IN THE NEWS / Strong Natural Gas Price Shelters Oil And Gas Stocks
Strong natural gas prices are the only thing preventing Canadian oil and gas stocks from falling further out of investors's favor, industry observers said on Friday.
"Gas prices are the savior of the industry," Rick Roberge, analyst with Calgary-based accounting firm Price WaterhouseCoopers said. "I don't know where we'd be if sentiment was negative on the gas side. There's certainly room to fall from here."
Despite a $4-a-barrel drop in the price of benchmark West Texas Intermediate crude since it briefly topped $16 a barrel in September, the Toronto Stock Exchange's oil and gas sub-index has gained almost 20 percent in value.
The increase is largely due to the market's bullish outlook on natural gas, said Roberge.
Spot gas at Alberta's AECO storage hub traded at C$2.56 per gigajoule on Friday, up over 50 percent from the C$1.68 per GJ it was fetching on the same day in 1997.
But other observers say the worst is likely over for beleaguered oil and gas stocks.
"The typical western Canadian producer still sells more oil than gas, and so they're more leveraged to the price of oil," Gord Currie, analyst with Calgary-based brokerage Canaccord Capital Corporation said.
"I think the worst is behind us, but I don't see a dramatic recovery in the oil market either," he said.
A market turnaround will probably take most of next year, with oil prices not projected to recover significantly until 2000, Currie said.
Given the overall weakness of the oil and gas index, companies that are also posting poor results on the operating side may see organized shareholder revolts, much like the one facing Blue Range Resources Corp., said Richard Woodward, head of accounting firm Deloitte & Touche Inc.'s energy research department.
Last week, Big Bear Exploration Ltd. made a share-swap offer with the support of five major Blue Range shareholders dissatisfied with the target's performance.
Big Bear, led by well-known Canadian oilman Jeff Tonken, aims to essentially wrest control of Blue Range from its management.
"The institutional investors only have so much patience. And when you see that patience wearing out, they start looking for a white knight and a shift in management," Woodward said.
But companies faced with unhappy shareholders may look for a prospective buyer or possible merger before reaching that point, Currie said.
Merger and acquisition activity was on a record pace through the first half of 1998, totaling C$10.1 billion in value, according to Calgary-based Sayer Securities Ltd.
The oil and gas subindex of the Toronto Stock Exchange closed down 36.3 points or 0.67 percent to 5,388.72 on the day.
Oil was down US$0.01 to US$12.14. |
