Mark Latham Commodity Equity Intelligence Service

Thursday 10th December 2015
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    China Said to Form State-Owned Fund to Deal With Mining Debt

    China’s government is said to be setting up a state-owned fund to absorb bad debt in the mining sector, including loans owed by China Minmetals Corp., as the fallout from a price collapse batters the global commodities industry.

    The investment company would be established by the State-Owned Assets Supervision and Administration Commission to coordinate the country’s investment in mineral resources, according to people with knowledge of the matter. The unit would take on some existing debt from the mining industry, said the people said, asking not to be identified because they’re not authorized to speak publicly.

    The world’s biggest mining and commodities firms are reeling as prices of everything from oil to steel and copper collapse to multi-year lows. In the latest sign of pain for the industry, miner Anglo American Plc on Tuesday announced a sweeping response to the rout including asset sales, mine closures, and job cuts. A slowdown in China’s economic growth is slowing demand for raw materials.

    Minmetals, the country’s biggest metals trader, has more than 60 billion yuan ($9.3 billion) of outstanding debt, according to three of the people. At least some of this debt would be absorbed by the new government-backed investment company, they said. Minmetals runs mines including deposits in Peru and Australia via its 74 percent stake in the Hong Kong-listed MMG Ltd.

    The plans for a restructuring of mining debt in the sector come after an announcement by SASAC on Tuesday that Minmetals would take over one of China’s biggest state engineering groups, China Metallurgical Corp. Calls to a Beijing-based spokesman for SASAC were unanswered. A spokesman for Minmetals in Beijing said he couldn’t immediately comment.
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    Factory of the future: German robots to make first Adidas running shoes in 2016

    A German factory operated largely by robots will make its first 500 pairs of running shoes for Adidas early next year as the sportswear company seeks to cut labor costs and speed up delivery to fashion-conscious consumers.

    Founded by German cobbler Adi Dassler in 1949, Adidas has shifted most of its production from Europe to Asia and now relies on more than 1 million workers in contract factories, particularly in China and Vietnam.

    But Adidas now wants to bring production back closer to its major markets to meet demands for faster delivery of new styles and to counter rising wages in Asia and higher shipping costs

    The new "Speedfactory" in the southern town of Ansbach near its Bavarian headquarters will start production in the first half of 2016 of a robot-made running shoe that combines a machine-knitted upper and springy "Boost" sole made from a bubble-filled polyurethane foam developed by BASF.

    "An automated, decentralized and flexible manufacturing process... opens doors for us to be much closer to the market and to where our consumer is," said Chief Executive Herbert Hainer.

    Larger rival Nike is also investing heavily in new manufacturing methods. But it has not yet put a date on when it expects that to result in more U.S.-based production.

    Adidas plans high volume production in the near future and will establish a global network of similar factories, although it expects them to complement existing suppliers rather than replace them as it seeks to keep growing fast.

    "This is on top. It is a separate business model," Gerd Manz, head of technology innovation at Adidas, told journalists.

    Adidas currently makes about 600 million pairs of shoes and items of clothing and accessories a year. It plans to grow sales by almost half again by 2020.

    The new factory will still use humans for parts of the assembly process, around 10 people will be on the ground for testing purposes during the pilot phase, but Adidas is working towards full automation.


    Manz said 74 percent of Adidas sales currently come from products newer than one year old and that figure is rising.

    "Our consumers become more challenging and demanding," he said. "Customization to markets and individuals will become the norm."

    The ultimate objective would be to get replicas of red shoes worn by rapper-turned-designer Kanye West at a concert into the store the following morning, he said.

    The next stage of the project will be to develop machines that can produce custom-made shoes in its stores with the same kind of attention to personal requirements as Adidas currently offers top athletes like soccer player Lionel Messi.

    Manz said Adidas is not trying to replicate existing models, but to create new products as it experiments with technologies to color its shoes and new methods to join sole to upper.

    Adidas is also seeking to find ways to remove machine tools from the manufacturing process as they can take weeks to prepare. It has already used 3-D printing to create futuristic-looking soles made from webs of criss-crossed fibers.

    Adidas signed a deal in October with German engineering group Manz to develop new automated production technology and work on full digitalization, from design to manufacturing.

    Adidas's other partners in the project include Johnson Controls, robotic assembly expert KSL Keilmann and scientists from the Technical University of Munich and the University of Aachen.

    Read more at Reuters

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    China-Australia FTA benefits set to flow from Dec 20

    The substantial benefits secured through the historic China Australia Free Trade Agreement  are set to start flowing from December 20, Australia’s Minister for Trade and Investment Andrew Robb announced.

    This follows a critical ‘exchange of notes’ in Sydney between Australia’s Ambassador-designate to China Jan Adams and Chinese Ambassador Ma Zhaoxu which formally confirms that both Australia and China have now fulfilled their respective domestic requirements to enable ChAFTA to enter into force.

    "This will deliver a very material early harvest for our exporters in the form of two rounds of annual tariff cuts in quick succession. The first round of tariff cuts will occur on December 20 followed by a second round on January 1 2016," Mr. Robb said.

    On entry into force, more than 86% of Australia’s goods exports to China (worth more than $86 billion in 2014) will enter duty free, rising to 96% when the ChAFTA is fully implemented.

    Upon implementation, China would scrap the existing 3% import tariff on coking coal, and lower the current 6% import tariff on thermal coal to 4%, and gradually reduce to zero in 2017.

    Meanwhile, tariffs on imported anthracite, other coal, briquette and lignite will be reduced to zero.

    Analysts said Chinese importers would benefit more from tariff cut on Australian coking coal than its thermal coal, as tariff cut of coking coal is bigger than that of thermal coal, and half of China’s imported coking coal comes from Australia, higher than the 33% share of Australian thermal coal (including lignite).

    Customs data showed China imported 21.23 million tonnes of coking coal from Australia over January-October, down 11.8% on year, accounting for 53.8% of China’s total coking coal imports.

    One southern utility source said experience showed the cut in tariff would result in an increment of Australian coal FOB prices. This could lead to cautious buying by Chinese importers for Australian material.

    Presently, Australian suppliers offered 5,500 Kcal/kg NAR thermal coal at $37-38/t FOB.

    Australian thermal coal sold into the Chinese market has been on the downward trajectory for nearly two years, impacted by a supply glut and weakening demand as the Chinese economy slowed.
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    Freeport suspends dividend, reduces spending plans

    Diversified U.S. miner and oil producer Freeport-McMoRan Inc said it had suspended its annual dividend of 20 cents per share to save cash amid a slump in commodity prices.

    The dividend suspension is expected to result in annual cost savings of about $240 million and enhance its liquidity, the company said on Wednesday.

    Freeport, under pressure from activist investor Carl Icahn, further reduced its capital spending plans for 2016 and 2017 on Wednesday.

    The company also said it was looking at other financing alternatives, including a potential sale of minority interests in certain mining assets.

    Freeport cut 2016 capital expenditure budget for its oil and gas operations by 10 percent to $1.8 billion, and slashed its 2017 budget by 40 percent to $1.2 billion.

    The company, in October, said it will add two new directors to its board under an agreement with Carl Icahn. Icahn owned 8.8 percent of Freeport as of Sept. 22.

    Shares of the miner, which were up marginally at $6.87 in premarket trade, have fallen 71 percent this year. They closed at $6.74 on the New York Stock Exchange on Tuesday.

    Read more at Reuters
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    Glencore increases debt reduction targets

    Glencore has increased its planned target of reducing debt and preserving capital to the tune of $13bn (£8.6bn).

    It follows the FTSE 100 mining company’s debt reduction initiatives announced in September, which included a target of $10.2bn.

    In a trading update issued Thursday, it said it has already locked in $8.7bn of its target.

    It is also planning to bring net debt down to between $18bn and $19bn, with the previous target being in the low $20bns, as well as cutting capital expenditure to $5.7bn this year and $3.8bn next year, down from $6bn and $5bn respectively.

    Glencore also noted that it has more than $2bn of free cash flow at spot prices and will remain comfortably free cash flow positive at materially lower price levels.

    Current liquidity increased to over $14bn and will be further enhanced as its debt reduction plan is delivered.

    Chief executive Ivan Glasenberg said its showed “significant delivery” on the objectives announced just over three months ago.

    "Glencore is well placed to continue to be cash generative in the current environment - and at even lower prices.

    “We retain a high degree of flexibility and will continue to review the need to act further as required."

    Glencore said it is still generating free cash flow of more than $US2 billion at current spot prices and said it would further reduce capital expenditure this year and next. Meanwhile its trading division is on track to generate adjusted earnings before interest and taxes of $US2.5 billion, at the bottom end of its previously revised guidance of between $US2.5 billion and $US2.6 billion. 

    In a sign of the tough times ahead, the miner said it expects the trading division to generate another year of subpar profit. The "marketing" division is now forecast to generate between $US2.4 billion and $US2.7 billion in adjusted Ebit next year due to lower working capital levels and reduced copper, zinc, lead and coal volume. 

    This stands in contrast Mr Glasenberg's comments earlier this year that the trading division would make between $US2.7 billion and $US3.7 billion in annual profit "no matter what commodities are doing." 

    - See more at:

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    Oil and Gas

    Petrobras ‘eyes Libra stake sale’

    Brazil's state-run oil company Petrobras is offering up to a quarter of its 40 percent stake in the huge Libra offshore oil prospect as its seeks to reduce the largest debt in the global oil industry, two industry sources said on Tuesday.

    The stake could fetch up to $1.5 billion, according to analysts at Macquarie, and is likely to attract international oil companies keen to expand in one of the world's fastest-developing oil basins.

    Petroleo Brasileiro SA, as Petrobras is formally known, is targeting $15.1 billion in disposals by the end of next year but has struggled to sell assets in less attractive prospects off Brazil and in the Gulf of Mexico.

    Chief Executive Aldemir Bendine has told Brazil's congress that the company will not be able to meet repayment obligations on its debt of more than $130 billion and maintain a $19 billion investment plan next year unless it hits the disposal target.

    The company is now offering sought-after oil prospects in the so-called sub-salt areas in the Santos basin south of Rio de Janeiro, several industry sources said. These areas contain vast reserves trapped deep beneath the sea bed by a layer of mineral salts.

    "Petrobras finally realised the assets they were offering were not as attractive as they thought and has decided to offer opportunities that are more likely to fetch a higher price," an industry source said.

    In 2013 Petrobras made an upfront payment of nearly $7 billion for its 40 percent stake in the Libra development, which was Brazil's first offshore oil lease sold under production-sharing agreements under which the company is required to be the operator and hold a minimum 30 percent stake.

    Royal Dutch Shell, which would become the biggest foreign investor in Brazil after the completion of its proposed $70 billion merger with BG Group, and France's Total each hold a 20 percent stake in Libra. China National Petroleum Corp and China's CNOOC each hold 10 percent.

    First oil from the Libra field is expected to flow in the first quarter of 2017. The government estimates that Libra has between 8 billion and 12 billion recoverable barrels of oil and gas equivalent.

    Analysts at Macquarie, who have an underperform valuation on Petrobras, cautioned over its ability to keep to its asset sales plans.

    "We maintain our concerns regarding the Petrobras' ability to deliver its short-term

    Read more at Reuters

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    Chevron slashes 2016 budget 24 pct as oil price slump lingers

    Chevron will slash spending by 24 percent next year as it works to complete projects already under construction while delaying others that have not received a final financial commitment from the company.

    The multinational oil giant headquartered in San Ramon, California unveiled its 2016 capital and exploratory budget late Wednesday, providing an initial glimpse of how the world’s largest oil companies plan to curtail spending amid the worst downturn in years.

    While many oil companies have remained tight-lipped about their capital budgets for next year, speculation has been growing that upstream investment will fall for the second year in a row, marking the first time that’s happened since the 1980s bust.

    Chevron said Wednesday it will spend $26.6 billion next year, or nearly one-fourth less than it expects to invest this year, reaffirming the estimates laid out by the company in its third quarter conference call with investors.

    About $11 billion of its 2016 budget has been earmarked for major capital projects that are already being built and another $9 billion has been targeted for existing base producing assets, including shale and tight resources, the company said.

    Another $3 billion will go toward projects that have not been sanctioned.

    “Our capital budget will enable us to complete and ramp up projects under construction, fund high return, short cycle investments, preserve options for viable long-cycle projects and ensure safe, reliable operations,” Chairman and CEO John Watson said in a statement.

    In addition to funding its own projects, Chevron’s budget includes $4.5 billion of planned expenditures by affiliates, primarily linked to investments by Tengizchevroil LLP Kazakhstan and Chevron Phillips Chemical Company in the United States, which is building a $6 billion expansion along the Gulf Coast, including an ethane cracker at the company’s Cedar Bayou plant in Baytown, and two polyethylene units in Old Ocean near the Sweeny complex.

    The company warned on its third quarter earnings call earlier this year that it would pare back spending and place some projects on the back burner as it braced for an extended crude slump.

    “We are completing the projects we’ve got and working to preserve the options we have on some of the nice opportunities,” Watson said on the call. “We do have to live within our means here.”

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    PetroChina, Sinopec 2015 Shale Output Said Below China Goal

    China is on track to miss its shale gas production target for this year as its biggest producers throttle back output amid weakening demand growth and a collapse in energy prices.

    PetroChina Co., the country’s largest oil and gas company, may produce about 1.6 billion cubic meters of the unconventional gas this year, lagging behind its stated target of 2.6 billion cubic meters, according to people with direct knowledge of the matter.

    China Petroleum & Chemical Corp., the nation’s second-biggest oil and gas producer, may pump around 3.5 billion cubic meters of the fuel, according to the people, who asked not to be identified because the information isn’t public. The explorer plans to complete an expansion project this month that will boost capacity to 5 billion cubic meters a year.

    China’s efforts to copy the success of the U.S. in shale production has foundered as an economy growing at the slowest pace in 25 years curbs demand. The combined production of the two companies of 5.1 billion cubic meters in 2015 accounts for almost all of China’s commercial shale gas output. The country in 2012 announced an annual production target of 6.5 billion cubic meters for this year.

    “We’ve seen very limited growth in the domestic market and an oversupply in terms of imports, that’s led to lower-than-expected production this year,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “Shale gas is going to get cut when we’ve got an oversupplied market and companies focus on the lower end of the cost curve.”

    PetroChina is holding back shale gas expansion at Sichuan in southwest China partly because they’re already struggling to sell conventional gas, which is cheaper to produce, according to the people. Sinopec, as China Petroleum is known, will keep some of its newly added capacity at its Fuling field idle because of a lack of buyers, according to the people.

    Sinopec announced on Oct. 15 that proved shale gas reserves at Fuling increased by 273.9 billion cubic meters to 380.6 billion cubic meters, making it the world’s second-largest shale gas field outside North America. The country’s total proven shale gas reserves are estimated at 500 billion cubic meters, according to the Chinese Academy of Engineering.
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    Ship fuel prices fall to near 11 year low as oil glut spreads

    Ship fuel prices have plummeted to lows not seen in over a decade, pulled down by a rout in crude oil prices as a result of a global glut just as demand for marine fuel slows on the back of Asia's weakening economies.

    The benchmark end-user price for marine fuels, also known as bunker, Singapore's 380-centistoke grade bunker fuel BK380-B-SIN, closed at $183.21 per metric tonne on Tuesday, almost $10 lower from the previous day and at levels last seen in January 2005.

    Singapore is the world's main shipping fuel hub, trading over 40 percent of it globally.

    The fall in bunker fuel follows the tumble in crude prices after the Organization of Petroleum Exporting Countries ended their meeting last week without even mentioning production targets, indicating that members will continue to pump near record levels. OPEC members now seem to be defending market share against one another internally and against competitors like Russia and North America.

    The average daily fuel cost to operate a Very Large Crude Carrier (VLCC) has fallen from over $75,000 to under $18,000 currently, meaning a sharp reduction in operating costs for shippers

    Despite this fall in costs, bunker traders said that demand from shippers remained weak as they struggle with a slowdown in global seaborne trade.

    "Although (bunker) prices are low, demand has been weak compared with the same time last year because of mounting pressures on the shipping industry amid slowing global activity," one bunker fuel trader said.

    China, the world's biggest exporter, reported a 6.8 percent drop in exports in November from a year earlier, while its imports slowed 8.7 percent, as the country's economy grows at its slowest pace in decades.

    Another trader said that demand would only increase if the average distance of ships' voyages rose and if ship owners filled their tanks in anticipation of a price rise. Yet, with the oil supply glut expected to last well into next year and the economic outlook also not improving, this is seen as unlikely.

    Read more at Reuters

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    Technip denies FMC takeover speculation

    Technip has denied speculation it is in merger talks with FMC Technologies.

    It comes after previous reports from sources said to be close to the matter claimed discussions were ongoing between the pair.

    Technip and FMC Technologies have market capitalisations of $5.8billion and $6.8billion respectively.

    A spokesman for the company said: “Following recent press articles with respect to possible strategic transactions involving Technip, we state that there are no ongoing discussions with respect to such transactions.”

    Earlier this year, FMC Technologies and Technip formed a joint venture, Forsys Subsea, which was aimed at reducing the cost of subsea oilfield exploration.

    Talks will CGG last year fell through after the latter company said no to a €1.47billion offer from Technip.
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    Summary of Weekly Petroleum Data for the Week Ending December 4,

    2015 U.S. crude oil refinery inputs averaged about 16.7 million barrels per day during the week ending December 4, 2015, 151,000 barrels per day less than the previous week’s average. Refineries operated at 93.1% of their operable capacity last week. Gasoline production increased last week, averaging about 9.9 million barrels per day. Distillate fuel production increased last week, averaging over 5.2 million barrels per day.

    U.S. crude oil imports averaged over 8.0 million barrels per day last week, up by 274,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.5 million barrels per day, remaining unchanged from the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 648,000 barrels per day. Distillate fuel imports averaged 58,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.6 million barrels from the previous week. At 485.9 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 0.8 million barrels last week, and are in the upper half the upper half of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 5.0 million barrels last week and are in the upper half of the average range for this time of year. Propane/propylene inventories fell 3.4 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 3.6 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.8 million barrels per day, down by 0.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.2 million barrels per day, up by 0.7% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels per day over the last four weeks, down by 1.2% from the same period last year. Jet fuel product supplied is up 5.5% compared to the same four-week period last year.

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    Small decrease in US oil production

                                                  Last Week  Week Ago     Last Year

    Domestic Production '000........ 9,164          9,202             9,118
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    Freeport-McMoRan to slash Gulf of Mexico rigs

    Freeport-McMoRan Oil & Gas has decided to further reduce costs for its oil and gas capital spending plans as a response to market conditions.

    As previously reported on August 5, 2015, Freeport-McMoRan Oil & Gas (FM O&G) is deferring investments in several long-term projects in response to oil and gas market conditions.

    Following an ongoing review, capital expenditures for 2016 and 2017 have been reduced further from $2.0 billion per year in 2016 and 2017 to $1.8 billion in 2016 and $1.2 billion in 2017, including idle rig costs, the company said on Wednesday.

    The revised plans, together with initiatives to obtain third party financing or other strategic alternatives, will be pursued with the goal of achieving funding for oil and gas capital spending within its cash flows and resources, Freeport-McMoRan added.

    The revised plans incorporate a reduction in rig utilization from three Deepwater Gulf of Mexico drillships to one drillship while increasing production from third quarter 2015 rates of 150 barrels of oil equivalents per day (MBOE/d) to an average of 159 MBOE/d in 2016 and 2017.

    According to its Wednesday statement, FM O&G expects to bring eight wells online in late 2015 and 2016 from its tie back drilling operations at the Holstein Deep, Horn Mountain and King Projects in the Deepwater Gulf of Mexico. These projects, combined with other initiatives, are expected to add low cost oil production, enabling cash production costs to decline from $19 per barrel of oil equivalents (BOE) in 2015 to less than $16 per BOE in 2016 and 2017. Under the revised plans, FM O&G’s cash flows would substantially fund its capital expenditures at $45 per barrel of Brent crude oil in 2017, said the company.

    The company also added it was engaged in ongoing discussions with its rig vendors and other service providers to obtain reductions in costs and to evaluate opportunities to market idled equipment to third parties.

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    North Dakota confirms Lime Rock as buyer of Occidental's Bakken acreage

    North Dakota's oil regulator on Wednesday identified Lime Rock Resources as the buyer of Occidental Petroleum Corp's North Dakota oil operations, confirming what Oxy's executives had yet to disclose publicly.

    The deal, worth about $600 million, is expected to close by the end of the month.

    Reuters first reported in October that Oxy had agreed to sell all of its North Dakota shale oil acreage and assets to Lime Rock, a private equity fund, as it focuses capital elsewhere.

    In an Oct. 28 earnings conference call with investors, Oxy Chief Executive Steve Chazen did not identify the private equity fund as the buyer, although he confirmed the price.

    The state's Department of Mineral Resources said on Wednesday that Oxy had filed paperwork to transfer well bonds to Lime Rock as the buyer. The transfers involve two entities controlled by Oxy's parent company.

    North Dakota requires bonding for oil wells.

    The deal includes all of Oxy's roughly 300,000 acres in the state, including a 21,000 square-foot regional office built three years ago.

    Read more at Reuters

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    Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke

    In an instant, Chesapeake Energy Corp. will erase the equivalent of 1.1 billion barrels of oil from its books.

    Across the American shale patch, companies are being forced to square their reported oil reserves with hard economic reality. After lobbying for rules that let them claim their vast underground potential at the start of the boom, they must now acknowledge what their investors already know: many prospective wells would lose money with oil hovering below $40 a barrel.

    Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn’t be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.

    But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years.

    Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers’ reserves. The reckoning is coming in the next few months, when the companies report 2015 figures.

    “There was too much optimism built into their forecasts,” said David Hughes, a fellow at the Post Carbon Institute and formerly a scientist with the Geological Survey of Canada. “It was a great game while it lasted.”

    The rule change will cut Chesapeake’s inventory by 45 percent, regulatory filings show. Chesapeake’s additional discoveries and expansions will offset some of its revisions, the company said in a third-quarter regulatory filing. Gordon Pennoyer, a spokesman for Oklahoma City-based Chesapeake, declined to comment further.

    Other examples include Denver-based Bill Barrett Corp., which will lose as much as 40 percent, and Oasis Petroleum Inc., based in Houston, which will erase 33 percent, according to filings. Larry Busnardo, a Bill Barrett spokesman, declined to comment. Richard Robuck of Oasis didn’t respond to questions.

    The U.S. shale revolution, which brought the country closer to energy self-sufficiency than at any time since the 1980s, was built on money borrowed against the promises of future output. New wells that could be drilled when U.S. oil was selling for $95 a barrel -- last year’s price as calculated by the SEC’s formula -- simply don’t pay at today’s prices, and the revolution has stalled.

    Undrilled Properties

    When fracking advocates lobbied the SEC, they argued that hydraulic fracturing was a new technology that unlocked oil and gas in vast layers of underground rock, making drilling more predictable that it used to be.

    Drillers met the rule’s profitability provision last year due to a quirk in the SEC’s pricing formula. The agency’s yardstick is an average of the prices on the first day of each month during the calendar year. The price came to $95 a barrel at the end of 2014, even though oil was trading below $50 by the time the companies reported reserves in February and March. The 2015 average, including the Dec. 1 price, comes out to $51 a barrel.

    “They got such a break with the price for last year, but it sure as hell isn’t going to happen this year,” said Ed Hirs, a managing director at Houston-based Hillhouse Resources, an independent energy company.

    Proven Reserves

    The wells that exist only on paper are particularly vulnerable to revision. And thanks to the SEC rule change, companies have a lot more undeveloped reserves on their books than they used to.

    Undeveloped reserves of oil and natural gas liquids have more than tripled to 6.1 billion barrels since 2008, the last year before the rule went into effect, according to data compiled by Bloomberg on 40 independent U.S. producers. Undrilled wells account for 45 percent of proven reserves, up from 30 percent in 2008.

    Writedowns, which are reported on a quarterly basis, point to sizable revisions. The 61 companies in the Bloomberg North American Independent Explorers and Producers index have announced impairments of $143.8 billion in the past year.

    Some of the wells may never be drilled, while others may return to inventories if prices rise. A company’s deletions may be offset by the addition of new prospects, purchased properties or an increase in the estimated amount of crude each well will produce.

    “The question is, how are these reserves going to come back?” said Subash Chandra, an energy analyst with Guggenheim Securities in New York. “Because if you have to spend within cash flow, those reserves aren’t coming back. Not unless we get a spike in prices, or we return to levered growth.”

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    Bakken flows tick up in October

    Production from the Bakken tight oil play increased slightly between September and October as operators began to draw down their backlog of wells that had been previously drilled but not completed, according to state regulators.
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    Alternative Energy

    South Australia to set path towards 100% renewable energy

    South Australia is expected to pass its 50 per cent renewable energy target next year – nearly a decade ahead of schedule – and the Labor government will now aim to get the state as close to 100 per cent renewable energy as possible.

    Premier Jay Weatherill said in Paris on Monday that the state was leading the world in the incorporation of variable renewable energy sources such as wind and solar, and hoped the knowledge gained would create a massive economic opportunity for a state struggling with the decline of long-term industries such as car manufacturing.

    “We are running a big international experiment right now,” Weatherill said at the launch in Paris of the Compact of States and Regions, an initiative that will see 44 states and regions reduce their emissions by 12.4 tonnes by 2030.

    “We have got a long, skinny transmission system and we will soon have 50 per cent renewable energy, including a lot of wind and some solar.

    “We need technology breakthroughs for large-scale storage, such as pumped hydro or batteries, but these are massive technological challenges that are exciting opportunities for the state.”

    Jay Weatherill, Jerry Brown (to his right), and other regional leaders prepare to speak to journalists in the Paris Hotel de Ville.

    South Australia does find itself at the cutting edge of the transition from a fossil-fuel based economy to an energy system dominated by technologies such as wind, solar and storage. Its last coal fired power generator is due to close in March next year.

    The 50 per cent renewable energy target was formally announced last year, but was always going to be met well ahead of time – the addition of the Snowton 2 wind farm, the construction of the Hornsdale wind farm, and the growth in rooftop solar PV will take the state over that threshold in 2016.

    Indeed, the Australian Energy Market Operator has forecast that all of the state’s daytime demand may on occasions be met by rooftop solar alone within the next decade.

    It recently undertook scenario planning that suggested the state could reach close to 100 per cent renewable energy within two decades. In reality, the state is unlikely to go all the way to 100 per cent renewables, because it will likely find that  electrification of transport is a bigger priority. But it could go close.
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    SunEdison cuts cash portion of Vivint Solar offer

    Solar company SunEdison Inc said it cut the cash portion of its offer for Vivint Solar Inc by $2.00 to $7.89 per share.

    SunEdison's shares jumped 21.4 percent to $4.25 in early trading on Wednesday.

    The company said the stock component of the offer has been raised by 75 cents per share.

    SunEdison also said Blackstone Group LP had entered into a commitment to provide a $250 million credit facility

    SunEdison said its yieldco, TerraForm Power Inc, will acquire Vivint Solar's then-installed rooftop solar portfolio for about $799 million based on the number of installed megawatts (MW) expected to be delivered at closing, subject to reduction based on any solar portfolio debt assumed by TerraForm Power.

    TerraForm Power was to buy Vivint's rooftop solar portfolio of 523 megawatts for $922 million, according to the terms of the deal signed in July.

    Hedge fund Appaloosa Management LP's David Tepper had earlier this month questioned TerraForm's acquisitions in the Vivint deal.

    Read more at Reuters
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    Precious Metals

    Russia Jan-Oct gold output at 243.9 tonnes - Finance Ministry

    Russia produced 243.9 tonnes of gold in the first 10 months of 2015, down from 246.1 tonnes in the same period a year ago, the Finance Ministry said in a statement on Wednesday.

    Production for the period included 196.9 tonnes of mined output, compared with 199.1 tonnes a year ago.

    Silver production totalled 981.9 tonnes for the period, up from 857.2 tonnes in January-October last year, the ministry added.

    Read more at Reuters
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    Fresnillo says not to suspend production at Saucito

    Silver and gold miner Fresnillo Plc said it would not suspend production at its Saucito mine in Mexico after a pipeline burst on Sunday.

    Mexico's environmental agency PROFEPA said the accident, which occurred on Dec. 6, affected about 8,000 square meters of industrial land and 1,600 square metres adjacent to the mining company.

    Fresnillo, which operates six mines in Mexico, said it was in the process of cleaning the affected area.

    PROFEPA said the mine's operators had completed about 85 percent of the recovery of the spilt material.

    Read more at Reuters
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    Steel, Iron Ore and Coal

    China offers bonus to ultra-low emission coal power plants

    China will pay bonuses from January 1 to those coal power plants meeting tough emissions rules, in a move to tackle air pollution and promote energy structure reform, the government said on December 9.

    Power plants that open after January 1 and meet the government's environmental requirements will get an 0.005 yuan/kWh bonus on top of the basic grid tariff, said an official statement jointly issued by the National Development and Reform Commission (NDRC), the Ministry of Environmental Protection and the National Energy Administration.

    Those already in operation will get an extra 0.01 yuan/kWh, which would equate to about 42 million yuan ($6.5 million) if all thermal power output last year had been produced at plants meeting the coal efficiency standards.

    The higher tariffs will take effect in January and last until the end of 2017, when the government will reassess the rate, the statement said.

    The measures reflect increasing pressure on the world's biggest consumer of energy as leaders meet in Paris to hammer out a global climate deal and a new push to encourage companies to invest in clean, efficient technology to curb air pollution.

    Coal-fired power accounts for three-quarters of China's total generation capacity and is a major source of pollutants such as sulfur dioxide and nitrogen oxides.

    According to China’s ultra-low emission standards for coal power plants, emission concentration of dust should not exceed 10mg/Nm³, and that of sulfur dioxide and nitrogen oxides should be lower than 35mg/Nm³ and 50mg/Nm³, respectively.

    Last week, the government said the country will cut emissions of major pollutants in the power sector by 60% by 2020 and reduce annual carbon dioxide emissions from coal-fired power plants by 180 million tonnes.

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    Australia's Roy Hill makes first iron ore shipment

    Australia's Roy Hill mine shipped its first iron ore cargo on Thursday, marking the start up of the last of the mining-boom era mega projects in the country.

    The first shipment from the $10 billion project, jointly owned by Hancock Prospecting, Japan's Marubeni, South Korean steelmaker Posco and Taiwan's China Steel Corp, came after a series of delays caused by safety and commissioning issues.

    Roy Hill, with capacity to produce and ship 55 million tonnes of high grade iron ore annually, has secured long-term purchase contracts from steel mills in Asia including those in Japan for over 90 percent of the production, Marubeni said on Thursday.

    The development has been led by Gina Rinehart, one of the world's wealthiest women, whose fortune comes from mining the rust-red northwestern Australian outback.

    A Hancock Prospecting executive said the impact of the Roy Hill mine on an already oversupplied global iron ore market had been overstated, amid this week's plunge in prices for the raw material to record lows .

    The first cargo of iron ore from the newly-constructed mine, majority-owned by Hancock was loaded this week for shipment to a Posco steel mill in South Korea.

    "The initial shipments, such as this one today from Roy Hill, will only represent a small portion of its capacity of 55 million tonnes," executive director Ted Watroba said, adding that more than half the output will be taken by the minority investment partners, who are outside of China.

    Iron ore futures in China dropped to their weakest on record on Thursday amid expectations falling steel consumption in the world's biggest consumer could shut more producers, cutting demand for the raw material.

    Read more at Reuters
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    Vale completes sale of 4 ore carriers to Chinese-led consortium

    Brazilian iron ore miner Vale SA said late on Tuesday in a filing it had completed the sale of four very large ore carriers (VLOC), also known as Valemax class ships, to a consortium lead by ICBC Financial Leasing.

    ICBC is a subsidiary of the Industrial and Commercial Bank of China Limited.

    The deal was valued at $423 million and the resources were transferred to Vale on Tuesday. Each VLOC has the capacity to carry 400,000 tonnes of ore.

    Read more at Reuters
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    Steel group Kloeckner writes down N.American operations to zero

    German steel distributor Kloeckner & Co has completely written off the goodwill on its North American operations amid worse-than-expected market conditions, it said on Wednesday.

    Kloeckner said it was writing down 270 million euros ($297 million) of goodwill, leaving just an expected 30 million on the group's balance sheet by the end of the year.

    The company, which makes almost two-fifths of its sales in the Americas, said it now expected a group net loss of 350 to 380 million euros this year. It made a net loss of 85 million euros in the first nine months of 2015.

    "After the market environment for steel and metal products in the U.S. has once again developed worse than generally expected in the current year, Kloeckner & Co SE recognises impairments on the complete goodwill of the North American activities," it said in a statement.

    Frankfurt-traded shares in Kloeckner fell 3.2 percent after hours.

    Kloeckner reiterated its forecast for earnings before interest, tax, depreciation and amortisation (EBITDA) of 85 million euros and positive free cash flow in 2015.

    Chief Executive Gisbert Ruehl told Reuters in an interview earlier this year that he still viewed North America as the company's most attractive market, despite intense price pressure caused mainly by cheap imports from China.

    Read more at Reuters
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    Gaming the system: China steel exporters look for tax advantage

    Chinese steel exporters are gaming the nation's tax system to pump ever greater amounts of surplus steel into world markets, crafting slightly different alloys to ensure their products sidestep Beijing's cutbacks to trade subsidies.

    Steel exporters claimed up to $2.4 billion in tax rebates in the first eight months of this year, on track to surpass the 2014 total despite government moves to tighten the kinds of shipments eligible for such refunds, Reuters calculations showed.

    The rebates, along with steps such as those announced on Wednesday to reduce taxes on some steel exports, are helping many Chinese steel mills deeply undercut rivals overseas. China's steel exports topped 100 million tonnes for the first time this year, more than four times 2014 shipments from the European Union's largest producer, Germany.

    That has fueled a plunge in steel prices to 12-year lows and driven scores of countries to slap anti-dumping duties on Chinese steel, as well as sparking mill closures. Some 5,000 steel jobs were cut in Europe this quarter, prompting EU ministers to hold crisis talks.

    Amid growing trade tensions, Beijing at the start of the year halted rebates on steel exports containing boron, an element used to harden steel for uses ranging from agricultural tools to mining. But steel executives in and out of China said the refunds continued on steel products containing another element, chromium.

    "Boron-added exports have now almost dried up. But at the same time non-boron alloy exports have shot up. When one loophole closes, another one opens," said Jeremy Platt, an analyst at British consultancy MEPS.

    Chinese exports of steel products alloyed with just 0.3 percent of chromium can get a 9 percent to 13 percent tax rebate as part of Beijing's efforts to promote higher-value steel.

    There has been speculation the government could also stop rebates on chromium-added steel, but that would likely only prompt exporters to shift to forming steel alloys with other elements such as titanium or manganese, said Roberto Cola, president of the ASEAN Iron and Steel Council.

    "Titanium looks to be the next most economic," he said. "They should stop the rebates completely."

    An official at China Iron and Steel Association, which groups both state-run and private steel producers, said the organization and the government did not encourage exports of "too much" steel.

    "Individual companies - many times traders instead of producers - make their own decisions to export and they are trying to get as much legitimate benefit as they can," said the official, who declined to be named as he was not authorized to speak to media.


    Of the 72 million tonnes of steel products that China exported in January-August, 44 million tonnes were declared as alloy steel, according to the country's customs data.

    Using the maximum rebate of 13 percent, the refunds due Chinese exporters from this volume would be $2.4 billion, Reuters calculations showed, compared to $3.5 billion for the whole of 2014.

    While some of the rebates will have been awarded to exporters pushing to sell more value-added steel, further data indicates that around half may have been granted to shipments containing just tiny amounts of alloy elements.

    Customs numbers from importing countries showed alloy steel imports from China only reached 20.6 million tonnes in January-August, based on estimates by MEPS, which has been tracking China's steel industry since the late 1990s.

    That is a 23.4 million-tonne discrepancy with the Chinese figures, suggesting that many shipments classified as alloys by Beijing did not contain enough alloy elements to receive a similar classification in their destination countries. For example, many importers consider a product to be specialty steel only if it contains more than 0.5 percent alloying element.

    Read more at Reuters

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