MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 28, 1998 (7)
COMPANIES
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.
Talisman Energy Casts Doubt On Forecast
Talisman Energy Inc. Chief Executive Jim Buckee on Tuesday cast doubt on an earlier prediction that the company would produce 1998 financial results similar to last year's, saying low oil prices could drag down
Talisman's fortunes.
Buckee said his forecast of 1998 earnings and cash flow similar to 1997, made at Talisman's annual meeting in early May, was based on an average West Texas Intermediate crude price of US$17 a barrel, well above the current price and average so far this year.
"Year-to-date, it's been below US$16 on average, so your guess is as good as mine whether it's going to average US$17 for the year," Buckee told reporters after a presentation to the Canadian Association of Petroleum Producers investment symposium.
He said the company's annual cash flow changes by C$50 million for every US$1 change in the WTI crude price.
Talisman recorded earnings of C$77.1 million or C$0.70 a share and cash flow of C$797.4 million or C$7.29 a share in 1997.
Buckee said, however that Talisman's production expectation of 240,000 barrels of oil equivalent a day would still be met, despite Tuesday's announcement of a three-month delay in the start-up schedule of its Ross oil field in the North Sea.
The field, in which Talisman is operator and has 51.99 percent interest, was originally scheduled to start pumping oil in October.
But that was pushed back to January because of slower-than-expected progress in readying its floating production, storage and offloading vessel (FPSO), which is now 79 percent complete, the company said on Tuesday.
Buckee said strong oil and gas production from its other worldwide operations was expected to make up would would have been a shortfall.
"Ironically, it may defer (the Ross startup) into better oil prices. It's not all a bad thing because it allows us to have more of the drilling complete," he said.
Initial production from Ross is expected to be 40,000 barrels a day. The first three wells have the ability to produce acombined 30,000 barrels a day, he said.
Meanwhile, Talisman has a 35 percent interest in a major discovery in Algeria that was announced on Tuesday by operator Burlington Resources Inc.
Houston-based Burlington said its MLSE-1 wildcat well on Algeria's Block 405 tested at 14,638 barrels a day of oil and gas liquids and 107 million cubic feet a day of gas.
A second MLSE well was to be drilled shortly, targeting more of the geological structure that could hold reserves of 300-400 million barrels of oil equivalent, Buckee said.
He acknowledged that the prospect did not fit with the company's strategy of operating fields and holding high working interests, so Talisman would consider swapping its stake for another in a different part of the world where the political situation is more stable.
"There's an awful lot of hydrocarbons -- gas and oil -- and it is a place where the industry operates, so we wouldn't just lightly exit, nor are we going to die to hold onto it."
Talisman Energy and Burlington Resources Announce Discovery Of New Algerian Oil Fields
Burlington Resources (NYSE/BR) through its wholly-owned subsidiary, LL&E Algeria Ltd.; Sonatrach, the National Oil and Gas Enterprise of Algeria; and Talisman Energy Inc. (NYSE/TLM) of Canada announced the successful testing of the MLSE-1 well, a new wildcat discovery well on the Menzel Lejmat Block 405 in theBerkine Basin of Algeria. The well flow tested at a combined rate of 14,638 barrels of hydrocarbon liquids and 107 million cubic feet of natural gas per day from four intervals with a combined net pay of 57 meters (190 feet).
LL&E Algeria Ltd. operates the MLSE-1 well which is located in the southeastern portion of Block 405. The well was drilled to a total depth of 4,407 meters (14,459 feet) and encountered four hydrocarbon bearing intervals. The Triassic TAG formation tested at a stabilized rate of 11,278 barrels of 45.4 degree API gravity liquid per day and 21 million cubic feet of natural gas per day on an equivalent 1.67 inch choke with 802 psia flowing wellhead pressure from 24 meters (79 feet) of net productive sands. The Carboniferous Visean RKF sandstone tested 2,675 barrels of 53.2 degree API gravity liquid per day and 38 million cubic feet of natural gas per day on a 56/64 inch choke with 2,726 psia flowing wellhead pressure from 21 meters (70 feet) of net pay.
The well also tested two zones within the Devonian section. The Strunian F1/F2 sands tested at 685 barrels of 54.7 degree API gravity liquid per day and 35 million cubic feet of natural gas per day on a 60/64 inch choke with 2,152 psia flowing wellhead pressure from 5 meters (18 feet) of net pay, while the deeper Emsian F4 sands tested at 13 million cubic feet of natural gas per day on a 48/64 inch choke with 1,340 psia flowing wellhead pressure from 7 meters (23 feet) of net pay. No formation water was recovered during any of these tests.
Bobby S. Shackouls, BR's chairman, president and chief executive officer, commented, ''We're extremely excited about these excellent test results which indicate substantial reserve potential in this unexplored area of Block 405. The MLSE-1 well tested a large seismic feature on our block. We are in the process of moving the drilling rig from MLSE-1 to immediately begin drilling MLSE-2, a delineation well on Block 405 approximately 5 kilometers (3.1 miles) to the northeast of our new field discovery. Additional exploratory drilling as well as acquisition of a three-dimensional seismic survey is planned for the southeastern portion of Block 405.''
In the western portion of Block 405, a second rig under contract is currently drilling another exploration well, MLW-1. This is BR's first well based on a three-dimensional seismic survey that was acquired over the MLN Field and adjacent areas. MLW-1 is located 16 kilometers (10 miles) west southwest of MLN-1, a previous discovery, and will test both TAG and Devonian targets.
Bobby S. Shackouls commented further, ''The encouraging results we have experienced from our two most recent exploratory wells on Block 405, MLN-4 and MLSE-1, demonstrate the significant benefit of our accelerated drilling program in Algeria. We plan a very active drilling program for the remainder of 1998 and expect to drill or participate in at least two additional exploratory wells and five development wells in Algeria this year.''
Shell Canada Says Assets Not On Block
Shell Canada Ltd. has no plans to jettison its Canadian conventional oil and gas business despite recent rumors that the extensive assets could be a target of rival Petro-Canada (PCA.TO), a senior Shell executive said on Monday.
''We've done a bit of (selling) on an asset-by-asset basis, but that was strictly in an effort to weed out those we thought did not have a long-term growth opportunity and were underperforming,'' Shell Canada senior operating officer Ray Woods told reporters.
''But at the moment, we're not looking at any kind of wholesale exit from western Canada at all,'' Woods said after a presentation to the Canadian Association of Petroleum Producers investment symposium.
The rumor regarding Shell Canada's western Canadian upstream business was one of several that surfaced after Petro-Canada pulled out of the symposium. The move to bow out of the well-attended event fed speculation that Petro-Canada was on the brink of announcing a major acquisition.
In 1997, Shell Canada's resources division produced an average of 25,000 barrels a day of crude oil and bitumen, 55,000 barrels a day of natural gas liquids, 600 million cubic feet of natural gas and 7,000 tonnes per day of sulphur.
Meanwhile, Woods and other Shell Canada officials said they had yet to receive any indication from Australia's Broken Hill Proprietary Co. Ltd. (BHP.AX) on the status of its plans to team up for development of C$3.2-billion oil sands project.
BHP, brought into the project for its mining expertise, would have a 25-percent stake in the Lease 13 development in northern Alberta. Regulatory and company approvals could be garnered in the second quarter of 1999, allowing construction to start.
However, it was unclear whether spending on the project, which would produce 150,000 barrels a day by 2002, would still be allowed by BHP's Australian head office in the face of severe financial pressures the company currently faces at home, Shell Canada officials said.
Reports this week said the struggling steel, mining and oil concern could reveal a cut of US$1.2 billion from the value of its assets when it releases annual accounts on Friday.
The oil sands of Lease 13 contain an estimated five billion barrels of bitumen -- or extra-heavy crude -- in place. The bitumen would be extracted from the sands and pipelined to a proposed upgrader at the site of Shell Canada's Scotford refinery near Edmonton.
It is one of several planned projects and expansions of existing operations in the Alberta oil sands and one of two multi-billion dollar projects in which Shell Canada is involved.
Woods said Shell Canada had deferred plans to double the output of its Peace River heavy oil operation in northern Alberta by 1999.
The project, which is testing two high-tech methods of extracting heavy oil, is pumping at a reduced rate of 7,000 barrels a day, down from its capacity of 10,000.
Previous plans included work on the plant to double the capacity in 1999, but low prices for heavy oil led the company to shelve the project, Woods said.
''We've cut the expenditure on debottlenecking projects and slowed down some of this drilling,'' he said, adding that some steam injection -- which is done to allow the thick oil to flow to the surface -- has also been shut down.
''All in all, we're not going to be much past seven (thousand barrels a day) in this year or next.''
Union Pacific Resources Hopes To Complete Asset Sales By Q1 '99
Union Pacific Resources Group Inc. (UPR) hopes to complete up to $2 billion in asset sales by the first quarter of 1999 as part of its goal of chopping its heavy debt load, the head of the company's Canadian division said on Monday.
Fort Worth, Texas-based UPR, which earlier this year completed a $2.5 billion purchase of Canada's Norcen Energy Resources Ltd., aims to use sale proceeds to cut debt to 50-60 percent of its total capitalization from the current 75 percent, John Vering, president of UPR's Canadian division, told reporters.
UPR's debt currently stands at about $4.5 billion after taking on about $1 billion to fund the Norcen transaction, which added extensive assets in Canada, the U.S. Gulf of Mexico, Venezuela and Guatemala.
The company expects to sell about $600 million of non-core producing properties -- including up to $150 million worth in Canada -- as well as to realize $1.2 billion-$1.4 billion from spinning off its natural gas gathering, processing and marketing (GPM) assets.
''I think the producing-property dispositions will probably be completed this year. The monetization of the GPM assets and business is probably going to flop over into the first quarter of next year,'' Vering said after a presentation to the Canadian Association of Petroleum Producers Investment symposium.
The gas-rich Canadian oil and gas assets on the block garnered strong interest from potential buyers, Vering said. Bids for the properties were due on Monday.
''Obviously, one thing we were concerned about was where product prices are, particularly crude prices, and what sort of interest there would be. But it's been very strong interest and we've been very pleased with the level of activity in that regard,'' he said.
The properties for sale in Canada and the U.S. represent less than 10 percent of the company's production.
Vering said several options for the gathering and processing assets were being considered, including outright sales, joint ventures and income trust structures.
Meanwhile, UPR has cut its capital spending budget for western Canada in 1998 as a result of low crude oil prices. It now expects to spend $225 million on the properties, down from the previously budgeted $280 million, he said.
He said the company had no plans to undertake another large acquisition in Canada, although small buys within core operating areas were part of UPR's strategy.
''Our primary concern right now is to get our balance sheet cleaned up so we're in a position to take advantage of opportunities as they come along,'' he said, adding that concern over UPR's debt was a major factor behind its languishing stock price.
Signs Of Life On Planet Arakis
Globe & Mail Business West
In the science fiction novel Dune , a desert planet is ruled by a secretive group of families whose lives are torn by feuds and intrigue. The name of the planet is Arrakis. A Calgary based junior oil company with a similar name, Arakis Energy, has high hopes for a chunk of desert in Sudan -- and has seen its own share of turmoil.
After more than four years of trying to find the backing to develop an oil field in war-torn Sudan, Arakis says it is finally on its way to making the project a reality. Construction has begun on a 1,500 kilometre pipeline from the project to the Red Sea, and the company said at its recent annual meeting that production should start in mid-1999.
There are some hurdles to overcome, however. Although Arakis has some deep pocketed partners -- the Chinese national oil company and the Malaysian state oil company -- it still has to come up with its share of the financing, and that means finding about $200-million this year. Arakis recently filed a prospectus for an offering of notes and debentures.
Anyone familiar with Arakis's turbulent past could be excused for being surprised the company has even made it this far. In 1996 it seemed Arakis was just another fly-by-night stock promotion that had exploded in a flurry of shareholder lawsuits and plummeting stock prices.
Two things kept the company going: The first was the fact that its two pieces of land in Sudan were estimated to hold about three billion barrels of oil -- estimates made by Chevron and Shell when they spent $1-billion (U.S.) exploring the property in the 1970s. The second factor was Lutfur Khan, whose earlier company first identified the project and who is now Arakis's chairman.
The company's downfall coincided with the involvement of Howe Street promoter Terry Alexander. He became president of Arakis in 1994, and soon the company's stock was trading on the Vancouver exchange at more than $22 (Canadian). At one point, the company had a market value of $1-billion.
In the summer of 1995, Mr. Alexander announced a deal with a Saudi Arabian group of investors, to whom Arakis was to sell 40 per cent of the company in return for $345-million (U.S.) and a line of credit for $400-million.
After the B.C. Securities Commission started investigating the nature of the agreement, Arakis voluntarily delisted itself from the VSE and continued to trade on the Nasdaq exchange in the United States, but the stock was soon halted there. When it resumed trading more than a month later, the Arab group's deal had fallen through and the stock plunged to about $6.
Arakis was hit by several shareholder lawsuits alleging fraud, and Mr. Alexander left the company in December of 1995. He was replaced by John McLeod, a former Amoco Canada engineer and veteran oilman who was in charge of the Sudanese project from 1991, before it became part of Arakis.
Things started to look up for the company. It got some financing through private placements, and signed the deal with the Chinese oil company (which got 40 per cent of the project) and Malaysia (which took 30 per cent). Arakis kept 25 per cent, and the Sudanese government got 5 per cent.
But there was more turmoil and intrigue to come: For one thing, Adolf Lundin started to take an interest, something that tends to make small companies nervous. The Swiss financier controls a web of small exploration companies, some of which are run by his Vancouver-based son Ian.
In February of last year, the Lundins bought the rights to a chunk of property directly beside the Arakis fields -- and were busy buying stock in Arakis as well. By March, a Lundin company said it had 7.25 million shares or about 8 per cent, and wanted seats on the board of directors. Sure enough, at the recent annual meeting, Ian Lundin was named to the board.
The board changes, and the growing influence of the Lundins, appeared to set off some alarm bells in Sudan. Company spokeswoman Kristine Dow said Arakis got a message from the government earlier this month saying the company was in danger of losing its stake unless it explained itself -- but she says the notice was withdrawn and that Arakis executives are flying to Sudan to straighten out what they believe to be a misunderstanding.
The turmoil in the executive suite, meanwhile, has continued. Last year in April, Mr. McLeod was replaced as president by Ernest Pratt, another oilman who had been working on the Sudanese project for some time. By last September, however, Mr. Pratt was gone too -- with no explanation.
In February of this year, the company hired Raymond Cej -- a respected former senior operating officer with Shell Canada -- as president and CEO. Arakis has also paid an insurance company $3.5-million to cap its exposure in the U.S. securities lawsuits, and paid a $250,000 penalty to the VSE for its failure to ensure that the Arab group financing was legitimate.
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