TUESDAY, AUGUST 07, 2012

SECTOR COMMENTARY

Energy stocks led the broader markets higher for a third straight day of gains in a rally underpinned by strength in commodities and weakness in the U.S. dollar as investors became risk-tolerant. Meanwhile, defensive sectors such as utilities and telecommunications lagged.

E&Ps outperformed after a handful of companies reported results that missed estimates but provided positive guidance. Chesapeake Energy rallied nearly 10% after its production surprised to the upside and its 2013 guidance was raised for production and cut for capital spending. The company also said it expects to have Delaware Basin sales wrapped up in the next 30 days. Goodrich Petroleum, which also fell short of analyst forecasts, surged nearly 17% on its improved liquidity position from the $95 million South Henderson sale and likely some short covering given low expectations heading into the results. Meanwhile, Carrizo Oil & Gas was one of the few producers to end the day in negative territory after a significant earnings miss and as the company raised its capex guidance, leading to an estimated funding gap of about $135 million.

Refiners were the second best performing sub-industry, bolstered by the 5% surge in shares of Tesoro, which benefitted from the increase in West Coast gasoline margins following the fire at Chevron’s 240,000 barrels/day refinery in Richmond, California, which represents more than 10% of total refining capacity in the state.

WTI crude oil gained $1.47 or 1.59% to $93.67 while Brent surged more than 2%, climbing for a third day in a row to post the highest settlement in 12 weeks on hopes for more Federal Reserve economic stimulus, on record low North Sea output seen likely in September and on tension in Syria.

Natural gas futures advanced by $0.056 or 1.93% to $2.964, ending higher for a second straight day, backed by buying ahead of Thursday's weekly inventory report and slightly warmer revisions to extended weather forecasts.

U.S. INTEGRATEDS

(Late Monday) Reuters - Chevron Corp reported a crude unit fire due to unknown causes led to emissions at its 245,271 barrel-per-day Richmond, California, refinery on Monday, according to a filing with the state pollution regulators.

Reuters - Chevron Corp. said parts of its 245,000 barrels per day (bpd) refinery in Richmond, California, were still operating on Monday evening after a major fire hit the sole crude unit at the plant.

Reuters - Chevron Corp said the fire at its 245,271 barrel per day (bpd) Richmond, California, refinery was contained but not yet extinguished.

Reuters - Chevron Corp said Tuesday the main fire was extinguished at its 245,271-barrel-per-day (bpd) refinery in Richmond, California.

Reuters - Chevron Corp said on Tuesday that its refinery in Richmond, California, was still operating following a blaze that engulfed its crude unit late on Monday.

INTERNATIONAL INTEGRATEDS

Reuters - Gazprom's gas exports to Europe fell almost 12 percent in January-July to 82.2 billion cubic metres from export levels in the same period a year ago, an industry source told Reuters on Tuesday.

Reuters - Norwegian oil and gas firm Statoil has written down around 2 billion crowns ($336.19 million) related to its investment in Russia's Shtokman natural gas project after formally exiting the consortium on June 30, the firm said on Tuesday.

US E&PS

• CHK reported 2Q’12 EPS of $0.06 versus Thomson Reuters I/B/E/S estimate of $0.07.
• CRZO reported 2Q’12 EPS of $0.26 versus Thomson Reuters I/B/E/S estimate of $0.37.
• CXO reported 2Q’12 EPS of $0.78 versus Thomson Reuters I/B/E/S estimate of $0.99.
• GDP reported 2Q’12 EPS of $(0.21) versus Thomson Reuters I/B/E/S estimate of $(0.15).
• KWK reported 2Q’12 EPS of $(0.13) versus Thomson Reuters I/B/E/S estimate of $(0.06).
• OAS reported 2Q’12 EPS of $0.33 versus Thomson Reuters I/B/E/S estimate of $0.29.

Press Release - Carrizo Oil & Gas, Inc. announced the Company's record financial results for the second quarter of 2012, which included the following highlights: Record Oil Production of 7,618 Bbls/d, a 28% sequential increase from the first quarter of 2012. Record Total Production of 2,393 Mboe, or 26,297 Boe/d, (equivalently 14.4 Bcfe, or 157,783 Mcfe/d), a 4% sequential increase from the first quarter of 2012. Record Oil Revenue of $68.6 million, amounting to 82% of total revenue. Record Revenue of $83.8 million, or adjusted revenue of $92.0 million, including the impact of realized hedges. Net Income of $28.5 million, or Adjusted Net Income, of $10.5 million, a sequential decrease of $7.5 million from the first quarter of 2012, due to a 37% increase in DD&A, largely attributable to the April 2012 sale of Barnett Shale properties to Atlas. EBITDA, (as defined below) of $69.3 million, comparable to the $70.2 million first quarter 2012 record.

(Late Monday) Press Release - Chesapeake Energy Corporation announced financial and operational results for the 2012 second quarter. For the 2012 second quarter, Chesapeake reported net income to common stockholders of $929 million ($1.29 per fully diluted common share), ebitda of $2.385 billion (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization) and operating cash flow of $895 million (defined as cash flow from operating activities before changes in assets and liabilities) on revenue of $3.389 billion and production of 347 billion cubic feet of natural gas equivalent (bcfe).

Reuters - Chesapeake Energy said it plans to stop spending heavily on oil and gas properties next year in a strategic shift from land acquisition to resource development.

(Late Monday) Press Release - Concho Resources Inc. reported financial and operating results for the three and six months ended June 30, 2012. Adjusted net income (non-GAAP) is comparable to securities analyst estimates. For an explanation of how we calculate adjusted net income (non-GAAP) and a reconciliation of net income (GAAP) to adjusted net income (non-GAAP).

(Late Monday) Press Release - Goodrich Petroleum announces second quarter 2012 financial and operational results: Adjusted EBITDAX grew 12% sequentially and 3% over the prior year period to $45.2 million. Discretionary cash flow grew 16% sequentially and 4% over the prior year period to $34.8 million - Operating Income, adjusted for realized gains on derivatives not designated as hedges, was $7.2 million for the quarter, up from $1.7 million in the first quarter of 2012 - Liquids production growth and lower cash costs lead to cash operating margin expansion sequentially to 72% of revenues.

(Late Monday) Press Release - Oasis Petroleum Inc. announced financial results for the quarter ended June 30, 2012. Total revenue for the second quarter of 2012 was $149.1 million compared to $67.2 million for the second quarter of 2011, an increase of 122%. Sequential quarter-over-quarter revenue growth was $10.5 million, or 8%. This increase is primarily due to a 15% increase in production and a $3.2 million increase in well services revenues in the second quarter of 2012, offset by a 7% decrease in realized prices compared to the first quarter 2012

Press Release - Quicksilver Resources Inc. today announced preliminary 2012 second-quarter results. Adjusted net loss for the second quarter, a non-GAAP financial measure, was $21 million, or $0.13 per diluted share, compared to adjusted net income of $11 million, or $0.06 per diluted share in the 2011 period. Including the impact of one-time items, the net loss for the second quarter was $673 million, or $3.96 per diluted share, compared to net income of $109 million, or $0.61 per diluted share, in the prior-year period. Second-quarter 2012 results were impacted by a $992 million non-cash impairment of oil and gas properties due to lower average natural gas and NGL prices compared to the 12 months ended March 31, 2012 and non-cash gains of $8 million related to hedge ineffectiveness. Further details of adjusted net income are included in the tables following this earnings release.

Capital One Southcoast upgraded Southwestern Energy to ‘Add’ from ‘Neutral’ citing valuation.

CANADIAN E&PS

• GTE reported 2Q’12 EPS of $0.05 versus Thomson Reuters I/B/E/S estimate of $0.09.

Press Release - Gran Tierra Energy Inc., a company focused on oil and gas exploration and production in South America, today announced its financial and operating results for the quarter ended June 30, 2012, in addition to an independent mid-year reserve update for the company's largest asset, the Costayaco Field in Colombia. All dollar amounts are in United States dollars unless otherwise indicated. Revenue and other income for the quarter was $115.2 million, a 29% decrease over the same period in 2011. Net income was $13.1 million or $0.05 per share basic and diluted, compared to net income of $31.6 million or $0.11 per share basic and diluted in the same period in 2011.

Raymond James lowered its raring on Petrominerales to ‘Underperform’ from ‘Market Perform’.

OIL SERVICES

• MDR reported 2Q’12 EPS of $0.22 versus Thomson Reuters I/B/E/S estimate of $0.22.

Press Release - Baker Hughes Incorporated announced today that the international rig count for July 2012 was 1,264, down 21 from the 1,285 counted in June 2012, and up 114 from the 1,150 counted in July 2011. The international offshore rig count for July 2012 was 286, down 19 from the 305 counted in June 2012 and down 21 from the 307 counted in July 2011.

(Late Monday) Press Release - Hornbeck Offshore Services, Inc. announced that it intends, subject to market and other conditions, to offer $260,000,000 aggregate principal amount of convertible senior notes due 2019 (the "Convertible Notes") in a private offering within the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act").

(Late Monday) Press Release - McDermott International, Inc. today reported income from continuing operations of $52.7 million, or $0.22 per diluted share, for the 2012 second quarter. The results of the 2012 second quarter compare to income from continuing operations of $63.7 million, or $0.27 per diluted share, in the corresponding period of 2011. Classified as discontinued operations, the results of McDermott’s former charter fleet business, which was sold in March 2012, are excluded from the periods presented. Weighted average common shares outstanding on a fully diluted basis were approximately 237.5 million in the quarters ended June 30, 2012 and June 30, 2011.

Dahlman Rose initialed coverage of Oil States International Inc with a ‘Buy’ rating.

DRILLERS

(Late Monday) Reuters - Hercules Offshore Inc on July 31,unit entered into share purchase deal with integradora de servicios petroleros oro negro-SEC filing. * Will sell outstanding capital stock of todco Mexico inc and equity interests in servicios. * Deal for aggregate consideration of approximately $36 million. * Says will no longer own any platform rigs and will no longer have operations in Mexico.

REFINERS

(Late Monday) Reuters - Carl Icahn, who controls 80% of oil refiner CVR Energy Inc, offered to buy the remaining stake in the company for $29 per share in cash.

MLPS

(Late Monday) Press Release - Enterprise Products Partners L.P. announced that its operating subsidiary, Enterprise Products Operating LLC (“EPO”), has priced a public offering of $1.75 billion of senior unsecured notes comprised of $650 million due on August 13, 2015 (“Senior Notes FF”) and $1.1 billion due on February 15, 2043 (“Senior Notes GG,” and together with the Senior Notes FF, the “senior notes”). Net proceeds from the offering are expected to be used to temporarily reduce borrowings under EPO’s multi-year revolving credit facility, which EPO used to repay amounts due upon the maturity of its $500 million principal amount of Senior Notes P on August 1, 2012 and for general company purposes.

(Late Monday) Press Release - Kinder Morgan Energy Partners, L.P. announced that it will acquire 100 percent of Tennessee Gas Pipeline and a 50 percent interest in El Paso Natural Gas pipeline from Kinder Morgan, Inc. for approximately $6.22 billion, including about $1.8 billion in assumed debt at TGP and approximately $560 million of proportional debt at EPNG. The transaction, which is expected to close this month and be effective Aug. 1, was approved by the independent members of the boards of directors of both KMI and Kinder Morgan Management, LLC following the receipt by each board of separate fairness opinions from different investment banks.

(Late Monday) Press Release – MarkWest Energy Partners, L.P. and its subsidiary MarkWest Energy Finance Corporation announced today that they have priced at 99.015% of par an upsized offering of $750,000,000 in aggregate principal amount of 5½% senior unsecured notes due 2023 (the “Notes”). The offering of the Notes is expected to settle on August 10, 2012, subject to customary closing conditions.

(Late Monday) Press Release - Plains All American Pipeline, L.P. and Enterprise Products Partners L.P. announced they have formed a 50/50 crude oil pipeline joint venture in South Texas. The arrangement provides for PAA and EPD to consolidate certain portions of previously announced pipeline projects servicing the Eagle Ford shale play in South Texas. The joint venture system is supported by long-term commitments totaling 210,000 barrels per day. The consolidation will provide shippers with increased market flexibility and enable PAA and EPD to optimize their capital investments.

(Late Monday) Press Release – Plains All American Pipeline, L.P. today reported net income attributable to Plains of $378 million, or $1.85 per diluted limited partner unit, for the second quarter of 2012 as compared to $225 million, or $1.13 per diluted limited partner unit for the second quarter of 2011. The Partnership reported earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $557 million for the second quarter of 2012, compared to reported EBITDA of $367 million for the second quarter of 2011.

Press Release - Tesoro Logistics LP today reported second quarter 2012 net income of $13.1 million or $0.41 per diluted limited partner unit.

MARKET COMMENTARY

Stocks rose for a third straight day, pushing the S&P above 1,400 for the first time since early May, on growing optimism the European Central Bank would act soon to contain the bloc's debt crisis.

TOP NEWS

Revenues are improving and budget shortfalls are disappearing, but U.S. states face both domestic and international economic threats that could cut short their nascent recoveries, according to a report.

Chesapeake Energy said it plans to stop spending heavily on oil and gas properties next year in a strategic shift from land acquisition to resource development.

U.S. home prices rose in June, boosted by tighter inventory, in a fresh sign the recovery in the housing market was gaining traction, data from Core Logic showed.