MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURS., MAY 7, 1998 (4)
PIPELINES
The National Energy Board has received an application from TransCanada PipeLines Limited of Calgary, for permission to construct new pipeline and compression facilities on its mainline transmission system.
TransCanada is applying for permission to construct approximately 560 kilometres (348 miles) of new pipeline loop and add four compressor units and associated facilities. The facilities applied for would be used to provide an increase of approximately 7.75 million cubic metres (275 million cubic feet) per day of incremental firm gas service to customers in eastern Canada and the U.S. midwest and northeast by 1 November 1999. TransCanada estimates the capital cost of construction and new compression facilities at $984 million.
BC Gas has contracted for up to 50,000 million British thermal units (BTUs) per day of pipeline capacity from U.S.-based Duke Energy, beginning November 1, 1999.
The contract is for a 15-year period and the gas will be delivered from the state of Washington via Northwest Pipeline Co. An expansion of Northwest's existing pipeline system along the Columbia River gorge is required to facilitate the deal. The arrangement will provide BC Gas with incremental capacity during the winter months to meet growth in customer demand.
Randy Jespersen, the utility's Senior Vice President, Energy Delivery Services, says the arrangement is consistent with BC Gas' integrated resource planning process and represents the immediate lowest cost alternative for meeting growing demand for natural gas, but it will only meet the equivalent of less than two years' domestic market demand growth.
''BC Gas is committed to providing British Columbians with gas at the lowest practical cost,'' says Jespersen. ''The Southern Crossing Pipeline (SCP) is the optimum solution for bringing additional supplies of natural gas into the Southern Interior and the Lower Mainland to meet this commitment and to economically serve new markets for electricity generation.''
The $350 million SCP project involves construction of a 24-inch pipeline over a distance of 312 kilometres from Yahk in southeastern B.C. to Oliver in the South Okanagan Valley. Outside of its function as a major supply resource, the pipeline will generate significant socioeconomic benefits that will be distributed locally and provincially. Estimates indicate that 3,300 person-years of employment would be created during its construction.
The British Columbia Utilities Commission recently denied BC Gas' application for the pipeline proposal but left the door open for discussions between the gas utility and B.C. Hydro to explore how the energy needs of the customers of both companies could be met cooperatively. BC Gas believes that such an integrated approach would allow the Southern Crossing Project to proceed.
In the meantime, the arrangement with Duke Energy will help BC Gas bridge its supply requirements, pending the anticipated startup of SCP in November 2000.
EARNINGS
Poco Petroleum / Top 20
Message 4374167
Ulster Petroleums Ltd. / Top 20
Message 4373211
Westminster Resources Ltd. / Top 20
Message 4376536
Cabre Exploration Ltd.
Message 4376524
Barra Resources Inc.
Message 4373956
BriAlto Energy Corp.
Message 4374277
Pendaries Petroleum Ltd.
Message 4373415
Harken Energy Corp.
Message 4374015
Krygoil Corp.
Message 4374255
Message 4374232
MARKET ACTIVITY
The TSE Oil & Gas Composite Index fell 0.9% or 58.38 to 6539.95. Among sub-components, the Integrated Oil's fell 0.2% or 14.58 to 8693.73. The Oil & Gas Producers lost 1.2% or 67.87 to 5761.93 and the Oil & Gas Services was down 1.0% or 32.86 to 3121.71.
Petromet Resources, Petro-Canada, Renaissance Energy, Westfort Energy, Probe Exploration, Ulster Petroleums, Canadian Natural Resources and Pan East Petroleum were among the top 50 most active issues on the TSE.
Optima Petroleum gained $0.71 to $2.06, Suncor Energy $0.55 to $53.60 and Westfort Energy $0.55 to $3.30.
Percentage gainers included Optima Petroleum 52.6% to $2.06, Westfort Energy 20.0% to $3.30, Upton Resources 6.2% to $3.45, Pan East Petroleum 5.3% to $2.37, Beau Canada Exploration 5.2% to $2.44, Jet Energy 5.0% to $2.10, ML Cass Petroleum 4.5% to $1.15, Thunder Energy 4.5% to $2.30 and Petrorep Resources 4.2% to $1.25.
On the downside, Canadian Natural Resources fell $1.30 to $28.40 and Talisman Energy $0.75 to $42.75.
Percentage losers included Maxx Petroleum 5.5% to $1.71 and Courage Energy 5.5% to $2.60.
No service issues were listed among the top 50 most active traded issues on the TSE.
Enerflex Systems gained $1.60 to $45.50.
McCoy Brothers gained 5.6% to $2.85, Bromley Marr 4.0% to $1.04 and Alpine Oil 3.5% to $1.47.
On the downside, Ensign Resource Services fell $0.75 to $31.25 and Saw Industries A $0.75 to $54.00.
PeBen Oilfield fell 5.3% to $3.60.
Over on the Alberta Stock Exchange, Anvil Resources, HEGCO Canada, First Star Energy, Raptor Capital, Bearcat Exploration, Gold Star Energy and Scarlet Exploration were among the top 25 most active traded issues.
Red Sea Oil gained $0.45 to $2.80, Destiny Resources $0.20 to $3.80, Corridor Resources $0.15 to $1.40, Request Seismic $0.15 to $1.85, Prize Energy $0.13 to $0.65 and Best Pacific Resources $0.10 to $1.10.
On the downside, Edge Energy fell $0.20 to $4.50, Hyduke Capital Resources $0.15 to $2.60, Kintail Energy $0.15 to $0.85, Avid Gas & Oil $0.10 to $1.30, Draig Energy $0.10 to $1.40 and Loon Energy $0.10 to $0.50.
Research Notes
Merit Energy Ltd. shares have been purchased in the open market by R. Chaney & Partners III L.P. and R. Chaney & Partners IV L.P. of Houston, Texas. As a result of the purchases on The Toronto Stock Exchange, they now on a combined basis exercise control and direction over 2,616,400 common shares of Merit Energy Ltd., as well as 1,628,000 special warrants each exercisable into one common share of Merit. Upon exercise of the special warrants, they will exercise control and direction over 4,244,000 common shares of Merit representing approximately 14.5 percent of the current outstanding shares.
Gordon Capital
Renaissance Energy
(RES-T: $26.65) SELL
Weak Q1 Results
Renaissance reported weak Q1 results, with fully diluted CFPS of $0.75 vs. $1.27. Both oil and gas prices were down, with oil averaging only C$12.91/bbl, down 44%. Oil production has also declined from close to 88,000 bbls/d at the beginning of the quarter, to a Q1 average of only 80,567 bbls/d. Gas production was up 7% to an average of 441 mmcf/d, and now exceeds 450 mmcf/d. The company's operating costs are rising, with oil operating costs up 8% to $4.98/bbl and gas costs up 22% to $0.33/mcf.
Our 1998 CFPS forecast remains unchanged, at $3.15. The company's board has re-priced (downwards) all of its stock options for its employees, but excluded officers and directors. The dilutive impact of lower priced options have been offset by a proportionately reduced number of options outstanding. This is a bid to reduce the outflow of professionals to other companies.
We continue to view Renaissance as overvalued in the context of today's relative valuations for other energy stocks and the currently weak fundamentals of the company. We are lowering our stock price target from $26.00 to $20.00.
Maxx Petroleum
(MXP-T: $1.81) BUY
4:1 Stock Consolidation Approved
Shareholders have approved a 4:1 stock consolidation for Maxx Petroleum. The shares will begin trading on this basis on May 11th.
Our stock price target is $2.25, or $9.00 after the combination.
Encal Energy
(ENL-T: $5.80) BUY
Farming-In On Anticosti Island (Quebec)
Encal has farmed-in on Shell Canada and Corridor Resources to pay 50% of the costs of drilling four exploratory wells on Anticosti Island, in Quebec. Two wells will be drilled this year, one in 1999, and one in 2000. Once drilled, Encal will have earned an undivided 50% interest in 2.4 million gross exploratory acres.
Our stock price target is $7.00.
Ranger Oil
(RGO-T:$9.80) HOLD
Ranger reported cash flow for the first quarter of US$0.23 per share versus US$0.47 per share. The major factor contributing to the lower results were falling commodity prices, particularly crude oil.
As a result of the acquisition of Elan Energy last year, heavy oil now makes up approximately 36% of the company's oil production base. During the first quarter, the company recorded an average price for heavy oil of US $3.20 per barrel, and operating costs of US $3.57 per barrel for a cash flow loss approaching US $0.40 per barrel.
We are maintaining our cash flow estimate of US $1.25 per share for this year and a target price of Cdn. $9.00 per share.
Denbury Resources
(DNR-T: $23.50) BUY
Denbury reported cash flow of US $0.46 per share versus US $ 0.68 per share last year. A 31% increase in natural gas production and a more than doubling of its oil production was offset by increased debt levels, lower commodity prices and an increase in shares outstanding. The production growth that Denbury has established will be maintained through this year as the company begins to exploit the Heidelberg oil field that it acquired from Chevron late last year.
While the acquisition has made the company approximately 70% levered to crude oil, we are maintaining our BUY recommendation based on the strong growth profile the company has established.
Our target price remains $30.00 per share.
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