Mark Latham Commodity Equity Intelligence Service

Thursday 18th February 2016
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    Germany rejects EU plan for levy on industry for green energy

    Germany's economy ministry rejected as unacceptable European Commission plans for an additional levy for industrial firms generating their own power to help pay for renewable energy, according to a paper seen by Reuters which is to be sent to Brussels.

    In unusually dramatic language, the ministry said the plans could cost German industry 760 million euros per year even if the plans were only implemented in part and "would lead to massive inadvertent structural disruption and further de-industrialisation" in Europe's biggest economy.

    The German economy ministry declined to comment on the paper seen by Reuters.
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    RWE scraps dividend as power sector crisis intensifies

    RWE will pay no 2015 dividend on its common stock for the first time in at least 23 years, as Germany's No.2 utility struggles to hold on to cash following major writedowns on power stations at home and abroad.

    Shares in the group slumped more than 12 percent to a four-month low, poised for their biggest ever one-day drop. "Scrapping the dividend is a devastating signal, you couldn't send a worse one," a trader said.

    German utilities have been burdened by the country's decision to close nuclear plants and a plunge in wholesale power prices, compounded by a big expansion in renewables. RWE has also struggled with problems at its British business npower, blamed on billing glitches and a loss of customers.

    As a result, RWE took a 2.1 billion euro ($2.3 billion) impairment charge on plants in Germany and Britain, causing a net loss of about 200 million euros for 2015. The group was also hit by a 900 million euro writedown in deferred taxes.

    "We know that we might disappoint many shareholders with today's (dividend) decision," RWE Chief Executive Peter Terium said in a statement on Wednesday. "However, it is necessary in order to strengthen our company."

    Analysts had expected a dividend of 0.61 euros per common share, according to Thomson Reuters data. For preferred shares, which account for only about 6 percent of RWE's stock, the group will pay a dividend of 0.13 euros per share.

    In response to the crisis, RWE late last year said it would split off and separately list its healthy renewables, networks and retail businesses in the course of the year, hoping to escape a crisis that has eroded profitability at its bread-and-butter power plants.

    RWE also said on Wednesday it had reached its 2015 targets, posting underlying net income of 1.1 billion euros and operating profit of 3.8 billion euros, though it cautioned both were expected to decline this year to between 500 million and 700 million euros, and to between 2.8 billion and 3.1 billion, respectively.
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    Oil and Gas

    Iran supports Saudi-Russia plan, but doesn’t commit to production freeze

    Iran supported an accord by Saudi Arabia and Russia to steady global oil markets by capping their supply, without saying whether it would curb its own production.

    Iran backs any measures to stabilize global oil markets including the plan outlined by the world’s two largest crude producers Tuesday to cap output at January levels, Iranian Oil Minister Bijan Namdar Zanganehsaid after talks with fellow OPEC members Qatar, Iraq and Venezuela, according to a report from Oil Ministry news service Shana.

    While the deal hinges on the cooperation of Iran, Zanganeh didn’t say whether the Persian nation would deviate from plans to restore exports after international sanctions were removed last month.

    “If Iran’s not part of the deal, it isn’t worth much,” said Eugen Weinberg, head of commodity markets strategy at Commerzbank in Frankfurt. “After fighting to end sanctions for years and finally being free of them, why Iran would choose to put sanctions on themselves by freezing their production?”

    More than a year since the Organization of Petroleum Exporting Countries decided not to cut production to boost prices, oil remains about 70 percent below its 2014 peak. Supply still exceeds demand and record global oil stockpiles continue to swell, potentially pushing prices below $20 a barrel before the rout is over, Goldman Sachs said last week.

    Oil extended gains following the end of the meeting. Brent crude, the international benchmark, rose 5.7 percent to $34.03 a barrel on the London-based ICE Futures Europe exchange at 3:46 p.m. local time.

    By merely capping supply rather than cutting it, the deal wouldn’t succeed in tackling the global oil glut, Goldman Sachs and BNP Paribas said.

    Iran, which was the second-biggest producer in OPEC before sanctions were intensified in 2012, is seeking to boost output by 1 million barrels a day and regain market share. The nation should increase production by 500,000 barrels a day by March 20, the end of the Iranian calendar year, Shana reported on Wednesday, citing Roknoddin Javadi, managing director of National Iranian Oil Co.
    “Any agreement will still be contingent on Iran being able to increase market share or increase production from current levels,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London.

    The Doha accord was likely a token gesture from Saudi Arabia to Venezuela, which faces “deep financial pain” from oil’s slump and has lobbied hard for any agreement that will support prices, Tchilinguirian said. Unless producers agree to cut their output, the global oversupply will persist, according to BNP.

    “Saudi Arabia is paying lip service to Venezuela’s efforts after they pushed so intensively,” said Tchilinguirian. “Does this change the supply-demand situation? No. By freezing at the high-water mark, you’re entrenching the surplus.”

    WTI Crude Soars To $31 - Erases All "Production Freeze" Disappointment Losses

    So let's get this straight. Russia and OPEC 'agree' to consider (not actually act upon) "freezing" production levels (at current record high levels) and the market plunges amid disappointment over no cuts. And today WTI spikes and erases all those losses as Iran supports the "freeze" plan but will not cut its own production plans...

    What is really diving all this craziness is that it is OPEX in Crude futures today and there are major pins around $31, $30, and $29.

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    Chinese Oil Output Succumbs to Glut Saudis Seek to Cap

    As the world’s biggest oil producers show they’re willing to cap output to revive prices, there are increasing signs OPEC’s strategy of driving higher-cost suppliers out of the market by keeping taps open is bearing fruit.

    A unit of China Petrochemical Corp. on Wednesday said it will shut its least profitable fields because of the price slump. That’s after Cnooc. Ltd., the country’s biggest offshore crude explorer, announced plans to cut output and capital spending this year. The nation’s production may slip 3-5 percent from last year’s record 4.3 million barrels a day, Nomura Holdings Inc. and Sanford C. Bernstein & Co. say, in what would be the first drop in seven years.

    “Sinopec has been maintaining output in its aging oil fields by over-investing and this is no longer possible in the current oil price environment,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein, who estimates the company needs oil to stay above $50 a barrel to break even. “We expect Sinopec’s domestic oil production to drop 5 percent to 10 percent this year as it shuts down aging high-cost oil fields.”

    PT Pertamina, the state-run energy company of OPEC member Indonesia, this month cut its 2016 output target by 9 percent as it reduces drilling activity amid low oil prices. U.S. production is forecast to drop by 580,000 barrels a day, or about 6 percent, from the first quarter to the fourth, according to data from the Energy Information Administration as of Feb. 9.

    Sinopec Shengli Oilfield Co. will shut the Xiaoying, Yihezhuang, Taoerhe and Qiaozhuang fields to save as much as 130 million yuan ($19.9 million) in operating costs, the company said in astatement on its Weibo account.

    The four oilfields are among the least profitable among 70 run by Sinopec Shengli, according to the statement. Sinopec Shengli first produced oil in 1961 and has since become one of China’s major producers. Its output since inception is 1.13 billion tons of crude and 57.2 billion cubic meters of natural gas.

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    Japan LNG imports down 14.1 pct in January

    Japan’s imports of liquefied natural gas reached 7.24 million mt in January, a drop of 14.1 percent as compared to the same month a year before.

    The world’s largest buyer of chilled gas paid 349,845 million yen (US$3.7 billion) for imports in January, down 55.4 percent as compared to 2015, preliminary data from Japan’s Ministry of Finance showed on Thursday.

    Japan imported 85.05 million mt of LNG in 2015, a drop of 3.9 percent as compared to the year before. This was the first drop in Japan’s annual LNG imports since the devastating earthquake and tsunami in March 2011 which caused Japan to shut down its nuclear industry. As of February this year, Japan has restarted three nuclear reactors.

    Japan paid $46.66 billion for LNG imports last year as global oil and gas prices fell, down 29.5 percent from $66.67 billion the country paid for imports in 2014.

    LNG use by Japan’s ten independent regional electric power companies dropped 4 percent in January to 4.99 million mt.

    According to the data from the Federation of Electric Power Companies of Japan (FEPC), January purchases by the ten utilities were at 4.62 million mt of LNG, down 12.8 percent from 2015.

    Total electricity generated and purchased across the ten companies in January declined by 3.2 percent to 81.08 billion kWh, due to “decreased heating demands caused by relatively higher temperatures” in January than the previous year, FEPC said.

    Japan’s price of spot liquefied natural gas contracted in January averaged $7.1 per mmBtu on DES basis, down 30 cents from the previous month.

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    Gazprom taking comprehensive cost optimization measures

    The Gazprom Board of Directors took notice of the information about the cost optimization (reduction) trends across Gazprom Group in 2016.

    It was highlighted that Gazprom pursued the consistent policy of improving the cost management practices, reducing operating costs and maximizing the value for money ratio. In an unstable economic environment this work is highly relevant, therefore Gazprom is using all possible means and exploring new opportunities for further cost optimization.

    The cost optimization strategy is focused around several key areas: generation of the Investment Program and the Budget, development and execution of the cost reduction program, implementation of cost optimization plans by types of activity and procurement of goods, works, and services.

    At the budgeting stage, Gazprom optimizes a number of expenditure items by using a standard setting approach, determining specific cost parameters and finding the best deals on the market. The costs are ranked according to the level of significance for performing the current activities and unconditionally fulfilling all the obligations. In respect of the Investment Program preparation, the projects are divided by the degree of priority for achieving the Company's strategic goals and meeting peak demand during the autumn-winter period.

    Moreover, the Company annually approves the Cost Optimization (Reduction) Program which defines additional cost reduction provisions for specific areas of the operating, investment and financial activities.

    This approach enables Gazprom to respond to adverse changes in the economic conditions and ensures sufficient flexibility in implementing all major projects of the Company.

    Gazprom also carries out a comprehensive action plan to optimize costs in individual lines of business. It contains a list of practical measures for reducing the current investment, managerial and other costs. The most important ones are cutting down the expenses on the supply of goods, execution of works and rendering of services for Gazprom Group, as well as regulating prices for purchased materials and equipment.

    A significant economic effect is achieved through planning and centralized procurement. In its procurement strategy Gazprom follows a number of fundamental principles, such as meeting the Company's demand for goods (works, services) having the required price, quality and reliability parameters, achieving value-for-money for goods (works and services) and ensuring the transparency of purchases.

    Stringent control is maintained at every stage of competitive procedures - from the confirmation of the need to make a purchase and the control of its initial (maximum) price to the decision making about the final cost of procured goods (works and services). The procurement results are taken into account later when Gazprom Group companies draw up and adjust their budgets, while the performance of the signed contracts is thoroughly monitored.

    Gazprom seeks to further improve its cost optimization measures with due account for the best practices in this area.
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    Russia's regulator says approval for Lukoil to buy Bashneft stake is likely

    The head of Russia's anti-monopoly agency, Igor Artemyev, said it is highly likely that the agency would approve the possible purchase of a stake in oil company Bashneft by Lukoil, Russia's Interfax news agency reported on Wednesday.
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    Noble Energy posts loss, hurt by $2.2 bln in charges

    U.S. oil and gas producer Noble Energy Inc reported a quarterly loss, compared with a year-earlier profit, hurt by $2.2 billion in charges including asset writedowns.

    The company, like its peers, has been hit by a more-than 70 percent fall in oil prices since mid-2014.

    Noble said on Wednesday it expected sales volumes to decline in the current quarter due to downtime at its Alba field compression project offshore Equatorial Guinea.

    The company forecast first-quarter production available for sale of 395,000-405,000 barrels of oil equivalent per day (boe/d), down from 422,000 boe/d in the fourth quarter.

    Noble, which also operates in U.S. shale fields and offshore Gulf of Mexico, Israel and West Africa, bought Rosetta Resources in a $2 billion deal last year, adding to production.

    The company reported a net loss of $2.03 billion, or $4.73 per share, for the fourth quarter ended Dec. 31, compared with net income of $402 million, or $1.05 per share, a year earlier.
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    Militants Blow Up Colombian Pipeline, Disrupt Up To 85.000 Bpd

    Militants from the National Liberation Army (ELN) blew up a section of Colombia’s Transandino pipeline overnight Monday, killing two policemen right before the incident.

    The Transandino pipeline, owned and operated by Colombia’s state-run Ecopetrol, transports around 85,000 barrels of oil daily to the Pacific Tumaco port.

    The explosion took place in Colombia’s western Narino Department, according to local and international media reports.

    Just hours before the explosion, ELN militants killed two policemen in Narino.

    The ELN is the second-largest rebel group in Colombia after FARC (Revolutionary Armed Forces of Colombia) both groups are on U.S. and E.U. terrorist organization lists, and in some cases they have been known to cooperate.

    The pipeline bombing comes as sentiments were high that government talks with both groups would lead to a truce of some sort in the first half of this year.

    Last week, ELN implemented a 72-hour lockdown in the area, targeting a halt to transportation and commerce in an apparent bid to pressure the government over the slow pace of informal peace talks, Reuters reported.

    The infrastructure sabotage comes at a particularly bad time for Ecopetrol, which has begun closing oil wells as production costs overtake crude prices, according to a Bloomberg report.

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    Marathon Oil slashes capex 50 percent, posts quarterly loss

    Marathon Oil Corp, a U.S. shale exploration company, on Wednesday slashed its 2016 spending by 50 percent and reported a quarterly loss as the company's results were hurt by a steep decline in crude oil prices.

    Crude oil prices CLc1 have tumbled about 70 percent from mid-2014 highs above $100 a barrel. Current prices around $30 a barrel are not high enough for exploration and production companies to invest in many new shale wells, so most have slashed spending.

    Marathon said it plans to spend $1.4 billion this year, a reduction of more than 50 percent from 2015.

    "Through this cycle of sustained low oil prices and market volatility, Marathon Oil will continue to focus on balance sheet protection and operational flexibility," said Lee Tillman, Marathon's chief executive officer.

    Marathon, based in Houston, posted a fourth-quarter net loss of $793 million, or $1.17 per share, compared with a profit of $926 million, or 1.37 cents per share, in the year-ago period.

    Excluding items such as asset impairments, Marathon had a loss of 48 cents per share. Analysts on average had expected a loss of 48 cents per share, according to Thomson Reuters I/B/E/S.

    Adjusting for divestitures, Marathon's oil and gas output is expected to fall 6 to 8 percent this year. In the fourth quarter, output averaged 432,000 barrels oil equivalent per day, about flat compared with the 2015 third quarter.

    To raise cash in the downturn, Marathon also said it expects to sell $750 million to $1 billion in oil and gas properties it no longer considers central to its operations.

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    Shale Faces March Madness as $1.2 Billion in Interest Comes Due

    The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts.

    Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI Ltd. said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge Energy Inc. announced that didn’t make a $21.7 million interest payment.

    "You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due," said Jason Wangler, an energy analyst at Wunderlich Securities Inc. in Houston.

    Energy XXI may not be able to meet its commitments in the next 12 months, raising "substantial doubt regarding the Company’s ability to continue as a going concern," according to a company filing with the U.S. Securities and Exchange Commission. A company representative didn’t return a phone call and e-mail seeking comment.

    SandRidge "has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders," the company said in a statement released Wednesday.

    "Today’s actions will preserve liquidity and flexibility as we continue to engage in constructive dialogue with our stakeholders," James Bennett, SandRidge president and chief executive officer, said in the statement.

    Oil has tumbled more than 70 percent since a June 2014 peak of $107 a barrel. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt.

    That debt has become increasingly burdensome as prices collapsed. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion, according to law firm Haynes & Boone. Deloitte LLP said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession.

    The industry is facing $9.8 billion in interest payments through the end of this year, according to data compiled by Bloomberg.

    SandRidge, which drew down its full $500 million credit line on Jan. 22 and hired legal and financial advisers, has another payment of about $28 million due March 15, the data show. Chaparral Energy Inc., which likewise tapped its entire credit line and hired advisers this month, owes $17 million next month. A representative for Chaparral did not return a phone call and e-mail seeking comment.

    "If you can’t make it through the year at current strip prices, then why pay the coupon?" said Subash Chandra, a managing director with Guggenheim Securities in New York. "If you can’t make it out of this year, and asset sales aren’t going anywhere and no one wants your equity, then there just aren’t that many avenues to fix the problem."

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    Enbridge delays two pipelines, cuts 2016 CapEx

    Regulatory delays of two of Enbridge Energy Partners pipelines will help the company cut its 2016 capital budget by about 20 percent, executives said Wednesday.

    The Houston-based pipeline company, whose parent Enbridge is based in Alberta, said the Sandpiper Pipeline and Line 3 Replacement project will likely be pushed back until 2019. The later in-service date means Enbridge can defer some of costs required to build the lines.

    Several other midstream companies have also trimmed their 2016 spending. Cheap oil helped make accessing capital markets more difficult, and pipeline companies have had to carefully balance spending on new pipelines, dividends and maintaining healthy debt levels.

    Enbridge said it expects to spend about $900 million on new pipelines, expansion projects and maintenance in 2016, down about 20 percent from the $1.14 billion spent in 2015.

    The Sandpiper and Line 3 Replacement projects are still a significant portion of that investment. Both are projected to cost a total of $2.6 billion over several years.

    In 2015, Enbridge budgeted a $195 million investment in the Sandpiper and $65 million for the Line 3 Replacement. In 2016, Enbridge said it expects to hold the respective costs to $85 million and $185 million, with some of the investment shifted into later years.

    Enbridge Energy Partners also said it was willing to allow Alberta-based parent company Enbridge Inc. to fund a larger share of the Line 3 Replacement Project in exchange for a greater interest in the completed pipeline. In the $900 million 2016 budget that Enbridge showed investors Wednesday, Enbridge Inc. had taken on an additional $350 million of the project, though executives stressed that number was preliminary.

    The Sandpiper Pipeline is a joint venture between Enbridge Energy Partners and Marathon Petroleum that would carry light oil from North Dakota’s Bakken to an existing Wisconsin pipeline hub, where the crude could connect to other markets. The Line 3 Replacement project will re-lay a 1960s pipeline running from Edmonton, Alberta to Superior, Wisconsin, allowing Enbridge to boost its capacity to nearly double capacity to 760,000 barrels per day.

    The Sandpiper Pipeline was originally expected to be up and running by 2017, and the Line 3 Replacement was originally slated for 2018. Both lines are now expected to be operating in 2019.

    In an announcement accompanying their 2015 fourth-quarter earnings, Enbridge executives said the delays were due to decisions by the Minnesota Public Utilities Commission, which regulates pipelines.

    “The process set out in the orders is likely to delay the planned start of construction, which would cause a shift in the in-service dates to early 2019 and increase costs for the Line 3 Replacement and Sandpiper projects,” executives said in a statement.

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    Pioneer Energy Services Reports Fourth Quarter 2015 Results

    Pioneer Energy Services today reported financial and operating results for the year and quarter ended December 31, 2015. Notable items for the fourth quarter include:

    Sold four SCR drilling rigs for aggregate gross proceeds of $17.3 million and classified four additional rigs as held-for-sale at year-end.
    Amended revolving credit facility, which reduced borrowing capacity while providing more flexible covenants through maturity in 2019.
    Completed construction of the final 1,500-horsepower AC new-build drilling rig.
    Well servicing rig utilization was 55% with average pricing of $562 per hour.
    Drilling utilization was 54% based on an average fleet of 37 rigs.

    Consolidated Financial Results

    Revenues for the fourth quarter of 2015 were $104.5 million, down 3% from revenues of $107.5 million in the third quarter of 2015 ("the prior quarter") and down 63% from revenues of $283.1 million in the fourth quarter of 2014 ("the year-earlier quarter"). The decline from the year-earlier quarter was due to reduced activity and pricing as a result of lower demand for our services due to lower oil and gas prices.

    Net loss for the fourth quarter of 2015 was $48.3 million, or $0.75 per share, compared with net loss of $17.5 million, or $0.27 per share, in the prior quarter and net loss of $47.6 million, or $0.75 per share, in the year-earlier quarter. Excluding the after-tax impact of impairment charges and loss on extinguishment of debt, our Adjusted Net Loss(1) for the fourth quarter was $16.1 million and Adjusted EPS(2) was a loss of $0.25 per share, as compared to Adjusted Net Loss of $15.8 million, or $0.24 per share, in the prior quarter. During the fourth quarter, we recognized impairment charges of $49.5 million, primarily for the reduction of carrying values of assets related to our coiled tubing operations, as well as five domestic SCR drilling rigs. Our Adjusted Net Income for the year-earlier quarter was $2.9 million or $0.04 per diluted share.

    Fourth quarter Adjusted EBITDA(3) was $20.0 million, including a gain on disposal of assets of $1.7 million. This was up 6% from $18.8 million in the prior quarter, which included a loss on disposal of assets of $0.6 million, and down 70% from $66.0 million in the year-earlier quarter.

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    Williams shares rise as hedge funds pile in, ETE offer spread narrows

    William Cos Inc's shares extended their surge on Wednesday, having jumped by nearly a fifth this week, narrowing the spread of the takeover offer by rival pipeline company Energy Transfer Equity LP.

    The current value of Energy Transfer's bid is about 15 percent higher than Williams' share price as of Tuesday's close. As recently as Friday, the spread was about 23 percent.

    Williams also released its fourth-quarter results, which saw a loss of 94 cents per share, missing analyst expectations of a gain of 22 cents a share.

    Williams shares jumped after fourth-quarter filings by investors showed that several hedge funds had jumped into the stock, including Jana Partners.

    The spread between William's stock price and the ETE offer had been even wider in previous weeks, and was about 27 percent as recently as Feb. 8, indicating that investors expect the deal to fall through.

    Williams' shareholders, disappointed by the deal's lack of a hefty premium and worried about the combined company's debt levels, gave the Energy Transfer offer a poor reception the day it was announced on Sept. 28, pushing its shares down 12 percent.

    Oil prices have since fallen further, weakening the investment case for pipeline companies such as Williams and Energy Transfer, which need to increase cash flows to fund payouts to investors.

    Energy Transfer's share price has dropped about 74 percent since the offer was announced, signaling the market's disapproval of the deal. Williams' stock has slid 64 percent.

    The total value of the cash-and-stock deal had fallen to $12.94 billion as of Tuesday close, from $33 billion in September, when the companies reached a deal, ending a pursuit stretching back to January 2015.

    Investment bankers who spoke to Reuters said the deal would help Williams shoulder its exposure to pipeline contracts with heavily indebted Chesapeake Energy Corp (CHK.N). A repricing of those contracts could shave $200 million to $400 million off Williams' earnings before interest, taxes and depreciation, or EBITDA, according to analysts at Credit Suisse.

    Williams' fourth-quarter EBITDA rose 25 percent to $1.07 billion, the company said on Wednesday. The company has said the ETE deal will enhance its growth prospects and that the board unanimously supports the closure of the transaction.

    Williams shares were up 4.5 percent to $15.69 on Wednesday, while Energy Transfer shares were up about 7.6 percent at $6.52, on a day Brent crude jumped more than 7 percent.
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    Devon slashes capex for 2016 by 75%, plans to trim workforce by 20%

    Devon Energy Corp., Oklahoma City, plans capital expenditures in 2016 of $1.17-1.45 billion, down from $5.26 billion in 2015. That includes the firm’s exploration and production capital investment for 2016, which is estimated to range $900 million-1.1 billion, also a 75% decrease from that of 2015.

    The expansive cuts come with a 20% reduction of its employee headcount—or 1,000 employees not including an additional 600 that may be impacted by divestitures—bringing its total workforce reduction over the past 12 months to more than 25%.

    The firm reported a 2015 net loss of $14.5 billion, compared with earnings of $1.6 billion a year earlier. During the fourth quarter, it posted a net loss of $4.5 billion, compared with a loss of $408 million in 2014.

    Devon this week reported the appointment of Tony Vaughn as chief operating officer, where he moves over from executive vice-president of exploration and production (OGJ Online, Feb. 17, 2016). The move is part of a management shuffle that includes the retirement of Darryl Smette, executive vice-president of marketing, facilities, pipeline, and supply chain.

    As part of the company’s reshuffling over the past year, Devon in December agreed to acquire 80,000 net acres in the Anadarko basin STACK play from Felix Energy LLC for $1.9 billion, and 253,000 net acres in the Powder River basin for $600 million (OGJ Online, Dec. 7, 2015). Both deals are now complete.

    At the time the deals were made, Devon said that it’s targeting $2-3 billion in midstream and upstream divestitures in 2016. The company says it’s currently negotiating a sale for its 50% interest in the Access pipeline, which services Devon’s thermal heavy oil operations in Canada. A sale is expected to be announced in the first half.

    Devon’s upstream divestitures will include up to 80,000 boe/d of production from properties in the Midland basin, East Texas, and Midcontinent region. Assets within those regions include 15,000 net undeveloped acres in Martin County, Tex., the southern Midland Wolfcamp, Carthage, Granite Wash, and the Mississippi-Lime.

    The firm expects companywide production in 2016 of 597,000-634,000 boe/d, including 249,000-264,000 b/d of oil, 117,000-127,000 b/d of natural gas liquids, and 1.39-1.46 MMcfd of natural gas.

    That’s compares with companywide production of 680,000 b/d in 2015 and 673,000 b/d in 2014, including oil output of 275,000 b/d in 2015 and 214,000 b/d in 2014, NGL output of 136,000 b/d in 2015 and 139,000 b/d in 2014, and gas output of 1.61 MMcfd in 2015 and 1.92 MMcfd in 2014.

    Devon’s estimated proved reserves of oil, natural gas, and NGLs were 2.2 billion boe at Dec. 31, 2015, with proved developed reserves accounting for 83% of the total.

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    North Dakota oil production falls to 1.15 million B/D: state

    North Dakota oil production fell to just over 1.15 million b/d in December, down 75,203 b/d from a year earlier when state production hit an all-time high, state Department of Mineral Resources data showed Wednesday.

    December production fell by 29,507 b/d from November, as prices for North Dakota sweet crude and the number of drilling permits continued to freefall.

    Lynn Helms, the state's top oil and gas regulator, called the December data "the first real production decline" the state has seen as producers curtail drilling efforts amid the ongoing price collapse.

    While production did decline late last year, those dips were often blamed on flaring restrictions, gas capture goals and new oil conditioning rules. December's drop, it appears, was strictly a function of price, Helms said.

    "This looks like it's a real number, based on real activity," he said.

    Based on the breakeven prices released by the state Wednesday, only two North Dakota counties, Dunn and McLean, remain economic to drill amid current prices. Dunn, where the state estimates breakeven prices average $22/b, had seven active rigs Wednesday, while McLean, where breakevens average $25/b, had just one.

    McKenzie County, which leads the state with 20 active rigs, has an average breakeven of $31/b. The statewide breakeven average is $40/b.

    Platts on Tuesday assessed Bakken ex-Clearbook at $30.70/b, down from $49.34/b at the same time a year earlier.

    The state uses a combination of WTI spot prices, calculating Bakken at roughly 85% of the WTI price, and pricing from Flint Hills Resources. On Tuesday, Flint Hills estimated North Dakota's sweet crude price at $16.50/b, its lowest price since February 2002.

    The statewide rig count held steady at 64 from November to December, but has since dropped significantly to an average of 52 in January, then slid further to land at 40 on Wednesday. The all-time high was 218 in May 2012.
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    India halts potash imports as droughts hit crop plantings

    India has halted its potash imports for the year to end-March and delayed negotiations for next year's purchases until at least June, as droughts have dented demand in one of the world's biggest fertilizer consumers, government officials said.

    The decision, which has not been previously reported, is India's first pause in potash imports in years and will be tough on suppliers already reeling from weak demand as China and Brazil also trim their buying.

    Major suppliers to India include Uralkali, Potash Corp of Saskatchewan, Agrium Inc, Mosaic, K+S, Arab PotashCo and Israel Chemicals.

    Spot prices of potash, a crop nutrient, are at 8-year lows of around $230 a tonne, down by more than a quarter from a year ago.

    "Demand is weak due to the drought," said P.S. Gahlaut, managing director of state-run Indian Potash Ltd, the country's biggest importer. Gahlaut said India had 1 million tonnes of potash inventory despite cutting back on imports.

    India's move to halt its potash imports underscores the country's changing position in global commodities markets because of a deepening crisis in its farm sector.

    Successive droughts have slowed plantings of crops including rice, wheat, sugarcane, corn, cotton, soybean and rapeseed, and cut the need for fertilizer. But this is also turning India into a net buyer for commodities for the first time in years.

    The agriculture sector, which employs some two-thirds of India's 1.25 billion population, poses a risk to Prime Minister Narendra Modi's economic growth ambitions.

    The suspension of imports means India will buy less potash this year than it had planned.

    Last May, Indian fertilizer producers including Rashtriya Chemicals and Fertilizers Ltd (RCF), IFFCO and Chambal Fertilisers and Chemicals agreed to import a total of 4.5 million tonnes of potash, with an option to increase that to 5.2 million tonnes.

    So far this fiscal year, they have shipped in only 3 million tonnes, and will not be buying any more, industry officials said. An official at state-run RCF said the government has also taken the rare step of restricting movement of imported fertilizers in an effort to cut down on imports.

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    CF Industries profit misses estimates as prices weaken

    U.S. nitrogen fertilizer producer CF Industries Holdings Inc reported a lower-than-expected quarterly profit, hurt by weakening prices and higher costs.

    Fertilizer prices have plunged amid soft grain prices and excessive global production.

    The average selling price for ammonia fell about 18 percent to $458 per ton in the fourth quarter ended Dec. 31, while the price of UAN (urea ammonium nitrate) fell 12.5 percent to $230 per ton, the company said.

    Net earnings attributable to stockholders fell to $26.5 million, or 11 cents per share, in the quarter ended Dec. 31 from $238.3 million, or 96 cents per share, a year earlier.

    Net sales fell 8.3 percent to $1.12 billion.

    Excluding items, CF earned 76 cents per share. Analysts on average were expecting 82 cents, according to Thomson Reuters I/B/E/S.

    The company said in August that it will buy OCI NV's (OCI.AS) North American and European plants for $6 billion, making CF the world's largest publicly traded nitrogen company.

    CF said it expected 2016 corn planting to cover about 90.5 million acres, a 2.5 million acre increase from 2015.

    Total operating costs and expenses jumped 50 percent to $88.3 million in the quarter.

    The Deerfield, Illinois-based company's shares were up about 1.8 percent in extended trading.
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    Precious Metals

    Barrick Gold aims to cut at least $2 billion in debt this year

    Barrick Gold Corp, the world's largest gold producer, on Wednesday forecast 2016 gold production of 5.0-5.5 million ounces and a debt reduction target of at least $2 billion for the year.

    The company, which produced 6.12 million ounces in 2015, expects all-in sustaining costs of $775-$825 per ounce for the year, largely lower than $831 per ounce a year earlier.

    The Toronto, Ontario-based miner, which has one of the highest debt loads of any gold miner, has been selling its non-core assets in order to reduce debt. It said in January it had met its $3 billion debt-reduction target.

    Capital expenditures for 2016 were forecast at $1.35 billion-$1.65 billion, compared with 2015 capital expenditures of $1.51 billion.

    Gold XAU= GCv1 has been hit by a slowdown in China's growth, the world's top consumer, a global supply glut and a strong dollar .DXY.

    The company also reported higher-than-expected quarterly profits as sale of its non-core assets helped offset the dip in gold prices.

    Net loss attributable to Barrick was $2.62 billion, or $2.25 per share, in the quarter ended Dec. 31, compared with a loss of $2.85 billion, or $2.45 per share, a year earlier.

    Excluding items, it reported a profit of 8 cents per share, bigger than the average analysts' estimate of 6 cents per share, according to Thomson Reuters I/B/E/S.

    Revenue fell about 11 percent to $2.24 billion.
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    Lower metal prices drive Newmont’s Q4 loss below forecasts

    The world’s largest gold miner by market capitalisation Newmont on Wednesday disappointed investors with narrower-than-expected fourth-quarter headline earnings of $20-million, or $0.04 a share – $0.08 a share below Wall Street analyst forecasts – as lower realised metals prices and the impact of divestitures impacted on the bottom line. 

    The Denver, Colorado-based company said a noncash reclamation charge, tax valuation allowance adjustments and a one-time payment related to previous period royalties and taxes from the revised Ghana Investment Agreement impacted on net income, which totalled a loss of $247-million, or $0.48 a share, in the fourth quarter ended December 31, compared with net income of $39-million, or $0.08 a share, for the comparable period of 2014. 

    Revenue fell 10% year-on-year to $1.8-billion in the fourth quarter, as a 9% slide in the average realised gold price and flat attributable gold sales offset higher production at Batu Hijau, in Indonesia, and the addition of Cripple Creek & Victor gold mine, in Colorado. 

    A 27% year-on-year slide in the average realised copper price to $1.86/lb offset an 18% increase in attributable sales at 40 t, as Batu Hijau continued to mine higher-grade Phase 6 ore. However, fourth-quarter copper sales volumes were impacted on by the export permit delay. Newmont received a six-month export permit on November 20, 2015, and revenue from about 27-million pounds of copper and 39 000 oz of gold shipped in December was expected to be recognised in the first quarter 2016. 

    Attributable gold output was 1% lower year-on-year at 1.25-million ounces in the fourth quarter, as higher output at Batu Hijau and the addition of Cripple Creek & Victor offset production declines at Yanacocha, in Peru, and Ahafo, in Ghana. Newmont advised that it had generated about $1.7-billion asset sales since 2013, while maintaining steady attributable gold production. All-in sustaining costs (AISC) totalled $999/oz for the three-month period, up 8% over the comparable period as a result of lower volumes at Yanacocha and the timing of sustaining capital expenditures. 

    Copper AISC was down 36% year-on-year at $1.51/lb in the fourth quarter, down from $2.39 in the comparable quarter. Newmont’s consolidated cash flow from continuing operations was $275-million in the period, down 51% when compared with $562-million a year earlier. 

    Free cash flow was negative $185-million in the fourth quarter, compared with $218-million in the previous year quarter. The company held $2.8-billion of consolidated cash on its balance sheet as at year-end 2015, up 16% from the previous year. 

    The company had $6.24-billion in debt on its balance sheet as at December 31. Newmont expected an AISC of below $1 000/oz this year and profitable production of at least 4.5-million to 5-million ounces a year through 2020. 

    Attributable gold output was expected to increase from between 4.8-million and 5.3-million ounces in 2016, to between 5.2-million and 5.7-million ounces in 2017. New production at Cripple Creek & Victor, Long Canyon Phase 1, in Nevada, Merian, in Suriname, and the Tanami expansion, in Australia, was expected to offset the impacts of maturing operations at Yanacocha and mine sequencing at Batu Hijau. 

    Attributable copper output was expected to be between 120 000 t and 160 000 t in 2016 and 2017 before decreasing to between 70 000 t and 110 000 t by 2018, owing to the depletion of higher-grade Phase 6 ore at Batu Hijau. 

    AISC was expected to improve from between $900/oz and $960/oz in 2016, to between $850/oz and $950/oz in 2017. AISC for 2018 was expected to remain below $1 000/oz, despite higher stripping at Boddington, in Australia, and lower output at Batu Hijau.

     Newmont also announced on Wednesday that it had added five-million ounces of reserves through exploration and four-million ounces more through the acquisition of Cripple Creek and Victor mine, more than offsetting a depletion of 6.5-million ounces.
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    Evolution Mining free cash flow bump allows dividend rethink

    Evolution Mining will review its dividend policy after strong cash generation in the first half. Photo: Bloomberg

    Evolution Mining shareholders look set to benefit from an 87 per cent increase in the gold miner's first half revenue, with the company reaffirming it will review its dividend policy at the end of June given its strong cash generation.

    Evolution, Australia's second largest gold producer, swung to a statutory net loss after tax of $15.5 million for the December, from a profit of $43.1 million a year earlier, despite an 87 per cent increase in sales revenue to $607.1 million.

    The decrease was due to acquisition and integration costs of $54 million and fair value accounting adjustments of $38.4 million incurred in the completion of its Cowal, Mungari and Phoenix project acquisitions, along with a subsequent $35.3 million goodwill write-off.

    However, the miner reported a 150 per cent increase in underlying profit to a record $107.9 million due to the Cowal and Mungari acquisitions, which bumped-up gold production volumes to 377,869 ounces for the half.

    Against the backdrop of a strong Australian-dollar gold price, the miner generated free cash flow from operations for the period of $203 million.

    Spot gold was trading at about $US1210 an ounce on Thursday.

    Evolution chief financial officer Lawrie Conway said the miner's momentum on margin expansion would continue to provide opportunities for the company to reduce debt and consider increasing shareholder returns.

    "We have many options available to us for the surplus cash such as further growth opportunities including increased discovery investment, accelerated debt reduction and returns to shareholders via dividends," he said.

    Mr Conway said Evolution would continue to prioritise debt reduction, after reducing gearing to 23 per cent from a peak of 32 per cent in July.

    RBC Capital Markets analyst Cameron Klutke said the company's result was generally in line with expectations and the reduction in gearing was a positive sign for the miner.

    "We continue to see reduction of the outstanding debt as a priority for the company," Mr Klutke said.

    Evolution's present dividend policy is to pay a half-yearly dividend equivalent to 2 per cent of the sales revenue recorded within the period.

    It will pay an interim unfranked dividend for the December half of 1¢ per share, which is equivalent to 2.3 per cent of sales revenue for the period.

    Mr Conway said any decision was based on debt reduction and continued strong cash flow generation, adding the company would look at a number of dividend policy options but currently favoured sticking with a revenue-based format.

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    Base Metals

    Asia Alumina: Australia up $7/MT on week on opertunistic buying BUYS

    The Platts Australian alumina daily assessment at $215/mt FOB Wednesday was stable compared with a day ago, but has firmed $7/mt in the last week.

    The Australian market has been supported by dip buying, consumer restocking, refining cuts and growing supply concerns.

    Rising Chinese domestic alumina prices and a depressed freight market have also helped to prop up the FOB price of alumina.

    In CIF China terms, $220/mt has become the mainstream buyers' rate. Sellers' guidance generally started from $225/mt CIF. Consumers have voiced interest in March and April shipments, but sellers appear to be biding their time.

    Platts assessed the Handysize freight rate at $8.25/mt on Wednesday for a 30,000 mt shipment in March from Western Australia to China's Lianyungang port.

    The Platts China alumina daily assessment for Shanxi province rose Yuan 20/mt ($3.07/mt) from a day ago to Yuan 1,670/mt ex-works in cash, lifted by output cuts and recent consumer restocking.

    March offers in Shanxi have climbed to Yuan 1,700/mt while buyers were at Yuan 1,660-1,670/mt, sources said. Refiners were also targeting steep price increases in Henan and Shandong provinces.
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    South32 considering buyout of Anglo American manganese unit

    South32 could be among the first to buy assets placed on the block this week by South Africa's Anglo American, with the Australian company saying it was interested in its manganese unit.

    The two companies share a manganese mining and smelting business located in Australia and South Africa, with Anglo American owning 40 percent of the division.

    RBC last year valued South32's stake in manganese at around $1.8 billion, though that was before the metal halved in price.

    "As a JV partner with a deep understanding of their value, we would be a buyer if the price is right," a South32 spokeswoman said in an emailed statement, confirming a report in the Sydney Morning Herald newspaper website.

    News of the interest from South32, the diversified minerals group spun out of BHP Billiton last year, comes as Anglo American turns to widespread divestment to shore up a heavily indebted balance sheet.

    South32 indicated negotiations had already started to acquire Anglo American's manganese business.

    "We have a good relationship with our joint venture partner and they've communicated their intentions," the statement said.

    Manganese can be found in drink cans to improve resistance to corrosion. Ahead of Anglo American unveiling plans this week to cut net debt in half, South32 had been mentioned as a potential buyer of Anglo American's niobium business.

    Anglo American on Feb. 16 detailed a drastic plan to hack and slash its sprawling empire of mining assets, paring it back to diamonds, copper and platinum.

    Any acquisition, though, would come at a tough time for manganese producers.

    Weak prices for the metal have already led South32 to suspend mining at its Hotazel mining division in South Africa This has removed around 700,000 tonnes of manganese ore production from the global supply chain.
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    Steel, Iron Ore and Coal

    Indonesia’s Feb HBA thermal coal prices fall to $50.92/t

    Indonesia's January thermal coal reference price in February this year, also known as Harga Batubara Acuan (HBA), fell to $50.92/t FOB, hitting the tenth new low since 2015, said the Ministry of Energy and Mineral Resources on February 10.

    The February HBA price represents a drop of 4.29% from January and down 19.07% year on year.

    The decline in coal prices in February this year was mainly affected by the severe supply glut in coal market and sluggish global economy.

    The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg gross as received assessment; 25% on Argus-Indonesia coal index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

    It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash and 0.8% sulfur.

    The HBA for thermal coal is the basis for determining the prices of 73 Indonesian coal products and for calculating the royalties Indonesian producers have to pay for each metric ton of coal they sell locally or overseas.
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    Brazil expects Samarco dam-disaster deal by Friday

    The Brazilian government expects to reach agreement by Friday with Samarco Mineração SA to settle a 20 billion-real ($4.9 billion) lawsuit for damages related to a deadly November dam disaster, a spokesman for Brazil's attorney general said on Wednesday.

    Brazil has sued Samarco, a 50-50 iron ore mining joint venture between Brazil's Vale SA  and Australia's BHP Billiton Ltd , for 20 billion reais ($4.8 billion) after the dam, which held iron ore tailings, burst in Brazil's Minas Gerais state.

    The government considers the tragedy the worst environmental disaster in the country's history.
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