Energy Sector Roundup: Oil Backs Off a Record

Following is a summary of top stories in the energy sector Monday afternoon.

Oil Slides Back from New Record

Before pulling back, oil prices spiked to a new record above $126 a barrel, as some investors bought on worries of falling supply and others sold on a stronger dollar.

Light, sweet crude for June delivery jumped to a new record of $126.40 a barrel on the New York Mercantile Exchange before falling back to settle at $124.23, down $1.73.

Oil futures set new records for six straight sessions, driven up by a weak U.S. dollar and growing concerns about declining crude production in Mexico, Russia and elsewhere, analysts say. Goldman Sachs said in a report last week that crude prices could rise to $150 to $200 within two years.

The average national price of a gallon of regular gas rose 1.1 cents overnight to a record $3.718 a gallon according to a survey of stations by AAA and the Oil Price Information Service. June gasoline futures fell 3.7 cents to settle at $3.1642 a gallon.

Heating oil for June delivery lost 7.62 cents to settle at $3.6070 on the Nymex, and natural gas futures fell 23.6 cents to settle at $11.301 per 1,000 cubic feet.

Hurricanes May Target Gulf and East Coast

The East Coast has a greater risk than usual of being hit by a hurricane this year, according to the latest forecast from AccuWeather.com

The private forecasting company expects a dozen named storms in 2008, with a relatively high number making landfall. "Our forecast is that two or three storms will bring at least tropical storm force winds to the coastline between Florida and New England, including one or two that bring hurricane force winds, and one major hurricane," said forecaster Joe Bastardi.

He also thinks gas and oil interests in the Gulf of Mexico will have to deal with a week to 10 days of disruptions or threats of disruptions because of storms.

"Specifically, the forecast is for two or three storms that affect the energy infrastructure in and around the Gulf and bring at least tropical storm force winds to the Gulf coast, including one or two that bring hurricane force winds," Bastardi said.

He said the primary hurricane threat for the Gulf and Atlantic areas will come from mid-August to mid-October.

Offshore Drilling Market to Stay Tight

Major oil companies "have their backs against the wall" when it comes to getting offshore drilling contracts, according to Dahlman Rose & Co. managing director Omar Nokta.

Nokta says Brazil's national oil company, Petrobras, has aggressively locked up a significant amount of rig capacity. As a result, dayrates have been pushed to record levels.

"We expect the few deepwater rigs available during the next three years will see significant enquiry and lead to higher dayrates and contract durations," said Nokta. "We are raising our dayrate assumptions for ultra deepwater floaters (7,500-feet drilling capability or more) to $570,000/day, harsh environment ultra deepwater floaters to $600,000/day and standard 5,000-feet deepwater floaters to $475,000/day. These dayrates are $50,000/day higher than our prior forecasts."

Nokta thinks Transocean Inc. could benefit most from the tight deepwater market since it controls seven of 16 rigs available through the end of 2010.

Encana Splitting Into Two Companies

Calgary, Alberta-based EnCana Corp. plans to divide itself in two, creating a pure-play natural gas company and an integrated oil company with oilsands properties and refineries.

The natural gas company will focus on EnCana's unconventional natural gas resource plays in the western U.S., Alberta and British Columbia. Chief Executive Randy Eresman will run that company.

The oil company will center on EnCana's oilsands operations and U.S. refineries. Brian Ferguson, EnCana's current chief financial officer, will be in charge.

The split is expected to be completed by early next year. EnCana shareholders will get one share in each new company for every EnCana share they hold. Combined dividends of the two companies should be equivalent to the current $1.60 per share dividend.

Investors cheered the news and drove Encana shares to a new high of $93.65. Shares priced at $92.31, up $6.38 or 7.4 percent, in afternoon trading.

Magellan Midstream Building Texas Pipeline

Petroleum product pipeline company Magellan Midstream Partners LP will spend $240 million to build a Texas pipeline from and upgrade a related terminal.

Magellan will build an 80-mile, 16-inch pipeline linking its terminal in East Houston to the Port Arthur refining area. The pipeline should be operational by 2011 and will have a 150,000 barrel per day capacity.

The partnership also will build a pipeline between its East Houston terminal and a terminal in Pasadena, Texas, owned by Motiva Enterprises LLC.

--Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to gstec@ap.org.