THURSDAY, OCTOBER 18, 2012

SECTOR COMMENTARY

The energy sector outperformed the broader equity markets on the day, led higher by drillers, after executives from Diamond Offshore and Noble Corporation said that deep water oil rigs will be in high demand for years, while other drilling segments may end up being too well supplied. The services sector also outperformed, ahead of the Baker Hughes and Schlumberger earnings releases that are slated for tomorrow.

U.S. crude oil futures closed down by $0.02 or 0.02% to $92.10, while Brent was down over 0.7%, on indications of improving supply and a rise in U.S. jobless claims, despite support from the closure of a pipeline carrying Canadian crude oil to the United States. TransCanada Corp has shut down its 590,000-bpd Keystone pipeline from Alberta to the U.S. Midwest and Midcontinent. The shutdown is expected to last for three days, the company said.

Natural-gas futures ended a volatile day of trading higher by $0.117 or 3.37% closing at $3.587, after broad moves following U.S. inventory data which showed an increase that was smaller than normal, but higher than had been expected. The weekly EIA report showed that natural gas inventories rose by 51Bcf for the week ended October 12, which was slightly lower than the 48Bcf build expected by analysts.

US INTEGRATEDS

Reuters - A U.S. trial has been set for next fall in a Chevron Corp lawsuit that accuses Ecuadorean residents, their lawyers, and advisers of fraud in obtaining a $19 billion pollution award against the U.S. oil company.

Reuters - Exxon Mobil wants to pull out of its contract to develop the supergiant West Qurna-1 oilfield in southern Iraq, diplomatic sources said on Thursday, because of concerns over the profitability of the project.

INTERNATIONAL INTEGRATEDS

Reuters - British oil firm BP has received an offer for its 50 percent stake in Russian oil producer TNK-BP from Russian state oil firm Rosneft according to two sources familiar with the actions of the companies.

Reuters - Brazilian state-run oil company Petrobras and its partners said on Wednesday it found more good quality oil in an offshore area south of Rio de Janeiro, raising the output potential of one of its biggest recent discoveries.

Goldman Sachs cut Royal Dutch Shell to ‘Sell’ from ‘Neutral.’

CANADIAN INTEGRATEDS

Husky Energy was cut to ‘Sell’ from ‘Neutral’ at Goldman Sachs.

U.S. E&PS

Goldman Sachs raised ConocoPhillips to ‘Neutral’ from ‘Sell.’

Guggenheim Securities initiated Kosmos Energy with a ‘Buy.’

Guggenheim Securities initiated McMoRan Exploration with a ‘Buy.’

Press Release - Noble Energy, Inc. today announced that the Trema exploration well in the Tilapia license offshore Cameroon reached its target objective and encountered reservoir-quality sandstones that were water-bearing. The well is currently being plugged and abandoned.

Press Release - Northern Oil expects third quarter 2012 production to increase approximately 96% over the third quarter of 2011, and approximately 9% compared to the second quarter of 2012, resulting in an average of approximately 11,200 barrels of oil equivalent per day. During the first two months of the quarter, the weighted average days on production was approximately 55 out of a possible 62 producing days, or approximately 89% of potential producing days. Preliminary estimates of September's weighted average days on production appear to be consistent with the first two months of the third quarter.

(Late Wednesday) Press Release - Laredo Petroleum Holdings, Inc., a Delaware corporation, announced today the closing of the underwritten secondary public offering of 14,375,000 shares of its common stock by affiliates of Warburg Pincus LLC, the selling stockholders, at a price to the public of $20.25 per share, including all 1,875,000 shares of common stock that were subject to the underwriters' option to purchase additional shares.

CANADIAN E&PS

Reuters - A Hong Kong-based firm has agreed to pay more than $14 million to settle charges of trading on inside knowledge of CNOOC Ltd's bid for Nexen Inc, the U.S. Securities and Exchange Commission said on Thursday.

OIL SERVICES

• CLB reported 3Q’12 EPS of $1.13 versus Thomson Reuters I/B/E/S estimate of $1.11.

Press Release - Core Laboratories N.V. reported third quarter 2012 net income of $54,403,000 and earnings per diluted share ("EPS") of $1.14. Excluding the settlement of a business interruption claim, the Company's operations earned $1.13, an increase of 13% over year-earlier EPS totals, ex-items. Third quarter 2012 revenue increased 6% over third quarter 2011 levels to $245,428,000, despite the U.S. rig count decreasing approximately 6% since the end of the second quarter 2012 and an international rig count that has been flat from year end 2011. Third quarter 2012 operating income increased to $73,747,000, 6% over year-ago quarterly levels, ex-items, yielding operating margins of 30%.

Halliburton was downgraded to ‘Neutral’ from ‘Buy’ at Global Hunter Securities.

Halliburton was downgraded to ‘Equal Weight’ from ‘Overweight’ at Stephens.

DRILLERS

• DO reported 3Q’12 EPS of $1.28 versus Thomson Reuters I/B/E/S estimate of $1.02.
• NE reported 3Q’12 EPS of $0.45 versus Thomson Reuters I/B/E/S estimate of $0.49.

Atwood Oceanics was upgraded to ‘Overweight’ from ‘Equal-Weight’ at Morgan Stanley.

Press Release - Diamond Offshore Drilling, Inc. today reported net income for the third quarter of 2012 of $178 million, or $1.28 per share on a diluted basis, compared with net income of $257 million, or $1.85 per share on a diluted basis, in the same period a year earlier. Revenues in the third quarter of 2012 were $729 million, compared with revenues of $878 million in the third quarter of 2011.

Press Release - Diamond Offshore Drilling, Inc. announced today that the Company has declared a special quarterly cash dividend of $0.75 per share of common stock and a regular quarterly cash dividend of $0.125 per share of common stock. Both dividends are payable on December 3, 2012 to shareholders of record on November 1, 2012.

(Late Wednesday) Press Release - Noble Corporation today reported third quarter 2012 earnings of $115 million, or $0.45 per diluted share, compared to $160 million, or $0.63 per diluted share, for the second quarter of 2012. For the third quarter 2011, the Company reported earnings of $135 million, or $0.53 per diluted share. Contract drilling services revenues for the third quarter of 2012 were $833 million compared to $848 million for the second quarter of 2012. For the third quarter of 2011, contract drilling services revenues totaled $705 million.

Goldman Sachs raised Seadrill to ‘Buy’ from ‘Neutral.’

(Late Wednesday) Press Release - Transocean Ltd. today issued a comprehensive Fleet Status Report which provides current status and contract information for the company's entire fleet of offshore drilling rigs. Since the September fleet update, backlog associated with new contracts or extensions is approximately $8.1 billion, including $7.6 billion associated with the four newbuild ultra-deepwater drillships announced on September 28, 2012.

REFINERS

Press Release - Northern Tier Energy LP today updated its earnings outlook for the third quarter of 2012. This updated outlook reflects higher Adjusted EBITDA guidance compared to the forecast provided in its initial public offering prospectus dated July 25, 2012. This increased Adjusted EBITDA outlook is primarily due to improved results in the Refining segment, which were driven by higher refined product margins per barrel and increased volumes compared to the forecast previously provided. The updated outlook also reflects lower GAAP net earnings compared to the operating forecast in the prospectus primarily due to the accounting impact during the third quarter of certain non-cash charges related to the initial public offering.

Reuters - Valero Energy Corp said on Thursday that a gasoline-making fluid catalytic cracking (FCC) unit was back in production following planned work at its 156,000-barrel-per-day McKee refinery in Sunray, Texas.

Goldman Sachs raised Western Refining to ‘Buy’ from ‘Neutral.’

MLPS

(Late Wednesday) Press Release - El Paso Pipeline Partners, L.P. today increased its quarterly cash distribution per common unit to $0.58 ($2.32 annualized) payable on Nov. 14, 2012, to unit holders of record as of Oct. 31, 2012. This represents an 18 percent increase over the third quarter 2011 cash distribution per unit of $0.49 ($1.96 annualized) and a 5 percent increase from $0.55 per unit ($2.20 annualized) for the second quarter of 2012. EPB has increased its cash distribution 18 consecutive quarters since its initial public offering in November 2007.

(Late Wednesday) Press Release - Kinder Morgan Energy Partners, L.P. today increased its quarterly cash distribution per common unit to $1.26 ($5.04 annualized) payable on Nov. 14, 2012, to unit holders of record as of Oct. 31, 2012. This represents a 9 percent increase over the third quarter 2011 cash distribution per unit of $1.16 ($4.64 annualized) and is up from $1.23 per unit ($4.92 annualized) for the second quarter of 2012. KMP has increased the distribution 45 times since current management took over in February 1997.

Press Release - Tesoro Logistics LP today announced the declaration of its quarterly cash distribution for the third quarter 2012 of $0.455 per limited partnership unit, or $1.82 on an annualized basis. This distribution represents an 11% increase over the quarterly distribution of $0.41 per unit ($1.64 per unit on an annualized basis) paid in August 2012. In the prior four quarters, TLLP has increased its distribution to limited partners by 30%. The third quarter distribution will be paid November 14, 2012 to all unit holders of record on November 2, 2012.

Reuters - TransCanada Corp has shut down the 590,000 barrel a day Keystone oil pipeline to the U.S. Midwest and Midcontinent from Canada after detecting a "small anomaly" on the pipe during planned maintenance, the company said on Thursday.

MARKET COMMENTARY

Stocks fell, with technology stocks hit hard after Google disappointed investors with earnings results that were inadvertently released during the trading day.

TOP NEWS

The number of Americans filing new claims for jobless benefits spiked last week, reversing a sharp decline in the prior week but still pointing to a labor market that is slowly healing.