SECTOR COMMENTARY

Energy stocks finished the session mostly higher, outperforming the broader equity markets, as mixed economic data and the failure to resolve the sequester cuts, which are set to kick in tomorrow, led to a seesaw session for equities. Trading volumes were low as the proximity of record highs for the Dow and the S&P 500 kept investors in check.

Crude oil futures ended the session lower by $0.71 or 0.77% closing at $92.05, while Brent futures were lower by 0.75%, after the second reading of fourth quarter GDP growth came in lower than expected and caused concerns over future energy demand in the U.S. Losses were capped by an encouraging read of the MNI Chicago PMI index which rose to an adjusted 56.7 in February from 55.6 the prior month, beating out estimates for a reading of 54.3. A reading above 50 indicates expansion. A better than expected weekly jobless claims number also helped limit losses in U.S. crude futures.

Natural gas futures gained $0.052 or 1.51% to close at $3.486 after the weekly EIA inventory report showed that working gas in storage fell slightly more than analysts had expected. Natural gas inventories declined by 171 Bcf last week, while analysts had predicted a 167 Bcf decline. Weather forecasting models continued to indicate that colder-than-normal temperatures for much of the heavily populated central and eastern portions of the country will stick around longer than expected, which provided additional support to prices.

U.S. INTEGRATEDS

• IOC reported 4Q’12 EPS of $0.38 versus Thomson Reuters estimate of $(0.02).

Press Release - Chevron Corporation announced that it had conducted a successful production test on the St. Malo PS003 well in the prolific Lower Tertiary trend in the deepwater Gulf of Mexico. Oil flow rates, though limited by testing equipment constraints, exceeded 13,000 barrels of oil per day. The test, in Walker Ridge Block 678, targeted Lower Tertiary sands more than 20,000 feet (6,096 m) under the sea floor and was conducted during August and September 2012. This is the first development well in the St. Malo field, which is being jointly developed with the Jack field.

Reuters - Exxon Mobil Corp reported a process glitch that led to flaring at its 238,600 barrel-per-day Joliet refinery in Channahon, Illinois, according to a filing with state pollution regulators.

Reuters - Exxon Mobil Corp.'s joint-venture 192,500 barrel-per-day (bpd) Chalmette, Louisiana, refinery was performing a planned unit overhaul said a spokesman for Chalmette Refining.

(Late Wednesday) Reuters - Exxon Mobil Corp expects annual capital expenditures of about $38 billion over the next several years, a figure that is 4.5 percent lower than 2012 spending, according to a regulatory filing.

Reuters - Hess Corp said it shut down its 70,000 barrel-per-day (bpd) refinery in Port Reading, New Jersey, according to a filing with state pollution regulators.

(Late Wednesday) Press Release - InterOil Corporation announced financial and operating results for the fourth quarter and full year ended December 31, 2012. Net profit for the quarter ended December 31, 2012 was $18.5 million, which contributed to our achievement of an annual net profit for the year ended December 31, 2012 of $1.6 million. Our comparative profit for the annual period in 2011 was a net profit of $17.7 million. The operating segments of Corporate, Midstream Refining and Downstream collectively returned a net profit for the year of $61.2 million. The development segments of Upstream and Midstream Liquefaction yielded a net loss of $59.6 million.

INTERNATIONAL INTEGRATEDS

Reuters - Production at the North Sea Clair field has returned to normal output following an unplanned shutdown earlier this week, a spokesman for BP said.

Reuters - The CATS Riser Platform, one of Britain's key gas production facilities, will shut down for maintenance from Aug. 1-Sept. 15, operator BP said.

Reuters - Eni is tightening its security measures in Nigeria, a spokesman for the Italian oil and gas group said.

Reuters - State-led oil company Petrobras said that its oil production in Brazil fell to 1.965 million barrels a day equivalent in January, down 3.3 percent from December's average rate. The company said in a statement the shutdown of platform SS-11 for maintenance in the Bauna Field was the principal cause of the drop in production, but planned maintenance and operational problems with other platforms also factored into the monthly numbers.

Reuters - Brazil's government said it is seeking Chinese help to finish work on two oil refineries, a sign of strengthening ties between the emerging powers as well as financial troubles at state-run oil giant Petrobras.

Reuters - Spanish oil major Repsol expects its Canadian regasification terminal Canaport to break even in two or three years, Chairman Antonio Brufau said.

Reuters - The chairman of Spanish oil major Repsol said that the company would soon make a decision on pushing ahead with alternatives to shore up its finances. Repsol had said it could sell 5 percent of shares held as treasury stock or issue a preference share conversion to improve its credit ratings, but analysts have said this may not be necessary following the sale this week of liquefied natural gas assets.

Reuters - Spanish oil major Repsol said it plans to spend $1 billion on exploration projects in 2013, with production expected to increase by 10 percent.

(Late Wednesday) Reuters - Royal Dutch Shell Plc will not drill for oil in Alaska's Arctic seas this year, the company said, in a widely expected decision that follows a series of high-profile setbacks in 2012.

(Late Wednesday) Reuters - Royal Dutch/Shell believes a policy-led shift to gas, carbon capture and nuclear power could keep a lid on climate change into the 22nd century while a more free market approach would result in carbon emissions some 25 percent higher.

U.S. E&PS

• BRY reported 4Q’12 EPS of $0.69 versus Thomson Reuters estimate of $0.77.
• CLR reported 4Q’12 EPS of $1.04 versus Thomson Reuters estimate of $0.87.
• HK reported 4Q’12 EPS of $0.02 versus Thomson Reuters estimate of $0.01.
• PQ reported 4Q’12 EPS of $0.03 versus Thomson Reuters estimate of $0.05.
• WLL reported 4Q’12 EPS of $0.83 versus Thomson Reuters estimate of $0.73.

Reuters - Apache Energy has restarted production from its Stag oil facility off the coast of Western Australia after the passage of Tropical Cyclone Rusty, which made landfall late on Wednesday, the company said.

(Late Wednesday) Press Release - Western Gas Partners, LP announced that it has agreed to acquire a 33.75% interest in both the Liberty and Rome gas gathering systems from Anadarko Petroleum Corporation for total consideration of $490 million. The Partnership also announced that it has agreed to acquire a 33.75% interest in the Larry’s Creek, Seely and Warrensville gas gathering systems from an affiliate of Chesapeake Energy Corporation for total consideration of $133.5 million. The assets in both the Anadarko Acquisition and the Third-Party Acquisition serve production from the Marcellus shale in north-central Pennsylvania and have current total combined throughput of over 1.2 Bcf/d.

Press Release - Berry Petroleum Company reported net earnings of $172 million, or $3.09 per diluted share, for 2012. After considering certain items, adjusted net earnings were $168 million, or $3.02 per diluted share. Oil and gas revenues were $937 million and discretionary cash flow for the year totaled $502 million, with net cash provided by operating activities of $501 million. Berry's 2012 production averaged 36,402 BOE/D, and fourth quarter production averaged 39,500 BOE/D. The Company's oil production averaged 27,393 BOE/D in 2012, up 11% from 2011. Berry's oil mix increased from 70% of production in 2011 to 75% of production in 2012. The continued shift toward oil growth, combined with sales of the Company's California heavy oil at a $9 average premium to WTI, raised corporate operating margins from $45 per BOE in 2011 to $49 per BOE in 2012.

Press Release - Continental Resources, Inc. reported strong growth in cash flow and earnings per share for the fourth quarter of 2012, benefiting from increased crude oil production and strong oil price realizations on sales to premium markets. Net income of $1.19 per diluted share for the fourth quarter of 2012, compared with a net loss of $0.62 per diluted share for the fourth quarter of 2011. Full-year 2012 net income of $739.4 million, or $4.07 per diluted share, a 72 percent increase compared with net income of $429.1 million, or $2.41 per diluted share, for 2011. Record EBITDAX for the fourth quarter of 2012, which was 44 percent higher than the fourth quarter of 2011 and 21 percent higher than the third quarter of 2012. Record production of 106,831 barrels of oil equivalent per day (Boepd) for the fourth quarter of 2012, a 42 percent increase from fourth quarter 2011 production.

Reuters - ConocoPhillips plans to reduce its exposure to higher-cost projects such as the Australia Pacific LNG project and Canada's oil sands in an effort to free up funds for shale development, the company's CEO told analysts on Thursday. Oil and gas companies including Conoco are spending billions to increase crude oil output from lower-cost and stable basins in North America and other parts of the world. Houston-based Conoco has promised investors that its production, margins, cash flow and dividend will grow over five years, helped by higher output of crude from places like the Eagle Ford formation in South Texas. Conoco is looking at a "wide variety" of options to sell down its 50 percent interest in the Surmont, Foster Creek and Christina Lake oil sands projects in Alberta, Chief Executive Ryan Lance said on a webcast.

Press Release - Halcón Resources Corporation announced its fourth quarter and full year 2012 financial results and provided an operational update. After adjusting for selected items primarily related to the non-cash impact of derivatives and acquisition and merger transaction costs (see Selected Item Review and Reconciliation table for additional information), Halcón reported net income of $10.5 million, or $0.02 per diluted share, and a net loss of $4.0 million, or $0.03 per diluted share, for the three months and full year ended December 31, 2012, respectively. Before adjusting for selected items, the Company reported a net loss available to common stockholders of $8.0 million, or $0.04 per diluted share for the quarter and $142.3 million, or $0.91 per diluted share for the year.

Press Release - Hess Corporation announced it has completed drilling of its seventh consecutive successful exploratory well on the Deepwater Tano/Cape Three Points block offshore Ghana. The Pecan North-1 well, located approximately seven miles northeast of the Pecan-1 well, encountered approximately 40 feet of net oil pay in Turonian aged reservoir.

Press Release - PetroQuest Energy, Inc. announced a net loss available to common stockholders for the quarter ended December 31, 2012 of $25,451,000, or $0.41 per share, compared to fourth quarter 2011 net income available to common stockholders of $2,830,000, or $0.04 per share. For the year ended December 31, 2012, the Company reported a net loss available to common shareholders of $137,218,000, or $2.20 per share, compared to net income available to common shareholders of $5,409,000, or $0.08 per share, for the year ended December 31, 2011. Net loss for the three and twelve months ended December 31, 2012 included ceiling test write downs totaling $28,113,000 and $137,100,000, respectively.

Reuters - Freeport-McMoRan Copper & Gold Inc said it plans to issue senior notes through a private placement, with the proceeds to help fund the copper producer's move into oil and gas production. Freeport, faced with a lack of high-quality new copper deposits, agreed in December to buy Plains Exploration & Production Co and McMoRan Exploration Co in separate deals worth a combined $9 billion.

Press Release - Vanguard Natural Resources, LLC announced it has entered into a definitive agreement to acquire natural gas, oil and natural gas liquids assets in the Permian Basin located in southeast New Mexico and West Texas for a purchase price of $275 million from Range Resources Corporation. The properties being sold consist of approximately 7,000 net acres that are currently producing approximately 17 Mmcfe per day with approximately 41% being natural gas and 59% oil and NGLs. Based on internal reserve estimates, proved developed reserves account for 78% of the total 137 Bcfe. Mark S. Carnes, Director of Acquisitions commented, “These properties are a nice complement to one of Vanguard’s core operating areas and have some excellent behind pipe and development drilling opportunities that will enhance our cash flow as they are developed over the next four to six years.” The effective date of the acquisition is January 1, 2013 and the Company anticipates closing this acquisition on or before April 1, 2013.

Press Release - W&T Offshore, Inc. announced that its Board of Directors on February 26, 2013 declared a regular quarterly cash dividend of $0.08 per share, payable on March 29, 2013, to the shareholders of record on March 15, 2013.

(Late Wednesday) Press Release - Whiting Petroleum Corporation’s production in the fourth quarter of 2012 totaled 7.917 million barrels of oil equivalent (MMBOE), of which 86% were crude oil/natural gas liquids (NGLs). This fourth quarter 2012 production total equates to a daily average production rate of 86,055 barrels of oil equivalent (BOE), representing a 22% increase over the fourth quarter 2011 average daily rate of 70,685 BOE per day and a 4% increase over the third quarter 2012 average daily rate of 82,615 BOE per day.

UBS downgraded Whiting Petroleum to ‘Neutral’ from ‘Buy’.

CANADIAN E&PS

• ALA-T reported 4Q’12 EPS of C$0.44 versus Thomson Reuters I/B/E/S estimate of C$0.44.

Press Release – AltaGas Ltd. reported a 51 percent increase in normalized net income for fourth quarter 2012 compared to fourth quarter 2011, and a 21 percent increase for full year 2012 compared to full year 2011. Normalized net income for full year 2012 was $109.5 million ($1.15 per share) compared to $90.2 million ($1.07 per share) for full year 2011. Normalized net income for fourth quarter 2012 was $46.6 million ($0.44 per share) compared to $30.8 million ($0.36 per share) for fourth quarter 2011.

(Late Wednesday) Reuters - Chinese oil company CNOOC Ltd, its takeover of Canada's Nexen Inc now complete, is giving the leader of the Canadian unit freedom to get operations running smoothly after an exhaustive seven-month acquisition process, CNOOC's CEO said.

Press Release – Pacific Rubiales Energy Corp. announced that it has entered into a binding term sheet with CGX Energy Inc., pursuant to which Pacific Rubiales has agreed to invest Cdn$35,000,000 in CGX at a price of Cdn$0.14 per unit for an aggregate of 250 million units. Each unit will consist of one common share and one common share purchase warrant of CGX, with each warrant being exercisable to acquire one CGX common share at an exercise price of Cdn$0.20 per share for a period of five years following the date of issuance of the units.

Press Release – Parex Resources Inc., a company focused on oil exploration and production in Colombia and Trinidad, provides an operational update.

OIL SERVICES

• CKH reported 4Q’12 EPS of $0.25 versus Thomson Reuters I/B/E/S estimate of $0.59.
• TTI reported 4Q’12 EPS of $0.21 versus Thomson Reuters I/B/E/S estimate of $0.18.

(Late Wednesday) Press Release – SEACOR Holdings Inc. announced its results for the fourth quarter ended December 31, 2012. For the year ended December 31, 2012, net income attributable to SEACOR Holdings Inc. was $61.2 million, or $2.95 per diluted share, including income from continuing operations of $34.4 million, or $1.66 per diluted share. For the year ended December 31, 2011, net income attributable to SEACOR Holdings Inc. was $41.1 million, or $1.91 per diluted share, including income from continuing operations of $32.7 million, or $1.52 per diluted share.

Press Release – TETRA Technologies, Inc. announced fourth quarter 2012 net income (loss) from continuing operations attributable to TETRA stockholders of $(0.05) per fully diluted share compared to $(0.33) per fully diluted share reported in the fourth quarter of 2011. Such results for the fourth quarter of 2012 include $(6.2) million of net pretax special charges and a pretax loss by the Maritech segment of $(22.9) million that aggregate to approximately $(0.26) per share after tax, compared to pretax special charges of $(1.2) million and a pretax loss by the Maritech segment of $(44.7) million that aggregated to approximately $(0.39) per share after tax in the fourth quarter of 2011.

DRILLERS

• DRQ reported 4Q’12 EPS of $0.76 versus Thomson Reuters I/B/E/S estimate of $0.74.
• RDC reported 4Q’12 EPS of $0.44 versus Thomson Reuters I/B/E/S estimate of $0.48.
• SDRL reported 4Q’12 EPS of $0.55 versus Thomson Reuters I/B/E/S estimate of $0.58.

Press Release – Dril-Quip, Inc. announced net income of $31.0 million, or $0.76 per diluted share, for the three months ended December 31, 2012, versus net income of $28.1 million, or $0.70 per diluted share, for the fourth quarter of 2011. Total revenues were $188.5 million during the quarter ended December 31, 2012 compared to $171.6 million for the same period in 2011, an increase of $16.9 million or approximately 10%. The increase in revenues resulted from increased product revenues of $11.7 million and increased service revenues of $5.2 million. For the year ended December 31, 2012, net income was $119.2 million, or $2.94 per diluted share, compared with net income of $95.3 million, or $2.36 per diluted share, for 2011. Total revenues for the year ended December 31, 2012 were $733.0 million, compared to $601.3 million for the same period in 2011, an increase of approximately 22%.

(Late Wednesday) Press Release – Hercules Offshore, Inc. announces the execution of a definitive agreement to acquire the liftboat Titan 2 from a subsidiary of KS Energy Ltd. The purchase price is $42 million in cash. The Titan 2 is a 280 foot class vessel, constructed in 2008, registered and flagged in Panama, and currently located in Limbe, Cameroon. The Company expects the acquisition to close in early March 2013, subject to completion of certain customary closing conditions.

(Late Wednesday) Press Release – Nabors Industries Ltd. announced that its Board of Directors has approved the initiation of a quarterly cash dividend. A dividend of $0.04 per common share will be paid on March 28, 2013, to shareholders of record at the close of business on March 11, 2013.

Press Release - Parker Drilling Company announced it has commenced drilling operations with the second of two Arctic Alaska Drilling Unit (AADU) rigs the Company developed to safely and efficiently perform in environmentally sensitive, harsh arctic environments. Rig 272 initiated operations earlier this week under the terms of the Company's five-year contract with BP. Rig 273, the Company's first AADU rig, commenced operations in December 2012.

Press Release - For the three months ended December 31, 2012, Rowan Companies plc generated net income from continuing operations of $70.5 million or $0.57 per share, compared to $33.1 million or $0.27 per share in the fourth quarter of 2011. Net income from continuing operations during the fourth quarter of 2012 included $9.6 million of non-recurring or unusual items, or $0.06 per share after tax, including costs associated with the remaining repairs to the EXL I due to a tanker collision, settlement costs related to the Company's frozen manufacturing pension plan, a noncash asset impairment charge and certain corporate restructuring costs, net of gains on asset disposals and proceeds from a legal settlement. Excluding such items, net income from continuing operations was $78.6 million or $0.63 per share during the fourth quarter of 2012. The fourth quarter results also reflect a significant tax benefit primarily related to a change in tax method for the treatment of certain items and the mix of foreign and domestic earnings. As a result, tax expense for continuing operations was reduced by approximately $23.7 million or $0.19 per share in the fourth quarter. Net income totaled $54.1 million or $0.44 per share in the fourth quarter of 2012, compared to $45.1 million or $0.36 per share in the fourth quarter of 2011. The fourth quarter of 2012 included a loss from discontinued operations of $16.4 million, or $0.13 per share primarily due to a noncash asset impairment charge and tax-related items. The prior-year quarter included income from discontinued operations of $12.0 million or $0.09 per share.

Press Release - Seadrill Limited reported fourth quarter and preliminary 2012 results. Seadrill generates fourth quarter 2012 EBITDA* of US$604 million. Seadrill reports fourth quarter 2012 net income of US$50 million and earnings per share of US$0.04. Seadrill prepaid US$0.85 per share in dividend for the fourth quarter 2012 in December 2012. Seadrill Partners LLC listed its common units on the NYSE raising US$207 million Seadrill secured a five-year commitment with Husky for the newbuild ultra-deepwater semi-submersible rig West Mira for operations offshore Canada, with an estimated total revenue potential of US$1.2 billion. Seadrill secured a two-year extension for the jack-up West Epsilon with a total estimated revenue potential of US$215 million. Seadrill added in total US$2.3 billion to the orderbacklog during the fourth quarter. Seadrill increases ownership in Asia Offshore Drilling to 66.16 percent.

REFINERS

• WNR reported 4Q’12 EPS of $1.45 versus Thomson Reuters I/B/E/S estimate of $1.37.

Reuters - Phillips 66 reported an unplanned unit shutdown at its 362,000 barrel-per-day Wood River refinery in Roxana, Illinois, according to a filing with state pollution regulators.

Press Release - Western Refining, Inc. reported fourth quarter 2012 net income, excluding special items, of $155.7 million, or $1.45 per diluted share. This compares to fourth quarter 2011 net income, excluding special items, of $50.8 million, or $0.50 per diluted share. Including special items, the Company recorded fourth quarter 2012 net income of $207.6 million, or $1.92 per diluted share as compared to a net loss of $64.6 million, or $0.72 per diluted share for the fourth quarter of 2011. The special item for the fourth quarter of 2012 was a non-cash unrealized pre-tax hedging gain of $81.5 million. The quarter-on-quarter improvement was due in large part to higher refining margins resulting from cost-advantaged crude oils and strong product values in the Southwest U.S.

MLPS

(Late Wednesday) Press Release - DCP Midstream Partners, LP announced that it has commenced an underwritten public offering of 10,250,000 of its common units representing limited partner interests. The Partnership also intends to grant the underwriters a 30-day option to purchase up to 1,537,500 additional common units.

(Late Wednesday) Press Release - DCP Midstream Partners, LP, or the Partnership, reported financial results for the three and twelve months ended December 31, 2012. The table below reflects results for the three and twelve months ended December 31, 2012 and 2011 on a consolidated basis and results for the 2011 periods as originally reported. Includes non-cash commodity derivative mark-to-market gains of $2.0 million and losses of $6.9 million for the three months ended December 31, 2012 and 2011, respectively, and gains of $21.3 million and $42.1 million for the years ended December 31, 2012 and 2011, respectively.

Press Release - Energy Transfer Partners, L.P. and Energy Transfer Equity, L.P. announced that their affiliate, Southern Union Company, has agreed to contribute Southern Union Gathering Company, LLC, the owner of Southern Union Gas Services, Ltd., to Regency Energy Partners LP in exchange for $1.5 billion. The transaction will include a 5,600-mile gathering system in West Texas and New Mexico and approximately 500 million cubic feet per day of processing and treating facilities. The deal is expected to close in the second quarter of 2013, subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions.

Press Release - Spectra Energy Partners, LP announced that Pat Reddy, chief financial officer (CFO) of Spectra Energy, will assume the CFO responsibilities for Spectra Energy Partners as well. Laura Sayavedra, previously CFO of Spectra Energy Partners, has been named vice president of strategy for Spectra Energy. In her new role, Sayavedra will be responsible for providing leadership in setting Spectra Energy's long-term strategy.

Reuters - Canadian Natural Resources Minister Joe Oliver said on Thursday he did not anticipate that the United States would reject TransCanada Corp's proposed Keystone XL pipeline from the Alberta oil sands to the Texas coast.

(Late Wednesday) Press Release - Western Gas Partners, LP announced that it has agreed to acquire a 33.75% interest in both the Liberty and Rome gas gathering systems from Anadarko Petroleum Corporation for total consideration of $490 million. The Partnership also announced that it has agreed to acquire a 33.75% interest in the Larry’s Creek, Seely and Warrensville gas gathering systems from an affiliate of Chesapeake Energy Corporation for total consideration of $133.5 million. The assets in both the Anadarko Acquisition and the Third-Party Acquisition serve production from the Marcellus shale in north-central Pennsylvania and have current total combined throughput of over 1.2 Bcf/d.