MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JUNE 22, 1998 (9)
TOP STORIES, Con't
Pioneer Announces Exploration & Production Agreement with Republic of South Africa, Successful Completion of the First South African Well, and Active South African Drilling Program
Pioneer Natural Resources Company (TSE/PXD) announced today the approval of a petroleum exploration and production agreement with the Republic of South Africa and the successful testing of Pioneer's first exploration well in the venture. A March 27, 1998 participation agreement entered into between SOEKOR E and P (PTY) LTD (''SOEKOR''), the South African national oil company, and the South African subsidiary of Pioneer was approved today in Pretoria by Dr. Penuell Maduna, South Africa's Minister of Minerals and Energy.
The agreement permits Pioneer to join with SOEKOR in exploration and production activities over areas covering approximately 3.5 million acres in Block 9, located offshore the south coast of South Africa in the Bredasdorp Basin. Block 9, which has a total area in excess of five million acres, has water depths generally less than 650 feet. It has commercial oil production from the Oribi Field (up to 25,000 barrels per day from two wells) and gas production from the F-A Field (about 190 million cubic feet per day).
Pioneer will earn a 49% working interest and be the operator for two sub-blocks totaling three million acres that include the southern and western portions of Block 9. In addition, by joining SOEKOR in the drilling of one well in each of eight discreet sub-blocks that have a combined area of about 500,000 acres, Pioneer will also earn working interests that vary from 20% to 40% in those sub-blocks.
The first SOEKOR-operated well under this agreement (''E-BD3''), encountered a gross pay interval of approximately 92 feet at a depth of 8,547 feet. A 75-foot thickness of this interval tested at a rate of 5,980 barrels of 40 degree API gravity oil per day and 3.6 million cubic feet of gas per day through a 3/4 inch choke. The well was completed and suspended pending field development. The drilling of this well has earned Pioneer a 35% working interest in the E-BD accumulation, including the E-BD1 discovery well, which tested oil at a rate of 8,525 barrels per day. In addition, Pioneer has earned 25% of the nearby E-CE accumulation, which tested oil at rates of up to 6,021 barrels per day from the best of three successful wells.
SOEKOR is currently evaluating a second exploration test well (''E-DC1''), in which Pioneer holds a 40% working interest. This well is located about 35 miles south and east of E-BD3 in a separate sub-block. During the 1998 drilling program, Pioneer expects to participate in a total of five to six wells to be drilled by SOEKOR within several sub-blocks. In addition, during 1999, Pioneer plans to drill one or more exploration tests within the areas it operates.
Pioneer and SOEKOR have completed negotiations on a single petroleum agreement that will include former Blocks 10, 11A, 12A, 13A/B and 14A/B and cover approximately ten million acres east and west of Block 9. Trap types, source rocks, reservoirs and seals in this area are very similar to those responsible for oil and gas production in Block 9. Signing and Ministerial approval of this agreement are expected by early August.
Scott Sheffield stated, ''One of the motivations behind Pioneer's formation less than a year ago was to gain the resources to access high-quality exploration and production opportunities on a worldwide basis. With this agreement, we have secured such an opportunity under favorable terms, and in a country that is actively seeking foreign investment. We look forward to a long and mutually rewarding relationship with Minister Maduna, SOEKOR and the people of South Africa.''
Mel Fischer, Executive Vice President of Worldwide Exploration, stated, ''We are very pleased to be collaborating with SOEKOR in the Block 9 area. SOEKOR has already established commercial oil production on this block and has verified the presence of all the geological elements needed to establish substantial additional production. I am confident that our future exploration programs will result in a number of new commercial discoveries.''
Headquartered in Dallas, Pioneer is one of the largest independent (non-integrated) exploration and production oil and gas companies in North America, with major operations in the United States, Canada, Argentina and now South Africa.
Oilpatch optimism
Investment Soaring, Earnings Up
Calgary Sun
They are men with their feet firmly on the ground, but their eyes on the horizon.
The men who run some of Canada's largest -- and most successful oil and gas companies -- were at the Canadian Association of Petroleum Producers investment symposium at the Westin Hotel yesterday.
The stories they had to tell showed they were not quaking in their shoes over low oil prices.
No perspiration on the brows of the likes of Ray Woods of Shell Canada Ltd., D.D. Baldwin of Imperial Oil, or Syncrude Canada's Eric Newell.
Not even when they stand before some 300 senior oil and gas analysts and institutional investment managers from around the world.
Woods, senior resources operating officer for Shell, pointed out his company's 1997 earnings were $523 million compared to $200 million in 1993.
OK, you might say, that's the past performance, but what about the future performance.
Well, this year Shell will invest some $900 million in upgrades or expansions in everything from developing its reserves to revamping its retail outlets.
Its East Coast Sable Island project -- which is being built with other partners -- will get a $294-million cash injection, and its Athabasca oilsands project, with partner Broken Hill Proprietary Company, will get $74 million in development costs.
These two projects together will top $6 billion to get on stream. Baldwin, Imperial's senior vice-president, talked about how the company had achieved a five-fold earnings growth over the past decade.
Some $2-billion worth of divestments had upgraded its asset base, and efficiencies had brought about operating cost reductions of $800 million. That's perhaps why dividends had increased 11% in 1995, 10% in 1996, and 1% last year.
Newell's Syncrude -- which once had doubters shaking their heads -- last year set a production record for the 16th time in 19 years of operation.
In 1997, it shipped almost 80 million barrels of oil, and for the second consecutive year revenues exceeded $2 billion.
Of note, Syncrude's one billionth barrel of oil was produced on April 16.
That's five years ahead of schedule.
Other presentations from the majors were just as buoyant, and so were those from the juniors.
When you have your feet firmly on the ground, and your eyes on the horizon, the odd squall or two in oil prices doesn't ruffle you one bit.
Energy Executives Pumped Up About The Future
Calgary Sun
Pengrowth Management Ltd. president Jim Kinnear wasn't crying the blues when he told the Canadian Association of Petroleum Producers' investment symposium his energy trust units had fallen from $22 to $14 within the past year.
But then, he had no reason to.
Pengrowth Energy Trust is still the largest energy trust in Canada, still pays the best dividends, and just months ago, Kinnear engineered a $500-million takeover of Imperial Oil's Judy Creek and Swan Hills properties.
Indeed, its gross oil and gas revenue for the first quarter of this year was almost $50 million, compared to just about $25 million in 1997, and distributable income climbed from $14 million to $21 million.
"It's a buying opportunity," explained Kinnear, "and it would be hard to doubt that."
Kinnear's optimistic attitude was shared by officials of many junior oil and gas company officials as they extolled their companies' track records and plans to some 300 brokerage house and institutional investors from around the world.
Fred Woods, president of Ulster Petroleum Ltd., pointed out his company has had a solid growth rate for some 30 years, and though oil prices have dropped about 40% in the past year, the future holds promise.
Over the past five years, Ulster has had an annual compounded growth in earnings of 50%.
How can anyone be grim about that?
Woods -- and I know he wasn't exaggerating -- kept talking about new projects Ulster had under way and about "exciting drilling results" and "exciting high impact potential" expected from many of Ulster's endeavors.
Why, one has to ask, is all this going on if the industry's future is bleak or uncertain?
Obviously, to the experts, it's neither.
A final word from Pengrowth's Kinnear.
While Kinnear believes this is a good time for companies to make new acquisitions, and quality assets are available at favorable prices, there is no fire sale.
This industry is too strong -- and too optimistic -- for that.
Chevron and Partners Set Hull of Giant Platform in Gulf of Mexico's Green Canyon
Chevron (NYSE/CHV) and its ''Project Genesis'' partners made the first move toward positioning the 28,700-ton hull of their Genesis drilling and production platform in waters 2,600 feet deep in the Gulf of Mexico, 150 miles south of here.
Underscoring their commitment to 'deepwater' energy resources and technology, project teams from Chevron U.S.A. Production Co., Exxon Company, U.S.A., PetroFina Delaware Inc., and contractors, yesterday ''uprighted'' the 705-foot cylindrical steel hull which will serve as the foundation for the entire platform. The hull arrived by barge from Finland earlier this year and was floated into position last week from its launch site in Ingleside, Texas.
The $750-million Genesis Project will develop the Green Canyon (Block 205) oil and gas field using a floating spar platform. Its massive hull -- 122 feet across and 705 feet high -- is like a giant buoy which will support the drilling and production platform. The Genesis structure -- the second floating spar in the Gulf -- is the first to accommodate both drilling and production facilities. No oil or gas will be stored on Genesis. All production will be transported via pipeline to existing near-shore facilities for further handling.
Production from Green Canyon Block 205 is expected to begin late this year at an initial rate of about 12,000 barrels per day. By the year 2000, daily production is expected to approximate 55,000 barrels of oil and 72 million cubic feet of natural gas. The reservoir contains an estimated 160 million barrels of oil and oil-equivalent gas.
The sophisticated underwater mooring system is now being connected to the huge hull. The ''topsides'' -- currently being built in Morgan City, La. -- will be lifted and set on top of the hull in early July. Designed to accommodate up to 20 wells for a 15-year life, Genesis, true to its name, is seen to be ''the beginning'' for many Chevron deep-water developments in the U.S. Gulf.
''Oil and gas exploration and production in the Gulf of Mexico is one of the most profitable businesses in Chevron. Our goal is to continue this position for forty years through development of significant deepwater opportunities like Genesis,'' said Peter Robertson, president of Chevron U.S.A. Production Co. Robertson noted that Chevron has the third largest inventory of deepwater opportunities in the Gulf of Mexico.
The Genesis partnership found, through its early drilling program, that production rates were more than triple what they expected.
''In the early 1990s, we thought the deep-water wells would produce about 3,000 barrels of oil a day,'' said Scott Young, who heads the New Orleans-based Genesis team. ''But the reservoirs are bigger than we imagined, and the geologic structures are composed of less-dense sandstone which yields oil much more readily than the more 'traditional' reservoirs which lie in shallower waters.''
Young said the Genesis team believes it can reach peak production from the Green Canyon reservoir by drilling 12 to 17 wells.
''We're very excited about this project,'' said Robertson. ''We're excited about the technology, the economic opportunities in the Gulf of Mexico's deep-water, and the role projects like these will play in enhancing Chevron's value in North America for years to come.''
LATE BREAKING NEWS
Southern Mineral acquires Neutrino Resources
CALGARY, Alberta, June 23 - Southern Mineral Corp. Houston, Texas and Canadian Neutrino Resources Inc. said Tuesday that more than 90 percent of issued and outstanding Neutrino shares were tendered by a Southern Mineral subsidiary pursuant to an offer that ended June 22.
Southern's wholly-owned subsidiary, Southern Acquisition. tendered 25,739,494 common shares of Neutrino, and said it intends to proceed with the statutory compulsory acquisition of the remaining common shares on or before June 30.
Southern Acquisition has notified the depositary, Montreal Trust Company of Canada, of this intention, the company said.
Following the acquisition of these shares, Southern Acquisition will own about 92.3 percent of the issued and outstanding common shares of Neutrino.
As Southern Acquisition has acquired in excess of 90 percent of the issued and outstanding common shares of Neutrino it is expected that an application will be made to The Toronto Stock Exchange to delist the common shares of Neutrino.
Southern Mineral Corporation is an oil and gas acquisition, exploration and production company.
Heart Of The Matter
Oil Price Fall Takes Economic toll On Emerging Markets
LONDON, June 23 - Depressed global oil prices spell bad news for a clutch of emerging market economies although there is some upside for net importers, analysts and economists said on Tuesday.
"If sustained, as appears likely, this net (oil price) plunge will have significant impact on emerging economies," said Mohamed el-Erian, European head of emerging markets research at Salomon Smith Barney.
He added that the impact varied considerably, but would be most severe for Venezuela and other net exporters struggling to overcome economic and financial crises, notably Russia and Indonesia.
Ministers from the Organisation of the Petroleum Exporting Countries are meeting in Vienna this week to try to agree on fresh output cuts necessary to halt the slide in global prices to their lowest level in more than 10 years.
But analysts say internal bickering may prevent OPEC members from reaching agreement on sufficiently large cuts to boost prices.
The OPEC meeting will discuss fresh cuts of around 800,000 barrels per day (bpd) although analysts argue that cuts of one million bpd are needed.
The benchmark Brent crude August future was trading at $13.68 on Tuesday, up 44 cents on Monday's close but still nearly six dollars below last year's average price.
"Oil prices need to recover to above $15-$16 per barrel for Russia to get a real boost," said Dan Lubash, managing director of emerging markets, Europe, at Merrill Lynch in London.
He predicted an oil price recovery by end 1998 or early 1999, based on expectations of more production cuts and a cold winter. "If this happens then we could see a boost to the Russian economy," Lubash said.
Salomon's el-Erian produced analysis pinpointing the vulnerabilities of emerging economies' gross domesic product (GDP) to a reduction in net oil export revenues.
His calculations (which exclude Middle East countries) estimate how much of a shortfall or windfall would accrue to a country in GDP terms if weak oil prices continues to erode export revenues, or conversely, to reduce import costs.
In terms of vulnerability, Venezuela tops his list of net oil exporters, followed by Algeria, Ecuador, Russia, Indonesia, Egypt, Malaysia and Mexico.
El-Erian forecast that Venezuela could expect a shortfall of about five percent of GDP if the oil price remains weak compared to just under three percent for Algeria.
The shortfall is estimated at between one and two percent of GDP for Ecuador, Russia, Indonesia, Egypt, Malaysia and Mexico.
For Venezuela, where oil accounts for more than half of state revenue, the oil slump has forced the government to slash 1998 spending by more than $3.5 billion.
"If you really get a substantial breakdown in oil prices, Latin America is the most vulnerable region," said Geoff Dennis, global emerging market equity strategist at Deutsche Morgan Grenfell.
"Venezuela is still a major devaluation risk for us," Dennis said.
Russia's problems are exacerbated by its high dependence on other commodities for export revenue.
"Almost 50 percent of Russia's exports are energy...and another 15 to 16 percent are metals which are also depressed," Lubash said.
There are also concerns about the effect of lower oil revenues on investment in the oil industry.
For example, Venezuela has more product sharing arrangements than Russia and more foreign partners in its oil fields, which helps offset the negative effect of reduced government spending on the industry.
Alan Marshall, director of energy research at Robert Fleming said Nigeria was also vulnerable to the oil slump as oil is its single biggest source of revenue.
The Asian region overall is a key oil importer and demand has been hit by the region's financial crises, putting more pressure on prices.
South Korea and Taiwan along with Brazil count as key beneficiaries of a reduction in oil import costs.
"South Korea benefits from lower prices but they can't afford imports anyway," Marshall said, adding that South Korean first quarter oil consumption fell 15 percent.
But Dennis said lower oil prices were an enormous benefit for Asia, offsetting higher capital costs.
For now, Brazil is a net importer, but Marshall said it would become a net exporter in two to three years, following privatisation of state oil firm Petrobras.
Toronto Stocks Open Up On Oil
TORONTO, June 23 - Toronto stocks opened up on Tuesday as crude oil extended gains from Monday's single biggest one-day rise in 12 years.
Crude prices rose on expectations for this week's OPEC meetings in Vienna.
"If oil prices tend to firm up after the OPEC meeting, oil will be where you want to go," said Bob Boaz, manager of University Avenue Funds.
The Toronto Stock Exchange's key 300 composite index opened up 31.11 points or 0.48 percent to 7168.63. Some 6.5 million shares were traded worth C$94.7 million. Gainers outpaced decliners 237 to 182 with 189 issues unchanged. Only pipelines, paper products and real estate lost ground while the 11 other subgroups were up on the day.
The oil and gas sector, which makes up more than 10 percent of the market's weighting, was up one percent and consumer products, which account for 5.89 percent of the market, were up 0.7 percent.
OPEC oil producers meet in Vienna this week to review a proposal by Saudi Arabia, Venezuela and Mexico to cut daily output by 800,000 barrels.
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