MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, FEBRUARY 5, 1998 (2)
FEATURE STORY
Oil Service Firms Take Longer-Term View
The Financial Post
The president of Canada's largest oilfield supply company says he isn't worried about a downturn this year because of the falling price of oil.
John McCrae, also chief operating officer of CE Franklin, said there is no reason for gloom even if drilling falls to 12,000 wells or 13,000 wells from more than 16,000 in 1997.
"Those were [numbers] we would have salivated for four or five years ago," he joked, adding any cooling in the sector will remove inflationary pressures on labor costs.
CE Franklin has started supplying oilsands operators in northern Alberta and is looking at Ontario's industrial market as ways to cushion the down cycles of the oil business.
Energy service stocks, hurt by the fall in oil prices in January, may take another blow from investors nervous about the impacts of producers cutting exploration and development budgets.
But several analysts said the longer-term view, especially for companies active on the gas side, is attractive. The fallout will be felt after spring breakup when explorers review winter drilling results and recalculate the economics of prospects in light of reduced commodity values.
"I don't think that the cash flows of the service firms will go down as much as cash flows for producers," said Tom Budd, managing partner of corporate finance at Griffiths McBurney & Partners.
Drilling and seismic stocks may take a hit, but low prices will benefit service firms that help producers cut costs and maximize production from existing reserves, he said.
Reduced oilpatch activity may create opportunities for some players, added John McAleer, who follows service firms for FirstEnergy Capital Corp. Acquisitors in the sector, scared off last year by high asset prices because of frantic activity, may be able to make deals at reasonable levels as sellers' expectations have likely been reduced, he said.
Looking beyond this year and into 1999, FirstEnergy is quite upbeat about the future of service firms.
"The value players who can afford to wait until 1999 will be well rewarded, although it may be a little rocky in the short term," McAleer said.
NYMEX
CRUDE OIL
Crude-oil and petroleum-product futures settled higher Thursday on the New York Mercantile Exchange on reports that the U.S. is sending additional troops to the Persian Gulf.
March light sweet crude oil settled up $0.21 to $16.58.
Reports that the U.S. is sending an expeditionary unit comprised of 2,000 marines to the Persian Gulf hit the market just hours after the aircraft carrier USS Independence sailed into the Persian Gulf to join three other carriers, the USS Nimitz, the USS George Washington and Britain's HMS Invincible.
"The U.S. is doing some heavy saber rattling, and that's making some bears nervous," said Tom Bentz, an energy analyst with Cresvale International in New York.
NATURAL GAS
Natural gas futures ended up sharply Thursday in an active session, as a late flurry of technical buying drove March through key resistance.
March rallied 8.4 cents to close at $2.383 per million British thermal units. April settled 6.9 cents higher at $2.382. Other months ended up by 0.7 to 5.9 cents.
"The market just refused to break down today. No one wants to sell into it yet, but it's tough to rationalize these prices with the weather, storage and hydro levels," said one Midwest trader,adding buy stops above $2.38 helped March close over key resistance.
Traders said firmer physical prices today also lent support to paper, which technically seems destined for higher numbers near-term despite widespread skepticism from fairly mild weather forecasts and ample storage.
Chart traders agreed the March close above $2.38 should mean more upside. Next resistance was seen in the $2.50 area, with more selling likely at prominent highs in the low-$2.70s. Key support was pegged at $2.18, with minor support seen in the $2.22-2.25 area. Further buying was likely at $2.03. A close below $1.96 spot low could set up a test of daily continuation chart support in the $1.85 area.
Forecasts next week still call for mostly above-normal U.S. temperatures. After a brief cooldown in the Northeast and Mid-Atlantic this weekend, more moderate weather is expected early next week. In the Southeast and Texas, cool temperatures this week should moderate by the weekend or early next week.
In the cash Thursday, Gulf Coast swing quotes firmed more than a nickel to the mid-to-high $2.20s. Midcon pipes were up about a nickel to the high-teens. New York city gate gas was two cents higher in the low-$2.50s, while Chicago gas gained more than five cents to the low-$2.30s.
The NYMEX 12-month Henry Hub strip gained 4.6 cents to $2.456. NYMEX said an estimated 72,173 Hub contracts traded, up from Wednesday's revised tally of 53,060.
U.S. NATURAL GAS SPOT PRICES
U.S. spot natural gas prices turned stronger Thursday as a short-term cold spell sparked additional demand in the East and futures rallied, industry sources said.
NYMEX's March contract stretched its lead today to a high of $2.40, up 10.1 cents from Wednesday's settlement.
Meanwhile, snow blanketed parts of Tennessee, Kentucky and New England amid strong winds and heavy rains across the East Coast. Swing gas at Henry Hub was quoted mostly in the high-$2.20s to low-$2.30s per mmBtu, up about eight cents from Wednesday.
In the Midcontinent, prices were similarly firmer at $2.16-2.20, with Chicago city-gate quoted at $2.312.34.
In the western markets, Pacific Gas and Electric trimmed output again at its 1,087 megawatt (MW) Diablo Canyon nuclear unit 1 to about 82 percent. The adjacent 1,073 MW unit 2 was still operating at full power.
At the southern California border, prices regained six cents to the mid-$2.20s.
Permian Basin prices were also stronger at $2.09-2.12, and San Juan prices were quoted mostly at $2.03-2.11.
In the East, New York city gate prices were quoted around $2.50, while Appalachian prices on Columbia hovered in the high-$2.30s.
More moderate, milder weather is expected to return to the East by Friday, followed by slightly colder weather on Sunday and Monday and a week of above-normal temperatures across the U.S.
CANADA NATURAL GAS SPOT PRICES
Canadian spot natural gas prices were mostly higher Thursday amid a NYMEX rally and additional demand in Alberta, traders said.
Spot gas at the AECO storage hub in Alberta was quoted at C$1.62-1.64 per gigajoule (GJ), up about four cents from Wednesday.
March AECO was also discussed at C$1.62-1.63 per GJ, while July/August business also clung to about C$1.62-1.63.
Forecasts in southern Alberta are calling for highs of about one to two degrees Celsius through the remainder of the week, a Calgary-based trader said.
Storage withdrawals in the west totaled 553 million cubic feet a day on Wednesday, little changed from Tuesday's tally. A similar withdrawal rate was expected to continue through this weekend, a trader said.
At the borders, Sumas, Wash., spot gas was talked at US$1.34-1.35 per million British thermal units (mmBtu), off about four cents from Wednesday.
In the East, gas at Niagara was priced mostly at US$2.43 per mmBtu, indicating a daily gain of eight cents. Sources attributed the firmness to the jump in March gas futures to a high of $2.40 and spot demand in the eastern U.S. |
