MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JUNE 22, 1998 (8)
Slowdown Feared In Once-Booming Oilpatch
Alaska Highway News
The once booming oilpatch in northeastern B.C. is slowing down. The June sale of oil and gas rights brought $5.1 million in revenue to the province, a drop of about 76 per cent from the $21 million that went into provincial coffers during the same period a year ago.
Last month, oil and gas rights sales plummeted 72 per cent as just $7.7 million in revenue went to the province.
In May 1997 the province garnered $26.7 million from the sale of oil and gas sales.
Sales in April dropped 77 per cent.
So far this year, the province has netted $58.3 million from sales of oil and gas rights, compared to $237 million after six months in 1997.
Energy and Mines Minister Dan Miller said in a news release that "revenues from the oil and gas sector are important to the B.C. economy. "We are continuing to work on initiatives to enhance conditions for more investment and job creation in this sector."
The June sale offered six drilling licences, all of which were sold, covering13,003 hectares.
The top price of $529 a hectare was paid for a 2,903-hectare parcel 45 kilometres southwest of Fort St. John. The total bid was $1.54 million.
In June 1997 24 licences were sold, covering 55,624 hectares.
Twenty-eight of 35 drilling leases were sold in June, covering 7,582 hectares. That compares with 50 leases that covered 13,101 hectares in June of 1997.
No Apportionment Set For July On IPL Pipelines
IPL Energy Inc. unit Interprovincial Pipe Line Inc. said on Monday that capacity would not need to be rationed for July on any of its crude oil, gas liquids and petroleum products pipelines to the U.S. Midwest from Canada.
The zero apportionment levels meant IPL's shippers did not nominate more volume than the pipelines could transport. It was the first time that had happened since last August.
Last month, Line 3, which carries mostly heavy crude to Superior, Wisc. from Edmonton Alberta, was apportioned at 14 percent, while Lines 2 and 13, which carry mostly light crudes, were apportioned at five percent.
Apportionment is the volume of IPL expects to move on its system in the coming month subtracted from shipper nominations.
Line 1, which tranports natural gas liquids and petroleum products, has not required any rationing of space for several months.
Finances Spark TSE Review Of Camberly's Listing
The Financial Post
The Toronto Stock Exchange is reviewing the listing eligibility of troubled Camberly Energy Ltd.
The exchange said in a one-paragraph statement yesterday the review is being conducted "based on the company's financial condition."
"In this case, the review gives the company a chance to speak to the exchange," TSE spokesman Steve Kee said yesterday.
"However, it would be unfair for me to comment on the review until it is completed."
The TSE refused to elaborate.
The announcement follows a report in The Financial Post last week Camberly's board will ask shareholders to reward management by repricing at a much lower rate more than one million options for its stock, most belonging to the president and his son
The request comes even though the Calgary-based company has been beset by soured loans, failed projects, theft, resignations and death.
Even the company's stock has taken a tumble, with shares (CEL/TSE) closing yesterday at 50›, down 1›. A year ago, the stock was at $2.
Chief executive Michael Duggan yesterday refused several interview requests.
The company, founded in 1993 to produce oil and gas from Alberta wells, made money in 1994 and 1995. Since then, most news has been bad.
Camberly lost $1.6 million in 1996 on dry holes in Israel and last year wrote off loans of $153,391 to Sirius Energy Corp. Ltd. and $461,314 to Great Gray Resources Ltd.
Sirius owns 1.2 million Camberly shares, more than 10% of the 8.3 million shares outstanding.
The Ontario Securities Commission was not available for comment.
Despite all the writedowns, the company is sitting on about $7.2 million in cash and investments.
PetroCan, Ultramar Abandon Alliance
The Financial Post
Petro-Canada and Ultramar Diamond Shamrock Corp. said yesterday they have called off plans for an $8.5-billion joint venture after Canada's competition watchdog concluded it would have substantially reduced competition and raised prices for gasoline retailers.
"We are not in the habit of blocking mergers," said Konrad von Finkenstein, director of the Competition Bureau. "We are in the habit of trying to deal with the anti-competitive aspects."
But efforts to reduce the deal's anti-competitive aspects, such as selling assets in Quebec and Atlantic Canada, were unsuccessful, he said.
"In light of the serious concerns raised by the Competition Bureau, it was apparent that the review process was going to be lengthy and expensive, with an uncertain outcome," PetroCan president and chief executive Jim Stanford and Ultramar chairman and CEO Roger Hemminghaus said in a joint statement yesterday after the markets had closed. "We believe that this potentially damaging delay does not serve the interests of our shareholders, our customers or our employees. Therefore, we are concluding the process at this time."
Announced in January, the joint venture would have created "a refining and marketing powerhouse," as Stanford recently put it, by combining the two companies' refining and marketing assets in Canada, Michigan and several New England states.
The joint venture would have had five refineries with a daily capacity of 500,000 barrels of crude oil, 3,500 retail outlets and provided heating oil to more than 300,000 customers, and combined revenue of $8.5 billion in the first year.
The bureau undertook a five-month review involving discussions with consumers, competitors and industry experts. Earlier this month, it publicly expressed concerns about the deal.
There have been only 16 abandoned transactions out of thousands reviewed by the bureau since 1987.
Rob Andras, a spokesman for PetroCan, said the partners were worried about being involved in a protracted and controversial review that could have lasted well into 1999.
"We clearly didn't, and do not, agree with all the views that the bureau holds," he said. PetroCan will continue to look for a deal of a "strategic size" to enhance its refining and marketing operations, but is not unhappy with its business at present. Its downstream operations, which were recently restructured, had record profit last year.
Andras said the bureau's stringent assessment means it will be more difficult for the industry to line up similar deals.
The decision will have a positive short term impact on PetroCan's 1998 earnings because it was planning a $150-million writeoff to cover deal-related costs like workers' severance payments.
"Ultimately, it would have been a contributor," said Nick Majendie, an analyst with C.M. Oliver & Co. in Vancouver. "It will be tough to find a similar type deal."
Nisku Firm 58th In List Of Fastest Growing 100 Companies
Edmonton Sun
Doug Ruel and Lorne Hutzul were excited about becoming independent businessmen when they quit their hourly jobs and founded Triple Arc Welding in 1981.
They were less excited a few months later when oil prices went into the dumper and Nisku became a ghost town.
"You couldn't get a welding job around here," complains Hutzul, who occasionally passed time hitting golf balls around the shop floor.
"The highlight of our day was hearing the phone ring." When they got tired of standing around the phone, Ruel and Hutzul decided to expand.
"The only thing anyone was doing was cosmetic, like painting rigs, so we got into sandblasting and painting and that kept us going until things started up again," says Ruel.
Future Bright Ever Since
The future's been bright for Ruel and Hutzul ever since.
Last month their company, whose 38 employees paint, sandblast and fabricate everything from storage and accommodation buildings to mud tanks and catwalks, was named number 58 in Profit magazine's list of Canada's 100 fastest-growing companies.
With $7.2 million in revenue in 1997, Triple Arc was dubbed a jack of all trades by the magazine.
One of the things that has made Triple Arc recession-proof is Ruel and Hutzul's refusal to borrow money unless they absolutely have to.
"We started from nothing. We rented a shop and went out with a pickup and a portable welder," says Ruel. "Anything we bought, we paid for and that helped get us through the slow times in '82 and '83."
The company's big break came in 1983, when Ruel and Hutzul went to Lloydminster to do welding and rig repairs for Sedco Drilling.
"Doug and I went to Lloydminster and did the job for a month, working seven days a week, 12 hours a day," says Hutzul.
"We had to take the job. When the customer says they need you, you go. I did take three days off to come home, but that's because my wife was giving birth to our son Jonathan."
Ruel and Hutzul consider themselves fortunate that Sedco (which has since been bought by Precision Drilling Corp.) continues to be one of Triple Arc's best customers.
"Before we went out on our own, guys at Sedco said 'You're not happy - strike out on your own and we'll give you work,' " says Ruel. "Rick Rota was the field superintendent there and he had a lot of faith in us."
Triple Arc took a step into the big leagues 12 years ago when Ruel and Hutzul spent $375,000 and moved from their old 450-square-metre shop into accommodations that were three times as big.
"We were losing work because our place was too small," say Ruel. "There was room in the yard for me and Lorne to park our vehicles and that's about it.
"There was no room for trucks to turn around and the truckers were complaining and shunning us."
Profit 100 Hot Property
The new space helped Triple Arc become a hot property.
Last year Ruel and Hutzul watched their company swell to 85 employees after they landed contracts to build 17 drilling rigs worth $700,000 each over 19 months.
Low oil prices have slowed things down in Nisku somewhat over the last while, but the two men aren't worried. In fact, they're thinking about selling out and moving on in a year or two.
"The oilpatch is hard on people," says Ruel. "We dedicated our lives to this business and we both had periods where we didn't spend the time with our families we wanted to.
"I'm going gray and Lorne's going bald."
Ruel and Hutzul hope a couple of Triple Arc employees will step up and take over the company.
Until then, they plan to enjoy life.
"I'm really grateful to our customers and our employees because they've made this all possible," says Ruel, who is decked out in shorts for a noon tee-off against Hutzul.
"I like having employees. Now we can go golfing in the afternoon and let someone else take care of things!"
Gas into Oil May Revolutionise Energy Industry
Recent advances in converting natural gas into clean, environmentally friendly oil products could trigger revolutionary changes in the world energy industry.
Some experts compare the impact of ''gas to liquids'' (GTL) technology to that of liquefied natural gas (LNG) which has helped to power the economies of energy-poor countries such as Japan and South Korea.
''GTL will revolutionise the gas industry the way the first LNG plant did about 40 years ago,'' says Tim Partridge, director of a study published by industry consultants Arthur D. Little.
''We expect to see a one- to two-million barrels per day GTL industry evolving over the next 15-20 years to the tune of $25-50 billion of investment.''
Synthetic fuels produced through GTL technology have a zero sulphur content, which makes them potentially attractive at a time when governments all over the world are aiming to reduce air pollution.
Among the most bullish proponents of gas to liquids is Syntroleum Corp, a small Tulsa, Oklahoma-based company which says that ''no technology in the last 50 years will affect as many segments of the petroleum industry as GTL will.''
''Economic GTL is tantamount to the discovery of several hundred billion barrels of new oil,'' Syntroleum president Mark Agee told a conference earlier this year.
Agee recognises that cost is the key to making GTL commercial and says capital costs must be below $30,000 per barrel of daily capacity for the technology to take off.
This compares with $30,000 to $45,000 per barrel of oil equivalent per day for a liquefied natural gas plant, experts say.
Agee says Syntroleum expects to break the economic barrier by 2000, when it plans to open a commercial 2,500 barrels per day (bpd) GTL plant in the Caribbean under an agreement with Texaco Inc and Brown & Root.
''The ultimate goal is to lower capital costs to $12,000 to $14,000 per barrel of daily capacity, roughly the same cost as a conventional world scale refinery,'' he says.
South African Country Is Leading Contender
Another leading contender in the GTL stakes is South Africa's Sasol Ltd, which has experience producing oil from coal from when the country was under international sanctions during the apartheid era.
Sasol plans to build gas to liquids plants in Nigeria and Qatar, and also formed an alliance with Norwegian state firm Statoil last year on developing GTL technology in the North Sea.
Sasol reached an agreement in April with Chevron Corp to build a 20,000 bpd gas to liquids plant at Escravos in Nigeria that will produce environmentally friendly naphtha and diesel.
Sasol also signed a memorandum of understanding last year with Qatar General Petroleum Corp and Phillips Petroleum Co on building a plant at the giant Ras Laffan gas field that will produce 20,000 barrels of oil per day.
Sasol spokesman Alfonso Niemand said a feasibility study on the Qatar plant should be completed by the end of June and that production could begin a year later.
He said there was ''a possibility of further expansion'' of the Qatar plant to 30,000 bpd and that one of the great attractions of the technology was plants could be expanded in a series of modules.
''You can start at 10,000 bpd and add on to 20,000, 30,000, 40,000 bpd. The capacity is almost endless. It's a very flexible technology that caters for the needs of the particular client,'' said Niemand.
Terje Halmo, vice-president, industrial development, gas at Statoil, said GTL was ''a very interesting complementary activity which needs cost reductions.''
It could make use of gas which would otherwise be wasted by being flared or pumped back underground, he said, but added: ''We are not yet at the point where we will start building (a GTL plant).''
Gas To Liquids goes Back To The 1920's
Although producing oil from gas may be on the verge of a breakthrough, it is not essentially new technology.
The advances are all based on Fischer-Tropsch technology invented by two German scientists in the 1920s.
The natural gas is either reacted with steam or partially oxidised and then in the Fischer-Tropsch reaction itself the ''synthesis gas'' is converted to liquids in the presence of a catalyst.
Recent advances include new, improved catalysts, while Syntroleum has developed a version which eliminates the need for an air separation plant and which could lead to smaller plants, perhaps mounted on a ship or barge.
Syntroleum says the small scale of its plants makes its technology more versatile, since such a plant could be moved from one gas field to another as the first field runs dry.
It says that while the technology developed by Shell and Exxon Corp relies on economies of scale, assuming a plant size of 50,000 bpd or more, Syntroleum's plants will be economical at 2,000 bpd or less.
Syntroleum says this is a great advantage because only two percent of the world's known gas fields have reserves large enough to support a 50,000 bpd plant, while at 2,000 bpd more than half of the fields containing 95 percent of the reserves become potential targets.
But this claim is controversial and the Arthur D. Little study concluded that economies of scale are crucial.
''Scale, location, and gas price are the keys to success,'' says Partridge.
Oil majors like Shell and Exxon tend to agree. Exxon says a gas to liquids plant needs to produce 50,000 to 100,000 bpd to be efficient and that it is in continuing talks with Qatar General Petroleum on building a large GTL facility which could be in addition to Sasol's project.
But spokesman Ed Burwell said Exxon's gas to liquids technology was ''potentially applicable in a number of countries'' and declined to give details of the talks with the Qataris.
Shell is also considering building a plant of about 50,000 bpd.
Jack Jacometti, who focuses on GTL at Shell, said economies of scale were likely to be one of the keys to making gas to liquids take off, partly because of the great complexity of such plants, which he described as ''an order of magnitude more intensive than LNG.''
Shell was not disheartened by an explosion which destroyed its pioneering GTL plant in Bintulu, Malaysia, last December and hoped to rebuild the facility after obtaining the agreement of its joint venture partners, he said.
The 12,500 bpd Bintulu plant produced specialist chemicals and waxes as well as gas oil, kerosene and naphtha.
But the market for specialist chemicals and waxes is limited. Jacometti and colleagues told a conference in 1996 that in future such projects ''will be based on transportation fuels only.''
Economics Uncertain But GTL Cannot Be Ignored
Although gas to liquids technology has gained a new lease on life in the last few years, the economics remain uncertain.
Edinburgh-based energy consultants Wood Mackenzie said last year there was little evidence of a technological breakthrough, but added: ''If costs really have come down as is claimed, the implications for world energy cannot be ignored.''
''Crude oil refining could be replaced by integrated gasification / synfuel plants to produce fuels of the highest quality,'' Wood Mackenzie said.
''The consequences of a breakthrough in this area are so significant that no company in the energy business can afford not to follow developments.''
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