Weekly DOE Natural Gas Storage Analysis

Injection exceeds expectations – The EIA reported a natural gas injection of 74 bcf compared to market expectations (as per Bloomberg) of 68 bcf and the five-year average of 67 bcf. For the comparable week last year, the EIA reported an injection of 64 bcf. Total storage now sits at 3,414 bcf, or 4.6% below last year’s level of 3,580 bcf, but 6.3% above the five-year average of 3,212 bcf.

Cooling demand continues – Over the past week, the U.S. reported cooling degree days of 50, ~47% above the five-year average of 34 and ~16% above last year’s level of 16%. Warmer weather is expected to continue across much of the U.S. for at least the next six to ten days as highlighted below which should support near-term natural gas demand.

Daily Energy Digest - 9/30/2010

Enerplus (ERF) announces conversion to a corporation. Conversion to dividend paying corporation expected to be effective January 1,2011; plans to maintain monthly distribution of $0.18 per unit. Both should be as expected by the market – consistent with the trust’s previous guidance around timing of conversion and distribution; once all conversions are complete, the 8.3% yield at current levels should rank as one of the higher yields among the dividend paying intermediates. ERF has the potential to spend more than cash flow in 2011 – includes the carry commitment on the non-operated Marcellus land; but the trust has a strong balance sheet and expects additional funds from asset dispositions before the end of 2010 – when we spoke with the trust the other day, certainly came away with the impression that they are comfortable with the current distribution. Trust has made significant progress this year in selling non-core assets and expanding its inventory of unconventional opportunities (US and Cdn Bakken, US Marcellus) - just as it said it would; the trust now needs to demonstrate that it can deliver on development – additional operating results over the next 2 – 3 quarters will key.

Coal Update - Eastern and Western thermal coal prices continue to hold the 20%-30% YTD gains as significant inventory declines have brought inventories close to historical average, despite ongoing concerns of the impact of the 30% YTD decline in natural gas prices. Although there are concerns that low natural gas prices will take market share from coal, strong US exports, and potential U.S. industrial production rebounds in Q4 will be sufficient to offset the impact of continued soft natural gas prices. In the near-term, a key determinant will be contract negotiations for remaining 2011 unpriced volumes.

Based on EIA estimates, inventories at the end of Aug. were 160m tons, 24.2% above the previous 10-year average, -16% below prior year levels (EIA flash estimate for July is 166m). On a days of supply basis, inventories totaled about 59 days of consumption at the end of Aug., -17.7% y/y but still +27.1% above the previous 10-year average for August month-end (EIA flash estimate for July is 61 days of supply). (Based on US DOE actuals to July and DOE estimates to Aug.).

Natural Gas Production Update - EIA-914 July data: U.S. Gas Supply Up ~0.17 Bcf/d M/M, No Surprises. Yesterday's EIA-914 released production data for the month of July indicating that the total production for the lower 48 states was up ~0.17 Bcf/d month-over-month to 64.38 Bcf/d. Onshore production was up ~0.3 Bcf/d month-over-month, but was slightly offset by Gulf of Mexico production which slid a little over 0.1 Bcf/d from maintenance on wells, platforms, pipelines, and a tropical storm. New Mexico saw the biggest uptick, +0.2 Bcf/day, after concluding its planned maintenance and resolving wells issues. Bottom line: It looks like the supply delays (pressure pumping, pipeline constraints) that flattened the U.S. supply curve over the past few months were slightly alleviated in July and could continue to re-accelerate in August and September as these delays are resolved. Current 950+ gas rigs drilling are more than enough to grow supply; however, the pace will be determined by the amount of pressure pumping and pipeline capacity that can be added to the oilfield.

Hess Corporation is studying a marginal oilfield in China's Daqing to explore the chances of enhancing output at the huge but aging Chinese oilfield, an industry official said. The joint study agreement on the Yongletoutai field started around June and ends at the of the year, and the U.S. firm has yet to make a final decision whether to proceed to pilot explorations next year, said the Beijing-based source with direct knowledge of the deal. China, the world's no.5 crude oil producer, has been working hard to raise its domestic productions from mostly offshore oilfields as well as developing marginal onshore fields Marginal fields are reservoirs with low output, low pressure and low permeability that need unconventional technologies such as horizontal wells and fracturing to extract the oil, and need relatively high oil prices to become commercially viable. Daqing oilfield, the country's top crude producer, has many of these marginal oilfields after nearly five decades of developments.

New York-based Hess, active in the Bakken shale play in the U.S., is among a handful of foreign firms -- mostly mid to small-tier independents -- working in China's marginal oilfields, industry officials have said. China's total domestic crude oil production is expected to rise an average of six percent this year in its fastest growth in over a decade to top four million barrels per day for the first time in history, according to a Bernstein Research note on Wednesday. Productions in the past few months exceeded the 4 millin bpd mark already, official data have shown.

Deep Water Drilling Update - U.S. Judge Martin Feldman said on Wednesday he would rule quickly on Ensco Plc's (ESV) challenge to the Obama administration's new moratorium on deepwater drilling in the Gulf of Mexico, which was imposed after the BP Plc oil spill. A lawyer for the offshore drilling firm said that the ban on drilling was no different than the first moratorium that the same judge lifted earlier this year and that the government's justification for the new ban was a "sham." Ensco's lawyer Adam Feinberg said that the decision for the new moratorium had been made on June 22 before any new analysis had been done. The agency "cannot base decisions on post-hoc rationalization," he told the court. The Interior Department did not consider the option of not imposing a moratorium either, Feinberg said.The Obama administration first imposed a moratorium on all deepwater oil drilling below 500 feet, but Feldman said it was arbitrary. The Interior Department then imposed a new ban on any drilling that used the same kind of equipment used on the broken BP well. The Interior Department has been battling to keep the moratorium in place until Nov. 30 so that new safety regulations can be implemented to ensure there is no repeat of the BP disaster. The agency hopes to lift it before that date. It will take time for oil companies to adhere to the new requirements that must be met before drilling restarts, Michael Bromwich, head of the department's Bureau of Ocean Energy Management, said earlier this week. Oil drillers and state and local officials have complained that the moratorium has severely damaged the Gulf region's economy, already hit hard by the BP spill. Some idled oil rigs have moved to other jobs in foreign waters.

Justice Department lawyer Guillermo Montero argued that the administrative record supporting the moratorium drew its conclusions from the facts considered, though new evidence was being uncovered daily, in a "dynamic process." Judge Feldman said he would reach a decision as soon as possible, but did not offer a date. In a related development, the U.S. Court of Appeals for the Fifth Circuit agreed to dismiss the Obama administration's appeal to try to salvage the original drilling moratorium.

Jefferies cuts Range Resources (RRC) and GMX (GMXR) to hold; MKM Partners initiates RRC with a Buy- Jefferies & Co expects lower gas prices to affect natural gas-weighted companies and cut Range Resources Corp and GMX Resources to "hold" from "buy". Year-to-date gas prices have fallen more than 30 percent to $3.95 per mmBtu (million metric British thermal units), while oil price fell about 4 percent. Analyst Subash Chandra, who reduced gas price estimates for the fourth quarter and full year 2011, said Range Resources could struggle to ramp up its Marcellus shale program without a joint venture or some sort of acreage monetization. He cut the price target on the stock to $40 from $52.

GMX Resources will be hurt by low well productivity in east Texas and will require external financing to fund its drilling by the middle of next year, Chandra noted and cut the price target on the stock to $4 from $7. Echoing similar views, brokerage MKN partners said liquids-rich exploration and production companies will continue to dominate investment returns on average through 2011. However, it initiated Range Resources with a "buy" rating, citing the company's low operating cost structure.

Marcellus Shale Taxation - The Pennsylvania House of Representatives Wednesday passed a bill to tax natural gas extraction in the state for the first time, setting up a showdown in the Republican-controlled Senate.

Several years into a gas-output bonanza that is reshaping the state economy, Pennsylvania is the only major gas-producing state that doesn't levy a tax on natural gas production by companies such as Chesapeake Energy Corp. (CHK), Range Resources Corp. (RRC) and Cabot Oil & Gas (COG). Gov. Ed Rendell, a Democrat, has said the gas industry should pay to help replenish the state's depleted coffers and fund the infrastructure improvements and environmental protections required by drilling, but Senate Republicans and industry representatives say a high tax would drive gas investment to other states.

The bill's fate in the Senate is uncertain. GOP leaders have favored including provisions sought by gas producers, such as a low initial tax rate to allow drillers to recover capital used in exploration and a clause that would force landowners to sell their mineral rights if a certain percentage of their neighbors have already done so. Pennsylvania's natural-gas output has quadrupled since early 2009, from 300 million cubic feet a day to 1.2 billion cubic feet a day last month, according to energy-analysis firm Bentek Energy. As part of a budget deal negotiated with Rendell, legislative leaders agreed in June to meet an Oct. 1 deadline to pass a gas tax, in part to fill $70 million of an estimated $280 million budget deficit.

The proposal passed by the House Wednesday would tax gas drillers 39 cents per thousand cubic feet of gas extracted, with provisions for increases in the fee if gas prices rise above about $5.50 per million British thermal units. The benchmark gas futures contract ended at $3.962/MMBtu on the New York Mercantile Exchange Wednesday. Prices have been pressured lower for much of this year, largely because of increased shale-gas production. The tax is expected to raise $120 million during the rest of the current fiscal year ending in June 2011, and $326 million in 2011-12, according to a report from the House Appropriations Committee.

Rendell and House Democrats had previously called for a tax of 5% on the wellhead value of the gas, plus 4.7 cents per thousand cubic feet extracted. Senate Republicans favored a 1.5% wellhead tax in the first few years--to allow drillers to recover expenses--a rate that would gradually rise to 5%. A technique called hydraulic fracturing, whereby water, sand and chemicals are pumped at high pressure to crack open deeply buried shale formations, has allowed producers to tap massive new reserves. The Marcellus shale, which is thought to hold the most recoverable gas of any U.S. formation, lies underneath much of Pennsylvania, New York and West Virginia.

EnergySolutions (ES) - Announced the discontinuation of the common stock dividends. Management said the capital would be better utilized for debt reduction and reinvesting in the business.

Noble (NE) Fleet Report. It looks like current 2H10 Street estimates need to come down for a number of reasons (BOP recertifications, acquisition moving parts, floater downtime, Mexican jackups, and higher taxes). New contracts included eight months for a 1,500' North Sea floater at $250,000/d (RJ at $200,000/d) and contracts in the $90,000/d range for jackups in the North Sea and West Africa (RJ at $80,000/d). Noble confirmed the previously-announced contracts on two high spec jackups in Saudi Arabia at $132,000/d (stale, signed at start of year) and $237,000/d (well above our $175,000/d estimate). Additionally, Noble announced a two-year, $537,000/d contract on the 7,200 Homer Ferrington is in jeopardy (dayrate not paid since April 24), as arbitration proceedings have begun.

Weekly DOE Crude & Product Inventory Analysis

· Crude inventory largely in line –Crude inventories decreased 0.4 mmbbls last week, largely in line with market expectations (per Bloomberg) for a 0.7 mmbbls draw. Crude oil inventories are now sitting at 357.9 mmbbls, which is 5.8% above last year and 12.7% above the five-year average.

· Distillate inventories move lower – Inventories of distillates countered expectations last week, decreasing 1.3 mmbbls, compared with market expectations for a 0.3 mmbbls build (per Bloomberg). Distillate inventories are now sitting at 173.6 mmbbls, which is 1.5% above last year and 22.3% above the five-year average.

· Gasoline inventories well below expectations – Gasoline inventories fell 3.5 mmbbls last week, well below market expectations (per Bloomberg) for a 0.4 mmbbls build. Inventories of gasoline are now sitting at 222.6 mmbbls, which is 5.2% above last year and 12.1% above the five-year average.

· Refinery utilization edges lower – Refinery utilization edged down 2.0% last week to 85.8% which remains 1.2% above last year and 5.0% above the five-year average.

Shifting to demand, gasoline demand rose 6.1% from last week and is up 0.9% on a four-week moving average basis compared to the same time last year. Total petroleum demand of 19.7 MMBbls per day this week was near the high end of its recent range of 18.7 to 20.0 MMBbls per day. Total demand was up 2.8% sequentially and is up 2.8% y/y on a four-week basis. Finally, combining supply with demand, days of supply decreased 1.4 days to 40.3 days, which is 0.3 days higher than this time last year.

Daily Energy Digest - 9/29/2010

EQT Corporation (EQT) today announced the results of two recent Marcellus shale wells. In Greene County, PA, EQT reported an average 30-day production rate of 22 MMcfe per day from the Cooper 590384 well. The well has a total lateral length of 9,000 feet, with 8,411 feet of stimulated pay, and was completed using a 28-stage frac. The direct well cost was approximately $7.1 million, with a preliminary estimated ultimate recovery of 18 Bcf. As noted on EQT's most recent conference call, this well was in process of being completed in late July.

EQT also announced today, the successful results of the Rosborough 590259 well in Armstrong County, PA. This well reported a 24-hour IP of 15 MMcfe from 4,060 feet of stimulated pay. "These exceptional wells are the direct result of our culture of innovation at EQT," commented Steven Schlotterbeck, President, EQT Exploration & Production. "The success of the Greene County extended lateral well is an important step in our effort to decrease the development cost per Mcfe. In addition to extending the lateral, we are experimenting with closer spacing intervals than our current 1,000 foot lateral spacing design inGreene County.

"The results in Armstrong County, where EQT holds nearly 34,000 acres, are especially encouraging as this well employed a new completion design resulting in initial flow rates significantly better than nearby wells completed conventionally. The success of these two experimental wells is a testament to the quality of our acreage position and to the outstanding capabilities of the technical and operating teams at EQT," said Schlotterbeck.

EQT holds a 100% working interest and an 87.5% net revenue interest in both wells.

Whiting (WLL) success confirmed at Lewis & Clark. Last night Whiting reported two successful well results at its Lewis & Clark area targeting the Three Forks formation. The Kubas and Froelich wells came in strong at ~2,000 and ~2,100 boe/d, respectively, and were both located 32 miles away from the discovery well in Stark County, North Dakota. The wells expand Whiting's ~225,000 net acres to the south and to the east. The company moved a fourth rig to the play earlier in the month (before announcing well results) and is now planning to have five rigs drilling by mid-November.

Anadarko (APC) Last night it was announced that Anadarko had confirmed the presence of oil in its Block BM-C-29 offshore Brazil, according to a PR Newswire report. Anadarko filed the notice of presence of hydrocarbons for its Itauna drilling prospect, which had a proposed depth of 18,000' and was drilled by the Scorpion Mischief jackup drilling rig. Anadarko operates the block with a 50% working interest; Ecopetrol owns the other half. Moving north, Anadarko is set to drill an appraisal well at nearby Itaipu (Block BM-C-32, 33% working interest) during 3Q10 to test a down-dip area. Bottom line: Obviously a great sign that oil is present; the next step is to define the resource potential and potentially declare commerciality.

Newpark (NR) announces terms of its 4.0% convertible debt. Last night, Newpark Resources announced the terms of its convertible debt. The company priced an offering of $150 million aggregate senior notes that will pay a 4.0% coupon and be convertible at $11.00/share, or a 36% premium to yesterday's closing price of $8.09. The notes will come due in 2017 and the proceeds will be used to pay off the existing outstanding debt of ~$104 million from the company's term loan and revolver. All in, the terms of the issue appear to be pretty favorable for Newpark, and it will replace the higher interest rate debt (5.31% as of June 30). Additionally, the issue will have zero covenants, which is a big bonus as the company had to deal with covenant renegotiations last year.

Targa Resources Partners L.P. (NGLS) closes acquisition of ~77% interest in VESCO. VESCO, also known as Venice Energy Services Company, was a joint venture operated by Targa Resources Partner's indirect parent company, Targa Resources, Inc. As detailed in our 9/16/2010 comment, "NGLS: Acquires Final Drop Down from Parent; Raising Distribution Estimates," VESCO consists of a cryogenic natural gas processing plant in Plaquemines Parish, Louisiana, and a related gathering system with ~160 miles of pipeline which capture volumes from the Gulf of Mexico. The $175.6 million transaction was funded using the partnership's revolving credit facility. Targa's management intends to recommend a $0.01/unit increase in the partnership's quarterly distribution beginning with the 3Q10 distribution to be paid in November 2010.

BP plc (BP) Dudley announces new safety unit, but will it be substantive or just window-dressing? Incoming CEO Bob Dudley is wasting no time in highlighting safety as a priority as he leads efforts to rebuild BP's reputation following the Macondo spill. The company has announced a new Safety and Operational Risk division with wide-reaching power to oversee safety throughout the organization. The new division, which will report directly to Dudley, will be headed by Mark Bly, current head of safety and operations. BP is also reorganizing its upstream business into three distinct units - Exploration, Development, and Production. Andy Inglis, head of upstream (and previously seen as a potential CEO candidate) will be leaving BP, showing that Tony Hayward is not the only management scalp claimed by the oil spill. While we like the idea of the new safety division, we have to wonder how much real influence it will have. Will it end up as Hayward's post-Texas City attempts to build a safety culture - mere window-dressing? The jury is still out on this one.

Broadwind Energy (BWEN) shares jump on takeover rumors. GE, the world's second-largest maker of wind turbines, yesterday announced a joint venture with Hong Kong-listed Harbin Power Equipment to manufacture and supply turbines for near-shore and offshore applications in China. Subsequently, unconfirmed rumors that GE may launch an acquisition bid for Broadwind sent BWEN shares up 27%. Broadwind is North America's largest wind gear manufacturer and third-largest wind tower manufacturer, and GE is one of its top customers. Insofar as GE seems to be expanding its footprint in the wind market, an acquisition of Broadwind could make strategic sense, though whether GE would realistically pursue such a rounding-error transaction (for a company of its size) is arguable.

Amyris, Inc. (AMRS) gains on first day of trading. Having priced its IPO at $16 (below the indicated range of $18 to $20) on Monday, yesterday Amyris gained 3% -- a healthy, if somewhat uninspiring, first-day performance from this closely-watched biofuel IPO. The IPO (originally filed in April) raised $85 million. Amyris uses an industrial synthetic biology platform to produce renewable specialty chemicals and, longer term, biofuels. The company is initially focusing on Brazilian sugarcane as the primary feedstock and is partnering with existing sugar and ethanol mills in the country to establish production, thereby lowering capital costs vs. greenfield projects. Another aspect of the company's business model is its ownership of a conventional ethanol distribution business as a stepping stone into biofuels. In June 2010, the French supermajor Total (TOT) purchased a 17% equity stake in Amyris as part of a strategic partnership. Amyris' other industry partners include Cosan (CZZ) and Group Saõ Martinho, two of the leading sugar and ethanol producers in Brazil.

Daily Energy Digest - 9/28/2010

Nexen (NXY) Last night, Nexen announced the resource estimate of its Appomattox discovery in the Gulf of Mexico first announced in Q1/10. On the back of the discovery well and two appraisal wells, Nexen and its partner Shell have estimated a resource in excess of 250 MMB, with the potential for that estimate to increase with further appraisal drilling. The current drilling moratorium in US waters is scheduled to expire at the end of November, with reports that new rules for offshore drilling could be released by federal regulators later this week, which could be positive for Nexen.

The original discovery well announced in Q1 was drilled in ~2,200 m of water to a total vertical depth of just over 7,500 m, and encountered 160 m or 530 feet of oil pay. An appraisal well was drilled to 7,900 m and encountered over 115 m or 380 feet of pay, followed by a second appraisal well. Additional drilling is planned for the play once the US offshore drilling moratorium is lifted. The Appomattox discovery follows on the discoveries of Shiloh, which was found in 2003, and Vicksburg in 2007. Shell Offshore is the operator of all three discoveries with 75–80% WI, while Nexen has 20–25% WI. Appomattox could support a hub development in the next three to five years, which could also include Vicksburg 6 miles away. As illustrated in Figure 1, Nexen and its partner have identified a further approx. 20 prospects and/or leads along an 85-mile trend in the region.

LDK Solar (LDK) LDK announced yesterday that it has entered in a five year, $8.9 billion strategic financing arrangement with China Development Bank. Weak balance sheet/concerns over lack of strong govt support were the primary bear points driving high short interest levels in the stock. Share price reaction post announcement is consequently understandable. That said, additional equity raise may still be required to repay the convertible bond due next year.

Berry Petroleum (BRY) receives diatomite approval. This morning, Berry announced it had received approval from the California Division of Oil, Gas, and Geothermal Resources (DOGGR) to move forward with the next phase of diatomite development. Recall that the company deferred diatomite production earlier in the year, ramping its recently acquired Wolfberry development instead. Berry will start two rigs in early October and hopes to receive approval for the remaining development over the next six months. Bottom line: Though Berry was able to maintain 2010 production guidance by ratcheting up Wolfberry activity, the diatomite approval clears the way for continued production growth in 2011.

Interoil (IOC) Antelope-2 DST #7: Higher condensate ratio confirmed in second sidetrack. This morning, InterOil announced encouraging results from the seventh drill stem test (DST) at its Antelope-2 well. The test was conducted on the second (deeper) horizontal sidetrack, measuring a stabilized condensate-to-gas ratio of 24-27 Bbls per MMcf of gas. This marks a solid bump up in the liquids yield from its first horizontal sidetrack (DST #5 showed a ratio of 20-21 Bbls/MMcf), not to mention a hefty 60% increase from initial tests at the top of the reservoir. As testing wraps up at Antelope-2, these incremental datapoints are key in the development and design of the planned liquids stripping facility, which is targeting a final investment decision (FID) by March 31, 2011 and first production in 2013.

Newpark Resources (NR) Provides update on Gulf of Mexico operations, minimal impact. Yesterday after the close, Newpark provided an update for expected revenue and operating income loss related to the Gulf of Mexico moratorium in 3Q. The original guidance estimated that only about 5% of total revenues, or $8-9 million, would have been affected by the events in the Gulf of Mexico during this quarter. A larger-than-expected benefit from clean-up work related to its environmental division appears to be able to mostly offset the decreased activity from base operations. This drops the revenues loss assumption to $3-4 million. All in, the effects from this updated guidance should be minimal, as this figure was never expected to be much of a loss from the beginning. Still, this should provide a minimal boost, if any, during this morning's trading.

Bronco Drilling (BRNC) sells discontinued Well Servicing division. Bronco was able to sell over $27 million of idle equipment at auction last week - the bulk of its well servicing equipment, four land rigs, and the components for another four rigs. We had not assumed any of these assets would go back to work, therefore the EPS impact is actually slightly accretive as management will pay down debt with the proceeds. Bottom line: The company should be able to slash its outstanding debt in half to under $20 million. However, the company would still trade at a substantial premium to its peer group due to persistent takeout rumors.

Valero (VLO) announced that the company signed an agreement to sell its 185 mb/d (000's b/d) Paulsboro refinery to PBF Holding Co. for approximately $360 million plus an estimated $275 million for net working capital and inventories. At a nelson complexity of 9.4x and a crude capacity of 166 mb/d, this equates to $231 per daily barrel of complexity, which appears as a reasonable price compared to the group's current average of $386 per barrel of complexity. In the last 2 cyclical troughs in 1999 and 2002, SUN (mostly Northeast refineries) traded at a discount of $21 and $96 per daily barrel of complexity to the group's median average, respectively. Bottom line: This announced asset sale is a slight positive factor for VLO, with selling price largely in-line most expectations.

Technical Trading Alerts 9/29/2010

Bullish Alerts:

21 Day/50 day Moving Average Cross: AMSC BEXP BP DO FE NBR

MACD Cross: DNR NU

Price Up more Than 5% and Volume Greater Than 200%: TSL

Stochastic Cross: None

Bearish Alerts: None.

Will Linn Energy, LLC Fall Short Next Quarter?

Will Linn Energy, LLC Fall Short Next Quarter?

Technical Trading Alerts 9/25/2010

BULLISH ALERTS:

21 Day/50 day Moving Average Bullish Cross: ANR, BHP, BTU, DIG, HOS, MDU, OGE, OIH

MACD Bullish Cross: BEXP, CVE, HP, TCK

Price Up More Than 5% & Volume Greater Than 200%: IVN

Bullish Stochastic Cross: PXP

Bullish Up/Down Volume Ratio Slope Reversal: ANR, TS

BEARISH ALERTS

MACD Bearish Cross: WPZ

Why I am not Buying Petrobras Yet?

Petrobras (PBR) just concluded a new equity offering that broke world records at $67 billion. Of that amount, some $43 billion is attributable to an oil reserves-for-equity swap with the Brazilian government where the government gave Petrobras 5 billion barrels of oil reserves. As a result, the government's stake and influence in Petrobras have increased. This exercise is a deprivatization much like the ones Putin initiated in Russia with the key resource producing companies. Besides, Petrobras is paying about $8.50 per barrel of reserves that most analysts estimate the fair value to be around $6 to $7.50 per barrel. To boot, these reserves are in deep water with many technical challenges that must be overcome before they can be produced.

I expect that government intervention in Petrobras will only intensify with the expected election of Dilma Rousseff, a statist, in the upcoming presidential elections in October. An indication of this is the existing government's pressure on Petrobras to expand its less profitable refining business to make Brazil self-sufficient in refined products. The company announced in June that it was increasings its budget for refining projects to $74 billion from $43 billion over the next five years. This is capital that can be used to develop more profitable deep water reserves.

Finally, the company will require multiples of the sum it has raised to fully develop all of these reserves in ultra deep water. Petrobras' five-year plan calls for $224 billion investment and more equity raises may be required.

Admittedly, Petrobras has one of the best growth profiles among the integrated international majors. However, the market is telling us not to be misled by the production growth. No wonder short interest in Petrobras increased 110% last week.

The stock is down about 25% year-to-date reflecting these concerns. I expect that it will gradually recover as the effects of the dilution wears off. In the meantime, I am planning to sell strangles on the stock to generate income from its near-term sideways trajectory.

Daily Energy Digest - 9/24/2010

SOLAR PROJECTS After US market close yesterday, Eurus Energy and NRG announced 3 PV projects totaling 45MW (AC). While NRG already owns a 20MW PV project built by FSLR in Blythe, this project will use Quanta (PWR) as the EPC, and thin film panels from Sharp. One might think this is not positive for FSLR. However this is positive for broader solar and even for FSLR for several reasons: (i) From a news flow perspective, there may be several other projects breaking ground before year end due to the expiration of cash grants, which may help the sector near term as panel companies win 2011 contract deliveries (e.g., 92MW Alpine/NRG, 45MW for Santa Teresa/Wildcat by NRG; Ajo/Bagdad/Salt River in AZ etc); (ii) Some of these projects, even potentially the other projects developed by NRG, could end up with FSLR as the EPC supplier (recall FSLR has visibility on 300-400MW of self developed projects, and needs 200MW of EPC projects to hit its 600MW guidance in 2011); (iii) The implied economics of these projects appear attractive, which is consistent with the view on the attractive economics of the self-developed FSLR projects. Details of today's 45MW project announcement: (i) Projects are located in California (20MW Sun City, 19MW Sand Drag, Avenal Park 6MW), to be co-owned by NRG and Eurus 50-50; (ii) Project EPC to be performed by Ryan Company, a wholly owned subsidiary of Quanta services (PWR) with ground breaking to start immediately on the first two projects; (iii) Project to use thin film solar panels from Sharp; (iv) Project will cost $220mm; (v) Project has PPA prices above 2009 MPR of 10.1c/kWh (2011 deliveries), PPA is with PG&E; (vi) Project capable of delivering high teens levered equity IRR after incentives and taxes. Recall earlier this week, Sharp Solar was in the news, acquiring the solar pipeline from Recurrent Energy. The PPA document from PG&E notes Eurus Energy as the signatory of the PPA and not NRG. The involvement of Eurus, which has a Japanese ownership, likely had a role to play in the decision to use Sharp's thin film panels for the project. In addition, our industry checks also suggest some US solar projects are getting pushed out of 2010 due to the lack of panel availability.

Denbury (DNR) acquiring carbon dioxide reserves in Wyoming. Denbury Resources Inc. agreed to acquire a 42.5% nonoperated working interest in the Riley Ridge federal exploratory unit in southwestern Wyoming for $115 million. The transaction includes 33% of the carbon dioxide rights in 28,000 acres adjoining the Riley Ridge unit. The Riley Ridge unit and the adjoining acreage are in LaBarge field. Closing, subject to due diligence, is expected by Oct. 31. Denbury estimates the Riley Ridge acquisition contains proved reserves of 185 bcf of natural gas, 6.6 bcf of helium, and 1 tcf of CO₂, net to the interest being acquired. The additional adjoining acreage is estimated to contain an additional 1 tcf of probable CO₂ reserves, net to the same interest. Denbury expects net development costs associated with the Riley Ridge unit to be $24 million during 2010 and $32 million in 2011. The estimate includes the costs of drilling an additional producing well and constructing processing facilities to separate the natural gas and helium. The full well stream is expected to consist of 65% CO₂, 19% natural gas, 10% hydrogen sulfide, 0.6% helium and other gases. Initially the operator plans to re-inject the CO₂ and hydrogen sulfide, but Denbury will have the right to separate and take the CO₂ and reinject the H₂S. Denbury said no decision has been made whether or when to construct processing facilities to separate CO₂ from the H₂S. Bottom line: Positive for DNR since the acquisition enables the company to develop its Rock Mountain tertiary recovery projects.

Hess Corp. (HES) Reports emerge of stealth oil shale play in China. Dow Jones reported yesterday that Hess is leveraging its experience in North Dakota's Bakken Shale to open the door to a potential Bakken look-alike in China. In a joint effort, Hess and state-controlled PetroChina (PTR) are targeting an oil shale zone in China's aging Daqing field. The field, China's largest, has been producing for 50 years from conventional reservoirs but is facing declines. The fact that PetroChina has apparently chosen Hess to partner with is not surprising (of all the Western integrated majors, Hess has the most experience in the Bakken, having discovered the play half a century ago). Hess has the second-largest acreage position of any Bakken operator, and its production there is expected to reach 20,000 Boe/d by year-end, up from 13,000 Boe/d in March.

Does Western Refining Oil Have the Best Growth Story?

Does Western Refining Oil Have the Best Growth Story?

Weekly DOE Natural Gas Storage Analysis

Injections below expectations

Injections below expectations – The EIA reported a natural gas injection of 73 bcf compared to market expectations (as per Bloomberg) of 80 bcf. This week’s injection was higher than the 67 bcf last year and the five-year average of 70 bcf. Total storage now stands at 3,340 bcf, or 5.0% below last year’s level of 3,516 bcf but 6.2% above the five-year average of 3,145 bcf.

Cooling demand finally “cooling off” – This year has had a relatively high number of cooling degree days totaling 1,269 days versus the five-year average of 1,163 and well above last year’s 1,052. This has supported a 7% lift in natural gas demand from electric generation year over year (EIA). Gas demand from power generation is estimated at 20.2 bcf/d in 2010, accounting for roughly 30% of total forecasted U.S. gas production.

Daily Energy Digest - 9/23/2010

GST

Gastar Exploration Ltd., Houston, and an affiliate of South Korean investment firm Atinum Partners Co. Ltd., Seoul, formed a joint venture to pursue Marcellus shale gas in West Virginia and Pennsylvania.

Gastar will assign an initial 21.43% interest to Atinum Marcellus I LLC in all of its existing Marcellus shale assets in the two states, totaling 34,200 net acres, and certain producing shallow conventional wells.

Transaction value is $70 million, including $30 million to Gastar at closing and a further $40 million in the form of a drilling carry. After the drilling carry is fully funded, Atinum will own a 50% interest in the 34,200 net acres. Gastar will continue to serve as operator of all Marcellus shale interests in the JV. The transaction is to close within 30-45 days and is contingent on receipt of Korean government agency approvals and other customary closing conditions.

Atinum is to fund its ultimate 50% share of drilling, completion, and infrastructure costs plus 75% of Gastar’s ultimate 50% share of the same costs until the $40 million carry has been satisfied. Gastar and Atinum are pursuing an initial 3-year development program that calls for the partners to drill 1 horizontal Marcellus shale well in 2010, at least 12 horizontal wells in 2011, and 24 horizontal wells in 2012 and in 2013.

An initial area of mutual interests will be established for potential additional acreage acquisitions in Ohio and New York along with the counties in West Virginia and Pennsylvania in which the existing interests are located. Within the initial AMI, Gastar will act as operator and will offer any future lease acquisitions to Atinum on a 50-50 basis, while Atinum has agreed to pay Gastar on an annual basis an amount equal to 10% of lease bonuses and third party leasing costs up to $20 million and 5% of the costs on activities above $20 million. Until June 30, 2011, Atinum will have the right to participate in any future leasehold acquisitions made by Gastar outside the initial AMI and in West Virginia or Pennsylvania on terms identical to those governing the existing Marcellus JV.

Gastar said the JV will allow it to accelerate development of its assets while maintaining a low level of leverage and a high degree of financial flexibility. Gastar said the transaction also realizes a much higher valuation for the assets than what has been reflected in its share price “and thus made a joint venture the least dilutive method to finance development.” Gastar said it may use proceeds from the transaction to help fund Marcellus shale development, future East Texas drilling and development, lease or property acquisition opportunities, and to reduce debt.

Ethanol Interesting Article: "Deficit Hawks Threaten Ethanol's Future," Bloomberg BusinessWeek (http://www.businessweek.com/magazine/content/10_40/b4197028502325.htm). Despite corn ethanol's historically bipartisan support, congressional deficit hawks are becoming increasingly critical of the subsidies and protection given to the industry. The $27 billion industry currently benefits from a $0.45/gallon blenders' tax credit. The credit, which expires at the end of this year, is being targeted as a potential area for Washington to cut back, with the price tag last year totaling $4.7 billion. Meanwhile, ethanol producers are pressing the EPA to move in the opposite direction and approve a 15% blend limit - a significant increase from the 10% limit currently in place. All this is coming to a boil in a tough election year, with Midwestern swing states very much in play. Consider hedged bets on Archer Daniels Midland (ADM) to take advantage of the event opportunity.

Calfrac (CFW.TO) Calfrac announced another long-term minimum commitment contract for fracturing in the Marcellus Shale. This contract is with a 50/50 joint venture between EXCO Resources (NYSE:XCO) and BG Group (LON:BG). To accommodate this demand Calfrac will add $56 million to its capital spending plan, largely to construct another 55,000 of fracturing horsepower that will arrive in Q2’2011.

The new fracturing equipment adds slightly more than 9% to Calfrac’s company wide fracturing horsepower. Based on Q2’2010 results from the U.S. one would expect the new equipment to add approximately $20 million in annual revenue. Recent management comments indicate pricing has continued to increase modestly in the third quarter.

Noble Energy (NBL) announced today that it has sanctioned the Tamar natural gas project offshore Israel. Discovered in 2009, Tamar is operated by Noble Energy and has total recoverable resources estimated at 8.4 trillion cubic feet of natural gas.

Initial development of Tamar will include five subsea wells capable of flowing 200 to 250 million cubic feet per day (Mmcf/d) of natural gas each. Production will be gathered at the field and delivered via two 16-inch flowlines to a new platform, which will be constructed adjacent to the existing Mari-B structure. The Tamar platform will tie into the existing 30-inch pipeline that delivers natural gas to the Ashdod onshore receiving terminal, with an initial processing capacity up to 1.0 billion cubic feet of natural gas per day. The project design and connectivity to Mari-B will also provide for gas injection and withdrawal in the Mari-B reservoir. In addition, the development will allow for significant expansion as the market for natural gas grows.

Charles D. Davidson, Noble Energy's Chairman and CEO, said, "Noble Energy continues to make outstanding progress on our lineup of major projects. We now have key developments underway in each of our core areas and significant growth is rapidly approaching. Tamar represents a critically important project for our Company, our partners, and the State of Israel. Ensuring that we are able to meet the near and longer-term needs of Israel's growing gas market will support the State's continued commitment to natural gas as the energy source of the future."

Gross capital cost for Tamar is estimated at $3.0 billion ($1.1 billion net to Noble Energy). The majority of key project components have been awarded and development drilling is scheduled to commence by early 2011. Project installation is expected to be complete and commissioning initiated in the fourth quarter of 2012.

Noble Energy operates Tamar, offshore Israel in the Matan license, with a 36 percent working interest. Other interest owners are Isramco Negev 2 with 28.75 percent, Delek Drilling with 15.625 percent, Avner Oil Exploration with 15.625 percent and Dor Gas Exploration with the remaining four percent.

The Company is also the operator of Mari-B with a 47.059 percent working interest. Delek Drilling has a 25.5 percent interest, Avner Oil Exploration holds 23 percent and Delek Investment has 4.441 percent.

National Fuel Gas (NFG) National Fuel Gas announced the results from a Marcellus Shale well (100% working interest) in Lycoming County, Pennsylvania. The company-operated well achieved a 24-hour initial production (IP) rate of 15.8 MMcfe/d, on a 28/64-inch choke, resulting in a record flow rate for National Fuel Gas. Moreover, this well was a step-out, drilling in an area that was previously untested, boosting potential proved reserve bookings.

Joint Venture Drilling Results Step Up. In Clearfield County, an EOG (EOG) operated well (NFG 50% WI) flowed at a 24-hour IP rate of 8.9 MMcfe/d. Not only is this well a significant improvement over the previous JV wells (1-4 MMcfe/d IP rates), but it is also one of the highest flow rated wells in the county.

Potential Marcellus Monetization. A large part of the bullish thesis on National Fuel Gas is due to the company's massive Marcellus acreage position. The company is currently utilizing three rigs and plans to add an additional rig shortly. Even with the accelerated drilling pace, National Fuel Gas has a 50-year+ drilling inventory. In order to realize some of those proceeds earlier, the company announced that it has hired an investment bank to explore joint venture opportunities across its acreage. Based on recent Marcellus Shale joint ventures, National Fuel Gas' acreage position could go for between $8,000 and $12,000 per acre.

Enbridge (EEP) Last night, Enbridge Energy Partners (EEP) announced that it has received approval from the Pipeline and Hazardous Materials Safety Administration (PHMSA) for its restart plan for Line 6B. This is the first of two separate approvals required from PHMSA before restart can occur. The second approval, relates to fulfillment of requirements related to appropriate public notifications and third-party monitoring of the restart process.

Late last week, PHMSA issued a Notice of Proposed Amendment to the Corrective Action Order, which was originally issued July 28 to EEP. PHMSA requires that the restart plan include schedules to repair all remaining anomalies identified for action from the 2007 and 2009 in-line inspections within 180 days of the restart, and for Enbridge to perform two in-line inspections of the entire line within 14 days of the restart, and to immediately repair any anomalies that are discovered.

In addition, Enbridge’s plan must include a schedule for the complete replacement of the pipe in the entire St. Clair River crossing to be completed within one year of the restart. Enbridge anticipates that it will meet the restart plan’s requirements and be in a position to return Line 6B to service the morning of Monday September 27, subject to its receipt of final PHMSA approval.

At this point, there is no updated cost estimate. The last update was that EEP would incur charges of $35-$45 million, net of anticipated insurance recoveries and exclusive of fines and penalties. This translates to approximately $7-$9 million (after-tax) in respect of Enbridge 27% interest in EEP, or $0.02/share. In addition,

El Paso (EP) loads up in the Wolfcamp. The company announced this morning that its $180 million bid was the winner for 123,100 net acres ($1,460 per acre) prospective to the Wolfcamp, a mature oil play in the Permian Basin. The acreage was added in Reagan, Crockett, Upton, and Irion Counties (Texas) and brings El Paso's total acreage position in the play to ~135,000. While the Wolfcamp has never been considered premium Permian, El Paso is excited about the untapped potential of this acreage after its technical team's latest round of due diligence. In addition to having multiple pay opportunities on the land, the acreage is in large continuous blocks and has only one royalty owner, which helps to make operations run smoothly.

FMC Technologies (FTI) wins another subsea contract: On the heels of a $520 million subsea award announcement, FMC Technologies has won a $75 million award for the Katla development in the North Sea. The award is one of three additional options included in the previously announced Pan Pandora project awarded to FMC in June. Bottom line: This is a great example of a call-off award that compliments the big project awards. For reference, we are assuming $1.1 billion in subsea orders this quarter.

InterOil Corp. (IOC) renews SEC shelf registration. Following expiration of its prior shelf registration statement last week (originally from 2008), InterOil has filed a renewed shelf with the SEC (equivalent to a preliminary base prospectus in Canada) for the issuance of up to $300 million in debt or equity. This filing does not signify plans for an offering; rather, it simply provides the flexibility to issue securities over a two-year period. As we've noted in the past, having this capital "back up plan" places InterOil in a more competitive position during its ongoing LNG partnership negotiations - with management confirming just last week that the process remains on track for at least one LNG deal by year-end. It's worth underscoring that the prior $200 million shelf expired with $130 million unused.

Energy Transfer Partners (ETP) S&P raises outlook from Negative to Stable; rating remains BBB-. The rating agency cited Energy Transfer's expected completion of the Fayetteville Express Pipeline (FEP) and Tiger Pipeline in 2011 as a primary reason for the change in outlook, which has been negative since August 2009. FEP and Tiger will greatly expand the fee-based portion of the partnership's cash flow mix, while also working to offset the lost revenue from intrastate pipeline assets as a result of narrow natural gas basis differentials.

Weekly DOE Crude & Product Inventory Analysis

• Crude inventory build higher than market expectations – Crude inventories surprised analysts this week with a 1.0 mmbbl build (versus a forecasted 1.8 mmbbl draw according to Bloomberg) despite a disruption on Enbridge’s Line 6A (670,000 bbl/d capacity, 490,000 bbl/d throughput) which limited crude imports.
• Gasoline inventories build against expectations – Gasoline inventories rose 1.6 mmbbls last week, compared with market expectations for a 0.3 mmbbls draw (per Bloomberg). Inventories of gasoline are now sitting at 226.1 mmbbls, which is 6.1% above last year and 13.4% above the five-year average.

• Distillate inventories move higher – Inventories of distillates increased 0.3 mmbbls last week, compared with market expectations for a 0.1 mmbbls build (per Bloomberg). Distillate inventories are now sitting at 174.9 mmbbls, which is 2.4% above last year and 21.8% above the five-year average.

Daily Energy Digest - 9/22/2010

Valero (VLO) will develop two new hydrocracking units at its refineries in Port Arthur, Texas and St. Charles, La. Valero will build two 50,000-barrels-per-day units at each facility. Hydrocracking units remove sulfur during the refining process. The new refinery units will allow Valero to produce more diesel and other distillates. Valero officials believe diesel demand will outpace gasoline demand in the near future, says spokesman Bill Day. That’s because diesel fuels commercial trucks and ships. And as the global economy improves, diesel demand should continue to pick up. The Port Arthur project should be completed by the fourth quarter of 2012. The unit will cost $1.5 billion to build. The St. Charles hydrocracker should be completed by the fourth quarter of 2013 at a cost of $1.4 billion to build. Valero expects to pay for the projects using available cash.

Massey Energy Co. (MEE) said production has resumed at a southern West Virginia mine that had been idled while waiting for government approval of its ventilation plan. Massey on Tuesday announced the reopening of the Revolution mine in Uneeda, which had been idle since June 4. The Richmond, Va.-based company said the federal Mine Safety and Health Administration approved a ventilation plan that will push fresh air to the working face along a conveyer belt. The use of so-called belt air requires special approval because conveyers are prone to fires, which would push smoke directly at miners. Revolution produces most of its coal with a longwall mining machine, much like the company's Upper Big Branch mine, where 29 miners died in an explosion April 5.

Natural Gas (UNG) Worldwide demand for natural gas may grow by 1.3-1.6%/year through 2030, according to presentations at the opening general session of the Society of Petroleum Engineers Annual Technical Conference & Exhibition in Florence, Italy, on Sept. 20.

China is one of the countries driving the demand higher. During 2000-09, it experienced a 15.4%/year growth in demand, according to PetroChina Co. Ltd. Pres. Yan Cunzhang.

One note of caution about this growth was expressed by Michael Stoppard, IHS CERA managing director. Stoppard noted that the growth might be less than 1.6%/year if governments in Europe adopt a decarbonization strategy that positions gas as a dirty fossil fuel and clean coal as a green energy. He said that the public needs to hear a louder voice about gas which is abundant, clean, safe, cost competitive, technically producible, and with a good track record for delivery to markets such as electricity and power generation.

Howard Paver, with Hess Corp., noted that Hess has a gas demand growth projection of 1.3%/year to 2035. His estimate translates to needing 4,000 tcf of gas in that period and if this gas is unconventional, it would require the drilling of 1.3 million wells at a cost of about $4.5 trillion, he said.

Sara Ortwein, president of ExxonMobil Upstream Research Co., said worldwide gas is abundant. One estimate is that 20,000 tcf remain to be produced worldwide. Of this, 10,000 tcf is conventional gas, 5,000 tcf is undiscovered gas, and 5,000 tcf is unconventional gas, she said.

Ortwein noted that gas has about 60% fewer emissions than coal and that such technologies as control freeze zone will lower the costs of removing carbon dioxide and hydrogen sulfide from sour gas. ExxonMobil plans to start up this fall its CFZ demonstration plant in La Barge, Wyoming, she said.

Arch Coal (ACI) Following ACI's analyst day, there is no change to the near-term outlook for the company. The highlights of three main takeaways from the presentations are:

1. No change to near term operating targets or estimates: The company reiterated current operating and financial targets for 2010. Regarding its large unpriced positions (55-65 million tons in 2011 and 90-100 million tons in 2012) ACI indicated customer interest has increased over the last two months, however most of this appears to be for the remainder of 2010.

With uncertainty regarding the economic outlook for 2011 (and low nat gas prices) most of ACI's customers are not interested in securing tons beyond 2010. It appears little 2011 contracting has occurred since the company's Q2 update. Few specifics were given about current pricing, however the company reiterated that its large unpriced position gives it leverage to what it sees as a strengthening pricing environment.

2. Preferring Balance Sheet Health over Growth: The company noted it expects to have strong free cash flow over the next few years and indicated its priorities as follows: (a) Improve the balance sheet and continue to pay down debt with available cash while maintaining ample liquidity (b) Improve shareholder returns via dividends and share repurchases, and (c) Growth.

3. Focused on Organic Growth Opportunities, Not Acquisitions: The company noted it is first focused on investing in and improving current operations to enhance profitability. Near term growth will most likely come from the PRB as the company has plenty of spare capacity in the region (capacity of 150-155 million tons of capacity vs. current production of around 125m tons for 2010). ACI remains steadfastly bullish on export opportunities from the PRB into the Pacific market, and indicated it is looking at developing greenfield and brownfield port opportunities on the west coast. Beyond the PRB, longer term ACI expects the Illinois Basin and Montana to become core operating regions. Regarding acquisitions, ACI commented that it historically buys assets on the downswing of the coal cycle, and with coal prices rising does not appear interested in any near-term deals.

Whiting (WLL) prices debt offering at attractive rate. Yesterday afternoon Whiting announced that it has priced $350 million of senior subordinated notes due 2018 at 6.5%. The $350 million issue effectively replaces the $370 million of 7.25% notes (due 2012/2013) that Whiting called in August 9th, lowering their weighted average cost of debt capital to 6.71% (including its $250 million of 7% senior subordinated notes due 2014). Whiting has been able to lower its fixed interest costs significantly over the last month by replacing higher-rate debt as well as by calling in the majority of its convertible preferred shares - lowering its annualized preferred dividends from around $21.6 million to just under $0.5 million. Upcoming catalyst: Lewis & Clark well results.

Kodiak (KOG) files $250 million mixed shelf. Following yesterday's Williston Basin update, Kodiak filed an S-3 this morning which gives the company the flexibility to raise up to $250 million via stock, warrants, or debt security offerings. Kodiak recently raised ~$80 million with a mid-August equity offering, which should cover much of the deficit between spending and cash flow in 2011, so this filing is likely more of a maintenance update.

SM Energy (SM) announces increased borrowing base to $1.1 billion from $900 million. The commitment from the banks remains at $678 million, and SM currently has no borrowings outstanding under the facility. If you recall, in late August the company announced plans to sell two different asset packages over the next 12-24 months to generate proceeds in the range of $300-500 million. However, even with the proceeds from these asset sales, SM Energy could outspend cash flow by as much as $650 million over the course of 2010-2011. The increased and untapped credit facility should cushion any cash flow shortfalls and provide sufficient liquidity for the company heading into 2011.

Enerplus (ERF) deal pegs Bakken acreage at $9,800/acre. This morning Enerplus announced a series of acquisitions and divestitures including the acquisition of 46,500 net acres in Dunn and McKenzie Counties. The acreage is located in the Fort Berthold area and was purchased for US$456 million, or roughly $9,800 per net acre. The acreage was likely acquired in a privately negotiated sale, but even so remains one of the highest prices paid for a significant land position in the Bakken. The high mark for state and federal lease sales is around $4,000-$5,000 per acre.

Hercules Offshore (HERO) Fleet Report - Full Utilization for Domestic Liftboats. The company announced a couple one-well jackup contracts in the Gulf of Mexico at $35,000/d (in-line). However, the real story is on the company's Gulf of Mexico liftboats. Utilization was over 90% for the second straight month thanks to clean-up efforts from BP's oil spill. As oil spill-related demand begins to fade in 4Q10, it may be replaced by the need to decommission wells due to the recent NTL (potentially 3,500 wells and 650 platforms over the next three to five years). As a result, Gulf of Mexico liftboat utilization may remain at elevated levels. Bottom Line: Good news for Hercules, as strong liftboat utilization will help offset continued weakness from Gulf of Mexico jackups. The Gulf of Mexico permitting process is still stuck in neutral, and jackup activity will remain anemic until this changes.

FMC Technologies (FTI) Locks in Big $520 million Subsea Contact: FMC will supply 36 subsea trees, wellheads and controls for the CLOV development project offshore Angola. The $14 million per tree price tag is high relative to historical standards. This award could push the inbound orders up to the $1.5+ billion range for the quarter. Bottom line: While it was widely known that FMC was likely the front runner for this award, it is good to see a project of this magnitude finally get awarded and not continue to slide to the right. Revenues for this project are expected to start in 2011.

Enterprise Products Partners (EPD) to provide Anadarko (APC) with suite of midstream services in Eagle Ford shale. Enterprise announced that it has entered into a long-term agreement to provide a comprehensive package of midstream services to Anadarko's Eagle Ford shale operations. The six-year agreement includes firm natural gas transportation and processing services and calls for the construction of a new 17-mile, 20-inch diameter natural gas gathering pipeline. This pipeline will originate at Anadarko's central production facilities located in Dimmit County, Texas, and will connect with Enterprise's existing South Texas pipeline system. The pipeline is expected to be completed in October 2010. Furthermore, NGLs recovered from Anadarko's production in the liquids-rich Eagle Ford shale will be fractionated at Enterprise's facilities throughout Texas. Recall, this news comes on the heels of the partnership's previous announcement that it had signed a long-term agreement to provide similar services to EOG Resources (EOG) in South Texas. As we have said in the past, Enterprise continues to move quickly in developing a leading midstream asset footprint in the Eagle Ford, optimally positioning the partnership to further capitalize on attractive profit opportunities.

Sharp (SHCAY) is acquiring Recurrent Energy, a large, VC-backed U.S. PV project developer, for $305 million, keeping with the trend of module producers moving downstream through acquisitions. Earlier this year, both First Solar (FSLR) and SunPower (SPWRA) made analogous acquisitions - NextLight and SunRay, respectively. The impetus for these and other similar deals is to control a ready-made product pipeline for the producers' modules - Recurrent Energy sports a hefty 2 GW pipeline. Now, with Recurrent snapped up, there are very few pure-play commercial-scale PV developers left in the U.S. The usual characters - First Solar, SunPower, Suntech (STP), Trina (TSL) and Yingli (YGE) - have each been cast as possible future acquirers as the trend continues.