MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY APRIL 23, 1998 (4)
TOP STORIES
Chevron Canada Resources, Along With Berkley Petroleum, Gulf Canada Resources And Newport Petroleum, Announce New Gas Discovery
Canadian Press
Chevron Canada Resources and its three energy industry partners have made what they say is a major natural gas discovery in west central Alberta.
Chevron announced today that the Calgary company and its partners - Gulf Canada Resources, Berkley Petroleum Corp. and Newport Petroleum - had found significant new natural gas supplies in the Musreau area about 85 kilometres south of Grande Prairie, Alta.
Chevron said the new gas well is currently producing at a restricted rate of 20 million cubic feet of gas a day - because of gas plant capacity limits - putting it in the top five per cent of producing wells in Alberta.
The energy company said the well has the capacity to produce double that amount, more than 40 million cubic feet a day.
Chevron, owned by San Francisco-based Chevron Corp., said the discovery well was drilled last May 31, but confidentiality agreements prevented disclosure of information on the new deposit until now.
Chevron said two additional wells have been drilled in the area and are being evaluated, after which the companies could decide to drill more wells and build a new gas processing plant.
Partners in the discovery well are Chevron Canada, with 48 per cent interest, Gulf Canada Resources, with 32 per cent, Berkley Petroleum, with 12 per cent and Newport Petroleum, with eight per cent.
Ironically, today's announcement came shortly after TransCanada PipeLines Ltd. and its U.S. partners in the Viking Voyageur pipeline project officially killed the $2.7-billion proposal to ship gas to Minnesota, Wisconsin and Illinois.
The project collapsed because the Viking Voyageur consortium couldn't get enough support from Canadian producers.
A competing 3,000-kilometre natural gas pipeline proposed by Calgary based Alliance Pipeline Ltd. still is planned to run from British Columbia to Chicago.
Canada's gas reserves have dropped about 8.5 trillion cubic feet in the early 1990s, leaving Canadian producers with enough gas to back only one major pipeline to expand U.S. markets.
Alliance signed long-term gas contracts, leaving Viking Voyageur scrambling to find producers.
TCPL Shelves Viking-Voyageur Pipeline Project
Canadian Press
TransCanada PipeLines Ltd. and its American partners officially shelved the proposed $2.7-billion Viking Voyageur gas pipeline project Thursday.
But TransCanada says it still plans to vigorously pursue ways of getting gas into the expanding markets of the U.S. Midwest.
"We want to evaluate some other options to serve the Wisconsin-Illinois market," said Trans-Canada spokesman Gary Davis.
"But there are elements of the Viking Voyageur proposal that could very well be part of one of the options we want to pursue to serve that market."
The Viking Voyageur Gas Transmission Co. - 40 per cent owned by TransCanada - made a request to the Federal Energy Regulatory Commission in the United States to cease its review of its pipeline application.
Davis said the request to suspend work will allow Viking Voyageur to assess its situation and determine a new course, likely by the end of July.
"We may come up with something totally new, we're keeping an open mind," said Davis. "We want to do what the marketplace thinks and our other stakeholders think is most desirable."
Viking Voyageur had proposed building a 1,250-kilometre natural gas pipeline from Canada through Minnesota and Wisconsin to Illinois.
But the Viking Voyageur project was outflanked by the Alliance Pipeline Ltd. project, which sewed up much of the natural gas production from Alberta for its proposed pipeline.
Alliance signed long-term gas contracts, leaving Viking Voyageur scrambling to find producers.
Alliance president Dennis Cornelson said the development is a positive for his company's proposal.
"It confirms what we suspected for some time that they don't have market support," said Cornelson.
"Both TransCanada and Alliance had said for some time there's only room for one major new project down into the Chicago area.
"So I'm glad it's them folding their tents not us."
Cornelson said the marketplace has decided to support the Alliance proposal, making it difficult for TCPL to get any gas to ship on Viking Voyageur.
"Alliance is on its own track, there's no longer a race to Chicago for the year 1999-2000," said Davis.
"The real problem for Viking Voyageur was that it was in the same time frame as Alliance. The province of Alberta can't pull out enough gas at one time for two projects of this size."
Alliance's 3,000-kilometre natural gas pipeline, with a budget of $3.7 billion, would run from northeastern British Columbia to Chicago. It has lined up contracts to carry 1.3 billion cubic feet a day on its pipeline.
The proposal is working its way through the approval process in Canada and has hit the 70-day mark in hearings before the National Energy Board.
The board is hoping to conclude the evidence portion of the hearing by the end of next week and wrap up final arguments on the project by mid-May.
TransCanada had vigorously opposed the Alliance project, but has withdrawn its evidence against its competitor on the business issues surrounding the application.
Tom Kehoe, an investment analyst with Peters and Co., said TransCanada's move makes a lot of sense because there isn't enough gas for both.
TCPL Seen Outflanked In Export Pipelines
A series of failed attempts by TransCanada PipeLines Ltd. to take the lead in building new natural gas pipelines into the rich U.S. market has analysts doubting it can play more than a supporting role on that stage for the next several years.
Trans-Canada, the biggest pipeline company in Canada, has been playing an unsuccessful game of catch-up as it has beenoutflanked by nimble competitors anxious to put billions of dollars worth of steel in the ground to export gas by the turn of the century,.
"They seem to be, in the last while, chasing other people and they don't seem to be -- which they may have been in previous years, the innovator -- the one out there in the lead," said Rick DeWolf, vice-president of consultancy Ziff Energy Group.
TransCanada executives made an early mistake when they underestimated the potential of the C$3.7 billion Canada-Chicago Alliance pipeline proposal and its ability to get 15-year shipping commitments from producers, observers said.
Now, upcoming gas export contracts to the U.S. seem spoken for. The expansion this year of the TransCanada-affiliated Northern Border pipeline to Chicago from Saskatchewan will take up 700 million cubic feet a day. And it looks likely that the Alliance line will get the green light to start moving gas in 2000.
TransCanada's latest disappointment came this week when it and two U.S.-based partners conceded they did not have enough gas supply to proceed with building a US$1.2 billion pipeline to Joliet, Illinois from Emerson, Manitoba.
The company and one of its partners in the 1.4 billion cubic feet a day Viking Voyageur proposal, Nicor Inc. , say they are still bent on serving markets in Wisconsin and northern Illinois and are going back to the drawing board, although 2000 may now be too soon a start-up date.
The other partner, Minneapolis-based Northern States Power Co. , walked away from its Viking Voyageur stake on Wednesday. "Canceled is closer to being correct than suspended" in regards to the pipeline's status, Northern States' chief executive said.
"The market has discounted Viking Voyageur not going ahead for probably nine months, and everybody knew that only one of those two was going to go ahead regardless," Scotia Capital Markets analyst Sam Kanes said. "You can't beat the sanctity of 15-year take-or-pay contracts from investment grade shippers."
Several export proposals put forward by TransCanada over the past two years in response to competitors' plans, including one to ship gas to the U.S. Northeast from the Sable Energy Project off the coast of Nova Scotia, have met a similar fate.
Kanes said TransCanada appeared set for several years of expansion to its own pipelines while other groups build new ones. Alliance, for example, is designed by Canadian producers critical of pipeliners' reluctance to add export capacity.
While it looks to have been snubbed in the latest round of export pipeline construction, analysts stress TransCanada is far from being sidelined in the the huge Canadian gas export game, however.
It still moves the lion's share of supply from Canada's producing basin, and that position will be further strengthened by its planned C$14-billion merger with NOVA Corp. Volumes carried by its 7 BCFD mainline, its Alberta Natural Gas unit, plus those from a stake in the Foothills Pipe Lines system to be acquired in the NOVA deal, represent 77 percent of Canadian gas destined for export markets.
It also has interests in a number of U.S. pipelines in operation for several years, including Northern Border, Great Lakes in the upper Midwest and Iroquois in the Northeast.
"My view is they will continue to be a dominant player in the basin and they will provide low-cost alternatives and be competitive at the margin," said analyst Karen Taylor of TD Securities.
TransCanada, with numerous customers and diverse assets valued at C$14 billion, cannot concentrate on just one project, like Alliance's partners, but it is still trying to become as quick to respond to market conditions as the start-up pipelines, company spokesman Gary Davis said.
"By no means should people be writing TransCanada off just because we've had a few projects that have not come to fruition the way the analysts thought they should or might," TransCanada spokesman Gary Davis said. ($1 $1.43 Canadian)
Oilsands Job-Hunters Advised To Wait Longer
Fort McMurray Today
Job-seekers looking to cash in on expansion in the oilsands industry are again being advised to bide their time.
Suncor Energy, may have filed its $2.2-billion Project Millennium application with provincial regulators this week, but hiring for the construction work -- which will twin the plant's extraction and upgrading facilities -- won't begin until next April.
And hiring for the 800 permanent Millennium expansion jobs won't take place until four years from now. Suncor president and CEO Rick George advised to job-hunters not to move yet.
He said people need to remember the oilsand plant expansion won't take place until regulatory approval is granted, which is expected sometime in early 1999.
"You have to remember the regulatory process will take between nine to 12 months," George said Wednesday. Lennie O'Toole, spokesman for Fort McMurray local of the Construction and General Workers Union, said he receives 20 to 30 calls a week from people across the country inquiring about jobs in the oilsands industry.
People just don't seem to understand the jobs aren't available now, said O'Toole, adding he currently has a list of more than 130 people waiting to work in the oilsands city. Construction of Project Millennium is currently scheduled to begin in April, 1999 with official production slated for early 2002.
The construction workforce is predicted to peak in 2000 at about 2,500 to 3,000 people. With low rental vacancies, Suncor intends to establish full-service camps for construction workers and provide short-term housing accommodation for permanent employees, if necessary.
George said it's too early to comment about how large Suncor's camp will be.
Axe Raised Over European Oil Company Spending
Reuters
Embattled European oil companies hoping to ride out the storm on world petroleum markets are being forced to cut back on capital expenditure, analysts say.
Meagre returns in the wake of nine-year low crude prices mean Europe's oil majors are keeping a close eye on exploration budgets.
So far this year most European companies have stuck to spending targets but the budget-cutting lead set by some companies in the United States may change minds.
Amoco, Unocal and Phillips have all indicated lower budgets in statements this week accompanying first quarter results.
"At the moment, very few (European) companies are reporting changes in their upstream budgets...for 1998. However, internal budget reviews are now underway in many cases," said consultants Cambridge Energy Research Associates (CERA).
"We believe that many companies will revise their budgets for the second half of 1998 -- and that they will be aiming for significant changes in their debt projections. They must act soon," CERA said in a report to clients.
Europe's biggest oil major, Anglo-Dutch Shell, broke ranks on Thursday and said it was expecting to reduce overall capital spending. Most of the cuts would centre on the Asian gasoline market but some international upstream projects would be delayed, it said.
Shell Australia Ltd said on Friday its upstream capital spending for 1998 was under review and might be affected by the cuts planned by its parent company.
But British Petroleum, French Total and Elf Aquitaine, Spain's Cepsa and Repsol, Italy's ENI, Austria's OMV and Belgium's Petrofina all told Reuters in a survey they had no plans yet to trim upstream budgets.
"Nobody knows how long the low price level will last and we must be prepared to adapt ourselves," said a spokesman for Total, which has ambitious plans in Iran, Libya, Algeria and Venezuela.
"But for the moment we don't intend to cut any investment. I think it is the smaller oil companies that are more touched by low prices."
Italian state-controlled energy giant ENI, which has fully absorbed upstream unit Agip, said it was "still reviewing" the need to trim upstream investment.
"Any serious oil and gas firm has to rethink with prices at this level," said an official.
ENI has formed major upstream alliances with Gazprom, LUKoil and China's CNPC, and plans big new ventures in north Africa, and the former Soviet Union.
Oil prices so far in 1998 are running $4.50 a barrel lower than on average last year at just $14.50 for benchmark Brent blend.
And as European oil firms begin to issue first quarter results, the damage is starting to show. Norway's Norsk Hydro said on Thursday pre-tax profits plunged by 40 percent.
The company said it had no plans to reduce exploration activity and explained that it was pulling out of a big project in Venezuela as part of a re-evaluation process.
"We are withdrawing from Sincor in order to prioritise other projects," Leiv Nergaard, Norsk Hydro's executive vice president and chief financial officer, said in a statement on Thursday.
Leading independent UK explorer Enterprise said on Thursday it was likely to slice its exploration budget for 1998 by about nine percent from 170 million pounds.
But analysts said many major integrated European firms are sticking to their guns so far as they have focused on bigger projects than the middle-ranking US firms.
"The Europeans are looking at big projects to drive company performance," said one London-based analyst with an investment bank.
"Their plans in the former Soviet Union or offshore Africa, for example, are going to take two or three years to come through. It's a bit different from the drilling pinpricks in the US that are much more about short-term payback."
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