MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING TUESDAY APRIL 28, 1998 (3)
TOP STORIES
Petro-Canada Eyes Canada's Hibernia Stake
Petro-Canada would take a hard look at buying the government of Canada's 8.5 percent stake in the Hibernia offshore oil project if it was placed on the auction block, Petro-Canada Chief Executive Jim Stanford said on Tuesday.
The company, already a 20 percent owner of the C$5.8 billion development off Canada's East Coast, aims to beef up its operations in the region, which it considers key to its future in oil production.
The Canadian government has yet to say whether it plans to sell its Hibernia stake, although speculation has recently increased that it was considering the prospect.
"If the government's interest in Hibernia were made available to Petro-Canada, and (with) what we thought were appropriate terms and conditions, then we would certainly be interested in looking at it," Stanford told reporters after Petro-Canada's annual meeting.
He declined to give his view of the value the government's interest, saying organizations used different assumptions for putting a price tag on assets.
However, Petro-Canada assigns a book value of about C$1 billion on its own stake, which reflects investments on the project made to date, Petro-Canada Chief Financial Officer Wesley Twiss said.
Production from Hibernia began late last year and operations are under way to boost oil reservoir pressure. Peak output is estimated to be 135,000 barrels a day from its 615 million barrels of reserves.
Other partners include Mobil Corp. unit Mobil Oil Canada Ltd., with 33.125 percent, Chevron Corp. unit Chevron Canada Resources Ltd., with 26.875 percent, Murphy Oil Corp. , with 6.5 percent, and Norsk Hydro A/S , with five percent.
Meanwhile, Stanford said Petro-Canada would wait until the end of the second quarter before deciding whether to chop its C$1.2 billion 1998 capital spending budget in reaction to low crude oil prices.
It first formulated its budget using a West Texas Intermediate oil price assumption of US$19 a barrel, but has now reduced its expectation to US$16.
"We will let the world unfold for about another quarter, see how it is at the half, and get a sense of whether OPEC, for instance, are being successful in what they are saying they are trying to do," Stanford said, referring to the oil producing cartel's initiative to cut production.
With regard to Petro-Canada's refining and marketing joint venture with Ultramar Diamond Shamrock Corp. , Stanford said Canada's Competition Bureau could rule on the deal sometime in the third quarter.
If regulatory approval for the alliance is gained, shared operations could begin immediately, he said.
Petro-Canada will have a 64 percent economic interest in the venture, which includes the sharing of five refineries and over 3,500 retail outlets in eastern Canada, Michigan and the New England states.
It expects to record a one-time charge to earnings of C$150 million after tax for writedowns, severance payments, fees, relocations and site remediation during the Alliance's first quarter of operations, Stanford said.
Petro-Canada Faces $150M Pain For Long-Term Gain
Chief The Financial Post
Petro-Canada will take a writedown of about $150 million when it closes its proposed $8.5-billion joint venture with Texas-based Ultramar Diamond Shamrock Corp.
The move could halve operating earnings for 1998, estimated at $280 million by Peters & Co. in Calgary.
"$150 million is a lot of money, but given the cost savings of the joint venture and the earnings gain in the years following, it's short-term pain for long-term gain," said Wilf Gobert, Peters' managing director of research.
Announced in January, the deal is now slated to close in the second half of the year - at least three months later than expected.
Closing has been pushed back principally because the federal Competition Bureau is still reviewing the transaction.
"They have asked questions, we have filed answers," Petro-Canada president and chief executive Jim Stanford told reporters after the annual general meeting in Calgary yesterday.
"They now are working through their own processes. And of course, they have their hands full these days because they are dealing with lots of issues. Fortunately, we were first this year on the table."
The Competition Bureau's agenda has filled up since the beginning of the year because of the announcement of several large mergers. A decision is expected in the next month on the proposed merger of Calgary based Nova Corp. and TransCanada PipeLines Ltd.
The bureau is also gearing up to review the proposed banking industry mergers.
But Jim Bocking, deputy director, mergers, said Petro-Canada's review is not being held up by other issues. Complex mergers generally require five months for a review.
Petro-Canada and Ultramar plan to form a refining and marketing partnership, holding Petro-Canada's refining and marketing assets and Ultramar's operations in Canada, Michigan and several New England states.
The joint venture, of which Petro-Canada would own 64%, would operate five refineries with a daily capacity of 500,000 barrels of crude oil, 3,500 retail outlets and provide heating oil to more than 300,000 customers. Its initial revenue base is estimated at $8.5 billion.
Stanford said the regulatory delay is not resulting in unexpected costs.
"To the degree that we are permitted by the Competition Bureau, we are proceeding with defining what the joint venture organization will look like ... and hope to be in a position, when it is approved, that we can put the organization right into place."
Petro-Canada is taking the one-time loss because of many costs associated with setting up the joint venture. These include duplicated facilities, although no refineries will be closed. The number of job cuts has not been determined.
Once completed, the joint venture will create a refining and marketing powerhouse, representing the largest downstream business in Canada, Stanford told shareholders. Sales in Canada will be primarily under the Petro-Canada brand.
Petro-Canada estimates the venture will contribute $50 million (18› a share) in net earnings by 2000.
Canadian 88 Energy, Newport Petroleum Square Off
The Financial Post
Canadian 88 Energy Corp. has filed a $45-million statement of claim against industry peer Newport Petroleum Corp. in a dispute over control of jointly owned oil and gas assets.
Newport said yesterday the claim is without merit and the company will defend itself "vigorously.
"The only unfortunate thing I would say is the timing," said George Ongyerth, Newport's vice-president of exploration.
"It's right in the midst of a financing."
There are no plans to back off from the $57-million share offering led by Peters & Co. in Calgary, he added.
At stake is control of common properties in the Caroline area of Alberta, in which the two companies have a 50-50 interest.
Newport Petroleum Corp.(NPP/TSE) has been active in the Caroline area with Canadian 88 Energy Corp. (EEE/TSE) under a Participation and Acreage Exchange Agreement. Under this agreement, the parties have a 50/50 interest in certain lands on which they are actively pursuing development of the Caroline play. Newport, as operator, drilled the discovery well Newport Caroline 8-6-34-5-W5M.
Bot companies have a 50 percent working interest in the well 7-19-33-5-W5M currently being drilled by Canadian 88 Energy Corp. on the Caroline play.
Newport says it has control, but Canadian 88 disagrees and is seeking damages.
Canadian 88 president Greg Noval wouldn't comment on the suit because it's before the Alberta Court of Queen's Bench.
Another Newfoundland First
St Johns Evening Telegram
Newfoundland has its first publicly traded oil and gas exploration company.
A couple of Memorial University business graduates, backstopped by the man who helped discover the Terra Nova oilfield, have catapulted their junior exploration company onto the Vancouver Stock Exchange with an estimated share value of $10 million.
St. John's-based Imperial Venture Corp. (IVC) began trading Monday when the VSE approved its merger with TKO Resources Inc., of Vancouver.
Although the merger is described as a three-for-one share swap - and still trades under the TKO symbol - the deal is essentially a reverse takeover initiated by Imperial Venture to help it raise money for oil exploration work on the west coast of Newfoundland.
"IVC's management team will be put in place to run this company," Imperial Venture's chief financial officer, Gerard Edwards, said in St. John's Tuesday. "Our management expertise is one of the main reasons this deal was attractive for the TKO people."
The deal will close at the end of May, Edwards said, and the new company will be called IVC Energy.
Edwards and business partner Kirby Mercer started the company after playing the map-staking game in the Voisey's Bay exploration rush in 1995. They brought in geologist Terry Christopher and Stephen Millan, a seasoned petroleum geologist who worked as Petro-Canada's vice-president of exploration and headed the group that discovered the 400-million barrel Terra Nova oilfield in 1986.
Now Millan wants to do the same thing on the west coast of the island.
But why would he leave the comfortable corporate offices and expense accounts of Petro-Canada for a tiny junior company?
"It's a nice way to work," he said from Imperial Venture's ScotiaCentre office Tuesday. "And again the rewards are a lot higher. If you make a major discovery, a big oil company gives you a bonus of a few thousand and a party."
If Imperial Venture strikes it big, its four principals own more than half the company.
Ironically, Petro-Canada's offices are in the same building, offering a commanding view of St. John's harbor. Millan's new digs offer a view of the other side: snowy downtown St. John's.
But the oil business has changed, Millan said. New technologies and better markets mean juniors can do a lot more these days.
Smaller companies can also adapt, react quickly, jump on properties early in the game and access some of the best people in the business, Edwards said.
Imperial Venture's strengths is its board of directors and its two properties on the west coast, Edwards said.
The company owns 100 per cent of a 162,000-hectare offshore block north of a Hunt Oil block, and a 14,000 onshore block just east of the Port au Port Peninsula. It is looking for partners on the offshore parcel but can explore the onshore on its own - and plans to begin seismic work this summer, Edwards said.
The board includes Memorial University geologist George Langdon, who did his doctorate on west coast geology; former BP Canada president Ted Best; petroleum geologist Jack Pointer, who founded Pointer Exploration, a multimillion-dollar company recently sold to Pan Atlas Corp.; and of course Stephen Millan, who serves as board chairman.
"Steve opens doors in the oil and gas industry," Edwards said. "(The board) puts us in a different league."
Millan isn't aiming for a few barrels a day on the west coast. He said the potential is there for a 50- to 100-million barrel field, or its equivalent in natural gas.
"If this is anything like the other Appalachian finds, it should be quite big," he said.
Although Imperial Venture will remain a high-risk venture for a while, the investment has already paid off for the 25 Newfoundlanders who invested privately in the company.
They can now sell their shares on the open market - at triple what they paid for them, Edwards said. TKO was trading at 18 cents Tuesday. It peaked at $1.62 and has sunk as low as six cents in the last year
Oilsands Project Still In Progress
Construction crews at Japan Canada Oil Sands Ltd.'s northern Alberta lease are beavering away on a $26-million, 2,000-barrels-per-day pilot project, in spite of low oil prices.
Yoshio Hirama, vice-president of administration for the Calgary based consortium, said the low, low price of a barrel of oil will eventually affect the viability of the project at Hangingstone, 50 km south of Fort McMurray, if it continues.
"But we are going to conduct our project as scheduled to prove our confidence in SAGD (steam-assisted gravity drainage) technology," said Hirama.
Japan Canada's three-stage development plan is worth about $200 million - but Hirama said millions more could be pumped in by the company's Japanese investors if the technology proves itself.
The second $45-million phase is slated to produce 6,000 to 7,000 barrels per day. Wells for Phase 2 would be drilled in August with start-up in the summer of 1999.
Start-up for the third 10,000-barrels-per-day phase would begin in late 2001.
Hirama said the project will not make money at the current world oil price of around $15 US per barrel but would if prices return to last summer's range of $21-$22 US per barrel.
Phase 1 is expected to create about 20 permanent jobs. Construction jobs will peak at about 40. About 20 additional permanent workers will be needed during the second phase.
Energy Diners Are Served Political Fare
Canadian Press
Canada's natural resources minister pressed for less greenhouse gas emissions Monday while two coastal premiers went trolling for money from Alberta's oil and gas companies.
"I'm here to separate you from your investment dollars," Newfoundland Premier Brian Tobin told 1,200 oil and gas representatives at a dinner. "After the meeting I'll sign you up and we'll do a deal."
Both Tobin and B.C. Premier Glen Clark said they were hoping to entice Alberta companies to drill in their provinces.
Clark was also a salesman of his province's natural gas, saying he has lightened the weighty bureaucratic burden for the industry.
"It's a one-stop shopping from streamlining the paperwork," Clark told about 1,200 petroleum representatives.
Ralph Goodale, responsible for the country's natural resources, said his mission is to deliver Canada's promise of cutting greenhouse emissions by six per cent by 2010.
"We will ensure that no region of this country is called upon to bear an unreasonable share of the burden," Goodale said.
But Tobin told reporters he is standing by Alberta in its refusal to put any substantial money into reductions until the United States also makes cuts.
"In the end of the day, Canada should not move in isolation of the United States," Tobin said.
Last week, Alberta Energy Minister Steve West said it wouldn't be fair if Alberta energy companies were forced to put billions of dollars into reducing emissions, and the U.S. did not make the same effort.
Goodale said he is aware of provinces' concerns.
"I know there are some provinces that are skeptical and that's fair enough," he said.
"My approach is to build bridges and get people working together."
Another bridge Goodale may be soon constructing is settling the boundary dispute that left an offshore zone between Newfoundland and Nova Scotia dormant for 25 years.
Gulf Canada Resources has long been interested in those waters to conduct oil explorations.
Goodale recently wrote letters to Tobin and Nova Scotia Premier Russell MacLellan saying if the dispute isn't resolved by the end of June, then a federal arbitrator will step in.
Tobin said the federal government will likely have to get involved.
"It's going to require some common sense," Tobin said. "And let the chips fall where they may."
Dinner Brings Out Shining Stars
Calgary Sun
The news that oil prices have been slashed in half within the past year seemed of little consequence when the Canadian Association of Petroleum Producers (CAPP) held its sixth annual banquet this week.
Indeed, the atmosphere was so buoyant, you'd have thought oil prices had been soaring month after month rather than dropping. But it was optimism all the way for the 1,200 guests and officials.
And a star-studded event it was, too.
Let me do some name-dropping.
Guest speaker was federal Natural Resources Minister Ralph Goodale -- who gave one of the most banal speeches I've ever heard, and more about that another day -- and also on stage boasting about their provinces energy muscle were B.C. Premier Glen Clark and Newfoundland Premier Brian Tobin.
Alberta Energy Minister Steve West offered a few words, and in the audience were Alberta Environment Minister Ty Lund, Saskatchewan Energy Minister Eldon Lautermilch, former Alberta energy minister John Zaozirny and former provincial treasurer Jim Dinning.
You can add to those representatives from just about every major and junior oil and gas company in the nation. This is a powerful and influential organization, and it brought out a powerful crowd.
Clark by the way made a witty remark about he and Tobin representing the "bookends" of the nation, and then started talking like a free enterpriser rather than a New Democrat.
He announced that within weeks his government will unveil new tax regimes and ease regulatory measures for the oil and gas industry in his province.
His officials had, he said, worked with CAPP on the measures. That's almost like Karl Marx saying he was going to the Adam Smith Institute and studying the Wealth of Nations to get some new ideas for his economic philosophy!
Tobin, coming from Newfoundland, told so many jokes I can't remember a single one of them, and boasted about the oil revenues the massive Hibernia and Terra-Nova projects will soon bring one of Canada's poorest provinces.
Over its lifetime Hibernia, which at one-time most mocked as a pipe dream, will pump $20 billion into Newfoundland in economic activity -- and Terra-Nova about $7 billion.
Other energy projects are on the way.
Association president David Manning, who is both dashing and debonair, was MC for the evening and certainly moved events along at a clip.
Manning is a real insider in both the business community and in government circles, and I always thought from Day 1 when CAPP put him on the payroll it had made a very smart move.
But then, as I've indicated before, CAPP is a very smart organization.
Some final names: The new chairman for 1998, replacing Barry Jackson, is Norm McIntyre, of Petro-Canada. First vice-chairman is Charlie Fisher, of Canadian Occidental Petroleum Ltd.
There are also some 24 other members of the board of governors, representing many of the most dynamic oil companies in our country. Too many to name, but a stellar cast by any account.
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