MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING THUR., JUNE 18 1998 (4)
TOP STORIES
Egyptian Gas Discovery Announced
Marathon Petroleum El Manzala Limited and Centurion Energy International Inc. have announced a gas discovery on the onshore El Manzala concession approximately 100 miles north of Cairo, Egypt.
The Abu Monkar No. 1 well flowed at a maximum rate of 21.6 million cubic feet of gas per day through a 56/64-inch choke from an interval between 4,172 feet and 4,208 feet in the Kafr El Sheikh formation. Flowing tubing pressure was 1342 pounds-per-square-inch. The well has been suspended pending further appraisal work.
Under terms of a farmout agreement, Centurion is earning a 40 percent working interest in the 840,000-acre El Manzala concession. Marathon Petroleum El Manzala will retain a 60 percent interest in the concession which was awarded by the Egyptian government in May of 1995.
Richland Petroleum Revived
Richland Petroleum Corporation announced the successful completion of several exploratory wells drilled in the first quarter of 1998, which will lead to increased production levels in the second half of 1998.
At Kingsford, Saskatchewan, an exploration well drilled into the Midale zone (W.Iproduction tested and is now on pump at rates exceeding 150 barrels of light oil per day. This is the third zone successfully completed in this property, which is producing in excess of 450 barrels per day net to Richland.
At Huntoon, Saskatchewan, the Red River well (W.I. 50 percent) placed on production immediately before break-up has now been acidized and is flowing in excess of 500 barrels per day of light oil.
At McLean Creek, in northwestern Alberta, a Granite Wash exploratory success (W.I. 50 percent BPO, 25 percent APO) has been completed and flowed at rates in excess of 500 barrels per day of 46 degree API light oil on test. Production facilities are being installed and preparations are being made to shoot a 3D seismic program. Current interpretations suggest three to four follow-up wells on this structure and the potential for two other structures on Richland 50 percent working interest lands.
At Bienfait, Saskatchewan, the first new horizontal well (W.I. 90 percent) was recently completed in the Midale zone and is currently being production tested.
Mr. Richard A. M. Todd, President and CEO commented ''These completions cap a very successful exploration program for Richland in the first half of 1998. With this new production on stream, we are confident of reaching our forecast average daily production of 4,200 barrels per day for 1997, which represents 20 percent growth over 1997. With several high impact exploration wells to be drilled in the second half, plus our development program from earlier exploration successes, our exit production volumes will reflect a return to exciting growth for Richland.''
Denbury Resources cuts spending due to low oil price
Denbury Resources Inc. said on Friday that it reduced its 1998 development and exploration spending to $60 million due to low oil prices.
This is the second time this year Denbury has cut spending. The first reduction cut capital spending from its initial level of $95 million to $75 million
As a result of these two capital expenditure reductions, the company believes its production should remain relatively close to its current production level of approximately 22,000 barrels of oil equivalent per day for the remainder of the year, Denbury said.
That figure excludes any increases from potential acquisitions or decreases due to unexpected events, Denbury said.
At the company's Heidelberg Field, the net field oil price in the past week has dipped below $8 per barrel and as a result, the horizontal drilling program there has been suspended, the company said.
So far this year, the company has drilled five horizontal Christmas sand wells which are currently on production at an aggregate of 1,000 barrels of oil equivalent per day and a sixth well awaits completion.
A further 14 horizontal wells were originally planned for 1998 and these will now be postponed until oil prices recover, Denbury said.
Denbury said the low oil prices have prompted it to enter into financial contracts to hedge 35 million cubic feet per day of natural gas production for the next twelve months.
The collars have a floor of $1.90 per million British thermal units and a ceiling of $2.96 per million British thermal units, the company said. These contracts cover approximately 85 percent of the company's current natural gas production, Denbury said.
Camberly produces more controversy than oil
The Financial Post
Beset by soured loans, failed projects, theft, resignations and death, few investments rival for pathos Toronto Stock Exchange-listed Camberly Energy Ltd.
Nonetheless, at the annual meeting on June 30 its board will ask shareholders to reward it by repricing at a much lower rate more than one million options for its stock, most belonging to the president and his son.
At least the top Camberly shareholder doesn't have to agonize about how to vote. David Walsh, better known as president of Bre-X Minerals Ltd., died two weeks ago. His company, Walco Holdings Ltd. of Nassau, Bahamas, is listed in the Camberly information circular as holding 1.44 million of its shares.
Walsh and Camberly chief executive Michael Duggan were fast friends from Montreal, where both started their careers as brokers. Duggan traveled to Montreal on Saturday for Walsh's private funeral.
Camberly, founded in 1993 to produce oil and gas from Alberta wells, made money in two years: 1994 and 1995. Since then most news has been bad.
Last year it sold the Alberta wells for $27 million and sunk more than $4 million in a joint oil drilling venture in China's Gobi Desert.
On Dec. 31 Camberly wrote off that entire investment.
"We are going to be filing suit against the Chinese government and the bank [in China]," Duggan said. "They are a bunch of thugs."
He says Chinese county officials demanded US$1 million for a "county development fund" (Camberly eventually paid US$250,000) and US$500,000 was stolen from a Camberly bank account in China.
The company also lost $1.6 million in 1996 on dry holes in Israel, faring no better closer to home.
"We had a promising prospect and ended up drilling a couple of dusters," said Gordon Bowerman, who quit the board in April.
Among other losses: last year the firm wrote off loans of $153,391 to Sirius Energy Corp. Ltd. and $461,314 to Great Gray Resources Ltd. Duggan said he controls both private companies.
He said the Great Gray losses relate to a failed copper mining play in Arizona. As for the soured loan to Sirius, "Sirius was entering into an agreement with PanCanadian [Petroleum Ltd.] on another major acquisition," which did not go through.
Sirius owns 1.2 million Camberly shares, which is more than 10% of the total 8.3 million shares outstanding and so should be disclosed. Asked why Sirius' holdings are omitted from the information circular, Duggan said, "that should have been disclosed and it wasn't."
The Ontario Securities Commission was unavailable for comment.
Meanwhile, the Calgary-based company has been hit by a rash of resignations. The entire board, except for Duggan, resigned in April.
Calgary-based Bowerman said he quit because he has been diagnosed with cancer; a news release also cited "health concerns" in director Frank Agar's resignation. Stanley Hawkins of Toronto said he left because of a conflict of interest: his company, Ayrex Petroleums Inc., was Camberly's partner in China.
Among three new directors is Duggan's son, Richard, who is also the firm's accountant.
President and chief financial officer Gordon Gavel died in 1997, while chief operating officer Dwayne Warkentin called it quits the same year.
Despite all the writedowns, the company is still sitting on about $7.2 million in cash and investments. But with all the troubles, its stock price has tumbled from $2 a year ago to the 50› range. The stock (CEL/TSE) didn't trade yesterday, but closed Wednesday at 57›.
In the past four years the company has granted Michael Duggan 949,442 options in Camberly stock. They include 225,000 options at $1.25, 590,000 at $1.90, 95,000 at $1.35 and 39,442 at $1.50. He holds 184,558 shares.
Richard Duggan holds 75,000 options at $1.25 and 100,000 at $1.90, while three other directors and officers hold 136,667 options at $1.25 to $1.90.
Now the directors want all those options repriced at 50›.
"Options are an incentive and if you've got stock trading at 50› and options at $1.90 then it's not much of an incentive because it's too far out of the money," Michael Duggan said.
He also suggested the options protect Camberly from a takeover bid.
"This company was the subject of three takeover bids in the last two years," he said. "If we take over a property and it's a dandy, then all the piranhas will be swirling around."
Camberly is negotiating to buy long-life, producing oil properties in Ecuador, Venezuela and Argentina, he added.
Big drop seen in Canada oil firm cash flow
Cash flow generated by Canada's biggest 100 publicly traded energy companies this year will fall by 18 percent from 1997 levels if oil and natural gas prices stay in current ranges, an industry report released on Thursday predicted.
The companies' 1998 cash flow will fall to C$10.4 billion in 1998, a drop from C$12.7 billion last year, assuming average prices of US$16 a barrel for West Texas Intermediate oil and C$2 per thousand cubic feet for Canadian gas, the report from accounting firm Price Waterhouse said.
Oil company cash flow is a key indicator of their ability to fund exploration and development projects. Depressed world oil prices have been blamed as a major factor behind the sector's constrained financial returns.
As a result of crude's price slide, energy companies will continue to reduce their budgets for oil drilling and shift operations to natural gas in 1998, Price Waterhouse predicted.
Producers surveyed by Price Waterhouse for the report forecast an average 1998 natural gas price of C$2 per thousand cubic feet, based largely on increased access to United States markets once planned pipeline expansions come into service.
Expansions of the Northern Border Pipeline Co. (NBP) and TransCanada PipeLines Ltd. (TRP.) systems will add more than 1.1 billion cubic feet a day of new capacity in November.
In late 2000, the proposed Canada-Chicago Alliance Pipeline Project was expected to bring another 1.3 billion cubic feet a day of export capacity on stream.
Access to U.S. markets has become increasingly important because gas producers in the Lower 48 states were not expected to find sufficient reserves to replace production in 1998 and beyond, Price Waterhouse analyst Rick Roberge, author of the report, said.
Continued weakness of the Canadian dollar against its U.S. counterpart was also driving strong interest in export markets, Roberge said.
One concern for gas producers, however, was producing enough in Canada to meet the increased demand. He said 4,500-6,000 successful gas wells would have to be drilled in each of 1998 and 1999 to meet estimated export requirements.
Lingering low oil prices were also expected to lead to more merger and acquisition activity within the sector, albeit with fewer billion-dollar deals, Roberge said.
Instead, smaller companies were expected to lead the merger rush due to the combination of the weak commodity and limited access to equity financing, while major firms concentrated on smaller deals.
''In this market, major risks are not prudent,'' Roberge said in a statement. ''This means managing costs, focusing on success with the drill bit and targeting key acquisitions. It will be important to show investors your company is a good bet if there's a flight in the market to quality.''
U.S. reportedly ignores Iraqi oil-smuggling
The United States government is reportedly aware that Iraq is smuggling oil across its northern border into Turkey, in direct violation of United Nations sanctions, the New York Times reported Friday.
Citing Clinton administration and Turkish government officials, the Times said the smuggling has been going on for some years and that they have chosen to look the other way because they are aware it benefits Turkey and the Kurds.
The Kurds in the northern portion of Iraq effectively deny Iraqi President Saddam Hussein control over the area.
The smuggling involves thousands of trucks transporting millions of tons of oil, diesel fuel and other refined products annually, opening traversing roads that U.S. and allied warplanes fly over in northern Iraq, the Times cited officials as saying.
The smuggling is directly benefiting Saddam Hussein's government and family even though Iraq has been under U.N. imposed restrictions on the sale of oil since the Persian Gulf War ended more than eight years ago, the newspaper said.
Independent oil exports told the newspaper Saddam Hussein's son, Uday, is running the smuggling operation.
"The tendency has been to turn a blind eye because the Turks are benefiting from it at a time when the Turks are complaining anyway about sanctions on Iraq," the Times quoted one Clinton administration official as saying. "While Saddam is making money on it, the Turks and Kurds are too."
Kurdish leaders as well as Turkish trucking companies and undoubtedly local Turkish government officials skim off levies on the smuggling, the Times said.
One energy expert in the Turkish government, who spoke to the Times on the condition of anonymity, estimated Iraqi smuggling accounts for about 25 percent of the Turkish fuel market, making a significant concern to international oil companies trying to compete in Turkey.
One Clinton official told the newspaper that with nobody impeding the flow of fuel, between 50,000 to 60,000 barrels of Iraqi oil and fuel products a day are being smuggled across the Turkish border at the Khabour Bridge near the southeastern Turkish town of Silopi.
Clinton administration officials told the Times that the origins of the smuggling date back to 1992 and the aftermath of the Gulf War. They stressed that the smuggling began while the Bush administration was in office, and it also ignored the Turkish smuggling.
Officially the U.N. prohibits all Iraqi oil exports except those that generate money for humanitarian aid in Iraq as well as for Gulf war victims.
In May, U.N. Secretary-General Kofi Annan approved Iraq's plan for distributing food and medicine purchased under this program, paving the way for Iraq to increase the amount of oil it could export under the plan to $5.2 billion from $2 billion worth of oil over six months.
Iraq is also smuggling oil out of the country by water to Iran, Dubai and other spots, the newspaper said. U.S. officials estimate the smuggling, overall, accounts for up to 10 percent of Iraq's export capacity.
The smuggling also benefits the leader of the Kurdistan Democratic Party, Masoud Barzani, once on the U.S. Central Intelligence Agency's payroll, the newspaper said.
Barzani pulled a double-cross and betrayed the United States by inviting the Iraqi army into his territory in August 1996 and effectively crushing a U.S. covert action program that was based on Kurdish support, the Times quoted intelligence officials as saying.
Rival Kurds say the smuggling operation earns Barzani millions of dollars and puts him in a direct business relationship with Uday, the newspaper report said.
Hard times for small North Texas oil producers
Three months ago crude oil prices hit nine-year lows and small North Texas producers thought things could not get any worse. Then things got worse.
As prices fell to 12-year lows this week, small operators said they were losing money and having to think about shutting in wells temporarily or even plugging them for good.
Since last fall the price of a barrel of benchmark West Texas light crude oil has fallen from $20 to around $12.
This has slashed the earnings of major oil companies such as Exxon Corp (XON.N) and Texaco Inc (TX.N) and severely eroded the revenues of major exporting nations such as Saudi Arabia and Venezuela.
The effects on operators of marginal wells, with a daily output of less than 10 barrels of oil, are not as well publicized but they are no less painful for the people involved.
"The price is just so low, it's devastating...We're having to do whatever we can just to get by," said Paul Clark of Clark Operating in Wichita Falls near the Oklahoma border.
Clark said most of his leases in Texas and Oklahoma were just about breaking even or losing money.
Even at the best of times marginal wells, also known as stripper wells, yield only a small profit for their operators.
Alex Mills of the North Texas Oil & Gas Association said that at current prices marginal well operators could no longer cover their costs of about $12-15 a barrel.
"We thought prices had hit bottom in mid-March and then all of this happens," he said.
Mills said small North Texas producers were currently getting some $2.50 per barrel less for their oil than the widely quoted futures price on the New York Mercantile Exchange (NYMEX).
"Our posted price here yesterday was $9, so you're losing $3 a day if you continue to produce," he said.
Clark, whose company employs nine people, has tried to buy time by shutting in 20 of his 153 wells, ceasing production temporarily in the hope that oil prices might recover.
But wells can be damaged if they remain shut in too long and at some point a decision might have to be made to plug them with concrete, effectively taking them out of production forever.
Clark said he was worried about the long-term supply and demand outlook for oil and was considering diversifying into the real estate business or even returning to the legal profession.
Mark Metzler at Felderhoff Drilling in Gainesville said the sharp drop in prices had wiped out the profit margin a typical stripper well might previously have generated.
"It's probably safe to say that across North Texas 50 percent of the stripper wells are operating at a loss," he said.
Metzler said his company, which has 40 employees, had not yet shut in any wells but that a decision to do so could come any day now and that some wells might never produce again.
"A business can only run unprofitably for a limited period of time and at some point it makes more sense to plug the wells and sell the equipment," he said.
Metzler said the regulatory authority, the Texas Railroad Commission, required wells to be plugged for environmental reasons if they had been out of production for a year.
"We don't have the option of letting the reserves sit there indefinitely, waiting for higher prices two to three years down the road," he said.
Marginal wells produced 352 million barrels of oil in 1996 or 15 percent of all the oil produced in the United States, excluding Alaska. More recent figures are not yet available.
Among individual states Texas led marginal well production with 117 million barrels, followed by Oklahoma with 59 million.
Mills said there was some resentment in North Texas of NYMEX dealers trading "paper barrels" of oil.
"Out here in the oil patch we struggle daily to find, produce and sell a barrel of oil and the price that we get for our actual wet barrels is dictated by what's happening in New York City on the Mercantile Exchange," he said.
Schlumberger to buy Camco in $3.1 billion deal
Schlumberger Ltd., a leading oilfield services company, said Friday it agreed to buy one of its smaller rivals, Camco International Inc., in a stock swap worth about $3.1 billion.
The combined market capitalization of the two companies totals $37 billion, the companies said in a statement. Consolidated sales and net income would have been $11.6 billion and $1.4 billion, respectively, in 1997.
Camco, based in Houston, will be operated as a division of Schlumberger's oilfield services group, the companies said. Schlumberger, based in New York, said it expects savings of $30 million from the deal.
Under the definitive agreement, Camco shareholders will receive 1.18 Schlumberger shares for each Camco share. Camco stock, which was halted Friday on the New York Stock Exchange, closed at $62.25 Thursday. Schlumberger stock was down 87.5 cents at $69.06 in morning trading Friday on the NYSE.
The deal is expected to add to earnings in 1999, the first full year of combined operations, the companies said in a joint statement.
The transaction is meant to be tax-free to Camco shareholders, they said. The deal is subject to Camco shareholder approval and is expected to close around the end of the third quarter.
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