MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, JANUARY 6, 1997 (6)
KERM'S TOP 21 - SPEC 15 - SERV 9 LISTED COMPANIES IN THE NEWS
NORTHROCK RESOURCES and GULF CANADA RESOURCES reached agreement on Strategic Alliance for West Central Alberta activity. The companies announced Tuesday that a formal agreement has been executed to establish a Strategic Alliance to explore and develop an extensive land base in West Central Alberta. The Alliance will be positioned as one of the dominant natural gas players in the region. This is further to the initial nnouncement of October 20, 1997.
Effective January 1, 1998, the agreement establishes an Area of Mutual Interest ("AMI") covering an extensive geographical area that includes 370 contiguous townships of land in West Central Alberta. Within these townships Gulf and Northrock currently have a combined 750,000 net acres of undeveloped land.
The agreement lays out the innovative steps by which Gulf and Northrock will align their exploration and development initiativesin the region. Northrock will manage the entire exploration and development program. As opposed to an initial cash equalization, each party will have the right to earn in the other's land base by paying a disproportionate share of capital during the drilling and completion phase of the operation. Costs for all future activity beyond initial drilling, including land, seismic and property acquisitions, will be shared on an equal bases between Northrock and Gulf.
By the end of January, Gulf and Northrock will establish 1998 capital spending and production targets for the West Central Alberta area. Production growth, finding and development costs and reserve additions will represent jointly agreed targets with capital incentives or penalties tied to performance. The agreement also contemplates a review towards further potential alignment of Northrock's and Gulf's production bases in West Central Alberta and possible extensions beyond the existing AMI boundaries.
As part of the agreement, Northrock has issued to Gulf warrants to purchase 600,000 Northrock common shares with an exercise price of $24.90 per share (closing price of Northrock common shares the day before the initial announcement) exerciseable by July 1, 1999. The warrants represent approximately 2.5 percent of Northrock's current outstanding shares.
Northrock is an oil and gas company with a current market capitalization of approximately $550 million listed on the Toronto Stock Exchange under the trading symbol "NRK". Northrock, as a result of this increased initiative in West Central Alberta, has uplifted its projected average production levels for 1998 to 23,000 barrels of oil equivalent per day, an increase of approximately 65 percent over average 1997 levels. CIBC Wood Gundy Securities Inc. and Midland Walwyn Capital Inc. have acted as financial advisors to Northrock regarding this transaction.
PETRO-CANADA and Ultramar Diamond Shamrock Corp. unwrapped plans yesterday to pool $1 billion of refining and marketing assets in a joint venture with $8.5 billion in annual sales.
The merging of the downstream oil business in Canada, Michigan and New England is expected to yield after-tax cost savings of $625 million and support investments of $1 billion in Canada over the next five years, executives said at a press conference after the stock market closed.
The decision by Calgary-based Petro-Canada and Ultramar, based in San Antonio, Tex., comes on the heels of other huge combinations by U.S. and European players in recent months.
Competition in Canada and elsewhere is becoming fiercer. Consolidation helps large players charge consumers lower prices in what is traditionally a low-margin business. In the U.S., Shell Oil Co. and Texaco Inc., and Marathon Oil Co. and Ashland Inc., and, in Europe, British Petroleum and Mobil Oil have combined downstream assets in recent months.
"This will establish scale of position to compete in Eastern Canada and create a platform for penetration on a north-south basis," said Jim Pantelidis, the Petro-Canada executive vice-president who will become chief executive of the new entity.
"We will become the largest downstream business in Canada with $8.5 billion sales, volumes of 30 billion litres and 25% market share."
The proposed deal, which must be approved by regulators in Canada and the U.S., falls short of a complete merger of the downstream retailing and marketing businesses.
Instead, both companies will operate the joint venture as a Canadian general partnership.
Pantelidis said both companies wanted a structure that permits joint decision-making. The use of proportional consolidated accounting is also expected to create more market value for both companies.
Petro-Canada will roll all its downstream assets into the venture in return for 51% ownership of the voting units and 64% ownership of the financial assets.
Although Petro-Canada, still 18% owned by the federal government, has the lion's share of ownership, decision-making for operations and capital distribution will be made on a 50-50 basis for the next four years.
The assets Petro-Canada is contributing include refineries in Edmonton, Montreal and Oakville, Ont., its nationwide marketing network, a lubricants plant in Mississauga, Ont., its product pipeline and Portland-Montreal pipeline interests in Eastern Canada.
Ultramar, the product of a merger between Ultramar and Shamrock more than a year ago, will contribute its downstream operations in Canada, Michigan and in several New England states, including refineries at St-Romauld, Que., and Alma, Mich., along with about 1,700 marketing outlets.
"What becomes critical for success is efficiency," said Jim Stanford, Petro-Canada's chief executive, calling the joint venture "a giant step."
Besides significant cost savings -- about $400 million for Petro-Canada and about $225 million for Ultramar -- both companies want to use the joint venture as a platform for growth, possibly including acquisitions. It will also enable supply and demand balance in Eastern Canada, while facilitating increased penetration in New England and better geographic diversification for both companies.
To achieve the cost-saving, the joint venture will operate on a regional basis and intends to divest a number of retail sites in Quebec and Atlantic Canada over several years. It also plans to cut about 350 of 6,000 jobs.
The cost of the joint venture has still not been fully developed, but the new entity will be self-financing and start off with no debt.
The $1 billion in investments will be self-funded from cash flow and will be evenly split between Western and Eastern Canada, with the bulk of the eastern portion used to increase production at the Montreal and St-Romauld refineries.
Pantelidis said anticipated benefits from Petro-Canada's cost-savings should be about 18› a share on an annualized basis over the first three years.
KERM'S WATCHLIST COMPANIES IN THE NEWS
CANADIAN 88 ENERGY CORP. and of Calgary, Alberta announced Tuesday that it has successfully completed production testing of its third consecutive deep natural gas discovery in theWaterton area of the foothills of Southwest Alberta.
The Company said today in Calgary that its LSD 4, Sec. 19, Twp. 7, Rge. 2 W5M well drilled to a total depth of 4,151 meters (13,490 feet), has been successfully completed in the Mississippian formation and is capable of producing approximately 18 to 20 mmcf/d of natural gas production against a 1,200 lb. line pressure. The well was extensively tested and encountered only 1 percent hydrogen sulfide (H2S). The well was drilled approximately 1 mile northwest of Canadian 88's original Waterton discovery well located at L.S.D. 4, Sec. 18, Twp. 7, Rge. 2 W5M which is capable of producing approximately 18 to 22 mmcf/d of natural gas and three miles northwest of Canadian 88's L.S.D. 4, Sec. 5, Twp. 7, Rge. 2 W5M test well which is capable of producing approximately 15 mmcf/d of natural gas. The Company said that its fourth well in its six well Waterton field development drilling atL.S.D. 12, Sec. 32, Twp. 6, Rge. 2 W5M has encountered structurally high Mississippian and intermediate casing has been set and drilling is proceeding ahead without difficulty to a total depth of 3,705 meters (12,041 feet). The well is drilling approximately three miles southeast of Canadian 88's original L.S.D. 4, Sec. 18, Twp. 7, Rge. 2 W5M Waterton discovery on land purchased last year for $3.25 million by Canadian 88 and it delineates the southerly portion of Canadian 88's large Waterton foothills discovery.
In addition, the Company said that it will be spudding new wells at L.S.D. 3, Sec. 7, Twp. 7, Rge. 2 W5M and L.S.D. 16, Sec. 13, Twp. 7, Rge. 3 W5M drilling to 4,590 meters (14,917 feet) and 4,677 meters (15,200 feet) respectively on the prospect within the next 30 days. The Waterton play is being developed 100 percent by Canadian 88 Energy Corp. with PRIZE ENERGY INC. having a 10 percent carried interest in the project. Based on test results to date, the companies estimate that approximately 90 mmcf/d of natural gas production from the prospect will be tied-in for production from the new field during 1998 with an average of only 15 percent H2S, exceeding original production estimates.
PETROBANK ENERGY AND RESOURCES LTD reported their exploration program in west-central Alberta at Alder Flats is proving significant with a recent well encountering a 100-metre porous dolomite section in the Nisku formation.
"It appears as though we've found a Nisku reservoir," said Kevin Adair, senior vice-president for the firm. The well is on track for testing over the next month, he said.
The deeper pool test was spudded on Nov. 11 with a projected total depth of 2 862 metres to terminate in the Ireton formation. Adair said the cost to drill and complete the 12-34-45-8 W5M location will run about $1.5 million.
The firm is currently taking steps to secure a rig for a follow-up test into the feature based on the existing two-dimensional seismic which was used to drill the initial well. The well is expected to spud during the first quarter.
Petrobank is also having great success with its "bread and butter play," the vice-president added with successful test at 1-27-46-8 W5M.
The well, which was drilled to the Rock Creek formation last August to a depth of 2 210 metres, tested at an absolute open flow rate at 15 mmcf of gas per day. It is currently producing at more than 1,000 bbls of oil equivalent per day of gas and associated liquids after the well was tied-in in December, Adair said.
The company is in the process of seeking regulatory approval to double plant capacity at its facility in the area.
Production levels for Petrobank from the Alder Flats area saw year-end production rise to more than 2,000 BOE per day at the end of 1997 versus 400 BOE per day at the same point of 1996.
IPSCO INC. and Nucor Corp are likely to build new mills to roll steel plate that could expand capacity in the North American market by 20 percent or more, the Wall Street Journal reported Wednesday.
The two U.S. steelmakers are both in advanced stages of feasibility studies and say chances are good they will proceed with the plants, the Journal said.
"It seems a very good idea and there's a good chance we'll probably go ahead with it," it quoted Nucor chairman Kenneth Iverson as saying.
The Journal said both companies acknowledge that the plate market is not expected to grow significantly and that such a boost in production will result in overcapacity.
The companies believe, though, that their new efficient mills will simply displace production from older, less efficient ones, it said.
OTHER COMPANIES IN THE NEWS
ULTRA PETROLEUM has committed to drill 2 wells with an option to drill 2 additional wells on lands owned by H.S. Resources, Inc. (NYSE: HSE) and McLish et al. The four earning wells which must be drilled before July 1, 1999, will earn Ultra a 70% interest in half of approximately 28 sections on a checkerboard basis.
The initial well of the farm-in is the Steele #16-31 of T34N, R109W of Sublette County, Wyoming. This 12,600 ft. Lance test is expected to spud shortly. It is located on the northern plunge of the Pinedale anticline approximately 8 miles NNW of the Ultra Mesa 15-8 well.
GHP EXPLORATION COMAPNY (CDN.GHPX.U) announced that it has completed testing on its Donner No. 1 well located in Newton County, Texas. The Donner #1 well, in which GHP has a 72% working interest and a 54% net revenue interest, is the first well operated by the Company.
The GHP Donner No. 1 encountered multiple oil and gas bearing sands from 6,900 feet to a total depth of 7,660 feet. The Nodosaria sand at 7,460 feet tested at rates in excess of 200 barrels of oil per day but was abandoned due to high water production. A permanent completion was made in the Hackberry sand at 6,966 feet. The well flowed 104 barrels of oil per day with no water on a 24 hour stabilized test. Additional appraisal wells are currently being planned for the field. Construction of production facilities is progressing with first oil sales expected by February 1998.
The Company's West Delta 78 and Sud Nefta #1 wells are still drilling to objective depth.
BXL ENERGY LTD. reported it recently completed a property acquisition in its core area of Wilson Creek/Westerose which added production of approximately 40 barrels of oil equivalent per day. This acquisition is strategic in that BXL has increased its ownership in key producing wells, production enhancements existthrough the rework of existing well bores and most importantly, BXL has doubled its ownership in gas gathering and compression facilities in an area where company production is on the increase.
BXL also announced that in late December 1997 it completed a private placement of 1,405,000 flow-through common shares at $0.675 per share for proceeds of $948,375. Including the shares issued in connection with the private placement, BXL has 19,755,405 common shares outstanding.
DIAZ RESOURCES and ORBIT OIL & GAS LTD. confirmed that its Cabeza Creek well in Goliad County, Texas, encountered 27 feet of gross pay, with greater than 18% porosity and a reservoir pressure of 9200 psi in the Lower Wilcox, based on log and formation test tool results. Drilling operations will recommence to drill to a total depth of 13,000 feet, at which point production casing will be set.
Diaz holds a 33.3% working interest in the well.
ORBIT OIL AND GAS commented that the recent assertion by Sunoma that reserve values were questionable, were probably based on Sunoma's lack of familiarity with the economic benefit of Orbit's natural gas transportation contracts and commodity hedges in place. Sunoma has not asked to review the Company's data room and consequently has limited knowledge of Orbit's current marketing advantages.
Orbit's 1998 operating results will only be marginally impacted by the recent downturn in commodity prices due to the Company's oil and gas hedges and interest rate hedges in place. Approximately 45% of Orbit's liquids production has been hedged at an average price of approximately $30.00 per barrel and 40% of 1998 gas production has been hedged at AECO C netback prices of $2.20 per mcf.
In the longer term, over 30 million cubic feet of gas per day is marketed through company owned transportation facilities to significantly higher priced U.S. markets.
Hence, Orbit is well positioned to achieve a significantly higher price for its natural gas production and properties even in current weaker markets.
TAPPIT RESOURCES reported that the surface lease is being prepared for a well to test the Red River Formation near Kisbey, Southeast Saskatchewan. The 2560 metre deep well is expected to spud Thursday, January 8. Tappit has a 40 percent working interest in the well.
Tappit also announces that 2,388,864 warrants (expiry date December 15, 1997) were exercised providing proceeds of $716,659 to Treasury. At today's date there are 27,758,577 shares outstanding. Tappit currently has working capital of approximately $1,500,000.
INTERNATIONAL SCENE
CENTURION ENERGY INTERNATIONAL INC. (CUX-TSE) announced that the Ezzaouia No. 12 well located in the Ezzaouia oilfield on the southeast coast of Tunisia, was spudded on December 27, 1997. The well is being directionally drilled to test the fractured Jurassic M'Rabtine reservoir at a vertical depth of 2200m subsea. Production from the well will be tied in immediately to the company's existing processing facilities for delivery by pipeline to the Port of Zarzis.
Centurion, through its wholly owned subsidiary, Ecumed Petroleum Zarzis Ltd., holds a 31.3 percent interest in the Ezzaouia oilfield which is currently producing approximately 3800 barrels of oil per day from 2 wells in the Cretaceous Zeebag and 5 wells in the Jurassic M'Rabtine formations.
CORDEX PETROLEUMS INC. (CZX.A) has executed agreements with AXEM-EG LLC, Westport Oil and Gas Company Ltd. and Minnowburn Corporation to fund exploration and development work on CORDEX's Austral Basin Fell Block, an oil and gas concession in Chile, and its Del Mosquito concession in the Austral Basin of Argentina. Axem, Westport and Minnowburn will invest US $10 million with CORDEX Petroleums on these projects. Included in the total is $1.5 million, which was an advance to CORDEX Petroleums. The remaining $8.5 million will be invested in 3-D seismic, workovers, and other drilling activities.
Axem, Westport and Minnowburn will spend $3.5 million in 3-D seismic and workovers to earn a 36 percent interest in the Fell Block in Chile. Axem, Westport and Minnowburn can earn an additional 14 percent of CORDEX's interest in the concession by investing an additional $2.5 million in various development activities on the concession.
Axem, Westport and Minnowburn will invest $2.5 million in the Del Mosquito concession in Argentina to earn a 50 percent interest in the concession. The initial work will consist of a 3-D seismic shoot followed by drilling activity on the concession.
In NIGERIA, a new Nigerian budget has punctured the oil industry's dreams that the country will be awash with money in 1998 to step up exploration and production, officials said on Wednesday.
The military government's budget released on Tuesday allows more for joint ventures with multinationals than last year -- $2.5 billion against $2.05 billion. But the amount falls far short of what the firms said they needed to just maintain production.
''Quite frankly it's disappointing,'' said a senior official with one of the joint venture partners. ''The effects will be hard to calculate at this stage, but I can assure you they won't be positive.''
Others said they would prefer to see how much their own operations would get from the annual share out before commenting on the year's prospects, but said the picture was far from rosy.
''Industry-wide it is $1 billion less than was asked for,'' an official of another company said. ''It means there is less for projects, which means it will have some effect on production.''
In the run-up to the budget, each of Nigeria's oil partners warned that production could suffer if they faced the same cash constraints as in 1997, when drilling and other projects had to be cut back severely.
The biggest company of all, Royal Dutch/Shell (RD.AS) (quote from Yahoo! UK & Ireland: SHEL.L), which pumps about half Nigeria's more than two million barrels per day (bpd), said the 1997 cash crisis had already hit production -- and warned it would fall further if 1998 funding was not adequate.
But some Nigerian officials privately say the foreign firms are scare-mongering and greedy for cash. They point to the fact that production has actually increased over recent years of budget cuts despite the oil majors' gripes.
''They got more than last year didn't they?'' commented one senior official on this year's budget gap.
Just the four biggest joint ventures put forward a budget of more than $5.0 billion for consideration to their partner, state-run Nigerian National Petroleum Corporation (NNPC). NNPC chipped away at that before proposing a $3.5 billion budget to government.
Hopes had been raised by a report from military ruler General Sani Abacha's ''Vision 2010'' economic planning committee that in 1998 there would be more money for oil -- which accounts for more than 90 percent of export revenues.
Instead there were other priorities -- such as $800 million for investment in projects for a steel industry that the World Bank has described as extremely wasteful.
Long term hopes of boosting Nigeria's oil output lie in deep offshore waters, but development is at an early stage and costs vastly higher than closer to land and onshore, where the price of pumping oil is often lower than $2.00 per barrel.
Apart from Shell, Nigeria's main joint venture partners are Mobil (NYSE:MOB), Chevron (NYSE:CHV), Elf-Aquitaine (ELFP.PA) and Agip (AGIS.CN).
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