MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MARCH 1, 1998 (4)
U.S. SPOT GAS
U.S. Spot Natural Gas Prices Lifted By Colder Weather
U.S. spot natural gas prices turned stronger Monday as cold weather arrived to the mid-section of the U.S., thereby creating some unexpected heating demand, industry sources said. However, a slight collapse in the April futures contract put downward pressure on cash prices by late morning.
Next-day prices at Henry Hub were pegged mostly at $2.25, though trades ranged anywhere from $2.32 early to about $2.20 late.
In the western Texas market, Permian prices jumped more than five cents to the mid-teens, while San Juan quotes were heard in a wide range of $2.08-2.17.
On the West Coast, however, southern California border prices were quoted little changed at $2.34-2.39. Early deals were reported done as high as $2.45.
In the Midcontinent, where temperatures had slipped below freezing, prices tacked on a few cents to $2.17-2.24, while Chicago city-gate stepped up to about $2.33-2.38.
In the East, where temperatures still hovered above normal, New York city gate prices climbed into the low-$2.50s, up from about $2.43-2.46 on Friday. Cooler weather is forecast for this region late this week.
CANADA SPOT GAS
Canadian Spot Gas Moves Higher Ahead Of Colder Air
Canadian spot natural gas prices continued to firm Monday as colder weather sparked additional demand and buying interest remained fairly strong on the U.S. West Coast, industry sources said.
Spot gas at the AECO storage hub in Alberta was talked at C$1.69 per gigajoule (GJ), up about three cents from Friday. April and July/August AECO were also talked higher at C$1.71-1.715 per GJ.
One-year AECO business starting November 1998 was quoted around C$2.25 per GJ.
Forecasts in Calgary are calling for a high of about -3 degrees Celsius on Tuesday, followed by a little colder weather on Wednesday, a Calgary-based source said.
Meanwhile, storage withdrawals in Alberta on Sunday were about 385 million cubic feet per day.
At the export markets, Sumas, Wash., prices were quoted mostly in the low - US $1.30s per million British thermal units (mmBtu), indicating a gain of about three cents, though deals were reported done as high as US $1.45.
Temperatures in the U.S. Northwest are expected to hover about three to six degrees F below normal, with snow anticipated to arrive early Tuesday, according to Weather Services Corp.
In the eastern export market, Niagara gas prices jumped another six cents to US $2.42-2.46 per mmBtu as temperatures in theregion were expected to dip to lows in the 20s F on Tuesday and Wednesday.
OIL & GAS REFERENCES
CHARTS
oilworld.com
oilworld.com
NYMEX
quotewatch.com
MARKET ACTIVITY
The Oil & Gas Service sector gained momentum yesterday with Dreco Energy Services (DEY/ASE) gaining $3.75 to $41.00 and Precision Drilling (PD/TSE) up $0.75 on high volume of 671,900 shares.
Among the most active on the TSE, Crestar Energy (CRS/TSE) gained $0.25 to $21.75 on heavy volume of 1,655,600 shares. Poco Petroleums (POC/TSE) was unchanged at $14.85 on volume of 1,276,200 shares.
MAJOR INDEXES
The Toronto Stock Exchange 300 Composite Index gained 0.3% or 20.61 to 7113.10. The Oil & Gas Composite Index logged in a simlilar result, gaining 0.3% or 19.44 to 6558.99. Among the sub-components, the Integrated Oil's gained 0.1% or 6.31 to 9025.60. The Oil & Gas Producers gained 0.1% or 8.45 to 5797.78 and the Oil & Gas Services enjoyed a robust day, climbing 2.3% or 61.69 to 2743.73.
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
While oil prices continue to disappoint, the outlook for natural gas is improving and investors are now seeing the buying opportunities. Rio Alto Exploration (RAX/TSE) closed at $14.80 yesterday, down 20›, but up about 14% in the past month. Northstar Energy (NEN/TSE) closed at $10.30 yesterday, down 20›, but up 16.5% in the past month. Anderson Exploration (AXL/TSE) closed at $16.60, down 20›, but up 10% in the past month. Petromet Resources (PNT/TSE) closed at $3.75, down 5›, but up 17% in the past month. Canadian Natural Resources (CNQ/TSE) closed at $28.75, down 25›, but up 3% in the past month.
Para-Tech Energy Corp. (PTY/ASE) traded down $0.02 to $0.38 on the second consecutive day of unusual high volume. Para-Tech is a Calgary based resource company which, over the past three years, has been providing a solution to the Oil Industry worldwide for paraffin, asphaltene and scale depositional problems. This solution is in the form of the ENERCAT, a quartz based downhole tool. Yesterday, Para-Tech announced the company has commenced a Research and Development project to enhance the capacity of the current highly successful tool. The R & D will enable the company to treat wells in excess of 1,000 BBLS/day production.
MOST ACTIVES
Excellent summaries of most actives covering, all four of the Canadian Stock Exchanges can be found at canoe.ca or quote.yahoo.com
EXCHANGE INFO
The Toronto Stock Exchange, in conjunction with the Index Committee, has completed its annual revision analysis for the TSE 100 Index. Among changes to be effective at the open on Friday, March 20, 1998 is the removal of Northstar Energy Corp.(NEN/TSE). lpsco Inc.(IPS/TSE) will be added to the Industrial group.
Stocks are added to or deleted from the TSE 100 Index on the annual revision based on objective criteria, principally on the relative ranking of the market value of the public float of companies calculated using the closing price of shares as of February 27,1998. Please note that effective before the open on Friday, March 20, 1998, the stocks to be deleted from the TSE 100 will be added to the TSE 200 and the stocks to be added to the TSE 100 will be removed from the TSE 200.
Also effective before the open on Friday, March 20, 1998 among the following changes to be made to the Toronto 35 Index will be the addition of 100 shares of Suncor Energy Inc. (SU/TSE)
Marengo Exploration Ltd. (MRO/ASE) Class A Shares now trade on ASE. Marengo closed its initial public offering at the end of December, 1997 for gross proceeds of $4,647,000. Marengo has 3,894,100 Class A Shares and 408,936 Class B Shares outstanding. Marengo is managed by Bill Petrie,
President and Larry Bozohora, Vice-President. Joining Messrs. Petrie and Bozohora on the board of directors are Rick Braund and Harley Winger.
Since December 1, 1997 Marengo has participated in the drilling of five successful oil wells, one successful gas well and one suspended re-entry, all in the Smiley area of west-central Saskatchewan. Marengo's current net oil production capacity is over 200 BOPD. However, due to current weak commodity prices, production rates have been reduced resulting in current net production to the company of 126 BOPD. Construction of a battery is underway on the Smiley property, which will significantly reduce operating costs, and together with an anticipated narrowing of price differentials for the Company's heavier crude this summer, is expected to considerably improve Marengo's netbacks.
The Company has also entered into an agreement with AltaGas Services Ltd. to process and transport its shut-in gas reserves from the Company's Flaxcombe property, also located in west-central Saskatchewan. Production is expected to begin in the second quarter of 1998 at a net rate to Marengo of 1 million cubic feet per day (100 BOEPD). An additional well is planned for this property in the third quarter.
Marengo's immediate activity will include three new exploratory wells prior to breakup in the Smiley and Hoosier areas. These wells will earn lands which, if the earning wells are successful, will be put into Marengo's development inventory until heavy oil prices improve.
The Company is expanding its areas of focus to include a Devonian light oil prospect at Chigwell in central Alberta where review of a 3-D seismic survey is currently underway; as well as evaluation of a light oil pool in southeast Saskatchewan for possible acquisition and subsequent horizontal drilling.
ANALYSTS - FUND MGR'S - BUY - HOLD - SELL - MISC.
Gordon Capital
Canadian Occidental (CXY-T: $28.00) BUY
Record Results in 1997
CXY reported solid financial and operating results for 1997. Cash flow increased to $6.34 per share from $5.64 per share in 1996, while earnings fell to $1.02 per share from $1.40 per share in 1996 reflecting higher exploration costs and tax implications related to the acquisition of Wascana Energy. Including the acquisition, CXY added more than 330 million barrels of oil equivalent to reserves of which 142 million barrels were delivered through the drill bit. This translates into a production replacement of almost 4 years including the acquisition and 1.7 years from the drill bit alone. Results
from its operation in Yemen continue to exceed expectations and production should increase again this year from the average production rate of 98,600 barrels per day CXY reported for 1997. While the company's debt position remains high at $2.1 billion, CXY has significant non-core assets, such as its chemical business and its interest in the Syncrude plant, that could be easily sold to reduce debt. We are maintaining our cash flow estimate of $6.40 per share for this year and using a conservative multiple of 5.0 times cash flow, have a target price of $32 per share. We are maintaining our BUY recommendation.
Goepel Shields
Bonus Resource Services (BOU, $5.20)
Premier Growth Through Acquisition Story
Bonus reported 1997 EPS of $0.33, including Q4 EPS of $0.11, both in line with estimates. 1998 EPS estimate for Bonus is $0.45. We expect the industry will encounter further consolidation and he commented that Bonus, currently operating 153 operating service rigs(compared to 146 at the end of 1997 and 76 at the beginning of 1997), will likely continue to grow through acquisition. We still prefer the service sector to the drilling sector and continue to rate Bonus shares as a Buy with a target price of $7.00.
Canadian Occidental Petroleum (CXY, $28.40)
1997 CFPS In Line With Expectations
Canadian Oxy reported 1997 basic CFPS of $6.34, in line with our fully-diluted CFPS estimate of $6.23. The Company reported consolidated f&d costs of $6.74 per proven boe but we think that f&d costs from assets in western Canada was closer to $9.50 per proven boe. We are lowering 1998 fully-diluted CFPS estimate from $6.56 to $6.40 and his target price from $37.00 to $35.00 but continue to recommend buying CXY shares, primarily for the potential upside from the Company's properties in Yemen. We will attend a CXY conference call this morning where the Company will further discuss its year-end results.
Numac Energy (NMC, $5.65)
The company reported CFPS of $1.28 (vs. our estimate of $1.25) and f&d costs close to $10 per proven boe and we continue to recommend that investors reduce positions.
Cabre Explorations (CBE, $16.00)
1997 Results
Cabre reported 1997 fully-diluted CFPS of $3.98, a little lower than our estimate of $4.11. We plan to discuss the differences with the Company this morning but he believes Cabre shares may still have a downside of a couple dollars and he continues to recommend investors reduce positions.
Canadian 88 Energy (EEE, $5.75)
The share price of Canadian 88 has recently jumped, possibly due to rumours of a deep play somewhere in Alberta. We continue to like Canadian 88 shares and have a 12-month target price of $7-$8.
Oil Shares, Hit By Brent Slide, Tempt UK Funds
Rock bottom crude prices have made investors wary of oil stocks but some British fund managers on Monday said the time to buy again might be approaching.
Even so, study of company and market fundamentals would be critical for success, they said.
Crude prices dipped below $14 per barrel last week, the lowest in over four years, amid oversupply from diminished Asian demand and a mild northern hemisphere winter. Analysts forecast prices eventually will recover to over $15 a barrel, possibly this year.
''When (crude oil) prices are this low you don't want to be overweight but if $15-$18 is the goal, then this could be a good time to buy,'' one manager of a European equity fund said.
Low inflation rates in the major economies has removed one of the allures of the supposedly inflation-related sector.
''That (buying oil stocks against inflation) hasn't worked for three years so why keep making that bet,'' asked Hayder Tawfik, who manages about 12 million sterling ($19.8 million) as head of convertible arbitrage at National Bank of Kuwait.
Tawfik was watching the shares of such majors as British Petroleum Co (UK & Ireland: BP.L) and Shell Transport and Trading Co (UK & Ireland: SHEL.L), but more as trading stocks to be bought on price dips rather than as long term holds.
''The sentiment from the oil price is not going to go away,'' he said.
Oil industry majors had less appeal for Stephen Whittaker, UK equity fund manager at Perpetual. ''The majors look expensive,'' he said.
He preferred exploration and production stocks which looked cheap and he highlighted Enterprise Oil (UK & Ireland: ETP.L) as providing better value.
Historically exploration and production stocks have been more geared to oil price movements than the majors due to their more narrowly diversified product base.
Other investors say the majors with their multinational spread, product mix and often utility-like tax benefits in many countries have plenty going for them.
''We are slightly underweight the sector but not by much,'' said Chris Gallymore, U.S. equity manager at Henderson Investors with $1.2 billion in balanced U.S. stocks.
''They are large, diversified, balanced businesses,'' he added.
In the depressed market purely U.S. domestic producers had suffered and although prices had begun to look cheap, caution was still essential.
But U.S. oilfield service stocks were more promising due to positive sector growth forecasts of six percent in the U.S. and 14 percent internationally, according to Gallymore.
''There is a need to replace depleted wells regardless of the price,'' he said, although he noted some weakening of demand from government owned producers.
''There has been no fall-off from the big international companies although that is possible if the price remains low for the balance of the year,'' Gallymore said. ''But we are still looking at significant growth even if the price stays down.''
Last week's announcement that Halliburton Co (HAL/NYSE) was paying $7.7 billion for another service provider Dresser Industries Inc to create the world largest oilfield service company was very constructive, Gallymore said.
The merged companies would have combined sales of about $16 billion annually.
''We have reduced our oil service sector (holding) but this may be the time to buy again,'' he said.
Investors in European oil stocks seemed to prefer the majors rather than the more volatile exploration and production stocks.
''The oil industry is among the best managed,'' said Steve Jones, European equity manager at Gartmore Investment Management which oversees 51 billion sterling globally.
''They are good at 'self-help' through cost cutting optimising investment and they are good at finding oil,'' he said.
Italy's Ente Nazionale Idrocarburi SPA (ENI.MI) and the French Total SA (TOTF.PA) and Elf Aquitaine (NYSE:ELF - ELFP.PA) were named by some investors as being attractive in the current market.
($ equals 0.606 British Pounds Sterling)
|
