MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, APRIL 6, 1998 (3)
TOP STORIES
Low Costs Benefit Petro-Canada
The Financial Post
Petro-Canada can make a profit from its Grand Banks oil even at today's low prices, says the official in charge of offshore development.
The estimated cost of producing oil from Terra Nova off Newfoundland, for example, is just under US$11, including taxes and transportation costs to the U.S. eastern seaboard, Petro-Canada's Gary Bruce said yesterday.
"Today's crude prices are low at US$16 a barrel, but still well above Terra Nova extraction costs."
There are no plans to reduce the company's big commitment to the area, Bruce said, although it is watching prices closely.
Petro-Canada is spending one-third of its $1.1-billion capital budget in Atlantic Canada this year.
"We'd obviously like to see oil stay above US$20. We watch it closely and we will manage our cash flow appropriately," he said after speaking about opportunities for western Canadian energy companies at a meeting in Calgary of the Newfoundland Ocean Industries Association.
Calgary-based Petro-Canada owns 20% of Hibernia, which started producing in November. It is also the largest owner (29%) and operator of Terra Nova, which it expects to go into production in 2000.
The cost of extracting oil from Hibernia has been estimated at US $12.95 a barrel because of large government and private spending associated with the construction of an iceberg-proof, fixed platform. Development costs for future projects are expected to be lower because the industry is switching to more economical floating production vessels.
Production from Hibernia should average 60,000 barrels a day this year, increasing to 100,000 b/d by the end of 1998.
Bruce pegged recoverable oil from the Jeanne d'Arc Basin, one of six potentially productive basins in Atlantic Canada, at five billion barrels, putting its potential production at 500,000 b/d for the next 30 years.
"The potential outside the Jeanne d'Arc is as yet unknown. However, it could result in the development of a much larger industry if these basins prove to be as prolific," he told the group.
All Systems Go At Remington Energy
Calgary Sun
Remington Energy president Paul Baay is quite precise on his assessment of current oil prices.
"You have to learn how to make money at $15 a barrel WTI (West Texas Intermediate), and if you can do that, anything higher is a bonus," he says.
At just 35, he runs one of Alberta's most successful junior oil and gas companies -- and he's seen his company's share price on a roller-coaster ride from a low of $1.50 to $35 a share in 1997 to an average $15 today.
Yet, he's anything but pessimistic about his company's fortunes -- or its share prices -- because investors who bought at $1.50 made a tidy fortune and 65% of the company's assets are in natural gas.
So current strong natural gas prices are going to substantially help Remington ride out a period of unstable oil prices.
A likable man with a deep sense of humor, Paul chuckles when he recalls his 1996 annual report predicted oil prices would average $27.50 Cdn a barrel in 1997!
Who knows, they may be at that price again later this year.
He enjoys recounting how his father, Roy, and partner, Vic Baer, founded Remington in 1976, with little money but lots of hope.
That was in the heady days when oil prices seemed to be going up by the day.
Roy had worked at Imperial Oil as both a draftsman and a landsman, and Vic was the financial wizard.
"They just looked round, decided they wanted to own their own company rather than work for someone else, and they made a very good team together.
So good a team that after starting with a staff of 10 employees, Remington now has 100 employees.
Paul attended Bishop Carroll high school in Calgary and then got a bachelor of arts degree in management economics from the University of Western Ontario.
At 20, he was on the staff of Remington, starting out coloring maps, doing such chores as making sure the monthly cheques balanced and learning everything about running a business from the ground up.
He still thinks that's the best way to do it.
"I didn't study geology, geo-physics or engineering. I studied management. Even today, I leave the technical decisions to the technical teams. Never pretend you're an engineer when you are not," he insists.
Baer died in the late 1980s, and for a time the company was thrown into turmoil.
The deal was the Baay family would buy out the Baer's family share of the company.
But oil prices, helped by the notorious national energy program, had collapsed -- and it was Paul, by then president, who pulled the company together.
He took the firm public, untangled its financial woes and set its fortunes soaring.
Today, despite sagging oil prices, Remington is considered one of the great successes of the junior oil patch.
Paul is married to wife Gillian, and they have two daughters -- Courtney, 2, and Sarah, 10 months.
He's active in industry and community affairs, some of them unrelated to the oil and gas business -- and to that of a conservative entrepreneur.
For instance, while he is active in the Canadian Association of Petroleum Producers, and will soon be chairman of Junior Achievement in southern Alberta, he's also on the board of the Alberta College of Art and Design.
"Yet don't think I intend to dye my hair a strange color, which seems to be the big thing to do at the college right now," he chuckles.
Canadian 88 Energy Corp. Announces Ricinus Natural Gas Discovery - Major Foothills Drilling Program Underway at Caroline and Wild Cat Hills
Canadian 88 Energy Corp. of Calgary, Alberta, announced that it has successfully completed the drilling of its LSD 2 of Sec. 6, Twp. 34, Rge. 8 W5M deep pool test in the Ricinus area of West Central Alberta encountering significant natural gas pay in the Viking formation. The well is located Northwest of the prolific Bearberry gas field where the Company has extensive exploration acreage. The 2 of 6 well is the first of a multi-well program planned for the area by Canadian 88, with recoverable reserves estimated to exceed 100 Bcf from the prospect.
In addition, Canadian 88 confirmed that it has commenced drilling on its deep foothills natural gas play at Caroline offsetting a 3,200 acre drilling licence in Twp. 33, Rge. 5 W5M, which sold for a record bonus of $8.25 million at the March 5, 1998 Alberta Petroleum and Natural Gas Rights Sale. Surface casing has been set on the Company's new pool wildcat well at LSD 7 of Sec. 19, Twp. 33, Rge. 5 W5M, drilling to a total depth of 4,000 meters down to the Cambrian formation. Surface lease construction is also underway at Canadian 88's new well licenced in LSD 10 of Sec. 24, Twp. 34, Rge. 6 W5M and construction has commenced at a further deep pool test licenced by Canadian 88 at LSD 10 of Sec. 2,Twp. 35, Rge. 6 W5M.
Canadian 88 also announced that new drilling operations are underway on the Company's extensive land holdings in the Wildcat Hills area of the western foothills of Alberta. The Company's new pool wildcat well at LSD 2 of Sec. 33, Twp. 31, Rge. 10 W5M is drilling ahead at 500 meters without difficulty to evaluate the Mississippian formation at a total depth of 2,560 meters. The well is evaluating the first of three large foothills thrust sheets the Company has identified in the area for drilling during 1998. Reserve potential of these thrust sheets is estimated to range from 100 to 500 Bcf apiece. Canadian 88 paid $1.58 million in total bonuses for 8,320 acres in the Wildcat Hills area at the March 5, 1998 Alberta Government Land Sale with offsetting lands purchased by Petro-Canada and Shell Canada Limited totaling $1.26 million for 5,760 acres.
Canadian 88 has budgeted a minimum $130 million of capital spending in Western Canada during 1998 alongside its $150 million Rocky Mountain Exploration (RMX) Fund focusing on deep foothills natural gas exploration and development.
Alberta Is A Gas, Gas, Gas
Globe & Mail
AS the OPEC cartel dithers over the stagnant price of oil, Alberta's resource industry players keep their hopes up by thinking about natural gas, which they figure will solve all their problems. More pipeline capacity to the United States means higher prices and a return to good times, right? The message from a recent industry conference, however, is that it isn't quite that simple.
For an industry cruising along quite nicely with $20 (U.S.) plus a barrel crude oil prices, the past six months or so have been a rude shock, as a global oversupply and lack of demand have combined to kick the legs out from under the crude price. That has blown gaping holes in the balance sheets and spending plans of quite a few producers, particularly those involved in heavy oil.
Luckily for many, the oil patch -- unlike its name -- is based on two resource commodities (oil and gas) instead of just one. Otherwise, there would be more than a few fancy mansions up for sale in Mount Royal and on Pump Hill. Investors who had the luck, wisdom or foresight to build up the gas side of their portfolios are counting on that to keep them in cigars and brandy.
Their hopes for higher gas prices are based on the expected increase in export pipeline capacity to the United States over the next two years. That includes a proposed expansion by TransCanada PipeLines as well as the Foothills/Northern Border project (jointly owned by Nova, Westcoast Energy and TCPL) and the proposed Alliance pipeline project.
A shortage of pipeline capacity to the United States has kept prices in Alberta low for several years by creating a backlog of gas. Once that backlog has been removed, everyone expects the gas price in Alberta to climb; in fact, it already is rising as markets anticipate the end of the gas bubble. How much further it will rise, and how quickly, is the multibillion-dollar question.
At least two analysts at a recent gas pipeline conference in Calgary organized by the Toronto based Canadian Institute said if Alberta producers want to fill all the pipe that is being put in place in the next three years, they had better get cracking. Even with record rates of drilling activity last year, they say the industry will be pressed just to keep up with capacity increases.
Part of the reason, according to FirstEnergy analyst Martin Molyneaux, has to do with a phenomenon called the "decline rate," which refers to the fact that the amount of gas produced from a well falls off over time. Decline rates have been rising steadily for years, and that means more wells have to be drilled just to remain at the same level of production.
Mr. Molyneaux said the Western basin will have to drill more than 5,000 successful gas wells this year and next to supply the expected capacity increases coming from TCPL, Northern Border and Alliance. Other analysts have said that producers will have to find as much gas this year as they have in the past two years combined, just to fill the pipes.
Roland George, an analyst with the consulting firm Purvin & Gertz, said between 4,500 and 6,000 wells will have to be drilled this year to fill existing capacity, including Foothills/Northern Border. An additional 1,500 wells -- for a total of up to 7,500 -- will be needed to fill Alliance in 1999 or 2000, depending on when the pipeline opens. That is almost twice as many as were drilled in 1997.
The industry's ability to do this, however, will be constrained by the fact that budgets are tight because of slumping oil prices, Mr. Molyneaux pointed out. Almost all the producers who have released their projections for this year were forced to make significant cuts to their spending programs because of declining cash flow from their oil operations.
If there is one bright spot, it is that drilling service companies are likely to be a good bet for the foreseeable future. If the industry has to maintain a near-record pace of gas well drilling for the next two years, that means anyone with rigs and service workers will probably do well.
The debate over the Alliance project, meanwhile, continues to be a big game of high-stakes poker among the various participants -- which include the soon to be married Nova and TCPL, as well as Foothills / Northern Border and the National Energy Board. As the NEB hearing has dragged on, Alliance has announced that it may have to postpone its launch until 2000.
A sizable segment of the oil patch sees this delay as a result of a deliberate campaign by Alliance's arch enemy Nova, using Foothills / Northern Border as a blunt instrument to keep Alliance busy and delay the project while Nova and TCPL add more capacity to their own networks.
If that was the intention, it seems to be working. Both a Nova executive and a representative of TCPL made a point of saying at the conference that with their planned expansions they would have plenty of capacity available "more than a year before Alliance" has its pipe ready to deliver gas.
Sources say there have been continuing high-level discussions behind the scenes between Nova, TCPL, Alliance and various oil and gas producers, with most of the producers making it clear that their approval of the Nova-TCPL merger depends on how the Alliance hearing goes.
If Nova continues to give Alliance a hard time, the feeling is that Nova should get the same treatment when it comes time to bless its union with TCPL. Is the pipeline giant listening? It sure doesn't look that way. |
