MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MARCH 16, 1998 (3)
Gulf Canada Resources Gets $590M For North Sea Assets
The Financial Post
Gulf Canada Resources Ltd. said yesterday it has sold its North Sea petroleum properties for $590 million, nearly 20% more than it was estimated they would fetch when they were put on the block three weeks ago.
Kerr-McGee Corp. of Oklahoma City bought the reserves in the British sector of the North Sea containing about 100 million barrels of oil equivalent. In putting the assets on the block in late February, Gulf said it hoped to receive $500 million for the properties it acquired last year through its hostile takeover of Clyde Petroleum PLC.
President and chief executive Dick Auchinleck said yesterday Gulf might make a small profit from the sale compared to the booked value. "We felt we put a conservative value out there on the street," he said. "We want to make sure there aren't any disappointments. The theme we want to follow here is to under-promise and to over-deliver."
Analyst Michael Spohn, from New York-based Petroleum Research Group, disputed Auchinleck's statement.
He said the majority of Gulf's $1-billion purchase of Clyde was associated with the North Sea assets. Unless the properties' values were written down when added to Gulf's balance sheets, the sale did not recover the investment, he said.
"They would probably always take a loss because they overpaid [for Clyde]," he said, but added the deal was a positive move by Gulf's new management to ensure words about paring debt are backed by action.
Three bidders, whom Auchinleck would not identify, submitted "pre-emptive" offers so it did not even have to open a data room.
Talisman Energy Inc. may have been one suitor, said John Clarke, analyst with Deutsche Morgan Grenfell Canada Ltd. He was surprised by the speed of the deal but said it made sense because of Gulf's 100% interest in Block 9/14B.
Kerr-McGee operates the nearby Gryphon field and the existing infrastructure could be used to produce the reserves. The buyer also picked up Gulf's 21.5% interest in the Gryphon development.
"I think [Gulf] extracted what can only be called fair market value to the most logical buyer," Clarke said.
The sale should allay fears that Gulf's debt-reduction plan is overly ambitious given the slump in oil prices, analysts and bond rating specialists said.
The Calgary producer intends to raise at least another $200 million by forming a royalty trust for its natural gas processing plants and pipelines in Western Canada.
Clarke said the North Sea sale shows the revenue target is not a pipe dream. "I think $200 million to $250 million is quite reasonable for what they expect to do."
The money from Kerr-McGee, coming from cash and lines of credit, will be used to pay down Gulf's $2.78-billion debt. Other non-core assets to be auctioned off include a Nevada ranch, a corporate jet, coal assets in British Columbia and East Coast properties.
With assets of US$3.1 billion, Kerr-McGee is refocusing on its oil and gas properties and titanium dioxide pigment business.
This month, it concluded a deal to sell its rocket fuel division and announced the sale of its forestry unit.
The company formerly owned oil and gas fields in Western Canada. They were taken over in 1996 by Devon Energy Corp., also from Oklahoma City, when Kerr-McGee exchanged its onshore North American oil and gas production for a 31% stake in Devon.
The effective date of the transaction is March 31, with completion expected by mid-May. The agreement is subject to regulatory approval. Shares of Gulf have slid steeply in recent months after being hammered by low oil prices and the departures of former president J.P. Bryan and heavy oil chief Dee Parkinson-Marcoux.
Suncor Energy To Press Ahead With Expansion
The Financial Post
Suncor Energy Inc. has lined up $1.275 billion in credit facilities to finance its oil sands expansion and other corporate initiatives.
The Calgary-based company, which last summer announced a $2-billion expansion of its integrated oil sands operation at Fort McMurray, Alta., said the facilities were arranged by the Royal Bank of Canada, and underwritten by Royal, Canadian Imperial Bank of Commerce, the Bank of Nova Scotia, and 12 other banks.
"What we were looking for was to have some committed capacity going forward, as well as the flexibility of a line of credit, which allows us to draw down as required," Suncor treasurer Ken Alley said.
The facilities, for a six-year term and an option for a one-year extension, are unsecured and rank pari passu with other Suncor unsecured and unsubordinated debt.
While other oil and gas producers are putting on hold projects because of low oil prices, Suncor is moving ahead as scheduled because it is taking a long-term view, Alley said.
The facility is another piece of the expansion falling into place, he said.
Suncor said it is proceeding with detailed engineering reports and preparing for the regulatory process.
Crude oil slipped 4% yesterday to a nine-year low. Oil for April delivery fell US78›, to US$13.28 a barrel on the Comex division of the New York Mercantile Exchange, the lowest for a contract closest to expiration since Nov. 11, 1988.
No Panic In The Oil Patch
Oil Price Closes Near 10-Year Low At $13.28 US.
Edmonton Sun
A "catastrophic" fall in international oil prices yesterday dropped them to the lowest in almost a decade but mass panic isn't spreading throughout the industry.
The price of West Texas Intermediate crude closed at $13.28 US yesterday, down 90› from Friday's close.
"If it stays at these prices for a prolonged period of time then it's not good for the industry," said Walter Stelmaschuk, chairman of the board for Black Max Downhole Tool Ltd. in Nisku.
"There have been some cutbacks in exploration budgets," said Stelmaschuk.
"But most of our downhole motors are used in developmental drilling so it hasn't affected us.
"This is still the winter season and we're flat out busy. Most companies will reassess their budgets after the season."
He cautions that this time of year always produces lower prices.
"I won't say we're not worried," he said. "We know there are cutbacks coming but we still don't know how serious it will be." Alberta Chamber of Resources managing director Don Currie said yesterday wasn't a bright day for the oil industry as a whole, but drilling operations would be affected more than other areas of the oilpatch.
Currie said oilsands projects won't be directly affected by the drop because they're long- term projects with long-term budgeting not directly tied to the daily price of oil.
Currie said it has an immediate impact on drill rig operations. "When people drill a well they put up the cash and hope for a quick return to get their money out.
"Some companies were already shutting down operations before today's catastrophic 90-cent drop."
If there was a silver lining in the recent drop of oil prices, Currie says it is the timing.
"From mid-March until the end of May drilling slows right down because people can't get into the areas," he said. "So this price decrease couldn't come at a better time of year."
Greg Stringham of the Canadian Association of Petroleum Producers said the growing demand for natural gas and the new capacity of the Northern Border Pipeline and TransCanada PipeLines Ltd. for an additional 1.1 billion cubic feet a day will be a tremendous boost to the industry.
Premier Ralph Klein said the government remains confident that oil prices will improve but added more budget cuts may be needed if they don't.
He repeated comments made last week, saying any new cuts would not come from either health or education.
"We have to identify the priority areas - certainly health is a priority," he said. "We can't put people at risk so if things don't change and we see continued low oil prices, we'll have to probably make adjustments in other areas."
Natural Gas Outlook
Gas Producers Bet On Price Rise In 1998
Globe & Mail
Canada's petroleum sector is counting on a rebound in natural gas prices to help lift the industry out of the doldrums.
In recent weeks, big names such as Petro-Canada , Renaissance Energy Ltd. and Alberta Energy Co. Ltd. have announced that they will be devoting more attention to exploring for gas in 1998 than in previous years.
Plunging crude oil prices have hammered energy producers, with the Toronto Stock Exchange oil and gas index falling 21 per cent since early October.
So, producers are increasingly placing their bets on natural gas in anticipation of gas export pipeline capacity being expanded later this year.
Prices for benchmark West Texas intermediate crude have fallen 36 per cent to $14.06 (U.S.) a barrel since early October.
In contrast, key Alberta natural gas prices have dipped only slightly over the same period, selling for $1.80 (Canadian) for 1,000 cubic feet last week. That's equivalent to $1.71 per gigajoule, a unit used in the field to measure energy, but analysts forecast prices per 1,000 cubic feet.
Industry analysts widely predict that gas prices should stay relatively buoyant this year and rise next year, although they differ on how strong the recovery will be.
Gordon Currie, an analyst with Canaccord Capital Corp. in Calgary, is in the conservative camp. He predicts that gas prices will climb in late 1998 and average $2 for 1,000 cubic feet next year. Others expect gas to average $2.25 with ease next year.
Mr. Currie said Calgary-based producers that should benefit from a gas comeback include companies with robust gas output: Anderson Exploration Ltd. , Newport Petroleum Corp. , Rio Alto Exploration Ltd. and Northrock Resources Ltd.
Still, he offered a reminder that the natural gas market can collapse just as readily as the crude oil sector if supply far exceeds demand. In 1994, for instance, gas prices dropped 42 per cent to $1.21 for 1,000 cubic feet and fell even further in early 1995 to 96 cents.
On the flip side, from late 1996 to early 1997, natural gas prices doubled to average nearly $3 in January of 1997 amid a cold snap across the continent and rapidly depleting storage levels.
"Natural gas has been a very fickle commodity over the years," Mr. Currie said.
Peter Linder, an analyst with CIBC Wood Gundy Securities Inc. in Calgary, said this winter has been unusually warm in most parts of North America, decreasing demand for natural gas.
Assuming temperatures return to their chilly norms next winter, that would help bolster the gas market. He forecasts that prices will average $1.80 this year and $2.10 next year.
Mr. Linder said investors should consider Canadian Natural Resources Ltd. as a good candidate to take advantage of any bounce up in gas prices, even though the company is better known for its oil properties.
He also names Anderson, Poco Petroleums Ltd. and Berkley Petroleum Corp. as other "gassy" producers.
Natural gas prices remain well below their average of $2.17 for 1,000 cubic feet in the first quarter of 1997.
"Gas storage inventories are still pretty healthy, so it would take a lot of cold weather to create any real spike in prices," said Rick Daniel, vice-president of storage and hub services for Alberta Energy.
In the next several years, however, several gas pipeline expansion projects are scheduled to take the surplus of Western Canadian gas into the United States, where gas prices are almost twice as high as in Canada.
And North American demand for natural gas should increase as nuclear reactors are shut down and some power generators decrease their reliance on coal.
Canada currently produces 16 billion cubic feet of gas a day, including more than eight billion that's exported to the United States.
Pipeline expansions slated for completion later this year, notably projects by TransCanada PipeLines Ltd. and the Northern Border consortium, will boost gas exports by more than 15 per cent.
By late 2000, Alliance Pipeline Ltd. is expected to start carrying 1.3 billion cubic feet daily from northeastern British Columbia to Chicago.
Canada Energy Shares Slump With Crude Oil Prices
Several Canadian energy stocks slumped on Monday as world crude oil prices fell to their lowest levels in nearly a decade.
The Toronto Stock Exchange's oil and gas index was off 63.98 points to 6,262,50 at midday, down nearly 5 percent from from the beginning of March.
Several large producers and integrated companies with high exposure to oil prices were hit with big stock price drops, including Imperial Oil Ltd (AMEX:IMO), down 1.60 to 76.75, Suncor Energy Inc (NYSE:SU - SU.TO), down 1.10 to 48.40, Renaissance Energy Ltd (RES.TO), down 1 to 29.10, and Petro-Canada (NYSE:PCZ - PCA.TO), down 0.70 to 24.30.
The NYMEX West Texas Intermediate oil price slumped US63 cents on Monday to $13.43 a barrel. It was the first time the benchmark crude fell below US$13.75 since 1988.
Oil traders said on Monday they were blaming the slump on a lack of concrete steps by OPEC producing countries to curb a world oil oversupply.
Some experts were expecting oil prices and energy stock values to droop further.
''The dilemma we have here is determining how bad it will get,'' said Ken Faircloth, an analyst with Goepel Shields & Partners in Calgary. ''The stock market is discounting US$18 oil, maybe a bit less, but look where we are today. And I believe we probably will see oil down to US$10 or US$12.''
He pointed to International Energy Agency numbers showing the amounted of oil overhanging the market was the highest in 10 years.
IEA executive Robert Priddle told reporters in Paris on Monday several factors were driving prices down, including higher ouput from OPEC producers, a cut in demand as a result of the financial crisis in Asia, a warm winter in the Northern Hemisphere and the prospect of increased Iraqi oil supply under an expanded U.N. oil-for-food deal.
The agency said it lowered its forecast for Asian oil demand by as much as 500,000 barrels a day in 1988 from its previous prediction in November.
Partnership Finalized For Former Solv-Ex Site
Edmonton Sun
A formal partnership has been ffinalized between Koch Exploration and United Tri-Star Resources Ltd. that may lead to development on oilsands leases once held by Solv-Ex.
And Koch Exploration Ltd. spokesman Tammy Sauer said yesterday the two could begin exploration on the northern Alberta leases as early as next winter.
"We want to make sure we meet all requirements and we clearly want to get through each step, but what we're thinking is that by the next drilling season we can maybe do some core hole drilling to try to evaluate the resource," she said.
UTS announced yesterday it has signed a deal to form a joint venture with Calgary based Koch, which bought a 78% interest in the lease rights from financially troubled Solv-Ex Corp. of New Mexico for $30 million.
Toronto-based UTS holds a 22% interest in the property, about 90 km north of Fort McMurray.
The joint venture, which Koch will operate, is subject to court approval in the United States and Canada, Sauer said.
Solv-Ex is involved in a restructuring under the Companies Creditors Arrangement Act in Canada and under Chapter 11 of the Bankruptcy Code in the U.S.
UTS and Solv-Ex will continue to develop metal extraction technology separate from its bitumen operations, a UTS release said.
It's not yet known which technology the joint-venture company will use to extract oil from the tar sands. Solv-Ex started construction on its experimental oilsands extraction plant in 1996. It filed for court protection from creditors last July.
Former Suncor Boss On The Move Again
Fort McMurray Today
Former Suncor Energy executive Dee Parkinson-Marcoux is moving on from her job at Gulf Canada Resources Ltd. to take up the reins of another firm. She switched from being Gulf's president of the heavy oil division to being the president and CEO of Ensyn Energy Corp. on Friday.
"Part of it was driven by the fact when I joined Gulf the intent was to take heavy oil public and that timing has been significantly delayed by the market," Parkinson-Marcoux said this morning from her Calgary office. "It was overkill to have me sitting here. There's not enough for me to do," she said.
Terry Bachynski, vice-president of Gulf Heavy Oil, will assume responsibility for the unit.
In a separate news release, Parkinson-Marcoux said her role with Ensyn will let her focus on development of promising upgrading technology. Gulf and Ensyn are negotiating to develop a new heavy oil upgrading
process. "I believe Ensyn Energy and Gulf have the potential to develop an industry-leading process to increase the attractiveness of heavy oil production around the globe," Parkinson-Marcoux said.
Ensyn Energy Corp. is a subsidiary of Ensyn Group Inc., a privately-owned U.S. company. It has an operating arm in Calgary and headquarters in Cambridge, Mass.
"The addition of Dee Parkinson-Marcoux to the Ensyn family will be a wonderful opportunity to apply its already commercial technology to the petroleum sector," said Dr. Robert Graham, president of the Ensyn Group Inc.
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