MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, APRIL 21, 1998 (6)
MARKET ACTIVITY
In the U.S., Exxon (XON) posted first-quarter earnings of 76 cents per diluted share, well ahead of the First Call consensus estimate of 66 cents per share. The stock was up 3/8 to 73 5/16. The AMEX Oil Index (XOI) closed up 3.47 to 493.84.
Oil drillers were also higher, sending the Philadelphia Oil Service Index (OSX) up 3.95 to 116.85.
Weatherford Enterra (WII) rose 4 1/4 to 48 7/8 thanks to first-quarter earnings of 59 cents per share, two cents better than projections.
Camco International (CAM) beat the Street by a nickel, but its shares rose just 2 7/16 to 63. Elsewhere in the group, Smith International (SII), Schlumberger (SLB), and Cliffs Drilling (CDG) all rose more than $3.
Tyco International (TYC) climbed 1 to 56 1/8 after reporting fiscal second quarter earnings of 48 cents per share, three cents higher than expectations.
The Toronto Stock Exchange 300 Composite Index managed to gain 0.1% or 11.16 to 7765.52.
In comparison, the Toronto Oil & Gas Composite Index fell 0.1% or 5.38 to 6721.24. Sub-components were mixed. The Integrated Oils gained 0.5% or 44.05 to 8695.50. The Oil & Gas Producers fell 0.4% or 22.67 to 5958.27. Oil & Gas Services gained 0.3% or 9.91 to 3320.99.
Blue Range Resources, Gulf Canada Resources, Petro-Canada, Westfort Energy, Rio Alto Exploration, Encal Energy and Berkley Petroleum were among the top 50 most active traded issues on te TSE.
Suncor Energy gained $1.00 to $49.95, Amber Energy $0.90 to $16.50, Pinnacle Resources $0.70 to $14.70 and PanCanadian Petroleum $0.65 to $23.30.
Percentage gainers included TUSK Energy 22.4% to $1.75, Founders Energy 13.6% to $1.25, Purcell Energy 7.0% to $1.07 and Bitech Petroleum 6.9% to $3.85.
On the downside, Canadian Occidental Petroleum fell $0.95 to $29.00.
Percentage losers included Bellator Exploration 11.4% to $0.93, Black Sea Energy 8.0% to $1.15, Pan East Petroleum 5.9% to $2.25, Westfort Energy 5.5% to $3.12, Torrington Resources 5.4% to $4.35, Carmanah Resources 4.6% to $8.30, Upton Resources 44.4% to $3.25 and Real Resources 4.3% to $1.11.
Among service issues, Prudential Steel was listed among the top 50 most active traded issues on the TSE.
Shaw Industries A gained $0.75 to $56.50, Dreco Energy Services $0.70 to $57.20 and IPSCO $0.70 to $46.70.
Percentage gainers included Canadian Crude Separators 8.3% to $5.20 and Trican Well Services 6.8% to $5.50.
On the downside, ATCO I fell $1.25 to $33.50, Cmputalog $0.75 to $24.25 and Ensign Resource Services $0.50 to $33.40.
Service issues were not to be found among the top percentage losers.
Over on the Alberta Stock Exchange, First Star Energy, Dalton Resources, HEGCO Canada, AltaPacific Capital, Raptor Capital, Bearcat Exploration and Parkcrest Exploration were among the top 25 most active traded issues.
First Star Energy gained $0.22 to $0.67, Avid Oil & Gas $0.15 to $1.50, Syner-Seis Tech $0.14 to $0.85, Meota Resources $0.13 to $1.25, Pacific Ranger Petroleum $0.12 to $0.50, Big Bear Exploration $0.10 to $1.30, Bolt Energy $0.10 to $0.60, Loon Energy $0.10 to $0.40, Northline Energy $0.10 to $1.30 and Dalton Resources $0.10 to $0.27.
Granger Energy fell $0.20 to $0.70, Underbalanced Drilling $0.15 to $2.50, Redco Energy $0.14 to $0.26, Green River Petroleum $0.11 to $0.49, Belfast Petroleum $0.10 to $2.95, Canadian Blackhawk $0.10 to $0.15, Corlac Oil Field $0.10 to $0.10 to $0.75, Red Sea Oil $0.10 to $2.45 and Solid Resources $0.10 to $6.80.
RESEARCH NOTES
Gordon capital
Petro-Canada
(PCA-T: $25.15) BUY
Q1 Results - Strong Downstream offsets Weak Upstream
Petro-Canada reported financial and operating results for the first quarter in line with our expectations. Cash flow from operations totaled $0.96 per share compared to $1.44 per share in the corresponding quarter last year. Earnings declined to $0.13 per share from $0.38 per share last year.
The major reason for the dramatic decline is attributable to commodity prices. Average crude oil realizations declined 33% to $19.07 per barrel from $28.32 per barrel and natural gas realizations declined 28% to $1.75 per mcf from $2.42 per mcf. Also aggravating results were production declines, particularly in crude oil due to the one month shut-down of the Syncrude facility, sale of non-core assets, and delayed tie-in of production due to early spring breakup.
These declines were partially offset by the increased production from the Hibernia field. This field is currently producing at 15,000 barrels per day an expected to exit the year at a rate exceeding 100,000 barrels per day.
Upstream earnings were also impacted by a higher exploration expense due primarily to two dry holes in western Canada.
Offsetting the poor upstream results were significant improvements in the downstream where despite lower sales of products due to warm weather, rack-back (refining) margins improved to 2.3 cents per litre from 1.9 cents per litre and rack-forward (marketing) margins improved to 5.8 cents per litre from 5.3 cents per litre. The company continues to run its refineries at full capacity as well.
We have reduced our oil price forecast for the year to WTI $17.00 per barrel and accordingly we are reducing our cash flow and earnings estimate for Petro-Canada to $3.70 per share and $0.85 per share respectively. We are maintaining our BUY recommendation with a target price of $30 per share.
Pinnacle Resources
(PNN T: $14.70) STRONG BUY
Could Add 1.0 TCF In New Gas Reserves
Pinnacle Resources has the potential to add, on a risked basis, up to 1.0 TCF of new gas reserves in the Ansell and McLeod River areas of west central Alberta. These reserves could be added over the next three years at an estimated capital cost of $350 million, or under $3.00/boe. This would effectively triple Pinnacle's gas reserves, which stood at 560 bcf at year-end 1997.
The reserve additions could come from drilling horizontal wells into the tight unfaulted Cardium rock at Ansell (330 bcf), by extending the Cardium play at Ansell to the north at Galloway and to the south at Minehead (350 bcf), by drilling the prospective geological formations below the Cardium at Ansell (100 bcf), and by adding new Gething and Rock Creek reserves at McLeod (200 bcf).
Pinnacle will drill 40 wells into these areas during 2Q and 3Q to further test these concepts. If successful, this would lead to the drilling of at least another 200 wells in these areas in 1999.
Pinnacle is currently 70% levered to oil. This gas potential would balance the leverage between the two commodities to a 50/50 basis over the next two years. Our NAVPS is currently $15.00 (under a $US 17.00/bbl WTI oil price scenario), and we are forecasting CFPS of $2.85 in 1998 and $4.00 in 1999.
Pinnacle only trades at 5.1x 1998 CFPS and 3.7x 1999 CFPS. The company is managing to a year-end debt/cash flow ratio of 2.5x. We recommend a STRONG BUY with a stock price target of $20.00.
Rigel Energy
(RJL-T: $12.75) HOLD
Burmis At Targeted Depth
Rigel's deep gas exploration test well at Burmis, in the southern Alberta foothills, has reached its targeted depth The well is operated by Rigel, who own 33%. Management expects to be completing and testing at four separate depths over the next two months. The drilling rig which drilled the well remains near the site, ready to drill a second well should the three partners (Rigel, Northstar Energy, and Norcen - UPR) agree.
In the Moray Firth area of the U.K. North Sea, a second appraisal well (the 3rd well overall) is currently being drilled into a significant oil prospect in which Rigel owns 20%. The status of the exploratory information on this prospect remains "tight".
Our CFPS estimate for 1998 is $1.75, and $2.15 for 1999. HOLD.
IPSCO
(IPS-T: $46.60) LONG TERM BUY
Highlights From Management Presentation
OCTG markets are expected to remain challenging through the fall when a pick-up in gas drilling kicks in. We expect lower imports to offset lower industry volumes to some extent, but continue to expect lower volumes and pricing for IPSCO for the balance of the year. Alliance pipeline will be required to pay IPSCO a sizable penalty in the event that it does not take delivery of pipe on schedule. IPSCO is scheduled to supply roughly 400,000 tons of pipe for the project beginning in August.
As expected, Montpelier continues to enjoy a healthy start-up. Production has steadily ramped up from 10,000 tons in November to 47,500 tons in March (about « of rated capacity). We believe the mill is currently generating positive EBITDA five months after start-up. In contrast, it took Gallatin (Co-Steel/Dofasco JV mini-mill) nearly two years of operation to reach a positive cash flow!
We continue to expect a $0.60-$0.70 contribution to EPS from Montpelier in 1998 rising to $1.65 in 1999. We remain comfortable with our EPS estimates of $3.50 for 1998 and $4.50 for 1999. 12-month target price unchanged at $52. LONG TERM BUY
Alliance Pipeline
TransCanada Pipelines Announcement Favours Alliance And Northeast B.C. Producers
TransCanada has announced its intentions to not proceed with $2.7 billion worth of expansions which would have supplied incremental western Canadian natural gas production into the U.S. midwest. The clear winner in this situation is the Alliance Pipeline, which is currently scheduled for completion in mid-2000. Alliance will be primarily shipping gas from northeast B.C. to the midwest.
Our favorite gas producers in the northeast B.C. market are, among the seniors by ranking; Poco Petroleums, Canadian Natural Resources, and Talisman Energy. Our favorite intermediate producer in this region is Encal Energy, while our top junior pick is Blue Range Resources.
Our target prices for these stocks are Poco - $20, CNQ - $35, Talisman - $55, Encal - $7.00, and Blue Range - $12.
Deutsche Morgan Grenfell
Deutsche Morgan Grenfell said on Monday it started coverage on shares of the oil field services companies, placing a buy rating on Schlumberger Ltd. (SLB) and BJ Services Co. (BJS).
-- Schlumberger Ltd stock up 11/16 to 77-5/8 and BJ up 7/16 to 36-5/16.
-- Global Marine Inc. (GLM), Transocean Offshore Inc. (RIG) started as buy, Global stock off 1/16 to 23-9/16 while Transocean off 1/8 to 53-5/8.
-- Halliburton Co. (HAL) begun as buy, stock down 3/16 to 50-1/2.
-- Marine Drilling Cos. Inc. (MDCO), R&B Falcon Corp. (FLC) started as buy, Marine up 5/16 to 24-1/2 and R&B up 3/16 to 31-3/16.
-- Rowan Cos. Inc. (RDC), Cooper Cameron Corp. (RON) started as buy. Rowan up 1/16 to 30-1/16 while Cooper up 1/16 to 62-1/2.
-- Santa Fe International Corp. (SDC), Dresser Industries Inc. (DI) started as buy. Santa Fe down 5/16 to 41-3/4, Dresser down 6/16 to 48-11/16.
-- Smith International Inc. (SII), Noble Drilling Corp. (NE) started as accumulate. Smith rose 3/16 to 57-3/8 while Noble flat at 32-7/8.
-- Baker Hughes Inc. (BHI) and Input/Output Inc. (IO) started as hold. Baker off 2/16 at 42 while Input/Output up 3/16 to 23-15/16.
INSIDER TRADING
Insider trading as reported this morning in the Financial Post.
Transactions, after January unless noted, include:
Canadian Natural Resources Ltd. - Keith MacPhail, director, sold 37,400 shares for $25.45 to $28.75 each to hold 86,754.
Elk Point Resources Inc. - R. Chaney & Partners Inc., which holds more than 10%, bought 300,000 shares for US$4.27 each to hold almost 2.9 million indirectly.
Precision Drilling Corp. - Troy Ducharme, director, bought 14,000 shares on Nov. 4 for $21.35 each and disposed of them the same day for $46, and sold or disposed of 142,900 shares in March for $27 to $31.10 each to hold 227,410 indirectly.
Renaissance Energy Ltd. - Wilmot Matthews, director, sold more than 210,000 shares for $28.50 or $28.52 each to hold more than 816,000 shares.
Rio Alto Exploration Ltd. - Murray Edwards, director, exercised 47,500 options for $5.63 or $6.63 each and sold 100,000 shares for $14 each to hold more than 710,000 shares.
Tesco Corp. - Robert Tessari, chief executive, bought 46,880 shares privately for $19.40 each, exercised 80,000 options for $11.35 each and sold 126,880 shares for $22.01 or $22.80 to hold about 683,000 directly and indirectly.
Vermillion Resources Ltd. - L. Donadeo, officer and director, sold 525,000 shares for $6.40 to $7.90 each to hold about three million directly and indirectly.
EXCHANGE DOING'S
Edge Energy Inc. (formerly Alberta Oil and Gas Petroleum Corp.) has received final approval from The Alberta Stock Exchange (the "ASE") for the listing and trading of its common shares. The common shares of Edge Energy will recommence trading on the ASE, under the ticker symbol, EDG, at the commencement of trading on Thursday, April 23, 1998.
EARNINGS
Petro-Canada / Top 20 Listed
Message 4153036
Spire Energy Ltd / Spec 20 Listed
Message 4152953
Petro Well Energy Services
Message 4153240
Pallister Energy Corp.
Message 4153157
Canadian Oil Sands Trust
Message 4153220
Freehold Royalty Trust
Message 4153122
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