Mark Latham Commodity Equity Intelligence Service

Wednesday 25th May 2016
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    China's Li says reducing excess capacity is key task in supply-side reform

    China's Premier Li Keqiang said that reducing excess capacity in industry remains the key task in carrying out supply-side reform.

    The government is looking at multiple ways of effectively lowering leverage levels and debt burdens at firms in sectors with excess capacity, Li said according to a statement published on the government's website on Tuesday.

    China will ensure that workers whose jobs will be affected by restructuring in those sectors will not be left unemployed, he added.

    China has vowed to tackle price-sapping supply gluts in major industrial sectors, and said in February that it would close 100 million-150 million tonnes of steel capacity and 500 million tonnes of coal production in the coming three to five years.
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    Dubai says opens world's first functioning 3D-printed office

    Dubai has opened what it said was the world's first functioning 3D-printed office building, part of a drive by the Gulf's main tourism and business hub to develop technology that cuts costs and saves time.

    The printers - used industrially and also on a smaller scale to make digitally designed, three-dimensional objects from plastic - have not been used much for building.

    This one used a special mixture of cement, a Dubai government statement said, and reliability tests were done in Britain and China.

    The one-storey prototype building, with floorspace of about 250 square meters (2,700 square feet), used a 20-foot (6-metre)by 120-foot by 40-foot printer, the government said.

    "This is the first 3D-printed building in the world, and it's not just a building, it has fully functional offices and staff," the United Arab Emirates Minister of Cabinet Affairs, Mohamed Al Gergawi, said.

    "We believe this is just the beginning. The world will change," he said.

    The arc-shaped office, built in 17 days and costing about $140,000, will be the temporary headquarters of Dubai Future Foundation - the company behind the project - is in the center of the city, near the Dubai International Financial Center.

    Gergawi said studies estimated the technique could cut building time by 50-70 percent and labor costs by 50-80 percent. Dubai's strategy was to have 25 percent of the buildings in the emirate printed by 2030, he said.
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    Oil and Gas

    Iraq says total oil output 4.7 million bpd; exports at record

    Iraq's total oil output has reached 4.7 million barrels per day (bpd) and exports are running at a record 3.9 million bpd, the state-run Iraqi Media Network reported, citing an oil official.

    The figures are for all of Iraq, including the northern Kurdistan region and Kirkuk, Deputy Oil Minister Fayadh al-Nema said, according to the website.

    The increased output came from the Luhais and Artawi fields in southern Iraq, he said.
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    Energy group CEFC to lease crude storage to ChemChina for strategic reserves

    CEFC China Energy, a group with interests spanning oil, finance and travel, has agreed to lease out tanks at its new facility in the southern island province of Hainan to state-owned ChemChina to help build the country's strategic reserves.

    Privately-run CEFC is expected to unveil the 3.05-billion yuan ($465 million) Yangpu storage facility next month. The tanks at Yangpu are capable of holding 17.6 million barrels of oil in total, including the capacity to contain the equivalent of more than seven Very Large Crude Carriers (VLCCs) of crude.

    "Under CEFC's broad strategy to expand energy and economic cooperation, CEFC has agreed to lease its Yangpu oil tanks to ChemChina to store crude as part of China's strategic petroleum reserves," Shanghai-based CEFC told Reuters in an emailed statement on Tuesday.

    CEFC didn't specify the volume or duration of the lease.

    A senior industry source with direct knowledge of the deal told Reuters that ChemChina was set to take about 9.5 million barrels under a five-year lease. The source, who was not authorised to speak to the media, declined to be identified.

    ChemChina's Beijing-based spokesman did not respond to requests for comment.

    The facility at Yangpu special economic zone comprises 15 million barrels of storage for crude and 2.5 million barrels of space for refined products.

    ChemChina, which started to import crude in 2013, is the latest state firm to join the country's stockpiling programme. So far, the programme has been led largely by energy giants Sinopec and CNPC with a goal of building a supply cushion worth 90 days of net imports.

    ChemChina, a chemicals major but a much smaller refiner compared with the two, operates about 500,000 barrels per day of refining capacity in China, mostly in eastern Shandong province.

    China has been taking advantage of oil prices that have more than halved from their 2014 peak to build reserves. In the first four months of 2016, imports expanded nearly 12 percent, or 788,000 barrels per day on average, versus a year earlier.

    China's state reserves fall under two categories - strategic petroleum reserves for which the state builds tanks and pays the full cost of storage and oil, and commercial state reserves whereby the state leases tanks and shares the cost of buying oil with companies.

    For the Yangpu storage, CEFC is planning second-phase development by adding another 32 million barrels of storage, as well as berths including one for VLCCs, CEFC said in its statement, without giving a timeline.

    CEFC's storage tanks are a stone's throw away from an 8.2-million-barrel crude storage site owned by Vopak - the world's largest independent tank terminal operator - and the State Development Investment Corporation (SDIC).

    The CEFC and Vopak facilities are next to a tank farm owned by Sinopec Corp. The three have agreed to connect the depots with pipelines to optimise operations, industry sources have told Reuters.

    The Sinopec facility is also linked to its 160,000 barrels-per-day Hainan refinery.
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    More Australian heavy sweet crudes could head to US: traders

    China's faltering demand for heavy sweet crude produced in Asia and Oceania, coupled with the narrow WTI/Brent spread could prompt some of the Australian crude suppliers to shift their focus to outlets in North America, market participants said Tuesday.

    Regional traders noted that the recent sharp downtrend in regional fuel oil margins as well as China's latest crackdown on energy import and consumption tax avoidance would likely keep many Chinese buyers at bay.

    "Fuel oil cracks are looking very poor and [China's] domestic margins are in a bad shape," a North Asian sweet crude trader said.

    China has traditionally been the main outlet for most of the Australian heavy sweet crudes like Enfield, Vincent and Pyrenees. However, traders said the suppliers have been venturing outside of the region in recent weeks, with end-users in the US West Coast and Gulf Coast lending a helping hand.

    Earlier in the month, market talk had indicated that Woodside Petroleum and Mitsui could have placed a 550,000-barrel cargo each of heavy sweet Vincent crude for loading in June to US buyers.

    According to the latest shipping fixtures seen by Platts, Valero fixed Kyeema Spirit to move 100,000 mt of crude for June 5 loading from Western Australia's North West Cape to the US Gulf Coast. Regional traders said the fixture does not come as a big surprise as the US market has often served as the second or third choice outlet for Australian crude suppliers.

    "If the Chinese don't bid, Australian [heavy sweet crudes] will struggle, it's as simple as that," said another North Asian crude trader. 

    The July trading cycle for Australian light and heavy sweet crudes failed to get off to a positive start, with latest market talk indicating that BHP Billiton could have placed a cargo of Pyrenees crude for loading in July at a premium of about 40 cents/b to Dated Brent, weaker than premiums of $0.50-$1/b paid for June-loading cargoes.

    Meanwhile, trade sources said Woodside Petroleum has so far failed to place its cargo of Enfield crude and Mitsui is still in search of a buyer to take its Vincent crude cargo for loading in July.

    It wasn't all doom and gloom however, regional traders said, indicating that US end-users have been tapping on Australian suppliers' shoulders due to the ongoing production hiccups in North America triggered by wildfires in Canada.

    "It's highly possible that [July loading] Vincent crude could move to US again ... supply disruptions in Canada mean end-users [in North America] would have to search for alternatives, likely West African and/or Australian crudes," said a Singapore-based crude trader.

    It has been about three weeks since wildfires broke out in the heart of Alberta's oil sands production area in the Athabasca region in Fort McMurray, and it is still raging.

    "Some of the Australian heavy [sweet crudes] are trading in discounts [to Dated Brent] and that's going to help [boost US end-users' buying interest] further," said the Singapore-based trader.
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    France uses strategic oil reserves to counter refinery blockade

    France has started using its strategic oil reserves to counter union blockades of its refineries, the French oil industry federation said on Wednesday.

    "Yes, a small quantity of the stock has been drawn. It was authorised by the government, only the government can authorise it," UFIP spokeswoman Catherine Enck said.

    Union Francaise des Industries Petrolieres (UFIP) President Francis Duseux told RMC radio that the industry had been using the strategic reserves for two days.

    "Every day we use the equivalent of about one day of consumption. At worst, if the situation remains very tense, we can do this for three months," he said.
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    Record U.S. LPG exports to Asia hit naphtha when it's already down

    Asian petrochemical makers will use around twice as much liquefied petroleum gas (LPG) in June as in the previous two months, undercutting already weak margins being earned on traditional chemical feedstock naphtha, trade sources said.

    U.S. exports of LPG to Asia are hitting their highest rates ever this year and exacerbating the usual seasonal May-July pick-up in use of the fuel in cracking plants.

    This will put more short-term pressure on naphtha cracks, or profits earned from making the light fuel, which have weakened as refiners ramped up processing rates because of cheap crude.

    The weak cracks will in turn drag on overall refining margins, which had previously been supported as strong demand for gasoline and naphtha offset poor markets for other fuels.

    "U.S. LPG exports this month are high. Propane will certainly stay in the cracking pool this summer," said one Singapore-based source who trades naphtha. "LPG used (in crackers) in July could go over 350,000 tonnes. It could even reach 400,000 tonnes."

    Asian naphtha cracks for May 3-23 averaged $56.40 a ton, the lowest for the same period since 2009.

    Still, petrochemical plants will likely return to using mostly naphtha from August. LPG is mainly an alternative that becomes attractive when it is not needed for winter heating demand or other industrial uses.

    Asian petrochemical makers usually replace up to 15 percent of their naphtha with LPG when prices for the second feedstock are about 92-93 percent of the naphtha price.

    LPG prices on May 23 for first-half July were $345 to $361 a ton, less than 90 percent of a naphtha price at $417.50, data from brokerage Ginga Petroleum showed.

    For June, at least 300,000 tonnes of LPG are expected to replace naphtha in Asian crackers, up from under 200,000 and 150,000 tonnes respectively in May and April, traders said.

    If substitution climbs to 400,000 tonnes in July, that would match a monthly record touched in June 2014, based on traders' estimates. There is no official data tracking the use of LPG as a chemical feedstock.

    "Higher global LPG availability in 2015, on the back of strong supply growth, has certainly filtered through to flows to Asia in the short-term," said David Wech, managing director of consultancy firm JBC Energy.

    But he added that a relatively greater potential for a cold winter could lead to stronger demand and higher prices for LPG as early as August.

    Demand for LPG as a feed for refining units that produce propylene, a precursor to plastics, could also mop up the extra supplies and push prices up.

    U.S. LPG exports to Asia this year are expected to hit a record of 300,000 barrels per day (bpd) - nearly 800,000 tonnes a month - data from JBC Energy showed.

    Exports from the United States to Asia in May are expected to be similar to a monthly record of about 1 million tonnes in February, consulting firm IHS said.

    Asia's top naphtha importer Formosa Petrochemical Corp in Taiwan has revamped its crackers and South Korea's Hanwha Total Petrochemical has built a storage tank to prepare for a flood of LPG expected to hit Asian shores.

    Petrochemical consumption will account for 15 percent of total Asian LPG usage by 2017, up from 11 percent in 2015, according to IHS.

    Attached Files
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    Total CEO says will "seriously reconsider" investments in France due to strikes

    French oil and gas company Total will "seriously reconsider" its investment plans in France due to strikes in the oil sector that forced the company to shut down refineries, iTele television reported Total's chief executive as saying on Tuesday.

    Patrick Pouyanne was speaking at the sidelines of Total's shareholders meeting in Paris.
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    Angola LNG re-starts production

    The Chevron-led $10 billion Angola LNG project has started producing chilled gas with first cargoes to be available soon on a tender, the project’s spokeswoman told LNG World News on Tuesday.

    In an emailed statement, the spokeswoman said,“the re-commissioning of the plant is proceeding satisfactorily and in accordance with the commissioning and start-up plans.”

    Chevron CEO John Watson said at the end of April that the first cargo from the project, that was closed in April 2014 after a major rupture on a flare line, is expected in May.

    However, the spokeswoman noted the first LNG cargoes will be available in the near future, via a competitive tender process, without providing an exact date of the first cargo.

    Reuters recently quoted trade sources as saying the tender for the supply of LNG cargoes from the project, expected in June, had been postponed, although the first vessel could be dispatched during the following month.

    Angola LNG is a joint venture between Sonangol (22.8%), Chevron (36.4%), BP (13.6%), Eni (13.6%), and Total (13.6%).

    The LNG plant, located in Soyo, is a single-train facility able to produce 5.2 million tons per year
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    PGNiG to receive LNG cargo from Statoil

    According to Reuters, PGNiG – a Polish, state-run gas company –has announced that it will receive its first spot LNG cargo from Statoil on 25 June 2016.

    Reuters reports that the 140 000 t (approximately) cargo will be delivered to the LNG terminal at Swinoujscie on the Baltic Sea. The terminal is scheduled to commence its commercial operations in June 2016.

    Reuters claims that Statoil will provide at least one LNG cargo to PGNiG, and that Qatargas will also provide an LNG cargo on 17 June 2016. This cargo is part of a long-term agreement between the two companies, which was signed in 2009.
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    API data show U.S. crude supply down 5.1 million barrels: sources

    API data show U.S. crude supply down 5.1 million barrels: sources

    Oil futures rallied in electronic trading Tuesday after the American Petroleum Institute reported that U.S. crude supplies fell by 5.1 million barrels for the week ended May 20, according to sources who reviewed the report. Analysts polled by S&P Global Platts forecast a decline of 3.3 million barrels for crude inventories. The closely watched Energy Information Administration report will be released Wednesday.
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    EOG's New 'Premium Well'.

     Bill Thomas, chairman and CEO of the independent oil and gas producer, explained how the company has drilled and completed the best Bakken well in the history of the play. Using its high-intensity design, EOG drilled and completed a well—Riverview #102-32H—in its Antelope field area that produced 200,000 barrels of oil in its first 91 days for an average daily production total of roughly 2,200 bopd.

    Although the well is still on confidential status, Thomas said the well’s results are “definitely repeatable.” The horizontal was drilled at only 4,600 feet, only half of the typical length for most Williston Basin wells.

    The process used is similar to that of EOG’s Eagle Ford approach to completing wells. Instead of the 540 fracture events per 1,000 foot of lateral EOG accomplished in 2010 wells, its 2015 wells are completed with 4,030 fracture events per 1,000 feet. According to Thomas, the new approach generates 8 to 10 times the number of fractures within 1,000 feet when compared to the old method. Containing fracture events closer to the wellbore is crucial for EOG. It now works to keep fractures within 200 to 300 feet of the well bore. “It allows us to downspace and drill wells closer and closer together,” he said. In addition to wellbore proximity for fractures, the drilling teams are working to keep the bit within a 20 to 30 foot window instead of the traditionally accepted 100 to 150 foot drilling window.

    The use of fluid diverting agents is also a key to its high-density design, Thomas said. EOG uses in-house data and information for all drilling and completion designs.

    EOG’s version of the high-intensity fracture has helped it to add to its estimated ultimate recovery oil levels in the Bakken and in Texas. Earlier this year, EOG updated its Bakken and Three Forks net resource potential estimates to just over 1 billion boe. In the Delaware Basin of Texas, EOG just upped its resource potential estimates to 1 billion boe as well.

    Regardless of its breakthroughs in high-intensity fracks—a process Thomas said the industry has not caught up to yet—EOG will only seek to keep production flat in 2016. “We are going to be very disciplined next year and spend within cash flow. I believe it will take $60 oil to get the U.S. back in growth mode,” Thomas said.Image title

    Packers Plus last month announced that it successfully completed multiple wells in North Dakota’s Bakken formation using its advanced high-frack intensity systems. Themig believes that this technology—in combination with multilateral wells and zonal isolations—have the potential to significantly change the economics for Bakken producers.

    The 50-stage wells are the first step in the process. Themig said the second step will be wells with 60 to 70 stages—uninterrupted with no intervention. The third level will go to 100-stage jobs with two- to three-mile laterals.

    “One of the things you’re starting to see from our company and is economic high-stage count and economic high-frack intensity,” Themig said. “We don’t think it’s plug and perf. We believe the open hole has some distinct advantages in this play. We have the curves to prove it in almost every basin.”

    Themig is so confident that he predicts there will eventually be a sustained level of drilling in the Williston Basin that’s less dependent on the oil price structure.

    “We think there are other technologies people should be using and will be using in North Dakota,” he explained. “I have some studies in the Williston Basin with four or five years of data that show just by getting effective isolation, you can change the ultimate recoveries in a field by roughly 50 percent, and that alone changes the economics of the Bakken.

    Although the price of oil will continue to play a role in the level of oil and gas activity in the Willison Basin, technological innovation—which Themig said has driven the industry for the past 10 years—will have a significant impact. He said the company’s technology would provide immediate benefits in the core of the Bakken and benefit wells in the play’s second-tier areas at $40 to $45 a barrel.

    Enhanced Oil Recovery (EOR)

    EOG confirmed success of its internally developed EOR process in the Eagle Ford following more than three years of testing in four successful pilot projects with 15 producing wells.  These four pilot projects, located across the field, demonstrated consistent reservoir responses from a group of mature producing wells.  The pilots generated significant increases in crude oil production with relatively low capital cost.  One additional EOR pilot project that encompasses 32 producing wells is planned for 2016.

    EOG anticipates many benefits from the application of this new technology, including high incremental net present value and rates of return on investment, low finding and operating costs, reduced severance tax rates, lower production decline rates and increased reservoir recoveries.  EOG's Eagle Ford shale acreage position possesses unique geologic properties ideally suited for the company's proprietary EOR techniques.  These methods require very strong geologic containment that may not exist in most horizontal oil plays. 

    "Today's introduction of EOG's enhanced oil recovery potential for the Eagle Ford shale is another technical breakthrough to further enhance the value of EOG's Eagle Ford assets," Thomas said.  "Our proprietary EOR capabilities and first-mover advantages uniquely position the company to create substantial incremental shareholder value through this long-life project."

    South Texas Austin Chalk

    EOG expanded its inventory of high rate of return crude oil plays with successful drilling results in the South Texas Austin Chalk, which sits on top of the South Texas Eagle Ford shale.  The initial test well, the Leonard AC Unit 101H, came online with average 30-day initial production rates of 2,100 barrels of oil per day (Bopd) with 295 barrels per day (Bpd) of natural gas liquids (NGLs) and 1.9 million cubic feet per day (MMcfd) of natural gas.  A second Austin Chalk well, the Denali Unit 101H, was brought online in April 2016, with average 20-day initial production rates of 2,265 Bopd with 415 Bpd of NGLs and 2.7 MMcfd of natural gas.  EOG intends to drill seven additional Austin Chalk wells in 2016 to further delineate the formation's potential.

    "EOG continues to demonstrate its organic growth capabilities by discovering a new geologic concept in an existing play," Thomas said.  "Although the industry has known about the Austin Chalk for many years, it took a new approach to turn it into a high rate of return play which competes with EOG's top-tier assets.  We expect the Austin Chalk to make a meaningful contribution to our future success."

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    Chinese Company Searching for Billion-Dollar Oil Deals in Texas

    China’s Yantai Xinchao Industry Co. is pursuing U.S. oil acquisitions worth as much as $1 billion in the Permian Basin, and it won’t be satisfied letting others run the show, according to the head of the company’s U.S. subsidiary.

    Unlike other Asian companies that bought stakes in U.S. energy prospects in recent years, Xinchao is seeking so-called operated positions, or deals that give it primary authority over everything from how deep to drill to how intensively to frack each well, said Curtis Newstrom, chief executive officer of Blue Whale Energy North America Corp., the U.S. arm of the Shanghai-listed company.

    Houston-based Blue Whale made a splash last year with its first two deals on behalf of its Chinese parent, a company virtually unknown in U.S. exploration circles: a $315 million acquisition of drilling rights across 7,100 acres from Juno Energy II in April 2015 and a $1.1 billion transaction in November with Tall City Exploration LLC and Plymouth Petroleum LLC. Both deals involved Texas oil fields. It is now on the search for other assets valued at between $500 million and $1 billion, he said.

    “We’re going to continue looking for opportunities,’’ Newstrom said in an interview on the sidelines of Hart Energy’s DUG Permian Basin conference in Fort Worth, Texas, on Tuesday. “Xinchao is a very aggressive company and it’s looking to grow.’’

    Texas Competition

    Xinchao and Newstrom are up against some stiff competition in trying to expand their portfolio in the Permian basin of West Texas and New Mexico. International heavyweights and domestic titans from Exxon Mobil Corp. to Occidental Petroleum Corp. have been ramping up acquisition efforts in the region at a breakneck pace.

    Drilling rights in the richest part of the region have been commanding selling prices as high as $35,000 an acre, reminiscent of the height of the shale land grab half a decade ago, according to Mike Winterich, president of Three Rivers Operating Co III LLC, an Austin, Texas-based Permian oil explorer backed by private equity giant Riverstone Holdings LLC.

    Private equity firms are also scouring the Permian Basin for acquisitions, heightening competition for relative newcomers such as Blue Whale, which was formed in 2014. More than 100 private equity firms have teams evaluating potential Permian transactions, Winterich said during a presentation at the Hart Energy event on Tuesday.

    Blue Whale hired former ConocoPhillips experts in the use of water-flooding to sweep crude out of aging fields to boost results from the wells acquired from Juno along the northern edge of the Permian, Newstrom said.

    On the Tall City-Plymouth assets, Blue Whale plans to raise the number of rigs drilling new wells to three from two. The company has identified 1,500 to 1,600 attractive targets across the 78,000 acres of drilling rights it acquired, Newstrom said. He didn’t give a timeframe for adding the next rig.

    Blue Whale is at a disadvantage to domestic investors as it tries to snap up more U.S. oil fields because its ownership by a Beijing-based entity means every deal must undergo scrutiny by the Treasury Department’s Committee of Foreign Investment in the U.S., known as CFIUS, Newstrom said.
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    Parsley Energy Acquires Southern Delaware Basin Mineral Rights for $280.5M

    Parsley Energy, Inc. today announced that it has entered into an agreement to acquire mineral rights under approximately 30,000 acres consisting of Parsley leasehold and other adjacent properties in Pecos and Reeves Counties, Texas in the Southern Delaware Basin for $280.5 million in cash. The proposed transaction is scheduled to close by July 14, 2016, subject to customary closing conditions. Parsley intends to finance this acquisition through debt and equity issuances announced concurrently with the announcement of the acquisition.

    Parsley also announced the purchase of additional working interests in the Company's leasehold in Pecos and Reeves Counties totaling 885 net acres for $9.0 million in cash. This transaction closed on May 10, 2016.

    Acquisition Highlights

    Mineral Rights Acquisition

    -Acquired mineral rights in 29,813 acres (hereafter "mineral acreage") with an average royalty interest of 17.5%.
    -Mineral rights boost net revenue interest ("NRI") on approximately 186 gross/net horizontal drilling locations in the upper Wolfcamp interval, assuming one flow unit and 660' between-well spacing. The Company is assessing the potential for additional flow units in the Wolfcamp complex and the Bone Spring interval on acreage associated with acquired mineral rights.
    -The average NRI on horizontal drilling locations associated with acquired mineral rights increases from 75% to 92.5%.
    -Estimated net current production associated with acquired mineral rights is approximately 280 barrels of oil equivalent per day.
    -82% of mineral acreage represents Parsley leasehold, with the balance leased and operated by other operators.
    -Parsley also acquired surface rights on approximately 80% of mineral acreage, eliminating compensation for surface damages and water procurement, among other costs, and also facilitating optimal well and facility placement.
    -Consistent with the Company's previously announced capital plan, Parsley expects to complete 5-7 wells in the Southern Delaware Basin this year. Of these, the Company expects 3-5 to be completed on the acquired mineral acreage.
    -The transaction is scheduled to close on or before July 14, 2016, subject to the satisfaction of customary closing conditions.$280.5M/11664216.html
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    Monsanto to reject Bayer bid, seek higher price: sources

    Monsanto Co, the world's largest seed company, will reject Bayer AG's $62 billion acquisition bid and seek a higher price, two people familiar with the matter said on Tuesday.

    Monsanto can see the logic of combining with the German drugs and crop chemicals group, and believes a deal could get the necessary antitrust and other regulatory approvals, the people said, leaving the door open for further negotiations.

    Bayer will now have to decide whether to raise its bid, even as the company faces criticism from some shareholders that its $122-per-share offer is already too high. The other options are to walk away, or mount a hostile bid.

    Monsanto shares rose 1.5 percent to $107.61 in late morning trading in New York, but remain far below Bayer's bid price, underscoring investor skepticism that a deal will be reached. Bayer shares rose 3.23 percent at 87.15 euros in Frankfurt.

    It was not clear what price Monsanto would be willing to sell for.

    The Saint Louis, Missouri-based company has confidence in its standalone plan and believes shareholders deserve a better offer, the people said. They asked not to be identified because the deliberations are confidential.

    Global agrochemicals companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes. Seeds and pesticides markets are also increasingly converging.

    Bayer said on Monday it would finance its cash bid with a combination of debt and equity.
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    Precious Metals

    New highly profitable acid mine water solution unveiled

    A process has been developed that yields handsome profits by converting acid mine water into valuable fertiliser materials. The process removes all of the total dissolved solids and converts them into saleable products. “The whole treatment cost is zero,” Trailblazer Technologies director John Bewsey told Creamer Media’s Mining Weekly Online while putting the company’s pilot plant through its paces, in Krugersdorp.

    Treating 15 megalitres of acid mine drainage (AMD) a day yields 49 000 t of high-value potassium nitrate and 24 000 t of ammonium sulphate. Potassium nitrate used in fertiliser is retailing for R15 000/t and Trailblazer will market it at R11 500/t. 

    “We’re left with useable water at no cost and the whole process turns in a very handsome profit,” said Bewsey, who envisages funders being attracted by the scheme's 30% return on investment. 

    Trailblazer’s model is to build plants in partnership with funders and enter into contracts with mining companies to treat their AMD. It envisages funders making good profits, mines having the AMD problem solved and farmers being shielded from sodium damage. “It’s a complete win-win,” Bewsey commented. 

    It would also save taxpayers the R12-billion that Water Minister Nomvula Mokonyane announced last week would be needed to turn AMD into safe water for commercial use as either industrial or potable water.

    The Minister chose the old south-west vertical shaft area of the dormant East Rand Proprietary Mines for the launch of the process to remove the sulphates.
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    Base Metals

    China's nickel imports still flattering to deceive

    Headline imports of refined metal hit a new all-time record high of 49,012 tonnes in April. The cumulative tally of 157,600 tonnes over the first four months of the year represents a 115,000-tonne increase over the same period of last year.

    Imports of ferronickel have also surged to 294,700 tonnes so far this year, which is already more than any previous calendar year with the exception of 2015. Somewhere in this flow of material lies an unfolding bull narrative, one of falling Chinese production and resurgent demand.

    The problem is that there is too much else going on in the import data to get a good view of the shifting Chinese nickel landscape. When it comes to refined nickel, the core driver of rising imports is the flow of Russian metal into China.

    Russia's Norilsk Nickel is one of the world's largest producers of the metal so has always accounted for some of China's imports needs in the past. But the amount of Russian metal entering the country has grown from around 45 percent of total imports in 2012 and 2013 to 72 percent so far this year. In April itself Russian metal accounted for 80 percent of all imports.

    The game changer was last year's decision by the Shanghai Futures Exchange (ShFE) to allow Norilsk brands to be delivered against its new, booming nickel contract.

    What has ensued amounts to a wholesale relocation of Russian nickel from the London Metal Exchange (LME) warehouse system to China. Russian full-plate cathode used to account for just about all of LME stocks but it now represents only 40 percent of the total.

    ShFE stocks, meanwhile, have mushroomed to 91,715 tonnes from just 3,100 tonnes this time last year, when the Shanghai contract had only just started trading. The ShFE doesn't provide a breakdown of its stocks by origin but it's a fair bet that most of what it holds is in the form of Russian metal.

    If Russian imports were running at historical levels of around 120,000 tonnes annualised, imports of refined metal would still be up but by a significantly reduced degree.

    Something very similar is happening in terms of inflating the headline figure for ferronickel imports. The single largest source of imports this year has been Indonesia, which has accounted for 196,400 tonnes, or 67 percent, of the total import picture.

    But this material from Indonesia isn't ferronickel at all but rather nickel pig iron from a new plant operated by China's Tsingshan. The price of imported material from Indonesia has averaged $1,041 per tonne so far this year, compared with over $2,000 for ferronickel from established producers such as New Caledonia, Brazil and Colombia.

    The Tsingshan plant, currently ramping up to 90,000-tonne per year Phase II capacity, is the poster child for Indonesia's build-out of its own processing capacity after the imposition of a ban on raw materials.

    However, the inclusion of this lower-grade material in the ferronickel category of China's imports is serving to distort the data. If it weren't there, ferronickel imports would have totalled just 98,000 tonnes, well within historical norms.

    The only category of nickel import that is in decline is that for nickel ore, the life-blood of China's own massive nickel pig iron production sector. Indonesian imports have been non-existent ever since the country imposed its ban on exports of unprocessed minerals at the start of 2014.

    The supply gap has been filled in large part by ore from the Philippines, although imports have fallen quite sharply so far this year to 4.16 million tonnes from 6.65 million in the first four months of 2015. It will put further pressure on China's NPI sector, particularly since stockpiles of Indonesian ore are thought to be running very low.

    The latest assessment by analysts at Macquarie Bank is that the Philippines can probably supply enough ore to support Chinese NPI production at a rate of 350,000-400,000 tonnes per year.

    The more bullish picture starting to emerge in China is all part and parcel of the broader global shift from a state of chronic supply surplus to one of growing shortfall.

    The last year that the nickel market was in deficit was in 2011, according to the INSG.

    But the Group estimates a small 600-tonne deficit in the first quarter of this year, largely thanks to an 8,200-tonne shortfall in March itself. nL3N18G5J8

    These are still highly marginal numbers relative to the size of stocks in the nickel market, which is why nickel's is a slow-burn bull story.

    But the market is showing every sign of shifting to supply-demand deficit, even if it's difficult to discern right now because of the mass movement of inventory from west to east.
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    Australian alumina breaks four-month rise as China boosts output

    The price of Australian alumina has broken four months of price increases, falling $8/mt in the last two weeks to be assessed at $255.50/mt FOB Western Australia Tuesday, according to S&P Global Platts data.

    Prices climbed $64.50/mt between January and early May in response to alumina refining cuts in China and the Americas, driven by poor margins.

    The cuts also came at a time when India and Malaysia were boosting alumina imports to support increased domestic aluminium production.

    But since February, China has ramped up 6 million-7 million mt/year of alumina refining capacity, and 500,000 mt/year to 1 million mt/year of aluminium smelting capacity, according to Platts estimates, in response to stronger margins.

    With alumina output now growing at a faster pace than aluminium, sellers are having to discount their stock. On Tuesday, a stockholder confirmed granting a $1-$2/mt discount to secure a quick sale.

    As there is no shortage of alumina, consumers are holding out for bargain buys, market participants said in the last week.

    The price spread between Australian alumina and Chinese domestic material has narrowed as well, with Australian units fetching a premium of $13/mt or Yuan 86/mt on Tuesday in import parity terms, compared with supply from Shanxi province.

    The Australian premium reached a year-to-date high during the first two weeks of May at $20/mt and Yuan 133/mt.

    Australian alumina typically commands a higher price than Chinese alumina due to its higher purity, and also because China is a net importer, typically sourcing about 5 million mt/year from offshore.
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    Steel, Iron Ore and Coal

    China's wary lenders force rust-belt country to take expensive shadow bank loans

    Mainstream lenders in China are squeezing borrowers in the country's rust-belt provinces, forcing firms to take on higher interest-rate loans from so-called shadow banks, a Reuters analysis of central bank figures shows.

    In several of the hardest hit industrial provinces, including deeply troubled steel and coal producing regions, the swing back to the shadow sector - lenders outside conventional banking who usually charge much higher interest rates than traditional banks - has been stark.

    Firms in Liaoning, an industrial powerhouse in China's northeast, borrowed over 2,000 percent more from shadow banks in the first quarter of this year, compared with a year earlier. The borrowing accounted for 19 percent of the province's total financing, up from just 1 percent in the first quarter of 2015.

    "Economically advanced regions, especially those with strong access to municipal bond funding, don't really have to fall back on shadow financing as much," said a director at a Shanghai-based asset management firm. "Smaller and poorer areas are different."

    The sharp retreat of weaker regions into shadow lending - when credit as a whole has expanded massively - suggests that traditional creditors are rapidly abandoning the long-held belief that lending to state-owned enterprises (SOEs) is risk free because local governments nearly always bail them out.

    An increasing number of bond defaulters over the past half year have been state-owned firms, many in legacy industrial sectors.

    The change is in line with official efforts to shrink the country's industrial overcapacity, but could shift growing risks in the corporate bond market back onto the shoulders of retail investors buying wealth management products backed by shadow banking loans.

    Economists have long argued the government needs to ensure credit is delivered to more productive parts of the economy if it wants to sustain growth. For that to happen, lenders need to price in real credit risk.

    To an extent, that now appears to be happening.

    "It's no longer a case of who owns the thing, but in which industry they're in. So of course certain regions are more exposed and we look at that," said a Singapore-based fund manager who invests in Chinese debt.

    Lending by trust firms, key actors in the shadow banking market that package loans into investment products, rose in the first quarter to its highest level since June 2014.

    Research firm Puyi said new trust products created in the first quarter offered investors annual yields averaging 8-9 percent, highlighting the risks for struggling economies borrowing from the sector.
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    Steel, iron ore fall to 12-week lows

    Steel, iron ore fall to 12-week lows
    Iron ore and steel futures in China fell to 12-week lows on Tuesday as weak steel demand hit traders that had restocked during last month's price rally.

    The two commodity futures have lost 30 percent from their peaks in April when volumes and prices rose and prompted China's commodity exchanges to impose trading curbs. Raw materials for steel - coking coal and coke - tumbled about 6 percent at one point on Tuesday.

    Chinese economic data for April underlined weak foreign and domestic demand and cooled hopes of an economic recovery. With a seasonal pickup in steel demand over, construction activity in China will slow as parts of the country, mainly in the south, brace for rainy weather, according to traders.

    "Most of the demand in the physical market last month was due to traders restocking," said a Shanghai-based trader. "But now they have been trapped with high supplies and are finding it difficult to resell their cargo," the trader noted. Chinese traders held 9.55 million tons of steel products as of May 20, up for the third week in a row, according to data tracked by consultants CRU.

     Rebar, or reinforcing steel used in construction, closed down 1.3 percent at 1,958 yuan ($299) a ton on the Shanghai Futures Exchange. It fell to 1,917 yuan earlier, its weakest since March 4. "Some traders may cut losses by selling cheap," said the Shanghai trader, estimating that some traders who bought steel cargoes in recent weeks may be losing at least 200 yuan a ton at current prices.

    As domestic demand weakens again, the option for Chinese steel producers to sell more overseas could be limited by growing trade tensions with offshore markets. China's steel industry group said on Tuesday that China is not encouraging large exports and has taken measures to control shipments.

    The China Iron and Steel Association said the industry is also willing to solve trade disputes through cooperation but is opposed to trade protectionism.

    Iron ore on the Dalian Commodity Exchange closed 2.4 percent lower at 350.50 yuan a ton, after touching 344.50 yuan, its lowest since March 2. Dalian coking coal finished down 4.8 percent at 660 yuan a ton and coke fell 5.6 percent to 829.50 yuan a ton.
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    China Apr thermal coal imports down 18.8pct on year

    China imported 7.11 million tonnes of thermal coal in April, down 18.8% on the year and 4.1% from March, showed data released on May 24 by the General Administration of Customs.

    The volume included 5.72 million tonnes of bituminous coal and 1.4 million tonnes of sub-bituminous coal, but excluded imports of lower CV lignite material.

    During the January-April period, China imported 25.42 million tonnes of thermal coal, down 14.3% from the same period in 2015.

    Indonesia climbed to the largest shipper of thermal coal to China in April at 3.11 million tonnes, 2% higher on the year and up 25% from March to the highest volume since January last year.

    Australia dropped to the second biggest supplier at 2.79 million tonnes, falling 40% from April 2015 and down 12% from the previous month.

    China's imports of Russian thermal coal slipped 3% on the year to 902,166 tonnes, which was also 41% lower than March's 22-month high.

    Total lignite imports for April decreased 9% on the year to 4.57 million tonnes, which was stable from the previous month.

    Of the total, 4.71 million tonnes was from Indonesia, down 21% on the year and also 12% lower than March.
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    China Apr coking coal imports surge 43pct on year

    China’s coking coal imports in April surged 43.2% on year and up 5.5% on month to 5.37 million tonnes, the second consecutive monthly and yearly increase, showed the latest data from the General Administration of Customs (GAC).

    The increase was mainly impacted by rebounded steel and coke markets and short domestic supply amid Shanxi consolidated mines’ suspension.

    The value of the imports saw a yearly increase of 9.8% and a monthly rise of 7.8% to $344.8 million, the GAC said.

    The average price of imported coking coal was $64.2/t in April, up 2.2% from March.

    In January-April, China’s coking coal imports climbed 14.7% on year to 16.79 million tonnes; the value of the imports was $1.09 billion, falling 16.2% year on year.

    Meanwhile, China’s exports of coking coal in April roared 2,191.3% on year and jumped 35.7% from March to 190,000 tonnes. The value of the exports was $16.6 million, up 1,705.6% on year and up 40.2 % on month.

    Over January-April, China’s coking coal exports stood at 560,000 tonnes, rising 69.7% from the previous year; while the total value of the exports up 27.3% on year to $49.59 million.
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    China resumes environmental approval of coal-to-gas projects

    Chinese regulators have resumed environmental approval of new coal-to-gas (CTG) projects, after a suspension lasting more than a year amid doubts about pollution risks as well as the economic viability of the technology.

    China approved three CTG projects with a total capacity of 4 billion cubic meters (bcm) of synthetic natural gas per year in the coal-producing regions of Shanxi, Xinjiang, and Inner Mongolia.

    The Shanxi project, a joint investment by state-owned CNOOC and the Datong Coal Mine Group, is expected to cost 26 billion yuan ($3.97 billion). It was shelved for three years until winning approval in March from the Ministry of Environment Protection.

    China has pledged to reduce its coal dependence, a major source of air pollution and greenhouse gas emissions. However, policymakers are also trying to secure a soft landing for a sector that employs more than 5 million people, and coal-to-gas has the potential to be a new opportunity for mining firms.

    China aims to raise gas consumption to 360 bcm by 2020, but domestic output is only expected to reach 190 bcm, meaning it will need to boost imports or find alternative sources.

    But the government is still struggling to find a compelling economic and environmental rationale for the technology, especially as oil and gas prices fall.

    China has an unofficial CTG output target of 15 bcm a year, state media reported last year. The country originally planned to raise CTG production to around 50 bcm a year by 2020, but cut back after a flood of new project approvals raised the concerns of regulators.

    China has three CTG projects in operation and another four under construction, and there are 17 additional projects undergoing "preparatory work", according to environmental group Greenpeace.

    The projects will cost 456 billion yuan and add 68 bcm a year of gas if they all go into operation, Greenpeace estimates.

    CTG production may also drain water supplies in coal-producing regions that are already dangerously arid.

    "Waste water handling remains an unsolved problem," said Gan Yiwei, energy and climate campaigner with Greenpeace. "CTG can't be seen as a way out to help with coal overcapacity, and it is not the clean utilization of coal."
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    Australia's Wesfarmers signals $1.6 bln hit on Target, coal

    Wesfarmers Ltd, Australia's biggest company by sales, on Wednesday said it will take impairment charges totalling up to A$2.2 billion ($1.6 billion) in fiscal 2016 due to poor coal prices and market conditions at department store Target.

    The owner of Kmart, Coles and Bunnings stores as well as chemicals and resources businesses said it would take a non-cash charge of up to A$1.3 billion before tax on its Target business and a non-cash, pre-tax charge of up to A$850 million on its Curragh coal business.

    "We have never shied away from taking tough action," Wesfarmers Managing Director Richard Goyder said in a statement.

    Market "competition and disruption has continued to accelerate" at Target, even though the discount department store chain had made progress in recent years, Goyder added.

    The Perth-based company said it would also record A$145 million in restructuring costs for Target in fiscal 2016, including payouts for 240 job cuts and streamlining its supply chain.

    The impairment charge on the coal business "mainly reflects a slower forecast recovery in long-term export coal prices and higher volatility", Wesfarmers said.

    Wesfarmers posted a net profit of A$2.44 billion in the year to June 2015, down from A$2.69 billion the previous year, and in February said it was "generally optimistic" in its outlook.
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    Brazil police probe U.S. Steel venture, Tenaris pipe unit

    Brazilian police said on Tuesday they investigated local units of three international steelmakers in a second-straight day of raids probing graft at the country's state-controlled oil producer, Petroleo Brasileiro SA.

    Police and prosecutors allege that Apolo Tubulars, which is 50 percent owned by United States Steel, and Luxembourg-based Tenaris SA's Brazilian unit Confab were involved in a bribery scheme to win work from Petrobras, as the oil company is known. Tenaris is part of Italian-Argentine steel group Techint.

    Brazil's largest-ever corruption investigation has unveiled a scheme in which local construction and engineering firms colluded to overcharge Petrobras for work and used the excess funds to bribe high-level officials.

    The probe, which forced a key minister in interim President Michel Temer's government to resign on Monday, has ensnared around a dozen international companies over the past two years and caught the attention of U.S. regulators.

    Between 2009 and 2012 two tube companies involved in the scheme paid about 40 million reais ($11.2 million) in bribes to Petrobras executives to win about 5 billion reais ($1.4 billion) of pipe contracts, prosecutors said.

    Police said they had no proof of corruption at French pipe-maker Vallourec SA but were continuing their investigation of the company's Brazilian unit, Vallourec Brasil, formerly known as V&M.

    Rio de Janeiro-based Interoil Representações Ltda also arranged bribes for Petrobras, police said. Interoil Representações declined to speak with Reuters.

    In Brazil, Interoil Representações owns 5 percent of the Brazilian unit of German oil tank company Oiltanking GmbH. Police and prosecutors made no mention of Oiltanking and the company was not mentioned in any of the warrants. Oiltanking's Brazilian lawyer did not return calls for comment.

    U.S. Steel said it is reviewing the matter and is in contact with Apolo Tubulars. U.S. Steel acquired the 50 percent stake when it bought Lone Star Technologies Inc in 2007. Apolo Tubulars said it was cooperating with authorities but had no other comment.

    Tenaris officials did not immediately respond to requests for comment, but Confab said it has no evidence its employees paid bribes and is collaborating with authorities.

    Tuesday's actions were the latest in the "Operation Car Wash" probe in which 205 people have been accused and 105 convicted of crimes ranging from price-fixing to kickbacks. Total prison and other sentences total more than 1,333 years.

    The Tuesday operation, called "Operation Vice" sought to jail two people, and take nine in for questioning, police said. They also had search warrants for 28 locations.

    The sweep was aimed at probing alleged money laundering that used fictitious contracts arranged by Petrobras contractors and an executive in Petrobras' international unit to hide bribes and political kickbacks.

    "Some parts of the state still need to go through a detoxification process," the statement said.

    On Monday, police arrested a former treasurer of Brazil's Partido Progessista (PP), one of the parties in the country's ruling coalition. He was accused of receiving about 1 million reais ($280,465) in bribes and contract kickbacks.

    Operation Car Wash also contributed to the dive in popularity of President Dilma Rousseff who was suspended earlier this month after the Senate voted to put her on trial for breaking budgetary laws, charges she denies. She was chairwoman of Petrobras' board for seven years when much of the corruption took place.

    Attached Files
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    China’s key steel mills daily output at 1.7 mln T in early May

    The daily crude steel output of China’s key steel mills edged down 0.56% from ten days ago to 1.71 million tonnes in early May, according to data released by the China Iron and Steel Association (CISA).

    China’s daily crude steel output is expected to be 2.3 million tonnes in early May, dipping 0.78% from ten days ago, CISA forecasted.

    Price of Tangshan steel billets dropped 19.3% to 1,920 yuan/t in early May, compared with 2,380 yuan/t at the start of the month. Few sales were heard done amid wait-and-see sentiment of downstream buyers.

    By May 22, capacity utilization rate of the surveyed 163 steel mills stood at 86.71%, up from the 85.78% in April.

    By May 10, stocks of steel products in key steel mills rose 12% from ten days ago to 13.82 million tonnes; social stocks of steel products stood at 9.55 million tonnes, up 1.81% on month, indicating slack sales amid unimproved demand.

    Analysts said the eastern China is entering rainy season in June, and about to transfer to slack season in July and August. Domestic steel market may face great pressure amid unfavorable season and slowing economic recovery.
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