TUESDAY, OCTOBER 02, 2012

SECTOR COMMENTARY

The energy sector closed slightly higher on the day, outpacing the Dow and ending roughly in line with the S&P 500. Concerns over upcoming quarterly earnings releases and developments in Spain caused market confusion amid expectations the debt-strapped country will soon request a full scale sovereign bailout.

In sector news, Core Laboratories shares closed down over 16% on the day after announcing that Q3 consolidated results are expected to be below the prior guidance, due to lower than expected North American drilling activity. Management expects third quarter earnings per share to close in the range of $1.09 to $1.13 versus the Thomson Reuters I/B/E/S estimate of $1.36.

Crude oil futures traded down $0.59 or 0.64% to $91.89, in choppy, light-volume trading as concerns about slowing economic growth and curbed demand for petroleum weighed on oil prices and countered supportive concerns about the risk of supply disruptions.

Natural gas futures rebounded to close up $0.051 or 1.47%, at $3.531 after seeing pressure during morning trade, when investors cashed out of the market to lock in gains from a five-day rally that took prices to the highest level since December 2011 earlier in the session.

U.S. INTEGRATEDS

Reuters - Exxon Mobil Corp was restarting the 87,800 barrel per day (bpd) gasoline-producing fluidic catalytic cracking unit (FCC) at its 149,000 barrel per day (bpd) Torrance, California, refinery, according to sources familiar with refinery operations.

Credit Suisse downgraded Hess Corp to ‘Underperform’ from ‘Neutral’ on capital efficiency concerns.

INTERNATIONAL INTEGRATEDS

Reuters - The smallest crude distillation unit and an isomerization unit at BP Plc's 337,000 barrel-per-day refinery in Whiting, Indiana, were fully restarted on Tuesday after undergoing planned work, sources familiar with refinery operations said.

Reuters - Igor Sechin, chief executive of Rosneft, a contender to buy BP Plc's stake in a Russian rival TNK-BP, will meet with minority shareholders in London on Friday, a Rosneft spokesman said.

Reuters - Russia's second largest oil producer, LUKOIL, has signed an agreement with Ivory Coast to explore for oil off the West African country's shore, the company said.

Reuters - Norway's Statoil will invest about 40 billion Norwegian crowns ($6.99 billion) in the upcoming development phases at its Snoehvit natural gas field in the Arctic to maintain production until 2040, a spokesman said.

Reuters - Norwegian oil services firm Aker Solutions has won a contract from Statoil to deliver five subsea trees and eleven control modules to the Visund field offshore Norway, the firm said.

Reuters - Statoil said its gas production on the Norwegian continental shelf was reduced by 12 million cubic meters per day due to "decreased availability".

Reuters - Total SA is content with the pace of developing its Canadian oil sands assets even as Suncor Energy Inc, its joint venture partner, said it was in no rush to bring a host of multibillion-dollar projects on line, an executive said.

CANADIAN INTEGRATEDS

Press Release - An agreement by Cenovus Energy Inc. to purchase the remaining assets of Oilsands Quest for $10 million received approval from the Alberta Court of Queen’s Bench today. The majority of the assets are located adjacent to Cenovus’s proposed Telephone Lake oil sands project in northern Alberta.

Reuters - Total SA is content with the pace of developing its Canadian oil sands assets even as Suncor Energy Inc, its joint venture partner, said it was in no rush to bring a host of multibillion-dollar projects on line, an executive said.

U.S. E&PS

Reuters - Gas production from Apache's Skene and Beryl Alpha fields in the UK will be reduced in early November for maintenance, the operator said.

Credit Suisse downgraded Berry Petroleum to ‘Underperform’ from ‘Neutral’ as the company faces challenges to driving growth from its Permian and Uinta Basin assets.

Press Release - On October 1, 2012, Chesapeake Energy Corporation and its wholly-owned subsidiary Chesapeake Exploration L.L.C. filed a lawsuit against Gastar Exploration Ltd. and certain of its subsidiaries in the U.S. District Court for the Southern District of Texas. The lawsuit is based on claims previously described in Gastar's Annual Report on Form 10-K for the year ended December 31, 2011. The lawsuit seeks rescission of certain transactions that closed in 2005 involving Gastar's Hilltop Prospect in Leon and Robertson Counties in Texas and an investment in Gastar's common stock by Chesapeake. In addition to its original initial investment of $81.6 million, Chesapeake is seeking reimbursement of additional lease and well costs allegedly expended by them.

FBR Capital upgraded Comstock Resources, Cimarex Energy and Devon Energy to ‘Outperform’ from Market Perform’ citing valuation and balance sheets for these three show the most sensitivity to a rebound in natural gas prices.

Reuters - U.S. oil company ConocoPhillips is ready to sell its stake in the giant Kashagan oil field, Kazakhstan's oil minister said, as the Central Asian nation tries to wring increasing revenue from foreign-owned oil and gas developments.

(Late Monday) Press Release - GMX RESOURCES INC., announced that it has entered into a definitive purchase and sale agreement with a private third party to sell a portion of its East Texas and Louisiana assets for approximately $69.0 million, subject to certain adjustments. The sale is expected to be closed within 30 days and is subject to customary diligence review and adjustments for title and environmental matters. The asset sale includes the Company's interests in specified operated and non-operated properties in the Cotton Valley Sands and shallow rights located in East Texas and Louisiana.

Press Release - Halcón Resources Corporation provided an operational update. The recently closed acquisitions of GeoResources, Inc. and assets in East Texas ("East Texas Assets") were structured to bolster the Company's production profile and reserve base while providing additional growth opportunities in liquids-rich regions. Halcón continues to transition from the leasehold acquisition phase of its development into the drilling phase with 11 operated drilling rigs currently running on resource style assets. The Company estimates that it will add four to six operated drilling rigs to its resource style drilling program by year end 2012. Halcón Field Services LLC, a midstream subsidiary of Halcón, continues to work on infrastructure construction and solutions in all areas of activity.

Press Release - Northern Oil and Gas, Inc. announced that on September 28, 2012, it completed the scheduled mid-year redetermination under its revolving credit facility and as a result increased the borrowing base thereunder from $300 million to $350 million. The revolving credit facility was also amended to expand the group of lenders by adding The Bank of Nova Scotia and ING Capital. Northern Oil currently has $68.0 million of outstanding borrowings under the credit facility. The next redetermination of the borrowing base is scheduled for April 1, 2013.

Press Release - Plains Exploration & Production Company provides updates on 2012 third-quarter preliminary production estimates and on initial financing of the previously announced Gulf of Mexico acquisition. PXP's 2012 third-quarter preliminary daily sales volumes averaged approximately 105 thousand barrels of oil equivalent per day. Estimated third-quarter average daily oil/liquids sales volumes increased approximately 5% compared to second-quarter 2012 and represented approximately 60% of total quarterly sales volumes. PXP has successfully syndicated $7.0 billion of committed financing to a group of banks and institutional lenders for the $6.11 billion proposed acquisition. The $7.0 billion of committed financing will be comprised of a $3.0 billion senior secured five-year revolving credit facility, a $750.0 million senior secured five-year term loan, a $1.25 billion senior secured seven-year term loan and a $2.0 billion senior unsecured bridge facility.

SunTrust Robinson Humphrey downgraded Whiting Petroleum to ‘Neutral’ from ‘Buy’ given a lower production outlook and target multiple.

CANADIAN E&PS

Credit Suisse downgraded Canadian Oil Sands to ‘Underperform’ from ‘Neutral’ citing valuation.

(Late Monday) Reuters - Canadian Oil Sands Ltd, the largest-interest owner of the Syncrude project, said that operation produced an average of 318,900 barrels a day in September from 359,500 bpd in August, a fall of about 11.3 percent.

Macquarie Equities Research resumed coverage on Connacher Oil and Gas following the sale of its Great Falls, Montana refinery and conventional oil & gas assets.

OIL SERVICES

(Late Monday) Press Release - Basic Energy Services, Inc. announced that it has priced an upsized private offering of $300 million of Senior Notes due 2022, which will bear interest at a rate of 7.750% per annum. The notes are being sold at 100.000% of their face amount. Basic expects the offering of the notes to close on October 16, 2012, subject to the satisfaction of customary closing conditions. Basic intends to use the net proceeds from the offering, after discounts and estimated offering expenses, to fund its pending tender offer and consent solicitation for its existing 7.125% Senior Notes due 2016 (the "2016 Notes") and to redeem any of the 2016 Notes not purchased in the tender offer, and the remainder for general corporate purposes.

Press Release - Core Laboratories N.V. expects 3rd quarter 2012 consolidated results to be below the prior guidance given on its 2nd quarter 2012 earnings release and subsequent earnings conference call. As discussed on that call, guidance was based upon a flat North American rig count along with a view to improving activity outside of North America. Since the end of the 2nd quarter 2012, the Baker Hughes land rig count for the United States is actually down by 112 units, roughly 6%, while the Canadian rig count is 30% below prior year levels. The oil rig count peaked at 1,432 in early August 2012 and has since dropped by 22 units. Over the same period, the gas rig count has decreased by 60 units.

(Late Monday) Press Release - Forum Energy Technologies, Inc. announced that it has acquired Syntech Technology, Inc. (Syntech). Located in Lorton, VA, Syntech is a manufacturer of syntactic foam buoyancy materials used for remotely operated vehicles (ROVs) and other deepwater flotation applications. Details of the transaction were not disclosed. Cris Gaut, Forum's chairman and chief executive officer, remarked, "Syntech is a welcome addition to our Forum Subsea Technologies product line and integrates an important part of the ROV supply chain. We plan to continue Syntech's long legacy of providing top quality buoyancy materials to all of Syntech's customers, while investing in the company to expand capacity and to serve new markets."

Press Release - PATTERSON-UTI ENERGY, INC. reported that for the month of September 2012, the Company had an average of 210 drilling rigs operating, including 203 rigs in the United States and 7 rigs in Canada. For the three months ended September 30, 2012, the Company had an average of 216 drilling rigs operating, including 211 rigs in the United States and 5 rigs in Canada.

DRILLERS

JPMorgan upgraded Diamond Offshore Drilling to ‘Neutral’ from ‘Underperform’ citing valuation.

(Late Monday) Reuters - Diamond Offshore Drilling Inc announced it has entered into a 5-year revolving credit agreement that provides for a $750 million senior unsecured revolving credit facility-SEC filing. The company has option to increase revolving commitments under agreement by up to additional $250 million

JPMorgan downgraded Rowan Cos to ‘Underweight’ from ‘Neutral’ citing valuation.

REFINERS

Reuters - Phillips 66 said all units at its 247,000-barrels-per-day refinery in Sweeny, Texas, were online again after a weekend power blip.

Press Release - Energy Transfer Partners, L.P. and Sunoco, Inc. announced the preliminary results of the elections made by Sunoco shareholders regarding the form of merger consideration to be received in connection with ETP’s pending acquisition of Sunoco, which is currently expected to be completed on October 5, 2012.

MLPS

Press Release - Cheniere Energy Partners, L.P. announced that it’s wholly owned subsidiary, Sabine Pass LNG, L.P., has priced its previously announced offering of Senior Secured Notes due 2020. The 2020 Notes will bear interest at a rate of 6.50% per annum and will mature on November 1, 2020. The 2020 Notes are priced at par and the closing of the offering is expected to occur on October 16, 2012.

Press Release - Energy Transfer Partners, L.P. and Sunoco, Inc. announced the preliminary results of the elections made by Sunoco shareholders regarding the form of merger consideration to be received in connection with ETP’s pending acquisition of Sunoco, which is currently expected to be completed on October 5, 2012.

(Late Monday) Press Release - Plains All American Pipeline, L.P. announced that it has completed its previously announced two-for-one split of the Partnership’s common units. The two-for-one split was effected by a distribution of one additional common unit for each common unit outstanding and held by unitholders of record at the close of business on September 17, 2012. The Partnership’s common units will trade on a post-split basis on the New York Stock Exchange beginning at the opening of trading on October 2, 2012. Based on the number of units outstanding today, the Partnership will have approximately 331.7 million units outstanding as a result of the two-for-one unit split.

Credit Suisse lowered Sempra Energy to ‘Underperform’ from ‘Neutral’ based on valuation.

Press Release - Tesoro Logistics LP announced that it has priced its previously announced underwritten public offering of 3,700,000 common units representing limited partner interests in the Partnership at $41.80 per common unit.

MARKET COMMENTARY

Stocks were little changed in a volatile session as uncertainty over when Spain might apply for a bailout shackled a market struggling to build on gains that took the S&P 500 to its highest in nearly five years.

TOP NEWS

General Motors, the largest U.S. automaker, posted a small gain in September U.S. sales as demand for passenger cars offset a drop in pickup trucks, while Japanese automaker Toyota Motor reported a large sales increase.