CANADA IN THE NEWS
Alberta Gas Producers Face Shortfall, Analysts Warn
Alberta natural gas shippers could find themselves running out of product if a long, cold winter sets in, says a Calgary gas analyst.
Martin Molyneaux, an analyst with FirstEnergy Capital Corp., said yesterday, based on his revised estimates, TransCanada PipeLines Ltd. could face a shortfall of up to 1.4 billion cubic feet a day from field production. Gas in storage will only be able to meet up to 1.1 bcf/d of demand.
TCPL released figures last week showing it will meet expected demand of 13.8 billion cubic feet a day during the winter months through 12.9 bcf/d from field production and 900 million cubic feet a day from storage.
But Molyneaux said he believes field production will be lower, only reaching 12.5 to 12.7 bcf/d.
"[Producers] are not drilling at that level yet," he said.
Pulling 900 million cubic feet a day from storage is "stretching the envelope, but do-able. It becomes an issue of supply at what price."
Alberta has storage capacity for 185 billion cubic feet of gas.
Last year, TCPL met 13.1 bcf/d of demand with 12.4 bcf/d from field production and 700 million cubic feet a day from storage.
Analysts believe depleted storage and lower than expected production will push natural gas prices up next summer.
Molyneaux has revised his price to $2.75 a thousand cubic feet for 1999, up 20¢ and substantially higher than the $2.20 to $2.40 a thousand cubic feet Canadian producers are using for their 1999 budgets.
In order to fill TCPL's expansion Nov. 1 of 400 million cubic feet a day and another smaller expansion by November 1999, 18,000 gas wells will have to be drilled and tied in.
That will likely take until the end of 2002 to achieve, he said.
The number of gas wells coming on stream this year will be 10% fewer than expected at about 4,600 wells, Molyneaux estimated.
Pipeline capacity will increase to 14.2 bcf/d this winter with TCPL's expansion and Northern Border's addition of 700 million cubic feet a day.
Bob Reid, president of TCPL's Canadian mainline, said all firm contracts will be met. He expects supply to remain tight through next summer but move into balance by the fall.
TCPL shares (TRP/TSE) closed yesterday down 35¢ at $22.30.
Alberta Energy Corp Aims At Being No. 1 Oil And Gas Firm
A day after locking up the takeover of Amber Energy Inc. for about $775 million, Alberta Energy Co. president Gwyn Morgan suggested yesterday he's in the market for more acquisitions.
"We view this period as being AEC's period. There may be other opportunities and we will be watching," he said.
With its balance sheet in relatively good shape because of the large proportion of equity in the takeover, AEC is interested in more natural gas and natural gas liquids assets.
It's unlikely the senior producer will go after any more heavy oil. Amber's prize assets are heavy oil properties at Pelican Lake in northeastern Alberta, where it's producing heavy oil at costs comparable to light oil.
AEC and Amber agreed over the weekend to turn a hostile takeover battle into a friendly deal, after AEC increased its bid price 50¢ to $7.50 for each Amber share, or 0.225 AEC shares, up from 0.215 shares.
Up to 4.5 million AEC shares would be made available, an increase from three million in the original bid.
"The company's ability to take advantage of what is a countercyclical period in the industry continues to be very strong," said Morgan.
Already one of Canada's top 10 producers, the company is said to be aiming to become Canada's largest upstream oil and gas company.
The offer is open for acceptance until midnight local time on Oct. 23 and is conditional on 662 1/83% of Amber's shares being tendered.
The deal will make AEC Canada's largest publicly traded natural gas producer with 900 million cubic feet produced daily in 1999. Oil production will rise to 85,000 barrels a day.
The combination boosts AEC's proven and probable natural gas reserves to four trillion cubic feet, from 3.7 trillion cubic feet, and doubles conventional oil and natural gas liquids reserves.
Circumstances will dictate whether AEC will again take the hostile route, Morgan said. The deal marks the third successful hostile takeover in the oil and gas industry this year.
The company has earmarked $850 million in capital spending for 1999, up from $800 million this year, not including money that might be allocated for acquisitions and including capital spending related to Amber's assets. It is allocating a lower level of spending for Amber's Pelican Lake property than was planned by Amber. AEC will take a lower-volume, longer-life approach for the assets with less capital, Morgan said.
"Our feeling is that we don't have to put much more near-term capital into Pelican because there's been a lot of money put in there by Amber. And we are not going to push production up to where they were trying to push it."
AEC shares (AEC/TSE) closed at $33.80 yesterday, down 5¢. Amber shares (AMB/TSE) closed at $7.50, up 35¢.
The 50¢ Difference
This week's revised takeover of Amber Energy Inc. by Alberta Energy Co. shows yet again what a difference 50¢ a share can make.
On Monday, AEC upped its offer for Amber to $7.50 a share and/or 0.225 of a AEC share for each Amber share, from $7 a share and/or 0.215 of a AEC share. Amber's board then voted to endorse the transaction -- a major change, given that it originally regarded the offer as inadequate and had threatened to trigger a poison pill.
In at least two other M&A transactions, 50¢ a share clinched the deal. In 1994, Rogers Communications Inc. upped its bid to $17.50 a share from $17 a share for Maclean Hunter Ltd. Before that, Ted Rogers, RCI's chairman, said there was no way, including pressure from his wife, his company's offer would be hiked. In what was a public demonstration of who wears the pants, RCI raised its offer by 50¢ a share, an amount that was paid by MH.
Earlier this year, 50¢ appeared once again when Great-West Lifeco Inc. paid $34 a share for London Insurance Group. Originally, it offered $33.50 a share, but London Life's major shareholder, Trilon Financial, indicated it would not lock up its control block at that price. An extra 50¢ a share did the trick, and Trilon agreed to exclusivity with Great West.
While there seems to be a certain magic about 50¢ a share, 30¢ a share was enough to allow Union Pacific Resources Group Inc. to win Norcen Energy earlier this year. Noranda Inc., which owned 49.5% of Norcen, indicated if its block was to be locked up irrevocably, Union Pacific would have to offer 30¢ a share more than the planned $19.50.
Investors Flock To Amber Shares Following Alberta Energy Deal
Amber Energy Ltd. was the most active stock on the Toronto Stock Exchange on Tuesday following its acceptance of a sweetened takeover bid by Alberta Energy Co. on Monday.
About 7.3 million shares of Calgary-based Amber's stock changed hands on the TSE as it rose C$0.30 to C$7.45.
The agreement, reached by the two companies over the Canadian Thanksgiving long weekend, calls for AEC to pay C$7.50 per Amber share or 0.225 AEC shares per Amber share.
AEC also made more of its stock available to Amber shareholders who opt for shares instead of cash, increasing the maximum to 4.5 million shares from three million.
Amber rejected AEC's original offer of C$7.00 or 0.215 AEC shares per Amber share as inadequate and opportunistic.
The offer is conditional, among other things, on at least 66-2/3 percent of Amber's outstanding shares being tendered.
The Amber board will waive the application of its Shareholder Rights Plan to the AEC offer prior to the expiry of the offer.
In their statement, AEC and Amber said they have executed a pre-acquisition agreement under which Amber will discontinue seeking other bids, and to continue standstill agreements relating to previously executed confidentiality agreements with third parties. Amber will also cease pursuing the disposition of certain of its midstream assets. In addition, in certain specified events, Amber will pay AEC a fee of $12 million.
AEC's shares were off C$0.10 to C$33.75 in moderate trade on the TSE on Tuesday.
Consumers Gas Changes Name To Enbridge
Consumers Gas of Toronto, Canada's largest distributor of natural gas, says it's changing its name, to keep pace with the changing times.
Consumers Gas, part of an energy services group headed by IPL Energy of Calgary, will soon be known as Enbridge Consumers Gas to reflect changes in the industry, president Rudy Riedl announced Tuesday.
The company distributes natural gas to almost 1.5 million customers in Ontario, Quebec, and upper New York State. It's parent IPL Energy, to be called Enbridge, operates the world's longest and most complex oil pipeline system, which transports oil from Western Canada to eastern markets.
"Change is sweeping our industry, bringing with it competition and consumer choice," Riedl said in a statement.
And he predicted a wide-open field for utilities in the future.
"These changes will soon enable us to deliver services beyond natural gas, such as electricity and water," said Riedl.
"One day, Enbridge may even offer ‘one-stop shopping' for phone, cable, computer and Internet services. The possibilities are endless."
The name Enbridge combines the words energy and bridge, which Riedl says describes the link between the present and future of the energy services industry where deregulation means greater competition and reduced consumer prices.
The name change will take about a year to complete, he said, allowing customers time to adjust as well as giving the company time to change its truck signs, bills and even uniforms.
Company of the Year Awarded to BW Technologies
BW Technologies, a Calgary based manufacturer of high technology gas detection equipment, has been awarded the 1998 Electronics Industry Association of Alberta (EIAA) award for Company of the Year. According to the Alberta Economic Development, electrical and electronic products manufacturing contributes in excess of $1.3 billion to the Alberta economy. BW Technologies was chosen by the EIAA for its contribution to the electronics industry in Alberta, its ability to grow and consistently bring out new products. Currently the company employs more than 80 people in three countries and has topped the $12 million mark in sales for fiscal 98 with a net income of more than $623,000. In little more than 24 months BW has brought to market seven main-line products in addition to three brand name products for Fluke Corporation of the United States.
Joy Uniat, General Manager for Future Electronics Inc and an EIAA member of the board of directors selecting the award recipients says, "BW is profitable, recently became a public company and has maintained very high stock values, even while the markets have dropped significantly."
The company began operations in Alberta meeting gas detection needs for the oil and gas industry and has since diversified to serve the pulp and paper, municipalities, telecommunications, fire, water treatment and even disaster response sectors. BW Technologies is committed to becoming the industry leader in the design, development, manufacturing and marketing of gas detection equipment for the protection of working personnel and industrial facilities.
IPSCO earnings drop on slumping steel demand
IPSCO Inc. shares slipped to a 52-week low Wednesday after the Western Canadian steelmaker reported lower-than-expected third-quarter earnings and issued a warning for its next quarter.
IPSCO shares were down C$1.20 to C$25.00 in mid-afternoon after falling earlier by as much as C$1.60 on volume of 16,200 shares. The stock had traded in a 52-week range of C$47.00 to C$25.25.
The drop came after the Regina, Saskatchewan-based steelmaker said net income for its third quarter ended September 30 was C$26.1 million, or C$0.62 a share, on sales of C$284.1 million. That compares with a profit of C$33.3 million, or C$0.79, on sales of C$276.4 million in the year-before period.
The company blamed the earnings drop on lower shipments to Western Canada caused by a fall in oil and gas drilling activity.
The prospect of lower steel prices resulting from low-cost imports forced the company to issue a warning for its fourth quarter earnings as well.
"The unprecedented surge in imports of steel mill products should see both lower price realization in the United States and lower demand in the fourth quarter as distributors de-stock after having over-ordered in an apparent attempt to profit from dumped prices," IPSCO said in a release.
It noted the fourth quarter will be the low point for earnings with prices recovering gradually over the next year.
The warning did not take analysts by surprise.
"It would be unrealistic right now to really expect a lot from the steel companies considering what is happening to steel prices," said Greg Misztela, an industrial products analyst at Griffiths McBurney Partners in Toronto.
Misztela has a 12-month target of C$33 a share on the stock with an "accumulate" recommendation.
Misztela expected the share prices of the major steel producers to slip even lower before a turnaround takes place next year.
"Probably in the short term we'll see more pressure on these stocks. I wouldn't be surprised to see these stocks drifting even lower until the market has a good grip on how deep this downturn is going to be. This creates uncertainty and puts more pressure on the stocks."
Toronto stocks drop on weak golds
Toronto stocks fell at the opening of trading on Wednesday, mirroring the Dow Jones Industrial Average as uncertainty over earnings crept back into the markets. The gold index led the market lower.
The Toronto Stock Exchange's key 300 Composite Index fell 22.63 percent, or 0.4 percent, to 5522.30. Volume was 9.4 million shares worth C$165.5 million. Advancers lagged decliners 122 to 203 with another 184 issues unchanged.
This followed a gain on Tuesday of 62.90 points, or 1.15 percent, to 5544.74.
In New York, the Dow was down 28.84 points, or 0.36 percent, to 7909.30 at the opening. On Tuesday it fell 63.33 points, or 0.8 percent, to 7938.14 points.
Uncertainty over the earnings potential of North American companies once again weighed heavily on the markets, said Jeff Milligan, a U.S. Investment specialist at Priority Brokerage in Toronto.
"I think a lot of people are selling off. Although there's been positive earnings announcements, a lot are insecure with the future. They don't know what the next quarter will be like," he said.
"It's the insecurity of the market. I think the mood's really changed."
Overall in Toronto, 11 of the TSE 300's 14 subindexes opened lower, led by a 2.1 percent dip in the gold sector and a 0.6 percent decline in the metals index.
The dip came as gold in New York fell $1.20 to $297.30 an ounce.
Gold miner Placer Dome Inc. fell C$1.20 to $21.00 and metals producer Alcan Aluminium Ltd. slipped C$0.40 to C$38.50.
Conglomerates, consumer products and merchandising shares also fell.
Bucking the negative trend was the paper and forest products group, which rose 0.3 percent. Abitibi-Consolidated Inc. rose C$0.15 to C$14.90.
Telecommunication companies TELUS Corp. and BC Telecom Inc. are stocks to watch today as rumors swirl that they will merge. Both issues were halted in Toronto pending news.
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