MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, APRIL 20, 1998 (2)
OIL & GAS
OPEC Oil Price up Slightly
VIENNA (April 20) XINHUA - The price of the Organization of Petroleum Exporting Countries (OPEC)'s basket of seven crudes rose slightly to 12.63 U.S. dollars a barrel last week, from 12.59 dollars a week earlier, the secretariat of the leading international oil group said Monday.
The average crude oil price in March stood at 12.41 dollars per barrel.
It is reported that daily oil production of OPEC countries in March was about 27.41 million barrels, 100,000 barrels less than the average daily output in February.
OPEC oil ministers attended a special meeting last month at which they decided to set the daily production ceiling at 26.3 million barrels, starting from April 1. The move was aimed at boosting oil prices.
The price of OPEC's basket of seven crudes fell to 10.91 dollars a barrel on March 16 and oil markets experienced nine-year lows the next day as producers failed to curb the swelling supply.
The OPEC groups Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, Venezuela and the United Arab Emirates. It is estimated that OPEC members possess 75 percent of the world's known reserves of crude oil.
Oil Higher As Cheap Prices Stoke Demand
LONDON, April 20 - Petroleum prices tiptoed higher on Monday as traders read oil market tea-leaves for signs that prices are on the upturn.
Benchmark Brent blend for June loading closed just four cents higher at $14.40 a barrel on the London futures exchange, well off an intra-day high of $14.59.
So far this year, Brent has run $5 a barrel lower than the average of $19.80 over the past two years, keeping the pressure on producers to stick by pledged output cuts which came into effect on April 1.
Scepticism among oil traders that Organisation of Petroleum Exporting Countries producers, committed to 1.25 million barrels a day (bpd) of reductions, will do as they say has held back a market buoyed by a raft of supporting factors.
''I get the impression that this market is beginning to strain at the leash, but OPEC behaviour is difficult to calculate,'' said a trader in London.
Market analysts say a surge of demand when oil prices hit a nine-year low has helped raise refinery profit margins in Western markets.
Statistics released last week also showed that Germany rushed to buy cheap heating oil in March when prices dipped.
The big jump in demand from Europe's largest petroleum importer helps to explain why primary oil stocks in industrialised nations have fallen when global oil demand is running well below supply levels.
Low oil prices in March also pushed up demand for petroleum products in the United States.
The U.S. Department of Energy said this week that March petroleum consumption in the world's biggest oil importer went up 3.8 percent on the year.
The upshot, said analysts, was that the global stockbuild was not as large as expected earlier this year.
Germany last week surprised with a tender to buy 22 million barrels of North Sea crude over the next six months.
NYMEX Crude, Products End Lower In Range-Bound Day
NEW YORK, April 20 - NYMEX crude and refined product futures fell in thin, range bound trading Monday, ahead of the May contract's expiration on Tuesday.
''It was all quiet with very little movement up or down,'' said a NYMEX floor trader, adding traders sidestepped fresh news about Iraq, which last week demanded the lifting of U.N. sanctions.
NYMEX May crude, which expires tomorrow, settled at $15.41 a barrel, off 5 cents. It broke above $15.50 early and hit a high of $15.59, but slipped in lackluster trading, reaching a low of $15.37.
May heating oil settled at 43.67 cents a gallon, down 0.90 cent. May gasoline closed at 52.42 cents a gallon, down 0.60 cent.
Concerns about U.S. refinery glitches, which lifted gasoline and the market last week, continue, a trader said, as there was still uncertainty over when some of the units affected will be restarted.
In any case, gasoline traded sideways. One trader said gasoline was ''maybe overdone'' last week and was due for a slight correction.
In London, IPE Brent crude slipped into negative territory by late trade on Monday before closing a touch higher as traders shrugged off bearish and bullish news about Iraq.
IPE June Brent closed four cents up at $14.40 a barrel, close to the day's $14.35 low.
The United States on Monday accused Iraq of failing to cooperate with U.N. weapons inspectors despite an agreement with the U.N. that defused threats of a U.S. military attack.
This means the time was ''far away'' when the U.N. sanctions on Iraq could be lifted, said U.S. State Department spokesman James Rubin.
Last week, U.N. weapons inspectors reported having made virtually no progress over the past six months in verifying that Iraq had destroyed any remaining weapons of mass destruction after the Gulf war, a key condition for lifting sanctions.
Meanwhile, Iraq's foreign minister said in New York on Monday that a distribution plan for aid in the U.N./Iraq oil-for-food deal will be submitted to U.N. Secretary General Kofi Annan in about 10 days.
Annan's approval of the distribution plan will trigger a 18-day period in which Iraq's oil exports will be increased by about 50 percent.
Currently, Iraq can sell up to $2 billion in oil every six months. The U.N. has approved increasing exports to $5.2 billion every six months, but Iraq has said it can not reached that ceiling.
It previously said it could only export up to $4 billion because of its damaged oil infrastructure. Annan, in a report last week proposing that $300 million be used to repair Iraq's oil facilities, said Iran can only export $3 billion worth of oil in any given six month in 1998 even if emergency repairs were undertaken.
Funds for the repairs are being considered this week by the Security Council and its adjunct, the Iraq sanctions committee.
US Cash Crude - Differentials Steady, But No Deals
NEW YORK, April 20 - U.S. cash crudes began the week quietly, traders said, and differentials were mostly steady as deals were scarce early Monday.
Crude oil futures on the NYMEX were slightly stronger than their Friday close, but traders said the futures market was also relatively quiet, ahead of the expiry of the front-month May contract on Tuesday.
May West Texas Intermediate/Cushing was trading at $15.55-60 a barrel, with the exchange for futures (EFP) premium valued at 8-10 cents early Monday.
Cash crude traders said they were not sure what to make of the EFP market, which has remained mostly steady in the past week.
EFPs allow players to exchange futures positions for cash WTI positions. Typically, EFPs strengthen when there is talk of foreign deliveries against the expiration of the NYMEX contract. But despite such talk, EFPs have remained range-bound at plus 8-10 cents.
Traders said few deals had been heard in the U.S. cash crude market on Monday, although there was a rumor of an early deal for postings related WTI/Cushing at $1.90. Postings were since valued somewhat weaker at $1.85-1.88, unchanged from late Friday.
The May-June spread had widened by about five cents since Friday, and was talked at minus 48-43 cents.
West Texas Sour/Midland remained valued at $2.25-2.20 under WTI/Cushing, while Eugene Island crude, an offshore sour grade, was unchanged at minus $2.05-1.95.
Light Louisiana Sweet/St. James was steady, valued at a discount of 87-83 cents to WTI/Cushing. Heavy Louisiana Sweet/Empire was five cents stronger, at $1.20-1.15 under WTI/Cushing, but traders saw no deals on Monday.
WTI/Midland remained steady at minus 39-37 cents.
NYMEX Natural Gas Stuck In Slim Range In Sluggish Trade
NEW YORK, April 20 - NYMEX Hub natural gas futures stumbled a little lower Monday in light trade, with talk of fairly steady cash stalling any major move in the market, industry sources said.
At 1138 EDT, May was off three cents at $2.445 per mmBtu after swaying between $2.445 and $2.475 this morning. June backed off of a $2.52 high to trade 2.8 cents lower at $2.49, while other deferred months were unchanged to slightly weaker.
''It's dull out there. I'd like to see it trade down to $2.43 before it starts going up again,'' one trader said, noting cash had recovered from earlier lows.
After $2.43, traders said minor May support was seen at $2.40, followed by firmer support at the $2.33 double bottom. Resistance was pegged at $2.508, today's 18-day moving average. Further selling was expected to arrive at $2.55-2.56, $2.635 and the $2.725 contract high.
At Henry Hub, prices were quoted early at $2.37, but more recent quotes were heard in the low-$2.40s. South Texas prices were similarly talked at $2.30-2.35, while Midcontinent gas traded fairly steady in the low-$2.30s.
One factor keeping the market in limbo were forecasts calling for mostly seasonal temperatures in the Northeast and upper Midwest this week, while cooler-than-normal weather is expected to reach Texas by midweek but then return to slightly above-normal by week's end. Southwestern temperatures, however, are expected to run five to 10 degrees above normal through Wednesday.
As of 1105 EDT, 12,599 Hub contracts had traded on NYMEX.
On KCBT, May lost two cents to $2.355 at 1135 EDT.
Physical deals in the Permian Basin were reported done little changed at $2.25-2.30.
U.S. Spot Gas Prices Regain Firmness In Late Trade
NEW YORK, April 20 - U.S. spot natural gas prices were little changed Monday, though the emergence of late buyers resulted in a stronger finish, industry sources said.
Cash prices at Henry Hub were quoted mostly again at $2.40 per mmBtu, with late morning business reported done as high as $2.44.
In the Midcontinent, prices similarly traded around Friday's range in the high-$2.20s to low-$2.30s. Chicago city-gate was still talked in the mid-$2.40s.
In the West, southern California border prices eased a couple of cents to $2.53-2.55, while Permian prices were also quoted a little softer at $2.23-2.28. San Juan values similarly stayed at the bottom of Friday's range at $2.16-2.20.
In the Northeast, New York city-gate prices were buoyed in the low-to-mid $2.60s, while Appalachian values on Columbia still hovered around $2.54.
Temperatures are expected to average around normal in the Northeast and upper Midwest this week, while cooler-than-normal weather is expected to reach Texas by midweek but then return to slightly above-normal by week's end. Southwestern temperatures are expected to run five to 10 degrees above normal through Wednesday before cooling off by the end of the week.
Canada Gas Prices Soften In West Amid More Supply
NEW YORK, April 20 - Canadian spot natural gas prices continued last Friday's downward trend on Monday as more field receipts seeped into the western market and traders chipped away at May futures, industry sources said.
Spot gas at the AECO storage hub in Alberta was quoted at C$2.27-2.28 per gigajoule (GJ), down another five cents from Friday.
May business was also reported done lower at C$2.25 from C$2.30-2.32 per GJ.
Injections into western storage over the weekend averaged 300-400 million cubic feet per day (mmcfd) as more supply became available, a Calgary-based trader said.
In the export markets, Sumas, Wash., gas traded mostly at US$1.94 per million British thermal units (mmBtu), down about three cents from Friday's levels.
Meanwhile, prices at Niagara remained fairly firm at US$2.55-2.56 per mmBtu.
TOP STORIES
Low Prices Clobber PanCanadian Profit
The Financial Post
A successful hedging program cushioned the blow of low commodity prices, PanCanadian Petroleum Ltd. said in reporting first-quarter results yesterday.
But profit for the quarter ended March 31 was down by two-thirds to $45 million (18› a share), from $135.3 million (54›) for the same period last year.
The Calgary-based company, one of Canada's largest oil and gas producers, released results after the markets closed yesterday.
Revenue for the period was $735.8 million, down from $867.8 million last year.
Cash flow was down to $210.3 million, (84›), from $280.5 million ($1.12).
"The weak crude oil price environment has had an adverse impact on the company, particularly in the heavy oil area, resulting in a reduction in our planned capital program for 1998," president and chief executive David Tuer said.
The company is now focused on natural gas production to take advantage of new pipeline capacity coming on stream in the fall, he said.
PanCanadian is 87% owned by Canadian Pacific Ltd.
The company said its production during the period averaged 787 million cubic feet daily of natural gas, up 8% from last year. It also averaged 150,893 barrels of oil and natural gas liquids daily, up 7%.
The average natural gas price was $1.88 per thousand cubic feet during the quarter, down from $2.38 last year.
The average oil price was $17.24 a barrel, down from $24.28 last year.
Hedging raised oil prices by $4.19 a barrel.
The company said its plans call for natural gas production to rise by 10% over last year.
Its planned capital program of $960 million is under constant review because of volatile oil prices.
"The company will manage its capital expenditures as market fundamentals dictate," it said in a statement.
"With this planned capital budget, average crude oil and liquids production is expected to be approximately 148,000 barrels daily."
Amber Proceeds With Development Despite Profit Plunge
The Financial Post
Heavy oil producer Amber Energy Inc. squeezed out a $512,000 profit (1› a share) in the first quarter ended Feb. 28, down from $5.7 million (12›) a year earlier, despite doubling production.
The "tremendous drop in commodity prices" pulled down the average price for a barrel of heavy oil to $6.57, from $18.26 a year ago.
Best known for its involvement in the Pelican Lake heavy oil area of northern Alberta, Amber said it had considered shelving some of oil projects because of low commodity prices, but decided instead to move ahead with aggressive development.
A new pipeline to move oil from Pelican Lake, scheduled to be completed by June 1, will increase cash flow by $4 a barrel in the third quarter by cutting transportation costs.
Amber is optimistic heavy oil differentials (the discount applied to heavy oil because it requires more refining)will shrink later this year as the industry shuts in higher-cost heavy oil production.
"Our extremely low cost structure - low finding costs, low operating costs and low royalties - in our light oil development at Springburn and our heavy oil development at Pelican Lake will generate high rates of return even in a low oil price environment," the company said. "We therefore chose to continue the aggressive development of these projects."
Amber is producing heavy oil at $1.91 a barrel, and light oil and natural gas liquids at $4.82 a barrel. Production for the quarter rose to 25,384 barrels of oil equivalent daily, from 14,014 BOEs. Half the production is heavy oil. Revenue was $27.9 million, little changed from a year ago, while cash flow fell to $13.3 million (25›), from $16.6 million (34›).
"We still rate it a strong buy, particularly when you consider that they are selling heavy oil at less than $7 a barrel, and they are still making money. It drives home how low cost a producer this company is and the costs are going to come down even further when the pipeline is in place," said Scott Inglis, director of research at FirstEnergy Capital Corp. in Calgary.
Chieftain International, Inc. (AMEX & TSE/CID) has participated in the drilling of a natural gas discovery on Matagorda Island Block 634. The No. C-2 well was drilled as an exploratory well to a total depth of 13,122 feet and encountered five natural gas zones. Chieftain estimates that the C-2 well will begin production in the second quarter of 1998 at a projected flow rate of 15 mmcfd and 150 bd of condensate. Chieftain has a 24% interest in the well. Other interests are held by Enron Oil & Gas Company, 24%, Oryx Energy Company, 30%, and Sante Fe Energy Resources, Inc., 22%.
Union Pacific Selling Non-Core Assets To Offset Norcen Buy
The Financial Post
Union Pacific Resources Group Inc. of Fort Worth, Tex., said yesterday it will sell US$1.7 billion to US$2 billion in non-core assets to pay down debt accumulated from its recent acquisition of Norcen Energy Resources Ltd.
Some of the assets on the block will come from Norcen, but specifics won't be available until later this week, said spokesman Pat Doyle, adding the moves are being made to reduce the company's debt.
The assets represent less than 10% of Union Pacific's overall production, he said.
Also included in the sale is the company's gas gathering, processing and marketing business. Capital spending for the year has also been reduced to US$1.3 billion from US$1.6 billion, the company said.
Union Pacific bought Calgary-based Norcen in January for $3.7 billion and the assumption of US$900 million in debt.
With the buy, Union Pacific became the second-largest U.S. exploration and production company after Unocal Corp. of El Segundo, Calif.
At the time of the purchase, financed through bank debt, Union Pacific said it intended to sell between US$500 million and US$700 million in assets to pay down debt.
Doyle said Union Pacific is still excited about the Norcen acquisition, even though some Norcen properties have been deemed non-core.
"We bought it for the long-term opportunities it offers. The nature of this business is that it's a cyclical business. We believe this will help us build long-term shareholder value."
Half of Norcen's assets are in Western Canada. The remainder are in the Gulf of Mexico, Venezuela and Guatemala.
Triumph Energy Corp. announced that it has added approximately 4 mmcf/d of natural gas production and 50 bbls/d of associated natural gas liquids, net to the Company, to its current production base in the Chinchaga River area of northeast British Columbia. These production additions are a result of the Company's successful winter in-fill drilling program and major facilities upgrade. Given current buoyant natural gas prices and the continued optimism for future prices, Triumph will continue to develop and exploit this large natural gas project over the next several years.
In addition to this incremental production at Chinchaga River, the Company will tie-in two new natural gas discoveries at Cow Lake and Sunchild in West Central Alberta. Both discoveries are liquids-rich and will be followed up this summer with additional drilling. Cow Lake is expected to be on production during May while Sunchild should begin producing during June. Production additions from these winter projects are expected to significantly increase Triumph's natural gas production, bringing total company production to well in excess of 4,000 BOE/d in June.
Cotton Valley Resources Corp. (AMEX/KTN - CDN/CVZC) tannounced that its Spinks No. 2 horizontal well is the first horizontal well to be successfully tested as a high volume water injection well in a Queen sand waterflood redevelopment project and is only the third horizontal well to be drilled in the Queen sand formation. The well tested injection rates of 3600 - 4800 barrels of water per day at 2000 - 2500 psi well head injection pressure.
Using equipment and technology provided by Mustang Well Servicing Company and Mustang Horizontal Services, Inc., Cotton Valley subsidiaries, this well presents the first results from the $4.32 million financing completed by Cotton Valley last December.
''During the next few weeks, Cotton Valley will conduct a pilot program of high volume water injection in this well to determine the feasibility of substituting 13 horizontal injection wells for the currently planned 40 vertical wells in the redevelopment project,'' said Jim Hogue, President and Chief Operating Officer. ''Preliminary calculations show that production rates from this high volume water injector will accelerate the date we expect field production of 2,000 barrels of oil per day to occur and will also increase the ultimate recovery of oil reserves.''
The Means Field is a producing oilfield which has been previously waterflooded on a 40-acres spacing and is similar to a number of other Queen sand waterfloods which have been successfully down-spaced to 20 acres and redeveloped for increased recovery. Approximately 16% of the oil originally in place has already been produced using primary methods and a wide spaced waterflood.
''We are particularly pleased that we were able to drill legs 2000 feet long into three separate zones at good drilling rates without mechanical problems and with good shows of live oil throughout most of the drilling,'' said Mark Milam, President of Mustang Horizontal Services, Inc.
Cotton Valley Resources Corp. (AMEX/KTN - CDN/CVZC) announced that it has entered into a Letter of Intent with Cambrian Capital Corp., Houston, for $10 million in loans, primarily to finance secondary recovery development of the Means (Queen) Field in Andrews County, Texas.
A $9 million development loan will be used for the Means waterflood project and a $1 million line of credit loan will be used for other corporate projects, which may include a horizontal test well at Cotton Valley's Sears Ranch Prospect in Fisher County, Texas. The loans will mature in four years and carry an interest rate of prime plus 2%. After payout of the loans, Cambrian will receive a net profits overriding royalty interest in the Means Unit.
Cotton Valley holds 100% working interest in the 2,100 acre Means Unit, which has been forecast by outside engineers to develop to a peak rate of 2,000 barrels per day upon completion of the waterflood program. Cotton Valley also holds 100% working interest in another 500 acres of adjacent leases, which are expected to have significantly increased production from the waterflood project.
''We are pleased to begin this exciting venture with Cotton Valley, and are delighted to invest in the strong management team that exists at the company,'' said Brian Hughes, managing director. Cambrian Capital, a joint venture of three international financial and energy firms, is a merchant banking enterprise focused in the energy industry. Cambrian provides financing to small and mid-size emerging independent oil and natural gas producers secured by oil and gas reserves.
Cotton Valley Resources Corp. concentrates on acquiring and improving Texas and Oklahoma oil and gas properties using new technologies and its own service companies. There are approximately 17 million common shares outstanding.
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