MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, FEBRUARY 16,1998 (4)
Date: February 12, 1998
Unidentified Source
Remington Energy Ltd.
(REL/TSE) $18.10]
Buy On Weakness
Remington Energy Ltd. has revised its production estimates for 1998 to 20,000 boe/d from its previously estimated 24,500 boe/d. There are a number of reasons for this revision and these will be discussed later. Suffice to say, at this point, this revision in production volumes has lowered our cash flow estimates for the Company considerably. We now estimate Remington's cash flow at $78.4 million or $3.22 per share ($3.07 per share fully diluted) versus our previous estimate of $105.2 million or $4.33 per share ($4.11 per share fully diluted). Furthermore the preliminary 1999 cash flow estimate we have for Remington has been reduced from $4.99 per share fully diluted to $3.76 per share fully diluted. No doubt the market will be disappointed with these new lower estimates and we would not be surprised to see this stock sell down further in the short term. We would be a buyer of these shares on any significant weakness, however, as we see an $18.20 per share price target for this stock based on our revised 1998 cash flow estimate and potentially a $22.85 per share price target based on our revised and preliminary 1999 cash flow estimate.
What happened? Where did all the production volumes go? There are a number of reasons for the reductions in the volume estimates. They include:
Some disappointing drilling results from West Stoddart and Cache Creek in north east British Columbia recently. Since the West Stoddart oil pool was discovered, Remington successfully drilled 13 oil wells in the "E" and "F" pools. Recently it drilled two wells in the "D" pool. Both were dry. The rig was then moved to the Cache Creek property where four vertical wells were successfully drilled. The first well was left as a vertical gas producer. The second and third vertical wells were re-entered, and then successfully drilled horizontally. The fourth vertical well was then re-entered and drilled horizontally, but, it encountered no sand. Obviously there has been a glitch in the Company's seismic interpretation. Following this result, a fifth vertical well was drilled on this property. Unfortunately it, too, has proven dry, and once again the Company's seismic interpretation has been placed in doubt. The rig has now been moved back to the West Stoddart property to drill another location. These drilling results by no means condemn the Cache Creek property. They do mean, however, that the Company is likely to move more slowly as it figures out in what direction this pool extends. Currently there are four more locations picked for this property, but, probably only two more are going to be drilled. Needless to say, going slow means lower production volumes than was previously thought.
GOR (Gas/Oil Ratio) penalties have reduced allowables at the West Stoddart property. Four wells in this field are shut-in and the total production from this field has come down from the full allowable of 6,000 boe/d to 4,500 boe/d currently. Remington hopes to get a gas recyling scheme in place by May 1 to deal with this problem on a temporary basis. Ultimately the problem will be resolved when Nova's plant in the area is completed in September/October.
Delays are being encountered because of weather and First Nations issues and Remington is not going to get all the activity it planned done before spring break-up. This winter's activities got off to a slow start because of rainy weather. Approvals for surface access have been slow in coming due to the First Nations fight with the British Columbia government. This latter problem forced the cancellation of a 3-D seismic program at Inga in the first quarter. This program was expected to lead to drilling in Q2 and Q3 that would add 2,000 boe/d of production.
Lastly, in the interest of providing much tighter estimates going forward, any volumes attributed to the Company's ongoing exploration activities have been removed from the Company's estimates. Obviously the potential of the Company's exploration plays has not gone away and should success be encountered, the production numbers can always be revised upwards. We have no quarrel with this type of approach as future disappointments with production estimates are thereby lessened.
Remington now sees its production in 1998 on a quarterly basis building up as follows: 15,000 boe/d in Q1, 20,000 boe/d in Q2 and Q3, and approximately 25,000 boe/d in Q4. The average for the year is 20,000 boe/d as mentioned before. The largest part of these new estimates is derived simply from the Company's development activities. The Company has identified the following production adds from specific projects.
As is indicated, Remington now expects to reach 20,000 boe/d by the end of the first quarter. This was the original exit rate forecast for 1997. Basically, the Company has slipped a quarter. A rough approximation of the Company's production by field in 1998 is as follows: 6,000 boe/d from West Stoddart/Cache Creek combined, 3,000 boes/d from Red Creek, 6,000 boe/d from Rigel and 5,000 boe/d from other properties.
As far as an update on Red Creek is concerned, the first horizontal well drilled on the property is on stream producing approximately 400 b/d of oil. As well, it is producing around 2 mmcf/d of gas along with 100 b/d of liquids that presently are being flared. The second horizontal well is currently drilling with the lateral out about 450 metres (including 275 metres of net pay). This lateral will be extended out 1,500 metres. Two more horizontal wells are planned before the end of the first quarter. For the year as a whole, eight wells are planned. Basically these wells, on average, are expected to contribute 1,000 boe/d of flush production. This production level will decline in half in about six months, but the first quarter exit rate of 4,000 boe/d and yearly average production level of 3,000 boe/d for this property seems realistic.
The lower cash flow outlook forecast for Remington Energy in 1998 will lead to lower capital expenditures this year. These are now estimated between $110-$120 million versus the original estimate of $150 million. The Company exited 1997 with $140 million in net debt. Given our cash flow estimate of $78.4 million in 1998, Remington should exit 1998 with net debt of about $172 million, equivalent to 1.8 times our preliminary 1999 cash flow estimate. Of this year's capital expenditures, only around half will be required to generate the production additions mentioned earlier.
Revised earnings and cash flow estimates are as follows: Message 3449096
KERMS TOP 21 - SPEC 15 - SERV 9 COMPANIES IN THE NEWS
Tarragon Oil and Gas - See analyst comments
Remington Energy - See analyst comments
KERMS WATCHLIST OF COMPANIES IN THE NEWS
Gulfstream Resources Canada Limited (GUR/TSE) has released its Annual Report for 1997. The Company recorded a profit of $7,830,267 or 14 cents per share for the 1997 fiscal year ending September 30, 1997. This represents a 45% increase from 1996 income. Results reflect nine months of operations from the Al-Rayyan oil field offshore Qatar, which is in the initial appraisal phase of development.
Gross revenues for the year were $36,398,899 compared to $19,537,988 in 1996. Expenses, including lease costs for production, offloading and storage facilities at Al-Rayyan, totaled $21,385,805. Income taxes increased to $7,182,827 in 1997, from $6,028,176 in the prior year.
Cashflow from operating activities for 1997 increased 100% over 1996 levels.
Expenditures on oil and gas assets totaled $32,166,773 for the year, up from $24,504,418 in 1996. Cash at year-end was $51,828,631, in large part due to proceeds of a private placement of common shares in early 1997 of $43,958,685.
Total assets for the corporation now total $121,862,995 compared to $46,905,406 at year-end 1996. The company's working capital position remains strong due to large cash balances. Gulfstream's financial position was recently augmented by the negotiation of a $73 million long-term credit facility with a consortium of international banks.
On December 31, 1997, Gulfstream announced a dividend of two cents per share to shareholders of record on December 19, 1997.
OTHER COMPANIES IN THE NEWS
None
INTERNATIONAL
Companys
Primeline Energy Holdings Inc. (PEH/VSE) which announced a significant new gas discovery in the East China Sea in October 1997, wishes to announce the results of its post-discovery evaluation of the 'Vicky-1' (LS 36-1-1) well, located in Block 32-32 of the East China Sea.
The reserve calculation, prepared by management, based on the analysis of the well testing data, laboratory data of the samples collected from the well in addition to seismic data, indicates most likely recoverable reserves of 660 billion cubic feet (bcf) of natural gas for the reservoir defined by Vicky-1. Initial post- drilling evaluation has identified a potential recoverable resource of over 4 trillion cubic feet (tcf) of gas in nearby traps within a 20km radius of Vicky-1.
This discovery has revealed that the Lishui Sub-basin of the East China Sea has a proven hydrocarbon system. More than 10 additional prospects have been identified in Block 32/32, a 6,000 sq. km (1.5 million acres) concession block which covers much of the Lishui Sub-basin. The Company has a 30-year production sharing contract on Block 32/32 with China National Offshore Oil Corp. (CNOOC).
This spring, the Company intends to supplement its initial evaluation with 3D seismic data before commencing with the drilling of appraisal wells.
Primeline Energy Holdings Inc. is exclusively focused on oil and gas exploration and upstream opportunities in China.
Countries - Regions
Caspian Sea
Royal Dutch/Shell Group and Chevron Corp. said Monday they agreed to jointly develop large energy projects in the oil-rich Caspian region.
The two companies said in a statement that they would work on bringing oil from vast landlocked oil and gas fields to world markets.
"We envision projects of a scale that would generate significant value for the people of the region," said Chevron Dhairman Ken Derr.
Analysts said the deal made long-term strategic sense by combining Shell's strong political connections in Russia and its skills in transporting oil and gas with Chevron's already strong production base in Kazakhstan.
"Chevron has got the lion's share in the biggest existing development and Shell has got very good future potential," said Stephen O'Sullivan at M.C. Securities.
"The deal seems to be a good match of money now and healthy earnings prospects in the future."
Monday's accord adds another thread to the tangled web of alliances and joint ventures developing the vast hydrocarbon provinces in and around the Caspian Sea and searching for ways to bring oil and gas to
customers.
Chevron was in the vanguard when the former Soviet Union opened to foreign oil investors at the start of the 1990s, moving quickly to secure a large share in Kazakhstan's Tengiz field.
After much frustration the field came on stream and now produces around 185,000 barrels a day. But its potential is severely limited by the lack of export routes, a problem that plagues other oil-rich states in the Caspian area.
Tengiz oil currently has to be shipped by barge across the Caspian and then moved by rail to the tanker port.
Chevron has a 15 percent stake, the largest, in the Caspian Pipeline Consortium, which is to spend $2 billion to build a 1000-mile pipeline across a swathe of Russian territory to a Black Sea oil export terminal.
Through an alliance with Russian oil firm Rosneft, Shell holds a 7.5 percent stake in the CPC, which is key to unlocking Kazakhstan's oil wealth. Chevron hopes for the go-ahead from Russia to build the link by the third quarter 1998.
Shell's other interests in the Caspian, where it was slow to develop projects, include a leading role in a six-company production sharing agreement signed last November to produce oil from Caspian waters off Kazakhstan.
Last year Shell bought a 60 percent stake in the Temir block in western Kazakhstan and was due to begin an exploration drilling program. It also started a study on taking gas to Turkey either via Iran or underneath the Caspian.
A Chevron spokesman said the accord with Shell looked beyond the CPC project.
"It's a wonderful oil province but to realize that we have to solve the transportation problems and infrastructure issues," he said.
The deal with Shell, which has announced a major tie-up with the politically well connected Russian energy conglomerate RAO Gazprom, should give Chevron protection from criticism that its Tengiz deal was slow in bearing fruit.
"It's risk-sharing and diversifying," said O'Sullivan. "It makes a lot of sense, particularly for Chevron."
SERVICE SECTOR
American Eco Corporation (ECX/TSE) announced that it has decided not to pursue the acquisition of Dominion Bridge, of Montreal, Quebec, until certain internal matters within Dominion Bridge are resolved.
Canadian based American Eco stated, "In the event that the Board of Dominion Bridge should wish to reopen negotiations, American Eco would reconsider its position at that time". American Eco had earlier received unanimous approval by the Board of Directors of Dominion Bridge to provide interim management and credit facilities while agreements were being completed toward the purchase of 100 percent of the shares of Dominion Bridge.
American Eco is a leading Canadian provider of single-source construction, management, maintenance, specialty fabrication, engineering and environmental remediation services in the refining, petrochemical, utility, forest products and offshore manufacturing industries including facilities in Halifax, Edmontonand Vancouver.
PIPELINES
Will the person from British Columbia who discussed jobs in the pipeline industry with me, please contact me once again. I lost the necessary e-mail address to contact you.
The National Energy Board's Alliance Pipeline Project regional public hearing will commence in Edmonton, 17 February 1998. The hearing sessions will take place at the Edmonton Inn, 11830 Kingsway Avenue. The hearing times are: 17, 18 and 19 February from 1 p.m. - 4 p.m. and from 6 p.m. to 9 p.m. and also on 20 February from 8:30 a.m. to 1 p.m. Media are invited to attend and a media table will be available. Interviews may only be done during breaks in the proceedings.
EARNINGS
See Kerm's Watchlist Of Companies, Gulfstream Resources.
FINANCIAL
<b.GHP Exploration Corporation (CDN:GHPX.U) announced that it has arranged a brokered private placement, through a syndicate led by Yorkton Securities Inc., of up to 3 million Special Warrants to be offered at a price of US $2.00 per Special Warrant, with an over allotment option of up to an additional 600,000 Special Warrants, subject to regulatory approval. Each Special Warrant will be exchangeable into one common share and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire an additional common share of the Company for a period of one year at a price of US $2.50 per share.
The expected proceeds of the offering of up to US $7.2 million will be used to fund exploration activities on the Company's recently optioned Egyptian Concession (News-Feb. 9, 1998), development of existing fields and for general corporate purposes.
In related news, the Company announced that its Board of Directors have approved a six month extension of the period of exercise for the 2.4 million warrants to purchase the Company's common stock issued on March 6, 1997. The warrants, which are exercisable at US $3.00 per share and were originally scheduled to expire on March 6, 1998, will now expire on September 6, 1998.
MISC.
Humboldt Capital Corporation (HMB/VSE) advises that it has acquired, through a private transaction, 938,000 common shares of Brittany Energy Inc. (BNY/ASE) and 1,673,235 Class A common shares of Nycan Petroleum Corp. (NAP.A/ASE) , for a total consideration of $900,000.
The purchase of Brittany shares increases Humboldt's holdings inBrittany to 2,047,500 common shares and 400,000 special warrants, convertible into Brittany common shares at no additional cost to Humboldt.
Mr. R.W. Lamond is Chairman of the Board of Humboldt and holds approximately 59 percent of the outstanding shares of Humboldt. Humboldt, together with Mr. Lamond, own 3,682,730 common shares of Brittany and 600,000 Brittany special warrants. This represents 34 percent of the outstanding shares of Brittany, 33 percent assuming the conversion of all special warrants.
The purchase of Nycan shares increases Humboldt's holding in Nycan to 5,710,735 Class A common shares. Humboldt, together with Mr.Lamond own 6,786,735 Class A common shares, or approximately 20 percent of the outstanding shares of Nycan.
The share acquisitions are for investment purposes and both Humboldt and Lamond may from time to time increase their beneficial ownership of shares in the companies, but do not have any current intention of acquiring any additional shares in eithercompany.
In concluding this mornings column, here are two web sites to visit if you are interested in exploration on the east coast of Canada.
terranovaproject.com
hibernia.ca
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