Mark Latham Commodity Equity Intelligence Service

Tuesday 18th October 2016
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    China Sept power consumption up 7pct on year, NEA

    China's power consumption reached 496.5 TWh in September, up 6.9% year on year down 11.83% on the month, showed data from the National Energy Administration (NEA) on October 17.

    Over January-September, the country's power consumption totaled 4,388.5 TWh, expanding 4.5% year on year.

    Of this, 621.7 TWh was consumed by the residential segment, gaining 11.6% from the corresponding period last year.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 84.5 TWh in the first nine months this year, rsing 4.8% from the previous year.

    The secondary industries – mainly the industrial sector, consumed 3,079.9 TWh, increasing 2.0% on year.

    Power consumption by tertiary industries – mainly the service sector – increased 11.5% on year to 602.5 TWh.

    Meanwhile, the average of utilization of power generating units across the country was 2,818 hours, 179 hours lesser than the same period last year, according to the NEA data.

    Of this, hydropower plants logged average utilization of 2,766 hours, an increase of 127 hours; the average utilization of thermal power plants decreased 213 hours on year to 3,071 hours.

    In addition, China added 72.70 GW of power generating capacity in the same period, including 7.88 GW of new hydropower and 29.01 GW of new thermal power capacity.
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    Five southern China provinces 3Qs power use up 3.6pct on yr

    China's five southern provinces reported their power use at 674 TWh in total over January-September, a year-on-year rise of 3.6%, compared with an increase of 0.4% a year ago, showed the latest data from the National Development & Reform Commission (NDRC).

    Of this, power consumption of Hainan and Guangdong rose 6.7% and 5% on year, compared with increases of 6.9% and 4.7% over January-August; Guangxi and Guizhou followed with power use climbing 2.9% and 2.4% on year.

    Yunnan posted a decline of 1.6% in its power consumption in the first nine months, compared with a drop of 1.5% over January-August.

    In September, electricity use of the five provinces stood at 81.8 TWh, up 7.1% from the year-ago level.

    Hainan, Guizhou, Guangxi, Guangdong and Hainan all saw climbing power use in September, with year-on-year growth at 15.2%, 11.7%, 6.6% and 5%, respectively, while Yunnan posted a 0.5% drop in the month.
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    Saudi Arabia: Increased Yemen wars and decreased oil prices, terribly effects budget

    Highly increasing expenditure on armed materials and wars on Yemen with a terrible downfall of oil prices have torn apart the Saudi Arabia’s budget, resulting which the Government came up with decision of tightening its own citizens

    Saudi’s are now facing reductions in take-home pay and benefits for government workers and a host of new fees and fines. Huge subsidies for fuel, water and electricity is increasing day by day.

    One of the top most renowned Govt. Run dairy Almarai, which is also one of the top brands in the Middle East, will mean $133 million from the bottom line this year, company officials said.

    Prince Mohammed’s plan for an economic betterment has sent waves of tremors through a nation whose citizens have long enjoyed a cosseted lifestyle underwritten by the state.

    “The government is moving very fast at reforming things in Saudi Arabia, while the people are finding themselves left behind. Life as usual and business as usual can no longer continue,” said Lama Alsulaiman, a businesswoman and board member of the Jidda Chamber of Commerce and Industry.

    “Rewriting the social contract carries high risks for the 31-year-old deputy crown prince, who has staked his reputation on transforming the economy. “People are looking to see if he can do it,” said Ibrahim Alnahas, a political-science professor at King Saud University in Riyadh, the capital. “If so, his future would be king. If not, his future would be lost.”

    Crude oil does more than billions of dollars in profits to Saudi Aramco, the state oil company, and Sabic, the chemical giant. It also buttresses energy-intensive sectors like cement production and aluminum smelting.

    “It is striking the extent to which every major industry relies on cheap energy, whether directly or indirectly,” said Glada Lahn, co-author of a study for Chatham House, a London think tank,that warned that the kingdom could become a net importer of oil within a few decades if it did not make significant changes.

    In a meeting of the Organization of the Petroleum Exporting Countries in Algeria, Saudi Arabia’s agreement to cut production to raise the price of crude, showed the urgency policy makers here are feeling.

    Prince Mohammed announced plans this year to sell off a small piece of the country’s economic crown jewel, Saudi Aramco, to free up money for investment.

    The budget deficit was nearly $100 billion last year. The country’s foreign reserves have dropped by a quarter since oil prices started falling in 2014. The government has taken loans from foreign banks and will try to borrow more from the global bond market.
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    Oil and Gas

    Iran hopes to raise its crudeoil production to around 4 mil b/d in the next 2 weeks

    Iran hopes to raise its crudeoil production to around 4 mil b/d in the next 2 weeks: National Iranian #Oil Company.


    Iran, OPEC’s third-biggest member, plans to boost its oil output to 4 million barrels a day this year, potentially complicating the producer group’s plan to cut supply in an effort to prop up prices.

    Oil Minister Bijan Namdar Zanganeh said he hopes the Organization of Petroleum Exporting Countries will agree next month at a meeting in Vienna to limit output. Iran is seeking about $200 billion of investment in its oil, natural gas and petrochemicals industries to raise production and sales, according to figures Zanganeh presented Monday at a conference in Tehran. The country is targeting an average daily output of 4.28 million barrels of crude and 1 million barrels of condensate within four years, he said.

    OPEC members will meet next month to seek agreement on how to put into effect aplanned cut in the group’s output. OPEC decided last month in Algeria to reduce its collective production to between 32.5 million and 33 million barrels a day to rein in a global glut and support prices, though it may exempt Iran from any cuts. Iran lost its position as OPEC’s second-biggest producer after international sanctions were tightened in 2012 and has defended its steps to ramp up output to return to prior levels.

    “The difficulty in implementing the deal will be with the potential for production increases within OPEC,” Giovanni Staunovo, a commodities analyst at UBS Group AG, said by phone from Zurich. “It may also be a bargaining chip, as what everyone wants is to get into the OPEC talks with a higher level of production from which to cut or freeze.”

    Production Plans

    Iran aims to raise production from 3.89 million barrels a day currently, Ali Kardor, managing director of National Iranian Oil Co., said at the conference in Tehran. Amir Hossein Zamaninia, deputy oil minister for international affairs, told reporters the country pumped 4.085 million barrels a day before sanctions were imposed on its economy. “We need to reach pre-sanctions production levels,” he said.

    Iran pumped 3.63 million barrels of oil a day in September, data compiled by Bloomberg show. The country is producing at full capacity and aims to raise exports to 2.5 million barrels a day by March, Kardor said. Iran currently exports more than 2.2 million barrels a day, Zamaninia said.  

    “We should decide in November how much every country should produce,” Zanganeh said. He didn’t comment on Iran’s participation, if any, in the OPEC agreement.

    Data Questioned

    Kardor disputed the accuracy of OPEC’s data on the country’s production. Figures based on estimates from secondary sources such as analysts and journalists are “not acceptable” for use in determining the country’s output quota, he said. The accuracy of OPEC’s secondary-source data is important because the group may use the information to set individual member quotas.

    Iran is ramping up efforts to woo foreign investment in an energy industry stunted by years of sanctions. NIOC on Monday began soliciting documents from international companies to pre-qualify as bidders to develop the country’s oil and natural gas fields, according to an announcement posted on its website. Interested companies will have until Nov. 19 to submit their qualifications, and the government will publish a list of eligible bidders on Dec. 7, according to Shana, the Oil Ministry’s news service.

    The country may tender the first field, the South Azadegan deposit, to international companies as early as November, NIOC Managing Director Kardor said. Total SA of France had been developing a technical program for development of the field after signing a data-sharing agreement with Iran earlier this year, Kardor said. NIOC signed 10 agreements giving foreign companies access to data on its fields with the aim of bringing in partners to boost output, he said.

    Total is also in the running to develop Iran’s South Pars 11 gas development, Kardor said. A first oil development agreement with an international company could be signed by March for South Azadegan, he said.
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    As OPEC Waits on Russia, Naimi Memoir Offers Cautionary History

    Ali Al-Naimi, the former Saudi oil minister and architect of the 2014 pump-at-will OPEC policy that’s roiled markets since, drew the conclusion during his final years in office that there was "zero" chance of countries outside the group joining in production cuts.

    The comments, made in his forthcoming autobiography ‘Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil,’ provide a cautionary history as OPEC waits on a pledge this month by Russian President Vladimir Putin to freeze or cut production.

    Al-Naimi writes in the book that one of his aides asked him in November 2014 what was the chance of leading non-OPEC countries Russia, Mexico, Kazakhstan and Norway cutting oil production.

    "I held up my right hand and made the sign for zero," he writes.

    Although the former Saudi minister doesn’t write about the current negotiations, he strongly defends the no-limits approach he convinced OPEC to adopt two years ago. He writes the best way to re-balance the market is still to let supply, demand and prices work.

    "The oil market is much bigger than just OPEC. We tried hard to bring everyone together, OPEC and non-OPEC, to seek consensus. But there was no appetite for sharing the burden," he writes in the 317-page book, published next month by Portfolio Penguin. "So we left it to the market as the most efficient way to re-balance supply and demand. It was -- it is -- a simple case of letting the market work".

    Khalid Al-Falih, who replaced Al-Naimi as energy minister in May, is taking a different path. Saudi Arabia has agreed to cut production, despite its regional rival Iran’s reluctance to join the effort, and is trying to convince Russia and other non-OPEC countries to cut too.

    Al-Falih is betting that a small production cut will pay for itself, even if others don’t join the effort, by raising prices enough to increase revenues. So far, it seems to be working -- Brent, the global crude benchmark has risen a to one-year high above $50 a barrel since OPEC agreed an outline deal in Algiers last month.

    Al-Naimi, writing about OPEC’s decision in 2014, sees it a different way.

    "If we, Saudi Arabia, or OPEC as a whole, cut production without the participation of major non-OPEC members, we would be sacrificing revenues as well as market share," he writes.

    Financial Crisis

    The former Saudi minister recalls how Igor Sechin, the powerful head of state-controlled Rosneft PJSC, "didn’t follow through" on his promise to cut output in 2008-09 during the global financial crisis.

    He also offers the first on-the-record account of a meeting between himself, Sechin and Venezuelan and Mexican officials in Vienna in November 2014, when both Russia and Mexico declined to cut production.
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    Nigeria asks for $15 Bln upfront from India

    Emmanuel Ibe Kachikwu, on a visit to New Delhi, said Nigeria was likely to sign a cash-raising oil deal with India for $15 billion by the end of this year. India's oil ministry said that Nigeria, whose economy has been hit hard by low oil prices and militancy, had requested an upfront payment.

    "Nigeria has a bit of a cash flow problem right now. Our reserves are not as strong as we want them," Kachikwu told reporters on Monday. "The impact of that is the value of the naira (currency) is coming down. So what we are trying is to leverage on the assets we have to receive immediate cash."

    He said the Organization of the Petroleum Exporting Countries, which has agreed to cut world output to rescue prices, has however allowed a production window of 1.8 million bpd to 2.2 million bpd for recession-hit Nigeria.

    Apart from the impact of low oil prices, whose sales account for 70 percent of the Nigerian government's revenue, the country's energy facilities have been crippled by attacks by militants calling for a greater share of the country's oil wealth.

    Relentless attacks have taken out pipelines in Nigeria, normally Africa's largest oil exporter, and Qua Iboe, Nigeria's largest export stream, and Forcados remain under force majeure.
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    Norway's prelim September oil output below forecast

    Norway's preliminary oil output dropped 11 percent in September compared with the same month last year and underperformed the Norwegian Petroleum Directorate's forecast for the month by 4 percent, the agency said on Tuesday.

    "Production is (also) less than last month and the main reason for this is that several fields were closed for maintenance," the NPD added.

    The Goliat field, operated by Italy's ENI, was shut between Aug. 26 and Sept. 27.

                                             Prelim Sept  Final Aug    Prelim August
    Oil                                           1.375         1.572            1.558
    NGL and condensate          0.216         0.364            0.337
    Natural gas                            6.4              8.0                 8.1

    NOTES: Oil, NGL (natural gas liquids) and condensate given in millions of barrels of oil equivalent per day. Gas is in billions of standard cubic metres. Statoil STL.OL is the largest
    oil and gas producer off Norway.
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    Petrobras says September output in Brazil hits 2.75 mln bpd

    Oct 17 State-run oil company Petrobras' production of oil and natural gas in Brazil reached 2.75 million barrels of oil equivalent per day in September, the company said in a securities filing on Monday.

    Petroleo Brasileiro SA, as the company is formally known, said it produced a further 0.13 million barrels per day outside Brazil. September's total output represented an increase of 1.4 percent from the previous month, with production in Brazil hitting a montly record, the company said.
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    Brazil to ease local content rules in oil industry

    President Michel Temer's government will ease requirements that oil industry equipment be produced in Brazil as part of its effort to draw investment and lower costs that have hindered development of vast reserves, a senior official said on Monday.

    Rules for future contracts will allow the importation of oil industry equipment that is not available in the country, Temer's chief spokesman Marcio de Freitas told Reuters.

    "This will make it cheaper to produce oil and reduce the cost for Petrobras," he said of Brazil's state-led oil company.

    De Freitas confirmed an earlier report by financial newspaper Valor Economico that Brazil will stop favoring companies that offer to purchase a larger amount of goods and services locally when selecting winners in oil and gas rights auctions.

    Temer's new centre-right government also intends to loosen minimum local content rules by not specifying whether individual components, such as bolts, have to be produced in the country.

    Temer's administration has been taking action to boost private investment in the country's oil industry, such as removing a requirement that Petrobras be the sole operator of vast offshore reserves in the costly subsalt layer.

    The largest deep-water oil fields ever found were discovered two decades ago but the fall in oil prices, restrictions such as the local content rules and the indebtedness of scandal-plagued Petrobras have slowed their development to a crawl.

    Attached Files
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    Even at $100 for coal, Asia's LNG industry struggles to compete

    The liquefied natural gas (LNG) sector has watched with joy how thermal coal prices have soared this year, hoping that the unexpected spike would at last make LNG price competitive in Asia.

    Although much cleaner than coal in terms of pollution and carbon emissions, natural gas has struggled to make inroads in Asia's power generation mix since it is typically more expensive to produce electricity from gas than coal.

    Despite an over 90 percent coal price rally to almost $100 a tonne, and even with relatively low LNG prices of $6.50 per million British thermal units (mmBtu) LNG-AS, versus $20 per mmBtu in 2014, gas still can not compete with coal in Asia.

    "Even though coal prices have reached $90 per tonne, it (LNG) is still not competitive," said Chong Zhi Xin, principal LNG analyst for Asia Pacific at energy consultancy Wood Mackenzie.

    For Asian LNG to become competitive, Reuters calculations based on fuel and power generation costs show that coal - by far the fuel most widely used for electricity generation in Asia - needs to rise further from its current three-year highs, towards $110 a tonne.

    Coal prices are currently near that level. Pushed by a domestic mining operation cap in China, which forced its power generators to increase imports, prices for coal from Australia's Newcastle port soared by 95 percent this year, to almost $95 per tonne, in what has been one of the commodity's steepest rallies ever.

    "2016 has delivered its fair share of commodity market surprises. But none have been more unexpected than the sharp recovery in coal prices," Olly Spinks and David Stokes of Timera Energy wrote in a note on Monday.

    But a continuation of the rally, or even a sustained period of coal at current prices, is seen as unlikely.

    Goldman Sachs said in a note this month that "risks are now skewed to the downside" for coal prices.

    The coal price forward curve is already in deep backwardation, where cargoes for future delivery are cheaper than those for immediate loading, showing an over $20 per tonne price fall between the fourth quarter of this year and the end of 2017, to little more than $70 a tonne.

    Coal futures for 2017 delivery are also much lower than prompt cargoes at $66 per tonne.

    "This is consistent with market expectations that some of the shorter term constraints of 2016 will ease into next year," Goldman said.

    That would mean that LNG will continue to struggle to compete against coal on price alone.
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    Supermajors to talk turkey in PNG

    Discussions between ExxonMobil and Total and the Papua New Guinea government over a "co-operative development agenda" for the next LNG development phase are planned to begin before the year is over.

    Joint venture partner to both supermajors Oil Search said today that once ExxonMobil’s entry into the PRL 15 joint venture has been confirmed via the completion of its takeover of InterOil, then "we anticipate that talks will commence with Total about possible co-operation and integration of the next phase of LNG development".

    The PRL 15 permit contains the large undeveloped Elk-Antelope gas resource, currently owned by Total, Oil Search and InterOil, and associated with the greenfield Papua LNG project.

    ExxonMobil's nearly-completed acquisition of InterOil implies that Elk-Antelope could support at least two new trains at the ExxonMobil-led PNG LNG facility, a notion that all parties have expressed an interest in due to the economic benefits.

    Oil Search chief executive Peter Botten said: "PNG’s LNG development opportunities are already in the lowest-cost quartile globally, with integration savings making LNG expansion even more competitive."

    "Various commercial models can be applied to deliver project integration. Studying the various options, their relative values and how the significantly increased overall value is shared equitably between the P’nyang, Elk-Antelope and PNG LNG owners is a core component of Oil Search’s Strategy Refresh. Preliminary indications from this work suggest that unitisation in some form is an optimal development solution," added Botten.

    ExxonMobil’s liquefied natural gas facility in Papua New Guinea produced 17% above nameplate capacity in the quarter ended 30 September 2016.

    Attached Files
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    Iran oil minister: hopes soon to reach Qatar's gas production

    Iran hopes by early next year to boost its natural gas production to Qatar's level, Iranian oil minister Bijan Zanganeh told an energy conference on Monday.

    He said Iran's priority was developing the giant South Pars gas field which it shares with Qatar, as well as shared oil fields.

    Iran plans to increase its crude oil production to 4 million barrels per day in 2019 and 4.28 million bpd in 2020, while boosting condensate output to 1 million bpd as early as 2018, Zanganeh told the conference. Crude output is currently 3.8 million bpd and condensate output 688,000 bpd, he said.

    The minister also said new oil and gas contracts for international and domestic companies would focus on enhancing rates of oil recovery.

    Earlier in the day, the managing director of the National Iranian Oil Company, Ali Kardor, said Iran expected to tender the new contracts by the end of November.
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    Gas leak delays start-up of Qatar's Barzan gas project - sources

    Qatar has delayed the start-up of its Barzan Gas project because of a leak discovered in a gas pipeline, two sources with knowledge of the matter told Reuters.

    The $10 billion project, a RasGas-operated joint venture between Qatar Petroleum and Exxon Mobil, is designed to meet rising domestic energy demand in the Gulf state as it prepares to host the soccer World Cup in 2022.

    After repeated delays, the project's first phase was due to start in November, boosting Qatari gas production by up to 2 billion cubic feet per day when it reached capacity in the first half of 2017. But a leak was discovered in recent weeks, the sources said.

    "There was a gas leakage in one of the project's upstream pipelines, the impact of which is still being assessed," said a Doha-based source familiar with the project who declined to be named as he was not authorised to speak publicly. "A start-up this year is unlikely."
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    UK competition watchdog says ICE has to sell Trayport

    Financial and commodity markets operator Intercontinental Exchange Inc will have to sell commodities software house Trayport to preserve competition in the energy trading industry, Britain's competition watchdog said on Monday.

    ICE, one of the world's biggest exchange operators, closed its deal to buy Trayport in December last year for around $650 million in stock. It beat off arch-rival CME Group Inc to acquire the technology firm and reinforce its position in European energy trading markets.

    But Britain's Competition and Markets Authority said on Monday that traders, brokers, exchanges and clearing houses that compete with ICE in the trading and clearing of European utilities, depend on the Trayport platform to carry out these transactions effectively.

    The watchdog concluded that the deal needed to be unwound as ICE could use Trayport's platform to reduce competition between itself and its rivals, leading to increased fees for execution and clearing, and a worsening of terms offered to traders.

    "ICE is disappointed by the decision, having presented a compelling clearance case, and will now consider its options including the possibility of an appeal," the company told Reuters in an emailed statement.

    ICE competes with brokers including ICAP, BGC Partners, GFI Group, Tradition, Tullett Prebon and Griffin.

    A forced sale of Trayport could free up cash for ICE to make a bid for Britain's London Stock Exchange Group.

    The New York Stock Exchange owner shelved plans in May to make a counterbid for the London exchange, which is already trying to merge with Germany's Deutsche Boerse.

    ICE said then that it still had the right to reconsider and make an offer for LSE Group within the next six months, provided it had approval from the British Panel on Takeovers and Mergers.

    A takeover of LSE Group by ICE could create the world's biggest exchange group, spanning the Atlantic and trading and clearing stocks, derivatives, energy and commodities.
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    Carnarvon Petroleum requests trading halt ahead of Roc-2 well announcement

    In accordance with ASX Listing Rule 17.1, Carnarvon Petroleum on Monday requested an immediate trading halt, pending the release of an announcement in relation to the Roc-2 well.

    The Company requests that the trading halt end on the earlier of the commencement of normal trading on 19 October 2016 or when the anticipated announcement referred to above is released to the market.

    The Company is not aware of any reason why the trading halt should note be granted, nor of any other information necessary to inform the market about the trading halt.
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    Cushing massive draw

    Genscape Cushing inventory week ending 10/14: -2,373,342 bbl w/w. (Plains All American 450kbd pipeline outage being a large factor).

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    Bernstein Research Says Longer Laterals Not Necessarily Nirvana

    Over the past six months or so MDN has repeatedly read about drillers in the Marcellus/Utica drilling longer laterals (the horizontal part of the well) and using way more sand to keep the cracks propped open longer.

    And between longer laterals and more sand, drillers in the northeast are getting higher output from their wells.

    So it was with some interest (and skepticism) that we read about new research that says longer laterals don’t lead to greater production totals. The research is from a respected source: Bernstein Research.

    However, the data used was only from the Barnett Shale–so it’s not clear to us how relevant the findings are for northeast drillers.
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    Double Eagle Energy, a Texas unicorn, preps for a rare oil IPO

    Double Eagle Energy, a Texas unicorn, preps for a rare oil IPO

    Double Eagle Energy Permian LLC is a unicorn roaming the barren landscape of West Texas.

    Founded by a retired NFL player and his high school buddy - with land deals signed on the hood of a pickup - the Fort Worth oil and gas company is now worth nearly $3 billion, according to a half dozen bankers who have examined its value.

    That's triple the $1 billion threshold for a so-called unicorn, the moniker most often used in Silicon Valley for high-value private companies. An IPO would be a crowning achievement for John Sellers and Cody Campbell, who co-founded predecessor companies starting in early 2009.

    The valuation is based on prices paid for mineral rights in the Permian Basin, where the duo has leased more than 65,000 net acres of oil-rich land in the past two years. Demand has soared here because of new drilling techniques that can extract crude at a profit despite low oil prices.

    The success of any Double Eagle IPO would depend on whether the oil price recovery holds, but that uncertainty doesn't bother the Texans - so far, they have made a fortune off the price crash.

    "Had it not been for the turndown," Sellers said, "we would never have seen as many opportunities to put together so much acreage."

    Until now, most energy companies have been bought out before going public, but the successful IPO this month of Extraction Oil & Gas (XOG.O) - the first stock market debut of a U.S. oil and gas explorer in more than two years - could pave the way for more.

    The Double Eagle business model is not new. Dale Operating, a private company in Dallas, has leased and sold 17 portfolios of assets since 1982. It is a high-risk endeavor because leases can run out before drilling succeeds.

    "It's possible to be directionally right, but lose if it does not happen in time," said Larry Dale, the president of Dale Operating.

    Now, Double Eagle is ramping up the risk by becoming a drilling company, competing against established Permian Basin players such as RSP Permian Inc (RSPP.N) and Callon Petroleum Co (CPE.N).


    Sellers and Campbell got into the oil business after the 2008 U.S. housing crash ended their separate careers as real estate developers. Sellers had gone into real estate after college, and Campbell had done so in 2006 after a pectoral muscle tear cut short his 17-month career as an offensive lineman with the Indianapolis Colts of the National Football League.

    Nearly broke, Sellers and Campbell relied on bank loans and help from friends and family to get started.

    Unlike larger competitors, who outsource the search for lease rights to local agents, the two men searched land registers themselves for mineral deeds, then followed up personally with the landowners, usually small farmers in Texas and Louisiana.

    They often sealed deals for lease options on 200 or 500 acres at a time with handshakes outside the local grain elevator. The goal was to sell groups of leases to drillers such as Chesapeake Energy Corp (CHK.N) or Devon Energy Corp (DVN.N).

    In the early days, they worked out of an old Texaco field office in rural Texas. Bugs crawled the walls. The two men, still in their twenties, shot cans out back for fun.

    “Every deal was critical," Sellers said in an interview at Double Eagle’s more upmarket current headquarters in Fort Worth. "If they didn’t sell, we were done.”


    During a particularly cash-strapped moment, they bought one landowner a round-trip, first-class ticket to London - spending $9,800 on a credit card with a $10,000 limit - as a form of payment to extend their lease option on his land. The lease on that land was eventually sold, to Endeavor Energy Resources LP, one day in January 2009 - an hour before the option expired - in a hotel lobby in Tyler, Texas.

    The landowner wept when he got a check for $5.5 million for his mineral rights. Sellers and Campbell made enough to pay off their debts and went on to secure more than ten thousand leases covering more than a million acres, selling them off in bundles.

    By 2012, with the price of oil at about $100 per barrel, Double Eagle's success caught the ear of Wall Street. Greg Beard, Head of Natural Resources at private equity firm Apollo Global Management LLC, recalled thinking after he first met them in Ft. Worth: "We have to work with these guys."

    Apollo invested, and less than two years later, in November 2014, Sellers and Campbell sold one of their many business entities, Double Eagle Energy Oklahoma LLC, for $251 million to Aubrey McClendon's American Energy Partners L.P. Apollo reaped a four-fold return from its early investment on acreage in the Oklahoma formation known as the SCOOP, which is now crowded with drillers.

    The sale couldn't have come at a better time. The price of oil had already peaked and was heading toward a 12-year low of about $28 per barrel.

    Apollo's investment in Double Eagle represents a new tack by private equity firms - backing modern wildcatters to gradually build portfolios of mineral rights.


    Oil edges up as analysts say market could be closer to balance than expected
    Argentine wheat quality expected to jump as demand soars

    The move comes after some spectacular failures in traditional leveraged buyouts of energy companies. KKR & Co LP’s (KKR.N) $7.2 billion acquisition of Samson Resources Corp, for instance, ended in bankruptcy last year when shale drilling became more expensive than the debt-laden company could handle. Apollo’s EP Energy Corp (EPE.N), also purchased in a leveraged buyout, has lost four-fifths of its stock value in the oil market rout since the exploration and production company went public in January 2014 at a valuation of more than $5 billion.


    Sellers and Campbell sensed opportunity as the price headed south. They focused on the Midland Basin, a rocky area of the Permian basin where technological advances had made it profitable to drill even with prices at $35 a barrel.

    They deployed the same model – searching land registers and dealing with landowners directly – but this time with a staff of more than 50. Deals still get done on the hoods of trucks.

    Apollo has again teamed up with them and, together with Campbell and Sellers, have invested more than $500 million.

    Starting next month, Double Eagle will drill on their leased land instead of flipping the mineral rights. It has hired a well-completion expert to prepare for drilling, and in August brought on a chief financial officer with public company experience to prep for an IPO. In October, the company merged with Veritas Energy - increasing its leased acreage by about a third - and created Double Eagle Energy Permian LLC.

    The timing again looks fortuitous, with oil prices up more than 10 percent this month on prospects that the Organization of the Petroleum Exporting Countries (OPEC) and other major producers will agree a sizeable output cut or freeze.

    Sellers and Campbell are counting on their West Texas location to help them hedge against the additional risks of drilling.

    “Even if the rest of the industry crumbles, that basin is going to stand on its own," Campbell said. "It has the best economics of any North American basin.”
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    Mammoth IPO Not So Mammoth After All – Priced at Low End

    Two weeks ago MDN brought you news that oilfield services company Mammoth Energy Services, headquartered in Oklahoma City, OK, with operations in both the Utica Shale and Permian Basin, was floating a new initial public offering.

    The IPO, relatively small by most measures (hoping to raise ~$150 million) was closely watched because it’s one of the few new IPOs in the oil and gas sector this year.

    The IPO is done and the stock has begun to trade. How did they do? Mammoth targeted $15-$18 per share. They settled for the low-end $15/share. And after the trading began, the stock sank…
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    Alternative Energy

    Sweden proposes measures to strengthen carbon prices

    Sweden has proposed measures to strengthen carbon prices from 2020, the country's climate minister told Reuters on Monday, seeking to soak up the glut of credit in the EU Emissions Trading System (ETS).

    A European bill to reform the ETS system to make big polluters pay for emissions is being debated by EU lawmakers and member states, but Sweden's climate minister Isabella Lovin has presented new proposals to 13 EU environment ministers with the aim of putting a ceiling on emmissions.

    "The ETS system is not working now and we don't see that the (European) Commission's proposal is sufficient in making sure that the price signal is strengthened," Lovin said after a meeting with the 13 ministers who call themselves the Green Growth Group.

    Prices under the ETS scheme have plummeted to 6 euros from highs above 30 euros in 2008 and are well below the level companies say is needed to spur investment in technology to cut emissions.

    Lovin's proposals included a firming up of the Market Stability Reserve (MSR) to remove some of the surplus allowances, scrapping permits above a set ceiling and the possible introduction of an expiration date to cancel surplus permits after five years.

    France has also announced plans for a carbon price mechanism to help to fix the ETS, but other EU nations fear that tougher pricing could push industry to relocate abroad.

    While the Swedish proposals touch on a plan to tighten the rate at which permits should be removed from the market from 2020-2030, Lovin said doing so is politically difficult.

    The European Parliament's industry committee have backed keeping what is known as the linear reduction factor at the 2.2 percent annual rate proposed by the Commission.

    The chamber's Environment Committee, which has the main responsibility for reforms, favours a faster pace of reduction to take into account the goals of the Paris Agreement on climate change, which was thrashed out by 195 nations last December.

    It will vote on its amendment to the proposal in December.

    Ian Duncan, who is shepherding the EU bill through the European Parliament, said last week that he was considering potential tweaks to the MSR, which would have a bullish effect on prices.

    "I want to look at the market stability reserve again. I want to look at it now. Take allowances out of it now," he told the Carbon Pulse Carbon Forward conference.

    In its drive for a more ambitious ETS, Sweden is also pioneering a programme to purchase and then scrap 30 million euros of carbon credits a year -- equating to about 10 percent of its total emissions -- from 2018 to 2040.

    "This is also a way for us to show our ambition and that we are serious about this," Lovin said.
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    Tesla, Panasonic to collaborate on solar manufacturing

    Tesla, Panasonic to collaborate on solar manufacturing

    Elon Musk's Tesla Motors said it would collaborate with its longstanding battery partner, Japan's Panasonic Corp, to manufacture solar cells and panels at a New York factory.

    The agreement, a non-binding letter of intent, is contingent on shareholder approval of Tesla's acquisition of SolarCity Corp, the electric car maker said in a statement issued late on Sunday. Financial terms were not disclosed, but officials in New York said production would take place at a factory SolarCity is building in Buffalo.

    Panasonic is expected to begin production at the Buffalo facility in 2017 and Tesla intends to provide a long-term purchase commitment for those cells.

    Tesla said it will use the cells and modules in a solar energy system that will work seamlessly with its energy storage products Powerwall and Powerpack.

    Tesla is acquiring SolarCity, in which Musk is also a large shareholder and is run by his first cousins, as part of a strategy to build a clean-energy consumer brand.

    Last year, SolarCity said it would manufacture a new kind of solar panel at the plant that would be the most efficient yet at transforming sunlight into electricity.

    SolarCity has pledged to spend $5 billion over 10 years on its RiverBend factory in New York in return for $750 million in tax breaks and other investments by the state. The state funding is part of New York Governor Andrew Cuomo's pledge to spend $1 billion on economic development in the Buffalo region.

    A Panasonic spokeswoman in Japan declined to offer details on the collaboration. SolarCity and Tesla did not immediately respond to queries sent to a SolarCity spokeswoman who said she could direct questions to both companies.

    Panasonic is already working with the U.S. automaker to supply batteries for the Model 3, Tesla's first mass-market car.

    Tesla and SolarCity Corp shareholders are scheduled to vote on the proposed merger on Nov. 17, and the automaker said it would provide plans for the combined company ahead of the vote.
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    ISS recommends investors back Agrium-Potash Corp merger

    ISS recommends investors back Agrium-Potash Corp merger

    Investor advisory company Institutional Shareholder Services (ISS) has recommended that investors in fertilizer producers Agrium Inc (AGU.TO) and Potash Corp of Saskatchewan (POT.TO) support a merger of the companies.

    The decision was distributed to ISS clients on Friday and sent to media on Monday. The combination would create a company with significant leverage, ISS wrote in its report.
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    Precious Metals

    Yamana Gold to spin off Brio subsidiary as standalone company

    Canadian miner Yamana Gold said on Monday it plans to spin off its Brio Gold subsidiary, which owns non-core gold mining properties in Brazil, as a standalone public company to its shareholders.

    Yamana, a mid-sized gold producer, last November tried to reduce its 100 percent stake in Brio through a private share placement but later suspended that plan, citing poor market conditions.

    In the latest move, Yamana shareholders will receive purchase rights in Brio as a dividend in-kind, which they can use to buy shares in the unit. The exercise price will depend on market demand.

    Yamana would retain an unspecified stake in Brio.

    The Toronto-based producer said a spin-off would allow it to "better focus on its portfolio of six, soon to be seven, producing mines in top mining jurisdictions and on its organic growth pipeline".

    Yamana, which has operations in Canada and South America, will use proceeds from the exercise of the purchase rights and any direct sales of Brio shares to reduce debt. Brio would not get any of the proceeds.
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    Steel, Iron Ore and Coal

    China's coal price up 12% in Sept

    China's coal price index was 414.07 in September, up 11.99 percent from August and 22.71 percent from a year earlier, said the country's top economic planner on Tuesday.

    Since June 2016, the coal price index has been rising for four consecutive months, the National Development and Reform Commission (NDRC) said.

    Regional data show that coal prices in Hebei, Chongqing and Shandong saw faster month-on-month increase, with prices in northern Hebei rising 19.33 percent, southern Hebei 22.66 percent, Chongqing 19.64 percent and Shandong 17.76 percent.

    Insiders said that since the beginning of this year, the country has actively promoted the supply-side structural reform which helped ease the supply-and-demand imbalance of the coal market. From a long-term perspective, coal consumption will continue to decline with increasing overcapacity pressure, so it remains an arduous task to keep coal prices stable.

    The top economic planner has said that the country's coal price will stabilize and shore up coal production. New coal supplies helped major thermal power plants increase their inventory by some 5.28 million tonnes in September, according to an online statement of the NDRC.

    On Sept 23 and Sept 27, two ministerial meetings on winter coal supply agreed to release certainly advanced production capacity to ensure supply.

    It also decided to relax a limit on the number of production days for efficient coal producers, with the former 260-day cap increased to a maximum of 330 days. The original limit, had it been followed, would have cut production by over 500 million tonnes in 2016.

    At a press conference on Sept 23, an NDRC official attributed the price rise to increasing coal consumption, a crackdown on illegal production, as well as transport and logistical problems.
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    Shanxi Coking Coal allows 27 coal mines to boost output

    Shanxi Coking Coal Group Co., Ltd., China's top producer of the steel-making material, has been allowed to boost output at 27 coal mines over October 1 to the end of the year to ease tightness in the domestic market.

    These mines, with annual capacity of 72.4 Mtpa, will produce 15.61 million tonnes of coal in the fourth quarter of the year, 1.763 million tonnes higher than the previous plan of 13.85 million tonnes based on the government-mandated 276-workday reform.

    Meanwhile, Shanxi Jincheng Anthracite Mining Group Co., Ltd., another major coal producer in the province, would also increase workday of its 11 mines to 330 days in the same period.

    Total production capacity of these mines stood at 35.5 Mtpa. And they will provide as much as 5.8 million tonnes of coal in the fourth quarter.

    As one major coal production base in China, Shanxi produced 523.75 million tonnes of coal in the first eight months, down 15.7% year on year, accounting for 24% of the country's total. Coal output in August stood at 66.56 million tonnes, down 21.3% on year.
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    US coal production to fall 19pct on year in 2016, EIA

    Coal production in the US is expected to fall 19% year on year to a total of 658.4 million tonnes in 2016, according to the monthly Short Term Energy Outlook released by the Energy Information Administration (EIA) on October 13.

    The coal output in 2017 is likely to climb to 683.9 million tonnes, partly due to higher prices of natural gas, said EIA in the report.

    Coal consumption in power sector is expected to drop 9% on year to 610.4 million tonnes in 2016, which would be the lowest volume since 1984. It will account for 30% of total electricity output in this year.

    Coal consumed in power sector in 2017 may total 620.4 million tonnes, up 1.7% from a year ago. It will account for 30.5% of electricity production in 2017.

    Total coal consumption of the country is projected to be 662.1 million tonnes in 2016, down 8.9% on year, the lowest annual volume since 1982. In 2017, it will be 671.2 million tonnes.

    Coal exports of US are expected to decline 26.3% on year to 49.4 million tonnes in 2016, with exports of metallurgical and thermal coal at 34.6 million and 14.8 million tonnest, accounting for 70.1% and 29.9% of 2016 exports.

    EIA projects the country's coal exports to total 47.2 million tonnes in 2017, with metallurgical and thermal coal exports at 31.3 million and 15.9 million tonnes.
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    Glencore's loss on the hedge to reach $1.2 bln as prices rally

    Glencore, the world's biggest coal exporter, is expected to suffer loss on the hedge of as much as $1.2 billion as coal prices continued to go up wildly in the second half of this year, Bloomberg reported, citing analysts of Liberum Capital Ltd.

    The company reported a $395 million mark-to-market non-cash loss in the first half of the year on hedges for future sales, which applied to the equivalent of about half its annual production.

    The rally in thermal coal, which was mainly bolstered by increased coal import demand from China since April amid its capacity cut policy, is taking a bigger bite out of Glencore's profits after the company locked in prices prior to the surge.

    Coal prices are expected to decline after Chinese governments decided to temporarily loosen limits on thermal coal production until December, Liberum analyst Ben Davis wrote in a report on October 17.

    Glencore has been working to slash its debt load after its share price collapsed last year. The move to hedge about 55 million tonnes of output was a "corporate risk-management" decision, the company said in August.

    It produced 59 million tonnes of coal in the first half of this year from mines in Australia, Colombia and South Africa. Glencore expects the forward sales to be settled by the end of June.

    "We have a trading view that over the next six months it remains well supported. Glencore will produce about 125 million tonnes of coal this year", James McGeoch of Citigroup Inc. wrote in a note to clients on October 17.
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    Rio Tinto's coal assets attract four suitors on price rise

    The contest to buy Rio Tinto's $1 billion-plus coal mining portfolio is understood to have widened to about four parties, as surging commodity prices prompt lenders to reopen their doors to the resources industry, The Australian reported.

    The portfolio includes Hunter Valley and Mount Thorley Warkworth thermal coal operations in NSW.

    Already, Yancoal and Glencore are competing for the thermal coal mines. Some market analysts believe Yancoal, which is eager to secure long-term supply into China, and Glencore, a trading house that can maximise the returns on its position, are the most logical buyers.

    Other parties are believed to have entered the frame in recent days, amid a change in debt market conditions.

    Possible interested suitors include private equity firm Apollo, which is in due diligence to buy Anglo American's Grosvenor and Moranbah North coal mines in Queensland.

    Another is perhaps the BHP Billiton-Mitsubishi Alliance, which was the under-bidder in that competition.

    A note from HSBC cites the rampant gains in both the coking coal price, which has more than doubled from $90/t in June to $226/t, and the thermal coal spot price, which is $89/t, compared to the $54/t it traded at around June.

    While in some respects this is good news for coal miners, the fluctuating prices are creating challenges for advisers working on deals, trying to determine the right price for the assets at a time the overall sector appears to be improving.

    According to a note from HSBC, coal miners are also now benefiting from higher contract prices.

    The bank noted that a fourth-quarter contract price for coking coal negotiated with a major Japanese buyer was 117% higher than the third quarter price at $200/t, in a deal that will likely set the benchmark for the quarter.

    For thermal coal, the contract price is set annually and is fixed through to March 2017, so the impact is difficult to predict.

    Attached Files
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    Jiangsu Jan-Sep coal output down 29pct on year

    Eastern China's Jiangsu province produced 10.31 million tonnes of raw coal over January-September, down 29.05% year on year, showed data from the provincial Economic and Information Technology Commission.

    Of this, Xuzhou Coal Mining Group, one large state-owned coal producer of the province, contributed 3.71 million tonnes or 36% of the total over the same period, down 40.27% from a year ago.

    Datun Coal & Electricity Co., Ltd, a subsidiary of China National Coal Group, produced 6.22 million tonnes of raw coal, sliding 7.2% from a year ago.

    Coal output from local state-owned mines – owned by the provincial and lower-level governments – plunged 76.7% on year to 377,100 tonnes.

    Commercial coal sales in the province reached 9.54 million tonnes over January-September, down 24.45% on year.

    Coal sales of Xuzhou Coal Mining Group and Datun Coal & Electricity Co., Ltd stood at 3.39 million and 5.75 million tonnes during the same period, falling 38.45% and 3.26% on year; sales of local state-owned mines dropped 75.52% on year to 388,800 tonnes.

    By end-September, commercial coal stocks in coal producing firms stood at 168,700 tonnes, falling 65.63% on year but up 7.18% from the start of the year.

    In September, sales price of commercial coal averaged 496 yuan/t ($73.62/t), rising 137.41 yuan/t on year and up 54.35 yuan/t from August.

    Attached Files
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    Cyclones off Western Australia could hike iron ore price

    Cyclones slamming into Western Australia are nothing new for Australia's iron ore producers, but this summer could be especially stormy in the Southern Hemisphere, according to the Australian Bureau of Meteorology.

    The bureau forecasts that inclement weather due to "neutral to weak La Niña conditions in the tropical Pacific Ocean and warmer than average ocean temperatures to the north and east of Australia," will mean a higher-than-average number of cyclones for the region. A greater frequency of cyclones generally corresponds to the La Niña weather phenomenon.

    Western Australia, which hosts the Pilbara iron ore belt, has a 67% chance of getting more than the average 11 tropical cyclones from November to April.

    "Ocean temperatures are currently 1–2 °C warmer than average to the north and east of Australia which is favourable for tropical cyclone development. The Southern Oscillation Index, a measure of the atmospheric component of [the El Niño-Southern Oscillation] (ENSO), has been positive through this period and exceeded La Niña thresholds in the last two weeks of September," the bureau stated in its Australian Tropical Cyclone Outlook for 2016 to 2017, published last week.

    It predicts Western Australia, which hosts the Pilbara iron ore belt, has a 67% chance of getting more than the average 11 tropical cyclones from November to April. At least two of those cyclones are expected to make landfall, compared to last season, which was the least active on record. A cyclone in Januaryshut down Port Hedland, the world's largest iron ore port. Queensland, a major coal-producing region, will be hit worse. The bureau says the Queensland coast will see up to eight cyclones, though only one or two should reach land.

    The expected bad weather has Macquarie, an Australian bank, saying that the supply or iron ore and metallurgical coal could be affected.

    “The first quarter of each year is typically weakest for seaborne supply for both commodities due to wetter weather, and with conditions expected to be more adverse than usual, these markets could stay tighter for longer,” says the bank in a research note quoted by The Australian.

    In the most recent trading session iron ore was up 20 cents to US$56.80 per tonne, extending gains to five straight sessions.

    The price of iron ore is up 32% this year and like coking coal the resurgence comes against expectations of further declines as Chinese steelmaking peak after three decades of growth.

    In 2011 floods in key export region in Queensland saw the coking coal price touch $335 a tonne. The iron ore price peaked in February that same year at $191.50 a tonne.
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