MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING WED, MAY 27 1998 (2)
OIL & GAS
TOP STORIES
U.S. energy group eyes Canada
Calgary Herald
Coastal Corp., a Texas-based energy conglomerate, is looking to join the wave of American oil and gas producers buying in to the Canadian oilpatch.
Coastal has set its sights on a corporate acquisition or property purchases in Western Canada to fulfil its commitment to ship 150 million cubic feet of natural gas a day on the proposed Alliance Pipeline.
Coastal, which has no holdings in Canada, has talked with a local agent about opportunities.
"It's something that we are actively looking at and when opportunities arise we are prepared to pursue them," Coastal spokeswoman Vicki Guennewig said Wednesday from Houston.
Chief executive David Arledge first revealed Canadian plans at the company's annual meeting earlier this month.
There are plenty of options available.
Summit Resources Ltd. put itself up for sale Wednesday and retained Peters & Co., a Calgary investment firm, along with Morgan Stanley & Co. of New York to find buyers. Summit said it will consider separately selling some of its oil and gas properties.
Summit joins a growing list of Calgary companies who have put themselves on the block in search of relief from low oil prices. Canrise Resources Ltd. and Torrington Resources Ltd., which are both gas oriented, are seeking buyers following the 35-per-cent drop in oil prices since last October to less than $15 US a barrel.
One problem with a takeover for Coastal is that few companies produce gas in the volumes it is seeking without sizable oil production too, said Mike Tims, chief executive at Peters & Co.
"Stock prices are down enough that I think in some cases it makes sense to look at (companies) but there are lots of property deals around too," he said.
The resurgence of interest in Canada has been traced to the mature state of many U.S. petroleum basins, the low Canadian dollar and an anticipated rise in the price of Canadian gas as new pipelines to U.S. markets start to come on stream this fall.
Recent cross-border deals include:
- Union Pacific Resources Group Inc. of Dallas acquired Norcen Energy Ltd. for $5 billion.
- Pioneer Natural Resources Ltd. of Dallas bought Chauvco Resources Ltd. for $1.7 billion.
- Virginia-based Dominion Resources Ltd. acquired Archer Resources Ltd. for $183 million.
- Cheasapeake Energy Corp of Oklahoma City paid more than $45 million for reserves held by Sunoma Energy Corp.
"It seems to people on both sides of the border there are a lot of good opportunities to find and deliver Canadian gas into the U.S. market," Tims said.
As a point of comparison, Archer produced 57.1 million cubic feet of gas a day and 1,755 barrels of liquids when it sold for $183 million. Coastal is seeking three times as much gas production.
Any Coastal acquisition would support its 14.4-per-cent stake in Alliance.
The pipeline, which needs regulatory approval, expects to begin delivering 1.3 billion cubic feet a day of gas from northeastern B.C. and Alberta to Chicago by late 2000.
Rigel sees 1998 loss, North Sea go-ahead
Rigel Energy Corp., pressured by low crude prices, is expected to post a net loss in 1998 despite higher oil and gas production, Rigel Chief Executive Don West said on Wednesday.
Rigel was, however, expected to start reaping rewards from its U.K. North Sea operations in 1999, with what was looking like a go-ahead for the much-heralded Blake oil play in the Moray Firth region, West said at Rigel's annual meeting.
West said Rigel was expected to post a net loss this year of C$22 million or C$0.39 a share, which would compare to a restated 1997 profit of C$900,000 or C$0.02 a share.
Cash flow for the year was forecast at C$127 million or C$2.45 a share, compared to C$133 million or C$2.36 a share in 1997.
He made his projections assuming a 1998 average West Texas Intermediate oil price of US$16 a barrel and Canadian natural gas price of C$1.95 per thousand cubic feet.
West said the company's oil and gas liquids production was expected to average 25,600 barrels a day in 1998, up from 17,098 last year. Natural gas output was forecast at 166 million cubic feet a day, up from 148 million in 1997.
Much of the increase in oil production was expected to be pumped from the company's 20-percent interest in the MacCulloch field in the North Sea, acquired in late 1997 for US$96 million. The field was now producing over 11,500 barrels of oil a day, he said.
In total, the company expects to spend C$150 million on its operations this year, but if development plans for the Blake field are accelerated, that figure could rise by C$25 million, West said.
Rigel and its partners in the play, BG Plc (quote from Yahoo! UK & Ireland: BG.L) and Amerada Hess Corp. (AHC), have drilled three appraisal wells since making the initial 13/24b discovery, which tested at restricted rates of 2,600 barrels a day in April 1997.
Rigel holds a 20 percent working interest in Blake.
West would not comment on the results of the appraisal wells, citing competitive reasons, but expressed confidence in the viability of the project.
''We are, I would say, 95 percent confident that this is a commercial field and will be developed. And we will be working towards that end right away,'' he said.
He said last year the field could harbor as much as 900 million barrels of oil with a recovery factor of 30-40 percent.
While he declined to give his projections on what the field would eventually produce, he said the partners were considering using the Glass Dowr floating production, storage and offloading vessel for the project.
The Glass Dowr has a capacity of about 60,000 barrels a day and could be refitted to handle as much as 80,000, Rigel executives said.
''We are very seriously looking at that to come onto this play. If it does, it could be there early in the third quarter of 1999,'' he said.
Excluding the probable Blake acceleration, Rigel planned to spend C$30 million drilling seven wells in the North Sea this year, he said.
In other operating areas, Rigel planned to spend C$51 million in Alberta's Peace River Arch region this year in hopes of boosting production there by 10 percent to 18,000 barrels of oil equivalent a day.
Another C$68 million was earmarked for drilling 100 wells elsewhere in Canada, where output was slated to increase by 20 percent to 14,000 barrels of oil equivalent a day, West said.
He said that under current plans, Rigel's production was expected to reach 35,500 barrels a day of oil and over 200 million cubic feet a day of gas by 2000. That would mean cash flow of twice the current figure, he said.
Summit Resources on auction block
Summit Resources Ltd. said on Wednesday it would explore potential mergers and sales of the company, as well as the disposition of assets, in a move aimed at maximizing the value of its shares. Calgary based Summit, which has oil and gas operations in British Columbia, Alberta, Saskatchewan, Montana and North Dakota, said the move had the full support of its board of directors.
The company's biggest shareholder, the California-based Rady family, also backed the move, Summit said.
The company said it has retained Morgan Stanley & Co. Inc. and Peters & Co. Ltd. to be its financial advisers in any deals.
Once a stock market darling because of hot speculation over its light oil properties in the Lodgepole region of the North Dakota's Williston Basin, Summit's stock price performance has been lackluster over the past two years.
It was trading down 0.15 in light volume at 4 on Wednesday, down from a year-high of 7.30. The stock climbed above 16 in 1995.
Two weeks ago, Summit reported a first quarter loss of C$1.8 million or C$0.06 a share, which represented a 166 percent drop from a year earlier profit of C$2.8 million or C$0.08 a share.
Cash flow fell by 45 percent to C$8.2 million or C$0.25 a share, from C$15 million or C$0.44 a share in the first quarter of 1997.
Based on its 33.4 million shares outstanding on March 31, Summit's current stock market value would be about C$134 million. It also has more than C$136 million in long-term debt.
First-quarter oil and gas liquids production was 6,052 barrels a day, while natural gas output averaged 60.1 million cubic feet a day.
Summit Resources Ltd. seeking sale opportunities
The Financial Post
Summit Resources Ltd. said yesterday opportunity, not financial distress, is causing it to look at selling assets or merging with another firm.
The company has hired two investment firms, Morgan Stanley & Co. Inc. and Peters & Co. Ltd., to look for ways to enhance shareholder value.
David Dyck, vice-president of finance and chief financial officer, said the 86-employee company has more plays than it can handle, particularly in the natural gas field.
"We're looking for ways to increase our critical mass size to take advantage of an inventory of opportunities that Summit has to add upside potential to the company," he said.
The 30% drop in oil prices this year is not hurting the company as much as it is hurting its competitors because it mostly produces light oil, he said.
The company expects to open a data room in late June to let firms look over its books.
Dyck said the company is open to asset sales, a merger or the sale of the entire company.
The initiative has the support of major shareholder Ernest Rady, who owns 42% of the company, Dyck said.
"We think that companies on both sides of the border are interested in what Summit is doing."
U.S. companies, taking advantage of a strong US$ and the higher gas prices expected this fall as new pipelines begin operations, have been scouring the Canadian oilpatch for bargains.
For example, Neutrino Resources Inc. concluded a deal to be bought by Southern Mineral Corp. of Houston, Archer Resources Ltd. was purchased by Dominion Energy Inc. of Richmond, Va., and Norcen Energy Resources Ltd. was taken over by Union Pacific Resources Group Inc. of Fort Worth, Tex.
Peter Linder, an energy analyst with CIBC Wood Gundy Securities Inc. in Calgary, said some Canadian firms that might be interested in swallowing Summit can't afford to increase their already high debt.
He expects to see other companies put themselves on the block as low oil and gas prices are setting the scene for brutal second-quarter financial results.
"Some companies are in serious trouble. I think you'll see a few more [going up for sale]," he said. "I can see this summer as being very active for mergers and acquisitions."
Summit was one of the success stories of the early 1990s, growing through acquisitions and drilling. A couple of successful wells in the U.S. in 1995 sent the stock surging to as high as $17.50. But the play never matched overheated expectations of investors and the stock sagged badly.
No quick sale seen for Summit
It could be months before a sale or merger involving Canadian oil and gas producer Summit Resources Ltd. is completed, one of the company's financial advisers said on Wednesday.
''Expect months here and not weeks in this process,'' Peters & Co. Ltd. vice-chairman Ian Bruce said. ''We'll probably have the data room open by early summer.''
Summit said on Wednesday it would explore sale and merger options with the aim of maximizing its share value.
The move has the support of Summit's major shareholder, the California-based Rady Family, which owns 41.5 percent of Summit's stock.
Bruce said he believed the Summit sale represented the beginning of a fresh wave of merger and acquisition activity in the Canadian oil patch, as low oil prices continued to pressure many companies.
Depressed prices have already led to cuts in corporate cash flow estimates and a drop in production forecasts across the industry.
The lower cash flow has left many firms, like Summit, with unfavorable debt-to-cash flow ratios, which was expected to lead to increasing numbers of sales, he said.
Summit's main operating areas are in northeastern British Columbia, where the company has accumulated a large tracts of land, as well west-central Alberta, southern Alberta and Montana and the Williston Basin. It is also involved in a pinnacle reef exploration play in east Texas.
Ipsco girds for rise in steel demand
The Financial Post
Steel maker Ipsco Inc. is betting up to US$450 million North American demand for heavy steel will be strong enough to handle a big increase in plate production.
Directors of Regina-based Ipsco yesterday approved in principle plans to build a second mill in the U.S. to turn scrap steel into steel plate, used for heavy construction equipment, bridges and storage tanks.
The company is considering three sites in the southern U.S., but Mario Dalla-Vicenza, senior vice-president of corporate affairs, would not identify them. Final selection will be based on several factors, including river access, land availability, power costs and time needed for regulatory approval.
The 1.25-million-ton plant would raise Ipsco's annual total steel capacity to 3.5 million tons, 2.5 million of that in the U.S. The company has already begun the regulatory approval process. Assuming all permits are in place by the fourth quarter, a new plant could begin operating by the last quarter of 2000.
Annual demand for steel plate is 12 million tons to 14 million tons, Dalla Vicenza said. "What we see is continued growing demand in North America and the fact there is sizable, huge, amounts of imported production coming into the market."
The announcement was not a big surprise because Ipsco had talked of expanding a similar mill at Montpelier, Iowa, said steel analyst Anna Sorbo of CIBC Wood Gundy Securities Inc.
"I think it's a good investment," she said. "They have the lowest-cost production, so why not capitalize on that and become the dominant player in the market?"
She has a "strong buy" recommendation on the stock and projected a 12-month price of $60.
While demand for plate steel is high, new competitors or an economic downturn could alter dynamics by the time the new mill begins pumping out product in 24 months, said Gregory Misztela, steel analyst for Griffiths McBurney & Partners.
He said Ipsco intends to be a success by displacing other suppliers. He has an "accumulate" rating on the stock, with an estimated 12-month price of $51.
Dalla-Vicenza said his firm looked at expanding the Montpelier works, but decided to go with a second mill. This will provide the flexibility to boost output at each location as needed.
Ipsco is looking at various financing alternatives for the project, including internal cash flow, bank debt and equity.
A final decision on the project will be made later in the year, subject to receiving environmental and other permits, finalizing a long term power supply and negotiating equipment and construction contracts.
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