MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY, MAY 4, 1998 (3)
TOP STORIES
Syncrude revenue dives 34%
The Financial Post
Syncrude Canada Ltd. said yesterday first-quarter revenue was off 34% as low prices and plant maintenance pulled down financial results.
Revenue for three months ended March 31 for the Fort McMurray, Alta.-based oilsands producer was $347 million, compared with $528 million in the corresponding 1997 period.
Syncrude, a consortium of 10 owners, had a net cash flow deficiency of $25 million, compared with being $173 million in the black a year ago.
The company said its priority for the rest of the year is to contain costs so the operation generates positive cash flow.
Syncrude produced an average 176,000 barrels a day of synthetic crude in the first three months, down from 193,000 b/d for the same 1997 period.
Production was curtailed during a maintenance turnaround in January and February, which upped operating costs to $17.86 a barrel from $13.40 last year. After maintenance, output averaged 242,000 b/d.
Syncrude's numbers were also hammered by weak prices. Its benchmark crude fetched an average of $21.91 a barrel in the quarter, down 28% from $30.32 a year ago.
Syncrude is owned by Alberta Energy Co. Ltd., AEC Oil Sands LP, Athabasca Oil Sands Investments Inc., Canadian Oil Sands Investments Inc., Canadian Occidental Petroleum Ltd., Gulf Canada Resources Ltd., Imperial Oil Resources Ltd., Mocal Energy Ltd., Murphy Oil Co. Ltd. and Petro-Canada.
Syncrude's results are prepared by management to estimate financial and operating results as if it runs on a stand-alone basis. There are no plans to take the company public, a spokesman said.
Syncrude encouraged despite drop in first-quarter earnings
Canadian Press
Sinking crude oil prices and a maintenance retooling in the first two months of 1998 have taken their toll at Syncrude Canada.
Revenue at the heavy oil giant fell 33 per cent to $347 million during the first three months of 1998, compared to $528 million for the same period in 1997, the company said Monday.
"Our financial performance suffered largely due to depressed crude oil prices," chairman and chief executive Eric Newell said in a statement.
With crude prices floating near nine-year lows, the premium commanded by heavy oil products makes them difficult to sell in a market flooded by a glut of cheap oil.
So Syncrude plans to weather the storm by concentrating on its efforts to cut the costs of harvesting and refining bitumen, the sticky black tar that the energy industry has spent more than 20 years trying to develop.
"Our highest priority is to continue to maintain a safe and reliable operation and maintain very high production rates through to the end of the year so that we can achieve our goal of shipping 80 million barrels," Newell said.
"With low oil prices, cost containment efforts will be stringent as we attempt to maintain a positive cash flow for the operation."
Total unit costs for the first quarter were $18.88 per barrel compared to $14.12 per barrel for the same period in 1997, the company said.
Production costs for the quarter were $17.86 per barrel, compared to $13.40 per barrel in 1997.
Syncrude also incurred higher expenses during the period, largely the result of an annual maintenance period held in January and February when production was shut down.
Operating cash flow was $75 million, $178 million less than the first quarter of 1997. Net cash flow was negative $25 million, compared to $173 million for 1997.
It's a far cry from two years ago, when oil prices were high and heavy oil was the darling of the energy sector as companies like Syncrude, Suncor Energy and PanCanadian Petroleum Ltd. seized on new extraction methods that allowed the thick, sticky tar sands to be refined and sold for profit.
Heavy oil quickly lost its lustre, however, when oil prices were hammered last fall by an ill-advised increase in production by the Organization of Petroleum Exporting Countries (OPEC) and the onset of the Asian financial crisis.
Shipments of Syncrude's sweet blend crude oil totalled 15.8 million barrels, or about 176,000 barrels per day, compared to 17.4 million barrels - about 193,000 barrels per day - in 1997.
Yukon opens door to oil and gas explorers
The Financial Post
One of Canada's last energy frontiers is looking for business and intends to be competitive with its neighbors to the south.
The message will be emphasized at a meeting today in Calgary when the Yukon unveils a new regime for oil and gas exploration.
Trevor Harding, minister of economic development for the Yukon territory, said yesterday the timing is right for a new boom, 100 years after the Klondike gold rush of 1898.
"We'd like to broaden and diversify our base to oil and gas developments," he said. "It's a bright light for our Yukon economy."
A simplified land system, consistent rules across all regions and a longer tenure period of up to 10 years in some cases will be touted at the meeting.
Energy players will also be asked to comment on a possible royalty structure that contains sensitivities to prices and volumes.
The most recent well in the Yukon was drilled in 1990 and only 71 wells have been drilled to date, so lots of opportunities exist, Harding said.
The minister said a key development was an agreement by the government and 14 First Nations to have the same rules for development of native-controlled and non-native lands. Other positive factors include high gas prices, additional available pipeline capacity and recent finds in the Northwest Territories.
Within two weeks, a federal bill is expected to receive royal assent that gives the Yukon control over its land. The transfer is anticipated to be completed by July 1, with the Yukon holding its first land sale in 1999.
The new act contains a provision to ensure northern communities and residents benefit from oilpatch activity. The provision, which allows the land owner to decide the level of benefit, was spelled out so companies will know what to expect, Harding said.
Greg Noval, president of Canadian 88 Energy Corp., said that ensuring residents reap some rewards is standard when operating in the North and won't scare off companies.
Canadian 88 is eyeing the Yukon because of its potential for oil and gas. "You do have to be somewhat long term. We've been in [the N.W.T.] for three years and have yet to drill a well. In most places in Western Canada you're drilling within 12 months of acquiring land," he said.
Producers push gas replacement to record
The Financial Post
Major Canadian gas producers replaced almost 1.5 times their gas production in 1997, says a new study released yesterday.
Ziff Energy Group reviewed corporate filings by 39 of the top producers in Western Canada. Accounting for 67% of production from the region, these companies replaced 147% of reserves last year, compared with 113% in 1996. The previous high was 137% in 1994.
When discoveries and extensions of East Coast reservoirs were included, reserve replacement rose 167%.
The companies boosted their proven gas reserves by 7.6% to 36.2 trillion cubic feet, Ziff said. The improvement was attributed mainly to record drilling last year, when 4,856 gas wells were sunk. "Based on the number of wells drilled and their depth, you would expect to see more gas reserves," said Bill Gwozd, manager of gas services at Ziff.
Hibernia platform on the move
St. John's Evening Telegram
The Hibernia platform is being sent to Halifax.
It's also being sent to Montreal, Calgary, Vancouver and just about everywhere in between.
And oil industry analysts like Ian Doig - who has criticized the project and its $1 billion in grants and $1.6 billion in loan guarantees for years - finally get an opportunity to lick Hibernia and stick it to its backers.
The $5.819-billion oil platform is featured on a new 45-cent stamp issued by Canada Post Monday.
The stamp commemorates the 100th anniversary of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), and also includes images of a cutting wheel from Tamrock, Ont., just north of Sudbury, and a smelter. Along the bottom of the tear sheet are five minerals: gold, copper, lead, zinc, potash and iron.
The mining institute is holding its annual convention in Montreal this week.
On the Grand Banks, meanwhile, Hibernia Management Development Company has reached target depth on its fifth well, a 5,600-metre water injector.
Four production wells are complete and a 6,700-metre gas injector well - which will permit an increase in production to about 60,000 barrels per day from 15,000 barrels when completed in August - has been drilled to about 4,150 metres.
A post office worker in St. John's said she expects to sell thousands of the stamps once word is out that they are available. The stamps are not likely to become a rare collector's item, however. Canada Post is printing seven million of them.
Canada Post's stamp advisory committee receives hundreds of suggestions for new stamps each year, spokeswoman Elia Anoia said from Ottawa, but only 25 to 30 are chosen.
There are three or four main criteria, she said.
"Is it Canadian, is it an anniversary, does it foster pride in the country and also will it get non-collectors to start collecting?" Anoia said.
Marystown shipyard turns record profits
Friede Goldman International Inc., the new owners of the former Marystown Shipyard, continues to register record profits.
First quarter results for the Jackson, Miss., based company show revenue at $68,751,000 compared to $18,655,000 for the same period in 1997. Operating income for the first quarter was $11,004,000 compared to $3,232,000 for the same period in 1997. This represents increases of 268 per cent and 240 per cent respectively.
J.L. Holloway, chairman and CEO of FGII, said a number of positive events, including the purchase of the Marystown Shipyard and its Cowhead steel fabrication facility for $1 from the Newfoundland government, helped contribute to the company's success.
Besides buying the Crown-owned shipyard in Marystown, Friede Goldman also concluded an acquisition in France with purchase of the Brissonneau and Lotz Marine Group and constructed a new state of the art shipyard - Friede Goldman Offshore - in Pascagoula, Miss.
The new facility, based in the Gulf of Mexico, began producing revenue in the first quarter and should be fully operational by June 30.
FGII currently reports a backlog consisting primarily of deep water projects valued at $407 million.
"I am very proud of our management team and their ability to expand this company into a worldwide leader in this industry," Holloway said. "We are pleased with our performance in all aspects of our company from design and engineering to equipment manufacturing and shipyard construction.
There are currently 1,000 employees at the Friede Goldman Newfoundland operation in Marystown.
Wayne Butler, president of Marine Workers Local 20, representing the bulk of the workers at the Marystown operations, said they are more than pleased with the results of privatization at the yard.
"Friede Goldman is doing the type of work our employees are good at," said Butler. "The number of projects they have backlogged in the Gulf of Mexico certainly will provide us with continuity of work for the foreseeable future.
Friede Goldman International Inc. is a leading provider of offshore drilling services, including design, engineering, new construction, repair, retrofit and conversion. The company is currently involved in nine deep water projects.
Butler said the amount of activity expected in the Newfoundland offshore during the next few years should auger well for the future of Friede Goldman Newfoundland in Marystown.
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