MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, MARCH 24, 1998 (4)
TOP STORIES
OPEC Calls Emergency Meeting To Try To Boost Oil Price
OPEC said Wednesday it will hold emergency talks next week to discuss cuts in oil production that are intended to boost the depressed market.
Traders have been unconvinced the oil cartel and some non-OPEC countries that include Mexico and Oman can deliver on promises to cut up to two million barrels of crude oil output daily.
The pledges by individual oil exporters have come to just a little more than half that amount, and experts say it remains questionable whether each country will actually cut as much as it says.
But news of the emergency meeting, announced by OPEC secretary-general Rilwanu Lukman at the group's headquarters in Vienna, helped futures markets to reverse early losses.
Brent crude oil to be delivered in May was up by three cents at $14.56 US a barrel, after falling 38 cents a barrel at the opening on London's International Petroleum Exchange.
Prices had fallen more than 50 cents a barrel Tuesday, giving up much of the gains oil had shown Monday as producer after producer announced planned production cuts.
Oil prices plunged in the winter, after OPEC's ill-judged decision in November to raise stated output by 10 per cent, just as world demand for crude was slowing because of the Asian economic crisis and the mild weather in key North American and European heating oil markets.
An OPEC committee that monitors the group's compliance with its production agreements had been scheduled already to meet Monday in Vienna. The Organization of Petroleum Exporting Countries apparently decided the time for a full meeting was right, after the deals announced earlier in the week.
More - OPEC Plans Meet To Seal Cut, Stir Price Rise
OPEC oil producers Wednesday announced an emergency meeting for next week to ratify a pact aimed at boosting prices on skeptical petroleum markets. The Organization of the Petroleum Exporting Countries said ministers would meet in Vienna on Monday following the production cut accord reached last weekend between non-OPEC and OPEC producers.
OPEC Secretary General Rilwanu Lukman said the 11 members from Africa, Asia, Latin America and the Middle East would meet as "part of efforts to stabilize the oil market" following painful price losses in recent months.
Lukman added in a letter to members that the meeting was to "confirm the understanding recently reached regarding a cut from current production in order to support the market," an OPEC source said.
The pact provided welcome relief to producers by boosting prices by more than $2 a barrel on Monday. Prices retreated on Tuesday as an initial buying frenzy wore off and traders began examining the agreement's fine print.
Benchmark Brent crude futures recovered some ground Wednesday on news of the OPEC meeting, trading one cent higher at $14.53 a barrel. On the New York Mercantile Exchange, oil traded at $16.25 a barrel, up 33 cents.
The agreement, announced in Riyadh and orchestrated by Saudi Arabia, Mexico and Venezuela, aims to remove 1.7 million barrels a day from glutted world oil markets.
"The market can now focus on the prospects for a gradual recovery in the oil price," said J.P. Morgan Securities. "This deal creates a floor for the oil price and should end talk of single digit prices."
But there were signs that the agreement's initial lustre was beginning to fade.
Skepticism lingered among OPEC watchers in the London and New York futures markets, which that been the forum for the price collapse of the last six months.
"I think the holding of the meeting is more bullish than bearish, but it's not strongly supportive," said one broker.
"There is a degree of cynicism. The questions are a) 'Will it hold?' and b) 'Is it enough anyway?' Either way, we expect more volatility with news driving the market."
Under the accord, cuts from April 1 until the end of 1998 should be made by all OPEC states bar Iraq, plus Mexico, Oman, Norway, Russia, Malaysia and Eygpt, according to OPEC sources.
Cuts pledged so far amount to 1.4 million bpd but doubts have emerged in part because Russia says it will not cut and Norway, the world's second-largest exporter after Saudi Arabia, is still mulling a decision.
In addition, there have been announcements of smaller cuts than originally agreed on and signs that some OPEC producers may differ over the interpetation of accord's provisions.
Already, Indonesia and Iran have said they will cut output from their OPEC quotas, but not their actual production.
Since these two countries produce markedly below their quotas, their announced "reductions" would merely be nominal and have no effect on crude volumes.
OPEC kingpin Saudi Arabia has insisted all producers involved in the accord should reduce from current supply levels, rather than official OPEC quotas, for a combined cut of 1.3 million from the group.
Actual OPEC output, excluding Iraq, was just short of 27 million bpd in February. Analysts say a number close to this figure could be used as a benchmark against which to measure the group's aggregate reduction.
Suncor Profit Rises 19 Per Cent, CEO Pay Increases
Fort McMurray Today
A fifth consecutive year of growth for Suncor Energy spelled good financial news for the integrated oil company's president and CEO.
Rick George picked up a $500,000 bonus in 1997. His pay packet soared 144 per cent last year to $2.14-million including the bonus $1.1-million in stock options he exercised.
Mike Ashar, oilsands executive vice-president, earned more than $240,000 in salary, plus a $214,000 bonus. He joined the company in October, 1996, replacing Dee Parkinson-Marcoux. Ashar's 1996 salary and bonus totalled more than $276,000. In 1996 Ashar received a $116,690 payment for reimbursement of a loss realized on the sale of his home from Sarnia, Ont. to Fort McMurray. Released to shareholders last week, Suncor's management proxy circular reveals George's 1997 salary was almost $493,000. "Mr. George's 1997 annual incentive of $500,000 recognized performance against his key accountabilities," said the report. "His performance was demonstrated by significant increases in earnings and cash flow for the fifth consecutive year."
The 47-year-old executive continued to establish and implement future growth plans and priorities, increase operating performance, the circular said, adding George has built "a positive reputation" for Suncor with its stakeholders. "He maintained an emphasis on health, safety and the environment with a strong commitment to addressing climate change issues," the March 18 report to shareholders stated.
In 1996 George received $470,000 salary with a $350,000 bonus. His salary in 1995 was about $453,000, with a $310,000 bonus. George joined Suncor as president and chief operating officer in early 1991 and was appointed CEO in Oct. 1991.
Earnings for the company in 1997, including the Fort McMurray oilsands plant, were $223-million, up 19 per cent from 1996 earnings of $187-million.
Suncor's executive vice-president of exploration and production Barry Stewart received a total of over $487,000 in salary and bonus.
More than $221,000 in salary and a $125,000 bonus went to chief financial officer D.W. Byler.
The management proxy said base salary for the CEO, chief financial officer and executive vice-presidents is the "median" of large Canadian autonomous companies comprised of general industry, including oil and gas companies, with annual revenues in excess of one billion dollars, said the report.
Oilpatch Optimistic About A Rebound
The Financial Post
While oil and gas prices tend to move on different cues, a sustained oil recovery to about US$18 a barrel could lead the entire energy sector into an upswing, industry analysts say.
Canadian producers, who've been focusing on natural gas because of its positive outlook, would enjoy the best of all worlds because they'll be able to take their pick of oil, heavy oil and natural gas projects, said Peter Linder, an analyst with CIBC Wood Gundy in Calgary, who's urging investors to "jump in with both feet."
"If we have an US$18 oil-price environment ... producers will be dancing in the street this summer. The band will already be playing because of the positive gas outlook."
A sustained period of higher oil prices will prompt some producers - particularly those who were unable to switch to natural gas - to re-evaluate heavy oil production, some of which has been shut down in recent months, another analyst said.
While they used to move in the same direction, natural gas and oil prices have recently had only a marginal correlation to each other. The market for oil is global, while the market for gas is North American.
Luckily for the sector, the two commodities went their separate ways during the oil-price slump that has troubled the energy industry since last fall. While world oil prices plunged because of oversupply and weak Asian demand, natural gas prices remained relatively strong despite weak winter demand.
Their strength sustained oil and gas stocks at higher levels than justified by their cash flows. But the two commodities tend to reconnect and move in the same direction when one reaches extremes. That's because some big industries can switch fuels if one becomes too expensive.
Last week, futures contracts for natural gas on the New York Mercantile Exchange bumped up because of bullish expectations for oil, pointing to a relationship between the two, said Jim Oosterbaan, vice-president for gas services with Ziff Energy Group.
Oil prices recovered Monday after a five-month slump on news major oil producing nations are now committed to reducing output. A meeting of members of the Organization of Petroleum Exporting Countries is expected to be held in Vienna next week to discuss the cuts.
But prices declined again yesterday on skepticism some producers may not deliver what they promise. West Texas Intermediate, North America's benchmark crude, closed at US$15.92, down US59›. Still, there is increasing optimism the worst is over and price increases are seen as more likely than a decline.
In this mornings issue of The Financial Post , the following insider transactions were noted. Source of information was the Ontario Securities Commission insider trading report.
Early Spring slows Canada Oil And Gas Drilling
The wet and muddy conditions that cause a slowdown each spring for the Canadian energy industry arrived early this year, causing the number of rigs drilling for oil and gas in the western provinces to drop off about two weeks earlier than in 1997, new figures show.
Still, the shortened winter drilling season was not likely to threaten an expected record for the number of wells to be drilled in British Columbia, Alberta, Saskatchewan, Manitoba and the Northwest Territories in 1998, Don Herring, president of the Canadian Association of Oilwell Drilling Contractors (CAODC), said on Tuesday
The CAODC reported 323 rigs were drilling on Tuesday, representing 57 percent of the total 570-unit western Canadian fleet. That was down from 457 rigs, or more than 80 percent of the fleet, last week.
At this time last year, 418, or 86 percent, of 486 rigs were drilling.
Many industry players had been expecting spring breakup -- when operations are temporarily halted in many regions after melting snow and ice creates muddy conditions and forces road bans -- to come early because of unusually warm weather this winter.
''With respect to drilling programs, there will be some that have to now be put off until either after breakup or next winter,'' Herring said. ''The road bans are starting to become much more widely spread now.''
Most of the bans in effect were in northern regions of British Columbia and Alberta, he said.
At the beginning of the year, the CAODC predicted the industry would drill a record-breaking 16,600 wells in western Canada this year. A revised forecast was expected to be completed in the first week of April.
But Herring said the number of well completions was already about 14 percent higher than at this time last year.
However, the number of rigs drilling had less of an impact on this year's oil and gas production than the ability of crews to tie new wells into pipelines, analyst Martin Molyneaux of FirstEnergy Capital Corp said.
''The key is winter-only natural gas in northeastern B.C., northwestern Alberta and northeastern Alberta,'' Molyneaux said. ''It looks to me like we're coming out of this winter with less gas into the NOVA (Gas Transmission Ltd. intra-Alberta pipeline) system than I think most people were expecting.''
Several industry players have suggested companies would struggle to fill 1.1 billion cubic feet a day of new gas pipeline capacity out of Alberta when it comes into service in November. The situation was expected by many experts to result in higher Canadian gas prices.
''I think a lot of it is already priced into the market with these really firm April, May and June prices,'' he said.
April gas at the AECO storage hub in Alberta was quoted on Tuesday at C$1.775 per gigajoule, while summer gas fetched C$1.77-1.78 per GJ. April term gas sold for C$1.50 per GJ at this time last year.
A Quick Lesson In Supply And Demand
Calgary Sun
I well recall back in the 1970s when Sheik Ahmad Zaki Yamani used his oil muscle against the world and promised the west the $40 US (or there-abouts) a barrel for oil was just a taste of things to come.
Even Federal Energy Minister Marc Lalonde was talking about $100 US a barrel for oil.
So was Premier Peter Lougheed, but since I very much like Peter, I won't mention that.
Well, the Saudi Arabia sheik was way, way off base.
As was Lalonde.
Recall Lalonde even suggested cars with automatic transmissions would be a thing of the past because they guzzled too much gas.
Lalonde thought he was politically astute. Economically astute. Scientifically astute. Intellectually brilliant.
Maybe Yamani did, too.
But how many Canadians or Americans traded in their automatics for a car with standard shift?
The attempted oil extortion price killed the western economies, with, in Canada, the help of Lalonde's National Energy Program (NEP).
Slowly, the western economies recovered, but no one talked about $100 US a barrel for oil anymore.
No one ever will again.
Obviously neither Yamani nor Lalonde had heard of the laws of supply and demand, and neither had read anything Scottish economist Adam Smith had ever written, not even The Wealth of Nations.
In his 1700s' study, Smith predicted if you charged too much for a product, someone would find a more economical replacement for that product, and men, women and children would start buying that replacement product. Eventually, every product or service finds its own level of value.
That's why, within the six months or so, oil prices slid by about 40% a barrel. So the greedy, greedy Organization of Petroleum Exporting States (OPEC), and greedy, greedy governments like that of Liberal Pierre Trudeau, collapsed into debt.
Trudeau, by the way, was among the likes of those who went to the London School of Economics (LSE), and were mastered by the socialist dreamer Harold Laski, which was a bit like being tutored by phoney Soviet biologist Tromfim Lysenko, who knew even less about biology than Laski knew about economics.
What a cast of comics.
Except the bottom line was anything but amusing.
Eventually, common sense came back to the oil market place, and oil prices started to raise market demand levels again.
Then, oil-producing countries like Saudia Arabia, Venezuela, and Mexico got greedy and started pumping out oil as quickly as they could.
Once more, the market was flooded with cheap oil again.
Just as OEPC did in the 1970s and 1980s.
Too much oil, too few customers.
So the prices crashed again.
This week, the rules of supply and demand came back to the market place, and prices jumped almost $2 US a barrel in a single day.
Again, Adam Smith was right, and the likes of Sheik Yamani wrong. You can't sell people a product they can't afford, or don't need. Not at any price.
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