MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 28, 1998 (4)
FRIDAY'S TOP STORIES
Oil Alliance Suggested By Saudis
Saudi Arabia, the world's biggest oil producer, is suggesting creation of a new alliance of oil exporters that would stand ready to guide prices by direct intervention in the markets.
The remarks by Saudi oil minister Ali Ibrahim Naimi, carried in today's editions of the Financial Times and The Wall Street Journal, came only a day after OPEC reached an agreement to cut production in the face of slumping prices.
Naimi told the Financial Times that the new alliance would not mean the immediate demise of the Organization of Petroleum Exporting Countries, but said the existing OPEC system had become outdated.
OPEC meets periodically to set production quotas for its 11 members but some have persistently cheated on those allotments.
Non-OPEC members include producers such as Mexico, Oman, Norway, Russia and Egypt.
Naimi declined to specify which countries he would like to see in the proposed new group, but said there were "eight or nine countries that have the reserves, production capacity and dependence on oil revenues."
Market intervention would probably be like the action central banks take in currency markets when trying to influence the rates at which particular currencies are traded, the Financial Times said.
But in this case, the alliance would supply more or less oil as conditions warrant.
OPEC has agreed on two rounds of cuts since its decision in November to raise stated output by 10%.
The extra oil started flooding the market just as the Southeast Asian economic crisis began cutting into demand for crude oil.
OPEC's average price was less than $11 a barrel US last week, barely half the group's official target of $21 US.
Africa's Gushing - Angola Oilfields Help Ranger Oil Boost Production
Calgary Sun
Ranger Oil Ltd. has started pumping oil from new wells in Angola that could boost the Canadian exploration company's production by more than 5%.
Development of the Kiame field off the coast of the West African nation will produce about 7,000 barrels of oil a day, with about 40% going to the Calgary based company. That will add about 2,800 barrels to Ranger's daily output of 53,000 in the first quarter.
It's the second of several new oilfields Ranger expects to begin pumping this year, and one of the most active new areas in the world.
"Offshore Angola is one of the world's most exciting exploration plays and is a key area for Ranger's future activities," said Fred Dyment, the company's president and chief executive officer.
Ian Doig, publisher of the oilpatch bible Doig's Digest, agreed. The West African coast is becoming "the world's hotspot, he said.
"It's a function of the operating costs compared to places like Canada and the fact that you can get the resources on stream much faster," Doig said. "From the time you get the concession until production, it's only four years compared to 18 for Hibernia."
With little government interference and proven reserves equal to Canada's recoverable reserves of conventional oil at five-billion barrels, Angola has attracted a lot of attention, Doig said. "This is where the big boys are," he said.
It costs about $5 a barrel to extract oil from Kiame, a small field with a productive life is expected to be four years.
In addition to drilling at least three wells in Angola over the next two years, Ranger also has rights to drill in five regions off the Ivory Coast, also in West Africa.
The company will boost production again next year, when it expects to start production from the Espoir field in waters off the Ivory Coast. Espoir is "about 10 times the size of Kiame, and we have a 20 per cent stake in the field," Bell said.
Ranger is also developing several other fields in the North Sea. In May, Ranger's Columba E field produced 9,000 barrels a day. The company has a 34.06% stake in Columba.
Ranger said it paid $44 million to develop the Angolan field, which contains 8.5-million barrels. That's worth about $119 million based on the current prices of Brent crude oil traded in London.
Mobil Canada Narrows Sites For Upgrader
Fort McMurray Today
And then there were two.
Mobil Canada announced yesterday that either Fort McMurray or metropolitan Edmonton will be the site for the upgrader that will process bitumen mined and extracted at its planned Fort McMurray plant.
The company narrowed the field to the two cities after looking at various locations around Alberta.
The final decision on which town will be home to the facility will be based on economic feasibility, environmental impact and public input, according to a news release.
"We are currently examining the potential for both locations," said Jan Nowicki, vice-president of the Kearl oilsands project.
"Before we proceed with our final decision, we will continue to work with local stakeholders to arrive at a decision that will be in the best interests of the communities involved, Mobil and the province of Alberta."
She told Today formal and informal consultation in McMurray has been ongoing since the Kearl project was announced in April 1997. "We've certainly been welcomed by the community. It's been part of our chamber discussions and speeches. We're looking forward to working with the community in the future as well.
"We're a founding member of the RIWG (regional infrastructure working group), and we also sit on many environmental groups in the area. We're looking for people to communicate with us on the upgrader as well."
She said a final decision on the upgrader's location is expected to be made by the fourth quarter of 1998. The upgrader would process bitumen from the planned Kearl oilsands project into synthetic crude oil. The mine is expected to produce about 130,000 barrels per day of bitumen and would be built and operated on lease 36.
Mobil has a 100-per-cent working interest in the lease. The upgrader is expected to cost between $1 billion and $1.5 billion, depending on the final location and technology used to process the bitumen.
Big Bucks Need A Home
Calgary Sun
Here's $10 million worth of cash looking for a home.
Harold Pedersen is the new president of KeyWest Energy Co. Ltd. If you think Pedersen's name sounds family, it should.
KeyWest is the new name for San Fernando Mining Co. Ltd., and aside from being listed on the Vancouver Stock Exchange, it has just been approved for listing on the Alberta Stock Exchange. That brings the company right back home.
The company was formerly a mining concern, but its focus is now being redirected into the oil and gas business in Western Canada.
Aside from Pedersen, the new principals of KeyWest are executive vice-president Mary Blue, and Gary West, vice-president of engineering and production. Both are the former co-founders of Jordan Petroleum Ltd., which was sold in December 1997 for $435 million.
KeyWest now has 16.8 million issued shares and its sole current asset is a cash chest of $10 million.
Its management is looking at merger, acquisition and drilling opportunities to start building the new oil and gas company.
Showtime
Calgary Sun
Two weeks ago, it was the National Petroleum Show.
Last week, it was the Canadian Association of Petroleum Producers (CAPP) investment symposium -- and this week, the Canadian Energy Research Institute (CERI) will hold a two-day conference in Kananaskis to discuss industry issues with leading oil and gas researchers and decision makers.
The conference comes amidst plans for some $3 billion in new petrochemical plant construction in Alberta in 1999-2000.
On one hand, after almost 50,000 delegates here for the petroleum show and 300 analysts and investment fund managers here for the CAPP conference, it's hard to think of what more can be said about our oil and gas potential.
But whatever will be said will be on the bright side -- projects led by companies such as Nova, Union Carbie and Amoco. Shell and Dow will spearhead industry expansion in our province and the job creation will surely make the rest of Canada envious.
ZCL Composites Inc. Posts Major Loss Before Plant Sale
Edmonton Sun
Underground tank maker ZCL Composites Inc. lost more than $6 million last year before draining off a division full of red ink.
The Edmonton-based company reported yesterday a March 31 year-end net loss of $6,019,000 compared to $38,000 in earnings the year before.
Revenue fell to $54.3 million for the year from $58.6 million for the year ended March 31, 1997.
The company's money-losing pultrusion division, which was officially sold March 31, hadproduced decking under the trade name E-Z Deck.
The E-Z Deck division lost $6.7 million for the year, including loss on disposal, said a ZCL statement.
The company was also hit by the January ice storm in Eastern Canada and warm weather in Western Canada slowed exploration activity in the upstream sector.
"The impact of the discontinued pultrusion division is now fully behind us with the March 31 sale of the division and we look forward to improved performance as we start the new year with a fresh slate," said ZCL president Ven Cote in a statement.
Executive vice-president Rob Day said this year's bottom line is no indication that the company is in trouble, and next year's results will show a turnaround as a result of the sale of the pultrusion unit.
"It was a one-time event," said Day. "We had significant losses on disposal of that division, plus the operating losses during the year."
The Asian flu has slowed down ZCL's entry in the Philippines, which the company expects to use as a stepping stone into Asia, said Day.
But a new plant near Manila is still expected to open early in the second quarter.
ZCL is Canada's largest manufacturer of fibreglass underground storage tanks and distributes petroleum handling equipment.
Innovative Approach
Calgary's Sigamor Inc. On The Leading Edge
Calgary Sun
If you attended the National Petroleum Show earlier this month, you'll know what began as basic wildcat drilling in Turner Valley has turned hi-tech.
Over at the Stampede Grounds were about $1 billion worth of oil and gas equipment that would have done credit in its sophistication to the NASA control centre at Cape Kennedy.
And a Calgary company, Sigmacor Inc., is about to demonstrate innovation in the oil and gas servicing industry hasn't reached a plateau.
Company president Pat Beauchamp has just told me his company is currently launching its Gas Micro device into the potential $670-million North American market with an agreement with Interprovincial Satellite Services Ltd. (Intersat).
It's a complex business, but in a nutshell, Gas Micro is a microprocessor-based electronic volume corrector designed to measure the flow of natural gas use, taking into account all kinds of variables.
Through its agreement with Intersat, Gas Micro will allow utilities customers to collect measurement data and receive or transmit it over any communications medium in the world.
Beauchamp estimates on top of the basic potential of the $670-million market, an additional market for Gas Micro communications hardware and software may be worth as much as $170 million in North America. Both Sigmacor and Intersat are listed on the Alberta Stock Exchange.
TCPL may dominate merger with Nova
Shareholders vote Monday on 'the arrangement'
Calgary Herald
What's in a name?
Plenty, if you work for TransCanada PipeLines Ltd. or Nova Corp., the two Calgary energy giants that have spent the last five months trying to smoosh their respective organizations into a new corporate entity.
In January, TCPL president and chief executive officer George Watson and Nova president and chief executive officer Ted Newall announced plans to merge their companies into a single entity that would have $21 billion in assets and annual revenues of $15.6 billion, making it the fourth largest energy services company in North America.
But with shareholders of the two companies set to vote Monday on what is euphemistically described in legal documents as "the arrangement," suspicion is growing that the deal, once touted as a merger between equals, will in essence only create a bigger, more powerful TransCanada.
More to the point, if and when the dust clears and TransCanada -- but not Nova -- is an integral part of the new company's name, it could prove a bitter pill for almost half the new company's workforce to swallow.
"I don't think that's any real surprise to people who have been watching the industry," says Goepel McDermid financial analyst Bob Hastings of the proposal that appears to be leveraged in favor of TransCanada.
Nor, says Hastings, should it be a revelation that the senior management team being proposed to shareholders carries a distinctly TCPL flavor.
Former TCPL president and chief executive officer George Watson has been nominated to head up the new company, while five other senior TCPL execs -- including Garry Mihaichuk, Stephen Letwin and Lawrence Spackman -- will fill a handful of the most powerful jobs in the new organization.
Bruce Simpson, president and chief operating officer of Nova Gas Transmission Ltd., will be the top Nova executive in the company, having been designated an executive vice-president in the office of the chief executive officer.
The fact that key Nova executives like president and chief executive officer Jeffrey Lipton have opted for positions with Nova Chemicals, the $3.4-billion subsidiary that is being quietly spun off into a separate entity as a byproduct of the amalgamation, has had the rumor mills churning.
"But that is where many of those people are most comfortable," points out Hastings.
"So in a way, it only follows that TCPL's top people will fill most of the slots in this organization."
But the reality is that weeks of pitched -- sometimes acrimonious -- battles between the internal power-brokers in both companies were the order of the day before a consensus on a final roster of top executives could be reached.
And by all accounts, the fighting over the second tier of executive placements, which has yet to be made public, has been even more ferocious.
"It has been a long and sometimes difficult process," acknowledges TransCanada chairman and guiding force Gerry Maier.
"But I would add that it has gone as well as could be expected.
"Unfortunately, when these things (mergers) happen, some very good people tend to get pushed aside," he adds.
Just what lies ahead for the 6,300 employees of the new company -- there will be some degree of yet to be determined rationalization -- will be decided over the next four to six months.
At this point Nova employees -- who see themselves as part of a distinctly different corporate structure -- seem particularly anxious about their futures.
"I think it's fair to say we feel like we're being taken over by TransCanada," says a worried longtime Nova employee who asked to remain unidentified.
Rumors about yet to be determined corporate reporting structures, and an impending controversy over whether or not the new company will have a new name reflective of the two disparate organizations it will comprise, have only served to exacerbate the feelings of angst and anger coursing through the subdued corridors of Nova's downtown offices.
"This might be a good time for those Nova employees who have been trained in hug therapy to put their training into practice," says University of Calgary faculty of management professor Bob Schultz.
The sooner employees know everything that is slated to happen at the new company, says Schultz, the sooner they can begin to focus on their jobs.
Employees at both companies have been scanning corporate bulletin boards, e-mails and any and all other news sources for tidbits of information that might provide some insight into their future.
Nova employees were especially disheartened to learn that while the joint company is referred to by the generic term of EnergyCo in legal documentation, it will in fact carry on business under the TransCanada name for at least the next year.
A name change is not on the agenda for Monday's TransCanada shareholders meeting and no change can be adopted without shareholder approval.
That, say company officials, means it will be at least a year before the issue is revisited.
Naseem Javed, president of ABC Namebank, a company that specializes in creating and researching business names, says executives should do their homework but still move quickly to decide on a new name.
"A new name would allow the companies to shed the skins of two old snakes and get a fresh start," says Javed.
Kent Allan, of Calgary's Kent Allan Design Group, says work is proceeding on a brand strategy -- which presumably includes development of a corporate name -- but that confidentiality agreements are in place.
However, Maier raises some ominous questions (for Nova employees, at least) about the amalgamated company's new identity.
"I go to the bottom line. It could cost $40 million to $50 million to implement a name change -- and if there is no good reason to change, why do it?"
Maier adds that company executives and officials have more important things to be focusing on than company names if they are to begin returning value to their shareholders as soon as possible.
"I think it will be at least three years before we see the full synergies of this arrangement," predicts Sam Kanes, an analyst with Scotia Capital Markets. "But I think we could see some lift in TransCanada stock prices in the near term."
But a recent survey by Andersen Consulting suggests alliances between companies are most often poorly managed and that many are often failures.
In the survey, 214 executives reported that 70 per cent of alliances they had been involved with had failed or had only achieved initial goals.
"Most companies launch into alliances with high hopes but with no real plans to realize those hopes and no clear way to measure whether their hopes are being accomplished," says Charles Kalmbach, global managing partner with Andersen.
COUNTRIES IN THE NEWS
Kuwait Seen Setting Foreign Oil Role By Summer's End
Kuwait is moving closer to a major oil policy change that would eventually open potentially lucrative drilling operations to huge foreign oil companies, which have been patiently waiting in the wings since the 1991 Gulf War.
Kuwait controls slightly less than 10 percent of the world's proven oil reserves, which will last it more than 100 years at current production levels.
As of July 1, Kuwait's oil production will drop to 1.96 million barrels per day (bpd) from 2.19 million bpd earlier this year as part of a collective effort by the Organisation of Petroleum Exporting Countries to boost world prices.
Kuwait "is still studying the formulae on offer and how to go about it (foreign participation)...A response is expected by the end of the summer," a senior executive familiar with official thinking told Reuters.
Kuwaiti officials and Western oil executives told Reuters the Gulf Arab state was eager to grant foreign oil companies some role in its oil industry to boost production capacity, but it is still searching for a formula acceptable to both the country's sceptical parliament and foreign bidders.
While some MPs stress that production sharing violates the constitution, industry executives say formulae under discussion would work around that limitation.
The much-awaited move was at the centre of separate high-level talks earlier this month in Kuwait by John Browne, the chief executive of British Petroleum Co. Plc and Richard Matzke, president of Chevron Overseas Petroleum Inc., a unit of U.S.-based Chevron Corp. .
BP and Chevron are just two of many foreign firms eager to secure a role in the fully state-controlled local oil production operations in Kuwait.
Mainly "Exxon Shell BP, Total Chevron presented ideas for a role and a formula, but they did not include details. We have not reached that stage yet but we are getting there," said an official, who asked to not be identified.
For Kuwait, providing a role for foreign firms in the country's oil production is key to securing needed technology to implement a plan estimated to cost some $13 billion to raise production capacity by one million bpd early in the next century from a current 2.4 million bpd.
International hopes for a role in Kuwait's upstream operations, including oil fields close to the northern border with former occupier Iraq, were renewed last year when the country's highest oil policy decision making body gave its approval in principle to foreign participation.
Twice before, in 1993 and 1995, Kuwait's Supreme Petroleum Council gave a similar approval.
Sources told Reuters that market talk of a joint Chevron-BP offer was not "exactly correct" nor did Kuwait officially ask them to make such an offer.
Western executives and diplomats here say Chevron and BP are the front-runners in the race, noting that Washington and London led the 1991 Gulf War to free Kuwait of Iraq's occupation that began in August 1990.
State-owned and -controlled Kuwait Petroleum Corp. and its upstream arm Kuwait Oil Co. brought in Coopers & Lybrand to help in "evaluating international agreements and study the formulae. What they (foreign firms) have presented is slightly different from one another, but they are still general ideas.
"Talk linking BP and Chevron probably came from the fact that they both showed interest in the northern fields. That is the similarity," a senior official added.
Kuwait explained to its Western allies that the decision was a "difficult political" move, both on the domestic and international fronts.
"We want many firms to get involved," said the official, adding that Kuwait has yet to decide on whether to take the international tender approach or direct negotiations with firms it favours dealing with.
"They (foreign firms) told us, 'If you have difficulty, why not think of the consortium option to make things easier?'...When we look around us, we see that consortia now are the standard practice in the oil industry," the official said.
Eni4 Offer Proves Rip-Roaring Success
Italy cashed in a fourth rip-roaringly successful sale of shares in oil and gas giant ENI on Saturday but Treasury Minister Carlo Azeglio Ciampi said he had no plans to put any more of the company on the block.
Ciampi told a news conference that both the retail and institutional offerings were more than two times over subscribed and the "extremely gratifying" sale had netted nearly 13 trillion lire ($7.3 billion) for Treasury coffers.
Italy's newly savvy private shareholders, who were reserved the lion's share of stock in the country's biggest equity offering so far this year, clamoured and queued in an offering made more attractive by the prospect of bonus shares.
Low yields on government bonds -- formerly Italians' favourite method of saving -- has also fuelled equity interest.
Ciampi said the price for retail investors was set at 11,430 lire per share, Friday's official market price, and the global offering had been increased to 1,036 billion shares from one billion to cope after the avalanche of demand.
The retail offer was 2.5 times oversubscribed. A further 101 million shares will be available under a green shoe option for excess demand by institutional investors.
The institutional sale had been seen as less of a hit, depressed by low oil prices, the fact that many funds have reached their maximum holdings for ENI stock and the prospect of ENI losing its near monopoly on Italy's gas distribution market after 2000. But it was also more than two-times oversubscribed.
Following the fourth tranche sale, the Treasury's stake in ENI, Italy's largest publicly traded company and Europe's third largest publicly traded oil and gas company, now falls to 38.26 percent from 51.16 percent.
It will fall further to 37.06 percent if the green shoe is taken up in full.
The government, however, intends to retain control of ENI and Ciampi said the Treasury's stake would not fall below 35 percent.
"We said the intention was to arrive at a percentage below 51 percent and the result is abundantly below 51 percent. The government's intention is to keep this position of a strong force in ENI," he said.
Ciampi said the privatisation of ENI, begun with the sale of a first tranche in December 1995, had raised more than 40 trillion lire overall but asked if the Treasury planned a fifth offering, he said: "At the moment...I exclude further tranches."
The Treasury said that more than three million people had subscribed for shares in the four ENI offerings, more than the two million who sought shares in Telecom Italia in what was dubbed the "mother of all privatisations" last year.
The ENI sales had netted more than $23 billion, compared with more than $22 billion in the British Telecom privatisation, $15.1 billion in Telecom Italia, $13.3 billion in Deutsche Telekom, $12.4 billion in British Petroleum, $7.6 billion in British Gas and $7.588 billion in France Telecom.
Italy, which needs to keep up the momentum on its privatisation programme to ensure a steady flow of cash into state coffers with which to cut its mountain of debt, is looking ahead to further sell-offs in the pipeline, starting with motorways operator Autostrade.
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