MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, APRIL 13, 1998 (4)
TOP STORIES
Canadian 88 Energy In Expansive Mode Despite Downturn
The Financial Post
While industry peers are hunkering down in light of declining petroleum prices, Canadian 88 Corp. is in growth mode, aided by investors' growing appetite for natural gas stocks.
The company said yesterday it is buying $45 million in assets from a major producer to beef up core holdings in west central Alberta. The name of the vendor was not disclosed.
Payment for the assets, located in the Caroline/Cheddarville, Strachan and Ricinus areas, is $36 million in cash and $9 million in non-core property swaps in Saskatchewan.
"Our company hasn't been caught up in the commodity crunch that much," president Greg Noval said yesterday. "On a [barrel of oil equivalent] basis, we are 97% gas or liquids."
He said Canadian 88 is well positioned to take advantage of the downturn. "We are going out with a fairly aggressive program this year."
While oil prices have slumped because of excessive world production, causing many Canadian producers to slash spending, natural gas prices have been rising because of expectations of tight supplies by this fall, when pipeline capacity will be added.
Because of yesterday's acquisitions, the company is budgeting $175 million in capital spending for the year, up from $130 million.
That is on top of the $150 million set aside for deep natural gas exploration and development in the Alberta foothills.
The assets add 27,000 acres of "highly focused land" and natural gas processing and pipeline facilities, Noval said. They are expected to contribute $8 million a year in cash flow.
Production is more than 10 million cubic feet daily of natural gas and 200 BOEs daily of natural gas liquids.
Canadian 88 shares (EEE/TSE) closed at $7.35, off 5›. The stock has bounced back from late last year when it was trading above $4, to become one of the year's best performers so far. It is riding high on investors' appetite for natural gas weighted companies, said Boston-based analyst Andrew Byrne with John S. Herold Inc.
Canadian 88 produces 80 million cubic feet of natural gas daily and 3,400 BOEs daily of natural gas liquids. Another 70 million cubic feet of gas a day is expected from its Waterton discovery, starting in the third quarter.
"People before were somewhat skeptical because it's a complex play," Byrne said. "Now that they got approval to construct a pipeline, people are beginning to price that into the stock."
Two weeks ago, Canadian 88 obtained approval to build a pipeline between the Waterton play in southwestern Alberta and Shell Canada Ltd.'s Waterton sour gas plant.
The company has increased production through discoveries by about 30% since early last year, when it launched an unsuccessful hostile takeover bid for Morrison Petroleums Ltd. Morrison was eventually rescued by Northstar Energy Corp. for $635 million.
Gulf Canada Resources Given Permit To Explore Offshore Eastern Canada
Gulf Canada Resources Ltd. has been granted an exclusive three-year permit to explore off the French islands of Saint-Pierre and Miquelon near the Canadian east coast. Gulf announced the permit to work the 800,000 acre block located 90 km south of the two islands -- part of a 5.4-million acre area subjected to an exploration moratorium since the late 1960s. Depending on the results of a seismic program to commence this summer, Gulf expects to begin drilling in 2000.
Precision Drilling On A Roll With Bid For Inter-Tech Drilling Solutions
The Financial Post
Shares of Inter-Tech Drilling Solutions Ltd. shot up 54› yesterday to a 52-week high of $2.04, after Precision Drilling Corp. announced a friendly takeover offer.
Calgary-based Precision Drilling, Canada's largest oil drilling company, is offering $2.10 in cash for each Inter-Tech share (IDL/TSE), a 27% premium over last Thursday's close.
The transaction is valued at $35 million, based on 16.5 million Inter-Tech shares outstanding.
The offer, the second takeover bid mounted by Precision this month, has already received the support of investors holding 57% of Inter-Tech shares and is backed by its board.
But it will be finalized only after Inter-Tech completes its own acquisition of Big D Rentals and Sales (1981) Ltd.
Inter-Tech is an oilfield services company that provides a patented technology for controlling surface pressure during underbalanced drilling.
Big D supplies specialty drill pipe and specialty equipment.
Precision Drilling said both companies complement its own activities and wants to keep their employees to improve its underbalanced drilling division.
On April 2, the company announced it was buying Northland Energy Corp. for an undisclosed amount.
Northland also specializes in underbalanced drilling in Canada and abroad.
GRI Study Documents Producer Success in Adding to U.S. Oil and Gas Reserves Gas Research Institute
ARLINGTON, Va., April 13 - U.S. oil and natural gas producers have been far more successful at adding to reserves in existing fields than most observers thought possible, according to a study released today by Gas Research Institute.
The study -- Assessment and Characterization of Lower-48 Oil and Gas Reserve Growth -- concludes that during the past decade producers have replaced production with new reserve additions and that most of that growth has come from existing fields rather than from new discoveries, a trend that is likely to continue.
''The growth in reserves has matched the incremental increases in demand and has been especially strong in the past three years,'' said John Cochener, GRI project manager and principal analyst-resource evaluation. ''The good news for consumers is that our findings add to the growing body of data showing that the nation's potential oil and gas reserves have been significantly underestimated. The good news for producers is that they have improved their ability to maximize productivity with advanced technology and have developed greater flexibility in responding to market forces affecting demand and costs.''
Conducted for GRI by Energy and Environmental Analysis Inc., Arlington, Va., the study used traditional growth curve analysis along with database growth analysis, evaluated trends in lower-48 reserve growth, and compared recent national growth assessments. In addition, the new reserve assessment incorporates an analysis of vast amounts of historical oil and gas production and completion data from public and commercial databases.
The study produced new, revised estimates of reserve growth for use in the GRI Hydrocarbon Model, a key component of the annual GRI Baseline Projection. The result is that crude oil reserve growth potential from existing fields in the continental United States is estimated to be 29.9 billion barrels, while natural gas reserve growth potential in existing fields is estimated to be 433.8 trillion cubic feet (385.7 Tcf from non-associated gas and 48.1 Tcf from associated gas). Growth in natural gas liquids reserves in existing fields is estimated to be 20.7 billion barrels. The gas estimate is about 32 percent higher than that of the 1995-96 U.S. Geological Survey/Minerals Management Service assessment, which is evaluated in GRI's study along with estimates from several other organizations.
''We are confident that our new estimates represent the most comprehensive and accurate assessment to date of reserve growth potential, both nationally and regionally,'' said Cochener. ''While there's a consensus that growth potential has been much greater than previously thought, there is considerable uncertainty involved in assessing this resource, which has led to the wide range of reserve estimates.''
The GRI study also features:
*In-depth assessments of reserve growth potential for liquids and gas in 16 producing regions in the continental United States. For example, the study found that regions with the most significant increases in total gas growth potential are the Mid-Continent, Arkla- East Texas, San Juan Basin, and East Gulf Onshore.
*Previously unpublished charts and tables based on a consolidation and analysis of production and completion data from public and commercial databases.
*Comparisons of GRI's reserve estimates with estimates from six outside studies since 1988.
Copies of the report can be ordered directly from the GRI Document Fulfillment Center, 1510 Hubbard Drive, Batavia, IL 60510, by fax at 630-406-5995. The report is $35 for GRI members and $50 for nonmembers.
Questions about the publication or ordering should be addressed to Val Megginson at GRI's Baseline/Gas Resource Analytical Center, Arlington, Va., at 703-526-7832; by fax: 703-526-7808; or e-mail: vmeggins@gri.org.
GRI, headquartered in Chicago, manages a cooperative research, development and demonstration program for the mutual benefit of the natural gas industry and its customers. GRI works with research organizations, manufacturers and its member companies to develop gas technologies and to transfer new products and information to the marketplace.
Ultra Petroleum Exploration/Colt Energy/Wesrtern Gas Resources Well Successful
The Lizard Head 11-8 well, a joint venture with Colt Energy (C.COE) and Western Gas Resources (N.WGR), was fracture stimulated with 220,000 lb. of high strength proppant on Saturday, April 11 in perforations between 12,830 ft. and 12,962 ft. This is the deepest completion attempt to date in the Jonah/Pinedale area. At 6:00 p.m. Mountain time Sunday evening the well was flowing gas at 1,025 p.s.i. on a 16/64 in. choke at a calculated rate of 1.512 million cu. ft. per day.
This zone contains 80 net feet of pay out of more than 500 ft. of overpressured potential pay in the well bore. Up to 5 frac jobs will be required to fully complete the well. The 11-8 is located on the eastern flank of the Pinedale anticline, approximately three miles north of the Lizard Head 13-28 well, which was completed by partner Western Gas Resources at an initial rate of 5.1 million cu. ft. per day into the pipeline.
Loon Energy Inc. Acquires Property
Loon Energy Inc. reported that it has entered into an agreement to acquire a producing oil property in the Grand Forks area of southern Alberta for a purchase price of $810,000.
The property produces 72 bopd of medium gravity oil from the Glauconitic formation. Loon will hold an average 21.5 percent working interest in 960 gross acres. This non-operated property is characterized by low operating costs and very favourable netbacks, resulting in annualized cash flow of $220,000 net to Loon, based on current oil pricing. The Grand Forks property has further development drilling potential, which Loon expects will be initiated later this year. The effective date of this acquisition is April 1, 1998 and the anticipated closing date is May 15, 1998, following the closing of Loon's current public equity offering. Goepel McDermid Inc. is acting as agent for the public offering.
INTERNATIONAL
AltaQuest Energy And Courage Energy Report On New Pool Oil Discovery in U.K.
AltaQuest Energy (AQF/ASE) and Courage Energy (CEO/TSE) announceD a new pool oil discovery at the Newton-on-Trent No. 1 well in the United Kingdom.
The AltaQuest operated well was drilled to a depth of 1,404 meters. The well encountered oil in a 17 meter thick interval of porous Crawshaw Sandstone and oil in a 13 meter thick interval of porous Kinderscout Sandstone. Drill stem tests conducted over these two intervals indicate that initial production rates on the well are expected to be in excess of 500 barrels of oil per day. Production testing will commence as soon as regulatory approvals are received and completion and testing equipment is available.
This find was drilled on a structure that appears to be approximately four square kilometers in size on 2D seismic. A 3D seismic program will be undertaken to further define this new discovery.
AltaQuest, Courage and partners control 425,000 gross contiguous acres in this area of the East Midlands basin. Interests in this well are Courage with 100 percent before payout (BPO); 50 percent after payout (APO), AltaQuest with 0 percent BPO; 50 percent APO. Interests in subsequent exploration and development activities on the Newton Block will be AltaQuest 50 percent and Courage 50 percent.
Cordex Petroleums Inc. Argentinian Drilling Update
Cordex Petroleums Inc. (CZX/TSE), with partner First Australian Resources of Perth, announce commencement of drilling operations on the Moralito X-2 exploratory well in Jujuy Province, located in the Northwest Basin of Argentina. The well will test a seismically defined structure to a proposed depth of 800 meters, or to the Yacoraite Formation. The location is located up-structure form the Moralito X-1 well drilled in 1978 by YPF, which tested 19 API gravity oil at 28 bopd form the Yacoraite formation.
The Moralito X-2 is located on CORDEX's Santa Barbara block approximately 53 km southwest from the Caimancito field which has produced over 62 million barrels of oil from the Yacoraite.
Cordex Petroleums Inc. operates the block with a 90 percent working interest, while First Australian Resources holds the remaining 10 percent interest.
Doreal Energy Corporation Ampolex (Colombia) Inc. (Mobile Oil Company), Seven Seas PetroleumInc., Mohave Colombia Corporation and Heritage Minerals Ltd. Columbian Drilling Update
The Mateguefa No. 1 exploration well, drilled by Heritage Minerals Ltd. in the Llanos Basin of Colombia, has reached total measured depth of 10,043 feet. The true vertical depth of the well is 9,545 feet.
Casing will be run to total depth. An evaluation program will begin shortly to test the hydrocarbon indications as observed on electric logs and the mud log.
Partners in the 240,000 acre Tapir Association Contract are, Ampolex (Colombia) Inc. (Mobile Oil Company), Seven Seas Petroleum Inc., Mohave Colombia Corporation and Heritage Minerals Ltd. Doreal has a 12.5 percent working interest and an 11.7 percent revenue interest in the Association Contract.
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