MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, FEBRUARY 20, 1998 (5)
MARKET ACTIVITY
The oil and gas producers, for the second consecutive day, led the oil and gas sub-components as well as the TSE 300. Volume in the oils was considered to be very light. Oil prices appear to be the major reason why share prices have stabilized.
By the end of next week, what is to happen in the Iraq affair should be pretty well determined. At that point, the markets will react accordingly. Many analysts expect non-aggression will send the price of oil, as well as shares in oil companies, downward.
INDEXES
The Toronto Stock Exchange 300 Composite Index gained 0.5% or 34.48 to 6920.74. In comparison, the Oil & Gas Composite Index gained 0.9% or 57.67 to 6296.00. Among the sub-components, the Integrated Oils gained 0.5% or 40.03 to 8926.46. The Oil & Gas Producers climbed 1.2% or 64.22 to 5486.53. The Oil & Gas Services gained 0.6% or 15.17 to 2657.28.
For the week, the Toronto Stock Exchange 300 Composite Index fell 0.7% or 51.27 points. The Oil & Gas Composite Index also fell 0.7% or 43.29 points. The Integrated Oils gained 0.2% or 20.35 points. The Oil & Gas Producers Index lost 0.8% or 44.53 points. The Oil & Gas Services fell 3.1% or 86.31 points.
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
NEW PHLX OIL SERVICE SECTOR
bigcharts.com.
lonestar.texas.net
HOT STOCKS
Gulf Canada Resources (GOU/TSE) shares were sharply up $0.55 to $7.65. Trading volume was over 3 million shares and was the most active issue on the TSE. The company announced a debt reduction program.
Doreal Energy (DOY/ASE) shares were up $0.46 to $2.65 on volume of 295,900 shares. For the week, Doreal gained $1.05 to $2.65. Earlier in the week, the company reported that their well in Portugal had reached total depth and will be testing indication of hydrocarbons.
MOST ACTIVES
Kerms Top 21, Spec 15, Serv9 Companies are identified in bold print
Gulf Canada Resources, Pan East Petroleum, Petro-Canada, Ranger Oil and Anderson Exploration, were among the top 50 most active traded issues on the TSE.
Net gainers included Talisman Energy, up $0.75 to $40.45, Canadian Natural Resources $0.70 to $26.25, Poco Petroleums $0.70 to $13.25, Pioneer Natural Resources $0.70 to $30.70 and Archer Resources $0.65 to $7.60.
Percentage gainers included Black Sea Energy 13.0% to $1.30, Archer Resources 9.4% to $7.60, Carmanah Resources 8.3% to $5.85, Gulf Canada Resoources 7.7% to $7.65, Pan East Petroleum 7.6% to $1.56, Ocelot Energy B 6.6% to $5.65, Poco Petroleums 5.6% to $13.25 and Founders Energy 5.2% to $1.02.
On the downside, Amber Energy fell $1.75 to $15.20 and Seven Seas Petroleum $1.25 to $15.20.
Percentage losers included Amber Energy 10.3% to $15.20, Benson Petroleum 7.1% to $1.30, United Tri-Star 6.0% to $0.94 and Kappa Energy 5.7% to $1.65.
Archer Resources reached a new 52-week high.
Kappa Energy and Raider Resources reached new 52-week lows.
In review of service companies, as well as those with close ties to the industry, Precision Drilling was among the top 50 most active traded issues on the TSE.
Net gainers Enertec Resource Services $0.85 to $9.60 and ATCO I $0.75 to $38.00.
Percentage gainers included Enertec Resource Services 9.7% to $9.60.
On the downside, Mullen Transportation fell $0.75 to $19.00 and Enerflex Systems $0.30 to $38.10.
There were no percentage losers.
ATCO I reached a new 52-week high.
Bowridge Resources reached a new among 52-week low.
Over on the Alberta Stock Exchange, Doreal Energy, Raptor Capital, AltaPacific Capital, Hampton Court, Red Sea Oil, Cubacan Exploration, HEGCO Canada, Stampede Oils, Dalton Resources, EMR Microwave, Scimitar Hydrocarbons, Parkcrest Exploration, Colt Energy, Bearcat Exploration, Airgen A and Sator Capital were among the top 30 most active traded issues.
Net gainers included Progress Energy B $0.50 to $4.50, Doreal Energy $0.46 to $2.65, Red Sea Oil $0.25 to $3.25, CanBaikal Resources $0.20 to $1.70, Crispin Energy $0.13 to $0.30, Hampton Court $0.11 to $2.65, Canadian Crude Separators $0.10 to $4.45, Draig Energy $0.10 to $1.25, Petro-Reef Resources $0.10 to $0.70, Underbalanced Drilling $0.10 to $2.35 and Master Downhole $0.07 to $1.35.
Percentage gainers included Crispin Energy 76.5% to $0.30, Green Maple Energy 25.0% to $0.25, Para-Tech Energy 25.0% to $0.25, Canadian Blackhawk 20.0% to $0.30, Petro Reef Resources 16.7% to $0.70, CanBaikal Resources 13.3% to $1.70, Tappit Resources 12.9% to $0.35, Progress Energy B 12.5% to $4.50 and Cubacan Exploration 10.0% to $0.44.
On the downside, Blue Power Energy fell $0.21 to $0.20, Progress Energy A $0.20 to $2.50, Foothills Oil & Gas $0.19 to $0.10, Danoil Energy $0.17 to $1.30, Lodestar Energy $0.15 to $2.30, Talon Petroleum $0.15 to $0.70, Coachlight Resources $0.10 to $0.70, Syner-Seis Tech $0.10 to $1.75, Total Energy Services $0.10 to $2.35, Gold Star Energy $0.09 to $0.40 and Green River Petroleum $0.08 to $1.36.
Percentage losers included Foothills Oil & Gas 65.5% to $0.10, Blue Power Energy 51.2% to $0.20, Endeavor Resources 20.0% to $0.20, Gold Star Energy 18.4% to $0.40, Talon Petroleum 17.6% to $0.70, Dundee Petroleum 14.3% to $0.30, Coachlight Resources 12.5% to $0.70, Danoil Energy 11.6% to $1.30, Justinian Exploration 11.1% to $0.40 and Airgen A 10.7% to $0.50
Doreal Energy, Hampton Court and Rock Capital reached new 52-week highs
Canop Worldwide, Danoil Energy and Foothills Oil & Gas reached new 52-week lows
An excellent summary of most actives covering all four of the Canadian Stock Exchanges can be found at quote.yahoo.com
EXCHANGE & RELATED INFORMATION
A Temporary Cease Trading Order February 20th, for Genoil Inc. (GNOL/CDN) shares, was issued by the TSE for failure to make statutory filings. A hearing will take place on March 4th, 1998 at 10:00 a.m.
Cotton Valley Resources Corporation (CVZC/CDN) announced a significant step in its planned move from being a corporation domiciled in Canada to being a corporation domiciled in one of the United States, by completing its transfer in registration from the Province of Ontario to the Yukon Territory. According to a Company spokesperson, this intra-Canadian move allows the subsequent transfer later this year to the United States tax-free to the Company as well as to all of its shareholders.
Cotton Valley Resources Corporation concentrates on acquiring and improving Texas and Oklahoma oil and gas properties using new technologies and its own service companies. There are approximately 17 million common shares outstanding.
ANALYSTS - FUND MGR.'S - BUY - HOLD - SELL - MISC.
Van Eck Fund Steers Clear Of Crude Oil
Thanks to Iraq, the world's most actively traded commodity is becoming too much of a gamble for one of this notoriously volatile market's seasoned and influential funds.
''We went more or less flat in crude,'' said Derek Van Eck, portfolio manager of the New York-based Van Eck Global Hard Assets Fund which has $300 million in assets.
This week, March crude fell to a contract low of $15.45, its lowest level since April 1994. Based on the global supply glut, Van Eck says prices should continue their downward spiral to possibly $14.00 in 1998.
But, the prospect of a U.S.-Iraq confrontation has made crude's trajectory somewhat unknown for now.
''We are short crude a little bit, but it's a tiny position because the military and political situation is completely 50-50. We just don't know what's going on in Washington,'' said Van Eck.
The U.S. has placed two aircraft carriers in the oil-rich Middle East Gulf in preparation for a military strike against Iraq to make the country adhere to U.N. weapons inspections.
In late January, crude prices rallied by almost $2.50 on news the U.S. was considering military action, although crude has since given up the gains amid diplomatic efforts.
Van Eck said crude is still carrying a unquantifiable ''war premium,'' making it next to impossible to figure out how much crude will fall or rise depending on how the U.S.-Iraq standoff is resolved.
''We think there is a war premium in the oil price right now. The question is how much is that worth,'' said Van Eck.
Get the Iraq crisis out of the way, however, and Van Eck becomes confident about the direction of the market: down.
"The world is awash with crude," he said.
''Fundamentals for oil have worsened in the last several months, and we expect for them to worsen even more in the next couple of months,'' Van Eck said.
Last November, the Organization of Petroleum Exporting Countries (OPEC) raised its production ceiling by 10 percent to 27.5 million barrels per day (bpd) based on increasing world demand, led by Asia.
But, Asia's currency crisis deepened last year, making the world's dollar-denominated crude too expensive for Asian nations to buy.
Van Eck expects Asia's problems amid increased production to depress commodity prices in general through 1998 and maybe after.
''With the overcapacity situation in Asia, it's going to take a year or more for this situation to work its way through the system,'' he said.
But, a downtrend is as much a trading opportunity as an uptrend, and Van Eck is eager to catch crude at the right price after the uncertainty over Iraq clears.
''The idea is certainly to take advantage of the lower crude prices when the fundamentals take over. We are watching everyday,'' said Van Eck.
The Van Eck Global family of funds has about $1.6 billion in total assets and was founded by the Derek's father John Van Eck in 1955.
Funds Say 1998 May Not Be All Bleak For Crude Oil
After a whopping 33 percent plunge since October, crude oil prices have entered uncertain terrain, but fund managers and asset advisors expect it to become a more attractive bet before the year is over.
''We are trying to find the bottom like everyone else,'' said Mark Anson, portfolio manager of the Oppenheimer Real Asset Fund in New York that has $98 million in assets.
''We are looking at this as a good buying opportunity. We are a bit optimistic looking at the fourth quarter, so it behooves us to start shopping now,'' said Anson.
Anson had been cutting the fund's exposure to crude during the recent decline. The fund's exposure is usually significant since it is benchmarked to the Goldman Sachs Commodity Index.
A global glut in crude oil started last fall. In November, the Organization of Petroleum Exporting Countries (OPEC) raised its official production ceiling by 10 percent to 27.5 million barrels per day (bpd) based on increasing world demand, led by Asia. But, Asia's currency crisis deepened by year end, and the world's dollar denominated crude became too expensive for Asian nations to buy.
Meanwhile, a mild winter in key heating oil demand centers in the West only cut demand further.
The price of light sweet crude on the New York Mercantile Exchange has fallen from $23.15 a barrel in October to $15.45 this week, its lowest level in nearly four years.
With the outcome of the U.S.-Iraq standoff uncertain, crude prices have entered a choppy trading range, an unattractive scenario for fund managers who like to ride a decisive trend. The United States has two aircraft carriers in the oil-rich Middle East Gulf in response to Iraq's defiance of U.N. weapons inspections.
While some fund managers cut their exposure to crude, others have resorted to equally balancing their bullish market positions with bearish ones to neutralize the uncertainty.
''It's a very difficult time to express strong opinions about the short-term environment . . . We have a very neutral position right now,'' said John Hummel, president of AIS Futures Management LLC, a commodity trading advisory firm based in Wilton, Conn. with about $250 million in assets,
The market's uncertain direction has led portfolio manager Derek Van Eck to have what he calls only a ''tiny short position'' in crude for his New York-based Van Eck Global Hard Assets Fund with $300 million in assets.
But, once the Iraqi crisis is resolved, the market will begin to assume a decisive trend, creating an attractive trading opportunity, said advisors. They are divided over whether the direction will be up or down, however.
''What is going to bring us to an $18.00 to $20.00 range in the final analysis is that production is going to have to be cut,'' said Douglas Chapman, managing director at Houston-based Torch Energy Advisors, a financial advisory firm which manages about $1.5 billion in oil and gas assets.
''I think OPEC will be the one that will do that,'' said Chapman, who believes OPEC will stem the decline by cutting back its quota. Unless a special meeting is scheduled, OPEC is expected to discuss quotas again at its biannual meeting in June.
Anson, of the Oppenheimer Real Asset Fund, sees Asian demand recovering toward the end of the year.
''If Asia recovers quickly enough, combined with some smart OPEC policies, i.e. a cut in production, we can see the price of oil come back to the $17.00 to $19.00 range by fourth quarter,'' he said.
Some financial advisory firms and funds that use chart-based trading techniques expect prices to resume their decline.
''It looks to us like the downturn will continue. We don't see any increased volatility down here that would suggest a reversal,'' said Martin Klitzner, managing director at Solana Beach, Calif.-based Sunrise Capital Partners LLC, a commodity trading and advisory firm.
''We have made some money. We have been short,'' said Klitzner. A short position is a bet that prices will go down.
Gordon Capital
Poco Petroleums (POC-T:$12.55) BUY
1997 Results Outperform Expectations
Poco reported fully diluted CFPS of $2.53 vs. $1.93, exceeding our 1997 forecast of $2.45. We are forecasting 1998 CFPS of $2.85. The company's F&D costs were $6.98/boe (proven + probable), or close to $8.00/boe for proven reserve additions only. Over the past five years, the company has achieved a "recycle ratio" (production replacement) of 1.9X. Natural gas and NGL's have comprised 80% of the company's spending activities in recent years. This will continue to be the trend in 1998, with gas activities making up the majority of the company's capital expenditure budget of $425 million. The firm is planning to sell $100-125 million of non-core assets this year, primarily in eastern Alberta where the company's produces medium quality oil from shallow reservoirs. This activity will increase the company's leverage to gas even further than the current level of 56%. It will also increase the quality of its reserve base in terms of reserve life index and netbacks. Poco is one of our top three buys among Canada's senior producers. Our 12-month stock price target is $16.00.
Undisclosed Source
Tesco Corporation (TEO, $19.35) Completes Casing JV Acquisition
Tesco announced that it completed the acquisition of the Tesco Casing Drilling joint venture for 418,000 Tesco common shares. The casing technology is a long-term development which has the potential to replace drilling rigs in certain shallow gas plays. The acquisition will not have much impact on the price of Tesco shares and a target price of $25.00 is maintained.
Undisclosed Source
Gulf Canada Resources (GOU, $7.10) Announces Significant Sale of UK Assets
Gulf reported 1997 CFPS of $1.96 which included Q4 basic CFPS of $0.56, a little higher than the analyst was expecting. Gulf also announced debt reduction plans which involve asset sales of $850 million. The specific assets include 49% of the Company's gas transmission and processing facilities as well as all its UK assets. Production from the UK was planned to be 19,000 b/d and he expects this sale to negatively impact cash flow by $0.30 per share. 1998 fully-diluted CFPS estimate is $1.60, however this could drop to $1.30-$1.35 with the loss of UK production. Gulf is attempting to reduce its debt/cash flow ratio from 4.7x to the low 3x range but the analyst believes the Company is a restructuring story and he does not see any upside in the share price in the near future. He continues to recommend investors reduce their positions.
Undisclosed Source
Amber Energy (AMB, $16.95) 1997 Results
Amber announced 1997 CFPS of $1.15 basic and $1.09 fully-diluted. This was below the analyst's fully-diluted estimate of $1.17. 1998 fully-diluted CFPS estimate is $1.82, however he believes Amber is a 1999 story and he suggested investors have better opportunities elsewhere. A target price for Amber shares is $15.50 and continues to recommend reducing positions. |
