THURSDAY, AUGUST 02, 2012

SECTOR COMMENTARY

The energy and materials sectors led the broader equity markets sharply lower after the European Central Bank did not undertake immediate action to buy bonds to help stabilize the euro zone. All oil and gas sub-industries experienced sharp losses with the exception of the independent refiners, which were led by the 14% surge in shares of Tesoro after the company reported earnings that were 27% above consensus and instituted both a dividend and a share buyback.

Another dramatic outlier to the upside was Halcon Resources, which surged 10% after it posted an adjusted quarterly profit while analysts had anticipated a loss, and unveiled the Midway-Navarro formations in Texas as fields rich in natural gas liquids. Elsewhere in the mid-cap E&P space, shares of SM Energy, Stone Energy and Bill Barret Corp all faced double digit declines after reporting disappointing results. Overall, E&Ps were the worst performers on the day, with losses evenly split between oil and gas levered names, while integrateds and drillers had more modest outflows.

WTI crude oil fell $1.78 or 2.00%, closing at $87.13 pressured by reports showing a rise in U.S. jobless claims and a drop in U.S. factory activity, along with concerns about global oil demand following the disappointment that the ECB did not offer more concrete steps to boost growth. Brent oil had more modest declines, seesawing in and out of positive territory, as the contract received support from recent North Sea production problems and geopolitical concerns from Syria and Iran.

Henry Hub natural gas futures sank $0.251 or 7.92%, tumbling to $2.920 after the EIA reported a supply injection of 28 Bcf, which was bearish as compared to the expected 23 Bcf build. The commodity also traded in sympathy with the significant losses in the crude oil pits.

U.S. INTEGRATEDS

• MUR reported 2Q’12 EPS of $1.52 versus the Thomson Reuters I/B/E/S estimate of $1.33.

Reuters - A Brazilian court has ordered Chevron Corp and Transocean Ltd to suspend all oil production and transport operations in Brazil while prosecutors investigate a November oil spill, a decision that could halt nearly 10 percent of all offshore drilling operations in South America.

Reuters - Italian energy giant Eni has signed an agreement with Chevron Corp for a 25 percent share in offshore blocks in Liberia, the company said in a statement on Thursday, expanding its footprint in Africa.

Reuters - An international tribunal that will weigh in on Chevron Corp's two-decade dispute over pollution in Ecuador has set a timeline that runs into 2014, according to a Chevron regulatory filing on Thursday.

Reuters - Tanzania is to set up a sovereign wealth fund to ring fence future earnings from its major gas discoveries in the southern parts of the country along the Indian Ocean coastline, its president said. The east African nation of 42 million people tripled its estimated gas reserves in June after offshore finds by Norway's Statoil, U.S. group ExxonMobil, and Britain's BG Group and its partner Ophir Energy.

(Late Wednesday) Press Release - Murphy Oil Corp announced that income from continuing operations was $295.4 million ($1.52 per diluted share) in the 2012 second quarter, up from $280.0 million ($1.44 per diluted share) in the second quarter 2011. Net income in the second quarter of 2012 was also $295.4 million ($1.52 per diluted share) compared to net income of $311.6 million ($1.60 per diluted share) in the second quarter of 2011.

INTERNATIONAL INTEGRATEDS

Reuters - Russia's largest oil producer Rosneft has not taken a final decision to acquire British oil major BP Plc's stake in TNK-BP, a company executive said on Thursday.

Reuters - Italian energy giant Eni has signed an agreement with Chevron Corp for a 25 percent share in offshore blocks in Liberia, the company said in a statement on Thursday, expanding its footprint in Africa.

Bankia Bolsa upgraded Repsol to a ‘Buy’ from ‘Accumulate.’

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 notice on a community information line early Thursday.

Reuters - Tanzania is to set up a sovereign wealth fund to ring fence future earnings from its major gas discoveries in the southern parts of the country along the Indian Ocean coastline, its president said. The east African nation of 42 million people tripled its estimated gas reserves in June after offshore finds by Norway's Statoil, U.S. group ExxonMobil, and Britain's BG Group and its partner Ophir Energy.

CANADIAN INTEGRATEDS

• PMG reported 2Q’12 EPS of $0.38 versus the Thomson Reuters I/B/E/S estimate of $0.75.

(Late Wednesday) Reuters - Canadian Oil Sands Ltd said production at its Syncrude oil sands operations averaged 262,000 barrels per day in July, up from 190,400 BPD previous month. Canadian Oil Sands Ltd says July production reflects planned turnaround activity.

Press Release - Petrominerales Ltd announced the 2012 second quarter financial results highlighted by funds flow from operations of US$173.7 million or US$1.78 per share on sales volumes of produced oil averaging 32,138 barrels of oil per day. Adjusted net income was US$37.9 million or US$0.39 per basic share, representing 65 and 62 percent decreases over 2011 largely due to lower oil sales, lower oil prices and higher depletion.

(Late Wednesday) Reuters - Suncor said production at its oil sands operations averaged 351,000 barrels per day in July, up from 343,000 BPD the previous month. Suncor says annual oil sands production guidance remains unchanged at 325,000 to 355,000 BPD.

U.S. E&PS

• APA reported 2Q’12 EPS of $2.07 versus the Thomson Reuters I/B/E/S estimate of $2.53.
• BBG reported 2Q’12 EPS of $(0.05) versus the Thomson Reuters I/B/E/S estimate of $0.05.
• BRY reported 2Q’12 EPS of $0.73 versus the Thomson Reuters I/B/E/S estimate of $0.84.
• DNR reported 2Q’12 EPS of $0.35 versus the Thomson Reuters I/B/E/S estimate of $0.34.
• END reported 2Q’12 EPS of $(1.31) versus the Thomson Reuters I/B/E/S estimate of $(0.30).
• PVA reported 2Q’12 EPS of $(0.12) versus the Thomson Reuters I/B/E/S estimate of $(0.28).
• PXP reported 2Q’12 EPS of $0.35 versus the Thomson Reuters I/B/E/S estimate of $0.65.
• SFY reported 2Q’12 EPS of $0.07 versus the Thomson Reuters I/B/E/S estimate of $(0.05).
• SM reported 2Q’12 EPS of $0.09 versus the Thomson Reuters I/B/E/S estimate of $0.22.
• UPL reported 2Q’12 EPS of $0.36 versus the Thomson Reuters I/B/E/S estimate of $0.33.
• WMB reported 2Q’12 EPS of $0.21 versus the Thomson Reuters I/B/E/S estimate of $0.25.
• XEC reported 2Q’12 EPS of $0.79 versus the Thomson Reuters I/B/E/S estimate of $0.91.

(Late Wednesday) Reuters - Western Gas Partners LP said it bought additional interest in certain pipeline assets from Anadarko Petroleum Corp for $135 million. The midstream energy firm also reported a lower second quarter profit. Western Gas bought 24 percent of Chipeta Processing LLC, which owns a natural gas processing complex including three processing trains, to bring its total interest in the project to 75 percent. The deal, which closed today, is expected to immediately add to its profit, Western Gas said. The company also reported a lower second-quarter profit of $30.2 million, or 33 cents per unit, compared with a profit of $32.1 million, or 40 cents per unit, a year earlier. Total revenue fell 2 percent to $205.3 million.

Press Release - Apache Corp said today that accelerating worldwide drilling activity fueled record second-quarter 2012 production of 774,000 barrels of oil equivalent per day. Apache's second-quarter earnings totaled $337 million, or 86 cents per diluted share, reflecting the impact of a $480 million non-cash, after-tax reduction in the carrying value of its oil and gas properties in Canada stemming from lower North American natural gas prices. For the same period last year, Apache reported earnings of $1.24 billion, or $3.17 per diluted share.

Press Release - Berry Petroleum Company reported net earnings of $81 million, or $1.46 per diluted share, for the second quarter of 2012. The reported earnings include a non-cash gain on derivatives of $68 million, a loss on extinguishment of debt of $26 million and a legal matter of $2 million. Excluding these items, adjusted net earnings was $41 million, or $0.73 per diluted share. Oil and natural gas sales were $222 million during the quarter. Discretionary cash flow for the quarter totaled $119 million, and net cash provided by operating activities totaled $93 million.

Press Release - Bill Barrett Corp reported second quarter 2012 results and announced operational updates. Net income in the second quarter of 2012 was $3.3 million, or $0.07 per diluted common share, down from $32.6 million, or $0.69 per diluted common share, in the second quarter of 2011.

Press Release - Enogex, the midstream subsidiary of OGE Energy Corp. announced that it signed a 15-year agreement with two subsidiaries of Chesapeake Energy Corporation, including Chesapeake Energy Marketing, Inc., for the rights to gather and process natural gas production from nearly 500,000 net acres in the Cleveland Sands, Granite Wash, Tonkawa and Marmaton plays of northwestern Oklahoma and the Texas Panhandle.

Press Release - Cimarex Energy Co reported second-quarter 2012 net income of $64.3 million, or $0.74 per diluted share. This compares to second-quarter 2011 earnings of $166.7 million, or $1.94 per diluted share.

Press Release - Denbury Resources Inc announced adjusted net income (a non-GAAP measure) of $138 million for the second quarter of 2012, or $0.35 per diluted share, on quarterly revenues of $597 million. This compares to $147 million of adjusted net income, or $0.36 per diluted share, on revenues of $596 million for the prior year second quarter, and $161 million of adjusted net income, or $0.41 per diluted share, on revenues of $640 million for the first quarter of 2012.

Macquarie Research downgraded Devon Energy to ‘Neutral’ from ‘Outperform.’

Press Release - Endeavour International Corp reported second quarter adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) increased to $8.4 million in the second quarter this year from $7.6 million in the second quarter a year ago. On a GAAP basis, for the second quarter of 2012 net loss was $50.8 million as compared to net loss of $15.6 million for the same quarter in 2011.The company announced production for the second quarter 2012 averaged approximately 6,400 barrels of oil equivalent per day compared to 3,200 boepd in the same period last year. The Company also announced production from the second Bacchus well and commencement of drilling operations at Rochelle, Endeavour's operated development in the Central North Sea.

Global Hunter Securities upgraded Marathon Oil to ‘Accumulate’ from ‘Neutral.’

(Late Wednesday) Press Release - Penn Virginia Corp reported results for the three months ended June 30, 2012 and provided an update of operations and full-year 2012 guidance. The company reported product revenues from the sale of natural gas, crude oil and NGLs of $76.2 million, or $7.16 per thousand cubic feet of natural gas equivalent (Mcfe), an increase of four percent compared to $73.0 million, or $6.24 per Mcfe, and a net loss of $5.6 million, or $0.12 per diluted share, compared to a loss of $71.9 million, or $1.57 per diluted share.

(Late Wednesday) Press Release - PetroQuest Energy, Inc announced a discovery at its Broussard Estates #2 well within the La Cantera prospect area located in Vermilion Parish, Louisiana. The well has reached total depth of 19,150 feet and logged approximately 310 net feet of pay in the Cris R Massive objective. Casing has been set to protect the logged interval and completion activities are ongoing. The Company has an approximate 17% net revenue interest in the well.

Press Release - Plains Exploration & Production Company announces 2012 second-quarter financial and operating results. Total revenues were $566.7 million, a 10% increase compared to second-quarter 2011. Adjusted net income attributable to common stockholders (a non-GAAP measure) was $45.8 million, or $0.35 per diluted share compared to second-quarter 2011 adjusted net income of $77.1 million, or $0.54 per diluted share.

Press Release - SM Energy reported net income for the second quarter of 2012 of $24.9 million or $0.37 per diluted share. This compares to net income of $124.5 million, or $1.86 per diluted share, for the same period of 2011. Adjusted net income for the second quarter of 2012 was $5.9 million, or $0.09 per diluted share, compared to adjusted net income of $61.1 million, or $0.91 per diluted share, for the same period of 2011.

Press Release - Swift Energy Company announced today earnings from continuing operations of $3.0 million for the second quarter of 2012, or $0.07 per diluted share, a decrease of 89% when compared to second quarter 2011 earnings from continuing operations of $26.7 million, or $0.61 per diluted share and a decrease of 15% when compared to earnings of $3.6 million in the first quarter of 2012.

Press Release - Ultra Petroleum Corp continued to deliver strong financial and operating performance for the second quarter of 2012. Highlights for the quarter include: Earnings of $55.1 million for the second quarter, or $0.36 per diluted share – adjusted, operating cash flow of $190.6 million, or $1.25 per diluted share and generated positive returns in second quarter of 2012 (adjusted): 67 percent cash flow margin(5), 19 percent net income margin(4), 20 percent return on equity.

(Late Wednesday) Press Release – Williams Co announced second-quarter 2012 unaudited net income attributable to Williams of $132 million, or $0.21 per share on a diluted basis, compared with net income of $227 million, or $0.38 per share on a diluted basis for second-quarter 2011. A sharp decline in natural gas liquid (NGL) margins and other factors at Williams Partners, as well as the absence of $56 million in income from discontinued operations in second-quarter 2011, drove the decline in net income during second-quarter 2012.

CANADIAN E&PS

Reuters - Encana Corp, Canada's largest natural gas producer, said on Wednesday that Michael McAllister will become president of the company's Canadian division, six months after he took over the job on an acting basis.

DRILLERS

• ATW reported 3Q’12 EPS of $0.79 versus the Thomson Reuters I/B/E/S estimate of $0.73.
• RDC reported 2Q’12 EPS of $0.51 versus the Thomson Reuters I/B/E/S estimate of $0.50.
• RIG reported 2Q’12 EPS of $0.72 versus the Thomson Reuters I/B/E/S estimate of $0.45.

(Late Wednesday) Press Release – Atwood Oceanics Inc announced that the Company earned net income of $51.7 million or $0.79 per diluted share, on revenues of $178.6 million for the quarter ended June 30, 2012 compared to net income of $59.5 million or $0.90 per diluted share on revenues of $171.6 million for the quarter ended March 31, 2012 and compared to net income of $75.3 million or $1.15 per diluted share, on revenues of $162.1 million for the quarter ended June 30, 2011. For the nine months ended June 30, 2012, the Company earned net income of $176.6 million or $2.69 per diluted share, on revenues of $534.9 million compared to net income of $198.7 million or $3.04 per diluted share, on revenues of $467.5 million for the nine months ended June 30, 2011.

Press Release - For the three months ended June 30, 2012, Rowan Companies Plc generated net income from continuing operations of $50.9 million or $0.41 per share, compared to $44.4 million or $0.35 per share in the second quarter of 2011. Net income from continuing operations during the second quarter of 2012 included $17.8 million of unusual or one-time items, or $0.10 per share after tax, including losses on early redemption of Marad debt and transactional costs of the Company's corporate redomestication, net of gains on asset disposals. Excluding such items, net income from continuing operations was $63.4 million or $0.51 per share during the second quarter of 2012.

(Late Wednesday) Transocean Ltd reported a net loss attributable to controlling interest of $304 million, or $0.86 per diluted share, for the three months ended June 30, 2012. Second quarter 2012 results included net unfavorable items of $560 million, or $1.58 per diluted share. The results compare with net income attributable to controlling interest of $124 million, or $0.39 per diluted share, for the three months ended June 30, 2011.

Reuters - Transocean Ltd’s CEO said he believes the company is making progress in putting Macondo uncertainty behind it, with the overall loss contingency of $1.95 billion is at a low end of a range of reasonable estimates for losses, The CFO said the company now expects 2012 operating and maintenance costs of $6.25 billion to $6.4 billion, up from previous $6.15-$6.35 billion range. The CFO expects 2013 operating and maintenance costs to be 2-4 percent higher than this year. The executives added that the demand from North Sea, Saudi Arabia, India's ONGC give it confidence about reactivating jack-ups.

Reuters - A Brazilian court has ordered Chevron Corp and Transocean Ltd to suspend all oil production and transport operations in Brazil while prosecutors investigate a November oil spill, a decision that could halt nearly 10 percent of all offshore drilling operations in South America.

OIL SERVICES

• HOS reported 2Q’12 EPS of $0.35 versus the Thomson Reuters I/B/E/S estimate of $0.43.

Goldman Sachs resumed coverage of Cameron International with a ‘Buy Rating.’

Press Release - Landmark Software and Services, a Halliburton business line, announced that it has acquired a leading supplier of data-management and integration solutions to the global energy industry.

Press Release - Hornbeck Offshore Services, Inc. announced today results for the second quarter ended June 30, 2012. Following are highlights for this period and the Company's future outlook: 2Q2012 diluted EPS of $0.33 was $0.59 higher than 2Q2011 and nearly double 1Q2012, and 2Q2012 EBITDA of $55.5 million increased 131% over 2Q2011 and 24% over 1Q2012.

REFINERS

• TSO reported 2Q’12 EPS of $2.87 versus the Thomson Reuters I/B/E/S estimate of $2.30.

Reuters - HollyFrontier Corp said on Thursday an early morning fire on a diesel hydrotreater unit at the east plant of its 115,300 barrel-per-day refinery in Tulsa, Oklahoma, was fully extinguished.

Reuters - The two gasoline making units at Sunoco Inc's 330,000 barrel per day refinery in Philadelphia are running normally, said a source familiar with refinery operations.

(Late Wednesday) Press Release - Tesoro Corp second quarter 2012 net income of $387 million, or $2.75 per diluted share compared to net income of $218 million, or $1.52 per diluted share for the second quarter of 2011. The 2012 results include after-tax expenses totaling $0.08 per diluted share related to legal matters, primarily the settlement of the claims arising from the April 2010 incident at our Anacortes, Washington refinery. Additionally, these results include after-tax expenses totaling $0.04 per diluted share related to a change in benefits for retirement eligible employees. Excluding these items, the Company earned $404 million, or $2.87 per diluted share.

Reuters - Tesoro Corp aims to ship more cut-price North Dakota Bakken crude to its Washington state refinery than originally planned, CEO Greg Goff said on Thursday.

Reuters - Western Refining Inc said on Thursday it is preparing for a turnaround and expansion project at its 21,100 barrel-per-day refinery in Gallup, New Mexico. The refiner is negotiating long-term contracts to process more shale crude oil at its refineries in Texas and New Mexico.

MLPS

(Late Wednesday) Press Release - Atlas Pipeline Partners, L.P. reported record volumes at all three of its gathering and processing systems for the second quarter of 2012 as expansion efforts continue across the Partnership. The Partnership recognized adjusted earnings before interest, income taxes, depreciation and amortization of $49.1 million for the second quarter of 2012 driven by the increased volumes across each system versus the same period last year. Gross margin from operations was $60.8 million for the second quarter 2012 compared to $67.8 million for the prior year period.

Press Release – Enbridge Inc reports 2Q’12 adjusted earnings of $277 million or $0.36 per common share. Enbridge's second quarter adjusted earnings increased 7% to $277 million as a result of increased contributions from Canadian Mainline and Spearhead Pipeline, which benefited from strong volumes, partially offset by decreased earnings from Enbridge Gas New Brunswick and increased net Corporate segment financing costs.

Reuters - The U.S. pipeline regulator on Thursday said Enbridge would be required to submit a plan to improve the safety of its entire 1,900-mile Lakehead Pipeline system before the company is allowed to restart Line 14.

Reuters - Enbridge Inc is assessing whether to expand its Eastern Canadian oil pipeline beyond the current 240,000 barrels a day once the flow direction is reversed to send crude to Montreal from Sarnia, Ontario, the company's president said on Thursday.

Press Release - Spectra Energy Partners, LP today reported second quarter 2012 cash available for distribution of $53.1 million, compared with $45.1 million in the prior-year quarter. Net income was $46.9 million for the quarter, compared with $37.6 million in the second quarter 2011. Distributions per limited partner unit for the quarter were $0.485, compared with $0.465 per limited partner unit for the second quarter 2011.

(Late Wednesday) Reuters - Western Gas Partners LP said it bought additional interest in certain pipeline assets from Anadarko Petroleum Corp for $135 million. The midstream energy firm also reported a lower second quarter profit. Western Gas bought 24 percent of Chipeta Processing LLC, which owns a natural gas processing complex including three processing trains, to bring its total interest in the project to 75 percent. The deal, which closed today, is expected to immediately add to its profit, Western Gas said. The company also reported a lower second-quarter profit of $30.2 million, or 33 cents per unit, compared with a profit of $32.1 million, or 40 cents per unit, a year earlier. Total revenue fell 2 percent to $205.3 million.

MARKET COMMENTARY

Stocks fell for a fourth day after European Central Bank President Mario Draghi disappointed investors hoping for immediate action to contain the euro zone debt crisis.

The number of Americans filing new claims for jobless benefits rose last week and manufacturers suffered an unexpected drop in orders in June, suggesting the economy is struggling to break out of a soft patch.

Knight Capital Group is being forced to raise money after an erroneous trading position wiped out $440 million of its capital, the firm said, causing its shares to shed half of their value.

U.S. retailers reported stronger-than-expected sales for July, but the gains were largely due to discounting and do not necessarily signal vigorous consumer spending for the rest of the year.