FRIDAY, OCTOBER 19, 2012

SECTOR COMMENTARY

Energy stocks finished sharply lower, although most subgroups outperformed the broader market averages. E&Ps and services led the way on the downside, while the drillers showed the best relative performance, paced by Noble Corp., which closed in the green for the second day in a row despite missing earnings views yesterday.

In sector news, oil services companies Baker Hughes and Schlumberger reported mixed results with the former posting a surprise miss for the third quarter on lower North American margins, while the latter beat estimates on strong international revenues. Both stocks finished lower, even though Schlumberger opened higher on the solid results.

U.S. front-month November crude lost $2.05 or 2.23% to settle at $90.05 a barrel, after finding resistance at $93 a barrel area and testing support under $90 near the 100-day moving average. Brent crude prices fell for the fourth straight session, dragged down by fresh global economic concerns and expectations a major Canadian crude oil pipeline to the United States would restart on schedule.

Natural gas futures closed higher by $0.03 or 0.84% to $3.617, boosted by longer-term weather outlooks calling for cooler temperatures that should boost heating demand. The number of rigs drilling for natural gas in the United States climbed this week for the second time in three weeks, raising concerns that the recent rally in gas prices to 2012 highs might be prompting some producers to bring on more supply. The gas-directed rig count rose this week by five to 427 after posting a 13-year low the previous week, data from Houston-based oil services firm Baker Hughes showed.

U.S. INTEGRATEDS

Reuters - A hydrocarbon-based product was briefly discharging from a coker at Exxon Mobil Corp's Joliet refinery in Illinois, the Morris Daily Herald reported on its website.

Reuters - ExxonMobil Pipeline Company said on Friday it shut down a 12-inch pipeline carrying crude after it found oil sheen in the water near Barataria Bay, Louisiana. Exxon Mobil Corp's said it shut down the pipeline for repair but plans to resume its operations later.

INTERNATIONAL INTEGRATEDS

Reuters - British oil firm BP confirmed that the 90 day period during which its partner, AAR, in its Russian oil venture TNK-BP had exclusive rights to make an offer for BP's share had ended.

Reuters - BP has drafted in new managers and engineers in Azerbaijan following a recent outburst of criticism from the country's president over a fall in oil output which the government has blamed for an $8 billion hole in the national budget.

Reuters – Rosneft is poised to secure a tighter grip on Russia's oil industry by buying BP's 50 percent stake in TNK-BP, the country's third largest producing company.

Reuters - A manager at Anglo-Russian oil firm TNK-BP has been arrested on suspicion of fraud, the Russian Interior Ministry and the company said. The Interior Ministry said in a statement that the suspect, who had previously worked in the Irkutsk regional government, had in September offered jobs in the Kremlin to two businessmen in return for payments of $3 million apiece.

(Late Thursday) Reuters - BP Plc. said its ill-fated Macondo well remains sealed and that an oil sheen spotted on the Gulf of Mexico near the site of the sunken Deepwater Horizon is likely from a cofferdam used in an attempt to cap the runaway well in 2010.

Reuters - The Geneva-based trading arm of Russia's LUKOIL has replaced its CEO, the group said in an emailed statement on Friday, hiring a top executive from BP Plc.

Reuters - Brazil's state-led oil company, Petrobras, plans to cut between 5 billion reais and 15 billion reais ($2.5 billion and $7.5 billion) from operational costs next year, sources with direct knowledge of the plans said on Friday.

Reuters - Brazil state-led oil company Petrobras plans to cut between 5 billion reais ($2.5 billion) and 15 billion reais ($7.43 billion) from its operational costs in 2013, Brazilian newspaper O Globo reported.

Reuters - Royal Dutch Shell Plc said it was restarting an unspecified unit at its 100,000 barrel-per-day Scotford refinery near Edmonton, Alberta, according to a message posted on a community information line.

Reuters - Royal Dutch Shell Plc reported excess emissions of sulfur dioxide during to a planned turnaround on an unspecified unit at its 327,000 barrel-per-day (bpd) joint-venture Deer Park, Texas, refinery, in a filing with regulators.

Reuters - Russian oil company Rosneft seeking to buy BP and its partners out of rival oil producer TNK-BP, is preparing to launch a 20 billion rouble ($649.88 million) bond it delayed last week, a banking source said on Friday.

U.S. E&PS

• MMR reported 3Q EPS of $(0.15) versus Thomson Reuters I/B/E/S estimate of $(0.13).

(Late Thursday) Reuters - Suriname's state oil company Staatsolie signed a production sharing agreement with Apache Corp of the United States to explore and maybe produce crude from an offshore block off the South American country.

Press Release - McMoRan Exploration Co. reported a net loss applicable to common stock of $64.0 million, $0.40 per share, for the third quarter of 2012 compared with a net loss of $9.4 million, $0.06 per share, for the third quarter of 2011. Third quarter 2012 results include charges to exploration expense primarily resulting from the write-off of allocated carrying value of leasehold from the December 2010 property acquisition no longer being pursued totaling $37.2 million.

Reuters - The restart of Britain's largest oilfield after a maintenance shutdown has been delayed by a further two days, a trade source said, further disrupting shipments of the oil that sets the Brent benchmark. Nexen's Buzzard field is the largest of the North Sea fields that contribute to the Forties crude blend, the most important of the North Sea crudes underpinning the Brent contract.

OIL SERVICES

• BHI reported 3Q EPS of $0.73 versus Thomson Reuters I/B/E/S estimate of $0.84.
• SLB reported 3Q EPS of $1.08 versus Thomson Reuters I/B/E/S estimate of $1.06.

Press Release - Baker Hughes Incorporated announced adjusted net income (a non-GAAP measure) for the third quarter of 2012 of $322 million or $0.73 per diluted share. This compares to adjusted net income of $1.18 per diluted share for the third quarter of 2011, and $1.00 per diluted share for the second quarter of 2012.

Press Release - Forum Energy Technologies, Inc. announced that IKM Subsea recently added two Forum Sub-Atlantic Remote Operated Vehicles (ROVs) to their existing fleet. IKM Subsea plans to deploy immediately Sub-Atlantic Mohican and Comanche vessels in the North Sea and Singapore respectively. This recent addition brings the total number of ROVs deployed by IKM Subsea to fourteen.

Press Release - Schlumberger Limited reported third-quarter 2012 revenue of $10.61 billion versus $10.45 billion in the second quarter of 2012, and $9.55 billion in the third quarter of 2011. Income from continuing operations attributable to Schlumberger, excluding charges and credits, was $1.44 billion—an increase of 3% sequentially and 10% year-on-year. Diluted earnings-per-share from continuing operations, excluding charges and credits, was $1.08 versus $1.05 in the previous quarter, and $0.96 in the third quarter of 2011.

DRILLERS

Iberia Securities downgraded Diamond Offshore Drilling to ‘Sector Perform’ from ‘Outperform‘ citing valuation.

(Late Thursday) Reuters - OGX Petroleo e Gas SA returned one of four rigs leased from U.S. drilling rig operator Diamond Offshore after its contract ended, OGX said.

Press Release - Seadrill Partners LLC announced that it priced its initial public offering of 8,750,000 common units at a price of $22.00 per unit. Seadrill Partners has granted the underwriters a 30-day over-allotment option to purchase up to 1,312,500 additional common units, at the same price per unit, to cover over-allotments, if any. The common units being offered to the public are expected to begin trading on October 19, 2012, on the New York Stock Exchange under the symbol "SDLP." The offering is expected to close on or about October 24, 2012, subject to customary closing conditions.

REFINERS

(Late Thursday) Press Release - MPLX LP, a Delaware limited partnership and a subsidiary of Marathon Petroleum Corporation, announced the launch of its initial public offering of 15,000,000 common units representing limited partner interests pursuant to a registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (SEC). MPLX will grant the underwriters a 30-day option to purchase from MPLX up to an additional 2,250,000 common units at the initial public offering price to cover over-allotments, if any. The common units will be listed on the New York Stock Exchange under the ticker symbol "MPLX."

MLPS

Credit Suisse downgraded Access Midstream Partners to ‘Neutral’ from ‘Outperform’ based on valuation appropriately reflects its top-tier distribution growth prospects.

Credit Suisse upgraded Cheniere Energy Partners to ‘Outperform’ from ‘Neutral’ citing investors are getting paid a healthy ~8% to wait for Cheniere to continue to de-risk/expand the scope of the liquefaction story.

Barclays Capital upgraded Cheniere Energy Partners to ‘Equal Weight’ from ‘Underweight’ based on valuation.

(Late Thursday) Press Release - Copano Energy, L.L.C. announced the commencement of a public offering of 6,000,000 of its common units representing limited liability company interests in the company. Copano also intends to grant the underwriters a 30-day option to purchase up to 900,000 additional common units if the underwriters sell more than 6,000,000 common units in the offering.

Barclays Capital initiated coverage on Genesis Energy with an ‘Overweight’ rating citing has favorable exposure to oil infrastructure build-out.

(Late Thursday) Press Release - MPLX LP, a Delaware limited partnership and a subsidiary of Marathon Petroleum Corporation, announced the launch of its initial public offering of 15,000,000 common units representing limited partner interests pursuant to a registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission. MPLX will grant the underwriters a 30-day option to purchase from MPLX up to an additional 2,250,000 common units at the initial public offering price to cover over-allotments, if any. The common units will be listed on the New York Stock Exchange under the ticker symbol "MPLX."

Reuters - TransCanada Corp said that poor weather was impeding efforts to inspect a section of its idled Canada-to-United States oil pipeline, but the company stuck to its estimate for a weekend restart for the major export conduit.

(Late Thursday) Reuters - TransCanada Corp said it has shut down its major pipeline for moving Canadian crude oil from Alberta to the U.S. Midwest and Midcontinent after detecting a "small anomaly" on the pipe, lifting benchmark oil prices well off the day's lows.

MARKET COMMENTARY

Stocks slid, marking their worst day since late June after bellwethers General Electric and McDonald's extended a string of disappointing earnings.

TOP NEWS

U.S. home resales retreated in September from a two-year high, a reminder that America's housing sector is a long way from a full recovery despite recent signs of improvement.