MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, MAY 8, 1998 (1)
TOP STORIES
The Financial Post First-Quarter Profit Survey
Oil & Gas
canoe2.canoe.ca
Pipelines
canoe2.canoe.ca
Overall Total
canoe2.canoe.ca
IN THE NEWS
Torex Resources Inc. is pleased to update recent drilling activity. The corporation is currently drilling the final well of a 4 well (3 net) drilling program at Neptune, Saskatchewan. Two of the recently drilled wells have been completed and tied into company operated facilities and are contributing over 200 (150 net) barrels of oil production per day. The second two wells will be completed and flow-lined by the end of May.
Operating costs from this core area have decreased substantially to $3.50 per barrel from $22 per barrel in January of 1997. Operating costs were lowered as a result of installing three-phase power in February of this year and also from increased production volumes. The low operating costs onproduction enables the company to yield high net backs despite low oil prices.
Torex continues to build its inventory of prospects in this area. The corporation has recently tripled its undeveloped land base at Neptune by acquiring 5 sections of land at a recent crown land sale and also by completing a farmin on 7 additional sections of land from a large producer. The two transactions have increased the amount of land available to the corporation to 19 sections and includes 64 km of 3D seismic and 72 km of 2D seismic.
Virginia Energy Corp. (VRG/ASE) announced that it has entered into an agreement dated May 4, 1998 with Richmount Petroleum Ltd. to purchase Richmount's 23.334 percent interest in the Sturgeon Lake South area properties.
The purchase is expected to close in June of 1998 and will be effective March 1, 1998. This transaction will increase Virginia Energy's interest in the property to 33.334 percent. These properties include some 5000 acres of P&NG leases in addition to three oil wells that are currently producing about 170 bopd gross (57 bopd net to Virginia Energy after the purchase). This purchase will increase Virginia's current total net production to 100 bopd.
INTERNATIONAL
Companies
Hurricane Hydrocarbons Ltd. (HHL.A/TSE) has made arrangements to ensure its oil production in May will not be affected by a scheduled maintenance shutdown at the local refinery. The company's crude oil is processed at the Shymkent refinery in southern Kazakhstan. The refinery has closed for a period of approximately two weeks in May for maintenance. Hurricane has made arrangements for storage capacity and no cutbacks in production are scheduled.
The company announced a monthly production of 226,198 tonnes of oil for April 1998. Kazakhstan measures oil production and sales in tonnes and Hurricane converts these numbers into barrels for North American audiences. The number of barrels per tonne varies depending on the specific gravity of the oil. The specific gravity varies each month depending on the source of the product and the temperature. The conversion factor for April was 7.67, giving a daily average of 57,837 barrels for April 1998 compared to 44,441 for April 1997. The first three months of 1998 averaged 55,400 barrels per day compared to 43,178 for the first quarter of 1997. The company is focused on increasing production in 1998 through improved technology and an aggressive program of drilling, well workers and recompletions.
SERVICE SECTOR
American ECO Corp. announced the receipt of a Cdn$65.0 million gas pipeline construction contract from TransCanada PipeLines Limited of Calgary, Alberta. The contract is for 54 miles of 42" high-pressure pipe for the southern and eastern Ontario region. American Eco is a 51 percent joint venture partner with the Steen Contractors Limited subsidiary of Dominion Bridge Corporation, Deere Park Capital Management, L.L.C. and Deere Park Capital Management, Inc. American Eco, a 6.7 percent shareholder of Dominion Bridge, indicated that it is providing bonding and fabrication for the project.
EARNINGS
Pinnacle Resources Ltd. / Top 20 Listed
Message 4391097
Del Mar Energy Inc.
Message 4389173
Bonus Resource Services Corp.
Message 4389011
Pason Systems Corp.
Message 4389037
MARKET ACTIVITY
In the U.S., rumors were running high that Baker Hughes (BHI) will make an offer to acquire Western Atlas (WAI) in a deal valued at between $5.5 billion and $6 billion.
The Toronto 300 Composite Index gained 1.1% or 86.72 to 7699.24.
In comparason, the TSE Oil & Gas Composite Index gained 0.3% or 22.21 to 6562.16. Among sub-components, the Integrated Oil's gained 0.7% or 57.55 to 8751.28. The Oil & Gas Producers gained 0.3% or 15.35 to 5777.28 and the Oil & Gas Services fell 0.1% or 2.90 to 3118.81.
Blue Range Resources, Petro-Canada, Westfort Energy and Tarragon Oil & Gas were among the top 50 most active trading issues on the TSE.
Oil & gas producers were absent among the top 50 net gainers on the TSE.
Percentage gainers included Genesis Exploration 10.5% to $7.90, Triump Energy 8.6% to $3.15, Bow Valley Energy 8.0% to $1.35, Torex Resources 7.7% to $1.40, Southward Energy 6.4% to $1.33, Ulster Petroleums 5.7% to $11.20 and Eurogas Corp. 5.6% to $1.14.
On the downside, Cheiftain International fell $0.75 to $32.75, Baytex Energy $0.45 to $15.60, Remington Energy $0.40 to $17.00 and Tri Link Resources $0.40 to $13.50.
Percentage losers included Tethys Energy 6.9% to $2.70, Abacan Resources 6.0% to $1.40, Torrington Resources 4.8% to $4.00, Cavell Energy 4.5% to $1.05, Windsor Energy 4.5% to $4.20, OGY Petroleums 4.2% to $1.15 Newstar Resources 4.1% to $3.50.
There were no service firms listed among the top 50 most active traded issues pon the TSE.
Dreco Energy Services gained $0.75 to $55.65.
Percentage gainers included Bonus Resource Service 9.2% to $5.35 and Destiny Resource Services 6.7% to $4.00.
On the downside, Enerflex Systems fell $0.50 to $45.00 and Shaw Industries A $0.50 to $53.50.
Bromley Marr fell 3.8% to $1.00.
Over on the Alberta Stock Exchange, Anvil Resources, Stellarton Energy, Jerez Energy, HEGCO Canada, Raptor Capital, Bearcat Explorations, Red Sea Oil and Niko Resources were among the top 25 most active traded issues.
Corridor Resources gained $0.50 to $1.90, Draig Energy $0.20 to $1.60, Hawk Oil A $0.19 to $1.00, Derrick Energy $0.15 to $1.90, Request Seismic $0.15 to $2.00, Total Energy Services $0.15 to $2.60, Underbalanced Drilling $0.15 to $2.70, Anvil Resources $0.14 to $1.05 and Wolverine Energy $0.11 to $1.10.
On the downside, Blue Power Energy fell $0.17 to $0.31, Prize Energy $0.10 to $0.55, Red Sea Oil $0.10 to $2.70, EGCO Canada $0.09 to $3.73 and Zorin Exploration $0.08 to $0.22.
New Listing
Chirripo Resources Inc. announced that it has been listed on the Alberta Stock Exchange and its shares will begin trading on Friday, May 8, 1998. as a junior capital pool company, Chirripo Resources Inc. will be trading under the symbol of "CHO".
Chirripo Resources Inc. has entered into a non-arm's length letter of intent with Chirripo Oil and Gas Ltd. (a private oil and gas company,incorporated in 1993) and Issa Abu-Zahra. Chirripo Resources Inc. has tentatively agreed to purchase all of the shares of Chirripo Oil and Gas Ltd, for an aggregate purchase price of $540,000.00, with an effective date of May 1, 1998. The purchase price is subject to adjustment based on the value of Chirripo Oil and Gas Ltd's assets and liabilities on the effective date. The purchase price will be paid by the making of a cash payment of $60,000.00 and the issuance of 1,600,000 common shares of Chirripo Resources Inc. at a deemed value of $0.30 per share.
Subject to all required minority shareholder and regulatory approval, Chirripo Resources Inc. intends that the foregoing will constitute its major transaction as required by the Alberta Stock Exchange.
JCP's - Major Transaction
Zorin Exploration Ltd. (ASEZEL), a junior capital pool corporation, is pleased to announce the signing of a revised Letter of Intent regarding a proposed Major Transaction.
On May 7, 1998, ZORIN entered into a revised Letter of Intent with 752868 Alberta Ltd., which is non-arms length to Zorin,and the principal shareholders of 752868. 752868 is a private company involved in oil and gas production and exploration in Canada. Pursuant to the revised Letter of Intent, ZORIN has agreed to acquire all of the issued and outstanding securities of 752868 for an aggregate cost of $1,500,000, to be paid by the issuance of 7,500,000 common shares at a deemed price of $0.20 per share, and the assumption of 752868's bank debt of $1.115 million.
The assets of 752868 include:
A 100 percent interest in 4,000 acres of freehold mineral rights and approximately 32 km of proprietary seismic, both located on Pelee Island in southern Ontario (the "Property"). Previous exploration work has been completed on the Property. In addition, McDaniel & Associates has recently prepared a detailed engineering and geological report on the Property; and
A 50 percent interest in a proven gas producing property in southeastern Alberta. 752868 has signed a formal purchase and sale agreement with a major oil and gas company for the purchase of their southeast, Alberta gas property effective March 1, 1998. The purchase is set to close on May 29, 1998, with a net cost to 752868 of $1.115 million. The property includes interests in 7 producing gas wells, 5,180 gross hectares of developed land with an average working interest of 38 percent, 4,403 gross hectares of undeveloped land with an average interest of 30 percent, a 45 percent interest in a gas compression and dehydration facility, 9 unutilized high pressure well dehydration units, and third party processing revenue. The 1997 net cash flow attributed to a 50 percent interest in the property was $363,000.
Zorin intends to reduce 752868's bank debt of $1.115 million, with its current cash position, cash flow from the property and a new private equity issue. The private equity issue intends to raise up to $600,000 by issuing 1.5 million shares of common stock and 1.5 million shares of flow through common stock at a price of $0.20 per common and flow through common share, closing at the same time as the Major Transaction.
Ryder Scott Company Petroleum Consultants have prepared a detailed engineering and geological report of the southeast Alberta property as at March 1, 1998. According to the Ryder Scott report, based on the assumptions contained in the report, the proven plus probable gas reserves being acquired are 2.2 BCF, for a finding cost of $0.50 /MCF.
This acquisition is intended to qualify as a "Major Transaction in accordance with the Alberta Securities Commission and The Alberta Stock Exchange policies. One of the principal shareholders, a director and an officer of 752868 is Mr. Wayne Toole. Mr. Toole is also a shareholder, director and officer of ZORIN. Completion of the transaction contemplated by the Letter of Intent is subject to receipt of all necessary regulatory approvals, completion of satisfactory due diligence inquiries, minority shareholder approval and the execution and delivery of a formal agreement of purchase and sale.
Dynastar Inc. (DDC/ASE), a junior capital pool company announced the posting of its common shares for trading on The Alberta Stock Exchange on May 11, 1998. Dynastar has closed its initial public offering with Goepel McDermid Inc. and issued 1,500,000 common shares at $0.20 per share pursuant to a prospectus offering.
Dynastar has entered into a Lock Up Agreement with Andre Vandenhoven and Ben Vandenhoven, the principal shareholders of A&B Drilling Ltd. ("A&B") who have agreed to tender all of their shares of A&B Drilling Ltd. to Dynastar pursuant to the Offer to be made by Dynastar for all of the issued and outstanding shares of A&B. The purchase price of $2,219,000 will be satisfied by the assumption of A&B debt of $300,000 and the issuance of approximately 7,476,000 common shares of Dynastar of which 6,476,000 common shares will be issued at a deemed price of $0.25 per share and approximately 1,000,000 common shares will be issued at a deemed price of $0.30 per share. The purchase price was negotiated between the parties after consideration of the value of A&B assets, its current financial position and the anticipated long-term cash flow to be generated from A&B's operations in the next five years.
A&B is a private Alberta company which commenced operations in December 1997 and is in the business of seismic shot hole drilling. Ben and Andre Vandenhoven and their respective spouses and companies controlled by them will receive a total of 6,233,133 of the 7,476,000 common shares of the Corporation to be issued in exchange for the shares of A&B.
The proposed acquisition of A&B is intended to be the "Major Transaction" for Dynastar within the applicable policies of the Alberta Securities Commission and the Exchange, and as such must be approved by the shareholders of Dynastar and the Exchange.
Research Notes
FirstEnergy Capital Corp.
Sprott Securities Ltd.
Tesco Corp.
(TEO/TSE) BUY $21.75
Several analysts are still bullish on a Calgary drilling company that held a conference call Friday to reassure stock watchers about its future performance.
Shares of Tesco Corp. took a hit earlier this week after it released financial results for the fiscal year and fourth quarter ended Feb. 29 that fell short of expectations. The company also warned of lower utilization of its patented top drive drilling units, a technology that substantially reduces the cost of drilling a well.
Investors reacted by dumping the shares, with heavy activity shaving almost 8% off the stock on Wednesday.
"I was surprised it didn't move more," said Bob Tessari, Tesco's president and chief executive.
He said utilization of the firm's 107 top drives will average 40% to 45% in the first quarter of fiscal 1999, compared with its usual average of 60%.
The company has been hampered by the early spring breakup - warm weather turns frozen ground into mud, making it difficult to move equipment - and low oil prices. Tessari expects fleet use to recover to 60% or 70% by the third quarter.
Tesco's financial numbers were hurt by several unusual items, such as foreign exchange losses and writedowns that cut $4 million from earnings.
Tessari said the company has taken steps, including tightening inventory controls in Mexico, to minimize the chance of unexpected charges in the future.
John McAleer, an analyst with FirstEnergy Capital Corp. in Calgary who follows service firms, likes its plan to move top drive units to areas where demand is high. These include Latin America, Africa and the Asian republics of the former Soviet Union.
He is also optimistic about a deal Tesco has struck with divisions of Schlumberger Ltd., a global giant in the service sector, to use Tesco's integrated underbalanced drilling unit. This innovation lightens the weight of special fluids used in drilling to lessen formation damage and increase well productivity.
"It's a real shot in the arm for Tesco," McAleer said.
Another service firm analyst, Scott Lamacraft of Sprott Securities Ltd. in Toronto, agreed the Schlumberger agreement holds good long term potential. "It's a very credible endorsement of the company's strategy in that market," he said.
Lamacraft has a "buy" on the stock and a 12-month outlook of $28. McAleer has the same recommendation, with a one-year projection of $26.50.
Gordon Capital
Ulster Petroleum
(ULP/TSE $10.60) BUY
Strong Q1 Drilling Success, Reduced Operating Costs
Ulster has reported fully diluted CFPS for Q1 of $0.41 vs. $0.62.
The company reported Q1 drilling success of 80%, with 20 successes out of 25 wells drilled. Unlike many of its competitors in western Canada, Ulster's natural gas operating costs have declined 27% and its oil operating costs are down 16%.
The capital expenditure budget for this year has remain unchanged throughout the past few months, at $125 million. Ulster is pursuing growth on a 50/50 basis between high quality light oil and natural gas.
We are forecasting CFPS of $1.95 this year and $2.70 for 1999. Our stock price target is $15.00.
Canadian Natural Resources
(CNQ/TSE $28.40) BUY
Oil Production Forecast Reduced
CNQ is reducing its oil activities, particularly in the heavy oil area, due to weak prices.
As a result, we are reducing our 1998 average oil production forecast from 93,000 bbls/d to 90,000 bbls/d.
Our CFPS forecast for 1998 is now $5.00 and $5.95 for 1999.
The company's Q1 results are due out early next week. We are expecting a Q1 CFPS of about $1.00 vs. $1.44.
We are revising our stock price target down slightly from $35.00 to $33.00.
Poco Petroleums
(POC/TSE $16.00) BUY
Excellent Q1 Results
Poco has announced Q1 CFPS results of $0.78 vs. $0.76, in line with our expectations. This may be the only Canadian E & P company that will actually report a superior Q1 performance over a year ago.
During the quarter, the company had an excellent exploration performance, adding 28 million boe's of total reserves, representing over 80% of the forecasted production for all of 1998.
Due to an outstanding gas hedging program, Poco realized an average gas price of $2.64/mcf.
Asset sales of $75 million will help to finance a capital expenditure budget of $425 million this year, a level which has remained unchanged.
The Monkman area of northeastern B.C. now represents the jewel in Poco's long range growth vision. Poco has identified 20 drilling locations in this area. Current plans include a re-entry of an existing well, the tie-in of another well, and plans to drill a single new well in each of the third and fourth quarters. This drilling activity will increase in 1999 when Poco adds a second drilling rig to the area.
We are forecasting CFPS of $2.75 this year and $3.05 in 1999. Our stock price target is $20.00.
Midland Walwyn
Crestar Energy
(CRS/TSE) $21.00 BUY
First quarter results showed Crestar was burdened by substantial lower commodity prices. Crude was off 51% and natural gas was down 17%. However, we were impressed wit the operating results wic indicated production of 95,000 boe/d. The company is maintainng its forecast of 97,000 boe/d for the year, making our 93,500 boe/d projection look a little conservative. With about 15 mmcf/d of potential kept back due to the unseasonably early break-up period, we conclude the company as enjoyed a sucessful winter program and believe the stock will respond well wen the prices turn up.
Our 12-month price target is $27.00.
Misc.
Lexxor Energy Corp. provided notice that the Corporation may, during the 12 month period commencing May 12, 1998 and ending May 11, 1999, purchase on The Alberta Stock Exchange up to 675,000 Class A Shares and up to 125,000 Class B Shares in total, being approximately 10% of the ''public float''. There are approximately 8,789,683 Class A Shares and 1,381,856 Class B Shares of the Corporation outstanding with the public float amounting to approximately 6,849,783 Class A Shares and 1,281,896 Class B Shares.
The Corporation purchased 383,700 Class A Shares and 36,600 Class B Shares under a previous normal course issuer bid which commenced on May 12, 1997 and terminated on May 11, 1998.
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