MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING WED., APRIL 22, 1998 (5)
MARKET ACTIVITY
In the U.S., oil stocks were lower as the AMEX Oil Index (XOI) slid 3.53 to 490.31 and Oil Service Index (OSX) closed off 1.45 to 115.40.
Several oil producers and drillers like Sun Co. (SUN), Cliffs Drilling (CDG) and R&B Falcon (FLC) wil be releasing financial and operating reports today.
The Toronto Stock Exchange 300 Composite Index gained 0.7% or 56.73 to 7822.25.
In comparison, the Toronto Oil & Gas Composite Index gained 0.2% or 16.16 to 6737.40. The sub-components were mixed. The Integrated Oil's fell 0.5% or 46.64 to 8648.46. The Oil & Gas Producers gained 0.7% or 41.43 to 5999.70. The Oil & Gas Services fell 0.6% or 21.08 to 3299.91.
Renaissance Energy, Newport Petroleum, Rigel Energy, Rio Alto Exploration, Talisman Energy, TUSK Energy, Anderson Exploration, Suncor Energy, Probe Exploration and Amber Energy were among the top 50 most active traded issues on the TSE.
Alberta Energy gained $0.75 to $34.75.
Percentage gainers included TUSK Energy 24.6% to $2.18, Southward Energy 11.1% to $1.40, Bellator Exploration 7.5% to $1.00, Westfort Energy 7.4% to $3.35 and Triumph Energy 7.1% to $3.00.
On the downside, Seven Seas Petroleum fell $1.25 to $21.75, Shell Canada A $1.05 to $25.90 and Poco Petroleums $0.50 to $16.10.
Percentage losers included Black Rock Ventures 9.1% to $1.00, Founders Energy 7.2% to $1.16, Renata Resources 6.9% to $0.95, Purcell Energy 5.6% to $1.01, Seven Seas Petroleum 5.4% to $21.75, Pendaires Petroleum 5.1% to $7.50, Calahoo Petroleum 4.5% to $1.05 and TransGlobe Energy 4.5% to $1.05,
There were no service companies listed among the top 50 most active traded issues on the TSE.
Enerflex Systems gained $1.75 to $43.00 and Mullen Transportation $1.00 to $24.00.
Percentage gainer was McCoy Brothers 15.9% to $3.20.
On the downside, Shaw Industries A fell $1.50 to $25.90, Canadian Fracmaster $0.90 to $22.00, Precision Drilling $0.60 to $35.65 and CE Franklin $0.50 to $10.65.
Percentage losers included Alpine Oil 6.7% to $1.11.
Over on the Alberta Stock Exchange, First Star Energy, Dalton Resources, HEGCO Canada, Red Sea Oil, Cubacan Exploration, Raptor Capital, AltaPacific Capital and Gold Star Energy were among the top 25 most active traded issues.
First Star Energy gained $0.37 to $1.04, HEGCO Canada $0.30 to $3.93, Moxie Petroleum $0.25 to $2.00, Red Sea Oil $0.25 to $2.70, Granger Energy A $0.20 to $0.90, Doreal Energy $0.17 to $1.22, Draig Energy $0.15 to $1.45, Niko Resources $0.15 to $5.80, Wenzel Downhole $0.14 to $1.20, Dalton Resources $0.13 to $0.40, Arrival Energy $0.10 to $0.50, Destiny Resource Service $0.10 to $3.35, Hyduke Capital Ressources $0.10 to $2.50, Proprietary Energy $0.10 to $3.00 and Syner-Seis Tech $0.10 to $0.95.
On the downside, Tier One Energy fell $0.25 to $1.25, Meota Resources $0.15 to $1.10, AltaQuest Energy $0.10 to $3.40 and EMR Microwave $0.08 to $0.51.
RESEARCH NOTES
Gordon Capital
Poco Petroleums
(POC-T: $16.50) STRONG BUY
Strong Q1 Expected Poco will report its Q1 results on May 7th. We are expecting the company to report CFPS of $0.78 vs. $0.76 a year ago.
Poco will be one of the few (if not the only) Canadian oil and gas companies to report Q1 results superior to that of a year ago. During the Q1, the company realized an average gas price of about $2.65/mcf, far superior to the industry average. This was a result of the company's fortuitous winter gas price hedging program.
Poco is 56% leveraged to natural gas production and has extremely strong long term gas potential both west of the 5th meridien in Alberta and in northeast B.C. at Monkman.
Our stock price target is $20.00.
Suncor Energy
(SU-T: $50.05)
HOLD
Hedging Gains and Unsustainable Cost Reductions Enhance Q1 Results On the surface the cash flow results reported by Suncor for the first quarter were excellent in light of the significant deterioration in crude oil prices that has occurred . The company reported cash flow of $1.31 per share, versus $1.37 per share in 1997, and earnings of $0.46 per share versus $0.54 per share.
Before adjusting for the impact of hedging, the company saw its realization on production from the oil sands facility fall by $12.17 per barrel, to an average of $18.72 per barrel for the quarter. Its hedging program improved its average realization this year, but only partially offset the loss associated with its hedging program last year. After reflecting the impact of hedging, its average sale price for synthetic crude declined to $23.89 per barrel from $28.01 per barrel.
The company also reported a significant decline in operating costs associated with the oil sands plant, with an average cost of $12 per barrel in the quarter versus $14.50 per barrel last year. This cost level is not indicative of the average expected for the year which remains at $13.25 per barrel.
After adjusting for these anomalies, the operating cash flow for the quarter would have been closer to $1.00 per share versus a level exceeding $1.50 per share last year.
While we remain positive on the expansion plans that Suncor has outlined for its oil sands facility, we believe the shares are fully valued at the current time. Investors looking to maintain leverage to crude oil should take profits from their Suncor position and switch into Canadian Occidental (CXY-T: $29.45) or Pinnacle Resources (PNN-T:$14.50).
Our target price for Suncor remains $45 per share, reflecting a price to cash flow multiple of 8.4 times our current estimate of $5.35 per share.
Petro-Canada
(PCA-T:$24.90) BUY
Hibernia Water Injection Well Reaches TD The first pressure maintenance well at the Hibernia field has reach its targeted depth and it is expected that water injection will commence within the next few weeks.
Production at the field has been reduced to between 15,000 and 20,000 barrels per day pending the implementation of a pressure maintenance program on the field. The operators expect to see a response to the water injection within 2 weeks of commencement following which two of the four producing wells that have been completed will be brought back to full production rates.
While waiting for the water injection to begin, the third producing well drilled into the field will commence a pressure drawdown test. This well originally flowed at a rate of approximately 30,000 barrels per day, which could be eclipsed during the test which is expected to last for at least 1 week. This well will produce on a full time basis when a water injection well is completed this summer.
The bottom line is that production at the Hibernia field continues to meet our expectations. Production should increase to 60,000 barrel per day by the end of June, and by the end of the year should exceed 100,000 barrels per day.
We are maintaining our BUY recommendation on Petro-Canada with a target price of $30 per share.
EXCHANGE DOING'S
NCE Petrofund is listing on the Montreal Stock Exchange as of today, an aggregate of 50,736,602 Trust Units, of which 48,736,207 are issued and outstanding.
NCE Petrofund is a closed-end investment trust created pursuant to a trust indenture between NCE Petrofund Corp. and Montreal Trust Company of Canada. The trust holds royalties which consist of a 99% share of the income derived by NCE Petrofund Corp. which currently holds interests in various producing oil and natural gas properties in Western Canada and related assets.
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