IN THE NEWS / California Spring Cools Hot Oil Stocks
Underground water drowns huge natural gas well fire, suggests find not as big as was hoped
ANDREW BELL
Investment Reporter
Geology dished out a brutal lesson yesterday to brave investors who gambled that the glory days of wildcat oil and gas strikes aren't quite over. Shares in half-a-dozen small Canadian oil and gas companies collapsed on word that naturally occurring water has extinguished the 60 metre high flames from a blowout at what may be a prolific California natural gas well.
The fact that the water was able to put out the fire is an evil omen for investors because it suggests the pressure and size of the gas reservoir may not be as great as speculators had hoped, analysts said. "If the gas was so strong it would have prevented the water from coming up," said Gordon Gee of Goepel McDermid in Calgary. The stocks "were overdone in the first place."
Water can potentially spoil a well's ability to produce oil and gas, warned Wilf Gobert, an analyst with Peters & Co.. "It's potentially a negative as to whether or not this is a commercial discovery, but the fact is it's too early to tell and no one really knows," he told Dow Jones.
CIBC Wood Gundy Securities analyst Peter Lindner, who was quoted this week as saying he was "95 percent sure" that the well was a major gas discovery, is now a lot less optimistic. "I think there's still a reasonable possibility that there's significant hydrocarbons down in that hole," he said in an interview. "There's still upside; there's still hope."
But many investors have apparently decided the game is over. Shares in midsized Berkley Petroleum Corp. slumped $1.65 to close at $10.55 yesterday on the Toronto Stock Exchange while Paramount Resources Ltd. dropped $1.30 to $14.25.
But the real crash came in the smaller, speculative companies that have a stake in the well. Kookaburra Resources Ltd. dropped 78 cents to end at $1 on the TSE, after falling 54 cents on Tuesday. The stock had soared from 41 cents on Nov.23, when the California blow-out happened, to $2.32 Monday.
Hilton Petroleum Ltd. fell $1.70 yesterday to end at $2.25 on the Vancouver Stock Exchange. From late November to Monday, the stock doubled to $4.94.
Elk Point Resources Inc., whose subsidiary, Bellevue Resources Inc., operates the California well, fell $1.75 on the TSE to end at $3.25 yesterday after losing 85 cents on Monday. That stock had also dou-bled in two weeks.
Hilton and Kookaburra are based in Vancouver. The other companies are based in Calgary.
Officials called the massive blowout in central California, about 70 kilometres northwest of Bakersfield, one of the biggest natural gas fires in California history. The story was on the front page of The Los Angeles Times.
The wildcat well - one drilled without much exploration to find out how much gas lies below spewed a column of flame visible for 30 kilometres.
The local paper, the Bakersfield Californian, estimated that natural gas and condensate worth as much as $200,000 (U.S.) a day was burned.
After a week, the operator brought in a five-man crew from Houston based Boots & Coots In-ternational Well Control to fight the blaze. The experts had originally feared the fire could take months to put out.
"This," one Texan told the L.A. Times in a slow drawl, "is a big one."
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