MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, JANUARY 6, 1997 (4)
Canada Oil Stock Price Slide Intensifies
Reuters
The slide in Canadian energy stock prices accelerated on Tuesday as weakening commodity prices prompted investors to lop more than four percent from the sector's already depressed value.
Oil companies dominated the Toronto Stock Exchange's actives list, with almost all oil stocks losing ground as world oil prices fell to more than two-year lows.
"(Investors are) taking them all down. There's no discrimination," said analyst Robert Hinckley, who follows Canadian oils for Merrill Lynch & Co in New York.
CIBC Wood Gundy analyst Peter Linder said he believed the malaise would last three to six months, as low oil and gas prices caused a cut in capital spending, higher debt-cash flow ratios, and writedowns in the value of reserves.
"It's worth noting that this is not just a commodity price correction. This is the start of a sector correction," Linder said.
Big losers included Talisman Energy Inc , down 2.75 to 39.65, Canadian Natural Resources Ltd off 1.55 to 27.45, AmbernEnergy Inc down 2.30 to 17.30, Petro-Canada off 1.40 to 23.30 and Hurricane Hydrocarbons Ltd falling 1.75 to 9.50.
Toronto's oil and gas subindex, which includes the shares of 53 oil and gas producers, integrated oil companies and oil service firms, fell 301.57 points, or 4.67 percent, to 6150.18 points, its lowest level since mid-April 1997. The subindex has dropped by about 400 points in the last two days.
Oilfield service companies were also hit. Precision Drilling Corp , Canada's biggest driller, was off 3.65 to 27.85, and Ensign Resource Service Group Inc shed 3.55 to 28.95.
Analysts said a sharp drop in world oil prices, weaker than expected natural gas prices and expected cuts in projected cash flow and capital spending, pushed Canadian oils out of favor.
"It's commodity price-driven," Hinckley said. "The oil price just continues to sink and you have a number of highly regarded analysts coming out with some dour predictions."
NYMEX West Texas Intermediate crude oil traded at US$16.88 a barrel on Tuesday, down from more than US$26 this time last year, on fears of mounting oversupply on world markets.
Analysts were hard-pressed to predict when the trend for Canadian oil companies might reverse.
One factor that could improve oil's fortunes was the coming influx into the Canadian market of tax-sheltered Registered Retirement Savings Plan cash, said Craig Langpap, analyst with Peters & Co Ltd.
"We've already heard there's several clients out there who have to start looking at investing and they're looking to see where they can find the best companies to buy," Langpap said.
Oil Woes, Investor Skepticism Bear Down On Majors
Reuters
Oil stocks were hammered Tuesday, battered by a confluence of factors that continued to push oil prices lower and prompted market analysts to project falling income for the major oil companies this year.
Oil prices were pressured by a new agreement to allow Iraq to exchange crude oil for food and by unusually warm weather in the United States.
Analysts said share prices of major oil companies have failed so far to reflect the recent fall in crude prices to about $17 a barrel from $19.50 a barrel.
Some oil companies may report better-than-expected income for the just-completed fourth quarter, but any optimism that may emerge will be a false dawn, they said.
"Is this the light at the end of the tunnel? Certainly not, it is just the oncoming train," Deutsche Morgan Grenfell analyst Michael Young said.
"The oil stocks do not discount the poor earnings prospects for the first half of 1998," he said.
ABN-AMRO Chicago Corp. analyst Eugene Nowak on Tuesday forecast that earnings at the majors would fall 10 percent in 1998 from 1997, an increase on an earlier forecast of a 3 percent to 5 percent decline.
The fundamental problem -- too much oil -- was exacerbated late Monday when the United Nations secretary general approved a new deal with Iraq that could add 1.3 million barrels-per-day in the short term.
News of the deal drove oil futures prices lower. The benchmark Brent crude blend fell to a 30-month low in early London trade. February crude on the New York Mercantile Exchange hit its lowest level since July 1995 and the S&P index of oil shares fell almost 3.5 percent.
Exxon fell $2.125 to $59.06 a share, Chevron was down $1.75 at $73.94 and Mobil was down $3.19 at $67.50, all on the New York Stock Exchange.
Tuesday, Iraq said the exports would resume immediately after the UN's approval of an Iraqi aid distribution plan.
"The supply/demand balance is just flat out ugly," Schroder & Co. analyst Michael Mayer said. "There is no place to put the oil."
New York, Oil & Oil-Services Shares Fall On Weak Commodity Prices
Dow Jones Newswires
Continued weakness in oil and natural gas prices pressured oil and oil services shares lower Tuesday, as worries rise about 1998 earnings.
World oil prices have been falling for nearly two months, spurred by the expected return of Iraqi oil to the world market and the prospect of increased Saudi production, as well as by a mild winter. U.S. gas prices, which usually start rising in November, have fallen instead, as the 'El Nino' weather phenomenon has brought a mild winter in the gas-consuming centers of the Northeast and Midwest.
The result has been a slow but persistent erosion in commodity prices. Since October, oil has fallen from more than $21 a barrel to a recent price of $16.98, and gas has fallen from more than $3.40 per million British thermal units to a recent price of $2.21.
'The commodity psychology has reversed, and now it's negative,' said UBS Securities Inc. analyst Wesley Maat.
The outlook isn't good, given that any potential price rise in 1998 will be hampered by the economic slowdown in Southeast Asia. Earlier Tuesday, investment banking powerhouse Goldman Sachs & Co. cut its forecast for average crude oil prices for 1998 and 1999 to $17 a barrel from $18.
Investors have been taking it out on three groups: major oil companies; oil and gas exploration and production (E&P) companies and oil-services companies. All three have been among Tuesday's biggest declining sectors.
Recently, the Dow Jones index of major oil stocks was down 2.5% on a market capitalization weighted basis; the Dow Jones index of E&P stocks was down 3.4% and the index of oil-services stocks was down 3.9%.
The biggest U.S. oil company, NYSE-listed Exxon Corp. (XON), recently was down 1 3/8, or 2.2%, to 59 13/16. The bellwether oil-services company, NYSE-listed Schlumberger Ltd. (SLB), recently was down 3 1/16, or 3.9%, to 74 9/16. And Anadarko Petroleum Corp. (APC), one of the best-known E&P companies, was recently down 3 1/16, or 5.3%, to 55.
Even the 'sell-side' analysts at investment banks seem to lack their usual ability to point out a silver lining.
'It's a group sell-off,' said Michael Young, who follows major oil companies for Deutsche Morgan Grenfell Inc. He believes the stocks, which have all fallen at least 10% from their highs, could fall another 10%.
Young said he expects the major oil companies' 1998 earnings to be 10 below 1997 earnings, and the market has yet to fully reflect the current poor commodity prices.
PaineWebber Inc. analyst Robert Morris said investors should be 'worried and cautious in the near term.' The drop in commodity prices has battered the E&P stocks he follows, and he sees rough going for the next few months. 'I can't grab on to anything as a positive catalyst,' Morris said.
Analysts who follow the various oil industries believe that although the stocks have fallen over the past two months, there may be more room to decline, based on valuations derived from multiples of earnings and cash flow.
Although some analysts acknowledge that valuations have become somewhat compelling for many oil-related stocks, most currently believe the pessimism surrounding oil and gas prices is too overwhelming to justify any short-term optimism. As a result, most are focusing on commodity prices rather than on valuations.
PaineWebber's Morris, for example, said that stocks of exploration and production companies are still about 15% above the trough in valuations that the group hit in April. At that time, oil stocks also went into a dramatic slide following a decline in oil and gas prices. 'No one cared about valuations then,' Morris said, and he's holding back from touting them now.
Morris said the hardest-hit E&P stocks have been those most leveraged to the competitive - and costly - Gulf of Mexico, such as Ocean Energy Inc. (OEI), which was recently down 2 7/8. or 6.1%, at 44, and Newfield Exploration Co. (NFX), recently down 2 1/8, or 9.4%, at 20 1/2.
Amid the oil-services industry, which has been even more volatile as a group, the long-term outlook is still optimistic. Drilling activity is up, and that means more demand for rigs, drill-bits, seismic surveys and other oilfield suport.
But in the near term, there is little joy as the recent decline in the sector has stopped the two-year bull run in oil-services stocks, which some analysts believe became too pricey in September.
This was clearly an eye-opening event for investors who thought the upward pattern of the last two years would continue,' said UBS Securities' Maat.'Those who thought it would be an escalator are finding out it's a roller-coaster ride.'
Among the biggest decliners in the oil-services world have been stocks vulnerable to U.S. gas drilling. including offshore driller Global Marine Inc. (GLM), recently down 1 5/16, or 5.6%, at 21 15/16, and onshore driller Patterson Energy Inc. (PTEN), recently down 5 3/8, or 15.4%, at 29 5/8.
In the meantime, industry watchers hang on and wait for some sign that oil and gas prices have hit bottom. But the worrisome aspect is, as Deutsche Morgan's Young said, 'commodity prices don't have to go lower to make the stocks unattractive.'
INDEXES
The Toronto 300 Composite Index fell 1.3% or 85.84 to 6656.26.
In comparison, the Oil & Gas Composite Index fell 4.9% or 313.44 to 6138.31. Looking at the sub-components, the Integrated Oils fell 3.8% or 334.83 to 8400.26. The Oil & Gas Producers fell 5.0% or 282.34 to 5397.93. The Oil & Gas Services fared even worse, falling 7.6% or 224.71 to 2743.50. In terms of percentages and points, yesterday was the worst day for the oils since I began daily coverage of indexes.
Might be noteworthy that a couple analysts stated we are in the beginning stage of a correction. Where have they been. Now that the news will begin to voice this kind of sentiment, it may be a sign we are nearing a bottom. One thing for sure, the decline in company share prices haven't been selective. It's not a good or bad type situation, just ugly.
INDEX CHARTS
TSE 300.............. chart.canada-stockwatch.com
O&G Composite. chart.canada-stockwatch.com
Integrated Oil's.... chart.canada-stockwatch.com
O&G Producers.. chart.canada-stockwatch.com
O&G Services..... chart.canada-stockwatch.com
MOST ACTIVES
Ranger Oil, Petro-Canada, Northstar Energy, Gulf Canada Resources, Canadian Occidental Petroleum, Orbit Oil & Gas, Renaissance Energy, Eurogas Corp., Anderson Exploration, Talisman Energy, Alberta Energy, Imperial Oil and Magin Energy were among the top 50 most active traded issues on the TSE.
No oil and gas producers could be found among the top 50 net gainers.
Percentage gainers included TransGlobe Energy 17.4% to $1.35 and Profco Resources 15.0% to $1.15.
On the downside, Talisman Energy fell $2.90 to $39.50, Amber Energy $2.40 to $17.20, Renaissance Energy $2.10 to $26.75, Hurricane Hydrocarbons $1.85 to $9.40, Imperial Oil $1.75 to $88.15, Suncor Energy $1.70 to $46.90, Canadian Natural Resources $1.50 to $28.90, Crestar Energy $1.45 to $20.50, Berkley Petroleum $1.35 to $13.25, Petro-Canada $1.30 to $23.40 and Tri Link Resources $1.25 to $18.00.
Percentage losers included Chauvco Resources Int'l 20.0% to $0.84, Kappa Energy 17.6% to $2.39, Hurricane Hydrocarbons 16.4% to $9.40, Black Sea Energy 15.8% to $1.60, Amber Energy 12.2% to $17.20, Newquest Energy 12.0% to $5.50, Compton Petroleum 10.9% to $1.47, Magin Energy 10.6% to $2.10, Probe Exploration 10.5% to $4.25, Abacan Resources 10.4% to $2.15, Symmetry Resources 10.2% to $1.15, Gentry Resources 10.0% to $1.35, Merit Energy 10.0% to $4.05, Petromet Resources 9.7% to $3.25, Vermilion Resources 9.7% to $7.00 and Berkley Petroleum 9.2% to $13.25.
There were no new 52-week highs.
Baytex Energy, Black Sea Energy, Brigdon Resources, Canadian Natural Resources, Gulf Canada Resources, Kappa Energy, Mercantile Int'l Petroleum, Northstar Energy, Optima Petroleum, Phoenix Canada Oil, Pinnacle Resources, Renaissance Energy , Rigel Energy and Startech Energy reached new 52-week lows.
In the oil and gas service sector, including those companies with close ties to the industry, Precision Drilling was listed among the top 50 most active traded issues on the TSE.
As with the producers, no companies were listed in the top 50 net gainers.
Percentage gainers included Geophysical Micro 11.1% to $1.50, Enerchem International 5.3% to $2.00 and Computer Modeling 4.2% to $1.25.
On the downside, Dreco Energy Services fell $5.60 to $41.25, Ensign Resource Services $4.50 to $28.00, Precision Drilling $3.80 to $27.70, Shaw Industries $2.25 to $46.50, IPSCO $2.00 to $52.50, CE Franklin $1.30 to $10.25, Artisan Corp. $1.25 to $9.75, Akita Drilling A $1.00 to $11.50 and Plains Energy Services $1.00 to $11.00.
Percentage losers included Ensign Resource Services 13.8% to $28.00, Precision Drilling 12.1% to $27.70, Dreco Energy Services 12.0% to $41.25, Artisan Corp. 11.4% to $9.75, CE Franklin 11.3% to $10.25, Alpine Oil 9.1% to $1.20, Plains Energy Services 8.3% to $11.00, Tetonka Drilling 8.3% to $2.10 and Akita Drilling 8.0% to $11.50.
There were no 52-week new highs.
Pason Systems reached a new 52-week low.
Over on the Alberta Stock Exchange, Jerez Energy, Cirque Energy, ICE Drilling, Stampede Oils, Commonwealth Energy, Prize Energy, Cubacan Exploration, Gold Star Energy, Bearcat Exploration and Red Sea Oil were among the top 30 most active traded issues.
Kensington Energy gained $0.15 to $1.25, Solid Resources $0.15 to $8.15, Talon Petroleum $0.15 to $0.90 and Golden Trend Petroleum $0.10 to $0.95.
Percentage gainers imcluded Foothills Oil & Gas 26.1% to $0.29, Talon Petroleum 20.0% to $0.90, Trego International 20.0% to $0.30, Cherryhill Resources 16.7% to $0.35 and Kensington Energy 13.6% to $1.25.
On the downside, Kappa Energy fell $0.60 to $2.40, Sunburst Oil & Gas $0.33 to $1.15, Lodestar Energy $0.25 to $1.50, Niko Resources $0.25 to $4.30, Tier One Energy $0.25 to $1.50, AltaQuest Energy $0.24 to $2.11, Belfast Petroleum $0.20 to $2.90, Canadian Crude Separators $0.20 to $5.00, Clayoquot Resources $0.20 to $1.00, Jerez Energy $0.16 to $0.49, Maxwell Oil & Gas $0.16 to $1.15. Brandon Energy $0.15 to $0.50, Hyduke Capital Resources $0.15 to $2.70 and Pason Systems $0.15 to $6.10.
Percentage losers included Jerez Energy 24.6% to $0.49, Mesquite Resources 24.5% to $0.20, Brandon Energy 23.1% to $0.50, Sunburst Oil & Gas 22.3% to $1.15, Kappa Energy 20.0% to $2.40, Clayoquot Resources 16.7% to $1.00, Ascot Energy Services 14.3% to $0.30, Alma Oil & Gas 14.3% to $0.60, Lodestar Energy 14.3% to $1.50 and Tier One Energy 14.3% to $1.50.
Kintail Energy and Navarro Energy reached new 52-week highs.
Bolt Energy reached a new 52-week low.
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