MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURS. JUNE 25, 1998 (7)
Atlantic Canadians Told Not To Worry About Prices
The Evening Telegram
Atlantic Canadians should not be as worried as Albertans about the world's distressed oil prices, the president of a financial company specializing in the energy industry said in St. John's Tuesday.
But major projects on the Grand Banks are still likely to be deferred if oil prices do not rebound back above the $17 level, Kevin Brown, president of ARC Financial Corp. of Calgary, said at the 14th Newfoundland Ocean Industries Association conference.
The next major projects after Hibernia and Terra Nova will likely be the 195-to-600 million barrel Hebron field and the estimated 250-million-barrel Whiterose field. Both are in the early stages of development with more exploration under way.
"I think if expectations start to slip to 16-17 (dollars a barrel) you'd be hard-pressed to sustain a very vigorous industry up here," Brown told about 400 delegates at the conference. "You certainly would see exploration activity beginning to get deferred and certain projects we think could also get deferred."
Brown added, however, ARC financial, which manages a $195-million strategic energy fund and $300-million energy trust, does not think it likely oil prices will remain depressed for much longer.
The company is cautiously forecasting oil prices to average $16 this year, $17.50 in 1999 and $19 in 2000. The price of a barrel of oil jumped about $1.60 Monday on news OPEC countries were considering additional production cuts.
That's probably not enough to save Alberta from an economic downturn in the oilpatch, however.
"Our view is that the oil price slump that we're in right now is going to have a much more immediate impact on Western Canada (than Eastern Canada)," Brown said. "Access to capital is drying up, cash flow is off sharply, debt levels are high and access to equity is becoming much more challenging.
"It's, in our view, going to force some very significant spending reductions over the second half of the year, possibly into 1999 for Western Canada," he said.
It's a much different picture in the East Coast offshore, where oil quality is superior and large, deep-pocket corporations have the balance sheets to stay for the long-term, he said.
The president of Halliburton Company - the world's largest energy services company with 70,000 employees and $10 billion in annual revenues - was even more bullish on the East Coast offshore.
"I would be very surprised if a sustained low oil price in the range that we're at today would derail any of these projects," Lesar said in an interview after his official conference address. "It's going to derail a lot of other projects around the world but with the reservoir capability here, my guess is that's not going to be the case."
Rough seas and icebergs are not the barriers they once were, he said.
"I think that if you look at where capital is going today, it's going offshore and it's going to deeper water, it's going to harsher environments," Lesar said. "If you look at the expected producibility of these reservoirs, my guess is that they can stand fairly low oil prices for a longer period."
The next few months are expected to be tough for the industry, however, as the world's oil storage facilities fill up and global production remains at about two to three million barrels above consumption.
The positive news for the industry, as Brown sees it, is that over the long term the world's thirst for oil is expected to increase "at something like one to two million barrels per day over the longer term."
If it doesn't, producers and analysts may have to rethink the entire industry.
Ottawa May Solve Boundary Fight
The Evening Telegram
Mines and Energy Minister Chuck Furey is happy the federal government is poised to bring about a resolution to a long-standing offshore boundary dispute between Newfoundland and Nova Scotia.
Federal Natural Resources Minister Ralph Goodale has told the two provinces he will enforce binding arbitration if the issue isn't settled by the end of August.
"I think that's a good thing," Furey told The Evening Telegram late Wednesday. "I'm very happy the federal government feels it is important to have the matter clarified."
The dispute over ownership of the Laurentian Channel between the two provinces has simmered for more than 25 years.
Gulf Canada Resources and Mobil Oil Canada as well as Imperial Oil have an interest in the area but have been unable to proceed beyond exploratory work until the ownership issue is resolved.
The oil companies and Furey all expressed concern about the holdup in exploration and development during the 14th annual International Petroleum Conference in St. John's Tuesday and Wednesday.
Mobil Oil Canada vice president Ken Miller said Mobil would act quickly once the dispute is resolved.
"We need some certainty around the license terms," he said Wednesday. "We see the boundary dispute resolving and once that's done we'd act fairly expeditiously."
The stakes are high for Mobil, which is the second-largest acreage holder in the Laurention Channel area behind Gulf.
"There's a billion barrels of oil and nine trillion cubic feet of gas potential there," Miller said, noting seismic work and drilling still have to be done to prove those numbers.
Goodale discussed the issue in a media briefing later in the day.
The federal minister said he has sent a letter to Furey and Nova Scotia Premier Russell MacLellan, who is also energy minister, urging a settlement of the issue.
"I have asked them to use their best efforts to resolve the matter before the end of August," Goodale said.
"If that can't be done, I will be exercising my responsibility under the Atlantic Accord Implementation Act to bring it to binding arbitration."
Goodale added, "I don't think the federal government and the companies interested in the area can wait forever."
If the provinces inform him sometime prior to the end of August that a resolution is not likely, he would move immediately to arbitration, Goodale said.
Furey has said on numerous occasions that Newfoundland feels Nova Scotia arbitrarily and unfairly drew the boundary line in the dispute area and "that is just not acceptable."
He said Wednesday this province will continue to contact Nova Scotia on the matter but "we have a good solid case prepared and are prepared to move to arbitration."
Furey said the situation may be a difficult one at this time for MacLellan, who is in a slim minority position in Nova Scotia.
"This is not a priority issue for him now so perhaps arbitration is the appropriate way to go."
Goodale said while it is difficult to predict just how long the process might take, judging from past experience, it would likely be eight to 10 months.
Mobil Mulls Site For Upgrader
The Financial Post
Mobil Canada said yesterday it will decide within the next six months on the site of a heavy oil upgrader in Alberta.
The plant will cost $1 billion to $1.5 billion.
Economics, environmental impacts and public input will determine the final choice, a Mobil spokesman said.
U.S. OKs Oil, Natural Gas Royalty Bill
Legislation to change the way companies pay royalties on the oil and natural gas they find on federal land and in offshore waters cleared a subcommittee of the U.S. House of Representatives.
And though the issue may sound like a sleeper to some, it's not small change for oil and gas companies. Last year, companies paid a record $6 billion in royalties to the federal government.
The bill would no longer require most companies to pay fees based on a percentage of the value of their energy discoveries, but instead allow them to turn over to the federal government a portion of the oil or natural gas drilled.
The "royalty-in-kind" payments would allow the government to then sell the oil or gas, and avoid fighting with companies over the actual value of their energy discoveries, according to the bill's sponsors.
The legislation allows the Interior Department to require cash royalty payment for low-producing oil and natural gas wells in remote locations if those sites are not connected to pipelines and it would be too difficult to transport the energy resources.
In addition, oil and natural gas wells under leases in Alaska would be exempt from the bill, so cash payments would continue for those sites unless the department decided to require in-kind payments.
The White House has threatened to veto the legislation.
And the Interior Department opposes the bill -- arguing the policy change would cost the U.S. Treasury up to $367 million a year.
The bill's chief sponsor, Rep. Mac Thornberry, a Texas Republican, said his bill would allow the federal government to hire an experienced private marketing firm to sell the oil and gas received as in-kind payments.
Because the marketing agent would be able to pool the oil or gas that is produced from multiple federal leases, the agent would be able to obtain a higher price, according to Thornberry. At the same, money would be saved because fewer staff members would be needed to run an in-kind royalty program, he said.
Similar legislation is pending in the Senate, but it has yet to be approved by any panel in that chamber.
Time is running out for either bill to clear the Congress, as there are around only 30 working days left before lawmakers adjourn in early October. Congress will be in recess for several weeks in July and will be off for most f August.
The next step for the House bill is for the Congressional Budget Office to analyze how much the bill will cost. The chairman of the House Resources subcommittee that cleared the bill, Rep. Barbara Cubin, R-Wyo., warned the legislation would not move forward if the CBO determines the measure will cost taxpayers money.
INVESTMENT COMMUNITY
TSE Opens Playground
Toronto Star
The Toronto Stock Exchange has closed its old trading floor but kept the memories alive with a $5 million high-tech playground.
Billed as the world's first interactive stock market learning centre, Stock Market Place is the new public face of Canada's oldest stock exchange, TSE president Rowland Fleming said Wednesday.
"When it became apparent that closure of the trading floor was going to happen, we began to ask ourselves, how would we present ourselves to the public," he explained. The answer was an electronic playground designed to appeal to everyone from Grade 9 students to the most sophisticated investor.
There's a hands-on computer game where you learn that the best way to invest your money isn't publicly traded Canadian stocks but in hockey cards. There's a wall of television monitors transmitting the latest market information from around the world and a desk where you can look at the same computer screen that professional traders watch.
"It's time to bring the world of the stock market from Bay Street to Main Street and to help Canadians discover that learning about investing can be both rewarding and fun," Fleming said. Just over one in three Canadian adults has an investment in the stock market, Fleming noted. That's 7.6 million people. "But our research tells us that there are still too many barriers to information on the
markets."
Located in the heart of the financial district, the 700-square-metre exhibit is in an old National Bank branch on King Street.
The capital cost of the centre was covered by the three founding sponsor Bell Canada, IBM Canada and Bridge Information Systems, which also supplied much of the information technology required to make it work.
The operating costs will be partly covered by an admission fee of $5 for adults and $3 for children and seniors, souvenir sales at the gift shop, and special event rentals.
The facility includes a 145-seat high-tech theatre that can be used for press conferences, annual meetings or other corporate events.
School tours will be free.
The old visitors' gallery overlooking the trading floor used to attract up to 60,000 visitors a year. Fleming predicts the new facility will do even better. "I think the one thing we've underestimated is the positive response we'll get," he said.
The TSE trading floor closed last year when computer assisted trading took over the job of providing a public forum for the exchange of shares.
American Stock Exchange And NASD Merger Creates New Playing Field
American Stock Exchange members approved a merger with the parent of the Nasdaq stockmarket at a special meeting held Thursday.
The deal passed by a comfortable margin, with 622 members voting in favor and 206 against. The merger needed the support of at least 576 members to pass. The exchanges said they hope to complete the union by the end of the year.
The merger unites the nation's second- and third-largest stock markets by folding the Amex into the larger National Association of Securities Dealers (NASD).
"The vote is over, the debate is over, and now it's time to move ahead together," said Amex Chairman Richard Syron, speaking on a conference call after the vote was taken.
Under terms of the merger, Nasdaq will commit $110 million over five years to upgrade Amex facilities and technology and spend $30 million on a joint marketing program. It will also spend $40 to $50 million to make sure the value of Amex seats does not deteriorate. The Amex will operate as a separate subsidiary.
The merger unites two formal rivals and distinctly different trading forums.
The Amex, an "open outcry" system where brokers shout prices on a trading floor, traces its beginning back nearly 150 years when brokers traded securities on a curbside in Manhattan.
The Nasdaq, in contrast, is a sprawling computer system that allows competing market-makers to display prices on computer screens. Founded just 27 years ago, it has managed to surpass the Amex in terms of new listings, including high-tech leaders Microsoft Corp. and Intel Corp.
The Nasdaq had listed 5,466 companies worth $1.9 trillion at the end of 1997, far above the $168 billion market value of the 783 companies on Amex.
While Amex has lagged its rivals in equities, it has made a strong name for itself in the options arena, second only to the Chicago Board Options Exchange (CBOE). Aside from winning praise for innovative options products, the Amex also has a new strength -- its agreement to tie up with the Philadelphia Stock Exchange, also strong in options.
Together with the Philadelphia exchange, Amex said its options market share will nearly equal that of the CBOE.
"This is a new beginning for us, repositioning the Amex as a much more vibrant competitor in equities and an even more aggressive force in the options business," Syron said.
The merger is also expected to jump-start some consolidation among U.S. stock exchanges. Aside from the Philadelphia exchange's jump into the fray, other tie-ups are expected as large Wall Street firms move to cut the high costs of running a trading floor, analysts said.
Approval was largely expected after one of Wall Street's biggest players, Spear Leeds & Kellogg, bought out opposition leader Paul Liang. Liang owned a large block of seats on the exchange and had spearheaded opposition to the merger, claiming it would hurt the value of the seats. But Spear Leeds bought out Liang's 18 seats for a reported $7.1 million, effectively quashing the protest.
The two markets have said the merger will save "hundreds of millions" of costs over the next five years. An Amex spokesman said there was no word yet on any possible job cuts from the merger although analysts predicted that numerous cuts would result.
The combination must win regulatory approval and face a shareholder lawsuit brought by exchange member Selma Philipson. The lawsuit seeks to nullify the results of the membership vote, based on allegations that members had been given insufficient and misleading information.
Regulatory approval seems likely, Amex said. "We believe (regulators) are strongly positive toward the steps we are taking," an Amex official said.
The combined NASD/Amex is still dwarfed by the New York Stock Exchange, with a market capitalization of $11.8 billion.
Oil Service Stocks Downgraded By Jefferies & Company
Jefferies & Co analyst Roderick McKenzie said in a research report that he had downgraded 18 oil service stocks as a result of volatility in crude oil prices that could lead oil companies to cut their exploration and production budgets.
-- McKenzie said land and shallow-water markets have the biggest near-term risks, while there will be few changes in demand from deepwater projects.
-- Cut to accumulate from buy (corrects rating change) were Atwood Oceanics Inc. , Cliffs Drilling Co., Diamond Offshore Drilling Co. , Ensco International Inc. , Global Marine Inc. , Marine Drilling Cos. ,
Newpark Resources Inc. , Parker Drilling Co. , Petroleum Geo-Services A/S , Precision Drilling Corp. , R&B Falcon Corp. , Rowan Cos. Inc. , and Superior Energy Services Inc. .
-- Cut to hold from accumulate were Baker Hughes Inc. and Grey Wolf Inc. .
-- Cut to hold from buy were Maverick Tube Corp. , Nabors Industries Inc. , and Patterson Energy Inc. .
COUNTRIES IN THE NEWS
Oil Prices Wreak Havoc On Venezuela
Associated Press
CARACAS, Venezuela - Venezuelan business was booming just a few months ago, but a sharp drop in oil prices and the surging candidacy of a populist former coup leader have endangered growth prospects and unmasked the fragility of an economy plagued by decades of mismanagement.
The price of a barrel of Venezuelan oil hit a 12-year low last week of $8.43, wreaking havoc on the national budget and the confidence of investors already nervous over the possibility that former Lt. Col. Hugo Chavez, who tried to overthrow the government six years ago, will become president.
The Caracas stock exchange is down 40 percent since Jan. 1, the biggest plunge in Latin America, and consumer prices have risen 40 percent in the past year, the region's highest inflation rate. Officials estimate lower oil prices will cost the economy $5 billion this year.
''The economy is either looking at a recession or a very weak growth scenario,'' said Carl Ross, chief Latin American economist at BT Alex. Brown Inc. ''The short-term outlook depends on oil prices, and that's not a lot to hang your hat on these days.''
OPEC nations agreed Wednesday to new output cuts in an attempt to boost prices, but similar cuts in recent months failed to reverse a worldwide glut, which has hurt oil-producing countries everywhere from Saudi Arabia to Mexico.
Venezuela came surging back from a recession last year, when the economy grew by 5 percent. British Petroleum (NYSE/BP), Texaco and Mobil took advantage of the government's much-touted opening of the oil sector, and poured in hundreds of millions of dollars. Economists had predicted 4 percent growth for 1998.
Then came the plunge in oil prices and the Asian financial crisis. Venezuela will now be lucky if it grows 1 percent.
Oil accounts for more than three-quarters of Venezuela's export income, and about 60 percent of all government revenue. Officials have slashed this year's budget by $1.6 billion and asked Venezuelans, whose standard of living has fallen dramatically in recent years, to tighten their belts even further.
U.S. President Bill Clinton's entreaty at a recent regional summit in Chile for ''a second generation of reform'' to distribute Latin America's wealth more equitably seems a long way off in Venezuela. Social spending is taking a back seat to crisis management, and some officials can hardly hide their frustration.
''We don't need Clinton to tell us to invest in our people,'' Planning Minister Teodoro Petkoff told The Associated Press. ''Does he think he came up with Einstein's Theory of Relativity?''
Venezuela's efforts to get its economic house in order through austerity has led to a public backlash.
Chavez is leading the polls for December's presidential elections. Although he has toned town his populist rhetoric, most investors think he would turn back the clock on free-market reform, and many are already packing.
''If he surprises us and becomes a success story, there will be plenty of time to jump back on the bandwagon,'' said Rafael de la Fuente, an economist at the French bank Paribas. ''But I don't want to be there if he confirms all our worst fears.''
To raise cash and investor confidence, officials have announced two bond issues worth $1 billion and a $500 million loan from the InterAmerican Development Bank. They also plan to privatize the aluminum and electricity sectors.
The government has sought to fend off a devaluation at all costs, keeping both interest rates and the bolivar currency artificially high -- and putting the breaks on the economy.
Many people are asking themselves how the country with the most proven oil reserves outside the Middle East has become so poor. One reason is that oil income has allowed the country to ''muddle through'' without fundamental reform, said Ricardo Penfold, vice president of research at the Santander Investment Bank.
True, the country has welcomed foreign investment, eliminated trade barriers and privatized some state industries. Yet Venezuela has one of the most bloated bureaucracies on the continent. Its schools, roads and hospitals are decaying, tax collection is sorely deficient, corruption is endemic, and prosperity depends almost exclusively on volatile oil prices.
''All the money is stolen,'' said 48-year-old Caracas resident Omar Requena. ''What do they do with all that oil?''
Requena said he'll vote for Chavez.
Australia's Offshore Gas Industry Looks Homeward
Facing uncertainty in key Asian markets, Australia's emerging northwestern offshore petroleum industry hopes to sell more gas to domestic customers, industry executives said on Tuesday.
A handful of multinational oil companies, led by Royal/Dutch Shell (UK & Ireland: SHEL.L; RD.AS) and Phillips Petroleum Co (P), have staked claims to large tracks in the Timor Sea, which straddles Australian and Indonesian territorial waters.
Oil and gas developments in the region have always looked to Asia for ready markets. But as demand for energy slows in Asia in step with declining industrial and consumer activity so have sales of gas.
''Beyond Asia, we must also look to the domestic market,'' said Shell Development (Australia) Pty Ltd chairman Roland Williams.
The giant North West Shelf joint venture, operated by Woodside Petroleum Ltd (WPL.AX) and one-sixth owned by Shell, has so far been unable to negotiate a second generation of supply contracts to justify a proposed doubling of output for its longstanding Japanese customers.
The neigbouring Gorgon field, not yet developed but with the potential of being nearly as big as the North West Shelf, also has no customers.
A Mitsubishi Corp (8058.T) official this week told the Southeast Asia Australia Offshore conference that only a fraction of its liquefied natural gas (LNG) requirements to 2010 were still open and that there was no room for new projects in the Japanese market.
In Australia, gas production over the last five years has grown between 3.5 percent and 4.0 percent a year, with natural gas holding 18.1 percent of the primary energy market.
Shell and Woodside have proposed co-developing a liquefied natural gas procesing plant near Darwin capable of yielding 7.5 million tonnes of gas annually from the Timor Sea.
The companies hope to shore up long-term contracts with big mining and industrial firms in Australia, and with South Korea, India and China long before the first gas deliveries are ready in 2005, Williams said.
Deregulation of the Australian gas transmission system has opened up new opportunities to tap the domestic market, parts of which can be more far-reaching than Asia.
''In the longer term, the market opportunity for substantial quantities of Timor Sea gas includes the eastern states of Australia,'' said John Morris, assistant secretry of the Northern Territory Department of Mines and Energy.
Morris said the Northern Territory government is anxious to see gas from the Timor Sea available in Darwin beginning in 2002.
''Darwin already is dependent on natural gas from the Amadeus Basin, and there are limitations on supply,'' Morris said.
Thousands of kilometres to the east, the copper and zinc mining region of Mount Isa and the refining industries of nearby Townsville in Queensland state are going through a resources boom powered largely by local gas supplies.
''Both centres are new gas markets and of keen interest to the Timor Sea producers,'' Morris said.
A big drawbck to transporting gas across large areas in Australia has been a lack of connecting pipelines.
But in the wake of deregulation among the states and declining construction costs, more pipelines are expected to be built around the country.
''A number of factors have enabled construction costs to decline by nearly a third since 1981, Jim McDonald, general manager of Australian Gas Light Co (AGL.AX) said.
Development of the Timor Sea's gas reserves would be boosted with development of the Bayu-Undan and Sunrise and Troubador fields.
Bayu-Undan alone holds 3.2 trillion cubic feet of natural gas. It is jointly owned by The Broken Hill Pty Co ltd (BHP.AX), Phillips, Santos Ltd (STO.AX) Oryx, Hardy Petroleum (HOG.L) and Petroz (PTZ.AX).
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