MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING TUESDAY, MAY 12 1998 (6)
MARKET ACTIVITY
This morning in Paris, shares in French oil majors Elf Aquitaine (ELFP.PA) and Total (TOTF.PA) rose sharply, bolstered by a rise in Total's earnings targets and firmness in the dollar and Brent prices.
Elf shares were up 3.76 percent at 856 francs, and Total was ahead 3.66 percent at 792 percent at 1037 GMT, extending Tuesday's gain on rising Brent prices and contributing strongly to the CAC-40 index's rise of about one percent.
''I had not been that bullish on oil shares, but they're putting in a superb performance,'' said a Paris trader. He said the sector, which had lagged some of the bourse's big advances, was drawing support from a stronger dollar and higher crude prices.
''The Total annual general meeting this morning went very well, and (Chairman Thierry) Desmarest's comments were very positive,'' the trader added.
Desmarest told shareholders that, based on Total's 1997 results and medium-term outlook, the group had raised by 20 percent the objectives of a previous plan to boost operating income by four billion francs ($672 million) between 1997 and 1999.
''Total has revised the plan upwards, setting a new target of 4.8 billion francs ... of which 2.0 billion will come from productivity gains and 2.8 billion will come from growth in the businesssegments,'' Desmarest said.
He said the group should be able to increase net profit by 15 percent a year over the next three years.
For the first half of 1998, he said Total should report a net attributable profit close to the four billion francs recorded for the first half of 1997.
''Ongoing growth as well as productivity efforts should compensate for the global environment deterioration, in which more favourable exchange rates and refining margins only partially offset the negative impact of lower crude prices,'' he said.
In late morning trade, Total's shares were off the day's highs but still up 3.5 percent at 791 francs, outpacing the rest of a perky Paris bourse.
In the U.S., oil producers were strong yesterday, as the AMEX Oil Index (XOI) rose 3.77 to 494.36. Mobil (MOB), Royal Dutch Shell (RD), and British Petroleum (BP) all rose more than $1. But oil drilling and services stocks failed to generate positive momentum as the Philadelphia Oil Service Index (OSX) fell fractionally.
The Toronto Stock Exchange 300 Composite Index fell 0.0% or 3.0 to 7717.70.
In comparison, the TSE Oil & Gas Composite Index fell 0.4% or 24.14 to 6544.40. Among the sub-components, the Integrated Oil's gained .5% or 46.17 to 8841.50. The Oil & Gas Producers fell 0.8% or 43.58 to 5722.72 and the Oil & Gas Services fell 0.3% or 10.89 to 3134.76.
Petro-Canada, Carmanah Resources, Poco Petroleums, Petromet Resources, Canadian Occidental Petroleum, Beau Canada Exploration and Canadian Natural Resources were among the top 50 most active traded issues on the TSE.
Canadian Occidental Petroleum gained $0.85 to $32.35 and Sell Canada A $0.80 to $26.00.
Percentage gainers included Best Pacific Resources 9.5% to $1.15, Bitech Petroleum 8.6% to $3.80, ML Cass Petroleum 5.6% to $1.13, TransGlobe Energy 5.0% to $1.05, International Rochester 4.7% to $1.34 and Calahoo Petroleum 4.5% to $1.15.
On the downside, Seven Seas Petroleum fell $2.00 to $21.00, Talisman Energy $0.75 to $42.00, Poco Petroleums $0.70 to $16.10 and Remington Energy $0.70 to $16.30.
Percentage losers included Abacan Resources 12.0% to $1.10, Newstar Resources 8.8% to $3.10, Seven Seas Petroleum 8.7% to $21.00, Carmanah Resources 7.9% to $4.33, Petrobank 6.3% to $2.25 and Ram Petroleum A 5.5% to $1.37.
There weren't any service issues among the top 50 most actives on the TSE.
IPSCO gained $1.10 to $44.50, Enerflex Systems $1.00 to $45.00 and Mullen Transportation $1.0 to $24.00.
Percentage gainers included Mullen Transportation 4.3% to $24.00 and CE Franklin 4.2% to $10.0.
On the downside, Computalog fell $1.05 to $23.00.
Percentage losers included Tetonka Drilling 5.3% to $1.80.
Over on the Alberta Stock Exchange, Anvil Resources, Red Sea Oil, Scimitar Hydrocarbons, Raptor Corp, HEGCO Canada and Globex Resources were among the top 25 most active traded issues.
Underbalanced Drilling gained $.25 to $3.00, Solid Resources $0.15 to $7.25, Belfast Petroleum $.10 to $2.95 and Emerald Bay $0.10 to $0.40.
On the downside, Anvil Resources fell $0.17 to $1.15, Hyduke Capital Resources $0.15 to $2.55 and Tier One Energy $0.15 to $1.25.
JCP - Major Transactions
Triple 8 Ventures Ltd. (TVU/ASE) a junior capital pool company, announced that it has mailed to its shareholders an information circular and other proxy materials in respect of a combined 1997 and 1998 annual meeting and special meeting of shareholders to approve the Company's proposed major transaction which is the arms-length acquisition from Circumpacific Energy Corporation of seven oil and gas properties including three located in Alberta, three in Saskatchewan and one in British Columbia. This transaction has been revised from the transaction previously announced. All properties are in the Western Canadian Sedimentary Basin. Working interests range from 1.826% to 50%. The package includes interest in three batteries and in gas processing equipment in addition to lands with development potential.
The total purchase price for the properties is $507,000, including GST of $7,000, all of which will be paid in cash. The Company has arranged a $250,000 revolving production loan facility (line of credit) from Alberta Treasury Branches to partially fund the acquisition and the balance will come from the Company's working capital. The line of credit is repayable on the earlier of demand or April 30, 1999.
The transaction will not result in any change in the management of the Company. The acquisition is subject to and conditional upon the Company's shareholders and The Alberta Stock Exchange accepting and approving the transaction as the Company's major transaction. The effective date for the acquisition is July 1, 1997 and interest on the purchase price will accrue at the rate of the Province of Alberta Treasury Branches prime rate plus 2.25% on and from the effective date until closing. All of the properties are subject to a net profits interest of 4% calculated with reference to either the Company's gross overriding royalty share of production or working interest in production, as applicable, payable to Apex Canada Inc., a company controlled by Michael Kamis, a director of the Company.
The Company is listed on the Exchange having the trading symbol TVU. Trading in the Company's shares was halted on June 17, 1997 for failing to file Major Transaction documents with the Exchange within the required time after the Company announced the Major Transaction. Trading in the Company's shares on the Exchange is expected to resume on May 13, 1998.
Globex Resources Ltd. (GBX/ASE) a junior capital pool company, announced completion of its initial public offering of 1.5 million shares at 20 cents each pursuant to its final prospectus dated February 25, 1998 filed in the Province of Alberta raising gross proceeds of $300,000. As a result, there are currently 3.5 million common shares issued and outstanding. Whalen, Beliveau & Associates Inc. acted as the agent for the offering.
Globex has also signed an Agreement in Principle with 758118 Alberta Ltd., a private oil and gas company ("Privco"), which would qualify as its proposed Major Transaction. Under this agreement, Globex has agreed to purchase all of the issued and outstanding common shares of "Privco" for an aggregate consideration of $1,917,000 to be satisfied through issuance of 4,260,000 shares of Globex at a deemed price of $0.45 per share on the basis of one common share of Globex for each common share of Privco. Upon completion of the Major Transaction, Globex will have 7.76 million common shares that are issued and outstanding.
Privco has varying interests in producing properties and undeveloped lands with proposed drilling locations, all in Central Alberta. The producing properties include three light oil non-operated properties at Bellshill Lake (20 percent), Garrington (20 percent) and Wilson Creek (35 percent). The properties currently produce approximately 50 BOE/day net to Privco from 20 producing wells. Privco also holds a 25 percent interest in a well at Barrhead, which was recently cased as a potential gas well. In addition, Privco holds 200,000 shares of an Alberta based private company with exploration interests in Pakistan.
Privco plans to participate in two light oil drilling locations on undeveloped lands in the Nevis and Highvale areas of Alberta. The company also plans to participate in one horizontal development well using under-balanced drilling technology at its Bellshill Lake producing property. The proposed three wells are scheduled for the third quarter of 1998. Privco's non-operated working interests in these locations vary between 20 percent to 35 percent.
Completion of the proposed Major Transaction for acquisition of all the issued and outstanding common shares in Privco will qualify as a Major Transaction, as defined in the Securities Act (Alberta), for Globex and is therefore, subject to the requirementof the Alberta Securities Commission Rule 46-501 and The Alberta Stock Exchange Circular No. 7 and majority of minority shareholders of Globex.
The common shares of the Globex will commence trading on The Alberta Stock Exchange under the stock symbol GBX on May 12, 1998.
Standard & Poor
Standard & Poor's today assigned its double-'B'-minus rating to American Eco Corp.'s $100 million senior notes due 2008, filed under Rule 144A with registration rights.
Additionally, Standard & Poor's assigned its double-'B'-minus corporate credit rating to the company. The outlook is positive.
Proceeds will be used to repay all outstanding debt. The remaining portion of proceeds will be used for acquisitions and general corporate purposes.
The ratings reflect American Eco's relatively modest size, with revenues of $250 million and its limited financial flexibility, with equity of $111 million. These ratings factors are offset to some extent by the company's respectable position in a very large and fragmented industry.
American Eco has grown rapidly over the past three years through acquisitions and has become a leading, single source provider of industrial support and specialty fabrication services to three industry groups: energy, pulp and paper, and power generation. Thus far, American Eco has successfully integrated acquired companies, although this remains a risk factor. In an economic downturn customers may defer some maintenance activities. However customer, end-market and geographic diversification, and the service nature of American Eco's business should moderate cyclical exposure. Above-average growth prospects are driven by the trend toward greater outsourcing that will allow customers to focus on core competencies while reducing costs.
American Eco is expected to pursue aggressive growth objectives, but acquisition premiums should be modest and financing should be accomplished in a manner that does not weaken the financial profile. The balance sheet is leveraged somewhat aggressively with total debt to capital of 47%. Excess cash balances, notes receivable receipts, internal cash flow, and some borrowings are expected to fund potential acquisitions. The company's leverage is expected to remain in the 40%-50% range, acceptable for the ratings. Cash flow protection is expected to be satisfactory with funds from operations to total debt averaging between 20%-25%.
Outlook - Positive
The ratings could be raised within three years if American Eco can continue to grow profitably while maintaining a supportive capital structure, Standard & Poor's said. -- CreditWire
Research Notes
Where's The Bottom For Abacan?
How low can it go? That seems to be the question of the day for anyone who has been following beleaguered Abacan Resource Corp. -- the once upon a time superstar junior oil company formerly based in Calgary, now run out of Houston. Even a press release that was designed to reassure investors instead torpedoed the stock price yesterday, driving it to a record low.
The news release from new president and CEO Timothy Stephens -- issued at the request of the Toronto Stock Exchange -- was intended to respond to certain rumours about the company. In particular, it referred to reports that former president Wade Cherwayko had filed to sell 1.49 million shares of Abacan, something that long suffering investors took a fairly dim view of.
Mr. Cherwayko was one of the founders of the company -- in other words, one of those whose rosy projections about Abacan's massive oil fields off the shore of Nigeria helped drive the stock upward in 1995 and 1996. At one point in early 1997, it was trading above the $15 mark -- giving the small company with virtually no production a market value of more than $1.5-billion.
During heavy trading yesterday, the stock fell to about 93 cents -- down from the previous day's close of $1.40 -- although the share price recovered to close the day at $1.25. Still, that only gives the company a market value of about $140-million, meaning somewhere in the neighbourhood of $1-billion in theoretical market value has vanished in the past year-and-a-half.
The press release from new president and CEO Timothy Stephens -- who replaced Mr. Cherwayko in February -- said the filing by the company's former chief executive officer was related to a share issue Abacan made to Optimum Petroleum Co. of Nigeria in return for a part interest in a block of property offshore.
Although the Abacan release did not elaborate on the connection between the two, the total number of shares Mr. Cherwayko filed to sell -- 1.49 million -- happens to be exactly the same number that were given to Optimum in return for the part interest in block 310. The company added that its former CEO's stake in Abacan stock will remain unchanged as a result of the sale.
Someone whose holdings in the company have not remained unchanged is the Capital Group of Companies, a U.S. investment fund. The company added to its position as recently as last fall, when it boosted its stake to 11 million shares. However, in March and April of this year, the company sold almost half its stake (for prices between $2 and $2.40) to hold 6.7 million shares.
Almost a year after the fact, Abacan is still trying to recover from the beating it took in June of 1997, when it went straight to the doghouse from the status of "one of the most promising." In a single day, the company lost more than half its market value, as the stock sank $5 to trade at $3. After staging a brief recovery, the stock has more or less drifted straight down.
The news that hit investors so hard last year was that the company wasn't going to see anywhere near the kind of production it had been expecting from its wells in the Niger Delta off the shore of Nigeria. That meant that the cash flow investors had been counting on was also not going to materialize. And with the stock cratering, raising capital became almost impossible.
After a $160-million debt issue was pulled at the last minute, sources say some of Abacan's institutional shareholders -- combined with the brokerage firms that had been underwriting issues, Oppenheimer and Howard Weil Labouisse Friederichs -- took action by pushing for management changes.
Former Midland Walwyn vice-president Jim Harvie stepped in as interim chief operating officer, respected oil patch player Daryl (Doc) Seaman became chairman of the board, and the chief financial officer stepped aside. However, Abacan still could not seem to close a financing deal of any kind, although it said it was looking for everything from an outright sale to a partnership.
In February, Wade Cherwayko stepped aside and was replaced by Tim Stephens. Mr. Stephens had by that point gotten some acclaim from the market for his previous company, Seven Seas Petroleum, a TSE-listed but Houston based company that had had some success with oil and gas exploration in Colombia. The stock climbed as high as $30 in March from less than $14 last fall.
Since Mr. Stephens arrived, the company has managed to get a couple of corporate lenders -- oil company Total SA and Credit Suisse -- to agree to extend payment terms on debt owed to them by Abacan. However, the company is still waiting for some kind of financing deal that will help it fund its operations. About a week ago, Abacan announced it was moving to Houston.
Mr. Stephens has said Abacan is negotiating to sell its producing assets -- although it will keep the so-called "deep" rights to the most promising offshore area -- so that it can continue exploring the land base it has built up in the Benin basin region. Some investors appear to be holding on in the hopes of such a deal, while others have already packed it in.
A.G. Edwards
Belco Oil Cut To Reduce
CHICAGO, May 12 - A.G. Edwards said Tuesday it has cut its rating on Belco Oil & Gas Corp. to reduce from maintain. Additional information was not immediately available.
Probe Exploration
(PRX-T: $6.15) STRONG BUY
Leduc; Wabamun Wells Drilling
Probe is currently drilling two new horizontal wells in the Wabamun section of its Leduc field. The second well completed drilling three days ago, and will be tested imminently. The third well should reach its targeted depth today or tomorrow. The first well, completed some time ago, is currently producing 225 bbls/d.
Should Probe expand its 1998 capital expenditure budget, this would not be announced until either late this week or early next week. The company's Q1 results are expected to be released late this month.
Rigel Energy
(RJL-T: $12.75) HOLD
Field Update
At Burmis, in the southern Alberta foothills, Rigel will begin testing the bottom most of its four prospective strata soon. A service rig should perforate this lowest target by this Thursday. Test results from this depth may be available 7-10 days afterwards.
In the North Sea region of Moray Firth, a drilling rig is currently moving into position to drill a fourth well on the discovery made in 1997 (one discovery well and three appraisal wells). Little is yet known publicly about the scope of this discovery, in terms of recoverable reserves.
Rigel will release its Q1 results either tonight or tomorrow morning. We are expecting Q1 CFPS of $0.46 vs. $0.69 a year ago.
Morrison Middlefield
(MM-T: $9.65) BUY
To Become Independent From Northstar Energy
Northstar Energy
(NEN-T: $9.60) HOLD
Morrison Middlefield have reached an agreement with Northstar Energy whereby the two companies will become completely independent of each other.
Morrison Middlefield will take in and cancel the shares and warrants that Northstar holds in them. Northstar has been a 25% owner of Morrison Middlefield. In return, Morrison Middlefield will transfer to Northstar some (but not all) of its western Canadian assets. These assets are currently producing 2,100 boe/d.
This deal is beneficial to Morrison Middlefield as the management fees charged to them by Northstar (inherited with the merger with Morrison Petroleums a year ago) will disappear. There will also be fewer shares outstanding, as they will drop from 20 million to 15.4 million. Our preliminary financial estimates are that Morrison Middlefield's CFPS will decrease this year from $1.65 to $1.35, but will increase in 1999 from $2.10 to $2.40.
This transaction will also benefit Northstar, as it simplifies its activities. We calculate that Northstar is paying approximately $22,000 per boe/d, which appears to be a fair price.
Our preliminary CFPS estimates for Northstar for 1998 will increase from $1.65 to $1.70, and for 1999 our preliminary estimate is $2.25.
Natural Gas Prices Alberta Spot Price Decline
Yesterday, the AECO spot price declined to $C 1.69/mcf, down from
$C 1.97/mcf late last week.
Over the past month, the AECO price has declined 31%. This is due to two factors. First, new gas production capability created during the winter drilling season has come onto the market in the past few weeks. Second, a warm winter has left storage levels high. Canadian gas storage is currently at 198 bcf, representing 40% of capacity, and 400% higher than a year ago. U.S. storage is also high, at 1.28 tcf. Like Canada, U.S. storage is also 40% full, or 42% higher than a year ago.
Our Canadian natural gas wellhead price forecast has remained relatively modest and unchanged since the beginning of this year. We continue to forecast an average price of $C 1.80/mcf for 1998 and $C 2.00/mcf for 1999.
The stock price performance of such natural gas levered producers such as Canadian 88 Energy, Rio Alto Exploration, Poco Petroleums, Anderson Exploration, Alberta Energy Co., Newport Petroleum, and Blue Range Resource have appreciated, on average, by 33% this year.
This has far outperformed the TSE 300 Index (up 15.2%) and the TSE Oil & Gas Producers Index (down 1.7%). These stocks are likely due for a "correction" in the shorter term.
MISC.
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