MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, DECEMBER 9, 1997 (4)
Con't
Seacore Lands $24M-Project To Build "Glory Holes"
By PAT DOYLE
The Evening Telegram
A $24-million contract has been awarded by the Terra Nova Alliance for the construction of glory holes for the offshore oil project.
Glory holes - holes in the sea floor - are used to protect wellheads and subsea templates from scouring icebergs.
The alliance announced Tuesday the contract for construction of the glory holes, which will be carried out over the summer seasons of 1998 and 1999, has been awarded to Seacore Ltd., a United Kingdom registered company.
Seacore is 50 per cent owned by Agra Inc., a Canadian-based company based in Calgary. During the operational phase of this project, Seacore will establish a support base office in St. John's.
Mike Cantile, Terra Nova development leader, said Tuesday "construction of the glory holes is a critical factor in the overall timing of the Terra Nova project, certainly as it relates to preparation for drilling."
Cantile also said "the proposal from Seacore offers Terra Nova a unique opportunity to use the latest technology for excavation."
Seacore, instead of carrying out conventional dredging operations, will use a large-diameter drill deployed from a barge to excavate the seafloor. The excavated material will be lifted to the barge and deposited on the seabed a short distance from the glory hole.
Seacore was selected through a review process in which seven out of 10 firms, including two Canadian-based companies who were invited, submitted tenders. The alliance said Seacore's proposal best met technical and commercial considerations and the project's commitment to Canada-Newfoundland benefits.
The Terra Nova Alliance said that following regulatory approval and a decision by the project proponents to proceed with development, detailed engineering, fabrication and construction will begin in 1998.
Petro-Canada, with 34 per cent ownership, is the lead proponent on the Terra Nova project. The others are Mobil Oil Canada Properties; Husky Oil Operations, Norsk Hydro, Murphy Oil Company Ltd. and Mosbacher Operating Ltd.
Meanwhile, Petro-Canada said that $300 million of its $1.13 billion 1998 capital expenditure program will be invested in continued development and exploration of the company's offshore Newfoundland assets.
"The company will spend approximately $250 million on the development of Hibernia and Terra Nova fields and will continue acquiring and processing seismic data and drilling on other Grand Bank fields," Petro-Canada said.
Nine wells will be drilled at Hibernia in 1998 and seismic work will be done on both the Riverhead block and on recently-acquired oil and gas exploration parcels in the Jeanne d'Arc Basin, the company said.
Petro-Canada's share of existing discoveries in the Jeanne d'Arc Basin is in excess of 350 million barrels of recoverable oil, 22 per cent of all oil discovered in the region to date.
Murphy Oil has announced that its $539 million 1998 capital budget includes $280 million for development capital expenditures, including funding for the Hibernia and Terra Nova projects.
Home, Home On The Rig
Business Editor Evening Telegram
Allen Kessler is a long way from home.
Standing on the upper deck of the massive Hibernia platform, where a huge hydraulic arm is hauling up miles of piping behind him, Kessler is 315 kilometres from St. John's and a good distance further from his new home in Kelligrews.
He's even further from his old home in Alberta. But making the move to Newfoundland was an easy decision for the Hibernia instrumentation technician.
"It's not hard to find people who want to come out here," Kessler said. "This is the most exciting place to be in Canada (in the oil industry) right now."
Kessler had never been to Newfoundland before bringing his wife and two young sons here in May and has no relatives here - but so far they're loving it.
"It's a complete change of environment and a totally different part of Canada," he said.
Like virtually all the 300 to 400 Hibernia employees working 12-hour shifts three weeks at a time (followed by three weeks off), Kessler likes the job.
"We're working in the most exciting place in Canada and living in a five-star hotel," he said.
The five-star rating can be attributed in part to the work of Hibernia's chef, Gerard Aucoin, who spent 14 years as sous-chef with Hotel Newfoundland.
Monday's menu consisted of lamb curry, fish and chips, barbecued pork chops, beef stroganoff, scallops, buttered noodles, green beans, cauliflower, potatoes, Italian sausage and sauerkraut - and a few other items for good measure.
In the first few months the demand for food was quite high, Aucoin said, but workers have settled down and cut back on the fried food. Visits to the platform's gym have apparently picked up.
"There's not much they don't like out here," he said.
Dave Parsons, 37, is another Hibernia worker poached from the same hotel. He punched in 15 years' service on dry land before making the move offshore.
Parsons gave up a job as a hotel accountant - one of about eight positions he held at the St. John's hotel - to look after the 140 rooms in the accommodations module.
He's married with three children and says the three-week shifts are perfect.
"It seems to work better because when I do get three weeks off, I have quality time to be with them," he said.
Parsons even lucked into getting Christmas off this year - a luxury only half the staff will enjoy.
There is no slowing down at Hibernia over the holidays or at any time of year.
The production schedule calls for the perforation of a second well, the B-16-2, today or Wednesday. Oil will flow almost immediately after the perforation is completed.
Another well is more than half way to its target of about 4,200 metres and is expected to produce oil before the end of February. Drilling on the fourth production well was to start later this week, as soon as the 300 metres of casing is completed.
After that, plans call for two more wells - for the injection of natural gas and water - and there is still talk production can be increased from 125,000 barrels per day to 170,000 barrels and beyond.
Once the gas injection well is completed next May, the temperature on the platform should go down. The reason: the massive 10-metre long gas flare currently being burned off the end of the flare boom will be cut back to next to nothing.
But cooler temperatures will not dampen the enthusiasm for the project in Canada's oilpatch, Kessler said.
This is where oil workers want to be, he said.
RECORD LICENSING
Yearly Licence Count To Smash Through 20,000 Mark
Amazing, fantastic, incredible or shattering -- no matter what the ad- jective, the Canadian oil and gas industry is on a record run as evidenced by licensing numbers.
Industry roared ahead to a new monthly high in November, a staggering 2,319, to raise the 11-month total to 18,784. And with more than 500 well approvals handed out in the first week of December, exploration and production firms are on track to exceed the 20,000 barrier this year.
If provincial and federal regulators grant 2,100 prospect requests in December, the 12-month total of nearly 20,900 would surge 30% from last year's 16,017 -- a record that erased the 1994 mark of 14,290.
Leading the pack in November was Alberta. Officials from the Energy and Utilities Board pushed through 1,723 well applications, more than the combined Canadian total in seven months of this year.
Between January and November, Alberta gave its blessing to 13,569 wells, up from the national total for all years since 1980 except for 1994 and 1996.
Saskatchewan approved of 350 projects in November in lifting its 11- month total to 4,084 -- a gain of 34% from the same period in 1996.
British Columbia and Manitoba had greater percentage increases in ac- tivity than their bigger oilpatch cousins. After saying yes to 239 applications in November, B.C.'s January-November count grew 53% to 781 from 509 in 1996. Over in Manitoba, five approvals raised the 11-month accumulation to 121, a whopping 68% increase from
the 72 given the go-ahead in the corresponding period in 1996.
Northern Canada had 13 plays obtain regulatory permission between Jan- uary and November, up from six a year ago. The region will enjoy one of its best years in a decade by the time Dec. 31 rolls around.
Eastern Canada had eight holes secure regulatory blessing in the first 11 months compared to just two a year ago. By the close of the month, this region will have also seen a level of drilling that it had been missing for about 10 years.
Colombia Cao Limn Output Cut To 50,000 bpd -Oxy
Crude output at Colombia's Cao Limn oilfield has been cut to 50,000 barrels per day (bpd) following a rebel bomb attack on the export pipeline on Monday, field operator Occidental Petroleum Corp (NYSE:OXY) said.
Repairs on the pipeline should be completed by 1000 am local time, the Oxy spokesman said.
''We had to reduce production to 50,000 bpd because the pipeline rupture has not yet been repaired, so we cannot evacuate field storage,'' he said.
Repair crews gained access to the area where the pipeline blast took place, 460 kilometres (286 miles) from the field, on Tuesday afternoon. If repair work goes according to schedule, the field should "hopefully" be back at its full production level of 175,000 to 180,000 bpd by the end of Wednesday, the spokesman said.
Repairs on two electricity pylons supplying power to the field were completed on Tuesday. The pylons were damaged in a rebel bomb blast on Thursday, which forced a production cutback to 100,000 bpd.
Colombia Oil Pipe Repairs Stall After Attack
A fresh spate of rebel bombings has once again halted oil flows through Colombia's second largest oil pipeline, while the threat of further violence has prevented well-rehearsed repair crews from fixing the damage, oil company officials said Tuesday.
A military convoy sent to secure the area following an attack on Monday on the Cao Limn crude pipeline was ambushed, leaving two dead and four wounded.
The latest wave of attacks began last Thursday when leftist guerrillas dynamited two electricity pylons supplying power to the 175,000 barrels per day (bpd) Cao Limn oilfield.
This was followed by two bomb attacks on the pipeline which carries crude to export via the Caribbean terminal of Coveas. The second blast took the number of reported attacks on the line this year to 59, though the latest is among the more severe.
The attack took place in the province of Cesar, 460 kilometers (286 miles) away from the field. By Tuesday morning the military had not been able to safeguard the area and allow engineers to repair the ruptured pipe. ''It's not as inaccessible as some of the other mountainous areas, it's a vast plain, but its very sensitive as a consequence of the ambush,'' said Robert Stewart, a spokesman Occidental Petroleum Cop (NYSE:OXY), which operates the Cao field in northeast Arauca province.
Around 45 percent of attacks this year have taken place within 100 kilometers of the pipeline, with 32 bombings rupturing the pipeline and 27 causing dents, Stewart said.
Because of frequent attacks, Colombian state oil company Ecopetrol, which operates the pipeline and terminal, decided a few months ago to stockpile a buffer supply of Cao crude in the Bahamas but last week sold the 500,000 barrels through a tender.
''I bet they regret doing that now,'' said one oil trader active in the Latin American market.
It was unclear how much Ecopetrol had stashed at its floating storage unit at Coveas, which has capacity of two million barrels.
''They always have something in storage, but what happens to the liftings schedule depends on how much and how long it is before they can secure the area and can get the pipeline running again,'' the trader added.
In July, after two consecutive pipeline bombings, an army helicopter sent into recapture the area was shot down, killing 20 soldiers and one civilian. Ten more soldiers died in an ambush when they went in on foot. As a result of the unrest, Ecopetrol declared a force majeur on loading for more than 10 days.
Foreign operators said at the time they expected the security situation to worsen ahead of elections in Colombia next year.
Rodney Chase, head of British Petroleum's (quote from Yahoo! UK & Ireland: BP.L) international upstream division noted that attacks were becoming more ferocious.
''Whereas in the past the rebels had sought to cause just enough damage to the pipeline to slow the throughput, recent attacks have been aimed at splitting it apart, regardless of any environmental damage. Also the rebels have shown more ruthlessness in attacking and killing those trying to repair bomb damage,'' chase said in August.
BP and its partners in the giant Cusiana-Cupiagua development completed the 800 kilometer (500 mile) OCENSA export pipeline in August, the largest in Colombia.
The pipeline runs underground for most of its length, but was the target of a rebel attack in October.
ANALYST REPORTS - COMMENTS
Gordon Market Opening Notes, December 9, 1997
Petro-Canada (PCA-T:$27.80) BUY
1st Hibernia Well A Record Breaker!
The initial well at Hibernia is currently producing 40,000 bbls/d. This is by far a record for any oil well in Canadian history. Hibernia is now preparing to bring the second well onstream, which could be producing before year end. It is also possible that the first tanker load could be filled prior to year-end, establishing initial revenue in 1997.
Petro-Canada, which owns 20% of Hibernia, has set its 1998 capital expenditure budget at $1.13 billion. This includes $300 million in
spending in Canada's east coast offshore region. We currently rank Petro Canada as our top ranked BUY among the Canadian integrated oils, with a 12 month stock price target of $33.00.
IPSCO (IPS-T:$57.00) BUY
IPSCO to Split Stock / Boost Dividend
IPSCO announced a 3 for 2 stock split, a 56% increase in the common
dividend to $0.75 pre-split (yield now 1.3%) and the introduction of a DRIP.
We remain optimistic about IPSCO's prospects given
1) It has the largest incremental volume growth of the Canadian steel producers (Montpelier will double the size of the company over the next two years);
2) It is a low cost producer and leads the North American industry with LTM profit per ton of $149;
3) It has the lowest exposure to changes in steel prices. A 1% change in overall prices impacts EPS by $0.36, or about 0.6% of market capitalization vs. an average impact of 1.8% for the group;
4) It has modest exposure to sheet steel (less than 15% of mix). Sheet steel is under the greatest pressure of all steel products.
5) It will be the biggest beneficiary of increased pipeline construction.
The potential for a shorter than normal winter drilling season remains a near term risk.
OCTG and small diameter line pipe make up more than 1/3 of the company's mix, although we would point out that domestic producers have been unable to keep up with demand to this point. We remain comfortable with our EPS forecasts of $4.80 for '97 and $5.45 for '98.
We rate IPSCO a BUY with a 12 month target of $75.
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