MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, FEBRUARY 27, 1998 (03)
FEATURE STORY
Canadian Oil And Gas Output Continued Steady Rise In 1997
Canada's hydrocarbon basins continued to produce more oil and gas in 1997 with oil output jumping 4.2% and gas production climbing a more modest 1.7% from the previous year, according to Statistics Canada figures released Wednesday.
In a period of relatively depressed prices for most of the 1990s, Canada's petroleum producers have expanded national hydrocarbon production by more than two tcf a year of gas and over 160 million bbls of crude and equivalent since the beginning of the decade
In 1997, crude and equivalent production totalled 122.56 million cubic metres, up 4.2% from 1996 and 27% higher than output for 1990 at the beginning of the decade.
Natural production last year amounted to 156.18 billion cubic metres (about 5.54 tcf), a gain of 1.7% from the previous year but a huge leap of 58% from annual production for the first year of the 1990s.
Sales of gas in Canada rose marginally last year to 67.44 billion cubic metres from 67.22 billion cubic metres in 1996. Exports, however, continued to grow at a faster pace rising to 82.09 billion cubic metres from 80.12 billion cubic metres, a gain of 2.5%.
Crude oil and equivalent exports for 1997 amounted to 70.71 million cubic metres, a jump of more than eight per cent from the previous year, partly due to the new Express pipeline start-up. Imports of oil into Canada also rose last year to 44.28 million cubic metres, up more than 11% from 1996.
FEATURE STORY
Canadian Rig Fleet Still Near Peak Utilization
Drilling rig activity remained near peak levels during February with 97-98% of the Western Canadian fleet active through the first three weeks, but slipping a little this week to a 94% deployment rate.
Through the first two months of 1998, 540 out of a Western Canadian fleet of 555 rigs were active, according to Rig Locator surveys, for an overall 97% utilization rate.
That compares to a 96% utilization rate for the same two months in 1997 even though there are 73 more rigs available for work this year. The active rig count for January - February 1997 was 464, meaning operators kept an additional 76 rigs employed this year.
The available number of rigs in Western Canada is now almost back to peak 1986 levels when an average 565 rigs were open for work but only 36% were kept busy following the severe oil price crash that started late in 1985.
The most active operators of drilling rigs in Canada this week were Canadian Natural Resources Limited and Renaissance Energy Ltd. each with 26 rigs at work followed by Alberta Energy Company Ltd. with 24 rigs at work.
FEATURE STORY
North American Rig Count
Reuters
U.S. rig count down 29 to 960. In Canada, the number of working rigs fell by 11 to 501 versus 404 one year ago.
The number of rigs exploring for oil and natural gas in the United States stood at 960 as of February 27, down 29 from the previous week, and 120 above the year-ago total of 840, Baker Hughes Inc reported.
The number of rigs drilling on land fell by 24 to 796, while rigs working offshore rose by three to 139. The number of rigs active in inland waters fell by two to 25.
Among the individual states, the biggest changes occurred in Texas, down by 14, in Wyoming down by 11, and in North Dakota, down by six.
The number of rigs searching for gas fell by 33 to 612, the number of rigs searching for oil rose by four to 376, while the number of miscellaneous drilling projects remained at five. There were 251 rigs drilling directionally, 57 drilling horizontally and 652 drilling vertically.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas. For additional information with table statistics, go here bakerhughes.com
FEATURE STORY
U.S. Gulf Rig Count Down Two At 169
Reuters
There were 169 rigs under contract in the U.S. Gulf as of February 27, down two from the previous week, Offshore Data Services said.
The utilization rate for rigs working in the Gulf, based on a total fleet of 174, was 97.1 percent.
The number of working rigs in the European/Mediterranean area remained at 106 rigs under contract out of a total fleet of 110, a utilization rate of 96.4 percent.
The worldwide rig count remained at 585 out of a total fleet of 608, with a utilization rate of 96.2 percent.
FEATURE STORY
Canadian Junior Oil Firms Push Natural Gas Exposure
Small Canadian oil companies, battered along with the rest of the industry by the decline in crude oil prices, had an overriding message for investors on Wednesday -- forget oil.
Think natural gas instead.
Several junior oil companies pitching investors at FirstEnergy Capital Corp's annual East Coast Canadian Energy conference went to great lengths to explain how their emphasis on drilling and production had swung to gas amid growing bullishness over prices projected by the end of 1998.
It was a stark contrast to presentations of the past two years that highlighted oil, and especially Canadian heavy oil, as the target of choice. That ended when prices for heavy crude slumped amid ballooning production and limited capacity in key markets to refine the tar-like substance.
Echoing recent predictions from a number of forecasters, executives with companies such as Barrington Petroleum Ltd (BPL/TSE), Beau Canada Exploration Ltd (BAU/TSE), Merit Energy Ltd (MEL/TSE) and hot stock Genesis Exploration Ltd (GEX/TSE) said Canadian gas prices were expected to rise by November when about 1.1 billion cubic feet of new export pipeline capacity would drain off a long-standing surplus in Alberta.
"The key to this is the pipeline expansions," said Barrington Petroleumpresident Brian Gore, referring to the expansion and extension to Chicago of the Northern Border Pipeline and expansion of TransCanada PipeLines Ltd's (TRP/TSE) mainline.
The new capacity could mean a reduction in the discount for Canadian gas compared to U.S. NYMEX gas to US35 cents per thousand cubic feet from the current US$1.35, he said.
Barrington Petroleum, which earlier emphasized oil production, plans to spend C$100 million in 1998, 75 percent of that on gas development in western and northwestern Alberta.
The company forecast gas and gas liquids production of 156 million cubic feet a day in 1998 and 202 million cubic feet a day in 1999. Cash flow this year was projected at C$60 million or C$1 a share, about flat with 1997.
Beau Canada Exploration, which expects about 1,500 barrels a day less oil output this year as a result of shut-in heavy crude, projected gas production of 100 million cubic feet a day in 1998, up from 71 million last year. Net capital expenditures were budgeted at C$75 million, about 70 percent of the total targeted to gas.
Chairman Tom Bugg said he did not expect Canadian gas prices fall like heavy oil in a surge of drilling.
When Alberta is better hooked into the North American pipeline grid, Canadian producers would be able to reap rewards of higher demand in the U.S. as electrical utilities switch to gas from old nuclear and oil units, he said.
In addition, Canadian producers could have difficulty filling this year's pipeline expansions -- and the expected 1.3 billion cubic feet a day Alliance Pipeline in 1999 -- while trying to arrest declines in current output, Bugg said.
Although there were risks the Chicago price would fall with a flood of new Canadian as well as Gulf Coast production, the narrower price spread would still mean better returns for Canadian producers, he said. "We're betting the farm on that so I hope we're right."
Genesis Exploration Chairman Donald Sabo said his firm did not set out to take advantage of this year's projected higher prices, but it so happened its main operating regions were rich with gas. The company has excited investors with deep prospects in west-central Alberta.
Genesis Exploration expects to produce 7,350 barrels of oil equivalent in 1998, 70 percent of it gas. Cash flow per share was forecast at C$1.05 this year, up from C66 cents last year.
Investors said the companies gas pitch made sense in the current low-oil-price environment. It's one of the safer plays," said New York based investor Kenneth Moss. "There's capacity that's going to be underutilized instead of gas hitting that brick wall."
FEATURE STORY
Talisman Energy CEO Says Gulf Canada Resources Would Be a Good Fit
Talisman Energy Inc (TLM/TSE) Chief Executive Jim Buckee said on Friday that Gulf Canada Resources Ltd's (GOU/TSE) assets would make a good fit with his company, although no merger discussions between the two were currently under way.
"Plainly, we'd be good people to operate the assets," Buckee told reporters after a presentation to analysts and investors at a conference here.
Earlier this week, rumors circulated through Canada's energy and investment industries that Talisman was considering a takeover of Gulf, which has launched an C$850 million asset disposition program under new Chief Executive Dick Auchinleck.
Talisman and Gulf operate together in several regions around the world, including Canada, the U.K. North Sea and Indonesia, where the two are partners in the Corridor Block gas project.
Buckee said Talisman did not favor Gulf's strategy, implemented by former Chief Executive J.P. Bryan, of running the company as a corporate ''hub'' with semi-autonomous divisions, or ''spokes.'' He said he would consolidate operations in Talisman's fashion if the assets were under one corporate umbrella.
A major concern for Talisman in a takeover, however, would be Gulf's C$2.8 billion debt load, which has long been a millstone for the company, he said.
Gulf's asset sale program, which includes the spinoff of its Canadian gas gathering and processing assets into an income trust, plus the sale of non-operated U.K. North Sea properties and various non-producing assets in Canada, was aimed at cutting debt after three years of acquisitions.
Auchinleck said last week Gulf aimed to reduce its debt-to-cash-flow ratio to 2.5 times from 4.7 times within the next 12 months.
After his presentation in New York on Friday, Auchinleck said he said he believed Gulf's net asset value was in the range of C$12-C$15 a share, but the company had been trading well below that because of its high debt levels.
He told reporters he had not heard from Talisman on the prospect of a merger, but believed there may be several ''sharks'' circling Gulf.
When Gulf announced its divestment plans, it said it implemented a poison pill to protect shareholders in the event of a takeover bid by extending the time to evaluate and offer to 45 from 21 days.
"I just want to make sure we don't get this company stolen from the Gulf shareholders," Auchinleck said.
One of Talisman's key tenets under Buckee is that ''size is good of itself.'' One of its goals is to double oil and gas production within five years.
Talisman's production for 1998 is forecast at 240,000 barrels of oil equivalent a day, up from about 200,000 in 1997.
Gulf, meanwhile, expects to produce 204,000 barrels of oil equivalent a day this year, up from 180,000 in 1997.
FEATURE STORY
Noble Affiliates (Talisman Energy) Successfully Tests North Sea Well
Noble Affiliates, Inc. (NYSE/NBL) announced that its wholly owned indirect subsidiary, Brabant Petroleum Limited, has successfully tested well 20/4b-6 in the U.K. Sector of the North Sea at a rate of 41.5 million cubic feet of gas per day and 2,055 barrels of condensate per day.
Brabant holds a 12.5 percent working interest in the well. The remaining interest is held by Amerada Hess Limited, the operator, 40 percent; Lasmo North Sea plc, 17.5 percent; Talisman Energy (UK) Ltd., 15 percent; and Statoil UK Exploration Limited, 15 percent.
The well confirms that the discovery made by Shell Expro with their exploration well 14/29a-3, provisionally known as "Goldeneye," extends into the Amerada Hess group's acreage. The two groups are sharing data from the two wells already drilled and from 14/29a-4, which was drilled for Shell Expro to the east of the "Goldeneye" discovery and to which the Amerada Hess group contributed.
Noble Affiliates, Inc. is an independent energy company with exploration and production operations throughout major basins in the United States, including the Gulf of Mexico, as well as international operations primarily in Argentina, China, Ecuador, Equatorial Guinea and the U.K. Sector of the North Sea.
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