Mark Latham Commodity Equity Intelligence Service

Friday 24th February 2017
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China eyes tougher air pollution controls in Beijing, nearby regions


    China will impose tougher controls on air pollution in Beijing and nearby regions this year to combat heavy smog, mainly by closing illegal plants and slashing steel production, a senior environmental official said on February 22.

    To reduce winter pollution, Beijing, Tianjin and 26 cities in the surrounding provinces of Hebei, Shanxi, Shandong and Henan must attain their annual goals of cutting steel overcapacity ahead of schedule, Zhao Yingmin, vice minister of Environmental Protection Ministry, said at a press briefing.

    Those cities should shut down all illegal polluting factories by the end of October, and ensure a decrease in their total amount of coal consumption this year, Zhao said.

    During the winter heating season, major steel producing cities in Hebei, which is adjacent to Beijing, must cap their output at half of their capacity, he noted.

    Meanwhile, cement and casting industries in the Beijing-Tianjin-Hebei region will continue to halt production in winter.

    The production controls play a significant role in alleviating pollution in winter, as coal burning for heating usually leads to about a 30% increase in pollutant discharge, according to Zhao.

    He also demanded clean fuel be used for winter heating and urged stronger measures to curb car emissions.

    http://www.sxcoal.com/news/4552587/info/en

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    Oil and Gas

    Norway oil companies raise 2017 investment forecasts -survey


    Norway's oil companies have increased their 2017 investment plans in the last three months, signalling a smaller-than-expected contraction for the industry, a survey by the statistics office showed on Thursday.

    Investments in oil and gas extraction and pipeline transport were still expected to fall for the third year in a row as companies cut the spending after oil prices fell by more than 50 percent over the last two-and-a-half years.

    The country's oil companies now plan to invest 149.4 billion crowns ($17.87 billion) next year in oil and gas extraction and pipeline transport, 1.9 percent more than the 146.6 billion crowns seen last November but down from 163.3 billion in 2016.

    "The increase is mainly due to higher estimates for field development, fields on stream and shutdown and removal," Statistics Norway said in a statement.

    The numbers were helped by some removal projects being postponed from the fourth quarter to 2017, it added.

    The 2017 forecast should be viewed as positive news for the economy, Nordea Markets economist Erik Bruce said, adding it was probably 4-5 percent ahead of the central bank's forecast when measured in inflation-adjusted terms.

    "It's an argument in favour of the central bank lifting its interest rate path projections at the March meeting,... but not to the point of raising rates." he added.

    SEB economist Erica Blomgren also said the survey was positive for the economy.

    "The central bank's forecast (for 2017) may turn out to be too pessimistic," she added.

    The Norwegian central bank said in December it expected to keep interest rates steady at a record low 0.5 percent in the years ahead, but added the probability of a rate cut was greater than the chance of a hike.

    Over the last two years oil and gas investments contracted by 27 percent, after rising by 70 percent from 2010-2014 when high and relatively stable oil prices supported new developments and high drilling activity offshore Norway.

    The Norwegian oil and gas industry's share of gross domestic product (GDP) contracted to 12 percent in 2016 from 25 percent at its peak in 2008.

    http://www.reuters.com/article/norway-oil-investment-idUSL8N1G81A4

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    Oil sold out of tanker storage in Asia as market slowly tightens


    tankers anchored off Malaysia, Singapore and Indonesia in a sign that the production cut led by OPEC is starting to have the desired effect of drawing down bloated inventories.

    Yet in the short-term, the crude released from tankers will weigh on markets and possibly undermine OPEC's goal of achieving a balanced market by mid-2017.

    The Organization of the Petroleum Exporting Countries (OPEC) and other producers outside the group, including Russia, announced late last year that they would cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017, looking to drain a glut that pulled down prices from over $100 per barrel in 2014 to around $56.50 currently LCOc1.

    "OPEC's strategy is targeting inventories – given the scale of the overhang, the market won't rebalance in six months – we expect an extension into (the second half of 2017)," said Energy Aspects analyst Virendra Chauhan.

    As OPEC's cuts start to leave some demand unmet, a hefty 6.8 million barrels of crude has been taken out of tanker storage from Linggi, off Malaysia's west coast, in February, shipping data in Thomson Reuters Eikon shows.

    An additional 4.1 million barrels and another 1.2 million barrels have been taken out of storage on tankers in Singaporean and Indonesian waters, the data shows.

    DANCING CONTANGO

    In the short-term, the flood of crude from floating storage will add to supplies coming into Asia from as far away as the Americas and Europe.

    In the longer-term, however, clearing oil out of inventories like tankers is part of OPEC's goal to rebalance markets.

    "Inventories will continue to decline driven by the combination of production cuts and the strong demand growth," U.S. bank Goldman Sachs said this week in a note to clients, adding that it expected Brent prices to rise slightly in the second quarter, to $59 per barrel.

    Traders charter supertankers like Very Large Crude Carriers (VLCC), in which they can store up to 2 million barrels of oil for extended periods of time, when a market situation known as contango is in place, with prices for later delivery higher than those for immediate dispatch.

    The January to June 2017 contango in the forward curve was almost $3 per barrel, compared to a June premium of under half a dollar now.

    With prices further out into 2018 and beyond even falling, the curve has fallen into what traders call backwardation, which makes it unattractive to store oil on chartered tankers.

    "Dancing contango is now not a profitable thing to do, so we've sold out," said one oil trading manager who, until recently, held crude stored in a tanker. He spoke on condition of anonymity due to the commercial sensitivity of the issue.

    http://www.reuters.com/article/us-asia-oil-floating-storage-idUSKBN16307E
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    Iran says oil prices over $55 per barrel harmful for OPEC: Fars


    Iran said on Thursday an increase in oil prices to more than $55 per barrel was not in the interest of OPEC as it would lead to a rise in output by non-OPEC producers, the semi-official Fars news agency reported.

    "If oil prices specifically surge over $55 or $60 per barrel, non-OPEC producers will increase their crude production to benefit the most from the price hike," Iranian Oil Minister Bijan Zanganeh was quoted by Fars as saying.

    "OPEC is determined to reduce its production to help manage the market."

    Benchmark Brent crude oil was trading up $1.18 a barrel at $57.02 as of 1429 GMT.

    The Organization of the Petroleum Exporting Countries agreed on Nov. 30 to cut output by 1.2 million barrels per day for the first six months of 2017, in addition to 558,000 bpd of cuts pledged by independent producers such as Russia and Oman.

    OPEC Secretary-General Mohammad Barkindo said that January data showed conformity from participating OPEC nations with output curbs had been above 90 percent and oil inventories would decline further this year.

    Iran was exempted from the production cut as Tehran argued its output should be allowed to recover after the lifting of international sanctions in January last year.

    http://www.reuters.com/article/us-iran-opec-oil-idUSKBN1621OZ
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    Leviathan gas field developers approve $3.75 billion investment


    Developers of the Leviathan natural gas field have approved a $3.75 billion investment (FID) in the first phase of the largest energy project in Israel's history, they said on Thursday.

    The reservoir, located 100 km (62 miles) west of Haifa, was discovered in December 2010. Its $3.75 billion budget follows $1 billion that has already been invested in exploration, appraisal and planning activities.

    According to a development plan approved by the government in 2016, the project will be completed in less than three years and gas will be available to the Israeli market by the end of 2019.

    Texas-based Noble Energy owns 39.7 percent of Leviathan, while Delek Drilling and Avner Oil Exploration, subsidiaries of Israel's Delek Group, each hold 22.7 percent. Israel's Ratio Oil holds 15 percent.

    Ratio shares were up 2 percent in afternoon trade in Tel Aviv, while Delek Drilling and Avner were 1 percent higher.

    The first stage of work will involve drilling four production wells at an average depth of around 5 km below sea level. These will produce about 12 billion cubic meters (bcm) of gas annually, which will double the volume of gas available to the Israeli market.

    "This is a day of good tidings for the economy and people of Israel. This move will provide gas to Israel and promote cooperation with countries in the region," Prime Minister Benjamin Netanyahu said on Twitter.

    The gas from Leviathan will be transported through two underwater pipes 120 km in length to a processing and production platform situated 10 km offshore.

    The processed gas will be piped from the platform, through a northern entry pipeline that will be connected to the national gas transmission system of Israel Natural Gas Lines.

    "Developing Leviathan and pursuing more export agreements, coupled with supply to the domestic market, will ensure energy security for Israel and will add to Delek Group's stability," said the company's chief executive, Asaf Bartfeld.

    Noble, the group's operator, said its share of the bill was $1.5 billion. It plans to fund phase one with operating cash flows from the nearby gas field Tamar, as well as east Mediterranean portfolio proceeds. Regional portfolio proceeds received to-date total about $575 million, it said.

    Noble said it was also securing access to a financing facility for additional funding flexibility.

    Noble projects operating cash flow for the first year following Leviathan's start-up to be at least $650 million net.

    http://www.reuters.com/article/us-israel-natgas-leviathan-idUSKBN1620OS
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    China’s LNG imports rise almost 40 pct in January


    Liquefied natural gas (LNG) imports into China, the world’s largest energy consumer, rose 39.7 percent in January as compared to the same month a year before, according to the General Administration of Customs data.

    China’s LNG imports increased to 3.44 million mt in January, the second-highest monthly import level, behind a record 3.73 million mt set the month before as a cold snap across the country spurred demand.

    The country is the world’s third-biggest LNG importer, behind South Korea and the top LNG buyer, Japan. Its imports rose 33 percent to 26.06 million mt in 2016.

    China started importing chilled gas in 2006. The country’s LNG imports are expected to continue to rise as it as it is seeking to cut its addiction to coal to reduce pollution.

    http://www.lngworldnews.com/chinas-lng-imports-rise-almost-40-pct-in-january/
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    YPF, Shell sign deal for Vaca Muerta pilot project


    Argentina's state-run oil company YPF SA said it reached a preliminary deal with Royal Dutch Shell Plc on Thursday to develop oil and gas assets in the Vaca Muerta shale field, involving a $300 million investment from Shell.

    Both companies will take a 50 percent stake in the Bajada de Añelo field to develop a pilot program, which will be operated by Shell, YPF said in a statement. The agreement is subject to approval by provincial authorities, and Shell's investment will come in two phases, YPF said.

    Shell spokeswoman Kimberly Windon confirmed the agreement, adding that the definite terms would be agreed within 60 days and that the project would continue as a full-field development if the pilot is successful.

    The deal comes after President Mauricio Macri reached an agreement with oil companies and unions last month to stimulate investment in Vaca Muerta, which his government hopes can narrow Argentina's energy deficit and reduce costly gas imports.

    The unconventional formation in Patagonia, at roughly 30,000 square kilometers, is roughly the size of Belgium and is one of the largest shale reserves in the world.

    Under the January agreement, Argentina guaranteed a subsidized natural gas price for production from new wells of $7.50 per million British thermal units through 2020, while labor unions signed on to more flexible contracts.

    YPF and Shell, along with oil majors Chevron Corp, Total SA and BP unit Pan American Energy LLC [BPPAE.UL], agreed to invest a total of $5 billion to tap the formation in 2017 and double that in coming years, Macri said.

    YPF said it would invest $2.3 billion in Vaca Muerta this year, while the other companies did not announce specific investments.

    Last year, Shell said it planned to invest $300 million per year through 2020 in Argentina in exploration, refining, distribution and marketing. Bajada de Añelo totals some 204 square kilometers (78.76 square miles) and has both shale oil and shale gas resources, YPF said.

    http://www.reuters.com/article/us-ypf-shell-argentina-idUSKBN16308H
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    Italy's OLT seeks up to 20 LNG cargoes for April-September delivery -sources


    Italy's OLT LNG import terminal moored off the Tuscan coast is seeking up to 20 cargoes of liquefied natural gas (LNG) for delivery between April and
    September, two trade sources with direct knowledge of the tender said on Thursday.

    The Italian firm is seeking delivery of two cargoes in September, three cargoes in the months of April and June, and four cargoes in May, July and August. The tender closes on Mar. 6 and will have same-day validity, the sources added.
     
    OLT is only expected to purchase 15 out of the 20 cargoes sought as the infrastructure capacity constraints at the project will limit its purchases to 1.5 billion cubic meters of natural gas (1.09 million tonnes of LNG), one of the sources said, adding that only bidders with industrial demand for gas in Italy
    could participate.

    Swiss trader Dufenergy last year secured four of five import slots to bring LNG into OLT.

    http://www.reuters.com/article/italy-lng-tender-idUSL4N1G83F1
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    Kosmos, BP firm ties on West African LNG project


    Kosmos Energy received governmental approval and completed the $916 million farm-out of assets in the Mauritania-Senegal basin to BP.

    Under the transaction, BP has acquired 49.99 percent interest in Kosmos BP Senegal, a joint company holding 65 percent participating interest in the Cayar Offshore Profond and the Saint Louis Offshore Profond blocks offshore Senegal, that could underpin a development of a “world-class” LNG project.

    According to the agreement announced in December last year, Kosmos will receive a $162 million upfront payment, $221 million carry on exploration and appraisal, including a drill stem test on Tortue expected to be completed in 2017 and $533 million maximum carry on development costs until first gas production on the Tortue project.

    Kosmos said it expects a front-end engineering and design study to be completed in 2017 with the objective of reaching a final investment decision by 2018.

    Kosmos will also receive a contingent bonus of up to $2 per barrel, for up to 1 billion barrels of liquids, structured as a production royalty, subject to a future liquids discovery and oil price.

    Commenting on the agreement, BP chief executive officer Bob Dudley that the cooperation with Kosmos Energy and the Mauritanian and Senegalese governments enable the creation of a new LNG hub in Africa.

    In order to reduce development time and drive capital efficiency, the partners plan to process and transport the gas from Tortue at a nearshore LNG facility. The proposed complex could be expanded in phases to accommodate future gas discoveries.

    http://www.lngworldnews.com/kosmos-bp-firm-ties-on-west-african-lng-project/
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    Explosion hits Nigeria LNG pipeline


    Nigeria LNG, the operator of the 22 mtpa liquefied natural gas plant on Bonny Island, reported a pipeline explosion on Wednesday, February 22.

    According to the company’s statement, the explosion went off “on a section of the Right of Way housing two gas transmission pipelines, one of which belongs to Nigeria LNG, about 3 kilometers from Rumuji in Rivers State.”

    So far the cause of the explosion has not been determined NLNG sai, adding that no injuries or fatalities have been reported.

    Nigeria LNG continues the investigation into possible reasons for the explosion that rocked its gas transmission system.

    The company further urged the communities closest to the explosion site to stay clear for safety purposes while the investigation continues.

    The company, owned by Nigerian National Petroleum Corporation (49 percent), Shell (25.6 percent), Total LNG Nigeria (15 percent) and Eni (10.4 percent), also supplies about 40 percent of the annual domestic LPG consumption.

    Further updates on the incident will be provided in due course, Nigeria LNG added.

    http://www.lngworldnews.com/explosion-hits-nigeria-lng-pipeline/
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    France's Engie starts global LPG desk to meet power demand, hedging needs


    France's international utility company Engie has started a global desk to trade liquefied petroleum gas (LPG) and plans to promote the fuel as a replacement for diesel in power generation, senior executives said on Thursday.

    The utility company's trading arm plans to hire 10 people in Singapore, Europe and Houston to move growing LPG supplies from the United States to other parts of the world, Engie Energy Management's CEO Eric Simon told Reuters.

    The United States has become the top exporter of LPG, already sending record volumes to Asia to meet growing demand from residences as cooking and heating fuel and petrochemical complexes for making plastics.

    LPG replaces coal in Engie's trading portfolio as the company has decided to exit that business to focus on cleaner energy sources such as gas and renewables, Simon said.

    "We have to replace this asset class with another one which has much less carbon emissions and which makes sense in terms of trading," he said.

    LPG is a mixture of propane and butane produced as a by-product of U.S. shale gas or other natural gas output.

    Besides supplying LPG globally, the trading unit will also provide risk management and work with Engie's utility division to promote power plants fuelled by propane in Asia, Latin America and Africa, according to the chief executive.

    LPG could replace diesel used in power generators in remote places such as islands and in countries that need time to start natural gas production or build infrastructure.

    "This could be a competitive solution especially if the alternative is diesel," said Engie Asia Pacific's President and Chief Executive Officer Jan Flachet.

    Myanmar, for example, is developing its own natural gas output but in the meantime it could install LPG-fired power plants, Flachet said.

    LPG is traditionally used a bottled cooking fuel, but the use of propane as a petrochemical feedstock has also been growing in Asia.

    Major LPG traders include U.K.-based Petredec, Japan's Astomos Energy, Royal Dutch Shell, Vitol and Itochu Corp.

    Engie - formerly known as GDF Suez - has been trading derivatives of crude oil and products such as middle distillates and fuel oil in Singapore since 2012, hedging risks for the company's other businesses and external clients, said Simon.

    "We're not interested in trading physical oil," he said. "What we're seeing is the development of gas and power markets in Asia," for instance in India, where changes to the gas price formula could increase hedging needs from end-users.

    http://www.reuters.com/article/asia-energy-engie-idUSL4N1G83J2

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    Summary of Weekly Petroleum Data for the Week Ending February 17, 2017


    U.S. crude oil refinery inputs averaged about 15.3 million barrels per day during the week ending February 17, 2017, 187,000 barrels per day less than the previous week’s average. Refineries operated at 84.3% of their operable capacity last week. Gasoline production increased last week, averaging over 9.4 million barrels per day. Distillate fuel production decreased last week, averaging about 4.5 million barrels per day.

    U.S. crude oil imports averaged 7.3 million barrels per day last week, down by 1.2 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.4 million barrels per day, 7.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 367,000 barrels per day. Distillate fuel imports averaged 129,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.6 million barrels from the previous week. At 518.7 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.6 million barrels last week, but are at upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 4.9 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 3.3 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories decreased by 11.0 million barrels last week.

    Total products supplied over the last four-week period averaged 19.8 million barrels per day, up by 0.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.6 million barrels per day, down by 5.2% from the same period last year. Distillate fuel product supplied averaged about 4.0 million barrels per day over the last four weeks, up by 14.4% from the same period last year. Jet fuel product supplied is up 2.5% compared to the same four-week period last year

    Cushing falls 1.6 mlm bbls

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    US Oil Production breaks through 9.0mln bbls


                                                       Last Week   Week Before    Last Year

    Domestic Production '000........ 9,001            8,977            9,102
    Alaska .......................................... 518            ..  511               514
    Lower 48 .................................. 8,483            8,466            8,588

    http://ir.eia.gov/wpsr/overview.pdf
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    Here comes the Permian

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    Concho to operate 19 rigs in 2017


    Concho expects to 2017 CapEx to be between $1.6 and $1.8 billion, with 90% of this spent on drilling and completing wells. 60% of CapEx will be spent in the Delaware basin and 30% will be spent in the Midland, with the remaining 10% going to operations in the New Mexico Shelf. Concho expects to operate an average of 19 rigs in 2017, down slightly from the 21 operating currently. These rigs will fuel production growth of between 20% and 24% in 2017, with oil production growing 25%.

    Record average 30-day peak production in Midland basin

    Concho Resources is a pure-play Permian E&P, with all its acreage in the basin. The company owns about 540,000 gross acres in the Delaware basin, where Concho is currently operating 13 rigs. Concho is currently testing multi-zone pads in the Delaware, which seek to access several of the stacked pay intervals available from the same location.

    Concho’s Midland basin development, where the company owns 260,000 gross acres, has seen recent success. Extensive use of multi-well pads in the basin allowed Concho to add 11 wells in Q4, which produced a record average 30-day peak rate of 1,299 BOEPD. In the basin in 2017 the company plans to exclusively drill 10,000’ laterals from multi-well pads.

    Concho owns 130,000 gross acres in the New Mexico Shelf, which was the company’s first Permian basin property. While the New Mexico Shelf has historically been accessed with vertical wells, Concho is currently testing horizontals on the acreage. If these tests are successful the company will be able to further access the resource potential of the asset that allowed it to go public in 2007.

    http://www.oilandgas360.com/concho-puts-2017-capex-1-6-1-8-billion/
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    Chesapeake Energy posts smaller quarterly loss


    U.S. natural gas producer Chesapeake Energy Corp (CHK.N) on Thursday posted a smaller fourth-quarter loss than a year earlier, when it took huge charges to write down the value of some oil and gas assets.

    The company's shares were up 3.6 percent at $6.13 in premarket trading.

    Chesapeake said production averaged about 574,500 barrels of oil equivalent per day (boepd) in the quarter, down 13.1 percent from a year earlier.

    Chesapeake, like its peers, has been selling assets to lower its crippling debt load after a tow-year rout in oil prices depleted its cash balances.

    The company narrowed its 2017 capital budget last week, but maintained its production target of 532,000-562,000 boepd.

    The company's net loss available to shareholders narrowed to $741 million, or 84 cents per share, in the three months to Dec. 31, from $2.23 billion, or $3.36 per share, a year earlier.

    The year-ago quarter included charges of about $2.83 billion, mainly for asset impairment.

    Excluding items, the company earned 7 cents per share, in line with the average analysts' estimate, according to Thomson Reuters I/B/E/S.

    Chesapeake's total revenue fell nearly 24 percent to $2.02 billion in the latest quarter, narrowly missing analysts' average estimate of $2.08 billion.

    http://www.reuters.com/article/us-chesapeake-enrgy-results-idUSKBN1621DZ
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    Carrizo Oil & Gas, Inc. Announces Fourth Quarter and Year-End Results and Provides 2017 Guidance

    Carrizo Oil & Gas, Inc. Announces Fourth Quarter and Year-End Results and Provides 2017 Guidance

    Carrizo Oil & Gas, Inc. today announced the Company’s financial results for the fourth quarter of 2016 and provided an operational update, which includes the following highlights:

    Crude oil production of 28,727 Bbls/d, 15% above the fourth quarter of 2015
    Total production of 44,775 Boe/d, 11% above the fourth quarter of 2015
    Loss From Continuing Operations of $0.8 million, or $0.01 per diluted share, and Net Cash Provided by Operating Activities From Continuing Operations of $74.9 million
    Adjusted Net Income of $28.4 million, or $0.44 per diluted share, and Adjusted EBITDA of $118.1 million
    291% reserve replacement from all sources at a finding, development, and acquisition (FD&A) cost of $13.65 per Boe
    2017 drilling and completion capital expenditure guidance of $530-$550 million
    2017 crude oil production growth target of 23%
    Three-year compound annual crude oil production growth target of more than 20%
    Increasing Eagle Ford Shale inventory by more than 10% based on additional successful downspacing pilots

    Carrizo reported a fourth quarter of 2016 loss from continuing operations of $0.8 million, or $0.01 per basic and diluted share compared to a loss from continuing operations of $380.7 million, or $6.73 per basic and diluted share in the fourth quarter of 2015. The loss from continuing operations for the fourth quarter of 2016 includes certain items typically excluded from published estimates by the investment community. Adjusted net income, which excludes the impact of these items as described in the non-GAAP reconciliation tables included below, for the fourth quarter of 2016 was $28.4 million, or $0.44 per diluted share, respectively, compared to $18.5 million, or $0.32 per diluted share, respectively, in the fourth quarter of 2015.

    For the fourth quarter of 2016, Adjusted EBITDA was $118.1 million, an increase of 5% from the prior year quarter due to higher production volumes and commodity prices. Adjusted EBITDA and the reconciliation to loss from continuing operations are presented in the non-GAAP reconciliation tables included below.

    http://boereport.com/2017/02/23/carrizo-oil-gas-inc-announces-fourth-quarter-and-year-end-results-and-provides-2017-guidance/
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    Oil and gas producer Apache to spend 60 pct more this year


    Oil and gas producer Apache Corp said it would spend 60 percent more in 2017 than it did last year, joining a growing list of U.S. shale producers who are ramping up spending to take advantage of a recovery in oil prices.

    Apache, which reported a smaller loss on Thursday, plans to spend $3.1 billion in 2017, higher than the $1.9 billion it spent last year.

    The company said it would spend nearly two-thirds of its budget in Texas' Permian Basin, of which $500 million is budgeted for infrastructure development in the so-called Alpine High field.

    Total production was nearly unchanged at 490,376 barrels of oil equivalent per day in the fourth quarter.

    Apache said last September it had amassed more than 300,000 acres in the field it calls Alpine High, most of which is in Reeves County, Texas.

    U.S. crude prices, which dipped to a low of $26.05 last year have largely traded above $50 since late November.

    This has prompted producers such as Exxon Mobil, Chevron Corp and Hess Corp to boost their capital budgets for the year.

    Net loss attributable to Apache's common shareholders was $182 million, or 48 cents per share, in the three months ended Dec. 31. (bit.ly/2moGRY9)

    The company had posted a loss of $4.02 billion, or $10.62 per share, a year earlier, when it incurred one-time charges of $5.9 billion.

    The Houston-based company's total revenue fell about 2 percent to $1.45 billion.

    http://www.reuters.com/article/apachecorp-results-idUSL4N1G84A2

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    Pioneer Natural Resources: How to Grow Production 15% in a Downcycle


    Pioneer Natural Resources continues to escalate the size of completions in the Permian

    The last year proved to be a difficult time for many oil and gas companies, but many were able to prosper even as oil prices hit multi-year lows and began a slow recovery through the second half of the year. Pioneer Natural Resources (ticker: PXD) was able to increase production 15% year-over-year in 2016, an impressive growth target even when prices were higher, but the company doesn’t plan to stop there.

    Pioneer announced in its fourth quarter and year-end release in February that the company plans to continue that record of growth over the next 10 years and eventually reach 1 MMBOEPD of production by 2026. The key to being able to make that claim is the company’s assets, said Executive Vice President of the South Texas Asset Team, Western Asset Team and Corporate Engineering Ken Sheffield.

    “We have a world-class asset that allows us to grow organically over the next 10 years while spending within cash flow starting in 2018, and generating free cash flow thereafter,” Sheffield told Oil & Gas 360.

    Running 18 rigs in the Permian

    The company’s 2017 capital expenditure plan will consist of approximately $2.8 billion focused primarily on Pioneer’s Spraberry/Wolfcamp horizontal drilling program. PXD will run 18 rigs in the Permian, which it believes will lead to another year of 15%-18% production growth on a BOE basis.

    “We’ll be increasingly using our Version 3.0 completions on the majority of our wells,” said Sheffield, referring to the company’s higher intensity, tighter spacing completion designs. “We’re also going to be testing even larger completions in 12 wells,” he added.

    “We’ve seen consistent increases as we’ve gone from version to version of our upgraded completions, and we may not have yet found the limit of the optimal point on those. We’re going to continue to push the envelope,” said Sheffield.

    Pioneer looks abroad to find customers for increased production: the “ability to export is increasingly important”

    Pioneer’s rapidly growing production needs a place to go, and, with the end of the crude oil export ban, PXD is looking to international markets more and more. The company has already exported to Europe and Canada, and plans to send two cargoes of crude to Asia in the first quarter of 2017, according to the company.

    “We’re in the early innings of international crude exports today, but we’re engaged in it and learning about it. We’re preparing ourselves for the future. With the increase in our production, that ability to export is going to be increasingly important,” explained Sheffield.

    “We believe there is incremental value attached to light sweet crude going to more transportation fuel-focused refineries,” said Sheffield. “U.S. refineries are a little oversupplied for light sweet crude, and they’re more geared to handle heavy crude. If we can redirect lighter sweet crude to hungrier markets, we think that’s a money winning proposition for the company.”

    http://www.oilandgas360.com/pioneer-natural-resources-grow-production-15-downcycle/
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    Sandbox: Volume not Price.

    Now, let's turn to our market outlook for this year. We're seeing surging demand for sand proppant and last mile logistics driven by the continued increase in U.S. horizontal rig count, longer laterals and a double-digit increase in proppant per foot drilled. If these trends continue 2017 demand for sand proppant maybe greater than our current forecast of 60 million tons. The significant increase in sand demand is also driving higher overall sand pricing and a tightening of the last-mile trucking market, making efficiency gains associated with Sandbox even more valuable to our customers.

    We have a comprehensive strategy to win in the current market environment and we're responding aggressively to deploy capital and resources to support our customers. Let me give me you a few examples. First, we plan to have all of our oil and gas sand assets operating at maximum capacity in the near future. Second, over the next 12 to 18 months, we expect to invest in a mix of expansions at existing sites, new greenfield sites and acquisitions that will collectively approximately double our low cost oil and gas production capacity to more than 20 million tons per year. Third, we'll make additional capital investments in Sandbox this year. We continue to add new customers and expand existing customer relationships and we're quickly ramping up capacity to meet the growing demand.

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    Alternative Energy

    China bans new wind power projects in six regions


    The National Energy Administration (NEA) has issued red alerts, or the highest warning, in six provincial regions where new wind power projects will be prohibited this year, Securities Daily reported, citing a statement published on the NEA's official website on February 22.

    The six restricted regions include northeastern Heilongjiang and Jilin, northwestern Gansu, Ningxia and Xinjiang, as well as northern Inner Mongolia.

    In these regions, new construction approvals and access to grid connections will be put on hold.

    Large amounts of wind power were wasted in these regions last year, an industry analyst told the newspaper, adding that the NEA hopes to urge local governments to more actively solve the problem through administrative measures, which have active significance for the healthy development of the industry.

    According to official data, last year the waste proportion of these regions were Gansu (43%), Xinjiang (38%), Jilin (30%), Inner Mongolia (21%), Heilongjiang (19%).

    China had 149 GW of installed wind power capacity as of the end of 2016, with 19.3 GW added last year, according to the NEA.

    Wind power facilities generated 241 TWh of electricity in 2016, 4% of the country's total electricity production, compared with 3.3% in 2015.

    However, nearly 50 TWh of wind power was wasted last year, up from 33.9 TWh a year earlier, due to distribution of wind resources and an imperfect grid system.

    The three-tier warning system distinguishes the risk levels by green, orange and red and the NEA releases the results annually.

    http://www.sxcoal.com/news/4552618/info/en
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    Tesla says Model 3 on track for volume production by Sept


    Tesla Inc posted a smaller quarterly loss and said its mass-market Model 3 sedan was on track for volume production by September.

    The company's net loss attributable to common shareholders narrowed to $121.3 million, or 78 cents per share, for the fourth quarter ended Dec. 31 from $320.4 million, or $2.44 per share, a year earlier. bit.ly/2l9C0tI

    Tesla, which is led by billionaire entrepreneur Elon Musk, said revenue rose 88 percent to $2.28 billion.

    The company is betting big on Model 3 to help it meet its goal of producing 500,000 cars annually in 2018.

    http://www.reuters.com/article/tesla-results-idUSL4N1G75B7
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    Agriculture

    U.S. corn delays open door for China sales to Asia


    Delays in corn shipments from the United States have offered China a chance to showcase its grain to major Asian buyers like Japan and South Korea, raising the prospect of a new player in global grain markets.

    One deal is close and talks have begun on two more, sources said, with China benefiting from its close proximity to big Asian customers and bulging stockpiles left over from a now-abandoned farmer support scheme.

    While volumes so far are tiny, any challenge to established trade flows would unnerve a saturated global market and the world's main exporters, including the United States, which is under pressure to unload its own record stockpiles in the export market.

    "Disposing of corn stocks is a top priority for China's ag policy this year. I think there's also a substantial surplus of new-crop corn that could be exported," said Fred Gale, senior economist at the United States agriculture department.

    For now, China's role may be limited to a regional supplier of last resort, given it is charging a hefty premium for its corn and struggling to reacquaint itself with a business it gave up about a decade ago, traders and experts said.

    Further out, however, traders say it is still unknown how far the government will back regional exports.

    A step-up in sales would help run down vast stockpiles - equal to more than a year's consumption - but longer term China's annual corn surplus is expected to narrow to less than 10 million tonnes, putting a limit on exports.

    One major trading house has forecast China will export as much as 2 million tonnes in 2017/18, a source told Reuters, compared with nearly 57 million tonnes of U.S. exports this year and 28 million tonnes by Brazil, according to USDA forecasts.

    STORM DELAYS

    China's unexpected sales opportunity has come as Asian customers face potential corn shortages after severe winter weather in the United States slowed rail deliveries of crops to shippers.

    Japan, the world's top corn importer with purchases of about 15 million tonnes a year, has said it expects to tap emergency stockpiles.

    "Japan needs some corn to replenish its stocks. It will be buying more corn from China," said Nobuyuki Chino, a Tokyo-based veteran grains trader.

    "It is emergency supplies which should be 200,000 tonnes, that is my expectation. Japan will try and limit its purchases from China as Chinese corn is more expensive than world corn prices."

    Japan's Mitsubishi Corp is finalizing the purchase of a 15,000 tonne cargo of corn from China's state-controlled Cofco, two sources told Reuters last week, China's first meaningful seaborne grain exports in at least seven years.

    The cargo is expected to ship next week, said one of the sources.

    Mitsubishi has agreed to pay as much as $230 per tonne FOB for its cargo, trading sources said, well above a price below $200 a tonne it paid for its delayed U.S. corn.

    Cofco did not respond to requests for comment. A Mitsubishi spokesman said the company is considering buying corn from other countries, including China, Russia and South America, but it has not yet finalized a purchase.

    Despite the high price tag, talks are underway for at least two more deals between China and Japan, one of the two sources said.

    China's does have an advantage over Brazil, Ukraine and the United States of being close to Asia's big importers, including Vietnam and Taiwan.

    It takes three or four days to get corn from northern China to Japan, compared with two weeks from the U.S. Pacific Northwest, and up to 35 days from Brazil and Ukraine, which translates into a cost saving of up to $12 a tonne, traders said.

    The price gap between South American corn and Chinese corn has already narrowed to about $30-$40 a tonne, said a Singapore-based trader, and further falls would boost China's competitiveness.

    "It depends on how desperately China needs to get the corn out. If it's desperate, it could drop the price to $210, even $200," he said.

    http://www.reuters.com/article/us-china-corn-exports-idUSKBN1620KK

    Attached Files
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    Precious Metals

    Toyota's new technology a blow for platinum, palladium price


    Toyota sold more than 10 million vehicles last year placing it in a virtual tie with Volkswagen as the world's number one automaker.

    Stricter pollution regulations around the world and intense competition mean that top priority for  traditional car companies is to cut costs and reduce emissions.

    A new technology unveiled by Toyota on Wednesday is win for the Japanese company on both counts. Toyota announced the availability of a new, smaller catalyst that uses 20% less precious metal in approximately 20% less volume, while maintaining the same exhaust gas purification performance.

    Toyota's "world's first integrally-molded Flow Adjustable Design Cell (FLAD)" is not the first time researchers have found innovative ways to reduce pricey platinum group metals in exhaust systems. But those technologies seldom make it all the way to the assembly line.

    Roughly 75% of palladium demand is from the autocatalyst sector while application of platinum is more evenly spread

    What sets Toyota's FLAD apart is that the company says it's ready to start mass producing the catalyst. The first vehicle to sport the the new catalytic converter, Toyota's luxury flagship Lexus LC 500h, will get it later this year. Volume models further down the ranks will gradually follow says the company.

    Roughly 75% of palladium demand is from the autocatalyst sector while application of platinum is more evenly spread with jewellery and other industrial uses making up more than half the total. 85% of rhodium is used in the auto sector, but it's a tiny market –  about 30 tonnes produced in good years.

    Clearly it will take a long time for FLAD to work its way through to PGM markets. If at all; events in South African and Russia which together is responsible for 80% of the world's PGM output generally have the biggest impact (not to mention the vexing issue of the real amount of above ground stocks).

    Nevertheless, a 20% cut is substantial, and the automakers have a long history of copying each others' technology.

    http://www.mining.com/new-toyota-technology-blow-platinum-palladium-price/

    Attached Files
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    Steel, Iron Ore and Coal

    Seaborne thermal coal market to see supply dearth by 2030: Noble Group


    Demand for seaborne thermal coal is expected to exceed supply by about 400 million mt by 2030, with new coal-fired electricity capacities coming onstream, according to Noble Group.

    The trading company has estimated that the largest growth in demand would be from additional planned power generation capacities in Southeast Asia, which would reach about 249 million mt by 2030.

    "By 2030 Southeast Asia imports will be 50% more than the Atlantic coal market," said Rodrigo Echeverri, head of Energy Coal Analysis, Noble Group, at the Coaltrans Conference, which is currently being held in New Delhi.

    Demand from African countries, excluding South Africa, would be close to 40 million, Echeverri said, adding that 80% of South Africa's coal exports would be to other African countries and the Middle East.

    "Supply will not increase until price corrects," said Echeverri, adding that the backwardated market structure prevents capital from being used to producing coal.

    "Unless prices remain strong, Indonesia and Australia will not be able to ramp up production when the market needs it 2020 onwards."

    While greenfield projects, mainly in Australia and South Africa, will be required in just five years, coal from Colombia and the US might also be needed to fulfill base requirements in Asia.

    Echeverri said that he expects Indian import of coal to slide lower year on year until about 2021 and increase thereafter, exceeding 250 million mt by 2030. "The biggest risk to Indian imports of thermal coal is the production from captive coal blocks," he said.

    India's electricity production, which has grown at a 5.3% compound annual growth rate in 2015, is expected to fall from 5.6% in 2017 to 4.2% by 2030, Noble Group said in its presentation at the conference.

    While the share of gas in the fuel-mix for electricity generation is currently growing at 7.2%, for which the base is actually very small, the share of coal in the fuel-mix is expected to fall from 80% currently to 70% by 2030.

    Over this period, the demand for coal in electricity generation is expected to grow at 4.8% CAGR.

    "India has a lot of untapped demand [for electricity]," said a source with a power producer, adding that coal still is the cheapest source for producing power.

    http://www.platts.com/latest-news/coal/singapore/seaborne-thermal-coal-market-to-see-supply-dearth-27775615
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    Shanxi to add 70 Mtpa advanced coal capacity in 2017


    Shanxi province, a major coal producing base in northern China, will move vigorously to boost advanced coal mining capacity and reduce outdated capacity in 2017, in order to optimize and upgrade its coal industry.

    The province planned to add 70 million tonnes per annum (Mtpa) of advanced capacity this year, said Xiang Erniu, director of Shanxi Coal Industry Administration.

    A total of 358 coal mines in Shanxi were assessed as "Safe and Efficient Mines" for the year 2014 and 2015, accounting for 46.92% of the nation's total, showed a document released by the China National Coal Association.

    Shanxi reduced 23.25 million tonnes of coal production capacity and shut down 25 coal mines last year. The province cut coal production by 143 million tonnes in the year, accounting for some 40% of the country's total production reduction, according to data from the administration.

    The province will draft capacity replacement and reduction plans for those mines that have gained approval yet not passed acceptance check or received preliminary approval to start construction.

    Small and medium sized coal mines would be regrouped and scaled back in capacity, and mines are allowed to deploy no more than two working faces so as to improve productivity.  

    Meanwhile, Shanxi will plow more into safety facilities in order to raise safety and quality standards.

    http://www.sxcoal.com/news/4552608/info/en
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    Britain's coal output falls by half to record low


    Britain's coal production fell by 51 percent to a record low last year as all large deep mines closed and others neared the end of their operational life, preliminary government statistics showed on Thursday.

    Coal output fell to just over 2 million tonnes of oil equivalent last year, the Department for Business, Energy and Industrial Strategy (BEIS) said in 2016 provisional energy data.

    Britain's coal production has fallen by 77 percent in the last five years.

    Coal accounted for 10.6 percent of electricity supplied in 2016, down from 25.8 percent in 2015, due to coal plant closures and a carbon price floor which has made coal-fired generation more expensive than gas-fired power.

    More detailed estimates of 2016 will be published on March 30, BEIS said.

    http://www.reuters.com/article/britain-energy-coal-idUSL8N1G83FJ
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    Brazil's Vale swings to profit on higher iron ore prices


    Brazilian miner Vale SA reported on Thursday net profit of $525 million for the fourth quarter, falling short of analyst expectations but reversing a heavy loss in the period a year earlier thanks to record output and higher iron ore prices.

    A Reuters poll of analysts had forecast net profit of $1.8 billion in the quarter, but the world's largest producer of iron ore fell short on account of impairments totaling $2.9 billion, principally on fertilizer and nickel assets.

    In the same period of 2015, Vale reported a net loss of $8.6 billion.

    The quarter marked a return to cash generation for the miner on the back of rallying iron ore prices .IO62-CNO=MB, which rose around 80 percent in 2016.

    Vale posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $4.77 billion, the highest since the fourth quarter of 2013.

    Analysts at Bernstein said the results were positive, noting the company had trimmed net debt to $25.08 billon at the end of 2016, from $25.23 billion at the same point in 2015.

    "We continue to like Vale, as we believe that we have reached an inflection point for the company; cash generation and rapid de-gearing is the agenda henceforth, and we believe that the positive results today should lend further weight to this argument," Bernstein's Paul Gait said in a note.

    With higher prices and iron ore production reaching record levels, Vale reported net profit of $3.98 billion for the full year, a huge swing from a loss of $12.13 billion in 2015, the biggest loss in the company's history.

    "With strong production and the recovery in prices, it was forecast we'd have a strong quarter and finish the year strongly. And that's exactly what happened," Vale's Chief Financial Officer Luciano Siani said in a video on the company's website.

    http://www.reuters.com/article/vale-sa-results-idUSL1N1G809O
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    Atlas returns to profit in H1


    Iron-ore miner Atlas Iron has swung back to a profit for the six months to December 31, on the back of increased underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) and higher exports.

    Net profit for the interim period reached A$18.9-million, compared with a loss of A$114.3-million in the first half of the prior financial year. Underlying Ebitda for the same period was up from A$20.5-million to A$66.2-million.

    Atlas on Thursday said the results reflected the benefits of increased production, with 8.1-million tonnes produced in the first half of 2017, compared with the 6.9-million tonnes produced in the previous corresponding period, as well as significant ongoing savings and higher realised prices.

    “This strong result marks a key turning point for Atlas on several levels. Importantly, we increased production and reduced costs, enabling us to take advantage of the improvement in iron-ore prices.

    “The performance also meant we were able to make debt repayments of A$71-million, including A$54-million on January 5, reducing the balance of our Term B debt to A$118-million,” said Atlas MD Cliff Lawrenson.

    “The strong first half positions us well as we transition from the Wodgina and Abydos mines and commence the development of the recently approved Corunna Downs mineover the remainder of the 2017 calendar year.”

    Atlas earlier this month approved the development of the Corunna Downs project, with capital costs expected to reach between A$47-million and A$53-million to deliver the four-million-tonne-a-year lumps and fines project. Corunna Downs is expected to have a mine life of five to six years.

    Lawrenson on Thursday said the second half of the financialyear has started with challenging weather conditions, including rainfall levels around the mines well above those reported in recent years.

    “However, we retain our full 2017 production guidance rage of between 14-million and 15-million tonnes. Increasing price discounts on lower-grade ores are impacting realised prices, particularly on those cargos which are hedged and do not benefit from the overall increase in the headline 62% prices. However, we anticipate discounts should reduce over time to levels that more accurately reflect the relevant value of the various ores to the end users,” he added.

    http://www.miningweekly.com/article/atlas-returns-to-profit-in-h1-2017-02-23
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