MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 16, 1998 (5)
FEATURE STORY
Slick Returns Over Long Haul 1/17/98
Eastern Offshore Oilpatch Not Hurt By Price Dips, Says CAAP
Chris Flanagan - St. Johns The Evening Telegram
The East Coast offshore industry is likely better off than the western Canadian oilpatch in a low price environment, says the Canadian Association of Petroleum Producers.
Investors in Eastern Canada are looking at 20-year projects, CAPP vice-president Chris Peirce said Friday, whereas those in Western Canada seek a much quicker return on investment.
"Probably the offshore is better off than Western Canada in that regard," Peirce said.
But low prices are likely temporary and neither end of the industry should suffer too much, he added. "There's no reason for prices to stay at this level."
Several uncertainties in the marketplace have converged this year, he said, driving down the average price of a barrel of oil to their lowest levels since April 1994.
Economic turmoil in Asia combined with increased output from OPEC nations, renewed production form Iraq and a mild North American winter have dealt prices a major blow, Peirce said.
The average price of west Texas crude slipped from $26 a barrel last January to $16.30 this week. But no one in the oilpatch expected prices to stay above $20 forever, Peirce said, and most East Coast projects were put together assuming oil would trade in the $18-$20 range.
That doesn't mean oil companies aren't concerned, however.
"For Hibernia you'd want to be getting better margins than you're getting now, no question," he said.
Hibernia's break-even margin is about $12.95 a barrel.
If low prices persist for six to eight months, it will have an effect on next year's exploration budgets, Peirce said.
Calgary-based CAPP executives were in St. John's Friday and are examining the possibility of setting up East Coast offices, Peirce said.
"I think we'd like to establish a presence here . in the pretty near term," he said.
CAPP represents 170 oil and gas companies which together account for more than 90 per cent of Canada's petroleum production. If you have yet to visit their website, it's a great start to gain a better understanding of the Canadian Oil & Gas Industry. Go here, capp.ca .
FEATURE STORY
Terra Nova Good Long-Term Bet, Petro-Canada 1/17/98
Pat Doyle - St. Johns The Evening Telegram
Petro-Canada is confident long-term oil prices will be stable enough to make the Terra Nova project economical, a senior official said Friday.
The current slump in prices does affect cash flow and economic returns and has to be considered, Greg Lever, manager of offshore operations for Terra Nova, told The Evening Telegram.
"But overall, we believe oil prices will certainly be strong enough to support the development."
Lever and Gary Bruce, vice-president of offshore development and operations for Petro-Canada, welcomed the approval for the Terra Nova project given Thursday by the Canada-Newfoundland Offshore Petroleum Board (CNOPB).
In its report, the board set out 23 conditions under which the $4-billion, 400-million-barrel project can proceed.
Petro-Canada said the proponents will need more time to fully assess how the conditions will affect their participation in the project.
However, the company said, "in a preliminary review, the proponents feel the conditions are consistent with the recommendations of the environmental assessment panel's report which was issued in August.
The majority of the conditions have already been addressed through the development plan application process, it said.
"Over the next few weeks, the owners will assess the implications of the conditions on cost and schedule, after which we will be in a position to announce our decision," Bruce said.
The CNOPB said it has accepted the design process outlined in the development plan.
However, there are a number of conditions intended to ensure adherence to existing environmental standards and the ability to accommodate future changes in regulatory requirements.
Meanwhile, Lever said once the decision is made to proceed, construction of the steel hull for the project will begin. The target is for the hull to be delivered to the project, at Bull Arm, in the first quarter of 2000. The topsides will be joined to the hull at the site.
One of the conditions of the board is that as soon as possible after project sanction, engineering and procurement activities be relocated to Newfoundland.
Lever said some engineering activities are already located in the province. He said the project management, procurement, operations and drilling engineering teams are already in the province.
"We are putting together a strategy to relocate reservoir engineering by mid-year and are investigating how much topsides engineering is appropriate to relocate, and when," he said.
FEATURE STORY
Gulf May Sell Alliance Stake
Stephen Ewart - Calgary Herald
Gulf Canada Resources Ltd. is in talks to sell its eight per cent ownership stake in Alliance Pipeline Ltd.
"We've been approached by people who are interested in buying Gulf's interest," Gulf president J.P. Bryan said Thursday. "We haven't finalized anything but looking seriously at it; we're in discussions."
Gulf's exit from the $3.7-billion project would not be without precedent.
Most of the producers which originally backed the pipeline, proposed to move 1.3 billion cubic feet of natural gas a day from northeast B.C. to Chicago by late 1999, have been selling their interests. The primary buyers have been pipeline companies.
"We're not pipeliners," Bryan said. "We just want a place to sell our gas."
Bryan wouldn't identify the company Gulf is in talks with, but said it is a pipeline operator.
IPL Energy Inc., a Calgary pipeline company, has said in the past it was interested increasing its stake in Alliance and operating the line. It now has a 21.4-per-cent interest.
An IPL spokesman said it's not in negotiations with any of its seven partners in Alliance.
Earlier this week, Duke Energy Corp., a U.S. company with extensive pipeline interests, bought a 9.8-percent stake in Alliance. It didn't disclose the financial terms of its Alliance deal.
Bryan said the Alliance sale is a "pretty small deal" for Gulf: "We're not talking hundreds of millions of dollars."
A far larger transaction for Gulf is the plans to spin off its heavy oil assets. The deal includes assets acquired in last year's takeover of Stampeder Exploration Ltd. and the planned $1.2 billion Surmont Oil Sands project.
"We're moving to do the deal by the end of this year, assuming the market is there," Bryan said. "It's a market-driven event, not a corporate-driven event."
Meanwhile, Gulf announced Thursday an oil discovery in Yemen which flowed at 3,250 barrels a day in testing. The project, which includes TransGlobe Energy Inc. of Calgary, is near the Masila Block where Canadian Occidental Petroleum Ltd. operates.
Bryan said Gulf is also likely to have an announcement next week about a promising discovery in Algeria.
FEATURE STORY
Newell's Forward Vision - Syncrude Canada
Irene Thomas - Fort McMurray Today
Eric Newell has the future in his hands -- $6-billion worth of future to be exact.
When asked what it's like to head such a massive investment, Syncrude's chief executive officer and chairperson pauses momentarily, smiles and then laughs. It's exciting to be sure, he says, noting there are many challenges.
One such challenge is the $3-billion upgrader expansion.
When completed by 2007, the expanded upgrader will increase average daily synthetic crude oil production at the plant from about 210,000 to 480,000 barrels per day.
Reaching this target won't be Newell's responsibility alone.
Syncrude's people and its organization are its strength, he said. The planned growth is why Syncrude shuffled its management deck last September. Jim Carter, formerly the company's vice-president of operations, replaces Newell as president. Other executives have also taken on new and expanded roles.
Newell said the new structure has its clear benefits. "It certainly allows me more flexibility with all the external responsibilities that I have which I could never do it I didn't have such a talented management team. They are very important to our future."
Solid financial backing from the company's 10-member ownership group is also critical, he said. "This is not a business for the faint of heart, let me tell you. These are huge dollars and you need that support."
Newell become Syncrude's CEO in 1989 and was appointed chairperson of the about four years ago.
Already approved and into production is the $335-million North Mine, the first new oilsands mine Alberta has seen in 20 years. The mine is unique because it uses hydrotransport technology which moves oilsand in a fluid slurry via a pipeline to extraction.
When Syncrude first began operations in 1978, such technology didn't exist.
The first $130-million capacity enhancement to the upgrader, commonly referred to as a debottleneck, has been completed.
Another part of the $6-billion investment includes the $1.5-billion Aurora mine. The go-ahead to proceed with Aurora and the second debottleneck could be ready to move to the approval stage by April. Syncrude received provincial approval for Aurora in October. Pending regulatory approval, the $3-billion upgrader expansion will come on stream about 2002.
For 1998, Newell said one of his big challenges will be managing the huge existing capital program while keeping the 80 million barrels of crude oil for 1998 on target.
Then there's the challenge of decreasing Syncrude's operating costs per barrel. In 1996, they were $13.70.
Between 2000 and 2002, costs are expected to range between $11 and $12 per barrel . The company wants to achieve $9 to $10 per barrel between 2005-2007.
Slumping world oil prices are perhaps a more immediate challenge for 1998.
Oil prices dove below $17 US in early January, primarily because there's more supply than demand. In 1996, oil fetched about $21 US per barrel.
Those strong prices meant Syncrude's 1996 revenue exceeded $2 billion for the first time in the company's history. It produced 73.5 million barrels.
Revenue results and 1997 cost per barrels aren't expected to be released until February.
Many people suggest the weaker oil prices will be here for a while, said Newell. But companies like Syncrude plan for the long term. Their expansions plans are based on prices of $18 to $19 US per barrel, a price Newell said is well below the price of the last couple of years.
"We aren't going to do a knee-jerk reaction just because the price is down for a while, but at Syncrude we just have to manage. "We have done that in the past when crude oil fell through the floor in 1986 and 1988; it was right in the middle of our major aggressive capital program -- capacity addition project -- that we just phased it a bit but we never slowed down. We never stopped the project." Back then oil prices fell below $10 US a barrel, something which caused a "major scare," Newell recalled.
What's different in the oil picture today are improvements to technology and productivity. With lower operating costs, Newell said the company is in a much better position to withstand low crude.
As one of the oilsands' foremost ambassadors, Newell sees great potential for Syncrude, if not all of northeastern Alberta. The area offers an "industrial mosaic," he said. Take the tailings ponds, where fine particles removed from oilsand are put to settle. The tailings contain valuable heavy metals. There's even gold in the limestone below the oilsand, said Newell. Newell said Syncrude has been too busy in the past to work on such reclamation projects. Another opportunity lies in the rich petrochemical feedstock the oilsands contain.
"If you look at all the developments that are going to occur in this region between Syncrude and Suncor, Mobil and Shell, at some point in time it is going to make a lot of good sense to start extracting the petrochemical molecules."
Syncrude also has a lot of coke, a byproduct resembling fine ground-up asphalt that's created in the conversion process of bitumen to upgraded crude oil. "We stock pile our coke and ultimately we will have so much that that ultimately the price of natural gas will get high enough that it will be economic for us to desulfurize that coke and then use it to generate power or something."
All possible economic opportunities are tracked, said Newell. "People should think of us as not just an energy field. We will produce a lot of value-added opportunities that will surface as this whole industry grows." |
