MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MARCH 23, 1998 (4)
Terra Nova Engineering Jobs Still Not Located To This Province
St Johns Evening Telegram
St Johns - A month after Petro-Canada announced Terra Nova is definitely a go, the engineering team designing the $2-billion project remains based in Leatherhead, England, despite a requirement from the Canada-Newfoundland Offshore Petroleum Board that it move to Newfoundland.
Condition No. 1 in the CNOPB's Feb. 17 project approval document states that "as soon as practicable after project sanction, the proponent relocate engineering and procurement activities for the project to Newfoundland."
It now appears it might not be feasible until most of the engineering work is done.
The project now employs about 100 at its St. John's office, roughly the same number that were working there before sanction and half the number working at Brown and Root Energy Services Ltd. offices in England.
Geologists and geophysicists from the reservoir team will be moving from Calgary to St. John's in the summer, said Terra Nova spokeswoman Mona Rossiter.
But the engineers aren't expected until the fall, when construction on two modules is scheduled to start at Bull Arm.
Engineering work will largely be completed by then, says a Newfoundland engineer working out of the province.
Several Canadians are working on the project in England, but much of the economic benefits accrue where workers pay taxes and spend their money.
John Fitzgerald, acting chairman of the CNOPB, said the board is negotiating with Petro-Canada to determine when the engineers will be brought to Newfoundland.
Before project sanction, Terra Nova had offered to bring over the engineering team within a year, but Fitzgerald said at the time that's not good enough.
But it won't happen overnight either, Fitzgerald said this week.
"They didn't accept the conditions until they sanctioned (the project)," he said. "We're dealing with individuals here, and they are working on it."
Fitzgerald said he would not comment on the negotiations in the media.
"Our whole attempt is to get them (here) sooner than they were planning," he said. "We'll see what comes out of this."
Terra Nova has hired 22 people at the Bull Arm site, where it will construct two of the four modules for the ship-shaped platform to be used at the 300-400 million barrel oilfield.
The work is worth an estimated $100 million.
Terra Nova capital costs are estimated at $2.6 billion and operating costs at $1.9 billion, with 58 per cent of spending targeted for Newfoundland. Eighty per cent of direct employment is expected to take place in Newfoundland but about two-thirds of total employment occurs in the drilling and operations phase.
U.S. Buying Oil High, Selling Low
Washington (AP) - After paying $27 a barrel or more for most of the oil in its emergency reserve, the U.S. government is about to sell millions of barrels for half that price. Critics say with the lowest oil prices in years Uncle Sam should be buying oil for an emergency, not selling.
"This is the worst time to be selling oil out of the Strategic Petroleum Reserve," said Energy Secretary Federico Pena. But because of a congressional mandate, he said, he has no choice but to put millions of barrels of stockpiled oil on the market in the coming months, perhaps for less than $13 a barrel.
The government reserve, a system of storage caverns in Louisiana, contains 563 million barrels of oil, bought over two decades in case of a sudden oil shortage. But no oil has been bought since 1993; instead, oil has been sold each of the last two years to pay for operating the reserve. U.S. consumption is about 18.6 million barrels a day.
But with oil prices plummeting in recent weeks, critics increasingly question the economic logic of buying oil when it's expensive, and selling it when it is rock-bottom cheap.
At the same time, they say, the one-time goal of building an emergency reserve of one billion barrels to protect against future oil supply shocks seems to be moving in reverse even as U.S. reliance on imports has increased steadily most years and now is at roughly half of the oil used.
Under budget pressures, the U.S. Congress directed last year that the Energy Department sell enough oil in 1998 to cover the $207 million cost of operating the reserve. At the time, legislators had no idea world oil prices would plunge.
"They anticipated selling about 10 million barrels at about $20 a barrel," said Bob Porter of the Energy Department's fossil fuels office. But he said the department estimated that at current prices they would get between $9 and $13 a barrel for the oil, which is of a poorer quality than benchmark crude.
That could mean putting as much as 20 million additional barrels of oil on a market that already is awash with oversupply. Since much of that oil was bought when prices were in the $27 range, the government could lose more than $300 million in the transaction.
Small oil producers, meanwhile, are worried the added supply will only add to the downward pressure of prices and adversely affect companies already hard hit by the recent plunge in the oil markets.
"We should be buying oil (for the government reserve) at this point and not even be thinking about selling it," says Gil Thurm, president of the Independent Petroleum Association of America.
Chris Hall, president Drilling & Production Co., a small California producer, said his company had to cut salaries last week because of the oil price decline. He says government sales would further glut the market.
"It's ridiculous," said Hall, who was among a number of producers who came to Washington on Monday to talk to members of Congress about their economic problems. "It's having the government work against you."
MARKET ACTIVITY
Oil Price Jump Pumps Life Into Energy Stocks
The Toronto Stock Exchange 300 Composite Index gained 1.3% or 97.40 to 7510.24.
In comparison, the Toronto Stock Exchange Oil and Gas Composite Index shot up 5.8% or 367.23 to 6723.52 ( up almost nine percent from March 17, when crude oil prices dipped to nine-year lows) yesterday as oil prices staged their biggest one-day comeback since the 1991 Gulf War.
Among the sub-components, the Integrated Oil's gained 4.1% or 358.00 to 9011.99. The Oil & Gas Producers Index climbed 6.4% or 359.31 to 5965.71 while the Oil & Gas Services Index climbed 6.5% or 181.57 to 2981.70.
West Texas intermediate, the benchmark crude, led the charge to end the day at US$16.51 a barrel for May delivery on the New York Mercantile Exchange, up US$1.90 - the biggest one-day gain since Jan. 22, 1991.
The broad-based market advance was welcome news for the Canadian oil sector, which has been reeling from months of dramatically reduced cash flows because of soft commodity prices.
While the proposed production cuts will help if successful, the oil market is still facing weak demand from Asia and the prospect of Iraq cranking up production this summer, said Teresa Courchene, a senior economist with Toronto-Dominion Bank. "There is certainly a lot more risk on the downside than on the upside for oil prices," she said.
"Let's be fair -- the price hasn't exactly skyrocketed here," said Craig Langpap, analyst at Calgary-based brokerage Peters & Co. Ltd. "It's nice that it has moved up, but I think we're going to have to see inventories come down -- some evidence that there have been some production cuts -- before people are going to be breaking out the champagne."
"Obviously, if you think it's a time for oil-leveraged stocks to move back up, you'll look for the ones with the highest percentage of their production in crude oil," Langpap said. "It's just like last month, people were looking for the ones that had the most gas, like Anderson (Exploration Ltd. and Poco Petroleums Ltd."
''I'm not really surprised there was an agreement to cut production,'' said Doug Monaghan, an analyst with Scotia Capital Markets in Calgary. ''But I think the fact that it happened so quickly was a surprise,'' Monaghan said.
He said no analysts based their forecasts for the companies they followed assuming oil prices below US$15, so Monday's jump moved prices closer to what he said was more in line with predictions.
Canadian oils had been below Monday's level since December 31, when crude oil prices were declining sharply.
One analyst shedding a cautionary tone was CIBC Woody Gundy's Peter Linder, who said the industry's five-month downturn was nearing an end and recommended investors jump into the oil sector "with both feet." Linder said the weekend deal, coupled with an increase in oil demand as a result of gasoline production for the upcoming summer driving season, suggested crude oil could recover to US$18 abarrel within the next three months. Also, Canadian natural gas prices could average as high as C$2.30 per gigajoule next winter, up from the current level of just under C$1.80, he said. "It's a lot better to be buying the sector aggressively when commodity prices are low and rising versus the other way around."
Analysts agreed, however, that first-quarter results were expected to be much weaker than last year because of depressed oil prices and gas prices that recovered only in February.
It will be very tempting, given the sharp rise in prices, for oil producers to break the agreement by raising production, analysts said. OPEC trimmed production by one million barrels a day in early 1993, but prices continued to slide and countries started increasing production by the end of that year. Quota breaking has been a contributing factor to the current weakness in the oil market. Venezuela, which relies heavily on oil exports, has been one of the worst offenders, producing 34 per cent more than its quota last month, according to the Bloomberg Energy service.
Despite lingering doubts that the agreement will hold, yesterday's rally was welcome news in Western Canada's oil patch.
"We're pleased to see it happen. . . . It's been a rough stretch," said Fred Dyment, president and chief executive officer of Ranger Oil Ltd .
Calgary-based Ranger, along with many other oil and gas companies, has been forced to trim back capital expenditure budgets as a result of the slump in crude prices. Even with the sharp increase yesterday, oil prices are still below the estimates of $17 and higher that most companies are budgeting on. But those forecasts are looking a lot more realistic than they were a week ago when crude sank to nine-year lows of little more than $13.
"With this kind of cutback, if everyone toes the line, we should see prices in the $17-to-$18.50 range for the balance of 1998," he said.
"We are breathing great sighs of relief," said Jim Buckee, president of Talisman Energy Inc., one of the day's biggest gainers. "I think the excess inventory will be cleared up quite quickly if the promises turn into reality," Buckee said.
"It's a good signal," said Hart Searle, spokesman for Imperial Oil, which announced earlier this month it would defer up to $130 million of oilsands development near Cold Lake because of rock-bottom crude prices. "We need to have some confidence that these prices are going to have some sustainability over a period of time," said Searle. "Prices could just as easily go down." The Calgary-based corporation remains confident about the long-term outlook of the energy sector in Alberta, said Searle.
"I think that people are going to heave a big sigh of relief. . . . This amazing turnaround is very, very good news for this industry," said Carol Crowfoot, an analyst with Gilbert Lausten Jung Associates Ltd. "But it remains to be seen whether it's actually going to happen."
"Everybody is gaining. Not one of the stocks in our universe has declined. Even the gas-levered are up," said Martin Molyneaux, director of research at FirstEnergy Capital Corp. in Calgary.
Gulf Canada Resources, Pinnacle Ressources, Petro-Canada, Canadian Natural Resources, Ranger Oil, Renaissance Energy all traded over 1 million shares and finished to the upside. Rounding out the top 50 most active traded issues included Petromet Resources, Abacan Resources, Talisman Energy, Canadian Occidental Petroleum, Amber Energy, Tarragon Oil & Gas, Probe Exploration and Archer Resources - all ending on the upside also.
One-third of the top 50 net gainers on the TSE were oil and gas producers, all showing gains of $1.15 or more. They included Imperial Oil up $3.15 to $81.65, Talisman Energy $3.15 to $45.15, Canadian Natural Resources $3.10 to $30.60, Canadian Occidental Petroleum $2.50 to $30.60, Suncor Energy $2.15 to $53.10, Pacalta Resources $1.65 to $38.25, Tri Link Resources $1.65 to $17.25, Pioneer Natural Resources $1.65 to $38.25, Amber Energy $1.60 to $16.75, PanCanadian Petroleum $1.50 to $23.00. Pinnacle Resources $1.50 to $13.90, Denbury Resources $1.45 to $25.00, Alberta Energy $1.40 to 35.75, Northrock Resources $1.30 to 22.10, Crestar Energy $1.25 to $21.90, Renaissance Energy $1.25 to $21.40 and Baytex Energy $1.15 to $14.50.
Percentage gainers included Richland Petroleum 29.0% to $4.00, Pacalta Resources 15.8% to $12.10, Thunder Energy 14.3% to $2.00, Zargon Oil & Gas 14.0% to $3.25, Abacan Resources 13.0% to $2.43, Pinnacle Resources 12.1% to $13.90, Canadian Natrural Resources 11.3% to $30.60, Crowne Joule Exploration 11.2% to $1.39, Morrison-Middlefield 11.1% to $10.00, Ranger Oil 10.9% to $9.65, Tri Link Resources 10.6% to $17.25, Amber Energy 10.6% to $16.75, Spire Energy 10.0% to $1.65, Gulfstream Resources 9.2% to $7.10, Newport Petroleum 9.2% to $5.95, Maxx Petroleum 9.1% to $1.91, Newquest Energy 9.1% to $6.00, Founders Energy 9.0% to $1.09, Canadian Occidental Petroleum 8.9% to $30.60 and Tethys Energy $8.8% to $3.10.
There were no oil and gas producers among the top 50 net losers.
Kappa Energy fell 18.8% to $1.30, International Rochester Energy gave up 6.5% to close at 1.30 and Pacific Cassiar was down 4.3% to $5.50.
Alberta Energy, Bonavista Petroleum and Rio Alto Exploration reached new 52-week highs.
Kappa Energy, Black Sea Energy and Snow Leopard reached new 52-week lows.
Over on the Alberta Stock Exchange, Burner Exploration, HEGCO Canada, Bearcat Exploration, Oilexco, Niko Resources, Oxbow Exploration, Green River Petroleum, Cubacan Exploration and Cirque Energy were among the top 25 most active traded issues.
Low oil prices have already caused more than $1.3 billion in budget cuts from this year's $16 billion in planned spending, some layoffs, a refocusing on natural gas and the shutting-in of higher-cost heavy oil production.
First-quarter results are expected to be unimpressive compared with those last year, when oil was trading above US$20. Oil hit a nine-year low of US$12.80 a barrel last week.
The end of the slump has been reached, said John Driscoll, Toronto based president of NCE Resources Group, a royalty trust manager with more than $800 million in oil and gas assets.
"I think you are going to get more solidarity between OPEC [Organization of Petroleum Exporting Countries] and non-OPEC producers, and I would be very surprised if we saw much weakness from these levels. I think we will see $20 much sooner than we will see $13 again."
Yesterday's surge was triggered by an agreement over the weekend among some of the world's largest producing countries to reduce output starting April 1.
Saudi Arabia, Venezuela and Mexico led a group of 10 nations that pledged to cut 1.275 million barrels of oil a day, or 1.7% of daily global output. Members of OPEC are expected to meet March 30 in Vienna to discuss the agreement.
Analysts estimate current oversupply is 1.3 million b/d to two million b/d of total world output of 73 million b/d.
But the jump in oil prices is still too small to put an end to an industry slump that began in October, some analysts say. Most industry producers are still budgeting oil prices of more than US$17 for the year.
"While these production cuts are a good start, you are going to have to see a lot more, and you are going to have to see follow-through," said Robert Hinckley, oil and gas analyst with Merrill Lynch & Co.
The market advance benefited firms across the industry, from junior oil and gas exploration companies to providers of services to the industry.
"Things are so oversold relative to the rest of the market, it's an easy decision to put your money in the group," said Hinckley.
"The market didn't discriminate too much on the way down, and isn't discriminating too much on the way up here. They painted them all with the same brush," he said.
Sustained higher prices may even trigger another wave of mergers and acquisitions, said Molyneaux.
M&A activity has slowed to a trickle since the beginning of the year. With shares sliding 25% to 30% from their highs in the fall, few have been willing to buy or sell.
Drillers Sticking To Plans Despite Oil Surge
Canadian drilling stocks moved into a higher orbit yesterday, following the price of oil and oil stocks on news of a deal to cut world production.
But those running the service companies aren't changing their plans because of one day of euphoria.
Drillers such as Ensign Resource Services Group Inc., Precision Drilling Corp.,Tesco Corp. and Ryan Energy Technologies bolted ahead with the rally. Precision (PD/TSE) rose $2.50 to $31.05, Tesco (TEO/TSE) ended at $23, up $1.25, Ensign (ESI/TSE) closed at $29.40, up 95› and Ryan Energy was at $9.25, up %.
Other segment players that performed well included Canadian Fracmaster Ltd. (CFC/TSE), which rose $1.50 to $21.75, Enerflex Systems Ltd. (EFX/TSE), which closed up $2.75 at $41 and CE Franklin (/TSE) up $1.20 to $11.20.
Brian Trenholm, service company analyst for Griffiths McBurney & Partners in Calgary, was not surprised to find Precision among the leaders. "When a sector rebounds, it tends to be the most liquid that responds first." Precision has the most liquidity among the drilling stocks.
Investors looking ahead to 1999 and 2000, when higher activity is predicted, probably took yesterday's upswing as a signal to move back into an undervalued segment, he said.
Dale Tremblay, senior vice-president of finance for Calgary-based Precision Drilling Corp., which has 207 rigs, said he knew it was only a matter of time before prices climbed. "If you've got a product in great demand and growing demand, how can you have low prices?" said Tremblay. "There is no logic in $14 US a barrel."
Don Herring, managing director of the Canadian Association of Oilwell Drilling Contractors, said the price increase should stabilize price fluctuations: "This is the kind of news we've been waiting for." The association predicted a 4% increase this year over the 16,000 wells drilled in 1997. Herring now expects only minor adjustment to that prediction.
But it remains to be seen whether Mexico, Venezuela and Saudi Arabia will make real cuts in production, and whether prices will stabilize at yesterday's higher level, said Rob Hunt, vice-president of sales and marketing at Akita Drilling Ltd.
His company isn't changing its plans as a result of the rally, but the pledge to cut production will help improve spirits in the oilpatch, he said.
Hunt said the traditional spring slowdown has begun. If crude prices stay up, June and the third quarter will be better for drillers because there will be less of a slump from the hectic first quarter pace.
Ken Mullen, president and chief operating officer of Plains Energy Services Ltd., said most companies will benefit if investors have put a higher value on the sector. This means plans for takeovers are unlikely to alter as oil prices recover. "An acquisition that makes sense at one price probably makes sense at another [higher] price."
Declining oil prices in the past six months have been prompting associations and brokerages to issue new forecasts for Canadian drilling.
Peters & Co., a Calgary investment house, recently forecast that about 13,000 wells will be drilled in 1998. Another Calgary boutique, FirstEnergy Capital Corp., issued a report last week that put the well count at 13,400 this year, 16,600 in 1999 and nearly 17,700 in 2000.
The Canadian Association of Oilwell Drilling Contractors is trying to come up with a lower number after initially predicting 16,600 wells for this year.
In the U.S., shares of major international oil companies rallied sharply on Monday on the back of a deal between Saudi Arabia, Venezuela and Mexico to cut oil production. The S&P International Oil Index, which tracks the share performance of the world's major oil companies, rose 25.39 points, 3.10 percent, to 845.35 points.
Among the major international oil shares, Exxon Corp (XON) rose 2-1/8 to 69-7/16, Amoco Corp (AN) 1-15/16 to 88-1/4, Mobil Corp (MOB) 3-3/8 to 81-15/16, Texaco Inc (TX) 2-3/8 to 63-5/8, Chevron Corp (CHV) 1-9/16 to 88-1/2 and Royal Dutch Petroleum (RD) 1-13/16 to 58-5/8.
Amex Oil Index Hits All-Time High
CHICAGO, March 23 - A weekend accord among oil-producing countries to cut output sent the American Stock Exchange's oil index (.XOI) surging to an all-time high, making it the exchange's busiest index on Monday.
The XOI, a price-weighted index of 16 oil and oil-service company stocks, surged to an all-time peak of 506.28 before gains were pared. It ended the day at 497.02, up 8.03.
May crude oil futures surged almost $3.00 a barrel, then trimmed gains to end $1.90 higher at $16.51. |
