MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, JANUARY 15, 1998 (3)
FEATURE STORY
Yemen Discovery Exciting Prospect
Calgary Sun
A drilling site pumped up prospects for two Calgary-based companies yesterday with the announcement of an oil discovery in central Yemen.
TransGlobe Energy Corp. and Gulf Canada Resources Ltd. announced their exploration well on Block 32 hit oil in the Middle Eastern republic of Yemen after several drilling attempts.
Ross Clarkson, president of TransGlobe, views the find as "very significant."
In the Sayun Basin, the Tasour-1 well flowed at 3,250 barrels of oil per day and recorded a maximum pump capacity rate of 4,877 barrels a day.
But the potential of the well is much higher, said TransGlobe, which holds an 8% working interest in the project.
Clarkson added that it is too early to suggest the potential of the block. The project is now waiting for an evaluation of the tests to determine a reserve estimate range, said Gulf Canada spokeswoman Jennifer Martin.
"Making a guess-timate of the potential of the area is pretty much impossible," said Martin.
"It's only one well."
Just south of the Sayun Basin, the Masila Fields, home to exploration by Canadian Occidental Petroleum, is producing over 180,000 barrels per day.
This is the third well that has been drilled in the basin after the first two were unsuccessful.
"Third time lucky, I guess," said Clarkson.
FEATURE STORY
Many Heavy Oil Searchers Standing Pat For Now
Facing scenarios showing world prices at below $17 (U.S.) per bbl and a differential that reached $8.88 (Cdn.) a bbl in December, heavy oil producers are taking a mixed approach to exploration and production plans.
Large firms such as Imperial Oil Limited, Gulf Canada Resources Limited, Norcen Energy Resources Limited, Talisman Energy Inc. and Mobil Oil Canada are waiting to see what happens, while others have already moved.
Amber Energy Inc. plans to boost heavy oil production to 20,000 bbls per day in 1998 from about 4,600 bbls per day. "Our heavy oil (at Pelican Lake) is such low-cost production that even at current prices we're still making strong netbacks," said President Richard Lewanski.
"The only concern, of course, is that lower prices mean lower cash flow in total for the company. That means to maintain our current expenditures our debt levels will increase slightly," he said.
Lewanski said if WTI prices drop far enough it will squeeze the differential. "If those prices stay for any length of time, it means the heavy oil differential has to come down ... It always has in the past," he said.
"We believe if WTI prices are $17 (U.S.) per bbl the highest differential you could expect is about $6 a bbl," Lewanski explained. "If it's any higher than that, then most of the standard, higher operating cost heavy oil production is cash-flow negative. So that oil gets shut in and it drives the differential down."
Firms such as Pursuit Resources Corp., Numac Energy Inc., Archer Resources Ltd. and Ranger Oil Limited have already curtailed some plans.
"We certainly had a number of heavy oil opportunities that we were proposing to drill. But we will not be doing so at these crude prices and the differentials we're seeing," said Nolan Blades, president and CEO of Pursuit. "It's about as ugly as it gets."
The company has 12 Lloydminster-type heavy oil opportunities of which two of the more positive will be drilled. "The rest we'll defer until we see a better economic basis for going ahead. But we surely won't be giving up the leases," he said.
"We've significantly shaved the program back," said Rich Coulliard, vice-president of exploration and production at Numac. He noted initial plans included spending $25-30 million on heavy oil drilling at Manatokan in east-central Alberta. "We effectively have cut that to some selective drilling on some highly productive wells just to firm up what we have," Coulliard said.
Archer's management was way ahead of the game in cutting back heavy oil production with a strategy that played into today's market conditions.
"We cut back in February (1997)," President Wayne Foo said. "We have a significant amount of heavy oil production we brought on-stream .... we had the right market read." He added: "In February, we (also) looked at a significant heavy oil purchase and decided not to go with it."
The company's heavy oil properties, such as Bellshill, have high decline rates with narrow differentials in the $3.50 per bbl range. The strategy was to bring as much production as possible to the market at hedged prices to get high netback.
Foo said Bellshill was ramped up to about 2,000 bbls per day during the low differential span in l997. That output has since naturally declined to about 1,000 bbls a day. He said Archer maintains a large inventory of heavy oil prospects, but development in the near term is not going to happen.
In response to current low prices, Ranger has shut-in a number of higher operating cost wells in the heavy oil division, said John Faulds, vice-president of investor relations. Daily heavy oil production has been reduced to approximately 19,000 bbls per day. "Production and operating costs will continue to be reviewed on a well by well basis to reflect the changing economic environment," he said.
Ranger got into heavy oil with its purchase of ELAN Energy Inc.
"It's tough right now, there's no question," said Hart Searle, public affairs adviser with Imperial. "It's a really sour market, but we maintain that we are the low-cost producer in heavy oil." Searle said the company hasn't set heavy oil production estimates for 1998. However, he stated emphatically: "Near-term, there are no plans to shutin production." In 1997, close to 115,000 bbls per day of the heavier bitumen crude was recovered from Imperial's Cold Lake operations.
He noted Imperial has done significant work to weather-proof its business through technological research and development for Cold Lake operations. Searle added postponing heavy oil developments, such as Mahkeses, would be jumping the gun.
With heavy oil making up a small portion of operations overall and a generally unfavourable outlook, Gulf is keeping its plans intact. Its acquisition of Stampeder Exploration Ltd. added heavy oil assets after a CS Resources Limited takeover bid lost to PanCanadian Petroleum Limited.
"We're trying to enhance our heavy oil interests," said Jennifer Martin, senior investment relations adviser for Gulf. "We have no plans at all to cut back."
FEATURE STORY
Syncrude Coker Repairs Continue
Fort McMurray Today
An unscheduled turnaround is in its second day at Syncrude Canada.
Management at the oilsands plant decided yesterday to begin work to correct problems at one of the plant's two cokers.
The coker is a vessel where bitumen is cracked into fractions and coke is withdrawn to start the conversion process of bitumen to upgraded crude oil.
Problems with the coker were first made public earlier this week.
A turnaround had been scheduled for late March. "We are going to do as much associated work as we can at the same time," Syncrude spokesperson Peter Marshall said this morning. "So in essence we have advanced the turnaround by two-and-a-half months." The turnaround is expected to last 31 days.
Marshall said there won't be an extra cost to doing the work now, as opposed to March, because the cost had been factored into Syncrude's budget. He noted some work previously planned for March may have be to rescheduled.
Syncrude has an idea what caused the coker problems but Marshall wouldn't reveal what it is.
The turnaround means Syncrude's production will dip from 210,000 barrels per day to an estimated 130,000 to 150,000 barrels per day.
"We expect this (work) will have us largely back on track. It will take us back to the first half to get us back onto our planned production and we are still estimating 80 million (barrels) for the year," Marshall said.
More than 2,000 people are expected to work on the turnaround. Syncrude currently employs about 3,500 and 1,000 contractors.
Syncrude will be using its 1,975-room camp facilities to temporarily house many of the workers. If there's overflow, Marshall said they'll ask Suncor Energy to use their camp.
Syncrude's March 1997 turnaround lasted 41-days.
FEATURE STORY
Terra Nova Offshore Oil Project Approved
Canadian Press
Newfoundland's second offshore oil project cleared its final regulatory hurdle Thursday when its development plan was approved by the Canada-Newfoundland Offshore Petroleum Board.
Petro-Canada, the lead company in the six-member consortium developing the Terra Nova oilfield, must now agree to meet 23 conditions set by the board before it can proceed further.
John Fitzgerald, the board's acting chairman, said the conditions are not a drastic departure from the company's original plan.
"What we've done is introduce some additional precision in terms of the information they're being asked to provide," said Fitzgerald.
"We're asking for very specific submissions and for some additional research and studies to be completed."
The first condition requires the companies to relocate some engineering jobs and other preliminary work currently being carried out by several hundred people in London, Houston and Paris to Newfoundland as soon as possible.
"The major issue on the benefits side is always whether the local population is going to be able to participate fully in the supply of goods and services and the employment opportunities that arise from the project," said Fitzgerald.
The board's decision, which followed public consultations and a report by an environment assessment panel, has also been approved by the federal and provincial governments.
Petro-Canada officials were not available for comment Thursday.
It could take them up to two weeks to study the conditions and assess how they might affect the cost and schedule of the project, said spokesperson Mona Rossiter.
Then the company will make a final decision on whether to proceed. Production is expected to begin by 2001.
Other conditions apply to more technical aspects of recovering the oil, such as how gas will be reinjected into the reservoir, reducing greenhouse gas emissions, and the handling of drilling waste.
Thursday's report also outlines how the federal and provincial governments plan to respond to specific recommendations directed at them in the environmental assessment panel's report released last summer.
The Canadian Coast Guard will be responsible for reviewing the transportation of oil produced on the Grand Banks from both a safety and environmental perspective.
Meanwhile, it will be the Newfoundland government's task to ensure there is a coastal zone management plan along the much-travelled waters of the province's Avalon Peninsula and Placentia Bay.
Discovered in 1984, the Terra Nova field is located 350 kilometres southeast of St. John's. About 400 million barrels of light, sweet crude will be recovered using a ship-shaped floating production system.
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