MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, FEBRUARY 3, 1998 (2)
OIL & GAS
FEATURE STORY
Heavy Oil Sector Slows
PanCanadian To Lay Off 200
Claudia Cattaneo The Financial Post
The oil and gas production arm of CP Ltd., PanCanadian Petroleum Ltd., is slashing jobs and cutting spending on heavy oil to cope with weak oil prices.
Seven months after buying heavy oil producer CS Resources Ltd. for $521 million, including $56 million in debt, PanCanadian said yesterday it will lay off 200 people in the next few days, 10% of its workforce. It's also reassessing a $1-billion capital spending program for 1998.
Weak oil prices have forced several producers to trim heavy oil operations, but PanCanadian's moves are the most severe since world oil prices began falling late last year.
The board will decide how deep to cut later this month. The company will focus on light oil and natural gas.
PanCanadian shares (PCP/TSE) closed yesterday at $23, down 10›.
"The current price environment, coupled with bottlenecks in export pipelines and much higher differentials between heavy and light oil, presents Canada's oil industry with a substantial challenge," said president and chief executive David Tuer.
"This weak price environment appears likely to continue for some time, which means we must act now to eliminate unprofitable production and bring costs in line with world and North American market conditions."
PanCanadian produces 220,000 barrels of oil equivalent daily. About a third of production is natural gas, while heavy oil accounts for 35,000 barrels a day.
West Texas intermediate crude closed at US$16.50 a barrel yesterday, down US55›. In the past year, Canadian benchmark prices for light oil sold to Alberta pipelines and refiners have fallen by more than $10 a barrel to $23, a 30% decline.
Heavy oil prices have softened more because of increased production and limited upgrading and refining capacity. The price for Bow River heavy oil dropped in the past year by more than $13 a barrel, 48%, to $14.
"At these prices, a lot of conventional vertical well production of heavy oil is not very attractive and we have seen a number of companies revamp their budget plans as a result," said Wilf Gobert, managing director of research at Peters & Co. Ltd. in Calgary. They include:
Canadian Natural Resources Ltd. has shut in 500 b/d to 1,000 b/d of heavy oil production, and scrapped 330 heavy oil wells scheduled for this year.
Alberta Energy Co. Ltd. last week deferred $100 million in capital spending related to heavy oil.
Tarragon Oil & Gas Ltd. is considering cutting its heavy oil capital spending by half, to $30 million, from $60 million.
Numac Energy Inc. has placed on hold spending of $12 million to $13 million for heavy oil related drilling at its Manatokan property. south of Cold Lake.
Ranger Oil Ltd. now expects to produce 17,000 b/d of heavy oil, down from 22,000 b/d budgeted earlier.
Gulf Canada Resources Ltd. may postpone plans to spin off a heavy oil company until prices strengthen. It had aimed to take the company public in the third quarter.
Toronto-based Blackrock Ventures Inc. pulled a $10-million special warrant financing this week. It wanted money to expand bitumen production at Cold Lake. Alta.
FEATURE STORY
St. John's Evening Telegram
Two St. John's-based junior petroleum companies and a Calgary partner have completed the first phase of an onshore-to-offshore drilling operation at Campbell's Cove on the province's west coast.
Vinland Petroleum Inc., headed by president and CEO Terry Brooker, leased its mineral claim on an offshore parcel near the Port au Port Peninsula to Inglewood Resources Inc. of St. John's, which operates the property on behalf of LMX Resources of Calgary.
LMX vice-president and director in charge of the project is recent Memorial University geology professor John Harper.
The company's drilling team, East Coast Drilling, of Stephenville, completed a surface casing for the well in December and earlier this month began drilling a slim hole well using the rig Inglewood Man of War.
The well has reached a depth of 555 metres toward its total target depth of 2,438 metres, a release from the Canada-Newfoundland Offshore Petroleum Board stated Monday.
"It should take a total of about 100 days," Brooker said Monday. "So we'll be done in another two months.
"The East Coast drilling rig is onshore, drilling vertically for a while and then directionally out into St. George's Bay," he said.
In August 1995, more than 5,000 barrels of light crude oil flowed from a nearby Hunt PanCanadian well.
Flow rates from the 3,500-metre well were not sustainable enough to put the Port au Port No. 1 well into production, but observers have suggested it indicates potential in the area.
Should the shallower Campbell's Cove well strike oil, Inglewood will earn a 45 per cent interest in one portion and 50 per cent in another portion, Brooker said.
FEATURE STORY
RIGHT APPROACH LEADS TO SMILING CLIENTS
Sunny Munroe -- Calgary Sun
For Tom Arnett, president of Arnett and Burgess Pipeliners Ltd., the mission statement for his pipeline construction, design and engineering company is simple.
"Have a good time, treat your customers right and make money."
Arnett says this with a twinkle in his eye, but there is obvious pride in his voice when he explains his statement.
"If you're having a good time, you're doing a good job," Arnett says. "If you're doing a good job, you're making money."
For Arnett, the key to the 41-year-old company's success is their more than 300 employees: 60 to 70 engineering and technical staff and 250 field staff, some of them second-generation employees.
The majority of the field staff work in Sedgewick. "Most of the people working here are proud of the company," says Arnett, himself the son of co-founder and board chairman Les Arnett. "If you have good people, you don't have to worry about work, in good times or in bad times."
Marketing manager Kelly Quinn says the first-time Arthur Anderson Private 100 company has worked hard to cultivate and maintain its clients' trust, with excellent results. "We're extremely busy," says Quinn, who, like Arnett, credits the company's success to employee commitment and integrity.
Quinn says the company operates through two divisions: Arnett and Burgess Oilfield Construction Limited, which does pipeline and facilities construction and fabrication services -- and Greenpipe Industries Ltd., which provides both design and pipeline integrity engineering, project management and field construction repair services. "We do a lot of 'hot' repair work," says Quinn. "We try to operate with minimal shut-down time." "We're here to solve customers' problems, not create them."
Greenpipe's technical staff has been developing a computer program called SWIM Plus, specifically designed for pipeline integrity management, an area which Quinn says shows great growth potential.
The the company plans to unveil SWIM Plus at this year's National Petroleum Show in June.
NYMEX
Futures prices were sharply lower in moderate trading Tuesday on the New York Mercantile Exchange as the market reacted negatively to a proposal that Iraq be allowed to export more oil for humanitarian aid.
March light sweet crude oil sttled down $0.55 to $16.50.
On Monday, U.N. Secretary-General Kofi Annan said he wanted to allow Iraq to export $5.2 billion worth of oil over a six-month period to pay for humanitarian aid. That would be sharply above the $2 billion currently permitted over six months under a relaxation of an embargo imposed on Iraq for its 1990 invasion of Kuwait.
Analyst Tim Evans of Pegasus Econometric Group said the market was taking the diplomats at their word that the oil sale would be entirely separate from the crisis that exists over Iraq's defiance of United Nations weapons inspections.
Threats of military intervention in Iraq because of its refusal to permit unfettered inspections of its weapons sites have put upward pressure on the market. However, Evans said it had little effect on Tuesday's trading because a military strike appears unlikely anytime soon.
NATURAL GAS
Natural gas futures ended mixed Tuesday in a moderate session, with front months pressured by profit taking despite reports of a firmer physical market, industry sources said.
March slipped 2.2 cents to close at $2.307 per million British thermal units after stalling early ahead of resistance at $2.36. April settled 2.7 cents lower at $2.321. Other months ended mixed, with some 1999 and 2000 contracts finishing with modest gains.
"Based on yesterday's open interest figures, it looks like a lot of new longs came into the market, then some got out today. I think the funds have been big buyers, but I think they're wrong," said one Texas-based trader, noting recently improved technicals but still-bearish fundamentals.
While most agreed the technical picture turned bullish late last week, some said they expected a profit-taking pullback after a three-day, 14-percent rally, particularly ahead of Wednesday's weekly AGA inventory report.
AGA withdrawal estimates range from 95 bcf to 160 bcf. For the same week last year, stocks declined 161 bcf.
Traders also noted that mild winter weather continued to temper the bulls.
Forecasts this week still call for mostly above-normal temperatures for much of the U.S., except in the Southeast, where levels should stay several degrees F below normal and the Northeast where cooler weather is expected by the weekend. Heavy rains and winds are expected to continue in California through Friday. Taking a look ahead to next week, cooler, more seasonal weather is predicted for the Midwest.
Technically, traders pegged March resistance at Monday's high of $2.38, with more selling expected at $2.50 and then at prominent highs in the low-$2.70s. Support was seen first at $2.18, with more buying likely at $2.03. A close below the recent $1.96 spot low could set up a test of daily continuation chart support in the $1.85 area though there could be some buying ahead of March's contract low of $1.93 from April, 1996.
In the cash Tuesday, Gulf Coast swing quotes firmed about a nickel to the low-to-mid $2.20s, more than 20 cents above February indices. Midcon pipes were up a similar amount to the mid-to-high teens. New York city gate gas gained five cents to near the $2.50 level, while Chicago was up a few cents to the high-$2.20s.
The NYMEX 12-month Henry Hub strip fell 2.1 cents to $2.417.
OIL & GAS PRICE REFERENCES
Charts: oilworld.com
NYMEX Reference quotewatch.com
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