Mark Latham Commodity Equity Intelligence Service

Thursday 23rd February 2017
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    Glencore reports 18 pct 2016 core profit rise on commodity rebound

    Miner-trader Glencore reported an 18 percent increase in 2016 profits, buoyed by a rebound in commodities, and said the company had never been so well-positioned financially, meaning it was ready for small acquisitions or big dividends.

    Earnings before interest, tax, depreciation and amortisation (EBITDA) were $10.3 billion, up 18 percent.

    Marketing Adjusted earnings before interest and tax was $2.8 billion, up 14 percent and above previous guidance of $2.5-$2.7 billion.

    For 2017, Glencore is guiding for $2.2 billion to $2.5 billion marketing profits and said the low range reflected the sale of 50 percent of Glencore Agriculture in December 2016.

    A commodities rout in 2015 led Glencore to announce asset sales and along with the rest of the industry, it embarked on resolute cost-cutting.

    On Thursday, it said low costs for copper, zinc and nickel would be sustained into 2017 along with expected higher coal margins.

    "Since our IPO in 2011 and subsequent acquisition and integration of Xstrata, Glencore has never been so well positioned as it is today," Glencore Chief Executive Ivan Glasenberg said.

    He told reporters in a media call surplus cash could be used for small deals, for instance, on the edge of existing assets and perhaps a special dividend.

    "We could do many things. We could give our long-suffering shareholders a generous gift of a special dividend, to ourselves as shareholders that would not be a bad thing to do."

    Glencore's board recommended on Thursday a dividend of 7 cents per share after promising late last year it would reinstate payouts.

    A glitch in the recovery was the decision to hedge 55 million tonnes of coal in a rising market, which led to what Glencore labelled an "opportunity cost" of $980 million.

    Glasenberg, however, said Glencore would carry on hedging as appropriate and was in the process of locking in coal prices with Japan over a year-long contract.

    Analysts said the results were ahead of consensus.

    "Today's results strengthen our view on the stock. The results were solid and we applaud the company's supply discipline again. Outperform," Bernstein wrote in a note.

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    Power struggle: Australian smelters grapple with electricity uncertainty

    Fed up with unpredictable and often exorbitant electricity prices, Sun Metals CEO Yun Birm Choi plans to invest A$183 million ($140 million) to build a massive solar farm to power his zinc refinery in the Australian outback.

    The decision by Sun Metals, owned by Korea Zinc Co, to turn to solar comes as Australia grapples with more frequent power failures and extraordinary price surges on its mainly coal-fired wholesale electricity markets.

    Australia mines more coal than almost any other country. But a shift away from coal-fired power plants to meet a national 20 percent renewable energy target by 2020 has wreaked havoc on smelting and refining businesses caught in the transition.

    "There is no bigger factor for a smelter than disruption to power supply," said Miles Prosser, executive director of the Australian Aluminium Council. "A disruption for even just a few hours can be almost catastrophic," he said.

    While Sun Metals are looking to build their own generation as part of an upgrade to boost production, other smelters plan to cut output and withhold investment because of the uncertainty.

    Mining giant Rio Tinto is set to shed jobs and reduce output by 45,000 tonnes from its 35-year-old Boyne Island aluminium smelter because of soaring power prices and fear of interruptions, a spokesman said, confirming local media reports.


    Generators, grid companies and market operators have traded blame for the shortcomings, while the federal government cites "ideologically driven" renewable energy targets for the problems.

    When most of Australia's smelters were built in the 1970s and 1980s they benefited from very cheap, long-term electricity agreements with state-owned power companies - paying about half the price paid by other large industrial electricity consumers.

    Supply contracts for large consumers now typically include clauses allowing generators to divert power to residential users and essential services such as hospitals. That forces smelters to bid on the open market, where prices can spike savagely.

    Electricity futures on the price of Queensland base load power [YBQc1] have averaged almost $180 per megawatt hour (MWh) this year, compared with an average of $63.45 in 2016. Prices have topped A$13,000 per MWhmore than 70 times so far in 2017, according University of Melbourne's Climate & Energy College.

    By comparison, wholesale power prices for baseload delivery next year in Germany cost 30.15 euros ($32.02) per MWh, while U.S. prices are between $25 and $35 per MWh.

    After a heat wave this month forced the Rio Tinto's Tomago aluminium smelter 150 km (90 miles) north of Sydney to curtail operations so power could be diverted to residents, the smelter's chief executive lashed out at the "insufficient generation" in the market.

    "We should have the cheapest, most reliable energy in the world and yet it's the most expensive and least reliable," Matt Howell, told reporters. "It's a disgraceful situation that needs to be fixed."


    In October alone, blackouts cost BHP Billiton over $30 million in lost output from its Olympic Dam smelter in South Australia following a fierce storm.

    When the lights went out again in December, BHP Chief Executive Andrew Mackenzie said it was a "wake-up call" across Australia on energy policy failure. Jobs and future investment were at risk, he said.

    "(BHP) is now saying that it's having difficulty competing, and industry generally is saying that they're having difficulty competing internationally because the electricity price in Australia is so high," said Queensland Resources Council Chief Executive Ian Macfarlane, a former federal resources minister.  

    At the nearby Port Pirie lead smelter - the largest source of refined lead in the world - a back-up diesel generator kept the furnace hot for the first hours of the October blackout. But as the outage dragged on, the slag in the blast furnace solidified, rendering it inoperable.

    The smelter's Belgian owner, Nyrstar, put repair costs as high as 5 million euros ($5.3 million).

    Faced with high costs and tough competition from new, more efficient Chinese smelters, Alcoa has already shut one 185,000 tonne a year aluminium smelter in Australia. In January, the U.S. giant came close to shutting down a second smelter near Melbourne after power outages cut operations by two-thirds.

    Production was restored only after the government bowed to a request by Alcoa for a $182 million aid package to defray power costs. [nL4N1F95LZ]

    After watching Sun Metal's energy bill balloon by 40 percent to A$70 million in 2016 and encouraged by plummeting costs for solar installation, Choi has expanded plans for the solar plant from 100 MW to 115 MW. That would make it Australia's largest solar farm.

    The smelter will still need backup supply from the main grid but might at least benefit when prices surge.

    "Primarily, the electricity produced from the solar farm will be consumed at the refinery," Choi said. "Subject to the refinery’s operation and the price of electricity, it will also sell electricity into the national energy market."

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    Eskom and Transnet need to borrow billions more

    Eskom and Transnet need to borrow billions more than anticipated in 2016, National Treasury revealed in its 2017 Budget Review on Wednesday.

    Even as Eskom’s financial performance improved in 2015/16 as a result of a 12.7% tariff hike and a revenue increase by R10.5-billion to R161-billion, it still required borrowings for its new build and electrification projects.

    In addition, Transnet grew revenues by 1.7% to R62.2-billion in 2015/16. While it has spent R122.4-billion on capital expenditure in the last five years, it plans capital investments of R273-billion in the next seven years, Treasury said.

    These massive expenditure projects mean the entities take up the biggest share of government’s borrowings.

    “In 2016/17 it (borrowing) will amount to R254.4-billion, or 5.8% of GDP,” it said. “This is R32.8-billion more than was projected in the 2016 Budget, reflecting a larger consolidated budget deficit and higher borrowing estimates by State-owned companies – primarily Eskom and Transnet.”

    In 2015/16, borrowing by the six largest State-owned companies – the Airports Company of South Africa, Eskom, Sanral, SAA, the Trans-Caledon Tunnel Authority and Transnet – reached R128-billion.

    Eskom and Transnet accounted for 74% of the total, Treasury explained.

    Eskom increased planned borrowings in 2016/17 increased from R46.8-billion to R68.5-billion. “The increase results from Eskom’s revised assumptions of cost savings and lower-than anticipated tariffs during the current price determination period,” it said.

    Over the next seven years, Transnet plans capital investments of R273-billion, to be funded by earnings and borrowings against its balance sheet, it said.

    Foreign debt funding was lower than estimated, reaching R29.5-billion compared with an expected R42.6-billion.

    “The six companies project aggregate borrowing of R102.6-billion in 2016/17 and R307.1-billion between 2017/18 and 2019/20.

    “Gross foreign borrowings are expected to account for the majority of total funding over the medium term, largely as a result of Eskom’s efforts to obtain more developmental funding from multilateral lenders.”

    In 2016, Eskom concluded a deal with the China Development Bank to get a $500-million loan facility.

    However, Eskom is likely to need additional equity injections in the coming three to four years, according to Nomura emerging market economist Peter Montalto. “Its last equity injections stabilised ratios at very low levels, but are still a constraint,” he said in December. “Nuclear generation would severely leverage Eskom’s balance sheet without additional equity injections.”

    Referring to the “injection”, Treasury said the R23-billion equity injection and the conversion of the R60-billion subordinated loan to equity helped shored up Eskom’s balance sheet.

    “State-owned companies are responsible for much of the infrastructure on which the economy relies,” Treasury said. “Eskom, Transnet and … Sanral account for about 42% of public-sector capital formation.”

    “Over the past year, Eskom continued its capital investment programme – bringing new generating capacity to the electricity grid – and maintained steady power supply. Transnet continued to invest in getting more freight from road to rail.”

    Meanwhile, contingent liability exposure to independent power producers (IPPs) is expected to decrease in 2019/20.

    “Government has committed to procure up to R200-billion in renewable energy from IPPs,” Treasury said. “As at March 2017, exposure to IPPs – which represents the value of signed projects – is expected to amount to R125.8-billion. Exposure is expected to decline to R104.1 billion in 2019/20.”

    Government began to categorise power-purchase agreements between Eskom and IPPs as contingent liabilities in 2016.

    “These liabilities can materialise in two ways. If Eskom runs short of cash and is unable to buy power as stipulated in the power-purchase agreement, government will have to loan the utility money to honour its obligations.

    “If government terminates power-purchase agreements because it is unable to fund Eskom, or there is a change in legislation or policy, government would also be liable. Both outcomes are unlikely.”

    It said Eskom is expected to use R43.6-billion of its guarantee in 2016/17 and R22-billion annually over the medium term.

    It said SAA has used R3.5-billion of a R4.7-billion going-concern guarantee, with the remainder likely to be used in 2017/18.
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    Oil and Gas

    Exxon revises down oil and gas reserves by 3.3 billion barrels

    U.S. oil major Exxon Mobil Corp has revised down its proved crude reserves by 3.3 billion barrels of oil equivalent as a result of low oil prices throughout 2016, a company filing showed on Wednesday.

    The de-booking includes the entire 3.5 billion barrels of bitumen reserves at the Kearl oil sands project in northern Alberta, operated by Imperial Oil, a Calgary-based company in which Exxon has a majority share.

    It comes a day after ConocoPhillips Corp de-booked more than a billion barrels of its oil sands bitumen reserves, citing weak global crude prices.

    In total Exxon has 20 billion barrels of oil equivalent at year-end 2016, the Securities Exchange Commission filing said. The reduction reflects the number of barrels of oil equivalent that were now deemed uneconomic due to lower crude prices.

    In addition to the Kearl volumes, another 800 million barrels of oil equivalent in North America failed to qualify as proved reserves.

    However the reductions were partly offset by Exxon adding 1 billion barrels of new oil and gas reserves in the United States, Kazakhstan, Papua New Guinea, Indonesia and Norway.

    Under SEC rules Exxon and other U.S.-listed companies report reserves based on the average crude price on the first day of each calendar month during the year.

    Benchmark crude prices in 2017 have so far been higher than in 2016, meaning some of the volumes could be rebooked as proved reserves if these levels hold.
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    Ecopetrol reports 14% year-on-year decline in proven reserves

    State-controlled Ecopetrol reported a 14% year-on-year reduction in proven reserves through December 31, a decrease that reflects three years of declining oil field investment in Colombia's oil patch, it said Tuesday.

    Ecopetrol pegged year-end 1P reserves at 1.598 billion barrels, down 14% from 1.849 billion barrels at the end of 2015. The reserves were calculated using US Securities and Exchange Commission-approved standards by independent firms Ryder Scott Co. and DeGolyer & MacNaughton.

    Ecoptrol said the decrease was due to the "pronounced fall in oil prices" in 2016 that made a significant percentage of the company's previously reported reserves uneconomical to produce. Ecopetrol accounts for more than three quarters of Colombia's crude and natural gas reserves and output.

    The SEC price used to value Ecopetrol's reserves in 2016 was $44.49/b, down from $55.57/b in 2015, a 20% decline. Ecopetrol estimated that the price decrease was responsible for the loss of 202 million barrels of reserves, or roughly 80% of the year on year decline.

    But the country is also seeing the negative effects of the significant and ongoing decline in investment by Ecopetrol and other explorers in discovering new oil finds.

    More than half of Colombia's output is heavy oil, which costs more to process and transport, putting the country at a competitive disadvantage in attracting capital spending compared with Peru, Mexico and Argentina.

    Oil field security is another issue. Despite the peace agreement signed in 2016 by the government and the largest rebel group FARC, the oil industry is still at risk from attacks by another rebel group called ELN, which continues to bomb oil installations and pipelines, which discourages investment.

    On Monday, Ecopetrol, which controls the bulk of the nation's pipeline network, reported the 13th attack so far this year on the critical 220,000 b/d Cano Limon pipeline, over which one quarter of the country's crude is transported to Covenas, the principal off-loading port on the Caribbean coast.

    Although Ecopetrol blamed unnamed "terrorists" for the attack, industry sources say ELN rebels, who regard all oil installations as military targets and who have long been active in the area of the attacks, were responsible for the bombings.

    With the addition of 186 million barrels to reserves as a result of new discoveries and better efficiencies, Ecopetrol reported a net replacement index of 79%, which means that 79 barrels replaced each 100 barrels produced. The current reserve level amounts to 6.8 years of inventory at current production rates.

    In 2016, the nation's crude output averaged 885,000 b/d, down 12% from the 1,005,400 b/d pumped on average during all of 2015.

    Ecopetrol also said it was taking several measures in 2017 to improve reserves, including several pilot projects to improve recovery rates.

    Earlier this year, the company reported it was increasing investment in exploration and production, reversing recent spend declines. Exploration spending this year is projected to be $650 million, more than double the $270 million spent last year.

    The company is especially focused in offshore exploration for gas finds, partly in an effort to compensate for rapid depletion of the country's reserves.

    Of 16 exploratory wells Ecopetrol plans to carry out in 2017, five will be drilled offshore. The company is also drilling appraisal wells in the Orca and Kronos offshore gas fields, where discoveries were previously announced, but which have not yet been declared commercially viable.

    Ecopetrol also said it is taking a new look at using its "strong cash position" to possibly grow its reserves "inorganically" by buying shares in existing reserves in other countries.

    The company said its goal is to add 600 million barrels of crude and crude equivalents to its ledger by 2020.
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    European ethylene spot trades at premium to contract price amid tightness

    European ethylene spot traded Monday at a premium of Eur80/mt ($843/mt) to the monthly contract price of Eur1,020/mt FD NWE for February, reflecting a tightening market ahead of a major cracker turnaround season beginning in March.

    The trade represents a marked change in the market as spot prices were heard bid at a discount of about Eur50/mt just last week.

    "For me the [trade] is a combination of product availability and required incentives for producers to release some of their stocks," said a source Tuesday. Material availability had been heard tightening on the pipe as early as the first week in February as producers built up inventory.

    Compounding material availability issues in Europe is the strong Asian market which has acted to curb import availability in Europe. Asian ethylene prices were assessed Tuesday at $1,385/mt CFR Northeast Asia. The region's high prices have attracted material from Middle Eastern producers who favor netbacks from the region.

    "Prices in Europe are too low to attract imports," said a source earlier in the month.

    With a lack of imported material availability as a result of strong Asian prices, downstream markets have become increasingly dependent on domestic production. Should the trends in material availability continue, March ethylene prices will increase over February levels.
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    China state firm in preliminary deal to buy Chevron's Bangladesh gas fields - oil executives

    China's state-run Zhenhua Oil has signed a preliminary deal with Chevron  to buy the U.S. oil major's natural gas fields in Bangladesh that are worth about $2 billion, two Beijing-based Chinese oil executives said.

    Zhenhua is a subsidiary of China's defense industry conglomerate NORINCO. A completed deal would mark China's first major energy investment in the South Asian country, where Beijing is competing with New Delhi and Tokyo for influence.

    Bangladesh, though, holds the right of first refusal on the assets and could block the transaction. The country, via its national oil company Petrobangla, is keen to buy the gas fields and is talking to international banks to raise financing, according to a banking source familiar with the process.

    Bangladesh is in the process of hiring global energy consultant Wood Mackenzie to assess the fields' reserves before placing a formal bid to buy the assets, two Bangladesh sources familiar with the matter told Reuters.

    The Bangladesh sources said they were not aware of Zhenhua Oil's competing interest in the Chevron fields.

    "As this project is in the process of commercial discussions, we can't comment based on our company policy," said Zhang Xiaodi, Zhenhua Oil's spokesman.

    Zhenhua Oil is a small oil and gas explorer that despite its connections to China's defence industry is dwarfed in comparison to state energy giants PetroChina and Sinopec.

    It is trying to formalize its deal with Chevron by June, after the two companies signed a preliminary pact in January, the two senior oil executives told Reuters.

    Zhenhua will partner with China Reform Holdings Corp Ltd, an investment vehicle under the State-owned Assets Supervision and Administration Commission (SASAC).

    Zhenhua will hold 60 percent of the deal and China Reform 40 percent, the two executives said.

    The executives declined to be named as these discussions were not public.

    Chevron, in an e-mailed statement, confirmed that it was in commercial discussions on its Bangladesh assets, but would not comment further as a matter of policy.

    Chevron had said in October 2015 that it planned to sell about $10 billion worth of assets by 2017 including geothermal projects in Indonesia and the Philippines and gas fields in Bangladesh amid a prolonged slump in energy prices.

    Bangladesh knows that Chevron is in talk with global companies, but has no specific knowledge about Zhenhua's interest, said Nasrul Hamid, state minister for power, energy and mineral resources.

    "This is Chevron's matter. We'll not interrupt but we are supposed to get the first priority," he said when asked if Bangladesh would try to block the China deal.

    "We will place a formal bid only if the project is viable," Hamid said.

    Chevron sells the entire output from its three gas fields - Bibiyana, Jalalabad and Moulavi Bazar, which account for more than half of Bangladesh's total gas output - to state energy firm Petrobangla under a production sharing contract.


    With output and revenue slashed by low oil prices for the last nearly three years, China's state energy firms are under pressure to step up efforts to boost reserves and profits as Brent crude LCOc1 stabilizes around $55 a barrel.

    Zhenhua Oil appears to have outrivaled competing bidders by partnering with the state investment vehicle China Reform, the Chinese executives said.

    Geo-Jade Petroleum Corp (600759.SS), an independent Chinese oil and gas explorer, was a close competitor with a bid at $2.3 billion, said one of the executives.

    "Possibly because Zhenhua is a state-owned company and has the backing of China Reform, that's why it was picked by Chevron," said the executive.

    Zhenhua Oil has oil and gas operations in Iraq, Kazakhstan, Syria, Myanmar and Egypt.

    If the Bangladesh deal materializes, it would hand the Chinese firm 16 million tonnes a year of oil equivalent output, including natural gas and condensate, a scale that would make it China's fourth-largest oil and gas producer, the two Chinese executives said.
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    Weir hurt by weak oil prices while peer Petrofac sees order uptick

    Weir Group Plc, a maker of pipes and valves for energy and mining industries, reported a 22 percent fall in full-year pretax profit, hurt by a weak North American oil and natural gas market.

    Peer Petrofac Ltd said it saw an uptick in bidding activity in its core Middle Eastern markets.

    Weir's shares fell as much as 3.5 percent before trading at 1961 pence. Petrofac shares rose as much as 4.5 percent before paring losses to trade at 900.9 pence on the London Stock Exchange.

    "There is no doubt that over the last few months bidding activity has increased... we are seeing a number of projects deferred in 2016 coming back in 2017," Petrofac CFO Alastair Cochran told Reuters in a call.

    The order book backlog at year-end for Petrofac's core engineering and constructions unit stood at $8.2 billion dollars out of a total of $14.3 billion.

    Petrofac, which design and maintenance provides services to oil and gas projects reported a 125.6 percent rise in its core earnings to $704 million for the year ended Dec. 31, as record production in the Middle East drove up contract awards.

    Weir's full-year order input fell by 8 percent to 1.86 billion pounds, while revenue fell 11 percent to 1.85 billion pounds for the year, on a constant currency basis.

    The Scottish company said its pretax profit fell to 170 million pounds ($212.3 million) for the year ended Dec. 31, from 219 million pounds reported a year earlier.

    Peer John Wood Group Plc had reported a 62 percent fall in its 2016 profit as weak oil prices continued to force oil producers to slash spending.
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    Petronas, Saudi Aramco may sign new deal on refinery project -sources

    Malaysia's state oil firm Petroliam Nasional Bhd (Petronas) and Saudi Aramco are expected to sign an agreement to collaborate in the country's Refinery and Petrochemical Integrated Development (RAPID) project, two industry sources said on Wednesday.

    Aramco had decided to suspend its partnership with Petronas in the refining and petrochemical complex in the southeast of the country, according to sources last month.

    The signing is expected to take place on Monday, said one of the sources with knowledge of the matter who declined to be identified, during a visit by Saudi Arabia's King Salman to Malaysia.

    Saudi Aramco declined to comment and Petronas was not immediately available for comment.
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    Delek inks Leviathan loan deal

    Delek Group signed loan agreements for up to $2.5 billion for the development of the Leviathan natural gas field offshore Israel.

    The company’s two units, Delek Drilling and Avner Oil signed the loan deal with a consortium of more than 20 Israeli and international financial institutions headed by HSBC Bank and J.P. Morgan.

    The loan will be used for the development of Delek’s share in the giant gas field.

    The loan has been divided into facilities, first of which is in the amount of $375 million per partnership and will be released following the financial investment decision.

    The remaining facilities, two of which are in the amount of $187.5 million per partnership and one in the maximum amount of $125 million will be contingent on the execution of the agreements for the supply of gas at a minimum agreed annual quantity.

    The loan agreement includes another facility of $375 million per partnership for the increase of the production and transmission system capacity.

    The Leviathan partners expect the natural gas from the Leviathan field will be produced by the end of 2019.

    In December last year Delek Group said that having assessed the development plan, the work plan and the proposed budget for the development of stage 1A of the development plan, with a capacity of 12 bcm per year, at a scope of US$3.5-4 billion, the board of directors of the general partner authorized the approval of the FID.
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    Repsol profitable in 2016. Production rises

    Spanish oil firm Repsol has reported a full year 2016 net profit of 1.7 billion euros, up from a net loss of around 1.4 billion euros a year ago.

    According to Repsol, this is the company’s highest annual net income in the last four years, boosted by the company’s successful execution of its efficiency program as it has managed to cut its operational costs by 1.6 billion euros.

    The company’s upstream segment also posted a net profit. The Upstream net profit was 52 million euros, a hefty increase compared to a loss of 925 million euros in 2015.

    Repsol CEO Josu Jon Imaz said that 2016 was a very demanding year.

    “Firstly, because of market volatility. Secondly, because it has been a year with low oil and gas prices. In this environment, Repsol has shown that it is able to create value at $43 per barrel Brent, and that with these prices and throughout its business, it is able to generate cashflow in organic terms after paying dividends to its shareholders.

    “All this has been possible, first of all, thanks to an efficiency program. We have reduced our operational costs by more than €1.600 billion and we have beaten by 50% the already ambitious goal we had set in our Strategic Plan. Secondly, thanks to exhaustive control of CAPEX, investments,” the CEO said.

    Average production increased 23% in the year to 690,200 boe/d, mainly the result of contributions from assets in Brazil, Norway, Venezuela, North America and Peru.

    In late December, Repsol resumed operations in Libya. At the current rate of production, this activity yields an additional 20,000 barrels of oil equivalent per day for Repsol. In 2016, Repsol increased its oil and gas reserves to 2.382 billion barrels of oil equivalent, with a replacement rate of 103%.

    Repsol said the reserves and projects already underway guarantee average production of 700,000 barrels per day through 2020, which will be maintained through 2025 by other discoveries already made and whose development will start in the next two years. In parallel with this production, the company will maintain a 100% average reserve replacement rate through 2020.
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    Mexico turns to the Jurassic era for shale oil: Fuel for Thought

    Mexico's plans to develop its shale oil resources have finally taken a step forward following years of largely fruitless efforts by the state owned company Pemex.

    Canada's Renaissance Oil and Russia's Lukoil are joining forces to develop the Amatitlan block of the Chicontepec region. They aren't interested in the shallower tight oil, but in the stack's deeper Pimienta shale formation, which is what they consider Mexico's Eagle Ford.

    Renaissance and Lukoil agreed to a $60 million accelerated development plan for the Amatitlan block for 2017, which will include workovers of existing wells, and the drilling of new wells.

    The Pimienta formation, located in the Upper Jurassic layer of the Chicontepec, is an important play for the future production of Mexico, as output has been trending lower.

    Renaissance estimates original oil in place in the Amatitlan block at 4.2 billion barrels of oil equivalent, and estimated the Pimienta section at 564 boe per acre-foot, compared with Eagle Ford at 598 boe. Also, both formations have similar pore pressure.

    Despite being discovered in 1962, the Amatitlan is largely underdeveloped. The field has produced about 175,000 barrels of light oil, ranging from 34 to 44 API.

    Pemex estimates that the entire Pimienta holds 20.8 billion boe, mostly liquid hydrocarbons. In 2014, Pemex explored for the first time the Pimienta formations by drilling three conventional exploratory wells.

    According to Nick Steinsberg, director of engineering with Renaissance Oil, one of these wells has produced close to 800 b/d.

    Renaissance is bringing shale experience to the project. Steinsberg pioneered horizontal drilling in the US Barnett Shale with Devon Energy. Dan Jarvie, Renaissance's chief geochemist, was the former chief geochemist of EOG Resources, Eagle Ford's largest shale producer.

    The biggest challenge for the Amatitlan is cutting costs, Luis Miguel Labardini, country manager for Renaissance, told S&P Global Platts.

    Labardini said that key to bringing costs down have to do with good project management—reducing rig time and reaching the technical optimal rate of drilling.

    The structure of Mexico's oil service industry also presents a cost challenge, said Labardini.

    Renaissance has developed some bidding guidelines and will auction all the operating service contracts later this year, he said.

    Pemex's exploration plan for Amatitlan shows that the state oil company will drill an exploratory unconventional well named OPS-1 at the cost of $8.9 million.

    The well will have a depth of 12,112 feet and a horizontal length of 6,561 feet to exploit a target point at 9,465 feet in the Pimienta formation. Drilling and completing the well would take 122 days.

    Similar to Eagle Ford geology, not costs

    In contrast, Sanchez Energy said in September it was able to reduce per-well drilling costs in the Eagle Ford down to $3.5 million, while Chesapeake Energy said at the same time it was able to drill a well in as little as eight days.

    Pimienta is the Chicontepec region's biggest prize, said Colin Stabler, a geologist contractor with Pemex in the 1960s and later Shell E&P director for Mexico from 1997 to 2004.

    Stabler studied Pimienta and other Mexican Jurassic formations with Pemex. In 2013, during Pemex's Chicontepec auction round, he analyzed the Pimienta for a participating company as a consultant.

    “We recognized Amatitlan is the best block for Pimienta,” Stabler told Platts, adding that there are key differences between Pimienta and Eagle Ford including its depth and proximity to mountains.

    Stabler said he shares Renaissances optimism for Pimienta's geology. However, “geological similarities between Eagle Ford and Pimienta doesn't translate as well to economic similarities.”

    “Renaissance's biggest challenges are on the surface,” Pablo Medina, Latin America upstream research analyst at Wood Mackenzie, told Platts.

    Medina said the block has great potential, but access to water and roads, dealing with indigenous communities, migrating the service contract, a regulatory framework on the making, and low energy prices will need to be overcome.

    “It could be a game changer, but not because it is Amatitlan, but because they are the first. They will be trailblazing,” said Medina.

    Fulfilling Mexico's need for sweet crude oil will be an interesting market in the near future, said Labardini, adding that Pemex might need to import as many as 100,000 b/d of light oil in the coming years.
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    Pass the Oil Parcel

    Crude prices are selling off today as gasoline holds up relatively better, as refiners playing 'pass the parcel' of bearishness betwixt the two. As refiners make economic run cuts due to lower profit margins, gasoline inventories are set to drop going forward amid lower supply....while crude inventories are set to continue to swell.

    A key theme of last month's Clipper View presentations, when the mighty Abudi Zein and myself presented our six-month market outlook, was that product prices would lag crude because of high inventories. Our view was that this would ultimately lead to refinery runs being cut due to unfavorable economics, which would then encourage the de-stocking of product inventories. This scenario is coming to fruition.

    U.S. refiners are starting to cut refinery runs amid record high gasoline inventories and slumping profit margins. At least three refineries have made cuts, and more seem set to follow.

    While this will help to de-stock product inventories, this turns into a game of whack-a-mole for the crude complex. As product stocks ease due to lower refining activity, this is only going to encourage already-swollen crude inventories higher still. Refinery runs have just dropped below last year's level for the first time this year:

    While we are seeing record crude exports that could provide a bit of respite for rising US crude inventories, this is being offset somewhat by rising domestic production. As our ClipperData illustrate below, US waterborne crude imports this month are above both last year and February 2015, although lagging 2014's level by nearly 400,000 bpd.

    This lag makes sense given that domestic production and pipeline flows from Canada combined were about 10.5mn bpd in February 2014, while they have been around 12.5mn bpd for 2015, 2016, and now 2017 too.
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    API reports oil inventory fall

    Crude inventories fell by 884,000 barrels in the week to Feb. 17 to 512.7 million, compared with analyst expectations for an increase of 3.5 million barrels, data from industry group the American Petroleum Institute showed on Wednesday. [API/S]

    That added to optimism earlier in the week when the Organization of the Petroleum Exporting Countries said a deal with other producers including Russia to curb output was showing a high level of compliance.

    However, for prices to break out of their trading ranges, the market needs to see signs that OPEC inventories are falling, said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

    "It's a battle between how quick OPEC can cut without shale catching up," Nunan said, referring to U.S. drilling in shale formations that has shown an upsurge after prices rose this year. [RIG/U]

    "What OPEC really has to do is get the inventories down," he said.

    Eleven non-OPEC oil producers that joined the OPEC deal have delivered at least 60 percent of promised curbs so far, OPEC sources said on Wednesday, higher than initially estimated.

    In the United States, crude stocks at the Cushing, Oklahoma, delivery hub were down by 1.7 million barrels, while U.S. crude imports fell last week by 1.5 million barrels per day (bpd) to 7.398 million bpd, according to the API.
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    Range Reports 2016 Earnings, Announces 2017 Capital Plans

    Highlights –

    Record average daily production of 1.854 Bcfe during the fourth quarter
    2017 capital budget set at $1.15 billion, projected to provide 33-35% year-over-year growth in 2017 and approximately 20% organic growth in 2018
    North Louisiana well costs reduced to $7.7 million per well from $8.7 million previously
    Fourth quarter 2016 unhedged cash margins improved by over four times to $0.97 per mcfe, compared to $0.22 per mcfe in fourth quarter 2015
    Reserve replacement of 292% at $0.34 per mcfe drill-bit development cost for 2016

    Commenting, Jeff Ventura, the Company’s CEO said, “2016 was a significant year for Range, as we completed the acquisition of Memorial Resource Development in September, providing Range operational and geographic diversity with wells that rival our prolific Marcellus wells.  In addition, we are beginning to see the advantages of a diversified marketing portfolio, as prices are expected to improve for all products in 2017, driving higher margins and a peer-leading recycle ratio.  Higher expected margins and cash flow provide us the opportunity to increase our capital budget to $1.15 billion in 2017, after two consecutive years of declining capital spending.  This increased activity in 2017 results in solid growth this year, but also positions us well for 2018 and beyond.  With thousands of future locations in our core inventory and talented operational, technical and marketing teams, Range is well-positioned to drive shareholder value for years to come.”
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    Gas Pioneer Chesapeake Embarks on Oil Quest to Escape Junk Label

    Chesapeake Energy Corp., the No. 2 U.S. natural gas producer, thinks it has a one-word answer to its debt issues: Oil.

    Chief Executive Officer Doug Lawler is focusing 60 percent of the Oklahoma City-based driller’s 2017 budget on crude oil projects, mostly in South Texas, Oklahoma and Wyoming shale fields. The company plans about 320 new crude wells this year, compared with 90 for gas, Lawler said on Feb. 14. The hoped-for result: Oil output, set to grow 10 percent in 2017, could grow by double that rate next year.

    The former deep-water exploration chief for Anadarko Petroleum Corp. has been striving to bring the gas producer back on its feet after inheriting suffocating debt, collapsing cash flow and wilting reserves 3 1/2 years ago. Lawler’s emphasis on crude derives from the fact that oil fetches three or four times more money on an energy-equivalent basis.

    “He likes to set big goals and this is the biggest one of all,” said James Sullivan, senior analyst at Alembic Global Advisors in New York, one of six analysts following the company with the equivalent of buy ratings on Chesapeake’s stock.

    Chesapeake is expected to post its first profit since the end of 2014 when it reports fourth-quarter results on Feb. 23. Excluding one-time items, the company is forecast to disclose per-share profit of 6.1 cents, based on the average of 27 analysts’ estimates compiled by Bloomberg. That would compare with a loss of 16 cents a share for the final three months of 2015.

    The company lost a cumulative $18.5 billion over the past seven quarters, struggling with a combination of rock-bottom gas prices and strangling debt obligations. More than $21 billion in field writedowns during that period bled Chesapeake’s balance sheet as faltering prices dimmed the likelihood those assets would ever generate profits.

    As activist investor Carl Icahn’s hand-picked choice to replace Aubrey McClendon in 2013, Lawler let go of two out of every three employees, repurchased company bonds at cut-rate prices and dismantled complex financial instruments that were his predecessor’s forte. In January, the company restored dividends on four classes of convertible preferred stocks, though the payout on common shares remains suspended.

    A key step in Lawler’s plan to convince credit rating companies to bestow investment-grade blessings will be funding operations without having to borrow any money, a state known as cash-flow neutrality that he expects to reach in 2018. Moody’s Investors Service rates Chesapeake’s long-term debt Caa1, or seven levels below investment grade. S&P rates the company B-, six levels into junk territory.

    “We still have had this target about achieving investment-grade metrics,” Lawler said during a Credit Suisse event on Feb. 14. “And this still is a long-term target for the company. But we have a plan in which we believe we’ll be achieving that in the next few years.”


    The company has a long way to go before crude supplants gas as its main product. The furnace and factory fuel that Chesapeake was instrumental in unlocking from North American shale fields during the last decade still comprises about 85 percent of its production. In fact, Chesapeake pumps so much gas that only international energy titan Exxon Mobil Corp. has a bigger stake in U.S. gas markets, according to the Natural Gas Supply Association.

    Earlier aspirations to make Chesapeake an oil producer sputtered because the company’s precarious cash position forced it to devote scarce dollars to gas fields that needed sprucing up to make them suitable for sale, Alembic’s Sullivan said. That left Chesapeake too poor to exploit holdings it suspected were rich in crude but had yet to be drilled.

    Still, Lawler telegraphed his growing crude bias last year when he agreed to give up the company’s entire Barnett Shale portfolio and exit the birthplace of the shale revolution to escape almost $2 billion in onerous pipeline contracts.

    The Barnett region of North Texas is famous for the gassy content of any wells drilled there. By the time Chesapeake walked away, the Barnett has shriveled to just 10 percent of the company’s output, overshadowed by mammoth deposits in the Marcellus and Utica shales in the U.S. Northeast.

    “Now they have room that will allow them to deploy capital to higher-return” oil projects, said Jason Wangler, an analyst at Wunderlich Securities Inc. in Houston with a “buy” rating on Chesapeake shares.

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    Sanchez Energy Announces Fourth Quarter and Full-Year 2016

    Sanchez Energy Corporation, today announced operating and financial results for the fourth quarter and full-year 2016.  Highlights include:

    Partnership with Blackstone Energy Partners (“Blackstone”) to acquire Anadarko Petroleum Corporation (NYSE:APC) (“Anadarko”) interests in the Western Eagle Ford for approximately $2.3 billion, subject to normal and customary closing conditions (the “Comanche Transaction”) announced January 12, 2017;
    Active leasing program over the last twelve months resulted in the acquisition of 65,000 acres in the oil window of the Western Eagle Ford, and 45,000 acres in the dry gas window of the Western Eagle Ford;
    Total 2016 production of 19.5 million barrels of oil equivalent (“MMBoe”), or approximately 53,350 barrels of oil equivalent per day (“Boe/d”), exceeded the Company’s 50,000 to 52,000 Boe/d guidance;
    Year-end Proved Reserves increased by over 55% (excluding acquisitions and divestitures) to approximately 193 MMBoe, and generated an approximate 430% reserve replacement ratio;
    Recent development and pilot wells de-risked the Upper Eagle Ford in Northwestern Catarina, thereby confirming the presence of this additional zone on the Comanche acreage;
    North Central Catarina Step-out appraisal pad continues to produce 10-15% above Western Stack type curve forecast with yields over 250 Bbl of liquids per MMcf of natural gas; derisking the eastern portion of the West Stack area;
    Drilling and completion costs during 2016 at Catarina and Maverick averaged approximately $3.0 million per well, which included larger completion jobs at Catarina and Maverick during the second half of the year;
    The Company’s 2017 capital budget is estimated between $425 and $475 million, including expected activity on the Comanche acreage beginning March 2017;

    The Company reported net income of $48 million for the fourth quarter 2016;

    For the year ended December 31, 2016, the company reported a net loss of $273 million;
    Fourth quarter 2016 revenues were approximately $126 million, an increase of approximately 15% percent when compared to the fourth quarter 2015; Adjusted revenue (a non-GAAP financial measure), inclusive of hedge settlement gains, was approximately $145 million during the fourth quarter 2016;
    Full year 2016 revenues were approximately $431 million; Adjusted revenue (a non-GAAP) financial measure), inclusive of hedge settlement gains, was approximately $567 million for the year;

    Adjusted EBITDA (a non-GAAP financial measure) was approximately $79 million during the fourth quarter 2016;
    Full year 2016 Adjusted EBITDA (a non-GAAP financial measure) was approximately $307 million;
    On Feb. 6, 2017, the Company reinforced its strong liquidity position by closing the previously announced public equity offering, which resulted in net proceeds of approximately $136 million; and
    As of Dec. 31, 2016, the Company had approximately $800 million in liquidity with approximately $500 million in cash and cash equivalents and an undrawn bank credit facility with an elected commitment amount of $300 million.
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    Post Oak Energy Capital, Moriah Henry Partners step up Midland Basin program

    Houston-based Post Oak Energy Capital led a $200 million equity commitment to Moriah Henry Partners, an exploration and production company headquartered in Midland.

    Its co-investors are Henry Energy and Moriah Energy Investments, which will manage the venture. Proceeds will be used to acquire and develop properties in the Midland Basin in west Texas.

    “We are delighted to partner with these industry veterans and leaders,” Frost Cochran, Post Oak managing director said in an announcement.

    “Their deep experience in the Midland Basin will allow us to capitalize on numerous opportunities in one of the most economic basins in the country.”

    Henry Energy is a privately held Permian Basin oil and gas producer founded by Jim Henry.

    “I am very excited to be focused, once again, in the core of the Midland Basin, where I began drilling Spraberry wells nearly 50 years ago,” Henry said.

    “Our relationship with Moriah and Post Oak enhances our capacity to drill horizontal Wolfberry wells in an area we are very familiar with.”

    Moriah Energy Investments manages oil and gas investments for diversified holding company Moriah Group.
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    Alternative Energy

    China leads global wind power installation in 2016

    China once again led the way globally in terms of installed wind power capacity in 2016, illustrating its continued commitment to reduce greenhouse gas emissions, state media reported.

    In 2016, China installed 23.3 GW of wind power capacity, almost three times the 8.2 GW that the U.S., which took second place, installed in the same year.

    However, the total capacity installed in China in 2016 fell by almost a quarter compared to 2015, when it installed 30 GW of wind power capacity.

    According to Steve Sawyer, Global Wind Energy Council (GWEC) secretary general, this reduction was "driven by impending feed-in tariff reductions," and because "Chinese electricity demand growth is slackening, and the grid is unable to handle the volume of new wind capacity additions."

    However, he added that the market is expected to pick up again this year.

    In terms of capacity installed in 2016, China and the U.S. were followed by Germany, which installed 5.4 GW of wind power capacity, and India, which saw 3.6 GW of installations.

    At the end of 2016, China's cumulative installed capacity stood at 169 GW, or 34.7% of the global total. It was followed by the U.S. with 82 GW, or 16.9% of the global total, Germany (10.3%) and India (5.9%).

    The Chinese offshore wind power market also responded strongly in 2016, with China overtaking Denmark to rank third in the cumulative global offshore rankings after the UK and Germany.

    In 2016, China stood third globally in terms of offshore wind power installation with 592 MW installed, behind Germany (813 MW) and the Netherlands (691 MW).

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    New Scientist trashes Drax and others; finally

    The EU’s renewable energy policy is making global warming worse


    Simon Dawson/Bloomberg via Getty

    By Michael Le Page

    Countries in the EU, including the UK, are throwing away money by subsidising the burning of wood for energy, according to an independent report.

    While burning some forms of wood waste can indeed reduce greenhouse gas emissions, in practice the growing use of wood energy in the EU is increasing rather than reducing emissions, the new report concludes.

    Overall, burning wood for energy is much worse in climate terms than burning gas or even coal, but loopholes in the way emissions are counted are concealing the damage being done.

    “It is not a great use of public money,” says Duncan Brack of the policy research institute Chatham House in London, who drew up the report. “It is providing unjustifiable incentives that have a negative impact on the climate.”

    The money would be better spent on wind and solar power instead, he says.

    It is widely assumed that burning wood does not cause global warming, that it is “carbon neutral”. But the report, which is freely available, details why this is not true.

    More emissions

    Firstly, burning wood produces more carbon dioxide, methane and nitrogen dioxide per unit of energy produced than coal. When forests are logged, their soils also release carbon over the next decade or two. There are also emissions from the transport and processing of wood, which can be considerable.

    By contrast, forests that are left to grow continue soak up carbon. This is true even for mature forests, the report says. Older trees absorb much more carbon than younger trees, so despite the death of some trees, mature forests are still a carbon sink overall.

    As for the idea that all the CO2 emitted when wood is burned is eventually soaked up when trees regrow, this can take up to 450 yearsif forests do indeed regrow, the report says. To avoid dangerous climate change, however, emissions need to be reduced right away.

    Dirty reality

    Supporters of bioenergy claim the industry is only using waste from sawmills and such, rather than whole trees. Producing energy from genuine wood waste that would otherwise be left to rot can indeed be better than burning fossil fuels.

    But in reality, there simply is not enough waste wood to meet demand. What waste there is often contains too much dirt, bark and ash to burn in power plants, or is already used for other purposes. Instead, there is substantial felling of whole trees for energy, the report says.

    “I think the evidence is pretty strong,” says Brack. Official definitions are so poor that companies can cut down whole trees and count them as waste, he says.

    There is also no evidence that new forests are being planted to meet demand for bioenergy, as some bioenergy enthusiasts claim. For instance, forest area in the southern US, which provides much of the wood pellets burned in the EU, is not increasing.

    Policy changes needed

    Substantial changes in policies are needed to ensure biomass burning reduces rather than increases emissions. In particular, the report recommends the introduction of much stricter criteria to ensure only genuine waste wood is used.

    It also recommends a number of changes to close the various carbon accounting loopholes that allow the EU to claim its bioenergy policy is reducing its greenhouse gas emissions, when it is fact it is having the opposite effect.

    “Many countries are increasing use of biomass as renewable energy,” Mary Booth of the US-based Partnership for Policy Integrity and a reviewer on the report, said in a statement. “Alarmingly, the Chatham House report concludes that uncounted emissions from the ‘biomass loophole’ are likely large, and likely to significantly undermine efforts to address climate change.”

    Read more: Revealed: The renewable energy scam making global warming worse

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    Armyworm caterpillars ravage maize crop in southeast Congo

    Crop-destroying caterpillars known as armyworms have ravaged 63,000 hectares of maize in southeastern Democratic Republic of Congo since December, causing local maize prices to triple, a U.N. spokeswoman said on Wednesday.

    Suspected outbreaks have already erupted in Zambia, Zimbabwe, Malawi, South Africa, Namibia and Mozambique, and scientists say the armyworm could reach tropical Asia and the Mediterranean in the next few years.
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    Base Metals

    Philippines' minister says Duterte agrees with ban on mining in watershed areas

    The Philippines' environment minister on Thursday said that President Rodrigo Duterte had supported her decision to bar mining in watershed areas at a meeting earlier this week.

    "He said, 'I agree with you. Don't worry, you are my cabinet secretary and I also believe that there should be no mining in watershed,'" Regina Lopez told reporters at a briefing, recalling her meeting with Duterte on Monday.

    Lopez on Monday told Reuters she's standing by her decision to shut or suspend 28 of the country's 41 operating mines for environmental infractions, despite complaints from the mining industry. Many of them were located in watershed zones, she said.
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    Steel, Iron Ore and Coal

    Indonesia 2016 coal exports edge up 0.5pct on year

    Indonesia exported 369 million tonnes of coal in2016, edging up 0.52% year on year, showed data from the BPS-Statistics Indonesia.

    The country's exports of coking coal climbed 2.67% from a year ago to 83.08 million tonnes during the period, while that of thermal coal dropped 8.04% on the year to 228 million tonnes.

    Lignite exports stood at 58.25 million tonnes last year, surging 50.97% year on year.

    In December, Indonesia exported 32.22 million tonnes of coal, increasing 5.32% from the preceding year but down 4.38% from November. Value of the exports rose 39.71% on the year and 6.34% on the month to $1.64 billion.

    Exports of coking coal were 6.66 million tonnes in the month, dropping 15.33% year on year, while that of thermal dipped 0.88% from a year ago to 20.14 million tonnes.

    Lignite exports in December increased nearly 1.25 times year on year to 5.42 million tonnes.
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    Shaanxi Shenmu 2016 raw coal output at 215 mln T

    Shenmu county in Shaanxi province, a main coal producing base in northwestern China, produced 215.26 million tonnes of raw coal in 2016, local media reported.

    Raw coal sales of the county stood at 213.44 million tonnes last year. Of this, 86.65 million tonnes were sold by central government-owned producers, while 71.22 million tonnes were sold by enterprises owned by provincial- and prefectural-government.

    Shenmu vigorously carried forward de-capacity campaign last year to help improve its coal industry, and it has been promoting large scale and refined development of coal chemical businesses.

    In 2016, its semi-coke output stood at 20.47 million tonnes, and the volume in 2015 was 18.3 million tonnes.

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    Rio Tinto considers coal mine sale in Queensland

    Rio Tinto was said in a for sale sign for its last two Queensland coal mines with expectations of a $2 billion deal, the Courier Mail reported on 21 February.

    Reports from London indicated that Rio Tinto has invited banks to tender for the job of advising the mining giant on the sale of the Hail Creek and Kestrel mines, the report said, noting that Merrill Lynch is apparently favoured to get the role.

    The reports suggest Rio has had unsolicited offers for the mines, following Rio's strategic retreat from coal.
    Earlier this year, Rio Tinto agreed to sell $2.45 billion of Australian mines to Yanzhou Coal Mining Co. Queensland's coal sector has undergone a radical transformation since the end of the boom with several collapses followed by major miners selling projects for token amounts.

    Peabody has shut its Burton mine while Glencore has closed and reopened its Collinsville mine. The Blair Athol coal mine, near Clermont, was sold by Rio Tinto to TerraComm for just $1 and is expected to start mining in less than six weeks.

    Stanmore Coal also bagged the Isaac Plains mine for $1 from Vale and Sumitomo.

    Batchfire also bought the Callide mine from Anglo which also put the for sale sign in front of Moranbah North and Grosvenor Mines, along with its Moranbah South development project.

    But Anglo American looks like it has had a change of strategy. It has swung back to profitability, a dramatic rebound for a company that only a year ago was planning to implement a sweeping restructuring plan.

    It has reported a net profit of $US1.6 billion for the year ended December 31, compared with a net loss of $US5.6 billion the previous year. Revenue was largely unchanged, rising to $US23.1 billion last year from $US23 billion a year ago.
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    ARA coal stocks continue to slide

    Combined coal stocks at three delivery terminals in Northwest Europe's Amsterdam-Rotterdam-Antwerp trading hub slipped a further 3.86% over the week, as end users continued to draw down on port inventories following a recent cold snap and lifting of transport restrictions.

    Stock levels drifted down to 4.61 million mt according to data collected from port sources. Buyers were widely said to have ramped up barge reloads in order to replenish inventories at their facilities now that water levels on the Rhine River -- Germany's main transportation waterway for goods -- have risen. This reduced barge costs significantly as vessels could now load close to full capacity, one source said.

    Although the week-on-week reduction is the second in a row, stocks remained 32.8% higher in year-on-year comparisons, a trend that is expected to continue for the remainder of the first quarter, according to one source.

    Stocks at OBA Bulk Amsterdam's terminal fell 200,000 mt over the week to 2 million mt, while levels at the EMO dry bulk terminal in Rotterdam were only marginally lower, at 2.17 million mt, a 30,000 mt reduction.

    The only facility to show a slight uptick over the week was the OVET dry bulk terminal in Vlissingen, which had 440,000 mt of coal in stock, an increase of 45,000 mt on the week.

    "We've seen a good level of reloading again this week but arrivals are still in line with expectations for the time of year," one source said. "I think stocks will hold this sort of level until the end of February now."

    CIF ARA thermal coal prices had been more or less rangebound over the previous week as uncertainty over the direction of the market and limited demand kept buyers on the sidelines.

    S&P Global Platts assessed the price of European-delivered CIF ARA thermal coal basis 6,000 kcal/kg NAR and for delivery within the next 15-60 days at $81/mt Monday, a reduction of 30 cents on the week.
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    India’s iron-ore production poised for five-year high

    With the current financial year drawing to a close in little over a month, Indian iron-ore production is poised to hit a five-year high.

    While official aggregate production data was yet to be available, granular province-wise iron-ore production data collated indicate that Indian iron-ore production during 2016/17 was expected to touch 180-million tonnes, the highest since 2010/11 when it was pegged at 207-million tonnes.

    The industry optimism over rebound in iron-ore mining was reinforced by the fact that for the first time in the last five years, growth in production was sustained over two consecutive years.

    The higher production expected in the current fiscal comes on back of 155-million tonne achieved in 2015/16.

    It was pointed out by an official in Federation of Indian Mineral Industries (FIMI), the sustained growth in production over two consecutive years indicated that miningwas getting fundamentally stronger riding on steady gains in international prices and improved local businessenvironment.

    It was also noted that over the last few years, a production growth in one year was followed by a slump the very next year and recent data indicated a reversal of such a trend.

    Citing examples, he pointed out that since the recent peak of 207-million tonnes in 2010/11, production slipped to 167-million tonnes the next fiscal and further to 136-million tonnes in 2012/13.

    Production rebound to 152-millio tonnes in 2013/14 but only to slide sharply to 129-million tonnes the very next year.

    The rebound of iron-ore production at the aggregate level was result of strong showing of the sector in two of the largest producing provinces of Odisha in the east and Goa in the west.

    Report from the Odisha government early this month, showed that iron-ore production in the region had already touch the 80-million tonne mark during the period of April-January 2016/17 and reach the 100-million tonne level by close of the financial year on March 31, a rise of estimated 50% over previous year.

    According to an official in Odisha government, the incremental production in the province was largely owing to a number of mines being brought back into production during the year.

    The government had taken an aggressive initiative to ensure that iron ore mining leases which had expired were renewed and in number of cases 50-year new leases granted under new legislative provisions.

    In the western province of Goa, the annual production ceiling of 20-million tonne imposed by the Supreme Court was also closing in with the Goa government apprehensive that some mines might have to curtail or close down production unless the ceiling was relaxed soon.

    Meanwhile, with the current financial year drawing to a close, the Goa government was attempting a balancing act within the overall production ceiling, a government official said.

    The government had allocated additional production quota to 30 mining lease-holders by taking away unused production quote of other lease-holders.

    He said that the 30 mines have been given varied hike in production limits by transferring unused production quota from mines which have failed to achieve their allocated quotas.

    This was done so that it could be firmly established that the apex court set aggregate production quota had been definitively achieved by all the mines and quotas were not left unutilized and this would make a stronger case for the government when it seeks court’s approval for a higher production ceiling for the coming fiscal, the official added.
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    Vale to redeem next month $792 mln in bonds maturing in March 2018

    Vale SA, the world's largest iron ore producer, will redeem next month 750 million euros ($792 million) of bonds that mature in March 2018.

    The company said in a securities filing on Wednesday the bonds will be redeemed on March 27. The early repayment is consistent with the company's debt reduction strategy, the filing added.
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    Global steel production is surging in 2017

    The price of iron ore reached a 30-month high on Monday, while coking coal is trading 80% higher than this time last year. The rally in the steelmaking raw materials may gain further momentum this year as global steel production kicks off the year on a strong footing.

    World Steel Association data released on Tuesday, showed a 7% jump in global steel output in January to 136.5 million tonnes.

    The 50-year old industry body estimates that steel production in China, which is responsible for just shy of half the global total rose 7.4% year on year, but was fairly flat on a month-on-month basis.

    What makes Chinese output particularly strong is that the country's extended Lunar New Year holiday fell in January this year.

    World number three producer India recorded the biggest gain of the major producing countries, with output increasing by 12% year-on-year.  India's infrastructure push should keep blast furnaces on the subcontinent humming throughout this.

    Japanese output declined slightly last year, but the world's number two producer is having a strong start to 2017 with  an increase of 2.7% compared to January last year and 3.3% compared to the prior month.

    US output also rose in January following an annual decline in 2016, surging 6.5% in year on year terms. The strong numbers reflect the impact of anti-dumping measures against China spurring domestic output and optimism about President Donald Trump’s infrastructure plans.

    Some of the strongest growth was recorded in Russia and Ukraine, the world's fifth and tenth largest producers of steel. Russian output was 11.6% higher than January 2016, while Ukraine crude steel production rose 8.5%.
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    China to speed up steel output cuts to curb winter pollution

    China will ratchet up planned steel production cuts and target illegal factories in an effort to reduce pollution during the winter, an official said on Wednesday.

    Beijing launched a campaign to cut steel overcapacity early last year in an attempt to stem a supply glut and crack down on pollutants from non-compliant producers.

    The government committed to cutting 100-150 million tonnes of annual crude steel capacity over five years, though critics say the curbs are yet to have a material effect.

    State media agency Xinhua reported that 26 cities in northeast China will be required to meet annual goals to cut steel overcapacity by October, targeting illegal factories, citing Zhao Yingmin, vice minister of environmental protection.

    Steel producing cities in China's Hebei province must also cut production in half during the winter season and seasonal production halts on cement and casting industries in the same region will remain in effect, Zhao was quoted as saying.

    Earlier this month environment group Greenpeace released research in which it said the world's biggest steel producer actually increased production in 2016.

    China's State Council warned in December of crackdowns on officials who fail to meet inspection standards.

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