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Energy Summary for Oct. 27, 2014

2014-10-27 20:39 ET - Market Summary

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by Stockwatch Business Reporter

West Texas Intermediate crude for December delivery, the benchmark in North America, dipped to a 28-month low of $79.44 before settling at $81, down just a cent, on the New York Merc (all figures in this para U.S.). Brent for December, the international benchmark, lost 30 cents to $85.83. Goldman Sachs has slashed its 2015 forecasts for both benchmarks. It predicts that in the first quarter, WTI will fall to $75, down from the previous forecast of $90, and Brent will fall to $85, down from $100. Goldman is now the most bearish of the major financial institutions. Western Canadian Select, Canada's heavy oil benchmark, traded at a discount of $14.85 to WTI ($66.15), up from a discount of $15. Natural gas for November, the international benchmark, lost 6.2 cents to $3.56. The TSX energy index lost 7.24 points to close at 254.01.

Abby Badwi's Bankers Petroleum Ltd. (BNK) lost 41 cents to $4.20 on 5.86 million shares, its largest slump by dollar amount in over two months. It may be reacting to Brent. Bankers usually sells its oil, all of which comes from the Patos-Marinza field in Albania, at 80 per cent of Brent. In August, it began a six-month contract to sell some of its oil to the domestic refiner, ARMO, at 73 per cent of Brent, plus about $6 a barrel against an existing receivable balance of $22-million. The idea behind the sales is to see if ARMO can make its refineries competitive. If so, Bankers could save about $7 a barrel in costs related to sales, trading and taxes, but even if this happens, it would not likely be until next year. Investors may be worried about how it will affect the numbers this year. In a conference call earlier this month, management noted that Brent in the first half of the year was much stronger than Bankers budgeted, so it is not worried about changing this year's program. As for 2015, Bankers plans to set a self-financed budget that will still allow for a double-digit annual production increase, although management did note that if Brent continues to slide, it may have to let at least one of its six drill rigs go, which would lower the production ambitions. (Production in the third quarter averaged 21,865 barrels of oil a day.) Bankers is also trying to offset its lower received prices by improving its costs. For example, it recently drilled its first dual-lateral well, meaning a parent well with a branch extending outward to allow multiple targets to be tapped. The wells Bankers normally drills cost $1.1-million to $1.2-million and flow about 100 barrels a day. This dual lateral, boasted the company, had double the production at 200 barrels a day and cost just $500,000 more. Bankers plans to do five to 10 multilaterals next year. Through these and other plans, the company hopes to lower its costs by $2 to $3 a barrel over the next two years. Investors seem wary. The stock has fallen from nearly $7.50 in June.

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