MARKET ACIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, MARCH 11, 1998 (2)
TOP STORY
Oil Price Slump Creates Buying Climate As Archer Resources Sold & Torrington Resources On Sale Block
The Financial Post
One Canadian junior energy company announced it had a buyer yesterday, while another put itself on the block as the impact of declining oil prices and increasing U.S. interest continues to ripple through the Canadian energy sector.
Tough times caused by the prices of crude oil languishing at four-year lows are creating opportunity for other smaller players who want to grow, analysts said.
Archer Resources Ltd. of Calgary has arranged to be sold for $7.60 a share to Dominion Energy Inc. The $183-million price tag is small change for the buyer's parent, Dominion Resources Inc., a US$20 - billion holding company active in electricity generation, oil and gas, financial services and real estate.
Dominion said the deal will boost its gas production capability by 50%. Archer now flows about 72 million cubic feet of gas and 1,500 barrels of oil a day.
Wayne Foo, Archer's president and chief operating officer, said his 70 employees should not be affected by the sale. He hopes the change will enable Archer to become a buyer of some of the assets on the market.
With the strong US$ and growing interest south of the border in Canadian gas reserves, the sale to a U.S. company was no surprise, said Gord Currie, analyst with Canaccord Capital Corp. in Calgary. "I would say the value [Dominion] got was at the low end of the range expected."
The Archer sale was not prompted by financial difficulty. Its 1997 results show revenue grew 22% to $58.8 million from 1996, while cash flow rose 38% to $32.8 million and net income more than doubled to $6.6 million (32› a share).
The financial story was much the same for Torrington Resources Ltd., which said it will open a data room next month for potential buyers. In 1997, the company's revenue climbed 21% to $24.8 million, cash flow jumped 18% to $19.9 million and net income was up 6% to $7.1 million (30›). Tom Budd, an analyst with Griffiths McBurney & Partners in Calgary, believes the time isn't right for gas-oriented firms like Torrington to put themselves up for sale unless absolutely necessary.
If gas prices rise next winter as a result of new pipeline capacity, it's too early to sell. "If I was a somewhat optimistic person on gas," he said, "I would not be selling in this market."
If soft oil prices continue, companies may sell assets at distressed prices and create opportunities for other juniors, he said.
In the late 1980s and early 1990s, low commodity prices combined with high debt to force asset sales and mergers, said Wilf Gobert, an analyst with Peters & Co. in Calgary.
Conditions are slightly different this time around the cycle. "Not only is the debt issue not there, but shareholders have become more militant in maximizing share value," he said.
Canaccord's Currie said six months ago small firms faced challenges to growth because acquisition prices were high and drilling and land costs were soaring. The downturn has altered the picture.
"I think there are opportunities for startups and small companies."
But Gobert said most of the new firms sprouting from current conditions are much smaller than the ones being harvested.
MORE ON SAME STORY
Energy Giant To Buy Archer Resources In Friendly Deal
Dominion Resources Makes Its First Major Foray Into Canada
Globe & Mail
Dominion Resources Inc., a huge U.S. energy conglomerate, is buying Calgary based natural gas producer Archer Resources Ltd. for $183 - million in its first major foray into Canada.
The friendly deal announced yesterday means that Archer would become part of Dominion's empire after Archer shareholders tender to the cash offer of $7.60 a share. The sale is expected to close in late April.
G.E. (Godfrey) Lake Jr., a Dominion executive, said the Virginia based company is interested in making further acquisitions in Canada's oil patch after completing the Archer transaction.
"The oil and gas business has a depleting resource, so we aren't buying Archer just to see it go away. We intend to grow the business," Mr. Lake said. "We'll take advantage of whatever opportunities make sense for us."
He said Dominion, which already owns a 40-per-cent stake valued at $13-million in a natural gas storage facility in the Edmonton area, prefers friendly takeovers.
"We won't scare anybody. We don't behave that way," said Mr. Lake, senior vice-president of oil and gas operations for subsidiary Dominion Energy Inc. of Richmond, Va.
Shares in parent Dominion, which has $20-billion (U.S.) in assets, fell 12 cents to $41 yesterday on the New York Stock Exchange. With 188 million shares outstanding, Dominion has a stock market value of $7.7-billion.
The U.S. giant's assets include electric power plants, natural gas wells, real estate and financial services. Its power generation holdings include Virginia Power, the state's largest utility, whose portfolio includes four nuclear plants, hydro facilities and plants fired by coal or natural gas.
In total, Dominion runs 28 power plants in the United States and Latin America.
Archer must pay a breakup fee of at least $6.05-million (Canadian) to Dominion if the transaction collapses. With no bidding war in the cards, Archer slipped 5 cents to $7.45 a share yesterday on the Toronto Stock Exchange.
"This is no distress sale. Archer is a viable entity and it's healthy," said Grant Bartlett, Archer's chairman and chief executive officer, who founded the junior producer in 1989.
However, Dominion emerged with "a heck of an offer" for Archer, said Mr. Bartlett, who controls about two million Archer shares valued at $15.2-million.
Archer's officers and directors, who hold nearly 17 per cent of company's shares, already have agreed to tender their stock.
Mr. Bartlett, who also owns more than 6 per cent of the National Hockey League's Calgary Flames, said he intends to stay in the oil and gas business "because there are so many opportunities" to start companies from scratch.
Archer announced in January that it had hired Calgary-based investment dealer FirstEnergy Capital Corp. to solicit bids.
"When we started this process, our stock was at $6," Mr. Bartlett said.
Investors have been anticipating a takeover bid, pushing Archer's stock price into the $7-to-$7.60 range in recent weeks.
Mr. Bartlett said Dominion's $7.60-a-share offer looks attractive, considering that crude oil prices are in the doldrums -- down 35 per cent in the past five months -- and natural gas prices are flat.
Archer unveiled its initial public offering at $8.50 a share in mid-1993. As natural gas prices rose, its stock nearly tripled to more than $23 by mid-1994. But after gas prices began slumping later in 1994, Archer shares plunged to $5 in 1995.
It has been producing 72 million cubic feet a day of gas in Alberta in recent weeks. It also pumps a relatively small amount of crude oil -- roughly 1,500 barrels a day so far this year.
Dominion produced 161 million cubic feet a day at its U.S. gas properties, so the addition of Archer's Alberta assets will boost its gas output by 45 per cent.
The U.S. suitor, which plans to keep Archer's staff of 75, stands to inherit about $29-million in Archer debt.
In 1995, Archer sold Alberta properties valued at $56-million to Calgary-based Gulf Canada Resources Ltd. to help pay down its debt, which had grown to $95-million.
Archer also released its financial results yesterday, saying it posted a profit of $6.6-million or 32 cents a share last year, compared with $3.2-million or 16 cents in 1996. Revenue rose 22 per cent to $58.7-million while cash flow jumped 38 per cent to $32.8-million.
For the fourth quarter, the junior producer earned $1.9-million on $16-million of revenue, compared with $1.7-million on $14.7-million for the same period in 1996. Quarterly share profit increased to 9 cents from 8 cents.
FEATURE STORY
Site Tests Pan Out For Mobil Oil Canada
Fort McMurray Today
Using extensive drilling and new seismic technology, Mobil Oil Canada has confirmed there are 1.5 billion barrels of recoverable bitumen on its lease 70 kilometres north of Fort McMurray.
"We are very pleased with the safe, efficient and cost effective program this year," said Nezam Amoozegar, bitumen production manager for the Kearl oil sands mine project.
"We got the results we expected."
Mobil spent about $6 million on the drilling tests which started in November and finished ahead of schedule. In total, the firm drilled 70 core holes, 75 overburden holes, and did 50 kilometres of elector magnetic surveying and seismic testing.
Another 24 piezometers were installed, which are sensors to measure the flow and pressure of underground water. Mobil plans to develop an oil sands mine, extraction facility and related infrastructure at a cost of about $3 billion, on Lease 36.
The construction is projected to start in 2000, with first oil production anticipated in 2003. The Kearl oil sands mine study used a new two-dimensional seismic technology called High Fidelity Vibratory Seismic, developed and patented by Mobil.
"The technology may not be of interest to people who don't work in oil sands," noted Mobil spokesman Shawn Howard.
"But this was the first land survey in Canada using this new technology.
"It shoots some pretty wild pictures. They're a lot more detailed...much clearer. You can shoot shallow targets with the quality of resolution never before thought possible." That allows the firm to see what's in the ground much easier, although Amoozegar said core samples must still be tested.
He said the 1.5 billion barrels of recoverable bitumen, which is enough for a 30-year project, could translate into a similar amount of synthetic crude oil.
"It depends on the technology used for upgrading," he said. Howard said Mobil is still studying the mine and upgrading plans.
"We're a good six to eight months from filing a development plan application (with the provincial government)," he said.
"The critical path now is the selection of our upgrader. We're looking at five sites. When we make that decision it will affect our schedule for regulatory filing," said Howard.
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