MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING TUESDAY, MAY 19 1998 (3)
TOP STORIES, Con't
Big Bear Exploration's Appetite For Acquisitions Funded By N.Y. Company
The Financial Post
The last time Jeffery Tonken started an oil company, he and a group of friends kicked in $200,000 and sold it 10 years later for $1 billion.
"This time, we are going to start it with $200 million and see what we can do," said Tonken, chairman and chief executive of Big Bear Exploration Ltd., a newly listed company on the Toronto Stock Exchange with a hunger for acquisitions as voracious as its name implies.
Tonken is former president and CEO of Stampeder Exploration Ltd. The oil and gas producer was taken out by Gulf Canada Resources Ltd. last summer as part of a fast-paced acquisition campaign waged by then chief executive J. P. Bryan.
Soon after the sale, Tonken and his management team regrouped to lead Colony Energy Ltd., a junior oil and gas firm that was trading on the Alberta Stock Exchange. Colony changed its name to Big Bear Feb. 28 when it listed in Toronto to avoid confusion with a similarly named company.
But with oil prices sitting at about US$15 a barrel, production of 3,000 barrels a day and mounting debt, its future seemed uninspiring. So Big Bear went looking for cash and struck it rich with New York-based Belco Oil & Gas Corp. The independent oil and gas producer with a market capitalization of about $900 million was also eager to grow by acquisition.
Under their deal, Belco, owned by the Belfer family, is paying US$10.5 million for preferred shares of Big Bear, convertible to common shares. It will also buy up to US$120 million in warrants convertible to shares and options to buy another US$10.5 million in preferred shares. If it exercises all conversions, warrants and options, it would own 80% of Big Bear.
Big Bear will use the money to chase mutually acceptable oil and gas acquisitions. A special shareholders' meeting will be held June 9 to vote on the transaction.
"What attracted Bob Belfer to us is that we had a proven track record to create value," said Tonken.
Belfer bought into Tonken's strategy of building a new Canadian energy producer of a significant size by cherry picking high-quality assets during a time of low commodity prices.
"I don't take any pleasure in seeking people under pressure," said Tonken. But he is finding himself in the unique position of rooting for low oil prices, at least in the short term. "There is no question our strategy is to buy good assets at reasonable prices, and that the current market situation is setting us up for that."
Increasingly, companies are being squeezed by continuing low oil prices, a situation compounded by nervous bankers calling in loans and the difficulty in getting new equity, he said.
Big Bear has talked to and been approached by several firms, ranging from junior producers to mid-sized outfits with large debt.
"There are a number of ways we can employ our money," Tonken said. "We can do a straight takeover bid. Or we have talked to a number of companies where we would like them to buy our company, Big Bear, and the resulting transaction would put us in a position where we would be the new management team."
Initially, the goal is to pay off bank debt. A second step would involve using credit facilities to build. Big Bear's shortlist is made up only of oil producers - natural gas assets, because of the buoyant outlook for this market, are too expensive. Heavy oil is also off the list. It is best suited to senior producers such as Gulf because it requires large amounts of capital.
Baytex Energy Sues Petro-Canada Over Property Auction
The Financial Post
Baytex Energy Ltd. is suing two energy producers, including Petro-Canada, and a leading Calgary investment dealer after losing out in a property auction.
PetroCan hired FirstEnergy Capital Corp. to sell what it calls its Gold Creek properties, near Grande Prairie, Alta. The assets include daily production of 15 million cubic feet of gas and 1,450 barrels of gas liquids, plus about 11,600 hectares of land.
Bids were due April 20. Baytex offered PetroCan an undisclosed cash payment or a combination of cash, debentures and properties. The Calgary-based junior's offer was conditional upon the seller throwing in two more properties and seismic data, a condition that was later waived.
The value of the bid was not reduced by putting aside the provision, Baytex says in its statement of claim filed with Alberta's Court of Queen's Bench.
PetroCan and FirstEnergy were accused of breaching the tender process by getting Rio Alto Exploration Ltd. to make a second bid in early May, which Baytex alleged was still below its price.
The court was asked for an interim injunction to prevent Rio Alto from taking over the Gold Creek assets. Baytex also asked to buy the properties at its bid price.
Warren Holmes, managing director at FirstEnergy, said he was surprised by the lawsuit. He said the firm, which has conducted billions of dollars of asset sales and purchases since its formation almost five years ago, tries to ensure all bidders are treated fairly.
Given the confidential nature of the auction process, Holmes wondered how Baytex could determine that its bid was worth more than Rio Alto's.
FirstEnergy intends to defend itself rigorously, he said. "We take it seriously. Our business is clearly a function of reputation, expertise and client confidence."
Holmes said FirstEnergy considers Baytex a valued client. The dealer was adviser to Dorset Energy Ltd. when it was sold to Baytex last fall.
An official with Baytex said the company had no comment about its legal action. A PetroCan spokesman said he couldn't comment until the firm's lawyers finished studying the document. Rio Alto did not return phone calls.
Canada To Be Top U.S. Oil Supplier
The Financial Post
Canada is pushing out Venezuela as the No. 1 supplier of oil to the U.S., according to the Canadian Association of Petroleum Producers.
Venezuela, with its huge production of heavy oil, has historically outranked all other countries as the top exporter of oil to the U.S., followed by Canada, Saudi Arabia and Mexico.
But pipeline expansion, rising production of heavy oil and more refinery capacity in the U.S. to upgrade it should put Canada ahead in the U.S. on a permanent basis within six months, said David Manning, president of CAPP.
"They like our stuff, they are set up for it and there are pipelines in place," he said.
Canada led in January and February, when average daily oil exports to the U.S. were 1.7 million barrels a day, a jump of about 200,000 b/d from 1997.
A year ago, oil exports averaged 1.47 million b/d, according to statistics compiled by the Washington-based U.S. Energy Information Administration.
During the same two-month period, U.S. imports from Venezuela declined to 1.65 million b/d, from an average of 1.73 million b/d in 1997.
Saudi Arabia exported 1.46 million b/d on average to the U.S. during the same period, up from last year's average of 1.39 million b/d; Mexico came in at 1.35 million b/d in the first two months, about the same as the average for 1997, 1.36 million b/d.
Canada's export jump in the first two months was likely due to a combination of more heavy oil production, along with more pipeline space, Manning said. "We have progressively, over the past three years, added pipeline capacity through expansion."
In March, Canada's exports to the U.S. slipped back to 1.45 million b/d, while Venezuela bounced to 1.66 million b/d, Saudi Arabia exported 1.5 million b/d and Mexico 1.23 million b/d.
But Canada is likely to move back on top with the Terrace pipeline expansion, which will add 95,000 b/d of export capacity starting in January 1999, and another 81,000 b/d by September 1999.
The U.S. government has long supported a policy of diversifying oil imports from the Persian Gulf, said Carmen Di Figlio, a senior director with the U.S. Department of Energy.
"Obviously, we have good relationships with both countries, and the significance of Canada or Venezuela being slightly ahead of one or the other in no way diminishes the importance of both sources of supplies to the U.S."
Venezuelans have been fierce competitors, purchasing U.S. refineries to ensure they have the capacity to process heavy oil.
The U.S. government estimates 4.6% of U.S. refinery capacity, or 700,000 b/d, out of total U.S. production of 15.2 million b/d, is now owned by Venezuelans.
Over the longer term, Canada's No. 1 spot will be sustained by rising U.S. demand for light sweet oil produced at the expanding Alberta oilsands plants and East Coast offshore fields like Hibernia and Terra Nova.
The reversal of Line 9, a pipeline between Sarnia, Ont., and Montreal that used to move western oil to the East -- will also result in more exports to the U.S. by the end of the year.
Hibernia Platform To Pump More Oil
Canadian Press
Production at the Hibernia offshore oil platform is set to resume its upward climb when the first water-injection well begins pushing more crude through the reservoir.
Workers began perforating the 5,600-metre well over the weekend, a job that is expected to take up to a week to complete, said David Slater, who heads the reservoir team for Hibernia Management and Development Co. Ltd.
Once the filtered sea water begins moving through the reservoir, two production wells will be able to gradually increase their daily flow to about 60,000 barrels of oil a day.
Additional water-injector wells will be drilled in the coming months to further increase production, said Slater.
"For the rest of the year, the timing of the water injectors will determine how you will see us continue to build toward the 100,000 barrel-a-day mark," said Slater.
By early next year, the platform is expected to produce an average of 135,000 barrels per day. The platform was initially designed to pump 150,000 barrels per day, but could eventually exceed that level with some restructuring.
As oil is taken from the reservoirs in the sandstone beneath the ocean floor, the pressure drops, deflating the reservoir like a balloon and slowing the flow.
The water revitalizes the reservoir, sweeping the oil toward the producing wells.
In recent months, total production has been reduced to as little as 15,000 barrels a day while the water-injection well was being put in place.
Canada Rig Count Up 40 to 165 & U.S Rig Count Up 31 To 876 In Latest Week
The number of rigs exploring for oil and natural gas in the United States stood at 876 as of Friday, up 31 from the previous week and down from 917 a year ago, oil services firm Baker Hughes Inc. said.
The number of rigs drilling on land rose 30 to 716, while rigs working offshore rose two to 133. The number of rigs active in inland waters fell one to 27.
Among individual states, the biggest changes occurred in Texas, up 10, and in Louisiana and Oklahoma, both up eight.
The Gulf of Mexico rig count rose two to 132. The number of rigs searching for gas rose 21 to 592, the number of rigs searching for oil rose 10 to 281, and the number of miscellaneous drilling projects remained at three.
There were 232 rigs drilling directionally, 52 drilling horizontally and 592 drilling vertically.
In Canada, the number of working rigs rose by 40 from the previous week, to 165 versus 249 a year ago.
The weekly rig count reflects the number of rigs exploring for oil and gas, not those producing oil and gas.
In a separate report, Offshore Data Services said there were 166 rigs under contract in the Gulf of Mexico as of May 15, up one from the previous week.
The utilization rate for rigs working in the Gulf, based on a total fleet of 173, was 96 percent.
The number of working rigs in the European/Mediterranean area rose one to 110 rigs under contract out of a total fleet of 114, a utilization rate of 96.5 percent.
The worldwide rig count rose one to 583 out of a total fleet of 609, with a utilization rate of 95.7 percent.
Local Energy Sector Noticed
The Evening Telegram
There is a much greater recognition of the significance and the vibrancy of Newfoundland's energy sector due to a trade mission to Calgary earlier this year, according to a senior official of the National Energy Board (NEB).
"There now is recognition that there are two energy supply bases in Canada and that there are two business communities wanting to work more closely together," said Gaetan Caron, executive director and temporary board member of the NEB. The board, with 275 staff, is located in Calgary.
There is increased recognition as well of the fact that "the East Coast basin is significant and a key contributor to the potential economic prosperity of this country," Caron told some 70 members and guests at a luncheon meeting of the Newfoundland Ocean Industries Association (NOIA) on Tuesday.
A delegation of 75 local business people representing 60 companies which are NOIA members participated in a two-day trade mission to Calgary in April.
In addition to acquiring up-to-date information about East Coast petroleum projects from senior representatives of the Calgary-based oil companies, the delegation members showcased their capabilities and expertise.
In his address, Caron outlined the mandate and objectives of the NEB, stating the federal regulator is making a contribution to the evolution of the energy sector in this province.
"We work in partnership with the Canada-Newfoundland Offshore Petroleum Board (CNOPB) and the Department of Mines and Energy through the provision of technical advice upon their request," he said.
Caron also noted the board is involved in information sharing and the CNOPB's reserves estimates are used in the NEB's supply/demand report.
About 80-85 per cent of the NEB's activity deals with pipelines and, while there is no involvement in that regard in Newfoundland to date, activity will increase due to the potential associated with the Jeanne d'Arc Basin and the gas reserves associated with the Hibernia and Terra Nova projects, he said.
The board's mandate involves it in the construction and operation of interprovincial/international pipelines and international power lines.
With reference to the proposed development of the Lower Churchill, Caron pointed out the NEB gets involved only in electricity exports.
"Our role is limited to regulation of short international export lines near the Canada-U.S. border," he said. "Virtually all transmission lines are regulated by the provinces."
Caron said the NEB's goals include enhancing the framework for environmental assessment; enhancing public confidence in the safety of NEB-regulated facilities; improved provision of energy information; and enhanced ability of the public to participate and to access information.
Offshore Board Appointee Long-Time Industry Official
The Evening Telegram
The former head of a large independent oil and gas exploration company in Western Canada has been named a federal representative on the Canada-Newfoundland Offshore Petroleum Board (CNOPB).
Frank Proto, former president, chief executive officer and director of Wascana Energy Inc., was appointed by Ralph Goodale, minister of natural resources.
The CNOPB is the agency that regulates oil and gas activities and manages resources off Newfoundland and Labrador on behalf of the federal and provincial governments. The board is made up of a chairman and chief executive officer, jointly appointed by the two governments, and six other members with three being appointed by each of the governments, all for a term of six years.
"Mr. Proto brings to the board extensive corporate experience as well as specific background in managing oil and gas activities," Goodale said.
Prior to his employment with Wascana, Proto worked with Alberta Energy Co. Ltd., Sherritt Gordon, Cominco Ltd.; SaskPower, and Kalium Chemicals Ltd.
He is a member of Saskatchewan Provincial Action committee on the Economy, is a director of the Canadian Council of National Unity and a past-governor of the Canadian Association of Petroleum Producers
Earlier, Goodale and Premier Brian Tobin jointly announced that Hal Stanley, who has had a long career in the Newfoundland public service, most recently as deputy minister of forest resources and agrifoods, is the new chairman and chief executive officer of the CNOPB.
"Mr. Stanley has dealt extensively with the CNOPB and has a thorough understanding of the critical role the board plays in regulating the oil and gas industry offshore Newfoundland and Labrador," Tobin said.
Goodale said Stanley's "experience with government processes and leadership abilities will enable him to play an important role in helping the board to regulate the Hibernia and Terra Nova projects."
Meanwhile, John Fitzgerald, the board's vice-chairman who had been acting chairman for the past three years, has indicated a wish to retire, Tobin said,
He said Fitzgerald has agreed to stay on for a number of months to provide an orderly transition period.
Newport Petroleum Closes $57M Issue In Tough Market
The Financial Post
Newport Petroleum Corp. said Friday it had closed a bought-deal sale of common and flow-through shares for proceeds of $56.6 million, to be applied to its bank debt.
Like other recent oil and gas offerings, the issue was difficult to place among investors, partly because of their lingering dislike for oil and gas stocks, analysts said.
An additional drawback for Newport was a messy legal fight with Canadian 88 Energy Corp. over operating common producing assets in the Caroline area of central Alberta. The two companies are 50/50 partners.
Newport started the legal battle in February, but in April Canadian 88 responded with its own suit, claiming more than $40 million in damages.
In its prospectus for the offering, Newport said it plans to defend itself vigorously and to file a counterclaim.
"Newport denies all the allegations made by Canadian 88, maintains Newport's right to operate, and Newport intends to continue as operator. While this action is in its early stages and is still under review, management believes it will not succeed and that, in any event, there is no reasonable basis for the magnitude of the damages claimed," the company said.
The fight - and the timing of Canadian 88's large claim - has some observers wondering whether Canadian 88 president Greg Noval is trying to drive down Newport's share price to facilitate a takeover.
Nonsense, said Noval on Friday. "We have no interest in taking over anybody. Our story has been growth through the drill bit."
He added it's unfortunate the dispute has ended up in court, but blamed Newport for "firing the first cannon."
"I don't see their net asset value worth what their stock is trading at."
The offering included six million common shares at $6.90, plus flow-through common shares at $7.65.
The issue was underwritten by Peters & Co. Ltd., TD Securities Inc., Salman Partners Inc., Goepel McDermit Inc., Nesbitt Burns Inc., and First Marathon Securities Ltd.
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