Mark Latham Commodity Equity Intelligence Service

Friday 12th August 2016
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    China's economic activity slows in July as reforms begin to bite

    "Although economic activity isn't very good, due to the need to continue to get rid of overcapacity, there's not a lot of room to ease," said Qu.

    The fixed-asset investment retreat was led by a 22.9 percent decline in mining, suggesting the government's goal of cutting production in older industrial sectors is working.

    Real estate investment growth slowed to 5.3 percent but remains elevated.

    The decelerating growth rate comes amid fears the country is accumulating too much debt at the local level.

    Growth in investment by state firms cooled to 21.8 percent in Jan-July, from 23.5 percent in Jan-June.

    Meanwhile, private investment grew 2.1 percent, compared with 2.8 percent in the first half, as investors remain wary about the growth outlook amid painful reforms in the state owned enterprise sector. Private investment accounts for about 60 percent of overall investment in China.

    Factory output rose 6.0 percent in July from a year earlier, below the 6.1 percent analysts had expected and consumption softened with retail sales growth easing to 10.2 percent after a rise of 10.6 percent the prior month.
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    Caterpillar sees more soft demand from energy, transport sectors

    Caterpillar Inc expects no significant demand growth for its energy and transportation products for the rest of 2016 as oil prices stay weak, a senior executive said on Thursday.

    "Oil prices, drill rig counts and our customers' fleet utilization rates continue to remain low," Jim Umpleby, Caterpillar's energy and transportation group president, told analysts in an industry conference webcast. "Based on these factors we don't see a significant increase in demand for our products for the remainder of 2016."

    Caterpillar, the world's largest manufacturer of heavy equipment, is restructuring its businesses as demand has slowed for construction, mining, and energy and transportation products since 2012. It has slashed 13,900 jobs worldwide since mid-2015, and said last month it planned more job cuts.

    Caterpillar in July posted a 16 percent drop in total sales to $10.34 billion for the second quarter. Energy and transportation sales fell 20 percent to $3.750 billion as oil prices dropped.

    "While sales were down in almost all of our end markets, almost 80 percent of the decline was in oil and gas and transportation," Umpleby said.

    Brent crude futures LCOc1, the global oil price benchmark, traded at an average of $45 a barrel during the second quarter, down from an average $62 a barrel a year earlier and $107.23 in the second quarter in 2012.

    The most significant impact of the oil price decline is on the sale of reciprocating engines used for gas gathering, drilling, well servicing and production, Umpleby said.

    "If we look at the percentage drop, it is so significant, that there isn't that much room to fall, frankly," he said, referring to the engine sales.

    Demand for energy and transportation products is not expected to recover this year, Umpleby said. He added that recovery would only come when oil prices rise and stabilize and customers work through a backlog of equipment.

    In China, Caterpillar expects industry sales of excavators to be "about flat, maybe up a percent to 2 percent," Amy Campbell, Caterpillar's investor relations director, said in the webcast.

    "Total excavator sales in China are off maybe 80 percent from the peak but appeared to have maybe at least leveled out in 2016 versus 2015," Campbell said.
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    Glencore’s Coal, Copper Zinc Output Decline ferrochrome up

    Glencore Plc’s production of copper, coal and zinc fell in the second quarter after the commodities trader closed mines in response to a rout in prices that’s eroded profits.

    Zinc output slid 33 percent to 249,400 metric tons in the second quarter from a year earlier, the Baar, Switzerland-based company said in a statement on Thursday. Copper production declined 3 percent to 368,000 tons and coal output dropped 12 percent to 29.1 million tons.

    A slump in metal, coal and iron-ore prices has forced miners around the world to shutter unprofitable operations. Billionaire Chief Executive Officer Ivan Glasenberg has engineered a turnaround plan at Glencore by selling assets, reining in spending and cutting costs to help cut its debt which stood at about $30 billion at the start of last year. The stock has more than doubled in London this year after ending 2015 as the second-worst performer in the FTSE 100 Index.

    Glencore on Thursday guided higher 2016 ferrochrome and nickel production – the only two of its wide range of commodities that it expects to produce at levels higher than in 2015.

    Nickel output gained 18 percent to 29,500 tons in the period while lead production rose 6 percent 74,300 tons.

    The company increased its full-year estimate for copper output by about 20,000 tons to about 1.4 million tons due to a strong performance from its Collahuasi mine. It trimmed its coal prediction by 5 million tons to about 125 million tons. Its oil-production forecast was lowered by 200,000 barrels to about 8 million barrels after reducing output in Chad because of reduced prices.

    Glencore has previously said it will reduce copper output by about 7.5 percent this year and cut zinc supply by a quarter as it adopted a “disciplined approach” during periods of low prices.
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    Noble Group swings to second-quarter net loss, restructuring gathers pace

    Struggling Noble Group reported a second-quarter loss and said it will cut debt further as the commodities trader closed some of its low-return businesses to weather a brutal commodities downturn and regain investor confidence.

    "We continue to rationalize our businesses in order to focus on liquidity and to reallocate capital to the franchise businesses that offer strong immediate returns," the Singapore-listed company said in a statement on Thursday, adding that it expects to complete this restructuring by the end of the year.

    Revenue at the Hong Kong-based company fell 32 percent to $12.5 billion in the quarter ended June and it swung to a net loss of $54.9 million from a profit of $62.6 million a year ago.

    The quarterly results are the first after CEO Yusuf Alireza quit unexpectedly two months ago. In June, the company unveiled a $500 million cash call after finalizing a multi-billion dollar credit facility and said founder and Chairman Richard Elman would step down within 12 months.

    Noble's troubles started 18 months ago when its accounts were questioned by Iceberg Research, sparking a collapse in its share price and ratings agency downgrades, forcing a sale of its assets to allay financing worries and weather the commodities downturn.

    Noble said the sale process of its retail energy unit in North America was progressing well and is targeted to close in the next few months.
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    Oil and Gas

    Oil Shorts at decade high.

    Hedge funds have gone all-in on lower oil prices, counting on seasonal weakness to play out again this year.

    Money managers increased wagers on declining crude prices to a record as futures dropped to the lowest in more than three months. U.S. crude inventories climbed for a second week as imports arrived at the fastest pace since 2012. The supply gain comes on the cusp of seasonal refinery maintenance that will curb crude demand. Futures have declined in each of the past five Septembers.

    "We’re are entering a period of seasonal maintenance, which should put some downward pressure on prices," said Scott Roberts, co-head of high yield investments and manager of $2.7 billion at Invesco Advisers Inc. in Atlanta. 

    Hedge funds increased their short position in West Texas Intermediate crude to 218,623 futures and options combined during the week ended Aug. 2, the highest in data going back to 2006, according to the Commodity Futures Trading Commission. 

    WTI closed 22 percent below its June peak on Aug. 1, meeting the common definition of a bear market. It dropped 7.9 percent to $39.51 a barrel in the report week. Prices climbed 2.9 percent to close at $43.02 on Monday.

    U.S. crude supplies rose to 522.5 million barrels as of July 29, the highest seasonal level in decades, Energy Information Administration data show. Imports climbed to 8.74 million barrels a day, the most since October 2012.

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    Rosneft announces second quarter and first half 2016 operating results

    Average daily hydrocarbon production 5.22 mmboe, a 0.2% increase compared to Q1 2016, with oil production growth by 0.5% to 4.11 mmbpd

     Development drilling grew by 48% in H1 2016 in accordance with the business plan

     Gas production was up by 7% to 33.23 bcm against to H1 2015 due to new capacity additions

     Refining throughput optimization with light product yield improvement to 55.8% in H1 2016


    Q2 2016 showed the upward trend in hydrocarbon production (0.2% growth vs. Q1 2016), despite the seasonal decline in gas consumption. Production level reached 5.21 mmboed in H1 2016, increasing by 0.7% vs. H1 2015.

    In 2Q 2016, the Company continued to intensify development drilling, having increased this indicator by 16% compared to Q1 2016 to 2.4 mn m. The footage of development drilling increased by 48% t? 4.5 million meters in H1 2016. In June 2016, a new record in daily drilling footage was set at all producing assets of the Company: 40,339 m, translating into record 1,010,684 m drilled throughout the month. New wells commissioning rose by more than 50% compared to H1 2015 to reach 1.2 thousand wells with the share of horizontal wells remaining at about 30% in accordance with the targets established for the year. The share of in-house services in the total drilling footage consistently exceeds 50%.

    Liquid hydrocarbon production in Q2 2016 increased by 0.5% vs. Q1 2016 up to 4.11 mmbpd. The key brownfield asset Yuganskneftegaz has shown an upward production trend (+1.5% vs. Q1 of 2016). There were also further improvements at the fields of RN-Severnaya Neft (+3.3%) and on the Sakhalin-1 project (+3.1%).

    In 2Q 2016, RN-Uvatneftegaz set a new record in the commercial drilling rate in mainland Russia. The 2,639 m deep well was drilled in 6.5 days. The previous record in commercial drilling rate that was also set at Uvat project in November 2015 was exceeded by 242 m/rig per month (+2%).

    In 2Q 2016, six new horizontal wells targeting BV8 (1-3) were commissioned at the Samotlor field with an average start-up flow rate of over 300 ktpd.

    The Company continues preparation for the commissioning of the Phase 1 of the Suzun field development scheduled for September 2016. In Q2 2016, construction approached the final stage, and pre-commissioning and start-up operations entered the active phase at all infrastructure facilities involved in the trial start-up process: 1st Start Up Complex of Oil Treatment Facility with capacity of 4.5 mmtpa and the pipeline from Suzun OTF to Vankor OTF, and infrastructure setup at 6 well pads.Preparation of the site for construction of a new 150 ?Wt gas-turbine power station Polyarnaya at the Vankor field was started in April 2016. A new power station will be using the existing infrastructure to satisfy the growing demand for electric power at the Vankor cluster fields - Suzun, ??gul and Lodochnoye fields, which are currently at different stages of development. Three 110 KV substations and 170 km of 110 KV electric power transmission lines will be built for this purpose.

    Gas production amounted to 33.23 bcm in H1 2016 , which is 6.9% higher than in H1 2015. Growth in gas production was driven by the launch and trial run of the 2nd stage of Novo-Urengoy gas and condensate treatment facility (Rospan) in Q4 2015 and the commissioning of a gas treatment unit at Barsukovskoe field (RN-Purneftegaz) in December 2015, and by development of the Northern Chaivo (RN-Shelf Dalny Vostok) in the Sakhalin shelf.

    Associated petroleum gas (APG) utilization level increased to 90% in H1 2016, compared to 87% in H1 2015.

    In H1 2016, over 2,400 km of onshore 2D seismic surveys, and over 4,800 of onshore 3D seismic surveys were acquired, exceeding the results of H1 2015 by 17% and 10% respectively. A total of 11 exploration and appraisal wells were tested with a success rate of 91%. 42 new deposits and 4 new fields were discovered with ABC1 + C2 reserves of about 35 mmtoe.

    In H1 2016, 2D and 3D seismic acquisition operations started at Albanovsky and Vostochno-Pribrezhny license blocks in the Barents Sea and the Sea of Okhotsk. Preparation is underway for the full-scale exploration in the license blocks of the Laptev Sea, East Siberia Sea, Chukchee Sea, Kara Sea, Barents Sea and the Black Sea, that will include 2D and 3D seismic surveys, airborne gravity and magnetic surveys, geochemical surveys, and site investigation surveys.

    Jointly with its strategic partner Statoil, the Company started drilling two exploration wells in Magadan-1 and Lisyanskiy areas of the Sea of Okhotsk under the carry financing arrangement. Modern drilling equipment prepared in a special way and upgraded, was employed for this purpose.

    In April 2016, Rosneft commenced the drilling of an extended-reach horizontal development well at Lebedyanskoye oil and gas condensate field in the continental shelf of the Sea of Okotsk. The well with the measured depth of over 5, 000 m was constructed and completed in July 2016 with the start-up flow rate over 400 kbpd. A total of three horizontal production wells with the length of 5, 000 to 7, 000 m are to be drilled within the project scope.

    Drilling operations carried out in the shelf of Vietnam from Hakuryu-5 semi-submersible drilling rig were completed in Q2 2016. Drilling operator is RN-Vietnam. PLDD well discovered Wild Orchid gas condensate field at Block 06.1. Volume of reserves and commercial attractiveness of the discovery are to be confirmed. There is a potential synergy, given the proximity of Lan Tay platform which is also operated by RN-Vietnam.

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    Militants blow up Nigeria pipeline, Chevron protest goes on

    Militants blew up another crude pipeline in Nigeria's Niger Delta, a youth and protest leader said on Thursday.

    Protesters also continued to block the entrance to a Chevron oil depot in the restive southern region for a third day.

    On Wednesday, a previously unknown group called Delta Greenland Justice Mandate said it had attacked a crude pipeline belonging to state oil firm NNPC and local firm Shoreline Natural Resources in Urhobo in Delta state.

    "It is true but I don't have details yet," said Collins Edema, a youth leader. He said the pipeline was on fire, but Reuters was unable to confirm this and it was not immediately possible to get more details.

    He also said protesters, mostly unemployed youths, were continuing a demonstration started on Tuesday at the gate of a Chevron oil depot to demand jobs and housing, claiming the facility had destroyed their settlement.

    "Our protest is going on peacefully today on Thursday. Our community workers inside the tank farm have joined the protest as we speak," Edema said.

    "Nobody is going in and out of the facility since we've started but Chevron has airlifted their senior staff from there," he said, a claim Reuters could not verify.

    Chevron confirmed a protest had taken place but did not say whether oil production had been affected.

    Edema said the protesters might shut down Chevron's crude flow in Abiteye, Jones Creek and other operations in the area if the company does not agree to their demands.

    Communities in Nigeria's southern swampland often complain about oil pollution and houses being moved to make way for drilling. They also say they live in poverty despite sitting on much of Nigeria's oil wealth. The Niger Delta region has been hit by a wave of militant attacks on oil and gas pipelines, reducing Nigeria's crude output by 700,000 barrels a day, according to state oil company NNPC. The militants, which are splintered in many groups, say they want a greater share of Nigeria's oil wealth - which accounts for around 70 percent of national income - to be passed on to communities in the impoverished region and for areas blighted by oil spills to be cleaned up.
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    Iraq agrees deals with BP and Shell to restart shelved projects, report says

    Iraq and a group of major oil companies includingBP and Royal Dutch Shell have agreed to resume production of several development projects in the country that had been mothballed due to low oil prices, reports revealed on Thursday.

    Iraq oil officials have come to agreements with BP, Shell and Russia's Lukoil to restart investing in oil field developments that are expected to see crude production increase next year, Reuters reported.

    The Iraqi officials suggested the country's crude output should increase by 250,000-350,000 barrels per day (bpd) in 2017 from the current 4.6m bpd, adding to existing oversupply concerns.

    On Thursday oil prices were on the slide again, while the market continued to digest the US Energy Information Administration revised its outlook for US crude production higher.

    West Texas Intermediate crude was 0.4% lower to $41.54 per barrel and Brent was at $43.99.

    Oil prices have recently entered what analysts atRBC Capital Markets called "a sort of bear trap", as despite daily global supply nearing the point where its overhang turns to a deficit, "a deluge of bearish headlines has kept the market on its heels".

    2016 has seen the 'fragile five' sovereign producers - Iraq, Algeria, Nigeria, Libya, and Venezuela - struggle, while traders worry that Nigeria and Libya will soon add to the oversupply.

    RBC believes the most significant bearish risks are overdone or have already been largely priced in.

    "We maintain our conviction that oil prices will grind higher through the balance of this year and into next (even if choppy in the near term), barring a significant deterioration in the 'macroverse'," analysts wrote on Wednesday.

    "In our view, investors should remain cognizant of the distress remaining across much of OPEC (namely Nigeria and Libya) and should side-step the numerous bear traps lurking in the market."

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    Petrobras Swings to Profit on Rising Crude Output, Exports

    A recovery in oil output and exports helped Petrobras reverse three quarters of straight losses as the Brazilian producer emerges from two years of graft investigations and falling crude prices.

    The rising production and shipments helped compensate for falling fuel demand amid Brazil’s ongoing recession, the company said in a filing Thursday. Petroleo Brasileiro SA, as the Rio de Janeiro-based producer is formally known, also reduced spending on offshore well interventions.

    "Petrobras is one of the very few companies in the world that has succeeded at increasing output even amid the oil downturn," Luana Siegfried, an equity research associate at Raymond James, said by phone from Houston.

    Petrobras is trying to emerge from the combination of a domestic recession, persistently low oil prices and a sweeping corruption scandal that has triggered a series of write-offs and a class-action lawsuit in the U.S. The company is pursuing spending cuts and is negotiating discounts with oil rig suppliers to help reduce debt.

    “Petrobras is becoming more predictable,” Chief Financial Officer Ivan Monteiro told reporters in Rio.

    Pedro Parente, who took over as chief executive officer on June 2, has made progress on a $15.1 billion divestment program designed to reduce the largest debt load in the industry. The producer’s debt surged during the commodities boom because the company was selling imported fuel at a loss to help the government control inflation, and invested heavily in unprofitable refineries. Reducing debt through partnerships and asset sales is one of the company’s biggest challenges, Parente said on Aug. 3.

    The producer reported a second-quarter profit of 370 million reais ($118 million), compared with 531 million reais a year earlier, according to the filing. The state-controlled oil company posted 20.3 billion reais in adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda. That was in line with the 21 billion-real average of four analyst estimates compiled by Bloomberg.

    Petrobras booked a 1.2 billion-real impairment after reviewing its Comperj refinery project. A voluntary dismissal program cost another 1.2 billion reais during the quarter, and the company also accounted for some licenses it returned to the oil regulator. Those charges were the reasons why the producer’s net income missed some forecasts, Monteiro said.

    "These three non recurrent items explain the difference between what analysts expected and the company’s results," Monteiro said.

    Potential buyers have expressed growing interest in assets Petrobras plans to sell, including the propane unit Liquigas Distribuidora SA and BR Distribuidora, a fuel distribution unit, Monteiro said. The company continues to hold talks with Brookfield Asset Management Inc. to sell a stake in the Nova Transportadora do Sudeste SA pipeline network, he said.

    Petrobras is sticking to its divestment target and has already agreed to sell almost $4.6 billion assets in Argentina, Chile and Brazil, including a majority stake in the Carcara offshore oil field to Statoil ASA for $2.5 billion. The company plans to release a new strategic plan in September.
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    Wood Group, trade unions suspend strikes on Shell's North Sea platforms

    Wood Group and trade unions Unite and RMT have agreed to suspend strikes announced on Tuesday and restart the process to resolve a dispute over pay cuts and working conditions for Wood Group workers employed on Shell's North Sea oil and gas platforms.

    The trade unions said they had planned strikes by workers of Wood Group, an energy services company, on Curlew, Brent Alpha, Brent Bravo, Nelson, Gannet, Shearwater, Brent Charlie platforms starting Aug. 15 through Sept. 3.

    A Shell spokesman said the company encourages Wood Group's employees and management to continue their discussions in an effort to reach agreement.

    Hundreds of maintenance workers on North Sea platforms had started a 48-hour strike over a pay dispute but field production or maintenance schedules were not affected, Shell said on Aug. 4.

    As many as 120,000 oil workers are expected to have lost their jobs by the end of this year in an industry-wide clampdown on costs as weak oil prices have reduced profits.
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    Time to Pay Attention to What Oil Dudes Call ‘Other’: Chart

    Image title 

    The U.S. Energy Information Administration reported another overall expansion in oil stockpiles in the week to Aug. 5. The culprit: Crude oil? Gasoline? Diesel? Not this time: all the big growth was in the category called ‘other’. While total oil and product inventories grew by 2.5 million barrels, those in the ‘other’ grouping -- stuff like vacuum gasoil, natural gas liquids and blending components -- expanded by 3.6 million barrels to a record.

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    WellDog Launches Shale SweetSpotter After Successful Marcellus Test

    WellDog (what a great name!) announced on Monday the launch of a new service called Shale SweetSpotter (another great name!).

    Clever marketing folks at WellDog, we’ll grant them that. Shale SweetSpotter is “the first commercial reservoir-evaluation analysis technology specific to unconventional natural gas.” In English please!

    “We’ve just developed a way to tell drillers where oil and gas is locked away in shale layers in the acreage they’ve leased.”

    Apparently it’s pretty darned good. WellDog partnered up with Shell to test their service in the Marcellus and the field trials were declared “successful”…
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    Heatwaves and low prices tighten U.S. gas market

    Unusually hot weather coupled with cheap fuel prices caused U.S. power producers to burn a record volume of gas last month to meet soaring demand for electricity for airconditioning.

    April and May were cooler than normal across the continental United States, depressing airconditioning demand, but June and July were both much hotter than usual ( and

    The result is that power producers’ gas consumption has surged during June and July and the volume of gas put into storage has been much lower than usual for the time of year (

    The particularly intense heatwave during the second half of July sent daily gas burn surging to a record and resulted in a highly unusual summer-time drawdown in gas stocks in the week ending on July 29.

    Over the last week, temperatures have been close to normal. But another heatwave is starting and is expected to persist through the rest of the week, driving up gas consumption again (

    According to the U.S. Energy Information Administration, U.S. power producers generated 4,950 gigawatt-hours from gas-fired units in July, an increase of 9 percent from the previous record set in July 2015.

    Power plants consumed an estimated 36.8 billion cubic feet of gas per day in July, up 8 percent compared with the same month in 2015 (“Short-Term Energy Outlook”, EIA, Aug 2016).

    The record gas burn reflects a combination of a structural shift (coal-fired power stations are being phased out in favor of cleaner burning gas units), weather (temperatures were well above normal in June and July) and fuel prices (gas is currently competitive with other sources of generation).

    Gas-fired generation has been increasing since the late 1980s because gas units are quicker and cheaper to build, offer more operational flexibility, and have fewer environmental problems.

    Gas-fired plants accounted for almost 33 percent of all utility-scale power production in 2015, up from 28 percent in 2014 and 20 percent in 2006, according to the Energy Information Administration.

    Because of their greater operational flexibility, gas-fired plants are used to meet marginal electricity demand in summer when consumption peaks as temperatures rise and airconditioners crank up.

    In most years, electricity consumption peaks in July or August, when temperatures are normally highest, and July and August are also the months when power producers burn most gas.

    Power producers’ gas combustion is therefore closely tied to average temperatures and July 2016 was one of the hottest on record (

    Low fuel prices accelerated the shift toward gas during the first half of 2016.

    For much of the first half of the year, gas prices were among the lowest for more than a decade, encouraging maximum gas use.

    Low gas prices have also caused gas production to plateau after strong growth in 2014/15 ("U.S. gas prices must rise to rebalance the market", Reuters, Jul 15).

    Record gas combustion by power producers has helped draw down the large volume of natural gas stocks which built up during 2015 and the first few months of 2016.

    Gas stockpiles remain at a record level for the time of year but have been building more slowly than usual and the year-on-year surplus has been shrinking consistently since April.

    Gas stocks are now just 378 billion cubic feet (13 percent) higher than at the corresponding point in 2015, down from a surplus of 1,014 billion cubic feet (69 percent) in March
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    Canada's Crescent Point posts smaller loss as costs fall

    Crescent Point Energy Corp reported a smaller quarterly loss as Canadian oil and gas producer cut costs.

    Oil and gas producers, faced with prolonged weakness in crude prices, have been slashing dividend, curbing capital spending and scaling back drilling activity.

    Crescent said on Thursday its cost reduction initiatives helped lower "transportation and hauling, chemical, labor and service costs, as well as logistics around maintenance."

    Operating costs totaled C$331 million ($254 million) in the first half of 2016, about C$40 million lower than its estimate.

    Crescent said it expected average operating expenses to be about C$11.40 per barrel of oil equivalent (boe) for 2016, about 85 Canadian cents lower than the original estimate.

    Crescent maintained its full-year capital budget of C$950 million and production forecast of 165,000 barrels of oil equivalent per day (boepd). It said it would revisit the numbers in the second half of the year.

    The company has hedged 45 percent of its oil production for the rest of the year and 29 percent for the first half of 2017, taking advantage of recent rise in oil prices.

    U.S. benchmark oil prices have shot up nearly 60 percent since they touched a 12-year low of $26 in February.

    The Calgary-based company's net loss narrowed to C$226.1 million, or 45 Canadian cents per share, in the second quarter ended June 30 from C$240.5 million, or 53 Canadian cents per share, a year earlier.

    Production rose 10.3 percent to 167,218 boepd.

    However, funds flow, a measure of the company's ability to fund new drilling, fell by nearly a quarter to C$404.4 million due to lower oil prices.
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    SailingStone Capital Buys 11% of Range Stock, Gets Board Seat

    Investment firm SailingStone Capital Partners recently purchased enough stock that the firm now owns 11% of Range Resources.

    That’s more than enough to exert great power and control. And so they have. That 11% stake in the company has “encouraged” (forced?) Range to grant SailingStone a seat on the board of directors.

    We were, at first, concerned. Is this yet another corporate raider out to force a company (Range) to layoff employees and sell assets in a bid to force the stock price higher so they can dump it and make a big profit? We don’t think so.

    We find no evidence that SailingStone is anything other than an investor with a lot of money who likes what they see in Range.
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    U.S. weather forecaster maintains forecast for La Nina in fall or winter

    A U.S. government weather forecaster on Thursday reduced its outlook that La Nina conditions would develop in next few months but said it still expected the weather phenomenon to occur this fall or winter.

    The National Weather Service's Climate Prediction Center said in its monthly forecast that La Nina was "slightly favored" to develop through October. That was a small change from July, when it stated the conditions were "favored" to occur.

    The agency maintained its forecast of a 55 percent to 60 percent chance that La Nina would develop during the fall and winter of 2016/17.

    La Nina, which tends to occur unpredictably every two to seven years, is characterized by unusually cold temperatures in the equatorial Pacific Ocean.

    The agency's predictions follow a damaging El Nino weather period. While typically less harsh than El Nino, severe La Nina occurrences have been linked to floods and droughts that can roil commodity markets.

    Colombian coffee farmers are already bracing for torrential rains associated with La Nina that can damage crops, and cooler temperatures across the United States could boost demand for heating oil.

    Slightly below-average sea surface temperatures across the eastern equatorial Pacific Ocean were observed during the past month, the government forecaster said, adding the event would likely be weak if it occurred.

    The agency's expectations for a La Nina have dropped substantially since June, when it said there was a 75 percent of one developing this fall and winter.
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    EU regulators to investigate Dow, DuPont $130 billion merger

    EU antitrust regulators have opened a full investigation into Dow Chemical and DuPont's proposed $130 billion merger, saying the deal may reduce competition in crop protection, seeds and some petrochemicals.

    The European Commission said the deal, which would create the world's largest integrated crop protection and seeds company, may also hurt innovation.

    "The livelihood of farmers depends on access to seeds and crop protection at competitive prices. We need to make sure that the proposed merger does not lead to higher prices or less innovation for these products," European Competition Commissioner Margrethe Vestager said in a statement on Thursday.

    The EU competition enforcer said concessions offered by the companies last month were insufficient to allay its concerns. Neither the Commission nor the companies provided details on the offer. The regulator delayed its final decision on the deal to Dec. 20.

    Dow Chemical and DuPont said they would work constructively with the Commission to address its concerns and that they still expected the deal to close by the end of 2016.

    Both companies are major suppliers of herbicides, insecticides, leading producers of gene editing technology as well as strong suppliers of specialty polyolefins which are widely used in packaging and adhesive applications.

    The sector has seen a consolidation surge in recent months as companies bulk up to better compete with rivals.
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    Base Metals

    Ivanhoe says Congo copper find may be Africa’s most significant

    Results from drilling at a copper deposit in the Democratic Republic of Congo being explored by Ivanhoe Mines Ltd. show what may prove to be the most significant discovery of the metal in Africa, the company said.

    The find at Kakula, in the southern portion of Ivanhoe’s Kamoa project, is “enormous,” Ivanhoe Mines DRC MDLouis Watum said at a conference in the capital, Kinshasa. Discussions are under way to decide on how the “unbelievable” discovery might affect the development strategy for the project, he said.

    “Earlier discoveries already have established Kamoa as the world’s largest, undeveloped, high-grade copper discovery,” CEO Robert Friedland said in a separate statement. Kakula “could prove to be Africa’s most significant copper discovery,” he said.
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    Glencore can't find buyer to pay up for Lomas Bayas

    Mining and commodities giant Glencore is not selling its Lomas Bayas copper mine, after offers for the property in Chile’s Atacama desert came in below expectations according to media reports.

    Reuters reports the mine was expected to fetch about $500 million, but "according to people familiar with the situation" Glencore is ditching disposal plans for the moment partly because even after three rounds of bidding it couldn't get the right price.

    Potential bidders were said to include former Barrick Gold CEO Aaron Regent's company Magris Resources, Chilean energy firm Copec and various private equity firms.

    In October last year, the Swiss firm confirmed it had received a number of unsolicited expressions of interest for the Lomas Bayas open-pit operation and also its Cobar mine in Australia’s New South Wales.

    Glencore is in the midst of a program of asset sales, share offerings and other money raising efforts including by-product forward sales to reduce its  debt load.

    Lomas Bayas — acquired by Glencore as part of its 2013 takeover of Xstrata —produced some 35,000 tonnes in the half-year to end June 2016 according to Glencore production results released today. Cobar produced 24,800 tonnes over the same period.

    Glencore said its own sourced copper production of 703,000 tonnes was 4% down on H1 2015, due to the previously announced curtailments at its Zambian operations which was partly offset by generally higher grades in South America.
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    Philippines suspends two more mines in environmental clampdown

    The Philippine government has suspended operations at two more mines due to environmental violations in an ongoing audit of the country's mining sector, officials said on Thursday.

    The move raises the number of suspended mines to 10 - eight of them nickel ore producers - since the Southeast Asian nation launched a review of all mines on July 8.

    The closures and the threat of more mines getting hit in the world's top nickel ore supplier lifted prices of the metal to a one-year high of $11,030 a tonne on Wednesday. 

    The latest suspended mines are operated by Emir Mineral Resources Corp, which produced 150,000 tonnes of nickel ore last year, and Mt. Sinai Mineral Exploration Corp, which extracted 50,000 tonnes of chromite, Environment and Natural Resources Secretary Leo Jasareno told a media briefing.

    Both mines are privately owned and located in the central Samar province, primarily supplying China.

    The audit found that operations at the Emir Mineral and Mt. Sinai mines have caused silt build-up in coastal waters and deforestation, said Jasareno.

    "All suspension orders are indefinite," he said.

    Excluding Emir Mineral, Jasareno said the seven suspended nickel mines accounted for about 8 percent of the Philippines' output of the metal last year.

    The Philippines is the top nickel ore supplier to China, shipping 34 million tonnes in 2015.


    Separately, Environment and Natural Resources Secretary Regina Lopez said the $5.9 billion Tampakan gold-copper project in the southern island of Mindanao should not have been given a clearance that would allow it to proceed.

    "That project should never have been given an ECC (environmental compliance certificate)," Lopez said.

    Tampakan is the Philippines' biggest stalled mining venture and a cancellation of its environmental permit - granted in 2013 - could further delay it or end it completely.

    Commodities giant Glencore Plc quit the project last year following the delays that have hampered its development since the province where it is located banned open-pit mining in 2010.

    The planned mine would cover an area the size of 700 football fields in what otherwise would be agricultural land, said Lopez.

    "You can't have mining in the food basket of Mindanao," she said.

    The government will give Sagittarius Mines Inc, which runs Tampakan, a week to explain why its environmental permit should not be revoked, said Lopez.

    Sagittarius Mines officials did not immediately respond to a request for comment.

    Lopez said her agency has also asked top domestic coal miner Semirara Mining & Power Corp to explain environmental violations including siltation of nearby waters and air pollution.

    But it would be hard to just shut Semirara's operations, she said, because that might lead to power outages given the Philippines' heavy reliance on coal-fired generators.

    Semirara said in a stock exchange filing that it has yet to receive any order from the mining agency, but that it has been compliant with all relevant laws.
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    Steel, Iron Ore and Coal

    China cuts coal production capacity by over 95Mt

    China has cut its coalproduction capacity by more than 95-million tonnes by the end of July, the National Development and Reform Commission said on Thursday.

    The cuts represented about 38 percent of this year's capacity reduction target of 250-million tonnes, it said.
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    China moves to spur slow coal overcapacity cut

    China's National Development and Reform Commission (NDRC) ordered local governments to speed up measures to cut excess coal production capacity as progress was slow.

    "Local governments should strive to fulfill their targets by the end of November, while central and provincial state-owned coal producers should complete in the early part of that month," Lian Weiliang, deputy head of the top economic planner, said when addressing an internal meeting on August 11.

    Lian's remarks followed data that during the first seven months China had only achieved about 95 million tonnes, or 38% of its annual coal-production reduction goal, which is around 250 million tonnes.

    Some 21 provinces have cut excessive capacity, but the authority said the progress was lagging behind the official schedule by the end of July.

    According to Lian, there has been no practical progress in Inner Mongolia, Fujian, Guangxi, Ningxia and Xinjiang, while Jiangxi, Sichuan and Yunnan have finished less than 10%.

    Authorities must strengthen enforcement, Lian said, adding that punitive measures including forced shutdowns can be taken on factories that dawdle.

    The authority said it would also push for government spending to help ease the pain for cash-strapped coal companies, under mounting pressure to reallocate their laid-off workers.

    China said in February it expected to lay off 1.8 million workers in the coal and steel industries, or about 15% of the workforce.

    The government is supporting banks to convert the coal company's non-performing loans to other assets backed securities, said the NDRC, after the coal province Shanxi allowed offers of the country's first credit default swaps (CDS) last week.

    China is the world's largest producer and consumer of coal and steel. The two industries have long been plagued by overcapacity and have felt the pinch even more in the past two years as the economy cooled and demand has fallen.

    The government has made reducing excess capacity a top priority, with plans to cut steel and coal capacity by about 10% -- as much as half a billion tonnes of coal and 150 million tonnes of steel -- in the next few years.
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    Shenhua H1 net profits slide 19pct on year

    China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, realized net profit of 9.83 billion yuan ($1.48 billion) in the first half of the year, sliding 18.6% year on year, announced the company on August 10.
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    NSW to pay BHP $170 mln to repurchase coal exploration permit

    New South Wales agreed to pay BHP Billiton A$220 million ($170 million) to buy back a coal exploration licence that extends under prime farmland in the state's eastern Liverpool Plains, the government said on Thursday.

    "After careful consideration, the NSW Government has determined that coal mining under these highly fertile black soil plains... poses too great a risk for the future of this food-bowl and the underground water sources that support it," Premier Mike Baird said in a release.

    The agreement relates to a commercial exploration licence in the state's northeast, at Caroona, for underground coal mining covering approximately 344 square kilometres. BHP bought the licence for A$100 million in 2006.

    "While we believe that Caroona would have been developed responsibly, we accept the Government's decision and appreciate its willingness to work with us to agree an acceptable financial outcome for the cancellation of our exploration licence," BHP Billiton Minerals Australia President Mike Henry said in a statement.

    Baird also indicated that negotiations with China Shenhua Energy Co Ltd, whose Watermark coal mining title extends into the area, had also begun.

    China Shenhua did not immediately respond to an emailed request for comment.

    Shenhua bought a licence to develop the A$1 billion Watermark thermal and semi-soft coking coal project seven years ago, but development was delayed following lengthy assessments and modifications to plans in response to concerns raised by farmers.
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    A R17bn investment in the Waterberg

    In what may be the biggest new coal mine developed in the world in 2016, ASX- and JSE-listed Resource Generation (ResGen) announced on Monday  – through its project vehicle Ledjadja Coal – it had reached a commercial agreement to secure a funding package of R5.53 billion to continue the development of the Boikarabelo coal mine in Limpopo’s Waterberg region.

    The company has already invested R2 billion in the project and was arranging financing terms last year when a group of controlling shareholders, led by Altius Investment Holdings, had a disagreement with management that led to their ouster.

    Rob Lowe, the chief executive of Altius, has now assumed the role of CEO of Resource Generation. “According to our base case financial model, no further equity will be required. So the R5.53 billion will comprise various forms of debt,” says Lowe. The senior portion will be provided by Rand Merchant Bank and Noble Group; while the mezzanine layer and preference share structure will be jointly provided by the Public Investment Corporation (PIC) and the Industrial Development Corporation (IDC). The first draw-down will be from cash at the company’s disposal. The Noble Group, who are 13.7% shareholders in the company, will also provide a cost-overrun facility.

    The funding package will comprise both US dollar- and rand-denominated loans. “The split will be roughly two-thirds rand, one-third US dollar. This is because there are substantial components of the wash plant that will be bought in dollars, and with over 60% of the company’s expected revenues being received in hard currency, we thought it was a natural hedge to borrow in dollars,” says Lowe.

    The company is targeting credit approval and financial close by the end of October this year and anticipates completing construction by September 2018. The first production is expected in the fourth quarter of 2018. “We expect to ramp-up to full capacity in the fourth quarter, such that we will meet the run-of-mine target rate of 12 million tonnes per annum,” says Lowe. This should provide six million tonnes of saleable coal a year, comprising 3.6 million tonnes of export coal and 2.4 million tonnes of domestic coal. “But we have full optionality in our wash plant and logistics, so if there is no appetite for domestic coal, we can move all of it for export,” says Lowe.

    While discussions with Eskom are ongoing for the domestic coal, Noble Group have a 35-year marketing agreement to handle the export component. The company already has contracts in place to supply end users (power stations) on the Indian sub-continent.

    Regarding logistics for export and domestic coal, a rail line will be constructed from the mouth of the mine to connect with the Lephalale-Witbank main line. This will allow ResGen to supply power stations in the Witbank area via rail, with export coal moving onward to Richards Bay. The primary port facility will be RBTG (Grindrod) which is in the process of being upgraded to the point where it can accommodate all of Boikarabelo’s saleable production, if needs be.

    In parallel with the mine, ResGen is also mulling its options on the proposed coal IPP, which could cost in the region of R8-10 billion, depending on which configuration is pursued. “The IPP is being fast-tracked in parallel with the mine, but they are not interdependent,” says Lowe. The company has approvals in place (environmental, land, and water) to build a 300 Mega Watt (MW) coal-fired power station. But the results of a recent feasibility study indicate the company might be better served building a larger plant – in the region of 450–600 MW. “We are committed for the 300 MW, but the question is whether we will be able to increase that to 450-600 MW in time for the Department of Energy’s second IPP window which is scheduled to open in 2017,” says Lowe.

    The IPP will be developed by ResGen using other shareholders – the contractor (who would also become a shareholder) will most likely be Japanese or South Korean. The company is investigating power offtake agreements with Eskom and third parties.

    A potential R10 billion investment in the construction of the IPP along with the R7.5 billion invested in the mine would certainly transform the Waterberg from an economic development point of view. The mine is located 50 kilometres west of Lephalale and is bordered to the north by the Limpopo. ResGen anticipates 3 000 temporary jobs will be created during construction, with 685 permanent jobs in Phase 1 of the mine that follows. The investment will add an estimated R250 million to the local economy.

    “I think it’s a really good news story. There have been lots of people that have been sceptical, and we have been able to show everyone that the Waterberg can become a serious new source of coal and energy, so we are very excited,” says Lowe. He also believes the project is a demonstration of what can happen when there is co-operation between the public and private sectors. “The PIC, IDC and Transnet Freight Rail have all been incredible, as have the Departments of Economic Development and Mineral Resources.”
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    Eskom strike averted

    The deadlock in the Eskom wage negotiations has been broken following a 14-hour marathon wage negotiation process, averting a potentially costly strike for the already ailing SA economy.

    Eskom spokesperson Khulu Phasiwe said in a Facebook post on Friday that after the "14-hour marathon wage negotiation process that was brokered by the CCMA until the early hours of this morning, both NUM and Solidarity have signed a wage increase of between 8.5% and 10%, with the lowest paid workers getting a 10% pay rise for the this year".

    In the second year, all workers will receive a pay rise of 8%, he wrote.

    He said Numsa has not signed the deal yet, but they have, in principle, accepted the settlement offer.

    The National Union of Mineworkers (NUM) is also in the process of mobilising all its members to return to work, Phasiwe wrote.

    The breakthrough comes after the Commission for Conciliation, Mediation and Arbitration (CCMA) stepped in on Wednesday to defuse the wage dispute between Eskomand the NUM, National Union of Metalworkers of South Africa (Numsa) and Solidarity.

    This follows as Eskom on Tuesday obtained a court interdict against striking NUM members. NUM national spokespersonLivhuwani Mammburu, told Fin24 the union was not aware of the interdict when it called a national strike, following its national shop steward council meeting on Tuesday.

    Before Friday's breakthrough, NUM already revised down its demand of a 12% wage increase to 10% for the lowest paid workers and 8.5% for the highest paid workers, said Mammburu. The housing allowance has also been revised down from R5 000 to R3 000.

    Numsa was demanding a 12% wage increase across the board and a housing allowance of R4 000. But the union was open to negotiations,  Vuyo Bikitsha, electricity sector coordinator for Numsa, told Fin24. The union did not embark on strike action.

    The utility also said on Thursday its operations had not been affected by the strike as 45 000 of its 47 000 workers had not downed tools.

    NUM has 15 000 members at Eskom.

    The stoppage at Eskom coincides with a strike over wages by around 15 000 workers in the petrochemical industry that has been going on since last week but has so far not caused any significant fuel shortages.
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    China daily steel output drops, offers some respite to glut woes

    China's average daily crude steel output fell in July from a record, government data showed on Friday, providing some respite to overseas rivals angered by a torrent of cheap steel from Chinese mills in the past year.

    The decline partly reflects China's efforts to address a chronic glut. Some analysts predict output may shrink further in the months ahead as more mills shut in a sector undergoing its most significant - and painful - restructuring in two decades.

    The pullback was also due to softer domestic demand, particularly around July as construction typically drops during the summer lull.

    Economic activity broadly slowed in July, with crude oil production sliding to its weakest level since October 2011 on a daily basis and coal output extending its slump.

    In the months ahead, further capacity cuts, mostly via stricter environmental controls, could continue to shrink China's steel output, said Richard Lu, analyst at CRU consultancy in Beijing.

    "Market participants are all expecting the government will take stronger measures to close capacity for the rest of the year," Lu said.

    Daily steel output averaged 2.15 million tonnes last month after a surprise increase to an all-time high of 2.32 million tonnes in June, according to Reuters calculations based on data released by China's National Bureau of Statistics.

    The decline was in line with a 5.9 percent drop in Chinese steel exports in July, though shipments remain elevated and total shipments in January-to-July were up from a year earlier.

    China has pledged to cut its steel capacity by around 45 million tonnes this year and by 140 million tonnes by 2020. Yet capacity reductions amounted to just 47 percent of China's annual target by end-July, suggesting tougher measures ahead.

    Some local governments have resisted Beijing's call for cuts in order to protect jobs and their economies.

    A speculation-induced spike in steel prices this year has also encouraged some Chinese producers to boost output for export to counter slower domestic demand. That has led to accusations from rival producers that China is selling into export markets at below cost, which the country has denied.

    On Friday, the most-traded rebar, used in construction, rose 0.27 percent to 2,578 yuan ($389) a tonne on the Shanghai Futures Exchange after the output data. The contract hit 2,639 yuan on Wednesday, its highest since April 26.

    For July, China's steel production rose 2.6 percent from a year earlier to 66.81 million tonnes, bringing output in the first seven months of the year to 466.52 million tonnes, down 0.5 percent.

    Output of steel products rose 4.9 pct to 95.94 million tonnes last month, and was up 1.9 pct over January-July to 657.05 million tonnes.
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