MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 2, 1998 (7)
FEATURE STORY
Oil Company (Alberta Energy) May Have Stumbled Upon Diamond Field
In its never-ending search for oil and natural gas, Alberta Energy Co., may have stumbled upon a diamond in the rough in its own backyard.
Nobody is calling Alberta Energy's president Diamond Gwyn Morgan just yet, but that may change if an unlikely foray into the diamond exploration business pans out.
One of Calgary's largest oil companies, Alberta Energy was looking for the black gold in the Buffalo Hills area, near Lesser Slave Lake in northern Alberta, when it discovered geological anomalies which one astute staff member realized might contain the most precious of gems.
"It's something we're watching wide-eyed with interest," Morgan says. "It could be a major new diamond area."
Alberta is actually on the verge of becoming one of the world's hottest new diamond plays, says California mining analyst John Kaiser.
Canada's first diamond mine is due to start production in the Northwest Territories in October and others are expected to follow.
The Alberta Geological Survey completed a three-year study of the province in 1996 and was bullish on the prospects for commercial diamond deposits.
While the idea of diamond mines sprouting in the midst of Canada's oilpatch may seem unlikely, it doesn't shock Kaiser.
"Hey, carbon is carbon is carbon," he says, only half-laughing at the basic chemical similarities between diamonds (crystallized carbon) and oil and natural gas (hydrocarbons).
Morgan is a reluctant to talk about Alberta Energy's diamond foray and says his company's core business will always be oil and gas.
But that hasn't stopped the company from securing mineral rights to 28.3 million acres in north-central Alberta in a partnership with Pure Gold Minerals Inc., and Ashton Mining of Canada Inc.
Ashton, a Vancouver-based company, is conducting the exploration. It has identified hundreds of kimberlite pipes - a cocoon of sorts where diamonds develop - which may hold the key to a new industry for Alberta.
One round of drilling took place last summer and was encouraging enough that a new round begins this month.
"What they've got so far is not going to be the best they will find," Kaiser predicts. "They only drilled the easiest targets."
The companies have committed about $350,000 to the project. "Our investment is extremely small compared with a very high potential upside," says Morgan, who acknowledges AEC is "trying to be very circumspect" about the project.
Any commercial mining operation, if one proves viable, is still years away.
WEEKLY ENERGY REPORT
Crude Oil
The crude oil complex collapsed Friday in slow holiday trade. The sell-off was initiated by fund selling and continued on reports that the Asian crisis could have a dampening effect on the demand for crude in 1998. Aiding to the weakness are the renewal of Iraqi oil sales, possibly in greater volumes than originally anticipated, more Saudi led OPEC production and disappointing heating oil demand in the U.S..
The technical picture remains bearish with the weekly charts still pointing to lower prices and the daily charts now also indicating potentially lower prices, and there are not too many bullish fundamental items at this point. Producers can however, now take advantage of the contango in the market by entering into curve locks.
Natural Gas
Going into expiry of the January contract, natural gas prices have been volatile, but with no major direction. Prices remain in our target range (maybe a little above it) at this point, and could come under a little more pressure before moving higher. Technicals point to stable prices in the near term, but lower prices than the futures are indicating, in the medium term.
Prices at Aeco have softened almost to our expected lows. We may see another 4-5 cent softening in the coming weeks, but that should be the near term bottom. Weather patterns and NYMEX movements will dictate the direction of the Alberta markets for now.
MONTHLY OIL & GAS REPORT
Crude Oil
Crude oil prices continued their bearish pace throughout December. WTI appeared to take a breather from its plunge just above the $18.00 level broke through at the end of the year to $17.30. Edmonton prices followed suit, leveling off at $25.00 for several days before falling at month end. See the Weekly Energy Merket Outlook for short term analysis of this activity.
Throughout 1997, crude prices fared well, averaging $20.62 and $27.82 at WTI and Edmonton respectively. Except for 1996, these kind of prices have not been seen since 1991. High prices have induced strong company growth with high drilling rates, large (and expensive) land aquisitions, and strong E & D spending. If strong prices do not continue, we should expect a change in the activity of the market.
The outlook for 1998 does not appear as rosy as for 1997. Several factors are contributing to market skepticism. OPEC raised its production quota in November counting on strong worldwide demand growth. Unfortunately, the recent Asian currency crisis is reducing the previously optimistic world growth rate forecasts. The IMF has reduces its worldwide output growth rate from 4.3 to 3.5% since October.
Natural Gas
Natural Gas prices continued to decline throughout December with Henry Hub dropping steadily from $2.76 to $2.23 US.MMBtu and Alberta Spot dropping sporadically from a high of $1.41 on Dec 3 to a low of $1.16 on Dec 26. Compared to the rest of the year, December prices have fared well, with December's average six cents off the yearly average of $2.47. Alberta Spot prices have shown a great deal of volatility throughout 1996, with prices varying more than 200% above and below the average. AECO-C spot prices ranged from $3.75 to $0.59 Cdn/GJ in 1996.
The Earth Summit took place in Kyoto without much short term impact on energy prices. It appears that the market is in a "wait and see" mode. Governments have several years before they will have to take a strong stance on the issue of emissions reductions.
US gas production in November was marginally ahead of the same period last year at 51.4 Bcf/d. 1997 US gas production has remained flat compared to 1996 production, with deliverability constant and rig activity increasing, implying production decline. Delays in the Gulf of Mexico may or may not compensate for the production decline situation. .
INDEXES - MARKET ACTIVITY
On Friday, the Toronto 300 Composite Index gained 0.2% or 11.94 to 6711.38.
In comparison, the Oil & Gas Composite Index fell 0.7% or 44.20 to 6626.09. Of the Sub-components, the Integrated Oils continued to lose ground, falling 1,6% or 45.96 to 8887.19. The Oil & Gas Producers fell 0.2% or 13.22 to 5855.47. Oil and Gas Services fell 0.9% or 26.56 to 3056.65.
For the week, the Toronto 300 Composite Index gained 2.6% or 171.88.
In comparison, the Oil & Gas Composite Index gained 1.3% or 82.85. The sub-group components finished mixed for the week. Integrated Oils, usually the strength of the group, fell 2.2% or 201.91. Oil & Gas Producers gained 2.4% or 138.81 and the Oil & Gas Services gained 4.6% or 134.58 points.
INDEX NOTICE
PARAMOUNT RESOURCES LTD. is being added to the Toronto 200 & 300 Composite Indexes before the open on Friday, January 16,1998. Also, Paramount will be part of the Oil & Gas Composite Index, as well as the sub-group Oil & Gas Producers.
INDEX CHARTS
TSE 300.............. chart.canada-stockwatch.com
O&G Composite. chart.canada-stockwatch.com
Integrated Oil's.... chart.canada-stockwatch.com
O&G Producers.. chart.canada-stockwatch.com
O&G Services..... chart.canada-stockwatch.com
MOST ACTIVE STOCKS
Orbit Oil & Gas, Pettro-Canada, Abacan Resources, Hurricane Hydrocarbons, Rio Alto Exploration, Petrobank, Shell Canada, Black Sea Energy and Chauvco Resources Int'l were among the top 50 most active traded issues on the TSE.
Pendaires Petroleum gained $1.25 to $12.50, Petrobank $1.20 to $3.35, Remington Energy $1.20 to $25.20, Hurricane Hydrocarbons $0.90 to $12.00 and Northrock Resources $0.50 to $22.75.
Percentage gainers included Petrobank 55.8% to $3.35, Mercantile Int'l Petroleum 33.9% to $0.75, Abacan Resources $17.3% to $2.64, Westfort Energy 14.0% to $1.14, Chauvco Resources Int'l 12.5% to $1.35, Pendaires Petroleum 11.1% to $12.50, Cavell Energy 8.3% to $1.30, Hurricane Hydrocarbons 8.1% to $12.00, Symmetry Resources 8.1% to $1.34 and Compton Petroleum 5.6% to $1.69.
On the downside, Imperial Oil fell $1.50 to $90.50, Paramount Resources $1.00 to $16.00, PanCanadian Petroleum $0.90 to $22.10, Shell Canada $0.75 to $24.95, Petro-Canada $0.70 to $25.30, Elk Point Resources $0.65 to $6.80, Canadian Occidental Petroleum $0.55 to $31.80 and Northstar Energy $0.45 to $9.60.
Percentage losers included Elk Point Resources 8.7% to $6.80, Purcell Energy 7.7% to $1.20, Black Sea Energy 7.4% to $1.75, Paramount Resources 5.9% to $16.00, Bow Valley Energy 5.0% to $1.52, Northstar Energy 4.5% to $9.60, Windsor Energy 4.2% to $5.70 and PanCanadian Petroleum 3.9% to $22.10.
Chauvco Resources Int'l and Petrobank reached new 52-week highs. There were no new 52-week lows.
Oil & gas service companies, as well as those with close ties to the industry, did not appear among the top 50 most active traded issues on the TSE.
Plains Energy Services gained $0.55 to $11.50, Canadian Fracmaster $0.50 to $21.50 and IPSCO $0.50 to $56.00.
Percentage gainers included Computer Modeling 8.7% to $1.25 and Petro Well Energy 7.7% to $1.40.
On the downside, Precision Drilling dropped $1.30 to $33.55, NQL Drilling $1.15 to $11.10 and Enertec Resource Services $0.75 to $13.25.
Percentage losers included NQL Drilling 9.4% to $11.10, Enertec Resource Services 5.4% to $13.25, Enerchem Int'l 5.0% to $1.90, Precision Drilling 3.7% to $33.55 and Badger Daylighting 3.3% to $5.80.
There were no new 52-week highs. Anadime reached a new 52-week low.
Over on the Alberta Exchange, Bearcat Exploration, Red Sea Oil, Tappit Resources, Cubacan Resources, Enterprise Developement, Crispin Energy, Parkcrest Exploration and Burner Exploration were among the top 30 most active traded issues.
Red Sea Oil gained $0.28 to $3.18, Jerez Energy $0.19 to $0.75, Belfast Petroleum $0.10 to $3.10, Colt Energy $0.10 to $1.40, Global Link Int'l $0.10 to $1.45 and Request Seismic $0.10 to $1.35.
Percentage gainers included Jerez Energy 33.9% to $0.75, OTATCO 14.3% to 0.40 and Sawtooth Int'l 14.3% to $0.40.
On the downside, Colony Energy fell $0.30 to $2.00, Pason Systems $0.25 to $6.25, Burner Exploration $0.10 to $0.75, Capco Resources $0.10 to $3.00, Clayoqout Resources $0.10 to $1.20, Real Resources $0.10 to $0.90, NTI Resources $0.08 to $0.46, Brittany Energy $0.07 to $0.53, Del Roca Energy $0.06 to $0.22, Plexus Energy $0.06 to $0.85, Invader Exploration $0.05 to $1.10, Scarlet Exploration $0.05 to $1.10 and Telford Resources $0.05 to $0.95.
Percentage losers included Del Roca Energy 21.4% to $0.22, NTI Resources 14.8% to $0.46, Colony Energy 13.0% to $2.00, Burner Exploration 11.8% to $0.75, Brittany Energy 11.7% to $0.53, Enterprise Developement 10.4% to $0.30, Real Resources 10.0% to $0.90, Gold Star Energy 8.5% to $0.43, Clayoquot Resources 7.7% to $1.20 and Plexus Energy 6.6% to $0.85.
There were no new 52-week highs. Capco Resources reached a new 52-week low.
KERM'S TOP 21 - SPEC 15 - SERV 9 - COMPANIES IN THE NEWS
KERM'S WATCHLIST COMPANIES IN THE NEWS
No news or articles appeared Friday regarding these companies.
ALL OTHER COMPANIES IN THE NEWS
Here's a developement in progress that may be worth watching. ALBERTA OIL AND GAS PETROLEUM CORP. announced that it has entered into an arrangement agreement (the "Arrangement Agreement") with Cairo Energy Inc., 763375 Alberta Ltd. ("763375"), and 763387 Alberta Ltd. ("763387") and that it has appointed Kenneth L. McNeill as Chairman, President and Chief Executive Officer of the corporation. Mr. McNeill was most recently Chief Operating Officer of Amber Energy Inc. where he acted as both a senior officer and lead negotiator of all of Amber's significant property acquisitions from August 1993 until his resignation in October 1997. In addition to the appointment of Mr. McNeill, AOG has reconstituted its Board of Directors as follows:
New Directors
Kenneth L. McNeill - Chairman, President and C.E.O.
M. Bruce Chernoff - Executive Vice President, Pacalta Resources Ltd.
John A. Brussa - Partner, Burnet, Duckworth & Palmer
Retained Directors
Peter B. Whiteway - former President and C.E.O., prior thereto Vice-President and Co-founder of Maxx Petroleum Ltd.
Dr. Urs Wehinger - former Chairman, Partner, Arnold, Wehinger, Kaelin & Ferrari Gunter Daiss - former Vice-Chairman, Independent Businessman
An additional new director and further senior management appointments will be made and announced in the next few weeks.
Cairo, 763375 and 763387 (collectively, the "Acquired Companies") are private companies controlled by Messrs. McNeill, Chernoff, Brussa and their associates. The assets of the Acquired Companies consist principally of approximately $9.0 million of cash and liquid marketable securities and oil and gas properties. The oil and gas properties include proven and risked probable reserves of approximately 989 thousand barrels of oil equivalent with a present value of about $6.6 million (discounted at 15%) and approximately 25,000 acres of net undeveloped land.
Under the terms of the Arrangement Agreement, the AOG common shares will be consolidated on the basis of one new AOG share for each three issued and outstanding old AOG shares. The common shares of the Acquired Companies will be exchanged on the basis of one new AOG share for each issued and outstanding share. After giving affect to the arrangement, AOG will have approximately 12.3 million shares issued and outstanding.
Entry of highly recognized names in the industry and reorganization of AOG's capital structure might indicate this is a company which can make inroads in the oilpatch very quickly.
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