EIA: Low U.S. Injections Reflect Already High Natural Gas Storage Inventories

The increase in U.S. working natural gas inventories nearly half way through the 2012 injection season the period from April through October when most natural gas is stored underground to help meet heating demand during the upcoming winter was the lowest in 12 years. The slow start to the injection season reflects record high inventories at the end of this winter, leaving less space to be filled, and a large increase in natural gas use by the U.S. electric sector for power generation. EIA estimates that, by November, working natural gas inventories will hit a record high, exceeding 3,900 billion cubic feet (Bcf). U.S. dry natural gas production was up almost 7% from January through May of 2012 compared to the same period in 2011, so natural gas injections have not shifted lower due to a downturn in domestic natural gas production.

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The amount of working natural gas in underground storage increased 625 Bcf during April-June 2012, according to EIA's Weekly Natural Gas Storage Report. That is the smallest build since adding 564 Bcf, on a net basis, during the same period in 2000 (see chart above). While the increase in inventories is low, the amount of total gas in underground storage facilities is at a record high for this time of year, after topping 3,000 Bcf for the first time ever during any June month.

Here is the EIA injection and usage charts

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Are Oil Inflation Pains Here to Stay?

Discussing whether oil inflation is here to stay, with Addison Armstrong, Tradition Energy, and Dennis Gartman, The Gartman Letter.

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Crude Oil Pulls Back on Negative Economic Data out of China

Is Gold Close to Confirming a Breakout to All Time Highs

Oil prices have been struggling to sustain the price rally which began about a week ago as the majority of data points continue to point to the slowing of the global economy and thus the view that oil demand growth is also likely to slow (see latest IEA highlights below). Overnight China's oil import data came in at 21.6 million tons (about 5 million barrels) according to the Chinese Customs Agency. This is the lowest level of crude oil imports since December of 2011. One can question the transparency of the various macroeconomic data points out of China but the fact that oil imports are declining is very supportive of the view that the main economic growth engine of the world is actually slowing.

China's July exports of all good increased by just 1% compared to year earlier levels but a significant downturn versus the 11.3% increase in the month of June. In addition industrial output is also slowing as new lending levels dropped significantly in July from 919.8 billion Yuan to 540.1 billion Yuan. Sales to China's number one customer... the EU declined by 16.2% last month while sales to the US declined by 0.6%.....Read Dominik Chirihellas entire article.

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Is Gold Close to Confirming a Breakout to All Time Highs

Is late summer or fall of 2012 going to be remembered for gold making a run to all time highs. Today David Banister gives us his take on where this gold market is headed in the near future......

Back in the fall of 2011 I was warning my subscribers and the public via articles to prepare for a large correction in the price of GOLD. The metal had experienced a primary wave 3 rally from $681 per ounce in the fall of 2008 to the upper $1800’s at the time of my warnings in the fall of 2011. A 34 Fibonacci month rally was sure to be followed by an 8-13 month consolidation period, or what I would term a Primary wave 4 correction pattern.

We have seen GOLD drop at low as the $1520’s during this expected 8-13 month window, but at this time it looks to me like a break over $1630 on a closing basis will put the nail in the wave 4 coffin. I expect GOLD to rally for about 8-13 months into at least June of 2013 and our longstanding target has been in the $2300 per ounce arena in US Dollar terms. Some pundits have much higher targets in the $3,500 per ounce or higher area but I am using my low end targets for reasonable accuracy.

This 5th wave up can be difficult to project because 5th waves in stock or metals markets can be what are called “Extension” waves. This means they can have a potentially much larger percentage movement relative to the prior waves 1 and 3 of the primary bull market since 2001. You can end up with a parabolic move at the end of wave 5, where those $3000 plus targets are possible. I expect the 5th wave to be about 61% of the amplitude of wave 3, which ran from 681 to 1923, or about $1242 per ounce. If we were to apply that math, we come up with $767 per ounce of rally off the wave 4 lows. $1520 plus $767 puts us at $2287 per ounce, or roughly $2300 an ounce low end target.

In summary, crowd behavior is crucial to the next coming movement in GOLD and it could be a sharp rally that catches many off guard, much like the downdraft last fall did the same to the Bulls. Be prepared to go long GOLD once over $1630 per ounce and buy dips along the way up to $2300 into the summer of 2013.

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Do You Agree.... The SP 500 Nearing a Cyclical High

One of our favorite traders to follow is David Banister [make sure to sign up for his calls] and he just sent over this great post on his thoughts on the SP 500 nearing a cyclical high in the coming two weeks of trade. And here's what he is thinking.......

The SP 500 has rallied to a post June 4th high of 1409 this week, about 13 points shy of the Bull Market cycle highs of 1422 earlier this year.

The rally has overlapped along the way, forming a series of “3′s” which are sometimes found in impulsive bullish moves, but usually found at the end of bull cycles whether they be short term or long term cycles.

To wit, the first 11 trading days off the 1267 SP 500 lows saw a 97 point rally, again in only 11 trading days.

The last 34 trading days we have only been able to move up about 44 further points, indicating the rally is getting long in the tooth and a bit tired at that.

So 11 days, 97 points… 34 more days, only 44 further points.

Another 10 trading days would mark a 55 fibonacci trading day cycle, so we should be alert to potential rally highs between August 13th and August 22nd as a window for a top.

A few days ago I discussed we may see a continual sloppy drift up to 1425-1445 ranges, with 1434 a key pivot line to watch.

Although the count doesnt really fit for me, if this rally from the June lows is a 5th and final wave up… then a 5th wave rally to complete a larger cycle often is characterized by a series of 3′s.

To summarize:

The first leg of the rally was a 3 wave rally to 1363, about 97 points in 11 days. We have continued with overlapping 3′s. This final stage of the rally is likely going to be 5 waves or ABCDE in nature to complete the entire cycle up from 1267

That cycle high should come within the Aug 13th-22nd window and in the 1425-1445 ranges.

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Is Natural Gas Hitting Upper Resistance levels

Natural Gas was able to add value again as prices moved back toward the upper resistance level of $3/mmbtu. Weather related demand is continuing to become less of a bullish factor from both the short term temperature forecasts to the tropics. The latest NOAA six to ten day temperature forecast is projecting the smallest area of above normal temperature so far this summer which is certainly not very supportive for Nat Gas prices. The eight to fourteen day forecast is a bit more bullish in that it is projecting a larger area of above normal temperatures. Overall both forecasts will not nearly result in as much Nat Gas related cooling demand as what was experienced during the first half of the summer. The net result net injections will continue to creep higher over the next several weeks.

In addition the tropics are not threatening to Nat Gas production in the Gulf of Mexico as Ernesto is heading into Mexico and the two other tropical weather patterns out in the Atlantic are still low grade tropical weather event and it is much too early to project whether or not they will strengthen into something more impacting. Overall I do see any short term fundamental support for the current level of prices. I would expect that the market will run into difficulty in breaking through the technical resistance level of around $3/mmbtu.

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Today the EIA released their latest STEO report. Following are the main highlights relate to Nat Gas from the report.

EIA expects that natural gas consumption will average 69.8 billion cubic feet per day (Bcf/d) in 2012, an increase of 3.2 Bcf/d (4.8 percent) from 2011. Large gains in electric power use in 2012 will more than offset declines in residential and commercial use. Projected consumption of natural gas in the electric power sector averages 25.4 Bcf/d in 2012, 22 percent higher than in 2011, primarily driven by the improved relative cost advantages of natural gas over coal for power generation in some regions.

Consumption in the electric power sector during 2012 peaks at 31.6 Bcf/d in the third quarter, when electricity demand for air conditioning is highest. As a result of the extreme heat last month, estimated electric power sector natural gas consumption during July 2012 averaged 34.8 Bcf/d, 1.8 Bcf/d higher than projected in last month's Outlook......Read Dominik Chirihella' entire article.

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Gastar Exploration Reports Second Quarter 2012 Results

Gastar Exploration Ltd. (NYSE:GST) today reported financial and operating results for the three and six months ended June 30, 2012. Excluding non cash impairment charges and unrealized hedging gains, adjusted net loss attributable to Gastar's common shareholders was $4.1 million, or $0.06 per diluted share for the second quarter of 2012. Including the effect of a non cash impairment of natural gas and oil properties of $72.7 million and an unrealized hedging gain of $2.8 million, reported net loss for the second quarter of 2012 was $74.0 million, or $1.17 per diluted share.

Excluding the impact of an unrealized natural gas hedging gain of $502,000 and other special items in the second quarter of 2011, adjusted net loss was $377,000, or $0.01 per diluted share for the period. Including the $502,000 gain and other special items, reported net income for second quarter of 2011 was $126,000 or $0.00 per diluted share. (See the accompanying reconciliation of net income (loss) per common share and earnings per diluted share to this non-GAAP financial measure at the end of this news release.)

Our net cash provided by operating activities before working capital changes for the second quarter of 2012 was $5.5 million or $0.09 per share compared to $2.9 million or $0.05 per share for the second quarter of 2011. Our net cash provided by operating activities before working capital changes and adjusted to exclude litigation settlement expense was $9.6 million or $0.15 per share for the first six months of 2012 versus $7.5 million or $0.12 per share for the same period last year. (See the accompanying reconciliation of cash flow before working capital changes and as adjusted for special items to GAAP financial measures at the end of this news release.)

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Natural gas, oil and natural gas liquids (NGLs) revenues increased 31% to $11.1 million in the second quarter of 2012, up from $8.5 million in the second quarter of 2011. The increase was the result of an 87% growth in production volumes partially offset by a 30% decrease in realized commodity prices. Average daily production was 34.8 million cubic feet of natural gas equivalent (MMcfe) per day for the second quarter of 2012, compared to 18.6 MMcfe per day for the same period in 2011.

Liquids revenues (oil, including condensate, and NGLs) represented approximately 40% of our total natural gas, oil and NGLs revenues for the second quarter of 2012 compared to 12% for the second quarter of 2011. Liquids daily production represented approximately 19% of total production for the second quarter of 2012 compared to 16% for the first quarter of 2012 and 4% for the second quarter of 2011. Sequentially, total average daily production in the second quarter increased 18% from first quarter 2012 production of 29.4 MMcfe per day.

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Carrizo Oil & Gas [CRZO] Announces Record Production and Revenue in Second Quarter 2012 Results

Carrizo Oil & Gas, (NASDAQ: CRZO) today announced the Company's record financial results for the second quarter of 2012, which included the following highlights:

Results for the second quarter of 2012

* Record Oil Production of 7,618 Bbls/d, a 28% sequential increase from the first quarter of 2012

* Record Total Production of 2,393 Mboe, or 26,297 Boe/d, (equivalently 14.4 Bcfe, or 157,783 Mcfe/d), a 4% sequential increase from the first quarter of 2012

* Record Oil Revenue of $68.6 million, amounting to 82% of total revenue

* Record Revenue of $83.8 million, or adjusted revenue of $92.0 million, including the impact of realized hedges

* Net Income of $28.5 million, or Adjusted Net Income, (as defined below) of $10.5 million, a sequential decrease of $7.5 million from the first quarter of 2012, due to a 37% increase in DD&A, largely attributable to the April 2012 sale of Barnett Shale properties to Atlas

* EBITDA, (as defined below) of $69.3 million, comparable to the $70.2 million first quarter 2012 record

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Production volumes during the three months ended June 30, 2012 were 2,393 Mboe, an increase of 82 Mboe, or 4%, from first quarter 2012 production of 2,311 Mboe. The 4% sequential increase in production from the first quarter of 2012 to the second quarter of 2012 was due to the contribution of new wells brought on during the quarter. Second quarter production growth would have been substantially higher had it not been impacted by the sale of Barnett Shale production to Atlas Resource Partners, L.P. ("Atlas") on May 1, 2012.

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Biodiesel demand Estimates Now Provided in Petroleum Supply and Demand Balances

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Biodiesel production data were reported for the first time in U.S. and regional petroleum supply and disposition balances as published by the U.S. Energy Information Administration (EIA) in the Petroleum Supply Monthly (PSM) in May 2012. The biodiesel production data in the PSM will allow EIA to more completely account for biodiesel when calculating demand (measured as product supplied) for distillate fuel oil. Biodiesel production and other biodiesel data are now included in the item "Renewable Fuels Except Fuel Ethanol" in PSM supply and disposition tables.

In addition, previously published PSM data for January-April 2012 were revised to include biodiesel production. Similar revisions will be reported for 2011 when the Petroleum Supply Annual is released at the end of August 2012.



Product supplied is a widely followed measure of demand for petroleum products. For finished petroleum products (including distillate fuel oil), product supplied is calculated as the sum of production, imports, net receipts (only for regional data), and adjustments minus the sum of stock change, refinery and blender input, and exports. While not a measure of actual consumption, product supplied has proven to be a useful approximation of demand for petroleum products.

In the case of biodiesel, EIA assumes that any biodiesel that is produced is blended with diesel fuel, adding to the diesel fuel pool. This biodiesel production amount adds to the distillate fuel product supplied level, as shown on the graph. Including biodiesel production in the distillate fuel production volume added between 50 to 70 thousand barrels per day over the first five months of 2012.

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Chesapeake Energy Corporation Reports Financial and Operational Results for the 2012 Second Quarter

Chesapeake Energy Corporation (NYSE:CHK) today announced financial and operational results for the 2012 second quarter. For the 2012 second quarter, Chesapeake reported net income to common stockholders of $929 million ($1.29 per fully diluted common share), ebitda of $2.385 billion (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization) and operating cash flow of $895 million (defined as cash flow from operating activities before changes in assets and liabilities) on revenue of $3.389 billion and production of 347 billion cubic feet of natural gas equivalent (bcfe).

The company’s 2012 second quarter results include various items that are typically not included in published estimates of the company’s financial results by certain securities analysts. Excluding such items for the 2012 second quarter, Chesapeake reported adjusted net income to common stockholders of $3 million ($0.06 per fully diluted common share) and adjusted ebitda of $803 million.

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The primary excluded items from the 2012 second quarter reported results are a net after-tax gain on investments of $584 million, primarily related to the sale of all of the company’s interests in Access Midstream Partners, L.P. (NYSE:ACMP; formerly named Chesapeake Midstream Partners, L.P.), unrealized noncash after tax mark to market gains of $490 million resulting from the company’s oil, natural gas liquids (NGL) and natural gas and interest rate hedging programs and a noncash after tax charge of $148 million related to the impairment of certain of the company’s property and equipment.

A reconciliation of operating cash flow, ebitda, adjusted ebitda and adjusted net income to comparable financial measures calculated in accordance with generally accepted accounting principles is presented on pages 20 – 24 of this release.

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Kodiak Oil & Gas Corp. Reports Second Quarter 2012 Financial Results

Kodiak Oil & Gas Corp. (NYSE: KOG), an oil and gas exploration and production company with primary assets in the Williston Basin of North Dakota, today announced second quarter and first half 2012 financial results.

Q2 2012 Financial Results
For the quarter ended June 30, 2012, the Company reported oil and gas sales of $85.8 million, as compared to $22.1 million during the same period in 2011, a 288% increase. Kodiak reported an overall 385% increase in quarter over quarter equivalent sales volumes of 1.2 million barrels of oil equivalent (BOE) for the second quarter 2012, or an average of 12,696 BOE per day (BOE/d) during the second quarter 2012, as compared to 238 thousand BOE, or an average of 2,618 BOE/d in the same period in 2011. Crude oil revenue accounted for approximately 96% of oil and gas sales in the second quarter 2012.

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For the second quarter 2012, the Company reported net income of $93.1 million, or $0.35 per basic and diluted share, compared with net income of $14.0 million, or $0.08 per basic and diluted share, for the same period in 2011. Net income for the second quarter 2012 includes an unrealized gain of $91.7 million related to the mark to market of derivative instruments used for commodity hedging and $25.9 million in deferred income tax expense. The net effect of the non cash hedging activities credit and non cash deferred income tax expense increased Kodiak's reported net income for the second quarter 2012 by $0.25 per basic and diluted share. Detailed disclosure of the Company's derivative contracts is available in its Filing on Form 10-Q for the quarter ended June 30, 2012.

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ONG: Crude Oil Weekly Technical Outlook For Sunday August 5th

We like to drop in on the staff at Oil N'Gold to see where they think crude oil is headed. And they are looking neutral at this point.....

Crude oil rebounded strongly late last week but upside is still limited below 92.94 short term top. Initial bias remains neutral and more consolidation cannot be ruled out. But after all, even in case of another decline, near term outlook remains bullish as long as 83.65 support holds. As noted before, decline from 110.55 should have finished at 77.28 already. Current rebound from there should extend and break of 92.94 will target 61.8% retracement at 97.84 and above.

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In the bigger picture, price actions from 114.84 are viewed as a three wave consolidation pattern with fall from 110.55 as the third leg. Such decline could have finished earlier than we expected at 77.28. Sustained trading above 90 psychological level will bring stronger rally towards 114.83 resistance level. And break there will resumption whole up trend from 33.2. On the downside, another fall cannot be ruled out yet. But even in that case, strong support should be seen below 74.95 and above 61.8% retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

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DeCarley Trading is Joining the Zaner Group

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DeCarley Trading has announced that they have teamed up with the Zaner Group. With their new brokerage arrangement, they are able to offer the same great rates for both full service and discount online traders with the extraordinary service our brokerage clients have grown to expect!

For over 30 years, Zaner has provided brokerage services to traders worldwide in the futures, commodities, metals, currencies, energies and forex markets. We are confident the reliable clearing through various FCMs and top notch research offered by Zaner will be great assets to our clients.

Zaner is a member of the National Futures Association (NFA) and is registered with the Commodity Futures Trading Commission (CFTC). In addition, Zaner is a member of the National Introducing Brokers Association, Illinois Chamber of Commerce and has an A+ rating from the Better Business Bureau.

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Phillips 66 Reports Second Quarter Earnings of $1.2 Billion or $1.86 Per Share

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Phillips 66 (NYSE: PSX) announces second quarter earnings of $1.2 billion and adjusted earnings of $1.4 billion. This compares with earnings and adjusted earnings of $1.0 billion in the second quarter of 2011. In addition, Phillips 66’s Board of Directors has approved the repurchase of up to $1.0 billion of the company’s outstanding common shares.

“We’re off to a solid start, running well in a positive margin environment,” said Greg Garland, chairman and chief executive officer. “The location of our domestic refining, midstream and chemicals facilities enabled us to access advantaged feedstocks, creating strong earnings and cash flow. The announcement of our share repurchase plan is evidence of our commitment to strong and growing shareholder distributions.”

As previously announced, Phillips 66’s Board of Directors has declared a $0.20 per share dividend, which is payable in the third quarter.

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EOG Resources Reports Second Quarter 2012 Results, Increases 2012 Crude Oil Production Growth Target to 37 Percent

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EOG Resources, Inc. (NYSE: EOG) today reported second quarter 2012 net income of $395.8 million, or $1.47 per share. This compares to second quarter 2011 net income of $295.6 million, or $1.10 per share.

Consistent with some analysts' practice of matching realizations to settlement months and making certain other adjustments in order to exclude one time items, adjusted non GAAP net income for the second quarter 2012 was $312.4 million, or $1.16 per share. Adjusted non GAAP net income for the second quarter 2011 was $299.2 million, or $1.11 per share.

The results for the second quarter 2012 included impairments of $1.5 million, net of tax ($0.01 per share) related to certain non-core North American assets, net gains on asset dispositions of $75.1 million, net of tax ($0.28 per share) and a previously disclosed non cash net gain of $188.4 million ($120.7 million after tax, or $0.45 per share) on the mark to market of financial commodity contracts. During the quarter, the net cash inflow related to financial commodity contracts was $173.2 million ($110.9 million after tax, or $0.41 per share). (Please refer to the attached tables for the reconciliation of adjusted non-GAAP net income to GAAP net income.)

With 86 percent of North American wellhead revenues currently derived from crude oil, condensate and natural gas liquids, EOG delivered strong earnings per share growth of 64 percent for the first half of 2012 compared to the same period in 2011. Discretionary cash flow increased 29 percent and adjusted EBITDAX rose 28 percent over the first half of 2011. (Please refer to the attached tables for the reconciliation of non-GAAP discretionary cash flow to net cash provided by operating activities (GAAP) and adjusted EBITDAX (non-GAAP) to income before interest expense and income taxes (GAAP).)

"EOG's financial and operating results get better and better. We are achieving this consistent string of home runs because EOG has captured the finest inventory of onshore crude oil assets in the entire United States and has the technical acumen to maximize reserve recoveries," said Mark G. Papa, Chairman and Chief Executive Officer. "EOG is the largest crude oil producer in the South Texas Eagle Ford and North Dakota Bakken with the sweet spot positions in both plays. In addition, we are uniquely positioned to market a significant portion of this crude oil at robust Brent type pricing through our own rail offloading facility at St. James, Louisiana, and to reach the Houston Gulf Coast market via the recently completed Enterprise Eagle Ford pipeline."

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U.S. Proved Reserves Increased Sharply in 2010

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On August 1, the U.S. Energy Information Administration (EIA) released its summary of the nation's proved reserves of oil and natural gas for 2010. Proved reserves of both oil and natural gas in 2010 rose by the highest amounts ever recorded in the 35 years EIA has been publishing proved reserves estimates.

Technological advances in drilling and higher prices contributed to gains in reserves. The expanding application of horizontal drilling and hydraulic fracturing in shale and other "tight" (very low permeability) formations, the same technologies that spurred substantial gains in natural gas proved reserves in recent years, played a key role. Further, rising oil and natural gas prices between 2009 and 2010 likely provided incentives to explore and develop more resources.



Oil proved reserves (which include crude oil and lease condensate) rose 12.8% to 25.2 billion barrels in 2010, marking the second consecutive annual increase and the highest volume since 1991. Natural gas proved reserves (estimated as "wet" natural gas, including natural gas plant liquids) increased by 11.9% in 2010 to 317.6 trillion cubic feet (Tcf), the twelfth consecutive annual increase, and the first year U.S. proved reserves for natural gas surpassed 300 Tcf.

Proved reserves reflect volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. It should be noted that the 2010 summary was delayed due to budgetary restrictions that limited EIA's survey data collection efforts.

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Silver Suffers The Most From Bernanke And What Is Next

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While the exchange traded funds for gold and copper fell today due to investors expressing disappoint at the modest response of the Federal Reserve to declining economic growth, it was silver that was off the most.

SPDR Gold Shares (GLD) fell in trading today by 0.89%. IPath Dow Jones Copper (JJC) dropped 1.89%.  Plunging the deepest was iShares Silver Trust (SLV), off by 2.14%.

Traders were hoping for more aggressive action by Federal Reserve Chairman Ben Bernanke. But that will not come until after the November elections in the United States. Remember that Quantitative Easing 2 did not begin until November 2010, though it was announced at the Jackson Hole economic policy summit in August of 2010.

Silver is in what would seem to be the “sweet spot” between gold and copper.  Almost all of gold is used for investment or decorative purposes.  Almost all of The Red Metal goes for industrial needs.   For silver, it comes almost down right in the middle between commercial and a commodity for investments or jewelry.  The charts below show the trading relationship for each of the exchange traded funds when paired against each other.

Even though silver has a much higher industrial usage, the SLV moves along with the GLD.   As a result, it soared during Quantitative Easing 2.  Obviously, the charts reveal that most of the trading is from speculators as the JJC should move in an inverse relationship with the GLD.  That is due to gold being used almost entirely for non-industrial end uses while copper is used almost industrial for industrial uses.

Up slightly for the week as traders thought more dramatic economic stimulus efforts would result from the Federal Open Market Committee meeting  other than an extension until the end of the year for Operation Twist, the SLV is down for the last month, quarter, six months and 52 weeks of market action.  Year to date, the SLV is off by 1.48%.

For the last year, however, the SLV is down 33.35%.  Volume was up today, with the SLV below its 20 day, 50 day and 200 day moving averages.  In the most obvious trend, it is trading much lower under its 200 day day moving average at 11.67% down than underneath the 20 day moving average, beneath it by only 0.17%.  The only move worth noting in the technical indicators for silver were the long engulfing green bodies last week after Treasury Secretary Geithner’s  gloomy testimony on The Hill and more bad economic news from the US peaked buying as traders thought Quantitative Easing 3 was coming.

If traders long on silver are looking for help from Bernanke, it will not be coming until after the November election, though it could be announced when he speaks later this month at Jackson Hole.

Chris Vermeulen


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Murphy Oil Announces Preliminary Second Quarter 2012 Earnings

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Murphy Oil Corporation (NYSE: MUR) announced today that income from continuing operations was $295.4 million ($1.52 per diluted share) in the 2012 second quarter, up from $280.0 million ($1.44 per diluted share) in the second quarter 2011.

The increase in 2012 earnings from continuing operations was mostly attributable to improved downstream results compared to the prior year’s quarter. Net income in the second quarter of 2012 was also $295.4 million ($1.52 per diluted share) compared to net income of $311.6 million ($1.60 per diluted share) in the second quarter of 2011. Net income in the 2011 second quarter included income from discontinued operations of $31.6 million ($0.16 per diluted share), which related to operating results of two U.S. refineries that were sold in the second half of 2011.

For the first six months of 2012, income from continuing operations was $585.5 million ($3.01 per diluted share), an improvement from $518.5 million ($2.66 per diluted share) in 2011. For the six month period of 2012, net income totaled the same $585.5 million ($3.01 per diluted share), but net income of $580.5 million ($2.98 per diluted share) for the first six months in 2011 included income from discontinued operations of $62.0 million ($0.32 per diluted share).


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Devon Energy Earns $477 Million in Second Quarter, Crude Oil Production Increases 26 Percent

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Devon Energy Corporation (NYSE:DVN) today reported net earnings of $477 million for the quarter ended June 30, 2012, or $1.18 per common share ($1.18 per diluted share). This compares with second quarter 2011 net earnings of $2.7 billion, or $6.50 per common share ($6.48 per diluted share). A one time gain of $2.5 billion resulting from the divestiture of assets in Brazil enhanced the company’s second quarter 2011 earnings.

Devon’s second quarter 2012 financial results were impacted by certain items securities analysts typically exclude from their published estimates. Adjusting for these items, the company earned $224 million or $0.55 per diluted share in the second quarter 2012. The adjusting items are discussed in more detail later in this news release.

Strong Oil Growth Drives Production Increase

Devon continued to deliver strong oil production growth in the second quarter 2012. In aggregate, oil production averaged 149,000 barrels per day, a 26 percent increase compared to the second-quarter 2011. This increase is largely attributable to growth from the company’s Jackfish and Permian Basin projects.

Total production of oil, natural gas and natural gas liquids averaged 679,000 oil equivalent barrels (Boe) per day in the second quarter. A number of production interruptions primarily related to natural gas processing facilities reduced the company’s second quarter production by 16,000 Boe per day. The most significant occurrence was maintenance downtime at Devon’s Bridgeport facility in North Texas which reduced natural gas liquids production by approximately 10,000 barrels per day in the quarter. Due to the low natural gas liquids price environment, the second quarter was an opportune time for plant maintenance activities. Other minor disruptions at third party facilities in the Permian Basin, Mid-Continent and Gulf Coast regions also contributed to the reduced volumes. In spite of these issues, which have now been resolved, companywide production increased three percent compared to the second quarter 2011.

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Heat Wave Can't Get You $8 Natural Gas in 2012

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From the staff at EconMatters.......

The Energy Department reported that natural gas in storage grew by 26 billion cubic feet to 3.189 trillion cubic feet for the week ended July 20. The inventory level was 15.8% above the five year average of 2.754 trillion cubic feet, and 18% above last year's level.

Low natural gas prices in the U.S. this year has not only tanked the stocks of many gas weighted producers, but also dragged down profits of U.S based oilfield services companies as a result of reduced gas drilling activity (See Chart Below). However, since hitting a 10 year low of below $2/mmbtu in April, Henry Hub benchmark prices has surged 69% hitting $3.214/mmbtu on Monday, July 30, the high of the year.



The latest bullish sentiment is fueled mostly by forecasts for more unusual heat this summer to increase air conditioning use. In addition, there's also an increase in usage/demand as lower natural gas prices have also attracted many utilities to switch from coal to natural gas for power generation. According to the EIA, electricity generated using natural gas was roughly even with coal for the first time ever in April. Historically, natural gas typically supplied just over 20% of the domestic electricity needs.


These positive indicators have prompted at least one article at Forbes to predict $8.00/mcf natural gas by "the approaching winter", that means another 160% rise in about four months.

Well, EIA did raise its estimate for domestic natural gas consumption this year, expecting demand to climb 3.3 bcfd, or 4.9%, from 2011 to 69.91 bcf daily driven mainly by a 21% jump in utilities coal-to-gas switching for power generation in 2012, offsetting declines in residential and commercial use, primarily due to a weak U.S. economy.



Nevertheless, the problem is natural gas starts to lose its cost advantage to coal at around $2.40 to $2.50 per mmbtu. So the current $3.20/mmbtu levels, if sustained, could take away one significant bullish swing factor in the natural gas fundamentals--demand from the power gen sector. If that happens, it is very likely there could be another record storage level before "the approaching winter," let alone $8/mmbtu.



The natural-gas market this year is now outpacing even the returns in oil and copper (i.e. Every dog has its day). However, our observation is that the NYMEX natural gas market a lot of times could be in a somewhat irrational "trend trading" mode driven mostly by traders totally disregarding the fundamentals. The current run-up seems to be in one of those "trend-trading" momentum, and likely will not last long after reality sets in. For now, we see Henry Hub continue to hover within the $2-$3/mmbtu range in the next twelve months barring a super sized hurricane knocking out production in the U.S. Gulf.

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