MARKET ACTIVITY / TRADING NOTES FOR DAY ENDING FRIDAY, JUNE 1 1998 (2)
<Oil firms quietly conserving land
Globe & Mail
Next to coal mining and forestry, the oil and gas business probably has one of the worst image problems when it comes to the environment. Between shots of oil spills, such as the Exxon Valdez, and aerial photos of the oil sands moonscape near Fort McMurray, it's easy to see the industry as just a collection of rape-and-pillage environmental disasters waiting to happen.
But Larry Simpson, western-based director of the non-profit Nature Conservancy of Canada (NCC), has a different view on the oil companies. "Without them, many of the conservation gains we've made wouldn't have been possible. They have a huge impact on what we do."
The NCC is a little-known environmental group that has been active in protecting Canadian land since 1963. It is little known for several reasons -- for one thing, the group's corporate and individual donors don't try and attract much attention to their gifts.
Unlike other environmental agencies, the NCC also doesn't use noisy media campaigns or government lobbying to achieve its goals. Rather than protesting to protect land, it does something more pragmatic: It raises money and buys it, or persuades a corporate owner to donate it.
Using this low-key approach, the NCC has managed to protect tens of thousands of acres of "biologically diverse" land in Canada -- much of it prime western ranchland and prairie. Unlike some other groups, the NCC is tightly focused, Mr. Simpson says: Its mission is not to engage in politically oriented advocacy, but to "quietly conserve nature."
The most recent example of how the NCC goes about its business was the donation by Petro-Canada of 156 hectares of lakefront near Sturgeon Lake northwest of Edmonton. The area is a refuge for more than 150 species of birds, including trumpeter swans, black terns and bald eagles. The NCC is working to have the land included in Youngs Point Provincial Park.
Mr. Simpson says one of the nice things about the donation was that it wasn't dreamed up by the company for public relations reasons, or so that Petro-Canada could somehow win a "get-out-of-pollution free" card. The idea was hatched when Mr. Simpson befriended John Kerkoven, a land manager from Amerada Hess while they were watching their daughters take swimming lessons.
"John mentioned it, but when he checked with head office, they said they didn't sell land," Mr. Simpson recalls. However, when Amerada Hess was taken over by Petro-Canada, Mr. Kerkoven tried again and got a warm reception. "They went out of their way to help," Mr. Simpson says.
It's possible, the NCC director admits, that his rapport with people such as Mr. Kerkoven is enhanced because Mr. Simpson happens to be a former land manager himself, with Amoco Canada. "I grew up in the country and always had an affinity for the outdoors," he says. When Amoco took over Dome Petroleum, he took a buyout package and joined the Conservancy.
At the moment, the conventional impression of the oil and gas industry and its commitment to the environment is probably coloured by events such as the current flap over the Whaleback region of Alberta, an ecologically sensitive area that is part of the province's contentious "special places" program. Amoco Canada wants to drill there for natural gas deposits.
And yet, Amoco also was one of the leading proponents of the land donation project that helped expand Grasslands National Park in Saskatchewan in 1992. As with the Petro-Canada donation, Mr. Simpson says the impetus came not from some PR officer, but from Amoco land man Clark Drader.
"Clark really initated the project," Mr. Simpson says, "because I think he thought it was the right thing to do. He talked it up around the company and they got interested, and that's how it started." In the end, four companies gave up their rights to more than 2,000 hectares of land.
There are other examples: In 1992, Shell made the largest donation of private land in Canadian history, with a gift of 8,900 hectares of mountain land in British Columbia's Kootenay region; in 1993, six companies -- including Gulf Canada and Petro-Canada -- sold the mineral rights to more than 435,000 hectares of land in Yukon to help create Vuntut National Park.
And last year, four companies -- Shell, Chevron, Petro-Canada and Mobil -- sold for a fairly modest sum the mineral rights to more than 130,000 hectares of marine land off the coast of British Columbia's Queen Charlotte Islands that helped create the proposed Gwaii Haanas marine reserve.
Mr. Simpson admits that such donations and sales are frequently driven by a mixture of "it's good for our image" and "it's the right thing to do." But, he says, "you could never really justify this kind of thing on an economic basis alone -- to some extent I think they do it because it's right."
Koch Canada announces oilsands mine
Fort McMurray Today
Calgary-based Koch Canada Ltd. has announced plans to build an oilsands mine north of Fort McMurray that would produce up to 90,000 barrels of bitumen per day by 2004.
Koch revealed the plans Friday, after the company completed the $30-million acquisition of two oilsands leases from U.S.-based Solv-Ex Corporation, which sought production from Canadian and American creditors last summer.
Koch is excited about becoming a player in the Athabasca oilsands, said company spokeswoman Tammy Sauer.
''Now we can go forward. We can start the pre-feasibility study which will lead to development plans,'' she said. Koch isn't saying what the new mine might cost, but it's anticipated the Fort Hills Project will be worth at least $1 billion.
Shell Canada and Mobil Oil are also currently proposing mines worth $1-billion with a production capacity ranging between 130,000 to 150,000 barrels per day of oilsands product.
Sauer said Koch will retain a 78 per cent interest in the project and will become the mine's operator. United Tri-Star Resources of Toronto will be the other project partner.
Under the terms of a joint venture agreement signed by Koch and Tri-Star, a 12-month pre-feasibility study will begin to determine the size and quality of the oilsands resource and the types of mining, extraction and upgrading technologies available.
That study will also examine the available market and transportation. While the cost of the pre-feasibility study hasn't been determined, Sauer said it will include results of winter exploration drilling to be done on oilsand leases 5 and 52 this year.
The two leases cover a combined area of more than 22,300 hectares.
Sauer said job creation numbers will likely come when the mine's pre-feasibility study is completed. Koch Canada is a wholly-owned subsidiary of Koch Industries, the second-largest privately held company in the United States. Its overall revenue for 1997 exceeded $30 billion.
The company has been in Canada's oil and gas industry through a number of subsidiaries since 1959.
City oil firms seek profits in space
Calgary Herald
Researchers are boldly taking the quest for more oil to space, partially financed by five Calgary oil firms.
But the companies aren't searching the heavens for the motherlode of oil finds, they are helping to pay for experiments on the space shuttle Discovery aimed at increasing oil recovery from, of all places, inside the Earth.
Canadian experiments on board the shuttle, scheduled to lift off from Cape Canaveral in Florida this morning, will explore ways to recover more oil from reservoirs.
Even a two- or three-per-cent increase in the amount of oil recovered could potentially produce billions of dollars in revenues around the world.
The experiments -- dubbed MIRROR, for Microgravity Industry Related
Research for Oil Recovery -- are designed to improve technology, which still leaves more than 65 per cent of the oil trapped in the ground.
The project is financed by the Canadian Space Agency, European Space Agency, the Newfoundland government and oil companies in Canada and Europe.
The Canadian companies -- Petro-Canada, Chevron Canada Resources,
Husky Oil, Mobil Oil Canada and Murphy Oil -- are based in Calgary but have operations offshore Newfoundland.
The experiments are being conducted in space because gravity has a major impact on the processes on Earth.
They will allow researchers to study, for the first time without gravity, the rate at which oil spreads, the stability of foam and the flow of hydrocarbons.
The highly technical experiments are contained within a single canister, about the size of a small barrel.
It was designed and built for NASA by C-CORE and ZeddComm Inc., both of St. John's, Nfld.
"Improved technology will mean increased profitability for not only oil companies, but also for the governments and people of Canada," said D'Arcy Hart, project manager for C-CORE, an independent research centre at Newfoundland's Memorial University.
The data collected will be sent to the Petroleum Recovery Institute in Calgary and the Microgravity Research Centre in Brussels.
The experiments include:
- measuring the diffusion rate of various components of crude oil -- to provide better input for oil reservoir models.
- analysing surfactant foams used by oil companies to increase oil production, in the hope of developing improved foams.
- studying how hydrocarbons move through porous rock to improve oil extraction techniques.
Terms of Nova, TCPL deal set
TCPL shareholders in slight minority in massive deal that creates new firm and spins off Nova's chemical interests into a separate entity
TCPL to spin off five gas processing plants
The Financial Post
Nova Corp. shareholders will grab a majority stake in the new company created by its merger with TransCanada PipeLines Ltd., according to a joint management information circular released yesterday.
Nova common shareholders will hold 51% of the yet to be named merged energy services firm and 51% of Nova Chemicals Ltd., which will be spun off into a separate entity following the merger, which is expected to be completed July 2.
Redistributing Nova, TCPL assets
Nova/TCPL EnergyCo.
Fourth-largest energy services company in North America.
Assets $21.4 billion
Revenue $16.8 billion (1997)
Net income $679 million
Nova Chemicals Ltd.
Fifth-largest publicly traded commodity chemicals company in North America.
Assets $3.8 billion
Revenue $3.4 billion (1997)
Net income $225 million
Share Exchange
Current holdings:
100 Nova common shares
100 TCPL common shares
100 Nova preferred shares
Post-merger distribution:
52 EnergyCo. and 10 Nova Chemicals common shares
100 EnergyCo. and 20 Nova Chemicals common shares
50 EnergyCo. preferred shares
As a result of the Nova-TCPL merger announced Jan. 26, EnergyCo. <> as it has been dubbed <> will become North America's fourth-largest energy services firm with 454 million shares outstanding, $16.8 billion in annual revenue and $21.4 billion in assets. It will include both companies' energy transmission, marketing, processing and international energy services businesses.
Nova Chemicals Ltd. will become the fifth-largest publicly traded commodity chemicals company in North America, with 90 million shares outstanding, $3.4 billion in annual revenue and $3.8 billion in assets.
The chemical company will maintain its 27% stake in Methanex Corp. and 26% of NGC Corp.
It's expected that EnergyCo. will initially pay an annual dividend on common shares of $1.12, while Nova Chemicals will pay a dividend of 40› a share.
Based on the current number of shares outstanding, TCPL investors will own 49% of both the merged company and Nova Chemicals.
Under the share distribution arrangement:
Each Nova common share will be exchanged for 0.52 of a TCPL common share.
Each Nova preferred share will be exchanged for 0.5 of an EnergyCo. preferred share.
Each TCPL common share will be exchanged for 0.2 of a Nova Chemicals common share and one EnergyCo. common share.
No fractional shares will be issued and investors will receive cash in lieu.
According to other filings with the Alberta Securities Commission, Nova will change its name to Nova Chemicals Corp. Nova's energy services business will be transferred to TCPL, with TCPL owning all of Nova's outstanding shares resulting in a capital gain to Nova and a tax liability of $180 million.
The number of Nova Chemicals common shares will have been consolidated to be equal to one-fifth the number of TCPL common shares.
Since the merger announcement, shares of Nova (NVA/TSE) have rallied, closing yesterday at $17.35, down 10›. TCPL shares (TRP/TSE) closed at $33.40, down 40›.
Through the combined company, on a pooling of interests basis, Nova and TCPL estimate that within three years, they will save $150 million a year in operating and capital costs.
In addition to restructuring charges, the merger will cost the companies at least $230 million, $195 million of which will be charged against EnergyCo.'s retained earnings and $35 million against Nova Chemicals.
The merger will be presented to shareholders at separate meetings on June 29. The arrangement must be approved by at least two-thirds of the votes cast.
According to the 500-page circular, the Alliance Pipeline Project, if approved, will have an impact on Nova's pipeline system for at least six years until sufficient gas supply develops to fill both systems, potentially costing $140 million annually in fixed cost contributions, which will be borne by remaining shippers.
TCPL to spin off five gas processing plants
Terms of Nova, TCPL deal set
The Financial Post
TransCanada PipeLines Ltd. is selling 75% of its interest in five natural gas processing plants in Alberta and Saskatchewan in an offering of limited partnership units, the Calgary-based pipeline company said yesterday.
TCPL plans to keep a 25% interest in the assets, then buy them back in 20 years at their fair market value for cash or company shares.
The company, which is finalizing details of a merger with Nova Corp., would not say how much it's hoping to raise from the offering, to be marketed this month.
"TransCanada will recapitalize these Canadian gas processing investments in a very efficient manner and investors will receive attractive returns and tax treatment," said president and chief executive George Watson.
The facilities include all TCPL's interests in the Cutbank, Enchant, Freefight and Crane Lake/Maple Creek, Talbot Lake and Columbia - Minehead gas processing and gathering systems. These have a forecast throughput of 166 million cubic feet daily of natural gas for 1998.
The offering will be led by Nesbitt Burns Inc. and the units will be available only to Canadian residents.
TCPL shares (TRP/TSE) closed yesterday down 40› at $33.40. The 52-week range is $25.60 to $34.65.
Westcoast gets OK to rejig Union Gas subsidiary
The Financial Post
Vancouver-based Westcoast Energy Inc. has won approval from the Ontario Energy Board to transfer the appliance and service business of its Union Gas Ltd. unit to a new, unregulated affiliate.
Westcoast applied to OEB in October to move Union Gas's appliance sales and rentals, appliance service work and merchandise financing to Toronto-based Union Energy Inc., an affiliate formed in July 1997.
Meanwhile, Consumers Gas Co., owned by Calgary-based IPL Energy Inc., has given notice to the OEB it is winding down its water heater rental business. In a May 28 letter to the regulator, Toronto-based Consumers said it will not replace existing rental units past Oct. 1, 1999, as they wear out, although it will continue to rent its existing 1.2 million units. ConsumersFirst Ltd. will take over servicing the units after October 1999.
Consumers has also applied to the OEB to transfer merchandise sales and appliance service businesses to ConsumersFirst.
Elizabeth Havelock, spokeswoman for Chatham, Ont.-based Union Gas, said the company wanted to get its competitive, unregulated business out from under the umbrella of the regulated utility industry.
"These businesses grew up within the utility and now it's time that they move over," said Havelock. "It makes much more sense to separate your regulated from your unregulated businesses."
New Brunswick not interested in controlling laterals
Halifax Chronicle-Herald
New Brunswick isn't in a rush to control pipeline laterals that will carry natural gas. The province says it's cheaper for the Sable gas developer to build and operate the laterals.
Darwin Curtis, provincial director of mines and energy, said the government supports the pipeline company building laterals because capital costs are rolled into the main pipeline.
"We want as many laterals as we can get. We don't pay the full cost (of the lateral) but share the cost of the lateral with Americans."
He said consumers are the winners if the Maritimes and Northeast Pipeline Project builds and operate the laterals. For example, instead of Haligonians paying the full cost of a $75-million lateral into metro, consumers all along the main line pick up the tab, said Curtis.
Earlier this week, Premier Russell MacLellan was adamant that Nova Scotia should have jurisdiction over laterals.
MacLellan said control of laterals is one part of the gas deal that isn't open for negotiation.
COUNTRIES IN THE NEWS
Western oil firms prepare for return to Iran
DUBAI, June 2 - Western oil firms are pressing to re-open representative offices in Iran as the Islamic republic prepares to open up its strategic oil and gas sector to foreign investment, industry sources said on Tuesday.
British Petroleum Plc, France's Elf Aquitaine, Australia's Broken Hill Pty Co Ltd (BHP) and Russia's Gazprom are the latest firms aiming to move back to Tehran, 20 years after an exodus of foreign firms who packed their bags as the Iranian revolution turned violent.
"These companies want to become very active in Iran," said a source at the state-owned National Iranian Oil Company (NIOC).
Iran's upcoming offer of a series of oil and gas development projects worth billions of dollars at an unprecedented seminar in London on July 1-3 is seen as a major factor behind renewed interest in Iran as an important oil play.
The Islamic republic has over 93 billion barrels of proven oil reserves -- nine percent of total world reserves -- and has the second largest deposits of gas at 21 trillion cubic metres.
Equally important has been last month's decision by the United States to waive punitive sanctions against a French-Russian-Malaysian consortium that is ploughing $2 billion in a development of NIOC's huge South Pars gasfield.
The Iran-Libya Sanctions Act (ILSA), passed by a Republican-dominated Congress in 1996, required the president to impose a range of sanctions against foreign firms that invest more than $20 million a year in Iran's oil and gas industry.
The European Union, which fought hard against ILSA on the grounds that it contravened international trade law, expects the waiver on South Pars to apply to other EU firms doing oil business with Iran.
"Sanctions look creaky...business possibilities in Iran are heating up," said one executive based in the Gulf with a majo international firm.
BP said last month it was opening a representative office in Tehran but would wait for normalised international relations with Iran before resuming business with the Islamic republic.
BP is the largest oil producer in the United States and a major investor and employer there and potentially vulnerable to ILSA.
Other firms are also still closely watching whether ILSA penalties will be imposed on any future deals signed with NIOC.
Elf has eyed a $600 million project to develop the Doroud gas field while Gazprom is committed as a partner in South Pars and has said it is interested in other Iranian projects.
Australia's Broken Hill is studying with NIOC a $2.7 billion project to build a pipeline to supply gas from South Pars to Pakistan ahead of an investment commitment in 1999.
Some foreign oil firms have held on to a presence in the Iranian capital since 1979 but these offices served primarily to keep in daily contact with NIOC to ensure the smooth running on long-term crude supply contracts or oil product imports.
European majors such as Royal Dutch Shell Group together with a host of Japanese and Korean firms such as Idemitsu Kosan Co have long had offices in Iran.
Egypt in oil deal with Canada's Dublin/Tanganyika
CAIRO, June 1 - Egypt signed an oil exploration agreement with Canadian firms Dublin International Petroleum Egypt Ltd and Tanganyika Oil Company Ltd (TYK.V - news) on Monday, the Oil Ministry said.
Under the agreement signed on Sunday, the partnership must spend $13.5 million and drill at least eight exploratory wells in the West Gharib concession area of 2,530 square km (980 square miles) in the Eastern Desert, a ministry statement said.
It said the two companies had not previously operated in Egypt.
The agreement is the seventh of 11 to be signed following October's bidding round for concession areas, an Oil Ministry official said.
MISC
Goldman cuts oil price forecast
LONDON, June 1 - Goldman Sachs said on Monday it had cut its 1998 Brent crude price forecast to $15 and had reduced its earnings forecasts for European oil companies by on average five percent.
In a research note, the investment bank said the 1999 and 2000 estimates for Brent was unchanged at $17 and $18 respectively. Its previous 1998 Brent estimate was $16.
The companies covered in the note included British Petroleum Co (UK & Ireland: BP.L), Elf Aquitaine (ELFP.PA), Repsol SA (REP.MC), Royal Dutch Shell Group (RD.AS) (UK & Ireland: SHEL.L) and Total SA (TOTF.PA).
Earnings estimates for individual companies were also not given.
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