MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING WED., JUNE 17 1998 (4)
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It's official - Amoco struck oil
St John's Evening Telegram
The Amoco Canada Petroleum Co. has been granted a significant discovery declaration for the West Bonne Bay property it drilled on the Grand Banks last year and is planning to return for a second well in 1999.
But the Jeanne d'Arc Basin's newest oilfield is smaller than Amoco had hoped.
"What I can tell you is our West Bonne Bay exploration drilling program did confirm the presence of an oil-bearing reservoir, and through the test phase the well did flow hydrocarbons to surface at significant rates," Amoco vice president, government affairs Rich Smith said in an interview from Calgary Wednesday.
"While the size of the reservoir was smaller than what we were hoping for, the results have sufficient value to prompt us to discuss with potential investment partners plans to pursue and additional prospect," he added.
That prospect is a second exploration well next year, Smith said. The Calgary-based subsidiary of the U.S. oil giant hopes to have partners in place by the end of this year.
Amoco's significant discovery is the 22nd in the history of the Newfoundland offshore,
Canada-Newfoundland Offshore Petroleum Board manager of lands Angus Taylor said Wednesday, and the first in a number of years.
The CNOPB defines a significant discovery as an accumulation of oil or gas with "potential for sustained production." Once a company is granted the discovery declaration, it can hold that portion of the property virtually for ever.
Amoco did not contest the board's decision on the size of the area approved in the significant discovery declaration, Taylor said.
Smith would not estimate the size of the West Bonne Bay reservoir and the CNOPB is prohibited from releasing any well information until January, 2000.
In June 1997, at the Newfoundland Ocean Industries Association annual conference in St. John's, Amoco Canada's chairman and president at the time Bob Erikson said the Bonne Bay property could prove to be a 300 million barrel discovery.
It is now obvious it is smaller than that.
But the fact there is any oil at all is the first bit of good news for Amoco on the Grand Banks.
Amoco drilled 33 dry holes on the Grand Banks in the 1960s and 1970s before successfully bidding on the West Bonne Bay property in 1996.
The company won its exploration license by committing to spend $90.3 million there, and though drilling began on schedule June 30, 1997, Amoco is believed to have spent double its commitment after experiencing down-hole problems and weather delays.
The original 4,400-metre drill program was scheduled for 70-90 days but the Bill Shoemaker rig did not pull up until more than 200 days later, on Jan. 25, 1998.
Smith said it is too soon to provide details on next exploration well.
Amoco's current partners at West Bonne Bay are Petro-Canada and Norsk Hydro.
Amoco to drill second Canada east coast well
An oil exploration play off Canada's east coast operated by Amoco Corp.'s Canadian unit contains smaller reserves than the company had hoped, but enough oil exists to warrant a second well, an Amoco Canada spokesman said on Wednesday.
The Canada-Newfoundland Offshore Petroleum Board said on Wednesday it designated Amoco Canada Petroleum Co. Ltd.'s West Bonne Bay prospect a "Significant Discovery Area""based on test results from the first exploration well, which confirmed an oil reservoir capable of production.
The designation allows the company to pursue the prospect further.
Reserves at West Bonne Bay, located 40 km (25 miles) southeast of the Hibernia field in the Jeanne d'Arc Basin off the Newfoundland coast, were estimated last year as high as 300 million barrels.
"They weren't at the 300 million barrel size as we had hoped, but they were still positive enough for us to pursue investment partners on an additional prospect," Amoco Canada spokesman Rich Smith said.
Smith declined to reveal oil production rates achieved during testing or current reserve estimates.
Amoco, along with partners Petro-Canada and Norsk Hydro , tested the exploration well following the release of the Sedco Forex Bill Shoemaker rig in January after five months of drilling.
The well had experienced delays as a result of drilling problems deep in the wellbore.
Smith said Amoco Canada had begun discussions with potential partners for the drilling of the second well, likely to begin sometime in 1999.
Petro-Canada and Norsk Hydro, which each had 10 percent stakes in the first well, were involved in discussions, as were other companies, he said.
Fracmaster price bodes ill for receipt holders
Fracmaster Ltd.'s stock price weakness could continue throughout the summer, spelling trouble for holders of its instalment receipts, which must be paid in September, analysts said.
"I can't see (the share price) coming back before those receipts come out in September," Janet Spensley, analyst with FirstEnergy Capital Corp., said on Wednesday.
The Calgary-based oil service company's 28.9 million instalment receipts were suspended from trade by the Toronto Stock Exchange on Monday after the price of its common shares fell below the payment value of the receipts.
The instruments then had a negative value. They are now traded on the Canada Dealing Network.
The receipts represent the second payment to former Fracmaster chairman Alfred Baum for the C$550 million sale of his 67.5 percent stake in the company last year.
Payment is due on or before September 9 at a cost of C$9.75 per receipt, regardless of the price of the company's shares at the time.
Fracmaster shares were trading up 0.30 to 9.80 on Wednesday.
The TSE's suspension of Fracmaster receipts was the second time in three weeks the exchange stopped trade in instalment receipts. It suspended trade in the receipts of Canadian-Swedish mining firm Boliden Ltd. in late May when its stock price fell below the receipt price.
Analysts said Fracmaster's stock price slide, which began in April, intensified two weeks ago when the company cut its 1998 earnings projection by 30 percent, blaming turmoil in Russian oil and currency markets.
As a major portion of its business, Fracmaster takes oil in return for well stimulation services in Russian joint ventures. It also performs a growing number of fee-for-service oil well operations in Russia. Russian joint ventures accounted for 61 percent of Fracmaster's revenue last year.
Russian turmoil was weighing heavily on investor confidence in Fracmaster and recent cuts in earnings projections could continue to haunt the company even after an economic or oil price recovery, Spensley said.
"Their multiple is going to suffer as a result of this," she said.
Said another oil service analyst, who asked not to be named: "When you lose investor confidence, it takes a lot to get it back. Even if the oil price climbs back up there and all the fundamentals kick back in, Fracmaster will be one of the last to rally."
The stock has lost 60 percent of its value since hitting a recent high of 24.50 on April 13.
Terra Nova offshore work boosts firm's earnings
St John's Evening Telegram
The Canadian engineering and construction firm Agra Inc. reported earnings of $3.65 million in its latest quarter, thanks in large part to its work on the Terra Nova project.
Agra, through its subsidiary Agra Monenco and joint venture partner Brown and Root Energy Services Ltd., is the project manager for engineering work on the Terra Nova offshore project.
The 1998 third-quarter results are the company's best in five years, said Agra's vice-president for corporate affairs, David Paterson. The period ending April 30 is usually the slowest of the year, he said.
Last year Agra reported a third-quarter loss of $1.5 million and a total loss of $2.1 million in its year of disappointment.
But the company is building momentum in 1998, Paterson said.
"Part of the good reason we're seeing better results this year is we're starting to see increased volumes of work in Newfoundland and Labrador," he said. "Where we had 120 employees in Newfoundland, now we're coming close to 400, that is partly the result of buying BFL, which brought us up to 200."
Agra Shawmont - a Terra Nova Alliance partner - bought BFL consultants last year and formed the company Agra Monenco, billing itself as the largest local engineering firm in Atlantic Canada.
Terra Nova is still bringing engineers to Newfoundland from Leatherhead, England, where Brown and Root offices are located and where much of Terra Nova's ship-shaped hull, modules and drill rigs were designed and engineered.
"We're ramping up to 400. We will be at 400 next year," Paterson said.
The Petro-Canada-led Terra Nova consortium was required under Canada-Newfoundland Offshore
Petroleum Board regulations to locate the engineering team here "as soon as practicable," after the Feb. 17 project sanction.
Calgary-based Agra has 3,000 employees in offices across Canada and 5,000 employees worldwide.
Services key to IPEC pacts worth $76M
The Financial Post
IPEC Ltd. said yesterday it is snapping up seven energy service firms in Alberta and British Columbia for $76 million in cash and stock to expand its services and geographic reach.
The Calgary-based company will pay $39.9 million in cash and issue 12.1 million common shares at $2.99 apiece. Up to $15 million in additional shares, also priced at $2.99, could be issued if two of the target firms hit preset earnings levels after the acquisitions.
President and chief operating officer Doug Cutts said this portion of the deal was structured to bridge a gap between what the sellers wanted and what his firm was willing to pay.
"If they achieve certain levels of earnings going forward, they will receive the earnout and everyone wins."
The private companies are active in small-diameter pipeline construction, plant installation and oilfield maintenance and construction.
Cutts said his firm has been working hard on the purchase for the past 10 weeks. IPEC can now offer integrated services -- from completing a well to connecting it to major transmission lines.
He said the company, which will employ about 1,000 people once the latest deal closes, is oriented toward natural gas and is somewhat insulated from the downturn in the oil market caused by low prices.
Including existing and newly acquired operations, IPEC's annualized pro forma financial forecast for 1998 is revenue of $185 million and net earnings of $12.3 million (26c a fully diluted share).
Known as Locksley Capital Partners Inc. until a name change last March, IPEC's strategy is to buy and consolidate energy service businesses.
Cutts said his firm intends to spend at least the next year integrating people, systems and equipment. It has also applied for a listing on the Toronto Stock Exchange.
IPEC shares (IPE/ASE) closed yesterday at $3.05, down 5c.
Syncrude partners okay new oil sands mine
Syncrude Canada Ltd., the world's biggest synthetic crude oil producer, said on Wednesday its owners had approved spending of C$900 million to develop a new oil sands mine to feed its northern Alberta extraction and upgrading plants.
Syncrude said the new Aurora oil sands mine would start up in 2000, increasing annual production to 94 million barrels from the current 80 million.
The Aurora mine development is part of a C$6 billion expansion of Syncrude expected to boost production capacity for the light, sweet crude to 155 million barrels a year by 2007.
The ''Syncrude 21'' plans also include expansions to the upgrading operation, which takes bitumen -- or extra-heavy oil -- from the extraction plant and processes it into light synthetic crude.
The expansion and introduction of new technology was expected to lower operating costs for the sprawling project to C$9-C$10 a barrel in nine years from the current C$14.
Syncrude said the Aurora mine would employ truck-and-shovel mining techniques and a new low-energy extraction process that will operate at temperatures well below the current 80 degrees Celsius (176 degrees
Fahrenheit)
The Syncrude Canada Ltd. operation, located north of Fort McMurray, Alberta, is the biggest of Canada's two major oil sands mining and synthetic crude oil ventures.
Its partners include Imperial Oil Ltd. (IMO.TO), Petro-Canada (PCA.TO), Gulf Canada Resources Ltd. (GOU.TO), Athabasca Oil Sands Investments Inc. (AOS_u.TO), Canadian Oil Sands Investments Inc. (CO_u.TO), Alberta Energy Co. Ltd. (AEC.TO), Canadian Occidental Petroleum Ltd. (CXY.TO), Mitsubishi Oil Co. Ltd. (5004.T) unit Mocal Energy Ltd. and Murphy Oil. Corp. (MUR).
1997 Sees Lower Growth in Energy Demand
The steady increase in world energy consumption slowed during 1997 with demand outside the Former Soviet Union (FSU) increasing by only 1.6 percent, half the rate of growth of the previous three years.
Rapid growth in the Emerging Market Economies (EMEs), excluding the FSU, contrasted strongly with very slow growth in the OECD and a fall in Europe, according to the 1998 BP Statistical Review of World Energy published today.
Once consumption in the FSU -- which continued its long decline and is now barely 60 percent of its peak level in 1990 -- is included, world demand grew by 1 percent with hydro and oil being the fastest growing fuels while gas and nuclear use decreased.
The largest rise in consumption was in Ireland, up by 9.8 percent, but rapid growth was also recorded in Brazil, Iceland, Indonesia, Spain and Taiwan. India increased its consumption by 6.1 percent to become the world's sixth largest energy market, ahead of France, Canada and the UK.
World oil consumption grew by 2.1 percent in 1997 to 71.7 million barrels a day (b/d), slightly slower than in 1996. Asia, excluding Japan, saw the fastest growth, up by 5.1 percent, followed by South and Central America which grew by 4.1 percent. Consumption in the USA and Europe increased by only 1 percent despite accelerating economic growth, while consumption in Japan fell by 1.3 percent. Much of this was attributable to weather patterns, with a milder than normal winter in the northern hemisphere.
World oil production grew by 3.1 percent, the fastest rate of growth since 1988. OPEC members increased their production by 5.4 percent, with the largest increases in incremental volume coming from Iraq -- up 94.3 percent as exports resumed under UN resolution 986 -- Saudi Arabia, Venezuela and Nigeria. As a result, OPEC members' share of total world production rose to 41.5 percent, its highest level in more than a decade.
Growth in non-OPEC production, excluding the FSU, slowed to 1.4 percent. The UK saw a 1.6 percent decline in production -- largely due to maintenance scheduling and some project delays -- and USA output fell by 0.9 percent. This was offset by an increase of 4.4 percent in Mexican production. Output from the Russian Federation grew by 1.6 percent, reversing the unbroken falls in production of the last decade. Increasing production in Kazakhstan and Uzbekistan contributed to a rise in total FSU production of 2.2 percent.
Oil prices weakened during the year, with significant falls in both the first and the fourth quarters. The annual average Brent price was 7.3 percent down on 1996.
World gas consumption fell by 0.2 percent, the first annual decline since 1975, with consumption in the OECD area generally weak as a result of an unusually mild winter.
World gas production also fell by 0.2 percent as growth outside Europe failed to compensate for sharp falls in production in the Russian Federation (down 5.4 percent) and the Netherlands (down 11.5 percent). Production in Europe as a whole was hit by weather-related factors and fell by 1 per cent, with only the UK, Norway and Denmark increasing as a result of new fields coming on stream.
Demand for coal increased by only 0.8 percent after two years of strong growth with consumption in Europe dropping by 4.1 percent. China and the USA continued to dominate the market, consuming more than 50 percent of total demand.
Consumption of nuclear energy fell by 0.6 percent, mainly the result of a fall of 7.2 percent in the USA and Canada, while hydroelectricity was the fastest growing fuel, with consumption rising 2.5 percent despite a fall of 1.6 percent in Canada, the world's largest single consumer.
Flat Asia 98 oil demand to have dramatic effect
Zero growth in Asian oil demand is likely to have a dramatic effect on world oil markets this year, British Petroleum CO's chief economist said on Wednesday.
Peter Davies, presenting the company's 1997 statistical review on world energy, said he did not expect any Asian oil demand growth in 1998.
''If you look at Asian oil demand growth, it is zero percent this year,'' Davies said. ''A zero number looks like a good number.''
In his report, Davies said Asian emerging market demand grew by 700,000 barrels per day (bpd) in 1997, a fall of 75,000 bpd from the growth in 1996.
With 46 percent of world oil demand growth outside the Former Soviet Union accounted for by Asian emerging markets over the past 10 years, the slowdown in Asia ''has a major impact on oil markets,'' he said
''This effect is likely to be dramatic in 1998,'' he said, without giving details.
The Paris-based International Energy Agency, partly blaming Asia's financial crisis, revised down its estimate for world demand to 75 million bpd, cutting its projection of demand growth this year by 300,000 bpd to 1.2 million.
It anticipated Asian demand this year to run 750,000 bpd lower than when first forecast and adjusted downwards the growth rate for the region of 4.8 percent to 0.8 percent.
Davies outlined consumption and production figures for 1997, which combined with the weather phenomenon El Nino, spelled out some of the difficulties ahead.
World energy consumption growth, outside the FSU, grew by only 1.6 percent in 1997 despite growth in world economies by an above trend of 3.1 percent, he said.
Abnormally warmer weather in 1997 sweeping the United States, Japan and Europe -- the world's largest energy consuming areas -- helped depress consumption which led to oversupplied energy markets and weaker energy prices.
The weather combined with Iraq's return to the export market and OPEC's decision to raise production quotas were key factors in oil prices falling from almost $24 per barrel at the start of 1997 to $16 at the end, with the effects spilling into 1998.
''First of all, it is apparent that in both 1996 and 1997, the fundamental imbalance between supply and demand has been getting worse,'' Davies said.
Supply growth in 1997 far outstripped demand growth. Demand grew by 1.8 million bpd over 1996 but supply grew by 2.3 million bpd, a difference of 500,000 bpd.
Davies said the oil supply pattern in 1997 shifted with around three quarters of incremental oil production outside the FSU coming from OPEC and a quarter from non-OPEC, Davies said.
OPEC production, coming mainly from the resumption of growing Iraqi exports, grew by 1.6 million bpd in 1997, an increase of 5.4 percent over 1996 levels.
Mexico and Canada were the fastest growing non-OPEC countries in 1997. UK production overall fell by 35,000 bpd because of project delays and maturity of existing large fields.
Oil firms scramble to hire skilled workers
Oil companies that laid off thousands of employees a decade ago are now fighting each other tooth and nail to attract skilled workers in short supply.
Exploration and production companies, oil field service firms and drillers all are finding it tough to hire key people.
Despite recent oil price weakness, industry executives say activity remains at a high level, driven by the growth of offshore exploration and international expansion.
Pete Kappler of services firm Halliburton Co. said that until a few years ago his company had been able to recruit quite easily among people who lost jobs with exploration and production firms in the 1980s.
"There's a virtual feeding frenzy going on," said Kappler, who is responsible for professional staffing at Halliburton.
Now everyone is chasing the same people and the supply of workers with the right skills and experience is drying up.
The bust in the late 1980s led to a decline in college applications for oil-related courses such as petroleum engineering or geophysics and now there is a shortage of specialists in these areas with seven to 12 years of experience, Kappler said.
"Competition for those people is furious and their salaries have pretty much skyrocketed in the last few years," he said.
The market for geoscientists and drilling engineers with seven to 10 years' experience was very tight, said Dan Schaeffer, vice-president of human resources at exploration and production firm firm Apache Corp.
"Some of our search firms tell us they can't find the people that we need," he said.
Schaeffer said Apache was now offering its staff a $2,000 bonus if they were able to refer new employees to the company, a method that has led to 35 people joining so far in 1998.
"That's been our best source of talent in the last year," he said.
The strong U.S. economy also meant that Apache was having to work hard to hire and retain non-petroleum specialists in fields such as accounting, computers and human resources.
"The market in Houston and countrywide is extremely tight," he said.
Charles Ofner, vice president of business development at offshore driller R&B Falcon Corp., said his firm had decided not to try poaching rig crews away from competitors.
"From an industry standpoint that's a zero-sum game and really doesn't help the overall situation," he said.
Already the world's biggest offshore driller with a fleet of 115 rigs, R&B Falcon has nine new deepwater rigs on order and needs to hire 1,500 people to crew them by the end of 1999.
Ofner said the company had stepped up its own internal training efforts and had been successful in recruiting workers from other sectors with transferable skills.
Staff turnover among rig crews is typically highest among new entrants to the industry and R&B Falcon hopes a recently inaugurated training rig will help to reduce this.
Ofner said the facility will enable new recruits to find out quickly if they can adapt to living and working in the confined conditions of an offshore rig.
The military proved to be a good source of recruiting people to operate the increasing amount of electronic equipment found on the latest rigs, he said, while people with drilling experience on land were easily able to switch to offshore.
Ofner said the oil and gas industry had overcome its past image problems and was again seen as a good place to work.
"Despite a little bit of softness in the industry right now, it has had such a dramatic recovery relative to the extreme downturn in the 1980s and once again it is offering a very attractive, stable work environment," he said.
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