CANADIAN STORIES IN THE NEWS
France's Total quietly returns to Canada oil patch
French oil company Total SA , which left Canada after selling its assets five years ago, has quietly reopened an office in Calgary to scout out opportunities in the country's burgeoning oil sands industry.
Paris-based Total, the world's 7th-largest oil firm by petroleum reserves, has dispatched two senior executives to Canada's oil patch to search for heavy crude projects that would complement a major Total development now under way in Venezuela.
''We're carefully and systematically talking to people, indicating our interest,'' Bob Skinner, Total's new director for business development in Canada, told Reuters on Wednesday. ''We'll continue to study the prospects and see what opportunities there are for Total to get a presence. It's very much a long-term perspective we have.''
Skinner, a Canadian and onetime senior bureaucrat in the federal government's energy ministry, said he and his colleague, Calgary office general director Jean Vallet, had a specific shopping list of projects they were in the market for, and a deal was not expected shortly.
Total is interested in developments in Alberta's vast Athabasca oil sands that would involve pumping extremely heavy, tar-like crude to the surface in horizontal wells, using steam injected into the reservoir to make the oil flow freely. The recovery technology, now used by a host of Canadian companies, is known as Steam Assisted Gravity Drainage.
The French firm is not in the market for oil sands mining and extraction developments, such as the major ones operated in northeastern Alberta by Syncrude Canada Ltd. and Suncor Energy Inc. (Toronto:SU.TO). Nor does it want to get involved in conventional heavy oil development, Skinner said.
Alberta's oil sands, which now produce enough oil to supply 20 percent of Canada's demand, are the target of billions of dollars of spending by several major oil companies with the financial wherewithal to withstand expensive development costs and today's low crude prices.
Skinner declined to disclose what the value of a potential Total project would be.
Total jettisoned its assets in the Canadian oil exploration and production business in 1993 by selling its 53 percent interest in Calgary based subsidiary Total Canada Oil & Gas Ltd. to investors in a secondary public offering.
Following the sale, the Canadian unit became Rigel Energy Corp. (Toronto:RJL.TO), which today has conventional oil and gas operations in western Canada and the North Sea.
''We're not here to set up an operation like we had before, that's clearly illogical,'' Skinner said.
In Venezuela, Total has a 47 percent stake in the $3.6 billion Sincor project located in that country's prolific Orinoco heavy oil belt. Production, to peak at 200,000 barrels a day, is slated to start in 2001.
Its partners in the development are Venezuela state oil company Petroleos de Venezuela with 38 percent and Statoil of Norway with 15 percent.
Skinner pointed out that the Athabasca oil sands and the Orinoco belt were the two biggest unconventional heavy crude deposits in the western hemisphere. They are located just north and south of the huge U.S. refining and gasoline sales market, which offered an easy and lucrative outlet for production.
Ipsco Inc.feels heat from drop in oilpatch needs
Slumping demand in the Canadian oilpatch contributed to a 22% drop in third quarter earnings for Ipsco Inc. and the outlook for the current quarter is not bright.
The Regina-based steel manufacturer had a profit of $26.1 million (64¢ a share) in the three months ended Sept. 30, down from $33.3 million (82¢) a year ago. It was expected to earn an average of 76¢ in a survey of analysts by First Call Corp.
Revenue rose almost 3% to $284.1 million on higher shipments, with the volume of finished product up 8% to 384,600 tons.
Third quarter earnings were lower than in the second-quarter, traditionally the weakest, and Ipsco is warning things may get worse.
"We expect the fourth quarter could be a little lower than the third quarter," said Ed Tiefenbach, vice-president and chief financial officer. "It's definitely tougher than it's been in the past three years."
The warning is not surprising, given the fierce competition in the steel business, said John Novak, industrial products analyst for TD Securities Inc. in Toronto.
"It's a pretty tough market but a lot of [steel] companies have improved their cost structures and operations so they are in better shape than a few years ago. Ipsco is definitely one of the best," he said.
Low oil prices have drastically reduced oil and gas drilling in Western Canada. Ipsco's sales of energy tubular goods fell 27% from the same period last year. It was also hurt by a flood of imported steel. U.S. and Canadian firms say Russian and Asian steel makers have been dumping goods here as recession reduces demand at home.
For the nine months, Ipsco had profit of $89.7 million ($2.20) on revenue of $858 million, compared with profit of $94.1 million ($2) the year before.
The results, released before the market opened, pushed the shares (IPS/TSE) down $1.15 to close at $25.05.
Time to pay piper for royalty and income trust investors
Last year's market excesses are catching up to royalty and income trust investors, who are due to pay some $1.2 billion by the end of November for instalment receipts that in some cases are worth a fraction of their original value.
Analysts expect investors, many of them retail, to honor the obligations rather than default en masse as they did in the recent case of Fracmaster Ltd., when two thirds of receipt holders, owing $177 million, defaulted on former chairman Alfred Balm. He's now planning lawsuits against them.
But the "overhang" is expected to depress even more the already battered securities over the short term, analysts said yesterday.
Toronto analyst Alice Sun, with TD Securties Inc., said investors who have to pay up will likely sell other royalty trusts to generate cash.
Royalty and income trusts issued units in IPOs worth $10.6 billion in 1997. Only $7.3 billion was paid up front. The remaining $3.3 billion was due in 1998.
The $1.2 billion to be paid up in October and November represents the largest amount in such a short period, Sun said.
Officials with Pengrowth Energy Trust are confident investors will pay $194 million due by the end of today, on top of $15 million that has already been paid.
Investors owe the company, which manages oil and gas properties in Alberta, $8.75 per trust unit. The investment receipts (PGFIR/TSE), which traded above $12 last fall, closed yesterday at $1.95, down 5¢. Pengrowth's fully paid units (PGFU/TSE) closed unchanged at $10.75. They traded over $20 a year ago.
"It's unfortunate what has happened," said chief financial officer Rob Waters. "On the other hand, we are yielding a good yield of about 13% to 14% at the bottom of the oil market."
Receipt holders who don't pay lose the unit. If they don't want to come up with the cash, they are better off selling, he said.
"We have seen cash distributions come off [for oil and gas trusts] because of the decline in oil prices," said Brian Ector, an oil and gas analyst with CIBC Wood Gundy Inc. in Calgary. "Pengrowth still has a strong balance sheet and is in a position to participate in this buyer's market for oil and gas properties."
A recent CIBC Wood Gundy report says royalty and income trusts of all types declined an average 24% in the 12 months ended Sept. 30, reflecting both the decline in unit values and the decline in cash distributions. Over the same period, the TSE 300 index was down 19%.
The trusts that have payments coming due span every industry, but oil and gas and pipeline trusts are particularly affected by the overhang.
A final payment of $4 is due on instalment receipts of Pembina Pipeline Income Fund on Oct. 23, for a total value of $249 million.
The units (PIFIR/TSE) have been trading around $3, closing yesterday at $2.90, up 1¢.
Koch Pipelines Canada LP still has to collect $4 from investors on Nov. 27, for a total value of $150 million. The units (KPCIR/TSE) closed at $2 yesterday, up 18¢.
Investors in TimberWest Timber Trust owe another $122 million by Nov. 12. The final instalment is $6. The units (TBWir/TSE) closed unchanged yesterday at $1.75.
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