WEDNESDAY, AUGUST 08, 2012

SECTOR COMMENTARY

The energy space finished the day mixed with integrateds and refiners witnessing gains while services and drillers closed lower as investors awaited further action from central banks. Shares of ION Geophysical witnessed a 9% gain to close higher after reporting second-quarter earnings that beat estimates and margins improved significantly, driven by the solutions segment which benefited from data processing revenue growth and improved sales from a more profitable mix of data libraries.

WTI crude oil closed at $93.35 down $0.32 or 0.34% after jumping to three-month highs and with Brent crude rising above $113 a barrel after U.S. government data showed domestic crude stocks fell more than expected and on worries about the short-term outlook for North Sea oil output. With prices up for the fourth straight day, a flurry of light profit-taking pulled prices from session highs by midday. U.S. crude oil stocks fell 3.7 million barrels to 369.9 million in the week to Aug. 3, the EIA said, well above the forecast in a Reuters poll for a 300,000-barrels drawdown. The EIA data showed a drawdown that was smaller than the 5.4 million barrels reported by industry group API on Tuesday. Still, it reinforced a market view of tightening supplies in the world's biggest oil consumer. EIA data showed U.S. crude stockpiles have fallen in eight of the past 10 weeks since May 25, when they reached their highest level in nearly 22 years. Brent has risen about 25 percent and U.S. crude 21 percent since the end of June, partly on expectations the world's largest economies would take more measures to stimulate growth.

Natural futures fell $0.031 or 1.05% to $2.933 after two straight days of gains, pressured by profit taking ahead of Thursday's weekly inventory report and slightly milder revisions to extended weather forecasts that could slow demand. While the front month held support early this week at the 40-day moving average at $2.81, chart traders said prices seemed to be capped by resistance at $3. Most agreed the contract needed to close above $3 to set the stage for more upside. On Thursday's the gas storage report from the EIA, with traders and analysts polled by Reuters expecting stocks to have increased by 30 billion cubic feet last week. Chevron Corp's subsidiary Bridgeline Holdings has declared a force majeure on its natural gas storage cavern near Napoleonville, Louisiana, due to seismic events and a sinkhole that has formed near one of its storage areas, the company said.

U.S. INTEGRATEDS

Reuters - Chevron Corp's subsidiary Bridgeline Holdings has declared a force majeure on its natural gas storage cavern near Napleonville, Louisiana, due to seismic activity, it said in a company filing on Tuesday.

Reuters - A small fire that broke out on Wednesday morning at Chevron Corp's fire-damaged Richmond refinery in California was put out within minutes, a Chevron spokesman said.

Reuters - The fire at Chevron Corp's 245,000 barrel per day Richmond, California refinery broke out in a key tower in the crude oil refining unit, halting its production, according to a California state agency.

(Late Tuesday) Reuters - Chevron Corp. sought to repair the core of its Richmond refinery on Tuesday, the second-largest in California, after an hours-long fire caused a 25-cent spike in regional gasoline prices on worries that it could be down for months.

INTERNATIONAL INTEGRATEDS

Press Release - BP announced that DCC plc, the sales, marketing, distribution and business support services group, has agreed to buy its liquefied petroleum gas (LPG) distribution business in the UK. BP is retaining its automotive LPG business which will move into BP's UK Fuels Value Chain, which runs the company's fuels business including service stations.

UBS downgraded China National Offshore Oil Corp. to ‘Neutral’ from ‘Buy’ based on valuation.

Press Release – China National Offshore Oil Corp. announced that it signed a 30-year cooperation agreement with China United Coalbed Methane Co., Ltd. (China CBM) upon their cooperation in the exploration, development, production, and marketing of coalbed methane (CBM) and CBM products.

CANADIAN INTEGRATEDS

• GEI reported 2Q’12 EPS of C$0.14 versus Thomson Reuters I/B/E/S estimate of C$0.11.

(Late Tuesday) Press Release - Gibson Energy Inc. announced strong results for the second quarter of 2012 supported by increases in segment profit across four operating segments. Adjusted EBITDA increased by 47% to $62.0 million for the three months ended June 30, 2012 compared to $42.1 million in the three months ended June 30, 2011. Adjusted EBITDA in the six months ended June 30, 2012 increased by 35% to $133.8 million compared to $99.1 million in the six months ended June 30, 2011. Pro Forma Adjusted EBITDA3 for the twelve months ended June 30, 2012 was $270.3 million.

US E&PS

• GPOR reported 2Q’12 EPS of $0.45 versus Thomson Reuters I/B/E/S estimate of $0.51.
• REXX reported 2Q’12 EPS of $0.01 versus Thomson Reuters I/B/E/S estimate of $0.04.
• VQ reported 2Q’12 EPS of $0.22 versus Thomson Reuters I/B/E/S estimate of $0.02.

Press Release - Abraxas Petroleum Corporation announced that it has entered into a letter of intent to dissolve its Eagleford joint venture, Blue Eagle Energy LLC. Abraxas and its joint venture partner will split the assets with Abraxas retaining a 100 percent interest in the Eagleford and shallower rights in Jourdanton, Atascosa County (4,401 net acres), a 100 percent interest in Yoakum, DeWitt County (1,868 net acres), a 25 percent interest in WyCross, McMullen County (695 net acres), and a 25 percent interest in Nordheim, DeWitt County (944 net acres).

(Late Tuesday) Press Release - Abraxas Petroleum Corporation announced that Geoffrey R. King, CFA, has been hired to serve as Vice President and Chief Financial Officer of the Company.

(Late Tuesday) Press Release - Gulfport Energy Corporation reported financial and operating results for the second quarter of 2012 and provided an update on its 2012 activities. For the second quarter of 2012, Gulfport reported net income of $25.1 million on oil and natural gas revenues of $66.3 million, or $0.45 per diluted share. EBITDA (as defined below) for the second quarter of 2012 was $49.4 million and cash flow from operating activities before changes in operating assets and liabilities (as defined below) was $49.8 million.

Press Release - Magnum Hunter Resources announced that the company has closed on the acquisition of 1,885 net mineral acres located in Atascosa County, Texas for approximately $2.35 million, implying a net per acre cost of $1,246. With this acquisition, the company now has approximately 7,278 gross acres and 5,212 net acres located
in Atascosa County, Texas.

(Late Tuesday) Press Release - Rex Energy Corporation announced its second quarter 2012 operational and financial results as well as third quarter 2012 guidance. Operating revenues from continuing operations for the three and six months ended June 30, 2012 were $30.3 million and $64.1 million, respectively, which represents an increase of 4% and 23% over the same periods in 2011. Commodity revenues, including cash-settled derivatives, were $33.0 million and $68.3 million for the three and six months ended June 30, 2012, an increase of 13% and 29%, respectively, over the comparable periods of 2011.

Press Release - Venoco, Inc. reported financial and operational results for the second quarter of 2012. The company reported net income for the quarter of $14.5 million on total revenues of $82.5 million. Adjusted Earnings, which adjusts for unrealized derivative gains and losses and certain one-time charges, were $13.3 million for the quarter down from $38.5 million in the first quarter of 2012. Adjusted EBITDA was $55.8 million in the quarter, down from $87.8 million in the first quarter. Adjusted Earnings and Adjusted EBITDA were positively impacted by the monetization of certain 2012-2015 oil and natural gas hedges in the amount of $41.2 million in the first quarter and $11.0 million in the second quarter.

CANADIAN E&PS

Raymond James upgraded Gran Tierra Energy to ‘Strong Buy’ from ‘Outperform.’

Press Release - Nexen Inc. announced that we have completed the previously announced sale of a 40% interest in our northeast British Columbia shale gas assets to a consortium led by INPEX CORPORATION of Japan. The total consideration for the sale is $700 million, with 50% cash and a 50% capital carry, effective July 1, 2011.

OIL SERVICES

• IO reported 2Q’12 EPS of $0.08 versus Thomson Reuters I/B/E/S estimate of $0.07.
• TDW reported 1Q’12 EPS of $0.65 versus Thomson Reuters I/B/E/S estimate of $0.60.
• TTI reported 2Q’12 EPS of $0.15 versus Thomson Reuters I/B/E/S estimate of $0.23.

Press Release - Hornbeck Offshore Services, Inc. announced the pricing of its private offering of $260,000,000 aggregate principal amount of convertible senior notes due 2019. The Convertible Notes were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes will be guaranteed on a senior, unsecured basis by the same subsidiaries of the Company that currently guarantee its revolving credit facility and other outstanding senior notes.

(Late Tuesday) Press Release - ION Geophysical Corporation reported second quarter 2012 revenues of $105.2 million, a 19% increase from revenues of $88.5 million in second quarter 2011. Gross margin reached 44% compared to 38% in second quarter 2011. Second quarter net income increased to $12.0 million, or $0.08 per diluted share, compared to net income of $2.6 million, or $0.02 per diluted share, in second quarter 2011. Adjusted EBITDA increased 30% to $33.9 million compared to $26.1 million in second quarter 2011 due to improved overall results of operations.

Press Release – TETRA Technologies, Inc. announced second quarter 2012 net income from continuing operations attributable to TETRA stockholders of $0.15 per fully diluted share compared to $0.39 per fully diluted share reported in the second quarter of 2011. Such results for the second quarter of 2012 include $1.1 million of acquisition related transaction costs and a pretax loss by the Maritech segment of $(8.6) million that aggregate to a net charge of approximately $(0.08) per share after tax, compared to special charges and credits that aggregate to a net credit of approximately $0.21 per share after tax in the second quarter of 2011. In addition, the Company announced that it is lowering its earnings guidance range for the 2012 fiscal year to $0.60 to $0.70 per fully diluted share, excluding the impact of the Maritech segment and acquisition related transaction costs.

Press Release - Tidewater Inc. announced first quarter net earnings for the period ended June 30, 2012, of $32.9 million, or $0.65 per share, on revenues of $294.4 million. For the same quarter last year, net earnings were $24.6 million, or $0.48 per share, on revenues of $254.6 million. The immediately preceding quarter ended March 31, 2012, had net earnings of $33.6 million, or $0.66 per common share, on revenues of $289.4 million.

DRILLERS

Bank of America Merrill Lynch downgraded Dril-Quip Inc. to ‘Under Perform’ from ‘Buy.’

Reuters – Rowan Companies announced that its CFO William Wells will retire and will be replaced by Kevin Bartol.

REFINERS

• HFC reported 2Q’12 EPS of $2.39 versus Thomson Reuters I/B/E/S estimate of $2.26.

Reuters - HollyFrontier Corporation said repairs at its 70,300- barrel-per-day Tulsa East refinery in Oklahoma, following an early August fire in a diesel hydrotreater unit, could take six to eight weeks.

Press Release - HollyFrontier Corporation reported second quarter net income attributable to HollyFrontier stockholders of $493.5 million or $2.39 per diluted share for the quarter ended June 30, 2012, compared to $192.2 million or $1.79 per diluted share for the quarter ended June 30, 2011. For the six months ended June 30, 2012, net income attributable to HollyFrontier stockholders totaled $735.2 million or $3.54 per diluted share compared to $276.9 million or $2.58 per diluted share for the six months ended June 30, 2011.

Reuters - Phillips 66 reported a process upset at its joint-venture 146,000-barrel-per-day (bpd) Borger, Texas, refinery, according to a filing with the Texas Commission on Environmental Quality.

MLPS

(Late Tuesday) Press Release – Access Midstream Partners L.P. announced financial results for the 2012 second quarter. The Partnership's 2012 second quarter net income totaled $51.6 million, an increase of $10.5 million, or 25.5%, from the 2011 second quarter. Adjusted ebitda for the 2012 second quarter was $120.9 million, up $41.6 million, or 52.5%, from 2011 second quarter adjusted ebitda of $79.3 million. The Partnership's distributable cash flow for the 2012 second quarter totaled $87.3 million, an increase of $29.3 million, or 50.5%, compared to the 2011 second quarter and resulted in a coverage ratio of 1.36.

Raymond James downgraded Crosstex Energy L.P. to ‘Market Perform’ from ‘Outperform.’

(Late Tuesday) Press Release - DCP Midstream Partners, L.P. reported financial results for the three and six months ended June 30, 2012. Adjusted EBITDA for the three months ended June 30, 2012 decreased to $35.1 million from $55.0 million for three months ended June 30, 2011. Adjusted EBITDA for the six months ended June 30, 2012 decreased slightly to $118.6 million from $118.9 million for six months ended June 30, 2011.

(Late Tuesday) Press Release - Energy Transfer Partners, L.P. reported its financial results for the quarter ended June 30, 2012. Adjusted EBITDA for the three months ended June 30, 2012 totaled $466.4 million, an increase of $78.2 million over the three months ended June 30, 2011. Distributable Cash Flow for the three months ended June 30, 2012 totaled $275.2 million, an increase of $51.9 million over the three months ended June 30, 2011. Net income for the three months ended June 30, 2012 totaled $123.8 million, a decrease of $32.8 million from the three months ended June 30, 2011.

(Late Tuesday) Press Release - Regency Energy Partners L.P. announced its financial results for the second quarter ended June 30, 2012.
Adjusted EBITDA increased 12% to $115 million in the second quarter of 2012, compared to $103 million in the second quarter of 2011. The increase in adjusted EBITDA was primarily due to a $13 million increase in gathering and processing adjusted segment margin related to volume growth in south and west Texas and north Louisiana; and $5 million primarily related to the Lone Star Joint Venture that was acquired in May 2011; partially offset by a $5 million increase in operation and maintenance expense primarily due to increased volumes across the business segments.

Credit Suisse downgraded Tesoro Logistics L.P. to ‘Neutral’ from ‘Outperform.’

Press Release - Williams Partners L.P. announced that it priced a public offering of 8,500,000 of its common units representing limited-partner interests at $51.43 per unit. The offering is expected to close on Aug. 13, 2012.

MARKET COMMENTARY

Stocks just barely extended a streak of gains to a fourth day, with the S&P 500 ending above 1,400 in another thinly traded session.

McDonald's reported flat sales in July at established restaurants around the world, its worst performance in more than nine years and a sign that a weakening global economy was hitting discretionary spending among mainstream diners.

Hewlett Packard raised its third-quarter earnings forecast on Wednesday and said it was writing down the value of its services business by $8 billion.

Dish Network posted a lower second-quarter profit that missed Wall Street estimates after the No. 2 U.S. satellite television operator spent more to acquire subscribers, sending its shares down.

(Late Tuesday) Press Release - Williams Partners announced that it intends to commence an underwritten public offering of 8,500,000 common units representing limited-partner interests. The units will be offered by Williams Partners pursuant to an effective shelf registration statement on file with the Securities and Exchange Commission.