MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING THURS., JUNE 4 1998 (4)
TOP STORIES, Con't
Bullish Growth
Bullen Family Taking Dynafrac To New Heights
Calgary Sun
Neatly displayed in Brent Bullen's spacious and artistically decorated office are the first three cheques his company, Dynafrac Well Services Inc. received after it was formed in 1997.
They are from Windstar Energy, Inuvialuit Energy and Neutrino Resources, all well-respected junior oil and gas companies.
Bullen, now that names rings a bell.
It should, too, for Brent is the son of Ron Bullen, founder of Canadian Fracmaster Ltd., which in 1976 became the first western energy company to sign a joint venture with the Soviet Union, and later became one of the largest foreign oil producers in the then Soviet Union.
The company even rehabilitated 720 oil wells in China.
Everyone in the oil and investment industry knew about Canadian Fracmaster, and as Brent Bullen puts it, "I grew up with the company."
Yet times and events move on, and Canadian Fracmaster is no
longer in Ron Bullen's hands.
But Brent, 33, certainly learned a lot about business acumen from his father -- and from his membership in the prestigious world-renowned The Executive Committee (TEC). He now runs his own companies.
Not only is he president of Dynafrac -- which some have nicknamed "the son of Fracmaster" but also of the Valens Group, which he founded in 1992, and which built two large hotels and a school in Siberia, and got involved in other endeavors in the former Soviet Union, too.
Yet, he's slowly winding down his business interests in Russia because "some of the business practices there no longer make it an attractive environment."
It's easy to read between those lines.
Coincidentally, shares of the original Fracmaster have fallen a drastic 50% in the past seven weeks, including 22% this past Tuesday alone.
Some analysts blame its heavy involvement in the former Soviet Union.
Whatever, Brent Bullen decided to return to his roots and formed Dynafrac, which does exactly what Fracmaster did and does, developing equipment, processes and chemical techniques to increase productivity from oil and gas wells with high pressure treatments, including fracturing, acidizing, chemical squeezes, nitrogen and coil tubing.
"We've already developed products and technology that have exceeded the excellence of our competitors' products," says Brent.
"We intend to be one of the major well service players in Western Canada and we are being very innovative and aggressive about it."
As an aside, Dynafrac's board of directors includes not only his father, Ron, but William Gordica, former president of Beta Well Services Ltd., and Ron Simard, former president of Nowsco Well Services.
No wonder Dynafrac's growth has been so rapid.
Bullen says Canada is the world leader in oil and gas well servicing technology, and part of the reason is the challenges working in both cold and warm climates has presented the industry.
"There's no doubt the industry's ability to extract oil from small formations -- or pools -- have made us world leaders. Our stimulation and recovery methods have made pools that would be uneconomical in other parts of the world, very viable here."
Leading the way, he says, is what both Dynafrac and the Canadian oil and gas industry is all about.
And the Bullen's family has surely proven that.
Fracmaster can't explain share slide
The Financial Post
The shares -- and instalment receipts -- of Fracmaster Ltd. hit the skids yesterday, although the company said it did not know of any reasons for the selloff.
The Calgary-based well service firm issued two news releases after the Toronto Stock Exchange and the Montreal Exchange asked for an explanation of its slumping stock price.
The shares (FMA/TSE) slid in intraday trading to a 52-week low of $10. They were off $3 on the day, closing at $10.50. The volume of 190,650 shares was more than three times the daily average of the past three months. Fracmaster's share price has been chopped in half since the start of 1998.
In its statements, the company said the second quarter is traditionally weak because warm spring temperatures reduce activity. Low oil prices were also blamed.
Fracmaster said it now expects earnings per share for the year to range between 75› and 80›, down 30% from analysts' estimates.
Company executives could not be reached for comment.
Analysts said the real problem lies in Russia, which contributed 70% of last year's earnings and was expected to provide about half this year's. With the ruble taking a pounding, operations in Russia, where the company produces oil and provides contract services and equipment, are being squeezed.
"It's not good -- the economics over there are just really poor at the moment," said Janet Spensley, a Calgary analyst with FirstEnergy Capital Corp.
The news could get worse for investors who are holding instalment receipts, created in last fall's secondary offering when former owner Alfred Balm sold his 67.5% stake in the firm.
The receipts, obliging investors to pay $9.75, fell $3 to $1 yesterday. Their 52-week high was $17.50.
They could be taken off the TSE if it follows recent form. In an unprecedented step, the TSE suspended trading May 27 in Boliden Ltd.'s instalment receipts because they collapsed in value after toxic tailings escaped from a mine in Spain.
Libyan oil find too hot for investors
The Calgary Herald
Putting out the word about a huge oil discovery should boost a company's share price, right?
Well, not in the case of Red Sea Oil, a company with a registered office in Vancouver, a technical centre in Dubai, a listing on the Alberta Stock Exchange and a super well in Libya.
Alex Schneiter, Red Sea's Dubai-based vice-president of exploration, met about 40 Calgary analysts and investment dealers on Tuesday, explaining what the company plans to do with its 83 million barrel find in the Libyan desert.
Red Sea's shares, which had closed at $2.35 on Monday, fell to close at $1.74 on Tuesday before recovering to $2.05 on Wednesday.
Calgary brokers say the drop wasn't related to Schneiter's presentation but to an institutional investor dumping a million shares that were picked up by other institutions.
Salman Partners crossed a block of 500,000 shares and other brokers moved another 500,000 at an average price of $1.60. The sudden price shifts reflect the uncertainties of doing business with a rogue regime. Schneiter insists an American ban on U.S. companies doing business with Libya creates wonderful opportunities, but others aren't so sure.
"I'm surprised there's not more Canadian companies there. There's so much upside, " Schneiter says
"You have less competition and don't have to deal with the Americans. Libya is underdeveloped because there aren't as many companies there as there should be.
"You go places that are a bit more difficult, but you get very good acreage and very good upside.
"We've never had any problem whatever. No company in Libya has ever had a problem producing or selling oil. It's comparable to doing business in the U.K. or Canada."
Red Sea holds a 60 per cent interest in the 9,820 square km. NC177 exploration block in the southwest part of the prolific Sirte Basin.
In November, the company drilled the BI-NC177 that tested at a rate of 6,800 barrels a day from four zones, and the company claims proven and probable reserves of 83 million barrels from the two upper zones.
Red Sea now plans to drill two more appraisal wells and to re-enter an old well on a separate structure three km. away from the discovery.
"It looks like they have found additional upside to the west of the original discovery and some of the leads they have look relatively attractive," says Nick Rontogiannis, a Calgary analyst with Salman Partners Inc.
"The only thing I didn't like (about Schneiter's presentation) was he didn't get into the Libyan risk. I don't think investors in Canada appreciate the magnitude of risk.
"I actually think operating in Libya is less risky than other parts of Africa, but the possibility of the rules changing underneath you is still there."
Martin Layzell, an oil and gas advisor to Yorkton Securities, listened to the presentation and feels that "indications so far are very positive. The test rates indicate good reservoir quality and strong production potential.
"Appraisal wells and seismic are going to be extremely important to determine the size of the pool.
"Petroleum consultants classify Libya in the moderate category for political risk, but despite the current regime, the country remains fairly stable and there are only moderate barriers to doing business there."
Schneiter says that Red Sea plans a $60 million U.S. development program that calls for production from the discovery well, one appraisal well and five development wells to be producing 27,000 barrels a day by the year 2000.
The output will be moved about 100 km. to the Samah oil field through a $17 million U.S. pipeline.
"We think we can double the reserves mainly from deeper targets we haven't penetrated yet," Schneiter says. "We stopped the discovery well at 8,500 feet because the rig wouldn't go beyond 9,500, and we will drill one development well to 11,000 feet to test the deeper zones.
"The whole block is huge and we've been concentrating on just 20 per cent of it. We know all the southeastern portion is even more prolific than the discovery well because it's closer to the kitchen area where the oil is being generated in the basin."
Sour Over Gas Line
Ribey Farmer Slams AUEB Approval Of New Use
A Rimbey-area landowner lashed out at the Alberta Energy and Utilities Board yesterday for approving sour gas transmission via the Crystal Pipeline, owned by Encal Energy Ltd.
Phillip Hannemann said yesterday the regulatory system is geared against individual citizens.
"If the oil industry is the organ grinder, the EUB is the monkey," complained Hannemann yesterday. "We put up some very good arguments pointing out the deficiencies."
But an Encal vice-president said yesterday the Calgary company has always been confident the project is safe.
Residents near Rimbey have fought more than a year against a board decision approving re-licensing of the 37-km pipeline, which runs to Gulf Canada Resources Ltd.'s Homeglen plant, about 70 km southwest of Edmonton.
The line was originally designed for sweet gas, but Encal got board approval last year to switch to sour gas, which contains poisonous hydrogen sulphide.
The board said yesterday that Encal has satisfied conditions, including corrosion mitigation, and relocation and installation of emergency shut-down valves.
Encal vice-president of production Terry Barrows said transmission of sour gas could begin this weekend.
All the bills aren't counted, but Barrows said the company has put in more than $1 million to the project.
The board said the sour gas proportion in the line is low.
About 15 families, including Hannemann, intervened at board hearings into the project, and a lesser number went to court last year to fight approval but lost, he said.
"If there's ever any injuries or damages, we have some damaging evidence," he said, adding the board did not act to protect public safety or the public purse. He called the ruling contemptible.
"The message to industry is this board will approve anything the oil companies want," said Hannemann.
Hartland Buids Pipeline Assets
June 4, 1998
The Financial Post
Calgary's Hartland Pipeline Services Ltd. said yesterday it is buying the operating assets of three companies to increase its presence in large-diameter pipeline construction.
The firm is paying an undisclosed amount for Waschuk Pipeline Construction Ltd., Waschuk Equipment Rentals Ltd. and Enertech Pipeline Systems Ltd.
Mark Breakall, chief financial officer, said the price is not being released because Hartland is discussing another deal.
In a statement, Hartland estimated Waschuk's operating assets to be worth $52 million.
A private, 44-year-old firm based in Red Deer, Waschuk is one of the larger Canadian players able to build pipelines with diameters exceeding 30 ins.
Breakall said Waschuk is running at full capacity, with contracts valued at $250 million over the next 26 months, so no layoffs are planned for its 700 employees.
By sharing equipment and workers, Hartland hopes to reduce operating costs while improving utilization.
Oil patch merger, by any other name, is TransCanada
TCPL to dominate signs, executive office in deal with Nova Thursday, June 4, 1998
TransCanada PipeLines Ltd. will keep its name after merging with Nova Corp. in the latest display of TransCanada's dominance of corporate culture in the $15.6-billion deal.
In an internal memo to Nova and TransCanada employees, TransCanada president and chief executive officer George Watson said the decision to keep Nova out of the soon-to-be-merged company's name wasn't taken lightly.
"After much discussion over the information provided by the consultant hired to research a name for the new energy services company, it has been decided to retain the name TransCanada PipeLines Ltd. to provide us more time to address this issue," he wrote in the memo received by employees this week.
Mr. Watson left the door open for a name change in the next year or so. However, industry observers say he is merely setting the stage for changing it to TransCanada Energy or TransCanada Services to reflect the company's diversification into power generation and other energy-related holdings.
The TransCanada-Nova deal announced in January may be viewed as a "merger of equals" in lawyers' eyes or a "pooling of interests" by accountants, but what's really taking shape is TransCanada's takeover of Nova, industry watchers say.
Even the future Calgary headquarters will be called TransCanada Tower, a 36-storey skyscraper to be built by mid-2001 by TransCanada and H&R Real Estate Investment Trust.
TransCanada had dug up the dreary name of EnergyCo. to use in legal documents to temporarily describe the new company. Pundits have joked that monickers such as SuperNova, ChevyNova and TransAm wouldn't have blended in very well in serious documents.
But when the merger closes in four weeks, Mr. Watson will be at the helm of a new pipeline giant with nine key TransCanada executives at his side. Only one of Nova's 11 leading executives will be joining TransCanada's top tier of managers.
Nine of the Nova executives will be calling the shots at Nova's chemicals division, which will become a publicly traded company in July and retain its name, and another Nova boss will be leaving to pursue his own career path.
Two of the nine TransCanada executives plan to retire later this year.
Observers say that, with Nova executives bolting, it will allow TransCanada to put its stamp on the new pipeline giant.
Hand-wringing over the corporate name game underscores the clash of cultures in the TransCanada-Nova deal in which industry pundits refer to TransCanada as "G.I. Joe" for its no-nonsense business approach and Nova is known as the "Care Bears" because of a less regimented and, some say, freewheeling style.
Over the years, TransCanada has favoured a more hierarchical, button-down approach while, observers say, Nova emphasized greater employee input.
In his strait-laced memo, Mr. Watson stressed that he values the hard work of all employees and respects the "strong foundations of the Nova and TransCanada heritages. . . . Whatever our company name, it must embody the dynamic, world-class energy services organization we will create."
He also pledged to help "develop our own culture, values and vision as a new company. As part of this effort, we will address the issue of identifying an appropriate company name, and have the time to properly brand our company name so that it accurately reflects who we are and allows sufficient time for all of our stakeholders, including the financial markets, to understand who we are."
Industry analysts say TransCanada is a well-respected name globally because its Canadian natural gas main line is one of the longest pipelines in the world and it has been a partner in numerous joint ventures abroad for many years.
"It's not going to hurt you internationally having TransCanada in the name," said Robert Hastings, an analyst with investment dealer Goepel McDermid Securities Inc. in Vancouver.
By contrast, Nova may be a star with marquee value at home in Alberta, but its pronunciation -- o-va -- in Spanish translates into "doesn't go," posing a problem for an image-conscious TransCanada with global holdings.
"If TransCanada was going to change the name, it would have done so by now," said Mr. Hastings, whose own firm's name arose from the recent merger of Goepel Shields & Partners Inc. and McDermid St. Lawrence Securities Ltd.
Shareholders of Nova and TransCanada will vote at separate meetings on June 29 to ratify the merger, which is to be followed by court approval June 30, paving the way for the deal to close July 2.
On paper at least, Nova is slightly bigger than TransCanada. Nova gained 15 cents to $17.65 yesterday on the Toronto Stock Exchange, placing a stock market value of $7.97-billion on its common shares.
TransCanada shares rose 35 cents to $34.10, giving it a market value of $7.65-billion.
Nova shareholders will receive 52 TransCanada shares for every 100 Nova shares under terms announced in January.
Nova Chemicals plans to issue 91.83 million common shares in July under an arrangement in which Nova Corp. shareholders will receive 10 shares of Nova Chemicals for every 100 shares in Nova Corp. TransCanada shareholders will get 20 shares of Nova Chemicals for every 100 shares in TransCanada.
The new, publicly traded chemicals entity would trade around $34 a share initially, based on the recent share values of TransCanada and Nova. However, industry observers say the July issue price of Nova Chemicals will fluctuate with volatile commodity prices.
Where they are going
Nova executives: J.E. (Ted) Newall, Nova's vice-chairman and chief executive officer, and Nova president Jeffrey Lipton head the list of nine Nova executives jumping to Nova Chemicals. The seven others who will join them in the new executive suite are: Terence Poole, Daniel Boivin, Wes Lucas, Lawrence MacDonald, Jack Mustoe, Sheila O'Brien and Dale Speiss.
Nova vice-president Kent Jespersen declined to jump to either TransCanada or Nova Chemicals, and will pursue his own career options.
Bruce Simpson, president of Nova subsidiary Nova Gas Transmission Ltd., is the only one of Nova's top 11 executives joining TransCanada.
Three other key Nova executives have accepted jobs with TransCanada: Randall Findlay, Brian Olson and Ronald Turner.
TransCanada executives: TransCanada president and CEO George Watson will be president and CEO of the new TransCanada. Nine other current TransCanada executives will help Mr. Watson (two of those nine plan to retire later this year).
TransCanada's new board: Nine of the 17-member board will come from Nova's roster of directors. Nova chairman Richard Haskayne, a friend and former business colleague of current TransCanada chairman Gerald Maier, will become chairman of the newly merged TransCanada. Mr. Maier will become chairman emeritus.
Nova Chemicals' board: The 12-member board will draw six members each from TransCanada and Nova. Mr. Newall will be chairman and Mr. Maier vice-chairman of Nova Chemicals. Mr. Lipton will be president and CEO.
Crude purchases cause oil markets turmoil
Electronic Telegraph
THE crude oil market was thrown into chaos last week when a tiny oil company bought 12.5M barrels of Brent crude over two weeks. The purchase by Arcadia Petroleum, an oil trading company owned by Japanese trading giant Mitsui, caused havoc because the price of Brent is the benchmark for all other North Sea crude oils.
Arcadia is understood to have bought around 25 cargoes of wet crude in the last fortnight in May. This compares with a daily Brent output of 600,000 barrels and was enough, traders claim, to add $1.20 a barrel to the price of Brent crude. One petroleum expert said: "There were lots of complaints, but nobody could do anything about it."
The price immediately dropped after Arcadia stopped its buying spree last Friday. From a high of 55 cents above July delivery last Wednesday, the price dropped to 65 cents below July delivery yesterday, or around $13.50 per barrel. London-based Arcadia, which employs just 25 people, was estimated by rivals to have made profits topping $20m dollars from the trade.
However, a source close to the trading firm dismissed such reports as "rubbish". He indicated that the trader's profits were less than $10m from the transaction. Arcadia is understood to have acquired 10 cargoes to cover short sales, and to be keeping 15 cargoes in storage in South Africa.
A source close to Arcadia confirmed that the company had entered swap transactions, saying: "We had to protect our exposure." He admitted that the effect of the purchase would be to raise the price paid by refiners, saying: "It doesn't take a brain surgeon to realise that if you buy quite so much Brent, the price will go up." There is no suggestion of any wrong-doing by Arcadia. It is normal trading practice for firms to exploit temporary market situations.
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