MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JULY 15, 1998 (4)
TOP STORIES, Con't
Chauvco Int'l Resources To Stop Gabon Oil Production
The Financial Post
A former high flyer of the Canadian energy industry has ceased oil production from its property in Gabon, another piece of bad news for the troubled firm.
Chauvco International Resources Ltd. announced yesterday it is shutting its money-losing operations in the West African country. Despite paring, low oil prices and declining output caused Chauvco to suspend work at its Remboue field.
Jim Wilson, executive vice-president and chief financial officer, said his company needs oil prices above US$17 a barrel to make money.
"It comes down to straight economics. It's not in shareholders' interests to burn cash."
The field was flowing about 1,500 barrels of oil a day before being shut in. Wilson said it will be relatively easy to bring the property back up when crude prices improve.
Chauvco released the news after the market closed. Its shares (CHV/TSE) finished up 1› at 11.5›. One analyst said the low close means it is unlikely to take much of a hit in trading today. The shares have ranged from a 52-week high of $1.39 on Jan. 5 to a low of 7› June 2.
Chauvco International, created after the Canadian unit of Pioneer Natural Resources Co. took over Chauvco Resources Ltd. in September 1997, began operations in January but has been undercapitalized from the start, Wilson said.
The company pulled a $22-million financing last March after analysis showed Remboue's recoverable reserves were much less than previously estimated. The firm took a $16.4-million writedown on the asset in its first-quarter results.
Mobil Lobbied To Build Upgrader At Fort McMurray
Fort McMurray Today
The courting has begun.
The municipality plans to sell Mobil Oil Canada on the benefits of building the oilsands developer's billion dollar upgrader built here.
Mayor Doug Faulkner said a proposal will be prepared to outline McMurray's advantages. "We are hoping to entice them to stay here," said Faulkner.
McMurray and metropolitan Edmonton are two upgrader locations out of five short-listed by Mobil in late June. In previous interviews, Mobil's Kearl oilsands mine project manager Jan Nowicki said the final upgrader location will be based on economic feasibility, environmental impact and public input.
A final decision on the upgrader is expected to be made by the fourth quarter of 1998.
Before Mobil proceeds with its final decision, Nowicki said the company will continue to work with local stakeholders to arrive at a decision that will be in the best interests of those involved, Mobil and the province. Faulkner said the municipality has much to offer but tax breaks haven't been considered. Council must be "fair and ethical to all" businesses, he said.
Chamber of Commerce president Paul Hartigan said McMurray has the advantage over Edmonton.
"To me if you are Mobil Oil ... the first choice should be Fort McMurray; Edmonton would be the alternate because this is where the product is," said Hartigan.
While transporting bitumen for processing elsewhere is possible, that means a two-step process, something a McMurray upgrader would avoid.
McMurray has also an experienced workforce with knowledge of the oilsands industry as another reason why Mobil should locate its upgrader here, he added.
As for the business community and how it would benefit, Hartigan said the impact would be significant. The estimated number of jobs the upgrader will create is between 600 to 800 and that doesn't include families which would follow their spouses.
Having the upgrader located here means businesses thinking of expanding to Fort McMurray would also have more reason to do so, he added.
Upgrader Quick Facts
* Estimated to cost about $1.5 billion, the upgrader would process bitumen from the proposed 130,000 barrels per day of bitumen from the Kearl oilsands mine located near of Syncrude Canada's Aurora mine. Decision is expected by the fourth quarter of 1998.
* 600 to 800 permanent upgrader jobs; up to 600 permanent mine operation jobs.
* Mine construction is expected by begin in 2000 with oil production targeted by 2003.
New Plant For Enerflex Systems
Calgary Sun
When I spoke to John Aldred yesterday, he was very upbeat. Upbeat, it should be noted, in his usual quiet and responsible way. And no wonder.
Aldred, chairman of Enerflex Systems Ltd. of Calgary, is one of Calgary's most innovative entrepreneurs and one of the nation's most visionary businessmen.
Just 18 years ago, Aldred set up shop in 200 sq. ft. of space. You might say it was a "walk-up operation" in that it was on the second floor of a bank.
Aldred intended to try and make a living selling compressor parts and services to the natural gas industry. A lot of people wondered whether he could make it.
They shouldn't have done.
For he's made quite a living at it -- and in the process has created jobs for hundreds of people and helped pay the mortgages and put savings in the bank accounts of thousands of families.
Today, Enerflex Systems is the largest gas-compressor packager in North America.
What's more, the founder of Enerflex is now building a $32-million new production and office facility in southeast Calgary.
Enerflex just goes from strength to strength.
The new plant will be on 40 acres of land at the corner of Peigan Tr. and 52 St. S.E., and the facilities will total 328,000 sq. ft. That's a far cry from 200 sq. ft. Back then, I'm told the 200-sq.-ft. operation wasn't even cramped.
But ever since, Enerflex has been constantly outgrowing its quarters and needing more and more room to expand. Enerflex now has seven divisions and does $336 -million a year in business. It has almost 900 men and women on staff, with the majority being in Alberta.
The company -- far from its initial roots -- now designs, manufactures, engineers, assembles and installs both custom-designed and standard compressor packages and gas engine power systems in just about every corner of the world.
Aldred and company president Malcolm Cox will officially break ground for the new state-of-the-art complex on July 29.
Coincidentally, Enerflex yesterday announced it planned to buy back 750,000 of its common shares within the next 12 months or so.
Aldred explained since his company is in a strong financial position, this could represent good value to shareholders. It surely will -- and the move is what so many companies do when they are flush with cash and profits. The shares are currently trading at about $36.
So come July 29, it surely will be a great photo opportunity at the groundbreaking and a time to celebrate. We should take our hats off to the likes of John Aldred, who have built so much for our community and our country.
Research Report
Gordon Capital
Probe Exploration Inc. (PRX-T: $5.25) STRONG BUY
Reserve Report Update within Next Two Weeks
Probe will be press releasing a summary of reserves added year-to-date. (This report will only disclose reserves added in the Wabamun and the Sparky zones at Leduc.) The 1997 year-end reserve report had approximately 2 million boes booked for the Wabamun and none booked in the Sparky. Reserves added year-to-date from other formations at Leduc and elsewhere will not be included in this upcoming report.
While work on this report is still underway, we expect reserves from these two zones to be in line with expectations -- approximately 20 million boes proven and probable. Production, currently at 11,800 boe/d, continues to reach new highs. Wet weather has caused some minor delays in Wabamun drilling, however results so far have been encouraging with six wells on production at an average rate of 200 boe/d per well.
Our fully diluted CFPS is $0.65 in 1998 and $1.15 in 1999. These forecasts are down slightly based on lower WTI price assumptions. We are currently using WTI of US$15.50/bbl in 1998 and US$17.00/bbl in 1999. Our 12-month stock price target for Probe Exploration is $9.00.
Rigel Energy Corporation (RJL-T: $13.50)HOLD
Exploration Update
The Burmis well in the southern Alberta foothills is shut-in for pressure maintenance and will remain so for another 4 weeks. As such, definitive test results for this well will not be available until late August. We still believe this well will be capable of 10 mmcf/d gas production with a very low H2S content.
On the Peace River Arch, Rigel recently enjoyed two 100% working interest discoveries. The first, at Valhalla is capable of producing 4-5 mmcf/d of gas with 100 bbls/d of associated liquids. The second, at Hythe, is capable of 9 mmcf/d of gas. Reserves attributed to these discoveries are 7 bcf and 10.5 bcf respectively.
Offshore in the UK, a decision should be made by late August on whether the Blake field will be brought on production this fall. Rigel has a 20% working interest in the Blake field. Rigel is also a 25% working interest partner in two exploration tests being drilled in quadrant 15/19 (just north of the MacCulloch field).
Rigel's current production is approximately 24,000 bbls/d of oil and 160 mmcf/d of gas. Debt stands at $292 million (2.6X our forecast 1998 cash flow). We are forecasting fully diluted CFPS of $2.00 in 1998 and $2.15 in 1999. Our 12-month stock price target is $14.50.
Anderson Exploration (AXL-T: $16.95) BUY
97% of Gas Production at Floating Prices
Anderson will receive a onetime US$75 million cash settlement on the cancellation of several long term gas supply contracts. The contracts had current prices in-line with the Nymex spot prices with escalating prices increasing at 3-4% annually. Consequently, all but 3% of Anderson gas production is now floating. The proceeds of the settlement will be applied against debt which adjusted for the payment stands at 2.1X our forecast 1998 cash flow. We are forecasting fully diluted CFPS of $2.25 in 1998 and $2.85 in 1999. Our 12-month stock price target price is $21.00.
Research Report
EVEREN Securities said Tuesday it upgraded its intermediate term rating on Enron Oil & Gas Co. to outperform from market performer.
-- EVEREN said in a report the upgrade resulted from the stock falling below $18, the biggest discovery well in the company's history and a second quarter financial performance that exceeded the firm's expectations.
-- EVEREN said it raised its 1998 cash flow estimate to $3.24 from $3.16 per share and its 1999 estimate to $3.91 from $3.84 per share.
-- ''Energy has been an underperforming sector thus far in 1998 and we believe that discouragement with the sector may be reaching a crescendo,'' the firm said.
Higher Earnings Seen For Shunned Oil Service Firms
U.S. oil field service companies are expected to post double-digit earnings increases despite the lingering slump in crude oil prices, analysts said on Wednesday.
Analysts have repeatedly lowered their earnings forecasts this year to reflect a reduction in oil company exploration and production budgets, much of which is spent on oil field services. But earnings for the most recent quarter and the year as a whole are still expected to be higher than year-earlier levels.
Price increases implemented by service companies before the worst of the oil price gloom descended would help to buoy earnings, Dan Pickering of Simmons & Co. said.
"Estimates are clearly coming down. We've had some pretty dramatic revisions in the past six weeks but the absolute numbers at this point still show growth," he said.
Four big oil field service companies will report earnings over the next two weeks: EVI Weatherford Inc., Schlumberger Ltd., Halliburton Co., and Baker Hughes Inc.
According to research service First Call Corp., Wall Street analysts are projecting double-digit earnings rises for all but Baker Hughes, which analysts say has been hit more immediately by low oil prices because a higher share of its sales consist of "consumables" such as drill bits and mud.
The First Call consensus figures show all four companies currently are expected to post double-digit earnings growth for the year as a whole and further profit increases in 1999.
As a group, oil field services stocks were among fund managers' favourites in1997.
Schlumberger, Halliburton and EVI all outpaced the 31 percent rise in the S&P 500 index last year with share price appreciation of 61 percent, 72 percent and103 percent, respectively.
But that has changed this year with most services stocks showing losses while the S&P 500 has continued its ascent.
Despite a mini-rally in recent days, Schlumberger's stock is down more than 13 percent so far this year and Halliburton's off over 18 percent while the S&P 500 is up over 21 percent.
Analysts said investors had lost confidence in the sector as successive recoveries in oil prices proved short-lived.
"Investor sentiment towards the group is horribly negative," said James Wicklund of Dain Rauscher Inc.
Wicklund said investors had probably overreacted, arguing that the current oil supply glut was far smaller than that in the mid-1980s. Wicklund foresees a firming of oil prices by the end of the year due to seasonal demand and recently agreed production cuts.
"Investors are looking for that before they really buy back into these stocks," he said.
Pickering said he also expected to see stronger oil prices by the late third quarter or fourth quarter of this year, which would benefit oil field service companies.
"We are looking for a rebound in energy fundamentals, which is going to translate into stronger activity," he said.
Asked about his favourite stocks in the oil field services sector, Pickering said EVI was "far and away the cheapest" based on his estimate of 1999 earnings.
Wicklund said he had a 'hold' rating on the larger companies and currently favoured niche oil field service players such as Core Laboratories and Hanover Compressor.
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