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Friday, September 10, 2010

Daily Energy Digest - 9/10/2010

IEA raises 2010 global demand yet again with higher OPEC consumption; essentially maintains 2011 growth forecast. In the latest Oil Market Report, the IEA raised 2010 demand by 40 MBbls/d and expects it to average 86.6 MMBbls/d (or 2.2% growth) during the year. The agency held steady its 2011 demand forecast of 87.9 million bpd (1.5% y/y growth). On the supply side, total non-OPEC supply estimates were raised minimally at 52.6 MMBbls/d (1.9% growth) in 2010, just 0.2% above our estimate. 2011 non-OPEC supply is up slightly at 52.9 MMBbls/d (0.1% growth), well above our estimate for a 0.6% decline.Some would argue that the IEA is overestimating U.S. supply by not fully incorporating the deepwater drilling moratorium; 2011 non-OPEC supplies thus continue to feel overstated.

NBR Nabors Industries Ltd. announced the pricing of Senior Unsecured Notes due 2020. The notes have been priced at $700 million. The notes carry an interest rate of 5.0% and will be fully and unconditionally guaranteed by Nabors Industries Ltd. With a yield of 5.056%, the notes are being offered at 99.564% of the face value. The offering is expected to close on September 14, 2010. Nabors plans to use the net proceeds from this offering to capitalize the previously announced acquisition ofSuperior Well Services Inc. (SWSI) and for general corporate purposes.

BEXP - Brigham remains consistent in the Williston, announces 5 new wells. In the company's core Rough Rider area, Brigham's latest three wells came online with peak 24-hour initial production (IP) rates of 2.3, 2.2, and 1.9 Mboe/d, roughly inline with the company's 2.4 Mboe/d average for the 24 long lateral wells it has drilled to date in the Rough Rider. Looking East, Brigham completed two wells in the Ross area which IP'd at 3.7 and 3.1 Mboe/d, also inline with company's Ross average of 3.3 Mboe/d. While Brigham currently has 11 wells awaiting completion and only 1 well fracing, the company will soon have additional frac capacity to accelerate its completion operations. On the catalyst front, the company has completed drilling operations on its first Three Forks Rough Rider well, the State 36-1 #2H, which should be frac'd in late October or early November. The company is also finishing drilling operations on its 2 infill test wells in the Rough Rider, both of which should be completed by the end of November.

Alaska Sues to Lift "De Facto" Arctic Drilling Ban. The state of Alaska is suing Interior Secretary Ken Salazar for imposing what amounts to a drilling moratorium in the state's shallow waters. The Interior Department maintains that there is no moratorium. However, no permits have been issued for Arctic drilling since the Macondo disaster, and Secretary Salazar has refused to review applications for permits until next year - even longer than the Gulf of Mexico moratorium's targeted end date of November 30. This summer, Shell (RDS.A) was denied permission to drill exploratory wells in the Chukchi and Beaufort Seas, and this is likely the impetus for the lawsuit, which Shell is supporting. The Interior Department has said that the Gulf accident has nothing to do with the permitting delays in Alaska, but with this lawsuit, the state is taking those claims to task.

ACI - Arch Coal restarts longwall production at Dugout Canyon: After idling the mine on June 22 after a "heating event", Arch has restarted its longwall mining system at Dugout Canyon and is in the process of resuming production. For reference, the Dugout Canyon mine in Utah produces ~2% of Arch's total annual production.

JASO - JA Solar Notches ~$4.4 Billion Loan Agreement with China Development Bank. Similar to the framework agreements the state-owned bank recently signed with Trina Solar (TSL/$27.82/Outperform) and Suntech (STP/$8.92/Underperform), JA Solar will have RMB 30 billion (roughly $4.4 billion) on "standby" should it decide to borrow. While incrementally positive in terms of funding future capacity expansion, JA Solar needs the cash less than Trina and Suntech, because as a pure manufacturer it does not have an in-house solar farm development business.

NRGY - S&P Lowers Inergy LP's outlook to Stable. S&P Ratings Services, which rates Inergy debt at BB-, has lowered the partnership's outlook from positive to stable. The rating agency cited Inergy's recent deal to acquire Tres Palacios Gas Storage LLC (As detailed in our 9/8 comment: "NRGY: Tres Palacios Acq Expands Gas Storage Footprint; Raising FY11 EBITDA"), and subsequent increase in debt-to-earnings ratio, as a primary factor in making the decision. This follows Moody's Investor Service upgrade of Inergy's Corporate Family Rating (CFR) to Ba2 from Ba3 just a couple of weeks ago. All in, Tres Palacios transaction appears to be accretive to unitholders and shows how the partnership is leveraging its attractive cost of capital platform to enhance long term value.

MUR - Murphy Oil Corporation announced today that its wholly owned subsidiary, Murphy Oil Company Ltd., has entered into an agreement with Kainaiwa Resources Inc., a corporation wholly-owned by the Blood Tribe First Nation to acquire 202 sections (129,280 acres) of prospective oil and gas properties located within the Blood Tribe Reserve in southern Alberta. The lease agreement will give Murphy drilling rights on the property for 5 years with a minimum of 16 wells to be drilled during this time.

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