MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, MARCH 20, 1998 (7)
MARKET ACTIVITY
Toronto's main stock index reversed its recent slip into negative ground to close higher on Friday, buoyed by across-the-board gains. Resource-based stocks took the market higher led by a 1.6 percent jump in pipelines, a 1.1 percent climb in oil and gas stocks and a one percent jump in gold stocks.
The Toronto Stock Exchange 300 Composite Index gained 30.62 points to 7412.84 points following two days of losses. Oil related stocks continued their strong upward movement. The Toronto Stcok Exchange Oil & Gas Composite Index gained 1.4% or 84.74 to 6356.29 Among sub-components, the Integrated Oil's gained 1.1% or 91.44 to 8653.99. The Oil & Gas Producers rose 1.2% or 65.01 to 5606.40 and the Oil & Gas Services climbed 3.6% or 96,60 to 2800.13.
Northstar Energy, Gulf Canada Resources, Renaissance Energy, Ranger Oil, Petro-Canada, Talisman Energy, Canadian 88 Energy and Canadian Natural Resources were among the top 50 most active traded issues on the TSE and all had their shares move to the upside.
The service sector had a great day. Dreco Energy Services, Precision Drilling, Enertec Resource Services, Ensign Resource Services, Shaw Industries and Tesco were among the top 50 net gainers on the TSE and all realized gains of over $1.00/share.
In New York, share prices rose with tobacco, oil and telecommunications stocks leading the way. The Dow Industrials and the S&P 500 both set record closing highs.
The Dow Jones industrial average climbed 103.38 toa record closing 8,906.43 while the Standard & Poor's 500 index gained 9.40 to 1099.14. Oil stocks jumped as oil prices continued to rebound and as the market looked for further recovery in oil prices, traders said. The move by crude above its nine-year lows persuaded investors to snap up more of the battered oil stocks on hopes of success in frantic behind the scene moves to bolster the ailing commodity price.
Dow components Exxon Corp. (XON) closed up 2-5/16 at 67-1/8, and Chevron Corp. (CHV) gained 3-1/16 to 86-7/8. Oil services stocks Halliburton Co. (HAL) ended up 2-3/8 at 48-1/8, and Schlumberger Ltd. (SLB) gained 1-15/16 to 73-9/16. Crude's move off its lows sent the Dow transporation index plunging 0.73 as airline stocks skidded amid fading prospects of cheaper jetfuel.
Leading oil ADRs were firmer Friday along with a steady price in crude.
''The oil stocks are very firm,'' a trader said. ''We've had a nice little movement there.''
The price of benchmark North Sea Brent was unchanged at $13.11 at midday in New York.
Royal Dutch Petroleum Co. (RD.AS) (RD) rose 1-1/4 to 56-1/4 and was among volume leaders on the New York Stock Exchange. British Petroleum Co. Plc (UK & Ireland: BP.L) was up one to 87-3/8.
France's Total SA (TOTF.PA) (TOT) rose 1-1/16 to 56-1/16 and Elf Aquitaine (ELFP.PA) (ELF) was up 2-14/16 to 62-3/16.
Franco-American oilfield service company Schlumberger Ltd. (SLB) was up 1-10/16 to 73-1/16 after it announced it would sign a memorandum of understanding Tuesday with Russia's YUKSI oil firm.
Under the deal, YUKSI would outsource part of its oilfield services in Russia to Schlumberger.
MARKET OUTLOOK
There appears to be little on the horizon to stop the stampede of bulls from charging down Wall Street and Bay Street. The market is likely to be propelled higher mainly by portfolio window-dressing. Money managers whose funds have underperformed the market will be rushing to put cash into rising stocks before the quarter ends to enhance returns.
''No portfolio manager wants to be caught holding cash at the end of a quarter in a rising market,'' said Hugh Johnson, chief investment officer at First Albany. ''That will give the market a positive bias next week.''
Oil stocks should continue to recover from a slump induced by falling crude prices. Crude moved off nine-year lows this week and a number of analysts said the stocks were an attractive buy at current levels.
RESEARCH INFORMATION
Credit Suisse First Boston said it initiated coverage of Forest Oil Corp. (OTC BB:FOILP) with a buy rating.
Funds Wary of Energy Stocks after Oil Price Bounce
LONDON, March 20 - Crude oil prices bounced off nine-year lows this week but equity investors want to see a more sustained rally before they are convinced the worst is over for oil producers, investment sources said on Friday.
"Sentiment has got ahead of the sector," one fund manager said, referring to a knee jerk blip in the price of the major integrated oil producers after crude prices lifted to over $13 a barrel on Thursday from under $12 earlier in the week.
"The (crude) price bounced from a very low level and the sector may have responded a bit over-optimistically," said fund manager Roger McNair at Friends Ivory & Sime, which has about 22 billion pounds sterling ($36.7 billion) under management in Edinburgh and London.
A London-based equity strategist who asked not to be identified described this week's oil price move as "a very tentative rally".
"We need a few other macroeconomic factors in there to show it will be sustained," the strategist said.
"Far East demand has fallen drastically for all commodities. Signs of economic recovery are positive but it is not clear yet that the economics are sorting themselves out," he added.
Investors were more comfortable with the oil sector longer term than short term, given concerns about the forecast average oil price for the year and the sector's profit outlook.
"There is too much optimism in the share price short term. The sector needs a higher oil price to support profit forecasts," McNair said.
He was not significantly off sector weight with a slight overweight in Shell Transport and Trading and underweight in the more oil-price sensitive British Petroleum Co. "If there is any further weakening in the share price we would add to holdings," he said.
Shares of Shell were up 11p at 438.5p at 1439 GMT, off a recent March high of 461.5p. British Petroleum was down 3.5p at 865.5p versus a recent low of 806p on Wednesday but well off a high in September of 970p.
The equity investment strategist also advocated buying Shell due to the "self help scheme" the company's managers were pushing through to cut costs and make the most of company assets.
Friends Ivory & Sime was more cautious about exploration companies. "They are more geared to oil price movements. In the next couple of months we are unlikely to see much movement from them," McNair said.
A spokeswoman for Legal and General Asset Management said that at current prices, shares were viewed as a potential buy for the longer term.
"We see the sector as a long term buying opportunity," she said. "Oil prices should be back to near normal levels by the end of the year."
Norwich Union investment strategist Mike Grimble said this week's price rise had not changed the sector radically, and questioned how sustainable the price increase was.
Crude oil prices had slumped due to demand being under forecast while the supply side was "comfortable", he said.
"We could add more (to sector weightings) after mid-year when we can look further forward having seen half-year figures," he said.
"(Energy) stocks are a touch expensive but across the broad market they are not out of line," he added.
Gordon Capital
Maxx Petroleum (MXP-T: $1.75) BUY
New President Hired, Aycock Continues As CEO
Maxx Petroleum has hired Mr. Bob Rosine from Tarragon Oil & Gas as its new President and C.O.O. Mr. Burl Aycock will become Chairman, and will retain the C.E.O. designation. In Kansas, the company is currently producing about 400 bbls/d, and has been pleasantly surprised by the impact of a recent acid job on one of the horizontal wells. However, with weak oil prices, the company will not be drilling any further wells in this area in the imminent future. At Waterton, in the southern Alberta foothills, Maxx has an overiding royalty on a deep Mississippian gas test well that has been drilled, cased, and is about to be tested by PanCanadian Petroleum. The company has tied up working interests in both the Mississippian and Devonian horizons in the area. Maxx is currently 81% levered to oil production, and as such, will likely have its stock price performance hampered until oil prices recover. Nontheless, we continue to recommend a longer term BUY. Our 12-month stock price target is $2.25.
Ulster Petroleums Ltd. (ULP-T: $11.50) BUY
Fully diluted CFPS for 1997 was $2.15 vs. $1.94 - in line with expectations.
Ulster's 1997 proven and probable reserve additions of 45 million boe's replaced production by 6.5X at a finding and development costs of $5.78/boe (vs. $6.74/boe in 1996). On a proven only basis finding and development costs were $7.97/boe (vs. $8.03/boe in 1996). Ulster's oil production and reserves consist of light gravity (40o API) oil and consequently offers among the highest netbacks of any company in Canada. Gas production in 1997 was up by 31% to 97 mmcf/d, while liquids production rose 27% to 9,400 bbls/d.
We are forecasting 135 mmcf/d of gas production and 11,000 bbls/d of liquids in 1998 and 160 mmcf/d and 13,000 bbls/d in 1999. Our fully diluted CFPS forecasts are $2.15 in 1998 and $2.85 in 1999.
Ulster has had a very strong winter drilling program, particularly with regards to gas. At Wapiti, the company has had success on 7 of 8 wells drilled, adding 3-5 bcf per successful well. The company's Gold Creek discovery will be onstream in early April at 1,000 boe/d. Two other wells are drilling at Gold Creek, but are currently "tight" status. At its Wimbourne light oil development project, 15 wells are planned over the next six months. Our 12-month stock price target is $15.00. BUY
EXCHANGE EVENTS
Ontario Securities Commission issued the following notice related to Sinorank Petroleum. Temporary Cease Trading Order March 20th, 1998 for failure to make statutory filings, hearing will take place on March 31st, 1998 at 10:00 a.m.
HEGCO Canada, Inc. announced that the Company has become aware that the British Columbia Securities Commission placed HEGCO on a list for failure to file its first quarter financial statements. However, HEGCO filed these statements in British Columbia at the same time it filed in Alberta, on February 27, 1998. This was well within the times proscribed for filing by Canadian securities legislation.
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