MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 2, 1998 (2)
MORNING UPDATE
Oil Prices Firm Again, Traders Warm to OPEC
LONDON, April 3 - World oil prices firmed for the second day running on Friday as oil dealers warmed to an output deal aimed at trimming over two percent from glutted markets.
World benchmark Brent blend crude oil, was up 31 cents a barrel at $14.48 at 1053 GMT, extending gains made on Thursday.
"There is no major news to influence prices but it does appear as if sentiment is changing for the better," said Leslie Nicholas at brokers GNI in market comments.
An emergency Organisation of the Petroleum Exporting Countries meeting that ended early on Tuesday approved a 1.245 million barrels per day (bpd) cartel contribution to a two percent cut in global output.
Other cuts will come from non-OPEC Norway, Mexico, Egypt, Oman and
Yemen, which have pledged to trim 270,000 bpd for a total of 1.5 million bpd in overall promised reductions.
The aim is to mop up excess oil from flooded world markets and rescue prices from a 40 percent slide that took Brent to a nine-year low of $11.90 a barrel recently.
The cuts achieved their goal in the days after they were first mapped out at a secret meeting in Riyadh between Saudi Arabia, Venezuela and Mexico, boosting levels by some $3.
After meeting to ratify the cuts, OPEC ministers pleaded for patience, arguing that prices would rise once production restraint worked its way into crude shipping schedules.
But oil futures were quick to dismiss the cuts as not deep enough in the immediate aftermath of Tuesday's deal.
Since then Brent has been scrambling higher and some dealers now expect a trading range to be established either side of $15 a barrel.
"Markets rush to judge. The deal will take a bit of time to settle in," said Peter Gignoux, head of the energy desk at Salomon Smith Barney in London.
The deal was given an unexpected boost on Friday by China which cut 150,000 barrels per day on top of the overall 1.5 million bpd.
Beijing's largest oil explorer has cut crude output in response to OPEC's cuts, China National United Oil Corp president Lin Qingshan told Reuters on Friday.
Also on Friday Indonesian Mines and Energy minister Kuntoro Mangkusubroto predicted crude oil prices would rise to an average of $16 this year as a result of the cuts.
Warm winter weather in the northern hemisphere, growing Iraqi oil exports and a mistimed OPEC move in November to hike output by 10 percent were responsible for the slide from last year's average Brent price of $19.32 a barrel.
Rising Iraqi exports will counteract the impact of the cuts after Baghdad won U.N. approval to double existing sales.
But to boost exports Iraqi says it needs $300 million for spare parts to repair its oil installations.
Prices in dollars per barrel: April 3 April 2 (1053 GMT) (close) IPE May Brent 14.48 14.17 NYMEX May light crude 15.92 15.74
TOP STORIES
Ocean Of Possibilities
The Newfies Are Coming To The Prairies
Calgary Sun
Newfoundland's offshore oil and gas frontier is emerging into one of Canada's newest and most exciting petroleum plays. Naturally, there's lots of Cowtown interest in this East Coast development.
As a result of successfully contributing to oil and gas industry's development, Canada's East Coast petroleum community is thriving in the international oil and gas arena.
So, with that, from April 6-7, the Newfoundland Ocean Industries Association (NOIA), which represents some 395 member companies supplying and service Canada's East Coast offshore oil and gas industry, will spearhead a trade mission into the heartland of the nation's oil and gas capital, our own city of Calgary.
During the mission, some 75 businesspeople representing 60 companies will showcase their expertise at the Palliser Hotel and offer up to date information on East Coast petroleum projects, such as the $5.6 billion Hibernia development, Terra Nova, Whiterose, the Sable Offshore Energy Project, Hebron and other projects gearing up on Canada's East Coast.
Julie Elekes, of the Canadian Energy Research Institute in Calgary, said the Newfoundland mission is an important event for our city because it allows the emerging East Coast industry, to make first hand contacts with the movers and shakers in Alberta's oilpatch.
Precision Buys Northland Energy Corp
The Financial Post
Canada largest's oil drilling firm is boosting its expertise, services and international presence by acquiring a smaller competitor.
Precision Drilling Corp. announced yesterday it is buying Northland Energy Corp. Dale Tremblay, senior vice-president of finance, said the transaction is a stock and cash deal, and details will be made public when it closes May 1. Analysts estimated the bill ranged between $50 million and $70 million.
Calgary-based Northland employs 300 people in Canada, the U.S., Britain, the Netherlands and Venezuela. One focus is underbalanced drilling, in which specialized equipment and products are used to drill a well. Although this technique is more expensive than conventional methods, it increases recoveries by minimizing damage to the productive formation.
Precision estimated Northland owns almost 50% of the underbalanced drilling market in Canada and is also the largest provider of production testing services.
Northland has about $50 million in annual revenue, small compared with Precision's $1 billion, but it indicates the Calgary based firm is trying to grow in new areas, said Roger Read, an analyst with Simmons & Co. International in Houston.
"It shows management's direction, which is to build the company and to make it more appealing to U.S. institutions and investors," said Read. "From that point of view, it's a good step."
Another analyst praised the deal for helping Precision to expand operations in South America, the Middle East and Europe.
James Stone, managing director of Schroder & Co. in New York, said Precision has a history of making strategic purchases during tough times, so its appetite for mergers may not be satiated. "They've been able to show that they can pick off medium-sized businesses and have been successful at integrating them."
The deal is the second this week in the drilling sector. On Monday, Ensign Resource Service Group said it will take over Artisan Corp. in a cash and share offer worth about $155 million.
The rationalization is being driven by several factors, including producers' efforts to cut costs, deal with fewer suppliers and ensure consistent standards of service and safety.
More Mergers Seen In Canada's Oil Service Sector
CALGARY, April 2 - This week's hot merger and acquisition activity in Canada's oilfield service industry is likely just the start of a wave of deals, analysts said on Thursday.
The deals are driven by the need to bulk up and deliver more specialized services to an increasingly tight fisted producer group.
They are being struck after what has been projected as a bumper first quarter for the oilfield service sector and just before a likely slowdown in drilling activity in western Canada.
''Given the climate right now, you're going to see the M&A activity pick up,'' said Peters & Co. Ltd. analyst Miles Lich. ''I think everybody's kind of waiting for the fallout of breakup to see what happens.''
Spring breakup has been going on for the last two weeks. That's when Canada's oil industry slows down each year because melting snow and ice make access to many drilling sites impossible.
If oil prices stay depressed in the coming months, exploration and production companies will cut back even more on their capital spending budgets, meaning less money for service firms, Lich said. That would make many vulnerable to takeovers.
Lured by merger fever, investors on Thursday pushed the Toronto Stock Exchange's oil & gas service subindex up nearly 58.14 points, or nearly 1.9 percent, to 3,134.34.
That represented a steady climb of nearly 30 percent since a January 12 low of 2412.36. The sector was still well off its high of 4317.58 set last October 10.
In the latest deal, Precision Drilling Corp. (PD.TO), Canada's biggest driller, said on Thursday it planned to buy privately held Northland Energy Corp. in a deal that would boost its annual revenues by up to C$55 million. The price of the transaction was not disclosed.
Northland, which had previous plans for an initial public offering, is viewed as a leader in the high-tech field of underbalanced drilling, a method used to bolster oil and gas production from mature fields. In underbalanced drilling, nitrogen is pumped down an existing well, allowing it to be redrilled without stopping the flow of oil or gas.
Besides getting in on the technology, Precision also extends its reach to various other regions such as the U.K. North Sea, Precision Vice-President Mick McNulty said.
The deal followed Canadian Fracmaster Ltd.'s (CFC.TO) announcement on Wednesday that it planned to buy TransTexas Gas Corp.'s (TTG) South Texas oil well stimulation business, a move that doubles the size of Fracmaster's U.S. operation.
And on Monday, Ensign Resource Service Group Inc. (ESI.TO) said it was absorbing Artisan Corp. (ADR.TO) to create a firm valued at C$735 million that would offer a more diversified slate of services to oil and gas producers.
Canadian Association of Oilwell Drilling Contractors President Don Herring said last week that despite the early breakup, the number of well completions so far this year was 14 percent ahead of those in 1997.
But the brisk pace was not expected to continue through 1998 and more stock market volatility was expected, FirstEnergy Capital Corp. analysts John McAleer and Janet Spensley wrote in a recent report. ''Declining share prices and valuations have left public and private Canadian oilfield service companies ripe for consolidation activity similar to that which has occurred in the U.S.,'' the analysts said.
McNulty said Precision, whose last big deal was last year's takeover of Kenting Energy Services, liked the current climate for deals and would be looking for more opportunities.
''We're not looking to bottom-feed, but for most of 1997 the market got ahead of itself and companies were overvalued. They are now more at a level where we think there's value,'' he said.
Gas Export Growth In 1997 Lowest In 11 Years
Restricted by available pipeline capacity, the rate of growth for Canadian gas exports was only 0.5% last year, the lowest in 11 years, according to the U.S. Department of Energy.
Total imports of natural gas from Canada reached 2.898 tcf in 1997, up from 2.883 tcf in 1996.
Unlike oil, where Canadian producers have lots of competition, gas imports by the U.S. are pretty much a captive market for Canadian producers with a 96.8% market share in 1997.
Mexico provides small volumes of gas to the U.S. while LNG imports are sourced in relatively small volumes from Algeria, Australia and the United Arab Emirates.
Although small, LNG imports represented the fastest growing source of imports in 1997, leaping 94% to 77.8 bcf -- the highest since 1993 -- from 40.1 bcf in 1996.
LNG imports are expected to continue as new sources are brought onstream and costs remain attractive. A worldwide surplus of LNG, reduced demand from Asia and lower costs due to new technological developments are all contributing to attractive spot prices.
A potential new source includes Trinidad and Tobago where a $1.4 billion LNG plant is proceeding after sponsors secured financing last September. The plant is designed for 400 mmcf per day and should be onstream by mid-1999.
While volume growth for Canadian gas exports slowed down considerably in 1997, prices soared, the DOE noted.
The average price for long term Canadian imports in 1997 was $2.42 (U.S) per mmbtu while short term imports sold for an average $1.84 per mmbtu.
The average price for all gas imports from Canada was $2.11 per mmbtu, up nearly 10% from 1996's average price of $1.92 per mmbtu.
As a result, the DOE noted, revenues to Canadian suppliers jumped 49% between 1995 and 1997 to $6.1 billion from $4.1 billion two years earlier, mainly due to a 46% price hike.
About 52% (1.5 tc) of total imports from Canada moved under short term import authorizations.
Talisman Energy Voyages Further Into North Sea Oilfields
The Financial Post
Talisman Energy Inc. said yesterday it has boosted its interest in the core Clyde area of the British North Sea through an asset swap and the purchase of an additional interest in the nearby Orion field.
The Calgary-based oil and gas producer said a subsidiary, Talisman Energy (UK) Ltd., has traded some assets with Shell UK Ltd. and Esso Exploration & Production UK Ltd., allowing it to increase its interest in the Clyde field block it operates to 63% from 51%.
The company also bought an additional stake in the nearby undeveloped Orion field from BG Great Britain Ltd.
"They definitely like Clyde, and when they know the asset as well as they do, they can get very comfortable with trying to increase their interest," said Houston-based oil and gas analyst Tyler Dann with Credit Suisse First Boston Corp. "That whole area has been a fantastic area of expansion for them."
The company would not disclose the value of the transactions.
Spokesman David Mann said the Orion purchase lets Talisman operate the field and allows it to proceed with a development application. Plans call for the field to start producing in mid-1999 at 9,000 barrels a day net to Talisman.
While not large in terms of reserves, Orion is significant because it can be linked to processing facilities at Clyde, reducing unit costs, Mann said.
The North Sea is one of Talisman's core areas. Last year, it produced 50,000 barrels a day of oil and liquids and about 100 million cubic feet a day of natural gas.
Beau Canada Enters Into an Agreement With APL Oil And Gas
Beau Canada Exploration (TSE:BAU; ME:BAU) announced that it has entered into an agreement to purchase the shares of APL Oil and Gas Ltd.
APL's production of 3,000 boe/d is approximately two-thirds gas and one-third light oil and NGL's. The current production of 19 mmcf/d and 1,100 bbls/d of oil and NGL's is concentrated in two areas; the Gilby Lake area, which is a core area for Beau Canada, and the Niton/Shiningbank area, which is approximately 150 km west of Edmonton. Production from both areas is largely liquids rich natural gas from medium depth formations with operating costs of approximately $3.50/boe providing very attractive netbacks. APL operates over 95 percent of its production.
As part of the acquisition Beau Canada purchased interests in four (4) gas plants with a net capacity of over 40 mmcf/d, fourteen (14) compressors, an oil handling facility and pipeline infra-structure in the major properties. Ownership of facilities and infra-structure is an important component in establishing production growth in these gas prone areas.
On the accompanying 20,700 net acres of undeveloped land Beau Canada plans to drill up to 20 wells in the next 18 months. All areas are accessible year-round so drilling is expected to commence in the third quarter of 1998 and carry on to the end of 1999.
The reserves of APL were acquired at a cost of less than $7.00/boe on a proven plus risked probable basis after subtracting the value of the undeveloped land from the purchase price. Beau Canada expects to add reserves through drilling these lands at less than $4.00/boe in 1998 and 1999.
Beau Canada expects the acquisition to have a modest positive impact on cashflow per share in 1998 and a more substantial contribution in future years with continued expansion of our development and exploration programs in these areas. The closing is expected to occur within the next 90 days subject to completion of items customary to a transaction of this type.
Tri Link Resources Ltd. Confirms Second of Two, New Light Gravity Oil Discoveries
Tri Link Resources Ltd., a Calgary based intermediate oil and gas producer, confirms the second of two, new light gravity oil discoveries on the Deep Red River Ordovician play on its 100 percent owned Hazelwood oil producing project in Southeast Saskatchewan.
These two discoveries are on separate structures at about the 2,400 metre level underlying the shallower oil producing operations at 1,200 metres. The significance, over and above the two individual discoveries, is the implication on Tri Link's 300,000 acre land spread of 30 to 40 separate structural features. This is a major areal play for the Company and is projected to drive light oil production and reserves growth for Tri Link over the next several years. Drilling of these deeper structures will begin immediately following spring break up in May, utilizing two dedicated drilling rigs. Plans are to drill 20 to 30 Deep (Basement) wells over the course of the next fiscal year.
Tri Link has drilled and completed two new 100 percent owned discoveries of light, 35 degree oil in the Red River Formation on separate structures at the deeper 2,400 metre level. Both wells are now on production and are being monitored at controlled rates of 250 to 350 barrels per day each. The wells both have net pay sections averaging 45 to 50 feet, with oil in place estimates of about four million barrels each and estimated recoverable reserves of 300,000 to 500,000 barrels per well. A third well has been cased to 150 metres above the Red River and will be deepened to evaluate that zone and lower horizons following spring break up.
Tri Link is already pursuing its Hazelwood Deep Play vigorously. In addition to its existing 200 square miles of 3-D seismic coverage and 2,000 miles of 2-D data, the Company has recently completed two smaller 3-D programs, covering specific defined structures and is presently shooting an additional 180 square miles of 3-D on Company controlled lands.
Two deeper capacity drilling rigs will be used continuously throughout the May 15 to March 15 period in the year ahead, with a third rig possibly added in the late summer. The Deep Discoveries on Tri Link's lands have changed the complexion of the Hazelwood producing operations and this deeper project alone, is projected to be a large contributor to Tri Link's three year production target. The Company is planning to sell $40 to $50 million of non-core production to advance the drilling and development of the Red River and other deeper zones at Hazelwood.
The key here is that Tri Link owns its land spread 100 percent and has the seismic coverage and technology to move efficiently and quickly in an area where it already controls production and operations.
Solv-Ex Sale Date Set
Fort McMurray Today
Koch Canada and United Tri-Star Resources are preparing to jump the last hurdle necessary to purchase Solv-Ex's oilsands leases.
An April 27-28 court date has been set to grant the final transfer of lease ownership to Koch Canada of Calgary at 78 per cent and United Tri-Star Resources of Toronto at 22 per cent.
Solv-Ex sold the interest in its oilsands leases, located 70 kilometres north of Fort McMurray in February, but has received rights to the oilsand tailing minerals and metals rights.
Yesterday Koch filed a vesting order to clear creditor's liens from the property, said Koch spokeswomen Tammy Sauer. Sauer said Solv-Ex creditors have 30 days to file objections.
United Tri-Star senior vice-president Robert Hanson said the two companies are walking down the same path. "We won't touch those assets until the courts have cleansed them, so to speak, and we get them free and clear of all liens and cumbersomes," said Hanson.
Following the objection period, the final ownership transfer will proceed and the more than $28.8 million Koch has placed in trust to purchase two leases will be released to Price Waterhouse, the court appointed monitor who will disburse monies owned to creditors.
Solv-Ex first took action to protect itself from Canadian and American creditors last July. Creditors will be paid in full but won't receive interest or additional expenses, Today has learned. More than 400 creditors are seeking payment of over $16.3 million while south of the border, American creditors are owed another $11.1 million US.
A draft document outlining how Solv-Ex will pay its creditors is currently being distributed to some creditors with the final plan expected to be filed in an Albuquerque, N.M. court before May. "We are doing a fairly wide distribution and any creditor who asks for it through the monitor or our office will get it (the draft creditor's plan) as well," said Howard Gorman, of the Calgary law firm MacLeod Dixon which represents Solv-Ex. "The problem is that it's 150 pages. If we mail it to everyone we'd kill a forest." Gorman said he anticipates creditors will receive their payment in early summer.
Fort McKay M‚tis Corporation is owed apbout $1.7 million Cdn. Spokesman Dwight Jones said he doesn't know what his company has agreed to settle. He's heard creditors will be paid by June. "We are cautiously optimistic," said Jones. "Everybody is doing the best they can to resolve the situation as quickly as possible."
Fort McMurray Chamber of Commerce spokesman Jeff Pardee also greeted the news with optimism. "Any cash flow out of Solv-Ex is a positive thing," said Pardee. "A lot of companies have written that off their 1997 statements."
The stay of proceedings under the Canadian Companies Creditors Arrangement Act was extended this week from March 31 to April 30. |
