MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY DECEMBER 19, 1997 (3)
OIL & GAS
Gasoline futures surrendered a good portion of large gains made Thursday, while January crude oil futures edged lower on the New York Mercantile Exchange Friday
Gasoline prices dipped Friday at New York's Mercantile Exchange as fears abated that the shutdown of a unit at a major refinery would disrupt supplies. Gasoline futures went lower as traders took profits from strong gains made Thursday. "You had a solid run in gasoline on talk of a refinery problem yesterday, but with no more bullish news for gasoline, we ran out of steam," said Tim Evans, an analyst with Pegasus Econometric Research Group in New York.
Some analysts reasoned that buyers overdid it Thursday in a rally sparked by reports of a catalytic cracker outage at Amerada Hess Corp.'s St. Croix refinery, so a correction Friday was in order. Amerada Hess Corp. declined to comment on market talk that it had shut down a 130,000 barrel per day processing unit in the U.S. Virgin Islands. Rumors of the shutdown lifted gasoline prices Thursday.
Royal Dutch/Shell said it was unable to meet all commitments at the export terminal from December 21 to January 11 because of the closure of two flowstations by irate villagers. The flowstations, which have a combined capacity of 80,000 barrels per day, have been closed since November 25. The villagers were protesting their impoverished conditions.
Gasoline for January delivery finished 0.89 cent a gallon lower at 56.39 cents.
Weakness in gasoline futures prevented bullishness in the crude oil market from boosting futures. News that Shell Nigeria declared force majeure on oil exports from itForcados terminal from Dec. 21 to Jan. 11 due to attacks and occupations was shrugged off in the crude oil pit as gasoline fell. Force majeure clauses release oil companies from supply commitments when they are faced with circumstances beyond their control.
Baghdad's denial of access to United Nations weapons inspectors to certain sites in Iraq -- also considered supportive early -- was forgotten in the sell-off.
January light sweet crude oil fell $0.13 to settle at $18.39
January heating oil mirrored crude and gasoline prices, settling off 0.68 cent at 51.96 cents a gallon.
New York Mercantile Exchange Hub natgas futures quietly ended this week's session several cents higher as colder weather was forecast to arrive in Texas late this weekend, industry sources said Friday.
January finished up $0.059 at $2.471 per mmBtu, reluctant to veer away from a tight trading range. February settled 6.5 cents higher at $2.421, while most other deferreds also ended marginally stronger.
"We went sideways due to a lack of interest. We should expect more volatility next week," one trader said, adding the early rally was fueled by a rise in physical buying interest ahead of the weekend.
In Friday's cash, Gulf Coast quotes were steady to up slightly at $2.39-2.40, while Midcon pipes were talked up more than five cents in the high-$2.20s to low-$2.30s. Chicago city-gate was quoted in the low-$2.40s, while most Appalachia quotes on Columbia were in the high-$2.40s.
Technically, the market was due for a breakout, traders said, which could be triggered during next week's bid cycle. January resistance was still seen at $2.50, and then at $2.52 and $2.58. Support remained at $2.35, followed by $2.25, $2.14 and $2.05.
However, a factor expected to put downward pressure on the market next week was the weather forecast. Temperatures in Texas are expected to fall to about six to 12 degrees F below normal Sunday, equating to lows in the high-20s to mid-30s F in northern Texas, but in the upper Midwest and East, temperatures are forecast to average near to slightly above normal next week.
NORTH AMERICAN RIG COUNT
In Canada, the number of working rigs rose by 13 to 493, versus 405 one year ago.
The number of rigs exploring for oil and natural gas in the United States stood at 1,019 as of December 19, up seven from the prior week, and 161 above the year-ago total of 858.
The number of rigs drilling on land fell by two to 864, while rigs working offshore rose by seven to 131. The number of rigs active in inland waters rose by two to 24.
Among the individual states, the biggest changes occurred in Louisiana, up eight, and Texas, down three.
The Gulf of Mexico rig count rose by seven to 129. A total of 129 rigs were exploring for crude oil in the Gulf of Mexico.
The number of rigs searching for gas rose by seven to 654, while the number of miscellaneous drilling projects remained at four. The number of rigs searching for oil was 361.
There were 235 rigs drilling directionally, 65 drilling horizontally and 719 drilling vertically.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
FEATURE STORY
Ranger Races Forward Despite Political Strife
Sydney Sharpe,Calgary Herald
There are no Ghurkas guarding the entrance to chief executive Fred Dyment's Calgary office. But Ghurkas -- those famous Nepalese warriors -- are watching for anyone who would harm Ranger Oil Ltd. workers drilling for oil in unstable lands.
"Political strife doesn't stop us," says Dyment. "It worries us but we take precautions."
Ranger, like many global players and politicians, has DSL -- Defense Systems Ltd. -- on its payroll. DSL employs a highly trained group of Ghurkas and others who protect international workers in war torn areas or countries in turmoil.
Ranger recently pulled out of Algeria, but is active in Angola, and drew international attention last week with its forays into Iraq. The company has a huge block it wants to explore in that country, and hopes to develop another field. "We won't do anything in Iraq until the UN sanctions come off," Dyment insists.
Iraq fell under United Nations sanctions after it invaded Kuwait in 1990. Calgary based Ranger is one of a number of international companies poised to invest in Iraq once sanctions are lifted.
"We can't sign an agreement there until then," Dyment adds. "Why make a meal out of it today?"
Why indeed, when Ranger already appears to be consuming a plate overflowing with global treats and prospects. The maps that adorn the walls of Dyment's spartan 16th floor office proclaim the purpose and the promise of Ranger Oil. For every global hole -- not to mention a few hellholes -- where Ranger prominently drills, a map reminds the visitor of the rewards of the inhospitable. And a huge spinning globe reminds Dyment of the possibilities.
The senior producer, with a market capitalization of $1.2 billion, is one of the oilpatch's most prolific international players. It started its global reach in 1966 with Ranger visionary Jack Pierce, who ventured forth into the frigid, foreboding North Sea looking for liquid gold.
"If you can operate in the North Sea, you can operate anywhere," says Dyment. "It's the harshest climate in the world."
But maybe not as harsh as his many shareholders who criticize his company's recent stock market performance and its purchase of heavy oil producer Elan Energy Inc. The differential between the price producers receive for heavy crude versus the more desirable light sweet oil has widened to record proportions.
"The shareholders don't like heavy oil," said Dyment. "It bothers me that they are unhappy."
While this year saw a run on heavy oil companies, Dyment stresses that Ranger didn't buy Elan for the short term, and the purchase won't add value right away.
"Elan was always a long-term investment. Hopefully we'll be vindicated," he said.
Dyment believes the future of the Canadian oilpatch is in natural gas and heavy oil. In Elan, he saw a huge resource base, innovative heavy oil technology and a long-term commitment to Canada.
"Only in Canada do you seem to compress the quarter into soundbytes," he observes. "Oil is always a long-term business."
Canadian mutual funds especially don't like dramatic changes in a company's quarterly performance, unless of course it surges forward.
Petro funds are more geared to the quarterly swings of commodity producers.
But Ranger is geared to growth. Daily production will increase from the equivalent of 48,000 barrels (boe) in 1996 to 56,000 boe for 1997, 90,000 for 1998 and 120,000 for 1999. Cash flow will increase from $140 to $145 million US ($1.37 per share) in 1997 to $200 to $215 million ($1.70+), to $300 million ($2.45) in 1999. On Friday, Ranger shares were down 10 cents to close at $9.50.
Ranger has many analysts that support its long-term potential.
"They're suffering right now as result of a lot of shareholder discontent over the Elan acquisition," says Bob Hinckley, an analyst with Merrill Lynch & Co. "Ranger is an outstanding value at this point with a fair amount of growth beginning mid-year (1998) and continuing growth for a couple of years."
Hinckley rates Ranger a long-term buy, as does Peters & Co. analyst Wil Gobert, who points out that Elan was a portfolio move providing Ranger with a mix of international operations, natural gas and now heavy oil.
"If you're going to buy strategically, you have to buy cheap," adds Gobert. "And if you're buying cheap you have to buy when something -- in this case heavy oil -- is out of favor."
Gobert notes that the oilsands, which were uneconomic for years, are profitable and active with billions of dollars in new investment. Others agree.
"When the commodity is weak it's nice to have projects on the plate to grow cash flow. Some of that long-term story is eight to nine months away and then we'll start to see a dramatic impact in Ranger's operations," says Terry Peters, an analyst with Loewen, Ondaatje, McCutcheon Ltd. "The market wanted things to happen sooner, so it put them in the penalty box a little."
But Ranger is there for the long haul, even though the stock is widely held and therefore extremely liquid. That's why Ranger is a perennial favorite of the takeover rumor mill.
"I've heard one a month for the last 19 years," says Dyment. "In that time five companies have taken serious positions in Ranger." These included ICG (which is now owned by Petro-Canada and is likely to be sold into an income trust in early 1998) and Norsk Hydro.
And every time, even though they were "quasi-friendly deals," Ranger has escaped and gone on to meet its global destiny.
For Ranger, it often seems that global inhospitability and political instability were siren songs to riches. Even the threat of bloodshed didn't stave the lure of liquid gold.
"We pay quite a premium to put staff in these places," adds Dyment. "We try to put our people at minimal risk."
Besides the political risks, there are the technical challenges. In western Canada there's a tremendous store of data, but after all the expertise and skill that characterize any wildcat play, Ranger must also rely on intuition and luck.
"We just hope to get smarter with each well in these new areas," he adds.
Ranger is taking its offshore expertise to the coast of Angola, Cote d'Ivoire, Namibia and Peru, as well as dramatically increasing its North Sea stake. Brazil is also in its sights.
"We're elephant hunters. Our niche is offshore, but not to go toe to toe with the majors," Dyment says, referring to the multinational oil players. "We fly below their horizons."
For Ranger an elephant pool is 100 million barrels; for the majors it's one billion barrels.
"We have two solid platforms in Canada and the U.K., and they springboard us to others," he notes. "We've stuck with our strategy. Our five-year business plan is to double the underlying value of the company."
Seated below the only picture in Dyment's office is an African statue of a king sagely sitting. An Angolan gave the statue to Dyment, and called it King Fred. While Dyment is the antithesis of regal, his plans for Ranger resonate with global dreams of the man in the picture -- Ranger's creator, Jack Pierce.
FEATURE SRORY
Suncor ups stake in heavy oil
Irene Thomas - Ft McMurray Today
Suncor Energy is expanding its stake in the heavy oil business.
The integrated oil company's exploration and production subsidiary announced this week it has spent $16 million to purchase 27,500 hectares of heavy oil properties in the Firebag area, located about 40 kilometres away from Suncor's oilsands operation north of Fort McMurray.
The acquisition is part of Suncor's long-term strategy to pursue in-situ production using technology called steam assisted gravity drainage (SAGD), Barry Stewart, company group executive vice-president of exploration and production, said in a news release.
The SAGD process injects steam down horizontal wells which are drilled into a bitumen reservoir. The steam loosens the molasses-thick bitumen deposits, allowing the oilsand to flow with gravity down to a lower, producing well. The loosen bitumen is then pumped to the surface for processing.
Suncor currently operates an 800-barrels-per-day SAGD pilot plant at Burnt Lake in the Cold Lake area.
"Based on our ongoing results from Suncor's Burnt Lake SAGD pilot project and the Athabasca Underground Test Facilities, we're optimistic that SAGD technology will be commercially competitive in high quality oilsands deposits," said Stewart. Suncor has drilled 20 test wells on the original Firebag lease and Stewart said the data indicates "high quality deposits." No further information about thedeposits was given.
Over the next few months, he said the company plans to drill about 50 more evaluation wells on the lease.
Heavy oil development is one of Suncor's key growth area, said Stewart. "We are confident we will be able to develop a long-term commercial strategy in in-situ heavy oil that builds on the fully integrated approach Suncor applies to its businesses."
Several possible opportunities exist for such integration, he said, explaining that with the Firebag leases only 40 kilometres away from Suncor's oilsands operation, it could supplement feedstock to the plant.
As for the next few years, Stewart said the company will continue evaluation of its heavy oil leases. By then Stewart said Suncor will have developed a technical and commercial plan that may mitigate the price risk that many potential heavy oil producers face with widening heavy-light price differentials.
Suncor did not mention what type of venture or production it is planning for the Firebag leases.
FEATURE STORY
NWT Power Corporation Commits To $3 Million Deal
Glenn Taylor - Northern News Services, Yellowknife. NWT
The NWT Power Corporation has committed $3 million to a project linking Inuvik to natural gas.
Power Corporation CEO Leon Courneya signed an agreement last week with the Inuvialuit Petroleum Corporation, to purchase gas from IPC's Ikhil gas project for 15 years.
The agreement will allow the corporation "to reduce the cost, over time, of electricity to Inuvik residents by up to 20 per cent over 15 years," said Courneya.
Courneya estimates the corporation will spend about $3 million to convert its fuel burners to use the natural gas for electricity production. Pun Chu, Power Corporation director of western operations, said details of the conversion plans will be announced by next month.
IPC's $30-million project to link Inuvik to natural gas is the first of its kind in the NWT. Dozens of residents came to the signing ceremonies at the Inuvialuit Corporate Centre last week, symbolizing the importance many are placing on the project to restart Inuvik's battered economy.
IPC chair Russell Newmark said residents and businesses will see their power costs drop 15 to 20 per cent below diesel fuel costs, thanks to the project.
The project involves the drilling of two or three wells and construction of 45 kilometres of buried gas pipeline to Inuvik, as well as an in-town distribution system.
IPC has formed a partnership in principle with Alta Gas, a mid-size company from Alberta that offers a wealth of expertise in field production to the corporation.
Newmark said IPC is also looking for a second partner with pipeline building expertise, which could potentially split the risk and returns on the project three ways, with each partner paying $10 million.
IPC has been looking at such a project for years. But three years ago, it looked again. IPC considered whether it would be economical to build systems for Tuk and Inuvik. Tuk was close to having its own plant twice in the past, but both plans fell through. The most recent look at that prospect also showed it wasn't economical. Inuvik looked good, however, and IPC moved ahead.
But Newmark said if more reserves are discovered at Ikhil -- he hopes drilling project this winter will reveal that Ikhil contains not one but several pockets of gas -- that Tuk could be linked up to Ikhil, meaning only a pipe would have to be built, not an entire production system.
He said IPC would consider down the road whether such a project was feasible. |
