Mark Latham Commodity Equity Intelligence Service

Tuesday 26th April 2016
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Commodity Intelligence-Quarterly.

Possibly one of the most difficult quarterlies we've written!

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Commodity Intelligence q2 2016 (2).pdf
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Key Elements of Saudi Arabia's Blueprint for Life Post Oil

Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman unveiled his “Saudi Vision 2030” to reduce the kingdom’s reliance on oil.

The blueprint, approved by King Salman, includes plans to sell less than 5 percent of Saudi Arabian Oil Co., or Aramco, the creation of the world’s largest sovereign wealth fund and raising non-oil revenue.

Here is a guide to the main elements of the plan, announced on Monday in Riyadh and during Prince Mohammed’s interview with Saudi-owned Arabiya television. The prince had disclosed some of the proposals in two interviews with Bloomberg News.

Aramco IPO:

* While Aramco’s valuation hasn’t been completed, the company is expected to be worth more than $2 trillion, the prince said, making the planned initial public offering the world’s biggest.

* “Aramco’s IPO would have several benefits, the most important of which is transparency,” he said. “Aramco would have to announce its earnings every quarter. It will be observed by all Saudi banks, all analysts and Saudi thinkers as well as all international banks and think tanks. You’ll have great supervision overnight.”

Public Investment Fund:

* Saudi Arabia will create the world’s largest sovereign wealth fund to hold state assets, including Aramco and real-estate, said the prince. Land will be developed and companies owning these projects listed. The fund will be headquartered in King Abdullah Financial District.

The $2 Trillion Project to Get Saudi Arabia’s Economy Off Oil
Saudi $10 Billion Financial District Is Missing One Thing: Banks
Biggest Ever Saudi Overhaul Targets $100 Billion of Revenue

Military Industry:

* Saudi Arabia plans to set up a holding company by the end of next year for defense industries as it seeks to meet more of its military needs domestically. The kingdom will also restructure several contracts and tackle wasteful spending in the defense industry.

* “Our aim is to localize over 50 percent of military equipment spending. We have already begun developing less complex industries such as those providing spare parts, armored vehicles and basic ammunition,” according to the vision’s document. “We will expand this initiative to higher value and more complex equipment such as military aircraft.”

* “We have a problem with military spending,” the prince told Al Arabiya. “When I enter a Saudi military base, the floor is tiled with marble, the walls are decorated and the finishing is five stars. I enter a base in the U.S., you can see the pipes in the ceiling, the floor is bare, no marble and no carpets. It’s made of cement. Practical.”

Non-oil Economy

* The kingdom aims to generate 35 percent of the economy from small and medium enterprises, up from 20 percent, according to the plan. It’s also plans to raise non-oil revenue to 1 trillion riyals ($266.6 billion) from 163 billion riyals.

* The kingdom also wants to reduce unemployment among Saudis to 7 percent from 11.6 percent, according to the vision document.

* Plan includes allowing expatriates to own property in selected areas, and simplifying visa processes, according to the official Saudi Press Agency.

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Is China Stimulus now lifting Asia too?

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China state-owned nonferrous metals firm misses payment on another bond

Guangxi Nonferrous Metals Group Co Ltd, the unlisted metals producer which defaulted on a bond in February, has missed a payment on a 500 million yuan ($77 million) private placement note which matured over the weekend.

The firm, which is owned by the Guangxi provincial government, posted a notice informing investors of the missed payment to one of China's main bond clearinghouses on Monday.

The note was a three-year issue with a 5.56 percent coupon rated BB, maturing on April 23.

The metals producer cited in the notice "consecutive losses and the fact that it has already entered bankruptcy reorganisation procedures" as reasons for the missed payment.

Steel and nonferrous metals smelters have been among the hardest hit of China's industrial firms following an extended real estate downturn, which bottomed out in the second half of 2015 bolstered by government support measures.

Several smelters have encountered repayment difficulties over the past 18 months, and analysts expect more defaults ahead as economic growth cools and amid continuing industry consolidation.

Chinese bond yields, particularly low-rated issues, have risen sharply over the past month as investors priced in weakening corporate creditworthiness and a more cautious central bank.
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Malaysia's 1MDB says in default after missed bond payment

! Malaysia Development Bhd (1MDB) said on Tuesday it did not pay a $50.3 million coupon on a $1.75 billion bond following a stand-off with Abu Dhabi sovereign fund IPIC, triggering cross defaults on some of its other bonds.

The troubled Malaysian state fund, which is at the centre of a multi-billion-dollar graft scandal, said in a statement it would meet all its other liabilities.

The missed payment increases the probability the government will have to assume 1MDB's obligations, said Christian de Guzman, a senior analyst at Moody's Investors Service.

"It brings us one step closer to crystallisation of contingent liabilities on the government's balance sheet," he told Reuters.

S&P Associate Director YeeFarn Phua said the default may trigger an "acceleration event on the other bonds of 1MDB", meaning lenders may demand an early bond or loan repayment.

The cross default, the continuing stand-off with IPIC and a widening investigation across at least six countries into possible corruption and money-laundering connected to the fund are starting to affect the markets.

The ringgit fell 1 percent to 3.94 to the dollar by mid-afternoon on Tuesday, mostly on the default news, traders said. Malaysia's Sovereign Credit Default Swap -- a type of insurance that protects against a country defaulting or restructuring its debt -- rose 4.5 basis points to 166/171 bps.

The Malaysian fund said the missed interest payment caused a cross-default on its 5 billion ringgit ($1.28 billion) sukuk (Islamic bond) due in 2039 and a 2.4 billion ringgit sukuk due between 2021 and 2024.

1MDB President Arul Kanda Kandasamy said in an interview with Reuters it was keeping its options open on another coupon payment coming up on May 11 "and will deal with the payment closer to time".

1MDB is locked in a dispute over its obligations to International Petroleum Investment Co (IPIC) under a debt restructuring agreement reached last June.

Under that deal, IPIC agreed to loan $1 billion to 1MDB and assume payments on $3.5 billion of 1MDB debt. It also forgave an undisclosed amount of debt that 1MDB owed to IPIC, in exchange for assets which have not been named.

IPIC said 1MDB was in default of that agreement, after the Malaysian fund failed to repay the loan, now at $1.1 billion with interest.

IPIC said on Monday it would make the interest payment on a $1.75 billion bond that was due on Monday but only after 1MDB defaulted. IPIC guaranteed the bond.

Leong Lin Jing, an investment manager at Aberdeen Asset Management Asia Ltd, said he believes the Malaysian government will "try to contain the situation as much as they can to avoid any doubts to Malaysian government bonds".

He said "investors are quite sanguine because everyone has priced in how negative these headlines are".
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Oil and Gas

Saudi Spot Crude Deal in China Seen by Citi as `Dramatic' Shift

Saudi Arabia made its first sale of oil to a small, independent Chinese refiner. What’s more significant to markets is that the world’s biggest crude exporter broke from its usual practice of selling via long-term contracts, according to Citigroup Inc.

The world’s biggest crude exporter sold a spot cargo to teapot refiner Shandong Chambroad, said people with knowledge of the deal who asked not to be identified as the information is confidential. The 730,000-barrel shipment is expected to load in June from state-owned Saudi Arabian Oil Co.’s leased storage tank in Japan.

“News that Saudi Arabia is selling a cargo on the spot market to Asia may mark the turning of a dramatic new chapter in the Saudi playbook,” the bank’s analysts including New York-based Ed Morse said in a April 25 report. “What is unusual is that the sale is spot rather than the initiation of a new term contract. Spot sales are about the only way the Kingdom can gain new market share in a world in which chunky buyers are interested in securing incremental purchases via spot rather than term arrangements.”

Aramco will complete the expansion of its Shaybah oilfield by the end of May to maintain the level of its total production capacity, two people with knowledge of the plan said this week. The potential for agreement between major oil producers to cap output helped prices rally from a 12-year low in January this year.

Saudi Arabia is hamstrung by its restrictive long-term oil contracts at a time when competitors including Iran are extending larger amounts of open credit to buyers for longer periods, according to Citigroup.

Saudi Aramco has long shunned spot sales of its oil, a strategy that worked well in maintaining the bulk of its 7 million barrels a day of sales, said the bank’s analysts. With the Shandong Chambroad deal, it should “lay any doubts to rest” about the company’s ability to use its logistical system and spot sales to boost market share, they said.

“It remains to be seen whether in the new oil environment, in an effort to gain greater control over market share and market pricing, the Kingdom will move more aggressively to allow resale of its crude and truly re-establish Saudi Light crude oil as the global benchmark,” said Citigroup.
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Saudi Arabia's Break-Even Oil Price Plunges as Spending Drops

Saudi Arabia will see the biggest drop this year in the oil price needed to balance its budget as Riyadh curbs spending amid the crude-market rout.

The kingdom’s fiscal break-even will fall to $66.70 a barrel from $94.80 in 2015, the International Monetary Fund said on Monday. The 30 percent drop is the steepest among a group of Middle East and North African OPEC members reviewed by the IMF.

While that break-even remains above current market prices, the trend shows Saudi Arabia is adjusting to the slump in crude triggered by its November 2014 decision to push the Organization of Petroleum Exporting Countries to change strategy and fight for market share. The IMF figures suggest the world’s biggest oil exporter can hold firm, after its insistence that Iran join an output freeze derailed talks between 16 producer nations in Doha on April 17.

Saudi Arabia unveiled a plan on Monday for the post-oil era as it adjusts to the slump in crude. That blueprint, dubbed the “Vision for the Kingdom of Saudi Arabia,” seeks to cut reliance on oil exports and will encompass economic, social and other programs, its architect Deputy Crown Prince Mohammed bin Salman told Bloomberg News this month.

Saudi Arabia’s net foreign assets fell by $115 billion last year to plug a budget deficit that reached about 15 percent of economic output. After decades of talk of diversification, more than 70 percent of Saudi government revenue came from oil in 2015. In response, the government has already announced cuts in utility and gasoline subsidies in December.

Five out of eight OPEC countries assessed by the IMF will see theirfiscal break-even oil price fall this year.

Iran -- Saudi Arabia’s arch rival in the Middle East -- will see the second-biggest drop, by 27 percent to $61.50 a barrel. Kuwait is the best-positioned to balance its budget, needing $52.10 a barrel.

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China Stockpiling Oil At Highest Rate In Over A Decade

China might be in the midst of another round of stockpiling, stepping up crude oil imports to fill its strategic petroleum reserve (SPR).

The slowdown in oil demand in China is one of the chief concerns regarding the state of oversupply in global oil markets. Excess production has driven down prices, but soft demand in China over the past year or so has led to a protracted recovery.

After a period of softness, oil imports could be rising once again. Bloomberg reports that the number of oil supertankers docking at Chinese ports is at a 16-month high. And there are 83 supertankers currently on their way to China, with a capacity of 166 million barrels of crude, the highest number in four months.

In the first quarter of this year China diverted about 787,000 barrels per day into its strategic stockpile, the highest rate since Bloomberg has been tracking the data in 2004. Overall, as of March, China was importing around 7.7 million barrels per day.

The activity makes sense – China needs to fill up its strategic reserve and has had several facilities come online last year, with more storage sites under construction. The timing is fortuitous since China can fill its storage reserves with oil at incredibly low prices.

Another source of additional demand comes from a policy change in the downstream sector. The central government recently loosened the rules on oil imports, allowing smaller refineries to import more crude oil. These so-called “teapot refineries,” with capacities of around 20,000 to 100,000 barrels of production per day, struggled under the old restrictions, producing at only 30 to 40 percent of capacity because of an inability to import oil. That has changed, and domestic refining production is set to rise, and with it, so are imports.

This could provide a bit of a lift to crude oil markets, as China’s additional SPR demand and higher refinery utilization could take a bite out of excess supply.

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Iraq's southern oil exports hit record high so far in April

Oil exports from southern Iraq have reached a record monthly rate so far in April as OPEC's second-largest producer resumes the supply growth that has added downward pressure on prices.

Baghdad had given verbal support to an initiative by OPEC and outside producers to freeze output. But they failed to reach a deal at an April 17 meeting, and rising exports from Iraq as well as other nations including Russia underline the challenges to any further attempt at curbing supply.

Iraq's southern exports in the first 24 days of April averaged 3.43 million barrels per day (bpd), according to an industry source and loading data tracked by Reuters.

If sustained, that would exceed the record of 3.37 million bpd reached in November.

The increase is in line with figures given earlier in April by an Iraqi official. According to oil trading sources, it partly reflects an easing of delays in the loading of Basra Heavy crude cargoes.

"They finally managed to catch up on the delays," the industry source said. "I don't believe anyone is really doing anything about that," the source added of the effort to freeze output.

The south pumps most of Iraq's oil. Iraq also exports smaller amounts of crude from the north by pipeline to Turkey.

Northern shipments of crude from fields in the semi-autonomous Kurdistan region have risen to 420,000 bpd so far in April, according to loading data, from 327,000 bpd in March.

The shipments have fallen from January's level of about 600,000 bpd due to pipeline sabotage and a decision by the central government in Baghdad to suspend pumping Kirkuk crude into the line.

Given the drop in northern exports from January's level, total Iraqi exports this month of 3.85 million bpd are short of a record high.

Iraq was the fastest source of supply growth in the Organization of the Petroleum Exporting Countries last year and boosted production by more than 500,000 bpd, despite spending cuts by companies working at the southern fields and conflict with Islamic State militants.

Iraqi officials and oil analysts expect further growth in the country's exports this year, but at a slower rate than 2015.

I expect "a clear slowdown from strong growth last year", Commerzbank analyst Carsten Fritsch said. "But no voluntary freeze or even cut."
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BP Profit Falls 80% as Oil Prices Drop; Result Beats Estimates

BP Plc reported a 80 percent decline in first-quarter earnings as crude oil prices continued to slide and a mild winter weighed on refining margins.

Profit adjusted for one-time items and inventory changes fell to $532 million from $2.6 billion a year earlier, the London-based company said in a statement Tuesday. Analysts had expected a loss of $244.9 million, according to the average of 12 estimates compiled by Bloomberg.

The average price of Brent crude, the global benchmark, slumped to the lowest in almost 12 years in the quarter. That hampered efforts by Chief Executive Officer Bob Dudley to boost earnings even after he trimmed billions of dollars of spending, cut thousands of jobs and deferred projects to weather the market rout. BP’s quarterly results, the first among the world’s oil majors, are likely to be an indication of how the others will perform.

Brent’s decline below $28 a barrel in January made crude cheaper for BP’s refineries, yet weak fuel demand during a mild winter in Europe and the U.S. drove down refining margins. Global processing margins dropped to $10.50 a barrel in the first quarter, 31 percent lower than a year earlier and 20 percent lower than the preceding quarter, according to data on BP’s website.

Oil has rallied since then, rising above $45 as U.S. crude production slows and major producers including Saudi Arabia study a possible cap on output. The increase in prices has pushed up BP’s shares 1.8 percent this year after a 14 percent decline in 2015.

The company started cutting costs and selling assets following the 2010 oil spill in the Gulf of Mexico. In October, it lowered its 2015 capital-spending forecast to about $19 billion after investing about $23 billion in 2014. BP said then it expects to spend $17 billion to $19 billion a year through 2017.

Total SA is scheduled to publish first-quarter earnings on Wednesday. Exxon Mobil Corp. and Chevron Corp. will announce results on April 29 and Royal Dutch Shell Plc on May 4.

BP (BP.L) said on Tuesday it could cut capital spending further after reporting an 80 percent drop in profits in the first quarter of the year, when oil prices touched a near 13-year low.

Chief Executive Officer Bob Dudley nevertheless said he expected crude prices to recover towards the end of the year as producers halt work on fields and fuel demand remains robust.

"Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year," Dudley said in the results statement.

Faced with the worst downturn in the oil sector in at least three decades, BP reduced its capital spending three times in 2015 to $19 billion, slashed nearly 10 percent of its around 80,000 workforce and sharply lowered costs.

BP slipped to its biggest annual loss last year as a result of lower oil prices, costs related to the settlement of a deadly 2010 Gulf of Mexico oil spill and huge writedowns.

The company said it expected its 2016 capital expenditure to reach $17 billion, at the lower end of its previous guidance, and that "in the event of continued low oil prices" it saw further flexibility to lower spending to $15-$17 billion.

It also expected 2017 cash costs to be $7 billion lower than for 2014.

BP's first quarter underlying replacement cost profit, its definition of net income, was $532 million, down from more than $2.6 billion a year earlier but beating forecasts for a loss of $140 million, according to consensus figures provided by BP.

Its refining and trading segment, known as downstream, once again came to the rescue with a quarterly profit of $1.8 billion, offsetting a $747 million loss in oil and gas production.

BP maintained its dividend at 10 cents per ordinary share.
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ONGC to drill 17 shale wells

ONGC to drill 17 shale wells

ONGC Limited is planning to explore as many as 17 shale gas and oil wells in both east and west coasts with an investment of around Rs7bn. - 

See more at:
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Kuwait Emerging From Strike With Plans to Have Record Oil Output

Kuwait plans to boost oil production to more than 3 million barrels a day within months, doubling output from where it stood during last week’s oil-worker strike.

Output will climb to 3.15 million barrels a day by June, Haitham Al-Ghais, market research manager at government-owned Kuwait Petroleum Corp., said Monday in an interview in Abu Dhabi. That would be the OPEC member’s highest level of production ever, according to data compiled by Bloomberg.

A three-day strike by Kuwaiti oil workers sent crude production tumbling to 1.5 million barrels a day last week. The Oil & Petrochemical Industries Workers Confederation agreed to end the walkout after the government refused to negotiate while labor was off the job. Kuwait produced 3 million barrels a day before the strike, data compiled by Bloomberg show, making it the fourth-largest member of the Organization of Petroleum Exporting Countries.

“The strike is now done and production is back to normal,” Al-Ghais said. “We should reach our target of 3.15 million barrels in June,” he said, referring to both output and production capacity.

Kuwait is targeting capacity of 4 million barrels a day by 2020, including 350,000 barrels a day from oil fields it shares with Saudi Arabia, he said.
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Ocean Rig snaps up drillship at auction for $65M

Ocean Rig UDW Inc., a global provider of offshore deepwater drilling services, has acquired the drillship Cerrado for $65 million.

Ocean Rig’s subsidiary bought the 6th generation ultra-deepwater drillship Cerrado through an auction for a purchase price of $65 million. Ocean Rig said on Monday the purchase would be funded with available cash on hand.

The drillship was previously owned by Schahin Oil and Gas that filed for bankruptcy protection in April last year as it was unable to pay its debts.

The drillship Cerrado was under a contract with Brazilian state-owned oil company Petrobras, and the Brazilian company drilled the first exploration well in the Libra area, offshore Brazil, with this drillship. However, Petrobras cancelled its leases for five offshore oil drilling and production vessels, including Cerrado, with Schahin in May 2015.

The drillship was built at Samsung Heavy Industries in 2011 to similar design specifications as Ocean Rig’s existing 6th generation drillships built at Samsung, and will be renamed the Ocean Rig Paros upon its delivery to Ocean Rig.

Another subsidiary of the company has been acting as the manager of the drillship for its previous owners. The transaction is expected to close upon completion of the judicial auction procedure.

I had to read the news twice to make sure I was not mistaken? Recently, I commented on another UDW Drillship sold through an auction, as well, for $210 million.
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New estimate puts Israel's Leviathan gas resources far lower at 16.6 Tcf: sources

An updated assessment of the Leviathan offshore gas field puts the Israeli offshore field's estimated resources at 16.6 trillion cubic feet (about 453 billion cubic meters), 24% lower than a previous assessment, according to energy industry sources.

The latest estimate, by Netherlands-based SGS, was prepared at the request of Israel's Energy and Water Resources Ministry.

The previous estimate, prepared for Noble Energy Inc and its Israeli partners Delek Group and Ratio Oil Exploration in July 2014 by Netherland, Sewell & Associates, put Leviathan's resources at 21.9 Tcf.

The ministry would only confirm that it had received an estimate and that it was conducting another assessment by a second international consulting company.

The ministry said in a statement that once all of the tests are concluded it would publish the figures and determine its policy regarding development of the offshore field.

The energy industry sources said that the lower estimate, if correct, could reduce the volume of gas that could be exported from Leviathan, the largest discovery offshore Israel.

"Exports would still be feasible to Egypt, Turkey and even Europe though at reduced volumes and a delayed timetable," said one source.

However, the Leviathan partners said in a statement that there has been no change in their estimate of gas resources in the field.

The partners have said they hope to begin commercial production at the end of 2019, though independent experts have said production is not likely before 2020 at the very earliest.

This is expected to depend on a final resolution of the legal issues connected to the government's gas framework.

In 2012 the Israeli government decided that it would retain 450 billion cubic meters of gas for domestic use through 2040 and 500 Bcm for exports.
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Genscape Report Of Big Cushing Build

Genscape reported a 1.5 million barrel inventory build at Cushing (considerably more than the 1.2mm build expected).

That would be the biggest inventory build since mid-December and follows 4 of the last 5 weeks with draws...
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DUC's and Refrac's: 8000 wells at 400% IRR's?

Speaking on April 21 during Hart Energy’s Refracturing: Cracking the Code breakfast seminar, experts from Baker Hughes, Weatherford, Fracknowledge and Eventure Global Technology agreed that refracturing has benefits. Potential also exists to learn more about which methods work best for certain reservoir conditions by testing concepts on some of the 8,000 or so drilled but uncompleted wells (DUCs) across North America.

However, low commodity prices have put refracturing programs in the Haynesville and Barnett on hold.

RELATED: Operators Postpone Dry Gas Basin Refracks

“We’re in a pricing environment where there is yet one more round of layoffs. Who’s going to go take risks like that?” asked Tim Leshchyshyn, president of Fracknowledge. “But if you actually look at the statistics, it’s amazing.”

Refracs account for less than 25% of the original drilling and completion costs, according to Leshchyshyn. Given oil is about half of what the industry wants it to be to thrive, there is inherently a 100% return on investment—with a quarter of the cost at one half of the return, he added. But, “The return on investment is sometimes 400%. This is above the incremental reserves. This is above net present values.”

The talk about refracturing opportunities and challenges came as companies continued to seek cost-efficiencies during a downturn brought on by a supply-demand imbalance. Refracturing instead of drilling could be among the options, considering costs associated with refracturing a well are about $1 million compared to between $6 million or $7 million to drill a new well.

What’s New? What Works?

Harsh Chowdhary, engineering manager for Eventure Global Technology, referred to a 2009 refrac job involving three wells from the same pad. Two wells used a chemical diverter and one used expandable lining. “When the refrac was done, the mechanical isolation well showed 40% higher production rates than the chemical diverter,” he said. “It is more costly than the other options, but I think experimentation and R&D is going to drive the technology.”

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Pioneer Natural Boosts Full-Year Output Target on Shale Gushers

Pioneer Natural Resources Co. lifted its 2016 production growth target without increasing spending because wells drilled in a West Texas shale field are pumping more crude than expected.

The company said output will grow more than 12 percent this year, up from an earlier estimate of 10 percent. Pioneer will hold its full-year capital budget at $2 billion -- a 9.1 percent reduction from 2015 -- and pay for it with cash flow from oil and gas sales, money it already has in the bank and money received from an earlier property auction, according to a Pioneer release on Monday. Output from shale zones known collectively as the Spraberry/Wolfcamp probably will expand by 33 percent this year, more than offseting declines in other fields, Pioneer said.

The company’s first-quarter net loss widened to $267 million, or $1.65 a share, from a loss of $78 million, or 52 cents, a year earlier, according to the statement. Excluding one-time items, the per-share loss was 64 cents, compared with the average estimate of a 76-cent loss among 40 analysts in a Bloomberg survey.

During the quarter, Pioneer increased its hedging for 2017 to about 50 percent of its oil production from 20 percent, and boosted its natural gas hedges to about 25 percent of 2017 output from zero.

Pioneer released the statement after the close of regular U.S. equity markets. The shares rose 2.9 percent to $158 at 4:48 p.m. in New York., extending Pioneer’s year-to-date gain to 26 percent. That’s more than double the average advance for energy companies in the Standard & Poor’s 500 Index.

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Swift Energy emerges from bankruptcy

Oil producer Swift Energy Co said on Monday it emerged from Chapter 11 bankruptcy, less than four months after filing for creditor protection.

Swift filed for bankruptcy on Dec. 31, joining about 40 other energy companies that entered bankruptcy in 2015 as oil prices plunged.

The company entered bankruptcy with an agreement with more than 60 percent of the holders of its unsecured bonds.

Swift had said it planned to exchange those bonds for 96 percent of its stock when it exited bankruptcy. Its shareholders were to get 4 percent of its stock.

The company said it has completed its financial reorganization, which was confirmed by the U.S. Bankruptcy Court for the District of Delaware on March 31.

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Contract driller Nabors posts quarterly loss as oil tumbles

Contract driller Nabors Industries Ltd posted a quarterly loss, compared with a year-earlier profit, as oil producers used fewer rigs amid persistently low crude prices.

The company's shares fell 9 percent to $9.86 in after-market trading on Monday.

A more than 60 percent slide in oil prices since their 2014 peak has forced exploration and production companies to cut rig usage, hurting drillers like Nabors.

U.S. energy firms cut oil rigs for a fifth week in a row to the lowest level since November 2009, oil services company Baker Hughes Inc said on Friday.

Net loss attributable to Nabors was $398.3 million, or $1.41 per share, in the first quarter ended March 31, compared with a profit of $123.6 million, or 42 cents per share, a year earlier.

The company said net loss from continuing operations included impairments from its stake in C&J Energy Services Ltd and its share in that company's losses.

Nabors owns 53 percent of C&J Energy after selling its completion and production services business to the pressure pump operator in 2014.

Nabors said its average U.S. rig count fell to 54, matching its forecast of mid-50s.

Excluding items, Nabors reported a loss of 29 cents per share, smaller than analysts' average estimate of 34 cents, according to Thomson Reuters I/B/E/S.

Total revenue fell nearly 70 percent to $430.8 million.

Adjusted revenue of $597.9 million missed analysts' average estimate of $630.8 million, according to Thomson Reuters I/B/E/S.

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Canadian regulator approves Enbridge Line 3 with conditions

Canadian regulators on Monday recommended the federal government approve Enbridge Inc's plan to replace one of its major crude oil export pipelines, but also imposed 89 conditions on the project to enhance safety and environmental protection.

Calgary-based Enbridge plans to replace all segments of pipe on the 1,031 mile (1,659km) Line 3 between Hardisty, Alberta, and Superior, Wisconsin, by 2019, in what will be the company's largest-ever project. The cross-border endeavor will cost more than C$7.5 billion ($5.91 billion).

Monday's recommendation only applies to the Canadian section of the line. U.S. regulators are in the process of dealing with the southern leg.

In a statement Enbridge said it was pleased with the regulator's announcement and was in the process of reviewing the 89 conditions.

Despite being a cross-border project, Line 3 will not require a U.S. presidential permit, which ultimately scuppered TransCanada Corp's Keystone XL, because Enbridge is restoring the pipeline to its original capacity.

President Barack Obama rejected Keystone XL last November after a seven-year delay, and other proposed export pipelines from Alberta's oil sands to the Canadian east and west coasts are also facing additional regulatory scrutiny.

The Line 3 project will allow Enbridge to run the pipeline at maximum capacity of 760,000 barrels per day. Currently capacity is 390,000 bpd because of voluntary pressure restrictions.

Dr Robert Steedman, chief environmental officer at the National Energy Board, said a regulatory panel had concluded the project was in the public interest and unlikely to cause significant adverse environmental affects.

"The new pipeline will be built to modern standards and will operate with improved safety and reliability," he said.

The NEB's conditions also required Enbridge to continue consultation with landowners and aboriginal groups who live along the pipeline's route. Steedman said the NEB always imposed conditions when recommending projects and the 89 required of Line 3 were not unusually high.

Federal Natural Resources Minister Jim Carr said in a statement he would study the report and seek additional public input before making a decision "in fall 2016."

Enbridge ships more than 2 million bpd of crude exports to the United States, the bulk of Canada's total exports.

Chief Executive Al Monaco has previously said the project, which involves replacing existing 34-inch diameter pipe which 36-inch diameter high-strength steel pipe, would not boost total exports as the Enbridge system is in balance, meaning efforts to lift crude flow could cause bottlenecks.
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Enbridge's Gateway Rises From Dead as Trudeau Wavers on Tankers

Enbridge Inc.’s Northern Gateway pipeline may get a new lease on life as the Canadian government wavers on a planned tanker moratorium that was previously thought to spell the end for the project.

Officials are weighing what types of petroleum products may be exempt from any moratorium, and whether certain tankers could be allowed, according to people familiar with the matter, who spoke on condition of anonymity because the talks are private.

Prime Minister Justin Trudeau pledged in November to “formalize a moratorium on crude oil tanker traffic” on British Columbia’s northern coast. But cabinet ministers are noncommittal on its precise implications, while the officials declined to comment on Northern Gateway’s prospects.

“It’s a formalized moratorium and, when we have worked out exactly what that means, we’ll let you know,” Transport Minister Marc Garneau, who is responsible for implementing the measure, said in an interview this month. Asked in a separate interview whether the moratorium pledge means Gateway is dead, he said: “It’s premature to say anything.”

The country’s oil industry, constrained by its reliance on the U.S. as the main destination for crude exports, is seeking new markets. Delays and opposition to pipeline projects are hampering that effort, leading to bottlenecks and discounts in Canadian heavy oil, which trades about $14 a barrel lower than North American benchmark West Texas Intermediate.

The 1,177 kilometer (731 mile) Northern Gateway would carry diluted bitumen from Alberta’s oil sands through British Columbia for shipment to Asia. The pipeline, now expected to cost more than the initial C$6.5 billion ($5.1 billion) price tag, was first proposed about a decade ago.

Several federal government officials declined this month to say Northern Gateway is dead, or whether the moratorium will amount to a ban on tanker traffic altogether. Trudeau spokesman Cameron Ahmad acknowledged the prime minister’s earlier comments against the pipeline while declining to comment on whether his position remains the same.

“The government is currently conducting consultations and examining science and facts to ensure we protect Canadian coastlines,” Ahmad said.

Alberta Premier Rachel Notley has changed her skeptical stand on Northern Gateway after seeing progress on some of the project’s hurdles and speaking to people involved who are “optimistic” about the pipeline’s chances, said the premier’s spokeswoman Cheryl Oates.

The debate hinges on “what petroleum products will be captured by the moratorium,” said Kai Nagata of the Dogwood Initiative, an environmental group that opposes the pipeline. He added they were told to expect legislation on the moratorium this year. “It would be quite a stunning reversal for people in British Columbia were the government to walk back its promises of a formal tanker ban.”

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Moody's downgrades Canadian province of Alberta on rising debt

Moody's Investors Service stripped the Canadian province of Alberta of its Aaa credit rating on Monday, citing its worsening fiscal position and resulting rapid rise in debt.

The ratings agency downgraded the province's long-term rating to Aa1 from Aaa and maintained a negative outlook. Earlier this month, Dominion Bond Rating Service also downgraded the province after the provincial government forecast a budget deficit of C$10.4 billion ($8.20 billion) this fiscal year.
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Alternative Energy

Statoil enters German offshore wind market with E.ON in EUR1.2bn deal

Statoil will partner with E.ON as it enters the German offshore wind market with the EUR1.2billion Arkona project.

When operational the Arkona wind farm will provide renewable energy for up to 400,000 households in Germany, making it one of the largest ongoing offshore wind developments in Europe.

Eldar Sætre, Statoil’s chief executive said: “We are pleased to announce our decision to develop this significant offshore wind project together with E.ON.

“This investment is in line with our strategy to gradually complement our oil and gas portfolio with profitable renewable energy and other low-carbon solutions.”

Statoil is the second-largest supplier of natural gas in Germany and has been delivering gas from Norway through three direct pipelines for over 35 years.

The new windfarm adds a new dimension to the Norwegian-German energy partnership said Sætre.

Located in the Baltic Sea, the Arkona wind farm will be located 35 kilometres northeast of the Rügen Island and consist of 60 six-megawatt turbines.

E.ON’s Climate & Renewables chief executive Michael Lewis said: “This project offers ideal conditions for further reducing the costs of offshore wind and will take us a big step toward realizing our goal of making renewables truly competitive.”

Start of electricity production is expected in 2019. Once in service, the wind farm will create up to 50 permanent jobs for highly skilled staff in operations, administration, and maintenance as well as, indirectly, another 100 jobs for external service providers.

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DuPont raises full-year outlook, first-quarter results beat forecast

DuPont's first-quarter results beat Wall Street estimates and the chemicals and seed producer raised its full-year guidance as it sees lower currency impact than expected.

The company said its global cost savings and restructuring plan is on track and that it still expects savings of $730 million this year.

"Solid execution, local price and product mix gains, and higher corn area led to a strong start to the year for our Ag business," Chief Executive Ed Breen said.

The company, which plans to merge with Dow Chemical Co (DOW.N), now expects operating earnings of $3.05-$3.20 per share, up from $2.95-$3.10 per share it estimated earlier.

DuPont now expects the negative currency impact for the year to be about $0.20 per share, 10 cents lower than estimated earlier.

Net income attributable to the company rose nearly 19 percent to $1.23 billion, or $1.39 per share, in the first quarter.

On an operating basis, the company earned $1.26 per share.

Net sales fell 5.5 percent to $7.41 billion, but was above average analysts estimate of $7.19 billion, according to Thomson Reuters I/B/E/S.

DuPont and Dow Chemical agreed in December last year for a $130 billion all-stock merger, in a first step towards breaking up into three separate businesses.

Analysts have speculated that the deal will face intense regulatory scrutiny, especially over combining the two companies' agricultural businesses, though both Dow and DuPont executives have said that any asset sales required would likely be minor.

DuPont said last month that U.S. regulators needed more time to review materials related to its merger with Dow Chemical Co (DOW.N).

The company said it will hold a conference call at 0800 ET Tuesday to discuss the results, which were released earlier than expected.
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Precious Metals

Sibanye guides soaring earnings after quarterly operating profit rockets

Sibanye guides soaring earnings after quarterly operating profit rockets 

‘Proudly South African’ precious metals mining company Sibanye on Monday reported a 240% higher operating profit to R2.5-billion in the March quarter on a doubled-plus 38% margin. The flourishing JSE- and NYSE-listed company, headed by CEO Neal Froneman, said earnings a share for the six months to June 30 would be at least 150% – or 30c a share – higher than the 20c a share reported for the corresponding period in 2015. 

All-in sustaining costs (AISC) were 3% lower in rands at R454 282/kg and 28% lower in dollars at $895/oz, with the AISC margin increasing from a negative 2% to a positive 24% in the three months to March 31. Pronounced March-quarter safety regression, however, reflected the deaths of Moreruoa Mahao, Tanki Sebolai, Elliot Kenosi and Luis Massango. 

Net debt, excluding the Burnstone gold mining development on the South Rand, fell from R1 362-million to R591-million after a dividend payout of R916-million. Headline earnings a share for the six months were expected to be at least 158% – or 30c a share – higher than the 19c previously. Both increases were on rises in the 301%-higher March-quarter rand gold price, 

Sibanye said in a release to Creamer Media’s Mining Weekly Online. It added that normalised earnings a share were expected to increase by at least 500% from the 27c a share normalised earnings reported for the prior six months. March-quarter revenue increased by 50% to R6 736-million ($427-million) on higher gold output and a gold price that rose from R459 564/kg to R600 267/kg and from $1 182/oz to $1 222/oz. 

The Kloof gold mine near Westonaria produced a 31%-higher 114 400 oz (3 557 kg) mostly on improved underground yields. The Beatrix mine in the Free State produced a 26%-higher 73 000 oz (2 269 kg) and Cooke near Randfontein a 12%-higher 1 536 kg (49 300 oz), both on better underground yields and volumes. Driefontein's production was similar year-on-year at 124 100 oz (3 859 kg), with improved underground mining values offsetting lower mining volumes caused by a seismic event at the Hlanganani Five shaft and issues at Masakhane One shaft. 

Despite a March-quarter cost push, total cash cost remained similar to that of the March 2015 quarter at R385 117/kg and significantly lower at $759/oz owing to the weakening of the rand:dollar exchange rate. March-quarter capital expenditure (capex) increased by 3% to R739-million, mainly on upped underground development at the Burnstone project. 

The acquisition of Aquarius Platinum, which delisted, has been concluded while the acquisition of the Rustenburg platinum assets from Anglo American Platinum are still awaiting the Section 11 transfer of mineral rights by the Department of Mineral Resources, which has been with the department since February. Detailed financial and operating results are provided on a six monthly basis at the end of June and December each year.
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Base Metals

Nevsun, Reservoir merge to create new midtier base metals company

Dual-listed base metals miner Nevsun Resources has agreed to acquire TSX-listed Reservoir Minerals for about $365-million to create a new, diversified midtier base metals mining company. 

The new company would have a cash-producing operating asset in Bisha, Eritrea – a high-grade openpit copper-zinc mine, and 100% ownership of the upper zone of the Timok copper project in Serbia – a high-grade copper and gold development project.    The transaction would enable Nevsun and Reservoir shareholders to participate in the Bisha mine’s ongoing cash flow generation and to take advantage of the Timok copper project’s growth potential, as well as the significant exploration potential at Bisha and Timok.   

On completion of the arrangement, Nevsun’s current shareholders would own about 67% of the combined company while Reservoir shareholders would own the remaining 33%. Under the terms of the definitive agreement, announced Sunday, Nevsun agreed to acquire all of Reservoir’s outstanding common shares, as well as its restricted share units, on the basis of two common shares and $0.001 in cash for each Reservoir common share. 

“This transaction diversifies Nevsun’s asset base, putting our cash balance to work in a strategic and high-return investment that will deliver significant value to our shareholders,” said Nevsun president and CEO Cliff Davis. “The upper zone, with its high-grade copper-gold resource and nearby infrastructure in a mining friendly jurisdiction, adds significant growth to Nevsun and, with ongoing cash flow generation from our Bisha mine, we have the financial strength and proven technical ability to move the Timok project forward in a timely manner. 

We look forward to working with all stakeholders and Timok’s highly capable partner in bringing the project into production.” Reservoir president and CEO Dr Simon Ingram also highlighted the agreement as a positive move for Reservoir and its shareholders, as it would, among other things, expedite the development of the Timok copper-gold project, to the benefit of all stakeholders. 

Meanwhile, Nevsun and Reservoir have also entered into a funding transaction comprising a private placement for 19.99% of Reservoir’s outstanding common shares, as well as a loan transaction. Nevsun subscribed for about 12-million of Reservoir’s common shares at C$9.40 a share, for a total subscription price of about $90-million, increasing Reservoir’s total outstanding shares to about 60-million. 

The transaction also provided an unsecured cash loan of about $44-million to Reservoir.  The combined funding transaction provided Reservoir with about $135-million in financing to enable Global Reservoir Minerals, a wholly owned subsidiary of Reservoir, to exercise its right of first offer in the Timok copper project, in respect of its joint venture (JV) with Freeport International Holdings. 

Once Global Reservoir closed the exercise of the right of first offer, it would have a 100% interest in the upper zone of Timok and a 60.4% interest in the lower zone – under two JV agreements with Freeport. It would also become the operator of the project. Freeport could increase its ownership in the lower zone to 54% under the terms of the original Timok JV agreement, with Global Reservoir holding the remaining 46%. 

On completion of the combination, Global Reservoir would be a wholly owned subsidiary of the combined company. “Reservoir’s board of directors have determined that this transaction is the best funding alternative for our shareholders to fund the Timok right of first offer,” said Ingram, adding that Nevsun was a proven mine developer with the technical experience and strong balance sheet to enable Timok development. 

“Reservoir shareholders retain exposure to the development potential of Timok and also gain exposure to the operating Bisha mine’s cash flow and additional exploration potential.  The combined company will be in a strong position to efficiently advance the Timok project to production,” he concluded.
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Steel, Iron Ore and Coal

Iron ore, steel slide as curbs tame China commodities

Iron ore and steel futures in China fell sharply on Tuesday after authorities raised transaction costs to cool last week's rapid gains in Chinese commodities, which had raised fears of an unstable speculative bubble forming.

Base metals futures also fell, while other commodities, including coking coal and cotton, surrendered most of their early gains to end nearly flat.

China's top commodity exchanges in Dalian, Shanghai and Zhengzhou have increased trading margins and fees in response to surges in prices and volumes last week that were not matched by an improvement in the fundamentals for most of the underlying commodities.

The most traded September iron ore contract on the Dalian exchange closed down 6 percent at its exchange-set floor of 450.50 yuan ($69.35) a tonne. It hit 502 yuan on Monday, its strongest since August 2014.

Analysts say the spike was largely due to speculators betting that a rise in infrastructure spending in China would lift raw material prices, which have been battered for years by a broad-based glut.

But analysts warned that the rise could flip into an equally precipitous fall.

"The speculation-driven futures rallies are not sustainable, and consolidation may have some spillover effects on the spot market," Argonaut Securities Helen Lau said in a note.

News that China's top steel making province will ban the reopening of steel mills that had been previously ordered to shut down also weighed on sentiment for commodities used in steelmaking, which include iron ore, coking coal and coke.

On the Shanghai Futures Exchange, rebar - reinforced steel used in construction - fell 3.8 percent to close at 2,554 yuan a tonne.

Rebar reached a 19-month high of 2,787 yuan on April 21, when its turnover was worth nearly 50 percent more than the total value of trade on the Shanghai stock exchange.

Open interest in iron and rebar has fallen sharply, suggesting some of the trades are being executed by investors holding short positions that are getting squeezed.

Coking coal on Dalian closed nearly flat at 797.50 yuan a tonne after hitting a contract-high of 837.50 yuan earlier. Coke trimmed gains to 0.4 percent after rising as much as 4 percent. The two had soared by their 6 percent limit on Monday.

Cotton on Zhengzhou Commodity Exchange also closed little changed after spiking as much as 3.6 percent.

Jin Tao, analyst with Guotai Jun'an Futures in Shanghai, said there is a "severe shortage" of coking coal and coke following shutdowns of mines and plants in China last year as steel mills step up production.

That has fueled a big spike in spot prices of the two raw materials, particularly this month, said Jin.

"Whether the rally can be sustained will depend on whether the government will keep reining in the sector. But falling forward contracts suggest investors remain cautious on the outlook," he said.
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China's top steel making province bans reopening of mills ordered closed - Xinhua

China's top steel making province will ban the reopening of steel mills that had been previously ordered to shut down, the official Xinhua News Agency reported on Tuesday, as soaring steel prices lure back producers.

Provincial authorities in Hebei also pledged to step up monitoring of steel mills, punish closed mills that reopen and investigate and sack local officials who allow the reopening of mills and approve illegal projects, Xinhua said.

Hebei accounts for just under a quarter of steel production in China, by far the world's top steel producer and consumer.

A jump in steel prices this year has encouraged many producers in China to rekindle their furnaces and ramp up production, potentially exacerbating a global steel glut that has sparked trade friction with other producers including the United States, Britain and Australia.

Some mills in China have been ordered to close as part of the government's efforts to trim overcapacity. Xinhua quoted a notice from the Hebei government as saying officials were not allowed to permit these facilities to restart production "under any circumstances."

Other mills, facing losses, cooling demand and tighter credit conditions, have trimmed output or suspended production for economic reasons. It was not clear if these mills were included in the ban on resuming production.

Australia said on Saturday it would impose duties on certain types of Chinese steel to protect domestic steelmakers, while the United States and seven other countries called earlier this month for urgent action to address global overcapacity.

Chinese steel futures have jumped more than 50 percent so far in 2016 after six straight years of losses. Dalian iron ore futures have risen about 55 percent since the beginning of this year, as investors bet the government will take more measures to stimulate the economy.

Despite Beijing's efforts to cut surplus Chinese steel capacity and pressure from other countries to cut exports, China's steel output rose to a record in March while its steel shipments rose 30 percent from a year ago.

China has a total crude steel capacity of 1.13 billion tonnes, but produced about 800 million tonnes of crude steel last year, suggesting more than 300 million tonnes of surplus capacity.

The country plans to shed 100-150 million tonnes of domestic crude steel capacity in the next five years, and another 500 million tonnes of surplus coal production, in a bid to tackle huge capacity overhangs that have saddled domestic firms with losses and debts.
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