SECTOR COMMENTARY

Oil and gas stocks finished the day mostly lower led by E&P’s, integrateds, and services, while drillers and refiners outperformed the group. The energy space lost ground going into the close after bleak U.S. growth data reinforced a decision by the Federal Reserve to maintain its commitment to massive economic stimulus.

WTI closed at $97.94 up $0.37 or 0.38% and Brent crude touched a three-year high in choppy trade after better-than-expected economic data out of Europe spurred optimism about the global economy before oil pared gains with surprisingly weak U.S. growth numbers. Sentiment drew further support from declines in U.S. refined product stocks, although crude oil inventories rose sharply. The U.S. economy unexpectedly contracted in the fourth quarter, suffering its first decline since the 2007-09 recession as businesses scaled back on restocking and government spending plunged. U.S. crude oil inventories jumped by 5.95 million barrels in the week to Jan. 25, the U.S. government said. Analysts had forecast a 2.6-million-barrel crude build. Euro zone economic sentiment improved more than expected across all sectors in January, rising for the third month in a row in a sign that the region's economy could be emerging from a low point in the fourth quarter of 2012. U.S. RBOB gasoline futures broke the $3.00 a gallon mark for the first time since the end of September, settling up over 2 percent at $3.0387.

Henry Hub futures finished the first day for trading for the current track up $0.077 or 2.36% to $3.335, higher for the first time in seven sessions on buying ahead of Thursday’s weekly inventory report and in reaction to an expected increase in demand as forecasts call for colder weather over the next few days. Most traders expect only limited upside from this next cold shot, focusing instead on concerns that the back half of winter may not turn out cold enough to whittle down high inventories amid record production. Weekly inventory draws have topped market expectations for four straight weeks and that trend may continue in Thursday's EIA storage report. Traders and analysts polled by Reuters expect inventories to have fallen by 206 bcf last week, which would be the biggest draw of the heating season so far and the largest weekly decline in about two years.

U.S. INTEGRATEDS

• HES reported 4Q’12 EPS of $1.20 versus Thomson Reuters I/B/E/S estimate of $1.20.

Reuters - An Argentine appeals court has upheld a freeze on up to $19 billion worth of assets held by U.S. oil major Chevron Corp. in Argentina as part of an environmental lawsuit by Ecuadorean villagers, one of the plaintiffs' lawyers, Enrique Bruchou, told Reuters on Wednesday.

Macquarie downgraded ExxonMobil to ‘Neutral’ from ‘Outperform.’

Reuters - Hess Corporation Chief Executive John Hess told analysts on Wednesday that there were "no sacred cows" in the boardroom, and Hess would carefully consider an activist investor's push to break up the company.

Press Release - Hess Corporation reported net income of $566 million for the fourth quarter of 2012, compared with a net loss of $131 million for the fourth quarter of 2011. Oil and gas production increased to 396,000 barrels of oil equivalent per day, up from 367,000 in the fourth quarter of 2011. Exploration and Production earnings were $517 million in the fourth quarter of 2012, compared with $527 million in the fourth quarter of 2011.

CapitalOne Southcoast downgraded Hess Corporation to ‘Neutral’ from ‘Add’ based on valuation.

INTERNATIONAL INTEGRATEDS

Reuters - BP said it was making ten senior management changes in a reorganization of its core oil and gas production unit, continuing a reversal of the structure adopted in the wake of the Gulf of Mexico oil spill.

Reuters - BP reported sulfur dioxide emissions from a flare at its 225,000 barrel-per-day (bpd) Cherry Point refinery in Blaine, Washington, according to a filing with the regulators.

Reuters - Top Chinese offshore oil and gas producer CNOOC Ltd said on Wednesday it plans to produce up to 2 percent more of the fuels in 2013 as it earmarks $12 billion-$14 billion as capital expenditure for exploration, development and production.

Reuters - The impact of the profit warning and grim outlook issued on Tuesday by Italy's oil service group Saipem on oil major Eni's net profit will be around 200 million euros ($269 million), the Eni Chief Financial Officer said on Wednesday.

Reuters - Russia's Gazprom, rated Baa1/BBB/BBB, has revised price guidance for its upcoming dual-tranche USD-denominated bond offering to 3.85% from 3.85% area on a 7-year tenor and to 4.95%-5.00% from 5.0% area on a 15-year tenor, according to the leads.

Reuters - Russia's Gazprom, rated Baa1/BBB/BBB, has opened books on a dual-tranche USD-denominated senior unsecured bond offering, according to market sources.

Reuters - Russia's second-largest crude producer LUKOIL has stopped a gas fractionation unit at its Permneftegazpererabotka refinery after it caught fire in the early hours of Wednesday, the company said.

(Late Tuesday) Reuters - Brazil's state-run oil company Petrobras said in a market filing on Tuesday that it would increase refinery prices for gasoline and diesel by 6.6 percent and 5.4 percent, respectively, starting on January 30.

Reuters - Royal Dutch Shell will spend about two years and $410 million to explore the Yuzivska shale gas area in Ukraine and assess its reserves, Ukrainian Energy Minister Eduard Stavytsky said on Wednesday.

Reuters - Royal Dutch Shell said on Wednesday it was "happy" with a verdict issued by a Dutch district court, which acquitted it of the bulk of pollution charges filed by Nigerian farmers.

(Late Tuesday) Reuters - A Dutch court will rule on Wednesday whether Royal Dutch Shell is responsible for pollution in Nigeria, a case activists say could set a precedent for damage claims related to the foreign activities of multinational companies.

(Late Tuesday) Reuters - Royal Dutch Shell reported a small brush fire in zone 3 was extinguished on Friday at its 156,400 barrel-per-day refinery in Martinez, California, according to a notice filed with the Contra Costa County Hazardous Materials Program on Tuesday.

U.S. E&PS

(Late Tuesday) Reuters - The departure of Chief Executive Aubrey McClendon is not an indication that Chesapeake Energy Corp. is up for sale, according to an email sent to employees on Wednesday.

(Late Tuesday) Press Release - Chesapeake Energy Corp. announced that its Co-founder, Chief Executive Officer and President, Aubrey K. McClendon, has agreed to retire from the company on April 1, 2013 and will continue to serve as Chief Executive Officer until his successor is appointed.

Stifel NIcolaus upgraded Chesapeake Energy Corp. to ‘Buy’ from ‘Hold.’

Reuters - Kazakhstan, seeking a greater role in large oil projects, has bought a 24.5-percent stake held by ConocoPhillips in the promising offshore oil block Nursultan in the Caspian, as the U.S. firm sheds overseas assets.

Press Release - Pioneer Natural Resources Company announced that the Company has signed an agreement with Sinochem Petroleum USA LLC, a U.S. subsidiary of the Sinochem Group, to sell 40% of Pioneer's interest in approximately 207,000 net acres leased by the Company in the highly prospective horizontal Wolfcamp Shale play in the southern portion of the Spraberry Trend Area Field for a total price of $1.7 billion.

Press Release - Pioneer Natural Resources Company announced the Company has discontinued efforts to divest its properties in the Barnett Shale.

Press Release - RANGE RESOURCES CORPORATION announced today that its proved reserves as of December 31, 2012 increased 29% to a record high of 6.5 Tcfe. Range replaced 773% of production in 2012 from drilling.

Press Release - RANGE RESOURCES CORPORATION announced today that its estimated unrisked unproved resource potential as of December 31, 2012 increased to 48- 68 Tcfe, up from 47 - 66 Tcfe at year-end 2011.

DRILLERS

Norne Securities initiated coverage of Seadrill Ltd with a ‘Buy’ rating.

REFINERS

• MPC reported 4Q’12 EPS of $2.26 versus the Thomson Reuters’ I/B/E/S estimate of $2.10.
• PSX reported 4Q’12 EPS of $2.06 versus Thomson Reuters I/B/E/S estimate of $1.68.

Reuters - Marathon Petroleum Corp. said on Wednesday that it will begin operating the 633-mile, Louisiana-to-Illinois Capline pipeline starting in September 2013.

Press Release - Marathon Petroleum Corp. reported 2012 fourth-quarter earnings of $755 million, or $2.24 per diluted share, compared with a loss of $75 million, or $0.21 per diluted share, in the fourth quarter of 2011. For the fourth quarter of 2012, earnings adjusted for special items were $760 million, or $2.26 per diluted share, compared with a loss adjusted for special items of $75 million, or $0.21 per diluted share, in the fourth quarter of 2011.

Press Release - Marathon Petroleum Corp. announced that its board of directors has approved an additional $2 billion share repurchase authorization. The board also extended the remaining $650 million share repurchase authorization announced on Feb. 1, 2012, for a total outstanding authorization of $2.65 billion through December 2014.

(Late Tuesday) Reuters - A continuous noise was reported as Marathon Petroleum Corp. burned-off petroleum byproducts at its 233,000 barrel-per-day Catlettsburg, Kentucky refinery, news website WSAZ.com reported late on Tuesday.

Reuters - Phillips 66 is studying "any and all options" for its California refineries given challenges with state regulatory requirements and high costs, Chief Executive Greg Garland told analysts on Wednesday.

Reuters - Phillips 66, the second-largest U.S. independent refiner, has completely stopped importing light sweet crude to the U.S. Gulf Coast, Chief Executive Greg Garland told analysts on Wednesday.

Press Release - Phillips 66 announced fourth-quarter earnings of $708 million and adjusted earnings of $1.3 billion. This compares with earnings of $2.0 billion and adjusted earnings of $379 million during the fourth quarter of 2011. R&M fourth-quarter earnings were $497 million, which included a $564 million impairment of the company's equity investment in the Melaka Refinery. Phillips 66's worldwide refining utilization was 91 percent for the fourth quarter, down from 94 percent a year ago.

MLPS

(Late Tuesday) Press Release - Cheniere Energy Partners, L.P. announced that its wholly owned subsidiary, Sabine Pass Liquefaction, LLC has priced its previously announced offering of Senior Secured Notes due 2021.

RBC Capital Markets downgraded Copano Energy, L.L.C. to ‘Sector Perform’ from ‘Outperform.’

Barclays is suspending its rating on Copano Energy, L.L.C.

Bank of America Merrill Lynch is moving to “No Rating” on Copano Energy, L.L.C. following the acquisition by Kinder Morgan Energy Partners, L.P.

Barclays is suspending its rating on Kinder Morgan Energy Partners, L.P.

(Late Tuesday) Press Release - Kinder Morgan Energy Partners, L.P. and Copano Energy, L.L.C. announced a definitive agreement whereby KMP will acquire all of Copano's outstanding units for a total purchase price of approximately $5 billion, including the assumption of debt. The transaction, which has been approved by the boards of directors of both companies, will be a 100 percent unit for unit transaction with an exchange ratio of .4563 KMP units per Copano unit. The consideration to be received by Copano unitholders is valued at $40.91 per Copano common unit based on KMP's closing price as of Jan. 29, 2013, representing a 23.5 percent premium to Copano's close on Jan. 29, 2013.

Press Release - MPLX L.P., for the period beginning Oct. 31, 2012, and ending Dec. 31, 2012, reported net income attributable to MPLX of $13.1 million, or $0.18 per common limited partner unit. For the post-IPO period, Adjusted EBITDA attributable to MPLX was $18.2 million and distributable cash flow attributable to MPLX was $16.7 million.

(Late Tuesday) Press Release - PVR Partners, L.P. announced that Mark D. Casaday has been appointed as Executive Vice President and Chief Operating Officer - Midstream. In his expanded role at PVR, Mr. Casaday will be responsible for management of PVR's Midcontinent midstream business in addition to his current responsibilities for management of the Eastern midstream business.