MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MARCH 30, 1998 (3)
New Game Plan For Energy Rights
Saskatchewan's Deeper Rights Reversion Welcomed By Most Players
The Financial Post
The rules of the energy exploration game in Saskatchewan are changing April 1 and the winners will be the first ones in, says the head of a successful junior oil company.
After years of consultation and warning, rewriting how petroleum rights are held is generally being greeted with enthusiasm.
"I don't think it's going to be the increased land rush that some were anticipating," said Mike Rose, president and chief executive of Berkley Petroleum Corp. "But over time it will provide more opportunity."
At stake are millions of dollars in additional revenue for the province and the chance for oil and natural gas companies to make discoveries at deeper levels. Saskatchewan is implementing a process called deeper rights reversion.
Under the old system, a company could retain all oil and natural gas rights to a property by producing from one formation, at any depth. If there was a good reservoir 500 metres deep and another at 1,000 metres, the producer could keep out competitors by flowing oil or gas from the shallower zone.
Effective April 1, the regulations have been altered so the rights will only go as far as the deepest producing formation. Anything below this reverts to the Crown and can be sold. About 8,000 oil and gas leases, many several decades old, are eligible to go back on the market.
The government's plan has two aims, said Bruce Wilson, executive director of the petroleum and natural gas division of Saskatchewan's Energy Ministry.
It wants to increase land sale payments, perhaps by $10 million a year, and hopes to stimulate production, raising additional royalty revenues.
Saskatchewan is following in the footsteps of its big brother in the Canadian oilpatch. Alberta adopted deeper rights reversion in the early 1980s, helping spark a surge in activity. Saskatchewan hopes to see a similar result.
Not all firms are happy with the change, but the long phase-in period gave players ample time to evaluate their properties, Wilson said.
Berkley is one company that profited from the redrawing of the regulatory landscape. The looming deadline helped it arrange a deal to drill on Shell Canada Ltd.'s acreage in the Midale region of southeastern Saskatchewan. Berkley completed a 2,800-metre well in early 1996 that led to the discovery of an estimated 100 million barrels of oil in the Red River formation, of which up to 40% could be recovered.
The find kicked off a major land grab in the area, with some properties selling for $1 million or more. Berkley's partners are Paramount Resources Ltd. and Westminster Resources Ltd. Other firms active in the region include Talisman Energy Inc., Richland Petroleum Corp. and Oiltec Resources Ltd.
One of the province's biggest rights holders is Renaissance Energy Ltd., which controls about one million hectares.
Sheldon Steeves, senior vice-president and chief operating officer, said a few of its 200 to 250 wells planned for Saskatchewan this year will chase deep targets.
Most of Renaissance's land is not affected by rights reversion, but Steeves said the move will provide opportunities for new players.
"It's a very elegant solution to keep lots of land in the public arena."
Pipeline Projects Awaits April Ruling
Fort McMurray Today
The Alberta Energy and Utilities Board is expected to make its decision whether to approve the $325-million Wild Rose pipeline by the end of April.
The board wrapped up the final three-day hearing concerning the new McMurray area pipeline earlier this month.
The 530-kilometre, 30-inch pipeline will have a capacity of 570,000 barrels per day of oilsands product. Suncor Energy first proposed the pipeline, but Calgary based IPL Energy Inc. has assumed costs for the project and has the oilsands plant as the line's first shipper.
As more shippers use the line, IPL will become the operator.
"The AEUB has indicated that they will bring down a decision in an expeditious manner which means, I presume, over the course of the next three to six weeks," said Doug Ford, public consultant and co-ordinator for the Wild Rose pipeline.
Ford said IPL would prefer a quick decision. "We have commitments in terms of contractors and pipe and such so we'd like to move ahead as quickly as possible."
Pending AUB approval, Ford said the pipeline construction in the Cold Lake area could begin in June with construction in and around Fort McMurray occurring in the summer and fall. The line is expected to be completed in the spring of 1999. The construction workforce is estimated between 300 and 500 people.
Through Fort McMurray, the pipeline's route will cross the Athabasca River on the existing pipeline alignment upstream of the water treatment plant, follow the water treatment plant road up Highway 63 to Poplar Creek and then to the Wild Rose pump station at Suncor Inc.'s plant entrance.
From McMurray, the pipeline will pass through the Cold Lake weapons range to Hardisty.
"This particular pipeline project is the most significant crude oil pipeline within Alberta," said Ford. "It is extremely important from our perspective for the future developments and support and enhancement of the oil and heavy and synthetic (oil) production in and around Fort McMurray and the Cold Lake area ...
"It's the only one that is on the board with access directly to Hardisty which is a major transportation hub to crude oil." The pipeline is expected to contribute $1 million in annual tax revenues to the municipality.
MARKET ACTIVITY
The Toronto Stock Exchange 300 Composite Index fell 0.7% or 54.62 to 7567.91.
In comparison, the Toronto Oil & Gas Composite fell 0.6% or 39.55 to 6666.90. The sub-components were mixed. The Integrated Oil's fell 0.6% or 56.63 to 8872.47 and the Oil & Gas Producers lost 0.9% or 51.87 to 5896.44. The Oil & Gas Services climbed 1.5% or 45.97 to 3089.81.
Berkley Petroleum, Black Sea Energy, Canadian Natural Resources, Petro-Canada, Beau Canada Exploration, Oiltec Resources, Talisman Energy and Poco Petroleums were among the top 50 most active issues on the TSE.
Berkley Petroleum gained $0.60 to $14.40, Remington Energy $0.55 to $16.40, Petrobank $0.50 to $3.00 and Seven Seas Petroleum $0.50 to $26.50.
Percentage gainers included Petrobank up 20.0% to $3.00, Black Sea Energy $18.2% to $1.30, Ram Petroleum 17.4% to $1.35, TransGlobe Energy 12.5% to $1.35 and Richland Petroleum 7.8% to $3.45.
On the downside, Canadian Occidental Petroleum fell $0.85 to $28.90, Canadian Natural Resources $0.70 to $30.30, Crestar Energy $0.65 to $20.10, Imperial Oil $0.65 to $80.85, Suncor Energy $0.65 to $51.50, Anderson Exploration $0.55 to $15.95, Chieftain International $0.55 to $33.95 and Talisman Energy $0.55 to $44.45.
Percentage losers included International Rochester 12.0% to $1.10, Founders Energy 5.7% to $0.99 Petrorep Resources 5.5% to $1.20, Bellator Petroleum 5.5% to $1.04 and Elk Point Resources 4.8% to $6.00.
In the service sector, Artisan Corp was among the top 50 most active on the TSE>
Dreco Energy climbed $3.05 to $49.00, Ensign Resource Service $1.75 to $32.50, Artisan Corp. $1.15 to $11.00 and Akita Drilling $0.70 to $10.20.
Percentage gainers included Artisan Corp. 11.7% to $11.00, Akita Drilling 7.4% to $10.20, Dreco Energy Service 6.6% to $49.00, Badger Daylighting 6.2% to $7.75 and Ensign Resource Service 5.7% to $32.50.
There were no net losers in the group.
Percentage losers included Intertech Drilling, down 7.9% to $1.05.
Over on the Alberta Stock Exchange, Wenzel Downhole (formerly Master Downhole) Bearcat exploration, Stampede Oils, Burner Exploration, J&L Cpital Venture, Prize Energy, Colt Energy, Dalton Resources, HEGCO Canada, Cubacan Exploration, Alta Pacific Cap and First Star Energy were among the top 25 most actives.
Palmetto Resources gained $0.24 to $0.95, Underbalanced Drilling $0.25 to $2.90, J&L Venture $0.14 to $0.63, Prize Energy $0.11 to $0.62, CanBaikal Resources $0.10 to $1.20, Hawk Oil B $0.10 to $1.40, Invader Exploration $0.10 to $0.85, Wenzel Downhole $0.10 to $1.10 and Hyduke Capital $0.09 to $1.99.
On the downside, Seventh Energy fell $0.62 to $1.25, HEGCO Canada $0.20 to $2.62, Hawk Oil A $0.20 to $1.00, Niko Resources $0.20 to $6.10, AltaQuest Energy $0.15 to $2.50 and Kensington Energy $0.15 to $0.60.
RESEARCH INFORMATION
Blue Range Resource (BBR.A-T: $8.10) BUY
(Upgraded From Hold)
Gas Production Performance Improves
Blue Range Resource will end its 1998 fiscal year tomorrow, March 31st. The company is currently producing about 135-140 mmcf/d, up dramatically from its 3Q level of 105 mmcf/d. The company, which is 80% levered to natural gas production, conducts most of its activities in northeast B.C., an area which we believe will become more attractive as western Canada seeks to increase its production to fill new export pipeline space, beginning at the end of this year. We expect gas production to increase from 93 mmcf/d in F1997 to 110 mmcf/d in F1998 and 140 mmcf/d in F1999. The company reported $1.45 in fully diluted CFPS in F1997 and we estimate it to generate $1.30 in F1998 (just ending) and $2.00 in F1999 (just about to begin). The debt/cash flow ratio is currently 1.6X. With natural gas increasing in favour, and with its levered position in northeast B.C., we believe that Blue Range offers attractive upside. We are upgrading Blue Range from a hold to a BUY with a 12-month stock price target of $11.50.
Newport Petroleum Corporation
(NPP-T: $6.10) HOLD
Fully diluted CFPS for 1997 was $0.84 vs. $0.91 in 1996 - in line with expectations. Proven and probable reserve additions replaced production by 3.6X at a finding and development costs of $5.84/boe ($8.38/boe proven only). Newport's finding and development results exceeded our expectations. We believe this is due in large part to the reserves booked at Caroline and Cutbank. Reserve data and test results from these wells remains tight pending further land sale activity. A third Cutbank well is currently about three weeks from completion. Newport is also about three weeks away from reaching total depth on another high impact deep gas exploration test at Raven River.
Gas production in 1997 was 130 mmcf/d, up 30%, while liquids production rose by 8% to 5,840 bbls/d. Currently, Newport is producing 148 mmcf/d of gas and 6,200 bbls/d of oil and NGL's. We are forecasting 1998 average gas production of 155 mmcf/d and liquids production of 7,000 bbls/d. Our 1998 fully diluted CFPS forecast is $0.85.
It is our belief that the single most important aspect of Newport's valuation is the potential of its high impact exploration program. Given the tight status shrouding this program and the level of speculation surrounding it we are maintaining our Hold recommendation, pending the release of further information. We expect that the "tight hole" status of the Cutbank and Caroline wells could be lifted in the second half of April.
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