MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING TUESDAY, MAY 12 1998 (3)
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Canadian Occidental Petroleum Posts Quarterly Loss But Strikes Oil
Canadian Occidental Petroleum Ltd. managed to take some of the sting off weak firstquarter financial results and depressed crude prices on Tuesday by revealing to shareholders a big oil discovery in Canada.
A medium-gravity oil find at its 100-percent-owned Hay River play in northeast British Columbia has the potential to be one of the biggest discoveries in western Canada in the last 20 years, CanOxy Chief Executive Victor Zaleschuk said.
''Initially, we're talking 135 million barrels of oil in place. We think we can book, on a proven and probable basis, (reserves of) 21 million at this point in time,'' Zaleschuk told reporters after the company's annual meeting.
Another 50 million-100 million barrels of oil in place could be tapped if CanOxy's recovery activities for the tricky geological zone are a success, he said.
The company kept its drilling results at Hay River, a region encompassing 48,000 acres, under wraps for the past two winters for competitive reasons.
During that time, it drilled 14 vertical wells at the winter access only region and, recently, horizontal wells, which were expected to yield 600 barrels each when brought into production.
Output was expected to start in 1999 and reach 6,000 barrels by the spring with finding and development costs of C$3 a barrel and operating costs at the same level. Expenditures at Hay River are estimated at C$66 million over the life of the project.
''Six thousand barrels a day doesn't seem like a lot when you're already producing the equivalent of 250,000 barrels a day, but in this business you can't depend on one big major find,'' Zaleschuk said.
''It's very important from the point of view that by Canadian standards its a significant event.''
CanOxy, pressured by low oil prices, reported a first-quarter net loss of C$4 million or C$0.03 a share, down from a year-ago profit of C$73 million or C$0.53 a share.
Cash flow was C$153 million or C$1.12 a share, down from C$217 million or C$0.53 a share last year.
Zaleschuk said the company expected cash flow of C$800 million in 1998 and a small profit if West Texas Intermediate oil prices averaged US$17.50 a barrel for the year.
However, if oil prices stayed at today's levels, CanOxy's annual cash flow would be cut by C$100 million and it would finish up the year with a net loss, he said.
Because 80 percent of CanOxy's production is oil, as opposed to natural gas, each US$1 a barrel change in WTI means a C$37 million difference in yearly cash flow.
The company expects to spend C$800 million in 1998 after earlier this year reducing its budget by C$200 million.
Zaleschuk said he was not concerned about the company's debt position, which stood at C$2.2 billion at the end of the first quarter.
Much of that was assumed last year when CanOxy acquired Saskatchewan heavy oil producer Wascana Energy Inc. for C$1.7 billion.
However, Zaleschuk said that if oil prices remained depressed, making debt repayment difficult, the company had the option of considering sales of various major assets.
They included its 7.23 percent stake in Syncrude Canada Ltd., its non-operated North Sea oil production assets or its chemicals division, which makes 20 percent of North America's sodium chlorate, a product used for bleaching pulp.
He called the assets ''readily saleable,'' but said there were no plans in the works to spin them off.
He said CanOxy continued to examine new exploration opportunities in west Africa and could announce a deal shortly.
He declined to comment, however, on reports of talks between his firm and France's Elf Aquitaine (ELFP.PA) about a joint venture to explore deep water acreage off Nigeria.
CanOxy Has More Non-Core Assets To Sell If Debt Rises
The Financial Post
Canadian Occidental Petroleum Ltd. will sell more non-core assets, including its 7.23% of the Syncrude oilsands venture, if low oil prices threaten to increase debt, president and chief executive Victor Zaleschuk told shareholders at the annual meeting yesterday.
CanOxy had planned to pay down its $2.1-billion debt this year, swelled from last year's $1.7 billion by the acquisition of Wascana Energy Inc. But low oil prices derailed those plans.
Now the challenge is to live within cash flow, Zaleschuk said. Capital spending for 1998 has been cut to $800 million, from $1 billion.
One of Canada's top oil and gas producers with large international operations, the company is vulnerable to low oil prices because oil accounts for 80% of its daily production of 250,000 barrels of oil equivalent. Natural gas makes up the remainder.
Other assets that could be sold are a sodium chlorate business and natural gas production in the North Sea.
Selling the Syncrude stake might be easy. PanCanadian Petroleum Ltd. and Gulf Canada Resources Ltd. sold their interests through royalty trusts in recent years.
In the first quarter, the company lost $4 million (3› a share), compared with profit of $73 million (53›) a year earlier. Cash flow was $153 million ($1.12), down from $217 million ($1.59).
The company owns 100% of a large new oil discovery in the Hay River area of northeastern British Columbia, which could be one of the largest finds in Western Canada in two decades.
The pool is estimated to hold 135 million barrels of medium gravity oil. Production is scheduled to start early next year at a rate of 6,000 barrels a day.
CanOxy shares (CXY/TSE) moved up 85› on the news to $32.35.
"A discovery of this size, in their own backyard, is very impressive," said Martin Molyneaux, an analyst with FirstEnergy Capital Corp. in Calgary. The find should add between $1.50 and $3.25 to the company's share price, he estimated.
Canadian Natural Profit Plunges 78%
The Financial Post
Lower commodity prices more than offset double-digit oil and gas production increases for Canadian Natural Resources Ltd., as its first-quarter earnings declined 78%.
The Calgary-based producer said yesterday profit for the three months ended March 31 plunged to $8.4 million (8› a share) on revenue of $203.2 million, down from $38 million (39›) on revenue of $246.1 million a year earlier. Cash flow fell to $95.4 million (97›), compared with $143.4 million ($1.47).
The company increased gas volume by 12% and oil output by 22% in the quarter. However, gas prices dropped 13% and oil prices fell 45% from first quarter levels last year. About 8,000 barrels a day of heavy crude were shut in at the end of March due to low prices.
Canadian Natural cut quarterly capital spending 37% to $282.5 million. It added 56.4 million barrels of oil equivalent to its reserves, replacing first-quarter production by 4.3 times.
Northstar Energy & Morrison Middlefield In Share Swap
The Financial Post
Northstar Energy Corp. said yesterday it is swapping its 25% interest in Morrison Middlefield Resources Ltd. for 50% of a company that owns some of Morrison Middlefield's Canadian oil and gas assets.
Northstar has about 4.2 million Morrison Middlefield common shares plus options, exercisable at $5 a share, for another 1.2 million shares. The $52.1-million stake, based on Monday's closing price, was gained last year when it bought Morrison Petroleums Ltd.
In return for the Morrison Middlefield shares and options, the Calgary based producer will receive the 50% of Mountain Energy Inc. owned by Morrison Middlefield. Northstar owns the other half of Mountain Energy.
The acquired properties, already operated by Northstar and located primarily in central Alberta, produce about 2,100 barrels of oil equivalent a day, mostly light oil.
The company said last month it wanted to sell the Morrison Middlefield holding as part of a debt reduction program. Northstar expects to end the year with long-term debt of $350 million.
The transaction is subject to regulatory approval and is expected to close July 31, although it will have a June 30 effective date.
Triunion Energy Of Argintina Inks Joint Venture With Canadia's Mercantile International Petroleum
Argentine energy firm Triunion Energy Co and Canada's Mercantile International Petroleum (MPT.U/TSE) said Tuesday they have agreed in principle to build an electrical power plant in Peru.
The 50-50 joint venture would build a 80-100 MW plant run on natural gas provided by Mercantile's Bloque III plant in Talara, Peru, they said in a statement. The plant would eventually produce 240 MW of power and begin operations by the first quarter of 1999.
Initial estimates for the plant's cost are about $200 million, a separate statement by Mercantile said.
Argentine utility company Capex (CPS.BA) owns 38.4 percent of Triunion, El Paso Energy International (LPG) holds 23.2 percent and the shareholders of Argentina's Compaias Asociadas Petroleras (CAPSA) own the remaining stake.
Mercantile is an oil exploitation company with interests in Peru, Colombia and Myanmar.
BCSC Fines Arakis Energy $250,000
The Financial Post
Arakis Energy Corp. has paid the British Columbia Securities Commission a $250,000 penalty related to the company's 1995 scheme to drill for oil in war-torn Sudan. (See Sudan story later in content)
The payment includes $50,000 to cover a portion of the commission's costs.
An agreed statement of fact issued by the commission described the company's handling of a US$750-million financing deal as negligent and outlines three questionable share transactions dating from 1994.
Arakis, then led by president and chief executive James Terrence Alexander and based in Vancouver, set markets ablaze in the summer of 1995 when it announced that a group led by financier Prince Sultan Bin Saud Bin Abdullah al Saud was going to finance the Sudan project to the tune of US$750 million.
Arakis shares, which then traded on the Vancouver Stock Exchange, jumped to $26 from $23.25 the day before. On Nasdaq, the price rose to US$18 3/8 from US$16 7/8.
But the deal with Arab Group did not go as planned. Arakis was forced to issue another statement on Aug. 22, 1995, explaining the deal would not be forthcoming in the form announced earlier.
Investors reacted harshly. Arakis fell to $15.50 on the VSE from an opening of $20. On Nasdaq, the shares closed at US$11 7/8, down from US$15 1/8. Talk of a deal lingered until Sept. 19, 1995, when Arakis announced its agreement with Arab Group was terminated.
The company voluntarily delisted itself from the VSE on Aug. 24, 1995.
Trading on Nasdaq was suspended for a month. When trading resumed, the price continued to slide to around US$3 by yearend.
Arakis (AKSEF/NASDAQ) closed yesterday down 1/32 at US$115/16.
The commission slammed Arakis for failing to obtain independent financial and banking advice about the Arab Group deal. It also criticized it for failing to investigate the group's financial resources.
"Therefore the disclosure by Arakis about [Arab Group] in the July 6 release was made negligently and was contrary to the public interest," the statement of fact says.
The commission also had harsh words for a number of Arakis's share dealings under Alexander's leadership. Alexander resigned from Arakis on Dec. 1, 1995, and the company moved its operations to Calgary after the VSE halted trading.
Alexander, who has been involved in other controversial Vancouver juniors, was also president of Delgratia Mining Corp. from September 1991 to November 1996.
That company is the subject of several lawsuits launched after Delgratia's claims of a big gold discovery in Nevada were based on tests conducted by an unlicensed assayer who was convicted of securities fraud in 1978.
Bearing All The Facts On The Offshore
St. Johns Evening Telegram
OSLO - Three days ago at this time, I was sitting in a pub called the Ferkin in a place called Watford Junction, England, waiting for a train to Clapham - which is just two stops from Leatherhead - drinking a beer that cost $2, wearing a shirt that cost $100 million and thinking of Newfoundland.
The relevance of all these facts will become clear in a moment. But first, how did I get there.
I was on my way to Norway, where I am scheduled to visit a concrete oil platform, a rock arena, a massive new hydroelectric facility and various oil and gas companies and government departments.
The excursion to the Ferkin was graciously provided by British Rail which took me swiftly, efficiently, politely and smoothly to Leigh, Lancashire, my ancestral home.
Unfortunately, British Rail took me ever so slightly less swiftly than scheduled to Watford Junction, causing me to miss the connection to Clapham by four minutes and forcing me to wait 56 minutes (life is tough) in the famous Ferkin.
There I was, sipping a half pint of hand-pulled bitter ale (or two) - beads of sweat threatening my $100 million green cotton shirt - taking notes, hoping I'd make the next connection and not end up stranded in Leatherhead, a London suburb where nearly 200 engineers and support staff reported to work Monday to continue working on the Terra Nova project.
Leatherhead is where the Brown and Root Offshore has major offices, and where the Terra Nova project was conceived and designed.
After work, the Terra Nova engineers will no doubt drive home in European-made cars, purchase - at more than double the St. John's rate - British petroleum, roll up their English shirt sleeves and perhaps stop at a similar Ferkin pub, spending oil company expense-account pounds instead of oil company expense account Canadian dollars.
"Newfoundland missed the boat on Terra Nova," I have been told off the record more than once by observers in Norway, a country that welcomes oil companies with a special 50 per cent corporate tax on top of the 28 per cent corporate tax that companies in other sectors pay.
I am hopeful that later in the week I will be told on the record there are far better ways to bring technology transfer and economic benefits to Newfoundland than the Terra Nova model.
Many here - and in St. John's - believe the best way to ensure Newfoundland ends up as a base for a core team of engineers and procurement people who live, eat and drink in the province is for the major oil companies to form a single Jeanne d' Arc Basin consortium to run virtually the whole show.
Although it sounds a tad conspiratorial, observers say it will guarantee enough work to warrant a Newfoundland-based engineering team.
And they say it is inevitable.
Back in Ferkin, the bartender and my fellow patrons had never heard of Leatherhead, or Newfoundland offshore oil, or Hibernia or Terra Nova or even Voisey's Bay. Nor did they know my shirt, which is embroidered with the words Diamond Fields Resources, cost $100 million. And I wasn't about to tell them.
The shirt is one of 20 which was acquired by Inco when it dished out $4.3 billion for the Voisey's Bay deposit - a deposit that analysts such as Amy Gassman of Goldman Sachs are now asking be written down by about $1.4 billion to $1.6 billion US - and was subsequently given to me with no strings attached. (The shirt, not the deposit.)
The write-down adds up to about $2 billion in Canadian funds, which must mean that for its $4.3 billion, Inco received a nickel deposit worth $2.3 billion and 20 really nice shirts.
You do the math. I'll keep the shirt.
But people in England are far more interested in more weighty matters, such as the next soccer match and the price and quality of beer. Mine was a smooth bitter, pumped by hand rather than by compressed air, I was told, thanks to a 10-year campaign to convince the brewing giants to stop mass producing great vats of beer that all taste the same.
Apparently, a dedicated group of pub patrons took on the beer behemoths by launching the Campaign for Real Ale, eventually persuading them to bring back the traditional recipes.
Perhaps it is something Canadian consumers can do to the oil and gas companies, eventually persuading them to bring back not-so-traditional jobs.
Chris Flanagan is on assignment in Norway. On Thursday, he takes a look at the pros and cons of floating ship shaped production platforms, such as the one proposed for the Terra Nova project.
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