BUSINESS

There’s still no place like Dome

Gordon Legge November 16 1981
BUSINESS

There’s still no place like Dome

Gordon Legge November 16 1981

There’s still no place like Dome

BUSINESS

Gordon Legge

For weeks rumors whispered through the corridors of Dome Petroleum Ltd. like an Arctic whiteout, obscuring the company’s fate. One week the word was that Dome President William Richards had been bounced from the board of directors. The next week, it was the turn of Dome Chairman Jack Gallagher to be bumped. Another story said results from Dome’s summer drilling programs in the Beaufort Sea were so discouraging that the entire exploration play was in doubt. But last week, Dome managed to dispell many of the rumors with two long-awaited announcements. The company trumpeted that Beaufort drilling results indicate “positive confirmation of major oil potential.” Then Dome declared that it plans to merge with Hudson’s Bay Oil and Gas Co. (HBOG) through a complicated share exchange. As a result, concerns over Dome’s ability to repay its $4.8-billion debt were eased dramatically.

Still, the stock market yawned at the disclosures, and by week’s end Dome shares had dropped slightly while HBOG rose $5.62 to $48.25. But the company may have more tricks up its sleeve than a constitutional negotiator. Through its daring initiatives and the help of the National Energy Program, Dome has quickly become Canada’s largest oil

company in terms of reserves and capital expenditures. At the same time, there are few Canadian energy projects that do not involve the company. “Dome, by design, is going to be the biggest beneficiary of the new oil pricing scheme,” says Lome Inglis of Calgary’s Westfield Securities Ltd. “It doesn’t matter who finds what where, Dome will be involved.”

Dome is a widely diversified company-natural gas and oil production, gold mines, oil sands development, heavy oil extraction, shipbuilding and pipelines. But public attention has fo-

cused on its activities in northern Canada’s inhospitable Beaufort Sea, where it has been searching for oil and gas for six years.

In announcing drilling results for its offshore oil discoveries 120 km north of the Mackenzie Delta, Dome cited a letter from the world’s largest and one of the most credible petroleum engineering consultants, Degolyer and MacNaughton of Dallas.

The letter said that the drill tests showed evidence that the Kopanoar structure—where two wells have been drilled so far—had potential oil accumulations of between 1.8 billion and 4.5 billion barrels. The Koakoak structure had a potential of between two and five billion barrels. With existing technology, between 15 and 40 per cent of the oil could be recovered, the consultants estimated.

Although more work is required, the confirmation generally pleased analysts. “Dome’s credibility was on the line. This was a real turning point for the company,” said Eric Rankin of Toronto’s Midland Doherty Ltd. “They’ve finally put some numbers on what was some pretty fuzzy data.” The estimates do range widely. On the optimistic side, Dome has a world-class oil discovery ranking alongside Alberta or the North Sea. At worst, the discoveries are uncommercial. Although the company’s 1982 drilling program is not fully de-

cided upon, Gordon Harrison, Dome’s senior vice-president in charge of the Beaufort program, says the firm may need to drill only one more well at Kopanoar before making a decision to start a major development program.

Analysts believe another two or three wells will be necessary. Dome is aiming for commercial production by 1986 but, again, some analysts think that is too optimistic and forecast that it may be 1990 before the Beaufort comes on stream. Dome is putting considerable weight on its first Beaufort winter drilling, which is being carried out on a new artificial island. The winter drilling is a step-out well six kilometres from another oil discovery, Tarsiut, but the island will permit Dome to drill several directional wells from a single site

rather than relying on drill ships, as is currently the case.

But while the Beaufort results made the headlines, the HBOG merger plans may be even more significant. Says Westfield’s Inglis: “The Hudson’s Bay deal was one of the shrewdest deals I’ve ever seen by an oil company.” In a turbulent and nervy May take-over, Dome bought 52.9 per cent of HBOG for $1.96 billion, capping the largest acquisition in Canadian corporate history. In August, Dome made a proposal to acquire the remaining shares but it was rejected by the Hudson’s Bay Co., the largest minority shareholder with 10.1 per cent. Under the new Canada Business Corporations Act, two-thirds of the shareholders must approve an amalgamation proposal. Bringing the Bay into discussions, Dome submitted a series of proposals and, at a meeting on Oct. 31 at Toronto’s King Edward Hotel, a final plan was put together which the Bay supported. An HBOG shareholders’ meeting in mid-December will consider the offer.

The merger would not only give Dome cash, but would also stick it with nearly

$8 billion in long-term debt and preferred shares. Interest and dividend obligations for the preferred shares will total $1.3 billion annually and every one per cent change in the prime interest rate will change the annual costs by $46 million. Agreed Dome Senior VicePresident John Beddome: “Granted, the situation is tighter than normal, but it is clearly quite manageable.” Beddome told an American Stock Exchange symposium in Edmonton in mid-October: “We have plans in progress involving several transactions that will enable us to re-establish a more normal debt level and return us to a strong cash-flow position.”

At Dome headquarters these plans are called “Phase Three” and they may involve several courses of action. For

one thing, Dome Petroleum could sell producing properties to Dome Canada—the subsidiary created in January to meet the National Energy Program’s Canadian content requirement. For another, TransCanada PipeLines, which is in an expansionary mood, might buy some assets from Dome Petroleum. By the same token, Dome may want to sell some of its valuable offshore assets that are generating little income. HBOG has had some recent wildcat successes in southeast Asia, and those properties could fetch as much as $750 million. Or Cyprus Anvil Mining Corp., which was purchased by HBOG during the summer, could be sold to another Dome affiliate, Dome Mines.

The possibilities are many, and the week’s news has largely stilled doubts about the capacity of either Smilin’ Jack Gallagher or smooth-talking Bill Richards to carry off the kind of deal they want. With Dome’s burgeoning empire and its ambitious plans to ship oil and natural gas out of the North, there is enough in the winds to keep rumors swirling far into the next century.