MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JANUARY 5, 1998 (6)
FEATURE STORY
Bonus Growth
Calgary Sun
Fast-growing Bonus Resource Services Corp. is expanding again -- this time establishing a presence in southeast Saskatchewan.
The Calgary-based company, now the largest service rig operator in Canada, acquired the assets of two Saskatchewan firms: Bounty Oilwell Servicing Ltd. and Southern Well Servicing Ltd..
The acquisition, for an undisclosed amount of cash and 95,238 shares of Bonus is the eighth for Bonus since October 1996.
The share portion of the transaction is worth about $5.5 million.
Other purchases by Bonus have included Beta Well Services Corp. and Core Fabrication Inc., a key $38-million deal completed in May 1997, SwabTech Inc., Trimat Well Servicing Inc. and Mountain Rig & Equipment.
The deal for Bounty and Southern will add six double service rigs and some associated equipment to Bonus' fleet.
The rigs will continue to be operated out of Bounty and Southern's existing base in Weyburn and will be operated and managed by the existing staff of the two companies.
Alan Vilcu will oversee the operations and has agreed to a long-term contract with Bonus.
With the purchase, Bonus' fleet has grown to 149 service rigs and seven swabbing units.
The new presence in Saskatchewan will complement Bonus' existing operations.
FEATURE STORY
E&P Spending To Grow In 1998 Despite Lower Prices
Oil companies are set to increase worldwide exploration and production spending by 10.9 percent in 1998, the second strongest growth forecast in 10 years after 1997, according to a survey from Salomon Smith Barney.
Analysts Geoff Kieburtz and Mark Urness say that their 16th annual survey showed ''oil service demand remains robust-reinforcing our belief that the industry has entered a multi-year growth phase''.
Shares of companies in the oil service sector have been hammered in recent months on talk that new building of oil rigs and diminishing exploration and development budgets would result in a slowing of demand for their services.
The survey, which covered 202 oil and gas companies showed that worldwide exploration and production spending plans rose to $93.8 billion for 1998 from a projected $84.6 billion in 1997, despite ''moderate'' oil and natural gas price expectations.
''An unusually large number of respondents plan on spending more than cashflow, indicating that spending plans are increasingly based on a multi-year outlook rather than near-term conditions,'' Kieburtz and Urness wrote.
They said that the average oil price assumption for projects had fallen to $19.23 per barrel for 1998 from $19.67 in 1997, but that projects were generally tested on a range of oil price scenarios ''some ranging as low as $12.00''.
The analysts asked whether Asia's economic slowdown and projected lower demand for oil had affected spending plans and the response was ''a resounding no''.
Most of the increase in spending will come outside the U.S. and Canada and in the international arena, the 97 companies which responded said that spending there would rise 14.4 percent to $54.8 million, compared with an expected 15.6 percent increase to $47.9 billion in 1997.
''Frontier territories are targeted for significant increases in spending in 1998, including deepwater West Africa and the Former Soviet Union,'' Kieburtz and Urness wrote.
In the international arena, significant rises in spending are planned by Royal Dutch/Shell Group (RD.AS), Italy's AGIP, Malaysia's Petronas (PETR.KL), Exxon Corp (NYSE:XON), Norway's Den Norske Stats Oljeselskap A/S (STAT.CN), Amerada Hess Corp (NYSE:AHC) and France's Elf Aquitaine (NYSE:ELF - ELFP.PA).
Material reductions are planned by Union Texas Petroleum Holdings Inc (NYSE:UTH) Belgium's Petrofina SA (NYSE:FIN - PETBt.BR), Austria's OMV AG (OMVV.VI) and Argentina's YPF SA (YPFd.BA), ''generally due to project timing'', the analysts said.
U.S. exploration and production spending is projected to rise 6.1 percent to $29.0 billion by 139 majors and independents, with ''significant'' increases in spending planned by Exxon and Shell Oil Co, while among the independents, Union Pacific Resources Group Inc (NYSE:UPR ), Oryx Energy Co (NYSE:ORX), Burlington Resources Inc (NYSE:BR ), Louis Dreyfus Natural Gas Corp (NYSE:LD) and Equitable Resources Inc (NYSE:EQT).
According to the survey, 1997 spending by the 15 majors rose 17.2 percent, in the U.S. ''by far the largest increase in the 16 year history of the survey'' as Exxon shifted to domestic activity and Shell and Texaco spend more than indicated at midyear.
Overall, companies continue to rate the economics of drilling for reserves as superior to buying reserves, with 84 percent favoring drilling, up from 80 percent in the 1997 survey and the number seeking to buy reserves this year fell to 67 percent of respondents from 73 percent last year.
The respondents were also optimistic on the three year outlook for the industry, with 97 percent of respondents scoring optimism, compared with 99 percent in last year's survey and 84 percent the year before.
FEATURE STORY
War Of Words
Calgary Sun
A war of words between Orbit Oil & gas Ltd. and hostile suitor Sunoma Energy Corp. continued down to the wire yesterday with Orbit hinting a so-called White Knight may be on the horizon.
Sunoma's $1.70 per share, $97-million unwelcome bid for Orbit is set to expire tomorrow and the two sides spent yesterday trying to convince Orbit shareholders of the strength of their position.
Orbit also released news of a new preliminary find in Texas that was to be logged last night and a farm-in contract in Colombia.
The jockeying followed the publication on the weekend of large advertisements by Sunoma in financial newspapers arguing its case that its offer provides full value to Orbit shareholders.
Yesterday, Sunoma restated its case in a release, saying "the offer represents a significant premium to anything Orbit shareholders have seen in recent years."
But Orbit quickly volleyed back, saying its board continues to recommend rejection of Sunoma's offer and warning Sunoma if it pays for shares tomorrow, it could trigger Orbit's shareholder protection plan.
As well, Orbit said "a number of qualified parties have been provided with access to confidential information in a data room and Orbit continues to solicit interest and respond to requests for information from interested parties."
Orbit also argued Sunoma's bid is based on incomplete information.
"Sunoma has not reviewed, nor has it requested, the independent engineering report or any of the confidential information contained in the data room, all of which Griffiths McBurney has had access to in rendering its opinion."
Bob Lamond, Orbit's chairman and chief executive, said shareholders who contacted him are not satisfied with Sunoma's offer, nd noted the stock closed yesterday at $1.74.
"There's anticipation there will be a higher bid," said Lamond. Sunoma questioned the values attached to Orbit's reserves, noting while volumes increased 13.5%, values were up 41%.
"(It's) questionable, particularly in light of the downward trend in commodity prices," Sunoma's release said.
Rick McDermott, Sunoma's president and chief executive, said the decline in prices for oil and gas over the past two months has made his company's offer even more attractive.
FEATURE STORY
Alberta Oil & Gas Buys Three Firms In Share Exchange Deal
The Financial Post
Alberta Oil & Gas Petroleum Corp. announced yesterday it has agreed to acquire three private companies with assets worth $16.5 million in a share exchange deal.
The Calgary-based junior producer will buy Cairo Energy Inc., 763375 Alberta Ltd. and 763387 Alberta Ltd. based on one consolidated AOG common share for each share of the target firms.
As part of the plan of arrangement, AOG's shares will be consolidated three for one before the acquisition.
The acquired firms' assets include: cash and marketable securities worth $9 million; 989,000 barrels of oil equivalent in proven and probable reserves worth an estimated $6.6 million; and 25,000 acres of undeveloped land worth $1 million.
The three private companies are controlled by Ken McNeill, Bruce Chernoff and John Brussa, all new directors of AOG. Chernoff is executive vice-president of Pacalta Resources Ltd.
AOG has appointed McNeill chairman, president and chief executive. He recently resigned as chief operating officer of Amber Energy Inc., a successful junior.
The proposed transaction, which will result in McNeill becoming a major shareholder of AOG, is subject to regulatory, court and shareholder approval. A special meeting of shareholders is scheduled to be held in late March.
Investors owning or controlling about 40% of AOG's shares outstanding have agreed to support the deal. AOG shares (AOG/ASE) last traded at $1 on Dec. 31.
KERM'S TOP 21 - SPEC 15 - SERV 9 LISTED COMPANIES IN THE NEWS
PINNACLE RESOURCES LTD. (PNN) announced that as of December 30, 1997 it had reached agreement with two arm's length purchasers to issue up to 548,700 flow-through Special Warrants for aggregate proceeds of $12,620,100. Each Special Warrant is convertible, without additional consideration, into oneCommon Share of Pinnacle. As a result of this private placement, Pinnacle will have approximately 40,859,000 Common Shares issued and outstanding.
GRANGER ENERGY CORP. announced that it has completed the sale of 1,054,797 Class A Shares at a price of $1.65 per share and 567,186 "flow-through" Class A Shares at a price of $1.85 per share for aggregate proceeds of $2,789,709.15. Jennings Capital Inc. and Research Capital Corporation acted as agents on the transaction. The prospectus of the Corporation dated December 8, 1997 also cleared for distribution 1,000,000 Class A Shares and 500,000 Purchase Warrants issued on December 16, 1997 pursuant to the exercise of previously issued Special Warrants. The Purchase Warrants are each exercisable for one Class A Share at the price of $2.00 until February 8, 1998. The Class A shares of Granger are listed on the Alberta Stock Exchange under the trading symbol "GAS.A". Approximately 5,525,000 Class A shares are outstanding and current production is 700 barrels of oil equivalent per day.
ENERCHEM INTERNATIONAL an Edmonton based specialty chemical company and oilfield equipment rental company serving the oil and gas industry, reports record revenues and net profits for the three months ended November 30, 1997. Revenues were $3,955,144 versus $2,744,963 for the corresponding comparative period representing a 44% increase. Income before tax during the period increased 109% to $1,039,546 from the restated income of $496,518 for the comparative period in 1996. Net income increased 108% to $579,946 from the comparative period restated record $278,518 and earnings per share increased 100% to $0.08 from $0.04.
KERM'S WATCHLIST OF COMPANIES IN THE NEWS
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OTHER COMPANIES IN THE NEWS
RAPIDFIRE RESOURCES LTD. said it has agreed to purchase 12,000 gross (8,860 net) acres in the Kirkpatrick Lake area of east-central Alberta from Koch Exploration Canada, Ltd. The purchase includes 10 shut-in gas wells, a compressor station and associated lines and facilities. Rapidfire already owns an interest in some of the land as well as in contiguous acreage and is a core area to the company. TheCompany plans to start up the facility as soon as it has completed the purchase, which is expected to be by the end of January. Initial gas sales are anticipated to be greater than 500 mcf/day (net to Rapidfire) upon start-up. Tie-in of other Rapidfire interest wells in the area can increase this to 2,000 mcf/day.
Also, Rapidfire has applied to the Alberta Stock Exchange for clearance to issue one million treasury shares to Koch Exploration under a private placement at $.30/share. The funds are flow-through and will be used for the company's 1998 drilling program.
PEREGRINE OIL & GAS LTD. and PLEXUS ENERGY LTD. announced their drilling operations have commenced on their Madden Prospect in McClain County, Oklahoma. The well will be drilled to a depth of 9,600 feet and is targeting the Bromide, McLish, Tulip Creek and Oil Creek oil sands. The companies completed a 3-D seismic program over the Madden prospect in 1997. The 3-D data confirmed the previous 2-D interpretation of a Wilcox structure. Peregrine and Plexus each have a 37.5 percent working interest.
INTERNATIONAL SCENE
Oil Investment In South America Seen Brisk In 1998
The world's oil barons are expected to make huge investments in Latin America in 1998 as the continent's under exploited oil and gas reserves open further to private capital.
Venezuela's giant reserves will soak up the lion's share of investment in the region, though Brazil's little-explored offshore areas will begin to compete and many smaller firms will move into frontier exploration in the Andean foothills, according to analysts.
Natural gas will also see more foreign cash, particularly in the southern cone where companies are investing in exploration, transport and electricity generation to build a network linking reserves with major demand centres.
''Venezuela will be the 'number one' for investment by far, with its operating contracts, out-sourcing and Orinoco projects,'' said Rafael Quijano, Latin America analyst of Petroleum Finance Corp (PFC) in Washington.
''Number two will be Brazil, followed closely by Colombia and Argentina,'' he added.
Analysts expect average oil production in Latin America to rise by about one million barrels per day (bpd) between 1997 and 1998 to around 11 million bpd. The lion's share of the hike will come from Venezuela, which plans an extra 300,000 bpd to reach 3.5 million bpd, according to official estimates.
The other big increases will come in Mexico, where the International Energy Agency expects a 160,000 bpd rise to 3.6 million bpd, and Brazil where output will jump 150,000 bpd to 1.3 million bpd.
While Mexican oil production remains firmly in the hands of the state, Venezuela has seen a major opening of its industry to private investment. This year state oil firm Petroleos de Venezuela expects total investment of $7.4 billion, with a growing proportion of private capital in its various ventures.
It already has 33 operating contracts, a further eight profit-sharing exploration agreements as well as six projects to develop extra-heavy oil in the Orinoco region, mostly with foreign partners. Having awarded 18 operating contracts and signed four Orinoco projects in 1997, Venezuela is unlikely to offer any new areas in 1998, though a fourth round of operating contracts is expected in 1999, officials say.
Brazil, where oil production is still the exclusive reserve of the state, is expected to start signing its first deals with the private sector early in the year. Last year it offered 138 joint-venture projects to the private sector, sparking interest in oil boardrooms across the globe.
Over the past two decades, oil firms have brought down the cost of offshore, deep-water oil production and they see Brazil's Atlantic basin as a potentially huge, but little explored area.
Brazil hopes to attract $3.0 billion in private capital by the year 2000, boosting output to 1.5 million bpd by then.
Medium-sized firms without the financial muscle to go for the biggest deals often target projects in the Andean foothills inColombia, Ecuador, Peru and Bolivia.
The geological formation known as the ''sub-Andean thrust'' holds large pockets of oil and gas, although the reserves are usually deep and drilling conditions difficult, said Matthew Shaw, regional analyst for Wood Mackenzie of the U.K.
In an effort to revitalise its production outlook, Colombia last year reworked its exploration contracts and signed about 12 new licences, despite an ongoing dispute with British Petroleum (quote from Yahoo! UK & Ireland: BP.L) over terms for its Piedmonte project.
''There are some new terms to encourage exploration in new areas, but most of the interest will remain in the Magdalena/Llanos basins,'' said Shaw.
Peru, bolstered by the huge Camisea gas find, awarded another six exploration licences last year, including two coastal/offshore blocks in the Pacific.
Further south, Britain's Falkland Islands will see its first exploration wells drilled in April, with preliminary results by July, Shaw said.
Ecuador will be one exception to the positive outlook for 1998, with foreign investment expected to decline due to continuing government cash-flow problems, analysts said. Ecuador already owes foreign oil operators $77 million and has repeatedly delayed plans to expand its export pipeline capacity, effectively stifling output growth.
Bolivia awarded 16 exploration licences in 1997 and companies there are looking for natural gas as well as oil. Bolivia needs to find another 2.3 trillion cubic feet of gas reserves just to fulfill the 20-year contract it signed with Brazil for supply through a major new pipeline.
The $2 billion pipeline feeding Brazil's industrial heartland is due to come on line in December 1998.
Bolivia has promised to supply Brazil with seven trillion cubic feet over 20 years and is expected to ship a billion cubic feet every day from 2003.
ABN AMRO analyst Myles McDougall expects Brazilian gas demand to grow at 18.6 percent per year over the next ten years, rising to 10 percent of total energy demand by 2010.
In the long term, if Bolivia is unable to produce enough to satisfy Brazil, Argentinian and even Peruvian gas could be shipped through the new pipeline.
Shell (quote from Yahoo! UK & Ireland: SHEL.L; RD.AS) and Mobil (NYSE:MOB - news) expect in May to take a final $3 billion investment decision in its Peruvian Camisea field, which will initially supply industry on the Pacific coast.
''Everyone is assuming they will go ahead, but the big investments won't happen until 1999-2000,'' said Wood Mackenzie's Shaw.
Trinidad expects about $1 billion to be invested in its booming gas business, where a liquefied natural gas (LNG) plant is in its final construction stages and Amoco (NYSE:AN - news) is planning a major exploration effort.
The deep water blocks offshore in eastern Trinidad is another frontier zone which should see its first wells drilled next year the signing of four exploration contracts in 1997.
Argentina is also expecting a pick-up in its gas business, which is well placed to become a big supplier to Brazil and Chile, said Wood MacKenzie's Shaw.
''The domestic market is quite saturated, but Argentina is looking to become a gas exporter. The first pipeline to Chile opened in 1997 and they are talking about second line opening in 1999,'' he said.
In the longer term, a gas line that currently flows from Bolivia to Argentina could be reversed to bolster Bolivia's exports to Brazil.
BOW VALLEY ENERGY is buying into oilfields in the North Sea. The Calgary based energy firm said yesterday it has concluded a deal to buy working interests in several oilfields in the North Sea, the first project in an alliance that includes the national oil company of Brazil.
A wholly owned subsidiary of Bow Valley Energy Ltd. bought interests ranging from 4.2% to 15.2% in five blocks from BP Exploration Ltd. for an undisclosed price. However, in the initial public offering last fall, the company estimated the deal's net cash value at $700,000.
Also taking interests in the five areas were Morrison Middlefield Resources Ltd. and Petrobras (UK) Ltd., part of Brazil's national oil firm.
The blocks, called the Dolphin project, include the Blane, Enoch and Ettrick oilfields.
Bow Valley shares (BVX/TSE) closed yesterday at $1.65, up 13›.
The purchase is part of a strategic alliance involving the three partners. They intend to buy and develop discoveries in Britain and keep down costs by using shared production facilities and new technology.
The partnership looked at more than 100 oilfields in the North Sea that are considered too small by larger companies such as BP, said Dinesh Dattani, Bow Valley's vice-president of finance.
"There are plans to look at more and more of these [North Sea fields], in a targeted manner," he said.
Intentions for 1998 are for Petrobras to be named operator of the fields and for it to come up with a development plan. Bow Valley forecasts its share of spending in 1999 to bring the fields on stream will be $10 million.
The project will be managed by Croft Oil Offshore Ltd., jointly owned by Bow Valley and Morrison Middlefield.
The acquisition has been approved by the British Department of Trade and Industry.
Bow Valley also said it has completed the purchase of a 13.75% interest in a North Sea block that includes the Chestnut field.
CITYVIEW ENERGY provided an update on their drilling activities. The Sangkimah Well No. SST-1 at 0600 hours 5 January 1998 was at 495 metres depth. Current activity is running 9-5/8 inch casing. The company also announced that the granting of the Simenggaris Block, Kalimantan, to CityView's subsidiary Genindo Western Petroleum Pty. Ltd has been confirmed by Presidential Decree No. B650/Pres/12/1997.
Genindo Western Petroleum Pty. Ltd is owned 85% CityView and 15% Pt Genindo Citra Perkasa.
DOREAL ENERGY CORP. announced that it has executed the 225,000 acre Rio La Miel Association Contract, located in the Middle Magdalena Valley region of Colombia, South America, with Ecopetrol, the Colombia national energy company. Under the terms of its work commitment, Doreal will provide reprocessing of existing seismic data, conduct geologic studies within the area, and drill at least one exploratory well during the first two years of the Contract. Ifsuccessful discoveries are made during the initial six years of the Contract, an additional 22 years for exploitation will be automatically granted by Ecopetrol.
The Middle Magdalena Valley region is the location of some of Colombia's most recent oil and gas discoveries, including Seven Seas' "Emerald Mountain Field", LASMOs' "Revancha/Venganza Field" and Amoco/Honda's "Opon Field" discoveries. The Rio La Miel acreage is also bounded on the north by Texaco's earlier discovered fields, Velasquez, Corcorna/Teca and Nare.
DIAZ RESOURCES LTD. and ORBIT OIL & GAS reported that on December 29, 1997, it's partners had authorized the execution of the Association Contract with Ecopetrol in Bogota, Colombia. The contract covers the Payara concession, in the Llanos Basin in eastern Colombia, comprising approximately 125,000 gross acres. The permit covers two structures partly delineated by pre-existing seismic and is situated approximately 15 miles north of a recent discovery announced by Harken Energy Corp. Diaz and Orbit each have the right to earn 25% of the Payara concession.
PATRIA RESOURCES LTD. announced they will have a Stage 2 public offering which is the sale of 4,950,000 ($2,475,000) minimum and 8,250,000 ($4,125,000) maximum Common Shares priced at $0.50 per share on a best efforts basis. Proceeds from the Common Shares will be used to explore and develop lands held by Patria in the United Kingdom, held under EXL 216 100 percent working interest by Patria. Patria has submitted an application to the United Kingdom Department of Trade and Industry to acquire additional lands surrounding EXL 216. If successful, a portion of the funds raised will be used to explore the newly acquired land. the company just concluded Stage 1 financing for work to be performed on their Canadian properties.
MORRISON MIDDLEFIELD RESOURCES LIMITED ('MMRL') announced the signing, through its wholly-owned subsidiary, Candecca Resources Limited, of an agreement to purchase working interests in the UK sector of the North Sea from BP Exploration. The Blocks contain the Blane, Enoch, and Ettrick oil fields as well as the 16/13a J1 gas condensate field. Two other companies, Petrobras (UK) Limited and Bow Valley Petroleum (UK) Limited have also entered into agreements to acquire interests in the above fields. The acquisition has been approved by the UK Department of Trade and Industry and is subject to partner approval and, in some cases, pre-emption rights.
The acquisition provides the foundation for a strategic alliance between MMRL, Bow Valley and Petrobras to acquire and develop such discoveries by seeking cost synergies through the use of shared production facilities (the ''Dolphin'' project). The Dolphin project is managed by Croft Oil Offshore Limited, a company jointly owned by Bow Valley and MMRL, which continues to be active in the pursuit of additional field interests on behalf of its owners.
MMRL also advises that its previously announced acquisition of a 13.75% interest in Block 22/2a in the UK sector of the North Sea was completed on December 23, 1997. The Block contains the Chestnut field which was initially discovered in 1986.
EUROGAS CORPORATION reported on its Sud Nefta well in Tunisia. Coring operations were started when the Sud Nefta well reached one of its objectives, the Ordovician. The well is currently at a depth of 4253 meters and the hole is being conditioned prior to running back in with the core barrel. Coring operations will continue through the zone of interest and results will be released when laboratories in Tunis complete their analysis.
Eurogas Corporation will have a 28.51 percent net interest in the Sud Nefta well if the Tunisian State Company "ETAP" exercises its right to participate in the development of any discovery.
STERLING RESOURCES LTD. announced that R. G. (Bob) Welty has assumed the position of Chief Executive Officer of the Company in addition to retaining his position as Chairman. In this role he will be working together with Bruce Sherley, Sterling's President, to increase the Company's level of activity in international oil and gas projects. Mr. Welty brings to this position over 30 years of international petroleum exploration and production experience and has held the positions of Chief Executive Officer of Asamera Inc. and Bow Valley Energy.
Sterling also announced that it will operate a three-company study group to evaluate opportunities for petroleum exploitation in Romania. Romania is the largest oil and gas producer in Eastern Europe, and changes to the hydrocarbon laws will soon open producing fields for foreign participation. Sterling is currently exploring offshore Romania, and is of the opinion that there is excellent potential for exploitation of producing fields onshore. The study group plans to identify large under developed airfields where production can be increased with the application of modern technology.
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