Mark Latham Commodity Equity Intelligence Service

Wednesday 24th February 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    What Could Go Wrong? Saudis Want To Give Surface-To-Air Missiles To Syrian Rebels

    What Could Go Wrong? Saudis Want To Give Surface-To-Air Missiles To Syrian Rebels

    So far, the Turks and the Saudis haven’t invaded, although Ankara is now shelling the YPG in the Azaz corridor in an effort to roll back Kurdish efforts to consolidate border gains. According to Saudi Foreign Minister Adel al-Jubeir, Riyadh’s next move may be to introduce surface-to-air missiles so that the rebels will be able to defend themselves against the Russian air attack.

    “Is Saudi Arabia in favour of supplying anti-aircraft missiles to the rebels?,” Der Spiegel asked al-Jubeir on Friday. Here was the minister’s response:

    Yes. We believe that introducing surface-to-air missiles in Syria is going to change the balance of power on the ground. It will allow the moderate opposition to be able to neutralize the helicopters and aircraft that are dropping chemicals and have been carpet-bombing them, just like surface-to-air missiles in Afghanistan were able to change the balance of power there. This has to be studied very carefully, however, because you don't want such weapons to fall into the wrong hands.

    Now obviously, the whole “dropping chemicals” line is a ruse. The only thing introducing advanced surface-to-air missiles would do is allow the opposition to shoot at Russian air power and that’s completely at odds with the following response al-Jubeir gave when asked about the kingdom’s relationship with the Russians:

    Other than our disagreement over Syria, I would say our relationship with Russia is very good and we are seeking to broaden and deepen it. Twenty million Russians are Muslims. Like Russia, we have an interest in fighting radicalism and extremism. We both have an interest in stable energy markets. Even the disagreement over Syria is more of a tactical one than a strategic one. We both want a unified Syria that is stable in which all Syrians enjoy equal rights.

    No, no you both do not want that. Syria was already a state where citizens enjoyed equal rights, loosely speaking. That’s not to say that Assad tolerated much in the way of dissent when it came to his grip on power, but when it came to Mid-East states where different sects and religions could live alongside one another, things were going ok in Syria before Riyadh, Washington, Doha, and Ankara decided to play on fears of Iranian influence to whip impoverished Sunnis into a sectarian frenzy.

    http://www.zerohedge.com/news/2016-02-22/what-could-go-wrong-saudis-want-give-surface-air-missiles-syrian-rebels
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    Economic Watch: No need for panic about China's economy


    Despite slower growth and market volatility, China has plenty of good news to offer.

    Skyscanner, a global travel search site headquartered in the United Kingdom, is a case in point to question the fears about China.

    The company announced last week it saw a 67-percent jump in Chinese visitors to the site in 2015, helping boost its revenue by 28 percent to 183 million U.S. dollars.

    "We have to understand China better," Shane Corstorphine, chief financial officer of Skyscanner, said in an interview with CNBC on Friday, calling increasing outbound travel from China "a major opportunity."

    Concerns over China are natural, given the country's economy is in its most protracted downshift since the late 1970s, which has been accompanied by recent stock market fluctuations and a weakening currency.

    However, a broader long-term perspective will help companies such as Skyscanner make more sensible strategies for China.

    The sources of pressure are undeniable: soft property investment, bloated industries and slumping trade. But sound fundamentals justify a positive outlook for China's future growth.

    That judgment led U.S. computer chip giant Intel to invest 5.5 billion U.S. dollars in its plant in northeast China's Dalian City last October to produce the company's most advanced memory chips.

    Intel cares more about China's market demand five to 10 years from now than its GDP growth for one year, said Richard Howarth, vice president of Intel's Technology and Manufacturing Group and general manager of Intel Semiconductor (Dalian) Ltd.

    For the moment, even though China recorded its slowest expansion in 25 years in 2015, employment and consumption remain resilient.

    The registered unemployment rate in China's cities was 4.05 percent at the end of 2015, better than official targets. Consumption contributed 66.4 percent to economic growth, up 15.4 percentage points from 2014.

    China also has enough ammunition to stop further deceleration, with the world's largest foreign exchange reserves, a huge trade surplus, room for monetary and fiscal maneuvering, and a certain degree of capital control.

    Those conditions make the possibility of a crisis in China much smaller than in other economies, economist Marie Owens Thomsen of the French bank Credit Agricole wrote on the Chinese website of the South China Morning Post during the weekend.

    Chinese vice finance minister Zhu Guangyao asserted on Saturday that China's economy "will surely continue to grow."

    "China's fundamentals remain strong, with high resilience, ample leeway and huge potential," said Zhu at a forum. "None of those has changed."

    There's a big distance between a slowdown and a crisis, and the former does not necessarily entail the latter.

    To avoid misunderstanding, observers who simply base their reasoning on Western experiences need to think out of the box.

    In developed economies, new investment opportunities are rare once there is excess capacity, but China is still in the process of industrial upgrading and urbanization, with strong need for investment in urban infrastructure and environmental protection, said Justin Yifu Lin, former chief economist of the World Bank.

    Unlike other developing economies, which have investment opportunities but face fiscal constraints, China has plenty of resources, with lower government debt and high household savings, Lin explained.

    Reform is another promising hedge against the downturn. China is cutting administrative red tape, overhauling state-owned enterprises, and removing barriers to let the market play a decisive role in resource allocation.

    Those measures, along with efforts to reduce corporate burdens, improve financial efficiency and stimulate innovation, will help China increase productivity and overcome difficulties, said Xu Hongcai, an economist at the China Center for International Economic Exchanges.

    "Reform remains China's biggest bonus," he said.

    Thanks to streamlined bureaucracy, 12,000 companies were registered in China daily on average last year, up from 10,000 in 2014 and 6,900 before the reform.

    Thriving entrepreneurship attests to market vitality, which is a key force shaping China's economic trend, said Zhang Mao, head of the State Administration for Industry and Commerce, at a press briefing on Monday.

    Jin Keyu, professor of economics at the London School of Economics, saw significant opportunities for China to achieve stable growth based on efficiency and productivity gains from deepening reform, rather than merely consumption.

    While acknowledging government reform will be difficult to deliver, Jin believes action will become unavoidable if economic conditions worsen.

    "Good times may breed crises in the West," Jin wrote in an article on news site Project Syndicate. "In China, it is crises that bring better times."

    http://en.people.cn/business/n3/2016/0223/c90778-9020100.html
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    G20 meeting. The real meeting!

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    Shanghai, Wednesday.

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    Attached Files
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    Here we go.. Bears beware!

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    Just in case we forget..

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    Brazil police probe possible Odebrecht bribes to Peru president


    Brazilian police are investigating potential bribes of $3 million from Latin America's largest engineering conglomerate Odebrecht to Peruvian President Ollanta Humala, court documents showed.

    Documents seized from Marcelo Odebrecht, the former CEO of the family-run company, cite "Program OH," which police said in the documents they interpreted as referring to the initials of the Peruvian president. They noted the funds were not allocated for any specific purpose.

    Humala in a statement on Tuesday denied taking bribes and said he summoned Brazil's ambassador to his offices late on Monday to request official information about the inquiry following initial news reports on the Brazilian court documents.

    Peru's attorney general's office said that because of presidential immunity prosecutors would not be able to investigate Humala until after his term ends in late July.

    Odebrecht has won contracts worth several billions in Peru in the past decade, including a $5 billion natural gas pipeline during Humala's term after its sole bidding competitor was disqualified from a public auction at the last minute.

    The inquiry comes amid political campaigning for Humala's successor and will likely drag further on his already-low approval ratings during his last five months in office. Presidents in Peru cannot hold two consecutive terms and the ruling party candidate is trailing far behind in polls.

    Presidential hopeful Julio Guzman, second in the race to April elections, said on Twitter Humala should be banned from leaving Peru until the bribe allegations were cleared up.

    Brazilian federal prosecutor Carlos Fernando dos Santos Lima said at a press conference on Monday investigators had evidence Odebrecht had bribed officials abroad, including a former transportation secretary in Argentina.

    The largest-ever corruption investigation in Brazil has revealed an elaborate scheme of price-fixing among engineering firms, allegedly led by Odebrecht, to overcharge state-run oil firm Petroleo Brasileiro SA and use the access funds to bribe officials, many in President Dilma Rousseff's coalition.

    Marcelo Odebrecht was jailed in June and is on trial for corruption and money laundering, charges he denies.

    Police noted in documents filed with the federal court in Curitiba, Brazil, that Brazil's investment in Peru jumped from $50 million per year to $900 million annually when Rousseff's predecessor Luiz Inacio Lula da Silva became president. Many of the Brazilian investment projects were hydro-electric dams built by Odebrecht.

    http://www.reuters.com/article/brazil-corruption-peru-idUSL2N1620WU
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    Oil and Gas

    Al-Naimi Warns Producers "Cut Costs Or Liquidate"


    It appears oil traders are disappointed with Al-Naimi's comments. Suggesting hopefully (for some) that the 'freeze' is the start of a process, al-Naimi then dropped the tape-bomb:

    *SAUDI ARABIA WON'T CUT OIL PRODUCTION: NAIMI
    *HIGH-COST PRODUCERS MUST LOWER COSTS OR LIQUIDATE: NAIMI

    He then added that "not all the countries will freeze; The ones that count will freeze."  "We met with non-OPEC, we asked them what are you going to do, they said nothing

    http://www.zerohedge.com/news/2016-02-23/oil-erases-yesterdays-gains-al-naimi-says-saudi-arabia-will-not-cut-production-live-

    Oil futures lost more ground on Tuesday after Saudi Arabia's Oil Minister Ali al-Naimi said he has no concerns about oil demand and that he welcomes additional supplies, including shale oil. He emphasized in his speech at IHS CERAWeek that "we have not delcared war on shale" or on production from any country or company. "Our purpose is not market share." Al-Naimi said oil is in a "painful downturn" but the market will be balanced and demand will pick up.
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    Iran Slams OPEC Production 'Freeze' Proposal As "Ridiculous"


    Despite OPEC's El-Badri proclaiming that Iran and iraq "didn't refuse to join the production freeze," oil prices are tumbling this morning on comments from Iran's oil minister that OPEC's call for a production freeze is "ridiculous."

    Proposal by Saudi Arabia, Russia, Venezuela, Qatar for oil producers to freeze output puts “unrealistic demands” on Iran, Oil Minister Bijan Namdar Zanganeh says, according to ministry’s news agency Shana.

    *IRAN CALLS SAUDI-RUSSIAN OUTPUT FREEZE PLAN `RIDICULOUS': SHANA

    http://www.zerohedge.com/news/2016-02-23/oil-drops-after-iran-slams-opec-production-cut-ridiculous
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    Asia's oil markets in upheaval as China, India change the game


    Asia's oil markets are being upended as India's and China's refiners overtake once-dominant buyers like Japan and challenge the United States as the world's biggest consumer.

    The shifts are not only establishing new trade routes but are also challenging the way oil is priced in the region as the new players push for more cash cargoes and fewer long-term deals.

    China and India's combined share of world oil consumption has tripled since 1990 to over 16 percent, nearing the U.S. share of roughly 20 percent, cementing their status as the main center of global demand growth.

    "Asian oil markets are in a tremendous period of flux," said Owain Johnson, managingdirector of Dubai Mercantile Exchange (DME).

    By 2040, China and India could double their share again to a third, analysts say.

    One of Asia's rising traders is Indian Oil Corp, which operates 11 refineries with a combined capacity of 80.7 million tonnes a year (1.9 million barrels per day), a third of India's capacity and roughly the same size as Exxon's U.S. refining base.

    "Spot crude (trading) gives more flexibility and more variety is available. Last year we raised spot purchases and for this year we are working out a strategy," said its head of finance A. K. Sharma.

    The changes come at the expense of western majors, with Shell complaining in December that aggressive trading, conducted by Chinese companies, meant Asian crude prices didn't properly reflect the market.

    "Chinese oil companies have become the new power houses in oil trading," said Oystein Berentsen, managing director of crude at Strong Petroleum in Singapore.

    NEW PRIORITIES

    Previously, Asia's largest oil buyers from Japan - which once accounted for about 10 percent of global demand - stuck with long-term contracts.

    Now, as China and India take the lead, a growing share of trading is done on a spot basis as buyers prioritize cost and delivery flexibility over fixed shipment schedules.

    Moreover, thanks to the hefty volumes, the new buyers are able to extract favourable prices. China and India's combined daily net crude imports exceed 10 million barrels, or some 3 million bpd more than top importer the United States.

    The new buyers are also bringing new characteristics to the marketplace.

    "Indians are more flexible than many of their Asian peers, buying up distressed or stranded cargoes when there's a profitable opportunity," said Ivan Szpakowski, head of Asia commodity research at Citigroup.

    "India will become the biggest source of oil consumption growth. Its geography also changes trade flows. If you look at a map, the Middle East is much closer to India than to Japan or China and such shipments are effectively short-haul."

    In China, state-owned oil giants have been joined by nearly 20 independent refiners which have been granted import licenses and exclusively buy spot supplies.

    Their arrival is changing trade flows through their preference for cheaply-delivered Russian crudes which has helped Russia challenge the Middle East as China's biggest supplier.

    NEW OIL PRICING?

    Not all is smooth sailing. Richard Gorry, director of JBC Energy Asia, said the rise of these traders is causing "teething problems" as they make their first deals with highly regulated international companies.

    In January, a crude cargo sold to an independent Chinese refiner by western merchants Vitol and Mercuria had to be resold after the firm failed to secure financing, while this month another private Chinese company walked away from a deal to buy $680 million of Russian oil, citing "changes in the market" as a reason.

    http://www.reuters.com/article/asia-oil-markets-idUSKCN0VX07F
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    Japan may not load March Iran oil as insurance to expire


    Japan will likely refrain from loading oil at Iranian ports in March because of the impending expiry at the end of next month of special shipping insurance cover provided by the government, industry and government officials said.

    The potential restriction from one of Tehran's biggest oil customers highlights Iran's difficulties in boosting exports after U.S. sanctions were lifted in January. The problem stems from confusion about whether U.S. companies can offer insurance coverage for tankers with Iranian crude.

    The U.S. removed the sanctions after confirming a deal on Iran's disputed nuclear programme, including prohibitions on non-American companies selling insurance to and trading with Iranian entities.

    But the Treasury Department left in place other sanctions limiting the amount of reinsurance U.S. companies can provide for Iranian ships, a crucial element in providing tanker cover.

    The insurance ban was the most effective way of limiting Iranian oil exports, which were more than 3 million barrels per day (bpd) in 2011, but fell to a little more than 1 million bpd after the sanctions were imposed in 2012.

    Japan has kept the oil trade with Iran going through a special government insurance programme that gives about $8 billion in coverage and the government plans to renew it with a parliamentary vote, a government source said.

    But, given the lack of a timetable on the vote, shippers are erring on the side of caution and will likely hold back from any loadings next month, the government source and industry sources, who requested anonymity, said.

    International insurers are trying to put together limited coverage to complement the lack of U.S. cover, but it is uncertain whether the Washington will approve the plans, officials at Japan's main insurer, the Japan P&I Club, said.

    European nations have resumed loading Iranian oil despite the international P&I club only providing coverage for about 85 percent of the roughly $8 billion per ship normal liability coverage, but Japanese shippers are still holding back, said the officials.

    Japan is set to load 202,000 barrels per day (bpd) of Iranian crude in February, down 8 percent from a nine-month high in January, said an industry source familiar with the matter.

    Japan's Iranian crude imports last year halved from 2011 levels to about 156,000 bpd amid the sanctions.

    http://www.reuters.com/article/iran-oil-japan-idUSL3N1621YQ
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    Tepco’s January LNG imports slide


    Tokyo Electric Power (Tepco) revealed its LNG imports in January stood at 1.8 million mt, 21 percent down from 2.28 million mt during the same month 2015.

    Tepco’s consumption of LNG also dropped to 1.99 million mt in December 2015, 15.1 percent lower compared to January 2015, fuel data released by the Japanese utility reveals.

    In the period spanning from April to January, Tepco imported 18.66 million mt and consumed 17.91 million mt of liquefied natural gas.

    Tepco is Japan’s first importer of LNG and it imports the fuel from projects located in Brunei, the United Arab Emirates, Malaysia, Indonesia, Australia, Qatar, Darwin, Oman, Russia and Papua New Guinea.

    http://www.lngworldnews.com/tepcos-january-lng-imports-slide/
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    Azerbaijan's Socar seeks to grow trading, restart Iran deals


    Azeri state oil firm Socar's trading division is looking to reactivate deals with Iran, as well as expanding into new markets ranging from North American crude to natural gas in Europe, its chief executive told Reuters.

    Neighbours Azerbaijan and Iran have been strengthening ties since the removal of sanctions against Tehran in January and on Tuesday Iran's national oil company NIOC and Socar signed a memorandum of understanding as part of a visit by Azeri President Ilham Aliyev to the Islamic Republic.

    "We have been actively trading with NIOC in the Caspian Sea region, until international sanctions forced us to discontinue such deliveries. There is a great potential to explore," Arzu Azimov, the chief executive of Socar Trading, said.

    Other possibilities include trading refined products with Iran in the Gulf, where Socar has storage facilities in the United Arab Emirates port of Fujairah. One option was to supply Iran with gasoline and to buy naphtha and liquefied petroleum gas (LPG), Azimov said.

    Geneva-based Socar Trading was set up in 2007 as the trading arm of Socar to market Azeri volumes. It expanded into crude processing and paper trading for hedging purposes before gradually trading third part crude and products.

    Azimov said Socar Trading, which currently employs less than 200 people globally sees its role as somewhat different from the trading arms of many national oil companies.

    "Where the market is oriented towards direct deals between producers and consumers, there is no space for trading houses. We need to be customer oriented. I see us as a services provider," Azimov told Reuters.

    He said about 90 percent of its profit was from outside trading of its parent company's oil or products and it was expanding in new markets beyond oil, such as LNG.

    "We decided that buying and selling LNG wasn't terribly attractive. So we started looking at other options. We looked at Malta, an interesting case as it is not connected to an EU gas grid and has been burning fuel oil for heating needs," he said.

    Socar Trading won a tender with a consortium including Germany's Siemens to supply LNG and build a re-gasification facility for the Mediterranean island, with supplies due to begin next year.

    Socar Trading plans to open an office in Houston to trade and arbitrage oil and products in and out of the United States. It already has a business unit in Calgary, where it is actively exploring trading opportunities between the U.S. and Canada.

    http://www.reuters.com/article/azerbaijan-socar-trading-idUSL8N1622J8
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    Alberta NatGas storage withdrawal lowest in 25 years


    NatGas taken from Alberta storage since Nov 1 is now a miserly 31 bcf, the smallest cumulative storage withdrawal in past 25 years

    @OilandGasInvest
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    Petrobras Said to Buy Cheniere's First U.S. Shale Gas Export


    Petroleo Brasileiro SA, Brazil’s state-owned energy company, is scheduled to receive the first cargo of shale gas to be shipped from the U.S., according to a person familiar with the deal.

    The shipment of liquefied natural gas was agreed to on Monday, said the person who asked not to be identified because the information isn’t public. Cheniere Energy Inc.began loading the first tanker at its Sabine Pass terminal in Louisiana, U.S. Coast Guard spokesman Dustin Williams said in an e-mail Tuesday.

    “The biggest buyer of LNG outside of the winter is Brazil first and Argentina second in the Atlantic Basin," said Ted Michael, an analyst for energy data provider Genscape Inc.“They buy LNG for gas-powered, air-conditioned power."

    Fuel Glut

    America’s first LNG export will hit the water just as a glut of the fuel emerges in the global market, weighing on prices. Other gas-export projects are expected to come under pressure to secure financing and long-term contracts amid the global commodity rout and shifts in demand overseas, Daniel Yergin, vice chairman of the energy consulting group IHS Inc., said in an interview Feb. 17.

    Demand is forecast to be higher in South America during the spring, in part due to a drought that has increased Brazil’s dependence on the power-plant fuel. Brazil has increased LNG imports in the past few years after an agreement to buy gas via a pipeline from Bolivia reached its limits.

    Loading the Asia Vision, the LNG tanker that moored at the Sabine Pass on Feb. 21, may take a few days and the timing of its departure is unclear, Williams said. Genscape, which has cameras pointed at the terminal, said the vessel began unloading ballast water shortly after it arrived and has continued to do so, which is “consistent with taking on more weight from LNG loading onto the ship,” analyst Jason Lord said in an e-mail Tuesday. He estimated it may take closer to 36 hours to load the Asia Vision.

    http://www.bloomberg.com/news/articles/2016-02-23/petrobras-said-to-buy-cheniere-s-first-u-s-shale-gas-export?cmpid=yhoo.headline
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    Carizzo Oil & Gas announces 2015 fourth quarter and year-end results, 2016 guidance


    Carrizo Oil & Gas, Inc.  today announced the Company's financial results for the fourth quarter of 2015 and provided an operational update, which includes the following highlights:

    - Record Oil Production of 24,942 Bbls/d, 13% above the fourth quarter of 2014
    - Record Total Production of 40,159 Boe/d, 7% above the fourth quarter of 2014
    - Loss From Continuing Operations of $380.7 million, or ($6.73) per diluted share, and Adjusted Net Income (as defined below) of $18.5 million, or $0.32 per diluted share
    - Adjusted EBITDA (as defined below) of $112.1 million
    - Delivered 246% reserve replacement from all sources with a drill-bit F&D cost of $15.40 per Boe
    - Announcing 2016 drilling and completion capital expenditure plan of $270-$290 million
    - Announcing 2016 crude oil production growth target of 8%

    Carrizo reported a fourth quarter of 2015 loss from continuing operations of $380.7 million, or $6.73 per basic and diluted share compared to income from continuing operations of $129.5 million, or $2.84 and $2.79 per basic and diluted share, respectively, in the fourth quarter of 2014. The loss from continuing operations for the fourth quarter of 2015 includes certain items typically excluded from published estimates by the investment community, including the full cost ceiling test impairment recognized this quarter. Adjusted net income, which excludes the impact of these items as described in the statements of operations included below, for the fourth quarter of 2015 was $18.5 million, or $0.33 and $0.32 per basic and diluted share, respectively, compared to $14.8 million, or $0.32 per basic and diluted share in the fourth quarter of 2014.

    For the fourth quarter of 2015, adjusted earnings before interest, income taxes, depreciation, depletion, and amortization, as described in the statements of operations included below ('Adjusted EBITDA'), was $112.1 million, a decrease of 13% from the prior year quarter as the impact of lower commodity prices more than offset the impact of higher production volumes.

    More information and prices

    Production volumes during the fourth quarter of 2015 were 3,695 MBoe, or 40,159 Boe/d, an increase of 7% versus the fourth quarter of 2014. The year-over-year production growth was driven by strong results from the Company's Eagle Ford assets. Oil production during the fourth quarter of 2015 averaged 24,942 Bbls/d, an increase of 13% versus the fourth quarter of 2014 and 6% versus the prior quarter; natural gas and NGL production averaged 67,110 Mcf/d and 4,032 Bbls/d, respectively, during the fourth quarter of 2015. Fourth quarter of 2015 production exceeded the high end of Company guidance due primarily to strong performance from the Company's Eagle Ford assets.

    Drilling and completion capital expenditures for the fourth quarter of 2015 were $104.5 million. More than 75% of the fourth quarter drilling and completion spending was in the Eagle Ford. Land and seismic expenditures during the quarter were $9.5 million.

    Given the decline in commodity prices, Carrizo is reducing its planned capital spending in 2016 vs. 2015. Carrizo's initial 2016 drilling and completion plan is $270-$290 million, a decrease of nearly 45% from the 2015 level. This level of spending should allow the Company to run one to two rigs in the Eagle Ford during the year as well as continue to test its acreage in the Delaware Basin. The Company's initial land and seismic capital expenditure plan is $15 million.

    Based on this level of activity, Carrizo is providing initial 2016 oil production guidance of 24,700-25,300 Bbls/d. Using the midpoint of this range, the Company's 2016 oil production growth guidance is 8%. For natural gas and NGLs, Carrizo is providing initial 2016 guidance of 45-60 MMcf/d and 3,700-4,000 Bbls/d, respectively. For the first quarter of 2016, Carrizo expects oil production to be 24,800-25,200 Bbls/d, and natural gas and NGL production to be 60-64 MMcf/d and 3,800-4,000 Bbls/d, respectively. Additionally, Carrizo currently expects crude oil production in the fourth quarter of 2016 to exceed crude oil production in the fourth quarter of 2015. A summary of Carrizo's production, commodity price realization, and cost guidance is provided in the attached tables.

    http://www.oilvoice.com/n/Carizzo-Oil-Gas-announces-2015-fourth-quarter-and-yearend-results-provides-2016-guidance/067ca47e57bd.aspx
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    Stone Energy Misses Q4 EPS by 4c


    Stone Energy (NYSE: SGY) reported Q4 EPS of $0.04, $0.04 worse than the analyst estimate of $0.08.

    Reserves

    Our estimated proved reserves as of December 31, 2015 were 57 MMBoe (million barrels of oil equivalent) or 342 Bcfe (billion cubic feet of natural gas equivalent), compared to 153 MMBoe (915 Bcfe) at year-end 2014. The decrease in estimated proved reserves is primarily attributable to the downward revision of 95 MMBoe (570 Bcfe) to contingent resources due to depressed commodity prices. Substantially all of Stone's proved reserves in Appalachia were reclassified to contingent resources during 2015. From drilling additions, extensions, well performance, and the acquisition of Appalachia working interests, Stone replaced approximately 104% of 2015 production.

    The year-end 2015 estimated proved reserves were 53% oil, 11% natural gas liquids (NGLs) and 36% gas on an equivalent basis. The changes from year-end 2014 estimated proved reserves to year-end 2015 estimated proved reserves included production of approximately 14 MMBoe (85 Bcfe), divestitures of 1 MMBoe (6 Bcfe), drilling additions/extensions of 1 MMBoe (7 Bcfe), acquisition of working interest in Appalachia of 6 MMBoe (34 Bcfe), positive performance revisions of 8 MMBoe (47 Bcfe) and net downward price revisions of 95 MMBoe or 570 Bcfe.

    The standardized measure of discounted future net cash flows from our estimated proved reserves at December 31, 2015, using a 10% discount rate and 12-month average prices (after differentials) of $51.16 per barrel of oil, $16.40 per barrel of NGLs and $2.19 per Mcf of gas, was approximately $604 million. Estimated future income taxes had no effect on the standardized measure as of December 31, 2015. If current pricing was used to determine the estimated proved reserves or the standardized measure at December 31, 2015, the reserve volumes and values would be reduced.

    The year-end 2015 estimated proved reserves included proved developed (PD) reserves of 42 MMBoe or 249 Bcfe (52% oil, 12% NGLs, 36% gas) and proved undeveloped (PUD) reserves of 15 MMBoe or 93 Bcfe (55% oil, 11% NGLs, 34% gas). In addition, there were 23 MMBoe or 139 Bcfe of estimated probable reserves and 59 MMBoe or 356 Bcfe of estimated possible reserves at year-end 2015.

    All of Stone's estimated proved, probable and possible reserves and contingent resources were independently engineered by Netherland Sewell & Associates.

    http://www.streetinsider.com/Earnings/Stone+Energy+(SGY)+Misses+Q4+EPS+by+4c/11347087.html
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    Alternative Energy

    Vestas in $1.2B deal to build huge wind power farm in Norway


    Danish company Vestas Wind Systems A/S says it has been awarded a 1.1 billion euro ($1.2 billion) deal to supply 278 wind turbines for Norwegian power company Statkraft and its partners for a wind power project in central Norway.

    Vestas said Tuesday that the turbines will have a combined capacity of over 1,000 megawatts and will be built on six wind farms on land around the Trondheim fjord. Statkraft described it as Europe's largest wind power project to date.

    The wind farms are estimated to generate 3.4 terawatt hours of power annually once completed and commissioned in 2020.

    Statkraft said the coastal area surrounding the Trondheim fjord provides "some of the best conditions forrenewable energy production from wind in Europe."

    Read more at: http://phys.org/news/2016-02-vestas-12b-huge-power-farm.html#jCp
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    Steel, Iron Ore and Coal

    Brazil police accuse seven of murder over Samarco dam burst

    Brazil police accuse seven of murder over Samarco dam burst

    Brazilian police in the state of Minas Gerais on Tuesday accused six Samarco executives and one contractor of murder in connection with the deaths of 19 people caused by a burst tailings dam at a mine in November.

    The Samarco chief executive at the time of the incident, Ricardo Vescovi, was among those accused.

    In Brazil only prosecutors, and not police, can formally bring criminal charges but public accusations often anticipate charges being filed.

    The police, in a statement, accused the mine executives of "qualified homicide," the murder charge that carries the heaviest sentence in Brazil of 12 to 30 years in prison.

    They said the rupture had been caused by over filling the dam, combined with a lack of monitoring and faulty equipment.

    Samarco, a joint venture of Vale SA and BHP Billiton, said in a statement it considers the accusations "misguided" and will wait for a court decision before taking appropriate action.

    The company is still investigating what caused the breach.

    The deadly dam burst is considered Brazil's worst environmental disaster, polluting a major river with thick red sludge which reached the Atlantic Ocean.

    It also destroyed the village of Bento Rodrigues, forcing hundreds to flee their homes and killing 17 people. Two people are still missing but the police said they are now considered fatalities.

    http://www.reuters.com/article/us-brazil-damburst-charges-idUSKCN0VW2QH
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    BHP sees iron ore, met coal costs declines but warns of low prices


    Miner BHP Billiton reported lower iron ore and coal production costs in Australia for July-December 2015, as it warned of persistent low prices on cost trends and supply pressures for the time being.

    BHP cut by 4% iron ore production guidance for its 2016 financial year to 237 million mt owing to losses from Samrco unit, with an update pending for Australia following weather disruption in January. Metallurgical coal production guidance was unchanged at 40 million mt.

    Western Australia Iron Ore unit cash costs declined by 25% to $15/mt and Queensland Coal by 17% to $59/mt, during the company's fiscal first half ended December 31 from the corresponding period, it said in an earnings statement.

    BHP also mines thermal coal in New South Wales and from Cerrejon in Colombia.

    BHP reported first metallurgical coal production from the Haju mine in Indonesia over the period.

    BHP continues to expect full-year costs to remain at $15/mt for iron ore and cut to $59/mt its full-year projection for Queensland Coal, which produces a majority of coking coal.

    Sales over July-December of iron ore averaged at $43/wet mt FOB basis, with coking coal at $82/mt FOB and weak coking coal at $67/mt FOB.

    BHP's global coal business unit swung to a H1 EBIT loss of $342 million, while iron ore's profitability shrunk to less than a fifth of to a H1 EBIT of $747 million.

    Iron ore prices will "likely remain low," due to weak demand and what BHP called abundant seaborne iron ore supply.

    "Over time, additional low-cost seaborne supply will continue to displace higher-cost supply, and we expect productivity gains will continue to be an industry feature. These factors point to a prolonged period of market rebalancing," it said.

    BHP holds its view that Chinese crude steel production to peak between 935-985 million mt around 2025. However, the country may show weaker immediate trends, with crude steel output at 803.8 million mt, and forecast by Platts to drop by 2.5% in 2016.

    "In the short term, Chinese steel demand is expected to remain soft, with modest potential improvement if construction and infrastructure activity ramp-up in the first half of the 2016 calendar year," BHP said. "In metallurgical coal, industry-wide supplier cost compression is expected to persist through the 2016 calendar year, with recent devaluations in China's currency highlighting a key uncertainty for seaborne demand as imports become relatively more expensive." BHP added it expects "further growth in low-cost, premium hard coking coal supply to offset production cuts and constrain potential for near-term price recovery."

    "In the long term, we expect emerging markets such as India to support seaborne demand growth, while high-quality metallurgical coals will continue to offer steel makers value-in-use benefits to their operations."

    http://www.platts.com/latest-news/metals/london/bhp-sees-iron-ore-met-coal-cost-declines-but-26376585
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    UK's Drax says may mothball coal plant amid weak energy markets


    British power producer Drax may decide to mothball its coal-fired power generation units, the company said on Tuesday, as part of a strategy review triggered by competition from cheap gas and renewables.

    Drax, which owns one of Europe's largest coal-fired power plants, was echoing comments made by other owners of coal-fired power stations such as SSE and Engie, who have announced earlier-than-expected closures of loss-making plants.

    A surge in intermittent renewable energy production and cheap gas prices have effectively priced coal-fired plants out of the market in Britain, whose government has anyway said it plans to shut all coal-fired stations by 2025 in a bid to lower carbon emissions.

    "We may choose to mothball them, but what we are keen to is to work with government and find the right solution," Drax Chief Executive Dorothy Thompson told Reuters.

    Drax, which on Tuesday also reported a 26 percent fall in full-year core earnings to 169 million pounds ($239 million), has already converted two of its coal units to run on biomass, or wood pellets, instead.

    It is awaiting a decision by the European Commission on whether it will allow state aid to Drax's project to convert a third unit to biomass.

    Thompson said Drax wants to continue investing in biomass conversions and hopes to eventually run its entire power plant on renewable energy.

    "Now that we have become the leading biomass expert that's the core focus of where we're looking to see future strategic options," she told Reuters.

    Drax maintained its dividend policy of paying out 50 percent of underlying earnings, rewarding shareholders with a full-year dividend of 5.7 pence per share, down 52 percent year on year.

    The power producer said it expects conditions this year to remain challenging as power prices have dropped close to 15-year lows.

    "We remain optimistic about Drax's prospects ... but the ride is likely to continue to be volatile, driven by sentiment rather than precise figures," said Angelos Anastasiou, utilities analyst at Whitman Howard.

    http://www.reuters.com/article/drax-results-idUSL8N1621CS
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    Fortescue attacks iron ore costs as profit slips


    Australia's Fortescue Metals Group reported a four percent fall in half-year profit, as faster-than-expected cost cutting helped it largely offset a slump in iron ore prices amid a global supply glut.

    Fortescue, Australia's third-biggest producer behind Rio Tinto and BHP Billiton , posted a net profit of $319 million, down from $331 million a year ago.

    Chief Executive Nev Power said the company had cut its production costs by 47 percent from the prior year and forecast a further reduction to a target of $13 a tonne by the end of 2016.

    The performance provided "a solid foundation for continued debt repayment and a modest increase in our dividend," Power said in a statement.

    Fortescue forecast a delivered cost to China of $18.30 a tonne and a breakeven cost of $28.80 a tonne, narrowing the gap to within a few dollars of its larger and lower costrivals in Australia.

    Spot iron ore has jumped more than 17 percent so far in 2016 to around $50 a tonne .IO62-CNI=SI which could help miners in coming months despite concerns the rally may be short-lived.

    Revenue fell to $3.34 billion from $4.86 billion a year ago, underscoring a 38 percent drop in benchmark iron ore prices .IO62-CNI=SI over the period to an average $50.68 a tonne, Power said.

    Fortescue only realised $43.85 a tonne in the first half as its iron ore grade falls below the benchmark 62 percent level.

    The company is closely leveraged to iron ore price swings due to its reliance on the commodity for revenue and hefty debt load, amassed as the company expanded to maximum production levels.

    During the half, Fortescue said it repaid $1.1 billion of debt, reducing its net debt to $6.1 billion.

    "Fortescue remains committed to reducing debt towards the initial targeted gearing ratio of 40 percent," Power said. The ratio as of Feb. 16 stood at just under 49 percent, according to Thomson Reuters Starmine data.

    Iron ore markets have been hit hard by a rapid increase in supply from major producers at a time when growth has slowed in top consumer China.

    Andrew Mackenzie, chief executive of fellow Australian miner BHP Billiton , warned on Tuesday of an ongoing period of new iron ore supply being added at a faster rate than the growth in demand.

    http://www.reuters.com/article/fortescue-results-idUSL3N16268N
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    Vale union suspends strike over bonus payments for talks


    Workers who disrupted production at mine and transportation units of Brazilian mining company Vale SA in Brazil's Minas Gerais state suspended their strike late on Tuesday to engage in talks with the company, a union official said.

    The workers, who went on strike at nine sites earlier in the day over unpaid annual profit-sharing bonuses, plan to maintain "a strike posture" during the talks, said Braz Abreu, director of the Metabase Belo Horizonte union.

    Earlier on Tuesday, Vale confirmed the strike and said it was negotiating with the union.

    The world's largest producer of iron ore said that 2015 is the first year since the company was privatized by the Brazilian government in 1997 in which it has not paid a performance bonus to employees.

    The company has been hit hard by a dramatic fall in the price of iron ore, and analysts expect it to report a loss when it publishes full year results on Thursday.

    Vale also said that under its contract with the union the bonuses are not obligatory.

    http://www.reuters.com/article/vale-sa-strike-idUSL2N1621O7
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