MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 21, 1998 (8)
PAST WEEK'S STORIES, Con't
Flat Asia 98 Oil Demand To Have Dramatic Effect
Zero growth in Asian oil demand is likely to have a dramatic effect on world oil markets this year, British Petroleum CO's chief economist said on Wednesday.
Peter Davies, presenting the company's 1997 statistical review on world energy, said he did not expect any Asian oil demand growth in 1998.
''If you look at Asian oil demand growth, it is zero percent this year,'' Davies said. ''A zero number looks like a good number.''
In his report, Davies said Asian emerging market demand grew by 700,000 barrels per day (bpd) in 1997, a fall of 75,000 bpd from the growth in 1996.
With 46 percent of world oil demand growth outside the Former Soviet Union accounted for by Asian emerging markets over the past 10 years, the slowdown in Asia ''has a major impact on oil markets,'' he said
''This effect is likely to be dramatic in 1998,'' he said, without giving details.
The Paris-based International Energy Agency, partly blaming Asia's financial crisis, revised down its estimate for world demand to 75 million bpd, cutting its projection of demand growth this year by 300,000 bpd to 1.2 million.
It anticipated Asian demand this year to run 750,000 bpd lower than when first forecast and adjusted downwards the growth rate for the region of 4.8 percent to 0.8 percent.
Davies outlined consumption and production figures for 1997, which combined with the weather phenomenon El Nino, spelled out some of the difficulties ahead.
World energy consumption growth, outside the FSU, grew by only 1.6 percent in 1997 despite growth in world economies by an above trend of 3.1 percent, he said.
Abnormally warmer weather in 1997 sweeping the United States, Japan and Europe -- the world's largest energy consuming areas -- helped depress consumption which led to oversupplied energy markets and weaker energy prices.
The weather combined with Iraq's return to the export market and OPEC's decision to raise production quotas were key factors in oil prices falling from almost $24 per barrel at the start of 1997 to $16 at the end, with the effects spilling into 1998.
''First of all, it is apparent that in both 1996 and 1997, the fundamental imbalance between supply and demand has been getting worse,'' Davies said.
Supply growth in 1997 far outstripped demand growth. Demand grew by 1.8 million bpd over 1996 but supply grew by 2.3 million bpd, a difference of 500,000 bpd.
Davies said the oil supply pattern in 1997 shifted with around three quarters of incremental oil production outside the FSU coming from OPEC and a quarter from non-OPEC, Davies said.
OPEC production, coming mainly from the resumption of growing Iraqi exports, grew by 1.6 million bpd in 1997, an increase of 5.4 percent over 1996 levels.
Mexico and Canada were the fastest growing non-OPEC countries in 1997. UK production overall fell by 35,000 bpd because of project delays and maturity of existing large fields.
June 18th:
Egyptian Gas Discovery Announced
Marathon Petroleum El Manzala Limited and Centurion Energy International Inc. have announced a gas discovery on the onshore El Manzala concession approximately 100 miles north of Cairo, Egypt.
The Abu Monkar No. 1 well flowed at a maximum rate of 21.6 million cubic feet of gas per day through a 56/64-inch choke from an interval between 4,172 feet and 4,208 feet in the Kafr El Sheikh formation. Flowing tubing pressure was 1342 pounds-per-square-inch. The well has been suspended pending further appraisal work.
Under terms of a farmout agreement, Centurion is earning a 40 percent working interest in the 840,000-acre El Manzala concession. Marathon Petroleum El Manzala will retain a 60 percent interest in the concession which was awarded by the Egyptian government in May of 1995.
Denbury Resources Cuts Spending Due To Low Oil Price
Denbury Resources Inc. said on Friday that it reduced its 1998 development and exploration spending to $60 million due to low oil prices.
This is the second time this year Denbury has cut spending. The first reduction cut capital spending from its initial level of $95 million to $75 million
As a result of these two capital expenditure reductions, the company believes its production should remain relatively close to its current production level of approximately 22,000 barrels of oil equivalent per day for the remainder of the year, Denbury said.
That figure excludes any increases from potential acquisitions or decreases due to unexpected events, Denbury said.
At the company's Heidelberg Field, the net field oil price in the past week has dipped below $8 per barrel and as a result, the horizontal drilling program there has been suspended, the company said.
So far this year, the company has drilled five horizontal Christmas sand wells which are currently on production at an aggregate of 1,000 barrels of oil equivalent per day and a sixth well awaits completion.
A further 14 horizontal wells were originally planned for 1998 and these will now be postponed until oil prices recover, Denbury said.
Denbury said the low oil prices have prompted it to enter into financial contracts to hedge 35 million cubic feet per day of natural gas production for the next twelve months.
The collars have a floor of $1.90 per million British thermal units and a ceiling of $2.96 per million British thermal units, the company said. These contracts cover approximately 85 percent of the company's current natural gas production, Denbury said.
Camberly Produces More Controversy Than Oil
The Financial Post
Beset by soured loans, failed projects, theft, resignations and death, few investments rival for pathos Toronto Stock Exchange-listed Camberly Energy Ltd.
Nonetheless, at the annual meeting on June 30 its board will ask shareholders to reward it by repricing at a much lower rate more than one million options for its stock, most belonging to the president and his son.
At least the top Camberly shareholder doesn't have to agonize about how to vote. David Walsh, better known as president of Bre-X Minerals Ltd., died two weeks ago. His company, Walco Holdings Ltd. of Nassau, Bahamas, is listed in the Camberly information circular as holding 1.44 million of its shares.
Walsh and Camberly chief executive Michael Duggan were fast friends from Montreal, where both started their careers as brokers. Duggan traveled to Montreal on Saturday for Walsh's private funeral.
Camberly, founded in 1993 to produce oil and gas from Alberta wells, made money in two years: 1994 and 1995. Since then most news has been bad.
Last year it sold the Alberta wells for $27 million and sunk more than $4 million in a joint oil drilling venture in China's Gobi Desert.
On Dec. 31 Camberly wrote off that entire investment.
"We are going to be filing suit against the Chinese government and the bank [in China]," Duggan said. "They are a bunch of thugs."
He says Chinese county officials demanded US$1 million for a "county development fund" (Camberly eventually paid US$250,000) and US$500,000 was stolen from a Camberly bank account in China.
The company also lost $1.6 million in 1996 on dry holes in Israel, faring no better closer to home.
"We had a promising prospect and ended up drilling a couple of dusters," said Gordon Bowerman, who quit the board in April.
Among other losses: last year the firm wrote off loans of $153,391 to Sirius Energy Corp. Ltd. and $461,314 to Great Gray Resources Ltd. Duggan said he controls both private companies.
He said the Great Gray losses relate to a failed copper mining play in Arizona. As for the soured loan to Sirius, "Sirius was entering into an agreement with PanCanadian [Petroleum Ltd.] on another major acquisition," which did not go through.
Sirius owns 1.2 million Camberly shares, which is more than 10% of the total 8.3 million shares outstanding and so should be disclosed. Asked why Sirius' holdings are omitted from the information circular, Duggan said, "that should have been disclosed and it wasn't."
The Ontario Securities Commission was unavailable for comment.
Meanwhile, the Calgary-based company has been hit by a rash of resignations. The entire board, except for Duggan, resigned in April.
Calgary-based Bowerman said he quit because he has been diagnosed with cancer; a news release also cited "health concerns" in director Frank Agar's resignation. Stanley Hawkins of Toronto said he left because of a conflict of interest: his company, Ayrex Petroleums Inc., was Camberly's partner in China.
Among three new directors is Duggan's son, Richard, who is also the firm's accountant.
President and chief financial officer Gordon Gavel died in 1997, while chief operating officer Dwayne Warkentin called it quits the same year.
Despite all the writedowns, the company is still sitting on about $7.2 million in cash and investments. But with all the troubles, its stock price has tumbled from $2 a year ago to the 50› range. The stock (CEL/TSE) didn't trade yesterday, but closed Wednesday at 57›.
In the past four years the company has granted Michael Duggan 949,442 options in Camberly stock. They include 225,000 options at $1.25, 590,000 at $1.90, 95,000 at $1.35 and 39,442 at $1.50. He holds 184,558 shares.
Richard Duggan holds 75,000 options at $1.25 and 100,000 at $1.90, while three other directors and officers hold 136,667 options at $1.25 to $1.90.
Now the directors want all those options repriced at 50›.
"Options are an incentive and if you've got stock trading at 50› and options at $1.90 then it's not much of an incentive because it's too far out of the money," Michael Duggan said.
He also suggested the options protect Camberly from a takeover bid.
"This company was the subject of three takeover bids in the last two years," he said. "If we take over a property and it's a dandy, then all the piranhas will be swirling around."
Camberly is negotiating to buy long-life, producing oil properties in Ecuador, Venezuela and Argentina, he added.
Big drop seen in Canada oil firm cash flow
Cash flow generated by Canada's biggest 100 publicly traded energy companies this year will fall by 18 percent from 1997 levels if oil and natural gas prices stay in current ranges, an industry report released on Thursday predicted.
The companies' 1998 cash flow will fall to C$10.4 billion in 1998, a drop from C$12.7 billion last year, assuming average prices of US$16 a barrel for West Texas Intermediate oil and C$2 per thousand cubic feet for Canadian gas, the report from accounting firm Price Waterhouse said.
Oil company cash flow is a key indicator of their ability to fund exploration and development projects. Depressed world oil prices have been blamed as a major factor behind the sector's constrained financial returns.
As a result of crude's price slide, energy companies will continue to reduce their budgets for oil drilling and shift operations to natural gas in 1998, Price Waterhouse predicted.
Producers surveyed by Price Waterhouse for the report forecast an average 1998 natural gas price of C$2 per thousand cubic feet, based largely on increased access to United States markets once planned pipeline expansions come into service.
Expansions of the Northern Border Pipeline Co. (NBP) and TransCanada PipeLines Ltd. (TRP.) systems will add more than 1.1 billion cubic feet a day of new capacity in November.
In late 2000, the proposed Canada-Chicago Alliance Pipeline Project was expected to bring another 1.3 billion cubic feet a day of export capacity on stream.
Access to U.S. markets has become increasingly important because gas producers in the Lower 48 states were not expected to find sufficient reserves to replace production in 1998 and beyond, Price Waterhouse analyst Rick Roberge, author of the report, said.
Continued weakness of the Canadian dollar against its U.S. counterpart was also driving strong interest in export markets, Roberge said.
One concern for gas producers, however, was producing enough in Canada to meet the increased demand. He said 4,500-6,000 successful gas wells would have to be drilled in each of 1998 and 1999 to meet estimated export requirements.
Lingering low oil prices were also expected to lead to more merger and acquisition activity within the sector, albeit with fewer billion-dollar deals, Roberge said.
Instead, smaller companies were expected to lead the merger rush due to the combination of the weak commodity and limited access to equity financing, while major firms concentrated on smaller deals.
''In this market, major risks are not prudent,'' Roberge said in a statement. ''This means managing costs, focusing on success with the drill bit and targeting key acquisitions. It will be important to show investors your company is a good bet if there's a flight in the market to quality.''
Schlumberger To Buy Camco In $3.1 Billion Deal
Schlumberger Ltd., a leading oilfield services company, said Friday it agreed to buy one of its smaller rivals, Camco International Inc., in a stock swap worth about $3.1 billion.
The combined market capitalization of the two companies totals $37 billion, the companies said in a statement. Consolidated sales and net income would have been $11.6 billion and $1.4 billion, respectively, in 1997.
Camco, based in Houston, will be operated as a division of Schlumberger's oilfield services group, the companies said. Schlumberger, based in New York, said it expects savings of $30 million from the deal.
Under the definitive agreement, Camco shareholders will receive 1.18 Schlumberger shares for each Camco share. Camco stock, which was halted Friday on the New York Stock Exchange, closed at $62.25 Thursday. Schlumberger stock was down 87.5 cents at $69.06 in morning trading Friday on the NYSE.
The deal is expected to add to earnings in 1999, the first full year of combined operations, the companies said in a joint statement.
The transaction is meant to be tax-free to Camco shareholders, they said. The deal is subject to Camco shareholder approval and is expected to close around the end of the third quarter.
|
