Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: AL R who wrote (4826)	3/11/1998 5:25:00 PM
From: SofaSpud	Read Replies (1) \| Respond to of 24910

Al / Alliance You addressed your question to Kerm, but I hope you don't mind if I intrude. I've been pondering this for a while. I'm not in the industry, just a watcher who happens to live in Calgary and so gets to talk to oil & gas people from time to time. I may very well not know what I'm talking about. But "if it seems too good to be true ...." The same questions you raised had been making me wonder if Alliance was a "paper pipeline", proposed simply to shake Nova out of the postage stamp. It didn't seem realistic to add all that takeaway capacity: given the rate of decline in new discoveries, the number of gas wells drilled would have to approximately double the 1997 level, and 1997 was a record. Worse (to my mind), it got to the point last year where people simply started taking it for granted that Canadian gas prices would be MUCH higher within two years. Companies did presentations showing how their gas discoveries added "sure-thing" increments to 99/00 cash flows. The words "guaranteed" and "profit", when used together, make me very nervous. With Nova and TCPL merging, and the Alberta Government backing down on the liquids question, Alliance seems less "paper" than it did a few months ago. As such it seems likely that, in the absence of some extraordinary discoveries in Alberta or BC, there will be significant unused pipeline capacity by the year 2000. Alliance has negotiated contracts with a number of suppliers to provide gas. I don't know what percentage of their capacity has been so covered, but I've heard numbers like 80%. That suggests that the excess capacity will be in the pipes of existing carriers, which is one reason people like Foothills have such a hate on for Alliance. I suppose that raises the question of just what kind of contracts producers have with existing carriers -- would the penalty be so light from breaking a delivery contract with Foothills that the higher netback from Alliance is justified? As for prices in the U.S., one argument has been that they'll have to build new connections from Chicago, so that the gas isn't confined within the existing Chicago distribution network. Even so, developments in the Gulf will begin to take on more importance for Alberta. Decline rates there have been more dramatic than in Alberta, but they have continued to make new discoveries, particularly with large, deep strikes, which have more than offset the declines. If that trend continues, we may find that Alliance has paid a lot of money to move gas from one over-supplied market to another.

To: AL R who wrote (4826)	3/12/1998 1:41:00 PM
From: Kerm Yerman	Read Replies (3) \| Respond to of 24910

AL R / Gas Pricing What lies ahead for gas prices in Western Canada after installation of the pipeline is somewhat cloudy. There is a fear of under capacity, but that is in the minority. The majority actually believe gas prices will average in the $2.30 range. I'll take the conservative approach of an average about 20% more than the average will be for 1997. I think that will end up in the $2.10 range for 1999. Keep in mind, an early cold winter can contribute to a higher average for 1999 also. One topic that is infrequently mentioned is the scheduling for the completion of the new pipeline. Originally scheduled for completion by November -- one should consider the consequences of delay. Further, I want to express that contribution to a company's 1998 earnings and cash flow will be minimum -- unless the pipeline is completed far ahead of schedule. Regardless of what occurs related to the pipeline, one can expect the average price for 1998 to be very favorable when compared to 1997. 1999 should follow with a banner year compared to 1998. Of the intermediate and larger sized companies, my runaway favorite is Rio Alto Exploration. If the oil price situation drags shares to the downside on this one, it's a must for performing personal due diligence. I see share price in the range of $18.00 to $21.00 12-months down the road.