Mark Latham Commodity Equity Intelligence Service

Wednesday 20th January 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Peak 'stuff'? Ikea sustainability head speaks his mind.

    The appetite of western consumers for home furnishings has reached its peak – according to Ikea, the world’s largest furniture retailer.

    The Swedish company’s head of sustainability told a Guardian conference that consumption of many familiar goods was at its limit.

    “If we look on a global basis, in the west we have probably hit peak stuff. We talk about peak oil. I’d say we’ve hit peak red meat, peak sugar, peak stuff … peak home furnishings,” Steve Howard said at a Guardian Sustainable Business debate. He said the new state of affairs could be called “peak curtains”.

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    Libya's presidential council names new government amid divisions


    Libya's Presidential Council announced a new government on Tuesday aimed at uniting the country's warring factions, though two of its nine members rejected it in a sign of continuing divisions over its U.N.-backed plan for a political transition.

    Western powers hope the new government will deliver stability to Libya and tackle a growing threat from Islamic State militants, but critics say the agreement was forced through too quickly and does not evenly represent the country's groups and factions.

    EU foreign policy chief Federica Mogherini called the announcement by the Tunis-based council, tasked with overseeing Libya's political transition, "an essential step".

    The council had delayed its announcement by 48 hours without giving a reason.

    Mogherini said only a unity government would be able "to end political divisions, defeat terrorism, and address the numerous security, humanitarian and economic challenges the country faces".

    Libya has become deeply fractured since the fall of Muammar Gaddafi in 2011. Since the summer of 2014 it has had two rival governments and parliaments, operating from the capital Tripoli and from the east.

    Both are supported by loose alliances of armed brigades of rebels who once fought Gaddafi.

    Late on Monday, one of the council members who did not sign the document naming the new government, Ali Faraj al-Qatrani, announced he was withdrawing from the process, saying eastern Libya was underrepresented and there was not sufficient support for the armed forces allied to the eastern government.

    He claimed there had been "a lack of seriousness and clarity in dealing with our basic demands" during the Presidential Council's negotiations.

    The internationally recognized parliament in eastern Libya now has 10 days to approve the new government. There has been no announcement on how and when it would be able to establish itself in Libya.

    Tripoli is controlled by a faction called Libya Dawn, and the head of the self-declared government that it backs said last week that preparations by the Presidential Council to secure the capital violated military law.

    The eastern military forces are led by Gen Khalifa Haftar, a former Gaddafi ally who has become one of the most divisive figures among Libya's rival groups.

    In a statement on Tuesday, U.N. Libya envoy Martin Kobler urged the chamber "uphold the country's national interest above all other considerations and promptly convene to discuss and endorse the proposed cabinet".

    The new government will be led by Fayez Seraj, a lawmaker from the eastern parliament, known as the House of Representatives. He also heads the Presidential Council.

    Key ministerial nominations include Khalifa Abdessadeq as oil minister.

    Libya's current oil production is under 400,000 barrels per day, less than a quarter of a 2011 high of 1.6 million bpd.

    http://www.reuters.com/article/us-libya-security-politics-idUSKCN0UX0RV
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    EU agrees to improve European grid to curb need for Russian gas


    EU member states on Tuesday endorsed a plan to invest more than 200 million euros ($217 million) in cross-border energy infrastructure projects designed to help curb dependence on Russian gas.

    The European Commission is seeking to improve power and gas connections across the European Union's 28 member states to allow better distribution of available supplies as part of a single energy market.

    The EU is keen to reduce reliance on Russia, which supplies about a third of EU oil and gas.

    The dominant position of Russia's Gazprom has become particularly divisive since relations between Brussels and Moscow deteriorated after Russia seized the Crimean region of Ukraine in 2014.

    The Commission wants every member state to have at least three possible sources of gas.

    "We must press ahead with the modernisation of our energy networks to bring any country still isolated into the European energy market," European Climate and Energy Commissioner Miguel Arias Canete said, announcing the funding.

    Of the 15 proposals selected for total funding of 217 million euros, nine are in the gas sector and six in the electricity sector.

    Called projects of common interest because they benefit more than one member state, the projects are entitled to accelerated planning permission as well as EU funding, which the Commission hopes will attract private sector cash.

    Most of the 15 projects are in central and southeastern Europe, where dependency on Russian gas is most marked.

    Britain is not directly affected by the Russian crisis as it is not dependent on its gas, but it is nervous about the adequacy of national supplies and the extra costs it might incur from emergency back up plans.

    The new funding will also help pay for a grid link between France and Britain being built by Britain's National Grid and France's Reseau de Transport d'Electricite (RTE).

    http://www.reuters.com/article/eu-energy-funding-idUSL8N1532O8
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    Reliance Profit Surges to 8-Year High as Refining Margin Widens


    Reliance Industries Ltd.’s third-quarter profit surged to the highest in eight years as margin for turning crude into fuels widened at the operator of the world’s biggest oil-refinery complex.

    Net income increased to 72.2 billion rupees ($1.07 billion) in the three months ended Dec. 31 from 50.8 billion rupees a year earlier, the Mumbai-based company said Tuesday in a stock exchange statement. That beat the 70.1 billion-rupee mean of 17 analyst estimates compiled by Bloomberg. Sales fell 29 percent to 565.7 billion rupees.

    Asia refiners, including Reliance, have benefited from a collapse in oil prices with Brent crude falling more than 70 percent over the past 18 months. The company controlled by billionaire Mukesh Ambani depends on earnings from two adjacent refineries in western India to boost profit as it prepares for the commercial start of a $15-billion telecommunications service this year.

    “We expect the earnings momentum to continue as refining margins will remain strong,” said Dhaval Joshi, an analyst at Emkay Global Financial Services Ltd. “The next trigger will be the commercial launch” of the telecommunications business, he said.

    Refining Margin

    Reliance earned $11.50 for every barrel of crude it turned into fuels in the quarter, the highest in seven years, compared with $7.30 a barrel a year earlier and $10.60 a barrel in the three months ended September, the company said.

    The twin refineries at Jamnagar in the western state of Gujarat have a combined capacity of 1.24 million barrels a day and can process cheaper, lower grades of crude into high-value products. Brent oil, the global benchmark, averaged about $44.69 a barrel in the quarter, 42 percent lower than a year earlier.

    A majority of the fuels and chemicals that Reliance produces are exported and paid for in dollars. A lower value of the rupee against the dollar increases export earnings when converted to the local currency. The rupee averaged 65.925 per dollar in the quarter ended Dec. 31, 6.3 percent lower than 62.011 in the same period a year earlier.

    Reliance shares rose 2.6 percent to 1,043.60 rupees at the close in Mumbai. The earnings were announced after trading ended.

    http://www.bloomberg.com/news/articles/2016-01-19/reliance-industries-profit-rises-42-as-refining-margins-expand

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    Mining giant BHP pessimistic on iron ore, coal prices in next few years

    Mining giant BHP pessimistic on iron ore, coal prices in next few years

    BHP Billiton flagged on Wednesday that it sees no recovery in iron ore or coal prices in the next few years, while holding out hope for a rebound in copper and oil as it fights slumping earnings set to hit its long-protected dividend.

    The top global miner reinforced the bleak outlook for most commodities in the near term, with markets slammed by oversupply as the economy slows in China, the world's biggest metals consumer.

    In a sign the company may cut its dividend, ending a long-held policy to maintain or raise its payout every year, BHP Chief Executive Andrew Mackenzie said in a quarterly production report that it was focused on defending its investment grade credit rating.

    "In this environment, we are also committed to protecting our strong balance sheet so we have the financial flexibility to manage further volatility and take advantage of the expected recovery in copper and oil over the medium term," Mackenzie said.

    He made no mention of any recovery in iron ore or coal prices.

    BHP is reeling as oil prices have slumped further than expected at the same time as its other products have plunged to multi-year lows. Average prices for its commodities slumped between 20 and 51 percent in the first half of its financial year compared to a year earlier, with crude oil worst hit.

    BHP shares fell 4 percent on Wednesday to their lowest in over a decade at A$14.14 as oil prices sank to their weakest since September 2003.

    DIVIDEND CUT?

    Analysts said the production report was largely in line with forecasts, adding that they were watching for further spending cuts when BHP reports financial results in February.

    "We have written that BHP will either need to meaningfully cut future capex or its dividend, and we stick to that view," said Clarksons Platou analyst Jeremy Sussman.

    As expected, the company trimmed its full-year forecast for iron ore output by 10 million tonnes to 237 million tonnes, following a dam burst at the Samarco venture in Brazil that killed 17 and devastated a nearby village.

    BHP reaffirmed guidance for declines in copper, coal and petroleum output in the year to June 2016. It has slashed the number of rigs at its U.S. shale fields amid the collapse in oil prices.

    Copper output is still expected to fall 12 percent to 1.5 million tonnes, metallurgical coal down 6 percent to 40 million tonnes and thermal coal down 2 percent to 40 million tonnes from a year earlier.

    BHP's oil and gas output, which sets it apart from other big miners, fell 5 percent to 60.2 million barrels of oil equivalent (mmboe) in the December quarter. However it still sees full-year petroleum output at 237 mmboe, with offshore production helping to offset shale declines.

    BHP produced 57 million tonnes of iron ore in the December quarter. Quarterly copper output fell 9 percent to 400,000 tonnes because of lower grade ores at the Escondida mine in Chile.

    http://www.reuters.com/article/us-bhp-billiton-output-idUSKCN0UX2QU

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    Oil and Gas

    Iran Cuts Oil Prices in North West Europe, Mediterranean in February


    Iran said it will cut crude prices to Europe next month in line with similar reductions by Saudi Arabia, signaling that it wants to compete with its largest rival but without making deep discounts after international sanctions were lifted on its oil.

    In a price list published on its website in recent days, the National Iranian Oil Company said it will reduce its official prices in North West Europe by $0.55 a barrel for its light crude and by $0.15 a barrel in the Mediterranean for delivery next month.

    By contrast, NIOC increased its prices in Asia by $0.60 a barrel.

    The changes come after Saudi state-owned Saudi Aramco said earlier this month that it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery. It also increased prices in Asia by $0.60 a barrel for the same grade.

    An end to sanctions on Iranian oil—including the lifting of a European Union embargo—over the weekend has led to speculation Iran may carry a deep rebate against its rivals. But officials from the Islamic Republic have said they favor carrying crude-for-goods swaps or investing in oil refineries that will use Iranian oil rather than selling the commodity at a discount.

    NIOC and Aramco prices are set every month at a discount or premium to various regional benchmark prices, which go up and down based on supply, demand and other factors considered by the market.

    http://www.wsj.com/articles/iran-cuts-oil-prices-in-north-west-europe-mediterranean-in-february-1453216532

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    Insurer caution to slow oil tanker market's return to Iran


    Foreign oil tanker owners are expected to make a slow return to Iran despite the lifting of many sanctions as insurers tread carefully, leaving shipping players unwilling to pick up cargoes as quickly as Tehran has wanted.

    A nuclear deal between world powers - known as the P5+1 - and Iran led to the removal on Saturday of international oil export prohibitions as well as restrictions on banking, insurance and shipping for Tehran.

    With U.S. sanctions still in place, which exclude U.S. persons, banks and insurers from trading with Iran including dollar business, shipping and marine insurance sources say many foreign companies are likely to take their time.

    They are also mindful of sanctions being reimposed in a "snap back" if Iran reneges on commitments.

    "In shipping terms, we think the impact will be a slow development. The initial oil sales will be the oil currently stored on (Iranian) ships in the Persian Gulf," said Paddy Rodgers, chief executive of oil tanker company Euronav .

    "It will take time for this increase in production to be transported on the commercial tanker fleet given the financial sanctions still in place and reluctance of insurance providers to cover given the snapback provisions in the P5+1 agreement."

    "So, any additional increase in Iranian barrels being produced will be shipped on Iranian vessels."

    Securing international insurance cover as well as reconnecting with the internationalbanking system will be key to determine how quickly Iran can ramp up oil exports and re-engage with the foreign shipping sector.

    Third-party liability insurance and pollution cover for vessels is provided by P&I clubs - marine insurers owned by shipping clients and reinsured internationally.

    "There will be a time period whilst all financial services and businesses sit there and work out what the opportunities are, what the risks are before re-engaging," said Mike Salthouse, deputy global director with ship insurer North of England P&I Association.

    "Some of the teething issues will need to be worked through."

    Salthouse said since the 2008 financial crisis, the financial services industry had become more focused on compliance, which included sanctions regulations.

    "There is probably less appetite for risk in the world today than in 2010 and we are all much more aware of the risks presented by any jurisdiction that presents compliance-type issues," he said.

    Washington slapped new sanctions on companies accused of supporting Iran's ballistic missile programme, drawing an angry response from Iranian officials.

    "There will also be a continuing issue of having to take care about not supporting transactions with sanctions targets where designations remain in place," a separate ship insurance source said.

    "And one suspects that banks might prove to be slow to be willing to support transactions involving Iran again, especially any transactions in U.S. dollars, with continuing irritant effects for all doing business there."

    Another ship insurer, Swedish Club, said the continued U.S. sanctions could mean "U.S. insurers and reinsurers in various global marine reinsurance programs may be unable to meet their obligations and pay a claim with an Iranian nexus".

    Industry association Intertanko, whose independent members own the majority of the world's tanker fleet, said the removal of sanctions opened up opportunities for owners.

    "We foresee a cautious return, given U.S. domestic sanctions may well still limit reinsurance," said Intertanko's general counsel, Michele White.

    "It will also mean a return from storage to regular trade of the Iranian tanker fleet, both increasing available tonnage and oil onto an already saturated market."

    http://www.reuters.com/article/iran-nuclear-shipping-idUSL8N1532BM
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    China's 2015 natural gas output growth slowest in at least 10 years


    China's 2015 natural gas production rose by 2.9 percent from the previous year - the slowest growth in at least 10 years - official data showed on Tuesday, amid ample supply and weak domestic demand for the cleaner-burning fuel.

    Production reached 127.1 billion cubic metres (bcm) in 2015, the National Bureau of Statistics said. In 2014, production was roughly 123.5 bcm, up about 7 percent, Reuters calculations derived from the official data on Tuesday shows.

    The statistics bureau typically revises its data on a monthly basis and the percentage change for 2015 output indicates that the previously provided 2014 figure will be revised.

    In 2013, natural gas production rose by 11.5 percent from the previous year to 115.4 bcm, the NBS said. The 2015 output growth was the slowest since Reuters began collecting the data in 2005.

    Chinese gas consumption has been hit by slowing domestic economic growth and by state policies that kept prices high for most of the year, even as the global oil prices that underpin long-term gas supply contracts slumped to less than half their 2014 peaks.

    Chinese gas consumption grew 3.7 percent in the first 11 months of 2015, according to the latest data from China's National Development and Reform Commission (NDRC). For full-year 2014, gas usage climbed 5.6 percent and 12.9 percent in full-year 2013.

    "Gas production growth is constrained by demand," said Zhu Chen of SIA Energy in Beijing, and "also impacted by the contracted piped gas and LNG imports."

    Excess contracted LNG supplies from Qatar and Papua New Guinea as well as piped gas imports from Central Asia have left China with surplus fuel that it has tried to sell off abroad after domestic demand slowed.

    China's economic growth in 2015 was the slowest in 25 years, data also showed on Tuesday, while oil demand grew 2.5 percent.

    Chinese regulators cut wholesale gas prices by about 25 percent in November, the second reduction of the year, to boost domestic demand after previously raising prices to spur domestic production.

    China's supply of natural gas in the first eleven months outstripped demand by anywhere from 4.2 bcm to 8.4 bcm according to Reuters calculations using NBS and NDRC data respectively.

    Gas imports grew 4.7 percent in the first eleven months to 54.4 bcm, data from the NDRC showed in December. LNG imports, which includes spot purchases, fell 1.6 percent over the same period, according to Customs data from last month.

    http://www.reuters.com/article/china-economy-output-gas-idUSL3N1532HZ

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    Iraq wants foreign oil firms to cut development spending, oil minister says


    Iraq wants foreign oil companies to cut spending as the nation seeks to narrow a budget gap caused by lower crude prices, oil minister Adel Abdul Mahdi said in a statement on Tuesday.

    "The ministry is discussing reducing financial spending by foreign companies," he told a meeting of the oil fields' joint management committees in Baghdad.

    Iraq, OPEC's second-largest producer, has service agreements with companies including BP, Shell, Eni, Exxon Mobil and Lukoil to boost output at its ageing fields.

    http://www.reuters.com/article/iraq-spending-idUSL8N1532P2
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    CNOOC Limited announces 2016 business strategy and development plan


    The Company's net production target for 2016 is in the range of 470-485 million barrels of oil equivalent (BOE), of which approximately 66% and 34% are produced in China and overseas respectively. The net production targets set for 2017 and 2018 are around 484 and 502 million BOE respectively. The estimated net production for 2015 was approximately 495 million BOE.

    There will be 4 new projects coming on stream, including the Kenli 10-4, Panyu 11-5, Weizhou 6-9/6-10 oilfield comprehensive adjustment and Enping 18-1. Currently, nearly 20 projects are under construction.

    Within the year, we plan to drill around 115 exploration wells and acquire approximately 10 thousand kilometers of 2-Dimensional (2D) seismic data as well as approximately 14 thousand square kilometers of 3-Dimensional (3D) seismic data.

    The Company's total capital expenditure for 2016 will be no more than RMB60.0 billion. Of that amount, the capital expenditures for exploration, development and production will account for around 19%,64% and 13% respectively. The Company expects to achieve the whole-year targets by cost control and efficiency enhancement despite the lower capital expenditure.

    Mr. Zhong Hua, CFO of the Company, commented:

    'In response to the continued challenge posed by low oil prices, we will maintain prudent financial policy and further strengthen cost-control measures in order to make steady progress in the overall business, including exploration, development and production.'

    Mr. Li Fanrong, CEO of the Company, commented:

    'Faced with an increasingly complicated operating environment in 2016, the Company will fully utilize market mechanisms and combine innovations in technology and management in order to reduce costs and enhance efficiency. In addition, the Company will ensure an appropriate balance between short-term returns and long-term growth to promote a steady and healthy development.'

    http://www.oilvoice.com/n/CNOOC-Limited-announces-2016-business-strategy-and-development-plan/57e0080f6c32.aspx?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29

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    Petronas plans cuts and review to counter oil price slump


    Petroliam Nasional Bhd (Petronas) plans to cut spending by up to 50 billion ringgit ($11.4 billion) over the next four years and review its business structure in response to the profit-sapping slump in oil prices.

    The state-owned Malaysian company brings in nearly half of the Southeast Asian country's oil revenue and its woes are bound to add pressure to an economy already reeling from a slide in the ringgit and political uncertainty after a scandal surrounding state investor 1Malaysia Development Bhd (1MDB).

    Petronas said in November that it would cut its 2016 dividend to the government by nearly 40 percent after a 91 percent drop in profit, with analysts suggesting the payout could be trimmed back again in future.

    Petronas made its announcement on spending cuts in an internal memo, a copy of which was seen by Reuters.

    "We will go through another round of CAPEX (capital expenditure) and OPEX (operating expenditure) review to target cuts up to RM50 billion over the next four years. This means that we are going to have to defer some of our projects," CEO Wan Zulkiflee Wan Ariffin said in the memo dated Monday.

    In February last year Petronas said it planned to cut capital spending by 10 percent and operating expenses by up to 30 percent in 2015. It also said at the time that it would cut 2016 capital spending by 15 percent. Its 2014 capital expenditure was about 65 billion ringgit.

    "We have also made a strategic decision to begin a review of Petronas' businessoperating model for better efficiency in response to the external environment," Wan Zulkiflee said in the memo. The review will result in a change to the organization's structure, details of which will be disclosed in March.

    Contract jobs in the company's non-core businesses will be affected, he said.

    In an emailed statement late on Tuesday, Petronas said it has circulated an internal communication on its efforts to cut costs to address the impact of the continuous fall in crude oil prices, but it did not provide details.

    http://www.reuters.com/article/petronas-spending-idUSL3N15325I

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    BG Group production grows 16% in 2015


    British oil and gas company BG Group expects to post full year E&P production volumes at an average of 704 thousand barrels of oil equivalent per day in 2015, around 16% higher than 2014.

    In its operational update on Wednesday, the company said the growth in production, ahead of guidance of 680-700 kboed, reflected growth primarily in Australia, Brazil and Norway.

    Volumes in Australia more than doubled to 88 kboed and in Brazil, almost doubled to 146 kboed. In Norway, Knarr came onstream in March and has produced an average of 12 kboed during 2015. This growth was partially offset by the expected decline in Egypt, down 18 kboed to 44 kboed, combined with lower volumes in Trinidad & Tobago, down 13 kboed to 52 kboed.

    Helge Lund, BG Group’s Chief Executive, said:

    “Our excellent operational performance in 2015 is expected to deliver results in line with, or ahead of, our guidance for the year. Ramp up of both LNG trains at our QCLNG project in Australia and the start-up of our sixth FPSO in Brazil drove a strong E&P operational performance while our LNG Shipping & Marketing business delivered 282 cargoes, an increase of 58% on 2014, in difficult market conditions.”

    The company expects to post total results earnings of at least $2.3 billion, which are expected to include a post-tax gain of at least $0.6 billion in respect of disposals, re-measurements and impairment.  Capital investment on a cash basis of around $6.4 billion, lower than guidance of around $6.5 billion.

    BG Group explained that expected total results for the year does not include the impact of future transaction fees and other financial implications of the completion of the recommended cash and share offer for BG Group plc by Royal Dutch Shell plc.

    http://www.shalemarkets.com/bg-group-production-grows-16-in-2015/

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    Ko-gas says gas use declines sharply.

    South Korean state-owned Korea Gas Corp.'s LNG sales in December dropped 22.8% from a year earlier to 3.49 million mt, compared with 4.52 million mt a year earlier, the company said Tuesday.
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    US oil imports from Canada on the rise

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    Sanchez Energy announces Q4 2015 operating results and updated 2016 capital budget


    Highlights from operations include:

    Record production of 5.4 million barrels of oil equivalent reported by Sanchez Energy for an average production of 58,115 barrels of oil equivalent per day ('BOE/D') during the fourth quarter of 2015
    Better than expected production results during the fourth quarter of 2015 were driven by Catarina production of 46,030 BOE/D, the highest quarterly production level recorded to date from the asset, as well as strong performance from new wells in the Cotulla area
    Record quarterly average daily production of 58,115 BOE/D
    Average well costs at Catarina for the fourth quarter of 2015 were $3.5 million per well
    Completed the 50-well annual drilling commitment at Catarina for the period July 1, 2015 through June 30, 2016, which provides the Company with significant financial flexibility in 2016
    Closed the Western Catarina Midstream Divestiture during the fourth quarter of 2015 for approximately $345 million in cash
    Entered a joint venture with Targa Resources Partners LP (NYSE: NGLS) ('Targa') during the fourth quarter of 2015 to construct a cryogenic processing plant and high pressure gathering pipelines near Catarina, which is expected to provide a path to improved yields, lower processing fees, and significant marketing benefits
    2016 Capital Budget guidance lowered to $200 - $250 million that is expected to maintain nearly flat year-over-year average production, a reduction of $50 million from prior estimates resulting from improved well results and cost efficiencies

    Management Comments

    '2015 was a strong year for Sanchez Energy,' said Tony Sanchez, III, Chief Executive Officer of Sanchez Energy. 'Record-high production and improved well economics, including efficiency gains leading to as much as 60% lower well costs, in addition to two pivotal midstream transactions have positioned us with the financial flexibility and tailwinds for our expected continued success in 2016's commodity price environment and beyond.'

    'During the fourth quarter of 2015, we continued to realize significant operational success, which resulted in higher production levels and declining well costs,' he continued. 'Production for the fourth quarter of 2015 averaged approximately 58,115 BOE/D, significantly above the high end of our guidance range of 48,000 to 52,000 BOE/D for the quarter. Results were driven by Catarina production of 46,030 BOE/D, the highest quarterly production level recorded to date from the asset, as well as strong performance from new wells in the Cotulla area. Our fourth quarter of 2015 record production represents an increase of approximately 32% when compared to fourth quarter of 2014 production. For the full year, our 2015 average production was approximately 52,560 BOE/D, an increase of approximately 72% over 2014 average daily production.'

    'At Catarina, well performance continues to exceed our initial expectations as we have extended the efficiency gains realized since acquiring the asset in 2014. We are now routinely drilling and completing wells at Catarina for approximately $3.5 million per well, which represents a reduction of almost 60% when compared to average well costs around the time of our acquisition.'

    'As of January 1, 2016, we have successfully met the 50 well drilling commitment at Catarina for the period July 1, 2015 through June 30, 2016. Since we can bank up to 30 wells drilled during the remaining term of this commitment period towards the next annual drilling commitment period, which runs from July 1, 2016 through June 30, 2017, we have significant financial flexibility to execute our plans in 2016. At the same time, efficiency gains and cost reduction efforts continue to deliver positive results, which improve our well economics and should promote continuing success in today's commodity price environment.'

    'Based on the strength of our 2015 operating performance, we are reducing our 2016 upstream capital spending guidance to a range of $200 million to $250 million, a $50 million reduction from our previous estimates. Our 2016 upstream capital budget is expected to maintain production roughly equal to that of 2015.'

    http://www.oilvoice.com/n/Sanchez-Energy-announces-Q4-2015-operating-results-and-updated-2016-capital-budget/e04e23d5165c.aspx?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29
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    Husky cuts spending and production forecasts, scraps dividend


    Husky Energy cut C$800 million ($549.07 million) from its 2016 capital budget and slashed production guidance by 15,000 barrels of oil equivalent per day on Tuesday in the latest sign that Canadian producers are scrambling to cope with low oil prices.

    The company also scrapped its fourth-quarter dividend, just a few months after surprising investors by switching to a stock dividend from cash payments.

    Calgary-based Husky said it will spend between C$2.1-2.3 billion this year, down 27 percent from its original capital budget, and produce between 315,000-345,000 boepd.

    The company said savings would be achieved primarily through deferring discretionary activities in Western Canada, but its Sunrise oil sands plant and three new heavy oil thermal projects in the Lloydminster region on the Alberta-Saskatchewan border will not be affected.

    Spokesman Mel Duvall said about half the reduced production impact would be felt in Alberta and was mostly gas, with the rest being spread across Husky's portfolio.

    "Deferral of capital is in those areas that can be quickly switched on as commodity prices recover," Husky's chief executive, Asim Ghosh, said in a statement.

    Husky, controlled by Hong Kong billionaire Li Ka-shing, produces oil and natural gas in Canada and Southeast Asia, and holds numerous exploration licenses offshore of Atlantic Canada.

    The company said it had adjusted the schedule for deploying an offshore drilling rig in the Atlantic region and was deferring select drilling in Western Canada.

    Despite the cut in production and spending forecasts, Husky still plans to add 29,500 barrels per day through its heavy oil thermal projects and the Sunrise oil sands plant, a joint venture with BP Plc, which will ramp up to 60,000 barrels per day by the end of 2016.

    The company's overall earnings breakeven point is expected to be below $40 U.S. crude by the end of 2016, and Husky said it expected further gains through reduced operating and sustaining costs.

    http://www.reuters.com/article/husky-energy-spending-idUSL2N1532Q4
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    Agriculture

    Potash Corp to suspend operations at a Canadian mine


    Potash Corp of Saskatchewan said on Tuesday it would suspend operations "indefinitely" at its Picadilly mine in the Canadian province of New Brunswick, resulting in the loss of 420 to 430 jobs.

    As demand for the crop nutrient has fallen worldwide, the world's biggest fertilizer company by capacity has in recent months closed its Penobsquis potash mine in New Brunswick and suspended production at three mines in Saskatchewan.

    Potash Corp, which had more than 5,000 employees worldwide at the end of 2014, said it would retain 35 employees at Picadilly to keep the operation in "care-and-maintenance" mode. About 100 affected employees could be relocated to Saskatchewan.

    Potash prices have fallen sharply over the past year, under pressure from bloated capacity, soft grain prices and weak currencies in major consumers such as Brazil and India.

    Potash Corp said it expected to recognize severance and transition costs of about $35 million in the first quarter as a result of suspending operations at Picadilly.

    The suspension would help Potash Corp to reduce its full-year cost of goods sold by $40 million to $50 million and would eliminate capital expenditures of about $50 million in 2016 and $135 million in 2017-2018, the company said.

    http://www.reuters.com/article/potashcorp-mine-idUSL3N1534EJ

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    Precious Metals

    De Beers to cut diamond prices in first sale of the year


    De Beers cut diamond prices again in its first sale of the year as the world’s biggest producer seeks to counter a slowdown in demand, according to three people familiar with the process.

    The Anglo American unit reduced prices by as much as 7%, said the people, who asked not to be identified as the information isn’t public. De Beers plans to offer about $450 million of diamonds for sale, one of the people said. A spokesman for the company declined to comment.

    Slower diamond jewellery sales in China, the biggest buyer after the US, and a credit crunch in the industry has sapped demand. That’s led to a buildup of diamonds held by cutters and traders, and forced the biggest producers to cut output and lower prices. Prices for the gems sank 18% last year, according to data from UK-based WWW International Diamond Consultants.

    De Beers cut its production target three times last year in an effort to support prices, aiming to mine 29 million carats in 2015 after it initially sought to produce as many as 34 million carats. This year, the company plans to mine between 26 million carats and 28 million carats.

    While rough diamond prices may decline a further 5% this year, they could stabilize as soon as the second quarter as polished diamond prices rise and shortages for certain products materialize, Panmure Gordon said last week. RBC Capital Markets said Monday they were “cautious” about rough prices in 2016.

    http://www.mineweb.com/news/diamonds-and-gems/de-beers-to-cut-diamond-prices-in-first-sale-of-the-year/

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    Base Metals

    RTZ's vs BHP: corrected numbers.

    #1
    BHP has cut shareholder payouts by 50%
    Image title
    Rio has cut shareholder payments by 60%, but they funded in a prior year, which slightly ruins the intent.
    Image title

    #2Image titleImage title
    RTZ capex commitments are $33bn.
    BHP capex commitments are $4.8bn, to which we should add $19bn for the Oil and Gas division.

    Debt:
    BHP $32bn. Worst bond is 309bp over Libor.
    RTZ $23bn. Worst bond is  409bp over libor.

    Summary:
    RTZ: debt + capex= $56or 2x mcap.
    BHP: debt+ capex= $56, add $5bn for Samarco, $61bn or 1.6x mcap.

    #3

    Rio's operating cash flow (ex working cap) was $11bn in the yr to June 2015, capex was $6bn, leaving $5bn to cover a $4bn dividend. 
    BHP's operating cash flow (ex working cap) was $19bn in the yr to June 2015, capex was $13bn, leaving $6bn to cover a $6.5bn dividend.
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    Indonesian minister rejects Freeport price in a setback to talks


    Freeport McMoRan Inc is asking the government to pay too much for a stake in its Indonesian unit, a key cabinet minister said on Tuesday, dealing a potential blow to already fragile talks over the firm's future in the mineral-rich nation.

    Freeport's long-held desire to continue mining in Indonesia beyond 2021 has been beset by controversy, including cabinet infighting, resignations and a major political scandal that led to the resignation of the parliamentary speaker.

    The U.S. mining giant wants to invest $18 billion to expand its operations at one of the world's largest copper mines in Papua, but is seeking government assurances first that it will get a contract extension.

    "The last couple of months have been a total disaster for Freeport," said a source with direct knowledge of the situation who asked not to be identified because of the sensitivity of the situation.

    "I'm very negative about the outlook for Freeport's contract renegotiations."

    As a first step to contract extension talks, Freeport must divest 10.46 percent stake in its Indonesian unit to increase the government's share to a total of 20 percent.

    After months of delays, the company valued the stake at $1.7 billion.

    "What is definite is that $1.7 (billion) is too expensive," State-owned Enterprises (SOE) Minister Rini Soemarno told reporters. It was not clear if that was an official government rejection, or the minister's personal opinion.

    "We are still interested. SOE companies should have big mines, because these mines belong to Indonesia."

    Soemarno has said that one of two Indonesian government-owned companies, miner Aneka Tambang or aluminium producer PT Inalum, should buy the Freeport stake.

    It was not clear if Freeport will need to revise its price, or if the government will propose one.

    Talks between the two sides are also entering uncharted territory following the resignation of key company negotiators.

    Freeport's Jakarta-friendly co-founder James "Jim Bob" Moffett resigned as the company's chairman last month, after the miner added two new directors under pressure from billionaire investor Carl Icahn.

    Although Moffett will still advise Freeport on its Indonesia operations, he was increasingly seen as a relic of the past sources said, and his departure is also now seen as a blow to the contract talks.

    Any further delays in contract talks, now widely expected, could lead to a gradual reduction in copper output as open-pit mining depletes. That could help support global copper benchmark prices, but at the same time dent government revenues in Southeast Asia's largest economy.

    http://www.reuters.com/article/indonesia-freeport-idUSL3N15346D

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    Alcoa delays curtailment of Intalco smelter until end of second quarter


    Alcoa Inc said it will delay the curtailment of its Intalco Works smelter in Ferndale, Washington until the end of the second quarter of 2016.

    The metals company said in November it planned to idle the 260,000 tonne-per-year smelter by the end of the first quarter.

    "Recent changes in energy and raw material costs have made it more cost effective in the near term to keep the smelter operating to provide molten metal to the plant's casthouse," the company said.

    Alcoa has been curtailing smelting capacity as the industry endures tumbling prices amid rising trade tensions with China. The company said this month it would close a plant in Evansville, Indiana, which would bring U.S. aluminum output to its lowest level in more than 65 years.

    Alcoa said it expects to remove about 25 percent operating smelting capacity and about 20 percent of operating refining capacity by mid-2016.

    Many aluminum producers have cut loss-making capacity or shut down completely over the past year as London Metal Exchange prices and physical premiums have tumbled amid rising exports of semi-fabricated products from China and high energy costs.

    http://www.reuters.com/article/us-alcoa-capacity-intalco-idUSKCN0UX2JA
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    Steel, Iron Ore and Coal

    Indonesia 2015 coal production down 14pct on year


    Indonesian saw its coal production fall 14% on year to 392 million tonnes in 2015, as mining firms reduced their output in the wake of weak prices and pathetic demand, according to latest data from the Indonesian Coal Mining Association.

    The volume was significantly below the initial target of 460 million tonnes set at the start of 2015 by Indonesia's minerals authority, and also fell well short of a revised target of 425 million tonnes.

    Indonesia’s coal exports fell 23% from a year ago to 295 million tonnes last year because of lower demand from several key markets, notably China and India. And exports could fall by at least another 15% to below 250 million tonnes in 2016, the association chairman Pandu Sjahir said.

    One of the key reasons for the decline in exports last year was China's increased import tariffs and stricter coal quality regulations. Chinese coalimports fell to 204 million tonnes last year, a 30% slump from 2014.

    Deliveries to India – historically another key destination for Indonesian coal – also fell because of rising domestic production and weaker-than-expected utilization by coal-fired power plants. India's receipts of imported coal during April-December fell by 15% compared with a year earlier to 132.3 million tonnes, coal secretary Anil Swarup said earlier this month.

    In addition, slower-than-expected demand growth from Indonesian power generation firms has compounded weaker demand from China and India.

    Jakarta is adding new generation capacity, which could soak up some of the coal oversupply that has helped push coal prices to their lowest levels in years. But capacity additions are not happening as quickly as hoped because of delays to power plant projects, some of which have been hit by land acquisition disputes, licensing delays and funding problems.

    Indonesia's benchmark thermal coal reference price, i.e. HBA, a monthly rate set by the Energy Ministry, fell 0.58% to a new record low of $53.2/t FOB in January 2016 from $53.51 in December 2015.

    But Indonesian coal demand could increase by around 22% from last year to as much as 110 million tonnes in 2016 as new capacity is brought on line, Sjahir said.

    The Indonesian government said last week it is aiming to invest $16.38 billion in 2016 to support plans to boost the national electrification ratio to just over 90% by the end of the year, up from 88% in 2015, by bringing new generation capacity on line and improving the transmission network.

    http://en.sxcoal.com/0/139694/DataShow.html
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    Germany warns against rushed exit from coal power


    Germany on Tuesday warned against a hasty exit from coal-fired power generation, concerned that such a move could pile more pressure on producers still wrestling with the planned shutdown of nuclear plants by 2022.

    Calls for the German government to set a timeline for phasing out coal-generated electricity have grown following the climate protection deal struck in Paris last month.

    "When we're talking about the future of coal I would advise being less ideological about it and to focus more on climate goals and the economic consequences," Economy Minister Sigmar Gabriel said at an industry conference on Tuesday.

    Gabriel said coal should not be tackled in similar "seismic waves", referring to Germany's decision to abandon nuclear power after the Fukushima nuclear disaster in 2011 in a move that has been described as too fast.

    "We need to be aware of what is needed to have a stable energy supply," he said, adding he wanted to invite all relevant parties to a roundtable this year about the future of coal.

    Gabriel's comments chime with those made by Germany's largest power producer RWE on Tuesday, when it rejected new calls to phase out coal-fired power generation.

    "The whole debate (about exiting coal) is unnecessary," RWE Chief Operating Officer Rolf Martin Schmitz told Reuters on the sidelines of the industry event.

    Coal accounted for 60 percent of RWE's power production in 2014, while the share at rival E.ON was 27 percent.

    The utilities have stressed that steps taken in 2015 to move domestic brown coal plants into a reserve scheme later this decade, as well as dismal power generation profits, were sufficient to see the gradual end of coal burning.

    Some 2.7 gigawatts of power generation from brown coal, equivalent to the output from five power plants, will be closed but retained as reserve power in case of emergency, parties in the coalition government agreed last year.

    The government wants 80 percent of German power provided by renewables by 2050. In 2015, the share was 30 percent, data from industry group BDEW shows. However, brown coal and imported hard coal still accounted for 42 percent together.

    "RWE has a clear plan (for coal) until 2050. We are able to provide sufficient power at decent prices until then," Schmitz said.

    Coal-fired power production employs not just tens of thousands of people, but is needed to provide round-the-clock power to Europe's biggest economy as it cannot solely rely on volatile green power, the utilities argue.

    Gabriel said it was irresponsible to talk about a coal exit without offering those working in coal-producing regions, such as Lusatia in eastern Germany, alternative job prospects.

    "Whoever wants to talks about an exit in Lusatia, must at the same time enter into a realistic discussion about sustainable jobs that earn a decent wage," he said.

    The first priority for reducing carbon emissions should be to make sure that Europe's Emissions Trading System works properly, he said.

    http://www.reuters.com/article/rwe-coal-idUSL8N1531X2
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    Yankuang to slash 20,000 jobs in 3 years


    Yankuang Group, a state-owned coal producer in East China's Shandong province, will cut 20,000 jobs in three years to reduce labor cost, local media reported on January 19.

    The group vowed to cut at least 6,500 jobs through retirement and job transferring in 2016, helping cut labor cost of 800 million yuan ($122 million).

    The group planned to transfer 2,000 staff to external and new projects and 4,000 workers for internal job transfer, cutting cost by 240 and 40 million yuan; and arrange retirement for 2,570 labors, which could cut cost by 210 million yuan.

    Besides persisting market slackness, company insiders said the move was also due to increased equipment investment and technological updating.

    More than 95% of the coal enterprises in China fell into losses amid falling prices in 2015. Impacted by the slump in coal prices, Yankuang realized revenue of 61.24 billion yuan in the first three quarters of the year, down 28.79% year on year, with net loss at 146 million yuan.

    Analysts said China could see a loss of 3 million jobs, if those oversupplied industries cut output by 30%, resulting in potential unemployment of 1 million people even if after reemployment, based on experience in 1998.

    http://en.sxcoal.com/0/139696/DataShow.html

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    Baosteel’s net profit slumps 83% in 2015


    BAOSHAN Iron and Steel Co, China’s largest listed steelmaker, saw a 83 percent plunge in its 2015 net profit, reflecting a general slowing in the industrial sector.

    State-owned Baosteel attributed the plunge to sluggish demand, steel price declines — which outpaced a fall in the price of raw materials — and higher foreign exchange losses, according to preliminary figures submitted yesterday to the Shanghai Stock Exchange.

    The company’s net profit was 961 million yuan (US$146 million) in 2015, down 83.4 percent from a year earlier, it said. Business revenue fell 12.6 percent year on year to 164.1 billion yuan.

    Baosteel’s financial report came hours after China released its economic data for 2015, which showed the economy grew 6.9 percent last year, its slowest pace in a quarter of a century. Industrial production growth slowed to 6.1 percent last year from previous double-digit rates.

    The moderation is a by-product of efforts to steer the Chinese economy away from a manufacturing and credit-fueled growth model to one based more on innovation, the service sector and consumer spending.

    http://www.shanghaidaily.com/business/manufacturing/Baosteels-net-profit-slumps-83-in-2015/shdaily.shtml

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