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Friday, October 29, 2010

Technical Trading Alerts 10/28/2010

Bullish Alerts:

21-Day/50-Day Moving Avg. Cross: CAM

Bearish Alerts: None

Thursday, October 28, 2010

Weekly DOE Natural Gas Storage Analysis

Storage levels inch closer to 2009 highs

Injection slightly above expectations – The EIA reported a natural gas injection of 71 bcf, slightly below expectations (as per Bloomberg) of 74 bcf. For the comparable week, injections last year were 25 bcf with the five-year average injections at 45 bcf. Total storage now sits at 3,754 bcf, only 0.1% below last year’s level of 3,756 bcf, and 9.1% above the five-year average of 3,442 bcf.

Storage levels inch closer to record levels set in 2009 – The 71 bcf injection this week puts us only 83 bcf below record storage levels set in late November 2009. Looking ahead, above average temperatures forecasted for key consuming regions means we could potentially reach new highs in the coming weeks.

Wednesday, October 27, 2010

Technical Trading Alerts 10/27/2010

Bullish Alerts:

Price Is Up > 5% & the Volume is > 200%: NBR OII
Stochastic Cross: CHK CRK DVN EOG FST RIG
Bullish Up/Down Vol. Ratio Slope Reversal: BTU LINE NOV OII VLO

Bearish Alerts: None

Tuesday, October 26, 2010

Technical Trading Alerts 10/26/2010

Bullish Alerts:

10-Day/21-Day Moving Avg. Cross: FSLR
Price Up More Than 5% and Volume Greater Than 200%: NOV
Stochastic Cross: APA ATLS BP HP NE

Bearish Alerts: None

NuStar Trumps Expectations - Yahoo! Finance

NuStar Trumps Expectations - Yahoo! Finance

Monday, October 25, 2010

Trade Entry -MEE Risk Reversal Option Play

Last week, Wall Street Journal reported that Massey Energy (MEE) is exploring strategic alternatives including the sale of the company. This morning, Stiffel Nicalaus published a research piece stating that Cliffs Natural Resources (CLF) may bid for MEE and the bid could be as high as $62. So far the stock has hit a 52-week low of $25.85 and 52-week high of $54.80. Massey shares nosedived following the April 5 explosion at its Upper Big Branch mine in West Virginia, which killed 29 miners. It closed at $54.69 that day and hit a low of $26.31 on July 2. The WSJ article mentioned that MEE could be in due diligence phase of a strategic move as early as November.

Today, I initiated a costless risk reversal spread to take advantage of the expected sale of MEE:

Trade Details Cost Basis
Sell 2 contracts of MEE 2010 DEC 32.00 PUT @ $0.40 ($80.00)
Buy 1 contract of MEE 2010 DEC 50.00 CALL @ $0.75 $75.00

Total Cost ($5.00) (credit)
Breakeven Price: $31.97

As long as I am willing to buy the stock at $30 (in case there is no deal), this spread provides me $5 credit initially and unlimited upside should MEE's price exceeds $50 by December 18, 2010. Statistically, there is about 7.6% probability of MEE's price being $32 or lower by the expiration date. So, I am willing to take the risk of buying the stock at this price. Also, this price level corresponds to the congestion area from which the price broke up indicating good support at this level. One thing to remember is that one would have to post margin for the Put side of the spread or cash-back the short puts ($6,400 less $5 credit).

Sunday, October 24, 2010

Technical Trading Alerts 10/25/2010

Bullish Alerts:

Price Up > 5% & Volume > 200%: APC
Stochastic Cross: MMR
Up/Down Volume Ratio Slope Reversal: APC ATLS CCJ

Bearish Alerts: None

Friday, October 22, 2010

US drilling remains flat - Oil & Gas Journal

US drilling remains flat - Oil & Gas Journal

MARKET WATCH: Energy prices continue to see-saw - Oil & Gas Journal

MARKET WATCH: Energy prices continue to see-saw - Oil & Gas Journal

Trade Entry - CLB

Trade: Opened to sell CLB Nov 75 put for $0.70.

Trade Rationale: CLB is the premier "high-tech" company in the oil field services industry and is Well Positioned for the upturn. The company has a strong position in North American shales plays which I expect to remain the focus for U.S. and Canadian Independents, and also broad exposure to the international markets which I believe are in the early stages of a multi-year recovery that is poised to accelerate in 2011. In addition, Core's technologies are geared towards understanding reservoirs and improving production - services that are in increasing demand as the global reserve base continues to age. The stock has been overly punished because of the flattish North American revenues due to capacity constraints. Support level for the price is around $76/sh. If the put is not exercised, I will have a naked yield of 0.8% in 29 days.

[Trade Entry] Bearish on Bonds With a Credit Back Spread

[Trade Entry] Bearish on Bonds With a Credit Back Spread

Technical Trading Alerts 10/21/2010

Bullish Alerts:

Stochastic Cross: DO NBL SM
Up/Down Volume Ratio Slope reversal: MEE STO

Bearish Alerts:

10-Day/21-Day Moving Avg. Cross: NRG TIE

Thursday, October 21, 2010

Weekly DOE Natural Gas Storage Analysis

Injection slightly above expectations – The EIA reported a natural gas injection of 93 bcf, slightly above expectations (as per Bloomberg) of 88 bcf. For the comparable week, injections last year were 23 bcf with the five-year average injections at 54 bcf. Total storage now sits at 3,683 bcf, or 1.3% below last year’s level of 3,731 bcf, but 8.4% above the five-year average of 3,397 bcf.

Futures curve continues to fall – Over the past six weeks, injections have averaged 30% higher than the five-year average, despite more normalized weather. With the potential prospect of gas-on-gas competition, not only near month NYMEX gas prices continue to fall, but also the full futures curve as well, down 7% from six weeks ago and 26% from last year.

Wednesday, October 20, 2010

Technical Trading Alerts 10/21/2010

Bullish Alerts:

Price Up More Than 5% and Volume is Greater Than 200%: MEE
Stochastic Cross: CHK CRZO FWLT PXP SWC
Bullish Up/Down Volume Ratio Slope Reversal: EXC KSU MDU OGE ROSE SU XEL XOM
Bearish Alerts: None

Weekly DOE Crude & Product Inventory Analysis

Crude inventories increase slightly below expectations – Crude oil inventories increased 0.7 mmbbls last week, slightly below market expectations for a 1.5 mmbbls build (per Bloomberg). Crude oil inventories are now sitting at 361.2 mmbbls, which is 6.5% above last year and 11.8% above the five-year average.

Gasoline inventories also up slightly – Gasoline inventories rose 1.1 mmbbls last week, compared with market expectations for a 1.5 mmbbls draw (per Bloomberg). Inventories of gasoline are now sitting at 219.3 mmbbls, which is 6.0% above last year and 9.6% above the five-year average.

Distillate demand showing continued improvement – Inventories of distillates decreased 2.1 mmbbls last week, compared with market expectations for a 1.0 mmbbls draw (per Bloomberg). As the chart below shows, distillate demand has steadily been increasing since July with demand now approaching 5-year averages. Distillate inventories are now sitting at 170.1 mmbbls, which is 0.1% above last year and 22.6% above the five-year average. ·

Refinery utilization edges up – Refinery utilization rose 0.6% last week to 82.9% which is 1.4% above last year and 1.5% below the five-year average.

Daily Energy & Resources Digest 10/20/2010

Encana (ECA) - This morning Encana reported its Q3/10 results. Encana reported production of 554 MBOE/d (3.3 Bcfe/d) for Q3/10, slightly behind our expectation of 565 MBOE/d or 3.4 Bcfe/d. Cash flow of $1.1 billion or $1.54 per diluted share was above our estimate of $973 million or $1.32 per share, and ahead of the consensus estimate of $1.39, mainly on the back of lower than expected operating costs and an income tax recovery. Citing completion delays in the U.S., Encana has reduced its capex budget for the year to $4.8 billion from $5.0 billion, resulting in a 50 MMcfe/d decrease to 2010 production guidance to 3.315 Bcfe/d. The revised CFPS guidance range has been narrowed to $5.95 - $6.20 from $5.95 - $6.50 previously.

Kodiak (KOG) expands Bakken footprint with $110 million asset grab. The company purchased ~14,500 net acres and four producing wells (~500 net boe/d plus existing infrastructure) for $99 million in cash and $11 million of stock (2.75 million shares at $4 per share). Excluding the acquired production, this implies about $7,600/acre; if assuming $100,000 per flowing boe, the acquisition price comes out to ~$4,100/acre. Where's the cash coming from? With Kodiak's drilling success to date, it was able to expand its credit facility from $20 million to $50 million and it also received commitments for a second facility with $40 million of availability. With the extra capacity plus the $74 million of proceeds from the recent equity offering, our model has Kodiak exiting 4Q with $65 million of the $90 million drawn. Looking at the newly acquired acreage, 11,700 acres are located in McKenzie County (core) with the remaining 2,800 acres located in Williams County, just north of Brigham's (BEXP/$19.61/Strong Buy) Rough Rider position. The Three Forks has yet to be de-risked around this land, and therefore we estimate it only adds 34 Bakken locations to inventory (Kodiak estimates 60). Bottom line: While the new land gives Kodiak some additional running room in the Bakken, the transaction is neutral to NAV analysis and the stock is still one of the more expensive names in the group, particularly as smaller companies continue to get squeezed on margin by service costs.

Comstock (CRK) - Yesterday Comstock gave an update on operations in the Haynesville and Bossier, announcing that the number of drilled wells awaiting completion has now jumped to 26. The news comes as no surprise as the company already had 17 wells awaiting completion and that the backlog is likely continue to grow throughout the end of the year due to a tight pressure pumping services market. Comstock plans to drill another 10 wells in the Haynesville during 4Q, but has secured additional pumping services that will allow it to reduce its uncompleted inventory to an estimated 22 wells by year-end (in addition to securing a dedicated frac crew for 2011). To further alleviate its uncompleted backlog, Comstock will be releasing one of its six Haynesville rigs and may move one of the remaining five to the Eagle Ford in 2011.

Crosstex Energy LP (XTEX) and Crosstex Energy Inc. (XTXI) announce reinstatement of distribution/dividend payout. The quarterly distribution on Crosstex Energy LP's common units will be $0.25 per unit beginning with the 3Q10 distribution (payable 11/12/10). The quarterly dividend on Crosstex Energy Inc.'s common stock will be $0.07 per share beginning with the 3Q10 distribution (payable 11/12/10). The announcement is in line with our forecast, but the reinstatement arrived one quarter ahead of the partnership's original expectations to reinstate the distribution and dividend in 4Q10 (payable January 2011). Given that roughly 75% of the partnership's cash flow is now fee-based, it appears that these new distribution/dividend levels are sustainable.

Eagle Rock Energy Partners (EROC) announces startup of Phoenix processing plant. Eagle Rock Partners announced that its Texas Panhandle, Phoenix gas processing plant is operational. The cryogenic plant will initially add 50 MMcfe/d of processing capacity to the Texas Panhandle area. Additionally, the partnership announced that it closed its previously announced acquisition of gas gathering facilities in Wheeler and Hemphill counties. Lastly, the partnership's upstream borrowing base has been increased by $10 million to $140 million.

Complete (CPX) - For the third consecutive quarter, Complete had no problem topping the Street's estimate for earnings. Complete put up "clean" earnings of $0.42 per share, well above both our assumption and the Street at $0.29 and $0.31, respectively. Reported revenue saw a sequential uptick of 16%, which topped our forecast by 5%. Most of this strength came from the completion and production segment as the company reported successfully completing its first frac job in the Eagle Ford during the quarter. The same segment rallied big as adjusted EBITDA surged 28% sequentially from an increase in horizontal and oily related activity to add an additional $0.06 per share above our forecast. Additionally, drilling services hit its stride from an uptick in utilization and accounted for two cents of the beat. During the quarter, the company added an additional ~40,000 hydraulic hp to its fleet. Expect to see more of this in 4Q10; recall that last quarter Complete expected to add an additional 100,000 horsepower to its fleet by year's end.

Technical Trading Alerts 10/20/2010

Bullish Alerts:

10-Day/21-Day Simple Moving Avg. Cross: ED
Bullish Up/Down Volume Ratio Slope reversal: CVE ETP OIH

Bearish Alerts:

10-Day/21-Day Simple Moving Avg. Cross: JRCC

Tuesday, October 19, 2010

Daily Energy & Resources Digest 10/19/2010

Anadarko Petroleum (APC) today announced that its Barquentine (APC operated 36.5% WI) prospect, its fourth exploration well to-date offshore Mozambique, encountered 416 net feet of natural gas across multiple pay zones (308 ft Oligocene + 108 ft Paleocene). Barquentine is located about 2 miles northeast of its earlier Windjammer gas find which hit 480 net feet of gas back in February (later revised up to 555 ft after reaching a deeper target). However, Windjammer was subsequently followed by two disappointing wells; a difficult well at Collier and a non-commercial oil find at Ironclad. Today’s discovery likely revitalizes interest in this play and its commercial potential.

APC noted that the deeper 108 ft Paleocene pay appears to be part of the same accumulation as the deeper 75 ft zone Windjammer encountered, thus potentially indicating a large contiguous reservoir. Further appraisals are required to fully delineate the extent, but initial indications point to approximately 6 Tcf potential across the area. Given the absence of a domestic gas market, the most likely commercial option is an LNG facility probably sized around 600 MMcf/d. APC’s preliminary estimate for first gas export is around 2017, although partner BPRL previously indicated a potentially quicker timeline. Within APC’s expansive 2.6 million acreRovuma Basin position, the Belford Dolphin drillship will next spud Lagosta (located 16 miles south), another gas prospect followed by the potentially “oilier” Tuburao further southwest. This six-well program will complete all Mozambique license commitments. Given its exploration success, the company now expects to keep the drillship within the country in order to conduct further exploration and appraisal drilling in 2011.

Elsewhere in APC's portfolio, I expect offshore well results soon from Onyina (APC non-op 18% WI) in Ghana, Badik (APC 35% WI) in Indonesia followed by Itauna (APC 50% WI) in Brazil and Mercury (APC 40% WI) in Sierra Leone. The Jubilee oil project (APC non-op 23.5%) offshore Ghana remains on-track for first production by year-end adding ~28 MBbl/d net (~4-5% of APC’s current output) by mid-2011.Bottom line: APC once again proves why it is a premier exploration company. Anadarko will report Q3 results after the market close on November 1st.

Massey Energy (MEE) exploring options including possible sale: According to a report in The Wall Street Journal, the directors of Massey Energy are exploring strategic alternatives, including a possible sale of the company. The article notes that Massey could "be in detailed due diligence with one of the multiple options," by mid-November. Possible buyers of Massey include a sale to another coal producer or a private equity firm, an acquisition of another company or Massey could remain independent. Bottom line: A sale of the 98-year-old company and largest Central Appalachian coal producer would dramatically alter the coal sector.

Comstock (CRK) provides an update on its drilling program in Northern Louisiana: co expects to drill 10 more wells in Q4, plans to release one of 6 rigs. With six operated rigs drilling in the Haynesville and Bossier shale, Comstock expects to drill another ten wells in the fourth quarter giving the Company an estimated 22 wells to carry over into 2011 for completion. In response to the weak natural gas prices, Comstock plans to release one of the six rigs in November and is considering moving an additional rig to South Texas to be utilized in its Eagle Ford shale drilling program in 2011. Comstock also announced today that co has entered into an agreement with a major service provider to provide co with a dedicated frac crew for its North Louisiana operations in early 2011. The dedicated crew will allow co to complete its backlog of Haynesville and Bossier shale wells during 2011 as well as keep current with CRK's 2011 anticipated drilling activity. In addition, Comstock is in the process of finalizing agreements for completion services services for its 2010 and anticipated 2011 Eagle Ford shale drilling program in South Texas.

Teekay Offshore Partners (TOO) completes acquisition of FPSO and three newbuild Aframax shuttle tankers. Recall in September, the partnership received an offer from its parent, Teekay Corp (TK), to acquire the three Aframax shuttles and the Rio das Ostras, a floating production and storage offloading (FPSO) vessel. Teekay Offshore will take ownership of the FPSO and the Amundsen Spirit (shuttle tanker) immediately and will purchase the remaining two shuttle tankers, the Nansen Spirit and the Peary Spirit, upon commencement of their time-charters in January 2011 and July 2011. The purchase price for the FPSO and the three shuttle tankers will total ~$550 million. The partnership has financed the acquisition of the FPSO and Amundsen Spirit tanker through the assumption of $187 million of debt and additional borrowings on its credit facilities. Bottom line: entire purchase (including the three tankers) is expected to increase Teekay Offshore's annual distributable cash flow by ~$20 million.

Weatherford (WFT) Beats on North American Strength. Weatherford reported 3Q10 EPS of $0.19, or a "clean comp" of $0.18 net of non-recurring items and just above Street consensus of $0.17. Increased domestic land activity drove strong North American revenue and margin growth (+$0.05), which was partially offset by weakness in the Eastern Hemisphere (-$0.04) due to project delays, start-up costs, and general activity declines. The company has issued EPS guidance of $1.30 for 2011, well above the current Street consensus of $1.18. Bottom Line: Weatherford's historically small North American exposure has driven performance in recent quarters. Considering that Weatherford is not a player in the red hot pressure pumping market, this may suggests that service companies are beginning to see more significant pricing improvements in other product lines.

Technical Trading Alerts 10/19/2010

Bullish Alerts:

10-Day/21-Day Moving Avg. Cross: NE
21-Day/50-Day Moving Avg. Cross: INT
Up/Down Volume Ratio Slope Reversal: BP, CMS, CSIQ, DVN, FE, FST, NXY

Bearish Alerts:


Monday, October 18, 2010

Daily Energy & Resources Digest 10/18/2010


Halliburton (HAL) reported 3Q10 EPS of $0.58 compared to $0.56 consensus estimate. Revenues of $4,665 mm were slightly above the consensus estimate of $4,636 mm. Although HAL beat the consensus EPS estimate, the results were not as good as some very bullish analysts had predicted, leading to today's selloff. North American strength continued to power earnings, with revenues 13% higher, outpacing the 7% increase in the U.S. rig count. NAM operating income increased 32% sequentially to $573 million, matching its previous record high in 3Q06. Results were driven by pricing gains and utilization remained high. U.S. land offset the expected offshore weakness. International revenues were flat, with margins dropping to 15.6% in 3Q10 from 16.4% in 2Q10. HAL had indicated previously that international would have pockets of weakness, so the unevenly concentrated growth (70% in five countries) was not surprising. The lack of a broad-based recovery impeded efforts to raise pricing across all overseas markets. HAL is adjusting the size and scope of operations in markets where the outlook is uncertain (Mexico) and where it is particularly strong (Iraq). Their only broad positive comment on the international outlook is that pricing power should return in by mid-2011 in most of the key international markets. Bottom Line: North America Service Intensity Keeps EPS on an Upward Path, for the short term. By mid-2011 gradual volume and margins gains internationally should contribute as well. The low margins in Iraq and the absence of deepwater revenues from the Gulf are headwinds.

BP plc (BP) sells Venezuelan and Vietnam assets to TNK-BP. On Friday, Reuters reported that BP was planning to sell its upstream Venezuelan properties to half-owned TNK-BP and this was confirmed today. As has been widely expected, BP announced today that in addition to the Venezuelan assets it is also selling some of its assets in Vietnam. The Vietnam assets include BP's 35% interest in the Lan Tay and Lan Do gas fields, as well as related pipeline and power plant interests. TNK-BP will pay $1.8 billion in cash, with an initial payment of $1 billion due October 29 and completion of the sale expected in 1H11. Combined with previously announced asset sales, BP's total announced sales amount to $10.7 billion, which is more than one-third of its total target of $30 billion in divestitures by year-end 2011.

Seadrill Limited (SDRL) orders two more jackup newbuilds. The second jackup wave continues to build, as Seadrill announced two more spec newbuild jackups with Jurong Shipyard at a cost of $200 million apiece. The rigs will be delivered at the end of 2012/early 2013, and Seadrill has options for four additional newbuilds. These are the sixth and seventh newbuilds since the end of 2009, and jackup costs already appear to be creeping higher. Bottom line: It is expected that dayrates and utilization for high-spec, premium jackups to remain strong, and the latest announcement of spec newbuild orders dovetails nicely with those forecasts.

PetroQuest Energy (PQ) announces $250 million mixed shelf. Last Friday, PetroQuest filed a $250 million mixed shelf to be used for general corporate purposes. The company is currently projected to generate 2010 free cash flow of approximately $20 million after capital expenditures of $110 million, and had a solid cash position of approximately $60 million at the end of 2Q10. Bottom line: PetroQuest typically runs one of the most conservative balance sheets in the small-cap E&P universe, therefore the registration is not surprising as it would provide an extra capital cushion whether fully or only partially utilized.

Quicksilver Resources (KWK) holder Darden family states interest in exploring strategic alternatives. The Darden family (holder of ~30% of Quicksilver) has formally stated a desire to explore strategic alternatives for the company. This could include, but is not limited to, taking the company private. The family did not include its valuation of Quicksilver, but remarked that the transaction would be performed at a fair premium to the stock price (down 16% year-to-date). The Darden family also requested an amendment to the rights plan so another major shareholder who had shown similar interest, SPO Partners, can discuss these strategic alternatives with them. Bottom line: The stock is already responding positively to the news. The likelihood of some form of action materializing is probable given that the Darden family holds three out of seven board seats and SPO holds roughly 15% of the company.

Arch Coal (ACI) EPA delivers another blow to Arch Coal's spruce mine. On Friday, the EPA announced that it is going to proceed as planned and will revoke the permit for Arch Coal's Spruce No. 1 mine in Logan County, West Virginia. While the decision is not final, the EPA believes that the mine would cause irreversible damage to the environment and wildlife. Recall that the Spruce No. 1 mine was originally permitted in January 2007 after more reviews than any permit in the nation. Bottom line: This is another example of the permitting challenges facing U.S. coal companies.

Energy Transfer Partners L.P. (ETP) to expand footprint in Eagle Ford Shale. ETP announced today that it will construct two pipelines in the Eagle Ford Shale in South Texas in order to support recently secured long-term transportation agreements. First, the 24-inch Dos Hermanas pipeline will extend for 50 miles across Webb County, Texas and will have capacity of 400 MMcf/d. Second, the Chisholm pipeline will run from DeWitt County, Texas to ETP's processing plant in LaGrange, Texas. The pipeline's initial capacity of 100 MMcf/d will most likely be expanded to 300 MMcf/d. All in, the two pipelines will consist of more than 130 miles of pipeline capable of transporting up to 700 million cubic feet of liquids-rich natural gas in the Eagle Ford. While the estimated spending to complete the projects was not disclosed, ETP raised over $500 million in August through the offering of 10.9 million common units to use toward funding these projects and the partnership's $800+ million capital expenditure budget for 2H10.

Ultra Petroleum (UPL) issues $525 million of senior notes. In a private placement to 17 institutional investors, Ultra priced $525 million of senior unsecured notes at a very attractive yield of 4.65%. The notes have terms of 10, 12, and 15 years, and will be used to repay existing bank debt and to fund drilling activities. While some investors have been concerned about Ultra's debt load on a traditional debt-to-cap metric (which was hurt by low gas prices and impairments in 2009), the pricing of these notes reflects the stability of Ultra's balance sheet. The company is still on track to become free cash flow positive in 2012.

Whiting Petroleum (WLL) amends credit facility. Last Friday, Whiting announced a fifth amended and restated credit facility with a borrowing base of $1.1 billion (unchanged) and an expiration in 2015, which is an extension to its previous April 2012 term. The company has $190 million drawn and $0.4 million of letters of credit outstanding, providing availability of approximately $910 million as of October 14. The next borrowing base redetermination will take place in May 2011.

National Fuel Gas (NFG) announces 32% growth in proved reserves. National Fuel Gas has announced a preliminary (subject to final approval by Netherland Sewell) proved reserve forecast of 699 Bcfe. As a reminder, National Fuel Gas has a September 30 fiscal year-end. Based on the preliminary number, proved reserves increased 32% during the year, resulting in one of the largest organic reserve growth years in the company's history. To put it another way, during the year, NFG added 171 Bcfe of proved reserves, equating to a production replacement ratio (assuming ~50 Bcfe of production) of well over 400%. The company's Marcellus Shale reserves increased from 21 Bcfe at 2009 fiscal-year end to 201 Bcfe. Not unexpected, proved reserves in the company's Gulf of Mexico and California operating areas declined slightly due to the minimal levels of capital spending allocated to those assets. We look for this trend to continue over the next five to ten years as the company develops its 8-15 Tcfe of reserve potential in the Marcellus. Finding & development costs fall under $2/Mcfe. While not all of the numbers have been released, the quick math (E&P capital spending of approximately $370 million) implies that the company's finding development costs for 2010 were close to ~$1.70/Mcfe and were perhaps even lower than that. This is a significant improvement from last year's $2.30/Mcfe, which was negatively impacted by reserve revisions (7 Bcfe). Once again, the highly economical Marcellus Shale drilling program is the reason for the improvement. In Tioga County, where the company has drilled 25 wells, NFG estimates that its horizontal Marcellus Shale well costs are roughly $4 million. In addition, on average, estimated ultimate recoveries (EURs) are 5 Bcfe per well, resulting in an F&D cost of ~$0.80/Mcfe. The company announced that its Marcellus Shale division exited the year at a production rate of 57 MMcfe/d vs. minimal production (approximately 5 MMcfe/d) at the beginning of the year. NFG is now utilizing four operated rigs (three in its eastern acreage and one in the west) to develop its massive 740,000 net acre Marcellus Shale position. At this level of activity, NFG is expecting net production to essentially double in FY11 (100+ Mcfe/d). Bottom line: Even in this bearish natural gas price environment, NFG continues to create shareholder value through the development of its Marcellus Shale acreage.

First Solar (FSLR) Increases Revolving Credit Facility to $600 million. FSLR announced that it has amended its existing senior secured revolving credit facility, increasing it from $300 million to $600 million. The term of the facility, which was oversubscribed, has been extended from three to five years and will mature in 2015. First Solar intends to use the facility for general corporate purposes, including the issuance of letters of credit.

McMoRan Exploration Co. (MMR) said Monday it cut its third-quarter loss by about half, but its revenue fell short of Wall Street estimates as production slipped. The New Orleans-based company, which explores offshore in the Gulf of Mexico and onshore in the Gulf Coast area, reported a net loss of $25.3 million, or 26 cents per share, compared with a loss of $51.9 million, or 60 cents per share, in last year's third quarter. Analysts surveyed by Thomson Reuters had expected a slightly narrower loss of 25 cents per share, on average, in the latest quarter. Revenue fell 13 percent to $94.8 million from $109.5 million. Analysts had expected revenue of $98.7 million, on average. Third-quarter production averaged 146 million cubic feet of gas equivalent per day, compared with 215 million cubic feet of gas equivalent per day in the third quarter of 2009. The company reiterated its expectations for full-year production of 160 million cubic feet of gas equivalent per day, including 140 million in this year's fourth quarter. Last month, McMoRan agreed to acquire the shallow water shelf assets of Plains Exploration & Production Co. for about $818 million in stock and cash. McMoRan said on Monday that it expects to close the acquisition by the end of this year.

Thursday, October 7, 2010

Technical Trading Alerts 10/7/2010

Bullish Alerts:

21-Day/50-Day Moving Avg. Cross: XCO
Up/Down Volume Ratio reversal: OIL

Bearish Alerts: None

Weekly DOE Natural Gas Storage Analysis

Injection exceeds expectations – The EIA reported a natural gas injection of 85 bcf compared to market expectations (as per Bloomberg) of 79 bcf and the five-year average of 67 bcf. For the comparable week last year, the EIA reported an injection of 69 bcf. Total storage now sits at 3,499 bcf, or 4.1% below last year’s level of 3,649 bcf, but 6.7% above the five-year average of 3,279 bcf.

Cooling demand continues – Over the past week, the U.S. reported cooling degree days of 30, ~7% above the five-year average of 28 and ~43% above last year’s level of 21. Warmer weather is expected to continue across much of the U.S. mid-west and west coast as highlighted below which should help support near-term natural gas demand. Power generation for the week was up 4.0% yr/yr (20th straight week of yr/yr increases) and is now up 4.5% year-to-date.

Gas Producers Starting to Hint at Slowing. We are beginning to see signs of slowing from select natural gas-focused producers. Recently, GMX Resources (GMXR) cut its 2011 capex guidance by 13% as it plans to sub-lease three of its four contracted rigs. Sandridge Energy (SD) noted it had dropped from 8 rigs to 1 in the gassy Pinon Field of West Texas. Devon Energy (DVN) has signaled it will deemphasize gas production as it focuses on West Texas and Canada oil properties. CHK has also stated that it will reduce its 'HBP' rigs (those running to hold leases) from the current ~45 range to 30 by year-end 2011. HK signaled it can reduce its Haynesville rig count by 35-15% versus current levels (14 rigs) in the event of $4-5.00 per MMBtu gas and is also open to letting leases expire in order to preserve capital. EOG has also stated it will let certain non-core leases expire in the Haynesville Shale. Gas producers should advertise more discipline on 3Q earnings calls to preserve capital, enhance profitability and reverse recent share price underpeformance.

Tuesday, October 5, 2010

Daily Energy & Resources Digest 10/5/2010

Oil & Gas Reserves - Worldwide oil and gas reserves climbed 3% in 2009 as capital spending declined, IHS Herold reported Oct. 4 in its 2010 Global Upstream Performance Review. The analyst found that the worldwide upstream investments of 224 oil and gas companies decreased 23% last year to $378 billion. During 2009, both oil and gas reserves grew for the first time since 2005, and production increased 1%, driven by a 2.2% increase in natural gas output. Oil reserves, up 3% to 164 billion bbl, reversed a 2-year decline driven mainly by positive reserve additions but also by extensions and discoveries in Canadian oil sands and South and Central America. Natural gas reserves climbed 3.7% despite a record 11.4 tcf in negative reserve additions as the development of unconventional plays in North America and LNG resources in Asia accelerated, IHS Herold said.
The report found that E&P companies slashed capital spending by 40% last year, while the integrated oil companies reduced their investments by 9%. Exploration outlays fell 12% to $62.7 billion, but unproved acquisition costs dropped 71%. A 2% dip in proved acquisition outlays would have fallen 50% were it not for the $20 billion merger of Suncor Inc. and Petro-Canada. “With the recession and ongoing uncertainty in the market last year, companies put acreage acquisition on hold and seemed to focus on their in-house development opportunities,” said the report’s author and director of IHS Herold, Nicholas D. Cacchione. “This decision, I think, reflected their desires to monetize known holdings that can be brought into production much more rapidly than something with a less certain payout several years down the road,” Cacchione said.
The reduced capital spending and higher reserves totals resulted in a near 50% decrease in reserve replacement costs to $11.41/boe and lower finding and development costs to $12.23/boe, IHS Herold said. Strong natural gas reserves additions led reserves replacement rates to the highest level in 5 years, according to the report. IHS Herold expects a modest rebound in 2010 upstream spending. In North America E&P investment increased 30% in the first half of this year, which was more than expected and should result in a 20% increase in spending for the year, said Cacchione. Cacchione added that outside North America, where spending declines were less severe during 2009, he expects upstream investment to climb 10% this year.

Plains Exploration (PXP) announces Eagle Ford acquisition, revealing plans to purchase ~60,000 net acres in the Eagle Ford oil and gas condensate windows, primarily in Karnes County, for $578 million. About a third of these properties are located in a joint operating area between Plains Exploration and EOG Resources (EOG) and have an estimated net reserve potential of 140-175 MMboe. This acquisition is expected to close in 4Q10. Other highlights include plans to exit 2010 with up to 20 new wells in the Los Angeles Basin and up to 40 new wells in the San Joaquin Valley. Also, the company expects the final bids from its deepwater Gulf of Mexico assets over the next month. Bottom line: The stock should respond well - entry into the Eagle Ford at $9,600/acre is a reasonable price, and the purchase is cushioned by both the untapped credit facility ($1.1 billion) and impending sale of Gulf assets.

Brigham (BEXP) gets a 2-for-1 special in the Rough Rider; Three Forks looks good. The company's State 36-1 #2H (first Three Forks test) came online with a very healthy initial production rate of 2,356 boe/d (~80% oil), a record for Three Forks wells west of the Nesson Anticline, and almost exactly in line with Bakken wells in the area (26 have averaged IP rates of 2,421 boe/d). Because the TF and Bakken are separate reservoirs, Brigham has the potential to double its inventory locations in the Rough Rider (up to 362 locations for the TF), which would be very accretive to the company's NAV. The company also announced a small acreage acquisition (10,200 net), a strong Ross well (4,675 boe/d IP), and two in-line Rough Rider wells (average 2,518 boe/d). Bottom line: Look for the stock to outperform on the news.

Geokinetics (GOK) amends credit facility. Geokinetics has secured a waiver on its financial covenants for its revolving credit facility in 3Q10 and amended the covenants for 4Q10. The $40 million facility currently has an outstanding balance of $26 million, and management believes the new covenants in 4Q10 are achievable. Bottom line: Recently announced major contract with PEMEX in Mexico should help the company hit its targets. GOK has fallen ~10% over the past two days on fears this facility wouldn't get amended, and expect the stock to outperform today.

Schlumberger (SLB) builds position in Russia. Schlumberger entered into an agreement with Eurasia Drilling to sell all drilling, sidetrack, and workover rigs currently in West Siberia. In return, Schlumberger will purchase Eurasia's drilling services (directional drilling, cementing, drilling fluids, etc.), which support approximately 80 rigs in the region. Following the transaction, the companies will enter into a strategic alliance in which Schlumberger will be the preferred supplier of drilling services to Eurasia for up to 200 rigs for a five-year period. Bottom line: Schlumberger is expanding on its strength in the Europe/CIS/Africa region by leveraging its ability to provide customized drilling assemblies (the driving force behind its recent acquisition of Smith International).

Pride (PDE) fleet report - delivers second newbuild drillship. Pride has delivered its second newbuild to BP (BP) in the Gulf of Mexico, and operations (and dayrate) are expected to begin in 1Q11. If unable to drill, it is believed Pride will be able to secure a similar arrangement with BP as it did on its first newbuild. Bottom line: The standby rate on the first rig was essentially equal to that rig's operating margin, and Pride would likely be amenable to such an arrangement on its second rig if it is also unable to drill due to government regulations. Cabot Oil (COG): Solid test results both in the Eagle Ford and Marcellus. The company's second Eagle Ford well came in at 759 bbl/d and 1.0 MMcf/d (20 stage frac), compared with its first well of 334 bbl/d and 0.142 MMcf/d (14 stage frac). Longer laterals are certainly helpful, and the results are certainly validating the company's acreage. In the Marcellus, recent completions have been exceeding flow rates of 20 MMcf/d, unsurprising given the company's resounding drilling success here.

Chevron Corp. (CVX) resumes share buyback. Following a two-year hiatus, Chevron announced yesterday after the close that it would resume share buybacks in the current quarter. The company plans to initially allocate $500 million to $1 billion per quarter for buyback (equating to about 0.5% of shares outstanding per quarter at the midpoint). Recall, Chevron announced in July that it was rescinding its three-year, $15 billion share buyback authorization from 2007 and moving to more of an ad hoc system. With this announcement, Chevron joins the ranks of Exxon Mobil Corp. (XOM) and ConocoPhillips (COP), which also have active buyback programs. The news is clearly an incremental positive for the shares, and depending on the trajectory of oil prices, there is potentially room for acceleration in 2011.

Clean Energy Fuels (CLNE) enters partnership with Pilot Travel Centers. Clean Energy has entered into an agreement to construct, own, and manage CNG/LNG fueling stations at select Pilot Flying J travel centers. Details are fairly vague at this time, as the announcement does not specify the number of centers that will have CNG/LNG fueling capabilities or the financial arrangements. The move to partner with the largest truck-fueling operator in the U.S. (over 550 truck travel centers across 43 states) as a clear positive for Clean Energy in that it should accelerate the broader adoption of natural gas fuels through existing distribution infrastructure. Energy bill uncertainty and potential equity raise could weigh on share price Excluding the current agreement with Pilot, at last report, CLNE had 74 stations in its construction pipeline with about $45 million to be spent by this year, plus still has another $15 million left to pay for its IMW acquisition. The company had about $55 million in cash at the end of the last quarter, and it has access to $20 million in a LOC. Before today’s announcement it was anticipated that CLNE could aim to raise $50 to $100 million in the next few months to support its growth next year. Additionally, it appears that CLNE still prices in much of the benefit of an energy bill, though the outcome of legislation is in question given the partisan political situation in the US.

PAA Natural Gas Storage L.P. (PNG) files with FERC for expansion of Pine Prairie Energy Center (PPEC). The partnership has proposed adding an additional 32 Bcf of working gas storage capacity to the facility that currently has 24 Bcf of working capacity. The plans call for 1) expanding cavern wells #2 through #5 from 10 Bcf to 12 Bcf, and 2) constructing two new 12 Bcf caverns. The expansion would increase PPEC's overall permitted capacity from 48 Bcf to 80 Bcf. Despite weak seasonal spreads, PAA Natural Gas Storage's recent open season to solicit contracts for 2 Bcf of capacity was heavily oversubscribed. The partnership received over 20 bids totaling 25 Bcf of capacity. While volumetric demand was strong, bids came in at lower rates than the partnership was contracting for three months ago. However, despite a difficult natural gas storage market, these operational headwinds appear to be temporary and that this permit filing will put the partnership in a favorable position to add storage capacity at low incremental costs (i.e., ~$8-10 million /Bcf vs. competitive landscape of ~$15-$25 million/Bcf).

Ascent Solar (ASTI) takes another step in commercialization, inks new distribution agreement. Ascent will partner with French developer DisaSolar to integrate its modules into corporate signage and passenger train roofs, two of DisaSolar's specialties, across France. That comes just a month after Ascent announced a similar agreement with Radiant Holding to distribute its building-integrated PV (BIPV) modules in the Chinese market. While neither announcement included timing or financial details, they highlight the company's ongoing shift from development mode to commercial production. To emphasize the company's "graduation," note that the most recent product revenues (2Q10) were just $168,000.

Monday, October 4, 2010

Technical Trading Alerts 10/4/2010

Bullish Alerts:
10-Day/21 Day Moving Avg. Cross: TSL, XLU
21-Day/50-Day Moving Avg. Cross: CNQ

Bearish Alerts:
Stochastic Cross: ATLS, BHI, ETP, UPL

Daily Energy & Resources Digest 10/3/2010

Chesapeake Energy Corp. (CHK) said Monday it sold five years of natural gas production from its Barnett Shale fields in Texas to affiliates of Barclays Bank PLC(BCS) for $1.15 billion. The deal, which closed on Sept. 30, includes 390 billion cubic feet of proved reserves and 270 million cubic feet per day of net production in 2011.

Plains All American Pipelines
- Plains All American Pipeline LP bought a 34 percent share in a pipeline that carries oil from Colorado to Oklahoma, as SemGroup Corp. cut its holdings in the crude-transport system by almost half:

BPZ Resources, Inc. (BPZ) announced today that the A-17D well in its Albacora field located offshore northwest Peru has been deemed a dry hole. As a result, the Company has made a decision to suspend drilling operations at Albacora until its planned 3D seismic acquisition program, originally started in 2009, but suspended at the request of the government, is completed. The Company does not expect the result of this well to have a material impact, if any, on proved reserves in Albacora estimated by Netherland Sewell and Associates, Inc. BPZ Energy Announces Albacora A-17D Results - Yahoo! Finance

Coal – Weekly coal production rose 6.9% YoY to 21.5 mln tons and power generation rose 5.2% YoY to 80.3k GWH as CDD totaled 50, 7 higher than last year. We estimate that coal inventory stands at 153-155 mln tons. According to Platts’ survey, PRB physical prices fell $0.15/ton to $14.75/ton, CApp physical gaining $1.50/ton to $71.00/ton, NApp physical down $1.50/ton to $69.50/ton and ILB gaining $0.50/ton to $47.25/ton.

Poland Shale Gas - This summer, there were two wells drilled in Poland as early tests of the
potential for shale gas development in the country. Given Europe’s dependence on Russian gas and LNG, the attraction to developing a large source of domestic natural gas supply that is “in good hands” is quite understandable. From the producers’ perspective, the parameters of Polish shale (thickness, TOC, thermal maturity, silica content) stack up well to North American comparables, while the decidedly more robust European price environment and attractive fiscal terms in Poland provide an incentive to push the idea forward.

Companies Operating In Poland: Privately held 3Legs Resources (or subsidiary Lane Energy) is currently partnered with ConocoPhillips (COP) and is set to complete a vertical well that was drilled in Poland this past summer. Canadian-listed BNK Petroleum (BKX-T) and Realm Energy International
(RLM-V) both have sizable land positions in Poland, while Talisman Energy (TLM) made headlines earlier this year by farming in on LSE-listed San Leon Energy (SLE-LN). Unlike the early days of US shale gas development, the majors are already involved in Poland with ConocoPhillips, Chevron (CVX), Marathon (MRO), and Exxon (XOM) all having positions in country.

Apache (APA) Closing on Mariner (ME) Acquisition. Last Friday, Mariner announced that it would be holding a special shareholder meeting on November 10, 2010, to approve its merger agreement with Apache. Initially announced on April 15 and expected to close around mid-3Q10, Mariner production will now contribute only roughly half of a quarter of production for 4Q10. Stockholders of record as of October 12 will be entitled to the meeting and vote.

Patterson (PTEN) Reports September Activity and Closes Pressure Pumping Deal. Patterson reported 184 rigs running in September, including 175 rigs in the United States. This is a 2% month-over-month increase from August, when the rig count was 180 rigs and 171 rigs, respectively. Patterson also closed its acquisition of Key Energy's (KEG/$9.74/Market Perform) pressure pumping division. Bottom line: Patterson averaged 178 rigs in 3Q10, in the middle of the company's 175-180 rig guidance. Given recent wet weather, we'll be interested to see if management expects to still see a seasonal ramp in activity.

Berry (BRY) Signs Solid Cali Sales Agreement. On Friday, Berry announced that it had signed a crude oil purchase agreement with Exxon Mobil (XOM) for the sale of up to 12,000 bbls/d. The agreement covers all oil production from South Midway Sunset Field (currently ~7,500 Boe/d) and extends through November 30, 2011. While the sales agreement covers ~150% of current production from the field, the extra cushion would allow Berry to ramp production from South Midway Sunset field, which is currently projected to decline slightly to ~7,000 Boe/d by 2013. Bottom line: While the DOGGR decision to award permits for the next phase of diatomite production, the sales agreement provides Berry an additional source of capital expansion (in addition to the Wolfberry) should there be further delays in securing permits for the remainder of its diatomite development.

Global (GLBL) Announces Contract Award in Dubai. This morning, Global announced it has been awarded a contract from Dubai Petroleum Establishment to design, construct, and install a platform and pipelines to connect to an offshore processing facility. Global anticipates that it will use its newly built Global 1200 as the primary construction vessel for the job, which is expected to be completed in 1H11. Although this announcement comes as good news, the award will likely be at a slim margins given it will be the initial test of Global's new state-of-the-art vessel. Once fully tested, it is expect that the 1200 will be a flagship vessel for the company. Recall that the company has a second, sister ship under construction (the Global 1201), which is expected to be delivered mid-next year.

Eagle Rock (EROC) Opens Up Its Checkbook for Panhandle Gathering System and Working Interest in Big Escambia Creek Field. Eagle Rock announced that it has acquired over 200 miles of gas gathering systems, compression, and dehydration facilities located in Wheeler and Hemphill Counties from Centerpoint Energy Field Services for $27.5 million. These assets are expected to complement Eagle Rock's gas processing facilities in the area. The partnership stated that the purchase price multiple is 7.6x the projected 2011 EBITDA forecast. Eagle Rock also announced it acquired 410.5 MBoe of proved reserves (87% proved develop producing and 130 Boe/d of production) of additional working interests in its Big Escambia Creek field for $4.2 million. Both transactions are expected to be closed no later than the middle of this month.

Kinder Morgan Energy Partners (KMP) Sells 50% Interest in Cypress Pipeline. Kinder Morgan announced that it has entered into an agreement with Westlake Chemical Corporation (WLK) to sell a 50% equity interest in its Cypress Interstate Pipeline for an undisclosed price. Recall, the 104-mile pipeline supplies Westlake's Lake Charles, Louisiana, petrochemical complex with natural gas liquids used to produce ethylene and ethylene derivatives. After the sale, Kinder Morgan will continue to operate the pipeline under a long-term agreement with Westlake Chemical.

Iraq Boosts Oil Reserve Estimate 24%, Bypasses Iran to Become World #4. The Iraqi government increased its petroleum reserve estimate to 143 billion Bbls today, a 24% jump from its most recent estimate in 2001, putting it behind only Saudi Arabia, Canada, and Venezuela. While Iraq hasn't had an OPEC output quota since the 1991 Gulf War, speculation is that future quota concerns may have been the impetus for the revision. Additionally, the augmented reserves could theoretically make the country more attractive to foreign operators. The government is counting on foreign investment to raise its production from ~2.4 MMbpd currently to a targeted ~12 MMbpd in the next six years. As a practical matter, however, the announcement may well be a fantasy; OPEC members have historically been notorious for playing politics with reserve estimates in order to "game" the quota system.

RIG COUNT The Baker Hughes (BHI) Domestic Rig Count Is Up 9 Rigs From Last Week to 1,659. The rig count is now up 62% y/y. Overall, we are 89% (783 rigs) above the rig count bottom experienced on June 12, 2009, but still 22% (372 rigs) below the peak experienced on September 12, 2008. The natural gas rig count was down 5 to 962, the oil rig count was up 14 to 687, and the miscellaneous rig count flat at 10. The horizontal rig count is at 55% of the total rig count. Bottom line: We anticipate that the gas rig count will continue to fall as producers slow drilling activity due to low gas prices. Additionally, it is believed that the ~960 gas rigs currently drilling are more than sufficient to increase domestic natural gas supply.

Saturday, October 2, 2010

Technical Trading Alerts 10/1/2010

Bullish Alerts:

10-Day/21-Day Moving Avg. Cross: CNQ, COG, CVE, EQT, HP, KBR, NU, WR
21-Day/50-Day Moving Avg. Cross: DNR, DVN, SLB

Bearish Alerts: None

Friday, October 1, 2010

Daily Energy Digest - 10/1/2010

Hess Corporation (HES) beefed up its interest in the Tubular Bells oil and gas field in the Gulf of Mexico (GoM). The company purchased an additional 20% interest from BP plc (BP) for $40 million. Following this deal, Hess will become the operator of this field with a total interest of 40%. Other partners in the Tubular Bells field are Chevron (CVX) and BP with each holding 30% interest. Discovered in 2003, the Tubular field is located 135 miles offshore New Orleans.

Separately, Hess also announced the completion of its interest acquisition in a couple of Norwegian North Sea offshore fields — Valhall and Hod. In June, the company assumed 7.85% and 12.5% interest in Valhall and Hod fields, respectively, for a total consideration of $496 million. The transaction brought Hess’ interests in Valhall and Hod to 64.05% and 62.5%, respectively. It appears that the needle had moved positively for Hess with its recent initiatives in exploration and production. Historically, the company had been lagging its peers in terms of upstream growth and balance sheet strength. Notably, the company keeps maintaining the balance between domestic as well as international upstream development efforts. However, Hess’ international operations in terms of reserves and production growth hold more promise. Also a positive is Hess’ oil-weighted production profile given the positive near- to medium-term oil outlook.

M&A expenditures total $21B for US Shale gas in first half of 2010 (Source: Wood Mackenzie) Wood Mackenzie’s latest corporate analysis highlights that upstream M&A expenditure in US shale gas totalled US$21 billion during the first half of 2010: equivalent to one third of global upstream M&A spend during the period. The independent energy research firm says key indicators suggest that this level of activity is set to continue over the next couple of years, with the large caps and majors continuing to dominate the market.

Luke Parker, Manager of Wood Mackenzie’s M&A research service underlines the magnitude of the market, “Through the first half of this year alone, in excess of 35 trillion cubic feet (tcf) of shale gas resource changed hands at an average cost of US$0.60 per million cubic feet of gas equivalent (mcfe). This expenditure is equal to the total
US shale gas M&A expenditure for the 2008 and 2009 combined – which was US$19.7 billion and US$2 billion respectively.”

“M&A activity in
US shale gas has evolved with its emergence, play-by-play, as a world scale source of secure, long-term gas supply. The key factor driving this has been the continued evolution and application of new technologies to unlock enormous volumes that were previously considered uncommercial.” The result is lowered development breakeven costs to a level at which the cost of shale gas is highly competitive with other domestic sources of supply - conventional and unconventional - and LNG imports. Operators have made, and continue to make, notable advances and unit costs have fallen in spite of increasingly complex and specialised well design. Parker goes on to highlight the impact of this structural change, “In a wider upstream oil and gas sector characterised by dwindling opportunities and increasing risks, the emergence of such an attractive resource – competitive with other global opportunities by every measure – has been a game changer.”

So has the flurry of activity peaked yet? Parker doesn’t think so, “The ingredients required for continued high levels of M&A activity in US shale gas remain in place. The drivers that make shale gas so attractive – world scale resource, robust economics, access opportunities and limited above-ground risk – are as strong as ever.” Expanding on how continued level of activity is set to unfold Parker explains, “There’s scope for intra-play and sector wide consolidation, facilitated by mounting pressures on existing players to evaluate and restructure their portfolios as strategic priorities evolve. Key among the various pressures that will influence the market, at least in the near-term, is the continued disconnect between oil and gas prices and a depressed Henry Hub futures market.”

Therefore Wood Mackenzie suggests that gas weighted independents with a weak balance sheet and/or hedging position are beginning to look increasingly vulnerable to larger players. In fact, the report suggests that shale gas offers a good fit for the large caps and majors, playing to their technical capability, financial strength and long-term view, all of which are pre-requisites for those looking to build a material position. Hence this peer group will continue to dominate the large scale deal activity. Robert Clarke, Unconventional Gas Research Manager for Wood Mackenzie adds, “The magnitude of the US Shale gas resource is extraordinary. We estimate the total resource potential of the 22 shale plays we currently analyse is approximately 650 trillion cubic feet of gas equivalent (tcfe): equivalent to a resource life of 32 years based on total US gas production in 2009. Shale gas production is set to increase from 17% in 2010 to 35% in 2020 of total US gas supply.”

Enbridge (ENB) to invest $260MM to expand Edmonton Terminal to support growing oil sands production. The company announced that its wholly owned subsidiary, Enbridge Pipelines Inc. (EPI), will expand the tankage of its mainline terminal at Edmonton, Alberta by one million barrels at an estimated cost of approximately $260 million, subject to regulatory approval. The expansion is targeted for completion by late 2012. The expansion is required to accommodate growing oil sands production receipts both from Enbridge's Waupisoo Pipeline and other non-Enbridge pipelines. The expansion will be undertaken under the terms of the 2010 Incentive Tolling Settlement between EPI and the Canadian Association of Petroleum Producers (CAPP). Enbridge has received a letter of support from CAPP to undertake the project.

Technical Trading Alerts 9/30/2010

Bullish Alerts:

21-Day/50-Day Moving Avg. Cross: CLR, NFG, STO, SUN, VLO
Price is Up >5% & Volume >200%: CSIQ
Stochastic Cross: POT
Up/Down Volume Ratio Reversal: VLO

Bearish Alerts:

Stochastic Cross: SM
Up/Down Volume Ratio Reversal: XEC