MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 28, 1998 (8)
COMPANIES
Renaissance Plans Major Property Sale
Renaissance Energy Ltd. Chief Executive Clayton Woitas said on Tuesday that his company would launch a major sale of mostly natural gas properties in Canada if its proposed takeover of Pinnacle Resources Ltd proceeds as expected.
Woitas said Renaissance planned to sell properties producing up to a total of 100 million cubic feet of gas a day in the autumn and that it hoped to garner proceeds of C$250 million to C$400 million.
"We would likely sell off a parcel of mature properties, new properties, exploratory lands and tax pools packaged as a private company to attract U.S. interest," Woitas told Reuters after a presentation to the Canadian Association of Petroleum Producers investment symposium.
Renaissance announced early this month it planned to absorb Pinnacle in a friendly, C$680 million stock-swap offer.
He said one possibility for the proposed sale was to convert Pinnacle into a wholly owned subsidiary, place the properties earmarked for disposition into it, then offer the entire package to potential buyers.
"U.S. companies aren't interested in acquiring properties, they want to purchase companies," Woitas said.
Proceeds from the sale would initially be applied to Renaissance's long-term debt, and subsequently to fund exploration and development programs, Woitas said.
With the Pinnacle acquisition and property sale, Renaissance was following through with its strategy of buying oil production in the spring of this year, and selling gas output in the autumn, he said.
Woitas did not identify which properties would be included in the sale, or if they would be mostly Pinnacle or Renaissance holdings.
Investors Still Hot On Petro-Canada
Shares Rise Despite Failed Deal With Ultramar
Calgary Herald and the Canadian Press
Petro-Canada's failed alliance with Ultramar Diamond Shamrock Corp. shouldn't harm the Calgary firm, analysts say.
The deal, which would have created Canada's largest chain of gas stations, wasn't essential to the success of Petro-Canada, experts agreed Tuesday.
Unfavorable market reaction is not expected, many observers believe.
"I don't think this hurts Petro-Canada," said analyst Nick Majendie of C.M. Oliver & Co. in Vancouver. "They are still a strong company."
The stock markets appeared to agree.
Petro-Canada's stock price was up Tuesday, a day after Ultramar and Petro-Canada announced they were scrapping their partnership deal after the federal Competition Bureau expressed its concerns over their plan.
PetroCan's shares gained 25 cents, moving to $23.55 on the Toronto Stock Exchange.
Michael Ervin of M.J. Ervin and Associates, a Calgary-based retail and refining consultancy, believes both companies will continue to do well, but added there will eventually be some rationalization in gasoline retailing.
"I don't think either of them was doing this in terms of securing their long-term survival; I think that's pretty much a given anyway."
Petro-Canada spokesman Rob Andras said the company will now intensify its focus on its existing business.
"We went into this thing looking to make a good thing better," he said. "The status quo is, for the time being, what we are back to and that's fine. Our backs weren't to the wall when we went into this thing.
"We did think -- and still think -- that the joint venture would have been a good deal all around, but we can move ahead, we're still an aggressive growth company and we're very positive about the outlook for our upstream and downstream businesses."
Andras said he wouldn't comment on rumors Petro-Canada had another large deal waiting in the wings that allowed it to let the Ultramar deal go without grief.
Rumors have been circulating for weeks that the company may have a big acquisition in mind, but Andras said that "was just speculation."
Meanwhile, some analysts criticized the Canadian competition regulator, saying it had done consumers a disservice at the gas pumps.
"The competition tribunal has done a real disservice to Canadians because I think our refining and marketing operations are efficient today, but they're going to have keep on getting efficient," said Martin Molyneaux, an analyst with FirstEnergy Capital Corp. in Calgary.
Petro-Canada To Sell Propane Unit
Edmonton Sun
Observers estimate offering of ICG shares through new income trust fund will bring in $250-million
Petro-Canada plans to sell its retail propane business, ICG Propane Inc. of Calgary, by offering shares through an income trust fund.
Although no price has been disclosed for the initial public offering, industry observers expect Calgary based Petrocan to fetch roughly $250-million for the wholly owned propane subsidiary.
Petrocan spokesman Robert Andras declined comment yesterday.
A preliminary prospectus filed with securities regulators says Petrocan has hired RBC Dominion Securities Inc. to be the lead underwriter in a deal to create the ICG Propane Income Fund.
ICG, Canada's second-largest retail propane company with 950 employees, accounts for 30 per cent of the country's market for propane and related services.
"Propane isn't a growth business for Petro-Canada. It's not a core business," said Robert Hinckley, an analyst with New York-based Merrill Lynch & Co. Inc.
The prospectus doesn't reveal what Petrocan intends to do with the proceeds of the propane sale.
But Mr. Hinckley said Petrocan will concentrate this year on natural gas exploration and development in Western Canada, as well as help nurture its offshore Newfoundland oil projects and chain of gasoline stations.
When Petrocan first got into the propane sector in 1990, the company saw an opportunity in cars and trucks being converted to the fuel, he said in an interview yesterday.
However, the prospectus says many provincial tax incentives to promote alternative fuels such as propane are being phased out, including those in Ontario, British Columbia and Alberta.
On the other hand, traditional markets for propane remain strong, the document says.
ICG has about 100,000 customers, including businesses with storage tanks in the residential, commercial, industrial and agricultural sectors.
The company runs a fleet of 277 bulk delivery trucks and dozens of other types of trucks.
By turning ICG into an income fund, Petrocan is following the lead of Calgary based Norcen Energy Resources Ltd.
Norcen sold 90 per cent of its Superior Propane Inc. division for $486-million during an income trust fund sale in two stages -- in late 1996 and mid-1997. Superior Propane is Canada's largest retail propane venture, with a 40-per-cent share of the market.
Andrew Wiswell, a former senior vice-president at Gulf Canada Resources Ltd., became ICG's president and chief executive officer last April during a company shakeup.
ICG lost $1.36-million in 1996 on revenue of $340-million, but began turning things around last year. For the first nine months of 1997, the company earned $1.72-million on sales of $227-million.
Cash flow in the first nine months of last year rose 1.8 per cent to $17.8-million.
Investors will be able to pay for the ICG Propane Income Fund's trust units in two instalments, the prospectus says. The first payment is due upon the closing of the deal -- expected within weeks -- and the second payment is tentatively slated for one year later.
By buying the units, which likely will be listed on the Toronto Stock Exchange, investors will be entitled to receive quarterly cash distributions that will vary, depending on ICG's financial performance.
Petrocan paid $235-million for ICG in 1990, and originally toyed with the idea of selling it or turning it into an income trust in late 1996.
The prospectus says Petrocan and ICG will continue to share some administrative costs for several months. For instance, Petrocan expects to enter a "product supply agency agreement" with ICG in which Petrocan will negotiate on ICG's behalf to ensure a competitive supply of propane.
ICG relies on numerous propane suppliers, including Petro-Canada and Calgary based Amoco Canada Petroleum Co. Ltd.
Besides using its trucks to transport propane, ICG leases rail cars.
"Although the Canadian retail propane market is considered relatively mature, opportunities for growth in the traditional segments of the market have been identified," the document says. Potential growth markets include rural regions where propane could be a cheaper energy source than electricity and more practical than fuel oil, it says.
Crestar Energy CEO Sees Net Loss In 1998
Crestar Energy Inc. is projecting a net loss and sharply lower cash flow this year as depressed crude prices weigh heavily on its financial outlook, Crestar Chief Executive Barry Jackson said on Wednesday.
Crestar expects a 1998 net loss of C$45 million or C$0.75 a share, down from a profit of C$32 million or C$0.64 a share in 1997, Jackson said at the Canadian Association of Petroleum Producers investment symposium.
Cash flow was projected to be C$235 million or C$4.10 a share, down from C$291 million or C$5.76 a share last year.
''It's hard to paint a very bright picture for 1998 given commodity prices and where they are,'' Jackson told reporters after his presentation.
''However, many of us have been around long enough in this business to have seen several of these down cycles, and the other side of the down cycle is the up cycle. You've just got to persevere.''
Jackson's forecast assumed an average West Texas Intermediate crude oil price of US$16 a barrel this year, a Crestar natural gas price of C$2 per thousand cubic feet and a Canadian dollar exchange rate of US$0.69.
The company expects its Alberta and Saskatchewan oil and gas properties to pump out an average of 93,000 barrels of oil equivalent a day in 1998, up 17 percent from 79,500 last year.
Crestar's stock price, which reached a peak of C$32 in November 1996, has been under pressure since then. It has recently touched lows of below C$17, amid investor concern over its exposure to oil prices, especially discounted Canadian heavy oil.
The company has recently been speculated as one of several takeover targets in the Canadian energy sector.
Jackson attributed some of the negative sentiment to Crestar's high debt levels, but said investors were more concerned with that than the banks.
The company expects its long-term debt to be C$640 million-C$710 million by the end of this year, which would result in debt being 2.7-3.0 times its projected cash flow.
''In a different interest rate environment that might be a different story, but the banks are not excited at all,'' he said.
Jackson said he placed little credence on the takeover rumors involving his company, although he acknowledged a growing trend toward studying merger possibilities as the industry has fallen on tough
times.
Anderson Exploration Cuts Output Forecast
Anderson Exploration Ltd. has cut its projection for 1998 production by 2.6 percent because it had shut in several heavy oil wells and deferred some drilling due to low prices, Chief Executive J.C. Anderson said on Wednesday.
Anderson said the company now expected to produce 94,000 barrels of oil equivalent a day in western Canada this year, down from an earlier forecast of 96,500.
Also, a previous projection of drilling 570 wells has been reduced to 500, he said at the Canadian Association of Petroleum Producers investment symposium.
''It's not a huge cut, we're talking about 2.6 percent in the forecast, and the reason is we've shut in 1,500 barrels a day of heavy oil because we're not making any money on it,'' Anderson told reporters after his presentation.
Of the total expected output, the company now expected to produce 570 million cubic feet of natural gas a day, down from the earlier forecast of 585 million. Crude oil production, meanwhile, was expected to average 37,000 barrels a day, down from the previously predicted 38,000.
Anderson said an interruption in the company's production this spring, caused by a rash of forest fires that cut a swath through its Alberta operating areas, would not have a major impact on average output for the full year.
Anderson Exploration was forced to shut down as much as 8,000 barrels a day of oil production during the peak of the fire threat, but that would only translate into a reduction of about 200 barrels a day when spread out over the full year, he said.
Anderson repeated that he had not had any discussions with potential acquistors for his company, despite numerous recent rumors that it was a takeover target, possibly for a U.S. based oil company.
Gulf Indonesia and Talisman Energy Continue Successful Gas Drilling in South Sumatra
Gulf Indonesia Resources Limited and Talisman (Corridor) Ltd., a wholly-owned subsidiary of Talisman Energy Inc. (NYSE/TLM), announced a new natural gas discovery in the Corridor Production Sharing Contract (PSC) area located in South Sumatra, Indonesia. The Rebonjaro Dalam-1 exploration well tested four zones at depths between 1,801 and 2,124 metres (5,910 and 6,970 feet) and flowed at an initial rate of 6.2 million cubic feet of gas per day through a 3/4 inch choke during an eight hour period. The composition of the gas includes 26 per cent carbon dioxide. Gulf has initiated plans for additional wells on the structure to delineate the size of the field.
Rebonjaro Dalam-1 represents the eighth gas discovery made by the companies in the area since 1991. The proximity of the discovery to the Corridor Gas Project infrastructure will enable easy tie-in for future gas production from the area. The discovery lies 5 kilometres (3 miles) from the main gathering line that will transport gas to the processing plant. The first phase of the Corridor Gas Project is near completion and is expected to commence natural gas sales to Caltex's Duri steamflood project in central Sumatra within 90 days.
Gulf Indonesia Resources Limited maintains a 54 per cent interest in the Corridor Block PSC and acts as operator. Partners are Talisman (Corridor) Ltd. with 36 per cent and Pertamina of Indonesia with 10 per cent.
Gulf Canada Has Netherlands Natural Gas Discovery
Gulf Canada Resources Limited announced today a natural gas discovery at the Gulf operated Q4-8 exploration well on the Q-4 Block located offshore in the Dutch sector of the North Sea. Gulf Canada Resources, through its wholly owned subsidiary Clyde Petroleum Exploratie B.V., currently holds a 49.75 per cent interest in the block.
The Q4 discovery well tested 27 million cubic feet of gas per day and is located approximately 20 kilometres (12 miles) from Gulf operated infrastructure in the area, which will potentially reduce development time. The current plan is to submit a production licence application later this year, proposing to start production by year-end 1999.
Partners in the Q-4 Block are Dyas B.V. with a 17.25 per cent interest and Clam Petroleum B.V. (a 50/50 joint venture with Marathon Petroleum Netherlands, Ltd., which is a wholly owned subsidiary of Marathon Oil Company, and Burlington Resources Netherlands Inc., which is a wholly owned subsidiary of Burlington Resources Inc (NYSE:BR) with a 33 per cent interest. The State has a right to acquire a 40 per cent interest through Energie Beheer Nederland B.V. under ''back-in'' provisions.
Precision Drilling Has Record Quarter, Year
The Financial Post
Acquisitions and high demand pushed Precision Drilling Corp. to record earnings and revenue in the fourth quarter and fiscal year ended April 30.
The Calgary-based energy service company said yesterday revenue for the final quarter climbed to $238.4 million from $148.5 million, and profit more than doubled to $27.3 million (65› a share) from $13.5 million (42›) a year earlier.
For the full year, Canada's largest contract driller had profit of $117.5 million ($2.82) on revenue of $1.01 billion, up from profit of $42.4 million ($1.44) on revenue of $455 million the year before.
Drilling services accounted for 68% of Precision's revenue in the year and 79% of operating earnings. The percentage of earnings coming from specialty services will grow because of recent purchases of Inter-Tech Drilling Solutions Ltd. and Northland Energy Corp., said Dale Tremblay, senior vice-president of finance and chief financial officer.
The firm is still looking for acquisitions that build on its core strengths.
Precision expects to benefit from producers' focus on gas plays this year because of low oil prices. The company has many big rigs suited for deep gas wells, said Miles Lich, a service firm analyst with Peters & Co. Ltd. in Calgary.
However, he estimates profit will fall to $114 million ($2.67 a fully diluted share)for the year.
"Rig utilization is going to be off. Day rates for rigs are coming off and have been for a month or so. That pressure will continue until commodity prices improve," he said.
Atlantic Riches
Mobil Oil Set To Beef Up Exploration
There could be as much as 43 billion barrels of oil and gas lying offshore and underground in Atlantic Canada, Mobil Oil Canada said yesterday.
And the Calgary-based company plans to spend more than $600 million in the region this year to develop existing fields and continue exploration, said Ken Miller, Mobil's Eastern Canada vice-president.
"Our assumption today is that there is potentially about 43 billion barrels in the future, about half of which is economicallydevelopable in the medium-term future," said Miller.
The latest assessment, which includes the Hibernia, Sable Island and Terra Nova fields, improves upon the company's previous survey. That pegged the reserve potential at less than 40 billion barrels.
Mobil is proving its faith in its figures with the establishment of two new offices in Halifax and St. John's
While the company has holdings off the west coast of Newfoundland and in an area known as the Laurentian sub-basin, it plans to keep its focus on the Grand Banks east of Newfoundland, said Miller.
Mobil, along with partner Chevron Canada Resources, is working to establish a plan to pursue 13 new parcels of offshore territory that will become available this fall.
And Mobil has contracted a drilling rig to begin exploration work on the Grand Banks this fall that could continue for at least a year, said Miller.
Mobil, the lead partner in the Hibernia project, hinted Wednesday there could be further increases in Hibernia's recoverable oil estimates beyond the 135-million barrel increase the company announced last year.
The six-member Hibernia consortium has held steadfast to its original conservative estimates of 615 million barrels in its two main reservoirs.
But Mobil increased its estimate to 750 million barrels.
"It's very possible the reserves could go higher than that," said Miller.
Some industry observers have said the total could reach one billion barrels, depending on technological advances.
Miller said the company will be watching how the installation of new water and gas injectors improves the oil flow before reassessing its estimate.
TSE Pulls Camberly Energy Listing
The Financial Post
Shares of Camberly Energy Ltd., a troubled oil and gas junior, have been suspended from trading on the Toronto Stock Exchange.
The exchange said yesterday this was because the company has not met its continued listing requirements
Spokesman Steve Kee said the exchange considers Camberly to no longer have an active business.
"The TSE doesn't list inactive companies," he said.
Calgary-based Camberly has been beset by failed exploration projects, bad loans and several resignations from its board of directors.
Chief executive Michael Duggan could not be reached for comment.
Last year, Camberly sold its Alberta oil and gas wells for $27 million. At yearend, it wrote off its entire investment in an exploration project in China.
The company was recently cited by the British Columbia Securities Commission for failure to file yearend and first-quarter financial statements.
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