FRIDAY, JULY 27, 2012

SECTOR COMMENTARY

Energy stocks soared, extending yesterday’s rally, amid broad-based market strength on optimism that the Federal Reserve and the ECB may provide further stimulus to prop up the global economy.

Drillers and services were the best performers, as they were throughout most of the week, on a slate of mostly better than expected earnings from some of the mid and smaller cap service providers and land drillers. Shares of Key Energy Services led the pack, rising 12% after it forecast higher revenue and income for the current quarter, citing improvements at its coiled tubing business and a rise in international drilling activity. Meanwhile E&Ps and integrateds had slightly more modest gains. The focus in the latter group was on Chevron, which was the first among the majors to report a beat so far this season with results driven by downstream margin improvements for both the U.S. and international markets.

WTI crude oil climbed $0.74 or 0.83% to $90.13 for a fourth consecutive session of gains as data showing a slower U.S. growth rate in the second quarter raised hopes that the Federal Reserve would adopt more monetary easing policies to bolster the economy.

Natural gas futures declined $0.095 or 3.06% to $3.010, reversing yesterday’s gains, tumbling upon the front-month contract's expiration despite continued hot summer weather. On a more supportive note, however, Baker Hughes data showed that the gas-directed rig count posted its ninth drop in the last 10 weeks, sliding by 13 this week to 505, the lowest since late July 1999.

U.S. INTEGRATEDS

• CVX reported 3Q’12 EPS of $3.66 versus Thomson Reuters I/B/E/S estimate of $3.24.

Press Release - Chevron Corporation today reported earnings of $7.2 billion ($3.66 per share – diluted) for the second quarter 2012, compared with $7.7 billion ($3.85 per share – diluted) in the 2011 second quarter. Sales and other operating revenues in the second quarter 2012 were $60 billion, compared to $67 billion in the year-ago period. Worldwide net oil-equivalent production was 2.62 million barrels per day in the second quarter 2012, down from 2.69 million barrels per day in the 2011 second quarter. Production increases from project ramp-ups in Thailand, the United States and Nigeria were more than offset by normal field declines, the shut-in of the Frade Field in Brazil, maintenance-related downtime and dispositions.

UBS lowered its rating on ExxonMobil to ‘Neutral’ from ‘Buy’.

INTERNATIONAL INTEGRATEDS

Reuters - BP Plc may build a railroad loading system at its Pacific Northwest refinery to ship cheap Bakken crude oil from North Dakota and Montana in place of some Alaskan North Slope crude currently processed there, a company spokesman said.

Reuters - A coker that was hit by fire at BP Plc's 337,000 barrel-per-day refinery in Whiting, Indiana on Monday is likely to return to service in the next two to four weeks following repairs, sources familiar with refinery operations said.

(Late Thursday) Reuters - BP Plc on Thursday reported a snag in a gasoline making fluid catalytic cracking unit (FCCU) that triggered flaring at its 406,570 barrels-per-day Texas City, Texas, refinery, according to a filing with state regulators.

Reuters - A Siberian court has awarded more than $3 billion in damages against British oil major BP Plc in a suit brought by minority shareholders in its $60 billion Russian venture TNK-BP, the plaintiffs' lawyer said on Friday.

Reuters - The U.S. government should block a bid by China's state oil company CNOOC for Canadian oil company Nexen until China's government provides "tangible, enforceable commitments" to ensure U.S. companies receive fair treatment when making investments in China, Democratic U.S. Senator Charles Schumer said.

Reuters - China's state oil company CNOOC has asked the U.S. government to review its $15.1 billion takeover bid for Canadian oil company Nexen, which has about 10 percent of its assets in the United States, a source close to CNOOC told Reuters on Friday.

(Late Thursday) Reuters - Spanish energy company Repsol said on Thursday it found Argentina's first shale oil resource outside the giant Vaca Muerta field shortly before the government seized control of its YPF unit in April.

Reuters - French oil group Total increased its interim dividend by 3.5 percent to 0.59 euros ($0.73) a share on Friday ahead of its second-quarter earnings publication.

Reuters - Total said on Friday it was too soon to comment on production growth targets for 2012 after production fell 1 percent in the first six months due to disruptions at projects including the Elgin platform in the North Sea. Total, which will hold an investor day in September, had set itself an average production growth target of 2.5 percent at $100 a barrel from 2010-2015.

Reuters - French oil company Total posted a 2 percent rise in second-quarter adjusted net profit as new project start-ups and improved refining offset disruptions at some of its other projects, including the gas leak at the Elgin platform in the North Sea. Net income in the quarter, excluding one-offs and unrealized gains or losses related to changes in the value of fuel inventories, was 2.9 billion euros ($3.57 billion), Total said on Friday.

US E&PS

Press Release - Approach Resources Inc announced preliminary production, commodity price realizations and capital expenditures for second quarter 2012 and provided a mid-year 2012 reserves update. Estimated second quarter 2012 production totaled 702 MBoe, compared to 608 MBoe produced in second quarter 2011, a 16% increase. Estimated second quarter 2012 production increased 7%, compared to first quarter 2012 production of 654 MBoe. Estimated oil production for second quarter 2012 increased 120% to 230 MBbls, compared to 104 MBbls produced in second quarter 2011, and increased 20% compared to first quarter 2012 oil production of 191 MBbls.

Capital One Southcoast Inc suspended rating on ATP Oil & Gas due to uncertainty surrounding its current liquidity position.

GHS Global Hunter downgraded Clayton Williams Energy Inc to ‘Neutral’ from ‘Accumulate.’

CANADIAN E&PS

UBS cut its rating on Athabasca Oil Corp to ‘Neutral’ from ‘Buy’.

Reuters - The U.S. government should block a bid by China's state oil company CNOOC for Canadian oil company Nexen until China's government provides "tangible, enforceable commitments" to ensure U.S. companies receive fair treatment when making investments in China, Democratic U.S. Senator Charles Schumer said.

Reuters - China's state oil company CNOOC has asked the U.S. government to review its $15.1 billion takeover bid for Canadian oil company Nexen, which has about 10 percent of its assets in the United States, a source close to CNOOC told Reuters on Friday.

Press Release - Pacific Rubiales Energy Corp today announced that it has completed its acquisition of PetroMagdalena Energy Corp.

OIL SERVICES

• BAS reported 2Q’12 EPS of $0.36 versus Thomson Reuters I/B/E/S estimate of $0.41.
• CGV reported 2Q’12 EPS of $0.19 versus Thomson Reuters I/B/E/S estimate of $0.09.
• FET reported 2Q’12 EPS of $0.49 versus Thomson Reuters I/B/E/S estimate of $0.47.
• KEG reported 2Q’12 EPS of $0.21 versus Thomson Reuters I/B/E/S estimate of $0.19.

(Late Thursday) Press Release - Basic Energy Services, Inc. today announced its financial and operating results for the second quarter and six months ended June 30, 2012. Second quarter 2012 revenue decreased 2.5%, as previously projected, to $361.5 million from $370.9 million in the first quarter of 2012, but increased 22% from the $296.9 million reported in the second quarter of 2011. On an as-reported basis, second quarter 2012 net income was $14.7 million, or $0.36 per diluted share. Second quarter 2012 net income before special items was $16.0 million, or $0.39 per diluted share (please see above table).

Press Release – CGG Veritas announced today its non-audited second quarter 2012 consolidated(1) results. All comparisons are made on a year-on-year basis unless stated otherwise. Highlighting Revenue at $831 million, up 11%. Strong increase in Operating Income at $85 million, a 10% margin. Services return to profitability. Positive Outlook for 2012 confirmed

(Late Thursday) Press Release - Forum Energy Technologies, Inc. today reported second quarter 2012 revenue of $374 million, up forty-five percent over second quarter 2011 revenue of $257 million. Net income for the second quarter 2012 was $44 million, compared to second quarter 2011 net income of $14 million. Diluted earnings per share for the quarter were $0.49, more than doubling second quarter 2011 diluted earnings of $0.22 per share(1) .

(Late Thursday) Press Release - Key Energy Services, Inc. generated second quarter 2012 income from continuing operations of $31.5 million, or $0.21 per share, compared to first quarter 2012 income from continuing operations of $34.1 million, or $0.23 per share.

DRILLERS

• HP reported 3Q’12 EPS of $1.38 versus Thomson Reuters I/B/E/S estimate of $1.16.

Press Release - Helmerich & Payne, Inc. reported income from continuing operations of $149,943,000 ($1.38 per diluted share) from operating revenues of $819,785,000 for its third fiscal quarter ended June 30, 2012, compared to income from continuing operations of $109,828,000 ($1.01 per diluted share) from operating revenues of $644,095,000 during last year's third fiscal quarter ended June 30, 2011. Included in this year's and last year's third fiscal quarter income from continuing operations were $0.01 and $0.02 per share, respectively, of after-tax gains related to the sale of used drilling equipment and investment securities. Net income for the third fiscal quarter of 2012 was $149,925,000 ($1.38 per diluted share), compared to net income of $109,826,000 ($1.01 per diluted share) during last year's third fiscal quarter.

Press Release - Noble Corp reported that the Company's Board has set the record and payment date for the first installment of a payment to shareholders in the form of a dividend funded from the Company's capital contribution reserve. This installment payment will be in the amount of USD $0.13 per share. The ex-dividend date for this payment is expected to be August 2, 2012, with a record date of August 6, 2012 and a payment date of August 16, 2012.

REFINERS

(Late Thursday) Press Release - The Board of Directors of Valero Energy Corporation has approved an increase in the company's regular quarterly cash dividend on common stock from $0.15 per share to $0.175 per share, effective with the quarterly dividend the Board has declared to be payable on September 12, 2012 to holders of record at the close of business on August 15, 2012. The increase in the dividend raises the annualized dividend rate on the company's common stock to $0.70 per common share.

Reuters - Valero Energy Corp reported a sulphur dioxide release due to repairs on an unspecified unit at its 144,000-barrel-per-day refinery in Benicia, California. The company said the Benicia FCC will remain down for several days while repairs to a compressor take place.

MLPS

(Late Thursday) Press Release - DCP Midstream Partners, LP today announced that the board of directors of its general partner declared a quarterly cash distribution of $0.67 per unit for the quarter ended June 30, 2012. This represents an increase of 1.5 percent over the last quarterly distribution of $0.66 per unit paid May 15, 2012. The quarterly cash distribution will be paid August 14, 2012, to unitholders of record at the close of business August 7, 2012. This quarterly distribution equates to $2.68 per unit on an annual basis.

(Late Thursday) Press Release - MarkWest Energy Partners, L.P. today announced that the Board of Directors of the General Partner of MarkWest Energy Partners, L.P., declared a cash distribution of $0.80 per common unit for the second quarter of 2012, for an implied annual rate of $3.20 per common unit. The second quarter 2012 distribution represents an increase of $0.10 per common unit, or 14.3 percent, compared to the second quarter 2011 distribution and an increase of $0.01 per common unit, or 1.3 percent, compared to the first quarter 2012 distribution.

Press Release - NuStar Energy LP today announced second quarter distributable cash flow available to limited partners of $16.9 million, or $0.24 per unit, compared to 2011 second quarter distributable cash flow of $119.4 million, or $1.85 per unit. Second quarter earnings before interest, taxes, depreciation and amortization was negative $161.2 million compared to second quarter 2011 EBITDA of $160.0 million.

Reuters - NuStar Energy said on Friday it had completed the unit train offloading facility at its St. James, Louisiana terminal.

(Late Thursday) Press Release - ONEOK Partners, L.P. announced plans to invest approximately $980 million to $1.1 billion between now and 2014 to: Build a new 75,000 barrel-per-day (bpd) natural gas liquids (NGL) fractionator, MB-3, at Mont Belvieu, Texas, and related infrastructure; Build a new 100 million cubic feet per day (MMcf/d) natural gas processing facility – the Garden Creek II plant – in eastern McKenzie County, N.D., in the Bakken Shale in the Williston Basin, and related infrastructure; Increase capacity on the Bakken NGL Pipeline to 135,000 bpd from 60,000 bpd; and Build a new 40,000 bpd Ethane/Propane (E/P) splitter at Mont Belvieu, Texas.

(Late Thursday) Press Release - The board of directors of the general partner of ONEOK Partners, L.P. increased the partnership's quarterly cash distribution to 66 cents per unit from 63.5 cents per unit, effective for the second quarter 2012, resulting in an annualized cash distribution of $2.64 per unit. The distribution is payable Aug. 15, 2012, to unitholders of record as of Aug. 6, 2012.

(Late Thursday) Press Release - PetroLogistics LP, the owner and operator of the only U.S. propane dehydrogenation facility producing propylene from propane, today declared a prorated cash distribution and reported financial results for the second quarter of 2012. The cash distribution is the first paid by the Partnership since its initial public offering in May of this year. The declared distribution of 26 cents per common unit (45 cents per common unit on a full-quarter basis) has been prorated for the portion of the quarter from the date of the closing of the initial public offering on May 9, 2012 to June 30, 2012. Total sales in the second quarter were $193.8 million, with propylene sales contributing $188.9 million. The net loss for the quarter was $37.8 million. The Partnership's reported results include certain items that impact comparability of financial results between reporting periods. Excluding the impact of these items, the Partnership's adjusted net income was $64.4 million.

Press Release - TransCanada Corp today announced comparable earnings for second quarter 2012 of $300 million or $0.43 per share. Excluding an after-tax charge of $22 million related to the Sundance A PPA arbitration decision received in July 2012, comparable earnings for second quarter 2012 were $322 million or $0.46 per share. TransCanada's Board of Directors also declared a quarterly dividend of $0.44 per common share for the quarter ending September 30, 2012, equivalent to $1.76 per common share on an annualized basis.

Reuters - TransCanada Corp which is seeking to build the controversial Keystone XL pipeline, said it received the final permit needed for its Gulf Coast project, clearing the way for construction to begin in the coming weeks.

MARKET COMMENTARY

Stocks surged, driving the S&P 500 to its highest level since May 4 as hopes increased that the Federal Reserve and the European Central Bank may provide further stimulus.

U.S. economic growth slowed in the second quarter as consumers spent at their slowest pace in a year, increasing pressure on policymakers to do more to bolster the recovery.

Spain has at last conceded it may need a state bailout and policymakers are considering writing down Greek debt to their central banks, European officials said, as markets anticipated radical new action to pull the continent out of its debt maelstrom.