MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING MONDAY, JUNE 1 1998 (1)
OIL & GAS
LONDON, June 1 - World oil prices dropped on Monday as dealers anticipated no more than a short disruption in the flow of Iraqi oil under a renewed oil-for-food programme with the United Nations.
Benchmark British Brent blend fell 14 cents, settling at $14.21 a barrel by 1930 GMT, and still lags last year's average price for the crude by $5.
United Nations Secretary-General Kofi Annan on Friday approved Iraq's plan for distributing food and medicines under the fourth six-month round of the deal due to start on June 4.
Iraq's Oil Minister Amir Mohammed Rasheed said on Sunday that Iraq may increase its oil exports to 1.7 million barrels a day (bpd) under the new plan from 1.6 million currently.
Baghdad is aiming to export $3 billion worth of crude by early December from $2 billion over the past six months but needs funds to repair its creaky export infrastructure before it can increase sales.
The next step is for the Security Council to approve $300 million in spare parts but members still disagree on how to do this.
Even at current levels, Iraqi exports are likely to prove burdensome for an oversupplied market running inventories at five-year highs in the key United States market.
''There just isn't anywhere left to store oil, everywhere is full,'' said a Western trader.
The relatively smooth rollover of the Iraqi oil-for-food deal will keep the pressure on OPEC producers to cut supplies further.
The 1.5 million bpd of output reductions agreed by OPEC and non-OPEC in March has so far proved too little to lift prices.
Oil traders agree that OPEC must cut deeper if it wants to boost prices. The cartel meets in Vienna on June 24 and ministers are holding telephone discussions ahead of the conference.
Late U.S. gasoline prices fall on bearish news
LOS ANGELES, June 1 (Reuters) - ACCESS energy futures were nearly unchanged late Monday, amid a lack of fresh news and thin trade, traders said.
After falling 24 cents a barrel in daytime trade, July crude oil slipped another two cents on ACCESS to $14.94 by 1715 PDT. A low 595 lots changed hands, with 301 traded in July.
Prices have been under pressure after news the United Nations renewed a plan to let Iraq continue oil exports, which could increase.
Unleaded gasoline for July delivery also fell on ACCESS, trading at 50.50 a barrel, or 0.01 cent below settlement.
Trade for July unleaded reached three lots by 1715 PDT. At the same time, volume was seven lots for all months.
Heating oil for July traded 39.60 cents a gallon, or 0.02 cent under settlement, traders said, with 15 lots traded overall.
Canada March crude, gas output up - Statscan data
biz.yahoo.com
NYMEX natural gas ends up on technicals, firmer cash
NEW YORK, June 1 - NYMEX natural gas futures ended higher across the board Monday in a moderate session, lifted by reports of a firmer physical market and some follow through technical buying and short covering after last week's gains.
July climbed 2.1 cents to close at $2.191 per million British thermal units after trading today between $2.135 and $2.235. August settled 2.5 cents higher at $2.23. Other deferreds ended up by one-half to 2.3 cents.
''We saw more short covering today. The shorts are getting stopped out. There's been record electric load in Texas and no one wants to sell into that,'' said one Midwest trader, noting temperatures this week in New York and Chicago were cooling after some heat last week.
Traders said hot weather last week over much of the nation set the stage for the recent run up, but some were skeptical of further upside, noting milder forecasts this week in some regions and bloated storage, now 453 bcf, or 41 percent, over year-ago.
Temperatures this week in northern tier states are not expected to vary much from normal. The southern half of the nation should stay well above normal, with Texas averaging as much as 18 degrees F above. Slightly below normal readings are forecast for the Southwest.
Technical traders agreed the picture turned more positive last week when July twice tested and held key support in the $2.03 area, then on Friday settled above the downtrend line from April. Today's higher close confirmed for some last week's short-term upside reversal.
July resistance was now pegged at today's high of $2.235, then in the $2.255 area and at $2.33. July support was seen at today's low of $2.135 and then at recent lows in the $2.03-2.035 area, which coincide with the $2.025 double bottom from last July. Spot continuation lows at $1.99 and $1.96-1.97 also should stir some buying.
In the cash Monday, Gulf Coast swing quotes firmed eight cents to the low-to-mid teens. Midwest pipes were almost a dime higher at near the $2.10 level. Chicago city gate gas was up five cents to the mid- $2.20s, while New York was several cents higher in the mid-$2.30s.
The NYMEX 12-month Henry Hub strip gained 1.8 cents to $2.384. NYMEX said an estimated 56,566 Hub contracts traded today, down slightly from Friday's revised tally of 57,623.
Canadian natural gas prices soften despite NOVA outage
NEW YORK, June 1 - Canadian spot natural gas prices turned softer in Alberta on Monday despite an outage on NOVA Gas Transmission, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at about C$1.67-1.77 per gigajoule (GJ), with most business reported done at C$1.705.
July AECO business was reported done at C$1.74-1.76, while July/October prices were talked at C$1.74-1.75.
"People have packed the system because of the outage on NOVA," one Calgary-based trader said, noting the excess supply was pressuring prices.
Field receipts on Sunday were at 12.2 billion cubic feet (bcf), while NOVA's linepack as of yesterday evening totaled 13.5 bcf.
Scheduled maintenance work on the western Alberta portion of NOVA's system is expected to continue for about two weeks, with flows on the two most northwesterly segments cut back to 33 percent.
At the export points, Sumas gas traded early in the mid-US$1.30s per million British thermal units (mmBtu), but renewed buying interest pushed prices late into the low-US$1.40s.
At Niagara, prices were quoted in the mid-US$2.20s, in line with a high of US$2.235 per mmBtu on NYMEX.
TOP STORIES
U.S. firms head north in hunt for energy
The Financial Post
A recent influx of U.S. companies into Canada's energy field will sharpen competition and bring more attention on the bottom line, predict industry watchers.
The roster of U.S. firms coming to, or re-entering, the oil and gas business north of the border is steadily growing.
After a two-year search for the right target, Marathon Oil Co. of Houston late last week announced a US$1.03-billion takeover, including US$340 million in debt, of Calgary-headquartered intermediate Tarragon Oil and Gas Ltd.
A much smaller deal was Southern Mineral Corp.'s bid in mid-May of $1.80 a share - a 28% premium to the then market price - for Calgary junior Neutrino Resources Inc.
The Houston firm's offer is worth $57.4 million in cash plus debt assumption of $21.5 million.
Steven Mikel, SMC's president and chief executive, said the relative immaturity of the Western Canadian Sedimentary Basin, which he estimated was 30 to 40 years behind in development when compared with parts of Louisiana and Texas, is a big appeal.
"You have a lot more slow rabbits running around than we do," Mikel said.
"We're hunting for the fast ones. You still have some slow ones."
The hunt will continue as poor equity markets for oil companies are creating opportunities for debt-driven consolidation, he said.
There is greater sensitivity to debt in Canada than there is the U.S., said Richard Walls, president and chief executive of Pan-East Petroleum Corp., which has formed an alliance with Chesapeake Energy Corp. of Oklahoma City.
U.S. companies are willing to have debt at four times annual cash flow, whereas few Canadian firms like to have it above two. "I think it's a cultural difference," Walls said.
"Americans are much more aggressive with leverage."
Canadian banks are more conservative and there are a greater number of investment houses and instruments, such as junk bonds, available in the U.S., he said. The strong US$ is another factor in the growing southern tilt of the energy industry.
There is a difference between U.S. and Canadian oilpatch players, said Robert Hinckley of Merrill Lynch & Co. Inc. U.S. energy managers strive to increase earnings, while Canadian executives emphasize a different financial measure, he said.
"Cash flow is king in Canada. They don't ignore the bottom line but they don't pay as much attention to it as they do in the U.S.," said the New York-based analyst.
More On Same
U.S. oil companies on Canadian shopping spree
U.S. energy companies have kicked off a multibillion-dollar shopping spree for Canadian companies, and analysts say conditions are ripe for the cross-border takeover binge to continue.
Driven by myriad drilling opportunities in western Canada ahead of projected strong natural gas prices north of the border, many U.S. companies said they were beating the bushes in downtown Calgary for exploration and production assets.
The round of deals in the Canadian energy sector -- christened the "merger macarena""by industry executives -- has been bolstered by falling oil prices, weak Canadian corporate earnings and the languishing value of the Canadian dollar.
"I would see no reason for it to end," said Robert Hinckley, who follows Canadian oil companies for Merrill Lynch & Co. Inc. in New York. "The exchange rate continues to work in their favor, and I think the longer we have low oil prices the more desperate some of these companies (in Canada) become."
On Friday, USX-Marathon Group's Houston-based energy unit launched a C$1.1-billion ($750 million) friendly takeover of Tarragon Oil & Gas Ltd. , which just last month acquired most of El Segundo, Calif.-based Unocal Corp.'s Canadian assets.
Marathon's offer followed hard on the heels of recent takeovers of Canadian oil companies by Pioneer Natural Resources Co. of Irving, Texas; Fort Worth, Texas-based Union Pacific Resources Group Inc. ; and Dominion Resources Inc. of Richmond, Va.
Coastal Corp. , a partner in the proposed Alliance natural gas pipeline project, which is slated to ship 1.3 billion cubic feet of gas a day to Chicago from northern Canada in 2000, is also on the hunt for Canadian gas assets.
"We are very interested in exploration and production operations in British Columbia. We want to put product into the Alliance Pipeline, and it could be outright acquisitions or old-fashioned leases," said a spokeswoman for the Houston-based company.
Several new pipelines or expansions are planned to be completed up to the year 2000. They are aimed at meeting North American gas demand growth that consultants Arthur Andersen and Cambridge Energy Research Associates said last week could total 30-40 percent over the next 15 years.
Besides the pipelines, U.S. oil companies are attracted by plentiful natural gas drilling prospects compared with the onshore United States, as well as arbitrage opportunities between Canadian and U.S. gas prices, said Scott Inglis, an analyst with Canadian brokerage FirstEnergy Capital Corp.
Although companies have drilled in western Canada for over 80 years, the region is still far less developed than the United States, where rich new gas reserves have been elusive. Analysts say the U.S. independents need bigger and bigger fields to stay ahead of the game.
One of Canada's hottest exploration areas is the Peace River Arch region of northern British Columbia and Alberta, where wells testing at rates of more than 20 million cubic feet a day are increasingly commonplace.
"As well as the sufficient pipeline capacity and narrowing price differentials between the U.S. and Canada, we have another set of criteria -- to have sufficient critical mass to generate $100 million in cash flow from our business units," said Lisa Floyd, head of business development for Houston-based Apache Corp. , which has Canadian operations and is scouting for more.
Houston's Burlington Resources Inc. wants to expand its three main production areas to five, and a spokesman for the company said odds were strong that Canada would be part of that.
Another Houston-based company -- Ocean Energy Inc. , which recently bought U.S. independent United Meridian -- is also on the hunt in Canada.
"We have holdings in western Canada and plan to grow primarily through acquisitions and exploitation, with some exploration," a spokesman for Ocean said.
Despite the exploration potential U.S. companies are coveting, many Canadian companies have had their stock prices slashed since the beginning of the year because of investor jitters over weakening cash flows due to depressed oil prices.
Poor first-quarter results, and expectations for more of the same in the second quarter, have disillusioned many shareholders, and analysts say they may push for their companies to be auctioned off or even support hostile takeover attempts.
Calgary-based Summit Resources Ltd. , a debt-hobbled company with large tracts of exploration lands in northeastern British Columbia, was placed on the block last week.
Other weakened firms viewed as vulnerable to takeovers include Northstar Energy Corp. , Crestar Energy Inc. , Newport Petroleum Corp. and Rigel Energy Corp. , observers said. All are based in Calgary.
Nearly 15 million Tarragon shares trade on Toronto market
Canadian Press
Nearly 15 million shares of Tarragon Oil and Gas Ltd. traded on the Toronto stock market Monday as investors heartily endorsed the sale of the company to a big American oil producer for more than $1 billion US.
Stock in the Calgary energy producer rose $3.65 -- more than 36 per cent -- to close at $13.90 in trading of a whopping 14.9 million shares, making it the most active issue by far on the Toronto Stock Exchange.
On Friday, U.S. energy giant USX-Marathon Group announced it has offered $1.03 billion for Calgary-based Tarragon in the latest shopping trip into Canada's oil patch by a U.S. company.
Under the deal, USX-Marathon is bidding $14.25 a share for all of Tarragon's outstanding stock, offering shareholders either cash or shares of the Houston-based company.
Tarragon has agreed to pay a breakup fee of $30 million to the U.S. conglomerate, whose diverse holdings include steel and oil assets, if the transaction collapses.
Tarragon would become part of USX-Marathon's subsidiary, Marathon Oil Co. of Houston, assuming Tarragon shareholders approve the deal at a meeting in August.
The offer surprised industry observers because Tarragon just wrapped up a transaction in mid-April with Unocal Corp. of Los Angeles. That deal gave Unocal a 28.7-per-cent stake in Tarragon for $208 million.
Rival bids led Tarragon to Marathon
Two unsolicited offers for Tarragon Oil & Gas Ltd. launched in early May pushed the company to seek USX-Marathon Group (MRO) to play white knight, a Tarragon director said on Monday.
Tarragon, a Canadian heavy oil and natural gas producer, announced on Friday it agreed to be acquired by USX Marathon's Houston-based energy unit in a C$1.1 billion deal.
''There were unsolicited bids that came in just prior to our May 6 board meeting,'' said Robert Robinson, a Tarragon director and member of the board's special bid commitee.
''With that, Marathon had expressed an interest previously and we went just to Marathon. We negotiated with these three parties and Marathon was the winner.''
He declined to divulge the other two bidders, although investment industry sources said Tarragon had been of interest to other U.S.-based firms.
Houston-based Marathon Oil Co. has offered C$14.25 in cash or equivalent stock in a Canadian-based subsidiary for each Tarragon share.
Tarragon led actives on the Toronto Stock Exchange by a wide margin on Monday, climbing 3.70 to 13.95, with 9.2 million shares changing hands. The price is 36 percent higher than the price at which Tarragon traded before being halted for the announcement on Friday.
The company only last month acquired most of the Canadian assets of Unocal Corp. (UCL ) in a deal that gave Unocal a 27 percent stake in the Calgary based firm, as well as three seats on its board. Unucal has yet to say whether it planned to support the deal.
Robinson said he believed Tarragon got top value for its assets, despite the current weakness in Canada's energy sector.
''I think it's an excellent deal for Tarragon and an excellent deal for Marathon too. This is their strategic thrust into Canada,'' he said.
He said Marathon's strategy was not only to boost its natural gas reserves in Canada but also acquire heavy oil assets, which have declined in value because of the continuing deep discount the tar-like substance receives in comparison to light crude.
Early this year, Marathon and Ashland Inc. (ASH) formed a refining and marketing joint venture which boosted Marathon's appetite for Canadian heavy crude.
Tarragon is known for its Bolney, Saskatchewan heavy oil assets, which represent the lion's share of the company's 84 million barrels of heavy oil reserves.
Pendaries Petroleum takes 45% in Chinese property
The Financial Post
Pendaries Petroleum Ltd. is acquiring Murphy Oil Corp.'s 45% interest in an offshore Chinese property for US$38 million, consisting of US$35-million cash and US$3 million in common shares.
The deal boosts the Toronto-based junior's stake in Block 4/36, located in Bohai Bay east of Beijing, to 55%. The block contains the CFD 2-1 field, where a discovery well drilled in 1996 flowed more than 7,000 barrels of oil per day. Pendaries hopes to bring the field into production by next year.
Financing the purchase and development of the field is currently being studied by Pendaries. |
