MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WED., JANUARY 7, 1998 (4)
KERM'S TOP 21 - SPEC 15 - SERV 9 COMPANIES IN THE NEWS
Standard & Poor's today affirmed its triple-'B'-plus corporate credit and senior unsecured debt ratings and its 'A-2' commercial paper rating on PETRO-CANADA [NYSE:PCZ - Toronto PCA]. Standard & Poor's also affirmed its triple-'B' corporate credit and senior unsecured debt ratings and its 'A-2' commercial paper on Ultramar Diamond Shamrock Corp [NYSE:UDS], following the companies' announcements that they intend to enter into a joint venture of their downstream operations in Canada, Michigan and much of New England.
The balance of Ultramar's operations in the United States will remain outside of the joint venture. The transaction is subject to regulatory review in both countries including review by the Government of Canada's Competition Bureau. The transaction is expected to be completed by mid 1998. While the proposed joint venture should benefit from material operating synergies, including integration of refinery operations, elimination of duplicate sites and integration of systems,an upgrade for either company is not currently warranted.
Petro-Canada will contribute all of its existing Canadian downstream operations into the joint venture including 1,813 retail sitesacross Canada, its refineries in Edmonton, Oakville, and Montreal and its lubricating facility in Mississauga. UDS will contribute its Quebec and New England downstream operations including the St. Romuald, Quebec and Alma, Michigan refineries and approximately 1,300 retail sites in Quebec and 400 in Michigan.
Upon completion of the transaction, control of the joint venture will be shared with Petro-Canada owning 51% of the voting shares and UDS owning 49%. The economic interests in the joint venture will be held 64% by Petro-Canada and 36% by UDS. However, major operating and financial decisions of the venture will require the approval of both parties.
The combined entity is expected to be a leading downstream operator in Canada with refining capacity in Canada and the United States of 500 thousand barrels per day, approximately 3,500 retail sites and sales volumes of about 30 billion litres per year.
Outlook - Stable
Standard & Poor's expects the creation of the joint venture will have a neutral to slightly positive impact on the ratings of both companies with potential for cost savings in future years after the joint venture has been fully implemented, Standard & Poor's said. -- CreditWire
NORTHROCK RESOURCES reported their friendly $134 million merger with Paragon Petroleum Corp. will boost the company's market capitalization and production by 25%.
The offer consists of $4.10 cash a share, 0.19 of a Northrock common share or a combination of both for each Paragon share.
Paragon's land base in west-central Alberta, plus liquids rich gas production, were two attractions that prompted discussions between the companies in August, Northrock president Don Hansen said.
"We're excited about this opportunity," he said.
Northrock recently signed an agreement with Gulf Canada Resources Ltd. for a project giving the companies access to 750,000 net acres in west-central Alberta.
Paragon will contribute another 175,000 acres in the area.
The addition of Paragon's 6,000 barrels of oil equivalent a day will lift Northrock's 1998 daily production to 29,000 BOE, Hansen said, adding that will be more than double the average 1997 daily production.
The deal was saluted by an analyst who had a 1998 yearend stock target of $30 for Northrock prior to the merger.
The company has good management and a proven record of making acquisitions work, said Alan Knowles of Canaccord Capital Corp. in Calgary.
"They have some good people and I don't think this deal will be contrary to their past experience."
Knowles said Northrock has survived the market meltdown of energy stocks in recent months better than nearly all other Canadian exploration and production firms.
Paragon became a potential takeover candidate after several quarters of relatively flat production, he said. "I think they have some properties that have potential that they haven't been able to exploit."
Bill Magee, an analyst with Credifinance Securities Ltd. who covers Paragon, was somewhat surprised management supported the bid.
"I think it indicates that even good management sees tougher times ahead from a cost point of view," he said.
The merger will lift Northrock's market capitalization to nearly $700 million.
Hansen said the larger size will help the company compete for investor interest around the world.
Northrock limited the number of shares it will issue to 4.35 million, or 70% of the total package. The cash portion of the deal has been capped at $67 million.
The price of $4.10 a share was a 25% premium to the 30-day weighted average trading value on the Toronto Stock Exchange.
The deal is conditional on 66.67% of Paragon's shares being tendered. Northrock has locked up 10% of the target's stock through agreements with officers and directors.
WOLVERINE ENERGY CORP. commenced its 1998 foothills drilling program with drilling set to start on its West Ghost River project located 40 miles west of Calgary. The drilling rig and auxiliary equipment are currently being spotted on location with operations starting by the end of this week.
Wolverine Energy will drill a horizontal leg up to 1200 meters in length off of its existing vertical well at 2-32-26-8 W5M. The targeted total depth is located to the southeast along the West Ghost River structure. The total depth for the well (including vertical and horizontal sections) is licensed to 4000 meters terminating in the Turner Valley formation. It is anticipated that the drilling, completion and testing operations will continue on into the month of March at which time the Company will release the results.
he horizontal well will be drilled along the strike line of the structure to capture the reserves in the north half of the field. Upon successful completion of the horizontal drilling at 2-32-26-8 W5M, Wolverine Energy will evaluate drilling a second horizontal well in the south end of the field. Production from the West Ghost River field will be tied into the Shell Jumpin gpound Gas Plant
The Company owns a 100% working interest in the entire project area which includes the 2-32-236-8 W5M wellbore and the adjoining 8 sections of land. Wolverine Energy tested the West Ghost River structure in early 1997 at the 2-32-26-8 wellbore and identified commercial natural gas reserves in the seismically defined feature.
LEXXOR ENERGY INC. has raised a total of $2.04 million through the private placement of flow through shares prior to year end. The Company sold 1.77 million Class 'A' flow through shares at a price of $1.15 per share. At December 31, 1997, Lexxor had 8.88 million Class 'A' shares issued and outstanding.
Proceeds from the offering will be applied to Lexxor's active 1998 drilling program including a multiwell natural gas exploration project on an 8,000 acre farm-in recently acquired in northwestern Alberta. Drilling is also planned at Conroy, Little Bow, Mikwan, Altario, Oyen and at Cardiff, where Lexxor, with a 50% working interest, recently cased a dual zone oil and gas discovery.
KERM'S WATCHLIST COMPANIES IN THE NEWS
CHIEFTAIN INTERNATIONAL INC. (TSE & AMEX: CID) has arranged a credit facility of US$100 million (C$144 million) with Canadian Imperial Bank of Commerce [NYSE:BCM - news], CIBC Inc., The Bank of Nova Scotia, ABN AMRO Bank Canada and ABN AMRO Bank N.V. The Company has no immediate plans for the use of this facility but will have it available for future opportunities. Chieftain will fund its 1998 exploration program from cash flow and working capital and does not intend to use the credit facility for this purpose.
This release contains forward-looking statements that are subject to risk factors associated with the oil and gas business. The Company believes that the expectations reflected in these statements are reasonable, but may be affected by a variety of variables including, but not limited to: price fluctuations, currency fluctuations, drilling and production results, imprecision of reserve estimates, loss of market, industry competition, environmental risks, political risks, and capital restrictions.
NORTHSTAR ENERGY CORP. said yesterday it has sold its 48% interest in a cogeneration plant in Windsor, Ont., toB Tractebel Canada Inc. for $72.5 million, but the move is unlikely to have much impact on firms looking at the oft-mentioned takeover target.
Tractebel is a member of the West Windsor Power partnership. The Houston-based firm is the North American independent power subsidiary of Brussels-based Tractebel SA.
The disposition, which amounted to about 6% of the company's net asset value of $1.3 billion, won't have much effect on the share value, predicted a New York-based analyst.
Michael Spohn of Petroleum Research Group Inc. estimated Northstar's assets to be worth $12.40 a share in a December report that recommended buying the stock.
He said Northstar did well as PRG valued the cogeneration asset at $60 million.
Proceeds will be used to pay Northstar's long-term debt, which stood at about $500 million at the beginning of the year. The deal is subject to director approval.
IPSCO INC. is mulling U.S. expansion and could double steel production capacity. Less than a year after starting up a new mill in Montpelier, Iowa, the steelmaker is mulling over the construction of another plant.
Regina-based Ipsco has said it may expand the Montpelier facility, and confirmed yesterday that both plans may proceed. Together, the expansions would effectively double Ipsco's steel production capacity, taking it from from 2.25 million tonnes a year to more than 4.25 million tonnes.
The location of the proposed new facility has yet to be decided, but analysts speculate it will most likely be in either the U.S. Southeast or Northeast.
"We expect to decide on whether to go ahead with the mill somewhere around April," said Mario Dalla Vicenza, senior vice-president for corporate affairs. He said the decision on Montpelier will be made sometime after than.
The Montpelier operation produces 1.25 million tonnes a year. Dalla-Vicenza said the new mill would likely produce about the same amount.
"This is a really positive development for Ipsco," said Anna Sorbo, an analyst with CIBC Wood Gundy Securities Inc. "They have the technology that nobody else has at the moment, which gives them an advantage over the competition."
Although the North American market for steel plate is considered mature, observers said Ipsco's technology has enabled it to produce steel more cheaply than larger U.S. players such as Bethlehem Steel Corp.
"Ipsco's new mill at Montpelier has something like a US$90 a tonne advantage over Bethlehem," said Margaret Cornish-Kehoe, an analyst at Scotia Capital Markets.
"They are a very well-managed, lean company," Sorbo said.
The steel industry is currently undergoing considerable change. Bethlehem is in a bidding war for Lukens Inc., and at least one other producer, Nucor Corp., of North Carolina, has said it too is considering the construction of a new plate mill.
In its third quarter, ended Sept. 30, Ipsco had net income of $33.3 million ($1.23 a share) on revenue of $276 million. That compares to net income for the same period last year of $23 million (85›) on revenue of $223 million.
RANGER OIL, GULF CANADA RESOURCES and GENTRY RESOURCES LTD. jointly announced that signed two significant Production Sharing Contracts with the Government of C“te d'Ivoire, West Africa.
The two new offshore exploration licenses, CI-101 covering approximately 3,200 square kilometers (790,000 acres) and CI-103 covering approximately 2,500 square kilometers (620,000 acres), are located immediately south and south east of Block CI-102 in water depths of 200 meters and deeper.
Block CI-101 and CI-103 are also situated south of the Espoir and Belier oil fields. The Espoir field was in production from 1980 to 1988 with an average daily output of 10,000 barrels per day. The field originally contained approximately 420 million barrels of oil in place and was producing 8,000 barrels per day when it was shut down in 1988 due to harsh fiscal terms and high operating costs. The Espoir field is currently being reviewed by Ranger Oil Limited as Operator, along with Switzerland-based Addax Petroleum and Ireland-based Tullow Oil. The Belier field is currently being explored by Santa Fe Energy.
Ranger Oil Limited, which possesses significant West African offshore exploration expertise, will act as Operator for the joint venture group. The working interest percentages of the participants are as follows:
Ranger Oil C“te d'Ivoire SARL (Operator) 35.0%, Gulf Canada Resources (through its subsidiary Clyde Expro Pl) 35.0%, Gentry International (Cote d'Ivoire) Inc. 17.0%, T.C. Petroleum Inc. 3.0%, La Societe Nationale d'Operations and Petrolieres de la Cote d'Ivoire 10.0%
Hugh G. Ross, President & CEO of Gentry said, ''The new focus in offshore West Africa is in the deep water exploration where, of 55 wells drilled, 11 commercial discoveries have been made. This approximately doubles the success rate for similar water depths in the prolific Gulf of Mexico.
OTHER COMPANIES IN THE NEWS
ORBIT OIL & GAS LTD announced its board of directors approved a $100 million all cash takeover bid Calgary's Sunoma Energy Corp. Humboldt Capital Corp. and Orbit's directors have agreed to tender 12.6 million common shares, which represent a 27 per cent stake in Orbit, an oil and natural gas producer based in Calgary.
Last month, Sunoma Energy offered to buy Orbit for $1.77 per common share, a deal worth just under $100 million. Sunoma first announced its hostile takeover bid for Orbit on Nov. 27, offering $1.70 for each Orbit share. At the time, Sunoma president Rick MacDermott noted the offer was significantly higher than the $1.10 a share offered for Orbit by Gulf Canada Resources two years ago, and it represented a 23 per cent premium to Orbit's highest trading price in the previous 52 weeks.
Shares in Orbit closed at $1.69 Tuesday, down five cents, on the Toronto Stock Exchange. News of the board's approval of the takeover pushed the price to $1.77 in morning trading today.
"Orbit has agreed not to solicit any new or alternative bid," the two companies said in a joint statement. "Orbit has also agreed to provide for an orderly transition of the board and senior management positions in the event Sunoma acquires at least 50.1 per cent of the Orbit shares."
The Sunoma offer was supposed to expire today, but shareholders have at least another ten days to consider the deal.
Orbit Oil & Gas Ltd Chairman Robert Lamond said on Wednesday his company could have fetched a higher bid during more buoyant times four months ago, but that he was happy with Sunoma Energy Corp's sweetened all-cash offer in the current depressed market.
"We got the best price we could," Lamond said. He said at least 65 companies were contacted for the auction process, but that with current market conditions, virtually all of them would have had trouble raising the financing for a deal.
Lamond said Orbit could have continued the auction for 10 more days, but that would have only been done for reasons of "bravado or ego."
The well-known oilman said he planned to re-emerge soon with a new natural gas production company.
MORE
An early morning negotiating session yesterday put the final touches on a deal that brought Orbit Oil & Gas Ltd. into the waiting arms of Sunoma Energy Corp.
The final documents were signed around 5:30 a.m. after a late-night bargaining session boosted the hostile offer by 4%. Sunoma, a private Calgary firm, will pay $1.77 in cash for each Orbit share, in a deal worth $100 million.
President Rick MacDermott said the move from the original bid of $1.70 made the deal possible. "I think it was one that ultimately had to happen to get this thing done."
The search for a competing offer was hampered by sagging equity and commodity markets, said Tony Teare, executive vice-president of Orbit.
The improved price, combined with the elimination of most conditions, made Sunoma's offer palatable to the Orbit board. "We thought it was in the best interests of shareholders" to accept the bid, he said.
MacDermott said the deal was fully financed and Sunoma has no plans to go to the market and become a public company.
The firm's immediate focus will be to assess Orbit's properties, which include plays in the U.S. and Colombia. It needs to decide which are core properties and which should be sold.
The foreign plays may be keepers now that Sunoma, once the Orbit deal is finalized, has daily production of about 9,000 barrels of oil equivalent, MacDermott said. "We think we are of the size that we can now consider pursuing those international opportunities."
Selling non-core assets will be one way Sunoma pays for part of the acquisition.
It is too early, he said, to say how many Orbit staff will be hired. Sunoma does not yet have a good idea of Orbit's properties because it wasn't allowed into its data room, set up when Orbit was looking for a
white knight.
BEST PACIFIC RESOURCES LTD.reported that 1997 was another successful year as the Company exceeded all corporate objectives for the year. Best Pacific exited 1997 with daily average production of approximately 2,200 barrels of oil equivalent per day (boepd), up 10 percent over targeted exit production for the year of 2,000 boepd and 72 percent greater than the 1996 exit rate of 1,280 boepd. During 1997, the Company also expanded its drilling and exploration program from its budget of 37 wells to 45 (net 13) wells with a success ratio of 91 percent. The financing target of $5 million was accomplished through a placement in October which saw 4,510,000 shares issued at $1.25 per share. In the fourth quarter of the year, Best Pacific continued its successful acquisition program with three additional acquisitions of working interest partner holdings in the Company's core areas in central Alberta and southeast Saskatchewan. These acquisitions contributed a total of 82 boepd for a cash consideration of $948,000.
The Company anticipates extensive growth in 1998. Exit production for the year is targeted at 3,000 boepd. Best Pacific plans to drill 42 wells in 1998, of these one third will be exploratory. A capital expenditure program of $12 million is budgeted for 1998, which will be funded from internal cash flows and a bank line of credit.
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