Energy Midday Roundup

Following is a summary of top stories in the energy sector at midday Tuesday.Lehman Bullish on Oil Services and Deepwater Rigs. Lehman Brothers remains positive on the oil service and drilling sector, saying prices will remain high for the foreseeable future.Tight spare capacity within OPEC, limited production growth from non-OPEC countries, more aggressive strategies being exhibited by national oil companies and foreign governments, as well as relatively strong demand are all creating an environment that we believe will keep oil prices at elevated and attractive levels well into the next decade and perhaps beyond.
underinvestment over the last 25 years means there should be a prolonged upturn in exploration and production spending that will benefit oil service and drilling companies. Demand for deepwater rigs - those capable of drilling in 10,000 feet of water - will rise into the next decade, Crandell said, as major oil companies seek large-scale discoveries.

On the other hand:
Oil and gasoline futures fell as concerns about refinery output faded and investors shrugged off OPEC comments that suggest the oil cartel sees no need to boost production.
The economy continues to concern investors as the Standard & Poor's housing index showed the sharpest decline in home prices last quarter since the S&P index began 20 years ago.

Gasoline for September delivery fell 2.63 cents to $2.013 a gallon on the New York Mercantile Exchange while October light, sweet crude fell 18 cents to $71.79 a barrel. Both contracts rose Monday.

In other Nymex trading, heating oil futures fell 0.82 cent to $2.0015 a gallon, and September natural gas rose 23.7 cents to $5.617 per 1,000 cubic feet.

Heating oil followed the lead of oil and gasoline, Ritterbusch said. But natural gas rose as investors who bet that gas futures will fall sell to lock in profits or to cover their positions ahead of the contract's Wednesday expiration, analysts said.

And finally the US BioEnergy Buying Millennium Ethanol US BioEnergy Corp. said it has agreed to pay $133.3 million to purchase Millennium Ethanol LLC.

US BioEnergy, which went public in December, agreed to the acquisition in late May. The transaction includes a Millennium ethanol plant under construction in South Dakota, expected to begin production in the first quarter of 2008.

The ethanol producer will pay about $11.8 million in cash and 11.5 million common shares valued at $10.57 per share.

The acquisition has been approved by both companies' boards, and the deal is expected to close in the third quarter, subject to regulatory and shareholder approval.

Kroger to Sell VeraSun's E85

Ethanol producer VeraSun Energy Corp. and Kroger Co. announced the opening of 20 E85 fueling locations at Kroger convenience stores in Ohio and Kentucky. Kroger becomes the first national retailer to offer VeraSun's branded E85, a blend of 85 percent ethanol and 15 percent gasoline for Flexible Fuel Vehicles. With the addition of the Kroger locations, VeraSun now has more than 100 retail fueling stations in 11 states and the District of Columbia selling its E85 ethanol product.

Encore Energy in IPO

Encore Energy Partners LP expects to raise about $172 million from an initial public offering of 9 million common units representing limited partner interests, according to a regulatory filing.

In the Securities and Exchange Commission filing, the Fort Worth, Texas-based company said the offering should price between $20 and $22 per common unit.

Encore Energy Partners was formed in February by oil and natural gas company Encore Acquisition Co. to acquire, exploit and develop oil and natural gas properties and to operate related assets.

Encore Energy said its assets consist primarily of oil and natural gas properties in the Elk Basin of Wyoming and Montana and the Permian Basin of West Texas. As of the end of 2006, total proved reserves, on an adjusted basis, were estimated to be 21.4 million barrels of oil equivalent. Of the total, 68 percent were oil and 86 percent were proved developed.