MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY DECEMBER 15, 1997 (5)
1997 Points To A Bright Future For East Coast Oil And Gas
A generation has passed between the conception of Atlantic Canada's oil and gas industry and its birth - an event marked in 1997 with the first barrels of oil from Hibernia and approval for the Sable natural gas project.
But many expect the child will grow up fast in the next few years as more energy projects come on stream.
"In no uncertain terms, 1997 was a breakthrough year," said Duncan Mathieson, an oil and gas analyst with Gordon Capital Corp. in Toronto.
"The dreams of a lot of people have been validated as they proved their ability to produce in offshore Canada.
"But the key next year will be for the industry to take its first baby steps and bring other projects on."
Not to fear. The country's leading oil and gas companies have enough projects in various stages of development to delight any advocate of planned parenthood.
The Hibernia offshore project - a $5.8-billion undertaking 18 years in the making that many thought would never come to be - began production one month early on Nov. 17.
The only project of its kind in Canada, Hibernia served as teacher for both the industry and governments as everything from royalties to labor were ironed out.
It also created an offshore infrastructure that will make future projects less costly, said John Fitzgerald, acting chairman of the Canada Newfoundland Offshore Petroleum Board, a joint government regulatory body.
Four of the six partners in the Hibernia consortium are poised to develop the neighboring Terra Nova oilfield. The first of 400 million barrels of recoverable crude could be produced in 2001.
Not to be outdone, other players such as Husky Oil Ltd., are taking advantage of improved technology and Newfoundland's generic royalty policy to develop proposals for smaller fields such as Whiterose.
Interest also remains high off the province's west coast. "It's not hard to see a couple of projects developed every year for the next 10 years," said Fitzgerald. "But we'll need to work to move beyond that."
The board has pegged the region's potential at 4.7 billion barrels of recoverable oil and 233 billion cubic metres of discovered natural gas.
That does not include the 85 billion cubic metres of gas that could be pumped from Nova Scotia's Sable Island fields and shipped through New Brunswick to New England markets via a pipeline as early as November 1999.
The $3-billion Sable Offshore Energy Project, spearheaded by a consortium led by Mobil Oil Canada, received approvals from a federal provincial panel in late October.
But there could still be battles ahead among the project's stakeholders over the discounts Nova Scotia and New Brunswick will receive on the gas. While its profile may not be as impressive as a Sable Island or a Hibernia, renewed onshore drilling activity in New Brunswick and Prince Edward Island have helped make the East Coast industry a truly family affair.
In a region where every job counts, employment will be one of the most visible benefits of the emerging industry.
But the complex economics of federal equalization payments and royalties have kept many from getting too excited too soon.
"The returns in the first couple of years will be quite modest," Newfoundland Premier Brian Tobin said of Hibernia.
"We're not going to turn around Newfoundland on the basis of one project. It's going to take five or six fields to make a big difference, but I think that is where we are headed."
During the first few years of production, Newfoundland expects to receive about $10 million a year in royalties from Hibernia, said Tobin.
But he said the province's direct and indirect take could eventually reach as much as $70 million a year.
Another sign that a real industry has emerged is the presence of drilling rigs on the Grand Banks this year for the first time since 1991, said Mathieson.
And there will likely be more to follow after the announcement earlier this month that Hibernia partners Petro-Canada, Mobil, Chevron and Norsk Hydro will spend a total of $97.8 million during the next five years to explore four parcels of land.
"That is proof positive the companies are satisfied by their initial production testing," said David Manning, president of the Canadian Association of Petroleum Producers.
With Hibernia now under way, East Coast oil production is estimated to represent about seven per cent of all the light crude produced in Canada, said Harvey Smith, president of Hibernia Management and Development Co. Ltd.
Some industry forecasts project that percentage could jump to 50 per cent by 2010 as production slows in Western Canada, he added. Such a distribution would bode well for groups such as CAPP, which has lobbied provincial and federal governments on issues ranging from climate control to revenue sharing.
"This industry has been characterized from time to time as a western based organization and you pay a political price for that very often," said Manning.
"Now we can easily say that not only is the East Coast just as important to us as the Western basin, but a lot of the growth will come there as well."
Shell To Drill Wells On Anticosti Island In Gulf Of St Lawrence
Shell Canada Ltd. said yesterday it will begin a $16-million program next spring to drill four wildcat wells on Anticosti Island in the Gulf of St. Lawrence.
The 972,000-hectare permit area, covering nearly 90% of Anticosti, is held by Halifax-based Corridor Resources Inc.
Shell will use seismic work done by Corridor and is committed to shoot a further 500 kilometres of seismic work, besides drilling the four wildcat wells.
The first two wells will go down in the south-central part of the island, said Roger Brundrit, Shell Canada's vice-president of growth business, in Calgary.
Location of the third and fourth wells will depend on the results and further seismic work.
"Anticosti is part of the same geological basin as the west coast of Newfoundland where oil has been found," said Brundrit, who added the program will be completed in three years.
Shell can earn a 70% interest in the Anticosti wells and any future production, said Corridor president Norman Miller.
Iraq In Play
Iraq is expected to sign a $250 million deal with a Canadian firm to develop an oilfield in the west of the country, an Iraqi newspaper said on Sunday.
Al-Qadissiya newspaper quoted a representative of the Canadian firm RANGER OIL LTD. (NYSE/RGO - RGO/TSE) as saying talks with Iraq on the contract were in their final stage. ''We are having talks with the Iraqi side to explore and develop one of the oilfields in (Iraq's) western desert at a total cost of $250 million,'' the paper quoted company representative Robert Ben as saying. ''Talks are on their final stages in order to reach a contract between the two sides,'' said Ben, who is currently visiting the country.
Canada's Ranger Oil Not Alone In Quest For Iraqi Oil
Canada's Ranfer Oil is just one of a number of companies pursuing oil deals in Iraq despite trade sanctions and tensions with the United States, industry sources said on Monday.
''There have been a lot of companies negotiating with the Iraqis, maybe as many as 60, so we're not alone in this. And it's been going on for quite some time,'' Ranger Vice President John Faulds said.
Calgary-based Ranger, one of Canada's most prominent oil companies, said on the weekend it was in the final stages of a $250 million deal to develop an oilfield in Iraq's western desert.
But the agreement, in the works for 2-1/2 years, would not be finalized until U.N. trade sanctions against Iraq, imposed after President Saddam Hussein's army invaded Kuwait in 1990, were no longer in effect, Faulds said.
''We're certainly not in a position to sign until the Canadian government says we can sign and all of the relevant sanctions are lifted,'' he said, adding that Ranger's negotiations occurred with the Canadian government's blessing.
Faulds said Ranger had ''several expressions of real interest'' from other Canadian and international companies that may want to assume an interest in the western Iraq deal.
Despite the sensitivity of doing business in Iraq, which last month touched off a crisis with the United Nations by expelling U.S. weapons inspectors, Canadian government officials said it was not illegal to scout out oil deals there.
''So far as we're concerned, Canadian companies are able to pursue opportunities in Iraq for the post-sanctions era, so long as they don't sign contracts,'' said Dexter Bishop, spokesman for Canadian Foreign Affairs Minister Lloyd Axworthy.
Oil industry sources said it was an extremely popular destination for Canadian oilmen aiming to strike rich international oil deals.
''I bumped into them all the time, either on the way over or in the country,'' said one Canadian executive who spent the last three years traveling to Iraq for negotiations. ''But Ranger's been the biggest one -- the most persistent.''
Other large Canadian companies, including Canadian Occidental Petroleum Ltd. (AMEX:CXY - CXY/TSE) Chauvco Resources Ltd. (CHA/TSE), PanCanadian Petroleum Ltd. (PCP/TSE) and Alberta Energy Co Ltd. (NYSE:AOG - AEC.TSE), were at various stages of talks with Iraqi officials, the executive said.
Only Canadian Occidental, reputed to be pursuing a production-sharing contract for a large oilfield in southern Iraq, and Chauvco, would comment.
''We have spent some time in Iraq -- we have nothing concrete,'' Canadian Occidental spokesman Kevin Finn said. ''But I think everybody in the world has been in Iraq.''
Chauvco Vice President Simon Hatfield said his firm had been in negotiations in Iraq, but was not close to a deal.
Companies from France, Britain, Italy, China, Russia and India had also been much in evidence on the business scene in Iraq, Hatfield said.
John Fletcher, a Ranger vice president involved in negotiations for the deal, said Iraq knew it it had to attract foreign capital to develop its oil industry in order to escape its economic malaise. He said Iraq tended to favor Canadian investment over that of other countries, particularly the United States.
About 60 foreign companies, mainly from Canada, South America and Russia, are trying to cut preliminary deals with the Iraqi government ahead of sanctions being lifted. Under U.S. anti-terrorism laws, U.S. oil companies are prohibited from even negotiating with Baghdad, said a U.S. oil company official.
''The Iraqis love Canadians,'' said Fletcher, who has been to the Middle East nation 14 times for talks with the full knowledge of Canada's Foreign Affairs Ministry. ''We have no imperialistic tendancies toward them. We're straight, honest businessmen.''
Faulds said Ranger is working on an agreement with Iraq that would see it repaid for its original investment with oil, before entering a profit-sharing deal once costs are covered. It would also explore for additional reserves in the same region, receiving a share of the production profits.
He said the Canadian government has been kept fully aware of the state of talks with Iraq and no deal has been signed yet. "So far, though, this would be 100% Ranger," he said. Several Canadian companies are interested in joining the project. Foreign oil companies are anxious to get back into Iraq because of low production costs - about US$1 a barrel, compared with nearly $7 a barrel in Western Canada.
Talks between Iraq and Ranger have been going on for 18 months. This would be Ranger's first operation in the Persian Gulf, although it has been in the Ivory Coast and, until recently, Algeria. It gave up drilling rights in Algeria after drilling a second dry hole. Ranger is active in the U.S. Gulf of Mexico and the North Sea.
Companies Comply
Refinery Row Spending Millions To Meet New Benzine Levels
It will cost Canada's refineries $140 million to comply with a new federal law requiring lower levels of benzene in gasoline, says the Canadian Petroleum Products Institute.
And at least $29 million of that will be spent on Edmonton's Refinery Row as both Imperial Oil and Petro-Canada install new fractionation towers to further refine their products.
Imperial's Strathcona refinery is undergoing a $17-million retrofit to cut the amount of benzene, a suspected carcinogen, in half to about .95% per volume of gasoline.
The refinery, Imperial's largest of four in Canada, processes about 160,000 barrels of crude oil per day.
Meanwhile, at nearby Petro-Canada, a $12-million upgrade is under way. That refinery processes about 116,000 barrels per day.
Both of the fractionation towers were made in town by Dacro Industries Ltd.
Brendan Pawley, vice-president of public affairs for CPPI, said the $140-million estimate is from an engineering firm and takes into account construction and regulatory costs.
He said it's highly unlikely the refining companies will be able to recover the costs through higher-priced gasoline.
"In cases like this, you can't peg your capital costs to the pump price," he said, adding gasoline imports provide national price competition.
In Alberta, prices will also stay low, said Petro-Canada spokesman Rocco Ciacnio, because of domestic competition.
"If our costs go up, chances are we'll swallow it," he said.
Pawley said the industry co-operated with the government on the legislation, passed Nov. 26, but is disappointed with the amount of time for implementation.
The government is giving 19 months, until July 1, 1999; the industry had asked for 24 months.
But the two Edmonton refineries will have to be ready a full six months earlier, noted Pius Rolheiser, spokesman for Imperial Oil. That's because they sell into the B.C. marketplace, where near identical provincial benzene legislation comes into effect Jan. 1, 1999.
"We need to get the jump on it," he said.
The huge silver tube will be fitted with pipes, instruments and platforms over the winter and erected next spring, said Doug Warren, project co-ordinator.
"We're to be capable (of producing benzene-reduced gasoline) by January 1999, to meet the B.C. legislation," he said.
More On Refineries
The president of Newfoundland's only oil refinery says he would love to process crude oil from Hibernia, but it's just too expensive.
Ed Mills of North Atlantic Refining said his refinery usually processes what is know as "sour crude" because it's cheaper to bring in from Venezuela than it is to buy from Hibernia.
Hibernia produces "sweet crude" which has a lower sulphur content and a higher price.
Mills says if it was affordable to process Hibernia crude on a regular basis, it would significantly reduce his company's emissions of sulphur dioxide.
Mills says he had hoped to buy some Hibernia crude, but so far, it hasn't worked out that way.
"The government owns some crude itself in the form of royalty claims. We've had occasional discussions with them, but nothing has come of it."
The other discussions have been with the owners -- the Mobils and Chevrons.
The $6-billion project -- 315 km east and south of St. John's Nfld. on the Grand Banks -- began producing oil Nov. 17.
The platform's first well showed an initial rate of 40,000 barrels of oil per day, the highest rate ever for a Canadian well.
COLUMBIA BACK IN THE NEWS
Fresh attack shuts down Colombian oil pipeline
BOGOTA, Dec 15 (Reuters) - A fresh rebel attack -- the 60th this year -- has forced a halt in pumping operations alongColombia's Cao Limn crude export pipeline, authorities said Monday.
A spokesman for the state oil company Ecopetrol said the latest dynamite attack on the pipeline, which spilled at least 1,000 barrels of crude oil, occurred Sunday evening in an area about 40 miles (64 km) west of the Cano Limon field in a guerrilla infested area of northeast Arauca province.
Marxist-led National Liberation Army rebels were believed responsible for the attack, said the spokesman, who added that repairs had not yet gotten under way because the army was still securing the area where the pipeline was ruptured.
A spokesman for Occidental Petroleum Corp (NYSE:OXY - news), the Cao Limn field's operator, said the attack forced it to cut back production to 80,000 barrels per day (bpd) from normal levelsof about 175,000 bpd given limited storage capacity at the field.
He said only about half of the storage capacity, or room for about 200,00 barrels, was still unoccupied as of Monday morning.
The latest attack followed one last week that forced Oxy to cut Cao Limn output to a low of 50,000 bpd before it was racheted back up to normal last Thursday.
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