MONDAY, OCTOBER 22, 2012

SECTOR COMMENTARY

The energy sector ended the day lower, tracking the broader equity markets on lighter-than-average volumes. Oilfield services led the group lower, followed closely behind by both gassy and oily E&Ps, while refiners were the best performers on the day, closing relatively flat. Several Canada-based E&Ps suffered steep losses on the day after the Canadian government announced it would block the proposed $6 billion acquisition of Progress Energy by Petronas. The news raised questions about future M&A opportunities in Canada.

November WTI crude oil futures ended their final day of trading lower, declining $1.32 or 1.47% at $88.73, while Brent crude futures were slightly more resilient. Economic concerns and an expected pipeline restart erased earlier gains and offset fears about Middle East turmoil which could threaten the oil supply. A warning from industrial equipment giant Caterpillar Inc on a global economy slowing faster than expected and data showing Japanese exports tumbled were the key drivers to the downside, especially for U.S. crude as the front-month November contract approached expiration. TransCanada Corp announced expectation that it will restart its Canada-to-U.S. Keystone crude oil pipeline earlier than anticipated.

Natural gas declined $0.165 or 4.56% to close at $3.452, as weaker natural gas futures and some milder near-term weather weighed on the front month. A return of weekday industrial demand and ongoing nuclear plant outages helped to limit losses.

INTERNATIONAL INTEGRATEDS

Reuters - BP will shut down the North Sea CATS Riser platform from Nov. 10-11 for work, a maintenance table showed.

Reuters - BP said that it had no problems with its hydrocracker at the Gelsenkirchen refinery in Germany. Trade sources had earlier said the 265,000 barrels-per-day refinery had been affected by an outage in a hydrocracker. The refinery is jointly owned by BP and Rosneft

Reuters - Rosneft announced on a two-part deal worth around $55 billion that gives British oil company BP a stake of 19.75 percent in the state-controlled Russian energy firm and two seats on the board, and offers an exit for the TNK-BP's other shareholders AAR, as well. The agreement with BP folds BP's half of TNK-BP, Russia's third-largest oil company, into Rosneft, in exchange for cash and Rosneft stock. AAR would get $28 billion in cash, but the two deals are independent of each other, Rosneft said.

Reuters - Azerbaijan expects a stable crude production at BP-led consortium until the end of the contract in 2024, conceding the project won't be able to reach planned output of 1 million barrels per day, the state oil company SOCAR chief said. Falling output at the Azeri, Chirag and Guneshli (ACG) oilfields, one of BP's largest global projects, raised concerns at the ex-Soviet republic and prompted its president to accuse the British major of making "false promises".

Press Release - Statoil ASA has signed an agreement to exit the Brage licences, farm down in Gjøa and Vega and acquire a 15 % stake in the Edvard Grieg licence near the Johan Sverdrup field in the North Sea. This transaction with the German oil and gas company Wintershall gives Statoil net proceeds of USD 1.45 billion, and begins a strategic partnership between Statoil and Wintershall.

U.S. E&PS

Reuters - Oil major ConocoPhillips is likely to sell more gas to its competitors in Australia's coal seam gas industry before it brings its own liquefied natural gas (LNG) plant online, a senior executive said.

Press Release – Magnum Hunter Resources announced that their financial statements in the 10-Q for the quarter ended June 30, 2012 contained an error that resulted in the understatement of non-cash share-based compensation expense of about $3.8 million.

Press Release - Africa Oil Corp. is pleased to announce that it has completed the Kenyan portion of the previously announced (July 23, 2012) farmout agreement with Marathon Oil Corporation whereby Marathon Oil acquired an interest in two of Africa Oil's Kenyan exploration blocks.

Global Hunter Securities has initiated coverage of SM Energy with a ‘Buy’ rating.

CANADIAN E&PS

Reuters – Enbridge, Canada's second-largest pipeline company, said it will buy some gas facilities from Encana Corp in the Peace River Arch region in northwestern Alberta to strengthen its natural gas gathering and compression business. Enbridge, whose pipelines carry the bulk of Canada's oil exports to the United States, said its total investment in the region is expected to be about C$264 million ($266 million) after construction of all the facilities is completed in 2013.

Canaccord Genuity cut their rating of Talisman Energy to ‘Hold’ from ‘Buy’.

REFINERS

Reuters - Valero Energy Corp said the crude unit was at planned rates at its 125,000-barrel-per-day refinery in Meraux, Louisiana. The company had said the unit was approaching planned rates last week after being shut in July following a fire.

Reuters - Valero Energy Corp on reported planned startup activities for a hydrocracker and the No. 1 reformer at its 156,000-barrel-per-day McKee refinery in Sunray, Texas, according to a filing with state pollution regulators.

MLPS

Reuters – Enbridge, Canada's second-largest pipeline company, said it will buy some gas facilities from Encana Corp in the Peace River Arch region in northwestern Alberta to strengthen its natural gas gathering and compression business. Enbridge, whose pipelines carry the bulk of Canada's oil exports to the United States, said its total investment in the region is expected to be about C$264 million ($266 million) after construction of all the facilities is completed in 2013.

Press Release – Targa Resources Partners LP announced $400 million offering of senior notes. The company intends to use the net proceeds from the offering to redeem all of its outstanding 8.25% senior notes due 2016.

Press Release - TransCanada Corp said on that the restart of its 590,000 barrel per day Keystone oil pipeline would be delayed until Monday, a day later than expected. A spokesman for the country's largest pipeline company said in an email that TransCanada was working with regulators to finalize restart plans for the line, which carries a quarter of Canada's crude oil exports to the United States.

MARKET COMMENTARY

The Dow industrials and the S&P 500 ended flat after a late-day bounce, as worries about slower global growth hitting corporate sales were offset by earnings that beat expectations.

TOP NEWS

Caterpillar, the world's largest maker of tractors and excavators, slashed its 2012 forecast for the second time this year and warned the global economy was slowing faster than it had expected.

Rosneft tightened its grip on Russia's oil industry with a $55 billion deal to buy TNK-BP that also makes Britain's BP a one-fifth shareholder in the state-controlled company.