Mark Latham Commodity Equity Intelligence Service

Friday 5th August 2016
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Oil and Gas


India's new oil price recipe - short-term pain but long-term gain

A recent policy move by India's BJP-led government to raise prices of subsidized kerosene and LPG signals New Delhi's strong commitment towards further lowering its fuel subsidy burden and freeing up upstream companies' cash for projects, which would ultimately ensure better supplies in the longer term.

"The financials of oil marketing companies and upstream oil companies, which foot the subsidy burden along with the government, will improve considerably," said Sri Paravaikkarasu, senior consultant and Asia downstream specialist at Facts Global Energy.

"The companies will channel the realizations towards competitive investments, which will complement their long-term growth strategies," she added.

India deregulated diesel prices in October 2014, but continues to subsidize LPG and kerosene prices.

The subsidy burden is shared between the government and upstream companies.

Upstream companies share the subsidy burden by way of discounts on the price of crude oil sold to state-owned refiners and marketers.

India's state-run oil marketing companies since last month have raised prices of subsidized LPG twice.

Last week, LPG prices were raised by Rupees 1.9 (2.8 US cents)/cylinder in Delhi, accounting to a 0.5% increase. And kerosene prices were raised by Rupees 0.25/liter, or about 1.6%.

"The magnitude of price increases is small and requires several years to fully remove under-recoveries. However, the intent of the government's policy is a key positive," Credit Suisse said in a research note.

"The price increases are positive for upstream stocks -- although there is always a risk that the government can ask for a share of the subsidy savings."

Under-recoveries refer to the loss of revenue from selling kerosene and LPG at below market cost.


In addition to the price rises, there are reports that the government has also given the go-ahead to state-run companies to raise prices of kerosene, which accounts for more than 40% of total petroleum subsidies, by similar amounts every month until April 2017. "The step to gradually increase SKO (superior kerosene oil) prices every month is a major reform considering the politically sensitive nature of the product," said K. Ravichandran, senior vice-president at ICRA.

"It's credit positive for PSU (public sector undertaking) upstream oil companies as it will reduce the subsidy sharing burden."

The move to raise retail prices of subsidized kerosene by Rupees 0.25/liter per month for 10 months would lead to a reduction in gross under-recoveries by Rupees 7.6 billion in the financial year 2016-17 (April-March) and by Rupees 20.4 billion in 2017-18, ICRA said.

As kerosene under-recoveries beyond Rupees 12/liter are expected to be borne by state-run upstream companies, those companies would be major beneficiaries of the reform especially at current or higher level of crude oil prices, ICRA said.

"At an Indian basket crude oil price of $44-$45/b, the kerosene subsidy tends to be around Rupees 12/liter, implying no subsidy burden on PSU upstream companies," it added.

In addition, ICRA said the step to increase retail prices of subsidized kerosene would lead to a reduction in diversion for "unintended purposes", such as adulteration of auto fuels.

The government has capped its share of the subsidy burden up to Rupees 12/liter for kerosene and Rupees 255/per LPG cylinder.

While the balance for kerosene would be shared by upstream oil companies, for LPG, there is lack of clarity as to whether the state-run companies would bear the subsidy or it will be passed on to the consumers in case global crude oil and LPG prices increase significantly from the current levels.

"The cap in LPG subsidy for the government of India at Rupees 255/cylinder is likely to be adequate up to the crude oil price of $60/b, which provides comfort to oil marketing companies over the medium term," ICRA added.


In its effort to promote cleaner fuels, the government has been aggressively promoting the use of cleaner fuels, such as LPG, for cooking.

This has led to kerosene demand in India falling by more than 3% year on year to 6.89 million mt in 2015, from 7.13 million mt in 2014.

Kerosene demand also fell more than 5% year on year to 3.27 million mt in first half of 2016, from 3.46 million mt in H1 2015. It was the only oil product that witnessed negative growth in demand last year and in the first half of this year.

Analysts said that with the plan to raise kerosene prices gradually over the next 10 months, the government aims to kill two birds with one stone -- the move will not only help to reduce kerosene consumption, but will also help to cut oil under-recoveries.

"While the market anticipated such bold moves, the timing of the announcement came as a surprise," Paravaikkarasu said.

"The successive price hikes of subsidized kerosene will not only ease the subsidy burden, but also discourage consumers using the fuel. The government is working hard to move away household consumers from using kerosene to LPG," she added.

LPG demand continues to grow at a healthy pace, rising by 8.5% year on year in June to 1.61 million mt. Cumulative growth in H1 2016 was 9.6% year on year at 10.06 million mt.

The government has announced 2016 as the "year of LPG consumers" and has set an ambitious target to open 10,000 new LPG dealerships across the country this year, in addition to the 16,000 that already exist.

New Delhi also has ambitious plans to provide additional subsidies to provide 50 million new connections among lower-income families, with another 15 million being added this year.

"Various structural changes are been already made to LPG pricing. Between LPG and kerosene, the government will prioritize deregulating kerosene prices even though it is tougher, and keep targeted LPG subsidies in place," Paravaikkarasu said.
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EU Fends Off Gazprom, But Still Needs To Deal With Rosatom

Gazprom, Russia’s flagship energy company and the face of its geopolitical ambitions, is facing grim times. Although the company was able to report an almost five-fold profit increase in 2015, and while it had managed to expand its share of the European and Turkish gas markets in 2013, Gazprom’s influence over the EU’s energy market is dwindling. As the European Commission moves forward in completing the internal energy market, reverse flow pipelines now allow most European states to buy gas at spot prices and undermine Gazprom’s preferred model of expensive, long-term contracts.

Even as Gazprom slowly loses its footing, the Kremlin is aggressively pushing forward with the expansion of another of its state enterprises, the Russian State Atomic Energy Corporation (Rosatom). Pervasive skepticism about the sustainability of nuclear energy following Chernobyl and Fukushima notwithstanding, Rosatom is currently constructing eight reactors in Russia and 34 more abroad. These include the construction of reactors in Southern Turkey at Akkuyu, as well as in Belarus’ Ostrovets. Both projects have attracted vocal criticism, especially as the type of reactor in question remains inadequately tested and the locations are fraught with peril.

The Turkish gambit

In May 2010, Turkey and Russia signed an agreement for four VVER1200 reactors to be built by Rosatom in Akkuyu under a controversial Build-Own-Operate (BOO) model, with construction set to begin in 2016. What this means is that Russia will provide 100 percent of the financing and will pass along to the host state the responsibility of monitoring the project. Essentially, Rosatom faces minimal liabilities as the onus falls on the Turks to oversee the plants.

Akkuyu’s suitability also leaves much to be desired. Not only is the area around it prone to seismic activity - a 5.2 earthquake rocked the area just last year – but Turkey’s Atomic Energy Authority remains affiliated with the prime minister’s office, leaving the country without an independent authority for monitoring nuclear activities. With the Turkish Energy Market Regulatory Authority recently calling for the purge of suspected Gülen supporters, control over regulatory agencies will likely increase, awarding more power to Erdogan’s imperial ambitions to the detriment of sound environmental policies.Related: Saudi Arabia Unmoved By Oil Price Uncertainty

Indeed, since the failed coup, Turkey has mended bilateral relations with Russia, which had been at a low point after the downing of a Russian fighter jet late last year. Ankara is seemingly refocusing on Russian production to meet its energy needs via the newly revived Turkish Stream pipeline and the Akkuyu nuclear reactors. With foreign investment into Turkish markets likely to fall due to unstable political and economic conditions, the shift towards Russia in the hopes of becoming amajor energy hub seems inevitable. Moscow is more than eager to invest in Turkish energy projects, meaning Akkuyu and Turkish Stream could succeed as the European Union’s competing energy projects falter. Erdogan may have to enter into a Faustian bargain with Russia: given the international fall-out from the coup, Turkey has no other option than Putin.

Trouble in Belarus

Meanwhile, Rosatom’s Belarusian engagement in Ostrovets since 2012 has been receiving serious flak from Lithuania, Belarus’ western neighbor. The $10 billion project boasts two 1200MW reactors, slated to come online in November 2018 and July 2020. Owing to Ostrovets’ close proximity to Lithuania’s capital Vilnius (less than an hour’s drive), Lithuania has asked Rosatom repeatedly to prove the power plants’ safety in terms of “seismic hazards, emergency preparedness and stress-test plans” without receiving a response.

Furthermore, in 2014, Belarus was found to be in non-compliance with some of its obligations concerning the construction of the Ostrovets site. The construction has also experienced a number of security incidents, including reports that the structural frame of the reactor collapsed.Related: Powering The Internet Of Things

Despite unpersuasive assurances from Minsk, skepticism regarding Rosatom’s construction projects remains strong. In a 2014 report, Greenpeace described Rosatom as a “questionable business partner, plagued by concerns over corruption, the safety and quality control standards of its nuclear reactors, its competence at building and operating nuclear plants, its model for financing projects and concerns over its ability to complete construction on time…” Specifically, the report lamented the “minimal external scrutiny” that allows the company to operate as a state within a state, giving its leadership ample opportunity for corruption and embezzlement of millions of Euros, while construction quality is undermined by lack of adequately trained construction staff and failure to safely manage spent fuel.

Rosatom’s presence in the European Union’s backyard has wider implications as well. It is a well-known fact that Russia’s push for Rosatom expansion is another tool in the Kremlin’s geostrategic grab box, with Moscow using the corporation to bind various governments in long-term cooperation. With this in mind, the Ostrovets site at the EU’s eastern frontier essentially makes Belarus a Trojan Horse for a Russian company. In other words, as Ian Armstrong at Global Risk Insights analyzed, “Russian-built nuclear power plants in foreign countries become more akin to embassies — or even military bases — than simple bilateral infrastructure projects”, as the nuclear contracts establish a “long-term or permanent presence” with “notable influence in countries crucial to regional geopolitics.”

Regarding Turkey and Belarus, it stands to reason that European influence in its periphery will likely decline as a result of the new Russian projects. This makes Russia’s nuclear diplomacy more of a threat to Europe’s overall security than Gazprom ever was. Even so, there has still been no response from Brussels. Despite the urgency of the issue, and despite a probing of the European Commission conducted by Members of the European Parliament over the safety of Ostrovets, neither Commission President Juncker, Environment Commissioner Karmenu Vella or Energy Commissioner Maroš Šef?ovi? have released statements on the matter. While the EU leadership is silent, Russia’s presence grows more powerful.
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CREDIT SUISSE: 8 things that stand in the way of blockchain going mainstream

Credit Suisse has identified what it sees as 8 "key challenges" for the mainstream adoption of blockchain, the innovative database technology first developed to underpin digital currency Bitcoin.

Banks and financial institutions have been going crazy for blockchain technology over the last year and a half.

Institutions are spending thousands on proof of concepts using the technology, issuing countless white papers, and joining industry-wide bodies to figure out how to use the protocol.

Blockchain, also known as distributed ledger technology, is a kind of decentralised database system. Instead of one central database of who owns what in a settlement house somewhere and duplicate records in banks based on this master ledger, blockchain is a network of identical databases that talk to each other and are updated simultaneously.

Every time someone wants to make a change or add something onto the blockchain, the majority of members of the network must sign off on it. This cuts out the need for middle men in transactions, because the fact that everyone signs off means trust is built into the system. Bitcoin's original blockchain is used to record bitcoin transactions — but the tech could theoretically be used to record just about anything.

In essence, blockchain helps cut out a lot of admin, and has the possibility to reduce costs and increase simplicity in finance. Goldman Sachs went as far to say that blockchain has the potential to "change, well, everything."

But in a note on the technology sent to clients this week, Credit Suisse analysts Charles Brennan and William Lunn says they are "less sanguine" about the technology, and identify 8 key barriers to blockchain's successful transition from interesting, leftfield technology to mainstream, financial services core technology.

They are:

Security vs Costtrade-off: Basically, the current set-up either means your blockchain is cheap but risky or expensive and secure. In bitcoin's blockchain, the integrity of the records is guaranteed by the fact that the majority of the network are signing off on each transaction — more eyes are inspecting it. Bitcoin incentivises this by rewarding people with bitcoin for the job of inspecting and cryptographically sealing off the transactions. This is costly. Permissioned networks are the alternative and operate like a private members club. There's a doorman but once you're in, you can do what you want on the network. The fact that there are fewer people on the network means there's less oversight of transactions and potentially room for abuse by one of the members.

Do you actually need blockchain? Credit Suisse says: "'If it ain't broke, don't fix it,' for a blockchain to be relevant you must: (1) require a database, (2) need shared write access, (3) have unknown writers whose interests are not unified, and (4) not trust a third party to maintain the integrity of the data."

Critical mass is essential: Blockchain is, after all, a network. What use is it being the first one to join if you can only really use it when there are lots of members? There is some progress on this problem with various industry-wide bodies, such as R3 and the Hyperledger foundation, but getting people together is one thing — getting them to agree and work together is another.

The input problem: Pretty much the same as problem one. A blockchain is only as good as the information on it, and so far good processes haven't been developed for vetting anything other than bitcoin transactions. Vetting people who are allowed on the chain needs to be sorted too.

Hackable: The more people on the network, the more entry points, and the more vulnerabilities for hackers. Of course, part of blockchains appeal is that once data is logged it can't be changed but bad actors could place false trades, for example. Even proprietary data about who's trading what with who could be valuable.

You have to see it to believe it: Credit Suisse writes: "Although identity can be encrypted relatively easily on a blockchain, transaction data are not for the simple reason that nodes have to see it to verify it. This may be an issue for those concerned about data privacy."

Identity problems: Basically, what if you lose the private key that unlocks ownership of a specific asset registered on the blockchain? Credit Suisse: "The issue with bearer instruments is you can lose them; cash being the most salient example. A better solution to reconciling on and off-chain identity appears necessary."

The DAO attack: The Decentralised Autonomous Organisation, which holds hundreds of millions of dollars worth of digital currency Ethereum, was hacked in June, forcing it to "fork" its network to stop thieves taking more. But the problem is Ethereum, like bitcoin, is a decentralized network and so needed the consensus of the community before it could make the immediate change. Credit Suisse says: "The 'hard fork' undertaken by the Ethereum community also shows that blockchains are only immutable when consensus wants them to be."

Despite all the above, Credit Suisse says they see blockchain as potentially "disruptive" technology that should be embraced. Just don't get too caught up in the hype.
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Metals X raises A$100.6m, intends to demerge gold assets

Diversified junior Metals X has completed an institutional placement to raise A$100.6-million – and is undertaking a share purchase plan of up to A$15-million – to fast-track the development of additional production from several of the company’s projects in both the gold and base metals divisions.

The placement is for the issue if about 68-million new Metals X fully paid ordinary shares at an issue price of A$1.48 a share, representing about 12.9% of the fully diluted shares that the company has on issue.

The ASX-listed metals miner noted that the placement would provide it with additional working capital, enabling it to pursue additional value-adding.

Metals X also intends to demerge its gold assets from the rest of its diversified metals base and is, therefore, taking steps to gain shareholder and other regulatory approvals in this regard.

Following several acquisitions made in recent years, including the completion of a takeover offer for Aditya Birla Minerals, which owns and operates the Nifty copper mine, inWestern Australia, the company believes that its base metals division – which was significantly bolstered from this most recent acquisition – can stand alone “as a formidable diversified base metals company, with production from its tin and copper assets, and expansion and growth assets in tin,copper and nickel”.

“Given prevailing economic and market conditions, the board of Metals X believes the time is now right, and its shareholders are better served, if the company looks to separate its gold division from the remainder of the diversified base metal assets,” said the company.

The intent is that, following the completion of the separation of a gold unit, a Metals X shareholder will own equal interests in shares in both entities. Cash and working capital will also be split, so that the two new companies will have adequate funding for their operations and respective growth plans.

Metals X CEO and executive director Peter Cookhighlighted this as “an exciting time” for shareholders and an opportunity for the company to unlock “the considerable value” under the Metals X umbrella.

“Following the equity raising and demerger process, our shareholders will own shares in two formidable miningcompanies with great opportunity and outlook to grow and prosper,” said Cook.

Cook will likely become the MD of the gold business unit, while Metals X’s other executive director, Warren Hallam, will become the MD of the base metals business.

Metals X has three operating gold projects, four process plants with a combined capacity of 5.5-million tons a year, agold resource base of 15.4-million ounces and ore reserves of 2.89-million ounces.

It currently produces at a run-rate of 220 000 oz/y and has a clear plan to double this over the next few years.
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Standard Chartered Added Oil Refiner Debt Before Margin Rout

Standard Chartered Plc, the U.K. lender reeling from billions of dollars of losses on soured energy loans, has increased lending to oil refineries just as companies across that industry face a slump in profit.

The London-based lender said Wednesday it had $7.3 billion of loans to oil refineries at the end of June, a 24 percent increase since the end of 2015. While Standard Chartered cited the industry’s “broadly steady” profit margins for the period, some of the world’s biggest oil producers have since reported that this metric has tumbled amid a glut of gasoline.

Investors cheered the lender’s drop in loan impairment charges Wednesday as a signal that it has moved past the worst of credit issues that peaked last year when Standard Chartered posted more provisions against bad loans than HSBC Holdings Plc, a bank four times its size. The increase in refiner lending shows risks remain even as Chief Executive Officer Bill Winters shrinks the bank’s overall commodities exposure.

“I’m not sure it’s the area where most investors would like to see them growing at the moment,” said Joseph Dickerson, an analyst in London with Jefferies Group LLC who has an underperform rating on the shares. “Hopefully they’re getting paid for the risk.”

‘De-risking Mantra’

Shares in Standard Chartered have risen 15 percent so far this year, the only major European bank to climb in 2016. Provisions for bad loans in the ongoing business were $1.1 billion for the first half of 2016, including $606 million in the unit that deals with energy clients, the bank reported Wednesday. That was less than analysts at Citigroup Inc. had expected and the stock climbed 4.2 percent Wednesday and another 5.5 percent at 12:35 p.m. Thursday.

“Since the start of 2016, we’ve seen a sort of stabilization in their impairment costs on the back of the ‘de-risking’ mantra,” said Filippo Maria Alloatti, a credit analyst at Hermes Investment Management Ltd. in London. “I’m surprised that they’ve started lending to the sector again.”

Oil refiners had benefited from a boom in so-called refining margins. This is the difference between what energy producers pay for crude oil and what they sell as refined gasoline, diesel and other products. As oil prices plunged, refiners were able to buy cheap crude and process it into relatively expensive gasoline and other petroleum products.

“The profitability of refiners is driven by gross refining margins and the margins held broadly steady during this period despite the volatility in crude oil prices,” Standard Chartered wrote in its report for the first half of the year. “We have selectively increased our exposure since year end to this subsector, in particular to good credit quality clients.”

Yet refining margins have tumbled since late May as over-production of gasoline in the U.S. created a glut that depressed prices for refined products. BP Plc, the third-biggest European oil company, said in late July the metric had slumped to the lowest in six years as it posted a 45 percent decline in profit for the second quarter. The London-based company said that the margins will remain “under significant pressure” in the third quarter.

BP isn’t alone. Statoil ASA, the biggest Norwegian producer, reported a surprise loss for the second quarter and CEO Eldar Saetre said that refining margins had fallen by almost half from a year earlier. Valero Energy Corp., the biggest U.S. refiner, has said it faced “weaker gasoline and distillate margins” in the period.

Summer Slump

“We expect margins to remain poor throughout summer,” said Nevyn Nah, oil products analyst at Energy Aspects Ltd., a consulting firm in London. “Refineries overproduced when margins were strong, so we’re left with a very high product inventories right now, which is pressuring margins.”

Standard Chartered’s $7.3 billion of loans to oil refineries accounts for almost half of the lender’s $14.8 billion net exposure to “commodity-related sectors,” the report shows. Outstanding debts tied to this group have climbed 13 percent since December and are up from $13.5 billion since 2014, according to the report. Those loans represent about 6 percent of Standard Chartered’s total.

“It’s interesting to see that that’s an area where the bank feels it can get paid for taking incremental risk,” said Dickerson, the Jefferies analyst. “It seems to run contrary to the direction of refining margins.”

HSBC also said Wednesday that exposure to oil clients climbed by 7 percent from the end of last year to $31 billion. The same sector triggered loan losses of about $400 million in the first half.  

Commodity Exposure

Standard Chartered’s increase stands as a contrast to the bank’s approach to other kinds of energy debt since JPMorgan Chase & Co. veteran Winters joined as CEO last year. Standard Chartered’s exposure to commodity producers and firms that trade financial products tied to energy was $37.1 billion at the end June, down 32 percent since 2014.

Winters, who replaced Peter Sands as CEO, is seeking to undo an era of relaxed lending standards, in part by exiting and restructuring $100 billion of risky assets. Standard Chartered’s corporate and institutional unit has booked about $4.8 billion of impairments and restructuring costs since 2014. The $606 million in impairment charges the bank has added so far this year is “primarily” because of commodities, the report shows.

Still, some analysts are pleased at the increase in lending. As long as Standard Chartered is dealing with state-owned refiners and large corporations, the bank will be “fine,” according to Chirantan Barua, an analyst in London with Sanford C. Bernstein Ltd. who has an outperform rating on the stock.

“Standard Chartered is a trade bank and, as a trade bank, you cannot not work with the refiners,” said Barua in an e-mail. “It’s good that they’re stepping back in.”
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China's top power producers H1 output slides, boosting new energies

China's top power producers H1 output slides, boosting new energies

China's top power producers saw electricity output decline in the first half of this year, mainly due to slack demand from industrial sectors amid slowing economic growth.
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"Mysterious Redaction" Exposes Chaos Inside China's Central Planning Black Box

Something odd took place on the website of the research office of China's National Development and Reform Commission, China's highest economic central planning agency.

Early in the morning, local time, the statement, which can be found at the following site, said China should implement proactive fiscal policy, properly expand aggregate demand and increase effective investment amid downward pressure in investment. Traditional Chinese boilerplate until one reached further down in the statement, where 13 characters urged China to: "lower benchmark interest rates and banks' reserve requirement ratio at appropriate times."

The investing community sprang up at what was the clearest suggestion that more easing is coming. Indeed, the language inclusion immediately prompted Nomura's chief China economist Zhao Yang to say that NDRC "is right to want interest-rate and RRR cuts to lower local government funding costs as their investment in infrastructure projects is key driver of Chinese economy."

Which is fine, except... as Dow Jones writes, "control over interest rates isn't in the NDRC's bailiwick. Monetary policy is entirely the responsibility of the People's Bank of China, and it hasn't touched rates since October. It is highly unusual for any other agency, let alone an entity of the government body charged with running state infrastructure projects, to openly comment on what it thought China's monetary policy would or should be."

And, as a result, within hours, it had become clear that the NDRC's research unit had overreached. By the afternoon, the 13 offending characters had vanished from the statement even though the unredacted version could still be found in China's internet.  As Dow Jones put it simply "call it Chinese policy-unmaking."

The National Reform and Development Commission (NDRC) also removed a call for subsidies to help reduce inventories of unsold homes without any explanation for the change.

The "mysterious redaction" amplified attention on the NDRC's unusual temerity, the WSJ writes, attracting notice from keen-eyed China hands. The omission spoke to the tension between two camps charged with stewarding China's economy. For months now, those allied with the central bank have warned that an ever-increasing reliance on looser liquidity is failing to juice the economy, arguing that monetary policy has reached its limits and abusing it would only cause consumer- and asset-price inflation.

This is not the first time China's policy paralysis has been revealed: two weeks ago, Sheng Songcheng, the PBOC's head of statistics, went further. China's monetary policy, he warned, has fallen into a "liquidity trap." The term refers to an economic scenario where cash injections fail to reduce interest rates or generate more investments. Chinese companies were just hoarding the additional liquidity in the banking system instead of using it to expand investment, Mr. Sheng said.

As we showed at the time, the monetary data  is confirming this concern, when last month China showed, for the first time in two decades that the country's M1, a definition of money that primarily means current deposits of China's non-financial institutions, accelerated in divergence from its M2, a broader measure of money in circulation. This meant that companies were taking money out of time deposits and holding it in cash and current deposits.

It also means that just like the west, increasing liquidity in China - and Beijing has been all too generous in this regard - is now ending up stuck in the form of cash, which will put further downward pressure on the velocity of money, and lead to an even greater growth deceleration.

Meanwhile, for the NDRC to call for a rate cut is in effect laying the blame for the slowdown on the central bank. Commission officials have argued that companies just need to find it cheaper to borrow before they would be willing to do so, helping to rev up a slowing economy. The NDRC runs approvals for large infrastructure projects undertaken by state corporations. Not so fast, the PBOC and its allies said. Implicit in the PBOC's admonitions was a message: Stop leaving the job of producing an economic recovery to the central bank alone, the WSJ adds.

This confirms the message that has been prevalent across developed nation policy circles in recent months, as pressure has been rising to relieve central banks of providing the monetary boost to grow economies and hand over responsibility to fiscal authorities.

Which leads us to the next point: in his widely reported comments to local media at an industry conference, Sheng also said the government can raise its fiscal deficit to 5% of its gross domestic product. This year's official fiscal deficit rate is set at around 3%. Sheng's call suggests that it is also up to the Ministry of Finance, which is in charge of tax policy, to take the lead in engineering a recovery. The ministry and the NDRC didn't immediately respond to calls for comment.

As for today's "mysterious redaction", China pretended as if nothing had happened. Shortly after the redaction of the NDRC's statement, the central bank published a fairly routine recap of a central-bank conference held Tuesday and Wednesday. In it, the PBOC said China would maintain ample liquidity and reasonable growth in lending in the second half this year. Beijing would maintain a prudent monetary policy, keep the yuan basically stable and press on with market-based reform, it said.

In other words, as Dow Jones concludes, it said "as you were." Whether markets ignore this latest confirmation of the chaos and lack or coordination at China's top central planning echelons is a question that will be answered in the coming weeks.
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Bill Gross Talks "Sex", Answers "Honestly" What Happens When The Financial System Breaks Down

Bill Gross' latest letter is a curious melange of two distinct parts.

The first one is more of the same traditional stream of consciousness we have grown to expect from the man some call the "former" bond king. Curiously, the topic of discussion is something Gross has never "touched" upon before, namely sex. As Gross says, "Sex is a three-letter word that has rarely appeared in an Investment Outlook until now." The second part may have been ghost-written by the "new" bond king, as it recaps - in a Q&A format - all the recent points made by Jeff Gundlach, who recently said to "sell everything" except gold and gold stocks. Gross' spin: "I don't like bonds, I don't like most stocks; I don't like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories."

First, here is Gross' take on Sex:

Sex is a three-letter word that has rarely appeared in an Investment Outlook until now. I may be risque and delve into the forbidden territory of politics and religion, but "SEX"? — Never. But here goes! Actually, my own personal history of sexual edification was probably like many of yours. My mother asked me at age 14 if I knew where little kittens came from and when I answered "the pet store", I never got an additional query or piece of information on the subject. I suspect she had written me off as hopeless long before.


When it came time for me to be a father, I vowed never to repeat anything as stupid as that kitten trick to my kids, and I wound up not saying anything at all about sex to my older ones, Jeff & Jennifer, who are now in their 40s and safely beyond my parental foibles. The Nineties, however, ushered in a new sensitivity and a requirement to come clean with your child at an early age. And so, when Nick was born in 1988, Sue and I knew that we'd have to explain his "conception" at some point before we turned over the car keys and started four-digit checks for insurance. It's not like Nick was adopted or anything, but he was, in fact, one of California's first "test tube babies" which made him sort of unique and special — at least to us — and we felt he deserved knowing about it. Actually, it was a godsend as far as the sex education goes. At 8 or 9, when he asked about "babies", we both sat down and told him how he had been conceived: a doctor took some of Dad&s sperm and a few of Mom's eggs, mixed em' up in a test tube and "voila" — you've got a baby. He seemed to buy the story pretty well and we got to avoid all of the gushy —male / female — stuff.


Our biggest challenge came years later when Nick got his hands on one of those trashy "Victoria's Secret" advertising mailers. As a service to me, Sue always does her best to dispose of them in the garbage can as quickly as possible, but this time Nick had gotten his hands on it and was intrigued not only by the pictures of those plain and unattractive models, but by the name itself. "Dad", he asked, "what is Victoria?s Secret?" Well now, I quickly thought, does he mean what is Victoria's Secret or what is Victoria's Secret? If it was the former, it could be just an innocent question about the mailer itself. If the latter, well, it was a path down which I wasn't willing to travel. "I am not sure", I replied, taking the brochure from his hands and depositing it in the trash, like Sue usually does. As a diversion though, I answered his question with one of my own. "Do you know where kittens come from?" I asked. "The pet store", he said, and with that I breathed a sigh of relief, content in his normalcy and satisfied I was fulfilling my role as a parent in the sensitive Nineties.

Why the odd premable? Because as Gross then points out, as a transition to the more important - second part - of his letter,  "there are equally important questions in today's economy and financial markets, so I thought I'd condense a few of them to hopefully explain our current situation, perhaps a little more honestly than my "kittens in a pet store" ruse or what "Victoria's Secret" really was."

Here, the most notable segment is the rhetorical answer to a question that asks "When does our credit-based financial system sputter/break down?"Goss' answer:

When investable assets pose too much risk for too little return. Not immediately, but at the margin, low/negative yielding credit is exchanged for figurative and sometimes literal gold or cash in a mattress. When it does, the system delevers as cash at the core, or real assets like gold at the risk exterior, become the more desirable assets. Central banks can create bank reserves, but banks are not necessarily obliged to lend it if there is too much risk for too little return. The secular fertilization of credit creation may cease to work its wonders at the zero bound, if such conditions persist.

He follows up with 4 more mini Q&As, as follows:

Can capitalism function efficiently at the zero bound?

No. Low interest rates may raise asset prices, but they destroy savings and liability based business models in the process. Banks, insurance companies, pension funds and Mom and Pop on Main Street are stripped of their ability to pay for future debts and retirement benefits. Central banks seem oblivious to this dark side of low interest rates. If maintained for too long, the real economy itself is affected as expected income fails to materialize and investment spending stagnates.


Can $180 billion of monthly quantitative easing by the ECB, BOJ, and the BOE keep on going? How might it end?


Yes, it can, although the supply of high quality assets eventually shrinks and causes significant technical problems involving repo, and of course negative interest rates. Remarkably, central banks rebate almost all interest payments to their respective treasuries, creating a situation of money for nothing — issuing debt for free. Central bank "promises" of eventually selling the debt back into the private market are just that — promises/promises that can never be kept. The ultimate end for QE is a maturity extension or perpetual rolling of debt. The Fed is doing that now but the BOJ will be the petri dish example for others to follow, if/ when they extend maturities to perhaps 50 years.


When will investors know if current global monetary policies will succeed?


Almost all assets are a bet on growth and inflation (hopefully real growth) but in its absence at least nominal growth with some inflation. The reason nominal growth is critical is that it allows a country, company or individual to service their debts with increasing income, allocating a portion to interest expense and another portion to theoretical or practical principal repayment via a sinking fund.Without the latter, a credit-based economy ultimately devolves into Ponzi finance, and at some point implodes. Watch nominal GDP growth. In the U.S. 4-% is necessary, in Euroland 3-4%, in Japan 2-3%.

Finally, the most practically relevant section, and the one that almost verbatim ghosts Gundlach's own sentiment on what one should do at this time, is Gross' answer to "What should an investor do?"

In this high risk/low return world, the obvious answer is to reduce risk and accept lower than historical returns. But don't you have to put your money somewhere? Yes, of course, except markets offer little in the way of double digit returns. Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels. I don't like bonds; I don't like most stocks; I don't like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories. But those are hard for an individual to buy because wealth has been "financialized". How about Janus Global Unconstrained strategies? Much of my money is there.

We are confident that the "new" bond king agrees.
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Rio Tinto earnings slump to 12-year low, warns conditions still tough

Global miner Rio Tinto reported a 47% slump in first-half profit to its weakest in 12 years on Wednesday, but surprised the market with a higher-than-expected dividend while flagging that conditions remain difficult.

New CEO Jean-Sébastien Jacques said he was focused on shoring up the company by cutting costs further and did not expect help from commodities markets, which had been pumped up in the second quarter by easy credit in China.

"So we are confident, but absolutely not complacent. Looking forward, we expect market conditions to remain challenging and volatile," Jacques told reporters.

Underlying earnings for the six months to June fell to $1.56-billion from $2.92-billion a year earlier, beating analysts' forecasts around $1.46-billion, according to an externally compiled consensus.

Gains in the aluminium business were better than expected, while iron-ore and copper missed forecasts, analysts said.

"It's a decent result in difficult times," said Paul Gait, an analyst at Bernstein in London.

In a battered mining industry, the world's no.2 iron-ore miner is strongly placed as it has cut debt faster than its peers, so much so that it is digging new iron ore, copper and bauxite mines while its rivals are slashing capital spending.

While some analysts have said Rio Tinto should use its balance sheet to snap up distressed assets rather than build new mines, Jacques said none of the assets Rio Tinto wants are on the market and prices others had paid for stakes incopper mines over the past year had been high.

"We've been very clear - it's about build and smart buy, and the word smart you can put in capital letters," he said on a conference call with reporters.

While Rio is eager to expand in copper, Jacques said it has no plan to increase its stake in Turquoise Hill Resources, which it already half owns. Turquoise Hill is the 66% owner of the Oyu Tolgoi copper mine in Mongolia.

Thanks to its strong balance sheet, Rio Tinto was able to announce a half-year dividend of 45c a share, in stark contrast to rivals Anglo American and Brazil's Vale, which declared no dividends at their half-year results last week.

The payout beat analysts' forecast of 41c.

It remains on track to cut costs by $2-billion over the two years to December 2017.

Net debt fell to $12.9-billion from $13.8-billion in December, which was better than expected.

"In our view this leaves room for additional shareholder returns," London-based Investec analyst Hunter Hillcoatsaid.

Rio Tinto in February scrapped a long-held policy of nevercutting its annual dividend to help weather a prolonged commodities bust.
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Aggreko says recovery in N.America power market some way off

Temporary power provider Aggreko said oil prices needed to be higher for longer to drive a recovery in its business with North American oil and gas customers, as it posted first-half profits that missed some analysts' forecasts.

While crude prices have recovered from January lows, Aggreko CEO Chris Weston said North American shale companies were so far largely restarting projects by using power grids rather than the sort of temporary supplies provided by his company.

"The oil price needs to be a little bit higher and higher for a reasonable period of time, 3-6 months, before you begin to see more drilling and production activity in areas where there is no power and therefore they need our services," he told reporters on Wednesday.

The world's largest listed temporary power provider posted a trading profit of 77 million pounds ($103 million) for the six months ended June 30, which two analysts said was below the consensus estimate of around 85 million pounds.

Aggreko shares fell as much as 15 percent, the biggest percentage fall on London's FTSE midcap index.

Citing North America weakness and geopolitical tensions in other markets, Aggreko reiterated full-year pretax profit before exceptional items would be slightly lower than in 2015. The forecast banks on Aggreko winning extensions on contracts in Argentina, Venezuela and Yemen.

Jefferies analysts said the guidance looked a stretch given it factored in an uptick in North America as well as success on all three contracts.

Aggreko was not expecting to deploy any power for the Olympic Games in Rio de Janeiro this year, Weston said, after it withdrew from the tender process to supply generators in December.

The company also said it had not yet engaged with the UK government over Britain's potential power needs after Prime Minister Theresa May decided to review plans to build a nuclear plant in southwest England.

"Of course, if the crunch came and they needed power quickly we would respond," Weston said.
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Q3: "Save me the Waltz"

Image titleFitzgerald said her novel was "plagiaristic, unwise in every way... should not have been written."[11] Zelda asked, "didn't you want me to be a writer?" Though Scott once had, he lashed out "No, I do not care whether you were a writer or not, if you were any good... you are a third-rate writer and a third-rate ballet."[11] The psychiatrist agreed with Scott. Zelda was devastated; she never published another novel.

Attached Files
Commodity Intelligence-thinking aloud (12).pdf
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Britain is going to have to learn to live with China – insulting them is not the best way to start

The champagne was on ice. The marquees were ready. The board had given approval. Everything was set for Hinkley Point C – the biggest nuclear power station in the UK in decades – to be given the go ahead. Then, in the manner of an American Governor in a movie issuing a last minute reprieve to a prisoner in the gas chamber, No 10 overruled Greg Clark, Secretary of State for Business, Energy & Industrial Strategy, and announced a review of the project.

What on earth was going on? The economy, faced with post-Brexit uncertainty, needs a big investment boost and Hinkley Point is just the kid of "shovel ready" project that is always called for. There is also an energy supply crunch coming. Demand is rising and old power stations are being decommissioned – new supply is urgently needed and when complete this new station will supply 7 per cent of UK energy needs. A country which regards respect, or "face", as a critical component to a relationship had been deeply insulted. Something huge must have come up to force this pause for reconsideration.

No 10 sources confirm that this was a decision by the Prime Minister alone, a captain’s call. It was, however, heavily influenced by a briefing note from one Theresa May’s most senior advisers – Arthur Henry Ward – which I have obtained. This note crystalised security concerns about Chinese influence in the UK in one powerful paragraph:

Imagine a person, tall, lean, and feline, high-shouldered, with a brow like Shakespeare and a face like Satan, a close-shaven skull, and long, magnetic eyes of the true cat-green: invest him with all the cruel cunning of an entire Eastern race, accumulated in one giant intellect...

This is the Government’s real problem with Hinkley Point – an attitude to China which is virtually indistinguishable from the“Yellow Peril” panic of the late nineteenth century. There is a distinct strain of paranoia in the briefing about “security” concerns. Take the fears that China, in some way, will be able to shut down the whole UK electricity grid via a “backdoor” in Hinkley or other power stations they may finance and construct. Cyber-security is a real concern, but the biggest proximate threats are to our existing infrastructure which is absolutely inadequately defended – constructed, as most of it was, in an earlier era.

We should defend ourselves against all these threats. But let’s not pretend we have only one enemy and only one form of recourse – the boycott. Unless we plan to isolate China – which we don’t – we must live with them. Business, trade and finance are greatest and most successful ways to do that. Globalisation means that our economy is profoundly influenced by what happens in China. The challenge is how best to benefit. Buying their goods is one way – low prices benefit all consumers. Receiving their investment in critical projects is another.

Long term, the most crucial integration will be social. Last weekend I was in East Sussex – in Rye, Winchelsea and Great Dixter. In every place there were Chinese tourists, some obviously students, but mostly members of the new middle classes. They are the key – our post-war relationship with Japan was cemented by tourism. When Japanese tourists – with their ubiquitous cameras – started flocking to our shores, we established a new relationship and a trust with the country.

For the last thousand years China has been the biggest economy in the world – with the exception of the last century when they were almost destroyed by Mao. They are back and because they are so large you cannot help bumping into them, whatever way you turn. We can’t live without them, so we had better get much smarter about living with them. Suspicion, innuendo and insult are not the way. Time for the May government to execute its first u-Turn and start to co-operate without kowtowing.
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Typhoon Nida batters southern China after shutting down Hong Kong

Large areas of southern China are on emergency alert as a powerful typhoon batters the region.

Typhoon Nida hit Hong Kong on Tuesday with high winds and torrential rain, forcing schools, businesses and transport services to shut.

But the storm was reported to be weakening as it moved to the mainland.

Guangzhou in Guangdong province issued a red alert, its highest weather warning, and people have been advised to stockpile food and essentials.

The southern cities of Zhuhai and Shanwei are also on red alert, with transport, industry and public services largely grinding to a halt.

Nida, which earlier passed over the Philippines, is set to be the strongest typhoon in the region since 1983, one official told Chinese state media, warning it could bring severe flooding.

Hundreds of thousands of passengers have been affected in the region as trains, ferries, planes and busses have been cancelled or delayed.

In Hong Kong, thousands of workers were evacuated from an offshore oil platform and from a series of tunnels and bridges being built to link the territory with two other cities.

Hundreds of people took refuge in government shelters in the city, amid torrential rain and gusts of over 150kph (93mph).

Although Hong Kong officials ended their rainstorm alert at midday on Tuesday, they warned residents there was still a risk of flooding in low-lying areas.

ISouthern China is hit by heavy rains every monsoon season, but this year has been particularly bad.

In July, Typhoon Nepartak killed dozens of people in Fujian province and forced hundreds of thousands of Chinese people from their homes. It also caused deaths and damage in Taiwan.
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Wiki updates a stock trading signal?

Project Description

Behavioral economics already proved that emotions affect individual decision making. This project will be testing whether the measurement of the mood of Wikipedia edits history correlates to the change of stock price.

The project can be divided into four parts: sentiment analysis of Wikipedia edits history , generating the financial data from NYSE, visualizing the correlation between sentiment analysis and stock price, predicting the future stock price by providing a sentiment analysis value. 10 sample companies will be analyzed in this project. These 10 sample companies are from the top 10 controversial companies list on 2015 CRN report and Entrepreneur. These 10 sample companies are: British Petroleum, Oracle Corporation, VMware, Hewlett-Packard, HSBC, Sony, JetBlue, General Motor, Microsoft and Target. The time span of WikiPedia edits history and financial data is from January 1st, 2014 to July 1st, 2016. The sentiment analysis has three levels: positive, negative and neutral. Each level will be assigned a numerical value: 1 for positive, -1 for negative and 0 for neutral. Hence, the analysis will be focusing on the correlation between average sentiment value of WikiPedia edits history and stock price of given companies.

If there exists a strong correlation between the measurement of the mood of Wikipedia edits history and the change of stock price, then companies should be able to predict the future stock price change and get benefit from it.

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PM May resurrects industrial policy as Britain prepares for Brexit

Prime Minister Theresa May will on Tuesday outline her bid to reshape the British economy for a post-Brexit world, reviving the once unfashionable concept of industrial policy 30 years after Margaret Thatcher killed it off.

May will chair the first meeting of the "Cabinet Committee on Economy and Industrial Strategy" in her Downing Street Offices, bringing together the heads of 11 other ministries to set out her vision for a state-boosted industrial renaissance.

"If we are to take advantages of the opportunities presented by Brexit, we need to have our whole economy firing," May said ahead of the meeting in a statement released by her office.

"We also need a plan to drive growth up and down the country – from rural areas to our great cities."

After a referendum campaign that revealed dissatisfaction in many of Britain's struggling post-industrial regions, May is pitching a plan to reunite the country by raising the prospects of those who she casts as "hard-working people".

The June 23 vote to leave the European Union has raised serious questions about the future of the world's fifth largest economy, with some surveys indicating a recession, a hit to consumer confidence and a possible fall in investment.

"We need a proper industrial strategy that focuses on improving productivity, rewarding hard-working people with higher wages and creating more opportunities for young people so that, whatever their background, they go as far as their talents will take them," May said ahead of the meeting.

The challenge is to find a formula that arrests a decades-long decline in Britain's manufacturing sector by helping firms tackle the challenges posed by globalization without blunting the market forces that make them competitive.

She will make a priority of developing the industries already based in Britain - a push that could help carmakers like Jaguar Land Rover (TAMO.NS), GM-owned Vauxhall (GM.N) and Nissan (7201.T), and aerospace industry leaders like BAE Systems (BAES.L) to weather the Brexit storm.

The strategy will also involve finding new ways to rebalance the economy away from its reliance on the services sector, and ensure wealth is distributed away from the prosperous south east of England.

Whilst policy detail is scarce, the strategy is likely to combine state-backed investment in traditional infrastructure like roads and rail with funding for modern essentials like broadband and lower energy costs, along with a push to train more of the highly-skilled workers industry says it needs.


Industrial policy has a toxic legacy in Britain.

It was once used to help failing national champions through a series of flawed policies in the 1960s and 1970s that sought to arrest a decline in manufacturing influence.

"We're not getting into the business of picking winners: it's more about creating the right environment," a government source who spoke on condition of anonymity said.

May's office said the strategy would promote a range of industrial sectors with a focus on addressing long term productivity growth; encouraging innovation and focusing on the industries and technologies that give Britain a competitive advantage.

May surprised French utility EDF and China last week with a last-minute decision to review the building of Britain's first nuclear plant in decades.

The refocusing of Britain's economic policy, for the last six years aimed at balancing the books and heavily reliant on foreign money to replace state infrastructure spending, also carries a potentially huge political prize.

With the opposition Labour Party, long seen as the champions of the working classes, locked in a vicious internal ideological struggle and losing sway in their traditional heartlands, May has an opportunity to won over those who saw voting 'Leave' in the EU referendum a 'nothing to lose' protest vote.

"The Brexit vote and euroscepticism was strongest in former manufacturing areas, where the industry has gone, the good jobs have gone and people feel disaffected," said David Bailey Professor of Industry at Aston Business School.

"If May's going to do something about reconnecting, manufacturing has got to be part of the story."

Attached Files
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China 2016 power consumption may be up 2.5pct on year: CEC

China's power consumption in 2016 may increase 2.5% from 2015's 5,500 TWh, according to a forecast report released by the China Electricity Council (CEC) on July 29.

The CEC predicted on February 3 that the consumption in 2016 to increase 1-2% from the previous year.

China's power consumption rose 2.7% on year to 2,775.9 TWh in the first half of the year, compared with a 1.4% increase in the same period last year, according to data from the National Development and Reform Commission.

The tertiary industry and residential segment contributed a combines 80.9% to the growth of the total power use over the period, much higher than a 14.4% impact brought by industrial sector, indicating an optimized of power consumption.

In 2016, power supply in China will continue to be surplus at some areas, the CEC said.

The utilization of thermal power plants will drop to around 4,050 hours in 2016, said the CEC.
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Anglo American ‘rebuffs approach from Vedanta’s Agarwal’

Merger and acquisition activity in the mining industry could be showing a flicker of life after FTSE 100 giant Anglo American reportedly brushed off an approach from Vedanta Resources chairman Anil Agarwal, concluding that a combination of the two companies made little sense.

Mr Agarwal, the Indian billionaire behind the sprawling Vedanta conglomerate, made a number of informal approaches to the South African group earlier this year to discuss potential tie-ups, but talks were “quickly dismissed”, according to Bloomberg, which first reported the matter.

FTSE 250-listed Vedanta Resources specialises in zinc mining but also produces copper, iron ore, oil and gas. It recorded a pre-tax loss of $4.98bn (£3.45bn) for the year to March 31 as tumbling commodity prices took their toll. Vedanta’s focus has been on cutting costs as it attempts to wrestle down its debt pile, which stood at $7.3bn in March.

Anglo American has been tackling a debt pile of its own, selling off assets and cutting its dividend to bring its net debt down to $11.7bn in the first half of this year.

Analysts identified a number of obstacles to a tie-up between the two companies, not least that the Indian government owns a 30pc stake in Hindustan Zinc, a major subsidiary of Vedanta, and could block any potential tie-up. Meanwhile Vedanta is attempting to complete the drawn-out merger of two of its other subsidiaries, Vedanta Ltd and Cairn India, which was announced a year ago. Vedanta Ltd sweetened its offer for Cairn shareholders earlier this week.

For its part, Anglo has stated it is committed to shrinking its business down to focus on copper, platinum and diamonds, while backing out of iron ore and coal.

Vedanta Resources hired former Anglo chief executive Cynthia Carroll last year to advise on strategy around "corporate development" and to pursue "significant value creation opportunities". Ms Carroll served as Anglo boss from 2007 to 2013 before being ousted over the company's troubled Minas Rio iron ore project and falling profits.

“[There’s] little surprise that Anglo saw no merit in pursuing discussions but it is encouraging that M&A interest in the sector - especially at this scale - is starting to pick up,” said analysts at Investec. “Most activity thus far, outside of gold, has only been asset sales but we would see M&A activity as a clear signal that mining has moved into the buy territory.”

Anglo American and Vedanta Resources declined to comment.
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China July factory activity unexpectedly dips on softer orders, flooding

Activity in China's manufacturing sector eased unexpectedly in July as orders cooled and flooding disrupted business, an official survey showed, adding to fears the economy will slow in coming months unless the government steps up a huge spending spree.

While a similar private survey showed business picked up for the first time in 17 months, the increase was only slight and the much larger official survey on Monday suggested China's overall industrial activity remains sluggish at best.

Both surveys showed persistently weak demand at home and abroad were forcing companies to continue to shed jobs, even as Beijing vows to shut more industrial overcapacity that could lead to larger layoffs.

And other readings on Monday pointed to signs of cooling in both the construction industry and real estate, which were key drivers behind better-than-expected economic growth in the second quarter.

The official Purchasing Managers' Index (PMI) eased to 49.9 in July from the previous month's 50.0 and below the 50-point mark that separates growth from contraction on a monthly basis.

Analysts polled by Reuters predicted a level of 50.0.

While the July reading showed only a slight loss of momentum, Nomura's chief China economist Yang Zhao said it may be a sign that the impact of stimulus measures earlier this year may already be wearing off.

That has created a dilemma for Beijing as the Communist Party seeks to deliver on official targets, even as concerns grow about the risks of prolonged, debt-fueled stimulus.

"The government has realized the downward pressure is great but they've also realized that stimulus to stimulate the economy continuously is not a good idea and they want to continue to focus on reform and deleveraging," Zhao said.

Heavy flooding, particularly along the Yangtze River, contributed to July's manufacturing contraction along with slowing demand and the cutting of overcapacity in some industries, the statistics bureau said.

Falling activity at smaller firms also was a key reason for July's poor figure, the statistics bureau said, but performance at larger companies improved, in a sign that the government is becoming more reliant on big state firms to generate growth.


"Today's data do not bode well for GDP growth in the second half," ANZ economists Louis Lam and David Qu wrote in a note.

Fiscal policy would be the key tool for boosting growth in coming months, while the central bank was expected to keep its policy settings accommodative, they added.

While many analysts believe the world's second-largest economy may be slowly stabilizing, conditions still look patchy.

Industrial profits rose at the fastest pace in three months in June, but gains were concentrated in just a few industries including electronics, steel and oil processing.

Spurred by rebounding prices and stronger construction demand, China's steel output and exports have been near record levels. But it one of the key sectors being targeted by officials for capacity cuts and tougher pollution controls.

Indeed, the PMI showed factory output in July still expanded solidly, though the pace cooled to 52.1 from 52.5 in June.

Total new orders hovered just inside expansionary territory at 50.4, slightly down from June, but new export orders contracted as overseas demand remains weak and the impact of Britain's vote to leave the European Union hurt sentiment.

A private PMI survey by Caixin/Markit was more mixed.

Its 50.6 reading was stronger than expected and the first expansion since February 2015, sparking hopes that some of the government's stimulus was starting to trickle down to smaller private firms which have been under greater stress than larger state-backed enterprises.

But overall order growth was modest and export orders continued to fall.

The Caixin report tends to give more weight to light industry, whereas the official survey is skewed more toward heavy industries, said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, according to Caixin.

An official survey on the services sector was more upbeat, showing growth accelerated to 53.9 in July from 53.7 in June.

But it, too, contained several worrying notes, with construction services growth solid but cooling and the property services sector weakening, adding to worries that China's housing boom may have peaked.

    Beijing has been counting on a strong services sector to pick up the slack as it tries to shift the economy away from a dependence on heavy industry and manufacturing exports.
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This bizarre chart shows how money is leaving China in secret

Image title
A chart from Nomura, which shows a huge increase in imports from "taxhaven islands or offshore financial centres" has highlighted a quirk of the Chinese economy.

To skirt capital controls, Chinese households and businesses are seen to overpay for imports in order to get cash out of the economy and into foreign banks and investments.

It shows they think China may lower the value of its currency, making it more expensive to invest in foreign holdings.

According to a Deutsche Bank note earlier this year, about $328 billion left China in secret this way between August 2015 and January 2016, that's about 78% of total capital outflows.

Nomura notes that imports from Hong Kong are growing at 130% a year while "significant import growth from other island economies has also been registered, including Samoa, the Bahamas, the Seychelles, the Cayman Islands and the Cook Islands."

Samoa, which mostly exports coconut cream and oil, has managed to grow its business with China by more than 700%.

"This suggests to us that capital outflows may have been disguised as imports in China’s trade with these tax-haven or offshore financial centres, though the precise volumes are unknown. Excluding Hong Kong’s re-exports, these six regions accounted for 1.4% of China’s total imports in H1."

As a way of getting money out of the country, it's been happening for a while.

Here's the chart from Deutsche Bank earlier this year:

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Attached Files
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La Nina set to boost U.S. winter heating oil demand

Middle distillates remain the one ray of hope for U.S. oil refiners still struggling to clear a glut of gasoline caused by over-production earlier in the year.

Stocks of distillate fuel oil are higher than normal but have been trending down for the last 15 weeks according to the U.S. Energy Information Administration 

Distillate stocks are currently around 152 million barrels, almost 8 million barrels higher than at the same point last year and more than 20 million barrels over the 10-year median.

However, stockpiles have fallen from a peak of 163 million barrels at the start of April, when they were a massive 35 million barrels over the same point in 2015 and 40 million barrels over the 10-year average.

Unlike gasoline stocks, which have shown an unusual counter-seasonal build up over the first part of the summer, distillate stocks have exhibited an unusual counter-seasonal drawdown.

Hedge funds have noticed the divergent trends and become much more bullish about the outlook for distillate prices than for gasoline.

By July 19, hedge funds had amassed a net long position in U.S. heating oil futures and options equivalent to 17 million barrels (

While the net long position had been cut from an earlier peak of 21 million barrels it was still one of the largest bullish positions since the slump in oil prices began in 2014.

By contrast, hedge funds had essentially a flat position in gasoline futures and options, with roughly equal long and short positions. In relative terms, the net positioning was among the most bearish in the last seven years.


Hedge funds and refiners are hoping distillate will get a further boost from a pick-up in freight movements and a colder winter in 2016/17.

Freight demand in the United States and around the rest of the world has remained flat for the last 12 months and shows no sign of the long-predicted return to significant growth (

But the weather outlook for winter 2016/17 should offer a bit more support for heating oil demand towards the end of the year and into early 2017.

The first half of winter (Oct-Dec) is likely to be warmer than normal across the United States, especially in the Southwest, according to the National Weather Service Climate Prediction Center (

But temperatures in the second half of winter (Jan-March) are likely to be normal or below normal across much of the northern United States, where winter heating oil demand is concentrated (

Long range forecasts such as these are subject to a high level of uncertainty and should be treated with appropriate caution.

But the seasonal outlook is driven in part by the development of La Nina conditions in the central Pacific (

Mild La Nina conditions have developed in the last three weeks and are expected to strengthen through the end of the year (

La Nina normally "favours the build-up of colder than normal air over Alaska and western Canada, which often penetrates into the northern Great Plains and the western United States. The southeastern United States, on the other hand, becomes warmer and drier than normal," the Climate Prediction Centre says.

The winter of 2016/17 might not be exceptionally cold, but it is still likely to be colder than very warm winter of 2015/16, which was characterised by one of the strongest El Nino episodes on record.

Colder temperatures across the northern states in winter 2016/17 should promote more heating oil consumption.

The expectation of colder winter weather has been an important influence in keeping heating oil prices strong over the summer and creating a large contango in the market.

But a colder winter is also likely to mean less driving and less gasoline consumption in 2016/17 than in 2015/16.

U.S. refiners have an incentive to switch away from maximising gasoline production and towards making more distillates.

However, switching cut points and changing catalysts to increase distillate yields at the expense of naphtha and gasoline is unlikely to be enough on its own to bring gasoline stocks under control.

Refineries will also have to reduce the total amount of crude they process in the remainder of the year. The coming winter is unlikely to see the record rates of throughput reported in 2015/16.

Some of the more marginally economic refineries that run heavily between November 2015 and March 2016 may come under financial pressure to cut back this coming winter.
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US GDP growth since the 1940's

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Oil and Gas

Crowley secures long-term LNG shipping deal with Molinos de Puerto Rico

Crowley Maritime Corporation’s liquefied natural gas (LNG) services group has secured a multi-year contract to supply containerised LNG from the US to Molinos de Puerto Rico’s facility.

The contract includes both the supply and transportation of LNG and aims to help Molinos, the territory’s leading supplier of flour and wheat, bolster its environmental sustainability efforts as well as support the management of any potential weather-related power challenges that could affect the island of Puerto Rico.

Crowley’s domestic logistics team will coordinate the transportation of LNG via 40-foot ISO containers, each capable of carrying 10,000 gallons of LNG. The tanks will arrive at Crowley’s shipping terminal in Jacksonville, Florida, where they will be loaded onto company-owned vessels destined for Puerto Rico. Upon arrival, Crowley’s Puerto Rico-based logistics team will deliver the LNG to Molinos’ plant.

At the facility, the LNG will be re-gasified and used for power consumption.

Jon Stuewe, President of Molinos de Puerto Rico

Greg Buffington, Vice-President of Crowley, signified, “Our teams have been working side by side with Molinos, the Caribbean arm of Ardent Mills, assisting with the engineering to utilise the natural gas and also the logistics necessary to accommodate LNG delivery to the Molinos plant.”

Jon Stuewe, President of Molinos de Puerto Rico, stated, “We appreciate the nearly two years of thoughtful care and planning that have gone into this effort. We appreciate the additional capabilities and assured ingredient supply made possible by this important alternative fuel source. We are committed to operating across our supply chain with innovative ideas that also deliver a more positive environmental impact.”

Molinos de Puerto Rico joins Coca-Cola Puerto Rico Bottlers and Club Caribe as the latest company to receive containerised LNG supply on the Caribbean island, where Crowley has effectively established a virtual natural gas pipeline from the US mainland.

Attached Files
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Crude Slump Sees Oil Majors’ Debt Burden Double to $138 Billion

When commodity prices crashed in late 2014, oil executives could look at their mining counterparts with a sense of superiority.

Back then, the world’s biggest oil companies enjoyed relatively strong balance sheets, with little borrowing relative to the value of their assets. Miners entered the slump in a very different state and some of the world’s largest -- Rio Tinto Plc, Anglo American Plc and Glencore Plc -- had to reduce dividends and employ draconian spending cuts to bring their debt under control.

Two years on, you could excuse mining executives for feeling smug. As crude trades well below $50 a barrel, Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants have seen their debt double to a combined $138 billion, spurring concerns they’ll need to keep slashing capital spending and that dividend cuts may eventually be necessary.

Worse, the mountain of debt, which has grown tenfold since 2008, is likely to increase further in the third and fourth quarters, executives and analysts said.

"On the debt, it may go up before it comes back down,” Shell Chief Financial Officer Simon Henry told investors last week. “And the major factor is the oil price.”

The problem for Big Oil is simple: Companies are spending a lot more than they’re earning. Both West Texas Intermediate and Brent crude, the two most prominent benchmark grades, slid into bear markets this week after falling more than 20 percent since early June.

The first-half results indicate that oil companies “are likely to generate large negative free cash flows for the full year,” said Dmitry Marichenko, an associate director at Fitch Ratings in London.

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Take Chevron Corp. In the first half of the year, it generated $3.7 billion pumping crude, refining it and selling gasoline and other products. But that wasn’t enough to cover the $4 billion it paid to shareholders over the same period, let alone the $10 billion it invested in projects. Although Chevron tried to close the gap by selling $1.4 billion worth of assets, it still had to take on $6.5 billion in new debt over six months.

The imbalance explains why the debt load has grown so quickly over the last decade. Before oil prices plunged in mid-2014, Big Oil had around $71 billion in net debt, up from a low of just $13 billion in mid-2008, when oil prices hit a record high of nearly $150.

Growing Debt

Debt levels are currently rising at an annual rate of 11.5 percent, more than double the 5.1 percent witnessed between 2009 and 2014, said Virendra Chauhan, an oil analyst at consulting firm Energy Aspects Ltd. in Singapore.

“Whilst credit markets have been expansive and accessible during this time period, investor concerns about the sustainability of this trend are valid,” he said.

For some oil bosses, including Shell Chief Executive Officer Ben Van Beurden, reducing debt is now the main priority, ahead of paying shareholders dividends and investing in new projects. His company’s debt has risen especially fast after borrowing to finance the $54 billion acquisition of gas producer BG Group Plc earlier this year.

Yet, the oil companies have been able to take on more debt fairly easily because ultra-low interest rates allow added borrowing without risking credit rating downgrades.

BP CEO Bob Dudley said the British company could “actually manage a little bit more” debt. “Money is so cheap right now,” he said.

And Exxon executives believe the company still has significant debt capacity. “We’ve got a very strong balance sheet,” Jeff Woodbury, vice president of investor relations, told analysts during a conference call. “We’re not going to forgo attractive opportunities.”
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EOG boosts fracking plans even with oil price at $40

Shale oil bellwether EOG Resources Inc on Thursday boosted this year's fracking plans by 30 percent, saying it expected big returns on new wells even as oil dipped back to $40 a barrel.

The plans are the boldest yet among U.S. shale oil companies, many of which have raised their production forecasts in recent days after posting second-quarter results.

The upward revisions highlight how the fittest shale companies, mainly those with the oiliest land, are surviving at a time when dozens of others are filing for creditor protection in the biggest wave of bankruptcies since the telecom meltdown in the early 2000s.

Houston-based EOG raised the number of wells it plans to bring online this year to 350 from 270, and lifted by 50 to 250 the number of wells it would drill, while keeping its budget stable around $2.5 billion.

Since the start of the worst price crash in a generation in mid-2014, when oil was still above $100 a barrel, many shale producers have cut costs and lifted well productivity by 50 percent or more. Wall Street has also demanded they focus more on capital efficiency rather than just raising output.

"The benefits of EOG's premium drilling strategy are beginning to show in our operating performance," CEO Bill Thomas said in a statement. "We are committed to focusing capital on our premium assets."

EOG, best known for its South Texas operations, said that greater efficiencies have allowed it to do more for less and earn an after-tax rate of return of more than 30 percent on what it called premium wells, assuming oil prices stay at multi-year lows.

It increased its backlog of premium drilling locations to 4,300 from 3,200.

The length of horizontal wells have grown to 10,000 feet or more, and producers are using ever increasing amounts of sand in their high-pressure frack jobs to coax oil from cracks in rocks.

Second-quarter crude and condensate production fell 4 percent to 267,700 barrels per day from 277,500 in the year-ago period, as drilling activity slowed and output from existing shale wells declined.

That decline is a sign of the industry's growing focus on capital discipline, unlike in years past when executives raced to lift production at all costs.

Still, EOG said production could grow significantly with balanced cash flow from 2017 through 2020. Output could rise 10 percent a year through 2020 with $50 oil and 20 percent a year with $60 oil, it said.

The company swung to a second quarter net loss of $292.6 million, or 53 cents per share from a profit of $5.3 million, or 1 cent per share a year ago, as tumbling oil prices overshadowed cost cuts and productivity gains.

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YPF Posts Surprise Loss as Weaker Argentine Peso Erodes Margins

YPF SA posted an unexpected loss in the second quarter as a slump in Argentina’s peso erodes margins from refining crude priced in U.S. dollars into gasoline that the government keeps artificially cheap.

The net loss was 753 million pesos ($50.7 million), or 1.89 pesos a share, compared with a gain of 2.3 billion pesos, or 5.86 pesos a share, a year earlier, the Buenos Aires-based oil producer said in a regulatory filing Thursday.

Argentina’s policies to regulate the fuel market in a bid to keep inflation in check, coupled with a slump in the value of the peso over the past year, means that increases in gasoline prices haven’t offset a squeeze in the company’s margins. The company has been allowed to increased pump prices by 43 percent in a year, not enough to recoup the losses.

YPF’s sales rose 32 percent to 52.8 billion pesos. Crude oil output fell 2.8 percent while natural gas production decreased 0.4 percent in the quarter, the company said.

YPF’s American depositary receipts rose 1.2 percent to $19.20 at the close in New York, before the earnings where released. The ADRs, equivalent to one ordinary share, have gained 22 percent this year.
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Private equity funds eye ending drought in U.S. energy IPOs

Private equity funds are looking to sell shares in two U.S. energy companies, people familiar with the plans said this week, deals that could end a year-long drought for Initial Public Offerings (IPOs) in the oil and gas sector.

Denver-based Extraction Oil & Gas LLC, an oil explorer and driller in Colorado’s Denver-Julesburg (DJ) basin backed by private equity firm Yorktown Partners LLC, has filed a confidential registration with the U.S. Securities and Exchange Commission (SEC) indicating it is planning on going public, people familiar with the matter said.

In its current form, Extraction would be valued at more than $3 billion in an IPO, though it could acquire more acreage and grow further, the people said.

Vantage Energy LLC, a natural gas exploration and production company, has also privately filed with the securities regulator according to the sources.

Backed by private equity firms Quantum Energy Partners, Riverstone Holdings LLC and Lime Rock Partners, Vantage has operations in Pennsylvania, Texas and Utah.

Under SEC rules, small start-up companies can confidentially file a Form S-1, used by companies planning on going public to register their securities with the SEC.

Representatives for Extraction, Vantage, Yorktown, Riverstone and Lime Rock declined to comment. Quantum did not respond to a request for comment.

Primarily a producer of natural gas, Vantage ended a previous attempted IPO in the second half of 2014 when the price of gas went on a downward spiral for 16 months. According to documents filed at the time, Vantage could have been valued at about $2 billion in enterprise value including debt. Since then, Vantage has taken advantage of lower prices to purchase additional acreage.

Natural gas prices NGc1 have bounced a bit from lows hit in the first quarter, while oil prices CLc1 also have clawed back some from 12-year lows hit early this year, prompting private equity backers to look anew at selling some or all of their investments. [NGA/] [O/R]

An IPO would partially cash out the private equity owners, and some of the capital raised would go to fund drilling programs and the acquisition of more oil resource-rich acreage, industry executives said. Outright sales could also be a popular alternative to an IPO because the private equity owners would fully realize their investments while any additional development capital would then come from the acquirer's purse.

In addition to Vantage and Extraction, nearly a dozen more natural resource drillers and producers are considering an IPO, according to more than 10 bankers, industry executives and people working in private equity firms who were interviewed by Reuters.

Most candidates are based in sought-after oil fields where drilling can be done at a low costs per barrel including Texas’ Permian basin, Colorado’s Denver-Julesburg basin, the Utica and Marcellus basin in Appalachia and Oklahoma’s SCOOP/STACK area. Those firms considering an IPO already have or are targeting more than 20,000 barrels of daily production by 2018.

“In order to IPO, companies that are well positioned in lower cost regions need to be able to say: ‘We have existing production of X barrels per day, a clean balance sheet with reasonable leverage levels and an inventory of attractive locations to develop at current prices,’” said Robert Cabes, a managing director at Intrepid Financial Partners, the oil and gas merchant bank.

Great Western Oil & Gas Company in the DJ Basin backed by The Broe Group, Denver Colorado-based Jagged Peak Energy LLC backed by Quantum Energy Partners and Brigham Resources LLC, are three producers considering going public, the people said.

Representatives for Great Western, Jagged Peak and Brigham Resources did not immediately return a request for comment.

Only two or three oil and gas producers are expected to actually make their trading debut by the end of 2016. Further offerings, as many as eight more, could have IPOs by mid-2017 depending on shareholder reception and the price of oil itself, the people said.

U.S. crude futures rallied from 12-year lows of $26-$27 in the first quarter to almost $53 in June, boosted initially by expectations, later dashed, that OPEC would freeze output and later by supply outages. They are trading above $40 a barrel this week but a global supply glut has led many traders to predict lower prices going forward.

Some IPO candidates may not reach the public markets because corporate buyers may swoop in first. Energy companies have boosted their coffers by raising more than $30 billion through secondary stock offerings since early 2015.

Centennial Resource Development got within a week of its IPO before it was bought by Silver Run Acquisition Corp SRAQU.O, run by energy industry veteran Mark Papa.

Silver Run's purchase of Centennial also signaled that private exploration and production companies were no longer being valued at a discount to their publicly traded peers, a shift that may make them easier to sell.

Silver Run, a special purpose acquisition vehicle with no other assets, increased in value by 10 percent following its acquisition of Centennial.

Some private equity firms may use the IPO process to draw out bidders in a process known on Wall Street as a "dual track" approach.

"The private equity owners may be stirring the pot in an attempt to lure a bidder,” said Geoff Davis, a managing director at investment bank Morgan Stanley.

The public valuation process can be helpful to securing a high price from private buyers. Public investors are usually willing to give a company the benefit of the doubt that oil will go up in value and also award an energy companies with a “growth premium” in anticipation of a rise in production volume.
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Rice Energy Adding $65M to Utica Drilling Budget in 2016

Rice Energy, a young company headed by relatively young leaders (the Rice boys), continues to impress with their latest quarterly update, for 2Q16.

Net production for Rice hit a record 758 million cubic feet equivalent per day (MMcfe/d), which is a 43% increase over 2Q15 and a 12% increase over 1Q16.

As CEO Dan Rice said, “We had a remarkable quarter, marked by several notable achievements, including record-low development costs and lease operating expenses, record-high production and midstream throughput volumes, and we turned to sales a company-record 18 operated wells in April.” Rice continues to focus completely on the Marcellus and Utica region, a “pure play” company.

Because they’ve lowered costs, Rice is adding another $65 million to their Utica drilling budget in 2016. Cool. About the only bad news from yesterday’s quarterly update is that the company lost $138.7 million in 2Q16, versus losing $63.5 million in 2Q15.

But keep an eye out. The Rice boys are bound to turn the financials around.…
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Marathon Oil Posts $170M Loss, But Beats Expectations

Marathon Oil Corporation reported on Wednesday a net loss of US$170 million for the second quarter, more than halving its US$386-million loss for the same period last year and beating analyst expectations.

Adjusted for one-off items, Marathon Oil posted a loss of US$ 0.23 per diluted share, slightly better than the loss of US$0.24 per share analysts had predicted.

The group’s North American net production available for sale dropped to 224,000 barrels of oil equivalent per day (boed) for Q2—13 percent less than Q1.

On the other hand, Marathon Oil’s international E&P production—excluding Libya where there is uncertainty around the timing of future output and sales levels—averaged 120,000 boed, an 11-percent increase over the same quarter the previous year. Marathon Oil attributed the higher international output to production in Equatorial Guinea and resumption of production from Brae Alpha in the U.K.

Still, the higher international output was unable to offset lower North American production and the sequential decrease in oil sands mining (OSM) output, which dropped to an average of 40,000 bpd, down from 49,000 bpd in the first quarter, mostly due to the wildfires in May.

Thus, Marathon Oil’s total production averaged 384,000 boed for the second quarter (excluding Libya), down from 388,000 boed in the first quarter and down from 407,000 boed for the second quarter of 2015.

Regarding production costs, second-quarter North American unit production costs dropped 13 percent from Q2 2015 to US$6.28 per boe. International unit production costs—not counting Libya again—fell 25 percent from Q2 2015 to US$4.34 per boe.

Looking ahead, Marathon Oil revised down its full-2016 unit production costs for North America by US$1.00 per boe, to a range of between US$6.00 and US$7.00. International unit production costs were adjusted downwards by US$0.50 per boe, to a range of US$4.50-US$5.50.

For the third quarter, Marathon Oil expects its North America output to average 200,000-210,000 boed, to reflect asset sales in Wyoming and the recent acquisition of the STACK assets in Oklahoma. For the full year, and further adjusting production guidance to divestitures and acquisitions, the company expects its total E&P production at 330,000 to 345,000 boed.

Marathon Oil also revised down its 2016 capital investment program by US$100 million to US$1.3 billion, despite including higher activity from the Oklahoma STACK acquisition.

“Coupled with recent non-core divestitures, we're delivering on our objective to further concentrate our capital allocation to the lower cost, higher margin U.S. resource plays," said Marathon Oil President and CEO Lee Tillman.

"In addition to successful portfolio management, we continued our relentless focus on reducing costs and driving durable operational efficiencies while delivering impressive new well results in the resource plays."
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One of ND's largest oil producers posts wider loss on oil price slump

One of ND's largest oil producers posts wider loss on oil price slump

Continental Resources Inc., North Dakota's second-largest oil producer, posted a quarterly loss on Wednesday that missed Wall Street's expectations because of the slump in crude prices.

The loss is an example of the difficulty facing the oil industry as it seeks to offset the period of low prices. Many companies have slashed costs to survive.

Shares of Continental fell 3 percent to $43.50 in after-hours trading on Wednesday.

Continental reported a second-quarter net loss of $119.4 million, or 32 cents per share, compared with a net profit of $403,000, or break-even on a per share basis, in the year-ago quarter.

Excluding one-time items, the company lost 18 cents per share.

By that measure, analysts expected a loss of 17 cents per share, according to Thomson Reuters I/B/E/S.

Production fell 3 percent to 219,323 barrels of oil equivalent per say. Output fell in all regions except for the SCOOP and STACK fields in Oklahoma, where Continental has invested heavily in the past year.

Despite the low prices, Continental is cash flow positive—meaning it spends less than it makes—and executives said they intend to maintain that for the rest of the year.

Continental said it now expects its production costs to fall 11 percent this year, even while it pumps 5,000 more barrels per day than previously expected.
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Apache relaxes spending

US independent Apache has started slowly releasing more cash into select operations following a sustained period of cost cutting, with spending for the year now set to come in at the high end of previous guidance.

Apache today said it had managed a 100% drilling success rate in the North Sea while adding production from three development wells in the region during the second quarter.

The Houston-headquartered firm, which also has operations in Canada, Egypt and the US, said the trio had achieved a 30-day average rate of more than 6,000 barrels of oil equivalent (boe) a daily.

Drilling has also started on the Storr play in the Beryl area, the company said in its second quarter results announcement, which revealed net losses of $244million (£185million).

In October, Apache delivered a major boost for the sector when it revealed new discoveries in the Beryl area, and another near its Forties field, with likely reserves of up to 70million boe.

Despite reporting a deficit in the three months to June 30, Apache said moderate improvements in crude prices had convinced it to slowly deploy incremental capital.

It expects spending to reach a maximum of £1.3billion this year.

Apache president and chief executive John Christmann said: “Our conservative budgeting and rigorous allocation of capital over the last 18 months have resulted in tangible benefits to the company.

“We refrained from significant development drilling in a low commodity-price environment, and instead, turned our focus to capital efficiency improvements and strategic testing.

“As a result, we have made significant progress on our cost structure and are positioning Apache very well for the future.”
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China cuts retail fuel prices

China will cut retail prices of gasoline and diesel from midnight Thursday, in line with changes in international crude prices.

The National Development and Reform Commission (NDRC), the nation's top economic planner, announced Thursday that gasoline prices would drop by 220 yuan (about 33 U.S. dollars) per tonne, while diesel prices would be cut by 215 yuan per tonne.

This is the third time this year that the NDRC had cut retail fuel prices. It is also the largest reduction of the year.

Before the latest move, this year the NDRC had cut retail fuel prices twice and raised them four times, as it implements the oil pricing mechanism introduced in 2013.

Under the mechanism, if international crude oil prices change by a price of more than 50 yuan per tonne and remain changed for a minimum period of 10 working days, then refined oil products such as gasoline and diesel are adjusted accordingly.
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U.S. states signed pact to keep Exxon climate probe confidential

A pact that 15 U.S. states signed to jointly investigate Exxon Mobil Corp for allegedly misleading the public about climate change sought to keep prosecutors' deliberations confidential and was broadly written so they could probe other fossil fuel companies.

The "Climate Change Coalition Common Interest Agreement" was signed by state attorneys general in May, two months after they held a press conference to say they would go after Exxon, the world's largest publicly-traded oil and gas company, and possibly other companies.

The signed agreement has not been made public until now, and Reuters reviewed a copy of it on Thursday.

It provides considerably more detail about the prosecutors' legal strategy than the general outline provided at their announcement in March, which was headlined by former Vice President Al Gore.

In a nod to the politically charged nature of the inquiry, which quickly spilled over into Congress and corporate shareholders meetings, the pact says signatories of the agreement should keep discussions private and "refuse to disclose any shared information unless required by law."

Besides Exxon, the agreement says other entities could be targeted if states felt they were delaying action to fight climate change.

The pact says the states may take legal action to "defend Federal greenhouse gas emissions limits" and open investigations of "possible illegal conduct to limit or delay the implementation and deployment of renewable energy technology."

It also ponders "investigations of representations made by companies to investors, consumers and the public regarding fossil fuels, renewable energy and climate change."

After numerous filings under sunshine laws, a copy of the agreement was obtained by the Energy & Environment Legal Institute, a free-market think tank. The Competitive Enterprise Institute, whose website says it opposes U.S. Environmental Protection Agency regulation of greenhouse gas emissions, had also sought the documents.

"This is far less a proper common interest agreement than a sweeping cloak of secrecy," said Chris Horner, a lawyer who represents the Energy & Environment Legal Institute.

The attorneys general, as previously reported, received guidance from well-known climate scientists and environmental lawyers before announcing the Exxon probe.

Critics have called this a sign of meddling by special interests, though prosecutors' offices have made clear climate change is a top concern of voters.

New York state's attorney's general office said confidentiality agreements are used often.

"Entering into a common interest agreement is routine practice during a multistate investigation. These agreements preserve the confidentiality of non-public information shared among state law enforcement officials," the office told Reuters.

Exxon, which has said that it has acknowledged the reality of climate change for years, has called subpoenas stemming from the inquiry unreasonable. It has also said it is being unfairly targeted by climate activists.

The company, which supports a revenue-neutral carbon tax, declined to comment.

A U.S. House of Representatives committee last month issued subpoenas to the attorneys general of New York and Massachusetts over their investigations of whether Exxon misled investors on climate change risks. The two state officials said they would refuse to comply with the subpoenas, with one calling it "unconstitutional and unwarranted" interference.

In a bid to try to force action on climate change, the state attorneys general said in March they would jointly investigate whether Exxon executives misled the public by contradicting research from company scientists that spelled out the threats of global warming.

A pact was signed in May and included California, Connecticut, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, Washington state and the U.S. Virgin Islands.

But only a couple formal inquiries have started. In June, the Virgin Islands withdrew its subpoena after Exxon called it overly burdensome and raised questions about jurisdiction.

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Canadian Natural posts smaller loss, says Horizon plan on track

Oil and natural gas producer Canadian Natural Resources Ltd reported a smaller quarterly loss, as lower expenses helped offset a slump in crude prices.

The company said the final part of the second phase of its Horizon oil sands project, located north of Fort McMurray, is expected to start up in October, with full production targeted in November.

The third phase of the project is scheduled to start in the fourth quarter of 2017, Canadian Natural had said in June.

Canadian Natural's capital spending is set to drop significantly after the Horizon project is completed, Chief Financial Officer Corey Bieber said.

The company would then focus on "opportunistic acquisitions," besides improving cash flow and investing in resource development, Bieber said on Thursday.

Canadian Natural, which produces almost all of its natural gas and natural gas liquids from fields in Alberta, British Columbia and Saskatchewan, said cash flow from operations fell nearly 38 percent to C$938 million ($717.5 million) in the second quarter ended June 30.

The company's net loss narrowed to C$339 million, or 31 Canadian cents per share, from C$405 million, or 37 Canadian cents per share.

Oil and natural gas production fell 2.7 percent to 783,988 barrels of oil equivalent per day in the quarter from a year earlier.

Canadian Natural, like many companies operating in Canada's oil sands, was affected by a massive wildfire near Fort McMurray in May that cut total crude output by more than 1 million barrels per day.
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Chesapeake Energy raises asset sales target for 2016

Debt-laden Chesapeake Energy Corp, the No.2 U.S. natural gas producer, raised its asset sales target and production forecast for the year, keeping its capital budget unchanged.

The company, which has been struggling to cope with weak oil and gas prices, raised its asset sales target to more than $2.0 billion from $1.2 billion-$1.7 billion.

Chesapeake said on Thursday it expected to sell "selected" Haynesville Shale acreage, located in northwest Louisiana.

"Financial discipline remains our top priority, and we continue to work toward additional solutions to improve our liquidity, reduce our midstream commitments and enhance our margins," Chief Executive Doug Lawler said in a statement.

The company, which had long-term debt of $8.62 billion at the end of June, said it had reduced debt by more than $1 billion so far this year.

Chesapeake undertook a couple of debt-for-equity swaps, or bond swaps, this year to reduce interest payments and debt taken to fund shale development.

The company raised its 2016 production forecast by 3 percent.

Net loss attributable to Chesapeake's shareholders narrowed to $1.79 billion, or $2.48 per share, in the second quarter ended June 30 from $4.15 billion, or $6.27 per share, a year earlier, when it took a $5 billion impairment charge.

Excluding items, the company had a loss of 14 cents per share, bigger than the 10 cents analysts on average had expected, according to Thomson Reuters I/B/E/S.
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One nook of America’s shale industry is eyeing a big comeback

 Amid the gloom and doom that’s set in all along America’s shale fields these past two years, there has been one small, but consistent, bright spot. Sand, it turns out, is a much greater tool in hydraulic fracking than drillers had understood it to be. Time and again, they’ve found that the more grit they pour into horizontal wells – seemingly regardless of how extreme the amounts have become – the more oil comes seeping out.

The message from drillers is “more, more, more sand,” said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. “All of the numbers are going up and they’re going up dramatically.”

On a per-well basis, sand use has doubled since 2011, climbing to nearly eight-million pounds, according to consulting firm IHS Inc. It’s this growth that’s sent the stock prices of the country’s four publicly traded sand miners surging more than 90% this year. True, overall sand usage in the fracking industry is still way down from the 2014 peak – more than three-quarters of America’s drilling rigs, after all, have been idled since oil prices collapsed – but the per-well increases have analysts and investors betting that the sand industry will boom again as soon as fracking activity starts to pick up even a little bit.

That moment may seem far off right now as crude prices careen again – they’re down 20% since briefly touching $51 a barrel in early June – but oil-service giants Schlumberger Ltd. and Halliburton Co. have both seen enough positive signs on the ground to declare in recent weeks that the industry has bottomed out. And if prices were to resume their rebound and just manage to climb above $60 a barrel, some 40% below pre-crash levels, analysts at Jefferies Group and Bloomberg Intelligence predict that total sand demand will soar past 2014’s record 64-million tons in as little as two years.

Sand is by no means new to the oil industry but it’s taken on an importance in fracking that it never had in traditional vertical-well drilling. Because shale rock is so dense, drillers rely on large quantities of both sand and water to tease the oilout. The water is blasted into the well at high pressure to create tens of thousands of tiny cracks in the rock. The sand then keeps the cracks open, elongates them and makes them more jagged. Increase the amount of sand, fracking outfits have found, and you increase the amount of fractures that stay open.

Another thing they’ve discovered during the downturn is that the extra money they had been shelling out for white sand shipped in from Wisconsin and Minnesota, instead of the brown sand found in the Southwest, may not have been worth it. While white sand is stronger, brown sand – which can run as much as 25% cheaper at about $60 a ton – has proved to be equally capable of maintaining cracks open.

Brown Sand

This is why sand mines in Texas and Arkansas have been a lot busier of late than those up north. US Silica Holdings Inc., the largest publicly traded frack-sand miner in the country, estimates that brown sand now accounts for more than 40% of the market, up from 16% in 2014. Two weeks ago, the company said it was buying NBR Sand, a brown-sand minernot far from Texas’s main oilfields, for $210-million with an eye to more than double output there to two-million tons a year.

US Silica’s shares have nearly doubled this year, while Fairmount Santrol Holdings Inc. tripled. Hi-Crush Partners LP rose 105% and Emerge Energy Services LP climbed 92%. In comparison, oil exploration and production companies in the S&P 500 rose 14%, while those in a broad oil-servicesindex are little changed.

“People are uber uber bullish on sand,” said Matthew Johnston, an oil-services analyst at Nomura Securities. “I get it. I understand where all the euphoria is coming from.”

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LOOP storage auction sees high participation, prices as storage demand intensifies

The August Louisiana Offshore Oil Port storage auction on Tuesday saw high trader participation combined with higher prices versus a month ago, according to industry sources familiar with the Gulf Coast market.

During the August event, 6.6 million barrels of storage space for September, October, November, December, the first-quarter 2017 strip, the second-quarter 2017 strip and the third-quarter 2017 strip. Compared to the July auction, the August event sold 250,000 more barrels of storage space for forward months.

A widened spread between the spot price and forward delivery months for sour crudes has added upward support for crude storage demand. The front-month/third-month Mars sour crude outright spread closed at minus $1.26/b Tuesday, widening from its close of minus $1.01/b July 5.

Moving into fall refinery maintenance season, anticipated seasonal declines in regional refinery runs are driving demand for crude storage, according to a Gulf Coast market source.
The auction, which operates on the Dutch auction model, saw an increase in final prices for storage. The August auction offered 4,200 block futures contracts ranging between 20 cents/b and 50 cents/b versus the July auction, which offered 3,300 block futures contracts ranging between 20 cents/b and 35 cents/b.

Capacity allocation contracts auctioned on Tuesday also included 2,400 physical forward agreements ranging between 29 cents/b and 50 cents/b versus the July auction, which offered 3,050 physical forward agreements ranging between 24 cents/b and 35 cents/b.

The storage contract, launched in March 2015, is based on crude storage capacity at LOOP's Clovelly Hub in Louisiana. Each capacity allocation contract auctioned gives the buyer the right, but not the obligation, to store 1,000 barrels of LOOP sour crude at the LOOP facility in Clovelly, Louisiana.

Once the crude storage auction is complete for the time period, a secondary market for the LOOP storage contract trades as a differential to the Matrix Markets results.
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Enbridge's Sandpiper looks to be latest victim of pipeline overbuild

The long-planned and oft-delayed Sandpiper pipeline through the U.S. Midwest may not be dead, but it appears to be on life support, a likely casualty of the oil-and-gas industry's infrastructure overbuild amid a two-year global oil rout.

After years of delays, refiner Marathon Petroleum Corp and midstream giant Enbridge Inc on Tuesday announced they would scrap their joint venture agreements and transportation services for the 450,000 barrels per day Sandpiper project, instead agreeing to acquire a portion of the rival Dakota Access Pipeline.

That $1.5 billion deal, if successful, will leave Sandpiper without Marathon as its main anchor, even though an Enbridge spokesman said plans for the line are still being evaluated. The project involves two pipeline legs stretching from North Dakota through Minnesota to Wisconsin.

Outgoing pipeline capacity from the Bakken is currently at around 641,000 bpd, according to Genscape. Once Dakota Access becomes operational, capacity will rise to 1.21 million bpd.

That projected increase comes against the backdrop of a dramatic decline in oil prices that has weighed on production in North Dakota's Bakken play, one of the biggest beneficiaries of the boom in U.S. shale production over the last several years.

The Dakota Access Pipeline, slated to stretch from North Dakota to Illinois, is expected to come online in the fourth quarter. With global oil futures down by 70 percent in the last two years, traders and analysts say there just is not enough crude in production in the U.S. Midwest for both pipelines.

According to the North Dakota Industrial Commission, the state's oil production fell to 1.05 million bpd in May, down from a peak of 1.23 million bpd in December 2014. Drillers have cut the number of rigs operating in North Dakota to 27, according to Baker Hughes, down from a peak of 203 in June 2012.

Shippers in the North Dakota area already have the Double H and Pony Express pipeline to carry crude to other markets, and the Dakota Access Pipeline will increase competition for supply.

"This reflects falling production in the Bakken. At least in the short term, there is no need for both pipelines," said Sandy Fielden, director of oil and products research at Morningstar.

Dakota Access, owned by Energy Transfer Partners, will be able to transport North Dakota crude to Patoka, Illinois, giving shippers access to markets in the Midwest, East Coast and Gulf Coast.

With oil hovering near $40 a barrel and narrow pricing differentials between regions, concerns about overcapacity are hitting midstream operators in numerous parts of the country, even in shale plays more economical than the Bakken.

For Enbridge, investing in another project could be the best step forward for a pipeline marred by regulatory delays. The $2.6 billion Sandpiper project was originally planned for startup this year, but was then pushed to 2017 after Minnesota regulators ordered an environmental review to examine alternate routes for that state's portion of the project.

In February, it was again delayed to 2019 due to further environmental reviews and permitting in the state.

If Sandpiper is ultimately shelved, it would not be the first time in the region. In 2014, Enterprise Products Partners canceled plans to build the first crude pipeline from North Dakota into Cushing, Oklahoma, citing lack of shipper support.
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HELP in action: India hydrocarbon policies tested

In March India approved a series of key policy changes under the new Hydrocarbon Exploration and Licensing Policy (HELP). This policy is about to be tested for the first time, can it revive investment interest in the struggling upstream sector?

The story of the HELP contracts is one of give and take. The introduction of a revenue sharing contract shifts significant investment risk onto contractors, but in return for greater pricing freedom. The new contract structure aims to reduce regulatory oversight and bureaucracy, but the government will receive its revenue share from day one. New open acreage licensing has been long-advocated, but lack of data could hinder interest.

There are potential upsides and downsides, but the terms will be tested via an ongoing bidding round of discovered fields being offered with similar contracting terms. Change is well needed, as gas production has dropped and oil output is stagnant:

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What projects are available for bidding?

India has placed 67 discovered oil and gas fields on offer to international and domestic companies.  There are 46 contract areas that encompass the 67 fields totalling 562 million barrels of oil equivalent (mmboe) in place, with 240 mmboe recoverable. However the average project size is less than 10 mmboe of resource.

The majority of the projects are located in shallow water, with onshore fields accounting for less than a third of resource; only a fraction of fields are located in deepwater. There is a slight tendency to oil, although the bid round includes a significant offering of gas projects.

How attractive are these projects?

This is India's first licensing round in 6 years and the fiscal and contractual regime is vastly different from previous bid rounds.  Under the new revenue sharing terms, the contractors bear significantly more risk, as contractors have sole responsibility for any budget overruns. This creates a clear downside for marginal fields and  this bidding round contains exclusively marginal fields.  

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On the upside: the new fiscal terms include the aforementioned pricing freedoms, creating potential for attractive opportunities. Additionally, conventional and unconventional exploration have been combined into a single license, creating freedom to explore throughout the duration of the contract.    

Companies are bidding on government share of net revenue as opposed to profits post cost recovery. This makes high cost projects especially high risk; this does not bode well for the deepwater projects.

There is a case to be made that the fiscal terms were never really the problem. New entrants have been rare and incumbents have relinquished acreage positions, with most citing regulatory hurdles as a barrier. The reduction of bureaucracy could be the crucial factor in achieving sustainable investment to drive a long-term recovery in India’s hydrocarbon industry.

Attached Files
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Antero Resources reports second quarter 2016 results

Antero Resources Corporation today released its second quarter 2016 financial results. The relevant condensed consolidated financial statements are included in Antero's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, which has been filed with the Securities and Exchange Commission.

Highlights Include:

GAAP net loss of $596 million, or $(2.12) per share, compared to a GAAP net loss of $145 million, or $(0.52) per share in the prior year quarter due to non-cash losses on unsettled hedges of $977 million and $198 million, respectively, driven by increasing commodity prices during each quarter
Adjusted net income of $41 million, or $0.14 per share, representing a 136% increase compared to the prior year quarter
Adjusted EBITDAX of $332 million, a 24% increase compared to the prior year quarter
Net daily production averaged a record 1,762 MMcfe/d, a 19% increase over the prior year quarter and flat sequentially
Included record net daily liquids production of 75,041 Bbl/d, a 63% increase over the prior year quarter and a 10% increase sequentially
Realized natural gas price before hedging averaged $1.93 per Mcf, a $0.02 negative differential to Nymex, with 99% of production priced at favorable markets
Realized natural gas equivalent price including NGLs, oil and hedges averaged $3.95 per Mcfe, a 3% increase over the prior year quarter

Second Quarter 2016 Financial Results

As of June 30, 2016, Antero owned a 62% limited partner interest in Antero Midstream Partners LP's ('Antero Midstream'). Antero Midstream's results are consolidated with Antero's results.

For the three months ended June 30, 2016, the Company reported a GAAP net loss of $596 million, or $(2.12) per basic and diluted share, compared to a GAAP net loss of $145 million, or $(0.52) per basic and diluted share, in the second quarter of 2015. The GAAP net loss for the second quarter of 2016 included the following items:

Non-cash loss on unsettled hedges of $977 million due to increasing commodity prices during the quarter
Non-cash equity-based stock compensation expense of $26 million
Impairment of unproved properties of $20 million

Without the effect of these items, the Company's results for the second quarter of 2016 were as follows:

Adjusted net income of $41 million, or $0.14 per basic and diluted share, a 136% increase compared to the second quarter of 2015
Adjusted EBITDAX of $332 million, a 24% increase compared to the second quarter of 2015
Cash flow from operations before changes in working capital of $269 million, a 29% increase compared to the second quarter of 2015
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Noble Energy reports smaller than expected loss, raises 2016 sales vol forecast

U.S. oil and gas producer Noble Energy Inc (NBL.N) reported a smaller-than-expected quarterly loss and raised its full-year forecast for total sales volume as it benefits from improved drilling efficiency.

Noble, like its peers, has been hit by continued weakness in crude prices. The benchmark U.S. crude Clc1 averaged $45.64 in the quarter ended June 30, about 21 percent lower than a year earlier.

The company said it expects sales volume to fall to a range of 405,000-415,000 barrels of oil equivalent per day in the current quarter, from 427,000 boepd in the second quarter.

Noble maintained its capital budget of less than $1.5 billion for 2016.

The company's net loss nearly tripled to $315 million, or 73 cents per share, in the second quarter ended June 30, from $109 million, or 28 cents, a year earlier.

Noble raised its 2016 sales volume forecast by more than 7 percent to an average of 415,000 boepd on a divesture-adjusted basis.

Noble's sales volume rose 42.8 percent to 427,000 boepd in the second quarter.

Excluding items, Noble reported a loss of 24 cents per share. Analysts on average were expecting a loss of 29 cents, according to Thomson Reuters I/B/E/S.
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Occidental Petroleum reports quarterly loss on oil price slide

Occidental Petroleum Corp. swung to a loss in its latest quarter and revenue fell by more than a quarter as the company continues to deal with low energy prices.

Houston-based Occidental, an oil and gas exploration and production company, has been working to cut costs amid the sustained drop in energy prices. Oil and gas cash operating costs fell 16% in the second quarter compared with the same quarter last year. The price of realized crude oil price fell 27% to $39.66 per barrel from last year, but is up 35% from last quarter.

Occidental hasn’t significantly cut back production. In its latest quarter, production fell 0.8% from a year earlier to 653,000 barrels of oil equivalent a day.

Occidental said it is continuing to reduce its exposure to some areas in the U.S., Middle East and North Africa regions. Production of these noncore assets 59%.

Occidental reported a loss of $139 million, or 18 cents a share, compared with a profit of $176 million, or 23 cents a share, a year prior.

Total sales from fell 27% to $2.53 billion with double-digit declines across its segments.

Occidental Petroleum Corp (OXY.N) said it expects to grow 2016 production at the high end of its forecast of a 4-6 percent increase, while staying within its budget of $3 billion, helped by productivity and efficiency gains.

A fall in costs of oilfield services, coupled with increased productivity in the hydraulic fracturing process, has resulted in drastically lower costs for each new well, while yielding more barrels.

Occidental said its production from U.S. fields increased to 302,000 barrels of oil equivalent per day (boe/d) in the second quarter from 298,000,000 boe/d a year earlier, with increased output from its Permian resources in west Texas and southeast New Mexico contributing to that rise.

The company's production from ongoing operations, including its international business, rose to 609,000 boe/d from 552,000 boe/d.
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Concho Resources reports second quarter 2016 results

Concho Resources Inc. today reported financial and operating results for the second quarter of 2016.

Second-Quarter 2016 Highlights

Delivered quarterly production of 13.2 million Boe, or 145.2 MBoepd, exceeding the high end of the Company's guidance.
Raised full-year 2016 production outlook to a range of 0% to 2% annual growth and maintained capital expenditure outlook.
Reduced per-unit lease operating expense by 20% year-over-year and quarter-over-quarter and lowered full-year 2016 guidance for per-unit lease operating expense.
Reported a net loss of $265.7 million, or $2.04 per diluted share. Net income totaled $33.9 million, or $0.26 per diluted share, on an adjusted basis (non-GAAP).
Generated $413.6 million of EBITDAX (non-GAAP).

Tim Leach, Chairman, Chief Executive Officer and President, commented:

'We continue to execute a disciplined strategy that is focused on improving capital productivity while extending our track record of solid operational performance. The second quarter exceeded expectations both operationally and financially. Production surpassed the high-end of our guidance range, and for the fourth straight quarter our capital spending was funded within cash flow. Our updated 2016 outlook for annual production growth and lower cash operating expenses reflects the quality of our assets and our efforts to pursue sustainable efficiencies that enhance full-cycle returns. The momentum we are generating combined with the scale of our core assets in the Permian Basin reinforces our 2017 outlook for double-digit production growth while continuing to balance capital and cash flow.'
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Alaska Again

                                          Last Week  Week Before    Year Ago

Domestic Production5 '000... 8,460          8,515 -55        9,465
Alaska        ...............................427             482 -55           458
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Summary of Weekly Petroleum Data for the Week Ending July 29, 2016

U.S. crude oil refinery inputs averaged about 16.9 million barrels per day during the week ending July 29, 2016, 266,000 barrels per day more than the previous week’s average. Refineries operated at 93.3% of their operable capacity last week. Gasoline production decreased last week, averaging 10.0 million barrels per day. Distillate fuel production increased last week, averaging over 4.9 million barrels per day.

U.S. crude oil imports averaged over 8.7 million barrels per day last week, up by 301,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.3 million barrels per day, 10.4% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 637,000 barrels per day. Distillate fuel imports averaged 96,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.4 million barrels from the previous week. At 522.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 3.3 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 1.2 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories rose 0.3 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 2.1 million barrels last week.

Total products supplied over the last four-week period averaged about 20.5 million barrels per day, up by 0.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.8 million barrels per day, up by 2.2% from the same period last year. Distillate fuel product supplied averaged over 3.6 million barrels per day over the last four weeks, down by 1.9% from the same period last year. Jet fuel product supplied is up 2.9% compared to the same four-week period last year.

Cushing down 1.1 mln bbl
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Oil Traders Have Almost Zero Faith in Key Libyan Ports Resuming

Oil traders who specialize in purchasing cargoes from Mediterranean ports view the chances of an imminent resumption of shipments from two key Libyan terminals as almost zero, even after a deal was struck to reopen the facilities.

Three out of six traders questioned by Bloomberg said they don’t expect a single cargo to be shipped from Ras Lanuf or Es Sider ports by the end of next month. Two said they were pessimistic any deals would last long enough to allow a resumption, while another said only a few cargoes would get shipped if there’s a restart. Libya’s unity government reached an agreement July 28 with Petroleum Facilities Guard members over pay in exchange for reopening the terminals.

Libyan oil officials have made multiple pledges over the past few years that the nation’s exports would revive, only for those promises to fail to materialize. A resumption of the North African country’s production to 2011 levels would add about 1.3 million barrels a day to world supplies, extending a glut in global crude markets that caused prices to crash. While the two ports have reopened, the fields that feed them have yet to restart.

“It always seems to be a very game-theory situation here, in that as long as the oil’s not flowing, there’s nothing to fight over: everyone’s incentivized to make a deal,” said Seth Kleinman, European head of energy strategy at Citigroup Inc. “As soon as the oil starts flowing again, along with the money, then you have something to fight over” and export restarts will be “fitful”.

Exports from all Libyan ports dropped to about 226,000 barrels a day in July after reaching a six-month high in June, according to ship-tracking data compiled by Bloomberg. There have been no exports from either port since December 2014 with force majeures in place. Production is about 300,000 barrels a day compared with almost 1.6 million in 2011 and the ouster of Moammar Qaddafi.

Traders remain skeptical that a regular flow of crude can be achieved in the near future because of damage to infrastructure at the terminals and also because ofblockades by tribes and local factions the ports and oil fields. Those deposits include the Repsol SA-operated Sharara, Libya’s largest, and ENI SpA’s El Feel, or Elephant.

Two of the traders booked ships previously for cargoes that were subsequently canceled, making them less confident about a restart now, they said. The six traders asked not to be identified because they aren’t authorized to speak to the media.
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Iran Adopts Oil Contract as Glut No Barrier to Boost Output

Iran approved an outline for a new oil contract model, taking the OPEC member a step closer to welcoming foreign investment in its energy industry and boosting production even more into an oversupplied market.

The outline was approved at a cabinet meeting Wednesday, the official Islamic Republic News Agency reported, without saying where it got the information. Priority will be given to boosting production at jointly owned oil and gas fields, state radio reported, citing Oil Minister Bijan Namdar Zanganeh. The government wants to lure international oil companies that can make long-term investments worth billions of dollars and bring cutting-edge technology into Iran after sanctions that restricted its crude supplies were eased in January.

Big oil companies such as Italy’s Eni SpA and France’s Total SA have expressed an interest in developing Iran’s oil and gas fields. Iran has been working on the oil contract model for the past two years. The country hopes companies will invest as much as $50 billion a year. It’s already succeeding in meeting its pledge to regain market share it lost due to the sanctions over its nuclear program. Production was 3.55 million barrels a day in July, 27 percent higher for this year and the most since December 2011, according to data compiled by Bloomberg.

“Any process is going to take time and a lot of steps before any investment goes into the ground,” Edward Bell, commodities analyst at Emirates NBD in Dubai, said by phone. “This isn’t going to be a step change in the way markets are going now.”

Brent crude prices fell 15 percent in July amid a growing recognition the global surplus of crude will take time to clear. Iran seeks to reach an eight-year high for daily output of 4 million barrels by the end of 2016, with foreign investment helping it regain the position as OPEC’s second-largest producer. It was third-largest in July, according to data compiled by Bloomberg.

The new contract model was approved in a cabinet session presided by President Hassan Rouhani. The Oil Ministry will review each contract to be signed by potential new investors, including details on price, duration and other terms of the project, according to state radio.

Investors will want to know exactly what conditions they will face in Iran, such as joint venture regulations and dispute resolution, Emirates NBD’s Bell said. “Once we get the full details on that, we will get a much better sense of how attractive the contracts are.”
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U.S. refiner HollyFrontier's adjusted profit misses estimates

U.S. refiner HollyFrontier Corp reported a lower-than-expected quarterly adjusted profit, hurt by weak refining margins.

Crack spreads 1RBc1-CLc1, the difference between the prices of crude oil and refined products, have narrowed sharply due to a spike in distillate and gasoline inventories in the United States.

HollyFrontier's gross margin fell to $8.88 per produced barrel in the second quarter, from $17.42 a year earlier.

The company said it incurred $57 million in costs during the quarter to comply with the U.S. Environmental Protection Agency's Renewable Fuel Standard program.

The RFS program requires oil refiners to blend more renewable fuel or buy paper credits in an opaque, sometimes volatile market. Compliance credits to meet the standards, known as Renewable Identification Numbers (RINs) were about 25 percent higher in the second quarter than a year earlier.

Texas-based HollyFrontier's refinery utilization rate fell to 96.7 percent in the quarter, from 100.7 percent a year earlier.

The net loss attributable to the company's shareholders was $409.4 million, or $2.33 per share, in the quarter ended June 30, compared with net income of $360.8 million, or $1.88 per share, a year earlier.

Excluding items, the company earned 28 cents per share, lower than the average analyst estimate of 32 cents, according to Thomson Reuters I/B/E/S.

Sales and other revenue fell nearly 27 percent to $2.72 billion, beating analysts' expectations of $2.42 billion.
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Sabine Pass Train 2 produces first LNG, Genscape says

The second train at Cheniere’s Sabine pass liquefaction and export plant in Louisiana has started producing liquefied natural gas, according to analytics firm Genscape, that has infrared cameras pointed at the facility.

“Genscape’s IR cameras witnessed the methane stacks come online with the increased pipeline nominations to Sabine the past two days (average 984 MMcf/d) up from the previous thirty day average of 640 MMcf/d,” the analytics firm said in a notice issued on July 29.

Genscape said in the notice it now expects the second liquefaction train to have three months of startup where the engineering procurement and construction checklist is completed allowing for the sign over from LNG engineer Bechtel to Cheniere.

“This sign over would represent the pre-commercial status as seen at Train 1 right now,” it added.

Cheniere said earlier this year that the first cargo from the second train is expected to be shipped in mid-August.

The Houston-based company took over control of the first liquefaction train in May from Bechtel. First commercial delivery is expected to occur in November when the 20-year LNG sales and purchase agreement with Shell commences.

Sabine pass export plant, first of its kind to ship U.S. shale gas overseas, shipped 20 cargoes since it started producing the chilled fuel in February.

The majority of these exports went to South America, followed by the Middle East, Asia, and Europe.

Cheniere plans to build over time up to six liquefaction trains at Sabine Pass, which are in various stages of development. Each train is expected to have a nominal production capacity of about 4.5 mtpa of LNG.
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Federal report slams Tesoro for failing basic safety protocols

“These incidents provide evidence of deficiencies in the refinery’s organizational policies and practices governing safe work,” the U.S. Chemical Safety and Hazard Investigation Board, or CSB, wrote in a 60-page report released Tuesday. “The fact that these incidents continued for an extended period demonstrates a culture that does not effectively prioritize worker safety.”A federal safety board slammed Tesoro Corp. for failing to follow basic safety procedures at a California refinery that led to multiple sulfuric acid accidents over several years that burned or injured 19 employees.

A lack of safety protocols led to two sulfuric acid releases at Tesoro Corp.’s Golden Eagle Refinery in Martinez, California in 2014 that burned workers and released 84,000 pounds of sulfuric acid in one incident, according to the investigation.

The agency said the second accident that year on March 10 was similar to a 1999 incident at the refinery when it was under different ownership that killed four people, indicating that the Tesoro hadn’t changed practices to prevent similar acid spills after it purchased the Martinez facility in 2002.

“Similarities between the two incidents suggest that the Tesoro Martinez refinery did not effectively continue to implement or communicate important safety lessons” from the 1999 accident, investigators wrote.

Brendan Smith, spokesman for San Antonio-based Tesoro, said the refiner has made a number of improvements since 2014, including standardizing tubing assembly and testing and updating protective equipment and standards.

“Safety is an integral part of everything we do at Tesoro,” he said in an emailed statement. “We strive for an injury-free workplace by proactively managing risks, following rigorous standards, ensuring our leadership is committed and our employees have a personal responsibility for safety.”

Smith also said the report contained inaccuracies, but he declined to specify what they were.

CSB investigators examined multiple accidents at the company’s Martinez refinery from 2010 through 2014.

On February 12, 2014, two employees at the refinery suffered first and second degree chemical burns while working to put a sulfuric acid sampling system back into service at the alkylation unit in the refinery. As they were working on a valve, tubing that was by them came apart at a connector and sprayed them.

The two workers were transferred by ambulance and helicopter for treatment of their burns. Both workers wouldn’t return back to work for more than 150 days. Meanwhile acid continued to spray from the tubing for more than two hours and approximately 84,000 pounds of sulfuric acid were released.

Investigators faulted the company for reporting the incident to federal regulators as a “minor personal safety event” instead of a process safety event that would have required additional follow up.

“Despite the serious nature of the employee injuries and quantity of hazardous chemicals released from the loss of containment, Tesoro challenged the CSB’s authority to investigate the incident and failed to preserve key evidence,” the report said.

The California Occupational Safety and Health Administration investigated the incident and issued citations totaling $51,450.28 The citations were later reduced to three general and one serious, for a total penalty of $43,400.

During the CSB’s investigation, workers told investigators they weren’t issued proper personal safety protection, such as acid suit jackets. They also said the sodium hydroxide solution or “caustic” sampling systems were even more hazardous than the sulfuric acid sampling systems.

“You crack it open a little bit and it just spits out,” one worker told the CSB. “And you have to hide yourself behind piping to shield yourself from anything. It’s like one of the only defenses that you have.”

Another worker told investigators that numerous caustic spray incidents had occurred but employees at the refinery were fearful of reporting the incidents and said they were instead just “washing their hands.”

“You know you’re not washing your hands,” the employee said. “You don’t wash your hands out there. Okay. But if they’re getting it off their face, and they don’t want to report it, you know, just like I said, in fear of Tesoro.”

After the concerns were brought to OSHA’s attention, Tesoro modified the caustic sampling stations to minimize worker exposure, developed a procedure for workers to take caustic samples and gave sample takers acid suits and air-purifying respirators.

A little less than a month later on March 10, a similar incident at the refinery occurred when sulfuric acid sprayed two contract workers while they conducted planned non-routine maintenance work to remove piping in the same alkylation unit. The workers received first and second degree burns. OSHA fined Tesoro $45,970 and the contractor was fined $13,500.

“We have, and continue to, share information with industry groups to ensure that others in our industry can also learn from these events,” Tesoro’s Smith said. “We are committed to continuing our journey toward an injury-free work place by nurturing a positive process safety culture and employing the right tools and processes.”
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Guerrilla Pipeline Attack Forces Colombia to Shut In Oilfields

Colombia, South America’s third-largest oil exporter, shut in production in at least three oilfields after attacks by Marxist guerrillas blew up one of the country’s main outlets to ship crude.

The attack on the Cano Limon-Covenas pipeline, which transports oil to Colombia’s Caribbean coast for export, forced production to be shut at the Cano Limon, Chipiron and Caricare oilfields, according to Humberto Alvarez, an oil workers’ union official who also works in one of the fields. The fields were producing a combined 56,000 barrels daily, or about 6 percent of the country’s output.

Colombia’s second-largest pipeline was attacked in early July and repairs have been dragging on for almost a month because of bad weather and because the Armed Forces need to guarantee security of personnel working on the repairs, Alvarez said. The pipeline is “likely to restart today or tomorrow,” he said Tuesday, allowing fields to ultimately resume production.

The Marxist rebels often attack oil infrastructure as a means of hitting the government’s finances and the nation’s biggest source of export revenue. The current attack was the third this year.

The guerrilla attack has spoiled Colombia’s plans to keep oil output above 900,000 barrels a day until the end of this decade. The country, once a star producer in Latin America, saw oil output fall 12 percent to 888,000 barrels a day in June from a year earlier, according to data to the country’s Mines and Energy Ministry. Production fell due to lower oil prices, Minister German Zapata said.

It’s bad news for exports as well. Ecopetrol, the operator of the Cano Limon pipeline, issued a force majeure, a commercial term to say it won’t be able to meet its contractual obligations to transport crude to the Covenas oil terminal for export.

Brent crude settled at $41.80 a barrel Tuesday on the London-based ICE Futures Europe exchange, down about 20 percent in the past year and around 60 percent in the past two
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Devon Energy posts surprising adjusted profit on cost cuts

U.S. oil producer Devon Energy Corp posted an unexpected adjusted quarterly profit on Tuesday and narrowed its net loss as drastic cost cuts, especially in labor and supply expenses, offset the slump in crude prices.

The cost cuts highlight the stark choices facing Devon and the rest of the oil and natural gas industry, with commodity prices mired in a steep slump.

Devon said it cut lease operating expenses, which include labor, supply and other costs, by 26 percent in the quarter and is on track to cut costs by $1 billion this year.

The company reported a second-quarter net loss of $1.57 billion, or $3.04 per share, compared with a loss of $2.82 billion, or $6.94 per share, a year earlier.

Excluding asset impairment charges, restructuring costs and other one-time items, Devon earned 6 cents per share.

By that measure, analysts expected a loss of 19 cents per share, according to Thomson Reuters I/B/E/S.

Shares of Devon rose slightly in after-hours trading on Tuesday to $36.13 per share.

Production during the quarter fell 5 percent to about 644,000 barrels of oil equivalent per day.

Last month Devon sold its stake in a Canada pipeline for $1.1 billion.

That deal came after Devon bought 80,000 acres in Oklahoma in late June from a private owner for $1.9 billion.

Both deals are part of Devon's plan to realign its portfolio by selling more than $3 billion in assets and focusing on areas where management thinks the company has the best chance of success.

Devon plans a conference call to discuss the quarterly results at 1500 GMT (11 a.m. ET) on Wednesday.
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Nabors reports smaller-than-expected loss as costs fall

Contract driller Nabors Industries Ltd reported a smaller-than-expected quarterly loss as costs fell, sending its shares up 3.6 percent in extended trading.

The company said the near-term rig count would increase gradually only when oil prices stabilize at $50 per barrel.

Nabors averaged 159.1 rigs in the second quarter, down from 187.9 rigs in the first quarter.

Nabors added that it expected near-term volume and pricing to decline when U.S. term contracts expire and it adjusts to spot market prices.

The company also said it reduced debt by $87 million in the second quarter. Its long-term debt was $3.5 billion as of June 30.

Nabor's total costs fell 11.2 percent to $744.85 million.

Net loss attributable to Nabors widened to $184.7 million, or 65 cents per share, in the second quarter ended June 30, from $36.8 million, or 13 cents per share, a year earlier.

The bigger loss was largely due to an impairment charge related to the company's investment in C&J Energy Services Ltd.

Total revenue fell 40 percent to $517.1 million.

The company's loss was 35 cents per share, excluding a gain of 9 cents related to renegotiation of two contracts as well as early termination revenue, smaller than the average analyst estimate of 45 cents, according to Thomson Reuters I/B/E/S.

Up to Tuesday's close of $8.69, Nabors' shares had fallen 24.6 percent over the last 12 months.
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NGL Exports Driving Pipeline Projects in OH & PA

NGLs (natural gas liquids, including ethane, propane and butane) are changing the midstream game in Ohio.

We spotted a story in the Youngstown Business Journal that talks about shipping NGLs out of the Marcellus/Utica region–exporting them to other markets both domestic and international.

A fascinating part of the article is an interview with Sunoco Logistics Partners about their Mariner East 1 and 2 projects and what Sunoco LP has planned…
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Pemex loses U.S. appeal of $406 million arbitration award

A U.S. appeals court on Tuesday upheld a decision confirming a $406 million arbitration award won by a unit of KBR Inc in a contract dispute with Mexico's national oil company, Pemex.

The 2nd U.S. Circuit Court of Appeals in New York let stand a decision confirming an award of $300 million even though a Mexican court had nullified it, and upheld a lower court ruling that added $106 million to the judgment.

Representatives of Pemex and KBR, a U.S. engineering and construction company, did not immediately respond to requests for comment.

The ruling came after years of litigation between COMMISA, a Mexican subsidiary of KBR, and , a Pemex subsidiary, that began in 2004 and resulted in court challenges in two separate countries.

The dispute stemmed from agreements COMMISA reached with Pemex beginning in 1997 to build oil platforms in the Gulf of Mexico.

Difficulties between the two companies emerged as Pemex insisted the platforms be fully constructed before being placed in the Gulf of Mexico, which COMMISA considered impractical, according to court papers.

In 2004, Pemex gave notice that it intended to rescind the contract, saying COMMISA had failed to meet various terms and had abandoned the project. Pemex also seized the platforms, which were largely complete, and ejected COMMISA from the work sites.

COMMISA subsequently began legal proceedings, including an arbitration demand filed with the International Chamber of Commerce (ICC). An ICC tribunal in 2009 found that Pemex breached its contracts with COMMISA and awarded $300 million.

U.S. District Judge Alvin Hellerstein in Manhattan subsequently confirmed the award in August 2010. Pemex appealed to the 2nd Circuit and also challenged the award in Mexico, where a court nullified it.

The 2nd Circuit then sent the case back to Hellerstein to consider the effect of the Mexican court's ruling. He ultimately declined to defer to that decision and again confirmed the award.

The case is Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploración Y Produccion, 2nd U.S. Court of Appeals, No. 13-4022.
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Asian bookings of West African crude to slip lower in August

Cargoes of West African crude oil sailing east are on track to fall in August on fierce competition, shaky demand and disruptions in Nigerian loadings
that forced at least one cancelled cargo, according to a Reuters survey of shipping fixtures and traders on Tuesday.
A total of 55 cargoes, for 1.685 million barrels per day (bpd) are booked to sail to Asia this month. The total is just under 2 percent lower than the planned bookings in July, but is more than 8 percent lower than August last year.

Overall buying in Asia is in question as refinery margins hit five-year lows last month due to a growing excess of refined products. Some refineries are already processing less crude, while others are preparing for maintenance later in the third

At the same time, nearly all crude oil sellers are targeting Asia. Imports of Iranian crude from China, India, Japan and South Korea increased markedly in June, the latest month of data available, as Iran's efforts to regain market share lost during
years of snactions paid off.

As a result, some West African oil has been edged out. The biggest difference from a year earlier was in bookings for India, due in part to the unpredictability of Nigerian oil loadings.

While the shipments to India were slightly higher than July, they are some 36 percent lower on a barrels per day basis compared with August 2015. State-run refiner HPCL was forced to cancel its booking of the VLCC Desh Vaibhav last month after ExxonMobil declared force majeure on Qua Iboe crude due to a
pipeline problem.
While IOC rebooked the same vessel to carry other Nigerian grades, including Agbami, to India, Exxon has yet to reissue Iboe loading programme. India is set to take an almost equal amount of Angolan and Nigerian cargoes in August, with six of the former and seven of the latter.

China's bookings fell slightly from July. Key trader Unipec had offered some of its August-loading Angolan oil cargoes for sale elsewhere in the Asia, which sources said was related in part to flooding across China that disrupted some refinery

Energy Aspects had estimated that refinery throughput would fall by around 200,000 bpd in July, which others said would have a knock-on effect on the crude the country chose to import later.
 COUNTRY    August       BPD '000s  July         BPD '000s
            cargoes                 cargoes      
 CHINA       30           919        32           981
 INDIA        16           490        15           460
 INDONESIA  2            61         4            123
 TAIWAN     4            123        3            92
 JAPAN        0            0          0            0
 S. KOREA   0            0          0            0
 OTHERS     3            92         2            61
 TOTAL       55           1,685      56           1,716
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Petronas May Delay Canadian LNG Project

Malaysia’s state oil company is considering delaying a Canadian liquefied-natural gas project over concerns about oversupply and cheap competing fuels, according to two people familiar with the matter.

Petroliam Nasional Bhd., known as Petronas, so far has put up roughly a third of the estimated $27.5 billion cost of the Pacific NorthWest LNG project in British Columbia, which will liquefy and export natural gas. The plan has been to begin commercial operations in 2019, according to the Pacific NorthWest website.

The Canadian government is weighing approval. The next step would be for Petronas and its partners—Brunei National Petroleum Co., China Petroleum & Chemical Corp., Indian Oil Corp. and Japan Petroleum Exploration Co.—to confirm the final investment decision.

In calculating the project-price estimate, Petronas said it included what it paid in 2012 for Calgary-based Progress Energy Resources Corp. which will produce the gas, as well as the cost of the proposed two liquefaction plants, marine terminal, pipeline and storage tanks.

People familiar with the matter told The Wall Street Journal that the oversupply of LNG and lower oil and gas prices have rendered the project unattractive at the moment. They declined to say how long the delay might be.

Other companies have already pushed back big LNG plans. Anglo-Dutch giant Royal Dutch ShellPLC last week said it was deferring a final investment decision on an export facility in Lake Charles, Louisiana, after earlier in July doing the same for an export project in Kitimat, British Columbia.

LNG prices have been softening since 2014 as demand has weakened, and over the next five years new supply from Australia, the U.S. and Russia is set to hit the market. Although Asian spot LNG prices climbed last week, driven by new demand from Argentina, falling crude-oil prices—down more than 20% since early June—may weigh on them going forward.

Weaker oil prices have already taken a toll on Petronas, Malaysia’s only Fortune 500 company. Its first-quarter profit after tax was down 60% from a year earlier, to 4.6 billion ringgit (US$1.13 billion) from 11.4 billion ringgit.

The unlisted company, which generates most of the Malaysian government’s oil and gas revenue, warned that oil prices and currency volatility would continue to affect its performance. Petronas is expected to announce its second-quarter results Aug. 22.

The company said in January that it would cut its spending by some $11.4 billion over the next four years, and in March that it was cutting 1,000 jobs.
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BP Aims to Increase Gas From India’s KG-D6 Fourfold by 2022

BP Plc is working with its partner Reliance Industries Ltd. to increase natural gas production from the deepwater D6 block in the Krishna Godavari basin as much as fourfold by 2022, according to the chief of the British company’s India unit.

The companies aim to produce 30 million to 35 million metric standard cubic meters a day of gas from the block on India’s east coast after they develop three new fields, Sashi Mukundan, head of BP’s India unit, said Monday in New Delhi. Gas production from KG-D6 averaged about 8.7 million cubic meters a day in the April to June quarter, said in a July 15 presentation.

The companies are preparing to restartwork in four offshore oil and gas blocks as they seek to revive development activity stalled for seven years by disputes with the government. Reliance and BP intend to withdraw from multiple arbitration proceedings against the government related to KG-D6 people with knowledge of the plan said in May. Reliance spokesman Tushar Pania declined to comment Monday on the production target.

The effort to resolve disputes with the government “has created confidence for us to move forward,” Mukundan said. BP and Reliance are looking to develop three discoveries in three different fields and invest "several billion dollars,” he said.

Production from the KG-D6 block, discovered in 2002, has tumbled since hitting a peak in 2010 of around 62 million cubic meters a day. The companies continued with offshore exploration activities there, while pausing development drilling because of disputes with the government over gas prices and cost recovery.
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Russia Oil Output Posts 24th Month of Year-on-Year Gains in July

Russia Oil Output Posts 24th Month of Year-on-Year Gains in July

Russian oil output rose 1.8 percent in July, extending a run of year-on-year gains to 24 months.

Production climbed to 10.85 million barrels a day, according to data from the Russian Energy Ministry’s CDU-TEK unit. That was little changed from June and compares with a post-soviet record of 10.91 million barrels a day in January.

Russia’s oil output has proven resilient since crude’s 2014 collapse as a weaker ruble and a progressive tax regime cut costs at existing developments. Projects commissioned by companies such as Novatek OJSC and Gazprom Neft PJSC when oil was trading near $100 a barrel continue to bolster production.

Exports rose 4.7 percent to 5.28 million barrels a day in July from a year earlier, according to the data. That was 3.2 percent down on June.

Russian oil production will probably increase to 11.65 million barrels a day by 2018, according to research last month by Goldman Sachs Group Inc.
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China's Unipec to give up oil megatanker storage lease

The UK-based trading arm of Beijing-backed Sinopec will give up the megatanker it booked to park crude in Asia at the onset of the drop in global prices two years ago, sources told Reuters.

Unipec UK took over a lease on the TI Europe, one of just two Ultra Large Crude Carriers capable of holding more than 3 million barrels of oil, in the Straight of Malacca in late 2014, just as oil prices began to slide below $100 per barrel and the excess of crude was filling the world's on shore tanks.

The UK arm handles most of the crude oil purchased from West Africa and the North Sea that is shipped east.

It used the ship for "floating storage", as oil traders do when they need logistical flexibility, do not have space in cheaper land tanks or expect the price of oil to fall so significantly in the near term that it is better to store it wherever they can rather than sell.

Since then, Unipec, which declined to comment on the booking, has moved oil from around the world onto the ship as either a stopping off point for its own refineries, or to trade on to other refiners when prices rose.

The lease on the vessel, owned by Belgian tanker operator Euronav, will expire in September, the sources said, when another trading firm or even another part of Unipec, such as the its branch that deals with Middle Eastern and Far Eastern crudes, could book it.

Unipec's time charter was booked at $40,000 per day, and new bidders were already asking for closer to $36,000 per day, according to sources.

Rates for Very Large Crude Carriers, the next-size-down supertankers and a much more widely traded market, have also fallen significantly due to an excess of ships and waning demand for them.

Hauling crude on the benchmark Middle East to Japan route fell to $16,900 on Friday, according to data from British shipping services firm Clarkson. That is the lowest since October 2014 and compared with $102,000 per day on the same route on January 1-4, according to Clarkson data.

But even as prices drop, which makes it more affordable to use ships as storage, brokers said some are holding off in booking long-term time charters, preferring to store oil in tanks on land or book ships for individual journeys in the hope that rates could drop further.

"It's too risky for anyone to lock anything in," one ship broker said.
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Sinopec to sell stake in gas pipeline business under reform push

China's Sinopec Corp said on Tuesday it would sell half of its premium natural gas pipeline business to investors, a move spurred by Beijing's reform push to boost efficiency and increase infrastructure investment in cleaner fuel.

Sinopec, the country's second-largest oil and gas group, said it would hold 50 percent in the Sichuan-East China pipeline project after the completion of the divestment plan that has won board approval.

It did not give a value of the target assets, or a timeline for when the sale would be completed.

The government is keen to boost investment in the country's patchy 90,000-km gas grids, which are less than a fifth the size of the system in the United States. This has created a major bottleneck that limits consumption of gas, which has half the greenhouse gas emissions of China's biggest energy source, coal.

Sinopec has said it spent 62.7 billion yuan ($9.45 billion) to build the pipeline that runs 2,200-kilometres (1,370 miles) from the southwestern province of Sichuan, a top gas producing basin, to Shanghai on the east coast.

Its Sichuan-East China pipeline project, which started commercial operation in 2010, is able to carry about 12 billion cubic metres of natural gas a year, or about six percent of the country's total gas consumption.

Industry experts said Sinopec's plan, similar to that of its larger domestic rival PetroChina announced seven months ago, was a prelude to reform packages Beijing is expected to roll out that targets sectors including oil and gas pipelines.

One of the government reforms on the agenda, experts said, would likely be to break the dominance of PetroChina and Sinopec over key pipeline assets, and also cut the state-supervised transportation costs.

"It's a good time for Sinopec to recoup at least part of its investment over the years and finance more pipeline capacity building while still able to maintain a controlling stake," said Li Yao, founder and Chief Executive Officer of Beijing-based consultancy SIA Energy.

Under the reform plans, the two energy giants would be also under pressure to separate gas transportation from sales, which they currently bundle together. This would effectively lower the cost of fuel for consumers and allow third-party access, experts said.

Sinopec's pipeline sale is likely to attract institutions or funds that are seeking steady, fixed returns, Li said.

After PetroChina's pipeline spin-off at the end of last year, the company held 72.26 percent in a restructured pipeline division, called PetroChina Pipeline, while other partners, including institutional investors and non-state firms, held the remaining 27.74 percent.
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Chevron’s Wheatstone LNG project moving forward, first cargo expected in mid-2017

Construction work on Chevron’s US$29 billion Wheatstone LNG project in Australia is progressing with first cargo still expected in mid-2017.

“The Wheatstone drilling campaign is now complete, with all nine development well flowbacks successful. Offshore at the Wheatstone Platform hook-up and commissioning is progressing, and the accommodation support vessel has demobilised,” Chevron said in the latest project update.

Eighty percent of the Wheatstone project’s foundation capacity will be fed with natural gas from the Wheatstone and Iago fields, which are located about 200km north of Onslow off Western Australia’s Pilbara coast. The remaining 20 percent of gas will be supplied from the Julimar and Brunello fields.

The gas will be supplied to the project’s onshore liquefaction and export plant located 12 kilometers west of Onslow in the Pilbara region. The LNG plant will consist of two LNG trains with a combined capacity of 8.9 million metric tons per annum.

According to the project update, at the plant site, the export jetty and LNG loading platform are complete, and all LNG Train 1 modules are on site with structural, mechanical and piping works continuing.

“Delivery of Train 2 modules continues, with 21 of 24 modules now on site. The LNG storage tanks are nearing completion with hydro-testing activities complete.”

The operations centre facilities are also complete and workforce mobilised. At the laboratory and maintenance workshop, commissioning and handover activities are underway, according  to the update.

To remind, Chevron has earlier this year pushed back first Wheatstone LNG cargo from the end of this year to mid-2017 due to the late delivery of modules from Malaysia.

The LNG project is a joint venture between Australian subsidiaries of Chevron (64.14 percent), Kufpec (13.4 percent), Woodside (13 percent), and Kyushu Electric (1.46 percent), together with PE Wheatstone, part owned by Tepco (8 percent).

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Oil settles above $40 a barrel (depends when you looked) after falling below threshold in intraday trading

Futures extended their rout after tumbling 14 percent in July. Saudi Arabia cut prices to Asian customers as the country continues to fight for market share. Drillers in the U.S. boosted the number of rigs seeking oil for for a fifth week, the longest run of gains since last August, according to data from Baker Hughes Inc. U.S. crude and gasoline supplies are at the highest seasonal level in at least two decades.

“We got here on the back of excessive storage in crude oil and gasoline,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The storage levels are so out of whack.”

Oil has tumbled from its recent peak in early June, ending a recovery that saw prices almost double from a 12-year low in February. A settlement at this level would leave crude down more than 20 percent from the recent high, which would characterize a bear market. The persistence of the supply overhang is upsetting industry expectations, with BP Plc, Royal Dutch Shell Plc and Exxon Mobil Corp. reporting second-quarter earnings last week that were worse than estimated.

West Texas Intermediate for September delivery dropped $1.54 to  settle at $40.06 a barrel  on the New York Mercantile Exchange. Futures touched $39.86, the lowest since April 20. Brent for October settlement fell $1.49 to $42.04 a barrel on the London-based ICE Futures Europe exchange.

Energy companies accounted for the 10 biggest losers in the Standard & Poor’s 500 Index. Exxon and Chevron Corp., the largest U.S. energy producers, dropped 3.2 percent and 2.9 percent, respectively.

Global Glut

State-owned Saudi Arabian Oil Co. said Sunday it will sell cargoes of Arab Light in September at $1.10 a barrel below Asia’s regional benchmark. That is a pricing cut of $1.30 from August, the biggest drop since November, according to data compiled by Bloomberg.

The U.S. oil drilling rig count climbed by 3 to 374, the highest level since March, Baker Hughes said Friday. The nation’s crude inventories rose to 521.1 million barrels through July 22, keeping supplies more than 100 million barrels above the five-year average, Energy Information Administration data show.

Demand for crude is set to decline in the next few months. U.S. refineries typically reduce operating rates to perform seasonal maintenance as the summer driving season comes to an end, after the Labor Day holiday in early September.

“I think the market is going down in anticipation that summer is about to come to an end,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $4.9 billion. “There is a very strong historical trend for gasoline consumption to start to trail off once you get to Labor Day.”

Libya’s state crude producer is working to resume oil shipments from three ports after a deal was struck to settle payments to local guards. The move may triple production but only after blockades on oil fields that supply the ports are lifted. National Oil Corp. “will now start working” with the unity government to restart exports from the ports of Ras Lanuf, Es Sider and Zueitina, according to an e-mailed NOC statement.

“We have more than ample supply around the world,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. “We’ve lost half of our spring rally.”
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Beware Junk Energy Bonds Amid Oil Slide, Barclays’s Rogoff Warns

High-yield energy bonds, which have risen even as oil slid more than 20 percent in the past two months, may be hit if the commodity dips below the $40 it’s trading at now, according to Barclays Plc strategist Brad Rogoff.

“That portion of the high-yield market especially, it looks a little rich with crude at $40," a barrel, Rogoff, head of global credit strategy research at Barclays Capital, said Monday on Bloomberg TV. "If we drop below, you’ve probably got some downside there."

High-yield energy bonds are on track for their best returns since 2009, with oil recovering from a 13-year low of $26.21 a barrel in February. After rising to $51.23 in June, crude dipped back under $40 on Monday. With that drop, the correlation between speculative-grade bonds and the oil price is at its weakest level since at least 2010.

In U.S. investment-grade corporate bonds, Rogoff said investor demand was outstripping companies’ need to borrow. That demand will keep even cash-flush companies like Apple Inc. seizing the opportunity to issue low-cost debt, Rogoff said.

“The average yield for investment grade right now is 2.75 percent," Rogoff said. "It’s really tough to not want to take advantage of that."
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Libya Oil Exports Seen Limited Until Blockades on Fields Lifted

Libya’s state crude producer is working to resume oil shipments from three ports after a deal was struck to settle payments to local guards. The move may triple production but only once blockades on oil fields that supply the ports are lifted.

National Oil Corporation “will now start working” with the unity government of the divided north African country to restart exports from the ports of Ras Lanuf, Es Sider and Zueitina, according to an e-mailed NOC statement. The resumption of exports from the ports and the release of budget money to the NOC would help boost Libya’s oil production by more than 900,000 barrels a day by the end of the year, it said.

“We need to be clear there are still big military, political and legal obstacles that must be resolved,” NOC Chairman Mustafa Sanalla said in the statement. “In the spirit of national unity, we urge the tribes and the municipalities in the oil-producing areas all over Libya to cooperate and join our commitment to let Libya’s oil flow freely.”

Libya’s oil production dwindled to 320,000 barrels a day in June from 1.6 million barrels before the 2011 revolt as various armed factions fought for control of the country holding Africa’s biggest oil reserves. Tribes and local factions have shut oil fields including Repsol SA-operated Sharara, Libya’s largest oil field, and ENI SpA’s Elephant, known as El Feel, which have a combined capacity of more than 450,000 barrels a day. Force majeure, a legal clause allowing Libya to stop shipments, was declared for all three ports in 2014 after a series of attacks.

“There are still numerous hurdles that need to be overcome including the opposition of the tribes controlling the associated fields and the damage to the terminal infrastructure,” Richard Mallinson, an analyst at Energy Aspects Ltd. in London, said by phone. “A separate round of negotiations seems to be required to reopen the fields. Plus, even the NOC statement suggests that force majeure will not be lifted immediately and hence there is no increase in exports just yet.”

NOC initially criticized the pay deal signed last week, under which Libya’s unity government agreed to settle with Petroleum Facilities Guard members in exchange for them to reopen the oil ports. NOC then backed the agreement after the presidency council confirmed that the only money paid to the PFG is in overdue salaries, the company said in a statement on its website Sunday.

“This is basically another example of another short term arrangement that will probably not prove to be durable in the long term,” Bill Farren-Price, chief executive officer at consultant Petroleum Policy Intelligence, said by phone. “While we might see some short term uptick in production, if the deal is implemented, the political issues are going to continue to impeded the oil sector.”

“Libya has now been into years of zero maintenance for the infrastructure so there’s a concern about the infrastructure damage,” said Farren-Price. “There are a few million barrels in the storage in some of the ports, so not very much really. We just don’t see the conditions as being positive and supportive of a long term recovery.”
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Diamond Offshore's weak outlook contrasts demand for onshore rigs

Diamond Offshore Drilling Inc said there were "next to zero" contracts for deepwater rigs, highlighting the contrast between subdued offshore drilling activity and a recent resurgence in shale drilling.

The company's shares fell as much as 7.4 percent on Monday as the outlook overshadowed a better-than-expected quarterly profit.

Oil producers - especially those operating in North American shale fields - are putting rigs back to work as global oil prices recover from 13-year lows hit in January.

But offshore drilling activity is not expected to pick up anytime soon, given the formidably higher costs of operating fields in deep waters.

Diamond Offshore, which has scrapped dividend and retired rigs to cope with falling demand, took a $612 million writedown for eight offshore rigs in the second quarter.

"Some of the larger diversified oilfield service providers have declared a bottom in activity and are suggesting that a recovery is imminent," Chief Executive Marc Edwards said on a conference call. "While this may be the case for certain onshore basins, it is not so for deepwater drilling."

Schlumberger Ltd, the world's No.1 oilfield services provider, said last month the oil downturn appeared to have bottomed out. Halliburton Co forecast a "modest uptick" in North American rig count in the second half of the year.

New offshore rigs continue to hit the seas even as older rigs roll off contracts and customer spending falls, creating a "perfect storm" for drillers, Edwards said.

Separately, Diamond Offshore's rival Transocean Ltd said on Monday it would take full control of its master limited partnership Transocean Partners LLC - a move aimed at reducing costs and improving liquidity.

The deal, with an enterprise value of about $1.6 billion, will eliminate $29 million in payments to Transocean Partners unitholders and about $10 million in other costs, Tudor, Pickering, Holt & Co analysts wrote in a note.

Diamond Offshore reported a net loss of $589.9 million, or $4.30 per share, for the quarter ended June 30. A year earlier, it had a profit of $87.4 million, or 64 cents per share.

Excluding items, the company earned 16 cents per share, well above the average analyst estimate of 3 cents, according to Thomson Reuters I/B/E/S.

Revenue fell 17.4 percent to $388.7 million, but beat the average estimate of $373.5 million.

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BP Whiting refinery reformer production cut for repairs -sources

BP Plc curtailed production over the weekend on the 60,000 barrel-per-day (bpd) reforming unit at the 413,500 bpd Whiting, Indiana, refinery for repairs, sources familiar with plant operations said on Monday.

A BP spokesman declined on Monday to discuss operations at the Whiting refinery.

The reformer's cut production levels are having a "minimal impact" on the refinery's overall production, the sources said. The reformer, called Ultraformer 4, has failed to function at expected levels since completing a 10-week overhaul in mid-June. The company hopes to find the problem and repair it.
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China eyes gas distribution price cut to boost consumption

China, the world's third-largest natural gas consumer, is planning to lower distribution prices for gas, part of anticipated sector reforms to boost use of the cleaner-burning fuel, state media reported.

China has since 2015 been formulating reform plans aimed at lifting sagging demand growth for natural gas, as industrial users were paying among the world's highest prices, threatening Beijing's targets of curbing pollution and emissions by using more of the fuel.

He Yongjian, deputy head of the planning division of the National Energy Administration, told state media at a weekend seminar that policymakers were looking at cutting the regulated distribution costs for the fuel.

Such a development could weigh on the share performances of city gas firms such as ENN Energy Holdings Ltd and Shenzhen Gas, industry experts said.

"We are short of natural gas but affordability is also a problem. We will take measures to reform the price mechanism," said He, cited by the China National Radio on Monday.

Well-head prices and those charged at end users such as petrochemical plants and ceramics makers would be set by the market, while government-supervised distribution prices would be reduced.

"Prices for distribution and transportation may decline by steps. The distribution costs at branch pipelines are relatively high, and it has pushed up the costs at end users," He was cited as saying.

The cuts on transportation fees may also apply to trunk lines controlled by state giants, predominantly PetroChina, industry experts have said.

Under the current mechanism, Beijing sets the ceiling for wholesale gas prices via a link to alternative fuels and also encourages bulk consumers to negotiate prices directly with suppliers such as PetroChina and Sinopec Corp.

But price adjustments, last made in November 2015, often lagged changes in benchmark fuels, making gas relatively more costly versus competing fuels.

Demand growth has fallen to low single digits in the past two years from the heady years between 2004 and 2013 when demand jumped five-fold.

The provincial authorities of Guangdong and Zhejiang have earlier this year rolled out pilot schemes to cut distribution costs, state-owned Economic Information Daily reported in June, paving the way for broader revamps.

China aims to increase gas consumption to 360 billion cubic meters by 2020, nearly double the 2015 level.

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Iran Expected To Approve New Oil Contract Models This Week

It’s expected that Iran will approve a new model for oil contracts on Wednesday that should open the door for foreign investors to help the country reestablish its energy sector.

Oil Minister Bijan Namdar Zanganeh stated Monday: “We are awaiting government approval due to be out on Wednesday. Our priorities will be jointly owned oil and gas fields, as well as those in which we are after improved oil recovery.”

He added that the bulk of investor interest has come from Europe. Iran has spent the last two years looking for foreign investors such as Eni and Total SA to develop its resources. Iran hopes those investments will bring in approximately $50 billion per year.

Before sanctions were ratcheted up in 2012, Iran was producing over 4 million barrels of oil per day. When those sanctions were lifted at the start of 2016, production in the country went from 2.8 million barrels per day to 3.5.

Also on Monday, Zanganeh stated that the oil market was oversupplied, but added that a balance between supply and demand will be restored. According to a Reuters’ survey, OPEC’s output was expected to reach its highest level in recent history with Iraq continuing to pump more crude oil and Nigeria exporting more even with the flurry of militant attacks. OPEC’s output increased to 33.41 million barrels per day last month.

As part of the new contracts, Iran is offering better terms to foreign investors, which needs investors to provide $200 billion in foreign cash.

Zanganeh is confident that the government will approve the new contract models, while Supreme Leader Ayatollah Ali Khamenei said last month that no new contracts would be awarded without necessary reforms.

The Iran Petroleum Contract, which is the name for the new contracts, has already been postponed serval times, when the rivals of President Hassan Rouhani resisted deals that cou¬ld end the buy-back system. European oil majors have stated that they intend to return to Iran if changes are made to the buy-back contracts used in the 1990s, which either resulted in no profits, or in losses for companies.

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Bashneft sale, a bellwether for Russian oil strategy.

When Vladimir Putin greenlighted the sale of Russia’s 50% stake in Bashneft in May, it became a test case for how the government may reshape Russia’s oil industry—would it opt for a more consolidated or diversified and competitive Russian oil market?

Analysts are also taking notes on how the government handles Bashneft’s privatization to see if it offers clues as to how it may deal with Russia’s largest oil company, Rosneft, which is also on the docket for privatization.

Bashneft, Russia’s sixth largest producer, has been one of the sector’s success stories at a time when ongoing low oil prices and Western sanctions have posed serious threats to producers’ investment programs and output plans.

Bashneft’s output grew by over 10% in 2015, and the growth rate in the first half of this year was only slightly less. The company achieved this despite being renationalized in late 2014 after its majority-owner Sistema and boss Vladimir Yevtushenkov, were accused of money laundering during the purchase of Bashneft shares.

The 75% transferred from Sistema at the time is now split, with 50% plus one share owned by the federal government, and a further 25% owned by the regional government of the Republic of Bashkortostan. So far, only the central government has said it intends to sell its stake.

If the government opts for consolidation, Rosneft may get the nod as the buyer. But several officials have been outspoken recently about Rosneft not taking part, seeing little logic of a privatization where one state-owned company buys another.

And a sale to the state-owned giant would raise questions of monopolization and weaken the image of Russia as a competitive market, some experts say.

Rosneft has already submitted its bid for the asset, according to reports by local media, but it is unclear whether Rosneft can win the Kremlin’s support to go ahead with the plan.

No doubt, Bashneft’s dynamic crude production growth would be a bonus to Rosneft. With an eye to its eventual privatization, the addition of Bashneft’s growing assets would increase Rosneft’s value at a time when Rosneft is struggling to maintain output levels as new projects fail to compensate for declining production at brownfields.

In terms of Rosneft’s own priorities, the asset acquisition strategy that saw it take control of TNK-BP and Itera in 2013 seems to have slowed.

If diversification is the way forward, several individuals and smaller companies have emerged with interest in the company.

Eduard Khudainatov, a former Rosneft CEO, is considered a strong candidate, who may move to acquire a stake in Bashneft via his Independent Petroleum Company.

There are doubts over how independent Khudainatov’s company is, however, with domestic tax investigators looking at links between Khudainatov and Rosneft, to see if the companies are actually close enough to be called affiliates.

Officials also said little-known Tatneftegaz, as well as businessmen Alexei and Yuri Khotin, may be interested in acquiring a stake in Bashneft.

Analysts have questioned whether these smaller players would be able to secure the necessary funding to buy a large stake in Bashneft. If they are, that would lead to greater diversification of the Russian oil market, signaling a change in the state’s approach to recent consolidation of the sector.

Lukoil may be asking for too much

The buyer which analysts said represents the most logical choice for Bashneft is Russia’s second largest producer, Lukoil. The two companies already work together on the major Trebs and Titov field, and Lukoil is a key crude supplier to Bashneft’s refineries.

But there are key issues to be resolved, namely over price and control. Lukoil CEO Vagit Alekperov said that in order to properly govern and optimize spending on such an asset a 100% stake is necessary. He is unlikely to get this, but purchasing the federal government’s full stake would at least give him control of the company.

As for a price, Alekperov’s number was nearly half of Bashneft CEO Alexander Korsik’s valuation of the company. Korsik estimated Bashneft’s worth at $7.5 billion in June, and Alekperov indicated in mid-June that a fair price for a 100% stake would be around $4 billion.

Some officials, market experts, and Bashneft’s CEO Alexander Korsik have said selling the company to a pool of investors would be the best option for both the government and the company.
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China's record gasoline exports signal worsening domestic glut

China's gasoline exports more than doubled on the year in June to surpass 1 million mt for the first time ever, highlighting growing oversupply due to faltering domestic demand, a trend that is likely to continue in coming months.

Chinese gasoline exports in June also rose 46% from May to 1.1 million mt, or 312,000 b/d, the latest data from the General Administration of Customs showed.

Platts China Oil Analytics estimates exports are likely to hit 1.3 million mt in July.

With the refining sector producing 11 million mt of gasoline in June, it meant that 10% of domestic output was exported, the highest proportion since April 2010, according to S&P Global Platts calculations based on data from the National Bureau of Statistics.

Gasoline output has been rising steadily as Chinese producers have altered their production slate, moving away from gasoil, demand growth and output of which have fallen on sluggish economic growth.

Refiners lifted gasoline yields to 28.3% in June, from 26.9% a year earlier, with a year-on-year output growth of 8.9%, Platts calculations show.


Market participants said domestic gasoline supply was more than just the output from refiners if blended gasoline is also taken into account.

Imports of mixed aromatics, a gasoline blending feedstock, remained unusually high at 1.17 million mt in June, more than double year on year, but down from 1.21 million mt in May, customs data showed.

Almost all of China's mixed aromatics imports go into the gasoline blending pool.

This took the market by surprise as it had initially expected mixed aromatics imports would ease to below 1 million mt in June because of high stocks.

Mixed aromatics inflows in June -- once fully blended into the gasoline pool -- would add around 3.9 million mt of blended gasoline to the production flow from refineries.

This indicates that actual supply might be 35% higher than the volume reflected in the NBS data.

"It's hard to tell how much mixed aromatics has been blended in June, but there is no other way besides going into the gasoline pool as storages are currently full," a Guangzhou-based trader said. Guangzhou is a major destination for imported mixed aromatics.

A wholesaler from PetroChina's Guangdong sales arm added: "Supplies are plentiful, but demand growth is not catching up with it."

In addition, heavy rain that started in late June in the central, southwest and southern regions have hit demand for gasoline, leaving more available for export, traders added.


Market sources say they expect the rise in gasoline exports since February to continue over the next few months because of lower margins on local markets and plentiful domestic supplies.

"Refiners prefer to sell their barrels on overseas markets even though the FOB Singapore 92 RON gasoline crack has narrowed to an extremely low level," a Beijing-based products trader said. "It is because the margin is much lower on the domestic market than for exports."

The benchmark FOB Singapore 92 RON gasoline price's premium to front-month ICE Brent futures on July 8 fell to $1.66/b, its lowest in over 32 months.

The crack was last lower on October 30, 2013, when it stood at $1.45/b. It was at $2.98/b on Wednesday, with the gasoline price assessed at $47.56/b.

However, the wholesale price before tax of 92 RON gasoline was around $35/b in China's Guangdong province, given that the price, including consumption tax and value-added tax, was around Yuan 4,800/mt on Tuesday.

A spread of over $11/b was wide enough to cover freight and fees for exports, sources said.

"The spread encouraged state-owned refiners, especially those lacking retail outlets like Sinochem and CNOOC, to find buyers overseas," the Beijing-based trader said.

CNOOC's Huizhou refinery has a plan to raise its July oil product exports by 14% to 240,000 mt, from 210,000 mt in June, a Platts survey showed. Meanwhile, Sinochem's Quanzhou refinery also has plans to raise its gasoline exports to around 160,000 mt this month from 130,000 mt in June.


Over the first half of 2016, China exported 4.45 million mt of gasoline to all destinations, a year-on-year surge of 74.7%. In June, it shipped 29,690 mt to the US.

In addition, international trading house Trafigura sent a 35,000 mt cargo, comprising of 92 RON, 10 ppm sulfur gasoline, to the US in April from Shandong in China. It was sold by Shandong-based Hongrun Petrochemical.

The initial destination was scheduled as Singapore during cargo departure but was later changed to the US. As a result, it's not reflected in the customs data.

Over January-June, Singapore remained the top destination on 52.7% of China's gasoline exports.

Singapore is the biggest trading hub and blending center in Asia. Most of the cargoes sent there are blended and re-exported.

Attached Files
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Marcellus Drillers Get Back in the Game; Cautiously Optimisitc

As you have no doubt noticed, we are in the midst of quarterly reports season.

Public companies (those with stocks) must file quarterly financial reports with the Securities and Exchange Commission. Along with those filings comes a version of the same news constructed for consumption by investors and the general public.

The overall “feel” of reports coming from most Marcellus/Utica drillers has been upbeat. The obvious trend is that the big drillers–EQT, Cabot, Southwestern, others–plan to drill more wells in 2Q16 than originally forecast.

However, given the recent severe downturn, most drillers are sounding notes of caution as a balance to the good news that more drilling is on the way. Perhaps “cautiously optimistic” is the best way to put it…

Attached Files
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Norway's Statoil sheds Marcellus shale acreage

For $96 million, and following a weak earnings report, Norwegian energy company Statoil said it was getting rid of some of its gas assets in the United States.

The Norwegian company holds about 350,000 net acres of the Marcellus shale natural gas basin, but decided to sell off about 11,500 acres of that to Antero Resources Corp.

"The U.S. business is one of the focus areas in Statoil's international strategy," Torgrim Reitan, a vice president in charge of U.S. production for Statoil, said in a written statement. "We will continue actively to manage the portfolio, optimize field developments, and step up efficiency improvements and cost reduction measures."

The Marcellus basin is one of the more lucrative reserve areas in the United States. A drilling productivity report from the U.S. Energy Information Administration finds total natural gas production is expected to increase slightly in August as more rigs enter the area.

Marcellus represents about 18 percent of total U.S. gas production and remains one of the more attractive shale basins in the United States.

The sale from the Marcellus shale is the third for Statoil in the past two years. In December 2014, the company sold off some of its interest in Marcellus for $394 million after suspending some rig work to save capital.

Last week, the company said its adjusted operating profit for the second quarter was $913 million, down from the $2.9 billion reported one year ago. Spending plans for 2016 were revised lower by $1 billion to $12 billion.

Attached Files
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Genscape sees small fall in Cushing inventory

Genscape Cushing inventory for week ended 7/29: -59,335  

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Suspected militants attack Shell affiliated pipeline in Nigeria's Delta

Suspected militants have attacked an oil pipeline operated by a local affiliate of Shell in Nigeria's restive southern Niger Delta region, locals and a community group said on Monday.

Militants have attacked oil and gas facilities in the OPEC member's energy hub over the last few months, cutting the country's crude production -- which stood at 2.2 million barrels per day (bpd) at the start of the year -- by around 700,000 bpd.

Nobody has claimed responsibility for a blast at the Trans Ramos Pipeline near Odimodi, operated by Shell's joint venture SPDC, which locals said happened in the early hours of Sunday shortly after 1:00 a.m.. Shell said the line was closed for repairs.

Endoro New-world, a local, said the blast shook nearby homes and created a "ball of fire".

"At sunrise, a group from the community in company of the SPDC surveillance team was able to locate the site of the blast," he said.

Community leader Godspower Gbenekama also said residents heard a loud explosion, adding that there had been an oil spill.

Shell issued a statement on Monday in which it said it was "investigating the reported incident".

"The Trans Ramos Pipeline (TRP) transports oil to Forcados Terminal and has been shut since the leak on the Forcados export line on February 14, 2016," it said.
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Maurel et Prom chief sells out to Indonesia's Pertamina

Indonesian state energy firm Pertamina plans to buy a one quarter stake in France's Maurel et Prom from its boss and extend the offer to take over the rest of the Africa-focused oil company in a deal that could value it at close to $1 billion.

Pertamina said the acquisition of the 24.5 percent stake from Maurel et Prom (M&P) Chairman and Chief Executive Jean-Francois Henin would fit well with plans to bolster its upstream business globally.

M&P (MAUP.PA), one of many independent oil exploration and production companies suffering from weak oil prices, has been looking for a partner for several years, but may have been able to fetch a much higher price had it agreed to a buyout earlier.

Back in 2013, Henin confirmed he had been in talks with potential buyers for the whole company.

On Monday, he told Reuters Pertamina had been among them, but that discussions had foundered on price. Three years ago the company was worth close to four times more than it is now.

Nevertheless, Henin said he was happy with the deal to sell the company which can trace its roots back to 1831 and the development of shipping lines and trading posts in West Africa.

"They (Pertamina) can achieve something that corresponds with my dreams for Maurel et Prom because they give the company a means for development," he said.

Henin holds his stake through a company called Pacifico, which is selling out for 4.20 euros a share, plus a potential 0.50 euro earnout linked to the price of crude oil next year. P&M's shares closed at 2.85 euros on Friday and were suspended from trading on Monday morning.

The full offer, to be made on the same terms as for Henin's stake, should come later this year, Henin said.

At that price it would value the whole company at up to 891.9 million euros ($996 mln) based on a total 189,764,042 shares in issue. Its market value was about 541 million euros at the close of business on Friday.

M&P refocused on oil and gas exploration at the end of the 20th century. Its production operations are in Gabon oil and Tanzanian gas. It also has exploration assets elsewhere including Namibia, Nigeria, Tanzania, Myanmar, Canada, and Italy.
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Hedge funds turn ultra-bearish on crude and gasoline

Hedge funds have turned very bearish towards both crude and refined products over the last two months amid signs of an oversupply of gasoline.

Hedge funds and other money managers added the equivalent of 56 million barrels of extra short positions in the three main Brent and WTI futures and options contracts in the week ending July 26.

Hedge funds also added an extra 6 million barrels of short positions in the main U.S. gasoline futures and options contract.

By contrast there were only small changes on the long side of the market, with hedge funds adding 3 million barrels of crude and 0.15 million barrels of gasoline contracts.

The hedge fund community's increasingly bearish tilt towards crude and gasoline prices continues a pattern evident since the end of May.

Since May 31, hedge funds have added 197 million barrels of crude short positions and 12 million barrels of gasoline shorts.

The result is that hedge funds had cut their overall long position in Brent and WTI from 639 million barrels at the end of May to just 400 million barrels by July 26.

The hedge funds' net long position in crude is the smallest since the end of February when Brent was trading around $33 and WTI at $32 per barrel.

In gasoline futures and options, hedge fund managers have actually established a net short position of 5 million barrels (

Hedge fund net short positions in gasoline are exceptionally rare and this is the largest recorded net short since the current data series began in 2006.


Hedge funds have embarked on the fourth major short-selling cycle in crude oil futures and options since the start of 2015 (

The number of hedge funds with short positions in the NYMEX WTI contract above the reporting threshold of 350,000 barrels has increased from 40 to 63 since May 31.

The average short position of those hedge funds has more than doubled from 1.33 million barrels to 2.86 million, according to data from the U.S. Commodity Futures Trading Commission.

In this latest wave, the short selling of crude has been accompanied by shorting of gasoline futures and options as well.

The number of hedge funds with short positions in NYMEX gasoline blendstock futures and options over the reporting threshold of 150,000 barrels has increased from 25 to 42.

The average short position in NYMEX gasoline has fallen slightly from 1.07 million to 0.91 million barrels but not enough to offset the big increase in the number of hedge fund shorts.

In the current short-selling cycle, crude prices have generally fallen less than during previous cycles, especially the wave of short-selling that started in October 2015 and saw oil prices tumble below $30 at the start of 2016.

Unlike previous waves of short selling, this one has seen much more diversity of views among hedge funds and other money managers about the outlook.

Many hedge funds with long positions have held on to them, even as prices have tumbled by around $10 per barrel, around 20 percent.

Hedge funds still hold 700 million barrels of long positions in Brent and WTI, down from 743 million at the end of May, and a recent peak of 790 million in April, but up from 554 million barrels a year ago.


The short-term outlook for crude and gasoline prices is now dominated by four cross-cutting influences which will create uncertainty and volatility:

(1) It will take some time for refiners to clear the build up of gasoline inventories and may require them to process less crude, which will add to the excess of crude in the physical market and intensify downward pressure on oil prices.

(2) Hedge funds have established large short positions in crude of 300 million barrels, but past experience suggests the maximum short position could be at least 390 million, indicating there is more scope for short-selling to push prices lower.

(3) More bullish hedge funds have clung on to a large number of long positions, some of which at least could be liquidated if the losses become too great, which would again add to downward pressure on prices.

(4) But the concentration of hedge fund short positions in crude and gasoline has raised the risk of a short-covering rally and partial price reversal if some fund managers decide the time has come to take profits.

The ebb and flow of hedge fund positions and oil prices has shown a high degree of cyclicality for the last 18 months ("Hedge funds turn cautious on crude just as Goldman gets less bearish", Reuters, May 16 ).

The build up of hedge fund long positions between January and May coincided with rising oil prices but eventually presaged the rally's demise ("Risks rise as hedge funds place record bet on oil", Reuters, May 3 ).

The rapid accumulation of hedge fund short positions since the end of May has accompanied a sharp price drop but could also herald a partial rebound.
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US exported 662,000 b/d of crude in May, highest on record: EIA

US crude exports jumped to their highest level on record in May, coming in at 662,000 b/d, monthly data from the US Energy Information Administration showed Friday.

Exports are up from 591,000 b/d in April and have been up steadily from the 392,000 b/d exported in December, when the US lifted all restrictions on the export of crude oil.

A tight ICE Brent/NYMEX WTI spread through May likely didn't stand in the way of exports, despite a strong NYMEX discount often making exports more attractive. That spread averaged just 26 cents/b in May, compared with $1.33/b in April.

While exports to Canada -- typically the biggest market for US crude -- remained strong at 308,000 b/d, that represents under half of the total. In May 2015, Canada took 524,000 b/d of the 531,000 b/d total from the US.
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Chevron: Gorgon Train 1 production at 70 pct

Chevron: Gorgon Train 1 production at 70 pct

Train 1 at Chevron’s giant Gorgon Gorgon LNG plant on Barrow Island in Western Australia is currently producing at 70 percent of its capacity after the plant was closed in early July due to a “minor” gas leak.

“At Gorgon we are currently producing at 70 percent of Train 1’s capacity, or approximately 90,000 barrels per day,” Jay Johnson, Executive VP, Upstream at Chevron told analysts on Friday after the U.S.-based energy giant posted a loss of $1.5 billion for second quarter this year. Once in full production, Gorgon’s first liquefaction train will have a capacity of 5.2 million mt/year.

“In early July, we took a short shutdown to address a number of issues and repair a minor leak. Production resumed mid-July, and the plant has been running smoothly since that time,” Johnson said.

U.S.-based Chevron shipped the second ever Gorgon cargo shortly after the gas leak on July 3 aboard the Marib Spirit that loaded with previously stored LNG. However, since then no ships were dispatched from the plant.

Johnson did not provide an update on the expected departure of the third Gorgon cargo.

To remind, LNG World News reported on July 27, citing a shipping schedule posted on the Chevron Australia website, that the 171,800-cbm LNG newbuild Beidou Star, owned by Japanese shipping giant MOL, is expected to load and ship the third Gorgon cargo. The LNG tanker is currently docked at the Gorgon jetty, the shipping schedule shows.

According to Johnson, construction is progressing on Gorgon’s second and third liquefaction train.

“We’re incorporating all the experience gained from Train 1’s construction, completion and initial operations into Train 2 and Train 3.”

Chevron expects first chilled gas from Train 2 “early in the fourth quarter and from Train 3 in the second quarter of 2017.”

“We’ve always said that our expectation is Train 2 and Train 3 would start up at roughly six-month intervals. And we’re pretty much still on that plan,” Johnson said.

As per Chevron’s second LNG project in Australia – Wheatstone, Johnson said that construction work is progressing with the clean up and testing of all nine of development wells completed and the plant’s structural, piping, and cabling work “ahead of the plan.”

“At Wheatstone, our outlook for first LNG remains mid-2017 for Train 1. Train 2 construction work is also progressing per plan, with start-up expected six to eight months after Train 1,” Johnson said.
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U.S. Adds Drill Rigs

Oil held its biggest monthly decline in a year as U.S. producers increased drilling for a fifth week amid a glut of crude and fuel supplies that are at the highest seasonal level in at least two decades.

“There is a clear downward momentum to the market at the moment,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney. “There are concerns about the oversupply situation continuing. Clearly $40 a barrel is a key point for West Texas and I’d expect to see support there given the bounces we’ve seen previously at that level.”

The U.S. drill rig count climbed to 374, the highest level since March, Baker Hughes said Friday. The nation’s crude inventories rose to 521.1 million barrels through July 22, keeping supplies more than 100 million barrels above the five-year average, according to the Energy Information Administration.

Oil-market news:

Libya reopened the oil export ports of Ras Lanuf, Zuwetina, Es Sidra, and Brega, according to the Petroleum Facilities Guard.

Hedge funds increased their short positions in WTI by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest gain in data going back to 2006.
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Is Saudi Arabia back in the oil market share game?

Sometimes actions really do speak louder than words, with Saudi Arabia's slashing of crude oil prices to customers in Asia contrasting with recent comments from the kingdom's top oil executive that chasing market share isn't a priority.

Saudi Aramco, the state-controlled oil company, cut its official selling price (OSP) for its benchmark Arab Light grade for September-loading cargoes by $1.30 a barrel to a discount of $1.10 to the regional marker Oman-Dubai.

The reduction was the largest since October last year and has taken the OSP from a premium of 60 cents a barrel to the biggest discount in nine months in just two months.

Saudi Aramco doesn't release commentary with its pricing statement and doesn't officially comment on its policy in setting the OSP, but the actions of the past two months suggest the world's largest crude exporter may not be quite as relaxed about its market share as its chief executive recently stated.

Chief Executive Amin Nasser told Reuters on July 20 that Saudi Aramco wasn't worried about rival producers, such as Iraq, Iran and Russia, gaining ground in key market Asia, destination for about two-thirds of the kingdom's exports.

"Customers are increasing, no we are not," he said when asked if he was worried about other producers gaining market share in Asia.

While Nasser is correct insofar as Saudi Arabia's exports to Asia are increasing, it may be galling for the market leader to see its rivals doing that much better.

Top customer China barely increased its purchases from Saudi Arabia in the first half of 2016, taking 0.24 percent more at 26.455 million tonnes, according to customs data.

On a barrels per day (bpd) basis, Saudi Arabia's exports to China in the first half were actually slightly down, given there was an extra day this year because of the leap year.

China imported 1.061 million bpd in the first six months of 2016, down from 1.064 million in the same period in 2015.

Saudi Arabia's share of China crude imports in the first half was 14.2 percent, down from 16.2 percent a year ago.

In contrast, Russia's share went from 11.9 percent to 14.1 percent and it is almost level pegging with Saudi Arabia as the leading supplier to China.

It's a stronger story for Saudi Arabia in India, the second-largest crude importer in Asia, where the kingdom has increased market volumes.

India imported 828,500 bpd from Saudi Arabia in the first half of the year, up from 765,600 bpd in the same period in 2015, according to trade sources and vessel-tracking data from Thomson Reuters Supply Chain and Commodities Research.

But even though Saudi Arabia has seen its shipments to India rise by 8.2 percent, it has been overtaken as the South Asian nation's top supplier by Iraq, which exported 844,400 bpd in the first half of 2016 compared to 594,600 bpd a year earlier.

The numbers show that while Saudi Arabia is increasing its exports, it's not doing so by as much as its main regional rivals.


Up to recently it did appear that the kingdom was fairly relaxed about this situation, as indicated by Aramco's Nasser in the recent interview.

Aramco raised its OSP in three out of the four months from April to July, and the one month it cut was a token reduction of just 10 cents a barrel.

This suggested that Saudi Arabia was gaining some confidence that the oil market was starting to re-balance, a view that was supported by an 88-percent jump in global benchmark Brent crude between late January and early June.

However, since then Brent has retreated by almost 18 percent, which may have dented confidence in the view that the market is close to re-balancing.

This alone may have been enough to prompt Saudi Aramco to move aggressively to discounting its OSP.

However, there is another factor at work, namely the sharp contraction of the premium of Brent over the benchmark Middle East grade, Dubai.

The difference, known as the exchange for swaps DUB-EFS-1M, dropped to $2.22 a barrel on July 29, the lowest since Nov. 13 last year.

The Saudi OSP tends to track movements in the Brent-Dubai spread to try and ensure that refining customers pay more or less the same for oil no matter where in the world they are located.

However, when the Brent-Dubai EFS was last in a declining pattern between May and August last year, the Saudis were actually raising the OSP, albeit from discounted levels.

Overall, while there are market factors that would help explain the sharp drop in the Saudi OSP, it's also likely that the kingdom isn't quite so relaxed about both its market share and pace of re-balancing between crude supply and demand.
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Saudi Arabia Cuts Asian Oil Price Most in 10 Months on Glut

Saudi Aramco, the world’s largest oil exporter, lowered the pricing terms for Arab Light sold to Asia by the most in 10 months as refineries grapple with falling margins and oversupply.

State-owned Saudi Arabian Oil Co. said Sunday it will sell cargoes of Arab Light in September at $1.10 a barrel below Asia’s regional benchmark. That is a pricing cut of $1.30 from August, the biggest drop since November, according to data compiled by Bloomberg. The company was expected to lower the pricing by $1 a barrel, according to the median estimate in a Bloomberg survey of eight refiners and traders.

Aramco’s pricing cut is part of a “market share battle” for Asian customers, particularly with OPEC rival Iran which is ramping up crude exports after sanctions eased in January, John Kilduff, partner at Again Capital LLC in New York, said by phone on Sunday. Refineries in China “bought a lot of extra crude earlier this year when prices were lower, so they’re going to have to work that off,” he said.

Refineries from Singapore to China and South Korea are cutting operating rates amid a slump in margins and rising supply from state-owned giants such as China Petroleum and Chemical Corp. In China, independent refiners are operating at less than half their capacity at a six-month low, according to data compiled from
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Oil Giants Find There’s Nowhere to Hide From Doomsday Market

Exxon Mobil Corp. and Royal Dutch Shell Plc last week reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp.’s third straight loss marked the longest slump in 27 years, and BP Plc lodged its lowest refining margins in six years.

Welcome to year two of a supply overhang so persistent it’s upsetting industry expectations that the market would return to a state of balance between production and demand. It’s left analysts befuddled and investors running to the doorways as the crude market threatened to tip into yet another bear market, dashing hopes that a slump that began in mid 2014 would show signs of abating.

Exxon missed analyst estimates by 23 cents a share and fell as much as 4.5 percent on Friday before recouping some of that decline. Chevron posted a surprise $1.47 billion loss after booking $2.8 billion in writedowns. The company’s per-share loss of 78 cents was in stark contrast to the 19- to 41-cent gains expected by analysts. BP and Shell registered similarly gloomy outcomes.

“What we’re seeing is that there’s just no place for the supermajors to hide,” Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, said in an interview. “Oil prices, natural gas, refining, it all looks very bad right now.”

Crude prices dropped during the quarter from a year ago amid a global glut in the $1.5 trillion-a-year market. With diesel and gasoline prices also slumping, the companies were deprived of the tempering effect oil refining typically provides during times of low crude prices.

Given the plunge in crude and natural gas markets, “you cannot recover, no matter how efficient you are,” Fadel Gheit, an analyst at Oppenheimer & Co., said during an interview with Bloomberg Television. “The industry cannot survive on current oil prices.”

Shell reported its weakest quarterly result in 11 years and missed analysts’ estimates by more than $1 billion. BP said earnings tumbled 45 percent amid the lowest refining margins for the second quarter since 2010. U.S. margins, based on futures contracts, plunged 30 percent to a second-quarter average of $17.12 a barrel from $24.42 a year earlier.

Refining profits will continue to be under “significant pressure,” BP said. Although Brent crude’s rebound provided some relief compared with the first quarter, CEO Bob Dudley still faces a difficult road ahead as the rally fades amid slowing demand growth and returning production from Canada to Nigeria.

BP’s profit, adjusted for one-time items and inventory changes, dropped to $720 million from $1.3 billion a year earlier, the company said on July 26. That missed the $819 million average estimate of 13 analysts surveyed by Bloomberg. Downstream earnings, which include refining, declined 19 percent.

Output Hurt

Exxon, the world’s biggest oil explorer by market value, said wildfires that ravaged the oil-sands region of Western Canada, along with aging wells, reduced output. Its U.S. oil and natural gas wells lost an average of $5.6 million a day during the quarter.

At Shell, the largest oil producer after Exxon, profit adjusted for one-time items and inventory changes sank 72 percent from a year earlier to $1.05 billion, less than half the $2.16 billion analysts had expected.

Shell Chief Executive Officer Ben Van Beurden, who this year completed the record purchase of BG Group Plc, has vowed to boost savings from the acquisition following the two-year slump in crude.

It was Chevron’s third straight quarterly loss, the longest slump for the company since at least 1989, according to data compiled by Bloomberg.

Still Adjusting

Chevron Chairman and CEO John Watson said the company continues to adjust to the lower-price environment. He has responded to the market-driven cash squeeze by shrinking drilling programs, writing off discoveries that were too costly to develop at current prices and firing one-tenth of the workforce. The company is seeking to bolster its balance sheet by raising $5 billion to $10 billion from asset sales.

Despite the rout, and credit-rating cuts, Chevron greenlighted a $36.8 billion expansion of a key Central Asian oilfield earlier this month. Last week, the company committed to distribute a $1.07-a-share dividend that will eat up about $2 billion in cash when paid out to investors in September.

Exxon Chairman and CEO Rex Tillerson has been looking beyond the current downturn in energy markets to augment the company’s gas and oil portfolios from the South Pacific to Africa. The company also is plowing money into expanding refining and chemical complexes from Singapore to The Netherlands, betting that regional demand for products used in automobile tires, engine oil and plastics will grow over the long term.
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Cabot Oil & Gas reports second quarter 2016 results

Cabot Oil & Gas Corporation today reported financial and operating results for the second quarter of 2016.

'Cabot's 2016 operating plan was designed to provide modest production growth while generating positive free cash flow despite a lower commodity price environment,' said Dan O. Dinges, Chairman, President and Chief Executive Officer. 'Our second quarter results delivered on this plan as the Company grew equivalent production 10 percent relative to the second quarter of last year while generating operating cash flow that exceeded our capital expenditures, pipeline investments, and dividends.' Dinges added, 'We anticipate significantly more positive free cash flow generation in the second half of the year based on the current commodity price outlook.'

Second Quarter 2016 Financial Results

Equivalent production in the second quarter of 2016 was 151.8 billion cubic feet equivalent (Bcfe), consisting of 144.3 billion cubic feet (Bcf) of natural gas, 1.1 million barrels (Mmbbls) of crude oil and condensate, and 113,000 barrels (Bbls) of natural gas liquids (NGLs). The Company estimates that unscheduled downtime related to infrastructure maintenance negatively impacted natural gas production for the quarter by approximately 3.3 Bcf, or 36 million cubic feet (Mmcf) per day. 'While our daily equivalent production for the quarter was in line with the mid-point of our guidance, the Company would have surpassed the high-end of our guidance range had we not experienced this unexpected downtime during the quarter,' stated Dinges.

Cash flow from operating activities in the second quarter of 2016 was $85.2 million, compared to $171.2 million in the second quarter of 2015. Discretionary cash flow in the second quarter of 2016 was $97.6 million, compared to $183.2 million in the second quarter of 2015. Net loss in the second quarter of 2016 was $62.9 million, or $0.14 per share, compared to net loss of $27.5 million, or $0.07 per share, in the second quarter of 2015. Excluding the effect of selected items (detailed in the table below), net loss in the second quarter of 2016 was $30.2 million, or $0.07 per share, compared to net income of $14.6 million, or $0.03 per share, in the second quarter of 2015. EBITDAX in the second quarter of 2016 was $127.3 million, compared to $203.9 million in the second quarter of 2015. See the supplemental tables at the end of this press release for a reconciliation of non-GAAP measures including discretionary cash flow, net income (loss) excluding selected items, EBITDAX and net debt to adjusted capitalization ratio.Natural gas price realizations, including the impact of derivatives, were $1.63 per thousand cubic feet (Mcf) in the second quarter of 2016, down 24 percent compared to the second quarter of 2015. Excluding the impact of derivatives, natural gas price realizations for the quarter implied a $0.40 discount to NYMEX settlement prices compared to a $0.89 discount to NYMEX settlement prices in the second quarter of 2015. Oil price realizations, including the impact of derivatives, were $40.30 per Bbl, down 28 percent compared to the second quarter of 2015. NGL price realizations were $12.43 per Bbl, down 29 percent compared to the second quarter of 2015.

Operating expenses (including financing) decreased to $2.22 per thousand cubic feet equivalent (Mcfe) in the second quarter of 2016, a 12 percent improvement compared to $2.52 per Mcfe in the second quarter of 2015. Cash operating expenses (excluding depreciation, depletion and amortization; stock-based compensation; exploratory dry hole cost; and amortization of debt issuance costs) decreased to $1.19 per Mcfe in the second quarter of 2016, a 12 percent improvement compared to $1.35 per Mcfe in the second quarter of 2015.

Cabot drilled seven net wells and completed 11 net wells during the second quarter of 2016, incurring a total of $70.9 million in capital expenditures associated with activity during this period.
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US Lower 48 alone sustains $150B in capex cuts to 2017

With nearly US$1 trillion to be slashed from upstream capital spend globally out to 2020, the US Lower 48 is in a unique position, accounting for US$250 billion in cuts over the next five years, or one quarter of the global total. Unconventional operators in the Lower 48 have been particularly responsive to the oil price collapse, prompting a dramatic drop in capex spend and high-grading development to the core areas. Our US upstream research analysts look deeply into the causes, correlations and projections associated with these capex cuts in the first of our regional spending cuts series.  

Out of the more than US$370 billion in global capital expenditure cut by upstream developers across 2016 and 2017, US$150 billion was slashed in the US Lower 48 alone — more than three times any other single country. Largely due to responsiveness and flexibility in the unconventional space, spending in the US dropped 56% compared to a global 30% decline.

The shorter lead times and less capital-intensive nature of US unconventional plays has allowed  the dominant independent operators to react more nimbly than larger IOCs, NOCs, and Majors, quickly altering development plans in response to the oil price collapse.

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Regional US capex cuts
Regionally, the Rocky Mountains — specifically the Bakken/Three Forks and Niobrara — took the deepest cuts in the US, slashing spending by 51%, or US$83 billion across the five-year period spanning 2016-2020. The Gulf Coast region was similarly hard hit, particularly in the Eagle Ford, whose cuts comprised nearly 20% of the US total.

Although capex cuts were widespread in the US, the Bakken and Eagle Ford plays alone account for over one-third, or approximately 36%, of total lost US spend in our analysis covering Q4 2014 to Q2 2016.
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Bakken well decline and Eagle Ford high-grading
The largest 15 Bakken operators averaged a 60% drop in capex spend across 2016 and 2017, with Continental scaling back its Bakken rig count by 82% and ConocoPhillips dropping down to just a single rig in 2016, despite previous plans to expand. The Bakken is largely dominated by independents, many of whom were agile enough to completely halt operations in the face of market decline. Because of this reactivity, the Bakken is now home to more drilled but uncompleted wells (DUCs) than any other play in the US.

Despite removing more than 1,700 wells from our Bakken drilling forecast to 2017, we estimate that the play will be back on track by 2019 — but at a slower pace of growth due to the prolonged low-price market.

In the Eagle Ford, core Karnes Trough and Edwards Condensate sub-plays accounted for one-third of Eagle Ford capex decline despite comprising less than 10% of the play's overall area. Non-core sub-plays have seen a far greater capex decline by percentage, however, highlighting operators' preferences for sticking to the play's most prolific, economic areas.

Looking beyond rig count for future production
Although reduced service costs and overall cost deflation have also contributed to falling spend, deferred investment continues to be the foremost influence on capex declines in the US Lower 48. As rig counts have plummeted, a significant backlog of DUCs has provided cash flow to operators, allowing them to focus on completions at will as rig contracts expire—meaning production volumes are no longer tied directly to the rig count.

Improvements to well productivity further distort the relationship of rig count to production, with EURs steadily rising over the last 18 months in key US tight oil plays. Optimized completion techniques such as longer laterals, greater use of water and proppant, and increased frac stages will also continue to bolster production despite sustained low rig count.

Production losses to average 4.2 million boe/d through 2020
As our outlook has evolved since 2014, we now expect 7 billion fewer barrels of oil equivalent production globally through 2020 — but with 70% of those volumes lost from the US Lower 48 in the near term, through 2017. These losses will be especially apparent across two major tight oil plays, particularly the Bakken and Eagle Ford.

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Permian promise: a dark horse emerges
Cutbacks in investment and production across these key play areas naturally also has a trickle-down effect of scaled-back activity and lost value throughout the entire US Lower 48. And while no area is immune to the downturn, there are some bright spots emerging.

The Permian has held strongest in the last 18 months due to its substantial drilling inventory of stacked pay and low breakeven resource, and its future spend is trending higher than both the Rocky Mountains and the Gulf Coast. After being overshadowed in the last decade by the rise of tight oil in the Bakken and Eagle Ford, the Permian suddenly seems poised to dominate the US Lower 48 in oil production once again.

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OPEC oil output set to reach record high in July: survey

OPEC's oil output is likely in July to reach its highest in recent history, a Reuters survey found on Friday, as Iraq pumps more and Nigeria manages to export additional crude despite militant attacks on oil installations.

Top OPEC exporter Saudi Arabia has kept output close to a record high, the survey found, as it meets seasonally higher domestic demand and focuses on maintaining market share rather than trimming supply to boost prices.

Supply from the Organization of the Petroleum Exporting Countries has risen to 33.41 million barrels per day (bpd) in July from a revised 33.31 million bpd in June, according to the survey based on shipping data and information from industry sources.

The increase in OPEC production has added to downward pressure on prices. Oil LCOc1 has fallen from a 2016 high near $53 a barrel in June to $42 as of Friday, pressured also by concern about weaker demand.

OPEC's production could rise even further should talks to reopen some of Libya's oil facilities succeed. Conflict has been keeping Libyan output at a fraction of the pre-war rate.

"This could shortly release more oil into an already abundantly supplied market," Carsten Fritsch of Commerzbank said, although earlier hopes of a restart have not been realized.

"It therefore remains to be seen whether this time will be different."

OPEC's output has climbed due to the return of former member Indonesia in 2015 and another, Gabon, this month, skewing historical comparisons. July's supply from the remaining members, at 32.46 million bpd, is the highest in Reuters survey records, starting in 1997.

Supply has also risen since OPEC abandoned in 2014 its historic role of cutting supply to prop up prices as major producers Saudi Arabia, Iraq and Iran pump more.

In July, the biggest increase of 90,000 bpd has come from Iraq, which has exported more barrels from its southern and northern ports despite a pipeline leak that restrained southern exports.

Nigeria, where output has been hit by militant attacks on oil facilities, has nonetheless exported slightly more in July than June, the survey found, although crude exports remain significantly below the 2 million bpd seen in early 2016.

Output in two major producers is largely stable. Iran, OPEC's fastest-growing source of supply expansion this year after the lifting of Western sanctions, has pumped only 20,000 bpd more as the growth rate tops out for now, the survey found.

Saudi output in July was assessed at 10.50 million bpd, close to June's revised rate and the record 10.56 million bpd reached in June last year.

"Exports are down a bit, offset by higher direct burn and slightly higher refinery runs," said an industry source who monitors Saudi output. "For the time being, I'm sticking to my numbers, which suggest supply is flat."

Of countries with lower production, Libyan output edged down due to the stoppage of a major oilfield, Sarir.

Venezuela's supply is under downward pressure from its cash crunch, slipping further in July.

The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms.
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Chevron posts $1.5 billion loss in Q2

U.S.-based energy giant and LNG player Chevron posted on Friday a loss of $1.5 billion for second quarter this year, compared with earnings of $571 million in the same period a year before.

The second-quarter results included impairments and other non-cash charges totaling $2.8 billion.

Chevron said in its statement that sales and other operating revenues in second quarter 2016 were $28 billion, compared to $37 billion in the year-ago period.

“The second quarter results reflected lower oil prices and our ongoing adjustment to a lower oil price world,” said Chairman and CEO John Watson.

“In our upstream business, we recorded impairment and other charges on certain assets where revenue from expected oil and gas production is expected to be insufficient to recover costs. Our downstream business continued to perform well.”

Chevron’s capital and exploratory expenditures in the first six months of this year were $12 billion, compared with $17.3 billion in the corresponding 2015 period.

According to Watson, Chevron’s operating expenses and capital spending were reduced over $6 billion from the first six months of 2015.

“In addition, we’re bringing our major capital projects to completion,” Watson said, adding that the company has “restarted LNG production and cargo shipments at Gorgon and Angola LNG, and started up the third train at the Chuandongbei Project in China.”
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Imperial Oil posts loss due to impact of Alberta wildfires

Imperial Oil Ltd, Canada's No.2 integrated oil producer and refiner, reported a quarterly loss due to the impact of wildfires in Fort McMurray, Alberta.

Imperial, in which Exxon Mobil Corp holds a 69.6 percent stake, said its gross production averaged 329,000 barrels of oil equivalent per day (boepd) in the second quarter, compared with 344,000 boepd, a year ago.

The Alberta wildfires reduced output by about 60,000 barrels per day and net income by an estimated $170 million, Imperial said on Friday.

Like many of its peers operating in northern Alberta's oil sands, Imperial was forced to shut down its Kearl project in May as a precaution against the wildfires.

Imperial is now ramping up Kearl to full capacity of 220,000 barrels per day.

The company reported net loss of C$181 million ($137.57 million), or 21 Canadian cents per share, in the second quarter ended June 30, compared with a profit of C$120 million, or 14 Canadian cents per share, a year ago.

Total revenue and other income fell 14.4 percent to C$6.25 billion in the quarter.
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Exxon Mobil profit misses expectations; stock slides

Exxon Mobil Corp, the world's largest publicly traded oil producer, posted a lower-than-expected quarterly profit on Friday due to weak crude prices and refining income, reflecting the broad malaise in the energy sector.

Net income slumped to $1.7 billion, or 41 cents per share, in the second quarter, from $4.19 billion, or $1 per share, in the year-ago period.

Analysts, though, expected earnings of 64 cents per share, according to Thomson Reuters I/B/E/S.

The earnings miss surprised Wall Street, and Exxon shares fell 2.5 percent to $87.96 in premarket trading. The company is normally known for hitting earnings targets and the miss was its first since the second quarter of last year.

Production during the quarter fell about 0.6 percent to 3.9 million barrels of oil equivalent per day (boe/d).

While Exxon slashed its capital budget by 38 percent during the quarter, to $5.16 billion, cost cuts were not enough to offset depressed oil prices, which have dragged down huge swaths of the commodities sector.

Exxon's profit from producing oil and gas fell about 85 percent to $294 million. In the United States, where Exxon is the largest natural gas producer and a major oil producer, the company lost money.

In the refining unit, which has been hammered by growing fuel inventories and weak demand, Exxon's profit fell more than 60 percent due to shrinking margins. In previous quarters in this downturn, before fuel inventories swelled, the refining unit had helped insulate Exxon from falling crude prices.

Rex Tillerson, Exxon's chief executive officer, said the overall results reflected the "volatile industry environment," but defended the company's integrated business model, where oil production and refining are under the same umbrella.

Earlier this month Exxon said it would pay more than $2.5 billion in stock for InterOil Corp, expanding its push into the Asian liquefied natural gas market.
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Texas shale oil has fought Saudi Arabia to a standstill

Opec's worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has still failed to break the back of the US shale industry.

The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is a bitter victory at best.

North America's hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.

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Suncor Mulls Stranding Some Oil in Bid to Cut Costs, Save Planet

Suncor Energy Inc. is discussing with the Alberta government leaving some oil-sands bitumen in the ground in order to lower emissions and reduce costs, Chief Executive Officer Steve Williams said.

The provincial government in Alberta requires producers to extract “a very high percentage” of the fossil fuel at a given project because those reserves are owned by the public, Williams said Thursday during a conference call with analysts. While it’s “counter-intuitive” to consider leaving oil in the ground, doing so would yield economic and environmental benefits, he added.

“You could be talking about 10 or 20 percent improvements in the economics of some of those extraction operations,” Williams said. “We would like to leave that last piece in” and produce the best parts of a site, he added.

Suncor plans to hold total greenhouse gas emissions at current levels through 2030, even as it boosts crude production, by reducing the carbon output per barrel. Canada’s largest oil producer by market value aims to reach its goal by switching to lower-carbon fuels such as natural gas and using renewable electricity and co-generation.
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Norway's DNO swoops on struggling oil explorer Gulf Keystone

Norwegian oil and gas operator DNO has launched a $300m (£228m) cash-and-share bid for Gulf Keystone, the struggling Kurdistan-focused explorer that recently announced a financial restructuring.

DNO, itself highly active in Kurdistan, an autonomous region of Iraq, has its sights on Gulf’s Shaikan field, which turns out 40,000 barrels of oil a day and earlier this month hit the milestone of 25 million barrels of output.

"Combining these two companies will create further scale and unlock operational synergies that will reinforce DNO's already formidable presence in Kurdistan," said Bijan Mossavar-Rahmani, executive chairman of the Oslo-based company.

Gulf Keystone put itself up for sale in February, after pursuing the Kurdistan government for $100m in payments for oil exports it said it had not received. In April it defaulted on a $26m debt repayment.

Earlier this month Gulf Keystone completed a financial restructuring in which its creditors agree to a $500m debt for equity swap.

DNO said its offer was priced at a 20pc premium on the new shares offered by Gulf as part of its refinancing. The cash element of the offer is $120m, while the rest consists of shares in the enlarged company, which it said would “provide Gulf Keystone investors with continued exposure to the Shaikan field, in addition to DNO's wider portfolio of assets, significantly larger market capitalisation, more robust cash flow, stronger balance sheet and proven operating and management capabilities”.

Gulf Keystone said: “The board of Gulf Keystone is currently reviewing this proposal and will update the market on its response in due course.”

Gulf Keystone’s market cap stood at $2.5bn in 2012 but shrank as the price of crude oil collapsed, now standing at just $46m. In the same time, the share price has tumbled from a peak of £3.45 to 4.7p this morning, when it jumped 20pc on news of DNO’s bid.
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Phillips 66 profit halves on gasoline glut

Phillips 66's quarterly profit halved as an oversupply of gasoline and diesel hurt its refining margins.

Earnings from Phillips 66's refining business plunged 75.3 percent to $149 million in the second quarter.

Crack spreads, the difference between the cost of crude and refined products, have narrowed due to oversupply, causing inventories to swell and squeezing margins.

The company, like other refiners, has also been hit by a rise in global crude LCOc1 prices, which touched an eight-month high in June.

Rival Valero Energy Corp (VLO.N) said on Tuesday it expected lower refinery utilization over the rest of the year as companies step up efforts to counter slumping refining margins.

Phillips 66's consolidated earnings fell to $496 million, or 93 cents per share, in the second quarter from $1.01 billion, or $1.84 per share, a year earlier.

Adjusted earnings of 94 cents per share edged past analysts' estimate of 93 cents, according to Thomson Reuters I/B/E/S.
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Oil industry suppliers see light at the end of the tunnel

European suppliers to the oil industry, hit by their customers' spending cutbacks over the past two years, have produced stronger than expected second-quarter earnings and are cautiously pointing to signs of recovery in demand.

These companies, which encompass oil drillers, engineering groups, oil services providers and seismic surveyors, have had to slash jobs, costs and investments to cope with the fallout from a 60 percent drop in the oil price since 2014.

The tide may be turning now the oil price has stabilised but any recovery for these companies will be uneven because those that find it tough to cut capacity and costs will lag others with more flexible business models.

"The oil price has gradually increased since it bottomed out in January, indicating a turning tide for the oilfield service industry expected in the second half of this year," consultancy Rystad Energy said.

"This will be the last quarter with double-digit drop, and we may see revenues beginning to increase in the third quarter this year."

Challenges remain, however, including the level of spending by oil companies. This week BP and Statoil said their capital spending would be lower this year than planned. While shell has already made significant cuts earlier in the year.

Consultancy Wood Mackenzie estimates the world's top 56 oil and gas firms have cut 2016 exploration and production spending by 49 percent or $230 billion relative to 2014 levels.

Goldman Sachs said in a research note that the industry's investment cycle was nearing a trough, which was a positive for oil services.


The more positive outlook has been supported by the oil service industry's second quarter earnings.

On Thursday, Subsea 7, specialising in underwater construction, produced second-quarter earnings 46 percent above a mean forecast in a Reuters poll, due to lower-than-expected costs.

Likewise, French oil services firm Technip on Thursday raised its 2016 objectives for this year after reporting stronger than expected results.

Schlumberger, the world's biggest oilfield services provider, said last week it was considering rolling back pricing concessions negotiated with oil firms, in a sign of confidence in future demand.

"In spite of the continuing headwinds we now appear to have reached the bottom of the cycle," CEO Paal Kibsgaard said when he presented results last week.

PGS, which maps the seabed for oil and gas deposits, sees higher activity and spending by oil companies next year and that 2016 would be the low point in the cycle. "We see early signs of a stabilising market and improving sentiment," its CEO Jon Erik Reinhardsen said last week, when PGS reported forecast-beating earnings.

"PGS confirms what we have seen from oil companies and other market players; the panic is gone," Swedbank analyst Teodor Sveen-Nilsen said.

Oil services firm Aker Solutions said cost-cutting efforts across the industry are taking hold, with project break-even costs coming down. "This may enable some major projects to be sanctioned in the next 12-18 months," the group said.


But the road back to bumper profits will not be easy and there will be winners and losers.

Analysts mostly have "buy" recommendations for Technip and Schlumberger, according to Thomson Reuters data, but there is little consensus elsewhere.

"In terms of what might start recovering earliest, it's more likely to be company-driven, - ie. a service company grabbing the situation by the horns and actually doing something about it. So Technip-FMC, Schlumberger-Cameron, potentially others," Canaccord Genuity Alex Brooks said.

"What will definitely not recover anytime soon is pure-play asset companies, those where margins are more or less directly linked to asset rates, or those where capacity is incredibly difficult to actually take out - like Seadrill, Transocean, Vallourec, Fugro, Subsea 7, or Saipem," Brooks said.

Saipem, one of Europe's biggest oil contractors, beat expectations with its second-quarter results on the back of an improving order backlog but still had to cut guidance for the year, citing delays in the awarding of contracts due to low oil prices.

"The industry is still crossing the desert," Saipem CEO Stefano Cao told analysts on Wednesday.

"They (Technip and Saipem) are very different businesses. Saipem is an asset rental business and Technip is more a service and consultancy business," Canaccord Genuity's Brooks said.

"Saipem is aspiring to very large projects while, as Technip pointed out this morning, no-one wants to do big projects." he said.
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Alternative Energy

Home solar loan provider Mosaic raises $220 million financing round

Solar Mosaic Inc, the top provider of loans for home solar installations in the U.S., said on Thursday it had raised $220 million in fresh funding to continue growing the rooftop solar loan market.

This round by far eclipses the company's total previous equity raises of about $12 million, a spokeswoman said.

Oakland, California-based Mosaic, founded in 2010, provides financing to homeowners to purchase rooftop solar systems, connecting them with solar installers and providing loans with fixed interest rates to pay off the installation.

Mosaic's average loan amount is $30,000, with term options of 10 to 25 years and interest rates between 2.49 percent and 8.48 percent.

The $220 million Series C financing was led by private equity firm Warburg Pincus, with Core Innovation Capital and Obvious Ventures also participating in the round.

The company declined to comment on its valuation.

Mosaic in April secured $200 million in debt to fund loans that would finance about 5,000 rooftop installations. More than 250 solar companies offer Mosaic's financing products.

By next summer, Mosaic plans to have about $1 billion available to homeowners for solar loans.
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Egypt's solar power upset clouds outlook for foreign investors

Egypt's solar power upset clouds outlook for foreign investors

When Egypt announced plans to develop renewable power in 2014, investors piled in, drawn by year-round sunshine and chronic electricity shortages. Two years on, many projects have stalled, hitting confidence among foreign investors Egypt sorely needs.

Developers who prequalified for solar and wind projects under attractive feed-in-tariff (FiT) schemes say they face delays and currency risks while wrangling with the government over contract terms has complicated efforts to secure financing.

Some foreign firms now say they will shelve projects at a time when Egypt is seeking to boost foreign investment to ease a hard currency shortage that is choking the economy and to diversify after gas shortages caused blackouts in 2013 and 2014.

One such company is Italy's Enel Green Power, which prequalified in 2015 for one solar and two wind projects under Egypt's FiT schemes and entered a build-own-operate tender for a 250 megawatt wind project.

"Continuous uncertainty from the local authority in managing the process as well as delays in assigning contracts, have lead EGP to freeze its business development operations in the country," an Enel spokeswoman said.

A source from another consortium of foreign investors that prequalified for a solar FiT project said Egypt's insistence on domestic arbitration in any dispute had prompted a multilateral lender that was co-financing the project to withdraw.

"I can't believe they would do this to foreign investors and big lenders when Egypt needs them," said the source. "The feed-in-tarrifs were high, but the whole thing has turned into an Egyptian soap opera. No one knows what's going on and they don't seem to care."

Egypt's New and Renewable Energy Authority did not respond to Reuters requests for comment. Its chairman Salah El-Sobky was quoted in Al Shorouk newspaper this week as saying the Electricity Ministry was taking the developers' concerns into consideration but was not responsible for their funding.

Egypt announced in 2014 ambitious plans to develop renewable energy, originally targeting 4.3 gigawatts of wind and solar projects to be installed over three years.

The International Finance Corporation, an arm of the World Bank, said last year Egypt's renewable energy projects could require $8 billion in capital investment over the next four years, a significant opportunity for investors and lenders.

Egypt had aimed to meet 20 percent of its energy needs from renewable sources by 2020, but has pushed that back to 2022.


Government plans included a 1.8 gigawatt solar park in Benban, Upper Egypt, to be developed for $3 billion and operated under a FiT arrangement.

In 2014, Egypt said it would pay $0.13 per kilowatthour (kWh) to plants with 500 kilowatts to 20 megawatts capacity and $0.14/kWh to those with 20 to 50 MW capacity during phase one.

The competitive rates piqued investor interest. The scheme was hailed as an investment bright-spot for Egypt, which has suffered a shortfall in foreign currency since the 2011 uprising which ousted Hosni Mubarak but scared off foreign investors and tourists, sources of hard currency it needs to finance imports.

But the euphoria faded as capital controls imposed in early 2015 made it harder for foreign firms -- which would invest in dollars but be paid in Egyptian pounds -- to repatriate profit.

Developers said they were willing to accept currency risks as Egypt's FiT was higher than others in the region. A dispute over the seat of arbitration has proven harder to overcome.

International arbitration is a standard requirement for many international lenders and has caused some to freeze funding for phase one, sources at four such institutions said.

At least two developers who were set to receive IFC funding told Reuters it had pulled out. An IFC source confirmed it could not proceed for now due to the arbitration issue.

The IFC told Reuters it was "supportive of the government's agenda of promoting private-led renewable energy projects in Egypt" and would invest "next fiscal year".

Atter Hannoura, head of public-private partnerships at the Finance Ministry, said Egypt wants arbitration to be held at the Cairo Regional Center for International Commercial Arbitration.

"This is still international arbitration as this is an independent body," he told Reuters. "When people prequalified this was the government position already. When the international financial institutions got involved it became an issue."

Developers and lenders said they suspected the government was dragging out the process because it now judged the FiT as too high and was hoping to offer lower rates in round two.

The cost of solar components has plummeted since Egypt set its current tariff, which applies only if companies close a deal by Oct. 28. Many look likely to miss the deadline.

Since announcing its renewable plans, Egypt has also commissioned megaprojects from firms like Siemens, which dwarf FiT schemes and, analysts say, have sapped the urgency to push through. Sobky has told local media phase one would go ahead.

Industry experts say no more than 12 firms would go through. Some developers say they will not return but others, along with international lenders, are now looking to phase two.

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Dong Energy overcomes oil and gas woes to post 70% profit rise

First half profits went up at Dong Energy as the Danish group’s thriving offshore wind business offset a drop in revenues from oil and gas.

Dong Energy’s income from oil and gas fell by £20million to £280million, a slump which would have been worse had production not started up from the Laggan-Tormore gas project west of Shetland in February.

Dong, which developed the field in partnership with French company Total as operator and SSE, said it had made headway in reducing costs and adapting its oil and gas business to a low oil and gas price market, despite the drop.

Last month the company sold more than £50million worth of its Norwegian oil and gas assets to Faroe Petroleum.

Dong’s wind power division brought in £585million during the six months, up 68% year-on-year.

Group revenues fell 7% to £3.95billion, though pre-tax profits shot up to £990million from £570million.

During the period under review, Dong made a final investment decision to build the Borkum Riffgrund 2 wind offshore Germany and won the tender for the Dutch Borssele 1 and 2 developments.

Both projects should be completed within the next four years.

Dong operates six offshore wind farms in the UK, at Barrow, Burbo Bank, Walney 1 + 2, Gunfleet Sands, West of Duddon Sands and Westermost Rough.

Dong president and chief executive Henrik Poulsen said he did not expect the UK’s Brexit vote to result in any fundamental changes to the country’s offshore wind sector.

He described the firm’s interim results as “very satisfactory”.
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Tesla posts another loss, but says on track for future deliveries

Tesla Motors Inc reported a steeper than expected quarterly loss on Wednesday on higher spending at its vehicle and battery factories, and said adjusted profitability could be within sight if the company meets its delivery goals.

The 13th straight quarterly loss for the Silicon Valley electric carmaker underscores the financial hurdles that hamper it while it takes on increasingly ambitious goals - a ten-fold ramp of vehicle production in three years and the recent plan to acquire solar panel installer SolarCity Corp 

Tesla, led by entrepreneur Elon Musk, said it was still on track to deliver about 50,000 new Model S and Model X vehicles during the second half of 2016, and reiterated that it would spend $2.25 billion in capital expenditures in 2016 to prepare for its upcoming Model 3 sedan.

If the company can fulfill those production and delivery goals in the second half of the year, "we've got a great chance of being non-GAAP profitable" Chief Financial Officer Jason Wheeler told analysts on a conference call without specifying a time period.

Tesla reported its first-ever quarterly profit in 2013.

Shares of the company, which has offered to buy SolarCity for $2.6 billion, were little changed in after-hours trading.

"There's no doubt Tesla will remain the category leader as electric vehicles become increasingly mainstream, but it could be years before the bottom line justifies any investment in Tesla other than a purely speculative one," said James Brumley, analyst.

Tesla reported last month it had missed its vehicle delivery target for the second consecutive quarter, raising doubts it would hit its annual target. But Tesla could end the year just shy of its original delivery target of 80,000 to 90,000 vehicles for 2016 if it delivers 50,000 cars in the second half of 2016.

"We were in production hell for the first six months of the year," Musk told analysts during a conference call. "Man, it was hell. And we managed to climb out of hell partway through June and now the production line is humming and our suppliers mostly have their shit together."

Musk warned he would fire suppliers and reorganize internal teams who fail to meet a target date of July 1 to begin production of the Model 3, even while acknowledging it will not be possible to meet that date.

The company said it planned to open a new store every four days on average for the rest of the year, including in Taipei, Seoul and Mexico City, but did not disclose the cost.

Excluding items, Tesla lost $1.06 per share in the three months ended June 30, wider than analysts' expected loss of 52 cents per share, according to Thomson Reuters I/B/E/S.

Tesla said its net quarterly loss widened to $293.2 million, or $2.09 per share, from $184.2 million, or $1.45 per share, a year earlier. Total revenue rose 33 percent to $1.27 billion.

Click here for a graph on Tesla's results:

Tesla said gross margins will improve by 2-3 percentage points in the second half of the year, although adjusted operating expenses will increase for the full year by 30 percent.

Musk sketched out an ambitious plan last month to venture into manufacturing electric trucks and buses, as well as expanding the company's solar energy business.

He has cast the SolarCity tie-up as a long-term bet on a carbon-free energy and transportation company that provides cars, battery storage, solar panels and other energy solutions, while leveraging technology and cost savings from the combined entity.

SolarCity's chairman and biggest shareholder, Musk has said the combined company will help save at least $150 million a year and require only a "small equity capital raise" next year. But some analysts are wary of the combination of two companies burning through huge amounts of cash.

Tesla unveiled its massive battery factory, the Gigafactory, in Nevada last week, and on the conference call, Musk said he foresees "exponential growth" in Tesla's storage battery business.
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First Solar sees 'encouraging signs' for solar demand

First Solar Inc the largest U.S. solar equipment manufacturer, on Wednesday dismissed concern about slowing growth in the industry, and posted quarterly profit and sales beat analysts' estimates due to higher demand.

The development of utility-scale projects in the United States had slowed after Obama Administration's Clean Power Plan was stayed in federal courts earlier this year.

First Solar also said it was in "active discussions" with utilities and that there was strong interest from commercial and industrial customers for large scale solar power projects.

"We continue to see many encouraging signs for solar demand over the long-term horizon," Chief Executive Mark Widmar said in a post-earnings call on Wednesday.

Widmar said there was a lot of "very aggressive pricing behavior" in the market for both power purchase agreements and modules.

Shares of First Solar – the first major U.S. solar company to report results – rose as much as 7 percent after the bell as the company also gave an encouraging full-year forecast.

First Solar said it produced 785 megawatts of power in the second quarter ended June 30, about 39 percent more than a year earlier.

That helped the company's revenue rise 4.3 percent to $934.4 million, which beat analysts average estimate of $862.7 million, according to Thomson Reuters I/B/E/S.

Net income tumbled 85.7 percent to $13.4 million, or 13 cents per share, due to an $86 million restructuring charge, primarily related to a decision to end production of the TetraSun crystalline silicon products.

Excluding items, the company earned 87 cents per share, well above analysts' average estimate of 54 cents.

First Solar said it expects to earn $4.20-$4.50 per share on an adjusted basis in fiscal 2016. The midpoint of the range was above analysts' estimates of $4.25.

The company also adjusted its full-year gross margin forecast to 18.5-19.0 percent from 18-19 percent.
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Xiluodu hydropower station's output reaches 144 TWh

Xiluodu hydropower station, a key project of the "West-to-East power transmission", generated 144 TWh of power as of July 28, showed data from China Three Gorges Corporation.

The output is equivalent to a save of 46 million tonnes of standard coal, decreasing 1,180 million tonnes of CO2 emission and 13 million tonnes of SO2 emission.

The station has eighteen units, all on-grid and performing well.

It has run safely and stably for three years since July 15 in 2013, aiming at building the worldwide first-class power station.

Entering 2016, Xiluodu has been fully involved in flood control system of the Yangtze River amid frequently severe weather in the middle and lower reaches.

The hydropower station has intercepted flood by amount to above 1.5 billion cubic meters since the end of June, contributing to easing flood prevention pressure of the Yangtze River.
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Tesla offers $2.6 billion to buy sister firm SolarCity; both shares drop

SolarCity Corp agreed to be acquired by sister company Tesla Motors Inc in a deal worth $200 million less than the initial offer, sending shares of both companies down in early trading on Monday.

Electric vehicle maker Tesla expects to achieve "significant" cost savings and "dramatic improvements" in manufacturing efficiency as a result of the acquisition of solar panel installer SolarCity, Tesla Chief Executive Officer Elon Musk said on Monday.

Musk said the combined companies will have a "stronger balance sheet," but likely will require a "small equity capital raise" next year. Both companies have been burning through cash and have projected achieving positive cash flow later this year.

Musk is the largest shareholder in both companies and is chairman of SolarCity. His cousins Lyndon Rive and Peter Rive are co-founders of SolarCity.

The two companies on Monday announced an agreement to merge, with Tesla holding 93.5 percent of the combined companies and SolarCity 6.5 percent. The deal is expected to win approval in the fourth quarter, the companies said.

The combined entity would sell solar panels, residential and commercial battery storage systems and electric vehicles under a single brand.

"Solar and storage are at their best when they're combined," the companies said in a blog post on Tesla's website.

Musk unveiled an updated "master plan" last month, sketching out a vision of an integrated carbon-free energy enterprise, offering electric vehicles, car sharing and solar energy systems.

The deal includes a "go-shop" provision that allows SolarCity to solicit offers from other potential buyers for 45 days through Sept. 14.

Up to Friday's close, SolarCity's stock had risen about 26 percent, valuing the company at $2.62 billion, since Tesla first made an offer on June 21 that was valued at $2.8 billion.

The companies said on Monday that SolarCity stockholders would receive 0.110 Tesla common shares for every share held.

The offer values SolarCity at $25.37 per share, based on the five-day volume-weighted average price of Tesla shares as of Friday.

SolarCity had formed a special committee to review Tesla's initial offer, which was pitched at 0.122 to 0.131 Tesla shares for each SolarCity share.

Tesla and SolarCity expect to save $150 million in costs in the first full year after the deal closes as the combination would improve manufacturing efficiencies and reduce customer acquisition costs. Musk said he thought the combined companies could "significantly exceed" that mark in the first year.
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Tesla, SolarCity set to announce merger on Monday

Tesla, SolarCity set to announce merger on Monday

Tesla Motors Inc and SolarCity Corp could announce they have agreed to merge as early as Monday, according to people familiar with the matter.

While billionaire Elon Musk is chief executive of Tesla, chairman of SolarCity and the biggest shareholder in both companies, a merger agreement was not certain because SolarCity had formed a special committee to review Tesla's offer independent of the influence of Musk and other executives close to him.

The merger agreement is likely to include a so-called go-shop provision that will allow SolarCity to solicit offers from other potential buyers for a short period of time following the signing of the merger agreement, the people said on Sunday.

The exact terms of the deal could not be learned. Tesla had previously said it has offered 0.122 to 0.131 of its shares for each SolarCity share.

The sources asked not to be identified because the negotiations are confidential. Tesla and SolarCity declined to comment.
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Agrium Reports Solid Second Quarter Earnings

Agrium Inc. announced today its 2016 second quarter earnings, with net earnings attributable to equity holders of Agrium of $564-million ($4.08 diluted earnings per share) compared to $674-million ($4.71 diluted earnings per share) in the second quarter of 2015. The reduction in net earnings this quarter was driven primarily by continued weakness in global nutrient prices. This was partially offset by solid demand for crop inputs, lower costs and strong margins within our ag-retail distribution business.


Second quarter adjusted net earnings were $578-million or $4.18 per share (see page 2 for adjusted net earnings reconciliation)1.
Retail earnings results were the second highest in history and in line with our guidance, due to strong margins which were supported by our proprietary product lines, lower costs and an increase in normalized comparable store sales.
Wholesale delivered solid operational results due to industry-leading nitrogen margins, higher overall production and sales volumes and lower costs.
Agrium has acquired 33 retail locations with expected annual sales in excess of $230-million on a year-to-date basis. In addition to these completed transactions, Agrium is currently working on the completion of the Cargill and another retail acquisition which together would add over 30 locations and represent over $300-million of expected annual sales. As a result, Agrium will easily surpass the pace of retail acquisitions over the past couple of years.
Agrium has invested $15-million into Finistere Ventures Fund II, a leading AgTech venture fund focused on identifying and investing in early-to-growth stage companies within plant nutrition, biologicals, seed technology, digital agriculture and novel farm systems.
Annual guidance range has been revised to $5.00 to $5.30 diluted earnings per share due to the weak outlook for nutrient prices (see page 3 for guidance assumptions and further details).

"Agrium reported solid second quarter results driven by lower costs and strong margins across most of our business portfolio, supported by a stable cash flow from our retail operations. Our steadfast focus on operational excellence continues to deliver results and we believe our strategy and assets will create long-term shareholder value," commented Chuck Magro, Agrium's President and CEO.
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CF Industries profit tumbles as fertilizer prices slump

U.S. nitrogen fertilizer producer CF Industries Holdings Inc (CF.N) reported an 87 percent plunge in quarterly profit - more than expected - and warned on Wednesday that prices would likely remain weak into next year due to abundant supplies.

Nitrogen prices have been pressured by China's growing exports of urea, and new capacity coming on stream in North America. Chinese export volumes have started to dip, however, according to Integer Research.

Net earnings for the second quarter fell to $47 million, or 20 cents per share, from $352 million, or $1.49 per share, a year earlier.

Excluding items, it earned 33 cents per share, lower than average analysts' estimates of 68 cents, according to Thomson Reuters I/B/E/S.

Net sales fell 14 percent to $1.13 billion, matching the average analysts' estimate.

The Deerfield, Illinois-based company's shares dipped 3 percent after normal trading hours on the New York Stock Exchange.
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Mosaic CEO sees opportunities to buy miners' fertilizer assets

Miners that produce a diverse commodity mix may be willing to part with fertilizer assets, creating buying opportunities for producers of potash and phosphate, Mosaic Co (MOS.N) Chief Executive Joc O'Rourke said on Tuesday.

Profits of fertilizer producers have tumbled because of falling prices, weak currencies in importing countries such as Brazil and excessive supplies.

Mosaic, the world's largest producer of finished phosphate products, reported lower-than-expected adjusted profit on Tuesday as crop nutrient prices remained weak. But the company joined larger rival Potash Corp of Saskatchewan Inc (POT.TO) in saying that the worst was over.

Bigger miners may be unwilling to wait for recovery, O'Rourke said in an interview. Some of them question whether fertilizer fits their core portfolios as they look to sell assets and pay down debt, he said.

"We think some of these opportunities might come to fruition, and if they do, they may add some long-term value to us,” O'Rourke said.

Reuters reported in June that Plymouth, Minnesota-based Mosaic was in talks to buy Vale SA's (VALE5.SA) fertilizer unit, in a renewed push to grow in South America and Africa.

O'Rourke declined to comment on any talks with Vale.

Mosaic shares jumped 2.8 percent at $27.37, after executives told analysts that better demand was ahead in the second half.

Mosaic expects sales volume and prices of phosphate and potash to rise in the current quarter from the second quarter.

Potash volumes would be helped by a long-overdue 2016 sales agreement between Chinese buyers and Canpotex Ltd, the offshore sales arm of North America's Mosaic, Potash Corp, and Agrium Inc (AGU.TO).

Some rivals have already settled at a sharply lower price of $219 per tonne, and the focus of Canpotex negotiations now is on volume, O'Rourke said.

"Once the price gets set, that is the price, and your participation choice is how much volume" to commit, O'Rourke said.

Mosaic reported a net loss of $10.2 million, or 3 cents per share, for the second quarter, compared with a profit of $390.6 million, or $1.08 per share, a year earlier.

Excluding certain items, profit was 6 cents per share, compared with analysts' average estimate of 12 cents, according to Thomson Reuters I/B/E/S.

Revenue fell 32.7 percent to $1.67 billion.

Mosaic said it would slash its 2016 capital budget and cut other expenses to preserve cash. The company idled production in July at its Colonsay, Saskatchewan potash mine for the rest of 2016.
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Indian farmers cotton on to new seed, in blow to Monsanto

In a tiny hamlet at the heart of the cotton belt in northern India, Ramandeep Mann planted Monsanto's genetically modified Bt cotton seed for over a decade, but that changed after a whitefly blight last year.

Mann's 25-acre farm in Punjab's Bhatinda district now boasts "desi", or indigenous, cotton shrubs that promise good yields and pest resistance at a fraction of the cost.

Mann is not alone.

Thousands of cotton farmers across the north of India, the world's biggest producer and second largest exporter of the fiber, have switched to the new local variety, spelling trouble for seed giant Monsanto in its most important cotton market outside the Americas.

The Indian government is actively promoting the new homegrown seeds, having already capped prices and royalties that the world's largest seed company is able to charge.

"Despite the whitefly attack, farmers in northern India are still interested in cotton, but they are moving to the desi (indigenous) variety," says Textile Commissioner Kavita Gupta.

Official estimates peg the area planted with the new variety at 72,280 hectares in northern India, up from roughly 3,000 hectares last year.

That is still a tiny percentage overall, and most farmers in the key producing states of Gujarat and Maharashtra are sticking to Monsanto's GM cotton, which has been instrumental in making India a cotton powerhouse.

And the impact of whitefly, a pest that thrives in dry weather, may not be as big this year, as monsoon rains are likely to be plentiful. Experts said two straight droughts fanned last year's infestation.

But the new seed is still a setback for Monsanto, which has also been hit by a roughly 10 percent decline in cotton acreage in India this year as farmers switch to crops like pulses and lentils in the aftermath of the whitefly blight.


Monsanto's Bt cotton sales in India have fallen 15 percent so far in 2016, said Kalyan Goswami, executive director of the National Seed Association of India.

The firm, which last year sold some 41 million packets of Bt seeds in India, could stand to lose up to 5 billion rupees ($75 million) due to lower sales and the steep cut in royalties enforced by the government earlier in 2016, according to Reuters calculations. The company, which unsuccessfully challenged India's decision to slash royalties in the courts, declined to comment for this article.

But in the wake of the whitefly infestation, Mahyco Monsanto Biotech (India) Pvt Ltd (MMB), a joint venture with India's Mahyco, said last year that Monsanto and its Indian licensees marketed their product as resistant to bollworms, not other pests.

Some experts were optimistic the indigenous cotton seeds developed by the Central Institute for Cotton Research (CICR), which comes under the farm ministry, would catch on over time.

"Just wait for the crucial three to four years to see a complete, natural turnaround. By then most farmers will give up Bt cotton and go for the indigenous variety," said Keshav Raj Kranthi, head of CICR.

Kranthi said planting a hectare with the Indian variety cost less than half the 80,000 rupees farmers paid to sow Bt cotton over the same area, and the crop yield was almost as high.

Unlike GM seeds, farmers could also store and replant the local seeds the following year, he added.

Some experts voiced caution over the new variety, however.

"By all accounts, the indigenous cotton looks pretty promising, but it will be put to test this year," said Devinder Sharma, an independent food and trade policy analyst. "It's a potential game changer, but it has to succeed first."

BOLLWORMS REAPPEAR Experts began raising doubts last year about the resilience of Monsanto's lab-altered Bt seeds, which still account for more than 90 percent of the cotton seeds sold in India.

Monsanto's Bollgard II technology, introduced in 2006, was slowly becoming vulnerable to bollworms, they said, as any technology has a limited shelf life.

Kranthi cited the increase in insecticide consumption as a sign of rising pink bollworm infestation.

In 2015 cotton farmers used an average 1.20 kg of insecticides per hectare, up from 0.5 in 2006, when Bt cotton seeds were at the pinnacle of their productivity.

Between 2006 and 2015, fertilizer consumption for the cotton crop doubled to 270 kg per hectare, said Kranthi, indicating rising costs of cultivation and stagnating yields of Bt cotton.

But the more pressing concern for many has been whitefly, with farmers like Mann answering the call from India's farm ministry and state agriculture universities to switch to local seeds to fight it.

"The only other option we had this year was to plant the Bt cotton again or leave the land fallow. Both were fraught with economic risk, and to obviate that risk we decided to plant the desi (indigenous) variety," he said.
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Intrepid Potash Q2 loss deepens

Intrepid Potash Q2 loss deepens

US-based Intrepid Potash Inc’s net loss in the second quarter this year deepened despite higher potash sales volume. The company will continue production ramp up of its speciality fertiliser product to replace lower potash output in order to optimise the group’s cost profile.

Net loss nearly tripled to $13.4m in Q2, compared with a loss of $4.9m in the same period in 2015.
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Mosaic says worst may be over for fertilizer markets

U.S. fertilizer company Mosaic Co reported a quarterly loss on Tuesday as phosphate and potash prices remained weak, but the company joined larger rival Potash Corp of Saskatchewan in saying that the worst appeared to be over.

Mosaic, the world's largest producer of finished phosphate products, said it expects sales volume and prices of phosphate and potash to rise in the current quarter from the second quarter.

The company also said it would slash its 2016 capital budget and cut other expenses to preserve cash.

"While the environment is challenging, we see signs of stabilization in the second half of the year, with fertilizer prices bottoming and solid demand for our products," Chief Executive Joc O'Rourke said on Tuesday.

Profits at fertilizer producers have tumbled due to falling prices, triggered in part by weak currencies in importing countries such as Brazil and excessive supplies.

Last week, Potash Corp cut its full-year profit forecast and dividend for the second time this year.

Mosaic's chief financial officer, Rich Mack, said the company continued to look for new growth opportunities during the bottom part of the cycle.

Reuters reported in June that the company was in talks to buy Vale SA's (VALE5.SA) fertilizer unit, in a renewed push to grow in South America and Africa.

Mosaic forecast phosphate sales volume of 2.4 million to 2.7 million tonnes for the third quarter, up from 2.4 million tonnes in the second quarter.

The company said it expects potash sales volume of 1.8 million to 2.1 million in the current quarter, compared with 2.0 million tonnes reported in the three months ended June 30.

Mosaic slashed its 2016 forecast for selling, general and administrative expenses on Tuesday to $330 million to $350 million, from $350 million to $370 million.

The company reduced its capital spending forecast to $750 million to $850 million, from $800 million to $900 million.

Mosaic reported a net loss attributable to the company of $10.2 million, or 3 cents per share, for the second quarter, compared with a profit of $390.6 million, or $1.08 per share, a year earlier.

The company booked $69 million in after-tax charges related to cost cuts during the quarter.

Mosaic's revenue fell 32.7 percent to $1.67 billion in the quarter.
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Bayer says will halt future U.S. sales of insecticide

The agricultural unit of German chemicals company Bayer AG will halt future U.S. sales of an insecticide that can be used on more than 200 crops after losing a fight with the U.S. Environmental Protection Agency, the company said on Friday.

Bayer lost an attempt to continue sales of flubendiamide, marketed in the United States as Belt, after the EPA earlier found that it posed risks to the environment. [nL2N16912L]

An EPA board, however, ruled that farmers and retailers will be allowed to use their existing supplies of the chemical, Bayer said in a statement.

Dana Sargent, Bayer's vice president of regulatory affairs, said the product was safe.

"Bayer maintains the EPA's actions on flubendiamide are unlawful and inconsistent with sound regulatory risk assessment practices," she said in a statement.

The EPA could not be reached for comment after normal business hours.

Flubendiamide is the active ingredient in Bayer's Belt and Nichino America's Tourismo and Vetica insecticides. It is registered for use on crops, including soybeans, almonds and tobacco, with some crops having as many as six applications per year, according to the EPA.

Nichino America could not immediately be reached for comment.
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China finds big potassium deposit in Qinghai - Xinhua

China has discovered a large potassium deposit in Qinghai province in the north, a finding set to ease the country's import dependence for the key fertilizer, the Xinhua state news agency reported on Friday.

Chinese prospectors have assessed the find at 156 million tonnes of potassium chloride, after three years of work, Xinhua said, citing the Ministry of Land and Resources.

China relies on imports for more than 70 percent of its potash demand, with global supplies dominated by Canada, Russia and Belarus, Xinhua said.

China's main grain producing regions in the south are generally short of potassium, resulting in annual imports of about 6 million tonnes of potash, Xinhua said.

China imported 3.37 million tonnes of potassium chloride in the first six months of this year, down 11.2 percent over the same period in 2015, according to official customs data.
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Precious Metals

Anglo American kicks off major new diamond mine in Canada

De Beers' Gahcho Kue diamond mine in Canada's Northwest Territories is expected to reach full commercial production early next year, Anglo American said on Wednesday.

Output at the roughly $1 billion project, which Anglo describes as the world's largest new diamond mine, will be an average of 4.5 million carats per year over its anticipated 13-year life.

"Starting the ramp-up to production at Gahcho Kue - on time, on budget and in a challenging environment - is a remarkable achievement," De Beers Chief Executive Bruce Cleaver said in a statement.

De Beers, the world's largest diamond producer by value, has a 51 percent stake in Gahcho Kue, with the rest held by Mountain Province Diamonds.

First diamond production at the Arctic mine began in late June, BMO Capital Markets analyst Edward Sterck said in a note to clients, two to three months ahead of schedule.

Output from the mine, which officially opens in September, will not result in a supply surge because it will replace production coming offline, De Beers said.

Anglo American, which has an 85 percent stake in De Beers, has set diamonds, precious metals and copper at the core of its restructured portfolio as it seeks to recover from a commodities rout.

De Beers has placed the emphasis on value rather than volume and in any case says large new finds are rare, predicting demand growth will "almost certainly" outstrip growth in carat production in the next 10 years.

The volume of carats recovered from first production has not been announced, but Mountain Province said two gem quality stones of 24.65 carats and 12.1 carats were recovered.

"Now that production has commenced, investor focus likely will turn to the first diamond tender and initial realised prices," Sterck wrote. "New mine production generally takes some time to establish itself in the market ... thus, there is some pricing risk around the first tender."
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Silver Wheaton bulks up on Brazilian gold

Silver Wheaton saw its stock price jump almost 3% on Tuesday, following a report that the company will increase its goldstream from the Salobo mine in Brazil. The $800 million deal with a Vale subsidiary provides Silver Wheaton an additional 25% of output of gold equivalent over the mine’s life.

This latest acquisition will add to Silver Wheaton’s existing 50% of gold production from Salobo; Brazil’s largest known copper deposit. President and CEO of Silver Wheaton, Randy Smallwood, announced on Tuesday that; “We did not hesitate at the opportunity to increase our exposure to a mine with one of the lowest copper cash costs in the world, 50 years of mine life on reserves alone, and what we believe to be substantial exploration and expansion potential.”

The Vancouver based company has revised its production guidance to reflect the new stream. The forecast for 2016 has been upped to 305,000 ounces, while projected annual gold production over the coming 5 years is expected to reach an average of 330,000 ounces a year.

The deal will be concluded with an upfront cash payment of $800 million, while the 10 million Silver Wheaton common share purchase warrants previously issued to the Vale subsidiary will be amended, allowing the company to buy Silver Wheaton stock and reducing the strike price per common share from US$65 to US$43.75. Silver Wheaton will finance the payment with a mixture of cash and funds from its US$2 billion revolving credit facility, the Canadian company said on Tuesday.

A jump in gold and silver prices over the last few months have continued to lift Silver Wheaton shares. The gold stream sale will now help Brazil based Vale reduce its hefty debt load from $27 to $15 billion. The company has felt the strain of low iron ore prices and construction costs from a new mine development over the previous months. Shares in Vale were also up on Tuesday following news of the deal.
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R3 Consortium: Blockchain again.


The consortium started on September 15, 2015 with 9 financial companies:[3][4][5][6] BarclaysBBVACommonwealth Bank of AustraliaCredit SuisseGoldman SachsJ.P. Morgan,[7] Royal Bank of ScotlandState Street, and UBS.

On September 29, 2015 an additional 13 financial companies joined:[8] Bank of AmericaBNY MellonCitiCommerzbankDeutsche BankHSBCMitsubishi UFJ Financial GroupMorgan StanleyNational Australia BankRoyal Bank of CanadaSkandinaviska Enskilda Banken,[9] Société Générale, and Toronto-Dominion BankFinancial Times reporter Kadhim Shubber wrote that the new additions are "a sign the industry is gathering behind R3 in one potential implementation of the distributed ledger technology behind the currency bitcoin."[10]

On October 28, 2015 an additional 3 financial companies joined:[11] Mizuho BankNordea, and UniCredit.

On November 19, 2015 an additional 5 financial companies joined :[12] BNP ParibasWells FargoINGMacquarie Group and the Canadian Imperial Bank of Commerce.

On December 17, 2015, an additional 12 financial companies joined :[13] BMO Financial GroupDanske BankIntesa SanpaoloNatixisNomuraNorthern TrustOP Financial GroupBanco SantanderScotiabankSumitomo Mitsui Banking CorporationU.S. Bancorpand Westpac Banking Corporation.

As of April 25, 2016, three additional financial companies had joined:[14] SBI Holdings of Japan, Hana Financial of South Korea, and Bank Itau of Brazil.

As of June 23, 2016, Toyota Financial Services has joined.[15]

The bank-backed R3 blockchain consortium has expanded its partnership network to the market data business, recruiting Thomson Reuters as a new member.

Mark Rodrigues, MD, strategic customers and solutions, Thomson Reuters, says the firm has been collaborating with customers on blockchain and distributed ledger initiatives and proof-of-concept projects for some time.

“The opportunities afforded by this emerging technology are enormously exciting for us and for our customers," he says. "Our goal with R3 is to collaborate together with the consortium and our customers in these key industry discussions as we shape the future of financial transactions.” 

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Fresnillo's CEO says silver has bottomed

Fresnillo Plc's chief executive said the price of silver had bottomed, and added the miner would report a stronger core profit in the second half than the first if prices remained at current levels.

Silver and gold prices jumped to two-year highs in the days following Britain's vote to leave the European Union, buoyed by demand for the metals seen as safe havens in times of volatility.

"We think the price of silver could remain at current levels," CEO Octavio Alvidrez said on a media call on Tuesday.

Fresnillo, which mines silver and gold from six mines in Mexico, reported a 49 percent jump in first-half core profit to $474 million, helped by higher production and gold prices .

Shares in the company rose 1.6 percent on the London Stock Exchange to 1,953 pence, near the top of the FTSE, having nearly tripled this year to their close on Monday.

RBC analysts said the results were positive, adding the company's core profit beat their estimates.
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Silver miner Fresnillo's H1 core profit jumps nearly 50 pct

Mexican precious-metals producer Fresnillo PLC reported Tuesday a surge in first-half net profit, buoyed by higher output and increases in gold and silver prices.

Fresnillo, the world's largest primary silver producer and Mexico's second-largest gold producer, reported net profit of $167 million for the six months ended June 30, 2016, more than double the $76.5 million in the same period a year before.

Revenue rose 18% on year to $887 million on a 6.1% rise in silver production to 25.2 million ounces and a 23% rise in gold output to 448,000 ounces.

The FTSE-100 miner issued an interim dividend of $0.086 a share.

"Precious metals prices have seen a strong recovery since the start of the year, particularly post the U.K. referendum on departing the European Union," the company said. "However, the sustainability of any rally in gold and silver prices will always remain uncertain," it added.

The miner reaffirmed its plan to produce between 850,000 ounces and 870,000 oz of gold this year, up from its previous guidance of between 775,000 oz and 790,000 oz. It also reaffirmed its silver production guidance of between 49 million oz and 51 million oz, including production from the Silverstream contract.
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Gemfields FY ruby production exceeds guidance

Aim-listed Gemfields’ 75%-owned Montepuez ruby mine, in Mozambique, produced 10.3-million carats of ruby and corundum in the year ended June 30, exceeding guidance of eight-million carats and the 8.4-million carats produced in the prior financial year.

Gemfields on Monday noted that the volume of higher-quality rubies recovered in the year under review had increased 68%.

During the financial year, Gemfields had held two rough ruby and corundum auctions, which generated revenue of $73.1-million.

Meanwhile, Gemfields’ 75%-owned Kagem emerald mine, in Zambia, had produced 30-million carats of emerald and beryl in the year ended June 30, in line with the 30.1-million carats produced the year before.

Four rough emerald and beryl auctions were held during the year under review, generating revenues of $101.3-million.

“Demand for our products and the way in which they are presented continue to rise, achievable prices are on the increase and costs are well contained while the level of work and output has increased significantly.

“This is an exceptional achievement in itself, but is even more impressive when considered against a backdrop of market uncertainty in a number of jurisdictions and Gemfields' ever expanding operating footprint,” CEO Ian Harebottlecommented.
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IBM set to launch Blockchain implementation for suppliers.

IBM Set to Launch One of the Largest Blockchain Implementations to Date

IBM Global Financing will use blockchain, touted as a way to make many markets and functions more efficient by removing the middleman, to free up capital tied in customer disputes

The UK government now has its first official blockchain provider for public service

BVRio to adopt Ethereum blockchain for timber trading records

Anonymous Blockchain Micropayments Advance With 'Bolt' Proposal

Failing projects pray blockchain works as 'magic middleware'

And fail anyway, as will you in 'the year of pointless blockchain projects' says analyst

redditTwitterFacebook35linkedin 26 Jul 2016 at 07:48, Simon Sharwood

“This is the year of pointless blockchain projects” and anything you build with blockchain will need to be ripped out and replaced within 18 months, according to Gartner fellow Ray Valdes.

Speaking to The Register in Sydney today, Valdes said blockchain is among the most secure technologies he's ever seen, having survived seven years at the heart of bitcoin. But he said the technology remain immature and is often misrepresented. Some “implementations” he's seen have nothing to do with blockchain and instead represent “blockchain washing” in which projects involving integration and security are labelled as having something to do with blockchain, just as legacy IT scored “private cloud” labels in the early 2010s.

Plenty of other projects he's seen can best be described as “blockchain tourism”, as they are small scale proof of concepts that don't touch core systems.

Others he's seen see teams bogged down in complex integration projects turn to blockchain as an act of “wishful thinking for magic middleware.” Such efforts predictably fail.

He's also seen blockchain projects conducted in closed environments, which he thinks is futile because the whole point of the technology is to build a network of trust. If you're only going to run blockchain on one machine, he asks why you wouldn't just use a database that is already very good at recording transactions.

IBM and Microsoft's blockchain-as-a-service efforts confuse him for the same reason. The whole point of the technology is that the network collectively makes transactions trustworthy, yet Microsoft and IBM are offering themselves up as centralised blockchain hubs. In private, Valdes says Microsoft will say its blockchain effort is to help developers understand the technology. Real implementations can wait.

Valdes says it's futile trying to pick winners in blockchain, because it's at a stage similar to the Web in 1995, a time when the first wave of innovators started to build services and win millions of customers. Just as the likes of Lycos and Magellan were surpassed by Google, and early social networks were swamped by Facebook, Valdes believes the world's dominant blockchain concerns will emerge in a second wave of innovation that takes place years from now.

But the analyst was at pains to say he is not recommending against experimentation. He's convinced blockchain will be important, but equally sure that anything you do with it now will be a learning experience rather than game-changer for your organisation. ®

Attached Files
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Base Metals

Glencore halts Zambia copper mine output after deaths

Glencore's Zambian Mopani Copper Mines (MCM) has halted production at all its operations after four miners were killed in separate accidents, a company official said on Friday.

MCM on Thursday suspended production at its Mufulira underground mine after three miners were electrocuted, the official, who declined to be named, told Reuters.

Last week another miner was killed in an accident at a Mopani shaft in Kitwe, local media reported.

"The latest position is that we have suspended all production related operations across all Mopani facilities to facilitate investigations into the severe mines accidents that we have experienced in the recent past," the official said.

Apart from the Mufulira underground shaft in Mufulira, Mopani also owns the Nkana underground shaft, South Ore Body shaft and the Mindola shaft in Kitwe.

Glencore is investing more than $1.1 billion in Zambia to sink three shafts at MCM with new technology that will extend mine life by over 25 years.
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More bad news for copper price

In New York trade on Thursday copper for delivery in July continued to drift lower after signs that cost deflation in the world's top producer Chile is only accelerating.

July copper futures were lasting trading at $2.17 per pound, a three week low.  Amid a broad-based rally in industrial and precious metals, iron ore and coal, copper's performance has been disappointing with the metal trading flat year to date following a 26% decline in 2015.

Demand has been relatively robust, but so has production with below average disruptions this year.  Another factor keeping a lid on the copper price is relentless cost cutting by producers.

Chile's state copper commission Cochilco released a report this week detailing cost reductions in the country which is responsible for nearly 6 million tonnes of global annual production of 21 million tonnes.

Study shows the most efficient mines in top producer Chile now produce copper for less than $1 a pound after finding an additional 13% in savings this year

According to the study by the Chilean Copper Commission, mine level cash costs at Chile's 19 largest mines fell to an average of $1.285 per pound during the first three months of the year, down 13.3% or nearly 20c a pound from the same quarter of last year.

The best performing quartile now produce copper in Chile for less than $1 a pound and the extent of the cost reductions this year are striking for the fact that most of the currency and oil price savings would've have worked its way through the system by now.

The five largest mines in the South American country represent half of total production. BHP Billiton and Rio Tinto's giant Escondida mine alone produced 19% of the total followed by  state-owned Codelco's El Teniente mine, Anglo American and Glencore-owned Collahuasi, Anglo's Los Bronces complex and Antofagasta's Los Pelambres.

Cochilco said the fall in output costs reflected improvement mine management, lower costs for electricity, services and shipping and lower treatment and refining charged by smelters. The longer-term trend of falling grades and increasingly contaminated concentrate at the world's biggest mines, coupled with increasing water costs in Chile makes the cost cutting even more remarkable.

As an indication that costs may even moderate from these levels BHP Billiton in half-year production review said it expects Escondida's costs to be slightly below its earlier guidance of $1.21 per pound for its 2016 financial year.

Cochilco has a downbeat price forecast for 2016 of $2.15 a pound ($4,740 a tonne) rising only slightly to $2.20 next year ($4,850). That compares to a 2015 average of $2.49 or $5,490.
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Sherritt, partners get deferral for Madagascar mine debt

Canadian miner Sherritt International Corp said on Thursday that lenders for a large Madagascar nickel mine, which it holds with partners, will defer six principal loan payments totaling $565 million until 2021.

The agreement gives additional time for nickel prices to recover and partners to manage their funding requirements, said Sherritt, which holds a 40 percent stake in the Ambatovy joint venture. Japan's Sumitomo Corp holds a 35 percent stake and Korea Resources Corp (Kores) 27.5 percent.

They owe lenders, including Export Development Canada and the African Development Bank, $1.6 billion. But with nickel prices down nearly 80 percent since 2007, the mine is producing at a loss.

Semi-annual cash interest payments will continue under the deferral plan, Sherritt said, with principal and interest repayments starting in 2021 or earlier, depending on cash flow generation.

Sherritt Chief Executive David Pathe said in an interview last week he was "encouraged" by an increase in nickel prices to around $4.70 a pound, but that long-term prices of $8 to $9 a pound were needed to sustain an industry where about half of nickel operations are producing at a loss.

Prices of nickel, a top performer among industrial metals in recent months, are likely to retreat by the end of the year even though shortages are becoming more severe, according to a Reuters poll released last week.
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Philippines suspends seventh nickel miner in environmental crackdown

The Philippine government has suspended the operations of a seventh nickel miner, Claver Mineral Development Corp, a minister said on Thursday, deepening an environmental crackdown that has caused jitters in global nickel markets.

The Philippines is the biggest supplier of nickel ore to top market China and the suspension of some mines and the risk of more closures sent global nickel prices to an 11-month high of $10,900 a tonne on July 21.

"Today we are suspending Claver Mineral. We will audit all the mine sites of Mindanao," Environment and Natural Resources Secretary Regina Lopez said, referring to the nickel-rich southern Philippine island. Claver runs a mine in the Surigao del Norte province in Mindanao.

Lopez made the announcement during a mining forum in southern Davao City, but did not immediately say what prompted the suspension.

The government has now suspended seven miners, all of them nickel producers, amid an ongoing audit that began on July 8 that aims to check whether companies are complying with regulations to protect the environment where they're operating.

Claver Mineral did not immediately respond to a request for comment. Congressman Prospero Pichay Jr has taken control of the company after acquiring a 60 percent stake in September 2015, according to Claver Mineral's website.

"Those who violated the laws, who allowed the improper mining of areas of Mindanao, they must be held accountable," Mario Luis Jacinto, director of the Mines and Geosciences Bureau, said at the forum.

In 2012, the bureau ordered the suspension of Claver's mining operations due to excessive silt buildup in the area where it is located, local media reported.

President Rodrigo Duterte on Monday warned mining companies to strictly follow tighter environmental rules or shut down, saying the Southeast Asian nation could survive without a mining industry.

"I would like that the mining companies, the ones that we suspend, must rehabilitate. That is social justice," Lopez said.

Three-month nickel on the London Metal Exchange peaked at $10,770 on Thursday.
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Indonesia's new resources chief tells Freeport not to push on contract extension

Indonesia's newly appointed resources chief urged Freeport-McMoRan Inc on Wednesday not to push for a quick extension of its contract to operate the giant Grasberg copper mine, amid a planned revision of the country's mining law.

In his first remarks on Freeport since his appointment as Coordinating Maritime Affairs Minister late last month, Luhut Pandjaitan, a trusted advisor of Indonesia's President, said the government was "evaluating everything".

"Freeport shouldn't push us. We are a sovereign state and we know what we are doing," Pandjaitan told reporters, referring to contract talks to extend Freeport's right to mine in Indonesia beyond 2021.

Freeport wants assurances on a contract extension before investing $18 billion to expand its operations, including underground, but under existing laws cannot legally begin talks on a contract extension until 2019.

"We will also look carefully at what we can do without breaking the law," said Pandjaitan.

Indonesia's existing 2009 mining law is expected to be revised by parliament this year.

Freeport, which runs one of the world's biggest copper mines in Indonesia's easternmost province of Papua and is one of Jakarta's biggest taxpayers, is also waiting on an extension of its copper export permit, which is due to expire on Aug. 8.

Pandjaitan said he planned to discuss the export permit with newly appointed Energy and Mineral Resources Minister Arcandra Tahar, and hoped to be able to provide more details on this and Freeport's contract in one or two weeks.

Freeport Indonesia spokesman Riza Pratama said the company was waiting for the government to provide "legal and fiscal certainty" for it to continue operations through to 2041, and was "optimistic" it would be granted a new export permit.

Freeport usually produces about 220,000 tonnes of copper ore a day and a prolonged stoppage in shipments would hit the company's profits and deny Jakarta desperately needed revenue.

The U.S.-based miner and the government are also at loggerheads over a governent drive to increase revenues from its minerals, after Indonesia ruled that from Jan. 12, 2017 copper concentrate exports will be banned.

Freeport currently processes only about a third of its copper concentrate in Indonesia.

Freeport CEO Richard Adkerson said last week he did not believe that Indonesia would go through with the ban on copper concentrate exports, as it would harm the country's economy.

He also said Freeport had received assurances that it would get an export permit by Aug. 8, while discussions on extending the miner's long-term contract had been "constructive".
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Oyu Tolgoi copper, gold production drops

Turquoise Hill Resources on Tuesday released its operational overview and financial results for its Oyu Tolgoi copper-gold mine in Mongolia that came in above expectations despite showing production declines for both metals.

The Vancouver-based company said Oyu Tolgoi's second quarter concentrator throughput was in line with the first quarter at roughly 105,000 tonnes per day, but copper production declined 10.3% quarter on quarter reflecting lower grades relative lower recovery.

As expected, gold production from open pit operations in Q2 declined approximately 52% compared to the first three months of the year due to lower grades.

Oyu Tolgoi recorded revenue of just under $330 million during the quarter, a decline of 22% over the first primarily as a result of lower gold sales volumes that came in slightly above expectations.

TheRio Tinto-controlled company  generated operating cash flow before interest and taxes of $161.6 million during and income from continuing operations attributable to shareholders of $29.8 million.

Margins at operating level remains juicy with second quarter cash costs of $1.12 per pound of copper and all-in sustaining costs of $1.55 per pound of copper although both figures are substantially higher than previous quarters.

Sales contracts have been signed for essentially all of Oyu Tolgoi’s expected 2016 concentrate production according to the company statement.

Oyu Tolgoi is expected to produce 175,000 to 195,000 tonnes of copper and 255,000 to 285,000 ounces of gold in concentrates for 2016 (the mine also produces small quantities of silver).

During peak production 2025–2030 Oyu Tolgoi is expected to be among the top three copper mines in the world.

Operating cash costs for 2016 are expected to be approximately $800 million, lower than previous guidance. Turquoise Hill said capital expenditures for 2016 on a cash-basis are expected to be approximately $300 million, of which approximately $280 million relates to sustaining capital.

The board of Rio Tinto, which owns just over half of Turquoise Hill, in May approved the $5.3 billion underground development and 2016 feasibility study for Oyu Tolgoi. First sustainable underground production is expected around 2021 and the project has a five to seven-year ramp up period.

In June 2016, Oyu Tolgoi signed a critical contract with Jacobs Engineering Group to provide engineering, procurement and construction management services for the planned 95,000-tonne-per-day underground block-cave mine.

"Major contractor mobilization for the sinking of Shafts #2 and #5, underground development, critical construction works and maintenance are all progressing."

Oyu Tolgoi underground phase is where the bulk of the resources lie – the feasibility study shows recoverable copper of 25 billion pounds, 12 million ounces of gold and 78 million ounces of silver over a mine life of 41 years. During peak production 2025–2030 Oyu Tolgoi is expected to be among the top three copper mines in the world.

Turquoise Hill is worth $7 billion on the New York Stock Exchange and the stock is up 36% in 2016. Turquoise Hill owns 66% of the mine in the Gobi Desert 80km from the Chinese border and the Mongolian government the rest. Oyu Tolgoi will represent 30% of Mongolia's economy in full production.
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Kenmare lifts H1 production

LSE-listed Kenmare Resources production surged in the first half of the year as powersupply stabilised and recoveries increased, while improvement is being seen in the sulphate ilmenite market as supply/demand conditions continue to tighten.

Kenmare on Tuesday posted considerable increases in production as the Moma titanium minerals mine, in northern Mozambique, bounced back from debilitating powerinstability last year and continued to report higher tonnes mined and increased grades, as well as higher nonmagnetic recoveries and maximisation projects.

The total shipments of finished products in the first six months of this year increased 7% to 441 700 t, with second-quarter shipments up 133% to 309 000 t on the preceding quarter and setting a new quarterly product shipment record.

Heavy mineral concentrate production in the first-half under review increased 33% to 606 100 t, while ilmenite production increased 24% during the first half of 2016 to 402 900 t.

Kenmare posted a 20% rise in zircon production to 23 800 t and rutile output of 3 000 t, a 7% uptick on the corresponding half-year in 2015.

The titanium miner mined 14.4-million tonnes of ore during the half-year under review – a 26% jump on the prior corresponding period last year.

Production in the second half of the year is expected to increase further on the back of an uptick in dry mining, grade and operating time.

“The strengthening of the balance sheet, allied with falling cash costs and consistent productivity gains at Moma, positions Kenmare to benefit from the improvement in the titanium feedstock market we are currently experiencing as higher ilmenite prices are reflected in revenues for the second half of 2016,” said MD Michael Carvill.

Kenmare saw improvement in the sulphate ilmenite market in the second quarter of the year, with supply and demand conditions tightening, as a result of improved offtake, price increases, improved global demand conditions and a continued decline of ilmenite supply owing to mine closures, depletion and poor mining economics.

Excess ilmenite inventories have also seemingly dwindled, with Kenmare’s market intelligence pointing to low inventory levels at other ilmenite producers, explained Carvill.

Meanwhile, as the company sells the bulk of its ilmenite production on long-term contracts with yearly or six-monthly price renegotiations, the first-half price increases registered for ilmenite will feed through into revenues during the second half of the year.

Chinese domestic ilmenite prices have been steadily increasing since the beginning of the year and Kenmare implemented price increases on spot sales during the second quarter to be shipped in the third quarter.

Meanwhile, the zircon market experienced further price weakness owing to competitive positioning for sales among producers.

“It is anticipated that a recent price increase announcement by a major zircon producer will reverse the downward price trend seen in recent months and help to provide some stability to the market,” Carvill said.
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Iluka confirms £215m offer for Sierra Rutile

Australian mineral sands miner Iluka Resources on Monday reached an agreement with Aim-listed Sierra Rutile to acquire all of its issued and to-be issued shares for £215-million.

The acquisition will be implemented by merging Sierra Rutilewith Iluka Investments (Iluka Newco), a wholly-ownedincorporated subsidiary of Iluka International.

Through the deal, Sierra Rutile shareholders will receive 36p for each share. The miner, which has assets in Sierra Leone, traded at 35p a share on the London market on Monday morning.

“The acquisition will provide the company with additional, long-life resources of proven quality, with further potential through resource additions, reserve optimisation andexploration. The combination enhances Iluka's rutile portfolio position and sits alongside our existing position as the largest global zircon producer,” Iluka MD David Robbsaid in a statement.

Sierra Rutile CEO John Sisay added that the buy-in demonstrated that Sierra Leone was open for business and able to attract investment from high-profile multinational companies, such as Iluka, that was keen to participate in the development and growth of the country.
Sierra Rutile is ramping up a new mine, Gangama, in Sierra Leone, which is expected to achieve steady-state production in the third quarter of this year. The new mine will help increase production to between 120 000 t and 135 000 t this year.

Iluka is a major producer of zircon and the largest producer of the high-grade titanium dioxide products of rutile and synthetic rutile, with operations in Australia and the US.
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Steel, Iron Ore and Coal

Rio Tinto closes $220m Mount Pleasant sale

Rio Tinto closes $220m Mount Pleasant sale

Diversified mining major Rio Tinto has completed the sale of its Mount Pleasant thermal coal assets, in the Hunter Valley of New South Wales, for $220.7-million plus royalties.

The group sold the project, which would produce 10.5-million tonnes of run of mine coal when in production, to MachEnergy Australia.

Earlier this year, Rio Tinto wrapped up the sale of its 40% stake in the Bengalla coal joint venture, also in the Hunter Valley, to New Hope for $616.7-million.

The company still owns a 67.6% interest in the other Hunter Valley operations, with 80% and 55.6% respective holdings in the Mount Thorley and Warkworth operations.

Rio Tinto has shed assets worth $4.7-billion since January 2013. The group this week posted its weakest profit in 12 years, owing to weak commodity price.
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China's production cuts of coal and steel miss targets by July

China fulfilled 38% and 47% of its annual de-capacity targets in coal and steel industry over January-July, respectively, showed data from a meeting held on August 4, according to the Xinhua News Agency.

The de-capacity campaign moved at a fast pace in July, but the result still fell behind the task of cutting production by half within the first half of this year.

China planned to cut 250 million tonnes of coal capacity and phase out around 45 Mtpa of crude steel in 2016.

Progresses of de-capacity reform among regions were not balanced, said Xu Shaoshi, director of the National Development and Reform Commission, at the joint meeting of tackling overcapacity in coal and steel industries.

According to Xu, certain regions were wary about production cut impacting on the development of economy, lacking of recognition of the importance and urgency of the nationwide campaign.

"This is what we must pay high attention to," he said, adding that overcapacity underlying fundamentals are still unchanged, despite anticipated rebound of coal and steel prices currently.

China's coal consumption declined by 5.1% in the first six months this year, and the steel consumption fell 2.7%, which were not enough for propping up price hikes continuously, Xinhua reported, citing the director as saying.
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Raw coal output of 90 large coal producers down 9.9pct in H1

Raw coal output of 90 large coal producers down 9.9pct in H1

Ninety large coal producers in China produced a total 1.11 billion tonnes of raw coal in the first half of the year, dropping 9.9% from the year-ago level, showed the latest data from the China National Coal Association (CNCA).

Top ten producers produced a total 670 million tonnes of raw coal over the same period, accounting for 60.7% of the ninety coal enterprises' total, data showed.

Of this, raw coal output of China Shenhua, Shandong Energy and Datong Coal stood at 204.46 million, 64.44 million and 60.47 million tonnes during the period.

Shaanxi Coal & Chemical, China Coal and Yankuang Group followed with raw coal output at 59.82 million, 57 million and 55.84 million tonnes.

Jizhong Energy, Shanxi Coking Coal, Kailuan Group and Henan Energy & Chemical Industry produced 47.26 million, 45.51 million, 41.52 million and 35.77 million tonnes, respectively.
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Anhui to cut crude steel capacity of 5.06 Mtpa by end-2018

Anhui province planned to cut Crude Steel capacity of 5.06 million tonnes per annum (Mtpa) by end-2018, and further realize transformation and upgrading of the steel industry by 2020, said the provincial Economy & Information Technology Commission.

The province has been vigorously promoting the elimination of the outdated capacity in both coal and steel industries since this year.

It has shut steel-making capacity of 3.14 Mtpa since this year. Output of coal and steel products across the province posted year-on-year declines of 6.9% and 4.5% in the first half of the year, respectively.

Coal industry of the province saw losses gradually shrinking over January-June, thanks to the rebound of coal prices amid de-capacity policy as well as costs cut and effectiveness enhancement adopted by coal producers.

Over January-June, coal producers in the province suffered losses of 460 million yuan ($69.32 million), compared with losses of 5.4 billion yuan a year ago. For the first time after 39 consecutive months of loss, coal producers realized 260 million yuan of profit in June.

Meanwhile, steel industry of the province reported profit of 1.8 billion yuan over January-June, compared with losses of 70 million yuan over the same period last year, thanks to robust rebound of steel prices.
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Russia's Mechel ups sales to China, starts supplies to India

Russia's Mechel ups sales to China, starts supplies to India

Russian coal and steel producer Mechel raised supplies of its coking coal concentrate to China in the second quarter and started sales to India and Vietnam, it said on Thursday.

China's demand for coal rose in the second quarter as local production fell, Mechel Chief Executive Oleg Korzhov said in a statement on the April-June production results.

"Mechel put this market situation to good use. We increased overall mining by 4 percent and redirected some of our chief product - coking coal concentrate - to China, increasing our sales to this country nearly by half quarter-on-quarter," Korzhov said.

"We also made several coking coal shipments to India and Vietnam, which are new markets for us," he added.

Mechel, controlled by businessman Igor Zyuzin, said its second-quarter coal production rose 4 percent to 5.9 million tonnes compared with the previous quarter, while steel output rose 2 percent to 1.1 million tonnes.
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China says it 'regrets' EU duties on Chinese cold-rolled steel

China's Commerce Ministry said on Thursday it "regrets" the European Commission's decision to put anti-dumping duties on Chinese cold-rolled steel plates, the latest spat between the trade partners battling a global steel glut.

China's steel industry, a major employer, has struggled to meet targets to reduce its overcapacity, and rising prices for steel have encouraged firms to ramp up production for export.

Rival producers have accused China of selling into export markets at below cost after a slowdown in demand at home, forcing job cuts and plant closures elsewhere amid a deepening global crisis in the industry.

The European Commission said on Thursday that it would levy retroactive anti-dumping duties on imports of certain cold rolled steel products from China and Russia after a year-long investigation triggered by a claim from European steel lobbying group Eurofer.

"In the wake of the global steel overcapacity crisis, the Commission is applying the trade defense instruments to re-establish a level-playing field between EU and foreign producers," its said in an emailed statement.

The duties of between 19.7 percent and 22.1 percent on Chinese firms Angang Group and Shougang Group would weaken the European Union's downstream manufacturing competitiveness, China's Commerce Ministry said in a statement on its website.

"This move amplifies legal uncertainty and gravely affects normal international trade," the ministry said.

It called on the EU to "avoid abusing trade remedies and sending a wrong signal" to the world, and added that it was willing to work with the EU to appropriately handle current problems facing the steel industry.

China is by far the world's biggest steel producer and its annual output is almost double that of the 28-nation EU.

The EU duties on cold-rolled steel, used in the construction and the automotive industries, will last for five years and be applied to products registered two months before they were initially adopted on Feb. 12, the commission said.
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VALE: $10B from 3% of future iron ore sales to CHINA?

Brazil's Vale SA is considering raising up to $US10B from the sale of up to 3% of future iron ore output to undisclosed Chinese companies, according to 2 sources with direct knowledge of the matter, Reuters reports.

Under the deal, Vale, the world's biggest iron ore producer, would sell part of its future output over a 30-year period, receiving streaming financing from the companies. Vale has not reached a decision on the move and has no comment.
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Rio's now mining iron ore for $14.30 a tonne

Rio Tinto did not make a song and dance when it started mining at its Silvergrass project in Australia's Pilbara in August last year. After getting flak from politicians and competitors alike about its aggressive expansion strategy, the Melbourne-based giant probably thought it prudent not to.

But now with iron ore in a raging bull market, it's singing the praises of the project. With the release of first half results, the board approved $338 million to complete the development of Silvergrass.

"The brownfield expansion of the high-grade Silvergrass mine offers attractive returns, with an expected internal rate of return for this investment well in excess of 100 per cent and a pay back of less than three years," according to Rio.

Not only will Silvergrass's high grade ore help to "retain the integrity and quality" of Rio's flagship Pilbara blend but will reduce unit costs at its Australian operations further.

Silvergrass is a satellite deposit located adjacent to Rio Tinto’s Nammuldi mine. The initial phase of with a five million tonne per annum capacity started production in the fourth quarter of 2015 and the second phase, which will take annual mine capacity from five to ten million tonnes is expected to come into production in the fourth quarter of this year.

Thanks to the latest investment final capacity of over 20 million tonnes per year would easily plug into Rio's existing Pilbara infrastructure and the project could be in full production in 2018.

Rio's Pilbars  margins are already pretty fat. According to its half-year financial report the company's Pilbara unit cash costs fell to $14.30 per tonne in 2016 first half compared to $16.20 per tonne in the same period last year.

Rio said that's due to exchange rate movements, increased volumes, reduced fuel prices, lower selling costs and increased labour productivity. Pilbara operations delivered a free on board (FOB) EBITDA margin of 58% in 2016 first half, compared with 61% in 2015 first half.

Production from the Pilbara is expected to be between 330 and 340 million tonnes in 2017, Rio said.

Iron ore traded at a three-month high on Wednesday with the Northern China 62% Fe import price exchanging hands for $60.70 a tonne, up 41% year to date. So far this year iron ore is averaging around $52 a tonne, flat compared to the 2015 average price.
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China's coke market may embrace another upturn

China's coke market is likely to embrace another round of price hikes in August, mainly supported by rising demand from steel mills amid larger profit margins and rain-interrupted coke deliveries.

Steel makers in China began to vigorously restock the steel-making material after recent rise in steel prices, lending sound support to the further upturn of coke prices. The ex-works price of Tangshan square billets rose to 2,120 yuan/t by August 2, VAT-included.

Coke supply, however, was in shortage, as coking plants in Shanxi and Inner Mongolia cut coke productions in response to the government's environmental protection requirements, arousing snapping-ups among steel makers, sources confirmed with China Coal Resource.

Most coking plants in Inner Mongolia kept operating rate low at 30% or so under the pressure from environmental authorities, while plants in Changzhi of Shanxi were also asked by environmental panels to cut production, which was expected to last for 15 days or so.

Meanwhile, tight coking coal supply left coke producers in Shanxi, Hebei and other areas no choice but to lower operating rate to 80% or so. Coking plants in Yuncheng of Shanxi reported coking coal stocks to be enough only for 2-3 days of use.

In addition, coke deliveries were delayed to some extent, as some roads linking Shanxi with Hebei and Shandong are still yet to recover from recent heavy rains.

As such, coke inventories of steel mills remained at a low level. Some mills in Hebei reported stocks enough for only 2-3 days of use, while those usually maintaining coke stocks for over 25 days of use had stocks only enough for one week of use.

To boost coke deliveries, some steel makers offered 20 yuan/t for over 3,000 tonnes of supply and 30 yuan/t for over 5,000 tonnes of supply.
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Indonesia to suspend new coal mining concessions

Indonesia's Ministry of Energy and Mineral Resources will soon issue a moratorium on new coal mining concessions to protect the environment, local sources reported.

The moratorium will be implemented after the presidential instruction of a five-year moratorium on new palm oil plantation concessions, which also aims at safeguarding the environment, the Indonesia Investments reported.

Heriyanto, Head of the Legal Department Directorate General of Minerals and Coal at the Energy Ministry, emphasized that the moratorium in Indonesia's mining industry only involves coal, not the mining of minerals.

While some say it is easy to implement a moratorium on new coal mining concessions, given the fact that current coal prices are touching multi-year lows, others think it is still a valuable move because the regulation interrupt ambitions of companies that are in the coal mining market for the long run to purchase new concessions for a relatively cheap price amid low coal prices.

The moratorium was not applicable for those mining companies that already obtained concessions to expand their coal business as long as their expansion plans are in line with existing permits and regulations.

Once the regulation on new coal mining concessions is put in place, the nation's coal mining companies can only expand their businesses through acquisitions or mergers.

Indonesia produced 100.96 million tonnes of coal in the first six months this year, plunging 16.27% from 120.58 million tonnes recorded in the corresponding period of 2015.

Coal exports during the same period stood at 79.98 million tonnes, down 19.79% year on year.
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Apollo consortium frontfrunner for Anglo's $1.5 billion Australian coal assets: sources

A consortium led by private equity firm Apollo Global Management (APO.N) has emerged as the frontrunner for Anglo American's (AAL.L) metallurgical coal mines in Australia, valued at up to $1.5 billion, two sources familiar with the matter told Reuters.

Anglo American, like its peers, is selling off prized assets after a prolonged commodities rout that has left it with high levels of debt.

The mining firm said in February that discussions were underway about divesting its Moranbah and Grosvenor assets, as part of its plans to sell $3-4 billion of assets this year in order to cut debt. The process is being run by Bank of America Merrill Lynch (BAC.N).

Apollo has now teamed up with energy-focused private equity firm Riverstone Holdings and Pennsylvania coal exporter Xcoal Energy & Resources, founded by Ernie Thrasher and Chris Cline, a billionaire entrepreneur often dubbed the King of Coal, and is on site finalizing details of the deal, one of the sources familiar with the matter said.

The consortium, which has yet to enter exclusive talks but could sign a deal within weeks, has financing lined up from four banks, this source said speaking on condition of anonymity.

Reuters previously reported that major mining firms BHP Billiton and Glencore as well as suitors from China, Japan and India were looking at the assets.

Anglo American last week booked a $1.2 billion impairment on the value of the Moranbah-Grosvenor assets, which it said reflected a weaker outlook for the price of metallurgical coal, used in steel making.

It said it could not comment on the "ongoing" sale process.

Apollo, Riverstone and Glencore declined to comment, whilst Xcoal and BHP Billiton did not immediately respond to requests for comment.

"It's a complex process," Anglo American Chief Executive Mark Cutifani said last week.

Several bankers said BHP Billiton (BHP.AX)(BLT.L) Mitsubishi Alliance (BMA), the world's largest metallurgical coal exporter, has bid for the assets, but could run into competition issues in China and Japan, which would slow down completion of a sale at a time when Anglo American needs cash to pay down debt. One banker said the private equity consortium had put in a higher offer than BMA, but financing was the key stumbling block because banks, under pressure from clean energy campaigners, are reluctant to lend to the coal industry. So far, Anglo American is about half way to its asset sales target for 2016, having fetched a higher-than-expected $1.5 billion for its niobium and phosphates businesses in Brazil earlier this year.

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Indonesia's August HBA thermal coal price jumps 10% from July to a year-high

Indonesia's Ministry of Energy and Mineral Resources has set its August thermal coal reference price, also known as Harga Batubara Acuan or HBA, at a year-high of $58.37/mt FOB and up 10.1% from July.

August's HBA price is however, 1.3% lower from a year earlier.

The HBA price has been on a rise since May this year as seaborne coal prices continue their upward trend amid supply cuts and strong demand from China.

The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg gross as received assessment; 25% on the Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

In July, the daily Platts FOB Kalimantan 5,900 GAR coal assessment averaged $50.28/mt, up from $47.39/mt in June, while the daily 90-day Platts Newcastle FOB price for coal with a calorific value of 6,300 kcal/kg GAR averaged $62.29/mt, up from $53.17/mt in the previous month.

The HBA for thermal coal is the basis for determining the prices of 75 Indonesian coal products and for calculating the royalties Indonesian producers have to pay for each metric ton of coal they sell locally or overseas.

It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash as received and 0.8% sulfur as received.
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Coal giants profit from overcapacity reduction

China's coal giants seem to have turned their losses into profits as the industry improved helped by a reduction in overcapacity, according to the National Development and Reform Commission yesterday as well as companies' annual earnings reports.

Shaanxi Coal Industry Co indicated a net profit of 280 million yuan ($42.2 million) in the first half of the year in its interim earnings report while China Coal Energy Co predicted a net earnings of 520 million yuan.

The coal companies are mining profitability as overcapacity is being cut. The NDRC said that the output of coal across China has shrunk 9.6 percent over the first six months from the same period of last year.

By the end of July the Bohai-Rim Steam-Coal Price Index, a benchmark for China's coal prices, surged 15.9 percent since the beginning of 2016, equivalent to a growth of 59 yuan per ton.

Deng Shun, an analyst at ICIS, a global consulting company in energy, forecast coal prices in China to rise in coming months as the reduction in overcapacity continues.

His view was echoed by Shenwan Hongyuan Securities which said in a recent report that efficiently-managed coal companies could expect more profits.

"The coal industry as a whole is upgrading with the closing of poorly operating companies," the report pointed out.
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PWCS's coal exports to China reach 18-month high in July

Australian coal exports from the Port Waratah Coal Services (PWCS) terminals (Carrington and Kooragang) at Newcastle to China reached 1.80 million tonnes in July, up 75% from June and hitting an 18-month high when 2.16 million tonnes was shipped, PWCS said in a performance report on August 1.

The coal terminals exported 9.31 million tonnes of coal in July, up from 8.31 million tonnes in June.

Of this, 45% (4.23 million tonnes) was from Japan, up 6% from June; followed by China with 19% of the total, and South Korea at 14% or 1.30 million tonnes, rising 1% on month.

Over January-July, PWCS shipped 62.71 million tonnes of coal, growing 1.39% from the corresponding period last year. Among exports destinations for PWCS, Japan was still the largest coal importer during the period with 47% of the total shipment, while China's offtake is 13%, South Korea's offtake is also 13%.

Of July's shipments, 89% were thermal coal and the remainder was coking coal, PWCS said.

Newcastle port has another coal terminal operated under the Newcastle Coal Infrastructure Group banner that does not publish regular information on its shipping data.

The NCIG terminal has a capacity of 66 million tonnes per year and is operated by five coal producers including BHP Billiton, Peabody Energy and Whitehaven Coal.
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China July steel sector PMI rebounds to 50.2

The Purchasing Managers Index (PMI) for China's steel industry rose 5.1 to 50.2 in July from the lowest level this year in the previous month, indicating an upturn of China's steel sector, showed data from the China Federation of Logistics and Purchasing (CFLP).

In July, the steel industry output sub-index was 50.1, gaining 7.6 from 42.5 in June.

Meanwhile, the new orders sub-index reached 50.2, compared with 43 in the previous month, supported by rising steel prices, amid high temperature and heavy rains, despite the slack season.

Besides, the purchase price index bounced up from 50.4 in June to 55.3 in July, indicating increased pressure on steel mills' cost.

Prices of raw materials used for steel-making grew substantially in July, among which prices of iron ore and steel billets rose dramatically, pushed by factors including the Brexit, the meger of Baosteel and WISCO, production restriction in Tangshan, increasingly strict de-capacity campaign, and the reconstruction after rainstorms.

As of July 31, the Tangshan steel billet price stood at 2,050 yuan/t, up 60 yuan/t on month.

China's steel market has been seen bullish in the long term, with demand increasing and supply decreasing, boosted by macroeconomic factors. Steel prices are likely to remain rise in August.
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Rio Tinto to invest $338 mln in Silvergrass iron ore mine

Rio Tinto Plc/Ltd said on Tuesday it would invest $338 million to complete the development of its Silvergrass iron ore mine in Western Australia.

The company, which aims to produce about 350 million tonnes of iron ore this year, said the mine would add about 10 million tonnes of capacity.

A massive global supply glut has dragged prices of iron ore to record lows, with producers such as Rio Tinto and BHP Billiton Plc/Ltd slow to cut production in order to stem supply.

The Silvergrass mine is part of Rio Tinto's Pilbara operations, which make up the vast majority of the miner's iron ore production.

Rio's situation has eased in recent months as the company has paid down debt and benefited from a recovery in commodity prices.

Some of the financial pressure is off, but there is no growth implied. (The investment) is maintaining stability," said Hunter Hillcoat, an analyst at Investec in London.
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Coal India July output at 37 MT

State-owned CIL today said it produced 36.74 million tonnes of coal in July. 

The company's target for the month of July was 40.29 million tonnes (MT) of fossil fuel, Coal India (CIL) said in a BSE filing. 

The company produced 162.38 MT of coal in the first four months on the ongoing fiscal. However, the target in April-July period of FY17 was 172.72 million tonnes of coal. 

The government has set a production target of 598 million tonnes for CIL for the ongoing fiscal. The company is eyeing to double its production to one billion tonnes by 2020.

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China said to create two state steel giants

China is considering a sweeping overhaul of its steel industry that would consolidate major steel producers into two giants, with one located in the north and the other in the south, according to people familiar with the plan.

Shanghai Baosteel Group Corp and Wuhan Iron & Steel Group Corp will be merged into Southern China Steel Group, while Shougang Group and Hebei Iron & Steel Group will combine into Northern China Steel Group, said the people, who declined to be identified because the information is confidential. The combinations will give Chinese steel mills the scale to rival global giants such as ArcelorMittal SA.

The State-owned Assets Supervision and Administration didn't respond to a request for comment, while a Baosteel Group spokesman declined to comment when reached by Bloomberg.

The mergers would enhance government efforts to reduce capacity in the world's biggest producer as part of its drive to overhaul an inefficient sector and bolster an economy growing at its slowest in decades. China's crude steel-producing capacity reached a record of 1.2 billion tons at the end of 2015, according to the China Iron & Steel Association.

The plan "will help accelerate eliminating excess steel capacities as the companies will remove duplicated products," Helen Lau, an analyst at Argonaut Securities Asia Ltd, said from Hong Kong.
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Merafe expects to benefit from brighter demand prospects for ferrochrome

JSE-listed Merafe Resources expects to benefit from renewed positive ferrochrome demand trends, as well as from the fact that only four of seven South African ferrochrome producers are currently in production.

Reporting on its results for the six months ended June 30, the company, which generates income primarily from theGlencore–Merafe Chrome Venture, on Monday said global stainless steel production is likely to grow by 2.6% this year and by 3.1% in 2017, indicating higher demand prospects for ferrochrome.

The company reported a marginal increase in production to 196 000 t of ferrochrome in the first half of this year, compared with the 105 000 t produced in the first half of 2015.

Sales increased by 14% to 218 000 t in the period under review, compared with the 191 000 t sold in the first half of 2015. Revenue increased by 9% year-on-year to R2.41-billion, owing to the higher sales and a 29% weaker average rand/dollar exchange rate, which was partially offset by a 23% decrease in net cost, insurance and freight (CIF) ferrochrome prices.

Chrome ore revenue as a percentage of total revenue remained flat at 11% in the first half of this year. Average export CIF chrome ore prices also fell 23% year-on-year in the first half of this year.

Merafe’s profit fell to R57.3-million in the first half of this year, compared with the R124.3-million profit posted in the first half of last year, while headline earnings a share decreased to 2.3c in the six months under review, compared with 5c in the prior comparable period.

Cash from operating activities, however, increased to R372-million in the six months to June 30, compared with R249-milllion in the prior comparable period.

As at June 30, Merafe had a cash balance of R412.2-million. It had total debt owing to Absa and Standard Bank of R479.5-million as at June 30, down R80-million from December 31, 2015.

A further R70-million of debt had since been repaid, taking the debt balance to R409.5-million.
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ArcelorMittal keeps 2016 outlook after beating second quarter forecasts

ArcelorMittal, the world's largest producer of steel, said improving steel prices and better volumes boosted its results in the second quarter, but remained cautious about 2016 as a whole, keeping its outlook.

Core profit (EBITDA) almost doubled in the second quarter compared to the same period last year to $1.77 billion, well above the $1.57 billion expected in Reuters poll of eight analysts.

The group grew core profit in both mining and steel production in all of the regions except for Brazil, where selling prices were down by a quarter compared to last year and the economic downturn weighed on demand.

ArcelorMittal repeated its guidance for its 2016 core profit to be above $4.5 billion, compared to the $5.2 billion achieved in 2015.

"Despite the steel spread recovery losing momentum in recent weeks, the impact of lagged prices will be an important support for operating results as we move in to a period of seasonally slower steel demand," the company said in a statement, referring to the "spread" between the price for steel and cost of raw materials.

Some analysts had expected the group to increase its outlook.

The group kept its outlook for global apparent steel consumption to grow by up to 0.5 percent, though it downwardly adjusted its outlook for steel market in the United States, because of a tightening of supply resulting in lower inventories.
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