Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Kerm Yerman who wrote (14264)	12/14/1998 9:09:00 AM
From: Kerm Yerman	Read Replies (1) \| Respond to of 15196

IN THE NEWS / Anti-Propane-Merger Case Has Holes Monday, December 14, 1998 Globe & Mail Calgary -- In its bid to block the merger of Superior Propane and ICG Propane,one of the biggest pieces of artillery in the federal Competition Bureau's arsenal has been the sheer size of the combined entity's propane market share. After all, the company would have more than 70 per cent of the market for propane in Canada, and that couldn't possibly be right. Right? Unfortunately for the bureau, it's not that simple. And while the bureau proceeds with its case before the Competition Tribunal, that body already has provided a glimpse of its thoughts by turning down the bureau's request for an injunction to halt the merger. In its decision, the tribunal makes it clear there are some sizable holes in the bureau's case. Under the Competition Act, the burden of proof required in order to find that a merger is "reasonably likely to prevent or lessen competition substantially requires the tribunal to embark upon a consideration, at least to some extent, of the merits of [the bureau's] position," Mr. Justice Marshall Rothstein said in his decision. Although the fact that Superior would have 70 to 100 per cent of the propane market in some regions is important information, the presiding judge wrote that under the section of the act the bureau used, "significant concentration or market share . . . cannot be the sole basis for a finding that a proposed merger is likely to prevent or lessen competition." Judge Rothstein said it is crucial to determine what market the company's products really compete in. Although the bureau argued that supply and delivery of propane was the relevant market, the judge said "the tribunal cannot merely assume that the director's market definition is the correct one. This must be established in the evidence." One of the central questions, the judge said, relates to "substitutability" -- in other words, whether the product competes with other products. The tribunal accepted evidence from Superior that propane demand in most industry segments has dropped 30 per cent since 1980. If demand has decreased that much, the obvious implication is all those customers have switched to some other fuel. The tribunal accepted the evidence of Superior executives that propane use suffers dramatically whenever natural gas becomes available in an area, since appliances "can be adapted for natural gas use with a few, very minor, adjustments." One significant gap in the bureau's argument, the judge said, is the fact that it "has provided no evidence . . . that propane pricing [is] independent of the pricing of other fuel sources. There is no such evidence. On the contrary, there is evidence from the respondents that pricing practices are governed by alternative fuel cost comparisons." The bureau also made much of the fact that two-thirds of those who responded to a survey about the merger were "concerned" about it, but the judge said the bureau sent out more than 7,500 surveys but received 705 responses. Judge Rothstein said he could not presume that "the 10 per cent who responded were indicative of the 90 per cent who did not." Another key piece of the bureau's argument was that propane companies such as Superior and ICG sign their customers to long-term contracts that make it difficult for them to switch to other energy sources. But instead of finding that this was evidence of anti-competitive behaviour, the tribunal judge wrote that he was inclined to think just the opposite. If these contracts "were intended to offer favourable prices to customers in consideration for a long-term commitment to use propane, I do not think that is an indication propane is in a market by itself," he wrote. "On the contrary, the contracts may indicate that propane is highly competitive with other energy sources and the contracts are intended as a competitive tool." The judge also mentioned a letter written to Superior Propane by a bureau staff member in 1993, in which the bureau said it was not opposed to a merger with another propane company. "There is evidence that [the bureau] . . . was of the view that there was competition as between propane and gasoline and natural gas [and] that the industry had relatively low entry barriers." So far, the bureau "has not indicated what has changed." In conclusion, Judge Rothstein said: "On the basis of substitutability . . . propane appears to have a market share of approximately 2 per cent in the energy market. I therefore must conclude that a high market share within the propane industry itself does not imply that the proposed merger is reasonably likely to prevent or lessen competition substantially." In effect, he accepted the arguments of Superior in every instance. The bureau has said that it was not prepared for the higher burden of proof required by the section of the act it chose to file under, since this is the first time it has used that section, and says it has plenty of proof for the claims dismissed by the tribunal judge. It had better, because so far its case is full of holes.

To: Kerm Yerman who wrote (14264)	12/14/1998 9:12:00 AM
From: Kerm Yerman	Respond to of 15196

IN THE NEWS / Lower Oil Prices Hurt Small Producers By Sara Nathan, USA TODAY Oil prices continue to fall amid a global oil glut and fears that major oil producers won't cut their output soon. Crude oil for January delivery fell 44 cents, or 3.7%, to a 12-year low of $10.72 a barrel Thursday. Prices rebounded slightly Friday morning. While lower oil prices mean consumers pay less to fill up their tanks, smaller oil producers are hurting. Sarah Emmerson, director of Energy Security Analysis, says smaller oil producers could be pushed into bankruptcy unless prices rebound. "We have a fairly significant surplus," she says. "At what price do they shut the pump off?" Steve Layton, president of Equinox Oil in The Woodlands, Texas, near Houston, says he has cut a quarter of his production and had to lay off 60 longtime employees from his workforce of 120. The company shut an oil well in California where it cost $1 more to produce a barrel of oil than it could fetch on the market, Layton says. "When you have to shut the wells, the jobs just aren't there," he says. "It's extremely tough to keep things going." At JP Oil in Lafayette, La., talk at the office revolves around Organization of Petroleum Exporting Countries (OPEC) negotiations and the impact of presidential elections last week in Venezuela, OPEC's second biggest oil producer. OPEC agreed earlier this year to cut production by 10%, or 2.6 million barrels a day, in an attempt to buoy prices. But Venezuelan President-elect Hugo Chavez has said he did not expect more cuts this year. For JP Oil, which has cut production 15% this year and reduced staff to 115 from 125, that means continued hardship. "It hits the independent seller harder than the Exxons and Chevrons because we don't have the deep pockets," JP Oil's Chris Van Way says.

To: Kerm Yerman who wrote (14264)	12/14/1998 11:45:00 AM
From: Kerm Yerman	Read Replies (2) \| Respond to of 15196

IN THE NEWS / Royal Dutch-Shell Poised To Cut Jobs, Assets By $6.6B Monday 14 December 1998 Herald News Services The Royal Dutch-Shell Group will unveil today a sweeping cost-cutting program that will reduce the value of its assets by billions. Analysts predict the company plans to dispose of about $6.6 billion US in assets in the next three years and that it will announce a reduction in capital spending for next year from $16.5 billion to $11.6 billion US. Other possible actions by the Anglo-Dutch oil giant include a profit warning, an announcement of plans to sell parts of the business and further plans to cut staff levels beyond the 6,000 job cuts announced in recent months. The company would not comment Sunday but said it planned to issue a statement this afternoon. It took tentative steps last week toward changing the consensus management style of the century-old company, appointing chief executives to run each of its four core businesses. Mark Moody-Stuart, chairman of Shell's committee of managing directors who expects a rough ride from analysts at today's presentation, is believed to have given ultimatums to senior management at a conference last week, telling them that poor performing businesses would be fixed or would leave the group. Like other oil groups, Shell has been hit by a double whammy of 12-year lows in the price of oil and falling demand in crisis-hit Asia. Its international energy operations include majority control of Shell Canada Ltd., the Calgary-based oil company that employs thousands of Canadians in oil and gas production, its three gasoline refineries and retailing at its network of close to 2,100 stations across the country. A Calgary oil industry analyst said Sunday any cost-cutting or job losses at Royal Dutch-Shell would likely spell trouble for employees at its Calgary-based Canadian subsidiary "They're part of the same family so it's got to affect them," said Ian Doig, of Doig's Digest, an industry publication. Doig says what was once believed to have been a temporary, six-month drop in the price of oil looks to be more permanent. "I think people are starting to realize this is going to be a long issue." said Doig. Shell may have to sell assets or merge with another oil giant to remain competitive in world markets, at the cost of jobs, he added. While many blame the Asian economic downturn for reducing the demand for oil worldwide, Doig said the supply has increased due to success in finding new reserves and new drilling technology to extract oil cheaper. "Our publication has said from the beginning (that) the supply side was a darker cloud than demand," he said. Wilf Gobert, an energy analyst with Peters & Co., said Shell Canada ''may not be affected at all'' by asset writedowns of its European parent. He said cost-cutting could hurt such joint future initiatives as the Sable Island natural gas project of which Shell holds a 31.3-per-cent stake. The company is involved in a $3.4-billion Alberta tar sands development project. There have been rumours that Shell might opt to follow the lead of rivals British Petroleum and Exxon and address its problems via a takeover of Chevron. But analysts believe the company has decided to put its own house in order rather than take on new assets. Both Shell and Chevron have declined to comment on the takeover talk. "Shell has been somewhat behind its rivals in cutting costs," said Jim Wood-Smith, head of research at stockbrokers Greig Middleton. "It has a famously bureaucratic management structure. "This means there is plenty of room for efficiencies and job cuts are inevitable." The Royal Dutch-Shell group has already announced the likely closure of its 92,000-barrels-a-day Shell Haven refinery in Britain. One analyst said Shell would be looking to sell parts of its chemical and coal divisions, while there may be further European refinery cuts to come. Industry experts have said 15 per cent of the production capacity in Europe's refineries needs to be cut to bring stability to the market. Some Shell watchers warned the announcement may not include much detail. They said the company may choose to tell employees of its plans before it tells analysts.