WEDNESDAY, OCTOBER 17, 2012

SECTOR COMMENTARY

Oil and gas stocks closed higher, led by E&P, services and drillers with the S&P 500 inching closer to its best level this year, lifted by a strong housing report. Shares of Celtic Exploration gained 45% after Exxon Mobil Corp said that it would acquire the Canadian oil and gas company in a deal valued at about C$3.1 billion ($3.1 billion) to expand its footprint within Canada. Additionally, Halliburton rallied at the close by 2% despite reporting that third-quarter profit fell due to inflated raw material costs and a slowdown in U.S. drilling, which showed no signs of picking up as many clients’ budgets for the year were already spent.

WTI crude oil edged up to $0.03 or 0.03 % to $92.12 in choppy trading, rallying on tight distillate inventories despite an overall bearish supply report. Crude had traded in negative territory for much of the session, hitting an intraday low of $91.55 soon after the EIA released its weekly petroleum inventory report. The inventory report was broadly bearish and counteracted good news in other markets about the euro and the U.S. housing market. But distillates fell by 2.218 million barrels, higher than the 1 million barrel decline that was forecast. The level of distillate stocks nationally is at the lowest level for this time of year in 12 years. The level of distillate stocks in the Northeast is currently lower than at any point since the EIA began reporting the data in 1990. Brent crude prices fell as rising U.S. crude oil and gasoline stockpiles kept tepid global demand for petroleum in focus, while a weaker dollar and worries about supply disruptions limited losses.

Henry Hub closed up $0.033 or 0.96% to $3.470, backed by technical and end-user buying after two straight losing sessions, but fairly mild weather forecasts for the next two weeks helped limit any bullish enthusiasm. Despite the rebound, many fundamental traders remain skeptical of the upside, with inventories at record highs for this time of year and production at or near an all-time peak. Traders also noted concerns that recent gains in gas prices have driven them to levels that could encourage producers to hook up more wells and make gas less competitive with coal for a share of the power generation market. Analysts were waiting for the next EIA storage report on Thursday, with most expecting stocks to have gained 48 billion cubic feet last week, according to a Reuters poll on Wednesday.

U.S. INTEGRATEDS

Reuters - An ExxonMobil executive has taken up the newly created position of offshore projects chief at Rosneft, which is gearing up for exploration in Arctic seas, Russia's biggest oil producer said on Wednesday.

Press Release - ExxonMobil Canada announced an agreement with Celtic Exploration Ltd. under which an ExxonMobil Canada affiliate will acquire Celtic. Under the terms of the agreement, ExxonMobil Canada will acquire 545,000 net acres in the liquids-rich Montney shale, 104,000 net acres in the Duvernay shale and additional acreage in other areas of Alberta. Shareholders of Celtic Exploration will receive C$24.50 per share and half a share of a newly established company which will hold assets not included in the agreement with ExxonMobil Canada.

Societe Generale downgraded Murphy Oil Corp. to ‘Hold’ from ‘Buy.’

Howard Weil downgraded Murphy Oil Corp. to ‘Market Perform’ from ‘Outperform.’

Brean Capital upgraded Murphy Oil Corp. to ‘Buy’ from ‘Hold.’

Barclays downgraded Murphy Oil Corp. to ‘Equal-Weight’ from ‘Overweight.’

INTERNATIONAL INTEGRATEDS

Reuters - A brief sulfur dioxide leak at BP's Texas City refinery caused Level 1 alert for surrounding communities, a local media report said on Wednesday.

Reuters - The billionaire quartet that owns half of TNK-BP has agreed to sell its stake in the Anglo-Russian oil venture to state oil major Rosneft for $28 billion, one source familiar with the matter said on Wednesday.

(Late Tuesday) 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.

U.S. E&PS

Press Release - Gulfport Energy Corporation announced that it has completed an offering of $250 million aggregate principal amount of its 7.750% Senior Notes Due 2020 at an issue price of 98.534% of the aggregate principal amount of the Notes.

Capital One Southcoast upgraded Penn Virginia Corp. to “Add’ from ‘Hold.’

Press Release - W&T Offshore, Inc. announced that it has commenced a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the "Securities Act"), to eligible purchasers of $250 million aggregate principal amount of 8.5% senior notes due 2019 (the "Notes"). The Notes are proposed to be offered as additional notes under an indenture pursuant to which W&T Offshore initially issued $600 million principal amount of its 8.5% senior notes due 2019 on June 10, 2011.

CANADIAN E&PS

NBF downgraded Celtic Exploration Ltd. to ‘Tender’ from ‘Outperform.’

Press Release - ExxonMobil Canada announced an agreement with Celtic Exploration Ltd. under which an ExxonMobil Canada affiliate will acquire Celtic. Under the terms of the agreement, ExxonMobil Canada will acquire 545,000 net acres in the liquids-rich Montney shale, 104,000 net acres in the Duvernay shale and additional acreage in other areas of Alberta. Shareholders of Celtic Exploration will receive C$24.50 per share and half a share of a newly established company which will hold assets not included in the agreement with ExxonMobil Canada.

Reuters - Canada's Penn West Petroleum Ltd. said it would sell some non-core properties for proceeds of up to C$1.3 billion ($1.32 billion) to repay a part of its debt. The company, one of Canada's biggest conventional oil and gas producers, has long-term debt of C$3.69 billion as of June 30, according to its website.

OIL SERVICES

• HAL reported 3Q’12 EPS of $0.67 versus Thomson Reuters I/B/E/S estimate of $0.67.

(Late Tuesday) Press Release - Basic Energy Services, Inc. announced that it will redeem on November 16, 2012, the redemption date, all $7,702,000.00 of the outstanding principal amount of its 7.125% Senior Notes due 2016 not tendered and purchased by Basic in a pending tender offer.

Press Release - Halliburton announced that income from continuing operations for the third quarter of 2012 was $625 million, or $0.67 per diluted share, excluding a $30 million after-tax ($0.03 per diluted share) acquisition-related charge and a $13 million after-tax ($0.01 per diluted share) gain from the settlement of a patent infringement case. Reported income from continuing operations for the third quarter of 2012 was $608 million, or $0.65 per diluted share. This compares to income from continuing operations for the second quarter of 2012 of $745 million, or $0.80 per diluted share.

(Late Tuesday) Press Release - Helix Energy Solutions Group, Inc. has agreed to sell its three pipelay vessels, the Caesar, Express, Intrepid and related equipment in separate transactions for total cash consideration of $252,750,000.

MLPS

Barclays reinstated Boardwalk Pipeline Partners L.P. with an ‘Equal-Weight’ rating.

MARKET COMMENTARY

The S&P 500 rose for the third consecutive day after housing starts hit a four-year high, but the Dow was weighed down by IBM after it posted weak revenue.

TOP NEWS

Groundbreaking on new U.S. homes surged in September to its fastest pace in more than four years, a sign the housing sector's budding recovery is gaining traction and supporting the wider economic recovery.

Bank of America eked out a third-quarter profit even after taking $1.6 billion of litigation charges, as the second-largest U.S. bank set aside less money to cover bad loans