MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, FEBRUARY 6, 1998 (2)
TOP STORY
Talisman Energy Inc. Results Will Exceed Expectations, CEO Promises
Claudia Cattaneo - The Financial Post
Talisman Energy Inc.'s 1997 results will surprise people on the upside, president and chief executive Jim Buckee said Friday.
Buckee said the Calgary-based senior oil producer will not only deliver what it promised, but results will show it has exceeded its 1997 production target of 200,000 barrels of oil equivalent daily. Financial results for 1997 are scheduled to be released March 2.
While industry peers are cutting spending to offset low commodity prices, Talisman will keep its 1998 capital spending at the same level as last year - $1 billion.
"The reason you are seeing others cut spending is that they made heavy oil acquisitions this year," said New York-based analyst Robert Hinckley, with Merrill Lynch & Co. "They [Talisman] have kept their costs under control and thankfully they don't have a large heavy oil component."
Only four months after buying Pembina Resources Ltd. for $501 million in cash and the assumption of $104 million in long-term debt, Talisman is continuing to look for potential acquisitions.
"We always look. It's not as if anything is different," said Buckee. "We would make an acquisition if it gives us value-generating opportunities."
That includes assets that permit further consolidation in an area where Talisman is already active, or a foothold in new regions where basins are less mature. Areas of interest include the Middle East, South America and North Africa.
But nothing is imminent, despite rumors Talisman could be a good match for Calgary-based Ranger Oil Ltd., whose stock has been trading heavily in the past two weeks.
Rather than reducing capital spending this year, Talisman has identified areas where spending could be redeployed in case of "an extreme outcome." But even with oil prices at US$17.50 a barrel, the company will see its cash flow increase in 1998 because of higher production, he said.
"We find it very hard to believe that prices will stay low for long. The price of oil is inherently self correcting," Buckee said.
Talisman is gearing up for a 20% increase in production this year, to 240,000 barrels of oil equivalent daily. Two thirds of its production is light oil, and the remainder natural gas. A significant portion of the increase will come from the Ross oil field in the North Sea, on schedule to start producing in the third quarter. Talisman's share is estimated at more than 20,000 barrels a day.
Around the same time, Talisman's Corridor gas project in Indonesia is coming on stream.
"If they can deliver the kind of growth we see in 1998-99, the stock ought to be trading in the $60s in the next 24 months," Hinckley said.
FEATURE STORY
Record Drilling Expected In 1999
Sydney Sharpe, Calgary Herald
The record oil and gas drilling levels of the past few years are taking a breather -- but it will be a short one.
Industry analysts expect 1999 to rebound with records.
"We will see record drilling in 1999, but in 1998 maybe there'll be 13,000 wells overall," Martin Molyneaux, an analyst with FirstEnergy Capital Corp., said Thursday.
That's significantly below 1997's record 16,500 wells drilled, but still above the 12,600 wells in 1996.
Depressed oil prices are the culprit.
"It's still a cash flow issue, and if the price isn't great, it still tends to put a damper on the total level of activity you're going to have," said Roger Soucy, president of the Petroleum Services Association of Canada.
If oil prices stay below $17 US a barrel, it will be difficult to generate enough cash flow to justify the ambitious exploration and production programs that companies were planning.
"How much cash flow can companies generate to reinvest?" said Molyneaux. "Every dollar of expenditures is getting scrutinized today."
PSAC doesn't expect the number of wells drilled to meet its original forecast, made last October, of 16,300 oil and gas wells for 1998.
"I think the decreased price of oil will reduce the ability of operating companies to meet the spending budgets they had put in place," said Soucy. "Because of that, we will see reduced field activity and reduced wells drilled."
The first quarter will post a record number of wells, but that will taper off in the second quarter of 1998, especially since all signs point to an early spring. Drilling and thawing don't mix.
With commodity prices dramatically down, and heavy oil especially hit hard, many heavy oil projects are currently uneconomic.
"Benchmark heavy oil posted $14.79 (a barrel) on Wednesday versus $24.02 a year ago. It's down 38 per cent," said Wilf Gobert, an analyst with Peters & Co. In the same period, light oil is down 27 per cent to $23.20 versus $32 at this time in 1997. And the spot price for natural gas has dropped 33 per cent to $1.67 per gigajoule from $2.50 a year ago.
"The depth of the downturn and the duration of the downturn will be directly related to the commodity price," said Gobert.
Meanwhile, natural gas producers are still 10 months away from increased export capacity from the Northern Border pipeline expansion in the U.S.
"The industry is bottlenecked in both oil and natural gas," adds Gobert. "It needs more pipeline capacity for both."
Producers are switching gears from heavy oil to natural gas. But that takes time, especially since a lot of geological horsepower and engineering expertise has been focused on medium and heavy oil.
"Then expect an all-out effort in drilling natural gas, an effort we haven't seen before," said Molyneaux.
David McCracken, an analyst with Newcrest Capital Inc., is especially keen on the number of wells the patch will drill, and on the energy services industry in general.
"It is the dark before the dawn, no question," McCracken said. "If you look at the industry longer term, it is an awesome secular story."
McCracken is so bullish that he calls for 18,000 wells this year, because new deliverability as a result of pipeline expansions will likely not be met.
"Our demand-driven drilling forecast implies that 18,000 wells need to be drilled in 1998, followed by an unfeasible 23,400 wells in 1999, (and) an inconceivable 27,000 wells in the year 2000 to satisfy the incremental demand call," said McCracken.
FEATURE STORY
Seismic Firm Rides Shocks
Glen Whelan - Calgary Sun
A lot has changed since Jim Irvine, Art Visser and Bill Greenan took over Norcana Resource Services Ltd. back in 1991.
The Calgary-based seismic recording company has survived a crippling oilpatch slump in the early '90s and thrived during an equally impressive boom later in the decade.
In that time, Norcana has progressed from outdated seismic equipment carted from location to location by fleets of pickup trucks, to computerized data-acquisition units hauled by tractor-trailers and flown over remote sites by helicopter.
But amid that flurry of change, two things have remained a constant at Norcana -- the company's size and its steadfast commitment to its clients.
And that's just the way they like it, the triumvirate at the helm of the company contends.
"We've taken a different approach to our company than a lot of our competition has," says Irvine, president of the 31-year-old firm.
"We try to refine what we do and how we do it as opposed to focusing on growth."
While competing companies have grown in size, gone public or been swallowed whole by larger firms, Norcana's growth peaked at about 150 employees and has stayed there ever since.
But thanks to technical innovations and a tireless and talented core of staffers, Norcana is doing more work and logging better sales now than ever before.
"Our best measure of growth is the number of channels (data-gathering units) in the field," says Visser, vice-president.
"We started out with 500 channels. Now we have about 3,300."
The company is active in Alberta, B.C., Saskat-chewan and Manitoba and does work for oil and gas majors on down to junior exploration firms.
With a dedicated customer base and lean and flexible core of employees, Norcana expects to continue prospering in what could be less-than-ideal conditions in 1998. "We started out as a hands-on company and it's served us well," Irvine says. "With our equipment and technical expertise, we can take on any project out there. It's just that with our size, it's a little closer to the heart."
FEATURE STORY
U.S. Sees Lower Oil Demand In Asia Due To Crisis
Reuters
Due to the economic crisis in Asia, the U.S. Department of Energy Friday reduced its monthly forecast for oil demand this year in Asian countries -- excluding China and Japan -- by 300,000 barrels to 9.1 million barrels per day.
In addition, the DOE lowered its 1999 forecast for oil demand in the region by 500,000 barrels to 9.5 million barrels a day. The revised projections were contained in the monthly short-term energy update put out by the DOE's Energy Information Administration.
"While we do expect a substantial reduction in the growth of oil demand in ... Asia, oil growth in the region in 1998 and 1999 should remain positive," the DOE said.
The DOE said the decline for oil demand in Asia would have been greater if counties like India, Pakistan and Taiwan -- which represent one-third of the region's oil demand -- had suffered the same economic problems as Southeast Asian countries.
Separately, the DOE reduced its estimate for the world price of oil this year to an average $15.15 per barrel from last month's estimate of $16.73. The DOE also cut its forecast for the 1999 average world oil price to $15.38 per barrel from $17.51.
The lower oil price reflects increases in world petroleum inventories, the DOE said. World oil supplies experienced an estimated buildup of 600,000 barrels a day last year, and should increase another 400,000 barrels per day in 1998, and another 300,000 barrels a day next year, according to the DOE.
"However, despite the current tilt toward excess supply, with the emerging supply/demand picture yielding increasingly smaller annual stock builds over the forecast period, we do not envision world oil prices dropping much below $15 per barrel for any significant amount of time," the DOE said.
FEATURE STORY
New President For Shipyard,
St Johns Evening Telegram
Friede Goldman Newfoundland, operators of the Marystown Shipyard, has a new president.
Richard Marler, chief operating officer with parent company Friede Goldman International of Pascagoula, Miss., announced the appointment of Guy Cagnolotti to the position of acting president.
Cagnolotti, who succeeds Malcolm Weatherston, has over 20 years' experience in the oil service and offshore rig building industry.
Prior to this assignment, he was vice-president of business operations at HAM Industries, a sister company within the Friede Goldman International family.
Cagnolotti will remain in his present position until a permanent replacement is found for Weatherston.
There are currently over 700 people employed at Friede Goldman Newfoundland operations, and the company has just been awarded two major contracts for the refit of two large oil rigs.
"That will result, I believe, in outfitting and pipefitting prefabrication work being transferred to Marystown for completion," said Weatherston. "All things considered, the future looks pretty bright for the yard."
The Friede Goldman (see service sector article) purchase of the Marystown Shipyard from the provincial government in 1997 guaranteed 1.2 million person hours of work for shipyard employees for at least three years. |
