Mark Latham Commodity Equity Intelligence Service

Friday 15th January 2016
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    Shandong "zombie enterprises"

    Shandong had 448 "zombie enterprises", 80% of which were in production suspension or half-suspension, said the provincial Economic and Information Commission recently.

    Total sales revenue of these enterprises was 48.1 billion yuan ($7.3 billion) in 2015, but only 1.6 billion yuan during the first three quarters of 2015.

    These zombie enterprises only accounted for 9.5% of the province’s loss-making enterprises, said Qian Huantao, director of the commission, adding more such enterprises should exist in the province.

    Overcapacity has become the tumor plaguing industrial development in the eastern province.

    Shandong has eliminated outdated capacity in iron-making, steel-making and coke industries last year. The capacity eliminated in these industries all exceeded targets set by the central government, as the province shut 49% above-target iron-making capacity and 100% plus-above targets in other six industries including steel and coke making.

    A recent meeting held by the commission pointed out that de-capacity, cleaning up zombie enterprises and cutting enterprise cost will be three major targets in 2016.

    The clearing of zombie enterprises would be dealt case by case. These that were insolvent would be merged or withdraw from the market; they will not allow getting subsidies from the government or other firms’ help.

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    Why the market hailed BHP's shale decision

    There was an interesting message in the sharemarket’s response to BHP Billiton’s announcement of another $US7.2 billion writedown in the value of its US onshore oil and gas assets. BHP’s share price immediately rose 3 per cent.

    In the context of an overall market that was up only a fraction, the response was telling. The market expected and wanted BHP to address the impact of the plunge oil and gas prices on a shale business that had already been written down, in two steps, by $US5.6bn.

    It’s not so much the writedown that is significant — it’s a non-cash charge — but rather that it was accompanied by another reduction in BHP’s onshore drilling activity. Having previously slashed the number of rigs operating in the US from 26 to seven, the group has now shut down two more.

    Of the five remaining, three are in the highly productive and, even at today’s oil prices, positive cashflow-generating Black Hawk fields, while the other two are in the Permian Basin and have only been kept in operation because BHP has obligations to drill that it needs to fulfil to secure its ownership.

    The writedown, which follows a $US2.8bn writedown last year and another of similar magnitude in 2012, has come despite significant improvements in the productivity of the US business, with drilling costs halving in the past couple of years and capital intensity also reduced.

    BHP is among the most efficient of the shale oil producers. The Black Hawk acreage is regarded as having the best onshore liquids reserves in the US and the Permian is regarded as one of the most prospective.

    It’s not the underlying quality of the assets that is under pressure, or BHP’s operating capabilities, but an oil price that has plunged from above $US100 a barrel to around $US30 a barrel in a little over a year, dragging US gas prices down with it.

    The reason the market might have responded positively to the announcement is that it speaks to BHP’s intensifying focus on cashflow preservation. Onshore drilling is capital-intensive and, at today’s oil price, only the Black Hawk fields would be cash positive.

    With commodity prices plunging across the board and intense pressure on BHP to abandon its progressive dividend policy to conserve cash, reducing the amount of capital devoted to petroleum exploration and development (which has already been cut by more than a third from its peak) underscores BHP’s willingness to reduce under-returning investment further.

    The budget for onshore capital expenditure this financial year was $US1.4bn. The latest reduction in drilling activity probably won’t have a material impact in the first half but next week’s production report might provide some insight into its effect on second half capital expenditures and, indeed, the longer-term impact.

    The writedown and the shrinking of drilling activity in the US may presage a wider reduction in capital expenditures. BHP’s total capex budget for this year was about $US8.5bn, of which about $US5bn could be considered discretionary. If it is in absolute cashflow-maximising mode, it could carve into its non-essential investment plans.

    There are investors that would be very happy to see BHP cut its dividend, which absorbed more than $US6bn last year, to free up discretionary cash flows, protect its balance sheet strength and, perhaps, enable it to invest selectively and counter-cyclically while, with the exception of BHP and Rio Tinto, the rest of the sector is battling for survival.

    The writedowns themselves were forced by the continuing dive in oil prices, including a 30 per cent fall in the past three months in the face of a glut created by softer demand but, more particularly, increased production from OPEC and Saudi Arabia in particular.

    That forced a reduction in BHP’s own short to medium-term oil prices assumptions, while the extent of the volatility in the price also dictated an increase in the discount rate applied to value the assets.

    BHP spent $US20.6bn acquiring its onshore oil and gas assets in the US at the start of this decade and has now written their value down by $US12.8bn ($US8.7bn after tax). After taking into account the subsequent investment and earnings, their book value is now about $US16bn.

    With hindsight, it’s obvious BHP’s timing wasn’t great.

    The nature of the business, however — drilling activity can be dialled up or down very quickly — and the quality of the liquids-rich positions BHP holds makes it a potentially valuable asset in an environment where investment in conventional oil, with its massive exploration and development costs and long lead time before production, has been dramatically reduced.

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    Glencore launches refinancing of $8.45 billion loan

    Global diversified natural resource company Glencore has launched senior syndication of a refinancing of a $8.45 billion (5.87 billion pound), one-year revolving credit facility that it signed in May 2015, banking sources said on Thursday.

    The facility supports the company’s trading activities.

    A company spokesman confirmed that the refinancing was underway. Normally the company would begin the refinancing process in April, but it has decided to the put the financing in place earlier.

    The company has approached its top tier lenders and is looking to wrap the senior phase by the end of February, before launching a wider syndication post-results in April.

    Active bookrunners on the deal are ABN AMRO, HSBC, ING, Bank of Tokyo-Mitsubishi UFJ and Santander, all of which have credit approval for the deal.

    The financing is expected to receive strong support from the market, the sources said, despite Glencore being hit hard by a slump commodities in 2015, which forced it to launch debt reduction programme.

    The existing facility was part of a US$15.25bn financing arranged in May 2015, which included a US$6.8bn, five-year revolving credit facility. The five-year facility is being left in place.

    Active bookrunners on that deal were BBVA, HSBC, Lloyds Bank and Rabobank.
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    Noble default risk rises most in Asia on debt payment challenge

    Singapore-listed commodity trader Noble Group Ltd.’s default risk rose the most in Asia this year as a deepening resources slump threatens to worsen the imbalance between the company’s cash flows and liabilities.

    The cost to protect the company’s notes against non-payment for one year is 2,593 basis points, the highest in Asia, according to data provider CMA. The company is preparing to refinance $2.1 billion of loans due in April and May. Noble reported short-term debt of $3 billion on Sept. 30 and $1.9 billion of unused committed bank facilities plus cash and equivalents.

    The climb in credit-default swaps came after Standard & Poor’s and Moody’s Investors Service both cut Noble’s rating to junk in the past month citing liquidity issues, while Fitch Ratings affirmed its score at the lowest investment-grade ranking on Thursday as asset sales improved finances. Noble said it has been successful in raising cash and still has support from its creditors.

    “They still have a liquidity issue that they've got to manage, which is dealing with the banks to refinance loans coming due in May at a time when the industry environment is not favourable,” said Joe Morrison, an analyst at Moody’s in Hong Kong. “The rating committee felt that selling assets to deal with a liquidity issue was not consistent with an investment grade profile and that the company still has some challenges going forward.”

    Noble agreed in December to sell the remaining 49 percent of its agricultural unit to China’s Cofco Corp. for at least $750 million to reduce debt. Cofco already owned the other 51 percent.

    “Banks have their own rating metrics, and none of our bank facilities have ratings triggers,” Stephen Brown, a Noble spokesman, said in e-mailed comments. “We have successfully raised $2.1 billion since last October. More than half of that capital is from the banks, which is a demonstration of strong support from the lenders that we still continue to enjoy. In addition, with the fall of commodity prices, working capital requirements — and hence funding needs — have decreased.”

    “Noble’s stretched gearing and cash flows have been exacerbated by the rapidly deteriorating commodities price outlook,” said Kuala Lumpur-based Ray Choy, head of fixed income and currency research at RHB Research Institute. “The default probability has risen now that the commodity cycle could have turned secularly worse.”

    “It’s inherently a thin-margin business,” Moody’s Morrison said. “When you've got a deteriorating industry environment and liquidity declining and you've got thin margins and you’ve got negative free cashflow from your core operation, there’s going to be pressure on the ratings.”
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    Engie Steps Up Asset Sales to Cut Exposure to Commodity Prices

    Engie will accelerate asset sales as the French energy company formerly known as GDF Suez SA reduces its exposure to oil and gas prices and unregulated power markets.

    “Our strategy is to reduce the share of our activities that are exposed to price fluctuations of commodities and to increase the share of contracted or regulated activities,” Chairman and Chief Executive Officer Gerard Mestrallet told reporters in Paris Thursday. The goal is to “significantly” reduce exposure to those operations, which already account for less than half Engie’s assets.

    The company, based in La Defense near Paris, may sell thermal-power assets in “mature countries” and will look at selling a stake in its Belgian nuclear reactor operations, Mestrallet said. The company will step up spending cuts in oil and gas exploration and production, and may consider reducing its exposure to that unit this year, the CEO said.

    Mestrallet, who will be replaced as CEO by his deputy Isabelle Kocher in May, said the return on regulated assets is lower but much safer than unregulated assets, making them more valued by markets.

    Mestrallet reiterated that the 2015 profit of Engie, which is expanding in energy-efficiency services and renewables as falling gas prices and overcapacity crimp earnings, will be toward the low end of its target. Engie last year bought French solar park developer SolaireDirect SA and said it won’t develop new projects tied to coal.

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    Renault Plunges 20% After French Authorities Raid Offices In Apparent Emissions Probe

    The French company’s shares fell by as much as 23% on Thursday after an apparent raid on what a union official described as “sites that have to do with standards testing and engine certification.”

    Earlier, AFP reported that the agents from the fraud office of France’s Economy Ministry visited the sites last week seizing computers as part of an apparent probe into emissions testing.

    As Bloomberg notes, “French authorities started a probe in September into whether VW deceived customers about the emissions levels of its diesel cars and promised to expand the probe to cover all carmakers, including Renault and PSA Peugeot Citroen.”

    Peurgeot shares fell nearly 10% in sympathy. In October, the automaker said it never used software to cheat emissions tests.

    The news rattled carmakers from France to Germany where the market is still on edge after the Volkswagen scandal rocked the country's auto industry to the core last year.

    Florent Grimaldi, the CGT labor official who spoke to the press, said the searches were conducted at company offices at Lardy near Paris. The Lardy site develops engines and ironically has been requesting more resources to work on anti-pollution systems. Apparently, the certification department was targeted.

    The stock's 20% plunge is the largest single day decline in 17 years, reflecting investor fears that the scope of the probe could mirror what unfolded at its German rival.

    "Separately, the country’s environmental regulator began randomly testing vehicles to check differences between emissions results found in laboratory testing and real-world figures," Bloomberg adds.

    Renault initially declined to comment but has now confirmed the story and says the company is co-operating with authorities.
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    Oil and Gas

    Transneft reports Russian exports decline sharply

    State-owned oil transportation monopoly Transneft says Russian oil companies have applied for 215 million tons of crude exports in 2016. This is 6.4 percent less than last year, business daily Vedomosti reports.

    In 2015, the situation was the opposite for Transneft, which accounts for almost 90 percent of Russian oil shipments. The company transported seven percent more oil than in 2014.

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    As clock ticks down on sanctions, oil-laden Iran tankers set to target India and Europe

    As clock ticks down on sanctions, oil-laden Iran tankers set to target India and Europe

    With Iran poised to resume usual business ties with the world under a historic nuclear deal, Tehran is set to target India, Asia's fastest-growing major oil market, and old partners in Europe with hundreds of thousands of barrels of its crude.

    Iran expects the U.N. nuclear watchdog to confirm on Friday it has curtailed its nuclear program, paving the way for the unfreezing of billions of dollars of assets and an end to bans that have crippled its oil exports.

    Tehran plans to lift exports by 500,000 barrels per day (bpd) post-sanctions and gradually raise shipments by the same amount again, adding to a glut of global oil and likely putting more pressure on oil prices which have already dropped 70 percent since 2014 to around $30 per barrel.

    Iran has 22 Very Large Crude Carriers (VLCC) floating off its coast, with 13 fully or almost fully loaded, mapping data on Thomson Reuters' Eikon showed, carrying enough crude to meet India's import needs for almost a week.

    A senior Iranian source close to supply negotiations said that the country - which has the world's fourth-biggest proven oil reserves - was targeting India as its main destination for crude.

    "Indian crude demand is growing faster than other Asian countries. Like our competitors, we see this country as one of the main targets for Asian sales," said the official, who spoke on condition of anonymity.

    Iran hopes to raise its exports to India by 200,000 bpd, up from the 260,000 bpd currently shipped under sanctions' restrictions, the official said.

    At the right price, Indian refiners said they were keen to import more from Iran, as the country's demand for fuel soars on the back of 10 percent annual growth in car sales, a rate that is now faster than China's.

    "We have a long-lasting relationship with Iran and post lifting of sanctions we will evaluate the scenario," said L K Gupta, managing director of India's Essar Oil.

    "It makes sense to buy oil from nearby options (like Iran)," said H. Kumar, managing director of another Indian oil firm, Mangalore Refinery and Petrochemicals, but added "intake will depend on prices." The Iranian official said there was not much room for major export increases to China, South Korea or Japan due to slowing demand and also because of a shift there towards more non-Middle East crudes. A South Korean refinery source confirmed he did not expect a big increase in Iranian supplies, largely because of plentiful alternatives.

    A Japanese refiner said that his firm could only take Iranian deliveries once it had insurance in place, which could take time.

    Iran already trades limited amounts of oil mainly with Asian buyers legitimately under sanctions, but its crude exports have fallen to just over 1 million bpd, down from a peak of over 3 million bpd in 2011, pre-sanctions.

    The Iranian official said Tehran planned to revive supply deals with European partners in order to ramp up exports.

    Shipping industry association BIMCO confirmed that European clients would be among the first post-sanction clients.

    "Former clients of Iran are the ones who are likely to return as buyers... Italy, Spain and Greece were the top EU importers in 2011," said Peter Sand, BIMCO's chief shipping analyst.

    Following years of under-investment, Iran needs foreign cash to modernize its creaking oil industry.

    Italy's ENI, Spain's Repsol and France's Total were some of the companies with the biggest delegations at a conference in Tehran last November, during which Iran published new terms for foreign oil investors.
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    Norway oil investments seen falling further in coming years

    Investments in Norway's key oil and gas sector will fall further in 2016 and in the coming years following a 16-percent drop in 2015, the Norwegian Petroleum Directorate (NPD) said on Thursday, suggesting more pain ahead for the country's economy.

    Norway's economy, long one of Europe's best performers, has begun to struggle as its main industry, oil production, is hit by a three-quarters fall in the price of Brent crude since June 2014.

    The NPD now sees investments, excluding exploration, falling to 135 billion crowns ($15.3 billion) in 2016 from close to 150 billion in 2015. It predicted a moderate rebound in investments from 2019 onwards.

    Its 2016 investment forecast was revised down from an estimate of 137 billion made a year ago, echoing recent forecast cuts by the central bank and Statistics Norway.

    "They (investments) are expected to continue their decline going forward, followed by a moderate increase from 2019," the NPD said in a statement.

    The directorate noted, however, that its current investment forecasts presume the oil price will increase from today's level in the near future.

    "If this presumption proves wrong, and oil prices remain at the current level for a longer period, this could entail further postponement of activities, resulting in even lower investments and exploration costs," it said.

    In terms of production, Norway's oil output will drop to 1.53 million barrels per day in 2016 and 1.41 million in 2020 from 1.57 million in 2015, the NPD estimated.

    Norwegian gas production will fall to 106.6 billion cubic metres in 2016 from last year's 117.2 billion, rising again to 111.1 billion by 2020, it said.

    The directorate said low prices led to oil companies not developing certain hydrocarbon fields. More than half of Norway's oil and gas resources have yet to be produced.

    "We see a tendency for the companies to prioritise short-term earnings rather than long-term value creation," NPD chief Bente Nyland said in a statement.

    On the positive side, the directorate said oil firms' efforts to cut costs led to more oil development projects becoming more profitable.

    Norway's top oil producers include Statoil, Shell , ConocoPhillips, BP, Det norske and Lundin Petroleum.

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    Chevron nears start of exports from $US54b Gorgon LNG

    Chevron is about to begin exports from its massive Gorgon LNG project on Barrow Island off WA. 

    Chevron has marked a milestone in preparations to start exports from its delayed $US54 billion Gorgon liquefied natural gas project in Western Australia, signalling that the first shipment from the country's biggest single resources project is just around the corner.

    The US gas major advised on Friday that an LNG cargo had arrived at the plant on Barrow Island off the WA coast to be used to cool down the infrastructure ahead of the first shipment.

    Chevron Australia managing director Roy Krzywosinski described the moment as "a significant milestone" for the venture, which was originally scheduled to begin production in late 2014.

    "The commissioning cargo is essential for the final testing of critical systems and to efficiently cool down the plant prior to the start of LNG production," Mr Krzywosinski said in a statement.

    Gorgon, which was sanctioned for construction in September 2009, will eventually produce some 15.6 million tonnes a year of LNG, tapping massive Gorgon and Jansz-Io fields in the Carnarvon Basin for supply to customers in Japan, South Korea, India, China and elsewhere.

    It was originally budgeted at $US34 billion but has suffered a series of cost blowouts, partly on foreign exchange, partly on weather delays and some labour productivity issues.

    The venture is coming into production just as spot LNG prices in Asia are seeing some of their lowest levels for years amid disappointing demand in China and falling consumption in the two biggest markets, Japan and South Korea. Contract prices are also in the dumps because of the collapse of crude oil prices.

    However the venture, which is 25 per cent owned by each of Shell and ExxonMobil, is due to produce for several decades, potentially for 40 years or more.

    "Gorgon will be a long-term supplier of natural gas to our customers in the Asia-Pacific region and in Australia, delivering energy security as well as significant long-term economic benefits to Australia for decades to come," Mr Krzywosinski said.

    The Chevron-operated LNG vessel, Asia Excellence, delivered the commissioning cargo to cool down the storage and loading facilities ahead of the first LNG export cargo from Gorgon, which Chevron said is planned "in early 2016."

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    Lithuania puts US LNG imports on hold

    According to Reuters, Lithuania has had to put off plans to import US LNG, because the LNG is more calorific than the Russian equivalent, which the state gas system was built to accommodate.

    Reuters reports that Ernesta Dapkiene, a spokeswoman for Lietuvos Energija, said: “We are not buying gas from the US at the moment, because the gas they are offering at the moment does not meet specifications needed for our gas distribution system.

    They are still testing their liquefaction equipment, and at the moment they cannot ensure the chemical composition of gas, which is needed for Lithuania.

    We believe that once the testing phase is over, they will be able to meet our specifications.”

    Reuters claims that this test phase could last between 4 – 6 months. Nonetheless, once complete, a long-term contract between Cheniere and LNG shipping company, BG Group, could be signed. Litgas, which is the LNG import arm of Lietuvos Energija, has been discussing LNG deliveries with Cheniere from its Sabine Pass export plant in Louisiana, US.
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    Argentina signs $500 mln shale deal with American Energy Partners

    State-run energy firm YPF said on Thursday it had signed a preliminary deal worth more than $500 million over three years with American Energy Partners LP (AEP) to explore for shale gas in Argentina's vast Vaca Muerta formation.

    Argentina sits atop some of the world's largest shale resources but is a net energy importer after years of under-investment in the country's energy sector. YPF says $200 billion over a decade are needed to reverse the deficit.

    That task has been made more complicated by the rout in global oil prices.

    The foray into Argentina by American Energy's Aubrey McClendon comes months after the former CEO of Chesapeake Energy Corp hired investment banks to shore up the finances of his Oklahoma-based oil and gas venture.

    In a statement, YPF said the joint venture involved a pilot project in the Bajada de Anelo block, located in Argentina's Neuquen province that would run until mid-2018.

    If the project is continued, Pluspetrol and the province-owned Neuquen Oil and Gas would join the venture, exploring the southern zone of another bock Cerro Areno. A company affiliated to American Energy Partners would take up to a 50 percent stake in both blocks.

    McClendon co-founded Chesapeake Energy in 1989 and turned it into a top U.S. gas producer. He resigned from the company in 2013 following a corporate governance crisis.

    McClendon went on to form AEP, whose financial backers have included Houston-based private equity firm Energy and Minerals Group.

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    Cheniere delays first Sabine Pass LNG export

    Cheniere Energy has delayed the first export of liquefied natural gas from its Sabine Pass plant by about one month until late February or early March, the company announced Thursday.

    The shipment, which was originally secluded to depart near the end of January, is still slated to be the first cargo of liquefied gas to sail from the continental United States.

    In a statement disclosing the delay Thursday, the company cited “instrumentation issues” discovered during the final phases of plant commissioning and said it will work to fix them during the next few weeks.

    “With construction of Train 1 finished, we remain well ahead of the guaranteed contractual schedule with Bechtel and anticipate no issues in meeting all contractual targets and guaranteed completion date,” said Neal Shear, interim president and CEO of Cheniere.
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    Hedging its bets, Pioneer shines in struggling U.S. oil patch

    During the U.S. shale boom, fortune favored the bold drillers that discovered and pumped oil fastest. Today the winners are producers like Pioneer Natural Resources who best shielded themselves from tumbling prices.

    Using derivative transactions known as swaps and collars, the Texas-based firm locked in a minimum price for 85 percent of this year's production. As a result, it gets $60 per barrel for a large chunk of its output while many rivals are selling at the market price of around $30, often not even enough to cover the cost of drilling new wells.

    Pioneer shares, though down 23 percent since the start of 2015, outperform a broad S&P index of oil and gas producers energy sector whose value dropped 46 percent. The company also managed to sell $1.4 billion worth of new shares to investors this month - a rare feat in a market that has shut for most energy issuers.

    Its executives are not gloating over their winning hedging formula, but they are certainly sleeping better, chief operating officer Tim Dove says.

    Dove told Reuters Pioneer forged its strategy, which entails hedging production two or three years in advance, after the 2008-2009 oil market crash caught it virtually unprotected. Battling for survival, the company idled 97 percent of its drilling rigs and its executives did not want to go through such "draconian cuts" ever again, he said.

    "If we're going to protect ourselves, we're going to protect heavily," Dove said, describing the company's philosophy.

    Now, with crude prices down by 70 percent since mid-2014, that strategy is paying off.

    A Reuters analysis of late 2015 filings by the 30 largest U.S. oil firms showed Pioneer had 60 million barrels of oil hedged through 2017, nearly twice as much as any other major U.S. shale producer. (

    That could bring Pioneer a windfall of more than $730 million this year if oil prices stayed near current 12-year lows, according to a Reuters analysis of company data.

    Tim Rezvan, energy analyst with Sterne Agee CRT, estimates that while Pioneer could get 23 percent of its revenue from oil and gas hedging this year, the majority of drillers have little or no output with price guarantees in 2016.


    Shale producers face a moment of reckoning after a decade-long fracking boom nearly doubled U.S. oil output and turned the United States into the world's leading natural gas producer.

    With costs for new drilling in some U.S. shale areas as high as $50 a barrel, the price rout has already triggered several bankruptcies, and tightened credit for those that remain active.

    For Pioneer or its smaller rival Newfield Exploration that inspired its hedging program, locking in prices for the bulk of their future production has become a part of their annual business planning.

    Newfield Chief Financial Officer Larry Massaro told Reuters hedging has been a strategic pillar for more than a decade for the Texas-based producer. It has a team that meets as often as daily to review its positions.

    In global markets, Mexican state oil giant Pemex stands out as an adept hedger, having locked in a $49 price per barrel for 212 million barrels of planned oil exports this year.

    But for many other oil producers to hedge or not to hedge is a daunting tactical choice.

    During the long spells of $100 plus oil between 2009-2014 many drillers were reluctant to fix their prices as it meant foregoing considerable potential gains if prices moved higher.

    When prices started to fall in 2014, producers faced another dilemma - buy protection against a further decline and risk losing out if there is a bounce or double down on a quick price recovery, leaving themselves fully exposed to a further slump.

    That is what happened to Continental Resources. Its CEO Harold Hamm announced in November 2014 that it had cashed all of its hedges, pocketing $433 million, to "fully participate in what we anticipate will be an oil price recovery."

    Analysts estimate the fateful decision has cost Continental more than $1 billion by now.

    Some hedge funds and oil consumers, such as airlines, have also lost money by ending up on the wrong side of hedging bets.

    In contrast, Pioneer's hedging has saved it around $1.6 billion since 2014, Dove estimated.

    It has also helped Pioneer plan to lift output by as much as 20 percent annually through 2018 even as the U.S. government expects national production to fall 9 percent over the next two years.

    "We're one of the few companies that is out there doing a lot of drilling," Dove said.

    Pioneer, which ranks among the top 10 U.S. oil and gas producers by market value, pumps around 106,000 barrels of oil per day and is one of the largest players in the low-cost Permian basin that straddles Texas and New Mexico.

    $50 HANDLE

    Yet even the most comprehensive hedging program cannot offer a blanket protection against the downturn. Earlier this month, Pioneer said it planned to write down as much as $1 billion in South Texas Eagle Ford shale assets due to falling oil prices.

    In racing to drill more wells, Pioneer also risks losses if crude prices stay low for longer or crater to the $20 per barrel level that some major banks have warned about.

    The latest slide also makes it impossible for Pioneer and other producers to lock in attractive prices for much of their output in 2017 and beyond as options markets now offer swaps for less than $42 on 2017 U.S. benchmark crude.

    Newfield is partially hedged into 2017, but it allowed positions representing 5 million barrels to expire recently and has not yet replaced them.

    Pioneer locked in prices for about 20 percent of 2017 production when last June 2017 oil futures briefly rose to around $55 a barrel, Dove said, but has done few transactions since then. "We would probably want it to at least have a five handle," Dove said, referring to prices in the $50-60 a barrel range.

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    Antero Resources 4Q15 Update: NatGas Sales Averaged $4.40/Mcf

    Yesterday Antero Resources, one of the biggest drillers in the Marcellus/Utica, filed their fourth quarter 2015 operational update.

    As in the past they did not disclose their financials–they wait a few more weeks to disclose those numbers. However, as in the past, the operational update is full of great information.

    Of chief importance (for us) is how much they sell their natural gas for. Because they have such a great hedging program–locking in future sales at a given price–Antero sold their gas for an average of $4.40 per thousand cubic feet (Mcf) during 4Q15–which is an average of $2.13 MORE than gas sold for at the benchmark Henry Hub! Astonishing. Companies can make money selling gas at those prices.

    Antero reports that although 4Q15 production volumes were 18% higher than 4Q14, the volume was down 1% from the previous quarter, 3Q15. Why? Antero is selectively shutting in production at some locations so they don’t have to sell it at depressed prices at the Dominion South and TETCO M2 trading points. Smart.

    During 4Q15 Antero drilled and brought online 14 Marcellus wells and 16 Utica wells.

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    Alternative Energy

    Vattenfall aims to build subsidy free offshore wind farms by 2025

    Vattenfall expects to be able to build offshore wind power projects without subsidies by 2025, according to a senior company official.

    The Swedish power giant said it plans to increased its portfolio to 4 gigawatts by 2020 from the current installed 1.8 GW, and further to 7 GW by 2025.

    Michael Simmelsgaard, head of Vattenfall’s strategic projects in wind expected it could build offshore wind power without subsidy by 2025, depending on the projects,”

    Vattenfall is trying to sell its polluting lignite or brown coal mines and power plants in eastern Germany.

    Last year, Vattenfall won a tender to build the 400-megawatt Horns Rev 3 wind park off Denmark, which is expected to produce the world’s cheapest offshore wind energy.

    The UK government announced last year that it would end onshore wind subsidies – known as the renewables obligation – from April 2016, but subsidies for offshore wind are to remain.

    Offshore wind is one of the most expensive renewable energy technologies in Britain, because manufacturing and maintaining turbines strong enough to withstand marine environments is costly.

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    Germany's K+S explores Morton Salt flotation - paper

    German salt and potash miner K+S is discussing internally a potential listing of its U.S. salt division Morton Salt to bolster its share price and discourage unwanted takeover approaches, a German newspaper reported on Thursday.

    The fertiliser mining group last year fended off a takeover approach by Potash Corp of Saskatchewan, arguing the 41 euros a share offer undervalued its salt business and its Canadian potash mine construction project.

    Selling some shares in a separately listed Morton Salt could highlight the unit's market value and bolster the group's share price, but considerations are at an initial stage, daily Frankfurter Allgemeine Zeitung cited company sources as saying.

    It added there were conflicting views about the matter among senior managers.
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    Base Metals

    Chile's Codelco implements cost-cutting measures to confront copper slide

    The chief executive of world No.1 copper producer Codelco said on Thursday that the Chilean state-owned miner will implement new cost-cutting measures to save $574 million in 2016 as the sector reels from a steep slump in metals prices.

    Pizarro said Codelco was aiming for cash costs of $1.255 per pound this year, versus the $1.386 in 2015.

    "Our commitment is to do everything possible to control our costs, and generate a reduction of 13.1 cents per pound (in cash costs)," said Pizarro.

    In recent months, Codelco has already laid off workers, scaled back the size and investment needed at some of its projects, and implemented other cost-cutting measures.

    Codelco, which hands over all of its profits to the state, is seen posting pre-tax profits of $703 million and producing 1.704 million tonnes of copper in 2016, said Pizarro.

    The company is seeking to implement an ambitious $22 billion multi-year investment plan to open new mine projects, like Ministro Hales, and revamp older ones, such as Chuquicamata, where output is declining.

    Copper hit 6-1/2-year lows on Thursday on concerns a spike lower in the oil price foreshadowed weaker global economic growth, but a recovery in Chinese shares helped limit losses.

    Chile's state copper commission Cochilco on Thursday forecast average copper prices of $2.15 per pound for 2016 and $2.20 per pound in 2017.

    "We believe that $1.98-$1.99 per pound is the point at which (copper prices) should rebound," said Pizarro.
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    China alumina refineries slash 9.1 mt/y capacity since Nov 2015 - Antaike

    Large alumina refineries in China have begun to slash output due to rock bottom prices of aluminium, which has 80% of the country's domestic alumina industry operating with negative cashflow, state-backed research house Antaike said on Friday. 

    Alumina, made from bauxite, is used to produce aluminium. "Domestic alumina refineries have halted 9.10-million tonnes per year capacity... around 2.30-million tonnes per year alumina capacity will be closed in the near term," Antaike said in a release. 

    Most of the product cut happened in the high-cost regions of Shandong and Henan, it said. China is the world's biggest producer of glut-stricken aluminium.

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    Steel, Iron Ore and Coal

    China Harbin resolute in battling pollution from coal use

    Heavily polluted Harbin, the capital city of Northeast China's Heilongjiang province, was determined to tighten control over pollution from the burning of coal, according to a draft regulation issued by the municipal government several days ago.

    The city will cap total coal consumption in the future, and endeavor to reduce the share of coal in its energy mix while raising that of clean energy sources, said the draft.

    If a lower-level government misses the target of coal consumption control, it will face restrictions in obtaining approval for new coal consumption projects.

    Companies ranging from producers to end users should strictly implement national and provincial quality standards. Those providing transport, storage and other conveniences to companies breaching relevant regulations will face fines up to 50,000 yuan ($7,621).

    And coal companies should deal with coal dust in a closed environment.

    As the heating season continues amid poor meteorological conditions, Harbin has been frequently shrouded in heavy smog with air quality further deteriorating. Lingering smog occasionally forces coal-burning plants to reduce production, construction sites to suspend operation, and students to stay indoors.

    Harbin aims to see a negative growth in total coal consumption by 2017, the provincial environmental protection bureau said last December.
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    Obama administration to announce remake of coal program, freeze leases

    The Obama administration is due on Friday to announce an overhaul of how the United States manages coal development on federal land, and freeze new coal mining, according to government and conservationist sources, in a further move to confront climate change.

    Interior Secretary Sally Jewell is expected to make the announcement at midday Friday from New Mexico, one of five western states with tens of thousands of acres under lease.

    Democratic President Barack Obama in his State of the Union address on Tuesday said he would "change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet."

    The new plan will require federal officials, when weighing land use decisions, to consider how burning coal could worsen climate change, said sources familiar with the plans.

    It will also include moratorium on coal leases, said sources familiar with the effort, as the government works on longer-term structural reforms to the coal program.

    The overhaul also will aim to maximize returns for taxpayers by updating royalty rates when mining companies pull coal from federal land, said the sources.

    Interior Department spokesperson declined to give details about the Friday announcement.

    Environmentalists have urged the White House to freeze new coal leases on federal land until it accounts for how that fossil fuel development contributes to climate change.

    Coal leases are often awarded without a competitive bidding process, frequently going to a single bidder, and officials can undervalue the fuel heading to market, the nonpartisan Government Accountability Office has concluded.

    "Public lands should be developed in the public interest but taxpayers have been short-changed for decades," said Theo Spencer of the Natural Resources Defense Council, an environmental group.

    The Energy Information Administration says roughly 41 percent of U.S. coal production occurs on federal land, primarily in Wyoming.

    The coal industry had been battered in recent years by competition from cheap natural gas and clean-air regulations that have raised costs for burning the black rock.

    This week, Arch Coal Inc, one of the nation's largest coal companies, filed for bankruptcy - the latest mining company to seek protection from creditors in the current downturn.

    The National Mining Association was not immediately available for comment.

    Some analysts said that market conditions have dampened demand for new mining.

    "Over the last two years a number of coal leases were bid out by the Bureau of Land Management and no bids were received, reflecting the fact that there are no market incentives to go forward with new mining," said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis.

    But for some environmental campaigners, the expected announcement bolsters their argument that all fossil fuels must be kept in the ground to combat climate change.

    “The only safe place for coal in the 21st century is deep underground - these reforms will help keep more of it there,” said Bill McKibben, co-founder of activist group
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