MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING WED., MAY 13 1998 (6)
MARKET ACTIVITY
In London, shares in UK oil exploration companies Lasmo Plc (UK & Ireland: LSMR.L) and Enterprise Oil Plc(UK & Ireland: ETP.L) rose on Wednesday along with rising oil prices, traders said.
By 1410 GMT Lasmo and Enterprise rose 2.6 percent and 3.4 percent respectively, with Lasmo up 7p to 279p and Enterprise 19p to 571p.
London futures for benchmark North Sea crude were 11 cents a barrel firmer at $15.22 at 1256 GMT, after piercing $15 on Tuesday.
Traders also said Lasmo could still be benefiting from a report in the Independent on Sunday newspaper which said a natural gas find in Pakistan might be twice the size initially expected.
Earlier in the week market sources said Morgan Stanley Dean Witter had reiterated a ''strong buy'' rating for both stocks, but no analysts at Morgan Stanley were immediately available for comment on Wednesday.
The Toronto Stock Exchange 300 Composite Index fell 0.1% or 10.21 to 777.49.
The TSE Oil & Gas Composite Index fell 0.5% or 34.35 to 6510.05, pulled downward by the Oil & Gas Producers who fell 0.9% or 50.92 to 5671.80. The Integrated Oils gained 0.1% or 5.68 to 8847.18 and the Oil & Gas Services gained 0.2% or 5.95 to 3140.71.
Petro-Canada, Poco Petroleums, Pacalta Resources, Carmana Resources, Amber Energy, Gulf Canada Resources, Neutrino Resources, Petromet Resources, Elk Point Resources and Canadian Occidental Petroleum were among the top 50 most active traded issues on the TSE.
Service firms among the top 50 included Precision Drilling.
Among the top 25 most actives on the Alberta Stock Exchange were Anvil Resources, Oilexco, Request Seismic, First Star Energy, EGCO Canada and Sunfire Energy.
Due to the length of coverage today, I am skipping the top net and percentage winners/losers. They can be found at canoe.ca . They will be available up until 6 p.m. this evening before replaced by today's most actives.
Exchange Doings
Siga Resources Limited will be re-listed on The Alberta Stock Exchange under the trading symbol ''SIG'' and trading is expected to begin May 13, 1998. The company has completed a private placement of 600,000 common shares issuable to its directors and officers and a private placement of 1,011,493 common shares issuable to the creditors of the Corporation. The private placements were part of a restructuring plan which has enabled the Corporation to re-establish a positive working capital and cash flow position.
Future plans for Siga consist of farming out its two oil prospects to generate new cash flow for the Corporation, acquiring new oil and gas properties in exchange for Siga common shares to enhance its asset base without creating new debt and continuing to seek an appropriate merger candidate.
JCP Companies - Major Transactions
Spearhead Resources Inc. (SHD/ASE) has closed its major transaction after receiving approval from its shareholders at a special and annual general meeting. The company will be applying in the for final approval from the Alberta Stock Exchange and to be transferred from junior capital pool status to the ASE regular board.
The company acquired proven plus 50% probable net reserves of approximately 90,000 barrels of oil and NGL and 150 million cubic feet of gas, producing 50 barrels per day and 115 thousand cubic feet per day, in the Cecil area of Alberta for a cost of $640,000. An independent engineering evaluation reported the net present value, discounted at 15%, at $727,000. The operator of the property plans to further develop the oil pool.
Spearhead's immediate plans are to identify and acquire additional producing reserves in Western Canada.
Research Notes
The Broken Hill Pty Co Ltd shares fair value at A$14.50 - Merrill
MELBOURNE, May 13 - Investment bank Merrill Lynch said it has estimated fair value for Australian steel, mining and oil group The Broken Hill Pty Co Ltd (BHP) at around A$14.50 per share.
Merrill's BHP analyst, Elaine Prior, said in a research report released to clients last week that the valuation could prove conservative if commodity prices picked up.
''On an NPV (net present value) basis, we feel the current share price of around A$14.50 can be justified, even in the unlikely event that commodity prices remain around current low levels,'' Prior's report said.
''With many commodity prices around likely cyclical lows, an expected recovery to higher long-term levels means an NPV of A$14.50 is likely to prove conservative,'' it added.
Merrill publicly released a copy of the report on Wednesday.
The report suggested BHP's earnings outlook was finely balanced. Merrill has forecast BHP to report 1998/99 (June/May) net profit of A$1.071 billion.
''Our profit forecast is vulnerable given our oil price assumption of US$18.25 (per barrel of oil). Weaker than forecast commodity prices could yield a result under A$1 billion,'' the report said.
On a brighter note, it said BHP's cost-cutting drive could pleasantly surprise investors, noting BHP had markedly cut costs at its North American copper operations in the February quarter.
BHP's target of slashing A$500 million from steel division costs, mainly in Australia and New Zealand, over two years to November 1998 was on track, it added.
''We believe that if BHP can really change its culture to become a 'lean and mean' machine, cost reductions could surprise the market and create considerable upside to our valuation,'' the report said.
''We are reluctant to factor this type of -- perhaps revolutionary -- change into our numbers until we have more comfort that such dramatic change will take place.''
Gordon Capital
IPSCO
(IPS-T: $44.50) BUY
IPSCO Announces Further US Expansion
IPSCO plans to construct a 300,000 ton cut-to-length coil processing facility in Houston, Texas at a capital cost of US$23 MM. The facility is expected to be in operation by late 1999. Houston, is a major center for steel trading activity and is ideally suited to service import/export products.
We estimate that this project has the potential to add $0.20-$0.25 to EPS in the year 2000. With ND/TC of just 24% and strong free cash flow expected this year, IPSCO continues to evaluate a number of expansion opportunities.
We understand the ramp-up of the company's Montpelier, Iowa plate mill continues to go very well. We expect this facility to add $0.60- $0.70 to EPS in 1998 and $1.65 in 1999.
We continue to forecast EPS of $3.50 for 1998 and $4.50 for 1999. We are increasing our 12-month target price from $52 to $54 to reflect the expected future earnings contribution from the new coil processing facility. BUY
Canadian Occidental Petroleum
(CXY-T: $32.35)
Significant Discovery In Western Canada Worth $2.00 -$4.00 per Share
Canadian Occidental reported one of the largest discoveries in Western Canada in the last twenty years at its annual meeting yesterday. The discovery at Hay River in north east B.C. has an estimated 135 million barrels of medium quality (high 20's API) crude oil in place and CXY holds a 100% working interest.
The company has plans to develop the first half of the field over the next two years and expects to book 21 million barrels of reserves (proven + probable) this year. This phase of the development will cost an estimated $66 million. As the discovery is located in a winter only access area, first production will not occur until next April at a planned rate of 6,000 barrels per day.
The key to exploiting this field is the multi-lateral horizontal well technology combined with efficient water handling capability as the pay thickness is thin and draped over a water zone. The aereal extent of the field is huge as it covers 52 sections (approximately 33,000 acres) and the company has locked up a further 48,000 acres of undeveloped land in the area.
The economics associated with the discovery appear excellent. The oil should sell at a $3.00 per barrel discount to Edmonton par, operating cost are expected to be no more than $3.00 per barrel, and full cycle F&D costs approximately $3.50 per barrel.
At current prices, we estimate that this would translate into a cash flow netback of approximately $13 per barrel. Our preliminary analysis suggests that the discovery will increase our asset value by between $2.00 and $4.00 per share.
At the annual meeting, the company also announced its results for the first quarter. Cash flow totaled $1.12 per share versus $1.59 per share last year and in line with our expected level of $1.10 per share.
We are maintaining our BUY recommendation and raising our target price to $40.00 per share.
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