues to show strong production growth. Crude oil and liquids production reached 194,000 barrels per day, an increase of 38 per cent over the first quarter of 1997. Record levels were achieved in Yemen where production averaged 200,000 barrels per day (gross) and in Canada after considering the impact of the acquisition of Wascana Energy in the second quarter of 1997 and the subsequent disposition of properties in December 1997. Natural gas production also reached a record high of 440 million cubic feet per day, an increase of 59 per cent over the first quarter of 1997.
CanadianOxy's first quarter drilling programs were very successful. A recent discovery at Hay River in northeast British Columbia has the potential to be one of the largest conventional oil discoveries made in Western Canada in 20 years. The pool contains an estimated 135 million barrels of oil in place. The initial development phase will target approximately half of the pool and will result in the company booking approximately 21 million barrels of proved and probable reserves in 1998. CanadianOxy has a 100 per cent interest in this discovery and holds over 48,000 acres of undeveloped land in close proximity.
Subject to receiving regulatory and other appropriate approvals, the company plans to invest $33 million in this winter only access area to develop 6,000 barrels per day of high quality crude oil production by April 1, 1999. Strong pricing and low operating costs for this production will result in a high cash netback. CanadianOxy also plans to continue exploring the trend for other pools which would add to reserves.
In the Gulf of Mexico, all three exploration wells drilled during the quarter were successful. At West Cameron 170, net gas pay of 115 feet was found, at High Island 570, net gas pay of 73 feet was found and at Main Pass 71/75, net oil and gas pay of 44 feet was found. CanadianOxy is currently testing and evaluating these discoveries to determine their full extent and capability.
In Yemen, three successful development wells were drilled on the Masila Block. Two of the wells, Tawila 19 and 20, encountered the target reservoir approximately 50 feet higher than had been expected. The positive impact of these wells on our reserve base is currently being assessed.
CanadianOxy significantly expanded its exploration portfolio during the quarter. With the previously announced acquisitions of interests in two large blocks in Yemen and 64 blocks in the Gulf of Mexico, CanadianOxy now has the largest exploratory land position in Yemen and is one of the 20 largest acreage holders in the deep water regions in the Gulf of Mexico. CanadianOxy's acquisition in Yemen enables the Company to capitalize on its existing knowledge in this basin and its extensive Masila Block infrastructure to create additional longer-term opportunities. The Gulf of Mexico acquisition provides the Company with excellent exploration prospects in this world class basin.
The Chemicals Division continues to generate strong financial results. Operating profit and cash flow were unchanged from the first quarter of 1997 at $15 million and $21 million respectively.
Capital expenditures totaled $264 million compared to $111 million in the first quarter of 1997. The increased expenditures were the result of higher activity levels in Western Canada, the Gulf of Mexico, Nigeria and Australia.
Victor Zaleschuk said, ''We have high quality assets and take a longer term view of oil prices. This enabled us to significantly enhance our opportunity portfolio in the Gulf of Mexico and Yemen. At the same time, we added substantial value for shareholders through exploration and development in each of our core areas - Canada, Yemen, and the Gulf of Mexico.''
Zargon Oil & Gas Ltd.'s production of 32 degree API average crude in the first quarter increased by 13 percent to 1,415 Bbl/d up from 1,252 Bbl/d in 1997. Gas production was flat on a year over year basis at 6.04 MMcf/d. 1998 first quarter crude and liquid price decreased 31 percent to $19.04/Bbl from the corresponding 1997 price of $27.54/Bbl. Gas prices declined 18 percent to $1.77/Mcf down from $2.15/Mcf in 1997.
Net capital expenditures of $1.71 million for the first three months of the year represent only 11 percent of the Company's $15 million 1998 capital budget. During the first quarter, Zargon deferred its field capital expenditures for deployment later this year in what is expected to be a lower cost environment. As a result of the reduced spending program, Zargon's long term debt at quarter end remains at $4.74 million representing less than 10 months of cash flow at 1998 first quarter rates.
During the first quarter, Zargon drilled an exploratory test at Sturgeon Lake, Alberta where the Company holds a 100 percent interest in a 16 section block of undeveloped land. A Cretaceous formation was drill stem tested at rates of 2.5 MMcf/d. The well will be completed and production tested later this fall, at which time development opportunities, and tie-in economics will be examined. Also in the quarter, Zargon drilled a wholly owned successful horizontal development well at Manor, Saskatchewan. Zargon's inventory of undeveloped land, increased to 87,800 net acres as of March 31, 1998 through a number of small strategic acquisitions.
Zargon's strategy since inception has been to grow primarily through the acquisition and exploitation of chosen core areas. We believe 1998, which is likely to be a difficult year for the industry generally, will bring Zargon strategic growth opportunities of substantial size. The company is positioned accordingly, with a strong balance sheet, unutilized bank lines of $11million and a strengthened and broadened management team. Despite reduced first quarter 1998 financial results, management's intention is to regain past growth rate targets over the balance of 1998.
Northstar Energy Corporation (NEN/TSE) announced that it has agreed with Morrison Middlefield Resources Limited to exchange the shares and options of MMRL held by Northstar for MMRL's 50 percent interest in Mountain Energy Inc. which owns certain of MMRL's Canadian oil and gas properties.
The properties being acquired by Northstar from MMRL are located primarily in the Halkirk area of central Alberta and represent approximately 2,100 barrels of oil equivalent per day of current production, the majority of which is low operating cost, light oil. John Hagg, chief executive officer, stated that "through the transaction, we are acquiring the remaining 50 percentinterest in existing Northstar-operated properties, thereby furthering our strategy of increasing working interests in our core areas. In addition, Northstar will cease to manage the operations of MMRL, consistent with Northstar's objective of focussing its efforts on its own oil and gas exploration, development and production activities."
Northstar owns approximately 4.2 million common shares of MMRL and options, exercisable at $5.00 per share, to acquire an additional 1.2 million common shares. In commenting on the exchange transaction, John Richels, chief financial officer noted that "in our 1998 budget, we anticipated the sale of our holdings in MMRL and the reinvestment of the proceeds into oil and gas properties. Through this transaction, we have accomplished both objectives in one step." John Richels went on to say that "otherwise, our 1998 budget remains unchanged and, with our ongoing non-core property disposition and capital expenditure programs, we anticipate our long term debt will be approximately $350 million by year end."
The transaction is subject to certain approvals and conditions, including the approval of the Toronto and Montreal stock exchanges and other securities regulatory authorities and is expected to close on July 31, 1998, with a June 30, 1998 effective date.
Morrison Middlefield Resources (MM/TSE) has entered into an agreement with Northstar Energy (NEN/TSE) to exchange its holdings of Mountain Energy Inc. (''Mountain'') for the 4,216,740 common shares of MMRL and Northstar's option to purchase an additional 1,189,732 common shares of MMRL. Upon completion, the common shares and options representing approximately 25% of the Company will be cancelled. The exchange is subject to regulatory approvals, including an exemption from the Alberta Securities Commission and will have an effective date of June 30, 1998. Closing is anticipated to take place on July 31, 1998, at which time Northstar will resign as manager of MMRL. After the exchange is completed MMRL will have 15,394,822 shares outstanding (15,583,316 on a fully diluted basis).
MMRL and Northstar each own 50% of Mountain which holds oil and gas assets located primarily in the Halkirk and Panny areas of Alberta. MMRL's share of the Mountain assets contributed production of approximately 1,500 barrels of oil and liquids per day and six million cubic feet of natural gas per day in the first quarter of 1998 representing about 27% of the Company's total production. Mountain represented 20% of the proven and half probable reserves of the Company reported at December 31, 1997.
On a fully diluted per share basis this exchange is expected to be accretive for MMRL shareholders. Using the same basis of calculation as was done in our 1997 annual report, adjusting for the removal of Mountain reserves and estimated land and seismic values, the Company's net asset value per share increases 5.7% using proven plus half probable reserves and the fully diluted number of shares following the cancellation of the Northstar common shares and options.
When the exchange agreement is completed, the Company's Canadian production will be reduced by more than 50%. Additional sales of Canadian production can be expected in the future. UK production in the second half of 1998 should increase as a result of development programs on our Keddington and Cold Hanworth discoveries. In 1999 additional growth in production is projected to come from the Saltfleetby gas reserves being brought on stream and from our major development projects in the North Sea.
TUSK Energy Inc. (TKE/TSE) advised that it expectproduction from the 4-21 well to be restored at the Meekwap field by the end of this week. Timing may be impacted by further changes in the forest fire situation in the general Meekwap area. The 4-21 well, which flows at rates of approximately 1800 boepd, represents approximately 50 percent of total gross production from the Meekwap field. All wells are expected to be operative shortly thereafter once full electrical service is restored.
Production operations at the Meekwap Field were suspended on May 4 due to the forest fire situation. Fires were started by lightning strikes to the north and west of the field during the early morning hours on May 3. Since that time extensive areas to the north, south and east of the Meekwap field have been effected.
Fire prevention consultants and equipment, positioned in the field early last week to protect key installations, minimized fire damage in the field area. TUSK committed to make space available for a base camp and more than 50 forestry personnel arrived at Meekwap late last week. While there has been some fire damage to vegetation within the area of the Meekwap field, none of the TUSK wells or facilities have been damaged.
The drilling of an additional stepout well, offsetting the recent discovery at 4-21, will be delayed due to the fire situation in the area. The well is expected to spud prior to the end of May.
Westfort Energy Ltd. (WT/TSE), announced that Nabors Drilling Company started moving its rig No. 544 on the prepared location for the company's Pelahatchie Deep Unit 18-4 drill site at Pelahatchie Field May 11th, 1998. More than 20 truckloads arrived yesterday, and more are scheduled to arrive today. Rig erection is to start May 13th, with the anticipation that actual drilling of the 17,300 ft Norphlet well will begin May 15th. It is anticipated that the well will take an estimated 90 days or less.
Plans are to drill a 12 1/4'' hole to 5,100 ft, and set 9-5/8 surface casing. Following that procedure, an 8 3/4'' hole will be drilled to the next casing point which has been selected at 15,700-800 ft, in which 7'' casing will be set. The final 6'' hole to 17,300 feet will be sufficient to set 5'' casing from 15,700 to total depth expected at 17,300 ft.
It was also announced today that the company has staked and is preparing the application to the Mississippi State Oil and Gas Board for two more 17,300 ft Norphlet wells anticipating the rig will be contracted to move from the first well to the offset locations.
Harbour Petroleum Company Limited announced the sale of a 100 percent working interest in the Wayne-Rosedale oil field to an industry partner subject to the normal industry closing procedures. The effective date of the sale is April 1, 1998 and closing is expected to be on or before June 8, 1998.
The purchase price is $8.8 million dollars and a royalty consideration of quarterly payments over the next three years when certain production levels are exceeded. The sale of this property will provide additional working capital as well as rectify a working capital deficiency under Harbour's banking agreement.
EARNINGS
Canadian Occidental Petroleum Ltd. (CXY/YSE) / Top 20 Listed
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Zargon Oil & Gas Ltd. (ZAR/TSE) / SPEC 20 Listed
Zargon Oil & Gas Ltd.
Morrison Middlefield Resources (MM/TSE)
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Canadian Natural Resources Ltd.
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Harbour Petroleum Company Ltd (RP/TSE)
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Canada Southern Petroleum Ltd. (CSW/TSE)
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Brascade Resources Inc.(BCAR/CDN)
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