MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JANUARY 12, 1998 (4)
KERM'S WATCHLIST COMPANIES IN THE NEWS
GULF CANADA RESOURCES announced a strategic alliance with another Canadian producer yesterday, reflecting a trend that's expected to become more widespread in the energy sector.
Gulf and Merit Energy Ltd., a junior producer focused on natural gas, have a joint exploration alliance in the Chinook-Sedalia area in east-central Alberta. Under it, Gulf and Merit will explore for natural gas on a combined land base of 420,000 acres.
Last week, Gulf signed a similar strategic alliance with intermediate producer Northrock Resources Ltd. to explore and develop 750,000 acres in west-central Alberta.
While widespread in the U.S., such alliances have been less popular among Canadian producers, which have been growing mainly through acquisitions.
Since energy prices are likely to remain weak for the foreseeable future, more producers will look to alliances to reduce costs and realize efficiencies, said Robert Hinckley, an oil and gas analyst with Merrill Lynch & Co. in New York.
"It's the next level - they have to cut costs," he said. "They have done pretty much what they can do internally."
Merit has budgeted capital spending of $20 million for the Chinook-Sedalia area this year, and plans to drill more than 50 wells.
"The purpose of the alliances is in larger land areas to carry out exploration and development quicker, more efficiently and cheaper," said Gulf spokeswoman Jennifer Martin.
Merit president Duncan Chisholm said he approached Gulf with the proposal. "Gulf and Merit are quite a bit different in size, but we both want to keep finding and development costs down."
That's done by sharing facilities, staff, seismic data, land and administration, he said.
Merit already produces 26 million cubic feet of natural gas from the area. Existing production is not part of the deal.
RANGER OIL has entered into an alliance with a large U.S. independent, Chesapeake Energy Corporation, for operations in the Helmet area of Northeastern British Columbia. Under the agreement terms, Chesapeake will purchase a 40 percent interest in all of Ranger's properties in the area outside of the July Lake pool for CDN $71 million. All future operations in the area will be conducted on a 60/40 basis between Ranger and Chesapeake.
In addition, Ranger has sold a number of non-core properties in the past month for total net proceeds of CDN $27 million. These properties are in the Joffre, Cactus Lake and Parkland areas in Alberta. The total production and reserves sold from these transactions are as follows:
Light Oil , 130 bbl's/d production and proved and probable reserves of 1.2 mm bbl's.
Heavy Oil, 1,500 bbl's/d production and proved and probable reserves of 4.1 mm bbl's.
Natural Gas, 16 mmcf/d and proved and probable reserves of 70.0 bcf.
The first well of a three-well exploration program in the Fort Norman area, in the Northwest Territories, has recently spudded. Drilling operations have resumed on the Fort Liard exploration well in the Northwest Territories which were suspended pending the arrival of specialized equipment.
In response, to the current low oil prices, a number of higher operating cost wells in the Heavy Oil Division have been shut-in. Daily heavy oil production has been reduced to approximately 19,000 barrels per day. Production and operating costs will continue to be reviewed on a well by well basis to reflect the changing economic environment.
Ranger has sold its 3.3 percent equity interest in the Alliance gaspipeline. Ranger continues to support the Alliance pipeline system as ashipper.
United Kingdom
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Ranger has completed an infill well (interest 67 percent) in the Anglia gas field. The well is currently producing approximately 30 million cubic feet of gas per day.
In the Columba B Terrace, adjacent to the Ninian field, (interest 21 percent) Ranger has successfully drilled a 23,600 foot extended-reach well. The well is being initially completed as an oil producer and will be converted to water injection at a later date.
Development work on the Pierce, Banff and Kyle fields and Columba E Terrace continues with new production of over 30,000 barrels of oil per day anticipated by the end of 1998.
An exploration well is currently drilling on Block 44/17a in the Southern Gas Basin (interest 17.5 percent). A recent exploration well drilled on Block 20/10-b (interest 9.25 percent) was plugged and abandoned.
Angola
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Exploration well 4/21-3-1 has reached total depth and is being plugged and abandoned. The well, which encountered 183 metres of gross sand (93metres net) with good residual hydrocarbon shows, was water wet.
The drilling rig will be moved shortly to the Kiame oil field to complete two previously drilled wells with first production of approximately 7,000 barrels per day (interest 100 percent) scheduled for June 1998.
Financial
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At December 31, 1997, Ranger's total long-term debt was U.S. $442 million. Upon completion of the Helmet sale, debt should be reduced by approximately U.S. $50 million.
OTHER COMPANIES IN THE NEWS
PLACE RESOURCES CORP. has posted a 21% increase in Net Asset Value due to the addition of new oil reserves, (based on the company's most recent independent engineering evaluation effective January 1, 1998). Net Asset Value at 1997 year end is estimated to be $3.67 per share, 73% higher than our year end closing stock price of $2.12 per share.
Oil reserves in Alberta increased at Mulligan (89% owned) and Elmworth (59% owned), where two Place operated Charlie Lake waterfloods were installed in 1997. Both of these waterfloods are anticipated to commence injection in January 1998 with peak production anticipated in two to three years.
Proven + 1/2 Probable oil and liquids reserves grew 16%, from 4,593 to 5,344 (thousands of barrels) in 1997. Natural gas reserves grew 3%, from 25,295 to 26,136 (mllions cubic feet) in 1997.
Place Resources Corporation has increased Net Asset Value (+21% from $3.03 in 1996 to $3.67 in 1997) by exploiting acquired development and secondary recovery opportunities using the latest technology, while divesting mature or non-core properties. This has resulted in onstream costs (the cost to find, develop and equip wells) of $4.00 per barrel of oil equivalent. Five-year onstream costs have averaged $4.91 per barrel, well below the industry average.
OILTEC RESOURCES LTD. (TSE:OLT) reported that its second Red River has been successfully completed. The well flowed very light gravity (39.4 degree API) water-free crude oil after perforating. Including the first success, Oiltec's two Red River wells are producing at a combined rate of 705 BOPD (387 B0PD net). Both wells are flowing, water-free, light gravity crude oil to surface with no pumping equipment. The wells are capable of much higher production rates but are being held back by chokes while each well's productive capability is determined. Even at today's sub-US$17.00 WTI oil price. Oiltec is achieving a netback of over CDN$18.00 per barrel due to the high oil quality, low royalty encumbrances and negligible operating costs. Oiltec's Fourth Red River well (100% working interest) at Weir Hill is drilling ahead smoothly at 1700 mKB and should reach total depth in about 15 days. A fifth Red River well is currently being licensed.
WILD HORSE RESOURCES LTD. reports Paul Jeffrey has been appointed president and chief executive on an interim basis. He replaces Douglas Amy, who relinquishes both titles, effective Oct. 1. The company said the change reflects its desire to retain a president highly experienced in the oil and gas industry.
BENZ ENERGY LTD, enz Energy Ltd. (VSE/BZG) reported that the Company drilled 8 exploratory wells and has completed or is completing 5 wells for a 71% success rate with 1 well still drilling. In addition the Company drilled 4 development wells and has completed or is completing 4 for a 100% success rate. The Company also substantially increased its net production to the current level of 4.5 million cubic feet per day and 100 barrels per day.
The Company's 1998 capital budget provides for a total of $43.5 million for drilling and project development. Approximately half of the capital budget will be focused on development drilling, and approximately $7 million is budgeted for drilling and testing 10 prospects and completing the drilling and testing of 2 prospects carried over from 1997. Among plans for the coming year are the drilling of the Company's Wausau prospect in Mississippi, additional exploitation at Oakvale Dome Field and exploratory drilling at Old Ocean Field and LaHinch Prospect in Texas.
The Company's 1997 results include significant discoveries at Oakvale Dome Fiel and Reedy Creek Field. The Company's discovery well at Oakvale Dome in Jefferson Davis County, Mississippi, has performed significantly better than 3rd quarter estimates. The Kathryn Saltry Byrd #1 well has produced 664,808 MCF and 3,206 barrels of oil to date, and current daily production is 7.4 MMCF and 35 barrels of oil. In addition, 30% of the gas at Oakvale has been hedged in the futures market at $3.50 per MMBTU. The Company holds a 54.1% working interest in the prospect.
Year-end re-completions of the BOE 16-3 #1 and Hosey wells at Reedy Creek Field, Jones County, Mississippi, where the Company presently has 4 wells and a 23.9% working interest, are expected to significantly improve production. The Hosey completion tested rates of up to 250 BOPD from one third of the interval to be completed, and the BOE 16-3 #1 is still underway. The remaining two wells were being completed as of year-end. The Herrin 9-7 #1 well recovered 150 barrels of oil in its first full 24 hours of testing while pipe has been run to 10,020 feet. The BOE 16-3 #2 well has had pipe run to 10,020 feet and several indicated commercial oil sands have been logged.
The 2 wells currently being evaluated by Benz are the Jennings and Big Creek prospects. Jennings has been drilled to 14,630 feet and 2 indicated commercial pay zones have been logged, and the well is awaiting a completion unit. The George W. Mason 17-10 #1 well at Big Creek in Mississippi has logged significant indicated commercial pay intervals the Company is preparing to complete.
The BOE 16-14 #1 well at Morgantown in Marion County, Mississippi has reached a depth of 20,304 feet and is still drilling to its targeted depth below 21,000 feet.
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