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Gold/Mining/Energy : KERM'S KORNER -- Ignore unavailable to you. Want to Upgrade?

To: Kerm Yerman who wrote (12782)	10/13/1998 12:18:00 AM
From: Kerm Yerman	Respond to of 15196

IN THE NEWS / Amber Succumbs To Alberta Energy's Improved Bid The board of heavy oil and gas producer Amber Energy Ltd. voted yesterday to approve selling the firm to giant Alberta Energy Co., finally ending its month-long struggle against a hostile takeover bid. It relented after AEC upped ''its offer for Amber shares to $7.50 from $7 each. In another sweetener, AEC is giving more Amber shareholders the choice of taking AEC stock, to a new total of 4.5 million shares, up from three million. AEC said it will pay $450 million in cash and stock, and assume up to $350 million in Amber debt. Gwyn Morgan, chief executive of AEC, said he and Amber CEO Richard Lewanski spent all weekend on the deal and finally came to an agreement just before midnight Sunday in a Calgary law office. The two firms then worked through the rest of the night to prepare a formal offer for approval by their boards yesterday morning. "We wanted to have a deal by the time the New York Stock Exchange opened [Monday] and we almost made it," Morgan said. "All teams from both sides are sleep-deprived but very pleased," he said. "We're quite confident that shareholders will tender their stock." To complete the deal, AEC must round up two-thirds of Amber stock by Oct. 23. During the bitter battle, Amber had repeatedly threatened to trigger a poison pill to fend off the takeover, but deferred the move several times. Amber said AEC's initial $7-a-share bid was inadequate, but yesterday its financial advisers approved the $7.50 offer. If the Amber board accepts a higher offer, the company must pay AEC a breakup fee of $12 million. The deal comes on the eve of an Alberta Securities Commission meeting, set for today, requested by AEC to end Amber's shareholder rights plan. Morgan sang the praises of Amber's heavy oil reserves yesterday. "This is the lowest operating cost and highest quality heavy oil produced in Canada." AEC's oil and natural gas reserves more than double with Amber. The deal comes at an opportune time, he added, just as workers open the valve on new pipelines that add one billion cubic feet a day of capacity for shipment to the U.S. "This is the first time in Canadian history where we had unrestricted access to the U.S. market," Morgan said. "We now have the largest gas storage, largest reserves and largest production of any publicly traded Canadian company, so we are very well positioned to take advantage of this new era of market access." He said there are no details on job losses from the takeover. AEC employs 850; Amber has 90 employees. Amber shares (AMB/TSE) closed Friday at $7.15, up 5¢. Alberta Energy shares (AOG/NYSE) closed at US$22, up 1/16.

To: Kerm Yerman who wrote (12782)	10/13/1998 12:27:00 AM
From: Kerm Yerman	Respond to of 15196

IN THE NEWS / Oilpatch Juniors Face Shotgun Marriages Shotgun mergers of junior energy companies, with debt-conscious bankers holding the weapon, will become increasingly common in the ravaged Canadian oilpatch. While examples exist today, the trend is expected to become more pronounced early next year when the picture for oil prices and reserves added in 1998 becomes clearer, analysts said. With oil prices stubbornly hovering about US$15 a barrel, banks are putting pressure on small firms with big debt loads. Deena Energy Inc. said recently its bank demanded repayment of a $6.5-million loan by Oct. 15. The firm said it is reviewing alternatives so it can restructure. Debt at some companies is creeping up to five and six times cash flow at current prices, said Tom Budd, managing partner of corporate finance for Griffiths McBurney & Partners in Calgary. Executives and managers are feeling the heat from nervous lenders, he said. "A number of companies have been under soft pressure from their bankers to repay a portion of the principal to bring debt in line with current valuations." Such payments would allow the banks to recover the outstanding amount owed if they were forced to sell assets pledged as collateral, Budd said. If firms don't improve their financial situation by yearend, there will be liquidations and forced sales in 1999, he said. Alan Knowles, analyst with Research Capital Corp. in Calgary, said the winter and its impact on oil prices will be crucial to the survival of some firms. He said bankers have reduced their price forecasts and are scaling back lines of credit, or changing revolving loans into term facilities at lower amounts. "I think we'll see a lot of this. If we don't see the loans being called, then we'll see them termed." Knowles has just completed an analysis of 90 firms in which he stacked first half debt against cash flow. The average firm studied had a debt ratio of 3.3, with Renata Resources Inc. carrying the heaviest load of 10.5. Firms adding to their reserves, particularly gas reserves, will be given more rope by lenders, while those with declining numbers will have the noose tightened, he said. But that tightening creates opportunities for better-financed companies, such as Keywest Energy Corp. The Alberta Stock Exchange listed firm has just taken over Colt Energy Inc., a deal that gave it access to Colt's cash reserves of about $8.1 million. Keywest has a kitty of $19.5 million and no debt, ideally positioning it to buy companies brought low by the oil price crash. "These are pretty exciting times for a startup oil and gas company," said Harold Pedersen, president and chief executive of Keywest. "The word is slowly filtering out that we are looking at corporate deals and we're starting to get more calls in the last month." He said the bleak conditions are similar to those of 1986, although this year's crude oil price slump has lasted nine months so far, compared with 12 months in 1986. Another difference is the high level of debt many companies are carrying, a fact Pedersen attributed to young managers not having gone through the brutal wringer a dozen years ago. He expects bankers will start reining in debt-levered energy firms in the first quarter, especially if oil prices don't improve during the winter. Oil-weighted companies tended to have the highest debt levels, Knowles said. Amber Energy Inc.'s debt was 6.8 times its cash flow and Gulf Canada Resources Ltd.'s was 6.5. While bankers may want producers to sell assets, the problem is finding buyers, analysts said. Renaissance Energy Ltd. recently pulled a package of gas properties, worth $200 million to $250 million, off the market because there were no acceptable bids. "There are very few people or companies in a position to buy assets because their balance sheets don't allow them to go out and make an acquisition," Knowles said.

To: Kerm Yerman who wrote (12782)	10/13/1998 1:10:00 AM
From: Kerm Yerman	Read Replies (1) \| Respond to of 15196

IN THE NEWS / U.S. Oil Services Earnings Seen Receding U.S.-based drilling contractors and oilfield service companies are expected to report lower quarterly earnings in the coming weeks as the year-old slump in oil prices finally filters through to their bottom lines. Up to the second quarter of this year, many drillers and service companies were still posting higher profits. By the third quarter, however, the impact of reduced spending by their customers in the energy exploration and production business was taking its toll. "Generally you're going to be seeing companies reporting pretty sharp year-over-year declines in earnings," said James Stone, an analyst who covers the sector for Schroder & Co. In addition to the wider malaise in oil and gas, third-quarter results of companies with substantial operations in the Gulf of Mexico are likely to have been held back by storms and hurricanes, which severely curtailed operations in that region in September. Several service companies, such as Cooper Cameron Corp. <RON.N> and Baker Hughes Inc.<BHI.N>, issued warnings last month that their earnings would fall short of Wall Street's expectations. Baker Hughes and BJ Services Co. <BJS.N> both announced big cuts in their work forces in a bid to reduce their costs and at least partially offset the deterioration in market conditions. Simmons & Co. analyst Roger Read said the larger oilfield service providers would typically report year-on-year earnings declines of 10 percent to 15 percent for the September quarter while the drop could amount to 30 percent to 40 percent for drillers. Analysts foresee at least two more quarters of flat or deteriorating earnings for oil service companies and drilling contractors, but most believe a recovery is not far away. "We would expect either in the second or the third quarter of next year that activity will start to improve and that you would see earnings improve along with that. Somewhere next summer is where we expect to see the upturn," Read said. Expectations of recovery are based on the assumption that supply and demand for oil will achieve more balance by mid-1999, allowing prices to stabilize at higher levels. They also assume that the economic crisis in Asia and emerging markets does not develop into a global recession. Analysts note that oilfield service stocks have fallen sharply since last autumn, mirroring the decline in crude oil prices and moving well ahead of the decline in sector earnings. The Philadelphia Stock Exchange oil services index<.OSX> has fallen more than 55 percent in the year to date, compared with a rise of 2.8 percent for the Standard & Poor's 500 index. Many analysts argue this steep descent has brought oil service stocks to a level at which the risk of further losses is far outweighed by the prospect of substantial gains in anticipation of a change in the sector's fortunes next year. "We don't see a lot of downside risk left here. ... Valuations appear to be very attractive, even on reasonably conservative estimates of profits and cash flow for 1999," said Stone.