MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MARCH 16, 1998 (4)
Calgary's Minerva Makes Six For NewTel Enterprises
St John's The Evening Telegram
The $12-million acquisition of a Calgary based information systems service provider with a strong oil and gas industry focus fits perfectly with the future growth vision of NewTel Enterprises, says the president and chief executive officer.
Stephen Wetmore, Friday announced NewTel has acquired all shares of privately owned Minerva Technology Inc. Minerva has 200 employees, most at the Calgary head office, with a small group working out of Dallas, Texas.
Under the agreement, expected to close on March 31, Minerva will become the sixth member of the NewTel Group of companies.
Revett Eldred, president of Minerva, said, "With our strengths and capabilities in the highly-competitive Calgary and Dallas markets, and with the emerging of an Atlantic oil and gas industry with excellent growth prospects, we share NewTel's focus on the energy sector."
Wetmore, who succeeded Vince Withers last month as head of NewTel, also discussed his vision for the future of the company in an interview with The Evening Telegram.
He said that in the past NewTel Enterprises has been built largely on the revenues of NewTel Communications, which faces an increasingly competitive environment in future.
"There will not be the same revenues in the future as there were in the past."
There is a need to bring the company in new directions, he said.
Wetmore said new communications technology has made some employees in that area "outdated and I have to find some place to put them. I don't want to lay them off."
Looking at the overall picture, Wetmore said, "I'm scared the industry is moving faster than we are. If we don't move very quickly, we'll not be able to find our place."
That is where the acquisition of Minerva comes in, he said.
"Information technology is the growth engine for our company and NewTel intends to establish a greater presence in national and international markets," Wetmore said.
"We really need to establish a conglomerate out of here. If we're not sending people all over the world working for NewTel, we'll have missed the boat."
He said the investment in Minerva is "the first of a number of investments we expect to undertake."
Wetmore is excited about the new acquisition.
"To get access to a successful business with 200 employees for $12 million, I mean, you just can't lose."
Bob Newell, NewTel vice-president with responsibility for IT strategy, said Minerva is a leading information technology service provider with particular strengths in the oil and gas sector as well as in Microsoft networking, IT outsourcing, client-serve systems development and consulting and IT professional services,
Wetmore said Minerva will expand the IT capabilities of the NewTel Group and closely complements the efforts of NewTel Information Solutions, with which it will work closely.
Eldred said NIS has established a leading role as a business integrator and "this, in our view, is a very good match."
As a member of the NewTel Group, Minerva joins NewTel Communications, NewTel Information Solutions, NewTel Mobility, Paragon Information Systems and NewTech Instruments.
West Virginia Company Buys Canadian Wells From Paragon Petroleum
Canadian Press
Columbia Natural Resources Inc. has bought 24 natural gas and oil wells and 5,000 acres of land in Western Canada for its first international operation, officials said Monday.
"We are stretching CNR's exploration and production operations beyond our traditional area to explore new opportunities beyond the mature Appalachian Basin," said company president Henry Harmon.
The $3.6 million purchase from Calgary-based Paragon Petroleum is part of Columbia Natural's expansion that began last year, he said.
The Canadian operations will be controlled by a new subsidiary, Columbia Natural Resources Canada Ltd.
Columbia Natural, based in Charleston, has 7,600 wells in eight U.S. states and more than 6,400 kilometres of natural gas lines, accounting for 12 per cent of production in the Appalachian Basin.
UAE Minister To Be New OPEC President
The oil minister from the United Arab Emirates will become OPEC's new president, after the current chief lost his job in an Indonesian cabinet shuffle.
Ida Bagus Sudjana was named president of the 11-nation Organization of Petroleum Exporting Countries in November, but was replaced as Indonesia's top oil boss Saturday when President Suharto chose a new cabinet.
Obaid bin Saif al-Nasseri had already been in line to take over the post in June. He assumes the job as OPEC confronts a collapsed oil market, thanks largely to its decision in November to pump more crude oil.
Even though the OPEC president has limited sway, analysts said Monday that al-Nasseri's appointment was not likely to help bring prices back up.
Sudjana had hoped to cut back production and force prices higher, but Al-Nasseri is a strong ally of Saudi Arabia, which pushed through the plan for OPEC to produce more oil.
Iran Lifts Lid On Foreign Oil And Gas Deals
A senior Iranian oil official on Monday gave the clearest details to date on the oil and gas fields that Iran will soon offer foreign firms to develop under its ''buy-back'' formula.
The details emerged as U.S. President Bill Clinton considers whether to slap sanctions against France's Total SA (NYSE:TOT), Russia's Gazprom (UK & Ireland: GAZPq.L) and Malaysia's Petronas (PETR.KL) for their commitment to develop the $2 billion South Pars gas field offshore Iran.
Mahmoud Mohaddes, director of exploration at state-owned National Iranian Oil Company (NIOC), told an industry conference in Dubai that onshore and offshore acreage were open to foreign firms as were other upstream exploration, development and enhanced recovery projects.
The list of projects also included downstream projects.
''This is a pre-official announcement of what is available for international companies. The official announcement will come in the next two months,'' Mohaddes told delegates attending the sixth annual Middle East Petroleum and Gas Conference.
''We invite all foreign companies and contractors to join us to develop and explore our oil and gas,'' he said.
Mohaddes confirmed that onshore fields -- once seen as politically too sensitive to allow foreign firms to develop -- would be open to outside development and said that more than 100 different prospects across the country were ''wide-open.''
''This (onshore fields) has been a stategic and important turning point in our policy since the time we decided to let foreign companies participate in our industry's projects in 1988 when only offshore development and production was permitted,'' Mohaddes said.
NIOC studies and estimates showed that there was a chance of another 20-30 billion barrels of oil to be discovered in Iran, including its offshore Gulf waters and the Caspian Sea.
Mohaddes focused on the following projects -- fields that have already been discovered but not developed -- as available under the next ''buy-back'' round.
- Onshore Darkhovin field. Estimated 11.18 billion barrels of oil in place, 18 billion barrels recoverable. Development cost estimated at $150 million.
- Shanul gas field. Gas reserves six-10 trillion cubic feet of gas and approximately 80-100 million barrels of condensate.
- Kuh-e-Mand. Contains heavy oil of 14-18 API.
- Shour field. Newly discovered field with 80 million barrels of recoverable oil.
- Mehr, Nierkabir and their satellite fields which are located close to Iran's border with Iraq. Fields, which are in an advanced stage of exploration.
- Other onshore fields in Fars province, Kopeh-Dagh in Khorasan, Gorgan, Moacran, Ilam.
- Five offshore structures off Strait of Hormuz. Hengam, A, B, F and D contain 300-500 million barrels of recoverable oil and condensate together with approximately 2-3 trillion cubic feet of natural gas which are already explored.
- North Pars gas field. Gas from the field will be re-injected into Gachsaran, Aghajari, Binak and Bibi-Hakimeh fields.
- South Pars. Next phases development available. Total reserves estimated at 270-300 trillion cubic feet.
- ''Many other fields such as G, Esfandiar structure, F and the structures of A, B, and C near Abu Musa protocol area.''
- Secondary recovery projects. Gas, water injection and gas lift at existing fields.
- Downstream. Refineries, NGL plants, gas export lines, LNG export projects also ''possible fields of cooperation.''
Oman Offers Oil, Gas Output Sharing Terms
Oman's oil minister said his country was offering output sharing terms for gas and oil to new upstream entrants and was providing assurances of state offtake to encourage foreign firms to explore and develop gas reserves.
The Middle East Economic Survey (MEES) on Monday quoted Mohammad bin Hamad bin Seif al-Ramhi as saying industrial projects which provided added value to Oman would get government priority in terms of gas allocation.
He said any extra gas left over from industrial project requirements could be channelled to a third liquefaction train at Oman LNG. ''But it does not have high priority,'' he said.
Ramhi said plans to boost output to one million barrels per day (bpd) were still on the cards but said this level would be difficult to achieve without significant new oil discoveries.
Output from Petroleum Development Oman averaged 842,000 bpd in 1997, below expectations of 850,000 bpd in the year.
''Production in 1998 is likely to average 845,000 bpd and a production target of 850,000 bpd by 2000 might not be feasible in view of current budgetary pressures,'' MEES said.
The minister said negotiations were in an advanced stage with a number of firms on concession block 27. Amoco Corp (AN) had shown interest in two blocks and Royal Dutch Shell (UK & Ireland: SHEL.L) had indicated its interest in another two offshore blocks.
Ramhi said a number of key projects -- mainly those related to the development of the Athel formation -- were being slowed down because of low oil prices and commitments of the government.
The minister said Oman was reviewing its capital budget in the light of low oil prices.
''Any project which can be postponed will be postponed,'' he said, but added that as Oman was committed to many projects with contractors, any cancellation would be penalised.
''It has not been an easy exercise, but every ministry and government office is continuously reviewing its budgetary options,'' MEES quoted the minister as saying. He said the finance ministry had instructed every ministry to reduce its budget.
Ramhi said the planned aluminium plant as well as the petrochemical project at Sohar had not been formally allocated gas yet, but ''there is a tentative agreement.''
On the petchem project ''there are a few technically oriented issues which still need to be resolved with BP'' (UK & Ireland: BP.L), he said.
Oil Firms Merger Wave Expected To Continue In 1998
The oil business is expected to see another wave of mergers and acquisitions in 1998 and beyond in an effort to cut costs and remain competitive, analysts and industry experts said Monday.
Experts at an industry conference in San Francisco said the refiners that avoided the record merger activity of last year will need to look for partners this year in order to protect their market share from ever-larger oil companies better able to resist a decline in margins.
''We can still undergo a significant consolidation in this industry,'' Ultramar Diamond Shamrock Corp head Roger Hemminghaus said on the sidelines of the annual National Petroleum Refiners Association conference.
Hemminghaus is also outgoing chairman of NPRA, a Washington D.C.-based oil industry group that saw several mergers or acquisitions by its members last year including Valero Energy Corp and Basis Petroleum and Marathon Oil Corp and Ashland Inc.
The industry worldwide recorded $58.4 billion in oil and gas mergers and acquistions in 1997, up from $52 billion in 1996, according to Securities Data Co, a consultancy which tracks merger activity.
''Those that do not attain performance improvements through transactions with others must improve their business operations internally or risk slipping in the competitive hierarchy,'' said Calvin Cobb, analyst at Ernst & Young/Wright Killen.
''Beyond the transactions actually announced there is a tremendous drive for almost every company to continue to look for new deals and combinations,'' Cobb said.
Among the possible mergers that could materialize in the U.S. refinery industry this year or next are between BP and Sun Co Inc. as well as Phillips Petroleum and Conoco and Mobil Corp and Amoco. In the next five years, Cobb said he sees 12 companies having 80 percent of the U.S. crude processing capacity and one half of the refineries.
The driving force behind the mergers will be continued weak margins. Although margins did improve in 1997, they have been disappointing for the past five years, with an annual loss registered three times and a peak cash margin of only $3 a barrel, said Steve Venner, an analyst at Bonner & Moore, in prepared text.
Venner added that causes behind the poor margins include rising environmental compliance costs, global overcapacity leading to cheap imports and fierce competition between domestic marketers.
''During this period many refineries have closed, leading to a drop in total U.S. refining capacity from 18.5 million barrels per day in 1980 to the current level of 15.5 million bpd,'' said Venner, a speaker at the NPRA conference.
Since 1990, 29 refineriers have closed but Venner said refining capacity is likely to remain at 15.5 million to 16.5 million bpd for the next several years as additional refinery closures are offset by capacity creep at current plants.
''In this environment of persistently low margins and substantial environmental compliance costs, the only option to improve profitability is to cut costs. A method increasingly being chosen to achieve this objective is merger and acquisition activity,'' said Venner.
"The trend is expected to continue," he added.
According to Cobb, the mergers could save companies about 0.60 cent per every barrel of crude oil they run. That compares to the average Gulf Coast refinery cash margin of about 0.86 cents per barrel, an about two-thirds increase in income stream.
Bonner and Moore's Venner cites similar figures, adding that some merged entities have already cut up to $1.00 per barrel out of their cost structure.
US Refiners See Low Oil Prices Continuing In 1998
The slump in world crude oil prices will continue through most of 1998, the president of the U.S. National Petroleum Refiners Association (NPRA) said at the opening of the group's annual meeting here Sunday.
''Prices are going to stay down most of the year. There's just a lot of production out there,'' said Roger Hemminghaus, NPRA chairman and chief executive officer of Ultramar Diamond Shamrock Corp.(UDS).
Hemminghaus spoke to reporters at the 96th annual meeting of the NPRA, which represents over 500 refining and petrochemical companies worldwide.
The industry conference will last through Tuesday and refiners will address a host of environmental, production, and technical questions heading into 1998.
Historically high inventories and low prices continued to plague the industry heading into this week's conference.
Hemminghaus told reporters oil prices could reverse their five-month slide if the producers reined in production.
''All of that (decline) could turn on a dime if several of the key producers got their heads together and did something about production,'' he said.
Top world producers Venezuela and Saudi Arabia are in a bitter dispute over production levels that have dropped world oil prices to nine-year lows.
A committee of the Organization of Petroleum Exporting Countries (OPEC) was scheduled to meet this week to discuss the issue, but the gathering was postponed until March 30 so Venezuela and Saudi Arabia could work out their differences, according to market observers.
Both countries, which are top crude suppliers to the U.S., have accused each other of busting production quotas.
Executives and sources at NPRA, who spoke off the record, said Venezuela will go ahead with plans to double daily oil production by the year 2007 and force the Saudis to capitulate on the issue.
In U.S. markets, low oil prices have cut the cost of producing gasoline and lowered consumer pump prices.
NPRA's Hemminghaus said gasoline prices could rise modestly between now and late May, when U.S. driving demand picks up. Most consumers will not feel the difference, though, he said.
''Crude prices have been coming down into this period of time when gasoline demand is increasing so maybe you'll see a spike up on gasoline prices from 95 cents to 99 cents in a lot of markets and people really won't notice it that much,'' Hemminghaus said.
Refining margins will be weak for the first quarter because low prices are forcing refiners to make more gasoline.
''Most of us, at least short-term, are procesing crude oil that we acquired 45 days ago and we're selling that into a falling marketplace so the real margins that we see are relatively squeezed in the first quarter,'' he said.
He said that margins could widen a bit heading into spring if the low pump prices continue to attract high demand.
Falling Oil Prices Hurt Developing Nations
Falling oil prices do not always mean good news for all developing countries -- for some, the benefits are offset by currency devaluations and for some producers, it's plain bad news.
In the early 1980s, high oil export earnings prompted some African countries to launch ambitious investment programs without having to borrow more money from external sources.
Then oil prices slumped in 1986 and the oil-exporting countries of Africa were in deep trouble. Nigeria's export earnings fell by 46 percent, from 1985 to 86, Gabon's were halved and in Cameroon, it caused external debt to increase by more than a quarter. And although all countries took drastic measures to cut back government spending, things never really recovered fully.
Current account deficits and foreign lending continued to increase, and all countries fell into a deep economic crisis, which lingers on in some cases. Things are looking pretty bleak this time around as well for many of the oil exporting African countries, analysts said as crude oil price plunged to a four-year low this week to hover a little over $12 a barrel in London trading.
"A few of the governments have been on the telephone to me already, asking what they can do about the low prices," said Lamon Rutten, a commodity marketing expert at the United Nations Conference on Trade and Development (UNCTAD).
"I tell them there's very little they can do now. They are not interested in managing price risks when the price is high. It's a mental stumbling block. People tend to think about this only when they are forced to do so."
Every year, oil exports add $18 billion to the coffers of sub-Saharan African countries. Oil accounts for one-third of gross domestic product (GDP) in thefour main crude oil exporting countries of the region.
Angola and Nigeria depend on oil for more than 90 percent of their exports, Congo 83 percent and Gabon 77 percent. Cameroon, Equatorial Guinea and the DPR Congo (formerly Zaire) are similarly dependent on oil for their export revenues.
However, it's not as if the fall in prices is entirely good news for all oil-importing developing countries either.
"In theory, any fall in the price of oil is of immediate benefit to consumers. But for developing countries, the fluctuation in dollar exchange rates has offset any benefit from price falls," said Gareth Lewis-Davies, an oil analyst at the International Energy Agency in Paris. "In local terms, they are actually paying more for oil because of the exchange rate collapse."
The most obviously affected are the so-called 'tiger' economies of South East Asia -- a region where the demand for oil grew faster in 1997 than the OECD group of industrialized countries. In 1998, despite the currency crisis in Southeast Asia, demand for oil in all developing countries outside the OECD has grown by 3.6 percent so far, compared to 1.1 percent in OECD countries, Lewis-Davies said.
"This phenomenon reflects a stage of evolution in economic development," he added.
Lewis-Davies said a significant factor in the current price slump has been the burgeoning sources of oil supply in the last decade, with countries such as Papua New Guinea, Equatorial Guinea and Colombia swelling the ranks of global oil producers. This, combined with increased oil production in OPEC countries, has contributed to price weaknesses, he said.
At the same time, some analysts said, the oil industry can no longer rely on Asia as the motor for demand growth.
"Asia has been leading the market for the last few years. But prices have fallen so much and so steadily for well over a year, that only those who have used hedging techniques among the producers will be able to cushion themselves to he blow," said Seana Lanigan of the International Petroleum Exchange in London.
Such techniques include locking in prices for an extended period, so that an oil producer can fix the price per barrel for part of its daily crude oil production -- say 1,000 barrels per day over three years. Producers are cushioned from possible price slumps for part of their production and importing companies or countries can guard against price rises.
Analysts argue such measures are vital for developing countries, but the costs of not taking them can be huge. In Nigeria, for instance, a decrease of one dollar in the crude oil price means a daily loss of $800,000. Such losses can put a great deal of pressure on balance of payments, and has resulted in an increase in the level of indebtedness.
Similarly, importers have to cope with price rises. In an extreme case, Mozambique's oil imports in 1990 accounted for 12 percent of total imports -- equivalent in terms of value to 81 percent of total exports.
According to an UNCTAD report, Mexico provides a good example of sound
risk-management strategy. To protect the government budget, the Finance Ministry actively started using the oil futures and options markets to protect earnings from crud oil exports from late 1990 onwards. In the process, the ministry ensured that if prices fell, it would be compensated for low tax income by profits on its option positions.
The Mexican government had to put up deposits amounting $200 million to secure its hedging activities, locking in minimum prices at $17 per barrel. When crude oil prices fell drastically in early 1991, the Ministry's income was secured through a net profit on its risk management positions during the first half of 1991 -- estimated to be at least $125 million.
The reverse was true of Ecuador. The Ecuadorian government budgeted an export price of $17 a barrel for 1993, but in mid-September that year, prices fell to $13 per barrel.
"Not having secured its export prices, Ecuador lost $300 million in revenues. After this experience, its Central Bank decided to start using options," the UNCTAD report said.
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