Mark Latham Commodity Equity Intelligence Service

Friday 5th February 2016
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    Oil and Gas


    Payment delays, stock build bleed cash from corporate China

    If, as the adage has it, turnover is vanity, profit is sanity, but cash is reality, a Reuters analysis of working capital at 1,200 Chinese firms shows much of corporate China is hurtling towards a reality check.

    As China's economy hits its slowest growth in 25 years, businesses are finding ever more cash tied up in unsold stock and unpaid invoices as industry shirks the pain of trimming capacity and struggling customers take longer to pay.

    KPMG China partner Fergal Power, who specializes in distressed companies, says most Chinese companies prioritized market share and revenue growth in the boom years, with "less discipline in managing working capital in China than we have seen in other markets".

    The Reuters analysis, which covered all companies on the Shanghai and Shenzhen bourses with a market value of more than $500 million, shows that on average they wait about 59 days to be paid by customers, compared with 37 days in 2011.

    For some sectors the picture has deteriorated much more sharply; energy companies now wait 80 days, up from 24.

    For industrials, which already waited 61 days to get paid in 2011, that has climbed to 94, while information technology companies are involuntarily funding their customers for 112 days, up from 76.

    "The rate of growth of receivables has exceeded sales growth in the industrial sector for the past few years... The picture one gets from data is that this is a nagging problem," said Cliff Tan, Bank of Tokyo-Mitsubishi UFJ analyst.

    "One sign that the problem is worsening is the emergence of funky shadow banking products, because of a lack of access to more traditional banking products," adds Tan.

    At the sharp end is Danny Lau, boss of a construction panel factory in Dalang, a factory town in the southern province of Guangdong, which makes around a quarter of China's exports.

    His construction firm clients have pressured him to take lower downpayments than the usual 20 percent, and to extend repayment times, tightening his cash flow and magnifying the risks to his business.

    "One client said he'd write a three-month forward-dated cheque, but when I got it, it was for six months," he said, as fork lifts trundled by with stacks of freshly spray-painted red panels.

    Lau has been forced in turn to delay paying some of his 50 or so downstream suppliers in the Pearl River Delta, dubbed the Factory of the World.


    Two of Lau's rivals have already gone bust, he said, and his firm's cash reserves had now been almost exhausted, forcing him to borrow to buy raw materials and service fresh orders.

    "If this continues, a lot more companies and factories will collapse," he added.

    "Many of these companies are hugely leveraged and seeing a sharp slowdown in demand," said London-based Sanjiv Shah, Chief Investment Officer at Sun Global Investments. "So this means they'll be facing huge growth in inventories, plus what customers are left will be demanding better and longer credit terms so payments receivable will increase."

    Inventories have gone up over the period, too, especially for industrials, where they rose to 26.5 percent of sales from 22.7 percent, and technology companies, where they grew to 23.7 percent from 20.9 percent.

    When cash is tied up in assets, it has direct consequences on the shop floor.

    Yang Jiafen, a labor broker in Dongguan, said firms have been increasingly unable to sustain wages for a large permanent workforce, so 80 percent of workers she now recruits for Pearl River Delta factories are on temporary contracts, up from around 70 percent a year ago.

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    Saudi says 'checkmate'

    Following The U.S. Shale And Saudi Arabian Chess Match, Saudi Arabia Just Yelled 'Checkmate'

    |290 comments  | About: The United States Oil ETF, LP (USO)Courage & Conviction Investing ⊕Follow(1,492 followers) Long/short equity, bonds, special situations, growth at reasonable price Send Message


    Global oil inventories reached all time highs of 2.975 billion barrels. U.S. inventories stand at all-time highs of 482 million barrels.

    Global oil supply exceeded demand by 1.47 million barrels per day in 2015. Despite healthy demand growth forecasted at 1.2 million bpd in 2016, supply will mostly likely outpace demand.

    Saudi Arabia's $640 billion currency reserves and the potential for a Saudi Aramco IPO are a "checkmate" scenario for highly leveraged and high cost U.S. Shale producers.

    Let me be clear, this isn't a direct buy or sell recommendation when it comes to oil of the U.S. Oil ETF (NYSEARCA:USO). Instead, this is a food for thought piece as I continue to read articles and commentary written by some SA authors and readers that suggest that oil will experience a sharp rebound in 2016. I am not smart enough to pretend that I can accurately forecast the future price of oil, but these articles seem to be based more on hope than rational thought or empirical evidence.

    Unlike coal or natural gas prices, which are mostly U.S. centric markets because of the high costs to export, the oil market is truly a global market. Notwithstanding the rational adjustments for quality (light vs. heavy, sour and sweet, etc.) as well as transportation costs and currency adjustments, prices move in tandem, especially with the lifting of the U.S. export ban. The spread between Brent and WTI is near parity. As we can see below, compliments of the CME Group, spot oil closed Friday at $33 per barrel for WTI. One of the few glimmers of hope for oil bulls is the steep market contango that helps midstream owners of oil storage in various forms.

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    Majors: Divi's vs Credit Rating, and its headlines...

    The world’s biggest energy companies have a tough decision to make amid languishing oil prices: Do they keep their coveted investment grade credit ratings or maintain century-old practices of paying shareholders annual dividends worth billions in cash?

    Exxon Mobil Corp. and its peers are grappling with the collision course between the two, which appears unavoidable as crude continues to hover around $30 a barrel. Even with announced spending cuts that exceed $92 billion, producers are losing money on almost every barrel they take out of the ground. Paying dividends makes their cash shortfall even worse.

    Four of the biggest Western oil companies—Exxon, Royal Dutch Shell PLC, Chevron Corp.and BP PLC—are poised to pay more than $35 billion in dividends to investors this year, an amount equal to about 40% of their combined cash flows, says Oppenheimer & Co. To do so, they face increased pressure to borrow, a strategy that has alarmed ratings firms.

    “The question is, how bad are things going to get in 2016?” said Simon Redmond, director of oil and gas corporate ratings at Standard & Poor’s Ratings Services. “For a company to focus on continued cash distribution is not credit positive.”

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    Saudi unlikely to cut..say Analysts

    Oil Prices Fall on Oversupply Concerns

    Analysts warn that Saudi Arabia is unlikely to cut output

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    The Luxembourg government has signalled its intention to get behind the mining of asteroids in space.

    It is going to support R&D in technologies that would make it possible and may even invest directly in some companies.

    The Grand Duchy will also put in place a legal framework to give operators who are based in the country the confidence to go about their business.

    Former European Space Agency boss Jean-Jacques Dordain is to be an adviser.

    He told reporters on Wednesday that space mining was no longer science fiction in the pages of a Jules Verne novel; that the basic technologies - of landing and returning materials from asteroids - had essentially been proven.

    And he urged European entrepreneurs to follow the example of start-up American companies that had already begun to consider how they could exploit the expensive metals, rare elements and other valuable resources in space bodies.

    "Things are moving in the United States and it was high time there was an initiative in Europe, and I am glad the first initiative is coming from Luxembourg," he said. "It will give no excuse for European investors to go to California."

    Two notable American companies, Deep Space Industries and Planetary Resources, have begun assembling teams to design spacecraft systems that can survey potential targets and eventually grab ores at, or just below, their surface.
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    "The Crowded Trades Have Come Unglued On Obvious Unwinds"

    Concerned about the dramatic market moves since the start of the new year, and especially in recent days? You are not alone, but as RBC's head of US cash equities S&T Charlie McElligott, fear not: everyone is in a "sell (or short) now, ask questions later" mood as nobody really has a clue what is going on except one casual observations: popular, crowded trades are getting blown up at a ferocious speed, as "some leveraged players outright taking grosses down by selling longs and covering shorts; while others are focused on taking net exposure lower, selling longs but adding selectively to shorts."

    Seeing relief off lows but fading again, as thematically we just saw essentially ‘the’ crowded '15 macro trades come unglued on obvious unwinds: long stocks (SPX -1.3%, Estoxx -2.3%), long HY (HYG -0.2%), long Dollar (DXY -1.4%), short UST (+0.4%), short VIX (+6.5%), short crude (+5.1%), short Euro (+1.4%) / Yen (+1.8%) / EMFX (+0.5%), short copper (+1.9%)...all going wrong-way.
    Plenty of attribution going around, first being portfolio de-risking as performance for active-types (read: humans) has just been brutal.

    Others are re-treading the idea of ‘petro-state’ selling of liquid assets in light of the crude harsh fade from just 5 days ago.  I would posit that the violence (“price insensitive”) and synchronized nature of it looked quantitative in nature.
    Single-stock world shows somewhat similar picture as broad macro, with popular shorts and longs trading-backwards generally speaking, although pockets of shorts continue being pressed.
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    European lawmakers back limited reduction in car emissions

    European lawmakers on Wednesday backed a compromise deal to reduce car emissions that will still allow vehicles to exceed official pollution limits, defying calls for more radical reform following Volkswagen's emissions-test cheating scandal.

    The vote, which narrowly rejected a proposal to block the compromise, had been scheduled for January, but was delayed by bitter arguments between members of the European Parliament and fierce lobbying.

    Volkswagen's (VOWG_p.DE) admission in September that it cheated U.S. diesel emissions tests created a political storm in Europe where around half of vehicles are diesel.

    Diesel is particularly associated with emissions of nitrogen oxide linked to lung disease and premature deaths.

    The European Commission, the EU executive, had already begun trying to close a known gap between laboratory testing of new vehicles and the real world, where toxic emissions have surged to more than seven times official limits.

    However, the European Automobile Manufacturers' Association (ACEA) said in a position paper seen by Reuters that the Commission's reform plans were too challenging for current diesel models and could threaten the technology as a whole, jeopardizing jobs across the region.

    At a closed-door meeting in October, EU member states agreed a compromise -- now backed by the European Parliament -- that would cut emissions but still allow a 50 percent overshoot of the legal ceiling for nitrogen oxide of 80 milligrams/kilometer.

    Mayors from cities including Copenhagen, Paris, Madrid, Milan and Naples had urged the European Parliament, meeting in Strasbourg, to reject the plan.

    "If such a decision would be confirmed, we fear that our commitment to reduce air pollution in cities will become meaningless," a letter from eight city mayors to members of parliament said.

    Green lawmakers and liberals also pressed for a rejection, saying the compromise was an illegal weakening of already agreed limits.

    "Unfortunately, clean air, fair competition and the rule of law did not get a majority today," Dutch Liberal politician Gerben-Jan Gerbrandy said.

    But the dominant center right grouping, the European People's Party (EPP), backed the compromise

    It said rejecting the plan would delay a reduction in vehicle emissions, as a new proposal would have to be agreed and the car industry would lack regulatory certainty to invest in cleaner technology.

    The European Commission welcomed Wednesday's vote as a step in the right direction and urged manufacturers to start designing vehicles "for full compliance with the legal emissions limit" when measured in real driving conditions.
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    U.S. judge says Petrobras investors can sue as group

    A U.S. judge ordered Petrobras, the state-run Brazilian oil company, to face class-action litigation by investors seeking to recoup billions of dollars in losses stemming from a bribery and political kickback scandal.

    In a decision made public on Tuesday, U.S. District Judge Jed Rakoff in Manhattan certified two classes of plaintiffs, saying their claims are similar enough to be pursued as groups.

    One class bought various Petrobras securities from January 2010 to July 2015 and will be led by Universities Superannuation Scheme of Liverpool, England.

    The other bought debt securities from offerings in 2013 and 2014, and will be led by North Carolina's treasurer and the Employees' Retirement System of Hawaii.

    "Petrobras was a massive company with investors around the globe," Rakoff wrote in a 49-page decision. "Notwithstanding Petrobras's size and its numerous and far-flung investors, the interests of the class members are aligned and the same alleged misconduct underlies their claims."

    Class certification can make it easier for investors to recoup larger sums than if they sued individually, though it does not guarantee they will be recover.

    Other defendants include more than a dozen bank underwriters and an affiliate of the auditor PricewaterhouseCoopers. A PwC spokesman could not immediately be reached for comment.

    Petrobras, whose formal name is Petroleo Brasileiro SA, has been accused of inflating the value of more than $98 billion of its stock and bonds through years of corruption.

    Last April, Petrobras took a $17 billion writedown to account for overvalued assets.

    Prosecutors have also said more than $2 billion of bribes were paid over a decade, mainly to Petrobras executives from construction and engineering companies.

    The scandal has contributed to a plunge in Petrobras' market value to below $20 billion from nearly $300 billion fewer than eight years ago, Reuters data show.

    Rakoff appointed the law firm Pomerantz LLP to represent both investor classes. It would share in any recoveries.

    Petrobras' fraud "has eviscerated billions of dollars in shareholder value, as well as hobbled the political and economic structure of Brazil," Jeremy Lieberman, a Pomerantz partner, said in a statement. "Today's ruling represents a significant milestone in Plaintiffs' efforts to recoup a significant portion of the losses incurred."

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    Here is the letter the world's largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere

    Larry Fink, the chief executive at BlackRock, the world's biggest investor with $4.5 trillion, just sent a letter to chief executives at S&P 500 companies and large European corporations.

    The letter focuses on short-termism both in corporate America and Europe, but also in politics, and asks CEOs to better articulate their plans for the future.

    Business Insider managed to get a hold of the letter and is running it in full below (emphasis ours):

    Over the past several years, I have written to the CEOs of leading companies urging resistance to the powerful forces of short-termism afflicting corporate behavior. Reducing these pressures and working instead to invest in long-term growth remains an issue of paramount importance for BlackRock’s clients, most of whom are saving for retirement and other long-term goals, as well as for the entire global economy.

    While we’ve heard strong support from corporate leaders for taking such a long-term view, many companies continue to engage in practices that may undermine their ability to invest for the future. Dividends paid out by S&P 500 companies in 2015 amounted to the highest proportion of their earnings since 2009. As of the end of the third quarter of 2015, buybacks were up 27% over 12 months. We certainly support returning excess cash to shareholders, but not at the expense of value-creating investment. We continue to urge companies to adopt balanced capital plans, appropriate for their respective industries, that support strategies for long-term growth.

    We also believe that companies have an obligation to be open and transparent about their growth plans so that shareholders can evaluate them and companies’ progress in executing on those plans.

    We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation. Additionally, because boards have a critical role to play in strategic planning, we believe CEOs should explicitly affirm that their boards have reviewed those plans. BlackRock’s corporate governance team, in their engagement with companies, will be looking for this framework and board review.

    Annual shareholder letters and other communications to shareholders are too often backwards-looking and don’t do enough to articulate management’s vision and plans for the future. This perspective on the future, however, is what investors and all stakeholders truly need, including, for example, how the company is navigating the competitive landscape, how it is innovating, how it is adapting to technological disruption or geopolitical events, where it is investing and how it is developing its talent. As part of this effort, companies should work to develop financial metrics, suitable for each company and industry, that support a framework for long-term growth. Components of long-term compensation should be linked to these metrics.

    We recognize that companies operate in fluid environments and face a challenging mix of external dynamics. Given the right context, long-term shareholders will understand, and even expect, that you will need to pivot in response to the changing environments you are navigating. But one reason for investors’ short-term horizons is that companies have not sufficiently educated them about the ecosystems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses.

    Without clearly articulated plans, companies risk losing the faith of long-term investors. Companies also expose themselves to the pressures of investors focused on maximizing near-term profit at the expense of long-term value. Indeed, some short-term investors (and analysts) offer more compelling visions for companies than the companies themselves, allowing these perspectives to fill the void and build support for potentially destabilizing actions.

    Those activists who focus on long-term value creation sometimes do offer better strategies than management. In those cases, BlackRock’s corporate governance team will support activist plans. During the 2015 proxy season, in the 18 largest U.S. proxy contests (as measured by market cap), BlackRock voted with activists 39% of the time.

    Nonetheless, we believe that companies are usually better served when ideas for value creation are part of an overall framework developed and driven by the company, rather than forced upon them in a proxy fight. With a better understanding of your long-term strategy, the process by which it is determined, and the external factors affecting your business, shareholders can put your annual financial results in the proper context.

    Over time, as companies do a better job laying out their long-term growth frameworks, the need diminishes for quarterly EPS guidance, and we would urge companies to move away from providing it.Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need. To be clear, we do believe companies should still report quarterly results – “long-termism” should not be a substitute for transparency – but CEOs should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their EPS targets or analyst consensus estimates.

    With clearly communicated and understood long-term plans in place, quarterly earnings reports would be transformed from an instrument of incessant short-termism into a building block of long-term behavior. They would serve as a useful “electrocardiogram” for companies, providing information on how companies are performing against the “baseline EKG” of their long-term plan for value creation.

    We also are proposing that companies explicitly affirm to shareholders that their boards have reviewed their strategic plans. This review should be a rigorous process that provides the board the necessary context and allows for a robust debate. Boards have an obligation to review, understand, discuss and challenge a company’s strategy.

    Generating sustainable returns over time requires a sharper focus not only on governance, but also on environmental and social factors facing companies today. These issues offer both risks and opportunities, but for too long, companies have not considered them core to their business – even when the world’s political leaders are increasingly focused on them, as demonstrated by the Paris Climate Accord. Over the long-term, environmental, social and governance (ESG) issues – ranging from climate change to diversity to board effectiveness – have real and quantifiable financial impacts.

    At companies where ESG issues are handled well, they are often a signal of operational excellence. BlackRock has been undertaking a multi-year effort to integrate ESG considerations into our investment processes, and we expect companies to have strategies to manage these issues. Recent action from the U.S. Department of Labor makes clear that pension fund fiduciaries can include ESG factors in their decision making as well. We recognize that the culture of short-term results is not something that can be solved by CEOs and their boards alone. Investors, the media and public officials all have a role to play.In Washington (and other capitals), long-term is often defined as simply the next election cycle, an attitude that is eroding the economic foundations of our country.

    More details at:
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    German union IG Metall to seek wage increases of up to 5 pct

    Germany's biggest union IG Metall said on Tuesday it would seek wage increases of between 4.5 percent and 5 percent for the 3.8 million metals and electrics sector workers after the German economy grew at its fastest rate for four years in 2015.

    After growth of 1.7 percent last year, the government trimmed its forecast for 2016 last month, saying the growth rate would remain flat this year amid emerging market risks that are dampening export demand.

    IG Metall chief Joerg Hofmann said in a statement that a wage increase would help bolster domestic spending, thereby supporting the economy, Europe's largest.

    "That is a demand that companies are able to finance and that secures a fair and deserved share of the economic success for workers," he said.

    A final decision on the union's demands is due on Feb. 29, with negotiations kicking off in mid-March. The negotiations will take place in a buoyant labour market.

    German unemployment fell more sharply than expected in January and the jobless rate dropped to a record low, Federal Labour Office figures released on Tuesday showed, suggesting private consumption will keep growth in the economy steady.
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    Fed asks Banks on negative interest rates.

    As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.

    In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.

    "The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities," the central bank said in announcing the stress tests last week.

    In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.

    Three-month bill rates have slipped slightly below zero several times in recent years, including in September after the Fed delayed rate liftoff amid global financial market turmoil, touching a low of minus 0.05 percent on Oct. 2.

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    China and Oil: front and centre.

    Image title

    First, while the US embraces market mechanisms (mostly) and really believes that they tend to work (mostly), China really doesn’t like or trust them. The result, as in the wider economy, is festering instability.

    Second, China’s equity market woes aren’t about technicalities, but reflect an array of underlying problems, which have undermined confidence. Stock prices are probably still expensive, both on conventional measures and more specifically because most listed companies, including banks, are vulnerable to the lingering and worsening problems of over-capacity, indebtedness, and slowing growth. Successful global Chinese companies such as Alibaba are listed in Hong Kong, not the mainland.

    Third, China’s reform agenda, the backbone of what the government has trumpeted as economic transformation to a new economic development model, is stuck in the mud. Many reforms have succumbed to pushback or inertia, and even the political top brass appear to be downplaying reform now in favour of keeping the economy running at an unsustainably high rate.

    The Chinese expression, “loud thunder, small raindrops,” describes perfectly the progress of these reforms, since they was launched with great fanfare in 2013. Many useful and necessary things have been done, notably in the finance sector, but in incremental steps that don’t really alter the institutional ways in which the economy works. For example, there is some reform of state enterprises, but not in ways that alter ownership structures or the pervasive nature of state monopolies. There is judicial reform going on, but it’s not possible to have an independent judiciary and the rule of law. More advanced reforms in finance, without parallel changes in the real economy, have exposed the economy to greater capital flight and financial instability.

    Fourth, the volatility in China’s stock market cannot be divorced from what’s going on with the its currency, the renminbi. Last year’s mini-devaluation of 2 per cent was followed by about $250bn of market intervention to push the currency back up again, and for a while it stabilised at around RMB6.40 to the US dollar. Stability was certainly essential to strengthen the government’s successful case to get the renminbi admitted to the IMF’s Special Drawing Right late last year (an accounting unit, comprising the US dollar, Yen, Euro and Pound and now the renminbi, but one that carries status). But the authorities also introduced a series of restrictions on the ability of Chinese residents, companies and banks to export capital, and then launched a new currency index, comprising 13 currencies, as a reference rather than a target. The not so veiled implication was that the renminbi would be allowed to drop against a higher US dollar, if that should happen.

    ~George Magnus

    "You hear talk about the Russians wanting to reduce supply. They can't possibly because a good three-quarters of where they produce their oil is in very cold areas in Siberia. They don't have those pipes insulated, they have to continue to pump crude oil through there," Gartman said. "The Iranians and the Saudis hate each other. They have, for lack of a better term, a war going on — a gas price war. They're not going to let go." 

    The most important incentive to many of these countries is free cash flow, Gartman said. 

    "When you need cash flow, you produce and you don't really care where the end price is. You keep producing it."

    In the longer term, Gartman sees oil in a $27-$47 range with many of the volatile swings behind it. 

    "The bear market has not ended in oil," said Gartman. "If we start to go sideways for four, five months, companies will become profitable again at these levels."


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    Indian manufacturing sector returns to growth at start of 2016

    January saw the Indian manufacturing sector climb back into expansion territory, as the industry recovered following the contraction seen at the end of last year.

    Alongside a resumption of output at some firms impacted by December's flooding, manufacturers also benefited from rising inflows of new business from domestic and export clients.

    At 51.1 in January, up from 49.1 in December, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers IndexTM (PMI)TM, a composite single-figure indicator of manufacturing performance, moved back above the 50.0 mark.

    Although the rate of expansion was only moderate, it was the sharpest signalled for four months.
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    A red flag for BHP on dividends

    The decision by Standard and Poor’s to downgrade the debt rating of BHP is a wake-up call first to the Big Australian. It’s time for BHP to come to grips with the fact that the 2016 dividend game is totally different to past years.

    BHP will now almost certainly reduce its dividend in the current half year.

    Directors of BHP have been petrified that if they lower their dividend their shares will be slashed in the market.

    They can take comfort from the experience of Brazilian iron ore miner Vale, which last week announced that, given its problems and the Samarco disaster, it was suspending dividends. The shares responded by rising almost 8 per cent and last night they held most of that gain until a late fall evaporated about half Friday’s rise.

    Of course, it’s true that Vale shares have fallen from an annual peak of above $US9 to around the current level of $US2.37.

    BHP’s 2015 dividend rate involved a payout of around $US6bn and Citi group estimate that if BHP’s capital expenditure is around the forecast level of $US8bn, then the company will need to borrow $US4bn in 2016 to pay dividends at the 2015 level.

    If BHP continues to borrow big in order to pay dividends, in the absence of a jump in commodity prices and if it is not very careful, it will put itself into a downward debt ratings spiral.
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    Former Petrobras exec sentenced over Vantage Drilling contract

    A Brazilian judge sentenced the former head of state-run oil company Petrobras' international division to 12 years and two months in jail for corruption and money laundering on Monday, part of the country's largest-ever graft investigation.

    Federal judge Sergio Moro said Jorge Zelada had unduly awarded U.S. company Vantage Drilling a 2009 contract with Petrobras for the drillship Titanium Explorer in exchange for bribes stashed in undeclared accounts in Monaco and Switzerland.

    Moro also convicted former Petrobras executive Eduardo Musa and lobbyist Hamylton Padilha, though their sentences were reduced because they signed plea agreements.

    Prosecutors said together Zelada and Musa took $31 million in bribes from Padilha and Hsin Chi Su, chief executive of Taiwanese shipping firm TMT, after Padilha and Su, a Vantage shareholder, met at the Four Seasons Hotel in New York to discuss the bribe.

    For nearly two years the landmark investigation overseen by Moro has mostly focused on local engineering firms and executives accused of price fixing and overcharging Petrobras for work and then using the extra funds to bribe politicians.

    But it has already ensnared some international companies tied to Petrobras. Prosecutors have counted 285 foreign firms that have done business with agents who are under investigation, like Padilha, though they say that does not mean as many firms are being investigated.

    Zelada's lawyer Renato de Moraes said he would appeal the decision and seek acquittal. Zelada led the international division for Petroleo Brasileiro SA, as Petrobras is formally known, from 2008 to 2012.

    Moro said in his decision that Zelada's defense had called Vantage CEO Paul Bragg as a witness, but said the request was not granted because the cooperation treaty between Brazil and the United States only requires compliance with witness requests when called by the prosecution.

    Padilha testified that Bragg did not know about the bribe payment, Moro said.

    Vantage said in July, when Zelada was arrested, it was fully meeting the terms of the drillship contract and had found no evidence of improper activity. If Padilha committed any illegal acts he was not representing the company, it said.

    A judge in Rio also convicted Zelada earlier this month of fraud on a contract awarded to conglomerate Odebrecht SA and sentenced him to a maximum four years in jail.

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    S&P cuts BHP ratings, places Rio on watch negative

    Ratings agency Standard & Poor's on Tuesday lowered the credit ratings of BHP Billiton Ltd and put it on negative watch, while it placed Rio Tinto on watch negative, both actions due to challenging market conditions for commodities.

    The ratings agency cut BHP's debt to A from A-plus and said a further downgrade by one notch will depend on BHP's dividend policy and capital expenditure guidance due out this month.

    The move reinforced market speculation the miner will have to lower its payout to shareholders.

    S&P also placed rival company Rio Tinto's A-minus ratings on negative watch.

    "We could lower the rating by one notch over the coming weeks if the company does not take supportive measures amid the currently weak commodity prices pressuring its cash flows."

    Analysts expect Rio to maintain its dividend for now.

    Both ratings actions follows S&P's price assumptions for commodities, the agency said.

    The price of iron ore, Australia's top export earner, has recently dropped to its lowest in over a decade.

    Last month, Moody's placed 175 oil, gas and mining companies on review for a downgrade due to a prolonged rout in global commodities prices that it says could remain depressed for some time.

    For some investors sliding commodities can result in debt bargains.

    Sanjiv Shah, chief investment officer at London-based Sun Global Investments, singled out BHP's U.S.-denominated subordinated debt due in 2075 paying attractive yields of 7 percent and 7.48 percent.

    "The long rout in commodity prices has hit debt and equity securities issued by metal and mining companies, with many securities looking oversold and therefore attractive if commodity prices do not fall significantly from current levels or stabilise at current levels."

    BHP Billiton remains one of the highest rated mining companies.
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    Anglo American may fully exit Brazil — report

    Beleaguered Anglo American is said to be planning a complete exit from Brazil, where the company has already put its $1 billion niobium and phosphate business up for sale.

    First-round bids for those assets are due on Feb. 15, date that — reportslocal newspaper O’Globo (in Portuguese) — may bring some major surprises. According to veteran columnist Angelmo Gois, Anglo is also seeking to sell its Barro Alto nickel mine, as well as the vast Minas-Rio iron ore complex, which came into production last year, just as prices for the steelmaking ingredient spiralled toward historic lows.

    Last week, Anglo said it was revising its production strategy for Minas-Rioto ensure lower operating costs, without given further details or mentioning any potential plans to sell the asset.

    Other than its $1 billion niobium and phosphate business, already up for grabs, Anglo is said to be mulling the sale of its Barro Alto nickel mine, and the vast Minas-Rio iron ore complex.

    The mine had been plagued by delays and cost overruns since Anglo bought it for $5.5 billion in two stages in 2007-2008.

    BHP spin-off South32 is said to be among the bidders for Anglo’s niobium and phosphate assets. According to local reports, the mining giant is seeking to complete such sale in one transaction, rather than splitting them.

    The assets up for sale are set to make Anglo the world’s second-largest producer of niobium, a material used in high-temperature alloys for jet engines and lightweight steel for cars, when it completes its $325 million Boa Vista Fresh Rock plant, located in Brazil’s Goias state, later this year.

    It produced 2,934 metric tons of niobium in the first half of 2015, and the business contributed $35 million to earnings before interest, taxes, depreciation and amortization. The phosphates unit had output of 513,000 tons with Ebitda of $52 million.

    The assets sales come as Anglo American undergoes a major restructuring aimed to improve its balance sheet. This strategy has included putting offloading several mines in the last few months, from copper mines in Chile to Australian coal assets and its platinum business in South Africa.

    Last month, the company finally completed its exit from the Middle East by selling its Tarmac business to Colas Moyen Orient, a subsidiary of French engineering and construction company Bouygues Group.

    Anglo American, which plans to consolidate its business into three units from the current six, will be “a very different company” after it follows through on the restructuring plan, chief executive Mark Cutifani promised in December, as he unveiled the firm’s "radical portfolio restructuring."

    Such reorganization includes reducing its total workforce from 135,000 to just 50,000 by 2017.
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    Manufacturing in U.S. Shrank in January for a Fourth Month

    Manufacturing in the U.S. shrank in January for a fourth consecutive month as businesses cut staffing plans. Growth resumed in new orders and production, indicating some stabilization in the industry.

    The 48.2 reading for the Institute for Supply Management’s index followed December’s 48 level that was the weakest since June 2009, data from the Tempe, Arizona-based group showed Monday. The results were lower than the 48.4 median forecast in a Bloomberg survey of 79 economists. Levels less than 50 for the gauge indicate contraction.

    Factories are buffeted by persistent weakness in the oil industry, the stronger dollar and cooling overseas markets that also limited growth last quarter. The report showed the gauge of new orders, a leading signal for production, grew for the first time in three months, which would help manufacturing to eventually strengthen.

    “This may be signaling the start of some stabilization in manufacturing activity and U.S. economic activity,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York. “It’s good enough to know things haven’t gotten worse. The rise in new orders is encouraging.”

    Economists’ estimates in the Bloomberg survey ranged from 47 to 50.5.

    The new orders gauge rose to 51.5, the strongest since August, from 48.8. A measure of production climbed to 50.2, the first expansion in three months, from 49.9.

    The factory employment index dropped to 45.9, the weakest since June 2009, from the prior month’s 48.

    The measure of export orders dropped to a four-month low of 47 last month from 51.

    The gauge of factory inventories held at 43.5, while customer stockpiles stayed at 51.5. The index for supplier deliveries was little changed at 50 after 49.8.

    The report also showed the index of prices paid were the same as the previous month’s reading of 33.5, which was the lowest since April 2009. The prices measure has been contracting since November 2014.

    Eight of 18 industries surveyed by the purchasing managers’ group posted growth, including machinery, computer and electronic products, electrical equipment and furniture.

    “I really like the fact that new orders is up,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. That gauge “really drives the system.”

    While it’s “too early” to declare the worst is over, the orders numbers bear watching and a sustained pickup “could signal a bottom” for the industry’s slump, Holcomb said. In addition, the index of backlogs “is moving in the right direction” by contracting at a slower pace, also indicating an improving outlook.
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    Israel hopes for EU leverage with East Mediterranean push

    Israel, Cyprus and Greece have agreed to deepen their energy, security and tourism ties in the Eastern Mediterranean, a deal that may have implications for Israel's testy relationship with the European Union, too.

    The agreement, signed in Nicosia last week by a beaming Prime Minister Benjamin Netanyahu, Greek premier Alexis Tsipras and Cypriot President Nicos Anastasiades, focused on energy and the exploitation of natural gas deposits off Israel and Cyprus.

    The Leviathan and Aphrodite fields are unlikely to start exporting before 2019 or 2020. Nevertheless, the ambition is to transport gas by pipeline, possibly via Turkey, or in liquefied form by ship to Europe, plugging the East Mediterranean into Europe's grid and providing an alternative to Russia - which has far worse relations with the EU due to the Ukraine crisis.

    With global energy prices expected to remain low for some time, analysts question whether East Mediterranean gas will be the bonanza investors hope, but that didn't prevent the leaders singing the praises of their joint declaration.

    "We live in a turbulent, fluid environment," said Netanyahu, emphasizing working together on policies from tourism to water-management would make all three states stronger. "We have an unprecedented opportunity to advance our common goals," he said, adding: "We have been blessed with natural gas."

    Israel and the two EU members all have sound commercial, defense and political reasons for closer cooperation.

    As well as attracting more visitors and investment, Cyprus and Greece hope some of Israel's high-tech success will rub off on them and lift their economies, both bailed out by the EU and IMF. There's also Israeli know-how in defense, migration, cyber-security and counter-terrorism to draw on.

    Israel hopes to sell its expertise in these areas, as well as gaining extra allies in a region where it feels isolated, with Syria at war on its northern border, Lebanon's Hezbollah a threat and ties with the Palestinians as troubled as ever.

    Israel has already used the presence of a Russian-made air defense system located in Greece, which was originally supplied to Cyprus and traded to Athens, to train fighter pilots on how to thwart technology now being deployed in Syria.


    There is also a more nuanced potential benefit for Netanyahu: more partners inside the EU who may be inclined to defend Israel's interests or at least not lean immediately towards the Palestinians on Middle East issues.

    With France issuing an ultimatum to Israel at the weekend - saying it would recognize Palestine as a state if a new peace initiative doesn't succeed - Israel is hoping its new allegiances in the EU will help head off the French threat.

    Greece has traditionally been pro-Palestinian and was expected to remain so when Tsipras, a leftist, was elected last year. The same went for Cyprus to an extent. But the Palestinians now regard both as having shifted allegiance.

    "The emerging tripartite alliance ... weakens the strong and solid relationship that the Palestinian people have always maintained with Cyprus and Greece," said Hanan Ashrawi, a senior member of the Palestine Liberation Organization.

    "As such, this agreement will only embolden Israel to pursue dangerous policies that have serious ramifications on the whole region. We call on Cyprus and Greece ... to maintain the earlier integrity of their support for the Palestinian cause."
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    Gunvor Pulls Back From Metals Trading as Profitability Slumps

    Gunvor Group Ltd. is getting out of the metals-trading business and its top trader Rene Van Der Kam has left the firm amid a global slump in commodity prices.

    “Profitability was decreasing, while risk was increasing,” Seth Pietras, a Gunvor spokesman in Geneva, said by phone.

    All or most of warehousing will be liquidated and the metals management will depart, according to an internal memo obtained by Bloomberg News. A team will be created to unwind positions and execute existing contracts, the company said.

    Gunvor’s iron-ore and specialty-ores trading won’t be affected and the Shanghai office will remain in operation as the company expands oil and energy trading in China, the memo said.

    Pietras confirmed Van Der Kam’s departure and the contents of the memo. Three other people from the metals desk will also leave the firm. Van Der Kam, who joined Gunvor from Noble Group Ltd. in 2014, declined to comment when reached by telephone.

    The pullback from metals mark the latest in a string of high-profile shakeups at the world’s biggest trading firms. While oil traders have generally thrived amid falling prices and high volatility, metals traders have struggled to make money as demand for raw materials from China weakened.

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    Radar Iron: Gone in a Flash

    Australian iron ore explorer Radar is reviewing options for realising value for its mineral assets after signing an exclusive option agreement with Israeli company Weebit Nano to acquire next-generation "flash" memory technology it says is smaller, faster, more reliable and energy efficient than any commercial rivals.
    The deal, for the issue of 750M shares, is due for completion in April.
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    China PMI: it's getting wait, it's getting better

    Chinese PMI data has sent conflicting signals as the private Caixin manufacturing PMI points to a moderate recovery (in line with our expectations) whereas the official NBS manufacturing PMI has hit the lowest level in 2½ years.

    The Caixin PMI manufacturing index beat expectations rising to 48.4 in January (consensus: 48.1) from 48.2 in December and the new orders sub-index rose to the highest level since June 2015. The official NBS PMI manufacturing, on the other hand, fell to 49.4 (consensus: 49.6) from 49.7 in December.

    Looking at other data, we would be inclined to put more weight on the signal from the Caixin PMI. Import data has pointed to a recovery recently and the big credit burst in 2015 is normally followed by higher activity.

    The Caixin index has always been more cyclical in nature with more swings relative to the official PMI. This may be because the Caixin statistics capture better smaller- and medium-sized companies relative to the official NBS PMI that has higher weight on big state-owned enterprises (SOEs). Since the big overcapacity and struggles are in the big SOEs, this could explain the current deviation.

    Other details of the report show that the export order indices fell slightly in both statistics but are still off the lows from earlier in 2015. NBS also published service PMI, which mirrored the decline in the manufacturing sector, showing a decline to 53.5 in January from 54.4 in December. It comes after decent gains in late 2015, though, and is still higher than during the autumn.

    This is one of the rare cases where China is unlikely to be accused of fiddling with the data unless you can make a case that China would have an interest in showing a weakening picture.
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    Venezuela is on the brink of a complete economic collapse

    The only question now is whether Venezuela's government or economy will completely collapse first.

    The key word there is "completely." Both are well into their death throes. Indeed, Venezuela's ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it's hard to see that getting any better for them any time soon — or ever. Incumbents, after all, don't tend to do too well when, according to the International Monetary Fund, their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It's no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.

    That's not an easy thing to do when you have the largest oil reserves in the world, but Venezuela has managed it. How? Well, a combination of bad luck and worse policies. The first step was when Hugo Chávez's socialist government started spending more money on the poor, with everything fromtwo-cent gasoline to free housing. Now, there's nothing wrong with that — in fact, it's a good idea in general — but only as long as you actually, well, have the money to spend. And by 2005 or so, Venezuela didn't.

    Why not? The answer is that Chávez turned the state-owned oil company from being professionally run to being barely run. People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn't go in. That last part was particularly bad, because Venezuela's extra-heavy crude needs to beblended or refined — neither of which is cheap — before it can be sold. So Venezuela just hasn't been able to churn out as much oil as it used to without upgraded or even maintained infrastructure. Specifically, oil production fell 25 percent between 1999 and 2013.

    The rest is a familiar tale of fiscal woe. Even triple-digit oil prices, as Justin Fox points out, weren't enough to keep Venezuela out of the red when it was spending more on its people but producing less crude. So it did what all poorly run states do when the money runs out: It printed some more. And by "some," I mean a lot, a lot more. That, in turn, became more "a lots" than you can count once oil started collapsing in mid-2014. The result of all this money-printing, as you can see below, is that Venezuela's currency has, by black market rates, lost 93 percent of its value in the past two years.

    It turns out Lenin was wrong. Debauching the currency is actually the best way to destroy the socialist, not the capitalist, system.

    Now you might have noticed that I talked about Venezuela's black market exchange rate. There's a good reason for that. Venezuela's government has tried to deny economic reality with price and currency controls. The idea was that it could stop inflation without having to stop printing money by telling businesses what they were allowed to charge, and then giving them dollars on cheap enough terms that they could actually afford to sell at those prices. The problem with that idea is that it's not profitable for unsubsidized companies to stock their shelves, and not profitable enough for subsidized ones to do so either when they can just sell their dollars in the black market instead of using them to import things. That's left Venezuela's supermarkets without enough food, its breweries without enough hops to make beer, and its factories without enough pulp to produce toilet paper. The only thing Venezuela iswell-supplied with are lines.

    Although the government has even started rationing those, kicking people out of line based on the last digit of their national ID card.

    And it's only going to get worse. That's because Socialist president Nicolás Maduro has changed the law so the opposition-controlled National Assembly can't remove the central bank governor or appoint a new one. Not only that, but Maduro has picked someone who doesn't even believe there's such a thing as inflation to be the country's economic czar. "When a person goes to a shop and finds that prices have gone up," the new minister wrote, "they are not in the presence of 'inflation,' " but rather "parasitic" businesses that are trying to push up profits as much as possible. According to this — let me be clear — "theory," printing too much money never causes inflation. And so Venezuela will continue to do so. If past hyperinflations are any guide, this will keep going until Venezuela can't even afford to run its printing presses anymore — unless Maduro gets kicked out first.

    But for now, at least, a specter is haunting Venezuela — the specter of failed economic policies.

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    $1m+ Cat goes for $55k at auction

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    Oil and Gas

    Hess Corporation Prices Concurrent Offerings of Common Stock and Depositary Shares

    Hess Corporation today announced the pricing of its previously announced concurrent underwritten public offerings of 25,000,000 shares of its common stock at a price of $39.00 per share, and 10,000,000 depositary shares, each of which represents a 1/20th interest in a share of its 8.00% Series A Mandatory Convertible Preferred Stock (the “Convertible Preferred Stock”). In addition, the underwriters in each respective offering have been granted a 30-day option to purchase up to 3,750,000 additional shares of common stock and up to 1,500,000 additional depositary shares.

    The net proceeds from the common stock offering and the depositary shares offering will be approximately $945.8 million and $485.3 million, respectively, in each case after deducting underwriting discounts and commissions and before estimated offering expenses payable by Hess.

    Hess plans to use the net proceeds from these offerings to strengthen the Company’s balance sheet and for general corporate purposes including funding its longer term capital needs and the cost of the capped call transactions described below. The concurrent offerings are expected to close on February 10, 2016, subject to customary closing conditions.

    Goldman, Sachs & Co., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are acting as book-running managers for the concurrent offerings.

    In connection with the pricing of the depositary shares, Hess entered into privately negotiated capped call transactions with one or more of the underwriters or their affiliates (the “option counterparties”). The capped call transactions are expected generally to reduce the potential dilution to Hess’ common stock upon conversion of the Convertible Preferred Stock, with such reduction subject to a cap. The cap price of the capped call transactions will initially be $53.6250 per share of Hess’ common stock, representing a premium of 37.5% above the public offering price of Hess' common stock in the concurrent common stock offering, and is subject to certain adjustments under the terms of the capped call transactions. If the underwriters of the depositary shares offering exercise their over-allotment option, Hess intends to enter into additional capped call transactions with the option counterparties.

    In connection with establishing their initial hedge of the capped call transactions, the option counterparties or their respective affiliates expect to enter into various derivative transactions with respect to Hess’ common stock concurrently with, or shortly after, the pricing of the depositary shares. These activities could increase (or reduce the size of any decrease in) the market price of Hess’ common stock or the depositary shares at that time.

    In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding derivative transactions with respect to Hess’ common stock and/or by purchasing or selling shares of Hess’ common stock or other securities of Hess in secondary market transactions following the pricing of the depositary shares and prior to the mandatory conversion date of the Convertible Preferred Stock.
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    Obama to seek $10-a-barrel oil tax

    President Obama plans to seek a $10-a-barrel oil tax to overhaul the nation’s transportation system toward reducing carbon emissions.

    In a statement from the White House Thursday, the administration expressed plans to spend more than $300 billion over the next decade, expanding rail and mass transit networks, modernizing freight transportation and expanding research into self-driving cars.

    “Our nation’s transportation system was built around President Eisenhower’s vision of interstate highways connecting 20th century America” the White House said. “This new approach to investment and funding is one that places a priority on reducing greenhouse gases, while working to develop a more integrated, sophisticated, and sustainable transportation sector.”

    Full details of the proposal are expected to be laid out when the White House releases its budget next Tuesday.

    Already the administration is attempting to sell the proposal as one that will not only cut carbon emissions but make the nation’s transportation system more efficient.

    Obama is likely to face a defiant Republican majority in Congress, which has consistently pushed back against his climate change initiatives.

    U.S. Rep. Pete Olson, R-Sugar Land, tweeted Thursday afternoon, “Disgusted that @POTUS wants to slam consumers — and Houston’s economy — with an extreme oil tax. This idea is DOA.”

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    Linn Exploring Options During Worst Oil Downturn in 30 Years

    Oil and natural gas explorer Linn Energy LLC, whose stock has fallen 96 percent in two years, is exploring “strategic alternatives” to strengthen its balance sheet while dealing with the worst crude market downturn in 30 years.

    Linn recently borrowed about $919 million, exhausting the amount available to it under a $3.6 billion credit facility loan, the Houston-based company said in a statement Thursday. Its Berry Petroleum Co. LLC unit is also fully using its $900 million credit facility.

    The company’s reviewing its options to ensure “adequate financial flexibility to manage through prolonged commodity price headwinds,” it said in the statement.

    The collapse in oil prices has forced energy companies to slash more than $100 billion in spending globally and eliminate more than 250,000 jobs last year. More cuts are expected in 2016 with crude futures down 35 percent in the past year.

    Linn has hired Lazard as its financial adviser and Kirkland & Ellis LLP for legal advice on the review, according to the statement.
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    Gulf Coast Crude Tanks Filling Up as Stockpiles Climb to Record

    The U.S. Gulf Coast is bloated with record crude inventories, and signs of tightening storage are starting to show in Louisiana.

    A futures contract reflecting the cost of storage at the Louisiana Offshore Oil Port climbed to a record 90 cents a barrel this week on the New York Mercantile Exchange. The contract, which began trading 10 months ago, has more than doubled in the past two weeks and now exceeds typical long-term costs in the Gulf.

    Stockpiles in PADD 3, the Gulf Coast region, reached 252.9 million barrels last week, the most since the Energy Information Administration began releasing the data weekly in 1990. The region’s working storage capacity, which doesn’t include oil in pipelines or field storage, is 302.3 million.

    The Gulf Coast is getting oil from land and sea. Imports have averaged 3.18 million barrels a day for 10 weeks, the most since July. Near-full inventory levels in Cushing, Oklahoma, have also pushed oil south to Texas and Louisiana.

    One sign of the tightening is in the 10-month-old LOOP sour crude storage futures contract. After reaching a record 90 cents Monday, it settled at 88 cents Thursday. Typical long-term storage goes for 65 cents in the Gulf and 35 cents in Cushing, said Vikas Dwivedi, an oil and gas economist at Macquarie Capital in Houston. CME Group Inc. raised the margin for the contract Thursday to $440 from $385.

    “Total storage is going to build worldwide for at least the first half of 2016,” Dwivedi said in a phone interview. “That would apply disproportionately to the U.S. Gulf because it’s an area commercially focused on storage.”

    The LOOP contract is also getting a boost from a widening contango for Mars Blend, in which the crude gets more expensive in later delivery months, Dan Brusstar, senior director of energy research for CME Group Inc., said in a phone interview. The profit from buying prompt Mars crude and storing it for later resale has risen to $1.36 a barrel from 84 cents in January, CME data show.

    In Houston there’s also "a tight storage landscape," said Kelly Kimberly, a spokeswoman for Fairway Energy Partners, which is adding 11 million barrels in the first phase of a project there. "Essentially, all existing tanks in the Houston market area are fully contracted."

    PADD 3 isn’t likely to run out of space, Auers said. Consumption will pick up as the U.S. winter ends and refiners will process more crude. The region’s refineries boosted their crude runs for the first time in five weeks last week, the EIA said, gaining 80,000 barrels a day to 7.86 million.

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    China's teapots eat into crude glut, but build Asian fuel surplus

    Newly licensed Chinese oil importers are taking advantage of low crude prices and healthy domestic product margins, snapping up hundreds of thousands of barrels a day of a global surplus but also adding to China's swelling fuel exports.

    Armed with quotas that could make up a fifth of total Chinese crude imports this year, the independent refiners, nicknamed "teapots", are seeking barrels from Asia, the Middle East, Europe and South America, and are prepared to pay top premiums to secure deliveries out to April.

    Despite the troubles of a private refiner that failed to secure financing for two import cargoes in December, there has been little let up from the new pool of buyers. Last year, the independents, alongside Beijing's stockpiling programme, helped grow China's crude imports by 8.8 percent, or 543,000 barrels per day (bpd).

    "As long as oil remains under $40, margins will be supportive of crude buying," said Michal Meidan of consultancy Energy Aspects.

    "But even if margins start to get squeezed a little, they will still import and seek tax breaks from local officials."

    After Beijing started granting quotas in July 2015, independents bought close to 8 million tonnes of crude between September and December, a rough rate of 500,000 bpd over the four months, according to estimates by Thomson Reuters Oil Research and Forecasts and an executive at one teapot refiner.

    With over 1 million bpd in quotas finally approved so far, teapots are set to step up purchases further this year, as most won permits only towards the end of 2015 or in early 2016.

    Sources at the independents said they are testing out a variety of grades for their plants, which typically have small capacities and basic crude distillation equipment that most easily handle light, sweet oils.

    China's total crude imports this month may reach 7.68 million bpd, near a record hit in December and marking another challenge to the United States as the world's top crude buyer, according to Thomson Reuters Oil Research and Forecasts.

    The teapots' preference for smaller-sized cargoes due to port constraints helped push Russia up China's supplier list to the No.2 spot after Saudi Arabia, with Russian volumes surpassing those of the Saudis for four months in 2015.

    The independents' demand for ESPO blend crude, the key Russian grade for Asia, has pushed up its premium for cargoes loading in March to the highest since May 2014.

    The teapots' buying was supported by Beijing's recent move to freeze domestic pump prices when benchmark crude prices go under $40, effectively locking in processing margins as Brent and U.S. oil hold near 12-year lows.

    To capture healthy margins and replenish inventories ahead of the Lunar New Year break that starts on Feb. 8, teapots have cranked up output to near full-tilt, according to sources at three plants based in eastern Shandong province.

    Until the middle of last year, many struggled to operate even at 30-40 percent of capacity due to poor margins and their inability to import crude.

    Cargoes have been booked through April loadings, the sources said, with the high number of enquires likely extending far into the second quarter.

    Still, with fuel stocks rising and factory activity contracting in the world's second-largest economy, weak domestic demand - especially for diesel - may force companies to export more and eventually cap crude throughput.

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    Oil Majors Converging Here Could Mean A New Hotspot

    This week also saw another unexpected event in the offshore sector — halfway around the world in South America.

    That came in Uruguay. Where major European producer Statoil announced a surprise farm-in on one of the world’s up-and-coming exploration areas.

    Statoil said Monday that it will acquire a 15 percent interest in block 14, majority-owned by Total in the offshore of Uruguay, just south of Brazil (map below).

    Statoil is acquiring a 15 percent interest in block 14, offshore Uruguay

    This is an interesting deal, given that most major E&Ps are cutting back spending on new projects right now. Showing that Statoil must see something it finds very attractive here — especially given this is a major stepout from the company’s core operating area of the North Sea.

    The current market turmoil has created a once in a generation opportunity for savvy energy investors.
    Whilst the mainstream media prints scare stories of oil prices falling through the floor smart investors are setting up their next winning oil plays.

    That something could be results from 3D seismic surveys recently completed by Total over block 14. Which are perhaps showing some sizeable leads on drilling targets here.

    The other partner currently involved in the block is ExxonMobil — showing that a range of majors are converging in this part of the world.

    The prize here could be something similar to recent offshore mega-discoveries in Brazil, given that the Uruguay blocks are located just south of those basins. With Uruguay perhaps being a more attractive way into such plays at the moment, after scandals and corruption have swept over the Brazilian petroleum sector the last few months.

    The first drilling at block 14 is expected within a few months, meaning we won’t have to wait long to see what the potential might be here. Watch for results from this emerging district.
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    Shell postpones decision on LNG project in Kitimat due to profits slump

    Shell has announced it is postponing a final decision on the Shell-led LNG Canada export project in Kitimat due to slumping profits.

    Shell reported on Thursday a 44 per cent drop in profit in the final three months of last year, forcing a reevaluation of spending decisions.

    “Operating costs and capital investment [across Shell] have been reduced by a total of $12.5bn as compared to 2014, and we expect further reductions in 2016,” CEO Ben van Beurden said in a statement.

    The project received environmental approval from the federal and provincial governments last June, although the approval came with a number of conditions.

    Shell owns a 50 per cent stake in the LNG Canada project and could have started construction by 2021 or 2022.

    LNG Canada expected 7,500 workers would be employed during peak construction at the Kitimat site and an estimated $8 billion would be spent on goods and services within Canada, including $3 billion in B.C.

    The other shares are held by Japanese trading company Mitsubishi, South Korean incumbent KOGAS and China state-run Petrochina.
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    Oil Tycoon Pickens Cashes Out on Oil, Awaits Time to Get Back

    Oil tycoon T. Boone Pickens, who made and lost fortunes targeting some of the largest U.S. crude explorers over the past 40 years, has cashed out.

    Pickens has sold all his oil holdings and is waiting for the best moment to get back in, he said Thursday in an interview on “Bloomberg Go.”
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    Iran says discussing oil sales to Russia's Rosneft - RIA

    Iran has been discussing possible oil sales to top Russian crude oil producer Rosneft, Kremlin-controlled RIA news agency cited Ali Akbar Velayati, top adviser to Iran's Supreme Leader Ayatollah Ali Khamenei, as saying in Moscow on Thursday.

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    Saudi Aramco Said to Cut March Light Crude Oil Pricing to Asia

    Saudi Arabia, the world’s largest crude exporter, cut pricing for March sales of its light crude oil grades to Asia, according to a person familiar with the decision.

    State-owned Saudi Arabian Oil Co. lowered its official selling price for Arab Light crude to Asia by 20 cents a barrel to $1 a barrel less than the regional benchmark, according to the person, who asked not to be identified because the information isn’t public. The company, known as Saudi Aramco, was expected to widen the Arab Light grade’s discount by 40 cents a barrel to $1.20 a barrel less than the benchmark for buyers in Asia, according to the median estimate in a Bloomberg survey of seven refiners and traders in that region.

    Saudi Arabia led a 2014 decision by the Organization of Petroleum Exporting Countries to maintain output amid oversupply in an effort to defend market share and drive out higher-cost producers. The country’s average production in 2015 of 10.2 million barrels a day accounted for more than 10 percent of global oil supply, according to the International Energy Agency.

    Benchmark Brent crude dropped 35 percent last year and another 6.8 percent in January. Saudi Aramco officials have said prices will rise by the end of this year as demand grows.

    “The gap between supply and demand has started shrinking,” Aramco Chief Executive Officer Amin Nasser said at a Jan. 26 conference in Riyadh. “We will see some adjustment, but it will happen toward the end of this year.”

    Aramco cut the premium for Arab Extra Light crude to Asia by 40 cents a barrel to $1.30 a barrel more than the benchmark, according to the person. The company narrowed the discount for March sales of its Medium and Heavy grades to Asia, the person said.

    Saudi Arabia boosted output to a record 10.48 million barrels a day in June, according to the International Energy Agency, and pumped 10.2 million a day last month, data compiled by Bloomberg show. OPEC, of which Saudi Arabia is the largest producer, abandoned its oil-production target in December.

    Middle Eastern producers are competing increasingly with cargoes from Latin America, North Africa and Russia for buyers in Asia, its largest market. Producers in the Persian Gulf region sell mostly under long-term contracts to refiners. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark. For Asia the benchmark is the average of Oman and Dubai oil grades.
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    Occidental cuts capex by 48 percent; fourth-quarter loss bigger than expected, great permian details

    Occidental Petroleum Corp said its 2016 capital budget was expected to be not more than $3 billion, nearly half its 2015 levels, and reported a bigger-than-expected loss for the fourth quarter.

    However, the company expects to grow oil and gas production by 2-4 percent this year from ongoing operations due to a fall in drilling and completion costs.

    Total operating costs declined by nearly $2 per barrel to $11.57 in 2015, Occidental said.

    Production in the fourth quarter surged 12.6 percent to 671,000 barrels of oil equivalent per day (boepd) from a year earlier, with the company's domestic production increase coming mainly from its Permian shale fields.

    Occidental's net loss widened to $5.18 billion, or $6.78 per share, in the quarter ended Dec. 31, from $3.41 billion, or $4.41 per share, a year earlier.

    The company reported a core loss of 17 cents per share, bigger than the average analyst estimate of 12 cents, according to Thomson Reuters I/B/E/S.

    Revenue more than halved to $2.84 billion.

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    ConocoPhillips cuts dividend, budget as low crude weighs

    ConocoPhillips (COP.N) further cut its capital budget for 2016 and slashed its quarterly dividend as a relentless fall in crude oil prices takes a toll on the largest U.S. independent oil and gas company.

    Shares of ConocoPhillips, which also reported a bigger-than-expected quarterly loss, were down 4 percent at $37 in light premarket trading.

    Global crude oil prices have dropped about 70 percent from their 2014 high of over $100 barrel, eroding profitability at nearly all oil producers.

    Exxon Mobil Corp (XOM.N), the world's largest publicly traded oil company, reported its smallest quarterly profit in more than a decade on Tuesday.

    With oil prices now hovering at about $30 barrel, producers are slashing investments in new wells and projects, triggering another large wave of spending cuts.

    ConocoPhillips on Thursday lowered its 2016 capital expenditure target by 17 percent to $6.4 billion, and its operating cost forecast by 9 percent to $7 billion.

    The cut comes less than two months after the company outlined its spending plans for the year.

    ConocoPhillips also slashed its quarterly dividend to 25 cents per share from 74 cents per share.

    The company's net loss widened to $3.5 billion, or $2.78 per share, in the fourth quarter ended Dec.31, from $39 million, or 3 cents per share, a year earlier.

    Excluding impairment and other items, loss was 90 cents per share, bigger than the average analyst estimate of 65 cents, according to Thomson Reuters I/B/E/S.

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    Oxford Institute points to EU gas war.

     According to a new report from the Oxford Institute for Energy Studies (OIES), Gazprom might consider a strategy to flood Europe with cheap gas in 2016 to kill off U.S. LNG.

    Such a scenario would be possible because Gazprom has 100 billion cubic meters of annual gas production capacity sitting on the sidelines in West Siberia, which can effectively be used as spare capacity, not unlike the way Saudi Arabia can ramp up and down oil production to affect prices. Gazprom’s latent capacity is equivalent to 3 percent of global production. This large volume of capacity is the result of investments that were made in a major project on the Yamal Peninsula back when gas markets looked much more bullish.

    The approach would mirror Saudi Arabia’s strategy of keeping oil production elevated in order to protect market share, forcing the painful supply-side adjustment onto higher-cost producers. Crucially, Gazprom can produce and export gas to Europe at a much lower cost than LNG from across the Atlantic.

    Gazprom’s cost to export gas to Europe stands at $3.50 per million Btu (MMBtu), according to figures from OIES. That easily undercuts the cost of landing LNG in Europe from the U.S., which OIES says costs American exporters $4.30/MMBtu. Even that is probably generous – other estimates peg U.S. LNG export costs to Europe at somewhere around $5/MMBtu for liquefaction and transportation, plus the cost of procuring the gas from U.S. gasfields, which today runs a little bit above $2/MMBtu.

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    Suncor Cuts Spending After Posting Surprise Loss on Writedowns

    Suncor Energy Inc. will cut spending by about 10 percent this year after the oil-sands producer posted a surprise loss for the fourth quarter amid writedowns on the value of Canadian, Libyan and offshore assets.

    Suncor lowered its capital spending plan to between C$6 billion ($4.4 billion) and C$6.5 billion from a November estimate of C$6.7 billion to C$7.3 billion, it said in a statement Wednesday. The reduction comes partly from deferring maintenance at its Firebag oil-sands operations to 2017 from this year.

    The Canadian oil giant has lowered costs and delayed projects to weather collapsing prices that are making many oil-sands operations unprofitable. The 2016 spending cuts come after the company eliminated more than 1,000 jobs and slashed its budget last year.

    “We have surpassed the reliability and cost reduction targets we established in early 2015,” Chief Executive Officer Steve Williams said in the statement.

    Missed Estimates

    The company reported a fourth-quarter loss of C$2 billion, or C$1.38 a share, compared with net income of C$84 million, or 6 cents, a year earlier. Excluding one-time items, per-share profit fell short of the 8 Canadian-cent average of 15 analysts’ estimates compiled by Bloomberg.

    Suncor reported after-tax impairments of C$1.6 billion, including charges of C$798 million for some offshore assets because of lower crude prices, C$415 million for its Libyan assets and C$290 million for the Joslyn oil-sands venture. Its unrealized foreign exchange loss on U.S. dollar denominated debt was C$382 million.

    Even with crude prices near 12-year lows, Suncor is pressing ahead with the C$13 billion Fort Hills project, with plans to spend C$1.6 billion this year to begin production at the end of 2017. The company is also taking advantage of the oil industry downturn to expand through deals including the C$4.2 billion takeover of Canadian Oil Sands Ltd. and the purchase of a bigger stake in a venture with France’s Total SA.

    West Texas Intermediate, the U.S. benchmark, averaged $42.16 in the quarter compared with $73.20 in the year-earlier period. The crude is still hovering just above $30 a barrel.

    Suncor estimates its oil-sands operating costs per barrel, excluding the Syncrude venture, will be C$27 to C$30 this year, while WTI will average $39. Production this year will average between 525,000 and 565,000 barrels a day, the company said.

    The Canadian Oil Sands acquisition, pending shareholder approval, will increase Suncor’s stake in the Syncrude venture that processes bitumen into light oil in northern Alberta to 49 percent, from 12 percent. Currently, the largest owner is Exxon Mobil Corp.-affiliate Imperial Oil Ltd., which holds 25 percent and operates Syncrude.

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    Shell Fourth-Quarter Profit Drops 44% as Crude Oil Prices Tumble

    Royal Dutch Shell Plc, which is on the brink of completing the oil industry’s largest deal in a decade, said fourth-quarter profit fell 44 percent after the rout in crude prices deepened.

    Profit adjusted for one-time items and inventory changes shrank to $1.8 billion, near the midpoint of the preliminary $1.6 billion-to-$1.9 billion range it gave last month, Shell said in a statement Thursday. That matches the $1.8 billion average estimate of 14 analysts surveyed by Bloomberg, and compares with profit of $3.3 billion a year earlier.

    Crude’s collapse has slashed earnings for oil companies from Exxon Mobil Corp. to BP Plc, leaving them struggling to strike a balance between investing for growth and making shareholder payouts. Shell is betting its $50 billion acquisition of BG Group Plc will help it maintain dividends and increase oil and gas production at a time when cash flow is shrinking.

    Shell’s shareholders last month approved the company’s plan to buy BG, which has oil fields in Brazil and natural-gas assets from Australia to Kazakhstan, despite the 40 percent tumble in crude prices since the deal was announced. The average price of benchmark Brent crude in the fourth quarter was $44.69 a barrel, the lowest since 2004. Average prices have lost more than $10 this quarter, making it harder for Shell to deliver on its promises to investors.

    The company’s B shares, the class of stock used in the deal with BG, have dropped 6.8 percent this year. The eight-member FTSE 350 Oil & Gas Producers Index has declined 4.7 percent.

    The acquisition of BG is due to become effective on Feb. 15.
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    Another Leg Lower In Oil Coming After Many Producers Found To Have Far Lower Breakevens

    According to a report by the Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove, Saudi Arabia may have its work cut out for it as it will be far harder to kill many U.S.E&Ps than analysts originally thought.

    The reason: a break-even model for the Permian Basin and Eagle Ford shows that oil production across five plays in Texas and New Mexico may remain profitable even when WTI prices fall below $30 a barrel, according to a 55-variable Bloomberg Intelligence model for horizontal oil wells.

    The Eagle Ford's DeWitt County has the lowest break-even, at $22.52, followed by Reeves County wells targeting the Wolfcamp Formation, at $23.40. The diversity of breakevens highlights the hazard posed by looking for a single number, even within a play.

    These counties together produced about 551,000 barrels of liquids a day in October. Taking into account drilled but uncompleted wells boosts the number of potential survivors to 19. The wide range of break-evens undermines efforts to come up  with a single threshold for U.S. shale producers.

    The full list of breakevens by county is shown below:

    Image title

    To corroborate its model of break-even levels for oil producers in the Permian and Eagle Ford, Bloomberg used a Baker Hughes' horizontal rig counts in the Spraberry play Permian and Eagle Ford. Howard County, Texas, has the lowest average break-even, at a WTI price of $29.19 a barrel. Its rig counts have doubled since oil prices began collapsing in mid-2014. In Midland County, at $30, rig counts are up 56%. Counts in Irion and Reagan counties, with two of the highest break-evens targeting the play, have fallen more than 70%.



    None of this would be feasible if average breakeven prices were anywhere close to the $50-60 assumed by the consensus.

    But where Bloomberg's analysis gets outright disturbing, if only for Riyadh, is that once wells are completed, breakeven costs tumble to Saudi-like sub-$20 prices in some countries.

    From Bloomberg:

    Tapping drilled but uncompleted (DUC) horizontal oil wells drops break-even WTI oil prices to less than $20 a barrel in eight county-play combinations in the Permian and Eagle Ford. The analysis assumes that drilled wells are sunk costs and that drilling constitutes 30% of a well's total cost. The 55-variable model shows that the impact of removing drilling expenses varies significantly by county and play, with break-even reductions ranging from $7.24 to $21.51, or 28% to 42%.

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    Oil bears closing of $600 million triple-short fund bet seen adding to tumult

    This week's roller-coaster ride in the global crude oil market was likely fueled in part by the sudden liquidation of a $600 million leveraged fund bet on falling prices, market sources said on Wednesday.

    Unknown investors in the VelocityShares 3x Inverse Crude Oil Exchange Traded Note (ETN) - which offers the ability to make a bearish bet on prices magnified threefold, with gut-churning ups and downs - bailed out early this week after jumping into the fund in January, ETN data show.

    Some 1.8 million shares worth more than $602 million were redeemed on Tuesday, the largest outflow from the ETN in the past year, according to data from FactSet Research.

    The selloff suggests that at least some big investors are betting that the worst of an 18-month oil market rout is over after U.S. prices fell to $26 a barrel last month for the first time since 2003. Trading activity has also jumped to the highest levels on record.

    "Speculators are getting out of the down oil market. People start unwinding these positions because they think they have gotten their juice out of it," David Nadig, vice president, director of exchange traded funds for FactSet, said.

    The DWTI note inversely tracks the S&P GSCI Crude Oil Index ER, which follows movements in the oil market. And because it offers investors three times the exposure, the impact on the underlying futures is magnified - as is the volatility in the ETN, whose price more than doubled in the first three weeks of January before halving again as oil futures rebounded.

    The net asset value of the fund - one of a handful of exchange funds that allows investors to trade oil without the complexity of a futures exchange - fell from close to $1 billion to $417 million on Tuesday and to $322 million on Wednesday, according VelocityShares' website.

    As a result, the mass exodus likely forced the ETN's issuer, Credit Suisse, to quickly buy back short positions as investors redeemed shares.

    VelocityShares, a unit of Janus Capital Group, was unable to comment on the trading activity.

    To unwind alone may have amounted to upwards of 40,000 futures contracts on Tuesday, according to estimates by analysts.

    There is a day's lag between when redemptions and creations are ordered and when they show up in share figures, according to Nadig, meaning that Tuesday's flows were ordered on Monday, when oil reversed a three-day rally to close $2 a barrel lower.

    On Wednesday, oil prices surged more than 8 percent to $32.28 a barrel, despite a seemingly bearish report from the U.S. Energy Information Administration showing nationwide crude inventories rose by 7.8 million barrels last week.

    Volume in the March West Texas Intermediate futures contract surged on Wednesday to more than 777,000 lots traded, its second highest volume on record, according to data via ThomsonReuters' Eikon. DWTI volume was also unusually heavy on Wednesday, with more than 1.9 million shares traded.

    To be sure, redemptions in the short ETN were not the only driver of higher crude prices. A falling dollar and renewed hopes for a meeting among non-OPEC and OPEC members to curtail global production also bolstered futures values. [O/R]

    It is unclear who may have been behind the ETN position, but they ended up on an extraordinarily wild ride. The investment appears to have been made in January, based on asset data showing the note rarely held more than $200 million last year.

    Its price peaked at more than $484 on Jan. 20, when oil traded at a low of $26.55 a barrel, but then fell to as low as $225 last week. It surged to $335 on Tuesday before dropping 25 percent on Wednesday. It is still up 24.5 percent for the year.

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    Australia's AGL Energy quits gas business as oil price bites

    Australia's second-largest energy retailer AGL Energy Ltd has quit its coal-seam gas business as plunging oil prices undermined the economics of the projects, highlighting the pressure on the country's energy industry.

    AGL has been trying to sell its gas assets in Queensland state for several years, but said in a statement on Thursday that efforts to sell the Moranbah, Silver Spring and Spring Gully sites may take time because of "difficult market conditions."

    The collapse in oil prices has impacted long-term gas prices for those projects and will result in a A$498 million ($357 million) impairment charge to its half-yearly results next week, it said.

    The Sydney-listed company said it will not move forward with its Gloucester project and will stop output at its Camden project, both in New South Wales, earlier than planned. The Gloucester project was halted as "disappointing gas flow" on a test well showed lower-than-expected project output from the site.

    These decisions will bring another A$142 million impairment charge, AGL said.

    While AGL, Australia's biggest carbon polluter, has faced pressure from environmental campaigners over its NSW gas projects for years, CEO Andy Vesey said the company decided to bail on those assets because they did not justify investment totalling A$1 billion.

    AGL and other energy retailers' forays into gas exploration and production and gas exporting seemed like a natural diversification for the retailers when the projects were planned and oil prices, used to formulate gas-sales prices, were above $100 a barrel. With oil now trading above $30 a barrel, the outlook for the plans are not as rosy.

    Australia's largest energy retailer Origin Energy Ltd in September asked shareholders for $1.8 billion to cut debt as the weak oil price hampered the outlook for A$25 billion Australia Pacific Liquefied Natural Gas project.

    Oil and gas producer Santos Ltd has also put its assets on the block to cope with the downturn.

    "If anybody knew that the oil price was going to tumble from $120 a barrel to $30 a barrel, we'd all be very rich," said Shaw and Partners analyst David Fraser.

    "People far more specialised than AGL couldn't see it coming."

    Investors welcomed the move, sending AGL shares up as much as 2.4 percent to touch a record intraday high of A$18.95, in a higher overall market.

    The company reports half-year results on Feb. 10, with analysts forecasting an underlying net profit of A$708 million, up 12 percent on the prior corresponding period, according to Thomson Reuters Starmine.

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    Statoil claims $41 breakeven

    Today, Statoil presents its update to the capital markets, announcing a step-up in its improvement programme by 50% to USD 2.5 billion peryear in 2016. One year ahead of plan, Statoil delivers annual cost improvements of USD 1.9 billion, compared to its 2016 target of USD 1.7billion. Statoil is reducing organic capital expenditure from USD 14.7 billion in 2015 to around USD 13 billion in 2016, and has substantiallyimproved its portfolio of non-sanctioned projects, with planned start-up by 2022, reducing the average break-even oil price from USD 70 perboe in 2013 to USD 41 per boe in 2016.

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    Cepsa resumes Iranian oil supplies to Spain

    Spanish refiner Cepsa will ship a 1-million barrel cargo of Iranian oil to its refineries, according to vessel agents' data and market players' information on Wednesday.

    Global oil markets, already oversupplied, have been jittery over the return of Iranian oil after the lifting of international sanctions imposed over Tehran's nuclear programme.

    According to Reuters shipping data,  epsa has chartered the suezmax Monte Toledo which will load at Iran's Kharg Island for delivery to the Spanish ports of Huelva and Algeciras.

    Iran is on track to raise oil production by 500,000 barrels per day after the lifting of Western sanctions last month. Reuters shipping data shows that since sanctions were removed a number of vessels have been tentatively fixed to sail to various locations in Europe and the Mediterranean.

    Trading sources said Litasco, the trading arm of Russia's Lukoil, looked set to become the first buyer in Europe since the lifting of sanctions.
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    Gulfport Energy reports boost in year-end proved reserves

    Gulfport Energy Corporation today reported year-end 2015 proved reserves, provided an operational update for the quarter and year ended December 31, 2015 and scheduled its fourth quarter and full-year 2015 financial and operational results conference call.  Key information includes the following:

    • Year-end 2015 total proved reserves grew to 1.7 Tcfe, as compared to 933.6 Bcfe at year-end 2014, an increase of 83% year-over-year.
    • Year-end 2015 total proved developed reserves grew to 767.1 Bcfe, as compared to 453.8 Bcfe at year-end 2014, an increase of 69% year-over-year.
    • Proved reserves by volume were 91% natural gas and 9% oil and natural gas liquids.
    • Net production during the full-year of 2015 averaged 548.2 MMcfe per day, exceeding the high-end of Gulfport’s annual 2015 guidance of 541 MMcfe per day.
    • Realized natural gas price before the impact of derivatives and including transportation costs averaged $2.08 per Mcf during 2015, a $0.58 per Mcf differential to the average trade month NYMEX settled price.
    • Realized oil price before the impact of derivatives and including transportation costs averaged $42.29 per barrel, a $6.59 per barrel differential to the average WTI oil price during 2015.
    • Realized natural gas liquids price, before the impact of derivatives and including transportation costs, averaged $13.18 per barrel, or $0.31 per gallon during 2015.
    • Entered into a joint venture (“JV”) with a subsidiary of Rice Energy Inc. (NYSE: RICE), which venture completed a lateral that connects two existing dry gas gathering systems on which Gulfport currently flows the majority of its dry gas volumes.
    • Secured an incremental 150,000 MMBtu per day of firm arrangements starting November 2016 through March 2017 at an average differential of $0.61 off NYMEX.
    • Increased hedge position to approximately 480 MMcf per day of natural gas fixed price swaps during 2016 at an average fixed price of $3.29 per Mcf and 347 MMcf per day of natural gas fixed price swaps during 2017 at an average fixed price of $3.07 per Mcf.
    • Year-end 2015 cash on hand totalled approximately $113.0 million and Gulfport’s revolving credit facility of $700 million was undrawn with outstanding letters of credit totalling $178.6 million.
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    Summary of Weekly Petroleum Data for the Week Ending January 29, 2016

    U.S. crude oil refinery inputs averaged over 15.6 million barrels per day during the week ending January 29, 2016, 24,000 barrels per day less than the previous week’s average. Refineries operated at 86.6% of their operable capacity last week. Gasoline production decreased last week, averaging over 8.6 million barrels per day. Distillate fuel production decreased last week, averaging over 4.4 million barrels per day.

    U.S. crude oil imports averaged about 8.3 million barrels per day last week, up by 647,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.0 million barrels per day, 7.8% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 624,000 barrels per day. Distillate fuel imports averaged 191,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 7.8 million barrels from the previous week. At 502.7 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 5.9 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 0.8 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 5.6 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 9.5 million barrels last week.

    Total products supplied over the last four-week period averaged 19.7 million barrels per day, up by 0.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.7 million barrels per day, down by 0.9% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, down by 16.0% from the same period last year. Jet fuel product supplied is up 2.8% compared to the same four-week period last year.


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    US oil production sees very small drop last week

                                                Last Week    Week Before  Last Year

    Domestic Production '000...... 9,214              9,221           9,177
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    Peru to lower royalty payments from oil companies

    Peru said it plans to decrease the royalty payments it receives from oil companies by July in a bid to survive the oil price crash.

    The country said it also might allow firms to postpone part of their payments.

    The move, which was announced by Perupetro, said 20 companies with exploratory contracts and three with extractive rights have declared force majeure as the drop in oil price hits profits.

    Since 2014, crude oil prices have decreased by about 70%.

    Rafael Zoeger, the president of Perupetro, said:”Otherwise what’s going to happen is they’re going to start giving up their oil blocks.

    “Companies that can’t do business are going to leave.”

    Several global oil companies operate in Peru, including Pacific Exploration & Production, Perenco, China National Petroleum Agency and Ecopetrol.

    Peru is a net oil importer, and its production dropped to 58,000 barrels per day in 2015, almost half of peak production in the 1970s.

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    National Oilwell Varco records $1.5 billion net loss for the fourth quarter

    Houston-based National Oilwell Varco on Wednesday posted a $1.52 billion net loss for the final three months of the year amid the ongoing oil crash.

    The oilfield equipment and services giant saw its revenues drop 60 percent in the quarter, but NOV also recorded $1.63 billion in pre-tax impairment charges.

    For the full year, NOV took a $767 million net loss, down from a $2.5 billion profit in 2014. NOV’s 2015 revenues dropped 33 percent from the year prior.

    NOV Chairman, President and CEO Clay Williams said the company performed well given the “very tough market.”

    “Tumbling oil prices brought capital austerity and sharply lower oilfield activity, which is intensifying as we enter 2016,” Williams said in a prepared statement, citing NOV’s solid cash generation and strong balance sheet. “We are well positioned to take advantage of the opportunities we expect to emerge during 2016.”

    Several energy companies have waited to post large impairment charges in the fourth quarter to address the shrinking values of their assets and more.

    Schlumberger posted a $1 billion fourth-quarter loss, while Halliburton recorded a smaller $28 million net loss.

    In an analyst note, Tudor, Pickering, Holt & Co. called NOV’s earnings “much worse than we envisioned,” adding that the “most challenging quarter in some time reflects the harsh reality” of exploration and production companies slamming the brakes on spending.

    On a per-share basis, NOV’s earnings were 40 cents a share after being adjusted for one-time costs. That’s down from $1.84 a share a year prior.

    Williams said the “lower-for-longer” period of low oil prices will eventually push demand to grow and provide the foundation for an eventual recovery.

    “We nevertheless recognize that the timing of the recovery remains uncertain and that we face additional headwinds in the year ahead,” Williams added. “We remain resolute in our focus on reducing costs, improving execution, doing more with less and, ultimately, emerging from the depths of this cycle well positioned for the upturn.”

    Earlier this week, NOV said it plans to cut 129 Houston workers as the company closes its North Houston manufacturing facility near Greenspoint at Air Center Boulevard. The company said it will lay off workers in phases, beginning last week and lasting until June. NOV said some workers had been laid off with little advance notice, and that those employees had been provided additional pay and benefits.

    In November, NOV said it was cutting 120 employees as it shuttered a plant in San Angelo. Williams has said the company will continue slashing costs wherever possible, including shuttering plants.

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    Halliburton Poised to Offer Baker Hughes Deal Concessions to EU

    Halliburton Co. was given more time by the European Union to come up with a package of asset sales that will assuage competition concerns over its takeover of oilfield services rival Baker Hughes Inc.

    The company said Wednesday that it would offer the remedies soon, after the EU pushed back the deadline for reviewing the deal by 20 working days to June 23.

    "Halliburton believes the extension will facilitate the commission’s review of a remedies package, which will be formally offered by the company in the near future in order to address the commission’s concerns," Emily Mir, a spokeswoman for the Houston-based company, said in an e-mail.

    The EU merger authority opened an in-depth probe into the deal on Jan. 12, citing concerns that combining the the second- and third-largest suppliers to oil exploration companies may impede competition and increase prices.

    Halliburton last month expanded a list of assets to sell to try to convince antitrust authorities across the world that the deal won’t harm competition. The oilfield services company said it presented its new plan to the U.S. Justice Department in January. It didn’t disclose what new assets it’s planning to divest.

    The cash and stock deal was valued at $34.6 billion when it was announced near the end of 2014, just as oil prices had begun their downward spiral. Shares of both companies have dropped more than 30 percent since then. Halliburton would have to pay Baker Hughes a breakup fee of $3.5 billion if the bid is dropped.
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    Marathon Petroleum slumps on inventory writedown

    Marathon Petroleum Corp. said its fourth-quarter earnings fell 77% as weak fuel prices resulted in an inventory markdown that weighed on results at its refinery and Speedway retail divisions.

    Chief Executive Gary R. Heminger said in prepared remarks Wednesday that Marathon made progress on the company's objectives of "growing the more stable cash-flow segments of our business and enhancing our refining margins."

    The Findlay, Ohio, company in early December combined its MarkWest Energy Partners LP acquisition with Marathon's MPLX LP pipeline master-limited partnership. The latest results include MarkWest's results as of Dec. 4, when the deal closed.

    Mr. Heminger said Marathon's Speedway unit, which includes the former retail operations of Hess Corp., substantially completed planned conversions of its East Coast and Southeast retail locations to the Speedway brand well ahead of schedule.

    Mr. Heminger said average selling prices and continued strong demand for gasoline supported crack spreads, an industry term for the difference between the wholesale price of gasoline and the price of crude oil.

    The refining and marketing segment reported operating income of $207 million, sharply lower than the $1.02 billion reported a year earlier.

    The company's Speedway business reported that operating earnings fell by slightly more than half to $135 million.

    The pipeline business posted operating profit of $71 million, an increase of 22%, thanks to the addition of MarkWest.

    Over all, Marathon Petroleum reported a profit of $187 million, or 35 cents a share, down from $798 million, or $1.43 a share, a year earlier. The latest period included 44 cents a share in inventory write-downs. Revenue slumped 30% to $15.68 billion.

    Analysts polled by Thomson Reuters expected per-share profit of 69 cents and revenue of $16.35 billion.

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    Russia says ready to meet key OPEC members

    Russia is ready to meet the main oil producers within the Organization of the Petroleum Exporting Countries (OPEC) if a consensus on such a meeting is reached with them, RIA news agency quoted Russia's foreign minister as saying on Wednesday.

    "We consider it important to understand what is going on on the markets. The markets are being influenced by many factors, and old mechanisms are unlikely to work. I think we all understand this," Sergei Lavrov was quoted as saying during a visit to Oman.
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    Asia’s spot LNG prices rise on Sakhalin outage

    The prices of spot liquefied natural gas in Asia are climbing after hitting a 6-year low in late January, due to production problems at Russia’s LNG export facility located on Sakhalin Island.

    The Platts March JKM rose 30 cents/MMBtu to $5.35/MMBtu Tuesday, and bids emerged close to $6/MMBtu by early Wednesday, with at least one deal concluded for late February or early March delivery at around $6/MMBtu DES, Platts reported on Wednesday.

    The Sakhalin-2 project reported production problems last week at its 9.6 mtpa LNG export facility located in Russia’s Far East region. The LNG project declared force majeure on 28 January due to a power outage at the Sakhalin-2 liquefaction plant.

    By January 29, LNG production at the facility had been reduced by 50 percent, Platts said in the report.

    The events at Sakhalin have also resulted in extra demand from at least one portfolio seller, and prompted some of the facility’s long-term customers — Kogas of south Korea and several Japanese gas and power utilities — to review their LNG inventories, already affected by a recent cold snap in the region, the report added.

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    Statoil Seen Deepening Cuts to Keep Dividends Amid Crude Slump

    Statoil ASA will maintain dividend payments this year, betting it can ride out a slump in crude prices by deepening investment cuts and adding debt, analysts predict.

    Norway’s biggest oil company, which will present an update of its strategy along with fourth-quarter earnings on Feb. 4, will pay about 7.2 kroner a share in 2016, the same as in 2015, according to the median of a Bloomberg survey of 35 analysts. Statoil declares dividends in dollars as of the third quarter, while the estimates were provided in kroner. Bloomberg’s dividend forecast in dollars is also for an unchanged 88 cents this year.

    “Our base case is that the dividend level is maintained,” Kjetil Bakken, an analyst at Carnegie AS, said in a Jan. 12 note to clients. “The company has been very firm on this ambition.”

    Statoil’s Chief Executive Officer Eldar Saetre has insisted over the past year that a policy of raising dividends in line with long-term earnings “stands firm” and isn’t affected by lower oil prices, matching competitors such as Royal Dutch Shell Plc and BP Plc who have also made shareholders a priority even as profits tumble. Even so, uncertainty has grown about Statoil’s ability to keep up dividends as its spending cuts send shock waves through the Norwegian economy.

    “The current share price, in our view, reflects a 30 percent to 40 percent reduction in the dividend,” said Christian Yggeseth, an analyst at Arctic Securities ASA, in a note to clients. He still believes Statoil will present a strategy that will allow it to maintain the current dividend level, “which should come as a big relief.”

    Statoil is expected to further cut capital expenditure to $13.9 billion this year, Bloomberg’s survey showed. The company has said 2015 spending will fall to about $16.5 billion from $20 billion, though analysts expect the final figure for last year to be about $15.6 billion.

    As a consequence of unchanged dividends and a dwindling cash flow due to lower oil prices, net debt is expected to soar to 174 billion kroner at the end of 2016 from 121 billion kroner at the end of last year. Statoil’s CEO has said that a targeted range of 15 percent to 30 percent for the company’s net-debt-to-capital-employed ratio should be viewed as a “reference” and that breaching it wouldn’t trigger “desperate action.” Standard & Poor’s said this week it may cut Statoil and other European oil companies’ ratings.

    Teodor Sveen Nilsen, an analyst at Swedbank AB, said that while he expected Statoil to keep the dividend unchanged for the fourth quarter, there is “substantial risk” for a cut in 2016 and 2017 since a “lower dividend on lower oil prices makes sense.”

    Statoil’s adjusted net income, which excludes financial and other items, is expected to drop 33 percent to 2.9 billion kroner in the fourth quarter, according to estimates of 17 analysts. BP on Tuesday reported a 91 percent decline in fourth-quarter adjusted profit, missing analyst estimates.
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    Cabot O&G 2016 Operating Plan and Capital Budget Update

    In response to the decline in both crude oil and natural gas prices since releasing its preliminary 2016 budget in October 2015, Cabot has reduced its 2016 capital budget to $325 million, which represents a reduction of 47 percent from the preliminary budget of $615 million and a reduction of 58 percent from the 2015 capital program of $774 million. Drilling, completion and facilities capital will account for approximately 92 percent of the capital budget, with approximately 70 percent allocated to the Marcellus Shale and approximately 30 percent allocated to the Eagle Ford Shale. The Company expects to drill approximately 30 net wells in 2016, including 25 net wells in the Marcellus Shale and 5 net wells in the Eagle Ford Shale. The Company anticipates completing approximately 55 net wells in 2016, including 40 net wells in the Marcellus Shale and 15 net wells in the Eagle Ford Shale. Cabot plans to reduce its rig count to one rig company-wide by mid-February 2016. As a result of the significant reduction in planned operating activity, the Company’s 2016 production growth guidance range is being reduced at the top-end from 2 – 10 percent to 2 – 7 percent.

    In addition to the $325 million capital budget associated with development activities, Cabot anticipates between $80 million and $150 million of contributions to its equity method investments in the Constitution and Atlantic Sunrise pipelines, which will ultimately be dependent on the regulatory approval process and the corresponding impact on the timing of construction activities.

    Based on current market indications for commodity prices at the time of this press release, Cabot expects its natural gas price realizations before the impact of hedges to average $0.75 below NYMEX for the full year of 2016, an improvement relative to the preliminary guidance provided in October 2015 of $0.85 below NYMEX. For further disclosure on the Company’s updated cost guidance for 2016, please see the current Guidance slide in the Investor Relations section of the Company’s website.

    “Consistent with our philosophy of disciplined capital investment through all commodity cycles, we have reduced our 2016 capital program in response to the lower commodity price environment and its anticipated impact on our operating cash flow for the year,” said Dan O. Dinges, Chairman, President and Chief Executive Officer. “Our reduction in capital spending reflects our commitment to maintaining a strong balance sheet and highlights the capital efficiency of our asset base.” Dinges added, “Given the productivity of our assets in the Marcellus Shale, we will be prepared to accelerate our production growth in a capital efficient manner when market conditions warrant, as we anticipate over 1.3 billion cubic feet (Bcf) per day of new firm transport capacity and firm sales by the third quarter of 2017 and an incremental 425 Mmcf per day by the third quarter of 2018.”
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    Imperial Oil Fourth-Quarter Profit Sinks Amid Lower Crude Price

    Imperial Oil Fourth-Quarter Profit Sinks Amid Lower Crude Price

    Imperial Oil Ltd., the Canadian affiliate of Exxon Mobil Corp., said profit in the fourth quarter sank as oil remained near 12-year lows amid rising production.

    Net income in the quarter fell to C$102 million ($73 million), or 12 cents a share, from C$671 million, or 79 cents a year earlier, Imperial said Tuesday in a statement. The company’s upstream operations recorded a loss in the quarter of C$289 million compared with a gain of C$218 million a year ago.

    Imperial Oil, based in Calgary, operates three refineries, Esso-brand gas filling stations and is a producer of bitumen from oil-sands mining and thermal technology in Alberta. The company is boosting output at its Kearl mine and at leases in the Cold Lake area. Revenue from Imperial refineries helped offset lower crude prices that weighed on production.

    Output in the quarter averaged 400,000 barrels per day, compared with 315,000 barrels in the year-earlier period, the company said.

    Imperial Oil has slashed capital expenditure 50% for this year as the company saw net profit plunge in 2015 despite a significant output hike.

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    Exxon Mobil Profit Declines as Crude Oil, Gas Markets Crash

    Exxon Mobil Corp. posted its fifth-straight quarterly profit decline after crude oil and natural gas lost more than 40 percent of their value because of global oversupplies.

    Fourth-quarter net income fell to $2.78 billion, or 67 cents a share, from $6.57 billion, or $1.56, a year earlier, the Irving, Texas-based company said in a statement on Tuesday. The per-share result beat the 63-cent average profit estimate of 19 analysts in a Bloomberg survey.

    A $538 million loss in the company’s U.S. oil and gas business was cushioned by a near doubling in profit from Exxon’s refineries, according to the statement. Output of crude and gas jumped 4.8 percent. The company cut natural gas production throughout the Americas and Europe.

    Exxon is the latest of the super-major oil companies to disclose dismal fourth-quarter results amid the worst energy market downturn in a generation. The benchmarks for international crude and U.S. gas both dropped 42 percent during the final three months of 2015 as global production continued to overwhelm demand. Oil is trading below $35 a barrel.

    Brent crude futures averaged $44.69 a barrel during the fourth quarter, compared with $77.07 as year earlier, according to data compiled by Bloomberg. U.S. gas averaged $2.235 per million British thermal units during the period, down from $3.829 a year earlier. Oil and liquid byproducts comprise about 60 percent of output from Exxon’s wells; the rest is gas.

    Worldwide oil demand growth probably will slow to 1.3 percent this year from a 1.9 percent rate of expansion in 2015, according to the International Energy Agency in Paris. For Exxon, that contraction is expected to slash full-year 2016 profit to less than $13 billion, based on the average of 19 analysts’ estimates in a Bloomberg survey, which would be the lowest since 2002.

    Exxon’s stock dropped by 16 percent last year for the worst annual performance since 1981. In December, Exxon’s board promoted refining boss Darren Woods to the position of president of the corporation, signaling he’s in line to succeed Chief Executive Officer Rex Tillerson as leader of the world’s biggest oil explorer by market value. Tillerson will reach Exxon’s mandatory retirement age of 65 in March 2017.

    Exxon sees capital spending at around $23.2 billion this year, a 25 percent drop from 2015.

    During the fourth quarter of 2015, ExxonMobil purchased 9.4 million shares of its common stock for the treasury at a gross cost of $754 million. These purchases included $500 million to reduce the number of shares outstanding, with the balance used to acquire shares to offset dilution in conjunction with the company’s benefit plans and programs. In the first quarter of 2016, the corporation will continue to acquire shares to offset dilution in conjunction with its benefit plans and programs, but does not plan on making purchases to reduce shares outstanding.

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    BP CEO Says Debt Can Rise to Sustain Dividend During Oil Slump

    BP Plc is happy to let its debt rise this year to maintain dividends during the slump in oil prices, Chief Executive Officer Bob Dudley said in an interview.

    Speaking after disclosing a record annual loss, Dudley said that a leverage ratio as high as 25 percent, compared with 21.6 percent at the end of last year, wouldn’t make him “nervous.”

    "We’ll be flexible around the gearing levels, we’ll see what oil prices do," he said in an interview with Bloomberg Television on Tuesday from BP’s headquarters in central London.

    Dudley is walking a fine line, trying to reassure equity investors that payouts aren’t in danger while avoiding a significant credit rating downgrade that would spook bondholders and increase financial costs. With prices below $31 a barrel, earnings dropping more than expected and waning margins in the company’s refining business, that task is becoming more difficult.

    Standard & Poor’s on Monday put BP on negative outlook, suggesting it may cut BP’s rating this month.

    “We now believe many major oil and gas companies’ current and prospective core debt coverage metrics are likely to remain below our rating guidelines for two or three years as the industry adjusts to lower prices," S&P said.

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    Russia leaves door open to OPEC deal even as output hits high

    Two senior Russian officials talked up potential cooperation with OPEC to prop up
    prices, but data showed oil production in Russia hit a post-Soviet high in January, suggesting the world's top producer was locked in a fierce struggle for market share.

    Russia has in the last week sent mixed signals about possible cooperation with OPEC to support prices. It first suggested it should start talking to OPEC before saying there was no decision to do so.

    On Tuesday, the pendulum swung the other way again. Top oil producer Rosneft, after its head Igor Sechin met Venezuelan oil minister Eulogio Del Pino, said the
    two men had discussed possible join efforts to stabilise global oil markets.

    Foreign Minister Sergei Lavrov also said Moscow was open to further cooperation in the oil market with OPEC and non-OPEC countries.

    Despite the rhetoric, preliminary data from the Energy Ministry on Tuesday showed Russia was actively ramping up production adding to a global glut.      Production hit another post-Soviet high last month of 10.88 million barrels per day (bpd), up from 10.80 million bpd in December, the data showed.      

    "I very much doubt there will be any success in coordination-- there is no consensus inside OPEC itself," said Alexander Kornilov, a senior oil and gas analyst with Aton in Moscow.

    "The growth was expected from Novatek, Bashneft and Gazprom Neft and I believe this trend will continue in the near future. Lukoil was the only one who actively cut drilling, while the picture was the opposite for others," said Kornilov.

    On Monday, Russian Energy Minister Alexander Novak met Venezuela's Del Pino, who is visiting OPEC and non-OPEC countries to try to drum up support for joint action to prop up low crude prices.

    Novatek, co-owned by its CEO Leonid Mikhelson, President Vladimir Putin's ally Gennady Timchenko and France's Total, started to pump oil at the Yarudeyskoye field last month at its full capacity of 3.5 million tonnes a year.

    Gazprom Neft, the oil arm of state gas producer Gazprom, plans to start two new major oil projects, Novoport and Messoyakha later this year. That should help cover declines at other Russian brownfields countrywide.

    Meanwhile, at the Samotlor field in Western Siberia, still one of the world's largest and which produced over 3 million bpd alone at its peak in the 1980s, drilling is under way to maintain production, a senior official told Reuters.

    One of Rosneft's largest fields, Samotlor, produced 21 million tonnes of oil last year.

    "The key task for 2016 is to stabilise production. All the programmes have already been approved," Valentin Mamayev, chief executive of Samotlorneftegaz, told Reuters. He added that Samotlor plans to drill 227 new wells this year, twice as many as in 2014. "If we produce 20 million tonnes a year, this (Samotlor) could last for the next 50 years minimum," Mamayev said.

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    Texas Shale Drillers Lure $2 Billion in New Equity to Permian

    Oil producers in West Texas, defying expectations they would fall victim to OPEC’s price war, are instead selling investors on the idea that they can still profit with prices below $35 a barrel.

    Drillers in the Permian Basin, the biggest U.S. shale field, have raised at least $2 billion from share sales over the past eight weeks. And more issuances are on the way as producers try to avoid piling on additional debt.

    Pioneer Natural Resources Co.’s 12 million-share issuance on Jan. 5 was followed a week later by Diamondback Energy Inc.’s announcement of a 4 million-share sale. Private equity is getting in on the act, too -- Kayne Anderson Capital Advisors LP is bankrolling a startup called Invictus Energy LLC with $150 million to drill the Permian and another Texas field known as the Eagle Ford Shale.

    Crude’s crash below $30 a barrel for the first time in 12 years means explorers are facing cash shortfalls, and selling shares is less painful than adding debt or auctioning off assets that would attract weak prices in the current environment, said David Deckelbaum, an analyst at Keybanc Capital Markets Inc.

    “In a world where the oil price can break you, taking on debt is an absolute no-no,” said Deckelbaum, who pegged Diamondback as a likely stock seller six days before the company’s announcement. He foresees a “heavy wave” of new share sales.

    The Permian Basin, an ancient seabed that sprawls across an area seven times the size of Massachusetts, has bucked the trend of shrinking production. Drillers were getting 30 percent to 40 percent returns in the Permian’s richest zones when crude was $40 a barrel, according to Laird Dyer, a Royal Dutch Shell Plc energy analyst.

    Crude output from the Permian is expected to continue rising through at least next month after more than doubling in the past half decade, the U.S. Energy Information Administration said on Jan. 11. The region accounts for about one in every four barrels of domestically produced oil.

    “The Permian really is a diamond in the rough,” said Gianna Bern, founder of Brookshire Advisory and Research Inc. in Chicago and a former BP Plc crude trader. “With the supply glut in the global market, these are challenging times for the entire industry, but the Permian is one place with the resources, ingenuity and engineering expertise to continue improving the cost structures.”

    The Permian is unique in that geologists and engineers have been probing and mapping its layers of oil-rich stone for most of the past century, compiling a treasure-trove of core samples, pressure data and porosity profiles that prove useful as drilling innovations develop.

    Other Permian explorers who may be tempted to sell new shares to help fund their 2016 drilling budgets include Callon Petroleum Co., Cimarex Energy Co., Energen Corp., Laredo Petroleum Inc., Parsley Energy Inc. and RSP Permian Inc., Deckelbaum said.

    Selling assets is a bad way to raise cash right now because of an oversupply of property on the auction block and pessimism about the future direction of crude prices, Deckelbaum said.

    While the oil producers he follows for Keybanc are trading at an average of about $62,000 per barrel of output, recent asset sales in the sector have only fetched about $44,000, a 29 percent discount, Deckelbaum said.

    “The best play book for many names is simply to issue equity,” he said.

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    BP Fourth Quarter Profit $196 Million, Missing Estimates

    BP Plc reported a 91 percent decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade.

    Profit adjusted for one-time items and inventory changes totaled $196 million, the London-based company said Tuesday in a statement. That missed the $814.7 million average estimate of 10 analysts surveyed by Bloomberg, and compares with year-earlier profit of $2.24 billion.

    Crude’s collapse has driven BP’s market value below $100 billion for the first time since the Gulf of Mexico oil spill in 2010. Chief Executive Officer Bob Dudley has cut billions of dollars of spending, removed thousands of jobs and deferred projects in an attempt to protect the balance sheet. Dudley was one of the first of his peers to start preparing for a prolonged slump and that puts BP in a better position, according to Barclays Plc.

    Profit has been lower year-on-year for six consecutive quarters as oil prices tumbled. The average price of benchmark Brent crude slumped 42 percent in the fourth quarter from a year earlier to $44.69 a barrel, the lowest since 2004.

    PetroChina Co. said last week it expects 2015 profit to fall at least 60 percent. Chevron Corp. on Friday reported its first quarterly loss since 2002, while Royal Dutch Shell Plc said last month that fourth-quarter profit is likely to drop at least 42 percent. The European oil major is scheduled to report full earnings on Thursday.

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

    BP’s shares have increased 3.7 percent this year following last year’s 14 percent decline, a second straight year of losses. It’s the best performer on the eight-member FTSE 350 Oil & Gas Producers Index after BG Group Plc.

    Bloomberg interview: BP CEO Dudley: We Can Balance Books at $60 Oil

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    Anadarko Petroleum Loss Widens

    Anadarko Petroleum Corp. posted a wider loss compared with a year earlier as the rout in the oil sector deepened, though the bottom line came in better than markets had expected.

    Shares of Anadarko, down 52% in the past 12 months, rose 4.4% to $39.95 in after-hours trading.

    The company, one of the largest independent oil and gas producers in the U.S., along with the wider sector, has been stressed by collapsing energy prices. Many of the factors that sent oil on a historic plummet over the past 19 months haven’t changed. Oil prices fell for much of Monday, returning much of last week’s modest gains as traders seemed to lose faith that producers would curb output and that China’s slowing economy would stoke demand. Some analysts expect oil prices to hover between $20 and $40 a barrel until the second half of the year, with crude prices remaining highly volatile.

    To handle the downturn, Anadarko lowered its 2015 budget by $3.37 billion, 36% less than in 2014—the start of the downturn—when it spent nearly $9.3 billion.

    Anadarko has tried to take advantage of the downturn, but several efforts to expand have been stymied. Late last year, the company made a bid to buy Apache Corp., but the smaller company rebuffed Anadarko’s all-stock offer. And Chief Executive Al Walker has repeatedly complained of being outbid for acreage in the Permian Basin, a prolific drilling region in West Texas.

    For the latest quarter, Anadarko posted a loss of $1.25 billion, or $2.45 cents a share, compared with a loss of $395 million, or 78 cents a share, a year earlier. Excluding certain items, the company posted a loss of 57 cents a share, compared with a year earlier when Anadarko had earnings of 37 cents a share.

    Revenue fell 35% to $2.05 billion.

    Analysts polled by Thomson Reuters expected a loss of $1.08 on revenue of $2.1 billion.

    The company, based in The Woodlands, Texas, has sold some of its holdings abroad in recent years, including its China unit, to raise cash to focus on extracting oil from unconventional formations in the U.S.

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    Kurdistan’s Payments Promise Lifts Oil Companies

    Shares in Kurdistan-focused energy firms such as London-listedGenel Energy PLC and Norway’s DNO ASA rose Monday after the regional government confirmed it would regularize payments for crude exports this year. The government also said it would start paying off what it owed the companies for oil they had pumped in the past, estimated at over $1 billion.

    The move by the Kurdistan Regional Government could resolve one of the global oil industry’s ironies: Kurdistan is one of the cheapest places in the world to produce crude, but western firms pumping there were money losers.

    For example, it costs Genel about $2 a barrel to pump oil from its Kurdish fields, compared with around $25 a barrel in the U.K.’s North Sea. Genel produced an average of 84,900 barrels a day in Kurdistan in 2015.

    But Genel’s net debt has increased, reaching $239 million at the end of last year compared with $2.3 million a year earlier, partly because of oil prices that hit their lowest levels since the financial crisis but also because Kurdistan’s government didn’t pay them for most of the year.


    The lack of regular payments had held back any plans the companies may have had to participate in mergers and acquisitions as it made them too risky for potential buyers, analysts have said.

    A spokesman for Genel declined to comment. Gulf Keystone didn’t respond to requests for comment and DNO couldn’t be reached for comment.

    Kurdistan was strapped for cash for much of 2015 as it fought a brutal war against Islamic State. At the same time, it was locked in a political battle with Iraq’s central government over oil revenue, with Baghdad refusing to send the semi-autonomous region an agreed upon percentage.

    Kurdistan has made promises to pay companies before, but there is hope these pledges will be made good this time because it had begun making interim payments each month since September.

    The KRG said in a news release that it would scrap those interim arrangements and pay the companies according to the original production-sharing contracts. In addition, the KRG said it would also make a further payment towards outstanding debts.

    “These payments will cover the international oil companies’ operating expenses and provide additional incentives and rewards for new capital investments to maintain and increase field production levels,” the KRG said.

    The statement soothed fears that the recent sharp decline in oil prices would knock out the government’s ability to keep payments going.  The new system also brings a degree of predictability and clarity that had been lacking previously.

    Investors were cheered. Genel gained around 3%, while Gulf Keystone was up around 35% and DNO was up over 8%.

    “The KRG is effectively saying paying international oil companies is priority number one. The signalling effect the KRG makes with this statement shouldn’t be underestimated,” said Henrik Madsen from Arctic Securities in a note.

    The KRG said that it aimed to process the monthly payments for the oil companies in the first 10 days of the month.

    The KRG’s previous four payments to the oil companies for crude exported via a pipeline to Turkey’s Mediterranean port of Ceyhan were based on what the government could afford and not necessarily what the companies were entitled to.
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    Industry study predicts Gulf drilling plummet from safety rule

    Under a proposed federal rule designed to prevent a repeat of the Deepwater Horizon oil spill, exploratory drilling in the Gulf of Mexico would decline 55 percent, according to a study released today by a Louisiana-based industry group.

    Announced last April by Secretary of the Interior Sally Jewel, the rule would tighten standards on blowout preventers – the device that failed in the case of Deepwater – as well as put more controls on how companies drill and monitor wells deep under the surface of the ocean.

    The study released Monday by the Gulf Economic Survival Team –  founded by Louis. Governor Bobby Jindal in 2010 in response to a post-Deepwater drilling moratorium in the Gulf of Mexico – and the consulting firm Wood Mackenzie, predicts the rule would raise drilling costs to such a degree it would push many offshore rigs out of the area.  It forecasts a 35 percent drop in oil production from the Gulf by 2030, resulting in more than 100,000 jobs lost, mostly in Texas and Louisiana.

    “It is important that we conduct further study of the finer points and practical effects of this new rule before forcing it on companies engaged in operations in the Gulf. Our nation as a whole would feel the impact of reduced domestic energy production stemming from this rule, with a particularly harsh blow to Gulf energy-producing states,” said Lori LeBlanc, Executive Director of the Gulf Economic Survival Team.

    With review at the Department of Interior completed, the rule is readying for final analysis by Office of Budget and Management, after which it would be published in the federal register and go into effect within 90 days, according to the Bureau of Safety and Environmental Enforcement.

    The rule has drawn deep criticism from industry, who says it will stifle innovation and actually increase risk for drilling workers offshore.

    During a hearing in the senate Energy and Natural Resources Committee in December, members were divided, pitting those who argue for the need to protect the country’s seas against those who say the cost to the country’s energy industry is too great a toll.

    “Since 2010, there have been 23 separate ‘loss of well control incidents’,” Sen. Maria Cantwell, D-Washington, said in the hearing. “We can’t afford this kind of risk,”

    Determining the cost of the rule itself is a cause of divide. BSEE estimates the reduction in oil spills and offshore accidents would actually create a net benefit of more than $650 million over ten years.

    “There will be some costs [for drillers],” said Gregory Julian, spokesman for the bureau. “But the standards are already being implemented by many of the operators – just not all of them.”

    The Wood Mackenzie study was based on an $80 price for crude oil. The U.S. benchmark West Texas Intermediate was trading around $32 a barrel Monday.
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    Chevron lowers Gorgon LNG prices-industry sources

    Chevron Corp is sweetening its sales pitch to attract new buyers to the under-booked $54 billion Gorgon liquefied natural gas export plant off northwest Australia, hit by high costs as fuel prices and demand plunge.

    The move is a departure for Chevron which has for years stuck to its ambitious asking prices, industry sources say, only yielding as global liquefied natural gas (LNG) demand slumped and new supply gave buyers cheaper alternatives.

    Production at the giant 15.6 million-tonnes-a-year plant is due to begin within weeks.

    "Lousy" is how Chevron Chief Executive Officer John Watson last week described the global LNG market which Gorgon - the world's most expensive such venture - will sell into.

    Chevron faces a unique double-blow from record growth in gas supplies from Australia and the United States and from battered crude oil markets pushing current LNG prices below Gorgon's high cost of production, according to analysts.

    And a scarcity of customers leaves Chevron on the hook for a quarter of its share of Gorgon's unsold volume this decade, leaving it few options but to dump supplies onto already depressed spot markets, industry sources said.

    Instead, Chevron needs more long-term buyers paying oil-linked prices, such as its five existing Japanese clients, to help guarantee earnings over the project's 40-year lifespan.

    Since December the U.S. firm has lined up two preliminary deals with Chinese buyers ENN and Huadian Green Energy Co for Gorgon LNG over a 10-year period, starting in 2019 and 2020, respectively.

    "New agreements with Chinese customers ... are important steps in the commercialization of Chevron's equity natural gas holdings in Australia, demonstrating the project's competitiveness," a Chevron spokesman said on Monday.

    The price of the deals, on which Chevron declined comment, are estimated at 12.2-12.3 percent of crude oil, plus a small fixed fee and a floor price, two industry sources said.

    That compares with higher prices paid by Chevron's Japanese clients at 14.85 percent of oil for 25 years of supply, sources say.

    While contract differences between Japanese and Chinese deals make direct comparisons tricky, a long-term LNG contract negotiator said lower prices offered to China may open the door to price reviews between Chevron and its Japanese clients down the line.

    But even if the latest batch of deals puts Chevron's Gorgon scheme on surer footing for 2020-2030 traders still see its unsold volumes sailing into distressed spot markets this decade.

    "We're going to go through a challenging period for any volumes that will be sold spot into the marketplace," Watson said in a teleconference call with analysts last week.

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    China 2015 CBM output up 17pct on year

    China ground-based coalbed methane (CBM) output climbed 17% year on year to 4.4 billion cubic meters (bcm) in 2015, according to a conference held by the National Energy Administration (NEA) on January 28.

    In 2015, China extracted 18 bcm of CBM, rising 5.5% from the year-ago level, and the total CBM utilization amounted to 8.6 bcm, a yearly increase of 11.5%.

    Of this, CBM extracted from underground coal mines increased 2.3% on year to 13.6 bcm, among which 4.8 bcm were utilized, a rise of 5.2% on year; and CMB produced from ground surface reached 4.4 bcm, increasing 17.0% on year, with utilization increasing 20.5% on year to 3.8 bcm.

    In 2016, China will improve CBM output and utilization to 19 bcm and 9.2 bcm respectively, and in the meantime try its best to prevent coal mine gas explosion accidents, said the NEA.

    CBM industry in China is still at the star-up stage; problems such as small capacity and low utilization rate in the industry are to be solved, according to the conference.
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    China Can't Resist $30 Oil as African, North Sea Cargoes Surge

    Last month’s plunge in crude to $30 a barrel proved too much of a bargain for China to turn down even as its economy lurches toward the weakest growth in a generation.

    Chinese companies booked tankers to collect more West African crude in February than in any single month since at least 2011, data from the physical shipping market collated by Bloomberg show. It also increased its purchases of oil from producers in the North Sea and Russia. The voyages are all thousands of miles farther than the Middle East, which supplies most to the Asian country.

    “This surge in Chinese demand for crude goes against recent macroeconomic news coming out of the country but is very much in line with their past behaviour in low flat price environments,” Olivier Jakob, managing director of Petromatrix GmbH, said by phone. “Whenever there has been a strong retracement in prices China has loaded up their reserves.”

    Oil has plunged this year amid signs that China’s economy is slowing. The nation’s growth will slow to 6.5 percent this year, the weakest since 1990, according to forecasts and government data compiled by Bloomberg. Today’s PMI data showed a drop to a three-year low, with the official factory gauge signaling contraction for a record sixth month.

    There are several reasons why the flow may not be as bullish for the oil market as it might first appear. First, the cargoes were boosted by a trade deal in December between the Angolan government and Sinochem Group, which will load eight cargoes this month, the most since Bloomberg began compiling data. China will add storage capacity of 145 million barrels this year, according to the International Energy Agency, meaning imports don’t necessarily equate to demand.

    China shipped four vessels of North Sea crude in January, compared with nine in the whole of 2015, ship-tracking data compiled by Bloomberg show. In addition to three supertankers of Forties crude, the country also bought 1 million barrels of Norwegian Ekofisk crude, the first time it has done so in seven months.

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    No decision yet on any OPEC, non-OPEC meeting: sources

    OPEC and non-OPEC countries have not yet agreed to hold a meeting to discuss action to support oil prices, two OPEC delegates said on Monday, nearly a week after Russian officials said Moscow should talk to OPEC.

    In addition, a decision on whether to hold a standalone gathering of the Organization of the Petroleum Exporting Countries as proposed by Venezuela has yet to be taken, the delegates said, but a number of countries have responded coolly to the idea.

    OPEC delegates said last week a gathering of OPEC and non-OPEC oil officials could take place in February or March, perhaps at an expert rather than ministerial level.

    "It is all in the hands of the Russians now," an OPEC delegate said.

    Last Wednesday, the head of Russia's pipeline monopoly said Russian officials had decided they should talk to Saudi Arabia and other OPEC countries about output cuts, remarks that helped spur a rally in oil prices.

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    Report: Sakhalin-2 LNG production hit by technical glitch

    The Sakhalin-2 project is reportedly experiencing production problems at its 9.6 mtpa LNG export facility located on Sakhalin Island, in Russia’s Far East region.

    A technical “glitch” occurred on January 26 at a gas compressor and the plant is evaluating the impact of the accident on production and exports, Reuters said in a report..

    However, ICIS reported on Friday the LNG project declared force majeure on 28 January due to a technical issue. According to the report, the length of the outage could not be confirmed yet.

    Gazprom recently said that the liquefied natural gas project exceeded its design production capacity by 1.2 million tons in 2015. The LNG project consists of two trains with Shell and Gazprom working to add the third train.

    Sakhalin Energy is the Sakhalin-2 project operator with the ownership distributed among Gazprom (50 percent plus one share), Shell (27.5 percent minus one share), Mitsui (12.5 percent) and Mitsubishi (10 per cent).
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    Oil rigs fall under 500 in latest count

    Oil drillers sidelined another 12 rigs this week, bringing the number of rigs chasing crude under 500 for the first time since 2010.

    Baker Hughes reported Friday that the combined oil and gas rig count fell by 18 to 619 active rigs. Rigs chasing oil fell by 12 to 498, the first time fewer than 500 have been active since March of 2010. Natural gas rigs fell by six to 121, the lowest count in Baker Hughes records stretching back to 1987.

    The number of active oil rigs have now fallen by 69 percent from the October 10, 2014 peak. Over the past 12 months, the oil rig count is down 59 percent.

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    Alberta Spares Oil-Sands Producers in Royalty Revamp on Glut

    Alberta’s oil-sands producers dodged a bullet after the Canadian province recognized the industry faces an “existential threat” from the U.S. shale boom and left rates unchanged for heavy oil in a long-awaited royalties review.

    A panel found the current 1 percent to 9 percent rate on revenue from so-called bitumen mines before costs are paid off, and as much as 40 percent after that, is “appropriate,” Premier Rachel Notley said in a prepared statement Friday. Some rates for other forms of crude and natural gas will decline on wells drilled next year and beyond.

    “At this moment in our history, with prices and markets being what they are, what Albertans need us to do is help improve their and industry’s returns by removing distortions and disincentives in the system and ‘grow the pie,”’ Notley said.

    The revamped payment regime comes as Alberta’s oil industry is suffering from plummeting crude prices that have made many oil-sands operations unprofitable. Companies have slashed budgets and reduced their workforces in a bid to stay afloat and weather the sinking commodity market. No large-scale oil-sands projects are expected to be developed in the foreseeable future because of oil prices and increased competition for investment, the panel said.

    Gas Incentive

    The review, which initially stirred concerns that costs would rise for producers, also included provisions to encourage the use of gas for a wider range of petrochemicals and more upgrading of bitumen and oil.

    The plan removed a ‘perceived overhang’ as similar rates of return are targeted at both the old and new frameworks on average, RBC Capital Markets said in note to clients.

    This is “better than people would have expected,” Rafi Tahmazian, a portfolio manager at Canoe Financial in Calgary, said by phone. “But I think there is still a massive unknown here in the range and pace of acceleration of the royalty after payout” for conventional production, he said.

    Conventional Production

    The new rates for non-oil sands production will be applied only to wells drilled after 2017. The flat rate of 5 percent applied to oil, natural gas and gas liquids in the early stages of drilling is a reduction in some cases from as much as 30 percent and is designed to provide an incentive for drillers, the panel said. The cost of the new carbon price will be considered an additional cost that companies can deduct against revenue. The oil sands accounted for about 57 percent of Canadian production in 2014, according to the Canadian Association of Petroleum Producers.

    “Completion of the royalty review provides certainty, predictability and helps increase investor confidence in the province,” said Bill McCaffrey, chief executive officer of oil-sands producer MEG Energy Corp., in a statement.

    Regulation Overhaul

    Alberta’s left-leaning New Democratic Party government has implemented sweeping changes to the industry, including policies that will limit carbon emissions and an increase in corporate taxes. Notley rose to power last May in a wave of voter discontent after more than four decades of rule by Progressive Conservatives that worked closely with Calgary’s oil executives.

    Those same executives have warned about the risks of tampering with a royalty system that spurred more than C$100 billion ($71 billion) in oil and gas investments over the past 15 years, which until last year made Alberta the engine of the Canadian economy. With the review complete, some of the policy uncertainty associated with the change in government has been reduced.

    “The new royalty framework is principle-based and provides a foundation to build the predictability industry needs for future investment,” said Tim McMillan, CEO of the CAPP lobby group, in an e-mailed statement. “The fact that the new rules will only apply to projects starting in 2017, and maintaining the oil sands royalty regime, are signals that the government is serious about encouraging investment in Alberta at this difficult time.”

    Royalty revenue has plummeted to an expected C$2.8 billion in the current fiscal year compared with more than C$10 billion in 2009. The new royalty regime isn’t expected to increase the government’s take until oil prices increase and projects reach payout. It also won’t have an impact on the budget for the next two years, Alberta Finance Minister Joe Ceci said in an interview after the announcement.
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    Gazprom Meets Investors as It Prepares Record Exports to Europe

    Gazprom PJSC, the Russian natural gas producer preparing to meet investors in New York and London this week, seeks to increase supplies to Europe to record levels.

    The Moscow-based exporter, which provides about 30 percent of the European Union’s gas needs, plans to boost flows to Turkey and the EU bar the Baltic States by 2 percent this year to a record, with further growth through 2018, according to its non-public budget obtained by Bloomberg. That is more ambitious than public statements by the company to maintain supply.

    Russia, which relies on pipeline gas sales outside the former Soviet Union for more than 10 percent of its total exports, has increased its dominance in Europe as crude’s 30 percent decline over the past year made Gazprom’s oil-linked prices more attractive. The company will Monday hold an annual Investor Day in New York for the first time since 2014 after last year seeking to woo bond and shareholders in Asia.

    The gas exports to most of the EU and Turkey are seen at 162.6 billion cubic meters (5.7 trillion cubic feet) this year, up from 159.4 billion in 2015 and above a record 161.5 billion in 2013, the budget shows. Supplies are seen at 166.1 billion cubic meters in 2017, with 166.3 billion in 2018. Most of the increase is seen in flows through the Nord Stream gas pipeline under the Baltic Sea to Germany.

    Gazprom’s press service declined to comment. The company has scheduled an investor meeting in London for Feb. 4

    Gazprom budgeted its gas output at 456.7 billion cubic meters this year, up from about 420 billion in 2015, a record-low level for the company. Its dividend payments set in the budget match last year’s level of 7.2 rubles a share and are in line with public statements made by Gazprom executives over the past months.
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    EU signals support for Schaeuble's petrol tax proposal: magazine

    European Commission Vice President Valdis Dombrovskis has suggested he was open to German Finance Minister Wolfgang Schaeuble's proposal for a special tax on petrol in EU member states to finance refugee-related costs.

    In comments published by German magazine Der Spiegel on Saturday, Dombrovskis said he agreed with Schaeuble's call for "innovative European concepts to cope with the refugee crisis".

    Schaeuble attracted criticism from fellow conservatives and the Social Democrats (SPD) for suggesting earlier this month that the money from the extra levy could be used to pay for strengthening Europe's joint external borders.

    He did not specify how high the additional tax on gasoline should be and whether Brussels or the EU member states would be in charge of collecting it.

    "A gasoline tax, be it on a national or on a European level, could be a possible source of funding, especially when you consider that the oil price is at a historically low level now," Dombrovskis was quoted as saying.

    He added that measures under consideration to better secure Europe's external borders were expensive.

    "Security is a public good that Europe should ideally ensure collectively," he said.

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    Chevron: LNG from Gorgon “within few weeks” Wheatstone delayed

    US-based energy giant Chevron said Friday it expects to start production at its US$54 Gorgon LNG project in Australia soon.

    “We made significant progress on our LNG projects in Australia, in particular the Gorgon project where we expect to be producing LNG within the next few weeks,”  Chevron’s CEO John Watson said in the company’s fourth-quarter statement.

    Chevron recently commenced the cool-down of the LNG storage and loading facilities at its Gorgon project on Barrow Island in Western Australia.

    The Gorgon project is a joint venture between the Australian subsidiaries of Chevron (47.3 percent), ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).

    The cost of Chevron Corp.’s Wheatstone liquefied natural gas project in Australia with partners including Woodside Petroleum Ltd. may rise about 14 percent to $33 billion after its start date was delayed by about six months, according to Macquarie Group Ltd.

    That would add to budget overruns in the LNG industry in Australia, which is forecast to overtake Qatar as the world’s biggest supplier of the fuel. Chevron said last week it expects first LNG cargoes from Wheatstone in about mid-2017, citing a delay in building parts of the project in Malaysia. The company had expected the plant in Western Australia to begin in late 2016.

    While Chevron didn’t provide an updated cost estimate with a review of expenses to be carried out in the second quarter, “schedule slippages rarely do not transpire to additional cost pressure,” Kirit Hira, a Sydney-based analyst at Macquarie, wrote in a note on Monday.

    A weaker Australian dollar will probably ease some of the pressure on the project, previously estimated to cost about $29 billion, according to Macquarie. Chevron owns a 64 percent stake in Wheatstone. Other partners include Kuwait Foreign Petroleum Exploration Company and Kyushu Electric Power Co.

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    Iran Says It Won't Support Any Supply Cut Or An Emergency OPEC Meeting

    The main reason for oil's torried surge over the past 2 days is that following yesterday's Russia-Opec "oil production cut" headline fiasco, crude traders - who as we previously reported already had a record net short position - scrambled to cover their exposure on the assumption that where there is oily smoke, there will be fire.

    We can now put to rest any speculation that OPEC will proceed with any supply cuts, whether Russia requests it or not, because as the WSJ reported moments ago, not only will OPEC not support a supply cut but it will also not support an emergency OPEC meeting.

    Will oil respond negatively to this headline as it did so positively to yesterday's volley of speculation that sent it surging? Judging by the initial response, the short covering may have ended...

    ... although it remains unclear if it will undo all gains over the past 24 hours.

    Still, remember the Saudis previously warned the oil market is oversupplied by about 3MM B/D, which means that all those fundamentals that ceased to matter this week will be back front and center in the coming hours.
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    Chevron Posts First Loss Since 2002

    Chevron Corp. lost money for the first time in more than 13 years as a collapse in prices for the global oil explorer’s main product forced it to write down the value of crude and natural gas fields. Shares fell.

    The fourth-quarter net loss was $588 million, or 31 cents a share, compared with profit of $3.5 billion, or $1.85, a year earlier, the San Ramon, California-based company said in a statement on Friday. The per-share result was worse than any of the 22 analysts in a Bloomberg survey whose estimates ranged from gains of 29 cents to 63 cents.

    Chevron’s results were hurt by $1.1 billion in charges as the plunge in energy prices slashed the long-term earning power of its portfolio of oil and gas holdings, according to the statement. The impact of tumbling prices more than wiped out any upside from the 3.5 percent increase in output from Chevron’s wells during the quarter. The company’s geologists discovered enough new crude and gas to replace 107 percent of what it produced during 2015.

    Shares were down 1.8 percent to $84.37 as of 8:51 a.m. in New York, in trading before regular market hours.

    “We’re taking significant action to improve earnings and cash flow in this low price environment,” Chief Executive Officer John Watson said in the statement.

    U.S. Upstream

    Chevron’s U.S. oil and gas business posted a $1.95 billion loss for the period as falling crude prices that lessened the future value of its fields added to the pain from rising exploration expenses.

    Chevron, the largest U.S. oil producer after Exxon Mobil Corp., has slashed headcount, canceled drilling projects and frozen dividend payouts to slow the exodus of cash as the collapse in world energy markets saw prices spiral downward 70 percent.

    Spending on drilling rigs, steel pipe, floating platforms and other equipment dropped 16 percent in 2015 to about $34 billion, according to the statement. Last month, the company said it plans to spend about $26.6 billion on such developments this year, which would be a 22 percent cut from 2015.

    Watson is betting population growth and rising standards of living in the globe’s most-populous regions will boost demand for diesel, kerosene, liquefied natural gas and other petroleum-based fuels for decades to come.

    Temporary Conditions

    The current glut-driven slump in prices is a temporary phenomenon that will be eclipsed by long-term demand growth, Watson has said repeatedly since the global benchmark Brent crude began its precipitous fall from a June 2014 high of $115. Chevron’s output worldwide is about 66 percent crude; the rest is natural gas and gas byproducts.

    The glut has prompted a market-share battle between The Organization of Petroleum Exporting Countries and other global producers. Saudi Arabia, the world’s biggest exporter, has refused to curtail its output and said it will be up to higher-cost producers such as U.S. shale drillers to help rebalance the market.

    Chevron’s statement was released before the opening of regular U.S. equity markets. Chevron rose 3.2 percent to $85.92 on Thursday in New York trading. The stock has tumbled 17 percent in the past year.

    Chevron said Wednesday it will pay out a $1.07-a-share dividend in March. The payout, which hasn’t been raised since April 2014, will cost the company about $2 billion.
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    Beijing encounters natural gas supply shortage due to scarcity

    According to local authorities, Beijing experienced a limited natural gas supply on Friday due to temporary scarcity.

    According to Beijing Municipal Commission of City Administration and Environment, China National Petroleum Corporation, the country's largest oil and gas supplier, encountered a gas shortage due to growing demand in continued cold weather.

    An emergency plan was carried out to maintain indoor temperatures at public buildings no higher than 14 degrees Celsius. The affected areas include workplaces, schools, department stores and entertainment venues.
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    Iranian oil output recovering as first cargoes sold to Europe -sources

    Iran is on track to raise oil production by 500,000 barrels per day after the lifting of sanctions this month and has already sold 6 supertankers with additional crude to buyers in Europe and Asia, a Iranian oil source said.

    The source, familiar with export operations, said three supertankers with additional volumes of crude have been sold to buyers in Europe and three to Asian customers for delivery in February.

    Trading sources said Litasco, the trading arm of Russia's Lukoil, looked set to become the first buyer in Europe since the lifting of sanctions.

    The Swiss trader will deliver one million barrels of Iranian Light grade to Lukoil's Petrotel refinery in Romania, loading at Iran's Kharg Island terminal on February 5.

    "Iran raised its crude oil production by at least 500,000 bpd and the market will see it in the next few days," said the Iranian source, who is familiar with export operations.

    "(There are) three contracts finalised with European customers... Iran is also talking with its traditional customers in Asia, especially India."

    Iran has promised to begin regaining market share lost during years of curtailed output after European sanctions on its oil industry were lifted this month.

    Tehran has said it would boost output immediately by 500,000 bpd and by another 500,000 bpd within a year, ultimately reaching pre-sanction production levels of 4 million bpd seen in 2010-2011.

    The source said that by the end of March or start of April Iran will also introduce a new heavy crude blend, West Karun, to win back more customers.

    "We have been in the market for a long time... We think we are ready to be as good as before," the source said.

    Iran is expected to add barrels in an already oversupplied market where its rivals Saudi Arabia and Iraq have consistently raised production, helping create one of the biggest gluts in history and contributing to a price plunge to 12-year lows.

    But OPEC officials have said the markets have begun to rebalance as investment is being curtailed due to low oil prices. The market can therefore absorb additional Iranian volumes without suffering much extra pain, OPEC officials have said.

    European refiners bought as much as 800,000 bpd from Iran before the sanctions and have in the past few years replaced those volumes with oil from Iraq, Saudi Arabia and Russia.

    Iran has said it is willing to win its customers back quickly and has already agreed to resume sales to Greek Hellenic Petroleum and France's Total.

    But the first shipments have been complicated by a lack of clarity on ship insurance, dollar clearance and European banks' letters of credit.

    "It's just a matter of price. If the price is good, we'll buy it," Marco Schiavetti, director of supply and trading with Italy's Saras said of Iranian oil this week. "Obviously we will talk to them soon, and we will consider."
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    U.S. refiner Phillips 66 reports better-than-expected profit

    U.S. refiner Phillips 66 reported a better-than-expected quarterly profit, helped by robust gasoline margins due to lower crude costs.

    The company's shares were up about 1 percent at $79.75 in premarket trading on Friday.

    Adjusted earnings, excluding special items of $60 million, were $710 million, or $1.31 per share, beating analysts' average estimate of $1.25 per share, according to Thomson Reuters I/B/E/S.

    However, the company's quarterly profit was hurt by lower earnings from its midstream and chemicals businesses.

    Adjusted earnings at the company's midstream business more than halved to $42 million in the quarter, hurt by a fall in natural gas prices.

    The company's consolidated earnings fell to $650 million, or $1.20 per share, in the fourth quarter ended Dec. 31, from $1.15 billion, or $2.05 per share, a year earlier.
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    Consol Energy loss bigger than expected; idles coal mine

    Coal and natural gas producer Consol Energy Inc (CNX.N) reported a bigger-than-expected quarterly loss and said it would idle another coal mine amid a prolonged slump in commodity prices.

    The company said it would temporarily idle its Harvey coal mine in southwestern Pennsylvania.

    Pennsylvania-based Consol Energy, which has shifted its focus to natural gas production from coal, spun off its thermal coal business into a publicly traded company last year.

    Net income attributable to Consol fell to $30.4 million, or 13 cents per share, in the quarter ended Dec. 31, compared with a profit of $73.67 million, or 32 cents per share, a year earlier.

    On an adjusted basis, the company posted a loss of 11 cents per share, bigger than analysts' average estimate of 9 cents, according to Thomson Reuters I/B/E/S.

    Revenue fell nearly 19 percent to $761.9 million, missing Wall Street expectations of $935.7 million by a large margin.
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    PetroChina Expects 2015 Profit to Fall as Much as 70% on Oil Slump

    PetroChina Co., the country’s biggest oil and gas producer, expects its 2015 profit to have fallen 60 percent to 70 percent from a year earlier because of the slump in energy prices.

    The company sees the oil market continuing to be weak this year and is seeking to cut costs, it said in a statement to the Hong Kong stock exchange on Friday. PetroChina cited the fall in crude and lower domestic natural gas prices for the drop in earnings, estimates for which were compiled according to China Accounting Standards. The company reported net income of 107.2 billion yuan ($16.3 billion) for 2014.

    “As the price of international crude oil has declined significantly and the price of domestic natural gas has been driven down, a relatively large reduction in the company’s profit occurred,” PetroChina said in the release. “The market of international oil and gas is expected to continue to slump.”

    Brent crude, the benchmark for more than half the world’s oil, plunged 35 percent last year, the third annual decline. PetroChina in October posted an 81 percent slump in third-quarter profits after reporting that net income in the first half fell 63 percent.
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    DVB Bank America Seizes Deepwater Drill Ship: Auction next month.

    DVB Bank America has decided to arrest the drillship "Deepsea Metro II," as a result of the company which owns the ship, Chloe Marine Corporation, has defaulted on the loan on the ship and that the sales process has been ongoing since not August have not given results, reports Nordic Trustee Tuesday night.

    Through different companies and a joint venture owner Odfjell Drilling 40 percent of the ship, which are laid buoys on Curacao. The remaining 60 percent of shares were handed over by Metro Exploration to bondholders in spring.

    It was the bondholders who initiated the sales process of the ship which therefore have failed. DVB Bank, as one of the bondholders, has so taken the step to arrest the current drillship.

    Odfjell Drilling has already written down the value of their belongings in the vessel to zero, and the company says to DN that the arrest of respect not "change the company's reality."

    - We are familiar with the situation, but beyond that we have no comment, says Odfjell Drilling's communications director Gisle Johanson.

    Director of Investor Relations, Lasse H. Johannsen, say they have been in contact with possible buyers of "Deepsea Metro II ', but no bids have been placed.

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    Alternative Energy

    First 160MW of huge Noor solar thermal plant connected to Moroccan grid

    The first 160MW of what stands to be the largest concentrating solar power (CSP) plant in both the Middle East and North Africa region and the African continent were brought online in Morocco’s Ouarzazate province on Friday, four years after construction of the massive project began.

    The massive grid-connected Noor project – Noor means “light” in Arabic – uses solar thermal technology, with parabolic troughs that focus the sun’s energy on heating a fluid that in turn powers a generation turbine.

    Morocco chose CSP because of the need for storage, although it will also build solar PV and wind plants. Abdelkader Amara, the country’s energy minister, said the country intends to expand its interconnections to Spain and neighbouring Algeria, and also open a connection to Mauritania to the south and through that to other countries, where few people have access to electricity.

    The next two phases of Noor will total 350MW, and are scheduled to come online by 2018 and should make it the largest CSP complex in the world.

    Ultimately, the project is expected to have a combined capacity of 2GW by 2020 after all the units are complete.

    The entire cost of the complex will come to about $9 billion and will be spread over at least four locations in Morocco, a spokesman for the Moroccan Agency for Solar Energy, known as Masen, said.
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    Abengoa to offload UAE solar stake in fire sale

    Indebted Spanish renewable energy firm Abengoa said on Thursday it would sell its stake in a solar thermal power plant in the United Arab Emirates as it offloads assets in a bid to avoid bankruptcy.

    Abengoa will sell its 20 percent holding in Shams-1, which it developed with fellow energy companies Total and Masdar over the last three years and is one of the largest solar thermal plants in the world.

    It did not release any financial details.

    Abengoa presented its creditors with a long-awaited viability plan on Wednesday, sources familiar with the matter said, which will see it focus on engineering and construction work and sell non-core and unprofitable assets.

    The Seville-based firm says it needs around 300 million euros ($335 million) of liquidity before the end of March to pay operating costs such as wages for its 24,000 employees, sources close to the company said.

    At least half of this amount, which is disputed by Abengoa's creditor banks, should be funded through asset sales, the sources said.
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    US scientists figure cost-effective way to extract rare earths from coal

    A group of researchers from Penn State, led by the US Department of Energy (DOE) has discovered that rare earth elements can be extracted from two coal by-products through an ion-exchange process.

    The new mineral processing technique has the potential to challenge thecurrent Chinese dominance on global rare earth production, as it makes the extraction not only cost-effective, but also environmentally friendly.

    "We have known for many decades that rare-earth elements are found in coal seams and near other mineral veins," said Sarma Pisupati, professor ofenergy and mineral engineering at Penn State. "However, it was costly to extract the materials and there was relatively low demand until recently,” hesaid in a statement.

    The new mineral processing technique makes the extraction not only cost-effective, but also environmentally friendly.

    The team said they wanted to take a fresh look at the feasibility of extracting REEs, from coal given the fossil fuel abundance in the country.

    The discovery could be the good news the industry has been waiting for, especially after the Obama administration recently placed a three-year moratorium on new leases for coal mined from federal lands. Such decision is part of a sweeping review on the government’s management of vast amounts of taxpayer-owned coal throughout the country.

    Using by-products of coal production from the Northern Appalachian region, the experts investigated whether a chemical process called ion exchange could extract REEs, widely used in advanced electronics, in a safer manner than other extraction methods.

    Rare earths are key in military communication systems too, which is partially why the U.S. Department of Energy recently offered $20 million to companies to solve the economic puzzle.

    Past research has examined "roasting," a process that is energy intensive and requires exposure to concentrated acids. In contrast, ion exchange is more environmentally friendly and requires less energy, the group says.

    The method, they explain, involves rinsing the coal with a solution that releases the REEs that are bound to the fossil fuel.

    The team is now collaborating with several Pennsylvania coal miners to explore the viability of a commercial REE-extraction operation.

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    Beijing Enterprise buys Germany's Energy from Waste

    Beijing Enterprise is buying German waste management company Energy from Waste (EEW) for 1.4 billion euros ($1.6 billion) as China sets about tackling its pollution and waste recycling problems.

    The largest Chinese acquisition of a German company to date comes just weeks after ChemChina's acquisition of German industrial machinery maker KraussMaffei and underlines China's interest in German know-how.

    China set a target to spend about $16 billion between 2013 and 2016 to improve sewage disposal and garbage treatment as the government struggles to find ways of treating the enormous amounts of refuse the world's most populous country generates.

    ChemChina grabbed headlines on Wednesday with what would be China's largest ever overseas acquisition, a $43 billion bid for seeds and pesticides group Syngenta.

    Sources familiar with the EEW transaction said it valued the German company at 1.8 billion euros, including debt.

    This marks a healthy return for buyout group EQT, which bought EEW at a valuation of about 1.15 billion euros, acquiring half of the business in 2012 at a 1 billion euros valuation and the rest last year at 1.3 billion euros.

    The acquisition is significant for China, as government researchers have estimated as much as 7 billion tonnes of waste is buried around China's major cities, and the capital Beijing is now surrounded by a belt of landfill sites known disparagingly as the "seventh ring road".

    To ease the problem, China aims to convert 30 percent of its rubbish to electricity by 2030, up from less than 5 percent now. However, plans to build waste-to-energy plants have routinely been opposed by residents alarmed by pollution risks.

    EEW has state-of-the-art emissions control technology and an efficient garbage collection management system. It has long-term contracts for accepting waste and for delivering energy and heat. Like energy grids or pipelines, it generates stable returns, making it attractive to waste management firms.

    In a rare bidding war between Chinese groups for an overseas asset, Beijing Enterprise outbid a consortium of China Tianying and Ping An, a consortium of Beijing Capital and German utility Steag, as well as Finnish utility Fortum.

    "Bids came in very close, the offer price of the runner-up was just two percent below that of the winner," a person familiar with the deal said.

    For 2015, EEW is expected to post earnings before interest, taxes, depreciation, and amortisation of 190 million euros.

    The deal values the company at 9.5 times its core earnings, roughly in line with the 9 times core earnings that China's Cheung Kong Infrastructure paid for AVR when it bought the Dutch energy-from-waste company in 2013.

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    World's biggest offshore wind farm to add £4.2 billion to energy bills

    The world's biggest offshore wind farm is to be built 75 miles off the coast of Grimsby, at an estimated cost to energy bill-payers of at least £4.2 billion.

    The giant Hornsea Project One wind farm will consist of 174 turbines, each 623ft tall - higher than the Gherkin building in London - and will span an area more than five times the size of Hull.

    Developer Dong Energy, which is majority-owned by the Danish state, said it had taken a final decision to proceed with the 1.2 gigawatt project that would be capable of powering one million homes and create 2,000 jobs during construction.

    First electricity from the project is expected to be generated in 2019 and the wind farm should be fully operational by 2020.

    The wind farm was handed a subsidy contract by former energy secretary Ed Davey in 2014 that will see it paid four times the current market price of power for every unit of electricity it generates for 15 years.

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    China to boost crackdown on illegal rare earth mining

    China plans to boost its crackdown on illegal mining of rare earths by setting up a system to certify the origin of supplies of the materials, used in everything from fighter jets to mobile phones.

    Illegal Chinese output and smuggling have helped drag global rare earth prices to their lowest in around six years, hitting legitimate producers hard inside and outside China, which churns out 90 percent of the world's supply.

    "There's a reasonable level of agitation in every part of the supply chain which is saying (the industry situation) is not good," said Amanda Lacaze, chief executive of Australia's Lynas Corp, the only remaining rare earths miner outside China.

    Lynas is just breaking even as a result of the price slump, while U.S. company Molycorp has been forced to shut its mine. Other aspiring producers' projects have been put on ice.

    Vice minister of industry and information technology Xin Guobin said at a rare earths industry meeting last week that a "product tracing system" would be set up, using special rare earth invoices and other information like export data, the Association of China Rare Earth Industry said on its website.

    The body also said on Tuesday that Xin had promised the government would beef up powers to conduct raids on companies, as well as continuing to investigate and prosecute illegal exploration, production and distribution of rare earths.

    Lynas is also looking to introduce a certificate of origin, similar to certification that has curbed trading in so-called "blood diamonds", Lacaze told Reuters.

    Material from illegal miners, who damage the environment with toxic chemicals, makes up as much as half of China's rare earth supply.

    "Illegal producers don't pay taxes and don't observe environmental and occupational health standards, so their costs are less," said Dudley Kingsnorth, an industry consultant based in Perth.

    "It's a real issue and China can't solve it by itself. End users have got to pay attention to the sources of material and make sure they're not actually buying illegal material. That's a lot easier said than done."
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    Tesla’s Elon Musk confirms Powerwall 2.0 is on the way

    Elon Musk has confirmed Tesla will bring out a new version of its Powerwall home energy storage battery system this summer. While “step changes” can be expected, he declined to elaborate on the new product.

    At a private event for Tesla car owners held in Paris last Friday, Tesla CEO, Elon Musk announced the second version should reach the market around this July or August.

    “The Tesla Powerwall and Powerpack – we have a lot of trials underway right now around the world … seen very good results,” he told the audience. “We’re expecting to come out with version two of the Powerwall probably around July, August this year, which will see further step changes hopefully.”

    He did not elaborate on what the step changes may be, but there has been plenty of speculation. Some sources state, for instance, that the new Powerwall will be designed to use Gigafactory batteries.

    In a Q3 shareholder letter, issued last November 3, Tesla said construction and production were ahead of schedule at the five million square foot factory, located in Nevada, with the first cells expected to be produced there at the end of this year, “several quarters” ahead of the initial plan. Overall, it is expected to reach annual production of 35 GWh by 2020.

    Tesla has seen demand for its home battery solutions surge, with the result that following the announcement of the Powerwall last April 30, the company received reservations totaling around US$800 million, according to Bloomberg Business, or for 38,000 systems. As such, the system is said to be sold out until at least mid-2016.
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    US Renewable energy forecast to grow 9 percent in 2016

    The  surge in renewable energy in the United States will continue for another year, the U.S. Energy Information Administration said in a report Tuesday.

    The government forecasts growth in wind, solar, and hydroelectric power will push generation from renewable sources up 9 percent in 2016.

    On a percentage basis the largest gains are expected to come in solar energy, which is anticipated to grow 28 percent. Generation from wind turbines is anticipated to increase 16 percent.

    The report follows a vote in Congress last year to extend federal tax credits for renewables, but the EIA said “most utility-scale plants” beginning operation this year were already under development.

    Hydroelectric dams, which account for more than a third of the renewable electricity in this country, are also expected to gain from what is anticipated to be a wet year due to the El Nino weather cycle. Generation from those dams is expected to grow 5 percent this year.

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    China's new wind power capacity hits record high

    China's newly installed wind power capacity reached a record high in 2015 amid increasing efforts from the government to boost clean energy.

    The new wind power capacity jumped to 32.97 gigawatts last year, more than 60 percent higher than 2014, the National Energy Administration (NEA) said on Tuesday.

     Wind power generated 186.3 terawatt hour of electricity in 2015, or 3.3 percent of the country's total electric energy production, data showed.

    Promoting non-fossil energy including wind power, China is in the middle of an energy revolution to power its economy in a cleaner and sustainable manner. The government aims to lift the proportion of non-fossil fuels in energy consumption to 20 percent by 2030 from present around 11 percent.

    However, the NEA warned of the suspension of wind farms in Inner Mongolia, Xinjiang and Jilin. The phenomenon occurs in the early stage of wind power capacity construction due to the mismatching of new installation and local power grid.

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    Total buys stakes in solar power start-ups

    French oil and gas company Total said on Tuesday that it had taken stakes in two solar power start-ups via its $100 million Total Energy Ventures venture capital fund as it expands in renewable energy.

    Total said the deals involved no more than 15 percent of Tanzania- and California-based Off Grid Electric, and California-based Powerhive.

    Total did not disclose the value of the deals, but a spokeswoman said they would typically be worth between $1 and $10 million. Total Energy Ventures has stakes in some 20 firms.

    "Their systems are expected to speed up electrification in Africa and could be as much a game changer as mobile phones were in their field," Total Chief Executive Patrick Pouyanne said in a statement.

    Both start-ups offer solar power for use in areas with little or no access to electricity power grids, especially in emerging markets such as Africa.

    Off Grid Electric develops and distributes home solar systems and battery storage to power small appliances, while Powerhive develops and operates solar power microgrids with battery storage and local distribution.

    Total said in September that it planned to invest $500 million per year in new energies including solar and biomass to take advantage of the growing market. Renewables make up 3 percent of Total's current portfolio and are expected to reach 10 percent by 2030.

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    Mammoth 50 MW wind turbine blades could revolutionise offshore wind

    Image titleA new design for mammoth wind turbine blades longer than two football fields could deliver 50MW offshore wind turbines.

    The research for the new wind turbine blades designs has been conducted by the Sandia National Laboratories, a multi-program laboratory operated by Sandia Corporation, a wholly owned subsidiary of Lockheed Martin Corp., for the US Department of Energy’s National Nuclear Security Administration.

    According to Sandia, it was challenged to design a low-cost offshore 50 MW turbine with wind turbine blades of more than 650 feet, or 200 meters in length.

    That’s two and a half times longer than any existing wind turbine blade.

    “Exascale turbines take advantage of economies of scale,” said Todd Griffith, lead blade designer on the project and technical lead for Sandia’s Offshore Wind Energy Program. Sandia has been working on wind turbine designs for a while now — including 13 MW systems using 100 meter blades, which are the basis for Sandia’s Segmented Ultralight Morphing Rotor (SUMR) designs.

    Sandia’s 100-meter blade is the basis for the Segmented Ultralight Morphing Rotor (SUMR), a new low-cost offshore 50-MW wind turbine. At dangerous wind speeds, the blades are stowed and aligned with the wind direction, reducing the risk of damage. At lower wind speeds, the blades spread out more to maximize energy production. (Illustration courtesy of Science)

    50 MW wind turbines are a long way off, but according to Sandia, “studies show that load alignment can dramatically reduce peak stresses and fatigue on the rotor blades.” This would not only reduce blade costs, but eventually lead to the mythical 50 MW wind turbines.

    And these developments are vital to the offshore wind industry in the US.

    “The US has great offshore wind energy potential, but offshore installations are expensive, so larger turbines are needed to capture that energy at an affordable cost,” Griffith said.

    “Conventional upwind blades are expensive to manufacture, deploy and maintain beyond 10-15 MW. They must be stiff, to avoid fatigue and eliminate the risk of tower strikes in strong gusts. Those stiff blades are heavy, and their mass, which is directly related to cost, becomes even more problematic at the extreme scale due to gravity loads and other changes.”

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    Germany considers $5,500 incentive for electric cars

    German politicians and auto executives will discuss creating incentives worth up to 5,000 euros ($5,500) to boost sales of electric and hybrid cars, a senior ally of Chancellor Angela Merkel said on Friday.

    Germany has set itself a goal of bringing 1 million electric cars onto its roads by 2020, but has so far made little progress in encouraging drivers to switch from more polluting - but also generally cheaper - diesel and petrol vehicles.

    The heads of the three parties in Merkel's ruling coalition have discussed introducing a subsidy for electric car buyers, said Horst Seehofer, head of the Christian Social Union (CSU), sister party of Merkel's Christian Democratic Union (CDU).

    He added the government was looking into whether car companies could co-finance the new incentive and that Merkel would discuss the issue with company executives next week.

    Asked whether he was backing proposals to introduce an incentive of up to 5,000 euros, Seehofer said: "Bavaria is very much in favour of the buyer's premium."

    Seehofer is state premier of Bavaria, the southern German state where carmaker BMW is based.

    A spokeswoman for Germany's Economy ministry said: "Talks within the German government are constructive. We are counting on arriving at a good solution to help achieve our goals."

    In 2015, 23,500 electric and plug-in vehicles were registered in Germany. Of these, only 12,300 were pure electric cars, according to Stefan Bratzel at the Center of Automotive Management in Bergisch Gladbach.

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    Gamesa shares soar after report of interest by Siemens

    Shares in Spanish wind farm manufacturer and operator Gamesa jumped more than 20 percent on Friday after a media report that German engineering giant Siemens may be interested in making a takeover offer.

    In a statement to the market regulator, Gamesa did not acknowledge it had had contact with the German company, but said, in relation to the report, that no decision had been made and no deal had materialised.

    "In relation to the news and rumours of a possible corporate operation between Gamesa and Siemens, Gamesa, as part of its normal activity, regularly analyses strategic opportunities presented to the group," Gamesa said in a filing to the stock market regulator.

    According to a report in Spanish online newspaper El Confidencial, the German company has appointed Deutsche Bank to look into a possible acquisition of the Spanish group, citing sources with knowledge of Siemens' plans.

    Siemens has been in contact with Iberdrola, which holds 19.7 percent of the Spanish renewables company, over its plans, the sources said.

    Spokespeople for Gamesa, Iberdrola and Siemens declined to comment on the report.

    Analysts at Barclays were cautious about the advantages of any deal.

    "Given Siemens' mixed track record in managing its own wind business to date (quality issues, execution problems), we would need to see some convincing points on how a potential new combined entity would be better run," said Barclays in note, adding that it didn't believe the timing was right for Siemens.
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    Japan Inches Closer to Nuclear Revival as 3rd Reactor Starts

    The restart of the third nuclear reactor in Japan to clear post-Fukushima safety rules on Friday is a small step in the country’s quest to re-establish atomic energy as part of its energy mix.

    Kansai Electric Power Co. resumed operations at the No. 3 unit of its Takahama plant near the ancient Japanese capital of Kyoto at 5:00 p.m., the company said in a statement. The country’s 40 other operable reactors remain shut in the aftermath of the massive earthquake and tsunami in March 2011 that caused a meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi facility. Twenty-five have applied to restart.

    More nuclear-powered electricity generation will help reduce Japan’s fuel import bill and lead to lower electricity rates for consumers. The restart will also help the government reach its goal of having nuclear power make up as much as 22 percent of the nation’s energy needs by 2030. A total of about 30 to 33 reactors will need to restart to meet the government’s target, according to Syusaku Nishikawa, a Tokyo-based analyst at Daiwa Securities Co.

    The restart at Takahama “underscores the country’s commitment to returning to nuclear energy,” said Rob Chang, a managing director and head of metals and mining for Canada, who forecasts three reactors will come back online this year, bringing the nation’s total to five. Eight more will start in 2017 and a total of 37 reactors will be online by 2020, he said in an e-mail.
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    ChemChina to buy Syngenta

    China's state-owned ChemChina will make an agreed $43 billion bid for Swiss seeds and pesticides group Syngenta, the companies said on Wednesday, marking the largest ever overseas acquisition by a Chinese firm.

    The deal accelerates a shakeup in the global agrochemicals industry and is a setback for U.S. seed company Monsanto , which made an unsuccessful $45 billion move for Syngenta last year.

    The offer, at $465 per share, will allow for dividend payments to Syngenta shareholders of up to 16 francs per share, including a special dividend of 5 Swiss francs to be paid conditional on closing, they added.

    The offer is equivalent to 480 Swiss francs per share, Syngenta said.

    "The discussions between our two companies have been friendly, constructive and co-operative, and we are delighted that this collaboration has led to the agreement announced today," ChemChina Chairman Ren Jianxin said.

    "We will continue to work alongside the management and employees of Syngenta to maintain the company's leading competitive edge in the global agricultural technology field."

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    Food imports rise as Modi struggles to revive rural India

    Prime Minister Narendra Modi held a late night meeting with food and farm officials last week to address falling agricultural output and rising prices, and traders warn the country will soon be a net buyer of some key commodities for the first time in years.

    Back-to-back droughts, the lack of long-term investment in agriculture and increasing demands from a growing population are undermining the country's bid to be self-sufficient in food.

    That is creating opportunities for foreign suppliers in generally weak commodity markets, but is a headache for Modi, who needs the farm sector to pick up in order to spur economic growth and keep his political ambitions on track.

    "The top brass is dead serious about the farm sector that is so crucial to our overall economic growth and well-being," said a source who was present at the recent gathering of Modi, his agriculture and food ministers and other officials.

    Modi sat through presentations and asked the ministers to ensure steady supplies and stable prices, urging them to find solutions, the source said. Modi did not suggest any immediate interventions of his own.

    Last month, India made its first purchases of corn in 16 years. It has also been increasing purchases of other products, such as lentils and oilmeals, as production falls short.

    Wheat and sugar stocks, while sufficient in warehouses now, are depleting fast, leading some traders to predict the need for imports next year.

    "There's a complete collapse of Indian agriculture, and that's because of the callous neglect by the government," said Devinder Sharma, an independent food and trade policy analyst.

    "Given the state of agriculture, I'm not surprised to see India emerging as an importer of a number of food items. Maize is just the beginning."

    Agriculture contributes nearly 13 percent to India's $2 trillion economy and employs about two-thirds of its 1.25 billion people.

    Government sources said that boosting irrigation, raising crop yields and encouraging farmers to avail of a new crop insurance scheme unveiled in January will help address growing distress in the countryside caused by poor harvests.

    Modi has already loosened controls on some imports.

    But one of his biggest dilemmas is that although imports can help cool prices - a key concern for the ruling Bharatiya Janata Party's core middle-class voter base - farmers see them as benefiting foreign producers at the cost of locals.

    In a recent interview with television channel ET Now, Finance Minister Arun Jaitley said the government was aware of the impact two bad monsoons have had.

    "That now tells me, please spend more on irrigation," he said.

    The farm sector needs to grow at about 3 percent to help Jaitley achieve his target of 7 to 7.5 percent economic growth in the 2015/16 fiscal year.

    In the first half of this fiscal year, agricultural growth fell to 2 percent from 2.4 percent a year earlier.

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    Base Metals

    Ok Tedi board approves PNG copper mine restart from March 1

    Papua New Guinea copper miner Ok Tedi Mining Ltd said its board has approved a restart of its operations on March 1, more than five months after the mine was put on care and maintenance when drought cut off its transport links.

    The move will bring further metal to a copper market which is already reeling from a prolonged downturn in prices and a surge in mine supply just as demand from China cools, forcing high cost producers to cut output or shut down.

    Ok Tedi, which declared force majeure on its sales contracts on Aug. 17, said at the time that it expected to lose 65,000 tonnes of copper in concentrate after the El Nino weather pattern sank river water levels.

    "Our plans for the progressive restart of operations on 1 March 2016 were today approved by the OTML Board of Directors," Managing Director Peter Graham in a statement on its website on Friday.

    The company was still awaiting safety approval from the country's Mineral Resource Authority prior to the restart, the statement said.

    Drought made river traffic on the Fly River into Ok Tedi's main river port at Kiunga unreliable and also affected operations at the Ok Menga power station, the mine's main source of power.

    El Nino disrupted production across a swathe of commodity producers from late last year, parching countries across the north west of the Pacific rim such as Papua New Guinea and Philippines and bringing heavy rains to others like Chile and Peru.

    Indonesian neighbour Freeport-McMoRan also blamed El Nino as it cut its 2015 forecast for copper concentrate sales from Indonesia in September as water shortages affected its milling operations.
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    Hindustan Copper Q3 net profit dips 50% YoY to INR 5.3 crores

    Indian copper giant Hindustan Copper Ltd has posted a net profit of INR. 52.90 million for the quarter ended December 31, 2015 as compared to INR 105.90 million for the quarter ended December 31, 2014.
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    Zinc climbs to three-month high as supplies tighten after cutbacks

    Zinc is up for a fourth day and is this year’s best performing main contract on the London Metal Exchange. The price of metal for immediate delivery is near the largest premium to the three-month contract since July, a signal that there is less available material.

    The metal slumped 26% last year as China’s economic slowdown reduced demand for metals and prompted mining companies including Glencore and Nyrstar to shutter production, some of which had become unprofitable. ICBC Standard Bank expects a refined global surplus to halve this year and shift to a deficit in 2017.

    “After the announcements of extensive production cuts, there is likely to be a huge supply deficit on the global zinc market this year,” Daniel Briesemann, an analyst at Commerzbank in Frankfurt, said in an e-mailed note. “This justifies much higher prices.”

    Zinc for delivery in three months climbed 0.7% to $1 685 a metric ton by 11:32am on the LME. It earlier touched $1 696, the highest since November 4, and is up 4.7% this year. Some traders have been buying to close out bets on falling prices, according to Marex Spectron Group.

    The metal for immediate delivery settled at a premium of $4 a ton to the benchmark three-month contract on Tuesday, after reaching $5 on Friday. The market structure, known as backwardation, may signal more demand or less supply. Inventories in warehouses tracked by the LME have fallen for the past 10 days.
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    South32 to book $1.7 billion charge, slash manganese output and jobs

    Australia's South32 Ltd said on Thursday it will write down its assets by $1.7 billion, axe hundreds of jobs, and cut global manganese supply by about a quarter as it battles what it sees as a prolonged slump in commodity prices.

    The miner, spun off last year by BHP Billiton, said it would reduce production at its manganese operation in South Africa, which would help it cut costs and position it well for any eventual rebound.

    "We are, however, not immune to external influences and the significant change in the outlook for commodity prices is expected to result in non-cash charges of approximately $1.7 billion when we report our December 2015 half year financial results," Chief Executive Graham Kerr said in a statement.

    The writedowns are mostly on its Australian manganese business and energy coal in South Africa.

    South32, the 60 percent owner of the world's largest manganese business, Samancor, suspended mining at the Hotazel mines last November while it completed a review of the business.

    It has now decided to resume production at Hotazel at a reduced rate of 2.9 million tonnes a year, removing about 900,000 tonnes a year from the global market "for the foreseeable future".

    That will cut its costs in South African rand by about 23 percent, with about 620 jobs to go across the joint venture co-owned by Anglo American Plc, and help it cut capital spending by about 80 percent next year.

    At the same time, South32 flagged it planned to slash costs at its metallurgical coal, alumina and manganese operations in Australia and the Cerro Matoso nickel mine and smelter in Colombia, which will result in further job cuts to be announced at its results on Feb. 25.

    South32 shares jumped 9 percent after the announcement to A$1.035, but the stock has still lost half its value since listing last May.

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    First Quantum Minerals Announces Its 2015 Production and Sales

    First Quantum Minerals Ltd. today announced its production and sales for the three months and year endedDecember 31, 2015.

    Production of all metals was within the Company's previously-announced market guidance as was pre-commercial copper production from its Sentinel project of 32,971 tonnes for the year.

    Amounts shown for Q4 and Year 2015 are preliminary and subject to final adjustment. Disclosure of the three-year guidance for production, production cost and capital expenditures is expected prior to the release of the Company's financial results for Q4 and Year 2015.

    Full details:

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    U.S. zinc producer Horsehead files for bankruptcy

    Horsehead Holding Corp, a large U.S. zinc producer, filed for Chapter 11 bankruptcy on Tuesday due to a slump in metals prices and a shortage of cash.

    The Pittsburgh-based company is the latest victim of a commodity price crash that has claimed scores of U.S. energy exploration companies, miners and metals producers. Commodity prices have slumped due to an economic slowdown in China and other formerly fast-growing markets.

    Horsehead's filing came weeks after it said it was idling its state-of-the-art zinc production facility in Mooresboro, North Carolina, which it broke ground on in 2011. The company blamed a lack of liquidity and a seven-year low in the price of zinc.

    Horsehead and its affiliates have been in the zinc industry for more than 150 years, and also recycle nickel-bearing waste and nickel-cadmium batteries. The company operates six U.S. facilities and one in Canada.

    In January, Horsehead missed a $1.9 million interest payment on its secured notes due in 2017.

    The company said it will seek court permission to borrow up to $90 million from holders of the secured notes. Horsehead said it urgently needs cash as a number of significant vendors and suppliers have cut off or threatened to cut the company off due to its dwindling funds.

    The loan will commit Horsehead to produce a plan of reorganization in 40 days that is acceptable to its lenders and a group of secured noteholders, according to court documents.

    The company estimated its assets were worth $1 billion and its liabilities were worth $545 million as of Sept. 30.

    The company's largest stockholders are Hotchkis & Wiley Capital Management, Greywolf Capital Management and Vanguard Group, according to court records.

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    Freeport asks Indonesia to cut or postpone $530 mln smelter bond – mining minister

    Freeport McMoRan Inc has asked Indonesia to reduce a $530-million smelter bond the local unit of the US copper mining giant must set aside before receiving an extension of its export permit, Indonesia's mining minister said on Tuesday. 

    Freeport's six-month copper concentrate export permit expired last week amid a deadlock over the bond, which Indonesia has requested as a guarantee that the miner will complete construction of another local smelter. "They have appealed to ask whether we can postpone it or give them a discount, but we asked them to show their commitment in another equivalent way," Energy and Mines Minister Sudirman Said told reporters, referring to an exchange of letters with the Phoenix, Arizona-based company. 

    A prolonged stoppage in shipments would hit the company's profits and deny Jakarta desperately needed revenue from one of its biggest taxpayers. Indonesia wants the deposit as a guarantee that the mining giant will complete construction of another local smelter. 

    The amount would add to an estimated $80-million Freeport set aside in July 2015 to obtain its just-expired export permit. The US miner wants to invest $18-billion to expand its operations at Grasberg, but is seeking government assurances that its right to mine at Grasberg will be extended. Its current contract – which gives it the right to work and develop the Grasberg complex – expires in 2021. 

    By Indonesian law, this contract cannot be extended until 2019 at the soonest. A memorandum of understanding agreed in July 2014 between the government and Freeport, which ended a seven-month export stoppage and outlined a timetable for a contract extension and smelter construction, had now expired, noted Said. An agreement that would maintain operations and investment preparations ahead of contract renewal talks in 2019, was a way to resolve the current problems, he said.
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    Steel, Iron Ore and Coal

    ArcelorMittal to Raise $3 Billion After Hefty Net Loss

    ArcelorMittal, the world’s largest steelmaker, said Friday it will issue $3 billion worth of shares to strengthen its balance sheet as it grapples with a world-wide steel glut which contributed to a near $7 billion fourth-quarter net loss.

    The Mittal family, the steel group’s controlling shareholder, will subscribe to its entitlement of the share issue, or about $1.1 billion.Lakshmi Mittal is ArcelorMittal’s chairman and chief executive. At the end of last year, the family owned 39.4% of the company’s shares.

    The company will also sell it 35% stake in Spain’s automotive metals component firm Gestamp Automoción SA for about $1 billion by the end of June as part of the cash-raising program to pay down debt.

    ArcelorMittal said it wants to reduce net debt to less than $12 billion from $15.7 billion at the end of December.

    “This capital raise, combined with the sale of our minority shareholding in Gestamp, will…help ensure that the business is resilient in any market environment and puts ArcelorMittal in a position of strength from which to further improve performance,” said Mr. Mittal.

    The urgency of ArcelorMittal’s debt-reduction plan was underscored by the company’s latest results, released Friday a week earlier than scheduled, in which its net loss ballooned to $6.7 billion in the three months to end-December from $955 million the same quarter a year before.

    Fourth-quarter revenue sank 25% to $14 billion on a 7% decline in steel shipments, as falling prices of iron ore and steel hammered ArcelorMittal’s performance.

    ArcelorMittal said impairment charges of $4.8 billion largely related to its iron-ore operations led to a full-year loss of $7.9 billion.

    Mr. Mittal said the steel group faces continued tough trading conditions.

    “[This year] will be another difficult year for our industries,” said Mr. Mittal. “It is clear that China has a challenge to restructure its steel industry…Until this situation is fully addressed the effective and swift implementation of trade defense instruments will be critical,” he said.

    In the fourth quarter, ArcelorMittal said earnings before interest, taxes, depreciation and amortization fell 39% to $1.1 billion, in line market expectations according to analysts polled by data provider FactSet.

    Looking ahead, ArcelorMittal said it expects to generate more than $4.5 billion in Ebtida this year following a 28% drop to $5.2 billion last year.

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    Whitehaven coal edges back into the black despite tough conditions

    The big New South Wales-focused coal miner, Whitehaven, has returned to profitability despite increasingly tough conditions in the market and few signs of a price recovery.

    Whitehaven reported a first-half profit of $7.8 million, a significant turnaround from the $78 million loss in the first half last year.

    Export coal prices from Newcastle fell a 25 per cent over the past year and are down around 30 to 40 per cent from 2011 levels.

    Whitehaven's first-half sales revenue rose 54 per cent to $574.3 million, while operating cash flow increased 421 per cent to $118.3 million.

    Net debt and gearing were trimmed marginally and costs were cut by 8 per cent.

    Much of the improvement was driven by production commencing at the big Maules Creek mine near Boggabri in the Gunnedah Basin which is planned to double Whitehaven's production by 2018.

    The $700 million capital expenditure program at Maules Creek is now largely complete.

    "The results are particularly pleasing because they have been achieved at a challenging time for the industry, meeting all our commitments we have made to the market," Whitehaven CEO Paul Flynn said.

    "Whitehaven remains positive about the medium and long-term outlook for coal, particularly the outlook for the high-quality coal we produce."

    Mr Flynn offered a broad guidance that the company's financial position is expected to continue to improve over the next three years, driven by further increases in production and improving margins as well as further reductions in net debt.

    "The strength of growth in Asian energy demand combined with production cutbacks from key exporting countries suggest that Asian coal markets will return to balance over the course of 2016 and provide the basis for a price recovery commencing in 2017," he said.
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    Mechel agrees debt restructuring deal with creditors

    Russian coal and steel producer Mechel has reached debt restructuring agreements with its major creditors after two years of negotiations on a debt pile it said had threatened the company's survival.

    The mining company controlled by businessman Igor Zyuzin borrowed heavily before Russia's economic crisis and has struggled to keep up repayments as demand for its products weakened alongside tumbling coal and steel prices.

    "We have had difficult negotiations on restructuring Mechel Group's debt and it would be no exaggeration to say that the company's survival depended on the result of those talks," Zyuzin wrote in a letter to shareholders on Thursday.

    "I am glad to tell you that we have reached an agreement with our major lenders on restructuring."

    Mechel, which employs more than 60,000 people, said it had agreed conditions for $5.1 million - 80 percent of its total debt - to be paid back to its three major creditors and a banking syndicate of international banks over the next six years.

    Money owed to lenders VTB and Gazprombank will be paid in roubles, Mechel said, with repayments beginning in 2017 and 2020 respectively.

    But challenges remain. The miner will have to repay Sberbank , Russia's largest lender and the last creditor to agree to a deal, $551 million by the end of this year.

    Shareholders too will be asked to approve the conditions at an extraordinary general meeting on March 4.

    "Our company's financial stability and the increase of its shareholder value are now in your hands. Every shareholder vote is vital," Zyuzin wrote.

    At the end of the third quarter last year, the company's net debt stood at $6.5 billion.
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    Tata Steel posts steep third quarter loss on cheap imports

     India's Tata Steel Ltd swung to a hefty third quarter loss on Thursday, blaming cheap Chinese imports for having to axe 3,000 jobs at its UK unit, as it tries to slim down to cope with the global steel crisis.

    The European business of Tata Steel, the parent company of Britain's largest and Europe's second-largest steel producer, has cut thousands of jobs since it bought Anglo-Dutch producer Corus in 2007.

    Last month, the company, a unit of India's diversified Tata Group conglomerate, said it would cut 1,050 UK jobs on top of 1,200 announced in October. A total of 3,000 jobs will be lost including other measures announced this year.

    "We are witnessing significant unfairly priced imports into countries like the UK, India and South East Asia which has disrupted the pricing discipline in most markets," said Koushik Chatterjee, group executive director for finance and corporate.

    Mumbai-headquartered Tata Steel posted a net loss of 21.27 billion rupees ($314.5 million) in the quarter ended Dec. 31, against a net profit of 1.57 billion rupees in the same period a year ago.

    Sales fell 16.5 percent to 280.39 billion rupees as prices dropped, reflecting the availability of cheaper imported steel mainly from China in Europe and India.

    China makes nearly half the world's 1.6 billion tonnes of steel, and exported over 100 million tonnes of the alloy last year, more than four times the 2014 shipments from the European Union's largest producer, Germany.

    The company took a one-time charge of 7.11 billion rupees on its European operations due to a non-cash write down of fixed assets and restructuring provisions. It also took a charge for staff cuts in India.

    Chatterjee said the business conditions for the global steel industry were "extremely challenging" due to elevated imports across regions, currency headwinds and subdued market sentiment.

    Its EBITDA (earnings before interest, tax, depreciation and amortization), a key gauge of profitability, dropped by over 70 percent, mainly due to Tata Steel's Europe unit that accounts for a little over half of its total revenues and production.

    The European business of the company posted an operating loss of 6.75 billion rupees.

    "Growing European steel demand continues to be undermined by a flood of imports into the region," said Karl-Ulrich Köhler, CEO of Tata Steel in Europe, adding Chinese steel shipments into Europe grew more than 50 percent last year.

    "These changes will continue to be a core focus in a bid to improve our competitiveness and enable us to concentrate on supplying higher-value products to customers."

    Elsewhere in Europe, ArcelorMittal said it was reviewing the future of a major steel export plant in South Africa, also blaming cheap imports from China.

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    Shaanxi Jan coal output down 18.7pct on year

    Shaanxi province, China’s third largest coal mining base, produced 36.42 million tonnes of raw coal in January, slumping 18.7% year on year and down 26.82% on month, said the Shaanxi Administration of Coal Mine Safety on February 4.

    Of this, key state-owned mines -- owned by the central and provincial governments -- produced 10.97million tonnes of raw coal, up 4.93% from the year prior but down 34.53% on month, including 7.32 million tonnes from Shenhua Shendong Coal Group, down 23.38% on year and down 5.59% on month.

    Coal output of local mines -- owned by the prefecture and lower-level governments and private mines -- stood at 18.14 million tonnes, dropping 26.86% on year and slumping 46.92% on month.

    Total coal sales in January stood at 35.3 million tonnes, dropping 3.05% on year and down 28.11% on month.
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    China 'war on coal' to drive labour unrest — report

    China’s decision to speed up closures and mergers of small coal mines, in a bid to reduce pollution and improve energy efficiency, will face mounting resistance, a new report shows.

    According to BMI Research, labour unrest across the country’s coal industry, following late salary payments and job cuts, will increase costs for local miners in the medium term, 80% of which were already losing money by the end of last year.

    The measures, aimed to shrink both oversupply and environmental pollution, will be met with increasing resistance.

    The situation is likely to worsen soon, the analysts say, following last month’s fresh decision by Beijing to invest $4.6 billion in closing about 4,300 coal mines. The fresh move includes removing outdated production capacity of 700 million tonnes and redeploying around 1 million workers over the next three years.

    The newly announced measures follow China's decision to halt the approval of new coal mines until at least 2019.

    These resolutions will inevitable trigger labour issues. Change is already in the air — protests and demonstrations doubled in 2015, to 2,774, with December's total of more than 400 such incidents setting a monthly record, according to the Hong Kong-based China Labour Bulletin.

    Since 2013, the nation’s coal sector has shed 890,000 jobs, equal to all the new jobs the same industry created during the stimulus-driven boom that began in 2007. The struggling sector currently employs nearly 6 million people.

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    China's Shenhua aims to more than double coal exports in 2016

    China's largest thermal coal producer Shenhua is targeting exports of 3 million mt in 2016 -- representing a 150% increase on the company's total exports of 1.2 million mt in 2015, a source close to the company said Wednesday.

    The target also marks a sharp turnaround in Shenhua's export performance.

    Shenhua's coal exports tonnage declined by 25% in 2015 from 1.6 million mt in 2014, according to the company in an operating report January 22.

    Shenhua's main export customers are in Japan and South Korea.

    The Chinese coal producer traded 2.6 million mt of thermal coal in the seaborne market last year, said the source.
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    CCEA nod for auction of coal linkages to unregulated sector

    IANS reported that aiming to make the process of allocating natural resources more transparent, the cabinet committee on economic affairs (CCEA) on Wednesday approved the awarding of fresh coal linkages for the unregulated sector through auctions.

    Mr Piyush Goyal, Power Minister told reporters here after a CCEA meeting chaired by Prime Minister Mr Narendra Modi that "Except for the power and fertiliser sectors, non-regulated sectors like steel, aluminium, cement and sponge iron will in future bid in transparent auctions for coal linkages."

    Mr Goyal said "Existing private party linkages will continue till the expiry of the current FSAs (fuel supply agreements) and they have to bid in auctions after these lapse for getting fresh coal linkages."

    He said that "To ensure there is no interruption in supplies, the lapsed FSAs will continue till restart of supplies after auctions."

    He added that coal linkages for state-run undertakings, however, would continue to be extended, though they would need to bid in auctions to satisfy any extra requirement of coal.

    He further added that it has been decided that 25 percent of excess fuel produced by state-run Coal India would be made available for non-regulated sector needs through e-auction.

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    India's KIOCL considers building iron ore plants in Iran

    State-run Indian company KIOCL is considering building an iron ore pellet complex in Iran at a cost of about $59 million and is in talks to sell more than 2 million tonnes of the steelmaking raw material to the Gulf country now free from trade sanctions.

    The potential Indian investment could offer cheaper supplies of processed iron ore to Iranian steel mills that, like most companies around the world, are having to contend with cut-price steel from an oversupplied China.

    Companies such as KIOCL and aluminium maker NALCO, which is considering setting up a $2 billion smelter complex in Iran, hope that India's long-held ties with the Middle Eastern country would help them seal new deals.

    India had remained one of Iran's top oil buyers during the Western trade curbs and is already in talks to buy more now that the sanctions have been lifted.

    KIOCL Chairman Malay Chatterjee told Reuters on Wednesday that he discussed setting up a 1.1 million tonne beneficiation plant -- for ore purification -- and a 1.1 million tonne pelletising plant in Iran through a potential joint venture with a local company when he was there in Tehran late last year.

    Further government-level talks could take place soon to pave the way for the project, which could cost abut 4 billion rupees ($59 million), he said.

    KIOCL's commercial director, M.V. Subba Rao, flew to Tehran on Tuesday and to scout for more deals after selling 67,000 tonnes of ore pellets to Iran's Mobarakeh Steel Company last month.

    "Rao will talk to Mobarakeh and other companies as we have the capacity to export up to 2.5 million tonnes of pellets a year," Chatterjee said. "There is enough demand in Iran, though everybody is facing competition from an oversupplied China (steel industry)."

    Mobarakeh's managing director, Bahram Sobhani, said his company sources pellets from a variety of suppliers, including KIOCL, but declined to give details.

    Keyvan Ja'fari Tehrani, head of international affairs at the Iranian Iron Ore Producers and Exporters Association, said the country's steel mills are not aggressively chasingexpensive foreign pellets because local steel production has been falling.

    However, talks over KIOCL's proposed investment in an Iranian plant could be complicated by plans for two Iranian companies -- Gol-e-Gohar and Sangan Mines -- to start their own pellet production from March, which Tehrani said would add more than 5 million tonnes in supplies.

    Iran used to import 7-8 million tonnes of pellets a year, with total demand of 28-29 million tonnes, but Tehrani said the new supplies could soon end the country's reliance on imports.

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    China key steel mills 2015 net loss at 64.5 bln yuan

    China’s key steel mills suffered a total net loss of 64.5 billion yuan ($9.80 billion) in 2015, slumping 385.69% from the net profit of 22.59 billion a year prior, showed data from China Iron & Steel Industry Association (CISA) on January 29.

    The sales revenue of key steel mills stood at 2.89 trillion yuan during the same period, down 19.05% on year, data showed.

    Key steel mills in losses accounted for 50.5% of the registered enterprises, with their steel output taking 46.91% of the total.

    Fixed-asset investment (FAI) in steel industry was also on the decrease. In 2015, FAI in steel industry reached 452.39 billion yuan, a yearly decline of 13.83% or 72.62 billion yuan.

    Of this, FAI in steel-making industry decreased 1.26% year on year; while that in iron-making industry posted a yearly rise of 5.97%.    

    The severe loss in domestic steel mills was mainly caused by persisting decrease in steel prices over recent years. It may hard to see any obvious increase in steel prices in the later period, analysts said.

    In 2015, China’s crude steel output decreased 2.23% on year to 803.82 million tonnes, the first decrease since 1981.

    Pig iron output also dropped 3.45% on year to 691.41 million tonnes, while that of steel products edged up 0.56% to 1.12 billion tonnes, showed data from the National Bureau of Statistics.

    China will cut crude steel production capacity by 100 to 150 million tonnes, and reduce coal capacity by "a relatively large margin", said Premier Li Keqiang on January 22.

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    Indian power plant thermal coal stocks reach new high: CEA

    Combined stocks of thermal coal at 101 Indian power plants rose to a new record of 34.2 million tonnes on January 27, up 11% from a month ago and more than double the 16.2 million tonnes on stock at the same time last year, according to data released on January 29 by India's Central Electricity Authority.

    Stock levels reached a previous record high of 30.63 million tonnes on August 23 last year, but dropped to 23.7 million on October 28 before reaching a new all-time high of 30.8 million tonnes on December 28, with levels increasing since.

    The data showed Indian power plants had enough supply for 25 days of coal burn on January 27, up from 23 a month ago and 11 at the same time last year.

    Despite record high stock levels, the volume of imported coal on the stocks were 7.2% lower on the month at 2.1 million tonnes, also falling 2.5% year on year, according to the data.

    Rising costs of South African and high-CV Indonesian thermal coal have hindered buying interest from Indian buyers for imported thermal coal, with price volatility and narrowing discounts also resulting in reluctance to conclude deals, according to sources.

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    China key steel mills daily output down 3.5pct in mid-Jan

    China’s key steel mills saw their average daily crude steel output post a 3.48% ten-day drop to 1.51 million tonnes in mid-January, the lowest ten-day level since the early October in 2012, according to the latest data from the China Iron and Steel Association (CISA).

    This drop was mainly due to the shrinking demand amid economic slowdown and accelerated reform in its supply side.

    China’s daily crude steel output in mid-January was estimated at 2.05 million tonnes, down 2.06% from ten days ago.

    Stocks in key steel mills stood at 12.50 million tonnes by January 20, up 1.15% from early January but down 14.75% from the month before.

    Domestic prices of six major steel products witnessed monthly declines in mid-January, with rebar price averaging 1,904.6 yuan/t, down 1.3% from early-January, showed data from the National Bureau of Statistics (NBS).

    In the same period, daily output of pig iron in key steel mills averaged 1.48 million tonnes, dropping 3.36% from ten days ago; and that of steel products decreased 1.3% to 14.52 million tonnes.

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    Coal India may buy back shares worth at least $368 mln from govt - source

    Coal India Ltd is likely to buy back shares worth at least 25 billion rupees ($368 million) from the government, a source familiar with the matter said, as the finance ministry looks to state firms for cash ahead of the union budget.

    The government has also written to aluminium maker NALCO (NALU.NS), asking it to buy back 25 percent of its shares from the government worth 32.5 billion rupees ($478 million).

    NALCO Chairman Tapan Kumar Chand told Reuters on Tuesday the company would likely appoint state-controlled SBI (SBI.NS) to advise it before a board meeting on Feb. 11 to consider the government's request.

    Coal Secretary Anil Swarup declined to comment on the Coal India buyback and so did Finance Ministry spokesman D.S. Malik. But the source cited above said a decision would be taken by the company's board in a few days.

    A Coal India spokesman could not be immediately reached for comment.

    The buybacks will help the government partly make up for a funds shortfall in its ambitious divestment target for state companies ahead of the federal budget later this month.

    India's cabinet last year planned a slew of divestments in state-owned companies, including sales of 10 percent each in Coal India and NALCO. But the programme failed to get traction as a commodities downturn cut investor appetite.

    The government currently owns 79.65 percent in Coal India, which has a market value of more than $30 billion, according to Thomson Reuters data. The request for buybacks would amount to a stake of more than 1 percent at current prices.

    Coal India had more than $9 billion in cash and short-term investments as of the September quarter, according to Thomson Reuters data.

    Still, a buyback would put pressure on the world's largest coal miner, which is fast burning through its cash horde as it expands aggressively to meet the government-set target of doubling output this decade.
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    BHP Billiton finalizes sale of New Mexico coal mine

    BHP Billiton finalized the sale of New Mexico’s San Juan Coal Co. to a subsidiary of Colorado-based Westmoreland Coal Co., officials with BHP Billiton New Mexico Coal said on February 1.

    The sale has been a year in the making and was among the factors state regulators considered when deciding whether to move forward with a plan to shut down part of the coal-fired San Juan Generating Station.

    The terms of the sale were not disclosed, but officials with the utility that operates the power plant said the completed transaction secures the plant's coal supply as well as savings on coal costs for its customers.
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    China rail cargo transport drop on plunged coal transport

    China’s rail cargo transport reached 3.4 billion tonnes in 2015, falling 410 million tonnes from the previous year, the sharpest yearly decline of 10.53% ever recorded, official data showed lately.

    The decline was mainly due to a slump in rail coal transport, which fell 12.6% or 290 million tonnes on year to 2 million tonnes last year.

    That means the decline of rail coal transport contributed to 70.7% in the slump of total cargo transport.

    98.9% of China’s large state-owned key coal mines transport coals through railways. Since 2012, rail coal transport experienced a three-year decline, data showed.

    In January-August 2015, China’s rail coal transport dropped 11.2% on year, compared with a 2.7% drop a year ago, contributing to 9.8 percentage points in the decrease of total cargo transport.

    As the leading province of rail coal transport, Shanxi saw this volume fall 7.3% on year to 459.1 million tonnes in January-November last year. Over 80% of the decline came from the rail coal transport.

    Northeastern China’s Heilongjiang province posted the sharpest yearly decline of 23.1% in rail cargo transport across the country, reaching 84.92 million tonnes in 2015, data from the National Bureau of Statistic showed.

    China’s rail coal transport volumes may further decline amid prolonged market weakness, and railway authorities need to seize every chance to realize a 2% year-on-year growth in rail cargo transport in 2016.

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    China Steel PMI data for January improves

    China Federation of Logistics & Purchasing have released figures showing China's steel PMI rose to a nine-month high in January.

    The index stood at 46.7 points last month, up from 40.6 points in December last year.

    The sub-indices for product inventory fell further to a 29-month low of 34.4 points, while that for new orders rose to a 18-month high of 49.9 points.

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    U.S. coal for electricity plummets to 45-year low

    The amount of coal used for electricity generation in the United States has sunk to a 45-year low. In 1970, the last year that the percentage of coal use compared to other energy inputs like natural gas, nuclear, wind and solar energy was this paltry, President Richard Nixon was in his second year of office, Blood, Sweat and Tears won the Grammy for Album of the Year, andMidnight Cowboy became the only X-rated film to win Best Picture at the Academy Awards.

    According to the Energy Information Administration (EIA), coal-fired power plants produced just 29 percent of U.S. electricity in November, compared to 35 percent last July and 39 percent for all of 2014. “Coal generation is about as low as it’s ever been,” EIA analyst Glenn McGrath told Climate Central, in a story carried by Scientific American. “It’s never been that low for a particular month.”

    Coal generation is about as low as it’s ever been. It’s never been that low for a particular month.

    In 2015, for the first time in U.S. history,power plants running on natural gas produced more electricity than those running on coal. Older coal power plants are being retired due to the high cost of meeting environmental regulations being trumpeted by the Obama Administration. But according to McGrath, the Administration's climate change plan bears less blame for coal's demise than economics.

    “The Clean Power Plan hasn’t even hit [utilities] yet,” McGrath was quoted saying. “Gas is just dirt cheap, it’s that simple. It’s probably unprecedented to see, on a Btu (British thermal unit) basis, to see gas undercut coal. Gas has been taking coal’s share away for a while.”

    According to the EIA, at the start of the gas fracking boom, natural gas prices were at $13 per million Btu, then fell to $2/MBtu, before jumping again in 2014. Prices have since fallen again, reaching a bottom of $1.68 in December, as a warm U.S. winter has crimped demand and failed to draw down inventories that have been in storage since the summer.

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    Vallourec unveils 1 bln euro capital hike, industrial shake-up

    Troubled French pipe maker Vallourec announced on Monday plans to raise 1 billion euros ($1.1 billion) in new capital and boost earnings through an industrial shake-up that will see it reduce its production capacity in Europe by half.

    Vallourec, whose steel pipes are used chiefly in the oil and gas industry, has been hit hard by plunging oil prices. Its shares were suspended on Friday after a drop of more than 14 percent to just over 4 euros following a Bloomberg report that it was preparing a capital increase.

    The company said the capital increase was supported by French state bank BPI France and Japan's Nippon Steel & Sumitomo Metal Corp, which would participate in a reserved equity instrument, in the form of a convertible bond, priced at 11 euros per share through which they would increase their capital stake to 15 percent each.

    The overall capital increase would be split between the reserved equity instrument and a rights issue, Vallourec said, giving a midpoint scenario of 490 million euros for the reserved part and 510 million for the rights issue, of which 445 million would be subscribed by the market.

    French business newspaper Les Echos had on Sunday reported that Vallourec would launch a capital hike worth up to 1 billion euros, along with an industrial restructuring in Europe. The daily Le Figaro had a similar report.

    The industrial restructuring would halve European pipe-making capacity through the closure of two rolling mills in France, one threading line in Germany and a heat treatment line in Scotland, leading to the loss of about 1,000 jobs in addition to previously announced cuts, Vallourec said.

    In Brazil and China, it plans to create improved production hubs by merging Vallourec & Sumitomo Tubos do Brasil and Vallourec Tubos do Brasil, and through the acquisition of Tianda Oil Pipe in China, the company said.

    The changes to its Brazilian operations will lead to the closure of two blast furnaces and one steel mill over 2016-2018, in order to concentrate all steel production at the Jeceaba facility.

    The restructuring measures are intended to generate around 750 million euros in additional earnings before interest, tax, depreciation and amoritisation (EBITDA) by 2020, thanks to measures implemented by end-2017.

    A shareholders meeting will be convened on April 6 so that shareholders can vote on the equity issuance. The equity issuance is to be carried out in the second quarter, subject to market conditions, Vallourec said.

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    Toyota to stop Japan production for one week due to steel shortage

    Toyota Motor Corp said on Monday it would halt production at all car assembly plants in Japan from Feb. 8 to Feb. 13 due to a steel shortage following an explosion at a steel plant of one of its affiliates.

    The world's biggest automaker said on Saturday a blast at an Aichi Steel Corp plant on Jan. 8 had curbed production of steel used in auto parts including engines, transmissions and chassis. It gave no specifics on how car production would be affected.

    "Operations are scheduled to recommence on Feb. 15, and vehicle production on lines outside Japan will not be suspended," Toyota said in a statement.

    Toyota said it was looking at options including asking Aichi Steel to produce parts on alternate lines and procuring specialised steel from other makers.

    Late last week, it said it had enough inventory to keep the factories running until Feb. 6.
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    Japan's Nippon Steel to take control of smaller rival as supply glut bites

    Japan's top steelmaker Nippon Steel & Sumitomo Metal Corp unveiled a plan on Monday to take control of fourth-ranked rival Nisshin Steel and trim some of their combined steel output in the face of a global supply glut.

    A deal would be the latest in a series of consolidations and plant closures as producers worldwide face a slump in prices ST-CRU-IDX due to falling demand and competition from surging Chinese steel exports.

    Nippon Steel, which already holds 8.3 percent of Nisshin, said the two firms struck a memorandum of understanding on Monday to turn Nisshin into a subsidiary. Nippon Steel said it is considering extending its stake to 51 percent to 66 percent.

    A formal decision was expected around mid-May, with Nisshin set to become a subsidiary around March 2017.

    Options for the acquisition included a tender offer for Nisshin Steel common stock and buying the shares issued via third-party allotment, Nippon Steel said in a statement.

    Shares in Nisshin Steel, which has a market capitalisation of 124 billion yen as of Friday, jumped as much up 23 percent by early afternoon.

    Under the deal, Nisshin Steel was considering halting one of two blast furnaces at Kure Works in Hiroshima prefecture, while Nippon Steel was set to supply it with steel billets, Nippon Steel said.

    China, which produces half of the world's steel, shipped a record 112.4 million tonnes last year as slowing economic growth prompted its mills to export excess steel, putting pressure on prices.

    The news also reflects soft domestic demand for construction steel despite a push by Prime Minister Shinzo Abe to reboot an economy plagued by deflation and a shrinking population.

    Japan's crude steel production fell 5 percent in 2015 to its lowest in six years.

    Shares in Nippon Steel jumped almost 11 percent in afternoon trade by 0428 GMT, boosted by the potential for cost savings.

    "The combined entity will be able to optimize production and shut down at least one blast furnace," Jefferies analyst Thanh Ha Pham said in a report.

    Nisshin Steel has two blast furnaces with production capacity of 3.6 million tonnes of crude steel and two electric arc furnaces with a capacity of 800,000 tonnes of stainless crude steel.

    Nippon Steel has 14 blast furnaces in Japan, two of which are due to be closed by the end of 2018. The company plans to produce 45.2 million tonnes of crude steel in the current business year ending March 31.

    Nippon Steel group and Nisshin each hold about 30 percent of Japan's stainless steel market, according to industry sources.

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    Fortescue welcomes signs of supply discipline in iron market

    Fortescue Metals Group, the world’s fourth-biggest iron ore producer, is “pleased” that rivals are taking heed of calls to slow supply growth that has contributed to a slump in global prices.

    “It’s good to see some better discipline coming in on the supply side,” chief financial officer Stephen Pearce said in a phone interview from Perth. “Our messaging has been fairly consistent for some time: we don’t intend to continue to allocate capital in the current market. We’re pleased that message seems to be broadly accepted.”

    Iron ore has collapsed to less than a quarter of its 2011 peak as producers including Rio Tinto Group and Brazil’s Vale increased supply amid concern that China’s economic slowdown would undermine demand. Fortescue chairman Andrew Forrest began agitating last year for the top miners to limit output to boost prices, saying they had committed “market vandalism” by overproducing. Rio, the world’s second-biggest shipper, then described the claims as inconsistent and overblown.

    Fortescue plans to hold volumes steady this fiscal year as it reported on Thursday increased shipments in the three months through December that exceeded analysts’ estimates. Rio sees its production rising about 7% to 350 million tons this year, slower than the 11% gain in 2015. BHP has forecast its output will climb 1.7% in the 12 months to June 30, compared with a 14% jump the previous year.

    Slower Pace

    “It’s starting to sink in that supply is part of the problem of this brave new world of low prices,” said Philip Kirchlechner, director of Iron Ore Research and the former marketing head at Fortescue. “Shareholders want to see capital discipline and not mindless expansions. Maybe increasing awareness of today’s realities could force the turning point we’ve been waiting for.”

    London-based Rio said in an e-mailed response to questions on Thursday that it hasn’t altered any of its global guidance. A spokeswoman for BHP declined to comment. The two companies have defended their strategy of raising output at a time of falling prices, saying cutting back wouldn’t be in their shareholders’ interest as forfeited supply would be filled by others.

    Fortescue shares rallied 14% to close at A$1.73 in Sydney, paring losses this year to 7.5% after a 32% slump in 2015. The stock was upgraded to outperform by Credit Suisse Group, which cited cost cuts and potentially higher iron ore prices in the next few months as construction activity and steel output pick up in China.

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    India's JSW Steel reports Q3 loss; lowers output, sales target

    India's JSW Steel Ltd said on Friday that its output and sales for the fiscal year to March will fall short of its target due to a delay in capacity addition, as it reported a $136 million quarterly loss.

    Steelmakers globally have been hit by weak prices and dumping of cheap steel by China. A sharp increase in imports from Japan and South Korea, who have free trade agreements with India, have also weighed on Indian steel companies.

    JSW Steel, however, does not expect prices to fall any further in its fiscal fourth quarter to March, commercial director Jayant Acharya, said, adding that he expects firm local demand.

    The company, which has the biggest steelmaking capacity in India, is adding 4 million tonnes to take its total installed capacity to 18 million tonnes. That expansion, which was scheduled to be commissioned in December, will now be completed by March, Joint Managing Director Seshagiri Rao said.

    "So, we may be short of around 5 to 6 percent in our full year production and salesguidance," Rao told a news conference on Friday after the company announced its results for its fiscal third quarter to December.

    JSW had targeted production of 13.4 million tonnes and sales of 12.9 million tonnes for the fiscal year.

    For the three months to December, it reported a consolidated net loss of 9.23 billion rupees ($136 million), hit by a one-off charge and weak domestic demand. It had posted a net profit of 3.29 billion rupees a year earlier.

    The latest results included a one-off charge of 21.22 billion rupees on impairment of its overseas assets.

    Consolidated net sales for the December quarter fell by about a third from a year earlier to 86.21 billion rupees.

    JSW Steel, which owns iron ore mines in Chile and coking coal mines in the United States, has halted production at the mines due to lower prices and weak demand.

    The mines will remain shut until prices of the commodities revive, Rao said.

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    Chongqing to eliminate 23 mln T coal capacity by end-2017

    Coal-rich Chongqing municipality, located in southwestern China, set new goals to eliminate 23 million tonnes of outdated coal production capacity and shut 340 coal mines by the end of 2017, Chongqing Daily reported on January 29.

    This was based on its goal to further boost reconstruction on the supply side and cut outdated capacity in coal industry.

    Chongqing closed 210 coal mines combined with annual capacity of 12.63 million tonnes in 2015, which was planned to be accomplished in three years by 2017.

    In order to realize the new target, Chongqin plans to shut 170 coal mines and eliminate 11.5 million tonnes of outdated coal capacity in 2016.

    In the meantime, it will also accelerate the construction of 22 demonstrated mines featured by mechanization and automation, build 25 standardized mines with national primary safety quality, and improve the current mechanization rate of mining equipment by 10% higher.
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