MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JUNE 23, 1998 (5)
TOP STORIES
Deep Feelings
Petroleum Producers Take Long Term View
Calgary Sun
When 70 of our nation's most aggressive and visionary oil and gas companies presented their assessments and sketched their plans yesterday before the Canadian Association of Petroleum Producers investment symposium, they had reason for their optimism.
After rising $1.55 US on the spot market on Monday to $13.38, oil prices rose another $1.05 US on the spot market yesterday to close at $14.43.
But while that was heartening news for Calgary's oilpatch -- and for the more than 100 oil and gas companies making their presentations to some 300 oil and gas analysts and investment fund managers from around the world -- the seminar would still have been buoyant even if a possible oil price recovery hadn't started.
And no one is yet betting it will continue.
The entire focus of the industry is on the long term -- and that's whether we are talking about smaller operations, such as Scarlet, Cypress or Ulster, or larger companies such as Suncor, Talisman or Alberta Energy Company. Rick George, president of Suncor, certainly had a lot to boast about.
True, earnings were down 17% to $50 million in the first quarter, but oil prices had fallen 30%.
How did Suncor stop its earnings falling under the floor? Well, for one thing, its on-going campaign to increase efficiencies paid off with a 11% decline in production costs.
George offered one word of caution, and that was that while Suncor has a five-year track record of increased production, cash flow and earnings it might not be able to make that record stick for a six straight year.
But its huge $2.2-billion Project Millennium oilsands plant is right on target to go into full production in the year 2002.
Talisman Energy president Bill Buckee said that very day, the $6-billion company has issued update reports on its successes in Canada, the North Sea, Indonesia and Algeria. And as Buckee pointed out, while oil prices are down 30% Talisman's cash flow is down just 18%.
Another example of cost-efficiencies.
Despite the past year being a "gloomy environment for oil prices" Talisman is investing for the future and expects strong sustained growth to the year 2000 and beyond.
Talisman's cash flow actually increased in 1997 to $797 million from $697 million in 1996. What can you say about the Alberta Energy Company (AEC) that hasn't already been said?
Well, president Gwynn Morgan took a stab at saying it.
AEC surely has a superior asset mix of 55% gas, 24% light oil, 5% heavy oil and 16% in pipeline assets. It also has one of the largest exploration land bases in Western Canada and an enviable knack of being able to produce the right product at the right time.
To add credibility to Morgan's assessments, any number of top-ranked brokerage houses have issued "buy" recommendations for AEC.
They include: CIBC Wood Gundy, First Marathon, FirstEnergy, ScotiaMcLeod and Bunting Warburg. And their one-year targets for share prices are pretty consistent -- from $39 a share to $41 a share.
Investors Still Hot On Petro-Canada
Shares Rise Despite Failed Deal With Ultramar
Calgary Herald and the Canadian Press
Petro-Canada's failed alliance with Ultramar Diamond Shamrock Corp. shouldn't harm the Calgary firm, analysts say.
The deal, which would have created Canada's largest chain of gas stations, wasn't essential to the success of Petro-Canada, experts agreed Tuesday.
Unfavorable market reaction is not expected, many observers believe.
"I don't think this hurts Petro-Canada," said analyst Nick Majendie of C.M. Oliver & Co. in Vancouver. "They are still a strong company."
The stock markets appeared to agree.
Petro-Canada's stock price was up Tuesday, a day after Ultramar and Petro-Canada announced they were scrapping their partnership deal after the federal Competition Bureau expressed its concerns over their plan.
PetroCan's shares gained 25 cents, moving to $23.55 on the Toronto Stock Exchange.
Michael Ervin of M.J. Ervin and Associates, a Calgary-based retail and refining consultancy, believes both companies will continue to do well, but added there will eventually be some rationalization in gasoline retailing.
"I don't think either of them was doing this in terms of securing their long-term survival; I think that's pretty much a given anyway."
Petro-Canada spokesman Rob Andras said the company will now intensify its focus on its existing business.
"We went into this thing looking to make a good thing better," he said. "The status quo is, for the time being, what we are back to and that's fine. Our backs weren't to the wall when we went into this thing.
"We did think -- and still think -- that the joint venture would have been a good deal all around, but we can move ahead, we're still an aggressive growth company and we're very positive about the outlook for our upstream and downstream businesses."
Andras said he wouldn't comment on rumors Petro-Canada had another large deal waiting in the wings that allowed it to let the Ultramar deal go without grief.
Rumors have been circulating for weeks that the company may have a big acquisition in mind, but Andras said that "was just speculation."
Meanwhile, some analysts criticized the Canadian competition regulator, saying it had done consumers a disservice at the gas pumps.
"The competition tribunal has done a real disservice to Canadians because I think our refining and marketing operations are efficient today, but they're going to have keep on getting efficient," said Martin Molyneaux, an analyst with FirstEnergy Capital Corp. in Calgary.
Talisman Energy Casts Doubt On Forecast
Talisman Energy Inc. Chief Executive Jim Buckee on Tuesday cast doubt on an earlier prediction that the company would produce 1998 financial results similar to last year's, saying low oil prices could drag down Talisman's fortunes.
Buckee said his forecast of 1998 earnings and cash flow similar to 1997, made at Talisman's annual meeting in early May, was based on an average West Texas Intermediate crude price of US$17 a barrel, well above the current price and average so far this year.
"Year-to-date, it's been below US$16 on average, so your guess is as good as mine whether it's going to average US$17 for the year," Buckee told reporters after a presentation to the Canadian Association of Petroleum Producers investment symposium.
He said the company's annual cash flow changes by C$50 million for every US$1 change in the WTI crude price.
Talisman recorded earnings of C$77.1 million or C$0.70 a share and cash flow of C$797.4 million or C$7.29 a share in 1997.
Buckee said, however that Talisman's production expectation of 240,000 barrels of oil equivalent a day would still be met, despite Tuesday's announcement of a three-month delay in the start-up schedule of its Ross oil field in the North Sea.
The field, in which Talisman is operator and has 51.99 percent interest, was originally scheduled to start pumping oil in October.
But that was pushed back to January because of slower-than-expected progress in readying its floating production, storage and offloading vessel (FPSO), which is now 79 percent complete, the company said on
Tuesday.
Buckee said strong oil and gas production from its other worldwide operations was expected to make up would would have been a shortfall.
"Ironically, it may defer (the Ross startup) into better oil prices. It's not all a bad thing because it allows us to have more of the drilling complete," he said.
Initial production from Ross is expected to be 40,000 barrels a day. The first three wells have the ability to produce acombined 30,000 barrels a day, he said.
Meanwhile, Talisman has a 35 percent interest in a major discovery in Algeria that was announced on Tuesday by operator Burlington Resources Inc.
Houston-based Burlington said its MLSE-1 wildcat well on Algeria's Block 405 tested at 14,638 barrels a day of oil and gas liquids and 107 million cubic feet a day of gas.
A second MLSE well was to be drilled shortly, targeting more of the geological structure that could hold reserves of 300-400 millionbarrels of oil equivalent, Buckee said.
He acknowledged that the prospect did not fit with the company's strategy of operating fields and holding high working interests, so Talisman would consider swapping its stake for another in a different part of world where the political situation is more stable.
"There's an awful lot of hydrocarbons -- gas and oil -- and it is a place where the industry operates, so we wouldn't just lightly exit, nor are we going to die to hold onto it."
Renaissance Plans Major Property Sale
Renaissance Energy Ltd. Chief Executive Clayton Woitas said on Tuesday that his company would launch a major sale of mostly natural gas properties in Canada if its proposed takeover of Pinnacle Resources Ltd proceeds as expected.
Woitas said Renaissance planned to sell properties producing up to a total of 100 million cubic feet of gas a day in the autumn and that it hoped to garner proceeds of C$250 million to C$400 million.
"We would likely sell off a parcel of mature properties, new properties, exploratory lands and tax pools packaged as a private company to attract U.S. interest," Woitas told Reuters after a presentation to the Canadian Association of Petroleum Producers investment symposium.
Renaissance announced early this month it planned to absorb Pinnacle in a friendly, C$680 million stock-swap offer.
He said one possibility for the proposed sale was to convert Pinnacle into a wholly owned subsidiary, place the properties earmarked for disposition into it, then offer the entire package to potential buyers.
"U.S. companies aren't interested in acquiring properties, they want to purchase companies," Woitas said.
Proceeds from the sale would initially be applied to Renaissance's long-term debt, and subsequently to fund exploration and development programs, Woitas said.
With the Pinnacle acquisition and property sale, Renaissance was following through with its strategy of buying oil production in the spring of this year, and selling gas output in the autumn, he said.
Woitas did not identify which properties would be included in the sale, or if they would be mostly Pinnaclor Renaissance holdings.
Quick Action Urged On Offshore Boundary Dispute
Newfoundland's hope that an offshore boundary dispute with Nova Scotia can be settled without a federal arbitrator appears to be fading along with the province's patience.
If left unresolved, the dispute could delay future exploration plans by three major oil companies, Energy Minister Chuck Furey told 600 delegates attending an international petroleum conference.
"Perhaps we're moving into that area now where we ought to think about putting it out to a third party and letting the third party, in law, determine what the accurate line should be," said Furey.
"The industry has to have certainty. These players can't go in and invest millions and millions of dollars only to find out later there's a dispute between Nova Scotia and Newfoundland and they really don't know who they're bargaining or dealing with."
Furey was to meet with federal Natural Resources Minister Ralph Goodale today in St. John's to discuss the matter.
The piece of ocean floor in question is a 60,000-square-kilometre area, potentially rich in oil and gas, that lies within the southwest coast of Newfoundland, the northern tip of Cape Breton, and a portion of the southern Grand Banks.
Each province has said for years it has the strongest claim to the bulk of the area, known as the Laurentian sub-basin.
Goodale wrote both premiers, Brian Tobin of Newfoundland and Nova Scotia's Russell MacLellan, in April, saying if the matter could not be resolved by the end of June, a federal arbitrator would step in.
MacLellan and Tobin agreed last month at an oil conference in Houston to try to negotiate their own agreement. But the meeting has yet to take place.
For his part, MacLellan has been preoccupied with other matters in the first few months of his minority government's term.
"In the priority of things, I don't think this is high on his list," said Furey. "But it ought to be, and it certainly is from Newfoundland and Labrador's point of view."
MacLellan could not be reached for comment.
Calgary-based Gulf Canada Resources is one company refusing to hide its desire for the provinces to quickly establish mutual boundaries.
The company plans to proceed with a 6,500-kilometre seismic program this summer in both the disputed Canadian region and a section claimed by France.
But it will be unable to get exploration licences to conduct drilling on the Canadian parcels of land until a settlement is reached, said Sam Wilson, Gulf's exploration co-ordinator.
"It's a very serious concern," said Wilson.
"We really hope the situation is resolved shortly and we can go about our business without delay."
Imperial Oil and Mobil Oil also have large parcels of land in the area, said Furey.
Gulf's plans mark an East Coast comeback of sorts. The company nearly sank Newfoundland's emerging offshore industry in 1992 when it pulled outof the Hibernia project in its infancy.
It retained an eight per cent stake in the Whiterose field, but a recent change in focus has made the company "more bullish", said Wilson.
"A lot has to do with the excitement created by Hibernia coming on line and the progress at Sable Island," said Wilson, adding he hopes an oil or gas project of similar size will result from his company's efforts.
Oil Exploration Done From Space
Richmond's Radarsat International hits paydirt by using satellite imagery to find offshore oil. Its successwill be celebrated at a reception today.
William Boei, Sun Business Reporter Vancouver Sun Who would have thought the best way to look for undersea oil deposits is from 800 km above the surface of the ocean?
The folks at Richmond's Radarsat International did, and they were right, president Robert Tack says.
The technique works so well that today, about 80 per cent of the world's offshore oil exploration starts with satellite pictures.
"We use our imagery to monitor oil slicks caused by natural oil seeping to the ocean's surface," Tack said.
RSI estimates that more than $1 billion worth of offshore oil has been discovered with the help of satellite images. The oil industry has used the technology to avoid drilling $500 million worth of "dry holes."
Offshore oil detection was one of the theoretical applications RSI had in mind when the Canadian Space
Agency's radar satellite was launched in late 1995.
RSI was created to market data gathered by Radarsat, which has the advantage over optical satellites of
being able to "see" through cloud and smoke.
The question was whether a radar satellite can detect oil on the ocean surface that has seeped from
undersea deposits.
The answer turned out to be yes. As long as the waves are less three metres high, satellite images can show
both colour differences and the wave-calming effect oil has on troubled waters.
If repeated passes show a consistent pattern of surface slicks "there's a pretty good chance there's really some significant oil there, and that's where you drill," Tack said.
It took until spring 1997 to iron the kinks out of the concept. By then, RSI had teamed with Earth Satellite Corp. of Rockville, Md., a pioneer in earth-sensing technology with roots in the Oklahoma oil fields.
The partnership worked so well that Radarsat and EarthSat have won this year's Award for Canadian-American Business Achievement, given by a Washington, D.C., foundation to innovative business partnerships that straddle the border.
The award was handed out earlier this month at the Canadian embassy in Washington. Today, RSI has
scheduled a reception at the Pacific Space
Centre in Vancouver to celebrate the award, with U.S. Consul-General Jay Bruns, Premier Glen Clark, MP
Hedy Fry and Vancouver Mayor Philip Owen, among others, basking in the glow of RSI's success.
Oil exploration is one of many applications being developed for satellite images, and Tack said the state of
the art reminds him of the infancy of the computer industry in the 1960s, when he worked for IBM.
He estimated that people in the business can envision perhaps 40 per cent of the eventual uses of their
product. The rest come from end users who can see ways of adapting the technology to their own needs.
The other kind of oil slick -- caused by spills -- is also big business for Radarsat and RSI. During one
recent spill off Japan, RSI delivered satellite images to Japanese authorities within hours of the satellite
acquiring the data.
Those images were crucial, Tack said, because the spill was not far from intake valves that gather sea water
to cool nuclear reactors.
"Had the oil got into those intake valves it would have been very big trouble. They were desperate to make
sure they could monitor the flow of this oil spill, and they were just ecstatic with the results."
Other uses for Radarsat images include onshore oil and gas exploration, flood evaluation, iceberg
detection, monitoring of shipping lanes, spotting illegal fishing fleets and identifying large fields of coca
plants.
Tack said 95 per cent of RSI's sales are outside Canada, and he's pleased the company is part of a local
high-tech scene that's being noticed internationally.
RSI is a private company controlled by the owners of the Radarsat satellite -- the Canadian Space Agency
and Richmond's MacDonald Dettwiler and Associates among them -- and doesn't publish detailed financial reports. It said last month that first-quarter sales were the highest in its history, and profits were up 50 per cent from a year earlier.
Ipsco Withdraws Proposed Share Offering
Steelmaker Ipsco Inc. is scrapping plans to issue five million common shares on North American stock markets because of falling share prices for steel stocks.
The Regina-based mini-mill announced Tuesday it had withdrawn its proposed share offering in Canada and the United States because current stock values don't reflect what the company believes is its true value.
The company announced the share offering a few weeks ago, but steel shares have weakened since then over investor concerns about the impact of Asia's economic turmoil on the global steel market.
Not only is demand for steel falling in the troubled region, but producers in Asia, Russia and Europe are flooding Canada and the United States with cheap steel that normally would have been sold in Asia. The result has been a dramatic drop in prices of many steel products, which is hitting the steelmakers' bottom line.
Ipsco shares traded at $40.30, up 80 cents, on the Toronto stock market Tuesday, but that was still well below the $47 the company traded at in recent months.
"Current financial market conditions which had resulted in substantial price deterioration in steel stocks generally over the past few weeks would have dictated selling the shares at prices which would have not reflected what we perceive as being their true value," Ipsco president Roger Phillips said in a release.
Ipsco planned to tap the stock market to help pay for part of its capital expansion plans, including its proposed plan to build a $450 million US mill in the United States.
The company said it will still be able to finance its operations over the next two years without going to the markets. Ipsco said about 70 per cent of the company's assets are in the United States and it believes projected cashflows, debt-carrying capacity and its cash reserves are enough to finance expansion, including the proposed mill.
"No slowdown in the company's plans is foreseen," Ipsco said. The steelmaker said it may go to the markets in future when steel stocks rebound.
"When market conditions stabilize we will review our long-term financing plan," said Ed Tiefenbach, Ipsco's chief financial officer.
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