MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING WED., MAY 6, 1998 (2)
TOP STORIES
Alberta Fires Force Well Closings
The Financial Post
Dry weather as a result of El Nino fed fires in northern Alberta yesterday that have shut down scores of oil and gas producing wells and are burning forests at a "devastating" rate.
By late yesterday, 27 forest fires were burning -- seven out of control, 16 under control, four in the process of being contained.
At least 150,000 hectares of forests in the Whitecourt, Swan Hills and Slave Lake areas have gone up in smoke.
The impact on the oil and gas sector has been severe, although production losses are not yet expected to translate into major financial setbacks.
The energy sector remains on high alert and is poised to curtail operations if conditions deteriorate.
There are concerns the ultra-dry conditions may feed fires for months and spread to other areas of the province.
"They are having a devastating effect on the industry," said Larry Skory, public affairs director at the Edmonton based Alberta Forest Products Association.
The sector's average annual loss to fires in the 1980-94 period has been 200,000 hectares a year, he added, "so you can see that if we are at 150,000 hectares now, and the season has just started, there is a potential for a serious burn."
The blazes are raging in at least a dozen major fields in the Lesser Slave Lake area. Scott Ranson, a spokesman for Nova Corp., said natural gas in the company's intra-Alberta transmission system fell to 12.1 billion cubic feet yesterday, from an average volume of 12.8 billion cubic feet, as a result of fires or related power outages.
However, all delivery commitments were filled, he said.
The Alberta government has warned the sector it will be held accountable if it contributes in any way to the situation.
Alberta Environmental Protection issued a sweeping ban across the province yesterday affecting all types of fires, including the flames that burn gases on top of wells' flarestacks.
"It's their decision to make on whether to shut down their wells," said Environmental Protection spokesman Glenn Guenther.
"We are encouraging them not to participate in any activity that may result in a fire," Guenther said.
Pius Rolheiser, spokesman for Imperial Oil Ltd., said, "The only thing that we can do is have our emergency readiness plans available and ready to go, so that if any of our operations are threatened, we can shut in production so that it doesn't pose any immediate hazard."
Renaissance Energy Ltd. has shut in about 30 million cubic feet of gas a day, but president Clayton Woitas said he's not concerned about the financial impact because the loss is covered by insurance.
Waste management company Bovar Inc. closed its hazardous waste Swan Hills Treatment Centre and suspended all waste shipments to the plant until further notice.
More Oil On The Grand Banks?
St. John's Evening Telegram
Amoco Canada Petroleum Ltd. has returned to Newfoundland to make an application for a significant discovery on a Grand Banks property it drilled last year, The Evening Telegram has learned.
The Canada-Newfoundland Offshore Petroleum Board confirmed Wednesday Amoco's application for its Bonne Bay property, but will not comment further until a complete assessment of the application has been carried out, said the board's acting chairman, John Fitzgerald.
The application itself means little, since a significant discovery is defined only as an accumulation of oil or gas with "potential for sustained production." And the CNOPB has two years before it is required to make public such details as flow rates and oil pressure from the well.
But the significance may lie in Amoco's timing. The Calgary-based subsidiary of the U.S. oil giant could have waited as long as six years before it was required to apply for anything.
"Actually, they have until the end of the term of their licence to make this application," Fitzgerald said. "By drilling the well they have earned the right to hold (the property) six years or more before they had to file."
Amoco Canada, which drilled 33 dry holes on the Grand Banks in the 1960s and '70s, successfully bid for the Bonne Bay property in 1996.
In June 1997, at the Newfoundland Ocean Industries Association annual conference in St. John's, Amoco Canada chairman and president Bob Erikson said the Bonne Bay property could prove to be a 300 million barrel discovery.
A year earlier, at the 1996 NOIA conference, Amoco land manager Duke Anderson boldly said the company was optimistic it could see first oil from Bonne Bay by 2003.
"It's a very aggressive target," Anderson said at the time. "In order for it to achieve this, things must go right."
In terms of drilling exploration, however, things did not go right.
The company won its exploration licence by committing to spend $90.3 million there, and although drilling began on schedule June 30, 1997, Amoco is believed to have spent double its commitment after experiencing down-hole problems and weather delays.
The original 4,400-metre drill program was scheduled for 70-90 days but the Bill Shoemaker rig did not pull up until more than 200 days later, on Jan. 25, 1998.
A major oil discovery, however, would make it all worth while. If Amoco is granted significant discovery licence, it can hold onto the property virtually forever.
"If they are successful in their application for significant discovery, then they can obtain a significant discovery licence which allows them to hold the land until it's economic to bring it into production," Fitzgerald said. "There are some constraints on it, but it's virtually in perpetuity."
A significant discovery licence is required before an oil company can apply for a commercial production licence, he added.
Experience has shown oil companies can obtain significant discovery licences without a massive, provable discovery.
In the early 1990s, Petro-Canada was turned down for a significant discovery licence for its King's Cove property by the CNOPB, but was later granted the licence after an appeal to the Supreme Court of Newfoundland.
"(Petro-Canada) drilled and encountered some hydrocarbons but didn't have high flow rates," Fitzgerald said. "We denied the application but they took the question to court seeking judicial interpretation, and Justice Leo Barry determined the applicant was entitled to a fairly generous interpretation (of the Canada-Newfoundland Offshore Act).
"Generally, the philosophy of government has been people who expend the money to actually explore are entitled to hold the property," he said.
Amoco Canada did not return calls from The Telegram Wednesday.
Study to look at Atlantic oil, gas industry
An Atlantic sector oil and gas study has been launched by the Newfoundland Ocean Industries Association (NOIA) in conjunction with groups in Nova Scotia and New Brunswick.
Stephen Henley, NOIA president, said Wednesday his group has been joined by the Offshore Technologies Association of Nova Scotia and the Metal Working Association of New Brunswick in sponsoring the study.
The study will look at the potential of this region's hydrocarbon resources, identify onshore and offshore capabilities of regional industry, look at institutional infrastructure and workforce, and future development possibilities.
The study will be managed by a steering committee representing Canada's East Coast oil and gas industry.
It is led by NOIA, funded by the Atlantic Canada Opportunities Agency (ACOA) and pursued in consultation with the Nova Scotia and New Brunswick organizations, Henley said.
"Each association has contracted researchers to compile information on a provincial basis and the steering committee has engaged a project co-ordinator to organize the information and produce a final report," he said. The report is expected to be completed by June.
"This study will identify and assess the regional strengths we can build on as well as the barriers we have to get past in order to realize our industry's full potential," Henley said.
Deal Reached Between Offshore Firm, Shipyard
The Evening Telegram
An arrangement has been reached between a St. John's offshore firm and the operator of the Marystown shipyard for the exchange of project management and engineering services both domestically and internationally.
The memorandum of understanding (MOU) between Pan Maritime Energy Services of St. John's and Friede Goldman Newfoundland was signed Tuesday at the Offshore Technology Conference (OTC) currently under way in Houston, Texas.
Pan Maritime Energy Services was recently formed through the merger of the offshore division of MNC Group Inc. with the offshore division of RDS Engineering Inc. also of St. John's.
Friede Goldman Newfoundland Ltd., a Friede Goldman International (FGI) company, consists of the shipyard in Marystown and the Cow Head Offshore Fabrication Facility.
Moya Cahill, president of both MNC and Pan Maritime Energy Services, is a member of the Newfoundland delegation at the OTC led by Premier Brian Tobin and Mines and Energy Minister Chuck Furey.
Cahill told The Evening Telegram in a telephone interview from Houston Wednesday the MOU has the potential of tripling Pan Maritime's revenues and doubling the staff of 30 over the next coupler of years.
"The agreement will enable FGN to maintain its existing engineering staff and have access to additional engineering services through a core team at Pan Maritime," Cahill said.
"We have been looking for a vehicle to expand and stabilize our core engineering team," she said. "We will use Newfoundland as our base and send our people to work on projects both domestically and internationally."
In addition, Cahill said, "We are discussing ways to package future FGI work to bring back to Newfoundland."
Guy Cagnolatti, president of Friede Goldman Newfoundland, said the MOU is an indication of FGN's long term commitment to develop the Marystown facilities.
"We will continue to bring rig fabrication work to Newfoundland and we are aggressively pursuing additional work associated with the offshore industry," he said.
"With a team approach, we will be able to grow and maintain our combined engineering workforce and provide stable employment for our engineers."
Meanwhile, FGI confirmed Wednesday it will award FGN with major subcontracting work for the fifth EVA-4000 semisubmersible conversion project for Noble Drilling. EVA projects involve converting submersible rigs into semisubmersible rigs capable of deepwater drilling.
Friede Goldman Newfoundland will fabricate the major structural components including pontoons and columns.
Cagnolatti said the contract will ensure the shipyard's ability to maintain the current employment level, which is more than 1,000.
"It means up to 300,000 manhours for our two facilities and in excess of $15 million Cdn in revenue."
He said the project is scheduled to begin in late 1998 or early 1999 with completion expected in the first quarter of 2000.
Tobin, MacLellan To Discuss Boundary Dispute
The Canadian Press
Realizing one of the world's biggest oil shows is not the place to resolve a long standing feud over provincial boundaries, Nova Scotia and Newfoundland will try again in the coming weeks to peacefully carve up valuable offshore territory.
Nova Scotia Premier Russell MacLellan will visit St. John's in the next few weeks to meet with Newfoundland's Brian Tobin and see if an agreement can be reached, Tobin said Wednesday.
``I think we made a decision that it's important for us to really try to resolve this by negotiation if that is possible,'' Tobin said from Houston, Tex., where he attended the annual Offshore Technology Conference.
``At the end of the day, we are both certainly losers if we carry on a dispute.''
At stake is a 60,000-square-kilometre piece of ocean floor, potentially rich in oil and gas and lying between the southwest coast of Newfoundland and the northern tip of Cape Breton.
Each province has said for years it has the strongest claim to the bulk of the area, known as the Laurentian sub-basin.
If a quick resolution can't be reached, Tobin said he will seek arbitration from the Federal Court.
Mingling with the more than 45,000 conference delegates in Houston this week has made the Newfoundland premier more convinced than ever that time is money.
``One of the things that has to be clear to all Atlantic Canadians is that we shouldn't be looking at each other as the competition,'' said Tobin. ``The competition is the rest of the world.''
Earlier this week, the Canada-Nova Scotia Offshore Petroleum Board did not issue any licences near the disputed boundary of the Laurentian sub-basin.
Planned exploration by Gulf Canada this summer could also be put on hold if the dispute is not resolved.
MacLellan returned to Nova Scotia on Wednesday and could not be reached for comment.
Tobin extended his trip by a day to pitch Newfoundland's offshore potential to new players not currently involved in Hibernia or other major projects that are at various stages of development.
His goal: to get record prices for the 13 parcels of land that will go on the block this fall.
B.C. Urged To Junk Ban On Offshore Oil Exploration
The Financial Post
Depressed communities in northern British Columbia are pressing the provincial government to lift its nine year moratorium on offshore oil and gas exploration.
And there are indications the energy sector is ready to lend its support to the campaign.
Oil industry sources say any move to lift the moratorium is bound to attract strong interest from oil and gas companies because of the vast reserves that lie under shallow waters near the northwest coastline.
The Geological Survey of Canada has estimated the coastal region near Prince Rupert could hold 10 billion barrels of oil and 43 trillion cubic feet of gas.
That represents more than 10 times the reserves contained in Newfoundland's Hibernia oil project.
Pat Hrushowy, a Victoria-based energy consultant, agreed the geology in the region is sufficiently attractive to excite the industry.
"Technology has advanced so much that the interest would be quite high if the government opens it up for exploration,'' he said.
Citizens groups in depressed northern regions near Prince Rupert also want the ban lifted. "The prime reason is that the economic situation in the northwest is pretty tenuous,'' said David McGuigan, chairman of the North Coast Oil & Gas Task Force.
"The Skeena pulp mill has just laid off 155 people and the fishing industry is in difficulty,'' he said.
"This is having an impact on our communities at all levels,'' said McGuigan, who is a commercial lender with a bank he refused to name.
The moratorium was imposed in 1989 soon after the Exxon Valdez ran aground off the Alaskan coast, spilling 11 million gallons of crude oil into Prince William Sound.
Any move to lift the ban is expected to be met with stiff opposition from environmental groups and B.C. First Nations.
"This is a really sensitive issue,'' said a provincial official who asked not to be identified. B.C. Energy Minister Dan Miller seemed cautious when questioned about the moratorium in the provincial legislature last week.
While admitting his ministry is studying the issue, Miller said he is not ready to lend his support to lifting the ban.
"I have had very brief discussions with oil and gas interests,'' said Miller, adding only that the talks were brief and unsolicited.
Renaissance Learns Lesson, Turns Small Profit
The Financial Post
Renaissance Energy Ltd. managed to turn a small profit in the first quarter as it kept in mind lessons learned from last year's overheated drilling and stock market bloodbath.
The Calgary-based producer earned $4 million (4› a share) on revenue of $187 million in the three months ended March 31. In the same period last year, earnings were $44 million (38›) from revenue of $267 million. Cash flow slipped 41% this year to $91 million (78›).
Higher gas production was offset by lower commodity prices. Renaissance sold its oil for an average of $12.91 a barrel in the quarter, down 44% from $23.24 a year ago.
President and chief executive Clayton Woitas told shareholders at yesterday's annual meeting in Calgary his firm's numbers will stack up well against those of rivals. "A lot of our competitors will be earnings negative for quarter one and quarter two," he said.
The firm spent $250 million between January and March, much of it going to natural gas prospects.
Woitas declined to give estimates of annual production and earnings.
Renaissance suffered after announcing last July it was not going to make all its production forecasts. The stock, which traded at $39 just before the news broke, took a pounding in the following weeks.
The slump in oil prices in the first four months of this year have not helped it recover the lost ground.
Woitas said the oilpatch's experience in 1997, when a lot of money was spent but did not add value, is causing managers to focus on their duties to investors. "Do an appropriate level of activity, show an appropriate level of growth that's right for the organization. But don't race [to boost production] just because there is pressure from the investment community."
Ranger Oil Pulled Down By Low Heavy Oil Prices
The Financial Post
Ranger Oil Ltd. swallowed a loss of US$11.4 million in the first quarter (US9› a share), compared with a profit of US$13 million (US13›) a year ago, mostly as a result of low prices for heavy oil, president Fred Dyment said yesterday. The company, which took over heavy oil producer Elan Energy Inc. last year, said it received only US$3.20 a barrel for its heavy oil and US$14.03 a barrel for its light oil.
Revenue for the period ended March 31, was US$80.1 million, down from US$99.2 million last year.
Cash flow was US$29.5 million, down from US$47 million. Higher North American production because of the Elan acquision was offset by low oil prices, the company said.
Average production for the period was 52,983 barrels of oil daily on average, including 18,713 of heavy oil, and 165.9 million cubic feet of natural gas.
Ranger is poised for significant production increases in the second half from its North Sea operations.
Cash flow per share for the year will likely end up in the $1 to $1.15 range, he said.
First-quarter results were negatively impacted by lower light oil production from U.K. operations, and higher production of lower-priced heavy oil, he said.
"The growth from this company comes in the second half," he said.
IN THE NEWS
Encal Energy Ltd. (TSE/ENL, NYSE/ECA) announced that it is commencing an exploration program in eastern Canada. The Company reports that it has signed an agreement to join Shell Canada Limited in its farm-in to Corridor Resources Inc. on Anticosti Island, Quebec.
Encal has committed to pay 50 percent of the costs of a three-year exploratory program on the island, subject to a maximum net earning expenditure of $10.0 million. Upon completing its farm-in obligations, Encal will earn an undivided 50 percent working interest in approximately 2.4 million gross exploratory acres before project payout, and an undivided 30% working interest in these lands after five million barrels of oil equivalent have been produced, removed and sold from the island. The program calls for the drilling of four exploratory wells - two in 1998, and one each in 1999 and 2000, plus the acquisition of a minimum of 500 kilometers of new seismic data. The first well is expected to spud in the second quarter of 1998.
Encal's capital requirement for the Anticosti Island project during 1998 is estimated to total $6.5 million which will be funded out of the $30 million opportunity capital pool. The Company's total capital budget for this year is $160 million, of which at least $130 million has been allocated to exploration and development projects in its core operating districts in western Canada.
Kintail Energy Inc. (KTE/ASE) announced that it has acquired a private company, which holds oil and gas interests mainly in Central Alberta, for consideration of $465,000 effective January 1, 1998. Payout from existing production is expected in approximately two years. The purchase will be paid for by Kintail using existing cash reserves. Kintail is currently negotiating larger oil and gas acquisitions which are expected to enhance share value.
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