MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, MARCH 4, 1998 (2)
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TOP STORY
Hibernia Halves Output
Production Cutback Attributed To Maintenance Program To Revive Pressure Of Offshore Wells
Globe & Mail
The Hibernia oil megaproject has quietly cut its output by half because of a maintenance program needed to revive the pressure of its offshore Newfoundland wells.
The $5.8-billion Hibernia platform, which pumped 60,000 barrels a day in its first phase of operation, is forecast to average 30,000 barrels a day from late February until late June.
"We'll take a dip in production over the next few months until we get the pressure maintenance completed," Hibernia president Harvey Smith said yesterday in an interview from St. John's.
Hibernia recently shut in its first two wells for reservoir maintenance and testing, but a third well has been pumping almost 30,000 b/d for the past week. "They've got problems at Hibernia," said Ian Doig, publisher of Calgary-based energy newsletter Doig's Digest.
Duncan Mathieson, an analyst with Gordon Capital Corp. in Toronto, said the reduced output until midyear "will catch people by surprise." However, he said the four-month maintenance program of injecting water or natural gas into wells will later help push out crude oil that's hidden deep beneath the North Atlantic.
The megaproject went into production last November -- more than 18 years after the huge Hibernia field was discovered.
"Something inevitably will go wrong starting up a project of this magnitude," Mr. Mathieson added. "Some wells will go down like you're drilling through a snowbank but others will hit problem after problem."
One industry observer said that besides the shutdown of the first two wells because of low pressure, Hibernia's fourth well -- in the same fault block as the first well -- encountered mechanical snags while drilling into the Grand Banks, about 315 kilometres southeast of St. John's.
"Part of the hole caved in. It sounds dramatic and you don't want to see it happen, but when you drill wells, you're going to have problems," the observer said.
Mr. Smith didn't provide details of those difficulties, but said "we're not discouraged or disappointed. We're making good progress."
Hibernia's engineers have been successful in drilling close to the heart of massive oil formations in the Grand Banks, using three dimensional seismic surveys, Mr. Smith added. "We have been right on with our interpretations because the guys have come within one or two metres of hitting the formations."
The Hibernia consortium, led by Mobil Oil Canada Ltd. , will increase output in this year's third and fourth quarters as high as 90,000 b/d to easily meet and likely surpass a production target averaging 60,000 b/d this year, Mr. Smith said.
Mobil owns a 33.1-per-cent Hibernia stake, followed by Chevron Canada Resources Ltd.at 26.9 per cent and Petro-Canada at 20 per cent. All three companies are based in Calgary.
Mr. Mathieson said investors sent Petrocan shares down in part because of Hibernia's temporary output reduction, but weak crude prices also played a role. "This is an oil market where it seems like people are looking for reasons to sell oil stocks."
Despite the short-term interruption in production growth, Mr. Mathieson said Hibernia's longer-term prospects remain bright.
The project is still on target to pump 135,000 b/d by next year's second quarter and hit a production peak of 180,000 b/d by late 2000.
As well, Hibernia's first two wells were gushers that produced more oil at the outset than predicted, so implementing a maintenance program shouldn't be viewed in a negative light, Mr. Mathieson said.
"You could make the argument that if you're going to have production come down, what better time to have it come down than when oil prices are low."
Hibernia has a break-even point of roughly $12.50 (U.S.) a barrel, compared with current benchmark West Texas intermediate light crude prices hovering just above $15.30, down 30 per cent from a year ago.
Meanwhile, the Newfoundland construction site for the Hibernia platform will be named today as the winning venue for major contracts valued at almost $100-million (Canadian) to build key components for the Petrocan-led Terra Nova oil production vessel. Terra Nova is scheduled to begin production in late 2000 in the Grand Banks.
Some of Terra Nova's topside modules will be built at the sprawling construction site at Bull Arm, about 130 kilometres northwest of St. John's, industry insiders said yesterday.
In total, Terra Nova's floating production system will cost $2-billion to construct -- considerably cheaper than the Hibernia platform, whose concrete base rests on the ocean floor and is billed as iceberg-proof.
A division of Edmonton-based PCL Construction Ltd. will help oversee the new contract at the Bull Arm complex, which cost $475-million to develop in 1990-91 as part of the Hibernia project.
Terra Nova's topside modules, which will include equipment to process oil and a flare stack to burn off natural gas, will be placed on a ship-shaped production vessel. The disadvantage of Terra Nova's floating system is that production has to be halted and the vessel moved if an iceberg gets too close for comfort.
Last September, the Terra Nova consortium awarded a $200-million contract to Daewoo Heavy Industries Ltd. of South Korea to build Terra Nova's steel hull.
There had been concerns that the Bull Arm site would turn into a white elephant after the completion of the massive Hibernia platform last November.
But the Newfoundland government assumed responsibility for marketing Bull Arm, billing it as a "strategically located industrial site" for building offshore components.
Newfoundland Premier Brian Tobin had hinted two weeks ago that the topside modules would be built in his province, creating hundreds of unionized construction jobs.
FEATURE STORY
Samson Canada Ltd Canada Acquires Canadian Oil and Gas Properties From Canadian Natural Resources Ltd.
Samson Canada, Ltd., a subsidiary of Samson Investment Company, announced the acquisition of a significant block of producing oil and gas properties from Canadian Natural Resources Ltd. The purchase, which was in excess of $20,000,000 C, included oil wells located in Samson Canada's largest core area of Rainbow Lake, Alberta. The acquisition also included: gas reserves in the Portage Field, Northeast Alberta; gas reserves in British Columbia; and additional oil and gas properties in Central Alberta.
According to Gregg Fairbrothers, President of Samson Canada, Ltd., ''This acquisition is a continuation of the efforts by Samson to work aggressively with sellers to acquire oil and gas properties in its core area of operations. The Canadian Natural Resources purchase will increase Samson Canada's production by approximately 10 percent. The properties include many opportunities for well recompletions, utilization of gas compression, secondary recovery operations and additional drilling.''
Additionally, in late 1997, Samson closed an acquisition from Wascana Oil and Gas Partnership of gas properties and related seismic information in the Petitot Area of Alberta, Canada.
Samson Investment Company is a privately-owned business enterprise headquartered in Tulsa, Oklahoma with oil and gas exploration and production operations in the United States, Canada, Venezuela and Russia. Samson Canada is headquartered in Calgary, Alberta.
FEATURE STORY
Trysol Canada Ltd. Sees Golden Future
Calgary Sun
Dwight Loree, president of Trysol Canada Ltd., is looking downhole and sees big things coming up for the six-year-old oil and gas well servicing company.
"We're presently upgrading and expanding our Sundre process facility to meet customer demand," says Loree, who has led Trysol to the Arthur Andersen Private 100 list for the first time.
Loree says Trysol's business has steadily doubled every year since its inception in 1993, both in its well completions and well-servicing sectors.
"Although we do quite a number of completions, our solvent business is steadily growing in Alberta, Saskatchewan and the United States," says Loree. "We're now in a position to start pursuing an international completions and solvent business."
Loree says a major contribution to Trysol's success is its ongoing research and development program, through which new, innovative products have been specifically designed for fracturing and oil well stimulations.
"The industry was using byproducts developed for other applications," says Loree. "They were made in refineries and were very expensive.
"We looked at industry's needs and developed more cost-effective products, specially designed for industry applications."
Loree has high praise for Trysol's staff, who he says have played a prominent role in the company's solid success.
His nearly 40-years experience in the oil patch has taught him the value of steady, long-term, planned growth to overcome the ups and downs of the industry.
"We're working through a five-year program right now," he says.
"We don't just work on the short term -- we also work with long-term business objectives."
FEATURE STORY
Genoil Says It's In Danger Of Going Out Of Business
The Financial Post
Genoil Inc., one of the casualties of the financing fiasco surrounding St. GeneviŠve Resources Ltd., says it is at risk of being put out of business by the affair.
The Calgary-based oil and gas exploration company has been on the ropes since late November, when it discovered St. GeneviŠve, its 36% owner, had taken $5 million of its money without permission.
"The company's ability to continue as a going concern is uncertain and is dependent on a satisfactory resolution" of the unauthorized borrowing and St. GeneviŠve's own financial crisis, Genoil says in newly filed yearend financial statements.
The company must obtain new financing to stay afloat, it says.
Genoil says it will lose its interest in several Cuban exploration properties - its principal assets - if it cannot make a cash call payment of $3.4 million. That payment was due yesterday, according to the documents.
It was not known yesterday whether Genoil made the payment. No one answered the telephone at the head office in Calgary.
Jacques Rossignol, a Montreal lawyer who speaks for both St. GeneviŠve and Genoil, could not be reached for comment.
In its latest financials, Genoil says its ability to make the payment depends on completing a complex deal with an unnamed third party it outlined just three weeks ago.
The statements also reveal Genoil's assets have been under the control of a receiver since Dec. 3 - a fact Genoil has not publicly disclosed until now.
The company's officers and directors are barred by court order from settling debts or disposing of assets without approval from the court and the receiver.
Genoil's creditors have agreed not to seek an expansion of the receiver's powers, provided St. GeneviŠve makes weekly payments of $75,000 to Genoil until a court approves St. GeneviŠve's plan to repay its own creditors.
St. GeneviŠve has said the $5 million taken from Genoil's account without Genoil's knowledge was an "inter-company loan."
Shares of Genoil (GNOL/CDN) were the target of a cease trade order by the Ontario Securities Commission on Feb. 20, because the company was late filing financial statements.
FEATURE STORY
U.N. Talks On Hike In Oil Sale To Last A Week
Talks between Iraqi and United Nations negotiations teams intended to bring about at least a doubling of Iraqi oil exports are to last about a week and will begin Monday, a U.N. spokesman said on Tuesday.
Fred Eckhard confirmed the Iraqi team will be led by Foreign Minister Mohammed Saeed al-Sahaf. The Iraqi team will also include the trade and health ministers of the Baghdad regime.
The Iraqi team will land in New York on Sunday, Eckhard said.
Two weeks ago the U.N. Security Council voted to increase Iraq's export ceiling in the U.N./Iraq oil-for-food sale from $2 billion every six months to $5.26 billion in a single six-month period. The council voted that it favors extending the oil sale at the higher level in subsequent six-month periods.
But the higher sales quota won't go into effect until Iraq and the U.N. agree on a plan to spend the oil sale's proceeds. Currently, two-thirds of the proceeds finance aid to Iraq's 22 million people, but Baghdad wants that proportion to be lowered if it agrees to sell more crude.
Iraq has said its export capacity won't allow exports of more than $4 billion of oil in six months. While Iraq isn't compelled to sell up to $5.26 billion of oil, Baghdad must apply to the U.N. for any changes in the allocation of the proceeds.
OIL & GAS
WORLD
Flailing OPEC Leaves Oil Staggering Sideways
Weak world oil markets limped sideways on Wednesday with little encouragement from a floundering OPEC attempt to gather ministers for an emergency session.
London futures for benchmark Brent blend by 1630 GMT was up just seven cents at $13.90 a barrel.
OPEC Secretary General Rilwanu Lukman said on Wednesday that OPEC ministers were still consulting on the possibility of convening an emergency OPEC meeting, OPEC news agency reported.
Lukman said all 11 Organisation of the Petroleum Exporting Countries ministers had been invited to attend the group's scheduled four-man March 16 ministerial monitoring committee.
If all ministers were to decide to attend, the session could be turned into an extraordinary conference with powers to decide policy on oil output quotas.
But Venezuelan Oil Minister Erwin Arrieta on Wednesday was reported saying he would not attend the talks.
And both Saudi Arabia and Kuwait have said recently they want to see an effort by those in OPEC which are producing beyond official quotas before they consider some form of collective action.
Venezuela's decision not to attend a proposed emergency OPEC meeting later in March would almost certainly put an end to the idea, a Gulf analyst said.
''If the Venezuelans aren't going that makes it very difficult for others to attend. The meeting would be meaningless,'' said the Gulf
analyst.
"Everybody has to be there to participate in an output cut."
OPEC's largest overproducer Venezuela previously had said it would not cut production by even a barrel.
Signs of growing strain on markets came with the latest monthly prices from the world's biggest exporter Saudi Arabia which cut crude price formulas against regional benchmarks for the third month in succession.
Burgeoning market oversupply will see additional exports in March from U.N.-monitored Iraqi sales, oil traders said.
Baghdad has scheduled 1.37 million barrels a day (bpd) of exports in March from 1.1 million bpd in February.
The United Nations has agreed to more than double the permitted value of the ceiling for Iraq's exports from $2 billion to $5.3 billion every six months.
But Iraq says its output capacity is restricted to 2.3 million bpd, which allowing for domestic use, limits export capacity to about
1.65 million.
NYMEX
Crude Oil
NYMEX Crude Ends Choppy Session Little Changed
Crude oil futures on the New York Mercantile Exchange (NYMEX) ended little changed on Wednesday, after a choppy session which saw prices swinging back and forth on news headlines.
''It was all headline-driven action...and we saw a lot of good two-way business in the 30s ($15.30s a barrel), with some big players slugging it out there,'' said Dominick Cagliotti, a broker at Energex Ltd in New York.
April-delivery crude futures ended the session five cents higher at $15.32 a barrel, having traded a $15.47/$15.07 range during the day.
The early firmness in the market came after weekly data showing a draw in crude and distillate inventories, though gasoline stocks were up while refinery crude runs were still about a million barrels below capacity during a heavy first-quarter maintenance season.
The market then switched focus to comments made by Venezuela's oil minister when he said he would not accept an invitation from the OPEC Secretariat to attend an emergency meeting in Vienna on March 16 to discuss low oil prices.
The minister, Erwin Arrieta, told Reuters after a conference in Miami: ''It seems ridiculous to be speaking of production volumes...It is time we were talking about all the factors in the spectrum of the international energy scenario,'' re-emphasising Venezuela's de facto position for some years now of ignoring OPEC output quotas.
''People are pretty depressed in terms of the outlook for the next couple of months,'' said Pat Hughes, a risk manager for Chevron Corp [NYSE:CHV]. ''It is kind of a waiting game. People are asking, 'is it really going to be that bad or are people going to respond,' meaning OPEC.''
On refined products, heating oil futures ended mostly lower, though the front-month April settled 0.07 higher at 42.93 cents a gallon.
Gasoline's April contract was 0.25 lower at the settle at 50.31 cents a gallon.
Natural Gas
U.S. SPOT GAS
US Spot Natural Gas Prices Stumble Lower In Tidy Trade
U.S. spot natural gas prices stumbled lower Wednesday as a lack of severe weather suppressed demand in the U.S. and kept trading ranges tight, industry sources said.
''It's not blistering, nor is it too cold anywhere. It's just status quo,'' one Midwest trader said.
Cash and futures trading at the Henry Hub set the tone for today's trading. While April gas futures slipped to a low of $2.21 this morning, next-day cash prices at Henry Hub were pegged mostly at $2.18 - 2.19. Trades were reported done anywhere from $2.16 to $2.225. April futures trading also remained tight at $2.21-2.245.
In the western Texas market, Permian prices eased another three cents to about $2.07-2.08, while San Juan quotes were heard at $2.05-2.08.
However, southern California border prices were quoted fairly steady in the high-$2.30s. Cooler weather was expected to arrive to the region by this weekend and continue into early next week.
In the Midcontinent, prices slipped another five cents to about $2.10-2.15, while Chicago city-gate was quoted equally softer at $2.24-2.27.
Some sources said they are keeping a close eye on coal deliveries and the recent curtailments, which have created problems for some utilities in the South over the past few months by trimming stockpiles.
In an effort to improve deliverability, Union Pacific said it implemented on Feb 1 a directional running system from Missouri to
Texas, making transportation one-way, to avoid train conflicts and delays.
Meanwhile in the East, New York city gate prices fell into the low to mid $2.40s, while Appalachian prices on Columbia were quoted at $2.29-2.31.
Separately, withdrawal estimates for today's American Gas Association storage report ranged from 30 to 88 bcf, versus 76 bcf a year ago. According to a Reuters poll, most estimates were at 50-60 bcf.
CANADA SPOT GAS
Canada Spot Natural Gas Rises On Cool Weather
Canadian spot natural gas prices traded higher on Wednesday as temperatures remained cool and more pipeline capacity out of Alberta was made available, marketers said.
Spot gas at the AECO storage hub in Alberta was discussed at C$1.695 per gigajoule, up about 2-1/2 cents from Tuesday and five cents from last week. Gas for April delivery was quoted at about C$1.70 per GJ, down a cent from Tuesday.
High temperatures in southern Alberta remained just below freezing and were expected to remain there until at least Saturday.
That was increasing utility loads from recent levels and boosting gas demand, a Calgary-based marketer said.
Adding to the upward pressure were slightly lower field receipts on the NOVA Intra-Alberta pipeline system and an increase in available capacity at the Empress and McNeill border points in eastern Alberta, he said.
TransCanada PipeLines Ltd is conducting scheduled maintenance on its Canadian mainline, which was expected to restrict about 156 million cubic feet a day of interruptible gas through march 27, the company said.
But traders said they saw 40 million cubic feet a day more capacity out of the province than on Tuesday.
At the borders, spot gas at at the Huntingdon-Sumas border point in southern British Columbia fetched US$1.50-US$1.60 per million British thermal units, up about a dime from Tuesday and as much as 30 cents from last Wednesday.
A trader of B.C. gas with a large Canadian producer said colder temperatures on the West Coast and shortcovering by some players had pushed prices up.
He said some marketers had expected prices to remain near the March index price of US$1.15 per mmBtu, but were stymied when supplies tightened.
''There was an expectation that some guys were going to blow out storage, but that didn't happen,'' he said.
In the east, gas at Dawn and Niagara in southern Ontario was talked at US$2.36-US$2.38 per mmBtu, down about two cents from
Tuesday and about flat with last week.
OIL & GAS REFERENCES
Charts
oilworld.com
oilworld.com
NYMEX
quotewatch.com
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