MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, FEBRUARY 11, 1998 (2)
TOP STORY
Gulf May Return To Calgary - Someday
Sydney Sharpe - Calgary Herald
The chief honchos at Gulf Canada Resources Ltd. may someday call Calgary home again, although it isn't likely to happen this year.
Their highly controversial move to Denver, in the fall of 1996, annoyed many in the local oilpatch.
But "it's not on the radar screen now," Gulf's new chief executive Dick Auchinleck said Tuesday. "Will Gulf stay there forever? I wouldn't say that. At some point in time we will need to review that."
Gulf's surprise announcement Monday that flamboyant chief executive J.P. Bryan was resigning has prompted speculation that Gulf would bring its executives back to Calgary.
Auchinleck argued that moving to Calgary wouldn't make sense "at the present time."
Analysts agree that Gulf has too much on its plate to make any major moves immediately, but some expect the relocation to occur sooner rather than later.
"They have too many bigger issues to deal with right now," said Martin Molyneaux, an industry analyst with FirstEnergy Capital Corp.
"They've spent a lot of time and money to move to Denver. Moving back to Calgary would be tremendously expensive and erosive for people's focus and concentration and that's what they need most now."
Another analyst suggested that moving the head office to Jakarta rather than Denver made more sense.
"Gulf must prove itself with the drill bit internally," added Molyneaux.
But Gulf isn't expected to change its game plan in terms of ongoing exploration and development activity.
"They just won't be as aggressive in pursuing acquisitions," said David Wheeler, an analyst with Bankers Trust New York. "I think the stock is down and out on oil prices and problems in the Far East, and it is overdone."
Wheeler believes Gulf's shares are good value and it will generate growth this year and next.
But Gulf's board of directors obviously believed that wasn't enough. With Bryan gone, Earl Joudrie, the chairman of the board, will try to re-position the company away from its high debt load.
Joudrie is known as a no-nonsence troubleshooter who leads companies in crisis through restructuring. Algoma Steel Inc., Canadian Tire Corp. and Sceptre Resources Ltd. are a few businesses that he has guided through difficult times.
One person who will not be on the board is Jeff Tonken, former chief executive of Stampeder Exploration Ltd., which Gulf bought in a friendly deal.
Tonkin was asked to withdraw his name from nomination to Gulf's board, primarily because he took a number of people from Stampeder to his new venture, Colony Energy Ltd. Colony also made acquisitions and deals which Gulf considered competitive.
"We were concerned over potential conflicts of interest," said Gulf spokesman Dennis Martin.
FEATURE STORY
Anderson Exploration Chief Bullish On Gas Prices
Ian McKinnon - The Financial Post
Anderson Exploration Ltd.'s chairman and chief executive said yesterday he is bullish on gas prices, but bearish oil prices and higher costs cut first-quarter earnings by 70%.
"We took it on the chin in terms of our liquids price," J.C. Anderson told his firm's annual meeting in Calgary.
He doesn't expect oil prices to go above US$20 a barrel for the year.
However, he was much more optimistic about the future of gas prices. Increased pipeline capacity, higher decline rates and a reduction of excess supply have him forecasting Canadian gas will rise over the next year to average $2.40 to $2.70 a thousand cubic feet, about $1 higher than the current price. "I see good news ahead for gas prices," he said.
Investors seem to be looking at the same picture and Anderson's shares have been rising recently, said Peter Linder, analyst with CIBC Wood Gundy Inc.
"Clearly investors are looking for gas-oriented producers amongst the senior producers and certainly Anderson fits the bill," he said.
Each 10› rise in the price increases the gas-weighted producer's cash flow by $17 million (14›) and earnings by $11 million (9›).
For the three months ended Dec. 31 earnings fell to $11.3 million (9› a share) on revenue of $195.2 million, down from $37.2 million (31›) on revenue of $207.1 million a year earlier.
Cash flow dropped 24% to $90.8 million (74›) from $119.3 million (98›). Increased daily production of gas as well as oil and natural gas liquids this year was hurt by a 24% decline in the average liquids price plus a 35% jump in operating costs.
Anderson expects to spend 60% of its capital budget of $505 million in the first half of the year. However, the budget may be clipped if low commodity prices continue. The firm has delayed some spending on heavy oil, which accounts for 4% of its overall production.
While economics for heavy oil are currently unattractive, the firm's founder isn't backing away from the commodity over the long haul, he said.
FEATURE STORY
Sable Energy Project Now Official
The owners of the $3 billion Sable Offshore Energy Project (SOEP) made it official in Halifax today.
With all regulatory approvals in place at both Federal and Provincial levels, the owners -- Mobil Oil Canada Properties Limited, Shell Canada Limited, Imperial Oil Resources Limited, Nova Scotia Resources Limited and Mosbacher Operating Limited -- have now signed both their key commercial agreements and the Facilities Alliance Agreement to engineer, construct and install the facilities. This formally commits the owners to the $2 billion first phase which will deliver the first gas from offshore Nova Scotia in late 1999.
"Today marks the most important step taken in the history of our industry in Nova Scotia," Mobil Oil Canada president Jerry Anderson said on behalf of the owners. We have formally set in motion the engineering, procurement, construction and installation of the first phase to produce gas from the Venture, North Triumph and Thebaud fields.
"And we're putting down roots here as we establish a new company, Sable Offshore Energy Incorporated (SOE Inc.), based in Halifax, to manage the project and oversee operations through its life," Anderson said.
John Brannan, currently Mobil Oil Canada's Well Operations Manager, will become General Manager of SOE Inc. and Lynn Zeidler of Shell Canada will continue as Tier 1 (first phase) Implementation Manager. They will be responsible for day-to-day management of the project and will report to the owners through the Sable Offshore Energy Incorporated Management Committee.
The project Facilities Alliance Agreement, signed today, formalizes the previously announced alliance between the seven companies (Allseas Canada Limited, BBA, Elsag Bailey (Canada) Inc., Kvaerner Oil and Gas Ltd, MMIndustra/Brown&Root Joint Venture, Saipem UK Ltd, and AGRA Monenco/Brown&Root Joint Venture) to carry out the engineering, procurement, construction and installation of the facilities.
"We're pleased to sign this document and confirm this alliance," Anderson said. "I know the members have already been working hard to ensure we meet our start-up date in late 1999. Both SOE Inc and the Facilities Alliance are committed to meeting our stringent environmental and safety standards and to ensuring Nova Scotia and Canada benefit as much as possible from this development."
All the owners paid tribute to the support received in Nova Scotia and Canada generally in the past three years. "Without this support, we would not be here today confirming the largest single investment in Nova Scotia's history," Anderson added. Shell Canada Limited's Senior Operating Officer, Resources, Neal McKim, said the 1996 and 1997 3-D seismic programs were yielding encouraging results.
"Work to date shows the reserve potential is greater than initial estimates and we now believe we will be able to recover more than 3.5 trillion cubic feet of natural gas," McKim said. "This is great news as it will enable us to increase initial production to help meet growing market demand, especially in Canada's Maritime region."
The owners expect initial production of more than 500 million cubic feet of gas per day (mmcfd) up from the currently planned average daily rate of 460 mmcfd. This new production will be within the facilities design capacity of 554 mmcfd sales gas rate.
"While we still have work to do to complete the assessments of the 3-D information and update computer simulations, we're hopeful we'll be able to maintain these higher rates over the longer term," McKim added. "The final proof, however, won't come until we experience actual well and field performance."
Natural gas from the Sable project will be transported to markets in Nova Scotia, New Brunswick and New England by the Maritimes and Northeast Pipeline which will be in service in 1999.
The owners of Sable Offshore Energy Incorporated are:
Mobil Oil Canada Properties Limited 50.8 per cent
Shell Canada Limited 31.3 per cent
Imperial Oil Resources Limited 9.0 per cent
Nova Scotia Resources Limited 8.4 per cent
Mosbacher Operating Limited 0.5 per cent
FEATURE STORY
Shipyard Owners Predict High Employment In 1998
St. Johns Evening Telegram
The new operators of the Marystown Shipyard expect 1998 to be a good year for employees.
Richard Marler, chief operating officer for Friede Goldman International Inc., which bought the yard for a dollar and a promise of high employment for at least three years, says the company's operating plan for 1998 includes overall repair and new construction work.
"Clearly one of our shifts will be more towards the offshore industry," he said. "We are currently bidding on several jobs that will heavily involve work being done in Marystown."
Marler says Friede Goldman International recently concluded a contract for oil rigs coming out of China. These rigs have not yet been completed and will have to be fully outfitted, he said. Additional structural work will also have to be done.
"That work will mostly be performed in Mississippi, but there are going to be subcontract opportunities for Marystown in these contracts as well," Marler said.
Friede Goldman International is committed to providing 1.2 million person hours of work a year in Marystown for the next three years.
"We believe Marystown will operate at that level or even slightly higher for the full period," he said.
Friede Goldman is also committed to capital expenditures in Marystown. Marler says they are currently looking at spending $5 million to $10 million.
"Last week while I was there we reviewed some capital plans," he said. "We intend to continue an upgrade of the computer systems and we also intend to improve and upgrade the front end of the operation, which is
steel processing and cutting."
The company is looking at expanding the covered work area, particularly at the Cowhead facility.
"This will bring more of our steel operations indoors away from the elements, so that it's not cold, rusted and harder to work with."
Friede Goldman last week announced the appointment of Guy Cagnolotti as new acting-president, succeeding Malcolm Weatherston.
Marler said Cagnolotti will remain interim president until they find a permanent replacement. Cagnolotti is a candidate for the full-time position.
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FEATURE STORY
Saskatchewan Royalty Moves Gain Positive Reaction
Industry is reacting positively for the most part to changes to royalty/tax structure announced Monday by Saskatchewan Energy Minister Eldon Lautermilch.
"The royalty changes will make Saskatchewan's petroleum industry more competitive and provide the certainty needed for sustained industry activity," said David Manning, president of the Canadian Association of Petroleum Producers. "The changes will be particularly helpful for heavy oil production."
Praising the Saskatchewan government for its consultation with industry on the royalty changes, the CAPP president indicated natural gas exploration also will benefit.
"The royalty changes will help develop this resource at a key time of market growth," Manning said.
"Certainly we're pleased," said Kevin Finn, spokesman for Canadian Occidental Petroleum Ltd., which along with subsidiary Wascana Energy Inc. was the most active company in Saskatchewan last year.
"Any time you improve the economics it motivates the market," he said. "It's a competition out there."
With the new royalty/tax structure more work can be done at a time of low commodity prices -- particularly for oil -- in an area that might otherwise be put on the back burner. "Funds that would not otherwise be there, are now," Finn said.
The new oil and gas fiscal changes would apply almost exclusively to new wells drilled on and after Feb. 9. Currently producing wells will continue to pay royalties and taxes based on the old rates.
Lautermilch said the changes, based upon government calculations, should mean $415 million in new oil and gas revenue for the province over the next 10 years and up to $3 billion in incremental investment benefits.
The Saskatchewan government estimates the royalty/tax adjustments could lead to drilling of 5,200 oil and 1,650 gas wells and boost production by 190 million bbls and 390 bcf over the next 10 years.
"We've put this together with lots of thought," Lautermilch said in noting the province realized it had to do something about what it even considers "a very high royalty and tax structure."
But the energy minister pointed out the Saskatchewan government is not going to totally abandon a structure that enabled it to produce balanced budgets in the last three years after inheriting a huge debt when it took office.
"We have a very high royalty and tax structure and we make no apologies for that," Lautermilch said. "We made a commitment to put our house in order and part of that was going to be by getting more resource revenue."
As an incentive for oil and gas, the Saskatchewan Resource Credit will be increased to 2.5% from one per cent for new vertical wells. This adjustment effectively reduces royalty and tax rates for production by about 1.5 percentage points.
The incentive benefit combined with a lower third tier royalty/tax structure for natural gas, means general rates will drop about 25% to 30%.
New oil wells in the Swift Current area will benefit from a new third tier structure meant to recognize the lower quality and price for this type of production.
The volume incentive for development heavy oil wells -- drilled in the designated Kindersley-Kerrobert and Lloydminster areas -- is being increased to 4 000 cubic metres from 2 000 cubic metres.
Further changes would have all oil wells being eligible for a drilling incentive regardless of spacing approved for the holes. Also, minimum royalty restrictions will be removed, effective March 1, for oil wells drilled on certain Crown mineral lands.
Saskatchewan has about 18,290 producing oil wells and 7,610 producing gas wells. Remaining reserves at the end of 1996 were estimated at 1.08 billion bbls of oil and 2.84 tcf of gas.
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