Mark Latham Commodity Equity Intelligence Service

Monday 25th July 2016
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    WTO head says China accession deal must be fully applied in market status debate

    China's World Trade Organization accession deal must be fully applied, the head of the trade governing body said on Friday, after the European Commission said it would adopt a new method to assess whether China's exports are priced unfairly low.

    The European Union has been debating whether to grant China "market economy status" from December, which China says is its right 15 years after joining the WTO. Failure to do so could spark a trade war.

    The commission said this week that China was not a market economy and that it would not recognize it as such, but would adopt a new method to set duties that would abide by WTO rules.

    China's Commerce Ministry said it would watch the process closely and further assess the mechanism after the proposal is more clear.

    The terms of China's WTO accession protocol were not up for negotiation, WTO director-general Roberto Azevedo said at a briefing after a joint meeting with Chinese Premier Li Keqiang and the heads of the International Monetary Fund, the World Bank, and other senior global economic officials.

    "The terms of the protocol apply to all WTO members equally. They may see it differently or understand that differently, but the terms of the protocol apply," Azevedo said, adding that the WTO had no need to make a determination on China's market economy status.

    "Now the way forward, in my view, is to face the issue squarely, collaboratively, through dialogue, trying to find sustainable solutions for this and other sectors where over capacity may exist," he said.

    Because China is currently not treated as a market economy in cases of alleged dumping, EU trade investigators compare Chinese export prices to those of a third country, such as the United States, rather than to domestic prices.

    China says this is discriminatory and would breach WTO rules based on the agreement it set when it became a member on Dec. 11, 2001.

    The European Union has 59 sets of measures in place to counter dumping or subsidies on products coming from China, ranging from aluminum foil to wire rod. Of 34 ongoing investigations, 22 concern China, the most notable related to different grades of steel.
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    Brazil state could ban dam design used at Samarco mine

    A Brazilian state law to ban upstream tailings dams, the design used at a dam that collapsed at the Samarco iron ore mine in November, could be approved this year, an environmental official for the state of Minas Gerais told Reuters on Wednesday.

    Anderson Silva de Aguilar, the subsecretary for environmental regulation, also said Samarco, which is co-owned by Vale SA and BHP Billiton, would not be resuming operations this year and may not in 2017 either.

    In an emailed comment, Samarco said it was following all licensing procedures and had delivered the documents necessary for agencies to allow it to resume partial operations.

    Support for a ban of upstream tailings dams from Silva de Aguilar, who has been in the job for less than two months, represents a major policy change for his department that could increase the cost of new projects in Brazil's mining heartland.

    As recently as May, his predecessor, Geraldo Abreu, said an outright ban was not on the cards in a Reuters report which showed that engineers, prosecutors and tailings dam experts were increasingly arguing for a ban.

    "It was a devastating disaster... it is a stain on the industry," Silva de Aguilar said by phone. "There is now great impetus for us to introduce more rigorous norms and criteria."

    A dam design used to store mining waste, known as tailings, upstream costs about half the price of other dams but is regarded as having a greater risk of failure because its walls are built on a foundation of mining waste rather than external material or solid ground. It is also the most common, holding back waste at mines across the world.

    Chile, where earthquakes have caused deadly spills in the past, is currently the only major mining nation to ban upstream dams.

    The dam burst at the Samarco mine killed 19 people, left hundreds homeless and polluted a major river. Brazil's government called it the country's worst-ever environmental disaster.

    Vale, Brazil's largest miner and the world's biggest producer of iron ore, has already warned that stricter licensing laws could force it to cut output by as much as 100 million tonnes.

    Silva de Aguilar said he aims not to curtail Minas Gerais' mining industry, crucial to the state's economy.

    "The state can't afford to lose mining activity now, our gross domestic product depends on it, but the standards will be much higher," he said.

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    Oil and Gas

    Nigeria's Buhari says government talking to Niger Delta militants

    The Nigerian government is talking to militants in the Niger Delta to end a wave of attacks on oil and gas facilities which have cut oil production by 700,000 barrels a day, top officials said on Thursday.

    But the Niger Delta Avengers, a militant group that has claimed responsibility for a series of attacks, said it was not aware of any talks, saying there would be no dialogue without involving the international community

    The government was using oil companies and security agencies to talk to the militants "to find a lasting solution to insecurity in the region", President Muhammadu Buhari said in a statement.

    Buhari also said his government was reviewing an amnesty program for former militants, which offers cash and job training, after initially slashing the scheme's budget by two-thirds and angering militants.

    "We understand their feelings," Buhari said. "We are studying the instruments (of the amnesty). We have to secure the environment, otherwise investment will not come."

    In June, government officials said a one-month ceasefire had been agreed with the Niger Delta Avengers but the group reiterated on Thursday no talks were going on.

    "We are not aware of any peace talk," the group said in a statement on its website. "President Buhari... is not sincere to the Nigeria people and their foreign allies."

    Militants say they want a greater share of Nigeria's oil wealth to go to the impoverished Delta region. Crude sales make up about 70 percent of national income and the vast majority of that oil comes from the southern swampland.

    Nigeria, an OPEC member, was Africa's top oil producer until the recent spate of attacks pushed it behind Angola.

    Pipeline vandalism has reduced oil production by 700,000 barrels a day, Maikanti Baru, the new managing director of state oil firm NNPC, said in a statement.

    "The 2016 national budget plan was based on 2.2 million barrels per day of crude oil production," Baru said. "However, the budget plan is now grossly impacted due to renewed militancy: with about 700,000 bpd of oil production curtailed due to pipeline vandalism."

    "Domestic natural gas supply to power is equally impacted with (an) estimated drop of about 50 percent from 1,400 million standard cubic feet of gas per day," he said.
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    Japan’s LNG imports decline in June

    Imports of liquefied natural gas (LNG) by world’s largest consumer of the chilled fuel, Japan dropped 5.6 percent in June as compared to the same month a year ago.

    Japan imported 6.26 million mt of LNG in June, provisional data from Japan’s Ministry of Finance showed on Monday.

    The country’s coal imports for power generation also dropped 8.6 percent to 8.52 million mt, the data showed.

    According to the data, Japan paid about US$1.93 billion for LNG imports in June, down 43.9 percent on year.

    To remind, the price of spot LNG cargoes arriving in Japan in June reached $4.5 per mmBtu on DES basis, showing the first glimpse of recovery following record lows in the previous two months.
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    Exxon snaps up InterOil in LNG push as Oil Search bows out

    ExxonMobil Corp said on Thursday it would buy InterOil Corp for more than $2.5 billion in stock, adding a gas field to expand exports from Papua New Guinea and better positioning it to meet Asian demand for liquified natural gas.

    Oil majors are targeting Papua New Guinea for growth as the quality of its gas, low costs and proximity to Asia's big LNG consumers make it one of the most attractive places to develop projects following a collapse in oil and gas prices.

    "I think (the deal) shows that Exxon views LNG as a very strong growth business. I believe that LNG demand over time will grow faster than oil," said Brian Youngberg, oil analyst with Edward Jones in Saint Louis.

    Exxon sealed the deal for InterOil after Australia's Oil Search Ltd said earlier on Thursday that it would not pay more than the $2.2 billion it offered in May, a proposal that was backed by French giant Total SA.

    InterOil owns a 36.5 percent stake in the Elk-Antelope gas field, which is operated by Total. The acquisition will give Exxon interests in six licenses in Papua New Guinea covering about four million acres.

    Oil Search said it and Total agreed that letting Exxon take over would help speed up development of the Elk-Antelope field.

    Exxon said it would pay InterOil shareholders $45 per share in stock and that it would also make an additional cash payment based on the size of the Elk-Antelope field.

    That payment is worth $7.07 per share for each trillion cubic feet equivalent (tcfe) of certified gross resource from the field above 6.2 tcfe and up to a maximum of 10 tcfe.

    Exxon said it would evaluate processing of gas from the Elk-Antelope field by expanding its LNG export plant in Papua New Guinea. Oil Search also owns a stake in the LNG plant.

    The plant is a 6.9 million tonne per annum integrated project operated by Exxon. The gas is sourced from seven fields and Elk-Antelope gas could be used to feed an expansion.

    "It will be interesting to watch how Exxon pursues the development of InterOil's gas resources. Will it be by expanding the existing LNG plant already operating in the country, or building a brand-new project?," said Pavel Molchanov, an energy analyst with Raymond James.
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    Vedanta sweetens deal for Cairn merger to sway shareholders

    Vedanta sweetened the deal for Cairn India Ltd. shareholders by increasing the number of preference shares four times to salvage a deal which would help create a natural-resources group to compete with BHP Billiton and Vale.

    Vedanta will offer minority shareholders of Cairn India one equity share and four redeemable-preference shares with a face value of 10 rupees each, it said in a statement Friday. The preference shares will carry a coupon of 7.5% and tenure of 18 months. The revised deal implies a 20% premium to the one-month volume weighted-average price of Cairn shares, according to the statement.

    The merger was announced in June last year when Vedanta offered one equity share and one preference share to merge Cairn with itself. In January, Vedanta chairperson Anil Agarwal had said the merger will be completed by March, though it was then delayed as the approval of key shareholders could not be secured.

    “The revised terms are a bit of a sweetener,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global FinancialServices Ltd. “This clearly shows Vedanta is seeking quicker approvals from major shareholders.”

    Cash Reserves

    The merger will also help the group weighed down by 780 billion rupees of debt. Vedanta Ltd. is India’s most-indebted base metals company. Cairn India had 233.9 billion rupees of cash and near cash as of June 30.

    “The simplified corporate structure will better align interests between all shareholders for the creation of long-termsustainable value,” Agarwal said in the statement. On Thursday, Cairn India Chairman Navin Agarwal had said the merger is likely to be completed by March 2017.

    Shares of Cairn India closed 8.5% higher at 191.90 rupees inMumbai on Friday. Vedanta Ltd. ended with a 7.8% advance to 169.30 rupees, while the benchmark S&P BSE Sensex was 0.3% higher.

    Vedanta Plc’s ownership in Vedanta Ltd. is expected to fall to 50.1% on completion of the merger from 62.9% now, according to the statement. The courts will convene meetings of shareholders of Vedanta Ltd. and Cairn India in September to discuss the new terms. Cairn India’s minority shareholders will own 20.2% and Vedanta minority shareholders 29.7% in the merged entity.
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    Santos half-year production hits record

    Oil and gas company Santos produced a record 31.1-million barrels of oil equivalent in the first half of 2016 and significantly boosted its sales volumes, but a 29% decrease in the average realised oil price has dented its revenue.

    Santos increased its production by 10% year-on-year in the first six months of 2016, comprising 15.6-million barrels in the first quarter and 15.5-million barrels in the second quarter.

    Half-year sales volumes increased by 32% year-on-year to 40.9-million barrels of oil equivalent, but Santos suffered a 29% decrease to $43/bl in the average oil price achieved.

    Sakes revenue fell by 6% year-on-year to $1.19-billion, compared with $1.26-billion in the first half of 2015. Second-quarter sales revenue declined by 3% year-on-year to $590-million.

    The company maintained its 2016 production guidance of between 57-million and 63-million barrels of oil equivalentand its sales guidance of between 76-million and 83-million barrels of oil equivalent.

    Santos MD and CEO Kevin Gallagher said on Friday that the company’s commitment to improving productivity and lowering costs was starting to deliver tangible results.

    “There is a lot of work ahead of us, but today’s results show we are heading in the right direction,” he stated.

    Santos will release its results for the half-year ended June 30 on August 19.
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    Angola LNG shut down, production to resume late September

    The $10 billion Angola LNG project, led by U.S. energy giant Chevron, has been shut down with production expected to resume again in September.

    The recent shutdown is part of the restart and commissioning programme, an Angola LNG spokeswoman told LNG World News on Thursday.

    “We expect that LNG production will be resumed in late September,” the spokeswoman said.

    The 5.2 million tons per year liquefaction plant at Soyo loaded its first cargo in June after resuming production in May.

    To remind, the facility was closed for more than two years due to a major rupture on a flare line that occurred in April 2014.

    LNG World News understands that the plant exported four cargoes of the chilled fuel since June.

    Angola LNG is a joint venture between Sonangol (22.8%), Chevron (36.4%), BP (13.6%), Eni (13.6%), and Total (13.6%).
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    U.S. refinery profits set for worst year since start of shale boom

    U.S. independent refiners such as Valero Energy Corp and Phillips 66 look set to post another quarter of disappointing earnings, putting the industry on track for its worst year since the U.S. shale boom began in 2011.

    The companies had hoped to rebound from a weak first quarter on the back of strong U.S. gasoline demand. But while U.S. motorists have taken to the highway in record numbers, refiners have been undone by record supplies of gasoline and diesel products.

    High volumes of imports, combined with refiners switching to maximum gasoline output earlier than usual, resulted in inventories climbing well above seasonal highs and even hitting record highs on the East Coast.

    In recent weeks, analysts have slashed second-quarter estimates ahead of earnings season and tempered their expectations for the remainder of the year. Several are now predicting that refiners may have to take more drastic action to protect margins and force a drawdown of stockpiles.

    "I expect the refiners to exit summer driving season with higher-than-usual inventories, so margins will get to the point that refiners will need to consider run cuts to balance things," Blake Fernandez, a Houston-based analyst at Scotia Howard Weil, said. "The back half of the year will be rough."

    Over the last 30 days, analysts have sharply reduced earnings expectations for big refiners. Valero, for instance, has seen earnings-per-share forecasts for the next 12 months drop by 19 percent, according to StarMine, a Thomson Reuters subsidiary. Phillips 66 estimates are down 17 percent in that time. Several other refiners have seen estimates decline a similar amount.

    Wells Fargo analysts Roger Read and Lauren Hendrix said the weak start to the third quarter means any optimism for a good summer performance is "rapidly evaporating."

    Delta Air Lines kicked off the poor earnings season earlier this month by announcing that its 182,000 barrel-per-day refinery outside of Philadelphia lost $10 million in the second quarter, following a loss of $18 million in the first quarter. Chief Financial Officer Paul Jacobson said Delta now expects the refinery to lose money this year.

    The facility, which Delta bought in 2012, reported $176 million in operating income in the first half of 2015 and was profitable in both 2014 and 2015.

    The largest 10 independent U.S. refiners booked a combined net income of $944 million in the first quarter, down 74 percent from last year's $3.6 billion, a Reuters analysis showed. That compares with annual profits of more than $10.6 billion in the past five years, when the refiners feasted on the abundance of domestic crude flowing from U.S. shale fields.

    The group of refiners recorded $6.2 billion in profits in the second quarter of last year, the best quarter in the past five years, Reuters data showed. The U.S. gasoline crack spread 1RBc1-CLc1, a proxy for refiner margins, averaged more than $25 a barrel during the second quarter last year. It hovered around $19 a barrel during the same period this year.

    Among other headwinds for refiners in the second quarter, global oil prices hit six-month highs in June. That squeezed margins and costs rose for renewable fuel credits, which refiners can earn by blending biofuels like ethanol into gasoline and diesel.

    Renewable fuel credits averaged about 78 cents apiece in the second quarter of 2016, about 25 percent above the same period a year ago, according to prices from the Oil Price Information Service analyzed by Reuters.

    Prices for the credits, which can also be bought in an opaque market, have rallied on what traders and industry sources have said are more ambitious targets from U.S. regulators on the volumes of ethanol required to be blended with gasoline.

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    Schlumberger Joins Halliburton in Calling Bottom of Oil Downturn

    The world’s two largest providers of oilfield drilling and fracking services have now declared that the worst may be over in the two-year-old oil market crash.

    Schlumberger Ltd. said Thursday that the oil industry appears to have reached the bottom of the cycle, echoing smaller rival Halliburton Co., which on Wednesday said the North American market reached its lowest point in the second quarter and is poised for modest growth the rest of this year.

    "They’re the two dominant players in the market, both of whom just called the bottom," James West, an analyst at Evercore-ISI in New York, said Thursday in an interview. "It’s a positive. Calling the bottom in the market sends the right signal and Schlumberger has a ton of credibility."

    As the downturn dragged on, executives at the world’s largest oilfield services provider have had to push back their expectations for an improvement in drilling and fracking work, with crude prices remaining more than 50 percent lower than their peak in 2014.

    Schlumberger reported a unexpected second-quarter loss of $2.16 billion, or $1.56 cents a share, compared with a profit of $1.12 billion, or 88 cents, a year earlier, according to a statement Thursday. The Houston- and Paris-based company was expected to post a $296.3 million profit, according to the average of 28 analysts’ estimates compiled by Bloomberg. The company also said it cut another 8,000 jobs in the second quarter after slashing a similar amount in the first three months of the year.

    "In the second quarter market conditions worsened further in most parts of our global operations," Kibsgaard said in the statement. "But in spite of the continuing headwinds, we now appear to have reached the bottom of the cycle."

    The stock, which closed 0.7 percent lower at $80.02, gained as much as 0.7 percent in after-hours trading. It traded at $80.43 as of 6:16 p.m. in New York.

    The nearly doubling of oil prices this year has Schlumberger shifting its focus to renegotiate contracts with explorers and trying to recover some of the discounts it was forced to give during the downturn, Kibsgaard said.

    Pricing Outlook

    "That is a positive that they’re seeing that there is a little bit of appetite to renegotiate those contracts," Rob Desai, an analyst at Edward Jones in St. Louis who rates the shares a buy and owns none, said Thursday in a phone interview. "I think pricing will still be weak for a while. It could be a couple of years before pricing really recovers."

    Schlumberger’s President Patrick Schorn said last month that the second quarter "may represent the final approach to a market bottom." In April, Schlumberger closed its $14.8 billion takeover of Cameron International Corp., marking the largest deal among oilfield contractors this year.

    The service provider has made several rounds of job cuts to adjust to lower spending by its customers. The company has now cleaved off more than 50,000 jobs since the downturn began in late 2014, and its total headcount now stands at more than 100,000 with the addition of Cameron’s workforce, Joao Felix, a spokesman, said Thursday in an interview.

    ‘Modest Uptick’

    Halliburton, the world’s second-largest oilfield services provider, reported a second-quarter loss of 14 cents per share, excluding certain items, earlier this week. The company also forecast a "modest uptick" in the U.S. rig count for the remainder of the year.

    "They both are bullish for the medium- to long-term," Desai said. "Maybe Schlumberger is a little bit more cautious on the near term, but that’s to be expected, given the history of the two companies and Halliburton’s reliance more on North America."
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    Fracklog in the Biggest U.S. Oil Field May All But Disappear

    The number of dormant crude and natural gas wells in the U.S. stopped growing in the first quarter -- and may all but disappear in the nation’s biggest oil field should prices hold steady.

    As of April 1, there were 4,230 wells left idle after being drilled, a figure little changed from January, according to an analysis by Bloomberg Intelligence. While some explorers have continued to grow their fracklog of drilled but not yet hydraulically fractured wells, others began tapping them in February as oil prices rose, the report showed.

    Crude in the $40- to $50-a-barrel range may wipe out most of the fracklog in Texas’s Permian Basin and as much as 70 percent of the inventory in its Eagle Ford play by the end of 2017, according to Bloomberg Intelligence analyst Andrew Cosgrove. While bringing them online is the cheapest way of taking advantage of higher prices, the wave of new supply also threatens to kill the fragile recovery that oil and gas markets have seen so far this year.

    “We think that by the end of the third quarter, beginning of the fourth quarter, the bullish catalyst of falling U.S. production will be all but gone,” Cosgrove said in an interview Thursday. “You’ll start to see U.S. production flat lining.”

    Drillers that expanded operations in U.S. shale fields found that sidelining wells was the easiest way to cut costs when oil and gas prices plunged. Since then, these wells have been “just sitting around, basically waiting for a better price to come along,” said Het Shah, an analyst at Bloomberg New Energy Finance.

    U.S. oil producers extended the biggest shale drilling revival since last summer as rigs targeting oil and gas in the U.S. rose by 7 to 447 last week, according to Baker Hughes Inc. Dave Lesar, chief executive officer of Halliburton Co., the world’s largest provider of hydraulic-fracturing work, said Wednesday that the market in North America has turned and that he expects a “modest uptick” in drilling in the second half of the year.

    U.S. oil futures have rallied 21 percent this year, settling at $44.75 a barrel on Thursday. Gas is up 15 percent, closing at $2.692 per million British thermal units.

    “With oil hovering below $50, decisions on whether to tap the idled supply are increasingly driven by local well economics and company-specific factors,” Bloomberg Intelligence analysts Cosgrove and William Foiles wrote in the report.

    EOG Resources Inc. began reducing its fracklog in early February. The company is focusing on completing dormant wells and has said it plans to trim the backlog to 230 from 300 this year.

    Bakken Basin

    Meanwhile, Continental Resources Inc. added 78 dormant wells in the Bakken formation, where it’s the biggest leaseholder, from Sept. 1 to April 1 -- more than all the drillers in the play combined. The company had more long-term rig contracts and likely has the capital to complete wells as prices rise, Foiles said.

    "It shows management is pretty confident in their situation," he said.

    Among the three major U.S. oil plays -- the Permian, the Eagle Ford and the Bakken -- the number of untapped wells increased the most in the Permian, which saw a 12 percent jump in the first quarter. That topped the 4.4 percent increase in the Bakken. Dormant wells across the three plays may fall 25 this year, with the Permian leading the way.

    "The Permian drawdowns will continue to trump those you see in other basins," Cosgrove said.

    New output from the wells will equal the decline from older ones in four shale oil basins, according to Everscore ISI. That means tapping them will only temporarily stem production declines.

    And while dormant wells "coming online may cause prices to remain flat" until the end of the year, sometime in 2017 prices will gradually improve, said Brian Youngberg, an energy analyst at Edward Jones.
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    U.S. oil drillers add rigs for fourth straight week - Baker Hughes

    U.S. drillers this week added oil rigs for a fourth consecutive week, according to a closely followed report on Friday, with the recent return to the well pad
    expected to soften the decline in domestic crude production.

    Drillers added 14 oil rigs in the week to July 22, bringing the total rig count up to 371, compared with 659 a year ago, energy services firm Baker Hughes Inc said. That is the biggest weekly increase since December. RIG-OL-USA-BHI    
    Most of the new rigs were in the Permian shale basin in west Texas, where drillers added eight, bringing the total count up to a five-month high of 168.

    Since early June when U.S. crude prices settled over $50 a barrel, drillers have added 55 oil rigs.

    Analysts and producers said $50 was a key level that would prompt a return to the well pad after the biggest price rout in a generation prompted a slump in the oil rig count since it peaked at 1,609 in October 2014.
    That increased drilling should stop the decline in production in a few months, the U.S. Energy Information Administration projected in its latest Short-Term Energy

    "Higher and more stable crude oil prices are contributing to increased drilling in the United States, which may slow the pace of production declines," the EIA said.    

    After sliding every month this year from 9.2 million barrels per day in January, the EIA expects crude output to bottom at 8.1 million bpd in September before edging up to 8.2 million bpd in October and 8.3 million bpd in November and December. In 2015, production averaged 9.4 million bpd.

    "While declines from existing wells are expected to result in a net decrease in production, increased drilling and higher well productivity are expected to soften the decline."
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    Canadian energy earnings hint at brighter outlook for oil

    The Canadian oil and gas earnings season kicked off on Thursday with signs of an industry recovery as Encana Corp and Precision Drilling Corp outlined plans to boost activity.

    Calgary-based Encana reported an unexpected quarterly operating profit and said it would boost 2016 capital spending by $200 million from a previously announced range of $900 million to $1 billion. It also plans to increase production by about 13,000 barrels of oil equivalent per day at its core shale operations.

    Precision Drilling, despite posting a second-quarter loss, said oil producers were increasing capital budgets due to the 70 percent rally in crude prices since February and putting more rigs back to work.

    "Our customers appear to be looking beyond the oil price lows of earlier this year, resetting spending to current commodity price levels, and beginning the early stages of planning for improved longer-term fundamentals," said Precision Drilling Chief Executive Officer Kevin Neveu.

    Both companies operate in Canada and the United States, and analysts said the uptick in optimism might be mirrored by some U.S. shale companies like Pioneer Natural Resources Co.

    Analysts on average expect Pioneer to post a second-quarter loss of 35 cents per share when it reports next week, according to Thomson Reuters I/B/E/S.

    While Encana has benefited from a cash injection from recent asset sales, analysts said the move to boost spending indicates the best North American light oil plays, like the Permian and Eagle Ford in the United States and the Montney in western Canada, could start to attract a surge in investment.

    Encana said 75 percent of the additional capital would go to its Permian shale operations.

    Morningstar analyst David Meats said he expected many companies to add one or two extra rigs, plan to complete more drilled but uncompleted wells and generally be more optimistic.

    "It's a sign of the first step on a long journey back to light oil production growth," Meats said. "Certainly it's very likely that other producers will follow suit and allocate other capital to the Permian."

    Encana CEO Doug Suttles said the company had made its operations "massively more efficient." Operating costs were down 32 percent from a year earlier, and Suttles said two-thirds of those savings would be sustainable even if oil prices rise.

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    Southwestern Energy 2Q16: Bleeding Slows, 17 New Marc/Utica Wells

    Southwestern Energy, a major Marcellus and Utica Shale driller, filed its second quarter 2016 update yesterday.

    Bill Way, Southwestern CEO, called 2Q16 a “defining time” for the company.

    During 2Q the company has extended and delayed debt payments, and sold more stock.

    Financially the company is improving. In 2Q16 Southwestern lost $620 million, versus losing $815 million in 2Q15. The patient is still bleeding, but not as bad.

    The vast majority of their planned capital spending ($395M out of $750M) will get spent on Marcellus/Utica drilling. Speaking of which, the company placed 17 new Marcellus/Utica wells online in 2Q16, with plans to drill another 50 or so wells in the second half of this year.
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    Syngenta sees ChemChina deal done this year, first-half profit disappoints

    Syngenta sees ChemChina deal done this year, first-half profit disappoints

    Syngenta, the world's largest pesticides maker being taken over by state-owned ChemChina, still expects the deal to close this year despite concerns that U.S. regulators could throw a spanner in the works, it said on Friday.

    The Swiss company's shares slipped after it reported a worse-than-expected drop in first-half profit on Friday, adding to a heavy discount with ChemChina's agreed offer price.

    "We are having constructive discussions with all regulatory authorities which reinforce our confidence in closing the transaction by the end of the year," new Chief Executive Erik Fyrwald said in Syngenta's results statement.

    Syngenta shares were down 0.2 percent at 387 Swiss francs after the pesticides and seeds maker said first-half net profit fell 13 percent, hurt by weak agricultural markets, a rainy summer in Europe that kept farmers from spraying and a continued decline in sales in Latin America.

    The share price is well below ChemChina's offer of $465 (458 Swiss francs) per share, plus a 5 franc special dividend - worth a combined 463 francs - and currently dangles an almost 20 percent gain in front of shareholders.

    However, there are persistent concerns in financial markets that the deal could yet be scuppered by the Committee on Foreign Investment in the United States (CFIUS). Syngenta derives about a quarter of its sales from North America.

    Syngenta finance chief John Ramsay said the current share price discount to the offer price reflected investor uncertainty about what stance CFIUS will take.

    "It's largely due to the fact that CFIUS is an opaque process," he told Reuters. "I think arbitragers typically go out into the market, they listen to the chatter, they take a position. The challenge for everybody is that CFIUS is very tight, very private. They do their job professionally but they don't go leaking information."

    Liberum analyst Sophie Jourdier expects the deal to go through and has a 'buy' rating on Syngenta, justified by the wide discount between the current share price and the offer price.

    Syngenta reported group net income declined 13 percent to $1.06 billion in the first half from a year earlier, below a Reuters poll forecast of $1.28 billion.

    Sales fell 7 percent to $7.09 billion, lagging the market forecast of $7.22 billion.

    In the second half, the group expects a return to growth in Asia Pacific as droughts there ease. Growers in Brazil continued to face economic uncertainty and credit constraints.

    The group lowered its margin target for earnings before interest, taxes, depreciation and amortization (EBITDA) over sales to flat, from a previous forecast of a margin improvement on last year.

    "Group sales for the year are expected to be slightly below last year at constant exchange rates; reported sales are likely to show a mid-single digit decline due to the continuing strength of the dollar," CEO Fyrwald said.

    Efficiency measures, lower raw material costs and currency hedging should allow Syngenta to keep its full-year EBITDA margin at around last year's level, he said.

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    Yara $500 mln cost-cutting plan

    Shares in fertiliser maker Yara International soared on Thursday despite posting below-forecast second-quarter earnings as it announced plans to cut costs by $500 million a year by 2020.

    The company gave no details of where the savings would come from. Some analysts said the savings goal, representing about 5 percent of Yara's cost base, was feasible and could come from areas such as staff cuts and shaving the cost of supplies, but others were sceptical it could achieve cuts on this scale when the vast majority of its costs were on energy.

    Yara, the world's largest producer of ammonia, nitrate and complex fertilizer, had previously said it was looking to cut costs, but it was the first time the company had given a figure, which was more than its core earnings for the quarter.

    Fertiliser makers have been hit by low prices, with the economic downturn in Brazil, a major agricultural producer, dampening demand there and oversupply due to decisions to expand production capacity taken when prices were higher.

    "We have so far identified at least $500 million of annual improvement potential," Chief Executive Svein Tore Holsether said in a statement, adding that these would be fully realised by 2020.

    Yara said it would give more specifics about the cuts in the coming quarters, with a detailed presentation when the firm presents its fourth-quarter earnings early next year.

    "At this stage, we felt the number was of such significance that it should be communicated," Holsether said during a presentation. "We will get back to the details on where do we see the potential and how it will be phased in."

    Yara reported earnings before interest, taxes, depreciation and amortisation, excluding one-offs, of 3.96 billion crowns ($467.03 million) in the quarter, below analysts' forecasts for 4.04 billion in a Reuters poll, and down from 5.06 billion a year earlier.

    The results were driven by lower fertiliser prices, with average urea and nitrate fertilizer prices down around 25 percent, but were offset by the appreciation of the U.S. dollar against the Norwegian crown and the 33 percent lower cost of gas, Yara said. Producing fertiliser is energy-intensive.

    Massimo Bonisoli, an analyst at Equita SIM bank, said cutting 4.5 percent of total costs over four years looked feasible. He expected procurement, staff, optimising assets in Latin America and the distribution network to be the main sources of savings.

    Analysts at brokerage Norne Securities were more cautious, saying 65 to 70 billion crowns of Yara's 80 billion crown cost base were energy costs, which were difficult to cut.

    "What is left is only 10-15 billion crowns and it seems close to impossible that all or even half of the programme comes from there," said Norne, adding that the savings were likely to involve restructuring costs.
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    Ag-tech startup Indigo raises $100 million new funding round

    Agriculture technology startup Indigo has raised $100 million in a new round of funding, bringing its total financing to more than $150 million, a sign of growing investor interest in new ways to ease food scarcity.

    The $100 million investment led by the Alaska Permanent Fund, a $54.3 billion fund owned and managed by the state of Alaska, is believed to be the largest single financing round into the private ag-tech sector, Indigo said on Thursday.

    The $156 million raised by Indigo so far will support the Massachusetts-based company's efforts to create resilient crops that can better withstand water shortages.

    Indigo, which declined to give its valuation, restructures seeds by adding microbes to farm crops. This helps crops to be more resistant to insects, drought, severe weather and nutrient-poor soil, the company said.

    Microbes are a diverse group of microscopic organisms found in humans, plants and animals, and living everywhere from the surface of rocks to bottom of the ocean. Some cause disease, but others are essential to life - they break down waste, for instance, and help humans digest food and plants grow.

    According to Indigo, the microbes in plants have changed as more pesticides have been introduced to agriculture. Indigo has sequenced the genome of more than 40,000 microbes, building a massive database, Chief Executive Officer David Perry told Reuters.

    He said the company has identified microbes that may help plants survive more stressed conditions, particularly those brought by climate change.

    Indigo has not yet earned any cash from sales of the new technology and the results of its efforts are not yet known.

    The company's revenue will come from future payments at harvest, based on a farmer's increased earnings as a result of the higher yield from Indigo's seed technology.

    The company's cotton seeds were planted this spring on more than 50,000 acres, primarily in western Texas, Perry said. It is the company's first commercial product.

    "Ultimately we will judge our success on the yields at harvest, Perry said.

    Trials have shown a 10 percent greater yield of cotton when water was scarce, he said.

    Farmers will plant Indigo's reformulated wheat seeds, which the company said will grow better in water-scarce environments, on more than 20 million acres in parched states including Oklahoma, Kansas and Colorado this fall.

    Indigo aims to also re-engineer soy and corn seeds.

    "They are also big economic opportunities," Perry said.
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    Precious Metals

    Newmont hints at dividend increase as bullion prices soar

    Newmont hints at dividend increase as bullion prices soar

    Newmont Mining Corp, the world's second biggest gold miner by market value, hinted on Thursday that it will boost its quarterly dividend later this year, reflecting a 25 percent jump in bullion prices so far this year.

    Newmont, which posted market-beating quarterly profits on Wednesday reflecting price, production and cost gains, will review its gold price-linked dividend at an October board meeting.

    "It's certainly worth noting that if today's gold price is maintained, our gold price-linked dividend would double in the third quarter," Chief Financial Officer Laurie Brlas said on a conference call with analysts Thursday morning.

    "We do plan to reassess the dividend pay-out later this year, as we go through our 2017 business planning process, and would expect to be able to adjust it given our strong cash performance."

    In 2011, Colorado-based Newmont introduced a policy linking its dividend to average gold prices for the preceding quarter.

    The policy recommends an annual dividend of 10 cents per share when the average London Bullion Market Association gold price is up to $1,300 per ounce. That doubles to 20 cents a share when gold ranges between $1,300 and $1,399 an ounce and for each $100 an ounce increase above $1,399 the annual payout increases at a rate of 20 cents per share.

    The spot price of gold Thursday was $1,329.40, up from $1,060.24 at the start of 2016 as investors seek a safe haven during increasing geopolitical uncertainty and declining real interest rates.

    RBC Capital Markets analysts recently increased their gold price target to $1,500 an ounce from $1,300 in 2017 and 2018, but forecast a decline in 2020 to $1,300.

    Newmont Chief Executive Gary Goldberg said the board of directors will weigh the use of cash for debt reduction, project investment and shareholder returns. Increasing the dividend is preferable to share buybacks, he added.

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    Base Metals

    Plant shutdown hits Oz Minerals copper output

    Oz Minerals says it produced less copper last fiscal quarter because of disruptions from a plant shutdown, but more gold as it processed higher grade ore.

    The mining company (OZL) reported copper output of 27,350 tonnes in the three months through June, down from 31,018 tonnes in the quarter immediately prior. At 58,368 tonnes, it said first-half production tracked in line with its full-year output target of 115,000-125,000 tonnes.

    The loss of 10 per cent of processing plant availability at the Prominent Hill mine in South Australia was because of unplanned repairs to a damaged SAG mill.

    Oz Minerals said it also produced 30,099 troy ounces of gold during the period, up from 27,563 ounces in the first three months of the year.

    The miner, which produced 57,662 ounces of the precious metal in the first half, said output of gold will increase over the rest of 2016. It earlier projected annual output of 125,000-135,000 ounces.

    It said its cash balance increased to $564 million from $533 million at the end of March, aided by lower production costs.
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    Stronger China leads Norsk Hydro to up aluminium demand forecast

    Strengthening Chinese demand led Norsk Hydro, one of the world's largest aluminium producers, to raise its forecast for global aluminium demand growth this year to 4-5 percent as it reported forecast-beating earnings on Thursday.

    The company's global aluminium demand forecast, revised up from 3-4 percent, is now closer to peer Alcoa's forecast of 5 percent.

    Norsk Hydro said it saw stronger Chinese economic activity than previously anticipated and now expected aluminium demand in the country to grow 5-7 percent in 2016, up from a previous forecast of 3-5 percent.

    "(In China) we see aluminium moving into infrastructure, but also very much into building and construction," Chief Executive Svein Richard Brandtzaeg said while presenting second-quarter results.

    Norsk Hydro repeated it expected a largely balanced aluminium market for 2016 with a margin of plus or minus half a million tonne of spare aluminium.

    Norsk Hydro has faced a challenging market for years as the price of aluminium - used in the aerospace, construction and automotive sectors - has been low due to concerns about oversupply and a Chinese economic slowdown.

    But prices have recovered somewhat recently: LME benchmark three-month aluminium was up to a two-month high of $1,617 on Thursday.


    Shares in Norsk Hydro were the best performers on the European STOXX 600 index, reaching a five-month high of 5.2 percent at 0854 GMT against an index down 0.38 percent after posting forecast-beating second-quarter earnings.

    The company reported underlying operating profit of 1.62 billion Norwegian crowns ($190.73 million), down from 2.67 billion in the year-ago period, beating forecasts for 1.42 billion crowns in a Reuters poll of analysts.

    Core earnings for the firm's key primary metal division were 702 million crowns, more than double what analysts had expected in the poll, though down from 1.45 million year-on-year.

    The division's good result was partly boosted by two one-off items - an insurance refund of 50 million crowns and a tax reversal of 75 million crowns - but it was also due to lower fixed costs and carbon costs.

    In recent years Norsk Hydro has been working on cutting costs to counter the effect of low aluminium prices. Though they have recovered somewhat recently, they are still down 40 percent over the past five years.

    "Hydro's Q2-16 beat consensus 12 percent on underlying EBIT, demonstrating the "Better" improvement plan can deliver incremental shareholder value, in our view," UBS said in a note to clients. UBS has a neutral rating on the stock.
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    Steel, Iron Ore and Coal

    Indonesian H1 coal output down 16.27pct on year, official

    Indonesian H1 coal output down 16.27pct on year, official

    Indonesia produced 100.96 million tonnes of coal in the first six months this year, plunging 16.27% from 120.58 million tonnes recorded in the corresponding period of 2015, a senior Indonesian official said on July 21, citing data compiled by licensed coal producers in the country.

    Gatot Ariyono, director general of Minerals and Coal at the country's Ministry of Energy and Mineral Resources, attributed the decline to faltering demand and price drop in international markets.

    "Demands in both domestic and foreign markets were dropping. The price also affected production," he said.

    The reference price for coal stood at $51.81/t as of June, 13.06% lower than $59.59/t recorded in the same period last year, according to Gatot.

    He added that coal exports during the period stood at 79.98 million tonnes, down 19.79% year on year.

    Indonesia has set its coal production target for 2016 at 419 million tonens.
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    China sets up coal asset management firm to push overcapacity cut

    China has set up a coal asset management firm as part of its effort to reduce excess capacity in the sector, China's state-owned assets regulator said.

    China Shenhua Group, China National Coal Group Corp, China Reform Holdings Corp and China Chengtong Holdings Group have jointly set up the firm, the State-owned Assets Supervision and Administration Commission said in a website statement.

    The asset management firm will be mainly used to help cut overcapacity, push consolidation for state-owned coal resources and promote state-owned coal companies to restructure and upgrade.

    China has vowed to tackle price-sapping supply gluts in major industrial sectors, and said in February it would close 100 million to 150 million tonnes of steel capacity and 500 million tonnes of coal production in the coming three to five years.
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    BHP's thermal coal output down 16pct during FY2015-16

    Mining giant BHP Billiton saw its thermal coal output fall 16% on year to 34.25 million tonnes in fiscal year 2015-16 (July-June), far below its guidance of 40 million tonnes, according to its annual operational review released on July 20.

    The production cut was mainly due to bad weather and competition from alternative energy.

    During the period, the company's New South Wales coal output stood at 17.1 million tonnes, falling 13% year on year, followed by Colombia assets with 10.1 million tonnes, down 11% year on year, and US assets with 7.05 million tonnes, plunging 30% year on year.

    In the operational review, BHP said its average realized price for thermal coal in fiscal 2015-2016 was $48/t, dropping 17% from the year-ago level.

    Meanwhile, BHP's metallurgical coal output, however, reached a new high of 42.84 million tonnes, almost flat on year, and exceeded its guidance of 40 million tonnes for the fiscal year of 2015-16.

    The company's average realized hard coking coal prices was $83/t in fiscal 2015-2016, down 21% from $105/t a year prior.

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    Brazil's Vale expects 2017 iron-ore output to be below forecast

    Vale SAexpects full-year iron-ore output to come in at the lower end of forecasts this year, and below expectations in 2017, a sign the world's No. 1 producer of the raw material is effectively reining in production at low-margin facilities.

    Iron-ore output was 86.823-million tonnes in the second quarter, down 2.8% from a year earlier, Rio de Janeiro-based Vale said in a report on Thursday.

    Production trends in the first six months suggest ore output will end the year at the lower end of Vale's forecast range of between 340-million tonnes and 350-million tonnes, the report said. In 2015, Vale produced 345.9-million tonnes of the steelmaking raw material.

    Vale said it would continue to replace high-cost tonnes and expected production in 2017 to be below its previous forecast of between 380-million tonnes and 400-million tonnes.

    An expected fall in yearly production this year compared to 2015 comes despite an increase in output from Carajas, Vale's low-cost mining complex in the Amazon, indicating the company is successfully phasing out more expensive ore from older mines in the state of Minas Gerais.

    The strategy of more controlled production growth comes after iron-ore prices fell by about a quarter since 2014. Prices fell to their weakest on record late last year, before recovering by around 50%, but analysts say the market will remain oversupplied for the foreseeable future.

    This has resulted in slower growth, or reduction, in output across the board. Rivals BHP Billiton and Anglo American both reported slight setbacks in their iron ore production this week.

    Vale also reported a rise in nickel production in the second quarter to 78 500 t, up 17% from the same period last year, due to improved performance at mines in Indonesia andBrazil.

    In contrast, coal production fell 25% to 1.5-million tonnes due to parts of the underground Carborough Downs mine inAustralia collapsing in May, causing production to be stopped.
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    China to levy anti-dumping duties on EU, Japanese, S.Korean electric steel products

    China, accused of flooding world markets with cheap steel, has started levying anti-dumping duties as high as 46.3 percent on electric steel products imported from Japan, South Korea and the European Union, according to China's official Xinhua news agency said on Sunday.

    China began levying the duties on Saturday after an investigation by the country's Ministry of Commerce found evidence of dumping that was harming Chinese industry, Xinhua said.

    It added the duties range from 37.3 percent to 46.3 percent.

    China's huge steel sector has turned to overseas markets to try to ease a huge supply surplus, with product exports reaching a record 112 million tonnes in 2015, up 19.9 percent on the year.
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    China's key steel mills daily output dips 1.2pct in early Jul

    Daily crude steel output of China's key steel mills dipped 1.22% from ten days ago to 1.74 million tonnes in early July, according to data released by the China Iron and Steel Association (CISA).

    China's daily crude steel output is expected to be 2.25 million tonnes in early July, down 1.02% from ten days ago, CISA forecasted.

    Encouraged by rebounding steel prices, China's steel makers boosted crude steel output to 69.47 million tonnes in June, with daily output of the month reaching the record high of 2.32 million tonnes.

    In the first half of the year, growth of China's total crude steel production declined 1.1% on year, compared with a drop of 1.4% the same period last year.

    Industry insiders said the swift increase in crude steel output may prompt the government to enforce stricter de-capacity policies, and the peak in June is not likely to last.

    By July 10, stocks of steel products at major steel makers in China rose 4.27% on year to 13.8 million tonnes. China's total inventories of steel products have been on the decrease slightly for three consecutive weeks in July, with the volume down 4.97% from end-June to 8.52 million tonnes by July 15.

    Analysts believed that summer high temperature, flood, typhoon and other extreme weathers will cause demand to notably come down, yet steel prices may not easily decline amid currently low stocks. Weakness in both supply and demand will continue to remain in the short run in China's steel market.
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