MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, DECEMBER 8, 1997 (2)
OIL & GAS
The National Weather Service's long-range forecasts still call for warmer than usual temperatures in major heating regions. Natural gas futures plunged to three-month lows Monday, reflecting expectations the nation's major heating regions will enjoy above normal temperatures this winter.
Meanwhile, crude-oil and petroleum-product futures posted small gains amid the bearish stance of speculative interest, as evidenced by Friday's Commitments of Traders data from the Commodity Futures Trading Commission gave sellers pause Monday and allowed values to drift higher, a few analyst said.
January light sweet crude oil gained $0.13 to $18.84
"I think the real connection between the COT report and today's price action is that the market has been shown to have absorbed a tremendous amount of selling," said Tim Evans, an energy analyst with Pegasus Econometric Group. "So sellers have to be concerned that there's not much room left to fall in the short-term."
US FOREIGN CRUDE - CAO LINE DOWN
U.S. foreign crude talk centered on Colombian grades on Monday as the January market for Cusiana got into full swing, and pipeline exports of Cao Limn were halted by a rebel attack.
Three Cusiana cargoes were on offer, after the first cargo from the January program was sold by tender on Friday at February WTI minus 45 to 50 cents.
A Wall Street trader was offering a January 6-10 Cusiana at a 45 cent discount to WTI, while Colombian state oil company Ecopetrol was tendering to sell two further cargoes, loading January 13-17 and 15-19. The tender closes on Wednesday with results expected Thursday or Friday.
In the absence of sweet North Sea and West African grades because of a persistently narrow Brent/WTI arbitrage, sweet Latin American grades like Cusiana are expected to retain their recent strength in the U.S. Gulf.
Colombia's second largest oil pipeline, which carries crude from the Cao Limn field to the Coveas export terminal on the Caribbean, was shut on Monday after the 58th rebel bombing attack on the line this year.
The attack took place on Monday morning 460 kilometers (286 miles) from the field, shortly after repairs had been made to another section of the pipeline following another blast at the weekend.
Details were sketchy due to a public holiday in Colombia, but a spokesman for field operator Occidental Petroleum said he expected the pipeline to be back in operation in about two days.
"The area is not as inaccessible as some of the other mountainous areas," the spokesman said.
Traders said there was probably at least two days worth of storage at Coveas.
"Usually when this happens the worst that happens is that liftings are delayed. It's unlikely they will declare force majeur unless there is a prolonged outage," said one regular buyer of Cao.
The thinly talked sour market was enlivened by the announcement of a Uruguayan buy tender for one million barrels of crude for delivery between February 22 and March 3.
The tender issued by state refiner ANCAP closes on Wednesday. Traders said Venezuela's Mesa grade or Ecuador's Oriente were most likely to fit the bill.
NYMEX HUB NATURAL GAS MIXED
NYMEX Hub natgas futures ended mixed Monday in quiet trade, with front months still pressured by a soft physical market in the face of mostly seasonal weather forecasts this week, industry sources said.
January eased 3.1 cents to close at $2.422 per million British thermal units after sinking early to a new recent low of $2.36. February settled 0.6 cent lower at $2.393. Other months ended narrowly mixed.
"We broke the low again today, then kind of held, but it still doesn't look too bullish," said one East Coast trader, noting extended weather forecasts were not very supportive.
Forecasts this week call for mostly normal temperatures in the East, Midwest and Texas. Colder weather is expected later in the week in Texas and the mid-section of the U.S..
With the Christmas and New Year's Day holidays fast approaching, some expected volume to taper as prices drift mostly sideways amid little reason to move much in either direction. While there is little extreme cold on the horizon, traders noted January slumped 31 percent in the last five weeks and may just consolidate near-term.
Chart traders agreed the technical picture was bearish but said the market was oversold and may be due for a bounce.
Support in January was pegged at today's low of $2.36, with next support seen in the $2.25 area, which is the low for Jan this year. Resistance was seen first in the low-$2.60s, then at the $2.81 double top from last week and then at $2.84. Better selling was expected at $3.03, 3.11 and then at $3.21.
In the cash Monday, Gulf Coast gas was talked almost 15 cents lower in the mid-$2.20s. Midcon pipes were down about a dime to the mid-teens. Chicago city gate gas slipped more than 10cents to the low-$2.30s, while New York was down more than a nickel to the mid-$2.90s.
The NYMEX Henry Hub 12-month strip edged up 0.3 cent to $2.289. NYMEX said an estimated 39,458 Hub contracts traded, down slightly from Friday's revised tally of 41,692.
CANADA CRUDE DIVERSIONS NOT HURTING US CASH PRICES
Continuing crude exports off Canada's West Coast are not likely to have the bearish effects they had last month since most of the December exports are sweet barrels, currently much in demand, market sources said.
The presence of extra Canadian barrels in the U.S. foreign crude market is part of the Alberta government's so-called West Coast Initiative, an attempt to divert crude off the overnominated Interprovincial Pipe Line.
"There's less sour and a lot more of the sweet," said a source at Trans Mountain Pipe Line, which carries Canadian crude from Edmonton, the capital of Canada's oil-rich Alberta province, to the West Coast port city Vancouver.
The Alberta Government will continue its West Coast Initiative at least until January, and for as long as the Interprovincial Pipeline (IPL), the main artery that carries Canadian crude to the U.S. Midwest, remains overbooked, the Canadian source said.
While Canadian government officials refuse to say how much crude oil is being shipped into Vancouver, crude traders in the U.S. estimate that Alberta's program ships about 40,000 barrels per day (bpd) on top of the crude that usually heads west to Vancouver.
Capacity on the Trans Mountain pipeline is currently at at 200,000 bpd, pipeline officials said.
The crudes transported into Vancouver under the plan are all light, and include sweet grades such as Rainbow and Pembina, as well as Alberta Sour, the source said.
Up to two cargoes of Rainbow sweet are on offer into the U.S. Gulf this month, but U.S. cash traders said the sweet Canadian cargoes are not affecting December spot crude prices as much as last month because of current strong demand for sweet crudes.
"There's not too much sweet around," one cash trader said.
Alberta's on-again-off-again diversions of crude last began in November. The province sells about 141,000 bpd of its own "royalty oil""on the open market.
Four cargoes of Canadian crude were sold to U.S. Gulf Coast refineries in November, including two cargoes of Alberta Sour and two of Rainbow Sweet.
The sour cargoes pushed U.S. sour grade West Texas Intermediate at Midland down to levels not seen since spring.
In times of overnomination on the pipeline, IPL crude shippers exacerbate the problem by nominating higher volumes than they need in an attempt to get around the restrictions, and government officials said the West Coast Initiative is an attempt to avoid that vicious cycle.
"The purpose is to create uncertainty in order to allow IPL apportionment to work," a Canadian government official said on condition of anonymity.
He said that whenever the Alberta goverment ships unknown quantities of crude to Vancouver, overnomination becomes more risky as it becomes more difficult for shippers to guess how much crude is available at IPL's Edmonton origin.
That uncertainty boosts the likelihood of getting stuck with the IPL's penalties for overnomination, the theory goes.
Restrictions on nominated volumes of crude have been increasing since September in line with rising Canadian production and inventories.
December IPL apportionment on line 2 which carries light crudes was an extremely high 41 percent, meaning each shipper's nominations are cut back by 41 percent.
That was significantly higher the 24 percent level IPL set in November.
IPL is owned and operated by IPL Energy Inc .
HOT STOCKS
International Pipeline Energy Inc. (IPL/TSE), up $1.40 to $62.30, on volume of 351,669 shares. International Pipeline, the main artery that carries Canadian crude to the U.S. Midwest, is operating at capacity. To deal with the situation, the Alberta government is shipping about 40,000 barrels per day to Vancouver on top of the crude it usually ships west. Market analysts say the shipments west to Vancouver are not having the bearish effect that was anticipated because the shipments include sweet crude, which is much in demand lately.
Startech Energy Inc. (SEH/TSE), closed unchanged at $13.50 on light trading. The Calgary-based company is buying Laurasia Resources Ltd. of Toronto for stock and cash valued at $33.4 million. The purchase means Startech will increase its potential natural gas drilling sites in southeast Alberta and southern Saskatchewan. Startech will drill 175 wells in 1998.
Canadian Fracmaster Ltd. (CFC/TSE), up $1.05 to $20.50, on volume of 26,850 shares. Fracmaster said yesterday it has signed an agreement to buy from Energy Transfer Company the 50% of American Fracmaster it did not already own. The purchase price was not disclosed. American Fracmaster provides fracturing and acid stimulation services for oil and gas producers in Texas, New Mexico and Louisiana, and intends to expand its operations in the southern U.S. in 1998.
IPSCO Inc. (TSE/IPS) shares were unchanged and trading halted yesterday. The company announced today that its Board of Directors has approved a series of shareholder initiatives: - a three for two split of the Company's common shares; - a 56 percent increase in the annual dividend; and - the creation of a dividend reinvestment and share purchase plan for shareholders.
TOP 20 - SPEC 12 - SERV 7 NEWS
Barrington Petroleum Ltd. (BPL/TSE), unchanged at $4.70, on volume of 133,426 shares. Barrington yesterday announced a normal course issuer bid to purchase up to 400,000 of its outstanding common share purchase warrants, representing up to 10% of the four million warrants on the open market. Barrington said it is making the move because it believes that recent market prices of its common shares and warrants may not reflect their underlying value.
Petro-Canada today announced that its Board of Directors has approved a capital expenditure program for 1998 of approximately $1.13 billion. President and Chief Executive Officer Jim Stanford said, ''Our strong performance in 1997 gives us the financial flexibility to pursue our many exciting growth opportunities. Petro-Canada's capital investments in the coming year will result in significant progress towards our goal of becoming the pre-eminent Canadian integrated oil and gas company.''
Exploration and development expenditures in Western Canada will account for approximately one-third of the budget. Of the $375 million to be invested, about $125 million will be allocated to exploration and $250 million to the development of conventional oil and gas properties. The majority of these capital expenditures will focus on the growth of the Company's natural gas portfolio in Alberta and northeastern British Columbia. Petro-Canada expects to drill some 300 wells in Western Canada in 1998. The Company will also invest approximately $95 million in Syncrude which includes the initial investments that will lead to the doubling of Petro-Canada's share of daily oil production from the current level of 25 000 barrels to over 50 000 barrels by 2007.
Petro-Canada will invest about $300 million in the continued development and exploration of the Company's attractive assets offshore Newfoundland. The Company will spend approximately $250 million on the development of the Hibernia and Terra Nova fields, and will continue acquiring and processing seismic data and drilling on other Grand Banks fields. Capital investment relating to the Terra Nova development is conditional on final approval by regulatory authorities and sanction by project owners. A total of nine wells will be drilled at Hibernia in 1998 and 3D seismic will be shot on both the Riverhead Block and the recently-acquired oil and gas exploration parcels in the Jeanne d'Arc Basin.
Petro-Canada's vision for the Grand Banks is to bring a major new oil field on stream every two to three years. The Company's share of existing discoveries in the Jeanne d'Arc Basin is in excess of 350 million barrels of recoverable oil, which is equal to 22 per cent of all oil discovered in the region to date.
Approximately $280 million will be invested in the Downstream (refining and marketing), primarily to enhance the efficiency and profitability of the Company's three refineries and lubricants facility and to continue rolling out the Company's very successful new image retail sites. Downstream expenditures will include $25 million to expand the cat cracker and boost production at the Montreal Refinery.
The Company will also invest $35 million in business systems and process improvements.
Petro-Canada expects its actual capital expenditures in 1997 will also
total about $1.1 billion.
FIRST CANADA HIBERNIA WELL EXCEEDING EXPECTATIONS
Partners in Canada's C$5.8 billion Hibernia offshore oil project said on Monday the first producing well in the development was pumping at 40,000 barrels a day, a record-breaking volume that was exceeding earlier expectations.
The production rate was the highest ever recorded from a single well in Canada, the six company consortium said.
"We're pleasantly surprised," said John Percic, spokesman for Petro-Canada , which has a 20 percent interest in the development. "And indications are the second one will produce at a significant rate, so we're very pleased."
Future wells in the project, located in the North Atlantic, 315 km southeast of St. John's, Newfoundland, were expected to pump at an average rate of 20,000 barrels a day, the group said.
The second well was scheduled to be on stream within the next few weeks and four more wells, including two production and two gas and water injection wells, were slated to be drilled in the first half of 1998, Percic said.
Production from the development was expected to reach the concrete platform's capacity of 150,000 barrels a day in 1999, when the group may decide to make modifications to increase its ability to produce more oil.
Hibernia had previously been projected to produce 135,000 barrels a day at its peak, but partner Mobil Corp said recently that maximum output could be as high as 180,000.
Partners in Hibernia are Petro-Canada with 20 percent, Mobil unit Mobil Oil Canada Ltd with 33.125 percent, Chevron Corp unit Chevron Canada Resources Ltd with 26.875 percent, Murphy Oil Corp 's Murphy Atlantic Offshore Oil Co Ltd with 6.5 percent, the government of Canada's Canada Hibernia Holding Corp with 8.5 percent and Norsk Hydro A/S with five percent.
INDEXES
The Toronto Stock Exchange Composite 300 closed up 63.34 or 0.9% to 6787.71.
In comparison, the Oil & Gas Composite Index closed up 1.5% or 102.12 to 6935.84. Of the sub-components, the Integrated Oil's were up 1.5% or 322.14 to 9213.67. The Oil & Gas Producers gained 0.7% or 41.84 to 6105.55 and the Oil & Gas Services finished up 1.0% or 33.95 to 3406.39
MOST ACTIVE ISSUES
Rigel Energy, Petro-Canada, Renaissance Energy, Anderson Exploration, Orbit O & G, Northstar Energy, Black Sea Energy, Gulf Canada Resources, Beau Canada Exploration and Berkley Petroleum were among the top most 50 active issues on the TSE.
Red Sea Oil, Fox Energy, Oilexco, Stampede Oils, Oxbow Exploration, ICE Drilling and Trego Energy were among the top 30 most active issues on the ASE.
U.S. TRADING NOTES
Oil drilling and equipment stocks were higher again Monday, led by Smith International (SII), which rose 1 9/16 to 72 1/4. Diamond Offshore (DO) rose 1 3/16 to 54 1/8, Transocean Offshore (RIG) climbed 1 3/16 to 52 1/4, Cliffs Drilling (CDG) closed up 1 1/8 to 64 1/16, and Schlumberger (SLB) gained 1 to 87 1/2.
BARRON'S ARTICLE
Sunday December 7, 1997
Outlook Positive For Some Upstream Oil Companies
Despite subdued prospects for energy-demand growth, better days may be ahead for many of the oil and natural gas sector's exploration and production companies, Barron's reported, quoting Thomas Petrie, a principal in Petrie Parkman & Co.
Most interesting to Petrie and his firm are larger-cap independents with deep-water exposure in the Gulf of Mexico, the weekly paper said in its December 8 issue.
''We are increasingly convinced that the deep-water Gulf of Mexico is the most exciting new play in the U.S. in 20 years,'' he said. ''The drilling results of the majors there, over the last several years, indicate that it's a world-class geologic province.''
Petrie indicated that companies involved in that region include Ocean Energy Inc (NYSE:OEI), Vastar Resources Inc (NYSE:VRI), Union Pacific Resources Group Inc (NYSE:UPR) and Oryx Energy Co (NYSE:ORX).
Other energy companies recommended by Petrie include Basin Exploration Inc (Nasdaq:BSNX), Petsec Energy Ltd (PSA.AX) and Plains Resources Inc (AMEX:PLX), the paper said.
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