MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 23, 1998 (7)
OTHER COMPANIES IN THE NEWS
RAPIDFIRE RESOURCES LTD. (RPF-ASE) announced it has closed three transactions this week; the purchase of the Kirkpatrick Lake project, the sale of its Fort St. John property and the private placement issue of 1.0 million flow-through shares at 30 cents.
Rapidfire has closed a cash purchase with Koch Exploration Canada Ltd. for a shut-in gas property in the Kirkpatrick Lake area in east-central Alberta. The property consists of 8860 net acres of oil and gas rights including twelve shut-in gas wells, a compressor station and associated lines and facilities. The property last produced in 1991 and plans are underway for the immediate start-up of the facility. Initial rates are expected to be greater than 500 mcf per day, net to Rapidfire. Rapidfire already holds an interest in some of the property and plans to tie-in other Company interest wells in the area. Additional drilling is planned after spring break-up. An independent engineering evaluation of the acquired interest increases the Company's net asset value by 18 cents per share to 50 cents per share (fully diluted).
Rapidfire has sold its interest in the Fort St. John property for cash. In the Company's opinion, no cash flow would have been realized from this property during 1998.
CORAL SEA PETROLEUMS LTD. announced that it has acquired a 62.5% interest in 3 sections (1920 gross acres - 1200 net acres) of mineral rights at the January 21, 1998 Government of Alberta Land Sale. The land is located in Coral Sea's Legal core area and is postulated to have potential in the Viking and Leduc formations. Coral Sea will purchase and or shoot seismic over the lands in the near future and if interpretations are positive, will drill a well to test the land in the late spring or summer of 1998.
CANTEX ENERGY INC,(CTXE-OTC; CXEGF-BB) is pleased to announce that its purchase of producing properties in several US states successfully closed Tuesday, January 20, 1998.
The purchase involved the non-operated working interests of Linderwood L.L.C/Petrocap Inc., of Dallas, Texas in 15 producing properties. Purchase price was $846,665 and the net operating income in 1998, net of operating costs, production and ad valorem taxes, is expected to be $170,000 or 20.1%,at current commodity prices and exchange rates. Cantex income is retroactive to December 1, 1997.
Independent evaluation of the Joint Venture Partnership leases in Texas &Louisiana is presently in process.
INTERNATIONAL NEWS
COMPANIES
CHAUVCO RESOUCES INTERNATIONAL LTD. (CHV/TSE) is currently drilling an exploratory well in Gabon to test the Fourou Plage sands beneath the producing Gamba pool in the Remboue field. This well is programmed to be drilled to a total depth of 4,800 feet by the end of the month, following which the drilling rig will be released.
Prior to spudding the Fourou Plage test well, a horizontal well was drilled to evaluate the potential of the Remboue East pool. This well encountered oil staining in the uppermost part of Gamba formation and produced water on production test. The results of this well do not support the presence of proven oil reserves in the Gamba formation at Remboue East.
Chauvco is releasing the slim-hole rig used to drill shallow exploratory wells on the Remboue Permit. Of the three wells drilled to date outside of the Remboue producing field, one well had minor oil shows and two wells were water-bearing in the target Gamba horizon.
SERVICE SECTOR
AMERICAN ECO CORP. is one of two companies that Dominion Bridge Corp. is reviewing in relation to a merger proposal. Dominion Bridge, an infrastructure and engineering company, said it is looking at bids from two unnamed suitors for a "business combination."
Dominion Bridge has formed a committee of three directors and a representative of Legg Mason Wood Walker, the company's investment banker. The committee's mandate is to get the best terms possible from both companies and report back to the board with a definite proposal "as soon as reasonably possible."
American Eco Corp. is a Toronto based industrial services company that had revenue of US$225 million last year. In December, American Eco said it was interested in Dominion but has said nothing since. American Eco completed due diligence on Dominion Bridge on Jan. 17. "We will have an announcement in the near future," said Cindy Jackson, American Eco's director of investor relations.
PIPELINES
Pipeline Courtship Poses Many Questions
A marriage with Nova Corp. would bump TransCanada PipeLines Ltd. into the big league of North American energy companies.
However, the merger proposal will likely hang over the stock like a dark cloud until any deal is finalized.
Uncertainty over whether the merger will go ahead, and how it will be structured, has already dragged down TransCanada's stock price.
"Everybody is nervous about how much they are going to pay and why would they want to be in petro-chemicals," says Robert Hastings, pipeline analyst with Goepel Shields & Partners Inc. in Vancouver.
Nova and TranCanada confirmed in separate statements Thursday, following weeks of speculation, that they are in discussions for a possible merger.
Nova chief executive Ted Newall said Friday his company could reach a merger accord as early as this weekend.
"It will be done this weekend or it's dead," Newall told Bloomberg News.
TransCanada officials declined to comment on the state of the merger discussions.
The combined companies would create a pipeline giant with a market capitalization of more than $14 billion and assets of $22 billion.
They would also form the largest natural gas pipeline network in North America.
Analysts have speculated TransCanada could pay between $17 and $18.50 for Nova's stock.
However, one analyst, Tom Kehoe, a principal with Peters & Co. Ltd. in Calgary, said anything over $16 would be "very generous" for Nova's shares, which have been stuck in a $12 trading range for most of the year.
"TransCanada has not been caught overpaying for assets in the past," says Hastings.
In fact, its management has walked away from some deals they deemed to be too expensive.
Many questions need to be answered before there is a clear sense of the outlook for the merged company, say industry analysts.
For example:
Will the union be done on a pooling of interests basis, which has tax advantages?
Will TransCanada keep Nova's chemical assets for some time, or will they sell them immediately to a third party who is already waiting in the wings?
Will they make money from spinning off the assets, valued at more than $5 billion?
How much will they pay for Nova?
What are the synergies between the two companies?
How much can they save by pooling resources?
"There has got to be tremendous savings potential, but how much of that will they get to keep, and how much will they have to give back to the producers?" asks Hastings.
TransCanada's stock has enjoyed an almost uninterrupted upward ride in the past year, rising from a low of $23.55 last January to a high of $32.80, until rumors of the merger discussions gained momentum this week.
The stock has achieved a total return of 29.7% for the past 12 months.
The company recently lifted its quarterly dividend to 31› a share, an increase of 7% over the 29› a share paid in each of the first three quarters of the year.
The stock's appreciation was due in part to the pipeline sector's strong performance during the past 12 months because the interest-rate climate favored income yielding investments, and in part with TransCanada's own successes, says pipeline analyst David Fleischer, of Goldman Sachs & Co. in New York.
"TransCanada has been the best performing of the [Canadian natural gas] pipelines, and had a little more consistent record of growth," Fleischer says.
"The company had a much broader plate of international projects, so not only are they a large and growing Canadian pipeline company but they also had a number of international successes," he says.
The regulated gas transmission business is still its major revenue generator.
In results announced Friday, TransCanada announced a profit of $407.6 million for 1997 ($1.85 a share), up from $385.2 million a year earlier ($1.85).
Revenue for the year was $14.24 billion, up from $10.79 billion in 1996.
For the fourth quarter, earnings were $100.5 million (45›), down from $102 million (48›) during the same period last year.
The profit from the energy transmission unit was $333.9 million, up from $323.6 million last year.
The other income was from energy marketing, energy processing and international projects.
"We had a strong contribution from all our businesses except those affected by petroleum and products prices," said TransCanada chief executive George Watson.
"As we expand into more market-based businesses, the earnings of the company will become less predictable than what we have been used to in the past. This is the price today of providing our shareholders with opportunities for increased value added in the future."
TransCanada's pipeline system is the largest mover of natural gas from west to east in Canada and accounts for 10% of North America's natural gas needs.
Nova, which almost has a monopoly on natural gas transportation in Alberta, supplies 90% of TransCanada's gas at the Alberta border.
TransCanada's main line, which runs from the Alberta-Saskatchewan border to the Quebec-Vermont border, has a capacity of 7.8 billion cubic feet daily, and about half of it is exported to the U.S.
Canada's entire exports to the U.S. are 8.3 billion cubic feet daily, about 14% of the country's total needs.
TransCanada's future performance will depend on the performance of natural gas exports to the U.S., says Fleischer. Right now, the outlook for natural gas exports to the U.S. is good. Demand is expected to increase in the a year 2% range.
"As long as the gas moves to market economically, the pipeline industry will do well," says Fleischer.
A combined Nova-TransCanada would face competition from the proposed Alliance natural gas pipeline, which may receive regulatory approval this spring.
TransCanada has proposed an expansion of its own system in competition with the Alliance project.
The proposed expansion would link to Nova 's network and with the proposed Viking-Voyageur pipeline in the U.S. It would be be completed by November 1999, at the same time as the Alliance project.
Rising demand for natural gas in the U.S. warrants the construction of at least one new line, and possibly TransCanada's pipeline, too, says Fleischer.
TRANSCANADA PIPELINES LTD. announced that net income to common shares (net earnings) rose $22.4 million to $407.6 million in 1997. Earnings per share were $1.85, the same as 1996. For the fourth quarter, net earnings were $100.5 million or 45 cents per share, compared to $102 million or 48 cents per share in 1996.
''We have had strong contributions from all our businesses except those affected by petroleum and products prices,'' said George Watson, TransCanada's president and chief executive officer. ''Deteriorating margins in petroleum and products marketing and the US gas processing businesses, particularly in the fourth quarter, plus the costs associated with the ongoing expansion of our energy transmission business, kept our earnings per share flat on a year over year basis. We remain confident that we will achieve our earnings per share targets of $2.40 by 2000 and $3.00 by 2002,'' he said.
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