WEDNESDAY, OCTOBER 24, 2012

SECTOR COMMENTARY

Oil and gas stocks finished the day lower led by oil services and E&Ps on falling commodities and after the Federal Reserve reiterated its concerns about the U.S. economy and pledged to stick to its bond-buying policy. Weakness in the E&P space was led by shares of Newfield Exploration, which fell over 17% to $27.46 amid its 3Q’12 earnings miss on lower oil and gas revenues and higher expenses falling short of Wall Street expectations.

WTI crude oil settled at $85.73 down $0.94 or 1.08% as rising U.S. crude inventories and weak euro zone economic data offset supportive signs that Chinese petroleum demand could stage a recovery. Crude oil stocks in the United States jumped 5.9 million barrels last week, the EIA said in a weekly report, well above the increase of 1.9 million barrels in a Reuters survey of analysts. Gasoline stocks rose more than expected, total distillate stockpiles eased slightly less than the consensus forecast and demand for the products over the previous four weeks was below the year-ago period. Brent crude fell for a seventh straight session on Wednesday, hitting 12-week lows after a sharp build in U.S. oil stockpiles, while most other commodities slid too as the dollar remained strong against the euro.

Henry Hub futures dropped $0.085 or 2.40% to $3.450, undermined by prospects for a sizable inventory build on Thursday and by milder early-November weather despite the cold shot expected next week that should stir more demand. Traders note that inventories are still at record highs for this time of year, and production is flowing at or near an all-time peak. U.S. spot natural gas prices rose across the nation on Wednesday, with some cooler weather expected to boost early heating demand in the western half of the nation.

INTERNATIONAL INTEGRATEDS

Reuters - BP officials met with officials from the Azeri national oil company and agreed on ways to resolve production issues at the Azeri-Chirag-Guneshli group of oilfields which drew harsh criticism from Baku, BP said in a statement.

Raymond James Euro Equities initiated BP with an ‘Outperform’ rating.

Reuters - Azerbaijan expects stable crude production at Azeri, Chirag and Guneshli (ACG) oilfields operated by BP-led consortium at 33-34 million tons per year in 2015-2020 and does not plan to change the operator of the contract, the chief of state oil company SOCAR said on Wednesday.

Reuters - Bankers will likely pick up $30-$50 million for their work on Russian state-owned oil group Rosneft's $55 billion takeover of TNK-BP, according to Freeman Consulting.

Reuters - BP said it shut an incinerator, following a sulfur recovery unit (SRU) malfunction at its 406,570 barrel-per-day refinery in Texas City, Texas on Tuesday, according to a filing with regulators.

Press Release - China's leading off-shore oil and gas producer CNOOC Ltd. announced its unaudited third-quarter sales revenues hit 48.44 billion yuan (7.68 billion U.S. dollars), up 4.7 percent year-on-year. The company produced 87.8 million barrels of oil equivalent (BOE) during the third quarter of the year. This was primarily boosted by new projects and new development wells, the improvement of overseas production, and the stable production in oil and gas fields.

Reuters - China's top offshore oil and gas producer CNOOC Ltd. said on Wednesday it was still working to secure Canadian approval for its $15.1 billion bid for energy producer Nexen.

Raymond James Euro Equities initiated ENI with an ‘Outperform’ rating.

Barclays upgraded ENI to ‘Overweight’ from ‘Equal Weight.’

Reuters - Spanish oil major Repsol said it would close four units of its A Coruna refinery in northern Spain from the start of November, with production due to begin again by the end of the same month.

Raymond James Euro Equities initiated Royal Dutch Shell with a ‘Market Perform’ rating.

Reuters - Statoil's appraisal hydrocarbon well in Brazil's Peregrino South license confirmed the company's resource estimate and the firm will now prepare for making a final investment decision, a spokesman said.

Barclays downgraded Statoil to ‘Equal Weight’ from ‘Overweight.’

Raymond James Euro Equities initiated Total with a ‘Market Perform’ rating.

U.S. E&PS

• NFX reported 3Q’12 EPS of $0.48 versus Thomson Reuters I/B/E/S estimate of $0.52.

Press Release - Kodiak Oil & Gas Corp., an oil and gas exploration and production company with primary assets in the Williston Basin of North Dakota, today announced preliminary unaudited financial and operational results for the third quarter ended September 30, 2012. For the third quarter 2012, Kodiak reported average sales volumes of 15,855 barrels of oil equivalent per day (BOE/d). This represents a 301% increase over sales volumes of 3,953 BOE/d for the third quarter 2011 and a 25% increase over second quarter 2012 sales volumes of 12,696 BOE/d. Crude oil accounted for 88% of third quarter 2012 sales volumes.

Reuters - Marathon Oil Corp. said it is in negotiations to sell a portion of its 20 percent stake in the Athabasca Oil Sands Project in Canada as part of a strategy to shed less profitable assets.

Stifel Nicolaus downgraded Newfield Exploration Company to ‘Hold’ from ‘Buy.’

(Late Tuesday) Press Release - Newfield Exploration Company reported its unaudited third quarter 2012 financial results and provided an update on its operations. For the third quarter of 2012, Newfield recorded a net loss of $33 million, or ($0.24) per diluted share. Revenues for the third quarter of 2012 were $615 million. Net cash provided by operating activities before changes in operating assets and liabilities was $308 million.

(Late Tuesday) Press Release - Plains Exploration & Production Company announced that it has priced an underwritten public offering of $3.0 billion of senior notes, consisting of $1.5 billion in aggregate principal amount of 6 1/2% Senior Notes due 2020, issued at par, and $1.5 billion in aggregate principal amount of 6 7/8% Senior Notes due 2023, issued at par.

(Late Tuesday) Press Release - Stone Energy Corporation announced that it has priced an offering of $300 million aggregate principal amount of 7.50% Senior Notes due 2022. The Senior Notes will be issued at a price equal to 98.277% of the principal amount thereof, resulting in a yield to maturity of 7.75%. Stone intends to use the net proceeds from the offering to fund its pending tender offer and consent solicitation for its existing 6.75% Senior Subordinated Notes due 2014 and for general corporate purposes.

CANADIAN E&PS

• ECA reported 3Q’12 EPS of $0.36 versus Thomson Reuters I/B/E/S estimate of $0.26.

Press Release - Encana Corporation reported cash flow of $913 million or $1.24 per share and $263 million in operating earnings or $0.36 per share for the third quarter 2012. Year-to-date the company generated cash flow of approximately $2.7 billion or $3.71 per share and operating earnings of $701 million or $0.95 per share.

Reuters - China's top offshore oil and gas producer CNOOC Ltd. said on Wednesday it was still working to secure Canadian approval for its $15.1 billion bid for energy producer Nexen.

Reuters - Canada's Talisman Energy will invest 1.6 billion pounds ($2.55 billion) in one of its oldest oil platforms in Britain's North Sea, taking advantage of tax breaks announced last month and providing a shot in the arm for the declining region.

OIL SERVICES

Johnson Rice upgraded Helix Energy Solutions Group, Inc. to ‘Overweight’ from ‘Equal weight.’

DRILLERS

• NBR reported 3Q’12 EPS of $0.42 versus Thomson Reuters I/B/E/S estimate of $0.36.
• RES reported 3Q’12 EPS of $0.30 versus Thomson Reuters I/B/E/S estimate of $0.28.

Reuters - Nabors Industries Ltd., owner of the world's largest land-drilling rig fleet, is planning close to $1 billion of disposals in the next year to meet a debt reduction target, despite its recent struggles to offload certain assets.

(Late Tuesday) Press Release - Nabors Industries Ltd. announced its results for the third quarter and nine months ended September 30, 2012. Adjusted income derived from operating activities was $225.5 million for the third quarter, compared to $269.3 million in the third quarter of 2011 and $230.4 million in the second quarter of this year. Excluding the Company's portion of its NFR affiliate's third quarter ceiling test impairment, which amounted to a pre-tax charge of approximately $96.3 million, or ($0.20) per diluted share, net income from continuing operations was $123.6 million, or $0.42 per diluted share.

Press Release - RPC, Inc. announced its unaudited results for the third quarter ended September 30, 2012. For the quarter ended September 30, 2012, revenues decreased 5.9 percent to $472.4 million compared to $502.2 million in the third quarter last year. Revenues decreased compared to the prior year due primarily to lower pricing and utilization in many of our service lines, partially offset by a slight increase in our fleet of revenue-producing equipment. Operating profit for the quarter was $102.4 million compared to $134.5 million in the prior year, a decrease of 23.9 percent. Net income for the quarter was $66.0 million, or $0.30 diluted earnings per share, compared to $83.1 million or $0.38 diluted earnings per share last year.

REFINERS

(Late Tuesday) Press Release - CVR Energy, Inc. announced that its wholly-owned subsidiaries, CVR Refining, LLC and Coffeyville Finance Inc., have completed an offering of $500 million aggregate principal amount of 6.500% Second Lien Senior Secured Notes due 2022

(Late Tuesday) Reuters - Tesoro Corp. shut a boiler at its 120,000 barrels-per-day (bpd) refinery in Anacortes, Washington, last week, according to a filing with the Northwest Clean Air Agency.

MLPS

(Late Tuesday) Reuters - Kinder Morgan Energy Partners LP said that shippers on its routinely overbooked Trans Mountain oil pipeline system between Alberta and the Pacific Coast will be limited to just 27 percent of their hoped-for volumes in November.

Press Release - The board of directors of Magellan Midstream Partners, LP has increased the partnership's quarterly cash distribution to 48.5 cents per unit for the period July 1 through Sept. 30, 2012, representing the 42nd distribution increase since its initial public offering in 2001.

Press Release - PVR Partners LP reported financial and operational results for the three months ended September 30, 2012. In addition, PVR announced an increase in its quarterly distribution to $0.54 per unit. Adjusted net income was $7.7 million as compared to $20.5 million.

(Late Tuesday) Press Release - Spectra Energy Partners, LP announced an agreement to acquire a 38.76 percent interest in Maritimes & Northeast Pipeline, L.L.C. from Spectra Energy Corp for approximately $319 million in cash and approximately $56 million in newly issued partnership units. M&N US has debt outstanding of $439 million, 38.76 percent of which is $170 million.

Credit Suisse upgraded Spectra Energy Partners, LP to ‘Outperform’ from ‘Underperform.’

Press Release - Spectra Energy Partners, LP announced that the board of directors of its general partner declared a quarterly cash distribution to unitholders of $0.49 per unit, an increase of one-half cent over the previous level of $0.485 per unit. This is the 20th consecutive quarter that Spectra Energy Partners has increased its quarterly cash distribution.

Press Release - SunCoke Energy, Inc. reported third quarter 2012 net income attributable to shareholders of $31.6 million, up from $18.2 million in third quarter 2011. Total revenues rose 19 percent to $480.5 million in third quarter 2012, largely driven by sales at our new Middletown facility, which contributed $76.7 million to revenue.

Press Release – TransCanada Corporation confirmed Bruce Power's Unit 1 is now in commercial operations, the final milestone in the refurbishment of this Unit. A second significant milestone was achieved on Tuesday, October 16, 2012, with the synchronization of Unit 2 to the Ontario power grid.

MARKET COMMENTARY

Stocks ended lower for a second day, as investors soured on another round of underwhelming corporate results and the Federal Reserve said it would stick to its stimulus plan.

TOP NEWS

The Federal Reserve stuck to its plan to keep stimulating the economy until the job market improves and repeated its vow to keep rates near zero until mid-2015.

The euro zone's biggest member Germany is being sucked into the bloc's worsening economic quagmire, business surveys suggested, as similar data signaled the slowdown in China may be abating.