MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING WED., APRIL 29, 1998 (7)
EXCHANGE DATA
In the U.S., oil-drilling stocks rose, as the Philadelphia Oil Service Index (OSX) closed up 5.99 to 117.90. Oil drillers gained after R&B Falcon Corp. (FLC) said it expected operating income to rise as contracts for its drilling rigs rolled over at higher prices. Falcon rose 1-15/16 to 32-1/8. Camco International (CAM) rose 4 1/2 to 66 7/8, Cooper Cameron (RON) rose 3 1/16 to 65 15/16, and Smith International (SII) jumped 4 1/16 to 59 7/8l. Schlumberger Ltd. (SLB) closed up five at 83-7/16. Halliburton Co. (HAL) gained 2-5/8 to 55.
Dow member Chevron (CHV) rose 15/16 to 83 1/4 to lead oil producers, and the AMEX Oil Index (XOI) gained 4.07 to 485.71.
The TSE 300 Composite Index gained 0.6% or 41,86 to 7609.53. In comparison, the TSE Oil & Gas Composite Index gained 0.1% or 4.14 to 6532.34. Among sub-components, the Integrated Oil's gained 0.1% or 6.22 to 8434.73. The Oil & Gas Producers lost 0.0% or 0.10 to 5826.85 and the Oil & Gas Services gained 0.5% or 14.87 to 3113.53.
Pacalta Resources, Petro-Canada, Vermilion Resources, Gulf Canada Resources and Blue Range Resources were listed among te top 50 most active traded issues on the TSE.
There were no producers among the top 50 net gainers.
Percentage gainers included International Rochester 16.7% to $1.75, Spire Energy 12.1% to $1.85, Black Rock Ventures 11.1% to $1.00, Crowne Joule Exploration 10.3% to $1.60, ML Cass Petroleum 10.1 to $1.20, OGY Petroleum 9.1% to $1.20, Post Energy 8.0% to $4.75 and Founders Energy 6.3% to $1.19.
On the downside, Paramount Resources fell $0.75 to $15.25 and Renaissance Energy $0.45 to $27.30.
Percentage losers included TransGlobe Energy 7.3% to $1.02, Benson Petroleum 7.1% to $1.30, Paramount Resources 4.7% to $15.25, Best Pacific Resources 4.2% to $1.15, Zargon Oil & Gas 4.1% to $3.07, Vermilion Resources 4.0% to $8.50 and Pacalta Resources 3.8% to $10.15.
There weren't any service companies listed among the top 50 most active traders on the TSE.
Shaw Industries gained $3.00 to $54.00, Dreco Energy Services $1.35 to $54.35 and Ensign Resource Services $.60 to $31.25.
There weren't any service companies listed among the top 50 percentage gainers.
IPSCO fell $1.00 to $43.00, Computalog $0.75 to $21.25 and Canadian Fracmaster $0.70 to $18.60.
Bromley Marr lost 8.0% to $0.92.
Over on the ASE, First Star Energy, Dalton Resources, Enterprise Development, Wolverine Energy, AltaPacific Capital, Stellarton Energy, HEGCO Canada, Anvil Resoures, Oxbow Exploration, Raptor Capital and Jerez Energy were among the top 25 most traded issues.
Kintail Energy gained $0.15 to $0.90, Telford Resoures $0.15 to $0.95, Total Energy Services $0.15 to $2.20, Meota Energy $0.13 to $2.20, Scarlet Exploration $0.11 to $1.12, AltaQuest Energy $0.10 to $3.50, Corlac Oilfield $0.10 to $0.70, Derrick Energy $0.10 to $1.60, Del Roca Energy $0.10 to $0.20, Storm Energy $0.10 to $0.55 and Wolverine Energy $0.10 to $1.20.
On the downside, EGCO Canada fell $0.20 to $3.20 and Belfast Petroleum $0.15 to $2.70.
EXCHANGE NOTICES
Cherryhill Resources Inc. announced the completion of its Major Transaction on April 23, 1998 after having received approval from its shareholders at the Special and Annual General Meeting. The company, whose shares will now be transferred to the regular board of The Alberta Stock Exchange, is no longer a Junior Capital Pool corporation.
The Major Transaction involved the acquisition of interests in petroleum properties in the Rocanville area of southeastern Saskatchewan at a cost of $300,000. An independent engineering evaluation prepared recently on the properties by McDaniel and Associates Consultants Ltd. reported a net present value, using escalated pricing assumptions, of $569,200 for proven reserves ($661,800 for proven plus 50% probable), discounted at 15%. The net present value, based on constant pricing and discounted at 15%, is approximately $598,200 ($689,600 for proven plus 50% probable). Total production from the properties is estimated at 40-45 BOEPD.
Cherryhill's immediate plans are to identify and acquire additional producing reserves in western Canada. Discussions are also being held with the company's joint venture partners to further develop the Rocanville properties.
QR Canada Capital Inc. (QRI/ASE), a junior capital pool corporation listed on the Alberta Stock Exchange (ASE), announces that it's proposed Major Transaction to acquire oil and gas properties in the provinces of Alberta and Saskatchewan from PRL Resources Inc. was approved by the shareholders of the Corporation on March 3, 1998 and that the Corporation has since closed its purchase of the subject
properties for $487,000.
In connection with the approval of the Major Transaction the shareholders of the Corporation also approved of the private placement of up to 2,500,000 units of the Corporation at $0.40 per unit. Each unit is comprised of one common share and one common share purchase warrant. Each warrant entitles the holder thereof to acquire one additional common share of the Corporation upon payment of the exercise price of $0.50.
The Corporation received and accepted subscriptions for 1,000,000 units, for gross proceeds of $400,000, subsequent to approval of the Major Transaction. Notwithstanding that the ASE made acceptance of the Major Transaction conditional upon receipt of subscriptions for 1,500,000 units for gross proceeds of $600,000, the ASE has accepted the Major Transaction and the private placement of 1,000,000 units. The Corporation was unable to close the final $200,000 due to market conditions. However, the Corporation has $100,000 in unallocated funds available and keeps the previously announced private placement open until May 8. No additional oil and gas acquisitions will be undertaken until further funds are raised.
NYMEX Bets on Oman, Dubai for Asia Oil Futures
The New York Mercantile Exchange (NYMEX) plans to launch a new crude oil futures contract for Asia based on Oman and Dubai crudes, industry sources said on Tuesday.
The timing of the launch has not been finalised, but the news comes as the Singapore International Monetary Exchange (SIMEX) is under pressure to drop its Brent crude contract.
Oil futures have struggled for support in Asia, despite its growing oil demand, but oil industry sources said they were optimistic the NYMEX contract would work.
"If it's a good contract, trade will grow. There is enough critical mass to make a market," one source said.
Oman and Dubai are two of the most actively traded crudes on the Asian spot market.
Together they are used as the basis for official price setting by the governments of Saudi Arabia, Iran and Kuwait -- three of the key power houses in theOrganisation of the Petroleum Exporting Countries (OPEC) -- who produce a combined 14 million barrels per day (bpd) of oil, or 19 percent of world supplies.
However, their output is almost entirely sold on a term contract basis, which means little, if any, gets onto the spot market.
Oman is also used by Qatar as the basis for setting the official selling price for its 670,000 barrels per day (bpd) of oil production.
And Dubai is already established as the benchmark for Middle East and Asian pricing, with a strong derivatives market, although traders worry about its long term viability because of declining production.
Current Dubai production is 250,000 bpd, while Oman produces 900,000 bpd.
The oil industry sources said the NYMEX contract would be launched on the exchange's electronic trading system called ACCESS and be weighted to Oman/Dubai on a 50/50 basis.
The system already lists its crude, unleaded gasoline and heating oil futures contracts, which NYMEX also lists in an open-outcry market during New York hours.
NYMEX officials, exchange president Patrick Thompson, who were in Singapore earlier on Tuesday, told oil industry executives that the contract had the support of Middle East producers.
But the sources said they were sceptical this would mean the producers would trade the instrument. Middle East producers rarely, if at all, hedge their production.
"It would appear they have support from the Middle East. Whether that support would extend to real participation is another question," one industry source said.
However, oil sources said that the contract could survive without Middle East participation.
"It would be nice to have Middle East producers trading the contract, but the contract is not based on having Middle East producer supporting it to work," a source said.
Another source said the contract would survive in the absence of Middle East producers using it to hedge their own production programmes, but it would "take off" if they did trade it.
NYMEX has been cautious in developing the contract, holding regular meetings in Asia with oil traders on what type of contract would work best, after the launch of several futures contracts by SIMEX failed to garner sufficient oil industry support.
Asia consumes around 18 million bpd of crude oil, half of which is provided by Middle East producers.
Previous crude contracts in the region have found that the timing of their launch worked against them.
SIMEX launched a Dubai futures contract in 1989, only to see a year later Iraq invading Kuwait, precipitating the Gulf War and drying up trade in the contract.
A fuel oil futures contract lost support after the physical market focus moved to different specifications than those reflected in the futures contract.
A SIMEX gas oil futures contract also failed and the current Brent contract is struggling to generate any sizeable trading volume. The International Petroleum Exchange in London has requested SIMEX delist the contract.
NYMEX is not the only exchange on the verge of listing a new crude futures contract in Asia.
The Tokyo Commodity Exchange (TOCOM) launched an Asian crude price index on April 1. If it gains the support of the oil trade, the exchange plans to launch a tradeable contract against it.
RESEARCH NOTES
Commentary
RBC
98 YTD Avg. (USD per barrel): $15.82 Thru April 24, 1998
Crude Oil Commentary: Firstly, the RBC DS Weekly Energy Outlook will now be sent on Fridays - and waiting for you on Monday morning.
As we correctly stated last week, prices started to consolidate and have now given up 50% of the gains as a result of the OPEC meetings a couple of weeks ago. Fundamentals remain neutral to bearish. The technical crude oil picture indicates that prices will remain stable with a slightly bearish trend still in tact. We look for a crude to find good support at $15.00, but would not be surprised to see prices test the old lows within the next few weeks. We would look to get long first at around $15.00 and if $15.00 breaks, we'd wait until we've seen $14.50 before potentially getting long. In conclusion, the market looks set to consolidate between $14.50 and $16.50 for the time being.
Natural Gas Commentary: NYMEX gas prices rallied up towards their recent highs reaching a high of $2.63 as the result of ruptured pipeline rumors and expectations of bullish AGAs. Prices corrected quickly and have been sliding since (the technicals provided some valuable insight on April 14/15).
We see good support at $2.30 (May) and $2.35 (June). If we break below these levels we se support at $2.25. The technical charts indicate that prices still have some room to fall ($2.25 by the time June becomes spot), and that the we may have seen the highs ($2.70).
Now, how many actually thought $2.20 AECO in the summer would hold? Hate to say we told you so, but in all fairness, we have been recommending for some time now that producers begin hedging if they haven't done so already. AECO prices have dropped in tandem with the NYMEX, falling by more than $0.30 within a week (May-Oct). We seem to have found some support, but may see a further $0.10-0.15 sell-off. If we see $2.00 for the summer again, take it! Next gas year still remains a good sell. Hold off on the winter for now! Consumers should now be looking at targets (especially short term).
Gordon Capital
Canadian Natural Resources
(CNQ-T: $30.05) BUY
Q1 Results Due Week of May 11th
CNQ expects to release its Q1/98 results the week of May 11th. We are expecting the company to report $1.00 vs. $1.44 a year ago.
The company continues to work on the gas/oil ratio problem at its Pelican Lake heavy oil project. The use of "charge pumps" downhole below the progressive capacity screw pumps is meeting with success in some of the wells.
This spring, CNQ is tying-in 100 mmcf/d of new gas production from its northern "winter" drilling areas. In the Mokman/Sukunka area of Murray River, the company will be drilling its next deep gas test this summer. Its most recent discovery well in this area tested at 30mmcf/d.
Our CFPS forecast for this year is $4.65 and $5.60 in 1999. Our 12-month stock price target is $35.00.
Berkley Petroleum (BKP-T: $13.60) BUY
Southern Alberta Foothills Update
Berkley has drilled and cased seven deep gas tests in the southern Alberta foothills. The farm-in on Bearcat Exploration at Turner Valley (40% interest) could potentially be in the 150-250 bcf range. The discovery features a 100 foot pay zone and a sulphur content of only 2.5%. The well tested at 3 mmcf/d, but could flow at 10 mmcf/d.
A discovery well with Shell Canada at Turner Valley is currently testing. A third well at Turner Valley (60% interest) has missed its target (front edge), but will be whipstocked over the next 2-3 months.
To the north of Turner Valley, at Voyager, Berkley has at least a 50 bcf Cardium (2 zones) discovery.
At Cardinal - Mountain Park, the company has a 40% interest in a 50-70 bcf discovery.
Finally, at Red cap, the exploration well has drilled into the Mississippian of what is a 200 bcf prospect.
Our fully diluted CFPS is $1.30 in 1998 and $2.20 in 1999. Our stock price target is $17.00.
Templeton Management Ltd.
Templeton Management Limited have, in transactions on the Toronto Stock Exchange completed on April 27, 1998, purchased 150,300 shares of Renaissance Energy Ltd. The shares, together with previously acquired shares, represent 10.08% of the issued shares of such class.
Capital Group Co.'s
Capital Group Cos. Inc. slashed its holding in Abacan Resource Corp. in <b<March, the Ontario Securities Commission insider trading report shows. Capital sold almost 5.5 million shares for $2.04 to $2.40 each to hold 4.1 million, and sold 175,000 for US$1.50 or US$1.53 to hold almost 2.6 million.
J.P. Morgan
J.P. Morgan said it initiated coverage of Exxon Corp. with a market performer rating. Exxon is one of the best-run oil companies in the world and the analyst is bullish on its longer-term prospects, but believes the shares currently are fairly valued.
-- The 1998 earnings estimate was $2.83 per share, and $3.15 for 1999.
-- The medium-term operating environment is likely to hurt Exxon's 1998 and 1999 earnings. Crude oil prices and ethlyene margins are forecast lower than in 1997.
-- Crude prices should begin to rebound in 1999, but ethylene's recovery was not expected until 2000.
-- The stock has had a good run so far this year, up 20 percent.
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