Mark Latham Commodity Equity Intelligence Service

Friday 12th February 2016
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    Oil and Gas


    Russian, Saudi foreign ministers to meet in Munich: reports

    Russian Foreign Minister Sergei Lavrov plans to meet his Saudi Arabian opposite number on Friday on the sidelines of the Munich Security Conference, Russian news agencies quoted a source in the Russian delegation as saying.

    Russia and Saudi Arabia are backing opposing sides in the Syria conflict, and both countries are major players in international oil exports.
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    Gold/Oil hits new record.

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    Teck Resources Profit Exceeds Analyst Estimates Amid Cost Cuts

    Teck Resources Ltd., Canada’s largest diversified miner, reported earnings that beat analysts’ estimates as costs declined and a weakening local currency helped support profitability.

    The company had a loss of C$459 million ($329 million), or 80 cents a share, compared with profit of C$129 million, or 23 cents, a year earlier, Vancouver-based Teck said Thursday in a statement. Excluding writedowns and other one-time items, the company earned 3 cents a share, compared with the 1-cent loss estimated on average by 21 analysts tracked by Bloomberg.

    Like other commodity producers, Teck has been stung by collapsing demand from China, which sent prices plunging for its main products: metallurgical coal, zinc and copper. In November, Teck said it would cut C$650 million from capital spending and costs in 2016 and eliminate a further 1,000 jobs. Costs declined across all operations in 2015 compared with a year ago, helped in part by lower oil prices, the company said.

    Teck also benefits from a stronger U.S. dollar, because most of its costs are paid in local currencies while production is priced in greenbacks. The Canadian dollar slumped 3.8 percent relative to the U.S. dollar in the fourth quarter.

    Oil Sands

    Teck took C$736 million of pretax writedowns in the quarter, including C$598 million on its stake in the Fort Hills oil-sands project in Alberta, C$45 million on its steelmaking coal assets and $93 million on copper assets.

    Sales fell to C$2.14 billion during the quarter from C$2.26 billion a year ago. That exceeded the C$1.93 billion average estimate.

    “The commodity cycle continues to provide us with a very challenging environment," Chief Executive Officer Don Lindsay said in the statement. “Our near-term priorities are to keep all of our operations cash flow positive, meet our commitment to Fort Hills with internal sources of funds, evaluate options to further strengthen our liquidity and maintain a strong financial position by ending the year without drawing on our lines of credit."
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    Saudi Arabia's King Salman plans to visit Moscow

    in mid-March, RIA news agency reported on Wednesday, citing Kremlin aide Yuri Ushakov.
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    Glencore agrees gold and silver streaming deal with $500m upfront

    Glencore has agreed a $500m gold and silver streaming deal from its Antapaccay mine in Peru to help ease its balance sheet woe.

    The debt-burdened FTSE 100 group, which also posted its 2105 production report, expects to receive the $500m advance payment via its wholly owned Narila subsidiary before the end of the month in return for delivering 630,000 oz of gold, 10m oz of silver.

    After those amounts are delivered, Narila will supply 30% of gold production and 30% of silver production thereafter in exchange for ongoing payments of 20% of the spot gold and silver price per ounce delivered, increase to 30% of the respective spot prices after 750,000 ounces of gold, and 12,800,000 ounces of silver have been delivered.

    This transaction forms part of Glencore's debt reduction plans announced on 7 September.

    Production for 2015 was reported pretty much as expected by the market, with copper down 3% to 1.5m tonnes after a 6% fall in the fourth quarter, zinc up only 4% to 1.4m tonnes after fourth quarter production was cut 20%, nickel was down 5% to 96,200 tonnes, ferrochrome up 12%, coal down 10%, oil up by 44%.

    For 2016 guidance was also mostly as expected with copper of 1.39m tonnes, zinc, 1.10m tonnes, lead 285,000 tonnes, nickel 116,000 tonnes, ferrochrome 1.58m tonnnes, coal 130m tonnes, though oil guidance was lowered to 8,500kbbl.

    - See more at:
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    Rio Tinto slides to annual loss, abandons payout policy

    Rio Tinto slumped to a loss for 2015 as prices for iron ore and copper plummeted and scrapped its promise to maintain or lift its dividend annually for this year onward due to a tough outlook.

    The world no.2 miner held its 2015 full-year dividend steady at $2.15 a share - although below market forecasts for a higher dividend - at a time when all its peers are tipped to cut or suspend their payouts to shore up their balance sheets.

    Rio reported a net loss of $866 million, hammered by $1.8 billion in writedowns, relating mainly to its Simandou iron ore project in Guinea.

    Rio's underlying earnings slumped 51 percent to $4.54 billion in 2015 from $9.31 billion a year earlier hit by weaker iron ore, copper and aluminium prices. That was in line with analysts' average forecast of $4.534 billion.

    "In light of the significant deterioration in the macro-economic environment and the resultant market uncertainty, the board believes that it is no longer appropriate to maintain the progressive dividend policy," the company said in a statement.

    Miners are under pressure from credit rating agencies to curb spending, including cutting dividends, to help them weather the worst market conditions in nearly two decades.

    Rio Tinto Chief Executive Sam Walsh said continued economic deterioration had generated widespread market uncertainty, calling for a shift in how the company spends its money.

    "We are embarking on a new round of proactive measures to cut our operating costs by a further $1 billion in 2016 followed by an additional goal of $1 billion in 2017," he said.

    Standard & Poor's and Moody's have warned they may cut miners' ratings, with S&P saying it may downgrade Rio Tinto and BHP Billiton if the companies stick to their "progressive dividend" policies, under which they promise to never cut their payouts.

    Rio said for 2016 the company intended to a pay a full-year dividend of not less than $1.10 a share.

    Rio Tinto is in a stronger position than its rivals as it has reduced net debt sharply over the past three years.

    Rio's net debt stood at $13.8 billion as of the end of December 2015, which is $700 million better than the $14.5 billion pro-forma position at the end of 2014. Analysts were expecting net debt of $14.8 billion.

    We don't run our business on hope, we run it with foresight and focus," Walsh told reporters.
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    OPEC Sees Steeper Drop in Rivals' Supply as Price Curbs Spending

    OPEC revised estimates of production from rival suppliers, indicating a steeper drop in non-OPEC supply than previously anticipated.

    Production outside the Organization of Petroleum Exporting Countries will fall by 700,000 barrels a day in 2016, or 40,000 a day more than the group estimated last month. OPEC’s output increased by 130,700 barrels a day in January to 32.34 million a day. That’s about 600,000 a day more than the average required for this year.

    “Announced capex cuts by international oil companies, the fall in active drilling rigs in the U.S. and Canada, and a heavy annual decline in older fields” explains the deeper slump in non-OPEC supply, the organization’s Vienna-based secretariat said Wednesday in its monthly market report.

    Oil prices remain capped near $30 a barrel after sliding to a 12-year low in late January as resilient U.S. shale production and increased OPEC output prolong a global surplus. The retreat in non-OPEC supply indicates that the organization’s Saudi-led strategy to defend market share is having some success.

    U.S. drillers are operating about a third of the rigs they were using before Saudi Arabia’s resolve to keep pumping was made clear in late 2014, data from Baker Hughes Inc. show. Still, many OPEC members have expressed concern that the current policy is causing too much economic pain. Venezuelan Oil Minister Eulogio Del Pino toured oil capitals from Moscow to Riyadh last week in the hope of brokering an accord that would constrain supply, without securing an agreement.

    Output from OPEC’s 13 members increased last month as Iran, Iraq, Nigeria and Saudi Arabia increased production, according to “secondary sources” cited by the report. Nigeria’s gain was biggest, adding 74,000 barrels to reach 1.87 million barrels a day.

    OPEC sees oil demand rising by 1.25 million barrels a day this year to 94.21 million a day. That’s a 10,000-barrel-a-day reduction to its previous forecast.

    The group raised its estimate for non-OPEC supply growth in 2015 by 90,000 barrels a day to 1.32 million barrels a day.

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    France's Fabius says U.S. ambiguous on Syria, unlikely to change for now

    France's Fabius says U.S. ambiguous on Syria, unlikely to change for now

    French Foreign Minister Laurent Fabius on Wednesday questioned the commitment of the United States to resolving the crisis in Syria, saying its "ambiguous" policy was contributing to the problem.

    "There are the ambiguities including among the actors of the coalition ... I'm not going to repeat what I've said before about the main pilot of the coalition," Fabius told reporters. "But we don't have the feeling that there is a very strong commitment that is there."

    Fabius, who separately announced on Wednesday that he was leaving the French government, as expected, said he did not expect U.S. President Barack Obama to change his stance in the coming months.

    "I don't think that the end of Mr Obama's mandate will push him to act as much as his minister declares (publicly)," he added, referring to Secretary of State John Kerry.
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    Congo drops revisions to mining code on industry opposition

    The Democratic Republic of Congo, the world’s largest source of cobalt and Africa’s biggest copper producer, dropped plans to change its mining code after opposition from mining companies, Mines Minister Martin Kabwelulu said.

    “The mining code which is currently in place will stay in place,” Kabwelulu said at a speech to investors in Cape Town on Wednesday. “You don’t have to think about modifying your business plan. Those who are thinking of investing can do so based on this code.”

    Congo began reviewing the 2002 mining code in 2014. Revised laws approved by the government in March included increases in profit tax to 35% from 30%, raising the government’s free share of new mining projects to 10% from 5% and royalties on copper and cobalt revenue to 3.5% from 2%.

    The Chamber of Mines at the Federation des Entreprises du Congo, a business lobby group, had opposed revisions to the code because of the potential negative impact it could have on investment in mining. Randgold Resources chief executive officer Mark Bristow said in October the proposed revisions to the code risked destroying the industry.

    Randgold mines gold in the Congo in a joint venture with Johannesburg-based AngloGold Ashanti, while companies including Baar, Switzerland-based Glencore and Phoenix, Arizona-based Freeport McMoRan extract copper from the central African nation.
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    S&P Downgrades Banks With Highest Energy Exposure; Expects

    What is notable is that among the S&P non-sugarcoated comments are some true fire and brimstone gems, which suggest that the big picture for banks with substantial energy exposure is about to get far worse. Here is what S&P said:

    These rating actions follow a review of U.S. regional banks with large energy  loan portfolios as a percentage of both total loans and Tier 1 capital. Since we revised our outlooks to negative on five regional banks in January 2015, energy prices have declined by more than one-third and the asset quality of energy loan portfolios has deteriorated materially, albeit from fairly benign levels.Throughout 2015, criticized and classified assets climbed significantly, and in the fourth quarter, several regional banks with large energy loan portfolios reported increases in loan loss provisions and energy loss reserves to varying degrees, and, in certain cases, nonperforming assets (NPAs) also rose.

    Given further declines in energy prices in recent months, less hedging activity by borrowers, and potentially more difficulty for borrowers to cure (i.e., resolve) borrowing base deficiencies through capital raises or asset sales, we think troubled debt restructurings and NPAs in the energy sector will increase, possibly sharply, in coming quarters. We also think banks will increasingly emphasize the potential loss content among rising levels of NPAs that we expect to see throughout 2016. In addition, we think regulatory scrutiny of energy loan portfolios will increase in 2016, including during the upcoming Shared National Credit (SNC) exams (two will be conducted in 2016) and the annual stress tests regulators mandate, which may encourage the use of higher loss assumptions.

    Many banks have been lowering their energy price assumptions ("price decks") for exploration and production (E&P) loans throughout 2015, resulting in reduced borrowing bases (the value of a borrower's reserves against which banks typically lend). In the next semiannual borrowing-base determination this spring, we expect that borrowing bases will decline further, mainly because of lower energy prices (i.e., valuations) and possibly lower reserve replacement, which could lead to more borrower deficiencies (i.e., loan balances that are greater than the borrowing base). Although banks typically allow borrowers as long as six months to resolve a deficiency, we think many borrowers will have fewer options to cure through debt capital issuances or asset sales and dispositions, which were more common last year. Specifically, the cost of capital has increased for many borrowers, and private equity firms may be less willing to commit additional capital to resolve deficiencies. In addition, E&P borrowers may have unsecured debt in addition to their reserve-based loans, which could pressure their overall finances and push them into default or bankruptcy.
    Equally as important, we think the performance of indirect credit exposures in local energy-focused markets could deteriorate somewhat over the next two years. Although deterioration has not yet been meaningful, we still think the energy price slump could hurt commercial real estate (CRE) in these local markets, such as Houston or smaller cities in Texas, throughout 2016 and 2017.However, we recognize that lower energy prices could have a broad-based positive impact on U.S. consumers and corporations where energy is a significant input cost. We are also wary of strategies that some banks may execute to aggressively grow their loan portfolios in other loan segments, such as CRE, in order to offset contraction in their energy loan portfolios.

    Although we expect that banks will likely continue to increase their loan loss provisions and reserves within their energy loan portfolios over the next several quarters, we consider that currently low NPAs, solid preprovision earnings generation, and, in some cases, high risk-adjusted capital (RAC) ratios offer the banks a cushion to absorb higher loan loss provisions. This was a key factor in our decision to limit our rating actions to one notch at this point.

    In our analysis of these companies, we evaluate the potential impact of certain adverse scenarios, based on default and net loan loss assumptions for different types of energy lending. For example, we expect that E&P reserve-based lending will have lower net loss rates than energy services lending because of conservative advance rates on reserve collateral. We will continue to consider the array of possible assumptions regarding energy loan default and net loss rates, as the cycle develops. At this time, however, we do not believe that these banks' loan loss provisions would exceed preprovision earnings under most foreseeable scenarios, and, thus, our rating actions following this review were limited to a one-notch downgrade.

    The following table presents a few of the key metrics we are tracking and lists the banks that are included in today's actions, as well as others we believe have above-average exposure to energy.

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    Europe Banks May Face $27 Billion Energy-Loan Losses, BofA Says

    European banks face potential loan losses from energy firms of $27 billion, or about 6 percent of their pretax profit over three years, according to analysts at Bank of America Corp.

    “We believe European banks with large exposures to energy and commodities lending will be increasingly challenged over these positions by shareholders,” analysts Alastair Ryan and Michael Helsby wrote in a note to clients on Tuesday. “While long-term oil- and metal-price forecasts are well above current levels, we expect the equity market to continue to stress exposures to current market prices and deduct potential losses from the earnings multiple of the banks.”

    The $27 billion estimate is “potentially a smaller figure than is implied in the share prices of a number of banks,” and lenders’ potential losses aren’t a threat to the capitalization of the banking system or its ability to provide credit to the economy, they wrote.

    European banks are getting walloped by the global market rout and plunge in global oil prices while struggling to bolster their capital buffers amid record low interest rates in the euro zone. The 46-member Stoxx Europe 600 Banks Index has lost about 27 percent this year, outpacing the 15 percent drop by the wider Stoxx 600.
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    Senior lenders back Glencore's loan refinancing

    Global diversified natural resource company Glencore is expected to wrap up senior syndication of a one-year revolving credit that refinances existing debt by the end of next week after a strong market response, bankers said on Tuesday.

    Glencore is refinancing a US$8.45bn loan that supports the company's trading activities, and was agreed in May 2015.

    The refinancing raised around US$8.5bn from Glencore's top lenders. The company may reduce the facility slightly but the deal is unlikely to be below US$8bn, bankers said.

    Glencore's core relationship banks backed the deal despite commodity markets volatility and 34 banks committed US$250m each to the loan.

    Glencore did not immediately comment.

    The loan is expected to be launched to a wider general syndication in April after Glencore releases its results by active bookrunners ABN AMRO, HSBC, ING, Bank of Tokyo-Mitsubishi UFJ and Santander.

    The existing loan was part of a bigger US$15.25bn financing that was arranged in May 2015, which also included a US$6.8bn, five-year revolving credit facility that will stay in place.

    Pricing on the new loan is very competitive, a banker said. Last year's financing paid margins of 40-45bp over Libor, but the market has moved against mining companies in the interim.

    Glencore is rated Baa3/BBB- after recent credit rating downgrades from Moody's and Standard & Poor's (S&P) in December 2015 and February 2016 respectively.

    Moody's said that the pricing environment in the mining industry would remain unfavourable in 2016-17 as a reason for its downgrade and S&P cited material challenges to the mining industry.

    Other recent loans for similarly rated European companies have paid around 50bp over Libor.

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    Saudi Arabian builders delay payments amid state spending clampdown

    Some Saudi Arabian construction companies are struggling to pay their staff on time in a sign of growing pressure on the economy from low oil prices, which are causing the government to slow spending on building projects.

    In an unusual move this week, the Ministry of Labour issued a public statement saying workers at a "major institution" had complained they had not been paid for months. It said it had established the complaints were true and taken remedial action.

    The ministry did not name the institution or give details of its action; it did not respond to telephone calls seeking comment. But senior industry sources told Reuters that the firm was in the construction sector and that at least several other sizeable companies in the industry faced the same problem.

    One executive at a large Saudi construction firm, speaking on condition of anonymity, told Reuters it had been having problems paying its employees for a few months. "It's not just us, it's several construction companies that work on government projects," he said.

    As the government of the world's top oil exporter slows spending to reduce a budget deficit of around $100 billion, construction is proving to be the hardest hit sector, because firms depend heavily on government business for their cash flow.

    "The pace of execution on some of the existing projects has slowed down, so a project that would take six months to complete may now see an extended execution time line," said Murad Ansari, analyst at EFG-Hermes in Saudi Arabia.

    "Moreover, government payments have slowed down. As a result, contractors which normally rely on short-term funding for projects are feeling an impact on their working capital, so their ability to repay debt is not as strong as it was before."

    Construction accounts for only about 7 percent of Saudi gross domestic product. But in coming months the sector's difficulties could have a wider impact as suppliers are hit and banks lending to the industry take more provisions for potential bad loans.

    Delayed payments to staff, sometimes due to red tape and inefficient bureaucracy rather than financial difficulties, have been a feature of the construction industry in Saudi Arabia and the Gulf for years.

    But the problem has worsened greatly in the last few months because of government austerity measures, industry executives said, speaking on condition of anonymity because of commercial sensitivities.

    "Many contractors are awaiting payment from the government. It's an industry-wide problem," said an executive at another construction firm operating in the kingdom.
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    US Investment Grade Credit Risk Spikes To 5-Year Highs

    When it rains it pours...

    The market has taken over The Fed's role - forget above 25bps here or there, the cost of funding for even the highest quality US Corporates is exploding...
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    Simply put, the credit cycle has turned and is accelerating rapidly - crushing any hopes for debt-funded shareholder-friendliness.

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    Russia appeals order to pay $50 bln to Yukos shareholders in Netherlands

    Russia on Tuesday began its appeal in the Netherlands against an international arbitration order that Moscow pay $50 billion in damages to shareholders in the defunct Russian oil giant Yukos.

    Most of Yukos' assets were acquired by Russia's state-owned oil producer Rosneft after Yukos was declared bankrupt and its founder Mikhail Khodorkovsky was imprisoned.

    Once Russia's richest man, Khodorkovsky was accused of tax evasion and fraud after he fell foul of the Kremlin. He was released suddenly in December 2013.

    In July 2014, the Permanent Court of Arbitration in The Hague issued the order for three cases that had sought a total of $114 billion from Russia for expropriating Yukos' assets.

    Russian's appeal at The Hague District Court seeks to overturn all three decisions and have the damages waived, a court official said.

    A ruling in the case in the Netherlands could be issued in six weeks at the soonest, he said.

    In December, a French court of appeal turned down Russia's request to suspend the seizure of Russian assets in France carried out by former Yukos shareholders.

    Yukos shareholders began in June 2015 seizing bank accounts and properties in Paris and other parts of France belonging to the Russian Federation.
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    Oil-Gold Relationship says crisis, and in spades!

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    How To Survive A Bear Market – Trading Rules And Guidelines

    This is what characterizes bear markets:

    Sellers are in control
    Oversold often stays oversold for a long time
    Markets drop a lot faster than they go up
    Bear markets burn and churn accounts with long only exposure
    Volume and liquidity can dry up but price can still drop significantly
    ‘Cheap’ can get a lot ‘cheaper’
    Hope is slowly destroyed
    Vicious bear market rallies try to suck in traders to trap them
    Expect lots of gaps to the downside
    It takes a long time until market participants throw in the towel

    This is appropriate trading behaviour during bear markets:

    Either in cash or short
    Sell the rallies mentality
    Do NOT buy the dips
    Do not even think about going long if you are not an active and experienced trader

    - See more at:
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    Engie to sell 15-20 bln eur of assets - Lettre de l'Expansion

    French gas and power group Engie plans to sell 15 to 20 billion euros worth of assets over 2016-18, including 7 billion euros ($7.8 billion) in the short term, French newsletter La Lettre de l'Expansion   reported on Monday.

    The newsletter said Engie plans to sell 2.5 to 3 billion euros worth of exploration and production assets, 2 to 3 billion euros of coal-fired power plants, 5 billion euros worth of U.S. plants, and some infrastructure assets.

    The asset sales list also includes various other non-strategic assets worth 3 to 5 billion euros, as well as the opening of the capital of Engie's Belgian unit Electrabel, the newsletter said.

    The newsletter also said Engie planned to speed up its "Perform" cost-cutting plan, aiming for 2.8 billion euros worth of cost cuts over 2016-18, up from 1.9 billion between 2012 and 2015.
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    China starts investigation of Sinochem Group president Cai Xiyou

    Cai Xiyou, president of Sinochem Group, the Chinese energy and chemicals conglomerates, has been put under investigation for serious discipline violations, China's main anti-corruption agency said on Saturday, using the usual euphemism for graft.

    The ruling Communist Party's Central Commission for Discipline Inspection (CCDI) published a one-line statement on its website on Saturday, providing no other details about Cai's suspected wrongdoing.

    Cai, a 30-year oil industry veteran, was named to lead Sinochem in 2014, after a long career at China Petroleum and Chemical Corp (Sinopec) where he was previously a Communist Party committee member, senior vice president, and Sinopec Corp's general consul.

    In October, Cai also was named chairman and non-exeuctive director of Hong Kong-listed China Jinmao Holdings Group Limited 00817.HK, a Sinochem Group real estatesubsidiary.

    Sinochem Group, formerly China's monopoly oil trader until 1993, has diversified businesses in oil refining, chemicals trading, oil and gas explorations and real estate development.

    Cai is the latest state-owned enteprise executive to be caught in ruling the Communist Party's investigations into corruption. In December, CCDI said it was investigating the chairman of state-run China Telecom Corp Ltd was under investigation for alleged disciplinary violations. He later resigned.
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    China FX reserves fall almost $100 bln to lowest since May 2012

    China's foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows.

    China's foreign reserves fell $99.5 billion to $3.23 trillion in January, the lowest level since May 2012, central bank data showed, but higher than the median forecast of $3.20 trillion from economists surveyed in a Reuters poll.

    The size of the drop was second only to the $107.9 billion fall in December, the largest monthly decline on record. The central bank has intensified efforts to prop up the yuan after it staged a surprise devaluation in early August.

    China's reserves remain the world's largest despite losing around $420 billion in the last six months. In 2015, they fell by $513 billion, the largest annual drop in history.

    The country's foreign exchange regulators said on Feb. 4 that trade and investment had caused $342.3 billion of the drop in reserves in 2015, while currency and asset price changes caused another $170.3 billion fall.

    Officials said the fall had been further exacerbated by a rush by local firms to repay foreign debt and increased dollar buying by local residents as the yuan fell.

    Capital outflows have gained momentum since the yuan's August devaluation, fanned by concerns about China's economic slowdown and expectations of U.S. interest rate rises.

    "Monetary easing is highly needed amid economic slowdown, but the capital outflow will naturally tighten the monetary policy," Hao Zhou, senior emerging markets economist at Commerzbank in Singapore, said in a note after the data.

    "In the meantime, to prevent the currency from a fast depreciation, the PBOC (People's Bank of China) will have to sell its FX reserves, which will tighten the liquidity."

    The PBOC has taken recent steps to curb currency speculation, including setting a limit on yuan-based funds to invest overseas and implementing a reserve requirement ratio on offshore banks' domestic yuan deposits.

    China also eased capital rules for foreign institutional investors to buy onshore stocks and bonds.

    Economists expect Beijing to tighten capital controls and close regulatory loopholes to curb the flight of money.

    China's gold reserves rose to $63.57 billion at the end of January, from $60.19 billion at end-2015, the PBOC said.

    They stood at 57.18 million fine troy ounces at the end of January, up from 56.66 million fine troy ounces in December.

    China's International Monetary Fund reserve position was at $3.76 billion at end-January, down from $4.55 billion in December. The central bank held $10.27 billion of IMF Special Drawing Rights, compared with $10.28 billion at end-December.
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    China 2016 power consumption may up 1-2pct on year: CEC

    China’s power consumption in 2016 may increase 1-2% from 2015’s 5,500 TWh, according to a forecast report released by the China Electricity Council (CEC) on February 3.

    According to the report, power consumption by the primary industries – mainly the agricultural sector – will sustain a moderate growth rate if under normal climate conditions.

    Power consumption by the secondary industries – mainly the industrial sector – may see a slower decrease in 2016, with the decline of power consumption in building material industry and ferrous metal smelting industry to narrow.

    Power consumption by the residential segment and tertiary industries – mainly the service sector – was expected to maintain a relatively rapid growth, with the acceleration of urbanization and increase in information consumption amid China’s economic transition.

    In 2016, China will add around 100 GW of new generating capacity, expanding the total generating capacity to 1.61 TW by the end of 2016, an increase of 6.5% on year.

    In the meantime, the proportion of generating capacity from non-fossil energy will be improved to around 36%.

    The utilization of thermal power plants will drop 329 hours to around 4,000 hours, with average utilization of power generation units staying around 3,700 hours.

    By then, hydropower will accounted for 330 GW of the total, with wind power and nuclear power standing at around 150 GW and 34.5 GW, respectively.

    In 2016, overall power supply in China is surplus, with areas in northeast and northwest facing excess power capacity.

    China should enhance the interconnection of power grids with neighboring countries; further boost energy-saving and emission reduction by scientifically optimizing power industry structure, suggested the CEC.

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    Oil and Gas

    Pennsylvania governor formally proposes natural gas severance tax

    Saying it is essential to help Pennsylvania address a serious public schools funding shortfall, Gov. Tom Wolf (D) formally asked state legislators to enact a 4.7¢/Mcf natural gas severance tax. The levy would generate more than $1 billion in revenue prior to exemptions, he said in a Feb. 11 policy memorandum to legislators.

    Oil and gas groups in the commonwealth anticipated the governor’s move. Officials from the Pennsylvania Independent Oil and Gas Association and API-PA, a division of the American Petroleum Institute, each said on Feb. 9 that a severance tax on gas produced in Pennsylvania would be a bad idea.

    Wolf has previously suggested that a gas severance tax would be an effective way to address $1 billion of Pennsylvania public education funding cuts in recent years. The proposal is modeled on West Virginia’s similar tax, he said in his Feb. 11 memorandum.

    “In addition, this approach has the benefit of being field tested,” he told the legislators. “West Virginia offers proof that a state can build a thriving unconventional natural gas industry while simultaneously using a portion of the proceeds to help make a better future for its citizens.”

    The 5% severance tax on both conventional and unconventional gas production would not be in addition to Pennsylvania’s existing impact fee, the governor emphasized. “My proposal would continue the payments made to communities impacted by drilling that are currently funded by the impact fee,” he said.

    Exemptions would be allowed for gas given away for free, gas from low producing wells, and gas from wells brought back into production after not having produced marketable quantities, Wolf said.

    Citing the governor’s statement budget address that “Pennsylvania’s businesses do not have the luxury of pretending that problems don’t exist,” PIOGA Pres. Lou D’Amico said that day: "No industry in the commonwealth is more aware of this fact than natural gas producers and their service companies, which are dealing with a long-term commodity price crisis and new state regulations that will unnecessarily drive up the cost to produce energy in this state.”

    Wolf’s proposal for a gas production severance tax, which would come on top of poor market conditions and regulatory burdens, is simply an effort to punish Pennsylvania’s oil and gas producers, he continued. “If enacted, it will put people out of work, drive more businesses into bankruptcy, reduce energy production and result in less net-tax revenue to the state,” D’Amico warned.
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    Pakistan’s LNG deal with Qatar ‘cheapest’ in South Asia

    The government on Thursday said that the deal sealed with Qatar for import of Liquified Natural Gas (LNG) at the price of 4.78 dollars per mmBtu was the cheapest of its kind in South Asia.

    Prime Minister’s spokesman Dr Mussaddiq Malik at a Press conference said that the landmark deal would save the country Rs 100 billion per annum and would contribute to meeting the country’s energy needs by 25 per cent.

    He said that settled price was 13.37 per cent of the brent and was cheaper than the gas to be imported through Iran-Pakistan and Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline projects.

    He said that even India’s LNG contract was expensive by 30-35 per cent than Pakistan’s deal with Qatar.

    He mentioned that LNG would be cheaper than Pakistan’s indigenous gas. The import of gas on lower charges was almost impossible, he added.

    He said that the import of LNG from Qatar would start within 60 days.

    The spokesman said that Cabinet in 2013 had given the approval of the government-to-government deal between Pakistan and Qatar for LNG’s import.

    He said that negotiating committee comprising members of the two countries undertook 12 rounds before agreeing at the price.

    He said that Pakistan had signed the contract of non-disclosure of LNG’s price till the signing of the agreement, which was inked during Prime Minister Nawaz Sharif’s visit to Qatar on Wednesday.

    He said that the price of LNG was inter-linked with global oil prices and would increase or decrease accordingly.

    The spokesman said that Qatar LNG would cast positive impact on power generation, fertilizer production, CNG and country’s industrial sector.

    He said that country imported fertilizer valuing $265 million as gas shortage halted local production. Besides facilitating CNG sector, it would also reduce the pollution level increased by other fuels, he added.

    He said that another two LNG terminals would be established in Sindh and Gwadar and once completed, the country’s gas shortage would be overcome.

    To a question, Dr Mussaddiq Malik clarified the LNG contract had been signed between government to government having no involvement of any private company, indentor or agent.

    He reiterated that the country would overcome power crisis by 2017, though loadshedding had already been reduced both in urban and rural areas. Some power projects including Tarbella-IV, Sahiwal coal power project were nearing completion and work on several others was also in progress, he said.
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    Iran, Brazil in talks on investment in Brazil refineries -source

    Iran and Brazil are in talks about a possible Iranian investment in troubled refinery projects controlled by Brazilian state-led oil company Petroleo Brasileiro SA, a Brazilian government source told Reuters on Thursday.

    Iran, which is boosting oil output after the end of sanctions over its nuclear program, is interested in exporting oil to Brazil, processing that crude at refineries in Brazil's northeastern region and then selling it in the Brazilian market, the source said, adding that talks are at an early stage.

    Talks though are far from any result, the source added.

    "For this subject to be considered embryonic it will still need to evolve a lot," said the source, who asked for anonymity because the inter-government talks are private.

    Iran has shown interest in investing in the construction of the Premium I and Premium II refineries in Brazil's northeastern states of Maranhao and Ceara, the source said. The refineries are designed to produce low-sulfur fuels.

    While plans for those projects were developed by Petrobras, as the state-owned oil company is known, they have been dropped from its investment plan. The source was not clear if any Iranian investment would include Petrobras.

    Battered by financial problems, a corruption scandal and falling oil prices, Petrobras suspended work on both projects. Each is expected to cost more than $15 billion.

    To help reduce its debt of abut $130 billion, Petrobras plans to sell $15.1 billion of assets by the end of this year and it has long said it has been seeking partners for its refinery assets.

    Earlier on Thursday, Brazilian Mines and Energy Minister Eduardo Braga said Brazil "is in talks with the Iranians about the question of refineries in Brazil" but he declined to give details.

    Petrobras declined to comment on the possibility of Iranian investment in Brazilian refineries.
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    TransCanada falls to a loss after $2.1 billion charge on Keystone XL

    TransCanada announced Thursday it had booked a C$2.9 billion or US $2.1 billion charge related to its now-rejected Keystone XL pipeline in the fourth quarter of 2015.

    The after-tax, non-cash impairment came in at the upper range of the C$2.5 billion to C$2.9 billion charge the company previously said it expected to take on the C$4.3 billion – US$3.1 billion – carrying value of the Keystone XL and its related projects.

    The impairment pushed the Calgary-based energy logistics company to a C$2.5 billion or US$1.7 billion loss on the quarter, compared to net income of C$458 million or US$328 million for the same period in 2014.

    Measured by distributable cash flow, an industry standard metric that approximates the amount of cash available the company has on hand to pay dividends, TransCanada generated distributable cash flow of C$778 million or US$556 million. The company said it generated C$1.10 per share in the final quarter of 2015 and planned to pay out a dividend of C$0.565 per common share for the quarter ending March 31, 2016, up 9 percent from the previous quarter.

    The Keystone XL pipeline was the planned cross-border link in TransCanada’s pipeline route running from Alberta’s oil sands to the refineries of the Gulf Coast. While other pipelines along the route were built, theU.S. denied the Keystone XL a key permit late last year, effectively halting the lines progress. TransCanada has launched legal action to revive the pipeline.

    The impairment on the Keystone XL included the projects linked to it, such as the oil storage terminal at the line’s planned origin point of Hardisty.

    “The impairment charge was based on the excess of the carrying value over the fair value of C$621 million, which includes a C$93 million fair value for Keystone Hardisty Terminal. The Keystone Hardisty Terminal remains on hold with an estimated in-service date to be driven by market need,” TransCanada said in a statement accompanying its earnings announcement.

    On Jan. 6, TransCanada said it would initiate a claim under Chapter 11 of the North American Free Trade Agreement against the U.S. arguing that the denial was arbitrary and unjustified. The company is seeking to recover more than US$15 billion in costs and damages.

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    Venezuela proposes OPEC, non-OPEC producers

    Some OPEC countries are trying to achieve a consensus among the group and key non-members for an oil production "freeze", sources familiar with the discussions say, in an attempt to tackle the global glut without cutting supply.

    Top exporter Saudi Arabia might be warming to the idea, though it was too early to say whether the kingdom would give its blessing because any deal depends mainly on a commitment by Iran  to restrict its plan to boost exports, the sources said.

    The proposal of a production "freeze" at current levels was floated by Venezuelan Oil Minister Eulogio Del Pino during his tour of producing countries this month which included Russia, Iran, Qatar and Saudi Arabia, they said.

    "The Venezuelan oil minister wants to organise a meeting before OPEC's June meeting if there is consensus on either a production cut or at least a production 'freeze'," one source familiar with the matter said.

    "There is an ongoing discussion to meet soon for a freeze deal. That's what's happening now," the source said, adding that at least Russia and Qatar had given their initial agreement if there were a consensus among other producers.

    Oil prices began a slide from above $100 a barrel in mid-2014, but the Organization of the Petroleum Exporting Countries has declined to trim output without help from non-members, which so far have refused to participate.

    A production freeze could amount to a compromise in that it would limit further increases in the supply glut that sent prices to a 12-year low of $27.10 a barrel last month, while not requiring countries to cut supply and give up market share.

    Venezuela's proposal was also discussed in Riyadh during a meeting with Saudi oil minister Ali al-Naimi and Del Pino on Sunday, a second source said.

    While the idea was met with openness by Saudi Arabia, talks are still at an early stage and Riyadh will not commit unless Tehran agrees to restrict supplies, the source said.

    That appears to be a major stumbling block in the path of any agreement. A source familiar with Iranian thinking, asked whether a production freeze would gain much support in OPEC, replied that it would not.

    Iran is reluctant to restrain supply as it wants to recover the market share it lost during sanctions that were imposed in 2012 because of its nuclear programme. The sanctions were lifted in January.

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    Canadian Regulator Sees Petronas Project Harming Environment

    The Canadian regulator reviewing a natural gas export project on the nation’s Pacific Coast said the C$36 billion ($26 billion) development led by Petroliam Nasional Bhd. would probably cause “significant adverse environmental effects.”

    The Canadian Environmental Assessment Agency released on Wednesday the draft of a report that’ll be reviewed by the government before it makes a decision on the liquefied natural gas proposal. The agency raised concerns about greenhouse gas emissions and the destruction of harbor porpoise habitat, even with mitigation measures, and said the development probably wouldn’t significantly harm the environment in other ways. It added 20 pages of conditions for the project to move ahead, should the federal government give its approval.

    Canada’s environment minister will have the final say on whether the Pacific NorthWest LNG project led by Petronas, as the Malaysian company is known, can proceed. The proposal is coming under new policies announced by Prime Minister Justin Trudeau’s Liberal government last month, including more consultation and an assessment of the carbon emissions tied to the facility and gas-field drilling. Trudeau has promised to overhaul resource project reviews to overcome environmental opposition.

    “It is likely the Canadian federal government will approve the project subject to achievable conditions," David Austin, associate counsel at Clark Wilson LLP in Vancouver, said in an e-mail. "But considerably more effort is going to have to be put into reducing greenhouse gas emissions from the pipelines and natural gas fields that would supply it.”

    The proposal, also backed by Indian Oil Corp., Japan Petroleum Exploration Co., China Petroleum & Chemical Corp. and Brunei National Petroleum Co., was cleared by the report for not being likely to cause significant harm to marine fish and fish habitat. Environmental opponents to the project and an aboriginal community with traditional lands at the shipping terminal site, the Lax Kw’alaams Band, had raised concerns about the potential for the development to destroy important salmon rearing habitat.

    The regulator was most focused on carbon emissions.

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    Blackstone Forms Partnership for Offshore Oil & Gas Drilling Services

    Blackstone today announced that it has formed Clarion Offshore Partners LLC (“Clarion”), a new platform to provide strategic solutions to the offshore oil and gas drilling and services sector, with a financial commitment from private equity funds managed by Blackstone.

    Clarion’s investment mandate is broad and flexible, enabling the partnership to pursue opportunities with a wide array of industry participants, including offshore drilling companies, shipyards, financial institutions, investors, and oil & gas operators. The partnership will provide creative financing solutions including growth and restructuring capital to the sector.

    The Clarion team is led by senior executives with extensive experience in the offshore drilling services sector and has operated in virtually every offshore basin in the world. Clarion’s Chairman Louis Raspino, together with partners Greg Looser, Kevin Robert, and Ron Toufeeq, were the majority of the executive management team at Pride International. Under the leadership of Mr. Raspino as Chief Executive Officer, with Mr. Toufeeq as Chief Operating Officer, Mr. Robert as Chief Commercial Officer and Head of Business Development, and Mr. Looser as Chief Administrative Officer and General Counsel, Pride International restructured its balance sheet, rebuilt its worldwide management team and infrastructure, and executed asset rationalizations. These efforts established Pride as a leading international offshore drilling company with a heavy emphasis on investment in deepwater growth.

    Louis Raspino said, “This is an opportune time in the industry for a well-capitalized and experienced team to provide creative financing and operational solutions. Balance sheets are under severe pressure, existing operators are challenged to deploy assets, and related parties throughout the value chain are also facing financial pressures. We believe Clarion can be a partner of choice to the industry and we are excited about partnering with Blackstone.”

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    EOG CEO: Industry wary of false start on oil recovery

    The energy sector won’t repeat last year’s mistake of rapidly boosting production the next time the price of oil hits $60 a barrel, said the chairman and CEO of EOG Resources.

    When the price of the benchmark for U.S. oil seemingly stabilized near $60 a barrel last May, the number of rigs drilling for oil increased. But the price of oil cratered in July, triggering a free fall that may still not have bottomed out. 

    “We’re not going to be ramping up production the first time oil hits $60 a barrel,” EOG CEO Bill Thomas said Wednesday at the NAPE Summit 2016 in Houston.

    The U.S. shale oil industry doesn’t want to drive down the price by oil by overreacting, he said. “We’re not going to try that again.”

    That’s the case even though a lot of EOG’s wells in the Eagle Ford and Permian Basin are profitable near $45 a barrel, he said. Last year, EOG had a “zero” growth goal after previously surging about 40 percent a year.

    However, Thomas emphasized the future of U.S. shale oil is bright as early as 2017 with global demand still increasing and U.S. companies constantly advancing technologies and efficiencies.

    “U.S. horizontal oil is going to be critical to grow to supply global demand growth,” he said, arguing that most of the world’s future oil supply will come from the Middle East and the U.S.

    Houston-based EOG touts itself as the the largest producer of oil in the onshore lower 48 states.

    “We don’t plan on giving up that lead. We have big plans going forward,” Thomas said.

    “There’s no better time to pick up acreage when the industry is at a low point,” he added.

    While he admitted a “bit of disappointment” that overall U.S. oil production didn’t decline more last year, Thomas said he expects sharper cutbacks this year with most producers cutting their capital expenditures at least 40 percent. “U.S. production is really going to fall quite substantially,” he said.

    It’s a lot harder to get oil out of shale rock formations than it is to extract natural gas, Thomas said, so the nation isn’t going to see a seemingly endless over-supply of oil that keeps prices deflated.

    “I think the future of the business is obviously going to be a lot more discriminatory,” he said, and the companies with the best assets will thrive. As such, EOG is positioned with wells that are twice as productive as the industry average, he said.

    While Thomas isn’t predicting $70 oil, he expects the eventual rebound.

    “Nobody believes that current prices are sustainable,” he said. “Everyone is stressed. I don’t care who you are. Even the Saudis are stressed.”

    The problem for now is the U.S. shale industry doesn’t respond quickly enough to serve as the world’s swing producer, he said, and Saudi Arabia is refusing to take that role. As such, there is no so-called swing producer to keep supply and demand in balance and the market is depressed. American oilfield services companies will need time to hire employees after massive layoffs, he said.

    At NAPE, Texas Railroad Commissioner Christi Craddick said Saudi Arabia is “not very happy” with Texas because so much of the shale oil boom has occurred in Texas’s Eagle Ford and Permian Basin.

    Despite the oil downturn, the energy sector is a huge part of Texas’ economy. She said the energy sector represents about 37 percent of the state economy, although that’s down from 41 percent 18 months ago.

    “We’ve seen these ups and downs, so nobody panic,” Craddick said.

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    ONGC Profit Drops for Second Straight Quarter as Oil Plunges

    Oil & Natural Gas Corp. reported a second consecutive quarterly profit decline following the slump in crude prices.

    Net income at India’s biggest energy explorer fell to 12.86 billion rupees ($188 million) in the three months ended Dec. 31 from 35.7 billion rupees a year earlier, the state-owned company said in a statement Thursday. The profit missed an average estimate of 38.3 billion rupees by 27 analysts compiled by Bloomberg. Sales fell almost 2 percent to 184 billion rupees.

    ONGC took a 39.94 billion rupee impairment charge on account of the fall in crude prices.

    The explorer is tasked by Prime Minister Narendra Modi’s government with securing supplies as India targets to cut import dependence by 10 percent by 2022. The profit decline hinders the company’s aim to spend 11 trillion rupees by 2030 to add assets in India and overseas.
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    Precision Drilling suspends dividend, raises 2016 capex budget

    Canadian rig contractor Precision Drilling Corp suspended its dividend payments as demand for its onshore rigs weakened due to a slump in oil prices.

    The company also raised its capital spending budget for 2016 by about 12 percent to C$202 million ($144.4 million), partly due to a weak Canadian dollar.

    Crude prices have slumped nearly 70 percent since June 2014, leading to oil and gas producers cutting spending and scaling back drilling, forcing rig contractors to idle or even scrap rigs.

    "There is limited visibility with few positive market signals," Precision's Chief Executive Kevin Neveu said in a statement on Thursday.

    The company's net loss widened to C$271 million, or 93 Canadian cents per share, in the fourth quarter from C$114.0 million, or 39 Canadian cents per share, a year earlier.

    Revenue fell about 44 percent to C$345 million.

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    Cenovus Energy again cuts dividend, 2016 budget and jobs

    Oil producer Cenovus Energy Inc (CVE.TO) posted a bigger-than-expected quarterly loss and announced a fresh round of cuts to its quarterly dividend, 2016 capital budget and workforce, as it tries to shore up finances amid an incessant fall in oil prices.

    The Canadian company, which has been cutting costs in response to a more than 70 percent fall in oil prices since June 2014, said it would lower spending at its Foster Creek and Christina Lake oil sands projects in Alberta, which its operates along with ConocoPhillips (COP.N).

    Alberta's vast oil sand deposits are the world's third-largest crude reserves, but are more expensive to operate in than conventional oil fields.

    "Capital discipline and balance sheet strength will remain our top priorities in this extremely challenging oil price environment," Chief Executive Brian Ferguson said in a statement on Thursday.

    Cenovus cut its 2016 capital spending for the second time, this time by C$200-C$300 million to C$1.2-C$1.3 billion, and said it also plans to reduce spending on its emerging oil sands assets and its conventional oil business.

    However, the company said the planned capital spending reductions would have "minimal impact" on its oilsands production, which it expects to stay within its previous forecast of 144,000-157,000 barrels per day on a net basis.

    Cenovus sold its oil and gas royalty properties to Ontario Teachers' Pension Plan for about C$3.3 billion last year to strengthen its balance sheet and create flexibility to invest in growth projects.

    The company said on Thursday it plans to further reduce its workforce, on top of a 24 percent reduction last year. It did not say how many employees would be affected in the latest round of job cuts.

    Cenovus, which had cut its dividend by 40 percent in 2015, said it would slash its current-quarter dividend by 69 percent to 5 Canadian cents per share.

    The company also plans to cut operating, general and administrative costs, including for its workforce, by C$200 million.

    Cenovus's net loss widened to C$641 million ($458.4 million), or 77 Canadian cents per share, in the fourth quarter ended Dec. 31, from C$472 million, or 62 Canadian cents per share, a year earlier.

    Operating loss, which excludes most one-time items, fell by more than a quarter to C$438 million, or 53 Canadian cents per share.

    Analyst on average were expecting a loss of 20 Canadian cents per share, according to Thomson Reuters I/B/E/S.
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    Pioneer Natural Cuts Spending, Shuts Drilling Amid Rout

    In response to tumbling energy markets, the Texas shale explorer scrapped plans to increase outlays for drilling announced early last month, and instead will reduce spending about 9 percent from last year, according to an earnings report Wednesday. The company took a charge of $846 million for the lower value of oil fields and other assets.

    The worst crude price collapse in three decades has left producers worldwide short of cash needed to fund drilling, pay dividends and service debts. Oil has fallen more than 70 percent in New York since mid-2014, and the rout has so far shown no signs of abating as U.S. supplies remain near record levels.

    Pioneer, which sold new shares last month to raise cash, gave up on plans to boost spending to as much as $2.6 billion, from about $2.2 billion last year, and instead will budget $2 billion for new projects this year.

    The drilling will be paid for with cash flow, cash on hand and proceeds leftover from a pipeline sale last year, according to the statement. The company’s cash flow estimate assumes crude will average about $36 a barrel this year. Oil closed at $27.45 a barrel in New York on Wednesday, down 26 percent this year.

    Quarterly Loss

    A fourth-quarter net loss of $623 million, or $4.17 a share, compared with profit of $431 million, or $2.91, a year earlier, Irving, Texas-based Pioneer said. Excluding one time items, the per-share loss of 18 cents was better than the 34-cent average loss of 38 analyst estimates compiled by Bloomberg.

    Despite the spending cut, Pioneer said oil and gas production from its wells will expand by at least 10 percent this year. The statement was released after the close of regular U.S. equity trading. Pioneer has fallen about 29 percent in the past year.
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    Continental Resources Announces Proved Reserves And Production For 2015

    Continental Resources, Inc. today announced proved reserves of 1.23 billion barrels of oil equivalent (Boe) at December 31, 2015, compared with year-end 2014 proved reserves of 1.35 billion Boe. Year-end 2015 proved reserves were 57% crude oil, 87% operated by the Company, and 43% proved developed producing (PDP).

    Harold Hamm, Chairman and Chief Executive Officer, commented, "The 9% year-over-year reduction in our proved reserves during 2015, compared with an approximately 50% reduction in crude oil prices, clearly validates the premier quality of Continental's inventory of assets."

    Total production for full-year 2015 was 80.9 million barrels of oil equivalent (MMBoe), or 221,700 Boe per day, an increase of 27% compared to full-year 2014. Crude oil accounted for 66% of total 2015 production, or 53.5 million barrels of oil. Natural gas production for the year was 164.5 billion cubic feet.

    Continental's year-end 2015 proved reserves had a net present value discounted at 10% (PV-10) of $8.0 billion. The Bakken play in North Dakota and Montana accounted for 663 MMBoe of Continental's year-end 2015 proved reserves, with a PV-10 value of $4.4 billion, or 56% of total proved reserves PV-10. The SCOOP Woodford and SCOOP Springer plays in Oklahoma accounted for 413 MMBoe of Continental's year-end 2015 proved reserves, with a PV-10 value of $2.5 billion, or 31% of total proved reserves PV-10. The Company completed its initial wells in the over-pressured window of the Oklahoma STACK play in the past year.

    Proved reserves finding cost was an average $9.87 per Boe for 2015. Production reduced 2015 proved reserves by 81 MMBoe, while drilling activity added 253 MMBoe. The conversion through drilling activity of proved undeveloped assets (PUDs) moved 81 MMBoe from the PUD category to the PDP category.

    PDP reserves increased 6% to 521 MMBoe at December 31, 2015, compared with year-end 2014. The Company had 1,860 gross (995 net) PUD locations at year-end 2015, with the Bakken accounting for 1,292 gross (705 net) PUD locations. Included in these PUD reserves are 179 gross operated (125 net) drilled but uncompleted wells (DUCs), representing 91 MMBoe in proved reserves. These DUCs have completion and equipping capital remaining to be invested to produce the additional PUD reserves.

    The Company's 2015 price deck for calculating proved reserves, before adjustment for location and quality differentials, was $50.28 per barrel of crude oil and $2.58 per MMBtu for natural gas, compared to the 2014 price deck of $94.99 per barrel for oil and $4.35 per MMBtu for gas.

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    Phillips 66 Dumps Oil In Cushing, Crashes Crude Spreads To 5 Year Lows: STORAGE CLIFF!!!

    With "unusual timing" and at "distressed prices," Reuters reports that Phillips 66 - the major US refiner owned by Warren Buffett - dumped crude oil for immediate delivery into Cushing storage tonight. This sparked heavy selling of the front-month WTI contract (to a $26 handle) and crashed the 1st-2nd month spread to 5 year lows.

    It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

    “Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.



    graph of difference in inventory levels as of January 22, 2016 to previous 5-year average, as explained in the article text

    And now with Reuters reporting on major US refiners dumping crude, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories...

    Front-month WTI collapsed to a $26 handle...The unusual sales of excess oil crashed the March/April WTI futures spread... One trader described the market as a "bloodbath."

    It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed.

     These deals drew notice among traders, who said the prices were distressed and the timing unusual... sending the cash-roll to 5 year lows...The so-called cash roll, which allows traders to roll long positions forward, typically trades in the three days following the expiry of the prompt futures contract. The trading period for February-March contracts concluded almost three weeks ago.

     Since then, however, oversupply has pressured refined products prices lower, and now some grades of crude are yielding negative cracking margins, traders say.

     "Midwest margins turned negative after operating expenses last week and forward cracks suggest margins will remain in the doldrums for some time," said Dominic Haywood, an analyst for Energy Aspects in London.

    If Phillips 66 does cut refinery runs, it would be the third refiner to capitulate amid record gasoline inventories and negative margins.

    Earlier on Wednesday, sources said Delta Air Lines' Monroe Energy refinery near Philadelphia had decided to cut output by 10 percent at its 185,000 barrels per day (bpd) refinery due to economic reasons.

     On Tuesday, sources said that Valero Energy Corp was planning to cut gasoline production at its 180,000 bpd Memphis, Tennessee, refinery by about 25 percent.

    U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week - just 8 million barrels shy of its theoretical limit - stoking concerns that tanks may overflow in coming weeks.

    And so, with the news that Phillips 66 is dumping in apparent size, it appears, as we detailed previously, that BP's warning that storage tanks will be completely full by the end of H1

    "We are very bearish for the first half of the year," Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," he added. "The market will start balancing in the second half of this year.”

    May be coming true a lot sooner.

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    Total's Quarterly Profit Beats Estimates on Oil Output, Refining

    Total SA posted fourth-quarter earnings that beat analyst estimates as rising oil and gas production, higher gasoline and lubricant sales, and profit from refining helped the French company weather a slump in crude prices. The company deepened cost and investment cuts.

    Adjusted net income fell 26 percent from a year earlier to $2.08 billion, the company based outside Paris said in a statement Thursday. That exceeded the average $1.77 billion estimate of nine analysts surveyed by Bloomberg. Total reported a net loss of $1.63 billion after writing down the value of assets in Canada and Nigeria, among other projects.

    “Upstream production increased by a record 9.4 percent, driven by the startup of nine projects” in 2015, Chief Executive Officer Patrick Pouyanne said in the statement. “Refining & Chemicals was able to fully benefit from good margins thanks to the high availability of its installations.”

    The oil producer joins BP Plc and Royal Dutch Shell Plc in cutting operating costs and investments to protect its dividend as a plunge in prices dents earnings. The company said in September the measures will allow it to fund shareholder payouts in 2017 from the cash it generates pumping, refining and selling oil without the need to take on debt, even with crude at $60 a barrel.

    Total kept its quarterly dividend unchanged from the third quarter at 61 euro cents a share and offered investors the option of taking the payout in stock discounted by 10 percent in a bid to conserve cash.

    Total reiterated a plan to sell $10 billion of assets in the three years through 2017 including $4 billion this year, having already sold $4 billion last year. The company said it will exceed a target to save $3 billion by 2017 compared with its 2014 cost base.

    Total will reduce investment to $19 billion in 2016 from $23 billion last year. In September it planned to invest $20 billion to $21 billion in 2016. For 2017, Total repeated a previous forecast to spend $17 billion to $19 billion.

    Oil and gas production, which climbed 9.4 percent to 2.35 million barrels of oil equivalent a day last year, will rise by 4 percent this year with increased output from projects such as the Laggan and Tormore gas and condensate fields in the West of Shetland area, the company said.

    Total repeated its target to boost production by 5 percent a year in the 2014 to 2019 period.

    Commenting on the firm’s year-end results, chairman and CEO Patrick Pouyanne said: “Hydrocarbon prices fell sharply in 2015 with Brent decreasing by around 50%. In this context, Total generated adjusted net results of $10.5billion, a decrease of 18% compared to 2014, the best performance among the majors.

    “This resilience in a degraded environment demonstrates the effectiveness of the group’s integrated model and the full mobilisation of its teams.”

    He said discipline on spending was reinforced in 2015 and the cost reduction allowed the group to save $1.5billion, exceeding the objective of $1.2billion.

    Patrick de La Chevardiere, Total’s chief financial officer, said: “For 2015, our initial target for savings was $800million dollars. Then we moved it to $1.2billion, we achieved $1.5billion. There is a lot of fat in our industry.

    “We can reduce costs. Contractors can reduce their costs. They can do.”

    Total is one of the few companies which has yet to make any redundancies.

    De La Chevardiere added: “We wanted to maintain our capacity, our technical skills at a reasonable level.

    “We are not hiring any new people at the moment but we would like to maintain our ability to develop new projects in the upstream and in the downstream.

    “This is our overall strategy to maintain our capacity.”

    When asked if Total had any plans to consolidate like Shell and BG, he said up to 50 potential targets had been presented to him by bankers, but he had rejected them all.

    He said: “The worst part of my job is that I meet bankers every day. Every day there is a banker giving me an idea for an acquisition.

    The price of these companies is much higher than what we can justify at let’s say in a $60 per barrel scenario.

    He indicated that position would be reviewed if the price was right.

    Organic Capex was $23billion a decrease of close to 15% compared to 2014 and upstream production increased by a record 9.4%, driven by the start up of nine projects.

    Refining and chemicals was able to fully benefit from good margins due to the high availability of its installations and the marketing and services segment grew strongly with retail networks growing by 6% and lubricants by 3%, according to the firm.

    Asset sales of $4billion were signed in line with the $10billion programme planned for 2015-2017.

    At the same time, Total was able to prepare its future with a reserve replacement of 107%.

    Gearing at year-end decreased to 28% as a result of the group’s financial strategy, designed to maintain a strong balance sheet through the cycle.

    Mr Pouyanne said the results confirmed the success of the group’s strategy to further decrease its breakeven and capitalise on its market position.”

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    Asia to Pay Less for Iran Oil in Break From Link to Saudi Prices

    Asia to Pay Less for Iran Oil in Break From Link to Saudi Prices

    Iran is selling its Heavy crude grade for March to buyers in Asia at a deeper discount to Saudi Arabia’s prices for the first time in a decade as it seeks to wrangle market share after international sanctions ended.

    National Iranian Oil Co. will offer supplies to Asia at $2.60 a barrel below the average of Oman and Dubai grades for March, according to a company official who asked not to be identified because of internal policy. Iran, whose pricing has tracked Saudi Arabia’s since at least 2006, is giving buyers an additional 10-cent discount next month, according to data compiled by Bloomberg.

    The fifth-largest producer in the Organization of Petroleum Exporting Countries is seeking to win back market share after economic sanctions were lifted last month. The Persian Gulf nation has said it will boost exports by 500,000 barrels a day immediately and is preparing to introduce a new heavy grade as early as March. Iran, which was OPEC’s second-biggest producer before more penalties were imposed in 2012, is diverging from its quarterly pricing structure amid weaker demand, according to the NIOC official.

    “This is seen as a part of Iran’s method to win back its lost market share,” Will Yun, a commodities analyst at Hyundai Futures Corp. in Seoul, said by phone. “The country will need to have a good portion of its share restored before it can start negotiating with the Saudis and OPEC.”

    State-owned Saudi Arabian Oil Co. last week offered a $2.40 a barrel discount on Arab Medium crude for March sales to Asia. Based on the quarterly pricing structure which the Tehran-based company has used previously, Iranian Heavy was expected to sell at $2.50 below the benchmark Oman-Dubai average, 10 cents less than Saudi Arabia’s price for its comparable grade.

    National Iranian Oil also gave an additional 10-cent discount on its Forozan Blend to Asia, setting prices at $2.43 below the Oman-Dubai average for March, said the official. The company kept to the quarterly formula for sales of Iranian Light, offering it at 80 cents less than the benchmark.

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    Ecopetrol Shutting Wells as Costs Surpass Oil Price, Group Says

    Colombia’s Ecopetrol SA has started turning off the taps at several oil wells across the Andean nation as the cost of production exceeds crude prices, an industry group said.

    The state-controlled producer is shutting heavy-oil wells in Colombia’s central Meta province, as well as other locations, said Ruben Lizarralde, executive president of the country’s chamber of oil goods and services, or Campetrol.

    The worst crude-market collapse in a generation has left producers worldwide, big and small, short of cash needed to fund drilling, pay dividends and service debts. Oil’s plunge of more than 70 percent since mid-2014 so far hasn’t abated as U.S. supplies and output from the Organization of Petroleum Exporting Countries have risen in past months as producers fight for market share. The Brent benchmark is trading close to $30 a barrel.

    “Ecopetrol is closing wells,” Lizarralde said in an interview in Bogota Tuesday. “Why? Because it’s more expensive to produce than $30 a barrel.”

    Ecopetrol didn’t reply to several e-mail and phone messages seeking confirmation since Tuesday evening.

    Production Target

    Colombia will struggle to meet the government’s 2016 oil production target of 944,000 barrels a day if oil prices remain at current lows, Lizarralde said. In addition, oil service companies including Weatherford International PLC are taking machinery to other countries in the region, threatening Colombia’s ability to ramp up production if oil prices rebound.

    The average cost of producing a barrel of oil in Colombia is $35.30, the world’s seventh most expensive, Campetrol said in a Jan. 25 statement, based on data from consultants Rystad Energy. Many oil transportation companies in Colombia are charging excessive prices, Lizarralde said.

    Production costs at the Rubiales field, operated by Ecopetrol’s partner Pacific Exploration & Production Corp., also exceed oil prices, according to Lizarralde’s estimates. Pacific denied that the costs exceed prices in an e-mailed response to questions.

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    Oil's Drop Brings `Staggering Losses' on Global Reserves: Chart

    Image title

    Plunging oil prices have cost energy-producing companies and countries tens of trillions of dollars worldwide through declines in asset values. The chart tracks the estimated value of proved reserves, based on annual data compiled by the U.S. Energy Information Administration and averages for a Bloomberg oil-price index. Figures for 2015 and 2016 are based on 2014 reserves, the most recent available, and don’t reflect any required cutsbecause of lower prices. Owners of these reserves have suffered “staggering losses” and are reacting “as surely as falling U.S. home prices affected consumer behavior in the last recession,” Millennium Wave Advisors LLC President John Mauldin wrote Saturday in a report.

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    Crowded insurance industry becomes latest casualty of oil slump

    The insurance industry is becoming the latest casualty of the oil price slump, with postponements and cancellations of energy projects forcing down premium rates and income in a market that was already crowded.

    Insurers forecast income could dive by 20 percent or more, possibly forcing some players to quit the energy part of a business that has attracted new entrants hoping for better returns during the era of ultra-low interest rates.

    While most energy companies renew their policies in the first half of the year, the effects of the worst oil downturn in decades are already being felt by insurers and reinsurers, who take on a share of the risk in return for part of the premium.

    Hannover Re's chief executive Ulrich Wallin used some understatement in describing how the low oil price and resulting cuts in exploration and production projects have diminished demand for insurance protection.

    "It's a little bit of a crisis," Wallin told a conference last week. "We will see fierce competition ... on pricing."

    Nick Dussuyer, global head of natural resources at Willis Towers Watson, said some of the broker's major clients had significantly reduced their insurance programme limits, "with a corresponding dramatic reduction in premium spend".

    "If premium income levels continue to deteriorate, and capacity does not withdraw ... at some stage this portfolio is bound to become unprofitable," he told Reuters.

    "It will be interesting to see at this stage which insurers will choose to withdraw and which will try and ride out the storm, anticipating a turning market."

    In recent years, high returns in insurance and reinsurance in comparison with government bond yields have attracted new investors, ranging from hedge funds and private equity to pension funds and insurers from newer markets such as China.

    This had already driven up competition and put pressure on premiums in the broader insurance industry, even before oil prices began diving in mid-2014.

    Insurers are also likely to have further exposure to the oil market via their investments in corporate bonds issued by energy firms, according to ratings agency Fitch.

    William Lynch, head of energy at broker Aon, said a potential 20 percent fall in premiums could prove to be a conservative estimate, given the drop in projects being carried out and overall lower rates.

    Insurers are already suffering. Beazley said its energy business saw a 17 percent fall in rates in 2015, the strongest downward rating pressure of all its segments.

    "Our expectation is it's going to continue with further rate reductions this year," Beazley chief executive Andrew Horton said.
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    US oil production drops below year ago levels

                                                   Last Week   Week Before   Year Before

    Domestic Production '000......... 9,186             9,214            9,226
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    Summary of Weekly Petroleum Data for the Week Ending February 5, 2016

    U.S. crude oil refinery inputs averaged over 15.5 million barrels per day during the week ending February 5, 2016, 105,000 barrels per day less than the previous week’s average. Refineries operated at 86.1% of their operable capacity last week. Gasoline production increased last week, averaging about 9.6 million barrels per day. Distillate fuel production decreased last week, averaging about 4.4 million barrels per day.

    U.S. crude oil imports averaged over 7.1 million barrels per day last week, down by 1.1 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.7 million barrels per day, 5.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 683,000 barrels per day. Distillate fuel imports averaged 201,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.8 million barrels from the previous week. At 502.0 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 1.3 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories increased last week. Distillate fuel inventories increased by 1.3 million barrels last week and are near the upper limit of the average range for this time of year.

    Propane/propylene inventories fell 3.3 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 0.3 million barrels last week. Total products supplied over the last four-week period averaged over 19.8 million barrels per day, up by 0.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, up by 2.6% from the same period last year. Distillate fuel product supplied averaged 3.6 million barrels per day over the last four weeks, down by 15.8% from the same period last year. Jet fuel product supplied is up 6.8% compared to the same four-week period last year.

    Crude stocks at the Cushing, Oklahoma, delivery hub rose by 523,000 barrels. The increase brought stockpiles at the hub to a new record.

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    U.S. shale oil output to double by 2035 - BP

    U.S. shale oil production will double over the next 20 years as drillers that became more efficient amid a slump in oil prices unlock new resources, British energy giant BP said on Wednesday.

    In its industry benchmark 2035 Energy Outlook, BP forecast global demand for energy to increase by 34 percent, driven by growth in the world population and economy, with the share of oil declining in favour of gas and renewables.

    U.S. shale or tight oil production using fracking technology was a key driver behind global supply growth in recent years. The sector, with relatively expensive production costs, has nevertheless been hard hit by a 70 percent decline in oil prices over the past 18 months to around $30 a barrel.

    But in the longer term, shale production is set to grow from around 4 million barrels per day (bpd) today to 8 million bpd in the 2030s, accounting for almost 40 percent of U.S. production, according to the report.

    "We see U.S. tight oil falling over the coming years but thereafter tight oil picks up," BP Chief Economist Spencer Dale said.

    U.S. onshore production in the lower 48 states has declined by around 500,000 bpd since last spring and is expected to fall further in the near term as the global market readjusts before rebounding, Dale said.

    According to the report, "technological innovation and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise the outlook for U.S. production successively higher".

    Globally, tight oil production will rise by 5.7 million bpd to 10 million bpd but remain primarily concentrated in the United States.

    The head of Russian state-run oil company Rosneft, in which BP holds a near 20 percent stake, said on Wednesday he expected U.S. shale oil production to peak by 2020 and decline in the long term.

    Dale also said global oil demand, which grew by 1.8 million bpd last year, would continue to grow "strongly" this year albeit at a slower pace.

    "The market is responding very clearly to lower oil prices," Dale said.


    Fossil fuels, which include oil, gas and coal, will remain the dominant source of energy, accounting for around 80 percent of energy supplies in 2035. Gas remains the fastest-growing fossil fuel, rising by 1.8 percent per year compared to oil's 0.9 percent growth.

    Coal is set to be the main casualty of the world's shift towards cleaner forms of energy, as its share in the energy mix is set to drop to an all-time low by 2035.

    Renewable sources of energy such as solar and wind are projected to grow at around 6.6 percent per year, increasing their share in the energy mix from 3 percent today to 9 percent.

    Yet at the current projection, the world is far from meeting goals set by the United Nations to limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels by the end of the decade.

    While gross domestic product should more than double over the period, energy demand will grow by only one third due to higher energy efficiency and changes in economies such as China, which will become less energy-intensive, Dale said.

    Much of the demand growth will be driven by an expansion of the global vehicle fleet, which will double by 2035 from around 1.2 billion today to 2.4 billion.

    "Unless the global economy grows far more slowly than anybody thinks, you will get material growth in energy demand over the next 20 years," Dale said.

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    Eni Said to Explore Sale of Gas and Power Retail Assets

    Eni SpA, Italy’s largest oil producer, is in the early stages of exploring a sale of gas and power retail assets as part of plans to reduce debt, according to people familiar with the matter.

    The business, which provides gas and power to households in Italy, could fetch as much as 2 billion euros ($2.3 billion), depending on which exact assets are included in the carve out, said the people, asking not to be identified because the deliberations are private. The Italian company is discussing the potential divestment with advisers and could still decide against a sale, they said.

    If Eni goes ahead with the auction, the business could attract private equity firms and utility companies, the people said.

    Eni never comments on market speculation on corporate activities, and in this instance, in particular, any speculation would be premature, according to a e-mailed statement from a spokeswoman for the company.

    The company has approved raising 2 billion euros in debt and scrapped its dividend and 6-billion-euro stock buyback plan as it looks for ways to conserve cash. Standard & Poor’s said this month that it may cut the debt rating of a number of major oil and gas companies, including Eni, as the industry adjusts to the collapse in oil prices.
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    Qatargas Clinches 15-Year Contract to Supply LNG to Pakistan

    Qatar Liquefied Gas Co., the world’s biggest producer of liquefied natural gas, signed a 15-year contract to supply Pakistan State Oil Co. with 3.75 million metric tons of fuel annually, the Qatari company said.

    The supplier, known as Qatargas, plans to deliver the first cargo in March, the company said Wednesday in an e-mailed statement. Qatargas didn’t disclose the contract’s value. A proposed deal with Qatar for 1.5 million tons of LNG per year was worth $16 billion, Pakistan’s Petroleum Minister Shahid Khaqan Abbasi said during a visit to Doha in November.

    Pakistan plans to import as much as 20 million tons of the super-chilled gas annually, enough to feed about 66 percent of Pakistan’s power plants. A fuel shortage has idled half the nation’s generators. A 75 percent drop in LNG prices since 2014 has reduced the cost of the South Asian country’s energy needs.

    Qatargas, with annual capacity of 42 million tons, will supply Pakistan State Oil from joint venture plants it operates with ExxonMobil Corp. and Total SA. Pakistan State Oil shares rose 1.7 percent, the most since Feb. 4, to close as the leading gainer by points in Karachi’s benchmark 100 share index.

    Talks between Qatargas and Pakistani officials date back to 2012. Pakistan intended to buy 3 million tons of LNG per year, split between long-term and shorter contracts. The country’s state oil company decided to cancel a tender for 60 cargoes of the fuel in January.
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    BP CEO `Very Bearish' on Oil as Storage Tanks Are Filling Up

    BP CEO `Very Bearish' on Oil as Storage Tanks Are Filling Up

    BP is planning for oil prices to stay low for the first six months of the year and expects surplus production to only start diminishing when storage tanks fill up in the second half.

    “We are very bearish for the first half of the year,” Chief Executive Officer Robert Dudley said at the IP Week conference in London Wednesday. “In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in. The market will start balancing in the second half of this year.”

    More than a year into a downturn sparked by OPEC’s decision to keep pumping to defend market share, prices are still 70 percent below their 2014 peak and companies are beset by plunging profits, dividend cuts and mass layoffs. As the oil industry gathers in London for the IP Week conference, bankers, traders and executives are warning that worst of the slump isn’t over. Crude could fall “into the teens,” according to Goldman Sachs Group Inc.

    Global oil supply exceeds demand by as much as 1.7 million barrels a day, Igor Sechin, CEO of Russia’s largest producer Rosneft OJSC, said at the conference. The imbalance will probably ease by the end of this year and potentially become a supply shortfall of 700,000 barrels a day by the end of 2017, he said.

    BP expects to see “a faster tightening” than Rosneft, Dudley said.

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    Russia's Sechin floats idea of oil output cuts

    The head of Russian state-run oil company Rosneft on Wednesday floated the idea of a coordinated output cut by major oil-producing countries to prop up sagging prices but fell short of saying whether Moscow would contribute to such a plan.

    Rosneft Chief Executive Igor Sechin, in a speech at the IP Week conference in London, attributed oversupply in the market to overproduction by members of the Organization of the Petroleum Exporting Countries.

    He suggested major oil producers each cut production by 1 million barrels per day (bpd).

    Oil prices have slumped more than 70 percent to near $30 a barrel over the past 18 months as supply exceeded demand by up to 2 million bpd after OPEC, seeking to drive higher-cost producers out of the market, decided not to cut production.

    Struggling oil-producing countries have urged OPEC leader Saudi Arabia in recent weeks to call a special meeting to discuss output cuts. Riyadh has indicated it would be willing to consider a cut only if all major producers agreed to one.

    Sechin nevertheless said U.S. shale production, a key driver behind the global glut, would decline in the long term.

    "Shale oil production has its limitations in scope and time ... U.S. shale oil production will reach its peak in 2020," he said.

    Sechin, a close ally of Russian President Vladimir Putin, said however that onshore U.S. producers had proven more resilient to the oil price downturn.

    "Shale oil markets reacted very quickly to the price shock as productivity rose dramatically, costs of production dropped and fracking became more efficient," Sechin said.

    Sechin said he expected Iran to ramp up oil production to between 5 million and 6 million bpd by 2025.
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    Iran says ready to talk with Saudi over oil market conditions: Press TV

    Iranian Oil Minister Bijan Zangeneh said on Tuesday that Tehran is ready to negotiate with Saudi Arabia over the current conditions in the global oil markets, Iran's Press TV reported.

    "We support any form of dialogue and cooperation with OPEC member states including Saudi Arabia," Press TV cited Zangeneh as saying.

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    Oil traders rush for options to protect against crude gyrations

    Oil traders have scrambled to scoop up options as additional protection against wild swings in prices, sending a key index to its highest level since the worst of the global economic crisis in 2008, data shows.

    To hedge against volatility that has whipsawed oil prices this year, traders have positioned themselves more firmly on both sides of the market. They have jumped into various contracts, including March $25 puts and March $35 calls - which have hit record open interest in recent days.

    Volatility, a gauge of options premiums and activity, for U.S. crude jumped to almost 69 percent on Tuesday, the highest since March 2009, according to Reuters Eikon data. In December 2008, it was above 100.

    The flurry comes as oil benchmarks have tested new 12-1/2-year lows, falling nearly 8 percent on Tuesday, as one of the worst supply gluts in history looks likely to worsen and the possibility of coordinated action among OPEC and non-OPEC producers to rein in production has faded.

    Nearly three weeks ago, Brent's volatility jumped to the highest since late 2008 as traders rushed to snap up additional protection against an even more aggressive sell-off.

    The volatility in recent weeks has also in part been spurred by investors racing to close out massive short positions, according to analysts and traders.

    Short positions in the U.S. futures and options have hovered around the highs it touched in the week to Jan. 12, according to data from the Commodity Futures Trading Commission.

    "There's more uncertainty now, as we approach key turning points in the market after a long downtrend," said John Saucer, vice president of research and analysis at Houston-based Mobius Risk Group.

    Oil prices have crashed about 75 percent since mid-2014 as a supply glut has increased and U.S. shale producers have resisted cutting output substantially, even in the face of plunging prices and mounting inventory.

    "We're back below $30 and from a psychological perspective, there is a fear that we might retest lows hit earlier and that increases implied volatility," Saucer said.

    Big fluctuations in foreign exchange - particularly the U.S. dollar, yuan and the euro - have added to the uncertainty, along with gyrations in equities and concerns about a global recession.

    On Tuesday, the Chicago Board Options Exchange Oil volatility index - based off moves in the U.S. Oil exchange traded fund - jumped more than 6 percent.

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    Anadarko cuts dividend 82 percent to survive cheap oil

    Oil and gas producer Anadarko Petroleum Corp slashed its quarterly dividend by 82 percent on Tuesday, preserving cash at a time when sliding oil prices have fueled losses.

    It was the latest response yet by industry executives to the more-than 70 percent drop in crude prices, which has forced oil producers and their suppliers into a radical rethinking of how best to deploy capital.

    The cut will save about $450 million annually, the company said.

    Rival ConocoPhillips said last Thursday it would cut its own dividend for the first time in 25 years, saying it needed to plan for oil prices to stay low "for a longer period of time."

    Anadarko said it would issue a first-quarter payout of 5 cents, down from 27 cents last quarter.

    Anadarko executives said last week they would ask the board of directors for some kind of reduction at its Monday meeting, noting that the company's stock price drop had boosted the dividend yield.

    Anadarko's shares are down more than 55 percent in the past year, pushing the yield close to 3 percent. That is higher than most members of the S&P 500 index.

    The dividend cut announcement did little to affect the share price. Shares of Anadarko were already down sharply and closed 7 percent lower at $37.24 a share. Crude oil prices fell sharply on the day, pulling down the entire energy sector.
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    Norway: ExxonMobil to shut down Jotun field

    ExxonMobil is reportedly planning to shut down production at the Jotun field offshore Norway by plugging 22 production wells, starting in April 2016.

    The Jotun field is located in the North Sea, 200 km west of Stavanger. Water depth at the site is 126 metres. The field was developed with two installations, a wellhead platform Jotun B and a production vessel Jotun A.

    According to, a Norwegian news website, the well plugging will be performed with a modular drilling rig mounted on Jotun B platform. It will start in April 2016 and will be completed during 2017. The news agency also reported that ExxonMobil plans to get rid of the field installations whereby the platform will be taken apart and the FPSO will be reused on another location.

    ExxonMobil is the operator of the field with 45% interest, while its partners Dana Petroleum, Det norske and Faroe Petroleum have 45%, 7% and 3%, respectively.

    The field started production in 1999 and was expected to finish in 2015. However, ExxonMobil estimated that Jotun would be able to produce until around 2021, and considered to prolong the use of the field’s installations. In June 2015, the operator of the field received consent from the Petroleum Safety Authority to use the facilities on the Jotun field beyond the originally plannedlifetime.

    The average production rate in 2014 was 2,100 oil equivalent barrels per day. According to the company, Jotun production has been on the decline over the last few years, thus resulting in spare production capacity. In order to utilize this capacity, the Balder field, also in the North Sea, has been connected to Jotun via a gas pipeline, while pipelines were installed between Ringhorne and Jotun thereafter, allowing parts of the Ringhorne field to produce to the Jotun FPSO, in addition to the Balder FPSO.
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    Halcón Provides Update on its Balance Sheet Initiatives

    Halcón Resources Corporation today provided an update on its balance sheet initiatives.

    As previously indicated, Halcón continues to proactively explore multiple options to strengthen its balance sheet. Over the course of 2015 the Company reduced its net debt by approximately $1 billion through various balance sheet restructuring efforts including debt for equity exchanges and discounted debt for debt exchanges.

    The Company has significant liquidity, a valuable hedge book, quality assets, and a vested management team that is working hard on behalf of the Company and all of its stakeholders. Halcón has no formal plan or strategy in place at this time but continues to review options with respect to further restructuring its balance sheet. The Company does not intend to comment on inaccurate media reports related to such efforts or the professionals it may engage to assist the Company in its evaluation and does not intend to make any further announcements concerning its review of alternatives unless and until it determines that additional disclosures are necessary or appropriate.
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    Shell: Industry faces major renaissance

    The industry is in the crux of its own renaissance as it grapples with job losses, low oil price and lagging efficiency, according to Shell’s project & technology director.

    Speaking at GE’s annual meeting in Florence, Harry Brekelmans said: “Florence is the birthplace of the renaissance, the time of exploration of discovery and great inventions and of course the oil and gas industry is in need of its own renaissance.

    “This will be how we collectively respond to the tough business environment we find ourselves in.

    “Shell and the whole industry needs to do much in the face of current realities.”

    Realities include development plans taking double the time to produce, wells taking 50% longer to drill and subsea costs rocketing by almost 300%.

    Brekelmans credited a dizzying amount of specifications for slowing the industry’s pace.

    “Every accumulating specification informed by sometimes unique incidents as well as individual engineering preferences has resulted in a proliferation of company specific requirements and this is on top a multitude of industry standards for virtually any piece of equipment,” he said.

    “Hundreds” of standards for valves represent the layers of complexity and duplication found in the industry today, according to the Shell boss.

    “As a result, we are defeating the purpose of an industry standard, as suppliers and service providers strive to meet the needs of their customers through bespoke solutions,” he said.

    “At our project sites and in our processes, we see many examples of “waste” such as rework throughout the supply chain and low time on tools, caused by a large number of interfaces, fragmentation, less experience workforce and unwieldy owner-team set-ups.

    “The aerospace and automotive industries managed to put together much more systematic and rigorous ways of managing requirements

    He added: “In our own industry, we haven’t been able to get to grips in the steady upward trend of cost and delivery time, so this world we now find ourselves in.”

    His sentiment was echoed by BG’s EVP, Jon Harris.

    Harris referenced Southwest Airlines’  bid to peel back practices and reveal a more simplistic core.

    “It has one type of plane, one maintenance programme, one suite of spares, one training programme,” he said.

    “Anyone can work on any plane.”

    The vision for the industry should be to standardize the specifications for procurement, materials and packages that have “high-degree” of commonality, according to the BG leader.

    However, the mountain to climb towards simpler solutions isn’t insurmountable event at $30 oil, according to the pair.

    Brekelmans added: “Now it’s not all doom and gloom even with the price of oil where it is. In fact it’s this low oil price where we can find some hope.

    “It compels us to make our companies efficient, more competitive and in so doing so secure our places in the industry for decades to come.”

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    Global oil glut set to worsen, says IEA

    The global oil glut is larger than previously thought and the risk of prices falling further has increased, the International Energy Agency has said.

    In its monthly report, the IEA warned that the recent respite was likely to be a “false dawn” and market conditions were weaker than the agency believed when it predicted last month the world could drown in supply.

    The IEA said global oil stocks were likely to build by 2m barrels a day in the first quarter of 2016 and 1.5m barrels a day in the second quarter, with stocks continuing to rise in the second half of the year.

    The Paris-based agency said: “We suggest that the surplus of supply over demand in the early part of 2016 is even greater than we said in last month’s oil market report. If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short-term risk to the downside has increased.”

    Oil’s recent rise was driven by hopes that Opec might do a deal with Russia to cut production. Opec, led by Saudi Arabia, has kept pumping oil to protect its share of the global market while attempting to make production unviable for US shale producers.

    The IEA said: “Persistent speculation about a deal between Opec and leading non-Opec producers to cut output appears to be just that: speculation. It is Opec’s business whether or not it makes output cuts either alone or in concert with other producers but the likelihood of coordinated cuts is very low,.”

    The agency trimmed its forecast for 2016 demand growth, which now stands at 1.17m barrels a day after hitting a five-year high of 1.6m in 2015.

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    Canadian energy companies sell

    Faced with record low prices for heavy crude, Canadian energy companies are sacrificing other parts of their business to keep higher-cost oil sands production going and safeguard the billions already invested in these multi-decade projects.

    Companies including Husky Energy Inc, MEG Energy Corp and Pengrowth Energy Corp are selling assets or slowing light and conventional oil exploration and production, even as they forge ahead with oil sands projects that are in many cases bleeding money on every barrel.

    Although the move to support higher-cost production seems counterintuitive, oil sands companies take a longer-term view that shutting plants in Alberta would be veryexpensive and risk permanently damaging carefully-engineered reservoirs, underground deposits of millions of barrels of tarry bitumen.

    It is easier, and cheaper, to shut down and later restart conventional wells.

    Producers are also betting that oil prices will eventually recover. The latest Reuters poll of oil analysts forecasts the U.S. benchmark will average $41 a barrel in 2016, a level where most Canadian oil sands projects can break even.

    Bankers say the need to bolster balance sheets and cover oil sands losses will boost the number of Canadian energy deals this year, particularly sales of pipelines, and storage and processing facilities.

    "The market was down significantly last year in terms of energy M&A, and we think that's going to reverse," said Grant Kernaghan, Canadian Investment Banking head for Citigroup.


    MEG is selling its 50 percent stake in the Access pipeline, which analysts value at around C$1.5 billion ($1.08 billion), while Husky is selling a package including 55,000 barrels of oil equivalent per day of oil and natural gas production, royalties and midstream facilities, valued at between C$2.4 billion to C$3.2 billion.

    According to a recent TD Securities report, virtually no oil sands projects can cover overall costs, including production, transportation, royalties, and sustaining capital, with U.S. benchmark crude below $30 a barrel.

    The benchmark heavy Canadian blend, Western Canada Select (WCS), now trades around $16.30 a barrel, just a few dollars above record lows hit in January.

    But as nearly 80 percent of oil sands costs are fixed investments, such as equipment for injecting high-pressure steam underground to liquefy tarry bitumen, producers prefer to have some revenue coming in to help offset those costs than none, said FirstEnergy Capital analyst Mike Dunn.

    To be sure, if WCS prices dropped even further to below $12 a barrel, Dunn said producers may look at ways to trim production by 10-30 percent.

    Oil sands "remains our core business so we will look to various other handles we have to support that business," said Brad Bellows, a spokesman for MEG.

    Even as it makes major cuts, Husky is ramping up new thermal projects, including its Sunrise joint venture with BP. Sunrise in northern Alberta took three years and C$2.5 billion to build and Husky is in the midst of the two-year process of raising reservoir pressure to full production capacity. Once there, Sunrise is expected to produce for 40 years.

    As well as selling assets, some players, such as Canadian Natural Resources Ltd and Baytex Energy are shutting in uneconomic conventional heavy oil wells, but leaving their oil sands operations intact.


    Bankers say that midstream assets - pipelines, storage and processing facilities - prove popular with buyers such as pension funds and private equity firms, which favor investments with stable cash flows that are relatively easy to value.

    "They're to a certain extent the jewels in the crown. These companies would not be looking to sell them if they could get away with not doing it," said Citi's Kernaghan.

    Last year, oil sands producer Cenovus Energy sold a portfolio of oil and gas royalty properties to Ontario Teachers' Pension Plan for C$3.3 billion.

    Industry veterans note oil sands operations also had to be "cross-subsidized" by healthier parts of the business during the last prolonged market slump in the 1980s and predicted producers would push to keep operating until prices recover.

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    WPX Energy to sell Colorado assets for $910 mln

    Oil and gas producer WPX Energy Inc said it would sell natural gas assets in Colorodo's Piceance basin for $910 million to boost its liquidity amid a prolonged slump in oil prices.

    WPX said its unit, WPX Energy Rocky Mountain LLC, will be bought by Terra Energy Partners LLC, a private company owned by investment manger Kayne Anderson and private equity firm Warburg Pincus.

    WPX Energy Rocky Mountain holds assets that include about 200,000 net acres, with net production of about 500 million cubic feet equivalent per day.

    WPX Energy, which is focused on its operations in Texas's Permain basin, expects oil to comprise about half of its production volumes going forward, up from roughly 20 percent during 2015.

    Terra will also get more than $90 million of natural gas hedges and, in exchange, assume about $100 million of WPX Energy's transportation obligations.

    Terra has secured $800 million of equity commitment from existing investor Kayne and new investor Warburg Pincus, to fund the deal, which is expected to close in the second quarter.

    WPX Energy's stock closed at $4.52 on Tuesday, easing off a record low of $2.53 hit on Jan. 20.
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    US Oil Production to Fall 92,000 B/D in March in Key Plays: EIA

    Oil production will fall by 92,000 b/d from February to March in key US onshore plays, the US Energy Information Administration said Monday.

    The biggest forecast drop will be in the Eagle Ford, where EIA sees supply falling 50,000 b/d to 1.222 million b/d in March from 1.272 million b/d in February. The Bakken, where EIA expects production to fall to 1.1 million in March from 1.125 million b/d in February, and the Niobrara, where production is forecast to fall to 389,000 b/d in March from 404,000 b/d in February, are also expected to see substantial drops.

    In addition, production in the Permian will climb to 2.04 million b/d in March, just 1,000 b/d more than the play's estimated production this month. Permian supply, which has grown despite declines in other US plays, appears to be nearing its first month-to-month decline since the EIA began tracking drilling productivity in late 2013.

    The EIA has forecast month-to-month production declines in the Bakken, Eagle Ford and Niobrara since March 2015, but the projected drops appear to be more modest than those forecast by EIA late last year, despite persistent low prices and planned spending cuts by US producers.

    In November, EIA forecast Eagle Ford production would fall by 78,000 b/d from November to December and in May EIA forecast Bakken production would fall by 31,000 b/d from May to June.

    The new estimates Monday were included in the EIA's monthly Drilling Productivity Report, which looks at supply in seven onshore regions that have seen the most prolific growth recently. The report does not, for example, look at Gulf of Mexico or Alaska production.

    Overall, EIA forecasts oil production to decline by 92,000 b/d from February to March in these regions, compared with the same time a year earlier when EIA forecast growth of 68,000 b/d.

    EIA has shown production declines for 15 straight months, after the month-over-month forecast peaked at an estimated 125,000 b/d increase in December 2014.

    Despite the expected decline, EIA continues to see improvements in rig efficiency in these seven regions, as new well oil production is expected to climb to an average of 504 b/d per rig in March from 500 b/d in February. A year ago, wells in these regions averaged 352 b/d, according to EIA.

    The EIA's report comes as exploration and production companies plan for capital spending cuts as they release fourth-quarter earnings featuring billions of dollars in losses. North American producers plan to cut on average about 23% from 2015 spending levels, according to an analysis by IHS Energy. That analysis shows, however, that these companies will need to cut these spending levels by 50% in order to maintain the traditional ratio between capital spending and cash flow.

    "Given that most companies made preliminary 2016 spending plans when the price outlook was comparatively higher, we expect to see further spending cuts announced throughout the fourth-quarter 2015 earnings cycle that reflect the current price environment," Paul O'Donnell, principal analyst at IHS Energy and author of the analysis, said in a statement.
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    Plains GP misses Street 4Q forecasts

    Plains GP Holdings LP on Monday reported fourth-quarter profit of $25 million.

    The Houston-based company said it had profit of 11 cents per share.

    The results did not meet Wall Street expectations. The average estimate of seven analysts surveyed by Zacks Investment Research was for earnings of 18 cents per share.

    The oil and gas holding company posted revenue of $5 billion in the period, which also missed Street forecasts. Three analysts surveyed by Zacks expected $8.17 billion.

    For the year, the company reported profit of $118 million, or 53 cents per share. Revenue was reported as $23.15 billion.

    Plains GP shares have declined 33 percent since the beginning of the year. In the final minutes of trading on Monday, shares hit $6.37, a fall of 76 percent in the last 12 months.

    Armstrong, Chairman and CEO of Plains All American. “Our fourth-quarter results were negatively impacted by approximately $15 million associated with deficiencies on minimum volume commitments and an approximate $15 million shift in earnings recognition on certain NGL sales activities from the fourth quarter of 2015 to the first quarter of 2016. This earnings shift is primarily the result of delayed inventory draws due to unseasonably warm temperatures in certain parts of the U.S. and Canada as well as impacts of inventory pricing during the fourth quarter. Additionally, severe weather in West Texas and the Mid-continent resulted in volume shortfalls impacting results by approximately $5 million.”

    Armstrong stated that the partnership is well positioned to manage through near-term challenges and to grow meaningfully in the intermediate and long-term as industry conditions improve.

    “The $1.6 billion of proceeds from our recent preferred equity placement satisfies PAA’s equity financing needs for 2016 and substantially all of 2017 and enables PAA to complete its multi-year, multi-billion dollar capital expansion program, while maintaining substantial liquidity and a solid balance sheet.”

    Armstrong continued, “PAA has visibility for incremental cash flow contributions over the next 24 months from the completion of these projects, the majority of which are backed by minimum volume commitments and other contractual support. These projects enhance PAA’s existing footprint and provide further significant leverage to a sustained increase in U.S. production levels with little to no incremental investment.”
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    NA Oil Drillers Must Slash Another $24 Billion This Year, IHS Says

    North American oil and natural gas drillers will need to cut an additional 30 percent from their capital budgets to balance their spending with the cash coming in their doors even if crude rises to $40 a barrel, according to an analysis by IHS Inc.

    A group of 44 North American exploration and production companies are planning to spend $78 billion on capital projects this year, down from $101 billion last year. Those companies need to cut another $24 billion this year to get their spending in line with a historical 130 percent ratio of spending to cash flow, IHS said Monday.

    “These spending cuts will be particularly troublesome for the highly leveraged companies,” said Paul O’Donnell, principal analyst at IHS Energy. “These E&Ps are torn between slashing spending further to avoid additional weakening of their balance sheets, and the need to maintain sufficient production and cash flow to meet financial obligations.”

    The analysis is based on IHS’s low-case price scenario of $40-a-barrel oil and $2.50-per-million-cubic-feet natural gas prices. IHS cited Concho Resources Inc., Whiting Petroleum Corp., WPX Energy Inc., and PDC Energy Inc. as examples of companies displaying the best spending discipline.

    West Texas Intermediate for March delivery dropped 91 cents, or 3 percent, to $29.98 a barrel at 1:29 p.m. on the New York Mercantile Exchange. Crude prices are expected to average $41.13 this year, according to the median of 26 analyst estimates compiled by Bloomberg.
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    Oil Drillers Exposed in Three-Way Hedges as Crude Dips Below $30

    Oil at $30 a barrel is blowing a hole in the insurance that U.S. shale drillers bought to protect themselves against a crash.

    Companies including Marathon Oil Corp., Noble Energy Inc., Callon Petroleum Inc., Pioneer Natural Resources Co., Rex Energy Corp. and Bonanza Creek Energy Inc. used a strategy known as a three-way collar that doesn’t guarantee a minimum price if oil falls below a certain level, company records show. While three-ways can be cheaper than other hedges, they leave drillers exposed to sharp declines.

    "At the time people hedged, they did it without thinking that oil would go to $28," said Thomas Finlon, director of Energy Analytics Group LLC in Jupiter, Florida. "They didn’t have a realistic view about whether the market would crumble or not."

    The three-way hedges risk worsening a cash shortfall for companies trying to survive the worst oil crash in 30 years. The insurance is all the more important after oil plummeted 43 percent in the past year to $26 a barrel in January, exacerbating the pressure on debt-burdened producers.

    "In 2015, everyone was given a hall pass and had a little protection from hedges," said Irene Haas, an analyst with Wunderlich Securities. "But as we roll into 2016, the hedges aren’t as attractively priced anymore and the hedges aren’t going to exactly bail you out."

    The U.S. shale boom was built on high oil prices and low-cost financing, which enabled drillers to spend more than they earned while making up the difference with debt. With oil at a 12-year-low, financing is much harder to come by. Locking in a minimum price for crude reassures investors and lenders that companies will have the cash to pay their debts.

    Joseph Gatto, Jr., Callon’s chief financial officer, told investors at a conference in December that the company had hedged about 4,000 barrels a day in 2016, or 40 percent of its projected output, at a price of $56 a barrel.

    About half of those contracts are worth significantly less at $30 a barrel because Callon employed three-ways, Securities & Exchange Commission records show. While the company is guaranteed $58.23 for 364,000 barrels in the first half of 2016, or about 2,000 barrels a day, the remaining 364,000 has lost value because the strategy sacrifices protection when prices fall below $40.

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    Iraq raises March Basra Light crude OSP to Asia

    Iraq has raised the March official selling price (OSP) for Basra Light crude to Asia by $0.20 to minus $2.60 a barrel against the average of Oman/Dubai quotes from the previous month, the State Oil Marketing Organization (SOMO) said.

    Basra Heavy to Asia in the same month was priced at minus $6.30 a barrel to Oman/Dubai quotes, SOMO said in an e-mailed statement late on Monday.

    Iraq's OSPs came after Saudi Arabia made relatively modest changes to its crude prices for Asian buyer in March, in line with expectations, by lowering the price differentials for light grades, while raising those for heavier grades.

    Saudi crude OSPs set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.

    Crude prices often offer a glimpse into whether Mideast OPEC producers will continue a strategy of keeping output high and defending market share, particularly as rival producer Iran ramps up crude shipments into an already oversupplied market despite low prices.

    Iraq's March Basra Light OSP to the North and South American markets was set at the Argus Sour Crude Index (ASCI) minus $0.55 a barrel, up from the previous month, and the price of Kirkuk to the United States increased to ASCI plus $0.70 a barrel.

    For Europe, the March OSP for Basra Light rose by $0.10 to dated Brent minus $4.95 a barrel and the March Kirkuk OSP rose to minus $4.50.
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    Chesapeake Energy woes cast shadow on U.S. pipeline companies

    U.S. oil and gas pipeline companies including Williams Companies Inc and Kinder Morgan Inc have contracts worth billions of dollars that might be at risk as Chesapeake Energy Corp aims to slash its debts amid collapsing energy prices.

    Chesapeake said on Monday it had no plans to file for bankruptcy after sources told Reuters the firm, whose debt is eight times its market value, had asked its longtime counsel to look at restructuring options.

    The way it deals with its financial woes could be a lifeline or death sentence for midstream pipeline companies. Often called the energy market's "toll takers," they have long-term contracts with producers such as Chesapeake to move, process and store energy products, experts said. Many of these companies are master-limited partnerships, or MLPs.

    Chesapeake said it has commitments to pay about $2 billion a year for space on pipelines run by MLPs, federal filings show.

    During the U.S. shale boom, investors flocked to MLPs, which were growing as much as 8 percent a year.

    But investors have fled in droves out of fear that the companies will not maintain their hefty dividend-style distributions.

    But with oil prices at their lowest in 12 years due to a global supply glut with OPEC unwilling to slow production, profits at energy companies have plummeted and analysts do not expect any significant price recovery until at least 2017.


    Williams has the most exposure to Chesapeake after buying Chesapeake's logistics assets for $6 billion in 2014, Jay Hatfield, portfolio manager of New York-based InfraCap, said.

    Williams did not respond to requests for comment.

    Other companies with contracts include Spectra Energy Partners LP, Columbia Pipeline Partners LP and Marathon Petroleum Corp's unit MPLX LP, according to SEC filings.

    These long-term contracts, often referred to as minimum volume commitments, were supposed to protect MLPs from major oil and gas price drops, because they include so-called minimum volume commitments, where customers pay pipeline operators whether they move any oil or not.

    But the latest leg down in crude's 19-month plunge has cast doubt over the perceived safety of those contracts as producers try to navigate the oil crisis.

    Experts said they expect Chesapeake will try to renegotiate contract terms, which would be the first major test of these deals and the so-called midstream companies that flourished during the U.S. shale boom.

    Another risk is it could file for bankruptcy protection, which could give it the option discontinuing or renegotiating commercial contracts.

    Hatfield said he expects Williams will be forced to accept a 50-percent price cut in its contract price with Chesapeake, either through the courts or mutual renegotiation.

    That translates to a drop of about $300 million in annual cash flow for the $4 billion company.

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    Charity watchdog probes Friends of the Earth over campaign against 'toxic' fracking giant

    THE TRUSTEES at one of Britain’s biggest charities are being investigated by regulators over a high profile campaign against “toxic” fracking giants.

    The Charity Commission has opened a compliance case into Friends of the Earth – after discovering the charity has continued to blast Cuadrilla, a company wanting to drill for gas in Lancashire.

    Trustees told the Commission the propaganda from one of the biggest fundraisers in the country would stop last summer.

    But hard-hitting ads have continued to come out – claiming Cuadrilla wants to use “toxic chemicals” and its actions could cause house prices to “plummet”.

    The Commission is not investigating the ads.

    But it is understood to be furious at the trustees for appearing to “lose control” and has demanded the board explains why they were misled.

    The regulator could use new powers granted under the Charities Bill to pile pressure onto the charity. Ultimately it could request trustees are removed.

    Energy Minister Andrea Leadsom last summer blasted the green lobby for delaying the fracking revolution by at least a year.

    Speaking in September, she said eco-warriors were living in a fantasy world if they believed Britain could do without new reserves of shale gas.

    Friends of the Earth has argued that its anti-fracking activity is put out by its limited company- rather than the main charitable, fundraising arm.

    In an explosive letter to the Commission last month, Cuadrilla said this was laughable.

    Chief exec Francis Egan said it was “deplorable” that the charity was trying to hide behind its non-charitable arm.

    He added: “The public has had enough of charities which abuse the fundraising process.”

    A Commission spokesman today said: “We have an ongoing engagement with Friends of the Earth Trust, particularly regarding its relationship to the non-charitable company, Friends of the Earth Limited.

    “We cannot comment further whilst this engagement continues.”

    The row comes just 72 hours after the Government said charities would no longer be able to lobby Ministers to change policies.

    Friends of the Earth said the Commission was acting on the back of a complaint from Cuadrilla who seemed to be "trying to silence their opposition".
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    Tisch Sees Dark Cloud Over Natural Gas, Chaos Reigning in Energy

    Jim Tisch said “chaos continues to reign over the energy market” after the slump in commodity prices fueled a fourth-quarter loss and stock decline at his Loews Corp.

    “If these pricing levels persist over the next two years, we’ll be in a drastically under-supplied oil market,” Tisch said Monday in a conference call discussing results at New York-based Loews. “The natural-gas market is under the same dark cloud, as the entire energy industry is being affected by this precipitous downturn.”

    Loews posted a net loss of $201 million for the three months ended Dec. 31, as the Diamond Offshore Drilling Inc. unit wrote down the value of rigs and halted its quarterly dividend. Loews fell 1.6 percent to $35.71 at 11:29 a.m., extending its decline for the year to 7 percent after slumping at least 8 percent in both 2014 and 2015.

    Tisch took a more pessimistic tone than in late 2014 when he said “trouble is opportunity” for Diamond Offshore and said the company might have a chance to add to its fleet of rigs. Oil has dropped by more than half since those remarks to about $30 a barrel.

    Stark Reality

    “The reality for offshore drilling companies is stark,” he said Monday. “The drop in oil prices is causing oil companies to slash exploration and development budgets and reduce or cancel drilling contracts, decimating day rates and idling rigs. The market for rigs of all types, including new, ultra-deepwater drill ships, is currently, and will for the immediate future, be drastically oversupplied.”

    He said there is still high demand for oil and that low prices will lead to less exploration and an eventual rebound. Loews also has a hotel business, the CNA Financial Corp. insurance unit, and Boardwalk Pipeline Partners LP, which transports and stores natural gas. Tisch agreed in 2014 to sell HighMount Exploration & Production LLC after being caught off guard by a decline in natural gas prices.
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    Bears hit my local gasoline station.

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    Chesapeake shares cut in half, denies planning bankruptcy

    Chesapeake Energy Corp., once led by an early pioneer of shale gas, saw its shares plummet 51 percent on Monday after reports that the company had hired restructuring and bankruptcy specialists at Kirkland & Ellis.

    Chesapeake denied the reports, saying it “has no plans to pursue bankruptcy.”

    “Kirkland & Ellis LLP has served as one of Chesapeake’s counsel since 2010 and continues to advise the company as it seeks to further strengthen its balance sheet following its recent debt exchange,” Chesapeake said.

    Kirkland & Ellis declined to comment. Market intelligence firm Debtwire first reported the hire early Monday, according to Bloomberg.

    The Oklahoma City oil and gas producer has some $11.6 billion in debt and a $500 million note due next month, according to regulatory filings. In the past year, its stock price has collapsed, tumbling 91 percent as the oil market crashed and domestic natural gas remained abundant and cheap.

    Its stock-market value fell to $995 million on Monday. Before oil prices collapsed in 2014, the company was worth $18.8 billion. Chesapeake shares on Monday fell $1.56 to $1.50 a share — about 51 percent — on the New York Stock Exchange, and trading halted shortly before 10 a.m.

    A few years ago, Chesapeake, then led by wildcatter Aubrey McClendon, had been one of the most aggressive companies in the U.S. shale land grab and become the nation’s second-largest natural gas producer after Exxon Mobil Corp., snapping up thousands of acres across the nation searching for natural gas trapped in once-inaccessible shale plays.
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    Oversupplied Market Eying Floating Storage Opportunities

    In spite of the oversupplied market, OPEC - led by Saudi Arabia - continues to pump in order to defend its market share against non-OPEC supply. With a coordinated change in strategy highly unlikely, prices will have to remain lower for longer to force the market to reach a new equilibrium.

    However, a critical turning point - when a produced barrel no longer finds spare capacity within existing onshore storage - is approaching. According to the IEA, global oil stocks increased by 1 billion barrels in 2015, and the Agency expects a further increase of 285 million barrels over the course of this year.

    In the case where onshore storage gets filled, the excess barrels will need to be stored in the form of floating storage, which is a more expensive option. Despite the high cost, this would not be without precedent: in 2009, trading companies stored circa 120 million barrels offshore in 64 tankers. In order to make this type of storage economical, the market would need to be in a state of 'super-contango' - a situation in which the front few crude spreads are wide enough to cover the costs of storage in tankers. This implies that prices may need to remain lower for longer than previously anticipated. Current market trends suggest that widespread filling of offshore storage is likely before significant erosion of supply takes place and the market eventually starts to rebalance.
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    Statoil and Rosneft commence well testing at the North-Komsomolskoye field

    Statoil and Rosneft have commenced well testing at the North-Komsomolskoye field onshore Russia.

    The companies have implemented a pilot operation of the horizontal wells with an average starting flowrate of 75t per day.

    A spokesman said during well testing the companies are planning to undertake a complex of studies including hydrodynamic and tracer studies.

    Laboratory investigations of the surface oil samples will also be implemented.

    The data is expected to be used as the companies look at the strategy of the full-scale development of the North Komsomolskoye field.
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    India exploring Australian gas supplies for clean, affordable power: Piyush Goyal

    Union Minister of State for Power, Coal, New and Renewable Energy Piyush Goyal on Monday said that the Government of India is willing to consider long term fixed price contracts with Australia for the supply of gas which will enable power producer to enter into a power supply contract at an affordable price.

    "Two round table conference happened today and till now the dialogue has been formal. The India-Australia energy dialogue will give good results. The motive is to provide good quality electricity which is uninterrupted and reaches to the common man. India and Australia could work together for energy efficiency," Goyal told ANI here.

    Goyal is leading a delegation for the 3rd India-Australia Energy Security dialogue in Australia.

    While addressing a roundtable in Brisbane earlier today on the business opportunities for LNG (Liquefied Natural Gas) and Coal Bed Methane, Goyal stated that additionally, opportunities to control the entire value chain right from gas production, liquefaction, shipping, re-gasification and power generation can be evaluated at the current historic low prices of many of these activities.

    Goyal highlighted that India is running one of the world's largest renewable energy programme which aims to increase the capacity 5 times to 175 GW over the next seven years which will require gas based plants which can act as spinning reserve and supply power during deficit times of day (like evenings) when renewable energy production reduces while stabilizing the grid.

    He also stressed that since coal based power is available in India at less than 5 cents per unit, the LNG providers should consider supplying gas to India at a price that is comparable.

    Pointing out that India is the fourth largest energy consumer in the world A.K. Jana, Executive Director, GAIL stated that India has also developed sufficient infrastructure in pipeline transportation, regasification facilities as well as end consumers facilities such as gas based power plants.

    These facilities enable the consumption of around 300 MMSCMD, whereas the present consumption is less than 50% of the same. This provides good opportunities to countries which have a surplus of Natural Gas provided it is available at affordable prices.

    In order to explore the opportunities to affordably supply Australian LNG to India, an LNG sub-group has been created under the joint leadership of a Joint Secretary, Ministry of Petroleum and Natural Gas and a senior Australian official.

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    NOC in West Libya Warns About `Illicit' Oil Sales From East

    National Oil Corp. in western Libya warned traders against loading “illicit” cargoes of oil at Hariga port in the eastern part of the country amid claims by a competing organization that it’s arranging such sales.

    Six or seven foreign companies signed oil-purchase contracts from the port with people who “have no authority to sell Libyan oil,” the Tripoli-based NOC said in a statement, citing Ahmad Shawki, general manager for international marketing. It identified Loyd Capital and Netoil as among buyers attempting to load crude at Hariga. “The only authority legally empowered to sell Libyan crude oil is the National Oil Corporation, with its seat in Tripoli,” NOC said.

    Libya, which holds Africa’s largest proven oil reserves, split into two administrations late in 2014, one in the west and an internationally recognized government in the east. It’s now in the process of setting up a Government of National Accord. The NOC in the west is recognized by traders such as Glencore Plc and Vitol Group as the official marketer of Libyan oil. It also claims United Nations recognition.

    The eastern government set up a separate NOC administration and sent an official to OPEC meetings.

    “Tripoli isn’t internationally recognized and so they don’t have the power to say who is and isn’t authorized to sell crude,” Loyd Capital Management LP Chief Executive Officer Edward Loyd said Friday in a phone interview. Loyd plans to send oil to refiners in two “western-leaning governments,” and three shipping companies have agreed to lift crude for Loyd on condition that it provides necessary documentation, he said.

    Mustaffa Sanalla, chairman of the Tripoli NOC, said his organization is the one with UN recognition and potential buyers can get the situation clarified by their own governments’ Foreign Offices if in doubt. He cited two UN resolutions.

    One of those was resolution 2259, in December, which called for support to “parallel institutions” to halt in order to preserve the integrity of the National Oil Corp. and other government institutions. That amounts to support for the Western NOC, according to Sanalla. Libya is in the process of forming a Government of National Accord.

    The letter from NOC in Tripoli advised shipowners to “verify whether charterers’ contracts are legitimate, or run the risk of having their ships impounded.”
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    Diamond Offshore's profit beats on lower costs; div scrapped

    Diamond Offshore Drilling Inc (DO.N), one of the world's top five offshore rig contractors, reported a better-than-expected quarterly profit as cost cutting pays off, and the company said it was suspending its dividend to add to cost savings.

    A near-70 percent fall in crude oil prices since mid-2014 has pushed Diamond Offshore's oil and gas customers to lower spending and scale back drilling activity, forcing rig contractors to idle or even scrap rigs.

    The dividend suspension comes after the company scrapped a special dividend of 75 cents last February.

    The company, which initiated the special dividend in 2006, has paid a regular dividend of 12.5 cents per share every quarter since mid-2005.

    Suspending the quarterly cash dividend will help Diamond Offshore save about $69 million annually, the company said on Monday.

    "By conserving additional cash, we will have increased flexibility to manage the company through difficult market conditions and position ourselves for the eventual recovery in offshore drilling," Chief Executive Marc Edwards said in a statement.

    In a bid to simplify operations and reduce downtime, Diamond Offshore said it was transferring the maintenance and service of well-control equipment to General Electric Co's (GE.N) oil & gas unit.

    Under the 10-year service agreement, GE will buy the blowout preventer systems on four of Diamond Offshore's rigs located in the U.S. Gulf of Mexico for $210 million

    Loews Corp, which owns a majority stake in Diamond Offshore, swung to a loss in the fourth quarter.

    Loews, controlled by New York's wealthy Tisch family was hurt by a $499 million impairment charge at Diamond Offshore and lower revenue from its insurance business, CNA Financial Corp.

    Excluding the charge, Diamond Offshore's profit was 90 cents per share, above analysts' average estimate of 54 cents, according to Thomson Reuters I/B/E/S.

    The Houston-based company posted a net loss of $245.4 million, or $1.79 per share in the quarter ended Dec. 31, compared with a profit of $98.8 million, or 72 cents per share, a year earlier.

    Revenue fell about 18 percent to $555.6 million, while contract drilling expenses, excluding depreciation, fell by nearly 29 percent.

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    Iran considers stakes in refineries in other countries - Shana

    Iran holds a stake in a refinery project in Malaysia and is considering taking stakes in projects in five other countries, the managing director of the National Iranian Oil Engineering and Construction Company (NIOEC) was quoted as saying on Monday.

    Hamid Sharif Razi said the NIOEC holds a 30 percent stake in a 250,000 barrel a day refinery project in Malaysia, and was planning to take a 40 percent stake in a 300,000 barrel a day refinery in Indonesia, according to the Shana news agency.

    The NIOEC is also in talks with South Africa, Sierra Leone, Brazil and India, he said, adding the purpose of the projects was to guarantee Iranian crude exports and, if necessary, a source of product imports.
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    US Sen. Markey faults feds on natural gas export decision

    U.S. Sen. Edward Markey says a decision by the federal Department of Energy to allow the export of nearly a billion cubic feet a day of natural gas out of New England is misguided.

    The Massachusetts Democrat says the decision announced Friday will allow gas to be exported to Canada through the Maritimes and Northeast Pipeline where it will be exported overseas. The pipeline currently flows from Canada into New England.

    Markey says the ultimate goal of some natural gas pipeline proposals in New England is not to help local residents with expanded infrastructure but to use New England as a throughway to export U.S. natural gas to Canada and overseas markets.

    Markey has cited those export concerns as part of his opposition to the proposed Kinder Morgan gas pipeline.
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    World's Largest Energy Trader Sees a Decade of Low Oil Prices

    Oil prices will stay low for as long as 10 years as Chinese economic growth slows and the U.S. shale industry acts as a cap on any rally, according to the world’s largest independent oil-trading house.

    "It’s hard to see a dramatic price increase," Vitol Group BV Chief Executive Officer Ian Taylor told Bloomberg in an interview, saying prices were likely to bounce around a band with a mid-point of $50 a barrel for the next decade.

    "We really do imagine a band, and that band would probably naturally see a $40 to $60 type of band," he said. "I can see that band lasting for five to ten years. I think it’s fundamentally different."

    The lower boundary would imply little price recovery from where Brent crude, the global price benchmark, trades at about $35 a barrel. The upper limit would put prices back to the level of July 2015, when the oil industry was already taking measures to weather the crisis.

    The forecast, made as the oil trading community’s annual IP Week gathering starts in London on Monday, would mean oil-rich countries and the energy industry would face the longest stretch of low prices since the the 1986-1999 period, when crude mostly traded between $10 and $20 a barrel.

    Vitol trades more than five million barrels a day of crude and refined products -- enough to cover the needs of Germany, France and Spain together -- and its views are closely followed in the oil industry.

    Taylor, a 59-year-old trader-cum-executive who started his career at Royal Dutch Shell Plc in the late 1970s, said he was unsure whether prices have already bottomed out, as supply continued to out-pace demand, leading to ever higher global stockpiles. However, he said that prices were likely to recover somewhat in the second half of the year, toward $45 to $50 a barrel.

    For the foreseeable future, Taylor doubts the oil market would ever see the triple-digit prices that fattened the sovereign wealth funds of Middle East countries and propelled the valuations of companies such as Exxon Mobil Corp. and BP Plc.

    The problem is that "there is so much more supply" while the global economy is more efficient in consuming crude. On top of that, Iran is returning to the market and growth in emerging markets, the biggest engine of oil demand, is slowing.

    Taylor said there could be an agreement between OPEC and non-OPEC countries like Russia to cut production. "It’s probably slightly against, 60-40 against, but it’s a real possibility," he said,

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    Suncor Wins Over Majority of Canadian Oil Sands Shareholders

    Suncor Energy Ltd. said Canadian Oil Sands Ltd. shareholders holding more than two-thirds of the stock tendered their shares in a C$4.3 billion ($3.2 billion) takeover that will make the country’s biggest crude producer also the largest owner of the Syncrude project in northern Alberta.

    A total of 72.9 percent of shares were tendered, and the offer will be extended to Feb. 22 to allow those who didn’t have enough time to do so, Calgary-based Suncor said in a statement after the offer expired Friday.

    Suncor succeeded in winning over resistant Canadian Oil Sands management and shareholders after sweetening the offer last month, following a war of words between the companies over the fate of the Syncrude stake. Suncor made two offers before making a hostile bid in October and finally secured Canadian Oil Sands management’s green light for the takeover in January.

    “We’re pleased with the strong level of support from COS shareholders,” Chief Executive Officer Steve Williams said in Friday’s statement. Canadian Oil Sands officials couldn’t immediately be reached Friday evening.
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    U.S. oil drillers deepen cuts in seventh week of declines: Baker Hughes

    U.S. energy firms deepened their cuts in oil drilling rigs in the seventh week of declines to the lowest levels since March 2010, data showed on Friday, as they continue to cut spending due to the collapse in crude prices.

    Drillers removed 31 oil rigs in the week ended Feb. 5, the biggest cut since April last year, bringing the total rig count down to 467, oil services company Baker Hughes Inc said in its closely followed report.

    That compares with 1,140 oil rigs operating in same week a year ago. In 2015, drillers cut on average 18 rigs per week for a total of 963 oil rigs for the year, the biggest annual decline since at least 1988.

    Before this week, drillers have cut on average 10 rigs per week so far this year.

    The deepest cuts this week were seen in the most active state, Texas, where rigs declined by 19 to 262. This marks a decline to less than half the level seen in the state a year ago, when 654 rigs were active.

    The largest declines were seen in the Granite Wash formation, where rigs dropped by five to eight operating rigs, and the Eagle Ford, where four rigs were removed for a total of 60 rigs.

    But even as crude futures have remained low after by plunging some 70 percent over the past 18 months, analysts say that production cuts may not follow shortly.

    "Curtailed budgets have slowed investment which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons," said Robert Plummer, vice President of oil investment research at consultancy Wood Mackenzie, said in a report.

    The research found that aggressive cost cutting in the U.S. had enabled more of the shale plays to make money – and survive – at lower prices.

    "In the past year we have seen a significant lowering of production costs in the U.S., which has resulted in only 190,000 barrels per day being cash negative at a Brent price of $35," said Stewart Williams, vice president of upstream research at Wood Mackenzie, adding that "the majority" only become cash negative at Brent prices "well-below $30 per barrel."

    Other analysts have held that a recovery in drilling is needed to staunch rapid declines from shale wells.

    "Without a recovery in drilling, the fall in output will become severe given the relatively low recent pace of productivity gains," analysts at Standard Chartered said.

    "The shale oil output projections at current activity levels imply that drilling has to start to rise soon to keep the market from swinging too heavily into excess demand by the end of 2016," Standard Chartered said, noting, "This means getting prices back above $50 fairly quickly."

    U.S. crude oil production averaged about 9.4 million bpd in 2015 and was forecast to average 8.7 million bpd in 2016 and 8.5 million bpd in 2017, according to the latest U.S. Energy Information Administration's Short-Term Energy Outlook.

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    Iran's crude oil sales to Europe have reached above 300,000 bpd after sanctions: Shana

    Iranian Oil Minister Bijan Zanganeh said on Saturday that Iran's crude oil sales to Europe after the lifting of international sanctions on Tehran had already reached above 300,000 barrels per day (bpd), according to the ministry’s news agency.

    Iran's oil exports, which had peaked at more than 3 million barrels per day (bpd) in 2011, fell to a little more than 1 million bpd after tougher sanctions were imposed in 2012 because of its nuclear program.

    After the rubber-stamping of the nuclear deal with world powers last year, however, Tehran has ordered a 500,000 bpd increase in oil output.

    "Based on the contract signed between the National Iranian Oil Co and France's Total, it was agreed that Total will buy 160,000 bpd of crude oil from Iran to be delivered in Europe," Zanganeh was quoted as saying by news agency SHANA, adding that the contract would be finalised on Feb 16.

    Zanganeh also said Italy's Eni was interested in buying 100,000 bpd of crude oil from Iran and its representatives would visit Tehran in near future to discuss the contract.

    "Eni has voiced its interest in one of Iran's fields which will be treated like the agreement reached with Total," he said.

    Iran's oil minister said Italian refiner Saras was interested in buying 60,000 to 70,000 bpd of crude oil from Iran.

    Tehran is sweetening the terms it offers on oil development contracts to draw the interest of foreign investors deterred by sanctions and low crude prices, as its pragmatic president seeks to deliver on his promise of economic recovery.

    The new contracts, which include those in the upstream exploration and development sectors are expected to attract more than $40 billion in foreign investment.

    Iran has postponed a planned oil conference in London, which was due to have taken place in February to reveal its new contracts, until November. An Iranian official said "the U.S. urged Tehran to hold off" until a final nuclear deal was penned.
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    Saudi, Venezuela meeting on prices yields little

    A meeting between OPEC producers Saudi Arabia and Venezuela to discuss coordination on prices ended with few signs there would be steps taken to boost prices.

    Saudi Arabia's oil minister Ali al-Naimi talked about cooperation between Organisation of Petroleum Exporting Countries members and other oil producers to stabilise the global oil market with his Venezuelan counterpart on Sunday, but there was no agreement to hold an early meeting of suppliers.

    Venezuela's Oil Minister Eulogio Del Pino, who is on a tour of oil producers to lobby for action to prop up prices, said his meeting with Naimi was "productive."

    The prospect of a supply restraint helped oil prices rise from 12-year lows last month, even though there was widespread scepticism that a deal will happen.

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    International offshore rig count down by 72 units YoY

    The international offshore rig count for January 2016 was down both sequentially and year over year, according to a report by Baker Hughes, an oilfield services provider.

    The international offshore rig count for January 2016 was 242, down 8 from the 250 counted in December 2015, and down 72 from the 314 counted in January 2015.
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    CONSOL Energy announces reserves update

    During 2015, CONSOL Energy Inc. added 934 Bcfe (net to CONSOL) of proved reserves through extensions and discoveries. As of December 31, 2015, total proved reserves were 5.6 Tcfe, which included 583 Bcfe, or 10.3%, of oil, condensate, and liquids. Marcellus Shale reserves account for 369 Bcfe, or 14.4%, of these heavier hydrocarbons.

    CONSOL Energy replaced 284% of its 2015 production, when considering increases from extensions and discoveries of 934 Bcfe. Production in 2015 was 329 Bcfe (net to CONSOL).

    During 2015, drilling and completion costs incurred directly attributable to extensions and discoveries were $618.3 million. When divided by the extensions and discoveries of 934 Bcfe, this yields a drill bit finding and development cost of $0.66 per Mcfe, compared to $0.76 per Mcfe at year-end 2014.

    Future development costs for PUD reserves are estimated to be approximately $943 million, or $0.48 per Mcfe.

    Total net revisions are 1,790 Bcfe, which include negative price revisions of 3,159 Bcfe and net positive plan and other revisions of 1,369 Bcfe. The positive plan and other revisions are primarily driven by performance revisions resulting from CONSOL's success in reducing costs, continued improvements in type curves and EURs in the Marcellus, and focusing on developing higher internal rate of return projects across the company. Approximately 2,200 Bcfe of negative revisions included in price revisions and plan and other revisions have been removed from CONSOL's 5-year development plan.

    Proved developed reserves of 3,697 Bcfe in 2015 were 16% higher than 2014 and comprised 66% of total proved reserves, compared to 47% in 2014. Proved undeveloped reserves (PUDs) were 1,946 Bcfe at December 31, 2015, or 34% of total proved reserves, compared to 53% at year-end 2014. This reflects consistent booking of proved undeveloped reserves in 2015, as a result of the company's continued success in the Marcellus Shale and increased activity in the dry Utica. PUDs at year-end 2015 represent 78% of the total wells the company expects to drill over the next five years.

    In the Marcellus Shale CONSOL Energy and its joint venture (JV) partner turned in line 81 gross wells with an average completed lateral length of approximately 7,600 feet and expected ultimate recoveries (EUR) averaging approximately 2 Bcfe per thousand feet of completed lateral. Max 24-hour production rates were as high as 19 MMcf per day, with 31 wells peaking at rates greater than 10 MMcf per day and 12 wells peaking at rates greater than 15 MMcf per day. As of December 31, 2015, the Marcellus Shale proved reserves were 2,573 Bcfe, which included 1,689 Bcfe of proved developed reserves.

    In the Utica Shale, during 2015 CONSOL Energy and its JV partner turned in line 32 gross wells with an average completed lateral length of approximately 7,600 feet and EURs ranging up to 3 Bcfe per thousand feet of completed lateral. In the Dry Utica Shale, four 100% CONSOL-owned wells peaked at over 20 MMcf per day with the Westmoreland County, PA Gaut 4I testing at a 24-hour flow rate of 61 MMcf per day and the Monroe County, Ohio Switz 6D testing at a 24-hour flow rate in excess of 44 MMcf per day. In 2015, CONSOL booked 876 Bcfe of Utica PUDs, which is an increase of 262% from the 334 Bcfe booked during 2014 and includes 523 Bcfe of offset Dry Utica PUDs in Monroe County, Ohio, due to successful drilling results and cost reductions.

    As of December 31, 2015, CONSOL Energy has total proved, probable, and possible reserves (also known as '3P reserves') of 38.3 Tcfe, which is an increase of 1.7 Tcfe, or 5%, in 3P reserves from the 36.6 Tcfe reported at year-end 2014. The increase in 3P reserves is primarily attributed to more certainty in the success of the Ohio Utica Shale, as well as continued success and optimization in the Marcellus Shale. The company has had strong initial success in the Pennsylvania dry Utica Shale, but it is still early in the play and reserve bookings are currently limited to one PDP well in the 2015 reserve report. The company continues testing Upper Devonian and dry Utica potential in Pennsylvania, Ohio, and West Virginia and believes that these areas will provide additional opportunities for CONSOL's proved reserves over time. The company's 3P reserves have been determined in accordance with the guidelines of the Society of Petroleum Engineers Petroleum Resources Management System.

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    Loss-making oil fields unlikely to be shut willingly: Wood Mackenzie

    Even as millions of barrels of oil are pumped at a loss at current prices, only a fraction of the production has been shut, industry research group Wood Mackenzie said on Friday.

    The apparent financial resilience of some producers could delay a recovery in the oil market that has seen an oversupply of 2 million barrels per day (bpd) push prices down by some 70 percent over the past 18 months.

    "Curtailed budgets have slowed investment which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons," said Robert Plummer, Wood Mackenzie's vice president of investment research.

    Just 100,000 bpd out of the 96.1 million bpd of oil pumped worldwide have been closed so far since the price plunge, most of it in Canada's oil sands, conventional U.S. projects and aging fields in Britain's North Sea, according to the research.

    The group's analysis showed that 3.4 million bpd of oil pumped now, 3.5 percent of worldwide production, is "cash negative" at Brent prices of $35 per barrel. Brent was trading at $34.60 per barrel on Friday morning, meaning selling this oil currently costs more than it takes to get the barrels out of the ground.

    But the hope of a rebound could keep even these from closing.

    "Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices," Plummer said.

    The bulk of the most expensive to produce oil is in Canada, where 2.2 million bpd is "cash negative" at current prices, most of it in oil sands and small conventional wells. An additional 230,000 bpd in is Venezuela's heavy oil fields, and 220,000 bpd is in the United Kingdom.

    Those operators, Wood Mackenzie said, were likely to store their oil to sell later, only shutting fields if mechanical or maintenance problems required investments they "can't rationalize" at current prices.

    In the United States the research found that aggressive cost cutting had enabled more of the shale plays to make money – and survive – at lower prices.

    "In the past year we have seen a significant lowering of production costs in the U.S., which has resulted in only 190,000 bpd being cash negative at a Brent price of $35," said Stewart Williams, vice president of upstream research at Wood Mackenzie, adding that "the majority" only become cash negative at Brent prices "well-below $30 per barrel."

    Wood Mackenzie currently forecasts Brent prices to average $41 per barrel in 2016.

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    After rapid growth, U.S. energy MLPs running out of road

    Investment vehicles that funneled more than $100 billion into U.S. pipelines, storage and other facilities during the shale boom now face an existential crisis after oil tumbled so low that it upended assumptions about risks and returns they offer.

    Those tax-protected structures were the Holy Grail of energy investing during the upswing, combining hefty payouts made possible by fast growing energy bloodstream with some protection against oil's ups and downs offered by the "midstream" segment.

    The collapse in stock prices of such master limited partnerships as Plains All American and Energy Transfer Partners shows such protection proved illusory once global oil prices reached depths that began threatening survival of their customers - oil and gas producers.

    A sharp selloff at the start of the year left crude prices hovering around $30 per barrel, below break-even levels for most drillers, fuelling expectations that many may seek protection from creditors this year.

    "That means they will have an opportunity to renegotiate or cancel many of the long term contracts they've signed with midstream players," said John Castellano, of Chicago-based AlixPartners. "I think that is the next shoe to drop."

    The Alerian MLP Index, which includes 50 MLPs, more than doubled in value between the start of 2013 and September 2014 when shale oil production growth was peaking. It fell by more than a third in 2015, compared with a drop of just under 3 percent for the S&P index. (Graphic:

    Mutual and exchange traded funds' investment in MLPs fell to $3.4 billion last year from 16.1 billion in 2014, the lowest since 2010, according to Morningstar. (

    Described as the energy highway's toll takers, pipeline and storage companies get paid by shippers who move crude oil and refined products through their networks that include more than 12,000 miles (19,312 km)of new oil pipelines built since 2010.

    Many of them revived the three-decade old tax-beneficial MLP structure during the shale boom to exploit the surge in U.S. oil production. The current MLP legislation was signed into law in 1986 by Ronald Reagan as way to spur investment in energy infrastructure.


    MLPs do not pay corporate taxes and must pay out most of their profits to investors in dividend-style distributions, which until recently were growing as much as 8 percent a year. Yield-seeking investors often treat MLPs like fixed-income instruments, such as bonds, and many flee if a company is considering cutting or suspending its distribution.

    That was not a problem when U.S. oil output was rising: companies kept raising billions of dollars selling new shares to build fee-generating pipelines or terminals that kept distributions rising.

    When the oil rout began in mid-2014 and a slowdown in production followed, it called into question that model of brisk investment growth and rising payouts.

    "There's been a rapid build out of capacity and it kind of overshot the production growth," Plains All American CEO Greg Armstrong told investors in December.

    The latest leg down in the 19-month crude slide is also casting doubt over the perceived safety offered by so-called minimum volume commitments, where customers pay pipeline operators whether they move any oil or not.

    Such contracts may not amount to much if producers end up in a bankruptcy court fighting for their survival, says Ed Hirs, an energy economist at the University of Houston and advises investors to pay attention to what MLPs are funding.

    "If you were the last one to build a pipeline in the Bakken or the last guy to build a processing area in the Eagle Ford, it could be painful," Hirs says. "If your producer goes bankrupt, then the court can reject the contract."


    Since the sell-off made it harder for the pipeline operators to raise money by issuing new shares and the downturn made viable new projects scarce, many MLPs will have to sell assets, and cut investor payouts, analysts say. Some may even abandon the tax-friendly MLP structure to reduce the investor pressure to grow payouts, while others will not survive, they say.

    "History tells us that not everyone will make it through this cycle, at least not in their current form," Jim Teauge, CEO of Enterprise Partners, said on a Jan. 28 earnings call.

    Plains All American recently turned to private equity firms rather than the stock market to raise $1.5 billion in financing for capital projects already underway and to maintain its 70 cents per share distribution.

    Energy Transfer Partners $40 billion deal to buy William Cos is at risk after their stocks have taken a nosedive, falling by roughly 60 percent before recovering a bit.

    One strategy that most MLPs have adopted to maintain investor payouts is to slash capital spending. Williams Cos cut its 2016 spending plan by $1 billion, or nearly a third, while Kinder Morgan, which abandoned the MLP model in 2014 but remains a top pipeline operator, slashed its long term spending plans by $3.1 billion, including a $900 million cut this year.

    Brian Kessens, who helps manage a $13.2 billion MLP fund at Tortoise Capital Advisors, said reduced spending will slow the growth of investor payouts to 4-6 percent from 6 to 8 percent during the upswing.

    The sell-off, however, may have already pushed valuations low enough to attract private equity firms, according to Jay Hatfield, portfolio manager of New York-based InfraCap.

    "It's already happening," he says, noting a recent $350 million acquisition of TransMontaigne GP by private equity firm Arclight Capital. "They look at these trophy pipeline assets like they would look at real estate in New York City - a long term asset that delivers discounted cash flow."

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    Alternative Energy

    German power provider to use electric cars to stabilise the grid

    German green power provider Lichtblick has announced plans to incentivize the charging of electric vehicles at times of low power demand. In doing so, the firm also explains why this is not already happening.

    The idea is pretty straightforward: store power in batteries at night, when wind power production can be fairly high but demand is always at its lowest. Otherwise, people will come home from work and a plug in their cars around 6 or 7 PM, when power demand peaks. If that happens, electric mobility will destabilize the grid.

    Simple time-of-day rates would solve the problem, but German utilities don’t always offer them. And there is no requirement for owners of electric vehicles to have them (there probably should be).

    Now, Lichtblick aims to avail itself of an option in Section 14 a of the German Energy Management Act, which specifies that electric vehicles, heat pumps, and overnight electric heating systems can all function as “controllable consumption equipment.” In that case, the grid fee is reduced.

    The power provider estimates that a household’s power rate could be 30 percent lower in such cases, and the cost of charging electric vehicle could drop by “up to 200 euros annually.” According to the press release (in German), the project is currently being rolled out with “a number of test customers,” who will be able to charge their cars at lower rates between 9 PM and 6 PM.

    The business model is, however, still a blunt instrument; it does not truly reflect whether excess power is available or not. If the wind is not blowing at night, you still get the incentive, and if a record level of solar power is generated around noon time on a weekend (when demand is low), you have no incentive to charge. Germany still cannot get its head around truly flexible time-of-day rates. The mere mention of retail smart metering draws protest about data privacy.

    If the option exists in the law, why hasn’t anyone done this before? The answer is perhaps the most interesting part of the story. Lichtblick says the law does not specify rules for such agreements between power providers and grid operators.

    In practice, an energy provider like Lichtblick would have to negotiate complex agreements with each of the almost 900 distribution grid operators in the country towards offering inexpensive electricity for electric cars at private charging stations,” the press release explains, adding that “the tremendous amount of work involved would outweigh the cost savings.”

    Germany is now considering upfront purchase price bonuses for electric vehicles, a policy that is pursued in numerous other countries as well, but the German public and numerous German experts remain critical of the policy, pointing out that only the rich would benefit from the bonus as long as electric cars cost twice as much as the new vehicles most people can afford. Furthermore, electric cars are still cars; true progress will come from walkable cities with excellent bike paths.

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    SunEdison is being sued by Latin America Power Holding B.V.

    Solar firm SunEdison is getting punished for the second day in a row.

    The stock is down 10% on the news that the company is being sued by Latin America Power Holding B.V. for not completing a $733 million buyout, according to the WSJ.

    LAPH shareholders want a New York judge to freeze $150 million of the company's assets.

    From WSJ:

    In court papers filed in New York Supreme Court Wednesday, the Latin America Power investors say SunEdison, which has suffered a “stunning financial collapse” in its stock price, is “teetering on the edge of bankruptcy,” and has allegedly said it would transfer assets away.

    This is the last thing SunEdison needs. The stock started falling in July, when its attempt to acquire solar firm Vivint revealed to investors that the company may not have as much cash as they thought. The stock has fallen 90% in a year.

    SunEdison is also dealing with legal action brought by billionaire investor David Tepper, of Appaloosa Managment. He has a stake in TerraForm Power, one of two of SunEdison's sister company's called yieldcos. Yieldcos act as utilities that manage and collect fees from the projects SunEdison builds.

    According to Tepper, the Vivint deal would force TerraForm Power to purchase low grade assets.
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    SolarCity's fund raising a concern amid slowing growth

    SolarCity Corp's shares plunged on Wednesday as investors worried about the company's ability to raise funds amid slowing growth in rooftop solar panel installations.

    Shares of SolarCity, backed by Tesla Motors CEO Elon Musk, slumped as much as 31 percent to their lowest in nearly three years, a day after the company said it installed fewer-than-expected solar systems for the second straight quarter.

    SolarCity lets homeowners avoid the hefty upfront cost of installing solar systems by allowing them to make low monthly payments for about 20 years.

    While this model has helped the company boost installations by eight-fold in three years, it has also increased costs and strained its ability to generate cash.

    The company has said it wants to slow its pace of growth to turn cash-flow positive by the end of the year.

    But the company's "hunger for new capital" remains a concern, J.P. Morgan analysts wrote in a note. The brokerage and eight others cut their price targets on SolarCity shares on Wednesday.

    SolarCity has been covering the cost of new installations by issuing asset-backed debt and through proceeds from tax equity deals, which allow investors to claim lucrative federal tax credits for solar energy systems.

    The cost of raising capital, however, is increasing.

    The yield on a $185 million private placement of the company's residential loans in January was higher than the company's previous offerings, indicating increased risk.

    SolarCity requires about $3.2 billion in capital this year, of which about $600 million will likely come from asset-backed securities and asset monetization, according to analysts at Roth Capital Partners. The brokerage cut its rating on the stock to "neutral" from "sell."

    The fall in installations is even more worrying, analysts said, because it comes despite an extension of U.S. tax credits for solar projects beyond 2016.

    "(The company's forecast) is even more regrettable as the overall fundamentals for the residential solar sector continue to remain pretty solid," said Portfolio manager Thiemo Lang of Zurich's RobecoSAM.

    "It might take time for them to regain trust. The current difficult stock markets just do not allow small misses."

    Up to Tuesday's close, SolarCity shares had more than halved in value in the past 12 months, partly because a steep decline in oil prices is weighing on investor interest in all renewable energy stocks.

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    Swansea tidal energy scheme faces 'disastrous setback' from government review

    The future of a revolutionary plan to generate electricity from a lagoon in Swansea Bay has been thrown into further doubt after the UK government unveiled plans for a six-month review of the wider tidal power sector.

    The promoters of the £1bn plan, Tidal Lagoon Power, said it welcomed any extra focus on this type of renewable energy but needed a final decision from ministers on its south Wales project within six weeks.

    The government has been in negotiations with Tidal Lagoon Power for more than a year and has repeatedly failed to meet company expectations about when it would agree a final subsidy necessary to make the project commercial.

    A Department of Energy and Climate Change spokeswoman said talks would continue with Tidal Lagoon Power but there would be no final decision on Swansea Bay aid till the review ended in the autumn.

    Energy minister Lord Bourne argued that government still needed to make sure that tidal power was in the interest of the country and household energy consumers.

    “Tidal lagoons on this scale are an exciting, but as yet an untested technology. I want to better understand whether tidal lagoons can be cost-effective, and what their impact on bills will be - both today and in the longer term.
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    Obama vows to press ahead on Clean Power Plan after setback

    The administration of President Barack Obama is vowing to press ahead with efforts to curtail greenhouse gas emissions after a divided Supreme Court put his signature plan to address climate change on hold until after legal challenges are resolved.

    Tuesday’s surprising move by the court is a blow to Obama and a victory for the coalition of 27 mostly Republican-led states and industry opponents, who call the regulations “an unprecedented power grab.”

    By issuing the temporary freeze, a 5-4 majority of the justices signaled that opponents made strong arguments against the rules. The high court’s four liberal justices said they would have denied the request for delay.

    The administration’s plan aims to stave off the worst predicted impacts of climate change by reducing carbon dioxide emissions at existing power plants by about one-third by 2030.

    White House spokesman Josh Earnest said the administration’s plan is based on a strong legal and technical foundation, and gives the states time to develop cost-effective plans to reduce emissions. He also said the administration will continue to “take aggressive steps to make forward progress to reduce carbon emissions.”

    A federal appeals court in Washington last month refused to put the plan on hold. That lower court is not likely to issue a ruling on the legality of the plan until months after it hears oral arguments begin on June 2.

    Any decision will likely be appealed to the Supreme Court, meaning resolution of the legal fight is not likely to happen until after Obama leaves office.

    Compliance with the new rules isn’t required until 2022, but states must submit their plans to the Environmental Protection Administration by September or seek an extension.

    Many states opposing the plan depend on economic activity tied to such fossil fuels as coal, oil and gas. They argued that the plan oversteps federal authority to restrict carbon emissions, and that electricity providers would have to spend billions of dollars to begin complying with a rule that might end up being overturned.

    Attorney General Patrick Morrisey of West Virginia, whose coal-dependent state is helping lead the legal fight, hailed the court’s decision.

    “We are thrilled that the Supreme Court realized the rule’s immediate impact and froze its implementation, protecting workers and saving countless dollars as our fight against its legality continues,” Morrisey said.

    Implementation of the rules is considered essential to the United States meeting emissions-reduction targets in a global climate agreement signed in Paris last month. The Obama administration and environmental groups also say the plan will spur new clean-energy jobs.
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    Gamesa, Siemens negotiating final terms of wind merger: sources

    German engineering group Siemens (SIEGn.DE) and Spanish renewable energy group Gamesa (GAM.MC) are in final negotiations on a deal to merge their wind power assets, two sources familiar with the situation told Reuters on Wednesday.

    "They are all sitting together in Madrid at the moment," one of the sources said. "The deal is imminent. The enterprise value of the joint venture is close to 10 billion euros ($11 billion)."

    The deal could create a major industry player which would overtake Denmark's Vestas (VWS.CO) to become the world's biggest wind farm manufacturer by market share, present in both the mature North American and European markets and fast-growing markets like India, Mexico and Brazil.

    Siemens is dominant in the renewable offshore market but relatively weak onshore and has struggled to make wind power profitable.

    Gamesa is strong in emerging markets, notably Latin America, where it expanded when the Spanish government cut subsidies to clean energy producers in 2013.

    The Spanish turbine maker expects double-digit sales growth through 2017, when it hopes to sell 3,500-3,800 MW of capacity, up from an estimated 3,100 MW in 2015, its chairman Ignacio Martin told Reuters in November.

    A Siemens-Gamesa deal would be the latest in a string of mergers in the wind industry. Having weathered years of overcapacity and losses, it is now thriving as demand for carbon-free electricity increases.

    German turbine maker Nordex said in October it was buying the wind power business of Spain's Acciona (ANA.MC) for 785 million ($857 million).

    Market leader Vestas started the consolidation trend late in 2013, when it teamed up with Japan's Mitsubishi Heavy Industries (7011.T) to build offshore wind turbines, a capital-intensive industry with long lead times that favors companies with strong balance sheets.

    Gamesa had already partnered with France's Areva to build offshore wind turbines, which would give the new Siemens-Gamesa venture a foot in the nascent French market.
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    SolarCity posts profit as panel installations rise

    Residential solar panel installer SolarCity Corp reported a quarterly profit, compared with a loss a year earlier, driven by higher panel installations.

    SolarCity, which counts Tesla Motors Inc CEO Elon Musk among its investors, said net earnings attributable to its shareholders was $4.6 million, or 4 cents per share, in the fourth quarter ended Dec. 31, from a loss of $3.6 million, or 4 cents per share, a year earlier. (

    Revenue jumped 61 percent to $115.5 million.
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    Vestas record order intake points to strong 2016

    Denmark's Vestas beat forecasts with record orders for new wind turbines last year, signalling continued strong demand for renewable energy despite a plunge in fossil fuel prices.

    Hit by overcapacity and the withdrawal of some government subsidies during the global economic downturn, big wind turbine makers are now benefiting from a new focus on renewable energy generation, encouraged by the Paris global climate summit in December, as well as the extension of a key U.S. tax credit.

    Vestas, the world's biggest wind turbine maker, said on Tuesday it received orders to build turbines with a total capacity of 8,943 megawatts (MW) last year, beating its previous record of 8,673 MW in 2010 and more than the 8,639 MW expected by analysts in a Reuters poll.

    The strong order intake prompted the company to announce higher-than-expected financial guidance for 2016.

    Vestas said it expected sales to rise to at least 9 billion euros ($10.1 billion) from 8.42 billion last year, and its operating profit margin before special items to grow to at least 11 percent from 10.2 percent. Analysts had expected 2016 revenues of about 8.65 billion euros.

    "We have a fairly good insight into the order situation and the order backlog that we need to execute during 2016," chief executive Anders Runevad told Reuters.

    Vestas shares jumped by more than 10 percent in early trade. At 0913 GMT, they were up 7.8 percent at 405.20 Danish crowns, the biggest rise by a European blue-chip stock.

    "Guidance showed what we had hoped for, but did not dare to believe in. 2016 will be a very strong year," analyst Michael Friis Jorgensen from Alm. Brand Bank said.

    Fourth-quarter operating profit before special items rose to 404 million euros from 252 million a year earlier and well above the 374 million expected by analysts.
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    Uranium producer Cameco reports quarterly loss

    Canadian uranium producer Cameco Corp reported a quarterly loss, hurt by a higher impairment charge and weakness in the Canadian dollar and forecast a fall in uranium sales for 2016.

    The company expects 2016 uranium sales to fall up to 5 percent compared with 2015.

    "We are still waiting on a market recovery that was expected to come sooner," Chief Executive Tim Gitzel said in a statement.

    Cameco's uranium sales rose to 11.2 million pounds in the fourth quarter compared with 10.7 million pounds a year earlier. Average realized prices fell 8 percent to $46.36 per pound.

    The company reported a net loss of C$10 million ($7.19 million), or 3 Canadian cents per share, attributable to shareholders for the fourth quarter ended Dec. 31. Cameco had a profit of C$73 million, or 18 Canadian cents per share, in the year-earlier quarter.

    The company took an impairment charge of $210 million related to the Rabbit Lake operation in the fourth quarter compared with $131 million a year earlier.

    Excluding items, the company earned 38 Canadian cents per share.

    Revenue rose 9.7 percent to C$975 million.

    Canada’s top uranium producer has a significant new discovery nearby to one of its largest existing mines.

    Cameco Corporation revealed in its quarterly MDA filing on SEDAR Friday initial figures for the Fox Lake deposit at the Read Lake project in Saskatchewan’s Athabasca Basin, which has seen continuous drilling since 2008.

    “… first time reporting for the Fox Lake deposit, on the Read Lake property near McArthur River, adding 53 million pounds U3O8 to inferred resources …”

    Cameco’s interest in the project is 78%, meaning Fox Lake is roughly 68 million pounds U3O8 overall. This is based on about 387,000 tonnes at 8% U3O8.

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    Mosaic results, looks for bargain buys as fertilizer sector slumps

    U.S. fertilizer company Mosaic Co (MOS.N), grappling with falling prices and profits, is looking for acquisitions that could be bargain-priced in a weak commodity sector.

    The world's largest producer of finished phosphate products on Thursday forecast lower selling prices for potash and phosphate in the current quarter. The Plymouth, Minnesota-based company also reported fourth-quarter profit that fell less than expected, and announced a $75 million share repurchase program.

    Chief Executive Joc O'Rourke said the company is interested in acquisitions related to either potash or phosphate, but would weigh any opportunities against the benefits of further repurchases of its stock, which has fallen about 50 percent over the past year.

    "The down parts of the (commodity) cycle do present opportunities," Chief Financial Officer Rich Mack said on a call with analysts. "If there is something that is extraordinarily compelling, it's something that we could act on."

    Fertilizer producers' profits have been hit by falling prices, largely due to weak currencies in countries such as Brazil and low grain prices. Falling currency values against the U.S. dollar have lowered production costs 17 percent in Canada, where Mosaic's largest potash mines are located, but the savings amount to 41 percent in Belarus, where potash rival Belaruskali operates, Mosaic said.

    It expects phosphate prices to fall as much as 14.6 percent to $350 per ton in the current quarter and potash prices to fall as much as 21 percent.

    Mosaic forecast global phosphate shipments in 2016 of 65 million to 67 million tonnes, up from 64.4 million last year, according to BMO Nesbitt Burns. Potash shipments look slightly lower this year at 58 million to 60 million tonnes, down from 60.7 million in 2015.

    The company said last week that it would cut output of phosphates by up to 400,000 tonnes in the first quarter, due to weak demand.

    Adjusted earnings per share was 53 cents, compared with average analysts' estimates of 44 cents per share, according to Thomson Reuters I/B/E/S.

    Fourth-quarter net earnings fell to $155 million, or 44 cents per share, in the fourth quarter ended Dec. 31, from $360.7 million, or 97 cents per share, a year earlier.

    Net sales fell 9 percent to $2.16 billion.
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    Agrium's forecast disappoints

    Agrium Inc , a Canadian fertilizer and farm products retailer, joined rival Potash Corp of Saskatchewan Inc in forecasting a weaker-than-expected 2016 profit, as prices for crop nutrients remain weak.

    Agrium's Toronto-listed shares fell as much as 5.2 percent to C$110.89, its lowest in a year, as investors ignored a better-than-expected quarterly profit.

    The company, which sells seed, fertilizers and chemicals directly to farmers in North America, said it expects to earn $5.50-$7.00 per share in 2016, slightly below analysts' average estimate of $7.01, according to Thomson Reuters I/B/E/S.

    Potash prices have fallen sharply over the past year, under pressure from bloated capacity, soft grain prices and weak currencies in major consumers such as India and Brazil.

    U.S. farmers are likely to increase total crop plantings in 2016, including 1 million to 3 million more acres of corn, a crop that is fertilizer-intensive, Agrium said on Tuesday. However, challenging macroeconomic conditions and weak crop prices pose risks for the year ahead, the company added.

    Rival Potash Corp last month forecast lower-than-expected profit for the year and slashed its dividend, due to tanking fertilizer prices.

    Agrium could be the only major fertilizer company to beat expectations for the fourth quarter, and the outlook shouldn't be surprising given recent commodity prices and Potash Corp's forecast, BMO analyst Joel Jackson wrote in a note.

    Agrium's fourth-quarter profit from continuing operations nearly tripled to $200 million, or $1.45 per share, helped by a multi-year cost-cutting program and rising production at its expanded Canadian potash mine.

    The producer of nitrogen, potash and phosphate fertilizers said its sales volumes rose in the fourth quarter ended Dec. 31, but weaker prices dragged down total sales.

    Sales fell 11 percent to $2.41 billion, missing analysts' estimate of $2.85 billion.

    Excluding items, profit was $1.52 per share, above analysts' average estimate of $1.38.
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    Bayer rejects EPA request to pull insecticide from U.S. market

    The agricultural unit of German chemicals company Bayer AG said on Friday it will fight a U.S. Environmental Protection Agency (EPA) request to pull one of its insecticides from the marketplace amid concerns that it could harm organisms in streams and ponds.

    Bayer CropScience will instead ask for an administrative law hearing from the EPA's Office of General Counsel to review the registration of flubendiamide, the active ingredient in Bayer's Belt pesticide.

    The registration, granted in 2008, was a limited-time conditional registration that could be canceled if additional studies found the chemical to be damaging, the EPA said in a statement.

    "EPA concluded that continued use of the product will result in unreasonable adverse effects on the environment," the agency said.

    Flubendiamide products are used to control yield-damaging moths and worms in more than 200 crops including almonds, oranges and soybeans.

    Bayer's own tests have found that the pesticide is toxic in high doses to invertebrates in river and pond sediment. The organisms can be an important food source for fish.

    However, the company's field studies showed that doses in waters near agricultural fields never reached high enough levels to be toxic.

    But the EPA's risk assessment disagreed so the agency sent Bayer the request on Jan. 29.

    "We are disappointed the EPA places so much trust on computer modeling and predictive capabilities when real-world monitoring shows no evidence of concern after seven years of safe use," said Peter Coody, Bayer vice president of environmental safety.

    The EPA said after Bayer's refusal that it will issue a formal request to cancel the pesticide's registration. After a comment period mandated by U.S. pesticide regulation law, Bayer will ask for a formal hearing to determine the pesticide's fate.

    Belt will remain on the market throughout the process.

    Bayer reported 471 million euros ($527.5 million) in insecticide sales globally in its most recent quarter. The company declined to provide sales details of Belt.

    The EPA's move follows the agency's unsuccessful attempt to withdraw its registration for Dow Chemical Co's Enlist Duo weed killer.

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    Precious Metals

    Gold miner Kinross forecasts brighter 2016 production, costs

    Kinross Gold Corp, squeezed by slumping prices and production declines, expects to shake off a money-losing 2015 with record output and lower costs this year, the world's fifth-largest producer by output said on Wednesday.

    Chief Executive Paul Rollinson said the Toronto-based miner is "running a tight ship" that reflects a disciplined approach to capital, operations and acquisitions.

    Kinross expects record 2016 production of 2.7 million to 2.9 million ounces of equivalent gold at an all-in sustaining cost of $890 to $990 an ounce. Capital expenditure is forecast at approximately $595 million.

    In 2015, the company produced 2.59 million ounces, at the high end of its forecast of 2.5 million to 2.6 million ounces, at an all-in cost of $975 per ounce.

    Rollinson said he's not relying on a recent rally in gold prices to continue. "The gold price has been great in the last couple of weeks, but it's a volatile world out there," he said in an interview.

    Gold XAU= on Wednesday hovered below a 7-1/2 month high of $1,200 an ounce, touched on Monday, as investor appetite for safe-haven assets are fed by sliding stock markets and global economic worries. The spot price on Wednesday was $1,196.91 an ounce.

    Kinross continues to mull a two-step expansion of its Mauritania mine, Tasiast, and expects to report in late March the costs for a second phase of development, Rollinson said.

    The company estimated proven and probable mineral reserves at 34 million ounces of gold at year-end, and said additions largely offset depletion during the year.

    In its fourth quarter, Kinross recorded an adjusted loss of $68.8 million, or 6 cents a share, compared with an adjusted loss of $6 million, or 1 cent a share, in the same period the previous year.

    Analysts had expected an adjusted loss of 4.8 cents a share, according to Thomson Reuters I/B/E/S.

    During the quarter, Kinross produced 623,716 equivalent ounces of gold at its 10 mines in North and South America, Africa and Russia, at an all-in sustaining cost of $991 per ounce.

    That was down from 672,051 ounces in the same period the previous year due to low rainfall at its Paracatu mine in Brazil, when production costs were $1,006.
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    Lonmin CEO says will not shy away from merger or takeover

    Lonmin will not "shy away" from a merger or takeover but for now the company was focused on its plan to survive tough market conditions, its chief executive said on Tuesday.

    "We are continuously looking at options to maximise value for our shareholders and all other stakeholders. Should it be of benefit to our shareholders and stakeholders it's not something we would shy away from," CEO Ben Magara told Reuters in an interview at a mining conference in Cape Town.

    Magara said the company was for now focused turning cash positive in a low price environment - which involves closing high-cost shaft and cutting jobs.

    "That's what I am worrying about. The investors have given us money and we must deliver. Investors are asking if we are going to deliver on this," Magara said.

    Hurt by a prolonged 2014 strike, rising costs and a plunging platinum price, Lonmin raised $400 million through a cash call in December.

    "I have no doubt that there will be pressure on us when we finally start making money. Will we go and put it in a project first or will we pay investors?" Magara said.

    "I think it's important that investors will get their money back first. They deserve it."

    Lonmin has said it will continue to review its services and reduce costs, mainly through cutting jobs, as the slide in the price of its main commodity bites further.

    The price of platinum has fallen about 30 percent year-on-year, forcing miners to sell assets and cut production and jobs. Around two-thirds of the industry, whose mines were damaged by the five-month strike in 2014, are making losses.
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    Ramelius forecasts surge in profits

    Gold miner Ramelius Resources on Tuesday flagged an expected half-year pretax profit of A$28.7-million for the interim period ended December 31. This compared with a pretax net profit of A$5.7-million for the previous corresponding period.

    “The half-year financial results support the company’s claims of continued operational improvement, with a steadily performing Mt Magnet gold mine, combined nicely with high-margin production from the Kathleen Valley operation near Leinster,” said Ramelius MD Mark Zeptner. “It is also particularly pleasing that the company has been able to complete the upfront capital development of the Vivien project, both without drawing down on the finance facility and increasing our cash balance all the while.” 

    Ramelius was spending some A$20-million to build Vivien into a mine delivering about 109 000 oz of gold over 30 months. Meanwhile, Ramelius on Tuesday also reported that the company had forward sold an additional 60 000 oz of gold at a flat forward price of A$1 600/oz. 

    Total forward gold sales now represented some 50% of production, compared with the 40% previously, and extended over a two-year period until December 2017. “The additional forward sales are in line with our risk management strategy by delivering a portion of cash flow certainty, while retaining exposure to gold price upside,” said Zeptner. 

    He added that locking in a A$1 600/oz forward sales price secured a robust operating margin at a level that had only been seen a handful of times over the past few years.
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    Tahoe Resources gets Ontario gold mines with Lake Shore buy

    Miner Tahoe Resources Inc said it would buy Canada's Lake Shore Gold Corp for about C$751 million ($539.63 million) to add low-cost gold mines in Ontario to its portfolio.

    Lake Shore Gold operates Timmins West and Bell Creek mines in Timmins, Ontario, while Tahoe has a mine in Guatemala and two mines in Peru.

    "The combination with Lake Shore Gold enhances Tahoe's position as the new leader in precious metals by adding another low-cost operation in Timmins, one of the most prolific gold camps in the world," Tahoe Executive Chairman Kevin McArthur said in a statement.

    Tahoe will pay 0.1467 of its stock for each Lake Shore Gold share. The offer works out to C$1.71, representing a 15 percent premium to Lake Shore shares, based on both stocks' Friday close.

    Lake Shore had 439.23 million shares outstanding as of Sept 30, 2015, according to a regulatory filing.

    The deal has an implied equity value of C$945 million, assuming the conversion of some debentures, the companies said.

    Tahoe is expected to own about 74 percent of the combined company after the deal closes - likely in early April 2016 - while Lake Shore Gold shareholders will get 26 percent.
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    Base Metals

    Olympic Dam to beat 2016 copper target – BHP

    Mining major BHP Billiton is on track to exceed its 2016 financial year copper production target of 200 000 t at the Olympic Dam mine, in South Australia. 

    Asset president Jacqui McGill told the American Chamber of Commerce on Friday that copper production during the December quarter had increased by 37%, compared with the previous corresponding period, to a record 112 000 t. “The grade of our copper ore has also increased by 35% in the December 2015 quarter, which is in line with the mine plan. “Again, this is an important point to note; we are now regularly delivering production that meets our plans, which has not happened consistently for some time.” McGill noted that the changes at the Olympic Dam operations were necessary, given the position the mine was in only a year ago. 

    “The mood was sombre, and the site wasn’t operating at full capacity due to a failure our of Svedala mill, which is an important part of our production process. Our teams were disengaged, we weren’t profitable and we had a bleak outlook.” “We needed to act to secure the future of Olympic Dam, and that meant drastic action.”

    The “drastic action” included changes to the underground mine, which reduced risk to miners, and a restructure in the organisational structure in the mine, which led to 550 redundancies. During this time, the mine operated at full capacity, which McGill said enabled BHP to build inventory, while the miner also took the opportunity to do significant maintenance on the surface plant. 

    McGill noted that with all of these changes implemented, and copper production forecast seemingly sunny, BHP was also continuing to target a position in the first segment of the cost curve. “This is incredibly important as we operate in a global market and must be competitive on that basis, not simply within Australia. 

    We’ll push towards this through low-risk, capital-efficient underground expansions, including accessing the Southern mine area.” McGill said that over the next five years, BHP would construct about 120 km of new tunnels at Olympic Dam, while working to reset its cost base through higher volumes and greater efficiencies, reducing unit cash costs by 34% in 2016 and by 48% in 2017, taking unit costs to $1/lb.
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    Oz Minerals’ 2015 profit surges on record output

    Copper/gold miner Oz Minerals reported a 168% increase in its after-tax net profit for the year ended December 31, on the back of record copper production of 130 305 t. 

    After-tax net profit surged to A$130.2-million during the 2015 financial year, compared with A$30.3-million reported in the previous year. Revenue increased from A$831-million in 2014 to A$879.4-million, while operating cash flows doubled from A$208.3-million to A$429.8-million during the same period. 

    “Prominent Hill is proving itself to be a strong foundation asset,” said Oz Minerals MD and CEO Andrew Cole. “Production is at record levels and by maintaining a sharp focus on costs, we’ve managed to increase our annual profit by over 160% despite the drop in commodity prices.” Cole said that for Oz Minerals, 2015 had proven a year of transition where the company’s strategy helped to chart a clear course for significant operational and financial success. 

    “We still have lots to do, but I think we have a great asset in Prominent Hill that puts us in the enviable position to explore internal and external growth opportunities on the path to delivering shareholder value. “We’ve made a strong start to the year with the results of our gold trial and a decision to expand the underground at Prominent Hill by building a second decline. 

    With an announcement on Carrapateena due before the end of the month, we expect that the momentum will continue to build,” Cole said. Oz Minerals is spending about A$12-million to expand the underground capacity at Prominent Hill, linking the existing underground development with the openpit operation. The second decline is expected to increase underground capacity by about 30%, to between 3.5-million and 4-million tonnes a year. 

    Looking ahead, Cole expected 2016 to be another strong year in terms of production, with Oz Minerals increasing its copper production guidance from between 105 000 t and 115 000 t, to between 115 000 t and 125 000 t, while gold production has been increased from the previous estimate of between 100 000 oz and 110 000 oz, to between 125 000 oz and 135 000 oz.
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    Aurubis confirms first-quarter earnings drop; stands by outlook

    Aurubis AG, Europe's biggest copper smelter, on Wednesday said first-quarter earnings fell, coming in below market expectations, after poor copper scrap availability and low precious metals output hit performance.

    However, Aurubis is still standing by its full-year earnings guidance from December. The company had made an advanced announcement of quarterly results on Jan. 27.

    Aurubis on Wednesday confirmed that its operating pretax profit (EBT) fell by 8 percent to 36 million euros ($40.64 million) for the quarter to the end of December 2015. Analysts had expected EBT of 56 million euros.

    Copper prices tumbled to their lowest in 6 1/2 years on Jan. 15, pressured by sliding oil prices and losses in Chinese equity markets.

    Low copper prices mean that dealers collect less of the scrap Aurubis buys to process into new metal and the fees the company earns to process scrap metal are generally lower.

    "For the entire year, we still view our earnings forecast from December as realistic: while Aurubis' earnings will be significantly lower than the record earnings of the previous year, they will still be satisfactory in fiscal year 2015/16," Aurubis executive board member Erwin Faust said in a statement.

    Full-year performance is expected to be supported by firm fees for treating copper concentrates, while product demand is also expected to be good in the company's main European markets, it said.

    "We anticipate good treatment and refining charges for Aurubis until the end of the fiscal year," Aurubis said.

    Copper ore treatment and refining charges (TC/RCs) are paid by miners to smelters to refine concentrate into metal.

    Aurubis said in November that higher TC/RCs are expected in 2016 because of higher production by mines. When supplies of concentrates are large, ore owners have to offer higher fees to secure enough refining capacity.

    Support in the first quarter also came from the strength of the U.S. dollar, the currency in which treatment and refining charges and the premiums for newly produced copper cathodes are paid, it said.

    Aurubis said first-quarter cash flow was negative because a large amount of capital was tied up to build copper inventories ahead of the shutdown of its Pirdop smelter in Bulgaria from April to May. Those inventories will be reduced to a normal level after the shutdown and positively impact cash flows, it said.

    The copper scrap markets are expected to recover from the third quarter onwards, with a consequent recovery in refining fees for scrap metal, it said.
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    Indonesia mines ministry backs new Freeport copper export permit

    Indonesia's mining ministry on Tuesday recommended that Freeport McMoRan Inc receive a new six-month copper export permit, potentially ending a near two-week stoppage after the previous permit expired last month.

    Freeport was forced to halt overseas shipments from one of the world's biggest copper mines in Papua after the government demanded the U.S. mining giant first pay a $530 million deposit for a new smelter before a new export permit could be approved.

    A lengthy export stoppage would have hit Freeport's profits and denied the Indonesian government desperately needed revenue from one of its biggest taxpayers.

    "We issued a recommendation that Freeport receive an export permit," Bambang Gatot, the mining ministry's director general of coal and minerals, told reporters.

    The mining ministry recommendation will now be sent to the trade ministry, which has the power to issue export permits.

    Typically once the trade ministry receives a recommendation from the mining ministry, the renewal of an export permit would be a formality.

    Freeport Indonesia produces about 220,000 tonnes of copper ore from the mine per day. About a third usually goes to a domestic smelter at Gresik, with the rest exported as concentrate.

    Gatot told parliament the mining ministry supported the renewal of Freeport's export permit because of the miner's willingness to continue paying an export tax of 5 percent.

    Talks between the two sides over the $530 million bond were still ongoing.

    Indonesia wants the deposit as a guarantee that the Phoenix, Arizona-based company will complete construction of another local smelter. The amount would add to an estimated $80 million that Freeport set aside in July 2015 to obtain its current export permit.

    Clementino Lamury, a director for Freeport Indonesia, told parliament the company already had a contract with vendors on constructing the smelter and would abide by the agreed payment terms, despite government demands for the investment to be accelerated.

    Freeport CEO Richard Adkerson last month said the government's demand for a smelter deposit was "inconsistent" with an agreement reached between the two sides in mid-2014.

    According to that agreement, Freeport must sell the government a greater share of the Grasberg mine, and invest in domestic processing to win an extension of its mining contract beyond 2021.

    The U.S. mining giant wants to invest $18 billion to expand its operations at Grasberg, but is seeking government assurances first that it will get a contract extension.

    Freeport's long-held desire to continue mining in Indonesia beyond 2021 has been beset by controversy, including cabinet infighting, resignations and a major political scandal that led to the resignation of the parliamentary speaker.

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    Mining tech firm Outotec misses profit forecast, shares fall 20 percent

    Finnish mining technology company Outotec missed fourth-quarter earnings forecasts and warned that demand from miners would weaken further this year, sending its shares down 20 percent on Tuesday.

    It also proposed no annual dividend for the first time in its history since it was spun off from Outokumpu in 2006.

    Nordic mining gear companies are struggling as miners cut spending due to low metal prices and uncertainty over growth in top metals consumer China. In November, Outotec announced plans to cut 650 jobs.

    Its fourth-quarter adjusted operating profit fell 31 percent from a year earlier to 17.6 million euros ($19.8 million), missing analysts' average estimate of 24.5 million in a Reuters poll.

    Outotec, which builds plants, makes equipment and offers services for the metal and mineral processing industries, said it expected demand for its equipment to further contract this year, while services demand was expected to weaken as miners delay modernization and maintenance due to weak metals prices.

    Benchmark copper, for instance, fell more than 25 percent last year.

    It forecast a 2016 core operating profit margin of 2-5 percent, compared with 4.7 percent in 2015 and an average forecast of 6.0 percent in a Reuters poll.

    "This reflects the rather poor visibility on the market. Uncertainty is great," CEO Pertti Korhonen said.

    Analysts said the outlook was poor given the company's cost-cutting programme, and that Outotec was not balancing weakness in gear sales with its services business as well as its Nordic peers Metso and Atlas Copco.

    "Their service business seems to be more dependent on larger modernization projects, which are discretionary for the customers. These orders will fluctuate a lot from quarter to quarter," Pekka Spolander, analyst at OP Equities, said.

    Shares in Outotec fell as much as 20 percent on Tuesday, and were down 18 percent at 2.93 euros at 1206 GMT. The shares have more than halved in the last six months. Shares of Danish rival FlSmidth, due to post results this week, fell 3.5 percent.

    Outotec's largest owner, Finnish state investment fund Solidium, increased its stake in January to 14.9 percent, according to the company's shareholder register. It owned 11.4 percent a year earlier.

    Solidium, which aims to strengthen its long-term ownership in companies seen as nationally important, declined to comment. It has previously backstopped rights issues in other troubled companies such as Talvivaara and Outokumpu .

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    Leakage at Anglo American’s Los Bronces mine forces firm to halt grinding

    Grinding at Anglo American’s Los Bronces copper mine in Chile has been halted after the firm detected a leak in a pipe carrying ground ore mixed with water on Sunday evening.

    According to local newspaper La Tercera (in Spanish), the discharge was noticed on farmland outside the capital Santiago during a routine inspection of the pipe, which connects Anglo’s flagship mine with the Las Tortolas flotation plant.

    Anglo American said the pipe does not carry tailings from the mining process and that an investigation was underway. It also noted that water in the nearby river does is not for human consumption.

    Anglo American said the pipe does not carry tailings from the mining process, but only ground ore mixed with water.

    The company, however, will hire an external company to carry out sampling and determine whether any contamination was caused by the leakage.

    Last year, Chile's environment regulatorhit Anglo American with a $6.2 million fine, ordering the company to shut one of its waste dumps at the Los Bronces mine, as it said irreparable damage had been done to surrounding land.

    Production at Los Bronces, perched 3,500 meters high up in the Andes 65km north-east of Santiago, increased by 27% to 111,000 tonnes in 2015 driven by higher throughput, grades and recoveries. The mine’s output represents roughly 7% of the South American nation’s total annual copper production.

    Anglo owns 50.1% of the operation. Chilean state miner Codelco and Japanese trading houses Mitsui & Co. and Mitsubishi Corp. also have stakes in the complex.
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    Hindalco Industries likely to big report loss for Q3 - IIFL

    Infoline News Service reported that Hindalco Industries Ltd, one of the leading aluminium producers in India, will announce its financial results on February 9 for the third quarter ended December 31, 2015.

    IIFL forecasts that the company is likely to report a loss of INR 159 crore for Q3 FY16. IIFL expects net revenue to decline to INR 8,108 crore at 5.8% YoY and 9.2% QoQ. IFL expects EBIDTA margin at 7%, with a YoY fall of 3.7 bps.

    According to IIFL, for the non?ferrous space, volumes for most of the players would be higher on a YoY basis. Hindalco’s aluminium volumes would be strong on the back of higher output from new capacities.
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    Noranda Aluminum files for bankruptcy

    Noranda Aluminum Holding Corp, a producer of primary aluminium and rolled aluminium coils, filed for Chapter 11 bankruptcy protection on Monday and said it will evaluate its various business operations.

    The Franklin, Tennessee-based company said challenging market conditions for the aluminium industry and recent disruptions in its primary business operations led to the decision.

    Noranda listed both assets and liabilities in the range of $1 billion to $10 billion.

    The company and its subsidiaries also entered into an agreement in principle with its existing asset-based loan lenders for up to $130 million in debtor-in-possession (DIP)financing, wherein the company will remain in possession of property upon which creditors have an interest.

    Noranda said it has already received a commitment for up to $35 million in DIP financing.

    The company said it will use its cash from operations and the new financing to support business during the court-supervised process, if the plans are approved.

    Noranda will curtail production at its 253,000 tonne-per-year New Madrid, Missouri smelter if it cannot secure a more favourable price for electrical power, the company said last month.
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    Nickel drops to lowest since ’03

    Nickel fell to the lowest level in almost 13 years on concern that global production cuts are insufficient to counter faltering demand in China, the world’s biggest consumer. Copper and zinc declined.

    The metal used in stainless steel dropped as much as 3.2% to $7 900 a metric ton on the London Metal Exchange before trading at $8 125 by 2:54pm in Singapore. Copper lost 0.4% after a 1.2% drop on Friday. Markets in China are closed this week for the Lunar New Year holiday.

    China consumes more than 50% of the world’s nickel and the country is growing at the slowest pace in a generation as the government steers the economy away from heavy industry. The nation’s stainless steel production fell 7.2% to 1.49 million tons in December from a month earlier, data from Antaike Information Development Company show.

    Morgan Stanley and Standard Chartered have said large amounts of production are losing money, and Russia’s GMK Norilsk Nickel says global output needs to be reduced by as much as 30% to ease the surplus.

    “The fundamentals for nickel are still poor, with abundant supply coinciding with a continued weak demand outlook,” Gavin Wendt, founding director at MineLife in Sydney, said by e-mail.

    While the LME index of six metals has declined 1% this year, nickel has lost 7.9% and is the worst performer. The gauge had the biggest daily decline in almost four weeks on Friday as the dollar surged after US employment data showed a tightening labour market, which signalled increased chances of an interest rate rise.
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    UK scientists develop new method to find copper deposits

    English researchers at the University of Exeter have developed a new, inexpensive method to uncover copper deposits.

    Dr Ben Williamson, of the university’s Camborne School of Mines, and Dr Richard Herrington from the London Natural History Museum, worked together to develop the new technique, which they say could become a very cost-effective way of discovering porphyry-type copper deposits.

    These kinds of deposits provide around 75% of the world’s copper and a significant amount of molybdenum and gold. Porphyry-type copper deposits, which originally form at several kilometres depth below the Earth’s surface, above large magma chambers, are relatively rare, particularly the largest ones, which make sense to mine. In addition, most near-surface deposits have already been discovered.

    The project, funded by Anglo American, compared the chemical compositions of minerals from magmatic rocks that host porphyry deposits against those which are barren.

    That is why any new method to locate deeper deposits is of great interest to the mining industry.

    The project, funded by Anglo American (LON:AAL), compared the chemical compositions of minerals from magmatic rocks that host porphyry deposits against those which are barren.

    A case study was then undertaken of a major new porphyry discovery in Chile, to test their theory.

    The trial unveiled that the magma chamber below the porphyry undergoes discrete injections of water-rich melts or watery fluids, which improve its ability to transfer copper and other metals upwards to form a copper deposit.

    “This new method will add to the range of tools available to exploration companies to discover new porphyry copper deposits,” Williamson said. “Our findings also provide important insights into why some magmas are more likely to produce porphyry copper deposits than others.”
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    Nyrstar to wind down zinc marketing agreement with Noble

    Belgian zinc producer Nyrstar NV plans to wind down a marketing agreement with Noble Group at the end of the year and has agreed instead to provide zinc on a pre-paid basis to Trafigura, its main shareholder.

    Under the supply deal, Europe's largest zinc smelter will ship physical zinc to Trafigura over three years, in return for a prepayment of $150 million, Nyrstar Chief Executive Bill Scotting said in an interview with Bloomberg.

    A spokesman for Nyrstar confirmed the Bloomberg story.

    A spokeswoman for Trafigura also confirmed the $150 million prepayment, but declined to comment on whether the it would tender for Nyrstar's European marketing rights when the current contract, held by embattled Hong Kong based trading house Noble, expires at the end of the year.

    Since Trafigura built up its stake in Nyrstar to about 20 percent the Belgian firm has replaced its chief executive and chief financial officer and shifted its strategy away from its loss-making mining business.

    A spokesman for Noble said the company does not comment on trading arrangements. Nyrstar had appointed Deutsche Bank to arrange a 150-200 million euros pre-payment for a physical delivery of zinc in November.

    Noble won a hotly contested tender for the marketing contract with Nyrstar in 2013 to the smelter at the height of its push into metals and ahead of an expected shortfall in zinc supply.

    But instead the zinc market softened as China's economy slowed and demand for metals slumped at the same time Noble shares declined amid scrutiny of its accounting practices.

    Trafigura raised its stake in Nyrstar during this period, while Noble scaled back its metals business.

    "Now, Noble doesn't have the manpower and it doesn't have the financing capabilities to take that business on. It's also no longer strategic for them," said a person with knowledge of the Noble contract.

    Nyrstar said on Friday it would raise 274 million euros ($306.6 million), more than half of its current market capitalisation, in new shares to beef up its balance sheet. Shares tumbled 9 percent.

    Trafigura had said in November it would subscribe in any rights offering for up to a maximum of 125 million euros.

    Nyrstar this week posted an increase in 2015 core profit, boosted by a stronger dollar and an improved performance in its metal processing unit as it announced a formal sale process for its mining assets.

    It said it expected to produce 1 to 1.1 million tonnes of zinc in 2016, compared with 1.115 million tonnes in 2015.

    Reuters reported in October 2014 that Trafigura was considering lifting its stake in Nyrstar to tighten its grip on zinc supply.
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    Steel, Iron Ore and Coal

    Rio Tinto pushes ahead with Guinea megamine despite writedown

    Rio Tinto will seek financing for its massive Simandou iron-ore project in Guinea, despite writing down its value due to low commodity prices and funding uncertainties. The world's No. 2 miner on Thursday reported a net loss of $866-million last year, hammered in large part by a $1.1-billion writedown of the $20-billion Simandou project, considered the world's biggest untapped iron-ore deposit.

    But Rio Tinto, investors and advisers said this would not impede the hunt for funding or the timing of the project, which could have a major impact on Guinea's flagging economy. "This is just an accounting adjustment," said Rio Tinto's Alan Davies, president of the Simandou project. "Today's decision has no impact on the timing of the project." Simandou comprises an iron-ore mine in central Guinea, a 650 km (404 mile) railway and a deepwater port on the West African country's Atlantic Coast. 

    Its development already involves a number of international investors and developers. At full production, expected at around 100-million tonnes of iron-ore a year, Rio said the project will generate about $7.5-billion in revenues, according to a 2014 report. It would add $5.6-billion to Guinea's GDP, Rio said, making Guinea the fastest growing economy in the world. 

    Guinean President Alpha Conde is relying on the project as a boost for Guinea's finances. "The value of Simandou makes it an essential opportunity for investors," Guinea's ministry of mines and geology said in a statement. "The Guinean Government is fully confident in the success of the project." 

    Everything now depends on funding for the project, whose economics are less certain now that commodity prices are in a trough. Iron-ore prices are near multiyear lows, knocked by waning demand in China and a market glut. Rio said it will present a feasibility study in May, outlining the cost of the project and investors will then make a decision. Until then, the timing of the venture is unclear.

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    Queensland’s January coal exports at record

    Despite the falling commodity prices, Queensland coal exports during the month of January reached just over 19-million tonnes, which was a record for the month of January and an 8% improvement on the same period last year. 

    Queensland Resources Council (QRC) CEO Michael Roche said on Friday that the coal ports of Abbot Point, Dalrymple Bay, Hay Point and Gladstone all had their strongest ever January. “The latest export figures for January signify that Queensland regions are also the heavy lifters when it comes to royalty contributions. 

    The Queensland government will receive royalties on those 19-million tonnes, even though one in every three Queensland coal mines is operating at a loss. “It also illustrates that demand from Asia for Queensland’s high energy value, lower-emission coking and thermal coal remains strong.” Roche said that the Queensland coal industry’s ability to maintain this strong export performance was not unlimited, especially for those mines running at a loss. 

    “Some mines remain open only because their high fixed costs (for example rail and port charges) mean that, if they were to close, the losses could be even greater. This higher production allows mines to spread their fixed costs over more tonnes.” He added that if the Queensland government wanted to see this strong export performance and flow of royalties continue, it needed to work with industry on a comprehensive plan to deliver some breathing space.

     “In the absence of such a plan, our fear is that more mines will be forced to close.” The QRC earlier this week revealed that the Queensland resource sector employment fell by about 21 000 in the past two years, while nearly one-third of the state’s coal miners were operating at a loss in the current economic environment.
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    Brazil court freezes Vale, BHP, Samarco assets -report

     A judge in Brazil's state of Minas Gerais has frozen 470 million reais ($118 million) of assets owned by Vale SA and 1.8 million reais linked to BHP Billiton Ltd to ensure payment of damages related to a deadly dam rupture, Rio de Janeiro's O Globo newspaper said on Thursday.

    A tailings dam at Samarco Mineração SA's main iron ore mine burst in early November, unleashing a tsunami of mud and toxic sludge that killed at least 17, left 800 homeless and triggered what the federal government has called Brazil's worst-ever environmental disaster.

    BHP and Vale are 50-50 joint venture partners in the miner in Brazil's Minas Gerais state.

    The order to freeze the money was granted after a request from a public prosecutors in Barra Longa, Minas Gerais, O Globo reported in the Lauro Jardim column on its website.

    There has been growing frustration over delays in providing compensation or repairing damage to those affected by the disaster. In December another Brazilian court froze an unspecified amount of Vale and BHP assets after determining that Samarco did not have enough cash to pay for the damage alone.

    Brazil's federal government and two state governments are suing Samarco, Vale and BHP for 20 billion reais ($5 billion) over the disaster.

    Vale's press office said they will appeal the ruling.
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    Outokumpu plans cost cuts to stem losses

    Outokumpu, the Europe's largest stainless steel maker, on Thursday posted an underlying loss from the fourth quarter and forecast more losses in the first quarter, adding it aims to improve profitability with new cost cuts.

    Outokumpu, 26 percent owned by the Finnish state, has suffered as a steep drop in the price of nickel, an ingredient in stainless steel, has made distributors hold back orders, while production problems have also harmed the business.

    The fourth-quarter underlying operating loss was 11 million euros ($12 million), compared to analysts' average expectation of a loss of 38 million euros in Reuters poll.

    Outokumpu said it estimated first-quarter delivery volumes to be flat compared to the fourth quarter, and its core operating result to remain negative.

    "On an immediate term, we will take swift and precise measures... The scale, details and time frame for the savings and working capital reduction will be communicated in the next couple of months," Roeland Baan, who started as the new chief executive of the company in January, said in a statement.

    "Their capacity utilisation rate seems to be improving in Calvert (U.S. mill), and I think the underlying market demand in Europe has not deteriorated... It is also good that they see the need for internal action," said Nordea analyst Johannes Grasberger, who has a 'buy' rating on the stock.

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    Iron ore's false bull rally to plummet back to reality: Russell

    The steel-making ingredient is currently on a winning streak, with Asian spot prices .IO62-CNI=SI at 20.3 percent above the most recent low hit in December last year.

    Thus iron ore sneaks into the definition of being in a bull market, having surpassed the 20 percent mark that somewhat arbitrarily designates a rally as being significant.

    But looks can be very deceiving. The Dec. 11 trough of $37 a tonne was actually the lowest recorded since spot assessments began in late 2008.

    The close on Wednesday of $44.50 means iron ore is a mere $7.50 away from the all-time low, with the modest gains in absolute terms providing context to the more impressive percentage rise.

    Still, a savvy trader who bet on a price rise after the low will have made handy profits, something increasingly difficult to do in the new paradigm of low and volatile commodity prices.

    While iron ore has had a few good weeks since mid-January, it's very unlikely that this is the start of any sustained rally, rather it's more likely an opportunity to go short again.

    The recent price gains have been driven mainly be seasonal factors, which are already likely passed.

    On the demand side, Chinese steel mills and traders generally build inventories ahead of the Lunar New Year holidays, which are being taken this week.

    On the supply side, the major export harbour of Port Hedland in Western Australia state was shut in late January as a tropical cyclone passed over it, contributing to a 17.6 percent drop in shipments on a month-on-month basis.

    Shipments from Brazil, the largest exporter after Australia, were also slower in January, dropping 37 percent month-on-month, due to temporary closure on environmental grounds of Tubarao port, which handles about 100 million tonnes of iron ore a year.


    With the temporary factors over, iron ore will once again be confronted with the reality of vast oversupply and tepid demand from China, buyer of about two-thirds of the world's seaborne cargoes of the commodity.

    It's worth thinking back to the last time iron ore was in a so-called bull market, in the third quarter of last year.

    The spot price rallied almost 33 percent from a low of $44.10 a tonne on July 8 to a peak of $58.50 on Sept. 10, after which it fell relentlessly to the low in mid-December.

    It's also safe to ignore announcements of minor cutbacks in production, such as the expected loss of about 4 million tonnes this year at South Africa's Kumba Iron Ore, the country's largest producer and a unit of Anglo American.

    This is spit-in-the-bucket levels of production losses, given the market is now oversupplied by at least 100 million tonnes.

    This means only output cutbacks by the big four miners, Brazil's Vale, Rio Tinto, BHP Billiton and Fortescue Metals Group, will make any difference, and so far there is no sign of this happening.

    The forward curve for iron ore swaps traded on the Singapore Exchange <0#SGXIOS:> show how unlikely it is that the current rally will be sustained.

    What the recent price gains have done is merely steepen the backwardation of the forward curve, with the front-month contract at a 30 percent premium to the 12-month in early trade on Thursday, up from 20 percent three months ago and 6.5 percent a year ago.

    In iron ore, the futures market appears to be telling a more compelling story than the spot market.
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    Sale of Italian steel giant Ilva draws 29 potential bidders

    Some 29 companies or consortia have registered initial interest in buying all or part of the European Union's largest steel plant, Ilva, the company said on Wednesday.

    The government took over administration of the loss-making Ilva last year to try to save some 16,000 jobs and clean up its polluting factories in the southern Italian city of Taranto.

    With the EU opening an investigation into possible illegal state aid at steel producer, Rome has put the company up for sale, hoping to wrap up a deal by June 30.

    Ilva said in a statement it had received 29 expressions of interest and an examination of the various proposals would start on Tuesday. It did not name any of the groups or companies that had expressed interest.

    It said potential partners deemed to be serious contenders would be allowed to enter a second phase and carry out due diligence on Ilva. After that, they would be expected to make a binding offer.

    The European Commission said last month an investigation into the state's dealings with Ilva would focus on whether measures allowing it to finance plant modernisation had given it an unfair advantage.

    EU rules allow member states to support research activities or relieve energy costs of steel companies, but there are strict rules against state aid used to rescue those in difficulty.

    Ilva was put under court administration in 2013 after magistrates seized 8.1 billion euros ($9.2 billion) from the owners, the Riva family, amid allegations that toxic emissions were causing abnormally high rates of cancer.
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    Voestalpine expects EU action to ease plight of steelmakers

    Austria's Voestalpine expects duties on cheap imports to take the pressure off Europe's steel industry this year following its worst downturn in about a decade.

    European steel companies are struggling to cope with sharp price falls and growing overcapacity as China and Russia are accused of exporting massive quantities at artificially low prices, a practice referred to as dumping.

    The European Union intends to impose duties on imports of cold-rolled flat steel from both countries.

    "Structural problems in Europe have to be overcome soon to protect the steel industry," Voestalpine Chief Executive Wolfgang Eder said on Wednesday, adding that he expected European anti-dumping measures to take effect in the course of the first half of 2016, "particularly towards the summer".

    In response to a difficult market, Voestalpine plans to expand its cost-cutting programme for 2016/2017 by 100 million, to 1 billion euros ($1.13 billion).

    The additional savings will mainly be derived from its metal forming and steel businesses, Eder said.

    The steel unit is Voestalpine's largest division, contributing around one third to group revenue. It saw third-quarter sales fall 10 percent versus the previous quarter, following a decrease on a similar scale in the prior period.

    The Linz-based company is aiming to become less dependent on traditional steel markets by raising its production of finished parts for the aerospace, rail and automotive industries. The autos sector alone generates around 30 percent of group sales.

    The emissions-cheating scandal at Europe's leading carmaker Volkswagen has had no effect so far on orders, Voestalpine's CEO Eder said.

    "Everything is running smoothly as in the years before the scandal," he told a conference call.

    For the full year, Voestalpine stuck to its earlier guidance that it expects core and operating profit to come in below last year's levels, after third-quarter earnings before interest and tax (EBIT) fell short of analysts' forecasts.

    The company's shares were up 1 percent at 23.03 euros at 1327 GMT, in line with a positive market trend.

    Shares in the firm have fallen around 30 percent over the past 12 months but have outperformed those of rivals Arcelor Mittal and United States Steel which have lost nearly 70 percent.
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    One-Third of Australia's Queensland Coal Mines Operating at Loss: QRC

    One-third of coal mines operating in Australia's Queensland state are operating at a loss, industry group Queensland Resources Council said in a report Monday.

    About 60 mines are operational in the state, indicating around 20 mines are unable to cover their cash costs from incoming revenue, the report said.

    Of the 37 metallurgical coal mines in the state, one in four has negative operating cash flow, representing about 29 million mt of production when based on a spot market price of $80/mt, the report said.

    The situation is worse for Queensland's 22 thermal coal mines, as 12 are out of the money based on a seaborne market spot price of about $50/mt.

    QRC commissioned the study from resources consultancy Wood Mackenzie.

    QRC CEO Michael Roche said the data reflects stark anecdotal evidence from the industry. The industry group has members such as BHP Billiton and Rio Tinto.

    "While the cost curves and profitability analyses provide hard data on the state of our sector, the opinions of the industry leaders in Queensland -- many of them veterans of 30 or more years -- tell the story more starkly," Roche said.

    A participant in the survey said mines would be facing closure if it were not for the weakness of the Australian dollar, which has helped to offset lower coal prices to some degree.

    In the past two years, the mining industry in Queensland, which is predominantly coal-based, has shed 21,000 jobs as a result of low commodity prices, despite mine production touching historically high levels.

    Industry employment in Queensland's mining sector is now down to about 60,000, he said.

    "Companies tell us they are bringing a forensic intensity to bear as they conduct a deep dive into all their costs," said an extract from the report.

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    Anglo’s Kumba to cut output on muted iron-ore price forecast

    Kumba Iron Ore said it will cut output at Africa’s largest mine for the steelmaking ingredient as it doesn’t foresee a recovery in prices that have slumped more than two-thirds since the start of 2013.

    “The period ahead is likely to result in formidable changes for the industry, with the market now pricing in a more muted trend for the iron-ore price,” the Pretoria-based unit of Anglo American Plc said in a statement on Tuesday. “These circumstances have reinforced the need to make tough decisions for the business.”

    Kumba is scaling back production as it targets a third of its workforce in job cuts to weather a collapse in iron ore. A slowdown in China restricts demand from the biggest user while the largest miners, including Vale SA and Rio Tinto Group, have raised production to build market share, spurring a glut. The World Bank forecasts the raw material will post the biggest loss among metals this year as low-cost supply continues to outstrip consumption.

    Headline earnings fell 66% to R11.82 ($0.73) a share from a year earlier, Kumba said. Total production decreased 7% to 44.9 million metric tons. The company cut its forecast for output this year from Sishen, its biggest mine, by 25% to 27 million metric tons. The pit produced 31.4 million tons in 2015.

    Kumba is also booking an impairment of R6 billion on Sishen and plans to reduce its breakeven costs by about $10 a ton in 2016, from $41 a ton achieved at the end of 2015, the company said. Ore with 62% ferrous content delivered to China’s Qingdao port, a benchmark, was at $45.73 a dry ton on Friday, according to Metal Bulletin Ltd.

    Following an audit, South African Revenue Service wants Kumba to pay additional tax of about R1.8 billion for 2006 to 2010. Kumba lodged an objection and is awaiting SARS’s response, it said.

    The producer appealed to the minister of mineral resources against conditions imposed by the ministry when it granted Kumba a 21.4% right to Sishen, it said.
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    China Shenhua estimates 0.0312 yuan/kWh drop in coal-fired power tariffs

    China Shenhua Energy Co., Ltd., the country’s top listed coal producer and a major power generator, estimated the tariffs on power output dispatched by its coal-fired power generating units will be lowered by an average of approximately 0.0312 yuan/kWh ($0.0048/KWh), tax inclusive.

    That represents a downward adjustment to the average tariff on power output dispatched by China Shenhua over January-September 2015 by approximately 8%, which will corresponding reduce the operating revenues and gross profits of the company for 2016, showed a company statement on February 3.

    The estimation, followed the government’s tariff cut of 0.03 yuan/kWh for coal-fired electricity sold to the grid since January 1, was made with reference to the structure of actual power sales of the company in 2015, Shenhua said, noting it is for investors’ reference only.

    With the intensive reform of the mechanisms for the power industry, there may be relatively considerable differences in the structure of actual power sales volume of the company this year compared to that in 2015, according to the statement.

    Based on preliminary statistics, as of 31 December 2015, the company’s capacity of coal-fired power generating units that have passed the acceptance checks and in conformity with the requirements on the ultra-low emission limits was 13.7 GW, while the capacity of coal-fired power generating units with ultra-low emission that were in operation but were undergoing the process of acceptance checks was 6.61 GW.

    The company is planning for further refurbishment and establishment of new coal-fired power generating units with ultra-low emission on an ongoing basis in 2016.

    On 1 January 2016, China made downward adjustments to on-grid tariffs for coal-fired power generation by an average of approximately 0.03/KWh (tax inclusive) nationwide, according to a notice issued by the National Development and Reform Commission.

    The notice stipulates that in order to promote “ultra-low emission” refurbishment at coal-fired power plants, China will implement tariff support for the coal-fired power generating units which have passed the acceptance checks and are in conformity with the requirements on ultra-low emission limits.

    For the existing generating units which have been in grid connection prior to 1 January 2016, the tariffs shall be increased by 0.01/KWh (tax inclusive) under unified purchase of output dispatch. Whilst for the newly-established generating units which have been in grid connection after 1 January 2016, the tariffs shall be increased by 0.005/KWh (tax inclusive) under unified purchase of output dispatch.

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    China aims to cut 1bln T coal capacity in 3-5 years

    China seeks to eliminate some 1 billion tonnes of coal production capacity in three to five years, with half of the cuts through mine closures and the other half through company consolidations, the State Council said in a statement on February 5.

    That accounts for 17% of the country’s total coal capacity as part of government efforts to cut industrial overcapacity and use cleaner energy sources amid sliding demand for the fuel.

    The country also plans to ramp up financial support for some coal companies and encourage mergers, according to the statement.

    By end-2015, China had a combined coal capacity of 5.7 billion tonnes per year, with 3.9 billion tonnes is in operation and the remaining under construction, showed data from the China National Coal Association.

    By end-2015, there were 10,800 mines across the country, of which 7,000 mines at capacity below 0.3 million tonnes each, while combined taking 10% the national total. The vast number of mines and low degree of industry concentration will be a key problem in eliminating coal overcapacity.

    From 2011 to 2015 -- the 12th Five-Year Plan period -- China closed 7,250 outdated mines with combined capacity at 560 million tonnes.

    The document does set some aggressive targets, which highlights the determination of the central government to ease oversupply, said experts. There will still be some tug-of-war between the central and local governments on when and how those targets can be achieved.

    Coal demand has slid as China's economy slows and the government seeks to curb pollution in the world's biggest producer of carbon emissions. China will also suspend approvals of new coal mines for the next three years, according to the statement from the State Council, the country's highest administrative body.

    Shares of Chinese coal mining companies such as China Shenhua Energy surged last month after Premier Li Keqiang urged support for the industry and said production should be cut and costs reduced. The government plans to set up a fund to help coal miners and steelmakers cut workers and dispose of bad assets, Li said during a meeting in Shanxi on January 7.

    The Ministry of Finance issued a statement on January 22 to levy special funds for industrial enterprises’ structural adjustment, mainly for laid-off workers resettlement amid capacity cut in steel and coal sectors.

    The funds will be collected on the output of electricity nationwide, either coal-fired or renewables sold to the grids or self uses. That was estimated at 46.75 billion yuan ($7.13 billion) a year, based on the 2015 power output of 5,618.4 TWh.

    The levy of special funds took effect from January 1 this year, while deadline unspecified in the statement, spurring speculations that it will be set over the long term.

    If collection of the special funds lasts two or three years, it corresponds exactly with the government’s aim to pour 100 billion yuan to push ahead with overcapacity elimination set at the central economic work conference earlier.

    The nation's coal imports fell the most on record to the lowest in four years last year amid weak domestic demand, down to 204.06 million tonnes, including lignite, thermal and metallurgical coal, falling 29.9% from a year ago, showed customs data.

    Similar scheme for the country's steel industry was unveiled by the State Council, in which China said it will close between 100 million and 150 million tonnes of annual crude steel capacity by 2020, amounting to 13% of the national capacity at most.

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    India sets minimum import price for some steel products

    India on Friday imposed a minimum price on the import of some steel products to stem the tide of cheaper overseas purchases and bolster its distressed domestic steel sector.

    The duties on various steel products range between $341 per tonne and $752 a tonne, the government said in a statement.

    Rising imports, especially from China, have been a concern for India. Overseas steel purchases shot up by 22.8 percent in December 2015 over the previous month.

    China produces nearly half the world's 1.6 billion tonnes of steel, and exported more than 100 million tonnes of the alloy last year, more than four times the 2014 shipments from the European Union's largest producer, Germany.

    The floor price on steel imports will be valid for six months.

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    EU trade chief urges China to cut steel overcapacity

    The European Union's top trade official has urged China to take measures to curb overcapacity of its steel industry and warned it that it will open three new anti-dumping investigations this month on steel imports from China.

    European Commissioner for Trade Cecilia Malmstrom wrote a letter to China's minister of commerce, Gao Hucheng, saying she welcomed Chinese plans to cut steel production, but adding they would need to be translated into concrete action.

    The call comes as the European Union begins a debate into whether to relax tradedefences against China as Beijing demands, with a recommendation from the Commission set to come around July after public consultations.

    Malmstrom said she was concerned about a surge of Chinese exports last year of some 50 percent and resultant price declines of certain products by up to a half. Thousands of EU jobs had gone and tens of thousands more were threatened.

    "In the wake of a worrying trend, I urge you to take all appropriate measures to curb the steel overcapacity and other causes aggravating the situation," she said in the letter seen by Reuters and dated Jan. 29.

    She also said that the Commission was set to open three investigations in February into Chinese steel dumping, selling at excessively cheap or below cost price. EU steel prices have hit a 12-year low.

    ArcelorMittal, the world's largest steelmaker said that 2015 had been a very difficult year for the steel and mining industries despite strong demand in its core markets as excess capacity in China depressed prices.

    Britain's largest steelmaker Tata Steel Ltd said last month it would cut 1,050 UK jobs, adding to some 4,000 British steel jobs lost in October alone.

    China, which makes half the world's steel, exported a record 112 million tonnes last year, equivalent to total North American output, upsetting trade partners who argue it is dumping on world markets.

    The European Union has in place 35 trade defence measures on steel product imports, 15 concerning China directly, along with six ongoing investigations, three involving China. New complaints have increased.

    It has also instituted registration of Chinese steel imports, meaning that any measures can be backdated and so offering quicker relief to EU industry.

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