Mark Latham Commodity Equity Intelligence Service

Friday 5th August 2016
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    CREDIT SUISSE: 8 things that stand in the way of blockchain going mainstream

    Credit Suisse has identified what it sees as 8 "key challenges" for the mainstream adoption of blockchain, the innovative database technology first developed to underpin digital currency Bitcoin.

    Banks and financial institutions have been going crazy for blockchain technology over the last year and a half.

    Institutions are spending thousands on proof of concepts using the technology, issuing countless white papers, and joining industry-wide bodies to figure out how to use the protocol.

    Blockchain, also known as distributed ledger technology, is a kind of decentralised database system. Instead of one central database of who owns what in a settlement house somewhere and duplicate records in banks based on this master ledger, blockchain is a network of identical databases that talk to each other and are updated simultaneously.

    Every time someone wants to make a change or add something onto the blockchain, the majority of members of the network must sign off on it. This cuts out the need for middle men in transactions, because the fact that everyone signs off means trust is built into the system. Bitcoin's original blockchain is used to record bitcoin transactions — but the tech could theoretically be used to record just about anything.

    In essence, blockchain helps cut out a lot of admin, and has the possibility to reduce costs and increase simplicity in finance. Goldman Sachs went as far to say that blockchain has the potential to "change, well, everything."

    But in a note on the technology sent to clients this week, Credit Suisse analysts Charles Brennan and William Lunn says they are "less sanguine" about the technology, and identify 8 key barriers to blockchain's successful transition from interesting, leftfield technology to mainstream, financial services core technology.

    They are:

    Security vs Costtrade-off: Basically, the current set-up either means your blockchain is cheap but risky or expensive and secure. In bitcoin's blockchain, the integrity of the records is guaranteed by the fact that the majority of the network are signing off on each transaction — more eyes are inspecting it. Bitcoin incentivises this by rewarding people with bitcoin for the job of inspecting and cryptographically sealing off the transactions. This is costly. Permissioned networks are the alternative and operate like a private members club. There's a doorman but once you're in, you can do what you want on the network. The fact that there are fewer people on the network means there's less oversight of transactions and potentially room for abuse by one of the members.

    Do you actually need blockchain? Credit Suisse says: "'If it ain't broke, don't fix it,' for a blockchain to be relevant you must: (1) require a database, (2) need shared write access, (3) have unknown writers whose interests are not unified, and (4) not trust a third party to maintain the integrity of the data."

    Critical mass is essential: Blockchain is, after all, a network. What use is it being the first one to join if you can only really use it when there are lots of members? There is some progress on this problem with various industry-wide bodies, such as R3 and the Hyperledger foundation, but getting people together is one thing — getting them to agree and work together is another.

    The input problem: Pretty much the same as problem one. A blockchain is only as good as the information on it, and so far good processes haven't been developed for vetting anything other than bitcoin transactions. Vetting people who are allowed on the chain needs to be sorted too.

    Hackable: The more people on the network, the more entry points, and the more vulnerabilities for hackers. Of course, part of blockchains appeal is that once data is logged it can't be changed but bad actors could place false trades, for example. Even proprietary data about who's trading what with who could be valuable.

    You have to see it to believe it: Credit Suisse writes: "Although identity can be encrypted relatively easily on a blockchain, transaction data are not for the simple reason that nodes have to see it to verify it. This may be an issue for those concerned about data privacy."

    Identity problems: Basically, what if you lose the private key that unlocks ownership of a specific asset registered on the blockchain? Credit Suisse: "The issue with bearer instruments is you can lose them; cash being the most salient example. A better solution to reconciling on and off-chain identity appears necessary."

    The DAO attack: The Decentralised Autonomous Organisation, which holds hundreds of millions of dollars worth of digital currency Ethereum, was hacked in June, forcing it to "fork" its network to stop thieves taking more. But the problem is Ethereum, like bitcoin, is a decentralized network and so needed the consensus of the community before it could make the immediate change. Credit Suisse says: "The 'hard fork' undertaken by the Ethereum community also shows that blockchains are only immutable when consensus wants them to be."

    Despite all the above, Credit Suisse says they see blockchain as potentially "disruptive" technology that should be embraced. Just don't get too caught up in the hype.
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    EU Fends Off Gazprom, But Still Needs To Deal With Rosatom

    Gazprom, Russia’s flagship energy company and the face of its geopolitical ambitions, is facing grim times. Although the company was able to report an almost five-fold profit increase in 2015, and while it had managed to expand its share of the European and Turkish gas markets in 2013, Gazprom’s influence over the EU’s energy market is dwindling. As the European Commission moves forward in completing the internal energy market, reverse flow pipelines now allow most European states to buy gas at spot prices and undermine Gazprom’s preferred model of expensive, long-term contracts.

    Even as Gazprom slowly loses its footing, the Kremlin is aggressively pushing forward with the expansion of another of its state enterprises, the Russian State Atomic Energy Corporation (Rosatom). Pervasive skepticism about the sustainability of nuclear energy following Chernobyl and Fukushima notwithstanding, Rosatom is currently constructing eight reactors in Russia and 34 more abroad. These include the construction of reactors in Southern Turkey at Akkuyu, as well as in Belarus’ Ostrovets. Both projects have attracted vocal criticism, especially as the type of reactor in question remains inadequately tested and the locations are fraught with peril.

    The Turkish gambit

    In May 2010, Turkey and Russia signed an agreement for four VVER1200 reactors to be built by Rosatom in Akkuyu under a controversial Build-Own-Operate (BOO) model, with construction set to begin in 2016. What this means is that Russia will provide 100 percent of the financing and will pass along to the host state the responsibility of monitoring the project. Essentially, Rosatom faces minimal liabilities as the onus falls on the Turks to oversee the plants.

    Akkuyu’s suitability also leaves much to be desired. Not only is the area around it prone to seismic activity - a 5.2 earthquake rocked the area just last year – but Turkey’s Atomic Energy Authority remains affiliated with the prime minister’s office, leaving the country without an independent authority for monitoring nuclear activities. With the Turkish Energy Market Regulatory Authority recently calling for the purge of suspected Gülen supporters, control over regulatory agencies will likely increase, awarding more power to Erdogan’s imperial ambitions to the detriment of sound environmental policies.Related: Saudi Arabia Unmoved By Oil Price Uncertainty

    Indeed, since the failed coup, Turkey has mended bilateral relations with Russia, which had been at a low point after the downing of a Russian fighter jet late last year. Ankara is seemingly refocusing on Russian production to meet its energy needs via the newly revived Turkish Stream pipeline and the Akkuyu nuclear reactors. With foreign investment into Turkish markets likely to fall due to unstable political and economic conditions, the shift towards Russia in the hopes of becoming amajor energy hub seems inevitable. Moscow is more than eager to invest in Turkish energy projects, meaning Akkuyu and Turkish Stream could succeed as the European Union’s competing energy projects falter. Erdogan may have to enter into a Faustian bargain with Russia: given the international fall-out from the coup, Turkey has no other option than Putin.

    Trouble in Belarus

    Meanwhile, Rosatom’s Belarusian engagement in Ostrovets since 2012 has been receiving serious flak from Lithuania, Belarus’ western neighbor. The $10 billion project boasts two 1200MW reactors, slated to come online in November 2018 and July 2020. Owing to Ostrovets’ close proximity to Lithuania’s capital Vilnius (less than an hour’s drive), Lithuania has asked Rosatom repeatedly to prove the power plants’ safety in terms of “seismic hazards, emergency preparedness and stress-test plans” without receiving a response.

    Furthermore, in 2014, Belarus was found to be in non-compliance with some of its obligations concerning the construction of the Ostrovets site. The construction has also experienced a number of security incidents, including reports that the structural frame of the reactor collapsed.Related: Powering The Internet Of Things

    Despite unpersuasive assurances from Minsk, skepticism regarding Rosatom’s construction projects remains strong. In a 2014 report, Greenpeace described Rosatom as a “questionable business partner, plagued by concerns over corruption, the safety and quality control standards of its nuclear reactors, its competence at building and operating nuclear plants, its model for financing projects and concerns over its ability to complete construction on time…” Specifically, the report lamented the “minimal external scrutiny” that allows the company to operate as a state within a state, giving its leadership ample opportunity for corruption and embezzlement of millions of Euros, while construction quality is undermined by lack of adequately trained construction staff and failure to safely manage spent fuel.

    Rosatom’s presence in the European Union’s backyard has wider implications as well. It is a well-known fact that Russia’s push for Rosatom expansion is another tool in the Kremlin’s geostrategic grab box, with Moscow using the corporation to bind various governments in long-term cooperation. With this in mind, the Ostrovets site at the EU’s eastern frontier essentially makes Belarus a Trojan Horse for a Russian company. In other words, as Ian Armstrong at Global Risk Insights analyzed, “Russian-built nuclear power plants in foreign countries become more akin to embassies — or even military bases — than simple bilateral infrastructure projects”, as the nuclear contracts establish a “long-term or permanent presence” with “notable influence in countries crucial to regional geopolitics.”

    Regarding Turkey and Belarus, it stands to reason that European influence in its periphery will likely decline as a result of the new Russian projects. This makes Russia’s nuclear diplomacy more of a threat to Europe’s overall security than Gazprom ever was. Even so, there has still been no response from Brussels. Despite the urgency of the issue, and despite a probing of the European Commission conducted by Members of the European Parliament over the safety of Ostrovets, neither Commission President Juncker, Environment Commissioner Karmenu Vella or Energy Commissioner Maroš Šef?ovi? have released statements on the matter. While the EU leadership is silent, Russia’s presence grows more powerful.
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    Standard Chartered Added Oil Refiner Debt Before Margin Rout

    Standard Chartered Plc, the U.K. lender reeling from billions of dollars of losses on soured energy loans, has increased lending to oil refineries just as companies across that industry face a slump in profit.

    The London-based lender said Wednesday it had $7.3 billion of loans to oil refineries at the end of June, a 24 percent increase since the end of 2015. While Standard Chartered cited the industry’s “broadly steady” profit margins for the period, some of the world’s biggest oil producers have since reported that this metric has tumbled amid a glut of gasoline.

    Investors cheered the lender’s drop in loan impairment charges Wednesday as a signal that it has moved past the worst of credit issues that peaked last year when Standard Chartered posted more provisions against bad loans than HSBC Holdings Plc, a bank four times its size. The increase in refiner lending shows risks remain even as Chief Executive Officer Bill Winters shrinks the bank’s overall commodities exposure.

    “I’m not sure it’s the area where most investors would like to see them growing at the moment,” said Joseph Dickerson, an analyst in London with Jefferies Group LLC who has an underperform rating on the shares. “Hopefully they’re getting paid for the risk.”

    ‘De-risking Mantra’

    Shares in Standard Chartered have risen 15 percent so far this year, the only major European bank to climb in 2016. Provisions for bad loans in the ongoing business were $1.1 billion for the first half of 2016, including $606 million in the unit that deals with energy clients, the bank reported Wednesday. That was less than analysts at Citigroup Inc. had expected and the stock climbed 4.2 percent Wednesday and another 5.5 percent at 12:35 p.m. Thursday.

    “Since the start of 2016, we’ve seen a sort of stabilization in their impairment costs on the back of the ‘de-risking’ mantra,” said Filippo Maria Alloatti, a credit analyst at Hermes Investment Management Ltd. in London. “I’m surprised that they’ve started lending to the sector again.”

    Oil refiners had benefited from a boom in so-called refining margins. This is the difference between what energy producers pay for crude oil and what they sell as refined gasoline, diesel and other products. As oil prices plunged, refiners were able to buy cheap crude and process it into relatively expensive gasoline and other petroleum products.

    “The profitability of refiners is driven by gross refining margins and the margins held broadly steady during this period despite the volatility in crude oil prices,” Standard Chartered wrote in its report for the first half of the year. “We have selectively increased our exposure since year end to this subsector, in particular to good credit quality clients.”

    Yet refining margins have tumbled since late May as over-production of gasoline in the U.S. created a glut that depressed prices for refined products. BP Plc, the third-biggest European oil company, said in late July the metric had slumped to the lowest in six years as it posted a 45 percent decline in profit for the second quarter. The London-based company said that the margins will remain “under significant pressure” in the third quarter.

    BP isn’t alone. Statoil ASA, the biggest Norwegian producer, reported a surprise loss for the second quarter and CEO Eldar Saetre said that refining margins had fallen by almost half from a year earlier. Valero Energy Corp., the biggest U.S. refiner, has said it faced “weaker gasoline and distillate margins” in the period.

    Summer Slump

    “We expect margins to remain poor throughout summer,” said Nevyn Nah, oil products analyst at Energy Aspects Ltd., a consulting firm in London. “Refineries overproduced when margins were strong, so we’re left with a very high product inventories right now, which is pressuring margins.”

    Standard Chartered’s $7.3 billion of loans to oil refineries accounts for almost half of the lender’s $14.8 billion net exposure to “commodity-related sectors,” the report shows. Outstanding debts tied to this group have climbed 13 percent since December and are up from $13.5 billion since 2014, according to the report. Those loans represent about 6 percent of Standard Chartered’s total.

    “It’s interesting to see that that’s an area where the bank feels it can get paid for taking incremental risk,” said Dickerson, the Jefferies analyst. “It seems to run contrary to the direction of refining margins.”

    HSBC also said Wednesday that exposure to oil clients climbed by 7 percent from the end of last year to $31 billion. The same sector triggered loan losses of about $400 million in the first half.  

    Commodity Exposure

    Standard Chartered’s increase stands as a contrast to the bank’s approach to other kinds of energy debt since JPMorgan Chase & Co. veteran Winters joined as CEO last year. Standard Chartered’s exposure to commodity producers and firms that trade financial products tied to energy was $37.1 billion at the end June, down 32 percent since 2014.

    Winters, who replaced Peter Sands as CEO, is seeking to undo an era of relaxed lending standards, in part by exiting and restructuring $100 billion of risky assets. Standard Chartered’s corporate and institutional unit has booked about $4.8 billion of impairments and restructuring costs since 2014. The $606 million in impairment charges the bank has added so far this year is “primarily” because of commodities, the report shows.

    Still, some analysts are pleased at the increase in lending. As long as Standard Chartered is dealing with state-owned refiners and large corporations, the bank will be “fine,” according to Chirantan Barua, an analyst in London with Sanford C. Bernstein Ltd. who has an outperform rating on the stock.

    “Standard Chartered is a trade bank and, as a trade bank, you cannot not work with the refiners,” said Barua in an e-mail. “It’s good that they’re stepping back in.”
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    India's new oil price recipe - short-term pain but long-term gain

    A recent policy move by India's BJP-led government to raise prices of subsidized kerosene and LPG signals New Delhi's strong commitment towards further lowering its fuel subsidy burden and freeing up upstream companies' cash for projects, which would ultimately ensure better supplies in the longer term.

    "The financials of oil marketing companies and upstream oil companies, which foot the subsidy burden along with the government, will improve considerably," said Sri Paravaikkarasu, senior consultant and Asia downstream specialist at Facts Global Energy.

    "The companies will channel the realizations towards competitive investments, which will complement their long-term growth strategies," she added.

    India deregulated diesel prices in October 2014, but continues to subsidize LPG and kerosene prices.

    The subsidy burden is shared between the government and upstream companies.

    Upstream companies share the subsidy burden by way of discounts on the price of crude oil sold to state-owned refiners and marketers.

    India's state-run oil marketing companies since last month have raised prices of subsidized LPG twice.

    Last week, LPG prices were raised by Rupees 1.9 (2.8 US cents)/cylinder in Delhi, accounting to a 0.5% increase. And kerosene prices were raised by Rupees 0.25/liter, or about 1.6%.

    "The magnitude of price increases is small and requires several years to fully remove under-recoveries. However, the intent of the government's policy is a key positive," Credit Suisse said in a research note.

    "The price increases are positive for upstream stocks -- although there is always a risk that the government can ask for a share of the subsidy savings."

    Under-recoveries refer to the loss of revenue from selling kerosene and LPG at below market cost.


    In addition to the price rises, there are reports that the government has also given the go-ahead to state-run companies to raise prices of kerosene, which accounts for more than 40% of total petroleum subsidies, by similar amounts every month until April 2017. "The step to gradually increase SKO (superior kerosene oil) prices every month is a major reform considering the politically sensitive nature of the product," said K. Ravichandran, senior vice-president at ICRA.

    "It's credit positive for PSU (public sector undertaking) upstream oil companies as it will reduce the subsidy sharing burden."

    The move to raise retail prices of subsidized kerosene by Rupees 0.25/liter per month for 10 months would lead to a reduction in gross under-recoveries by Rupees 7.6 billion in the financial year 2016-17 (April-March) and by Rupees 20.4 billion in 2017-18, ICRA said.

    As kerosene under-recoveries beyond Rupees 12/liter are expected to be borne by state-run upstream companies, those companies would be major beneficiaries of the reform especially at current or higher level of crude oil prices, ICRA said.

    "At an Indian basket crude oil price of $44-$45/b, the kerosene subsidy tends to be around Rupees 12/liter, implying no subsidy burden on PSU upstream companies," it added.

    In addition, ICRA said the step to increase retail prices of subsidized kerosene would lead to a reduction in diversion for "unintended purposes", such as adulteration of auto fuels.

    The government has capped its share of the subsidy burden up to Rupees 12/liter for kerosene and Rupees 255/per LPG cylinder.

    While the balance for kerosene would be shared by upstream oil companies, for LPG, there is lack of clarity as to whether the state-run companies would bear the subsidy or it will be passed on to the consumers in case global crude oil and LPG prices increase significantly from the current levels.

    "The cap in LPG subsidy for the government of India at Rupees 255/cylinder is likely to be adequate up to the crude oil price of $60/b, which provides comfort to oil marketing companies over the medium term," ICRA added.


    In its effort to promote cleaner fuels, the government has been aggressively promoting the use of cleaner fuels, such as LPG, for cooking.

    This has led to kerosene demand in India falling by more than 3% year on year to 6.89 million mt in 2015, from 7.13 million mt in 2014.

    Kerosene demand also fell more than 5% year on year to 3.27 million mt in first half of 2016, from 3.46 million mt in H1 2015. It was the only oil product that witnessed negative growth in demand last year and in the first half of this year.

    Analysts said that with the plan to raise kerosene prices gradually over the next 10 months, the government aims to kill two birds with one stone -- the move will not only help to reduce kerosene consumption, but will also help to cut oil under-recoveries.

    "While the market anticipated such bold moves, the timing of the announcement came as a surprise," Paravaikkarasu said.

    "The successive price hikes of subsidized kerosene will not only ease the subsidy burden, but also discourage consumers using the fuel. The government is working hard to move away household consumers from using kerosene to LPG," she added.

    LPG demand continues to grow at a healthy pace, rising by 8.5% year on year in June to 1.61 million mt. Cumulative growth in H1 2016 was 9.6% year on year at 10.06 million mt.

    The government has announced 2016 as the "year of LPG consumers" and has set an ambitious target to open 10,000 new LPG dealerships across the country this year, in addition to the 16,000 that already exist.

    New Delhi also has ambitious plans to provide additional subsidies to provide 50 million new connections among lower-income families, with another 15 million being added this year.

    "Various structural changes are been already made to LPG pricing. Between LPG and kerosene, the government will prioritize deregulating kerosene prices even though it is tougher, and keep targeted LPG subsidies in place," Paravaikkarasu said.
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    Metals X raises A$100.6m, intends to demerge gold assets

    Diversified junior Metals X has completed an institutional placement to raise A$100.6-million – and is undertaking a share purchase plan of up to A$15-million – to fast-track the development of additional production from several of the company’s projects in both the gold and base metals divisions.

    The placement is for the issue if about 68-million new Metals X fully paid ordinary shares at an issue price of A$1.48 a share, representing about 12.9% of the fully diluted shares that the company has on issue.

    The ASX-listed metals miner noted that the placement would provide it with additional working capital, enabling it to pursue additional value-adding.

    Metals X also intends to demerge its gold assets from the rest of its diversified metals base and is, therefore, taking steps to gain shareholder and other regulatory approvals in this regard.

    Following several acquisitions made in recent years, including the completion of a takeover offer for Aditya Birla Minerals, which owns and operates the Nifty copper mine, inWestern Australia, the company believes that its base metals division – which was significantly bolstered from this most recent acquisition – can stand alone “as a formidable diversified base metals company, with production from its tin and copper assets, and expansion and growth assets in tin,copper and nickel”.

    “Given prevailing economic and market conditions, the board of Metals X believes the time is now right, and its shareholders are better served, if the company looks to separate its gold division from the remainder of the diversified base metal assets,” said the company.

    The intent is that, following the completion of the separation of a gold unit, a Metals X shareholder will own equal interests in shares in both entities. Cash and working capital will also be split, so that the two new companies will have adequate funding for their operations and respective growth plans.

    Metals X CEO and executive director Peter Cookhighlighted this as “an exciting time” for shareholders and an opportunity for the company to unlock “the considerable value” under the Metals X umbrella.

    “Following the equity raising and demerger process, our shareholders will own shares in two formidable miningcompanies with great opportunity and outlook to grow and prosper,” said Cook.

    Cook will likely become the MD of the gold business unit, while Metals X’s other executive director, Warren Hallam, will become the MD of the base metals business.

    Metals X has three operating gold projects, four process plants with a combined capacity of 5.5-million tons a year, agold resource base of 15.4-million ounces and ore reserves of 2.89-million ounces.

    It currently produces at a run-rate of 220 000 oz/y and has a clear plan to double this over the next few years.
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    Oil and Gas

    China cuts retail fuel prices

    China will cut retail prices of gasoline and diesel from midnight Thursday, in line with changes in international crude prices.

    The National Development and Reform Commission (NDRC), the nation's top economic planner, announced Thursday that gasoline prices would drop by 220 yuan (about 33 U.S. dollars) per tonne, while diesel prices would be cut by 215 yuan per tonne.

    This is the third time this year that the NDRC had cut retail fuel prices. It is also the largest reduction of the year.

    Before the latest move, this year the NDRC had cut retail fuel prices twice and raised them four times, as it implements the oil pricing mechanism introduced in 2013.

    Under the mechanism, if international crude oil prices change by a price of more than 50 yuan per tonne and remain changed for a minimum period of 10 working days, then refined oil products such as gasoline and diesel are adjusted accordingly.
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    YPF Posts Surprise Loss as Weaker Argentine Peso Erodes Margins

    YPF SA posted an unexpected loss in the second quarter as a slump in Argentina’s peso erodes margins from refining crude priced in U.S. dollars into gasoline that the government keeps artificially cheap.

    The net loss was 753 million pesos ($50.7 million), or 1.89 pesos a share, compared with a gain of 2.3 billion pesos, or 5.86 pesos a share, a year earlier, the Buenos Aires-based oil producer said in a regulatory filing Thursday.

    Argentina’s policies to regulate the fuel market in a bid to keep inflation in check, coupled with a slump in the value of the peso over the past year, means that increases in gasoline prices haven’t offset a squeeze in the company’s margins. The company has been allowed to increased pump prices by 43 percent in a year, not enough to recoup the losses.

    YPF’s sales rose 32 percent to 52.8 billion pesos. Crude oil output fell 2.8 percent while natural gas production decreased 0.4 percent in the quarter, the company said.

    YPF’s American depositary receipts rose 1.2 percent to $19.20 at the close in New York, before the earnings where released. The ADRs, equivalent to one ordinary share, have gained 22 percent this year.
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    Crude Slump Sees Oil Majors’ Debt Burden Double to $138 Billion

    When commodity prices crashed in late 2014, oil executives could look at their mining counterparts with a sense of superiority.

    Back then, the world’s biggest oil companies enjoyed relatively strong balance sheets, with little borrowing relative to the value of their assets. Miners entered the slump in a very different state and some of the world’s largest -- Rio Tinto Plc, Anglo American Plc and Glencore Plc -- had to reduce dividends and employ draconian spending cuts to bring their debt under control.

    Two years on, you could excuse mining executives for feeling smug. As crude trades well below $50 a barrel, Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants have seen their debt double to a combined $138 billion, spurring concerns they’ll need to keep slashing capital spending and that dividend cuts may eventually be necessary.

    Worse, the mountain of debt, which has grown tenfold since 2008, is likely to increase further in the third and fourth quarters, executives and analysts said.

    "On the debt, it may go up before it comes back down,” Shell Chief Financial Officer Simon Henry told investors last week. “And the major factor is the oil price.”

    The problem for Big Oil is simple: Companies are spending a lot more than they’re earning. Both West Texas Intermediate and Brent crude, the two most prominent benchmark grades, slid into bear markets this week after falling more than 20 percent since early June.

    The first-half results indicate that oil companies “are likely to generate large negative free cash flows for the full year,” said Dmitry Marichenko, an associate director at Fitch Ratings in London.

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    Take Chevron Corp. In the first half of the year, it generated $3.7 billion pumping crude, refining it and selling gasoline and other products. But that wasn’t enough to cover the $4 billion it paid to shareholders over the same period, let alone the $10 billion it invested in projects. Although Chevron tried to close the gap by selling $1.4 billion worth of assets, it still had to take on $6.5 billion in new debt over six months.

    The imbalance explains why the debt load has grown so quickly over the last decade. Before oil prices plunged in mid-2014, Big Oil had around $71 billion in net debt, up from a low of just $13 billion in mid-2008, when oil prices hit a record high of nearly $150.

    Growing Debt

    Debt levels are currently rising at an annual rate of 11.5 percent, more than double the 5.1 percent witnessed between 2009 and 2014, said Virendra Chauhan, an oil analyst at consulting firm Energy Aspects Ltd. in Singapore.

    “Whilst credit markets have been expansive and accessible during this time period, investor concerns about the sustainability of this trend are valid,” he said.

    For some oil bosses, including Shell Chief Executive Officer Ben Van Beurden, reducing debt is now the main priority, ahead of paying shareholders dividends and investing in new projects. His company’s debt has risen especially fast after borrowing to finance the $54 billion acquisition of gas producer BG Group Plc earlier this year.

    Yet, the oil companies have been able to take on more debt fairly easily because ultra-low interest rates allow added borrowing without risking credit rating downgrades.

    BP CEO Bob Dudley said the British company could “actually manage a little bit more” debt. “Money is so cheap right now,” he said.

    And Exxon executives believe the company still has significant debt capacity. “We’ve got a very strong balance sheet,” Jeff Woodbury, vice president of investor relations, told analysts during a conference call. “We’re not going to forgo attractive opportunities.”
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    Crowley secures long-term LNG shipping deal with Molinos de Puerto Rico

    Crowley Maritime Corporation’s liquefied natural gas (LNG) services group has secured a multi-year contract to supply containerised LNG from the US to Molinos de Puerto Rico’s facility.

    The contract includes both the supply and transportation of LNG and aims to help Molinos, the territory’s leading supplier of flour and wheat, bolster its environmental sustainability efforts as well as support the management of any potential weather-related power challenges that could affect the island of Puerto Rico.

    Crowley’s domestic logistics team will coordinate the transportation of LNG via 40-foot ISO containers, each capable of carrying 10,000 gallons of LNG. The tanks will arrive at Crowley’s shipping terminal in Jacksonville, Florida, where they will be loaded onto company-owned vessels destined for Puerto Rico. Upon arrival, Crowley’s Puerto Rico-based logistics team will deliver the LNG to Molinos’ plant.

    At the facility, the LNG will be re-gasified and used for power consumption.

    Jon Stuewe, President of Molinos de Puerto Rico

    Greg Buffington, Vice-President of Crowley, signified, “Our teams have been working side by side with Molinos, the Caribbean arm of Ardent Mills, assisting with the engineering to utilise the natural gas and also the logistics necessary to accommodate LNG delivery to the Molinos plant.”

    Jon Stuewe, President of Molinos de Puerto Rico, stated, “We appreciate the nearly two years of thoughtful care and planning that have gone into this effort. We appreciate the additional capabilities and assured ingredient supply made possible by this important alternative fuel source. We are committed to operating across our supply chain with innovative ideas that also deliver a more positive environmental impact.”

    Molinos de Puerto Rico joins Coca-Cola Puerto Rico Bottlers and Club Caribe as the latest company to receive containerised LNG supply on the Caribbean island, where Crowley has effectively established a virtual natural gas pipeline from the US mainland.

    Attached Files
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    Chesapeake Energy raises asset sales target for 2016

    Debt-laden Chesapeake Energy Corp, the No.2 U.S. natural gas producer, raised its asset sales target and production forecast for the year, keeping its capital budget unchanged.

    The company, which has been struggling to cope with weak oil and gas prices, raised its asset sales target to more than $2.0 billion from $1.2 billion-$1.7 billion.

    Chesapeake said on Thursday it expected to sell "selected" Haynesville Shale acreage, located in northwest Louisiana.

    "Financial discipline remains our top priority, and we continue to work toward additional solutions to improve our liquidity, reduce our midstream commitments and enhance our margins," Chief Executive Doug Lawler said in a statement.

    The company, which had long-term debt of $8.62 billion at the end of June, said it had reduced debt by more than $1 billion so far this year.

    Chesapeake undertook a couple of debt-for-equity swaps, or bond swaps, this year to reduce interest payments and debt taken to fund shale development.

    The company raised its 2016 production forecast by 3 percent.

    Net loss attributable to Chesapeake's shareholders narrowed to $1.79 billion, or $2.48 per share, in the second quarter ended June 30 from $4.15 billion, or $6.27 per share, a year earlier, when it took a $5 billion impairment charge.

    Excluding items, the company had a loss of 14 cents per share, bigger than the 10 cents analysts on average had expected, according to Thomson Reuters I/B/E/S.
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    Canadian Natural posts smaller loss, says Horizon plan on track

    Oil and natural gas producer Canadian Natural Resources Ltd reported a smaller quarterly loss, as lower expenses helped offset a slump in crude prices.

    The company said the final part of the second phase of its Horizon oil sands project, located north of Fort McMurray, is expected to start up in October, with full production targeted in November.

    The third phase of the project is scheduled to start in the fourth quarter of 2017, Canadian Natural had said in June.

    Canadian Natural's capital spending is set to drop significantly after the Horizon project is completed, Chief Financial Officer Corey Bieber said.

    The company would then focus on "opportunistic acquisitions," besides improving cash flow and investing in resource development, Bieber said on Thursday.

    Canadian Natural, which produces almost all of its natural gas and natural gas liquids from fields in Alberta, British Columbia and Saskatchewan, said cash flow from operations fell nearly 38 percent to C$938 million ($717.5 million) in the second quarter ended June 30.

    The company's net loss narrowed to C$339 million, or 31 Canadian cents per share, from C$405 million, or 37 Canadian cents per share.

    Oil and natural gas production fell 2.7 percent to 783,988 barrels of oil equivalent per day in the quarter from a year earlier.

    Canadian Natural, like many companies operating in Canada's oil sands, was affected by a massive wildfire near Fort McMurray in May that cut total crude output by more than 1 million barrels per day.
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    U.S. states signed pact to keep Exxon climate probe confidential

    A pact that 15 U.S. states signed to jointly investigate Exxon Mobil Corp for allegedly misleading the public about climate change sought to keep prosecutors' deliberations confidential and was broadly written so they could probe other fossil fuel companies.

    The "Climate Change Coalition Common Interest Agreement" was signed by state attorneys general in May, two months after they held a press conference to say they would go after Exxon, the world's largest publicly-traded oil and gas company, and possibly other companies.

    The signed agreement has not been made public until now, and Reuters reviewed a copy of it on Thursday.

    It provides considerably more detail about the prosecutors' legal strategy than the general outline provided at their announcement in March, which was headlined by former Vice President Al Gore.

    In a nod to the politically charged nature of the inquiry, which quickly spilled over into Congress and corporate shareholders meetings, the pact says signatories of the agreement should keep discussions private and "refuse to disclose any shared information unless required by law."

    Besides Exxon, the agreement says other entities could be targeted if states felt they were delaying action to fight climate change.

    The pact says the states may take legal action to "defend Federal greenhouse gas emissions limits" and open investigations of "possible illegal conduct to limit or delay the implementation and deployment of renewable energy technology."

    It also ponders "investigations of representations made by companies to investors, consumers and the public regarding fossil fuels, renewable energy and climate change."

    After numerous filings under sunshine laws, a copy of the agreement was obtained by the Energy & Environment Legal Institute, a free-market think tank. The Competitive Enterprise Institute, whose website says it opposes U.S. Environmental Protection Agency regulation of greenhouse gas emissions, had also sought the documents.

    "This is far less a proper common interest agreement than a sweeping cloak of secrecy," said Chris Horner, a lawyer who represents the Energy & Environment Legal Institute.

    The attorneys general, as previously reported, received guidance from well-known climate scientists and environmental lawyers before announcing the Exxon probe.

    Critics have called this a sign of meddling by special interests, though prosecutors' offices have made clear climate change is a top concern of voters.

    New York state's attorney's general office said confidentiality agreements are used often.

    "Entering into a common interest agreement is routine practice during a multistate investigation. These agreements preserve the confidentiality of non-public information shared among state law enforcement officials," the office told Reuters.

    Exxon, which has said that it has acknowledged the reality of climate change for years, has called subpoenas stemming from the inquiry unreasonable. It has also said it is being unfairly targeted by climate activists.

    The company, which supports a revenue-neutral carbon tax, declined to comment.

    A U.S. House of Representatives committee last month issued subpoenas to the attorneys general of New York and Massachusetts over their investigations of whether Exxon misled investors on climate change risks. The two state officials said they would refuse to comply with the subpoenas, with one calling it "unconstitutional and unwarranted" interference.

    In a bid to try to force action on climate change, the state attorneys general said in March they would jointly investigate whether Exxon executives misled the public by contradicting research from company scientists that spelled out the threats of global warming.

    A pact was signed in May and included California, Connecticut, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, Washington state and the U.S. Virgin Islands.

    But only a couple formal inquiries have started. In June, the Virgin Islands withdrew its subpoena after Exxon called it overly burdensome and raised questions about jurisdiction.

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    Apache relaxes spending

    US independent Apache has started slowly releasing more cash into select operations following a sustained period of cost cutting, with spending for the year now set to come in at the high end of previous guidance.

    Apache today said it had managed a 100% drilling success rate in the North Sea while adding production from three development wells in the region during the second quarter.

    The Houston-headquartered firm, which also has operations in Canada, Egypt and the US, said the trio had achieved a 30-day average rate of more than 6,000 barrels of oil equivalent (boe) a daily.

    Drilling has also started on the Storr play in the Beryl area, the company said in its second quarter results announcement, which revealed net losses of $244million (£185million).

    In October, Apache delivered a major boost for the sector when it revealed new discoveries in the Beryl area, and another near its Forties field, with likely reserves of up to 70million boe.

    Despite reporting a deficit in the three months to June 30, Apache said moderate improvements in crude prices had convinced it to slowly deploy incremental capital.

    It expects spending to reach a maximum of £1.3billion this year.

    Apache president and chief executive John Christmann said: “Our conservative budgeting and rigorous allocation of capital over the last 18 months have resulted in tangible benefits to the company.

    “We refrained from significant development drilling in a low commodity-price environment, and instead, turned our focus to capital efficiency improvements and strategic testing.

    “As a result, we have made significant progress on our cost structure and are positioning Apache very well for the future.”
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    EOG boosts fracking plans even with oil price at $40

    Shale oil bellwether EOG Resources Inc on Thursday boosted this year's fracking plans by 30 percent, saying it expected big returns on new wells even as oil dipped back to $40 a barrel.

    The plans are the boldest yet among U.S. shale oil companies, many of which have raised their production forecasts in recent days after posting second-quarter results.

    The upward revisions highlight how the fittest shale companies, mainly those with the oiliest land, are surviving at a time when dozens of others are filing for creditor protection in the biggest wave of bankruptcies since the telecom meltdown in the early 2000s.

    Houston-based EOG raised the number of wells it plans to bring online this year to 350 from 270, and lifted by 50 to 250 the number of wells it would drill, while keeping its budget stable around $2.5 billion.

    Since the start of the worst price crash in a generation in mid-2014, when oil was still above $100 a barrel, many shale producers have cut costs and lifted well productivity by 50 percent or more. Wall Street has also demanded they focus more on capital efficiency rather than just raising output.

    "The benefits of EOG's premium drilling strategy are beginning to show in our operating performance," CEO Bill Thomas said in a statement. "We are committed to focusing capital on our premium assets."

    EOG, best known for its South Texas operations, said that greater efficiencies have allowed it to do more for less and earn an after-tax rate of return of more than 30 percent on what it called premium wells, assuming oil prices stay at multi-year lows.

    It increased its backlog of premium drilling locations to 4,300 from 3,200.

    The length of horizontal wells have grown to 10,000 feet or more, and producers are using ever increasing amounts of sand in their high-pressure frack jobs to coax oil from cracks in rocks.

    Second-quarter crude and condensate production fell 4 percent to 267,700 barrels per day from 277,500 in the year-ago period, as drilling activity slowed and output from existing shale wells declined.

    That decline is a sign of the industry's growing focus on capital discipline, unlike in years past when executives raced to lift production at all costs.

    Still, EOG said production could grow significantly with balanced cash flow from 2017 through 2020. Output could rise 10 percent a year through 2020 with $50 oil and 20 percent a year with $60 oil, it said.

    The company swung to a second quarter net loss of $292.6 million, or 53 cents per share from a profit of $5.3 million, or 1 cent per share a year ago, as tumbling oil prices overshadowed cost cuts and productivity gains.

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    One of ND's largest oil producers posts wider loss on oil price slump

    One of ND's largest oil producers posts wider loss on oil price slump

    Continental Resources Inc., North Dakota's second-largest oil producer, posted a quarterly loss on Wednesday that missed Wall Street's expectations because of the slump in crude prices.

    The loss is an example of the difficulty facing the oil industry as it seeks to offset the period of low prices. Many companies have slashed costs to survive.

    Shares of Continental fell 3 percent to $43.50 in after-hours trading on Wednesday.

    Continental reported a second-quarter net loss of $119.4 million, or 32 cents per share, compared with a net profit of $403,000, or break-even on a per share basis, in the year-ago quarter.

    Excluding one-time items, the company lost 18 cents per share.

    By that measure, analysts expected a loss of 17 cents per share, according to Thomson Reuters I/B/E/S.

    Production fell 3 percent to 219,323 barrels of oil equivalent per say. Output fell in all regions except for the SCOOP and STACK fields in Oklahoma, where Continental has invested heavily in the past year.

    Despite the low prices, Continental is cash flow positive—meaning it spends less than it makes—and executives said they intend to maintain that for the rest of the year.

    Continental said it now expects its production costs to fall 11 percent this year, even while it pumps 5,000 more barrels per day than previously expected.
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    Marathon Oil Posts $170M Loss, But Beats Expectations

    Marathon Oil Corporation reported on Wednesday a net loss of US$170 million for the second quarter, more than halving its US$386-million loss for the same period last year and beating analyst expectations.

    Adjusted for one-off items, Marathon Oil posted a loss of US$ 0.23 per diluted share, slightly better than the loss of US$0.24 per share analysts had predicted.

    The group’s North American net production available for sale dropped to 224,000 barrels of oil equivalent per day (boed) for Q2—13 percent less than Q1.

    On the other hand, Marathon Oil’s international E&P production—excluding Libya where there is uncertainty around the timing of future output and sales levels—averaged 120,000 boed, an 11-percent increase over the same quarter the previous year. Marathon Oil attributed the higher international output to production in Equatorial Guinea and resumption of production from Brae Alpha in the U.K.

    Still, the higher international output was unable to offset lower North American production and the sequential decrease in oil sands mining (OSM) output, which dropped to an average of 40,000 bpd, down from 49,000 bpd in the first quarter, mostly due to the wildfires in May.

    Thus, Marathon Oil’s total production averaged 384,000 boed for the second quarter (excluding Libya), down from 388,000 boed in the first quarter and down from 407,000 boed for the second quarter of 2015.

    Regarding production costs, second-quarter North American unit production costs dropped 13 percent from Q2 2015 to US$6.28 per boe. International unit production costs—not counting Libya again—fell 25 percent from Q2 2015 to US$4.34 per boe.

    Looking ahead, Marathon Oil revised down its full-2016 unit production costs for North America by US$1.00 per boe, to a range of between US$6.00 and US$7.00. International unit production costs were adjusted downwards by US$0.50 per boe, to a range of US$4.50-US$5.50.

    For the third quarter, Marathon Oil expects its North America output to average 200,000-210,000 boed, to reflect asset sales in Wyoming and the recent acquisition of the STACK assets in Oklahoma. For the full year, and further adjusting production guidance to divestitures and acquisitions, the company expects its total E&P production at 330,000 to 345,000 boed.

    Marathon Oil also revised down its 2016 capital investment program by US$100 million to US$1.3 billion, despite including higher activity from the Oklahoma STACK acquisition.

    “Coupled with recent non-core divestitures, we're delivering on our objective to further concentrate our capital allocation to the lower cost, higher margin U.S. resource plays," said Marathon Oil President and CEO Lee Tillman.

    "In addition to successful portfolio management, we continued our relentless focus on reducing costs and driving durable operational efficiencies while delivering impressive new well results in the resource plays."
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    Rice Energy Adding $65M to Utica Drilling Budget in 2016

    Rice Energy, a young company headed by relatively young leaders (the Rice boys), continues to impress with their latest quarterly update, for 2Q16.

    Net production for Rice hit a record 758 million cubic feet equivalent per day (MMcfe/d), which is a 43% increase over 2Q15 and a 12% increase over 1Q16.

    As CEO Dan Rice said, “We had a remarkable quarter, marked by several notable achievements, including record-low development costs and lease operating expenses, record-high production and midstream throughput volumes, and we turned to sales a company-record 18 operated wells in April.” Rice continues to focus completely on the Marcellus and Utica region, a “pure play” company.

    Because they’ve lowered costs, Rice is adding another $65 million to their Utica drilling budget in 2016. Cool. About the only bad news from yesterday’s quarterly update is that the company lost $138.7 million in 2Q16, versus losing $63.5 million in 2Q15.

    But keep an eye out. The Rice boys are bound to turn the financials around.…
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    Private equity funds eye ending drought in U.S. energy IPOs

    Private equity funds are looking to sell shares in two U.S. energy companies, people familiar with the plans said this week, deals that could end a year-long drought for Initial Public Offerings (IPOs) in the oil and gas sector.

    Denver-based Extraction Oil & Gas LLC, an oil explorer and driller in Colorado’s Denver-Julesburg (DJ) basin backed by private equity firm Yorktown Partners LLC, has filed a confidential registration with the U.S. Securities and Exchange Commission (SEC) indicating it is planning on going public, people familiar with the matter said.

    In its current form, Extraction would be valued at more than $3 billion in an IPO, though it could acquire more acreage and grow further, the people said.

    Vantage Energy LLC, a natural gas exploration and production company, has also privately filed with the securities regulator according to the sources.

    Backed by private equity firms Quantum Energy Partners, Riverstone Holdings LLC and Lime Rock Partners, Vantage has operations in Pennsylvania, Texas and Utah.

    Under SEC rules, small start-up companies can confidentially file a Form S-1, used by companies planning on going public to register their securities with the SEC.

    Representatives for Extraction, Vantage, Yorktown, Riverstone and Lime Rock declined to comment. Quantum did not respond to a request for comment.

    Primarily a producer of natural gas, Vantage ended a previous attempted IPO in the second half of 2014 when the price of gas went on a downward spiral for 16 months. According to documents filed at the time, Vantage could have been valued at about $2 billion in enterprise value including debt. Since then, Vantage has taken advantage of lower prices to purchase additional acreage.

    Natural gas prices NGc1 have bounced a bit from lows hit in the first quarter, while oil prices CLc1 also have clawed back some from 12-year lows hit early this year, prompting private equity backers to look anew at selling some or all of their investments. [NGA/] [O/R]

    An IPO would partially cash out the private equity owners, and some of the capital raised would go to fund drilling programs and the acquisition of more oil resource-rich acreage, industry executives said. Outright sales could also be a popular alternative to an IPO because the private equity owners would fully realize their investments while any additional development capital would then come from the acquirer's purse.

    In addition to Vantage and Extraction, nearly a dozen more natural resource drillers and producers are considering an IPO, according to more than 10 bankers, industry executives and people working in private equity firms who were interviewed by Reuters.

    Most candidates are based in sought-after oil fields where drilling can be done at a low costs per barrel including Texas’ Permian basin, Colorado’s Denver-Julesburg basin, the Utica and Marcellus basin in Appalachia and Oklahoma’s SCOOP/STACK area. Those firms considering an IPO already have or are targeting more than 20,000 barrels of daily production by 2018.

    “In order to IPO, companies that are well positioned in lower cost regions need to be able to say: ‘We have existing production of X barrels per day, a clean balance sheet with reasonable leverage levels and an inventory of attractive locations to develop at current prices,’” said Robert Cabes, a managing director at Intrepid Financial Partners, the oil and gas merchant bank.

    Great Western Oil & Gas Company in the DJ Basin backed by The Broe Group, Denver Colorado-based Jagged Peak Energy LLC backed by Quantum Energy Partners and Brigham Resources LLC, are three producers considering going public, the people said.

    Representatives for Great Western, Jagged Peak and Brigham Resources did not immediately return a request for comment.

    Only two or three oil and gas producers are expected to actually make their trading debut by the end of 2016. Further offerings, as many as eight more, could have IPOs by mid-2017 depending on shareholder reception and the price of oil itself, the people said.

    U.S. crude futures rallied from 12-year lows of $26-$27 in the first quarter to almost $53 in June, boosted initially by expectations, later dashed, that OPEC would freeze output and later by supply outages. They are trading above $40 a barrel this week but a global supply glut has led many traders to predict lower prices going forward.

    Some IPO candidates may not reach the public markets because corporate buyers may swoop in first. Energy companies have boosted their coffers by raising more than $30 billion through secondary stock offerings since early 2015.

    Centennial Resource Development got within a week of its IPO before it was bought by Silver Run Acquisition Corp SRAQU.O, run by energy industry veteran Mark Papa.

    Silver Run's purchase of Centennial also signaled that private exploration and production companies were no longer being valued at a discount to their publicly traded peers, a shift that may make them easier to sell.

    Silver Run, a special purpose acquisition vehicle with no other assets, increased in value by 10 percent following its acquisition of Centennial.

    Some private equity firms may use the IPO process to draw out bidders in a process known on Wall Street as a "dual track" approach.

    "The private equity owners may be stirring the pot in an attempt to lure a bidder,” said Geoff Davis, a managing director at investment bank Morgan Stanley.

    The public valuation process can be helpful to securing a high price from private buyers. Public investors are usually willing to give a company the benefit of the doubt that oil will go up in value and also award an energy companies with a “growth premium” in anticipation of a rise in production volume.
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    Alternative Energy

    Dong Energy overcomes oil and gas woes to post 70% profit rise

    First half profits went up at Dong Energy as the Danish group’s thriving offshore wind business offset a drop in revenues from oil and gas.

    Dong Energy’s income from oil and gas fell by £20million to £280million, a slump which would have been worse had production not started up from the Laggan-Tormore gas project west of Shetland in February.

    Dong, which developed the field in partnership with French company Total as operator and SSE, said it had made headway in reducing costs and adapting its oil and gas business to a low oil and gas price market, despite the drop.

    Last month the company sold more than £50million worth of its Norwegian oil and gas assets to Faroe Petroleum.

    Dong’s wind power division brought in £585million during the six months, up 68% year-on-year.

    Group revenues fell 7% to £3.95billion, though pre-tax profits shot up to £990million from £570million.

    During the period under review, Dong made a final investment decision to build the Borkum Riffgrund 2 wind offshore Germany and won the tender for the Dutch Borssele 1 and 2 developments.

    Both projects should be completed within the next four years.

    Dong operates six offshore wind farms in the UK, at Barrow, Burbo Bank, Walney 1 + 2, Gunfleet Sands, West of Duddon Sands and Westermost Rough.

    Dong president and chief executive Henrik Poulsen said he did not expect the UK’s Brexit vote to result in any fundamental changes to the country’s offshore wind sector.

    He described the firm’s interim results as “very satisfactory”.
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    Egypt's solar power upset clouds outlook for foreign investors

    Egypt's solar power upset clouds outlook for foreign investors

    When Egypt announced plans to develop renewable power in 2014, investors piled in, drawn by year-round sunshine and chronic electricity shortages. Two years on, many projects have stalled, hitting confidence among foreign investors Egypt sorely needs.

    Developers who prequalified for solar and wind projects under attractive feed-in-tariff (FiT) schemes say they face delays and currency risks while wrangling with the government over contract terms has complicated efforts to secure financing.

    Some foreign firms now say they will shelve projects at a time when Egypt is seeking to boost foreign investment to ease a hard currency shortage that is choking the economy and to diversify after gas shortages caused blackouts in 2013 and 2014.

    One such company is Italy's Enel Green Power, which prequalified in 2015 for one solar and two wind projects under Egypt's FiT schemes and entered a build-own-operate tender for a 250 megawatt wind project.

    "Continuous uncertainty from the local authority in managing the process as well as delays in assigning contracts, have lead EGP to freeze its business development operations in the country," an Enel spokeswoman said.

    A source from another consortium of foreign investors that prequalified for a solar FiT project said Egypt's insistence on domestic arbitration in any dispute had prompted a multilateral lender that was co-financing the project to withdraw.

    "I can't believe they would do this to foreign investors and big lenders when Egypt needs them," said the source. "The feed-in-tarrifs were high, but the whole thing has turned into an Egyptian soap opera. No one knows what's going on and they don't seem to care."

    Egypt's New and Renewable Energy Authority did not respond to Reuters requests for comment. Its chairman Salah El-Sobky was quoted in Al Shorouk newspaper this week as saying the Electricity Ministry was taking the developers' concerns into consideration but was not responsible for their funding.

    Egypt announced in 2014 ambitious plans to develop renewable energy, originally targeting 4.3 gigawatts of wind and solar projects to be installed over three years.

    The International Finance Corporation, an arm of the World Bank, said last year Egypt's renewable energy projects could require $8 billion in capital investment over the next four years, a significant opportunity for investors and lenders.

    Egypt had aimed to meet 20 percent of its energy needs from renewable sources by 2020, but has pushed that back to 2022.


    Government plans included a 1.8 gigawatt solar park in Benban, Upper Egypt, to be developed for $3 billion and operated under a FiT arrangement.

    In 2014, Egypt said it would pay $0.13 per kilowatthour (kWh) to plants with 500 kilowatts to 20 megawatts capacity and $0.14/kWh to those with 20 to 50 MW capacity during phase one.

    The competitive rates piqued investor interest. The scheme was hailed as an investment bright-spot for Egypt, which has suffered a shortfall in foreign currency since the 2011 uprising which ousted Hosni Mubarak but scared off foreign investors and tourists, sources of hard currency it needs to finance imports.

    But the euphoria faded as capital controls imposed in early 2015 made it harder for foreign firms -- which would invest in dollars but be paid in Egyptian pounds -- to repatriate profit.

    Developers said they were willing to accept currency risks as Egypt's FiT was higher than others in the region. A dispute over the seat of arbitration has proven harder to overcome.

    International arbitration is a standard requirement for many international lenders and has caused some to freeze funding for phase one, sources at four such institutions said.

    At least two developers who were set to receive IFC funding told Reuters it had pulled out. An IFC source confirmed it could not proceed for now due to the arbitration issue.

    The IFC told Reuters it was "supportive of the government's agenda of promoting private-led renewable energy projects in Egypt" and would invest "next fiscal year".

    Atter Hannoura, head of public-private partnerships at the Finance Ministry, said Egypt wants arbitration to be held at the Cairo Regional Center for International Commercial Arbitration.

    "This is still international arbitration as this is an independent body," he told Reuters. "When people prequalified this was the government position already. When the international financial institutions got involved it became an issue."

    Developers and lenders said they suspected the government was dragging out the process because it now judged the FiT as too high and was hoping to offer lower rates in round two.

    The cost of solar components has plummeted since Egypt set its current tariff, which applies only if companies close a deal by Oct. 28. Many look likely to miss the deadline.

    Since announcing its renewable plans, Egypt has also commissioned megaprojects from firms like Siemens, which dwarf FiT schemes and, analysts say, have sapped the urgency to push through. Sobky has told local media phase one would go ahead.

    Industry experts say no more than 12 firms would go through. Some developers say they will not return but others, along with international lenders, are now looking to phase two.

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    Home solar loan provider Mosaic raises $220 million financing round

    Solar Mosaic Inc, the top provider of loans for home solar installations in the U.S., said on Thursday it had raised $220 million in fresh funding to continue growing the rooftop solar loan market.

    This round by far eclipses the company's total previous equity raises of about $12 million, a spokeswoman said.

    Oakland, California-based Mosaic, founded in 2010, provides financing to homeowners to purchase rooftop solar systems, connecting them with solar installers and providing loans with fixed interest rates to pay off the installation.

    Mosaic's average loan amount is $30,000, with term options of 10 to 25 years and interest rates between 2.49 percent and 8.48 percent.

    The $220 million Series C financing was led by private equity firm Warburg Pincus, with Core Innovation Capital and Obvious Ventures also participating in the round.

    The company declined to comment on its valuation.

    Mosaic in April secured $200 million in debt to fund loans that would finance about 5,000 rooftop installations. More than 250 solar companies offer Mosaic's financing products.

    By next summer, Mosaic plans to have about $1 billion available to homeowners for solar loans.
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    Agrium Reports Solid Second Quarter Earnings

    Agrium Inc. announced today its 2016 second quarter earnings, with net earnings attributable to equity holders of Agrium of $564-million ($4.08 diluted earnings per share) compared to $674-million ($4.71 diluted earnings per share) in the second quarter of 2015. The reduction in net earnings this quarter was driven primarily by continued weakness in global nutrient prices. This was partially offset by solid demand for crop inputs, lower costs and strong margins within our ag-retail distribution business.


    Second quarter adjusted net earnings were $578-million or $4.18 per share (see page 2 for adjusted net earnings reconciliation)1.
    Retail earnings results were the second highest in history and in line with our guidance, due to strong margins which were supported by our proprietary product lines, lower costs and an increase in normalized comparable store sales.
    Wholesale delivered solid operational results due to industry-leading nitrogen margins, higher overall production and sales volumes and lower costs.
    Agrium has acquired 33 retail locations with expected annual sales in excess of $230-million on a year-to-date basis. In addition to these completed transactions, Agrium is currently working on the completion of the Cargill and another retail acquisition which together would add over 30 locations and represent over $300-million of expected annual sales. As a result, Agrium will easily surpass the pace of retail acquisitions over the past couple of years.
    Agrium has invested $15-million into Finistere Ventures Fund II, a leading AgTech venture fund focused on identifying and investing in early-to-growth stage companies within plant nutrition, biologicals, seed technology, digital agriculture and novel farm systems.
    Annual guidance range has been revised to $5.00 to $5.30 diluted earnings per share due to the weak outlook for nutrient prices (see page 3 for guidance assumptions and further details).

    "Agrium reported solid second quarter results driven by lower costs and strong margins across most of our business portfolio, supported by a stable cash flow from our retail operations. Our steadfast focus on operational excellence continues to deliver results and we believe our strategy and assets will create long-term shareholder value," commented Chuck Magro, Agrium's President and CEO.
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    Base Metals

    More bad news for copper price

    In New York trade on Thursday copper for delivery in July continued to drift lower after signs that cost deflation in the world's top producer Chile is only accelerating.

    July copper futures were lasting trading at $2.17 per pound, a three week low.  Amid a broad-based rally in industrial and precious metals, iron ore and coal, copper's performance has been disappointing with the metal trading flat year to date following a 26% decline in 2015.

    Demand has been relatively robust, but so has production with below average disruptions this year.  Another factor keeping a lid on the copper price is relentless cost cutting by producers.

    Chile's state copper commission Cochilco released a report this week detailing cost reductions in the country which is responsible for nearly 6 million tonnes of global annual production of 21 million tonnes.

    Study shows the most efficient mines in top producer Chile now produce copper for less than $1 a pound after finding an additional 13% in savings this year

    According to the study by the Chilean Copper Commission, mine level cash costs at Chile's 19 largest mines fell to an average of $1.285 per pound during the first three months of the year, down 13.3% or nearly 20c a pound from the same quarter of last year.

    The best performing quartile now produce copper in Chile for less than $1 a pound and the extent of the cost reductions this year are striking for the fact that most of the currency and oil price savings would've have worked its way through the system by now.

    The five largest mines in the South American country represent half of total production. BHP Billiton and Rio Tinto's giant Escondida mine alone produced 19% of the total followed by  state-owned Codelco's El Teniente mine, Anglo American and Glencore-owned Collahuasi, Anglo's Los Bronces complex and Antofagasta's Los Pelambres.

    Cochilco said the fall in output costs reflected improvement mine management, lower costs for electricity, services and shipping and lower treatment and refining charged by smelters. The longer-term trend of falling grades and increasingly contaminated concentrate at the world's biggest mines, coupled with increasing water costs in Chile makes the cost cutting even more remarkable.

    As an indication that costs may even moderate from these levels BHP Billiton in half-year production review said it expects Escondida's costs to be slightly below its earlier guidance of $1.21 per pound for its 2016 financial year.

    Cochilco has a downbeat price forecast for 2016 of $2.15 a pound ($4,740 a tonne) rising only slightly to $2.20 next year ($4,850). That compares to a 2015 average of $2.49 or $5,490.
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    Glencore halts Zambia copper mine output after deaths

    Glencore's Zambian Mopani Copper Mines (MCM) has halted production at all its operations after four miners were killed in separate accidents, a company official said on Friday.

    MCM on Thursday suspended production at its Mufulira underground mine after three miners were electrocuted, the official, who declined to be named, told Reuters.

    Last week another miner was killed in an accident at a Mopani shaft in Kitwe, local media reported.

    "The latest position is that we have suspended all production related operations across all Mopani facilities to facilitate investigations into the severe mines accidents that we have experienced in the recent past," the official said.

    Apart from the Mufulira underground shaft in Mufulira, Mopani also owns the Nkana underground shaft, South Ore Body shaft and the Mindola shaft in Kitwe.

    Glencore is investing more than $1.1 billion in Zambia to sink three shafts at MCM with new technology that will extend mine life by over 25 years.
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    Sherritt, partners get deferral for Madagascar mine debt

    Canadian miner Sherritt International Corp said on Thursday that lenders for a large Madagascar nickel mine, which it holds with partners, will defer six principal loan payments totaling $565 million until 2021.

    The agreement gives additional time for nickel prices to recover and partners to manage their funding requirements, said Sherritt, which holds a 40 percent stake in the Ambatovy joint venture. Japan's Sumitomo Corp holds a 35 percent stake and Korea Resources Corp (Kores) 27.5 percent.

    They owe lenders, including Export Development Canada and the African Development Bank, $1.6 billion. But with nickel prices down nearly 80 percent since 2007, the mine is producing at a loss.

    Semi-annual cash interest payments will continue under the deferral plan, Sherritt said, with principal and interest repayments starting in 2021 or earlier, depending on cash flow generation.

    Sherritt Chief Executive David Pathe said in an interview last week he was "encouraged" by an increase in nickel prices to around $4.70 a pound, but that long-term prices of $8 to $9 a pound were needed to sustain an industry where about half of nickel operations are producing at a loss.

    Prices of nickel, a top performer among industrial metals in recent months, are likely to retreat by the end of the year even though shortages are becoming more severe, according to a Reuters poll released last week.
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    Steel, Iron Ore and Coal

    China's production cuts of coal and steel miss targets by July

    China fulfilled 38% and 47% of its annual de-capacity targets in coal and steel industry over January-July, respectively, showed data from a meeting held on August 4, according to the Xinhua News Agency.

    The de-capacity campaign moved at a fast pace in July, but the result still fell behind the task of cutting production by half within the first half of this year.

    China planned to cut 250 million tonnes of coal capacity and phase out around 45 Mtpa of crude steel in 2016.

    Progresses of de-capacity reform among regions were not balanced, said Xu Shaoshi, director of the National Development and Reform Commission, at the joint meeting of tackling overcapacity in coal and steel industries.

    According to Xu, certain regions were wary about production cut impacting on the development of economy, lacking of recognition of the importance and urgency of the nationwide campaign.

    "This is what we must pay high attention to," he said, adding that overcapacity underlying fundamentals are still unchanged, despite anticipated rebound of coal and steel prices currently.

    China's coal consumption declined by 5.1% in the first six months this year, and the steel consumption fell 2.7%, which were not enough for propping up price hikes continuously, Xinhua reported, citing the director as saying.
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    Raw coal output of 90 large coal producers down 9.9pct in H1

    Raw coal output of 90 large coal producers down 9.9pct in H1

    Ninety large coal producers in China produced a total 1.11 billion tonnes of raw coal in the first half of the year, dropping 9.9% from the year-ago level, showed the latest data from the China National Coal Association (CNCA).

    Top ten producers produced a total 670 million tonnes of raw coal over the same period, accounting for 60.7% of the ninety coal enterprises' total, data showed.

    Of this, raw coal output of China Shenhua, Shandong Energy and Datong Coal stood at 204.46 million, 64.44 million and 60.47 million tonnes during the period.

    Shaanxi Coal & Chemical, China Coal and Yankuang Group followed with raw coal output at 59.82 million, 57 million and 55.84 million tonnes.

    Jizhong Energy, Shanxi Coking Coal, Kailuan Group and Henan Energy & Chemical Industry produced 47.26 million, 45.51 million, 41.52 million and 35.77 million tonnes, respectively.
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    Rio Tinto closes $220m Mount Pleasant sale

    Rio Tinto closes $220m Mount Pleasant sale

    Diversified mining major Rio Tinto has completed the sale of its Mount Pleasant thermal coal assets, in the Hunter Valley of New South Wales, for $220.7-million plus royalties.

    The group sold the project, which would produce 10.5-million tonnes of run of mine coal when in production, to MachEnergy Australia.

    Earlier this year, Rio Tinto wrapped up the sale of its 40% stake in the Bengalla coal joint venture, also in the Hunter Valley, to New Hope for $616.7-million.

    The company still owns a 67.6% interest in the other Hunter Valley operations, with 80% and 55.6% respective holdings in the Mount Thorley and Warkworth operations.

    Rio Tinto has shed assets worth $4.7-billion since January 2013. The group this week posted its weakest profit in 12 years, owing to weak commodity price.
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    Russia's Mechel ups sales to China, starts supplies to India

    Russia's Mechel ups sales to China, starts supplies to India

    Russian coal and steel producer Mechel raised supplies of its coking coal concentrate to China in the second quarter and started sales to India and Vietnam, it said on Thursday.

    China's demand for coal rose in the second quarter as local production fell, Mechel Chief Executive Oleg Korzhov said in a statement on the April-June production results.

    "Mechel put this market situation to good use. We increased overall mining by 4 percent and redirected some of our chief product - coking coal concentrate - to China, increasing our sales to this country nearly by half quarter-on-quarter," Korzhov said.

    "We also made several coking coal shipments to India and Vietnam, which are new markets for us," he added.

    Mechel, controlled by businessman Igor Zyuzin, said its second-quarter coal production rose 4 percent to 5.9 million tonnes compared with the previous quarter, while steel output rose 2 percent to 1.1 million tonnes.
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    China says it 'regrets' EU duties on Chinese cold-rolled steel

    China's Commerce Ministry said on Thursday it "regrets" the European Commission's decision to put anti-dumping duties on Chinese cold-rolled steel plates, the latest spat between the trade partners battling a global steel glut.

    China's steel industry, a major employer, has struggled to meet targets to reduce its overcapacity, and rising prices for steel have encouraged firms to ramp up production for export.

    Rival producers have accused China of selling into export markets at below cost after a slowdown in demand at home, forcing job cuts and plant closures elsewhere amid a deepening global crisis in the industry.

    The European Commission said on Thursday that it would levy retroactive anti-dumping duties on imports of certain cold rolled steel products from China and Russia after a year-long investigation triggered by a claim from European steel lobbying group Eurofer.

    "In the wake of the global steel overcapacity crisis, the Commission is applying the trade defense instruments to re-establish a level-playing field between EU and foreign producers," its said in an emailed statement.

    The duties of between 19.7 percent and 22.1 percent on Chinese firms Angang Group and Shougang Group would weaken the European Union's downstream manufacturing competitiveness, China's Commerce Ministry said in a statement on its website.

    "This move amplifies legal uncertainty and gravely affects normal international trade," the ministry said.

    It called on the EU to "avoid abusing trade remedies and sending a wrong signal" to the world, and added that it was willing to work with the EU to appropriately handle current problems facing the steel industry.

    China is by far the world's biggest steel producer and its annual output is almost double that of the 28-nation EU.

    The EU duties on cold-rolled steel, used in the construction and the automotive industries, will last for five years and be applied to products registered two months before they were initially adopted on Feb. 12, the commission said.
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    Anhui to cut crude steel capacity of 5.06 Mtpa by end-2018

    Anhui province planned to cut Crude Steel capacity of 5.06 million tonnes per annum (Mtpa) by end-2018, and further realize transformation and upgrading of the steel industry by 2020, said the provincial Economy & Information Technology Commission.

    The province has been vigorously promoting the elimination of the outdated capacity in both coal and steel industries since this year.

    It has shut steel-making capacity of 3.14 Mtpa since this year. Output of coal and steel products across the province posted year-on-year declines of 6.9% and 4.5% in the first half of the year, respectively.

    Coal industry of the province saw losses gradually shrinking over January-June, thanks to the rebound of coal prices amid de-capacity policy as well as costs cut and effectiveness enhancement adopted by coal producers.

    Over January-June, coal producers in the province suffered losses of 460 million yuan ($69.32 million), compared with losses of 5.4 billion yuan a year ago. For the first time after 39 consecutive months of loss, coal producers realized 260 million yuan of profit in June.

    Meanwhile, steel industry of the province reported profit of 1.8 billion yuan over January-June, compared with losses of 70 million yuan over the same period last year, thanks to robust rebound of steel prices.
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