MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 9, 1998 (2)
FEATURE STORY
Albertans Reminded Of Peaks And Valleys
Charles Frank, Calgary Herald
The sliding Canadian dollar, lower oil prices and the dizzying depreciation of oil and gas stocks are a sobering reminder that the sterling economic performance turned in by the Alberta economy in 1997 is not guaranteed for 1998.
"What we've seen this week is really nothing new," says University of Calgary economist Robert Mansell.
"To a large degree the Alberta economy has always been driven by events and circumstances outside our boundaries. Because of that, there will always be peaks and valleys."
Still, as Gerry Angevine, president of the Canadian Energy Research Institute, observes: "In the medium term -- the next five years -- there is no reason for most (oil and gas) companies to change their plans."
That should offer a measure of comfort for Calgarians who have been fretting over the fallout from recent changes in OPEC production quotas and the ongoing instabilities in Asian financial markets.
While events in Asia are important to a variety of Alberta-based exporters, the cold hard facts are that the province's economic well-being remains inexorably tied to the health of the U. S. economy.
"Generally speaking, our fate is more determined by the United States than anything else," agrees Mansell, who characterizes Alberta and Canada as "outriders" with limited control over the herd mentality that plagues the inextricably linked economies of countries around the globe.
That 52 per cent of Canada's natural gas and more than six per cent of our oil is exported to the U.S. offers a pointed reminder of the intricate web of economic inter-dependence that links Alberta's economic fortunes with those of the United States.
Mansell points out that while the U.S. economy enjoyed a great run during 1996 and 1997, there are unmistakable signs that economic growth south of the 49th parallel will be less expansive in 1998.
Recent reductions in 30-year U.S. mortgage rates suggest a growing concern among fiscal policy makers that the world's most powerful economy is pausing and trying to recoup its energ
That pause follows months of warnings from U.S. Federal Reserve chairman Alan Greenspan, who was insistent that the U.S. economy was overheated and dangerously out of balance through the latter half of 1997.
"Where they will go from here is hard to say," says Mansell. "But you can be sure we will follow."
That may not be what Albertans, and in particular Calgarians, want to hear -- but it is not necessarily bad news, either.
The key components of the Alberta Advantage, a low provincial tax base, a highly skilled and educated workforce and a rapidly diversifying economic base, are important mitigating factors when it comes to assessing the impact of external factors on the province's economy.
The fact that inflation is negligible, that Canadian interest rates are still within shouting distance of 30 year lows, and that the provincial government has been generating a budget surplus for the last three years further enhance the economics of doing business in Alberta.
"To put it in context," says Mansell, "the Alberta economy is still very healthy in spite of the things that have been happening outside our borders."
Those sentiments are echoed by economic prognosticators like the Toronto Dominion Bank's chief economist Ruth Getter.
Getter and the TD expect the Alberta economy to grow by almost four per cent in 1998 and more than three per cent in 1999.
That would be less than the impressive 4.8 per cent growth the province is believed to have racked up in 1997 -- but still worth cheering.
One of the key sectors of the Alberta economy -- the oil and gas industry -- appears well-positioned to ride out the turbulence that has thrown an unexpected damper on the euphoria that had accompanied the industry's soaring 1997 performance.
"Prudent producers were looking at prices of between $18 and $19 US (per barrel of oil) and preparing for slightly lower prices even before prices slipped below $17 US this week," says Angevine.
He and other energy industry officials maintain that because most of the oil and gas producers, explorers and drilling companies based in Alberta have spent the last decade getting their own fiscal houses in order, they are better equipped to handle the uncertainties that have again been visited on the industry.
The devalued Canadian dollar also mitigates against lower oil prices where exports are concerned, observes Angevine.
"A worse scenario would be higher interest rates, a strengthening Canadian dollar, and consistently lower oil prices," says Angevine. "That convergence would have unfortunate consequences."
MARKET ACTIVITY
No End To Stock Dip Seen
It's getting ugly in the stock markets, and investors shouldn't expect the downward spiral in oil and gas stocks to end next week, industry analysts say.
The Toronto Stock Exchange's three oil and gas indexes had a rough week.
The broad oil and gas index lost 943.54 points, or 14.2 per cent, while the producers' index fell 909.16 points, or 15.5 per cent, and the integrated oil index declined 859.50 points, or 9.7 per cent.
"I don't see any improvement next week because gas inventories need to come down and I understand there is a huge short position on crude oil, pending the announcement of Iraq beginning production on the oil for food program," Henry Cohen of Scotia Capital Markets in Toronto said Friday.
Cohen says he could see another 300-point correction in the TSE's oil and gas producers index, because of low oil and gas prices.
With the 211.95 point drop on Friday, that index might be already two-thirds of the way there.
According to Cohen, pressure builds on the Organization of Petroleum Exporting Countries to cut its production when the price for OPEC oil reaches the $15 US a barrel level, and it is currently around $14.
"At those levels, I expect OPEC will call an emergency meeting sooner rather than later because cartel members can't tolerate the lower price for an extended period," he says.
"Investors are concerned about the oil price but they are expecting high finding and development costs (for companies drilling for oil) which will negatively affect 1997 results," says Colinda Parent, vice-president of institutional sales at Midland Walwyn Capital.
Parent says that while much of the selling of petroleum companies' shares has been by institutional investors, once their 1997 fourth-quarter financial results are out, the retail stock investor could join the selling and further depress share prices.
Even though oil and gas stocks are seeing a broad selloff, analyst Doug Gowland at First Marathon says he is not seeing any signs of panic by institutional investors because they have seen this before.
"A lot of investors are saying, 'Been there, done that.' The oils have been here before and they will survive," says Gowland.
"Companies operating today who weathered the commodity price downturns in 1986, 1988 and 1994 will tell you about the opportunities they found during that time."
Gowland believes 1998 will be the year of both the stock and corporate bargain.
"There will be deals done and we've already seen one," he said, referring to Wednesday's announcement by Northrock Resources that it will acquire Paragon Petroleum for $134 million.
MOST ACTIVES
Paragon Petroleum, Renaissance Energy, Petro-Canada, Rio Alto Exploration, Canadian Occidental Petroleum, Gulfstream Resources, Northrock Resources, Talisman Energy and Suncor Energy were among the top 50 most active traded issues on the TSE.
Paramount Reources gained $0.75 to $14.50, Rider Resources $0.35 to $4.80 and Penn West Petroleum $0.25 to $14.00.
Percentage gainers included Bellator Petroleum 10.7% to $1.55, First Calgary Petroleums 8.7% to $1.25, Black Rock Ventures 8.0% to $1.35, Rider Resources 7.9% to $4.80 and Paramount Resources 5.5% to $14.50.
On the downside, Suncor Energy fell $3.35 to $43.15, Imperial Oil $2.40 to $84.00 and Pacalta Resources $1.90 to $11.90.
Percentage losers included Profco Resources 21.9% to $1.07, Spire Energy 18.8% to $1.30, Tethys Energy 15.7% to $2.15, Pacalta Resources 13.8% to $11.90, Elk Point Resources 12.5% to $5.25, Gentry Resources 12.1% to $1.09, Gulf Canada Resources 11.2% to $7.15, Startech Energy 10.5% to $8.50, Westfort Energy 10.5% to $1.02 and Probe Exploration 10.3% to $3.50.
There were no 52-week highs.
Companies reaching new 52-week lows included Alberta Energy, Baytex Energy, Blue Range Resources, Brigdon Resources, cabre Exploration, Canadian Natural Resources, Crestar Energy, Elk Point Resources, Gulf Canada Resources, Gulfstream Resources, Mercantile Int'l Petroleum, Merit Energy, Morrison Middlefield, Northstar Energy, Numac Energy, Orion Energy, Pan East Petroleum, Pan Atlas Energy, PanCanadian Pettroleum, Pinnacle Resources, Probe Exploration, Ranger Oil, Renaissance Energy, Rigel Energy, Saxon Petroleum, Startech Energy, Talisman Energy, Rarragon Oil & Gas and Tri Link Resources.
Looking at the Oil & Gas services, and also those companiew with close ties to the industry, Prudential Steel was among the top 50 most active traded issues on the TSE.
Computalog gained $0.20 to $20.00.
There were no percentage gainers.
On the downside, Shaw Industries fell $2.50 to $42.60, Tesco $2.30 to $17.50 and Ensign Resource Services $2.00 to $26.00.
Percentage losers included Inter-Tech Drilling 16.7% to $1.00, Ryan Energy 16.1% to $7.55, Enertec Resource Services 14.9% to $10.00, Geophysical Micro 13.3% to $1.30, Trican Well 13.0% to $4.00, Peak Energy 12.5% to $3.50, Petro Well Energy 12.0% to $1.10 and Tesco 11.6% to $17.50.
No new 52-week highs. Ensign Resource Services, Peak Energy and Tetonka Drilling reached new 52-week lows.
Over on the Alberta Stock Exchange, Real Reources, Bearcat Exploration, Stampede Oils, Calahoo Petroleum, NTI Resources, Burner Exploration, Cirque Energy, Jerez Energy, Dundee Petroleum, Commonwealth Energy, Cubacan Exploration, Colony Energy, Gopher Oil & Gas and Gold Star Energy were among the 30 most active traded issues.
Colony Energy gained $0.15 to $1.85, Bearcat Exploration $0.11 to $0.65, Petro-Reef Resources $0.09 to $0.79, Cubacan Exploration $0.07 to $0.50 and Hawk Oil $0.07 to $1.50.
Percentage gainers included Bearcat Exploration 20.4% to $0.65, Cubacan Exploration 16.3% to $0.50, Petro-Reef Resources 12.9% to $0.50 and Colony Energy 8.8% to $1.85.
On the downside, Solid Resources fell $0.95 to $7.10, Veteran Resources $0.42 to $0.78, Canadian Crude Separators $0.35 to $4.70, Niko Resources $0.35 to $3.65, Hyduke Capital Resources $0.30 to $2.20, Mera Petroleum $0.29 to $0.40, Syner-Seis Tech $0.23 to $2.05, Capco Resources $0.22 to $2.78, Red Sea Oil $0.20 to $2.50, Stellarton Energy $0.20 to $4.30, Scimitar Hydrocarbons $0.17 to $0.61, Total Energy Services $0.15 to $2.05, Avid Oil & Gas $0.14 to $1.25 and Bolt Energy $0.13 to $0.62.
Percentage losers included Mera Petroleum 42.0% to $0.40, Goal Energy 35.7% to $0.18, Veteran Resources 35.0% to $0.78, Sawtooth International 25.0% to $0.30, Scimitar Hydrocarbons 21.8% to $0.61, Jerez Energy 20.0% to $0.40, Wild Horse Resources 20.0% to $0.24, Nycan Petroleum 18.0% to $0.25, Bolt Energy 17.3% to $0.62, Burner Exploration 15.4% to $0.55 and Aspen Energy 14.8% to $0.23.
No new 52-week highs. Corker Resources, Fox Energy, Mera Petroleum Tier One Energy and WWB Oil & Gas reached new 52-week lows.
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