Canadian Oil & Gas In The News - Friday A.M. 10/23/98
Canada's Crestar posts loss, production drop
CALGARY, Oct 22 - Crestar Energy Inc. <CRS.TO>, a mid-sized Canadian oil and gas producer, reported a net loss and declining production late on Wednesday, but still called the third quarter its best of the year.
The Calgary-based company posted a loss of C$9.3 million, or C$0.16 a share, for the quarter, against profits of C$2.3 million, or C$0.05 a share in the same period of 1997.
Revenue for the quarter fell two percent to C$132.7 million from C$135.6 million, and cash flow was down 16.4 percent to C$57.7 million from C$69 million.
"The year-over-year realizations we've seen are down pretty noticeably from 1997, but they're getting substantially better as we get through the year," Crestar Chief Executive Barry Jackson told Reuters on Thursday.
Combined third-quarter production was up 5.9 percent over last year, to 86,600 barrels of oil equivalent a day from 81,800 last year, but down 4.3 percent versus 1998 second-quarter production of 90,500 barrels of oil equivalent.
The company disposed a number of assets in the third quarter which lowered production from second-quarter levels, but cash flow improved over the same period, Jackson said.
"Notwithstanding the fact that production was down from the second quarter, cash flow was up, primarily because on the liquids side of our business we're seeing some recovery," he said.
Jackson cited narrowing differentials between light and heavy oil prices, decreased diluent costs and the lower value of the Canadian dollar against its U.S. counterpart as key elements in improved third-quarter netback prices for heavy oil.
Crestar is optimistic the West Texas Intermediate benchmark crude price will recover further and is bullish on gas pricing for the remainder of 1998 and into next year, Jackson said.
The company's shares traded up C$0.35 to C$16.20 in thin volume on the Totonto Stock Exchange on Thursday.
Canadian Occidental Petroleum Rated By Standard & Poor
Thu, 22 Oct 1998 18:47 EST
Preferred Securities BBB-
NEW YORK, Oct. 22 - Standard & Poor's today assigned its triple 'B'-minus rating to Canadian Occidental Petroleum Ltd.'s proposed US$125 million Canadian originated preferred securities (COPRS) issue.
In addition, Standard & Poor's affirmed its triple-'B' corporate credit and bank loan ratings of Canadian Occidental. The proceeds from the offering will be used to repay existing debt.
The outlook is stable. The ratings reflect Canadian Occidental's growing production and reserve base, and geographically diversified operations offset by a high debt burden.
Calgary, Alta.-based Canadian Occidental produces approximately 193,000 barrels of liquids a day and 426 million cubic feet of gas per day from proved reserves of 685 million barrels of oil equivalent with an 80 to 20 liquids and gas mix. The company continues to benefit from its acquisition of Saskatchewan-based Wascana Energy Inc. in April 1997.
The acquisition has significantly increased production and reserves in western Canada thereby reducing Canadian Occidental's dependency on crude production from Yemen. Production from Yemen in 1997 accounted for approximately 42% of total production versus 54% in 1996. In addition, the company should continue to benefit from over 1,000 drill-ready prospects within its significantly larger land base in western Canada.
As a result of the Wascana acquisition, total debt at Dec. 31, 1997 increased to over C$2.2 billion from C$572 million (at fiscal year-end 1996) despite asset disposals of C$491 million in 1997. Total debt to capital has increased to 63% from 33% at year-end 1996. Going forward, leverage is expected to remain high for the rating category as free operating cash flow otherwise available for debt reduction will be used to fund capital expenditures. Canadian Occidental plans to reinvest substantially all of its cashflow in capital expenditures. A significant portion of the capital program for 1999 and 2000 being allocated for unidentified opportunities. Earnings before interest, taxes, depreciation and amortization (EBITDA) interest coverage at 8.24 times (x) is adequate for the rating.
OUTLOOK: STABLE
Standard & Poor's anticipates that proceeds from fiscal 1998 and 1999 dispositions will go primarily towards debt reduction. While recent dispositions of non-core assets and debt refinancing have reduced Canadian Occidental's debt, total debt will remain high for the rating category. In addition, Standard & Poor's expects continued diversification in Canadian Occidental's production base, as the company increases production in Western Canada and other international areas. -- CreditWire
SOURCE Standard & Poor's CreditWire
Standard & Poor's Web site: ratings.standardpoor.com
(CXY)
CO: Canadian Occidental Petroleum Ltd. ST: New York IN: OIL SU: RTG
Oilpatch slowdown seen to keep pressure on drilling firms
The Financial Post
Canada's energy industry is predicted to drill 10,542 wells next year, a level expected to keep pressure on financial results and accelerate consolidation within the service sector.
The Canadian Association of Oilwell Drilling Contractors released its outlook for 1999 yesterday. It based is findings on oil fetching US$16 a barrel and natural gas selling for US$2.65 per thousand cubic feet.
The association, which represents most contract drilling firms, estimates that 293 rigs out of a fleet of 576 will stay busy in 1999, for average utilization of 51%. The percentage of units working compares with an expected rate of 50% for this year and 82% in 1997.
A record 16,500 wells were drilled last year, capping a five-year run of strong demand for drillers and other service firms. However, business has slumped this year with the 30% decline in oil prices.
The association's managing director, Don Herring, said assumptions behind the CAODC's numbers are fairly conservative, especially if gas prices improve in the fourth quarter of 1999. "The forecast assumes that 40% of the drilling activity will be directed to oil and 60% will be directed to gas," he said.
John McAleer, an analyst with FirstEnergy Capital Corp. in Calgary who tracks drilling trends and service firms, said gas accounted for about 37% of finished wells between 1995 and 1997. He expects gas to comprise 61% of completed holes this year and 63% in the upcoming 12 months.
Next year's forecast level of activity could spur consolidation, particularly among private firms that took on debt to expand their operations, McAleer said. "At that level of drilling, you'll continue to see competitive pressure in terms of pricing because people will try to keep their rigs busy and that will put pressure on margins."
Herring agreed that debt-laden companies are vulnerable, but added not many drillers are in this uncomfortable position.
The CAODC's conclusions and expectations were echoed in a new report from the Canadian Energy Research Institute. The independent Calgary think-tank estimates producers will cut capital budgets 13% this year to $11.74 billion. Based on a survey of energy firms' spending intentions, CERI forecasts oil expenditures will fall 28% to $4.6 billion while spending on gas will rise slightly to $7.1 billion.
New pipelines and increased demand are expected to boost gas prices in the coming years. CERI said 61% of capital spending by the year 2000 will be focused on gas projects.
The report put the number of gas wells to be drilled in Western Canada at 4,973 and 5,297 in the next two years, compared with 4,725 completions expected in 1998.
Emission curbs will hit oilpatch
Ottawa poised to unveil tough standards for gasoline
The Canadian government will announce plans today to slash sulphur levels in gasoline, a move that could cost the petroleum industry up to $2 billion, but also save lives.
Environment Minister Christine Stewart will tell a Toronto news conference sulphur levels must be cut to 150 parts per million by early next decade, sources said. This compares with a current range of 198 parts per million in Alberta to 579 million parts per million in Ontario.
The move will cost refiners about $800 million, according to a 1997 research paper prepared by the Canadian Petroleum Products Institute.
Its members, including Petro-Canada and Shell Canada Ltd., will have to invest in new technology that doesn't exist yet in commercial form to meet the new rules.
But the plan is expected to include further cuts, to as low as 30 parts per million by the middle of next decade. That would push the industry bill up to $2 billion.
Sulphur emissions have been linked to respiratory problems and, in some studies, to premature death. Groups ranging from Pollution Probe to the petroleum institute support reductions, but the question is how far and by when.
The U.S. Environmental Protection Agency is working out its position and an announcement is expected next month. The timing of the Canadian decision worries Bill Gilmour, the Reform party's environment critic. "Why are we jumping the gun before we know where the Americans are? If they come out higher, we're at a disadvantage."
The 150 parts per million figure will be an interim target, a source said. Delaying implementation until next decade allows industry the time to commercialize sulphur-reducing technology.
"It's a question of timing and costs," said Ken Ogilvie, executive director of Pollution Probe. "It's starting to look quite feasible technologically."
California's standard is already an average of 30 parts per million, up to a maximum of 80 parts per million. Stewart is expected to say Canada will follow the same model.
Motor vehicle manufacturers and Pollution Probe would like to see the implementation date for the lower acceptable standard set for 2001. But Brendan Hawley, vice-president of the petroleum institute, said it would be folly to get ahead of the U.S. "We need to be in tandem," because operating different systems on each side of the border would be difficult. In addition, independent gas retailers often buy their product in the U.S., an avenue that would be shut to them if regulations were not harmonized.
Officials in Stewart's office refused to comment on the announcement.
The U.S. government is rumored to be looking at the same numbers, with a reduction to 30 parts per million coming around 2008.
"I expect they'll end up at the same point, but after a lot more fighting," Ogilvie said.
Hawley said the Canadian petroleum industry, which employs more than 130,000 people in refining, distribution and product marketing, is behind the reductions, despite the cost. "We support that."
But it insists sulphur represents only a fraction of overall emissions.
"Much more comprehensive programs, focusing on all the major sources, are required to address the 94% to 98% of emissions coming from other sources," the institute said in a recent report.
North American sulphur levels average 520 parts per million. The industry blames higher Ontario levels on several factors, including refineries that are not designed to handle large volumes of newer synthetic crudes, which are low in sulphur.
Gas prices help Westcoast Energy trim losses
Higher natural gas prices helped Westcoast Energy Inc. trim its loss in the traditionally weak third quarter, the company said yesterday.
Westcoast said it lost $6 million (6¢ a share) in the Sept. 30 third quarter, compared with a loss of $17 million (17¢) the year before. Revenue was $1.84 billion, up from $1.49 billion.
Vancouver-based Westcoast British Columbia's biggest company in terms of annual revenue gathers, processes, stores and transmits natural gas.
Heating needs disappear in the summer, making the third quarter usually the weakest for gas firms.
But the loss of 6¢ a share beat consensus estimates. Analysts surveyed by First Call Corp. expected Westcoast to report an 8¢ loss.
"I don't think there's really anything out of the ordinary in these results. So that's positive," said Randy Ollenberger of Merrill Lynch Global Securities in Calgary.
Westcoast saw growth in the number of customers it services through its gas distribution business, primarily in B.C. and Ontario.
For the first nine months, profit was $98 million (94¢) on revenue of $5.51 billion, compared with a profit of $137 million ($1.34) on revenue of $5.28 billion in the first nine months of 1997.
"The effects of the warm weather patterns across Canada in the first six months of the year will impact full year's earnings," said chairman and chief executive Michael Phelps.
Adjusted for the weather, profit was $1.19 a share for the first nine months of 1998, compared with $1.28 in the same period of 1997.
Methanex takes hit from price slump
Methanex Inc. managed to beat analysts' estimates with a third-quarter loss that was narrower than expected.
Vancouver-based Methanex reported a loss of US$20.8 million (US12¢ a share) in the quarter ended Sept. 30, compared with a profit of US$50.2 million (US27¢) in the same period a year earlier.
Revenue was $178.3 million, down from $308 million.
"The results continue to reflect very much the current state of the industry," said Pierre Choquette, president and chief executive.
It was the second consecutive quarter in the red for the company. It posted a US$28.1 million loss in the quarter ended June 30.
Methanex has fallen prey to cheap prices for its primary product, methanol.
The chemical, derived from natural gas, is used as a building block in the manufacture of other chemical products, such as resins and glues used to make particle board and manufactured wood panels. Methanol is also used to make a fuel additive used to reduce gasoline emissions.
Methanol prices have collapsed due to the drop-off in demand from Asia. A gallon of methanol used to cost about US60¢. The spot price is now about US30¢, with the contract price a few cents higher.
The company expects an excess of methanol supply and volatile natural gas prices to continue to put pressure on methanol pricing.
Yet Methanex's third-quarter results were not as bad as expected. Analysts surveyed by IBES Inc. expected the company to lose US15¢ a share. Choquette said the loss was narrowed due to an insurance recovery from Chile and tax treatment.
Third-quarter sales volumes exceeded second-quarter sales by 25%. The company boosted plant operating rates to an average 85% in the third quarter from 70% in the second quarter.
Its financial position remains strong, with about US$333 million in cash and US$387 million in undrawn credit as of Sept. 30.
Methanex shares (MX/TSE) closed yesterday at $8.65, up 15¢.
Methanex says continuing NZ search for gas supply
WELLINGTON, Oct 23 - Methanex Corp <MX.TO>, facing the possibility of being unable to secure more gas for its New Zealand methanol plants, said on Friday it was continuing to search for new reserves and expanding contracts with gas suppliers.
"We signed a memorandum of understanding with Fletcher Challenge Energy <FEG.NZ> that we would work together to try and provide new gas for Methanex plants," a spokeswoman for Methanex New Zealand Ltd said.
"Our existing contracts for gas expire in 2003. Obviously we have to come up with new gas supplies. We are still working with Fletcher Challenge on that," she added.
Fletcher Challenge was still exploring the extent of the Mangahewa field -- alongside the two methanol plants in north Taranaki -- and Methanex did not yet have a full report of the field yet, she said.
According to Q3 financial statements released in Canada, Methanex, a Vancouver-based methonal producer and marketer, said it produced 495,000 tonnes of methanol in New Zealand in the September quarter (vs 350,000 tonnes in Q3 1997), bringing its production for the nine months of the current financial year to 1.22 million tonnes (vs 1.46 million tonnes).
New Zealand makes up about 37 percent of the company's overall methanol production.
Production from the company's New Zealand operations is dependent on supplies of gas from the Maui and Kapuni fields and any reduction in the gas recovery from field closures could cut Methanex's gas entitlements, the statement said.
"The company has entered into discussions with gas suppliers to develop a longer term gas supply for the New Zealand operations. There can be no assurance that the company will be able to secure additional gas in New Zealand at economically attractive terms," it added.
The spokeswoman added that discussions for new contracts would be held with Fletcher Challenge Energy and Methanex was not looking for an alternative supplier. The statement said Methanex recorded a net loss of US$20.8 million for the third quarter that ended September 30, compared to a profit of US$50.15 million a year ago, due to lower methanol prices, despite cuts in operational costs.
Fletcher Challenge owned a 43 percent share of Methanex until 1993.
Vitol Canada refinery turnaround to end late Nov.
CALGARY, Oct 22 - A scheduled maintenance shutdown at North Atlantic Refining Ltd.'s 105,000-barrel-a-day refinery at Come By Chance, Newfoundland, is slated to be completed near the end of November, the company said on Thursday.
North Atlantic, owned by Dutch trading group Vitol, plans make heater upgrades and install new equipment at the plant during the turnaround aimed at boosting efficiency and environmental performance, the company said.
The outage began on Monday.
''There's one part that's very significant to this turnaround, it's a reaction furnace which we're adding to our sulphur unit,'' refinery spokeswoman Gloria Slade. ''It will help us reduce our sulphur dioxide emissions.''
About 2,000 workers were to be on hand during the turnaround, the company said.
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