MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, FEBRUARY 16,1998 (2)
TOP STORY
Newfoundland Oil Megaproject Wins Owners' Approval
Way cleared for $2-billion Terra Nova Oil Project
Brent Jang
Newfoundland Premier Brian Tobin will announce today that the $2-billion Terra Nova offshore oil project has been approved by its private-sector owners, clearing the way for construction to begin within months.
Mr. Tobin has scheduled a news conference in St. John's this morning for government officials and industry executives to "celebrate" the Terra Nova megaproject's go-ahead, industry sources said yesterday.
The private-sector approval, which follows regulatory clearances late last year, includes provisions for the Terra Nova group to work with the Hibernia consortium to help transport crude oil.
As well, an oil storage terminal being built on the Avalon Peninsula at Whiffen Head, 100 kilometres northwest of St. John's, will store oil pumped from both the Hibernia and Terra Nova fields.
"You're going to see the oil industry move co-operatively to make Hibernia and Terra Nova of greater value," one insider in Calgary said.
The Terra Nova partners, who were in talks for the past several months on how to share the development costs of the second East Coast oil megaproject after Hibernia, also have agreed to alter the ownership structure.
Petro-Canada of Calgary, which went into the negotiations as the lead partner with a 34.2-per-cent interest, will remain Terra Nova's operator but will hold a 29-per-cent stake, an industry source said of a preliminary pact reached last week.
Final percentages were being worked out yesterday.
Terra Nova partners have received approval from Chevron Canada Resources Ltd. to use the oil storage terminal project that Chevron co-owns with Mobil Oil Canada Ltd. and Petro-Canada. That resolves a messy legal dispute over the costs and ownership of oil transportation facilities on the East Coast.
Chevron, the second-largest member of the Hibernia consortium after Mobil, currently has no direct interest in the Terra Nova project.
Chevron, Mobil and Murphy Oil Co. own one of Hibernia's two shuttle tankers. The other tanker is leased by Hibernia's other partners, including Petrocan and the federal government.
Mona Rossiter, a spokeswoman in St. John's for the Terra Nova consortium, would not discuss what will be in today's announcement.
However, she said numerous sticking points among the Terra Nova partners have been resolved and "we're on the right track."
The other main Terra Nova owners, Mobil and Husky Oil Ltd., had stakes of 20.7 per cent and 15.8 per cent, respectively. However, Mobil's "corporate" ownership slice is tentatively slated to grow to almost 22 per cent and Husky's portion will increase to about 17.5 per cent. Chevron is expected to assume a 1-per-cent interest.
Norsk Hydro ASA, Murphy and Mosbacher Operating Ltd. account for the remaining Terra Nova stakes: expected to be about 15 per cent, 12 per cent and 3.5 per cent, respectively. Murphy, which held a 10.7-per-cent stake previously, will be playing a slightly bigger role.
Norsk Hydro is based in Norway while the rest of the Terra Nova partners are based in Calgary.
Tara Laing, a spokeswoman in Newfoundland's Energy Department, also declined to comment specifically on Terra Nova's progress, but in general, she said that Newfoundland's "offshore oil is an emerging industry and we're really happy about that."
Ms. Laing said Mr. Tobin and Newfoundland Energy Minister Chuck Furey will be among the top government representatives on hand at the announcement today. And Norman McIntyre, an executive vice-president at Petrocan, will be presenting the revised timetable of the private sector consortium.
The Terra Nova field, 350 kilometres southeast of St. John's, is scheduled to produce oil by 2000.
The project will use a floating production system, with about 30 per cent of the system to be made in Canada, principally in Newfoundland.
The $5.8-billion Hibernia offshore platform rests on the ocean floor.
FEATURE STORY
Energy Sector Expected To Retrench This Year
Ian McKinnon - The Financial Post
All is not well within the oil and gas sector and investors better prepare themselves for softer earnings and lower returns in 1998, a leading bond agency said yesterday.
Lower commodity prices and excess supplies will put the squeeze on oil-leveraged companies, particularly small ones, Canadian Bond Rating Service said in its annual outlook on the oil and gas industry.
But the firm predicts investors will continue to park capital in oil and gas stocks as returns have been attractive.
"If most investors wait it out, you'd see the returns are fairly good," said Eugene Williams, vice-president of the resource and utility group at the ratings agency. "Overall, we're generally positive on the sector."
The bond agency expects higher prices for drilling rigs and services will result in producers reporting finding and developing costs last year of $9 to $10 a barrel, up from $6 to $9 a barrel a few years ago.
Factors such as increased production, lower prices, large investments for new fields and restructuring of Asian economies will lower earnings this year, CBRS says.
Smaller companies will a face tougher time, although prudently managed ones may be able to expand through acquisitions, at discounts to 1997 prices, the outlook says.
That view was echoed by Gordon McKay, a vice-president with Gentry Resources Ltd., a junior producer based in Calgary.
"There will be sanity now and there will be some casualties for the insanity that preceded this period," McKay said. "We definitely see an opportunity and plan to grow during this phase."
There will be lots of hype this year about mergers that will attract investor and management attention, but energy firms should concentrate on managing their fundamentals, said David Fisher, vice-president of finance at Canrise Resources Ltd.
"The companies that do well will be the ones that watch their costs, and make sure to wring the last drop of blood from every penny," said Fisher.
Service costs will decrease somewhat this year, but finding costs still need to be reduced, said Gord Currie, an analyst with Canaccord Capital Corp.
He doesn't believe as much money will be available from equity markets to continue the blaze of mergers and acquisitions that razed numerous established energy firms in the past 30 months.
"I would guess there would be fewer hostile takeovers, but there may be some of those 'why don't we get together' where they can achieve some economies of scale," he said.
Williams said CBRS will review individual energy companies' credit ratings as yearend financial results
come out.
NYMEX
The New York Mercantile Exchange was closed yesterday. Therefore, oil and gas pricing remains as settled this past Friday.
OIL & GAS REFERENCES
Charts:
oilworld.com
oilworld.com
NYMEX Reference:
quotewatch.com
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