Tuesday, October 16, 2012

SECTOR COMMENTARY

Energy stocks rebounded from yesterday’s underperformance and led the broader markets to the upside today despite a lackluster performance in oil and gas futures. The energy sector was led higher by the refining complex followed by drillers but all sub-industries experienced gains. However, a few natural gas-levered producers slipped into negative territory.

Shares of Murphy Oil surged 8% on soaring volume after saying it will spin-off its U.S. downstream operations into a separately traded company along with authorizing a special dividend of $2.50 per share and a share buyback program. Traders also positioned for earnings season, which starts tomorrow when Halliburton reports 3Q results. Concerns regarding North American margins abound, leading some to rotate capital toward more internationally-levered names and to focus on read through commentary regarding E&Ps.

WTI oil gained $0.24 or 0.26% to $92.09 while Brent fell more than half a percent upon expiration but remained comfortably above $115. Oil trading was choppy as expectations that U.S. crude inventories rose last week and concerns about sputtering economic growth in the U.S., Europe and China balanced tensions between Turkey and Syria.

Natural gas futures extended yesterday’s declines, falling $0.049 or 1.41% to $3.437 on the continued outlook for moderate temperatures to depress demand.

U.S. INTEGRATEDS

Press Release - InterOil Corporation announced that IOC and its subsidiaries, EP InterOil and InterOil Limited, have entered into a five year amortizing $100 million secured term loan facility with BNP Paribas Singapore, Bank South Pacific Limited, and Australia and New Zealand Banking Group Limited.

Press Release – Murphy Oil Corporation announced that its Board of Directors has approved a plan to spin off to its stockholders its U.S. downstream subsidiary, Murphy Oil USA, Inc., into an independent and separately traded company, and has also authorized a special dividend of $2.50 per share for a total dividend of approximately $500 million and a share buyback program of up to $1 billion of the company’s shares of common stock. Murphy also reaffirmed the plan to divest the U.K. downstream operations and stated that it is continuing to review possible options with respect to selected assets.

INTERNATIONAL INTEGRATEDS

(Late Monday) Reuters - Bidding will open this week for BP's half of Russian oil company TNK-BP, with Rosneft seen as the likely winner of the British oil major's stake in the fraught but lucrative joint venture.

Reuters - BP, facing criticism in Azerbaijan for a fall in crude oil output at a BP-led project which the government has blamed for an $8 billion hole in its finances, said two senior executives would leave its Azeri unit.

Reuters - The South Stream gas pipeline project, led by Russian gas giant Gazprom and Italy's Eni, is not at risk of being slowed down by the European Union probe into Gazprom, Eni Chief Executive Paolo Scaroni said on Tuesday.

Reuters - The Italian government will support oil and gas group Eni in the renegotiation of its long-term gas import contracts, industry minister Corrado Passera said on Tuesday.

Reuters – LUKOIL expects output growth to resume in 2013 at a rate of 1-1.5 percent, its chief executive, Vagit Alekperov, said in London on Tuesday.

Reuters - LUKOIL said on Tuesday its board of directors will look into a possibility of paying 40 roubles ($1.29) per share in interim dividend.

Reuters - LUKOIL, forced to look abroad for new production in recent years to offset declines in Soviet-era fields, will see overall output growth return next year thanks to a turnaround in its old production base, its vice president said on Tuesday.

Reuters - LUKOIL said on Tuesday that Iraq has not asked the Russian company to replace Exxon Mobil at its supergiant West Qurna-1 oilfield after the U.S. major angered Baghdad by entering into autonomous Kurdistan.

Reuters - Brazilian state-led oil company, Petrobras, does not expect to get permission "in the short term" from the government to raise fuel prices that have caused refining division losses, chief executive Maria das Graças Foster said on Tuesday.

Reuters - Asia's largest refiner Sinopec has yet to decide whether to build a $9 billion refinery in Southern China's Zhanjiang by itself or in a joint venture with Kuwait Petroleum Corp and Total.

(Late Monday) Reuters – Statoil’s expansion in the Canadian oil sands shows how crucial the resource is to the Norwegian energy company, the operation's new chief said on Monday, as a rush of foreign investment raises political tension in Ottawa.

U.S. E&Ps

Susquehanna raised its rating on Denbury Resources Inc to ‘Positive’ from ‘Neutral.’

(Late Monday) Reuters - EPL Oil & Gas Inc announced it sees its 2013 capital budget (excluding plugging and abandonment expenditures) at about $300 million.

Canadian E&Ps

Press Release - Canacol Energy Ltd. and Shona Energy Company, Inc. are pleased to jointly announce that they have entered into an agreement whereby Canacol will acquire 100% of the issued and outstanding class "A" common shares of Shona and series "A" preferred shares of Shona, in exchange for common shares of Canacol and cash, by way of a statutory plan of arrangement. The transaction is expected to close on or around December 20, 2012, provided all required Shona and Canacol security holder, court and regulatory approvals are obtained.

Barclays lowered its rating on Petrobakken Energy Ltd to ‘Equal Weight’ from ‘Overweight.’

Oil services

Press Release - Basic Energy Services, Inc. today reported selected operating data for the month of September 2012. Basic's well servicing rig count remained unchanged at 431. Well servicing rig hours for the month were 67,500 producing a rig utilization rate of 71%, compared to 75% and 74% in August 2012 and September 2011, respectively.

Credit Suisse initiated coverage of the oilfield service and equipment space with a Market Weight position, giving Halliburton and Cameron International ‘Outperform’ ratings; Baker Hughes, Schlumberger, Weatherford and FMC Technologies ‘Neutral’ ratings and Forum Energy Technologies a ‘Restricted’ rating.

drillers

RBC increased its rating on Helmerich & Payne Inc to ‘Outperform’ from ‘Sector Perform.’

mlps

(Late Monday) Press Release - Boardwalk Pipeline Partners, LP announced today that a subsidiary has purchased the remaining 65% equity interest in PL Midstream LLC from Boardwalk Pipelines Holding Corp., a wholly-owned subsidiary of Loews Corporation and the parent of our general partner, for approximately $269 million.

(Late Monday) Press Release - NuStar Energy L.P. announced today the launch of a Binding Open Season by its affiliate, NuStar Logistics, L.P., to assess shipper interest in firm priority space to transport crude petroleum from the Niobrara Shale near Platteville and Watkins, Colorado to Wichita Falls, Texas.

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market Commentary

Stocks rose, giving the S&P 500 its best two-day advance in a month as strong earnings from Johnson & Johnson and other bellwether companies raised hopes for the rest of U.S. reporting season.