MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 16, 1998 (5)
INTERNATIONAL
Cabre Exploration, Coplex Resources NL And Naftex Energy Combine Interests In Egypt
Cabre Exploration Ltd. (CBE/TSE), Coplex Resources NL and Naftex Energy Corporation (NFTX/CDN) announced a combining of their interests in the West Esh El Mallaha (WEEM) Concession.
WEEM is a 222,000 acre concession onshore Egypt on which three wells were drilled by Coplex and Cabre in 1997 within an area of 3-D seismic covering about 25,000 acres.
Coplex owns 55.51 percent of the 54,047,190 outstanding shares of Naftex. Naftex, through its wholly owned subsidiaries holds 50 percent of WEEM. Cabre, through its wholly owned subsidiary, holds the remaining 50 percent of WEEM. WEEM is Naftex' only oil and gas asset.
Naftex also has net working capital of approximately $C8 million. Cabre will assign its 50 percent of WEEM to Naftex and match Naftex' working capital after deducting Naftex' severance and other costs, and shall receive 54,047,190 treasury shares. Cabre shall then hold 50 percent of the issued shares of Naftex.
Naftex have outstanding employee stock options, some of which will survive the closing of the proposed transactions. Naftex also has 18,852,500 warrants outstanding of which 10,000,000 are issued to Coplex. Cabre will be issued a number of warrants equal to those stock options surviving the closing and an additional 10,000,000 warrants.
These 10,000,000 warrants to be issued to Cabre and those of Coplex will expire March 18, 2001 to be exercisable at $0.55 until June 18, 1998, $0.65 until March 18, 1999 and $0.75 thereafter.
Upon closing there will be a significant change in the management of Naftex involving the resignation of a majority of the existing directors, officers and operating staff. Cabre will nominate a majority of the members of the Naftex board and this board shall appoint new officers of the company.
Naftex shall also designate operating staff and four of the eight director positions to ESHPETCO, the joint company formed with the Egyptian General Petroleum Corporation (''EGPC'') to operate WEEM. EGPC have nominated four directors. Mr. Ramzy El Adl, the current President of Naftex, shall remain an ESHPETCO director.
Naftex will drill three firm and one contingent well on existing 3-D seismic in WEEM and conduct an additional 400 km of 2-D seismic and 200 Km2 of 3-D seismic. The seismic program has commenced with Western Geophysical. Several drilling proposals are being assessed from which one contractor will be selected.
Due to a continuing shortage of drill rigs in Egypt, the start of drilling cannot be stated with confidence; however verbal indications suggest drilling can start by June 1998. Each well requires about one month and will cost approximately $US1,000,000 to drill to 6500' sub surface.
The Rabeh-1 oil discovery of June 1997 started production on February 2, 1998 from three sets of perforations in the Miocene Nukhul formation. These perforations flowed 7,235 barrels of 29 degree API oil in total on initial tests with no water. A fourth zone in the Matulla, which tested at 1,570 B/D, is not being produced.
Unfortunately the well started to produce water almost immediately. The source of the water was subsequently determined to be the lowest of the three perforation sets. Two cement squeezes failed to correct the problem and since the squeezes the fluid rate declined to about 800 barrels per day, of which 450 barrels is oil.
Further remedial work is planned to correct what appears to be a poor cement job. For example, the nearby Wadi El Sahl field, is believed to be producing water-free oil from the Nukhul formation. Production from WEEM is currently trucked to tidewater. However, EGPC has advised that a 12'' crude oil pipeline will be built from the WEEM area to Zeit Bay, some 100 km to the north.
The transaction proposed herein is expected to close June 1 and no later than June 30, 1998, and is subject to due diligence reviews, regulatory and other necessary approvals.
The transaction will resolve operatorship issues, provide funding for the 1998 drilling and seismic program, avoid the need for inter-party agreements, reduce corporate overhead and align the shareholders' interests. The primary objective of Naftex will be to evaluate the potential of the WEEM Concession prior to the end of its exploration term ending July 17, 2000.
Deena Energy Commences Cambodia Offshore Drilling
Deena Energy Inc. through its subsidiary Deena Energy Cambodia Inc. is pleased to announce that drilling has commenced on the Koah Pring I well offshore Block IV Cambodia. The drill ship Energy Searcher will drill to approximately 3000 meters to evaluate Miocene and Oligocene aged sediments. Deena has a 10 percent working interest in Block IV which encompasses approximately 2800 square kilometers. Drilling and production testing is expected to take approximately 50 days.
Grande Portage Resources Provides Albania Update
Grande Portage Resources Ltd. (GPGVSE) previously announced on March 4th, 1998, that it had entered into a Heads of Agreement with SH.A. Albpetrol, the state owned oil and gas company of the Government of Albania, for the development of the Delvina gas project. This corporate update is intended to provide shareholders and investors with additional details about the Delvina project.
The Delvina Field consisting of gas and gas condensate was discovered by SH.A. Albpetrol in 1987 with limited production commencing in October of that year. Between 1987 and 1994, production from two wells totalled 1,744 MMSCF and 97,800 barrels of condensate. In 1996, Grande Portage retained an independent U.S. based consulting group, Poco Oil Co., to review the project and to make recommendations to the Company. Amongst other findings, the consulting group estimated the reserves at Delvina as follows:
Proven Natural gas MMSCF 158,174, Condensate Barrels - 8.8 million
Probable Natural gas MMSCF 77,737, Condensate Barrels - 4.3 million
Possible Natural gas MMSCF 164,135, Condensate Barrels - 9.2 million
These reserves were in close agreement to the reserves as determined in a 1993 technical study of the Delvina Field by a major U.S. based integrated oil and gas company.
Poco Oil Co. recommended the Company pursue the project as it represented a favorable and low risk petroleum development investment opportunity. They recommended a two-phased experimental program followed by a development program. The initial phase of the experimental program budgeted at US$3.25 million consists of side tracking two wells to a better structural location and then fracing these wells if necessary. Upon completion of the experimental phase, a decision to enter the second subphase or go directly to the development phase will be taken. The projected budget for experimental and production costs is US$30 million over a five year period. Approximately one-half of this requirement is expected to be available from ongoing cash flow from the Delvina project.
In anticipation of the Joint Operating Agreement being executed this summer, the Company is in the process of reviewing various financing options. In addition to its fiscal requirements, the Delvina project will require the expertise of an experienced management team. Towards this end, the Company is in discussion with industry partners to satisfy this requirement.
As stated in the March 4th, 1998 press release, the terms and conditions of the Joint Operating Agreement between the Company and SH.A. Albpetrol will define the fiscal regime under which operations at Delvina will be conducted. Upon execution of the Joint Operating Agreement, the Company has agreed to issue to Anglo Adriatic Group a finders fee in the form of 1.5 million common shares of the Company. The issuance of these shares is subject to regulatory approval.
Ecuador Says Oil Exports Not Hit By Protests
Ecuador state oil company Petroecuador said Wednesday that exports will not be affected by a takeover of several fields by protesters.
''Crude exports have not been affected because we have oil stored in our terminals,'' a Petroecuador spokesman told Reuters.
Police said two protesters have died and two security officials have been wounded since farmers, local citizens and some oil field workers took over several of the 42 Amazonian oilfields Petroecuador operates Tuesday.
The protests were staged by workers of companies that provide services to state oil company Petroecuador and rural workers and indigeneous groups angry at attempts to privatize their social welfare programs.
The immediate impact of the uprising was a production loss of 32,000 barrels according to Petroproduccion, an affiliate of Petroecuador.
''The problem remains critical, but we have compensated for the (oil production) losses,'' the spokesman said.
The important Sacha and Aucas Norte deposits are being guarded by the military to stop any takeover attempts, the spokesman said.
Petroecuador accounts for 80 percent of Ecuador's 390,000 barrel per day oil production. The country, which is the sixth largest producer and fourth largest exporter of oil in Latin American, relies on oil revenues to bankroll nearly 50 percent of its budget.
Colombian Oil Faces Pre-Poll Attacks
Colombia's oil industry may see an upsurge in rebel attacks in the lead-up to next month's presidential elections but the sector will not become a ''Dante's Inferno'', the head of the state run oil company said.
But, in an interview with Reuters late Wednesday, Ecopetrol chairman Enrique Amorocho said it was not yet clear what the longer term implications would be of the recent death of a top guerrilla leader, who had been fiercely opposed to foreign involvement in the domestic oil business.
He was optimistic, however, that a package of 36 new oil contracts being offered to private-sector companies under improved terms would boost the industry and safeguard Colombia's self-sufficiency in oil.
''We're in a pre-electoral period and it's been traditional for the guerrillas (to launch attacks at such times),'' Amorocho said, referring to the first round of the presidential poll set for May 31.
''With a new government also in prospect the guerrillas are probably looking to build up positions,'' he added.
Amorocho was speaking to Reuters just after giving a press presentation about the package of new contracts, comprising total potential reserves of as much as 9.3 billion barrels of crude equivalent, now being put on offer.
Hours earlier, the Cuban-inspired National Liberation Army (ELN) had bombed the Cano Limon-Covenas pipeline, the country's second largest, for the 15th time this year.
The ELN specializes in attacks on the country's oil infrastructure arguing that foreign multinationals have an excessive stake in the industry.
In addition to the pipeline attacks, suspected ELN rebels have bombed British Petroleum Co Plc (UK & Ireland: BP.L) facilities in the 300,000 barrel per day (bpd) Cusiana-Cupiagua oil complex in eastern Colombia twice in less than three weeks.
The incidents have forced BP to shut down three exploratory wells and shut in 75,000 bpd of production. It has also heightened security fears in an industry already reeling from a rising tide of rebel threats.
''I don't want to underestimate the impact (of the public order situation)...but we're making an effort to offer the best global (contract) conditions,'' Amorocho said.
''This isn't paradise on earth but its not Dante's Inferno either,'' he added.
Last year the ELN blasted the Cano Limon pipeline, which serves Occidental Petroleum Corp's (OXY) 170,000 bpd field in northeast Arauca province, a record 65 times. But this year attacks have been more sporadic -- the last one prior to Wednesday's explosion was on March 14.
Some defense experts suggested the downturn in attacks was due to the fact that the ELN was restructuring its leadership after its long-time chieftain, Spanish born rebel priest Manuel Perez, died of hepatitis in mid-February.
The new leader, Nicolas Rodriguez, is said to be a military hardliner. Analysts have also suggested the ELN's radical Domingo Lain division -- the one that heads the anti-oil campaign -- could shun all internal restraints and launch an all-out offensive on the oil industry.
Amorocho, however, declined to speculate on the impact of Perez's death on the ELN's ''oil policy''.
''All Colombians are hoping for peace and that includes everybody at Ecopetrol,'' he said. ''But I try to focus more on the technical aspects of the oil industry rather than get involved in the concepts and possibilities of the ELN.''
New Style Colombian Oil Deals Up For Grabs
Colombia's state-run oil company this week put 36 new oil contracts up for grabs, hoping to attract as much as $563 million new risk investment and ensure the country's long-term self sufficiency in oil.
Ecopetrol chiefs estimated the total potential reserves in the 36 areas on offer in a two-phase bidding process at between 5 billion and 9.3 billion barrels.
This Andean nation's total potential hydrocarbon reserves are estimated to be about 37 billion barrels of crude equivalent -- much of that in hitherto unexplored areas.
''There's something for all tastes here. Something of every flavor,'' an upbeat Ecopetrol chairman Enrique Amorocho said at a press presentation late Wednesday.
''Companies will be able to bid for the contract that suits them most. There are 36 contracts on offer that cover different activities and different levels of risks,'' he added.
Ecopetrol officials are explaining this week the new contracts and new bidding system to oil industry executives in Houston and Calgary as well as representatives of those oil companies already operating in Colombia.
The contracts are the first to be put up for ''auction'' -- rather than negotiated on a one-to-one basis with private sector associates.
A first tranche of seventeen contracts, covering exploration in both inactive and active areas as well as contracts for incremental production in already productive areas, is due to be awarded in late July.
The second slice of 19 contracts is scheduled to be allocated in early October.
The new ''auction'' system, part of an enhanced contracts package first announced last October, will see private sector companies not placing cash offers but instead making bids on the basis of what share of production they will offer to Ecopetrol from any given field.
In the case of contracts in active areas or incremental fields, the bidder must offer Ecopetrol a share of output greater than that set out in the present system of fixed-term contracts, starting about 50 percent.
In the case of hitherto inactive areas, the bidder will be able to offer Ecopetrol as little as a 25 percent cut of production.
Ecopetrol came up with the idea of bidding for contracts as a way of stimulating investment in Colombia's oil industry -- currently suffering from low exploration levels.
The state oil company currently has 104 active association contracts with foreign and domestic private sector partners, the highest level this decade.
But just 28 new test wells were sunk nationwide last year, according to Ecopetrol figures, the third lowest level since at least 1990.
Foreign oil companies have frequently complained that Colombian terms for oil exploration and production are not internationally competitive.
Added to that is the growing threat posed by the country's two highly active Marxist guerrilla groups against oil infrastructure and the employees of multinational companies.
Ecopetrol estimates just 10 percent of the country's potential oil bearing formations have been throughly explored. It has also forecast that if no major new oil find is made before the year 2000, Colombia could become a net importer of oil by around 2005.
But Ismael Arenas, Ecopetrol's vice-chairman (operations), believes the new contracts on offer will provide a much needed shot in the arm for the Colombian oil sector -- the country's biggest export earner.
''There are now greater incentives for companies to get involved. Before we were just offering one type of contract for all types of area,'' he said.
Arenas, however, declined to say what the implications of the new contracts on Colombia's oil self-sufficiency would be.
''Many of these are exploratory contracts and as such are subject to great risk. There's no possibility that the total potential reserves will actually be discovered. We're talking about wells that have a success rate of between 15 and 25 percent,'' Arenas said.
Iraq Needs Oil Pipeline Parts
A team of experts sent to examine Iraq's oil infrastructure says it badly needs repairs and the upgrading of production and transmission equipment.
Industry experts visited Iraq last month and were accompanied by two U.N. overseers.
The U.N. experts even said in the report issued by Secretary-General Kofi Annan today the ''Iraqi oil industry is really in desperate need for spare parts'' if it is to increase oil output from $2.2 billion every six months to $5 billion.
The Security Council approved the increase earlier this year to allow Baghdad to obtain more funds for the oil-for-food program. The scheme lets Iraq sell oil and buy humanitarian needs with the funds.
The Iraqi request to buy $300 million in spare parts ''is reasonable and...reflects only the most essential and urgent needs of the Iraqi oil industry,'' said the report to the Council.
Oil experts said, ''Without rapid and adequate investment in spare parts and repair of the production wells plus the development of smaller fields, the gap between the existing decline curve and the projected increment in crude oil production will grow wider for each month that financing is delayed.''
Their report said Iraq's oil industry ''has the expertise and technical knowledge to gradually increase production over the next 18 months.''
The experts concluded that it would be unlikely $5.2 billion in oil sales during the six-month period could be reached. It also noted the dropping price in oil.
They said the ''oil industry of Iraq is in a lamentable state.''
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