MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, MARCH 19, 1998 (3)
TOP STORIES
Alberta Land Sales Revenue Sinks
Calgary Bureau The Financial Post
Alberta's revenue from land sales plunged 27% in the first quarter of 1998, and it remains to be seen if that means less activity for oil and gas service companies for the rest of the year.
With final sales results for March in yesterday, the province collected $224.4 million for rights to explore for oil, gas and oilsands for the quarter. That's down from $308.7 million a year earlier.
The break in the land fever that gripped producers last year is no surprise, given the drop in oil prices and concerns about cash flow. But oilpatch companies have a big inventory of land, said Scott Lamacraft, an analyst with Sprott Securities Ltd. in Toronto. "The real story will be in the second quarter when the traditional spring breakup and a downturn in [oil] demand come together," he said.
Miles Lich, an analyst with Peters & Co. in Calgary, said the number of wells being drilled will be a more important economic indicator than the amount of money Alberta collects.
He expects only 176 rigs to be working in the second quarter, down from 295 last year. His firm estimates only 13,000 wells will be drilled this year, off 21% from last year.
Commodity prices, and producers' cash flows and access to capital are more important factors in determining the health of oil service companies than land sales, the analysts said.
Learning from painful experience, Premier Ralph Klein's number crunchers have been cautious in recent years when estimating land revenue.
For fiscal 1997-98, which ends this month, an assumption of $500 million flowing from biweekly auctions was built into the provincial budget. The final figure will be more than $1 billion. Last year, land payments to the province peaked in the second quarter at $361.9 million, then fell in the next three months to $210.5 million, according to figures compiled by the Daily Oil Bulletin, an industry newsletter.
Cash Challenged, Chauvco Takes A Hit
Calgary Bureau Chief The Financial Post
Energy company Chauvco Resources International Ltd. said yesterday it has postponed a $22-million private placement financing.
It also warned it may not be able to meet some obligations after discovering reserves in its sole operating oilfield in Gabon "may be significantly less than expected." Its shares (CHV/TSE) lost almost 60% of their value after the announcement, closing at 20›, down 28›.
The Bermuda-based company is part of Chauvco Resources Ltd. that was spun off into a public company after most of Chauvco's assets were sold to Irving, Tex.-based Pioneer Natural Resources Co. last year.
Shares were first posted for trading Dec. 22 at 70›, and closed as high as $1.35 on Jan. 2.
Chauvco produces 2,700 to 2,800 barrels of oil a day from its Remboue field in Gabon. An updated reserve estimate is expected to be available in the next two to three weeks, the company said.
Meanwhile, it will be "cash challenged," but is looking for other financing sources, said executive vice-president James Wilson.
The company had hoped to raise $22 million in a private placement of special warrants. The financing may be revived when new reserve estimates are available, Wilson said.
Oil Prices Not Slowing Suncor Down
Fort McMurray Today
Oil prices are sagging, but that's not derailing Suncor Energy's plans to expand its operations in the next four years, officials are emphasizing in the company's annual report.
The 1997 summary, released Wednesday, has an optimistic feel to it, and that's not going to be tarnished by a few weeks of low crude prices, said company spokesman Ron Shewchuk.
"Our growth plans are a long-term investment, and because of that we're confident they're going to pay off.
It'd take a much longer period of low prices to derail things for us," he told Today. The price of oil has dropped as low as $13.23 a barrel this week, but since Suncor presold 30 per cent of its 1998 oil at $20 a barrel, the oil price slide won't affect the company too severely.
"The future looks as bright as ever for us. We feel we're going to have a good year in 1998; maybe not as good as 1997, but a good year," Shewchuk said.
Suncor president and CEO Rick George identified priority areas for the company's next four years, including:
* expanding the oilsands business. Last year Suncor announced the $2.2 billion Project Millennium, designed to double the company's production to a target of 210,000 barrels a day by 2002.
* transferring proven oilsands technology and expertise to new business opportunities outside Canada, specifically the first phase of the Stuart oil shale project in Australia. "We're testing the technology, and if it proves viable, in 10 years we could have an oil shale operation in Australia as big as the operation in McMurray today," Shewchuk said.
* to seek out international exploration and production opportunities. The company is actively looking for opportunities in Brazil, and is studying possible strategies for entering other markets in South America.
"I am optimistic that we will enter the 21st century as one of the most dynamic and successful energy companies in North America," George said in a news release.
Meanwhile, Syncrude spokeswoman Barbara Shumsky said her company's owners sell the oil its plant produces, so she's not sure how much of its product has been presold.
"Our approach to (addressing sagging prices) is a cost effective cash management strategy. We want to make sure any discretionary spending is put on hold until it's more appropriate to spend it," she said.
Canadian Firms Poised To Sign Oil Deals With Iraq
Calgary Bureau Chief The Financial Post
At least two Canadian oil and gas companies are getting ready to tap Iraq's oil riches in anticipation the United Nations will soon lift its seven year embargo.
Ranger Oil Ltd. is only a negotiating session away from finalizing deals with Iraqi authorities that call for US$300 million in capital spending, said John Fletcher, vice-president of legal and corporate affairs. That would be spent on two main projects over several years.
The Calgary-based senior producer is looking for a partner to farm out some of its interest.
"I want to be on the first airplane to Baghdad as soon as the sanctions come off to sign the contract," Fletcher said.
Chauvco Resources International Ltd., a junior producer with a field in Gabon, is also close to finalizing agreements in Iraq, said executive vice-president Jim Wilson.
"We are already well on the way in those negotiations. We see it as an oil country that you can't ignore."
The deals require federal government backing. Ottawa, in turn, is waiting for the UN to lift sanctions against Iraq, after it is satisfied weapons of mass destruction have been accounted for and destroyed.
Others in the industry prospecting for business in Iraq include TransCanada PipeLines Ltd. and Canadian Occidental Petroleum Ltd.
"We are learning about the area and working toward future consideration, but nothing is imminent," said TCPL spokesman Tony McCallum.
Iraq has 112 billion barrels in largely undeveloped proven recoverable reserves - equal to 10% of the world's total supply and second only to Saudi Arabia.
The country's probable and possible reserves are estimated at another 215 billion barrels.
Fletcher has travelled across the desert 15 times to negotiate the agreements for exploration and development opportunities.
Under the pending agreement, the Iraqi government would become a 25% partner if there's a commercial discovery.
Canadian companies are slashing capital spending plans this year because of low oil prices, caused in part by worries that Iraq's production increases are contributing to global oversupply.
But Ranger says it wants to be a part of Iraq's production growth to insulate itself from low prices.
"In terms of weathering the storm, you want to be in places like Iraq because of the low finding and development costs. If it only costs $2 to explore and produce oil, you can be around for a long time," he said.
Several Canadian companies specializing in agriculture, health care and pharmaceuticals are already in Iraq as part of a deal that allows the country to use money from oil for food and medical supplies, said an official with the federal government's trade department.
Energy Declines Restrain U.S. Inflation
Associated Price
The third straight hefty drop in energy costs held U.S. consumer inflation to 0.1 per cent in February and preserved Americans' purchasing power. The small February advance in the consumer price index followed no change in January, the first month in four years without an increase, the Labor Department said Thursday.
Inflation has virtually disappeared so far this year after sinking in 1997 to 1.7 per cent, the lowest rate since the bust in oil prices in 1986.
Energy prices fell 2.2 per cent in February on top of January's 2.4 per cent decline, the steepest in seven years.
The price of gasoline dropped 3.4 per cent at the pump last month and has fallen 10.8 per cent in the past five months. That sent the price 21.3 per cent lower than its November 1990 peak during the Persian Gulf War.
Fuel oil, natural gas and electricity prices all fell steeply too.
Economists attribute the decline to a mix of factors: reduced demand from financially troubled Asian countries, unusually mild weather associated with El Nino and OPEC countries' decision to maintain production. |
