MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY DECEMBER 12, 1997 (4)
FEATURE STORIES
Second Hibernia Well Loaded With Gas
Hibernia's second well contains more gas, and therefore less oil, than previously thought, officials with the massive offshore project said Friday.
The discovery will change the way the well is developed and could alter the consortium's plans for the next few wells, said Ivar Ramberg, president of Norsk Hydro Canada, a five per cent shareholder in the project.
"The second well was drilled in an area where half of the compartment is filled with gas, which means you have clearly reduced the oil in that compartment," Ramberg said from Calgary.
"But reductions to the overall reserve estimates probably amount to less than one per cent."
Oil from the second well will still flow at about 20,000 barrels per day - at least for a while.
David Slater, Hibernia's reservoir team leader, said they suspected there might be gas in the area, which is why they drilled it right away.
"From a reservoir management strategy, you need to know sooner where you have gas, where you have water and where you have oil," Slater said.
The production team will perforate, or open, only the bottom third of the well, starting this weekend, Slater said.
The question reservoir geologists are asking is: will other compartments prove to be like well No. 1, which flows better than anticipated, or like the gassy second well?
The Hibernia reservoir is criss-crossed with many faults, making predictions about the concentrations of gas and oil more difficult.
"This is just one block," said Salter. "We're talking about the first two wells out of a potential 80 wells."
Hibernia's first well exceeded its backers conservative expectations, producing 40,000 to 45,000 barrels of high-quality crude oil per day when 20,000 or 24,000 are considered a success.
Mobil Oil had already upped its daily peak production predictions from150,000 barrels per day to 180,000 and upgraded its recoverable reserve estimate from 615 million barrels to 750 million. As the oil gushed, Premier Brian Tobin talked of a billion barrels.
"You have to be prepared for surprises," Ramberg said. "It's impossible to map the underground and know every detail. It has never happened before.
"You have to have an organization ready to take new information into account and process it and handle it."
Ramberg said Hibernia will now look at the possibility of drilling two gas-injection wells early next year instead of one gas injector and one water injector as planned.
Located 315 kilometres from St. Johns, Hibernia doesn't have a market for its gas and has always planned to inject most of it back into the reservoir.
MARKET ACTIVITY
The Toronto Stock Exchange 300 was basically flat for Friday, losing 0.00% or 3.04 to 6641.89.
In comparison, the Oil & Gas Composite Index fell 0.7% or 45.43 to 6584.82. Of the sub-components, the Integrated Oil's lost 0.1% or 7.28 to 8878.35. The Oil & Gas Producers fell 0.9% or 50.40 to 5798.65 and ther Oil & Gas Services fell 1.3% or 41.07 to 3067.13.
Index Charts
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MOST ACTIVE
Poco Petroleums, Gulfstream Resources, Abacan Resources, Anderson Exploration, Archer Resources, Rio Alto Exploration, Petro-Canada, Hurricane Hydrocarbons, Renaissance Energy and Northstar Energy were among the top 50 most active traded issues on the TSE.
Tri Link Resources gained $1.50 to $24.00, Imperial Oil $1.45 to $88.00, PanCanadian Petroleum $0.75 to $24.00 and Suncor Energy $0.60 to $48.00.
Percentagre gainers included Seventh Energy A 24.4% to $1.12, TUSK Energy 11.1% to $1.00, Symmetry Resources 9.5% to $1.15, Newquest Energy 9.1% to $6.00, Vermilion Resources 6.9% to $7.00, Tri Link Resources 6.7% to $24.00 and Founders Energy 6.6% to $1.30.
On the downside, Canadian Natural Resources fell $0.95 to $31.05, Crestar Energy $0.85 to $21.40, Ulster Petroleum $0.85 to $12.00, Pacalta Resources $0.75 to $15.75 and Berkley Petroleum $0.70 to $14.00.
Percentage losers included Bellator Exploration 14.3% to $2.10, Cypress Energy 11.8% to $3.75, Richland Petroleum A 11.1% to $4.00, Comstate Resources 10.9% to $2.45, Zargon Oil & Gas 8.7% to $3.15, Ulster Petroleum 6.6% to $12.00, Purcell Energy 6.3% to $1.34, OGY Petroleum 6.3% to $1.50 and Phoenix Canada Oil 6.3% to $1.50.
Orbit Oil & Gas reached a new 52-week high.
Abacan Resources, Baytex Energy, Centurion Energy, Northstar Energy, Pan Atlas Energy, Pinnacle Resources, Profco Resources, Tarragon Oil & Gas and Tri-Ex Oil & Gas reached new 52-week lows.
Regarding oil and gas service companies, as well as those companies with close ties to the industry, none were listed among the 50 most active traded issues on the TSE.
Enerflex Systems gained $1.60 and Shaw Industries $1.00 to $49.00.
There were no percentage gainers among the top 50.
On the downside, Ensign Resource Services fell $1.75 to $35.25, IPSCO $1.00 to $57.50, Enertec Resource Services $0.80 to $14.20 and Computalog $0.75 to $24.50.
Percentage losers included Badger Daylight 6.8% to $5.50 and Bonus Resource Services 6.0% to $5.50.
No new 52-week highs or lows were met by companies in this sector.
Over on the ASE, Red Sea Oil, NTI Resources, Colony Energy, Green Maple Energy, Nevarro Energy, Enterprise Development, Mart Resources, Stellarton Energy A, Scimitar Hydrocarbons, Oxbow Exploration and Oilexco were among the top 30 most active traded issues.
Pason Systems gained $0.75 to $7.00, Red Sea Oil $0.22 to $3.12, Sunburst Oil & Gas $0.20 to $1.20, BriAlto Energy A $0.15 to $1.25, Bromley Marr $0.10 to $1.25, Endless Energy $0.10 to $0.80, Petro Reef Resources $0.10 to $0.60, Meota Resources A $0.09 to $1.09, Bolt Energy $0.08 to $0.68 and Venator Petroleum $0.07 to $1.82.
Percentage gainers included Rockport Energy 25.0% to $0.25, Petro Reef Resources 20.0% to $0.60, Sunburst Oil & Gas 20.0% to $1.20, Cubacan Exploration 14.6% to $0.47, Endless Energy 14.3% to $0.80, BriAlto Energy A 13.6% to $1.25 and Bolt Energy 13.3% to $0.68.
On the downside, Hyduke Capital Resources fell $0.25 to $3.25, Colt Energy $0.18 to $0.41, CanBaikal Resources $0.14 to $1.62, Sunfire Energy A $0.14 to $0.76, Alma Oil & Gas $0.13 to $0.57, Deena Energy $0.10 to $1.15, Nikp Resources $0.10 to $5.00, Real Resources $0.10 to $0.96, Scimitar Hydrocarbons $0.10 to $0.60 and Wolverene Energy $0.10 to $1.10.
Percentage losers included Moiibus Resources 18.6% to $0.35, Alma Oil & Gas 18.6% to $0.57, Blue Power Energy 18.0% to $0.41, Sunfire Energy A 15.6% to $0.76, Mart Resources 14.3% to $0.30 and Scimitar Hydrocarbons 14.3% to $0.60.
No companies reached new 52-week highs.
Bison Resources A, Epic Energy, Green Maple Energy, Ironwood Petroleum, Kroes Energy and WWB Oil & Gas reached new 52-week lows.
HOT STOCKS
Gulfstream Resources Canada Ltd. (GUR/TSE), up 5› to $6.60, on volume of 1.6 million shares. Trading in Gulfstream shares on the Toronto Stock Exchange was halted Thursday when they plummeted, losing almost one-third of their value. The Calgary based oil and gas producer said Friday it is unaware of any news that may be behind the decline.
However, it said the drop may stem from negative comments made by an
official regarding its property in Qatar. The company said it does not agree with the statements, which were made to a group of analysts, and believes that its Al-Rayyan oilfield has strong production potential. (See company news article later in text)
FEATURE STORIES
Oil Industry Sets Record For Land Bids
A hyperactive oil sector paid the Alberta government a record $1.15 billion for Crown land in 1997, up from $768.7 million last year, and topping the previous record of $1 billion in 1980.
The province held the last Crown land auction for the year this week, collecting $100.7 million for oil, natural gas and oilsands rights.
Alberta auctioned 5.15 million hectares this year, up from 4.68 million last year, at an average price of $224 a hectare.
Saskatchewan also held its final auction this week.
It collected $10.29 million, increasing its 1997 take for Crown land sales to close to $400 million.
Heated competition for the rights pushed up prices for Alberta's hottest plays to much higher levels, industry analysts said.
"It's extremely competitive," said Larry Jones, vice-president of land and corporate development at Penn West Petroleum Ltd.
"You have got a lot of capital chasing too few plays, and that results in people having to overpay for land."
High land prices are one reason the industry finds its costs are pushing $9 a barrel, or more -- a trend that's expected to force some producers to reduce capital spending next year. That, in turn, will likely hold back land prices in 1998, said Martin Molyneaux, managing director of research at FirstEnergy Capital Corp. in Calgary.
Natural gas acreage will likely continue to rise in price.
KERM'S TOP 20 - SPEC 12 - SERV 7 COMPANY NEWS
GULFSTREAM RESOURCES CANADA LIMITED (GUR/TSE) At the request of The Toronto Stock Exchange, Gulfstream Resources Canada Limited wishes to state that it is unaware of any substantive developments that underlie the share price decline. On Thursday, shares closed down $3.25 to $6.55, on volume of 123,620 shares. The Toronto Stock Exchange halted trading of Gulfstream shares after they lost almost one-third of their value.
Gulfstream understands that during an on-site visit in Qatar by securities analysts, an ARCO representative working in Qatar made statements that raised concerns regarding future production and potential reserves from the Al-Rayyan field. Gulfstream does not agree with the views expressed by ARCO's representative as reported to Gulfstream by persons present during the statements.
Gulfstream firmly believes production and cash flow will continue to increase from Gulfstream's Qatar oil interests. Gulfstream also believes substantial additional reserves will be proven in the Consortium's Qatar concessions.
The Qatar Consortium is advancing oil development at Al-Rayyan, is positioning for an oil exploration program next year, and continues to pursue a natural gas contract to support a large scale gas/liquids development.
A three-well appraisal program at Al-Rayyan has now been completed, to better define the boundaries of the field. While the results of the appraisal drilling are still being evaluated, all wells have encountered oil. Proven reserves at Al-Rayyan were recently verified by independent engineers. These results will be incorporated in future
development plans.
The Qatar Consortium remains committed to a larger scale development for the Al-Rayyan field and is finalizing its development strategy. A final plan will be submitted to the Qatar Government for approval by the end of January,1998.
Progress remains encouraging in the Company's other areas of interest. A seismic program has recently been completed in Madagascar with a view to begin a new drilling program in the summer of next year. Gulfstream is also preparing for a seismic and drilling program in Oman to begin in early 1998.
Following is a statement released by the Company on December 2nd following early production from new wells at Al-Rayyan.
Gulfstream Expands Production in Qatar - December 2, 1997
Gulfstream Resources Canada Limited - GUR, Toronto - announced today that two additional wells have been tied-in to existing production facilities in the Al-Rayyan field offshore Qatar. The two horizontal wells have been completed into separate intervals of the Arab formation, and have produced up to 18 thousand barrels per day of oil. Six wells are now producing from the field, including one well that is currently being reworked.
The Al-Rayyan field was brought into production by the ARCO Qatar Consortium in November, 1996. The Consortium consists of ARCO (Operator, 27.5%), Gulfstream Resources (27.5%), British Gas (25%), Wintershall (15%) and Preussag Energie (5%). These wells are the third and fourth wells of a four-well program announced earlier this year. The first two wells were vertical appraisal wells at peripheral locations in the field. A third appraisal well has since been added to the program and drilling is currently underway.
The development strategy at Al-Rayyan has been to minimize technical risk and optimize field development, based on an initial four-well development, appraisal drilling and updated seismic. These initiatives are to support a full-field Plan of Development, to be submitted to the Government of the State of Qatar by the end of January, 1998.
CANADIAN 88 ENERGY of Calgary, Alberta announced that its preliminary capital budget for 1998 has been set at a record level of Cdn. $130 million. "Expenditures will be focused on developing the Company's liquids-rich natural gas plays in the Caroline/Chedderville, Olds/Crossfield and Waterton areas of the Alberta foothills of Western Canada," Company President Greg Noval said in Calgary today.
The Company said it will spend approximately $38 million to complete the drilling and development of its large natural gas project at Waterton in the foothills of southwest Alberta where it expects to tie-in approximately 70 mmcf/d of natural gas production in the new year. In addition, the Company will spend approximately $35 million in the Olds/Crossfield area to add approximately 50 mmcf/d of processing capacity and related production from its extensive holdings in the area. Furthermore, the Company will spenda minimum of $35 million to develop and tie-in significant new reserves and production related to new major discoveries in the Caroline/Chedderville area of West Central Alberta. The balance of Canadian 88's expenditure will relate to drilling, land and seismic in these and other core areas.
"Premium natural gas contracts will assist the Company in developing its reserves," Company President Greg Noval said. "Canadian 88 took the opportunity earlier this year to lock-in high natural gas prices, Noval said, including contracting 50 mmcf/d for 1 year commencing November 1, 1997 at $1.90/mcf net at the wellhead." In addition the Company has just reported record low finding and development costs of Cdn. $5.85/B.O.E. of proven reserves for the 9 month period ending September 30, 1997 and expects these costs to be even lower for the full year ending 1997 given its extremely successful fall 1997 drilling program. In a recent study by Peters & Co., a leading Canadian energy investment firm, Canadian 88 ranked #1 in the industry in Canada in terms of record low 3 and 5 year average proven finding and development costs.
MASTER DOWNHOLE DRILLING (ASE/TSE) has been approved as a supplier by the engineering department of a large foreign oil company. The Company will be negotiating the payment terms of an $8,000,000 contract in January 1998. It is expected that production on the contract will begin in late January 1998, with the majority of the contract delivered prior to the May 31, 1998 year end.
KERM'S WATCHLIST COMPANIES
NEUTRINO RESOURCES INC. (NTO/TSE) announced the signing of a letter
agreement under which Neutrino would exchange a 27% working interest in its non-operated Handsworth field in Saskatchewan for an increased working interest in its operated Inverness property at Swan Hills, Alberta.
David Beckwermert, Executive Vice-President of Neutrino, reported the agreement, signed with a senior energy producer in Calgary, would provide Neutrino an additional 22% interest in its existing operated property at Inverness, bringing Neutrino's total working interest to approximately 95%. He indicated the letter agreement is scheduled to close on December 22, 1997, with an effective date of November 1, 1997. Beckwermert said ''We are pleased we were able to increase our working interest in a core area which is demonstrating considerable potential for Neutrino. Although the non-operated Handsworth field has been an important project for us in the past, we believe this swap provides us with an opportunity to increase our working interest in Inverness, a core operated property.''
Neutrino is currently beginning an aggressive winter drilling program which includes a minimum of 6 development wells and 5 exploratory wells. Current daily production rates are approximately 3,200 barrels of oil equivalent (BOE) and year-end projections call for 3,500 BOE per day.
CANADIAN FRACMASTER LTD. announces that the Toronto Stock Exchange has accepted a notice filed by the Corporation of its intention to make a normal course issuer bid. The notice provides that as of December 5, 1997, the Corporation has 42,955,457 common shares issued and outstanding and that the Corporation may, during the twelve month period commencing December 16, 1997 and ending December 15, 1998, purchase on the Toronto Stock Exchange up to 2,147,000 common shares of the Corporation, being approximately 5% of the currently outstanding common shares. Canadian Fracmaster Ltd. is an international oil and gas service and production company listed on the Toronto, Montreal and Alberta Stock Exchanges and trades under the symbol ''CFC''. On Friday, shares closed down $0.55 at $20.20.
ENERTEC RESOURCE SERVICES INC. reported earnings for year ending September 30, 1997. Gross revenue for 1997 totaled $111.5 million, compared to $76.2 million in 1996, an increase of 46%. Net revenue increased by 50% to $70.7 million from $47.0 million. Operating margin is $23.1 million in 1997, 89% higher than the $12.2 million last year; as a percentage of net revenue, the operating margin grew to 32.6%, up from 25.9% in 1996.
Earnings before interest, tax, depreciation and amortization (EBITDA) is $17.8 million, or 25% of net revenue, compared to $8.8 million, or 19% in 1996. Net earnings for 1997 are $6.6 million ($0.99 per share, basic) compared to $1.0 million in 1996 ($0.16 per share, basic). For the fourth quarter of 1997, basic earnings per share are $0.15, compared to a loss of $0.01 for 1996.
Cash flow for 1997 is $16.3 million ($2.43 per share, basic) compared to $6.9 million ($1.11 per share, basic) for 1996. For the fourth quarter of1997, basic cash flow per share is $0.51, compared to $0.08 for 1996.
At September 30, 1997, working capital is $9.0 million compared to $0.4 million a year ago. Long term debt is $0.1 million compared to $5.0 million a year ago.
A brief commentary on the outlook for fiscal 1998 is that ENERTEC anticipates continued growth in each of its three core businesses. ENPROTEC, our oil and gas production enhancement joint venture has taken longer than expected to engender interest from oil and gas producers. However, this interest is now growing quite rapidly. ENPROTEC is optimistic that by the early part of calendar 1998, it will have secured one or more properties suitable for the application of its services. ENPROTEC shares in any production enhancement from such properties.
The company's annual report will be mailed February 28, 1997. For more detailed data and tables, see posting at the Korner.
RESEARCH/ANALYSTS
Gordon Market Opening Notes, December 12, 1997
Amber Energy Inc.(AMB-T:$19.80) STRONG BUY
At Wednesday's Alberta land sale, Amber acquired an additional 102 sections of land at Pelican Lake for $17 million. Of this purchase, 30 sections are believed to be highly prospective. This brings Amber's total land holdings at Pelican Lake to 313 sections. Production at Pelican Lake is currently at 10,000 bbls/d and is expected to reach between 13,000 bbls/d and 14,000 bbls/d by December 31, 1997. Amber is achieving expected or better than expected initial production rates from the 2,200 meter 'long-reach' horizontal wells being drilled at Pelican Lake. Production from one of these wells is exceeding 420 bbls/d, well ahead of the 300 -350 bbls/d that had been anticipated. In spite of mild weather, Amber's winter drilling program at Pelican Lake is advancing smoothly. At the current pace, the 100 well winter drilling program could be completed by the third week of February. As such, this program could be expanded by an additional 20 wells.
Amber also acquired additional Crown land at Springburn yesterday for $2 million. We are forecasting fully diluted CFPS of $1.15 this year and $2.95 in 1998. Amber Energy is one of our Top BUY recommendations amongst the intermediates. Our 12-month stock price target is $30.00.
Gordon Market Opening Notes December 11, 1997
Talisman Energy (TLM-T: $45.80) STRONG BUY
Major Discovery In Algeria[PARA]Talisman has a 35% interest in an exploration well (MLN-4) in Algeria which has flow tested an aggregate of 22,700 bbls/d of oil and 58 mmcf/d of gas. The well, a delineation well located 2.7 kilometers south of the MLN-1 discovery well, is located on Block 405. The well tested both oil and gas from three separate zones, the TAG B, TAG C (both Triassic), and Palaeozic. No formation water was evident. Burlington Resources owns the other 65% interest in the play. In our opinion, the stock market is not assigning any value for Algeria to Talisman's stock price. We have a STRONG BUY on Talisman with a 12-month stock price target of $60.00.
Calgary based energy analyst Frank McEachern released his 10th annual "Christmas Stocking Selections" list late this week. McEachern -- whose year-end picks have yielded an average annual return of about 36 per cent -- gives the thumbs-up to BARRINGTON PETROLEUM, PURSUIT RESOURCES and BLUE RANGE RESOURCES among others.
Guardian Group's Buy & Sell
Energy Stocks Seen As Safer Bet - By Sonita Horvitch/The Financial Post
John Priestman, manager of Guardian Group of Funds Ltd.'s Growth Equity Fund, is looking for the Toronto Stock Exchange 300 composite index to advance in 1998 but cautions that the market could pause before moving higher.
"The most important factor contributing to our constructive outlook is the impact of slower offshore growth on North American interest rates," he said.
The money manager expects the Canadian equity market to consolidate during the first half of 1998 with a plus or minus 300-point move from the 6800 level. Priestman notes that once investors are confident the worst is over in Asia, the North
American equity market leadership will move from interest-sensitive stocks to the cyclical, resource and smaller-cap stocks. This is necessary, he said, for the TSE 300 to increase to 8000 from 7000. "The appeal of resource stocks is that they are historically cheap."
The money manager is concentrating on the Canadian energy sector with an emphasis on gas.
The sector is less sensitive to events in Asia. Energy stocks are trading at below five times estimated 1998 cash flow, which is cheap by historical standards and will not last. Also, the gas-producing companies should benefit from planned additions to export pipeline capacity from Canada to the U.S., which would see gas prices rise.
Priestman's three top gas pics are:
RIO ALTO EXPLORATION LTD. (RAX/TSE), which closed recently at $11.20 and has a 52-week trading range of $15.50 to $8.20. The Calgary-based energy company is highly leveraged to gas prices. Cash flow per share for the first nine months of this year was $1.46, compared with 98› for the same period a year ago.
POCO PETROLEUMS LTD. (POC/TSE) $11.70 ($15.50-$10.80). The Calgary-based company is a senior energy producer in the Western Canadian sedimentary basin. Since 1992, Poco has increased production dramatically by focusing on operations in the western part of the region. It has also made three acquisitions that have enhanced its dominance in the area.
TARRAGON OIL & GAS LTD. (TN/TSE) $12.10 ($17.65-$11.75). The Calgary-based energy company generates light oil, heavy oil and natural gas prospects from its holdings. It is also buying producing properties and making corporate acquisitions. New oil production from its heavy oil plant at Bolney, Sask., should add substantially to output.
MISC. INFORMATION
NEVARRO ENERGY INC. (ASE/NEE) has completed its initial public offering of 2,000,000 common shares per share for gross proceeds of $200,000 on November 25,1997. Roche Securities Limited acted as agent on the offering. The common shares of Nevarro Energy Inc. are scheduled to begin trading Friday, December 12, 1997 on The Alberta Stock Exchange under the symbol "NEE". Nevarro Energy Inc. is an Alberta junior capital pool corporation. Shares opened at $0.25 and traded as high as $0.40 before closing at $0.30 on 160,000 shares.
CHERRYHILL RESOURCES (CHH/ASE) announced the successful closing of its
public offering for 1,000,000 common shares at a price of $0.20 per share for an aggregate consideration of $200,000. The net proceeds of this offering, together with $300,000 of original capital, will be used to identify and evaluate the acquisition of or participation in oil and gas interests or businesses and/or other energy related assets. Cherryhill's shares will be listed for trading on The Alberta Stock Exchange on December 16, 1997 under the symbol ''CHH''.
QR CANADA CAPITAL INC. (ASE - "QRI") a junior capital pool corporation listed on The Alberta Stock Exchange, announces that it has executed a letter of intent to acquire oil and gas properties in the Province of Alberta with a value in the range of $500,000 to $1,000,000. The acquisition, which will be funded by way of private placement, is intended to be the Corporation's "Major Transaction" under ASE Circular No. 7. The transaction and the related private placement are subject to regulatory and shareholder approval and completion of satisfactory due diligence.
The Corporation proposes to issue up to 2,500,000 units ("Units") of QR at $0.40 per Unit on a private placement basis. The proceeds of the private placement will be used to purchase the oil and gas properties in question. Each Unit would be comprised of one common share of QR and one common share purchase warrant, each warrant exercisable at $0.50 per warrant into one common share of the Corporation for 18 months following the approval of the Major Transaction by the shareholders of the Corporation. The exact number of Units issued may vary depending upon the results of an independent engineering evaluation to be performed on the oil and natural gas properties to be acquired. Information with respect to the specific properties to be acquired, the results of the independent engineering evaluation on the properties and the exact number of Units to be issued will be contained in a separate press release to be issued in January, 1998.
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