Mark Latham Commodity Equity Intelligence Service

Thursday 1st October 2015
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Two Very Disturbing Forecasts By A Former Chinese Central Banker


    Earlier today, Yu Yongding - currently a senior fellow at the Chinese Academy of Social Sciences in Beijing but most notably a member of the PBOC's Monetary Policy Committee from 2004 to 2006 as well as a member of China's central planning bureau itself, the Advisory Committee of National Planning - gave a speech before the Peterson Institute, together with a slideshow.

    Since the topic was China's debt, economic growth, corporate profitability, and since, inexplicably, it wasn't pre-cleared by the Chinese department of truth, it was not cheerful. In fact it was downright scary. Among other things, the speech discussed:

    Capital efficiency – low and falling (capital-output ratio rising)
    Corporate profitability – has been falling steadily
    Share of finance via capital market – Very low
    Interest rate on loans – High
    Inflation rate – producer price Index is falling

    A key observation was the troubling surge in China's capital coefficient, first noted here two weeks ago in a presentation by Daiwa which also had a downright apocalyptic outlook on China, and wasn't ashamed to admit that it expects a China-driven global meltdown, one which "would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen."

    The former central banker also discussed the bursting of China's market bubble. This, he said was created deliberately for two government purposes:

    To enable debt-ridden corporates to get funds from the equity market
    To boost share prices to stimulate demand via wealth effect

    He admits this shortsighted approach failed and "to save the city, we bombed the city" adding that it brings "authorities’ ability of crisis managing into question."

    He also observes that the devaluation that took place on August 11 was the government's explicit admission that its attempt to reflate an equity bubble has failed, and it was forced to find an alternative method of stimulating the economy. Of the CNY devaluaton Yu says quite clearly that it was simply to boost the economy: "In the first quarter of 2015 China’s capital account deficit is larger that than that of current account surplus" which is due to i) The Unwinding of Carry trade; ii) the diversification of financial assets by households; iii) Outbound foreign investment; and iv) capital flight.

    And now that China has officially unleashed devaluation (which Yu believes should be taken to its logical end and the RMB should float) there are very material risks: "the implication of episode can be more serious than the stock market fiasco, with much large international consequences" and that "the failure will have serious consequences on China’s financial stability"

    His ominous outlook: "Two bubbles have burst, what next?"

    http://www.zerohedge.com/news/2015-09-29/two-very-disturbing-forecasts-former-chinese-central-banker
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    Official China manufacturing PMI ticks up but still below 50

    Official China manufacturing PMI ticks up but still below 50

    An official manufacturing index based on a survey of factory purchasing managers edged up to 49.8 in September from August's 49.7, which was the lowest level since August 2012. In July, it was 50.0. Numbers below 50 indicate contraction. China's economic growth held steady at 7 percent in the latest quarter ending in June, which was the weakest performance since the 2008 global crisis. Officials hope to maintain the growth rate for the rest of the year but many economists doubt the target will be met, particularly if manufacturing weakens further.

    https://trove.com/a/Asian-stock-markets-higher-China-manufacturing-index-ticks-higher.Q09cn?utm_campaign=hosted&utm_medium=twitter&ts=1443673979&utm_source=sns&nocrawl=1
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    Caixin PMI: China's Factories Hit By Export Slump


    Conditions in China’s manufacturing sector deteriorated “at the sharpest rate since March 2009,” according to latest data from the private Caixin China Purchasing Managers’ Index survey, while the country's services sector barely managed to stay afloat, the PMI data showed.

    The monthly Caixin PMI reading, which measures orders and output in the private sector, and at small and medium enterprises, declined to 47.2 in September, down from 47.3 the previous month. Any reading below 50 implies a contraction in the sector, and the figures are the latest confirmation of the slowdown in China’s economy, hit in part by falling exports.

    China’s services sector is also seen as a key driver of the country’s growth, particularly with export-driven manufacturing struggling, and the Caixin PMI figure for the sector -- while remaining in positive territory at 50.5 -- represented a sharp fall from 51.5 in August, with new orders growing at their slowest pace for more than a year.

    Caixin, the respected Chinese financial magazine that compiles the index, said new export orders were down by their fastest pace since March 2009, while overall factory orders fell at the fastest pace in three years. Factory inventories of unsold goods also saw their sharpest rise in three years as a result. And companies were responding by laying off workers and cutting output at the fastest pace since early 2009 in the midst of the global financial crisis, Caixin said.

    Meanwhile official figures released by China's National Bureau of Statistics (NBS) showed that overall manufacturing PMI, which includes large state enterprises as well as smaller businesses, inched up to 49.8 in September from 49.7 in August, with new orders back in positive territory, rising to 50.2 from 49.7. Export demand also rose fractionally, but remained in negative territory at 47.9. The official PMI figure for the service sector remained unchanged in September, at 53.4.

    https://trove.com/a/Chinas-Factories-Hit-By-Export-Slump.ngmO4?utm_campaign=hosted&utm_medium=twitter&ts=1443680552&utm_source=sns&nocrawl=1
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    Chicago PMI


    The brief dead cat inventory-stacking bounce in Chicago PMI is over.With a print of 48.7, back below 50, (against hope-strewn expectations of 52.9) this was below the lowest economist estimate and the lowest since May. Aside from employment (which somehow rose), the components were ugly with New Orders and Prices Paid all tumbling, while Production was the lowest since 2009 at 43.6.

    Chicago confirms Richmond, New York, Philly, Chicago, and even Kansas Cityregional surveys all flashing recessionary warnings.

    Welcome back into contradictory sub-50 levels.





    Attached Files
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    Watchful lenders remain supportive of embattled Glencore


    Lenders remain supportive of embattled commodities trader and mining company Glencore , which has around $13 billion of liquidity available and can financeits debt maturities for two years, sources familiar with the situation said on Tuesday.

    Glencore's shares rose sharply on Tuesday after the company said that it remained "operationally and financially robust" in response to wild gyrations in its equity and bond prices this week.

    Its shares sank to a record low on Monday on concerns that the group is not doing enough to cut its $29.6 billion debt pile to help to withstand a prolonged slump in commodities prices. But loan bankers are taking a more sanguine view.

    "We are watching quite carefully, but without the concern or type of hysteria you are seeing in equities," a head of loan syndicate at a bank said. "If the company is left to resolve its own issues, we are quite confident that they will do so."

    Glencore signed a $15.25 billion revolving credit in June this year, which is its main corporate funding facility and the second largest loan in Europe, the Middle East and Africa so far in 2015, according to Thomson Reuters LPC data.

    Glencore's half-year report said $6.57 billion of the loan had been drawn by June 30, leaving $10.4 billion of liquidity.

    The company raised an additional $2.5 billion in a share placement in September, giving a total of around $13 billion of unrestricted liquidity, including cash on its balance sheet, the sources familiar with the situation said.

    Glencore's $15.25 billion loan is not affected by recent equity volatility as it does not havefinancial covenants.

    "There is no issue of financial covenants," the syndicate head said.

    Although Glencore's cash flow has dropped and it is not meeting its earnings forecast, there are no covenant conditions, he added.

    Glencore's $15.25 billion loan consists of a $8.45 billion, 12-month revolving credit and a $6.8 billion, five-year revolving credit. Both tranches have extension options and can be extended until 2018 and 2022 respectively.

    Bankers do not expect Glencore to make any major additional drawings on the revolving credits to avoid increasing leverage after saying that it intends to reduce net debt by a third by the end of next year.

    "The company has not indicated to us that they plan to draw large amounts of those facilities," the loan syndicate head said.

    Glencore is currently paying an interest rate of 40-45 basis points (bp) over U.S. Libor on drawings under the existing $15.25 billion loan, the company said.

    Further draw-downs on the revolving credit could threaten Glencore's investment-grade credit rating. Glencore is currently rated BBB by Standard and Poor's and Baa2 by Moody's Investors Services.

    http://www.reuters.com/article/2015/09/30/glencore-outlook-debt-idUSL5N1202OW20150930
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    Human reproduction, health broadly damaged by toxic chemicals - report


    Exposure to toxic chemicals in food, water and air is linked to millions of deaths, and costs billions of dollars every year, according to a report published Thursday by an international organization of medical professionals.

    Among the poor health outcomes linked to pesticides, air pollutants, plastics and other chemicals, according to the report from the International Federation of Gynecology and Obstetrics (FIGO), an organization representing obstetrical and gynecological associations from 125 countries, are miscarriage and still births, an increase in cancer, attention problems and hyperactivity.

    "Exposure to toxic environmental chemicals during pregnancy and breastfeeding is ubiquitous and is a threat to healthy human reproduction," the report states.

    The piece was written by a team of physicians and scientists from the United States, the United Kingdom and Canada, including from the World Health Organization. It was published in the International Journal of Gynecology and Obstetrics ahead of a global conference on women's health issues next week in Vancouver, British Columbia.

    "We are drowning our world in untested and unsafe chemicals and the price we are paying in terms of our reproductive health is of serious concern," Gian Carlo Di Renzo, a physician and lead author of the FIGO opinion.

    Chemical manufacturing is expected to grow fastest in developing countries in the next five years, according to FIGO.

    The group said international trade agreements such as the Transatlantic Trade and Investment Partnership (TPP), under negotiation between the United States and the European Union, lack much-needed protections against toxic chemicals.

    The report also cited several examples of the range of the problem: seven million people worldwide die each year because of exposure to indoor and outdoor air pollution; healthcare and other costs from exposure to endocrine disrupting chemicals in Europe are estimated at a minimum of 157 billion euros a year; and the cost of childhood diseases related to environmental toxins and pollutants in air, food, water, soil and in homes and neighborhoods in the United States was calculated at $76.6 billion in 2008.

    FIGO said health professionals should advocate for policies to prevent exposure to toxic environmental chemicals as well as to ensure a healthy food system, among other recommendations.

    http://www.reuters.com/article/2015/10/01/usa-chemicals-report-idUSL1N1201FF20151001
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    Oil and Gas

    OPEC Guide


    OPEC's next meeting is just ten weeks away and, barring some unforeseen development, there's little sign of a policy change in the offing.

    If anything, forecast declines in non-OPEC production may bolster Saudi Arabia's argument (assuming the kingdom doesn't have second thoughts) that the market share policy is working and must be allowed to continue to work.

    A couple of weeks before OPEC's November 2014 meeting that launched the battle for market share, the International Energy Agency said US production growth was showing few signs of abating.

    Falling prices might well trim investment in US light tight oil but any potential cuts would probably pale in comparison with gains in LTO productivity, it said at the time.

    Back then, the agency forecast demand for OPEC's crude to average 29.2 million b/d this year.

    Fast forward to the IEA's latest monthly report, released two weeks ago, and the picture is very different.

    Demand for OPEC crude is now expected to average 29.7 million b/d -- 500,000 b/d higher than the figure forecast last November.

    The increased forecast for the 2015 call on OPEC is due to the IEA's upwardly revised forecasts for world oil demand rather than to falling non-OPEC supply.

    In fact, the agency has also increased its non-OPEC supply projection for 2015 to 58.1 million b/d.

    But a clear trend showing a rising call on OPEC and a falling off in non-OPEC supply has begun to emerge in the forecasts for 2016, the first of which were published in July.

    World oil demand continues to grow in 2016, forecast at 95.2 million b/d in July and now at 95.8 million b/d in September.

    But non-OPEC supply, projected at 58 million b/d in June and revised down to 57.7 million b/d in September, is declining.

    And demand for OPEC crude continues to climb. In June, the IEA forecast the 216 call on OPEC at 30.3 million b/d.


    Two months on, the agency's revisions have taken the forecast up by 1 million b/d to 31.3 million b/d -- the volume Platts estimates OPEC to have pumped in August.

    But it is in the second half of next year where the numbers look startling, with the IEA forecasting demand for OPEC crude at 31.8 million b/d in the third quarter and 32.2 million b/d in the fourth, some 1 million b/d higher than OPEC's current flows.

    Good news for OPEC, it would seem, in terms of overall market share. But at what cost, especially to those members which, unlike Saudi Arabia and its Gulf allies, do not have the financial reserves to cushion the blow of low prices?

    http://www.platts.com/news-feature/2015/oil/opec-guide/index?hootpostid=f279028d4a83a1b9d2b89695fdec9e6a
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    Saudi increases propane and butane prices


    Saudi Aramco sets Oct propane, butane CPs at $360/mt, $365/mt respectively, up $45/mt, $20/mt on month, above market expectations

    Platts Oil
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    Petrobras Raises Gasoline and Diesel Prices Amid Cash Crunch


    Petroleo Brasileiro SA raised fuel prices for the first time in almost a year in a move that will help Brazil’s state-controlled producer offset the impact of lower oil prices and the decline of the local currency. Its bonds and shares rallied.

    Petrobras, as the Rio de Janeiro-based company is known, will raise the prices charged at its refineries by 6 percent for gasoline and 4 percent for diesel starting Wednesday, it said in a statement. The increase should add 6.9 billion reais ($1.7 billion) to annual earnings before interest, taxes, depreciation and amortization, or Ebitda, Bank of America analysts Frank McGann and Vicente Flanga said in a note to clients.

    “It should help to limit concerns that the effect of a weak currency on Petrobras’s cash-flow generation could go unchecked and cause further deterioration in an already weak financial situation,” McGann and Flanga said.

    The move comes after Chief Executive Officer Aldemir Bendine, who took over in February, vowed to limit government interference in company policies. The deep-water producer lost tens of billions of dollars from subsidizing fuel imports during the oil price boom from 2011 through 2014 as part of a wider effort by the government to control inflation. BBVA economist Enestor dos Santos raised his estimate for Brazil inflation in 2015 to 9.5 percent from 9.2 percent, citing the Petrobras fuel price increase.

    The last time Petrobras raised fuel prices was in November.

    http://www.bloomberg.com/news/articles/2015-09-30/petrobras-raises-gasoline-and-diesel-prices-amid-cash-crunch
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    Mexico's second oil tender - a success


    More on Mexico's second attempt to lure the world's energy companies to its oil fields.

    After a flop the first time round, when only two of the 14 blocks on offer were awarded, Mexico bounced back in its second oil auction, awarding three of the five blocks and netting juicy terms for the state.

    ENI of Italy won the first block; Argentina's Pan American Energy in consortium with E&P Hidrocarburos took the second; Fieldwood of the US in partnership with Petrobal of Mexico took the fourth. Two blocks failed to attract bids, writes Jude Webber in Mexico City.

    The five blocks, containing a total of nine fields, are located in the shallow waters of the Gulf of Mexico and reserves have already been discovered, reducing risk.

    The only block containing heavy oil attracted no bidders; the remainder have reserves of light oil and two fields in the first block also lie over salt structures which could be explored.

    Bids came in well above the minimum threshold set by the government.

    Norwegian major Statoil lost its bids. CNOOC of China bid on two fields and Lukoil of Russia had one offer, but all were outgunned.

    The consortium containing companies which swept the board in the first tender also missed out this time around.

    http://www.ft.com/fastft/400221/post-400221
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    An oil dispute in Niger is exposing big problems with Chinese investment in Africa


    On August 14, a compressor failed at the Soraz oil refinery near Zinder, Niger, crippling one of the very few pieces of industrial infrastructure in one of the poorest countries in the world.

    The thing is, there may never have been a compressor blowout.

    According to multiple energy-industry sources who spoke with Business Insider, the shutdown of the Soraz refinery — which has driven up gas and cooking-oil prices throughout Niger and pushed parts of the country of 16 million to the edge of a serious fuel shortage — was a deliberate decision by the refinery’s state-owned Chinese operators and co-owners.

    “The compressor is just to tell people something, but there are many problems,” an energy-industry expert told Business Insider. “The real problems are behind the compressor.”

    The shutdown has been the subject of widespread speculation inside Niger. One headline on the news website TamTam Info framed the issue this way: “Halting Production at Soraz: The Chinese Want to Overthrow the Government.”

    That may be hyperbole, but the refinery shutdown is still the likely result of a deliberate Chinese strategy, one that Niger is struggling to counter.

    China conducts nearly $200 billion in annual trade with Africa. Its companies have dug over 200 oil wells in Niger since 2010, discovering a billion barrels of oil in the process. Chinese companies built the Soraz refinery and the domestic pipeline leading to it.

    “China put in the investment that all the French and the US companies didn’t,” one Niamey-based energy expert told Business Insider. “They did what Exxon didn’t do in 30 years.”

    But Chinese investment can have a price. The standoff over Soraz shows how unprepared even fairly stable and democratic African governments can be in dealing with China.

    And it reveals the consequences of Chinese state-owned companies trying to import its domineering way of doing business to far different political, economic, and social contexts.

    Soraz shut down amid tensions between Sonidep, the Nigerien state petroleum company, Soraz, and the China National Petroleum Corp. (CNPC).

    The refinery, which opened in 2011, is about 350 miles from the oil fields in the Diffa region in eastern Niger. Soraz is connected to the oil fields through a domestic pipeline that ends at the refinery. For internal Nigerien political reasons, the refinery was constructed in an area that’s far from the nearest export pipeline, which begins in neighboring Chad.

    The pipeline and refinery are set up in a way that makes it difficult to get Nigerien oil to the international market. The infrastructure, however, does at least ensure that Niger can achieve a degree of energy independence that most developing nations can only dream of.

    But a toxic dynamic has recently taken hold. For reasons even insiders can’t quite explain, Sonidep owes Soraz some 40 billion West African Francs, or roughly $68 million. Meanwhile, Soraz is nursing its own gaudy debt owed to the CNPC, perhaps as much as $100 million.

    The first debt is likely attributable to Nigerien government dysfunction. Niger experienced its latest military coup in 2010 and is in the midst of what has so far been a successful democratic transition, with open national elections scheduled for early next year. But government remains opaque and unaccountable, particularly on financial matters.

    The second debt — the one that Soraz owes to CNPC — is the partial result of financing arrangements on the refinery, which were being renegotiated as of 2014 and are widely considered to be favorable to Beijing.

    And it has exacerbated by a related problem: Under a 2012 agreement, Soraz must purchase oil at prices fixed in 2012 at about $70 a barrel. This means that in times of price spikes, Niger has some of the cheapest gas in West Africa.

    But when oil plunged to under $50 a barrel in mid-2015, the refinery, and the country at large, was placed at a huge disadvantage.


    http://uk.businessinsider.com/niger-oil-and-chinese-investment-in-africa-2015-9?r=US&IR=T
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    Repsol sells part of piped gas business for 652 mln eur


    Spanish oil major Repsol on Wednesday said it had sold part of its piped gas business to Gas Natural Distribution and Redexis Gas for 652 million euros ($728 million), helping it reach its asset disposal target.

    The company said it had now surpassed its goal to sell $1 billion in non-strategic assets, a target it set itself after acquiring Canada's Talisman. It also sold its stake in fuel logistics firm CLH earlier this month.

    Redexis Gas is owned by Goldman Sachs' infrastructure fund.

    http://www.upstreamonline.com/live/1412673/repsol-inks-usd-728m-gas-asset-sale-deals?utm_source=twitterfeed&utm_medium=twitter
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    Parex Resources announces agreement to develop Aguas Blancas light oil field, Colombia


    Parex Resources Inc., a company focused on oil exploration and production in Colombia is pleased to announce the execution of a formal binding agreement with Empresa Colombiana de Petroleos S.A. whereby Parex will farm-in to operate and earn a 50% working interest in the Aguas Blancas light oil field located in the Middle Magdalena Basin of Colombia.

    Aguas Blancas Oil Field

    The Aguas Blancas oil field is located in the Middle Magdalena Basin immediately south of the La Cira-Infantas oil field which has produced approximately 850 million barrels of oil to date. Aguas Blancas was discovered in 1962 and was initially appraised with five wells in the period between 1962 and 1964. No wells have since been drilled. Cumulative oil production from the field is approximately 1 million barrels of light oil (28-33 API). The main producing horizon is the Mugrosa 'C' Formation at depths of 4,000-7,000 feet. Gross reservoir interval thicknesses in the Mugrosa 'C' range from 300-500 feet with up to 150 feet of net oil pay.

    In 2011 a 3D seismic survey was acquired in anticipation of the field's development, however, no wells were drilled on it. The 3D survey indicates that the existing Aguas Blancas field is approximately 4,300 acres in aerial extent. Further, Parex believes that a satellite structure to the south of the main oil accumulation that has been tested by one well could be up to an additional 1,500 acres in aerial extent.

    Ecopetrol had previously stated that it intended to offer undeveloped oil fields to industry operators. Pursuant to this strategy, Ecopetrol offered companies the opportunity to acquire up to a 50% working interest in the Aguas Blancas field in a competitive bidding process. Parex' winning bid requires investment during the initial earning phase of approximately $61 million by undertaking delineation drilling and waterflood pilot programs at its sole cost to earn a 50% working interest in the field. Subsequently, all future capital investment will provide Ecopetrol a 10% carry whereby Parex will spend 60% and Ecopetrol 40%. Revenues and operating costs will be based on the parties' 50% working interest.

    The initial earning phase has a term of 3 years commencing after the transfers of the existing applicable operating and environmental permits have occurred, which is expected to be in place within 1 year. Parex has agreed to provide a performance bond to Ecopetrol for the full amount of its initial phase earning commitment of $61 million. Including the initial earning phase, the farm-in agreement has a term of 25 years and the agreement has a royalty regime that is consistent with the applicable Agencia Nacional de Hidrocarburos ('ANH') contracts.

    http://www.oilvoice.com/n/Parex-Resources-announces-agreement-to-develop-Aguas-Blancas-light-oil-field-Colombia/1152014b5839.aspx?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29
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    San Leon Hits Gas in Morocco amid Buyout Speculation


    San Leon Energy announced Wednesday that the Laayoune-4 well, located on the Tarfaya conventional license onshore Morocco, has discovered gas.

    The well, which encountered gas shows within its reservoir section, was drilled on time, within budget and with no incidents. Laayoune-4 has now been suspended, pending further studies, and to allow future re-entry. San Leon Energy and Office National des Hydrocarbures et des Mines (ONHYM) intend to jointly apply for a new eight year exploration license in the area. During the first period of the new license San Leon plans to acquire a 3D seismic survey across the multiple channels of the Tertiary play, one channel of which was drilled by the Laayoune-4 well. Based upon the results of the seismic, San Leon stated that it would consider “the option of re-entering the Laayoune-4 well (including testing), drilling an additional well, or both”.

    “We are very pleased with the results of the Laayoune-4 well. Confirming the presence of gas shows and good reservoir quality is encouraging for the potential of the block and leads naturally to applying for a new eight year license in the area, which would allow for seismic acquisition to be performed over the full channel complex. It would also enable additional data to be acquired over the deeper Jurassic and Triassic prospects. We are grateful to the operational team and to the local workers who together ensured that the well was drilled efficiently and safely.”

    The latest development follows an announcement by San Leon on August 24, 2015 that it had received a bid approach that could lead to an offer being made for the company. San Leon confirmed the approach in its half year results statement, also released Wednesday, but stated that it’s unknown what type of offer, if any, would be made:

    “There can be no certainty that an offer will be made or as to the terms on which any offer might be made. As a result, the board has decided not to make any forward-looking statements.”

    San Leon reported an operating loss of $4.89 million in the first half of 2015, compared to an operating loss of $7.04 million during the same period last year. The company announced on June 1, 2015 that it had conditionally agreed to raise $44.1 million from existing and new shareholders, which will be used to fund the firm’s development. This fundraising program was completed in July 2015. San Leon holds a 75 percent interest in the Tarfaya license with ONHYM holding 25 percent.

    - See more at: http://www.rigzone.com/news/oil_gas/a/140861/San_Leon_Hits_Gas_in_Morocco_amid_Buyout_Speculation?rss=true#sthash.i1iuGnhJ.dpuf
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    Summary of Weekly Petroleum Data for the Week Ending September 25, 2015


    U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending September 25, 2015, 241,000 barrels per day less than the previous week’s average. Refineries operated at 89.8% of their operable capacity last week. Gasoline production increased last week, averaging about 9.7 million barrels per day. Distillate fuel production decreased slightly last week, averaging 5.0 million barrels per day.

    U.S. crude oil imports averaged about 7.6 million barrels per day last week, up by 378,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.3 million barrels per day, 1.7% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 990,000 barrels per day. Distillate fuel imports averaged 56,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.0 million barrels from the previous week. At 457.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 3.3 million barrels last week, and are near the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 0.3 million barrels last week but are in the middle of the average range for this time of year. Propane/propylene inventories rose 1.7 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 3.7 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.5 million barrels per day, up by 1.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.1 million barrels per day, up by 4.2% from the same period last year. Distillate fuel product supplied averaged 3.8 million barrels per day over the last four weeks, up by 0.2% from the same period last year. Jet fuel product supplied is up 11.8% compared to the same four-week period last year.

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    Weekly US oil production


                                      Last Week        Week Before     Year Ago

    Domestic Production...... 9,096               9,136              8,837

    http://ir.eia.gov/wpsr/overview.pdf
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    PBF Energy to buy Exxon Mobil's Torrance refinery


    PBF Energy Inc said it would buy Exxon Mobil Corp's refinery in Torrance, California and restore it to full working order before the deal closes in the second quarter of 2016.

    The $537.5 million purchase of the refinery and related logistics assets will help PBF Energy increase its throughput capacity to about 900,000 barrels per day, the refiner said in a statement.

    The 149,500 barrels-per-day refinery has been shut since a Feb. 18 explosion that destroyed equipment critical to controlling emissions from a gasoline-making fluid catalytic cracking unit.

    http://www.reuters.com/article/2015/09/30/exxon-mobil-divestiture-pbf-energy-idUSL3N1205UP20150930
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    Canada regulators green-light Enbridge crude Line 9


    Canadian regulators approved the hydrotest results of Enbridge Inc's Line 9 crude oil pipeline on Wednesday, clearing the way for the delayed 300,000 barrel-per-day route to the east of the country to start operating.

    The newly reversed Line 9 will ship mainly light inland crude from Sarnia, Ontario, to Montreal, Quebec. It previously flowed in the opposite direction, taking imported crude to Ontario.

    The line, originally expected to start up in late 2014, was held up after the National Energy Board ordered hydrostatic tests at three locations along the line in June.

    Prior to that, regulators had asked for additional data on shut-off valve placements at major water crossings. {ID:nL1N0VG160]

    The NEB said on Wednesday there were no further pre-operation requirements on Line 9.

    "The successful hydrotests confirm the NEB's confidence in the integrity of the pipeline and its confidence that the line can safely be returned to operation," the regulator said in a statement.

    The Line 9 approval is a rare bright spot for backers of Canadian pipeline projects, which include TransCanada Corp's Keystone XL and Enbridge's Northern Gateway.

    These projects have run into fierce environmental opposition, and last week Democratic U.S. presidential candidate Hillary Clinton said she opposed Keystone XL.

    The approval was welcomed by the Canadian Association of Petroleum Producers and Suncor Energy, which owns a refinery in Quebec and is one of Line 9's biggest customers.

    "We have long said the pipeline is critical in terms of improving access to inland crude and providing supply options to the Montreal refinery, which in turn enhances its competitiveness," said Suncor spokeswoman Sneh Seetal.

    Valero Energy Corp also has a refinery in Quebec and will likely benefit from being able to replace imported crude with cheaper inland barrels.

    Once the pipeline becomes operational the NEB has imposed conditions including biweekly patrols, quarterly integrity testing and an in-line inspection within the first year of operation.

    Enbridge is also required to limit the pressure of the pipeline for its first year of operation. It was not immediately clear whether pressure restrictions would affect the capacity of the pipeline and the company does not yet have an expected in-service date for the pipeline.

    "There are still some technical preparations that are required and line-fill is not an exactly timed process, so we will not speculate at this time on a specific date for return to full service," White said.

    http://www.reuters.com/article/2015/09/30/enbridge-inc-regulator-idUSL1N1203IH20150930
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    Concho Resources Inc. Announces Upsizing of Common Stock Offering


    Concho Resources Inc. today announced that it has priced an upsized public offering of 7,700,000 shares of its common stock for total gross proceeds (before underwriters’ fees and estimated expenses) of approximately $712 million.

    The underwriters have an option for 30 days to purchase up to an additional 1,155,000 shares of common stock from the Company. Proceeds from the offering are expected to be used to repay all outstanding borrowings under the Company’s credit facility, which were used in part to finance recent acquisitions, and for general corporate purposes, including funding potential future acquisitions.

    http://finance.yahoo.com/news/concho-resources-inc-announces-upsizing-001600760.html
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    Alternative Energy

    China eyes huge solar-thermal power projects


    China is planning a series of solar-thermal power pilot projects to help develop the technology.

    The industrial scale of solar thermal power needs to be expanded, and an industrial chain on thermal equipment manufacturing and processing should be established, according to an announcement by the National Energy Administration (NEA) on Wednesday.

    To achieve that, the statement demanded, the pilot projects must be large enough to be used commercially, with capacity being no less than 50,000 kilowatts per unit.

    Industry experts will review the technical proposals and equipment, and all preliminary work for the project.

    http://europe.chinadaily.com.cn/business/2015-10/01/content_22027089.htm
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    Precious Metals

    Co-owner of Russia's Polyus Gold makes offer for remaining 60 pct stake


    Said Kerimov, the 20-year-old son of Russian tycoon Suleiman Kerimov, made a cash offer on Wednesday to buy the remaining 60 percent stake in Russian gold miner Polyus Gold that he does not already own, his firms Sacturino and Wandle said.

    Said Kerimov, who controls a 40 percent stake in Russia's largest gold miner together with the 'Suleyman Kerimov Foundation', has been considering the offer since early September.

    The offer price of $2.97 per Polyus Gold share has remained the same since early September and represents a 1.4 percent premium to the stock's closing price on Sept. 29. The offer values the whole of Polyus Gold at $9 billion.

    The independent committee of Polyus Gold's board said in a separate statement that the offer materially undervalued the company and advised shareholders other than Wandle to take no further action at this stage.

    However, Wandle has already received letters of intent to accept the offer from two other large Polyus Gold shareholders - Oleg Mkrtchan and Gavril Yushvaev - who own 39.98 percent of the shares in total. Polyus' official free float is 19.8 percent.

    Said Kerimov's father, Suleiman, who Forbes magazine estimates is worth $3.4 billion, is not allowed to hold assets directly because of his membership of the Federation Council, Russia's upper house of parliament.

    Sources told Reuters previously that the offer reflected a view among the secretive Kerimov family that a London listing was less attractive now because of tighter access to Western capital and sanctions imposed over Moscow's role in the Ukraine crisis.

    "It is the opinion of Wandle that, in the current geopolitical context and prevailing market dynamics occurring in Russia in particular, the long-term development of Polyus Gold's portfolio of Russian assets would be best undertaken by a private company," it said in the statement.

    Following implementation of the offer, Wandle will seek to re-register Polyus Gold as a private limited company, it added.

    The deal will be financed by a loan facility of up to $5.5 billion arranged by VTB Bank, Russia's second largest state-controlled lender.

    http://www.reuters.com/article/2015/09/30/russia-polyus-gold-intl-idUSL5N12049H20150930
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    Base Metals

    Deutsche Bank seeks to buy OZ Minerals stake for KKR


    Deutsche Bank was last night seeking to buy up close to 10 per cent of copper miner OZ Minerals on behalf of an investor.

    After a flurry of speculation yesterday evening over the bidders’ identity, sources are pointing to an activist fund manager.

    According to a term sheet sent to shareholders last night, the request for stock has been pitched at $3.55 a share, a 7.3 per cent premium to the last traded price.

    The 30.3 million shares will be bought on a first-come, first- served basis with the trade due to close tomorrow.

    While the purchaser is described as a “financial buyer”, sources said it may be an activist investor intent on piling pressure on the board.

    The interest in OZ Minerals comes as copper prices continue to touch multi-year lows.

    http://www.theaustralian.com.au/business/mining-energy/deutsche-bank-seeks-to-buy-oz-minerals-stake/story-e6frg9df-1227551385315?utm_source=Doctor%20Copper&utm_medium=twitter&utm_campaign=Copper%20Mining

    U.S.-based KKR & Co LP has bought a 10 percent stake in Australian copper miner Oz Minerals Ltd, a relatively rare step by private equity into mining that sent Oz shares soaring to their biggest one-day gains in 14 years.

    The disclosure by KKR followed media reports that a term sheet had been sent to Oz shareholders late on Wednesday requesting stock at a price of A$3.55 ($2.50) a share, a 7.2 percent premium to the last traded price.

    Oz shares stood 20 percent higher at A$3.97 at 0435 GMT. It was their biggest one-day rise since the 47 percent jump in April 2001.

    In a statement, KKR Asia Pacific public affairs director Steven R. Okun said the firm bought the stock since Oz Minerals was "a good company that was undervalued in the public markets when we made our investment".

    KKR is buying into mining at time when many investors are turning away from the sector due to a sharp downturn in metals prices, underscored by the dramatic drop in shares of miner and trader Glencore this week.

    http://www.reuters.com/article/2015/10/01/kkr-oz-minerals-idUSL3N1211HM20151001

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    Steel, Iron Ore and Coal

    China 'highly polluting project' decision to spur coal subsidy talks


    China's promise to curb public funding of "highly polluting projects" has isolated Japan and increased the pressure to close a deal to phase-out coal export subsidies after months of wrangling.

    The Paris-based Organisation for Economic Cooperation and Development has been hosting talks on the issue since last year.

    Japan, wary of regional competition from China, has been at the vanguard of opposition to phasing out coal export credits that help OECD nations send coal plant technology abroad and benefit companies such as Toshiba Corp.

    But on Friday in a joint U.S.-China statement on Climate Change, China signalled it would take similar steps to those already promised by the United States, the World Bank and others to end coal financing overseas.

    "Japan will have difficulty in exporting coal technologies," Mutsuyoshi Nishimura, special advisor on climate change to the Japanese government, said when asked about China's change of stance.

    In the joint statement, China promised to strengthen green and low-carbon policies "with a view to strictly controlling public investment flowing into projects with high pollution and carbon emissions both domestically and internationally".

    EU officials, speaking on condition of anonymity, said the statement needed to be clarified, but should inject momentum into negotiations that resume in Paris at the OECD on Nov. 16.

    With time running out to get a deal before the U.N. climate talks start in Paris on Nov. 30 on an international pact on global warming, previous OECD coal talks ended in statemate at the start of this month.

    Rache Kyte, the World Bank's special envoy on climate change, told Reuters that China's announcement was significant to the debate at the Paris-based club of developed nations.

    "It is an important signal that China is part of an international community of investors that is trying to move in a cooperative way," she said.

    "It would be perverse for a country to use their development finance to invest in things that are not moving toward a lower-carbon trajectory."

    Environment campaigners say the statement isolates Japan and addresses concerns that China-dominated development banks might start lending to overseas coal projects if Western banks refused to help.

    "Countries that don't want an outcome can no longer make a facile argument that they will just lose market share to China," said Steve Herz, a senior attorney for U.S. environment group the Sierra Club.

    http://www.reuters.com/article/2015/09/30/coal-oecd-subsidies-idUSL1N11Z0ZK20150930

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    China NDRC releases monthly power coal price indices


    China has released the first monthly national and regional price indices for thermal coal used for power generation on a trial basis, aiming to better reflect market changes of the fossil fuel and provide guidance to coal miners, end users and related government authorities.

    The indices, initiated by the National Development and Reform Commission (NDRC) and compiled by nine industry information providers including China coal resource (http://en.sxcoal.com), assess the delivered prices of domestic 5,000 Kcal/kg NAR coal to power plants on a monthly basis.

    The indices, which included a national index and 32 regional indices covering 30 provinces, are based on prices from over 1,600 firms, covering main power firms, coal mining companies, transfer ports and traders.

    The index series are available on the website of the NARC’s price monitoring center and the websites of all the nine information platforms, and are expected to be officially released from January 2016, following trials in the last five months of 2015.

    In August, the national index for domestic 5,000 Kcal/kg NAR coal was assessed at an average of 340.79 yuan/t with VAT, delivered basis, falling 7.31 yuan/t on month.
     
    As China's premier coal industry information provider, China coal resource has been providing intelligence and insight for the industry for 18 years, with independent market analysis and price indices better assisting industry players to understand the market dynamics and make decisions wisely.

    The Fenwei CCI index series assess the Chinese domestic and import markets on a daily basis, based on first-hand information collected from market participants in the world's top coal producer and importer.

    http://en.sxcoal.com/0/132498/DataShow.html

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    Vale gain is iron market pain as giant project ahead of schedule


    The world’s top iron-ore producer has some bad news for the oversupplied market.

    The world’s top iron-ore producer has some bad news for the oversupplied market: its biggest project is running ahead of schedule.

    S11D, part of the Carajas mining complex in northern Brazil, is on track to beat a targeted December 2016 start date, Vale SA Chief Financial Officer Luciano Siani said in an interview Wednesday.

    The project — the industry’s largest and, according to Vale, the most profitable — will add 90 million metric tons of annual capacity to global supply, although Vale intends to control the speed at which it hits the market, Siani, 45, said in Toronto, where he is holding meetings with investors and analysts.

    “We will manage the ramp up in order to preserve the premium for this high grade ore,” he said.

    While S11D coming on stream sooner than planned would be a boon for Vale’s debt-reduction ambitions, it looms as another strain on an iron-ore market buffeted by a series of expansions by Vale and its main rivals in Australia at a time of slowing Chinese growth.

    Chief Executive Officer Murilo Ferreira– on Monday said it planned to reduce this year’s dividend to the lowest since 2006 amid slumping metal prices and the need to preserve cash.

    http://www.mineweb.com/news/iron-and-steel/vale-gain-is-iron-market-pain-as-giant-project-ahead-of-schedule/?utm_content=bufferd413a&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

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    Australia takes cautious, maybe premature, bullish iron ore view:


    It's a brave analyst these days who would call a bottom in the iron ore price, which makes the call for better times by 2017 from the normally cautious Australian government forecaster all the more interesting.

    While any forecast for iron ore prices to rise is worth more than just a glance, there are a few things to note about the Australian Department of Industry's Resource and Energy Quarterly, published on Wednesday.

    The most important is that the government forecaster isn't calling for a dramatic rebound in iron ore, rather for modest gains.

    The second is that the recovery isn't expected until 2017, with next year expected to show further losses for the steel-making ingredient.

    The report projected that iron ore will rise to average $60.40 a tonne in nominal terms in 2017, up from $51.20 in 2016 and $52.90 this year.

    By way of comparison, the department's June quarter report forecast iron ore would average $54.40 a tonne in 2015 and $52.10 in 2016, but didn't provide forecasts for further out years.

    What has effectively happened is that the department has become slightly more bearish on the view for this year and next, before expecting a modest recovery from 2017 onwards.

    Just how modest is the recovery expected to be?

    The spot price of iron ore in Asia .IO62-CNI=SI was $54.40 a tonne on Wednesday, down about 24 percent from the end of last year, but up from the $44.10 reached on July 8, which was the lowest since spot assessments started in November 2008.

    The department is therefore expecting iron ore to be 5.9-percent weaker in 2016 than it is currently, before gaining to be 11 percent higher in 2017 than the present spot price.

    While the improvement by 2017 is not that dramatic in percentage terms, it still makes the department a bit of an outlier among iron ore forecasters.

    http://www.reuters.com/article/2015/10/01/column-russell-ironore-idUSL3N1211RD20151001
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