MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WED., JANUARY 7, 1998 (5)
COMMONWEALTH ENERGY CORP announced by way of information received from Energas Resources Inc., the operator, that both the natural gas pipeline and oil pipeline have been installed and connected on the Finlay State No. 1 well on our Rusty Creek Prospect. The Finley State No. 1 well has produced and sold since October 7, 1997 approximately 40,500 barrels of oil (4,860 net) earning approximately Cdn $1,032,200.00 (Cdn $123,864.00 net). This is a return of 3 to 1 on the cost to drill, complete, and operate the well to the present. The Company owns a 15% working interest in this well and the entire prospect of 3000+ acres. Currently, the gas pressure is beginning to decline in the Finley State No. 1 well which will reduce natural gas flow rates, thus requiring the well to go on pump. This is a normal occurrence and has no negative bearing on our anticipated oil recovery from this well. Engineers are now able to perform bottom hole tests to determine the size of the reserve estimates. Pumping facilities will then be sized based on this information to mechanically bring production back to optimum levels.
The Finley State No. 2 well, which is also located on the Rusty Creek Prospect, is ready for perforating of the entire Dakota/Lakota zone, the same zone that is producing in the Finley State No. 1. This operation is scheduled to begin during January, 1998. Costs to the Company will be US $2,250 to be paid from existing cash.
Completion of the Turner formation in the River Road No. 1 well in the Seedy Draw Prospect, Niobrara County, Wyoming is underway. This zone will be perforated and fraced with a treatment that will take approximately 60 days to obtain results. No costs will be incurred by the Company as this project is being funded by a new working interest owner. Commonwealth owns a 25% working interest in this well.
Commonwealth has entered into an agreement with Energas for a 30% working interest in the North Glen Rock Prospect, Converse County, Wyoming. This prospect, which covers 4,816 acres, is supported by 3D seismic and will test several zones of interest. The test well, known as the Platte No. 1-21 will be drilled to a depth of approximately 10,900 feet. Current plans are to commence drilling by early February, 1998.
CANADIAN INTERNATIONAL COMPANIES IN THE NEWS
TRANS-DOMINION ENERY CORP. announced that the Zeynel-9 well has tested at a rate of 1488 bopd. The Operator advises that the well will be produced at a choked-back rate of 700 bopd and that the drilling of the Zeynel-10 well will commence in the first quarter. TDE has a 12.5 percent Gross Overriding Royalty on Production Lease 3170, which contains the Zeynel field. "The continued success in the Zeynel Oilfield provides TDE with net cash flow from royalties in excess of $300,000/month, based on current oil prices and favorable exchange rates," said Michael J. Doherty, President and CEO of TDE, "The geological conditions present in S. E. Turkey, combined with the existence of significant producing oilfields, lead us to believe that further large oil reserves will be discovered in the region. We are planning an extensive exploration program for 1998."
TDE To Participate In Exploration Program To Discover Large Reserves In The South Mardin Area
In the South Mardin area, TDE has a 50 percent working interest in over 600,000 acres. Negotiations are ongoing with substantial oil companies that could result in a large seismic program in 1998 followed by drilling. In addition, TDE has joined with a large US Independent to propose an exploration program over a further 1,000,000 acres in the area. Combined, this acreage covers the area between the Mardin High and the Syrian Border, which is believed to contain a large Silurian basin similar to those found in Saudi Arabia. As this area is much less disturbed than that north of the Mardin High, it is likely, that if oil is present, it will be trapped by large structures in the Devonian and Ordovician sandstone formations.
5 - 6 Wells Planned For The Zeynel Production Lease Area
2 Exploration Wells planned For 1998
In the Gaziantep District of S.E. Turkey, TDE is participating with working interests ranging from 30 percent to 100 percent in eight exploration licenses covering over 900,000 acres as well as holding a 12.5 percent royalty in the Zeynel Production Lease. During 1998, TDE anticipates that new seismic will be acquired over several of the license areas and that at least two exploration wells will be drilled in the exploration licenses and up to five wells in the Production Lease. Some of the wells on the Lease will be drilled on new prospects, which lie close to the Zeynel Field.
Balaban-1 Well Provided Valuable Info but did Not Flow At A Commercial Rate
During 1997, TDE participated in the drilling of the Balaban-1 well, which encountered oil shows throughout the prospective Cretaceous section, but failed to deliver flow rates which were commercial. However, the well has provided the partners with a considerable amount of very important technical information, which will be integrated into this year's exploration program.
TDE To Be Carried Through $350,000 Seisnic Program
New Acreage Being Acquired In Gas Prone Thrace Area
In the gas-prone Thrace area of Western Turkey, TDE has completed a farm-out, subject to government approval, which will result in TDE being carried through the first US$350,000 of the cost of a seismic program being planned for the second quarter. In order to increase its activities in the area, TDE recently sold its 25 percentstake in Thrace Basin Natural Gas (Turkey) Corporation and has independently applied for two new licenses. Upon completion of the farm-out and if the new licenses are obtained, TDE will have interests ranging from 47.5 percent to 50 percent in over 600,000 acres in the Thrace area.
Through a combination of cash flow from operations, cash on hand and farm-out agreements, TDE expects to be able to fund its currently planned 1998 activities without further equity financing.
FIRST CALGARY PETROLEUM and Yemen on Wednesday signed a $15 million deal for oil exploration in the southern province of Hadramout, a Yemeni official said.
Rasheed Baraba, deputy minister of oil and mineral resources, said the production sharing deal covers sector 43 of the province.
"During the first four years of the work, which is for five years, the company will dig four exploratory wells in the sector," Baraba told Reuters.
He said the total costs of the deal, including the well digging, amounted to $15 million.
First Calgary, which signed a memorandum of understanding (MOU) with Yemen in November for sector 43, had said the MOU covers 2,717 square km (1,049 square miles). It said the MOU was the first step towards a production sharing agreement.
Yemen is a small independent oil producer with an output of 390,000 barrels per day. STR SAA FS
FOCUS ON COUNTRIES
COLUMBIA
Colombian Oil Pipeline Repaired Then Bombed Again
Reuters
Leftist rebels bombed Colombia's Cano Limon-Covenas pipeline Wednesday morning just two hours after it began pumping again after being repaired from an attack over the weekend, a spokeswoman for Occidental Petroleum Corp (NYSE:OXY) said.
The pumping of crude was immediately halted again, forcing Occidental to review its production schedule at the Cano Limon field it operates in northeast Arauca province. The spokeswoman said just 133,000 barrels of storage capacity remained on-site compared to normal daily output of about 175,000 barrels.
The latest blast took place just before 0900 local time/1400 GMT about 40 miles (63 km) west of the Cano Limon field. It is the second time National Liberation Army (ELN) guerrillas have blown up the 230,000 barrel per day capacity pipeline this year.
Repairs following the first dynamite attack Sunday were completed about midnight Tuesday and the pipeline briefly began pumping again about 0700 local time/1200 GMT on Wednesday.
The ELN staged a record 66 attacks on the pipeline last year and on two occasions launched back-to-back blasts, similar to the latest attacks, to force Occidental and state-run oil company Ecopetrol to declare force majeure in the field and on crude shipments.
Occidental did not speculate on the possibility of a new declaration of force majeure. The spokeswoman said repair teams had yet arrived at the site of the new explosion.
COLUMBIA
Harken Energy To Accelerate Colombian Exploration
Harken Energy Corp said Wednesday its directors had approved an accelerated program of exploration in Colombia, clearing an $80 million exploration program for 1998 in the Middle Magdalena and Llanos Basins of that country.
Harken said it had contracted for two drilling rigs in support of this program and the related developmental drilling which could result.
''Given our acreage inventory and the already identified prospects, we can look forward to continuous high potential drilling in Colombia for several years to come,'' Chairman Mikel Faulkner said.
IRAN
Iran has been a running sore for U.S. foreign policy since the 1979 revolution, but its position at the nexus of the oil-rich Caspian Sea and Asia means U.S. oil companies want to see its isolation ended.
In a response to a speech to the American people delivered by Iranian president Mohammed Khatami via CNN on Tuesday, U.S. energy giant Conoco said there was room for ''cautious optimism'' on Iran-U.S. relations. ''We still, long-term, hope that we will have the chance to conduct exploration and production activities in Iran,'' Conoco chief executive told Reuters.
When the Iran-Libya Sanctions Act became law in 1995, Conoco, the oil and gas arm of DuPont Co (NYSE:DD - news), was forced to quit the development of the giant Sirri oil field and was replaced by France's Total SA (NYSE:TOT - TOTF.PA).
John Lichtblau at consultant Petroleum Industry Research Foundation estimates that U.S. oil service companies and equipment suppliers alone lost $600 million in contracts at the time sanctions were first imposed.
He says that Khatami's speech was unlikely to produce any seismic shift in U.S. policy, but noted that the Iranian president was right in saying that Iran did not need the U.S. to develop its oil industry.
''Sanctions probably hurt the U.S. more than Iran, investment will still go in there,'' Lichtblau said.
Khatami said ILSA was an attempt to impose the will of the U.S. on the rest of the world.
Conoco's Dunham noted that unilateral sanctions have had very little impact on Iran.
Other U.S. oil majors apart from Conoco say they regard unilateral sanctions as damaging to U.S. business but said that they were waiting for more information to emerge before formulating an official response, but the Europeans and Russians are unlikely to wait.
Already Total, Anglo-Dutch Royal Dutch/Shell Group (RD.AS), Russia's Gazprom (quote from Yahoo! UK & Ireland: GAZPq.L) and Malayia's Petronas (PETR.KL) are stealing a march with a pipeline through Iran as well as development of the large South Pars natural gas field.
Analysts also say the U.S. is seeing its authority diminished by the series of oil deals there.
''If the U.S. government takes a softer line on ILSA, it leaves U.S. companies out in the cold then the U.S. companies will become more vocal,'' said Gerald Kepas at Washington-based consultancy Petroleum Finance Corp
Analysts and consultants say that Iran is the obvious choice through which to ship oil from the Caspian Sea which the U.S. Department of Energy estimates has 178 billion barrels of oil reserves, or upto two-thirds that of Saudi Arabia.
''The biggest outlet for this oil is Southeast Asia. Except for the current financial crisis, it is the largest growth market in the world. You cannot just ship this stuff into the Mediterranean and then round to Asia,'' said Kepas.
A spokesman for Pennzoil Co [NYSE:PZL - news] which is part of a consortium developing reserves in the Caspian, asked whether the company would press for an Iranian option, said Pennzoil was a small player there, but added ''in an ideal world, that (Iran) would be right''.
As well as its strategic importance, Iran posesses nine percent of the world's proven oil and natural gas reserves.
The country is on the verge of issuing a tender for enhanced oil recovery at some existing fields and for the development of offshore fields, although this still has to be approved by the country's parliament, said Petroleum Finance Corp.
Conoco's Dunham acknowledges that it is too late for the Sirri field, which is due to come onstream this year.
''I just hope that the effort President Khatami is taking to reach out to our country, we will respond,'' he said.
PIPELINES
Pipeline Battle Turns Nasty
Foothills blasts $3.7-billion Alliance project, saying the supply of natural gas isn't big enough. But even Westcoast, a Foothills partner, disagrees
Ckaudia Cattaneo - The Financial Post
The heat under a simmering battle for supremacy in the natural gas pipeline sector in Western Canada was turned up a notch yesterday, as one major transporter questioned the validity of another's business plan.
And the president of Westcoast Energy Inc., with an interest in both projects, blasted the partisan sniping.
Foothills Pipe Lines Ltd., which delivers one-third of all Canadian gas exports to the U.S., told a news briefing there simply isn't enough natural gas in Western Canada to support the proposed $3.7 billion Alliance pipeline.
Foothills said Alliance's own evidence shows 42% of its capacity would be empty in the first year and the supply deficiency would increase over time.
Foothills said it reached the conclusion after going over information submitted by Alliance to the National Energy Board over Christmas.
Foothills, owned in equal parts by Alliance foe Nova Gas International Ltd. and Westcoast, wants the board to turn down the proposal.
Alliance has said 37 contracted shippers have filled 98% of its system for 15 years. If approved, Alliance would be completed by 1999.
Alliance said Foothill's conclusion is based on selective, self serving statistics.
"You have a monopoly pipeline here that has just recently filed evidence of its own to support expansion of its own system," said public affairs vice-president Jack Crawford.
Even Foothills owner Westcoast, one of the major backers of the Alliance project with an 11% equity stake, disagreed with Foothills' conclusions.
"This statement was made without the endorsement of the Foothills board," said Westcoast president Art Willms.
There is - and there will be - enough gas to fill Alliance, he said.
"In today's market condition, the drilling activity speeds up or will increase to the extent that gas supply will be there," Willms said.
"Our view is that this pipeline will get regulatory approval and will serve the interest of the Alberta producers and the market."
Foothills is building part of a $1-billion expansion, scheduled to be completed by November, to a system that carries western natural gas to Chicago.
The Foothills-Northern Border expansion would increase capacity by one third, or an extra 700 million cubic feet daily.
"Foothills is particularly at risk [from Alliance] because it serves the same market, the Chicago area," Foothills says in evidence submitted yesterday to the NEB.
"Based on Alliance's supply evidence, a number of Foothills' shippers indicate that they do not have adequate supply to both renew their Foothills' contracts and supply Alliance."
The board started hearings in Calgary on Monday into the Alliance project, which Foothills chairman Bob Pierce called "the most important pipeline hearings in 20 years."
The controversial proposal has pitted industry producers against established pipeline companies.
Many producers are Alliance supporters. They believe a lack of pipeline capacity is causing a surplus of gas in Alberta that is depressing Alberta prices, at a loss of billions annually.
On the other side are competing pipeline companies, concerned the new project will duplicate existing facilities and take natural gas away from their systems.
But also at stake is availability of natural gas to Canada and particularly to Ontario, Pierce told a news briefing.
Alliance would add surplus capacity to the U.S. at a time when Canadian demand is increasing and supply is shrinking because of the basin's aging gas pools.
"Think what would happen if there isn't enough gas for Ontario Hydro, particularly with nuclear energy being phased out," Pierce said. "I don't think Canada should rely on the U.S. to supply us gas."
The Foothills-Northern Border expansion is one of the principal reasons behind investor and producer expectations that Alberta natural gas prices will rise later this year, benefiting in particular energy companies that focus on natural gas.
Existing expansions are enough to cause Alberta and Chicago prices to converge, with the exception of differentials reflecting transportation costs, Foothills claims.
Alliance's new gas will depress natural gas prices, not cause them to increase as producers expect, Foothills claims.
Crawford dismissed Foothill's stand as "the same old story" spun by pipeline companies over the years.
"It's pretty clear that there are a large group of producing companies that are very convinced we need more capacity. I haven't heard any of them say that they are going to leave the rest of the pipes empty," he said.
Crawford said the industry is already producing more gas than it can deliver.
"That's why gas prices are artificially depressed here in Alberta. We have a very active exploration and production sector that is looking for and drilling for gas all the time.
"As a consequence, they are able to bring gas on quicker than we are able to bring on pipelines."
MISC.
Canada's Ziff Energy Names Ex-ELAN CEO President
Calgary-based energy industry consultancy Ziff Energy Group said on Wednesday it appointed former ELAN Energy Inc Chief Executive Verne Johnson as its president.
Ziff said Johnson would be responsible for over-all operation of the firm's offices in Calgary and Houston. Paul Ziff, founder of the firm, becomes its chief executive.
Johnson was responsible for turning ELAN, once the Canadian unit of LASMO Plc (UK & Ireland: LSMR.L), into a large producer of heavy oil using high-tech recovery methods. ELAN was acquired by Ranger Oil Ltd (NYSE:RGO - Toronto:RGO.TO) in a friendly merger last summer.
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