KORNER REPORT / Closing Markets With Focus On Oil & Gas (Page 1 of 2)
Stock Markets Limp After High-Tech Shares Stumble
Scores of high-flying technology stocks were shot down Thursday as investors took
aim at a sector that has gone nowhere but up in the past four months. Nervous
investors were concerned that high technology issues might have finished their bull run
as communication equipment companies and Internet stocks tumbled.
For their part many high tech Nasdaq stocks on Thursday were knocked down by a
powerful sell-off as investors took profits off the table after the recent rally. The
Nasdaq composite index fell 70.77 points, or nearly 3 percent, to 2344.7 points.
"There's a lot of talk about whether the Internet bubble has burst," said Dan
Mathisson at D.E. Shaw Securities. "We've started to see some panic, which feeds on
itself."
Among other losers, Cisco Systems fell $4.81 to $101.31, Ascend $8.19 to $81.75,
Yahoo $22.19 to $265, Excite $10.75 to $85.87, and Sun Microsystems $7.37 to
$98.
IBM -- which after the close reported earnings of $2.47 a share, beating the average
estimate by 2 cents -- rose $2.75 to $197.25.
North American players also mulled over the words of Greenspan, who testified
before a U.S. House of Representatives committee on Wednesday. He said turmoil
abroad and falling exports posed risks to the "sparkling" U.S. economy and suggested
he was in no rush to cut interest rates.
Greenspan also sounded a cautious note on the high level of U.S. stock prices, which
he said may be difficult to sustain because of weaker corporate profits.
Toronto's index of large companies, the S&P/TSE 60, fell 5.54 points to 385.01.
The Toronto Stock Exchange's key 300 Composite Index dropped 76.58 points or
1.1 percent to 6635.76 points. Trading on Canada's largest stock market was high at
121 million shares worth C$2.4 billion. Falling issues outnumbered gainers 585 to 383
while 290 closed flat.
The TSE 100 lost 4.98 points to 405.18.
Again, technology stocks got hammered. Open Text Corp., for example, plunged $9,
or 20 per cent, to $36.00. Newbridge Networks Corp. fell $3.25 to $54.50, ATI
Technologies dropped $1.15 to $22.80, Nortel Networks slipped 95 cents to
$81.90 and Corel Corp. was off 60 cents at $6.80 and Bid.Com International fell
$1.45 to $5.15.
There was profit-taking across the whole technology sector, said Jim Mountain,
managing director of equity trading at ScotiaMcLeod in Toronto. That sector, as
everyone knows, has been very frothy. It was a day when the market decided to take
some money off the table.
The Dow Jones Industrial Average in New York fared little better, falling 71.83
points or nearly 0.8 percent to 9264.08 points as Internet related shares came down
to earth faster than most.
"The markets started to give back a little," said Irwin Michael, portfolio manager at
ABC Funds. "People are just jittery, this time of year."
"This is a skittish, nervous market and we're watching with some trepidation the
Internet stocks in the U.S. that are getting hurt again today," said Rick Hutcheon,
president of CentrePost Mutual Funds. "Tech stocks have been driving this market
but if you get two or three days of big negative moves it could hurt confidence,"
Hutcheon added.
Some of the selling was spurred by Barton Biggs, investment strategist at Morgan
Stanley Dean Witter, who warned that the spectacular rally in Internet stocks will
come to a very bad end.
Among oil and gas related issues, Schlumberger (SLB) gained 1 5/8 to 49 7/8. The
New York oil services provider reported fourth quarter profits that topped Wall
Street's forecasts, though the company cautioned that demand for the sector's
services is likely to continue flat this year.
Exxon's stock edged 1/8 lower Thursday to 70 1/8 as the company reported their
1998 results. Exxon's profit per share during the quarter, at 63 cents against $1.01 in
the year-ago period, including credits, were ahead of the consensus estimate of 57
cents a share. But analysts' estimates had been lowered to reflect difficult
circumstances for the company. For the year, Exxon said profit dropped 25 percent
to $6.4 billion. Revenue for 1998 totaled $117.5 billion, down from $137 billion in
1997. The profit decline was directly linked to the lower price of oil, which fell 33
percent from 1997. "Average crude prices for the year were at their lowest level in
over twenty years," said CEO Lee R. Raymond in a release. "Earnings were also
adversely affected by lower natural gas prices, weaker chemical margins and
depressed copper and coal prices."
Overall, eight of Toronto's 14 subsectors spiraled downward. The consumer products
group suffered the heaviest losses in Toronto. It shed 3.3 per cent as Seagram Co.
dropped $4.65 to $66.35 on 1.9 million shares traded. That's a stock that's been
galloping ahead here, said Mountain. When you get profit-taking, it tends to feed on
itself. Seagram had soared to a record $71 on Wednesday.
Northern Telecom lost 95 cents to $81.90 after U.S. rival Lucent Technologies
reported a jump in profit but lower-than-expected revenue. BCE,which owns 42 per
cent of Northern Telecom, dropped $1.30 to $60.60.
The heavily weighted financial services index, which make up more than one fifth of
the TSE 300, also performed poorly - giving up 2.1 per cent. National Bank
dropped $1.30 to $22.80 and CIBC dropped $1.40 to $38.60 on 1.8 million shares
traded. CIBC's chairman, Al Flood, confirmed Thursday he expects to resign this
year. Flood's decision comes after one of the bank's most turbulent years in recent
memory. Flood had wanted to become chairman of the new bank formed by the
proposed merger between CIBC and TD Bank, but that plan was scuttled by Ottawa
in December.
Another loser on Bay Street was the conglomerates sector, which dropped 1.92 per
cent. Onex Corp. fell $2.20 to $43.55, EdperBrascan Corp. dropped 50 cents to
$21 and Canadian Pacific was off 60 cents at $30.80.
Only six of the 14 stock groups in Toronto gained ground Thursday. The pipelines
sector was the biggest winner, adding 1.6 per cent. Other bright spots included oils
and forestry products.
TransCanada Pipelines closed up $0.45 at $21.55 0n 2.2 million shares.
The TSE Oil & Gas Composite Index gained 1.5% or 66.92 points to
4573.54. led almost entirely by the Integrated Oils Group which gained a healthy
4.5% or 301.30 to 7067.44. Oil and Gas Producers managed a gain of 0.3% or
11.93 to 3996.22. The Oil and Gas Service group fell 0.6% or 8.38 to 1305.01.
The nation's integrated oil companies, Imperial Oil Ltd. and Petro-Canada, saw their
shares rise on Thursday after an increase in base oil prices. Imperial, which is 69.6
percent owned by U.S. oil major Exxon Corp., rose C$1.40 to C$24.20 while
Petro-Canada added C$0.35 to C$17.50. Suncor Energy, who reported earnings
yesterday, gained $2.85 to $43.25
Among oil & gas producers, Canadian Occidental Petroleum was up 50 cents at
$24.50, Rio Alto Exploration gained $0.55 to $14.85 and Poco Petroleum rose 35
cents to $11.65.
Gold producers climbed with the price of bullion. Franco-Nevada added 80 cents to
$29.25, while Barrick rose 10 cents to $30.10.
Alcan Aluminium Ltd., the world's second-largest aluminum firm, fell C$0.75 to
C$40.25. The Montreal-based company said its fourth quarter earnings fell to $89
million, or $0.38 a share, from $146 million, or $0.63 a share, due to the sharp
decline in aluminum ingot prices.
Trading was heavy on the Montreal Stock Exchange on 17.6 million shares worth a
value of 234.4 million dollars. The MSE Portfolio Index dropped 50.80 or 1.5% to
3429.20 which was the low for the session. The index had traded as high as 3496.23
earlier in the day.
Most active traded issues were Methanex Corp., down $0.10 to $7.85, CGI Group
fell $0.50 to $37.25, MPact Immedia was down $2.40 to $20.05, Alliance Inc.
gained $0.90 to $15.00 and Crestar Energy closed $0.50 lower at $12.45.
Trading was active on the Vancouver Stock Exchange. Volume was 25.1
million shares worth 30.6 million dollars. Declining issues led advancing issues, 144 to
129 with 286 issues unchanged. The VSE Composite Indicator closed down 1.06 or
0.3% at 417.54. The VSE Mining Indicator also fell 1.56 to 308.35. The Oil & Gas
Index closed up 40.75 or 2.1% to 1965.53.
Most active issues were Int'l Kirkland Minerals, unchanged at $0.40 on volume of 2
million shares, Argintina Gold was also unchanged at $5.15 on volume of 1.8
millionshares, Cons Samarkand Resources fell $0.02 to $0.17 on volume of 1.8
million shares, Uniglobe Travel OnLine fell $1.45 to $$4.10 on volume of 1.5 million
shares and East Africa Gold gained $0.02 to $0.17 on .9 million shares.
The Alberta Stock Exchange's Combined Value Index fell 13.87 or 0.7% to
1,876.79 on volume of 7.8 million shares worth 3.9 million dollars. A total 377 issues
exchanged hands with decliners outpacing advancers 146 to 106 with another 125
uchanged.
Most active traded were ICE Drilling, unchanged at $0.06, NHP Natural
Health gained $0.06 to $0.92, Storage One fell $0.04 to $0.16, Plata Mining gained
$0.01 to $0.25 and Totally Hip Software gave up more of its recent gains, losing
$0.15 to $1.13. Trading in Totally Hip over the past three trading sessions has
averaged 6.5X normal trading activity for the stock.
Oil & Gas Earnings
Low Oil Prices Cut Canadian Integrated Oil Firms' Profits
Canada's biggest oil companies, Imperial Oil Ltd. and Petro-Canada , showed on
Thursday how depressed crude prices in 1998 had chewed away at their fortunes by
reporting double-digit drops in profit.
Of the two big oil and gas production, refining and marketing groups, Toronto based
Imperial experienced a smaller slide in earnings than Petro-Canada of Calgary. But
both said world oil prices, which fell by an average of 30 percent last year and dipped
at times to 12-year lows, overshadowed their moves to boost productivity and cut
costs.
"The continued weakness in crude oil markets suggests 1999 will be a very
challenging year for our company," Bob Peterson, chief executive of Imperial, the
country's largest oil concern, acknowledged in a statement.
Imperial is 69.6-percent owned by U.S. oil major Exxon Corp.
Imperial, a major force in oil sands production and also known for its national
network of Esso gas stations, posted 1998 net earnings of C$554 million or C$1.26 a
share, down 35 percent from C$847 million or C$1.83 in 1997. Revenues totaled
C$9.1 billion, down from C$11.1 billion the year before.
In the fourth quarter, earnings were halved to C$136 million or C$0.31 a share from
year-earlier C$272 million or C$0.60 a share. The most recent profit included a
C$74-million gain stemming from a tax refund from the Alberta government.
Quarterly revenues were C$2.2 billion, down from C$3.1 billion.
"The most significant factor influencing our 1998 results was much lower crude oil
prices, which more than offset the favorable impact of tax refunds and strong
operating performance," Peterson said.
Indeed, it was Imperial's natural resources division which showed the biggest financial
decline. The unit, which has a 25 percent stake in the Syncrude Canada Ltd. oil sands
project and runs its own major heavy oil operation at Cold Lake, Alberta, earned
C$107 million in 1998, down 77 percent from 1997.
The downstream, or refining and marketing, division, meanwhile, generated profits of
C$274 million in 1998, down 8 percent from 1997.
At Petro-Canada, the country's No. 2 integrated oil company, 1998 profits tumbled
69 percent. But the company said its big growth initiatives like the Hibernia and Terra
Nova oil developments off Canada's east coast remained on track.
Petro-Canada's 1998 net earnings were C$95 million or C$0.35 a share, after a
second quarter reorganization charge and gains on asset sales. In 1997, the company
recorded profit of C$306 million or C$1.13 a share. Revenues were C$5.0 billion,
down from C$6.1 billion.
"Exceptionally low crude oil prices made 1998 a difficult year for the oil and gas
industry," Petro-Canada Chief Executive Jim Stanford said in a statement. "However,
we continue to position Petro-Canada for the long term, investing in areas with the
greatest potential and divesting non-core assets."
In the fourth quarter, the company's net earnings slid 50 percent to C$39 million or
C$0.14 a share, from C$78 million or C$0.29 a share in the same period of 1997.
The recent quarter's figure included several one-time items, such as a C$12-million
gain on the sale of its Calgary office tower and a C$32-million loss provision for
planned sales of closed gas station sites.
Petro-Canada also sold its ICG Propane Inc. subsidiary in for C$177 million in
December, but recorded no gain or loss.
Quarterly sales were C$1.2 billion, against C$1.5 billion.
Like Imperial, Petro-Canada's exploration and production division accounted for the
biggest drop in fortunes. It posted operating earnings of C$29 million, down nearly 85
percent.
In its downstream segment, earnings from operations were C$204 million in 1998,
down 9 percent from 1997, as refining margins were squeezed.
Stanford said the company's balance sheet remained strong amid the weak industry
conditions, especially after sales in the fourth quarter of C$400 million worth of
various assets.
Petro-Canada shares rose C$0.25 to C$17.40 in Thursday Toronto Stock Exchange
trade. Imperial jumped C$1.70 to C$24.50.
PanCanadian Petroleum Earnings Fell By 55 Percent In 1998
PanCanadian Petroleum Ltd. , Canada's largest publicly traded upstream oil
company, on Thursday reported a 55-percent drop in profit for 1998 but said
cost-cutting measures had helped it temper some of the ravages of low oil prices.
Calgary-based PanCanadian, 87-percent owned by railroad, shipping and hotel
conglomerate Canadian Pacific Ltd. , chopped its spending budget by 13 percent to
C$870 million during the year to cope with 12-year lows in oil prices.
However, it still managed to deliver oil and gas production volumes in line with
analysts' projections.
PanCanadian posted 1998 earnings of C$150 million, or C$0.59 a share, down from
C$330 million or C$1.31 a share in 1997.
Cash flow, a key measure of an oil company's ability to fund future projects, was
C$802 million or C$3.19 a share, down 17 percent from year-earlier C$961 million
or C$3.82 a share. Revenues totaled C$3.0 billion, down from C$3.3 billion.
"In a year characterized by extremely weak crude oil prices, PanCanadian has
achieved solid financial results by reducing unit operating costs by 18 percent and
growing natural gas production...," Chief Executive David Tuer said in a statement.
Canada's oil industry came under pressure in 1998 as Benchmark West Texas
Intermediate crude oil averaged $14.43 a barrel in 1998, down 30 percent from the
year before, amid a worldwide glut. At times, oil touched 12-year lows.
PanCanadian explores for and produces oil and natural gas in Canada, the North Sea
and U.S. Gulf of Mexico. It is a major producer of Canadian heavy oil, the tar-like
substance that sells at a discount to light crude because it requires more extensive
processing.
Low prices for heavy oil have led the company to defer its spending on those projects
and shut off the taps on some wells. The company said on Thursday that weak prices
forced it to remove 31 million barrels of heavy oil reserves from its "proven""category,
a classification representing oil in the ground that can be readily and economically
produced.
During the year, PanCanadian's oil and gas liquids production averaged 140,638
barrels a day, up only slightly from 140,023 in 1997, as it redirected its spending
toward natural gas operations.
Gas sales averaged 776 million cubic feet a day, up 7 percent from 725 million the
year before.
"PanCanadian has actually done slightly better than forecast on the price side and the
cost side since production is right on the money," said analyst Craig Langpap of
Calgary-based brokerage Peters & Co. Ltd.
The company plans to keep concentrating on its gas operations in 1999, and said it
would use the bulk of its C$650-million spending budget drilling about 1,000 gas
wells in western Canada in efforts to boost output by 10 percent.
Its average gas sales price after hedging in 1999 fell slightly to C$2.04 per thousand
cubic feet from C$2.07 in 1997. But it said it fixed a price of C$2.51 per thousand
cubic feet for roughly 55 percent of its projected 1999 production.
PanCanadian stock closed unchanged at C$16.50 on the Toronto Stock Exchange
on Thursday.
Exxon Earnings Not A Guide For Oil Majors
Although its fourth quarter operating earnings dropped 30 percent, oil giant Exxon
Corp. (XON.N) beat analyst forecasts by seven percent, showing once again why its
management is the industry's best.
While no company can hope to shrug off the effects of a 40 percent drop in the value
of its main product, crude oil, Exxon on Thursday reported fourth quarter net income
from operations fell to $1.5 billion, or $0.62 per diluted share, from 2.195 billion, or
$0.88 per diluted share a year ago.
Analysts say the decline at the world's largest oil company in terms of market
capitalization will look good compared with expectations of a 50-60 percent drop in
earnings for major oil earnings excluding Exxon.
"It is an extremely impressive quarter. It was not because Exxon beat the consensus
by that great a degree, but rather because their results remain so resilient compared to
the rest of the industry," said Michael Young, analyst at Deutsche Bank Securities.
Analysts said strong earnings at Exxon's U.S. and overseas refining and marketing
divisions were primarily responsible for its better-than-expected result, although they
noted that oil and natural gas earnings held up well in the face of a $7.50 per barrel
drop in oil prices from the fourth quarter of 1997.
The picture elsewhere will not show such a strong balance.
Deutsche's Young noted that Texaco Inc. <TX.N>, the fourth largest U.S. oil
company has already pre-announced that its earnings will fall 80 percent.
The White Plains, NY-based major announced on January 8 that fourth quarter
operating income per share would be $0.13-$0.16, compared with earlier analyst
forecasts of $0.30 and a year ago figure of $0.84.
On an annual basis, Exxon earned $6.4 billion, or $2.58 a diluted share, on sales of
$117 billion, yet this was still more than $5.1 billion it earned in 1994, when oil prices
were stronger.
So, how does Exxon do it?
"I think they do it in two ways, vigilance on the cost side and higher quality of assets,"
said Deutsche's Young.
Ironically, Exxon's success in preserving earnings power in a truly miserable
environment, has not been reflected in its stock values relative to its peers.
Young calculates that shares of international oil companies are trading on 32 times
1999 earnings, while Exxon is trading on 28 times as investors have not marked down
the shares of other majors in line with weaker earnings expectations and have not
factored in Exxon's superior performance.
Just to get parity on valuation grounds, Exxon stock would have to trade at $80,
instead of the 71-5/16 it traded at after announcing its results on Thursday,
And when Exxon acquires Mobil Corp. <MOB.N>, the second largest U.S. oil
company, it will have even more financial muscle and even more oil and gas.
Based on 1997 operations the merged Exxon Mobil will have net income of $11.8
billion, revenues of $203 billion and reserves of 20.7 billion barrels of oil and natural
gas.
Exxon Mobil, say analysts is the future as the industry hopes to wave goodbye to a
truly miserable year.
"For those who who are looking at oil company earnings this quarter, this year is as
irrelevant as looking at the paint on the Titanic," said Fadel Gheit, analyst at
Fahnestock & Co.
"I want to know what will be happening in a year's time," he stated.
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