MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURS., DECEMBER
4, 1997 (2)
OIL & GAS
Crude oil and petroleum-product futures finished moderately lower Thursday on the New York Mercantile Exchange, after United Nations Secretary-General Kofi Annan urged the Security Council to renew the Iraq oil-for-food program and ease restrictions to encourage faster delivery of food and medicine to the Iraqi people.
January light sweet crude oil lost $0.20 to settle at $18.60.
Meanwhile, Baghdad has renewed demands to set terms for U.N. weapons inspections -- terms that the U.N. has rejected. And Iraq's ambassador said Baghdad won't pump oil after Friday until the United Nations approves its plan for distributing food and medicine purchased with oil revenues.
U.S. Foreign Crude - Focus On Colombian Tenders
Discussion on the U.S. foreign crude market on Thursday centered on tenders for Colombia's Cusiana and South Blend crudes.
The tender for a January 9-13 Cusiana is the first January cargo to be offered onto the market, although the program schedules at least two earlier loading cargoes, traders said.
Last bids were accepted on Thursday morning, and state-owned Ecopetrol was expected to award the cargo on Friday.
The outcome of the tender will set the tone for the January spot market for Cusiana, which most traders expect to hold at around a 45 to 50 cent discount to February West Texas Intermediate at Cushing, after the a cross-month December/January cargo traded at minus 45 cents.
"There's reason for the market to get much weaker, there's so little of the sweet grades around," said one trader.
Bids on a December 28-30 cargo of Colombia's minor South Blend crude were also due on Thursday. The grade, which loads on the Pacific, is typically picked up by U.S. West coast refiners.
Output at the 180,000 barrels per day (bpd) Cano Limon field was cut to 140,0000 bpd on Thursday when rebels bombed pylons that supply electricity to the field, Occidental Petroleum said.
Pumping stations along the pipeline which carries crude to the Caribbean export terminal at Covenas were not thought to have been affected by the attack. But it was not clear when production levels would get back to normal or whether the cutback would affect loading schedules.
Sour crude traders were still holding their breath ahead of the release on Friday of the tender results for three term contracts of Ecuador's Oriente grade.
One buyer said he was waiting to hear the price of the tender before it negotiated its term contract for liftings of rival sour grade Venezuelan Mesa.
"Everything is hanging on that, it's a biggie," he said.
Traders can also expect fresh supplies of Iraqi Basrah Light crude after the United Nations Security Council approved a rollover of the Iraq oil-for-food deal, taking the agreement into its third six-month term.
The agreement allows Iraq to sell $2 billion worth of crude over six months to buy humanitarian supplies. The current term of the accord expires at midnight.
Lifters of Iraqi crude said earlier in the week they had had no discussions with Iraq's State Oil Marketing Organization(SOMO) over new sales contracts but these were expected to start as soon as the U.N. gave the green light to the deal.
Efforts to sell West African crudes priced against Dated Brent into the U.S. Gulf coast were still hamstrung by a narrow Brent/WTI arbitrage of just 50 to 60 cents in favor of WTI.
Early January-loading cargoes of Nigerian Qua Iboe were heard on offer at Dated Brent plus 17 to 20 cents on an fob basis, but no deals were reported.
NYMEX Natural Gas Ends Off Sharply 0n Stock Data
NYMEX Hub natgas futures ended down sharply Thursday in a fairly active session, pressured all day by a bearish weekly inventory report and technical selling when January broke support early, sources said.
January tumbled 15.3 cents to close at $2.456 per million British thermal units after diving this afternoon to $2.40. February settled 11.3 cents lower at $2.397. Other months ended down by 1.1 to 7.5 cents.
"We hit a bunch of sell stops (below $2.50 basis January) today, and I don't see a lot to prop it up. It's still a negative market," said one New York-based trader, noting there was no sustained cold on the horizon to prop up prices.
While Wednesday's bearish weekly inventory number set the stage for today's selloff, traders said pressure accelerated when January breached previous support at last week's $2.515 low.
But while the technical picture looked bleak, some chartists expected a modest rebound after a 30-cent slide in three days, particularly with a brief cold snap expected.
January support was now pegged at $2.40, today's low and the bottom of last summer's trading range, and then at $2.25, which is the low for January this year. Resistance was seen at the $2.81 double top from early this week and then at $2.84, with better selling expected at $3.03, 3.11 and then at $3.21.
Forecasts this week call for some below-normal weather in the Midwest and East, with an approaching cold front expected to push temperatures six to 12 degrees F below normal in Texas and the Southeast. But the cold is expected to be short-lived, with milder weather forecast by early next week.
In the cash Thursday, Gulf Coast quotes slipped a few cents to the low-to-mid $2.40s. Midcon pipes were down about a dime to the mid-$2.20s. Chicago city gate gas lost more than a dime to the low-$2.50s, while New York slipped 12 cents to the $3.10 area.
Cash traders noted basis differentials tightened today as January slumped into the $2.40s, a factor that might offer some hope to sidelined bulls.
The NYMEX Henry Hub 12-month strip lost five cents to $2.281. NYMEX said an estimated 69,672 Hub contracts traded, up from Wednesday's revised tally of 41,943.
Canada Spot Gas Eases In Alberta On Excess Supply
Canadian spot natural gas prices turned softer in Alberta Thursday as more supply became available in the region, market sources said.
"NOVA recovered almost 500 million (cubic feet per day) of their linepack overnight to about 12.5 bcf (billion cubic feet)," one Calgary-based trader said.
As a result, spot gas at the AECO storage hub was talked about eight cents lower at C$1.38-1.41 per gigajoule.
January AECO was also quoted softer at C$1.47-1.50 per GJ, while January-March business was talked at C$1.48-1.50.
Temperatures in Calgary are forecast to reach highs in the 30s F and lows in the teens, according to Weather Services Corp.
At Sumas, Wash., spot gas was carried about seven cents higher to the mid-US$1.30s per million British thermal units (mmBtu) as temperatures returned to seasonal levels in the U.S. Northwest following a warmer than normal period.
In the East, Niagara export gas prices retreated 11 cents to US$2.69-2.70 per mmBtu amid another decline in NYMEX January futures to a low of $2.40.
CAN'T MISS WEBSITE INFORMATION
Came across these locations for past and future oil pricing analysis.
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INDEXES
The Toronto Stock Exchange 300 finished down 0.3% or 18.84 to 6662.31. In comparison, the Oil & Gas Composite Index closed up 0.6% or 38.52 to 6749.87. All sub-components closed higher. The Integrated Oils finished up 0.5% or 43.45 to 8789.62. The Oil & Gas Producers finished up 0.5% or 31.96 to 5984.98 and the Oil & Gas Service Group closed up 1.1% or 36.65 to 3351.99.
HOT STOCKS
Shares in Berkley Petroleum Corp surged in busy volume on Thursday after it announced another prolific Saskatchewan oil discovery in what has become a marquee play for the company. Berkley said on Thursday that the second well in a new Red River Ordovician oil pool at Froude, Saskatchewan, drilled horizontally, tested at rates of up to 4,200 barrels of oil a day with no water. It expected the well would pump at restricted rates of 2,600 to 3,000 barrels a day of 42-degree API oil this month. Berkley is the operator and has a 50% working interest in the well. The company first made headlines in late 1995 when it made a big find at Midale, Saskatchewan in the same geological zone. "It means that with this Ordovician play, there is some area extent to it and it can still be prolific," FirstEnergy Capital Corp analyst Scott Inglis said, noting that results since the Midale discovery had been mixed. Berkley said a third well was being drilled at Froude and a trio of development wells were planned. The company's stock (TSE/BKP) climbed $1.95 to close at $14.75 with 660,600 shares changing hands.
Westminster Resources (TSE/WML) closed up $0.70 at $10.50 with 81,90 shares traded and Paramount Resources closed up $1.05 to $14.30 on 10,500 shares. Both have a 25 percent working interest and Paramount Resources Ltd. has a 25 percent interest in the Froude wells.
Talisman Energy (TSE/TLM) closed up $0.65 to $43.65. The company had reported asset swaps for growing added production in core areas in the central North Sea. The exchange strengthens Talisman's position in the Blenheim/Bladon area in Block 16/21 and the highly prospective Outer Moray Firth region adjacent to the Ross field. The asset exchange will increase Talisman's net 1998 production by 5,000 bbls/d. ''This asset exchange continues our strategy to build strong operated core positions in areas with growth potential in the North Sea,'' said Dr. Jim Buckee, President and Chief Executive Officer.
Petro-Canada (TSE/PCA) closed up $0.10 to $26.45 on trading volume of 837,500 shares. Petro-Canada said on Wednesday that a discovery well on its Tinrhert Block in Algeria tested at 55 million cubic feet natural gas and 4,650 barrels of condensate a dayfrom a 75-metre pay zone. The well, HIM-1, the third of five exploration wells to be drilled by the company, represented the second discovery of the Sahara Desert drilling program, Petro-Canada said.
Remington Energy (TSE/REL) finished up $1.10 to $23.30 after reporting very favorable results from recent drilling at their Cache Creek property in B.C.. Early results indicate the Cache Creek project is a liquids rich gas discovery. The initial well 15-2 had a calculated wellhead A.O.F. of 22 mmcf/d with approximately 40-50 bbls of associated condensate per mmcf. The test confirmed the drilling results that indicated a more homogenous reservoir with better average porosity than was encountered at the adjacent West Stoddart property.
IN THE USA
Bayard Drilling Technologies (BDI) climbed 7/16 to 18 1/2 as Prudential Securities began coverage with a "buy" rating and Rauscher Pierce Refsnes initiated coverage with a "buy-focus" rating.
Halter Marine (HLX) closed up 2 7/16 to 28 11/16 following its disclosure that it expects to have a backlog of contracts for its oil-drilling rigs when the year ends.
Elsewhere in the oil patch, oil-drilling and equipment stocks succumbed to weakness after rising early on. Camco (CAM) slid 1 7/8 to 64 3/4, Smith International (SII) closed down 1 1/16 to 68, Diamond Offshore (DO) fell 1 1/8 to 50 11/16, Noble Drilling (NE) lost 1 1/4 to 31 1/2, and Nabors Industries (NBR) dipped 1 13/16 to 36 1/16.
CANADIAN INDIVIDUAL STOCK SUMMARIES
TSE Most Active Listings: canoe.ca
ASE Most Active Listings: canoe.ca
NOTEWORTHY NEWS
Big Players Sign On For Oilsands Action
The Financial Post
The big players in Canada's oil industry are staking out pieces of Canada's oilsands - the world's largest oil deposits - with fervor akin to a gold rush.
A parade of investments worth $20 billion has been unveiled in the past two years, with two of the largest coming just last week.
Oilsands consortium Syncrude Canada Ltd. is spending $6 billion to improve its already massive mining and manufacturing operation in Alberta's oilsands capital, Fort McMurray.
Meanwhile, Gulf Canada Resources Ltd. said it is considering topping its substantial Syncrude exposure with a $1.2-billion bitumen project for its Surmont oilsands property, 60 kilometres south of Fort McMurray.
"It's a radical shift that is going on," says industry analyst John Tysall, director with Standard & Poor's in Toronto.
The technical issues are well in hand: there are no finding and development costs or geological risks and operating costs are declining to a point where they are not far off those associated with conventional oil extraction. "It's exacerbated now, but it is something we have talked about for years, with the proportion of light [oil] declining. What we are seeing now is the advance of heavy [oil], or oilsands, in more practical terms."
The deposits, expected to supply half of Canada's oil needs within a decade, promise handsome returns for investors. Because of the large sums of capital required, the projects are aiming for returns of 20% on invested capital, says Syncrude chairman Eric Newell.
The outlook is "very, very favorable, because what you have here is manufacturing operations where the long-term outlook for the commodity price is positive, the outlook for costs is positive and the fiscal regime is attractive," says Peter Linder, oil and gas analyst with CIBC Wood Gundy Inc. in Calgary. "Barring a collapse in oil prices, it's a licence to print money."
Investors can participate in the oilsands growth story in a variety of ways. They can invest in oil companies with substantial interests in established oilsands mining operations or buy units in the two royalty trusts that are partners in the Syncrude consortium.
For longer-term returns, they can also take a position in companies wanting to increase their heavy oil exposure, where the technology is less proven but where the upside can also be extensive.
They can also sit tight until Gulf Canada next year spins off a new company focused entirely on heavy oil and the oilsands.
"Its a tradeoff between long term, short term," says S&P's Tysall.
With decades of oilsands history, Syncrude and Suncor Inc. run the two largest surface mining and manufacturing operations in the Athabasca oilsands. They produce top quality synthetic crude that can be handled by most North American refineries.
Suncor, the sole owner of its integrated operation, recently launched a $2.2-billion expansion. When completed in 2002, oilsands production is expected to increase to 210,000 barrels of oil daily, from 78,000 this year. In comparison, Suncor's conventional production is expected to increase to 75,000 barrels of oil equivalent in 2002, up from 41,000 this year.
Syncrude's $6-billion plans involve boosting the capacity of its upgrader, to increase synthetic crude production to 175 million barrels a year, from the current 110 million barrels a year. The upgrade is in addition to previously announced plans to develop two new bitumen mines - the North and the Aurora.
Syncrude's oil company owners include Imperial Oil Ltd., with the largest stake at 25%; Alberta Energy Company Ltd., which manages two limited partnerships with a combined 15% interest (AEC's indirect ownership in Syncrude is 13.75%); Petro-Canada, with a 12% interest; Gulf with 9.03% and Canadian Occidental Petroleum Ltd. with 7.23%.
In addition, investors looking for a direct Syncrude play should consider the two royalty trusts that are among the 10 partners in Syncrude: Athabasca Oil Sands Investments Inc., managed by Gulf, with an 11.7% stake; and Canadian Oil Sands Investments Inc., managed by PanCanadian Petroleum Ltd., with 10%. The high-quality trusts have returned 35% for the first 11 months of the year. "They have been stellar performers," says trust analyst Brian Ector, with CIBC Wood Gundy in Calgary. Their outlook is very positive in the longer term, but in the short term - three to five years - there will be limited upside in distributions. Both will be funding a portion of capital spending for the Syncrude expansion from cash flow.
"Once you get beyond 2001, you will see significant growth in cash flow back to unit holders," he says.
As with other oilsands investments, the trust's downside is crude oil prices. If there is a significant decline, it would cut into distributions, particularly since expansion spending is under way. Syncrude's expansion is economic at oil prices of US$18.50 a barrel for West Texas Intermediate.
A number of heavy oil developments is also being planned. Unlike oilsands surface mining operations, heavy oil requires costly extraction technologies. They vary depending on the oil's viscosity and location.
Tysall says companies entering the heavy oil play late in the game are disadvantaged. Like other analysts, he expects some of the projects to be shelved or combined with established operations.
"In the near term, you would have to pick [Suncor] as the company with the best potential and near-term potential in oilsands. And attribute a fair bit to Imperial, not only for its ownership in Syncrude, but also for its Cold Lake operation," he says.
TOP 20 LISTING AND PORTFOLIO CHANGES
Deleted Canadian 88 Energy and International Petroleum Corp. from the listing and portfolio. In their place, Remington Energy and Petro-Canada was added. For detail & comments, see bulletin at Kerm's Korner.
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