MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, JANUARY 22, 1998 (3)
HEADLINE NEWS STORY
OIL PRICE BELOW $16 - HUGE U.S. INVENTORY FUELS NEW DOWNTURN
Calgary Sun
Oil prices scraped the bottom of the barrel on world markets yesterday, sinking past the psychological $16 barrier to close at a years long low of $15.88.
West Texas Intermediate crude oil lost 50 cents on the New York Mercantile Exchange in a single day of trading at news of overflowing inventory supplies in the U.S.
Overnight figures showed U.S. oil inventories soared by 15 million barrels last week, now sitting 32 million barrels higher than they did this time last year.
The news was enough to touch off a selling spree among traders already unnerved by wave after wave of bad news.
Since October, oil prices have been in free-fall due to the financial meltdown in Asia and a raft of activity in the Middle East.
In November, the Organization of Petroleum Exporting Countries decided to open the taps and boost production by almost 10%.
More recently, the U.N. has hinted it may allow Iran to boost exports under its oil-for-food deal, further skewing the tenuous balance between world supply and demand.
But the major contributing factor has been a prolonged spell of warm weather in both Canada and the northern U.S. brought on by El Nino, said Lou Schizas of Calgary's Vantage Securities.
"Cold is gold for oil and gas," said Schizas, a Sun columnist. "El Nino has been an expensive winter holiday, and right now we're starting to pay for it."
Schizas said sinking commodity prices will force many Alberta producers to scale back their production plans for the second quarter of the year.
"A lot of people's plans will go right to the back burner," he said.
"Lots of companies have drilling costs around $15 a barrel, and prices like this will definitely force them to take another look at their plans."
Prolonged low prices could also hurt oil and gas companies which failed to create sound hedging programs, Schizas said.
Companies that hoped for commodity prices to rise and failed to sell at least some of their product on futures markets will be hard pressed to turn a profit.
ALBERTA LAND SALES
For results of the January 21st Alberta land sale, go here;
discoveryplace.com
MARKET ACTIVITY
In the U.S., stocks of oil majors and drilling companies sagged Thursday amid plunging prices for crude, and stood out in American Depositary Receipt (ADR) trade.
Traders said ADRs overall were weighed by concerns about earnings and the Asian financial crisis' effect on them.
Futures in North Sea Brent crude oil, an industry benchmark, dropped below $15 a barrel in early trade Thursday. It was the first time the $15 mark was breached since April 1994, reflecting world oversupply in oil.
''All the oils and the drillers are going to be down because of that,'' a trader said.
Franco-American driller SCHULBERGER LTD. (SLB) fell 8-3/8, or 10.7 percent, to 73-1/8 in heavy trade after it reported fourth quarter diluted earnings per share of $0.72 against $0.50 for the same time period the year before.
The company also said clients' plans for exploration and production spending this year might be modified because of the Asian financial crisis.
Schlumberger was among percentage-loss leaders and most-active issues on the New York Stock Exchange.
France's COFLEXIP (CXIPY - CXIP.PA) was off 1-7/8 to 44-3/8 and BOUYGUES OFFSHORE SA (BOUY.PA) (BWG ) fell 1-3/8 to 18-1/8.
BRITISH PETROLEUM CO PLC (UK & Ireland: BP.L; BP) eased 2-1/2 to 76-1/2. France's TOTAL SA (TOTF.PA) (TOT - news) fell 4/16 to 50-15/16 and ELF AQUITAINE (ELFP.PA) (ELF - news) dropped 7/16 to 52-13/16.
HOT STOCKS
Rampant speculation forced NOVA CORP. and TRANSCANADA PIPELINES LTD. yesterday to confirm reports they're in merger discussions. Analysts said the deal could further lift Nova's stock to the $17 to $18.50 range if the deal is finalized.
Nova shares (NVA/TSE) closed at $14.95, up 20› on volume of 4.3 million shares. TransCanada's shares (TRP/TSE) dipped $1.10 to $30.90 on volume of 1.3 million. "Having announced they are in merger discussions, on Wall Street we would say they are more than a little pregnant," said New York-based analyst David Silver, a vice-president of Credit Suisse First Boston Corp.
Calgary-based TCPL is expected to value Nova stock at $17 to $18.50, analysts said yesterday. Silver is increasing his short-term target price for TCPL shares to $17 from $15.50. ScotiaMcLeod Inc. analyst Sam Kanes has a takeover value of $18.30 a share. That compares with $15 if Nova proceeds with current plans to split into two units - petrochemicals and pipelines - a move announced in November. "Anything over $16 for Nova is a very generous bid," said Tom Kehoe, a principal with Peters & Co. Ltd. in Calgary.
Major company earning's reports in the U.S. did not excite the markets.
Shares in AMOCO CORP. (AN), the fifth-largest oil and gas company in the country, were down $3 at $79.56 a share in consolidated New York Stock Exchange trading. Hit by lower oil prices and troubles in Asia, U.S. oil and gas giant Amoco said Thursday its fourth-quarter income fell 9 percent to $789 million on a 4 percent decline in sales. ''The recent drop in crude oil prices, the effect of relatively mild weather, and the volatile Asian markets adversely affected the quarter results,'' said Chairman Laurance Fuller in a statement.
Shares in TEXACO INC. fell $1-1/8 to $52-7/8 on 2.5 million shares. Texaco Inc., announced Dec. '97 fourth quarter earnings per diluted share of $1.12 (includding special gains) vs $0.93 for the same period a year ago and annual earnings of $4.87 vs $3.68 for the prior year.
Shares in CHEVRON CORP. (CHV) fell $1-9/16 to $75-7/16 on 1.5 million shares. Chevron Corp. announced Dec. 1997 fourth quarter diluted earnings per share of $1.41 vs. $0.71 for same period a year ago. Annual earnings of $5.03 vs $3.98 for the prior year. Sales and revenue fell 14%.
Shares in MOBIL OIL (MOB) fell $1-1/16 to $68-5/16 on 1.7 million shares. Mobil Corp. announced Thursday that in 1997 it replaced 146 percent of its oil and gas production with new proved reserves while increasing production by 68 thousand barrels of oil equivalent per day (TBOED) to 1,753 TBOED, a four percent increase over 1996 levels.
Oil service stocks finished broadly lower on Schlumberger, Diamond Offshore results combined with a decline in crude oil prices. SCHLUMBERGER Ltd OFF 8-1/2 TO 73 after the company said Asia's financial woes may affect its clients' exploration and production spending in 1998. The company also reported lower than expected fourth quarter results. DIAMOND OFFSHORE DRILLING INC off 4-12/16 to 40-1/16 after the company said its fourth quarter results were constrained by start-up delays, downtime and higher rig maintenance costs. Other companies whose shares were off included; HALLIBURTON CO (HAL) off 4-13/16 to 43-9/16, PARKER DRILLING CO (PKD) off 15/16 to 12, GLOBAL MARINE INC (GLM) off 1-13/16 to 22-3/4, SMITH INTERNATIONAL INC (SII) off 6-7/16 at 50-1/4 and CLIFFS DRILLING CO (CDG) off 5-3/16 at 40-13/16.
INDEXES
The Toronto Stock Exchange 300 Composite Index fell 1.7% or 107.41 to 6387.16.
In comparison, the Oil & Gas Composite Index fell 2.3% or 143.40 to 6031.85. Of the sub-components, the Integrated Oil's fell 1,8% or 157.87 to 8508.45. The Oil & Gas Producers fell 2.1% or 115.76 to 5273.70. The Oil & Gas Services lost a hugh 5.8% or 155.05 to 2522.18.
INDEX CHARTS
TSE 300.......... canoe.quote.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
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