MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING WED., MAY 13 1998 (4)
IN THE NEWS
Paramount Resources Ltd. (POU/TSE) updated their exploration and operations thru the first quarter. Paramount's daily production in the first quarter of 1998 increased 63 percent to 204 MMcfeq/d as compared to first quarter 1997. The Company completed a very active winter drilling program with a total of 132 (74 net) wells drilled with a net success rate of 80 percent; Paramount operated 90 of these wells. As the majority of Paramount's work takes place in the first quarter, the bulk of the expected 1998 production gains are just now beginning to appear. March production levels were 223 MMcfeq/d and April production averaged approximately 240 MMcfeq/d with further production increases still to come onstream in the next month. Despite equipment shortages and the adverse operating conditions resulting from the very mild winter, Paramount managed to complete essentially all of its budgeted capital program.
Activity in the northeastern Alberta core area was focused on two fronts; integrating into Paramount's operations the acquisitions made in the fourth quarter of 1997, and executing an aggressive development program in many of the existing properties in the Company's shallow gas portfolio.
The incorporation of the Reserve Royalty Corp. acquisition transpired quite smoothly, with a small development program being completed through the past winter. Paramount has successfully met its goal of replacing production declines on these properties; April 1998 production was approximately 40 MMcf/d. The acquisition at South Liege was also successfully incorporated into Paramount's operations, with production volumes through this facility increasing from 4 MMcf/d at the time of the acquisition to 11 MMcf/d by the tying in of additional Paramount wells on surrounding lands.
Paramount's shallow gas development programs included infill drilling, recompletions, pipeline extensions, and compression additions with the intention of not only arresting declines, but expanding these reserves and production levels. Significant development programs were completed at Kettle River, Quigley, Corner and Leismer on the east side, and at Legend and Teepee Creek on the west side. Production levels in the northeast shallow gas area in April 1998 were 168 MMcf/d as compared to the 139 MMcf/d averaged in January 1998.
Paramount experienced significant success at Kaybob through the winter drilling season with a discovery in December 1997 which flowed at 27 MMcf/d while drilling using underbalanced horizontal drilling technology. Using the same technology, a follow-up well was drilled in late March that flowed at 23 MMcf/d while drilling. These wells were tied in and are producing to the Kaybob North gas plant as of April 17, 1998. When plant construction is completed in May, further production increases in the order of 5 MMcf/d are forthcoming from lower pressure wells completed in a different pool. Total initial production additions at Kaybob will be approximately 20 MMcf/d. Paramount is commencing an active summer drilling program in this area with an initial 12 well program; at least half of these locations are planned to be evaluated using the underbalanced horizontal drilling technology.
The 1997 discovery at Obed was placed onstream in January 1998. A second well was drilled vertically and cased, and completion operations have now commenced. Further drilling activity at Obed for 1998 is being evaluated.
At Zaremba, in northeast British Columbia, Paramount completed the acquisition of the remaining plant interest and associated production. Two new wells were drilled and a number of workovers were completed with positive results.
These activities have contributed to significant growth in the central Alberta / northeastern British Columbia core area, with April 1998 average production levels at 38 MMcfeq/d as compared to 29 MMcfeq/d in January 1998.
The majority of the 1998 capital spending program in northwestern Alberta was focused in the greater Bistcho Lake area in the first quarter. Seven delineation and five exploratory wells were drilled, several wells were recompleted and tested, three new wells were tied in, and modifications were made to the existing sour gas plant and gathering infrastructure to streamline operations. In addition, 87 km of 2D and 55 square km of 3D seismic were shot to detail future development and exploratory drilling locations.
At Sousa, a horizontal well was drilled underbalanced as a follow-up to the Slave Point gas discovery made in the first quarter of 1997. A new processing facility was constructed and the two wells were tied in, with production commencing in April 1998. Production from this new pool discovery will be monitored over the next quarter to determine the feasibility of expanding the plant capacity at this year round access facility.
The southern Northwest Territories was the focus of much of Paramount's exploratory activity. As previously announced, the Bovie Lake C-76 well tested gas, and the decision to sidetrack the well was made. Unfortunately this operation was not completed before breakup. Two wells further north also met with the same fate; the Arrowhead O-15 and Netla M-23 were both spud, but drilling operations were suspended due to breakup. The Arrowhead N-65 well flowed at rates of over 28 MMcf/d with some formation water as previously announced. This well was cased for production; however, completion and testing operations were not concluded. Finally, the Liard F-36 well was drilled and cased although time limitations did not allow for the completion of this well. Paramount has been adequately encouraged by the drilling results to date to warrant continuing with the program in the next drilling season.
Drilling operations on two wells at Maxhamish in northeast British Columbia were completed, the results of which were disappointing and a re-evaluation of this project is underway.
Paramount participated in the drilling of two wells in the southern Alberta foothills in the first quarter of 1998. Completion and testing operations are currently underway at both locations.
Paramount currently forecasts natural gas production to average approximately 230 Mcf/d and crude oil and natural gas liquids production to average 3,500 Bbl/d in 1998. Cash flow from operations is expected to be $110 million, all of which will be invested internally in oil and gas development, exploration and acquisition opportunities.
Anderson Exploration reported net capital expenditures for the first half of the year were $374.2 million representing 74 percent of the 1998 fiscal budget. These expenditures include the Swan Hills acquisition in the first quarter of the year for $98 million and $32 million in construction costs for Federated Pipe Lines' expansion, now scheduled for start up on July 1, 1998.
In the first half of the year, the Company drilled 312 gross wells (213 net) compared to 398 gross wells (240 net) for the same period last year. The average well depth increased by about 1,150 feet, as activity shifted to deeper parts of the basin. A busy winter drilling program was completed in northeastern British Columbia and northern Alberta. In British Columbia, extensive gas gathering systems were built to fill available capacity at existing plants.
During the first half of fiscal 1998, oil and NGL sales increased 15 percent to 38,497 barrels per day. Natural gas sales for the first half of the year averaged 557 million cubic feet per day compared to 542 million cubic feet per day last year.
While the Company expects cash flow from operations and earnings for the year to be less than last year, production growth will continue. Higher natural gas prices are expected for fiscal 1999 once increases in export pipeline capacity are brought on stream in November 1998, putting the Company back on track for improved financial results next year. Anderson Exploration Ltd. is one of the senior Canadian producers most leveraged to natural gas with 67 percent of its sales volumes derived from natural gas and natural gas liquids. Considering this, the Company is well positioned to take advantage of future natural gas price increases.
Cabre Exploration Ltd. has negotiated an agreement to explore 160 sections of land owned by PanCanadian Petroleum Limited and located near Cabre's core production properties at Joarcam in central Alberta.
"This agreement offers Cabre an excellent opportunity to pursue new exploration and reserves in a region we know well and located near our largest single producing property," said Douglas Kay, Cabre's president and chief operating officer.
Under this agreement, Cabre has agreed to drill at least five exploration wells on selected locations before October 31, 1998. This agreement also includes three option periods between October 31, 1998 and December 31, 1999. To earn interest during each of these periods, Cabre has agreed to drill at least five wells during each period on selected lands. Cabre may also drill more than the minimum five earning wells in any period to earn additional lands. Cabre has also negotiated the right to purchase PanCanadian seismic data covering 539 kilometres of the lands. PanCanadian retains its royalties from any new production and will earn a working interest in new oil discoveries.
Cabre is the majority owner and Operator of Joarcam Viking Oil Units 2 and 3 as well as the Joarcam Viking Gas Cap Unit, including associated gas plants and oil processing facilities. Cabre is currently producing 2,400 barrels of oil and 7.4 million cubic feet of gas per day net to its interests from its Joarcam properties, located about 50 kilometres southeast of Edmonton. Over the last year, Cabre has also conducted an exploration program focusing on natural gas outside of its Joarcam lands. This agreement fits well with Cabre's exploration strategy of pursuing new reserves near its core areas of production.
Southern Mineral Corporation (Nasdaq: SMIN) of Houston and Neutrino Resources, Inc.(NTO/TSE) of Calgary announced that they have signed a definitive agreement for the acquisition of Neutrino by Southern for cash consideration of Cdn. $1.80 per share. Total cash consideration is estimated to be U.S. $40 million (Cdn. $57.4 million). In addition, Southern would be assuming Neutrino's bank debt and working capital deficiency, which was approximately Cdn. $21.5 million as of March 31, 1998 (U.S. $15 million).
The transaction has been approved by the Board of Directors of both companies. Southern has indicated its desire to retain the current employees and management of Neutrino. The definitive agreement embodies a lock-up arrangement with officers, directors and significant shareholders. Neutrino has agreed to a breakup fee representing 5% of the total consideration available to shareholders. Closing is scheduled on or before June 30, 1998.
Based on independent engineering evaluations, Neutrino's total proved reserves as of January 1, 1998 were 37.4 billion cubic feet of natural gas and 6,146,000 barrels of oil and natural gas liquids for a total of 74.3 billion cubic feet equivalent (oil and liquids are converted to gas at 6,000 cubic feet for each barrel). The proposed transaction would increase Southern's total proved reserves by 78% from an end of the first quarter internal estimate of 94.8 billion cubic feet equivalent to 169 billion cubic feet equivalent.
During the fourth quarter of 1997, Neutrino produced an average of 12.4 million cubic feet of natural gas and 2,020 barrels of oil and natural gas liquids per day for a total of 24.5 million cubic feet equivalent of daily production. The proposed acquisition would increase Southern's daily production to more than 50 million cubic feet equivalent.
The proposed acquisition of Neutrino also increases Southern's undeveloped land holdings in Canada by more than 400% from 14,695 net acres to 74,670 net acres. Neutrino also holds an extensive data base of two and three dimensional seismic.
Southern Mineral Corporation is an oil and gas acquisition, exploration and production company that owns interests in oil and gas properties located along the Gulf Coast, Mid-Continent, Canada and Ecuador. The Company is listed on the Nasdaq National Market under the symbol SMIN.
Summit Resources Limited (SUI/TSE)
The first quarter of 1998 was a very active one for Summit, with a focused program of development drilling yielding 10 oil wells and six gas wells. The drilling targets, selected in advance of the recent oil price decline, included a mix of light and heavy oil as well as natural gas prospects, reflecting the diversity of Summit's reserve and production base. Moving into the second quarter, our capital program has been refocused on natural gas and light oil prospects in our core areas, which include northeastern British Columbia, west-central Alberta, southern Alberta/Montana and the Williston Basin. We will continue to apply operational efficiencies to mitigate the drop in commodity values and maximize available netbacks. Our inventory of development opportunities, combined with a broad exposure to oil and gas prospects in our core areas, will support Summit's program of increased natural gas exploitation through 1998.
Summit's first quarter drilling included 20 participation wells and one well farmed out to an industry partner. Development drilling remains Summit's focus with 76 per cent of wells drilled for exploitation. Summit added 10 oil wells (7.1 net) and six natural gas wells (4.7 net) through first quarter drilling for an overall success rate of 89 per cent on a net basis. Four wells (1.5 net) were abandoned.
Natural gas drilling in the first quarter was focused in northeastern B.C. where Summit drilled two 100 per cent working interest horizontal gas wells in the Jean Marie formation at Gunnel. Both of these wells were completed and will be tied-in during the second quarter. Summit's natural gas processing and compression facilities at Gunnel are presently being expanded to provide an additional 10 million cubic feet per day of compression. This will accommodate volumes from the two new wells and the tie-in of two vertical wells drilled in 1995. Seismic acquired during the quarter increased the number of natural gas drilling prospects defined on Summit 100 per cent lands. In addition to six further development locations identified in Gunnel North, Summit controls 100 per cent of 14 locations for development of Jean Marie natural gas on other prospects in this area.
At Mirage, Alberta, Summit drilled a 100 per cent working interest natural gas discovery well which tested at rates in excess of 3.0 MMcf/d. Tie-in of this well to Summit's expanded natural gas production facilities is planned for June 1998. Additional development drilling on this discovery is scheduled following a 60-day production test. In addition, Summit drilled and cased three Halfway oil wells (41 degree API) as part of the development of light oil reserves with an additional 17 locations identified on 3-D seismic. Completion and tie-in of these wells will commence in mid-May following the removal of road bans. Summit has also encountered a new pool discovery in the Worsley zone (38 degree API) at Mirage which is currently on production at 60 barrels per day. Further development of this discovery, including up to six offset locations, will be included in the Company's plan to expand production from this multi-zone area where Summit holds 41,920 gross acres (38,350 net).
Four 100 per cent working interest oil wells were drilled, cased and completed at Rabbit Hills, Montana in the first quarter of 1998. These wells are located on a new prospect with production rates averaging 30 to 50 barrels per day per well for three of the wells. Based on this drilling success and 3-D seismic interpretations, additional drilling will be required to delineate the size of the reserves controlled by Summit. An additional 15 to 20 locations have been identified for drilling, but do to the heavier quality of crude (20 degree API) and the current soft oil prices, Summit will defer further drilling in this area until oil prices improve. However, unitization of the main Rabbit Hills field is proceeding following very encouraging results from a pilot polymer flood. Unitization will result in improved recoveries from the reservoir and reduced operating costs.
Summit's production volumes increased modestly in the first quarter to 12,059 barrels of oil equivalent per day, a four per cent increase over the first three months of 1997. Production gains from first quarter drilling were offset by the impact of non-core asset dispositions completed late in 1997. Oil production increased 11 per cent over 1997 first quarter volumes of 5,430 barrels per day to 6,052 barrels per day in 1998. Natural gas production of 60.1 million cubic feet per day for the first quarter was impacted by a facility shut down at Clarke Lake, in our northeast B.C. area. The expanded facilities, to be completed in the second quarter, provide Summit with a total of 24 million cubic feet per day of compression and dehydration. The increased capacity will allow for previously restricted gas from wells drilled in 1997 to be processed and will facilitate production from additional wells planned in 1998.
Rigel Energy Corporation (RJL/TSE) reported on exploration, development over the first quarter period. Exploration and development capital expenditures during the first quarter of 1998 totaled $48.7 million compared to $31.2 million in 1997. Approximately $2.8 million of the net expenditures in 1998 occurred in the UK compared to $3.6 million in the 1997 period. Proceeds of approximately $35 million from the disposition of properties in southwest Saskatchewan reduced the net capital expenditure figure to $13.0 million to March 31, 1998.
During the period, the Corporation participated in the drilling of 50 wells (excluding two service wells and seven stratigraphictests), resulting in seven oil wells and 29 gas wells. The 1998 total compares to 49 wells drilled in 1997, of which 11 wells were cased for oil production and 17 for natural gas.
The winter program in northern Alberta and northeastern British Columbia succeeded in casing 12 wells for natural gas targeting both Slave Point and Mississippian prospects. Production from this and other development activity will add approximately 1,200 BOEs per day during the second quarter. At Burmis, located in the Alberta foothills, a well targeting high deliverability natural gas reached total depth in March and will begin completion and production testing in early May.
Drilling in the Peace River Arch during the first quarter of 1998 included casing 11 wells for natural gas. Production from a number of these wells began in April and will increase throughout the year as additional wells are tied-in. Following plant maintenance scheduled for the second quarter, year end production from this area is expected to grow by 15 to 20 percent over the average production in 1997 of approximately 102 million cubic feet per day.
In the UK, the first appraisal well (13/24b-4), offsetting last year's discovery well drilled in the Moray Firth basin, completed drilling and evaluation in the first quarter. Information regarding the well will not be released at this time due to competitive reasons. The second appraisal well (13/24b-5) is currently drilling and will be followed by the drilling of an additional well in the second quarter. Approximately 90 kilometres to the east, Rigel participated in a prospect located in block 21/6b that began drilling in mid-February and finished in March. No information about the well can be released as it is classified as ''plugged and abandoned -- tight''.
Crude oil and condensate production to March 31, 1998 was 20,428 barrels per day and 1,792 barrels per day (total 22,220 barrels per day) -- up 51 percent and nine percent respectively over the first quarter 1997 daily average figures.
The most significant factor affecting crude oil production in 1998 versus 1997 was the acquisition of a 20 percent interest in the UK MacCulloch field in late 1997. Production, which has been constrained due to compressor problems associated with the gas conservation system, averaged 5,929 barrels per day during November and December 1997, 7,861 barrels per day during the first quarter of 1998 and is currently producing at rates in excess of 10,000 barrels per day. A production loss of approximately 1,100 barrels per day is expected to begin in April as a result of property sales in southwest Saskatchewan. The decline will be more than offset by production from MacCulloch rising to an average of 10,000 to 11,000 barrels per day over the second quarter. Combined average price for all crude oil and condensate during the first quarter was $19.77 per barrel -- a decrease of 26 percent from the same period last year.
Natural gas sales to March 31, 1998 averaged 157.6 million cubic feet per day compared to 148.9 million cubic feet per day recorded for the same period in 1997. Production starting in the second quarter will be adversely affected by property sales in southwest Saskatchewan that averaged approximately eight million cubic feet per day in the first quarter. New production from Knopcik, Highvale and Hamburg will offset the majority of this decrease. Natural gas prices remained relatively strong to average $2.08 per thousand cubic feet, although off from the high average price of $2.51 per thousand cubic feet received during the first quarter of 1997.
Natural gas liquids production improved to 1,972 barrels per day compared to 1,522 barrels per day recorded in 1997. However, revenue declined by over a third as a result of lower prices that averaged $11.88 per barrel. Production of NGLs will increase further as a result of entering into a favorable one year contract to provide additional ethane from the Wembley gas plant beginning in June.
The company offered the outlook that the recent weakness in the price of crude oil has not changed Rigel's strategy to balance light oil and natural gas production. For 1998, the Corporation has focused approximately 75 percent of its domestic expenditures on natural gas exploration and development. Growth in light oil production from the UK remains key in Rigel's goal of achieving long term balance.
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