Mark Latham Commodity Equity Intelligence Service

Friday 15th May 2015
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Oil and Gas


Kansas City Southern Gives Disastrous Economic Update

How does a company which reveals its business is so disastrous it not only has to withdraw revenue and volume guidance "due to uncertainty around energy-related markets, F/X impact and U.S. fuel price" and says that:

Q2 to Date Revenue and Carload Growth Well Behind Q1 Trends
Second Quarter Energy Segment Decline Accelerating
Service Issues are Impacting Growth
Key US Economic Indicators Have Deteriorated Since Late ‘14
Challenging U.S. Rail Volume Environment in Q2

... cover it all up in hopes of avoiding a total collapse in its stock price? Simple: it announces a $500 million stock buyback program.

Because the more one's business deteriorates, the greater the buyback.

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Vedanta Loss Widens on $4.5 Billion Writedown as Oil Prices Drop

Vedanta Resources Plc, the metals and oil producer controlled by billionaire Anil Agarwal, reported a wider full-year loss after booking a $4.5 billion impairment.

The net loss expanded to $1.8 billion in the fiscal year through March from $196 million a year earlier, the London-based company said Thursday in a statement. Sales were little changed at $12.9 billion.

Vedanta, mainly a mine operator, gained access to India’s biggest onshore oil field in 2011 after buying a controlling stake in Cairn India for $8.67 billion. That unit accounted for almost all of the impairment charge after crude prices plunged by half amid a global supply glut.

“We will continue to have a relentless focus on costs,” said Chief Executive Officer Tom Albanese, the former head of Rio Tinto Group who was appointed to lead Vedanta last year. “Over the next few years, we expect the worst of the sector oversupply to be behind us.”

The company proposed a final dividend of 40 cents a share, increasing the total payout to 63 cents, up 3 percent from a year earlier.

Free cash flow in the period was $1 billion after capital spending, Vedanta said. Net debt swelled by $500 million to $8.5 billion at the end of March, while gross debt was $16.7 billion.

 Vedanta Resources Plc reported a 16.7 percent drop in full-year core earnings as oil and iron prices declined.

London-listed Vedanta, which has most of its assets in India, said earnings before interest, tax, depreciation and amortisation fell to $3.74 billion from $4.49 billion a year earlier.
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South Africa considers partial Eskom privatisation

South Africa is considering either partially privatising state-owned utility Eskom or putting up some of its assets for sale in order to secure funding for the power producer and resolve an energy crisis, the Treasury said on Wednesday.

The proposal could revive previous plans to raise funds for the company, which is battling the worst power supply shortages since 2008 and faces a funding crunch as it races to bring new power plants online.

South Africans are subjected to frequent rolling power cuts which Eskom imposes to prevent the grid from collapsing.

"Given Eskom's constrained balance sheet and government's constrained fiscal position, there is a need to explore all options," the Treasury said in a statement.

"Consideration is being given to ring-fencing and selling stakes in Eskom's non-core businesses or power stations as well as into Eskom's business as a whole."

The government would still retain control of the company, the statement said, and authorities would also consider amending regulations to allow private firms to generate electricity for their own use and sell any surplus to the national grid.

Another option could be increasing private generation by independent producers. Some 5.2 gigawatt has already been procured through that initiative.

The Business Day daily reported on Wednesday that Treasury Director General Lungisa Fuzile had said government had revived a discarded policy that stipulates the private sector could take a stake of up to 30 percent in Eskom's power-generating assets.

Suspended Eskom CEO Tshediso Matona said in March the power firm may sell assets to raise capital.
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New border power flows to shake up West Europe's prices

New ways of handling cross border electricity flows are set to shake up the prices West European utilities and grids pay in power markets from May 20, with Germany facing a possible 4 percent rise.

Wholesale prices could fall by 1, 5 and 10 percent in France, the Netherlands and Belgium respectively as prices across the region converge, Thomson Reuters Point Carbon analysis shows.

French and Benelux consumers could enjoy lower prices as more supply comes in their reach, while German prices may rise on an increase in power exports.

The parties involved are German network companies Amprion and Transnet BW, German/Dutch TenneT, and their Belgian, Luxembourg and French counterparts Elia, Creos and RTE, for the grid side, as well as spot power exchanges Epex Spot, APX and Belpex of Germany, the Netherlands and Belgium.

The Central West European (CWE) region of Benelux, France and Germany/Austria will adopt what it calls "flow-based" market coupling, after regulators in the participating European countries agreed on the new ways to distribute power across borders.

Transmission firms in the region that covers more than a third of Europe's total electricity demand, constantly collaborate to improve market convergence, driven by EU policy and by prospects of increased efficiency.

The region historically had isolated power systems and limited interconnection, which still hampers power flows and keeps prices divergent.

With new IT solutions and closer co-operation, existing systems will be more effectively linked.
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China goes organic, with hints of Mrs Thatcher!

China is considering a plan to strip its major energy companies of their oil and gas pipelines as part of a shake-up of the country's energy industry reports Bloomberg.

Citing people with knowledge of the plans, Bloomberg says the reform would see some of the assets of state-owned giants Sinopec and PetroChina become independent businesses.

According to Bloomberg's sources, the country's economic planning agency, the National Development and Reform Commission, is leading talks on the initiative.

The assets could be worth as much as $US300 billion, according to an estimate provided to the news outlet by Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein.

Speculation about a shakeup in China's energy industry has been swirling for months with rumours largely centering on a possible merger between the two state-owned giants to better compete with the world's biggest producers. Both companies denied those reports in February and again in late April.

Sinopec's general manager was placed under criminal investigation amid an ongoing crackdown on corruption in late April.

China's state dominated energy sector has come under special scrutiny amid President Xi Jinping's wide-ranging antigraft crackdown. Those arrested include the former head of China's biggest petroleum company, CNPC, and the party's former security chief, Zhou Yongkang, who made the energy sector his power base.

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Orica sees 2015 as trough for mining industry

Orica Ltd, the world's largest supplier of mine explosives, flagged on Tuesday that 2015 is likely to mark the bottom for the mining industry and its own earnings, sending its shares to a nine-month high.

Investors latched on to comments by interim boss Alberto Calderon that Orica had now finished renegotiating contracts at lower prices to help its customers. It had also locked in a large portion of sales through 2018, giving security on future pricing and volumes.

While Orica faced short-term headwinds, Calderon said he agreed with consultants Wood Mackenzie that 2015 will mark the bottom of the mining slump.

"I do believe we're in the trough," he told Reuters.

The market also applauded Orica's move to cut its capital spending plan by a fifth to between A$400 million and A$430 million and cut operating costs by between A$140 million and A$170 million this year.

"I imagine 2015 (profit forecast) numbers will still be coming down. But if you eliminate the price risk beyond the end of this year, it potentially implies 2015 is the bottom," said CLSA analyst Scott Hudson.

Orica is due to open a new ammonium nitrate plant on Australia's west coast late this year to serve the huge iron ore mines in the Pilbara, starting at a time when some small miners are struggling to survive as ore prices have slumped.

Calderon said the long-term outlook was good for the plant as the Pilbara's big producers - Rio Tinto , BHP Billiton and Fortescue Metals Group - would step up output for many years to sweat the infrastructure they spent billions of dollars building over the past decade.

"So that whole region, if you look at the next 10 years, is going to get plenty more iron ore, and we will be there to be hopefully the partner of choice," he said in an interview.

Orica reported a 3 percent fall in net profit from continuing operations to A$211 million ($167 million) for the half year to March, which was lower than some had expected due to weaker volumes and prices for explosives in Australia.
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Commodity Intelligence Quarterly

Our quarterly slidedeck.

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Commodity Intelligence q2 2015 (2) (1).pdf
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CRB Rally.

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On the one year chart this really looks quite impressive.
Oil and Iron ore, for example are 50% off the lows.

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The 25 year chart looks sick as a dog. Lets face it we've lost our biggest customer -China.

And all of these rallies look inventory related:
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Oil financed by specs.
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Iron ore by steel makers looking for some stimulus to help.

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But platgold just looks sick.

To be investable, rather than tradeable, we need final demand.

We're looking for it, hard!

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South32 spin off brings more value to BHP

Mining giant BHP Billiton on Tuesday revealed new unit costs for its remaining divisions in the wake of the demerger of South32. “In recent years, we have made great strides towards becoming the most efficient supplier of our chosen commodities and secured productivity gains of nearly $10-billion. 

We believe we can go even further with a simpler portfolio and improve margins by reducing costs more deeply than the competition,” CEO Andrew Mackenzie said from Barcelona. The shareholders of BHP last week approved the demerger of South32, which will result in BHP spinning out its aluminium, coal, manganese, nickel and silver assets. 

Mackenzie said on Tuesday that the divestment of South32 would potentially deliver substantial benefits to BHP’s remaining operations. Unit costs at the miner’s Western Australian iron-ore operations were now expected to be reduced by 21%, to some $16/t during the 2016 financial year. This was well below the $20/t figure put forth by the company during March this year. Unit costs at the Escondida copper operation, in Chile, would also fall by 16% on a grade adjusted basis, while drilling cots in the Black Hawk petroleum licence, in the US, would average $2.9-million, a reduction of 20%. 

Mackenzie said that capital and exploration expenditure for 2016 was also expected to fall to $9-billion, down from the $12.6-billion reported in 2015. He said that the reduction reflected ongoing improvements in capital productivity along with the deferral of some shale developments and the Inner Harbour debottlenecking project, in Western Australia. 

The miner would spend some $1.5-billion during 2016 on its onshore US business, to support a development programme with ten operated rigs. “We will continue to invest in our high quality projects to create long-term value and support dividend growth. 

The iron-ore and metallurgical coal markets are currently well supplied and we do not expect to invest significantly more in these businesses at this time,” Mackenzie added. Instead, he said, BHP’s capital focus would be on commodities the company believed would have attractive supply fundamentals. “We believe grade decline in copper and field decline in oil will constrain industry production and support a recovery in prices over the medium-term. 

The potash industry has largely exhausted brownfield expansion options and new greenfield supply will be required. “Our diverse portfolio of growth options will allow us to select the markets in which we can create the most value,” Mackenzie said.
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Saudi king declines to attend Obama’s Persian Gulf summit

Saudi Arabia said its new king won’t attend this week’s long-planned summit for Persian Gulf countries at the U.S. presidential retreat, in what may be a sign of frustration with Washington over its Iran policy.

Saudi King Salman Bin Abdul Aziz had been expected to attend the summit at Camp David in Maryland and meet with President Barack Obama on Wednesday for wide-ranging talks, White House spokesman Eric Schultz said at a press conference Friday.

Saudi Foreign Minister Adel bin Ahmed Al-Jubeir instead issued a statement Sunday saying the king won’t visit “due to the timing of the summit, the scheduled humanitarian cease-fire in Yemen and the opening of the King Salman Center for Humanitarian Aid.”

Salman’s absence could be seen as a snub to Obama’s administration, said Jon Alterman, director of the Middle East program at the Center for Strategic and International Studies in Washington. “The king’s decision suggests that, despite all of this, he thinks he has better things to do with his time,” Alterman said in an e-mail.

Salman instead will send Crown Prince Mohammed bin Naif, the deputy prime minister and interior minister, and with Deputy Crown Prince Mohammed bin Salman, the defense minister, according to the statement.

The White House learned of the decision Friday night and confirmed it on Saturday, said an administration official who offered a statement on condition of anonymity to discuss private conversations. The official denied the move was the result of any substantive issue.
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Saxo Bank CEO reacts to the Conservative landslide victory in the UK.

The election result in Great Britain is amazing in many ways.
Labour has been appropriately punished, even humiliated for the lack of a coherent economic policy and the wipe out in Scotland is plain embarrassing. But again, the SNP sends a message that prime minister David Cameron will also have to listen to.

The reaction in financial markets have been understandably positive with a strong rally in the pound, as it would appear the UK is in for a period of stable and responsible economic policy.
It is great to see that some voters in Europe recognize leadership that addresses economic prudence and I believe that Mr Cameron deserves his victory.  His containment strategy towards UKIP has worked very well, but he now needs to heed to the message that the British public expects an in/out referendum on Europe.

When you, like me, are used to a proportional representation system, it feels bizarre that the third largest party hardly gains a seat, but still, Nigel Farage has had a lot of beneficial influence on Britain's EU policy.
Hopefully, Brussels also gets the message but I doubt it. The EU never rolls anything back. It continues to amass more and more control in all areas.
The bureaucracy in Brussels has no self-criticism. No regrets. No matter how much and how often it fails. It just continues the roll out of its powers, and it will continue unabated, until someone says enough is enough. Until someone says stop.
The election outcome in Britain is our one chance to say stop!
Last year, we celebrated the 25 year anniversary of the fall of the Berlin Wall. Back then, in 1989, who could have imagined that just 25 years later, we would have forgotten about capitalism’s victory, about the dangers and failure of supranational government and control, forgotten socialism's absolute bankruptcy and the importance of competition, efficient capital allocation and specialisation. Yet, here we are, with the EU repeating the failed experiments of the past.
Enough is enough.
I hope that Mr. Cameron, with this astonishing victory on his hands, keeps the promise he gave in his inspiring Bloomberg speech in January 2013, calling for deep reform of EU institutions.
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Russia and China deepen ties with new economic deals

Russia and China signed a $25 billion deal to boost Chinese lending to Russian firms and a host of other accords deepening economic cooperation on Friday as Moscow's ties with the West fray over the Ukraine crisis.

Russian President Vladimir Putin and Chinese leader Xi Jinping hailed their countries' improving relationship after Kremlin talks and a signing ceremony on the eve of a military parade marking the end of World War Two in Europe.

Xi is among about 30 foreign dignitaries attending the anniversary events in Moscow but the Red Square parade is being shunned by Western leaders in a show of displeasure over Moscow's role in the conflict in Ukraine.

In a further sign of Moscow's eastward shift, China and Russia are due to hold joint naval exercises next week in the eastern Mediterranean and Chinese soldiers will take part in Saturday's military parade.

"Today China is our strategic and key partner," Putin said after he and Xi presided over a signing ceremony in front of rows of Chinese and Russian officials in the Kremlin.

Xi, who like Putin looked relaxed, invited the Russian leader to attend war commemorations in China on Sept. 3. Putin accepted, saying their countries had suffered most in the war.

The Chinese president said the talks had shown Beijing and Moscow shared the same views on many global problems.
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Oil and Gas

Oil Search warns of upcoming hit to revenue

Oil Search has warned its revenue will slip in the second quarter of its fiscal year, as tumbling oil prices start to weigh on contract prices for liquefied natural gas.

The Australian company (OSH) is a partner of Exxon Mobil at the $US19 billion PNG LNG project in Papua New Guinea, which started shipping its first cargoes of the fuel to Asian customers in May last year.

Due to a roughly three-month time lag between spot oil prices and LNG contract prices, Oil Search’s revenue remained relatively robust during the first quarter of 2015, chairman Rick Lee told the company’s annual shareholder meeting in Port Moresby.

But he added the company’s LNG revenue was expected to fall in the second quarter, as an oil-price slump that commenced in late 2014 starts to have an impact.

“While the oil price has since rallied a little, it is still trading some 40 per cent lower than the average price realised in 2013,” he said.

Oil Search’s balance sheet is relatively strong, owing to revenue from the start of LNG shipments earlier this year.

The company said the Exxon-led venture might make a final decision on an 50 per cent expansion in the size of PNG LNG by 2017.

A separate LNG venture in the country between Oil Search, Total and Interoil hoped to make a final investment decision on the country’s second LNG project in 2017, too, Oil Search said.

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Freeport CEO: DOE advised against LNG exports to China

American companies have been reportedly advised by the United States Department of Energy not to accept Chinese investment into LNG export projects.

As Freeport LNG chief executive Michael Smith told Reuters, DOE advised the company to carefully select its customers as dealing with Chinese investors could create a political issue.

He said that due to this advice there is a lack of lucrative deals with Chinese companies. He noted that deals that have been previously signed to export U.S. LNG to Chinese companies are worth billions.

However, U.S. produced LNG can still end up on Chinese market through secondary deals..

As Smith said, there is no lack of interest from Chinese companies but Freeport LNG took DOE’s advice and turned down potential customers.

The Department of Energy said, several projects have been granted authorization to export U.S. LNG to foreign markets including China, adding that final destination of the cargo depends on commercial arrangements and is only reported to the DOE upon delivery.

Smith added that, due to competitive interest, Freeport LNG will file for a permit to add a fourth liquefaction train to its terminal where construction on the first three trains is already in progress.

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Oil Sands Land Becomes Alberta’s Hot Real Estate as Oil Rebounds

Auctions attracted the highest prices since 2007 in the first four months of the year even as Canadian heavy oil slid below $30 a barrel, from $87.23 in June, and producers from Cenovus Energy Inc. to Royal Dutch Shell Plc slashed spending and jobs.

The trend is a sign that companies see the decline to a six-year low in March as temporary. Western Canadian Select crude has bounced back, gaining about 70 percent since March, almost twice as much as U.S. oil futures, amid rising demand for heavy oil from American refiners. Producers are more efficent than before the downturn after companies including Canadian Natural Resources Ltd. cut costs as much as 20 percent.

“Right now it makes a great deal of sense to go in and acquire rights in the oil sands,” Trevor Newton, chairman of Strata Oil & Gas Inc., said in a phone interview. “Let’s get this now while we can. We are going to get them cheaper.”

The province holding most of Canada’s crude reserves, the world’s third largest, drew an average of C$476.14 per hectare ($978 per acre) in offerings of rights through April, the most seasonally since 2007, data on the province’s website show.

The increase in lease prices is a bright spot for Alberta, where revenue from leases and permits fell to C$24.1 million in the fiscal year ended March 31 compared with C$25.1 million a year earlier.

Companies have been pulling back rather than investing. Shell withdrew an application to develop the Pierre River oil sands mine in February, the same month Cenovus suspended an expansion of its Christina Lake project.

Canadian crude’s recent strength has been driven by new pipelines delivering rising volumes to U.S. refiners. Plants in the Midwest, the biggest consumers of Canadian crude, ran at their highest seasonal rates since at least 2010 earlier this month, U.S. Energy Department data show.

Western Canadian Select has risen above $53 after closing below $30 for the first time since February 2009. Its discount to West Texas Intermediate oil, the U.S. benchmark, was $8 on May 13, the lowest since September 2012. WTI traded near $60 a barrel Friday, up from $43.46 in March amid signs that U.S. shale oil producers are curtailing output.

“The price they are paying relative to the rights they are securing is very small,” Brad Hayes, president of Calgary-based Petrel Robertson Consulting Ltd., said in an interview. “The reserves in place are immense.”

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EnQuest says four-month production rises 20 pct

Oil producer EnQuest Plc said production rose 20.2 percent in the first four months of the year, thanks to strong performance at its Malaysian asset.

EnQuest said production rose to 30,768 barrels of oil equivalent per day (boepd) for the four months to April from 25,597 barrels a year earlier.

The company, which specialises in maximising oil output from old fields that aren't profitable enough for big oil firms, said the start-up of its North Sea Alma/Galia project and Kraken field remained on track.

EnQuest, which is mostly focused on the North Sea, acquired an interest in the PM8/Seligi oil field in Malaysia last June to grow outside of its core UK market.

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Brazil prosecutors say Petrobras scheme moved $2.1 bln in bribes

Brazilian investigators believe 6.19 billion reais ($2.1 bln) in bribes were moved in a corruption scheme involving state-run oil firm Petroleo Brasileiro SA, prosecutor Deltan Dallagnol said on Thursday.

Prosecutors are seeking to restore 6.77 billion reais to public coffers through fines and the return of stolen funds, he said at a press conference to announce criminal charges against four former congressmen.

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US Gasoline Volumes

Much of the slowing in overall retail sales is, of course, just a story about fuel costs. With a gallon of regular averaging $2.47 last month versus $3.66 a year earlier, gas-station sales were down 22% from a year earlier.

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Natural gas prices rise on inventory data

Benchmark natural gas futures rose in midday trading Thursday after the U.S. Energy Information Administration said inventories rose less than expected.

The Energy Department agency said that natural gas in storage grew by 111 billion cubic feet for the week ending last Friday. That’s higher than the five-year average for the week, but below what several different analyst firms had projected. A Bloomberg analysis of 19 put the average prediction at a build of 114 billion cubic feet.

The data suggest that the supply and demand for natural gas are in closer balance than some analysts thought, Tim Evans of Citi Futures said in a note to clients.

“It’s a bullish report, at least in terms of short-term price impact,” he wrote.

U.S.  natural gas rose 6 cents on the inventory report, erasing a loss earlier in the trading day and bringing the price to $2.995 per million British thermal unit about midway through Thursday’s action on the New York Mercantile Exchange.

The price of natural gas has fallen from more than $4 last year as continuing high production from dense shale formations has overwhelmed demand. For much of 2015, the benchmark futures contract for next-month delivery at Louisiana’s Henry Hub has traded well below $3 per million British thermal unit, though it has risen about 20 percent since a mid-April low.

Prices could keep rising in the long term, as more consumers begin to take advantage of the cheap fuel. Energy companies are  building new gas-fired power plants, petrochemical companies are expanding plants that use gas as fuel and feedstock, and terminals under construction will liquefy gas for shipment abroad.

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Eni’s Libya output above pre-war levels at 300,000 barrels a day

Eni SpA is producing around 300,000 barrels of oil per day in Libya, bringing output above pre-civil war levels despite ongoing strife in the African country.

“Our commitment in Libya is very strong, we are there, we are producing about 300,000 barrels per day,” Eni Chief Executive Officer Claudio Descalzi said in an interview in Rome after the company’s shareholders’ meeting.

The number cited is higher than the 280,000 barrels a day that Rome-based Eni produced in Libya before the ousting of former leader Muammar Qaddafi in 2011. Eni, Libya’s biggest oil producer, is one of the few foreign companies still operating there even after a face-off between rival governments and a surge in strikes and terrorist attacks forced most foreign businesses to leave the country.

“We don’t have any expatriates there, all the expats are offshore and onshore we have local staff working,” Descalzi said. While the company is concerned about potential terrorist attacks, he said there is a strong push for dialogue among the warring parties and he’s confident the situation will improve in Libya “in the medium-to-long term.”

Descalzi also said he expects the oil price to average around $55 to $60 this year, and to rise to about $70 by 2016. Low oil prices contributed to a 46 percent slump in Eni’s first quarter net income.

“There is a positive trend because the demand for oil is increasing and the supply is falling,” he said.

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Saras to boost Rosneft ties with new trading business

Italian oil refiner Saras will open a trading business in Geneva in the coming months to boost ties with its Russian investor Rosneft, Chairman Gian Marco Moratti said after reporting a jump in first-quarter core profit.

The two companies abandoned plans for a trading joint venture last month because of western sanctions over Russia's involvement in the Ukraine crisis, but Saras expects its unilateral move to aid cooperation.

"We announce the decision to start a trading company in Geneva in the coming months, also with the purpose of developing further the cooperation with Rosneft," Moratti said in a statement without providing further details.

At the time the joint venture plan was shelved, Saras Managing Director Dario Scaffardi said the company will exchange trading information with Rosneft but without a formal company structure, adding that the new Saras business would be located near Rosneft's trading offices.

Rosneft bought a 21 percent stake in Saras two years ago and the head of the Russian group, Igor Sechin, has said he would be interested in raising its stake.

Saras said on Thursday that improved market conditions and a rebound in refining margins pushed comparable core earnings to 144.2 million euros ($165 million) in the first quarter, up from 8.4 million euros in the same period last year.

Though the figure was up sharply year on year, analysts had expected core earnings of 155 million euros, according to a consensus forecast provided by the company.

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Delta Air Lines' refinery has stopped importing West African oil - CFO

May 14 Delta Air Lines Inc's refinery Monroe Energy has stopped importing crude oil from West Africa, the airline's Chief Financial Officer Paul Jacobson said Thursday during a transportation conference that was webcast.

The Philadelphia-area refinery instead takes its supply from U.S. and some Canadian sources, "dramatically" lowering its transportation costs, Jacobson said. The refinery, forecast to earn about $80 million in the second quarter, is benefiting fully from the U.S. shale oil boom, he said.

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Malaysia's Dayang raises stake in Perdana Petroleum

Malaysia's oil and gas services firm Dayang Enterprise Holdings Bhd is raising its stake in its unit Perdana Petroleum Bhd to 35.51 percent from 29.77 percent, opening the way to a mandatory general offer to take over the latter.

Dayang is buying a 5.74 percent stake in Perdana Petroleum from Malaysian fund Affin Hwang Asset Management Bhd for 66.6 million ($18.6 million) or 1.55 ringgit per share, according to a local stock exchange filing on Thursday evening.

The purchase is subject to the approval of Dayang members at an extraordinary general meeting. Once it becomes unconditional, it will be followed by a mandatory general offer to buy the remaining shares Dayang does not own in Perdana Petroleum at 1.55 ringgit per share, and warrants for 84 sen per unit, according to the filing.

"The proposed acquisition represents an opportunity for Dayang and its subsidiaries to pursue its expansion strategy and long-term objective of evolving into a market leader for the provision of hook-up construction and commissioning services within the oil and gas industry," Dayang said.

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Eagle Ford Shale oil production falls 73K barrels a day as price drops

New oil wells won’t offset declines in Eagle Ford Shale production in June, according to the Energy Information Administration’s latest projections.

Crude oil production in the Eagle Ford is projected to be 1.6 million barrels per day in June, down 47,000 barrels per day from May totals, according to the EIA.

Going back to January, production has declined more than 73,000 barrels per day.

But that didn’t happen when crude oil was below $50 a barrel as it was earlier this year.

More than 500 drilling rigs have come out of service in Texas in the past year, with more than 100 of those coming from the Eagle Ford Shale.

Even with prices flirting with $60 a barrel, statewide and nationwide rig count continues to fall.

Matador Resources (NYSE: MTDR) has temporarily suspended drilling in the Eagle Ford Shale this year to refocus its efforts in West Texas. The Dallas-based company reported a $50 million loss in the first quarter.

By contrast, the Permian Basin continues to produce in record amounts with more than 2 million barrels per day projected for June. That’s up nearly 168,000 barrels from January.

That stacked formation, which stretches into eastern New Mexico, still has 237 rigs going, down from 300 a year ago.

Pioneer Natural Resources, based in Irving, remains gung ho on its plan to start adding two drilling rigs a month in July, if the price improves. It's also contingent on Pioneer realizing cost savings from oil field service companies and its own drilling efficiencies.

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Cheniere approves new LNG export plant: LNG supply makes iron ore look tight!

Woodside of Australia said that the conditions precedent to the LNG deal it has signed last year with Cheniere’s unit Corpus Christi Liquefaction have been satisfied.

Cheniere has just made a final investment decision on the construction of Trains 1 and 2 of the Corpus Christi liquefaction project.

Under the deal, Woodside will buy about 0.85 million tonnes of LNG per annum from the Corpus Christi project on start-up of the second train at the export facility being developed near Corpus Christi, Texas.

LNG will be purchased on a free on board basis. The price payable by Woodside will be 115% of the monthly Henry Hub price plus US$3.50 per million British thermal unit (MMBtu), in line with contracts signed with the other buyers from the Corpus Christi LNG project, Woodside said in a statement on Thursday.

The twenty-year agreement includes an extension option of up to an additional ten years and a mechanism that gives Woodside the option to forgo deliveries with sufficient notice through the payment of US$3.50/MMBtu for cancelled quantities.

Cargoes to Woodside from Train 2 are expected to start in 2019.

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China's crude oil imports up 7.5% in Q1

China, the world's second largest oil consumer after the U.S., imported 80.34 million tons of crude oil in the first quarter of this year, 7.50% more than in the same period of last year, according to the latest figures from China's General Administration of Customs.

The import value of crude oil for the three-month period declined 42.80% from a year earlier to RMB 206.09 billion.

From Jan to Mar, the country saw its imports of refined oil reach 7.9 million tons, reflecting a decrease of 7.50% year on year. The import value of refined oil went down 43.30% from a year earlier to RMB 23.78 billion in the three-month period.

In the month of Mar, the country imported a total of 26.81 million tons of crude oil and the import value for the month reached RMB 66.66 billion.

Meanwhile, China imported 2.87 million tons of refined oil last month with import value of RMB 8.96 billion.
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Parsley Raises Production Guidance and drilling in Permian

Parsley Energy, Inc. today announced financial and operating results for the quarter ended March 31, 2015. The Company has posted to its website a presentation that supplements the information in this release.

First Quarter 2015 Highlights

Parsley delivered record quarterly net production of 18.9 MBoe/d, an increase of 4% over Q4 2014 and up 106% year-over-year.
Parsley is raising full-year 2015 production guidance from 18-19 MBoe/d to 20-21.5 MBoe/d.
Wolfcamp B well productivity—already among the best in the Midland Basin—improved for the fourth consecutive quarter.

The three Wolfcamp B wells Parsley completed in its Core area in Q1 2015 with 30 days of production had peak 30-day initial production (IP) rates per 1,000-foot lateral of 231 Boe/d on average, up 30% versus average peak 30-day IP rates for Wolfcamp B wells completed in its Core area in Q1 2014.

Parsley drilled its most productive Wolfcamp A well to date, registering a peak 30-day IP rate per 1,000-foot lateral of 188 Boe/d on the Mary 18A-18-2H.
Parsley is introducing a new Wolfcamp A/B type curve with an estimated ultimate recovery (EUR) of 1 million Boe, based on more than 30 Wolfcamp A and B wells the Company has put on production.
The Company continues to weight activity toward the second half of 2015 but now plans to add three horizontal rigs on June 1st, one month earlier than anticipated, running four rigs from that time through the end of the year.
Parsley now intends to complete 35-40 gross horizontal wells in 2015, up from the prior guidance range of 30-35 gross horizontal wells, and has revised its drilling schedule such that the average stimulated lateral length of wells completed this year is expected to be approximately 6,500 feet, up from the previous estimate of approximately 5,400 feet. To accommodate these changes, the Company is raising its capital budget from the previously announced $225-$250 million to $250-$300 million.
Parsley acquired 3,562 net acres in its Core area in northwest Reagan and north Midland Counties for approximately $7 million in cash and an estimated $10 million in drilling carries. The Company has identified 114 net horizontal drilling locations associated with this acreage, with an estimated average stimulated lateral of approximately 5,800 feet.
The Company increased its inventory of net horizontal drilling locations by more than 20% through acquisitions and revised spacing assumptions.

“Our first quarter operating results continue to validate the tremendous potential of our resource base,” said Bryan Sheffield, Parsley Energy’s Chief Executive Officer. “We are pleased to have delivered production growth in Q1 despite weather related downtime that cost us an average of approximately 1,500 Boe of production per day. Having drilled more than 30 horizontal Wolfcamp wells, our confidence in the repeatability of our basin-leading well results prompted us to increase production guidance for the year and introduce a 1 million Boe type curve for our Wolfcamp A and B wells. We now expect to generate close to 50% year-over-year production growth on a capital budget that is significantly lower than 2014 spending.”
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Japan's April LNG spot price falls to 2-month low

Average liquefied natural gas (LNG) spot prices for buyers in Japan fell to a two-month low in April, trade ministry data showed on Thursday, in another sign of slack global demand.

Spot LNG contracted in April for delivery to Japan averaged $7.60 per million British thermal units (mmBtu), down from $8  month earlier, less than half the level a year ago, the Ministry of Economy, Trade and Industry (METI) said.

Spot cargoes booked earlier and arriving in April averaged $7.90 per mmBtu, up from $7.60 in March. Asian benchmark spot LNG LNG-AS stood at $7.40 per mmBtu last week,  little changed from a month ago, as demand from end users remained subdued.

Tokyo started surveying spot LNG prices in March 2014 to add transparency to the market amid concerns about rising fuel costs
in the wake of the shutdown of nuclear plants after the Fukushima crisis. The average spot price is based on around 10 percent of the nation's purchases of the super-chilled fuel.

 The trade ministry survey looks at samples of fixed prices for LNG sold to power companies and utilities among others, and excludes spot deals linked to benchmark prices such as the U.S. natural gas Henry Hub index.
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North Dakota posts surprising jump in oil output in March

North Dakota posted a surprising jump in oil and natural gas output in March, as producers leaned on newer technologies and processes to offset a slump in commodity prices.

Many industry observers had expected output to fall for the third consecutive month in the wake of a more than 50 percent drop in oil prices since last summer.

"We scratched our heads in the month of March" as to why production increased, Lynn Helms, director of the state's Department of Mineral Resources, said during a conference call with reporters.

Yet the increase shows producers' willingness to wring efficiencies out of existing operations, as well as their attempt to maintain production, even at depressed prices, to safeguard relationships with service providers ahead of any future spike in crude oil prices.

About 189 North Dakota wells were completed in March at locations owned by Exxon Mobil Corp, Hess Corp, Continental Resources Inc and ConocoPhillips, reversing a trend in which most producers delayed completions.

"These four appear to be more in tune with having normal cash flow, and continue to complete their wells in a more aggressive manner," Helms said.

But in a sign of divergent strategies in the No. 2 U.S. oil producing state, EOG Resources Inc and Marathon Oil Corp continue to delay fracking.

"These two are going to hold onto completions as long as they legally can," Helms said. North Dakota producers have one year once drilling has finished to bring a well into production or face placing the well on an abandoned status.

The state's oil producers pumped nearly 1.2 million barrels per day (bpd) in March, up about 1 percent, or some 15,000 bpd, from February, according to the Department of Mineral Resources.

The number of wells that had been drilled but not fracked, a metric commonly known as "ducks," fell by 20 during March to 880, reversing a months-long trend that had concerned some in the industry.
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LLOG plans to drill in U.S. Gulf near blown out BP well

LLOG Exploration, a privately-held oil and gas company focused on deepwater in the Gulf of Mexico, plans to drill a well into the block near where BP Plc's Macondo well ruptured in 2010, causing the worst offshore oil spill in U.S. history.

LLOG Exploration, which has backers including Blackstone Energy Partners, received approval to drill a well in Blocks 252 and 253 in the Mississippi Canyon area of the Gulf from regulators on April 13, according to records filed with the U.S. Bureau of Safety and Environmental Enforcement.

LLOG's plans to develop the block that sits due east of the plugged Macondo well were first reported by Subsea Engineering News in October.

A representative for LLOG did not immediately respond to a request for comment.

Macondo's blow-out caused the Deepwater Horizon oil rig to explode on April 20, 2010. The disaster left 11 workers dead and huge stretches of the Gulf of Mexico fouled with petroleum that gushed from the site for 87 days.

BP sold its interest in six exploration blocks located in the deepwater Gulf of Mexico, including portions of Mississippi Canyon Block 252 in early 2014, it said.

"Out of respect for the victims of the Deepwater Horizon accident and to allow BP to perform any response activities related to the accident, there is an exclusion zone covering the original Macondo well, the two relief wells and nearby debris, in which there will be no oil and gas operations," a BP spokesman said in a statement.
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Retail gasoline sales falling? They are supposed to be going up!

U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending May 8, 2015, 379,000 barrels per day less than the previous week’s average. Refineries operated at 91.2% of their operable capacity last week. Gasoline production increased last week, averaging 9.7 million barrels per day. Distillate fuel production decreased last week, averaging 4.9 million barrels per day.

U.S. crude oil imports averaged 6.9 million barrels per day last week, up by 340,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.2 million barrels per day, 2.2% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 776,000 barrels per day. Distillate fuel imports averaged 294,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.2 million barrels from the previous week. At 484.8 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 1.1 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 2.5 million barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories rose 1.9 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 5.5 million barrels last week.

Total products supplied over the last four-week period averaged 19.4 million barrels per day, up by 3.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.0 million barrels per day, up by 3.0% from the same period last year. Distillate fuel product supplied averaged about 4.1 million barrels per day over the last four weeks, down by 0.5% from the same period last year. Jet fuel product supplied is up 9.0% compared to the same four-week period last year.

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ConocoPhillips 'encouraged' by Colombia test: Canacol!

ConocoPhillips liked what it saw with a test well drilled in partnership with Shell targeting Colombia's La Luna shale, its chief executive said.

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Williams Cos to buy affiliate Williams Partners for $13.8 bln

Williams Cos said on Wednesday it would buy affiliate Williams Partners LP for about $13.8 billion, the latest in a series of deals in the oil and gas pipeline industry as operators look to simplify their corporate structure.

Master Limited Partnerships (MLPs) are also being bought out to eliminate incentivized distribution rights that can divert a large chunk of cash returns to general partners.

Distribution payouts are becoming a burden for energy companies at a time when they are struggling to cope with a steep fall in global crude prices.

Crestwood Equity Partners said last week it would buy Crestwood Midstream Partners to cut out incentive distribution rights.

Williams Cos is offering 1.115 of its own shares for each Williams Partners' share. The offer works out to $55.86 per share, an 18 percent premium to Williams Partners' Tuesday close.

William Cos' shares were up 8 percent, while William Partners rose 27 percent to trade at $60.

The combined company said it expects third-quarter dividend of 64 cents per share. Williams previously expected to pay dividend of 60 cents per share, while Williams Partners was expecting to pay out 85 cents.

The companies said the deal would reduce cost of capital, freeing up funds for acquisitions. Lower capital cost would also drive a 10-15 percent dividend growth rate through 2020.
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China to boost diesel exports as domestic demand remains weak

China is set to step up diesel exports this month, with shipments climbing to near record highs of more than 650,000 tonnes, as domestic demand remains tepid and inventory builds, industry sources said.

The increased exports come as regional demand for diesel is picking up in Asia, they said, and would likely keep refiner margins in check rather than putting them under pressure.

Diesel, used to run trucks and tractors and generate power at construction and mining sites, is a bellwether of industrial activity. An increase in exports by the world's No. 2 oil consumer suggests that its economy is still weak, traders said.

Diesel demand in China has been largely flat this year, also held down by efforts to shift to a more consumption-based economy, away from industrial and infrastructure development, they added.

China's top refiners, including Sinopec Corp and PetroChina, are expected to export about 650,000 tonnes of diesel in May, more than double the nearly 300,000 tonnes in April, two sources familiar with the matter said.

"Domestic demand for gasoil is weak and inventory high, so could be why there are more (gasoil) exports in May," a third source based in Beijing said.

The export volumes are only estimates and actual shipments could change depending on refinery output for the month, the sources said.

The expected volume is well above the 476,406 tonnes of diesel that China exported last June, which was the highest in 2014, according to customs data.

This year, the country exported between 65,000 and 300,000 tonnes of diesel a month in the first quarter of 2015, down from last year's monthly average as domestic prices rose above international prices, one source added.

The higher exports in May could also reflect increased activity from China National Offshore Oil Corp, the parent of China's top offshore oil producer CNOOC Ltd, which exported diesel for the first time in April, a Singapore-based trader said.
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Oil glut worsens as OPEC market-share battle just beginning - IEA

A global oil glut is building as OPEC kingpin Saudi Arabia pumps near record highs in an attempt to win a market-share battle against stubbornly resistant U.S. shale production, the International Energy Agency (IEA) said on Wednesday.

The West's energy watchdog said in a monthly report that although higher-than-expected oil demand was helping to ease the glut, growth in global oil consumption was far from spectacular.

As a result, signs are emerging that the crude oil glut is shifting into refined products markets, which could make a recent rally in oil prices unsustainable.

"Despite tentatively bullish signals in the United States, and barring any unforeseen disruption elsewhere, the market's short-term fundamentals still look relatively loose," said the IEA, which coordinates energy policies of industrial nations.

Global oil production exceeds demand by around 2 million barrels per day, or over 2 percent, following spectacular growth in U.S. shale production and OPEC's decision last year not to curtail output in a bid to force higher-cost U.S. producers to cut theirs.

As a result, benchmark Brent oil prices more than halved from June 2014 to $46 per barrel in January. They have since rebounded to around $65, however, on fears of a steep slowdown in U.S. production growth.

"In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked. Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating," the IEA said.

But it added that the recent oil price rebound was giving U.S. producers a new lease on life.

"Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks. At the same time, producer hedging has reportedly gone steeply up, as companies took advantage of the rally to lock in profits," the IEA said.

"It would thus be premature to suggest that OPEC has won the battle for market share. The battle, rather, has just started."
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The Permian Productivity Puzzle: Does shale kill the Oil recovery?

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Colombian oil exploration activity in Q1 sinks 83% from prior year

Exploration drilling in Colombia's oil patch in the first quarter fell 82.5% compared with the year-ago period, while seismic exploration sank by an even steeper 92%, the Colombian Petroleum Association (ACP) said Tuesday.

Speaking at a press conference in Bogota, ACP president Francisco Jose Lloreda issued another in a series of recent appeals to the government to enhance the royalty and tax incentives available to wildcatters or face the possibility of declining production and reserves in coming years.

"Without tax incentives, it will not be feasible to reactivate exploration and current production levels of 1 million b/d, which would impact state revenue even more," Lloreda told reporters.

He said only nine exploratory wells were drilled in Q1, down from 52 drilled in the year-ago period. Seismic exploration totaled 800 square kilometers, down from 10,000 sq km.

Lloreda acknowledged that the Colombian government had made some moves in recent months to make exploration and development more appealing to global oil companies. Those measures included royalty discounts on finds made from unconventional sources and in deep offshore waters, as well as a higher oil price threshold on the windfall tax paid by producers.

But the measures aren't enough, he said, as evidenced by weakened exploration activity. "What's needed are additional measures to make operations more viable, attract investment, and to reanimate the industry," Lloreda said.

He added that positive signs included a diversification of Colombia's export market to lessen its reliance on US Gulf Coast refiners. Between 2010 and 2014, the percentage of Colombian exports shipped to China rose from 5% to 23%, to India from 3% to 13% and to Spain from 0.3% to 9%.

But Lloreda warned that the "slight improvement" in oil prices in recent weeks "does not guarantee that exploration activity will take off and reach levels achieved in past years."

Last year, royalties and taxes from crude, natural gas and product sales accounted for 17% of all government revenues. Exports of hydrocarbons in 2014 accounted for more than 50% of the total export dollars collected.
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Canada Aboriginals Vote to Reject $960 Million Petronas Gas Deal

An aboriginal group along Canada’s Pacific Coast voted against an almost $1 billion offer by Petroliam Nasional Bhd. meant to compensate the community for building a natural gas export terminal on its ancestral lands.

The vote to reject the money by the third of three groups in the Lax Kw’alaams Band in northern British Columbia presents a new obstacle to plans to export liquefied natural gas to Asian markets. Two earlier votes by other Lax Kw’alaams members also rejected the plan.

The vote against the plan was overwhelming, Lax Kw’alaams Mayor Garry Reece said Tuesday in an interview in Vancouver. The final decision on whether to accept the C$1.15 billion ($960 million) on offer will be made by the 13-member Lax Kw’alaams council and announced at 9 a.m. New York time on Wednesday, Reece told reporters.

The money was offered by backers of the $30 billion LNG project led by Petronas, as the Malaysian state-owned company is known, and the British Columbia government, according to a summary on the band’s website. Lax Kw’alaams is both an aboriginal band and a British Columbia town of the same name.

Winning the support of indigenous groups including the 3,600-member Lax Kw’alaams is critical for Petronas to advance its Pacific NorthWest LNG project. A landmark Supreme Court ruling in Canada last year paved the way for aboriginal communities that don’t have treaties with the federal government, such as Lax Kw’alaams, to have greater say over resource developments on their ancestral lands.
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Ecopetrol profit tumbles 96 pct on lower oil prices

Net profit at Colombia's state-controlled oil producer Ecopetrol tumbled 96 percent in the first quarter from the same period last year, largely due to the sharp drop in crude oil prices since the middle of last year.

The company posted a consolidated net profit of 160 billion Colombian pesos ($67.2 million) in the quarter, compared with 3.88 trillion pesos in the same period a year earlier.

Earnings before interest, taxes, depreciation and amortization, EBITDA or cash flow, fell 60 percent to 3.15 trillion pesos in the first quarter versus 7.86 trillion pesos in the same period of 2014.

The company's consolidated oil and gas production, which includes subsidiaries, rose 1 percent from the first quarter last year to 773,400 barrels per day equivalent. The non-consolidated figure for Ecopetrol alone was 722,000 barrels.

Ecopetrol said its latest results and comparative year-ago figures were prepared according to newly adopted NIIF international accounting standards, meaning figures reported for the first quarter of 2014 have now changed.
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Mexico sees $620 mln investment from 26 oil areas under tender

The next round of contracts in Mexico's opening of its oil and natural gas industry should bring in about $620 million in investment in the first five years, Energy Minister Pedro Joaquin Coldwell said on Tuesday.

The 26 onshore oil and gas areas to be tendered are spread across five states and are believed to contain 2.5 billion barrels of oil equivalent in remaining resources.

Edgar Rangel, a member of the National Hydrocarbons Commission oil and gas regulator, said the 26 areas would have average production costs of between $10 and $20 per barrel, below previously announced shallow water contracts.

The 26 areas are the third installment of the so-called Round One tender, which features packages of blocks grouped by type of petroleum basin and heralds the opening of Mexico's oil industry after an energy reform finalized last year.

The reform ended the decades-long monopoly enjoyed by state-run oil company Pemex.

To compete for the onshore contracts, companies must document financial capacity of between $5 million and $200 million, depending on the size of the area, as well as the operational experience of their personnel.

All but eight of the areas are already producing oil or gas, thanks to past exploration and extraction by Pemex.

The 25-year license contracts allow companies extensions of up to two additional periods of five years each.

Officials said the draft license contract makes more sense for smaller oil and gas fields, as a company's compensation will be based on a percentage of gross profits.

However, the license will not allow for cost recovery unlike production-sharing contracts, which were selected for previously announced shallow water tenders set to be awarded in July.

The hydrocarbons commission will award all contracts based on which company offers the biggest share of profits to the government via a weighted formula that also includes an investment commitment.

The formula's minimum values, however, will not be known until weeks before bids are due, said Miguel Messmacher, a deputy finance minister.

The onshore tender covers a total of about 311 square miles (807 sq km) and calls for a minimum of 29 wells to be drilled in the first year of the contracts.

The final version of the license contract for the onshore areas as well as the bidding terms will be published in October, ahead of awards set for December 15.
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Alberta premier-elect says royalty review coming in current term

Rachel Notley, premier-elect of the Canadian province of Alberta, the largest source of U.S. oil imports, said on Tuesday her newly elected government intends to hold its promised review of royalty rates for oil and gas producers in its current term.

Notley, whose left-wing New Democratic Party last week ended the 44-year rule of the right-wing Progressive Conservatives, said the dates for the review have not yet been set, nor has the timing of her government's first budget, which will be set in the next few days as she finalizes her cabinet.

The royalty review was among the more controversial planks in the new government's platform. Oil and gas producers protested that potentially squeezing additional revenues from the sector while oil prices are low threatened jobs and the province's economy.

However Notley said that while the timing of the review has not been set, it would take place before the next election is due to take place in four years.

"I'm not going to make any specific determinations around timing except to say it was in our platform, it will happen within this term and it will be preceded by good, thorough discussions with all stakeholders, including industry," she told reporters. "No one will be surprised by the way it unfolds."

Notley said she is already holding talks with some of the province's oil and gas producers. She said those discussion went well and the executives were "looking forward to working collaboratively".

"My guiding principles are the economic health of Alberta, job creation and maintenance," she said.

Notley also said Richard Dicerni, appointed by outgoing Premier Jim Prentice as the province's top civil servant, had agreed to remain as deputy minister to the executive council and head of the public service.
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U.S. set to get more accurate oil production data

 "The data must be wrong," according to veteran oil analyst Phil Verleger, who wrote in a blistering note that the Energy Information Administration is probably overestimating U.S. oil production by 1.6 million barrels per day.

Verleger argues substantially lower U.S. production is the most likely explanation for why global stocks are not rising as fast as predicted and discounts for storing barrels are narrowing ("Notes at the margin" May 11).

Other reasons why the stock build is smaller and the forward price structure is firmer could be stronger demand and/or more oil stockpiling in developing countries.

But if Verleger is correct, U.S. production would be only 7.7 million barrels per day (bpd) compared with the 9.3 million bpd reported in the agency's most recent weekly and monthly statistics.

The global oil market would be nearly balanced, since most estimates put the global supply surplus at between 1.5 and 2.5 million bpd.

In practice, it is highly unlikely EIA is making an error as large as 1.6 million bpd in its statistics on domestic oil production, but Verleger has drawn attention to the well-known shortcomings in this area of the data.

The U.S. government on Tuesday lowered its 2015 and 2016 crude oil production growth forecasts amid lower prices and fewer active drilling rigs.

In its short term energy outlook, the U.S. Energy Information Administration lowered its 2015 crude oil production growth forecast to 530,000 barrels per day (bpd) from 550,000 bpd, while 2016 growth was seen at 20,000 bpd, down from 80,000 bpd previously.

Meanwhile, it raised its 2015 U.S. oil demand growth forecast to 340,000 bpd vs 330,000 bpd seen last month and cut its 2016 demand growth forecast to 70,000 bpd from 90,000 bpd previously.

Since last June, U.S. producers have reacted quickly to a nearly 60 percent drop in prices by cutting spending, eliminating jobs and idling more than a half of the country's rigs. Active oil rigs last week declined for the 22nd week in a row, Baker Hughes reported.

Still, "while there are fewer rigs drilling for crude, U.S. oil production this year is still on track to be the highest in more than four decades," EIA Administrator Adam Sieminski said in a statement.

The EIA added that U.S. crude oil production averaged some 9.3 million bpd in March, but is expected to decline from June through September before growth resumes.

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Parex Resources announces Q1 results and Colombian oil discovery

Q1 2015 Financial and Operational Highlights

  • Managed quarterly average oil production of 26,729 barrels of oil per day compared to production guidance of 26,500 bopd, an increase of 45 percent over the comparative quarter in 2014, and a slight increase from the prior period production of 26,544 bopd;
  • Generated funds flow from operations of $33.0 million ($0.24 per share basic as compared to $0.71 per share for the comparative period). Funds flow has decreased from the comparative period due to lower oil prices partially offset by higher production volumes;
  • Capital expenditures for the quarter were $26.9 million compared to $61.4 million in the comparative period. Parex participated in drilling one well (net 0.55) during Q1(1). However, the 2015 exploration program began with the Block LLA-26 Rumba-1 exploration well which was spud on March 25, 2015;
  • Reduced net debt to $29.6 million at March 31, 2015 compared to $31.7 million at December 31, 2014;
  • Realized Brent referenced sales price of $49.42 per barrel ('bbl') during the period which was a $5.71/bbl discount to the average Brent price, and an operating netback of $21.66/bbl.
  • Parex reduced combined operating and transportation unit costs by 17% ($4.76/bbl) to $23.47/bbl compared to the prior quarter;
  • Increased the syndicated bank credit facility to a current borrowing base of $200 million from the borrowing base of $175 million at December 31, 2014;
  • Subsequent to Q1 2015, on May 5, 2015 Parex closed a CAD$136.8 million bought deal financing, issuing 14.95 million common shares at a price of CAD$9.15 per share. The net proceeds of approximately USD$108 million from the financing will initially be used to pay down bank indebtedness, increase net working capital and subsequently is expected to be used to fund capital expenditures and future growth opportunities as set out below; and
  • Upon closing of the bought deal financing and after subsequent repayment of bank indebtedness, the company has approximately USD$80 million of working capital and an undrawn credit facility of USD$200 million.

Rumba (Operated, Block LLA-26, WI 100%): The Rumba-1 exploration well was spud on March 25, 2015 and successfully drilled to the Une Formation at a depth of 13,396 feet. The well encountered two potential productive zones in the Mirador Formation that were completed and tested with the drilling rig on location. The lower Mirador interval was tested over a 50 hour period under natural flowing conditions at an average rate of 1,135 bopd. A total of 2,365 barrels of 18.6 API oil was recovered from the interval with a final measured rate of 1,298 bopd and a final measured watercut of 3%. The watercut trend was dropping throughout the test. The lower Mirador interval was then isolated to allow testing of the upper Mirador interval and the drilling rig was moved over to spud the Bazar-1 exploration well while testing the upper Mirador. The upper Mirador was tested under natural flowing conditions for a period of 7 days at an average rate of 832 bopd. A total of 5,824 barrels of 18.6 API oil was recovered from the test with a final measured rate of 860 bopd at a watercut of 0.4%.
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Putin’s cash-starved allies target Surgutneft's $34 billion oil hoard

In Russia, even private companies serve at the pleasure of the president, particularly if they pump oil. A decade ago, Vladimir Putin’s allies had Mikhail Khodorkovsky jailed and seized his Yukos Oil Co. Last year, they forced billionaire Vladimir Evtushenkov to hand over OAO Bashneft. Now they’re coveting the biggest corporate treasure of all: OAO Surgutneftegas.

The Siberian crude producer run for three decades by Soviet-trained Vladimir Bogdanov has amassed about $34 billion of cash, Bloomberg calculations based on company data released April 30 show. With sanctions over Ukraine having severed Russia from the global financial system, Putin is considering releasing some of Surgut’s hoard, one he’d previously called untouchable, say three bankers close to the Kremlin who asked not to be identified because of the sensitivity of the topic.

“Investors are afraid Surgut will not be able to use this money at its sole discretion or that this money will ever benefit shareholders,” said Alexander Branis, chief investment adviser of Prosperity Capital Management Ltd., a Moscow-based fund company that owns Surgut shares.

Surgutneftegas preferred shares dropped 4.2 percent to 39.17 rubles by 12:52 p.m. in Moscow, the most on the Micex stock index. Putin’s spokesman, Dmitry Peskov, declined to comment on Surgut because it’s a “private company.” Bogdanov declined to comment through his press service. The 62-year-old president signaled a policy shift on Surgut in March, saying at an event near Moscow that Bogdanov has “major investment plans,” adding, “there is work to do.”

An option that may be considered would benefit one of Putin’s closest allies, OAO Rosneft chief Igor Sechin, the bankers and a senior government official said. In this scenario, Surgut would buy the 19.5 percent stake in Rosneft the state plans to auction, giving Sechin a partner who could help refinance $23.5 billion of debt coming due, they said.
Such a deal would revitalize Rosneft, the world’s largest publicly traded oil company by output, and benefit the whole energy industry, which provides the bulk of the government’s revenue, according to the official.
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InterOil gas discovery underpins LNG project

InterOil Corp.’s promising appraisal results of the Elk-Antelope gas field in Papua New Guinea (PNG) underpin its multi-train LNG project, the company announced in its 1Q15 results.

In announcing the quarterly financial results CEO Michael Hession said well results from Antelope-5 had been very encouraging: "Drilling results from Antelope-5 identify this well as having the best reservoir thickness, quality and fracture density of all wells drilled on the Elk-Antelope field.

Reservoir quality

"In particular, the thickness and quality of the dolomite zone with porosity readings of up to 25% is superior to other wells, signifying a high-quality reservoir. Antelope-5 has a 680 m (2231 ft) gross gas column and appears to have even better reservoir quality than we initially thought.

"Evaluation of seismic and new high-definition gravity data indicates that the field could extend further west than originally modelled. This data, combined with the top reservoir being higher than expected, suggests potential for significant upside."

The appraisal results underpin a multi-train LNG development at Elk-Antelope, as well as the quantification of volumes in the “world-class resource”.

LNG development

Total, the operator of PRL 15, has continued work on the development, with a large team across the joint venture working in France, Papua New Guinea, Singapore and Australia.

It is anticipated that a preferred development concept will be announced by mid 2015.

Financial update

The net loss for the first quarter of 2015 was US$21.9 million, compared to a net profit of US$318.6 million for 1Q14. Most of this loss resulted from expensing US$19.3 million of seismic that the company acquired over its extensive exploration portfolio during the quarter.

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Chaparral Energy announces Q1 financial and operational results

Chaparral Energy, Inc. announced its first quarter 2015 financial results and provided an update on its operations today. Highlights included:

Average total production of 31.4 MBoe/d during the first quarter, a 26 percent increase year over year pro-forma for the sale of its Ark-La-Tx properties
Continued growth in production associated with its North Burbank Unit with 2,160 Bo/d of gross production, a 23 percent increase quarter over quarter
Adjusted EBITDA of $120.8 million, a 10 percent increase quarter over quarter
Significant and continued cost reductions associated with CAPEX, LOE and G&A

'Our proactive and aggressive approach in responding to the weakened pricing environment continues to be effective as we have realized significant cost reductions in our D&C, LOE and G&A programs. We anticipate seeing overall cost decreases between 20 to 30 percent in drilling and completion, 15 to 20 percent in lease operating expenses and 20 to 30 percent in G&A for the year,' said Chief Executive Officer Mark Fischer. 'I believe, however, most impressive is our ability to reduce our projected annual CAPEX spend by almost 75 percent and move from a 10-rig to one-rig E&P program while managing to maintain our overall year over year production levels from 2014 to 2015 on a proforma basis. This feat speaks volumes to not only our balanced business plan, which combines E&P and EOR activities, but also to the tremendous quality of the assets in our portfolio.'

For the quarter, Chaparral produced 31.4 MBoe/d of which 56 percent was oil, 15 percent NGLs and 29 percent gas. This accounts for a 26 percent production increase on a year over year pro-forma basis and an absolute nine percent increase compared to the fourth quarter of 2014. The company drilled 15 gross operated E&P wells in the first quarter, with nine in the Mississippi Lime, three in the Oswego, two in the Marmaton, and one in the Meramec.

In response to the current market environment, the company will focus its drilling program primarily in the Mississippi Lime, Meramec and Oswego plays in Woods, Alfalfa and Kingfisher counties. It will also benefit from continued production growth in its North Burbank EOR Unit, which will not require a significant additional capital investment this year because of large investments in previous years.
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Statoil shakes up management with new CFO, U.S. chief

Norwegian oil firm Statoil replaced several top executives including its chief financial officer on Tuesday, continuing a shake-up since its chief executive was poached by rival BG Group last October.

State-controlled Statoil has lost four board members, including its chairman, over the past several months, and some top managers, including from its mergers and acquisitions unit and U.S. shale business, have left the firm.

With Tuesday's changes, the firm moved up several long-time employees, keeping with a tradition of elevating in-house talent and ensuring no sudden changes as all new executive have been with the firm for at least two decades.

The appointments, including a new U.S. chief, also indicate Statoil will keep a focus on its U.S. shale operations, despite big investment cutback and a massive writedown, analysts said.

Statoil appointed Hans Jacob Hegge as chief financial officer, moving Torgrim Reitan to head the firm's U.S. business, where the contract of the previous chief, Bill Maloney, was not renewed.

"Transferring CFO Torgrim Reitan to North America shows that they will not put less weight on their North America division and they might consider a different model of ownership," Arctic Securities analyst Christian Yggeseth said.

The wave of changes at Statoil began in February, when the firm appointed Eldar Saetre, a long-serving Statoil executive, as CEO, replacing Helge Lund who left for BG after a decade in the top job.

Saetre has pushed through efficiency changes, written down the value of poorly performing assets, particularly in the U.S. shale business, and improved relations with unions.

As part of Tuesday's changes, the firm also appointed Jens Oekland to head the marketing and processing unit, Saetre's old job, and picked Irene Rummelhoff to head a new division in low carbon and renewable energy.
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Encana posts surprise operating profit as costs fall

Encana Corp , Canada's largest natural gas producer, posted a surprise quarterly operating profit as investments in technology to lower well costs and increase production begin paying off.

Encana has been diversifying into oil production and has invested heavily in technology and drilling techniques, such as applying simultaneous drilling and completions operations on wells, to drive greater productivity and cost efficiencies.

The company said the application of such drilling techniques is increasing initial production rates and delivering stronger well performance.

Encana said production costs in the Permian, Eagle Ford, Duvernay and Montney plays fell in the first quarter ended March 31 from the fourth quarter.

The company has said it would direct most of its investments into these four areas, which its says are its highest margin growth plays.

Still total production averaged about 430,100 barrels of oil equivalent per day (boe/d) during the quarter, down from about 536,100 boe/d a year earlier, reflecting the sale of lower-margin assets and a shift to produce more liquids.

Oil and natural-gas liquids production rose 78 percent to about 120,700 barrels per day (bbls/d) in the quarter. Realized liquids prices fell to $37.83 per barrel from $69.19.

Natural gas output fell 34 percent, while realized natgas prices fell 18 percent.

Encana posted a net loss attributable to shareholders of $1.71 billion compared with a year-ago profit of $116 million, mainly due to $1.22 billion in impairment charges.

The company's operating profit, which excludes most one-time items, fell 98 percent to $9 million, or 1 cent per share.

Analyst on average were expecting a loss of 9 cents per share, according to Thomson Reuters I/B/E/S.

Encana's cash flow, an indicator of its ability to pay for new projects and drilling, fell 55 percent to $495 million, or 65 cents per share.
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Chevron unit in Saudi Arabia to halt output at Wafra oil field

A unit of Chevron Corp. operating along the Saudi-Kuwaiti border confirmed it’s shutting down the Wafra oil fields for maintenance amid a shortage of staff and equipment, trimming a potential 250,000 barrels a day from global supply.

Saudi Arabian Chevron holds a concession to Saudi Arabia’s 50 percent stake in oil and natural gas deposits in an area called the neutral or partitioned zone, Sally Jones, a London-based Chevron spokeswoman, said late Monday in an e-mailed statement. The Wafra fields lie in Kuwait’s section of the shared zone.

“Current difficulties in securing work permits and materials have impacted the company’s operations,” according to the statement Jones made in response to a Bloomberg request for comment. “While efforts continue with all appropriate parties to resolve the issue, Saudi Arabian Chevron and Kuwait Gulf Oil Company are jointly undertaking maintenance shut down at the onshore Partitioned Zone.”

The stoppage at Wafra may help reduce a worldwide glut that has pushed crude prices down by about 40 percent in the last 12 months. OPEC, which counts Kuwait and Saudi Arabia as members, chose in November to keep pumping crude oil to protect its share of the market rather than cutting output to boost prices. Brent crude, a global benchmark, was trading at $65.08 a barrel Tuesday at 8:42 a.m. in London.

The Organization of Petroleum Exporting Countries has an official output target of 30 million barrels a day. It pumped 31.3 million barrels a day last month, data compiled by Bloomberg show. The group’s 12 member states plan to meet June 5 in Vienna to assess the market.

“A decision been taken today to stop production in Wafra joint operation for two weeks for planned maintenance,” Fadghoush Shabib Al-Ajmi, head of the labor union representing workers at state-run Kuwait Gulf Oil Co., Saudi Chevron’s partner at Wafra, said Monday on his Twitter account.

Operations at the Wafra fields will be shut for maintenance until May 26 and probably won’t restart due to lingering difficulties, two people with knowledge of the matter said on Monday, asking not to be identified because the information was confidential.

The fields have a capacity of about 250,000 barrels a day and were producing 180,000 barrels in February, two other people with knowledge of the matter said on April 22. Kuwait’s government stopped issuing or renewing permits for workers at Wafra last year, these people said.

Saudi Arabia halted operations in October at the Khafji offshore fields in the same neutral zone, citing unspecified environmental concerns. Khafji also has a production capacity of about 250,000 barrels a day.
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Saudi Arabia's April crude output hits record high

Top global oil exporter Saudi Arabia raised its crude production in April to a record high, feeding its flourishing Asian market share and its own power plants and refineries.

The world's top oil exporter pumped 10.308 million barrels of oil per day in April, a Gulf industry source told Reuters on Tuesday, compared to 10.29 million bpd in March.

"This is an indication of strong demand, especially from Asia, as well as increasing domestic consumption during summer," the source said.

The increase underlined Saudi Arabia's determination not to cede market share to higher-cost producers, such as U.S. shale drillers. The kingdom and others in the Organization of Petroleum Exporting Countries (OPEC) had resisted cutting production to shore up oil prices.

It also highlights the strength of global demand, which has helped lift refinery profit margins to their highest in years.

Oil Minister Ali al-Naimi has said the kingdom's output would likely remain around 10 million bpd, and that he was "very positive" about Asian oil demand outlook.

The amount of crude supplied to the market in April was 10.360 million bpd, the source said. Supply to the market, both domestically and for export, may differ from production depending on the movement of oil in and out of storage.

April's output eclipsed the previous recent peak of 10.2 million bpd in August 2013, according to records going back to the early 1980s.
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North West Shelf LNG marketing changes could trigger showdown with China

Radical changes in the way the North West Shelf partners market their liquefied natural gas are seen as a potential trigger for a showdown with China over the economic superpower's ultra-cheap gas purchase contract.

Woodside Petroleum, the lead partner of the North West Shelf venture, said in its 2014 annual report the partners in the venture would switch to a system where they each marketed their own share of LNG produced at their plant in Karratha that wasn't committed to contract buyers.

The new system, called equity marketing of LNG, would also apply at the Pluto venture, where Woodside is the 90 per cent owner.

By 2021, when several long-term contracts have expired, the move could create a pool of about 6 million tonnes a year of LNG from the North West Shelf being marketed on that basis, equivalent to about 1 million tonnes net to Woodside, Credit Suisse energy analyst Mark Samter told clients in a note.

That could create an opportunity to "unlock" the North West Shelf venture's sales contract with China's CNOOC, Mr Samter said.

The 25-year, $25 billion contract for more than 3 million tonnes a year of LNG was struck at a historically low price in 2002, with no clauses that allowed for price increases even if oil prices rose. The terms mean the venture is selling LNG to CNOOC at much lower prices than are typical in the market, even after last year's plunge in crude oil prices, against which Asian LNG long-term contracts are typically based.

As revealed in The Australian Financial Review in January, Woodside and its partners have been seeking to increase the price of the contract in meetings with Chinese officials in the southern province of Guangdong. The companies have been accused of holding back LNG shipments as a tactic to try to pressure CNOOC into negotiating on a price increase.

The Credit Suisse note pointed to a report in specialist publication Energy Intelligence, which apparently said the North West Shelf venture had issued an ultimatum for CNOOC's Guangdong Dapeng LNG to pay more or shipments would stop in late May on the contract.

Mr Samter said while stopping shipments would be "contractually difficult", the benefits to Woodside in securing higher prices for the LNG from other customers could be "large".
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Mitsui charters eight LNG newbuild

Mitsui & Co. of Japan said it has signed a 25-year time charter deal with Trinity LNG Transport for the eight carrier that will ship the liquefied natural gas from Cameron project in the United States.

This vessel follows the five ships with time charter parties signed in September, 2014 and the two charter parties signed in January, 2015, the company said in a statement.

The latest deal brings the total maximum charter hire amount for the combined eight ships to approximately 700 billion Japanese yen.

The 178,000 cbm carrier will be built by Imabari Shipbuilding and is expected to commence its charter deal around 2020.

Attached Files
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EIA Predicts Shale Oil Output Cuts to Grow Next Month

Output from the prolific tight-rock formations such as North Dakota’s Bakken and Texas’s Eagle Ford shale will slide 54,227 barrels a day this month, based on Energy Information Administration estimates. It’ll fall another 86,000 barrels in June to a five-month low of 5.56 million, the agency said Monday.

“Even if 10 rigs come back today, we’re still going to see production decline,’ Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. said by phone from London on May 6. ‘‘We’ve reached this inflection point where there aren’t enough rigs drilling to offset legacy declines.”

Standard Chartered Plc forecast on May 4 that U.S. shale oil output will drop about 78,000 barrels a day in June from a month earlier, with declines totaling 137,000 barrels a day in the second quarter.

The drop in shale output may prove short-lived. The rebound in prices has drillers including Pioneer Natural Resources Co. preparing to put rigs back to work in U.S. fields. The Irving, Texas-based company said last week that it may deploy more rigs as soon as July.

“Prices are at a level where you’re inviting the deployment of rigs again, so the view of supply significantly falling may be misguided,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by phone on May 6.

The EIA’s June production forecasts cover the yield from major plays that together accounted for 95 percent of domestic output growth from 2011 to 2013.

Output from the Eagle Ford in Texas, the second-largest oil field in the U.S., will slide by 2.8 percent in June to 1.64 million barrels a day. Production in the Bakken region of North Dakota will drop 2.4 percent to 1.27 million, the EIA said.

Yield from the Permian Basin in West Texas and New Mexico, the largest U.S. oil field, will continue to rise, climbing 0.3 percent to 2.06 million.

The EIA’s oil-production estimates are based on the number of rigs drilling in each play and how productive they are. The number of oil rigs in service across the country has fallen for 22 straight weeks, reaching 668 on May 8, the fewest since September 2010, according to field services company Baker Hughes Inc.
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Castleton joins oil trade titans with Morgan Stanley deal

Castleton Commodities International will buy Morgan Stanley's physical oil business, the largest and oldest on Wall Street, vaulting the Connecticut-based merchant into the big leagues of global crude and fuel traders.

In a long-awaited deal that appears to mark the end of the Wall Street bank's more than three-decade history as a major player in physical oil markets, Castleton will gain several dozen oil tank storage leases, physical oil supply and purchase contracts, and a team of about a hundred traders.

Neither Morgan Stanley nor Castleton released terms of the transaction, but analysts estimated the deal to be valued at slightly more than $1 billion. This principally represents the value of oil inventories in storage or transit. The deal will not be material for Morgan Stanley, the bank said.

Castleton, a Connecticut-based trading group now owned by a private equity group of hedge fund and trading veterans, will have more scale and scope to compete in the massive global oil market.

The deal "aligns well with our goal of becoming a top-tier, global multi-commodity merchant," said CCI's Chief Executive and President William C. Reed II, a former Enron and hedge fund trader who has been running the firm since 2008.

Morgan's Global Oil Merchanting unit has traded around 2 million barrels per day (bpd) of crude and oil products over the past five years, and has 45 oil storage leases for some 30 million barrels, mainly in the United States and Europe, CCI said.

About a hundred front-office staff, including traders and shippers, are expected to move to CCI with the transaction, according to a person familiar with the deal. In total, as many as 200 employees may transfer to CCI, a second person said. The bank's Tom Simpson and Fabrizio Zichichi will lead CCI's global oil trading business, the firm said.

While Morgan Stanley will maintain its client-facing oil trading business, including both physical and paper transactions, the sale concludes the bank's years-long effort to divest a physical trading division that had come under intense regulatory scrutiny and suffered waning profitability.

The bank still plans to sell its stake in oil tanker group Heidmar, which was not part of the deal, a source said.
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Saudi Aramco discovered eight new oil and gas fields in 2014

Saudi Arabia's state oil company Saudi Aramco discovered eight new oil and gas fields in the east of the country in 2014, the company said in its annual report on Monday.

Aramco did not give figures on estimated reserves or production rates for the new fields but said they represent the highest number of discoveries in the company's history.

"Upstream, we reliably met domestic and international demand, discovered eight new fields and booked reserves that significantly exceeded production - despite the fact our combined oil and gas production approached an all-time high," chairman Khalid al-Falih wrote in the report.

There were five new gas fields, named Abu Ali, Faras, Amjad, Badi and Faris, with two oil fields, Sadawi and Naqa. The other was an oil and gas field named Qadqad.

"This brings our total number of discovered fields to 129," the company said.

Aramco produced 9.5 million barrels per day (bpd) on average in 2014 and exported a total of 2.5 billion barrels to customers around the world, the report said.

Top oil exporter Saudi Arabia, which has output capacity of 12.5 million bpd, pumped 10.29 million bpd in March.

The company said at the end of 2014 that crude oil and condensate reserves stood at 261.1 billion barrels while natural gas reserves registered 294 trillion cubic feet, both record highs.
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ExxonMobil Announces Cold Lake Project Expansion Starts Production

Exxon Mobil Corporation announced today that bitumen production began on schedule at the $2 billion Cold Lake Nabiye project expansion in northeastern Alberta, Canada.

“ExxonMobil has the project management experience, engineering expertise and effective contractor interface to deliver superior cost and schedule performance along with safe, reliable facilities that will operate for decades”

The expansion is producing about 20,000 barrels per day and volumes are expected to increase during the year to peak daily production of 40,000 barrels. Nabiye will access 280 million barrels of recoverable resources during its expected 30-year lifespan.

“ExxonMobil has the project management experience, engineering expertise and effective contractor interface to deliver superior cost and schedule performance along with safe, reliable facilities that will operate for decades,” said Neil W. Duffin, president of ExxonMobil Development Company. “Nabiye will contribute important new production to ExxonMobil as we continue to bring new projects on line.”

ExxonMobil expects to increase production volumes this year by 2 percent to 4.1 million oil-equivalent barrels per day, driven by 7 percent liquids growth. The volume increase is supported by the ramp up of several projects completed in 2014 and the expected startup of seven new major developments in 2015, including Hadrian South in the Gulf of Mexico, expansion of the Kearl project in Canada, Banyu Urip in Indonesia and deepwater expansion projects at Erha in Nigeria and Kizomba in Angola.
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OPEC expects oil prices to be about $76 a barrel in 2025 - WSJ

The Organization of the Petroleum Exporting Countries (OPEC) expects oil prices to be about $76 a barrel in 2025 in its most optimistic scenario, the Wall Street Journal reported, citing a draft of the cartel's latest strategy report.

OPEC does not expect oil prices to consistently trade at $100 barrel again in the next decade, an assessment that has the group considering the return of production limits, the Journal said. (

Oil slipped towards $65 a barrel on Monday as signs that U.S. shale oil production was recovering after a recent price rally renewed concerns of a growing global supply glut.

The report also considers situations where crude oil costs below $40 a barrel in 2025, the Journal said.

OPEC decided against cutting output in November, despite a huge oversupply in world markets.

The report recommends that OPEC return to a production quota system that it abandoned in 2011 after fights over how much each country would get to produce, the Journal said.
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Gulf Keystone - Equity issuance strengthens financial position

GKP's oversubscribed equity offering gives it renewed financial strength, with cash in hand of over $120m. This allows GKP to invest to maintain its current capability of 40mb/d and cover operating expenses in 2015 even without receipt of revenues from oil sales (which we fully expect it to receive in time). Additionally, the removal of the book equity ratio put option illustrates the commitment of the bondholders to the asset base. The current share price reflects uncertainty over receipt of revenues, but we believe the KRG fully appreciates the importance of Shaikan to the region, and that a reliable payment cycle will come in time. Our core production and development NAV is 56p/share, increasing to a full NAV of 90p/share. We also examine other valuations given the strategic process now entered into, which reveals potential upside from these estimates.

Stable production of 40mb/d possible in 2015

Operationally, GKP has achieved a great deal in the last year. Production capacity has increased to 40mb/d, despite the delays and uncertainties caused by the ISIS incursion in 2014. The drilling of Shaikan-11 (under time and under budget) effectively completes the major capital investment required for continued production at capacity of 40mb/d, though some debottlenecking will be required. The remaining capex earmarked for 2015 points to the future of production (export via pipeline), which could help cut transport costs from $25/bbl to perhaps $5/bbl.

Strategic review opens up opportunities

In February, GKP said it was engaged with a number of parties on asset transactions or a sale of the company. We examine a number of scenarios under which deals may be executed, and the valuation impact. The results suggest significant upside potential is possible.

Valuation: Core NAV 56p, full NAV 90p

The $144m write-down of the Akri-Bijeel asset, though unfortunate, has little effect on the valuation for GKP, as the bulk of value remains in the exploitation of the massive Shaikan field. The announcement of the strategic review puts the company in the spotlight, and we would expect buyers to be able to look past possible near-term cash flow issues to see the strategic value in GKP's assets. Although Shaikan is the crown jewel, the value of the (high WI) Sheikh Adi block could add meaningfully in time. We note that the company is owed an estimated $252m, slightly less than half its current market capitalisation.
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Chesapeake cutting back Utica drilling in eastern Ohio

As long as Chesapeake Energy can keep two drilling rigs in eastern Ohio, it will be able to hold onto its acreage. Akron Beacon Journal reports that Chesapeake will operate with only two rigs before the end of the third quarter of 2015 and will also reduce the number of its fracking crews from four to 2.5.

Chesapeake is cutting its operations in Ohio after a stretch of low natural gas prices. At the same time, the company is extending its laterals to produce better results in Ohio.

Chesapeake is the number 1 player in the Utica Shale. The company is the number 2 natural gas producer in the United States. Compared to the first quarter of 2014, Chesapeake’s production for the first quarter of 2015 grew by 14 percent.
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Noble Energy to buy Rosetta Resources for about $2 bln

Oil and natural gas producer Noble Energy Inc said it would acquire Rosetta Resources Inc for about $2 billion in stock, highlighting a consolidation being driven by a steep fall in global oil prices.

The deal will give Noble entry into the Eagle Ford Shale field and the oil and gas region of Permian Basin in Texas.

Rosetta shareholders will receive 0.542 Noble Energy shares for each share held, or $26.62 per share, based on Noble's closing price of $49.12 on Friday.

The offer represents a 38 percent premium to Rosetta's Friday close of $19.33. The shares had lost nearly two-thirds of their value since June.

Noble will also assume Rosetta's net debt of $1.8 billion as of March 31.

The company said it had identified more than 1,800 drilling locations across Rosetta's liquids-rich assets, consisting of 50,000 net acres in the Eagle Ford shale and 56,000 net acres in the Permian.

The assets have the potential to produce about 1 billion barrels of oil equivalent, Noble said.

Noble's deal for Rosetta, expected to close by the third quarter, is the latest acquisition triggered by the steep drop in global oil prices .

Royal Dutch Shell last month agreed to buy BG Group for 47 billion pounds ($70 billion) in the first major energy industry merger in more than a decade.

Smaller companies have followed suit. Spain's Repsol bought Talisman Energy, Canada's fifth-largest independent oil producer, for $8.3 billion last December.
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China crude imports to pick up as storage, buyers emerge

China's appetite for crude oil is expected to pick up later this year as storage comes online and new buyers emerge, even after its inbound shipments surpassed United States imports last month for the first time, traders and analysts say.

China's crude oil imports hit a record 7.37 million barrels per day (bpd) in April, making it the world's biggest importer for the commodity last month.

And despite slowing economic growth, China's crude purchases are expected to keep climbing in second-half 2015, supporting oil prices that have rebounded about 40 percent since touching six-year lows earlier this year due to a supply glut.

"While most of the focus is on the supply side ... one of the elements that could help the bulls' case later in the year and next year is China," analysts at Energy Aspects said.

Chinese refiners are expected to rebuild crude stocks pulled down by months of high refining rates, and will begin to fill new commercial storage tanks with a total capacity of nearly 40 million barrels that will come online this year.

"I expect to see higher commercial inventory levels," an oil trader with a Chinese state company said on condition of anonymity.

"Everybody is expecting higher oil prices towards the end of the year, so naturally there will be inventory (build)," he said, as refiners buy crude before it gets more expensive.

China is also expected to resume buying for its strategic petroleum reserves (SPR). Consultancy SIA Energy expects two new strategic storage facilities - in Jinzhou and Tianjin - with total capacity of about 50 million barrels to be completed in the fourth quarter.

Fresh demand from independent "teapot" refiners, which account for a fifth of China's refining capacity, could also add to imports. The country's biggest private refiner, Shandong Dongming Petrochemical Group, expects to get approval in the third quarter to start importing about 5 million tonnes a year (100,000 bpd) of crude.

Adding to China's import needs is a potential dip in domestic output this year of about 120,000 bpd, forecast by researchers at Wood Mackenzie as companies cut capital spending.

The bullish outlook for crude imports contrasts with slowing economic growth in China. Domestic oil demand is forecast by the International Energy Agency (IEA) to grow a modest 2.7 percent in 2015, a bit higher from last year but down from double digit growth at the beginning of the decade.
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Afren admits it will miss interest payment

Afren will miss an interest payment on its debts as the company looks to preserve its cash during restructuring negotiations.

The Africa-based oil firm, which has endured a 98 per cent collapse in its share price during a torrid year, will miss a $12.8m (£8.3m) interest payment resulting in a formal default on bonds due for repayment in 2019.

However, the embattled company insisted the default will not result in an "immediate obligation" to repay the bonds and that it had received assurances from a committee of bondholders that it has "no current intention to take enforcement action" to make the payment of interest due.

Shares have endured a rocky morning, dropping by more than five per cent before recovering, causing more pain for shareholders in the company, which has in recent months been rocked by falling oil prices, funding crises and boardroom scandals. In March it fell out of the FTSE 250 as part of the indexes' quarterly review.

The company appointed Alan Linn of Australian-listed Roc Oil as its new chief executive last month following a six-month search.
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Costs are dropping in the Eagle Ford, producer says

When Houston’s Swift Energy Co. reported first-quarter results Thursday, it offered a glimpse at the level of cost-cutting oil and gas companies are making in the Eagle Ford Shale.

“We are seeing cost concessions in some cases greater than we originally budgeted,” said Terry Swift, president and CEO, said in a call with analysts.

Swift’s average drilling cost this year is $2.6 million per well, down from $3.2 million last year. And its most recent Eagle Ford well was drilled for $2.2 million.

Its lease operating costs dropped 16 percent from the previous quarter.

Swift on Thursday reported its first-quarter results. Its Eagle Ford production increased 19 percent over the previous year.

Swift gave an insightful breakdown of what it costs the company to produce oil and get it to market, as well as the level of cost-cutting companies have been making:

The company said it cost $8.48 per barrel of oil to operate its leases in the first quarter of last year. In the first quarter of this year, that dropped to $6.21 per barrel as the company cut costs — “primarily field head count, corporate overhead allocations, and repair and maintenance costs, along with compression and produced water disposal costs.”

Transportation and processing: $1.74 per barrel of oil, down from $1.80.
General and administrative expenses of $4.10 per barrel during the first quarter of 2015. That was up $3.57 per barrel from the same months the year before due to “expenses related to a corporate reduction in force” – in other words, layoffs at headquarters.

Interest expense of $5.95 per barrel in the first quarter, down from $6.27 per barrel for the same period in 2014, because of production increases.
Severance and ad valorem taxes were 7.6 percent of oil and gas revenues in the first quarter of 2015, compared to 6.2 percent the year before, due to lower commodity prices.

“We have aggressively sought to reduce our drilling and completion costs for 2015,” said Bob Banks, executive vice president and chief operating officer at Swift, in a call with analysts. “We have negotiated lower prices for goods and services, including chemicals, trucking, labor rates, saltwater disposal costs, and some of the examples of the cost reductions on our lease operating expenses include both labor and repairs and maintenance costs, each by over $200,000 a month from 2014 levels. Additionally, compression costs are down over $150,000 a month compared to 2014 levels.”

Swift officials said they think this lower-cost environment could be here for some time.

In all, Swift realized an average price of $21.99 per barrel of oil equivalent during the quarter, down from $50.62 in the first quarter of 2014.

The company has one drilling rig in South Texas now. It drilled four wells in Webb County in the first quarter and one in McMullen County.

Seemingly, the industry is adapting well to the change in the commodity price environment. However, a word of caution is in order.

The breakeven price is highly sensitive to the discount rate and "cost overburdens" included in the calculation.

A case can be made that a higher discount rate should be used in the current environment as capital is scarce and more expensive. Cost overburdens per well have also increased as activity contracted.

  • To illustrate, consider a company that in 2014 ran 20 rigs and spent $1.6 billion in capex, with G&A expenses of $160 million.
  • Let's assume that the same company is now running 5 rigs, with a capex run-rate of $300 million, G&A expense of $140 million and restructuring charges of $60 million.
  • The math shows that the company's direct cost per well has dropped by 25%.
  • However, if one were to include the G&A overburden in the calculation, the well cost would be unchanged. If one were to also include the restructuring charges, the calculation would show that the cost per well has gone up by ~14%.
  • In this specific illustration, the improvement in drilling returns, if any, would be from eliminating less promising drilling locations from the drilling plan. Moreover, the improvement would be offset in part by the increase in the cost of capital.

The above example illustrates that while it may appear that well economics have improved dramatically relative to a year ago, the comparison is not always "apples to apples":

  • The wells being compared are not the same;
  • Cost of capital is not the same;
  • Vendor cost reductions are very significant but reflect a different point in the cycle and may not be sustainable; and
  • Cost savings at the well level are diminished by higher non-D&C costs per well.

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BP wins right to appeal some Gulf spill damages claims

A U.S. federal appeals court said on Friday BP Plc deserves the right to appellate review of some damage claims awarded to people and businesses in connection with the 2010 Gulf of Mexico oil spill.

The decision by the 5th U.S. Circuit Court of Appeals in New Orleans could help BP limit its payout to victims of the explosion of the Deepwater Horizon drilling rig, which killed 11 workers and caused the largest U.S. offshore oil spill.

BP originally expected to pay $7.8 billion to resolve claims under a 2012 settlement, but by late April it had boosted its estimate to $10.3 billion, according to a regulatory filing.

About $5.13 billion has been paid out so far to 63,597 claimants, according to a website maintained by claims administrator Patrick Juneau.

In its appeal, BP complained that rules adopted by U.S. District Judge Carl Barbier compromised its right to appeal awards he approved and which the company did not like to the 5th Circuit.

Writing for the appeals court, Judge Fortunato Benavides said BP deserved that right to appeal because it did not expressly waive it.

"Where a settlement agreement does not resolve claims itself but instead establishes a mechanism pursuant to which the district court will resolve claims, parties must expressly waive what is otherwise a right to appeal from claim determination decisions by a district court," the judge wrote.

"The point at which a party seeks the district court's discretionary review is the point at which further review by this court becomes a possibility."

The 5th Circuit separately rejected BP's appeal of awards to three non-profit groups. Lawyers for spill victims accused BP of appealing the awards as a means to relitigate the entire settlement.

BP spokesman Geoff Morrell said the company is pleased with the ruling on appeals of individual claims determinations.

BP is awaiting a decision from Barbier assessing penalties under the federal Clean Water Act over the spill.
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AAA predicts strong start to U.S. summer driving season

More U.S. drivers will hit the roads this Memorial Day holiday than in the past decade, fueled by a growing economy and low gasoline prices, the nation's largest motorists' advocacy group said in a forecast released on Friday.

AAA projected 37.2 million people would journey 50 miles (80 km) or more from home during the May 21-25 period, a 4.7 percent jump from the 35.5 million who traveled for the holiday weekend last year and the most Memorial Day-related traffic since 2005.

The projected growth rate is the highest for any of the holidays tracked by AAA since the July 4 holiday in 2012.

"A strong employment market and low gas prices have driven consumer optimism to new highs and boosted Americans' disposable income. This is welcome news for the travel industry," AAA President Marshall L. Doney said in a press release.

The current national average price of gas is $2.66 a gallon, $1 less than the average price on Memorial Day last year.

AAA's forecast was released the same day as the U.S. Labor Department's employment report for April, which showed an unexpectedly strong gain of 223,000 jobs and a drop in the unemployment rate to 5.4 percent.

The growing economy coupled with the sharp drop in gasoline prices led to a surge in U.S. motor travel at the end of last year and into 2015, AAA said.
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Permian basin sees first rig increase since oil rout -Baker Hughes

After weeks of idling rigs on slumping crude prices, U.S. oil drillers added rigs to the Permian Basin for the first time this year, industry data showed on Friday.

Energy companies increased by one each the number of oil rigs in the Permian basin of West Texas and eastern New Mexico - the biggest and fastest growing U.S. shale oil field - and in the Barnett in Texas.

That was the first increase in the Permian since December and the first in the Barnett since March, oil services company Baker Hughes Inc said on Friday.

Overall, the number of active oil rigs declined for the 22nd week in a row, but the rate of that decline has slowed in recent weeks, suggesting the collapse in drilling may be coming to an end as prices recover after falling 60 percent from June to March.

The number of rigs drilling for oil fell by 11 this week to 668 - the smallest drop since early April - after declining 24 and 31 in the prior two weeks, Baker Hughes said.

With the oil rig decline this week, the number of active rigs has fallen to the fewest since September 2010, according to Baker Hughes data going back to 1987.

Since the number of oil rigs peaked at 1,609 in October, producers have reacted quickly to the steep drop in prices since the summer by cutting spending, eliminating jobs and idling more than half of the country's rigs.

The U.S. oil rig count is nearing a pivotal level experts say is helping to bolster prices and trim production, and will eventually coax oil companies back to the well pad in coming months.

U.S. crude futures rose to over $62 a barrel this week, the highest this year, helped by a weaker dollar and bets a supply glut would ease as the falling rig count reduces oil output. That is a 48 percent rebound from the $42 six-year low set in March on oversupply concerns and lackluster demand.

Texas, the state with the most rigs, lost one to 378, the least since 2009, but that was the smallest rig decline since November.
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Parex Resources - Resilient and leveraged to the upside

Despite macro headwinds, Parex's operational strength is evident from material production growth in 2015 and a 114% increase in 2P reserves. Production guidance of 26.5mb/d (representing 18% growth y-o-y) has room for upside if exploration is successful, while the $145-155m should be fully funded at around $50-60/bbl oil prices. Our remodelled valuation indicates a RENAV of C$9.5/share, indicating upside to the shares even without exploitation of 3P reserves, which we see as likely in time and would take valuation to $10.2/share. Importantly, we see this value increasing in the coming years as production increases, supported by recovering oil prices.

2015 production has started well

Q115 saw exploration success, with the Tilo-1 commencing long-term testing at the end of March. This should add to the Q115 production of 26.7kbd and bodes well for the company's ability to hit guidance, even with a reduced investment programme. Further exploration is ongoing, with Rumba-1 currently drilling as one of the 11 wells planned in 2015, many of which are in blocks with production and well-understood geology.

Remaining cash flow neutral

We have adjusted our modelling to reflect the recent macro environment. The company took proactive steps to adapt to lower prices with a reduced investment programme to keep within cash flow. We now reflect higher 2P reserves and more robustly model exploration value. We assume Brent $58.5/bbl in 2015, which should provide enough cash flow to largely cover the $145-155m capex bill. Should prices sustain at these levels or higher, Parex has a significant drilling inventory of 62 well locations to develop 2P reserves and can react to exploration success. The company can therefore be flexible in adjusting as the environment develops.

Production growth should increase value over time

We have adjusted our modelling, which results in a reduced core NAV of $8.8/share. We also add exploration value to reach a RENAV of $9.5/share. Importantly, we have also looked into the value of the portfolio, which reveals a rise over time, assuming some exploration success or exploitation of 3P upside. Given the company's success in exploration and progressing 3P to 2P/1P, we think this is likely. The company is leveraged to oil prices and higher oil prices would both increase value of near-term production and allow acceleration of development.
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New tax could slow Marcellus shale development

"Low oil and gas prices have prompted many US state governments to alter their fiscal and regulatory regimes to better support continued development. In contrast, Pennsylvania has actually proposed a new severance tax to support education investment promised in the recent gubernatorial election. Between 2008 and 2014, the development of shale gas resources in the Marcellus Shale has spurred Pennsylvania to become the second largest state producer of natural gas in the US, with production growing from less than 550 million ft3/d to over 9000 million ft3/d. Although this new tax will provide an immediate boost to state finances, it could exacerbate the slowdown and loss of investment due to low gas prices.

"While Pennsylvania is the largest natural-gas-producing state without a severance tax, it has instead used income tax and other fees to gain revenue from gas production. It has an impact fee for drilling new wells, which has brought in over US$630 million since 2011, and the state also has the second-highest income tax rate, at 9.99%.

"This new law would significantly increase the tax burden on gas production. Dubbed the Pennsylvania Education Reinvestment Act, it would set a 5% severance tax on gas production in addition to 4.7 cents per thousand ft3 of gas, increasing the effective state tax rate from 9.9% to 15.9%. Pennsylvania would have the highest taxes of the major gas-producing states in the Lower 48.
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Gazprom Neft drills first tight oil Achinsk field well in Russia

The first exploratory well has been drilled at the Achinsk field (Tomsk Oblast, under development by Gazprom Neft subsidiary Gazpromneft-Vostok), part of a federal project to establish a regional testing ground to identify effective technologies for the development of hard-to-recover (tight) reserves

Analysis of the material obtained will allow further clarification of the structure of the Bazhenov formation, as well as delivering insights into the long-term prospects for production from these deposits, and the identification of optimum strategies for their development

Operations, financed by Gazprom Neft, are also aimed at conducting a study of the unconventional hydrocarbon reserves of the Bazhenov formation.

Sampled at a depth of around 2,600 metres, approximately 30 metres of core samples have been extracted from the Bazhenov formation and subsequently transferred to the All-Russian Research Geological Oil Institute (VNIGNI, the primary institute of the Federal Subsoil Resources Management Agency).

Analysis of the material obtained will allow further clarification of the structure of the Bazhenov formation, as well as delivering insights into the long-term prospects for production from these deposits, and the identification of optimum strategies for their development. Drill samples will also be studied by specialists from the Gazprom Neft Scientific and Research Centre.

The Bazhenov formation is a key source of unconventional hydrocarbon reserves. A specific geological stratum identified in the centre of Western Siberia, this rock formation runs to depths of 2,000–3,000 metres. While the stratum covers an area of approximately one million square kilometres, it is comparatively thin, with a thickness of only 10–40 metres. Optimistic estimates suggest that oil reserves of the Bazhenov formation could amount to as much as 100–170 billion tonnes. The development of these reserves in Russia is currently awaiting the selection of appropriate technologies for full-scale commercial production.
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Range drills more monsters

Officials from Range Resources Corp.(NYSE:RRC) say that two recently drilled natural gas wells in Washington County help demonstrate that the company is sitting atop of the best part of southwestern Pennsylvania's shale fields.

The wells, one tapping the Marcellus and the other tapping the Utica, each posted what the company believes are record initial production rates.

The company announced at the end of 2014 that the Utica well, the Claysville Sportsman's Club No. 1, posted a 24-hour initial production rate of 59 million cubic feet. The well has since yielded 1.2 billion cubic feet of gas.

"Albeit early, the well is meeting all our original expectations," said Range COORay Walker.

On Tuesday, the company revealed that it had sunk another monster well into the Marcellus. That well has posted a record initial production rate 43.4 million cubic feet of gas, according to Range.

"We believe we've captured a large position with stacked pay potential in the best rock in the basin," said Walker.

As for the Utica well, Range is planning to bring another on the same pad into sales this summer. It also has plans to drill a third there.

We expect the Utica will be different from the early years of our Marcellus play in that it can be drilled in a true development mode right from the beginning," Walker said.

He said they'll drill from existing Marcellus Shale pads and make use of existing infrastructure.

"Essentially we can drill the wells like a very efficient manufacturing process," he said.

Executives said they'll look to incorporate the Utica into a drilling program as early as next year, if market conditions and well economics support it.

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Alternative Energy

Plug Power reports 1Q loss

Plug Power Inc. (PLUG) on Monday reported a loss of $11.1 million in its first quarter.

On a per-share basis, the Latham, New York-based company said it had a loss of 6 cents. Losses, adjusted for non-recurring gains, came to 7 cents per share.

The results did not meet Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for a loss of 6 cents per share.

The alternative energy company posted revenue of $9.4 million in the period.
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Soventix and JA Solar to Collaborate on Solar Power Projects in Chile

Soventix Chile SPA and JA Solar today announced the establishment of a joint venture in Santiago de Chile that will develop large scale solar photovoltaic power projects in Chile.

Soventix GmbH is increasingly concentrating its efforts on implementing solar projects outside of Europe, especially in countries which show strong market potential due to high solar radiation and increasing energy costs.

Latin America is of special interest due to its high and growing energy demand. Soventix's local subsidiary Soventix Chile SpA is developing a portfolio of projects, currently in various stages of development and implementation, which includes a pipeline of more than 250 MW. For similar market reasons, JA Solar is also strengthening its position in Latin America.

Soventix and JA Solar see clear advantages to working together, which motivated the formation of this joint venture. For JA Solar collaboration with an established project developing company can lead to a more rapid penetration of this new market. For Soventix a partnership with one of the industry's leading module manufacturers can help in attracting capital from international investors for its projects.

The joint venture will initially cooperate on projects totaling 130 MW, all of which will use JA Solar modules.

"We are pleased to partner with a premium module manufacturer like JA Solar," said Thomas Stetter, Chief Executive Officer of Soventix Chile SpA. "Having a technically and economically strong module supplier enables us to move rapidly into the detailed engineering stage of our projects, as well as progressing in raising capital."

"A central element of our market entry strategy is to participate at the earliest stages of project development. This enables us to secure supply agreements early on, as well as to be influential in the project implementation and not act simply as a vendor," said Jian Xie, President of JA Solar.

"This operation in Chile confirms our commitment to the Latin American market, since it builds on projects we have already started developing in Mexico and Panama," added Giovanni Landi, General Manager for Project Development at JA Solar.

Both companies expect completion of the first collaborative projects in 2015.
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Wacker Chemie to list silicon wafer business Siltronic

Germany's Wacker Chemie is planning to list its silicon wafer business Siltronic on the Frankfurt stock exchange to free up capital for its chemicals business.

The initial public offering will, among other factors, depend on the capital market environment, Wacker Chemie said in a statement on Friday, declining to comment further.

Two people familiar with the plans said that a flotation of a stake -- possibly around 30 percent -- is planned for mid to late June with an official intention to float to be published later this month. Siltronic could be valued at more than 1 billion euros ($1.12 billion) based on the multiples applied to rivals.

Wacker Chemie, which makes more than 3,000 chemical products from methanol, ethylene, silicon and rock salt, said in March it was examining options for its Siltronic unit, including an IPO, which would allow it to spend more money on other parts of its capital intensive business.

Siltronic, which supplies the global microchip industry, in 2014 posted sales of 853 million euros, or 18 percent of Wacker's group sales.

Earnings before interest, tax, depreciation and amortisation (EBITDA) reached 118 million euros, contributing to a total of 1.04 billion for the group.

Siltronic's EBITDA margin, which stood at 14 percent in 2014, is expected to rise further this year. It will, however, remain short of its longer term target of 20 percent, a person familiar with the company said.

Market research firms are predicting the market for silicon wafers to grow by 3-6 percent this year with makers of smart phones and tablet computers driving demand.

While the wafer market has proven to be very cyclical in the past, hinging on the arrival of new PC generations, the emergence of new consumer electronic devices has recently smoothened demand curves.

With a global wafer market share of 14 percent, it supplies groups like Samsung, Micron, SK Hynix , TSMC and Toshiba.

Rivals like Japanese groups Shin-Etsu and Sumco , as well as U.S.-based Sunedison Semi trade at an average of 9 times their expected core earnings respectively.

A similar multiple would put Siltronic's value at more than 1 billion euros.

While Siltronic expects to increase its capital expenditure this year, it is not planning to build a new wafer factory as only an increase in wafer prices by 20-30 percent would justify such a move, the person familiar with the company said.
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Monsanto's Syngenta gambit hinges on sale of seed businesses

U.S. seeds giant Monsanto is trying to line up buyers for assets worth up to $8 billion to appease competition authorities before making a fresh takeover approach for Swiss Syngenta, possibly within three weeks, industry sources said.

Monsanto is expected to tap German chemicals group BASF , an existing joint venture partner, as it seeks a buyer for the U.S. seeds business of Syngenta, which can't be part of its proposed takeover, sources said.

The St. Louis-based group is after Syngenta for its industry-leading crop chemicals, driven by the idea that seeds and pesticides will be better sold and developed together.

Monsanto produces glyphosate, or Roundup, the world's most widely used broad-spectrum herbicide, and has engineered a range of proprietary crops that resist it.

Syngenta closely integrated its seeds and crop chemicals operations in 2011 and Monsanto is expected to unravel some of the main strategic decisions that shaped the group over the last four years - selling off seeds and merging Syngenta's crop chemicals with Monsanto's seeds.

Global antitrust authorities are expected to demand remedies to reshape the balance of power in the crop protection industry before any combination is allowed.

Syngenta's management will not want to be seen backing a deal that is then shot down by antitrust watchdogs, two industry sources said.

Monsanto commands about a quarter of the $40 billion global seeds market while Syngenta's own seeds business has a global market share of 8 percent.

The Swiss group's seeds business could be worth between $6 billion and more than $8 billion, according to analysts. It will have to be sold because authorities are expected to block Monsanto from entrenching its dominance of the U.S. soy and corn seeds market.

Monsanto has worked closely with BASF since 2007 when the two companies established a joint venture to develop higher-yielding and stress-tolerant versions of corn, soy, cotton and canola.

But Monsanto could also sound out Chinese companies such as China National Chemical Corp (ChemChina) for Syngenta's glyphosate-based herbicides, a sector banker said, pointing to products containing glyphosate as likely to raise antitrust concerns.

"What Monsanto needs is a stronger antitrust case," said another source, who is close to a rival chemicals group monitoring the situation and asked not to be named.

The U.S. group has so far been unable to get a firm commitment from prospective buyers which include German pharmaceutical and chemical company Bayer, another banker familiar with the industry said.

The bankers said some suitors will likely demand chunks of Monsanto's seeds business as part of any deal.

Zuercher Kantonalbank analyst Martin Schreiber said Dow Chemical could be another possible bidder for Syngenta's assets.

Liberum analyst Sophie Jourdier said antitrust issues would not be insurmountable but highlighted the risk that U.S. farmers might lobby authorities to consider the combined group's dominance of the broader agricultural inputs market and not look at seeds and chemicals separately, which would put the entire deal at a risk.

Monsanto is looking to a new generation of compounds, such as Syngenta's Acuron herbicide to replicate the success of the glyphosate-centred seeds franchise.

Attached Files
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Israel Chemicals optimistic govt will ease tax plan

Israel Chemicals (ICL) said on Wednesday it was optimistic the country's incoming government might water down a plan to impose stiff taxes on mining firms.

The plan, drafted before March elections and which still needs parliamentary approval, would levy a progressive tax of 25 percent after miners reach an annual return on investment of 14 percent, rising to 42 percent for returns over 20 percent.

ICL Chief Executive Stefan Borgas said he met Finance Ministry officials this month, but not incoming Finance Minister Moshe Kahlon, and there was a new political willingness to work out a deal beneficial to both sides.

"This could be the starting point to a much more constructive dialogue," Borgas told reporters after the company released first-quarter results.

"Emotions are down a little bit and we are talking about facts. Israel Chemicals has a big interest to build and strengthen in Israel."

ICL, which has exclusive permits to extract minerals from the Dead Sea, has halted or put under review nearly $2 billion in investment in Israel because of the plans.

At the same time, ICL is expanding outside Israel in China, Britain and Spain. Borgas also said ICL was seeking to accelerate development of an Ethiopian mine through an offer to buy Canada's Allana Potash.

ICL, one of the three largest suppliers of crop nutrient potash to China, India and Europe, has been hit by a strike at two of its Dead Sea plants over plans to implement an efficiency plan that includes 280 job cuts.

Its bromine unit has been closed since workers walked out in February. Employees at a potash plant joined the strike later.

Although the strike weighed on first-quarter results, ICL posted a higher net profit thanks to the sale of non-core businesses. It earned $193 million excluding one-time items up from $189 million a year earlier and above an average forecast of $144 million in Reuters poll.

Sales fell 13 percent to $1.4 billion, roughly in line with forecasts.

Borgas said ICL would recover most of its delayed potash sales when the strike ends, most likely in the second half. He said it was "manageable" since cash flow from other operations was high and it was not hurting potash supplies to China.
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Precious Metals

SA gold miners face repeat of brutal 2014 platinum strike

Last year South Africa's platinum mineworkers were responsible for the longest strike in that country's history.

The strike was called by AMCU, a radical union that had been gaining strength in the platinum belt following the August 2012 killing by police of more than 30 mineworkers.

The platinum strike was ended after five months and 1.3 million ounces lost – about a third of global output.

Now AMCU is bringing its wage demands to South Africa's gold sector, again asking for a doubling of the lowest paid workers wages and similar increases in housing benefits. That would bring entry-level remuneration for gold mine workers to $1,200 a month.

The largest union is asking for an 80% wage hike

AMCU says it represents 40% of the 94,500 workers at AngloGold Ashanti, Sibanye Gold and Harmony Gold Mining. NUMSA, the union  representing the bulk of workers, is asking for an 80% wage hike according to Bloomberg Business:

“Mineworkers are enslaved across the country, across the mining sector, so whatever we put forward is to liberate the mineworkers in this economic oppression,” Association of Mineworkers and Construction Union President Joseph Mathunjwa told reporters Wednesday in Johannesburg.

South Africa is the world's sixth largest gold producer and AngloGold and Sibanye are the third and ninth largest listed gold mining companies.

While South Africa's gold miners don't play nearly as dominant a role in the global supply of the yellow metal as they did for most of the 20th century, a platinum-style strike would nevertheless impact the fundamentals of the industry.
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Silver Wheaton’s Q1 earnings fall Despite 10m silver-equivalent oz,

The world’s largest precious metals streaming firm Silver Wheaton has, for the first time, produced more than ten-million silver-equivalent ounces in a quarter, driven by its recent $900-million acquisition of a further 25% of gold from Vale’s Salobo mine, in Brazil, as well as the first gold/silver contributions from Hudbay Minerals’ Constancia mine, in Peru. 

The silver- and gold-focused finance provider reported record attributable output of 10.4-million ounces, comprising 6.3-million ounces of silver and 55 100 oz of gold, for the quarter ended March 31, a 15% year-on-year increase. However, sales volumes during the three months under review did not reflect the record output, which president and CEO Randy Smallwood ascribed to timing issues. “We fully expect to see increased sales as the year progresses,” he told Mining Weekly Online in a telephone call on Friday. 

“We expect both of these streams to realise further gains over the coming year, as the Salobo mine is currently ramping up production after expanding in the middle of last year and the Constancia mine achieved commercial production on April 30 this year.” During the first quarter, payable silver-equivalent ounces produced but not yet delivered to Silver Wheaton by its partners increased by 1.6-million ounces to about 6.5-million ounces, mainly owing to an increase in the Salobo gold purchase agreement. 

Smallwood explained that payable ounces produced but not yet delivered to Silver Wheaton were expected to average about two to three months of annualised output, but it could vary from quarter to quarter owing to a number of mining operations factors including mine ramp-up and delays in shipments et cetera. He noted that in the third and fourth quarters of 2014, the company had sold about 98% and 96% of production respectively, and that the company would expect a correction. "We normally guide for sales of about 90% of production. Whenever we get high sales in a quarter, it puts pressure on the following quarter," Smallwood said. 

Vancouver-based Silver Wheaton reported net earnings of $49.4-million, or $0.13 a share, down 38% year-over-year when compared with net earnings of $79.8-million, or $0.22 a share, a year earlier. Cash flow from operations totalled $89.1-million, or $0.24 a share, down 22% on the cash flow from operations of $114.8-million, or $0.32 a share, recorded in the first quarter of 2014. Earnings and cash flow continued to be impacted by lower gold and silver prices.

Silver Wheaton reported revenue for the period of $130.5-million, derived from the sale of 7.7-million silver-equivalent ounces, comprising 5.7-million ounces of silver and 28 400 oz of gold. This was 21% lower than the revenue of $165.4-million recorded in the first quarter of 2014, mainly owing to a 17% decrease in the average realised silver-equivalent price at $16.9/oz, compared with $20.38/oz in the same period last year, coupled with a 5% decrease in the number of silver-equivalent ounces sold. Smallwood said the company looked forward to a prolonged period of significant organic growth without requiring any further capital. “Given our fully funded growth profile, this is the first of many production records over the coming years,” he stressed. 

Silver Wheaton expected to produce 43.5-million silver-equivalent ounces this year. The company was expecting to grow its 2019 attributable output by 40% over last year’s 35.3-million silver-equivalent ounces to 51-million ounces. This did not include the 13-million potential ounces from Hudbay’s Rosemont project, in Arizona, and Barrick Gold’s Pascua-Lama project, straddling the Chile–Argentina border, that could come on stream at that time. Smallwood said the biggest challenge for the company this year was to regain higher valuations than compared to its peers.
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Recent royalty acquisitions lower Franco-Nevada headline earnings

Precious metals royalty and streaming firm Franco-Nevada has reported lower adjusted profit for the three months ended March 31, as higher depletion and costs of sales related to its recent royalty acquisitions, such as at Candelaria, Sabodala and Fire Creek, were only partially offset by lower income tax expense and higher revenue. 

Adjusted net income for the first quarter was $22.9-million, or $0.15 a share, down 35% year-on-year compared with $35.4-million, or $0.24 a share, for the same period a year earlier. Wall Street analysts had, on average, expected earnings of $0.18 a share on revenue of $112.6-million.

Net earnings for the period fell 46% to $19.2-million, or $0.12 a share, compared with $35.4-million, or $0.24 a share, for the same period in 2014. Despite missing analyst forecasts, revenues rose 4% year-on-year to $109.2-million, on the back of a 29% in gold-equivalent output to 85 081 oz. 

The improved output was underpinned by the company’s new Candelaria asset, operated and owned by Lundin Mining, having a strong first quarter. Lower average oil prices also impacted the company’s revenue streams. 

Franco-Nevada remained debt free with $671.3-million in working capital at quarter end. After bagging significant royalty rights on diverse prospects during recent months, the company expected to continue to grow its portfolio with further investments. The company had declared a quarterly dividend of $0.21 a share, up 5% from the previous $0.20-a-share dividend, marking the eighth consecutive yearly dividend increase for Franco-Nevada shareholders.
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Base Metals

Peru probes Southern Copper's knowledge of suspected extortion

Peru probes Southern Copper's knowledge of suspected extortion

Peru is investigating whether Southern Copper Corp knew about but failed to report an extortion attempt by an opponent of its stalled Tia Maria project, the mines minister said on Thursday.

The inquiry comes as the judiciary issued an arrest warrant for Pepe Julio Gutierrez, a lead opponent of the $1.4 billion proposed mine.

Prosecutors say Gutierrez tried to extort money from Southern Copper in exchange for calling off protests against the mine that have turned violent and left three people dead this year.

The government said it halted talks with the company over how to start construction on Tia Maria because of the accusations and may take further action.

"If we receive a notice from the judiciary, we will act," Energy and Mines Minister Rosa Maria Ortiz told reporters on the sidelines of an event without offering specifics.

Ortiz said she spoke with a vice president of Southern Copper's parent, Grupo Mexico, to schedule a meeting with a company representative to clarify the matter.

Grupo Mexico and Southern Copper declined to comment but Southern Copper has denied any wrongdoing.

The extortion accusations followed the broadcast on a local television show of phone conversations between Jesus Gomez, a lawyer who has worked for Southern Copper in the past, and a man heard offering to stop protests if the miner pays him and two other mining opponents.

Gomez said he recorded the conversations and claims Gutierrez was demanding $1.5 million from the company. Gomez has said Southern Copper rejected the proposal but encouraged Gomez to continue the discussions. Southern Copper said in a statement on Monday that Gomez was never asked to mediate the conflict.

Reuters could not confirm the authenticity of the recordings.

Gutierrez could not be reached for comment. He has previously told local media that the recordings are fake.

Tia Maria has faced delays since 2011, when rallies by farmers who fear mining pollution left three dead. Three people have also been killed in renewed protests this year just ahead of construction.

Calls for the project's suspension grew in Lima this week, with the head of the mining chamber joined lawmakers on the left and right in advocating for a formal pause to end unrest.

Ortiz said the government has no basis for suspending the 120,000 tonne-per-year project.

"That's a decision the company would have to make," Ortiz said.

She also said the miner did not do enough to build local support for the project's revised environmental plan, which included a desalinzation plant and was approved last year.

Attached Files
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Chalco: big bull?

Chalco is possibly one of the worst managed companies we follow.Image title
About two years ago we ran a story that the drunken chairman of Chalco admitted to a journalist at dinner in Hong Kong that his company was 'out of control'.  It must remain apocryphal now, the story has disappeared and the chairman has been sacked, replaced by a Mayor:

"Aluminum Corp. of China has turned to a local politician, who has been out of industry for more than a decade, to head up the nation’s biggest producer, naming the mayor of Chengdu as its chairman.

Ge Honglin replaces Xiong Weiping, 58, whose five-year tenure as head of the state-run company known as Chinalco ends with a top executive embroiled in a graft probe and the company’s listed unit, Chalco, posting a first-half loss of 4.12 billion yuan ($673 million) due to lower aluminum prices."

This follows a host of other arrests at Chalco including:

- The vice chairman of Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, is being investigated for graft as China intensifies its corruption crackdown.

Sun Zhaoxue, also general manager of parent company Aluminum Corp. of China, is being probed for “serious violations of discipline and law,” the Chinese Communist Party’s Central Commission for Discipline Inspection said in a one-line statement late yesterday, using a phrase that signals a corruption probe. Sun returned to the company in October from his role as president at China National Gold Group Corp., the country’s biggest gold producer by output.

Chalco's ROE just tells the story:
Image title
There was a marvellous note in the annual:
"The Group will also step up its monitoring and control over the credit risks of its subsidiaries to guard against credit risks."

There are two full pages of subsidiaries listed in the Annual.

Chalco is basically controlled by state Chinalco, and in turn is responsible for a plethora of local Aluminium plants built during the great boom by local authorities and municipalities anxious to create employment and grow!

The quoted unit in HK, is basically a funding unit for China's  vast and messy Aluminium industry.

Anyway, the rumour is that Chinalco, Chalco,and all its various subsidiaries will be rolled into one super SOE. As we pointed out yesterday, more likely given Beijing's Thatcherite bent, is that the vast amorphous mess of a company is broken up and privatised into coherent 'temesek' style units with local capital invited to participate. There is a delicate task of extricating all the local units from party control. 

So the stock is going up. 

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Sumitomo Metal sees nickel market swinging into deficit in 2015

Sumitomo Metal Mining Co, Japan's biggest nickel smelter, expects nickel supplies to swing into a deficit of 5,000 tonnes in 2015, the first shortfall in five years, due to lower output of nickel pig iron (NPI) by China.

"We anticipate a small deficit this year because China will probably produce less NPI due to a shortage of ore," the company's general manager, Hiroshi Sueta, told Reuters on Wednesday.

Weak domestic demand and low prices had already prompted China's NPI producers to stop or cut production and sell stocks for cash, industry sources in China said in March.

Sumitomo Metal estimates China's NPI output will be cut by 22 percent to 357,000 tonnes this year.

Sueta, who oversees the smelter's nickel sales and procurement, said the drop in NPI supply would more than offset a planned increase in nickel output from new projects such as Ambatovy in Madagascar, with global supply falling 0.8 percent and demand rising 1.8 percent, due to higher Chinese demand.

Sueta declined comment on the price outlook, but the company, which plans to boost nickel output by 11 percent in the business year to next March, made an annual profit forecast on Tuesday that assumed an average nickel price of $6.5 per lb ($14,330 per tonne) against $7.62 per lb ($16,799 per tonne) a year earlier.

Sumitomo Metal plans to produce 20,000 tonnes of ferronickel in terms of nickel content this year, down 7 percent from a year ago, due to lower nickel content in the ore it procures, Sueta said.
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Rusal executive says positive on China market growth

Top aluminium producer Rusal is positive about growth in the Chinese market and expects a deficit in other markets to remain through to 2018, a senior executive said on Tuesday.

"There is around 1 million tonnes of deficit outside of China," Steve Hodgson, director of sales and marketing at Rusal, told an industry conference in Dubai.

He also said consumption of aluminium per capita in China was expected to grow from 17.8 kilograms per person in 2014 to 22.9 kg per person in 2018.
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Aurubis confirms first-half profit jump

Aurubis, Europe's biggest copper smelter, on Tuesday confirmed a sharp jump in operating pretax profit in the first half of its fiscal year, and repeated expectations of a significant rise in operating earnings in the full year.

The company had on April 29 made an advance announcement of a rise in operating pretax profit to 180 million euros ($161 million) in the first half of its 2014/15 financial year up from 27 million a year earlier, helped by robust business and a 50 million euro one-off gain related to low precious metal inventories.

Second-quarter operating pretax profit rose to 141 million euros from 30 million in the same year-ago period, Aurubis said on Tuesday.

"Even without the extraordinary effects, we have generated very good results supported by a favorable market environment and a good production performance, especially in the second quarter," Aurubis CEO Bernd Drouven said in a statement.

Drouven said Aurubis expects both operating earnings before tax and return on capital employed "to be considerably higher for fiscal year 2014/15 compared to the previous year."

"We still anticipate a good supply of copper concentrates and high treatment and refining charges accordingly," he said.

Copper ore treatment and refining charges (TC/RCs) are paid by miners to smelters to refine concentrate into metal and are a key part of the global copper industry's earnings.

Continued stable demand and good sales opportunities are expected for the by-product sulphuric acid for the next few months, he said.

"The good conditions on the copper scrap market should also continue," he said. "However, declining copper prices could lead to a tightening of the market with decreasing refining charges in the short term."

"For cathode demand, we expect the premium level to soften towards the end of the fiscal year."

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Century Aluminium US plant lockout in prospect after union rejects deal

The United Steelworkers union has rejected a pay deal from Century Aluminum for workers at the fourth-largest aluminium smelter in the United States, the local branch said on Tuesday, and a lockout is now set to go ahead.

Unionized workers at the Century Aluminum smelter in Hawesville, Kentucky, had voted on Monday on the revised labour deal after management agreed to postpone a lockout of staff to Tuesday.

The rejection of the deal, which would replace the contract that expired at end-March, was posted on the website of the Hawesville branch.

Century, which is controlled by Glencore, said it is prepared for a lockout which will start on Tuesday morning and is expected to continue to operate at full production. The smelter has a capacity of 244,000 tonnes per year.

The vote "leaves us with no choice but to lock out union represented workers," said John Hoerner, senior vice president, North America operations in a statement following the result.

This is the third time the members have vetoed a deal between the union's negotiating committee and management.

The latest offer included pay increases of more than 14 percent over five years, fixed costs for health insurance, and new language on overtime, Century said.

"In essence, we're out of options," he said.
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Turquoise Hill Q1 Financial Results and Review of Operations

Turquoise Hill Resources today announced its financial results for the quarter ended March 31, 2015. All figures are in US dollars unless otherwise stated.


Oyu Tolgoi recorded revenue of $426.2 million in Q1'15 on sales of 167,700 tonnes of concentrate containing high gold content; concentrate sales exceeded production for Q1'15.

Revenue and sales in Q1'15 reflect expected lower quarterly production and reduced head grades as well as the impact of the Lunar New Year holiday when border and customs operations were closed.

Turquoise Hill reported income attributable to shareholders of $96.2 million, including a non-cash impairment reversal credit of $35.2 million related to its SouthGobi investment.

Turquoise Hill generated operating cash flow of $105.3 million during Q1'15.

In Q1'15, material mined increased 16.1% over Q4'14 mainly due to improvements driven by a range of productivity initiatives in the open pit partially offset by longer haul distances.

Concentrator milling rates increased through Q1'15 as improvements started to take effect, particularly in the pebble crushing circuit.

Open-pit development for 2015 is proceeding to schedule with higher-grade material expected to be processed by the concentrator starting in Q2'15.

Turquoise Hill expects production distribution at Oyu Tolgoi to be relatively similar to 2014 with production levels significantly higher in the second half of 2015.

Significant progress has been made in discussions with the Government of Mongolia; however no formal agreement has been signed that resolves all remaining matters.

Oyu Tolgoi LLC signed a Cooperation Agreement in April 2015 with its partner communities, which is required under the Investment Agreement and the Mongolian Minerals Law.

On April 23, 2015, Turquoise Hill completed its divestment transaction with Novel Sunrise Investments Limited for the sale of 48,705,155 shares in SouthGobi, with a loss on disposal expected in Q2'15.

On May 1, 2015, Turquoise Hill announced the expiration of its share purchase agreement with National United Resources for the proposed sale of 56,102,000 shares in SouthGobi.

During Q1'15, Turquoise Hill generated $95.1 million of cash.

Turquoise Hill's cash and cash equivalents at March 31, 2015 were $954.2 million.
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European producers under pressure on softer aluminium ‘all-in’ price

Aluminium producers are expected to be under increasing pressure as the aluminium ‘all-in’ price (London Metal Exchange cash price + premium) has fallen over the last few months on the back of lower global premia, while the LME aluminium cash price has largely remained unchanged.


As the graph above indicates, the LME cash price has traded in a tight  $180/mt range for most of this year — practically unchanged from levels seen back in mid-October and mid-December. At the same time, the Platts European duty-paid aluminium premium assessment has come off around $350 since mid-November when it peaked at a record high of $500-510/mt. Platts assessed duty-paid aluminium at $150-160/mt plus LME cash, in-warehouse Rotterdam May 11.

In theory, the lower all-in price should start to eat into smelter margins and see producers under increased pressure. One analyst source has forecast that over 10 million mt of global capacity is now loss-making at current all-in price levels and notes that producers are now much more exposed to LME price movements without the cushion of elevated premia.

While exports of semi-finished aluminium products from China have seen growing concerns over increased  supply in the physical spot market, December shipments peaked at just less than 500,000 mt. Meanwhile, primary aluminium and aluminium product exports from climbed by over 30% year-on-year to 430,000 mt in April.

The Chinese government also recently removed a 15% export duty on certain alloy and semi-finished products (product codes: 76042910, 76041010 and 760120)  that could arguably see more primary metal exit China disguised as semi-finished product.
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Peru says halts talks with Southern Copper over possible 'wrongdoing'

Peru's energy and mines minister said on Monday that she has halted talks with Southern Copper Corp over its stalled $1.4 billion Tia Maria project until the miner explains its role in possible "wrongdoing."

The government summoned German Larrea, the chief executive officer of Southern Copper's parent company, Grupo Mexico , to the capital Lima to clarify the matter.

Energy and Mines Minister Rosa Ortiz said her suspicions of wrongdoing stem from audio recordings in which a man is heard offering to stop to violent protests against the project in exchange for money from the company.

Reuters could not confirm the authenticity of the audio recordings, which a local lawyer has said represent his conversations with a lead opponent of Tia Maria in a bid to mediate a solution.

Ortiz said she wants the company to explain its involvement in the scandal, which threatens to further obstruct plans for the 120,000-tonnes-per-year project.

"I have suspended talks with Southern until it clarifies its participation in this wrongdoing," Ortiz said in an email to Reuters.

"Today I requested the presence of Mr. Larrea, owner of the company, in Lima with the aim of clarifying this matter," she said. "I am waiting for him to confirm when he will arrive."

Southern Copper did not respond to requests for comment. But in a full-page ad published in Peru's biggest newspaper, El Comercio, the miner denied wrongdoing.

"Southern Copper is not involved in illegal acts," it said.

In the recordings, the lawyer, Jesus Gomez, who has previously worked with Southern Copper, is heard brokering a bribe on behalf of the company if opponents call off protests.

Gomez said in an interview with local daily La Republica that Southern Copper told him it had no interest in such a deal but that he should play along.

The government has accused the Tia Maria opponent in question, Pepe Julio Gutierrez, of extortion. Gutierrez has denied that he is the person in the audio.
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Zinc’s Supply & Demand Equation Not Simple Math

As the year works through its second quarter, there appear to be hopes 2015 will be a good year for zinc. Or not.

When it comes to zinc, over the past three years, mine production, metal production and metal usage have all risen.

Full article:
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Mongolia PM hopeful for Oyu Tolgoi deal

Talks with Rio Tinto Group to approve the stalled $5.4 billion stage two of the Oyu Tolgoi copper mine could wrap up as soon as this week, according to Mongolian Prime Minister Saikhanbileg Chimed.

A Rio delegation is due in the country by this week and “I hope by this time we will finalize all ongoing issues because the principle agreements are already there,” Saikhanbileg said in an interview . “We need to go through small technical issues, some procedural steps.”

Rio and the Mongolian government have been locked in talks over a raft of issues related to the copper mine for two years. The focus has been how to fund a $5.4 billion underground expansion of the mine to accompany the open pit operation that went into production in 2013.

Negotiations with the Mongolian government are continuing, Rio Chief Executive Officer Sam Walsh said at the company’s annual general meeting in Perth.

“We are narrowing down on the issues and I am hopeful that at the appropriate time for all involved that we will be able to bring that project into the board,” said Walsh, who visited the mine in March.

“We don’t want to rush anything just for the sake of doing a deal because it has to be sustainable. It has to stand the test of time and that is seriously important,” he added.
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Peru sends in army to control clashes over copper project

Peru's government on Saturday authorized the military to take control of a southern region that has been rocked in recent weeks by protests against a planned copper mine in which three people have died and more than 200 have been injured.

In a resolution signed by President Ollanta Humala, the government ordered the army to "prevent violence" in the province of Islay until June 7 because of the recent clashes between police and locals protesting against Southern Copper Corp's $1.4 billion Tia Maria project.

Tia Maria has the potential to add 120,000 tonnes of copper to Nasdaq-listed Southern Copper's annual output but the protests have prevented construction starting. Opponents say they fear it will pollute surrounding agricultural valleys.

The government on Saturday confirmed the death of a policeman from wounds to the head. Two civilians have also died in the protests, which started nearly seven weeks ago.

Southern Copper, controlled by Grupo Mexico, has said the protests might delay the start of production, planned for 2017, and that progress hinges on talks between the opponents and the government, which supports Tia Maria.
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Hudbay Releases Q1 Results and Declares Commercial Production at Constancia

HudBay Minerals released its first quarter 2015 financial results and announced that its 100%-owned Constancia mine in Peru achieved commercial production on April 30, 2015. Oceanshipments of copper concentrate from Constancia began in April 2015, and the mine and concentrator are currently operating at or above design capacity.

"Reaching commercial production on schedule at the Constancia mine is a major milestone for Hudbay," said David Garofalo , president and chief executive officer. "This achievement strengthens our position as a low cost, high quality copper and zinc producer. Constancia has allowed us to broaden our skills as a mine developer, and given its ongoing ramp up, we continue to expect to meet our corporate production and cost guidance for 2015."

In the first quarter of 2015, operating cash flow before stream deposit and change in non-cash working capital increased to $24.1 million from negative $4.6 million in the first quarter of 2014.

The net loss and loss per share in the first quarter of 2015 were $23.7 million and $0.10, respectively, compared to a net loss and loss per share of $27.2 million and $0.15, respectively

Cash flow from operations and net earnings were positively impacted by increased revenue as a result of significant increases in production of all metals as the Reed and Lalor mines achieved commercial production in 2014. While substantially improved when compared to the prior year, cash flow from operations, net earnings and cash cost per pound of copper were all negatively impacted by unsold copper and gold during the quarter. More specifically, Hudbay continues to have approximately 6,000 tonnes of unsold copper in concentrate as a result of logistical and other issues, as well as approximately 9,000 ounces of unstreamed gold produced in the first quarter of 2015 that was not sold.

Net earnings were also negatively affected by higher depreciation expense resulting from commercial production at Reed and Lalor, as well as higher depreciation expense due to revised mine planning assumptions at 777.
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Steel, Iron Ore and Coal

Steel Mills' managers fall in anti-corruption drive

Moves by the Chinese government to raise the steel industry's competitiveness by wiping out corruption have brought several senior officials under investigation.

 Shi Xiongliang, former deputy general manager of Ma'anshan Iron & Steel Co Ltd, was recently charged with bribery in Anhui province. He was accused of accepting 1.9 million yuan ($310,000) from material suppliers and dealers in exchange for business.

"For steel firms, the procurement and sales departments are fertile breeding grounds for corruption," said Wei Zengmin, an analyst at Shanghai-based industry consultancy He said it is common knowledge that kickbacks are available through purchasing departments.

Shi, 62, began working at Ma Steel in 1997, when the domestic steel output was far short of the nation's surging demand. He became deputy general manager in 2011 and retired in July 2013. About one year after his retirement, the Yingjiang district prosecutor's office of Anqing city in Anhui indicted Shi for bribery.

He is not alone in the industry: Four other senior officials from large mills have been detained by investigators just this year.

Feng Jie, chairman of Jiuquan Iron & Steel (Group) Co Ltd in Gansu province, was placed under investigation for "serious disciplinary violations" on May 7, authorities announced.

Wang Guoming, deputy general manager of Shandong Iron and Steel Group Co Ltd, was placed under investigation for "financial problems", the company said on May 6.

Sun Wendong, deputy general manager of Wuhan Iron and Steel Co Ltd in Hubei province, was detained on suspicion of accepting bribes, the listed company said in a statement to the Shanghai Stock Exchange in April. Sun began working at Wuhan Iron in 1997 and served as an assistant to the general manager of Wuhan Iron and Steel's parent company, Wuhan Iron and Steel (Group) Corp.

Cui Jian, vice-president of Baosteel Group, the parent of the listed Shanghai Baosteel Group Corp, is being investigated for "serious disciplinary violations", officials said.

Investigation into the steel sector's problems began in December 2013, when Liang Jingli, former president of the State-owned Guangxi Liuzhou Iron and Steel Group, was put under investigation.

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Australian PM backs senate probe into iron ore slump

Australian Prime Minister Tony Abbott on Friday threw his support behind a proposed senate inquiry into the economic impact of a slump in the price of iron ore, ratcheting up pressure on top producers Rio Tinto and BHP Billiton.

Leading independent senator Nick Xenophon on Thursday pulled a vote that could have launched an inquiry into the impact of the price collapse on government revenue and to consider whether action is needed to ensure healthy competition in the sector.

Xenophon postponed the vote to June 16 due to a lack of support in the upper house senate. He now appears to have successfully garnered that support from Abbott.

"I think we do need an inquiry," Abbott said in an interview on Sydney's 2GB Radio.

"Certainly I think we do need to know the facts of what's going on here because I am conscious of the claims that are being made by Andrew Forrest and others."

The iron ore price hit $46.70 a tonne in April, its lowest in a decade, although it has picked up to around $61 this week.

Top producers Rio Tinto and BHP have been flooding the market with iron ore, which has left smaller, high-cost producers struggling to survive.

Xenophon's call for a probe coincided with the opening of a new front in a campaign by billionaire Andrew "Twiggy" Forrest, founder of Fortescue Metals Group, Australia's no.3 iron ore producer, against bigger rivals Rio Tinto and BHP.

Fortescue has created a website called Our Iron Ore (, looking to drum up support for his war on Rio and BHP, the world's second- and third-largest iron ore producers respectively.

"Iron ore is Australia's most important single export earner and a dramatically falling price is putting significant pressure on current and future living standards of all Australians," the home page says.

It echoes what Forrest has repeatedly said this year, without naming BHP and Rio Tinto. "Multinational companies are failing to act in an economically rational way, choosing to oversupply the iron ore market in the medium term," it says.

The site urges the public to "join the campaign" by signing a petition, but a link does not lead to any petition so it is unclear what people would be putting their name to.

One crisis management expert said it would not pay for them to fuel the story by overreacting to Fortescue.

"There are two games being played here: one is the sort of vaudeville show at the front end but the more important one is going on behind the scenes," said Tim Allerton, managing director of Syndey-based City Public Relations, referring to lobbying on the matter in parliament.

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Atlas Iron to resume mining after near-death experience

Australia's Atlas Iron said on Friday it will resume full mining operations, surviving near bankruptcy after a slump in iron ore prices last month.

A series of agreements reached between Atlas and outside contractors as well as the government will cut costs to a break-even price below $50 a tonne, CFR (cost and freight) China, where the majority of its projected 14-15 million tonnes of annual production is shipped, the miner said.

"This is nothing short of an outstanding result for everyone involved directly and indirectly with Atlas," Atlas Chairman David Flanagan said.

Australia's fourth-largest iron ore miner has been in talks with its creditors and mining services providers since early April to keep it afloat

The price of iron ore dropped as low as $46.70 in April, less than half of the price a year ago, though has rebounded markedly since then to stand at $61.20..

Analysts see iron ore averaging $56 a tonne in 2015 and $58 in 2016, according to a Reuters poll.

Atlas also said it intended to hold a capital raising for an as-yet undetermined sum to underpin long-term financial strength.

The capital raising will be put to a shareholder vote on June 19, according to the company.

Atlas, which last traded on April 2, borrowed $275 million through a term loan in the U.S. markets, which matures in December 2017. The loan, which has no earnings-based covenants, carried a margin of 750 basis points over the Libor benchmark.

Efforts have been underway with the help of transport group McAleese Ltd and stevedore group Qube Holdings Ltd to persuade lenders to agree to keep one or two of the firm's mines open.

McAleese warned on May 4 its underlying full-year earnings were expected to fall to about $70 million from $85.3 million in 2013/14.

Under the agreement with Atlas, contractors will be paid more if the iron ore price rises.

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Tata Steel says to take $785 mln non-cash writedown in Q4

India's Tata Steel Ltd said on Thursday it expected to take a non-cash writedown of about 50 billion rupees ($785.3 million) in the quarter ended March 31, chiefly relating to its loss-making long products business in the United Kingdom.

Tata Steel, Europe's second-largest steelmaker, has been forced to slash costs and jobs following its 2007 entry into the continent, where steel demand has languished since the financial crisis and clients have turned to cheaper Chinese imports.

The company said last year it was in talks to sell its long products division, including mills in northern England and Scotland to Geneva-based Klesch Group.

Tata Steel entered Europe through its $13 billion acquisition of Corus, formerly British Steel, just before the financial crisis.

The impairment also includes a writedown of investments in overseas raw materials projects in Mozambique, Ivory Coast and a taconite project in Canada because of low commodity prices, Tata Steel said.

The company's profitability has been hit in recent quarters after a slowdown in China and a devaluation of the Russian rouble led to a surge of cheaper steel products entering international markets, pressuring steel prices and squeezing margins.

The Mumbai-based company's domestic production has also been hit by a raw material shortage following a string of mining stoppages, causing its plants to operate below capacity.

Tata Steel's liquidity position or financial covenants will not be affected and the total impairment charge for the year ended March 31 would be around 65 billion rupees ($1.02 billion), the company said.

Tata Steel reports fourth quarter and full year results on May 20.

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China coal use falls: CO2 reduction could equal UK total emissions

Official data from China shows coal use is continuing to fall precipitously – bringing carbon dioxide emissions down with it.

The data – which comes months before crucial climate talks in Paris – means China has cut emissions during the first four months of the year by roughly the same amount as the total carbon emissions of the United Kingdom over the same period.

The figures suggest the decline in China’s coal use is accelerating after data for last year showed China’s coal use fell for the first time this century

An analysis of the data by Greenpeace/Energydesk China suggests coal consumption in the world’s largest economy fell by almost 8% and CO2 emissions by around 5% in the first four months of the year, compared with the same period in 2014.

It comes after the latest data – for April – showed coal output down 7.4% year on year  amidst reports of fundamental reform for the sector. China also recently ordered more than 1,000 coal mines to close.

The reduction in emissions from 2014 to 2015 is roughly equal to the total CO2 emissions of the UK over four months, and the reduction in coal use is equal to four times UK total consumption.

If the reduction continues until the end of the year, it will be the largest recorded year-on-year reduction in coal use and CO2 in any country.

Falling coal output in China has already had a big impact on global emissions with early data from the IEA suggesting that global emissions of carbon dioxide from the energy sector stalled in 2014, marking the first time in 40 years in which there was a halt or reduction in emissions of the greenhouse gas that was not tied to an economic downturn.

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Iron ore overcapacity to last through 2019 – CISA

Iron ore overcapacity to last through 2019 – CISA

Overcapacity in the seaborne iron ore market will persist for another four years through to 2019 as the largest suppliers expand production further, according to the China Iron & Steel Association.

Growth in low-cost supply will exceed cuts to output made elsewhere, including in China, Vice Chairman Wang Liqun said at conference in Singapore on Thursday. Steel-demand growth in China is seen as flat this year, Wang said.

Iron ore lost about 39% in the past 12 months as Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil’s Vale SA expanded low-cost output to boost sales volumes and cut costs, spurring a glut as China slowed. Major producers remain intent on expansions and a battle for market share is under way, combined with an attempt by miners to reduce their costs faster than prices retreat, according to Credit Suisse Group AG.

“The second half of 2015 looks ominous as further supply looms and we expect the price to fall to $45 a ton,” Credit Suisse analysts including Matthew Hope said in a report on Thursday. “There is sufficient room for major producers, but only if all seaborne supply from small producers gives way.”

Ore with 62% content at Qingdao fell 0.5% to $62.58 a dry ton on Wednesday, according to Metal Bulletin Ltd. While prices rebounded from a low of $47.08 on April 2, they’re still 67% below a 2011 record.

In 2015, the big four miners will boost output 100 million tons, while output cuts elsewhere total 80 million tons, Wang said in a presentation. The association is funded by China’s major steelmakers and is the only nationwide industry body.

The seaborne glut will widen to 215 million tons in 2018 from 45 million tons this year, according to UBS Group AG. Exports from Australia are set to pick up in the second half on mine expansions, UBS said in a report this month.
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China Apr thermal power output down 2.8 pct YoY

Electricity output from China’s thermal power plants – mainly coal-fired – fell 2.8% year on year to 340.9 TWh in April, showed data from the National Bureau of Statistics (NBS) on May 13.

This was also a decrease of 2.5% from March, mainly due to weak industries and pressure from higher hydropower output. Hydropower output rose 11.5% year on year to 70.2 TWh in the month, up 3.8% from March, since hydropower output gradually gained strength with the increase in water levels.

Total electricity output in China stood at 445 TWh in April, up 1% from a year ago, but down 1.4% on month, the NBS data showed.
That equates to daily power output of 14.83 TWh in on average, up 1% on year and rising 1.9% from March.  

Over January-April this year, China produced a total 1,759.3 TWh of electricity, up 0.2% on year, with thermal power dropping 3.5% on year to 1,391.9 TWh while hydropower output increasing 15.3% to 241.4 TWh.
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China Apr coal output down 7.4pct on yr: NBS

China produced 298.02 million tonnes of coal in April, down 7.4% year on year, said the National Bureau of Statistics on May 13, the first time for the bureau to release monthly coal output data.

The output was higher than the 290 million tonnes of output from the China Coal Transport & Distribution Association late last week, which represented a drop of 6.5% year on year and 9.4% from the month before.

Over January-April, total coal output of China stood at 1.15 billion tonnes, down 6.1% on year, said the NBS.

China’s coal output has been on the decline in recent months, as miners cut output in the wake of falling prices as a result of oversupply and weak demand.
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BHP, Rio Tinto face political heat in Australia over strategies

BHP Billiton and Rio Tinto face mounting political pressure in Australia over taxes and flooding the global iron ore market while the price of the steel-making commodity plummeted.

Independent federal Senator Nick Xenophon has called for an inquiry into the impact on the Australian economy of falling prices caused by oversupply.

Xenophon, who is on the powerful Economics Committee, said he will put the inquiry to a vote in the senate on Thursday.

Australia's treasurer Joe Hockey says the slump has caused a A$20 billion ($16 billion) loss in government revenue in the past year and his fiscal 2016 budget released this week hinges on iron ore fetching at least $48 a tonne over the next year.

The push for an investigation follows a drive this week by Fortescue Metals founder Andrew "Twiggy" Forrest to get Australians to lobby politicians to force BHP and Rio to stop increasing production, warning every $1 price fall costs the country A$800 million in foreign income.

Rio and BHP assert their strategies are justified and ultimately benefit Australia's mining-weighted economy.

The heads of both companies this week reiterated separate defences of the so-called "saturate and dominate" strategy, whereby higher cost producers are forced out by lower cost ones, in the $60 billion sea-traded iron ore market.

Rio and BHP each are among the lowest cost iron ore miners globally.

"We operate in highly competitive and cyclical markets, where earnings out-performance through the cycle depends on being the most efficient supplier, not supply restraint," BHP Chief Executive Andrew Mackenzie told a Bank of America Merrill Lynch conference on Tuesday.

The national mining lobby, the Minerals Council of Australia, said an inquiry was unwarranted, citing an earlier conclusion by the Australian Consumer Competition Commission that the iron ore market was operating normally.

Western Australia state political leader Colin Barnett has labeled the actions of the big producers "one of the dumbest corporate plays."

The state's Labor Party Shadow Minister for Development, Bill Johnston, is calling for a probe into why government approvals were granted for mine expansions.

Johnston also wants the investigation to look into whether Singapore marketing offices established by companies including Rio Tinto and BHP, allow them to reduce how much is paid in state royalties.

"The Labor party supports the free market, but we want to have an opportunity to make sure there actually is a free market, and whether the price returned to Western Australia is the best that can be achieved," Johnston said.

Australian iron ore miners rely on access to government owned-land and pay royalties of around 7.5 percent of revenue.

BHP's Mackenzie told Reuters the Singapore business had nothing to do with taxes but rather met expectations among customers that the company maintained an Asian presence.
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China steel consumption likely to fall 6 pct this year -CISA

China's steel consumption will likely fall 6 percent this year, an industry official from the country said on Thursday, underlining how a slowdown in the world's No. 2 economy will continue to hurt industrial demand.

Chinese crude steel consumption dropped 3.4 percent last year, shrinking for the first time since 1981, and fell again in the first quarter, spurring producers to sell more steel overseas.

"This year it will continue to be negative growth, minus 6 percent," Wang Liqun, vice chairman of the China Iron and Steel Association, told an industry conference.

ANZ had said last week that it expected Chinese steel consumption to fall 4 percent this year and 2 percent in 2016.

The country's steel sector has been saddled by oversupply for years, with excess capacity now estimated at around 300 million tonnes, triple the annual output of Japan, the world's No. 2 steel producer after China.

Liqun said the oversupply in both steel and iron ore will drive prices lower and cut profits for both steelmakers and miners.

"There is no winner at all, the profit margin has dropped significantly," he said.

Amid shrinking domestic demand, China's crude steel output fell 1.3 percent to 270 million tonnes in January to April, government data showed on Wednesday.
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EU to impose duties on imports of electrical steel

The European Union will impose anti-dumping duties from Thursday on imports of a grade of electrical steel from China, Japan, Russia, South Korea and the United States, its second set of measures this year to protect European steel producers.

The European Commission has set tariffs on imports of grain-oriented flat-rolled electrical steel (GOES) following a complaint lodged in June 2014 by the European steel producers association, Eurofer.

The duties, detailed on Wednesday in the official journal of the EU, are provisional, pending the outcome of an investigation due to end in November. Normally such duties would then continue for five years.

Duties of 28.7 percent will cover imports from Chinese companies, including Baosteel and Wuhan Iron and Steel Corp, and of 22.8 percent from South Korea producers such as Posco.

The rate for U.S. producers including AK Steel is 22.0 percent and for Russian firms such as NLMK 21.6 percent.

Japan's JFE Steel Corp will face duties of 34.2 percent and Nippon Steel and Sumitomo Metal Corp and other producers from there 35.9 percent.

European producers are ArcelorMittal, Stalprodukt , Tata Steel and ThyssenKrupp.

The EU transformer industry has said it is deeply concerned by the prospect of duties.

Imports reached about 45 percent of the market as their average price dropped by some 30 percent from 2011 to 2014.

The Commission in March imposed anti-dumping duties on imports from China and Taiwan of cold-rolled flat stainless steel and last month opened an investigation into alleged dumping by Chinese producers of a grade of steel used to reinforce concrete in Britain and Ireland.
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China key steel mills daily output up 3.5pct in late-Apr

Daily crude steel output of key Chinese steel producers increased 3.49% from ten days ago to 1.79 million tonnes over April 21-30, hitting the highest since October 1-10 last year, showed data from the China Iron and Steel Association (CISA).

The CISA didn’t give an estimate on China’s total daily output during the same period.

The rise was mainly due to improved demand as construction activities resumed in spring, but the whole sector is still struggling with low prices and weak demand.

As of April 20, total stocks in key steel mills stood at 14.96 million tonnes, down 10.27% from ten days ago.

In April, China exported 8.54 million tonnes of steel products, up 13.3% on year and up 10.9% on month, as domestic producers turned to international market to ease stock pressure.

Meanwhile, the CISA members produced 1.75 million tonnes of pig iron on average each day over April 21-30, up 2.79% from the previous ten days.

Industry insiders said crude steel output may continue to rise in early May, as producers anticipated demand increase amid traditional consumption season.
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Pertamina signs $530 mln deal to sell diesel to Adaro

Indonesia's state oil and gas PT Pertamina has signed a 10-year agreement to sell diesel to coal miner PT Adaro Energy Tbk worth 7 trillion rupiah ($531 million) a year, Pertamina CEO Dwi Soetjipto said on Wednesday.

In two months, Pertamina will start annual sales totalling 550,000 kilolitres of diesel to Adaro, eventually ramping up to 800,000 kilolitres a year.

The two companies were also in talks to use idle oil storage facilities that could replace Pertamina's plan for a floating terminal.

"Looking ahead we want to work together to utilize idle storage and we are not ruling out the possibility of expanding other logistical businesses that may cover fuel transportation," said Adaro CEO Garibaldi Tohir.

Attached Files
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Patriot Coal bankruptcy filing statement

Patriot Coal Corporation ("Patriot" or "the Company"), a producer and marketer of coal in the eastern United States, today announced that it is engaged in active negotiations for the sale of substantially all of the Company's operating assets to a strategic partner. The Company is also engaged in ongoing discussions with key stakeholders as it evaluates a range of strategic alternatives to maximize the value of its assets.

In conjunction with these activities, Patriot and its wholly-owned subsidiaries today filed voluntary petitions for restructuring under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia, in Richmond, VA. The Company intends to complete its review of strategic alternatives and present a value-maximizing restructuring plan to the Court as quickly as possible.

Patriot expects its customer shipments and mining operations to continue in the ordinary course during the restructuring process. The Company has received a commitment for $100 million in "debtor in possession" ("DIP") financing led by a consortium of the Company's secured debt holders to support its continued operations. Upon approval by the Court, the DIP financing, combined with cash generated from ongoing operations will provide sufficient liquidity to support the business during the restructuring process.
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Shanxi's investment in coal industry continued to decline in the first quarter of 2015.

In the first three months, the province's investments in the coal industry dropped 15.5 percent lower than the same period last year, while coal's share of the industrial investment decreased to 22.2 percent.

On the other hand, the non-coal industry attracted more investment this quarter. The non-coal industry has completed investment of 34.26 billion yuan ($5.52 billion) from Jan to March, growing 16 percent over the past year.

Shanxi's coal and related industries used to be the main destinations of investment before the "golden age" of coal industry ended in 2012.

The province's economic restructuring has led more capital to flows to non-coal industry. After the coal resources integration, investment withdrew from coal towards non-coal industries such as agriculture and tourism, according to coal industry experts.
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Shanxi Coking Coal cuts May prices by 40 yuan/t

Shanxi Coking coal group Co., Ltd, China’s largest metallurgical coal producer, has cut prices by around 40 yuan/t from April for some steel mills, a slower pace compared with April’s cut, sources said.

The group has cut prices of its premium coals by a total of 100-120 yuan/t since April.

Besides, the group continued setting prices separately with each end user at varied extents of discounts, and offering extra discounts for large volume buyers.
However, some buyers didn’t adjust down purchase prices for coking coal from Shanxi’s local mines, as their stocks were low.
Buyers said the price may be reduced by only 10-20 yuan/t generally in the short run, as many miners are suffering losses and can’t stand more price reduction.
One buyer said many local private mines and washing plants have closed or suspended production and most state-owned producers are running in red.
One source said the ex-washplant price of primary coking coal in Jinzhong with 1.6% sulphur was 500 yuan/t with VAT and the price of fat coal with 1.8% sulphur was 490 yuan/t.
The free-on-rail price of one Luliang-based producer’s primary coking coal with 2.5% sulphur was 440 yuan/t, and the producer has halted the production of coals with sulphur content of 1.8%.
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Anglo may raise Brazil iron ore capacity to 29 mln t/yr by 2018-20

Anglo American may increase capacity at its Minas-Rio iron ore mine in Brazil by nearly 10 percent, a move that could cut unit costs at the troubled $13 billion project, the company's Brazil chief executive said on Monday.

Production volume could rise as high as 29 million tonnes in the 2018-2020 period, 9.4 percent more than the mine's expected capacity of 26.5 million tonnes a year, Paulo Castellari, Anglo's CEO for Brazil, told reporters at a presentation near Belo Horizonte, Brazil.

Adding new capacity without large additional investments brings down per-tonne costs for bulk commodities. This could help Anglo's Minas-Rio mine compete with low-cost producers such as Brazil's Vale SA and Australia's BHP Billiton Ltd and Rio Tinto Ltd, which have cash costs of between $20 and $30 per tonne.

Cash costs at Minas-Rio are expected to be between $33 and $35 per tonne, Castellari said.

This year, costs are expected to be nearly double that figure at about $60 per tonne as the recently opened mine ramps up output.

The Minas-Rio project sends iron ore 529 kilometers (329 miles) from its central highlands mine in Minas Gerais state via a slurry pipeline to a port north of Rio de Janeiro where it loads pellet-feed grade ore onto ships for export.

Minas-Rio cost $5.5 billion to acquire the rights from Brazilian tycoon Eike Batista and $8.4 billion to build. It is the largest-ever foreign investment in Brazil.

After taking a $4 billion write-down on the project in 2012, Anglo began operations at Minas-Rio late last year, nearly five years behind schedule and after a China-driven iron-ore price boom went bust.

Iron ore prices in the Chinese spot market .IO62-CNI=SI, the largest for the steel-making ingredient, rose 3.3 percent on Monday to $62.50 a tonne, the highest in more than two months.

Castellari said Anglo had so far been pleased with the premium the company was receiving for its high-iron-content ore but declined to say how much more he gets per tonne above the benchmark spot price.
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Iron ore soars on China move

The price of iron ore has surged to its highest level in more than two months after the People’s Bank of China (PBoC) opted to trim interest rates over the weekend.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US62.50 a tonne, up 3.3 per cent from its prior close of $US60.50 a tonne.

The offshore move is just the latest upswing in a one-month rally that has driven the commodity almost 35 per cent above the 10-year low of $US46.70 a tonne reached in early April.

The startling recovery came straight after dire forecasts came rolling in from analysts in April, with Goldman Sachs suggesting the commodity may never hold above $US50 a tonne after 2015 and Deutsche Bank, Citi and the Abbott government all warning of falls into the mid-$US30s.

Since those expectations were made public the commodity has been driven higher by rising oil prices, Chinese stimulus and supply cut signals from both BHP Billiton and Vale as well as several distressed junior players.

While at first it was viewed as a dead cat bounce as traders looked to cover heavily short positions, the duration and size of the rally is providing hope to the sector that a lowpoint in the cycle may already have been reached.
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Rio’s new coal chief sees commodity recovery in the ‘very’ far distance

Rio Tinto’s newly appointed coal boss, Jean-Sébastien Jacques, says it will be at least three or four years before thermal coal prices recover.

Jacques, who was named as the company’s new coal leader in February when Rio revealed plans to combine its copper and coal divisions to cut costs, told The Australian Financial Reviewhe expected the sector to undergo longer price pain than anticipated.

"In coal we have to be ready that we have multiple years, it could be even three or four years, before we see an inflection point," Jacques was quoted as saying. “There will be volatility, don't get me wrong; but where you say, 'Well there is a real step change' – that won't be in the short term."

Jacques added his main priority since taking over the job from Harry Kenyon-Slaney eight weeks ago is to ensure Rio’s coal mines remained free-cash-flow-positive, amid what he called “a very challenging environment”.

Analysts estimate around a fifth of the thermal coal industry is losing money based on current prices — a position that is usually unsustainable in commodity markets.

“When you are that far into the cost curve, the downside is pretty limited,” Tom Price, commodities strategist at Morgan Stanley, said in a March note. “Price buoyancy is already indicating that this is the case.”
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Fortescue founder asks Australians to fight Rio, BHP iron ore plans

Fortescue founder asks Australians to fight Rio, BHP iron ore plans

Fortescue Metals Group Chairman Andrew "Twiggy" Forrest on Monday called on Australians to urge the government to stop expansion plans by iron ore miners Rio Tinto and BHP Billiton, saying they were jeopardizing the economy.

The plea by the billionaire philanthropist and founder of the world's fourth-biggest iron ore miner was condemned by the national mining lobby, the Minerals Council of Australia, for threatening to set the country on an "interventionist path."

Forrest has accused Rio and BHP of over-producing to drive out competitors from the $60 billion-a-year Chinese import market despite Fortescue quadrupling its own production in the last seven years.

"These big companies say they must flood the market next year and the year after and the year after even though it will crash the price further," Forrest said in an editorial in Sydney's Daily Telegraph. "Every time they say this the price falls again."

Iron ore prices .IO62-CNI=SI are trading off their lows at $60.50, but still 55-percent under last year's peak

For every $1 price fall, the Australian economy lost A$800 million ($632 million) in foreign income, according to Forrest.

"Write, e-mail or ring your local MP (member of parliament)," Forrest said. "Ask government to consider the multinationals' license to operate in Australia if they don't market Australian iron ore responsibly for all Australians."
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Indonesia's May HBA thermal coal price slides to all-time low of $61.08/mt

Indonesia's Ministry of Energy and Mineral Resources set its May thermal coal reference price, also known as Harga Batubara Acuan, at an all-time low of $61.08/mt FOB.

The price is down 5.3% from April's HBA price of $64.48/mt and 17% lower from the May 2014 price of $73.60/mt.

The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg gross as received assessment; 25% on the Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

In April, the daily FOB Platts Kalimantan 5,900 GAR coal assessment averaged $57.89/mt, while the daily 90-day Platts Newcastle FOB price for coal with a calorific value of 6,300 kcal/kg GAR averaged $57.94/mt.

The HBA for thermal coal is the basis for determining the prices of 73 Indonesian coal products and for calculating the royalties Indonesian producers have to pay for each metric ton of coal they sell locally or overseas.

It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash and 0.8% sulfur.
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China Apr coal imports down 26.4pct on yr

China’s coal imports, including lignite, thermal and metallurgical coal, fell 26.41% year on year to 19.95 million tonnes in April, the tenth consecutive year-on-year decline, showed data from the General Administration of Customs (GAC) on May 8.

That was however an increase of 17.15% from the month before, as traders have get used to the new trace elements standard and increased purchase amid falling international coal prices.

The value of the April imports was $1.24 billion, plunging 41.2% on year but up 14.8% on month. That translates to an average price of $61.93/t, $15.57/t lower than a year ago and down $0.73/t from a month ago.

The GAC didn’t give a breakdown of the April imports, which would be available late this month.

Over January-April, the country imported a total 60.92 million tonnes of coal, down 37.8% year on year, the GAC said.

Total value during the same period was $4.47 billion, a drop of 49.64% year on year.

Meanwhile, China exported 290,000 tonnes of coal in April, plunging 3.33% from a year ago and down 9.4% on month. The value of the April exports was $28.2 million, falling 31.4% year on year and down 19.0% from March.

In the first four months of the year, China exported a total 1.26 million tonnes of coal, down 44.4% on year, with total value falling 53.7% from the previous year to $1.38 billion.
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Baosteel, Aurizon delay Australia iron ore project by 18-24 months

China's Baosteel Resources and its partners have pushed out plans to develop a long-stalled iron ore project in Australia by at least 18 months in light of weak ore prices, rail operator Aurizon Holdings said.

Baosteel, China's no.2 steel maker, and Aurizon took control of the West Pilbara Iron Ore project last year when they bought Aquila Resources for A$1.4 billion ($1.1 billion), launching the bid when iron ore prices were around 75 percent higher than now.

At the time they said they aimed to slash the estimated A$7.4 billion cost of building the mine, rail and port, and would make a final investment decision on the project in early 2016 to start producing ore in 2017 or 2018.

"Aurizon and the mine participants are mindful of the volatility in the iron ore market price since the completion of the takeover of Aquila Resources in 2014," Aurizon said on Monday in a statement to the Australian stock exchange.

The partners, including South Korean steel giant POSCO and commodities investor AMCI, are now targeting a final investment decision in late 2016, as they look to cut project costs further due to poor iron ore prices, Aurizon said.

Production would now start in 2019 or 2020 at the earliest, Aurizon spokesman Mark Hairsine said.

The mine's 30 million tonnes a year of iron ore are not needed right now, based on UBS modeling, and the project's economics would be "troublesome" at current prices, Morgan said.

Aurizon declined to reveal the latest cost estimates for the project, but Hairsine said they were "certainly consistent with" comments the company made last July that it expected to be able to cut the A$4.6 billion port and rail cost by about 40 percent.

While cheap iron ore is good for Baosteel and POSCO, Morgan said it made sense for them to hold on to the West Pilbara project as it could be brought on if any of the major producers opted to hold back new supply to boost prices.
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China coal exporter Winsway fails to make $13.15 mln interest payment

Chinese coal exporter Winsway Enterprises Holdings Ltd said it failed to make the scheduled interest payment on its US dollar note following the expiration of its 30 day grace period on May 8.

It marked the second default on a dollar bond by a Chinese company after Kaisa Group Holdings in the offshore debt market.

In a stock market filing late on Friday to the Hong Kong Stock Exchange, the company said the missed payment was for interest due on its 8.5 percent senior note issued April 8, 2011, amounting to US$13.15 million. The interest payment was due on April 8 2015.

On Monday, Fitch downgraded its credit rating to RD - which indicates a restricted default - from C after the default notice.
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