MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 16, 1998 (6)
MISC NEWS FOR KERM'S LISTED COMPANIES
Rio Alto Exploration (TSE/RAX) announced that it has entered into an agreement with a group of Canadian underwriters to issue by way of a short form prospectus 6,000,000 common shares at a price of $16.90 per share on a "bought deal" basis. The proceeds from the issue will be used by Rio Alto to fund its ongoing exploration, development and acquisition efforts.
Pan East Petroleum Corp. announced that Mr. C. Michael Stuart has been appointed to the Company's Board of Directors.
Mr. Stuart brings to the Board significant financial and advisory experience in the oil and gas industry. Mr. Stuart is an independent financial consultant and was previously a Special Advisor and Senior Vice President, Oil and Gas Group with Yorkton Securities Inc. from February, 1997 to March, 1998. This term was preceded by his tenure as Vice President and Director of First Marathon Securities Limited from April, 1989 to January, 1997.
Mr. Stuart's representation on the Board was accepted upon the resignation of Mr. Ernst W. Kitzul who served from May, 1995 to April, 1998.
PIPELINES
IPL Energy Inc. today announced that its wholly-owned subsidiary, Interprovincial Pipe Line Inc. of Edmonton, and affiliated Lakehead Pipe Line Partners, L.P., of Duluth, Minn. have reached a tolling agreement with the Canadian Association of Petroleum Producers for the proposed Terrace crude oil pipeline expansion project.
The Terrace expansion project is a phased program that ultimately will provide an additional 520,000 barrels per day of heavy crude oil capacity for Western Canadian producers seeking greater accessto Midwest U.S. markets. The estimated investment for the project is Cdn. $840 million for the Canadian portion of the expansion, and U.S. $380 million for the United States portion.
The agreement provides for a fixed toll increase of Cdn. $0.05 perbarrel, or approximately 3.5 percent, for transportation from Edmonton, Alta., to Chicago, Ill.
Details of the agreement were filed with Canada's National Energy Board as part of Interprovincial Pipe Line's application for the first phase of the Terrace expansion. The NEB hearing on the facility application concluded today after two days of deliberation. This is the shortest hearing time for a crude oil project of this magnitude and reflects significant industry support for the project. In addition to NEB approval, the tollingsettlement is also subject to approval by the Federal Energy Regulatory Commission in the United States.
Pending NEB approval, the first phase of the Terrace project will provide an initial 95,000 barrels per day increase in capacity as early as January of next year, rising to 170,000 barrels per day by the end of 1999, at an investment of Cdn. $610 million in Canada and U.S. $138 million in the United States. Subsequent phases in the program will provide the balance of 350,000 barrels per day of added capacity.
Brian F. MacNeill, President and Chief Executive Officer of IPL Energy, said that the tolling agreement accompanying the Terrace program builds upon the company's pioneering agreement with shippers in 1995, the first liquids pipeline incentive tolling arrangement on the continent, as well as the "risk sharing" agreement developed with shippers for the SEP II expansion programin 1996.
"For a small increase in overall tolls, the Terrace tolling agreement provides shippers with toll stability and certainty. At the same time, the fixed toll increase provides IPL Energy with a favourable base return with the opportunity to enhance that return as throughput increases through construction of the additional phases," Mr. MacNeill said.
MARKET ACTIVITY
In the U.S., Dow gainers were led by Exxon (XON), which rose 2 1/16 to 70 3/4 while Chevron (CHV) gained 3 11/16 to 83 3/4. Mobil (MOB) rose 1 5/8 to 77 1/8. The AMEX Oil Index (XOI) closed up 7.88 to 489.36.
While oil producers rose, oil drillers tumbled, sending the Philadelphia Oil Service Index (OSX) down 2.19 to 110.78. Diamond Offshore (DO) slid 1 5/16 to 45 3/8, although its first quarter profits of 56 cents per share were 3 cents ahead of forecasts. ENSCO International (ESV) fell 1 3/8 to 26 5/8, despite beating the Street by 4 cents with its first quarter earnings of 62 cents per share.
A slew of other oil drillers and services firms fell at least $1, including Smith International (SII), down 1 9/16 to 55 7/16.
The Toronto Stock Exchange 300 Composite Index fell 0.2% or 13.74 to 7803.91.
In comparison, te Toronto Oil & Gas Composite Index also fell 0.2% or 10.53 to 6736.24. in review of the sub-components, the Integrated Oil's fell 0.3% or 30.76 to 8696.61. The Oil & Gas Producers eeked out a gain of 0.1% or 5.25 to 5973.46. The Oil & Gas Services fell 1.2% or 40.62 to 3340.36.
Compton Petroleum, Anderson Exploration, Petro-Canada, Bitech Petroleum, Probe Exploration, Ranger Oil, TriGas Exploration, Northstar Exploration, Renaissance Energy, Talisman Energy and Rio Alto Exploration were among the top 50 most active traded issues on the TSE.
Canadian Occidental Petroleum gained $1.10 to $29.75, Cabre Exploration $0.80 to $16.00, Pendaires Petroleum $0.55 to $8.00 and Talisman Energy $0.50 to $42.80.
Percentage gainers included Black Rock Ventures 14.9% to $1.00, Renata Resosurces 11.1% to $1.00, Pendaires Petroleum 7.4% to $8.00, Westfort Energy 7.2% to $2.67, Beau Canada Exploration 5.9% to $2.70, Compton Petroleum 5.7% to $1.85, New Cache Petroleum 5.3% to $6.95, Cabre Exploration 5.3% to $16.00 and Real Resources 5.3% to $1.0.
On the downside, Renaissance Energy fell $0.65 to $27.30 and Seven Seas Petroleum $0.50 to $23.00.
Percentage losers included TUSK Energy 12.4% to $1.56, Post Energy 7.9% to $3.50 and Canada Southern Petroleum 4.8% to $10.00.
There were no oil & gas service issues among the top 50 most active on the TSE.
Shaw Industries A gained $2,85 to $57.90, Canadian Crude Sep $0.65 to $4.90, Enertec Resource Services $0.55 to $9.65, Computalog $0.50 to $24.00 and Ryan Energy $0.45 to $9.85.
Percentage gainers included Canadian Crude Sep 15.3% to $4.90, Tetonka Drilling 12.5% to $2.25, Enertec Resource Services 6.0% to $9.65 and Shaw Industries A 5.2% to $57.90.
On the downside, Enerflex Systems fell $2.00 to $42.00, Prudential Steel $1.75 to 14.50 and American ECO $1.55 to $11.00.
Percentage losers included American ECO 12.4% to $11.00, Prudential Steel 10.8% to $14.50, Bromley Marr 4.8% to $1.00 and Enerflex Systems 4.5% to $42.00.
Over on the Alberta Stock Exchange, ICE Drilling, Emerald bar Energy, AltaPacific Capital, First Star Energy, HEGCO Canada, Dalton Resources, Deena Energy, Wolverine Energy, Doreal Energy, Bearcat Exploration, AltaQuest Energy and Parkcrest Exploration were among the top 25 most active traded issues.
Proprietary Energy gained $0.25 to $2.85, Blue Power Energy $0.17 to $0.48, Deena Energy $0.15 to $0.92, Wolverine Energy $0.12 to $1.20, Ionic Energy $0.10 to $1.60, Total Energy Services $0.10 to $2.10, Big Bear Exploration $0.09 to $1.30 and Hyduke Capital Resources $0.09 to $2.39.
On the downside, Destiny Resource Services fell $0.15 to $2.95, Danoil Energy $0.14 to $1.10, Canadian Talon Resources $0.14 to $0.55, Pacific Ranger Petroleum $0.12 to $0.39, AltaQuest Energy $0.10 to $3.50, Foothills Oil & Gas $0.10 to $0.20, First Star Energy $0.10 to $0.60, Niko Resources $0.10 to $5.65 and Vintage Resources $0.10 to $1.00.
INDEX CHARTS
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NEW PHLX OIL SERVICE SECTOR
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MOST ACTIVE LISTINGS
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RESEARCH NOTES
Gordon Capital
Berkley Petroleum
(BKP-T: $15.40) BUY
1997 Results Below Expectations
Berkley announced fully diluted 1997 CFPS $0.48 vs. $0.50, considerably below our forecast for 1997 of $0.70. Production during 1997 averaged 7,386 boe/d, significantly below our forecast of 10,300 boe/d.
We had last revised our 1997 forecast during consultations with management in January, when we published a detailed research report in our Drill Bit edition of that month. Hence, we are negatively surprised by these results. The company has also reported its Q1 1998 performance, with CFPS of $0.27 vs. $0.19. Production during Q1 averaged over 19,000 boe/d, but below the 1997 exit rate of 20,000 boe/d that the company had been forecasting to the financial markets.
Due to the disappointment of Berkley's 1997 performance, and the unreliability of Berkley's own forecasting, we are lowering our 1998 average production forecasts for natural gas from 180 mmcf/d to 150 mmcf/d, and are maintaining our 1998 total liquids production forecast at 10,000 bbls/d.
This average production forecast of 25,000 boe/d is somewhat below the company's own forecast of 27,500 boe/d. In addition, we are forecasting 1998 fully diluted CFPS to grow to $1.30, and our preliminary 1999 CFPS forecast is $1.85.
Berkley disclosed competitive finding and development costs in 1997 on a proven plus probable reserve basis, at $4.79/boe, but a relatively high $8.21/boe on a proven reserves only basis.
Despite its financial forecasting and control inadequacies, Berkley is an aggressive exploration company which is potentially capable of delivering exciting drilling results. The company reports that it has cased six deep Foothills wells in western and southern Alberta, but has yet to disclose any test results.
In the Northwest Territories, two new gas pools were discovered this past winter, one of which test flowed at 28 mmcf/d. The company has also added some new light oil discoveries in southeast Saskatchewan.
Berkley, which by our forecast will be 60% levered to natural gas production this year, is projecting that it can add another 100 mmcf/d of deliverability over the next 12 months. With a capital expenditure budget of $223 million this year, we are projecting a 1998 year-end debt/cash flow ratio of 1.4X.
Our 12-month stock price target remains unchanged, at $17.00, reflecting a very generous 9X our forecasted 1999 cash flow.
Canadian Natural Resources
(CNQ-T: $30.75) BUY
New Light Oil At Buick Creek
CNQ has two new 100% owned horizontal wells at Buick Creek, in northeast B.C., producing at sustainable rates of 1,000 bbls/d each. The first well is a re-completed vertical well with two lateral horizontal legs. The second well is a straight horizontal well. While this play has yet to fully unfold, it could possibly lead to the drilling of up to 15-20 more horizontal wells. CNQ will continue to keep two rigs working in this area.
The company has informed us that it is continuing to work on the engineering challenge recently posed at Pelican Lake, where the gas/oil ratio has been surprisingly high.
We continue to forecast CFPS of $5.20 this year, and $5.75 in 1999 on a preliminary basis. Our 12-month stock price target on CNQ is $35.00.
Probe Exploration
(PRX-T:$6.40) BUY
Wabamun Drilling Plans Formulated
Probe is currently capable of producing 450 boe/d from its first successful horizontal well into the Wabamun (D1) formation of its Leduc project area. This well is, however, currently choked back to 200 boe/d. The next horizontal well will be drilled after spring break-up, in late May. Management are currently in the opinion that this Wabamun pool may require either 50 horizontal wells or 100 vertical wells to fully develop, at an estimated capital cost of approximately $28 million. In addition, there are three other potentially developable Wabamun pools that have yet to be drilled into.
In the company's new Sparky channel discovery, also at Leduc, the company has publicly disclosed that it has successfully tested one new gas well. The other eight wells that have been drilled remain on tight status, due to competitive land concerns.
Management is currently re-working its 1998 capital expenditure budget, which could increase from $50 million to about $77 million. With a newly acquired bank line of credit of $100 million, this increase in spending is financeable without the company having to dilute its shareholders with an issue of new equity.
Predicated on the assumption that the company will not issue new equity in the foreseeable future, we are increasing our stock price target from $8.00 to $9.00.
Canadian 88 Energy
(EEE-T: $7.40) HOLD
1997 Results Below Expectations
Canadian 88 Energy has reported 1997 CFPS of $0.35 vs. $0.35, below our forecast of $0.40. This is despite the fact that we had dramatically reduced our 1997 forecast in late 1997 when it was evident that the company was significantly behind its own earlier projections. This was primarily due to development delays at its two most significant areas: Olds/Crossfield, and Waterton.
Canadian 88's natural gas production only grew 16% to average 66 mmcf/d in 1997, below our forecast of 70 mmcf/d. However, the company has reported impressive finding & development costs for 1997, at $3.36/boe. It also realized an excellent average natural gas price in 1997, at $2.08/mcf.
With the dilutive impact of its recent equity issue, we have reduced our 1998 CFPS projection from $0.65 to $0.60, and our 1999 preliminary projection from $1.05 to $1.00. While Canadian 88 stock is expensive at this level, we continue to recommend a HOLD based on currently strengthening North American natural gas markets.
IPSCO
(IPS-T: $45.50) LONG TERM BUY
Conference Call Highlights
Q1/98 EPS ($0.86 vs. $0.75) came in ahead of our $0.80 forecast owing to higher than expected shipments of large diameter pipe. Overall shipments rose 18% y/y in Q1 excluding 96,000 tons shipped from the new Montpelier plate mill. The outlook for the bulk of IPSCO's product mix continues to be very favourable. Plate demand remains very strong (USX just announced Q3 price of US$10 per ton or 2%). The company is booked out through Feb 2000 on large diameter pipe. We continue to expect a 25% down-turn in drilling activity this year, negatively impacting pricing and volumes for OCTG (1/3 but rapidly declining of IPS's mix). We expect investor focus to gradually shift from weak OCTG markets to a highly successful Montpelier start-up as we move through the year. We expect this facility to ship about 750,000 tons in 1998 (60% of rated capacity) and contribute $0.60-$0.70 to EPS this year and $1.65 next year.
We are increasing our F98 EPS estimate from $3.35 to $3.50 and raising 99E from $4.20 to $4.50. We are increasing our target price from $48.50 to $52.00.
COMMENTARY
Royal Bank Of Canada
Crude Oil Commentary:
Crude oil prices have begun to consolidate in a "no news" market. WTI prices have been moving into a bear pennant formation perhaps indicating that prices could still move lower (with solid support at $15.00 and then at $14.50). However, with no new fundamental news surfacing, one can only watch for storage draws and look at the weekly global supply/demand and inventory statistics to determine whether or not the OPEC supply cuts actually materialize.
What are our views? We feel that prices will continue to consolidate in the near term, with greater probability being movements to the downside.
Natural Gas Commentary:
NYMEX gas prices topped out at $2.70 late last week. Gas prices sold off early in the week after the Commitment of Traders (C.O.T.) report was released indicating that longs far outweighed shorts - so the funds became a little nervous and started selling - simple as that. NYMEX gas prices remain attractive, especially through the summer months. Technically speaking, the market looks set for a short term correction. Longer term, the picture stillremains bullish with a top at around $3.00 (we may see this when August becomes front month)..
AECO gas prices remain resilient. After the NYMEX sell-off, AECO prices softened moderately, but <remained well supported. The Alberta story seems to be revolving around field receipts - and the lack
thereof. Receipts are picking up and it will be interesting times as we move into the summer. We stand by our view that producers should be actively hedging - particularly summer. Consumers need to be patient and wait for a short term sell-off.
EARNINGS
Vermilion Resources Ltd. / Top 20 Listed
Message 4091725
Prudential Steel Ltd. / Serv 10 Listed
Message 4096046
Newport Petroleum Corporation / Watchlist
Message 4091756
PanCanadian Petroleum Limited / Watchlist
Message 4092023
Tessex Energy Inc
Message 4091644
Pyramid Energy Inc.
Message 4091960
Prism Petroleum Ltd.
Message 4091799
Bridgetown Energy Corp.
Message 4095992
APF Energy Trust
Message 4091576
EXCHANGE DOINGS
The common shares of Emerald Bay Energy (EBY/ASE) a Junior Capital Pool Company were posted for trading at the opening of business today. The company further announces that, as its proposed Major Transaction, Emerald Bay Energy Inc. has entered into a Purchase and Sale Agreement with Karl Oil & Gas Ltd. to acquire net profit interests, ranging from 25% to 50%, in natural gas and hydrocarbon liquids from 13 wells in the Edson region of west-central Alberta producing from the Cardium Formation at an average depth of 2000 meters. The acquisition also includes working interests of 37.5% and 50%, respectively, in two additional wells and a 37.5% interest in natural gas and hydrocarbon liquids on 1760 gross acres of undeveloped land in the region. Current gas production from these wells is being processed at three separate facilities operated by other producers.
Reserve Royalty Corporation (TSE: ROI) announced that it has been informed by the TSE on April 1, 1998 that the Company's shares will be included in the Toronto Stock Exchange 300 Composite Index (TSE 300) as well as the TSE 200 Index effective April 17, 1998.
Reserve Royalty was listed on the Toronto Stock Exchange on December 11, 1995 as a result of a reverse takeover and since that time has increased share price performance from $.90/share to a high of $5.35/share while remaining an active issue in 1997 with trading volumes in excess of 34 million shares. We challenge and are excited about the promising growth prospects of 1998.
Reserve Royalty Corporation is an innovative financial company which creates gross overriding royalties in the oil & gas industry through off balance sheet financing for industry partners and by the re-deployment of oil and gas assets required by the company in corporate transactions such as the Jordan acquisition.
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