MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, MAY 5, 1998 (6)
EXCHANGE INFORMATION
Market Activity
In the U.S., oil companies lost ground as the price of West Texas crude slumped US48› to US$15.47 a barrel on the New York Mercantile Exchange. Analysts are becoming more pessimistic that a new round of cuts in global supply will be agreed upon any time soon. Amoco Corp. (an/nyse) fell US$1 1/16 to US$44 1/2, Exxon Corp. (xon/nyse) slipped 13/16 to US$73 15/16 and Mobil Corp. (mob/nyse) lost 1/2 to US$80 13/16.
Oil drilling stocks were on the rise. Camco International (CAM) rose 2 1/2 to 73 1/2 and Cliffs Drilling (CDG) closed up 1 3/4 to 55 3/4, helping send the Philadelphia Oil Service Index (OSX) up 1.67 to 121.91.
The Toronto Stock Exchange 300 Composite Index fell 0.2% or 17.18 to 7720.12.
In comparison, the TSE Oil & Gas Composite Index fell 0.7% or 43.68 to 6634.45. Among the sub-components, the Integrated Oil's fell 0.2% or 19.25 to 8700.64. The Oil & Gas Producers dropped 0.9% or 53.01 to 5872.80 and the Oil & Gas Services lost 0.2% or 7.98 to 3188.44.
Compton Petroleum, Probe Exploration, Calahoo Petroleum, Petro-Canada, Baytex Energy, Canadian Occidental Petroleum, Carmanah Resources and Talisman Energy were among the top 50 most active traded issues on the TSE.
Canadian Occidental Petroleum gained $0.60 to $30.80.
Percentage gainers included Zargon Oil & Gas 7.7% to $3.23, Ram Petroleum 6.4% to $1.50, Black Rock Ventures 4.8% to $1.10, Benson Petroleum 4.3% to $3.65 and Oiltec Resources 4.2% to $2.50.
On the downside, Remington Energy fell $1.15 to $17.75, Amber Energy $0.75 to $15.90, Renaissance Energy $0.60 to $27.10, Rigel Energy $0.55 to $12.65 and Seven Seas Petroleum (U) $0.50 to $24.50.
Percentage losers included Westfort Energy 15.7% to $2.63, TUSK Energy 10.3% to $1.91, Tunder Energy 9.8% to $2.20, Remington Energy 6.1% to $17.75, Pendaires Petroleum 6.1% to $7.75, OGY Petroleums 5.7% to $1.15, Symmetry Resources 5.3% to $1.25, Summit Resources 5.1% to $4.70 and Canada Southern Petroleum 5.0% to $8.55.
In review of service companies, Peak Energy Services was among the top 50 most active traded issues on the TSE.
Net gainers included IPSCO $0.65 to $44.50, Akita Drilling $0.60 to $11.50 and NQL Drilling $0.50 to $11.50.
Percentage gainers included Alpine Oil 7.4% to $1.46, Akita Drilling 5.5% to $11.50, NQL Drilling 4.5% to $11.50, Destiny Resource Services 4.3% to $3.65 and Enertec Resource Service 4.2% to $10.00.
Tesco Corp. fell $0.75 to $23.25.
There were no percentage losers.
Over on the Alberta Stock Exchange, Gold Star Energy, Anvil Resources, Roper Resources, HEGCO Canada, AltaPacific Capital, Raptor Capital, Big Valley Resources, First Star Energy, Bearcat Exploration, Tessex Energy, Oxbow Exploration and Stampede Oils were among the 25 most active traded issues.
HEGCO Canada gained $0.47 to $3.59, Canop Worldwide $.20 to $0.75, Edge Energy $0.20 to $4.40, Progress Energy $0.20 to $2.30, Request Seismic $0.15 to $1.75 and Tier One Energy $0.15 to $1.40.
On the downside, Derrick Energy fell $0.25 to $1.75, Cypress Energy $0.20 to $5.10, Lexxor Energy B $0.20 to $1.00, Total Energy Services $0.20 to $2.25 and Danoil Energy $0.15 top $1.05.
New Listings
Hartland Pipeline Services Ltd., announced that Hartland's common shares have begun trading on The Toronto Stock Exchange under the trading symbol "HAR".
Hartland also announces the successful completion of its Initial Public Offering of 1.5 million common shares at a price of $6.00 per share. Combined with Hartland's Special Warrant Financing which was completed in December of 1997, Hartland has raised a total of $44,000,000 in equity through Canaccord Capital Corporation and Newcrest Capital Inc.
The Company issued 6,700,000 common shares in December of 1997 for the acquisition of Art's Pipeline Contracting Inc. A portion of the proceeds were used to purchase Rattler Resources Ltd., Parkland Oilfield Construction (1983) Ltd. and H&H Oilfield Services (1998) Ltd.
Hartland Pipeline Services Ltd. is an integrated oil and gas services company providing fabrication, installation and the construction of gathering systems and small to medium bore pipelines throughout Alberta and southeastern Saskatchewan. With the acquisition of Art's, Rattler, Parkland and H&H, Hartland serves a broad client base of over 30 customers, principally senior Alberta oil and natural gas producers and large pipeline companies. Hartland's objective is to continue to consolidate through strategic acquisitions, with the Company's ultimate goal to service a significant portion of the overall gathering system and small to medium bore pipeline construction market in western Canada.
Pinnacle Oil International, Inc. (OTC BB: PSFD), announced that Pinnacle had filed an application with Nasdaq for listing its common stock on the Nasdaq SmallCap Market.
Commenting on the application, Mr. Stinson said "Our mission continues to be centered upon enhancing stockholder value. We believe listing on Nasdaq will add liquidity, visibility and credibility for our loyal investors. Our Nasdaq application comes on the heels of a management decision to become a 'fully reporting' company - subject to complete financial disclosure - through our recent filing of a Registration Statement with the Securities and Exchange Commission.
The timing of our move to Nasdaq is particularly appropriate given the ongoing acceptance of the SFD Technology, our strategic relationships with established oil and gas exploration companies, and a major capital infusion completed in early April. We believe these steps have postured our company for a rapid transition from the development stage to an operating company. Assuming Nasdaq accepts our application, our listing would not be effectuated until such time as our Registration Statement, filed with the SEC on April 14, 1998, is declared effective. We estimate that this will occur in approximately two months."
JCP - Major Transactions
C.P.M. Technologies Inc. a junior capital pool company, announced that it has entered into a Letter of Intent executed April 30, 1998 to acquire additional producing oil and gas properties from an Alberta based oil and gas company in consideration for $650,000. This acquisition constitutes an acquisition from another party of identical properties and interests as C.P.M. has agreed to acquire pursuant to a previously announced letter of intent and enables C.P.M. to consolidate its position in these properties. The transaction is conditional upon the approval of the majority of the minority shareholders of the Corporation, the approval of the Alberta Stock Exchange and arranging satisfactory financing by the Corporation.
On Tuesday, C.P.M. furter announced that it has signed a letter of intent to acquire additional producing oil and gas properties from an Alberta based oil and gas company in consideration for $120,000 to further consolidate the properties identified in its previously announced acquisitions.
Research Notes
Insider Trading
Regarding Rio Alto Exploration Ltd. -- the Financial Post noted this morning that FMR Corp. sold almost 750,000 shares for US$9.89 to US$11.06 each and bought 57,400 shares for $10.30 to $10.77 each to hold more than 5.6 million indirectly. Transactions were noted to have occurred sometime after February
Schroder & Co.
Schroder & Co analyst Michael Mayer has reduced his recommendated weighting of major oil stocks within a portfolio to 115 percent of market weight from 125 percent.
-- Mayer said in a research report that major oil shares have surged seven percent in the past three weeks, with a third of that gain occurring on Friday on reports that Saudi Arabia, Mexico and Venezuela would meet to introduce new output cuts.
-- No news has since emerged of any production cuts.
-- ''Since our price targets are already based on normalizing $20 oil, they would not change if further production cuts were made and oil prices rose,'' Mayer said.
-- He says that major oil stocks are now discounting $18.75 per barrel and remain attractive.
-- Notes that the three most undervalued oil stocks, ARCO (ARC), USX-Marathon Group (MRO) and Texaco Inc (TX), which he rates ''outperform'' have the greatest leverage to oil prices.
-- Mayer also rates with Chevron Corp (CHV), Phillips Petroleum Co (P) Royal Dutch/Shell Group (RD.AS) UK & Ireland: SHEL.L), and Unocal Corp (UCL) ''outperform'' and Amoco Corp (AN), Mobil Corp (MOB) and Exxon Corp (XON) as perform in line with the market.
Salomon Smith Barney
Salomon Smith Barney said on Friday it raised its rating on shares of Exxon Corp. to buy from outperform and boosted its rating on Chevron Corp. (CHV) to outperform from neutral.
-- Analyst Paul Ting said in a research note that sources indicate a meeting in Houston between the high ranking oil officials of Saudi Arabia, Venezuela and Mexico is likely.
-- Houston meeting increases probability of further production cuts, Ting said.
-- Fundamentals, while not robust, are better than current prices suggest, he said.
-- Market fear of Iraq is excessive as Iraq's incremental output is limited, he said.
-- Exxon has strong balance sheet, large unbooked reserve position, substantial share repurchase program and strong near-term production growth.
-- Chevron has exposure to bullish West Coast refining sector, sensitive to oil prices and improving foreign domestic margins, Ting said.
-- Exxon stock up 2-8/16 to 75-7/16 while Chevron rose 2-8/16 to 85-3/16.
J.P. Morgan & Co Inc.
J.P. Morgan & Co Inc. said analyst Michael Cha started coverage of Ocean Energy Inc. (OEI) with a buy rating and a target price of $31. Cha said the resulting company from Ocean's planned merger with United Meridian Corp. (UMC) creates ''a $3 billion diversified independent company with high-impact drilling prospects and one of the fastest production growth rates in the industry,'' in a research note.
-- J.P. Morgan has acted as a co- or lead- manager in an offering of securities for this company within the past three years.
Gordon Capital
Northstar Energy
(NEN-T: $9.65) HOLD
Problematic Deep Gas Drilling Continues
At its annual meeting yesterday, Northstar management reported that it is having difficulty achieving a successful production test from its deep prospect at Blairmore, in the southern Alberta foothills. Blairmore has been drilled to a depth of greater than 5,000 meters. High pressure gas shows in the Livingston formation (Mississippian) cannot production test without suffering extensive water infiltration. While there is extensive gas evident in this formation, the water content could ultimately condemn the play. To date, the Blairmore well has cost Northstar $8 million net ($16 million gross) to drill, complete, and test.
Nearby, Northstar has a 33% interest in the Rigel Energy well at Burmis 7-2. This well has been drilled, and is now in the process of completion and testing. Northstar have confirmed to us that they have put Rigel on notice that they will "go penalty" on the next proposed Burmis (3-9) test, also operated by Rigel. This is an exploratory test on a separate structure from the current Burmis 7-2 test.
Translated, this means that Rigel and UPR (formerly Norcen) will have to share the cost of the Burmis 3-9 well 50/50, unless another party "farms-in" on Northstar's 33% interest. Under the penalty terms, Northstar would not regain its interest in the 3-9 well until it had been successful and paid out 500%.
Northstar continues to believe that its best geological prospect in the area remains at Race Horse Creek, despite two disappointing test wells so far. The most recent exploratory well is currently drilling. Results on this test may be available during Q2. The High Rock prospect in the area has no planned date for drilling.
Northstar reported Q1 CFPS of $0.38 vs. $0.53. Natural gas production of 204 mmcf/d in Q1 was basically flat with the year average in 1997. We are reducing our 1998 forecasted gas production from 215 mmcf/d to 210 mmcf/d and our liquids forecast from 19,500 bbls/d to 19,000 bbls/d. We are reducing our 1998 CFPS forecast from $1.75 to $1.65.
Probe Exploration
(PRX-T: $6.20) BUY
1997 Results
During 1997, Probe Exploration reported CFPS of $0.23 vs. $0.02. During the year, the company made its "company making" acquisition of the Leduc oil field from Imperial Oil, and acquired Jaguar Petroleum. The company operated 99 of 112 wells either drilled or re-completed, and recorded finding & development costs (including acquisitions) of $2.74/boe. Probe averaged 4,009 boe/d of production in 1997 and exited the year at 8,500 boe/d.
This year, we are expecting Probe to average production of 13,500 boe/d, and generate CFPS of $0.80. Current production is about 11,000 boe/d. Our preliminary 1999 CFPS estimate is $1.15. The company recently had its bank line of credit increased to $100 million, and is contemplating increasing its 1998 capital expenditure budget from $50 million to $77 million.
We currently have a stock price target of $9.00. This target is predicated on the assumption that the company does not raise new equity in the near future.
Kerm's New Listing
Startech Energy
BUY $5.90 May 1, 1998
Startech Energy stepped up to the table and was one of the first companies to announce a cutback in their planned 1998 expenditure program. Management appears to me as being decisive and well focused on the tasks that lie ahead for the company over the near and longer term. Management has a conservative forecasting record, having exceeded their projected numbers for 5 consecutive years.
I have watched the company for a few years. Over the past two years, I felt the company was progressing very nicely. However, at the same time, I thought shares were selling at a premium price. At this point in time, the premium as been taken out of the share price and I believe this is an opportune time for investment to realize an above average return over the next 12 and 24 month periods.
Back in January, the comapny announced they were cutting back their planned expenditures for 1998, from $53 mil. to $30 mil. - which is the amount the company expects to realize in cash flow for the year. Factoring the reduced budget, the company still forecasted a 45% increase in both cash flow ($28.5 mil) and production (9600 average bbl's/d) and a 12% increase ($1.50) in cash flow per share.
Estimates were based upon $US 17.75/bbl. In their case, this is not a high number. 50% of expected crude production in 1998 has been locked into at $US 19.60.
Startech now expects to drill a total 105 wells in 1998. Focus is on light oil developmental drilling and long term life natural gas drilling. In addition, the company expects to drill 8 high impact exploration wells. With existing inventory of development drilling prospects, this activity will take them into the year 2000. The company has more than 43 million barrels of equivilant reserves, representing a 9 year proven and 11 year proven + probable reserve life. Reserves consist of light & medium crude and long life natural gas.
The negative element has been their debt load whic stood at $82 million which included monies spent to acquire Laurasia Resources back in January. Subsequently, the company has issued 5,000,000 shares @ $6.50/share to raise $32.5 million. Although dilutive in nature, debt has been lowered to a very respectable level and further allows the company to continue to pursue its growth strategy at a rate they desire.
This past Friday, Startech released their 1997 results. The company reinforced their forecast back in January. In addition, these were some of the highligts.
* Revenue increased 60%
* Cash Flow incrreased 53%
* CFPS increased 9% to $1.34
* Reserves almost doubled, 18.3 mil to 36.0 mil boe's
* Daily Production increased 64%, from 3926 to 6465 boe/d
* April production stood at 9000 boe/d
* Natural Gas production increased to 18 mmcf/d (6X 1996)
Giving effect of the recent financing, my 12 month price target is $9.00. If oil firms at $18.00/bbl by October 1st, I will probably increase my price target to $10.50 by May 0f 1999.
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