THURSDAY, OCTOBER 11, 2012

SECTOR COMMENTARY

The energy sector outperformed the broader equity markets today, with natural gas leveraged E&Ps leading the way, as natural gas prices hit a 10-month high after a bullish inventory report from the EIA showed that inventories rose much less than expected last week. The higher-beta drillers and services also saw strong gains, during the risk on day.

U.S. crude oil futures closed up $0.82 or 0.90% to $92.07, backed by bullish economic data and tension in the middle east and despite the weekly EIA inventory support showing almost double the increase analysts had expected. Tensions between Turkey and Syria flaring up and issues between Israel and Iran, provided the bulk of support for prices, fueling concerns of supply disruptions. A better-than-expected U.S. jobs report offered additional support. Brent crude futures outpaced WTI with an over 1% gain on the day, also seeing support from the Middle East unrest, however worries over declining production in the North Sea-region provided the additional lift.

Natural gas futures closed higher by $0.129 or 3.71% to $3.604, after a bullish inventory support showed that working gas in storage increased by 72Bcf, which was much lower than the analyst estimate of 80Bcf. Prices were also supported by cooler weather forecasts for the next 11-15 days which should increase demand.

U.S. INTEGRATEDS

Reuters - ExxonMobil’s 149,500 barrel per day (bpd) Torrance, California, refinery was reaching full production on Thursday after completing work on the plant's flare systems, according to West Coast refined products traders.

(Late Wednesday) Dahlman Rose initiated coverage of Chevron Corp with a ‘Hold’ rating and ExxonMobil with a ‘Buy’ rating. The covering analyst stated, “In the current macro backdrop, we view both XOM and CVX as core energy holdings. However, we prefer XOM (Buy) over CVX (Hold). CVX has outperformed XOM by 40%+ since 2009, but execution risks at two key LNG projects ($66 Bn) and diminishing FCF outlook while capex is peaking, particularly in a less robust oil price environment, create NT headwinds.”

Reuters - ExxonMobil expects to make a decision on how to develop the Scarborough gas field, considered one of the toughest projects in Western Australia, around the second half of 2013, its Australian chairman said on Thursday. The Scarborough field, half-owned by BHP Billiton, lies some 280 kilometres offshore, making it an expensive prospect to develop, which could be difficult to justify at a time when abundant gas supplies in the United States could start flowing into Asia.

INTERNATIONAL INTEGRATEDS

Reuters - The head of upstream at Russia's TNK-BP will leave the company, the highest-ranking executive to depart in an exodus of staff as a potential selloff by the main shareholders looms, sources close to TNK-BP said.

Reuters - BP came under unprecedented criticism from Azeri President Ilham Aliyev over falling oil output in Azerbaijan at one of the British major's biggest production assets. "There were discussions with BP over decline in oil production and they admitted they had allowed some serious violations and promised to fix them within one month," Aliyev said during a government meeting late on Wednesday.

Reuters - Canada said it has extended its review of a $15.1 billion bid by China's CNOOC Ltd for Canadian energy producer Nexen Inc by 30 days.

Reuters - Italian oil and gas group Eni said that a 70 percent stake in its jumbo Mozambique gas field discovery was too big and could be sold down.

Reuters - Brazil's state-led oil company Petrobras announced a new discovery Thursday of light hydrocarbons in a deepwater well in the Sergipe-Alagoas Basin.

(Late Wednesday) Reuters - Oil major Royal Dutch Shell Plc will defend its environmental record in the Niger Delta on Thursday as it faces a lawsuit that may set a precedent for damage claims related to the activities of international companies. The case, filed in a local court in The Hague where Shell has its joint global headquarters, seeks to make Shell and other corporations responsible for pollution resulting from three oil spills in 2004, 2005 and 2007 in Africa's top energy producer.

CANADIAN INTEGRATEDS

Press Release - Gibson Energy Inc. is pleased to announce that it has entered into a definitive agreement for the acquisition of all of the issued and outstanding common stock of the parent holding company of OMNI Energy Services Corp. for US$445 million. The purchase price assumes that OMNI will have working capital of US$43.5 million, no debt and no cash at closing. OMNI is a privately held provider of environmental and production services to the oil and gas industry and is based in Carencro, Louisiana.

(Late Wednesday) Reuters - Suncor Energy said it would begin planned maintenance this weekend at its 93,000-barrel-per-day refinery in Commerce City, Colorado.

U.S. E&PS

Wells Fargo downgraded Bill Barrett Corp. to ‘Market Perform’ from ‘Outperform.’

Press Release - Continental Resources, Inc. announced that it has commenced a registered exchange offer to exchange up to $1.2 billion aggregate principal amount of its 5% Senior Notes due 2022 which have been registered under the Securities Act of 1933, as amended, for up to $1.2 billion of its outstanding 5% Senior Notes due 2022, which were issued on August 16, 2012 in a private placement

Press Release - Devon Energy Corporation announced plans to consolidate its U.S. personnel into a single operations group centrally located at the company's corporate headquarters in Oklahoma City. As a result, Devon will close its office in Houston and transfer operational responsibilities for assets in South Texas, East Texas and Louisiana to Oklahoma City. The company expects to relocate a number of employees from Houston to Oklahoma City. The completion of this initiative is expected to be substantially complete by the end of the first-quarter 2013.

(Late Wednesday) Press Release – GMX Resources, Inc. announced that the Company will hold a special meeting of the shareholders on November 29, 2012 to seek approval on the granting to the Board of Directors the discretionary authority to effect a reverse stock split in a range of not less than 1-for-5 shares and not more than 1-for-13 shares of the Company's issued and outstanding common stock. The Reverse Stock Split Proposal will not include any change the number of authorized shares of our common stock.

Reuters - Activist investor fund Third Point has won U.S. antitrust approval to buy an unspecified stake in Murphy Oil Corp, the Federal Trade Commission said.

Reuters - Noble Energy, Inc. said it plans to explore for crude oil in areas of Nevada that have seen little drilling, as the U.S. exploration and production company starts to assess its longer-term prospects.

Wells Fargo downgraded Noble Energy, Inc. to ‘Market Perform’ from ‘Outperform.’

Press Release – Range Resources Corp. announced its third quarter 2012 production results, preliminary realized prices and an update on its hedging status. On an equivalent basis, production volumes exceeded the upper range of guidance for the third quarter production averaging 790 Mmcfe net per day, a 47% increase over the prior-year quarter and 10% greater than second quarter 2012. The record production was driven by the continued success of the Company's drilling program in the Marcellus and horizontal Mississippian oil plays.

Press Release - SandRidge Energy, Inc. announced the commencement of offers to exchange (1) its outstanding 8...'% Senior Notes due 2022 that were issued on April 17, 2012 for new 8...'% Senior Notes due 2022 that are registered under the Securities Act of 1933, as amended; (2) its outstanding 7.5% Senior Notes due 2021 that were issued on August 20, 2012 for new 7.5% Senior Notes due 2021 that are registered under the Securities Act; and (3) its outstanding 7.5% Senior Notes due 2023 that were issued on August 20, 2012 (the "Old 2023 Notes" and, collectively with the Old 2022 Notes and the Old 2021 Notes, the "Old Notes") for new 7.5% Senior Notes due 2023 that are registered under the Securities Act (the "New 2023 Notes" and, collectively with the New 2022 Notes and the New 2021 Notes,

CANADIAN E&PS

Reuters - Canada said it has extended its review of a $15.1 billion bid by China's CNOOC Ltd for Canadian energy producer Nexen Inc by 30 days.

Macquarie Research downgraded PetroBakken Energy Ltd. to ‘Neutral’ from ‘Outperform.’

Press Release - PetroBakken Energy Ltd. is pleased to provide an update on third quarter operations and planned fourth quarter activity. Our third quarter average production was 38,400 barrels of oil equivalent per day ("boepd") (84% light oil and NGLs), based on field estimates, comprised of over 15,800 boepd from the Bakken business unit, 14,700 boepd from the Cardium business unit, and the remainder from the Saskatchewan Conventional and AB/BC business units. This production level is relatively flat to the third quarter of 2011, primarily resulting from the disposition of producing assets in the first half of 2012 and a delayed start to our second half 2012 capital program. Production for September 2012 was 39,200 boepd based on field estimates, a slight increase over second quarter 2012. Currently, as a result of routine maintenance of individual wells and facilities as well as restricted production, we estimate that we have approximately 1,500 boepd of additional productive capacity that is expected to be brought on production in the fourth quarter.

OIL SERVICES

Howard Weil downgraded Key Energy Services, Inc. to ‘Market Perform’ from ‘Outperform.’

BMO initiated coverage of Oil States International, Inc. with a ‘Market Perform’ rating.

Howard Weil upgraded Schlumberger Ltd. to ‘Focus Stock’ from ‘Market Outperform.’

REFINERS

(Late Wednesday) Press Release - CVR Energy, Inc. announced that its wholly-owned subsidiaries, CVR Refining, LLC and Coffeyville Finance Inc. (the "issuers"), have priced an offering of $500 million aggregate principal amount of second lien senior secured notes due 2022. The notes are being sold at an issue price of 100% and will bear interest at the rate of 6.500% per year, payable semi-annually.

MLPS

Reuters - Buckeye Partners L.P. rejected allegations by four major U.S. airlines that it was overcharging to transport jet fuel to New York City area airports and requested that the Federal Energy Regulatory Commission dismiss the complaint.

MARKET COMMENTARY

Stocks ended little changed as gains brought by a sign of improvement in the labor market were capped by a drop in Apple shares after a legal setback in a court ruling.

TOP NEWS

The number of Americans filing new claims for jobless benefits slid last week to the lowest level in more than four and a half years, according to government data that may provide a boost to President Barack Obama a month before voters go to the polls.

The IMF backed giving debt-burdened Greece and Spain more time to reduce their budget deficits, cautioning that cutting too far, too fast would do more harm than good.