Mark Latham Commodity Equity Intelligence Service

Friday 5th February 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Saudi unlikely to cut..say Analysts

    Oil Prices Fall on Oversupply Concerns

    Analysts warn that Saudi Arabia is unlikely to cut output

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    Saudi says 'checkmate'

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

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    Summary

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

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

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

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

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


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

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

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

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

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

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    Payment delays, stock build bleed cash from corporate China


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

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

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

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

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

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

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

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

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

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

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

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

    TIPPING POINT

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

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

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

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

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

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

    http://www.reuters.com/article/us-china-companies-cashflow-idUSKCN0VD2ZT

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    Oil and Gas

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


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

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

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

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

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

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

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

    Middle Eastern producers are competing increasingly with cargoes from Latin America, North Africa and Russia for buyers in Asia, its largest market. Producers in the Persian Gulf region sell mostly under long-term contracts to refiners. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark. For Asia the benchmark is the average of Oman and Dubai oil grades.

    http://www.bloomberg.com/news/articles/2016-02-04/saudi-aramco-said-to-cut-march-light-crude-oil-pricing-to-asia
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    Iran says discussing oil sales to Russia's Rosneft - RIA


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

    http://www.reuters.com/article/russia-iran-oil-idUSR4N15H00B

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    http://www.reuters.com/article/china-crudeoil-imports-idUSL3N15D4MP

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    Oxford Institute points to EU gas war.

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

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

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


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

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    ConocoPhillips cuts dividend, budget as low crude weighs


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

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

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

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

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

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

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

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

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

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

    http://www.reuters.com/article/us-conocophillips-results-idUSKCN0VD1II

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    Oil Tycoon Pickens Cashes Out on Oil, Awaits Time to Get Back


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

    Pickens has sold all his oil holdings and is waiting for the best moment to get back in, he said Thursday in an interview on “Bloomberg Go.”

    http://www.bloomberg.com/news/articles/2016-02-04/oil-tycoon-pickens-cashes-out-on-oil-awaits-time-to-get-back
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    Oil Majors Converging Here Could Mean A New Hotspot


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

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

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

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

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

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

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

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

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

    The first drilling at block 14 is expected within a few months, meaning we won’t have to wait long to see what the potential might be here. Watch for results from this emerging district.

    http://oilprice.com/Energy/Crude-Oil/Oil-Majors-Converging-Here-Could-Mean-A-New-Hotspot.html
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    Shell postpones decision on LNG project in Kitimat due to profits slump


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

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

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

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

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

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

    The other shares are held by Japanese trading company Mitsubishi, South Korean incumbent KOGAS and China state-run Petrochina.
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    Obama to seek $10-a-barrel oil tax


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

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

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

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

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

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

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

    http://fuelfix.com/blog/2016/02/04/obama-seeks-10-per-barrel-oil-tax-to-fund-clean-transport/#35236101=0

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    Gulf Coast Crude Tanks Filling Up as Stockpiles Climb to Record


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

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

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

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

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

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

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

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

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

    http://www.bloomberg.com/news/articles/2016-02-04/gulf-coast-crude-tanks-filling-up-as-stockpiles-climb-to-record

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    Occidental cuts capex by 48 percent; fourth-quarter loss bigger than expected, great permian details


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

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

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

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

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

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

    Revenue more than halved to $2.84 billion.

    http://www.reuters.com/article/us-occidental-results-idUSKCN0VD1IS

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    Hess Corporation Prices Concurrent Offerings of Common Stock and Depositary Shares


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

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

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

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

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

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

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

    http://www.businesswire.com/news/home/20160204006724/en/Hess-Corporation-Prices-Concurrent-Offerings-Common-Stock
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    Linn Exploring Options During Worst Oil Downturn in 30 Years


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

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

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

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

    Linn has hired Lazard as its financial adviser and Kirkland & Ellis LLP for legal advice on the review, according to the statement.

    http://www.bloomberg.com/news/articles/2016-02-04/linn-energy-to-explore-strategic-alternatives-to-boost-finances
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    Alternative Energy

    Beijing Enterprise buys Germany's Energy from Waste


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

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

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

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

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

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

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

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

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

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

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

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

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

    http://www.reuters.com/article/energyfromwaste-ma-beijing-ent-idUSL8N15J1PZ

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    US scientists figure cost-effective way to extract rare earths from coal


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

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

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

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

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

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

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

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

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

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

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

    http://www.mining.com/us-scientists-figure-cost-effective-way-to-extract-rare-earths-from-coal/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A%20MasterGold%20%28Gold%20News%29&utm_term=MasterMetals

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    Abengoa to offload UAE solar stake in fire sale


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

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

    It did not release any financial details.

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

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

    At least half of this amount, which is disputed by Abengoa's creditor banks, should be funded through asset sales, the sources said.

    http://www.reuters.com/article/abengoa-restructuring-idUSL8N15J4SM
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    First 160MW of huge Noor solar thermal plant connected to Moroccan grid


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

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

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

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

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

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

    http://reneweconomy.com.au/2016/first-160mw-of-huge-noor-solar-thermal-plant-connected-to-moroccan-grid-18132
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    Base Metals

    Ok Tedi board approves PNG copper mine restart from March 1


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

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

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

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

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

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

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

    Indonesian neighbour Freeport-McMoRan also blamed El Nino as it cut its 2015 forecast for copper concentrate sales from Indonesia in September as water shortages affected its milling operations.

    http://www.reuters.com/article/papua-copper-supply-idUSL3N15K1Z9
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    Hindustan Copper Q3 net profit dips 50% YoY to INR 5.3 crores


    Indian copper giant Hindustan Copper Ltd has posted a net profit of INR. 52.90 million for the quarter ended December 31, 2015 as compared to INR 105.90 million for the quarter ended December 31, 2014.

    http://steelguru.com/metal/hindustan-copper-q3-net-profit-dips-50-yoy-to-inr-5-3-crores/445407#tag
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    Steel, Iron Ore and Coal

    Mechel agrees debt restructuring deal with creditors


    Russian coal and steel producer Mechel has reached debt restructuring agreements with its major creditors after two years of negotiations on a debt pile it said had threatened the company's survival.

    The mining company controlled by businessman Igor Zyuzin borrowed heavily before Russia's economic crisis and has struggled to keep up repayments as demand for its products weakened alongside tumbling coal and steel prices.

    "We have had difficult negotiations on restructuring Mechel Group's debt and it would be no exaggeration to say that the company's survival depended on the result of those talks," Zyuzin wrote in a letter to shareholders on Thursday.

    "I am glad to tell you that we have reached an agreement with our major lenders on restructuring."

    Mechel, which employs more than 60,000 people, said it had agreed conditions for $5.1 million - 80 percent of its total debt - to be paid back to its three major creditors and a banking syndicate of international banks over the next six years.

    Money owed to lenders VTB and Gazprombank will be paid in roubles, Mechel said, with repayments beginning in 2017 and 2020 respectively.

    But challenges remain. The miner will have to repay Sberbank , Russia's largest lender and the last creditor to agree to a deal, $551 million by the end of this year.

    Shareholders too will be asked to approve the conditions at an extraordinary general meeting on March 4.

    "Our company's financial stability and the increase of its shareholder value are now in your hands. Every shareholder vote is vital," Zyuzin wrote.

    At the end of the third quarter last year, the company's net debt stood at $6.5 billion.

    http://www.reuters.com/article/russia-mechel-idUSL8N15J59C
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    Whitehaven coal edges back into the black despite tough conditions


    The big New South Wales-focused coal miner, Whitehaven, has returned to profitability despite increasingly tough conditions in the market and few signs of a price recovery.

    Whitehaven reported a first-half profit of $7.8 million, a significant turnaround from the $78 million loss in the first half last year.

    Export coal prices from Newcastle fell a 25 per cent over the past year and are down around 30 to 40 per cent from 2011 levels.

    Whitehaven's first-half sales revenue rose 54 per cent to $574.3 million, while operating cash flow increased 421 per cent to $118.3 million.

    Net debt and gearing were trimmed marginally and costs were cut by 8 per cent.

    Much of the improvement was driven by production commencing at the big Maules Creek mine near Boggabri in the Gunnedah Basin which is planned to double Whitehaven's production by 2018.

    The $700 million capital expenditure program at Maules Creek is now largely complete.

    "The results are particularly pleasing because they have been achieved at a challenging time for the industry, meeting all our commitments we have made to the market," Whitehaven CEO Paul Flynn said.

    "Whitehaven remains positive about the medium and long-term outlook for coal, particularly the outlook for the high-quality coal we produce."

    Mr Flynn offered a broad guidance that the company's financial position is expected to continue to improve over the next three years, driven by further increases in production and improving margins as well as further reductions in net debt.

    "The strength of growth in Asian energy demand combined with production cutbacks from key exporting countries suggest that Asian coal markets will return to balance over the course of 2016 and provide the basis for a price recovery commencing in 2017," he said.

    http://www.abc.net.au/news/2016-02-05/whitehaven-coal-edges-back-into-black-despite-tough-conditions/7143478
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    Shaanxi Jan coal output down 18.7pct on year


    Shaanxi province, China’s third largest coal mining base, produced 36.42 million tonnes of raw coal in January, slumping 18.7% year on year and down 26.82% on month, said the Shaanxi Administration of Coal Mine Safety on February 4.

    Of this, key state-owned mines -- owned by the central and provincial governments -- produced 10.97million tonnes of raw coal, up 4.93% from the year prior but down 34.53% on month, including 7.32 million tonnes from Shenhua Shendong Coal Group, down 23.38% on year and down 5.59% on month.

    Coal output of local mines -- owned by the prefecture and lower-level governments and private mines -- stood at 18.14 million tonnes, dropping 26.86% on year and slumping 46.92% on month.

    Total coal sales in January stood at 35.3 million tonnes, dropping 3.05% on year and down 28.11% on month.

    http://en.sxcoal.com/0/140536/DataShow.html
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    Tata Steel posts steep third quarter loss on cheap imports


     India's Tata Steel Ltd swung to a hefty third quarter loss on Thursday, blaming cheap Chinese imports for having to axe 3,000 jobs at its UK unit, as it tries to slim down to cope with the global steel crisis.

    The European business of Tata Steel, the parent company of Britain's largest and Europe's second-largest steel producer, has cut thousands of jobs since it bought Anglo-Dutch producer Corus in 2007.

    Last month, the company, a unit of India's diversified Tata Group conglomerate, said it would cut 1,050 UK jobs on top of 1,200 announced in October. A total of 3,000 jobs will be lost including other measures announced this year.

    "We are witnessing significant unfairly priced imports into countries like the UK, India and South East Asia which has disrupted the pricing discipline in most markets," said Koushik Chatterjee, group executive director for finance and corporate.

    Mumbai-headquartered Tata Steel posted a net loss of 21.27 billion rupees ($314.5 million) in the quarter ended Dec. 31, against a net profit of 1.57 billion rupees in the same period a year ago.

    Sales fell 16.5 percent to 280.39 billion rupees as prices dropped, reflecting the availability of cheaper imported steel mainly from China in Europe and India.

    China makes nearly half the world's 1.6 billion tonnes of steel, and exported over 100 million tonnes of the alloy last year, more than four times the 2014 shipments from the European Union's largest producer, Germany.

    The company took a one-time charge of 7.11 billion rupees on its European operations due to a non-cash write down of fixed assets and restructuring provisions. It also took a charge for staff cuts in India.

    Chatterjee said the business conditions for the global steel industry were "extremely challenging" due to elevated imports across regions, currency headwinds and subdued market sentiment.

    Its EBITDA (earnings before interest, tax, depreciation and amortization), a key gauge of profitability, dropped by over 70 percent, mainly due to Tata Steel's Europe unit that accounts for a little over half of its total revenues and production.

    The European business of the company posted an operating loss of 6.75 billion rupees.

    "Growing European steel demand continues to be undermined by a flood of imports into the region," said Karl-Ulrich Köhler, CEO of Tata Steel in Europe, adding Chinese steel shipments into Europe grew more than 50 percent last year.

    "These changes will continue to be a core focus in a bid to improve our competitiveness and enable us to concentrate on supplying higher-value products to customers."

    Elsewhere in Europe, ArcelorMittal said it was reviewing the future of a major steel export plant in South Africa, also blaming cheap imports from China.

    http://www.reuters.com/article/tata-steel-results-idUSL3N15J4WN

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    ArcelorMittal to Raise $3 Billion After Hefty Net Loss


    ArcelorMittal, the world’s largest steelmaker, said Friday it will issue $3 billion worth of shares to strengthen its balance sheet as it grapples with a world-wide steel glut which contributed to a near $7 billion fourth-quarter net loss.

    The Mittal family, the steel group’s controlling shareholder, will subscribe to its entitlement of the share issue, or about $1.1 billion.Lakshmi Mittal is ArcelorMittal’s chairman and chief executive. At the end of last year, the family owned 39.4% of the company’s shares.

    The company will also sell it 35% stake in Spain’s automotive metals component firm Gestamp Automoción SA for about $1 billion by the end of June as part of the cash-raising program to pay down debt.

    ArcelorMittal said it wants to reduce net debt to less than $12 billion from $15.7 billion at the end of December.

    “This capital raise, combined with the sale of our minority shareholding in Gestamp, will…help ensure that the business is resilient in any market environment and puts ArcelorMittal in a position of strength from which to further improve performance,” said Mr. Mittal.

    The urgency of ArcelorMittal’s debt-reduction plan was underscored by the company’s latest results, released Friday a week earlier than scheduled, in which its net loss ballooned to $6.7 billion in the three months to end-December from $955 million the same quarter a year before.

    Fourth-quarter revenue sank 25% to $14 billion on a 7% decline in steel shipments, as falling prices of iron ore and steel hammered ArcelorMittal’s performance.

    ArcelorMittal said impairment charges of $4.8 billion largely related to its iron-ore operations led to a full-year loss of $7.9 billion.

    Mr. Mittal said the steel group faces continued tough trading conditions.

    “[This year] will be another difficult year for our industries,” said Mr. Mittal. “It is clear that China has a challenge to restructure its steel industry…Until this situation is fully addressed the effective and swift implementation of trade defense instruments will be critical,” he said.

    In the fourth quarter, ArcelorMittal said earnings before interest, taxes, depreciation and amortization fell 39% to $1.1 billion, in line market expectations according to analysts polled by data provider FactSet.

    Looking ahead, ArcelorMittal said it expects to generate more than $4.5 billion in Ebtida this year following a 28% drop to $5.2 billion last year.

    http://www.wsj.com/articles/arcelormittal-to-launch-3-billion-capital-increase-1454653228

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